Federal Register, Volume 75 Issue 157 (Monday, August 16, 2010)

[Federal Register Volume 75, Number 157 (Monday, August 16, 2010)]
[Rules and Regulations]
[Pages 50042-50677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-19092]

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Part II

Book 2 of 2 Books

Pages 50041-50681

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 412, 413, 415, et al.

Medicare Program; Hospital Inpatient Prospective Payment Systems for
Acute Care Hospitals and the Long Term Care Hospital Prospective
Payment System Changes and FY2011 Rates; Provider Agreements and
Supplier Approvals; and Hospital Conditions of Participation for
Rehabilitation and Respiratory Care Services; Medicaid Program:
Accreditation for Providers of Inpatient Psychiatric Services; Final
Rule

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 415, 424, 440, 441, 482, 485, and 489

[CMS-1498-Fand CMS-1498-IFC; CMS-1406-F]
RIN 0938-AP80; RIN 0938-AP33

Medicare Program; Hospital Inpatient Prospective Payment Systems
for Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System Changes and FY2011 Rates; Provider Agreements and
Supplier Approvals; and Hospital Conditions of Participation for
Rehabilitation and Respiratory Care Services; Medicaid Program:
Accreditation for Providers of Inpatient Psychiatric Services

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

ACTION: Final rules and interim final rule with comment period.

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SUMMARY: We are revising the Medicare hospital inpatient prospective
payment systems (IPPS) for operating and capital-related costs of acute
care hospitals to implement changes arising from our continuing
experience with these systems and to implement certain provisions of
the Affordable Care Act and other legislation. In addition, we describe
the changes to the amounts and factors used to determine the rates for
Medicare acute care hospital inpatient services for operating costs and
capital-related costs. We also are setting forth the update to the
rate-of-increase limits for certain hospitals excluded from the IPPS
that are paid on a reasonable cost basis subject to these limits.
We are updating the payment policy and the annual payment rates for
the Medicare prospective payment system (PPS) for inpatient hospital
services provided by long-term care hospitals (LTCHs) and setting forth
the changes to the payment rates, factors, and other payment rate
policies under the LTCH PPS. In addition, we are finalizing the
provisions of the August 27, 2009 interim final rule that implemented
statutory provisions relating to payments to LTCHs and LTCH satellite
facilities and increases in beds in existing LTCHs and LTCH satellite
facilities under the LTCH PPS.
We are making changes affecting the: Medicare conditions of
participation for hospitals relating to the types of practitioners who
may provide rehabilitation services and respiratory care services; and
determination of the effective date of provider agreements and supplier
approvals under Medicare.
We are also setting forth provisions that offer psychiatric
hospitals and hospitals with inpatient psychiatric programs increased
flexibility in obtaining accreditation to participate in the Medicaid
program. Psychiatric hospitals and hospitals with inpatient psychiatric
programs will have the choice of undergoing a State survey or of
obtaining accreditation from a national accrediting organization whose
hospital accreditation program has been approved by CMS.
We are also issuing an interim final rule with comment period to
implement a provision of the Preservation of Access to Care for
Medicare Beneficiaries and Pension Relief Act of 2010 relating to
Medicare payments for outpatient services provided prior to a Medicare
beneficiary's inpatient admission.

DATES: Effective Date: These rules are effective on October 1, 2010,
except for amendments to Sec. 412.2(c)(5) introductory text,
(c)(5)(iii), and (c)(5)(iv); Sec. 412.405; Sec. 412.521(b)(1); Sec.
412.540; Sec. 412.604(f); Sec. 413.40(c)(2) introductory text,
(c)(2)(iii), and (c)(2)(iv), that are effective on June 25, 2010 and
apply to services furnished on or after June 25, 2010. In accordance
with sections 1871(e)(1)(A)(i) and (ii) of the Social Security Act, the
Secretary has determined that retroactive application of these
regulatory amendments is necessary to comply with the statute and that
failure to apply the changes retroactively would be contrary to public
interest:
Comment Period: To be assured consideration, comments on the
interim final rule with comment period (CMS-1498-IFC) that appears as
section IV.M., of the preamble of this document and includes amendments
to Sec. 412.2(c)(5) introductory text, (c)(5)(iii), and (c)(5)(iv);
Sec. 412.405; Sec. 412.521(b)(1); Sec. 412.540; Sec. 412.604(f);
Sec. 413.40(c)(2) introductory text, (c)(2)(iii), and (c)(2)(iv) must
be received at one of the addresses provided below, no later than 5
p.m. EST on September 28, 2010. Comments on other sections of this
document will not be considered.

ADDRESSES: When commenting on issues presented in the interim final
rule with comment period, please refer to file code CMS-1498-IFC.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation at http://www.regulations.gov. Follow the instructions for
``Comment or Submission'' and enter the file code CMS-1498-IFC to
submit comments on this interim final rule.
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-1498-IFC, 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-1406-IFC, Mail Stop C4-26-05, 7500
Security Boulevard, Baltimore, MD 21244-1850.

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

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

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

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

If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487, and Ing-
Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs,
Hospital Acquired Conditions (HAC),

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Wage Index, New Medical Service and Technology Add-On Payments,
Hospital Geographic Reclassifications, Acute Care Transfers, Capital
Prospective Payment, Excluded Hospitals, Direct and Indirect Graduate
Medical Education Payments, Disproportionate Share Hospital (DSH), and
Critical Access Hospital (CAH) Issues.
Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590,
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG
Relative Weights Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Program Issues.
James Poyer, (410) 786-2261, Reporting of Hospital Quality Data for
Annual Payment Update--Program Administration, Validation, and
Reconsideration Issues.
Shaheen Halim (410) 786-0641, Reporting of Hospital Quality Data
for Annual Payment Update--Measures Issues Except Hospital Consumer
Assessment of Healthcare Providers and Systems
Elizabeth Goldstein (410) 786-6665 Reporting of Hospital Quality
Data for Annual Payment Update--Hospital Consumer Assessment of
Healthcare Providers and Systems Measures Issues.
Marcia Newton, (410-786-5265) and CDR Scott Cooper (U.S. Public
Health Service), (410) 786-9465, Hospital Conditions of Participation
for Rehabilitation Services and Respiratory Therapy Care Issues.
Marilyn Dahl, (410) 786-8665, Provider Agreement and Supplier
Approval Issues.
Melissa Harris, (410) 786-3397 or Adrienne Delozier, (410) 786-
0278, Accreditation of Providers of Inpatient Psychiatric Services to
Individuals under Age 21 Issues.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments
received before the close of the comment period are available for
viewing by the public, including any personally identifiable or
confidential business information that is included in a comment. We
post all comments received before the close of the comment period on
the following Web site as soon as possible after they have been
received: http://www.regulations.gov. Follow the search instructions at
that Web site to view public comments.
Comments received timely will also be available for public
inspection, generally beginning approximately 3 weeks after publication
of a document, at the headquarters of the Centers for Medicare &
Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244,
Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule
an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web, (the Superintendent of Documents' home Web page
address is http://www.gpoaccess.gov/), by using local WAIS client
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password required).

Acronyms

3M 3M Health Information System
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASC Ambulatory surgical center
ASCA Administrative Simplification Compliance Act of 2002, Public
Law 107-105
ASITN American Society of Interventional and Therapeutic
Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999, Public
Law 106-113
BIC Beneficiary Identification Code
BIPA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000,
Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CRNA Certified Registered Nurse Anesthetist
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EDB [Medicare] Enrollment Database
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FHA Federal Health Architecture
FIPS Federal information processing standards
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of Healthcare Providers and
Systems
HCFA Health Care Financing Administration
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HICANHealth Insurance Claims Account Number
HIPAA Health Insurance Portability and Accountability Act of 1996,
Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative

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HwH Hospital-within-a-hospital
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision,
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision,
Procedure Coding System
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of
the Tax Relief and Health Care Act of 2006, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008,
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public
Law 110-173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NP Nurse practitioner
NQF National Quality Forum
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991 (Pub.
L. 104-113)
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1996, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PA Physician assistant
PIP Periodic interim payment
PLI Professional liability insurance
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPACA Patient Protection and Affordable Care Act, Public Law 111-148
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSN Social Security number
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law
97-248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and
QI [Qualifying Individuals] Programs Extension Act of 2007, Public
Law 110-90
UHDDS Uniform hospital discharge data set

Table of Contents

I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System
(IPPS)
2. Hospitals and Hospital Units Excluded from the IPPS
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
4. Critical Access Hospitals (CAHs)
5. Payments for Graduate Medical Education (GME)
B. Provisions of the Patient Protection and Affordable Care Act
(Pub. L. 111-148) and the Health Care and Education Reconciliation
Act of 2010 (Pub. L. 111-152)
C. Provisions of the Preservation of Access to Care for Medicare
Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192)
D. Issuance of Two Notices of Proposed Rulemaking for FY 2011
1. Issuance of May 4, 2010 IPPS/LTCH PPS Proposed Rule
a. Proposed Changes to MS-DRG Classifications and Recalibrations
of Relative Weights
b. Proposed Changes to the Hospital Wage Index for Acute Care
Hospitals
c. Other Decisions and Proposed Changes to the IPPS for
Operating Costs and GME Costs
d. Proposed FY 2011 Policy Governing the IPPS for Capital-
Related Costs
e. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
f. Proposed Changes to the LTCH PPS
g. Proposed Changes Relating to Effective Date of Provider
Agreements and Supplier Approvals
h. Proposed Changes to Medicare Conditions of Participation
Affecting Hospital Rehabilitation Services and Respiratory Care
Services
i. Proposed Changes to the Accreditation Requirements for
Medicaid Providers of Inpatient Psychiatric Services for Individuals
under Age 21
j. Determining Proposed Prospective Payment Operating and
Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
k. Determining Proposed Prospective Payments Rates for LTCHs
l. Impact Analysis
m. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
n. Discussion of Medicare Payment Advisory Commission
Recommendations
2. Issuance of June 2, 2010 IPPS/LTCH PPS Proposed Rule
E. Public Comments Received on the FY 2011 IPPS/LTCH Proposed
Rule and Supplemental Proposed Rule
F. Finalization of Interim Final Rule with Comment Period That
Implemented Certain Provisions of the ARRA Relating to Payments to
LTCHs and LTCH Satellite Facilities
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG)
Classifications and Relative Weights
A. Background
B. MS-DRG Reclassifications
1. General
2. Yearly Review for Making MS-DRG Changes
C. Adoption of the MS-DRGs in FY 2008

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D. FY 2011 MS-DRG Documentation and Coding Adjustment, Including
the Applicability to the Hospital-Specific Rates and the Puerto
Rico-Specific Standardized Amount
1. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
2. Prospective Adjustment to the Average Standardized Amounts
Required by Section 7(b)(1)(A) of Public Law 110-90
3. Recoupment or Repayment Adjustments in FYs 2010 through 2012
Required by Public Law 110-90
4. Retrospective Evaluation of FY 2008 Claims Data
5. Retrospective Analysis of FY 2009 Claims Data
6. Prospective Adjustment for FY 2010 and Subsequent Years
Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section
1886(d)(3)(vi) of the Act
7. Recoupment or Repayment Adjustment for FY 2010 Authorized by
Section 7(b)(1)(B) of Public Law 110-90
8. Background on the Application of the Documentation and Coding
Adjustment to the Hospital-Specific Rates
9. Documentation and Coding Adjustment to the Hospital-Specific
Rates for FY 2011 and Subsequent Fiscal Years
10. Background on the Application of the Documentation and
Coding Adjustment to the Puerto Rico-Specific Standardized Amount
11. Documentation and Coding Adjustment to the Puerto Rico-
Specific Standardized Amount
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
a. Summary of FY 2009 Changes and Discussion for FY 2011
b. Summary of the RAND Corporation Study of Alternative Relative
Weight Methodologies
2. FY 2011 Changes and Timeline for Changes to the Medicare Cost
Report
F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections
1. Background
a. Statutory Authority
b. HAC Selection
c. Collaborative Process
d. Application of HAC Payment Policy to MS-DRG Classifications
e. Public Input Regarding Selected and Potential Candidate HACs
f. POA Indicator Reporting
2. HAC Conditions for FY 2011
3. RTI Program Evaluation Summary
a. Background
b. RTI Analysis on POA Indicator Reporting Across Medicare
Discharges
c. RTI Analysis on POA Indicator Reporting of Current HACs
d. RTI Analysis of Frequency of Discharges and POA Indicator
Reporting for Current HACs
e. RTI Analysis of Circumstances When Application of HAC
Provisions Would Not Result in MS-DRG Reassignment for Current HACs
f. RTI Analysis of Coding Changes for HAC-Associated Secondary
Diagnoses for Current HACs
g. RTI Analysis of Estimated Net Savings for Current HACs
h. Previously Considered Candidate HACs--RTI Analysis of
Frequency of Discharges and POA Indicator Reporting
i. Current and Previously Considered Candidate HACs--RTI Report
on Evidence-Based Guidelines
j. Current HACs and Previously Considered Candidate HACs
G. Changes to Specific MS-DRG Classifications
1. Pre-Major Diagnostic Categories (MDCs)
a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous
Pancreas/Kidney Transplant))
b. Bone Marrow Transplants
2. MDC 1 (Nervous System): Administration of Tissue Plasminogen
Activator (tPA) (rtPA)
3. MDC 5 (Diseases and Disorders of the Circulatory System):
Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray
Coronary Angiography in Coronary Artery Bypass Graft Surgery
a. New MS-DRGs for Intraoperative Fluorescence Vascular
Angiography (IFVA) with CABG
b. New MS-DRG for Intraoperative Angiography, by any Method,
with CABG
c. New Procedure Codes
d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular
Angiography (IFVA)
4. MDC 6 (Diseases and Disorders of the Digestive System):
Gastrointestinal Stenting
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue): Pedicle-Based Dynamic Stabilization
6. MDC 15 (Newborns and Other Neonates with Conditions
Originating in the Perinatal Period)
a. Discharges/Transfers of Neonates to a Designated Cancer
Center or a Children's Hospital
b. Vaccination of Newborns
7. Medicare Code Editor (MCE) Changes
a. Unacceptable Principal Diagnosis Edit: Addition of Code for
Gastroparesis
b. Open Biopsy Check Edit
c. Noncovered Procedure Edit
8. Surgical Hierarchies
9. Complication or Comorbidity (CC) Exclusions List
a. Background
b. CC Exclusions List for FY 2011
10. Review of Procedure Codes in MS-DRGs 981 through 983, 984
through 986, and 987 through 989
a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-
DRGs 987 through 989 to MDCs
b. Reassignment of Procedures among MS-DRGs 981 through 983, 984
through 986, and 987 through 989
c. Adding Diagnosis or Procedure Codes to MDCs
11. Changes to the ICD-9-CM Coding System, Including Discussion
of the Replacement of the ICD-9-CM System with the ICD-10-CM and
ICD-10-PCS Systems in FY 2014
a. ICD-9-CM Coding System
b. Code Freeze
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on
Hospital Inpatient Claims
12. Other Issues Not Addressed in the Proposed Rule
a. Rechargeable Dual Array Deep Brain Stimulation System
b. IntraOperative Electron RadioTherapy (IOERT)
c. Brachytherapy
d. Excisional Debridement
H. Recalibration of MS-DRG Weights
I. Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed
Rulemaking on Add-On Payments
3. FY 2011 Status of Technologies Approved for FY 2010 Add-On
Payments
a. Spiration[supreg] IBV[supreg] Valve System
b. CardioWest^TM Temporary Total Artificial Heart
System (CardioWest^TM TAH-t)
4. FY 2011 Applications for New Technology Add-On Payments
a. Auto Laser Interstitial Thermal Therapy
(AutoLITT^TM) System
b. LipiScan^TM Coronary Imaging System
c. LipiScan^TM Coronary Imaging System with
Intravascular Ultrasound (IVUS)
III. Changes to the Hospital Wage Index for Acute Care Hospitals
A. Background
B. Wage Index Reform
1. Wage Index Study Required under the MIEA-TRHCA
a. Legislative Requirement
b. Interim and Final Reports on Results of Acumen's Study
2. FY 2009 Policy Changes in Response to Requirements under
Section 106(b) of the MIEA-TRHCA
a. Reclassification Average Hourly Wage Comparison Criteria
b. Budget Neutrality Adjustment for the Rural and Imputed Floors
3. Floor for Area Wage Index for Hospitals in Frontier States
4. Plan for Reforming the Wage Index under Section 3137(b) of
Affordable Care Act
C. Core-Based Statistical Areas for the Hospital Wage Index
D. Occupational Mix Adjustment to the FY 2011 Wage Index
1. Development of Data for the FY 2011 Occupational Mix
Adjustment Based on the 2007-2008 Occupational Mix Survey
2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index
3. Calculation of the Occupational Mix Adjustment for FY 2011
E. Worksheet S-3 Wage Data for the FY 2011 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Providers Other Than Acute Care
Hospitals under the IPPS
F. Verification of Worksheet S-3 Wage Data
G. Method for Computing the FY 2011 Unadjusted Wage Index
H. Analysis and Implementation of the Occupational Mix
Adjustment and the

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FY 2011 Occupational Mix Adjusted Wage Index
I. Revisions to the Wage Index Based on Hospital Redesignations
and Reclassifications
1. General
2. Effects of Reclassification/Redesignation
3. FY 2011 MGCRB Reclassifications
a. FY 2011 Reclassification Requirements and Approvals
b. Applications for Reclassifications for FY 2012
c. Appeals of MGCRB Denials of Withdrawals and Terminations
4. Redesignations of Hospitals under Section 1886(d)(8)(B) of
the Act
5. Reclassifications under Section 1886(d)(8)(B) of the Act
6. Reclassifications under Section 508 of Public Law 108-173
J. FY 2011 Wage Index Adjustment Based on Commuting Patterns of
Hospital Employees
K. Process for Requests for Wage Index Data Corrections
L. Labor-Market Share for the FY 2011 Wage Index
IV. Other Decisions and Changes to the IPPS for Operating Costs and
GME Costs
A. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
a. Overview
b. Hospital Quality Data Reporting under Section 501(b) of
Public Law 108-173
c. Hospital Quality Data Reporting under Section 5001(a) of
Public Law 109-171
d. Hospital Quality Data Reporting under Section 3001(a)(2) and
3401(a)(2) of Public Law 111-148
e. Quality Measures
f. Maintenance of Technical Specifications for Quality Measures
g. Public Display of Quality Measures
2. Retirement of RHQDAPU Program Measures
a. Considerations in Retiring Quality Measures from the RHQDAPU
Program
b. Retirement of Quality Measures under the RHQDAPU Program for
the FY 2011 Payment Determination and Subsequent Years
3. Expansion Plan for Quality Measures for the FY 2012, FY 2013,
and FY 2014 Payment Determinations
a. Considerations in Expanding and Updating Quality Measures
under the RHQDAPU Program
b. RHQDAPU Program Quality Measures for the FY 2012 Payment
Determination
c. RHQDAPU Program Quality Measures for the FY 2013 Payment
Determination
d. RHQDAPU Program Quality Measures for the FY 2014 Payment
Determination
4. Possible New Quality Measures for Future Years
5. Form, Manner, and Timing of Quality Data Submission
a. RHQDAPU Program Requirements for FY 2012, FY 2013, and FY
2014
b. Additional RHQDAPU Program Procedural Requirements for FY
2012, FY 2013, and FY 2014 Payment Determinations
6. RHQDAPU Program Disaster Extensions and Waivers
7. Chart Validation Requirements for Chart-Abstracted Measures
a. Chart Validation Requirements and Methods for the FY 2012
Payment Determination
b. Supplements to the Chart Validation Process for the FY 2013
Payment Determination and Subsequent Years
8. Data Accuracy and Completeness Acknowledgement Requirements
for the FY 2012 Payment Determination and Subsequent Years
9. Public Display Requirements for the FY 2012 Payment
Determination and Subsequent Years
10. Reconsideration and Appeal Procedures for the FY 2011
Payment Determination
11. RHQDAPU Program Withdrawal Deadlines
12. Electronic Health Records
a. Background
b. EHR Testing of Quality Measures Submission
c. HITECH Act EHR Provisions
13. Qualification of Registries for RHQDAPU Data Submission
14. RHQDAPU and Hospital Value-Based Purchasing
B. Payment for Transfers of Cases from Medicare Participating
Acute Care Hospitals to Nonparticipating Hospitals and CAHs
1. Background
2. Policy Change
C. Rural Referral Centers (RRCs)
1. Case-Mix Index (CMI)
2. Discharges
D. Payment Adjustment for Low-Volume Hospitals
1. Background
2. Temporary Changes for FYs 2011 and 2012
E. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2011
3. IME-Related Changes in Other Sections of this Final Rule
F. Payment Adjustment for Medicare Disproportionate Share
Hospitals (DSHs): Supplemental Security Income (SSI) Fraction
1. Background
2. CMS' Current Data Matching Process for the SSI Fraction
3. Baystate Medical Center v. Leavitt Court Decision
4. CMS' Proposed Process for Matching Medicare and SSI
Eligibility Data
a. Inclusion of Stale Records and Forced Pay Records in the SSI
Eligibility Data Files
b. Use of SSNs in the Revised Match Process
c. Timing of the Match
5. CMS Ruling 1498-R
6. Clarification of Language on Inclusion of Medicare Advantage
Days in the SSI Fraction of the Medicare DSH Calculation
G. Medicare-Dependent, Small Rural Hospitals (MDHs): Change to
Criteria
1. Background
2. Medicare-Dependency: Counting Medicare Inpatients
3. Extension of the MDH Program
H. Payments for Direct Graduate Medical Education (GME) Costs
1. Background
2. Identifying ``Approved Medical Residency Programs''
a. Residents in Approved Medical Residency Programs
b. Determining Whether an Individual Is a Resident or a
Physician
c. Formal Enrollment and Participation in a Program
3. Electronic Submission of Affiliation Agreements
I. Certified Registered Nurse Anesthetist (CRNA) Services
Furnished in Rural Hospitals and CAHs
J. Additional Payments for Qualifying Hospitals with Lowest Per
Enrollee Medicare Spending
1. Background
2. Eligible Counties
a. Development of Risk Adjustment Model
b. Calculation of County Level Part A and Part B Spending
3. Application of the Age/Sex/Race Adjustment to Part A and Part
B County Spending
4. Qualifying Hospitals and Annual Payment Amounts
5. Payment Determination and Distribution
6. Hospital Weighting Factors
7. Results
8. Finalization of Eligible Counties, Qualifying Hospitals and
Qualifying Hospitals' Weighting Factors
K. Rural Community Hospital Demonstration Program
L. Technical Change to Regulations
M. Interim Final Rule with Comment Period: Bundling of Payments
for Services Provided to Outpatients Who Later Are Admitted As
Inpatients: 3-Day Payment Window
1. Introduction
2. Background for Policy
3. Requirements of Section 102 of Public Law 111-192
4. Application of the Provisions of Section 102 of Public Law
111-192
5. Waiver of Notice of Proposed Rulemaking
6. Collection of Information Requirements
7. Response to Public Comments
8. Regulatory Impact Analysis
N. Changes in the Inpatient Hospital Market Basket Update
1. FY 2010 Inpatient Hospital Update
2. FY 2011 Inpatient Hospital Update
3. FY 2010 and FY 2011 Puerto Rico Hospital Update
V. Changes to the IPPS for Capital-Related Costs
A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Changes for FY 2011: MS-DRG Documentation and Coding
Adjustment
1. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009
2. Retrospective Evaluation of FY 2008 Claims Data
3. Retrospective Analysis of FY 2009 Claims Data

[[Page 50047]]

4. Prospective MS-DRG Documentation and Coding Adjustment to the
National Capital Federal Rate for FY 2011 and Subsequent Years
5. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
F. Other Changes for FY 2011
VI. Changes for Hospitals Excluded from the IPPS
A. Excluded Hospitals
B. Critical Access Hospitals (CAHs)
1. Background
2. CAH Optional Method Election for Payment of Outpatient
Services
3. Costs of Provider Taxes as Allowable Costs for CAHs
a. Background and Statutory Basis
b. Clarification of Payment Policy for Provider Taxes
C. Report of Adjustment (Exceptions) Payments
VII. Changes to the Long-Term Care Hospital Prospective Payment
System (LTCH PPS) for FY 2011
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded from the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification Compliance Act (ASCA) and
Health Insurance Portability and Accountability Act (HIPAA)
Compliance
B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-
LTC-DRG) Classifications and Relative Weights
1. Background
2. Patient Classifications into MS-LTC-DRGs
a. Background
b. Changes to the MS-LTC-DRGs for FY 2011
3. Development of the FY 2011 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG
Relative Weights
b. Development of the MS-LTC-DRG Relative Weights for FY 2011
c. Data
d. Hospital-Specific Relative Value (HSRV) Methodology
e. Treatment of Severity Levels in Developing the MS-LTC-DRG
Relative Weights
f. Low-Volume MS-LTC-DRGs
g. Steps for Determining the RY 2011 MS-LTC-DRG Relative Weights
C. Changes to the LTCH Payment Rates and Other Changes to the FY
2011 LTCH PPS
1. Overview of Development of the LTCH Payment Rates
2. Market Basket for LTCHs Reimbursed under the LTCH PPS
a. Overview
b. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
c. Changes to Reflect the Market Basket Update for LTCHs for RY
2010
d. Market Basket under the LTCH PPS for FY 2011
e. Market Basket Update for LTCHs for FY 2011
f. Labor-Related Share under the LTCH PPS for FY 2011
3. Adjustment for Changes in LTCHs' Case-Mix Due to Changes in
Documentation and Coding Practices That Occurred in a Prior Period
a. Background
b. Evaluation of FY 2009 Claims Data
c. FY 2011 Documentation and Coding Adjustment
D. Change in Terminology from ``Rate Year'' to ``Fiscal Year''
and Other Changes
E. Finalization of Interim Final Rule with Comment Period
Implementing Section 4302 of the American Recovery and Reinvestment
Act of 2009 (Pub. L. 111-5) Relating to Payments to LTCHs and LTCH
Satellite Facilities
1. Background
2. Amendments Relating to Payment Adjustment to LTCHs and LTCH
Satellite Facilities Made by Section 4302 of the ARRA
3. Amendment to the Moratorium on the Increase in Number of Beds
in Existing LTCHs or LTCH Satellite Facilities Made by Section 4302
of the ARRA
F. Extension of Certain Payment Rules for LTCH Services and
Moratorium on the Establishment of Certain Hospitals and Facilities
and the Increase in Number of Beds in Existing LTCHs and LTCH
Satellite Facilities
VIII. Determination of Effective Date of Provider Agreements and
Supplier Approvals
A. Background
B. Departmental Appeals Board Decision
C. Revisions to Regulations
IX. Medicare Hospital Conditions of Participation Affecting
Rehabilitation Services and Respiratory Care Services
X. Changes to the Accreditation Requirements for Medicaid Providers
of Inpatient Psychiatric Services for Individuals under Age 21
A. Background
B. Revision of Policy and Regulations
XI. MedPAC Recommendations
XII. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
1. Legislative Requirement for Solicitation of Comments
2. Requirements in Regulation Text
a. ICRs Regarding Withdrawing an Application, Terminating an
Approved 3 Year Reclassification, or Canceling a Previous Withdrawal
or Termination (Revised Sec. 412.273)
b. ICRs Regarding Condition of Participation: Respiratory Care
Services (Sec. 482.57)
3. Additional Information Collection Requirements
a. Present on Admission (POA) Indicator Reporting
b. Add-On Payments for New Services and Technologies
c. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
d. Occupational Mix Adjustment to the FY 2011 Index (Hospital
Wage Index Occupational Mix Survey)
e. Hospital Applications for Geographic Reclassifications by the
MGCRB
f. Direct GME Payments: General Requirements
Regulation Text
Addendum--Schedule of Standardized Amounts, Update Factors, and
Rate-of-Increase Percentages Effective with Cost Reporting Periods
Beginning on or after October 1, 2010
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient
Operating Costs for Acute Care Hospitals for FY 2011
A. Calculation of the Adjusted Standardized Amount
B. Adjustments for Area Wage Levels and Cost-of-Living
C. MS-DRG Relative Weights
D. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient
Capital-Related Costs for FY 2011
A. Determination of Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update
B. Calculation of the Inpatient Capital-Related Prospective
Payments for FY 2011
C. Capital Input Price Index
IV. Changes to Payment Rates for Certain Excluded Hospitals: Rate-
of-Increase Percentages
V. Changes to the Payment Rates for the LTCH PPS for FY 2011
A. LTCH PPS Standard Federal Rate for FY 2011
B. Adjustment for Area Wage Levels under the LTCH PPS for FY
2011
C. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
D. Computing the Adjusted LTCH PPS Federal Prospective Payments
for FY 2011
VI. Tables
Table 1A--National Adjusted Operating Standardized Amounts,
Labor/Nonlabor (68.8 Percent Labor Share/31.2 Percent Nonlabor Share
If Wage Index Is Greater Than 1)
Table 1B--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 1E--LTCH Standard Federal Prospective Payment Rate
Table 2--Acute Care Hospitals Case-Mix Indexes for Discharges
Occurring in Federal Fiscal Year 2009; Hospital Wage Indexes for
Federal Fiscal Year 2011; Hospital Average Hourly Wages for Federal
Fiscal Years 2009 (2005 Wage Data), 2010 (2006 Wage Data), and 2011
(2007 Wage Data); and 3-Year Average of Hospital Average Hourly
Wages
Table 3A--FY 2011 and 3-Year Average Hourly Wage for Acute Care
Hospitals in Urban Areas by CBSA
Table 3B--FY 2011 and 3-Year Average Hourly Wage for Acute Care
Hospitals in Rural Areas by CBSA
Table 4A.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for

[[Page 50048]]

Acute Care Hospitals in Urban Areas by CBSA and by State--FY 2011
Table 4B.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--
FY 2011
Table 4C.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by
State--FY 2011
Table 4D-1 (This table is discontinued due to section 3141 of
the Affordable Care Act returning the rural floor budget neutrality
to a uniform national adjustment.)
Table 4D-2.--States Designated as Frontier, with Acute Care
Hospitals Receiving at a Minimum the Frontier State Floor Wage
Index; Urban Areas with Acute Care Hospitals Receiving the Statewide
Rural Floor or Imputed Floor Wage Index--FY 2011
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care
Hospitals--FY 2011
Table 4F.--Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2011
Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY
2011
Table 5.--List of Medicare Severity Diagnosis-Related Groups
(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic
Mean Length of Stay--FY 2011
Table 6A.--New Diagnosis Codes
Table 6B.--New Procedure Codes
Table 6C.--Invalid Diagnosis Codes
Table 6D.--Invalid Procedure Codes
Table 6E.--Revised Diagnosis Code Titles
Table 6F.--Revised Procedure Code Titles
Table 6G.--Additions to the CC Exclusions List (Available
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6H.--Deletions from the CC Exclusions List (Available
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6I.--Complete List of Complication and Comorbidity (CC)
Exclusions (Available only through the Internet on the CMS Web site
at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6J.--Major Complication and Comorbidity (MCC) List
(Available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6K.--Complication and Comorbidity (CC) List (Available
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 7A.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2009 MedPAR Update--March 2010
GROUPER V27.0 MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2009 MedPAR Update--March 2010
GROUPER V28.0 MS-DRGs
Table 8A.--Statewide Average Operating Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals--July 2010
Table 8B.--Statewide Average Capital Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals--July 2010
Table 8C.--Statewide Average Total Cost-to-Charge Ratios (CCRs)
for LTCHs--July 2010
Table 9A.--Hospital Reclassifications and Redesignations--FY
2011
Table 9C.--Hospitals Redesignated as Rural under Section
1886(d)(8)(E) of the Act--FY 2011
Table 10.--Geometric Mean Plus the Lesser of .75 of the National
Adjusted Operating Standardized Payment Amount (Increased To Reflect
the Difference Between Costs and Charges) or .75 of One Standard
Deviation of Mean Charges by Medicare Severity Diagnosis-Related
Groups (MS-DRGs)--July 2010
Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average
Length of Stay, Short-Stay Outlier Threshold, and IPPS Comparable
Threshold for Discharges Occurring from October 1, 2010 through
September 30, 2011 under the LTCH PPS
Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges
Occurring from October 1, 2010 through September 30, 2011
Table 12B.--LTCH PPS Wage Index for Rural Areas for Discharges
Occurring from October 1, 2010 through September 30, 2011
Appendix A--Regulatory Impact Analysis
I. Overall Impact
II. Objectives of the IPPS
III. Limitations of Our Analysis
IV. Hospitals Included in and Excluded from the IPPS
V. Effects on Hospitals and Hospital Units Excluded from the IPPS
VI. Quantitative Effects of the Policy Changes under the IPPS for
Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Changes to the MS-DRG Reclassifications and
Relative Cost-Based Weights (Column 1)
D. Effects of the Application of Recalibration Budget Neutrality
(Column 2)
E. Effects of Wage Index Changes (Column 3)
F. Application of the Wage Budget Neutrality Factor (Column 4)
G. Combined Effects of MS-DRG and Wage Index Changes (Column 5)
H. Effects of MGCRB Reclassifications (Column 6)
I. Effects of the Rural Floor and Imputed Floor, Including
Application of Budget Neutrality at the State Level (Column 7)
J. Effects of the Wage Index Adjustment for Out-Migration
(Column 8)
K. Effects of All Changes Prior to Documentation and Coding (Or
CMI) Adjustment (Column 9)
L. Effects of All Changes With CMI Adjustment (Column 10)
M. Effects of Policy on Payment Adjustments for Low-Volume
Hospitals
N. Impact Analysis of Table II
VII. Effects of Other Policy Changes
A. Effects of Policy on HACs, Including Infections
B. Effects of Policy Changes Relating to New Medical Service and
Technology Add-On Payments
C. Effects of Requirements for Hospital Reporting of Quality
Data for Annual Hospital Payment Update
D. Effects of Policy on Payment for Transfer Cases from Medicare
Participating Hospitals to Nonparticipating Hospitals and CAHs
E. Effects of Change in Criteria for MDHs
F. Effects of Change Relating to Payment Adjustment for
Disproportionate Share Hospitals
G. Effects of Changes Relating to Payments for IME and Direct
GME
1. Background
2. Identifying ``Approved Medical Residency Programs''
3. Submission of Electronic Affiliation Agreements
4. Technical Correction to the Regulations Relating to the Cost
of Approved Nursing and Allied Health Education Activities
H. Effects of Changes Relating to CRNA Services Furnished in
Rural Hospitals and CAHs
I. Effects of Implementation of Rural Community Hospital
Demonstration Program
J. Effects of Changes Relating to CAHs
1. CAH Optional Method of Payment for Outpatient Services
2. Consideration of Costs of Provider Taxes as Allowable Costs
for CAHs
K. Effects of Policy Relating to Effective Date of Provider
Agreements and Supplier Approvals
L. Effects of Changes Relating to Hospital Rehabilitation
Services and Respiratory Care Services Conditions of Participation
VIII. Effects of Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Effects of Payment Rate Changes and Policy Changes under the
LTCH PPS
A. Introduction and General Considerations
B. Impact on Rural Hospitals
C. Anticipated Effects of LTCH PPS Payment Rate Change and
Policy Changes
D. Effect on the Medicare Program
E. Effect on Medicare Beneficiaries
X. Effects of Policy Changes Relating to Accreditation Requirements
for Medicaid Providers of Inpatient Psychiatric Services to
Individuals under Age 21
XI. Alternatives Considered
XII. Overall Conclusion
A. Acute Care Hospitals
B. LTCHs
XIII. Accounting Statements
A. Acute Care Hospitals
B. LTCHs
XIV. Executive Order 12866
Appendix B--Recommendation of Update Factors for Operating Cost
Rates of Payment for Inpatient Hospital Services
I. Background
II. Inpatient Hospital Update for FY 2011
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare

[[Page 50049]]

I. Background

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
Section 1886(d) of the Social Security Act (the Act) sets forth a
system of payment for the operating costs of acute care hospital
inpatient stays under Medicare Part A (Hospital Insurance) based on
prospectively set rates. Section 1886(g) of the Act requires the
Secretary to pay for the capital-related costs of hospital inpatient
stays under a prospective payment system (PPS). Under these PPSs,
Medicare payment for hospital inpatient operating and capital-related
costs is made at predetermined, specific rates for each hospital
discharge. Discharges are classified according to a list of diagnosis-
related groups (DRGs).
The base payment rate is comprised of a standardized amount that is
divided into a labor-related share and a nonlabor-related share. The
labor-related share is adjusted by the wage index applicable to the
area where the hospital is located. If the hospital is located in
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the
DRG relative weight.
If the hospital treats a high percentage of low-income patients, it
receives a percentage add-on payment applied to the DRG-adjusted base
payment rate. This add-on payment, known as the disproportionate share
hospital (DSH) adjustment, provides for a percentage increase in
Medicare payments to hospitals that qualify under either of two
statutory formulas designed to identify hospitals that serve a
disproportionate share of low-income patients. For qualifying
hospitals, the amount of this adjustment may vary based on the outcome
of the statutory calculations.
If the hospital is an approved teaching hospital, it receives a
percentage add-on payment for each case paid under the IPPS, known as
the indirect medical education (IME) adjustment. This percentage
varies, depending on the ratio of residents to beds.
Additional payments may be made for cases that involve new
technologies or medical services that have been approved for special
add-on payments. To qualify, a new technology or medical service must
demonstrate that it is a substantial clinical improvement over
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG
payment.
The costs incurred by the hospital for a case are evaluated to
determine whether the hospital is eligible for an additional payment as
an outlier case. This additional payment is designed to protect the
hospital from large financial losses due to unusually expensive cases.
Any eligible outlier payment is added to the DRG-adjusted base payment
rate, plus any DSH, IME, and new technology or medical service add-on
adjustments.
Although payments to most hospitals under the IPPS are made on the
basis of the standardized amounts, some categories of hospitals are
paid in whole or in part based on their hospital-specific rate based on
their costs in a base year. For example, sole community hospitals
(SCHs) receive the higher of a hospital-specific rate based on their
costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY
2006) or the IPPS Federal rate based on the standardized amount.
Through and including FY 2006, a Medicare-dependent, small rural
hospital (MDH) received the higher of the Federal rate or the Federal
rate plus 50 percent of the amount by which the Federal rate is
exceeded by the higher of its FY 1982 or FY 1987 hospital-specific
rate. As discussed below, for discharges occurring on or after October
1, 2007, but before October 1, 2012, an MDH will receive the higher of
the Federal rate or the Federal rate plus 75 percent of the amount by
which the Federal rate is exceeded by the highest of its FY 1982, FY
1987, or FY 2002 hospital-specific rate. SCHs are the sole source of
care in their areas, and MDHs are a major source of care for Medicare
beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii)
of the Act defines an SCH as a hospital that is located more than 35
road miles from another hospital or that, by reason of factors such as
isolated location, weather conditions, travel conditions, or absence of
other like hospitals (as determined by the Secretary), is the sole
source of hospital inpatient services reasonably available to Medicare
beneficiaries. In addition, certain rural hospitals previously
designated by the Secretary as essential access community hospitals are
considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as
a hospital that is located in a rural area, has not more than 100 beds,
is not an SCH, and has a high percentage of Medicare discharges (not
less than 60 percent of its inpatient days or discharges in its cost
reporting year beginning in FY 1987 or in two of its three most
recently settled Medicare cost reporting years). Both of these
categories of hospitals are afforded this special payment protection in
order to maintain access to services for beneficiaries.
Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient hospital services ``in accordance
with a prospective payment system established by the Secretary.'' The
basic methodology for determining capital prospective payments is set
forth in our regulations at 42 CFR 412.308 and 412.312. Under the
capital IPPS, payments are adjusted by the same DRG for the case as
they are under the operating IPPS. Capital IPPS payments are also
adjusted for IME and DSH, similar to the adjustments made under the
operating IPPS. In addition, hospitals may receive outlier payments for
those cases that have unusually high costs.
The existing regulations governing payments to hospitals under the
IPPS are located in 42 CFR part 412, subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain
hospitals and hospital units are excluded from the IPPS. These
hospitals and units are: Rehabilitation hospitals and units; long-term
care hospitals (LTCHs); psychiatric hospitals and units; children's
hospitals; and cancer hospitals. Religious nonmedical health care
institutions (RNHCIs) are also excluded from the IPPS. Various sections
of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare,
Medicaid and SCHIP [State Children's Health Insurance Program] Balanced
Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs
for rehabilitation hospitals and units (referred to as inpatient
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and
units (referred to as inpatient psychiatric facilities (IPFs)). (We
note that the annual updates to the LTCH PPS are now included as part
of the IPPS annual update document. Updates to the IRF PPS and IPF PPS
are issued as separate documents.) Children's hospitals, cancer
hospitals, and RNHCIs continue to be paid solely under a reasonable
cost-based system subject to a rate-of-increase ceiling on inpatient
operating costs per discharge.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR parts 412 and 413.

[[Page 50050]]

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
The Medicare prospective payment system (PPS) for LTCHs applies to
hospitals described in section 1886(d)(1)(B)(iv) effective for cost
reporting periods beginning on or after October 1, 2002. The LTCH PPS
was established under the authority of sections 123(a) and (c) of
Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as
codified under section 1886(m)(1) of the Act). During the 5-year
(optional) transition period, a LTCH's payment under the PPS was based
on an increasing proportion of the LTCH Federal rate with a
corresponding decreasing proportion based on reasonable cost
principles. Effective for cost reporting periods beginning on or after
October 1, 2006, all LTCHs are paid 100 percent of the Federal rate.
The existing regulations governing payment under the LTCH PPS are
located in 42 CFR part 412, subpart O. Beginning October 1, 2009, we
issue the annual updates to the LTCH PPS in the same documents that
update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and 1834(g) of the Act, payments are
made to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services are generally based on 101 percent of reasonable
cost. Reasonable cost is determined under the provisions of section
1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts
413 and 415.
5. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational
activities are excluded from the operating costs of inpatient hospital
services. Hospitals with approved graduate medical education (GME)
programs are paid for the direct costs of GME in accordance with
section 1886(h) of the Act. The amount of payment for direct GME costs
for a cost reporting period is based on the hospital's number of
residents in that period and the hospital's costs per resident in a
base year. The existing regulations governing payments to the various
types of hospitals are located in 42 CFR part 413.

B. Provisions of the Patient Protection and Affordable Care Act (Pub.
L. 111-148) and the Health Care and Education Reconciliation Act of
2010 (Pub. L. 111-152)

C. Provisions of the Preservation of Access To Care for Medicare
Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192)

On June 25, 2010, the Preservation of Access to Care for Medicare
Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192) was
enacted. Section 102 of Public Law 111-192 amended section 1886(a)(4)
and (d)(7) of the Act affecting Medicare payments for preadmission
services furnished to outpatients who are later admitted as inpatients
during a specified payment window. We are implementing this legislative
provision as discussed under section IV.M. of the preamble of this
document through an interim final rule with comment period.

D. Issuance of Two Notices of Proposed Rulemaking for FY 2011

1. Issuance of May 4, 2010 IPPS/LTCH PPS Proposed Rule
On May 4, 2010, we issued in the Federal Register the FY 2011 IPPS/
LLTCH PPS proposed rule (75 FR 23852). In that proposed rule, we set
forth proposed changes to the Medicare IPPS for operating costs and for
capital-related costs of acute care hospitals in FY 2011. We also set
forth proposed changes relating to payments for IME costs and payments
to certain hospitals and units that continue to be excluded from the
IPPS and paid on a reasonable cost basis.
In addition, in that proposed rule, we set forth proposed changes
to the payment rates, factors, and other payment rate policies under
the LTCH PPS for FY 2011. We note that because the annual update of
payment rates for the LTCH PPS now takes place on the same schedule and
in the same publication as for the IPPS, for the sake of clarity, in
section VII.D. of the proposed rule, we proposed to use ``fiscal year
(FY)'' instead of ``rate year (RY)'' when referring to updates and
changes to the LTCH PPS to be effective October 1, 2010. Therefore,
throughout the proposed rule (and this final rule), we use the phrase
``fiscal year (FY)'' in referring to updates and changes to the LTCH
PPS.
Below is a summary of the major changes that we proposed to make in
the May 4, 2010 proposed rule:
a. Proposed Changes to MS-DRG Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of the proposed rule, we included--
Proposed changes to MS-DRG classifications based on our
yearly review.
Proposed application of the documentation and coding
adjustment for FY 2011 resulting from implementation of the MS-DRG
system.
A discussion of the Research Triangle International, Inc.
(RTI) and RAND Corporation reports and recommendations relating to
charge compression.
Proposed recalibrations of the MS-DRG relative weights.
We also presented a listing and discussion of hospital-acquired

[[Page 50051]]

conditions (HACs), including infections, that are subject to the
statutorily required quality adjustment in MS-DRG payments for FY 2011.
We discussed the FY 2011 status of two new technologies approved
for add-on payments for FY 2010 and presented our evaluation and
analysis of the FY 2011 applicants for add-on payments for high-cost
new medical services and technologies (including public input, as
directed by Pub. L. 108-173, obtained in a town hall meeting).
b. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
In section III. of the preamble to the proposed rule, we proposed
revisions to the wage index for acute care hospitals and the annual
update of the wage data. Specific issues addressed included the
following:
Budget neutrality for the rural floor and imputed floor.
Changes to titles and principal cities of CBSA
designations.
The proposed FY 2011 wage index update using wage data
from cost reporting periods beginning in FY 2007.
Analysis and implementation of the proposed FY 2011
occupational mix adjustment to the wage index for acute care hospitals,
including discussion of the 2010 occupational mix survey.
Proposed revisions to the wage index for acute care
hospitals based on hospital redesignations and reclassifications.
The proposed adjustment to the wage index for acute care
hospitals for FY 2011 based on commuting patterns of hospital employees
who reside in a county and work in a different area with a higher wage
index.
The timetable for reviewing and verifying the wage data
used to compute the proposed FY 2011 hospital wage index.
Determination of the labor-related share for the proposed
FY 2011 wage index.
c. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble of the proposed rule, we discussed a
number of the provisions of the regulations in 42 CFR parts 412, 413,
and 489, including the following:
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Payment for transfer cases from Medicare participating
hospitals to nonparticipating hospitals and CAHs.
A change to the definition criteria for MDHs.
The proposed updated national and regional case-mix values
and discharges for purposes of determining RRC status.
The statutorily required IME adjustment factor for FY
2011.
The proposed policy change relating to the determination
of the SSI ratio of the Medicare fraction in the formula for
determining the payment adjustments for disproportionate share
hospitals.
A proposed clarification of ``approved medical residency
programs'' policies relating to payment for IME and direct GME and our
proposal to accept the electronic submission of Medicare GME
affiliation agreements.
Proposed policy change for payments for services furnished
by certified registered nurse anesthetists (CRNAs) in rural hospitals
and CAHs.
Discussion of the status of the Rural Community Hospital
Demonstration Program.
d. Proposed FY 2011 Policy Governing the IPPS for Capital-Related Costs
In section V. of the preamble to the proposed rule, we discussed
the proposed payment policy requirements for capital-related costs and
capital payments to hospitals for FY 2011 and the proposed MS-DRG
documentation and coding adjustment for FY 2011.
e. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
In section VI. of the preamble of the proposed rule, we discussed--
Proposed changes to payments to excluded hospitals.
Proposed changes relating to the election by CAHs of the
optional method of payment for outpatient services
Proposed clarification of the policies on costs of
provider taxes as allowable costs for CAHs.
f. Proposed Changes to the LTCH PPS
In section VII. of the preamble of the proposed rule, we set forth
proposed changes to the payment rates, factors, and other payment rate
policies under the LTCH PPS for FY 2011, including the annual update of
the MS-LTC-DRG classifications and relative weights for use under the
LTCH PPS for FY 2011 and the proposed documentation and coding
adjustment under the LTCH PPS for FY 2011.
g. Proposed Changes Relating to Effective Date of Provider Agreements
and Supplier Approvals
In section VIII. of the preamble of the proposed rule, we set forth
our proposed change in the provisions for determining the effective
date of provider agreements and supplier approvals and to make changes
to assure that accredited and nonaccredited facilities are treated in
the same manner in determining this effective date.
h. Proposed Changes to Medicare Conditions of Participation Affecting
Hospital Rehabilitation Services and Respiratory Care Services
In section IX. of the preamble of the proposed rule, we proposed
changes to the Medicare conditions of participation regarding which
practitioners are allowed to order rehabilitation and respiratory care
services in the hospital setting.
i. Proposed Changes to the Accreditation Requirements for Medicaid
Providers of Inpatient Psychiatric Services for Individuals Under Age
21
In section X. of the preamble of the proposed rule, we proposed to
remove the requirement for accreditation by The Joint Commission of
psychiatric hospitals and hospitals with inpatient psychiatric
programs. Hospitals with inpatient psychiatric programs would be
afforded the flexibility in obtaining accreditation by a national
accrediting organization whose hospital accrediting program has been
approved by CMS. (We note that we proposed a similar change for
psychiatric rehabilitation treatment facilities, which we are not
adopting in this final rule.)
j. Determining Proposed Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits for Acute Care Hospitals
In the Addendum to the proposed rule, we set forth proposed changes
to the amounts and factors for determining the proposed FY 2011
prospective payment rates for operating costs and capital-related costs
for acute care hospitals. We also proposed to establish the threshold
amounts for outlier cases. In addition, we addressed the proposed
update factors for determining the rate-of-increase limits for cost
reporting periods beginning in FY 2011 for certain hospitals excluded
from the IPPS.
k. Determining Proposed Prospective Payment Rates for LTCHs
In the Addendum to the proposed rule, we set forth proposed changes
to the amounts and factors for determining the proposed FY 2011
prospective standard Federal rate. We also proposed to establish the
proposed adjustments for wage levels, the labor-related share, the
cost-of-living adjustment, and high-cost outliers, including the fixed-
loss

[[Page 50052]]

amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.
l. Impact Analysis
In Appendix A of the proposed rule, we set forth an analysis of the
impact that the proposed changes would have on affected acute care
hospitals and LTCHs.
m. Recommendation of Update Factors for Operating Cost Rates of Payment
for Hospital Inpatient Services
In Appendix B of the proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 2011 for the following:
A single average standardized amount for all areas for
hospital inpatient services paid under the IPPS for operating costs of
acute care hospitals (and hospital-specific rates applicable to SCHs
and MDHs).
Target rate-of-increase limits to the allowable operating
costs of hospital inpatient services furnished by certain hospitals
excluded from the IPPS.
The standard Federal rate for hospital inpatient services
furnished by LTCHs.
n. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a
report to Congress, no later than March 1 of each year, in which MedPAC
reviews and makes recommendations on Medicare payment policies.
MedPAC's March 2010 recommendations concerning hospital inpatient
payment policies address the update factor for hospital inpatient
operating costs and capital-related costs under the IPPS, for hospitals
and distinct part hospital units excluded from the IPPS. We addressed
these recommendations in Appendix B of the proposed rule. For further
information relating specifically to the MedPAC March 2008 report or to
obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit
MedPAC's Web site at: http://www.medpac.gov.
2. Issuance of June 2, 2010 Proposed Rule
A number of the provisions of the Affordable Care Act affected the
IPPS and the LTCH PPS and the applicable providers and suppliers. Due
to the timing of the passage of the legislation, we were unable to
address these provisions in the FY 2011 IPPS/LTCH PPS proposed rule
that appeared in the May 4, 2010 Federal Register (75 FR 23852).
Therefore, various proposed policies and payment rates in that proposed
rule did not reflect the new legislation. We noted in that proposed
rule that we would issue separate Federal Register documents addressing
the provisions of the Affordable Care Act that affected our proposed
policies and payment rates for FY 2010 and FY 2011 under the IPPS and
for RY 2010 and FY 2011 under the LTCH PPS.
On June 2, 2010, we issued a supplemental proposed rule in the
Federal Register (75 FR 30918) that addressed the following FY 2011
policies and provisions of the Affordable Care Act:
Hospital wage index improvement related to geographic
reclassification criteria for FY 2011 (section 3137 of Pub. L. 111-
148).
National budget neutrality in the calculation of the rural
floor for hospital wage index (section 3141 of Pub. L. 111-148).
Protections for frontier States (section 10324 of Pub. L.
111-148).
Revisions of certain market basket updates (sections 3401
and 10319 of Pub. L. 111-148 and section 1105 of Pub. L. 111-152).
Temporary improvements to the low-volume hospital
adjustment (sections 3125 and 10314 of Pub. L. 111-148).
Extension of Medicare-dependent hospitals (MDHs) (section
3124 of Pub. L. 111-148).
Additional payments in FYs 2011 and 2012 for qualifying
hospitals in the lowest quartile of per capital Medicare spending
(section 1109 of Pub. L. 111-152).
Extension of the rural community hospital demonstration
(sections 3123 and 10313 of Pub. L. 111-148).
Technical correction related to CAH services (section 3128
of Pub. L. 111-148).
Extension of certain payment rules for LTCH services and
of moratorium on the establishment of certain hospitals and facilities
and increases in beds in existing LTCHs or LTCH satellite facilities
(sections 3106 and 10312 of Pub. L. 111-148).
We also noted that we planned to issue further instructions
implementing the provisions of the Affordable Care Act that affect the
policies and payment rates for FY 2010 under the IPPS and for RY 2010
under the LTCH PPS in a separate document published elsewhere in June
2, 2010 Federal Register.
In this final rule, we are finalizing both the provisions of the
May 4, 2010 proposed rule and the June 2, 2010 supplemental proposed
rule in one document.

E. Public Comments Received on the FY 2011 IPPS/LTCH PPS Proposed Rule
and Supplemental Proposed Rule

We received over 700 public comments on the May 4, 2010 FY 2011
IPPS/LTCH PPS proposed rule and approximately 33 public comments on the
June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental proposed rule. One
comment addressed the comment period for the supplemental proposed
rule.
Comment: One commenter objected to our decision to shorten the
usual 60-day comment period for the supplemental proposed rule. The
commenter did not believe that CMS had the authority to shorten the
comment period and stated that the period allowed for comment on the
policies in the supplemental proposed rule was insufficient.
Response: We disagree with the commenter that the waiver of the
full 60-day comment period in the supplemental proposed rule was
insufficient. As we explained in the supplemental proposed rule, due to
the timing of the enactment of the Affordable Care Act, the policies
and payment rates outlined in the FY 2011 IPPS/LTCH proposed rule
published in the Federal Register on May 4, 2010, did not reflect the
changes made by that law to the IPPS and LTCH PPS. The supplemental
proposed rule addressed the changes that affect our policies and
payment rates for FY 2011 under the IPPS and the LTCH PPS. We refer
readers to the waiver of 60-day comment period discussion in the
supplemental proposed rule (75 FR 30971), and we welcome the
opportunity to provide additional details regarding our decision to
waive the 60-day comment period.
Our decision to shorten the customary 60-day comment period is
consistent with past agency practice (see, for example, 74 FR 26603
(June 3, 2009), 74 FR 43952 (August 27, 2009), and 68 FR 34772 (June
10, 2003)), as well as the language of section 1871(b)(2)(C) of the
Act. We read section 1871(b)(2)(C) of the Act to permit a waiver of any
or all of the procedures set forth in section 1871(b)(1) of the Act,
including the 60-day comment period, if good cause exists.
We believe the commenter's description of the period allowed for
comment overstated the inconvenience that the shortened comment period
may have created. We believe that the detailed and thoughtful comments
that we received in response to the contents of the supplemental
proposed rule support our position that there was time for meaningful
public participation in

[[Page 50053]]

the development of these policies. In addition, as the commenter
admits, parties had 28 days from the posting of the supplemental
proposed rule to submit comments to CMS, and a Listserv posting alerted
outside parties to the posting of agency regulations.
The FY 2011 IPPS/LTCH PSS final rule must be effective as of
October 1, 2010, the start of FY 2011. Given this statutory deadline,
we believe it was necessary to shorten the time period, as permitted by
section 1871(b)(2)(C) of the Act. As we explained in the waiver of 60-
day comment period discussion in the supplemental proposed rule, unless
we shortened the comment period, there would have been no opportunity
for the agency to appropriately consider the comments we received and
resolve whether any of the proposed policies would be modified in light
of comments received. The comment period set forth in the supplemental
proposed rule provided the agency with the minimum time needed for a
careful consideration of the public comments on both the FY 2011 IPPS/
LTCH PPS final rules. Moreover, a full 60-day comment period from the
date of publication in the Federal Register, which is what the comment
period would be if the commenter's reading of section 1871(b)(2)(C) of
the Act were adopted by the agency, would have extended into August,
which would have been impracticable, given the required effective date
of October 1, 2010.
The remaining public comments we received on the two proposed rules
addressed issues on multiple topics in both of the proposed rules. We
present a summary of the public comments and our responses to them in
the applicable subject-matter sections of this final rule.

F. Finalization of the Interim Final Rule With Comment Period That
Implemented Certain Provisions of the ARRA Relating to Payments to
LTCHs and LTCH Satellite Facilities

Section 4302 of the American Recovery and Reinvestment Act of 2009
(ARRA, Pub. L. 111-5) included several amendments to section 114 of
Public Law 110-173 (MMSEA) relating to payments to LTCHs and LTCH
satellite facilities that were discussed under section X. of the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43976 through 43990).
These amendments are effective as if they were enacted as part of
section 114 of Public Law 110-173 (MMSEA). We issued instructions to
the fiscal intermediaries and Medicare administrative contractors
(MACs) to interpret these amendments (Change Request 6444). In section
XI. of the FY 2010/RY 2010 LTCH PPS final rule (74 FR 43990), we
implemented the provisions of section 4302 of Public Law 111-5 through
an interim final rule with comment period. Sections 3106 and 10312 of
the Affordable Care Act added an additional 2 years to the 3-year
implementation delay established by section 114(c) and (d)(1) of MMSEA.
These provisions of the Affordable Care Act applicable to the LTCH PPS
were discussed in the June 2, 2010 supplemental proposed rule (75 FR
30967).
In section VII.E. of the preamble of this final rule, we respond to
the public comment that we received in a timely manner on this interim
final rule with comment period and finalize the interim final rule.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as DRGs) for inpatient
discharges and adjust payments under the IPPS based on appropriate
weighting factors assigned to each DRG. Therefore, under the IPPS,
Medicare pays for inpatient hospital services on a rate per discharge
basis that varies according to the DRG to which a beneficiary's stay is
assigned. The formula used to calculate payment for a specific case
multiplies an individual hospital's payment rate per case by the weight
of the DRG to which the case is assigned. Each DRG weight represents
the average resources required to care for cases in that particular
DRG, relative to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires
that the Secretary adjust the DRG classifications and relative weights
at least annually. These adjustments are made to reflect changes in
treatment patterns, technology, and any other factors that may change
the relative use of hospital resources.

B. MS-DRG Reclassifications

1. General
As discussed in the preamble to the FY 2008 IPPS final rule with
comment period (72 FR 47138), we focused our efforts in FY 2008 on
making significant reforms to the IPPS consistent with the
recommendations made by MedPAC in its ``Report to the Congress,
Physician-Owned Specialty Hospitals'' in March 2005. MedPAC recommended
that the Secretary refine the entire DRG system by taking severity of
illness into account and applying hospital-specific relative value
(HSRV) weights to DRGs.\1\ We began this reform process by adopting
cost-based weights over a 3-year transition period beginning in FY 2007
and making interim changes to the DRG system for FY 2007 by creating 20
new CMS DRGs and modifying 32 other DRGs across 13 different clinical
areas involving nearly 1.7 million cases. As described in more detail
below, these refinements were intermediate steps towards comprehensive
reform of both the relative weights and the DRG system as we undertook
further study. For FY 2008, we adopted 745 new Medicare Severity DRGs
(MS-DRGs) to replace the CMS DRGs. We refer readers to section II.D. of
the FY 2008 IPPS final rule with comment period for a full detailed
discussion of how the MS-DRG system, based on severity levels of
illness, was established (72 FR 47141).
---------------------------------------------------------------------------

\1\ Medicare Payment Advisory Commission: Report to the
Congress, Physician-Owned Specialty Hospitals, March 2005, page
viii.
---------------------------------------------------------------------------

Currently, cases are classified into MS-DRGs for payment under the
IPPS based on the following information reported by the hospital: the
principal diagnosis, up to eight additional diagnoses, and up to six
procedures performed during the stay. (We refer readers to section
II.G.11.c. of this final rule for a discussion of our efforts to
increase our internal systems capacity to process diagnosis and
procedures on hospital claims to 25 diagnosis codes and 25 procedure
codes prior to the use of the International Classification of Diseases,
10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding
and the International Classification of Diseases, 10th Revision,
Procedure Coding System (ICD-10 PCS) for inpatient hospital procedure
coding, effective October 1, 2013.) In a small number of MS-DRGs,
classification is also based on the age, sex, and discharge status of
the patient. The diagnosis and procedure information is reported by the
hospital using codes from the International Classification of Diseases,
Ninth Revision, Clinical Modification (ICD-9-CM) prior to October 1,
2013. We refer readers to section II.G.11.b. of this final rule for a
reference to the replacement of ICD-9-CM, Volumes 1 and 2, including
the Official ICD-9-CM Guidelines for Coding and Reporting, Volume 3,
with the ICD-10-CM and ICD-10-PCS, including the Official ICD-10-CM and
ICD-10-PCS

[[Page 50054]]

Guidelines for Coding and Reporting, effective October 1, 2013 (FY
2014).
The process of developing the MS-DRGs was begun by dividing all
possible principal diagnoses into mutually exclusive principal
diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The
MDCs were formulated by physician panels to ensure that the DRGs would
be clinically coherent. The diagnoses in each MDC correspond to a
single organ system or etiology and, in general, are associated with a
particular medical specialty. Thus, in order to maintain the
requirement of clinical coherence, no final MS-DRG could contain
patients in different MDCs. For example, MDC 6 is Diseases and
Disorders of the Digestive System. This approach is used because
clinical care is generally organized in accordance with the organ
system affected. However, some MDCs are not constructed on this basis
because they involve multiple organ systems (for example, MDC 22
(Burns)). For FY 2010, cases were assigned to one of 746 MS-DRGs in 25
MDCs. For FY 2011, cases will be assigned to one of 747 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 27.0), there are
13 MS-DRGs to which cases are directly assigned on the basis of ICD-9-
CM procedure codes. These MS-DRGs are for heart transplant or implant
of heart assist systems; liver and/or intestinal transplants; bone
marrow transplants; lung transplants; simultaneous pancreas/kidney
transplants; pancreas transplants; and tracheostomies. Cases are
assigned to these MS-DRGs before they are classified to an MDC. The
table below lists the 13 current pre-MDCs.

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

------------------------------------------------------------------------
MS-DRG 001.................... Heart Transplant or Implant of Heart
Assist System with MCC.
MS-DRG 002.................... Heart Transplant or Implant of Heart
Assist System without MCC.
MS-DRG 003.................... ECMO or Tracheostomy with Mechanical
Ventilation 96+ Hours or Principal
Diagnosis Except for Face, Mouth, and
Neck Diagnosis with Major O.R.
MS-DRG 004.................... Tracheostomy with Mechanical Ventilation
96+ Hours or Principal Diagnosis Except
for Face, Mouth, and Neck Diagnosis
with Major O.R.
MS-DRG 005.................... Liver Transplant with MCC or Intestinal
Transplant.
MS-DRG 006.................... Liver Transplant without MCC.
MS-DRG 007.................... Lung Transplant.
MS-DRG 008.................... Simultaneous Pancreas/Kidney Transplant.
MS-DRG 009.................... Bone Marrow Transplant.
MS-DRG 010.................... Pancreas Transplant.
MS-DRG 011.................... Tracheostomy for Face, Mouth, and Neck
Diagnoses with MCC.
MS-DRG 012.................... Tracheostomy for Face, Mouth, and Neck
Diagnoses with CC.
MS-DRG 013.................... Tracheostomy for Face, Mouth, and Neck
Diagnoses without CC/MCC.
------------------------------------------------------------------------

Once the MDCs were defined, each MDC was evaluated to identify
those additional patient characteristics that would have a consistent
effect on hospital resource consumption. Because the presence of a
surgical procedure that required the use of the operating room would
have a significant effect on the type of hospital resources used by a
patient, most MDCs were initially divided into surgical DRGs and
medical DRGs. Surgical DRGs are based on a hierarchy that orders
operating room (O.R.) procedures or groups of O.R. procedures by
resource intensity. Medical DRGs generally are differentiated on the
basis of diagnosis and age (0 to 17 years of age or greater than 17
years of age). Some surgical and medical DRGs are further
differentiated based on the presence or absence of a complication or
comorbidity (CC) or a major complication or comorbidity (MCC).
Generally, nonsurgical procedures and minor surgical procedures
that are not usually performed in an operating room are not treated as
O.R. procedures. However, there are a few non-O.R. procedures that do
affect MS-DRG assignment for certain principal diagnoses. An example is
extracorporeal shock wave lithotripsy for patients with

[[Page 50055]]

a principal diagnosis of urinary stones. Lithotripsy procedures are not
routinely performed in an operating room. Therefore, lithotripsy codes
are not classified as O.R. procedures. However, our clinical advisors
believe that patients with urinary stones who undergo extracorporeal
shock wave lithotripsy should be considered similar to other patients
who undergo O.R. procedures. Therefore, we treat this group of patients
similar to patients undergoing O.R. procedures.
Once the medical and surgical classes for an MDC were formed, each
diagnosis class was evaluated to determine if complications or
comorbidities would consistently affect hospital resource consumption.
Each diagnosis was categorized into one of three severity levels. These
three levels include a major complication or comorbidity (MCC), a
complication or comorbidity (CC), or a non-CC. Physician panels
classified each diagnosis code based on a highly iterative process
involving a combination of statistical results from test data as well
as clinical judgment. As stated earlier, we refer readers to section
II.D. of the FY 2008 IPPS final rule with comment period for a full
detailed discussion of how the MS-DRG system was established based on
severity levels of illness (72 FR 47141).
A patient's diagnosis, procedure, discharge status, and demographic
information is entered into the Medicare claims processing systems and
subjected to a series of automated screens called the Medicare Code
Editor (MCE). The MCE screens are designed to identify cases that
require further review before classification into an MS-DRG.
After patient information is screened through the MCE and further
development of the claim is conducted, the cases are classified into
the appropriate MS-DRG by the Medicare GROUPER software program. The
GROUPER program was developed as a means of classifying each case into
an MS-DRG on the basis of the diagnosis and procedure codes and, for a
limited number of MS-DRGs, demographic information (that is, sex, age,
and discharge status).
After cases are screened through the MCE and assigned to an MS-DRG
by the GROUPER, the PRICER software calculates a base MS-DRG payment.
The PRICER calculates the payment for each case covered by the IPPS
based on the MS-DRG relative weight and additional factors associated
with each hospital, such as IME and DSH payment adjustments. These
additional factors increase the payment amount to hospitals above the
base MS-DRG payment.
The records for all Medicare hospital inpatient discharges are
maintained in the Medicare Provider Analysis and Review (MedPAR) file.
The data in this file are used to evaluate possible MS-DRG
classification changes and to recalibrate the MS-DRG weights. However,
in the FY 2000 IPPS final rule (64 FR 41499 and 41500), we discussed a
process for considering non-MedPAR data in the recalibration process.
We stated that for use of non-MedPAR data to be feasible for purposes
of DRG recalibration and reclassification, the data must, among other
things: (1) Be independently verified; (2) reflect a complete set of
cases (or a representative sample of cases); and (3) enable us to
calculate appropriate DRG relative weights and ensure that cases are
classified to the ``correct'' DRG, and to one DRG only, in the
recalibration process. Further, in order for us to consider using
particular non-MedPAR data, we must have sufficient time to evaluate
and test the data. The time necessary to do so 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 non-MedPAR database should be submitted by early December for
consideration in conjunction with the next year's proposed rule.
As we indicated above, for FY 2008, we made significant
improvements in the DRG system to recognize severity of illness and
resource usage by adopting MS-DRGs that were reflected in the FY 2008
GROUPER, Version 25.0, and were effective for discharges occurring on
or after October 1, 2007. Our MS-DRG analysis for the FY 2011 proposed
rule was based on data from the September 2009 update of the FY 2009
MedPAR file, which contained hospital bills received through September
30, 2009, for discharges occurring through September 30, 2009. For this
FY 2011 final rule, our MS-DRG analysis is based on data from the March
2010 update of the FY 2009 MedPAR file, which contained hospital bills
received through March 31, 2010, for discharges occurring through
September 30, 2009.
2. Yearly Review for Making MS-DRG Changes
Many of the changes to the MS-DRG classifications we make annually
are the result of specific issues brought to our attention by
interested parties. We encourage individuals with comments about MS-DRG
classifications to submit these comments no later than early December
of each year so they can be carefully considered for possible inclusion
in the annual proposed rule and, if included, may be subjected to
public review and comment. Therefore, similar to the timetable for
interested parties to submit non-MedPAR data for consideration in the
MS-DRG recalibration process, comments about MS-DRG classification
issues should be submitted no later than early December in order to be
considered and possibly included in the next annual proposed rule
updating the IPPS.
The actual process of forming the MS-DRGs was, and will likely
continue to be, highly iterative, involving a combination of
statistical results from test data combined with clinical judgment. In
the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described
in detail the process we used to develop the MS-DRGs that we adopted
for FY 2008. In addition, in deciding whether to make further
modification to the MS-DRGs for particular circumstances brought to our
attention, we considered whether the resource consumption and clinical
characteristics of the patients with a given set of conditions are
significantly different than the remaining patients in the MS-DRG. We
evaluated patient care costs using average charges and lengths of stay
as proxies for costs and relied on the judgment of our medical advisors
to decide whether patients are clinically distinct or similar to other
patients in the MS-DRG. In evaluating resource costs, we considered
both the absolute and percentage differences in average charges between
the cases we selected for review and the remainder of cases in the MS-
DRG. We also considered variation in charges within these groups; that
is, whether observed average differences were consistent across
patients or attributable to cases that were extreme in terms of charges
or length of stay, or both. Further, we considered the number of
patients who will have a given set of characteristics and generally
preferred not to create a new MS-DRG unless it would include a
substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed
a number of recommendations made by MedPAC regarding revisions to the
DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881
through 47939; and 72 FR 47140 through 47189). As we noted in the FY
2006 IPPS final rule, we had insufficient time to

[[Page 50056]]

complete a thorough evaluation of these recommendations for full
implementation in FY 2006. However, we did adopt severity-weighted
cardiac DRGs in FY 2006 to address public comments on this issue and
the specific concerns of MedPAC regarding cardiac surgery DRGs. We also
indicated that we planned to further consider all of MedPAC's
recommendations and thoroughly analyze options and their impacts on the
various types of hospitals in the FY 2007 IPPS proposed rule.
For FY 2007, we began this process. In the FY 2007 IPPS proposed
rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY
2008 (if not earlier). Based on public comments received on the FY 2007
IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007
IPPS final rule (71 FR 47906 through 47912), we discussed several
concerns raised by public commenters regarding the proposal to adopt CS
DRGs. We acknowledged the many public comments suggesting the logic of
Medicare's DRG system should continue to remain in the public domain as
it has since the inception of the PPS. We also acknowledged concerns
about the impact on hospitals and software vendors of moving to a
proprietary system. Several commenters suggested that CMS refine the
existing DRG classification system to preserve the many policy
decisions that were made over the last 20 years and were already
incorporated into the DRG system, such as complexity of services and
new device technologies. Consistent with the concerns expressed in the
public comments, this option had the advantage of using the existing
DRGs as a starting point (which was already familiar to the public) and
retained the benefit of many DRG decisions that were made in recent
years. We stated our belief that the suggested approach of
incorporating severity measures into the existing DRG system was a
viable option that would be evaluated.
Therefore, we decided to make interim changes to the existing DRGs
for FY 2007 by creating 20 new DRGs involving 13 different clinical
areas that would significantly improve the CMS DRG system's recognition
of severity of illness. We also modified 32 DRGs to better capture
differences in severity. The new and revised DRGs were selected from 40
existing CMS DRGs that contained 1,666,476 cases and represented a
number of body systems. In creating these 20 new DRGs, we deleted 8
existing DRGs and modified 32 existing DRGs. We indicated that these
interim steps for FY 2007 were being taken as a prelude to more
comprehensive changes to better account for severity in the DRG system
by FY 2008.
In the FY 2007 IPPS final rule (71 FR 47898), we indicated our
intent to pursue further DRG reform through two initiatives. First, we
announced that we were in the process of engaging a contractor to
assist us with evaluating alternative DRG systems that were raised as
potential alternatives to the CMS DRGs in the public comments. Second,
we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes
as part of making further refinements to the current CMS DRGs to better
recognize severity of illness based on the work that CMS (then HCFA)
did in the mid-1990's in connection with adopting severity DRGs. We
describe below the progress we have made on these two initiatives and
our actions for FYs 2008, 2009, and 2010, and our proposed and final
actions for FY 2011 based on our continued analysis of reform of the
DRG system. We note that the adoption of the MS-DRGs to better
recognize severity of illness has implications for the outlier
threshold, the application of the postacute care transfer policy, the
measurement of real case-mix versus apparent case-mix, and the IME and
DSH payment adjustments. We discuss these implications for FY 2011 in
other sections of this preamble and in the Addendum to this final rule.
In the FY 2007 IPPS proposed rule, we discussed MedPAC's
recommendations to move to a cost-based HSRV weighting methodology
using HSRVs beginning with the FY 2007 IPPS proposed rule for
determining the DRG relative weights. Although we proposed to adopt the
HSRV weighting methodology for FY 2007, we decided not to adopt the
proposed methodology in the final rule after considering the public
comments we received on the proposal. Instead, in the FY 2007 IPPS
final rule, we adopted a cost-based weighting methodology without the
HSRV portion of the proposed methodology. The cost-based weights were
adopted over a 3-year transition period in \1/3\ increments between FY
2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we
indicated our intent to further study the HSRV-based methodology as
well as other issues brought to our attention related to the cost-based
weighting methodology adopted in the FY 2007 final rule. There was
significant concern in the public comments that our cost-based
weighting methodology does not adequately account for charge
compression--the practice of applying a higher percentage charge markup
over costs to lower cost items and services and a lower percentage
charge markup over costs to higher cost items and services. Further,
public commenters expressed concern about potential inconsistencies
between how costs and charges are reported on the Medicare cost reports
and charges on the Medicare claims. In the FY 2007 IPPS final rule, we
used costs and charges from the cost reports to determine departmental
level cost-to-charge ratios (CCRs) which we then applied to charges on
the Medicare claims to determine the cost-based weights. The commenters
were concerned about potential distortions to the cost-based weights
that would result from inconsistent reporting between the cost reports
and the Medicare claims. After publication of the FY 2007 IPPS final
rule, we entered into a contract with RTI International (RTI) to study
both charge compression and the extent, if any, to which our
methodology for calculating DRG relative weights is affected by
inconsistencies between how hospitals report costs and charges on the
cost reports and how hospitals report charges on individual claims.
Further, as part of its study of alternative DRG systems, the RAND
Corporation analyzed the HSRV cost-weighting methodology. We refer
readers to section II.E. of the preamble of this final rule for a
discussion of the issue of charge compression and the cost-weighting
methodology for FY 2011.
We believe that revisions to the DRG system to better recognize
severity of illness and changes to the relative weights based on costs
rather than charges are improving the accuracy of the payment rates in
the IPPS. We agree with MedPAC that these refinements should be
pursued. Although we continue to caution that any prospective payment
system based on grouping cases will always present some opportunities
for providers to specialize in cases they believe have higher margins,
we believe that the changes we have adopted and the continuing reforms
we are making in this final rule for FY 2011 will improve payment
accuracy and reduce financial incentives to create specialty hospitals.
We refer readers to section II.D. of the FY 2008 IPPS final rule
with comment period for a full discussion of how the MS-DRG system was
established based on severity levels of illness (72 FR 47141).

[[Page 50057]]

D. FY 2011 MS-DRG Documentation and Coding Adjustment, Including the
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount

1. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
As we discussed earlier in this preamble, we adopted the MS-DRG
patient classification system for the IPPS, effective October 1, 2007,
to better recognize severity of illness in Medicare payment rates for
acute care hospitals. The adoption of the MS-DRG system resulted in the
expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008.
(Currently, there are 746 MS-DRGs for FY 2010; there will be 747 MS-
DRGs in FY 2011, with the deletion in this final rule of one MS-DRG and
the creation of two new MS-DRGs.) By increasing the number of MS-DRGs
and more fully taking into account patient severity of illness in
Medicare payment rates for acute care hospitals, MS-DRGs encourage
hospitals to improve their documentation and coding of patient
diagnoses. In the FY 2008 IPPS final rule with comment period (72 FR
47175 through 47186), we indicated that the adoption of the MS-DRGs had
the potential to lead to increases in aggregate payments without a
corresponding increase in actual patient severity of illness due to the
incentives for additional documentation and coding. In that final rule
with comment period, we exercised our authority under section
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget
neutrality by adjusting the national standardized amount, to eliminate
the estimated effect of changes in coding or classification that do not
reflect real changes in case-mix. Our actuaries estimated that
maintaining budget neutrality required an adjustment of -4.8 percent to
the national standardized amount. We provided for phasing in this -4.8
percent adjustment over 3 years. Specifically, we established
prospective documentation and coding adjustments of -1.2 percent for FY
2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010.
On September 29, 2007, Congress enacted the TMA [Transitional
Medical Assistance], Abstinence Education, and QI [Qualifying
Individuals] Programs Extension Act of 2007, Public Law 110-90. Section
7(a) of Public Law 110-90 reduced the documentation and coding
adjustment made as a result of the MS-DRG system that we adopted in the
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008
and -0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not
adjust the FY 2010 -1.8 percent documentation and coding adjustment
promulgated in the FY 2008 IPPS final rule with comment period. To
comply with section 7(a) of Public Law 110-90, we promulgated a final
rule on November 27, 2007 (72 FR 66886) that modified the IPPS
documentation and coding adjustment for FY 2008 to -0.6 percent, and
revised the FY 2008 payment rates, factors, and thresholds accordingly.
These revisions were effective on October 1, 2007.
For FY 2009, section 7(a) of Public Law 110-90 required a
documentation and coding adjustment of -0.9 percent instead of the -1.8
percent adjustment established in the FY 2008 IPPS final rule with
comment period. As discussed in the FY 2009 IPPS final rule (73 FR
48447) and required by statute, we applied a documentation and coding
adjustment of -0.9 percent to the FY 2009 IPPS national standardized
amount. The documentation and coding adjustments established in the FY
2008 IPPS final rule with comment period, as amended by Public Law 110-
90, are cumulative. As a result, the -0.9 percent documentation and
coding adjustment for FY 2009 was in addition to the -0.6 percent
adjustment for FY 2008, yielding a combined effect of -1.5 percent.
2. Prospective Adjustment to the Average Standardized Amounts Required
by Section 7(b)(1)(A) of Public Law 110-90
Section 7(b)(1)(A) of Public Law 110-90 requires that, if the
Secretary determines that implementation of the MS-DRG system resulted
in changes in documentation and coding that did not reflect real
changes in case-mix for discharges occurring during FY 2008 or FY 2009
that are different than the prospective documentation and coding
adjustments applied under section 7(a) of Public Law 110-90, the
Secretary shall make an appropriate adjustment under section
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act
authorizes adjustments to the average standardized amounts for
subsequent fiscal years in order to eliminate the effect of such coding
or classification changes. These adjustments are intended to ensure
that future annual aggregate IPPS payments are the same as the payments
that otherwise would have been made had the prospective adjustments for
documentation and coding applied in FY 2008 and FY 2009 reflected the
change that occurred in those years.
3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012
Required by Public Law 110-90
If, based on a retroactive evaluation of claims data, the Secretary
determines that implementation of the MS-DRG system resulted in changes
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are
different from the prospective documentation and coding adjustments
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of
Public Law 110-90 requires the Secretary to make an additional
adjustment to the standardized amounts under section 1886(d) of the
Act. This adjustment must offset the estimated increase or decrease in
aggregate payments for FYs 2008 and 2009 (including interest) resulting
from the difference between the estimated actual documentation and
coding effect and the documentation and coding adjustment applied under
section 7(a) of Public Law 110-90. This adjustment is in addition to
making an appropriate adjustment to the standardized amounts under
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A)
of Public Law 110-90. That is, these adjustments are intended to recoup
(or repay) spending in excess of (or less than) spending that would
have occurred had the prospective adjustments for changes in
documentation and coding applied in FY 2008 and FY 2009 precisely
matched the changes that occurred in those years. Public Law 110-90
requires that the Secretary make these recoupment or repayment
adjustments for discharges occurring during FYs 2010, 2011, and 2012.
4. Retrospective Evaluation of FY 2008 Claims Data
In order to implement the requirements of section 7 of Public Law
110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that
we planned a thorough retrospective evaluation of our claims data. We
stated that the results of this evaluation would be used by our
actuaries to determine any necessary payment adjustments to the
standardized amounts under section 1886(d) of the Act to ensure the
budget neutrality of the MS-DRGs implementation for FY 2008 and FY
2009, as required by law. In the FY 2009 IPPS proposed rule (73 FR
23541 through 23542), we described our preliminary plan for a
retrospective analysis of inpatient hospital claims data and invited
public input on our proposed methodology.

[[Page 50058]]

In that proposed rule, we indicated that we intended to measure and
corroborate the extent of the overall national average changes in case-
mix for FY 2008 and FY 2009. We expected that the two largest parts of
this overall national average change would be attributable to
underlying changes in actual patient severity of illness and to
documentation and coding improvements under the MS-DRG system. In order
to separate the two effects, we planned to isolate the effect of shifts
in cases among base DRGs from the effect of shifts in the types of
cases within-base DRGs.
The MS-DRGs divide the base DRGs into three severity levels (with
MCC, with CC, and without CC); the previously used CMS DRGs had only
two severity levels (with CC and without CC). Under the CMS DRG system,
the majority of hospital discharges had a secondary diagnosis which was
on the CC list, which led to the higher severity level. The MS-DRGs
significantly changed the code lists of what was classified as an MCC
or a CC. Many codes that were previously classified as a CC are no
longer included on the MS-DRG CC list because the data and clinical
review showed these conditions did not lead to a significant increase
in resource use. The addition of a new level of high severity
conditions, the MCC list, also provided a new incentive to code more
precisely in order to increase the severity level. We anticipated that
hospitals would examine the MS-DRG MCC and CC code lists and then work
with physicians and coders on documentation and coding practices so
that coders could appropriately assign codes from the highest possible
severity level. We note that there have been numerous seminars and
training sessions on this particular coding issue. The topic of
improving documentation practices in order to code conditions on the
MCC list was also discussed extensively by participants at the March
11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting.
Participants discussed their hospitals' efforts to encourage physicians
to provide more precise documentation so that coders could
appropriately assign codes that would lead to a higher severity level.
Because we expected most of the documentation and coding changes under
the MS-DRG system would occur in the secondary diagnoses, we believed
that the shifts among base DRGs were less likely to be the result of
the MS-DRG system and the shifts within-base DRGs were more likely to
be the result of the MS-DRG system. We also anticipated evaluating data
to identify the specific MS-DRGs and diagnoses that contributed
significantly to the documentation and coding payment effect and to
quantify their impact. This step entailed analysis of the secondary
diagnoses driving the shifts in severity within specific base DRGs.
In that same proposed rule, we also stated that, while we believed
that the data analysis plan described previously would produce an
appropriate estimate of the extent of case-mix changes resulting from
documentation and coding changes, we might decide, if feasible, to use
historical data from our Hospital Payment Monitoring Program (HPMP) to
corroborate the within-base DRG shift analysis. The HPMP is supported
by the Medicare Clinical Data Abstraction Center (CDAC).
In the FY 2009 IPPS proposed rule, we solicited public comments on
the analysis plans described above, as well as suggestions on other
possible approaches for performing a retrospective analysis to identify
the amount of case-mix changes that occurred in FY 2008 and FY 2009
that did not reflect real increases in patient severity of illness.
A few commenters, including MedPAC, expressed support for the
analytic approach described in the FY 2009 IPPS proposed rule. A number
of other commenters expressed concerns about certain aspects of the
approach and/or suggested alternate analyses or study designs. In
addition, one commenter recommended that any determination or
retrospective evaluation by the actuaries of the impact of the MS-DRGs
on case-mix be open to public scrutiny prior to the implementation of
the payment adjustments beginning in FY 2010.
We took these comments into consideration as we developed our
proposed analysis plan and in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24092 through 24101) solicited public comment on
our methodology and analysis. For the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we performed a retrospective evaluation of the FY 2008
data for claims paid through December 2008. Based on this evaluation,
our actuaries determined that implementation of the MS-DRG system
resulted in a 2.5 percent change due to documentation and coding that
did not reflect real changes in case-mix for discharges occurring
during FY 2008.
In the analysis of data for that proposed rule, we found that the
within-base DRG increases were almost entirely responsible for the
case-mix change, supporting our conclusion that the 2.5 percent
estimate was an accurate reflection of the FY 2008 effect of changes in
documentation and coding under the MS-DRG system. In fact, almost every
base DRG that was split into different severity levels under the MS-DRG
system experienced increases in the within-base DRGs. We then further
analyzed the changes in the within-base DRGs to determine which MS-DRGs
had the highest contributions to this increase. The results of the
analysis for the proposed rule provided additional support for our
conclusion that the proposed 2.5 percent estimate accurately reflected
the FY 2008 increases in documentation and coding under the MS-DRG
system. While we attempted to use the CDAC data to distinguish real
increase in case-mix growth from documentation and coding in the
overall case-mix number, we found aberrant data and significant
variation across the FY 1999 through FY 2007 analysis period. It was
not possible to distinguish changes in documentation and coding from
changes in real case-mix in the CDAC data. Therefore, we concluded that
the CDAC data would not support analysis of real case-mix growth that
could be used in our retrospective evaluation of the FY 2008 claims
data.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768
through 43772), we responded to comments on our methodology for the
retrospective evaluation of FY 2008 claims data. Commenters raised
concerns that our estimate in the proposed rule did not fully consider
other potential causes of increased case-mix, such as patients
requiring less complex services receiving care in other settings and
healthier patients enrolling in Medicare Advantage plans in increasing
numbers. Other commenters indicated that factors such as the changes in
the CC/MCC definitions, limitations on the number of codes used by CMS
for payment and ratesetting, resequencing of secondary diagnoses, the
transition to the cost-based weights, less use of not otherwise
specified codes, and increases in real case-mix due to health care
reform efforts also resulted in an inaccurate documentation and coding
analysis. One commenter indicated that, of the overall case-mix
increase, 1.0 percent to 1.5 percent is real case-mix increase, while
1.0 percent to 1.5 percent is due to documentation and coding or other
increases.
In considering these comments concerning historical real case-mix,
in the FY 2010 final rule, we calculated overall increases in case-mix
for the period from FY 2000 to FY 2007 using

[[Page 50059]]

the cases from each year and the GROUPER and the relative weights
applicable for each year. The results ranged from -0.7 to +1.4 percent.
Overall case-mix growth is predominately comprised of three
factors: real case-mix growth; a documentation and coding effect; and a
measurement effect. Under the reasonable assumption that there has been
a relatively small measurement effect in those years, the assertion
that there is a historical pattern of steady annual increases of 1.2 to
1.3 percent in real case-mix implies that the documentation and coding
effect in many of the years in the FY 2000 to FY 2007 time period was
negative. For example, as discussed in that rule (74 FR 43769), we
estimated a recent measurement effect of +0.3 percent. There was an
overall case-mix growth of -0.2 percent in FY 2007. The overall case-
mix growth of -0.2 percent net of a measurement effect of +0.3 percent
results in growth of +0.1 percent. Had real case-mix growth been +1.2
percent in FY 2007, therefore, it would imply a negative documentation
and coding effect of approximately -1.1 percent. It is not obvious why
documentation and coding would have had such a large negative effect in
FY 2007, or in any other year where the overall case-mix change is
significantly less than the average annual trend claimed by the
commenters, calling into question the assertion that real case-mix
growth is a steady 1.2 to 1.3 percent per year.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43770
through 43771), we indicated that our estimate of the overall case-mix
growth for FY 2008 based on more recent data than the data used in the
FY 2010 proposed rule was 2.0 percent, still less than our actuaries'
estimate of a 2.5 percent documentation and coding increase. With
respect to the concerns raised by commenters about our finding of
negative real case-mix growth in FY 2008, a finding of negative real
case-mix growth is consistent with the fact that, in some years,
overall case-mix growth has been negative.
5. Retrospective Analysis of FY 2009 Claims Data
We performed the same analysis for FY 2009 claims data using the
same methodology as we did for FY 2008 claims in the FY 2010 final
rule. We note that in the FY 2011 IPPS/LTCH PPS proposed rule, we
performed this analysis using FY 2009 claims paid through December
2009. In this FY 2011 IPPS/LTCH PPS final rule, we have updated the
analysis with FY 2009 claims paid through March 2010, as we discussed
in the proposed rule. We note that, for non-Puerto Rico IPPS hospitals,
the estimates are unchanged from those in the proposed rule.
We first divided the case-mix index (CMI) obtained by grouping the
FY 2009 claims data through the FY 2009 GROUPER (Version 26.0) by the
CMI obtained by grouping these same FY 2009 claims through the FY 2007
GROUPER (Version 24.0). This resulted in a value of 1.056. Because
these cases are the same FY 2009 cases grouped using Versions 24.0 and
26.0 of the GROUPER, we attribute this increase primarily to two
factors: (1) The effect of changes in documentation and coding under
the MS-DRG system; and (2) the measurement effect from the calibration
of the GROUPER. We estimated the measurement effect from the
calibration of the GROUPER by dividing the CMI obtained by grouping
cases in the FY 2007 claims data through the FY 2009 GROUPER by the CMI
obtained by grouping cases in these same claims through the FY 2007
GROUPER. This resulted in a value of 1.0019. In order to isolate the
documentation and coding effect, we then divided the combined effect of
the changes in documentation and coding and measurement (1.056) by the
measurement effect (1.0019) to yield 1.054. Therefore, our estimate of
the documentation and coding increase that did not reflect real changes
in case-mix for discharges was 5.4 percent.
In parallel to our analysis in the proposed rule, we then sought to
corroborate this 5.4 percent estimate by examining the increases in the
within-base DRGs as compared to the increases in the across base DRGs
as described earlier in our analysis plan. In other words, we looked
for improvements in code selection that would lead to a secondary
diagnosis increasing the severity level to either a CC or an MCC level.
We found that the within-base DRG increases were almost entirely
responsible for the case mix change, supporting our conclusion that the
5.4 percent estimate was an accurate reflection of the FY 2009 effect
of changes in documentation and coding under the MS-DRG system. We then
further analyzed the changes in the within-base DRGs to determine which
MS-DRGs had the highest contributions to this increase. The results of
the analysis for the proposed rule provided additional support for our
conclusion that the proposed 5.4 percent estimate accurately reflected
the FY 2009 increases in documentation and coding under the MS-DRG
system.

[[Page 50060]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.000

As reflected in the above chart, for short-term acute care
hospitals, SCHs, and MDHs, there is approximately an 8 percentage point
increase in the discharge severity with MCCs from 20 percent to 28
percent, and a corresponding decrease of approximately 8 percentage
points in discharge severity without CC/MCC from 57 percent to 49
percent.
Consistent with the expectations of our medical coding experts
concerning areas with potential for documentation and coding
improvements, the top contributors were heart failure, chronic
obstructive pulmonary disease, and simple pneumonia and pleurisy. Heart
failure is a very common secondary diagnosis among Medicare hospital
admissions. The heart failure codes are assigned to all three severity
levels. Some codes are classified as non-CCs, while other codes are on
the CC and MCC lists. By changing physician documentation to more
precisely identify the type of heart failure, hospitals are able to
appropriately change the severity level of cases from the lowest level
(non-CC) to a higher severity level (CC or MCC) through coding. This
point was stressed repeatedly at the March 11-12, 2009 ICD-9-CM
Coordination and Maintenance Committee meeting as coders discussed
their work with physicians on this coding issue. Many of the
participants indicated that additional work was still needed with their
physicians in order to document conditions in the medical record more
precisely.
The results of this analysis provided additional support for our
conclusion that the proposed 5.4 percent estimate accurately reflected
the FY 2009 increases in documentation and coding under the MS-DRG
system.
As in prior years, the FY 2008 and FY 2009 MedPAR files are
available to the public to allow independent analysis of the FY 2008
and FY 2009 documentation and coding effect. Interested individuals may
still order these files through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by clicking on MedPAR Limited Data Set
(LDS)-Hospital (National). This Web page describes the file and
provides directions and further detailed instructions for how to order.
Persons placing an order must send the following: a Letter of
Request, the LDS Data Use Agreement and Research Protocol (refer to the
Web site for further instructions), the LDS Form, and a check for
$3,655 to:
Mailing address if using the U.S. Postal Service: Centers for
Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O.
Box 7520, Baltimore, MD 21207-0520.

Mailing address if using express mail: Centers for Medicare &
Medicaid Services, OFM/Division of Accounting--RDDC, 7500 Security
Boulevard, C3-07-11, Baltimore. MD 21244-1850.
6. Prospective Adjustment for FY 2010 and Subsequent Years Authorized
by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi)
of the Act
Based on our evaluation of FY 2008 Medicare claims data that were
most current at the time of the FY 2010 IPPS/RY 2010 LTCH PPS proposed
rule, the estimated 2.5 percent change in FY 2008 case-mix due to
changes in documentation and coding that did not reflect real changes
in case-mix for discharges occurring during FY 2008 exceeded the -0.6
percent prospective documentation and coding adjustment applied under
section 7(a) of Public Law 110-90 by 1.9 percentage points. Under
section 7(b)(1)(A) of Public Law 110-90, the Secretary is required to
make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the
Act to the average standardized amounts for subsequent fiscal years in
order to eliminate the full effect of the documentation and coding
changes on future payments. As we have consistently stated since the
initial implementation of the MS-DRG system, we do not believe it is
appropriate for expenditures to increase due to MS-DRG-related changes
in documentation and coding that do not reflect real changes in case-
mix.
We also estimated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed and
final rules that the additional change in case-mix due to changes in
documentation and coding that do not reflect real changes in case-mix
for discharges occurring during FY 2009 was 2.3 percent, which would
exceed by

[[Page 50061]]

1.4 percentage points the -0.9 percent prospective documentation and
coding adjustment for FY 2009 applied under section 7(a) of Public Law
110-90. We had the statutory authority to adjust the FY 2010 rates for
this estimated 1.4 percentage point increase. However, given that
Public Law 110-90 requires a retrospective claims evaluation for the
additional adjustments (as described in section II.D.3. of this
preamble), we stated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule
and final rule (74 FR 24096 and 43772, respectively) that we believed
our evaluation of the extent of the overall national average changes in
case-mix for FY 2009 should also be based on a retrospective evaluation
of all FY 2009 claims data. Because we did not receive all FY 2009
claims data prior to publication of the FY 2010 final rule, we
indicated we would address any difference between the additional
increase in FY 2009 case-mix due to changes in documentation and coding
that did not reflect real changes in case-mix for discharges occurring
during FY 2009 and the -0.9 percent prospective documentation and
coding adjustment applied under section 7(a) of Public Law 110-90 in
the FY 2011 rulemaking cycle.
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096),
we solicited public comment on the proposed -1.9 percent prospective
adjustment to the standardized amounts under section 1886(d) of the Act
to address the effects of documentation and coding changes unrelated to
changes in real case-mix in FY 2008. In addition, we solicited public
comments on addressing in the FY 2011 rulemaking cycle any differences
between the increase in FY 2009 case-mix due to changes in
documentation and coding changes that do not reflect real changes in
case-mix for discharges occurring during FY 2009 and the -0.9 percent
prospective documentation and coding adjustment applied under section
7(a) of Public Law 110-90. In response to the proposed rule, MedPAC
summarized its comments on when CMS should reduce payment rates to
prevent further overpayments and to recover overpayments occurring in
2008 and 2009 as follows: ``We support CMS's proposal to reduce IPPS
payments in 2010 by 1.9 percent to prevent further overpayments. While
we and the CMS actuaries believe that a 1.9 percent reduction will not
fully prevent overpayments from continuing in 2010, this is a
reasonable first step toward reducing overpayments.'' Most of the other
commenters opposed the proposed -1.9 percent prospective FY 2010
adjustment for FY 2008 documentation and coding increases, but
supported the proposal not to apply a FY 2010 prospective adjustment
for estimated FY 2009 documentation and coding increases. Many
commenters expressed concern over the financial impact of the proposed
-1.9 percent adjustment and the methodology for calculating the
adjustment. Other commenters recommended that CMS seek to extend the
timeframe beyond 2 years to phase in the then-estimated -6.6 percent
adjustment to the standardized amount.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule in response to
these commenters, we indicated that we fully understood that our
proposed adjustment of -1.9 percent would reduce the increase in
payments that affected hospitals would have received in FY 2009 in the
absence of the adjustment. We explained that, although we are required
to make a prospective adjustment to eliminate the full effect of coding
or classification changes that did not reflect real changes in case-mix
for discharges occurring during FY 2008, we believed we had some
discretion regarding when to implement this adjustment. Section
7(b)(1)(A) of Public Law 110-90 requires that if the Secretary
determines that implementation of the MS-DRG system resulted in changes
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are
different than the prospective documentation and coding adjustments
applied under section 7(a) of Public Law 110-90, the Secretary shall
make an ``appropriate'' adjustment under section 1886(d)(3)(A)(vi) of
the Act.
Therefore, we determined that it would be appropriate to postpone
adopting documentation and coding adjustments as authorized under
section 7(a) of Public Law 110-90 and section 1886(d)(3)(A)(vi) of the
Act until a full analysis of case-mix changes could be completed. We
indicated that, while we had the statutory authority to make this -1.9
percent prospective adjustment entirely in FY 2010, we believed it
would be prudent to wait until we had completed data on the magnitude
of the documentation and coding effect in FY 2009. Specifically, we
stated that if the documentation and coding effect were to be less in
FY 2009 than our estimates at that time, it could lessen the
anticipated adjustment that we had estimated we would have had to make
for FY 2008 and FY 2009 combined. We indicated that, in future
rulemaking, we would consider applying a prospective adjustment based
upon a complete analysis of FY 2008 and FY 2009 claims data, beginning
in FY 2011. We indicated that we intended to address any difference
between the increase in FY 2009 case-mix due to changes in
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2009 and the -0.9 percent
prospective documentation and coding adjustment applied under section
7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.
After analysis of the FY 2009 claims data for this FY 2011 IPPS/
LTCH PPS final rule, we have found a total prospective documentation
and coding effect of 1.054. After accounting for the -0.6 percent and
the -0.9 percent documentation and coding adjustments in FYs 2008 and
2009, we find a remaining documentation and coding effect of 3.9
percent. As we have discussed, an additional cumulative adjustment of -
3.9 percent would be necessary to meet the requirements of section
7(b)(1)(A) of Public Law 110-90 to make an adjustment to the average
standardized amounts in order to eliminate the full effect of the
documentation and coding changes on future payments. Unlike section
7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not specify
when we must apply the prospective adjustment, but merely requires us
to make an ``appropriate'' adjustment. Therefore, we believe we have
some discretion as to the manner in which we apply the prospective
adjustment of -3.9 percent. Applying the full prospective adjustment of
-3.9 percent for FY 2011, in combination with the proposed recoupment
adjustment of -2.9 percent, discussed below, would require an aggregate
adjustment of -6.8 percent. As we discuss more fully below, it has been
our practice to moderate payment adjustments when necessary to mitigate
the effects of significant downward adjustments on hospitals, to avoid
what could be widespread, disruptive effects of such adjustments on
hospitals. As we also discuss below, we are required to implement the
adjustment in section 7(b)(1)(B) of Public Law 110-90 no later than FY
2012, and accordingly, in the FY 2011 proposed rule, we proposed an
adjustment under that section for FY 2011 (75 FR 23870-23871).
Therefore, we believe it is appropriate to not implement any or all of
the -3.9 percent prospective adjustment in FY 2011. Accordingly, we did
not propose a prospective adjustment under section 7(b)(1)(A) of Public
Law 110-90 for FY 2011 (75 FR 23868-23870). We note

[[Page 50062]]

that, as a result, payments in FY 2011 (and in each future year until
we implement the requisite adjustment) will be 3.9 percent higher than
they would have been if we had implemented an adjustment under section
7(b)(1)(A) of Public Law 110-90. Our actuaries estimate that this 3.9
percentage point increase will result in an aggregate payment of
approximately $4 billion. We also note that payments in FY 2010 are
expected to be 3.9 percent higher than they would have been if we had
implemented an adjustment under section 7(b)(1)(A) of Public Law 110-
90, which our actuaries estimate will increase aggregate payments by
approximately $4 billion in FY 2010.
In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public
comment on our proposal not to apply in FY 2011 the -3.9 percent
prospective adjustment to the average standardized amounts required
under section 7(b)(1)(A) of Public Law 110-90 in order to eliminate the
full effect of the documentation and coding changes on future payments.
We note that this proposal would require us to apply the -3.9 percent
adjustment in future payment years, which may be applied all at once in
a single year or phased in over more than one year. As noted earlier,
we have updated our analysis with FY 2009 data on claims paid through
March 2010 for this FY 2011 IPPS/LTCH PPS final rule.
MedPAC addressed the issue of providing for the required -3.9
percent prospective adjustment to the average standardized amounts
required under section 7(b)(1)(A) of Public Law 110-90. We discuss its
recommendation in the context of our proposal for a recoupment
adjustment below.
7. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section
7(b)(1)(B) of Public Law 110-90
As indicated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43773), we estimated a 2.5 percent change (estimated from analysis of
more recent data for the FY 2010 final rule than the data used for that
proposed rule) due to documentation and coding that did not reflect
real changes in case-mix for discharges occurring during FY 2008,
exceeding the -0.6 percent prospective documentation and coding
adjustment applied under section 7(a) of Public Law 110-90 by 1.9
percentage points. We stated that our actuaries had estimated that this
1.9 percentage point increase resulted in an increase in aggregate
payments of approximately $2.2 billion. As described earlier, section
7(b)(1)(B) of Public Law 110-90 requires an adjustment for discharges
occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount
of this increase in aggregate payments (including interest). Although
section 7(b)(1)(B) of Public Law 110-90 requires us to make this
adjustment in FYs 2010, 2011, and/or 2012, we have discretion as to
when during this 3-year period we will apply the adjustment.
We did not propose to make an adjustment to the FY 2010 average
standardized amounts to offset, in whole or in part, the estimated
increase in aggregate payments for discharges occurring in FY 2008, but
stated in the proposed rule that we intended to address this issue in
future rulemaking. That is, we stated that we would address recouping
the additional expenditures that occurred in FY 2008 as a result of the
1.9 percentage point difference between the actual changes in
documentation and coding that do not reflect real changes in case-mix
(2.5 percent), and the -0.6 percent adjustment applied under Public Law
110-90 in FY 2011 and/or FY 2012, as required by law. We indicated
that, while we had the statutory authority to make this -1.9 percent
recoupment adjustment entirely in FY 2010, we were delaying the
adjustment until FY 2011 and FY 2012 because we did not yet have any
data on the magnitude of the documentation and coding effect in FY
2009. We stated that as we have the authority to recoup the aggregate
effect of this 1.9 percentage point difference in FY 2008 IPPS payments
in FY 2011 or FY 2012 (with interest), delaying this adjustment would
have no effect on Federal budget outlays. We indicated that we intended
to wait until we have a complete year of data on the FY 2009
documentation and coding effect before applying a recoupment adjustment
for IPPS spending that occurred in FY 2008 or we estimate will occur in
FY 2009.
As discussed above, section 7(b)(1)(B) of Public Law 110-90
requires the Secretary to make an adjustment to the standardized
amounts under section 1886(d) of the Act to offset the estimated
increase or decrease in aggregate payments for FY 2009 (including
interest) resulting from the difference between the estimated actual
documentation and coding effect and the documentation and coding
adjustments applied under section 7(a) of Public Law 110-90. This
determination must be based on a retrospective evaluation of claims
data. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43774), we
stated that because we would not receive all FY 2009 claims data prior
to publication of the final rule, we would address any increase or
decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012
after we perform a retrospective evaluation of the FY 2009 claims data.
At that time, our actuaries estimated that this adjustment would be
approximately -3.3 percent. This reflected the difference between the
estimated 4.8 percent cumulative actual documentation and coding
changes for FY 2009 (2.5 percent for FY 2008 and an additional 2.3
percent for FY 2009) and the cumulative -1.5 percent documentation and
coding adjustments applied under section 7(a) of Public Law 110-90 (-
0.6 percent in FY 2008 and -0.9 percent in FY 2009). We noted that the
actual adjustments were multiplicative and not additive. This estimated
4.8 percent cumulative actual documentation and coding changes for FY
2009 included the impact of the changes in documentation and coding
first occurring in FY 2008 because we believed hospitals would continue
these changes in documentation and coding in subsequent fiscal years.
Consequently, we believed that these documentation and coding changes
would continue to impact payments under the IPPS absent a prospective
adjustment to account for the effect of these changes.
We note that, unlike the adjustment to the standardized amounts
under section 7(b)(1)(A) of Public Law 110-90 described earlier, any
adjustment to the standardized amounts under section 7(b)(1)(B) of
Public Law 110-90 would not be cumulative, but would be removed for
subsequent fiscal years once we have offset the increase in aggregate
payments for discharges for FY 2008 expenditures and FY 2009
expenditures, if any.
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096),
we did not propose to offset the 1.9 percent increase in aggregate
payments (including interest) for discharges occurring in FY 2008
resulting from the adoption of the MS-DRGs, but to instead address this
issue in future rulemaking for FYs 2011 and 2012.
In response to the FY 2010 proposed rule, MedPAC stated in its
comments on the adjustment to the standardized amounts under section
7(b)(1)(B) of Public Law 110-90: ``In addition, it would be desirable
for CMS to minimize year-to-year changes in payment adjustments it must
make to recover overpayments that were made in 2008 and 2009. To
achieve this goal, CMS should consider spreading the recovery of 2008
overpayments over 3 years, beginning in 2010.'' Some commenters
recommended that CMS seek to extend the timeframe beyond 2 years to
phase

[[Page 50063]]

in the estimated -6.6 percent adjustment to the standardized amount.
The commenters asked CMS to seek necessary legislative action to
accommodate such a policy. Most commenters expressed concern with the
significant negative financial impacts that would be incurred by
providers if CMS adopted that proposed -1.9 percent documentation and
coding adjustment in FY 2010. The commenters cited providers' already
small or negative margins for Medicare payments, and requested that CMS
not further reduce payments during the current period of economic
instability and reduced State funding. Other commenters indicated that
it would be appropriate to delay any adjustment to the standardized
amounts under section 7(b)(1)(B) of Public Law 110-90 until after CMS
has the opportunity to fully examine the FY 2009 claims data.
In response to these comments in FY 2010, we indicated that we
recognized that any adjustment to account for the documentation and
coding effect observed in the FY 2008 and FY 2009 claims data may
result in significant future payment reductions for providers. However,
we indicated that we are required under section 7(b)(1)(B) of Public
Law 110-90 to recapture the difference of actual documentation and
coding effect in FY 2008 and FY 2009 that is greater than the prior
adjustments. We agreed with the commenters who requested that CMS delay
any adjustment and, for the reasons stated above, indicated that we
expect to address this issue in this FY 2011 rulemaking.
As indicated in section II.D.4. of this preamble, the change due to
documentation and coding that did not reflect real changes in case mix
for discharges occurring during FY 2008 and FY 2009 exceeded the -0.6
and -0.9 percent prospective documentation and coding adjustment
applied under section 7(a) of Public Law 110-90 for those 2 years
respectively by 1.9 percentage points in FY 2008 and 3.9 percentage
points in FY 2009. In total, this change exceeded the cumulative
prospective adjustments by 5.8 percentage points. Our actuaries
currently estimate that this 5.8 percentage point increase resulted in
an increase in aggregate payments of approximately $6.9 billion. We
note that there may be a need to actuarially adjust the recoupment
adjustment to accurately reflect accumulated interest. Therefore, an
aggregate adjustment of -5.8 percent in FYs 2011 and 2012, subject to
actuarial adjustment to reflect accumulated interest, is necessary in
order to meet the requirements of section 7(b)(1)(B) of Public Law 110-
90 to adjust the standardized amounts for discharges occurring in FYs
2010, 2011, and/or 2012 to offset the estimated amount of the increase
in aggregate payments (including interest) in FYs 2008 and 2009. In the
FY 2011 proposed rule (75 FR 23871), we stated that we intend to take
into account the need to reflect accumulated interest in proposing a
recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90 for
FY 2012. We indicated that we will invite public comments on our
proposal at that time.
It is often our practice to phase in rate adjustments over more
than one year in order to moderate the effect on rates in any one year.
Therefore, consistent with the policies we have adopted in many similar
cases, in the FY 2011 proposed rule, we proposed to make an adjustment
to the standardized amount of -2.9 percent, representing approximately
half of the aggregate adjustment required under section 7(b)(1)(B) of
Public Law 110-90, for FY 2011. An adjustment of this magnitude allows
us to moderate the effects on hospitals in one year while
simultaneously making it possible to implement the entire adjustment
within the timeframe required under section 7(b)(1)(B) of Public Law
110-90. As we have previously noted, unlike the prospective adjustment
to the standardized amounts under section 7(b)(1)(A) of Public Law 110-
90 described earlier, the recoupment or repayment adjustment to the
standardized amounts under section 7(b)(1)(B) of Public Law 110-90 is
not cumulative, but would be removed for subsequent fiscal years once
we have offset the increase in aggregate payments for discharges for FY
2008 expenditures and FY 2009 expenditures. In keeping with our
practice of moderating payment adjustments when necessary, we stated
that we anticipated that the proposal will have an additional, and
significant, moderating effect on implementing the requirements of
section 7(b)(1)(B) of Public Law 110-90 for FY 2012. Specifically, we
noted an advantage of the proposal for FY 2011 is that we anticipate
removing the proposed FY 2011 -2.9 percent adjustment from the rates in
FY 2012, when it would also be necessary under current law to apply the
remaining approximately -2.9 percent adjustment required by section
7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring
the FY 2011 -2.9 percent adjustment, and applying the remaining
adjustment of approximately -2.9 percent, would effectively cancel each
other out. The result would be an aggregate adjustment of approximately
0.0 percent (subject to the need to account for accumulated interest,
as discussed above) under section 7(b)(1)(B) of Public Law 110-90 in FY
2012. However, while we noted this anticipated effect of the FY 2011
proposal, we did not make a formal proposal for the further
implementation of section 7(b)(1)(B) of Public Law 110-90 in FY 2012 in
the FY 2011 proposed rule.
In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public
comment on our proposal to offset part of the total 5.8 percent
increase in aggregate payments (including interest) for discharges
occurring in FY 2008 and FY 2009 resulting from the adoption of the MS-
DRGs in FY 2011, noting that this proposal would result in a -2.9
percent adjustment to the standardized amount. We noted that we
intended to update our analysis with FY 2009 data on claims paid
through March 2009 (sic) for this FY 2011 IPPS/LTCH PPS final rule. (We
note that the March 2009 update date for claims data in the proposed
rule should have been March 2010.) As intended, we have updated our
analysis with FY 2009 data on claims paid through March 2010 in this FY
2011 IPPS/LTCH PPS final rule.
We received numerous comments on our proposal, especially from
national and regional hospital associations, hospital systems, and
individual hospitals. MedPAC also commented on our proposal.
Comment: One commenter requested that CMS refrain from using
``negative terminology'' to refer the documentation and coding
improvement practices that, in response to the introduction of MS-DRGs,
resulted in overall case-mix increase. While CMS frequently refers to
implementing negative payment adjustments to account for this case-mix
increase, the commenter requested that CMS we refer to any such
adjustment as a ``budget-neutrality adjustment.'' The commenter
contended that referring to ``overpayments'' and ``negative payment
adjustments'' inaccurately portrays coding professionals in a poor
manner, and is counterproductive to CMS' goal of improving the quality
and consistency of health care data.
Response: When describing the MS-DRG documentation and coding
adjustment, we have not intended to suggest that these adjustments are
necessary because coders have acted inappropriately, unethically, or
otherwise in bad faith by employing documentation and coding
improvement practices associated with the adoption of the MS-DRG
system.

[[Page 50064]]

Under the previous DRG definitions, it was possible for high-severity
cases not to be paid more than cases with lower severity. The MS-DRGs
were introduced as part of the effort to ensure that the relative
Medicare payment rates that hospitals received more reasonably matched
the resources that hospitals expended in furnishing care, and CMS
encouraged hospitals to code as accurately as possible with that goal
in mind.
However, it is our finding that the systematic effect of changing
documentation and coding in order to receive the fullest payment for
providing care to beneficiaries under the MS-DRGs has led to an
increase in aggregate payments that do not reflect real changes in
case-mix severity, and the statute specifically requires that we adjust
for and recover these associated overpayments due to such documentation
and coding improvements. We believe our use of certain terminology (to
which the commenter took exception) is the most accurate description of
the specific statutorily required activities that CMS must pursue.
Comment: Numerous commenters detailed the potentially severe
negative fiscal impact that would be experienced by providers if the
proposed documentation and coding improvement adjustment were to be
implemented. Many commenters contended that their individual hospital
documentation and coding practices were not specifically changed or did
not change at the levels shown by our analysis with the introduction of
MS-DRGs, and that they would be unfairly penalized by the payment
adjustment. Some of these commenters provided examples that they
believed supported their claims. Another commenter requested that CMS
implement a more refined payment adjustment methodology that would not
penalize hospitals with compliant and ethical documentation and coding
standards.
Response: We understand the concerns about possible financial
disruption that may be caused by the proposed documentation and coding
improvement payment adjustment. However, we are required by section
7(b)(1)(B) of Public Law 110-90 to implement the appropriate recoupment
or repayment adjustment based on our analysis no later FY 2012. These
payment adjustments are necessary to correct past overpayments due to
increases in aggregate payments that do not reflect real changes in
case-mix severity, but instead are caused solely by documentation and
coding improvements. We proposed a phase-in implementation of the
required adjustments to allow hospitals time to adjust to future
payment differences and to moderate the effect of this adjustment in
any given year. We do not believe that it would prudent to postpone
making any recoupment adjustment beyond FY 2011. A postponement would
require us to make the entire -5.8 percent adjustment that is warranted
by our analysis in just one year (FY 2012) in order to meet the
statutory requirement of section 7(b)(1)(B) of Public Law 110-90. Such
a delay in making the required adjustment would not be to the financial
benefit of hospitals.
Under Medicare's prospective payment systems, it is neither
feasible nor possible to quantify any amount of case-mix increase due
to documentation and coding improvements by a specific hospital.
Therefore, it is necessary for CMS to propose a national adjustment to
meet the statutory requirement of section 7(b)(1)(B) of Public Law 110-
90 to calculate and recover any overpayments caused by documentation
and coding improvements due to the introduction of the MS-DRG system.
Comment: In its public comment, MedPAC describes the history and
nature of the documentation and coding adjustment. MedPAC stated that
``CMS adopted the MS-DRGs to improve the distribution of payments.''
Specifically, it discussed how, under the DRG definitions used
previously, high-severity cases may have been paid similarly to cases
with low or moderate severity. MedPAC emphasized that ``the shift to
MS-DRGs was taken to improve the distribution of payments, not change
the aggregate level of payments.'' Further, MedPAC described the
financial incentive for hospitals to improve documentation and coding
under the MS-DRG system, and also the statutory requirement for CMS to
ensure that changes in the DRGs and relative weights do not increase or
decrease aggregate IPPS payments absent those changes, noting that
Public Law 110-90 provided for specific requirements related to
payments for FYs 2008 and 2009. MedPAC pointed out that, as a result of
these combined legal requirements, our proposals ``do not represent
payment cuts, but rather offset unintended overpayments to hospitals.''
MedPAC performed an independent analysis of claims data to
determine the effect of documentation and coding in FYs 2008 and 2009.
MedPAC stated, ``[i]n our judgment, CMS's analytic methods are valid.
Using similar methods, our analysis of Medicare hospital inpatient
claims for 2007-2009 confirms all of CMS's findings.'' (We note that,
in line with our evaluation of claims data in for this final rule,
MedPAC's retrospective evaluation of the same claims data yielded
nearly identical results.)
MedPAC's analysis demonstrated that the cumulative effect of
documentation and coding in FY 2009 was 5.4 percent and the cumulative
overpayment in FY 2009 was 5.8 percent. Furthermore, because CMS has
already implemented adjustments of -0.6 percent and -0.9 percent in FYs
2008 and 2009 respectively, MedPAC concurred that the necessary
adjustment under section 7(b)(1)(B) of Public Law 110-90 requires CMS
to prospectively reduce payment rates by -3.9 percent to prevent
further increases in aggregate spending due to the change to MS-DRGs.
(As we discuss elsewhere in this section, unlike the recoupment
adjustment, the statute does not prescribe a specific timeframe within
which we must implement the prospective adjustment.) In fact, MedPAC
concluded, ``CMS correctly estimated the effect of documentation and
coding on case mix and patients.''
However, while acknowledging the concerns we expressed in opting to
phase in implementing the full retrospective adjustment (-5.8 percent)
together with the prospective adjustment (-3.9 percent), noting that
this combined adjustment of -9.7 percent ``may be financially
disruptive''), MedPAC expressed concerns that our proposal to adjust
rates by -2.9 percent, which is half of the retrospective adjustment
needed to address the cumulative overpayment in FY 2011, is
insufficient to fully offset unintended overpayments to hospitals.
Furthermore, MedPAC stated that such a delay in implementing offsets
for the operating and capital IPPS will cause a progressive
accumulation in overpayments, which cannot be recovered based upon
current statutory authority. MedPAC stated plainly that ``CMS will not
achieve budget neutrality unless Congress directs it to recover all
overpayments.''
As such, MedPAC recommended, for both the operating and capital
IPPS, that ``overpayments should be stopped [and] all overpayment
should be recovered.'' In making that recommendation, MedPAC directed
CMS to its March 2010 Report to Congress where it recommended that
Congress change the law to require CMS to recover all overpayments with
interest. It noted that this would shift our focus to the prevention of
future overpayments in the operating and capital IPPS. MedPAC further
noted that such a shift might be implemented as prospective adjustments
and would results in slower

[[Page 50065]]

accumulation of future overpayments. Specifically, it summarized its
recommendations for both the operating and capital IPPS as:
MedPAC's approach would reduce payments in increments of
no more than 2 percent for 3 years.
Hospitals would continue to receive their scheduled
updates, which would offset much of their reduction.
After 3 years, hospitals would receive their scheduled
updates without any additional offsets.
After roughly 6 years, overpayments would be fully
recovered, and hospitals would see an increase in payments of roughly 2
percent in addition to their scheduled update.
In the absence of the changes in law that would permit such an
approach, MedPAC provided an alternative multiyear approach in its
public comments in response to our request for comments on our proposal
to offset part of the cumulative overpayment in FY 2011 and our
proposal not to apply the remaining prospective adjustment in FY 2011.
MedPAC recommended that CMS recover the FY 2008 and 2009 overpayments
as quickly as possible to mitigate the need for further and more
drastic payment corrections. In FY 2012, MedPAC recommended completing
the retrospective adjustment, with accumulated interest, to fulfill the
requirements of section 7(b)(1)(B) of Public Law 110-90 and then making
additional prospective adjustments in that year of -2.0 percent. The
nature of the retrospective adjustment would moderate the impact of the
total adjustment for FY 2012, and MedPAC estimated the net effect to be
roughly 2.0 percent. (As we discuss below, one reason for the
moderating effect of the recoupment adjustment is that it is only a 1-
year adjustment, rather than a permanent and cumulative adjustment. As
a result, the FY 2011 recoupment adjustment would be removed from the
FY 2012 rate before any new adjustments are applied. For example, in FY
2012, the -2.9 percent adjustment from FY 2011 would be removed by
adding 2.9 percent to the FY 2012 rate before making any additional
adjustments through rulemaking.) In FY 2013, MedPAC recommended
completing the prospective adjustment for increases that occurred in
FYs 2008 and 2009, noting that, again, in FY 2013, the impact of the
prospective adjustment would be moderated by the expiration of the
retrospective adjustment in the prior year.
Response: We appreciate MedPAC's independent validation and support
of our methodology. We note that MedPAC stated that its estimate for
the cumulative documentation and coding effect for FYs 2008 and 2009
net of measurement error is 5.4 percent. This estimate was derived
using the same data sources and analogous methodologies as the analysis
set forth by CMS in this FY 2011 IPPS/LTCH-PPS final rule and matches
the CMS estimate in the prior discussion.
Furthermore, we agree with MedPAC's conclusions on the overall
financial implications of implementing our proposed -2.9 percent
payment rate adjustment. We share MedPAC's concerns about delaying the
prevention of future overpayments in both the capital and operating
IPPS, but we appreciate its acknowledgment of CMS' discretion regarding
the timing of implementation of the prospective adjustment and of the
potential financial disruption from implementation of the full
prospective reduction in FY 2011 (-3.9 percent) in addition to the
proposed retroactive adjustment (-2.9 percent). We also appreciate
MedPAC's concerns for prioritizing the recoupment of FYs 2008-2009
overpayments for the operating IPPS because CMS lacks the statutory
authority to adjust for further accumulation of these overpayments
beyond FY 2012. MedPAC appropriately pointed out the moderating effect
of the multiyear approach to implementing the retroactive adjustment to
recover overpayments in FYs 2008 and 2009. The expiration of these
adjustments in the following year mitigates any negative adjustments
made in that following year. We thank MedPAC for its specificity in
setting forth an approach for completing the adjustments prescribed
under sections 7(b) and (c) of Public Law 110-90 and will take these
recommendations into consideration in future rulemaking. Finally, we
concur with MedPAC's statement that these adjustments associated with
Public Law 110-90 and section 1886(d)(3)(vi) of the Act should not be
seen as payment cuts, but as offsets to unintended overpayments to
hospitals.
Comment: Most commenters, including the AHA, agreed that there were
documentation and classification increases that were in excess of the
statutory 0.6 percent and 0.9 percent adjustments specified in Public
Law 110-90. However, as in prior rulemaking on this issue, most
commenters again questioned the methodology employed by MedPAC and our
actuaries to determine the magnitude of the excess. These comments were
generally similar to or cited the comment from the AHA, which stated in
summary:
``The AHA believes there is a fundamental flaw in CMS' methodology
for determining the effect of documentation and coding changes on the
FY 2008 and FY 2009 CMIs. Specifically, in its analysis, CMS states
that the increase in payments it found could not be due to real case-
mix change because its analysis looks at only one year of patient
claims. However, we assert that the increase cannot be deemed
documentation and coding change either, because, again, the analysis
looks at only one year of patient claims.''
``Our analysis, which used multiple years of patient claims,
clearly shows that a significant portion of the change CMS found is
actually the continuation of historical trends, rather than the effect
of documentation and coding changes due to implementation of MS-DRGs.
This analysis found a documentation and coding effect of 0.9 percent
for FYs 2008 and 2009.''
The AHA also submitted trend analyses in support of its contention
that real case-mix is increasing as corroboration of its alternative
finding of a documentation and coding effect of 0.9 percent. These
materials included a trend analysis of the percentage of Medicare
discharges involving the ICU, a trend analysis of data from the Medical
Expenditure Panel Survey (MEPS), and a trend analysis of data from the
Healthcare Cost and Utilization Project (HCUP).
Some commenters, including the AHA, also stated that even without
taking into account the alternative analyses presented by the AHA, the
CMS methodology overstates the documentation and classification growth
due to an understatement in the CMI value obtained when grouping the FY
2009 claims data through the FY 2007 pre MS-DRG GROUPER. This assertion
was also based on a trend analysis.
Response: As stated earlier, we agree with MedPAC's comment that
``CMS correctly estimated the effect of DCI on case mix and payments *
* * . In our judgment, CMS's analytic methods are valid. Using similar
methods, our analysis of Medicare hospital inpatient claims for 2007-
2009 confirms all of CMS's findings.''
We also agree with the commenters, including the AHA, to the extent
that they indicated that there were documentation and classification
increases that were in excess of the statutory 0.6 percent and 0.9
percent adjustments specified in Public Law 110-90. However, we
disagree with the

[[Page 50066]]

commenters' assertion that there is a fundamental flaw in the
analytical approach used by our actuaries and MedPAC to determine the
magnitude of the documentation and classification increase because our
methodology primarily utilizes a single year (FY 2009) of claims data.
As stated in prior rulemaking, most recently in the FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 23867), overall case-mix growth is
predominately comprised of three factors: Real case-mix growth; a
documentation and classification effect; and a measurement effect.
Section 7(b)(1)(B) of Public Law 110-90 requires that the Secretary
make appropriate adjustment following a determination that the
implementation of the MS-DRG system ``resulted in changes in coding and
classification that did not reflect real changes in case mix.'' Section
7 of Public Law 110-90 does not require that we use a specific
methodology when conducting this analysis, and we believe that the use
of the FY 2009 claims data allows us to directly remove real changes in
case-mix from the calculation, consistent with the statutory
requirement. Differences in case-mix calculated using the pre- and
post-MS-DRG GROUPERs on the FY 2009 data, as detailed previously in
this final rule, cannot reflect real case-mix change, by definition,
because the same set of patients and claims is being processed under
the two GROUPERs. The corroborative analyses performed by MedPAC and
our actuaries more directly examine shifts in cases from lower severity
and cost MS-DRGs to higher severity and cost groups within the same
base DRG than the alternative approach submitted by the commenters who
asserted that real growth in case mix follows a historical trend line.
The alternative approach does not disaggregate the overall growth in
case mix into its three components as does the methodology we set forth
that MedPAC corroborates. As MedPAC stated in its comment letter:
``The share of cases without a CC or MCC declined more than 6
percentage points in 2008 and an additional 2 percentage points in
2009, while the shares of cases with a MCC increased by more than 6 and
3 percentage points, respectively * * * When we looked at all 259 base
DRGs that are split in some fashion based on secondary diagnoses, we
found that all but one had essentially the same pattern of shifts in
2008 and 2009 toward the highest severity and cost MS-DRG and away from
the lowest severity or cost MS-DRG. In 68 of these base DRGs, the
cumulative shift from 2007 to 2009 in the share of cases toward the
highest-weighted MS-DRG was at least 10 percentage points.''
Nevertheless, despite our position that our methodology more
directly measures the relevant increase, we did examine the alternative
approach favored by commenters for calculating the documentation and
classification increase. As a general statement, the approach of
examining historical trends to estimate what case-mix would have been
in the absence of the adoption of the MS-DRGs should not necessarily
yield significantly different results from the analysis done by our
actuaries and MedPAC if an appropriate historical trend can be
determined. We have concerns about the determination of an appropriate
historical trend.
We believe that the determination of an appropriate historical
trend is less straightforward than our methodology, which, as described
above, simply removes real case-mix growth from the calculation. One
issue with the trend analysis is the determination of the appropriate
time period on which to base the trend. We note in our examination of
the AHA approach that it begins with the case-mix change for FY 2001.
MedPAC, in its comment letter, provided an analysis of the change in
actual case-mix from FY 1998 to FY 2009:
``We calculated the annual percent change in the national aggregate
case-mix index (CMI) for the period from 1997 to 2009. These actual CMI
values are based on the DRG version, relative weights, and transfer
policies that were in effect for each year. To calculate the percent
change for each year, we used national aggregate average CMIs for the
cohort of hospitals paid under the IPPS in each pair of adjacent years.
We also excluded all hospitals that had converted to critical access
hospital status (CAH) by the end of 2009.''
We created the following table summarizing the results of MedPAC's
analysis.

Changes in Case Mix for IPPS Hospitals
------------------------------------------------------------------------
Year Percent
------------------------------------------------------------------------
1998.................................................... -0.5
1999.................................................... -0.7
2000.................................................... -0.8
2001.................................................... -0.7
2002.................................................... 0.7
2003.................................................... 1.0
2994.................................................... 0.9
2005.................................................... 0.6
2006.................................................... 0.4
2007.................................................... -0.2
2008.................................................... 2.0
2009.................................................... 2.6
------------------------------------------------------------------------

We note that the sustained negative changes in actual CMI from FY
1998 through FY 2000 are not reflected in the AHA analysis. If
included, they would significantly increase the AHA estimate of
documentation and coding growth because the slope of the AHA trend line
would be significantly less.
A second critical issue with the AHA approach is the determination
of the appropriate cohort of hospitals to include in the calculation.
For example, if a hospital converts to CAH status, decisions with
respect to the inclusion or exclusion of data from the time period
before the conversion will influence the trend analysis. In FY 2000,
there were approximately 300 CAHs, but, by FY 2007, there were
approximately 1,300 CAHs. We note that MedPAC excluded all hospitals
that had converted to CAH status by the end of 2009. It was not
apparent how the data from these hospitals was treated in the AHA
approach. CAHs tend to have lower than average case-mix values;
therefore, including the data from one or more years before the
conversion and then excluding the data after the conversion
artificially increases the trend line and decreases the magnitude of
the documentation and classification estimate.
Given these concerns about the appropriateness of the AHA
historical trend, it follows that we are concerned about extrapolating
the AHA historical trend into FY 2009. AHA's extrapolation assumes that
changes in case-mix increase at a linear and, therefore, consistent
rate, when, in fact, changes in case-mix do not necessarily follow a
consistent pattern over time, as MedPAC's case-mix analysis pointed
out.
After a careful review of the comments, we continue to find the
methodology used by our actuaries and MedPAC to determine the magnitude
of the changes in coding and classification that did not reflect real
changes in case mix to be the most appropriate methodology because it
directly removes real changes in case-mix from the calculation
consistent with the statutory requirement. We also question the time
period and cohort selections made by the AHA in its analysis and the
appropriateness of extrapolating this AHA trend to FY 2009 when a much
more straightforward methodology exists for estimating documentation
and coding growth.
Comment: One commenter, while supporting the proposed FY 2011
adjustment of -2.9 percent, stated that CMS should not implement any
further adjustment in FY 2012 without a more detailed quantification of
the factors

[[Page 50067]]

contributing to case-mix growth so that CMS can separate the factors
that should be included in the adjustment from the factors that should
be excluded. For example, the commenter appears to believe that the
effect of resequencing the diagnosis codes on a claim (as opposed to
the addition of new or different diagnosis codes) should not be
included in the section 7 adjustments because the commenter believes
this is not a documentation and coding change, even if the resequencing
results in classification to a higher MS-DRG. Other factors cited by
the commenter included new diagnosis codes and certain definitional
changes to the base-DRGs.
Response: Section 7 of Public Law 110-90 requires us to adjust for
changes in ``coding and classification'' that do not reflect real
changes in case-mix. We believe that the reclassifications cited by the
commenter are properly accounted for in the documentation and coding
adjustment; these factors may affect the MS-DRG classification and
affect payment without a corresponding real increase in patient
severity of illness. For this reason, we believe that the effects of
these factors are appropriately included in the section 7 adjustments,
consistent with section 7(b)(1)(B) of Public Law 110-90, which requires
adjustments to the extent that ``implementation'' of the MS-DRG system
results in ``coding and classification that did not reflect real change
in case-mix.''
After consideration of the public comments we received, as well as
MedPAC's detailed analysis, we have decided to finalize our proposal to
make an adjustment to the standardized amount of -2.9 percent,
representing approximately half of the aggregate recoupment adjustment
required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. We
are persuaded by MedPAC's analysis, and by our own review of the
methodologies recommended by various commenters, that the methodology
we have employed to determine the required recoupment adjustment is
sound. We understand the concerns expressed by many commenters about
the potential adverse financial effects on hospitals. However, we are
required by the statute to implement this adjustment no later than FY
2012. We do not believe that it would be in the interest of hospitals
to delay this required adjustment entirely until FY 2012. Rather, we
have sought, as we commonly do, to moderate the potential impact on
hospitals by phasing in the required adjustment over more than one
year. The adjustment to the standardized amount of -2.9 percent that we
are finalizing represents approximately half of the aggregate
adjustment required under section 7(b)(1)(B) of Public Law 110-90 for
FY 2011. As we noted in making the proposal, there is a distinct
advantage to phasing in the required adjustment in this manner. As we
stated above, a major advantage of making the -2.9 percent adjustment
to the standardized amount in FY 2011 is that, because the required
recoupment adjustment is not cumulative, we can anticipate removing the
FY 2011 -2.9 percent adjustment from the rates in FY 2012, when it
would also be necessary under current law to apply the remaining
approximately -2.9 percent adjustment required by section 7(b)(1)(B) of
Public Law 110-90. These two steps in FY 2012, restoring the FY 2011 -
2.9 percent adjustment and then applying the remaining adjustment of
approximately -2.9 percent, would effectively cancel each other out.
The result would be an aggregate adjustment of approximately 0.0
percent (subject to the need to account for accumulated interest, as
discussed above) under section 7(b)(1)(B) of Public Law 110-90 in FY
2012. However, while we again note this anticipated effect of the FY
2011 policy, we have not yet made a formal proposal for the further
implementation of section 7(b)(1)(B) of Public Law 110-90 in FY 2012.
Nevertheless, this anticipated consequence of adopting a -2.9 percent
adjustment for FY 2011 should substantially reduce the potential
financial impact of this required adjustment on hospitals. We believe
that this is a reasonable and fair approach which satisfies the
requirements of the statute while substantially moderating the impact
on hospitals.

FY 2011 MS-DRG Documentation and Coding Adjustment
----------------------------------------------------------------------------------------------------------------
Required Required Recoupment
prospective recoupment Total adjustment to Remaining
adjustment for adjustment for adjustment FY 2011 adjustment
FYs 2008-2009 FYs 2008-2009 payments
----------------------------------------------------------------------------------------------------------------
Level of adjustments............ -3.9% -5.8% -9.7% -2.9% -6.8%
----------------------------------------------------------------------------------------------------------------

8. Background on the Application of the Documentation and Coding
Adjustment to the Hospital-Specific Rates
Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on
whichever of the following rates yields the greatest aggregate payment:
the Federal rate; the updated hospital-specific rate based on FY 1982
costs per discharge; the updated hospital-specific rate based on FY
1987 costs per discharge; the updated hospital-specific rate based on
FY 1996 costs per discharge; or the updated hospital-specific rate
based on FY 2006 costs per discharge. Under section 1886(d)(5)(G) of
the Act, MDHs are paid based on the Federal national rate or, if
higher, the Federal national rate plus 75 percent of the difference
between the Federal national rate and the updated hospital-specific
rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs
per discharge. In the FY 2008 IPPS final rule with comment period (72
FR 47152 through 47188), we established a policy of applying the
documentation and coding adjustment to the hospital-specific rates. In
that final rule with comment period, we indicated that because SCHs and
MDHs use the same DRG system as all other hospitals, we believe they
should be equally subject to the budget neutrality adjustment that we
are applying for adoption of the MS-DRGs to all other hospitals. In
establishing this policy, we relied on section 1886(d)(3)(A)(vi) of the
Act, which provides us with the authority to adjust ``the standardized
amount'' to eliminate the effect of changes in coding or classification
that do not reflect real change in case-mix.
However, in the final rule that appeared in the Federal Register on
November 27, 2007 (72 FR 66886), we rescinded the application of the
documentation and coding adjustment to the hospital-specific rates
retroactive to October 1, 2007. In that final rule, we indicated that,
while we still believe it would be appropriate to apply the
documentation and coding adjustment to the hospital-specific rates,
upon further review, we decided that the

[[Page 50068]]

application of the documentation and coding adjustment to the hospital-
specific rates is not consistent with the plain meaning of section
1886(d)(3)(A)(vi) of the Act, which only mentions adjusting ``the
standardized amount'' under section 1886(d) of the Act and does not
mention adjusting the hospital-specific rates.
In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that
we continued to have concerns about this issue. Because hospitals paid
based on the hospital-specific rate use the same MS-DRG system as other
hospitals, we believe they have the potential to realize increased
payments from documentation and coding changes that do not reflect real
increases in patients' severity of illness. In section
1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid
based on the standardized amount should not receive additional payments
based on the effect of documentation and coding changes that do not
reflect real changes in case-mix. Similarly, we believe that hospitals
paid based on the hospital-specific rates should not have the potential
to realize increased payments due to documentation and coding changes
that do not reflect real increases in patient severity of illness.
While we continue to believe that section 1886(d)(3)(A)(vi) of the Act
does not provide explicit authority for application of the
documentation and coding adjustment to the hospital-specific rates, we
believe that we have the authority to apply the documentation and
coding adjustment to the hospital-specific rates using our special
exceptions and adjustment authority under section 1886(d)(5)(I)(i) of
the Act. The special exceptions and adjustment provision authorizes us
to provide ``for such other exceptions and adjustments to [IPPS]
payment amounts * * * as the Secretary deems appropriate.'' In the FY
2009 IPPS final rule (73 FR 48448 through 48449), we indicated that,
for the FY 2010 rulemaking, we planned to examine our FY 2008 claims
data for hospitals paid based on the hospital-specific rate. We further
indicated that if we found evidence of significant increases in case-
mix for patients treated in these hospitals that do not reflect real
changes in case-mix, we would consider proposing application of the
documentation and coding adjustments to the FY 2010 hospital-specific
rates under our authority in section 1886(d)(5)(I)(i) of the Act.
In response to public comments received on the FY 2009 IPPS
proposed rule, we stated in the FY 2009 IPPS final rule that we would
consider whether such a proposal is warranted for FY 2010. To gather
information to evaluate these considerations, we indicated that we
planned to perform analyses on FY 2008 claims data to examine whether
there has been a significant increase in case-mix for hospitals paid
based on the hospital-specific rate. If we found that application of
the documentation and coding adjustment to the hospital-specific rates
for FY 2010 is warranted, we indicated that we would include a proposal
to do so in the FY 2010 IPPS proposed rule.
9. Documentation and Coding Adjustment to the Hospital-Specific Rates
for FY 2011 and Subsequent Fiscal Years
In the FY 2010 IPPS/RY 2010 LTCH proposed rule and final rule (74
FR 24098 through 24100 and 74 FR 43775 through 43776, respectively), we
discussed our performance of a retrospective evaluation of the FY 2008
claims data for SCHs and MDHs using the same methodology described
earlier for other IPPS hospitals. We found that, independently for both
SCHs and MDHs, the change due to documentation and coding that did not
reflect real changes in case-mix for discharges occurring during FY
2008 slightly exceeded the proposed 2.5 percent result discussed
earlier, but did not significantly differ from that result.
Again, for the FY 2010 proposed rule, we found that the within-base
DRG increases were almost entirely responsible for the case-mix change.
In that proposed rule, we presented two Figures to display our results.
Therefore, consistent with our statements in prior IPPS rules, we
proposed to use our authority under section 1886(d)(5)(I)(i) of the Act
to prospectively adjust the hospital-specific rates by the proposed -
2.5 percent in FY 2010 to account for our estimated documentation and
coding effect in FY 2008 that does not reflect real changes in case-
mix. We proposed to leave this adjustment in place for subsequent
fiscal years in order to ensure that changes in documentation and
coding resulting from the adoption of the MS-DRGs do not lead to an
increase in aggregate payments for SCHs and MDHs not reflective of an
increase in real case-mix. The proposed -2.5 percent adjustment to the
hospital-specific rates exceeded the -1.9 percent adjustment to the
national standardized amount under section 7(b)(1)(A) of Public Law
110-90 because, unlike the national standardized rates, the FY 2008
hospital-specific rates were not previously reduced in order to account
for anticipated changes in documentation and coding that do not reflect
real changes in case-mix resulting from the adoption of the MS-DRGs.
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24100),
we solicited public comment on the proposed -2.5 percent prospective
adjustment to the hospital-specific rates under section
1886(d)(5)(I)(i) of the Act and our proposal to address in the FY 2011
rulemaking cycle any changes in FY 2009 case-mix due to changes in
documentation and coding that do not reflect real changes in case-mix
for discharges occurring during FY 2009. We also indicated that we
intended to update our analysis with FY 2008 data on claims paid
through March 2008 [sic] for the FY 2010 IPPS final rule. (We note that
the March 2008 update claims paid data date in the proposed rule should
have been March 2009.)
Consistent with our approach for IPPS hospitals discussed earlier,
in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also delayed
adoption of a documentation and coding adjustment to the hospital-
specific rate until FY 2011. Similar to our approach for IPPS
hospitals, we indicated that we would consider, through future
rulemaking, phasing in the documentation and coding adjustment over an
appropriate period. We also indicated that we would address, through
future rulemaking, any changes in documentation and coding that do not
reflect real changes in case-mix for discharges occurring during FY
2009. We noted that, unlike the national standardized rates, the FY
2009 hospital-specific rates were not previously reduced in order to
account for anticipated changes in documentation and coding that do not
reflect real changes in case-mix resulting from the adoption of the MS-
DRGs. However, as we noted earlier with regard to IPPS hospitals, if
the estimated documentation and coding effect determined based on a
full analysis of FY 2009 claims data is more or less than our current
estimates, it would change, possibly lessen, the anticipated cumulative
adjustments that we currently estimate we would have to make for the FY
2008 and FY 2009 combined adjustment. Therefore, we believed that it
would be more prudent to delay implementation of the documentation and
coding adjustment to allow for a more complete analysis of FY 2009
claims data for hospitals receiving hospital-specific rates.
BILLING CODE 4120-01-P

[[Page 50069]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.001

BILLING CODE 4120-01-C
Consistent with our analysis of IPPS hospitals, the two charts
above show that we found after analysis of FY 2009 discharge data that
the distribution of severity discharges for MDHs and SCHs both
proportionally shifted from the without CC/MCC to with MCC category.
This analysis was updated to include data for FY 2009 claims paid
through March 2010. Similarly, we found using a methodology consistent
with our analysis of IPPS hospitals that the change due to
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2009 slightly exceeded the proposed
2.5 percent result discussed earlier, but did not significantly differ
from that result.
As we have noted above, because SCHs and MDHs use the same MS-DRG
system as all other hospitals, we believe they have the potential to
realize increased payments from documentation and coding changes that
do not reflect real increases in patient severity of illness.
Therefore, we believe they should be equally subject to a prospective
budget neutrality adjustment that we are applying for adoption of the
MS-DRGs to all other hospitals. We believe the documentation and coding
estimates for all subsection (d) hospitals should be the same. While
the findings for the documentation and coding effect for all IPPS
hospitals are similar to the effect for SCHs and slightly different to
the effect for MDHs, we continue to believe that this is the
appropriate policy so as to neither advantage or disadvantage

[[Page 50070]]

different types of providers. As we have also discussed above, our best
estimate, based on the most recently available data, is that a
cumulative adjustment of -5.4 percent is required to eliminate the full
effect of the documentation and coding changes on future payments.
Unlike the case of standardized amounts paid to IPPS hospitals, we have
not made any previous adjustments to the hospital-specific rates paid
to SCHs and MDHs to account for documentation and coding changes.
Therefore, the entire -5.4 percent adjustment remains to be
implemented.
As discussed above, in the FY 2011 IPPS/LTCH PPS proposed rule, we
proposed to make an adjustment to the standardized amount for IPPS
hospitals of -2.9 percent under section 7(b)(1)(B) of Public Law 110-
90, for FY 2011. As we also discussed above, it has been our practice
to moderate payment adjustments when necessary to mitigate the effects
of significant downward adjustments on hospitals, to avoid what could
be widespread, disruptive effects of such adjustments on hospitals.
Because payments for non-SCH and non-MDH IPPS hospitals and SCHs and
MDHs are determined on the basis of the same MS-DRG system, SCHs and
MDHs have the potential to realize increased payments from
documentation and coding changes that do not reflect real increases in
patient severity of illness. Therefore, in determining the level and
pace of adjustments to account for such documentation and coding
changes, we believe that it is important to maintain, as much as
possible, both consistency and equity among these classes of hospitals.
In addition, as in the case of the documentation and coding adjustment
for non-SCH and non-MDH IPPS hospitals, we also believe that it is
important to provide as much as possible for moderating the effects of
adjustments on hospital payments. Therefore, we proposed an adjustment
of -2.9 percent in FY 2011 to the hospital-specific rates paid to SCHs
and MDHs. This proposal is consistent with our proposed adjustment for
IPPS hospitals in two ways. First, as in the case of the IPPS
adjustment, we did not propose to implement the entire adjustment that
is warranted by our data (in this case, 5.4 percent) in one year.
Second, we proposed to maintain consistency by proposing the same
numerical level of adjustment for both groups of hospitals in FY 2011.
While this proposed adjustment to the hospital-specific rates
represented somewhat over half of the entire adjustment that is
appropriate for SCHs and MDHs, it would allow us to maintain complete
consistency, at least for FY 2011, in the effects on the relevant
classes of hospitals. Although the proposed adjustment for SCHs and
MDHs is cumulative and prospective, as opposed to the noncumulative
recoupment adjustment we proposed for other IPPS hospitals, we believe
that proposing equal numerical adjustments in this first year is the
most appropriate means to maintain such consistency and equity at this
time. We indicated in the proposed rule that we will continue, as much
as possible, consistent with sections 7(b)(1) of Public Law 110-90 and
section 1886(d)(5)(I)(i) of the Act, to take such consistency and
equity into account in developing future proposals for implementing
documentation and coding adjustments.
In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public
comment on the proposed -2.9 percent prospective adjustment to
hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and
addressing in future rulemaking cycles changes in FY 2008 and FY 2009
case-mix due to changes in documentation and coding that do not reflect
real changes in case-mix for discharges occurring during FY 2008 and FY
2009, noting that our current estimates of the remaining adjustment is
-2.5 percent. We stated that we intended to update our analysis with FY
2009 data on claims paid through March 2009 (sic) for this FY 2011
IPPS/LTCH PPS final rule and have updated our analysis with FY 2009
data on claims paid through March 2010 in this FY 2011 IPPS/LTCH PPS
final rule. (We note that the March 2009 update date for claims paid
data in the proposed rule should have been March 2010.)
Comment: Numerous commenters requested that CMS withdraw its
proposal to apply the documentation and coding adjustment to SCHs and
MDHs and questioned CMS' statutory authority to apply this adjustment
to providers receiving a hospital-specific rate. The commenters argued
that because section 1886(d)(3)(A)(vi) of the Act only authorizes
application of a documentation and coding adjustment to the
standardized amount, Congress' specific instruction as to the
applicability of this type of adjustment makes it impermissible for CMS
to apply the adjustment to the hospital-specific rates. Furthermore,
commenters contend that, due to their critical role in isolated
communities, any negative documentation and coding adjustment to SCHs
and MDHs would endanger their ability to provide the type of care that
Congress specifically sought to protect by establishing their special
Medicare payment systems.
Response: We continue to disagree with the commenters that the
Secretary's broad authority to make exceptions and adjustment to
payment amounts under section 1886(d)(3)(A)(vi) of the Act cannot be
applied in this instance. We have discussed the basis for applying such
an adjustment in prior rules (in the FY 2009 proposed rule (73 FR
23540), the FY 2009 final rule (73 FR 48448), and the FY 2010 proposed
rule (74 FR 24098)) and do not agree that the language in section
1886(d)(3)(A)(vi) of the Act limits our authority under section
1886(d)(5)(I)(i) of the Act to make such an adjustment. We recognize
that SCHs and MDHs are entitled, through legislation, to receive the
hospital-specific rate in order to compensate for their unique service
requirements in the provider community. Similar to our approach with
IPPS hospitals, we are implementing a phase-in of the documentation and
coding adjustment over an appropriate period, beginning in FY 2011. We
will continue to separately analyze SCH and MDH claims data to ensure
than any future adjustment is appropriate for these provider types.
Comment: MedPAC responded to our request for comments regarding the
level of adjustment for special categories of hospitals, such as
hospitals paid under the hospital-specific payment rate, by pointing
out that these hospitals have the same financial incentives for
documentation and coding improvements and the same ability to benefit
from increased payments that do not reflect real changes in case-mix
severity of illness levels. Therefore, MedPAC recommended that ``all
IPPS hospitals should be treated the same.'' At the same time, MedPAC
also stated that ``delaying prevention of overpayments * * * creates a
problem because overpayments will continue to accumulate in 2010 and
later years until the effect of documentation and coding improvement is
fully offset in the payment rates.'' In setting forward its multiyear
recommendation to CMS for complying with the requirements of section 7
of Public Law 110-90, MedPAC emphasized ``minimizing the accumulation
of overpayments.''
Response: We thank MedPAC for its comments and agree that it is
appropriate to conclude that hospitals paid under the hospital-specific
rate have experienced a 5.4 percent increase in documentation and
coding in FYs 2008 and 2009, insofar as these hospitals had the same
financial incentives to improve documentation and coding as other IPPS
hospitals, as

[[Page 50071]]

confirmed by the analysis we have described above. We further agree
with MedPAC that it is appropriate to focus on minimizing the
accumulation of overpayments; we interpret this statement to mean that
MedPAC recommends that CMS move forward as quickly as possible with
appropriate prospective adjustments. We appreciate MedPAC's guidance
that ``all hospitals be treated the same,'' and we agree that it is
important to treat various classes of similarly situated hospitals in
our payment policy determinations in a consistent manner.
Therefore, we are finalizing our proposal to apply an adjustment of
-2.9 percent in FY 2011 to the hospital-specific rates paid to SCHs and
MDHs. This adjustment is prospective in nature. We continue to believe
that such an adjustment is appropriate because, as MedPAC noted, all
hospitals have the same financial incentives for documentation and
coding improvements, and the same ability to benefit from the resulting
increase in aggregate payments that do not reflect real change in case-
mix severity of illness levels. As we describe above, our analysis of
claims data shows that the documentation and coding effect for all IPPS
hospitals is similar to the effect for SCHs and slightly different to
the effect for MDHs, and we believe the documentation and coding
estimates for all subsection (d) hospitals should be the same. This
adjustment also maintains, as much as possible, consistency in the
treatment of various classes of hospitals that are similarly situated
with respect to their ability to adjust their documentation and coding
practices. Specifically, this adjustment is consistent with our
adjustment for other IPPS hospitals in two ways. First, as in the case
of the IPPS adjustment, we are not implementing the entire adjustment
that is warranted by our data (in this case, 5.4 percent) in 1 year.
Second, we are treating hospitals in a consistent manner by applying
the same numerical level of adjustment for both groups of hospitals in
FY 2011. While this adjustment to the hospital-specific rates
represents somewhat over half of the entire adjustment that is
appropriate for SCHs and MDHs, it would allow us to maintain complete
consistency, at least for FY 2011, in the effects on the relevant
classes of hospitals. Although the proposed adjustment for SCHs and
MDHs is cumulative and prospective, as opposed to the noncumulative
recoupment adjustment we proposed for other IPPS hospitals, we believe
that applying equal numerical adjustments in this first year is the
most appropriate means to maintain such consistency and equity at this
time. As we indicated in the proposed rule, we will continue, as much
as possible, consistent with sections 7(b)(1) of Public Law 110-90 and
section 1886(d)(5)(I)(i) of the Act, to take such consistency and
equity into account in developing future proposals for implementing
documentation and coding adjustments.
10. Application of the Documentation and Coding Adjustment to the
Puerto Rico-Specific Standardized Amount
a. Background
Puerto Rico hospitals are paid based on 75 percent of the national
standardized amount and 25 percent of the Puerto Rico-specific
standardized amount. As noted previously, the documentation and coding
adjustment we adopted in the FY 2008 IPPS final rule with comment
period relied upon our authority under section 1886(d)(3)(A)(vi) of the
Act, which provides the Secretary the authority to adjust ``the
standardized amounts computed under this paragraph'' to eliminate the
effect of changes in coding or classification that do not reflect real
changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to
the national standardized amounts computed under section 1886(d)(3) of
the Act, but does not apply to the Puerto Rico-specific standardized
amount computed under section 1886(d)(9)(C) of the Act. In calculating
the FY 2008 payment rates, we made an inadvertent error and applied the
FY 2008 -0.6 percent documentation and coding adjustment to the Puerto
Rico-specific standardized amount, relying on our authority under
section 1886(d)(3)(A)(vi) of the Act. However, section
1886(d)(3)(A)(vi) of the Act authorizes application of a documentation
and coding adjustment to the national standardized amount and does not
apply to the Puerto Rico specific standardized amount. In the FY 2009
IPPS final rule (73 FR 48449), we corrected this inadvertent error by
removing the -0.6 percent documentation and coding adjustment from the
FY 2008 Puerto Rico-specific rates.
While section 1886(d)(3)(A)(vi) of the Act is not applicable to the
Puerto Rico-specific standardized amount, we believe that we have the
authority to apply the documentation and coding adjustment to the
Puerto Rico-specific standardized amount using our special exceptions
and adjustment authority under section 1886(d)(5)(I)(i) of the Act.
Similar to SCHs and MDHs that are paid based on the hospital-specific
rate, we believe that Puerto Rico hospitals that are paid based on the
Puerto Rico-specific standardized amount should not have the potential
to realize increased payments due to documentation and coding changes
that do not reflect real increases in patient severity of illness.
Consistent with the approach described for SCHs and MDHs, in the FY
2009 IPPS final rule (73 FR 48449), we indicated that we planned to
examine our FY 2008 claims data for hospitals in Puerto Rico. We
indicated in the FY 2009 IPPS proposed rule (73 FR 23541) that if we
found evidence of significant increases in case-mix for patients
treated in these hospitals, we would consider proposing 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.
b. Documentation and Coding Adjustment to the Puerto Rico-Specific
Standardized Amount
For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a
retrospective evaluation of the FY 2008 claims data for Puerto Rico
hospitals using the same methodology described earlier for IPPS
hospitals paid under the national standardized amounts under section
1886(d) of the Act. We found that, for Puerto Rico hospitals, the
increase in payments for discharges occurring during FY 2008 due to
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2008 was approximately 1.1 percent.
When we calculated the within-base DRG changes and the across-base DRG
changes for Puerto Rico hospitals, we found that responsibility for the
case-mix change between FY 2007 and FY 2008 is much more evenly shared.
Across-base DRG shifts accounted for 44 percent of the changes, and
within-base DRG shifts accounted for 56 percent. Thus, the change in
the percentage of discharges with an MCC was not as large as that for
other IPPS hospitals. In Figure 4 in the FY 2010 proposed rule, we
showed that, for Puerto Rico hospitals, there was a 3 percentage point
increase in the discharges with an MCC from 22 percent to 25 percent
and a corresponding decrease of 3 percentage points from 58 percent to
55 percent in discharges without a CC or an MCC.
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24101),
we solicited public comment on the proposed -1.1 percent prospective
adjustment to the hospital-specific rates under section
1886(d)(5)(I)(i) of the Act and our intent to address in the FY 2011

[[Page 50072]]

rulemaking cycle any changes in FY 2009 case-mix due to changes in
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2009. We also stated that we
intended to update our analysis with FY 2008 data on claims paid
through March 2009 for the FY 2010 IPPS final rule.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43777), we
indicated that, given these documentation and coding increases,
consistent with our statements in prior IPPS rules, we would use our
authority under section 1886(d)(5)(I)(i) of the Act to adjust the
Puerto Rico-specific rate. However, in parallel to our decision to
postpone adjustments to the Federal standardized amount, we indicated
that we were adopting a similar policy for the Puerto Rico-specific
rate for FY 2010 and would consider the phase-in of this adjustment
over an appropriate time period through future rulemaking. The
adjustment would be applied to the Puerto Rico-specific rate that
accounts for 25 percent of payments to Puerto Rico hospitals, with the
remaining 75 percent based on the national standardized amount.
Consequently, the overall reduction to the payment rates for Puerto
Rico hospitals to account for documentation and coding changes will be
slightly less than the reduction for IPPS hospitals paid based on 100
percent of the national standardized amount. We noted that, as with the
hospital-specific rates, the Puerto Rico-specific standardized amount
had not previously been reduced based on estimated changes in
documentation and coding associated with the adoption of the MS-DRGs.
However, as we note earlier for IPPS hospitals and hospitals receiving
hospital-specific rates, if the estimated documentation and coding
effect determined based on a full analysis of FY 2009 claims data is
more or less than our current estimates, it would change, possibly
lessen, the anticipated cumulative adjustments that we currently
estimate we would have to make for the FY 2008 and FY 2009 combined
adjustment. Therefore, we believed that it would be more prudent to
delay implementation of the documentation and coding adjustment to
allow for a more complete analysis of FY 2009 claims data for Puerto
Rico hospitals.
Consistent with our approach for IPPS hospitals for FY 2010, we
indicated that we would address in the FY 2011 rulemaking cycle any
change in FY 2009 case-mix due to documentation and coding that did not
reflect real changes in case-mix for discharges occurring during FY
2009. We noted that, unlike the national standardized rates, the FY
2009 hospital-specific rates were not previously reduced in order to
account for anticipated changes in documentation and coding that do not
reflect real changes in case-mix resulting from the adoption of the MS-
DRGs.
As we have noted above, similar to SCHs and MDHs, hospitals in
Puerto Rico use the same MS-DRG system as all other hospitals and we
believe they have the potential to realize increased payments from
documentation and coding changes that do not reflect real increases in
patient severity of illness. Therefore, we believe they should be
equally subject to the prospective budget neutrality adjustment that we
intend to apply to prospective payment rates for IPPS hospitals
including SCHs and MDHs in order to eliminate the full effect of the
documentation and coding changes associated with implementation of the
MS-DRG system.
[GRAPHIC] [TIFF OMITTED] TR16AU10.002

In the above chart, consistent with our findings for IPPS
hospitals, for Puerto Rico hospitals, there is a corresponding increase
in the discharge severity with MCCs compared to a decrease in discharge
severity in the without CC/MCC category. This analysis reflects FY 2009
claims paid through March 2010.
Using the same methodology we applied to estimate documentation and
coding changes under IPPS for non-Puerto Rico hospitals, as we have
also discussed above, our best estimate, based on the most recently
available data (FY 2009 claims paid through March 2010), is that a
cumulative adjustment of -2.6 percent is required to eliminate the full
effect of the documentation and coding changes on future payments from
the Puerto Rico-

[[Page 50073]]

specific rate. Unlike the case of standardized amounts paid to IPPS
hospitals, we have not made any previous adjustments to the hospital-
specific rates paid to Puerto Rico hospitals to account for
documentation and coding changes. Therefore, the entire -2.6 percent
adjustment remains to be implemented.
As we stated above, we believe it important to maintain both
consistency and equity among all hospitals paid on the basis of the
same MS-DRG system. At the same time, however, we recognize that the
estimated cumulative impact on aggregate payment rates resulting from
implementation of the MS-DRG system was smaller for Puerto Rico
hospitals as compared to IPPS hospitals and SCHs and MDHs. Therefore,
in the FY 2011 IPPS LTCH PPS proposed rule (75 FR 23876), we proposed
an adjustment of -2.4 percent in FY 2011 to Puerto Rico-specific rate
that accounts for 25 percent of payments to Puerto Rico hospitals, with
the remaining 75 percent based on the national standardized amount,
which we proposed to adjust as described above. Consequently, the
overall reduction to rates for Puerto Rico hospitals to account for the
documentation and coding changes will be slightly less than the
reduction for IPPS hospitals based on 100 percent of the national
standardized amount. We noted that the proposed prospective adjustment
would have eliminated the full effect of the documentation and coding
changes (as estimated at the time) on the portion of future payments to
Puerto Rico hospitals based on the Puerto Rico-specific rate. We
believe that this a full prospective adjustment is the most appropriate
means to take into full account the effect of documentation and coding
changes on payments, and to maintain equity as much as possible between
hospitals paid on the basis of different prospective rates. (As
discussed below, the estimated -2.4 percent adjustment that we
calculated in the proposed rule no longer represents a ``full
prospective adjustment.'') One reason for proposing the full
prospective adjustment for the Puerto Rico-specific rate in FY 2011 was
to maintain equity as much as possible in the documentation and coding
adjustments applied to various hospital rates in FY 2011. Because our
proposal was to make an adjustment that represents the full adjustment
that is warranted for the Puerto Rico-specific rate, we indicated that
we do not anticipate proposing any additional adjustments to the this
rate for documentation and coding effects.
In the FY 2011 proposed rule, we sought public comment on the
proposed full prospective adjustment, which we estimated at that time
to be -2.4 percent, to the Puerto Rico-specific standardized amount
under section 1886(d)(5)(I)(i) of the Act. We stated that we intended
to update our analysis with FY 2009 data on claim paid through March
2009 (sic) for this FY 2011 IPPS/LTCH PPS final rule. (We note that the
March 2009 update date for claims paid data in the proposed rule should
have been March 2010.) We have updated our analysis, as planned, with
FY 2009 data on claims paid through March 2010 in this FY 2011 IPPS/
LTCH PPS final rule. This updated data analysis shows that a cumulative
adjustment of -2.6 percent is required to eliminate the full effect of
the document and coding changes on future payments from the Puerto
Rico-specific rate.
Comment: MedPAC responded to our request for comments regarding the
level of adjustment for special categories of hospitals, such as Puerto
Rico hospitals, by pointing out that these hospitals have the same
financial incentives for documentation and coding improvements and the
same ability to benefit from increased payments that do not reflect
real change in case-mix severity of illness levels. Therefore, MedPAC
recommended that ``all IPPS hospitals should be treated the same.'' At
the same time, MedPAC also stated that ``delaying prevention of
overpayments * * * creates a problem because overpayments will continue
to accumulate in 2010 and later years until the effect of documentation
and coding improvement is fully offset in the payment rates.'' In
setting forward its multiyear recommendation to CMS for complying with
the requirements of section 7 of Public Law 110-90, MedPAC emphasizes
``minimizing the accumulation of overpayments.''
Response: We thank MedPAC for its comments and agree that Puerto
Rico hospitals have had the same financial incentives to improve
documentation and coding as other IPPS hospitals. We further agree with
MedPAC that it is appropriate to focus on minimizing the accumulation
of overpayments; we interpret this statement to mean that MedPAC
recommends that CMS move forward as quickly as possible with
appropriate prospective adjustments. We appreciate MedPAC's guidance
that ``all hospitals be treated the same,'' and we agree that it is
important for our payment policy determinations to treat various
classes of hospitals that are similarly situated with respect to the
ability to adjust their documentation and coding practices in as
consistent a manner as possible.
Therefore, we are finalizing our proposal to apply an adjustment to
the Puerto Rico specific rate in FY 2011 using our authority under
section 1886(d)(5)(I)(i) of the Act as proposed (that is, a full
prospective adjustment). We note that our updated data analysis shows
that this adjustment will be -2.6 percent. We continue to believe that
such an adjustment is appropriate because, as MedPAC found, all
hospitals have the same financial incentives for documentation and
coding improvements and the same ability to benefit from the resulting
change in case-mix. As we indicated in the proposed rule, we will
continue, as much as possible, consistent with sections 7(b)(1) of
Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such
consistency and equity into account in developing future proposals for
implementing documentation and coding adjustments.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
In the FY 2009 IPPS final rule (73 FR 48450), we continued to
implement significant revisions to Medicare's inpatient hospital rates
by completing our 3-year transition from charge-based relative weights
to cost-based relative weights. Beginning in FY 2007, we implemented
relative weights based on cost report data instead of based on charge
information. We had initially proposed to develop cost-based relative
weights using the hospital-specific relative value cost center (HSRVcc)
methodology as recommended by MedPAC. However, after considering
concerns expressed in the public comments we received on the proposal,
we modified MedPAC's methodology to exclude the hospital-specific
relative weight feature. Instead, we developed national CCRs based on
distinct hospital departments and engaged a contractor to evaluate the
HSRVcc methodology for future consideration. To mitigate payment
instability due to the adoption of cost-based relative weights, we
decided to transition cost-based weights over 3 years by blending them
with charge-based weights beginning in FY 2007. (We refer readers to
the FY 2007 IPPS final rule for details on the HSRVcc methodology and
the 3-year transition blend from charge-based relative weights to cost-
based relative weights (71 FR 47882 through 47898).)
In FY 2008, we adopted severity-based MS-DRGs, which increased the
number of DRGs from 538 to 745. Many

[[Page 50074]]

commenters raised concerns as to how the transition from charge-based
weights to cost-based weights would continue with the introduction of
new MS-DRGs. We decided to implement a 2-year transition for the MS-
DRGs to coincide with the remainder of the transition to cost-based
relative weights. In FY 2008, 50 percent of the relative weight for
each DRG was based on the CMS DRG relative weight and 50 percent was
based on the MS-DRG relative weight.
In FY 2009, the third and final year of the transition from charge-
based weights to cost-based weights, we calculated the MS-DRG relative
weights based on 100 percent of hospital costs. We refer readers to the
FY 2007 IPPS final rule (71 FR 47882) for a more detailed discussion of
our final policy for calculating the cost-based DRG relative weights
and to the FY 2008 IPPS final rule with comment period (72 FR 47199)
for information on how we blended relative weights based on the CMS
DRGs and MS-DRGs.
a. Summary of the RTI Study of Charge Compression and CCR Refinement
As we transitioned to cost-based relative weights, some public
commenters raised concerns about potential bias in the weights due to
``charge compression,'' which is the practice of applying a higher
percentage charge markup over costs to lower cost items and services,
and a lower percentage charge markup over costs to higher cost items
and services. As a result, the cost-based weights would undervalue
high-cost items and overvalue low-cost items if a single CCR is applied
to items of widely varying costs in the same cost center. To address
this concern, in August 2006, we awarded a contract to RTI to study the
effects of charge compression in calculating the relative weights and
to consider methods to reduce the variation in the CCRs across services
within cost centers. RTI issued an interim draft report in January 2007
with its findings on charge compression (which was posted on the CMS
Web site at: http://www.cms.hhs.gov/reports/downloads/Dalton.pdf). In
that report, RTI found that a number of factors contribute to charge
compression and affect the accuracy of the relative weights. RTI's
findings demonstrated that charge compression exists in several CCRs,
most notably in the Medical Supplies and Equipment CCR.
In its interim draft report, RTI offered a number of
recommendations to mitigate the effects of charge compression,
including estimating regression-based CCRs to disaggregate the Medical
Supplies Charged to Patients, Drugs Charged to Patients, and Radiology
cost centers, and adding new cost centers to the Medicare cost report,
such as adding a ``Devices, Implants and Prosthetics'' line under
``Medical Supplies Charged to Patients'' and a ``CT Scanning and MRI''
subscripted line under ``Radiology-Diagnostics''. Despite receiving
public comments in support of the regression-based CCRs as a means to
immediately resolve the problem of charge compression, particularly
within the Medical Supplies and Equipment CCR, we did not adopt RTI's
recommendation to create additional regression-based CCRs. (For more
details on RTI's findings and recommendations, we refer readers to the
FY 2009 IPPS final rule (73 FR 48452).) RTI subsequently expanded its
analysis of charge compression beyond inpatient services to include a
reassessment of the regression-based CCR models using both outpatient
and inpatient charge data. This interim report was made available in
April 2008 during the public comment period on the FY 2009 IPPS
proposed rule and can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200804.pdf. The IPPS-specific chapters, which were
separately displayed in the April 2008 interim report, as well as the
more recent OPPS chapters, were included in the July 3, 2008 RTI final
report entitled, ``Refining Cost-to-Charge Ratios for Calculating APC
[Ambulatory Payment Classification] and DRG Relative Payment Weights,''
that became available at the time of the development of the FY 2009
IPPS final rule. The RTI final report can be found on RTI's Web site
at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf.
RTI's final report found that, under the IPPS and the OPPS,
accounting improvements to the cost reporting data reduce some of the
sources of aggregation bias without having to use regression-based
adjustments. In general, with respect to the regression-based
adjustments, RTI confirmed the findings of its March 2007 report that
regression models are a valid approach for diagnosing potential
aggregation bias within selected services for the IPPS and found that
regression models are equally valid for setting payments under the
OPPS.
RTI also noted that cost-based weights are only one component of a
final prospective payment rate. There are other rate adjustments (wage
index, IME, and DSH) to payments derived from the revised cost-based
weights, and the cumulative effect of these components may not improve
the ability of final payment to reflect resource cost. RTI endorsed
short-term regression-based adjustments, but also concluded that more
refined and accurate accounting data are the preferred long-term
solution to mitigate charge compression and related bias in hospital
cost-based weights. For a more detailed summary of RTI's findings,
recommendations, and public comments we received on the report, we
refer readers to the FY 2009 IPPS final rule (73 FR 48452 through
48453).
b. Summary of the RAND Corporation Study of Alternative Relative Weight
Methodologies
One of the reasons that we did not implement regression-based CCRs
at the time of the FY 2008 IPPS final rule with comment period was our
inability to investigate how regression-based CCRs would interact with
the implementation of MS-DRGs. In the FY 2008 final rule with comment
period (72 FR 47197), we stated that we engaged the RAND Corporation as
the contractor to evaluate the HSRV methodology in conjunction with
regression-based CCRs, and that we would consider its analysis as we
prepared for the FY 2009 IPPS rulemaking process.
RAND evaluated six different methods that could be used to
establish relative weights; CMS' current relative weight methodology of
15 national CCRs and 5 alternatives, including a method in which the 15
national CCRs are disaggregated using the regression-based methodology,
and a method using hospital-specific CCRs for the 15 cost center
groupings. In addition, RAND analyzed our standardization methodologies
that account for systematic cost differences across hospitals. The
purpose of standardization is to eliminate systematic facility-specific
differences in cost so that these cost differences do not influence the
relative weights. Overall, RAND found that none of the methods it
studied of calculating the relative weights represented a marked
improvement in payment accuracy over the current method, and there was
little difference across methods in their ability to predict cost at
either the discharge-level or the hospital-level. In their regression
analysis, RAND found that, after controlling for hospital payment
factors, the relative weights are compressed (that is, understated).
However, RAND also found that the hospital payment factors are
overstated and increase more rapidly than cost. Therefore, while the
relative weights are compressed, these payment factors

[[Page 50075]]

offset the compression such that total payments to hospitals increase
more rapidly than hospitals' costs.
In the FY 2009 IPPS final rule (73 FR 48453 through 48457), we
provided a summary of the RAND report and the public comments we
received in response to the FY 2009 IPPS proposed rule. The report may
be found on RAND's Web site at: http://www.rand.org/pubs/working_papers/WR560/.
2. Proposed and Final Policy Changes for FY 2011 and Timeline for
Changes to the Medicare Cost Report
In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in
response to the RTI's recommendations concerning cost report
refinements, and because of RAND's finding that regression-based
adjustments to the CCRs do not significantly improve payment accuracy,
we discussed our decision to pursue changes to the cost report to split
the cost center for Medical Supplies Charged to Patients into one line
for ``Medical Supplies Charged to Patients'' and another line for
``Implantable Devices Charged to Patients.'' We acknowledged, as RTI
had found, that charge compression occurs in several cost centers that
exist on the Medicare cost report. However, as we stated in the final
rule, we focused on the CCR for Medical Supplies and Equipment because
RTI found that the largest impact on the MS-DRG relative weights could
result from correcting charge compression for devices and implants. In
determining what should be reported in these respective cost centers,
we adopted the commenters' recommendation that hospitals should use
revenue codes established by AHA's National Uniform Billing Committee
to determine what should be reported in the ``Medical Supplies Charged
to Patients'' and the ``Implantable Devices Charged to Patients'' cost
centers.
When we developed the FY 2009 IPPS final rule, we considered all of
the public comments we received both for and against adopting
regression-based CCRs. Also noteworthy is RAND's belief that
regression-based CCRs may not significantly improve payment accuracy,
and that it is equally, if not more, important to consider revisions to
the current IPPS hospital payment factor standardization method in
order to improve payment accuracy. For FY 2010, we solicited comments
on improving the standardization process, although we did not make any
changes to the standardization process for FY 2010. We also stated that
we continued to believe that, ultimately, improved and more precise
cost reporting is the best way to minimize charge compression and
improve the accuracy of the cost weights. Accordingly, a new
subscripted line 55.30 for Implantable Devices Charged to Patients was
created in July 2009 as part of CMS' Transmittal 20 update to the
existing cost report Form CMS-2552-96. This new subscripted cost center
is available for use for cost reporting periods beginning on or after
May 1, 2009.
With respect to the initiative to reform, update, and streamline
the Medicare cost report, which has been the subject of many comments
and our responses in the IPPS (and OPPS) Federal Register notices of
rulemaking over the past several years, CMS is continuing to work on
this project. The new draft hospital cost report Form CMS-2552-10 was
published in the Federal Register on July 2, 2009, and was subject to a
60-day review and comment period, which ended August 31, 2009. CMS
received numerous comments on the draft hospital cost report Form CMS-
2552-10, specifically regarding the creation of new cost centers from
which data would be ultimately used in the relative weights
calculation. The public comments on the July 2, 2009 Federal Register
notice were incorporated in a Federal Register notice that was issued
on April 30, 2010 (75 FR 22810). We now plan to issue the final
hospital cost report Form CMS-2552-10 later this summer. However, in
part, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23878 through
23880), we provided a summary of the public comments received on the
July 2, 2009 notice that specifically related to the relative weights
and responded to those comments. Our responses to the comments in the
FY 2011 IPPS/LTCH PPS proposed rule constituted our proposals for FY
2011 regarding the relative weights.
Several commenters asked that CMS create cost centers to house the
costs of magnetic resonance imaging (MRI), Computed Tomography (CT),
nuclear medicine services, cardiac catheterization, drugs that require
detailed coding, and magnetoencephalography (MEG). One commenter
indicated, that in RTI's July 2008 report (http://www.rti.org/reports/cms/), RTI made an argument that CMS should create new standard cost
centers in which hospitals would report the costs of MRI scans, CT
scans, cardiac catheterization, and drugs that require detailed coding,
in addition to the new cost center for ``Implantable Devices Charged to
Patients.'' The commenter stated that these additional lines are needed
to distinguish items and services that hospitals tend to markup
differently within existing revenue centers, citing RTI's finding that
CT scans have a significantly higher markup than most other radiology
services. The commenter indicated that when CMS uses the overall
radiology department CCR to convert charges for CT scans to costs, it
overestimates the cost of these services, resulting in overstated
relative weights for MS-DRGs under the IPPS and for APCs under the OPPS
that incorporate CT scanning. The commenter argued that having a
separate cost center for each of these services would resolve the
problem. The commenter also stated that, while CMS has done something
similar with the creation of the cost center for high cost medical
devices, making cost center changes for some services, but not others,
where such changes are warranted could create additional distortion in
the relative weights. The commenter further argued that cost center
changes should be made for all service areas with significant volume
where services with sizable differences in markup are currently
combined in a single cost center. The commenter asserted that creating
these cost centers should not create reporting burden for hospitals
because the RTI report indicated that roughly one-third of the
hospitals are already reporting costs for CT scans, MRI scans, and
cardiac catheterization under the specific nonstandard cost centers
currently available in the cost report.
Another commenter also recommended the creation of the cost centers
for CT scans, MRI scans, and nuclear medicine services, but for
different reasons than the first commenter. Specifically, this
commenter believed these new cost centers are necessary in order for
the high capital costs to be appropriately allocated to these services
and to be correctly reflected in the CCRs that are used in the
establishment of the MS-DRG and APC payment rates for the services. The
commenter stated that, under the existing cost report structure, some
providers are allocating high capital costs for these services in a
single radiology line, diluting the high capital costs associated with
CT scans, MRI scans, and nuclear medicine services across all radiology
services, including low cost services. Therefore, the commenter
concluded that the resulting radiology CCRs that CMS applies to charges
for CT scans, MRI scans, and nuclear medicine services to arrive at the
relative costs used to set payment rates for both the IPPS and OPPS
understate the cost of high cost radiology services and overstate the
cost of low cost radiology services, resulting

[[Page 50076]]

in payments that are too low for the high cost services. The commenter
indicated that CMS should not only create these new cost centers but
should also require all hospitals to use them, and should issue
explicit instructions on how to report the costs of these services in
the new standard cost centers.
We agree that it is appropriate to create standard cost centers for
CT scans, MRI scans, and cardiac catheterization and to require that
hospitals report the costs and charges for these services under new
cost centers on the revised Medicare cost report Form CMS 2552-10. As
we discussed in the FY 2009 IPPS and CY 2009 OPPS proposed and final
rules, RTI found that the costs and charges of CT scans, MRI scans, and
cardiac catheterization differ significantly from the costs and charges
of other services included in the standard associated cost center. RTI
also concluded that both the IPPS and OPPS relative weights would
better estimate the costs of those services if CMS were to add standard
costs centers for CT scanning, MRIs, and cardiac catheterization in
order for hospitals to report separately the costs and charges for
those services and in order for CMS to calculate unique CCRs to
estimate the cost from charges on claims data.
In its analysis, RTI concluded that the estimated costs for CT
scanning and MRI scans would decline significantly and that the
estimated cost for cardiac catheterization would increase modestly if
specific standard cost centers were used. RTI found that cardiac
catheterization has very different cost inputs from most cardiac
testing (for example, electrocardiograms or cardiac stress testing)
captured in the 5300 ``Electrocardiology'' cost center and that the
accuracy of the CCR for both types of services, cardiac catheterization
and other cardiac testing, would improve with creation of a standard
cost center for cardiac catheterization. RTI also found that one-third
of hospitals already report cardiac catheterization costs and charges
separately through the available nonstandard cost center or through
subscripted lines to the ``Electrocardiology'' cost center. Similarly,
RTI found that approximately one-third of hospitals already separately
report the costs for CT scanning and MRI scans on their Medicare cost
report through subscripted lines and the available nonstandard cost
centers. We believe the current prevalence of reporting for the
nonstandard cost centers for these three services suggests a modest
hospital burden required to adopt these cost centers.
We discussed the possibility of creating standard cost centers for
these three different services in our CY 2009 OPPS proposed and final
rule with comment period (73 FR 41432 and 73 FR 68525) and solicited
general comments on RTI's recommendations. The commenters who objected
to the creation of the standard cost centers for CT scanning and MRI
scans largely did so based on RTI projected lower estimated costs for
these services if CMS created these cost centers. The commenters
suggested that the current CCRs for advanced imaging may reflect a
misallocation of capital costs and requested that CMS not adopt
separate cost centers or statistical adjustment simulating lower CCRs
for CT scanning and MRI until CMS could understand how providers are
allocating the extensive capital costs for these services to the
revenue producing cost centers. We also received comments suggesting
that the accuracy of estimated costs would improve with better
allocation, potentially increasing the CCR as more capital cost would
be appropriately allocated to both CT scanning and MRI and not spread
across all services in the radiology cost center. We noted in the CY
2009 OPPS/ASC final rule with comment period (73 FR 68525) that our
recommended allocation of moveable equipment costs in Worksheet B of
the Medicare cost report is based on dollar value, and that it would be
important to encourage improved accuracy of capital allocation through
dollar value or direct assignment if we were to make these cost centers
standard cost centers.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23879), we stated
that, at that time, we did not know the impact on CCRs and estimated
costs of adopting standard cost centers specific to CT scanning and
MRI. However, we stated our belief that these areas constitute
significant payment under both the IPPS and OPPS and that these are
common imaging services already widely reported by hospitals.
Therefore, in the proposed rule, we proposed to adopt new standard cost
centers for CT scanning and MRI. We agreed with those commenters who
asserted that creation of standard cost centers for CT scanning and MRI
would improve the accuracy of cost estimation for these services, in
part by creating incentives for hospitals to more accurately allocate
the capital and equipment associated with these services.
With regard to cardiac catheterization, we received one comment on
the CY 2009 OPPS/ASC proposed rule suggesting that hospitals might find
it difficult to allocate costs for these services to specific cost
centers, especially for cardiac catheterization, and that allocated
overhead costs would, in most cases, be an estimate (73 FR 68527).
However, given the number of hospitals already reporting the
nonstandard cost center for cardiac catheterization and the number
subscripting these costs and charges (approximately 50 percent,
according to RTI's July 2008 report (pages 71 and 72) at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf), we believe that hospitals do
allocate overhead costs to a cardiac catheterization-specific cost
center.
We also received public comments on the cost report notice urging
us to create standard cost centers for nuclear medicine services, for
drugs that require detailed coding, and for MEG. In the proposed rule,
we indicated that we continue to believe that it is not appropriate to
create standard cost centers for these three services. The Medicare
cost report already contains standard cost center 4300 (Radioisotope)
to capture the costs and charges for the radioisotopes used in nuclear
medicine services, the items that may have significantly different
costs and hospital markup than the supplies and equipment used in other
radiology services. Moreover, the cost report already contains standard
cost center 4100 (Diagnostic Radiology) in which the costs of staff,
minor equipment, and supplies for diagnostic nuclear medicine services
can be reported. Major moveable equipment should be allocated to this
cost center on Worksheet B unless the provider received approval from
its contractor for direct assignment of the costs (Provider
Reimbursement Manual (PRM), Part I, Section 2307). Therefore, we
continue to believe that creating a new standard cost center for
nuclear medicine services is not necessary. We also continue to believe
that it is not appropriate to create a standard cost center for drugs
that require detailed coding. We refer readers to the CY 2009 OPPS/ASC
final rule with comment period (73 FR 68655) for a detailed discussion
on our final decision not to create this cost center. Finally, with
respect to MEG services, the extremely low volume of claims for MEG
services furnished to Medicare beneficiaries in the hospital outpatient
setting and the extremely low number of hospitals that report these
codes relative to the volumes we typically have considered in adding
both standard and nonstandard cost centers to the cost report lead us
to conclude that a specific cost center for MEG is not justified at
this time.

[[Page 50077]]

Comment: Commenters both supported and opposed our proposal to
establish standard cost centers for the reporting of costs for CT
scanning and for MRI. Some commenters supported the proposal because
they agree with RTI's finding that there is aggregation bias in the
radiology cost centers. RTI found that CT and MRI scans have a
significantly higher markup in their respective nonstandard cost
centers or subscripted standard cost center lines than most other
radiology services. The commenters indicated that when CMS uses the
overall radiology department CCR that ``ignores'' costs and charges
reported in the CT and MRI nonstandard cost centers and other
subscripted cost centers to convert charges to costs for CT and MRI
scans, it overestimates the cost of these services, resulting in
overstated relative weights for MS-DRGs under the IPPS and for APCs
under the OPPS that incorporate CT scanning. These commenters believed
that the creation of standard cost centers for CT scanning and MRI
services will result in more accurate estimation of the cost of these
services.
Some commenters who objected to the proposal believed that it is
premature to establish these new standard cost centers without
understanding the payment implications of these changes on both IPPS
relative weights and OPPS payments. The commenters were concerned that
adoption of these cost centers would result in very low CCRs for these
services, as already observed in the nonstandard cost centers and
estimated by RTI in its July 2008 report. Some commenters stated that
if the proposal were finalized, they believe that a chest CT scan would
be paid at the same level as a routine chest X-ray under the OPPS.
Commenters also were concerned that estimating costs on claims data
using CCRs based on cost and charge data from standard cost centers for
CT scanning and MRI services would adversely impact payment for the
technical component of imaging services paid under the Medicare
Physician Fee Schedule (MPFS), which is capped at the level paid under
the OPPS fee schedule. Commenters suggested that CMS examine all the
costs incorporated into CT scans and MRI services before accepting very
low CCRs for these services. Some commenters suggested that CMS should
analyze the CCR methodology by performing specific procedure cost
comparisons of low value versus high value diagnostic imaging equipment
for both inpatient and outpatient settings to ensure that the CCRs
accurately reflect the cost of capital equipment used in the procedure
cost.
Response: After consideration of these comments, we continue to
believe that the creation of standard cost centers for CT scanning and
MRI services is necessary because of the potentially significant
improvement in the accuracy of estimated costs, as recommended by RTI.
We understand the commenters' concerns that the final CCRs for CT scans
and MRI maybe low in light of current cost report data findings and
that this may result in lower payment for CT scans and MRI services. We
do not believe that we can assess whether inappropriate payments would
result with our current data and, for that reason, we believe that we
should collect standard cost center cost and charge data for these
areas, using those data to assess the resulting CCRs specific to CT
scanning and MRI services as a means of eliminating aggregation bias
for these and other radiology services in the IPPS and OPPS. Therefore,
we are establishing standard cost centers for CT scanning and MRI
services in hospital cost reports for cost report periods beginning on
or after May 1, 2010. We believe that establishing these standard cost
centers is necessary to improving the accuracy of estimating costs for
imaging services and will allow us to perform the impact assessment
that some commenters want us to do.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880), we also
noted that there is typically a 3-year lag between the availability of
the cost report data that we use to calculate the relative weights both
under the IPPS and the OPPS and a given fiscal or calendar year, and
therefore, the data from the proposed standard cost centers for CT
scans, MRI, and cardiac catheterization respectively, should they be
finalized, would not even be available for possible use in calculating
the relative weights earlier than 3 years after Form CMS-2552-10
becomes available. We stated that at that time, we would analyze the
data and determine if it is appropriate to use those data to create
distinct CCRs from these cost centers for use in the relative weights
for the respective payment systems. Therefore, we wish to reassure the
commenters that there is no need for immediate concern regarding
possible negative payment impacts on MRI and CT scans under the IPPS
and OPPS because the cost report data that would be used for the
calculation of the relative weights is at least 3 years from being
available. We will first thoroughly analyze and run impacts on the data
and provide the public with the opportunity to comment, as usual,
before distinct CCRs for MRI and CT scans would be finalized for use in
the calculation of the relative weights. Our decision to finalize our
proposal regarding cost centers for these services is only the first
step to a longer process during which we will continue to consider
public comment.
In this final rule, we are finalizing our proposal to create
standard cost centers for MRI and CT scans on the new Medicare cost
report Form CMS-2552-10, and urge all hospitals to properly report
their costs and charges for MRI, CT scans, and all other services so
that, in several years' time, we will have reliable data from all
hospitals on which to base a decision as to whether to incorporate
additional CCRs into the relative weight calculation. We note that the
impact on physician payment for the technical component of these
services that results from changes to payment to hospitals is not
within scope of the proposed rule.
Comment: Some commenters stated that the current reporting of the
high cost of CT and MRI equipment results in inaccurate estimates of
the cost of these services. Specifically, they asserted that some
hospitals consider CT and MRI equipment costs to be capital costs,
which are spread across various cost centers based on square footage or
another allocation methodology, resulting in an underallocation of
capital costs to the radiology department and CT and MRI nonstandard
cost centers and inappropriately low CCRs for these services. In
addition, the commenters believed that some hospitals report CT and MRI
equipment costs as part of hospital fixtures and not as moveable
equipment, allocating their direct capital costs across the whole
hospital, rather than to the radiology cost center. One commenter
stated the revised Medicare cost report Form 2552-10 recommended using
a simplified cost allocation methodology where movable equipment is
allocated on a square footage basis, which appeared contrary to the
IPPS proposed rule that discussed that a dollar value could be used as
the statistical basis for cost allocation.
Finally, some commenters stated that hospitals do not have an
incentive to report these costs accurately in disaggregated cost
centers, given the time and resources to do the cost allocation. They
believed that hospitals have a modest incentive to spread their capital
cost across all services rather than allocating imaging equipment costs
in the imaging cost centers. One commenter argued that because many

[[Page 50078]]

non-Medicare third party payers continue to pay hospitals on the basis
of a percentage of charges and, to the extent that specific allocation
of equipment and other capital costs to MRI and CT scans reduces the
charges for other services, hospital may have a financial disincentive
to specifically allocate those costs. The commenter also pointed out
that, in some States, cost reporting practices are required to conform
to State regulatory requirements, which may be inconsistent with
specific allocation of capital costs.
Response: Section 104 of the PRM-1 contains definitions of
buildings (section 104.2), building equipment (section 104.3), major
moveable equipment (section 104.4), and minor equipment (section 104.5)
that apply for purposes of cost report completion. We believe that it
is clear that CT and MRI equipment are ``major moveable equipment'' and
are neither a building cost nor a building equipment cost.
Specifically, section 104.4 of the PRM-1 defines ``major moveable
equipment'' as follows: ``The general characteristics of this equipment
are: (a) A relatively fixed location in the building; (b) capable of
being moved, as distinguished from building equipment; (c) a unit cost
sufficient to justify ledger control; (d) sufficient size and identity
to make control feasible by means of identification tags; and (e) a
minimum life of approximately three years. Major moveable equipment
includes such items as accounting machines, beds, wheelchairs, desks,
vehicles, x-ray machines, etc.'' In addition to this longstanding
instruction, we believe that our view that CT scanning and MRI
equipment are major moveable equipment is supported by the 2008 edition
of ``Estimated Useful Lives of Depreciable Hospital Assets,'' which
states that the estimated useful life of a CT scanner is 5 years, an
MRI is 5 years, and an X-ray unit is 7 years. Therefore, we believe
that our longstanding policy makes it clear that CT scanning and MRI
equipment is major moveable equipment and should be reported as such on
the cost report. As major moveable equipment, the costs should be
reported together with the rest of the hospital's major moveable
equipment cost in the ``Capital Related Cost--Moveable Equipment'' cost
center(s) on Worksheet A (lines 2 and 4). The costs in this cost center
are allocated to all the hospital's cost centers that use major
moveable equipment (including CT and MRI) using ``dollar value'' or
``square feet'' if the provider obtained the contractor's approval
under Provider Reimbursement Manual, Part II (PRM-II), Section 3617, to
use the simplified cost allocation methodology. However, a hospital
that is concerned that this method of allocation may result in
inaccurate CCRs (on Worksheet C, Part I) for the CT scan, MRI, and
other ancillary cost centers may request contractor approval under
section 2307 of the PRM-I to directly assign the cost of moveable
equipment to all of the hospital's cost centers that use moveable
equipment, including CT scans and MRI. If the hospital meets all of the
criteria in section 2307 of the PRM-I, the contractor may approve the
direct assignment method. This would ensure that the high cost of the
CT scanning and MRI equipment would be reflected in the CCR that would
be calculated for those departments and that would be used to estimate
the cost of CT scanning and MRI services. In any case, hospitals with
accounting systems that include the cost of CT scanning and MRI
equipment in the ``Capital Related Costs--Building and Fixtures'' cost
center should correct their cost reporting practices to come into
compliance with CMS longstanding policy in this regard. Reporting of
costs and charges on the Medicare cost report must be compliant with
Medicare cost reporting principles, regardless of differing payment
structures and incentives of other payers or State reporting
requirements.
Comment: Commenters raised concerns about rural hospitals being
unable to accurately report costs in CT scanning, MRI and cardiac
catheterization cost centers. One commenter noted that rural hospitals,
like CAHs, provide some of these radiology services internally or
through arrangement, and that it is difficult for them to track the
costs for these cost centers. The commenter requested that CAHs be
exempt from the requirement to report their costs in the proposed
standard cost centers. Other commenters noted that the proposed
creation of a standard cardiac catheterization cost center would pose a
significant burden to hospitals to change their cost reporting to
allocate costs to this cost center. In particular, they stated that
smaller hospitals may have fewer resources to be able to separate their
costs and charges for these cost centers, which would pose a
significant burden. The commenters indicated that, for example, while
revenue code 481 ``Cardiology-Catheterization Lab'' contains cardiac
catheterization charges, there are some revenue codes that contain
other charges for cardiac catheterization, like revenue codes 360 and
361, ``Operating Room-General'' and ``Operating Room-Minor,''
respectively.
Response: As we stated in the CY 2009 OPPS final rule (73 FR
68522), with regard to creation of new cost centers, hospitals that do
not currently maintain distinct departments or accounts in their
internal accounting systems for CT scanning, MRI, or cardiac
catheterization are not required to create distinct departments or
accounts. We do not expect additional burden for reporting under these
new standard cost centers to be significant because hospitals that
provide these services and maintain a separate account for these
services in their internal accounting records to capture the costs and
charges are currently required in accordance with Sec. 413.53(a)(1) to
report these cost centers in the cost report, even if CMS does not
identify a cost center code for the department(s). Specifically, under
those regulations defining the departmental method of cost
apportionment, the hospital must separately apportion the cost of each
ancillary department. CMS defines a cost center in PRM-I, Section
2302.8, as an organizational unit, generally a department or its
subunit, having a common functional purpose for which direct and
indirect costs are accumulated, allocated, and apportioned. With
respect to the comments regarding the revenue codes for cardiac
catheterization, if the hospital operates a separate department for
cardiac catheterization and maintains a separate General Ledger account
for this department, the hospital would be expected to report the costs
and charges in the new cardiac catheterization standard cost center and
ensure that the charges are billed under appropriate UB revenue codes.
Comment: Some commenters supported the proposal to create a
standard cost center for cardiac catheterization services. However,
some commenters objected to the proposal to create a standard cost
center for Cardiac Catheterization. Some commenters were uncertain
whether it would have a significant impact on charge compression and
believed that it may not be necessary to secure more accurate estimated
costs. Commenters were concerned that RTI's analysis of charge
compression in the cardiology cost centers may be flawed; when RTI
analyzed the costs and charges included in the current nonstandard
cardiac catheterization cost center, RTI hypothesized that the
nonstandard cardiac catheterization cost center contains costs from
services that were not cardiac catheterization. As such,

[[Page 50079]]

commenters believed that hospitals may not be reporting their costs
appropriately for this cost center.
Response: We continue to believe that it is appropriate to create a
standard cost center to capture the cost and charges of cardiac
catheterization services in hospitals that maintain the cost of such
services in distinct departments or accounts, and that standardizing
where hospitals report their costs and charges for cardiac
catheterization will improve the estimation of the cost of this high
volume Medicare service for both the IPPS and the OPPS. Moreover, once
the information from a standard cardiac catheterization cost center is
available, we will carefully evaluate the effect on the CCRs that are
derived from these data and will make the decision regarding whether to
implement the resulting CCRs, as usual, through our public Federal
Register proposed and final notice process. However, in this final
rule, we are finalizing our proposal to add a standard cost center to
the cost report for cardiac catheterization.
Comment: Commenters opposed a regression-based approach for
addressing charge compression in the relative weights where CMS would
use regression-based CCRs in the relative weights methodology. The
commenters preferred more accurate and uniform cost reporting, to
mitigate charge compression in the cost-based relative weights.
Response: We agree that more accurate cost reporting is a better
means of mitigating charge compression than applying regression-based
adjustments and, for this reason, have proposed to create certain cost
centers that we believe will ultimately result in more refined CCRs,
thereby leading to better estimates of hospital cost for MRI, CT
scanning, and cardiac catheterization services about which the public
has repeatedly raised concerns due to the hospital practice of setting
charges for low cost services at a much higher percentage of cost than
the percentage by which the charge for high cost services exceeds the
cost of those services.
Comment: One commenter stated that CMS should work closely with the
hospital industry for comprehensive cost report reform rather than have
piecemeal changes to the cost report. The commenter believed that CMS'
collaboration with the industry would promote cost report
simplification.
Response: We have just completed a major redesign of the hospital
cost report in which the public had multiple opportunities to provide
input to the specific proposed revisions. However, that larger
redesign, reassessment, and revision effort does not negate the need to
make additional targeted changes as appropriate to resolve particular
identified problems, such as aggregation bias in the payment for
devices, CT scanning, MRI services and cardiac catheterization. As
discussed above, the proposal to create standard cost centers for CT
scanning, MRI services and cardiac catheterization evolved from the
findings of the RTI report of aggregation bias in the payment of
several types of services paid under the IPPS and OPPS, including, but
not limited to, high cost medical devices for which CMS created a
standard cost center for cost report periods beginning on and after May
1, 2009. We believe that the creation of standard cost centers for CT
scanning, MRI services, and cardiac catheterization is both appropriate
and that CMS has provided numerous opportunities for public input.
Comment: One commenter recommended that CMS issue explicit,
unambiguous guidance to hospitals on how to improve allocation of large
capital costs to the radiology cost center. The commenter noted that
the draft Medicare cost report Form 2552-10 did not provide any
mandatory reporting guidance to hospitals on how to improve the
accuracy of cost allocation for imaging equipment.
Response: We believe that the current instructions on allocation of
the cost of major moveable equipment needed to provide CT scans, MRIs,
and other radiology services are clear. We refer readers to the
regulations at 42 CFR 413.24(b) and 413.24(f) and CMS instructions in
Sections 2304 through 2320 of the PRM-I and Sections 3617 and 3618 of
the PRM-II.
Comment: One commenter raised a number of concerns about what CT
and MRI information hospitals should report in these cost centers.
Those concerns include whether equipment installation or de-
installation or equipment maintenance costs are reported in this cost
center and whether costs associated with supplies related to MRI and CT
equipment (like diagnostic contrast agents) are reported in this cost
center. The commenter speculated whether each new item of advanced
diagnostic equipment warranted a new cost center. The commenter
requested that CMS provide guidance to the hospital industry on what
types of costs should be reported in these cost centers.
Response: As with any other ancillary cost center, the providers
would report the direct cost accumulated in the CT scanning or MRI
departmental accounts that are reflected in the general ledger working
trial balance.
Comment: One commenter recommended that CMS work with the Medicare
contractors to simplify the cost allocation process, which the
commenter found to be lengthy and burdensome. The commenter stated that
if hospitals want to change the order of allocation or their allocation
statistics, they must make a written request to their fiscal
intermediary or MAC 90 days prior to the end of the cost reporting
period. The commenter stated that the hospital must demonstrate that
the change more accurately allocates costs and provide supporting
documentation. The fiscal intermediary or MAC has 60 days to decide
whether or not to approve or deny the request, while the provider must
maintain both sets of cost allocation statistics in the meantime. The
commenter requested that CMS simplify this process.
Response: We believe that the current process provides Medicare
contractors with the minimum time needed to evaluate a contractor
request to change the order of allocation or their allocation
statistics, given the importance of the decision and the need for the
contractor to assess whether the change would result in a more valid
determination of hospital costs.
Comment: Commenters encouraged CMS to ensure that hospitals are
appropriately allocating costs to the Implantable Devices Charged to
Patients cost center, which was a standard cost center that we added
for cost report periods beginning on and after May 1, 2009, as a result
of the findings of the RTI report that there is aggregation bias in our
estimates of the cost of expensive medical devices.
Response: Hospitals are expected to comply with our regulations at
42 CFR 413.24(b)(1) and 413.24(f) and to follow the instructions in
Sections 2304 through 2320 of the PRM-I and Sections 3617 and 3618 of
the PRM-II, as well as all other related instructions when allocating
cost to the Implantable Devices Charged to Patients cost center.
Medicare contractors review how hospitals allocate costs on the
Medicare cost report for all cost centers, including the Implantable
Devices Charged to Patients cost center, in accordance with their audit
plans.
Comment: One commenter opposed the HSRV methodology for
standardization of the relative weights. The commenter found this
methodology to be inappropriate in a cost-based relative weight
methodology and only appropriate for removing the effects of different
markup practices in a charge-based relative weight methodology.
Response: We appreciate the comment but note that we did not

[[Page 50080]]

propose any changes with respect to the HSRV methodology for
standardizing the relative weights.
In summary, we are establishing standard cost centers for CT
scanning, MRI services, and cardiac catheterization in hospital cost
reports for cost report periods beginning on or after May 1, 2010.

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

1. Background
a. Statutory Authority
Section 1886(d)(4)(D) of the Act addresses certain hospital-
acquired conditions (HACs), including infections. Section 1886(d)(4)(D)
of the Act specifies that by October 1, 2007, the Secretary was
required to select, in consultation with the Centers for Disease
Control and Prevention (CDC), at least two conditions that: (a) Are
high cost, high volume, or both; (b) are assigned to a higher paying
MS-DRG when present as a secondary diagnosis (that is, conditions under
the MS-DRG system that are CCs or MCCs); and (c) could reasonably have
been prevented through the application of evidence-based guidelines.
Section 1886(d)(4)(D) of the Act also specifies that the list of
conditions may be revised, again in consultation with CDC, from time to
time as long as the list contains at least two conditions.
Section 1886(d)(4)(D)(iii) of the Act requires that hospitals,
effective with discharges occurring on or after October 1, 2007, submit
information on Medicare claims specifying whether diagnoses were
present on admission (POA). Section 1886(d)(4)(D)(i) of the Act
specifies that effective for discharges occurring on or after October
1, 2008, Medicare no longer assigns an inpatient hospital discharge to
a higher paying MS-DRG if a selected condition is not POA. Thus, if a
selected condition that was not POA manifests during the hospital stay,
it is considered a HAC and the case is paid as though the secondary
diagnosis was not present. However, even if a HAC manifests during the
hospital stay, if any nonselected CC/MCC appears on the claim, the
claim will be paid at the higher MS-DRG rate. Under the HAC payment
policy, all CCs/MCCs on the claim must be HACs in order to generate a
lower MS-DRG payment. In addition, Medicare continues to assign a
discharge to a higher paying MS-DRG if a selected condition is POA.
The POA indicator reporting requirement and the HAC payment
provision apply to IPPS hospitals only. Non-IPPS hospitals, including
CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals,
hospitals in Maryland operating under waivers, rural health clinics,
federally qualified health centers, RNHCIs, and Department of Veterans
Affairs/Department of Defense hospitals, are exempt from POA reporting
and the HAC payment provision. Throughout this section, the term
``hospital'' refers to an IPPS hospital.
The HAC provision found in section 1886(d)(4)(D) of the Act is part
of an array of Medicare value-based purchasing (VBP) tools that we are
using to promote increased quality and efficiency of care. Those tools
include measuring performance, using payment incentives, publicly
reporting performance results, applying national and local coverage
policy decisions, enforcing conditions of participation, and providing
direct support for providers through Quality Improvement Organization
(QIO) activities. The application of VBP tools, such as this HAC
provision, is transforming Medicare from a passive payer to an active
purchaser of higher value health care services. We are applying these
strategies for inpatient hospital care and across the continuum of care
for Medicare beneficiaries.
These VBP tools are highly compatible with the underlying purposes
as well as existing structural features of Medicare's IPPS. Under the
IPPS, hospitals are encouraged to treat patients efficiently because
they receive the same DRG payment for stays that vary in length and in
the services provided, which gives hospitals an incentive to avoid
unnecessary costs in the delivery of care. In some cases, conditions
acquired in the hospital do not generate higher payments than the
hospital would otherwise receive for cases without these conditions. To
this extent, the IPPS encourages hospitals to avoid complications.
However, the treatment of certain conditions can generate higher
Medicare payments in two ways. First, if a hospital incurs
exceptionally high costs treating a patient, the hospital stay may
generate an outlier payment. Because the outlier payment methodology
requires that hospitals experience large losses on outlier cases before
outlier payments are made, hospitals have an incentive to prevent
outliers. Second, under the MS-DRGs system that took effect in FY 2008
and that has been refined through rulemaking in subsequent years,
certain conditions can generate higher payments even if the outlier
payment requirements are not met. Under the MS-DRG system, there are
currently 259 sets of MS-DRGs that are split into 2 or 3 subgroups
based on the presence or absence of a CC or an MCC. The presence of a
CC or an MCC generally results in a higher payment. However, since we
implemented the HAC provisions, if a secondary diagnosis acquired
during a hospital stay is a HAC and no other CCs or MCCs are present,
the hospital receives a payment under the MS-DRGs as if the HACs were
not present. (We refer readers to section II.D. of the FY 2008 IPPS
final rule with comment period for a discussion of DRG reforms (72 FR
47141).)
b. HAC Selection
Beginning in FY 2007, we have proposed, solicited, and responded to
public comments and have implemented section 1886(d)(4)(D) of the Act
through the IPPS annual rulemaking process. For specific policies
addressed in each rulemaking cycle, we direct readers to the following
publications: the FY 2007 IPPS proposed rule (71 FR 24100) and final
rule (71 FR 48051 through 48053); the FY 2008 IPPS proposed rule (72 FR
24716 through 24726) and final rule with comment period (72 FR 47200
through 47218); the FY 2009 IPPS proposed rule (73 FR 23547), and final
rule (73 FR 48471); and the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24106) and final rule (74 FR 43782). A complete list of the 10
current categories of HACs is included in section II.F.2. of this
preamble.
In the FY 2011 IPPS/LTCH proposed rule (75 FR 23880 through 23898),
we did not propose any additional HACs or changes to policies already
established under the authority of section 1886(d)(4)(D) of the Act.
c. Collaborative Process
As noted in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23881),
in establishing the HAC payment policy under section 1886(d)(4)(D) of
the Act, our experts have worked closely with public health and
infectious disease professionals from across the Department of Health
and Human Services, including CDC, the Agency for Healthcare Research
and Quality (AHRQ), and the Office of Public Health and Science (OPHS),
to identify the candidate preventable HACs, review comments, and select
HACs. CMS and CDC have also collaborated on the process for hospitals
to submit a POA indicator for each diagnosis listed on IPPS hospital
Medicare claims and on the payment implications of the various POA
reporting options. As discussed below, we have also used rulemaking

[[Page 50081]]

and Listening Sessions to obtain public input.
d. Application of HAC Payment Policy to MS-DRG Classifications
As described above, in certain cases application of the HAC payment
policy provisions can result in MS-DRG reassignment to a lower paying
MS-DRG. The following diagram portrays the logic of the HAC payment
policy provision as adopted in the FY 2008 IPPS final rule with comment
period (72 FR 47200) and in the FY 2009 IPPS final rule (73 FR 48471):
[GRAPHIC] [TIFF OMITTED] TR16AU10.003

e. Public Input Regarding Selected and Potential Candidate HACs
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880 through
23898), we did not propose to add or remove categories of HACs, nor did
we propose any changes to previously established policies.
Given the timeliness of the HAC discussion, particularly when
considered within the context of recent legislative health care reform
initiatives, however, we remain eager to engage in an ongoing public
dialogue about the various aspects of this policy. We plan to continue
to include updates and findings from the RTI evaluation on CMS'
Hospital-Acquired Conditions and Present on Admission Indicator Web
site available at: http://www.cms.hhs.gov/HospitalAcqCond/.
f. POA Indicator Reporting
Collection of POA indicator data is necessary to identify which
conditions were acquired during hospitalization for the HAC payment
provision as well as for broader public health uses of Medicare data.
In the FY 2011 IPPS/LTCH PPS proposed rule, we listed the instructions
and change requests that were issued to IPPS hospitals and also to non-
IPPS hospitals regarding the submission of POA indicator data for all
diagnosis codes on Medicare claims and the processing of non-PPS claims
(75 FR 23381) We also indicated that specific instructions on how to
select the correct POA indicator for each diagnosis code were included
in the ICD-9-CM Official Guidelines for Coding and Reporting, available
on the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/icdguide09.pdf. We reiterate that additional information regarding POA
indicator reporting and application of the POA reporting options is
available on the CMS Web site at: http://www.cms.hhs.gov/HospitalAcqCond although, historically we have not provided coding
advice. Rather, we collaborate with the American Hospital Association
(AHA) through the Coding Clinic for ICD-9-CM. We continue to
collaborate with the AHA to promote the Coding Clinic for ICD-9-CM as
the source for coding advice about the POA indicator.
As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23882) as well as in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74
FR 43784), there are five POA indicator reporting options, as defined
by the ICD-9-CM Official Guidelines for Coding and Reporting:

------------------------------------------------------------------------
Indicator Descriptor
------------------------------------------------------------------------
Y............................. Indicates that the condition was present
on admission.
W............................. Affirms that the hospital has determined
that, based on data and clinical
judgment, it is not possible to
document when the onset of the
condition occurred.
N............................. Indicates that the condition was not
present on admission.
U............................. Indicates that the documentation is
insufficient to determine if the
condition was present at the time of
admission.
1............................. Signifies exemption from POA reporting.
CMS established this code as a
workaround to blank reporting on the
electronic 4010A1. A list of exempt ICD-
9-CM diagnosis codes is available in
the ICD-9-CM Official Guidelines for
Coding and Reporting.
------------------------------------------------------------------------

[[Page 50082]]

In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we
adopted final payment policies to: (1) Pay the CC/MCC MS-DRGs for those
HACs coded with ``Y'' and ``W'' indicators; and (2) not pay the CC/MCC
MS-DRGs for those HACs coded with ``N'' and ``U'' indicators.
On or after January 1, 2011, hospitals are required to begin
reporting POA indicators using the 5010 electronic transmittal
standards format. The 5010 format removes the need to report a POA
indicator of ``1'' for codes that are exempt from POA reporting. The
POA indicator of ``1'' is currently being used because of reporting
restrictions from the use of the 4010 electronic transmittal standards
format.
Comment: Several commenters supported CMS' plans to no longer
require a POA indicator of ``1'' for codes exempt from the POA
reporting requirement with the implementation of the new 5010
electronic transaction standards.
Response: We appreciate the commenters' support of our efforts to
move to the new 5010 electronic transaction standards format. We agree
that the use of this format will prove beneficial for a number of
reasons, including POA indicator reporting as well as facilitating the
move to the use of ICD-10 coding systems.
Hospitals reporting with the 5010 format on and after January 1,
2011, will no longer report a POA indicator of ``1'' for POA exempt
codes. The POA field will instead be left blank for codes exempt from
POA reporting. We plan to issue CMS instructions on this reporting
change.
2. HAC Conditions for FY 2011
As changes to diagnosis codes and new diagnosis codes are proposed
and finalized for the list of CCs and MCCs, we modify the list of
selected HACs to reflect these changes. In Table 6A in the Addendum to
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24207), we listed the
proposed addition of five new ICD-9-CM diagnosis codes to replace
existing ICD-9-CM code 999.6 (ABO incompatibility reaction) for FY
2011. ICD-9-CM code 999.6 is currently the only code identified under
the Blood Incompatibility HAC category. We proposed to delete code
999.6 and form a new subcategory of code 999.6 to identify new
diagnoses relating to ABO incompatibility reaction due to transfusion
of blood or blood products. These diagnoses meet the criteria for the
Blood Incompatibility HAC category based on the predecessor code 999.6
being a selected HAC.
As shown in Table 6C in the Addendum to the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 24210), we proposed that code 999.6 become invalid
as a diagnosis code in FY 2011 with the creation of this new ICD-9-CM
subcategory. This proposed new subcategory would allow room for
expansion and the creation of the following new diagnosis codes:

------------------------------------------------------------------------
Proposed CC/MCC
ICD-9-CM Code Code Descriptor Designation
------------------------------------------------------------------------
999.60..................... ABO incompatibility CC
reaction, unspecified.
999.61..................... ABO incompatibility with CC
hemolytic transfusion
reaction not specified as
acute or delayed.
999.62..................... ABO incompatibility with CC
acute hemolytic
transfusion reaction.
999.63..................... ABO incompatibility with CC
delayed hemolytic
transfusion reaction.
999.69..................... Other ABO incompatibility CC
reaction.
------------------------------------------------------------------------

We invited public comments on the proposed adoption of the five
ICD-9-CM diagnosis codes as CCs that are listed above which, if
finalized, would be added to the current HAC Blood Incompatibility
category.
Comment: Several commenters supported CMS' proposal to add new ICD-
9-CM codes 999.60, 999.61, 999.62, 999.63, and 999.69, to replace code
999.6, to specify ABO incompatibility reaction for FY 2011 and their
classification as CCs.
Response: We appreciate the support of the commenters. We are
finalizing our proposal to make code 999.6 an invalid code and to add
codes 999.60, 999.61, 999.62, 999.63, and 999.69 as CCs to the HAC
blood incompatibility category for FY 2011.
Comment: Some commenters questioned why the five ICD-9-CM codes
(999.60, 999.61, 999.62, 999.63, and 999.69) were being proposed to
replace the existing code (999.6) to identify blood incompatibility
when the analysis indicated that only an extremely low volume of
discharges (23) reported this condition as a secondary diagnosis.
Response: The five ICD-9-CM codes listed above were proposed and
finalized through the ICD-9-CM Coordination and Maintenance Committee
meeting process. Further information regarding the diagnosis coding
proposal for Hemolytic Transfusion Reactions (HTR) from the September
17, 2009 meeting can be located at the following CDC Web site: http://www.cdc.gov/nchs/icd/icd9cm_maintenance.htm.
For the reasons set forth in the proposed rule, we are finalizing
our proposal to make code 999.6 an invalid code and to add codes
999.60, 999.61, 999.62, 999.63, and 999.69 as CCs to the HAC blood
incompatibility category for FY 2011.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23882 and 23883),
we also invited public comment on our proposal that the current list of
HAC categories and the ICD-9-CM codes that had been finalized through
FY 2010 continue to be subject to the HAC payment provision for FY
2011. We also indicated that the final FY 2011 list of HAC conditions
would include the proposed five new refinement codes to identify blood
incompatibility as CCs if these codes were finalized. We received
public comments on our proposal that the listed conditions continue to
be subject to the HAC payment provisions which are summarized below.
Comment: One commenter stated that the current HAC categories and
codes finalized through FY 2010 are, for the most part, rational based
on the statutory criteria that HACs must be high cost, high volume, or
both and reasonably preventable through the application of evidence
based guidelines. However, the commenter expressed reservations
regarding the inclusion of deep vein thrombosis (DVT) and pulmonary
embolism (PE) following certain orthopedic procedures. The commenter
stated that the proportion of these events that can be prevented with
evidence-based guidelines is unclear, given that there is uncertainty
about the ideal length of time DVT prophylaxis should be continued
postoperatively, differing practices and guidelines for DVT
prophylaxis, and patient-specific factors (that is, thrombophilia) that
can impact risk of postoperative venous thromboembolism. The commenter
stated that an unintended consequence

[[Page 50083]]

of this HAC category could be excess bleeding occurrences from longer
prescriptions of anticoagulation in attempts to comply with the
measure. The commenter stated that, rather than including DVTs and PEs
under the HAC provision, these conditions may be more appropriately
managed as a measure under the RHQDAPU, as is being proposed for
reducing avoidable readmissions.
Response: We appreciate the commenter's support for the current HAC
categories. We also appreciate the commenter's concern regarding
whether DVTs and PEs following certain orthopedic procedures are
reasonably preventable, given evidence-based guidelines. We are
providing data on the frequency of our 10 categories of HACs for the
first time in this year's rulemaking. As the public reviews these data
and evaluates the effectiveness of the HAC program, we will be
soliciting recommendations for refinements to this list. As discussed
earlier, section 1886(d)(4)(D) of the Act specifies that the HAC list
of conditions may be revised, in consultation with CDC, from time to
time as long as the list contains at least two conditions. We did not
propose any modification to the HAC list in the proposed rule. We
instead shared data on the HACs, which we have discussed earlier. As we
move forward, we will be working with the health care industry to
refine and update the HAC list. Therefore, we will not remove DVTs and
PEs following certain orthopedic procedures from the HAC list at this
time.
Comment: One commenter requested that CMS clarify how a hospital
can appeal a decision under which a particular patient falls under the
HAC policy and is ineligible for a higher DRG payment. The commenter
believed that an appeals process is essential to ensure accountability.
Response: As we explained in the FY 2008 IPPS final rule (72 FR
47216), under 42 CFR 412.60(d), a hospital has 60 days after the date
of the notice of the initial assignment of a discharge to an MS-DRG to
request a review of that assignment. The hospital may submit additional
information as part of its request. A hospital that believes a
discharge was assigned to the incorrect MS-DRG as a result of the
payment adjustment for HACs may request review of the MS-DRG assignment
by its fiscal intermediary or MAC consistent with Sec. 412.60(d) of
the regulations.
As final policy for FY 2011, the following conditions will continue
to be subject to the HAC payment provision:
BILLING CODE 4120-01-P

[[Page 50084]]

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[[Page 50085]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.005

BILLING CODE 4120-01-C
We refer readers to section II.F.6. of the FY 2008 IPPS final rule
with comment period (72 FR 47202 through 47218) and to section II.F.7.
of the FY 2009 IPPS final rule (73 FR 48474 through 48486) for detailed
analyses supporting the selection of each of the HACs selected through
FY 2010.
3. RTI Program Evaluation Summary
a. Background
On September 30, 2009, a contract was awarded to Research Triangle
Incorporated (RTI) to evaluate the impact of the Hospital-Acquired
Condition-Present on Admission (HAC-POA) provisions on the changes in
the incidence of selected conditions, effects on Medicare payments,
impacts on coding accuracy, unintended consequences, and infection and
event rates. This is an intra-agency project with funding and technical
support coming from CMS, OPHS, AHRQ, and CDC. The evaluation will also
examine the implementation of the program and evaluate additional
conditions for future selection.
RTI's evaluation of the HAC-POA provisions is divided into several
parts, only some of which were completed prior to the publication date
of the FY 2011 IPPS/LTCH PPS proposed rule. In the FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 23883 through 23898), we summarized the
analyses that were completed. RTI's analyses of POA indicator
reporting, frequencies and net savings associated with current HACs,
and frequencies of previously considered candidate HACs reflect MedPAR
claims from October 2008 through June 2009.
We received a number of public comments regarding the evaluation
conducted by RTI, despite the fact that we did not propose any new
policies or policy revisions based on the evaluation. Several of these
public comments are addressed later in another section of this
preamble, but we believe that it is appropriate to acknowledge the
following issues here.
Comment: Several commenters expressed concern that the RTI
evaluation did not include an analysis on the costs of complying with
the HAC-POA provision. According to the commenters, compliance with our
HAC-POA policy results in additional costs to providers and
individuals, as well as to the Medicare program by necessitating
additional expensive preadmission screening tests in order to achieve
more accurate admission documentation. The commenters also stated that
the estimated savings to Medicare is not accurate if providers are
utilizing additional resources to perform these expensive tests on
their patients.
Response: We understand the seriousness of this concern and refer
to our original discussion of HAC-POA issues in the FY 2009 IPPS final
rule (73 FR 23547 through 23559) in which we included a comprehensive
discussion of what we understood to be the full impact of this policy.
We will continue to evaluate the financial costs of compliance with our
HAC-POA program, as well as its impact on our overall goal of providing
the highest quality of care for Medicare beneficiaries at the most
reasonable costs.
Comment: Several commenters commended CMS for making the early
findings of the RTI study, as well as HAC-POA data, available to the
public. The commenters encouraged CMS to continue to make additional
findings available.
Response: We agree with the commenters that it continues to be
important to make HAC-POA data and findings available to the public
prior to proposing any significant updates to the HAC list. As RTI
continues its work, we will share the findings and additional HAC-POA
data.
Comment: Several commenters expressed interest in seeing data on
the most common secondary diagnoses on the CC and MCC list that are
reported along with an HAC code.
Response: We have asked RTI to include a list of the most commonly
reported secondary CC and MCC diagnoses and display this list along
with the other HAC-POA data on its Web site at: http://www.rti.org/reports/cms.
In this final rule, we are updating our summary of the analyses
with additional data that have become available since issuance of the
proposed rule.
b. RTI Analysis on POA Indicator Reporting Across Medicare Discharges
To better understand the impact of HACs on the Medicare program, it
is necessary to first examine the incidence of POA indicator reporting
across all eligible Medicare discharges. As

[[Page 50086]]

mentioned previously, only IPPS hospitals are required to submit POA
indicator data for all diagnosis codes on Medicare claims. Therefore,
all non-IPPS hospitals were excluded, as well as providers in waiver
States (Maryland) and territories other than Puerto Rico.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880 through
23898), we provided a preliminary analysis on claims data from October
2008 through June 2009. Since publication of that proposed rule, an
additional 3 months of data for FY 2009 that include claims from July
2009 through September 2009 have become available. Below we present the
cumulative results of RTI's findings for FY 2009.
Using MedPAR claims data from October 2008 through September 2009,
RTI found a total of approximately 65.22 million secondary diagnoses
across approximately 9.3 million discharges. As shown in Chart A below,
the majority of all secondary diagnoses (83.69 percent) were reported
with a POA indicator of ``Y,'' meaning the condition was POA.
[GRAPHIC] [TIFF OMITTED] TR16AU10.006

c. RTI Analysis on POA Indicator Reporting of Current HACs
Following the initial analysis of POA indicator reporting for all
secondary diagnoses, RTI then evaluated POA indicator reporting for
specific HAC-associated secondary diagnoses. The term ``HAC-associated
secondary diagnosis'' refers to those diagnoses that are on the
selected HAC list and were reported as a secondary diagnosis. Chart B
below shows a summary of the HAC categories with the frequency in which
each HAC was reported as a secondary diagnosis and the corresponding
POA indicators assigned on the claims. It is important to note that,
because more than one HAC-associated diagnosis code can be reported per
discharge (that is, on a single claim), the frequency of HAC-associated
diagnosis codes may be more than the actual number of discharges that
have a HAC-associated diagnosis code reported as a secondary diagnosis.
Below we discuss the frequency of each HAC-associated diagnosis code
and the POA indicators assigned to those claims.
RTI analyzed the frequency of each reported HAC-associated
secondary diagnosis (across all 9.3 million discharges) and the POA
indicator assigned to the claim. Chart B below shows that the most
frequently reported conditions were in the Falls and Trauma HAC
category, with a total of 153,284 HAC-associated diagnosis codes being
reported for that HAC category. Of these 153,284 diagnoses, 5,684
reported a POA indicator of ``N'' for not POA and 147,257 diagnoses
reported a POA indicator of ``Y'' for POA. The lowest frequency appears
in the Surgical Site Infection (SSI) Following Bariatric Surgery for
Obesity HAC category with only 17 HAC-associated secondary diagnosis
codes (and procedure codes) reported. It is important to note that the
number of secondary diagnosis codes classified as POA is likely
overstated due to coding practices, and, therefore, the number of HACs
not POA are expected to be greater than indicated in Charts B and C. As
a result, these data likely underestimate the number of complications
some would consider acquired in the hospital or other health care
setting. For example, the HACs listed as present on admission (POA =
``Y'') include those instances where the HAC condition was present on
admission from the emergency room or other outpatient settings within
the admitting institution. The POA indicator of ``Y'' is also used to
identify cases where a patient was discharged and then readmitted one
calendar day or more after the date of discharge due to complications
from a HAC. In addition, the POA indicator of ``Y'' may also include
patient transfers to the acute care hospital from other health care
facilities, like nursing homes, or from a home health setting, where
the secondary diagnosis considered to be a HAC was initially acquired.
Using current coding guidelines, all of the above scenarios can be
correctly and appropriately classified as POA (where POA = ``Y'') on an
inpatient claim, and CMS does not have data from which to determine
where the condition described in the secondary diagnisos was acquired.
Therefore, while a fraction of the HACs reported as POA were acquired
outside the hospital prior to admission, some conditions could also
have been acquired at the hospital in an outpatient setting or through
a prior admission.

[[Page 50087]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.007

BILLING CODE 4120-01-C
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23885), we
welcomed public comments on the data presented that could provide
insight into the accuracy of those data, the use of comparative data
sets or analysis, and how aspects of the coding system might influence
these data.
Comment: One commenter expressed its past and continuing support of
the HAC-POA program. This commenter applauded CMS' efforts to evaluate
the payment and clinical impacts of the HAC-POA policy and for making
the preliminary data available for public comment. However, the
commenter reported that it found the preliminary published POA data for
certain conditions interesting. Specifically, the commenter noted that
the POA data for the catheter-associated urinary tract infection
(CAUTI) condition was unexpected in that 85 percent of the cases
reporting that condition as a secondary diagnosis were assigned a POA
indicator of ``Y'' (meaning that the condition was present on
admission). The commenter further noted that there were other
conditions whose POA data analysis results were equally unexpected.
This commenter stated it looked forward to reviewing further

[[Page 50088]]

analyses and understanding how the POA indicator is being documented
and the accuracy of the documentation.
Response: We appreciate and acknowledge the commenter's support of
the HAC-POA provision. As stated earlier, one aspect of the HAC-POA
program evaluation is to examine the accuracy of coding, which includes
a review of the POA indicator data. RTI will continue to study these
data and, when they become available, we plan to publish the results.
Comment: Commenters expressed concern about the accuracy of POA
indicator reporting for the HACs related to intracranial injury with
loss of consciousness. One commenter stated that it has come to the
attention of the American Hospital Association's Central Office on ICD-
9-CM that there have been different interpretations of the POA coding
guidelines for the reporting of the following ICD-9-CM code categories:
850 Concussions;
851 Cerebral laceration and contusion;
852 Subarachnoid, subdural, and extradural hemorrhage,
following injury;
853 Other and unspecified intracranial hemorrhage
following injury; and
854 Intracranial injury of other and unspecified nature.
The commenter pointed out that the above mentioned ICD-9-CM code
categories require a fifth digit to specify whether there was a loss of
consciousness, and the approximate length of time that the patient was
unconscious. The commenter stated that, currently, the POA guidelines
state to ``assign `N' if any part of the combination code was not
present on admission.'' The commenter further indicated that, in some
instances, coders have assigned ``N'' to these codes if the patient
lost consciousness after admission, even though the intracranial injury
occurred prior to admission. The commenter stated that loss of
consciousness is a component of intracranial injuries rather than a
separate condition. The commenter believed that this guideline has
resulted in data implying that the intracranial injuries were a result
of trauma sustained after admission to the hospital, when the injury
occurred prior to admission.
The commenter stated that this POA guideline was discussed by the
Editorial Advisory Board for Coding Clinic for ICD-9-CM. After review,
the commenter stated that the Board determined that the POA guideline
should be clarified so that coders will understand that these
intracranial injury cases that have a loss of consciousness after
admission should be assigned a POA indicator of ``Y'' rather than a
``N.'' The commenter stated that this advice will be provided in a
future issue of Coding Clinic for ICD-9-CM. The commenter pointed out
that CMS collaborated in this decision.
Response: We agree that there appears to be inconsistency in how
coders interpret and apply the official POA coding guideline for these
combination codes that include loss of consciousness. CMS participated
as a voting member of the American Hospital Association's Editorial
Advisory Board for Coding Clinic for ICD-9-CM to develop clarifications
on the POA reporting for combination codes that involve loss of
consciousness. We agree that this clarification will lead to greater
consistency and accuracy in POA indicator reporting. CMS looks forward
to continuing its efforts as part of the American Hospital
Association's Editorial Advisory Board for Coding Clinic for ICD-9-CM
to provide guidance on accuracy of coding and the reporting of POA
indicators. Hospitals look to this publication to provide detailed
guidance on ICD-9-CM code and POA reporting. We encourage hospitals to
send any other questions about ICD-9-CM codes or POA indicator
selection to the American Hospital Association so that the Editorial
Advisory Board can continue its role of providing instruction on the
accurate selection and reporting of both ICD-9-CM codes and POA
indicators.
As described earlier, in the FY 2009 IPPS final rule (73 FR 48486
through 48487), we adopted as final our proposal to: (1) Pay the CC/MCC
MS-DRGs for those HACs coded with ``Y'' and ``W'' indicators; and (2)
not pay the CC/MCC MS-DRGs for those HACs coded with ``N'' and ``U''
indicators. We also discussed the comments we received urging CMS to
strongly consider changing the policy and to pay for those HACs
assigned a POA indicator of ``U'' (documentation is insufficient to
determine if the condition was present at the time of admission). We
stated we would monitor the extent to which and under what
circumstances the ``U'' POA reporting option is used. In the FY 2010
IPPS/RY 2010 LTCH PPS final rule, we also discussed and responded to
comments regarding HACs coded with the ``U'' indicator (74 FR 43784 and
43785). As shown in Chart B above, RTI's analysis provides some data on
a total of 404 HAC-associated secondary diagnoses reported with a POA
indicator of ``U.'' Of those diagnoses, 270 (0.2 percent) were assigned
to the Falls and Trauma HAC category.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23885), we stated
that we continue to believe that better documentation will result in
more accurate public health data. Because the RTI analysis we
summarized in the FY 2011 IPPS/LTCH PPS proposed rule was based on
preliminary data, we did not propose to change our policy under which
CMS does not pay at the higher CC/MCC amount when a selected HAC
diagnosis code is reported with a POA indicator of ``U.''
Comment: Several commenters asked CMS to change our policy under
which we do not pay at the higher CC/MCC amount when a HAC code
reported with a POA of ``U.'' (A POA indicator of ``U'' means that
documentation was insufficient to determine if the condition was
present at the time of the inpatient admission.) The commenters stated
that while hospitals are continuing to work on coding and documentation
improvement issues with physicians who practice in their facilities, in
some cases, hospitals have not been successful in obtaining clear
documentation to clarify whether or not a condition was present on
admission. They added that when physicians do not provide clear
documentation in the medical record, a POA indicator of ``U'' is
assigned. The commenters asked that CMS allow these cases with poor
documentation to result in a higher payment if the HAC code is reported
with a ``U.''
Response: We are committed to improving the accuracy of health care
data. Accurate and complete documentation within the health record is
important for patient management, outcome measurement, and quality
improvement, as well as payment accuracy. We believe that it would be
inappropriate to pay a higher amount to hospitals based on incomplete
or poor documentation. If accurate information is not available within
the health record for a hospital to report a precise POA indicator,
hospitals are encouraged to seek this additional documentation from
their physicians and/or other hospitals if the hospital treated a
patient who was transferred. For these reasons, we believe that
reducing payment for conditions on the HAC list with poor documentation
is appropriate. Therefore, we did not propose to change our approach to
discounting the CC or MCC assignment for selected HACs reported with a
POA indicator of ``U.'' We will maintain our existing policy and not
allow HACs with a POA indicator of ``U'' to lead to the higher payment.

[[Page 50089]]

In the FY 2011 IPPS/LTCH PPS proposed rule, we encouraged readers
to further review the RTI detailed report which demonstrates the
frequency of each individual HAC-associated diagnosis code within the
HAC categories. For example, in the Foreign Object Retained After
Surgery HAC category, there are two unique ICD-9-CM diagnosis codes to
identify that condition: code 998.4 (Foreign body accidentally left
during a procedure) and code 998.7 (Acute reaction to foreign substance
accidentally left during a procedure). In the updated detailed RTI
report, readers can view that code 998.4 was reported 428 times and
code 998.7 was reported 13 times, for a total of 441 times, as shown in
Chart B above. The RTI detailed report is available at the following
Web site: http://www.rti.org/reports/cms/.
d. RTI Analysis of Frequency of Discharges and POA Indicator Reporting
for Current HACs
RTI further analyzed the effect of the HAC provision by studying
the frequency in which a HAC-associated diagnosis was reported as a
secondary diagnosis with a POA indicator of ``N'' or ``U'' and, of that
number, how many resulted in MS-DRG reassignment. In Chart C below,
Column A shows the number of discharges for each HAC category where the
HAC-associated diagnosis was reported as a secondary diagnosis. For
example, there were 33 discharges that reported Air Embolism as a
secondary diagnosis. Column C shows the number of discharges for each
HAC reported with a POA indicator of ``N'' or ``U.'' Continuing with
the example of Air Embolism, the chart shows that, of the 33 reported
discharges, 24 discharges (72.73 percent) had a POA indicator of ``N''
or ``U'' and was identified as a HAC discharge. There were a total of
24 discharges to which the HAC policy applies and that could,
therefore, have had an MS-DRG reassignment. Column E shows the number
of discharges where an actual MS-DRG reassignment occurred. As shown in
Column E, the number of discharges with an Air Embolism that resulted
in actual MS-DRG reassignments is 12 (50 percent of the 24 discharges
with a POA indicator of ``N'' or ``U''). Thus, while there were 24
discharges (72.73 percent of the original 33) with an Air Embolism
reported with a POA indicator of ``N'' or ``U'' identified as a HAC
discharge that could have caused MS-DRG reassignment, the end result
was 12 (50 percent) actual MS-DRG reassignments. There are a number of
reasons why a selected HAC reported with a POA indicator of ``N'' or
``U'' will not result in MS-DRG reassignment. These reasons were
illustrated with the diagram in section II.F.1.c. of this preamble and
will be discussed in further detail in section II.F.3.e. of this
preamble.
Chart C below also shows that, of the 264,810 discharges with a
HAC-associated diagnosis as a secondary diagnosis, 3,416 discharges
ultimately resulted in MS-DRG reassignment. As we discuss below, there
were 15 claims that resulted in MS-DRG reassignment where two HACs were
reported on the same admission. The four HAC categories that had the
most discharges resulting in MS-DRG reassignment were: (1) Falls and
Trauma; (2) Pulmonary Embolism and DVT Orthopedic (Orthopedic PE/DVT);
(3) Pressure Ulcer Stages III & IV; and (4) Catheter-Associated Urinary
Tract Infection (UTI). Codes falling under the Falls and Trauma HAC
category were the most frequently reported secondary diagnoses with
126,078 discharges. Of these 126,078 discharges, 5,312 (4.21 percent)
were coded as not POA and identified as HAC discharges. This category
also contained the greatest number of discharges that resulted in an
MS-DRG reassignment. Of the 5,312 discharges within this HAC category
that were not POA, 1,577 (29.69 percent) resulted in an MS-DRG
reassignment.
Of the 264,810 total discharges reporting HAC-associated diagnoses
as a secondary diagnosis, 3,110 discharges were coded with a secondary
diagnosis of Orthopedic PE/DVT. Of these 3,110 discharges, 2,335 (75.08
percent) were coded as not POA and identified as HAC discharges. This
category contained the second greatest number of discharges resulting
in an MS-DRG reassignment. Of the 2,335 discharges in this HAC category
that were not POA, 1,024 discharges (43.85 percent) resulted in an MS-
DRG reassignment.
The Pressure Ulcer Stages III & IV category had the second most
frequently coded secondary diagnoses, with 99,656 discharges. Of these
discharges, 1,316 (1.32 percent) were coded as not POA and identified
as HAC discharges. This category contained the third greatest number of
discharges resulting in an MS-DRG reassignment. Of the 1,316 discharges
in this HAC category that were not POA, 384 discharges (29.18 percent)
resulted in an MS-DRG reassignment.
The Catheter-Associated UTI category had the third most frequently
coded secondary diagnoses, with 14,089 discharges. Of these discharges,
2,333 (16.56 percent) were coded as not POA and identified as HAC
discharges. This category contained the fourth greatest number of
discharges resulting in an MS-DRG reassignment. Of the 2,333 discharges
in this HAC category that were not POA, 223 discharges (9.56 percent)
resulted in a MS-DRG reassignment.
The remaining 6 HAC categories only had 208 discharges that
ultimately resulted in MS-DRG reassignment. We note that, even in cases
where a large number of HAC-associated secondary diagnoses were coded
as not POA, this finding did not necessarily translate into a large
number of discharges that resulted in MS-DRG reassignment. For example,
only 26 of the 2,573 Vascular Catheter-Associated Infection secondary
diagnoses that were coded as not POA and identified as HAC discharges
resulted in a MS-DRG reassignment.
There were a total of 417 discharges with a HAC-associated
secondary diagnosis reporting a POA indicator of ``N'' or ``U'' that
were excluded from acting as a HAC discharge (subject to MS-DRG
reassignment) due to the CC Exclusion List logic within the GROUPER.
The CC Exclusion List identifies secondary diagnosis codes designated
as a CC or MCC that are disregarded by the GROUPER logic when reported
with certain principal diagnoses. For example, a claim with the
principal diagnosis code of 250.83 (Diabetes with other specified
manifestations, type 1 [juvenile type], uncontrolled) and a secondary
diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile
type], uncontrolled) with a POA indicator of ``N'' would result in the
HAC-associated secondary diagnosis code 250.13 being ignored as a CC.
According to the CC Exclusion List, code 250.13 is excluded from acting
as a CC when code 250.83 is the principal diagnosis. As a result, the
HAC logic would not be applicable to that case. For a detailed
discussion on the CC Exclusion List, we refer readers to section
II.G.9. of this preamble.
Discharges where the HAC logic was not applicable due to the CC
Exclusion List occurred among the following 4 HAC categories: Pressure
Ulcer Stages III and IV (44 cases), Falls and Trauma (311 cases),
Catheter-Associated UTI (9 cases), Vascular Catheter-Associated
Infection (4 cases), and Manifestations of Poor Glycemic Control (49
cases). Further information regarding the specific number of cases that
were excluded for each HAC-associated secondary diagnosis code within
each of the above mentioned HAC categories is also available. We refer
readers to the RTI detailed report at the following Web site: http://www.rti.org/reports/cms/.

[[Page 50090]]

In summary, Chart C below demonstrates that there were a total of
264,810 discharges with a reported HAC-associated secondary diagnosis.
Of the total 264,810 discharges, 14,681 (5.68 percent) discharges
included HACs that were reported with a POA indicator of ``N'' or ``U''
and were identified as a HAC discharge. Of these 14,681 discharges, the
number of discharges resulting in MS-DRG reassignments was 3,416 (22.72
percent).
BILLING CODE 4120-01-P
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[[Page 50091]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.009

BILLING CODE 4120-01-C
An extremely small number of discharges had multiple HACs reported
during the same stay. In reviewing the 9.3 million claims, RTI found 60
cases in which two HACs were reported on the same discharge. Chart D
below summarizes these cases. There were 9 cases in which a Falls and
Trauma HAC was reported in addition to a Pressure Ulcer Stages III & IV
HAC. Twenty of the cases with two HACs involved Pressure Ulcer Stages
III & IV and 24 cases involved Falls or Trauma. Other multiple HAC
cases included 10 Catheter-Associated UTI cases and 6 Vascular
Catheter-Associated Infection cases.
Some of these cases with multiple HACs reported had both HAC codes
ignored in the MS-DRG assignment. Of these 60 claims, 15 did not
receive higher payments based on the presence of one or both of these
reported HACs and we describe these claims below in section
II.F.3.g.(2) of this preamble. Depending on the MS-DRG to which the
cases were originally assigned, ignoring the HAC codes would have led
to a MS-DRG reassignment if there were no other MCCs or CCs reported,
if the MS-DRG was subdivided into severity levels, and if the case were
not already in the lowest severity level prior to ignoring the HAC
codes.

[[Page 50092]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.010

e. RTI Analysis of Circumstances When Application of HAC Provisions
Would Not Result in MS-DRG Reassignment for Current HACs
As discussed in section II.F.1. and illustrated in the diagram in
section II.F.1.c. of this preamble, there are instances when the MS-DRG
assignment does not change even when a HAC-associated secondary
diagnosis has a POA indicator of either ``N'' or ``U.'' In analyzing
our claims data, RTI identified four main reasons why a MS-DRG
assignment would not change despite the presence of a HAC. Those four
reasons are described below and are shown in Chart E below. Column A
shows the frequency of discharges that included a HAC-associated
secondary diagnosis. Column B shows the frequency of discharges where
the HAC-associated secondary diagnosis was coded as not POA and
identified as a HAC discharge. Column C shows the frequency of
discharges in which the HAC-associated secondary diagnosis coded as not
POA resulted in a change in MS-DRG. Columns D, E, F, and G show the
frequency of discharges in which the HAC-associated secondary diagnosis
coded as not POA did not result in a change in MS-DRG assignment.
Columns D, E, F, and G are explained in more detail below.
(1) Other MCCs/CCs Prevent Reassignment
Column D (Other MCC/CCs that Prevent Reassignment) in Chart E below
indicates the number of cases reporting a HAC-associated secondary
diagnosis code that did not have a MS-DRG reassignment because of the
presence of other secondary diagnoses on the MCC or CC list. A claim
that is coded with a HAC-associated secondary diagnoses and a POA
status of either ``N'' or ``U'' may have other secondary diagnoses that
are classified as an MCC or a CC. In such cases, the presence of these
other MCC and CC diagnoses will still lead to the assignment of a
higher severity level, despite the fact that the GROUPER software is
disregarding the ICD-9-CM code that identifies the selected HAC in
making the MS-DRG assignment for that claim. For example, there were 96
cases in which the ICD-9-CM codes for the Foreign Object Retained After
Surgery HAC category were present, but the presence of other secondary
diagnoses that were MCCs or CCs resulted in no change to the MS-DRG
assignment. Chart E shows that a total of 8,208 cases did not have a
change in the MS-DRG assignment because of the presence of other
reported MCCs and CCs.
(2) Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment
Column E (Number of MS-DRGs with Two Severity Levels Where HAC Does
Not Impact MS-DRG Assignment) shows the frequency with which discharges
with a HAC as a secondary diagnosis coded as not POA did not result in
an MS-DRG change because the MS-DRG is subdivided solely by the
presence or absence of an MCC. A claim with a HAC and a POA indicator
of either ``N'' or ``U'' may be assigned to an MS-DRG that is
subdivided solely by the presence or absence of an MCC. In such cases,
removing a HAC ICD-9-CM CC code will not lead to further changes in the
MS-DRG assignment. Examples of these MS-DRG subdivisions are shown in
the footnotes to the chart and include the following examples:
MS-DRGs 100 and 101 (Seizures with or without MCC,
respectively)
MS-DRGs 102 and 103 (Headaches with or without MCC,
respectively)

[[Page 50093]]

The codes that fall under the HAC category of Foreign Object
Retained After Surgery are CCs. If this case were assigned to a MS-DRG
with an MCC subdivision such as MS-DRGs 100 and 101, the presence of
the HAC code would not affect the MS-DRG severity level assignment. In
other words, if the Foreign Object Retained After Surgery code was the
only secondary diagnosis reported, the case would be assigned to MS-DRG
101. If the POA indicator was ``N,'' the HAC Foreign Object Retained
After Surgery code would be ignored in the MS-DRG assignment logic.
Despite the fact that the code was ignored, the case would still be
assigned to the same, lower severity level MS-DRG. Therefore, there
would be no impact on the MS-DRG assignment.
Column E in Chart E below shows that there were a total of 1,793
cases where the HAC code was ``N'' or ``U'' and the MS-DRG assignment
did not change because the case was already assigned to the lowest
severity level.
(3) No Severity Levels
Column F (Number of MS-DRGs with No Severity Levels) shows the
frequency with which discharges with an HAC as a secondary diagnosis
coded as not POA did not result in an MS-DRG change because the MS-DRG
is not subdivided by severity levels. A claim with a HAC and a POA of
``N'' or ``U'' may be assigned to a MS-DRG with no severity levels. For
instance, MS-DRG 311 (Angina Pectoris) has no severity level
subdivisions; this MS-DRG is not split based on the presence of an MCC
or a CC. If a patient assigned to this MS-DRG develops a secondary
diagnosis such as a Stage III pressure ulcer after admission, the
condition would be considered to be a HAC. The code for the Stage III
pressure ulcer would be ignored in the MS-DRG assignment because the
condition developed after the admission (the POA indicator was ``N'').
Despite the fact that the ICD-9-CM code for the HAC Stage III pressure
ulcer was ignored, the MS-DRG assignment would not change. The case
would still be assigned to MS-DRG 311. Chart E below shows that 1,255
cases reporting a HAC-associated secondary diagnosis did not undergo a
change in the MS-DRG assignment based on the fact that the case was
assigned to a MS-DRG that had no severity subdivisions (that is, the
MS-DRG is not subdivided based on the presence or absence of an MCC or
a CC, rendering the presence of the HAC irrelevant for payment
purposes).
(4) MS-DRG Logic
Column G (MS-DRG Logic Issues) shows the frequency with which a HAC
as a secondary diagnosis coded as not POA did not result in an MS-DRG
change because of MS-DRG assignment logic. There were nine discharges
where the HAC criteria were met and the HAC logic was applied, however,
due to the structure of the MS-DRG logic, these cases did not result in
MS-DRG reassignment. These cases may appear similar to those discharges
where the MS-DRG is subdivided into two severity levels by the presence
or absence of an MCC and did not result in MS-DRG reassignment;
however, these discharges differ slightly in that the MS-DRG logic also
considers specific procedures that were reported on the claim. In other
words, for certain MS-DRGs, a procedure may be considered the
equivalent of an MCC or CC. The presence of the procedure code dictates
the MS-DRG assignment despite the presence of the HAC-associated
secondary diagnosis code with a POA indicator of ``N'' or ``U''.
For example, a claim with the principal diagnosis code of 441.1
(Thoracic aneurysm, ruptured) with HAC-associated secondary diagnosis
code of 996.64 (Infection and inflammatory reaction due to indwelling
urinary catheter) and diagnosis code 599.0 (Urinary tract infection,
site not specified), having POA indicators of ``Y'', ``N'', ``N'',
respectively, and procedure code 39.73 (Endovascular implantation of
graft in thoracic aorta), results in an assignment to MS-DRG 237 (Major
Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm Repair).
In this case, the thoracic aortic aneurysm repair is what dictated the
MS-DRG assignment and the presence of the HAC-associated secondary
diagnosis code, 996.64, did not affect the MS-DRG assigned. Other
examples of MS-DRGs that are subdivided in this same manner are as
follows:
MS-DRG 029 (Spinal procedures with CC or Spinal
Neurostimulators)
MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or
Major Device)
MS-DRG 246 (Percutaneous Cardiovascular Procedure with
Drug-Eluting Stent with MCC or 4+ Vessels/Stents)
Column G in the chart below shows that four of the nine cases that
did not result in MS-DRG reassignment due to the MS-DRG logic were in
the Catheter Associated UTI HAC category, three cases were in the Falls
and Trauma HAC category, one case was in the Foreign Body Retained
After surgery HAC category, and one case was in the Vascular Catheter-
Associated Infection HAC Category.
In conclusion, a total of 11,265 cases (8,208 + 1,793 + 1,255 + 9)
did not have a change in MS-DRG assignment, regardless of the presence
of a HAC. The reasons described above explain why only 3,416 cases had
a change in MS-DRG assignment despite the fact that there were 14,681
HAC cases with a POA of ``N'' or ``U.'' We refer readers to the RTI
detailed report at the Web site: http://www.rti.org/reports/cms for
further information.
BILLING CODE 4120-01-P

[[Page 50094]]

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[[Page 50095]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.012

BILLING CODE 4120-01-C
f. RTI Analysis of Coding Changes for HAC-Associated Secondary
Diagnoses for Current HACs
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23892), we
discussed RTI's preliminary analysis on coding changes using 9 months
of claims data from October 2008 through June 2009. We noted that, in
addition to studying claims from October 2008 through June 2009, RTI
evaluated claims data from 2 years prior to determine if there were
significant changes in the number of discharges with a HAC being
reported as a secondary diagnosis. For this FY 2011 IPPS/LTCH PPS final
rule analysis, RTI examined an additional 3 months of claims data for
each fiscal year (FY 2007 and FY 2008), and compared these data to the
updated FY 2009 data. Below we summarize the results of the fiscal year
to fiscal year comparison using 12 months of claims data.
RTI's analysis found that there was an overall increase in the
reporting of secondary diagnoses that are currently designated as HACs
from FY 2007 to FY 2008. The most significant increase was in the
Catheter-Associated UTI HAC category, with 12,459 discharges being
reported in FY 2007, while 15,408 discharges were reported in FY 2008,
an increase of 2,949 cases. The next significant increase was in the
Falls and Trauma HAC category with 151,321 discharges being reported in
FY 2007, while 153,600 discharges were reported in FY 2008, an increase
of 2,279 cases.
However, the analysis also found that there was an overwhelming
decrease in the HAC-associated secondary diagnoses reported from FY
2008 to FY 2009. The most significant decrease was in the Falls and
Trauma HAC category, with 153,600 discharges being reported in FY 2008,
while 125,505 discharges were reported in FY 2009, a decrease of 28,095
cases. We point out that because diagnosis codes for the Pressure Ulcer
Stages III & IV HAC did not become effective until October 1, 2008,
there are

[[Page 50096]]

no data available for FY 2007 or FY 2008.
We refer readers to the RTI detailed report for all the conditions
in each fiscal year (FY 2007 through FY 2009) as described above at the
following Web site: http://www.rti.org/reports/cms/.
g. RTI Analysis of Estimated Net Savings for Current HACs
RTI estimated the net savings generated by the HAC payment policy
based on 12 months of MedPAR claims from October 2008 through September
2009.
(1) Net Savings Estimation Methodology
The payment impact of a HAC is the difference between the IPPS
payment amount under the initially assigned MS-DRG and the amount under
the reassigned MS-DRG. The amount for the reassigned MS-DRG appears on
the MedPAR files. To construct this, RTI modeled the IPPS payments for
each MS-DRG following the same approach that we use to model the impact
of IPPS annual rule changes. Specifically, RTI replicated the payment
computations carried out in the IPPS PRICER program using payment
factors for IPPS providers as identified in various CMS downloaded
files. The files used are as follows:
Version 26 of the Medicare Severity GROUPER software
(applicable to discharges between October 1, 2008 and September 30,
2009). IPPS MedPAR claims were run through this file to obtain needed
HAC-POA output variables.
The FY 2009 MS-DRG payment weight file. This file includes
the weights, geometric mean length of stay (GLOS), and the postacute
transfer payment indicators.
CMS standardized operating and capital rates. Tables 1A
through 1C, as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009, include the full update and reduced update
amounts, as well as the information needed to compute the blended
amount for providers located in Puerto Rico.
The IPPS impact files for FY 2009, also as downloaded from
the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/.
This file includes the wage index and geographic adjustment factors,
plus the provider type variable to identify providers qualifying for
alternative hospital-specific amounts and their respective HSP rates.
The IPPS impact files for FY 2010, as downloaded from the
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/10FR/. This file
includes indirect medical education (IME) and disproportionate share
(DSH) percent adjustments that were in effect as of March 2009.
CMS historical provider-specific files (PSF). This
includes the indicator to identify providers subject to the full or
reduced standardized rates and the applicable operating and capital
cost-to-charge ratios. A SAS version was downloaded from the Web site
at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/04_psf_SAS.asp.
There were 50 providers with discharges in the final HAC analysis
file that did not appear in the FY 2009 impact file, of which 11 also
did not appear in the FY 2010 impact file. For these providers, we
identified the geographic CBSA from the historical PSF and assigned the
wage index using values from Tables 4A and 4C as downloaded from the
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/. For
providers in the FY 2010 file but not the FY 2009 file, we used IME and
DSH rates from FY 2010. The 11 providers in neither impact file were
identified as non-IME and non-DSH providers in the historical PSF file.
The steps for estimating the HAC payment impact are as follows:
Step 1: Rerun the Medicare Severity Grouper on all records in the
analysis file. This is needed to obtain information on actual HAC-
related MS-DRG reassignments in the file, and to identify the CCs and
MCCs that contribute to each MS-DRG assignment.
Step 2: Model the base payment and outlier amounts associated with
the initial MS-DRG if the HAC were excluded using the computations laid
out in the CMS file ``Outlier Example FY 2007 new.xls,'' as downloaded
from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage, and modified to accommodate FY 2009 factors.
Step 3: Model the base payment and outlier amounts associated with
the final MS-DRG where the HAC was excluded using the computations laid
out in the CMS file ``Outlier Example FY 2007 new.xls,'' as downloaded
from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage and modified to accommodate FY 2009 factors.
Step 4: Compute MS-DRG base savings as the difference between the
nonoutlier payments for the initial and final MS-DRGs. Compute outlier
amounts as the difference in outlier amounts due under the initial and
final reassigned MS-DRG. Compute net savings due to HAC reassignment as
the sum of base savings plus outlier amounts.
Step 5: Adjust the model to incorporate short-stay transfer payment
adjustments.
Step 6: Adjust the model to incorporate hospital-specific payments
for qualifying rural providers receiving the hospital-specific payment
rates.
It is important to mention that using the methods described above,
the MS-DRG and outlier payments amounts that are modeled for the final
assigned MS-DRG do not always match the DRG price and outlier amounts
that appear in the MedPAR record. There are several reasons for this.
Some discrepancies are caused by using single wage index, IME and DSH
factors for the full period covered by the discharges, when in practice
these payment factors can be adjusted for individual providers during
the course of the fiscal year. In addition, RTI's approach disregards
any Part A coinsurance amounts owed by individual beneficiaries with
greater than sixty covered days in a spell of illness. Five percent of
all HAC discharges showed at least some Part A coinsurance amount due
from the beneficiary, although less than two percent of reassigned
discharges (55 cases in the analysis file) showed Part A coinsurance
amounts due. Any Part A coinsurance payments would reduce the actual
savings incurred by the Medicare program.
There are also a number of less common special IPPS payment
situations that are not factored into RTI's modeling. These could
include new technology add-on payments, payments for blood clotting
factors, reductions for replacement medical devices, adjustments to the
capital rate for new providers, and adjustments to the capital rate for
certain classes of providers who are subject to a minimum payment level
relative to capital cost.
(2) Net Savings Estimate
Chart F below summarizes the estimated net savings of current HACs
based on MedPAR claims from October 2008 through September 2009, based
on the methodology described above. Column A shows the number of
discharges where a MS-DRG reassignment for each HAC category occurred.
For example, there were 12 discharges with an Air Embolism that
resulted in an actual MS-DRG reassignment. Column B shows the total net
savings caused by MS-DRG reassignments for each HAC category.
Continuing with the example of Air Embolism, the chart shows that the
12 discharges with an MS-DRG reassignment resulted in a total net

[[Page 50097]]

savings of $148,394. Column C shows the net savings per discharge for
each HAC category. For the Air Embolism HAC category, the net savings
per discharge is $12,366.
BILLING CODE 4120-01-P
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[[Page 50098]]

BILLING CODE 4120-01-C
As shown in Chart F above, the total net savings calculated for the
12-month period from October 2008 through September 2009 was roughly
$18.78 million. The three HACs with the largest number of discharges
resulting in MS-DRG reassignment, Falls and Trauma, Orthopedic PE/DVT,
and Pressure Ulcer Stages III & IV, generated $17.17 million of net
savings for the 12 month period. Estimated net savings for the 12-month
period associated with the Falls and Trauma category were $8.09
million. Estimated net savings associated with Orthopedic PE/DVT for
the 12-month period were $6.92 million. Estimated net savings for the
12-month period associated with Pressure Ulcer Stages III & IV were
$2.16 million.
The mean net savings per discharge calculated for the 12-month
period from October 2008 through September 2009 was roughly $5,522. The
HAC categories of Air Embolism; SSI, Mediastinitis, Following Coronary
Artery Bypass Graft (CABG); and SSI Following Certain Orthopedic
Procedures had the highest net savings per discharge, but represented a
small proportion of total net savings because the number of discharges
that resulted in MS-DRG reassignment for these HACs was low. With the
exception of Blood Incompatibility, where no savings occurred because
no discharges resulted in MS-DRG reassignment, SSI Following Bariatric
Surgery for Obesity and Catheter-Associated UTI had the lowest net
savings per discharge.
We refer readers to the RTI detailed report available at the
following Web site: http://www.rti.org/reports/cms/.
As mentioned previously, an extremely small number of cases in the
12-month period of FY 2009 analyzed by RTI had multiple HACs during the
same stay. In reviewing our 9.3 million claims, RTI found 60 cases
where two HACs were reported on the same admission as noted in section
II.F.3. d. of this preamble. Of these 60 claims, 15 resulted in MS-DRG
reassignment. Chart G below summarizes these cases. There were 15 cases
that had two HACs not POA that resulted in an MS-DRG reassignment. Of
these, 5 discharges involved Pressure Ulcer Stages III & IV and Falls
and Trauma and 4 discharges involved Orthopedic PE/DVT and Falls and
Trauma.
[GRAPHIC] [TIFF OMITTED] TR16AU10.014

As we discuss in section II.F.1.b. of this preamble, implementation
of this policy is part of an array of Medicare VBP tools that we are
using to promote increased quality and efficiency of care. We again
point out that a decrease over time in the number of discharges where
these conditions are not POA is a desired consequence. We recognize
that estimated net savings should likely decline as the number of such
discharges decline. However, we believe that the sentinel effect
resulting from CMS identifying these conditions is critical. (We refer
readers to section IV.A. of this preamble for a discussion of the
inclusion of the incidence of these conditions in the RHQDAPU program.)
It is our intention to continue to monitor trends associated with the
frequency of these HACs and the estimated net payment impact through
RTI's program evaluation and possibly beyond.
h. Previously Considered Candidate HACs--RTI Analysis of Frequency of
Discharges and POA Indicator Reporting
RTI evaluated the frequency of conditions previously considered,
but not adopted as HACs in prior rulemaking, that were reported as
secondary diagnoses (across all 9.3 million discharges) as well as the
POA indicator assignments for these conditions. Chart H below indicates
that the three previously considered candidate conditions most
frequently reported as a secondary diagnosis were: (1) Clostridium
Difficile-Associated Disease (CDAD), which demonstrated the highest
frequency, with a total of 85,096 secondary diagnoses codes being
reported for that condition, of which 28,844 reported a POA indicator
of ``N''; (2) Staphylococcus aureus Septicemia, with a total of 22,433
secondary diagnoses codes being reported for that condition, with 5,004
of those reporting a POA indicator of ``N''; and (3) Iatrogenic
Pneumothorax, with a total of 20,673 secondary diagnoses codes being
reported for that condition, with 17,602 of those reporting a POA
indicator of ``N.'' As these three conditions had the most significant
impact for reporting a POA indicator of ``N,'' it is reasonable to
believe that these same three conditions would have the greatest number
of potential MS-DRG reassignments. The frequency of discharges for the
previously considered HACs that could lead to potential changes in MS-
DRG assignment is discussed in the next section. We take this
opportunity to remind readers that because more than

[[Page 50099]]

one previously considered HAC diagnosis code can be reported per
discharge (on a single claim) that the frequency of these diagnosis
codes may be more than the actual number of discharges with a
previously considered candidate condition reported as a secondary
diagnosis.
[GRAPHIC] [TIFF OMITTED] TR16AU10.015

In Chart I below, Column A shows the number of discharges for each
previously considered candidate HAC category when the condition was
reported as a secondary diagnosis. For example, there were 85,096
discharges that reported CDAD as a secondary diagnosis. Previously
considered candidate HACs reported with a POA indicator of ``N'' or
``U'' may cause MS-DRG reassignment (which would result in reduced
payment to the facility). Column C shows the discharges for each
previously considered candidate HAC reported with a POA indicator of
``N'' or ``U.'' Continuing with the example of CDAD, Chart I shows
that, of the 85,096 discharges, 29,296 discharges (34.43 percent) had a
POA indicator of ``N'' or ``U.'' Therefore, there were a total of
29,296 discharges that could potentially have had an MS-DRG
reassignment. Column E shows the number of discharges where an actual
MS-DRG reassignment could have occurred; the number of discharges with
CDAD that could have resulted in actual MS-DRG reassignments is 896
(3.06 percent). Thus, while there were 29,296 discharges with CDAD
reported with a POA indicator of ``N'' or ``U'' that could potentially
have had an MS-DRG reassignment, the result was 896 (3.06 percent)
potential MS-DRG reassignments. As discussed above, there are a number
of reasons why a condition reported with a POA indicator of ``N'' or
``U'' would not result in a MS-DRG reassignment.
In summary, Chart I below demonstrates there were a total of
203,844 discharges with a previously considered candidate HAC reported
as a secondary diagnosis. Of those, 57,902 discharges were reported
with a POA indicator of ``N'' or ``U.'' The total number of discharges
that could have resulted in MS-DRG reassignments is 3,527.

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i. Current and Previously Considered Candidate HACs--RTI Report on
Evidence-Based Guidelines
The RTI program evaluation includes an updated report that provides
references for all evidence-based guidelines available for each of the
selected and previously considered candidate HACs that provide
recommendations for the prevention of the corresponding conditions.
Guidelines were primarily identified using the AHRQ National Guidelines
Clearing House (NGCH) and the CDC, along with relevant professional
societies. Guidelines published in the United States were used, if
available. In the absence of U.S. guidelines for a specific condition,
international guidelines were included.
Evidence-based guidelines that included specific recommendations
for the prevention of the condition were identified for each of the 10
selected conditions. In addition, evidence-based guidelines were also
found for the previously considered candidate conditions.
Comment: Several commenters stated that CMS should not pay for HACs
only when evidence-based guidelines indicate that the occurrence of an
event can be reduced to zero, or near zero. The commenters stated that
some patients, particularly high-risk, co-morbid individuals, may still
develop conditions on the HAC list even though protocols have been
strictly followed.
Response: We thank the commenters for this comment. The statute
requires that CMS only choose conditions to be selected HACs if they
could ``reasonably'' be prevented through the application of evidence-
based guidelines. We noted in the FY 2008 IPPS final rule that we only
selected those conditions where, if hospital personnel are engaging in
good medical practice, the additional costs of the hospital-acquired
condition will, in most cases, be avoided (72 FR 47201).
RTI prepared a final report to summarize its findings regarding
evidence-based guidelines, which can be found on the Web site at:
http://www.rti.org/reports/cms.
j. Final Policy Regarding Current HACs and Previously Considered
Candidate HACs
We believe that the updated RTI analysis summarized above does not
provide additional information that would require us to change our
previous determinations regarding either current HACs (as described in
section II.F.2. of this preamble) or previously considered candidate
HACs in the FY 2008 IPPS final rule with comment period and FY 2009
IPPS final rule (72 FR 47200 through 47218 and 73 FR 48471 through
48491, respectively). Accordingly, in the

[[Page 50101]]

FY 2011 IPPS/LTCH PPS proposed rule, we did not propose to add or
remove categories of HACs, although we proposed to revise the Blood
Incompatibility HAC category as discussed and finalized in section
II.F.2. of this preamble. We also note that in section II.F.3.b. of
this preamble, we discuss our current policy regarding the treatment of
the ``U'' POA indicator. However, we continue to encourage public
dialogue about refinements to the HAC list.
We refer readers to section II.F.6. of the FY 2008 IPPS final rule
with comment period (72 FR 47202 through 47218) and to section II.F.7.
of the FY 2009 IPPS final rule (73 FR 48474 through 48491) for detailed
discussion supporting our determination regarding each of these
conditions.

G. Changes to Specific MS-DRG Classifications

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23898 through
23910), we invited public comment on each of the MS-DRG classification
proposed changes described below, as well as our proposals to maintain
certain existing MS-DRG classifications, which are also discussed
below. In some cases, we proposed changes to the MS-DRG classifications
based on our analysis of claims data. In other cases, we proposed to
maintain the existing MS-DRG classification based on our analysis of
claims data. Below, we also summarize the public comments that we
received, if any, on our proposals, present our responses to these
comments, and state our final policies.
1. Pre-Major Diagnostic Categories (MDCs)
a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous Pancreas/
Kidney Transplant))
Diabetes mellitus is a pancreatic disorder in which the pancreas
fails to produce sufficient insulin, or in which the body cannot
process insulin. Many patients with diabetes will eventually experience
complications of the disease, including poor kidney function. When
these patients show signs of advanced kidney disease, they are usually
referred for transplant evaluation. Currently, many doctors recommend
that individuals with diabetes being evaluated for kidney
transplantation also be considered for pancreas transplantation. A
successful pancreas transplant may prevent, stop, or reverse the
complications of diabetes.
Occasionally, secondary diabetes may be surgically induced
following a pancreas transplant. This condition would be identified by
using ICD-9-CM diagnosis code 251.3 (Postsurgical hypoinsulinemia).
However, currently the list of principal diagnosis codes assigned to
surgical MS-DRG 008 (Simultaneous Pancreas/Kidney Transplant) does not
include diagnosis code 251.3. Therefore, when diagnosis code 251.3 is
assigned to a case as a principal diagnosis, the case is not assigned
to MS-DRG 008. Instead, these cases are grouped to MS-DRG 652 (Kidney
Transplant) under MDC 11 (Diseases and Disorders of the Kidney and
Urinary Tract). The use of diagnosis code 251.3 as a principal
diagnosis without a secondary diagnosis of diabetes mellitus and with a
procedure code for pancreas transplant only during that admission
results in assignment of the case to MS-DRG 628, 629, or 630 (Other
Endocrine, Nutritional & Metabolic Operating Room Procedures with MCC,
with CC, and without CC/MCC, respectively). These MS-DRGs are assigned
to MDC 10 (Endocrine, Nutritional and Metabolic Diseases and
Disorders).
As we stated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23898), we believe that the exclusion of diagnosis code 251.3 from the
list of principal diagnosis codes assigned to surgical MS-DRG 008 is an
error of omission. Therefore, in that proposed rule, we proposed to add
diagnosis code 251.3 to the list of principal or secondary diagnosis
codes assigned to MS-DRG 008. As a conforming change, we also proposed
to add diagnosis code 251.3 to the list of principal or secondary
diagnosis codes assigned to MS-DRG 010 (Pancreas Transplant).
Comment: Commenters concurred with CMS' proposal to add diagnosis
code 251.3 to the list of principal or secondary diagnosis codes
assigned to MS-DRG 008. In addition, the commenters concurred with the
proposal to add diagnosis code 251.3 to the list of principal or
secondary diagnosis codes assigned to MS-DRG 010.
Response: We appreciate the support for our proposals.
We are adopting as final without modification our proposals to add
diagnosis code 251.3 to the list of acceptable principal diagnoses in
MS-DRG 008 and, as a conforming change, to add diagnosis code 251.3 to
the list of acceptable principal or secondary diagnoses in MS-DRG 010.
b. Bone Marrow Transplants
As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23898), we received two requests to review whether cost differences
between an autologous bone marrow transplant (where the patient's own
bone marrow or stem cells are used) and an allogeneic bone marrow
transplant (where bone marrow or stem cells come from either a related
or unrelated donor) necessitate the creation of separate MS-DRGs to
more appropriately account for the clinical nature of the services
being rendered as well as the costs. One of the requestors stated that
there are dramatic differences in the costs between the two types of
transplants where allogeneic cases are significantly more costly.
Bone marrow transplantation and peripheral blood stem cell
transplantation are used in the treatment of certain cancers and bone
marrow diseases. These procedures restore stem cells that have been
destroyed by high doses of chemotherapy and/or radiation treatment.
Currently, all bone marrow transplants are assigned to MS-DRG 009 (Bone
Marrow Transplant).
For the FY 2011 IPPS/LTCH PPS proposed rule, we performed an
analysis of the FY 2009 MedPAR data and found 1,664 total cases
assigned to MS-DRG 009 with average costs of approximately $43,877 and
an average length of stay of approximately 21 days. Of these MS-DRG 009
cases, 395 of them were allogeneic bone marrow transplant cases
reported with one of the following ICD-9-CM procedure codes: 41.02
(Allogeneic bone marrow transplant with purging); 41.03 (Allogeneic
bone marrow transplant without purging); 41.05 (Allogeneic
hematopoietic stem cell transplant without purging); 41.06 (Cord blood
stem cell transplant); or 41.08 (Allogeneic hematopoietic stem cell
transplant). The average costs of these allogeneic cases, approximately
$64,845, were higher than the overall average costs of all cases in MS-
DRG 009, approximately $43,877. The average length of stay for the
allogeneic cases, approximately 28 days, was slightly higher than the
average length of stay for all cases assigned to MS-DRG 009,
approximately 21 days.
We found 1,269 autologous bone marrow transplant cases reported
with one of the following ICD-9-CM procedure codes: 41.00 (Bone marrow
transplant, not otherwise specified); 41.01 (Autologous bone marrow
transplant without purging); 41.04 (Autologous hematopoietic stem cell
transplant without purging); 41.07 (Autologous hematopoietic stem cell
transplant with purging); or 41.09 (Autologous bone marrow transplant
with purging). The average costs of these cases, approximately $37,350,
was less than the overall average costs of all

[[Page 50102]]

cases in MS-DRG 009 and the average costs associated with the
allogeneic bone marrow transplant cases. The average length of stay, of
approximately 19 days, was less than the average lengths of stay for
all the cases assigned to MS-DRG 009 and for the allogeneic bone marrow
transplant cases. We included in our analysis of the autologous bone
marrow transplants cases, 5 cases that were reported with procedure
code 41.00 (Bone marrow transplant, not otherwise specified). These 5
cases had average costs of approximately $41,084 and an average length
of stay of approximately 12 days, which was similar to the other
autologous bone marrow transplant cases.
The table below illustrates our findings:

As a result of our analysis, the data support the requestor's
suggestion that there are cost differences associated with the
autologous bone marrow transplants and allogeneic bone marrow
transplants and warrants a separate MS-DRG for these procedures.
Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23898 and
23899), we proposed to delete MS-DRG 009 and create two new MS-DRGs:
MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015
(Autologous Bone Marrow Transplant). We proposed that proposed MS-DRG
014 would include cases reported with one of the following ICD-9-CM
procedure codes:
41.02, Allogeneic bone marrow transplant with purging
41.03, Allogeneic bone marrow transplant without purging
41.05, Allogeneic hematopoietic stem cell transplant
without purging
41.06, Cord blood stem cell transplant
41.08, Allogeneic hematopoietic stem cell transplant
We proposed that proposed MS-DRG 015 would include cases reported
with one of the following ICD-9-CM procedure codes:
41.00 (Bone marrow transplant, not otherwise specified)
41.01 (Autologous bone marrow transplant without purging)
41.04 (Autologous hematopoietic stem cell transplant
without purging)
41.07 (Autologous hematopoietic stem cell transplant with
purging)
41.09 (Autologous bone marrow transplant with purging)
Comment: Several commenters supported our proposed changes and
stated that these proposed MS-DRGs more precisely recognize the
substantial differences in clinical complexity and costs associated
with allogeneic and autologous bone marrow transplants, allowing for
more appropriate hospital reimbursement.
Response: We appreciate the support of the commenters.
Comment: Two commenters who supported the proposed reclassification
of the proposed bone marrow transplant MS-DRGs requested further
refinement to account for severity of illness. The commenters suggested
a three-way split for each proposed MS-DRG: With MCC, with CC, and
without MCC or CC. A few commenters stated that the clinical and cost
differences between unrelated and related allogeneic transplants
necessitate further reclassification of proposed MS-DRG 014. However,
one of the commenters pointed out that there were no ICD-9-CM codes to
classify allogeneic transplant cases by cell source.
Response: As we outlined in our FY 2008 IPPS/LTCH PPS final rule
with comment period published in the Federal Register on August 22,
2007 (72 FR 47169), in designating an MS-DRG as one that would be
subdivided into subgroups based on the presence of a CC or an MCC, we
developed a set of criteria to facilitate our decision-making process.
In order to warrant creation of a CC or an MCC subgroup within a base
MS-DRG, the subgroup must meet all of the following five criteria:
A reduction in variance of charges of at least 3 percent.
At least 5 percent of the patients in the MS-DRG fall
within the CC or MCC subgroup.
At least 500 cases are in the CC or MCC subgroup.
There is at least a 20-percent difference in average
charges between subgroups.
There is a $4,000 difference in average charges between
subgroups.
We did not further subdivide proposed MS-DRG 014 and MS-DRG 015
into severity levels as the commenters suggested because the proposed
MS-DRGs did not meet our criteria for subdivision. With regard to the
commenter who stated that there were no ICD-9-CM codes to classify
allogeneic transplant cases by cell source, we note that, contrary to
the commenter's statement about the lack of being able to report the
donor source, there are three ICD-9-CM procedure codes that identify
the donor source of the transplant: 00.91 (Transplant from live related
donor); 00.92 (Transplant from live non-related donor); and 00.93
(Transplant from cadaver). We refer the commenter to section II.G.7. of
this preamble for further information if the commenter is interested in
submitting suggestions on coding issues.
After consideration of the public comments we received, we are
finalizing our proposal to delete MS-DRG 009, and to create two new MS-
DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015
(Autologous Bone Marrow Transplant). New MS-DRG 014 will include cases
reported with one of the following ICD-9-CM procedure codes: 41.02;
41.03; 41.05; 41.06; or 41.08.
New MS-DRG 015 will include cases reported with one of the
following ICD-9-CM procedure codes: 41.00; 41.01; 41.04; 41.07; or
41.09.
2. MDC 1 (Nervous System): Administration of Tissue Plasminogen
Activator (tPA) (rtPA)
During the comment period for the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we received a public comment that had not been the
subject of a proposal in that proposed rule. The commenter had
requested that CMS conduct an analysis of diagnosis code V45.88 (Status
post administration of tPA (rtPA) in a different facility within the
last 24 hours prior to admission to current facility) under MDC 1
(Diseases and Disorders of the Nervous System). Diagnosis code V45.88
was created for use beginning October 1, 2008, to identify patients who
are given tissue plasminogen activator (tPA) at one institution, then
transferred and admitted to a comprehensive stroke center for further
care. This situation is referred to as the ``drip-and-ship'' issue that
was discussed at detail in the FY 2009 IPPS final rule (73 FR 48493).
According to the commenter, the concern at the receiving facilities
is that the costs associated with [caring for]

[[Page 50103]]

more complex stroke patients that receive tPA are much higher than the
cost of the drug, presumably because stroke patients initially needing
tPA have more complicated strokes and outcomes. However, because these
patients do not receive the tPA at the second or transfer hospital, the
receiving hospital will not be assigned to one of the higher weighted
tPA stroke MS-DRGs when it admits these patients whose care requires
the use of intensive resources. The MS-DRGs that currently include
codes for the use of tPA are: 061 (Acute Ischemic Stroke with Use of
Thrombolytic Agent with MCC); 062 (Acute Ischemic Stroke with Use of
Thrombolytic Agent with CC); and 063 (Acute Ischemic Stroke with Use of
Thrombolytic Agent without CC/MCC). These MS-DRGs have higher relative
weights in the hierarchy than the next six MS-DRGs relating to brain
injury. The commenter requested an analysis of the use of diagnosis
code V45.88 reflected in the MedPAR data for FY 2009 and FY 2010. The
commenter believed that the data would show that the use of this code
could potentially result in a new MS-DRG or a new set of MS-DRGs in FY
2011.
In addressing this public comment in the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43798), we noted that the comment was out of
scope for the FY 2010 proposed rule and reiterated that the deadline
for requesting data review and potential MS-DRG changes had been the
previous December. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23899), we indicated that we were then able to address the commenter's
concern because we had been able to conduct an analysis of MedPAR
claims data for this diagnosis code for that proposed rule.
For the FY 2011 proposed rule, we undertook an analysis of MedPAR
claims data for FY 2009. Our analysis reflected the data study
specifically asked for by the requestor, that is, a review of the
analysis of the presence or absence of diagnosis code V45.88. For our
analysis in the proposed rule, we did not include claims for patient
cases assigned to MS-DRGs 061, 062, or 063. Patients whose cases were
assigned to these MS-DRGs would have been given the tPA at the initial
hospital, had they been admitted there, with assignment of procedure
code 99.10 (Injection or infusion of thrombolytic agent), prior to
their transfer to a comprehensive stroke center. The tPA should not
have been given at the receiving hospital if it had already been
administered at the transferring hospital; therefore, inclusion of
procedure code 99.10 on the receiving hospital's claims would
constitute erroneous coding. Likewise, we did not include MS-DRGs 067
and 068 (Nonspecific CVA & Precerebral Occlusion without Infarction
with MCC, and without MCC, respectively), or MS-DRG 069 (Transient
Ischemia). We believe that claims assigned to MS-DRGs 067, 068, and 069
were unlikely to contain cases in which tPA had been administered.
Our data analysis included MS-DRGs 064, 065, and 066 (Intracranial
Hemorrhage or Cerebral Infarction with MCC, with CC, and without CC/
MCC, respectively) because claims involving diagnosis code V45.88 would
be properly reported in the data for these MS-DRGs for FY 2009. This
analysis can be viewed in the FY 2011 IPPS/LTCH PPS proposed rule
published in the Federal Register on May 4, 2010 (75 FR 23899 through
23900). Based on our review of the data for all cases in MS-DRGs 064,
064, and 066, compared to the subset of cases containing the V45.88
secondary diagnosis code, we concluded that the movement of cases with
diagnosis code V45.88 as a secondary diagnosis from MS-DRGs 064, 065,
and 066 into MS-DRGs 061, 062, and 063 was not warranted.
We determined that the differences in the average lengths of stay
and the average costs were too small to warrant an assignment to the
higher weighted MS-DRGs. Likewise, neither the lengths of stay nor the
average costs were deemed substantial enough to justify the creation of
an additional MS-DRG for transferred tPA cases, or to create separate
MS-DRGs that would mirror the MCC, CC or without CC/MCC severity
levels.
Therefore, for FY 2011, we did not propose any change to MS-DRGs
061, 062, 063, 064, 065, or 066, or any change involving the assignment
of diagnosis code V45.88.
Comment: One commenter agreed with CMS' proposal to not make any
changes to this group of MS-DRGs. The commenter also suggested
revisiting this topic and reviewing the data after CMS begins capturing
25 diagnosis codes and 25 procedure codes in future claims data.
Another commenter suggested that diagnosis code V45.88 may be
underreported, or, even if reported, may appear in a position [on the
claim] that is lower than the nine diagnosis codes currently processed
by Medicare.
Response: The HIPAA ASC X12 Technical Reports Type 3, Version
005010 (Version 5010) standards system update is discussed at length
elsewhere in this preamble. Currently, CMS' claims processing system
recognizes up to nine diagnosis codes and up to six procedure codes for
MS-DRG determination. The ability to process up to 16 additional
diagnosis codes and up to 19 additional procedure codes will begin on
January 1, 2011, according to the Version 5010 update. We will be
interested to see the difference in our MedPAR data that results from
the additional diagnosis and procedure codes, and we will continue to
follow the tPA, ``drip-and-ship,'' and diagnosis code V45.88 topic in
our annual analysis.
Comment: One commenter requested that CMS continue to monitor the
costs and lengths of stays for these patients identified by diagnosis
code V45.88 in order to determine whether, with improved coding
compliance and accurate cost reporting, there will be any change to the
initial findings such that MS-DRG assignments for the care of these
patients need to be changed.
Response: We review MS-DRG assignments annually and will continue
to monitor this category of patients in the future.
Comment: One commenter believed that the CMS data reported in the
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23899 through 23900)
reflects that the V45.88 diagnosis code is being underused and that the
numbers do not truly represent the much more common occurrence of
stroke centers receiving stroke patients who already had tPA
administered. With this underuse in mind, the commenter requested that
CMS issue a transmittal or MLN Matters article that would inform
physicians and coders alike about the existence of the code and
simultaneously educate them on the proper use of the code.
Response: While CMS is responsible for both changes to the ICD-9-CM
procedure coding system through the ICD-9-CM Coordination and
Maintenance Committee and the incorporation of the resulting diagnostic
and procedure coding changes in CMS' initiatives, we do not provide
coding advice. CMS looks to our partners in the industry to fulfill
this responsibility, specifically through the AHA in their publication
Coding Clinic for ICD-9-CM and through the AHIMA in their coding
training programs.
In addition, we suggest that this commenter encourage its societies
to educate their members through their newsletter or through coding and
documentation presentations at society meetings.
Comment: One commenter was concerned that the data analysis
described above and displayed in the proposed rule did not properly
compare certain patient populations. The commenter suggested that
patients with ICD-9-CM codes associated with

[[Page 50104]]

ischemic stroke that have an accompanying V-code be compared to those
ischemic stroke patients with the ICD-9-CM codes who were not treated
with tPA. The commenter suggested limiting the MS-DRGs to 064, 065, and
066, as well as 067 and 068, and further noted that the V-code should
only be used for ischemic stroke patients who have received tPA at
another hospital. The commenter believed that ischemic stroke patients
who have not received tPA at another hospital should not be included in
the V-code count. The commenter also recommended that cases in which
hemorrhage is the cause of the stroke should not be included with cases
of ischemic stroke since costs associated with these diseases are often
different from each other. The commenter indicated that a more refined
analysis of the data would show that these cases should be split into
separate MS-DRGs, which would allow the cost differences to become
apparent.
Response: With regard to use of the V-code for ischemic stroke
patients who have received tPA at another hospital, we point out that
the correct use of V45.88 was created for that category of patients.
Correct coding practice as well as the code title itself of V45.88
(Status post administration of tPA (rtPA) in a different facility
within the last 24 hours prior to admission to current facility)
precludes inclusion of this code by the sending hospital.
With regard to the comment that ischemic stroke patients who have
not received tPA at another hospital should not be included in the V-
code count, we point out that these patients had not been included in
the analysis published in the proposed rule; neither were they included
in the analysis presented in this final rule. They would not appear in
the data as having received tPA at another facility. Instead, if they
had received tPA at the second or receiving hospital, that hospital
would have coded those cases with ICD-9-CM procedure code 99.10
(Injection or infusion of thrombolytic agent), and the cases would have
been assigned to MS-DRGs 061, 062, and 063 (Acute Ischemic Stroke with
use of Thrombolytic Agent with MCC, with CC, or without CC/MCC,
respectively).
In our original analysis for the proposed rule, we believe that we
did address all of the commenter's concerns. However, for this final
rule, in response to the commenter's request, we have arrayed the data
from the original analysis in the following table in a manner that is
divided into more categories. We also have included MS-DRGs 067 and 068
in the comparison as well, per the commenter's request.
BILLING CODE 4120-01-P

[[Page 50105]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.017

[[Page 50106]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.018

BILLING CODE 4120-01-C
The analysis of MS-DRGs 067 and 068 above does not include a
breakdown for cases of hemorrhage. That is because the principal
diagnoses contained in these two MS-DRGs describe occlusion without
infarct, by arterial site, except for diagnosis code 436 (Acute but
ill-defined, cerebrovascular disease). The commenter believes diagnosis
code 436 is often interpreted to be a ``stroke, not otherwise
specified'' code and has been used to describe stroke events without a
clear etiology, and wanted the analysis included for that reason.
When CMS created the MS-DRGs for use beginning October 1, 2007 (FY
2008), our purpose was, and remains, to accurately stratify groups of
Medicare patients with varying levels of severity. Two of our major
goals were to create DRGs that would more accurately reflect the
severity of the cases assigned to them and to create groups that would
have sufficient volume so that meaningful and stable payment weights
could be developed. In designating an MS-DRG as one that could be
subdivided into subgroups based on the presence of a CC or MCC, we
developed a set of five criteria to facilitate our decision making
process. The subgroup must meet all of the five criteria in order for
division into CC or MCC splits to be considered. The entire discussion
surrounding this process can be found in the FY 2008 IPPS/LTCH PPS
final rule with comment period (72 FR 47169).
Even with additional review of the data, we are unable to justify
either moving the ``drip-and-ship'' cases to higher weighted MS-DRGs or
to consider creation of unique MS-DRGs for these cases. There is a
paucity of data to substantiate such a change, whether due to
underreporting of diagnosis code V45.88, or whether the tPA
administered in another hospital was not documented in the receiving
hospital's records, or whether the code was reported to CMS but was
further down the list than the nine diagnosis codes considered for MS-
DRG assignment. The differences in the average lengths of stay and the
average costs represented in the above table are too small to warrant
an assignment to the higher weighted MS-DRGs, and the differences in
the length of stay and costs are not substantial enough to justify the
creation of additional MS-DRGs. Therefore, for FY 2011, we are not
making any changes to MS-DRGs 061, 062, 063, 064, 065, 066, 067, and
068; nor are we making changes to the MS-DRG assignment of diagnosis
code V45.88.
We will continue to monitor these MS-DRGs and diagnosis code V45.88
in upcoming annual reviews of the IPPS.
3. MDC 5 (Diseases and Disorders of the Circulatory System):
Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray
Coronary Angiography in Coronary Artery Bypass Graft Surgery
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43785
through 43787), we discussed a request we received to reassign cases
reporting the use of intraoperative fluorescence vascular angiography
(IFVA) with coronary artery bypass graft (CABG) procedures from MS-DRGs
235 and 236 (Coronary Bypass without Cardiac Catheterization with and
without MCC, respectively) to MS-DRG 233 (Coronary Bypass with Cardiac
Catheterization with MCC) and MS-DRG 234 (Coronary Bypass with Cardiac
Catheterization without MCC). Effective October 1, 2007, procedure code
88.59 (Intraoperative fluorescence vascular angiography (IFVA)) was
established to describe this technology.
In addition, we also discussed receiving related requests (74 FR
43798 through 43799) that were outside the scope of issues addressed
for MDC 5 in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule. There
were three components to these requests. The first component involved
the creation of new MS-DRGs. One request was to create four new MS-DRGs
that would differentiate the utilization of resources between
intraoperative angiography and IFVA when utilized with CABG. A second
request was to create only one new MS-DRG to separately identify the
use of intraoperative angiography, by any method, in CABG surgery. The
second component involved reviewing the ICD-9-CM procedure codes.
Currently, the ICD-9-CM procedure codes do not distinguish between
preoperative, intraoperative, and postoperative angiography. Procedure
code 88.59 (Intraoperative fluorescence vascular angiography (IFVA)) is
one intraoperative angiography technique that allows visualization of
the coronary vasculature. The third component involved reassigning
cases with

[[Page 50107]]

procedure code 88.59 to the ``Other Cardiovascular MS-DRGs'': MS-DRGs
228, 229, and 230 (Other Cardiothoracic Procedures with MCC, CC, and
without CC/MCC, respectively). We stated our intent to consider these
requests during the FY 2011 rulemaking process.
After publication of the FY 2010 IPPS/RY 2010 LTCH PPS final rule,
we were contacted by one of the requestors, the manufacturer of the
IFVA technology. We met with the requestor in mid-November 2009 to
discuss evaluating the data for IFVA (procedure code 88.59) again in
consideration of a proposal to create new MS-DRGs and to discuss a
request for a new procedure code(s).
IFVA technology consists of a mobile device imaging system with
software. It is used to test cardiac graft patency and technical
adequacy at the time of coronary artery bypass grafting (CABG). While
this system does not involve fluoroscopy or cardiac catheterization, it
has been suggested that it yields results that are similar to those
achieved with selective coronary arteriography and cardiac
catheterization. Intraoperative coronary angiography provides
information about the quality of the anastomosis, blood flow through
the graft, distal perfusion, and durability. For additional information
regarding IFVA technology, we refer readers to the September 28-29,
2006 ICD-9-CM Coordination and Maintenance Committee meeting handout at
the following Web site: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp#TopOfPage.
a. New MS-DRGs for Intraoperative Fluorescence Vascular Angiography
(IFVA) With CABG
As stated in the FY 2010 IPPS/LTCH PPS proposed rule (75 FR 23900),
the manufacturer requested that we create four new MS-DRGs for CABG to
distinguish CABG surgeries performed with IFVA and those performed
without IFVA. According to the requestor, these four new MS-DRGs would
correspond to the existing MS-DRG for CABG but would also include
intraoperative angiography. The requestor proposed the following four
new MS-DRGs:
MS-DRG XXX (Coronary Bypass with Cardiac Catheterization with MCC
with Intraoperative Angiography).
MS-DRG XXX (Coronary Bypass with Cardiac Catheterization without
MCC with Intraoperative Angiography).
MS-DRG XXX (Coronary Bypass without Cardiac Catheterization with
MCC with Intraoperative Angiography).
MS-DRG XXX (Coronary Bypass without Cardiac Catheterization without
MCC with Intraoperative Angiography).
For the FY 2011 proposed rule, using claims data from the FY 2009
MedPAR file, we examined cases identified by procedure code 88.59 in
MS-DRGs 233, 234, 235, and 236. As shown in the table below, for both
MS-DRGs 235 and 236, the cases utilizing IFVA technology (code 88.59)
have a shorter length of stay and lower average costs compared to all
cases in MS-DRGs 235 and 236. There were a total of 10,281 cases in MS-
DRG 235 with an average length of stay of 10.61 days and average costs
of $34,639. There were 114 cases identified by procedure code 88.59
with an average length of stay of 10.38 days with average costs of
$28,238. In MS-DRG 236, there were a total of 22,410 cases with an
average length of stay of 6.37 days and average costs of $23,402; and
there were 186 cases identified by procedure code 88.59 with an average
length of stay of 6.54 days and average costs of $19,305. Similar to
the data reported last year, the data for FY 2009 clearly demonstrate
that the IFVA cases (identified by procedure code 88.59) are assigned
appropriately to MS-DRGs 235 and 236. We also examined cases identified
by procedure code 88.59 in MS-DRGs 233 and 234. Likewise, in MS-DRGs
233 and 234 cases identified by code 88.59 reflect shorter lengths of
stay and lower average costs compared to the remainder of the cases in
those MS-DRGs; and there were a total of 16,475 cases in MS-DRG 233
with an average length of stay of 13.47 days and average costs of
$42,662. There were 58 cases identified by procedure code 88.59 with an
average length of stay of 12.12 days and average costs of $35,940. In
MS-DRG 234, there were a total of 23,478 cases with an average length
of stay of 8.61 days and average costs of $29,615; and there were 67
cases identified by procedure code 88.59 with an average length of stay
of 8.85 days and average costs of $25,379. The data clearly demonstrate
the IFVA cases (identified by procedure code 88.59) are appropriately
assigned to MS-DRGs 233 and 234.

----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average cost
----------------------------------------------------------------------------------------------------------------
235--All cases.................................................. 10,281 10.61 $34,639
235--Cases with procedure code 88.59............................ 114 10.38 28,238
235--Cases without procedure code 88.59......................... 10,167 10.62 34,711
236--All cases.................................................. 22,410 6.37 23,402
236--Cases with code procedure 88.59............................ 186 6.54 19,305
236--Cases without procedure code 88.59......................... 22,224 6.37 23,436
233--All cases.................................................. 16,475 13.47 42,662
233--Cases with procedure code 88.59............................ 58 12.12 35,940
233--Cases without procedure code 88.59......................... 16,417 13.47 42,686
234--All cases.................................................. 23,478 8.61 29,615
234--Cases with procedure code 88.59............................ 67 8.85 25,379
234--Cases without procedure code 88.59......................... 23,411 8.61 29,627
----------------------------------------------------------------------------------------------------------------

We stated in the proposed rule that if the cases identified by
procedure code 88.59 were proposed to be reassigned from MS-DRGs 235
and 236 to MS-DRGs 233 and 234, they would be significantly overpaid.
In addition, we indicated that because the cases in MS-DRGs 235 and 236
did not actually have a cardiac catheterization performed, a proposal
to reassign cases identified by procedure code 88.59 would result in
lowering the relative weights of MS-DRGs 233 and 234 where a cardiac
catheterization is truly performed.
In summary, in the proposed rule, we indicated that the data do not
support moving IFVA cases (procedure code 88.59) from MS-DRGs 235 and
236 to MS-DRGs 233 and 234. Therefore, we did not propose to make any
MS-DRG modifications for cases reporting procedure code 88.59 for FY
2011.
Comment: Several commenters agreed with CMS' proposal to not make
any MS-DRG modifications in FY 2011 for cases reporting procedure code
88.59. One commenter, the manufacturer, reported that they worked with
a consulting group to conduct an analysis on a subset of MedPAR claims
data that reported procedure code 88.59. According to the data
presented, the consultant's methodology for the

[[Page 50108]]

analysis involved examining only cases from the facilities that
reported procedure code 88.59, in any procedure code sequencing
position, in each one of the four MS-DRGs previously discussed (233,
234, 235, or 236). The manufacturer asserted that results of the
consultant's analysis varied significantly from the CMS data and that
their data supported reassignment of cases reporting procedure code
88.59 from MS-DRGs 235 and 236 to MS-DRGs 233 and 234.
Response: We acknowledge the commenters who supported our proposal
to not make any MS-DRG modifications for cases reporting procedure code
88.59 for FY 2011. In response to the manufacturer who worked with the
consulting group, we point out that the process of evaluating MS-DRG
reclassifications is not based on subsets of facility-specific data,
but rather, as stated earlier in section II.B.2 of the preamble to this
final rule, in deciding whether to make modifications to the MS-DRGs we
consider whether the resource consumption and clinical characteristics
of the patients with a given set of conditions are significantly
different than the remaining patients in the MS-DRG. In addition, in
evaluating resource costs, we consider both the absolute and percentage
differences in average costs between the cases we select for review and
the remainder of cases in the MS-DRG. As the manufacturer noted, the
consultant's analysis submitted for consideration was based on a subset
of facility-specific claims reporting code 88.59. Therefore, it is not
comparable to the analysis conducted by CMS. While the consultant's
analysis included cases that reported procedure code 88.59, it did not
reflect the differences in comparison to MedPAR claims data, as the CMS
analysis did, that are representative of the remaining Medicare
patients grouped in the above mentioned relevant MS-DRGs.
In addition, the manufacturer also submitted the consultant's
summary of observations from the analysis which stated two key points:
(1) The number of discharges they observed in the MedPAR data was
slightly higher than the volumes reported in the proposed rule. They
believed this may be the result of slightly different data files
between what they examined and what CMS used. The volume differences
are comparatively small.
(2) They were unable to account for differences in their cost
calculation for cases reporting procedure code 88.59 and the CMS
published results. Their hypothesis was that, because these represent a
small number of cases, cost report differences may be playing a
significant role in the calculation.
Currently, CMS' systems only process up to six procedure codes and,
as the commenter stated, the consultant's methodology considered
procedure code 88.59 in any sequencing position. Therefore, it is
unclear how many cases may have been reported after the sixth position.
Effective January 1, 2011, the HIPAA ASC X12 Technical Reports Type 3,
Version 005010 (Version 5010) standards system update will become
effective. The version 5010 format will allow facilities to report up
to 25 diagnoses and 25 procedure codes, and CMS' systems will begin to
process all 25 diagnosis and procedure codes. (Further detail regarding
this issue is discussed in section II.G.11. of this final rule.).
Lastly, the manufacturer concluded that ``the cost data continue to
be unreliable due to the sample size and inherent limitations of cost
reporting.'' We reiterate that the analysis conducted by the
manufacturer and consultant were not comparable to the analysis
conducted by CMS that examined cases reporting procedure code 88.59
against all cases in the specified MS-DRGs versus the consultant's
analysis that only provided data on those facilities that are using the
technology and their associated costs. Therefore, we are finalizing our
proposal to not reassign cases reporting procedure code 88.59 for FY
2011.
b. New MS-DRG for Intraoperative Angiography, by Any Method, With CABG
We also received a request to create a single MS-DRG for any type
of intraoperative angiography utilized in CABG surgery. The requestor
suggested the following title for the proposed new MS-DRG: XXX Coronary
Bypass with Intraoperative Angiography, by any Method.
As we indicated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23901), currently, the only ICD-9-CM procedure code that identifies an
intraoperative angiography is procedure code 88.59 (Intraoperative
fluorescence vascular angiography), as described in the previous
section. Due to the structure of the ICD-9-CM procedure classification
system, it is not possible to distinguish when other types of
angiography are performed intraoperatively. Therefore, we indicated
that we were unable to evaluate any data, other than that for procedure
code 88.59, as shown in the tables above. We did not propose to create
a new MS-DRG in FY 2011 for coronary bypass with intraoperative
angiography, by any method.
Comment: Several commenters agreed with CMS' proposal to not create
a new MS-DRG in FY 2011 for coronary bypass with intraoperative
angiography, by any method. Another commenter, the manufacturer,
acknowledged the limitations of the ICD-9-CM coding structure and the
ability to currently only identify one method of intraoperative
angiography. The manufacturer stated that the creation of a new ICD-9-
CM procedure code to identify intraoperative angiography by
conventional X-ray angiography would allow CMS to obtain accurate data
on intraoperative or completion angiography by either method.
Response: We appreciate the commenter's support of our proposal to
not create a new MS-DRG in FY 2011 for coronary bypass with
intraoperative angiography, by any method. We also acknowledge the
manufacturer's concern regarding the inability to identify
intraoperative angiography by conventional X-ray angiography. As
discussed previously (75 FR 23901) and in further detail below,
proposals for creating a new procedure code must be submitted to the
ICD-9-CM Coordination and Maintenance Committee for consideration.
c. New Procedure Codes
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23901), we
indicated that, in response to our invitation to submit public comments
regarding the proposal not to make any MS-DRG modifications for cases
reporting procedure code 88.59 in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24106-24107), one requestor presented another
option involving the creation of new ICD-9-CM procedure codes.
According to the requestor, the purpose of these new codes would be to
separately identify the two technologies used to perform intraoperative
coronary angiography in CABG surgery: X-ray coronary angiography with
cardiac catheterization and fluoroscopy versus intraoperative
fluorescence coronary angiography (IFVA). The requestor stated that due
to the structure of the current codes and MS-DRGs for CABG, it is
difficult to identify when x-ray angiography is performed.
X-ray angiography is commonly performed as a separate procedure in
a catheterization laboratory. Currently, there are no procedure codes
to distinguish if this angiography was performed preoperatively,
intraoperatively, and/or postoperatively. We informed the requestor
that they

[[Page 50109]]

could submit a proposal for creating a new procedure code(s) to the
ICD-9-CM Coordination and Maintenance Committee for its consideration.
Therefore, in the FY 2011 proposed rule, we indicated that this topic
would be further evaluated through the ICD-9-CM Coordination and
Maintenance Committee meeting process.
Comment: Similar to comments made at the March 9-10, 2010 ICD-9-CM
Coordination and Maintenance Committee meeting, one commenter, the
manufacturer, stated that the resource utilization costs for a
diagnostic cardiac catheterization, which is routinely performed in a
catheterization laboratory may differ from those costs incurred for
performing intraoperative completion angiography concomitant with a
coronary artery bypass graft procedure in a surgical suite. However,
the manufacturer noted that, regardless of the technology (IFVA or X-
ray angiography), performance of intraoperative completion angiography
in a surgical suite involves similar resources. The commenter further
noted that an intraoperative completion angiography performed with X-
ray angiography cannot be separately identified from a diagnostic
cardiac catheterization due to the coding structure. According to the
commenter, this scenario creates a payment incentive for physicians to
select X-ray technology to perform a completion angiography, despite
the known risks to patients associated with exposure to radiation
because the code used to report X-ray angiography (cardiac
catheterization) is recognized in the MS-DRG assignment. The commenter
urged CMS to remove this incentive by ensuring that procedure code
88.59 will impact MS-DRG assignment in the same way that the code for
X-ray angiography does.
Response: As stated above, requests for updates and changes to the
procedure coding system are discussed through the ICD-9-CM Coordination
and Maintenance Committee meeting process. At the March 9-10, 2010
meeting, a proposal was submitted by the manufacturer and presented.
Details of the initial proposal regarding intraoperative angiography
with coronary artery bypass graft discussed at the March 2010 ICD-9-CM
Coordination and Maintenance Committee meeting along with the summary
report of the meeting can be located at the following CMS Web site:
http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
Currently, there is not a mechanism to analyze if both technologies
utilize similar resources in the surgical suite as the manufacturer
asserts since, as stated several times, the coding structure does not
currently distinguish between intraoperative X-ray angiography and
IFVA. Despite the inability to currently differentiate between the two
technologies in an intraoperative setting, we disagree that physicians
have a payment incentive to utilize X-ray angiography over IFVA to
perform a completion angiography. The current MS-DRG assignments are
based on claims data for the purposes of maintaining clinically
coherence, accounting for patient's severity of illness, ensuring
similar utilization of resources and complexity of services and are not
formulated to provide incentives as the commenter indicated. We believe
that physicians provide the most clinically appropriate, quality of
care and make decisions with respect to the individual patient's needs
and not subject patients to inherent risk.
In response to the manufacturer's request urging CMS to ensure that
IFVA impacts the MS-DRG assignment in the same way as a cardiac
catheterization currently does, as stated in the FY 2010 IPPS/LTCH PPS
final rule (74 FR 43787), it would be inappropriate to reassign cases
reporting the use of IFVA to higher weighted MS-DRGs merely as an
incentive for hospitals to invest in the IFVA technology.
As stated earlier, at the March 2010 meeting, an initial proposal
was presented and, as a result, one aspect of the two-part proposal was
finalized that involves an update to an existing code and the creation
of a new code for IFVA. Effective October 1, 2010 (FY 2011), procedure
code 88.59 has been revised to uniquely identify intraoperative
coronary fluorescence vascular angiography and new code 17.71 has been
created to identify noncoronary intraoperative fluorescence vascular
angiography. We do not agree with the manufacturer's comment that these
new code changes for FY 2011 will facilitates the MS-DRG case
reassignment that the commenter proposed for procedure code 88.59 and
believed was appropriate for policy. CMS does believe additional data
are needed to fully evaluate the volume of cases and resources involved
to perform intraoperative completion angiography using X-ray technology
versus IFVA. Therefore, CMS is planning to discuss other options at a
future ICD-9-CM Coordination and Maintenance Committee meeting.
In summary, we are finalizing our proposal not to make any changes
to MS-DRGs 233, 234, 235 or 236 for cases reporting the use of
procedure code 88.59.
d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular
Angiography (IFVA)
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23901 and 23902),
we indicated that we had received a request suggesting that we reassign
procedure code 88.59 (Intraoperative Fluorescence Vascular
Angiography), to the ``Other Cardiovascular MS-DRGs'': MS-DRGs 228,
229, and 230 (Other Cardiothoracic Procedures with MCC, CC, and without
CC/MCC, respectively). The requestor noted that these MS-DRGs have
three levels of severity and that other procedures assigned to these
MS-DRGs (for example, transmyocardial revascularization) are frequently
performed at the same time as a CABG. The requestor believed that
reassigning cases that report IFVA (procedure code 88.59) to these MS-
DRGs would not result in a significant overpayment to hospitals.
In the FY 2011 proposed rule, we pointed out that, in the surgical
hierarchy, MS-DRGs 228, 229, and 230 rank higher than MS-DRGs 233, 234,
235, and 236, which were evaluated in the above tables for CABG
procedures performed with IFVA (procedure code 88.59). The surgical
hierarchy reflects the relative resource requirements of various
surgical procedures. For example, if a CABG surgery were performed
along with another procedure currently assigned to MS-DRGs 228, 229,
and 230, the case would be assigned to one of the ``Other
Cardiothoracic Procedures MS-DRGs'' (228, 229, and 230) because
patients with multiple procedures are assigned to the highest surgical
hierarchy to which one of the procedures is assigned.
Therefore, as the data shown above did not demonstrate that IFVA
utilized an equivalent (or additional) amount of resources as a cardiac
catheterization to warrant a proposal to reassign IFVA cases to MS-DRGs
233 and 234 and the fact that IFVA cases with CABG performed with a
procedure assigned to MS-DRGs 228, 229, and 230 would already be
grouped to those same MS-DRGs, we did not propose to reassign cases
reporting procedure code 88.59 to MS-DRGs 228, 229, and 230 for FY
2011.
Comment: Several commenters supported the proposal not to reassign
cases reporting procedure code 88.59 to MS-DRGs 228, 229, and 230.
Response: We appreciate the commenters' support.
We are finalizing our proposal to not reassign cases reporting
procedure code 88.59 to MS-DRGs 228, 229, and 230 for FY 2011.

[[Page 50110]]

4. MDC 6 (Diseases and Disorders of the Digestive System):
Gastrointestinal Stenting
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR43799), we
discussed a request we received to create new MS-DRGs in FY 2011 to
better identify patients who undergo the insertion of a
gastrointestinal stent. The request was considered outside the scope of
issues addressed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule;
therefore, we stated our intent to consider this request during the FY
2011 rulemaking process.
Gastrointestinal stenting is performed by inserting a tube (stent)
into the esophagus, duodenum, biliary tract or colon to reestablish or
maintain patency of these structures and allow swallowing, drainage, or
passage of waste. The commenter requested that the new MS-DRGs be
subdivided into three severity levels (with MCC, with CC, and without
CC/MCC) to better align payment rates with resource consumption and
improve the clinical coherence of these cases.
In its own analysis using FY 2008 MedPAR data, the commenter
identified gastrointestinal stenting cases using relevant diagnosis
codes and a combination of procedure codes with revenue code 0278 in
MS-DRGs 374, 375, and 376 (Digestive Malignancy with MCC, with CC, and
without CC/MCC, respectively), MS-DRGs 391and 392 (Esophagitis,
Gastroenteritis and Miscellaneous Digestive Disorders with MCC and
without MCC, respectively), and MS-DRGs 393, 394, and 395 (Other
Digestive System Diagnoses with MCC, with CC, and without CC/MCC,
respectively) in MDC 6 (Diseases and Disorders of the Digestive
System); and MS-DRGs 435, 436, and 437 (Malignancy of Hepatobiliary
System or Pancreas with MCC, with CC, and without CC/MCC, respectively)
in MDC 7 (Diseases and Disorders of the Hepatobiliary System and
Pancreas).
As stated above, the commenter utilized a combination of procedure
codes along with revenue code 0278 for its analysis. There were a total
of six procedure codes included, of which, only three (procedure codes
42.81, 51.87, and 52.93) actually describe the insertion of a stent.
The complete list of procedure codes is as follows:
42.81 (Insertion of permanent tube into esophagus)
45.13 (Other endoscopy of small intestine)
45.22 (Endoscopy of large intestine through artificial
stoma)
46.85 (Dilation of intestine)
51.87 (Endoscopic insertion of stent (tube) into bile
duct)
52.93 (Endoscopic insertion of stent (tube) into
pancreatic duct)
The commenter aggregated the results by the previously mentioned
MS-DRG groupings and did not present results for individual stenting
procedures. According to the commenter, mean standardized charges for
gastrointestinal stenting procedures were higher than those for
nonstenting procedures across all levels of severity of illness. In
addition, the commenter believed that the difference in charges was not
simply related to the costs of the stents, but rather that the extent
of the difference in charges reflected the severity of illness and
resource intensity associated with gastrointestinal stenting
procedures.
As indicated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23902), in response to the commenter's request, we pointed out that we
do not utilize revenue codes in our process to evaluate if new MS-DRGs
are warranted. The use of revenue codes in the MS-DRG reclassification
process would require a major structural change from the current
process that has been utilized since the inception of the IPPS. In
addition, the commenter included procedure codes in its analysis that
do not identify the insertion of a stent; thereby, the data are
unreliable. Furthermore, two procedure codes describing the insertion
of a colonic stent were recently implemented, effective with discharges
occurring on or after October 1, 2009--procedure code 46.86 (Endoscopic
insertion of colonic stent(s)) and procedure code 46.87 (Other
insertion of colonic stent(s)). However, we do not have data currently
available on these two new procedure codes to include them in a
comprehensive analysis. Lastly, as the commenter indicated, the
differences between those procedures with and without stents is a
reflection on the severity of illness and resource consumption
associated with these types of procedures. The commenter also
acknowledged that patients receiving a gastrointestinal stent who are
severely debilitated due to prolonged illness are reflected by the fact
that the majority of cases are assigned to MS-DRGs for patients with
MCCs (major complications or comorbidities). Therefore, the medical MS-
DRGs to which these procedures are currently assigned already account
for the severity of illness and intensity of resources utilized.
For the FY 2011 IPPS/LTCH PPS proposed rule, using FY 2009 MedPAR
data, we analyzed the three procedure codes that truly identify and
describe the insertion of a stent (procedure codes 42.81, 51.87, and
52.93) within the MS-DRGs referenced above. Similar to the commenter's
findings, our analysis demonstrated a small volume of cases in which
insertion of a gastrointestinal stent occurred in the specified MS-
DRGs. Of the 411,390 total cases across the digestive system MS-DRGs
the requestor identified, there were only 2,011 cases that involved the
actual insertion of a gastrointestinal stent. These cases had average
costs ranging from a low of $5,846 to a high of $17,626. Based on these
findings, in the proposed rule, we indicated that we did not believe it
was appropriate to assign cases with such disparity in costs into a
single, new MS-DRG. Furthermore, in applying the five criteria used to
establish new MS-DRGs, we indicated that the data do not support the
creation of new MS-DRGs with three severity levels (with MCC, with CC,
and without CC/MCC).
For the reasons stated above, we invited the public to submit
comments on our proposal not to make any MS-DRG modifications to cases
involving the use of gastrointestinal stents for FY 2011.
Comment: Several commenters in general supported CMS' proposal not
to make any MS-DRG modifications involving the use of gastrointestinal
stents for FY 2011. One commenter expressed appreciation for CMS'
efforts to consider its request to create a new series of MS-DRGs for
gastrointestinal stent placement cases. The commenter acknowledged the
lack of specific ICD-9-CM procedure codes for colonic and duodenal
stent placement in the data and CMS' practice of not using revenue
codes to help distinguish between different types of procedures. The
commenter agreed that the lack of specific codes and not using revenue
codes in the MS-DRG grouping logic precludes CMS' ability to implement
the requested MS-DRG modifications for gastrointestinal stents for FY
2011. The commenter indicated that it will continue to monitor these
cases in future years and, if appropriate, request the creation of new
MS-DRGs.
Response: We agree with the commenters that our data and claims
analysis support our proposal to not make any MS-DRG modifications to
cases involving the use of gastrointestinal stents for FY 2011.
Therefore, we are finalizing our proposal to not make any MS-DRG
modifications to cases involving the use of gastrointestinal stents for
FY 2011.

[[Page 50111]]

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue): Pedicle-Based Dynamic Stabilization
As we did for FY 2009 (73 FR 45820), we received a request from a
manufacturer to reassign procedure code 84.82 (Insertion or replacement
of pedicle-based dynamic stabilization device(s)), effective October 1,
2007, from MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion
with CC/MCC or Disc Device/Neurostimulator) to MS-DRG 460 (Spinal
Fusion Except Cervical without MCC). According to the manufacturer, the
technology that is identified by this procedure code, the
Dynesys[supreg] Dynamic Stabilization System, is clinically similar to
lumbar spinal fusion and requires similar utilization of resources.
Dynamic stabilization is a concept that utilizes a flexible system
to stabilize the spine without fusion. The primary goals of dynamic
stabilization are to limit the amount of unnatural spinal motion and
preserve as much of the patient's natural anatomic structures as
possible. The Dynesys[supreg] Dynamic Stabilization System is comprised
of three components with specific functions: titanium alloy pedicle
screws that anchor the system to the spine; a polyethylene-
terephthalate (PET) cord that connects the Dynesys[supreg] screws; and
a polycarbonate-urethane (PCU) spacer that runs over the cord between
the Dynesys[supreg] screws. The system is placed under tension creating
a dynamic interaction between the components.
The MS-DRGs are comprised of clinically coherent groups of patients
who consume similar utilization of resources and complexity of
services. The insertion of a Dynesys[supreg] Dynamic Stabilization
System is clinically not a lumbar fusion. As stated previously, dynamic
stabilization is a concept that utilizes a flexible system to stabilize
the spine without fusion. Therefore, in the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 23903), we stated that it would be clinically
inappropriate to reassign cases reporting procedure code 84.82 in the
fusion MS-DRG.
In conclusion, the Dynesys[supreg] Dynamic Stabilization System is
currently FDA approved for use only as an adjunct to spinal fusion,
there is uncertainty regarding the coding and reporting of procedure
code 84.82, as well as off-label use, and currently, all other similar
nonfusion devices are assigned to MS-DRG 490.
For the reasons listed above, we did not propose to reassign cases
reporting procedure code 84.82 from MS-DRG 490 to MS-DRG 460 for FY
2011.
Comment: Several commenters supported CMS' proposal not to reassign
cases reporting procedure code 84.82 from MS-DRG 490 to MS-DRG 460 for
FY 2011. One commenter, the manufacturer, stated that they conducted a
clinical comparison of Dynesys[supreg] as well as an analysis of
charges and costs associated with MS-DRGs 490 and 460, specifically
procedure codes 84.82 (Insertion or replacement of pedicle-based
dynamic stabilization device(s)), and 81.08 (Lumbar and lumbosacral
fusion, posterior technique). According to the manufacturer, the
analysis demonstrated that the resource utilization of Dynesys[supreg]
as a nonfusion device is similar to that of fusion and is greater than
that of other procedures grouped in MS-DRG 490.
Response: We appreciate the manufacturer's analysis. As stated
previously, and as the manufacturer stated in its comments, the FDA has
not yet approved the Post-Market Approval (PMA) application to expand
the indication of Dynesys[supreg] for use as a non-fusion device.
Dynesys[supreg] is currently approved as an adjunct to spinal fusion;
therefore, when reported correctly, cases utilizing the Dynesys[supreg]
technology are appropriately assigned to the fusion MS-DRGs. We will
continue to monitor the resource utilization of procedure codes 84.82
and 81.08 to determine if future MS-DRG reassignments or new MS-DRGs
are warranted. For FY 2011, we are finalizing our proposal not to
reassign cases with procedure code 84.82 from MS-DRG 490 to MS-DRG 460.
6. MDC 15 (Newborns and Other Neonates With Conditions Originating in
the Perinatal Period)
a. Discharges/Transfers of Neonates to a Designated Cancer Center or
Children's Hospital
As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23903), we received a request to add patient discharge status code 05
(Discharged/transferred to a designated cancer center or children's
hospital) to the MS-DRG GROUPER logic for MS-DRG 789 (Neonates, Died or
Transferred to Another Acute Care Facility). Currently, neonate cases
with the discharge status code 05 are being assigned to MS-DRG 795
(Normal Newborn).
The definition of discharge status code 05 was changed on April 1,
2008, from ``discharged/transferred to another type of health care
institution not defined elsewhere in this code list'' to ``discharged/
transferred to a designated cancer center or children's hospital.'' For
the FY 2011 proposed rule, we examined cases in the FY 2009 MedPAR file
but did not find any cases with the discharge status code 05 that were
assigned to either MS-DRG 789 or MS-DRG 795. However, we indicated that
we believed the request has merit in identifying neonate cases
appropriately. Therefore, for FY 2011, we proposed to add discharge
status code 05 to the MS-DRG GROUPER logic for MS-DRG 789.
Comment: Some commenters supported the proposed change to the MS-
DRG GROUPER logic for discharge status 05. A few commenters commended
CMS for responding to industry requests related to MDC 15, especially
in light of the limited impact on the Medicare population while
acknowledging that other payers also utilize the MS-DRG classification
system. One commenter recommended adding the logic for discharge status
code 05 to the MS-DRG GROUPER logic for all newborn cases assigned to
MS-DRGs: 790 (Extreme Immaturity or Respiratory Distress Syndrome,
Neonate), 791 (Prematurity with Major Problems), 792 (Prematurity
without Major Problems), 793 (Full Term Neonate with Major Problems),
794 (Neonate with Other Significant Problems), and 795 so that these
cases may be appropriately grouped to the MS-DRG 789 for transferred
neonates.
Response: We appreciate the support of the commenters. To clarify
our proposed policy change, we are adding discharge status code 05 to
the MS-DRG GROUPER logic for assigning cases to MS-DRG 789. This change
will result in any case identified with discharge status 05, which
would have normally been assigned to MS-DRGs 790 through 795, being
reassigned to MS-DRG 789, as the commenter recommended.
After consideration of the public comments we received, we contend
that this logic change has merit and, therefore, are adopting it as
final for FY 2011. All newborn cases assigned to MS-DRGs 790 through
795 and indentified with discharge status 05 will be reassigned to MS-
DRG 789 for transferred neonates.
b. Vaccinations of Newborns
As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23903), we received a request to examine the assignment of code V64.05
(Vaccination not carried out because of caregiver refusal) to MS-DRG
794 (Neonate with Other Significant Problems). Code V64.05 is currently
being reported when a physician documents that a parent/caregiver has
refused immunization for a child. The reporting of this code as a
principal or secondary diagnosis

[[Page 50112]]

impacts the MS-DRG assignment for normal newborns cases being assigned
to MS-DRG 794.
For the FY 2011 proposed rule, we examined cases in the FY 2009
MedPAR file but did not find any cases of code V64.05 assigned to MS-
DRG 794. Our medical advisors agree that code V64.05 should not be
assigned to MS-DRG 794. We determined that the presence of code V64.05
does not indicate that there is a significant problem with the newborn
and should not be assigned to MS-DRG 794. Therefore, as we indicated in
the FY 2011 proposed rule, we believe that assignment of code V64.05 to
MS-DRG 795 (Normal Newborn) would be more appropriate for this code
because it does not identify a significant problem.
The logic for MS-DRG 795 contains a list of principal diagnosis
codes for normal newborn and no secondary diagnosis or a list of only
secondary diagnosis codes. Therefore, in the proposed rule, for FY
2011, we proposed to remove code V64.05 from MS-DRG 794 and add this
code to the only secondary diagnosis list for MS-DRG 795.
Comment: Commenters supported this proposed change.
Response: We appreciate the commenters support. As stated above, we
believe that the assignment of code V64.05 to MS-DRG 795 is
appropriate.
After consideration of the public comments we received, we are
adopting our proposal to remove code V64.05 from MS-DRG 794 and to add
it to the only secondary diagnosis list for MS-DRG 795 as final for FY
2011.
7. Medicare Code Editor (MCE) Changes
As explained under section II.B.1. of the preamble of this final
rule, the Medicare Code Editor (MCE) is a software program that detects
and reports errors in the coding of Medicare claims data. Patient
diagnoses, procedure(s), and demographic information are entered into
the Medicare claims processing systems and are subjected to a series of
automated screens. The MCE screens are designed to identify cases that
require further review before classification into a MS-DRG. In the FY
2011 IPPS/LTCH PPS proposed rule (75 FR 23903), we indicated that we
intended to make the following changes to the MCE edits and invited
public input on whether or not we should do so:
a. Unacceptable Principal Diagnosis Edit: Addition of Code for
Gastroparesis
It was brought to our attention that diagnosis code 536.3
(Gastroparesis) has a ``code first underlying disease'' note. This note
indicates that diagnosis code 536.3 should not be used as a principal
diagnosis. Therefore, diagnosis code 536.3 should have been included on
the list of unacceptable principal diagnoses in the MCE.
We agree that diagnosis code 536.3 should have been included on the
list of unacceptable principal diagnoses in the MCE. Therefore, in the
proposed rule for FY 2011, we indicated that we intended to add
diagnosis code 536.3 to that list in the MCE.
Comment: A number of commenters opposed the proposed change because
they believed that this sequencing change in the order of reported
codes would eliminate Medicare coverage for the condition of
gastroparesis.
Response: The commenters erroneously believed that this sequencing
change in the order of reported codes would eliminate Medicare coverage
for the condition of gastroparesis. Therefore, we are taking the
opportunity in this final rule to clarify that at no time did we intend
to withdraw coverage for gastroparesis. We believe that many commenters
mistakenly assumed that if diagnosis code 536.3 were not permitted to
be in the principal diagnosis position, it would become a noncovered
condition by Medicare. This is not CMS' intent, nor would it have been
the result of our proposed change. As one commenter stated: ``The
effect of the proposed edit would be that idiopathic gastroparesis * *
* could not be sequenced as a principal diagnosis. We recognize that an
inconsistency currently exists between the MCE and the `code first
underlying disease' associated with [code] 536.3. We understand the
issue is not with the MCE, but rather the note.''
We agree with the commenters and with the medical community that
diagnosis code 536.3 should not be included in the MCE's Unacceptable
Principal Diagnosis Edit, and hereby withdraw our suggestion to put it
on that list. Diagnosis code 536.3 will not be added to the MCE in FY
2011.
We understand that the matter of the ``code first'' note will be
addressed by the ICD-9-CM Coordination & Maintenance Committee in
September 2010.
b. Open Biopsy Check Edit
The Open Biopsy Check edit in the MCE dates back to the early years
of the IPPS when the surgical and medical DRGs were not as expansive as
they are today. In the mid-1980s when the Open Biopsy Check edit was
created, the ICD-9-CM codes did not have many biopsy procedure codes
that clearly showed the approach, such as codes for open, percutaneous,
and closed biopsies. Furthermore, under the current MS-DRGs, the open
biopsy codes do not have as significant an impact as they did in the
early versions of the DRGs. We believe that the Open Biopsy Check edit
no longer serves a useful purpose. Therefore, in the FY 2011 proposed
rule, we indicated that we intended to delete the entire Open Biopsy
Check edit from the MCE, which meant removing the following 63 codes
from the edit:
01.11 (Closed [Percutaneous] [Needle] biopsy of cerebral
meninges)
01.12 (Open biopsy of cerebral meninges)
01.13 (Closed [Percutaneous] [Needle] biopsy of brain)
01.14 (Open biopsy of brain)
04.11 (Closed [Percutaneous] [Needle] biopsy of cranial or
peripheral nerve or ganglion)
04.12 (Open biopsy of cranial or peripheral nerve or
ganglion)
06.11 (Closed [Percutaneous] [Needle] biopsy of thyroid
gland)
06.12 (Open biopsy of thyroid gland)
07.11 (Closed [Percutaneous] [Needle] biopsy of adrenal
gland)
07.12 (Open biopsy of adrenal gland)
22.11 (Closed [Endoscopic] [Needle] biopsy of nasal sinus)
22.12 (Open biopsy of nasal sinus)
25.01 (Closed [Needle] biopsy of tongue)
25.02 (Open biopsy of tongue)
26.11 (Closed [Needle] biopsy of salivary gland or duct)
26.12 (Open biopsy of salivary gland or duct)
31.43 (Closed [Endoscopic] biopsy of larynx)
31.44 (Closed [Endoscopic] biopsy of trachea)
31.45 (Open biopsy of larynx or trachea)
33.24 (Closed [Endoscopic] biopsy of bronchus)
33.25 (Open biopsy of bronchus)
33.26 (Closed [Percutaneous] [Needle] biopsy of lung)
33.28 (Open biopsy of lung)
34.25 (Closed [Percutaneous] [Needle] biopsy of
mediastinum)
34.26 (Open mediastinal biopsy)
41.32 (Closed [Aspiration] [Percutaneous] biopsy of
spleen)
41.33 (Open biopsy of spleen)
42.24 (Closed [Endoscopic] biopsy of esophagus)
42.25 (Open biopsy of esophagus)
44.14 (Closed [Endoscopic] biopsy of stomach)
44.15 (Open biopsy of stomach)
45.14 (Closed [Endoscopic] biopsy of small intestine)

[[Page 50113]]

45.15 (Open biopsy of small intestine)
45.25 (Closed [Endoscopic] biopsy of large intestine)
45.26 (Open biopsy of large intestine)
48.24 (Closed [Endoscopic] biopsy of rectum)
48.25 (Open biopsy of rectum)
50.11 (Closed (Percutaneous) [Needle] biopsy of liver)
50.12 (Open biopsy of liver)
51.12 (Percutaneous biopsy of gallbladder or bile ducts)
51.13 (Open biopsy of gallbladder or bile ducts)
52.11 (Closed [Aspiration] [Needle] [Percutaneous] biopsy
of pancreas)
52.12 (Open biopsy of pancreas)
54.23 (Biopsy of peritoneum)
54.24 (Closed [Percutaneous] [Needle] biopsy of intra-
abdominal mass)
55.23 (Closed [Percutaneous] [Needle] biopsy of kidney)
55.24 (Open biopsy of kidney)
56.32 (Closed percutaneous biopsy of ureter)
56.34 (Open biopsy of ureter)
57.33 (Closed [Transurethral] biopsy of bladder)
57.34 (Open biopsy of bladder)
60.11 (Closed [Percutaneous] [Needle] biopsy of prostate)
60.12 (Open biopsy of prostate)
60.13 (Closed [Percutaneous] biopsy of seminal vesicles)
60.14 (Open biopsy of seminal vesicles)
62.11 (Closed [Percutaneous] [Needle] biopsy of testis)
62.12 (Open biopsy of testis)
68.13 (Open biopsy of uterus)
68.14 (Open biopsy of uterine ligaments)
68.15 (Closed biopsy of uterine ligaments)
68.16 (Closed biopsy of uterus)
85.11 (Closed [Percutaneous] [Needle] biopsy of breast)
85.12 (Open biopsy of breast)
We did not receive any public comments regarding the proposal to
delete the Open Biopsy Check edit from the MCE. Therefore, because
there were no objections to the proposal, we are deleting the Open
Biopsy Check edit from the MCE. The edit containing the codes listed
above will be removed, effective for October 1, 2010 (FY 2011).
c. Noncovered Procedure Edit
The ICD-9-CM procedure codes 52.80 (Pancreatic transplant, not
otherwise specified) and 52.82 (Homotransplant of pancreas) alone (that
is, without procedure code 55.69 (Other kidney transplantation)) are
considered noncovered procedures, except when either one is combined
with at least one specific principal or secondary diagnosis code. These
specific diagnosis codes identify Type I diabetes mellitus, not stated
as uncontrolled, or else identified as uncontrolled.
To conform to the proposed change to Pre-MDC MS-DRGs 008 and 010 as
discussed in section II.G.1. of the FY 2011 IPPS/LTCH PPS proposed
rule, in which we proposed to add code 251.3 (Postsurgical
hypoinsulinemia) to those MS-DRGs, we indicated in that FY 2011
proposed rule that we intended to add procedure code 251.3 to the list
of acceptable principal or secondary diagnosis codes in the MCE.
We did not receive any public comments on our proposal to add
procedure code 251.3 to the list of acceptable principal or secondary
diagnosis codes in the MCE. Therefore, because there were no objections
to this proposal, we are adding procedure code 251.3 (Postsurgical
hypoinsulinemia) to the MCE in the list of acceptable principal or
secondary codes associated with procedure codes 52.80 (Pancreatic
transplant, not otherwise specified) and 52.82 (Homotransplant of
pancreas).
8. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different MS-DRG within the MDC to which the principal diagnosis
is assigned. Therefore, it is necessary to have a decision rule within
the GROUPER by which these cases are assigned to a single MS-DRG. The
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function.
Application of this hierarchy ensures that cases involving multiple
surgical procedures are assigned to the MS-DRG associated with the most
resource-intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of MS-DRG reclassification and recalibrations, we
reviewed the surgical hierarchy of each MDC, as we have for previous
reclassifications and recalibrations, to determine if the ordering of
classes coincides with the intensity of resource utilization.
A surgical class can be composed of one or more MS-DRGs. For
example, in MDC 11, the surgical class ``kidney transplant'' consists
of a single MS-DRG (MS-DRG 652) and the class ``major bladder
procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655).
Consequently, in many cases, the surgical hierarchy has an impact on
more than one MS-DRG. The methodology for determining the most
resource-intensive surgical class involves weighting the average
resources for each MS-DRG by frequency to determine the weighted
average resources for each surgical class. For example, assume surgical
class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs
3, 4, and 5. Assume also that the average costs of MS-DRG 1 is higher
than that of MS-DRG 3, but the average costs of MS-DRGs 4 and 5 are
higher than the average costs of MS-DRG 2. To determine whether
surgical class A should be higher or lower than surgical class B in the
surgical hierarchy, we would weigh the average costs of each MS-DRG in
the class by frequency (that is, by the number of cases in the MS-DRG)
to determine average resource consumption for the surgical class. The
surgical classes would then be ordered from the class with the highest
average resource utilization to that with the lowest, with the
exception of ``other O.R. procedures'' as discussed below.
This methodology may occasionally result in assignment of a case
involving multiple procedures to the lower-weighted MS-DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER search for the procedure in the
most resource-intensive surgical class, in cases involving multiple
procedures, this result is sometimes unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average cost is
ordered above a surgical class with a higher average cost. For example,
the ``other O.R. procedures'' surgical class is uniformly ordered last
in the surgical hierarchy of each MDC in which it occurs, regardless of
the fact that the average costs for the MS-DRG or MS-DRGs in that
surgical class may be higher than those for other surgical classes in
the MDC. The ``other O.R. procedures'' class is a group of procedures
that are only infrequently related to the diagnoses in the MDC, but are
still occasionally performed on patients in the MDC with these
diagnoses. Therefore, assignment to these surgical classes should only
occur if no other surgical class more closely related to the diagnoses
in the MDC is appropriate.
A second example occurs when the difference between the average
costs for two surgical classes is very small. We have found that small
differences generally do not warrant reordering of the hierarchy
because, as a result of reassigning cases on the basis of the

[[Page 50114]]

hierarchy change, the average costs are likely to shift such that the
higher-ordered surgical class has a lower average costs than the class
ordered below it.
As we proposed, based on the changes that we are making for FY
2011, as discussed in section II.C.2. of this preamble, we are revising
the surgical hierarchy for Pre-MDCs and MDC 10 (Endocrine, Nutritional
and Metabolic Diseases and Disorders) to reflect the resource
intensiveness of the MS-DRGs, as follows:
In Pre-MDCs, we are reordering new MS-DRG 014 (Allogeneic Bone
Marrow Transplant) above MS-DRG 007 (Lung Transplant); and new MS-DRG
015 (Autologous Bone Marrow Transplant) above MS-DRG 010 (Pancreas
Transplant).
In MDC 10, we are reordering MS-DRG 614 (Adrenal and Pituitary
Procedures With CC/MCC) and MS-DRG 615 (Adrenal and Pituitary
Procedures Without CC/MCC) above MS-DRG 625 (Thyroid, Parathyroid and
Thyroglossal Procedures With MCC).
Comment: Commenters generally supported our proposals without any
objections.
Response: Based on the test of the proposed revisions using the
March 2010 update of the FY 2009 MedPAR file and the revised GROUPER
software, we found that the revisions are still supported by the data.
Therefore, we are incorporating the proposed revisions to the surgical
hierarchy as final for FY 2011.
9. Complications or Comorbidity (CC) Exclusions List
a. Background
As indicated earlier in the preamble of this final rule, under the
IPPS MS-DRG classification system, we have developed a standard list of
diagnoses that are considered CCs. Historically, we developed this list
using physician panels that classified each diagnosis code based on
whether the diagnosis, when present as a secondary condition, would be
considered a substantial complication or comorbidity. A substantial
complication or comorbidity was defined as a condition that, because of
its presence with a specific principal diagnosis, would cause an
increase in the length of stay by at least 1 day in at least 75 percent
of the patients. We refer readers to section II.D.2. and 3. of the
preamble of the FY 2008 IPPS final rule with comment period for a
discussion of the refinement of CCs in relation to the MS-DRGs we
adopted for FY 2008 (72 FR 47121 through 47152).
b. CC Exclusions List for FY 2011
In the September 1, 1987 final notice (52 FR 33143) concerning
changes to the DRG classification system, we modified the GROUPER logic
so that certain diagnoses included on the standard list of CCs would
not be considered valid CCs in combination with a particular principal
diagnosis. We created the CC Exclusions List for the following reasons:
(1) To preclude coding of CCs for closely related conditions; (2) to
preclude duplicative or inconsistent coding from being treated as CCs;
and (3) to ensure that cases are appropriately classified between the
complicated and uncomplicated DRGs in a pair. As we indicated above, we
developed a list of diagnoses, using physician panels, to include those
diagnoses that, when present as a secondary condition, would be
considered a substantial complication or comorbidity. In previous
years, we have made changes to the list of CCs, either by adding new
CCs or deleting CCs already on the list.
In the May 19, 1987 proposed notice (52 FR 18877) and the September
1, 1987 final notice (52 FR 33154), we explained that the excluded
secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another.
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for the same condition should not be considered
CCs for one another.
Codes for the same condition that cannot coexist, such as
partial/total, unilateral/bilateral, obstructed/unobstructed, and
benign/malignant, should not be considered CCs for one another.
Codes for the same condition in anatomically proximal
sites should not be considered CCs for one another.
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. We have continued to review the remaining
CCs to identify additional exclusions and to remove diagnoses from the
master list that have been shown not to meet the definition of a CC.\2\
---------------------------------------------------------------------------

\2\ See the FY 1989 final rule (53 FR 38485, September 30,
1988), for the revision made for the discharges occurring in FY
1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for
the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September
4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR
43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final
rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the
FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994
revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994),
for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782,
September 1, 1995), for the FY 1996 revisions; the FY 1997 final
rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the
FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998
revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for
the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August
1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR
39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final
rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the
FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004
revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004),
for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640,
August 12, 2005), for the FY 2006 revisions; the FY 2007 final rule
(71 FR 47870) for the FY 2007 revisions; the FY 2008 final rule (72
FR 47130) for the FY 2008 revisions, the FY 2009 final rule (73 FR
48510), and the FY 2010 final rule (74 FR 43799). In the FY 2000
final rule (64 FR 41490, July 30, 1999, we did not modify the CC
Exclusions List because we did not make any changes to the ICD-9-CM
codes for FY 2000.
---------------------------------------------------------------------------

(1) Limited Revisions Based on Changes to the ICD-9-CM Diagnosis Codes
For FY 2011, as we proposed, we are making limited revisions to the
CC Exclusions List to take into account the changes made in the ICD-9-
CM diagnosis coding system effective October 1, 2009. (We refer readers
to section II.G.11. of the preamble of this final rule for a discussion
of ICD-9-CM changes.) We are making these changes in accordance with
the principles established when we created the CC Exclusions List in
1987. In addition, we are indicating on the CC Exclusions List some
changes as a result of updates to the ICD-9-CM codes to reflect the
exclusion of codes from being MCCs under the MS-DRG system that we
adopted in FY 2008.
(2) Suggested Changes to Severity Levels for Obesity-Related and Major
Osseous Defect Diagnosis Codes
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43793
through 43794), we indicated that several commenters on the FY 2010
IPPS proposed rule recommended that CMS consider making further
adjustments to the MS-DRG assignments based on obesity and major
osseous defects. The commenters stated that obesity, high Body Mass
Index (BMI) ratings, and major osseous defects add to the complexity of
care for patients such as those patients undergoing orthopedic
procedures. The commenters recommended the following changes to the
list of MCCs and CCs:
Several commenters recommended that CMS add the following diagnosis
codes, which are classified as non-CCs, to the CC or MCC list:
731.3 (Major osseous defects)

[[Page 50115]]

V85.35 (Body mass index 35.0-35.9, adult)
V85.36 (Body mass index 36.0-36.9, adult)
V85.37 (Body mass index 37.0-37.9, adult)
V85.38 (Body mass index 38.0-38.9, adult)
V85.39 (Body mass index 39.0-39.9, adult)
Several commenters recommended that CMS add the following diagnosis
code, which is on the CC list, to the MCC list:
V85.40 (Body mass index 40 and over, adult)
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that we
believed these comments were outside the scope of the proposals in the
FY 2010 proposed rule. We did not propose significant revisions to the
MS-DRGs in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR
24091) for these codes. We stated that we were encouraging individuals
with comments about MS-DRG classifications to submit these comments no
later than early December of each year so they can be carefully
considered for possible inclusion in the annual proposed rule and, if
included, may be subjected to public review and comment. Therefore, we
did not add these codes to the MCC list or the CC list for FY 2010. We
stated that we would consider their appropriateness for inclusion in
next year's annual proposed rule.
In addition to the diagnosis codes mentioned above, we also have
received requests that we consider changing the following diagnosis
codes from a non-CC to a CC:
278.00 (Obesity NOS)
278.01 (Morbid obesity)
278.02 (Overweight)
For the FY 2011 IPPS/LTCH PPS proposed rule, we analyzed claims
data for the diagnosis codes mentioned above related to obesity and
major osseous defects. We used the same approach we used in initially
creating the MS-DRGs and classifying secondary diagnosis codes as non-
CCs, CCs, or MCC. A detailed discussion of the process and criteria we
used in this process is described in the FY 2008 IPPS final rule (72 FR
47158 through 47161). We refer the readers to this discussion for
complete information on our approach to developing the non-CC, CC, and
MCC lists. Each diagnosis for which Medicare data were available was
evaluated to determine its impact on resource use and to determine the
most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order
to make this determination, the average cost for each subset of cases
was compared to the expected cost for cases in that subset. The
following format was used to evaluate each diagnosis:

--------------------------------------------------------------------------------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------------------------------------------------------------------------------
Code Diagnosis Cnt1 C1 Cnt2 C2 Cnt3 C3
--------------------------------------------------------------------------------------------------------------------------------------------------------
278.00............................ Obesity NOS......... 130,310 1.0755 116,304 1.7234 45,565 2.3843
278.01............................ Morbid obesity...... 51,832 1.2619 106,169 1.9630 52,398 2.6787
278.02............................ Overweight.......... 5,242 0.9948 3,594 1.7042 1,033 2.3471
731.3............................. Major osseous 215 1.3833 575 2.3390 186 2.7627
defects.
V85.35............................ BMI 35.0-35.9, adult 2,621 0.9759 1,480 1.6932 499 2.3664
V85.36............................ BMI 36.0-36.9, adult 2,359 0.9729 1,298 1.6536 466 2.3107
V85.37............................ BMI 37.0-37.9, adult 2,305 0.9849 1,271 1.7225 473 2.4032
V85.38............................ BMI 38.0-38.9, adult 2,152 0.9713 1,231 1.5964 432 2.2743
V85.39............................ BMI 39.0-39.9, adult 2,253 0.9857 1,141 1.7741 445 2.4919
--------------------------------------------------------------------------------------------------------------------------------------------------------

The C1 findings do not support a reclassification of any of these
diagnosis codes from a non-CC to a CC. As can be seen by the C1
findings, the codes range from a low of 0.9729 for code V85.35 to a
high of 1.3833 for diagnosis code 731.3. These findings are consistent
with a classification as a non-CC. Therefore, for FY 2011, as we
proposed, we are not changing the CC classification of any of the
diagnosis codes mentioned in the chart above from a non-CC to a CC. Our
clinical advisors agree with this recommendation.
For the FY 2011 proposed rule, we also examined claims data for
diagnosis code V85.4 (Body mass index 40 and over, adult), which is
classified as a CC. We received a request to reclassify this code as a
MCC. The following chart summarizes our findings for this diagnosis
code:

[[Page 50116]]

We note that the C1 finding of 1.2323 does not support a
reclassification of this diagnosis code from a CC to a MCC. This
finding is much more consistent with classifying the code as a non-CC.
Our clinical advisors recommended that CMS not reclassify this
diagnosis code from a CC to a non-CC for FY 2011. They recommended that
CMS analyze data associated with this diagnosis code again in the
future to determine if it continues to act like a non-CC. For the FY
2011 proposed rule, we did not recommend any change in the severity
classification of diagnosis code V85.4. We proposed to retain it as a
CC for FY 2011. We welcomed public comments on our proposal not to
change the severity levels of the diagnosis codes mentioned above.
Comment: Several commenters in general supported the proposal not
to change the following codes from a non-CC to a CC or MCC based on our
data and clinical analysis: 278.00; 278.01; 278.02; 731.3; V85.35;
V85.36; V85.37; V85.38; and V85.39.
The commenters also supported our proposal not to change code
V85.40 from a CC to an MCC.
One commenter stated that it understood that the request to change
the severity level for the obesity related codes was not supported by
the current hospital claim data. The commenter expressed appreciation
for CMS' consideration of its recommendation. However, the commenter
expressed concerns that hospitals may not be fully reporting codes that
describe obesity, and, therefore, all resources associated with obesity
related cases may not be included in the hospital claims data. The
commenter requested that CMS actively encourage hospitals to report
codes that more fully describe obesity and its related conditions. The
commenter stated that if hospitals increased their reporting of obesity
related conditions, our national data would be more accurate and would
more fully reflect hospital resource use associated with these
patients.
Another commenter also acknowledged that the data did not support a
change in the severity level for the obesity related codes. This
commenter also expressed that hospitals may be underreporting obesity
cases, and requested that hospitals be encouraged to more fully and
accurately code and report these conditions. Once a more complete data
set is available to describe these patients, the commenter recommended
that the issue be reviewed again.
Response: We agree with the commenters that our data and clinical
analysis support our proposal not to change the severity level for the
obesity related codes. We appreciate the commenters' statement about
our consideration and review of this issue. We agree that it is
important to provide clear documentation and accurate coding for all
patient diagnoses and conditions, including obesity related conditions.
As discussed in section II.G.11.c. of this preamble, we are expanding
the number of diagnosis and procedure codes processed so that more
codes are available to describe each patient's hospitalization. The
clinical data and the comments received support our recommendation not
to change the severity levels for the obesity related codes. Therefore,
we are finalizing our proposal to continue classifying the following
codes as non-CCs for FY 2011.
278.00 (Obesity NOS)
278.01 (Morbid obesity)
278.02 (Overweight)
731.3 (Major osseous defects)
V85.35 (Body mass index 35.0-35.9, adult)
V85.36 (Body mass index 36.0-36.9, adult)
V85.37 (Body mass index 37.0-37.9, adult)
V85.38 (Body mass index 38.0-38.9, adult)
V85.39 (Body mass index 39.0-39.9, adult)
We are also finalizing our proposal to continue classifying the
following code as a CC for FY 2011.
V85.40 (Body mass index 40 and over, adult)
(3) Suggested Change to the Severity Level for Alzheimer's Disease
Diagnosis Code
We received a request to change the severity classification for
diagnosis code 331.0 (Alzheimer's disease). Currently, this diagnosis
code is classified as a non-CC. For the FY 2011 IPPS/LTCH PPS proposed
rule, we analyzed claims data for this diagnosis code. The following
chart shows our findings:

The C1 finding of 1.1381 for Alzheimer's disease supports the
current classification of this diagnosis code as a non-CC. Our clinical
advisors agree with this classification. Therefore, we did not propose
to change the severity classification of diagnosis code 331.0 from a
non-CC to a CC for FY 2011. We believe the code is appropriately
classified as a non-CC.
Comment: Several commenters in general supported CMS' proposal not
to change diagnosis code 331.0 from a non-CC to a CC for FY 2011. They
stated that the data supported this decision. One commenter stated that
the analysis provided by CMS supports the proposal that diagnosis code
331.0 should continue to be a non-CC. The commenter suggested that this
issue be revisited after CMS begins processing 25 codes instead of the
current limitation of 9 diagnosis codes.
Response: We agree with the commenters that our data support our
proposal not to change diagnosis code 331.0 from a non-CC to a CC for
FY 2011. Therefore, we are finalizing our proposal to continue
classifying diagnosis code 331.0 as a non-CC for FY 2011. We will
revisit the severity level classification of diagnosis code 331.0 once
we begin processing claims using the increase in the number of
diagnosis codes to 25.
(4) Change to the Severity Level for Acute Renal Failure, Unspecified
Diagnosis Code
We received a request to reclassify the diagnosis code, which
captures acute renal failure, 584.9 (Acute kidney failure, unspecified)
from a MCC to a CC. The commenter stated that this code is being widely
used to capture degrees of renal failure that range from that which is
caused by mild dehydration with only minor laboratory abnormalities all
the way through severe renal failure that requires dialysis. The
commenter pointed out that there are no clinical criteria for assigning
diagnosis code 584.9. The attending physician must simply document the
presence of acute renal failure for the diagnosis code to be assigned.
The concern is that the diagnosis code for acute kidney failure,
unspecified (diagnosis code 584.9) is being assigned to patients with a
low clinical severity level.
We also point out that the Editorial Advisory Board of Coding
Clinic for ICD-9-CM has received a number of requests to clarify the
use of diagnosis code 584.9. Coders are observing the

[[Page 50117]]

terminology of ``acute renal failure'' being applied to patients who
are simply dehydrated. These patients do not require renal dialysis,
and they do not appear to be severely ill. Coders have stated that
there appears to be an increase in the use of the terminology of acute
renal failure for patients who were previously referred to as acute
renal insufficiency. When acute renal insufficiency is documented, the
ICD-9-CM index directs the use of code 593.9 (Unspecified disorder of
kidney and ureter). Diagnosis code 593.9 includes acute renal
insufficiency and is classified as a non-CC. The problem is further
compounded by the fact that there is no consistent convention among
clinicians for documenting acute renal insufficiency versus acute renal
failure.
For the FY 2011 IPPS/LTCH PPS proposed rule, we examined claims
data on diagnosis code 584.9, and our findings are shown in the table
below:

The C1 finding of 1.8364 is more consistent with a classification
of a CC. Our clinical advisors agreed that cases captured by diagnosis
code 584.9 are more appropriately classified as a CC. This unspecified
type of kidney failure is clearly not capturing patients with a MCC
severity level. Therefore, we proposed to change the severity level for
diagnosis code 584.9 from a MCC to a CC for FY 2011.
Comment: Most commenters opposed our proposal to change diagnosis
code 584.9 (Acute kidney failure, unspecified) from an MCC to a CC.
However, one commenter supported the proposal to change the severity
level classification of acute renal failure cases from an MCC to a CC.
The commenter stated that there has been an increased reporting of
acute renal failure which is primarily due to increased physician
education by clinical documentation improvement programs. The commenter
further stated that the statistical analysis offered in the proposed
rule was sufficient to support this change.
Response: We agree that the claims data support our proposal to
change diagnosis code 584.9 from an MCC to a CC. We respond to the
specific comments opposing our proposed changes in the following
comments and responses.
Comment: Several commenters suggested that the introduction of the
terminology of acute kidney injury may have added to the inconsistent
classification of the disease process. One commenter stated that, in
2004, the Acute Dialysis Quality Initiative work group provided a
definition and classification system for acute renal failure, described
by the acronym RIFLE (Risk of renal dysfunction, Injury to the kidney,
Failure or Loss of kidney function, and End-stage kidney disease). The
commenter stated that clinical researchers have since applied the RIFLE
system to the clinical evaluation of acute kidney injury. Several
commenters stated that the FY 2009 update to the coding classification
system, which classifies acute kidney injury and acute renal failure
with the same code, may be diluting the patient mix. The commenters
stated that inconsistency in the application of diagnosis code 584.9
results in dilution of the data and an inaccurate reflection of the
severity level for acute renal failure.
Another commenter stated that claims data on diagnosis code 584.9
may be flawed due to the variable terminology used by physicians and
changes in the ICD-9-CM classification. This commenter stated that
physicians often use the terms ``acute renal insufficiency'' and
``acute renal failure'' interchangeably, and that this results in cases
of acute renal insufficiency being classified as acute renal failure.
The commenter also stated that physicians often use the term ``acute
kidney injury'' to mean either acute renal insufficiency or acute renal
failure, and that the term ``acute kidney injury'' is indexed in ICD-9-
CM to diagnosis code 584.9. Therefore, the commenter stated that cases
of acute kidney injury are also being classified as acute renal
failure. The commenter stated that these inconsistencies result in
diagnosis code 584.9 capturing a mix of cases, including both acute
renal insufficiency as well as true acute renal failure cases, and that
this has diluted national data for diagnosis code 584.9 and is an
inaccurate reflection of the severity level for acute renal failure.
The commenters recommended that diagnosis code 584.9 remain an MCC
while CMS works on ways to revise the codes or improve documentation
guidelines.
Response: We agree that diagnosis code 584.9 captures a range of
severity levels. Patients are not consistently at the highest severity
level as shown by our claims data. As discussed above, our claims data
show that patients with this code as a secondary diagnosis are similar
to those who are at a CC level. We do not believe it is appropriate to
defer a decision on reclassification of the severity level of diagnosis
code 584.9 until future coding or guideline modifications can be
considered because our claims data clearly support the proposed change.
Should a new range of codes be developed, we will consider what
severity levels should be applied to each new code and include this
analysis as part of future rulemaking.
Comment: One commenter stated that the definition of conditions
assigned to diagnosis code 584.9 is inadequate as it encompasses
patients with both small and large elevations of creatinine that still
meet the definition of acute kidney injury. Furthermore, the commenter
pointed out that diagnosis code 584.9 does not identify severe cases of
renal failure requiring dialysis. However, the commenter opposed
changing diagnosis code 584.9 from an MCC to a CC as it would penalize
those institutions treating more severe cases of renal failure. The
commenter indicated its plans to contact the National Center for Health
Statistics to request that fifth digits be added to diagnosis code
584.9 to distinguish those in various stages of renal failure. Other
commenters also agreed that diagnosis code 584.9 was vague and
suggested that the code be subdivided to add additional information on
the stages of the renal function. The commenters suggested using
existing standards from the Acute Kidney Injury Network or the National
Kidney Foundation to develop stages for kidney injury that could be
captured with the new codes.
Another commenter agreed that the diagnosis of acute renal failure
should not be used to describe mild dehydration and renal insufficiency
when only minor lab abnormalities are present. The commenter believed
that criteria were needed to better define the stages of acute renal
failure. The commenter stated that appropriate guidelines were needed
for both physicians and coders who are attempting to differentiate
between a mildly dehydrated patient and one with true acute renal
failure. Until such time as these documentation guidelines are
developed, the commenter asked that

[[Page 50118]]

diagnosis code 584.9 not be changed from an MCC to a CC.
Response: We agree that diagnosis code 584.9 captures a wide range
of severity levels. We also agree that the use of this code does not
mean that the patient's renal capacity is so impaired as to require
renal dialysis. As stated earlier, our data indicate that most of these
cases are at a CC severity level, not an MCC. As stated earlier, we do
not believe it is appropriate to defer a decision on reclassification
of the severity level of diagnosis code 584.9 until future coding or
guideline modifications can be considered. Should a new range of codes
be developed, we will consider what severity levels should be applied
to each new code and include this within future rulemaking.
Comment: Several commenters objected to a change of severity levels
for diagnosis code 584.9 from an MCC to a CC because of the financial
impact the change would have on their hospitals. Several hospitals
stated that this change would reduce their annual Medicare payments by
$1.0 to $3.6 million per year. Other commenters stated that this change
could lead to a reduction of 2 percent or more in total Medicare
payments to their facilities. The commenters acknowledged that the code
does not consistently capture patients at the highest severity level
and that there was no clear convention among clinicians for documenting
acute renal insufficiency versus acute renal failure. The commenters
asked that the change not be made because of the payment impact on
their hospitals.
Response: We agree that diagnosis code 584.9 captures patients who
are not consistently at the highest severity level. Classifying these
patients at the highest severity level greatly distorts our national
data. It gives the impression that a large number of patients have an
MCC severity level when they may in fact have only minor renal
symptoms. Our data support that patients with diagnosis code 584.9 are
more appropriately classified at the CC severity level. These acute
renal failure patients captured with this code do not utilize the
resources of other conditions on the MCC list. We believe the data
support changing the code from an MCC to a CC. We believe our claims
data show that this change will lead to more accurate payment, even if
it does reduce some hospital payments. We do not believe it is
appropriate to inflate payments for hospitals that report a higher
incidence of this code, yet are treating patients with a lower severity
level.
Comment: Other commenters who disagreed with the proposed change
from an MCC to a CC, acknowledged that this unspecified code captures a
range of severity levels from those patients with only a minimal
elevation in serum creatinine or simple dehydration to those patients
who are actually in acute renal failure. Some of the commenters stated
that, while the code may currently capture patients with low severity
levels, the patients still need treatment and monitoring to prevent any
worsening in their conditions. The commenters also acknowledged that
there is no clear convention among clinicians for documenting acute
renal insufficiency versus acute renal failure. The commenters stated
that this has been a problematic area on which there have been
consensus conferences and publications from a variety of quality and
renal organizations. The commenters stated that additional work was
needed to develop a clear consensus for documenting acute renal
failure. The commenters urged CMS to pursue greater standardization for
the clinical documentation of acute renal failure. Until such time as
the clinical documentation improves, the commenters recommended that
CMS continue to classify diagnosis code 584.9 as an MCC.
Response: We agree that there is not a consistent use of the term
acute renal failure. As mentioned earlier, this term has been used to
describe a wide range of severity levels. However, our claims data show
that the term is being used predominately to describe those patients
who are not at the highest severity level. The patients are more like
others with a CC severity level. We do not believe that it is
appropriate for CMS to wait for a consensus to build about how to use
and document the term acute renal failure. We believe it is more
appropriate to base our decision on current claims data and clinical
review. Regardless of the different uses of the term ``acute renal
failure'' and the inclusion of a wide range of severity levels, the
current data show that the code is more properly a CC and not an MCC.
As mentioned by a number of commenters, the term ``acute renal
failure'' is being used for a wide variety of patients, most of which
do not have a high severity level. We also point out that we proposed
reclassifying only the unspecified acute renal failure code from an MCC
to a CC. We are leaving the more precise acute renal failure codes as
MCCs. For instance, these more precise acute renal failure codes will
remain on the MCC list:
584.5 (Acute kidney failure with lesion of tubular
necrosis);
584.6 (Acute kidney failure with lesion of renal cortical
necrosis);
584.7 (Acute kidney failure with lesion of renal medullary
[papillary] necrosis); and
584.8 (Acute kidney failure with other specified
pathological lesion in kidney).
We proposed to remove only the code for an unspecified type of
acute kidney failure from the MCC list and to add it to the CC list.
Our data support this reclassification.
After consideration of the public comments we received, we are
finalizing our proposal to change diagnosis code 584.9 (Acute kidney
failure, unspecified) from an MCC to a CC.
Comment: One commenter asked that CMS also examine whether the
following encephalopathy codes should be removed from the MCC list. The
commenter stated that claims analysis may show a justification for
removing these codes from the MCC list.
348.30 Encephalopathy, unspecified
348.31 Metabolic encephalopathy
348.39 Other encephalopathy
349.82 Toxic encephalopathy
Response: We believe this comment is outside the scope of the FY
2011 IPPS/LTCH PPS proposed rule. We did not propose to change the
severity level classification for any of the encephalopathy codes. We
will examine this issue as part of next year's proposed rule.
Therefore, we are not making any changes to the severity level
classifications of the encephalopathy codes mentions above.
Tables 6G and 6H, Additions to and Deletions from the CC Exclusion
List, respectively, which are effective for discharges occurring on or
after October 1, 2010, are not being published in the Addendum to this
final rule because of the length of the two tables. Instead, we are
making them available through the Internet on the CMS Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal
diagnoses for which there is a CC exclusion is shown in Tables 6G and
6H in the Addendum to this final rule with an asterisk, and the
conditions that will not count as a CC, are provided in an indented
column immediately following the affected principal diagnosis.
A complete updated MCC, CC, and Non-CC Exclusions List is also
available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or
after October 1, 2010, the indented diagnoses will not be

[[Page 50119]]

recognized by the GROUPER as valid CCs for the asterisked principal
diagnosis.
To assist readers in identifying the changes to the MCC and CC
lists that occurred as a result of updates to the ICD-9-CM codes, as
described in Tables 6A, 6C, and 6E of the Addendum to this final rule,
we are providing the following summaries of those MCC and CC changes.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR16AU10.019

[[Page 50120]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.020

[GRAPHIC] [TIFF OMITTED] TR16AU10.021

[[Page 50121]]

BILLING CODE 4120-01-C
Alternatively, the complete documentation of the GROUPER logic,
including the current CC Exclusions List, is available from 3M/Health
Information Systems (HIS), which, under contract with CMS, is
responsible for updating and maintaining the GROUPER program. The
current MS-DRG Definitions Manual, Version 27.0, is available for
$250.00, which includes shipping and handling. Version 27.0 of the
manual is also available on a CD for $200.00; a combination hard copy
and CD is available for $400.00. Version 28.0 of this manual, which
includes the final FY 2011 MS-DRG changes, will be available in CD only
for $225.00. These manuals may be obtained by writing 3M/HIS at the
following address: 100 Barnes Road, Wallingford, CT 06492; or by
calling (203) 949-0303, or by obtaining an order form at the Web site:
http://www.3MHIS.com. Please specify the revision or revisions
requested.
10. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through
986; and 987 Through 989
Each year, we review cases assigned to former CMS DRG 468
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal
Diagnosis) to determine whether it would be appropriate to change the
procedures assigned among these CMS DRGs. Under the MS-DRGs that we
adopted for FY 2008, CMS DRG 468 was split three ways and became MS-
DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG
476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989
(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC,
with CC, and without CC/MCC, respectively).
MS-DRGs 981 through 983, 984 through 986, and 987 through 989
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for
those cases in which none of the O.R. procedures performed are related
to the principal diagnosis. These MS-DRGs are intended to capture
atypical cases, that is, those cases not occurring with sufficient
frequency to represent a distinct, recognizable clinical group. MS-DRGs
984 through 986 (previously CMS DRG 476) are assigned to those
discharges in which one or more of the following prostatic procedures
are performed and are unrelated to the principal diagnosis:
60.0, Incision of prostate
60.12, Open biopsy of prostate
60.15, Biopsy of periprostatic tissue
60.18, Other diagnostic procedures on prostate and
periprostatic tissue
60.21, Transurethral prostatectomy
60.29, Other transurethral prostatectomy
60.61, Local excision of lesion of prostate
60.69, Prostatectomy, not elsewhere classified
60.81, Incision of periprostatic tissue
60.82, Excision of periprostatic tissue
60.93, Repair of prostate
60.94, Control of (postoperative) hemorrhage of prostate
60.95, Transurethral balloon dilation of the prostatic
urethra
60.96, Transurethral destruction of prostate tissue by
microwave thermotherapy
60.97, Other transurethral destruction of prostate tissue
by other thermotherapy
60.99, Other operations on prostate
All remaining O.R. procedures are assigned to MS-DRGs 981 through
983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those
discharges in which the only procedures performed are nonextensive
procedures that are unrelated to the principal diagnosis.\3\
---------------------------------------------------------------------------

\3\ The original list of the ICD-9-CM procedure codes for the
procedures we consider nonextensive procedures, if performed with an
unrelated principal diagnosis, was published in Table 6C in section
IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part
of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56
FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final
rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY
1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173),
and the FY 1998 final rule (62 FR 45981), we moved several other
procedures from DRG 468 to DRG 477, and some procedures from DRG 477
to DRG 468. No procedures were moved in FY 1999, as noted in the
final rule (63 FR 40962); in FY 2000 (64 FR 41496); in FY 2001 (65
FR 47064); or in FY 2002 (66 FR 39852). In the FY 2003 final rule
(67 FR 49999) we did not move any procedures from DRG 477. However,
we did move procedure codes from DRG 468 and placed them in more
clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365),
we moved several procedures from DRG 468 to DRGs 476 and 477 because
the procedures are nonextensive. In the FY 2005 final rule (69 FR
48950), we moved one procedure from DRG 468 to 477. In addition, we
added several existing procedures to DRGs 476 and 477. In the FY
2006 (70 FR 47317), we moved one procedure from DRG 468 and assigned
it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and
assigned it to DRGs 479, 553, and 554. In FYs 2008, 2009, and FY
2010, no procedures were moved, as noted in the FY 2008 final rule
with comment period (72 FR 46241), the FY 2009 final rule (73 FR
48513), and the FY 2010 final rule (74 FR 43796).
---------------------------------------------------------------------------

Our review of MedPAR claims data showed that there were 59 cases in
which procedures related to the prostate were arrayed across 10
different MDCs. None of the 59 cases were cases that should logically
be assigned to any of the other MDCs. For example, there were a total
of 16 cases of other transurethral prostate surgery that occurred in
MDC 5 (Diseases and Disorders of the Circulatory System). In addition,
none of the cases had lengths of stay or average charges that would
indicate that these cases were anything other than some of the expected
irregularities of medical care. Therefore, for FY 2011, we did not
propose to change the procedures assigned among these MS-DRGs.
We did not receive any public comments on our proposal and,
therefore, are adopting it as final.
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987
Through 989 Into MDCs
We annually conduct a review of procedures producing assignment to
MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to
principal diagnosis with MCC, with CC, and without CC.MCC,
respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure
unrelated to principal diagnosis with MCC, with CC, and without CC/MCC,
respectively) on the basis of volume, by procedure, to see if it would
be appropriate to move procedure codes out of these MS-DRGs into one of
the surgical MS-DRGs for the MDC into which the principal diagnosis
falls. The data are arrayed in two ways for comparison purposes. We
look at a frequency count of each major operative procedure code. We
also compare procedures across MDCs by volume of procedure codes within
each MDC.
We identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical MS-DRGs for the MDC in which the diagnosis falls.
Our review of claims data showed that there were 4,443 cases in MS-DRGs
981 through 983. These 4,443 cases were arrayed across 18 MDCs. The
single most common procedure was code 00.66 (Percutaneous transluminal
coronary angioplasty [PTCA] of coronary atherectomy), 21 cases, located
in MDC 1 (Diseases and Disorders of the Nervous System). These cases
represent a very small volume of cases that are unlikely to indicate
medical practice trends. In addition, from a clinical coherence
standpoint, we do not believe it benefits the GROUPER system to add
cardiac procedures to the nervous system MDC. The same situation was

[[Page 50122]]

evident in MS-DRGs 987 through 989. There were a total of 1,601 cases
across 17 MDCs and, again, the cases did not represent clinically
coherent examples of medical care that warranted movement of procedure
codes into additional MS-DRGs. Examples of cases that we reviewed
included six cases of bone biopsies in MDC 21 (Injuries, Poisonings and
Toxic Effects of Drugs) and one case of a destruction of a lesion of
the knee in MDC 13 (Diseases and Disorders of the Female Reproductive
System). Again, the volume of these cases is negligible, and clinical
coherence is not demonstrated to the degree that a change in the MS-
DRGs is warranted. Therefore, for FY 2011, we did not propose to remove
any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989
into one of the surgical MS-DRGs for the MDC into which the principal
diagnosis is assigned.
We did not receive any public comments on our proposal and,
therefore, are adopting it as final.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984
Through 986, and 987 Through 989
We also annually review the list of ICD-9-CM procedures that, when
in combination with their principal diagnosis code, result in
assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R.
procedure unrelated to principal diagnosis with MCC, with CC, or
without CC/MCC, respectively), and 987 through 989, to ascertain
whether any of those procedures should be reassigned from one of these
three MS-DRGs to another of the three MS-DRGs based on average charges
and the length of stay. We look at the data for trends such as shifts
in treatment practice or reporting practice that would make the
resulting MS-DRG assignment illogical. If we find these shifts, we
would propose to move cases to keep the MS-DRGs clinically similar or
to provide payment for the cases in a similar manner. Generally, we
move only those procedures for which we have an adequate number of
discharges to analyze the data.
To reiterate, our review of claims data showed that 18 MDCs were
represented in MS-DRGs 981 through 983, for a total of 4,443 cases.
There were 10 MDCs represented in MS-DRGs 984 through 986, which
contained 59 cases. In addition, our review of claims data for MS-DRGs
987 through 989 showed 1,601 cases across 17 MDCs. However, these cases
represent such disparate situations as one case of a large bowel
incision assigned to MDC 1 (Diseases and Disorders of the Nervous
System) and one case of a revision of the femoral component of a hip
replacement assigned to MDC 3 (Diseases and Disorders of the Ear, Nose,
Mouth, and Throat). We do not believe that any of these cases represent
shifts in either treatment practice or reporting practice. As these
types of cases do not represent clinical coherence, we do not believe
that the addition of these procedure codes identified in our review
would positively benefit the overall MS-DRG logic. Therefore, for FY
2011, we did not propose to move any procedure codes among these MS-
DRGs.
We did not receive any public comments on our proposal and,
therefore, are adopting it as final.
c. Adding Diagnosis or Procedure Codes to MDCs
Based on the review of cases in the MDCs as described above in
sections G.10.a. and b., we did not propose to add any diagnosis or
procedure codes to MDCs for FY 2011.
We did not receive any public comments on our proposal and,
therefore, are adopting it as final.
11. Changes to the ICD-9-CM Coding System, Including Discussion of the
Replacement of the ICD-9-CM Coding System With the ICD-10-CM and ICD-
10-PCS Systems in FY 2014
a. ICD-9-CM Coding System
As described in section II.B.1. of the preamble of this final rule,
the ICD-9-CM is a coding system currently used for the reporting of
diagnoses and procedures performed on a patient. In September 1985, the
ICD-9-CM Coordination and Maintenance Committee was formed. This is a
Federal interdepartmental committee, co-chaired by the National Center
for Health Statistics (NCHS), the Centers for Disease Control and
Prevention, and CMS, charged with maintaining and updating the ICD-9-CM
system. The Committee is jointly responsible for approving coding
changes, and developing errata, addenda, and other modifications to the
ICD-9-CM to reflect newly developed procedures and technologies and
newly identified diseases. The Committee is also responsible for
promoting the use of Federal and non-Federal educational programs and
other communication techniques with a view toward standardizing coding
applications and upgrading the quality of the classification system.
The Official Version of the ICD-9-CM contains the list of valid
diagnosis and procedure codes. (The Official Version of the ICD-9-CM is
available from the Government Printing Office on CD-ROM for $19.00 by
calling (202) 512-1800.) Complete information on ordering the CD-ROM is
also available at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/05_CDROM.asp#TopOfPage. The Official Version of the ICD-9-CM is no
longer available in printed manual form from the Federal Government; it
is only available on CD-ROM. Users who need a paper version are
referred to one of the many products available from publishing houses.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
CMS has lead responsibility for the ICD-9-CM procedure codes included
in the Tabular List and Alphabetic Index for Procedures.
The Committee encourages participation in the above process by
health-related organizations. In this regard, the Committee holds
public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding field, such
as the American Health Information Management Association (AHIMA), the
American Hospital Association (AHA), and various physician specialty
groups, as well as individual physicians, health information management
professionals, and other members of the public, to contribute ideas on
coding matters. After considering the opinions expressed at the public
meetings and in writing, the Committee formulates recommendations,
which then must be approved by the agencies.
The Committee presented proposals for coding changes for
implementation in FY 2011 at a public meeting held on September 16-17,
2009 and finalized the coding changes after consideration of comments
received at the meetings and in writing by November 20, 2009. Those
coding changes are announced in Tables 6A through 6F in the Addendum to
this final rule. The Committee held its 2010 meeting on March 9-10,
2010. New codes for which there was a consensus of public support and
for which complete tabular and indexing changes are made by May 2010
will be included in the October 1, 2010 update to ICD-9-CM. Code
revisions that were discussed at the March 9-10, 2010 Committee meeting
but that could not be finalized in time to include them in the Addendum
to the FY 2011 IPPS/LTCH PPS proposed rule are included in Tables 6A
through 6F of the Addendum to this final rule and are marked with an
asterisk (*).

[[Page 50123]]

Copies of the minutes of the procedure codes discussions at the
Committee's September 16-17, 2009 meeting and March 9-10, 2010 meeting
can be obtained from the CMS Web site at: http://cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the
diagnosis codes discussions at the September 16-17, 2009 meeting and
March 9-10, 2010 meeting are found at: http://www.cdc.gov/nchs/icd.htm.
These Web sites also provide detailed information about the Committee,
including information on requesting a new code, attending a Committee
meeting, and timeline requirements and meeting dates.
We encourage commenters to address suggestions on coding issues
involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM
Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo
Road, Hyattsville, MD 20782. Comments may be sent by e-mail to:
[email protected].
Questions and comments concerning the procedure codes should be
addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination
and Maintenance Committee, CMS, Center for Medicare Management,
Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06,
7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent
by e-mail to: [email protected].
The ICD-9-CM code changes that have been approved will become
effective October 1, 2010. The new ICD-9-CM codes are listed, along
with their MS-DRG classifications, in Tables 6A and 6B (New Diagnosis
Codes and New Procedure Codes, respectively) in the Addendum to this
final rule. As we stated above, the code numbers and their titles were
presented for public comment at the ICD-9-CM Coordination and
Maintenance Committee meetings. Both oral and written comments were
considered before the codes were approved.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23911), we
solicited comments on the proposed classification of these new codes,
which were shown in Tables 6A and 6B of the Addendum to the proposed
rule.
Comment: A few commenters supported our proposals. One commenter,
representing one of the national hospital associations, recommended
that the new codes 488.01 (Influenza due to identified avian influenza
virus with pneumonia) and 488.11 (Influenza due to identified novel
H1N1 influenza virus with pneumonia) be assigned to the pneumonia MS-
DRGs to be consistent with the MS-DRG definitions and classification of
diagnosis code 487.0 (Influenza with pneumonia).
Response: We agree with the commenters. Therefore, both codes
488.01 and 488.11 will be assigned to MS-DRGs 193 through 195 (Simple
Pneumonia with Pleurisy With MCC, Simple Pneumonia with Pleurisy With
CC, and Simple Pneumonia with Pleurisy Without CC/MCC, respectively) as
reflected in Table 6A of this final rule.
Comment: The same commenter representing one of the hospital
associations also questioned the CC designation for two new codes:
780.33 (Post traumatic seizures) and 278.03 (Obesity hypoventilation
syndrome). In the proposed rule (75 FR 24207 through 24208), both codes
were listed as non-CCs in Table 6A. The commenter pointed out that
specific seizures (convulsions) codes such as 780.31 (Febrile
convulsion (simple), unspecified) and 780.32 (Complex febrile
convulsions) are classified as a CC and to be consistent within the
classification system, code 780.33 should also be classified as a CC.
The commenter recommended further analysis for code 278.03 (Obesity
hypoventilation syndrome) to determine if this condition meets the
definition of a CC. The commenter pointed out that obesity
hypoventilation syndrome is a condition where overweight patients
cannot breathe appropriately resulting in low blood oxygen levels and
high blood carbon dioxide levels. This condition puts a strain on the
heart and lungs and may eventually lead to a more serious condition
such as heart failure or respiratory failure. This condition would have
to be closely monitored while the patient is in the hospital and may
require respiratory treatment such as CPAP, BIPAP, or even mechanical
ventilation depending on the severity of the condition. Such services
involve intensive monitoring where, for example, in an intensive care
unit, expensive and technically complex services or extensive care
requiring a greater number of caregivers is required.
Response: Our medical advisors agree with the commenter's
assessment that both codes should be classified as CCs. Therefore, we
are amending the proposed non-CC designation for both codes 788.03 and
278.03 and classifying them as CCs in Table 6A. These changes are
reflected in Table 6A in this final rule.
Comment: Several commenters addressed the MS-DRG placement of new
procedure code 35.97 (Percutaneous mitral valve repair with implant)
that was created for use beginning on October 1, 2010. The commenters
urged CMS to assign this code to the same MS-DRG as open surgery so
that higher payment would result.
Response: In addition to the MitraClip[supreg] device not yet being
FDA approved, we have no claims data on which to evaluate such a MS-DRG
assignment. However, the most important concept for denying these
requests is that the MitraClip[supreg] device is delivered
percutaneously. To assign this percutaneous procedure to MS-DRGs
utilizing an open approach would not conform to the structure of the
MS-DRGs, and disregards the concept of clinical coherence. We have no
evidence-based data with which to justify any other MS-DRG assignment
than those where the current percutaneous valve procedures are now
assigned. Therefore, procedure code 35.97 is assigned to MS-DRGs 246,
247, 248, 249, 250, and 251.
Comment: Two comments urged CMS to assign new procedure code 37.37
(Excision or destruction of other lesion or tissue of heart,
thoracoscopic approach) to MS-DRGs 228, 229, and 230 (Other
Cardiothoracic Procedure with MCC, with CC, and without CC/MCC,
respectively).
Response: CMS' practice has been, where practicable, to assign new
ICD-9-CM codes to the same MS-DRG(s) as their predecessor codes. For
this reason, procedure code 37.37 has been assigned to MS-DRGs 228,
229, and 230, as described above.
For codes that have been replaced by new or expanded codes, the
corresponding new or expanded diagnosis codes are included in Table 6A
in the Addendum to this final rule. New procedure codes are shown in
Table 6B in the Addendum to this final rule. Diagnosis codes that have
been replaced by expanded codes or other codes or have been deleted are
in Table 6C (Invalid Diagnosis Codes) in the Addendum to this final
rule. These invalid diagnosis codes will not be recognized by the
GROUPER beginning with discharges occurring on or after October 1,
2010. Table 6D in the Addendum to this final rule contains invalid
procedure codes. These invalid procedure codes will not be recognized
by the GROUPER beginning with discharges occurring on or after October
1, 2010. Revisions to diagnosis code titles are in Table 6E (Revised
Diagnosis Code Titles) in the Addendum to this final rule, which also
includes the MS-DRG assignments for these revised codes. Table 6F in
the Addendum to

[[Page 50124]]

this final rule includes revised procedure code titles for FY 2011.
In the September 7, 2001 final rule implementing the IPPS new
technology add-on payments (66 FR 46906), we indicated we would attempt
to include proposals for procedure codes that would describe new
technology discussed and approved at the Spring meeting as part of the
code revisions effective the following October. As stated previously,
ICD-9-CM codes discussed at the March 9-10, 2010 Committee meeting that
receive consensus and that were finalized by May 2010 are included in
Tables 6A through 6F in the Addendum to this final rule.
Section 503(a) of Public Law 108-173 included a requirement for
updating ICD-9-CM codes twice a year instead of a single update on
October 1 of each year. This requirement was included as part of the
amendments to the Act relating to recognition of new technology under
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by
adding a clause (vii) which states that the ``Secretary shall provide
for the addition of new diagnosis and procedure codes on April 1 of
each year, but the addition of such codes shall not require the
Secretary to adjust the payment (or diagnosis-related group
classification) * * * until the fiscal year that begins after such
date.'' This requirement improves the recognition of new technologies
under the IPPS system by providing information on these new
technologies at an earlier date. Data will be available 6 months
earlier than would be possible with updates occurring only once a year
on October 1.
While section 1886(d)(5)(K)(vii) of the Act states that the
addition of new diagnosis and procedure codes on April 1 of each year
shall not require the Secretary to adjust the payment, or DRG
classification, under section 1886(d) of the Act until the fiscal year
that begins after such date, we have to update the DRG software and
other systems in order to recognize and accept the new codes. We also
publicize the code changes and the need for a mid-year systems update
by providers to identify the new codes. Hospitals also have to obtain
the new code books and encoder updates, and make other system changes
in order to identify and report the new codes.
The ICD-9-CM Coordination and Maintenance Committee holds its
meetings in the spring and fall in order to update the codes and the
applicable payment and reporting systems by October 1 of each year.
Items are placed on the agenda for the ICD-9-CM Coordination and
Maintenance Committee meeting if the request is received at least 2
months prior to the meeting. This requirement allows time for staff to
review and research the coding issues and prepare material for
discussion at the meeting. It also allows time for the topic to be
publicized in meeting announcements in the Federal Register as well as
on the CMS Web site. The public decides whether or not to attend the
meeting based on the topics listed on the agenda. Final decisions on
code title revisions are currently made by March 1 so that these titles
can be included in the IPPS proposed rule. A complete addendum
describing details of all changes to ICD-9-CM, both tabular and index,
is published on the CMS and NCHS Web sites in May of each year.
Publishers of coding books and software use this information to modify
their products that are used by health care providers. This 5-month
time period has proved to be necessary for hospitals and other
providers to update their systems.
A discussion of this timeline and the need for changes are included
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance
Committee minutes. The public agreed that there was a need to hold the
fall meetings earlier, in September or October, in order to meet the
new implementation dates. The public provided comment that additional
time would be needed to update hospital systems and obtain new code
books and coding software. There was considerable concern expressed
about the impact this new April update would have on providers.
In the FY 2005 IPPS final rule, we implemented section
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law
108-173, by developing a mechanism for approving, in time for the April
update, diagnosis and procedure code revisions needed to describe new
technologies and medical services for purposes of the new technology
add-on payment process. We also established the following process for
making these determinations. Topics considered during the Fall ICD-9-CM
Coordination and Maintenance Committee meeting are considered for an
April 1 update if a strong and convincing case is made by the requester
at the Committee's public meeting. The request must identify the reason
why a new code is needed in April for purposes of the new technology
process. The participants at the meeting and those reviewing the
Committee meeting summary report are provided the opportunity to
comment on this expedited request. All other topics are considered for
the October 1 update. Participants at the Committee meeting are
encouraged to comment on all such requests. There were no requests
approved for an expedited April l, 2010 implementation of an ICD-9-CM
code at the September 16-17, 2009 Committee meeting. Therefore, there
were no new ICD-9-CM codes implemented on April 1, 2010.
Current addendum and code title information is published on the CMS
Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along
with the Official ICD-9-CM Coding Guidelines, can be found on the Web
site at: http://www.cdc.gov/nchs/icd9.htm. Information on new, revised,
and deleted ICD-9-CM codes is also provided to the AHA for publication
in the Coding Clinic for ICD-9-CM. AHA also distributes information to
publishers and software vendors.
CMS also sends copies of all ICD-9-CM coding changes to its
Medicare contractors for use in updating their systems and providing
education to providers.
These same means of disseminating information on new, revised, and
deleted ICD-9-CM codes will be used to notify providers, publishers,
software vendors, contractors, and others of any changes to the ICD-9-
CM codes that are implemented in April. The code titles are adopted as
part of the ICD-9-CM Coordination and Maintenance Committee process.
Thus, although we publish the code titles in the IPPS proposed and
final rules, they are not subject to comment in the proposed or final
rules. We will continue to publish the October code updates in this
manner within the IPPS proposed and final rules. For codes that are
implemented in April, we will assign the new procedure code to the same
MS-DRG in which its predecessor code was assigned so there will be no
MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates
will be available through the Web sites indicated above and through the
Coding Clinic for ICD-9-CM. Publishers and software vendors currently
obtain code changes through these sources in order to update their code
books and software systems. We will strive to have the April 1 updates
available through these Web sites 5 months prior to implementation
(that is, early November of the previous year), as is the case for the
October 1 updates.
b. Code Freeze
The International Classification of Diseases, 10th Revision (ICD-
10) coding system applicable to hospital inpatient

[[Page 50125]]

services will be implemented on October 1, 2013, as described in the
Health Insurance Portability and Accountability Act (HIPAA)
Administrative Simplification: Modifications to Medical Data code Set
Standards to Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328
through 3362, January 16, 2009). The ICD-10 coding system includes the
International Classification of Diseases, 10th Revision, Clinical
Modification (ICD-10-CM) for diagnosis coding and the International
Classification of Diseases, 10th Revision, Procedure Coding System
(ICD-10-PCS) for inpatient hospital procedure coding, as well as the
Official ICD-10-CM and ICM-10-PCS Guidelines for Coding and Reporting.
In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328
through 3362), there was a discussion of the need for a partial or
total freeze in the annual updates to both ICD-9-CM and ICD-10-CM and
ICD-10-PCS codes. The public comment addressed in that final rule
stated that the annual code set updates should cease l year prior to
the implementation of ICD-10. The commenters stated that this freeze of
code updates would allow for instructional and/or coding software
programs to be designed and purchased early, without concern that an
upgrade would take place immediately before the compliance date,
necessitating additional updates and purchases.
We responded to comments in the ICD-10 final rule that the ICD-9-CM
Coordination and Maintenance Committee has jurisdiction over any action
impacting the ICD-9-CM and ICD-10 code sets. Therefore, the issue of
consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM,
and ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM
and ICD-10-PCS would be addressed through the Committee at a future
public meeting.
At the March 11-12, 2009 ICD-9-CM Coordination and Maintenance
Committee meeting, the public was notified that there would be a
discussion of whether there was a need to freeze updates to ICD-9-CM
and/or ICD-10-CM and ICD-10-PCS prior to the implementation of ICD-10.
The audience was asked to consider this issue and be prepared to
discuss the topic at the September 16-17, 2009 ICD-9-CM Coordination
and Maintenance Committee meeting. Advance written comments on this
topic were welcomed. The first part of the meeting was devoted to this
topic.
CMS received comments in advance of the meeting. CMS staff
summarized these advanced comments at the meeting as follows:
No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2010 (36
months for implementation activities without annual code updates). This
approach involves updating ICD-9-CM and ICD-10 codes on October 1,
2010, and not updating them again until after ICD-10 implementation on
October 1, 2013. The commenters mentioned the extensive work needed to
prepare for the transition to ICD-10 which will affect vendors, payers,
providers, trainers, clearinghouses, and all claims handling
organizations. The commenters stated that the 36 months between the
last ICD-9-CM and ICD-10 updates on October 1, 2010 and the
implementation of ICD-10 on October 1, 2013, were necessary to prepare
and train for the transition.
No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2011 (24
months for implementation activities without annual code updates). This
approach involves updating ICD-9-CM and ICD-10 codes on October 1,
2011, and not updating them again until after ICD-10 implementation on
October 1, 2013. The commenters raised similar concerns to those
mentioned above. The commenters stated that, if codes continue to
change, the changes would make it difficult for vendors, payers, and
providers to be ready and for coder training to be successful. One
commenter suggested that a provision be developed to perform limited
annual updates to capture new technologies or new diagnoses.
No ICD-10-CM/PCS updates beginning October 1, 2012 but continue
annual updates to ICD-9-CM. This commenter supported annual updates to
ICD-9-CM to capture advances in medical science. However, the commenter
supported a freeze of ICD-10 beginning October 1, 2012, to give the
industry time to update systems and prepare for ICD-10 implementation.
No ICD-10 updates on October 1, 2012, but update ICD-9-CM without
interruption. (No period for implementation activities without annual
code updates.) The commenter recommended no ICD-10 updates on October
1, 2012, but then updating ICD-10 again on October 1, 2013. The
commenter recommended updating ICD-9-CM continuously through a final
update on October 1, 2012. The commenter stated that having a two or
three year gap between updating the code books would lead to a loss of
data. The commenter stated that there is a need to retain the ability
to update the code books to capture conditions such as Swine flu.
Update both ICD-9-CM and ICD-10-CM/PCS annually through October 1,
2013 (no period for implementation activities without annual code
updates). The commenter stated that codes should not be frozen prior to
the implementation of ICD-10. The commenter stated that freezing the
updates would inhibit the recognition of new technologies.
Many of the commenters suggested a resumption of updates to ICD-10-
CM and ICD-10-PCS beginning on October 1, 2014. However, one commenter
suggested annual updates of ICD-10-CM and ICD-10-PCS without
interruptions, including on October 1, 2013.
The topic was then opened for public discussion at the Committee
meeting. CMS received a variety of comments from the participants that
mirrored the advance written comments. These comments ranged from those
supporting a complete freeze for both coding systems to those who
recommended that both coding systems continue to be updated annually
prior to ICD-10 implementation. There were also many comments that
supported a more limited update process beginning on October 1, 2011,
or October 1, 2012, which would allow only a small number of new codes
to capture new technologies or new diseases. A number of commenters
pointed out that section 503(a) of Public Law 108-173 included a
requirement for updating ICD-9-CM codes twice a year to capture new
technologies. The commenters stated that CMS must make a provision to
capture new technologies despite any requests to freeze code updates.
Commenters voiced concerns about the impact on vendors creating new
ICD-10 products when both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes
were extensively updated on an annual basis. Commenters stated that
vendors and educators were reluctant to begin ICD-10 products and
training materials until there was a period of stability without
extensive annual updates. Some commenters stated that it was important
for physician offices to have time to prepare for the implementation of
ICD-10. Reducing the annual ICD-9-CM and ICD-10 annual updates would be
helpful to physician offices.
Other commenters stated that it was important to update codes
annually so that information on new diseases and technologies can be
captured. These commenters stated that vendors, providers, system
maintainers, and coders were used to annual code updates, and that they
should continue.
One commenter requested that ICD-10-CM codes be frozen on October
1,

[[Page 50126]]

2011 so that ICD-10-CM codes could be coordinated with the Diagnostic
and Statistical Manual of Mental Disorders (DSM), Fifth Edition. The
commenter stated that the American Psychiatric Association plans to
publish the fifth edition in 2012. Updates to ICD-10-CM on or after
October 1, 2011, would disrupt those plans.
One commenter suggested an approach that would greatly reduce the
number of updates and provide more stability in the coding systems
during the implementation period. This commenter suggested that the
large, regular code updates on ICD-9-CM be discontinued beginning on
October 1, 2011, or October 1, 2012. The commenter suggested that CMS
and CDC raise the bar for new code requests at that time and only
consider requests for new codes that clearly describe a new technology
or a new disease. The commenter stated that this may lead to the
creation of some new procedure codes which do not ultimately receive
FDA approval, as is the case now.
CMS and CDC have carefully reviewed the comments received at the
ICD-9-CM Coordination and Maintenance Committee meeting as well as the
written comments submitted. Most commenters proposed a limited freeze
on code updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS code
sets, with an exception made for adding codes for new technologies and
diseases. Providing this exception would comply with section 503(a) of
Public Law 108-173, which, as previously stated, includes a requirement
for updating ICD-9-CM codes twice a year to capture new technologies.
There was support for making the last regular update on October 1,
2011. The commenters recommended that the ICD-9-CM Coordination and
Maintenance Committee continue to discuss any new code updates for both
coding systems. However, new codes would only be added to ICD-9-CM or
ICD-10 to capture new technologies, as required by section 503(a) of
Public Law 108-173. Other coding issues raised would be held for
consideration after ICD-10 is implemented.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23913), we
solicited additional input on this subject, especially in light of the
requirements on hospitals for meaningful use of electronic health
records. We welcomed public comments that explore whether a freeze is
needed to help with adoption of health IT, given other priorities such
as achievement of meaningful use and implementation of ICD-10 by FY
2013. We welcomed input on having the last regular, annual update to
both ICD-9-CM and ICD-10 be made on October 1, 2011. On October 1,
2012, there would be only limited code updates to both the ICD-9-CM and
ICD-10 coding systems to capture new technologies and diseases. On
October 1, 2013, there would be only limited code updates to ICD-10 to
capture new technologies and diagnoses. Any other issues raised would
be considered for implementation in ICD 10 on October 1, 2014, a year
after ICD-10 is implemented. We agree with commenters that there is a
need to provide the provider, payer, and vendor community time to
prepare for the implementation of ICD-10 and the accompanying system
and product updates. The vendor community is especially interested in
providing a more stable code set for ICD-10 while they are developing
new products.
Comment: A number of commenters supported the recommendation that
the last regular update to ICD-9-CM and ICD-10-CM/PCS be implemented on
October 1, 2011, with only limited code updates to both ICD-9-CM and
ICD-10-CM/PCS on October 1, 2012, to capture new technologies and
procedures as well as new diseases. Commenters stated that successful
implementation of ICD-10 will require significant planning, education,
and systems modifications. Continuing regular updates to ICD-9-CM and
ICD-10-CM/PCS would make the implementation of these new coding systems
more costly and complex. The commenters recommended that updates
occurring on October 1, 2012, be limited to proposals for urgently
needed codes. They stated that such proposals should make a ``clear and
convincing'' case to the ICD-9-CM Coordination and Maintenance
Committee, including public comment as to why the proposal cannot wait
for the next regularly scheduled updates. An example of the emergence
of a new disease such as H1N1 influenzas was provided.
Several commenters who supported the limited freeze stated that, by
accommodating the process for the capture of new technologies and
disease during this period, CMS is not only in compliance with section
503(a) of Public Law 108-173 requirements for new technology, but also
anticipates that new diagnosis codes may be needed to capture new
diseases, as we have seen with the Avian and H1N1 influenzas. The
commenters called this a thoughtful approach which should allow the
freeze of code sets while still accommodating new codes for new
technologies and procedures as well as urgent needs to capture new
diseases. Several commenters also stated that most practicing
physicians and their staff have not had sufficient opportunity to
become familiar with ICD-10-CM. They believed that this freeze will
allow physicians and physician specialty groups a better opportunity to
become familiar with the codes common to their specialty prior to the
implementation of ICD-10. Other comments who supported the
recommendations for a limited code freeze recommended that CMS and CDC
develop strict criteria that a code proposal must meet in order to
qualify for the limited update during the freeze period.
Several commenters recommended that there be no updates to ICD-10-
CM/PCS on October 1, 2013, unless absolutely necessary. They indicated
that an example of an urgent need was that of a pandemic that could not
be otherwise reported with existing codes. The commenters stated that
they understood the statutory requirements for add-on payments for new
technology under the inpatient payment system, and urged CMS to
consider alternative solutions to recognize such new technologies.
Other commenters opposed any ICD-10 code updates on October 1, 2013.
The commenters stated that a total freeze was needed on October 1,
2013, to enable users of the classification system the opportunity to
prepare for ICD-10.
One commenter who strongly supported the limited freeze offered an
example of the possible impact of not pursuing a code freeze would have
on its organization. This organization is currently working with
clients to complete the necessary software updates for the adoption of
ICD-10 by early next year. Based on its analysis, the work is not
confined to systems but also involves coding and billing activities for
healthcare claims. The commenter stated that there would be an impact
on physician documentation, problem lists, decision support,
laboratory, emergency department, radiology, nursing, scheduling,
registration management, and other internal systems. The commenter
opined that, by continuing regular code updates without a freeze, they
would have to rework activities and spend cycle time doing maintenance
updates to software and content updates they had already performed to
include additional annual code updates. The ICD-10 updates they make
will need to be tested and maintenance activities performed to build
the necessary reference data to support production adoption of ICD-10.
One commenter strongly opposed the partial freeze for FY 2012. The

[[Page 50127]]

commenter stated that accurate, specific code assignment is a
prerequisite for accurate physician and hospital profiling and value-
based purchasing. The commenter stated that ICD-10-CM is an imperfect
system and that refinements to ICD-9-CM should be carried over to ICD-
10 prior to its implementation date of October 1, 2013. The commenter
urged CMS to continue to work on refining ICD-10. Another commenter
opposed any freeze of ICD-9-CM or ICD-10 codes. The commenter stated
that codes should continue to be updated as usual each year so that
physician and hospital efficiency can be more accurately measured with
accurate codes.
Several commenters supported the limited freeze, but requested that
the last regular code updates be on October 1, 2012, instead of 2011.
The commenters stated that a 3-year freeze from October 1, 2011 through
October 1, 2014 was overly long.
Response: We will review all comments received on the partial
freeze as part of the ICD-9-CM Coordination and Maintenance Committee
process as well as these additional comments received and summarized
above. A final decision on whether or not there will be a partial code
freeze will be announced at the September 15-16, 2010 ICD-9-CM
Coordination and Maintenance Committee. An agenda for this meeting will
be posted on the CMS Web site by mid-August 2010 at http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
We believe that this advance notice of a partial code freeze
provides the health care industry ample time to request last major code
updates to ICD-9-CM and ICD-10, which could be discussed at the
September 15-16, 2010 and the March 2011 ICD-9-CM Coordination and
Maintenance Committee meeting. Codes discussed at these two meetings
would be considered for the final major code updates on October 1,
2011. Any code issues raised after that time would be addressed at the
ICD-9-CM Coordination and Maintenance Committee meetings in September
2011 through March 2013 to determine if they represented new
technologies or new diseases. Any new technologies and diseases would
be added during the regular annual updates. Other code requests would
be held for implementation on October 1, 2014.
We welcome additional input on having the last regular code updates
to ICD-9-CM and ICD-10 on October 1, 2011, and to only add codes for
new technologies and diseases on October 1, 2012 and 2013. We also
welcome additional input on having the next regular update to ICD-10
occur again on October 1, 2014.
Information on ICD-10 can be found on the CMS Web site at: http://www.cms.hhs.gov/ICD10. The final ICD-10 version of MS-DRGs would be
adopted under the formal rulemaking process as part of our annual IPPS
updates.
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital
Inpatient Claims
We have received repeated requests from the hospital community to
process all 25 diagnosis codes and 25 procedure codes submitted on
electronic hospital inpatient claims. Hospitals can submit up to 25
diagnoses and 25 procedures; however, CMS' current system limitations
allow for the processing of only the first 9 diagnoses and 6
procedures. While CMS accepts all 25 diagnoses and 25 procedures
submitted on the claims, we do not process all of the codes because of
these system limitations. We recognize that much valuable information
is lost by not processing the additional diagnosis and procedure codes
that are reported by hospitals.
We responded to hospitals' requests that we process up to 25
diagnosis codes and 25 procedure codes in the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43798). In that final rule, we referred readers
to the ICD-10 final rule (74 FR 3328 through 3362) where we discuss the
updating of Medicare systems prior to the implementation of ICD-10 on
October 1, 2013. We mentioned that part of the system updates in
preparation for ICD-10 is the ``expansion of our ability to process
more diagnosis and procedure codes.'' In the FY 2009 IPPS final rule
(73 FR 48433 through 48444), we also responded to multiple requests to
increase the number of codes processed from 9 diagnosis and 6 procedure
codes to 25 diagnosis and 25 procedure codes.
CMS is currently undergoing extensive system updates as part of the
move to 5010, which includes the ability to accept ICD-10 codes. This
complicated transition involves converting many internal systems prior
to October 1, 2013, when ICD-10 will be implemented. One important step
in this planned conversion process is the expansion of our ability to
process additional diagnosis and procedure codes. We are currently
planning to complete the expansion of this internal system capability
so that we are able to process up to 25 diagnoses and 25 procedures on
hospital inpatient claims as part of the HIPPA ASC X12 Technical
Reports Type 3, Version 005010 (Version 5010) standards system update.
CMS will be able to process up to 25 diagnosis codes and 25 procedure
codes when received on the 5010 format starting on January 1, 2011. We
recognize the value of the additional information provided by this
coded data for multiple uses such as for payment, quality measures,
outcome analysis, and other important uses. We will continue to pursue
this additional processing capacity as aggressively as possible in
response to the multiple requests from the hospital industry. We
appreciate the support of the health care community for this extensive
system update process that will allow us to process more of this
important data. Therefore, for claims submitted on the 5010 format
beginning January 1, 2011, we will increase the capacity to process
diagnosis and procedure codes on hospital inpatient claims from the
current 9 diagnoses and 6 procedures up to 25 diagnoses and 25
procedures.
Comment: Several commenters commended CMS on its plans to accept
and process up to 25 diagnoses and 25 procedures on hospital inpatient
claims submitted on the 5010 format beginning January 1, 2011. One
commenter expressed appreciation for CMS' recognition that a complete
picture of patients' clinical conditions and procedures is necessary in
order to accurately measure quality, analyze outcomes, assess severity
of illness, and determine reimbursement.
Response: We appreciate the support for our plan to accept and
process up to 25 diagnoses and 25 procedures on hospital inpatient
claims submitted on the 5010 format beginning January 1, 2011. We will
keep the providers updated on our progress in this activity.
ICD-10 MS-DRGs
We received comments on the creation of the ICD-10 version of the
MS-DRGs, which will be implemented on October 1, 2013 (FY 2014) when we
implement the reporting of ICD-10 codes. While we did not propose an
ICD-10 version of the MS-DRGs, CMS has been actively involved in
converting our current MS-DRGs from ICD-9-CM codes to ICD-10 codes and
sharing this information through the ICD-9-CM Coordination and
Maintenance Committee. CMS undertook this early conversion project to
assist other payers and providers in understanding how to go about
their own conversion projects. We posted ICD-10 MS-DRGs based on V26.0
(FY 2009) of the MS-DRGs. We also posted a paper that describes how CMS
went about completing this project and suggestions for others to
follow. All of this information can be found on our Web site at: http:/
/www.cms.gov/ICD10/

[[Page 50128]]

17--ICD10--MS--DRG--Conversion--Project.asp. We will continue to keep
the public updated on our maintenance efforts for ICD-10-CM and ICD-10-
PCS coding systems as well as the General Equivalence Mappings that
assist in conversion through the ICD-9-CM Coordination and Maintenance
Committee. Information on these committee meetings can be found at:
http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
Comment: Several commenters recommended that the ICD-10 MS-DRG
GROUPER logic be available no later than the FY 2013 rulemaking period,
with an extended public comment period in order to allow providers
sufficient time to analyze and model the proposed MS-DRG groupings
prior to its implementation on October 1, 2013.
Response: CMS initiated early efforts to convert the MS-DRGs from
ICD-9-CM codes to ICD-10 codes. As discussed earlier, the public was
informed of this project through the ICD-9-CM Coordination and
Maintenance Committee. Summary reports of those meetings where this
ICD-10 conversion of MS-DRGs took place can be found at http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. Currently, we
have Version 26.0 of the ICD-10 MS-DRGs posted for public review.
During FY 2011, we will post Version 28.0 of the ICD-10 MS-DRGS based
on the FY 2011 MS-DRGs (Version 28.0) that we are finalizing in this
final rule. This ICD-10 MS-DRG Version 28.0 will also include the CC
Exclusion List, which was not posted with Version 26.0. We will be
discussing this update at the September 15-16, 2010 ICD-9-CM
Coordination and Maintenance Committee Meeting. A complete agenda for
this meeting will be posted in mid-August 2010 at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The registration site for
the meeting will open on August 13, 2010. We will continue to work with
the public to explain how we are approaching the conversion of MS-DRGs
to ICD-10 and will post drafts of updates as they are developed for
public review. The final version of the ICD-10 MS-DRGs to be
implemented in FY 2014 will be subject to notice and comment
rulemaking. In the meantime, we will provide extensive and detailed
information on this activity through the ICD-9-CM Coordination and
Maintenance Committee.
12. Other Issues Not Addressed in the Proposed Rule
We received a number of public comments on issues that were not
within the scope of the proposals in the FY 2011 IPPS/LTCH PPS proposed
rule.
a. Rechargeable Dual Array Deep Brain Stimulation System
We received a public comment requesting that CMS assign the
combination of procedure codes representing rechargeable systems for
deep brain stimulation therapy, code 02.93 (Implantation or replacement
of intracranial neurostimulator lead(s)), and code 86.98 (Insertion or
replacement of dual array rechargeable neurostimulator pulse generator)
to MS-DRGs 023 and 024 (Craniotomy with Major Device Implant/Acute
Complex CNS PDX with MCC or Chemo Implant and Craniotomy with Major
Device Implant/Acute Complex CNS PDX without MCC, respectively). The
commenter stated that this would allow all full system dual array deep
brain stimulation cases to be appropriately grouped to the same MS-
DRGs. The commenter stated that the procedures to implant the
rechargeable and nonrechargeable dual array systems are similar
clinically and with respect to resource utilization. Currently, codes
02.93 and 86.98 are assigned to MS-DRGs 025 through 027 (Craniotomy and
Endovascular Intracranial Procedures with MCC, Craniotomy and
Endovascular Intracranial Procedures with CC, and Craniotomy and
Endovascular Intracranial Procedures without MCC/CC, respectively).
This comment is outside the scope of the FY 2011 IPPS/LTCH PPS
proposed rule, as we did not propose any changes to MS-DRGs 023 and 024
for rechargeable systems for deep brain stimulation therapy. Therefore,
we are not addressing this issue for FY 2011. As we stated in FY 2011
IPPS/LTCH PPS proposed rule (75 FR 23864), we encourage individuals
with comments about MS-DRG classifications to submit these comments no
later than early December of each year so they can be carefully
considered for possible inclusion in the annual proposed rule and, if
included, may be subject to public review and comment.
b. IntraOperative Electron RadioTherapy (IOERT)
We received a public comment requesting that CMS update the MS-DRG
mapping assignments for procedure code 92.41 (Intra-operative electron
radiation therapy) to ensure the cost of this technology is captured in
each MS-DRG involving tumor removal in the rectum, head/neck, pancreas,
lung, genitourinary, soft tissue, and breast. IntraOperative Electron
RadioTherapy (IOERT) is the direct application of radiation to a tumor
and/or tumor bed while the patient is undergoing surgery for cancer.
Currently, this code is not assigned to a specific MS-DRG.
This comment is outside the scope of the FY 2011 IPPS/LTCH PPS
proposed rule, as we did not propose any changes to the MS-DRG for
IOERT. We refer the commenter to section II.B.2 of the proposed rule
(75 FR 23864) where we discuss the timeline for submission of comments
about MS-DRG classifications.
c. Brachytherapy
We received a public comment requesting that CMS assign procedure
code 92.27 (Implantation or insertion of radioactive elements) to
various MS-DRGs where the use of brachytherapy sources has been
expanded. In addition, it was recommended that appropriate separate
payment for the brachytherapy sources be allowed so that hospitals may
be reimbursed appropriately for the unique source cost per patient.
Brachytherapy, also called seed implantation, involves placing
radioactive sources in or near the tumor either as a permanent or
temporary implant.
This comment is outside the scope of the FY 2011 IPPS/LTCH PPS
proposed rule, as we did not propose any changes to the MS-DRG for
brachytherapy. We refer the commenter to section II.B.2 of the proposed
rule (75 FR 23864) where we discuss the timeline for submission of
comments about MS-DRG classifications.
d. Excisional Debridement
We received a public comment recommending that procedure code 86.22
(Excisional debridement of wound, infection, or burn) be reclassified
from an OR procedure to a non-OR procedure. The commenter stated that
many excisional debridements are not performed in the operating room
setting, but instead are done in wound clinics, physician offices, and
in patient rooms. The commenter interpreted the classification of code
86.22 to be that of a proxy for severity of illness before MS-DRGs were
implemented. With the more serious pressure ulcers, Stages 3 and 4,
being classified as MCCs, according to the commenter, the need to
classify code 86.22 as an OR is no longer necessary.
This comment is outside the scope of the FY 2011 IPPS/LTCH PPS
proposed rule, as we did not propose any changes for excisional
debridement. We refer the commenter to section II.B.2 of the proposed
rule (75 FR 23864) where we discuss the timeline for submission of

[[Page 50129]]

comments about MS-DRG classifications.

H. Recalibration of MS-DRG Weights

As we proposed, in developing the FY 2011 system of weights, we
used two data sources: Claims data and cost report data. As in previous
years, the claims data source is the MedPAR file. This file is based on
fully coded diagnostic and procedure data for all Medicare inpatient
hospital bills. The FY 2009 MedPAR data used in this final rule include
discharges occurring on October 1, 2008, through September 30, 2009,
based on bills received by CMS through March 31, 2010, from all
hospitals subject to the IPPS and short-term, acute care hospitals in
Maryland (which are under a waiver from the IPPS under section
1814(b)(3) of the Act). The FY 2009 MedPAR file used in calculating the
proposed relative weights includes data for approximately 10,898,371
Medicare discharges from IPPS providers. Discharges for Medicare
beneficiaries enrolled in a Medicare Advantage managed care plan are
excluded from this analysis. The data exclude CAHs, including hospitals
that subsequently became CAHs after the period from which the data were
taken. The second data source used in the cost-based relative weighting
methodology is the FY 2008 Medicare cost report data files from HCRIS
(that is, cost reports beginning on or after October 1, 2007, and
before October 1, 2008), which represents the most recent full set of
cost report data available. We used the March 31, 2010 update of the
HCRIS cost report files for FY 2008 in setting the relative cost-based
weights.
The methodology we used to calculate the DRG cost-based relative
weights from the FY 2009 MedPAR claims data and FY 2008 Medicare cost
report data is as follows:
To the extent possible, all the claims were regrouped
using the proposed FY 2011 MS-DRG classifications discussed in sections
II.B. and G. of the preamble of this final rule.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively)
were limited to those Medicare-approved transplant centers that have
cases in the FY 2009 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those
facilities that have received approval from CMS as transplant centers.)
Organ acquisition costs for kidney, heart, heart-lung,
liver, lung, pancreas, and intestinal (or multivisceral organs)
transplants continue to be paid on a reasonable cost basis. Because
these acquisition costs are paid separately from the prospective
payment rate, it is necessary to subtract the acquisition charges from
the total charges on each transplant bill that showed acquisition
charges before computing the average cost for each MS-DRG and before
eliminating statistical outliers.
Claims with total charges or total lengths of stay less
than or equal to zero were deleted. Claims that had an amount in the
total charge field that differed by more than $10.00 from the sum of
the routine day charges, intensive care charges, pharmacy charges,
special equipment charges, therapy services charges, operating room
charges, cardiology charges, laboratory charges, radiology charges,
other service charges, labor and delivery charges, inhalation therapy
charges, emergency room charges, blood charges, and anesthesia charges
were also deleted.
At least 96.1 percent of the providers in the MedPAR file
had charges for 10 of the 15 cost centers. Claims for providers that
did not have charges greater than zero for at least 10 of the 15 cost
centers were deleted.
Statistical outliers were eliminated by removing all cases
that were beyond 3.0 standard deviations from the mean of the log
distribution of both the total charges per case and the total charges
per day for each MS-DRG.
Effective October 1, 2008, because hospital inpatient
claims include a POA indicator field for each diagnosis present on the
claim, only for purposes of relative weight-setting, the POA indicator
field was reset to ``Y'' for ``Yes'' for all claims that otherwise have
an ``N'' (No) or a ``U'' (documentation insufficient to determine if
the condition was present at the time of inpatient admission) in the
POA field.
Under current payment policy, the presence of specific HAC codes,
as indicated by the POA field values, can generate a lower payment for
the claim. Specifically, if the particular condition is present on
admission (that is, a ``Y'' indicator is associated with the diagnosis
on the claim), then it is not a HAC, and the hospital is paid for the
higher severity (and, therefore, the higher weighted MS-DRG). If the
particular condition is not present on admission (that is, an ``N''
indicator is associated with the diagnosis on the claim) and there are
no other complicating conditions, the DRG GROUPER assigns the claim to
a lower severity (and, therefore, the lower weighted MS-DRG) as a
penalty for allowing a Medicare inpatient to contract a HAC. While the
POA reporting meets policy goals of encouraging quality care and
generates program savings, it presents an issue for the relative
weight-setting process. Because cases identified as HACs are likely to
be more complex than similar cases that are not identified as HACs, the
charges associated with HACs are likely to be higher as well. Thus, if
the higher charges of these HAC claims are grouped into lower severity
MS-DRGs prior to the relative weight-setting process, the relative
weights of these particular MS-DRGs would become artificially inflated,
potentially skewing the relative weights. In addition, we want to
protect the integrity of the budget neutrality process by ensuring
that, in estimating payments, no increase to the standardized amount
occurs as a result of lower overall payments in a previous year that
stem from using weights and case-mix that are based on lower severity
MS-DRG assignments. If this would occur, the anticipated cost savings
from the HAC policy would be lost.
To avoid these problems, we reset the POA indicator field to ``Y''
only for relative weight-setting purposes for all claims that otherwise
have a ``N'' or an ``U'' in the POA field. This resetting ``forced''
the more costly HAC claims into the higher severity MS-DRGs as
appropriate, and the relative weights calculated for each MS-DRG more
closely reflect the true costs of those cases.
Once the MedPAR data were trimmed and the statistical outliers were
removed, the charges for each of the 15 cost groups for each claim were
standardized to remove the effects of differences in area wage levels,
IME and DSH payments, and for hospitals in Alaska and Hawaii, the
applicable cost-of-living adjustment. Because hospital charges include
charges for both operating and capital costs, we standardized total
charges to remove the effects of differences in geographic adjustment
factors, cost-of-living adjustments, and DSH payments under the capital
IPPS as well. Charges were then summed by MS-DRG for each of the 15
cost groups so that each MS-DRG had 15 standardized charge totals.
These charges were then adjusted to cost by applying the national
average CCRs developed from the FY 2008 cost report data.
The 15 cost centers that we used in the relative weight calculation
are shown in the following table. The table shows the lines on the cost
report and the corresponding revenue codes that

[[Page 50130]]

we used to create the 15 national cost center CCRs.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR16AU10.022

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[GRAPHIC] [TIFF OMITTED] TR16AU10.024

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[GRAPHIC] [TIFF OMITTED] TR16AU10.028

BILLING CODE 4120-01-C
We developed the national average CCRs as follows:
Taking the FY 2008 cost report data, we removed CAHs, Indian Health
Service hospitals, all-inclusive rate hospitals, and cost reports that
represented time periods of less than 1 year (365 days). We included
hospitals located in Maryland as we are including their charges in our
claims database. We then created CCRs for each provider for each cost
center (see prior table for line items used in the calculations) and
removed any CCRs that were greater than 10 or less than 0.01. We
normalized the departmental CCRs by dividing the CCR for each
department by the total CCR for the hospital for the purpose of
trimming the data. We then took the logs of the normalized cost center
CCRs and removed any cost center CCRs where the log of the cost center
CCR was greater or less than the mean log plus/minus 3 times the
standard deviation for the log of that cost center CCR. Once the cost
report data were trimmed, we calculated a Medicare-specific CCR. The
Medicare-specific CCR was determined by taking the Medicare charges for
each line item from Worksheet D-4 and deriving the Medicare-specific
costs by applying the hospital-specific departmental CCRs to the
Medicare-specific charges for each line item from Worksheet D-4. Once
each hospital's Medicare-specific costs were established, we summed the
total Medicare-specific costs and divided by the sum of the total
Medicare-specific charges to produce national average, charge-weighted
CCRs.
After we multiplied the total charges for each MS-DRG in each of
the 15 cost centers by the corresponding national average CCR, we
summed the 15 ``costs'' across each MS-DRG to produce a total
standardized cost for the MS-DRG. The average standardized cost for
each MS-DRG was then computed as the total standardized cost for the
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The
average cost for each MS-DRG was then divided by the national average
standardized cost per case to determine the relative weight.
The new cost-based relative weights were then normalized by an
adjustment factor of 1.57489 so that the average case weight after
recalibration was equal to the average case weight before
recalibration. The normalization adjustment is intended to ensure that
recalibration by itself neither increases nor decreases total payments
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
The 15 national average CCRs for FY 2011 are as follows:

------------------------------------------------------------------------
Group CCR
------------------------------------------------------------------------
Routine Days.................................................. 0.539
Intensive Days................................................ 0.473
Drugs......................................................... 0.202
Supplies & Equipment.......................................... 0.345
Therapy Services.............................................. 0.403
Laboratory.................................................... 0.155
Operating Room................................................ 0.272
Cardiology.................................................... 0.169
Radiology..................................................... 0.152
Emergency Room................................................ 0.263
Blood and Blood Products...................................... 0.415
Other Services................................................ 0.416
Labor & Delivery.............................................. 0.470
Inhalation Therapy............................................ 0.200
Anesthesia.................................................... 0.128
------------------------------------------------------------------------

Since FY 2009, the relative weights have been based on 100 percent
cost weights based on our MS-DRG grouping system.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. In the FY 2011 IPPS/LTCH PPS proposed rule
(75 FR 23922), we proposed to use that same case threshold in
recalibrating the MS-DRG weights for FY 2011. Using the FY 2009 MedPAR
data set, there are 8 MS-DRGs that contain fewer than 10 cases. Under
the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs
because we no longer have separate DRGs for patients age 0 to 17 years.
With the exception of newborns, we previously separated some DRGs based
on whether the patient was age 0 to 17 years or age 17 years and older.
Other than the age split, cases grouping to these DRGs are identical.
The DRGs for patients age 0 to 17 years generally have very low volumes
because children are typically ineligible for Medicare. In the past, we
have found that the low volume of cases for the pediatric DRGs could
lead to significant year-to-year instability in their relative weights.
Although we have always encouraged non-Medicare payers to develop
weights applicable to their own patient populations, we have heard
frequent complaints from providers about the use of the Medicare
relative weights in the pediatric population. We believe that
eliminating this age split in the MS-DRGs will provide more stable
payment for pediatric cases by determining their payment using adult
cases that are much higher in total volume. Newborns are unique and
require separate MS-DRGs that are not mirrored in the adult population.
Therefore, it remains necessary to retain separate MS-DRGs for
newborns. All of the low-volume MS-DRGs listed below are for newborns.
In FY 2011, because we do not have sufficient MedPAR data to set
accurate and stable cost weights for these low-volume MS-DRGs, we
proposed to compute weights for the low-volume MS-DRGs by adjusting
their FY 2010 weights by the percentage change in the average weight of
the cases in other MS-DRGs. The crosswalk table is shown below:

[[Page 50137]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.029

We did not receive any public comment on this section. Therefore,
we are adopting the national average CCRs as proposed, with the MS-DRG
weights recalibrated based on these CCRs.

I. Add-On Payments for New Services and Technologies

1. Background
Sections 1886(d)(5)(K) and (L) of the Act establish a process of
identifying and ensuring adequate payment for new medical services and
technologies (sometimes collectively referred to in this section as
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the
Act specifies that a medical service or technology will be considered
new if it meets criteria established by the Secretary after notice and
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act
specifies that a new medical service or technology may be considered
for new technology add-on payment if, ``based on the estimated costs
incurred with respect to discharges involving such service or
technology, the DRG prospective payment rate otherwise applicable to
such discharges under this subsection is inadequate.'' We note that
beginning with FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.
The regulations implementing these provisions specify three
criteria for a new medical service or technology to receive the
additional payment: (1) The medical service or technology must be new;
(2) the medical service or technology must be costly such that the DRG
rate otherwise applicable to discharges involving the medical service
or technology is determined to be inadequate; and (3) the service or
technology must demonstrate a substantial clinical improvement over
existing services or technologies. These three criteria are explained
below in the ensuing paragraphs in further detail.
Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a
specific medical service or technology will be considered ``new'' for
purposes of new medical service or technology add-on payments until
such time as Medicare data are available to fully reflect the cost of
the technology in the MS-DRG weights through recalibration. Typically,
there is a lag of 2 to 3 years from the point a new medical service or
technology is first introduced on the market (generally on the date
that the technology receives FDA approval/clearance) and when data
reflecting the

[[Page 50138]]

use of the medical service or technology are used to calculate the MS-
DRG weights. For example, data from discharges occurring during FY 2009
are used to calculate the FY 2011 MS-DRG weights in this final rule.
Section 412.87(b)(2) of the regulations therefore provides that ``a
medical service or technology may be considered new within 2 or 3 years
after the point at which data begin to become available reflecting the
ICD-9-CM code assigned to the new medical service or technology
(depending on when a new code is assigned and data on the new medical
service or technology become available for DRG recalibration). After
CMS has recalibrated the MS-DRGs, based on available data to reflect
the costs of an otherwise new medical service or technology, the
medical service or technology will no longer be considered `new' under
the criterion for this section.''
The 2-year to 3-year period during which a medical service or
technology can be considered new would ordinarily begin on the date on
which the medical service or technology received FDA approval or
clearance. (We note that, for purposes of this section of this final
rule, we generally refer to both FDA approval and FDA clearance as FDA
``approval.'') However, in some cases, there may be few to no Medicare
data available for the new service or technology following FDA
approval. For example, the newness period could extend beyond the 2-
year to 3-year period after FDA approval is received in cases where the
product initially was generally unavailable to Medicare patients
following FDA approval, such as in cases of a national noncoverage
determination or a documented delay in bringing the product onto the
market after that approval (for instance, component production or drug
production has been postponed following FDA approval due to shelf life
concerns or manufacturing issues). After the MS-DRGs have been
recalibrated to reflect the costs of an otherwise new medical service
or technology, the medical service or technology is no longer eligible
for special add-on payment for new medical services or technologies (as
specified under Sec. 412.87(b)(2)). For example, an approved new
technology that received FDA approval in October 2008 and entered the
market at that time may be eligible to receive add-on payments as a new
technology for discharges occurring before October 1, 2011 (the start
of FY 2012). Because the FY 2012 MS-DRG weights would be calculated
using FY 2010 MedPAR data, the costs of such a new technology would be
fully reflected in the FY 2012 MS-DRG weights. Therefore, the new
technology would no longer be eligible to receive add-on payments as a
new technology for discharges occurring in FY 2012 and thereafter.
We do not consider a service or technology to be new if it is
substantially similar to one or more existing technologies. That is,
even if a technology receives a new FDA approval, it may not
necessarily be considered ``new'' for purposes of new technology add-on
payments if it is ``substantially similar'' to a technology that was
approved by FDA and has been on the market for more than 2 to 3 years.
In the FY 2006 IPPS final rule (70 FR 47351), we explained our policy
regarding substantial similarity in detail and its relevance for
assessing if the hospital charge data used in the development of the
relative weights for the relevant DRGs reflect the costs of the
technology. In that final rule, we stated that, for determining
substantial similarity, we consider (1) whether a product uses the same
or a similar mechanism of action to achieve a therapeutic outcome, and
(2) whether a product is assigned to the same or a different DRG. We
indicated that both of the above criteria should be met in order for a
technology to be considered ``substantially similar'' to an existing
technology. However, in that same final rule, we also noted that, due
to the complexity of issues regarding the substantial similarity
component of the newness criterion, it may be necessary to exercise
flexibility when considering whether technologies are substantially
similar to one another. Specifically, we stated that we may consider
additional factors, depending on the circumstances specific to each
application.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and
43814), we noted that the discussion of substantial similarity in the
FY 2006 IPPS final rule related to comparing two separate technologies
made by different manufacturers. Nevertheless, we stated that the
criteria discussed in the FY 2006 IPPS final rule also are relevant
when comparing the similarity between a new use and existing uses of
the same technology (or a very similar technology manufactured by the
same manufacturer). In other words, we stated that it is necessary to
establish that the new indication for which the technology has received
FDA approval is not substantially similar to that of the prior
indication. We explained that such a distinction is necessary to
determine the appropriate start date of the newness period in
evaluating whether the technology would qualify for add-on payments
(that is, the date of the ``new'' FDA approval or that of the prior
approval), or whether the technology could qualify for separate new
technology add-on payments under each indication.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43814), we
added a third factor of consideration to our analysis of whether a new
technology is substantially similar to one or more existing
technologies. Specifically, in making a determination of whether a
technology is substantially similar to an existing technology, we will
consider whether the new use of the technology involves the treatment
of the same or similar type of disease and the same or similar patient
population (74 FR 24130), in addition to considering the already
established factors described in the FY 2006 IPPS final rule (that is,
(1) whether a product uses the same or a similar mechanism of action to
achieve a therapeutic outcome; and (2) whether a product is assigned to
the same or a different DRG). As we noted in the FY 2010 IPPS/RY 2010
LTCH PPS final rule, if all three components are present and the new
use is deemed substantially similar to one or more of the existing uses
of the technology (that is beyond the newness period), we would
conclude that the technology is not new and, therefore, is not eligible
for the new technology add-on payment.
Under the second criterion, Sec. 412.87(b)(3) further provides
that, to be eligible for the add-on payment for new medical services or
technologies, the MS-DRG prospective payment rate otherwise applicable
to the discharge involving the new medical services or technologies
must be assessed for adequacy. Under the cost criterion, to assess the
adequacy of payment for a new technology paid under the applicable MS-
DRG prospective payment rate, we evaluate whether the charges for cases
involving the new technology exceed certain threshold amounts. In the
FY 2004 IPPS final rule (68 FR 45385), we established the threshold at
the geometric mean standardized charge for all cases in the MS-DRG plus
75 percent of 1 standard deviation above the geometric mean
standardized charge (based on the logarithmic values of the charges and
converted back to charges) for all cases in the MS-DRG to which the new
medical service or technology is assigned (or the case-weighted average
of all relevant MS-DRGs, if the new medical service or technology
occurs in more than one MS-DRG).
However, section 503(b)(1) of Public Law 108-173 amended section

[[Page 50139]]

1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005,
CMS will apply ``a threshold * * * that is the lesser of 75 percent of
the standardized amount (increased to reflect the difference between
cost and charges) or 75 percent of one standard deviation for the
diagnosis-related group involved.'' (We refer readers to section IV.D.
of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a
discussion of the revision of the regulations to incorporate the change
made by section 503(b)(1) of Pub. L. 108-173.) Table 10 that was
included in the IPPS/LTCH PPS final rule published in the Federal
Register on August 27, 2009, contained the final thresholds that we
used to evaluate applications for new technology add-on payments for
the proposed rule for FY 2011 (74 FR 44173). However, we issued a
supplemental proposed rule in the Federal Register on June 2, 2010 (75
FR 30756) that addressed the provisions of the Affordable Care Act that
affected our proposed policies and payment rates for FY 2011 under the
IPPS and the LTCH PPS. In addition, we issued a Federal Register notice
on June 2, 2010 (75 FR 31118) and further instructions that addressed
the provisions of the Affordable Care Act that affected the policies
and payment rates for FY 2010 under the IPPS and the LTCH PPS. In these
documents, we updated Table 10 that was published in the Federal
Register on August 27, 2009 and Table 10 in the Addendum to the FY 2011
IPPS/LTCH PPS proposed rule to reflect the changes made by the
Affordable Care Act.
In the September 7, 2001 final rule that established the new
technology add-on payment regulations (66 FR 46917), we discussed the
issue of whether the HIPAA Privacy Rule at 45 CFR parts 160 and 164
applies to claims information that providers submit with applications
for new technology add-on payments. Specifically, we explained that
health plans, including Medicare, and providers that conduct certain
transactions electronically, including the hospitals that would be
receiving payment under the FY 2001 IPPS final rule, are required to
comply with the HIPAA Privacy Rule. We further explained how such
entities could meet the applicable HIPAA requirements by discussing how
the HIPAA Privacy Rule permitted providers to share with health plans
information needed to ensure correct payment, if they had obtained
consent from the patient to use that patient's data for treatment,
payment, or health care operations. We also explained that, because the
information to be provided within applications for new technology add-
on payment would be needed to ensure correct payment, no additional
consent would be required. The HHS Office for Civil Rights has since
amended the HIPAA Privacy Rule, but the results remain. The HIPAA
Privacy Rule does not require a covered entity to obtain consent from
patients to use or disclose protected health information for the
covered entity's treatment, payment, or health care operations
purposes, and expressly permits such entities to use or to disclose
protected health information for these purposes and for the treatment
purposes of another health care provider and the payment purposes of
another covered entity or health care provider. (We refer readers to 45
CFR 164.502(a)(1)(ii) and 164.506(c)(1) and (c)(3) and the Standards
for Privacy of Individually Identifiable Health Information published
in the Federal Register (67 FR 53208 through 53214) on August 14, 2002,
for a full discussion of consent in the context of the HIPAA Privacy
Rule.)
Under the third criterion, Sec. 412.87(b)(1) of our existing
regulations provides that a new technology is an appropriate candidate
for an additional payment when it represents ``an advance that
substantially improves, relative to technologies previously available,
the diagnosis or treatment of Medicare beneficiaries.'' For example, a
new technology represents a substantial clinical improvement when it
reduces mortality, decreases the number of hospitalizations or
physician visits, or reduces recovery time compared to the technologies
previously available. (We refer readers to the September 7, 2001 final
rule for a complete discussion of this criterion (66 FR 46902).)
The new medical service or technology add-on payment policy under
the IPPS provides additional payments for cases with relatively high
costs involving eligible new medical services or technologies while
preserving some of the incentives inherent under an average-based
prospective payment system. The payment mechanism is based on the cost
to hospitals for the new medical service or technology. Under Sec.
412.88, if the costs of the discharge (determined by applying cost to
charge ratios (``CCRs'') as described in Sec. 412.84(h)) exceed the
full DRG payment (including payments for IME and DSH, but excluding
outlier payments), Medicare will make an add-on payment equal to the
lesser of: (1) 50 percent of the estimated costs of the new technology
(if the estimated costs for the case including the new technology
exceed Medicare's payment); or (2) 50 percent of the difference between
the full DRG payment and the hospital's estimated cost for the case.
Unless the discharge qualifies for an outlier payment, Medicare payment
is limited to the full MS-DRG payment plus 50 percent of the estimated
costs of the new technology.
Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments
to annual MS-DRG classifications and relative weights must be made in a
manner that ensures that aggregate payments to hospitals are not more
or less than they were in the prior fiscal year (i.e., they are
``budget neutral''). Therefore, in the past, we accounted for projected
payments under the new medical service and technology provision during
the upcoming fiscal year, while at the same time estimating the payment
effect of changes to the MS-DRG classifications and recalibration. The
impact of additional payments under this provision was then included in
the budget neutrality factor, which was applied to the standardized
amounts and the hospital-specific amounts. However, section 503(d)(2)
of Public Law 108-173 provides that there shall be no reduction or
adjustment in aggregate payments under the IPPS due to add-on payments
for new medical services and technologies. Therefore, in accordance
with section 503(d)(2) of Public Law 108-173, add-on payments for new
medical services or technologies for FY 2005 and later years have not
been subjected to budget neutrality.
In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we
modified our regulations at Sec. 412.87 to codify our current practice
of how CMS evaluates the eligibility criteria for new medical service
or technology add-on payment applications. We also amended Sec.
412.87(c) to specify that all applicants for new technology add-on
payments must have FDA approval for their new medical service or
technology by July 1 of each year prior to the beginning of the fiscal
year that the application is being considered.
The Council on Technology and Innovation (CTI) at CMS oversees the
agency's cross-cutting priority on coordinating coverage, coding and
payment processes for Medicare with respect to new technologies and
procedures, including new drug therapies, as well as promoting the
exchange of information on new technologies between CMS and other
entities. The CTI, composed of senior CMS staff and clinicians, was
established under section 942(a) of Public Law 108-173. The Council is
co-chaired by the Director of the Office of

[[Page 50140]]

Clinical Standards and Quality (OCSQ) and the Director of the Center
for Medicare (CM), who is also designated as the CTI's Executive
Coordinator.
The specific processes for coverage, coding, and payment are
implemented by CM, OCSQ, and the local claims-payment contractors (in
the case of local coverage and payment decisions). The CTI supplements,
rather than replaces, these processes by working to assure that all of
these activities reflect the agency-wide priority to promote high-
quality, innovative care. At the same time, the CTI also works to
streamline, accelerate, and improve coordination of these processes to
ensure that they remain up to date as new issues arise. To achieve its
goals, the CTI works to streamline and create a more transparent coding
and payment process, improve the quality of medical decisions, and
speed patient access to effective new treatments. It is also dedicated
to supporting better decisions by patients and doctors in using
Medicare-covered services through the promotion of better evidence
development, which is critical for improving the quality of care for
Medicare beneficiaries.
CMS plans to continue its Open Door forums with stakeholders who
are interested in CTI's initiatives. In addition, to improve the
understanding of CMS' processes for coverage, coding, and payment and
how to access them, the CTI has developed an ``innovator's guide'' to
these processes. The intent is to consolidate this information, much of
which is already available in a variety of CMS documents and in various
places on the CMS Web site, in a user-friendly format. This guide was
published in August 2008 and is available on the CMS Web site at:
http://www.cms.hhs.gov/CouncilonTechInnov/Downloads/InnovatorsGuide8_25_08.pdf.
As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we
invite any product developers or manufacturers of new medical
technologies to contact the agency early in the process of product
development if they have questions or concerns about the evidence that
would be needed later in the development process for the agency's
coverage decisions for Medicare.
The CTI aims to provide useful information on its activities and
initiatives to stakeholders, including Medicare beneficiaries,
advocates, medical product manufacturers, providers, and health policy
experts. Stakeholders with further questions about Medicare's coverage,
coding, and payment processes, or who want further guidance about how
they can navigate these processes, can contact the CTI at
[email protected] or from the ``Contact Us'' section of the CTI home page
(http://www.cms.hhs.gov/CouncilonTechInnov/).
We note that applicants for add-on payments for new medical
services or technologies for FY 2012 must submit a formal request,
including a full description of the clinical applications of the
medical service or technology and the results of any clinical
evaluations demonstrating that the new medical service or technology
represents a substantial clinical improvement, along with a significant
sample of data to demonstrate that the medical service or technology
meets the high-cost threshold. Complete application information, along
with final deadlines for submitting a full application, will be posted
as it becomes available on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp. To allow interested parties to
identify the new medical services or technologies under review before
the publication of the proposed rule for FY 2012, the Web site also
will list the tracking forms completed by each applicant.
Comment: A number of commenters addressed topics relating to the
substantial similarity criteria, marginal cost factor for the new
technology add-on payment, the potential implementation of ICD-10-CM,
the use of external data in determining the cost threshold, paying new
technology add-on payments for 2 to 3 years, mapping new technologies
to the appropriate MS-DRG, and the use of the date that a ICD-9-CM code
is assigned to a technology or the FDA approval date (whichever is
later) as the start of the newness period.
Response: We did not request public comments nor propose to make
any changes to any of the issues summarized above. Because these
comments are outside of the scope of the provisions included in the
proposed rule, we are not providing a complete summary of the comments
or responding to them in this final rule.
2. Public Input Before Publication of a Notice of Proposed Rulemaking
on Add-On Payments
Section 1886(d)(5)(K)(viii) of the Act, as amended by section
503(b)(2) of Public Law 108-173, provides for a mechanism for public
input before publication of a notice of proposed rulemaking regarding
whether a medical service or technology represents a substantial
clinical improvement or advancement. The process for evaluating new
medical service and technology applications requires the Secretary to--
Provide, before publication of a proposed rule, for public
input regarding whether a new service or technology represents an
advance in medical technology that substantially improves the diagnosis
or treatment of Medicare beneficiaries;
Make public and periodically update a list of the services
and technologies for which applications for add-on payments are
pending;
Accept comments, recommendations, and data from the public
regarding whether a service or technology represents a substantial
clinical improvement; and
Provide, before publication of a proposed rule, for a
meeting at which organizations representing hospitals, physicians,
manufacturers, and any other interested party may present comments,
recommendations, and data regarding whether a new medical service or
technology represents a substantial clinical improvement to the
clinical staff of CMS.
In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2011 prior
to publication of the FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, we
published a notice in the Federal Register on November 27, 2009 (74 FR
62339 through 62342), and held a town hall meeting at the CMS
Headquarters Office in Baltimore, MD, on February 19, 2010. In the
announcement notice for the meeting, we stated that the opinions and
alternatives provided during the meeting would assist us in our
evaluations of applications by allowing public discussion of the
substantial clinical improvement criterion for each of the FY 2011 new
medical service and technology add-on payment applications before the
publication of the FY 2011 proposed rule.
Approximately 80 individuals registered to attend the town hall
meeting in person, while additional individuals listened over an open
telephone line. Each of the three FY 2011 applicants presented
information on its technology, including a discussion of data
reflecting the substantial clinical improvement aspect of the
technology. We considered each applicant's presentation made at the
town hall meeting, as well as written comments submitted on the
applications, in our evaluation of the new technology add-on
applications for FY 2011 in the FY 2011 proposed rule and this final
rule.

[[Page 50141]]

In response to the published notice and the new technology town
hall meeting, we received 11 written comments regarding applications
for FY 2011 new technology add-on payments. We summarized these
comments or, if applicable, indicated that there were no comments
received, at the end of each discussion of the individual applications
in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23926 and 23927).
3. FY 2011 Status of Technologies Approved for FY 2010 Add-On Payments
a. Spiration[supreg] IBV[supreg] Valve System
Spiration, Inc. submitted an application for new technology add-on
payments for the Spiration[supreg] IBV[supreg] Valve System
(Spiration[supreg] IBV[supreg]). The Spiration[supreg] IBV[supreg] is a
device that is used to place, via bronchoscopy, small, one-way valves
into selected small airways in the lung in order to limit airflow into
selected portions of lung tissue that have prolonged air leaks
following surgery while still allowing mucus, fluids, and air to exit,
thereby reducing the amount of air that enters the pleural space. The
device is intended to control prolonged air leaks following three
specific surgical procedures: lobectomy; segmentectomy; or lung volume
reduction surgery (LVRS). According to the applicant, an air leak that
is present on postoperative day 7 is considered ``prolonged'' unless
present only during forced exhalation or cough. In order to help
prevent valve migration, there are five anchors with tips that secure
the valve to the airway. The implanted valves are intended to be
removed no later than 6 weeks after implantation.
With regard to the newness criterion, the Spiration[supreg]
IBV[supreg] received a HDE approval from the FDA on October 24, 2008.
We were unaware of any previously FDA-approved predicate devices, or
otherwise similar devices, that could be considered substantially
similar to the Spiration[supreg] IBV[supreg]. However, the applicant
asserted that the FDA had precluded the device from being used in the
treatment of any patients until the Institutional Review Board (IRB)
granted approvals regarding its study sites. Therefore, the
Spiration[supreg] IBV[supreg] met the newness criterion once it
obtained at least one IRB approval because the device would then be
available on the market to treat Medicare beneficiaries.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology payments for the
Spiration[supreg] IBV[supreg] and consideration of the public comments
we received on the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule,
including the additional analysis of clinical data and supporting
information submitted by the applicant, we approved the
Spiration[supreg] IBV[supreg] for new technology add-on payments for FY
2010. In that final rule, we noted that the Spiration[supreg]
IBV[supreg] was the only device currently approved for the purpose of
treating prolonged air leaks following lobectomy, segmentectomy, and
LVRS patients in the United States. We stated that without the
availability of this device, patients with prolonged air leaks
(following lobectomy, segmentectomy, and LVRS) might otherwise remain
inpatients in the hospital (and have a longer length of stay than they
might otherwise have without the Spiration[supreg] IBV[supreg]) or
might even require additional invasive surgeries to resolve the air
leak. We also noted that use of the Spiration[supreg] IBV[supreg] may
lead to more rapid beneficial resolution of prolonged air leaks and
reduce recovery time following the three lung surgeries mentioned
above.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43823), we
indicated that we remained interested in seeing whether the clinical
evidence continues to find it to be effective. This approval was on the
basis of using the Spiration[supreg] IBV[supreg] consistent with the
FDA approval (HDE). Accordingly, we emphasized the need for appropriate
patient selection. Therefore, we limited the add-on payment to cases
involving prolonged air leaks following lobectomy, segmentectomy, and
LVRS in MS-DRGs 163, 164, and 165. In the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43823), we stated that cases involving the
Spiration[supreg] IBV[supreg] that are eligible for the new technology
add-on payment are identified by assignment to MS-DRGs 163, 164, and
165 with procedure code 33.71 or 33.73 in combination with one of the
following procedure codes: 32.22, 32.30, 32.39, 32.41, or 32.49.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that the
average cost of the Spiration[supreg] IBV[supreg] is reported as
$2,750. Based on data from the FY 2010 application, the average amount
of valves per case is 2.5. Therefore, the total maximum cost for the
Spiration[supreg] IBV[supreg] was expected to be $6,875 per case
($2,750 x 2.5). Under Sec. 412.88(a)(2) of our regulations, new
technology add-on payments are limited to the lesser of 50 percent of
the average cost of the device or 50 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we finalized a maximum
add-on payment for a case involving the Spiration[supreg] IBV[supreg]
as $3,437.50.
In the FY 2011 IPPS/LTCH PPS proposed rule, we did not propose any
changes to the new technology add-on payments for the Spiration[supreg]
IBV[supreg]. We did not receive any public comments on whether to
continue or discontinue the new technology add-on payment for the
Spiration[supreg] IBV[supreg] for FY 2011. Therefore, for FY 2011, we
are continuing new technology add-on payments for cases involving the
Spiration[supreg] IBV[supreg] in FY 2011, with a maximum add-on payment
of $3,437.50. However, we did receive one public comment on the MS-DRGs
and codes used to identify which cases involving the Spiration[supreg]
IBV[supreg] are eligible for the new technology add-on payment.
Comment: One commenter, the manufacturer, explained that the coding
requirements described above that identify cases of the
Spiration[supreg] IBV[supreg] for new technology add-on payments do not
account for all cases where a hospital may be using the device to treat
patients with prolonged air leaks following lobectomy, segmentectomy,
and LVRS consistent with the product's HDE approval. These cases occur
when the hospital inserting the Spiration[supreg] IBV[supreg] did not
perform the initial lobectomy, segmentectomy, or LVRS surgery; instead,
the hospital inserting the device received the beneficiary as a
transfer case. The commenter explained that there are instances when a
hospital performs the initial surgery and then determines that
treatment of the patient with the IBV[supreg] valve is appropriate but
the hospital has not been approved to perform the IBV[supreg] valve
insertion procedure under the HDE regulations. Therefore, the hospital
must transfer the patient to an approved facility for treatment with
the IBV[supreg] valve. If it were possible to consider this situation
as one case, the commenter believed that, between the two hospitals,
the new technology payment criteria as specified for FY 2010
(identified by assignment to MS-DRGs 163, 164, and 165 with procedure
code 33.71 or 33.73 in combination with one of the following procedure
codes: 32.22, 32.30, 32.39, 32.41, or 32.49) would be met. However,
because insertion of the IBV[supreg] valve is limited to approved
facilities, the commenter believed that that the hospital receiving
such a patient for treatment for prolonged air leak following
lobectomy, segmentectomy, and LVRS likely reports the case under ICD-9-
CM diagnosis code 512.1 (Iatrogenic pneumothorax) as the principal
diagnosis in the absence of a more specific code for prolonged air leak
and because the second hospital did not perform the initial lobectomy,

[[Page 50142]]

segmentectomy, or LVRS surgery. Such cases would be assigned to MS-DRGs
199, 200, or 201 (Pneumothorax with MCC, with CC, or with CC or MCC,
respectively) based on the principal ICD-9-CM diagnosis code of 512.1
and are therefore ineligible for the new technology add-on payment
based on the specifications finalized in FY 2010. In this situation,
because the transferring hospital that performed the initial surgery
did not insert the IBV[supreg] valve, it would also be ineligible for
the new technology add-on payment. The commenter recommended that CMS
allow an add-on payment in such cases by linking transfer
hospitalizations cases that had an IBV[supreg] valve inserted at the
receiving hospital to a previous claim in the patient's history to
ensure that the patient had previously undergone a lobectomy,
segmentectomy, or LVRS as reported by one of the following procedure
codes: 32.22, 32.30, 32.39, 32.41 or 32.49. This would ensure that the
Spiration[supreg] IBV[supreg] is being used consistent with its FDA
approved indication for the treatment of prolonged air leaks following
lobectomy, segmentectomy, or LVRS.
Response: We thank the commenter for the comments. We agree with
the manufacturer that it is appropriate that all cases in which the
Spiration[supreg] IBV[supreg] Valve is inserted consistent with its HDE
approval be eligible for the approved new technology add-on payment.
For this reason, we are expanding the new technology add-on payment for
the Spiration[supreg] IBV[supreg] Valve to cases that map to MS-DRGs
199, 200, and 201 with an assigned principal diagnosis code of 512.1.
In accordance with the FDA HDE approval, only approved hospital centers
with an Internal Review Board (IRB) may implant the device. According
to the manufacturer, all sites must be approved before the device will
be shipped for use. The approval process includes an evaluation of the
facility, training of physicians, an institutional compliance
agreement, IRB process and documentation, and a purchasing agreement.
The IRB ensures that the patient had a lobectomy, segmentectomy, or
LVRS and had a prolonged air leak and then approves the device to be
implanted in the patient. Therefore, due to the strict requirements
associated with the HDE approval of this technology, even if a patient
was transferred to a hospital for device implantation and the
lobectomy, segmentectomy, or LVRS was not performed at that hospital
(and, therefore, the surgery is not billed on the same claim as the
implantation of the device), we believe our concerns regarding patient
selection are addressed and that the hospital implanting the device is
doing so to treat prolonged post-surgical air leaks. The manufacturer
asserted that, in this transfer situation, the beneficiary's case would
typically be assigned to diagnosis code 512.1, which maps to MS-DRGs
199, 200, and 201. For this reason, we are expanding the new technology
add-on payment for the Spiration[supreg] IBV[supreg] Valve to cases
that map to these MS-DRGs.
We performed an analysis to determine if the technology would still
meet the cost criteria by adding these additional MS-DRGs to the
applicant's cost analysis in the FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43820). The cases that map to MS-DRGs 199, 200, and 201 are
small in number and, therefore, have a minimal effect on the case-
weighted average standardized per case and the case-weighted threshold
published in the FY 2010/RY 2010 LTCH PPS final rule. Therefore, the
Spiration[supreg] IBV[supreg] would still meet the cost criteria with
the inclusion of these additional MS-DRGs.
For FY 2011, in addition to making new technology add-on payments
for cases of the Spiration[supreg] IBV[supreg] that map to MS-DRGs 163,
164, and 165 (with procedure code 33.71 or 33.73 in combination with
one of the following procedure codes: 32.22, 32.30, 32.39, 32.41, or
32.49), we will make the new technology add-on payment for cases of the
Spiration[supreg] IBV[supreg] that map to MS-DRGs 199, 200, and 201
with the presence of a diagnosis code of 512.1 in combination with
procedure code 33.71 and 33.73. This determination will ensure that the
hospital implanting the device receives the new technology add-on
payment. We note that, in these cases, the transferring hospital
performing the surgery will be subject to the transfer policy and would
not receive the new technology add-on payment because it did not
implant the device.
b. CardioWest^TM Temporary Total Artificial Heart System
(CardioWest^TM TAH-t)
SynCardia Systems, Inc. submitted an application for approval of
the CardioWest^TM temporary Total Artificial Heart system
(TAH-t) in FY 2009. The TAH-t is a technology that is used as a bridge
to heart transplant device for heart transplant-eligible patients with
end-stage biventricular failure. The TAH-t pumps up to 9.5 liters of
blood per minute. This high level of perfusion helps improve
hemodynamic function in patients, thus making them better heart
transplant candidates.
The TAH-t was approved by the FDA on October 15, 2004, for use as a
bridge to transplant device in cardiac transplant-eligible candidates
at risk of imminent death from biventricular failure. The TAH-t is
intended to be used in hospital inpatients. One of the FDA's post-
approval requirements is that the manufacturer agrees to provide a
post-approval study demonstrating that success of the device at one
center can be reproduced at other centers. The study was to include at
least 50 patients who would be followed up to 1 year, including (but
not limited to) the following endpoints: survival to transplant;
adverse events; and device malfunction.
In the past, Medicare did not cover artificial heart devices,
including the TAH-t. However, on May 1, 2008, CMS issued a final
national coverage determination (NCD) expanding Medicare coverage of
artificial hearts when they are implanted as part of a study that is
approved by the FDA and is determined by CMS to meet CMS' Coverage with
Evidence Development (CED) clinical research criteria. (The final NCD
is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=211.)
We indicated in the FY 2009 IPPS/RY 2009 LTCH PPS final rule (73 FR
48555) that, because Medicare's previous coverage policy with respect
to this device had precluded payment from Medicare, we did not expect
the costs associated with this technology to be currently reflected in
the data used to determine the relative weights of MS-DRGs. As we have
indicated in the past, and as we discussed in the FY 2009 IPPS/RY 2009
LTCH PPS final rule, although we generally believe that the newness
period would begin on the date that FDA approval was granted, in cases
where the applicant can demonstrate a documented delay in market
availability subsequent to FDA approval, we would consider delaying the
start of the newness period. This technology's situation represented
such a case. We also noted that section 1886(d)(5)(K)(ii)(II) of the
Act requires that we provide for the collection of cost data for a new
medical service or technology for a period of at least 2 years and no
more than 3 years ``beginning on the date on which an inpatient
hospital code is issued with respect to the service or technology.''
Furthermore, the statute specifies that the term ``inpatient hospital
code'' means any code that is used with respect to inpatient hospital
services for which payment may be made under the

[[Page 50143]]

IPPS and includes ICD-9-CM codes and any subsequent revisions. Although
the TAH-t has been described by the ICD-9-CM code(s) since the time of
its FDA approval, because the TAH-t had not been covered under the
Medicare program (and, therefore, no Medicare payment had been made for
this technology), this code could not be ``used with respect to
inpatient hospital services for which payment'' is made under the IPPS,
and thus we assumed that none of the costs associated with this
technology would be reflected in the Medicare claims data used to
recalibrate the MS-DRG relative weights for FY 2009. For this reason,
as discussed in the FY 2009 IPPS/RY 2009 LTCH PPS final rule, despite
the FDA approval date of the technology, we determined that TAH-t would
still be eligible to be considered ``new'' for purposes of the new
technology add-on payment because the TAH-t met the newness criterion
on the date that Medicare coverage began, consistent with issuance of
the final NCD, effective on May 1, 2008.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology add-on payments for the TAH-t
and consideration of the public comments we received in response to the
FY 2009 IPPS/RY 2009 LTCH PPS proposed rule, we approved the TAH-t for
new technology add-on payments for FY 2009 (73 FR 48557). We indicated
that we believed the TAH-t offered a new treatment option that
previously did not exist for patients with end-stage biventricular
failure. However, we indicated that we recognized that Medicare
coverage of the TAH-t is limited to approved clinical trial settings.
The new technology add-on payment status does not negate the
restrictions under the NCD nor does it obviate the need for continued
monitoring of clinical evidence for the TAH-t. We remain interested in
seeing whether the clinical evidence demonstrates that the TAH-t
continues to be effective. If evidence is found that the TAH-t may no
longer offer a substantial clinical improvement, we reserve the right
to discontinue new technology add-on payments, even within the 2- to 3-
year period that the device may still be considered to be new. We also
continued to make new technology add-on payments for the TAH-t in FY
2010. We welcome public comment regarding whether there is new evidence
that demonstrates that the TAH-T continues to be effective and whether
it should still be considered to be a substantial clinical improvement
for FY 2011.
The new technology add-on payment for the TAH-t for FY 2010 is
triggered by the presence of ICD-9-CM procedure code 37.52
(Implantation of total heart replacement system), condition code 30,
and the diagnosis code reflecting clinical trial--V70.7 (Examination of
participant in clinical trial). For FY 2010, we finalized a maximum
add-on payment of $53,000 (that is, 50 percent of the estimated
operating costs of the device of $106,000) for cases that involve this
technology.
Our practice has been to begin and end new technology add-on
payments on the basis of a fiscal year. In general, we extend add-on
payments for an additional year only if the 3-year anniversary date of
the product's entry on the market occurs in the latter half of the
fiscal year (70 FR 47362). The TAH-t is still eligible to be considered
``new'' for purposes of the new technology add-on payment because the
3-year anniversary date of the TAH-t entry on the market was in the
second half of the fiscal year and the TAH-t met the newness criterion
on the date that Medicare coverage began, consistent with issuance of
the final NCD, effective on May 1, 2008. Therefore, for FY 2011, we
proposed to continue new technology add-on payments for cases involving
the TAH-t in FY 2011 with a maximum add-on payment of $53,000.
Comment: Commenters supported our proposal to continue add-on
payments for the TAH-t. The commenters believed that the TAH-t
continues to represent a substantial clinical improvement for patients
with biventricular heart failure in need of a heart transplant. One
commenter, the manufacturer of the TAH-t, stated that the TAH-t
continues to be the only biventricular replacement device that is
available for patients, Medicare or otherwise, with biventricular
failure. The commenter noted that the device is indicated for use as a
``bridge to transplant'' in cardiac transplant-eligible patients who
are at risk of imminent death. The commenter stated that the device is
approved by the FDA ``* * * for use in-hospital, and, under a currently
approved investigational device exemption (``IDE'') clinical study out
of hospital as well.'' The commenter stated that the TAH-t has been
implanted in over 865 patients worldwide and that between January 1,
2009 and June 11, 2010, there were 15 TAH-t implants in the United
States. Of these 15 patients, 10 were continuing on support, 4 received
heart transplants, and 1 expired; the commenter stated that without the
device, it is likely that all of the patients would have expired. The
commenter asserted that it recently began to employ the use of a ``* *
* smaller, portable driver, known as the ``Freedom Driver'' as part of
the TAH-t system.'' The commenter noted that the Freedom Driver allows
increased patient mobility so that patients may leave the hospital
while waiting for a donor heart and that the Freedom Driver further
demonstrated that the TAH-t was a substantial clinical improvement. The
commenter asserted that the new driver increased the operating cost of
the device from $106,000 to $124,700 and requested that the new
technology add-on payment be increased from $53,000 to $62,350,
accordingly.
Response: We agree with the commenters that, for patients with
biventricular heart failure, the TAH-t continues to represent a
substantial clinical improvement. With respect to the manufacturer's
request for an increase in the new technology add-on payment amount for
FY 2011, we note that the version of the TAH-t that contains the
Freedom Driver is not currently approved to be marketed by the FDA.
Rather, the device is being studied in a clinical trial under an IDE.
The IDE allows the investigational device to be used in a clinical
study in order to collect safety and effectiveness data to support a
Premarket Approval (PMA) application or a Premarket Notification
[510(k)] submission to FDA. An approved IDE permits a device to be
shipped lawfully for the purpose of conducting investigations of the
device without complying with other requirements of the Federal Food,
Drug, and Cosmetic Act that would apply to devices in commercial
distribution. For example, sponsors are not required to have an
approved PMA application or cleared Premarket Notification 510(k),
register their establishment, or list the device while the device is
under investigation. Sponsors of IDEs are also exempt from the Quality
System (QS) Regulation except for the requirements for design control,
if applicable (unless the sponsor states an intention to comply with
these requirements). An IDE does not constitute FDA approval to market
the device. Once the clinical trial conducted under an IDE has been
completed, the device may receive FDA approval or clearance to be
legally marketed. If the modified TAH-t device using the Freedom Driver
does receive FDA approval, we would require that a new technology
application be formally submitted for review for new technology add-on
payments for the TAH-t device using the Freedom Driver at that time.
Because we have not received such an

[[Page 50144]]

application and because the modified device is not yet approved by the
FDA, we are unable to increase the new technology add-on payments for
TAH-T for FY 2011. We would encourage the manufacturer to submit a new
technology add-on payment application if and when it expects to receive
FDA approval for the modified TAH-t with the Freedom Driver.
Therefore, as we proposed, we are continuing new technology add-on
payments for cases involving the TAH-t in FY 2011 with a maximum add-on
payment of $53,000.
4. FY 2011 Applications for New Technology Add-On Payments
We received five applications to be considered for new technology
add-on payment for FY 2011. However, two applicants withdrew their
applications: Nycomed Austria GmbH, which submitted an application for
new technology add-on payments for FY 2011 for TachoSil[reg]; and
Zimmer, which submitted an application for new technology add-on
payments for FY 2011 for the Dynesys Dynamic Stabilization System.
Nycomed Austria GmbH withdrew its application from further review in
January 2010, and Zimmer withdrew its application in February 2010.
Because both applications were withdrawn prior to the town hall meeting
and publication of the FY 2011 IPPS/LTCH PPS proposed rule, we are not
discussing these two applications in this final rule.
A discussion of the remaining three applications is presented
below. At the time the proposed rule was developed, one of the
technologies had not yet received FDA approval. Since that time, that
technology, the LipiScan^TM IVUS, has received FDA approval.
a. Auto Laser Interstitial Thermal Therapy (AutoLITT^TM)
System
Monteris Medical submitted an application for new technology add-on
payments for FY 2011 for the AutoLITT^TM. We note that the
applicant submitted an application for new technology add-on payments
for FY 2010 but withdrew its application prior to the FY 2010 IPPS/RY
2010 LTCH PPS final rule. AutoLITT^TM is a minimally
invasive, MRI-guided laser tipped catheter designed to destroy
malignant brain tumors with interstitial thermal energy causing
immediate coagulation and necrosis of diseased tissue. The technology
can be identified by ICD-9-CM procedure codes 17.61 (Laser interstitial
thermal therapy [LITT] of lesion or tissue of brain under guidance),
and 17.62 (Laser interstitial thermal therapy [LITT] of lesion or
tissue of head and neck under guidance), which became effective on
October 1, 2009.
The applicant asserts that the AutoLITT^TM delivers laser
energy to the lesion with a proprietary 3mm diameter probe that directs
the energy radially (that is, at right angle to the axis of the probe,
or side-firing) toward the targeted tumor tissue in a narrow beam
profile and at the same time, a proprietary probe cooling system
removes heat from tissue not directly in the path of the laser beam,
ostensibly protecting it from thermal damage and enabling the physician
to selectively ablate only targeted tissue. The AutoLITT^TM
received a 510K FDA clearance in May 2009. The AutoLITT^TM is
indicated for use to necrotize or coagulate soft tissue through
interstitial irradiation or thermal therapy in medicine and surgery in
the discipline of neurosurgery with 1064 nm lasers. The
AutoLITT^TM may be used in patients with glioblastoma
multiforme brain (GBM) tumors. The applicant stated in its application
and through supplemental information that, due to required updates, the
technology was actually introduced to the market in December 2009. The
applicant explained that it was necessary to reduce the thermal damage
lines from three to one and complete International Electrotechnical
Commission/Underwriter Laboratory testing, which led to the
introduction of the technology to the market in December 2009, although
the technology was approved by FDA in May 2009. The applicant also
stated through supplementary information to its application that the
first sale of the product took place on March 19, 2010. However,
because the product was already available for use in December 2009, it
appears that the newness date would begin in December 2009. In the FY
2011 IPPS/LTCH PPS proposed rule, we welcomed public comments on this
issue.
With regard to the newness criterion, in the FY 2011 IPPS/LTCH PPS
proposed rule, we expressed concern that the AutoLITT^TM may
be substantially similar to the device that it listed as its predicate
device in its application to the FDA for approval. Specifically, in
making a determination of substantial similarity, we consider the
following: (1) Whether a product uses the same or similar mechanism of
action to achieve a therapeutic action; (2) whether a product is
assigned to the same or different MS-DRG; and (3) whether the new use
of a technology involves the treatment of the same or similar type of
disease and the same or similar patient population. The applicant
identified Visual-ase as its predicate device (which was approved by
the FDA in 2006), which is also used to treat tumors of the head and
neck. The applicant maintains that AutoLITT^TM can be
distinguished from the Visual-ase by its mechanism of action (that is,
side-firing laser versus elliptical firing). Additionally, as mentioned
above, the technology contains a proprietary probe cooling system that
removes heat from tissue not directly in the path of the laser beam. In
the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed comments from the
public regarding whether or not the AutoLITT^TM is
substantially similar to the Visual-ase and if it meets the newness
criteria.
Comment: One commenter described the components of the
AutoLITT^TM that should qualify the AutoLITT^TM as
``new''. Specifically, the commenter noted that the probe uses side-
firing and has a gas-cooled tip. The commenter noted that probe drive
is an MRI-compatible steering device and the software for the device
provides thermal dose reporting in real time. In addition, the
commenter explained that the software is designed to provide real time
feedback to the surgeon and also to provide a discrete line of thermal
dosage at the expanding boundary or isotherm. The commenter further
explained that this isotherm is used by the surgeon to control
treatment in comparison to the delineated pre-defined treatment or
tumor boundary and also provides this information in a volume (that
includes treatment and two axial planes) so that the surgeon can
monitor and plan, in real time, the next heating cycle to complete the
treatment regimen.
Response: We thank the commenter for the additional information on
the AutoLITT^TM. After reviewing all of the information
provided by the applicant and the public, we believe that the
AutoLITT^TM uses a different mechanism of action when
compared to the Visual-ase. We agree with the applicant that the
AutoLITT^TM can be distinguished from the Visual-ase by its
side-firing laser versus elliptical-firing. In addition, the
AutoLITT^TM contains a proprietary probe cooling system that
removes heat from tissue not directly in the path of the laser beam,
while the Visual-ase does not contain this cooling system. Therefore,
we do not believe the AutoLITT^TM is substantially similar to
the Visual-ase. Because the AutoLITT^TM was available on the
market beginning with December 2009 (and is not substantially similar
to its predicate device), the technology is still within the 2 to 3
year newness period.

[[Page 50145]]

In an effort to demonstrate that AutoLITT^TM meets the
cost criterion, the applicant used 2007 Medicare data from the
Healthcare Cost and Utilization Project (HCUP). We first note that the
applicant believes that cases eligible for the AutoLITT^TM
will map to MS-DRG 25 (Craniotomy and Endovascular Intracranial
Procedures with MCC), MS-DRG 26 (Craniotomy and Endovascular
Intracranial Procedures with CC), and MS-DRG 27 (Craniotomy and
Endovascular Intracranial Procedures without CC or MCC). The applicant
explained through supplemental information to its application that most
cases of the AutoLITT^TM would map to MS-DRG 25 in the near-
term. As the technology becomes more widely available, the applicant
asserted that clinicians will use the technology instead of performing
a craniotomy for brain cancer. Additionally, the applicant asserted
that clinicians will expand their use of the technology beyond GBM to
other different types of brain cancers, including metastases, which
would map to other MS-DRGs aside from MS-DRG 25. The applicant further
stated that life expectancy with brain cancer is predicated on the
removal of as much of the cancer as possible and asserted that over
time the AutoLITT^TM will do a better job of removing the
majority of the cancer that is present within the brain tissue compared
to other procedures. The applicant believes that physicians using the
AutoLITT^TM have a better tool to remove more cancer,
necrotize it more precisely, and access parts of the brain that
surgical resection cannot access. Lastly, the applicant believes that
the minimally invasive nature of the procedure will also result in
broader usage to other less complicated procedures (as clinical and
patient awareness expands).
The applicant searched HCUP hospital data for cases potentially
eligible for the AutoLITT^TM that was assigned one of the
following ICD-9-CM primary diagnosis codes: A diagnosis code that
begins with a prefix of 191 (Malignant neoplasm of brain); diagnosis
code 225.0 (Benign neoplasm of brain and other parts of nervous
system); or diagnosis code 239.6 (Neoplasm of the brain of unspecified
nature). The applicant found 41,021 cases and weighted the standardized
charge per case based on the number of cases found within each of the
diagnosis codes listed above rather than the percentage of cases that
would group to different MS-DRGs. Based on this analysis, the applicant
calculated an average standardized charge per case of $57,511. While
the applicant's analysis established a case-weighted average charge per
case in the aggregate, it did not provide a case-weighted average
standardized charge per case by MS-DRG (as required by the
application).
The applicant also noted that their estimate of the case-weighted
average standardized charge per case of $57,511 did not include charges
related to the AutoLITT^TM. Therefore, it is necessary to add
the charges related to the device to the case-weighted average
standardized charge per case in evaluating the cost threshold
criterion. Although the applicant submitted data related to the
estimated cost of the AutoLITT^TM per case, the applicant
stated that the cost of the device was proprietary information. Based
on a study of charge compression data by RTI \4\ and charge master data
from Stanford University and University of California, San Francisco,
the applicant estimates $38,886 in charges related to the
AutoLITT^TM (we note that some of the data used a markup of
294 percent of the costs). Adding the estimated charges related to the
device to the average standardized charge per case resulted in a total
average standardized charge per case of $96,397 ($57,511 plus $38,886).
We note, in the applicant's discussion of substantial clinical
improvement below, the applicant maintains that improved clinical
outcomes using nonfocused LITT included reduced recovery time and a
reduced rate of complications. Therefore, in the FY 2011 IPPS/LTCH PPS
proposed rule, we sought public comment on how reduced recovery time
and a reduced rate of complications would affect the total case-
weighted average standardized charge per case and the average length of
stay (for cases eligible for the AutoLITT^TM).
---------------------------------------------------------------------------

\4\ RTI International, A Study of Charge Compression in
Calculating DRG Relative Weights, RTI Project No. 0207964.012.008;
January 2007.
---------------------------------------------------------------------------

Comment: The applicant submitted supplemental information and noted
that, compared to a craniotomy, surgery involving the
AutoLITT^TM requires an MRI and/or interventional MRI. The
commenter indicated that the addition of the MRI requires additional
resources, namely a MRI technician, at a minimum, and a radiologist, as
needed, to review images. In total, these additions would increase the
level of resources a hospital would use to treat these patients, both
in terms of direct costs (for example, labor, contracted physician
resources, etc.), and fixed and indirect costs (for example, MRI, use
of radiology office space, etc.) The commenter further added that
overall additional time for the procedure (also a cost) is currently
required to conduct an AutoLITT^TM case compared to the
standard of care (that is, craniotomy as asserted by the applicant).
The commenter reported that during the clinical trials, cases of
AutoLITT^TM ranged from 10 to 12 hours (including OR, MRI,
and Anesthesia time as opposed to 4 to 6 hours for a craniotomy). As
efficiencies are gained in the hospitals working with the technology,
the applicant predicts that this time will be reduced to 7 hours within
the next year or so. In addition, the commenter believed that the
updated HCUP analysis, which we discuss below, supports a standardized
charge of $96,947. This supplemental data correlate to 2010 pricing
information that the applicant received from two institutions
demonstrating an approximate charge (not standardized) of $103,000 per
case.
Response: We thank the commenter for providing this information. We
considered this information in our decision (indicated below) on
whether the AutoLITT^TM meets the cost criterion.
As noted above, the applicant's analysis established a case-
weighted average charge per case in the aggregate, but it did not
provide a case-weighted average standardized charge per case by MS-DRG.
However, the applicant explained through supplemental information to
its application that the total average standardized charge per case
significantly exceeds the cost threshold established by CMS for FY 2011
in Table 10 (74 FR 44173) of $84,185 for MS-DRG 25. As noted above, due
to section 3401(a) of the Affordable Care Act which adjusted the FY
2010 applicable percentage increase (thus requiring CMS to revise the
FY 2010 standardized amounts), for this final rule, we used the revised
FY 2011 thresholds as published in the FY 2010 IPPS/RY 2010 LTCH PPS
notice issued in the Federal Register on June 2, 2010 (75 FR 31213) to
determine if the AutoLITT^TM met the cost criterion.
Therefore, using the revised FY 2011 thresholds, the total average
standardized charge per case would also exceed the cost thresholds
established by CMS of $58,591 for MS-DRG 26 and $47,033 for MS-DRG 27.
Because the total average standardized charge per case exceeds the
threshold amount for each individual MS-DRG to which the technology
would map (MS-DRGs 25, 26, and 27), the applicant maintains that the
AutoLITT^TM would meet the cost criterion. In the FY 2011
IPPS/LTCH PPS proposed rule, we invited public comment on whether or
not the

[[Page 50146]]

AutoLITT^TM meets the cost criterion for a new technology
add-on payment for FY 2011.
Comment: In supplemental information provided to CMS, the applicant
noted that, after further reviewing its cost analysis from the HCUP
hospital data that was presented in the FY 2011 IPPS/LTCH PPS proposed
rule, the applicant discovered that it inadvertently used discharges
from all hospitals, including non-Medicare data, instead of only using
Medicare data. Therefore, the applicant updated its analysis from the
proposed rule and filtered the claims data in the HCUP database for
Medicare claims with the same primary diagnosis codes listed above.
Instead of the FY 2007 MedPAR database, the applicant used the most
recent updated MedPAR database on the HCUP Web site, which was the FY
2008 MedPAR file. The applicant found a total of 12,816 cases with an
average standardized charge of $58,061. Similar to above, adding the
estimated charges related to the device to the average standardized
charge per case resulted in a total average standardized charge per
case of $96,947 ($58,061 plus $38,886). As noted above, the analysis
from the HCUP database established a case-weighted average charge per
case in the aggregate, but it did not provide a case-weighted average
standardized charge per case by MS-DRG. Similar to above, the applicant
maintains that the total average standardized charge per case
significantly exceeds the revised cost thresholds established by CMS
for FY 2011 in Table 10 (75 FR 31213) of $84,164 for MS-DRG 25.
Additionally, the applicant maintains that the total average
standardized charge per case would also exceed the cost thresholds
established by CMS of $58,591 for MS-DRG 26 and $47,033 for MS-DRG 27.
Response: Even with the applicant's revised HCUP analysis, the
applicant still did not establish a case-weighted average standardized
charge per case by MS-DRG as required by 42 CFR 412.87(b)(3). To
determine whether the applicant met the cost criterion, we performed an
analysis of MedPAR data. We searched the FY 2009 MedPAR file for cases
with a primary diagnosis that begins with a prefix of 191; diagnosis
code 225.0; or diagnosis code 239.6. We found 1,711 cases (or 34.2
percent of all cases) in MS-DRG 25, 1,587 cases (or 31.7 percent of all
cases) in MS-DRG 26, and 1,702 cases (or 34 percent of all cases) in
MS-DRG 27. The average standardized charge per case was $86,678 for MS-
DRG 25, $63,089 for MS-DRG 26, and $47,033 for MS-DRG 27, equating to a
case-weighted average standardized charge per case of $65,685.
The average standardized charge per case does not include charges
related to the AutoLITT^TM; therefore, it is necessary next
to add the charges related to the device to the average standardized
charge per case to evaluate whether the cost threshold criterion is
met. As noted above, the applicant estimates $38,886 in charges related
to the AutoLITT^TM. Adding the estimated charges related to
the device to the average standardized charge per case (based on the
case distribution from the FY 2009 MedPAR claims data analysis)
resulted in a case-weighted average standardized charge per case of
$104,571 ($65,685 plus $38,886).
Although we have established a case-weighted average standardized
charge per case, the case-weighted average standardized charge per case
above does not take into consideration reduced recovery time and a
reduced rate of complications that would affect the total case-weighted
average standardized charge per case and the average length of stay.
Both would decrease the costs associated with the AutoLITT device.
Therefore, we made the following calculations, taking into
consideration our concerns as stated above, in order to determine if
the AutoLITT^TM meets the cost criteria. The average length
of stay for cases we found in the FY 2009 MedPAR file was 7.4 days.
This results in an average charge per day of $8,824 (the case-weighted
average standardized charge of $65,685 divided by 7.4 days). However,
we note that the first day of an inpatient hospitalization is typically
more expensive than subsequent days in the stay. Nonetheless, absent
specific charge per day data, we are equally dividing charges for
purposes of evaluating the decreased costs associated with the reduced
length of stay using AutoLITT^TM. This should provide us with
a lower charge estimate than what it otherwise would be if we had
actual charge data. That is, if the device meets the cost criterion
based on the lower estimate, it should meet it based on the actual
data, which would be higher. Based on data from the applicant's
clinical trial, the average length of stay for cases with the
AutoLITT^TM was 3.8 days. Using the difference of 3.6 days
(7.4 days minus 3.8 days) from cases in the FY 2009 MedPAR file to the
applicant's clinical trial, we determined it is necessary to deduct a
total of $32,154 in charges (3.6 times $8,824) from the case-weighted
average standardized charge per case of $65,685, as determined above.
This resulted in a reduced case-weighted average standardized charge
per case of $33,531. We then added the estimated charges related to the
device to the reduced average standardized charge per case and
determined a revised case-weighted average standardized charge per case
of $72,417 ($33,531 plus $38,886 (charges related to the
AutoLITT^TM); all calculations above were performed using
unrounded numbers).
Using the revised FY 2010 thresholds published in Table 10 (75 FR
31213), the case-weighted threshold for MS-DRGs 25, 26, and 27 was
$63,408 (again, all calculations above were performed using unrounded
numbers). Based on this analysis, the revised case-weighted average
standardized charge per case for the applicable MS-DRGs exceed the
case-weighted threshold amount. Additionally, we also conducted a
sensitivity test with a majority of cases mapping to MS-DRG 25 (because
the applicant maintained that most patients' conditions would be an MCC
and the case would map to this MS-DRG and because patients with GBM are
more likely to be more severely ill than patients with other types of
tumors) and the remaining cases mapping to MS-DRGs 26 and 27. With a
majority of cases mapping to MS-DRG 25, we used a higher percentage of
charges from MS-DRG 25 to determine the case-weighted threshold and the
case-weighted average standardized charge per case, which would make it
more difficult for the case-weighted average standardized charge per
case to exceed the case-weighted threshold (because the threshold for
MS-DRG 25 is the highest of MS-DRGs 25, 26, and 27). The sensitivity
test demonstrated that even with a majority of cases mapping to MS-DRG
25, the case-weighted standardized charge per case would exceed the
case-weighted threshold.
After reviewing all of the data summarized above, we believe the
applicant has provided a sufficient explanation for the additional
charges associated with the AutoLITT^TM, even with a reduced
recovery time and a reduced rate of complications. Additionally, our
analysis of the FY 2009 MedPAR data demonstrates that the average
standardized charge per case (for cases eligible for the
AutoLITT^TM) does exceed the case-weighted cost threshold
(even with a majority of cases mapping to a MS-DRG). Furthermore, the
applicant did provide charge data from two centers verifying the
expected high charges associated with the cases of the
AutoLITT^TM. Therefore, we believe that the
AutoLITT^TM meets the cost criterion.
With respect to the substantial clinical improvement criterion, the

[[Page 50147]]

applicant maintains that it meets this criterion in its application.
Specifically, the applicant stated that several non-
AutoLITT^TM clinical trials have demonstrated that nonfocused
LITT (and more recently, the use of LITT plus MRI) improved survival,
quality of life, and recovery in patients with advanced GBM tumors and
advanced metastatic brain tumors that cannot be effectively treated
with surgery, radiosurgery, radiation, chemotherapy, or any currently
available clinical procedure. In a number of these patients, nonfocused
LITT was the treatment of last resort, due to either the
unresponsiveness to or inability of these therapies to treat the brain
tumor (due to tumor location, type, or size, among other reasons). The
applicant also maintains that when compared to craniotomy, it offers
improved clinical outcomes using nonfocused LITT, including reduced
recovery time and a reduced rate of complications (that is, infection,
brain edema). The applicant stated that these factors, as discussed in
the FY 2001 final rule (66 FR 46914 through 46915) demonstrate that the
AutoLITT^TM meets the new technology criterion for
substantial clinical improvement.
The applicant further asserts that AutoLITT^TM would
represent a substantial clinical improvement over existing standards of
care for a number of reasons and should build upon less sophisticated,
nonfocused LITT therapies. These clinical improvements cited by the
applicant include: a less invasive method of tumor ablation,
potentially leading to lower complication rates post procedure
(infection, edema); an ability to employ multiple interventions over
shorter periods of time and an ability to be used as a treatment of
last resort (radiosurgery is limited due to radiation dosing and
craniotomy is limited to 1 to 2 procedures); an ability to be used in
hard-to-reach brain tumors (the AutoLITT^TM may be used as a
treatment of last resort); and a shorter recovery time (the possibility
for same day surgery, which has been demonstrated above with nonfocused
LITT).
In the FY 2011 IPPS/LTCH PPS proposed rule, we stated that, while
we recognize the future potential of this interesting therapy, we have
concerns that, to date, the AutoLITT^TM has been used for the
treatment of only a few patients as part of a safety evaluation with no
comparative efficacy data and, therefore, there may not be sufficient
objective clinical evidence to determine if the AutoLITT^TM
meets the substantial clinical improvement criteria. The applicant did
note in its presentation at the new technology town hall meeting that
it is currently conducting a clinical trial with a summary report
expected in the near future. In the FY 2011 IPPS/LTCH PPS proposed
rule, we welcomed additional clinical data to demonstrate whether the
AutoLITT^TM meets the substantial clinical improvement
criterion and invited public comment on whether or not the
AutoLITT^TM meets the substantial clinical improvement
criterion.
Comment: A number of commenters who are physicians agreed with the
applicant that the AutoLITT^TM meets the substantial clinical
improvement criterion. Two commenters (that conducted the clinical
trial) described their experience with the AutoLITT^TM in the
clinical trial for use in patients with recurrent GBM who were
demonstrated to be refractory to other treatment options. (We note that
this clinical trial is also discussed below in a separate comment from
the manufacturer). The commenters treated 10 patients with the
AutoLITT^TM and noted the following: (1) A short recovery
time that allowed patient discharges within 2 to 3 days, compared to 3
to 5 days following a craniotomy; (2) patients were able to ambulate
more quickly, typically within 3 to 4 hours, compared to craniotomy
which often takes 6 or more hours of recovery time prior to becoming
ambulatory (The commenters noted that this is important in the
prevention of venous thrombosis, commonly seen in patients with GBM.);
and (3) adverse events have been minimal and do not exceed those
published for first or second craniotomies for glioblastomas.\5\ The
commenters noted that, over time, adverse events are likely to decrease
as clinical experience is gained with the AutoLITT^TM and
will likely be less than those experienced with craniotomy, due to the
less invasive nature of the AutoLITT^TM.
---------------------------------------------------------------------------

\5\ Chang et al., J. Neurosurg., vol. 98, pp. 1175-1181, 2003.
---------------------------------------------------------------------------

Other commenters who have reviewed the most recent clinical data on
the AutoLITT^TM expressed their support for the clinical
benefits of the AutoLITT^TM. One commenter stated it foresees
using the AutoLITT^TM on deep seated primary tumors for which
total resection would risk a major insult to the brain and/or its
functional structures. The commenter further stated that use of the
AutoLITT^TM would minimize hospitalization, and possibly
reduce complications, such as thromboembolic events, seen with other
therapies. Another commenter added that there are many patients with
metastases to the brain and more than 10 percent of patients who
receive Gamma Knife treatment for such brain metastases have recurrence
of the metastasis at or near the original site. The commenter stated it
would consider the AutoLITT^TM as an alternative to Gamma
Knife treatment in these cases because Gamma Knife treatment
dramatically increases the risk of symptomatic radiation necrosis. All
of these commenters stated that the AutoLITT^TM offers
additional quality of life in patients with GBM due to its reduced
recovery time and its use as a less invasive alternative treatment to
other available treatment options.
Response: We appreciate these comments. Some commenters described
their positive experiences using the AutoLITT^TM which
reduced recovery time for the patient. Other commenters noted that they
would use the AutoLITT^TM as an alternative to other
available treatments because it is less invasive and provides an
improved quality of life for the patient outside the hospital. We
considered the comments above in our determination (indicated below) on
whether the AutoLITT^TM represents a substantial clinical
improvement.
Comment: The manufacturer submitted two public comments that
addressed the substantial clinical improvement criterion. The first
comment reiterated that options available to treat patients with brain
tumors are limited in general, and these limitations are magnified by
the fact that many patients are refractory to currently available
options such as surgical resection via craniotomy and radiotherapy. The
comment further stated that the literature on AutoLITT^TM and
LITT has demonstrated that the AutoLITT^TM offers another
clinically viable option to brain cancer patients, especially after
other options have failed.
Below we highlight some of the results of the clinical studies
cited by the commenter:
Time to progression of disease and survival were longer
for brachytherapy plus LITT compared to brachytherapy;\6\
---------------------------------------------------------------------------

\6\ Sneed, PK et al. (1998). Survival benefit of hyperthermia in
a prospective randomized trial of brachytherapy boost + hyperthermia
for glioblastoma multiforme. International J. Radiation Oncology
Biol. Phys.; 1998: 287-295.
---------------------------------------------------------------------------

Survival time using LITT/MRI therapy was substantially
longer than the natural history of the disease and longer than using
chemotherapy alone. After a short surgeon learning curve, the

[[Page 50148]]

median survival time increase by up to a factor of 4x (p = 0.0267);\7\
---------------------------------------------------------------------------

\7\ Schwarzmaier, HJ et al. (2006). MR guided laser-induced
interstitial thermotherapy of recurrent glioblastoma multiforme:
Preliminary results in 16 patients. Eur. J. Radiology; 59: 208-215.
---------------------------------------------------------------------------

Use of MRI guidance in brain surgery alone has
demonstrated a statistically significant reduction in major
complications versus surgery without MRI guidance (p = 0.019);\8\ and
---------------------------------------------------------------------------

\8\ Paleologos, TS et al. (2000). Clinical Utility and Cost-
Effectiveness of Interactive Image Guided Craniotomy: Clinical
Comparison between Conventional and Image Guided Meningioma Surgery.
Neurosurgery; 47: 40-48.
---------------------------------------------------------------------------

The combination of LITT and MRI guidance for treating
metastatic intracranial tumors has been evaluated for safety and
feasibility \9\ in a study of four patients that were refractory to
other treatments. The patients demonstrated on follow up that in all
cases the procedure was well tolerated without secondary effect and
patients were discharged within 14 hours after the procedure. Upon a
90-day follow up, tumor volume demonstrated a gradual and steady
decrease, with no recurrence within the thermal ablation zones.
---------------------------------------------------------------------------

\9\ Carpentier, A. et al. (2008). Real-Time Magnetic Resonance
Guided Laser Thermal Therapy for Focal Metastatic Brain Tumors.
Neurosurgery; 63: ONS21-ONS29.
---------------------------------------------------------------------------

The commenter concluded that it carefully reviewed the available
literature on LITT and believes that the AutoLITT^TM has
demonstrated the following positive clinical benefits for patients: a
robust and clinical validated integrated platform of clinically useful
technologies (LITT, MRI guidance, real time MR monitoring of thermal
energy applications) that works within the existing clinical frameworks
available at major medical centers; effective abilation of targeted
tumor tissue; short length of stay; ability to ambulate early; and
minimally lasting or late developing side effects. As a result, the
commenter believes that the AutoLITT^TM represents a new,
clinically viable option for brain cancer patients and meets the
substantial clinical improvement criteria.
The other comment from the manufacturer discussed the applicant's
clinical trial. Some of these data were discussed above in the comments
we received from physicians in support of the AutoLITT^TM.
The manufacturer provided more detail about the design of the clinical
study. The manufacturer stated that it conducted a clinical trial of 10
patients with tumors in locations that either made access to the tumor
without risk of complications difficult or made total gross resection
of the entire mass impossible or impractical without significant risk.
All patients treated in the study had first or second GBM tumors with
poor prognosis. The Karnofsky Performance Scale used to measure
functional and mental status was assessed pre- and post-treatment and
remained the same or improved during the post treatment interval.
Finally, as also mentioned in the comments from the physicians in
support of the AutoLITT^TM, all patients in the clinical
study were discharged within 2 to 7 days with a mean of 3.8 days, which
compares favorably to a 12[dash]day average length of stay for cases
that map to MS-DRG 25.
Response: We thank the applicant and all of the commenters for
providing additional clinical data to demonstrate that the
AutoLITT^TM meets the substantial clinical improvement
criteria. With respect to substantial clinical improvement, we
considered all of the case-specific clinical information presented by
the applicant and the public to determine whether there is evidence to
support a conclusion that use of the AutoLITT^TM represents a
substantial clinical improvement. Specifically, we focused our review
on the peer-reviewed medical literature and the results of the clinical
studies. We remain concerned that no prospective comparative data exist
to help understand the benefit of the technology compared to other
modalities.
However, we agree that the AutoLITT^TM can improve
clinical outcomes by providing an alternative treatment for brain
tumors that potentially has a lower risk of adverse events and is less
invasive compared to craniotomy. Also, the comments we received from
the physicians and the manufacturer noted that the
AutoLITT^TM provides a new treatment option in cases where no
existing treatment was available due to the risk of complications or
total gross resection of the entire mass made impossible or impractical
without significant risk. Lastly, we received positive comments from
physicians who indicated that the AutoLITT^TM is a less
invasive treatment than other alternative treatments such as craniotomy
and produced positive clinical outcomes by reducing average length of
stay, quicker ambulation, and a reduction of other adverse events that
occur in cases of first or second craniotomies for glioblastomas.
Although we continue to believe that limited, anecdotal reports from
physicians using a new technology are insufficient to demonstrate
substantial clinical improvement over existing technologies, such
information, when considered together with peer-reviewed medical
literature and results of clinical studies, can help to inform our
decision. Therefore, after reviewing the totality of the evidence, we
have determined that the AutoLITT^TM meets the substantial
clinical improvement criterion.
Accordingly, after consideration of the clinical evidence received,
we are approving the AutoLITT^TM for new technology add-on
payments in FY 2011. Consistent with the applicant's clinical trial,
the add-on payment is intended only for use of the device in cases of
Glioblastoma Multiforme. Therefore, we intend to limit the new
technology add-on payment to cases involving the AutoLITT^TM
in MS-DRGs 25, 26, and 27. Cases involving the AutoLITT^TM
that are eligible for the new technology add-on payment will be
identified by assignment to MS-DRGs 25, 26, and 27 with a procedure
code of 17.61 in combination with a primary diagnosis codes that begins
with a prefix of 191. We note that using the procedure and diagnosis
codes above and restricting the add-on payment to cases that map to MS-
DRGs 25, 26, and 27 is consistent with information provided by the
applicant, which demonstrated that cases of the AutoLITT^TM
would only map to MS-DRGs 25, 26, and 27. Procedure code 17.62 does not
map to MS-DRGs 25, 26, or 27 under the GROUPER software and, therefore,
is ineligible for new technology add-on payment.
The average cost of the AutoLITT^TM is reported as
$10,600 per case. Under Sec. 412.88(a)(2) of the regulations, new
technology add-on payments are limited to the lesser of 50 percent of
the average cost of the device or 50 percent of the costs in excess of
the MS-DRG payment for the case. As a result, the maximum add-on
payment for a case involving the AutoLITT^TM is $5,300.
b. LipiScan^TM Coronary Imaging System
InfraReDx, Inc. submitted an application for new technology add-on
payments for FY 2011 for the LipiScan^TM Coronary Imaging
System (LipiScan^TM). We note that an application was also
submitted for FY 2010, but the application was denied on the grounds
that it did not meet the substantial clinical improvement criterion at
that time. The application for FY 2011 contains some additional
clinical and charge data that were not available at the time that the
FY 2010 new technology add-on payment decisions were made.
The LipiScan^TM device is a diagnostic tool that uses
Intravascular Near Infrared Spectroscopy (INIRS) during an invasive
coronary catheterization to scan the artery wall in order to determine
coronary plaque composition.

[[Page 50149]]

The purpose of the device is to identify lipid-rich areas in the artery
because such areas have been shown to be more prone to rupture. The
procedure does not require flushing or occlusion of the artery. INIRS
identifies the chemical content of plaque by focusing near infrared
light at the vessel wall and measuring reflected light at different
wavelengths (that is, spectroscopy). The LipiScan^TM system
collects approximately 1,000 measurements per 12.5 mm of pullback, with
each measurement interrogating an area of 1 to 2 mm\2\ of lumen surface
perpendicular to the longitudinal axis of the catheter. When the
catheter is in position, the physician activates the pullback and
rotation device and the scan is initiated providing 360 degree images
of the length of the artery. The rapid acquisition speed for the image
freezes the motion of the heart and permits scanning of the inside of
the arterial wall in less than 2 minutes. When the catheter pullback is
completed, the console displays the scan results, which are referred to
as a ``chemogram'' image. The chemogram image requires reading by a
trained user, but, according to the applicant, was designed to be
simple to interpret.
With regard to the newness criterion, the LipiScan^TM
received a 510K FDA clearance for a new indication on April 25, 2008,
and was available on the market immediately thereafter. On June 23,
2006, InfraReDx, Inc. was granted a 510K FDA clearance for the
``InfraReDx Near Infrared (NIR) Imaging System.'' Both devices are
under the common name of ``Near Infrared Imaging System'' according to
the 510K summary document from the FDA. However, the InfraReDx NIR
Imaging System device that was approved by the FDA in 2006 was approved
``for the near infrared imaging of the coronary arteries,'' whereas the
Lipiscan^TM device cleared by the FDA in 2008 is for a
modified indication. The modified indication specified that
Lipiscan^TM is ``intended for the near-infrared examination
of coronary arteries * * *, the detection of lipid-core-containing
plaques of interest * * * [and] for the assessment of coronary artery
lipid core burden.'' In the FY 2010 IPPS/RY 201 LTCH PPS proposed rule
(74 FR 24132 through 24134), we noted that we had concerns with whether
Lipiscan^TM was substantially similar to its predicate device
that was approved by the FDA in 2006. However, those concerns were
addressed by the manufacturer during the comment period. Specifically,
the manufacturer stated that there were technical problems with the
original device and that LipiScan^TM had to be modified in
the following ways:

------------------------------------------------------------------------
Marketed 2008
2006 NIRS device LipiScan
------------------------------------------------------------------------
Console..................... No display of Results displayed
results of scan. immediately.
Catheter.................... Saline-filled with Air-filled with no
microbubble problem microbubble
obscuring many problem.
scans.
Algorithm................... No algorithmic Algorithm validated
processing of NIR in over 1,000
signals--no means autopsy
of certifying that measurements
lipid core plaque proving that NIRS
is present. can detect lipid
core plaque, and
providing diagnosis
of lipid core
plaque to the MD
during the case.
------------------------------------------------------------------------

The problems with the LipiScan^TM device that was
approved in 2006 were addressed in the second device that was granted
FDA approval in April 2008. The LipiScan^TM device was not
marketed until after its second FDA clearance. Therefore, we no longer
needed to make a determination as to whether the newer device was
substantially similar to the predicate device and we determined in the
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43815) that
Lipiscan^TM would be considered to be ``new'' to the market
as of the date of its FDA approval in April 2008. Because a technology
may be considered new for a period of up to 3 years if, during the
third year, the technology is new for more than 6 months of the fiscal
year, it appears that the technology would still be in the newness
period for FY 2011. In the FY 2011 IPPS/LTCH PPS proposed rule, we
welcomed public comment on whether Lipiscan^TM meets the
newness criterion.
Comment: One commenter, the manufacturer, stated that the
LipiScan^TM met the newness criterion based on its FDA
approval date.
Response: We agree that the LipiScan^TM is new as of the
date of its supplemental FDA approval, April 25, 2008, because the
manufacturer provided information to us to show that the device was not
marketed until after the supplemental FDA approval. Accordingly,
Lipiscan^TM meets the newness criterion.
We note that the Lipiscan^TM technology is identified by
ICD-9-CM procedure code 38.23 (Intravascular spectroscopy), which
became effective October 1, 2008, and cases involving the use of this
device generally map to MS-DRG 246 (Percutaneous Cardiovascular
Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents);
MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting
Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular
Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/
Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-
Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous
Cardiovascular Procedures without Coronary Artery Stent with MCC); and
MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary
Artery Stent without MCC).
In an effort to demonstrate that the technology meets the cost
criterion, the applicant used the FY 2010 IPPS/RY 2010 LTCH PPS final
rule After Outliers Removed (AOR) file (posted on the CMS Web site) to
identify cases potentially eligible for Lipiscan^TM. The
applicant believes that every case within MS-DRGs 246, 247, 248, 249,
250, and 251 is eligible for Lipiscan^TM. In addition, the
applicant believes that Lipiscan^TM will be evenly
distributed across patients in each of those six MS-DRGs (16.7 percent
within each MS-DRG). Using data from the AOR file, the applicant found
the average standardized charge per case for MS-DRGs 246, 247, 248,
249, 250, and 251 was $67,531, $44,485, $62,936, $40,149, $59,416, and
$38,864, respectively, equating to a case-weighted average standardized
charge per case of $52,230 (calculation performed using unrounded
numbers). The applicant indicated that the case-weighted average
standardized charge per case does not include charges related to
Lipiscan^TM; therefore, it is necessary to add the charges
related to the device to the average case-weighted standardized charge
per case to evaluate the cost threshold criterion. Although the
applicant submitted data related to the estimated cost per case of
Lipiscan^TM, the applicant stated that the cost of the device
is proprietary information. Based on a sampling of all 10 non-Veterans
Administration

[[Page 50150]]

hospitals that are actively using the device, the applicant determined
that the average charge for the device was $7,497. Adding the estimated
average charge related for the device to the case-weighted standardized
charge per case (based on the case distribution from the applicant's FY
2010 AOR analysis) results in a total case-weighted average
standardized charge per case of $59,727 ($52,230 plus $7,497). In the
FY 2011 IPPS/LTCH PPS proposed rule, we used the FY 2011 thresholds
published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 44173) to determine if the Lipiscan^TM met the cost
criterion. For this final rule, due to the provisions of section
3401(a) of the Affordable Care Act which adjusted the FY 2010
applicable percentage increase (thus requiring CMS to revise the FY
2010 standardized amounts), we used the revised FY 2011 thresholds as
published in the FY 2010 IPPS/RY 2010 LTCH PPS notice issued in the
Federal Register on June 2, 2010 (75 FR 31213) to determine if the
Lipiscan^TM meet the cost criterion. Based on the revised FY
2011 Table 10 thresholds, the case-weighted threshold for MS-DRGs 246,
247, 248, 249, 250, and 251 is $56,466 (all calculations above were
performed using unrounded numbers). Because the applicant's calculation
of the total case-weighted average standardized charge per case for the
applicable MS-DRGs exceeds the case-weighted threshold amount, the
applicant maintains that Lipiscan^TM meets the cost
criterion.
We note that in the applicant's analysis of the cost criterion,
instead of determining the case-weighted average standardized charge
per case and the case-weighted threshold amount based on the actual
number of cases from the FY 2010 AOR file in the applicable MS-DRGs
that are eligible for the Lipiscan^TM, the applicant's
analysis assumed an even distribution of patients in the applicable MS-
DRGs. However, the data from the FY 2010 AOR file shows a varied
distribution of cases in each of the applicable MS-DRGs. We believe the
more appropriate way to determine the case-weighted average
standardized charge per case and the case-weighted threshold amount for
evaluating the cost criterion is to use the actual distribution of
cases in the applicable MS-DRGs based on the number of cases from the
AOR file because this would more accurately reflect the number and type
of Medicare cases typically treated in the applicable MS-DRGs.
Moreover, this would better conform to the applicant's assertion that
the probability of use of Lipiscan^TM is the same in each of
those six MS-DRGs. Using data from the FY 2011 AOR file (in the
proposed rule, we used the FY 2010 AOR file; however, for this final
rule, we used the most recent data available, which is the FY 2011 AOR
file), for MS-DRGs 246, 247, 248, 249, 250, and 251, there were 30,663,
141,780, 14,281, 46,037, 7,591, and 36,059 cases, respectively. Using
this case distribution and the average standardized charge per case for
MS-DRGs 246, 247, 248, 249, 250, and 251 (that is, $73,006, $48,275,
$67,954, $44,336, $65,238, and $44,504, respectively, as stated above),
we calculated that the case-weighted average standardized charge per
case is $51,353. As the applicant indicated above, the case-weighted
average standardized charge per case does not include charges related
to Lipiscan^TM. Therefore, it is necessary to add the average
charge of $7,497 related to the device to the case-weighted
standardized charge per case to evaluate the cost threshold criterion.
Adding the estimated charges related to the device to the case-weighted
average standardized charge per case (based on the case distribution
from the FY 2011 AOR final rule file) results in a total case-weighted
average standardized charge per case of $58,850 ($51,353 plus $7,497).
Using the revised FY 2011 thresholds published in Table 10 of the FY
2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31213) and the actual case
distribution from the FY 2011 AOR file, the case-weighted threshold for
MS-DRGs 246, 247, 248, 249, 250, and 251 is $52,940 (all calculations
above were performed using unrounded numbers). Because this alternative
calculation of total case-weighted average standardized charge per case
for the applicable MS-DRGs also exceeds the case-weighted threshold
amount, it appears that Lipiscan^TM would meet the cost
criterion. In the FY 2011 IPPS/LTCH PPS proposed rule, we invited
public comment on whether or not Lipiscan^TM meets the cost
criterion. We did not receive any public comments on whether or not
Lipiscan^TM meets the cost criterion. Therefore, for FY 2011,
we have determined that Lipiscan^TM meets the cost criterion.
With regard to substantial clinical improvement, we determined that
the FY 2010 new technology add-on payment application for
Lipiscan^TM did not meet the substantial clinical improvement
criterion because the evidence and information available at the time
the new technology decisions were made did not allow CMS to determine
that the application represented a substantial clinical improvement
over existing technologies. Specifically, we found that there was a
lack of evidence that demonstrated that Lipiscan^TM affected
the medical management of patients in which the device was used.
The applicant maintains that the device meets this criterion for
the following reasons. The applicant noted that from November 2008 to
2009, the number of patients in whom Lipiscan^TM has been
used for clinical purposes has increased from 100 to 500 and during the
same period, the number of hospitals using the product has increased
from 6 to 16. In addition, the applicant asserts that ``during the past
year, two Lipiscan^TM publications demonstrate that dilation
of a lipid core plaque is responsible for slow or no reflow and
myocardial infarction during the procedure.'' The applicant noted that
this is important because ``several treatments are available that could
prevent this stenting complication.'' The applicant referenced the
``700 patient PROSPECT Study'' which was presented at the Transcatheter
Cardiovascular Therapeutics Conference in September 2009 and found that
20.4 percent of patients experience a new event in the 3.4 years
following stenting. The applicant pointed to that finding as evidence
that there is a need for improved safety and efficacy of stenting and
maintained that Lipiscan^TM offers clinicians the ability to
make decisions that result in such improvements.
The PROSPECT (Providing Regional Observations to Study Predictors
of Events in the Coronary Tree) study is a cohort study of patients
with acute coronary syndrome who underwent percutaneous coronary
angioplasty and stenting (percutaneous coronary intervention).
Following the procedure, angiography and intravascular ultrasound
(IVUS) were performed. If a patient had a subsequent event, a new
angiogram and IVUS image were obtained and compared to the original
results. The investigators reported that ``angiographically mild
lesions with certain morphologic features on grayscale and IVUS present
with a 3 year cardiac event rate of 17%, versus other morphologies
(indistinguishable by conventional angiograms) with three year event
risks of less than 1%.'' We are concerned that with this type of study
design, it is not possible to determine whether the information for the
IVUS image would have altered the angioplasty and stenting procedures
since the images were collected after the procedure. The results are
suggestive, but a prospective study is needed to determine the clinical
utility of IVUS

[[Page 50151]]

and whether use of IVUS leads to changes in clinical practice or
improvements in health outcomes. The PROSPECT study generated a
hypothesis that use of IVUS may help determine which plaques are
vulnerable to future events but further clinical research is needed to
confirm this hypothesis. We note that the PROSPECT study was presented
at the Transcatheter Cardiovascular Therapeutics Conference in
September 2009, but that the study results have yet to be published in
a peer-reviewed journal. We also note that methods and conclusions from
a study may change from what was verbally presented during the peer
review process that is required to publish the study results.
As it did in its prior application, the applicant noted that the
September 1, 2001 final rule states that one facet of the criterion for
substantial clinical improvement is ``the device offers the ability to
diagnose a medical condition in a patient population where the medical
condition is currently undetectable or offers the ability to diagnose a
medical condition earlier in a patient population than allowed by
currently available methods. There must also be evidence that use of
the device to make a diagnosis affects the management of the patient''
(66 FR 46914). The applicant believes that Lipiscan^TM meets
all facets of this criterion. The applicant asserted that the device is
able to detect a condition that is not currently detectable. The
applicant explained that LipiScan^TM is the first device of
its kind to be able to detect lipid-core-containing plaques of interest
and to assess of coronary artery lipid core burden. The applicant
further noted that FDA, in its approval documentation, has indicated
that ``This is the first device that can help assess the chemical
makeup of coronary artery plaques and help doctors identify those of
particular concern.''
In addition, the applicant stated that the LipiScan^TM
chemogram permits a clinician to detect lipid-core-containing plaques
in the coronary arteries compared to other currently available devices
that do not have this ability. The applicant explained that the
angiogram, the conventional test for coronary atherosclerosis, shows
only minimal coronary narrowing. However, the applicant indicated that
the LipiScan^TM chemogram has the ability to reveal when an
artery contains extensive lipid-core-containing plaque at an earlier
stage.
The applicant also noted that the device has the ability to make a
diagnosis that better affects the management of the patient.
Specifically, the applicant asserted that LipiScan^TM ``is
currently used in the management of patients undergoing coronary
stenting to improve the safety and efficacy of the procedure'' and that
while stenting has steadily improved, its results are not optimal in
approximately 30 percent of cases due to 3 problems: (1) Peri-stenting
MI due to embolization of lipid core contents and side branch
occlusion; (2) major adverse coronary events (MACE) post stenting from
difficulties at the stented site; and (3) MACE post stenting for non-
stented vulnerable sites. We note that in order to demonstrate that the
technology represents a substantial clinical improvement, there must be
evidence that use of the device to make a diagnosis affects the medical
management of the patient and leads to improved clinical outcomes.
The applicant described three case studies where each of the above
problems was addressed by use of the LipiScan^TM. In
addition, the applicant asserts that the chemogram results are
available to the interventional cardiologist during the PCI procedure,
and have been found to be useful in decision-making. According to the
applicant, physicians have reported changes in therapy based on
LipiScan^TM findings in 20 to 50 percent of patients in which
the device has been used. According to the applicant, the most common
use of LipiScan^TM results has been by physicians for
selection of the length of artery to be stented. In some cases a longer
stent has been used when there is a lipid-core-containing plaque
adjacent to the area that is being stented because a flow-limiting
stenosis is present. The applicant also noted that, in some cases,
physicians have chosen to use down-stream protective devices during
stenting procedures on the basis of information gathered by use of
Lipiscan^TM in several patients, and that this has directly
impacted their outcome by capturing emboli and preventing further
cardiac damage. Therefore, the applicant contends that the use of
LipiScan^TM by clinicians to select the length of artery to
be stented and as an aid in selection of intensity of lipid-altering
therapy, demonstrates that LipiScan^TM affects the management
of patients.
In the proposed rule, we stated that while we recognized that the
identification of lipid-rich plaques in the coronary vasculature holds
promise in the management of coronary artery disease, we were concerned
that statements in the FDA approval documents, as well as statements
made by investigators in the literature, suggest that the clinical
implications of identifying these lipid-rich plaques are not yet
certain and that further studies need to be done to understand the
clinical implications of obtaining this information.
The applicant also submitted commentary from a group of
interventional cardiologists who currently utilize the
LipiScan^TM device explaining the clinical benefits of the
device. The applicant further noted that the device may have other
potential uses that would be of clinical benefit, and studies are
currently being conducted to investigate these other potential uses.
The applicant explained that LipiScan^TM offers promise as a
means to enhance progress against the two leading problems in coronary
disease management: (1) The high rate of second events that occur even
after catheterization, revascularization, and the institution of
optimal medical therapy; and (2) the failure to diagnose coronary
disease early, which results in sudden death or MI being the first sign
of the disease in most patients. The applicant further stated that the
identification of coronary lipid-core-containing plaques, which can
most readily be done in those already undergoing catheterization, is
likely to be of benefit in the prevention of second events. In the
longer term, the applicant stated that the identification of lipid-
core-containing plaques by LipiScan^TM may contribute to the
important goal of primary prevention of coronary events, which, in the
absence of adequate diagnostic methods, continue to cause extensive
morbidity, mortality and health care expenditures in Medicare
beneficiaries and the general population.
In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public
comment regarding whether or not the LipiScan^TM technology
represents a substantial clinical improvement for the Medicare
population.
Comment: One commenter, a trade association for interventional
cardiologists, stated that it appreciated CMS' clarification in the
proposed rule that ``a new diagnostic technology can meet the
substantial clinical improvement criterion not just by demonstrating
improvement in clinical outcomes, but also on the basis of evidence
showing changes in the management of the patient.'' This commenter
stated that, in light of the ``clarification,'' it supported the
approval of the LipiScan^TM for new technology add-on
payments.
Response: This comment mischaracterizes CMS' position regarding the
required showing for a diagnostic technology to meet the

[[Page 50152]]

substantial clinical improvement criterion. CMS has not stated that a
new diagnostic technology can meet the substantial clinical improvement
criterion not just by demonstrating improvement in clinical outcomes,
but also on the basis of evidence showing changes in the management of
the patient. As we stated in the September 7, 2001 Federal Register, we
follow certain guidelines to determine whether a technology represents
a substantial clinical improvement. For a diagnostic technology, we
make this determination by judging whether the technology ``offers the
ability to diagnose a medical condition in a patient population where
that medical condition is currently undetectable or offers the ability
to diagnose a medical condition earlier in a patient population than
allowed by currently available methods. There must also be evidence
that use of the device to make a diagnosis affects the management of
the patient.'' (66 FR 46914)
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43818), we
further discussed what evidence an applicant must show in order to meet
the substantial clinical improvement criterion for diagnostic
technologies. We continue to believe that it would not be appropriate
to provide additional payments for new diagnostic tools that fail to
significantly change the management of patients, thereby improving
clinical outcomes.
Comment: Commenters supported deeming the Lipiscan^TM to
be a substantial clinical improvement over currently available
technologies. The manufacturer stated that the use of
LipiScan^TM increased from 100 cases in late 2008 to 900
cases by June 2010, and that the number of hospitals using the
technology has increased from 16 to 22. Additionally, over 350 patients
are enrolled in the manufacturer's registry of cases involving
LipiScan^TM, COLOR. The manufacturer asserted that the data
now available clearly identify three specific clinical implications of
the detection of lipid core plaque: (1) To predict and minimize the
occurrence of peri-stenting MI; (2) to identify the length of artery to
be stented; and (3) to assist in selection of the intensity of
pharmacologic therapy following stenting.
The manufacturer submitted the chemogram images of 44 stabilized
patients who were stented and in whom enzymes are available to
determine if an MI occurred during stenting. Some of the 44 patients
had the presence of large lipid core plaque; others did not. Eight of
these patients were found to have experienced an MI during stenting (as
identified by a cardiac enzyme elevation of greater than or equal to 3x
ULN).
With respect to LipiScan^TM's ability to predict and
minimize the occurrence of peri-stenting MI, the manufacturer
referenced a doctor who had used filters or embolic protection during
stenting. That doctor's summary is presented is the next paragraph.
With respect to identifying the length of artery to be stented, the
manufacturer stated that ``a case has now been observed in which acute
stent thrombosis occurred when a stent * * * ended in a lipid core
plaque, as documented in vivo by LipiScan^TM.'' The
manufacturer asserted that the evidence linking stent thrombosis to
termination of a stent in a lipid core plaque has led physicians to use
the image provided by LipiScan^TM as a factor determining the
length of artery to be stented. With respect to LipiScan^TM
assisting in the selection of the intensity of medical therapy post-
stenting, the manufacturer maintained that ``the development of
[LipiScan^TM] now makes it possible to perform in vivo
assessment of the relationship between the presence of lipid core
plaque and coronary event.'' The manufacturer submitted before and
after chemograms in which the baseline chemogram did not show lipid
core plaque. In subsequent days, ranging from 42 to 316 days, the
manufacturer added, the patients still had no lipid rich plaque. The
manufacturer asserted that these cases ``correctly predicted the
continued patency of the artery and the absence of a coronary event
related to that artery.'' The manufacturer showed a baseline and 325
day follow-up of a patient who did have lipid rich plaque at baseline
and had a re-stenosis of the lipid rich area 325 later.
The commenters who supported this technology generally made
anecdotal assertions in which the information provided by
LipiScan^TM was useful to them in managing their patients.
One commenter, a physician, stated that he had used the identification
of lipid core plaque (as identified by LipiScan^TM) in an
attempt to protect patient from the high risk of peri-stenting MI by
``placing a distal protection filter beyond the lipid core stenosis to
be dilated.'' This commenter asserted that such filters are used in
dilation of saphenous vein grafts which have rates of periprocedural MI
that can be reduced by approximately 40 percent if embolic protection
is used. The commenter used protection devices before stenting in the
native coronary arteries seven patients with large lipid core plaque as
assessed by LipiScan^TM. A filter was used in six patients
and a proximal embolic protection was used in one patient. The
commenter stated that he believed that the rate of infarction was lower
in these seven patients than it would have been had embolic protection
devices not been utilized, and that the two infarctions that did occur
were smaller than they would have been if the full load of debris
mobilized by balloon inflation--included the debris collected in the
first basket--would have lodged in the distal vessels.
Another physician stated that there ``have been anecdotal cases by
multiple operators of the catastrophic no reflow phenomenon in patients
who underwent angioplasty of a lipid rich stenosis
[LipiScan^TM] imaging may be able to identify these patients
and hopefully prevent this catastrophic complication'' The same
commenter stated that the diagnostic information provided by the
LipiScan^TM chemogram ``can be combined with well-established
treatments * * * as a means to reduce stenting complications and peri-
stenting MI.'' Some commenters believed they could reduce the incidence
of heart attacks that occur during stenting by using a filter to remove
the lipid-rich plaque.
Another commenter stated that, although he does not perform
interventional cardiology procedures, he was interested in how the
information provided by LipiScan^TM could contribute to the
prevention of initial and secondary coronary events. He described an
asymptomatic man who participated in a clinical research study designed
to evaluate the noninvasive identification of patients at increased
risk of coronary events. He stated that the patient had a ``noninvasive
CTA'' and that positive results led to a cardiac catherization in which
LipiScan^TM was used. Based on the chemogram, which showed
extensive lipid core plaque, the clinicians decided to treat this
patient with intensive lipid altering therapy. The commenter did not
describe any followup for that patient.
Another commenter, a physician, stated that he performed
approximately 70 procedures with the LipiScan^TM since 2008.
The commenter asserted that in roughly 75 percent of these procedures,
the ``lesion characterization information provided by the Lipiscan
image affected [his] diagnosis of the patient's condition.'' In
approximately 50 percent of the procedures, the commenter stated that
the imaging information affected his treatment of the patient's
condition. The commenter further stated that the most significant
changes involved his decisions about which segments of the artery
required treatment, the length of stent to employ, and the type of
stent he chose to

[[Page 50153]]

employ. The commenter provided information on three specific cases in
which he used LipiScan^TM. In two of the cases, he indicated
that he was better able to choose the length of stent and in one case,
the use of LipiScan^TM helped guide the selection of the type
of stent to be used; although the patient did suffer a heart attack,
the stenting was able to proceed.
Response: In the case of LipiScan^TM, we note that
existing technologies may not be able to adequately identify lipid-rich
plaques. However, methods exist currently for diagnosing CAD, including
intravascular ultrasound (IVUS) and optical coherence tomography (OCT).
We also reiterate that such diagnostic capability must also be linked
to ``evidence that use of the device to make a diagnosis affects the
management of the patient.'' In this case, the evidence currently
available to CMS consists of anecdotal claims made by the applicant and
one other commenter that the identification of such plaques affects the
management of the patient. A review of the literature yielded no
additional evidence base to support the applicant's claim regarding the
effect of this technology on patient management. Furthermore, as we
stated last year, we continue to believe that the prognostic
implications of detecting lipid-rich plaque are not yet sufficiently
well understood and documented in the peer-reviewed evidence base to
conclude that its identification will lead to widespread and evidence-
based changes in the management of CAD.
We believe that a diagnostic technology must necessarily have
evidence-based, significant, and positive effects on the management of
patients, thereby resulting in improved clinical outcomes generally
accepted by clinicians, in order to meet the threshold of representing
an advance that substantially improves, relative to technologies
previously available, the diagnosis of Medicare beneficiaries.
In response to the comments that the LipiScan, combined with a
filter could reduce the incidence of peri-stenting MI, we note that use
of such a filter in the coronary vasculature is not currently approved
by the FDA and therefore is ``off-label'' to the extent that it is
already being employed by physicians. The most recent article submitted
to us by the applicant (dated 2010), an ``Imaging Vignette'' which does
not appear to have been published yet, concludes: ``Additional studies
are needed to quantitate the ability of NIRS to predict the occurrence
of peri-stenting infarction and to test, in a randomized trial, the
strategy of NIRS guided use of a distal protection device'' (Goldstein,
et al). We agree with the commenters that use of such filter may
ultimately reduce the incidence of peri-stenting MI to the extent that
it aides the physician in placing the stent such that it does not cause
the lipid core plaque to rupture. However, absent FDA approval for this
indication, we do not believe it is appropriate to consider this use as
part of our evaluation of substantial clinical improvement for the
LipiScan^TM. We also agree with the vignette's conclusion
that additional clinical studies are needed to evaluate this claim.
Therefore, while we recognize that Lipiscan^TM provides
the ability to detect lipid-rich plaque which is currently undetectable
by any other means, we are nonetheless still concerned that there is
significant uncertainty within the clinical community regarding the
prognostic implications of obtaining this information. We believe the
evidence supplied by the applicant and the commenters that the device
is affecting the management of the patient is not able to be validated
broadly and is still anecdotal. Further, the discussions of the
technology in the scientific studies submitted by the applicant
acknowledge the possible potential of the technology to affect
treatment in the future, but all stated that additional studies are
necessary to determine its actual clinical utility. Specifically, in an
editorial published in 2008, the author wrote, ``In conclusion, further
studies are warranted to determine if detection of [lipid core plaque
of interest] by [near infrared spectroscopy] imaging will contribute to
enhanced prediction of outcomes in patients with known CAD'' (Young,
2008). Also, in a letter to the editor in the Journal of the College of
Cardiology, another author wrote about his experience with three
patients over a period of three weeks to share his ``initial
observations.'' The author wrote that ``* * * preliminary results
suggest that intravascular investigation of chemical composition of a
coronary plaque has become a clinical reality [but] it remains to be
seen whether chemograms would perform better than the ultrasound of
whether they will be able to predict adverse events and faciltate
development of clinically effective strategies for management of
vulnerable plaques before it is too late.'' (Maini, 2008) (emphasis
added).
In addition, we are concerned that there continues to be relatively
few cases in which Lipiscan^TM has been used relative to the
patient population in which it could potentially be used. As we have
previously explained, we do not consider merely anecdotal claims that a
device affects the management of the patient as sufficient evidence to
demonstrate that a new diagnostic device affects the management of the
patient, particularly where the device could be used for a relatively
large patient population. Specifically, the applicant claims that the
device could potentially be used in every patient who undergoes
coronary angiography. To date, the device is only in use in 22
hospitals total and, as noted above, there has been no data published,
or even reported, from the hospitals where the device has been used, to
indicate that management of patients has changed and that patients who
received LipiScan^TM had better clinical outcomes than those
who did not.
We believe that the lack of comparative data from hospitals showing
statistically valid improved outcomes for the patients who received
LipiScan^TM compared to those who did not receive the
technology further supports our previously stated view that the
prognostic implications of detecting lipid-rich plaque are still not
well enough understood and therefore the detection of such plaque
cannot be reasonably assumed to automatically lead to evidence-based,
significant, and positive in the management of patients with CAD
generally accepted by clinicians, much less lead to improved clinical
outcomes. We agree with the commenters and applicant that the
identification of lipid-rich plaques by LipiScan^TM may
potentially hold promise and ultimately lead to changes in the
management of CAD and that Lipiscan^TM has the potential to
provide additional benefits in clinical outcomes of patients with CAD.
However, we do not believe the evidence and information available at
this time allows us to determine that it meets the substantial clinical
improvement criterion.
Accordingly, we are not approving Lipiscan^TM for new
technology add-on payments for FY 2011.
c. LipiScan^TM Coronary Imaging System With Intravascular
Ultrasound (IVUS)
InfraReDx, Inc. submitted an application for new technology add-on
payments for FY 2011 for the LipiScan^TM Coronary Imaging
System with Intravascular Ultrasound (LipiScan^TM IVUS). The
LipiScan^TM IVUS device is a diagnostic device that uses
Intravascular near infrared spectroscopy (INIRS) combined with
intravascular ultrasound (IVUS) during an invasive coronary angiography
to determine the chemical composition of coronary plaques, which is
accomplished using near infrared spectroscopy (INIRS) and to visualize
stents and the structural features of

[[Page 50154]]

coronary lesions, which is accomplished using IVUS. This new technology
combines both capabilities in a single catheter. The IVUS part of the
device utilizes sound to interrogate the artery and, according to the
applicant, provides an image of the size of the plaque, the degree of
stenosis produced by the plaque, the size of the artery and the degree
of expansion of the stent. The device consists of a single-use
catheter, a console and a ``single pullback with the artery.'' The
device is intended to be used in patients already undergoing coronary
stenting.
We note that the LipiScan^TM IVUS device is identified by
ICD-9-CM procedure codes 38.23 (Intravascular spectroscopy) and 00.24
(Intravascular imaging of coronary vessels). Cases involving the use of
this device generally map to MS-DRG 246 (Percutaneous Cardiovascular
Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents);
MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting
Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular
Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/
Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-
Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous
Cardiovascular Procedures without Coronary Artery Stent with MCC); and
MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary
Artery Stent without MCC).
With respect to the newness criterion, we noted in the proposed
rule that this device was not currently approved by the FDA, but the
manufacturer anticipated that FDA approval will be granted in the
second quarter of 2010. We also noted that IVUS has existed for over 20
years. Therefore, IVUS, on its own, would not meet the newness
criterion. The applicant asserted that one difference from the
Lipiscan^TM product, for which it has also submitted an
application for new technology add-on payments, is that the catheter
for the combined product is filled with saline (which is required for
transmission of sound). The manufacturer has also stated that the
combined device only requires the use of one catheter, as opposed to
two separate ones. The manufacturer asserted that the single-use
catheter for the combined technologies is only supplied by InfraReDx
(the manufacturer of LipiScan^TM). However, we noted that a
physician could use LipiScan^TM and IVUS as two separate
products in the same patient (through the use of two catheters) and
still be able to obtain the INIRS image and the ultrasound that are
achieved through the combined product albeit separately.
In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public
comments regarding whether the combined LipiScan^TM IVUS
device should be considered to be ``new'' as of the date of the
existing LipiScan^TM device received FDA approval or whether
it should be considered new from the FDA approval date for
LipiScan^TM IVUS (should such an approval be granted). We
also welcomed public comments regarding whether LipiScan^TM
IVUS, as a combined technology, should be considered to be
substantially similar to each individual technology separately as of
the date that each separate technology received FDA approval (or the
date that each technology became available on the market, if either
technology was not available on the market until a date after FDA
approval).
As stated above, in making a determination of substantial
similarity, we consider the following: (1) Whether a product uses the
same or similar mechanism of action to achieve a therapeutic action;
(2) whether a product is assigned to the same or a different DRG; and
(3) whether new use of a technology involves treatment of the same or
similar type of disease and the same or similar patient population. In
the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that ``due to
the complexity of issues regarding the substantial similarity component
of the newness criterion, it may be necessary to exercise flexibility
when considering whether technologies are substantially similar to one
another'' (74 FR 43813).
Comment: One comment, the manufacturer, stated that it agreed with
the proposed rule statement of ``it appears that LipiScan^TM
IVUS meet the newness criterion.'' Additionally, the commenter stated
that should the LipiScan^TM IVUS receive FDA approval, it
should be considered new because LipiScan^TM IVUS provides
the individual benefits of both LipiScan and IVUS, ``plus accurate co-
registration, synergistic benefits, and enhanced safety and ease of use
we believe that the LipiScan^TM IVUS multimodality imaging
catheter should be considered new if and when it receives clearance by
the FDA and is marketed.'' The commenter did not specifically address
the three criteria considered under substantial similarity.
Response: We note that the LipiScan^TM IVUS received a
510(k) approval from the FDA on June 30, 2010, prior to the July 1
deadline that applicants for new technology must meet in order to be
evaluated under the newness criterion. The FDA approval letter did not
provide information that would distinguish the LipiScan^TM
IVUS from its predicate devices. In addition, the manufacturer did not
provide enough information for us to distinguish the
LipiScan^TM IVUS from the LipiScan^TM, which is
what we specifically questioned in the proposed rule. (Indeed, we note
that the uses for both devices appear to be markedly similar.) Also, we
did not state in the proposed rule that the technology meets the
newness criterion, as the commenter suggested. We note that under FDA's
510(k) approval process, there must be at least one predicate device
that is ``substantially equivalent.'' However, as we have stated
previously, we do not believe that a determination of substantial
equivalence by FDA under the 510(k) approval process necessarily means
that a technology is substantially similar to its predicate device(s)
for purposes of the new technology add-on payment.
Moreover, none of the public commenters specifically addressed
whether the LipiScan^TM IVUS was substantially similar to the
LipiScan^TM. Specifically, none of the public commenters,
including the manufacturer, addressed: (1) Whether the products use the
same or similar mechanism of action to achieve a therapeutic action;
(2) whether the products are assigned to the same or a different DRG;
and (3) whether new use of a technology involves treatment of the same
or similar type of disease and the same or similar patient population.
As a result, we do not believe that we have sufficient information to
make an affirmative decision regarding whether the
LipiScan^TM IVUS is substantially similar to the
LipiScan^TM. Accordingly, we are not making a determination
regarding whether the LipiScan^TM IVUS is substantially
similar to its predicate device or the LipiScan^TM in this
final rule. However, we note that whether or not LipiScan^TM
IVUS was substantially similar to LipiScan^TM, the
LipiScan^TM IVUS is still within its newness period for FY
2011 (because the LipiScan^TM was new as of April 2008 and is
still within its ``newness'' window for FY 2011). Accordingly, we
believe that LipiScan^TM IVUS meets the newness criterion for
FY 2011, but we do not have sufficient information regarding whether or
not the start of the newness period began in April 2008 or June 2010.
Therefore, we are not making a determination in this rulemaking
regarding the start of the newness period.

[[Page 50155]]

In an effort to demonstrate that the technology meets the cost
criterion, the applicant used the FY 2010 IPPS/RY 2010 LTCH PPS final
rule AOR file (posted on the CMS Web site) to identify cases
potentially eligible for Lipiscan^TM IVUS. The applicant
believes that every case within MS-DRGs 246, 247, 248, 249, 250, and
251 is eligible for Lipiscan^TM IVUS. In addition, the
applicant believes that Lipiscan^TM IVUS will be evenly
distributed across patients in each of those six MS-DRGs (16.7 percent
within each MS-DRG). Using data from the AOR file, the applicant found
the average standardized charge per case for MS-DRGs 246, 247, 248,
249, 250, and 251 was $67,531, $44,485, $62,936, $40,149, $59,416, and
$38,864 respectively, equating to a case-weighted average standardized
charge per case of $52,230 (calculation performed using unrounded
numbers). The applicant indicated that the case-weighted average
standardized charge per case does not include charges related to
Lipiscan^TM IVUS. Therefore, it is necessary to add the
charges related to the device to the average case-weighted standardized
charge per case to evaluate the cost threshold criterion. Although the
applicant submitted data related to the estimated cost per case of
Lipiscan^TM IVUS, the applicant stated that the cost of the
device is proprietary information. The applicant analyzed Hospital Cost
Report Information System (HCRIS) data from 2008 to determine the
charges related to the device. Specifically, the applicant searched for
the 100 cardiac catheterization labs that had the highest volume of
cases in the United States. Based on the HCRIS data from these 100
laboratories, the applicant determined the mean CCR was 0.188 with a
markup of 532 percent, yielding a charge of $15,960 for
Lipiscan^TM IVUS. (We note that this estimate of charges
related to the Lipiscan^TM IVUS is significantly higher than
the estimate of charges related to the Lipiscan^TM device
derived from a sample of hospitals.) Adding the estimated average
charge related for the device to the case-weighted standardized charge
per case (based on the case distribution from the applicant's FY 2010
AOR analysis) results in a total case-weighted average standardized
charge per case of $68,190 ($52,230 plus $15,960). In the FY 2011 IPPS/
LTCH PPS proposed rule, we used the FY 2011 thresholds published in
Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173)
to determine if the Lipiscan^TM IVUS meets the cost
criterion. For this final rule, due to the provisions of section
3401(a) of the Affordable Care Act which adjusted the FY 2010
applicable percentage increase (thus requiring CMS to revise the FY
2010 standardized amounts), we used the revised FY 2011 thresholds as
published in the FY 2010 IPPS/RY 2010 LTCH PPS notice that appeared in
the Federal Register on June 2, 2010 (75 FR 31213) to determine if the
Lipiscan^TM IVUS meets the cost criterion. Based on the
revised FY 2011 Table 10 thresholds, the case-weighted threshold for
MS-DRGs 246, 247, 248, 249, 250, and 251 is $56,466 (all calculations
above were performed using unrounded numbers). Because the applicant's
calculation of the total case-weighted average standardized charge per
case for the applicable MS-DRGs exceeds the case-weighted threshold
amount, the applicant maintains that Lipiscan^TM IVUS meets
the cost criterion.
We note that in the applicant's analysis of the cost criterion,
instead of determining the case-weighted average standardized charge
per case and the case-weighted threshold amount based on the actual
number of cases from the FY 2010 AOR file in the applicable MS-DRGs
that are eligible for the Lipiscan^TM IVUS, the applicant's
analysis assumed an even distribution of patients in the applicable MS-
DRGs. However, the data from the FY 2010 AOR file shows a varied
distribution of cases in each of the applicable MS-DRGs. We believe the
more appropriate way to determine the case-weighted average
standardized charge per case and the case-weighted threshold amount for
evaluating the cost criterion is to use the actual distribution of
cases in the applicable MS-DRGs based on the number of cases from the
AOR file because this would more accurately reflect the number and type
of Medicare cases typically treated in the applicable MS-DRGs.
Moreover, this would better conform to the applicant's assertion that
the probability of use of Lipiscan^TM IVUS is the same in
each of those six MS-DRGs. Using data from the FY 2011 AOR file (in the
proposed rule, we used the FY 2010 AOR file; however, for this final
rule, we used the most recent data available, which are contained in
the FY 2011 AOR file), for MS-DRGs 246, 247, 248, 249, 250, and 251,
there were 30,663, 141,780, 14,281, 46,037, 7,591, and 36,059 cases
respectively. Using this case distribution and the average standardized
charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 (that is,
$73,006, $48,275, $67,954, $44,336, $65,238, and $44,504, respectively,
as stated above), the case-weighted average standardized charge per
case is $46,949. As the applicant indicated above, the case-weighted
average standardized charge per case does not include charges related
to Lipiscan^TM IVUS. Therefore, it is necessary to add the
average charge of $15,960 related to the device to the case-weighted
standardized charge per case to evaluate the cost threshold criterion.
Adding the estimated charges related to the device to the case-weighted
average standardized charge per case (based on the case distribution
from the FY 2010 AOR final rule file) results in a total case-weighted
average standardized charge per case of $62,909 ($46,949 plus $15,960).
Using the revised FY 2011 thresholds published in Table 10 of the FY
2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31215) and the actual case
distribution from the AOR file, the case-weighted threshold for MS-DRGs
246, 247, 248, 249, 250, and 251 is $52,940 (all calculations above
were performed using unrounded numbers). Because this alternative
calculation of total case-weighted average standardized charge per case
for the applicable MS-DRGs exceeds the case-weighted threshold amount,
it appears that Lipiscan^TM IVUS would meet the cost
criterion.
In addition to the analysis above, the applicant searched the FY
2008 MedPAR file for cases potentially eligible for use of the
Lipiscan^TM IVUS. Because the technology can potentially be
used for all cases within MS-DRGs 246 through 251, the applicant
searched the FY 2008 MedPAR file for all cases within these MS-DRGs.
The applicant found 30,265 cases (or 9.7 percent of all cases) in MS-
DRG 246; 147,695 cases (or 47.4 percent of all cases) in MS-DRG 247;
19,642 cases (or 6.3 percent of all cases) in MS-DRG 248; 67,840 cases
(or 21.8 percent of all cases) in MS-DRG 249; 8,120 cases (or 2.6
percent of all cases) in MS-DRG 250; and 38,022 cases (or 12.2 percent
of all cases) in MS-DRG 251. The average standardized charge per case
was $66,958 for MS-DRG 246, $50,192 for MS-DRG 247, $72,099 for MS-DRG
248, $45,086 for MS-DRG 249, $71,355 for MS-DRG 250, and $46,141 for
MS-DRG 251, equating to a case-weighted average standardized charge per
case of $45,964.
Similar to above, the average standardized charge per case does not
include charges related to the Lipiscan^TM IVUS; therefore,
it is necessary to add the charges related to the device to the average
standardized charge per case in evaluating the cost threshold
criterion. Although the applicant submitted data related to the
estimated cost of Lipiscan^TM IVUS per case, the applicant
noted that the cost of the device was proprietary information. Based on
2008 HCRIS data from the

[[Page 50156]]

cardiac catheterization laboratories for all IPPS hospitals, the
applicant determined a mean cost-to-charge ratio of 0.246 with a markup
of 351 percent, yielding a charge of $10,543 for Lipiscan^TM
IVUS. Assuming that the Lipiscan^TM IVUS device was marked up
351 percent, the total case-weighted average standardized charge per
case for cases involving the use of Lipiscan^TM IVUS would be
$56,507 ($45,964 plus $10,543) across MS-DRGs 246 through 251.
Using the revised FY 2011 thresholds published in Table 10 of the
FY 2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31215), the case-weighted
threshold for MS DRGs 246, 247, 248, 249, 250, and 251 is $52,671 (all
calculations above were performed using unrounded numbers). Because the
applicant's calculation of the total case-weighted average standardized
charge per case for the applicable MS-DRGs exceeds the case-weighted
threshold amount, the applicant maintains that Lipiscan^TM
IVUS meets the cost criterion. In the FY 2011 IPPS/LTCH PPS proposed
rule, we invited public comment on whether or not Lipiscan^TM
IVUS meets the cost criterion. We did not receive any public comments
in this regard. Accordingly, we find that for FY 2011
Lipiscan^TM IVUS meets the cost criterion.
With regard to substantial clinical improvement, the applicant
asserts that LipiScan^TM IVUS lends all the same benefits of
LipiScan^TM by itself (see discussion of
LipiScan^TM with respect to clinical improvement in the above
application analysis) and also gives added benefits of IVUS.
Specifically, the applicant maintains that LipiScan^TM IVUS
is superior to perfusion imaging and coronary angiography because those
procedures only provide information about the lumen, but not the wall
of the vessel. The applicant asserts that it is superior to IVUS (by
itself) because IVUS alone cannot identify plaque composition. The
applicant further maintains that LipiScan^TM IVUS provides a
substantial clinical benefit over Optical Coherence Tomography (OCT)
because OCT cannot be used if blood is present in the field of view and
identification of lipid by OCT is ``time-consuming with a requirement
for expert interpretation.'' In contrast, ``the LipiScan^TM
IVUS signal is available immediately after the coronary pullback and
does not require expert interpretation.''
The applicant also states that LipiScan^TM IVUS makes it
possible to find the lipid core plaques that are strongly associated
with peri-stenting MI and adverse events post-MI that current methods
of diagnosis fail to find.
Finally, the applicant asserts that LipiScan^TM IVUS
affects the management of the patient by improving the safety and
efficacy of stenting. Further, the applicant states that while stenting
has steadily improved, its results are not optimal in approximately 30
percent of cases due to three problems: (1) Peri-stenting MI due to
embolization of lipid core contents and side branch occlusion; (2)
major adverse coronary events (MACE) post stenting from difficulties at
the stented site; and (3) MACE post stenting for non-stented vulnerable
sites.
The applicant described three case studies where each of the above
problems were addressed by use of the LipiScan^TM IVUS.
LipiScan^TM IVUS achieves its utility to differentiate lipid
core plaque from fibrotic plaque, a differentiation that cannot be made
by angiography or grayscale IVUS.
The applicant referenced the ``700 patient PROSPECT Study'' which
was presented at the Transcatheter Cardiovascular Therapeutic
Conference in September 2009 and found that 20.4 percent of patients
experience a new event in the 3.4 years following stenting. The
applicant pointed to that finding as evidence that there is a need for
improved safety and efficacy of stenting and maintained that
Lipiscan^TM offers clinicians the ability to make decisions
that result in such improvements. We note that the applicant did make
this assertion with regard to Lipiscan^TM and not
Lipiscan^TM IVUS.
The PROSPECT (Providing Regional Observations to Study Predictors
of Events in the Coronary Tree) study is a cohort study of patients
with acute coronary syndrome who underwent percutaneous coronary
angioplasty and stenting (percutaneous coronary intervention).
Following the procedure, angiography and IVUS were performed. If a
patient had a subsequent event, a new angiogram and IVUS image were
obtained and compared to the original results. The investigators
reported that ``angiographically mild lesions with certain morphologic
features on grayscale and IVUS present with a 3 year cardiac event rate
of 17%, versus other morphologies (indistinguishable by conventional
angiograms) with three year event risks of less than 1%.'' We are
concerned that with this type of study design, it is not possible to
determine whether the information for the IVUS image would have altered
the angioplasty and stenting procedures since the images were collected
after the procedure. The results are suggestive, but a prospective
study is needed to determine the clinical utility of
LipiScan^TM and whether use of IVUS leads to changes in
clinical practice or improvements in health outcomes. The PROSPECT
study generated a hypothesis that use of IVUS may help determine which
plaques are vulnerable to future events but further clinical research
is needed to confirm this hypothesis. We note that the PROSPECT study
was presented at the Transcatheter Cardiovascular Therapeutics
Conference in 2009, but that the study results have yet to be published
in a peer-reviewed journal. We also note that methods and conclusions
from a study may change from what was verbally presented during the
peer review process that is required to publish the study results.
We are concerned that, in the LipiScan^TM IVUS
application, the applicant has generally repeated the statements made
regarding use of LipiScan^TM alone and has not provided
information that indicates that combined use of LipiScan^TM
plus IVUS offers additional clinical benefit, although the applicant
did maintain that the use of one catheter to co-register of the near
infrared (NIR) mirrors and the ultrasound transducer can enhance the
accuracy of output and can have safety benefits. Indeed, we note that
most of the studies that were presented in an effort to demonstrate
that LipiScan^TM by itself was a substantial clinical
improvement were also included to support the LipiScan^TM
IVUS application. The applicant did not present any published peer-
reviewed journal articles that were specifically related to the
clinical merits of the combined LipiScan^TM IVUS device.
In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public
comments on whether the LipiScan^TM IVUS represents a
substantial clinical improvement over existing technologies as well as
public comments on what is the appropriate comparison device for
LipiScan^TM IVUS.
Comment: Many of the commenters who supported the
LipiScan^TM application also stated that, should the
LipiScan^TM IVUS receive FDA approval, they believed that it
would offer similar benefits to the LipiScan^TM. For this
reason, these commenters were supportive of LipiScan^TM IVUS
being approved for the new technology add-on payments. The manufacturer
commented that the LipiScan^TM IVUS ``has been constructed
and used successfully in seven patients in Rotterdam, Netherlands'' and
that it was featured in a live case presentation at ``EuroPCR,'' ``the
leading meeting of interventional cardiologists in Europe.''

[[Page 50157]]

The manufacturer also stated that LipiScan^TM IVUS provides
the benefits of LipiScan^TM and IVUS plus several synergistic
benefits. Specifically, the manufacturer noted the co-registration of
the near infrared (NIR) mirrors and the ultrasound transducer enhances
the accuracy of the output. The IVUS shows the location of the catheter
in the artery while the NIR enhances the interpretation of the
grayscale IVUS image. The manufacturer stated that ``once NIR has
clearly shown that a lipid core is present, it is possible to re-
examine the IVUS image for features such as an estimate of cap
thickness.'' The manufacturer also stated that there are safety
benefits associated with using one catheter to obtain both the NIR
image and the IVUS image and noted that with each insertion of a
catheter comes the risk of an adverse event such as a stroke or
myocardial infarction. Additionally, the manufacturer stated that
combining both technologies into one catheter reduces procedure time,
radiation exposure and contrast utilization. The manufacturer stated
that a peer-reviewed manuscript has been published by Garg, et al.
Response: According to the applicant, there have only been seven
cases in which the LipiScan^TM IVUS has been used, none of
them in the United States (and, ostensibly, none on a Medicare
beneficiary). Despite the applicant's claims that the combined
LipiScan^TM IVUS technology enhances the benefits of either
LipiScan^TM or IVUS alone as well as LipiScan^TM
and IVUS used simultaneously, but with two separate catheters, we do
not believe that there is enough clinical evidence relating to this
technology to support this claim or to demonstrate that the technology
is a substantial clinical improvement over other existing diagnostic
technologies. That is, the evidence available at this time does not
support that the LipiScan^TM IVUS affects the medical
management of the patient which, in turn, leads to improved clinical
outcomes. We also note that we did not believe that there was enough
clinical evidence available at this time to substantiate the claims
that LipiScan^TM by itself is a substantial clinical
improvement. To the extent that the same information was submitted to
support the applicant's LipiScan^TM IVUS application, we also
find, for the reasons discussed above, that the evidence is
insufficient to demonstrate that the LipiScan^TM IVUS
represents a substantial clinical improvement over existing
technologies. The manuscript that the applicant referred to simply
describes what the technology does and how it is used; it does not
provide any details as to how the technology affects the medical
management of patients nor does it provide evidence that use of the
LipiScan^TM IVUS ultimately leads to improved clinical
outcomes for patients. Although we recognize that the combination of
these two existing technologies may ultimately lead to better clinical
outcomes for patients undergoing coronary stenting, no data is
available at this time to support that notion.
Accordingly, we are not approving the LipiScan^TM IVUS
device for new technology add-on payments for FY 2011.

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

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary must adjust the standardized amounts ``for area differences
in hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level.'' In
accordance with the broad discretion conferred under the Act, we
currently define hospital labor market areas based on the definitions
of statistical areas established by the Office of Management and Budget
(OMB). A discussion of the FY 2011 hospital wage index based on the
statistical areas, including OMB's revised definitions of Metropolitan
Areas, appears under section III.C. of this preamble.
Beginning October 1, 1993, section 1886(d)(3)(E) of the Act
requires that we update the wage index annually. Furthermore, this
section of the Act provides that the Secretary base the update on a
survey of wages and wage-related costs of short-term, acute care
hospitals. The survey must exclude the wages and wage-related costs
incurred in furnishing skilled nursing services. This provision also
requires us to make any updates or adjustments to the wage index in a
manner that ensures that aggregate payments to hospitals are not
affected by the change in the wage index. The adjustment for FY 2011 is
discussed in section II.B. of the Addendum to this final rule.
As discussed below in section III.I. of this preamble, we also take
into account the geographic reclassification of hospitals in accordance
with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating
IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the
Secretary is required to adjust the standardized amounts so as to
ensure that aggregate payments under the IPPS after implementation of
the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the
Act are equal to the aggregate prospective payments that would have
been made absent these provisions. The budget neutrality adjustment for
FY 2011 is discussed in section II.A.4.b. of the Addendum to this final
rule.
Section 1886(d)(3)(E) of the Act also provides for the collection
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in
order to construct an occupational mix adjustment to the wage index. A
discussion of the occupational mix adjustment that we are applying
beginning October 1, 2010 (the FY 2011 wage index) appears under
section III.D. of this preamble.

B. Wage Index Reform

1. Wage Index Study Required Under the MIEA-TRHCA
a. Legislative Requirement
Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required
MedPAC to submit to Congress, not later than June 30, 2007, a report on
the Medicare wage index classification system applied under the
Medicare IPPS. Section 106(b) of MIEA-TRHCA required the report to
include any alternatives that MedPAC recommends to the method to
compute the wage index under section 1886(d)(3)(E) of the Act.
In addition, section 106(b)(2) of the MIEA-TRHCA instructed the
Secretary of Health and Human Services, taking into account MedPAC's
recommendations on the Medicare wage index classification system, to
include in the FY 2009 IPPS proposed rule one or more proposals to
revise the wage index adjustment applied under section 1886(d)(3)(E) of
the Act for purposes of the IPPS. The Secretary was also to consider
each of the following:
Problems associated with the definition of labor markets
for the wage index adjustment.
The modification or elimination of geographic
reclassifications and other adjustments.
The use of Bureau of Labor Statistics (BLS) data or other
data or methodologies to calculate relative wages for each geographic
area.
Minimizing variations in wage index adjustments between
and within MSAs and statewide rural areas.

[[Page 50158]]

The feasibility of applying all components of CMS'
proposal to other settings.
Methods to minimize the volatility of wage index
adjustments while maintaining the principle of budget neutrality.
The effect that the implementation of the proposal would
have on health care providers and on each region of the country.
Methods for implementing the proposal(s), including
methods to phase in such implementations.
Issues relating to occupational mix such as staffing
practices and any evidence on quality of care and patient safety
including any recommendation for alternative calculations to the
occupational mix.
In the FY 2009 IPPS final rule (73 FR 48563 through 48567), we
discussed the MedPAC's study and recommendations, the CMS contract with
Acumen, L.L.C. for assistance with impact analysis and study of wage
index reform, and public comments we received on the MedPAC
recommendations and the CMS/Acumen study and analysis.
b. Interim and Final Reports on Results of Acumen's Study
(1) Interim Report on Impact Analysis of Using MedPAC's Recommended
Wage Index
In the FY 2009 IPPS final rule (73 FR 48566 through 48567), we
discussed the analysis conducted by Acumen comparing use of the MedPAC
recommended wage indices to the current CMS wage index. We refer
readers to section III.B.1.e. of that final rule for a full discussion
of the impact analysis as well as to Acumen's interim report available
on the Web site: http://www.acumenllc.com/reports/cms.
(2) Acumen's Final Report on Analysis of the Wage Index Data and
Methodology
Acumen's final report addressing the issues in section 106(b)(2) of
the MIEA-TRHCA is divided into two parts. In the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43824), we provided a description of
Acumen's analyses for both parts. The first part of Acumen's final
report analyzed the strengths and weaknesses of the data sources used
to construct the MedPAC and CMS indexes. The first part of the report
was published on Acumen's Web site after the publication of the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule. In its conclusion, Acumen
suggested that MedPAC's recommended methods for revising the wage index
represented an improvement over the existing methods, and that the BLS
data should be used so that the MedPAC approach can be implemented.
The second part of Acumen's final report focuses on the methodology
of wage index construction and covers issues related to the definition
of wage areas and methods of adjusting for differences among
neighboring wage areas, as well as reasons for differential impacts of
shifting to a new index. Acumen published the second part of its final
report in March 2010 on its Web site at: http://www./acumenllc.com/
reports/cms. In particular, the report analyzes MedPAC's recommended
method of improving upon the definition of the wage areas used in the
current wage index. MedPAC's method first blends MSA and county-level
wages and then implements a ``smoothing'' step that limits differences
in wage index values between adjacent counties to no more than 10
percent. Acumen found MedPAC's method to be an improvement over the
current wage index construct. However, although MedPAC's method
diminishes the size of differences between adjacent areas, Acumen
suggested that MedPAC's method does not guarantee an accurate
representation of a hospital labor market and would not necessarily
eliminate or reduce hospitals' desire to reclassify for a higher wage
index. Acumen recommended further exploration of labor market area
definitions using a wage area framework based on hospital-specific
characteristics, such as commuting times from hospitals to population
centers, to construct a more accurate hospital wage index. Acumen
suggested that such an approach offers the greatest potential for
replacing or greatly reducing the need for hospital reclassifications
and exceptions.
We indicated in the FY 2009 IPPS final rule (73 FR 48566) that, in
developing any proposal(s) for additional wage index reform that may be
included in the FY 2010 IPPS proposed rule, we would consider all of
the public comments on the MedPAC recommendations that we had received
in that proposed rulemaking cycle, along with the interim and final
reports to be submitted to us by Acumen. As Acumen's study was not
complete at the time of issuance of the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we did not propose any additional changes to the
hospital wage index for the FY 2010 IPPS. We also did not propose any
additional changes regarding reforming the wage index for the FY 2011
IPPS. We welcomed comments regarding the second part of Acumen's final
report.
Comment: Several commenters addressed the data source for
constructing the wage index. One commenter supported the use of BLS
data and suggested that a simplified, standard dataset will eliminate
unnecessary reclassifications and inconsistencies among Medicare
contractors and create a more valid wage index calculation. Other
commenters reiterated the concerns about the shortcomings of the BLS
data that they expressed in public comments summarized in the FY 2009
IPPS final rule (73 FR 48564). One commenter suggested that CMS use
data that reflect the price of labor rather than the cost of labor in
constructing the wage index. The commenter also suggested that the wage
index include data from SNFs and other postacute care settings because
the wage index is also applied in those Medicare provider payment
systems.
Regarding the methodology for constructing the wage index, several
commenters shared Acumen's concern that MedPAC's blending and smoothing
methodology may not be well suited for the Medicare wage index because
it may mask actual geographic variations in wage levels. However, the
commenters supported MedPAC's suggestion of varying wage indices by
more refined areas, such as counties. Several commenters also expressed
interest in Acumen's suggestion for further exploration of labor market
area definitions based on hospital specific characteristics, such as
the commuting times from hospitals to population centers.
One national hospital association recommended that CMS consider the
following guiding principles as it evaluates options for improving the
wage index system:

``Any new system should--
Be fair and accurately reflect the labor marketplace
for hospitals, e.g., consider only hospital wage and benefit costs
rather than broader labor market costs;
Provide predictable payments;
Be stable;
Be transparent so that the data may be examined and
verified;
Minimize the administrative burden on hospitals;
Utilize the most current information possible;
Define boundaries that capture meaningful relationships
between labor markets, to reduce the need for exceptions and
reclassifications;
Due to the imperfection of any current labor market
definition that we are aware of, provide an exception process for
hospitals with labor costs atypical for areas to which they have
been assigned;
Use consistent definitions, methodologies, rules, and
interpretations

[[Page 50159]]

across the nation for the acquisition and application of data;
Include a transition from the old to the new system
that is not disruptive; it should include a phased-in transition
period if necessary to protect hospitals from abrupt reductions in
payment levels; and
Not let perfection be the enemy of the better.''

Commenters generally urged CMS to move forward cautiously and
ensure a thorough process for evaluating changes to the existing wage
index.
Response: As discussed in section III.B.4. of the preamble in this
final rule, section 3137(b) of the Affordable Care Act requires the
Secretary of Health and Human Services to submit to Congress, not later
than December 31, 2011, a report that includes a plan to reform the
Medicare wage index applied under the Medicare IPPS. We will consider
the MedPAC's and Acumen's reports and findings, along with all of the
public comments and suggestions we have received, as we evaluate ways
for improving the wage index.
2. FY 2009 Policy Changes in Response to Requirements Under Section
106(b) of the MIEA-TRHCA and Subsequent Changes Under Sections 3137(c)
and 3141 of the Affordable Care Act
To implement the requirements of section 106(b) of the MIEA-TRHCA
and respond to MedPAC's recommendations in its June 2007 report to
Congress, in the FY 2009 IPPS final rule (73 FR 48567 through 48574),
we made policy changes to the wage index relating to geographic
reclassification average hourly wage comparison criteria and rural and
imputed floor budget neutrality. (We refer readers to the FY 2009 IPPS
final rule for a full discussion of the basis for the proposals, the
public comments received, and the FY 2009 final policy.) In the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR 43825), we reiterated these
policy changes, especially as they related to the FY 2010 IPPS.
However, provisions of the Affordable Care Act recently changed the
reclassification average hourly wage comparison criteria and rural and
imputed floor budget neutrality policies that we adopted in FY 2009.
a. Reclassification Average Hourly Wage Comparison Criteria
In the FY 2009 IPPS final rule, we adopted the policy to adjust the
reclassification average hourly wage standard, comparing a
reclassifying hospital's (or county hospital group's) average hourly
wage relative to the average hourly wage of the area to which it seeks
reclassification. (We refer readers to the FY 2009 IPPS final rule for
a full discussion of the basis for the proposals the public comments
received and the FY 2009 final policies.) We provided for a phase-in of
the adjustment over 2 years. For applications for reclassification for
the first transitional year, FY 2010, the average hourly wage standards
were set at 86 percent for urban hospitals and group reclassifications,
and 84 percent for rural hospitals. For applications for
reclassification for FY 2011 (for which the application deadline was
September 1, 2009) and for subsequent fiscal years, the average hourly
wage standards were 88 percent for urban and group reclassifications
and 86 percent for rural hospitals. Sections 412.230, 412.232, and
412.234 of the regulations were revised accordingly. These policies
were adopted in the FY 2009 IPPS final rule and were reflected in the
wage index in the Addendum to the FY 2011 IPPS proposed rule, which
appeared in the Federal Register on May 4, 2010.
However, as we discussed in the supplemental proposed rule to the
FY 2011 IPPS/LTCH PPS proposed rule issued in the Federal Register on
June 2, 2010 (75 FR 30919), the provisions of section 3137(c) of the
Affordable Care Act revised the average hourly wage standards.
Specifically, section 3137(c) restored the average hourly wage
standards that were in place for FY 2008 (that is, 84 percent for urban
hospitals, 85 percent for group reclassifications, and 82 percent for
rural hospitals) for applications for reclassification for FY 2011 and
for each subsequent fiscal year until the first fiscal year beginning
on or after the date that is one year after the Secretary of Health and
Human Services submits a report to Congress on a plan for reforming the
wage index under section 3137(b) of the Affordable Care Act. Section
3137(c) of the Affordable Care Act also requires the revised average
hourly wage standards to be applied in a budget neutral manner. We note
that section 3137(c) of the Affordable Care Act does not provide for
the revised average hourly wage standards to be applied retroactively,
nor does it change the statutory deadline for applications for
reclassification for FY 2011. Under section 1886(d)(10) of the Act, the
Medicare Geographic Classification Review Board (MGCRB) considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. Hospitals must apply to the MGCRB to
reclassify 13 months prior to the start of the fiscal year for which
reclassification is sought (generally by September 1). For
reclassifications for the FY 2011 wage index, the deadline for
applications was September 1, 2009 (74 FR 43838).
As we discussed in the June 2, 2010 FY 2011 supplemental proposed
rule (75 FR 30919 and 30920), in our proposed implementation of section
3137(c) of the Affordable Care Act, we requested the assistance of the
MGCRB in determining, for applications received by September 1, 2009,
whether additional hospitals would qualify for reclassification for FY
2011 based on the revised average hourly wage standards of 84 percent
for urban hospitals, 85 percent for group reclassifications, and 82
percent for rural hospitals restored by section 3137(c). We determined
that 18 additional hospitals would qualify for reclassification for FY
2011. In addition, 5 hospitals, for which the MGCRB granted
reclassifications to their secondary requested areas for FY 2011, would
qualify for reclassifications instead to their primary requested areas
because they now meet the average hourly wage criteria to reclassify to
those areas. Therefore, in accordance with Sec. 412.278 of the
regulations, in which paragraph (c) provides the Administrator
discretionary authority to review any final decision of the MGCRB, we
submitted a letter to the Administrator requesting that she review and
amend the MGCRB's decision and grant the 23 hospitals their requested
reclassifications (or primary reclassifications) for FY 2011. The
proposed wage index in the Addendum to the June 2, 2010 supplemental
proposed rule (75 FR 30984) reflected these changes in hospital
reclassifications, although the Administrator had not issued all of her
decisions by the issuance date of the supplemental proposed rule. We
stated that any changes to the FY 2011 wage index, as a result of the
Administrator's actual decision issued under Sec. 412.278(c), or an
amendment of the Administrator's decision issued under Sec.
412.278(g), would be reflected in the FY 2011 IPPS final rule. As a
result of her review, the Administrator amended the MGCRB's decision
for 22 of the 23 hospitals for the FY 2011 wage index. One hospital had
decided to withdraw its approved reclassification for FYs 2011 through
2013 and, instead, ``fall back'' to its prior reclassification for FYs
2010 through 2012. (We refer readers to 42 CFR 412.273 and the
discussion on withdrawals, terminations, and ``fall back''
reclassifications in section III.I.3.a. of the preamble in this final
rule.)
In the June 2, 2010 supplemental proposed rule (75 FR 30973), we
proposed to amend Sec. Sec. 412.230, 412.232,

[[Page 50160]]

and 412.234 to reflect the average hourly wage reclassification
criteria restored by section 3137(c) of the Affordable Care Act.
Comment: Several commenters urged CMS to use its administrative
discretion to open an additional short window of opportunity for FY
2011 reclassification application. The commenters stated that some
hospitals did not meet the average hourly wage criteria in effect as of
the September 1, 2009 deadline, and, therefore, did not apply for
reclassification for FY 2011; however, they meet the revised criteria
and should be allowed a fair and equitable opportunity to reclassify.
The commenters suggested that only a fairly limited number of hospitals
would apply, so the workloads for CMS and the MGCRB should be
manageable.
Response: As we discussed above, the deadline for application for
reclassification is established through statute, under section
1886(d)(10) of the Act. Therefore, we believe that if the Congress had
intended for hospitals to be afforded another opportunity to apply for
reclassification for FY 2011 due to the revisions made by section
3137(c) of the Affordable Care Act, the Congress also would have
established such opportunity through a provision of the law. We also
believe that the commenters may have underestimated the workload and
time required for the suggested additional window of opportunity and
that such opportunity, instead, would have been very disruptive to the
development and publication of the IPPS proposed and final rates for FY
2011. Given the amount of time it would have taken after the March 23,
2010 enactment date of the law for CMS to (1) Establish and implement a
process for the additional application period, (2) allow hospitals
sufficient time to submit their applications to the MGCRB, and (3)
allow a sufficient period of time for the MGCRB to review the
applications and make its decisions, the additional reclassifications
would not have been determined in time for inclusion in the FY 2011
IPPS/LTCH PPS proposed rule or the supplemental proposed rule, and
there would not be sufficient time to gather and consider comments
regarding the effects of this application period on other
nonreclassified hospitals as well as the hospitals that were able to
take advantage of the second window for application.
We believe that our proposed implementation of section 3137(c) is
the least disruptive and intended approach. Therefore, we are adopting
our proposal as final in this FY 2011 IPPS/LTCH PPS final rule. The
wage index in the Addendum to this final rule reflects the
reclassifications that resulted from the Administrator's reversal of
the MGCRB's decision for 22 hospitals that applied by September 1, 2009
and meet the revised average hourly wage criteria. In addition, we are
adopting as final, without modification, the proposed revisions to
Sec. Sec. 412.230, 412.232, and 412.234 of the regulations to codify
the revised average hourly wage criteria.
b. Budget Neutrality Adjustment for the Rural and Imputed Floors
In the FY 2009 IPPS final rule (73 FR 48574 through 48575), we
adopted State level budget neutrality (rather than the national budget
neutrality adjustment) for the rural and imputed floors, effective
beginning with the FY 2009 wage index and incorporated this policy in
our regulation at Sec. 412.64(e)(4). Specifically, the regulations
specified that CMS makes an adjustment to the wage index to ensure that
aggregate payments after implementation of the rural floor under
section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and
the imputed floor under Sec. 412.64(h)(4) are made in a manner that
ensures that aggregate payments to hospitals are not affected and that,
beginning October 1, 2008, we would transition from a nationwide
adjustment to a statewide adjustment, with a statewide adjustment fully
in place by October 1, 2010.
These policies for the rural and imputed floors were adopted in the
FY 2009 IPPS final rule and were reflected in the proposed wage index
in the Addendum to the FY 2011 IPPS/LTCH PPS proposed rule, published
in the Federal Register on May 4, 2010 (75 FR 23937 and 23938).
However, as we discussed in the June 2, 2010 supplemental FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 30920), these policies were recently
changed by the provisions of section 3141 of the Affordable Care Act.
Specifically, section 3141 of the Affordable Care Act rescinded our
policy that established a statewide budget neutrality adjustment for
the rural and imputed floors and, instead, restored a uniform, national
adjustment to the area wage index, beginning with the FY 2011 wage
index.
In addition, we note that the imputed floor is set to expire on
September 30, 2011. As we indicated in the supplemental proposed rule,
we are not reading the language of section 3141 of the Affordable Care
Act as altering this expiration date. Section 3141 of the Affordable
Care Act requires that the Secretary ``administer subsection (b) of
such section 4410 and paragraph (e) of * * * section 412.64 in the same
manner as the Secretary administered such subsection (b) and paragraph
(e) for discharges occurring during fiscal year 2008 (through a
uniform, national adjustment to the area wage index).'' Thus, section
3141 of the Affordable Care Act is governing how we apply budget
neutrality, under the authorities of Sec. 412.64(e) and section
4410(b) of the Balanced Budget Act, but it does not alter Sec.
412.64(h) of our regulations (which includes the imputed floor and its
expiration date). To the extent there is an imputed floor, section 3141
of the Affordable Care Act governs budget neutrality for that floor,
but it does not continue the imputed floor beyond the expiration date
already included in our regulations.
In the FY 2011 IPPS/LTCH PPS supplemental proposed rule issued in
the Federal Register on June 2, 2010, we proposed to revised the
regulations at Sec. 412.64(e) to reflect the changes made by section
3141 of the Affordable Care Act that restored a uniform, national
adjustment to the area wage index, beginning with the FY 2011 wage
index. We did not propose any other special rules or procedures for
implementing the provisions of section 3141.
Comment: A few commenters favored the provision of section 3141 to
restore the national adjustment to the wage index; other commenters
objected to the provision.
Response: We appreciate the support of the commenters. Regarding
the comment objecting to the provision, we are obligated to implement
the provisions of the law.
In accordance with the law, we are adopting as a final policy in
this final rule, a uniform, national budget neutrality adjustment for
the rural and imputed floors, which, for FY 2011, is a factor of
0.996641. The wage index in the Addendum to this final rule reflects
this policy. In addition, we are adopting as final, without
modification, the proposed changes to Sec. 412.64(e) of the
regulations to incorporate the restoration provisions of section 3141
of the Affordable Care Act.
3. Floor for Area Wage Index for Hospitals in Frontier States
Section 10324(a)(1) of the Affordable Care Act amended section
1886(d)(3)(E) of the Act by adding a provision under new subsection
(iii) to establish an adjustment to create a wage index floor of 1.00
for all hospitals located in States determined to be ``frontier
States,'' beginning in FY 2011. The new section 1886(d)(3)(E)(iii)(II)
of the Act defines a ``frontier State'' as a State in which at least 50
percent of the counties in the State are determined to be ``frontier

[[Page 50161]]

counties.'' The new section 1886(d)(3)(E)(iii)(III) of the Act defines
a ``frontier county'' as a county in which the population per square
mile is less than 6 persons. The new section 1886(d)(3)(E)(iii)(IV) of
the Act specifies that this provision for the frontier State floor
shall not apply to hospitals that are receiving a nonlabor-related
share adjustment under section 1886(d)(5)(H) of the Act, that is,
hospitals in Alaska or Hawaii.
To implement the provision for the frontier State floor adjustment,
in the FY 2011 IPPS/LTCH PPS supplemental proposed rule published in
the Federal Register on June 2, 2010 (75 FR 30920), we proposed to
identify frontier Counties by analyzing population data and county
definitions based upon the most recent annual Population Estimates
published by the U.S. Census Bureau. We proposed to divide each
county's population total by each county's reported land area
(according to the decennial census) in square miles to establish
population density. We also proposed to update this analysis from time
to time, such as upon publication of a subsequent decennial census and,
if necessary, add or remove qualifying States from the list of frontier
States based on the updated analysis.
In accordance with section 1886(d)(3)(E)(iii) of the Act, as added
by section 10324(a)(1) of the Affordable Care Act, all PPS hospitals
located within a State that qualifies as a frontier State will receive
either the higher of its post-reclassification wage index rate, or a
wage index with a minimum value of 1.00. In the June 2, 2010
supplemental proposed rule, we proposed that, for a hospital that is
geographically located in a frontier State and is reclassified under
section 1886(d)(10) of the Act to a CBSA in a non-frontier State, the
hospital would receive a wage index that is the higher of the
reclassified area wage index or the minimum wage index of 1.00. In
accordance with section 10324(a)(2) of the Affordable Care Act, the
frontier State adjustment will not be subject to budget neutrality
under section 1886(d)(3)(E) of the Act, and will only be extended to
hospitals geographically located within a Frontier State. In the June
2, 2010 supplemental proposed rule, we proposed to calculate and apply
the frontier State floor adjustments after rural and imputed floor
budget neutrality adjustments are calculated for all labor market
areas, so as to ensure that no hospital in a Frontier State will
receive a wage index of less than 1.00 due to the rural and imputed
floor adjustment. We invited public comment on these proposals
regarding our methods for determining frontier States, and for
calculation and application of the adjustment.
In the June 2, 2010 supplemental proposed rule (75 FR 30971), we
proposed to establish a new paragraph (m) under Sec. 412.64 to
incorporate the provisions of section 1886(d)(3)(E)(iii) of the Act, as
added by section 10324(a)(1) of the Affordable Care Act.
Comment: Commenters supported the proposed methods for
implementation of the frontier States floor adjustment to the area wage
index provided for under section 1886(d)(3)(E)(iii) of the Act.
Response: We appreciate the commenters' support.
In this final rule, we are implementing the frontier State floor
adjustment using the criteria described above that we are finalizing in
this final rule. For the final FY 2011 IPPS wage indices, based on the
criteria described above, we identified the following frontier States
that will receive the floor adjustment for FY 2011. These frontier
States also are identified by a footnote in Table 4D-2 of the Addendum
to this final rule.

Frontier States Identified for the FY 2011 Wage Index Floor Adjustment
Under Section 10324(a) of the Affordable Care Act
------------------------------------------------------------------------
Percent of
Total Frontier counties
State counties counties identified
as frontier
------------------------------------------------------------------------
Montana.......................... 56 45 80
Wyoming.......................... 23 17 74
North Dakota..................... 53 36 68
Nevada........................... 17 11 65
South Dakota..................... 66 34 52
------------------------------------------------------------------------
Figures in table based on:
--Population Data set available at: http://www.census.gov/popest/estimates.html (2009 County Total Population Estimates).
--Land Area Dataset available at: http://factfinder.census.gov/
(Decennial Census Geographic Comparison Tables: ``United States--
County by State and for Puerto Rico'').

After consideration of the public comments we received, we are
adopting as final, without modification, the proposed addition of new
paragraph (m) under Sec. 412.64 of the regulations to incorporate the
provisions of section 1886(d)(3)(E)(iii) of the Act, as added by
section 10324(a)(1) of the Affordable Care Act, by specifying the
criteria for adjusting the wage index to account for the frontier State
floor adjustment, the amount of the wage index adjustment, and our
process for determining and posting the wage index adjustments.
4. Plan for Reforming the Wage Index Under Section 3137(b) of
Affordable Care Act
As we discussed in the June 2, 2010 supplemental proposed rule (75
FR 30919), section 3137(b) of the Affordable Care Act requires the
Secretary of Health and Human Services to submit to Congress, not later
than December 31, 2011, a report that includes a plan to reform the
Medicare wage index applied under the Medicare IPPS. In developing the
plan, the Secretary of Health and Human Services must take into
consideration the goals for reforming the wage index that were set
forth by MedPAC in its June 2007 report entitled, ``Report to Congress:
Promoting Greater Efficiency in Medicare'', including establishing a
new system that--
Uses Bureau of Labor of Statistics (BLS) data, or other
data or methodologies, to calculate relative wages for each geographic
area;
Minimizes wage index adjustments between and within MSAs
and statewide rural areas;
Includes methods to minimize the volatility of wage index
adjustments while maintaining budget neutrality in applying such
adjustments;
Takes into account the effect that implementation of the
system would

[[Page 50162]]

have on health care providers and on each region of the country;
Addresses issues related to occupational mix, such as
staffing practices and ratios, and any evidence on the effect on
quality of care or patient safety as a result of the implementation of
the system; and
Provides for a transition.
In addition, section 3137(b)(3) of the Affordable Care Act requires
the Secretary of Health and Human Services to consult with relevant
affected parties in developing the plan. Although the provisions of
section 3137(b) of the Affordable Care Act will not have an actual
impact on the FY 2011 wage index, we notified the public of the
provisions in the supplemental proposed rule so that they would have an
opportunity to provide comments and suggestions on how they may
participate in developing the plan.
Comment: A few commenters encouraged CMS to involve the industry in
the process. One commenter in particular suggested that CMS should
adopt an advisory commission approach in addressing future changes to
the wage index.
Response: We will consider these suggestions in developing our plan
for meeting the requirements of section 3137(b) of the Affordable Care
Act.

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

The wage index is calculated and assigned to hospitals on the basis
of the labor market area in which the hospital is located. In
accordance with the broad discretion under section 1886(d)(3)(E) of the
Act, beginning with FY 2005, we define hospital labor market areas
based on the Core-Based Statistical Areas (CBSAs) established by OMB
and announced in December 2003 (69 FR 49027). For a discussion of OMB's
revised definitions of CBSAs and our implementation of the CBSA
definitions, we refer readers to the preamble of the FY 2005 IPPS final
rule (69 FR 49026 through 49032).
As with the FY 2010 final rule, in the FY 2011 proposed rule, we
proposed to provide that hospitals receive 100 percent of their wage
index based upon the CBSA configurations. Specifically, for each
hospital, we proposed to determine a wage index for FY 2011 employing
wage index data from hospital cost reports for cost reporting periods
beginning during FY 2007 and using the CBSA labor market definitions.
We consider CBSAs that are MSAs to be urban, and CBSAs that are
Micropolitan Statistical Areas as well as areas outside of CBSAs to be
rural. In addition, it has been our longstanding policy that where an
MSA has been divided into Metropolitan Divisions, we consider the
Metropolitan Division to comprise the labor market areas for purposes
of calculating the wage index (69 FR 49029) (regulations at Sec.
412.64(b)(1)(ii)(A)).
On December 1, 2009, OMB announced changes to the principal cities
and, if applicable, titles of a number of CBSAs and Metropolitan
Divisions (OMB Bulletin No. 10-2). The changes to the principal cities
and titles are as follows:
San Marcos, TX qualifies as a new principal city of the
Austin-Round Rock, TX CBSA. The new title is Austin-Round Rock-San
Marcos, TX CBSA.
Delano, CA qualifies as a new principal city of the
Bakersfield, CA CBSA. The new title: Bakersfield-Delano, CA CBSA.
Conroe, TX qualifies as a new principal city of the
Houston-Sugar Land-Baytown, TX CBSA. The CBSA title is unchanged.
North Port, FL qualifies as a new principal city of the
Bradenton-Sarasota-Venice, FL CBSA. The new title is North Port-
Bradenton-Sarasota, FL CBSA. The new code is CBSA 35840.
Sanford, FL qualifies as a new principal city of the
Orlando-Kissimmee, FL CBSA. The new title is Orlando-Kissimmee-Sanford,
FL CBSA.
Glendale, AZ qualifies as a new principal city of the
Phoenix-Mesa-Scottsdale, AZ CBSA. The new title is Phoenix-Mesa-
Glendale, AZ CBSA.
Palm Desert, CA qualifies as a new principal city of the
Riverside-San Bernardino-Ontario, CA CBSA. The CBSA title is unchanged.
New Braunfels, TX qualifies as a new principal city of the
San Antonio, TX CBSA. The new title is San Antonio-New Braunfels, TX
CBSA.
Auburn, WA qualifies as a new principal city of the
Seattle-Tacoma-Bellevue, WA CBSA. The CBSA title is unchanged.
The changes to titles resulting from changes to the order of
principal cities based on population are as follows:
Rockville, MD replaces Frederick, MD as the second most
populous principal city in the Bethesda-Frederick-Rockville, MD
Metropolitan Division. The new title is Bethesda-Rockville-Frederick,
MD Metropolitan Division.
Rock Hill, SC replaces Concord, NC as the third most
populous principal city in the Charlotte-Gastonia-Concord, NC[dash]SC
CBSA. The new title is Charlotte-Gastonia-Rock Hill, NC[dash]SC CBSA.
Joliet, IL replaces Naperville, IL as the second most
populous principal city in the Chicago-Naperville-Joliet, IL
Metropolitan Division. The new title is Chicago-Joliet-Naperville, IL
Metropolitan Division.
Crestview, FL replaces Fort Walton Beach, FL as the most
populous principal city in the Fort Walton Beach-Crestview-Destin, FL
CBSA. The new title is Crestview-Fort Walton Beach-Destin, FL CBSA. The
new code is 18880.
Hillsboro, OR replaces Beaverton, OR as the third most
populous principal city in the Portland-Vancouver-Beaverton, OR[dash]WA
CBSA. The new title is Portland-Vancouver-Hillsboro, OR[dash]WA CBSA.
Steubenville, OH replaces Weirton, WV as the most populous
principal city in the Weirton-Steubenville, WV[dash]OH CBSA. The new
title is Steubenville-Weirton, OH[dash]WV CBSA. The new CBSA code is
44600.
The OMB bulletin is available on the OMB Web site at http://www.whitehouse.gov/OMB--go to ``Agency Information'' and click on
``Bulletins''.
We received one public comment on the proposed rule that commended
CMS for continuing to incorporate OMB changes to the geographic area
definitions used under the IPPS. CMS will apply these changes to the
IPPS beginning October 1, 2010.

D. Occupational Mix Adjustment to the FY 2011 Wage Index

As stated earlier, section 1886(d)(3)(E) of the Act provides for
the collection of data every 3 years on the occupational mix of
employees for each short-term, acute care hospital participating in the
Medicare program, in order to construct an occupational mix adjustment
to the wage index, for application beginning October 1, 2004 (the FY
2005 wage index). The purpose of the occupational mix adjustment is to
control for the effect of hospitals' employment choices on the wage
index. For example, hospitals may choose to employ different
combinations of registered nurses, licensed practical nurses, nursing
aides, and medical assistants for the purpose of providing nursing care
to their patients. The varying labor costs associated with these
choices reflect hospital management decisions rather than geographic
differences in the costs of labor.
1. Development of Data for the FY 2011 Occupational Mix Adjustment
Based on the 2007-2008 Occupational Mix Survey
As provided for under section 1886(d)(3)(E) of the Act, we collect
data every 3 years on the occupational mix of employees for each short-
term, acute

[[Page 50163]]

care hospital participating in the Medicare program.
For the FY 2010 hospital wage index, we used occupational mix data
collected on a revised 2007-2008 Medicare Wage Index Occupational Mix
Survey (the 2007-2008 survey) to compute the occupational mix
adjustment for FY 2010. (We refer readers to the FY 2010 IPPS final
rule (74 FR 43827) for a detailed discussion of the 2007-2008 survey.)
Again, for the FY 2011 hospital wage index, we used data from the 2007-
2008 survey (including revised data for 45 hospitals) to compute the FY
2011 adjustment.
2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index
As stated earlier, section 304(c) of Public Law 106-554 amended
section 1886(d)(3)(E) of the Act to require CMS to collect data every 3
years on the occupational mix of employees for each short-term, acute
care hospital participating in the Medicare program. We used
occupational mix data collected on the 2007-2008 survey to compute the
occupational mix adjustment for FY 2010 and the FY 2011 wage index in
this final rule. We also plan to use the 2007-2008 survey data for the
FY 2012 wage index. Therefore, a new measurement of occupational mix
will be required for FY 2013.
Since we implemented the 2007-2008 survey, we received several
public comments suggesting further improvements to the occupational mix
survey. Specifically, commenters recommended that CMS use the calendar
year (that is, January 1 through December 31) as the 1-year reporting
period instead of July 1 through June 30. Commenters also requested
that CMS allow for a 6-month period after the end of the survey
reporting period for hospitals to complete and submit their data to
their Medicare fiscal intermediaries and MACs. The commenters suggested
that these changes will allow hospitals more time to develop their
occupational mix data before submitting the data to the Medicare
contractors and CMS for use in development of the wage index. Based on
these comments, we revised the occupational mix survey. The new 2010
survey (Form CMS-10079 (2010)) will provide for the collection of
hospital-specific wages and hours data for calendar year 2010 (that is,
payroll periods ending between January 1, 2010 and December 31, 2010)
and will be applied beginning with the FY 2013 wage index.
On September 4, 2009, we published in the Federal Register a notice
soliciting comments on the proposed 2010 survey (74 FR 45860). The
comment period for the notice ended on November 3, 2009. After
considering the comments we received, we made a few minor editorial
changes and published the final 2010 survey in the Federal Register on
January 15, 2010 (75 FR 2548). The survey was approved by OMB on
February 26, 2010 (OMB control number 0938-0907) and is available on
the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage, and through the fiscal intermediaries/MACs.
Hospitals are required to submit their completed 2010 surveys to their
fiscal intermediaries/MACs by July 1, 2011. The preliminary, unaudited
2010 survey data will be released in early October 2011, along with the
FY 2009 Worksheet S-3 wage data, for the FY 2013 wage index review and
correction process.
Although, in the FY 2011 proposed rule, we did not propose any
changes or solicit comments pertaining to the 2010 occupational mix
survey, we received one comment that commended CMS for its decision to
provide for a calendar year reporting period and a submission deadline
that is 6 months after the end of the reporting period. The commenter
believed that this timeframe will increase both the survey's accuracy
and submission rate.
3. Calculation of the Occupational Mix Adjustment for FY 2011
For FY 2011 (as we did for FY 2010), we calculated the occupational
mix adjustment factor using the following steps:
Step 1--For each hospital, determine the percentage of the total
nursing category attributable to a nursing subcategory by dividing the
nursing subcategory hours by the total nursing category's hours. Repeat
this computation for each of the four nursing subcategories: Registered
nurses; licensed practical nurses; nursing aides, orderlies, and
attendants; and medical assistants.
Step 2--Determine a national average hourly rate for each nursing
subcategory by dividing a subcategory's total salaries for all
hospitals in the occupational mix survey database by the subcategory's
total hours for all hospitals in the occupational mix survey database.
Step 3--For each hospital, determine an adjusted average hourly
rate for each nursing subcategory by multiplying the percentage of the
total nursing category (from Step 1) by the national average hourly
rate for that nursing subcategory (from Step 2). Repeat this
calculation for each of the four nursing subcategories.
Step 4--For each hospital, determine the adjusted average hourly
rate for the total nursing category by summing the adjusted average
hourly rate (from Step 3) for each of the nursing subcategories.
Step 5--Determine the national average hourly rate for the total
nursing category by dividing total nursing category salaries for all
hospitals in the occupational mix survey database by total nursing
category hours for all hospitals in the occupational mix survey
database.
Step 6--For each hospital, compute the occupational mix adjustment
factor for the total nursing category by dividing the national average
hourly rate for the total nursing category (from Step 5) by the
hospital's adjusted average hourly rate for the total nursing category
(from Step 4).
If the hospital's adjusted average hourly rate is less than the
national average hourly rate (indicating the hospital employs a less
costly mix of nursing employees), the occupational mix adjustment
factor is greater than 1.0000. If the hospital's adjusted average
hourly rate is greater than the national average hourly rate, the
occupational mix adjustment factor is less than 1.0000.
Step 7--For each hospital, calculate the occupational mix adjusted
salaries and wage-related costs for the total nursing category by
multiplying the hospital's total salaries and wage-related costs (from
Step 5 of the unadjusted wage index calculation in section III.G. of
this preamble) by the percentage of the hospital's total workers
attributable to the total nursing category (using the occupational mix
survey data, this percentage is determined by dividing the hospital's
total nursing category salaries by the hospital's total salaries for
``nursing and all other'') and by the total nursing category's
occupational mix adjustment factor (from Step 6 above).
The remaining portion of the hospital's total salaries and wage-
related costs that is attributable to all other employees of the
hospital is not adjusted by the occupational mix. A hospital's all
other portion is determined by subtracting the hospital's nursing
category percentage from 100 percent.
Step 8--For each hospital, calculate the total occupational mix
adjusted salaries and wage-related costs for a hospital by summing the
occupational mix adjusted salaries and wage-related costs for the total
nursing category (from Step 7) and the portion of the hospital's
salaries and wage-related costs for all other employees (from Step 7).

[[Page 50164]]

To compute a hospital's occupational mix adjusted average hourly
wage, divide the hospital's total occupational mix adjusted salaries
and wage-related costs by the hospital's total hours (from Step 4 of
the unadjusted wage index calculation in section III.G. of this
preamble).
Step 9--To compute the occupational mix adjusted average hourly
wage for an urban or rural area, sum the total occupational mix
adjusted salaries and wage-related costs for all hospitals in the area,
then sum the total hours for all hospitals in the area. Next, divide
the area's occupational mix adjusted salaries and wage-related costs by
the area's hours.
Step 10--To compute the national occupational mix adjusted average
hourly wage, sum the total occupational mix adjusted salaries and wage-
related costs for all hospitals in the Nation, then sum the total hours
for all hospitals in the Nation. Next, divide the national occupational
mix adjusted salaries and wage-related costs by the national hours. The
FY 2011 occupational mix adjusted national average hourly wage is
$34.9664.
Step 11--To compute the occupational mix adjusted wage index,
divide each area's occupational mix adjusted average hourly wage (Step
9) by the national occupational mix adjusted average hourly wage (Step
10).
Step 12--To compute the Puerto Rico specific occupational mix
adjusted wage index, follow Steps 1 through 11 above. The FY 2011
occupational mix adjusted Puerto Rico-specific average hourly wage is
$14.7620.
The table below is an illustrative example of the occupational mix
adjustment.
BILLING CODE 4120-01-P

[[Page 50165]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.030

[[Page 50166]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.031

BILLING CODE 4120-01-C
Because the occupational mix adjustment is required by statute, all
hospitals that are subject to payments under the IPPS, or any hospital
that

[[Page 50167]]

would be subject to the IPPS if not granted a waiver, must complete the
occupational mix survey, unless the hospital has no associated cost
report wage data that are included in the FY 2011 wage index. For the
FY 2007-2008 survey, the response rate was 91.1 percent.
In computing the FY 2011 wage index, if a hospital did not respond
to the occupational mix survey, or if we determined that a hospital's
submitted data were too erroneous to include in the wage index, we
assigned the hospital the average occupational mix adjustment for the
labor market area. This method has the least impact on the wage index
for other hospitals in the area. For areas where no hospital submitted
data for purposes of calculating the occupational mix adjustment, we
applied the national occupational mix factor of 1.0000 in calculating
the area's FY 2011 occupational mix adjusted wage index. In addition,
if a hospital submitted a survey, but that survey data could not be
used because we determine it to be aberrant, we also assigned the
hospital the average occupational mix adjustment for its labor market
area. For example, if a hospital's individual nurse category average
hourly wages were out of range (that is, unusually high or low), and
the hospital did not provide sufficient documentation to explain the
aberrancy, or the hospital did not submit any registered nurse salaries
or hours data, we assigned the hospital the average occupational mix
adjustment for the labor market area in which it is located.
In calculating the average occupational mix adjustment factor for a
labor market area, we replicated Steps 1 through 6 of the calculation
for the occupational mix adjustment. However, instead of performing
these steps at the hospital level, we aggregated the data at the labor
market area level. In following these steps, for example, for CBSAs
that contain providers that did not submit occupational mix survey
data, the occupational mix adjustment factor ranged from a low of
0.9249 (CBSA 17780, College Station-Bryan, TX), to a high of 1.1196
(CBSA 40980, Saginaw-Saginaw Township North, MI). Also, in computing a
hospital's occupational mix adjusted salaries and wage-related costs
for nursing employees (Step 7 of the calculation), in the absence of
occupational mix survey data, we multiplied the hospital's total
salaries and wage-related costs by the percentage of the area's total
workers attributable to the area's total nursing category. For FY 2011,
there are five CBSAs (that include six hospitals) for which we did not
have occupational mix data for any of its hospitals. The CBSAs are:
CBSA 21940 Fajardo, PR (one hospital)
CBSA 22140 Farmington, NM (one hospital)
CBSA 36140 Ocean City, NJ (one hospital)
CBSA 41900 San German-Cabo Rojo, PR (two hospitals)
CBSA 49500 Yauco, PR (one hospital)
Since the FY 2007 IPPS final rule, we have periodically discussed
applying a hospital-specific penalty to hospitals that fail to submit
occupational mix survey data. (See 71 FR 48013 through 48014; 72 FR
47314 through 47315; 73 FR 48580; and 74 FR 43832.) During the FY 2008
rulemaking cycle, some commenters suggested a penalty equal to a 1- to
2-percent reduction in the hospital's wage index value or a set
percentage of the standardized amount. During the FY 2009 and FY 2010
rulemaking cycles, several commenters reiterated their view that full
participation in the occupational mix survey is critical, and that CMS
should develop a methodology that encourages hospitals to report
occupational mix survey data but does not unfairly penalize neighboring
hospitals. We indicated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed
rule that, while we were not proposing a penalty at that time, we would
consider the public comments we previously received, as well as any
public comments on the proposed rule, as we develop the proposed FY
2011 wage index.
In the FY 2011 proposed rule, we stated that, in order to gain a
better understanding of why some hospitals are not submitting the
occupational mix data, we will require hospitals that do not submit
occupational mix data to provide an explanation for not complying. This
requirement will be effective beginning with the new 2010 occupational
mix survey (the 2010 survey is discussed in section III.D.2. of this
preamble). We will instruct fiscal intermediaries/MACs to begin
gathering this information as part of the FY 2013 wage index desk
review process. We note that we reserve the right to apply a different
approach in future years, including potentially penalizing
nonresponsive hospitals.
Comment: One commenter stated that it is unfair that some hospitals
do not submit occupational mix data, while others consistently submit
their data. The commenter also stated that there are presently no
incentives for hospitals to submit occupational mix data, but praised
CMS for beginning to take steps to address the issue by proposing to
require hospitals that do not submit the data to provide an explanation
for their noncompliance. The commenter suggested that CMS should still
implement some kind of penalty in the form of a negative percentage
adjustment to hospitals that do not submit occupational mix data,
similar to what is done with hospitals that fail to submit quality
data, in order to provide a greater motivation for hospitals to submit
their occupational mix data.
Response: We appreciate this comment and will consider it as we
continue to monitor and assess how to address hospitals' failure to
submit occupational mix data for the wage index.

E. Worksheet S-3 Wage Data for the FY 2011 Wage Index

The final FY 2011 wage index values are based on the data collected
from the Medicare cost reports submitted by hospitals for cost
reporting periods beginning in FY 2007 (the FY 2010 wage index was
based on data from cost reporting periods beginning during FY 2006).
1. Included Categories of Costs
The final FY 2011 wage index includes the following categories of
data associated with costs paid under the IPPS (as well as outpatient
costs):
Salaries and hours from short-term, acute care hospitals
(including paid lunch hours and hours associated with military leave
and jury duty)
Home office costs and hours
Certain contract labor costs and hours (which includes
direct patient care, certain top management, pharmacy, laboratory, and
nonteaching physician Part A services, and certain contract indirect
patient care services (as discussed in the FY 2008 final rule with
comment period (72 FR 47315))
Wage-related costs, including pensions and other deferred
compensation costs. We note that, for developing pension and deferred
compensation costs for purposes of the wage index, CMS requires
hospitals to comply with the requirements in 42 CFR 413.100, the
Provider Reimbursement Manual (PRM), Part I, Sections 2140, 2141, and
2142, and related Medicare program instructions, as discussed in the
cost reporting instructions (PRM, Part II, section 3605.2) for
Worksheet S-3, Part II, Lines 13 through 20, and in the FY 2006 IPPS
final rule (70 FR 47369). On March 28, 2008, CMS published Revision
436, a technical clarification to the PRM, Part I policies for pension
and deferred compensation costs. In addition, in

[[Page 50168]]

November 2009, CMS released, through a Joint Signature Memorandum,
instructions and a spreadsheet to assist hospitals and Medicare
contractors in determining the annual allowable defined benefit pension
cost for the FY 2011 wage index (JSM/TDL-10061, 11-20-09, December 3,
2009). These instructions and spreadsheet crosswalk the current
interest, liability, and normal cost terminology found in the Medicare
reimbursement policies under Section 2142 of the PRM, Part I to the new
terminology applicable under the Pension Protection Act of 2006. The
spreadsheet and instructions can be downloaded from the CMS Web site at
http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/itemdetail.asp?filterType=none&filterByDID=0&sortByDID=3&sortOrder=descending&itemID=CMS1231035&intNumPerPage=10.
2. Excluded Categories of Costs
Consistent with the wage index methodology for FY 2010, the final
wage index for FY 2011 also excludes the direct and overhead salaries
and hours for services not subject to IPPS payment, such as SNF
services, home health services, costs related to GME (teaching
physicians and residents) and certified registered nurse anesthetists
(CRNAs), and other subprovider components that are not paid under the
IPPS. The final FY 2011 wage index also excludes the salaries, hours,
and wage-related costs of hospital-based rural health clinics (RHCs),
and Federally qualified health centers (FQHCs) because Medicare pays
for these costs outside of the IPPS (68 FR 45395). In addition,
salaries, hours, and wage-related costs of CAHs are excluded from the
wage index, for the reasons explained in the FY 2004 IPPS final rule
(68 FR 45397).
3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals
Under the IPPS
Data collected for the IPPS wage index are also currently used to
calculate wage indices applicable to other providers, such as SNFs,
home health agencies (HHAs), and hospices. In addition, they are used
for prospective payments to IRFs, IPFs, and LTCHs, and for hospital
outpatient services. We note that, in the IPPS rules, we do not address
comments pertaining to the wage indices for non-IPPS providers, other
than for LTCHs. Such comments should be made in response to separate
proposed rules for those providers.

F. Verification of Worksheet S-3 Wage Data

The wage data for the final FY 2011 wage index were obtained from
Worksheet S-3, Parts II and III of the Medicare cost report for cost
reporting periods beginning on or after October 1, 2006, and before
October 1, 2007. For wage index purposes, we refer to cost reports
during this period as the ``FY 2007 cost report,'' the ``FY 2007 wage
data,'' or the ``FY 2007 data.'' Instructions for completing Worksheet
S-3, Parts II and III are in the Provider Reimbursement Manual (PRM),
Part II, sections 3605.2 and 3605.3. The data file used to construct
the wage index includes FY 2007 data submitted to us as of June 22,
2010. As in past years, we performed an intensive review of the wage
data, mostly through the use of edits designed to identify aberrant
data.
We asked our fiscal intermediaries/MACs to revise or verify data
elements that resulted in specific edit failures. For the proposed FY
2011 wage index, we identified and excluded 14 providers with data that
was too aberrant to include in the proposed wage index, although if
data elements for some of these providers are corrected, we intended to
include some of these providers in the FY 2011 final wage index. We
instructed fiscal intermediaries/MACs to complete their data
verification of questionable data elements and to transmit any changes
to the wage data no later than April 14, 2010. The data for none of the
hospitals identified in the proposed rule were resolved. However, the
data for three additional hospitals were identified as too aberrant to
include in the final wage index. Therefore, we determined that the data
for 17 hospitals (that is, 14+3=17) should not be included in the FY
2011 final wage index.
In constructing the final FY 2011 wage index, we included the wage
data for facilities that were IPPS hospitals in FY 2007, inclusive of
those facilities that have since terminated their participation in the
program as hospitals, as long as those data did not fail any of our
edits for reasonableness. We believe that including the wage data for
these hospitals is, in general, appropriate to reflect the economic
conditions in the various labor market areas during the relevant past
period and to ensure that the current wage index represents the labor
market area's current wages as compared to the national average of
wages. However, we excluded the wage data for CAHs as discussed in the
FY 2004 IPPS final rule (68 FR 45397). For this final rule, we removed
11 hospitals that converted to CAH status between February 16, 2009,
the cut-off date for CAH exclusion from the FY 2010 wage index, and
February 15, 2010, the cut-off date for CAH exclusion from the FY 2011
wage index. After removing hospitals with aberrant data and hospitals
that converted to CAH status, the final FY 2011 wage index is
calculated based on 3,511 hospitals.
In the FY 2008 final rule with comment period (72 FR 47317) and the
FY 2009 IPPS final rule (73 FR 48582), we discussed our policy for
allocating a multicampus hospital's wages and hours data, by full-time
equivalent (FTE) staff, among the different labor market areas where
its campuses are located. During the FY 2011 wage index desk review
process, we requested fiscal intermediaries/MACs to contact multicampus
hospitals that had campuses in different labor market areas to collect
the data for the allocation. The FY 2011 wage index in this final rule
includes separate wage data for campuses of three multicampus
hospitals.
For FY 2011, we are again allowing hospitals to use FTE or
discharge data for the allocation of a multicampus hospital's wage data
among the different labor market areas where its campuses are located.
The Medicare cost report was updated in May 2008 to provide for the
reporting of FTE data by campus for multicampus hospitals. Because the
data from cost reporting periods that begin in FY 2008 will not be used
in calculating the wage index until FY 2012, a multicampus hospital
will still have the option, through the FY 2011 wage index, to use
either FTE or discharge data for allocating wage data among its
campuses by providing the information from the applicable cost
reporting period to CMS through its fiscal intermediary/MAC. Two of the
three multicampus hospitals chose to have their wage data allocated by
their Medicare discharge data for the FY 2011 wage index. One of the
hospitals provided FTE staff data for the allocation. The average
hourly wage associated with each geographical location of a multicampus
hospital is reflected in Table 2 of the Addendum to this final rule.

G. Method for Computing the Final FY 2011 Unadjusted Wage Index

The method used to compute the FY 2011 wage index without an
occupational mix adjustment follows:
Step 1--As noted above, we are basing the final FY 2011 wage index
on wage data reported on the FY 2007 Medicare cost reports. We gathered
data from each of the non-Federal, short-

[[Page 50169]]

term, acute care hospitals for which data were reported on the
Worksheet S-3, Parts II and III of the Medicare cost report for the
hospital's cost reporting period beginning on or after October 1, 2006,
and before October 1, 2007. In addition, we included data from some
hospitals that had cost reporting periods beginning before October 2006
and reported a cost reporting period covering all of FY 2007. These
data are included because no other data from these hospitals would be
available for the cost reporting period described above, and because
particular labor market areas might be affected due to the omission of
these hospitals. However, we generally describe these wage data as FY
2007 data. We note that, if a hospital had more than one cost reporting
period beginning during FY 2007 (for example, a hospital had two short
cost reporting periods beginning on or after October 1, 2006, and
before October 1, 2007), we included wage data from only one of the
cost reporting periods, the longer, in the wage index calculation. If
there was more than one cost reporting period and the periods were
equal in length, we included the wage data from the later period in the
wage index calculation.
Step 2--Salaries--The method used to compute a hospital's average
hourly wage excludes certain costs that are not paid under the IPPS.
(We note that, beginning with FY 2008 (72 FR 47315), we include Lines
22.01, 26.01, and 27.01 of Worksheet S-3, Part II for overhead services
in the wage index. However, we note that the wages and hours on these
lines are not incorporated into Line 101, Column 1 of Worksheet A,
which, through the electronic cost reporting software, flows directly
to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the
wage index calculation for FY 2011 is to compute a ``revised'' Line 1,
by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours
respectively) the amounts on Lines 22.01, 26.01, and 27.01.) In
calculating a hospital's average salaries plus wage-related costs, we
subtract from Line 1 (total salaries) the GME and CRNA costs reported
on Lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3,
5 and 5.01, home office salaries reported on Line 7, and exclude
salaries reported on Lines 8 and 8.01 (that is, direct salaries
attributable to SNF services, home health services, and other
subprovider components not subject to the IPPS). We also subtract from
Line 1 the salaries for which no hours were reported. To determine
total salaries plus wage-related costs, we add to the net hospital
salaries the costs of contract labor for direct patient care, certain
top management, pharmacy, laboratory, and nonteaching physician Part A
services (Lines 9 and 10), home office salaries and wage-related costs
reported by the hospital on Lines 11 and 12, and nonexcluded area wage-
related costs (Lines 13, 14, and 18).
We note that contract labor and home office salaries for which no
corresponding hours are reported are not included. In addition, wage-
related costs for nonteaching physician Part A employees (Line 18) are
excluded if no corresponding salaries are reported for those employees
on Line 4.
Step 3--Hours--With the exception of wage-related costs, for which
there are no associated hours, we compute total hours using the same
methods as described for salaries in Step 2.
Step 4--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocate overhead
costs to areas of the hospital excluded from the wage index
calculation. First, we determine the ratio of excluded area hours (sum
of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours
(Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01,
7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts
of overhead salaries and hours to be allocated to excluded areas by
multiplying the above ratio by the total overhead salaries and hours
reported on Line 13 of Worksheet S-3, Part III. Next, we compute the
amounts of overhead wage-related costs to be allocated to excluded
areas using three steps: (1) We determine the ratio of overhead hours
(Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to
revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line
1 minus the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01,
22.01, 26.01, and 27.01). (We note that for the FY 2008 and subsequent
wage index calculations, we are excluding the sum of lines 22.01,
26.01, and 27.01 from the determination of the ratio of overhead hours
to revised hours because hospitals typically do not provide fringe
benefits (wage-related costs) to contract personnel. Therefore, it is
not necessary for the wage index calculation to exclude overhead wage-
related costs for contract personnel. Further, if a hospital does
contribute to wage-related costs for contracted personnel, the
instructions for Lines 22.01, 26.01, and 27.01 require that associated
wage-related costs be combined with wages on the respective contract
labor lines.); (2) we compute overhead wage-related costs by
multiplying the overhead hours ratio by wage-related costs reported on
Part II, Lines 13, 14, and 18; and (3) we multiply the computed
overhead wage-related costs by the above excluded area hours ratio.
Finally, we subtract the computed overhead salaries, wage-related
costs, and hours associated with excluded areas from the total salaries
(plus wage-related costs) and hours derived in Steps 2 and 3.
Step 5--For each hospital, we adjust the total salaries plus wage-
related costs to a common period to determine total adjusted salaries
plus wage-related costs. To make the wage adjustment, we estimate the
percentage change in the employment cost index (ECI) for compensation
for each 30-day increment from October 14, 2004, through April 15,
2006, for private industry hospital workers from the BLS' Compensation
and Working Conditions. We use the ECI because it reflects the price
increase associated with total compensation (salaries plus fringes)
rather than just the increase in salaries. In addition, the ECI
includes managers as well as other hospital workers. This methodology
to compute the monthly update factors uses actual quarterly ECI data
and assures that the update factors match the actual quarterly and
annual percent changes. We also note that, since April 2006 with the
publication of March 2006 data, the BLS' ECI uses a different
classification system, the North American Industrial Classification
System (NAICS), instead of the Standard Industrial Codes (SICs), which
no longer exist. We have consistently used the ECI as the data source
for our wages and salaries and other price proxies in the IPPS market
basket, and we are not making any changes to the usage for FY 2011. The
factors used to adjust the hospital's data were based on the midpoint
of the cost reporting period, as indicated below.

Midpoint of Cost Reporting Period
------------------------------------------------------------------------
After Before Adjustment factor
------------------------------------------------------------------------
10/14/2006 11/15/2006 1.04377
11/14/2006 12/15/2006 1.04077

[[Page 50170]]

12/14/2006 01/15/2007 1.03786
01/14/2007 02/15/2007 1.03508
02/14/2007 03/15/2007 1.03243
03/14/2007 04/15/2007 1.02981
04/14/2007 05/15/2007 1.02709
05/14/2007 06/15/2007 1.02430
06/14/2007 07/15/2007 1.02153
07/14/2007 08/15/2007 1.01891
08/14/2007 09/15/2007 1.01643
09/14/2007 10/15/2007 1.01394
10/14/2007 11/15/2007 1.01127
11/14/2007 12/15/2007 1.00844
12/14/2007 01/15/2008 1.00556
01/14/2008 02/15/2008 1.00275
02/14/2008 03/15/2008 1.00000
03/14/2008 04/15/2008 0.99732
------------------------------------------------------------------------

For example, the midpoint of a cost reporting period beginning
January 1, 2007, and ending December 31, 2007, is June 30, 2007. An
adjustment factor of 1.02153 would be applied to the wages of a
hospital with such a cost reporting period. In addition, for the data
for any cost reporting period that began in FY 2007 and covered a
period of less than 360 days or more than 370 days, we annualize the
data to reflect a 1-year cost report. Dividing the data by the number
of days in the cost report and then multiplying the results by 365
accomplishes annualization.
Step 6--Each hospital is assigned to its appropriate urban or rural
labor market area before any reclassifications under section
1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the
Act. Within each urban or rural labor market area, we add the total
adjusted salaries plus wage-related costs obtained in Step 5 for all
hospitals in that area to determine the total adjusted salaries plus
wage-related costs for the labor market area.
Step 7--We divide the total adjusted salaries plus wage-related
costs obtained under both methods in Step 6 by the sum of the
corresponding total hours (from Step 4) for all hospitals in each labor
market area to determine an average hourly wage for the area.
Step 8--We add the total adjusted salaries plus wage-related costs
obtained in Step 5 for all hospitals in the Nation and then divide the
sum by the national sum of total hours from Step 4 to arrive at a
national average hourly wage. Using the data as described above, the
final national average hourly wage (unadjusted for occupational mix) is
$34.9895.
Step 9--For each urban or rural labor market area, we calculate the
hospital wage index value, unadjusted for occupational mix, by dividing
the area average hourly wage obtained in Step 7 by the national average
hourly wage computed in Step 8.
Step 10--Following the process set forth above, we develop a
separate Puerto Rico-specific wage index for purposes of adjusting the
Puerto Rico standardized amounts. (The national Puerto Rico
standardized amount is adjusted by a wage index calculated for all
Puerto Rico labor market areas based on the national average hourly
wage as described above.) We add the total adjusted salaries plus wage-
related costs (as calculated in Step 5) for all hospitals in Puerto
Rico and divide the sum by the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an overall final average hourly wage
(unadjusted for occupational mix) of $14.7404 for Puerto Rico. For each
labor market area in Puerto Rico, we calculate the Puerto Rico-specific
wage index value by dividing the area average hourly wage (as
calculated in Step 7) by the overall Puerto Rico average hourly wage.
Step 11--Section 4410 of Public Law 105-33 provides that, for
discharges on or after October 1, 1997, the area wage index applicable
to any hospital that is located in an urban area of a State may not be
less than the area wage index applicable to hospitals located in rural
areas in that State. The areas affected by this provision are
identified in Table 4D-2 of the Addendum to this final rule.
In the FY 2005 IPPS final rule (69 FR 49109), we adopted the
``imputed'' floor as a temporary 3-year measure to address a concern by
some individuals that hospitals in all-urban States were disadvantaged
by the absence of rural hospitals to set a wage index floor in those
States. The imputed floor was originally set to expire in FY 2007, but
we extended it an additional year in the FY 2008 IPPS final rule with
comment period (72 FR 47321). In the FY 2009 IPPS final rule (73 FR
48570 through 48574 and 48584), we extended the imputed floor for an
additional 3 years, through FY 2011.

H. Analysis and Implementation of the Final Occupational Mix Adjustment
and the Final FY 2011 Occupational Mix Adjusted Wage Index

As discussed in section III.D. of this preamble, for FY 2011, we
are applying the occupational mix adjustment to 100 percent of the
final FY 2011 wage index. We calculated the final occupational mix
adjustment using data from the 2007-2008 occupational mix survey data,
using the methodology described in section III.D.3. of this preamble.
Using the occupational mix survey data and applying the
occupational mix adjustment to 100 percent of the final FY 2011 wage
index results in a final national average hourly wage of $34.9664 and a
final Puerto Rico-specific average hourly wage of $14.7620. After
excluding data of hospitals that either submitted aberrant data that
failed critical edits, or that do not have FY 2007 Worksheet S-3 cost
report data for use in calculating the final FY 2011 wage index, we
calculated the final FY 2011 wage index using the occupational mix
survey data from 3,197 hospitals. Using the Worksheet S-3 cost report
data of 3,511 hospitals and occupational mix survey data from 3,197
hospitals represents a 91.1 percent survey response rate. The final FY
2011 national average hourly wages for each occupational mix nursing
subcategory as calculated in Step 2 of the occupational mix calculation
are as follows:

[[Page 50171]]

------------------------------------------------------------------------
Average hourly
Occupational mix nursing subcategory wage
------------------------------------------------------------------------
National RN........................................... $36.073112086
National LPN and Surgical Technician.................. 20.866432497
National Nurse Aide, Orderly, and Attendant........... 14.619357374
National Medical Assistant............................ 16.479254498
National Nurse Category............................... 30.47379669
------------------------------------------------------------------------

The final national average hourly wage for the entire nurse
category as computed in Step 5 of the occupational mix calculation is
$30.47379669. Hospitals with a nurse category average hourly wage (as
calculated in Step 4) of greater than the national nurse category
average hourly wage receive an occupational mix adjustment factor (as
calculated in Step 6) of less than 1.0. Hospitals with a nurse category
average hourly wage (as calculated in Step 4) of less than the national
nurse category average hourly wage receive an occupational mix
adjustment factor (as calculated in Step 6) of greater than 1.0.
Based on the 2007-2008 occupational mix survey data, we determined
(in Step 7 of the occupational mix calculation) that the national
percentage of hospital employees in the nurse category is 44.29
percent, and the national percentage of hospital employees in the all
other occupations category is 55.71 percent. At the CBSA level, the
percentage of hospital employees in the nurse category ranged from a
low of 29.08 percent in one CBSA, to a high of 70.76 percent in another
CBSA.
We compared the final FY 2011 occupational mix adjusted wage
indices for each CBSA to the final unadjusted wage indices for each
CBSA. As a result of applying the occupational mix adjustment to the
wage data, the final wage index values for 206 (52.7 percent) urban
areas and 32 (68.1 percent) rural areas would increase. One hundred six
(27.1 percent) urban areas would increase by 1 percent or more, and 6
(1.5 percent) urban areas would increase by 5 percent or more. Eighteen
(38.3 percent) rural areas would increase by 1 percent or more, and no
rural areas would increase by 5 percent or more. However, the wage
index values for 185 (47.3 percent) urban areas and 15 (31.9 percent)
rural areas would decrease. Eighty nine (22.8 percent) urban areas
would decrease by 1 percent or more, and no urban area would decrease
by 5 percent or more. Seven (14.9 percent) rural areas would decrease
by 1 percent or more, and no rural areas will decrease by 5 percent or
more. The largest positive impacts are 7.81 percent for an urban area
and 2.97 percent for a rural area. The largest negative impacts are
3.97 percent for an urban area and 2.41 percent for a rural area. No
urban or rural areas are unaffected. These results indicate that a
larger percentage of rural areas (68.1 percent) benefit from the
occupational mix adjustment than do urban areas (52.7 percent). While
these results are more positive overall for rural areas than under the
previous occupational mix adjustment that used survey data from 2006,
approximately one-third (31.9 percent) of rural CBSAs will still
experience a decrease in their wage indices as a result of the
occupational mix adjustment.
The final wage index values for FY 2011 (except those for hospitals
receiving wage index adjustments under section 1886(d)(13) of the Act)
included in Tables 4A, 4B, 4C, and 4F of the Addendum to this final
rule include the final occupational mix adjustment.
Tables 3A and 3B in the Addendum to this final rule list the 3-year
average hourly wage for each labor market area before the redesignation
or reclassification of hospitals based on FYs 2009, 2010, and 2011 cost
reporting periods. Table 3A lists these data for urban areas and Table
3B lists these data for rural areas. In addition, Table 2 in the
Addendum to this final rule includes the adjusted average hourly wage
for each hospital from the FY 2005 and FY 2006 cost reporting periods,
as well as the FY 2007 period used to calculate the final FY 2011 wage
index. The 3-year averages are calculated by dividing the sum of the
dollars (adjusted to a common reporting period using the method
described previously) across all 3 years, by the sum of the hours. If a
hospital is missing data for any of the previous years, its average
hourly wage for the 3-year period is calculated based on the data
available during that period. The final average hourly wages in Tables
2, 3A, and 3B in the Addendum to this final rule include the final
occupational mix adjustment. The final wage index values in Tables 4A,
4B, and 4C also include the final State-specific rural floor and
imputed floor budget neutrality adjustments. (We note that Table 4D-1,
Rural Floor Budget Neutrality Factors for Acute Care Hospitals, was
included in the Addendum to the FY 2011 IPPS/LTCH PPS proposed rule.
However, we are not including it in this final rule because section
3141 of the Affordable Care Act restores rural floor and imputed floor
budget neutrality to a uniform national adjustment.)

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

1. General
Under section 1886(d)(10) of the Act, the MGCRB considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. Hospitals must apply to the MGCRB to
reclassify 13 months prior to the start of the fiscal year for which
reclassification is sought (generally by September 1). Generally,
hospitals must be proximate to the labor market area to which they are
seeking reclassification and must demonstrate characteristics similar
to hospitals located in that area. The MGCRB issues its decisions by
the end of February for reclassifications that become effective for the
following fiscal year (beginning October 1). The regulations applicable
to reclassifications by the MGCRB are located in 42 CFR 412.230 through
412.280.
Section 1886(d)(10)(D)(v) of the Act provides that, beginning with
FY 2001, a MGCRB decision on a hospital reclassification for purposes
of the wage index is effective for 3 fiscal years, unless the hospital
elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of
the Act provides that the MGCRB must use average hourly wage data from
the 3 most recently published hospital wage surveys in evaluating a
hospital's reclassification application for FY 2003 and any succeeding
fiscal year.
Section 304(b) of Public Law 106-554 provides that the Secretary
must establish a mechanism under which a statewide entity may apply to
have all of the geographic areas in the State treated as a single
geographic area for purposes of computing and applying a single wage
index, for reclassifications beginning in FY 2003. The implementing
regulations for this provision are located at 42 CFR 412.235.
Section 1886(d)(8)(B) of the Act requires the Secretary to treat a
hospital located in a rural county adjacent to one

[[Page 50172]]

or more urban areas as being located in the labor market area to which
the greatest number of workers in the county commute, if the rural
county would otherwise be considered part of an urban area under the
standards for designating MSAs and if the commuting rates used in
determining outlying counties were determined on the basis of the
aggregate number of resident workers who commute to (and, if applicable
under the standards, from) the central county or counties of all
contiguous MSAs. In light of the CBSA definitions and the Census 2000
data that we implemented for FY 2005 (69 FR 49027), we undertook to
identify those counties meeting these criteria. Eligible counties are
discussed and identified under section III.I.5. of this preamble.
2. Effects of Reclassification/Redesignation
Section 1886(d)(8)(C) of the Act provides that the application of
the wage index to redesignated hospitals is dependent on the
hypothetical impact that the wage data from these hospitals would have
on the wage index value for the area to which they have been
redesignated. These requirements for determining the wage index values
for redesignated hospitals are applicable both to the hospitals deemed
urban under section 1886(d)(8)(B) of the Act and hospitals that were
reclassified as a result of the MGCRB decisions under section
1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C)
of the Act, the wage index values were determined by considering the
following:
If including the wage data for the redesignated hospitals
would reduce the wage index value for the area to which the hospitals
are redesignated by 1 percentage point or less, the area wage index
value determined exclusive of the wage data for the redesignated
hospitals applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
reduces the wage index value for the area to which the hospitals are
redesignated by more than 1 percentage point, the area wage index
determined inclusive of the wage data for the redesignated hospitals
(the combined wage index value) applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
increases the wage index value for the urban area to which the
hospitals are redesignated, both the area and the redesignated
hospitals receive the combined wage index value. Otherwise, the
hospitals located in the urban area receive a wage index excluding the
wage data of hospitals redesignated into the area.
Rural areas whose wage index values would be reduced by excluding
the wage data for hospitals that have been redesignated to another area
continue to have their wage index values calculated as if no
redesignation had occurred (otherwise, redesignated rural hospitals are
excluded from the calculation of the rural wage index). The wage index
value for a redesignated rural hospital cannot be reduced below the
wage index value for the rural areas of the State in which the hospital
is located.
CMS also has adopted the following policies:
The wage data for a reclassified urban hospital is
included in both the wage index calculation of the urban area to which
the hospital is reclassified (subject to the rules described above) and
the wage index calculation of the urban area where the hospital is
physically located.
In cases where hospitals have reclassified to rural areas,
such as urban hospitals reclassifying to rural areas under 42 CFR
412.103, the hospital's wage data are: (a) Included in the rural wage
index calculation, unless doing so would reduce the rural wage index;
and (b) included in the urban area where the hospital is physically
located. The effect of this policy, in combination with the statutory
requirement at section 1886(d)(8)(C)(ii) of the Act, is that rural
areas may receive a wage index based upon the highest of: (1) Wage data
from hospitals geographically located in the rural area; (2) wage data
from hospitals geographically located in the rural area, but excluding
all data associated with hospitals reclassifying out of the rural area
under section 1886(d)(8)(B) or section 1886(d)(10) of the Act; or (3)
wage data associated with hospitals geographically located in the area
plus all hospitals reclassified into the rural area.
In addition, in accordance with the statutory language referring to
``hospitals'' in the plural under sections 1886(d)(8)(C)(i) and
1886(d)(8)(C)(ii) of the Act, our longstanding policy is to consider
reclassified hospitals as a group when deciding whether to include or
exclude them from both urban and rural wage index calculations.
Comment: One commenter opposed CMS' longstanding methodology for
calculating the wage index for reclassified hospitals, and suggested
that CMS calculate a separate reclassified wage index for those
hospitals that meet the reclassification proximate requirement and
another wage index for those hospitals that do not meet the
requirement. In addition, the commenter suggested another option which
would provide for calculation of the reclassified wage index based on
the hospitals physically located in the CBSA and each individual
hospital, instead of combining all reclassified hospitals as a group.
Response: We did not include any proposals in the FY 2011 proposed
rule to change our longstanding methodology for calculating the wage
index for reclassified hospitals. We believe that this methodology
continues to be appropriate in order to calculate the wage index for
hospitals for Medicare payment purposes.
3. FY 2011 MGCRB Reclassifications
a. FY 2011 Reclassifications Requirements and Approvals
Under section 1886(d)(10) of the Act, the MGCRB considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. The specific procedures and rules that apply
to the geographic reclassification process are outlined in 42 CFR
412.230 through 412.280.
At the time this final rule was constructed, the MGCRB had
completed its review of FY 2011 reclassification requests. Based on
such reviews, there were 285 hospitals approved for wage index
reclassifications by the MGCRB for FY 2011. Because MGCRB wage index
reclassifications are effective for 3 years, for FY 2011, hospitals
reclassified during FY 2009 or FY 2010 are eligible to continue to be
reclassified to a particular labor market area based on such prior
reclassifications. There were 247 hospitals approved for wage index
reclassifications in FY 2009 and 251 hospitals approved for wage index
reclassifications in FY 2010. Of all of the hospitals approved for
reclassification for FY 2009, FY 2010, and FY 2011, based upon the
review at the time of this final rule, 823 hospitals are in a
reclassification status for FY 2011.
Under 42 CFR 412.273, hospitals that have been reclassified by the
MGCRB are permitted to withdraw their applications within 45 days of
the publication of a proposed rule. Generally stated, the request for
withdrawal of an application for reclassification or termination of an
existing 3-year reclassification that would be effective in FY 2011 had
to be received by the MGCRB within 45 days of the publication of the FY
2011 proposed rule. Hospitals also could cancel prior reclassification
withdrawals or terminations in certain circumstances. For further
information

[[Page 50173]]

about withdrawing, terminating, or canceling a previous withdrawal or
termination of a 3-year reclassification for wage index purposes, we
refer the reader to 42 CFR 412.273, as well as the FY 2002 IPPS final
rule (66 FR 39887) and the FY 2003 IPPS final rule (67 FR 50065).
Additional discussion on withdrawals and terminations, and
clarifications regarding reinstating reclassifications and ``fallback''
reclassifications, were included in the FY 2008 IPPS final rule (72 FR
47333).
Changes to the wage index that result from withdrawals of requests
for reclassification, terminations, wage index corrections, appeals,
and the Administrator's review process for FY 2011 are incorporated
into the wage index values published in this FY 2011 IPPS/LTCH PPS
final rule. These changes affect not only the wage index value for
specific geographic areas, but also the wage index value redesignated/
reclassified hospitals receive; that is, whether they receive the wage
index that includes the data for both the hospitals already in the area
and the redesignated/reclassified hospitals. Further, the wage index
value for the area from which the hospitals are redesignated/
reclassified may be affected.
b. Applications for Reclassifications for FY 2012
Applications for FY 2012 reclassifications are due to the MGCRB by
September 1, 2010. We note that this is also the deadline for canceling
a previous wage index reclassification withdrawal or termination under
42 CFR 412.273(d). Applications and other information about MGCRB
reclassifications may be obtained, beginning in mid-July 2010, via the
CMS Internet Web site at: http://cms.hhs.gov/MGCRB/02_instructions_and_applications.asp, or by calling the MGCRB at (410) 786-1174. The
mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L,
Baltimore, MD 21244-2670.
c. Appeals of MGCRB Denials of Withdrawals and Terminations
Section 412.278 of the regulations permits a hospital or a group of
hospitals dissatisfied with the MGCRB's decision regarding its
geographic designation to request the Administrator's review of the
decision. Section 412.273(e) permits a hospital to file an appeal to
the Administrator regarding the MGCRB's denial of the hospital's
request for withdrawal of an application. However, this section of the
regulations did not address Administrator review of the MGCRB's denial
of a hospital's request for termination; that is, ``terminations'' not
specified in the regulations at Sec. 412.273(e).
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23949), we
proposed to revise the regulations to specify the availability of
Administrator review of MGCRB decisions regarding withdrawals and
terminations, as well as cancellations of withdrawals or terminations.
Because reclassifications are considered budget neutral actions, we
stated our belief that these proposed revisions would have no impact on
total IPPS payments.
In addition, during our review of Sec. 412.273, we determined that
some of the existing language in the section could be clarified to make
it more easily understood and proposed to revise the provision
accordingly.
We did not receive any public comments regarding our proposed
changes to the regulations at Sec. 412.273. Therefore, in this final
rule, we are adopting as final, without modification, the proposed
changes to Sec. 412.273.
4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act
Section 1886(d)(8)(B) of the Act requires us to treat a hospital
located in a rural county adjacent to one or more urban areas as being
located in the MSA if certain criteria are met. Effective beginning FY
2005, we use OMB's 2000 CBSA standards and the Census 2000 data to
identify counties in which hospitals qualify under section
1886(d)(8)(B) of the Act to receive the wage index of the urban area.
Hospitals located in these counties have been known as ``Lugar''
hospitals and the counties themselves are often referred to as
``Lugar'' counties. We provide the FY 2011 chart below with the listing
of the rural counties containing the hospitals designated as urban
under section 1886(d)(8)(B) of the Act. For discharges occurring on or
after October 1, 2010, hospitals located in the rural county in the
first column of this chart will be redesignated for purposes of using
the wage index of the urban area listed in the second column.
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BILLING CODE 4120-01-C
As in the past, hospitals redesignated under section 1886(d)(8)(B)
of the Act are also eligible to be reclassified to a different area by
the MGCRB. Affected hospitals were permitted to compare the
reclassified wage index for the labor market area in Table 4C in the
Addendum to the proposed rule into which they would be reclassified by
the MGCRB to the wage index for the area to which they are redesignated
under section 1886(d)(8)(B) of the Act. Hospitals could have withdrawn
from an MGCRB reclassification within 45 days of the publication of the
FY 2011 proposed rule.
5. Reclassifications Under Section 1886(d)(8)(B) of the Act
As discussed in the FY 2009 IPPS final rule (73 FR 48588), Lugar
hospitals are treated like reclassified hospitals for purposes of
determining their applicable wage index and receive the reclassified
wage index for the urban area to which they have been redesignated.
Because Lugar hospitals are treated like reclassified hospitals, when
they are seeking reclassification by the MGCRB, they are subject to the
rural reclassification rules set forth at 42 CFR 412.230. The
procedural rules set forth at Sec. 412.230 list the criteria that a
hospital must meet in order to reclassify as a rural hospital. Lugar
hospitals are subject to the proximity criteria and payment thresholds
that apply to rural hospitals. Specifically, the hospital must be no
more than 35 miles from the area to which it seeks reclassification
(Sec. 412.230(b)(1)); and the hospital must show that its average
hourly wage is at least 106 percent of the average hourly wage of all
other hospitals in the area in which the hospital is located (Sec.
412.230(d)(1)(iii)(C)). In accordance with the requirements of section
3137(c) of the Affordable Care Act, as discussed in section III.B.2.a
of the preamble in this final rule, beginning with reclassifications
for the FY 2011 wage index, a Lugar hospital must also demonstrate that
its average hourly wage is equal to at least 82 percent of the average
hourly wage of hospitals in the area to which it seeks redesignation
(Sec. 412.230(d)(1)(iv)(C)).
Hospitals not located in a Lugar county seeking reclassification to
the urban area where the Lugar hospitals have been redesignated are not
permitted to measure to the Lugar county to demonstrate proximity (no
more than 15 miles for an urban hospital, and no more than 35 miles for
a rural hospital or the closest urban or rural area for RRCs or SCHs)
in order to be reclassified to such urban area. These hospitals must
measure to the urban area exclusive of the Lugar County to meet the
proximity or nearest urban or rural area requirement. We treat New
England deemed counties in a manner consistent with how we treat Lugar
counties. (We refer readers to FY 2008 IPPS final rule with comment
period (72 FR 47337) for a discussion of this policy.)
6. Reclassifications Under Section 508 of Public Law 108-173
Section 508 of Public Law 108-173 allowed certain qualifying
hospitals to receive wage index reclassifications and assignments that
they otherwise would not have been eligible to receive under the law.
Although section 508 originally was scheduled to expire after a 3-year
period, Congress extended the provision several times, as well as
certain special exceptions that would have otherwise expired. For a
discussion of the original section 508 provision and its various
extensions, we refer readers to the FY 2010 notice issued in the
Federal Register on June 2, 2010 (75 FR 31118). Prior to the enactment
of the Afforable Care Act, the extension of the 508 provision was
included in section 124 of Public Law 110-275 (MIPPA). Section 124
extended, through FY 2009, section 508 reclassifications as well as
certain special exceptions. The most recent extension of the provision
was included in sections 3137(a) and 10317 of Affordable Care Act, as
amended. Section 3137(a) of the Affordable Care Act, as amended by
section 10317, extended, through FY 2010, section 508 reclassifications
as well as certain special exceptions. Because the latest extension of
these provisions expires on September 30, 2010, and will not be
applicable in FY 2011, we are not making any changes related to these
provisions in this final rule.

J. FY 2011 Wage Index Adjustment Based on Commuting Patterns of
Hospital Employees

In accordance with the broad discretion under section 1886(d)(13)
of the Act, as added by section 505 of Public Law 108-173, beginning
with FY 2005, we established a process to make adjustments to the
hospital wage index based on commuting patterns of hospital employees
(the ``out-migration'' adjustment). The process, outlined in the FY
2005 IPPS final rule (69 FR 49061), provides for an increase in the
wage index for hospitals located in certain counties that have a
relatively high percentage of hospital employees who reside in the
county but work in a different county (or counties) with a higher wage
index. Such adjustments to the wage index are effective for 3 years,
unless a hospital requests to waive the application of the adjustment.
A county will not lose its status as a qualifying county due to wage
index changes during the 3-year period, and counties will receive the
same wage index increase for those 3 years. However, a county that
qualifies in any given year

[[Page 50177]]

may no longer qualify after the 3-year period, or it may qualify but
receive a different adjustment to the wage index level. Hospitals that
receive this adjustment to their wage index are not eligible for
reclassification under section 1886(d)(8) or section 1886(d)(10) of the
Act. Adjustments under this provision are not subject to the budget
neutrality requirements under section 1886(d)(3)(E) of the Act.
Hospitals located in counties that qualify for the wage index
adjustment are to receive an increase in the wage index that is equal
to the average of the differences between the wage indices of the labor
market area(s) with higher wage indices and the wage index of the
resident county, weighted by the overall percentage of hospital workers
residing in the qualifying county who are employed in any labor market
area with a higher wage index. Beginning with the FY 2008 wage index,
we use post-reclassified wage indices when determining the out-
migration adjustment (72 FR 47339).
For the final FY 2011 wage index, we calculated the out-migration
adjustment using the same formula described in the FY 2005 IPPS final
rule (69 FR 49064), with the addition of using the post-reclassified
wage indices, to calculate the out-migration adjustment. This
adjustment is calculated as follows:
Step 1--Subtract the wage index for the qualifying county from the
wage index of each of the higher wage area(s) to which hospital workers
commute.
Step 2--Divide the number of hospital employees residing in the
qualifying county who are employed in such higher wage index area by
the total number of hospital employees residing in the qualifying
county who are employed in any higher wage index area. For each of the
higher wage index areas, multiply this result by the result obtained in
Step 1.
Step 3--Sum the products resulting from Step 2 (if the qualifying
county has workers commuting to more than one higher wage index area).
Step 4--Multiply the result from Step 3 by the percentage of
hospital employees who are residing in the qualifying county and who
are employed in any higher wage index area.
These adjustments will be effective for each county for a period of
3 fiscal years. For example, hospitals that received the adjustment for
the first time in FY 2010 will be eligible to retain the adjustment for
FY 2011. For hospitals in newly qualified counties, adjustments to the
wage index are effective for 3 years, beginning with discharges
occurring on or after October 1, 2010.
Hospitals receiving the wage index adjustment under section
1886(d)(13)(F) of the Act are not eligible for reclassification under
sections 1886(d)(8) or (d)(10) of the Act unless they waive the out-
migration adjustment. Consistent with our FYs 2005 through 2010 IPPS
final rules, we are specifying that hospitals redesignated under
section 1886(d)(8) of the Act or reclassified under section 1886(d)(10)
of the Act are deemed to have chosen to retain their redesignation or
reclassification. Section 1886(d)(10) hospitals that wished to receive
the out-migration adjustment, rather than their reclassification
adjustment, were instructed to follow the termination/withdrawal
procedures specified in 42 CFR 412.273 and section III.I.3. of the
preamble of the FY 2011 proposed rule. Otherwise, they were deemed to
have waived the out-migration adjustment. Hospitals redesignated under
section 1886(d)(8) of the Act were deemed to have waived the out-
migration adjustment unless they explicitly notified CMS within 45 days
from the publication of the FY 2011 proposed rule that they elected to
receive the out-migration adjustment instead.
Table 4J in the Addendum to this final rule lists the out-migration
wage index adjustments for FY 2011. Hospitals that are not otherwise
reclassified or redesignated under section 1886(d)(8) or section
1886(d)(10) of the Act automatically receive the listed adjustment. In
accordance with the procedures discussed above, redesignated/
reclassified hospitals were deemed to have waived the out-migration
adjustment unless CMS was otherwise notified within the necessary
timeframe. In addition, hospitals eligible to receive the out-migration
wage index adjustment and that withdrew their application for
reclassification will automatically receive the wage index adjustment
listed in Table 4J in the Addendum to this final rule. The wage index
is updated annually and, as such, hospitals that wish to waive their
Lugar redesignation in order to receive their home area wage index plus
the out-migration adjustment must request the waiver annually.
Comment: A few commenters opposed our existing policy that
hospitals waiving their Lugar redesignation in order to receive their
home area wage index plus the out-migration adjustment must request
such waiver annually.
Response: We did not propose to change this policy and continue to
believe the existing policy is appropriate for designation of the out-
migration adjustment annually. We addressed this comment in the FY 2010
IPPS/RY 2010 LTCH PPS final rule and refer readers to that discussion
(74 FR 43840).

K. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational
mix survey data files for the proposed FY 2011 wage index were made
available on October 5, 2009, through the Internet on the CMS Web site
at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
In the interest of meeting the data needs of the public, beginning
with the proposed FY 2009 wage index, we post an additional public use
file on our Web site that reflects the actual data that are used in
computing the proposed wage index. The release of this new file does
not alter the current wage index process or schedule. We notified the
hospital community of the availability of these data as we do with the
current public use wage data files through our Hospital Open Door
forum. We encouraged hospitals to sign up for automatic notifications
of information about hospital issues and the scheduling of the Hospital
Open Door forums at: http://www.cms.hhs.gov/OpenDoorForums/.
In a memorandum dated October 21, 2009, we instructed all fiscal
intermediaries/MACs to inform the IPPS hospitals they service of the
availability of the wage index data files and the process and timeframe
for requesting revisions (including the specific deadlines listed
below). We also instructed the fiscal intermediaries/MACs to advise
hospitals that these data were also made available directly through
their representative hospital organizations.
If a hospital wished to request a change to its data as shown in
the October 5, 2009 wage and occupational mix data files, the hospital
was to submit corrections along with complete, detailed supporting
documentation to its fiscal intermediary/MAC by December 7, 2009.
Hospitals were notified of this deadline and of all other possible
deadlines and requirements, including the requirement to review and
verify their data as posted on the preliminary wage index data files on
the Internet, through the October 21, 2009 memorandum referenced above.

[[Page 50178]]

In the October 21, 2009 memorandum, we also specified that a
hospital requesting revisions to its occupational mix survey data was
to copy its record(s) from the CY 2007-2008 occupational mix
preliminary files posted to our Web site in October, highlight the
revised cells on its spreadsheet, and submit its spreadsheet(s) and
complete documentation to its fiscal intermediary/MAC no later than
December 7, 2009.
The fiscal intermediaries/MACs notified the hospitals by mid-
February 2010 of any changes to the wage index data as a result of the
desk reviews and the resolution of the hospitals' early-December
revision requests. The fiscal intermediaries/MACs also submitted the
revised data to CMS by mid-February 2010. CMS published the proposed
wage index public use files that included hospitals' revised wage index
data on February 22, 2010. Hospitals had until March 8, 2010, to submit
requests to the fiscal intermediaries/MACs for reconsideration of
adjustments made by the fiscal intermediaries/MACs as a result of the
desk review, and to correct errors due to CMS's or the fiscal
intermediary's (or, if applicable, the MAC's) mishandling of the wage
index data. Hospitals also were required to submit sufficient
documentation to support their requests.
After reviewing requested changes submitted by hospitals, fiscal
intermediaries/MACs were required to transmit any additional revisions
resulting from the hospitals' reconsideration requests by April 14,
2010. The deadline for a hospital to request CMS intervention in cases
where the hospital disagrees with the fiscal intermediary's (or, if
applicable, the MAC's) policy interpretations was April 21, 2010.
Hospitals were given the opportunity to examine Table 2 in the
Addendum to the proposed rule. Table 2 in the Addendum to the proposed
rule contained each hospital's adjusted average hourly wage used to
construct the wage index values for the past 3 years, including the FY
2007 data used to construct the proposed FY 2011 wage index. We noted
that the hospital average hourly wages shown in Table 2 only reflected
changes made to a hospital's data and transmitted to CMS by March 2010.
We released the final wage index data public use files in early May
2010 on the Internet at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. The May 2010 public use files were made available
solely for the limited purpose of identifying any potential errors made
by CMS or the fiscal intermediary/MAC in the entry of the final wage
index data that resulted from the correction process described above
(revisions submitted to CMS by the fiscal intermediaries/MACs by April
14, 2010). If, after reviewing the May 2010 final files, a hospital
believed that its wage or occupational mix data were incorrect due to a
fiscal intermediary/MAC or CMS error in the entry or tabulation of the
final data, the hospital had to send a letter to both its fiscal
intermediary/MAC and CMS that outlined why the hospital believed an
error exists and provided all supporting information, including
relevant dates (for example, when it first became aware of the error).
CMS and the fiscal intermediaries (or, if applicable, the MACs) had to
receive these requests no later than June 7, 2010.
Each request also had to be sent to the fiscal intermediary/MAC.
The fiscal intermediary/MAC reviewed requests upon receipt and
contacted CMS immediately to discuss any findings.
At this point in the process, that is, after the release of the May
2010 wage index data files, changes to the wage and occupational mix
data were only made in those very limited situations involving an error
by the fiscal intermediary/MAC or CMS that the hospital could not have
known about before its review of the final wage index data files.
Specifically, neither the fiscal intermediary/MAC nor CMS approved the
following types of requests:
Requests for wage index data corrections that were
submitted too late to be included in the data transmitted to CMS by
fiscal intermediaries or the MACs on or before April 21, 2010.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the February 22,
2010 wage index public use files.
Requests to revisit factual determinations or policy
interpretations made by the fiscal intermediary or the MAC or CMS
during the wage index data correction process.
Verified corrections to the wage index data received timely by CMS
and the fiscal intermediaries or the MACs (that is, by June 7, 2010)
were incorporated into the final wage index in this FY 2011 IPPS/LTCH
PPS final rule, which will be effective October 1, 2010.
We created the processes described above to resolve all substantive
wage index data correction disputes before we finalize the wage and
occupational mix data for the FY 2011 payment rates. Accordingly,
hospitals that did not meet the procedural deadlines set forth above
will not be afforded a later opportunity to submit wage index data
corrections or to dispute the fiscal intermediary's (or, if applicable,
the MAC's) decision with respect to requested changes. Specifically,
our policy is that hospitals that do not meet the procedural deadlines
set forth above will not be permitted to challenge later, before the
Provider Reimbursement Review Board, the failure of CMS to make a
requested data revision. (See W. A. Foote Memorial Hospital v. Shalala,
No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v.
Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY
2000 IPPS final rule (64 FR 41513) for a discussion of the parameters
for appealing to the PRRB for wage index data corrections.
Again, we believe the wage index data correction process described
above provides hospitals with sufficient opportunity to bring errors in
their wage and occupational mix data to the fiscal intermediary's (or,
if applicable, the MAC's) attention. Moreover, because hospitals have
access to the final wage index data by early May 2010, they have the
opportunity to detect any data entry or tabulation errors made by the
fiscal intermediary or the MAC or CMS before the development and
publication of the final FY 2011 wage index by August 2010, and the
implementation of the FY 2011 wage index on October 1, 2010. If
hospitals availed themselves of the opportunities afforded to provide
and make corrections to the wage and occupational mix data, the wage
index implemented on October 1 should be accurate. Nevertheless, in the
event that errors are identified by hospitals and brought to our
attention after June 7, 2010, we retain the right to make midyear
changes to the wage index under very limited circumstances.
Specifically, in accordance with 42 CFR 412.64(k)(1) of our
existing regulations, we make midyear corrections to the wage index for
an area only if a hospital can show that: (1) The fiscal intermediary
or the MAC or CMS made an error in tabulating its data; and (2) the
requesting hospital could not have known about the error or did not
have an opportunity to correct the error, before the beginning of the
fiscal year. For purposes of this provision, ``before the beginning of
the fiscal year'' means by the June 7 deadline for making corrections
to the wage data for the following fiscal year's wage index. This
provision is not available to a hospital seeking to revise another
hospital's data that may be affecting the requesting hospital's wage
index for the labor market area. As indicated earlier,

[[Page 50179]]

because CMS makes the wage index data available to hospitals on the CMS
Web site prior to publishing both the proposed and final IPPS rules,
and the fiscal intermediaries or the MACs notify hospitals directly of
any wage index data changes after completing their desk reviews, we do
not expect that midyear corrections will be necessary. However, under
our current policy, if the correction of a data error changes the wage
index value for an area, the revised wage index value will be effective
prospectively from the date the correction is made.
In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR
412.64(k)(2) to specify that, effective on October 1, 2005, that is,
beginning with the FY 2006 wage index, a change to the wage index can
be made retroactive to the beginning of the Federal fiscal year only
when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS
made an error in tabulating data used for the wage index calculation;
(2) the hospital knew about the error and requested that the fiscal
intermediary (or, if applicable, the MAC) and CMS correct the error
using the established process and within the established schedule for
requesting corrections to the wage index data, before the beginning of
the fiscal year for the applicable IPPS update (that is, by the June 7,
2010 deadline for the FY 2011 wage index); and (3) CMS agreed that the
fiscal intermediary (or, if applicable, the MAC) or CMS made an error
in tabulating the hospital's wage index data and the wage index should
be corrected.
In those circumstances where a hospital requested a correction to
its wage index data before CMS calculated the final wage index (that
is, by the June 7, 2010 deadline), and CMS acknowledges that the error
in the hospital's wage index data was caused by CMS' or the fiscal
intermediary's (or, if applicable, the MAC's) mishandling of the data,
we believe that the hospital should not be penalized by our delay in
publishing or implementing the correction. As with our current policy,
we indicated that the provision is not available to a hospital seeking
to revise another hospital's data. In addition, the provision cannot be
used to correct prior years' wage index data; and it can only be used
for the current Federal fiscal year. In other situations where our
policies would allow midyear corrections, we continue to believe that
it is appropriate to make prospective-only corrections to the wage
index.
We note that, as with prospective changes to the wage index, the
final retroactive correction will be made irrespective of whether the
change increases or decreases a hospital's payment rate. In addition,
we note that the policy of retroactive adjustment will still apply in
those instances where a judicial decision reverses a CMS denial of a
hospital's wage index data revision request.

L. Labor-Related Share for the FY 2011 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust
the proportion of the national prospective payment system base payment
rates that are attributable to wages and wage-related costs by a factor
that reflects the relative differences in labor costs among geographic
areas. It also directs the Secretary to estimate from time to time the
proportion of hospital costs that are labor-related: ``The Secretary
shall adjust the proportion (as estimated by the Secretary from time to
time) of hospitals' costs which are attributable to wages and wage-
related costs of the DRG prospective payment rates * * * '' We refer to
the portion of hospital costs attributable to wages and wage-related
costs as the labor-related share. The labor-related share of the
prospective payment rate is adjusted by an index of relative labor
costs, which is referred to as the wage index.
Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of
the Act to provide that the Secretary must employ 62 percent as the
labor-related share unless this ``would result in lower payments to a
hospital than would otherwise be made.'' However, this provision of
Public Law 108-173 did not change the legal requirement that the
Secretary estimate ``from time to time'' the proportion of hospitals'
costs that are ``attributable to wages and wage-related costs.'' We
believe that this reflected Congressional intent that hospitals receive
payment based on either a 62-percent labor-related share, or the labor-
related share estimated from time to time by the Secretary, depending
on which labor-related share resulted in a higher payment.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850
through 43856), we rebased and revised the hospital market basket for
operating costs. We established a FY-2006-based IPPS hospital market
basket to replace the FY 2002-based IPPS hospital market basket,
effective October 1, 2009. In that final rule, we presented our
analysis and conclusions regarding the frequency and methodology for
updating the labor-related share for FY 2010. We also recalculated a
labor-related share of 68.8 percent, using the FY 2006-based IPPS
market basket, for discharges occurring on or after October 1, 2009. In
addition, we implemented this revised and rebased labor-related share
in a budget neutral manner, but consistent with section 1886(d)(3)(E)
of the Act, we did not take into account the additional payments that
would be made as a result of hospitals with a wage index less than or
equal to 1.0 being paid using a labor-related share lower than the
labor-related share of hospitals with a wage index greater than 1.0.
The labor-related share is used to determine the proportion of the
national IPPS base payment rate to which the area wage index is
applied. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23955), we
did not propose to make any further changes to the national average
proportion of operating costs that are attributable to wages and
salaries, fringe benefits, contract labor, the labor-related portion of
professional fees, administrative and business support services, and
all other labor-related services (previously referred to in the FY
2002-based IPPS market basket as labor-intensive).
We did not receive any public comments on this policy. Therefore,
for FY 2011, we are continuing to use a labor-related share of 68.8
percent for discharges occurring on or after October 1, 2010. Tables 1A
and 1B in the Addendum to this final rule reflects this labor-related
share. We note that section 403 of Public Law 108-173 amended sections
1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the
Secretary must employ 62 percent as the labor-related share unless this
employment ``would result in lower payments to a hospital than would
otherwise be made.'' Therefore, for all IPPS hospitals whose wage
indices are less than 1.0000, we are applying the wage index to a
labor-related share of 62 percent of the national standardized amount.
For all IPPS hospitals whose wage indices are greater than 1.0000, we
are applying the wage index to a labor-related share of 68.8 percent of
the national standardized amount.
For Puerto Rico hospitals, the national labor-related share will
always be 62 percent because the national wage index for all Puerto
Rico hospitals is less than 1.0. As we proposed, in this final rule, we
are continuing to use a labor-related share for the Puerto Rico-
specific standardized amounts of 62.1 percent for discharges occurring
on or after October 1, 2010. This Puerto Rico labor-related share of
62.1 percent was also adopted in the FY 2010 IPPS/LTCH PPS final rule
(74 FR 43857) at the time the FY 2006-based hospital market basket was
established, effective October 1, 2009. Consistent with our methodology
for determining the national labor-

[[Page 50180]]

related share, we added the Puerto Rico-specific relative weights for
wages and salaries, fringe benefits, contract labor, the labor-related
portion of professional fees, administrative and business support
services, and all other labor-related services (previously referred to
in the FY 2002-based IPPS market basket as labor-intensive) to
determine the labor-related share. Puerto Rico hospitals are paid based
on 75 percent of the national standardized amounts and 25 percent of
the Puerto Rico-specific standardized amounts. The labor-related share
of a hospital's Puerto Rico-specific rate will be either the Puerto
Rico-specific labor-related share of 62.1 percent or 62 percent,
depending on which results in higher payments to the hospital. If the
hospital has a Puerto Rico-specific wage index of greater than 1.0, we
will set the hospital's rates using a labor-related share of 62.1
percent for the 25 percent portion of the hospital's payment determined
by the Puerto Rico standardized amounts because this amount will result
in higher payments. Conversely, a hospital with a Puerto Rico-specific
wage index of less than 1.0 will be paid using the Puerto Rico-specific
labor-related share of 62 percent of the Puerto Rico-specific rates
because the lower labor-related share will result in higher payments.
We did not receive any public comments on the Puerto Rico-specific
labor-related share. The Puerto Rico labor-related share of 62.1
percent for FY 2011 is reflected in the Table 1C of the Addendum to
this final rule.

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

A. Reporting of Hospital Quality Data for Annual Hospital Payment
Update

1. Background
a. Overview
CMS is seeking to promote higher quality and more efficient health
care for Medicare beneficiaries. This effort is supported by the
adoption of an increasing number of widely-agreed upon quality
measures. CMS has worked with relevant stakeholders to define measures
of quality in almost every setting and currently measures some aspect
of care for almost all Medicare beneficiaries. These measures assess
structural aspects of care, clinical processes, patient experiences
with care, and, increasingly, outcomes.
CMS has implemented quality measure reporting programs for multiple
settings of care. To measure the quality of hospital inpatient
services, CMS implemented the Reporting Hospital Quality Data for
Annual Payment Update (RHQDAPU) program. In addition, CMS has
implemented quality reporting programs for hospital outpatient
services, the Hospital Outpatient Quality Data Reporting Program (HOP
QDRP), and for physicians and other eligible professionals, the
Physician Quality Reporting Initiative (PQRI). CMS has also implemented
quality reporting programs for home health agencies and skilled nursing
facilities that are based on conditions of participation, and an end-
stage renal disease quality reporting program that is based on
conditions for coverage. In implementing RHQDAPU and other quality
reporting programs, CMS has focused on measures that have high impact
and support CMS and HHS priorities for improved quality and efficiency
of care for Medicare beneficiaries. Our goal for the future is to align
the clinical quality measure requirements of RHQDAPU and various other
programs including HITECH so that burden for reporting would be
reduced.
Comment: Some commenters commended CMS' commitment to raise
quality, transparency, and efficiency in the health care world and
applauded its efforts to integrate with other programs and initiatives.
Response: We thank these comments regarding our implementation of
the RHQDAPU program.
Comment: A commenter noted that the proposed rule did not reference
the quality-related provisions of the Affordable Care Act (Pub. L. 111-
148) and the Health Care and Education Reconciliation Act of 2010
(HCERA) (Pub. L. 111-152). The Affordable Care Act requires the
Secretary to establish a national quality strategy to include
priorities and goals for quality improvement with input from
stakeholders, such as the NQF.
Response: The timing of the FY 2011 IPPS/LTCH PPS proposed rule did
not allow us to address the many quality-related provisions of the
Affordable Care Act. The Affordable Care Act modified the RHQDAPU
statutory provisions, authorized the Secretary to implement quality-
related programs for various settings of care, and also added new
requirements for collaborative goal setting regarding quality (as noted
by the commenter). The focus of this specific section of this final
rule is the RHQDAPU program, and we are addressing changes to the
RHQDAPU program under the Affordable Care Act in this final rule. We
plan to propose requirements for the Hospital Value-Based Purchasing
(HVBP) program (section 3001 of Affordable Care Act) and other quality-
related Affordable Care Act provisions through future rulemaking.
Additionally, section 3011 of the Affordable Care Act requires the
Secretary to establish and update a national strategy to improve the
delivery of health care services, patient health outcomes and
population health. The initial submission of the national strategy to
Congress must be no later than January 1, 2011. The national strategy
as directed by section 3011 is broader in scope than hospital inpatient
services, which are the focus of the RHQDAPU program. However, the
national strategy may include guidance for future RHQDAPU program
implementation.
b. Hospital Quality Data Reporting Under Section 501(b) of Public Law
108-173
Section 501(b) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA), Public Law 108-173, added section
1886(b)(3)(B)(vii) to the Act. This section established the authority
for the RHQDAPU program and revised the mechanism used to update the
standardized payment amount for inpatient hospital operating costs.
Specifically, section 1886(b)(3)(B)(vii)(I) of the Act, before it was
amended by section 5001(a) of Public Law 109-171, provided for a
reduction of 0.4 percentage points to the update percentage increase
(also known as the market basket update) for FY 2005 through FY 2007
for any subsection (d) hospital that did not submit data on a set of 10
quality indicators established by the Secretary as of November 1, 2003.
It also provides that any reduction would apply only to the fiscal year
involved, and would not be taken into account in computing the
applicable percentage increase for a subsequent fiscal year. The
statute thereby established an incentive for IPPS hospitals to submit
data on the quality measures established by the Secretary, and also
built upon the previously established Voluntary Hospital Quality Data
Reporting Program that we described in the FY 2009 IPPS final rule (73
FR 48598).
We implemented section 1886(b)(3)(B)(vii) of the Act in the FY 2005
IPPS final rule (69 FR 49078) and codified the applicable percentage
change in Sec. 412.64(d) of our regulations. We adopted additional
requirements under the RHQDAPU program in the FY 2006 IPPS final rule
(70 FR 47420).

[[Page 50181]]

c. Hospital Quality Data Reporting Under Section 5001(a) of Public Law
109-171
Section 5001(a) of the Deficit Reduction Act of 2005 (DRA), Public
Law 109-171, further amended section 1886(b)(3)(B) of the Act to revise
the mechanism used to update the standardized payment amount for
hospital inpatient operating costs, in particular, by adding new
section 1886(b)(3)(B)(viii) to the Act. Specifically, sections
1886(b)(3)(B)(viii)(I) and (II) of the Act as added by the DRA provide
that the payment update for FY 2007 and each subsequent fiscal year be
reduced by 2.0 percentage points for any subsection (d) hospital that
does not submit quality data in a form and manner, and at a time,
specified by the Secretary. (Section 4102(b)(1)(A) of the American
Recovery and Reinvestment Act of 2009 (Public Law 111-5) and section
3401(a)(2) of the Affordable Care Act (Public Law 111-148) amended
section 1886(b)(3)(B)(viii)(I) of the Act to provide that, beginning in
FY 2015, the reduction will be by one-quarter of such applicable
percentage increase (determined without regard to reductions under
sections 1886(b)(3)(B)(ix), (xi), or (xii) of the Act).) Section
1886(b)(3)(B)(viii)(I) of the Act also provides that any reduction in a
hospital's payment update will apply only with respect to the fiscal
year involved, and will not be taken into account for computing the
applicable percentage increase for a subsequent fiscal year. In the FY
2007 IPPS final rule (71 FR 48045), we amended our regulations at Sec.
412.64(d)(2) to reflect the 2.0 percentage point reduction in the
payment update for FY 2007 and subsequent fiscal years for subsection
(d) hospitals that do not comply with requirements for reporting
quality data, as provided for under section 1886(b)(3)(B)(viii) of the
Act before it was amended by the American Recovery and Reinvestment Act
and the Affordable Care Act.
d. Hospital Quality Data Reporting Under Sections 3001(a)(2) and
3401(a)(2) of Public Law 111-148
Section 3001(a)(2) of the Affordable Care Act, Public Law 111-148,
amended section 1886(b)(3)(B)(viii) of the Act. Specifically, section
3001(a)(2)(A) of the Affordable Care Act amended section
1886(b)(3)(B)(viii)(II) of the Act to state that the Secretary may
require hospitals to submit data on measures that are not used for the
determination of value-based incentive payments under the HVBP program.
Section 3001(a)(2)(C) of the Affordable Care Act amended section
1886(b)(3)(B)(viii)(VII) of the Act to require that the Secretary
establish procedures for making information regarding measures
submitted (instead of data submitted) available to the public. In
addition, section 3001(a)(2)(B) of the Affordable Care Act amended
section 1886(b)(3)(B)(viii)(V) of the Act to limit the requirement that
measures added by the Secretary reflect consensus among affected
parties and, to the extent feasible and practicable, include measures
set forth by one or more national consensus building entities to
payments for FYs 2008 through 2012.
Section 3001(a)(2)(D) of the Affordable Care Act added section
1886(b)(3)(B)(viii)(IX) of the Act to require, for payments beginning
with FY 2013, each measure specified by the Secretary under section
1886(b)(3)(B)(viii) of the Act to be endorsed by the entity with a
contract under section 1890(a) regarding consensus entities (the
``consensus entity'') except, in the case of a specified area or
medical topic determined appropriate by the Secretary for which a
feasible and practical measure has not been endorsed by the consensus
entity, the Secretary may specify a measure that is not endorsed so
long as due consideration is given to measures that have been endorsed
or adopted by a consensus organization identified by the Secretary.
Section 3001(a)(2)(D) of the Affordable Care Act also added new
sections 1886(b)(3)(B)(viii)(VIII), 1886(b)(3)(B)(viii)(X) and
1886(b)(3)(B)(viii)(XI) to the Act, which require the Secretary to do
the following, respectively: (1) Provide for such risk adjustment as
the Secretary determines appropriate to maintain incentives for
hospitals to treat patients with severe illnesses or conditions with
respect to quality measures for outcomes of care effective for payments
beginning with FY 2013; (2) to the extent practicable and with input
from consensus organizations and other stakeholders, take steps to
ensure that the measures specified by the Secretary under
1886(b)(3)(B)(viii) of the Act are coordinated and aligned with quality
measures applicable to physicians under section 1848(k) of the Act and
other providers of services and suppliers under Medicare; and (3)
establish a process to validate measures specified under section
1886(b)(3)(B)(viii) of the Act, which includes the auditing of a number
of randomly selected hospitals sufficient to ensure validity of the
reporting program under this clause as a whole and shall provide a
hospital with an opportunity to appeal the validation of measures
reported by such hospital.
Additionally, section 3401(a)(2) of the Affordable Care Act amended
section 1886(b)(3)(B)(viii)(I) of the Act by adding the phrase ``of
such applicable percentage increase (determined without regard to
clause (ix), (xi), or (xii))'' after the word ``one-quarter'' so that,
beginning in FY 2015, the reduction under the RHQDAPU program will be
by one-quarter of such applicable percentage increase determined
without regard to other reductions in the annual payment update set
forth in sections 1886(b)(3)(B)](ix), (xi), or (xii) of the Act.
e. Quality Measures
Section 1886(b)(3)(B)(viii)(III) of the Act requires that the
Secretary expand the ``starter set'' of 10 quality measures that was
established by the Secretary as of November 1, 2003, as the Secretary
determines to be appropriate for the measurement of the quality of care
furnished by a hospital in inpatient settings. In expanding this set of
measures, section 1886(b)(3)(B)(viii)(IV) of the Act requires that,
effective for payments beginning with FY 2007, the Secretary begin to
adopt the baseline set of performance measures as set forth in a report
issued by the Institute of Medicine (IOM) of the National Academy of
Sciences under section 238(b) of Public Law 108-173.\10\
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\10\ Institute of Medicine, ``Performance Measurement:
Accelerating Improvement,'' December 1, 2005, available at: http://www.iom.edu/CMS/3809/19805/31310.aspx. IOM set forth these baseline
measures in a November 2005 report. However, the IOM report was not
released until December 1, 2005 on the IOM Web site.
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Section 1886(b)(3)(B)(viii)(V) of the Act, as amended by section
3001(a)(2)(B) of the Affordable Care Act, requires that, effective for
payments for FYs 2008 through 2012, the Secretary add other quality
measures that reflect consensus among affected parties, and to the
extent feasible and practicable, have been set forth by one or more
national consensus building entities. The NQF is a voluntary consensus
standard-setting organization with a diverse representation of
consumer, purchaser, provider, academic, clinical, and other health
care stakeholder organizations. The NQF was established to standardize
health care quality measurement and reporting through its consensus
development process. We have generally adopted NQF-endorsed measures.
However, we believe that consensus among affected parties also can be
reflected by other means,

[[Page 50182]]

including consensus achieved during the measure development process,
consensus shown through broad acceptance and use of measures, and
consensus through public comment.
As discussed previously, section 3001(a)(2) of the Affordable Care
Act amended section 1886(b)(3)(B)(viii) of the Act to provide a
different standard for quality measures included in the RHQDAPU program
for payments beginning with FY 2013. Under section
1886(b)(3)(B)(viii)(IX) of the Act, for payments beginning with FY
2013, each measure specified by the Secretary must be endorsed by a
consensus entity, currently NQF, except in certain circumstances.
Specifically, in the case of a specified area or medical topic
determined appropriate by the Secretary for which a feasible and
practical measure has not been endorsed by the consensus entity, the
Secretary may specify a measure that is not endorsed by the consensus
entity if due consideration is given to measures that have been
endorsed or adopted by a consensus organization identified by the
Secretary.
Section 1886(b)(3)(B)(viii)(VI) of the Act authorizes the Secretary
to replace any quality measures or indicators in appropriate cases,
such as where all hospitals are effectively in compliance with a
measure, or the measures or indicators have been subsequently shown to
not represent the best clinical practice. Thus, the Secretary is
granted broad discretion to replace measures that are no longer
appropriate for the RHQDAPU program.
In the FY 2007 IPPS final rule, we began to expand the RHQDAPU
program measures by adding 11 quality measures to the 10-measure
starter set to establish an expanded set of 21 quality measures for the
FY 2007 payment determination (71 FR 48033 through 48037, 48045).
In the CY 2007 OPPS/ASC final rule (71 FR 68201), we adopted 6
additional quality measures for the FY 2008 payment determination, for
a total of 27 measures. Two of these measures (30-Day Risk Standardized
Mortality Rates for Heart Failure and 30-Day Risk Standardized
Mortality Rates for AMI) were calculated using existing administrative
Medicare claims data; thus, no additional data submission by hospitals
was required for these two measures. The measures used for the FY 2008
payment determination included, for the first time, the HCAHPS patient
experience of care survey.
In the FY 2008 IPPS final rule (72 FR 47348 through 47358) and the
CY 2008 OPPS/ASC final rule with comment period (72 FR 66875 through
66877), we added three additional process measures to the RHQDAPU
program measure set. (These three measures are SCIP-Infection-4:
Cardiac Surgery Patients with Controlled 6AM Postoperative Serum
Glucose, SCIP-Infection-6: Surgery Patients with Appropriate Hair
Removal, and Pneumonia 30-day mortality (Medicare patients).) The
addition of these 3 measures brought the total number of RHQDAPU
program measures to be used for the FY 2009 payment determination to 30
(72 FR 66876). The 30 measures used for the FY 2009 annual payment
determination are listed in the FY 2009 IPPS final rule (73 FR 48600
through 48601).
For the FY 2010 payment determination, we added 15 new measures to
the RHQDAPU program measure set and retired 1 measure from the program
(PN-1: Oxygenation Assessment). Of the new measures, 13 were adopted in
the FY 2009 IPPS final rule (73 FR 48602 through 48611) and 2
additional measures were finalized in the CY 2009 OPPS/ASC final rule
with comment period (73 FR 68780 through 68781). This resulted in an
expansion of the RHQDAPU program measures from 30 measures for the FY
2009 payment determination to 44 measures for the FY 2010 payment
determination. The RHQDAPU program measures for the FY 2010 payment
determination consist of: 26 chart-abstracted process measures, which
measure quality of care provided for Acute Myocardial Infarction (AMI),
Heart Failure (HF), Pneumonia (PN), and Surgical Care Improvement
(SCIP); 6 claims-based measures, which evaluate 30-day mortality and
30-day readmission rates for AMI, HF, or PN; 9 claims-based AHRQ
patient safety indicators and inpatient quality indicators; 1 claims-
based nursing sensitive measure; 1 structural measure that assesses
participation in a systematic database for cardiac surgery; and the
HCAHPS patient experience of care survey. The measures are listed in
the FY 2009 IPPS final rule (73 FR 46809) and in the CY 2009 OPPS/ASC
final rule with comment period (73 FR 68781).
On December 31, 2008, we advised hospitals that they would no
longer be required to submit data for the RHQDAPU program measure AMI-
6-Beta blocker at arrival, beginning with discharges occurring on April
1, 2009. This change was based on the evolving evidence regarding AMI
patient care, as well as changes in the American College of Cardiology/
American Heart Association (ACC/AHA) practice guidelines for ST-segment
elevation myocardial infarction and non-ST segment elevation myocardial
infarction, upon which AMI-6 is based. We took action to remove the
measure from reporting initiatives based on the lack of support by the
measure developer and the clinical and scientific considerations
described in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43863).
We had previously discussed considerations relating to retiring or
replacing measures in the FY 2008 IPPS final rule with comment period
and the FY 2009 IPPS final rule, including the ``topping out'' of
hospitals' performance under a measure (72 FR 47358 through 47359 and
73 FR 48603 through 48604, respectively). However, in this instance,
the measure no longer ``represent[s] the best clinical practice,'' an
additional basis under section 1886(b)(3)(B)(viii)(VI) of the Act for
retiring a measure. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we
formally retired the AMI-6 measure from the RHQDAPU program for the FY
2011 payment determination and subsequent payment determinations.
For the FY 2011 payment determination, we retained 41 of the FY
2010 quality measures; harmonized 2 FY 2010 RHQDAPU program quality
measures (combining PSI 04--Death among surgical patients with
treatable serious complications; and Nursing Sensitive--Failure to
rescue into a single measure (Death among surgical inpatients with
serious, treatable complications); added 2chart-abstracted measures
(SCIP-Infection-9: Postoperative Urinary Catheter Removal on Post
Operative Day 1 or 2 and SCIP-Infection-10: Perioperative Temperature
Management); and added 2 structural measures: (1) Participation in a
Systematic Clinical Database Registry for Stroke Care; and (2)
Participation in a Systematic Clinical Database Registry for Nursing
Sensitive Care) (74 FR 43868 through 43873). The 46 measures we adopted
for the FY 2011 payment determination are:
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f. Maintenance of Technical Specifications for Quality Measures
The technical specifications for the RHQDAPU program measures, or
links to Web sites hosting technical specifications, are contained in
the CMS/The Joint Commission Specifications Manual for National
Hospital Inpatient Quality Measures (Specifications Manual). This
Specifications Manual is posted on the CMS QualityNet Web site at
https://www.QualityNet.org/. We maintain the technical specifications
by updating this Specifications Manual semiannually, or more frequently
in unusual cases, and include detailed instructions and calculation
algorithms for hospitals to use when collecting and submitting data on
required measures. These semiannual updates are accompanied by
notifications to users, providing sufficient time between the change
and the effective date in order to allow users to incorporate changes
and updates to the specifications into data collection systems.
We did not receive any public comments on this section and we will
continue to use this process to maintain the technical specifications
for the RHQDAPU program measures.
g. Public Display of Quality Measures
Section 1886(b)(3)(B)(viii)(VII) of the Act, as amended by section
3001(a)(2) of the Affordable Care Act, requires that the Secretary
establish procedures for making information regarding measures
submitted available to the public after ensuring that a hospital has
the opportunity to review its data before they are made public. To meet
this requirement, data from the RHQDAPU program are typically displayed
on CMS Web sites such as the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov after a 30-day preview period. An
interactive Web tool, this Web site assists beneficiaries by providing
information on hospital quality of care to those who need to select a
hospital. It further serves to encourage beneficiaries to work with
their doctors and hospitals to discuss the quality of care hospitals
provide to patients, thereby providing an additional incentive to
hospitals to improve the quality of care that they furnish. The RHQDAPU
program currently includes process of care measures, risk-adjusted
outcome measures, the HCAHPS patient experience-of-care survey, and

[[Page 50185]]

structural measures, all of which are featured on the Hospital Compare
Web site.
However, information that may not be relevant to or understood by
beneficiaries and information for which there are unresolved display
issues or design considerations for inclusion on Hospital Compare may
be made available on other CMS Web sites that are not intended to be
used as an interactive Web tool, such as http://www.cms.hhs.gov/HospitalQualityInits/. Publicly reporting the information in this
manner, though not on the Hospital Compare Web site, allows CMS to meet
the requirement under section 1886(b)(3)(B)(viii)(VII) of the Act for
establishing procedures to make quality data used for RHQDAPU payment
determinations available to the public following a preview period. In
such circumstances, affected parties are notified via CMS listservs,
CMS e-mail blasts, national provider calls, and QualityNet
announcements regarding the release of preview reports followed by the
posting of data on a Web site other than Hospital Compare.
Comment: One commenter supported CMS' current policy of identifying
quality measures rates based on fewer than 25 cases as potentially
unreliable for judging a hospital's performance when displaying data on
Hospital Compare. The commenter indicated that this is currently
accomplished by footnoting the data but it would be better to simply
not display the rates that are based on fewer than 25 cases.
Response: We thank the commenter for the suggestion. Although data
display and Web site design issues are not subject to the rulemaking
process, we will take this suggestion under consideration for future
releases of the Hospital Compare Web site.
Comment: One commenter requested that CMS describe in greater
detail the rationale for publicly reporting measures on CMS Web sites
other than Hospital Compare on a case-by-case basis.
Response: Section 1886(b)(3)(B)(viii)(VII) of the Act requires that
the Secretary establish procedures for making information regarding
measures submitted for the RHQDAPU payment determinations available to
the public after ensuring that a hospital has the opportunity to review
its data before they are made public. While we strive to make as much
of this information available on the Hospital Compare Web site, there
are instances where we need further time to develop a method of
displaying the information so that it does not confuse or mislead
consumers intending to use the data in healthcare decision making. To
satisfy the statutory requirement for transparency of the information
used to make RHQDAPU payment determinations available to the public, we
would display the data on another CMS Web site such as http://www.cms.gov, but not on the Hospital Compare Web site, which is meant
to be a consumer oriented decision tool. Once an appropriate display
mechanism has been determined, the information would be added to the
Hospital Compare Web site.
We will continue to use this public display process for the RHQDAPU
program.
2. Retirement of RHQDAPU Program Measures
a. Considerations in Retiring Quality Measures From the RHQDAPU Program
Unless stated otherwise, we generally retain measures from the
current year's RHQDAPU program measure set for subsequent years'
measure sets. We have previously retired one measure, PN-1: Oxygenation
Assessment for Pneumonia, from the RHQDAPU program on the basis of high
unvarying performance among hospitals, as measures with very high
performance among hospitals present little opportunity for improvement,
and do not provide meaningful distinctions in performance for
consumers. We also have retired one measure from the program because it
no longer ``represent[ed] the best clinical practice,'' as stated under
section 1886(b)(3)(B)(viii)(VI) of the Act. In this latter situation,
we stated that when there is reason to believe that the continued
collection of a measure as it is currently specified raises potential
patient safety concerns that it is appropriate for CMS to take
immediate action to remove a measure from the RHQDAPU program and not
wait for the annual rulemaking cycle. Therefore, in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43864 and 43865), we stated that we
would promptly retire such measures followed by subsequent confirmation
of the retirement in the next IPPS rulemaking. When we do so, we will
notify hospitals and the public through the usual hospital and QIO
communication channels used for the RHQDAPU program, which include memo
and e-mail notification and QualityNet Web site articles and postings.
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we invited
public comment regarding additional RHQDAPU program measures that
should be considered for retirement along with criteria that should be
used for retiring measures. In the FY 2010 IPPS/RY 2010 LTCH PPS final
rule, commenters recommended 11 RHQDAPU program measures for retirement
for various reasons (74 FR 43865). Among the criteria suggested by
commenters that CMS should consider when determining whether to retire
RHQDAPU program measures were: (1) Measure performance among hospitals
is so high and unvarying that meaningful distinctions and improvements
in performance can no longer be made; (2) performance or improvement on
a measure does not result in better patient outcomes; (3) a measure
does not align with current clinical guidelines or practice; (4) the
availability of a more broadly applicable (across settings,
populations, or conditions) quality measure for the topic; (5) the
availability of a measure that is more proximal in time to desired
patient outcomes for the particular topic; (6) the availability of a
measure that is more strongly associated with desired patient outcomes
for the particular topic; (7) collection and/or public reporting of a
measure leads to negative unintended consequences other than patient
harm. We agreed with commenters that these criteria should be among
those considered in evaluating current RHQDAPU program measures for
retirement. We again invited commenters to submit suggestions for
additional measure retirement criteria for CMS to consider.
Comment: One commenter asked for the CMS definition of
``retirement'' and the relationship of retired measures to the RHQDAPU
program.
Response: Retirement of a measure from the RHQDAPU program
constitutes permanent removal of a measure from the RHQDAPU program
measurement set for future payment determinations.
Comment: Some commenters agreed with CMS' quality measure
retirement criteria including measures with consistent high performance
(topped-out), measures not supported by evidence, measures that no
longer represent the best clinical practice, and measures that have
become a cause for potential patient safety concerns. A commenter
recommended that CMS add the following two criteria to its list of
criteria to be considered when determining whether to retire a RHQDAPU
measure: (1) The measure should be modified or deleted if new clinical
evidence exists that demonstrates that the measure should be modified
or deleted; and (2) a previous process measure should be retired in
favor of a new risk-adjusted outcomes measure. Some commenters

[[Page 50186]]

suggested CMS collaborate with organizations such as the NQF and the
HQA in reviewing all current RHQDAPU quality measures for retirement
determinations.
A few commenters supported the retirement of topped-out measures
but some commenters were concerned that the retirement of topped-out
measures would lead to subsequent declining performance. The commenters
further suggested that the process measures are also accountability
measures and should not be retired just because they are topped-out.
Some commenters recommended that CMS should continue data collection
for topped out measures on a 3-year cycle, or consider incorporating
the measure into a meaningful composite measure set. Another commenter
recommended that CMS conduct demonstration projects to ascertain the
impact of the proposed measures for retirement and assess the
organizations' ability to sustain improvement over time for measures
that are considered to be taken out of the RHQDAPU program. The
commenter believed that demonstration projects would enable the cycling
of measures in and out of the RHQDAPU program as desired for public
reporting and incentive payment programs.
Response: We thank the commenters for sharing these suggestions and
criteria for quality measure retirement. We will consider the
commenters' recommendations for evaluating current RHQDAPU program
measures for retirement. We agree that changing scientific evidence
should be considered in deciding whether to modify or retain a measure.
We also agree that risk-adjusted outcome measures could potentially
serve to replace process measures, although we believe other factors
should be considered such as the performance on the process measures
and the degree to which the measures address the same populations.
While sustaining quality improvement gains for measures is important,
it currently is not feasible for us to conduct continued surveillance
on measures that have been retired from the RHQDAPU program. Further,
we do not believe that the one measure that we have retired requires
continued surveillance. This is because measuring oxygen saturation is
part of ongoing monitoring functions built into equipment used for all
hospitalized patients, and therefore would not suffer a decline in
practice from lack of inclusion in this reporting program. We will
consider the feasibility of the commenters' suggestions to periodically
monitor performance of measures that we may subsequently retire. As for
collaboration with NQF and HQA, we consider changes in NQF endorsement
status for measures adopted and considered for RHQDAPU, and as HQA
members, we participate in HQA activities, which include reviewing
measures which may be considered for retirement. We will consider the
feasibility and appropriateness of the suggestion to use Medicare
demonstrations as a potential mechanism to monitor measure performance
for measures that may in the future be retired from the RHQDAPU program
and suffer a decline in desired practices as a result of retirement.
b. Retirement of Quality Measures Under the RHQDAPU Program for the FY
2011 Payment Determination and Subsequent Years
In the FY 2009 IPPS final rule for the FY 2010 payment
determination, we adopted nine measures that were developed by the
Agency for Healthcare Research and Quality (AHRQ), and in the FY 2010
IPPS/RY 2010 LTCH PPS we subsequently retained these measures for the
FY 2011 payment determination. One of these measures was the AHRQ
Mortality for Selected Surgical Procedures Composite, which is
comprised of measures from the AHRQ Inpatient Quality Indicator (IQI)
measure set. In late June of 2009, following an NQF steering committee
evaluation of the AHRQ Mortality for Selected Surgical Procedures
composite, the AHRQ issued guidance \11\ that this composite is ``not
recommended for comparative reporting'' as specified due to significant
evidence gaps, and that these significant evidence gaps are unlikely to
be addressed with further development or validation work. This guidance
is available at: http://www.qualityindicators.ahrq.gov/downloads/publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.
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\11\ AHRQ. Guidance on Using the AHRQ QI for Hospital-Level
Comparative Reporting. June 2009. http://www.qualityindicators.ahrq.gov/downloads/publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.
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For this reason, we proposed to retire the Mortality for Selected
Procedures Composite from the RHQDAPU program measure set for the FY
2011 payment determination and for subsequent payment determinations
because the measure is not considered suitable for purposes of
comparative reporting by the measure developer. We will neither
calculate this measure for the FY 2011 payment determination, nor
display results for this measure on Hospital Compare. We invited
comment on our proposal to retire this measure from the RHQDAPU program
for the FY 2011 payment determination and for subsequent payment
determinations. We also invited commenters to submit suggestions and
rationales for retirement of other RHQDAPU program measures.
Comment: Commenters overwhelmingly supported the proposed
retirement of the Mortality for Selected Procedures Composite from the
RHQDAPU program measure set for the FY 2011 payment determination and
for subsequent payment determinations due to its unsuitability for
comparative reporting.
Response: We thank the commenters for their support and we are
finalizing the retirement of this measure for the FY 2011 and
subsequent payment determinations.
Set out below are the 45 RHQDAPU program quality measures for the
FY 2011 payment determination reflecting our retirement of 1 measure:
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BILLING CODE 4120-01-C
3. Expansion Plan for Quality Measures for the FY 2012, FY 2013, and FY
2014 Payment Determinations
a. Considerations in Expanding and Updating Quality Measures Under the
RHQDAPU Program
In the FY 2009 IPPS final rule (73 FR 48613) and the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR 43866 through 43869), we
acknowledged the data collection burden for hospitals participating in
the RHQDAPU program, and reiterated our desire to expand the RHQDAPU
program measure set while minimizing burden and seeking to provide
alternative mechanisms for data submission for the RHQDAPU program. In
the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also stated that in
future expansions and updates to the RHQDAPU program measure set, we
would be taking into consideration several important goals. These goals
include: (a) Expanding the types of measures beyond process of care
measures to include an increased number of outcome measures, efficiency
measures, and patients' experience-of-care measures; (b) expanding the
scope of hospital services to which the measures apply; (c) considering
the burden on hospitals in collecting chart-abstracted data; (d)
harmonizing the measures used in the RHQDAPU program with other CMS
quality programs to align incentives and promote coordinated efforts to
improve quality; (e) seeking to use measures based on alternative
sources of data that do not require chart abstraction or that utilize
data already being reported by many hospitals, such as data that
hospitals report to clinical data registries, or all-payer claims data
bases; and (f) weighing the relevance and utility of the measures
compared to the burden on hospitals in submitting data under the
RHQDAPU program.
Specifically, we give priority to quality measures that assess
performance on: (a) Conditions that result in the greatest mortality
and morbidity in the Medicare population; (b) conditions that are high
volume and high cost for the Medicare program; and (c) conditions for
which wide cost and treatment variations have been reported, despite
established clinical guidelines. We have used and continue to use these
criteria to guide our decisions regarding what measures to add to the
RHQDAPU program measure set. In addition, in selecting measures, we
seek to address the six quality aims of effective, safe, timely,
efficient, patient-centered, and

[[Page 50189]]

equitable healthcare. Current and long term priority topics include:
prevention and population health; safety; chronic conditions; high cost
and high volume conditions; elimination of health disparities;
healthcare-associated infections and other adverse healthcare outcomes;
improved care coordination; improved efficiency; improved patient and
family experience of care; effective management of acute and chronic
episodes of care; reduced unwarranted geographic variation in quality
and efficiency; and adoption and use of interoperable health
information technology.
These criteria, priorities, and goals are consistent with section
1886(b)(3)(B)(viii)(X) of the Act, as added by section 3001(a)(2)(D) of
the Affordable Care Act, which requires the Secretary, to the extent
practicable and with input from consensus organizations and other
stakeholders, to take steps to ensure that the RHQDAPU measures are
coordinated and aligned with quality measures applicable to physicians
and other providers of services and suppliers under Medicare.
RHQDAPU program measures were initially based solely on a
hospital's submission of chart-abstracted quality measure data.
However, in recent years we have adopted measures that do not require
chart abstraction, including structural and claims-based quality
measures which we can calculate using other data sources. This supports
our goal of expanding the measures for the RHQDAPU program while
minimizing the burden on hospitals and, in particular, without
significantly increasing the chart abstraction burden.
In addition to claims-based and structural measures, we previously
noted that registries \12\ and electronic health records (EHRs) are
potential alternative sources of hospital data for the RHQDAPU program.
We observed that many hospitals already submit data to and participate
in existing registries, and that registries often capture outcome
information and provide ongoing quality improvement feedback to
registry participants. We envisioned that instead of requiring
hospitals to submit the same data to CMS that many hospitals are
already submitting to registries, that we would collect the data
directly from the registries. This could enable the expansion of the
RHQDAPU program measure set without increasing the burden of data
collection for those hospitals participating in the registries. We
cited as examples of registries actively used by hospitals the Society
of Thoracic Surgeons (STS) Cardiac Surgery Registry (with approximately
90 percent participation by cardiac surgery programs), the AHA Stroke
Registry (with approximately 1200 hospitals participating), and the
American Nursing Association (ANA) Nursing Sensitive Measures Registry
(with approximately 1400 hospitals participating). In the FY 2009 IPPS
final rule (73 FR 48608 through 48609), we adopted the first RHQDAPU
program measure related to registries: Participation in a Systematic
Database for Cardiac Surgery. Subsequently, in the FY 2010 IPPS/RY 2010
LTCH PPS (74 FR 43870 through 43872), we adopted two additional
structural measures of registry participation for the topics of Stroke
and Nursing Sensitive Care. We continue to evaluate the feasibility of
leveraging registry-based data collection mechanisms for the RHQDAPU
program.
---------------------------------------------------------------------------

\12\ A registry is a collection of clinical data for purposes of
assessing clinical performance, quality of care, and opportunities
for quality improvement.
---------------------------------------------------------------------------

We also stated our intention to explore mechanisms for data
submission using EHRs (73 FR 48614; 74 FR 43866, 43892). Establishing
such a system will require interoperability between EHRs and CMS data
collection systems, additional infrastructure development on the part
of hospitals and CMS, and the adoption of standards for the capturing,
formatting, and transmission of data elements that make up the
measures. However, once these activities are accomplished, the adoption
of measures that rely on data obtained directly from EHRs will enable
us to expand the RHQDAPU program measure set with less cost and burden
to hospitals.
In the FY 2009 IPPS final rule, we adopted nine AHRQ measures for
the RHQDAPU program, one of which is now retired for the FY 2011
payment determination and subsequent payment determinations in this
final rule. We stated that we would initially calculate the measures
using Medicare claims data (73 FR 48608). However, we also stated that
we remained interested in using all-payer claims data to calculate them
and that we might propose to collect such data in the future. In the FY
2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24169), we invited
input and suggestions on how all-payer claims data can be collected and
used by CMS to calculate these measures, as well as on additional AHRQ
measures that we should consider adopting for future RHQDAPU program
payment determinations.
In summary, we noted in the FY 2011 IPPS/LTCH PPS proposed rule
that we will continue to pursue goals regarding the expansion and
updating of quality measures under the RHQDAPU program while minimizing
burden. We will take into account the public comments we receive on the
possible uses of EHRs, registries, and all-payer claims data in the
RHQDAPU program. We also will consider the measure selection criteria
suggested by various commenters in prioritizing and selecting quality
measures for the future.
Comment: A few commenters supported the use of EHR-based data
collection. One commenter was concerned that the clinical quality
measures in the RHQDAPU program do not align with the electronic
quality measure reporting requirements as part of the meaningful use
criteria under the HITECH EHR incentive program rule.
Response: We appreciate these supportive comments for EHR-based
data collection as an alternative data source for quality measures. One
of our priorities in the RHQDAPU program is to align clinical quality
measures in the RHQDAPU program with the electronic quality measure
reporting requirements under the meaningful use criteria under the
HITECH EHR Incentive program in the future, and to specify current
RHQDAPU measures for EHR-based collection. We note that some of the
RHQDAPU program quality measures do not lend themselves to EHR
reporting, for example HCAHPS experience of care measures. We are
mindful of the need for alignment of the clinical measures used in the
two programs as more measures are implemented in the future.
Comment: Several commenters stated that CMS should delay the
implementation of additional quality measures and spend time
prioritizing future electronic quality measures during this transition
to EHR.
Response: Given the time that will be needed for building of
infrastructure, interoperability, testing and development of e-
specifications of measures, and the proposal and finalization of
clinical quality measures, we believe we should not wait for the
complete transition to EHR-based measure collection in order to move
forward with the expansion of the RHQDAPU program. In determining
whether to adopt new quality measures for the RHQDAPU program, we weigh
the potential benefit of improvement that would result from reporting a
given measure against the potential resource burden associated with
reporting a measure. However, in the future, our intent is to develop
and specify electronic measures of quality that will be aligned and
meet the requirements for both programs.

[[Page 50190]]

Comment: One commenter questioned the value of claims-based and
registry-based data collection when EHR data collection is fully
implemented.
Response: We believe that claims may still be needed to identify
prior events and diagnoses for measures that require look-back periods,
involving the matching of data for a single patient over long periods
of time (for example, 1 year of prior history) across multiple
settings. EHR data provides a cross-sectional snapshot of data, and
such matching is not possible with a snapshot of data from a single
provider or setting because it would not have all events and diagnoses
for a particular patient outside of the particular setting or episode
of care. This is possible, however, when claims for Medicare
beneficiaries are utilized for such historical information across
providers. Such data could be used to supplement cross-sectional
clinical EHR data. Furthermore, registries provide services beyond data
collection, such as quality improvement support, feedback and best
practices.
Comment: A commenter requested that CMS only implement measures
that are aligned with identical technical specifications as other
national data collection projects. For instance, the proposed Stroke
registry measure has different population definitions from the Joint
Commission stroke core measures, Disease certification program and
designated Stroke Centers.
Response: We agree that measures used in the RHQDAPU program should
be based on a single set of harmonized population definitions and
measure specifications. As discussed in later sections, we are not
finalizing the registry-based submission mechanism proposal.
Comment: One commenter asked for clarification on the requirements
for measures that are calculated based on ICD-9 CM codes as well as the
timeline and impact of transitioning to ICD-10-CM codes.
Response: CMS has announced the transition to ICD-10-CM codes
effective October 1, 2013, at the start of FY 2014. Prior to that date,
we will be respecifying measures that are implemented in quality data
reporting programs to incorporate ICD-10-CM codes.
Comment: Several commenters noted that CMS' intent to reduce burden
by proposing different reporting mechanism may in fact create more
burden on hospitals. Hospitals are most familiar with chart
abstraction.
Response: We agree with commenters that hospitals are most familiar
with chart abstraction as a data collection method. However, we also
recognize that this is a burdensome mechanism. Therefore, we believe,
that it is desirable to leverage other collection mechanisms,
especially where they are already actively being used by hospitals. We
introduced two alternative reporting mechanisms in the proposed rule,
the National Healthcare Safety Network (NHSN) and registry-based
reporting. Although we are not adopting registry-based reporting, we
envisioned that most hospitals would already be reporting one of the
measures sets to at least one registry. Accordingly, we anticipated
that in most cases there would be no new reporting required, only the
selection of a registry to which hospitals were already reporting.
With respect to the NHSN, many States are introducing requirements
that hospitals report HAI data to the Centers for Disease Control and
Prevention (CDC) via NHSN. Although we could have required that
hospitals report HAI measures to CMS via chart abstraction, this would
require duplicate effort on the part of hospitals submitting data
through the NHSN on HAIs. Therefore, we proposed and are finalizing the
CDC NHSN as the mechanism to submit data on HAI measures. In this way,
we have aligned the CDC reporting efforts, and reporting mandated by
many States. We believe that this is good policy and something
commenters have urged.
Comment: A number of commenters supported the use of registries as
an alternative source of hospital-specific data on quality measures and
as a means to reduce hospital burden. Several commenters indicated that
the use of registries to collect hospital-level data would reduce
administrative burden and ensure appropriate risk-adjustment for
quality improvement and public reporting purposes, as well as other
benefits, including broadening the information for quality improvement
and Hospital Compare, but cautioned that registry data could weaken the
validity and reliability of the information unless strict standards for
data quality were imposed. A commenter suggested that CMS consider
additional measures that could be compiled from registry data.
Response: We thank the commenters for acknowledging the potential
efficiencies and quality improvement support that could be gained
through registry-based quality data reporting. We agree that standards
for data quality would be necessary should CMS adopt registry-based
measures for RHQDAPU in the future. The qualification criteria we
proposed for registries were meant to establish standards for data
quality for the measures we proposed to receive from registries. We
will continue to pursue registry-based data submission as an
alternative mechanism for receiving data for quality measures adopted
into the RHQDAPU measurement set.
Comment: Many commenters opposed the inclusion of quality measures
that require participation in registries. Several commenters expressed
concern regarding the possibility that they may be required to
participate in proprietary registries in the future. These commenters
saw registry-based data collection as costly and labor intensive
because many of the measures collected by registries require chart
abstraction. Some commenters recommended that CMS first standardize the
data collection and submission process across registries to ensure data
quality. One commenter asked for clarification on how would the
registry-based measures which are only used by a subset of hospitals be
utilized in a value based purchasing program. Some commenters
encouraged CMS to promote the study of regional variation to enable
comparisons within/across systems and among regional registries in
order to give hospitals more options in data reporting.
Response: We are not finalizing the registry-based submission
proposal. Among other reasons for not finalizing this proposal, we
agree that it would be difficult to use the measures for value based
purchasing if only a subset of hospitals with such cases report the
measures, as the commenter suggests. Regional registries may be
appropriate for registry-based submission, so long as there are a
sufficient number of other registries to allow submission nationwide.
We agree with the importance of standardizing data collection and
submission processes by registries. Many hospitals are currently
participating in a number of registries that collect data on quality
measures that are topics of interest to us. We did not intend to
require hospitals to participate in a proprietary registry, but rather
to leverage existing participation in registries as an efficient
alternative source from which to collect the data. However, we
acknowledge the commenters' concern regarding the cost and labor
associated with participation in certain registries which may make this
alternative mechanism for data submission less feasible for some
hospitals.
In considering registry-based submission for the future, we will
consider whether registry-based data collection should be one means,
but not an exclusive means, of submitting data for RHQDAPU quality
measures.

[[Page 50191]]

Comment: Some commenters encouraged CMS to look to the National
Priorities Partnership goals as a framework for the types of measures
that should be included in the RHQDAPU program. Another commenter
suggested the RHQDAPU program should only include those quality
measures that meet a high threshold of accountability criteria. Another
commenter stated CMS should develop a core measure set for inclusion in
the pay-for-performance program.
Response: The National Priorities Partnership is a 28 member
organization convened by the NQF for the purpose of identifying
improvement goals and action steps for the U.S. healthcare system. We
are a member of the National Priorities Partnership and participate in
its framework-setting activity. Our measure selection activity and
measure development activity takes into account the priorities
established by this framework as well as other criteria described
earlier. Since measure selection for the HVBP program is dependent upon
the pool of measures that have been adopted for the RHQDAPU program,
the measures to be selected for inclusion in the HVBP program would be
guided by these same frameworks and criteria.
Comment: Several commenters stated that measures selected for the
RHQDAPU program should be both endorsed by the NQF and adopted by the
HQA. Some commenters suggested that these steps were required by the
Deficit Reduction Act of 2005 (DRA).
Response: Section 1886(b)(3)(B)(viii)(V) of the Act, as added by
the DRA and prior to the amendment made by section 3001(a)(2)(B) of the
Affordable Care Act, requires that, effective for payments beginning
with FY 2008, the Secretary add quality measures that reflect consensus
among affected parties and, to the extent feasible and practicable,
have been set forth by one or more national consensus building
entities. This provision does not require that the measures we adopt
for the RHQDAPU program be endorsed by any particular entity, and we
believe that consensus among affected parties can be reflected by means
other than endorsement by a voluntary consensus organization, including
consensus achieved during the measure development process, consensus
shown through broad acceptance and use of measures, and consensus
through public comment (74 FR 24165 through 24166). Nevertheless, we
have stated on numerous occasions that we prefer quality measures that
are endorsed by the NQF. The NQF uses a formal consensus development
process. As the NQF notes on its Web site at: http://www.qualityforum.org/Measuring_Performance/Consensus_Development_Process.aspx, it has been recognized as a voluntary consensus
standards-setting organization as defined by the National Technology
Transfer and Advancement Act of 1995 (Pub. L. 104-113) (NTTAA) and
Office of Management and Budget Circular A-119. We are unaware of any
other organizations that qualify as an NTTAA consensus organization for
the endorsement of quality measures.
We also take into consideration the measures adopted by the HQA as
well as an array of input from the public. The HQA is a national
public-private collaboration that is committed to making meaningful,
relevant, and easily understood information about hospital performance
accessible to the public and to informing and encouraging efforts to
improve quality. We appreciate HQA's integral efforts to improve
hospital quality of care and its support of our public quality
reporting programs. As discussed previously, section 3001(a)(2) of the
Affordable Care Act amended section 1886(b)(3)(B)(viii)(V) of the Act
and limited its applicability effective for payments for FYs 2008
through 2012. However, section 3001(a)(2) of the Affordable Care Act
added a new section 1886(b)(3)(B)(viii)(IX) to the Act. This provision
requires, for payments beginning with FY 2013, that each measure
specified by the Secretary be endorsed by a consensus entity, except in
certain circumstances. In the case of a specified area or medical topic
determined appropriate by the Secretary for which a feasible and
practical measure has not been endorsed by the consensus entity, the
Secretary may specify a measure that is not endorsed by the consensus
entity if due consideration is given to measures that have been
endorsed or adopted by a consensus organization identified by the
Secretary.
In the past, we have proposed to add new RHQDAPU program measures
for one year's payment determination in a given rulemaking cycle.
Although in prior years we have identified various measures for future
consideration, we have not proposed or finalized measures for RHQDAPU
beyond those to be collected for the purpose of the next sequential
payment determination. In the FY 2011 IPPS/LTCH PPS proposed rule (75
FR 23965), we proposed an expansion to the RHQDAPU program that will
take place over 3 payment years, and proposed to add measures not only
for the FY 2012 payment determination, but also for FY 2013 and FY 2014
payment determinations. To the extent we finalize some or all of these
proposed measures this year, we believe that we will be providing
greater certainty for hospitals to plan to meet future reporting
requirements and implement related quality improvement efforts. We will
also have more time to prepare, organize and implement the necessary
infrastructure to collect data on the measures and make payment
determinations. Finally, in section IV.A.5.a.(2) of the proposed rule
(75 FR 23985), we discussed a proposal to make RHQDAPU payment
determinations beginning with FY 2013 using, in part, a consecutive
calendar year of quality measure data. This proposed approach, of
synchronizing the quarters for which data on these measures must be
submitted during each year with the quarters we will use to make
payment determinations, would apply beginning with January 1, 2011
discharges although it would not affect our payment determinations
until FY 2013. We invited public comment on the measures and timeframe
for their addition to the RHQDAPU program measure set.
Comment: Many commenters expressed support of our proposal to
propose and finalize RHQDAPU quality measures for 3 years in a single
rulemaking in order to provide hospitals with advanced notice for
planning purpose.
Response: We appreciate the commenters' support of our proposal to
finalize measures for 3 consecutive payment determinations. Although we
will finalize measures for 3 consecutive years, we may add or remove
measures for these years in future rulemaking cycles should we need to
respond to agency and statutory changes.
Comment: A few commenters urged CMS not to finalize the proposed 3-
year RHQDAPU quality measure plan until the availability of adequate
information to align RHQDAPU program quality measures with the upcoming
health care priorities of the Affordable Care Act becomes available. A
commenter stated it is crucial to assure data quality given the various
data sources that CMS proposed.
Response: We retain the ability to change or replace measures in
future rulemaking, which could be based on the national strategy to be
developed under the Affordable Care Act. The measures that we finalize
reflect important HHS priorities. Establishing them as RHQDAPU measures
allows hospitals, CMS, and the public to have a longer time to prepare
for collection and quality improvement efforts related to the measure.
We have also previously

[[Page 50192]]

stated that should agency priorities or legislative changes require us
to alter the measures selected, we will do so through the rulemaking
process. We intend to examine and assure data quality for new sources
of data if adopted for RHQDAPU.
Comment: Some commenters questioned CMS' authority to add measures
to the RHQDAPU program beyond the FY 2012 payment determination as
section 3001(a)(2)(B) of the Affordable Care Act revises section
1886(b)(3)(B)(viii)(V) of the Act.
Response: We do not believe that the commenters are correctly
reading the amendment to section 1886(b)(3)(B)(viii)(V) of the Act made
by section 3001(a)(2)(B) of the Affordable Care Act in conjunction with
section 1886(b)(3)(B)(viii)(III) of the Act. As amended, section
1886(b)(3)(B)(viii)(V) of the Act states that, for payments for FYs
2008 through 2012, the Secretary shall add other measures that reflect
consensus among affected parties and, to the extent feasible and
practicable, shall include measures set forth by one or more national
consensus building entities. For payments for FY 2013 and beyond, the
Secretary would be able to add measures because section
1886(b)(3)(B)(viii)(III) of the Act provides the Secretary with the
authority to expand the measures consistent with the succeeding
statutory provisions. Section 1886(b)(3)(B)(viii)(V) of the Act simply
would not apply to payments for FYs 2013 and beyond.
In summary, we are finalizing our proposal to select measures for
three consecutive payment years. As discussed in section IV.A.5.a.(2)
of this final rule, where we respond to comments on synchronizing the
quarterly submission of data, we are finalizing our proposal to
synchronize the quarterly submission of data for RHQDAPU. We will
continue to pursue goals regarding the expansion and updating of
quality measures under the RHQDAPU program while minimizing burden. We
will take into account the public comments we received on the possible
uses of EHRs, registries, and all-payer claims data in the RHQDAPU
program. We also will consider the measure selection criteria suggested
by various commenters in prioritizing and selecting quality measures
for the future.
b. RHQDAPU Program Quality Measures for the FY 2012 Payment
Determination
(1) Retention of 45 Existing RHQDAPU Program Quality Measures for the
FY 2012 Payment Determination
As noted above, we are retiring the AHRQ Mortality for Selected
Surgical Procedures Composite for the FY 2011 payment determination. We
proposed that the remaining 45 of the 46 quality measures for the FY
2011 RHQDAPU program payment determination will be used for the FY 2012
RHQDAPU program payment determination. Details regarding data
submission requirements were discussed in section IV.A.5. of the
proposed rule. We invited comment on the proposal to include all FY
2011 measures except for the AHRQ Mortality for Selected Surgical
Procedures Composite in the FY 2012 RHQDAPU measure set.
Comment: A commenter suggested CMS further discuss risk-adjustment,
co-morbid conditions, exclusion criteria, and interpretation of the
collected data before making decisions to retain the 45 measures as
proposed.
Response: In general, we retain measures from one payment
determination to the next unless we specifically retire them.
Currently, risk adjustment of comorbidities for outcome measures and
exclusion criteria for all measures are maintained on an ongoing basis
as part of routine measure maintenance, and are submitted every 3 years
to NQF for reevaluation. We do not address measure maintenance or data
display and interpretation issues in annual rulemaking. These issues
are addressed in sub-regulatory processes.
Comment: Some commenters were concerned that the Pneumonia Measure
PN[middot]6 (including PN[middot]6a and PN-6b) relating to the initial
antibiotic selection for Community Acquired Bacterial Pneumonia (CABP)
in immune-competent patients is at risk of not representing the best
clinical practice if its technical specifications are not updated in a
timely manner. The commenters suggested that, for PN-6, CMS should
clearly define the process for hospitals to prescribe newly approved
antibiotics to treat CABP with flexibility. Furthermore, the commenters
noted that CMS also should add Ceftaroline Fosamil to the Pneumonia
Antibiotic Consensus Recommendations upon FDA approval.
Response: As stated earlier, we maintain and update the technical
specifications for RHQDAPU program measures regularly, which includes
regular updating of drug lists to include new FDA approved medications,
including antibiotics that could be used for patients included in the
PN-6 measure. Appropriate documentation for hospital prescribing
practices for measures such as PN-6 is also maintained in the technical
specifications.
After consideration of the public comments we received, we are
adopting as final our proposal to retain 45 existing measures from the
FY 2011 RHQDAPU payment determinations as RHQDAPU quality measures for
the FY 2012 payment determination.
In proposing to retain 45 of the 46 FY 2011 measures, we recognized
that we were not significantly reducing the burden for hospitals, since
the 1 measure that we proposed to remove is a measure that currently is
calculated based on Medicare claims. At the same time, our proposal to
expand the measures for FY 2012 and beyond may add additional reporting
burdens and new focus areas for hospital quality improvement efforts.
In view of our concern about the burden of reporting for hospitals,
especially when it comes to reporting chart-abstracted measures,
another option that we have considered to accommodate the expansion of
the measure set is the retirement of additional measures. Specifically,
we have considered retiring one or more of those measures suggested by
various commenters that were listed in the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43865). We noted in that final rule that 11
RHQDAPU program chart-abstracted measures were recommended for
retirement by commenters. Seven of these 11 measures were recommended
for retirement based on their performance being uniformly high
nationwide, with little variability among hospitals. Information on the
performance rates for hospitals reporting is available at: http://www.cms.hhs.gov/HospitalQualityInits/downloads/HospitalNationalLevelPerformance.pdf. These measures are:
AMI-1 Aspirin at arrival
AMI-3 ACEI/ARB for left ventricular systolic dysfunction
AMI-4 Adult smoking cessation advice/counseling
AMI-5 Beta-blocker prescribed at discharge
HF-4 Adult smoking cessation advice/counseling
PN-4 Adult smoking cessation advice/counseling
SCIP-Infection-6: Surgery patients with appropriate hair
removal
In addition to these ``topped-out'' measures, commenters
recommended we retire four additional measures listed below for reasons
unrelated to high

[[Page 50193]]

unvarying performance. These measures are:
HF-1 Discharge instructions
PN-3b Blood culture performed before first antibiotic
received in hospital
SCIP-Infection-2: Prophylactic antibiotic selection for
surgical patients
SCIP-Infection-4: Cardiac Surgery Patients with Controlled
6AM Postoperative Serum Glucose
Reasons given by commenters included the following: (1) Care
process measured has weak or no relationship to better outcomes, (2)
collection burden of measure negates or outweighs the benefit of
reporting the measure, and (3) measure perceived to be discordant with
current guidelines.
We invited comments on the option to retire 1 or more of these 11
measures that were suggested for retirement by commenters to the FY
2010 IPPS/RY 2010 LTCH PPS proposed rule. We acknowledged that some of
these measures were proposed for electronic reporting under the program
for incentive payment for meaningful use of electronic health records
(75 FR 1896).
In addition, we stated that we were considering an option under
which if we propose and finalize measures that are specified to more
broadly address a clinical topic, and thus would require hospitals to
submit the same data that they are already submitting on more narrowly
specified measures that we previously adopted for the RHQDAPU program,
we would propose to retire the more narrowly specified measures from
the RHQDAPU measure set. An example of this option that we were
considering would be retirement of the current Influenza and
Pneumoccocal vaccination measures that apply only to the Pneumonia
admission inpatient population (PN-2 Pneumococcal vaccination status;
and PN-7 Influenza vaccination status) if we proposed and finalized
measures of Influenza and Pneumoccocal vaccination that apply to all
inpatients. We invited comments on this option to retire narrowly
specified measures in order to accommodate more broadly specified
measures on a given topic.
Comment: A few commenters supported retiring narrowly specified
measures such as the vaccination measures that are specific to
Pneumonia inpatients, as a way to reduce burden, especially when
broader measures are available.
Response: We thank the commenters for their support of the concept
of retiring narrowly specified measures and replacing them with
measures that could be applied to a broader population. As we discuss
below in section IV.A.3.d. of this final rule, we are using this
strategy and retiring the pneumonia-specific immunization measures for
the FY 2014 payment determination because we are adopting the global
immunization measures.
Comment: Some commenters supported the retirement of one or more of
the measures listed. Others also suggested additional measures to
consider for retirement including: PN-2 Pneumococcal vaccination status
and PN-7 Influenza vaccination status, and the AHRQ Abdominal Aortic
Aneurysm (AAA) Mortality Rate (with or without volume) (IQI 11).
Response: We appreciate the commenters' specific suggestions
regarding retirement of particular measures. As discussed in section
IV.A.3.d. of this final rule, we are retiring PN-2 and PN-7 for the FY
2014 payment determination because we are adopting the global
immunization measures.
Comment: A commenter pointed out that three of the measures listed
(AM1-1, AMI-5, and SCIP-INF-2) for the FY 2011 payment determination
overlap with the HITECH EHR incentive program Stage 1 meaningful use
criteria and, therefore, they should be retired for burden reduction
purposes. The commenter recommended that when the retirement of
overlapped measures occurs in one program, they should also be retired
in other programs as well.
Response: The final rule for the HITECH EHR incentive program (75
FR 44314) did not include the AMI and SCIP measures identified by the
commenter. Rather, the measures that were finalized for HITECH EHR
program hospital reporting are not currently included in the RHQDAPU
program. As discussed previously, an important objective for the
RHQDAPU program is to align the reporting of quality measures by
hospitals for both the RHQDQPU and HITECH EHR programs. However, this
alignment must be consistent with the data needs for the RHQDAPU
program. The HITECH EHR program does not require the submission of
patient level data, as is the case for the RHQDAPU program. Therefore,
in order to completely align the clinical quality measure reporting if
RHQDAPU measures were required in Stage 2 HITECH, changes to HITECH
requirements would need to be made through the rule making process and
also standardize other processes such as technology platform standards
and submission processes. In aligning the HITECH EHR and RHQDAPU
program measures, we anticipate developing electronic specifications
for all of the currently chart abstracted measures. This could provide
an EHR reporting alternative for measures that are currently chart
abstracted. However, in developing alternative data submission
mechanisms, we will be mindful of the specific uses of data submitted
for RHQDAPU measures, that go beyond uses for clinical quality measures
under the HITECH EHR program. Specifically, section
1886(b)(3)(B)(viii)(VII) of the Act, unlike the HITECH provisions,
requires the public reporting of information regarding measures
submitted to the RHQDAPU program, and the Affordable Care Act requires
that measures for the HVBP program be specified under the RHQDAPU
program. In view of the specific uses for RHQDAPU data, we must be
satisfied that the measures results are equivalent, whether the data
upon which the results are based are submitted based on chart
abstraction or through use of certified EHR technology.
Comment: One commenter stated that, although the mortality measures
exclude patients who have a history of Medicare hospice enrollment
prior to or on admission, the measures do not take into account
decisions made by the patient or family to withhold treatments and opt
for comfort care later in the hospital course as part of end-of-life
care. The commenter was concerned that hospitals would transfer these
patients or over-treat patients to avoid penalty. The commenter
suggested that CMS develop a mechanism, such as the POA flag, to
accurately and properly report the care that they deliver to the
patient.
Response: We thank the commenter for the input. However, we do not
use rulemaking to define the parameters of the measures, such as
exclusions. Rather, we depend on the processes of measure development
and, if applicable, the NQF endorsement review. In the case of this
measure, the exclusions in the measure were considered in the original
endorsement process and at a subsequent maintenance process conducted
by NQF. During the maintenance process, the measure was only modified
to exclude cases where the patient had been a prior hospice patient.
(2) New Claims-Based Measures
We proposed to add 10 claims-based measures to the RHQDAPU program
measure set for the FY 2012 payment determination: 2 AHRQ Patient
Safety Indicators and 8 Hospital Acquired Condition measures. These
proposed measures address important HHS priorities of Patient Safety
and healthcare associated infections. They would be calculated using up
to 3 years

[[Page 50194]]

of Medicare claims for discharges prior to January 1, 2011. These
measures are discussed below.
(A) AHRQ Patient Safety Indicators
In the FY 2009 IPPS final rule, we adopted a number of AHRQ Patient
Safety Indicators and Inpatient Quality Indicators for the RHQDAPU
program to be calculated using Medicare claims. The addition of these
measures to the RHQDAPU program allowed us to expand the RHQDAPU
program measure set to include measures of patient safety, in-hospital
mortality, adverse events and complications without increasing the data
submission burden on hospitals. In the FY 2010 IPPS/RY 2010 LTCH PPS
final rule, we retained these measures for the FY 2011 payment
determination. As we proposed in the FY 2011 IPPS/LTCH PPS proposed
rule (75 FR 23960 and 23961), we are retiring one of those measures
(Mortality for Selected Surgical Procedures Composite) from the RHQDAPU
program measure set for the FY 2011 payment determination. For the FY
2012 payment determination, we proposed to adopt 2 additional Patient
Safety Indicators developed by the AHRQ. These were: PSI-11: Post-
Operative Respiratory Failure and PSI-12: Post-Operative Pulmonary
Embolism (PE) or Deep Vein Thrombosis (DVT). Both measures address
post-operative complications, a topic that is currently not well
represented in the RHQDAPU program measure set. Both measures are NQF-
endorsed, and have a Tier 1 evidence rating by AHRQ, the measure
developer. Indicators given this level of evidentiary rating by AHRQ
have the strongest evidence base, with established evidence in several
or most evidentiary areas established by AHRQ, no substantial evidence
suggesting that the indicator may not be useful for comparative
reporting purposes, and in most cases have been endorsed by the
National Quality Forum (NQF).\13\ The specific measures that we
proposed to add are NQF-endorsed, thus, reflecting consensus among
affected parties, and are deemed appropriate for comparative public
reporting by the measure developer. Like the current AHRQ measures in
the RHQDAPU program, these indicators are both risk-adjusted outcome
measures that can be calculated based on existing Medicare claims,
placing no additional reporting burden on hospitals while allowing us
to expand outcomes measurement in the RHQDAPU program. The
specifications for these measures can be found at http://www.qualityindicators.ahrq.gov/TechnicalSpecs41.htm#PSI41. We invited
comment on our proposal to adopt these two AHRQ Patient Safety
Indicators for the FY 2012 payment determination.
---------------------------------------------------------------------------

\13\ http://www.qualityindicators.ahrq.gov/downloads/publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.
---------------------------------------------------------------------------

Comment: Some commenters believed that claims data are not an
accurate source of quality measures compared to medically-abstracted
data. One commenter was concerned about the limitation of the claim-
based measures used in Hospital Compare because the claims used were
for the Medicare fee-for-service population only.
Response: We believe that claims data/administrative data are an
appropriate data source upon which quality measures selected by the
Secretary may be based. We note that many NQF-endorsed evidence-based
quality measures which have been found appropriate for public reporting
and quality improvement rely upon claims and administrative data as
data sources. Furthermore, the use of claims-based measures reduces
reliance upon chart abstraction and its associated burden for quality
measurement. We acknowledge that all-payer claims/administrative data
would further enhance the claims-based measures shown on Hospital
Compare. We plan to continue to explore mechanisms to collect all-payer
claims/administrative data.
Comment: Many commenters did not support the proposed inclusion of
PSI-11 and PSI-12 measures because they have time-limited NQF-
endorsement due to validation issues, and the delay in the AHRQ update
hampers hospitals' ability to monitor the PSI results timely. The
commenters believed the PSI-11 and PSI-12 measures need more refinement
and testing before they can be used for public reporting. One commenter
asked CMS to ensure that the PSI-12 measure is not reported twice as it
is also currently reported as part of PSI-90. Some commenters felt that
PSI-12 may be redundant with the SCIP VTE measure and the VTE
measurement set listed under the future measure section.
Response: NQF designates some measures as having a 2-year ``time-
limited'' endorsement when additional information like testing results
are needed. All other NQF-endorsed measures have a 3-year endorsement
period. However, in both instances, the measures have a status of
endorsed by NQF, and undergo re-evaluation at the end of the
endorsement period. Therefore, we do not agree with the suggestion to
treat endorsed measures with time limitations as not endorsed. We also
note that PSI-11 is endorsed without time limitation. Further, both
measures are recommended for public reporting by AHRQ. We also do not
agree that PSI-12 is duplicative of SCIP VTE. The PSI-12 measure
reflects the actual occurrence of DVT (outcome) following a broad set
of procedures. The SCIP VTE and VTE measurement set covers processes of
care intended to prevent DVT.
We have carefully considered all comments received and we are
finalizing the PSI-11 and PSI-12 measures for the FY 2012 payment
determination. These measures are NQF-endorsed and address adverse
surgical outcomes, a high HHS priority and a topic area that is
currently not represented in the RHQDAPU measurement set. We will
calculate these measures using the same process used for other measures
based on Medicare fee for service claims.
(B) Hospital Acquired Condition (HAC) Measures
Section 1886(d)(4)(D) of the Act required the Secretary to select,
in consultation with the Centers for Disease Control and Prevention
(CDC), at least two conditions that: (a) Are high cost, high volume, or
both; (b) are assigned to a higher paying MS-DRG when present as a
secondary diagnosis (that is, conditions under the MS-DRG system that
are CCs or MCCs); and (c) could reasonably have been prevented through
the application of evidence based guidelines. We currently have 10
categories of Hospital Acquired Conditions (HACs). We refer readers to:
section II.F. of the FY 2008 IPPS final rule with comment period (72 FR
47202 through 47218); section II.F. of the FY 2009 IPPS final rule with
comment period (73 FR 48474 through 48486); and section II.F. of the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782 through 43785) for
detailed discussions regarding the selection of the current 10 HAC
categories. We refer readers to section II.F. of this final rule for
additional discussion and our HAC policy for FY 2011.
We have worked collaboratively with public health and infectious
disease professionals from across HHS, including CDC, AHRQ, and the
Office of Public Health and Science, to identify and select preventable
HACs with input and comment from affected parties. CMS and CDC have
also collaborated on the process for hospitals to submit a present on
admission (POA) indicator for each diagnosis listed on IPPS hospital
Medicare claims and on the

[[Page 50195]]

payment implications for POA reporting (74 FR 43783).
CMS, CDC and AHRQ held jointly sponsored HAC and POA Listening
Sessions (December 17, 2007 and December 18, 2008) to receive input
from affected parties, individuals, and organizations regarding the
selection and definition of HACs. The adoption of HACs were informed
and continue to be informed by feedback received during the listening
sessions, as well as through public comment received during the IPPS
rulemaking process. In addition to receiving comments regarding the
selection of conditions and POA indicator reporting, in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR 43785), commenters suggested
that CMS consider making aggregate POA information publicly available,
and providing comparative information as a means of facilitating
improvements in preventing the incidence of HACs.
We proposed to adopt as RHQDAPU measures for the FY 2012 payment
determination 8 (of 10) current HACs defined in section II.F. of the FY
2011 IPPS/LTCH PPS proposed rule (75 FR 23966), 6 of which have been
identified by NQF as serious reportable events, and to publicly report
these measures as we do other RHQDAPU program measures. These measures
are:
Foreign Object Retained After Surgery
Air Embolism
Blood Incompatibility
Pressure Ulcer Stages III & IV
Falls and Trauma: (Includes: Fracture, Dislocation,
Intracranial Injury, Crushing, Injury, Burn, Electric Shock)
Vascular Catheter-Associated Infection
Catheter-Associated UTI
Manifestations of Poor Glycemic Control
We did not believe that it was necessary to propose to adopt the
other two current HAC categories as RHQDAPU measures because the topics
that they deal with would substantially overlap with other RHQDAPU
program measures discussed below that we proposed to adopt for future
payment determinations as chart-abstracted measures (which allows us to
collect data on all patients). By contrast, the eight proposed HAC
measures are claims-based measures for which we can only (at this time)
collect data on Medicare beneficiaries.
We proposed to utilize Medicare claims data to calculate measure
rates for these eight HACs using the ICD-9-CM codes in conjunction with
POA coding of ``N'' or ``U,'' as defined in IPPS rulemaking. We refer
readers to section II.F.6. of the FY 2008 IPPS final rule with comment
period (72 FR 47202 through 47218), section II.F.7. of the FY 2009 IPPS
final rule (73 FR 48474 through 48486), section II.F.6. (74 FR 43782
through 43785) of the FY 2010 IPPS/RY 2010 LTCH PPS final rule, and
section II.F. of the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880)
for detailed discussions regarding the use of the POA indicator in
conjunction with ICD-9-CM coding to determine the presence of HACs. We
also refer readers to the current ICD-9-CM codes and updates for these
eight HAC categories in this final rule. We proposed to use the ICD-9-
CM codes in conjunction with the ``N'' and ``U'' POA indicators for the
HAC categories that will be finalized in this FY 2011 IPPS/LTCH PPS
final rule to calculate the eight HAC measures for the RHQDAPU program.
We believe that these HAC measures reflect consensus among affected
parties as required for RHQDAPU program measures by section
1886(b)(3)(B)(viii)(V) of the Act. In addition to meeting the consensus
requirement through rulemaking and public comment, Vascular Catheter-
Associated Infection and Catheter-Associated UTI are the subject of a
quality measure which gained NQF endorsement in August 2009. The
remaining six HAC categories have been identified as serious reportable
events through the NQF consensus process and have also been selected as
HACs through rulemaking and public comment. Data reporting requirements
for these measures are provided in section IV.A.5.b.(6) of the FY 2011
IPPS/LTCH PPS proposed rule (75 FR 23990). We invited comment on our
proposal to adopt these eight HAC measures for the FY 2012 payment
determination.
Comment: Some commenters supported inclusion of the HACs as
measures for the RHQDAPU program as public reporting would encourage
improvement. Other commenters supported inclusion, but also stressed
that appropriate risk adjustment, comprehensive exclusion criteria, and
NQF endorsement should be pursued.
Response: We agree that public reporting of the HACs on the
Hospital Compare Web site would encourage improvement. We also note
that section 3008 of the Affordable Care Act contains a provision for
the reporting of HACs on the Hospital Compare Web site as well. We
intend to publish measure specifications for the rates (including
numerators, denominators, and exclusion criteria) in the Specifications
Manual. We agree risk-adjustment may be appropriate for some of the
indicators, and intend to apply appropriate risk adjustment for those
HACs that are not considered Never Events, and are considered outcome
measures, such as infection-related HACs. We will also consider the
suggestion that we pursue NQF endorsement.
Comment: Many commenters opposed the inclusion of HACs in the
RHQDAPU program for various reasons. Some commenters did not believe
the HACs as currently defined by ICD-9-CM codes constitute measures as
there are no measure specifications. Commenters believed that they are
tied to variables which are indications of documentation and coding and
may inadvertently cause unintended consequences. Other commenters also
believed that present on admission (POA) reporting is in its infancy
and since the HACs would rely upon POA coding, they are not reliable.
Other commenters indicated that some of the HACs are too rare to be
meaningful. Other commenters believed that NQF endorsement or HQA
adoption would be necessary prior to adoption of the HACs.
Response: As stated in the response to the previous comment, we
intend to include measure specifications in the Specifications Manual.
We also believe that the HACs reflect consensus among affected parties
because they were refined during two public listening sessions and
underwent public comment through rulemaking. Furthermore, six of the
eight HACs proposed as measures for the FY 2012 payment determination
are also NQF-endorsed ``never events.'' We acknowledge that the rates
of never events may be rare. However, because these are considered
events that should never happen, reporting their prevalence, though
rare, is still meaningful. Although POA coding is relatively new, it is
subject to the same level of monitoring and oversight as diagnoses and
procedures reported on claims, and therefore, is accurate and reliable
to the best of hospitals' abilities.
Comment: One commenter asked CMS to address perceived overlap in
the proposed HAC measures, the proposed HAI measures, and the nursing
sensitive measure set.
Response: While two of the HACs topically address HAIs, they are
not the same measures as the HAIs proposed for collection via NHSN.
They have a close relationship but they are not identical. In our FY
2011 IPPS/LTCH PPS proposed rule, we proposed the addition of the CDC
central line catheter associated bloodstream infection rate for ICU and
high-risk nursery patients and Surgical Site Infection Rate measure for
inclusion in the RHQDAPU program (75

[[Page 50196]]

FR 23970 and 23971). These measures align with the topic areas of the
Vascular Catheter-Associated Infection and Surgical Site Infection
HACs. The information for determining the HACs is derived from claims
data, while the central line catheter associated bloodstream infection
rate for ICU and high-risk nursery patients and SSI measures are
derived from chart abstraction. The central line catheter associated
bloodstream infection rate for ICU and high-risk nursery patients
measure (NQF 0139) is part of the NQF Nursing Sensitive Set.
Section 1886(d)(4)(iv) of the Act requires the Secretary to select at
least two conditions as HACs that are: (a) High cost or high volume or
both, (b) result in the assignment of a case to a DRG that has a higher
payment when present as a secondary diagnosis, and (c) could reasonably
have been prevented through the application of evidence based
guidelines. The Hospital Acquired Conditions are based on NQF's Serious
Reportable Events.
After careful consideration of comments received, we are finalizing
the adoption of the eight HAC measures into the RHQDAPU program for the
FY 2012 payment determination. We will calculate these rates using
Medicare Part A fee for service claims, and we intend to publicly
report these measures on Hospital Compare starting in the fall of 2010
after an appropriate preview period. The data to be used for this
initial calculation will include claims from Q4 2008, and at least Q1
and Q2 of 2009. We also note that section 3008 of the Affordable Care
Act contains a provision for public reporting of the HACs on Hospital
Compare and that initiation of public reporting of the HACs now will
enable us to better fulfill the requirements of this section in the
future. Since the RHQDAPU program requires hospitals to submit data for
measures, hospitals have an obligation to accurately report the
diagnosis and events defined for the HACs, including POA codes, on
their claims, because their claims will be the source of data for these
measures under the RHQDAPU program.
(3) All-Patient Volume Data for Selected MS-DRGs
We currently display volume data for 70 MS-DRGs, 55 of which relate
to RHQDAPU program measures on the Hospital Compare Web site. However,
the volume data currently shown on Hospital Compare is based on
Medicare claims only. Although we do not consider volume alone to be a
quality measure unless volume has been determined to be an indicator of
quality, we believe that to the extent all-patient volume data are
related to the measures, as they provide context for the quality
measures in the inpatient hospital setting, and may assist Hospital
Compare users in understanding the measure calculations. In general, in
implementing RHQDAPU program measures, we have sought where currently
possible to measure the care rendered to all patients within a
hospital, and not just Medicare patients. For this reason, the chart-
abstracted process of care measures we collect and display on Hospital
Compare are based on the entire inpatient population for the hospital.
We proposed that hospitals begin submitting as data on measures
selected for the RHQDAPU program the all-patient data elements
discussed in section IV.A.5.b.(5) of the FY 2011 IPPS/LTCH PPS proposed
rule (75 FR 23990) for 55 MS-DRGs displayed on Hospital Compare that
relate to adopted RHQDAPU program measures (75 FR 23967). The specific
MS-DRGs were listed in the proposed rule (75 FR 23970). As stated
above, we believe that the addition of this data will enable us and
Medicare beneficiaries to better understand and evaluate the quality of
care provided by hospitals with respect to both the chart-abstracted
and claims-based measures. We intend to publicly display this volume
data along with the corresponding measure results on Hospital Compare.
Hospitals would begin reporting these data once annually beginning with
January 1, 2011 discharges by submitting the all-patient data elements
needed to calculate MS-DRG volume to QualityNet so we can determine the
volume of cases treated by a hospital for the 55 MS-DRGs currently
displayed on Hospital Compare. Rather than require hospitals to group
their all-patient claims data by MS-DRG category themselves, CMS would
use the data to be submitted by hospitals to group the data.
We invited comments on this proposal. We also invited comments on
an alternative that hospitals submit all-patient volume data based upon
specific ICD-9-CM codes related to the proposed MS-DRGs rather than all
data necessary to calculate the MS-DRGs.
Comment: Many commenters opposed the collection of all-patient
volume data in the RHQDAPU program as proposed, and stated that: (1)
Volume does not constitute a quality measure and, therefore, would not
fall under the Secretary's authority under the Act to select measures
for the RHQDAPU program; (2) submitting all-patient volume would
require the transmission of Protected Health Information or Patient
Identifiable Information that is not related to either quality or
reimbursement and therefore is not in compliance with the requirements
of the Health Insurance Portability and Accountability Act of 1996
(HIPAA); (3) it is not clear how the collection of all-patient volume
data would be helpful to Medicare beneficiaries; (4) there are concerns
about whether CMS infrastructure can handle data collection of a large
amount of additional data; and (5) there are concerns regarding how the
data will be displayed on Hospital Compare and fear that CMS and the
public will equate high volume with high quality.
Response: We disagree with the commenters about our authority to
collect all-patient volume data in relation to RHQDAPU quality
measures. However, based on the public comment received, we are not
finalizing this proposal because commenters indicated that, as
proposed, the reporting requirement would be overly burdensome for
hospitals. We plan to explore how all-patient volume may be collected
in an efficient manner and reintroduce the proposal in a subsequent
rulemaking.
Comment: Some commenters argued that CMS has underestimated the
potential burden on hospitals which have to group the cases into one of
the 55 MS-DRGs before sending the ICD-9 codes and other related data
such as procedure date, discharge status, admission date, to name a
few. A commenter asked CMS to provide a MS-DRG to ICD-9-CM codes
equivalent table to ensure no overlapping as well as specifics on the
data submission process. Another commenter suggested CMS provide an
alternate method which allows hospitals already grouping data
internally into MS-DRGs to post the all-patient volumes for these 55
MS-DRGs onto QualityNet on an annual basis. A commenter recommended CMS
explore the possibility of getting the all-payer information from the
Joint Commission's vendors, State healthcare organizations or AHRQ.
Response: We agree with the commenters that submission of the
required data that would be necessary to determine the MS-DRG would be
burdensome. Further, we believe that the alternative of requiring
volume based on diagnosis codes would provide substantially equivalent
information, even though we could not relate the volume data to a
specific MS-DRG. As a result, we are not adopting our proposal to
require the submission of all-payer volume in this final rule. We
expect to refine the requirements for all-patient volume data
submission based

[[Page 50197]]

on diagnosis codes and reintroduce the proposal in a subsequent
rulemaking.
Comment: Some commenters supported the inclusion of all-patient
volume data for selected MS-DRGs and considered the inclusion of these
data a move in the right direction.
Response: We appreciate the supportive comments. As discussed
previously, we expect to reintroduce the proposal in a subsequent
rulemaking.
Comment: Many commenters asked CMS to provide more details about
the all-patient volume data submission process. Specifically, the
commenters inquired if ICD-9-CM codes have to be submitted; what data
elements have to be submitted; the data formats and transmission
methods; frequency of data submissions; and deadlines for data
submission.
Response: We expect to reintroduce the proposal in a subsequent
rulemaking as discussed previously and we would provide more details
for the data submission process at that time.
After consideration of the public comments we received, we are not
finalizing this proposal to collect all-patient volume data for
selected MS-DRGs. We currently require hospitals to submit all-patient
counts to assess the adequacy of sampling for the current RHQDAPU
measures, and will examine whether this requirement can be expanded
upon in the future for public reporting, and to accommodate future
quality measures adopted into the RHQDAPU program.
In summary, for the FY 2012 payment determination, we are retaining
45 measures adopted for the FY 2011 payment determination, and adding
10 claims-based measures (2 AHRQ surgical outcome measures, and 8 HAC
measures) for a total of 55 measures.
The RHQDAPU measure set for the FY 2012 payment determination is
listed below:
BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TR16AU10.039

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[GRAPHIC] [TIFF OMITTED] TR16AU10.040

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BILLING CODE 4120-01-C
c. RHQDAPU Program Quality Measures for the FY 2013 Payment
Determination
(1) Retention of FY 2012 Payment Determination Measures for the FY 2013
Payment Determination
We generally propose to retain RHQDAPU program measures from 1 year
to the next. Consistent with this approach, we proposed to retain all
of the proposed measures for the FY 2012 RHQDAPU payment determination,
if finalized, for the FY 2013 payment determination. We invited public
comment on the proposal to retain the 55 FY 2012 measures for the FY
2013 payment determination.
We did not receive any public comments for this section. We are
finalizing the retention of the 55 FY 2012 measures for the FY 2013
payment determination. We believe that all of the 55 finalized FY 2012
measures meet the requirements for RHQDAPU program measure selection
for FY 2013 and subsequent payment determinations under sections
1886(b)(3)(B)(viii)(VIII) and (IX) of the Act. As discussed previously,
section 1886(b)(3)(B)(viii)(VIII) of the Act requires the Secretary to
provide for such risk adjustment as the Secretary determines
appropriate to maintain incentives for hospitals to treat patients with
severe illnesses or conditions with respect to quality measures for
outcomes of care effective for payments beginning with FY 2013. Section
1886(b)(3)(B)(viii)(IX) of the Act requires, for payments beginning
with FY 2013, each measure specified by the Secretary to be endorsed by
a consensus entity, currently NQF, except in certain circumstances.
Specifically, in the case of a specified area or medical topic
determined appropriate by the Secretary for which a feasible and
practical measure has not been endorsed by the consensus entity, the
Secretary may specify a measure that is not endorsed by the consensus
entity if due consideration is given to measures that have been
endorsed or adopted by a consensus organization identified by the
Secretary.
The process of care measures for AMI, HF, PN, and SCIP, the three
structural measures regarding participation in a registry, and the
HCAHPS patient experience of care survey being retained for the FY 2013
payment determination are all NQF-endorsed. The outcome measures being
retained for the FY 2013 payment determination include the 30-day
mortality and 30-day readmission measures for AMI, HF, and PN as well
as the AHRQ PSIs and IQIs, the two AHRQ composite measures, and the
Death among surgical inpatients for serious treatable complications
measure that is both part of the AHRQ PSI measure set, and the Nursing
Sensitive measure set. These measures are all NQF-endorsed and provide
for such risk adjustment as the Secretary determines to be appropriate
to maintain incentives for hospitals to treat patients with severe
illnesses or conditions.
The eight HAC measures adopted for the FY 2012 payment
determination that are being retained for the FY 2013 payment
determination represent a specified area or medical topic determined
appropriate by the Secretary (CDC, CMS, AHRQ) for which a feasible and
practical measure has not been endorsed by the consensus entity, and
due consideration was given to measures that have been endorsed or
adopted by a consensus organization identified by the Secretary. In
fact, six of the HACs are NQF Never Events. The remaining two HACs are
claims-based measures of HAIs, and consideration was given to chart
abstracted NQF endorsed measures prior to determining that they would
not be feasible to implement for the FY 2012 payment determination.
(2) New Chart-Abstracted Measure for the FY 2013 Payment Determination
We proposed to add one new chart-abstracted measure for the FY 2013
payment determination--AMI-Statin prescribed at Discharge. This measure
is NQF-endorsed (NQF 0639), and is similar to the NQF-
endorsed stroke measure ``Ischemic stroke patients with LDL >/= 100 mg/
dL, or LDL not measured, or, who were on cholesterol reducing therapy
prior to hospitalization are discharged on a statin medication'' (NQF
0439), only specified for the AMI population. Current
scientific evidence supports the continuation of statins more strongly
for AMI patients than for stroke patients. Several randomized clinical
trials have proven the benefits of statin drugs (also known as HMG Co-A
reductase inhibitors) in reducing the risk of death and recurrent
cardiovascular events in a broad range of patients with established
cardiovascular disease, including those with prior myocardial
infarction. Current ACC/AHA guidelines place a strong emphasis on the
initiation or maintenance of statin drugs for patients hospitalized
with AMI, particularly those with LDL-cholesterol levels at or above
100 mg/dL. As a result of the strength of the evidence and guideline
support, the ACC/AHA has developed a performance measure to assess this
aspect of care for AMI patients.
Because statins are generally well-tolerated, most AMI patients are
appropriate candidates for this therapy. As a result of this clinical
evidence, the NQF was asked to review whether it should broaden the
current endorsed measure specification to include the AMI population.
Information on this project can be found at: http://www.qualityforum.org/Projects/a-b/Ad_Hoc_Reviews/Statin_Medication/Ad_Hoc_Review__Discharged_on_Statin.aspx. In the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 23970), we stated that we would decide
whether to finalize this measure based on whether it achieves NQF
endorsement and public comments. We believe that minimal additional
burden would result from adoption of this measure into the RHQDAPU
program because the AMI population that is the focus of this measure is
already part of data collection efforts for the RHQDAPU program, and
very few additional data elements would be needed to be abstracted for
the proposed new measure on this existing measurement population. We
proposed that hospitals would begin submission of data for the measure
AMI-Statin Prescribed at Discharge beginning with January 1, 2011
discharges for the RHQDAPU 2013 payment determination.
Comment: The majority of the commenters supported the proposed
addition of the AMI-Statin Prescribed at Discharge measure. Some
commenters supported the addition of Statins at Discharge for AMI
patients contingent on NQF endorsement.
Response: We thank the commenters for their support of this
proposed measure. We note that this measure was fully endorsed by the
NQF on June 11, 2010, thus meeting the requirement under section
1886(b)(3)(B)(viii)(IX) of the Act.
After consideration of the public comments, we are finalizing the
measure for Statins Prescribed at Discharge for AMI patients for the FY
2013 payment determination.
(3) New Healthcare Associated Infection (HAI) Measures for the FY 2013
Payment Determination
HHS has placed high priority on reducing Healthcare Associated
Infections and adopted an action plan in January of 2009. The HHS
action plan identified seven HAI measures and measure targets. One of
these measures, SSI-2 (as identified in the HHS Action Plan), is
currently included in the RHQDAPU program (identified as SCIP-1). In
the FY 2009 and FY 2010 IPPS rulemakings, we listed several Healthcare
Associated Infection (HAI)

[[Page 50201]]

measures as being under consideration for future adoption. Commenters
on the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule supported the HAI
measures that were listed as being under consideration for the future
and encouraged us to consider others as well (74 FR 43876). For the
measure set to be used for the FY 2013 payment determination, we
proposed adopting two new HAI measures that are currently being
collected by CDC via the National Healthcare Safety Network (NHSN).
These measures are: (1) Central Line Associated Blood Stream Infection
(CLABSI) (NQF 0139) and (2) Surgical Site Infection (SSI) (NQF
0299).
The NHSN is a secure, Internet-based surveillance system maintained
and managed by the CDC, and can be utilized by all types of healthcare
facilities in the United States, including acute care hospitals, long
term acute care hospitals, psychiatric hospitals, rehabilitation
hospitals, outpatient dialysis centers, ambulatory surgery centers, and
long term care facilities. The NHSN enables healthcare facilities to
collect and use data about HAIs, adherence to clinical practices known
to prevent HAIs, the incidence or prevalence of multidrug-resistant
organisms within their organizations, and other adverse events. Some
States use NHSN as a means for healthcare facilities to submit data on
HAIs mandated through their specific State legislation. NHSN data
collection occurs via a Web-based tool hosted by the CDC provided free
of charge to hospitals. Additionally, the ability of CDC to receive
NHSN measures data from EHRs may be possible in the near future.
Currently, 21 States require hospitals to report HAIs using NHSN, and
the CDC supports more than 2000 hospitals that are using NHSN.\14\
---------------------------------------------------------------------------

\14\ http://www.cdc.gov/nhsn/.
---------------------------------------------------------------------------

Both the Central Line Associated Blood Stream Infection measure and
the Surgical Site Infection measure are NQF-endorsed, and therefore
meet the statutory requirement under section 1886(b)(3)(B)(viii)(IX) of
the Act. The measures address HAIs, a topic area widely acknowledged by
the HHS, IOM, the National Priorities Partnership and others as a high
priority requiring measurement and improvement. HAIs are among the
leading causes of death in the United States. The CDC estimates that as
many as 2 million infections are acquired each year in hospitals and
result in approximately 90,000 deaths per year.\15\ It is estimated
that more Americans die each year from HAIs than from auto accidents
and homicides combined. HAIs not only put the patient at risk, but also
increase the days of hospitalization required for patients and add
considerable health care costs.
---------------------------------------------------------------------------

\15\ McKibben L, Horan T Guidance on public reporting of
healthcare-associated infections: recommendations of the Healthcare
Infection Control Practices Advisory Committee. AJIC 2005;33:217-26.
---------------------------------------------------------------------------

HAIs are largely preventable through interventions such as better
hygiene and advanced scientifically tested techniques for surgical
patients. Therefore, many health care consumers and organizations are
calling for public disclosure of HAIs, arguing that public reporting of
HAI rates provides the information health care consumers need to choose
the safest hospitals, and gives hospitals an incentive to improve
infection control efforts. We solicited comment on the inclusion of
quality measures that assess performance on HAIs as a high priority
topic. We also solicited public comment on additional measures that
could be added to those proposed in the FY 2011 IPPS/LTCH PPS proposed
rule for public reporting and quality improvement.
Comment: Many commenters supported the proposed use of the CDC/NHSN
to collect HAI measures. However, some commenters stated that the NHSN
data input process is burdensome and commenters questioned the CDC/
NHSN's readiness to handle the new enrollment of one fourth of the
RHQDAPU participating hospitals. Many commenters recommended that CMS
collaborate with the CDC to streamline and synchronize the data
collection mechanism and measure specifications prior to
implementation, and to limit the surgical procedures for inclusion in
data reporting. Commenters recommended development of robust training
and technical support for NHSN collection. Many commenters supported
phasing in these measures in order to allow hospitals to adjust to the
reporting requirement, adopting one measure for collection in FY 2011
and another for collection in FY 2012.
Response: We thank the commenters for their support and
suggestions. Concurrently with the development of the FY 2011 IPPS/LTCH
PPS final rule, we have been in extensive discussions with the CDC
regarding the development and enhancements to the existing NHSN and CMS
infrastructure that would enable utilization of the NHSN to report one
or more measures to CMS. These enhancements include improved user
support and training materials as well as streamlined specifications
for collection of required data needed to calculate the HAI measures
adopted for RHQDAPU. In the future, we will also be working toward the
ability to receive reports electronically from hospital EHRs. We agree
that phasing in these measures will allow more time for hospitals to
adjust to the reporting requirements of the NHSN and, as discussed
below, are finalizing the CLABSI measure for the FY 2013 payment
determination and the SSI measure for the FY 2014 payment
determination. We intend to limit the data elements required for
RHQDAPU reporting to the subset of data elements, populations and
procedures needed to calculate the NQF-endorsed measures we have
proposed.
Comment: A few commenters asked CMS to clarify how the proposed HAI
measures reported via NHSN would be validated and publicly reported.
Specifically, the commenters requested clarification whether the data
will be stratified by type of hospitals in Hospital Compare.
Response: We are considering adding CDC/NHSN measures to our
validation process, as outlined in section IV.A.7.b. of this final
rule. We acknowledge the need for uniformity in the data that will be
publicly reported and used in the HVBP program. We will examine the
need to validate these data, and may propose validation requirements
for these data in the future, should we determine a need. We plan to
publicly report the data for HAI measures collected through the NHSN on
the Hospital Compare Web site as we do for other RHQDAPU program
measures. Currently, the NQF specification stratifies the measure by
type of unit within a hospital. We note NQF-endorsed measure
specifications for measures adopted into the RHQDAPU program are
subject to periodic revision, and such revisions will also be reflected
in what we require hospitals to submit to the RHQDAPU program.
Comment: Some commenters were concerned that publishing
administrative data via the HAC list, hospitals reporting to NHSN, and
collecting data in another format could cause confusion for
stakeholders.
Response: We will take steps to determine how best to display these
data so that they do not cause confusion for viewers.
(A) Central Line Associated Blood Stream Infection (CLABSI)
This HAI measure assesses the rate of laboratory-confirmed cases of
bloodstream infection or clinical sepsis among ICU patients. It was
endorsed by the NQF in 2004 and was adopted by the HQA in 2007. The
measure can be stratified by the type of ICU.

[[Page 50202]]

(B) Surgical Site Infection (SSI)
This HAI measure assesses the number of NHSN-defined operative
procedures with a surgical site infection (deep incisional or organ
space) within 30 days, or 1 year if an implant is in place. Infections
are identified on original admission or upon readmission to the
facility of original operative procedure within the relevant time frame
(30 days for no implants; within 1 year for implants). The measure can
be stratified by procedure type or risk factors. This measure was NQF-
endorsed in 2007 (and adopted by the HQA in 2008).
We invited comment on our proposal to adopt these two HAI measures
into the RHQDAPU program for the FY 2013 payment determination.
Collection of these measures would begin with January 1, 2011
discharges for the FY 2013 payment determination. We proposed that
hospitals use the NHSN infrastructure to report the measures for
RHQDAPU program purposes. The proposed reporting mechanism for these
HAI measures is discussed in greater detail in section IV.A.5.b.(6) of
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23990).
Comment: A few commenters supported the inclusion of CLABSI for the
FY 2013 annual payment determination, stating that CLABSI is the only
measure that can be adopted quickly to meet the statutory requirement
for inclusion in the HVBP program without undue burden on hospitals.
Some commenters indicated that a phased in approach starting with the
inclusion of the CLABSI measure is appropriate. The commenters provided
several suggestions to implement the CLABSI: (1) Provide clarification
whether the CLABSI data collection is unit-based or hospital-based; (2)
provide clarification whether any or all surgical procedures apply to
specific populations like adult, pediatric or both; (3) limit the
number of surgeries reported for the 1st year; and (4) States with
existing HAI reporting mandates be deemed to meet the CMS reporting
requirements by meeting their State mandate.
Response: We agree that because more hospitals are submitting the
CLABSI measure, this measure would be the most feasible of the two
proposed measures for hospitals to implement quickly, and that a phased
in approach to adopting the HAI measures is warranted. The CLABSI
measure is the one that is most commonly required by States, and
currently most commonly reported among the HAI measures collected
through the NHSN system. The CLABSI measure is currently stratified by
type of ICU unit within the hospital, but is aggregated to the
hospital-level by the NHSN. For the RHQDAPU program, we would limit the
required data elements, populations and procedures to only those needed
to calculate the NQF-endorsed measure. For the NQF-endorsed measure,
the procedures that apply are: Coronary artery bypass graft and other
cardiac surgery, hip or knee arthroplasty, colon surgery, hysterectomy
(abdominal and vaginal), and vascular surgery, and the populations that
apply are both the adult and pediatric populations. These procedures
also correspond to the procedure categories used in SCIP. Capturing
SCIP process-of-care data and NHSN SSI data for the same procedure
categories will provide process and outcome data for the same patient
populations. Regarding the extent that a State requirement can be used
to satisfy the RHQDAPU program requirement, if the data submission
requirement overlaps 100 percent with the requirements for the RHQDAPU
program, it will be possible to satisfy both requirements with one
submission. However, a State may mandate additional requirements beyond
what is required for RHQDAPU, for example States may also be requiring
the release of information to the State for public reporting at the
State level, which would of course be in addition to the RHQDAPU
requirement for public reporting. If a State mandate requires fewer
data elements than what is required for RHQDAPU, hospitals
participating in RHQDAPU will be required to submit the additional data
in order to satisfy the RHQDAPU requirement.
Comment: Many commenters did not support the SSI measure for FY
2013, citing resource constraints, a lack of clarification in data
collection procedure, the absence of risk-adjustment for data
presentation in Hospital Compare; and a lack of clarification in
exemptions for small hospitals.
Response: We are finalizing only one HAI measure for the FY 2013
payment determination, the CLABSI measure, in order to allow hospitals
to gain more experience with these types of measures and the new
collection mechanism. We are finalizing the SSI measure for the FY 2014
payment determination. In our view, both measures are equally
important. However, we believe this approach of phasing in the measures
will minimize the additional reporting burden on hospitals that are in
States that do not currently mandate reporting of infection data to the
NHSN, and will also allow time to address any measurement issues, such
as those raised by commenters, for the SSI measure.
Comment: One commenter strongly urged CMS to incorporate all seven
HAI metrics from the DHHS Action Plan into the RHQDAPU program to
ensure the corresponding HVBP program HAI topic is developed and
included in performance scoring by FY 2013. Another commenter suggested
CMS address the execution of the HVBP program with respect to the
targeted outcome metrics from HAIs as required by the Affordable Care
Act.
Response: We thank the commenters for their recommendations and
will consider them in future rulemaking. This FY 2011 IPPS/LTCH PPS
final rule does not directly address the HVBP program authorized by
section 3001 of the Affordable Care Act. We refer readers to section
IV.A.14. of this final rule where we discuss the relationship between
the RHQDAPU and HVBP programs.
After consideration of the public comments we received, we are
finalizing the CLABSI measure for the FY 2013 payment determination.
Collection for the CLABSI measure will begin with January 1, 2011
discharges. Also, based upon public comment, we are finalizing the SSI
measure for the FY 2014 payment determination with collection to begin
with January 1, 2012 discharges. We expect the CLABSI measure and the
SSI measure to be risk-adjusted consistent with section
1886(b)(3)(B)(viii)(VIII) of the Act for the FY 2013 and FY 2014
payment determinations, respectively.
(4) New Registry-Based Measures
For the FY 2013 payment determination, we proposed that hospitals
choose one of the following four proposed measure topics: (1)
Implantable Cardioverter Defibrillator (ICD) Complications, (2) Cardiac
Surgery, (3) Stroke, or (4) Nursing-Sensitive Care. With respect to the
proposed measure topic selected by a hospital, we proposed that the
hospital report data on the proposed measure(s) applicable to the
measure topic (discussed below) to a qualified registry for the
specific topic, and direct the registry to both calculate the measure
results for the hospital and release those results (along with the
numerator/denominator information and exclusion information) to CMS for
the RHQDAPU program. We proposed that hospitals begin submitting data
to the qualified registry of its choosing for discharges on or after
January 1, 2011, and we intend to release a list of qualified
registries

[[Page 50203]]

before that date. In section IV.A.13. of the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 23997), we specified the self-nomination process
we proposed to use to qualify registries for each proposed registry-
based measure topic. Proposed submission requirements for the proposed
registry-based measures were discussed in section IV.A.5.b.(7) of the
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23990 through 23991).
Comment: Some commenters stated that the use of registries has the
potential for inconsistent reporting on Hospital Compare and inaccurate
comparisons across hospitals. Hospitals may cherry-pick the measures
they do best on and yet the measures may not fully reflect the care
they provide. One commenter stated that if registries are used,
hospitals should be required to report to more than one registry so
that they cannot just pick the registry in which they have the best
data.
Response: After consideration of the public comments received, we
are persuaded that we should not finalize any registry-based measures
at this time.
As noted above, after consideration of public comments received, we
are not finalizing any registry-based measures at this time.
Below is a discussion of the four proposed registry-based measure
topics and specific registry-based measures that fall within each topic
that we proposed to add to the RHQDAPU program for the FY 2013 payment
determination.
(A) Implantable Cardioverter Defibrillator (ICD) Complications
Registry-Based Topic and Measure
Implantable Cardioverter Defibrillators (ICDs) reduce the risk of
sudden cardiac death for select high risk patients, and the number of
patients undergoing ICD implantation increased from 5,600 in 1990 to
108,680 by 2005.\16\ ICD implantation is an expensive procedure
performed on patients with advanced cardiovascular disease and, often,
significant comorbidities. Despite improvements in technology and
increasing experience with device implantation, the procedure carries a
significant risk of complications, \17\ which in turn increases its
cost, the patient's length of stay, and the patient's risk of
mortality.\18\ In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43873 through 43875), our list of potential future quality measures
under consideration included a measure of implantable cardioverter
defibrillator (ICD) complications. This measure is a risk standardized
complication and mortality rate following implantation of ICDs in
Medicare Fee for Service (FFS) patients at least 65 years of age, with
complication specific outcome time frames. The measure (NQF
OT1-007-09) is currently undergoing NQF review under Phase 1
of a call for Patient Outcome Measures initiated in fall of 2009. We
proposed to add the ICD complications topic and measure to the RHQDAPU
measure set for collection beginning with January 1, 2011 discharges
for the FY 2013 RHQDAPU payment determination pending NQF endorsement.
We anticipated a final endorsement decision in the fall of 2010 after
publication of this FY 2011 IPPS/LTCH PPS final rule.
---------------------------------------------------------------------------

\16\ Brown, D.W., Croft, J.B., et al. (2008). ``Trends in
Hospitalizations for the Implantation of Cardioverter-Defibrillators
in the United States, 1990-2005.'' American Journal of Cardiology
101 (12): 1753-1755.
\17\ Hammill S and Curtis J. Publicly Reporting Implantable
Cardioverter Defibrillator Outcomes--Grading the Report Card. Circ
Arrhythmia Electrophysiol. 2008;1:235-237).
\18\ Al-Khatib SM, Greiner MA, Peterson ED, Hernandez AF,
Schulman KA, Curtis LH. Patient and Implanting Physician Factors
Associated With Mortality and Complications \9\After Implantable
Cardioverter-Defibrillator Implantation, 2002-2005. Circ Arrhythmia
Electrophysiol. 2008;1:240-249.
---------------------------------------------------------------------------

The proposed ICD complications measure was developed based upon
data submitted to the American College of Cardiology-National
Cardiovascular Data Registry's (ACC-NCDR) ICD registry, and data from
that registry has been linked with CMS administrative claims data used
to identify procedural complications. For this proposed measure, the
measured outcome for each ICD index admission is one or more
complications or mortality within 30 or 90 days (depending on the
complication) following ICD implantation. Complications are counted in
the measure only if they occur during a hospital admission.
Complications measured for 30 days include: (1) Pneumothorax or
hemothorax plus a chest tube, (2) Hematoma plus a blood transfusion or
evacuation, (3) Cardiac tamponade or pericardiocentesis, and (4) Death.
Complications measured for 90 days include: (5) Mechanical
complications requiring a system revision, (6) Device related infection
and (7) Additional ICD implantation.
To comply with a January 2005 National Coverage Determination for
ICDs for primary prevention, all hospitals in which ICD procedures are
performed are currently submitting to the ACC-NCDR ICD registry patient
information needed for CMS to determine whether the procedure was
reasonable and necessary. This requirement is documented in section
20.4 of the following Medicare National Coverage Determination Manual:
http://www.cms.hhs.gov/manuals/downloads/ncd103c1_Part1.pdf. For
purposes of the 2005 National Coverage Determination, CMS requires that
hospitals submit data to the ACC-NCDR ICD registry for primary
prevention patients only and does not require hospitals to submit data
on patients undergoing ICD implantation for secondary prevention.
However, the ICD complication measure as submitted to the NQF for
endorsement is specified such that it includes all ICD patients,
regardless of whether they receive an ICD for the primary or secondary
prevention of sudden cardiac death.
Therefore, hospitals that choose this registry-based measure topic
for the RHQDAPU program would submit data on the ICD complications
measure for both primary and secondary prevention patients to the
qualified registry. For risk adjustment, data matching, and secondary
prevention population identification purposes, we proposed that
hospitals also submit to the qualified ICD complications registry 11
additional data elements not currently required under the NCD in order
for the measure to be calculated for RHQDAPU program purposes.
In summary, we proposed to add the ICD complications measure topic
as one of four proposed measure topics that hospitals can choose from
to submit required data elements to a qualified registry for the FY
2013 RHQDAPU payment determination. The only measure that we proposed
to include in this proposed topic at this time would be the ICD
complications measure. Because the ICD complications measure is a risk-
adjusted outcome measure, it is necessary that all data for the measure
be collected by a single qualified registry in order for that registry
to be able to accurately calculate the risk adjustment model and
subsequent measure results. Therefore, we proposed to qualify one
registry for this topic. Proposed registry qualification criteria were
discussed in section IV.A.13. of the FY 2011 IPPS/LTCH PPS proposed
rule (75 FR 23997). We note that the ACC-NCDR ICD registry has already
been qualified to receive and transmit data to CMS for a Medicare
National Coverage Determination, and is currently the only registry to
which hospitals submit data for this NCD. However, this would not
preclude another registry from self-nominating to become a qualified
registry for this proposed topic for the RHQDAPU program. Because the
ICD complication measure is a risk adjusted measure, it

[[Page 50204]]

requires that all data be collected at a single repository for
calculation of the measure. Therefore, we anticipate qualifying a
single registry to collect all of the data for the proposed ICD
complications registry topic.
Comment: Several commenters supported the inclusion of the ICD
complications measure. One commenter was concerned with the quality of
data collected by the ACC-NCDR ICD Registry and the STS Cardiac Surgery
Registry, specifically related to data definition ambiguity and varying
levels of expertise amongst abstractors across hospitals. One commenter
pointed out the problem of lack of standardization of data and measure
quality and data submission process across registries. One commenter
suggested that CMS provide information on the impact of the ICD measure
on hospital's management of cardiac patients.
Response: As stated previously, we have decided not to finalize any
registry-based measures at this time. We understand the commenters'
concerns and will consider them in future rulemaking.
Comment: One commenter suggested that CMS provide detailed data
definitions to guide hospital coders to code complications in order to
avoid over or under documentation of complications by physicians.
Response: As stated previously, we have decided not to finalize any
registry-based measures at this time. We will take this into
consideration for future rulemaking.
As stated previously, we are not finalizing any registry-based
measures in this final rule.
(B) Stroke Registry-Based Topic and Measures
We previously proposed to add five stroke measures to the RHQDAPU
measure set in the FY 2009 IPPS proposed rule (73 FR 23648). We
indicated that we would again consider these measures once NQF reviewed
and endorsed the measures. Since that time, eight stroke measures have
received NQF endorsement in July of 2008, and in the FY 2010 IPPS/RY
2010 LTCH PPS final rule we included these measures in the list of
potential future measures. We also included these measures in the
preview section of the Specifications Manual, and have worked with the
Office of the National Coordinator for Health Information Technology
(ONC) and its partners to create a set of electronic specifications for
these measures to facilitate collection through EHRs.
We are also aware that a number of hospitals are already submitting
these measures to registries, and in the FY 2010 IPPS/RY 2010 LTCH PPS
final rule, we finalized a structural measure of participation in a
systematic clinical database registry for stroke care. Stroke is a
topic of great relevance to the Medicare population due to its impact
on morbidity and mortality, and is an area of great potential
improvement for hospitals. Commenters on the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule expressed support for these measures, indicating that
they accurately measure evidence-based care of the stroke patient to
minimize secondary strokes and other complications, are widely
recognized, and have great potential for quality improvement (74 FR
43875).
Therefore, we proposed to include the following eight measures in
the Stroke registry-based topic:
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C
We proposed to add the stroke registry-based topic, which would
include these eight registry-based stroke measures, to the RHQDAPU
measure set as one of the four proposed measure topics that hospitals
can choose from to submit data to a qualified registry for the FY 2013
payment determination beginning with January 1, 2011 discharges. We
invited comment on the measures as well as the timing of their addition
to the RHQDAPU measure set.
Comment: Several commenters supported the stroke measures, and
suggested the measures be accepted by conventional chart abstraction,
EHRs or registry submission.
Response: As stated previously, we have decided not to finalize any
registry-based measures at this time. We thank the commenters for their
support and suggestions and will take them into consideration in future
rulemaking.
Comment: Some commenters did not support the Stroke registry-based
topic until the measure specifications are harmonized with the Get with
the Guidelines stroke registry, the NHIQM Stroke specifications, and
meaningful use requirements. A commenter recommended delaying the
implementation of any stroke measure set until they can be obtained
electronically. Another commenter requested CMS to allow the Joint
Commission-accredited organizations to use ORYX[supreg] stroke measure
data as a means for and in lieu of participating in a registry. One
commenter asked that CMS add an exclusion to the Stroke thrombolytic
therapy measure for patients who do not have an ER/admitting diagnosis
of stroke.
Response: We thank the commenters for their support and
suggestions. Because we are not finalizing registry-based measures at
this time, we will consider these suggestions in future rulemaking. We
intend to propose the Stroke measurement set for inclusion in a future
payment determination.
As stated previously, we are not finalizing any registry-based
measures in this final rule.
(C) Nursing Sensitive Care Registry-Based Topic and Measures
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we indicated that
we were considering adopting a number of nursing-sensitive care
measures for future RHQDAPU program payment determinations. Also in
that rule, we adopted a structural measure of participation in a
registry for nursing-sensitive care, under which hospitals submit data
directly to the QIO Clinical Warehouse.
For the FY 2013 payment determination, we proposed to add a nursing
sensitive care registry-based topic to the RHQDAPU measure set, which
would include the eight nursing-sensitive care measures listed below.
All

[[Page 50206]]

of the proposed nursing sensitive measures are NQF endorsed. Hospitals
selecting this topic would begin reporting data on the eight proposed
nursing-sensitive care registry-based measures to a qualified nursing-
sensitive care registry beginning with January 1, 2011 discharges.
Hospitals would continue reporting the nursing-sensitive care
structural measure previously adopted for the RHQDAPU program directly
to the QIO Clinical Warehouse.
We invited comment on the proposed addition of a nursing sensitive
care registry-based topic, which would include eight proposed nursing
sensitive care measures, as well as the timing of this addition to the
RHQDAPU program for the FY 2013 payment determination.

Proposed Measures for Nursing Sensitive Care Registry-Based Topic
------------------------------------------------------------------------

-------------------------------------------------------------------------
Patient Falls: All documented falls with or without injury, experienced
by patients on an eligible unit in a calendar month. (NQF 0141)
Falls with Injury: All documented patient falls with an injury level of
minor or greater. (NQF 0202)
Pressure Ulcer Prevalence (NQF 0201)
Restraint Prevalence (vest and limb) (NQF 0203)
Skill Mix: Percentage of hours worked by: RN, LPN/LVN, UAP, Contract/
Agency (NQF 0204)
Hours per patient day worked by RN, LPN, and UAP (NQF 0205)
Practice Environment Scale-Nursing Work Index (NQF 0206)
Voluntary turnover for RN, APN, LPN, UAP (NQF 0207)
------------------------------------------------------------------------

Comment: Many commenters supported the nursing sensitive care
measures/measure set, but objected to registry-based submission of the
measures for various reasons.
Response: We thank the commenters for their support of the proposed
measures. We will not be finalizing any of the registry-based measures
in this final rule.
Comment: One commenter did not support the inclusion of the eight
Nursing Sensitive measures proposed earlier unless significant
restructuring of the specifications were conducted and these
specifications were made available to the public. Another commenter
supported the proposed addition of Nursing Sensitive Care HAC measure
and topic.
Response: As stated earlier, we are not finalizing any of the
registry-based measures in this final rule. We thank the commenters for
their support and suggestions. We will consider these suggestions in
future rulemaking.
As stated earlier, we are not finalizing any of the registry-based
measures in this final rule.
(D) Cardiac Surgery Registry-Based Topic and Measures
We have previously proposed to add several measures on the topic of
cardiac surgery to the RHQDAPU measure set (73 FR 48608), and have also
listed a set of NQF-endorsed cardiac surgery measures in prior rules as
being under consideration for future adoption (74 FR 43874). We also
adopted a structural measure of cardiac surgery participation in the FY
2010 IPPS/RY 2010 LTCH PPS final rule. Cardiac surgery procedures carry
a significant risk of morbidity and mortality. We believe that the
nationwide public reporting of the 15 proposed cardiac surgery
registry-based measures would provide highly meaningful information for
Medicare beneficiaries because they address procedures widely performed
on Medicare beneficiaries. Analysis of the structural measure data we
have received from hospitals indicates that nearly 90 percent of
hospitals performing these procedures already report these data to
clinical registries, which means that if they choose this registry-
based topic for purposes of the FY 2013 payment determination and the
registry to which they already submit data is qualified for this
proposed topic, they will not face any additional data submission
burden.
For the FY 2013 payment determination, we proposed to include 15
cardiac surgery registry-based measures in the cardiac surgery
registry-based measure topic. These proposed registry-based measures
are listed below, and hospitals would submit data on these measures to
a qualified registry for the cardiac surgery registry-based topic. We
did not propose to retire the structural measure for cardiac surgery
participation.

[[Page 50207]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.042

These measures were endorsed by the NQF in May of 2007 and meet the
statutory requirement of reflecting consensus among affected parties.
We proposed that hospitals selecting this topic would begin submitting
data on the proposed measures to a qualified cardiac surgery registry
beginning with January 1, 2011 discharges. We note that five of these
measures (indicated with an asterisk in the table above) must be risk
adjusted in order to be calculated properly, which requires that the
data needed to calculate these measures be collected by a single
registry. While the remaining measures do not require risk adjustment,
we believe it may be overly burdensome for hospitals to submit data for
this topic to more than one registry. For this reason, we anticipate
qualifying a single registry to collect all of the data for the
proposed cardiac surgery registry-based topic. We invited public
comment on this proposal.
Comment: Many commenters supported the cardiac surgery measures/
measure set, but objected to registry-based submission of the measures.
Response: We thank the commenters for their support of the proposed
measures. As stated earlier, we are not finalizing any registry-based
measures in this final rule.
Comment: One commenter was concerned with the quality of data
collected by the STS Cardiac Surgery Registry, specifically related to
data definition ambiguity and varying levels of expertise amongst
abstractors across hospitals. Another commenter recommended requiring
all hospitals to participate in registries to report specific measures
sets, and to phase in the measures sets starting with cardiac surgery
and nursing sensitive measures.
Response: We agree with the importance of cardiac surgery measures
that include both processes of care and outcomes in view of the
significance of such surgery and the benefit of having such measures
publicly reported. Although we have decided not to adopt registry-based
reporting in this final rule, we continue to believe that cardiac
surgery measures are a priority for the RHQDAPU program.
Comment: Some commenters stated that the use of registries has the
potential for inconsistent reporting on Hospital Compare and inaccurate
comparisons across hospitals. Hospitals may select to participate in
registries for measures that they expect the best performance. Thus,
allowing hospitals to report on only one registry-based measures set
may not fully reflect the care the hospital provides. One commenter
stated that if registries are used, hospitals should be required to
report to more than one registry so that they cannot just pick the
registry in which they have the best data.
Response: We continue to believe that registry participation is
very beneficial, providing ongoing measurement of quality of care,
feedback to participants, and the ability to measure outcomes. We
intend to continue considering how best to implement registry reporting
as a means for data submission. In doing so, we will consider allowing
registry-based reporting as an option, rather than a requirement, and
to address the issues of data comparability. We agree that if the
option to report measures by a registry is adopted, is important to
assure that measures specifications are standardized.
After consideration of public comments received, we will not
finalize any registry-based measures at this time.
In summary, based on the public comments received, for the FY 2013
payment determination, we are retaining the 55 measures adopted for the
FY 2012 payment determination, and are adding 1 chart abstracted
measure (AMI-Statin at Discharge) and 1 HAI measure to be collected via
NHSN (Catheter Associated Bloodstream Infection) for the FY 2013
payment determination. Collection of these two new measures for the FY
2013 payment determination will begin with January 1, 2011 discharges.
We refer readers to section IV.A.5. of this final rule for further
information about submission requirements. We are not finalizing our
proposal for hospitals to pick one of four topics in which to initiate
registry-based measure submission to a qualified registry. As discussed
in section IV.A.13., we also are not finalizing our proposal to qualify
registries for these four topics. In the future, we anticipate offering
registry-based submission as a mechanism to submit data for

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RHQDAPU measures, but not necessarily the sole mechanism to submit data
for RHQDAPU measures.
Set out below are the 57 RHQDAPU program quality measures to be
used for the FY 2013 payment determination:
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d. RHQDAPU Program Quality Measures for the FY 2014 Payment
Determination
(1) Retention of FY 2013 Payment Determination Measures for the FY 2014
Payment Determination
We proposed to retain all of the measures adopted for the FY 2013
payment determination for the FY 2014 payment determination. Collection
of data for these measures would begin with January 1, 2012 discharges.
We invited public comment on this proposal. We did not receive any
specific comments on this proposal. As discussed below, in response to
comments, we are retiring 2 FY 2013 narrowly specified measures (PN-2
and PN-7) and adopting in their place 2 global immunization measures.
We are adopting as final our proposal to retain all of the measures
adopted for the FY 2013 payment determination for the FY 2014 payment
determination, as modified by our retirement of these FY 2013 measures.
(2) New Chart-Abstracted Measures for the FY 2014 Payment Determination
We also proposed to add the following four new chart-abstracted
measures to the RHQDAPU program measure set for the FY 2014 payment
determination: (1) Emergency Department (ED) Throughput--Admit Decision
Time to ED Departure Time for Admitted Patients (NQF 0497),
(2) ED Throughput--Median time from emergency department arrival to ED
departure for admitted patients (NQF 0495), (3) Global Flu
Immunization, and (4) Global Pneumonia Immunization. In proposing to
adopt these chart-abstracted measures, we recognized that we were
proposing to increase the chart-abstraction burden on hospitals with
respect to the RHQDAPU program. However, we stated that the burden
associated with the proposed immunization measures for all inpatients
could be counterbalanced by future retirement of the two current
immunization measures that apply only to pneumonia inpatients. This
measure retirement option is discussed earlier in section IV.A.2.b.(1)
of the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23965). Furthermore,
we note that the ED Throughput measures have been specified for EHR-
based collection, which may also serve to reduce burden associated with
these measures in the future. We proposed to adopt these four chart-
abstracted measures into the RHQDAPU program measure set for the FY
2014 payment determination. We proposed that data submission for these
measures would begin with January 1, 2012 discharges. We invited
comment on these proposed measures as well as on the proposed timing of
their addition to the RHQDAPU program for the FY 2014 payment
determination.
(A) Emergency Department (ED) Throughput Measures
The two ED Throughput measures we proposed for the FY 2014 payment
determination were: (1) Median time from admit decision time to time of
departure from the emergency department for emergency department
patients admitted to inpatient status, and (2) Median time from
emergency department arrival to time of departure from the emergency
room for patients admitted to the facility from the emergency
department.
The ED-Throughput measures reflect not only the processes of care
that occur while the patient is in the emergency department, but also
reflect the coordination of care, communication, and efficiency of
service provision beyond the walls of the emergency department. These
measures have been NQF-endorsed (NQF 0497 and 0495);
thereby, meeting the requirement of section 1886(b)(3)(B)(viii)(IX) of
the Act. They also have been adopted by HQA. Specifications for these
measures are available in the preview section of the current
Specification Manual available on QualityNet.
These measures also address ED overcrowding, which the IOM
identified as a major quality issue. Reducing the time patients remain
in the ED can improve access to treatment and increase the quality of
care, and capability of the hospital to provide adequate treatment to
patients. ED overcrowding may result in delays in the administration of
medication such as antibiotics for pneumonia and has been associated
with perceptions of compromised emergency care. For patients with non-
ST-segment-elevation myocardial infarction, long ED stays were
associated with decreased use of guideline-recommended therapies and a
higher risk of recurrent myocardial infarction. Overcrowding and heavy
emergency resource demand have led to a number of problems, including
ambulance refusals, prolonged patient waiting times, increased
suffering for those who wait, rushed and unpleasant treatment
environments, and potentially poor patient outcomes. Finally, when EDs
are overwhelmed, their ability to respond to community emergencies and
disasters may be compromised.
Comment: Many commenters supported the inclusion of the proposed ED
Throughput--Admit Decision Time to ED Departure Time for Admitted
Patients (NQF 0497), and ED Throughput--Median time from
emergency department arrival to ED departure for admitted patients (NQF
0495) measures. Some commenters supporting these measures
agreed that the measures should reflect not only processes within the
emergency department but also reflect coordination of care,
communication and efficiency of provision beyond the walls of the
emergency department. However, some of the commenters believed that the
measures need to be refined, terminology needs to be clearly defined,
and a percentile should be used to identify outliers. Some commenters
stated that implementation of the ED measures should be contingent upon
successful EHR testing by CMS so the measures can be reported
electronically and not via manual chart abstraction. Several commenters
opposed the proposed ED Throughput measures, stating there are multiple
factors affecting the ED admit decision time to ED departure time for
admitted patients as well as the median time from ED arrival to ED
departure for admitted patients and the proposed measures cannot be
adequately interpreted to evaluate quality. Commenters requested that
CMS take into consideration timing factors that are outside the control
of the ED, for example, bed availability and patient characteristics.
Response: We appreciate the supportive comments as to the
importance of the ED throughput measures. Specifications are handled
through a sub-regulatory process previously described with
specifications updated as needed. In order to gain experience prior to
the date of required RHQDAPU submission, we encourage hospitals to take
advantage of the voluntary submission process, which we plan to have
available starting in October 2010. Although we believe that the
measures are well specified, experience gained through the voluntary
reporting mechanism will assist us to identify any needed refinements,
prior to the beginning of required submission for the RHQDAPU program
to begin with January 1, 2012 discharges. We will consider the
suggestion regarding showing the percentile distribution to allow
consumers to discern outliers when publicly reporting the measures.
With regard to electronic submission, we are working to provide an
optional mechanism for electronic submission for ED and other RHQDAPU
chart-abstracted measures.
After consideration of the public comments received, we are
finalizing the two ED-Throughput measures as

[[Page 50211]]

proposed for the FY 2014 payment determination.
(B) Global Immunization Measures
For the FY 2014 payment determination, we proposed to adopt two
global immunization measures: (1) Pneumoccocal Immunization; and (2)
Influenza Immunization. Increasing influenza (flu) and pneumonia
vaccination could reduce unnecessary hospitalizations and secondary
complications particularly among high risk populations such as the
elderly. About 36,000 adults die annually and over 200,000 are
hospitalized for flu-related causes. Older adults are more vulnerable,
and adults over 65 comprise about 90 percent of deaths related to flu.
Vaccinations can significantly reduce the number of flu related
illnesses and deaths. The measures being proposed are currently
endorsed by the NQF, which occurred as part of a consensus development
project titled ``National Voluntary Consensus Standards for Influenza
and Pneumococcal Immunizations'' which concluded in 2008. This project
resulted in the endorsement of immunization measures that reflect
current consensus among affected parties that standard measure
specifications for influenza and pneumonia immunization should be
broadly applicable across conditions, populations, and care settings.
The technical specifications for these global measures will be
available in an upcoming release of the Specifications Manual to be
published in October 2010. The difference between these proposed
immunization measures, and the two immunization measures that are
currently part of the RHQDAPU program is that the current measures only
apply to inpatients admitted for pneumonia, whereas the proposed
measures apply to all inpatients regardless of admission diagnosis.
Comment: Some commenters strongly supported the proposed addition
of the Global Immunization measures ((1) Pneumoccocal Immunization; and
(2) Influenza Immunization) to the RHQDAPU program. The commenters also
recommended a measure threshold and exemptions, for example, in times
of vaccine shortage.
Response: We thank the commenters for supporting these measures. We
will take into consideration these suggestions for exemptions during
vaccine shortages. We are finalizing these measures for the FY 2014
payment determination.
Comment: Some commenters expressed concerned that the proposed FY
2014 global immunization measures overlap with previously adopted
immunization measures that are specific to the Pneumonia population
(PN-2: Pneumoccocal Vaccination Status and PN-7: Influenza Vaccination
Status). Commenters also recommended that we retire the two pneumonia-
specific measures if we elect to adopt the global immunization measures
into the RHQDAPU program.
Response: We agree with the commenters and are retiring the PN-2
and PN-7 measures from the RHQDAPU measure set for the FY 2014 payment
determination because these measures overlap with the global
immunization measures that we are adopting for the FY 2014 payment
determination.
Comment: Several commenters opposed the inclusion of the Global
Influenza or Global Pneumococcal measures into the RHQDAPU program
because of perceived burden of collection. In addition, some commenters
stated that vaccination during the acute phase of illness treated in
the hospital inpatient setting is not an optimum practice, and that
miscommunication with patients' primary care provider may lead to
unnecessary vaccinations.
Response: We understand the burden concern and have attempted to
mitigate this by adopting the ED throughput and Global immunization
measures concurrently as they utilize the same global population, and
adopting the measures several years in advance. We believe that
finalizing the global immunization measures for FY 2014 in this final
rule will give hospitals adequate time to develop efficient collection
plans for future collection. We agree with the commenters that the
current RHQDAPU immunizations specified for the pneumonia inpatient
population should be replaced in favor of these broadly applicable
immunization measures. The NQF also recommends the use of the global
immunization measures over the condition specific immunization measures
that are currently in the program. Based on the public comments
received, we are adopting the two global immunization measures for the
FY 2014 payment determination, and we are retiring the PN-2:
Pneumoccocal Vaccination Status and PN-7: Influenza Vaccination Status
measures for the FY 2014 payment determination in order to accommodate
these more broadly applicable immunization measures.
As for the commenter's point that a patient's primary care provider
would ordinarily be the locus for immunization, the current NQF-
endorsed measures recognize a role for the acute care setting to assess
the vaccination status of and to intervene in the appropriate
vaccination of acutely hospitalized patients against influenza and
pneumonia. This is consistent with the indications for these vaccines
which are global in nature in the sense that they are generally
recommended for patients over a certain age, not those with only who
have contracted pneumonia. We will provide specifications for these new
measures in the upcoming Specifications Manual release.
After consideration of the public comments received, we are
finalizing all four chart-abstracted measures into the RHQDAPU program
measure set for the FY 2014 payment determination. Also based upon
public comments received, and discussed in section IV.A.3.c.(3) of this
final rule, we are finalizing the adoption of the SSI measure to be
collected via NHSN for the FY 2014 payment determination. Data
submission for these five measures would begin with January 1, 2012
discharges. In addition, based on comments received regarding
retirement of narrowly specified measures when broader measures are
available, we are retiring the PN-2 and PN-7 measures for the FY 2014
and subsequent payment determinations, which will be replaced by the
two global measures for influenza and pneumococcal vaccination
beginning with January 1, 2012 discharges. We will retain the remaining
FY 2013 measures for the FY 2014 payment determination. We expect the
CLABSI measure and the SSI measure to be risk-adjusted consistent with
section 1886(b)(3)(B)(viii)(VIII) of the Act for the FY 2013 and FY
2014 payment determinations, respectively.
The complete list of 60 quality measures to be used for the FY 2014
payment determination is set out below.
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4. Possible New Quality Measures for Future Years
We invited public comment on the following quality measures and
topics set out below that we are considering for the future. We also
sought suggestions and rationales to support the adoption of measures
and topics that were not included in this list for the RHQDAPU program.

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General comments
Comment: A commenter recommended that any long-range planning must
be consistent with the Secretary's strategic plan and priorities which
are unknown at this time for the future years. A commenter stated that
CMS needs to have a more systematic quality measure strategy and
framework to align measures in order to achieve the overall goals of
quality improvement and attainment. Another commenter stated that
hospitals should be allowed to prioritize measures based on risks of
their populations and programs and questioned the reason why hospitals
are not given the option as physicians to select from a list of
measures to focus on their quality improvement efforts. The commenters
suggested that we follow a more methodical framework to prioritize and
integrate measures into the RHQDAPU program and the HITECH EHR
incentive program with a long-term goal of transitioning from the
RHQDAPU program to the meaningful use criteria under the HITECH EHR
program. One commenter noted that in moving forward, CMS should focus
on developing measures collected through EHRs rather than using
manually intensive, chart-based measures through the RHQDAPU program.
Several commenters believed that many of the proposed measures for
future years overlap with the current RHQDAPU measures. Another
commenter recommended that CMS focus reporting on a variety of aspects
for fewer conditions rather than adding one or two measures in a
particular medical condition or significantly increasing the overall
number of conditions being measured at any one time. The commenter
believed that the second approach would stretch hospital resources.
Another commenter noted that it is unnecessary to put a single measure
under different composite measures or under different reporting
requirements. The commenter gave the PSI-4 measure as an example which
is required in both the Nursing sensitive composite measure as well as
in the AHRQ Patient Safety Indicators measurement set. A commenter
suggested that CMS take a more aggressive approach and add more
measures in high priority areas.
Response: We have retained the ability to modify the measure set in
the future in order to respond to changes in our priorities as well as
changes in legislation. One of our goals is to align the quality
measures across programs including the HITECH EHR program in order to
reduce the burden on hospitals reporting quality measures to multiple
programs. We generally try to adopt measures for the RHQDAPU program
that are broadly applicable across IPPS hospitals, because RHQDAPU
measures are made publicly available in comparative reporting tools,
and will be the basis for measure selection for hospital value based
purchasing in the future. Allowing hospitals to pick among measure sets
may not be ideal for comparative public reporting and performance-based
incentive programs.
With respect to long-range planning and the Affordable Care Act
required strategic plan and priorities, we agree that the RHQDAPU
program priorities will be guided by this plan. Although this plan is
yet to be developed, the measures that we include in this final rule
represent established HHS priorities, which include some of the
priorities selected by the NQF National Priorities Partners process.
These include patient safety, population health, and care coordination.
The new outcomes measures, the HACs and HAIs, the immunization
measures, AMI statin at discharge, and ED throughput measures finalized
in this final rule reflect these priorities as we discuss in the
portions of this final rule dealing with those measures. To the extent
that these or other measures are incompatible with any revision to HHS
priorities and new strategic framework, the measures can be modified.
Because IPPS hospitals provide a broad array of services, we believe
that it is important have an array of measures that cover very
substantially inpatient services. We also believe it is beneficial to
consumers to measure and report many topics governing aspects of health
care delivered in hospital settings, and thus, we have been
systematically expanding the RHQDAPU program quality measures in scope
and topic. Currently, AHRQ PSI-4 is in both the AHRQ Patient Safety
Indicator measure set and the Nursing Sensitive Care measure set. We
have not adopted the Nursing Sensitive Measure set at this time, but
would address this overlap in the future should we propose to require
this measure set of participating hospitals. We will also continue to
assess the feasibility of alternative data sources for measures, such
as registries and EHRs to lessen the data collection burden on
hospitals. We agree with the importance of transitioning to EHR
submission of RHQDAPU measures and plan to actively move toward
implementation. However, we expect that, at least in the short term, it
would not be practical to require all hospitals to report using EHR
technology, but rather to provide this reporting method as an option.
Comment on Measure Topic: Atrial fibrillation
Comment: A commenter indicated that atrial fibrillation measures is
the root cause of several conditions upon which CMS has focused and
that quality measures for atrial fibrillation help alert hospitals and
clinicians to diagnose and manage the condition.
Response: We agree and we did propose the STK-3: Anticoagulation
therapy for atrial fibrillation/flutter (NQF 0436) in the FY
2011 IPPS/LTCH proposed rule under proposed measures for the Stroke
registry-based topic. As discussed previously, we are not finalizing
any registry-based measures in this final rule. We will take the
commenter's suggestion into

[[Page 50217]]

consideration in determining whether to adopt this measure for the
RHQDAPU program in the future.
Comment on prioritization of Measure Topics
Comment: One commenter recommended that CMS prioritize the
cardiovascular-related conditions that are in the CMS top 20 based on
root cause and prevention of subsequent conditions as follows:
Diabetes, ischemic heart disease, atrial fibrillation, acute myocardial
infarction, congestive heart failure, stroke, Alzheimer's disease, and
depression.
Response: We thank the commenter for the suggestions and we will
take the commenter's suggestion into consideration in determining the
priorities of the measures for the RHQDAPU program in the future.
Comments on Measure Topic: Cardiac rehabilitation referral
for AMI, HF, and Cardiac Surgery
Comment: A few commenters strongly endorsed the proposal to
consider ``Cardiac Rehabilitation Referral for AMI, HF, and Cardiac
Surgery'' for possible RHQDAPU program futures measure and topics.
Response: We thank the commenters for their support of the proposed
measure. We will take that into consideration in determining whether to
adopt this measure for the RHQDAPU program in the future.
Comments on Measure Topic: Percutaneous coronary
intervention (PCI)
Comment: A few commenters requested the addition of percutaneous
coronary intervention (PCI) in the RHQDAPU measures for future years.
Response: We thank the commenters for the suggestion and we will
take it into consideration in determining whether to adopt this measure
for the RHQDAPU program in the future.
Comment on Measure Topic: Participation in a systematic
database for general thoracic surgery
Comment: One commenter suggested the inclusion of participation in
a systematic database for general thoracic surgery as a structural
measure.
Response: We thank the commenter for the suggestion and we will
take it into consideration in determining whether to adopt this measure
for the RHQDAPU program in the future.
Comments on Measure Topic: 30-day AMI and heart failure
care transition composites
Comment: A few commenters urged CMS not to include composite
measures for 30-day AMI and heart failure care transition composites
because they believed they do not accurately identify differences in
performance that are due to failure to provide adequate care
coordination and may penalize providers unfairly from serving
disadvantaged population served or providing unrelated emergency
department visits. One commenter recommended the inclusion of more AMI
measures.
Response: We acknowledge these concerns. These measures are
currently undergoing NQF review and endorsement. We also thank the
commenter that supported the addition of AMI measures.
Comment on Measure Topic: Initiation of statin therapy in
patients with ischemic stroke or acute AMI prior to discharge
Comment: One commenter recommended adding a measure for the
initiation of statin therapy in patients with ischemic stroke or acute
AMI prior to discharge when there is no contraindication.
Response: We thank the commenter for the suggestion and we will
consider it in future rulemaking.
Comment on Measure Topic: Smoking cessation screening,
treatment, and post-discharge follow-up
Comment: One commenter suggested the inclusion of measures like the
smoking cessation screening, treatment, and post-discharge follow-up
measures which are being pilot tested by the Joint Commission.
Response: We thank the commenter for the suggestion and we will
take it into consideration in determining whether to adopt this measure
for the RHQDAPU program in the future.
Comment on Measure Topic: 30-Day PCI Readmission Measures
Comment: One commenter supported the PCI mortality and readmission
measures and urged CMS to reconsider delayed implementation of the
measures after FY 2014 and consider implementing PSI-9 and/or other
measures to track severe bleeding as a preventable readmission from
PCI. One commenter opposed the PCI readmission measure. This commenter
opposed the data quality (probability matching with CMS data),
timeframe (30-day) and numerator (readmission for all-cause) of the
measure and the validity of the risk adjustment model (as indicated by
the low C-statistic).
Response: The PCI readmission measure was developed using a
probabilistic match to link the registry data with the Medicare data
but would be implemented using direct patient identifiers. As to the
time frame of the measures, we selected 30-day period of assessment
based on empirical analysis of available data, clinical judgment and
the advice of expert consultants. The consensus was that a 30-day time
provided the correct balance by capturing the bulk of excess
readmissions occurring after PCI and maintaining a high likelihood that
the readmission was attributable to the hospital care. Moreover from a
patient perspective, readmission for any reason is likely to be an
undesirable outcome of care. Readmissions not associated with a cardiac
diagnosis may be directly related to the care delivered during the
index hospitalization. Finally in regard to the low C-statistic, two
factors affect the C-statistic--patient factors and hospital care.
Since the patient-level predictors included in the risk adjustment
model for the PCI measure were robust based on registry clinical data,
the C-statistic of 0.663 indicates that the quality of care delivered
to patients by hospitals (that are not part of the model) plays a
larger role. We will consider the comment regarding adoption of other
companion measures, such as PSI-9, that may address preventability.
Comment: One commenter supported the inclusion of Catheter-
Associated UTI and VAP in FY 2014.
Response: We thank the commenter for the support of the proposed
measure. We will take it into consideration in determining whether to
adopt these measures for the RHQDAPU program in a future rulemaking
cycle.
Comment on Measure Topic: HACs
Comment: One commenter recommended that CMS make a long-term goal
to cultivate more global hospital-wide assessments of harm rather than
targeting individual organisms or HACs.
Response: We thank the commenter for the suggestion and we will
take it into consideration in determining whether to adopt this kind of
measure for the RHQDAPU program in the future.
Comments on Measure Topic: HAI
Comment: One commenter recommended the inclusion of HAI--ventilator
associated pneumonia, HAI--multidrug-resistant organism infection, and
HAI--CDAD. Another commenter cautioned that for the possible inclusion
of the VAP measures, the term ``VAP'' must be clearly defined so that
trauma or immune-compromised patients can be diagnosed correctly for
VAP and recommended that CMS take into consideration the inadvertent
penalty of academic medical centers and hospitals that treat complex
and critically-ill patients who are at risk for MDRO, and experience
high volume of patient transfer.
Response: We thank the commenters for their suggestion for other
HAIs and

[[Page 50218]]

we will take this into consideration in determining whether to adopt
the measures for the RHQDAPU program in the future. We plan to propose
additional HAI measures in a future rulemaking cycle as they gain NQF
endorsement.
Comment: A commenter recommended that the HHS Action Plan to
Prevent Healthcare-associated Infections must be assessed for whether
the Plan's metrics and targets have been met and to provide the results
to the public at the hospital level, especially measures related to
MRSA, CDAD, and UTI. A commenter urged CMS to add the Catheter-
Associated UTI in FY 2012. The commenter suggested CMS and CDC
collaborate to develop a workable guideline for identifying hospital-
acquired VAP infections, moving surveillance and reporting of central
line associated bloodstream infections beyond the ICU. The commenter
did not recommend using NQF-endorsement alone as adoption criteria.
Another commenter recommended that no further data submission plan be
proposed for VAP, MRSA, and CDAD until after fall of 2010 when the HHS
HAI Action Plan Review and Update is released.
Response: We will take these comments into consideration for
planning and measure selection. We appreciate the commenter's
suggestion that we add the Catheter-Associated UTI in FY 2012, but we
have determined that we will consider it for future years. The HHS
Action Plan is currently undergoing a process of interdepartmental
review and update that will include an examination of the metrics and
targets. We anticipate that this will be complete in October 2010.
Comments on Measure Topic: VTE
Comment: One commenter suggested the inclusion of a thromboembolism
(VTE) measure into the RHQDAPU program for future years. One commenter
requested clarification for the documentation requirements for the VTE-
1 VTE Prophylaxis and for the VTE-2 ICU VTE Prophylaxis. The commenter
also agreed with the exclusion of patients with reasons for not
administering mechanical and pharmacological prophylaxis.
Response: We appreciate the suggestion and agree with the high
importance of the VTE topic. With respect to specifications and
documentation requirements these are handled through a sub-regulatory
process.
Comment on Measure Topic: Surgical Safety
Comment: One commenter supported the continued development of
Surgical Safety measures.
Response: We thank the commenter for the encouragement and we will
take that into consideration in determining whether to adopt more of
these types of measures for the RHQDAPU program in the future.
Comment on Measure Topic: NQF-approved serious reportable
events.
Comment: One commenter suggested that CMS adopt NQF-endorsed
serious reportable events in future years.
Response: We thank the commenter for the suggestion and we will
take it into consideration in determining whether to adopt this measure
for the RHQDAPU program in the future.
Comments on Measure Topic: Influenza vaccination of
healthcare personnel
Comment: Many commenters recommended the inclusion of Influenza
vaccination of healthcare personnel.
Response: We agree that Influenza vaccination of healthcare
personnel is an important practice that may prevent the spread of
influenza and we thank the commenters for their recommendation. We will
take this into consideration in determining whether to adopt this
measure for the RHQDAPU program in the future.
Comment on Measure Topic: Mortality measures
Comment: A commenter strongly opposed the inclusion of mortality
measures because they are inconsistent and unreliable indicators of the
quality of patient care. Furthermore, the commenter stated that
mortality measures do not take into account terminal, end-of-life
issues, or withhold treatment decisions made by patients and families.
Response: These comments were related to the prospect of
inconsistent approaches to mortality measures resulting from inclusion
of various registry-based measures sets. We have withdrawn the
registry-based reporting proposal. We have added no additional
mortality measures beyond the CMS 30-day mortality measures and the
AHRQ PSI and IQI mortality measures. These measures and their
underlying methodologies are all endorsed by NQF.
We thank the commenters for all their suggestions for quality
measures for the future years. We also note that, although we did not
adopt the proposed registry-based measures: Stroke, Cardiac Surgery,
and Nurse Sensitive measures for the FY 2013 payment determination in
this final rule, we are still very interested in reconsidering them for
future adoption. While the stroke measures were proposed only for
registry-based participation in the proposed rule, and not finalized,
these measures are currently specified for chart abstraction and
electronically specified for EHR submission and included in the HITECH
EHR incentive program for 2011 and 2012. We intend to propose to add
these measures to the RHQDAPU program in future rulemaking. In
addition, while we did not propose the VTE measures set in the FY 2011
IPPS/LTCH PPS proposed rule, which are also included in the HITECH EHR
incentive program for 2011 and 2012, we intend to propose to add these
measures to the RHQDAPU program in future rulemaking.
5. Form, Manner, and Timing of Quality Data Submission
Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act state that the
payment update, for FY 2007 and each subsequent fiscal year, be reduced
by 2.0 percentage points (or, beginning with FY 2015, by one-quarter of
such applicable percentage increase (determined without regard to
clause (ix), (xi), or (xii)) for any subsection (d) hospital that does
not submit quality data in a form and manner, and at a time, specified
by the Secretary. The data submission requirements, Specifications
Manual, and submission deadlines are posted on the QualityNet Web site
at: http://www.QualityNet.org/. CMS requires that hospitals submit data
in accordance with the specifications for the appropriate discharge
periods.
Hospitals submit quality data through the secure portion of the
QualityNet Web site (formerly known as QualityNet Exchange) (http://www.QualityNet.org). This Web site meets or exceeds all current Health
Insurance Portability and Accountability Act (HIPAA) requirements for
security of protected health information.
a. RHQDAPU Program Requirements for FY 2012, FY 2013 and FY 2014
(1) Procedural Requirements for the FY 2012, FY 2013 and FY 2014
Payment Determinations
For the FY 2012, FY 2013, and FY 2014 payment determinations, we
proposed that the following procedures would apply to hospitals
participating in the RHQDAPU program. These procedures are, for the
most part, the same as the procedures that apply to the FY 2011 payment
determination. We identified where we proposed to modify a procedure.
Register with QualityNet, before participating hospitals
initially begin reporting data, regardless of the method used for
submitting data.

[[Page 50219]]

Identify a QualityNet Administrator who follows the
registration process located on the QualityNet Web site (http://www.QualityNet.org).
Complete a Notice of Participation. New subsection (d)
hospitals and existing hospitals that wish to participate in the
RHQDAPU program for the first time must complete a revised ``Reporting
Hospital Quality Data for Annual Payment Update Notice of
Participation'' form (Notice of Participation form) that includes the
name and address of each hospital campus that shares the same CMS
Certification Number (CCN). We will revise the Notice of Participation
form as needed and will provide appropriate notification of any
revisions to hospitals and QIOs through the routine RHQDAPU
communication channels which include memo and e-mail notification and
QualityNet Web site articles and postings.
We proposed that, consistent with our policy for the FY 2011
payment determination, any hospital that receives a new CCN on or after
October 15, 2009 (including new subsection (d) hospitals and hospitals
that have merged) that wishes to participate in the RHQDAPU program and
has not otherwise submitted a Notice of Participation form using the
new CCN must submit a completed Notice of Participation form no later
than 180 days from the date identified as the open date (that is, the
Medicare acceptance date) on the approved CMS Online System
Certification and Reporting (OSCAR) system to participate in the
RHQDAPU program for FY 2012 and future years. We believe that this
deadline will give these hospitals a sufficient amount of time to get
their operations up and running while simultaneously providing CMS with
clarity regarding whether they intend to participate in the RHQDAPU
program for FY 2012.
We did not receive any public comments related to our proposal for
procedural requirements for the FY 2012, FY 2013 and FY 2014 payment
determinations. We are adopting as final our proposal regarding the
procedural requirements discussed above for the FY 2012, FY 2013 and FY
2014 payment determinations.
(2) Synchronization of RHQDAPU Program Data Submission and Validation
Quarters With Quarters Used To Make Payment Determinations
Currently, we determine, in part, whether a hospital has met the
RHQDAPU program requirements for a given fiscal year by looking at
whether the hospital properly submitted data with respect to a number
of quarterly discharge periods. However, the quarters that we look at
for HCAHPS data, chart-abstracted RHQDAPU program measures, and
structural measures may not be the same for a single payment
determination. For example, for the FY 2011 payment determination, we
looked at discharge data submitted by hospitals from 4th quarter 2008
through 3rd quarter 2009 for AMI, HF, and PN chart-abstracted RHQDAPU
program measures, 1st quarter 2010 for the newly added SCIP Infection 9
and 10 measures, April 2008 through March 2009 data for HCAHPS, and
January 1, 2010 through June 30, 2010 data for structural measures.
This lack of synchronization has developed because we have
generally made payment decisions using the four earliest occurring
discharge quarters for each measure topic that we did not include in a
previous year's payment determination, and we have not synchronized
when hospitals must begin reporting data on new measures.
Starting with the FY 2013 payment determination, we proposed to
determine whether the hospital meets the data submission requirement
for quality measure data by looking at whether the hospital properly
submitted data on the applicable measures during the same quarterly
discharge periods. Specifically, the quarterly discharge periods that
will apply to a particular payment determination will be the four
quarters that occur within a calendar year. In other words, beginning
with the FY 2013 payment determination, we will look at whether the
hospital properly submitted data for HCAHPS, CDC NHSN, chart-abstracted
measures, and structural measure quality measure data during the four
calendar year quarters of FY 2011.
With respect to our requirement that hospital data be successfully
validated in order for the hospital to earn the full payment update for
a given fiscal year, we also proposed, beginning with the FY 2013
payment determination, to validate four discharge quarters, but the
quarters will be the 4th calendar quarter of the year that occurs 2
years before the payment determination and the first 3 calendar
quarters of the following calendar year. Thus, for the FY 2013 payment
determination, we will validate data from the 4th calendar quarter of
2010 through the 3rd calendar quarter of 2011. We believe this is
appropriate given the time required for the validation abstraction and
appeal process.
This proposed synchronization will give us a more complete picture
of the quality of care provided by a hospital during a given time
period, thus enabling us to link that quality of care to the applicable
RHQDAPU payment determination. In addition, this proposal will provide
clarity to hospitals regarding what data we will look at to make
payment determinations for a given fiscal year. We believe that this
synchronization will also assist us to more effectively implement the
RHQDAPU program because we will be able to achieve operational
consistency regarding what data applies to what payment determination.
Further, we believe that this proposal may assist the agency in
implementing the Hospital Value-Based Purchasing Program as authorized
by section 3001(a)(1) of the Affordable Care Act because it will
improve the link between quality as measured during a single period of
time and the payment amounts provided to hospitals. For example, under
our proposal, HCAHPS patient experience of care measures and chart-
abstracted measures for a single set of discharge quarters will be used
together for a single payment determination. Finally, we believe that
this proposal will improve hospitals' ability to implement quality
improvement strategies that affect RHQDAPU program measures and their
quality of care.
We would post a table outlining the discharge quarters that would
be used to make each fiscal year payment determination no later than
September 15th annually on the QualityNet Web site (http://www.QualityNet.org). We invited public comment on this proposal.
Comment: Many commenters supported the proposal to move all
measures to a consistent timeframe, beginning with the FY 2013 payment
determination, in anticipation of the transition to the HVBP program
when all measures need to be calculated across a consistent timeframe.
Commenters also indicated that the move provides clarity for the
timeframe of data for each fiscal year.
Response: We thank the commenters for their support of this
proposal.
Comment: Many commenters questioned CMS' intent related to the HVBP
program requirements under section 3001 of the Affordable Care Act.
Response: We appreciate the comments and intend to propose
regulations for the HVBP program consistent with the legislative
mandates of section 3001 of the Affordable Care Act in the FY 2012
IPPS/LTCH PPS proposed rule.
After consideration of the public comments we received, we are
adopting as final our proposal for synchronization of RHQDAPU program

[[Page 50220]]

data submission and validation quarters with quarters used to make
payment determinations.
(3) HCAHPS Requirements for the FY 2012, FY 2013 and FY 2014 Payment
Determinations
We proposed that, for the FY 2012, FY 2013 and FY 2014 payment
determinations, except as noted below, the RHQDAPU program HCAHPS
requirements we adopted for FY 2011 would continue to apply. Under
these requirements, a hospital must continuously collect and submit
HCAHPS data in accordance with the current HCAHPS Quality Assurance
Guidelines and the quarterly data submission deadlines, both of which
are posted at http://www.hcahpsonline.org. In order for a hospital to
participate in the collection of HCAHPS data, a hospital must either:
(1) Contract with an approved HCAHPS survey vendor that will conduct
the survey and submit data on the hospital's behalf to the QIO Clinical
Warehouse; or (2) self-administer the survey without using a survey
vendor provided that the hospital attends HCAHPS training and meets
Minimum Survey Requirements as specified on the Web site at: http://www.hcahpsonline.org. A current list of approved HCAHPS survey vendors
can be found on the HCAHPS Web site at: http://www.hcahpsonline.org.
We proposed that the FY 2012 payment determination for the RHQDAPU
program for HCAHPS will be based on discharges from April 1, 2010
through December 31, 2010.
We proposed that the FY 2013 payment determination for the RHQDAPU
program for HCAHPS will be based on discharges from January 1, 2011
through December 31, 2011.
We proposed that the FY 2014 payment determination for the RHQDAPU
program for HCAHPS will be based on discharges from January 1, 2012
through December 31, 2012.
Every hospital choosing to contract with a survey vendor should
provide the sample frame of HCAHPS-eligible discharges to its survey
vendor with sufficient time to allow the survey vendor to begin
contacting each sampled patient within 6 weeks of discharge from the
hospital. (We refer readers to the Quality Assurance Guidelines located
at http://www.hcahpsonline.org for details about HCAHPS eligibility and
sample frame creation.) In addition, the hospital must authorize the
survey vendor to submit data via My QualityNet, the secure part of the
QualityNet Web site, on the hospital's behalf.
After the survey vendor submits the data to the QIO Clinical
Warehouse, we strongly recommend that hospitals employing a survey
vendor promptly review the two HCAHPS Feedback Reports (the Provider
Survey Status Summary Report and the Data Submission Detail Report)
that are available. These reports enable a hospital to ensure that its
survey vendor has submitted the data on time and the data has been
accepted into the QIO Clinical Warehouse.
Any hospital that has five or fewer HCAHPS-eligible discharges in
any month is no longer required to submit HCAHPS surveys for that
month, although the hospital may voluntarily choose to submit these
data. However, the hospital still must submit its total number of
HCAHPS-eligible cases for that month to the QIO Clinical Warehouse as
part of its quarterly HCAHPS data submission.
In order to ensure compliance with HCAHPS survey and administration
protocols, hospitals and survey vendors must participate in all
oversight activities. As part of the oversight process, during the
onsite visits or conference calls, the HCAHPS Project Team will review
the hospital's or survey vendor's survey systems and assess protocols
based upon the most recent HCAHPS Quality Assurance Guidelines. All
materials relevant to survey administration will be subject to review.
The systems and program review includes, but is not limited to: (a)
Survey management and data systems; (b) printing and mailing materials
and facilities; (c) telephone and Interactive Voice Response (IVR)
materials and facilities; (d) data receipt, entry and storage
facilities; and (e) written documentation of survey processes.
Organizations will be given a defined time period in which to correct
any problems and provide follow-up documentation of corrections for
review. As needed, hospitals and survey vendors will be subject to
follow-up site visits or conference calls. If CMS determines that a
hospital is not compliant with HCAHPS program requirements, CMS may
determine that the hospital is not submitting HCAHPS data that meet the
requirements of the RHQDAPU program.
We continue to strongly recommend that each new hospital
participate in an HCAHPS dry run, if feasible, prior to beginning to
collect HCAHPS data on an ongoing basis to meet RHQDAPU program
requirements. New hospitals can conduct a dry run in the last month of
a calendar quarter. The dry run will give newly participating hospitals
the opportunity to gain first-hand experience collecting and
transmitting HCAHPS data without the public reporting of results. Using
the official survey instrument and the approved modes of administration
and data collection protocols, hospitals/survey vendors will collect
HCAHPS dry-run data and submit the data to My QualityNet, the secure
portion of QualityNet.
We again encouraged hospitals to regularly check the HCAHPS Web
site at http://www.hcahpsonline.org for program updates and
information.
Comment: Commenters expressed support for the use of the HCAHPS
survey, but they suggested the development of additional survey
domains.
Response: We thank the commenters for their input and will take
their suggestions into consideration in developing future rulemaking.
After consideration of the public comments we received, we are
adopting as final our proposed HCAHPS requirements for the FY 2012, FY
2013 and FY 2014 payment determinations.
b. Additional RHQDAPU Program Procedural Requirements for the FY 2012,
FY 2013 and FY 2014 Payment Determinations
(1) Chart-Abstracted Measures for Which Data Are Submitted Directly to
CMS (via QualityNet)
Hospitals must begin submitting RHQDAPU program data starting with
the first day of the quarter following the date when the hospital
registers to participate in the program. For purposes of meeting this
requirement, we interpret the registration date to be the date that the
hospital submits a completed Notice of Participation form. As proposed
previously in this section, hospitals must also register with
QualityNet and identify a QualityNet Administrator who follows the
QualityNet registration process before submitting RHQDAPU program data.
Hospitals must continuously collect and report data to CMS (via
QualityNet) for each of the quality measures under the topic areas that
require chart abstraction (and are not registry-based topic areas). For
the FY 2012 and FY 2013 payment determinations, the proposed topic
areas are AMI, HF, PN, and SCIP. For the FY 2014 payment determination,
the proposed topic areas are AMI, HF, PN, SCIP, Emergency Department
Throughput (EDT), and Global Immunization (GIM).
For FY 2012, we proposed that hospitals must submit data for five
calendar year discharge quarters as follows: 4Q CY 2009, 1Q CY 2010
(AMI,

[[Page 50221]]

HF and PN only), 2Q CY 2010, 3Q CY 2010 and 4Q CY 2010. For the FY 2013
payment determination, we proposed that hospitals must submit data for
four consecutive calendar year discharge quarters as follows: 1Q CY
2011, 2Q CY 2011, 3Q CY 2011 and 4Q CY 2011. For the FY 2014 payment
determination, hospitals must submit data for four consecutive calendar
year discharge quarters as follows: 1Q CY 2012, 2Q CY 2012, 3Q CY 2012
and 4Q CY 2012. Hospitals must report these data by each quarterly
deadline.
We did not receive any public comments related to this proposal. We
are adopting as final our proposal related to chart-abstracted measures
for which data is submitted directly to CMS (via QualityNet).
Hospitals must submit the data to the QIO Clinical Warehouse using
the CMS Abstraction & Reporting Tool (CART), The Joint Commission
ORYX[supreg] Core Measures Performance Measurement System, or another
third-party vendor tool that meets the measurement specification
requirements for data transmission to QualityNet. All submissions will
be executed through My QualityNet, the secure part of the QualityNet
Web site. Because the information in the QIO Clinical Warehouse is
considered QIO information, it is subject to the stringent QIO
confidentiality regulations in 42 CFR part 480. The QIO Clinical
Warehouse will submit the data to CMS on behalf of the hospitals.
Hospitals must submit complete data for each quality measure that
requires chart abstraction in accordance with the joint CMS/The Joint
Commission sampling requirements located on the QualityNet Web site.
These requirements specify that hospitals must submit a random sample
or complete population of cases for each of the topics covered by the
quality measures. Hospitals must meet the sampling requirements for
these quality measures for discharges in each quarter.
For the FY 2012 payment determination, we proposed that hospitals
must submit population and sampling data for three consecutive calendar
year discharge quarters as follows: 2Q CY 2010, 3Q CY 2010 and 4Q CY
2010.
For the FY 2013 payment determination, we proposed that hospitals
must submit population and sampling data for four consecutive calendar
year discharge quarters as follows: 1Q CY 2011, 2Q CY 2011, 3Q CY 2011
and 4Q CY 2011.
For the FY 2014 payment determination, we proposed that hospitals
must submit population and sampling data for four consecutive calendar
year discharge quarters as follows: 1Q CY 2012, 2Q CY 2012, 3Q CY 2012
and 4Q CY 2012.
We did not receive any public comments related to these proposals.
We are adopting these proposals as final.
Hospitals must submit to CMS on a quarterly basis aggregate
population and sample size counts for Medicare and non-Medicare
discharges for the topic areas for which chart-abstracted data must be
submitted (currently AMI, HF, PN, and SCIP). For clarification, we
proposed that hospitals are required to submit a numeric representation
of their aggregate population and sample size count for each topic area
even if the hospital has not treated patients in a specific topic area.
For example, if a hospital has not treated AMI patients, the hospital
is still required to submit a zero for its quarterly aggregate
population and sample count for that topic in order to meet the
requirement.
In order to reduce the burden on hospitals that treat a low number
of patients in an RHQDAPU program topic area, a hospital that has five
or fewer discharges (Medicare and non-Medicare combined) in a topic
area during a quarter in which data must be submitted is not required
to submit patient-level data for that topic area for the quarter. The
hospital must still submit its aggregate population and sample size
counts for Medicare and non-Medicare discharges for the topic areas
each quarter. We also noted that hospitals meeting the five or fewer
patient discharge exception may voluntarily submit these data.
The quarterly data submission deadline for hospitals to submit
patient level data for the proposed measures that require chart
abstraction is 4\1/2\ months following the last discharge date in the
calendar quarter. CMS will post the quarterly submission deadline
schedule on the QualityNet Web site (http://www.QualityNet.org). Chart-
abstracted measures have not been added for the FY 2012 payment
determination. The collection of new chart-abstracted measures proposed
for the FY 2013 payment determination would begin with the 1st calendar
quarter 2011 discharges, for which the submission deadline would be
August 15, 2011. The collection of new chart-abstracted measures
proposed for the FY 2014 payment determination would begin with the 1st
calendar quarter 2012 discharges, for which the submission deadline
would be August 15, 2012. Hospitals must comply with the discharge
quarter submission deadlines in any fiscal year for each quarter for
which data submission is required (Quarter 1--August 15th; Quarter 2--
November 15th; Quarter 3--February 15th; Quarter 4--May 15th).
The data submission deadline for hospitals to submit aggregate
population and sample size count data for the measures requiring chart
abstraction is four months following the last discharge date in the
calendar quarter. This requirement allows CMS to advise hospitals
regarding their submission status in enough time for them to make
appropriate revisions before the data submission deadline. We will post
the aggregate population and sample size count data submission
deadlines on the QualityNet Web site (http://www.QualityNet.org).
CMS strongly recommends that hospitals review the QIO Clinical
Warehouse Feedback Reports and the RHQDAPU Program Provider
Participation Reports that are available after patient level data are
submitted to the QIO Clinical Warehouse. CMS generally updates these
reports on a daily basis to provide accurate information to hospitals
about their submissions. These reports enable hospitals to ensure that
their data were submitted on time and accepted into the QIO Clinical
Warehouse.
We did not receive any public comments related to this proposal. We
are adopting as final our proposal related to the submission of
aggregate population and sampling data for AMI, HF, PN, and SCIP
topics.
(2) Data Submission Requirements for HCAHPS
Hospitals must continuously collect and submit HCAHPS data in
accordance with the current HCAHPS Quality Assurance Guidelines, which
can be found on the HCAHPS Web site, http://www.hcahpsonline.org. If a
hospital has zero HCAHPS-eligible discharges, the hospital must submit
this information through the QIO Clinical Warehouse. The QIO Clinical
Warehouse will accept zero HCAHPS-eligible discharges. Hospitals with
zero HCAHPS-eligible discharges must submit their total number of
HCAHPS-eligible cases to the QIO Clinical Warehouse for that month as
part of their quarterly HCAHPS data submission.
In order to reduce the burden on hospitals that treat a low number
of patients that would be otherwise covered by the HCAHPS submission
requirements, a hospital that has five or fewer HCAHPS-eligible
discharges during a month is not required to submit HCAHPS surveys for
that month. However, hospitals that meet this

[[Page 50222]]

exception may voluntarily submit this data. Hospitals with five or
fewer HCAHPS-eligible discharges must submit their total number of
HCAHPS-eligible cases to the QIO Clinical Warehouse for that month as
part of their quarterly HCAHPS data submission.
We did not receive any public comments related to this proposal. We
are adopting as final our proposal related to data submission
requirements for HCAHPS.
(3) Procedures for Claims-Based Measures
Hospitals are encouraged to regularly check the QualityNet Web
site, http://www.QualityNet.org, for program updates and information.
The following RHQDAPU program claims-based measures would
be calculated using Medicare claims:
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR16AU10.050

BILLING CODE 4120-01-C
For the claims-based RHQDAPU program measures listed above,
hospitals are not required to submit the data to the QIO Clinical
Warehouse. We use the existing Medicare fee-for-service claims to
calculate the measures. For the FY 2012 payment determination, we would
use up to 3 years of discharges prior to January 1, 2011 (as
appropriate for the measure), to calculate the 30-day mortality and 30-
day readmission

[[Page 50223]]

measures AHRQ PSI, IQI and Composite measures (including the AHRQ PSI
and Nursing Sensitive Care measure, Death among surgical inpatients
with serious, treatable complications), and the proposed new HAC
Measures. For the FY 2013 and FY 2014 payment determinations, we would
use up to 3 years of discharges (as appropriate for the measure) prior
to January 1, 2012, and January 1, 2013, respectively. Hospitals are
required to appropriately report the POA indicator in conjunction with
ICD-9-CM coding to determine the presence of HACs so that the proposed
HAC measures can be calculated for the RHQDAPU program using Medicare
claims.
We did not receive any public comments on this proposal. We are
finalizing our proposal to use up to 3 years of discharges (based on
Medicare claims) to calculate the claims-based measures as appropriate.
For the FY 2012 payment determination, we would use up to 3 years of
discharges prior to January 1, 2011 as appropriate for the measure. For
the FY 2013 and FY 2014 payment determinations, we would use up to 3
years of discharges as appropriate for the measure prior to January 1,
2012, and January 1, 2013, respectively. In addition, hospitals are
required to appropriately report the POA indicator in conjunction with
ICD-9-CM coding to determine the presence of HACs so that the proposed
HAC measures can be calculated for the RHQDAPU program using Medicare
claims.
(4) Data Submission Requirements for Structural Measures
We proposed that for the FY 2012 payment determination,
hospitals submit the required registry participation information once
for the structural measures via a Web-based collection tool between
July 1, 2011-August 15, 2011 with respect to the time period of July 1,
2010 through December 31, 2010.
Below is the list of structural measures we proposed to adopt for
the FY 2012 payment determination:

------------------------------------------------------------------------
FY 2012 Payment determination:
Topic Proposed structural measures
------------------------------------------------------------------------
Cardiac Surgery................... Participation in a
Systematic Database for Cardiac
Surgery.
Stroke Care....................... Participation in a
Systematic Clinical Database
Registry for Stroke Care.
Nursing Sensitive Care............ Participation in a
Systematic Clinical Database
Registry for Nursing Sensitive
Care.
------------------------------------------------------------------------

We did not receive any public comments related to this proposal. We
are adopting as final our proposal related to data submission
requirements for structural measures.
(5) Data Submission of All-Patient Volume Data for Selected DRGs
Related to RHQDAPU Program Measures
For submission of the all-patient volume data for selected DRGs, we
proposed that hospitals submit patient level information needed for CMS
to apply the MS-DRG GROUPER software to calculate the all-patient MS-
DRG volumes, the data elements for which would be defined in the
Hospital Measure Specification Manual. Hospitals would begin submitting
this data quarterly via QualityNet beginning with January 1, 2011
discharges.
We invited comment on an alternative that hospitals submit
hospital-level all-patient volume data based upon specific ICD-9-CM
codes that are related to the proposed MS-DRGs (rather than the
patient-level data) necessary for CMS to calculate the MS-DRGs.
Hospitals would begin submitting this data quarterly via QualityNet
beginning with January 1, 2011 discharges.
As we stated in our responses to comments on all-patient volume in
section IV.A.3.b.(3) of this final rule, we are not finalizing the
collection of all-patient volume data for selected MS-DRGs; therefore,
we are not adopting the data submission requirements for all-patient
volume data for selected MS-DRGs.
(6) Data Submission and Reporting Requirements for HAI Measures
Reported via NHSN
We proposed that hospitals participating in the RHQDAPU program
submit the data elements needed to calculate the Central Line
Associated Blood Stream Infection and Surgical Site Infection measures
to the NHSN using the standard procedures that have been set forth by
CDC for NHSN participation in general and for submission of these two
measures to NHSN in particular. This would include NHSN participation
forms and indications to CDC allowing CMS to access data for these two
measures for RHQDAPU program purposes, adherence to training
requirements, use of standard CDC measure specifications, data element
definitions, data collection requirements and instructions, and data
reporting timeframes. Detailed requirements for NHSN participation,
measure specifications, and data collection can be found at http://www.cdc.gov/nhsn/. Hospitals must use the current specifications and
data collection tools available on the CDC Web site to submit data for
the Central Line Associated Bloodstream Infection and Surgical Site
Infection measures. We proposed that hospitals would submit data for
these two measures to CDC's NHSN on a monthly basis for discharges
occurring on or after January 1, 2011.
For the FY 2013 payment determination, we proposed that hospitals
must submit HAI data via the NHSN for four consecutive calendar year
discharge quarters as follows: 1Q CY 2011, 2Q CY 2011, 3Q CY 2011 and
4Q CY 2011.
For the FY 2014 payment determination, hospitals must submit HAI
data for four consecutive calendar year discharge quarters as follows:
1Q CY 2012, 2Q CY 2012, 3Q CY 2012 and 4Q CY 2012.
We proposed that once quarterly each hospital would utilize an
automated report function that will be made available to submitters in
the NHSN, to generate a quarterly report containing hospital-level
numerator, denominator, and exclusion counts for these two CDC measures
specifically for the RHQDAPU program. The CDC will create this
automated RHQDAPU report function and add it to NHSN's reporting
functionalities in the next few months. While hospitals may be
reporting other data elements to CDC for other reporting programs (that
is, State mandated surveillance programs), the quarterly RHQDAPU report
that would be generated within NHSN would only contain those data
elements needed to calculate the two measures currently being proposed
for the RHQDAPU program. We will access the reports in the NHSN and
will compile the reports for RHQDAPU program and public reporting
purposes.
We invited comment on the proposed mechanism for submitting data
for the Central Line Associated Blood Stream Infection measure and the
Surgical Site Infection measure for the RHQDAPU program beginning with
the FY 2012 payment determination.

[[Page 50224]]

We previously discussed public comments on these data submission
and reporting requirements for HAI measures reported via NHSN in
section IV.A.3.(c)(3) of this final rule. We are adopting the CLABSI
HAI measure for the FY 2013 payment determination and the SSI HAI
measure for the FY 2014 payment determination. We are also finalizing
the quarterly NHSN submission requirement. Requirements for NHSN
participation, measure specifications, and data collection can be found
at http://www.cdc.gov/nhsn/. Hospitals are encouraged to visit this Web
site in order to enroll, and obtain the NHSN enrollment and reporting
requirements. Training resources are also available there.
The collection of the CLABSI measure via the NHSN will begin with
January 1, 2011 discharges, and the collection of the SSI measure will
begin with January 1, 2012 discharges. The data collection and
submission timeframes for the CLABSI measure for the FY 2012 payment
determination are shown below. Hospitals must submit their quarterly
data to NHSN for RHQDAPU purposes on or around the dates shown in the
table below (updates to this will be posted on the QualityNet Web
site).

Submission Timeframes for CLABSI Measure for the FY 2012 Payment
Determination
------------------------------------------------------------------------
CDC-NHSN Final submission
collection and deadline for
CY 2011 Discharge dates quarterly report RHQDAPU FY 2012
generation time payment
frame determination
------------------------------------------------------------------------
Q1 (Jan-Mar 2011)............... April 30-August August 15, 2011.
15th.
Q2 (Apr-Jun 2011)............... July 30-November November 15, 2011.
15th.
Q3 (Jul-Sep 2011)............... September 30-Feb February 15, 2012.
15th.
Q4 (Oct-Dec 2011)............... October 30th-May May 15, 2012.
15th.
------------------------------------------------------------------------

Hospitals have until the RHQDAPU final submission deadline to
submit their quarterly data to NHSN. After the final RHQDAPU submission
deadline has occurred for each CY 2011 quarter, CMS will obtain the
hospital-specific calculations that have been generated by the NHSN for
the RHQDAPU program. Further details regarding data submission and
reporting requirements for HAI measures specified for the RHQDAPU
program to be reported via NHSN will be posted on CMS' QualityNet Web
site in the fall of 2010.
(7) Data Submission Requirements for Registry-Based Measures
We proposed that hospitals participating in RHQDAPU would be
required to choose at least one of four registry based measure topics
(ICD Complications, Stroke, Nursing Sensitive Care, or Cardiac
Surgery), and would submit the data needed to calculate the measures
included in the chosen registry-based topic to a qualified registry in
order to meet the requirements to receive the full FY 2013 annual
payment update.
We proposed that hospitals then would arrange to have the qualified
registry calculate the measures and submit to the QIO Clinical
Warehouse the results, as well as the numerator, denominator, and
exclusions. Any arrangement reached between the hospital and the
qualified registry must comply with the HIPAA. The qualified registry
would also submit registry-derived hospital-level measure calculations
to the QIO Clinical Warehouse using a CMS-specified record layout and
file format that we will make available.
Our program and its data system must maintain compliance with the
HIPAA requirements for requesting, processing, storing, and
transmitting data. For the FY 2013 RHQDAPU payment determination,
hospitals would need to submit data for the proposed registry-based
measures to the qualified registry in the form and manner and by the
deadline(s) specified by the registry.
CMS proposed to begin qualifying registries for the four proposed
registry-based topics so that hospitals may begin submitting data for
discharges beginning January 1, 2011. Proposed registry qualification
criteria were discussed in a section IV.A.13. of the FY 2011 IPPS/LTCH
PPS proposed rule. We proposed to post on the RHQDAPU program section
of the QualityNet Web site http:[sol][sol]www.qualitynet.org a list of
qualified registries for the FY 2013 RHQDAPU payment determination,
including the registry name, contact information, and the measure(s)
that the registry has been qualified to collect and report for the
RHQDAPU program.
We anticipated posting the list of qualified FY 2011 registries as
soon as we have completed vetting the registries interested in
participating in the FY 2013 RHQDAPU program payment determination and
identified the qualified registries for the FY 2013 RHQDAPU program
payment determination, which we anticipated would be completed by
December 31, 2010.
(A) Hospitals That Choose To Report the ICD Complications Measure
We proposed that if the hospital chooses the ICD Complications
measure, it would submit specified data elements for specified
populations to the qualified ICD registry, and that CMS intended to
establish criteria and begin qualifying registries for this topic so
that hospitals can begin submitting data for discharges beginning
January 1, 2011. We proposed that the hospital would follow the
standard participation and reporting procedures set by the registry
regarding the submission of data elements for the particular measures
CMS has specified for the topic. These data elements and population
definitions will be listed in the Specifications Manual.
Hospitals must allow the qualified registry it is using to report
the patient-level data to CMS in order to calculate the ICD
complications measure.
(B) Hospitals That Choose To Report Either the Stroke, Nursing
Sensitive Care, or Cardiac Surgery Measures
If a hospital chooses the Stroke, Nursing Sensitive Care, or
Cardiac Surgery measure topics, we proposed that it would submit data
on the measures listed for these topics to a qualified registry for the
topic and that we intend to establish criteria and begin qualifying
registries for these topics so that hospitals can begin submitting data
for discharges beginning January 1, 2011. The hospital would follow the
standard participation and reporting procedures set by the registry
regarding the submission of data elements for the particular measures
CMS has specified for the topic. In addition, the hospital would agree
to allow the registry to send calculations of the measures, numerator,
denominator and exclusion counts to CMS for the RHQDAPU program.
As we stated previously in section IV.A.3.(c) of this final rule,
we are not finalizing the proposed registry-based measure topics.
Therefore, we are not finalizing these proposed data submission
requirements or the registry

[[Page 50225]]

qualification process discussed in section IV.A.13. of this final rule.
6. RHQDAPU Program Disaster Extensions and Waivers
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24176),
we solicited public comment about rules we could adopt that would
enable hospitals to request either an extension or a waiver of various
RHQDAPU program requirements in the event of a disaster (such as a
hurricane that damages or destroys the hospital).
Specifically, we solicited public comment on the following issues:
Recommendations for rules that we could follow when
considering whether to grant an extension or waiver of RHQDAPU program
requirements in the event of a disaster, including suggested criteria
that we should take into account (for example, specific hospital
infrastructure damage, hospital closure time period, degree of
destruction of medical records, impact on data vendors, and long-term
evacuation of discharged patients impacting HCAHPS survey
participation).
The role that QIOs and QIO support contractors should play
in the event of a disaster, including communicating with affected
hospitals, communicating with State hospital associations, and
collecting information directly from hospitals.
How CMS extension or waiver decisions should be
communicated to affected hospitals.
Any other issues commenters deem relevant to a hospital's
request for an extension or waiver of RHQDAPU program requirements in
the event of a disaster.
We responded to public comments in the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43881). We recognized that there were times when
hospitals are unable to submit quality data due to extraordinary
circumstances that are not within their control. It is our goal to not
penalize hospitals for such circumstances and we do not want to unduly
increase their burden during these times.
Therefore, we proposed a process for hospitals to request and for
CMS to grant extensions or waivers with respect to the reporting of
required quality data when there are extraordinary circumstances beyond
the control of the hospital. Under the proposed process, in the event
of extraordinary circumstances not within the control of the hospital,
for the hospital to receive consideration for an extension or waiver of
the requirement to submit quality data for one or more quarters, a
hospital must submit to the QIO in the hospital's State a request form
that will be made available on the QualityNet Web site. The following
information should be noted on the form:
Hospital CCN;
Hospital Name;
CEO and any other designated personnel contact
information, including name, e-mail address, telephone number, and
mailing address (must include a physical address, a post office box
address is not acceptable);
Hospital's reason for requesting an extension or waiver;
Evidence of the impact of the extraordinary circumstances,
including but not limited to photographs, newspaper and other media
articles; and
A date when the hospital will again be able to submit
RHQDAPU data, and a justification for the proposed date.
The request form must be signed by the hospital's CEO. A request
form must be submitted within 45 days of the date that the
extraordinary circumstance occurred. The QIO in the hospital's state
will forward the request form to CMS. Following receipt of the request
form, CMS will: (1) Provide a written acknowledgement using the contact
information provided in the request, to the CEO and any additional
designated hospital personnel, notifying them that the hospital's
request has been received; and (2) provide a formal response to the CEO
and any additional designated hospital personnel using the contact
information provided in the request notifying them of our decision.
This proposal does not preclude CMS from granting waivers or
extensions to hospitals that have not requested them when we determine
that an extraordinary circumstance, such as an act of nature (for
example, hurricane), affects an entire region or locale. If CMS makes
the determination to grant a waiver or extension to hospitals in a
region or locale, CMS will communicate this decision through routine
communication channels to hospitals, vendors and QIOs, including but
not limited to issuing memos, e-mails and notices on the QualityNet Web
site. We invited public comment on this proposal.
Comment: A few commenters supported this proposal.
Response: We thank the commenters for their support of this
proposal.
After consideration of the public comments we received, we are
adopting as final our proposal related to RHQDAPU program disaster
extensions and waivers.
7. Chart Validation Requirements for Chart-Abstracted Measures
a. Chart Validation Requirements and Methods for the FY 2012 Payment
Determination
For the FY 2012 payment determination, we will use the chart
validation requirements and methods that we adopted for FY 2012 in the
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43884 through 43889).
These requirements, as well as additional information on these
requirements, will be posted on the QualityNet Web site after we issue
the FY 2011 IPPS/LTCH PPS final rule.
Specifically, we will:
Randomly select on an annual basis 800 participating
hospitals that submitted chart-abstracted data for at least 100
discharges combined in the measure topics to be validated. To determine
whether a hospital meets this ``100-case threshold,'' we will look to
the discharge data submitted by the hospital during the calendar year
three years prior to the fiscal year of the relevant payment
determination. For example, if the 100-case threshold applied for the
FY 2011 payment determination (which it will not), the applicable
measure topics would be AMI, HF, PN, and SCIP, and we would choose 800
hospitals that submitted discharge data for at least 100 cases combined
in these topics during calendar year 2008. If a hospital did not submit
discharge data for at least 100 cases in these topics during CY 2008,
we would not select the hospital for validation. We will announce the
topic areas that apply for the FY 2012 payment determination at a later
date, and we plan to select the first 800 hospitals in July 2010. We
will select hospitals for the FY 2012 validation if they meet the 100-
case threshold during CY 2009. We adopted this 100-case threshold
because we believe that it strikes the appropriate balance between
ensuring that the selected hospitals have a large enough patient
population to be able to submit sufficient data to allow us to complete
an accurate validation, while not requiring validation for hospitals
with a low number of submitted quarterly cases and relatively
unreliable measure estimates. Based on previously submitted data, we
estimate that 98 percent of participating RHQDAPU program hospitals
will meet this threshold and, thus, be eligible for validation. As
noted below, we solicited comments and suggestions on how we might be
able to target the remaining 2 percent of hospitals for validation.
Validate for each of the 800 hospitals a randomly selected
stratified sample for each quarter of the validation

[[Page 50226]]

period. Each quarterly sample will include 12 cases, with at least one
but no more than three cases per topic for which chart-abstracted data
was submitted by the hospital. However, we recognize that some selected
hospitals might not have enough cases in all of the applicable topics
to submit data (for example, if they have 5 or fewer discharges in a
topic area in a quarter). For those hospitals, we will validate
measures in only those topic areas for which they have submitted data.
For the FY 2012 payment determination, we will validate 1st calendar
quarter 2010 through 3rd calendar quarter 2010 discharge data. We will
validate 3 quarters of data for FY 2012 in order to provide hospitals
with enough time to assess their medical record documentation and
abstraction practices, and to take necessary corrective actions to
improve these practices, before documenting their 1st calendar quarter
2010 discharges into medical records that may be sampled as part of
this proposed validation process.
The CDAC contractor will, each quarter that applies to the
validation, ask each of the 800 selected hospitals to submit 12
randomly selected medical charts from which data was abstracted and
submitted by the hospital to the QIO Clinical Warehouse. We noted that,
under our current requirements, hospitals must begin submitting RHQDAPU
program data starting with the first day of the quarter following the
date when the hospital registers to participate in the program. For
purposes of meeting this requirement, we interpret the registration
date to be the date that the hospital submits a completed Notice of
Participation form. As proposed previously in section IV.A.5.a. of the
proposed rule, hospitals must also register with QualityNet and
identify a QualityNet Administrator who follows the QualityNet
registration process before submitting RHQDAPU program data.
In addition, we will continue the following timeline with respect
to CDAC contractor requests for paper medical records for the purpose
of validating RHQDAPU program data. Beginning with CDAC contractor
requests for second calendar quarter 2009 paper medical records, the
CDAC contractor will request paper copies of the randomly selected
medical charts from each hospital via certified mail (or other
trackable method that requires a hospital representative to sign for
the letter), and the hospital will have 45 days from the date of the
request (as documented on the request letter) to submit the requested
records to the CDAC contractor. If the hospital does not comply within
30 days, the CDAC contractor will send a second certified letter to the
hospital, reminding the hospital that it must return paper copies of
the requested medical records within 45 calendar days following the
date of the initial CDAC contractor medical record request. If the
hospital still does not comply, then the CDAC contractor will assign a
``zero'' score to each measure in each missing record. The letter from
the CDAC contractor is addressed to the hospital's medical record staff
identified by the hospital to their state Quality Improvement
Organization (QIO). CMS recommends that hospitals routinely check with
their State QIO to ensure the correct person is listed to receive the
record request. If CMS has evidence from the CDAC contractor that the
hospital received both letters requesting medical records (as
determined by the tracking system used by CDAC contractor), the
hospital is responsible for not returning their charts and will not be
able to submit charts as part of their reconsideration request.
Under the validation methodology, once the CDAC contractor receives
the charts, it will re-abstract the same data submitted by the
hospitals and calculate the percentage of matching RHQDAPU program
measure numerators and denominators for each measure within each chart
submitted by the hospital. Specifically, we will estimate the accuracy
by calculating a match rate percent agreement for all of the variables
submitted in all of the charts. For any selected record, a measure's
numerator and denominator can have two possible states, included or
excluded, depending on whether the hospital accurately included the
cases in the measure numerator(s) and denominator(s). We will count
each measure in a selected record as a match if the hospital submitted
measure numerator and denominator sets match the measure numerator and
denominator states independently abstracted by our contractor. For
example, one heart failure case from which data has been abstracted for
four RHQDAPU program chart-abstracted measures (that is, HF-1, HF-2,
HF-3, and HF-4) would receive a 75 percent match if three out of four
of the hospital-reported heart failure measure numerator and
denominator states matched the re-abstracted numerator and denominator
states. This proposed scoring approach is the same as recommended in
the CMS Hospital Value-Based Purchasing Report to Congress, and is
illustrated in further detail using an example in pages 83-84 of the
report which can be found on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/HospitalVBPPlanRTCFINALSUBMITTED2007.pdf.
We believe that this approach is appropriate, and it was supported by
many commenters when we requested comment in the FY 2009 and FY 2010
IPPS final rules for input about the RHQDAPU program validation process
(73 FR 48622 and 48623, 74 FR 43886 and 43887).
Under the validation methodology, we will:
Use, as we currently do, each selected case as a cluster
comprising one or multiple measures utilized in a validation score
estimate. Each selected case will have multiple measures included in
the validation score (for example, for the FY 2011 payment
determination, a heart failure record will include 4 heart failure
measures). Specifically, we will continue using the design-specific
estimate of the variance for the confidence interval calculation,
which, in this case, is a stratified single stage cluster sample, with
unequal cluster sizes. (For reference, see Cochran, William G.:
Sampling Techniques, John Wiley & Sons, New York, chapter 3, section
3.12 (1977); and Kish, Leslie.: Survey Sampling, John Wiley & Sons, New
York, chapter 3, section 3.3 (1964).) Each quarter and clinical topic
is treated as a stratum for variance estimation purposes.
We believe that the clustering approach is a statistically
appropriate technique for calculating the annual validation confidence
interval. Because we will not be validating all hospital records, we
need to calculate a confidence interval that incorporates a potential
sampling error. Our clustering approach incorporates the degree of
correlation at the individual data record level, because our previous
validation experience indicates that hospital data mismatch errors tend
to be clustered in individual data records. We have used this
clustering since the inception of the RHQDAPU program validation
requirement to calculate variability estimates needed for calculating
confidence intervals (70 FR 47423).
Use the upper bound of a one-tailed 95 percent confidence
interval to estimate the validation score; and
Require all RHQDAPU program participating hospitals
selected for validation to attain at least a 75 percent validation
score per quarter to pass the validation requirement.
We believe that this modified validation methodology incorporates
many of the principles supported by the vast majority of commenters in
response

[[Page 50227]]

to our solicitation for public comments in the FY 2009 and FY 2010 IPPS
proposed rule (73 FR 23658 through 23659, 74 FR 43886 and 43887).
Specifically, we believe that the increased annual sample size per
hospital will provide more reliable estimates of validation accuracy.
The sample size of 12 records per quarter would provide a total of 36
records across the three sampled quarters for the FY 2012 payment
determination, and 48 records in subsequent years. This estimate would
improve the reliability of our validation estimate, as compared to the
current RHQDAPU program annual validation sample of 20 cases per year.
We also believe that modifying the validation score to reflect measure
numerator and denominator accuracy will ensure that accurate data are
posted on the Hospital Compare Web site.
In addition, we believe that stratified quarterly samples by topic
will improve the feedback provided to hospitals. CMS will provide
validation feedback to hospitals about all sampled topics submitted by
the hospitals each quarter. Because all relevant data elements
submitted by the hospital must match the independently re-abstracted
data elements to count as a match, we reduced the passing threshold
from 80 percent to 75 percent. We will use a one-tail confidence
interval to calculate the validation score because we strongly believe
that a one-tail test most appropriately reflects the pass or fail
dichotomous nature of the statistical test regarding whether the
confidence interval includes or is completely above the 75 percent
passing validation score.
We also will continue to allow hospitals that fail to meet the
passing threshold for the quarterly validation an opportunity to appeal
the validation results to their State QIO. QIOs are currently tasked by
CMS to provide education and technical assistance about RHQDAPU program
data abstraction and measures to hospitals, and the quarterly
validation appeals process will provide hospitals with an opportunity
to both appeal their quarterly results and receive education free of
charge from their State QIO. This State QIO quarterly validation
appeals process is independent of the proposed RHQDAPU program
reconsideration procedures for hospital reconsideration requests
involving validation for the FY 2011 payment update adopted in this
final rule.
b. Supplements to the Chart Validation Process for the FY 2013 Payment
Determination and Subsequent Years
For FY 2013 and future years, we also proposed to adopt the same
validation requirements that we adopted for the FY 2012 payment
determination, except as set forth below. For FY 2013 and future years,
we proposed to modify our FY 2012 criteria by adding a targeting
criterion, refining our random sample approach, and changing our data
discharge quarters validated as part of our proposed synchronization of
RHQDAPU timelines. Specifically, we proposed the following changes for
FY 2013:
We proposed to validate the data submitted by a hospital if the
hospital failed the previous year's RHQDAPU program validation. We
proposed this targeting criterion to improve data accuracy for all
hospitals failing our validation requirement in a previous year. We
believe that this proposal is an appropriate method to ensure data
accuracy, since it targets our resources on the hospitals with the
least accurate data based on FY 2012 validation results. We also
believe that these hospitals must correct the data inaccuracies
identified in RHQDAPU validation for their internal quality improvement
and RHQDAPU measures publicly reported on Hospital Compare. Our
proposal allows CMS to assess the accuracy of these hospitals' data and
provide feedback to hospitals until they comply with our RHQDAPU
validation requirement.
Specifically, we proposed that all hospitals selected for
validation for the FY 2012 payment determination and that fail the
validation will be selected for validation for the FY 2013 payment
determination. Based on data analysis of past validation results, we
estimate that targeting these hospitals would add about 20 to 40
hospitals to our list of validated hospitals to be selected in the FY
2013 validation sample.
For FY 2013, we also proposed the following changes to the FY 2012
RHQDAPU validation random sample approach:
Starting in FY 2013, we proposed to discontinue the 100 case
minimum threshold for selection in the RHQDAPU 800 hospital random
sample. We believe that discontinuing this requirement would improve
the robustness of the RHQDAPU program validation sample by including
the smallest hospitals participating in the RHQDAPU program in the
sample. All hospitals successfully submitting at least one RHQDAPU case
for the third calendar quarter of the year two years prior to the year
to which the validation applies would be eligible to be selected for
validation. For example, for the FY 2013 payment determination, we
would select the sample in early 2011, and all hospitals that submitted
at least one RHQDAPU case for third quarter 2010 discharges would be
eligible to be selected. Starting in FY 2013, we proposed this change
to the RHQDAPU random validation sample, rather than including these
hospitals in a targeted sample, to ensure that all RHQDAPU
participating hospitals are equally likely to be selected in the random
validation sample.
For FY 2013, we proposed to modify the quarterly stratified sample
selection by reallocating sample cases when a hospital has submitted
fewer than three cases in a topic within a quarter. In these rare
cases, we proposed to randomly reallocate the extra sample cases to
other topics with more than 3 submitted quarterly cases. This proposed
modification is designed to ensure that CMS selects 12 cases for all
hospitals in a quarter, including those hospitals specializing in only
one topic. For example, an orthopedic specialty surgery hospital
submitting only SCIP measure cases in a given quarter would have only
SCIP measure cases randomly selected in the validation sample for that
quarter. This would provide a more reliable estimate of abstraction and
measure accuracy by maintaining the same 12 case total quarterly
validation sample.
For the FY 2013 payment determination, we also proposed to validate
data from the 4th calendar quarter of 2010 through the 3rd calendar
quarter of 2011 in accordance with our proposed synchronization of
RHQDAPU data as outlined in section IV.A.5.a.(2) of the proposed rule
(75 FR 23985 and 23986). This lag between the time a hospital submits
data and the time we can validate that data is necessary because data
is not due to the QIO Clinical Warehouse until 4\1/2\ months after the
end of each quarter, and we need additional time to select hospitals
and complete the validation process.
Comment: One commenter was pleased that the proposed chart audit
validation process takes into account all applicable chart-abstracted
measures.
Response: We appreciate the comment and agree that the proposed
approach ensures validation of all submitted RHQDAPU chart-abstracted
measures by sampled hospitals.
Comment: One commenter recommended that all hospitals should be
validated as opposed to a random sample to hold hospitals equally
accountable.
Response: We thank the commenter for the recommendation. We weighed
burden to hospitals, reliability of hospital validation results in
sample size, and cost to the taxpayers through validation expenses when
proposing the random sample. The annual random

[[Page 50228]]

sampling approach ensures equal probability of selection for all
hospitals submitting sufficient data each year. Our proposed targeting
approach also ensures that all hospitals will be validation at least
once every four years. This targeting approach will increase equity in
accountability in the validation of all hospitals' data over a four
year period, while reducing burden to hospitals to copy and return
validation records through random sampling.
Comment: One commenter supported CMS' proposal to implement the new
validation process for FY 2012, as it minimizes burden for many
hospitals and implements a more rigorous validation process compared to
what is currently in place.
Response: We appreciate and agree with the commenter.
Comment: One commenter believed that CMS should understand
specific, timely and frequent feedback from hospitals would prevent
serial abstraction mistakes. The commenter gave an example of an
abstractor who makes a mistake at the top of the algorithm and does not
have any validation for 12-24 months. In this example, the commenter
believed that serious validation mismatches could go unchecked for such
long periods of time that a hospital could be put on the ``targeted
list'' for validation because of failing previous validations as CMS
describes and that the potential for a longstanding mismatch is greater
when a mistake is not corrected through the quarterly educational
comments specific to each facility. The commenter did not agree with
CMS that providing validation feedback to a group of hospitals that did
not get validated will correct abstraction errors for all.
Response: We appreciate the comment, but believe that the process
we are finalizing starting in FY 2012 will improve the reliability of
RHQDAPU annual and quarterly validation scores through the increased
sample size from 5 records per quarter to 12 records per quarter. In
addition, sample stratification of measure topics will ensure that CMS
validates all chart-abstracted measures, thereby providing a more valid
estimate of a hospital's overall abstraction accuracy for chart-
abstracted RHQDAPU data.
We believe that the improved precision and reliability of our
random and targeted validation proposed approaches outweigh the benefit
of providing hospital-specific feedback to all hospitals. Hospitals
have generally improved in their RHQDAPU abstraction accuracy since the
program's inception, thereby lessening the need for regular quarterly
hospital-specific feedback to all hospitals. In past several years, the
vast majority of hospitals have submitted accurate data, as evidenced
by 99.5 percent average percentage of hospitals passing our annual
RHQDAPU validation requirement.
Comment: A commenter stated that the timeline for turn-in of
medical charts of 45 days is fair and appreciated that a certified
letter follows-up when records have not been received in 30 days by the
CDAC. However, the commenter would like the opportunity to address when
CDAC abstractions have missed key documentation that changes an answer.
For example, the commenter had several cases where evidence of passing
a measure on smoking cessation or CHF discharge instructions were in
the chart, but the CDAC missed it.
Response: The CDAC reabstraction process is an independent
reabstraction of the hospital's official medical record documentation.
Additionally, hospitals may appeal quarterly scores below the passing
threshold to their State QIO for an independent review. Hospitals that
do not pass our annual RHQDAPU program validation requirement are
eligible to appeal validation mismatched data elements reabstracted by
CDAC for CMS reconsideration.
Comment: A commenter believed that CMS should be accountable
regarding their CDAC abstractors and should require attestation by the
CDAC abstractors that they received appropriate training on the
Specifications Manual and its proper interpretation.
Response: Our abstractors receive extensive training from CDAC
management and assisted by our contractors responsible for RHQDAPU
measure maintenance and abstraction education to our QIOs.
Additionally, we require our CDAC abstractors to pass inter-rater
reliability tests relative to CDAC expert adjudicators. Historically,
CDAC abstractor inter-rater reliability rates have averaged greater
than 95 percent. We recognize that CDAC abstractors are not 100 percent
accurate in their reabstraction, and the CDAC adjudicates all potential
mismatches. Additionally, hospitals are eligible to appeal quarterly
scores below the passing threshold to their state QIO for an
independent review. Hospitals that do not pass our annual RHQDAPU
validation requirement are eligible to appeal validation mismatched
data elements reabstracted by CDAC for CMS reconsideration.
Collectively, we believe that the CDAC abstraction process is accurate,
but do provide multiple independent methods of appeal for hospitals
that believe their abstraction is correct as compared to the CDAC
reabstraction.
Comment: One commenter opposed modifying the quarterly stratified
sample selection by reallocating sample cases when a hospital has
submitted fewer than three cases in a topic within a quarter.
Response: We believe that our approach provides a more reliable
validation estimate to ensure that hospitals are submitting accurate
quality measure information. Our approach prevents reduction in sample
size and retains reliability by maintaining a total quarterly sample
size of 12 cases across all topics. We believe that this approach
creates equal and minimal burden for all sampled hospitals.
Comment: A commenter disagreed with addition of two validation
samples of three cases per hospital. The commenter believed that this
process is very labor intensive as records have transitioned from paper
to electronic records, requiring multiple queries within an electronic
health record to obtain all of the necessary information.
Response: We appreciate the comment, and will consider adding
technology to accept electronic health records in the future to reduce
validation burden to hospitals using electronic health records. We
recognize that many more hospitals will transition their recordkeeping
to EHRs, and we want to provide the public with accurate quality data
and maintain alignment with hospital recordkeeping practices. We also
believe that validating all RHQDAPU chart-abstracted measures is one of
many important elements to ensure accurate publicly reported RHQDAPU
data.
Comment: Some commenters were concerned about the lack of CDC/NHSN
data validation process in place that is similar to the current RHQDAPU
program validation process. The commenters recommended that, before any
measure is included in public reporting, an adequate validation
mechanism must be in place.
Response: We agree with the commenter that CDC/NHSN should be
validated. We are considering validating self-reported CDC/NHSN data by
proposing two additional quarterly samples. One quarterly additional
sample would validate NHSN measure data. We will solicit public comment
when we propose improvements to our validation approach in future
rulemaking.
After considering the public comments we received, we are adopting
as final our proposed supplements to the chart validation process for
the FY

[[Page 50229]]

2013 payment determination and subsequent FYs.
This RHQDAPU validation process meets the requirements set forth in
section 1886(b)(3)(B)(viii)(XI) of the Act. This section states that:

The Secretary shall establish a process to validate measures
specified under this clause as appropriate. Such process shall
include the auditing of a number of randomly selected hospitals
sufficient to ensure validity of the reporting program under this
clause as a whole and shall provide a hospital with an opportunity
to appeal the validation of measures reported by such hospital.

Starting with the FY 2012 payment determination and continuing in
subsequent fiscal years, the chart validation process audits 800
randomly selected hospitals for the discharge quarters as outlined in
this section. This sample size is sufficient to validate more than 22
percent of subsection (d) hospitals for FY 2012 and ensure validity of
the reporting program. Currently, this process validates 27 chart
abstracted measures, including 7 AMI measures (AMI 1 through 8a), 4
Heart Failure measures (HF 1 through HF 4), 6 Pneumonia measures, and
all 10 SCIP measures.
Validation of the HCAHPHS measure is conducted through our
oversight activities. We provide oversight of all HCAHPS survey vendors
and hospitals self-administering the survey in order to ensure that the
data collection protocols are followed. We also provide oversight and
validation through our review of Quality Assurance Plans, site visits,
conference calls and detailed data analyses each quarter to ensure
there are no anomalies found in the data. In particular, we use site
visits to review all data collection activities, including data reviews
tracking a discharged patient from sampling, survey administration and
data submission.
Information reported through claims for the 24 RHQDAPU program
measures for FY 2012 as described in this rule is already validated for
accuracy by Medicare Administrative Contractors (MACs) to ensure
accurate Medicare payments. We are considering validation methodologies
for structural measures and NHSN data and will propose validation
methodologies as appropriate in the future.
We believe that the validation processes described above ensures
validity of measures used under the RHQDAPU reporting program. Our
reconsideration process outlined in this section provides hospitals
that do not meet our validation requirement with the opportunity to
appeal mismatched data elements that result in mismatched measures. We
believe that our reconsideration process provides hospitals with appeal
opportunities when mismatched measures result in potential payment
reduction.
In the proposed rule, we state that we are also considering
additional changes to our validation approach for future years.
Starting in FY 2014, we are considering adding two strata to the
current RHQDAPU program validation sample of SCIP, AMI, HF, and PN
cases. We are considering selecting two additional validation samples
of three cases per selected hospital per quarter. One additional
quarterly sample would enable us to validate the CLABSI and SSI
measures that we proposed to add to the RHQDAPU program measure set for
the FY 2013 payment determination, and the second additional quarterly
sample would enable us to validate the ED-Throughput and the
Immunization for Influenza and Immunization for Pneumonia global
measures that we proposed to add to the RHQDAPU measure set for FY
2014. Thus, we would be validating a total of 18 records per quarter
per validated hospital in 6 strata (1) SCIP, (2) AMI, (3) HF, (4) PN,
(5) CLABSI/SSI, and (6) ED-Throughput/immunization measures). We are
also considering requiring hospitals to sign a written form explicitly
granting CMS access to their patient level data submitted to NHSN for
the proposed CLABSI measure and the SSI measure. We believe that the
CLABSI/SSI stratum is necessary to validate the data in the reports
that we will access from NHSN for the RHQDAPU program. We invited
public comment on our validation proposals and considerations.
Comment: Regarding FY 2014, the commenter believed that the
proposal to add 2 strata (increasing from 12-18 records per quarter) to
the current program validation sample did not add value, but rather
adds busywork with more cases to validate. The commenter believed that
this makes annual validation a potential of near 80-100 records per
validated facility and believed that this number was excessive and
burdensome on the hospital to produce this volume in a short period of
time.
Response: We understand the commenter's concern about burden, but
must also consider accuracy of all chart-abstracted measures. Our
random sampling approach reduces this burden to the majority of
hospitals, since not all hospitals' data will be validated in a
particular year. We will consider this comment in the future for future
supplements to the RHQDAPU validation approach.
We noted that, starting with the FY 2015 payment determination, we
are considering proposing to add hospitals to our validation sample if
they were open under their current CCNs in FY 2012 but not selected for
validation in the three previous annual RHQDAPU validation samples. We
are considering this addition to supplement our validation approach to
ensure that all eligible RHQDAPU hospitals are selected for validation
at least once every 4 years. We are considering this addition starting
in FY 2015 because FY 2015 would be the fourth year that CMS would use
the random validation approach (which begins in FY 2012 as adopted in
this final rule).
We intend to propose this supplement starting with the FY 2015
payment determination to further improve the targeting criteria that we
are adopting in this final rule beginning with FY 2013.
8. Data Accuracy and Completeness Acknowledgement Requirements for the
FY 2011 Payment Determination and Subsequent Years
For the FY 2011 payment determination and subsequent years, in the
FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24180), we proposed
to require hospitals to electronically acknowledge on an annual basis
the completeness and accuracy of the data submitted for the RHQDAPU
program payment determination. Hospitals will be able to submit this
acknowledgement on the same Web page that they use to submit data
necessary to calculate the structural measures, and we believe that
this Web page will provide a secure vehicle for hospitals to directly
acknowledge that their information is complete and accurate to the best
of their knowledge. A single annual electronic acknowledgement will
provide us with explicit documentation acknowledging that the
hospital's data is accurate and complete, but will not unduly burden
hospitals. We noted that commenters generally supported the idea of
electronic attestation in the FY 2009 IPPS final rule (73 FR 48625) at
the point of data submission to the QIO Clinical Warehouse.
In addition, the Government Accountability Office (GAO) recommended
in a 2006 report (GAO-06-54) that hospitals self-report that their data
are complete and accurate. Therefore, in the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43890) for the FY 2010 payment determination, we
required hospitals to electronically acknowledge their data accuracy
and completeness once between July 1, 2009, and August 15, 2009.
Hospitals

[[Page 50230]]

will acknowledge that all information that is, or will be, submitted as
required by the RHQDAPU program for the FY 2010 payment determination
is complete and accurate to the best of their knowledge.
We proposed requiring hospitals to electronically acknowledge their
data accuracy and completeness once between July 1, 2010 and August 15,
2010 for data to be used for the FY 2012 RHQDAPU program payment
determination.
Comment: A commenter stated that the July 1, 2010 through August
15, 2010 period to report acknowledgement of data accuracy and
completeness is over 1 year prior to the October 2011 start of FY 2012.
Much of the data reported by hospitals to CMS occurs following this
date.
Response: We agree with the commenter. Consistent with our FY 2010
requirement (74 FR 43890), we believe that a more appropriate period to
report FY 2012 data accuracy and completeness is July 1, 2011 through
August 15, 2011, not 2010 as proposed in the FY 2011 IPPS/LTCH PPS
proposed rule. We are modifying the reporting period from our original
proposal to provide hospitals with time to report more data applicable
to the FY 2012 payment determination. We also intend to propose in the
FY 2012 IPPS rule using the same July 1 through August 15 time
reporting period in future payment years.
After consideration of the public comments we received, we are
adopting as final our data accuracy and completeness acknowledgement
requirements for the FY 2012 payment determination and subsequent
years. However, we are requiring hospitals to electronically
acknowledge their data accuracy and completeness once between July 1,
2011 and August 15, 2011 for data to be used for the FY 2012 RHQDAPU
program payment determination instead of the proposed July 1, 2010
through August 15, 2010 timeframe.
9. Public Display Requirements for the FY 2012 Payment Determination
and Subsequent Years
Section 1886(b)(3)(B)(viii)(VII) of the Act provides that the
Secretary shall establish procedures for information regarding measures
submitted under the RHQDAPU program available to the public. As we
noted in section IV.A.1.g. of this final rule, the RHQDAPU program
quality measures are typically reported on the Hospital Compare Web
site (http://www.hospitalcompare.hhs.gov), but on occasion are reported
on other CMS Web sites. We require that hospitals sign a Notice of
Participation form when they first register to participate in the
RHQDAPU program. Once a hospital has submitted a form, the hospital is
considered to be an active RHQDAPU program participant until such time
as the hospital submits a withdrawal form to CMS (72 FR 47360).
Hospitals signing this form agree that they will allow CMS to publicly
report the quality measures included in the RHQDAPU program.
We will continue to display quality information for public viewing
as required by section 1886(b)(3)(B)(viii)(VII) of the Act. Before we
display this information, hospitals will be permitted to review their
information as recorded in the QIO Clinical Warehouse.
We did not receive any public comments on our proposal to continue
using FY 2011 requirements for FY 2012 and subsequent years. We adopt
as final our proposal regarding public display requirements.
10. Reconsideration and Appeal Procedures for the FY 2011 Payment
Determination
The general deadline for submitting a request for reconsideration
in connection with the FY 2011 payment determination is November 1,
2010. As discussed more fully below, we proposed that all hospitals
submit a request for reconsideration and receive a decision on that
request before they can file an appeal with the Provider Reimbursement
Review Board (PRRB).
For the FY 2011 payment determination, we proposed to continue
utilizing most of the same procedures that we utilized for the FY 2010
requests for reconsideration. Under these proposed procedures, the
hospital must--
Submit to CMS, via QualityNet, a Reconsideration Request form
(available on the QualityNet Web site) containing the following
information:

--Hospital CMS Certification number (CCN).
--Hospital Name.
--CMS-identified reason for failure (as provided in the CMS
notification of failure letter to the hospital).
--Hospital basis for requesting reconsideration. This must identify the
hospital's specific reason(s) for believing it met the RHQDAPU program
requirements and should receive the full FY 2011 IPPS annual payment
update.
--CEO contact information, including name, e-mail address, telephone
number, and mailing address (must include the physical address, not
just the post office box). We no longer require that the hospital's CEO
sign the RHQDAPU program reconsideration request. We have found that
this requirement increases the burden for hospitals because it prevents
them from electronically submitting the RHQDAPU program reconsideration
request forms. In addition, to the extent that a hospital can submit a
request for reconsideration on-line, the burden on our staff is reduced
and, as a result, we can more quickly review the request.
--QualityNet System Administrator contact information, including name,
e-mail address, telephone number, and mailing address (must include the
physical address, not just the post office box).
--Paper medical record requirement for reconsideration requests
involving validation. We proposed that if a hospital asks us to
reconsider an adverse RHQDAPU program payment decision made because the
hospital failed the validation requirement, the hospital must submit
paper copies of all the medical records that it submitted to the CDAC
contractor each quarter for purposes of the validation. Hospitals must
submit this documentation to a CMS contractor. The contractor will be a
QIO support contractor, which has authority to review patient level
information under 42 CFR part 480. We will post the address where
hospitals can ship the paper charts on the QualityNet Web site after we
issue the FY 2011 IPPS/LTCH PPS final rule. Hospitals submitting a
RHQDAPU program validation reconsideration request will have all
mismatched data reviewed by CMS, and not their State QIO. (As discussed
in section IV.A.6.b. of this final rule, the State QIO is available to
conduct a quarterly validation appeal if so requested by a hospital.)

For the FY 2011 payment determination, the RHQDAPU program data
that will be validated is 4th calendar quarter 2008 through 3rd quarter
calendar year 2009 discharge data. Hospitals must provide a written
justification for each appealed data element classified during the
validation process as a mismatch. We will review the data elements that
were labeled as mismatched, as well as the written justifications
provided by the hospitals, and make a decision on the reconsideration
request. As we mentioned above, we proposed that all hospitals submit a
reconsideration request to CMS and receive a decision on that request
prior to submitting a

[[Page 50231]]

PRRB appeal. We believe that the reconsideration process is less costly
for both CMS and hospitals, and that this requirement will decrease the
number of PRRB appeals by resolving issues earlier in the appeals
process.
Following receipt of a request for reconsideration, we will--
Provide an e-mail acknowledgement, using the contact
information provided in the reconsideration request, to the CEO and the
QualityNet Administrator that the request has been received.
Provide written notification to the hospital CEO, using
the contact information provided in the reconsideration request,
regarding our decision. We expect the process to take approximately 90
days from the reconsideration request due date of November 1, 2010.
As we stated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43892), the scope of our review when a hospital requests
reconsideration because it failed our validation requirements will be
as follows:
1. Hospital requests reconsideration for CDAC contractor-abstracted
data elements classified as mismatches affecting validation scores.
Hospitals must timely submit a copy of the entire requested medical
record to the CDAC contractor during the quarterly validation process
for the requested case to be eligible to be reconsidered on the basis
of mismatched data elements.
2. Hospital requests reconsideration for medical record copies
submitted during the quarterly validation process and classified as
invalid record selections. Invalid record selections are defined as
medical records submitted by hospitals during the quarterly validation
process that do not match the patient's episode of care information as
determined by the CDAC contractor (in other words, the contractor
determines that the hospital returned a medical record that is
different from that which was requested). If the CDAC contractor
determines that the hospital has submitted an invalid record selection
case, it awards a zero validation score for the case because the
hospital did not submit the entire copy of the medical record for that
requested case. During the reconsideration process, our review of
invalid record selections will initially be limited to determining
whether the record submitted to the CDAC contractor was actually an
entire copy of the requested medical record. If we determine during
reconsideration that the hospital did submit the entire copy of the
requested medical record, then we would abstract data elements from the
medical record submitted by the hospital.
3. Hospital requests reconsideration for medical records not
submitted to the CDAC contractor within the 45 calendar day deadline.
Our review will initially be limited to determining whether the CDAC
contractor received the requested record within 45 calendar days, and
whether the hospital received the initial medical record request and
reminder notice. If we determine during reconsideration that the CDAC
contractor did receive a paper copy of the requested medical record
within 45 calendar days, then we would abstract data elements from the
medical record submitted by the hospital. If we determine that the
hospital received two letters requesting medical records and still did
not submit the requested records within the 45 day period, CMS will not
accept these records as part of the reconsideration. CMS will not
abstract data from charts not received timely by the CDAC contractor.
In sum, we are initially limiting the scope of our reconsideration
reviews involving validation to information already submitted by the
hospital during the quarterly validation process, and we will not
abstract medical records that were not submitted to the CDAC contractor
during the quarterly validation process. We will expand the scope of
our review only if we find during the initial review that the hospital
correctly and timely submitted the requested medical records. In that
case, we would abstract data elements from the medical record submitted
by the hospital as part of our review of its reconsideration request.
If a hospital is dissatisfied with the result of a RHQDAPU program
reconsideration decision, the hospital may file a claim under 42 CFR
part 405, subpart R (a PRRB appeal). We solicited public comments on
the extent to which these proposed procedures will be less costly for
hospitals, and whether they will lead to fewer PRRB appeals.
Comment: With respect to a hospital needing to receive a decision
from CMS prior to submitting a PRRB appeal, some commenters requested
that CMS consider the impact of 90 days without the annual payment
update to a facility. Commenters stated that the wait for CMS's
decision and an appeal to the PRRB would delay the process of appeal by
months if not half of the year.
Response: We appreciate the commenters' concern with the timeframe
of our reconsideration process. Our goal is to provide a thorough
technical and programmatic reconsideration of our initial RHQDAPU
decision in a timely manner. Generally, our review requires 60 to 90
days, and hospitals granted their full payment update during this
process would not need PRRB review. We are reviewing and standardizing
our reconsideration process in an effort to reduce the wait time, but
this wait time is largely dependent on the number of received requests.
We hope to reduce the 90-day wait period in future years.
Comment: A commenter disagreed with the proposed process to require
hospitals to resubmit all paperwork submitted to the CDAC contractor
for RHQDAPU reconsideration purposes, and instead proposed that the
CDAC store all medical record documentation.
Response: We appreciate the comment. We considered the relative
cost to CMS and the taxpayers for storing all hospitals' submitted
validation records for an additional 12 to 18 months, relative to the
proposed process. We estimate from previous RHQDAPU results that the
proposed process would impact 20 or fewer hospitals annually, and
believe that this total burden to hospital is less than the extra
storage cost to CMS and the taxpayers.
After consideration of the public comments we received, we are
adopting the proposed RHQDAPU reconsideration and appeals requirements
without any changes.
11. RHQDAPU Program Withdrawal Deadlines
We proposed to accept RHQDAPU program withdrawal forms for the FY
2012 payment determination from hospitals until August 15, 2011. We
proposed this deadline so that we would have sufficient time to update
the FY 2012 payment to hospitals starting on October 1, 2011. If a
hospital withdraws from the program for the FY 2012 payment
determination, it will receive a 2.0 percentage point reduction in its
FY 2012 annual payment update. We noted that once a hospital has
submitted a Notice of Participation form, it is considered to be an
active RHQDAPU program participant until such time as the hospital
submits a withdrawal form to CMS.
We did not receive any comments on our proposal. We are adopting as
final our proposal regarding withdrawal deadlines without any changes.
12. Electronic Health Records (EHRs)
a. Background
Starting with the FY 2006 IPPS final rule, we have encouraged
hospitals to take steps toward the adoption of EHRs (also referred to
in previous rulemaking documents as electronic medical

[[Page 50232]]

records) that will allow for reporting of clinical quality data from
the EHRs directly to a CMS data repository (70 FR 47420 through 47421).
We encouraged hospitals that are implementing, upgrading, or developing
EHR systems to ensure that the technology obtained, upgraded, or
developed conforms to standards adopted by HHS. We suggested that
hospitals also take due care and diligence to ensure that the EHR
systems accurately capture quality data and that, ideally, such systems
provide point-of-care decision support that promotes optimal levels of
clinical performance.
We also continue to work with standard setting organizations and
other entities to explore processes through which EHRs could speed the
collection of data and minimize the resources necessary for quality
reporting as we have done in the past.
We note that we have initiated work directed toward enabling EHR
submission of quality measures through EHR standards development and
adoption. We have sponsored the creation of electronic specifications
for quality measures that are currently proposed for the RHQDAPU
program and measures under future consideration. We look to continue
this activity in the future.
Comment: Many commenters applauded our work toward developing
measure specifications for EHR-based data collection in the future. The
commenters believed this approach would substantially reduce the
reporting burden on hospitals. Commenters recommended that CMS adopt
specifications that would limit inclusions to ADT, bed tracking, or ED
tracking board tools for these data elements.
Response: We thank the commenters for their encouragement of our
efforts to integrate EHR technology with the RHQDAPU program. We will
take these comments regarding specifications into consideration when we
look to adopt measures that can be collected via EHRs in the future.
Comment: Some commenters requested that CMS clarify whether
becoming a meaningful user of EHR certified technology is a path to
fulfill both the RHQDAPU participation requirement and the eligibility
requirements for the HITECH incentive program for being a meaningful
user of certified EHR technology.
Response: As we have indicated, we are actively seeking to provide
an alternative of EHR-based submission for RHQDAPU measures that
otherwise would require chart or manual abstraction. Prior to accepting
measures through EHRs for RHQDAPU, as commenters have suggested, it
would be necessary to assure that data submitted and results calculated
are equivalent to that from chart or manual abstraction so that results
would be reliable and consistent. As we proceed with new measures
development we would anticipate that testing during the measure
development process and EHR certification process would become
sufficiently standardized that additional implementation testing would
not be needed.
We note that some important RHQDAPU quality measures such as HCAHPS
experience of care measures are based on survey data and do not lend
themselves to EHR reporting. Similarly, certain outcome quality
measures, such as the current RHQDAPU readmission measures, are based
on claims rather than clinical data. Thus, not all RHQDAPU measures
will necessarily be capable of being submitted through EHRs. As a
consequence, not all RHQDAPU measures would necessarily be included in
the HITECH EHR incentive program.
b. EHR Testing of Quality Measures Submission
As we have previously stated, we are interested in the reporting of
quality measures using EHRs, and we continue to encourage hospitals to
adopt and use EHRs that conform to the certification criteria as will
be defined by the Secretary through the Office of the National
Coordinator for Health Information Technology, HHS at 45 CFR Part 170.
We believe that the testing of EHR submission is an important and
necessary step to establish the ability of EHRs to report clinical
quality measures and the capacity of CMS to receive such data.
The electronic specifications and interoperability standards for
EHR-based collection and transmission of the data elements for the ED
Throughput, Stroke, and Venous Thromboembolism (VTE) measures have been
finalized by the Health Information Technology Standards Panel (HITSP)
and are available for review and testing at http://www.HITSP.org. We
anticipate testing the components required for the submission of
clinical quality data extracted from EHRs for these measures, and are
exploring different mechanisms and formats that will aid the submission
process, as well as ensure that the summary measure results extracted
from the EHRs are reliable.
We anticipate moving forward with testing CMS' technical ability to
accept data from EHRs for the ED, Stroke, and VTE measures as early as
summer of 2011. We anticipate building upon the work completed by the
HITSP in both the Connectathon and Health Information Management
Systems Society (HIMSS) Interoperability Showcase. This testing will
encompass an ``end to end'' view of data transmission. Pursuant to the
Paperwork Reduction Act, we have previously published a Federal
Register notice and information collection request for CMS-10296 (74 FR
44366) seeking public comments on the process we intended to follow to
select EHR vendors/hospitals for testing CMS ability to accept EHR-
based data submissions. We will notify interested parties of changes in
the process and timeline for testing via the Inpatient EHR testing Web
site at: http://www.cms.hhs.gov/HospitalQualityInits/15_HospitalInpatientEHRTesting.asp.
The test measures described above are not currently required under
the RHQDAPU program. In addition, the posting of the electronic
specifications for any particular measure should not be interpreted as
a signal that we intend to select the measure for inclusion in the
RHQDAPU program measure set.
Comment: A few commenters supported CMS in launching the EHR
Testing of Inpatient Quality Measures voluntary pilot established in
the FY 2010 IPPS/RY 2010 LTCH PPS final rule. The commenters suggested
that the implementation of the electronic metrics effective January 1,
2012, should be contingent upon successful EHR testing by CMS so that
the measures can be reported electronically and not via manual chart
abstraction. A commenter stated that electronic-specified clinical
quality measures should not be included in the RHQDAPU program until
they are fully tested. The commenter cited the examples of the
collection and transmission for the ED Throughput, Stroke and VTE
measures which are undergoing HITSP and CMS testing. The commenter
urged CMS to expedite its development and testing of eMeasures to no
later than year end CY 2010. The commenter asked for clarification on
the possibility of retirement of the chart-abstracted specifications
for these three measure sets once they can be collected and transmitted
electronically.
Response: As discussed previously, we agree with the commenter's
concern about the importance of testing the electronic specifications
of the clinical quality measures prior to accepting submission for EHRs
for the RHQDAPU program. We note that the January 2010 Connectathon,
and the 2010 Healthcare and Information Management Systems Society
(HIMSS) Interoperability

[[Page 50233]]

Showcase conducted initial testing and demonstration of some of the
Emergency Department (ED) Throughput, Venous Thromboembolism (VTE), and
Stroke measures. It is our intent not to require duplicative reporting
across programs. When the data collection and transmission can be
achieved through certified EHR technology, we may be able to rely upon
EHRs to transmit the data. However, whether chart abstraction remains
an option as a data collection mechanism for a given measure set
adopted for the RHQDAPU program will largely depend upon the prevalence
of EHR adoption among RHQDAPU participating hospitals.
As additional electronic specifications for clinical quality
measures are developing, we plan to conduct testing of the
electronically specified measures simultaneously. Also, we expect that
vendors and providers will continue the testing for data collection and
transmission.
c. HITECH Act EHR Provisions
The HITECH Act (Title IV of Division B of the ARRA, together with
Title XIII of Division A of the ARRA) authorizes payment incentives
under Medicare for the adoption and use of certified EHR technology
beginning in FY 2011. Hospitals are eligible for these payment
incentives if they meet requirements for meaningful use of certified
EHR technology, which include reporting on quality measures using
certified EHR technology. With respect to the selection of quality
measures for this purpose, under section 1886(n)(3)(A)(ii) of the Act,
as added by section 4102 of the HITECH Act, the Secretary shall select
measures, including clinical quality measures, that hospitals must
provide to CMS in order to be eligible for the EHR incentive payments.
With respect to the clinical quality measures, section 1886(n)(3)(B)(i)
of the Act requires the Secretary to give preference to those clinical
quality measures that have been selected for the RHQDAPU program under
section 1886(b)(3)(B)(viii) of the Act or that have been endorsed by
the entity with a contract with the Secretary under section 1890(a) of
the Act. Any measures must be proposed for public comment prior to
their selection, except in the case of measures previously selected for
the RHQDAPU program under section 1886(b)(3)(B)(viii) of the Act.
Thus, the RHQDAPU program and the HITECH Act have important areas
of overlap and synergy with respect to the reporting of quality
measures using EHRs. We believe the financial incentives under the
HITECH Act for the adoption and meaningful use of certified EHR
technology by hospitals will encourage the adoption and use of
certified EHRs for the reporting of clinical quality measures under the
RHQDAPU program. Further, these efforts to test the submission of
quality data through EHRs may provide a foundation for establishing the
capacity of hospitals to send, and for CMS to receive, quality measures
via hospital EHRs for future RHQDAPU program measures.
We again note that the provisions in this FY 2011 IPPS/LTCH PPS
final rule do not implicate or implement any HITECH statutory
provisions. Those provisions are the subject of separate rulemaking and
public comment.
Comment: One commenter noted that in moving forward, CMS should
focus on developing measures collected through EHRs rather than using
manually intensive, chart-based measures through the RHQDAPU program.
The commenter suggested that we follow a more methodical framework to
prioritize and integrate measures into the RHQDAPU and EHR incentive
program with a long-term goal of transitioning from RHQDAPU to the
meaningful use criteria under the HITECH EHR program.
Response: We agree with the importance of developing electronic
specifications for new measures that are developed. We expect over time
that EHRs will be the primary source of quality measures data. To this
end, we have spearheaded electronic refinement and standardization of
data transmission and performance measures.
Comment: A number of commenters requested that CMS address the
potential duplication of clinical quality measures selected for use in
the RHQDAPU program, and the clinical quality measures chosen for
eligible professionals (EPs), eligible hospitals and critical access
hospitals (CAHs) to demonstrate meaningful use of certified EHR
technology under the HITECH EHR incentive program. The commenters urged
CMS to avoid duplicative reporting burden by considering only clinical
quality measures chosen for the RHQDAPU program for the meaningful use
criteria in the EHR incentive program for eligible professionals,
eligible hospitals and CAHs.
Response: The rationale for the selection of the eligible hospital
and CAH measure under HITECH Act are discussed in the HITECH EHR final
rule (75 FR 44314). The 15 hospital and CAH measures were
electronically specified for use in the RHQDAPU program, with
anticipated implementation once the necessary development and
infrastructure implementation had been completed. We have included two
of the HITECH measures in this final rule for FY 2014 payment
determination, based on chart abstraction. We anticipate that we will
provide an option of electronic submission of these measures.
Comment: Some commenters recommended that EPs, eligible hospitals
and CAHs reporting to RHQDAPU program via a certified EHR should be
deemed to have successfully reported in the EHR incentive program to
satisfy the meaningful use criteria for clinical quality measures.
Response: The HITECH Act requires the Secretary to strive to avoid
duplicative and redundant reporting for HITECH with respect to the
RHQDAPU program. However, as discussed previously, RHQDAPU and HITECH
are established as separate incentive programs with separate
requirements. The authorizing statutes do not provide that qualifying
for one program should result in a hospital being deemed to have
qualified for the other. As the two programs would have little overlap
in measures as finalized in this rule, we do not believe it would be
appropriate to deem participation in the RHQDAPU program as meeting the
requirements for successful reporting in the EHR incentive program.
However, where feasible, we intend to align the data submission
requirements for measures included in each program. As HIT enabled
clinical data will allow for new measures to be developed, we will
consider aligning the requirements of the two programs.
Comment: Many commenters suggested aligning clinical quality
measure reporting across federal agencies such as with the Health
Resources and Services Administration, and across programs, such as
with the Children's Health Insurance Program, to avoid duplicative and
redundant quality performance reporting.
Response: As discussed, we have always sought to avoid duplicative
and redundant reporting across federal programs. We will seek to align
more quality initiative programs in future rulemaking.
13. Qualification of Registries for RHQDAPU Data Submission
In section IV.A.3.c.(4) of the proposed rule, we proposed that
hospitals would select at least one of four registry-based measure
topics for which they will report data on proposed measures to a
qualified registry beginning with January 1, 2011 discharges, and allow
the registry to calculate and report

[[Page 50234]]

measure data for the specified measures to CMS (via QualityNet) for
RHQDAPU program purposes. We are not adopting our proposal for the
registry-based measure topics in this final rule. We also will not be
pursuing the qualification of registries for these topics at this time.
Below is the process and requirements that we had proposed to use to
determine whether a registry is qualified to collect and submit quality
measure data for RHQDAPU and the comments received on the process.
We proposed to post on the RHQDAPU program section of the
QualityNet Web site http://www.qualitynet.org no later than December
31, 2010 a list of qualified registries for the FY 2013 RHQDAPU payment
determination, including the registry name, contact information, and
the measure(s) for which the registry is qualified and will report for
the FY 2013 RHQDAPU payment determination. We proposed measures for
inclusion in each of the four registry-based topics, and a registry
seeking to be qualified for a particular topic would have to agree to
collect and report the measures included in the topic. The proposed
measures support CMS and HHS priorities for improved quality and
efficiency of care for Medicare beneficiaries (such as, prevention;
chronic conditions; high cost and high volume conditions; elimination
of health disparities; healthcare-associated infections and other
conditions; and effective management of acute and chronic episodes of
care). We noted, however, that none of the registries that we qualify
for this purpose will be acting as a CMS contractor or agent. In other
words, hospitals will still be responsible for making sure that the
data it submits to the qualified registry is successfully processed and
transmitted by the registry to CMS.
We proposed to implement a self-nomination process for registries
seeking to submit FY 2013 RHQDAPU program quality measures (including
measure calculations, numerators, denominators, and exclusions) on
behalf of hospitals beginning with January 1, 2011 discharges. A
registry would be able to self-nominate if it meets the following
requirements:
The registry has been collecting data elements needed to
calculate the particular measures that are being proposed for inclusion
in the registry-based topic for which the registry is seeking
qualification for at least 3 years prior to January 1, 2010.
As of January 1, 2010, the registry has been collecting
such data from at least 750 hospitals.
The registry must have the capability to collect from
hospitals all of the data elements which are included in the measure
specifications and calculate the results for the specified measures.
The measures are NQF-endorsed and will be listed in the Hospital
Measure Specification Manual.
The registry must agree to report the hospital level
measure data to CMS (via QualityNet). During the registry qualification
process, CMS will inform the registries of the specified reporting
format which will include:
[cir] The volume of eligible cases (reporting denominator);
[cir] The volume of numerator events for the quality measure
(reporting numerator);
[cir] The number of cases excluded from the measure; and
[cir] The measure results.
The registry must agree to transmit quality measure data
in a CMS-approved format. We expected that this CMS-specified record
layout would be made available in late 2010;
The registry must be able to perform data quality
validation checks on the data received from hospitals to determine if
the data submitted by the hospitals are accurate and agree to submit an
acceptable ``validation strategy'' to CMS by December 15, 2011. A
validation strategy ascertains whether hospitals have submitted data
accurately to the registry. An acceptable validation strategy may
include such provisions as the registry being able to verify the
accuracy of hospital data through random sampling or through the
hospital's adherence to a required sampling method;
The registry must agree to enter into and maintain with
its participating hospitals an appropriate Business Associate agreement
that complies with HIPAA.
The registry must obtain and keep on file signed
documentation showing that each of its participating hospitals has
authorized the registry to calculate and submit the quality measure
hospital-level data specified by CMS to CMS. This documentation must be
obtained at the time the hospital arranges to submit RHQDAPU program
quality measure data to the registry;
The registry must agree to provide CMS with access (if
requested) to review the data that the hospital submitted to it for
purposes of the RHQDAPU program;
The registry must agree to indicate to CMS upon request
whether a particular hospital has satisfied the registry's
participation requirements;
The registry must agree to provide CMS with a signed,
written attestation statement via mail or e-mail which states that the
quality measure data that the registry has submitted to CMS on behalf
of its participating hospitals is accurate and complete.
The registry must agree to provide at least 1 feedback
report per year to participating hospitals;
The registry must agree to provide on-going technical
assistance to its participating hospitals with respect to the
hospitals' submission of RHQDAPU data; and
The registry must agree to participate in periodic RHQDAPU
program support calls hosted by CMS.
To apply to be a qualified registry for any of the four proposed
registry-based topics, a registry must submit a self-nomination letter
by October 15, 2010 to http://[email protected]
containing the registry name, point of contact, the proposed registry-
based measure topic for which qualification is being sought, and
detailed information regarding how the registry satisfies the criteria
listed above.
Comment: In general, while commenters agreed that the concept of
registry qualification criteria would lead to more standardized
collection and quality control of data collected by registries, they
had numerous suggestions for improvement of the criteria listed, and
believed that the proposed timeframe for qualification and subsequent
implementation of data collection was overly ambitious. Some commenters
recommended that any approved registry must have a robust, CMS-
certified validation system that can test the data submitted and
identify missing data. Some commenters suggested that there should be
an alternative approach for data submission that does not mandate
participation in a registry with an associated fee. Numerous commenters
noted that the proposed requirement that as of January 1, 2010, the
registry has been collecting such data from at least 750 hospitals is
arbitrary and precludes smaller registries such as State and regional
registries from participating. These commenters urged CMS to revise its
criteria for the number of participating hospitals as of January 1,
2010, or to not consider a number of participating hospitals at all.
Commenters also stated that the one-day interval between the
publication of a list of qualified registries and the starting date for
the reporting of measures beginning with required discharges is
unreasonable. One commenter was concerned that the proposed timeline
for registries gives little advance notice to hospitals to research
options, budget

[[Page 50235]]

resources and prepare for participation. Commenters recommended that
the registry eligibility criteria include current performance, data
integrity, and capacity to support hospitals to capture reliable and
valid data, and suggested that of core measure vendors and other
specialty registries such as the acute stroke care registry created by
Congress be eligible to qualify (The Paul Coverdell National Acute
Stroke Registry (PCNASR/CDC)).
Response: We thank the commenters for their recommendations. We
acknowledge the commenters' concerns and intend to reexamine our
criteria and timeline based upon the public comment received. We are
not finalizing our proposal to qualify registries for data collection
for the four topics listed earlier in this final rule for data
collection beginning with January 1, 2011 discharges. If we propose to
qualify registries for RHQDAPU data collection in the future, we will
take into considerations all of the comments we received.
14. RHQDAPU and Hospital Value Based Purchasing Program
CMS received many comments about the HVBP program under section
3001(a)(1) of the Affordable Care Act, including the potential use of
RHQDAPU measures and the infrastructure for the HVBP program. We
address comments related to RHQDAPU measures in the appropriate RHQDAPU
measures section categorized by payment year for the measure. We did
not propose any requirements for implementation of section 3001(a)(1)
of the Affordable Care Act in this rule. In the coming months, we plan
to convene at least one listening session or Open Door Forum to listen
to public feedback about the HVBP program. We will consider this
feedback when proposing HVBP program requirements in the future.

B. Payment for Transfers of Cases From Medicare Participating Acute
Care Hospitals to Nonparticipating Hospitals and CAHs (Sec. 412.4)

1. Background
Existing regulations at Sec. 412.4(a) provide that an inpatient is
considered discharged from a hospital paid under the IPPS when the
patient is either formally released from the hospital or dies in the
hospital. Under certain circumstances, a discharge is considered a
transfer for purposes of payment under the IPPS. Section 412.4(b)
defines acute care transfers, and Sec. 412.4(c) identifies those
discharges considered a postacute care transfer. In accordance with
Sec. 412.4(f), when a patient is transferred and his or her length of
stay is less than the geometric mean length of stay for the MS-DRG to
which the case is assigned, the transferring hospital is generally paid
based on a graduated per diem rate for each day of the stay, not to
exceed the full MS-DRG payment that would have been made if the patient
had been discharged without being transferred. In the case of acute
care transfers, the receiving hospital that ultimately discharges the
transferred patient receives the full MS-DRG payment, regardless of
whether the length of the patient's inpatient stay exceeds the
geometric mean length of stay for the applicable MS-DRG.
The per diem rate paid to a transferring hospital is calculated by
dividing the full MS-DRG payment by the geometric mean length of stay
for the MS-DRG. Based on an analysis that showed that the first day of
hospitalization is the most expensive (60 FR 5804), our policy
generally provides for payment that is double the per diem amount for
the first day, with each subsequent day paid at the per diem amount up
to the full DRG payment (Sec. 412.4(f)(1)). Transfer cases also are
eligible for outlier payments. In general, the outlier threshold for
transfer cases, as described in Sec. 412.80(b) of the regulations, is
equal to the fixed-loss outlier threshold for nontransfer cases
(adjusted for geographic variations in costs), divided by the geometric
mean length of stay for the MS-DRG, and multiplied by the length of
stay for the case plus one day.
The transfer policy adjusts the payments of the transferring
hospital to approximate the reduced costs of transfer cases. Medicare
adopted its IPPS transfer policy because, if Medicare were to pay the
full MS-DRG payment regardless of whether a patient is transferred or
discharged, there would be a strong incentive for hospitals to transfer
patients to another IPPS hospital early in their stay in order to
minimize costs while still receiving the full MS-DRG payment.
b. Policy Change
The regulations at Sec. 412.4(b) state that a discharge of a
hospital inpatient is considered to be an acute care transfer when the
patient is readmitted on the same day to another hospital that is paid
under the IPPS, or to a hospital that is excluded from the IPPS because
of participation in a statewide cost control program, unless the
readmission is unrelated to the initial discharge. These regulations
were developed under the authority granted in section 1886(d)(5)(I)(ii)
of the Act. Because a discharge is only considered an acute care
transfer if the receiving hospital either is paid under IPPS or
participates in a statewide cost control program, the current acute
care transfer policy only applies to transfers between acute care
hospitals that participate in the Medicare program (``participating
acute care hospitals''); it does not currently apply to acute care
hospitals that would otherwise be eligible to be paid under the IPPS,
but do not have an agreement to participate in the Medicare program
(``nonparticipating acute care hospitals''). The acute care transfer
policy also does not currently apply to IPPS acute care hospital
transfers to CAHs.
As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23997 and 23998), the intent of the acute care transfer policy is to
make payment to the transferring hospital commensurate with the
resources it expends in treating Medicare beneficiaries. As stated
above, a participating acute care hospital that admits a beneficiary
from a transferring hospital receives a full MS-DRG payment, as long as
the receiving hospital does not subsequently transfer the beneficiary
prior to the geometric mean length of stay for that MS-DRG. The
transferring hospital receives a reduced per diem payment amount. If
the acute care transfer policy did not exist, Medicare would make
separate full MS-DRG payments to each of the hospitals involved with
the treatment of the beneficiary, even though the hospitals shared in
one episode of care for the same beneficiary and neither provided the
full spectrum of care for that beneficiary for that episode of care.
Such a policy would inappropriately pay a ``double'' Medicare payment
and would be inconsistent with the intent of the acute care transfer
policy.
Although a nonparticipating acute care hospital is generally
ineligible to receive payments under Medicare, such a hospital may
still treat Medicare patients. In addition, acute care hospitals that
do participate in the Medicare program are not precluded from
transferring a Medicare patient to a nonparticipating acute care
hospital. We note that a hospital that transfers a patient early in the
patient's stay (that is, prior to the geometric mean length of stay of
the patient's MS-DRG) incurs reduced costs for that case, regardless of
whether the patient is transferred to a Medicare participating acute
care hospital or a nonparticipating acute care hospital. A hospital
that sends such a transfer to a CAH incurs similarly reduced costs,
despite the fact that transfers to CAHs are not currently

[[Page 50236]]

included under the Medicare acute care transfer policy.
In the FY 2011 IPPS/LTCH PPS proposed rule, we proposed policy
changes in order to avoid creating a financial incentive for an IPPS
hospital to transfer cases to one type of provider versus another. A
transfer decision should be made based on the clinical merits of the
beneficiary's situation and the transferring hospital's capabilities.
More pointedly, we want to avoid providing a Medicare participating
acute care hospital with an incentive to transfer cases to a
nonparticipating acute care hospital or a CAH. Without a policy change,
these incentives still exist as payment issues relating to the IPPS
transfer policy. With respect to nonparticipating acute care hospitals,
it is frequently explained that the Medicare conditions of
participation provide a certain minimum standard of care that
beneficiaries can expect, and that Medicare does not make payments to
nonparticipating acute care hospitals because these hospitals do not
commit to adhering to these conditions of participation. As such, the
lack of a policy with regard to transfers to nonparticipating acute
care hospitals results in an inappropriate payment incentive.
Accordingly, in order to further align the IPPS regulations
relating to transfer of cases under Sec. 412.4(b) with its original
intent (that is, that a hospital's payment should be commensurate with
the resources it expends for the case), in the proposed rule (75 FR
23997 through 23998), we proposed to add a new paragraph (b)(3) to
Sec. 412.4 to specify that an acute care hospital ``transfer case''
includes a transfer to an acute care hospital that would otherwise be
eligible to be paid under the IPPS, but does not have an agreement to
participate in the Medicare program, and a new paragraph (b)(4) to
state that an acute care hospital ``transfer'' also includes a transfer
to a CAH.
We also stated that, under the proposed policy, hospitals would be
required to use patient discharge status code ``66'' (Discharged/
Transferred to a Critical Access Hospital) on IPPS claims to identify
transfers to CAHs. For transfers to nonparticipating acute care
hospitals, hospitals would be required to continue to use patient
status code ``02'' (Discharged/Transferred to a Short-Term General
Hospital for Inpatient Care) on IPPS claims. We noted that the National
Uniform Billing Committee (NUBC) periodically updates or changes
patient status codes; therefore, hospitals should check NUBC guidance
periodically to determine whether there have been any changes to these
codes.
Comment: One commenter asked whether there was an exemption from
the policy for an acute care discharge to a SNF that was unrelated to
the acute care inpatient stay.
Response: We did not propose to make any changes to the postacute
transfer policy with respect to acute care discharges to SNFs.
Therefore, we consider this comment to be outside the scope of the
proposed rule. However, we note that the statute governing the
postacute transfer policy does not provide for an exemption for
unrelated discharges to SNFs. In other words, a case involving a
patient who is transferred from an acute care hospital to a SNF for the
provision of skilled nursing services would be covered under the
postacute transfer policy whether or not the services provided at the
SNF were related to the services provided in the acute care hospital.
Because we did not receive any other public comments on this
proposal, we are adopting it as final, without modification.
Specifically, we are adding a new paragraph (b)(3) to Sec. 412.4 to
specify that an acute care hospital ``transfer case'' includes a
transfer to an acute care hospital that would otherwise be eligible to
be paid under the IPPS, but does not have an agreement to participate
in the Medicare program, and a new paragraph (b)(4) to state that an
acute care hospital ``transfer'' also includes a transfer to a CAH.

C. Rural Referral Centers (RRCs) (Sec. 412.96)

Under the authority of section 1886(d)(5)(C)(i) of the Act, the
regulations at Sec. 412.96 set forth the criteria that a hospital must
meet in order to qualify under the IPPS as an RRC. For discharges that
occurred before October 1, 1994, RRCs received the benefit of payment
based on the other urban standardized amount rather than the rural
standardized amount (as discussed in the FY 1993 IPPS final rule (59 FR
45404 through 45409)). Although the other urban and rural standardized
amounts are the same for discharges occurring on or after October 1,
1994, RRCs continue to receive special treatment under both the DSH
payment adjustment and the criteria for geographic reclassification.
Section 402 of Public Law 108-173 raised the DSH adjustment for
RRCs such that they are not subject to the 12-percent cap on DSH
payments that is applicable to other rural hospitals. RRCs are also not
subject to the proximity criteria when applying for geographic
reclassification. In addition, they do not have to meet the requirement
that a hospital's average hourly wage must exceed, by a certain
percentage, the average hourly wage of the labor market area where the
hospital is located.
Section 4202(b) of Public Law 105-33 states, in part, ``[a]ny
hospital classified as an RRC by the Secretary * * * for fiscal year
1991 shall be classified as such an RRC for fiscal year 1998 and each
subsequent year.'' In the August 29, 1997 IPPS final rule with comment
period (62 FR 45999), CMS reinstated RRC status for all hospitals that
lost the status due to triennial review or MGCRB reclassification.
However, CMS did not reinstate the status of hospitals that lost RRC
status because they were now urban for all purposes because of the OMB
designation of their geographic area as urban. Subsequently, in the
August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were
revisiting that decision. Specifically, we stated that we would permit
hospitals that previously qualified as an RRC and lost their status due
to OMB redesignation of the county in which they are located from rural
to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC
status must satisfy all of the other applicable criteria. We use the
definitions of ``urban'' and ``rural'' specified in subpart D of 42 CFR
part 412. One of the criteria under which a hospital may qualify as an
RRC is to have 275 or more beds available for use (Sec.
412.96(b)(1)(ii)). A rural hospital that does not meet the bed size
requirement can qualify as an RRC if the hospital meets two mandatory
prerequisites (a minimum CMI and a minimum number of discharges), and
at least one of three optional criteria (relating to specialty
composition of medical staff, source of inpatients, or referral
volume). (We refer readers to Sec. 412.96(c)(1) through (c)(5) and the
September 30, 1988 Federal Register (53 FR 38513).) With respect to the
two mandatory prerequisites, a hospital may be classified as an RRC
if--
The hospital's CMI is at least equal to the lower of the
median CMI for urban hospitals in its census region, excluding
hospitals with approved teaching programs, or the median CMI for all
urban hospitals nationally; and
The hospital's number of discharges is at least 5,000 per
year, or, if fewer, the median number of discharges for urban hospitals
in the census region in which the hospital is located. (The number of
discharges criterion for an osteopathic hospital is at least 3,000
discharges per year, as specified in section 1886(d)(5)(C)(i) of the
Act.)
1. Case-Mix Index (CMI)
Section 412.96(c)(1) provides that CMS establish updated national
and

[[Page 50237]]

regional CMI values in each year's annual notice of prospective payment
rates for purposes of determining RRC status. The methodology we used
to determine the national and regional CMI values is set forth in the
regulations at Sec. 412.96(c)(1)(ii). The national median CMI value
for FY 2011 includes data from all urban hospitals nationwide, and the
regional values for FY 2011 are the median CMI values of urban
hospitals within each census region, excluding those hospitals with
approved teaching programs (that is, those hospitals that train
residents in an approved GME program as provided in Sec. 413.75).
These values are based on dischares occurring during FY 2009 (October
1, 2008 through September 30, 2009), and include bills posted to CMS'
records through March 2010.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24000), we
proposed that, in addition to meeting other criteria, if rural
hospitals with fewer than 275 beds are to qualify for initial RRC
status for cost reporting periods beginning on or after October 1,
2010, they must have a CMI value for FY 2009 that is at least--
1.5127; or
The median CMI value (not transfer-adjusted) for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 413.75) calculated by CMS for the census region in
which the hospital is located. (We refer readers to the table set forth
in the FY 2011 IPPS/LTCH PPS proposed rule at 75 FR 24000.)
Based on the latest available data (FY 2009 bills received through
March 2010), in addition to meeting other criteria, if rural hospitals
with fewer than 275 beds are to qualify for initial RRC status for cost
reporting periods beginning on or after October 1, 2010, they must have
a CMI value for FY 2009 that is at least--
1.5136; or
The median CMI value (not transfer-adjusted) for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 413.75) calculated by CMS for the census region in
which the hospital is located.
The final median CMI values by region are set forth in the
following table:

------------------------------------------------------------------------
Case-Mix index
Region value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)................. 1.2993
2. Middle Atlantic (PA, NJ, NY)......................... 1.3582
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).. 1.4567
4. East North Central (IL, IN, MI, OH, WI).............. 1.4251
5. East South Central (AL, KY, MS, TN).................. 1.3771
6. West North Central (IA, KS, MN, MO, NE, ND, SD)...... 1.4407
7. West South Central (AR, LA, OK, TX).................. 1.5240
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............ 1.6204
9. Pacific (AK, CA, HI, OR, WA)......................... 1.4861
------------------------------------------------------------------------

A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its fiscal intermediary
or MAC. Data are available on the Provider Statistical and
Reimbursement (PS&R) System. In keeping with our policy on discharges,
the CMI values are computed based on all Medicare patient discharges
subject to the IPPS MS-DRG-based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that CMS set forth the national
and regional numbers of discharges in each year's annual notice of
prospective payment rates for purposes of determining RRC status. As
specified in section 1886(d)(5)(C)(ii) of the Act, the national
standard is set at 5,000 discharges. In the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 24000 and 24001), we proposed to update the
regional standards based on discharges for urban hospitals' cost
reporting periods that began during FY 2008 (that is, October 1, 2007
through September 30, 2008), which were the latest cost report data
available at the time the proposed rule was developed.
Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed
that, in addition to meeting other criteria, a hospital, if it is to
qualify for initial RRC status for cost reporting periods beginning on
or after October 1, 2010, must have, as the number of discharges for
its cost reporting period that began during FY 2008, at least--
5,000 (3,000 for an osteopathic hospital); or
The median number of discharges for urban hospitals in the
census region in which the hospital is located. (We refer readers to
the table set forth in the FY 2011 IPPS/LTCH PPS proposed rule at 75 FR
24001.)
Based on the latest discharge data available at this time, that is,
for cost reporting periods that began during FY 2008, the final median
numbers of discharges for urban hospitals by census region are set
forth in the following table:

------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)................. 7,713
2. Middle Atlantic (PA, NJ, NY)......................... 11,346
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).. 11,393
4. East North Central (IL, IN, MI, OH, WI).............. 9,232
5. East South Central (AL, KY, MS, TN).................. 7,016
6. West North Central (IA, KS, MN, MO, NE, ND, SD)...... 8,159
7. West South Central (AR, LA, OK, TX).................. 7,081
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............ 9,282
9. Pacific (AK, CA, HI, OR, WA)......................... 8,622
------------------------------------------------------------------------

[[Page 50238]]

We note that the median number of discharges for hospitals in each
census region is greater than the national standard of 5,000
discharges. Therefore, 5,000 discharges is the minimum criterion for
all hospitals.
We reiterate that, if an osteopathic hospital is to qualify for RRC
status for cost reporting periods beginning on or after October 1,
2010, the hospital would be required to have at least 3,000 discharges
for its cost reporting period that began during FY 2008.

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

1. Background
As discussed in the June 2, 2010 supplemental proposed rule (75 FR
309023 through 30925), section 1886(d)(12) of the Act, as added by
section 406(a) of Public Law 108-173, provides for a payment adjustment
to account for the higher costs per discharge for low-volume hospitals
under the IPPS, effective beginning FY 2005. Sections 3125 and 10314 of
the Affordable Care Act amended the definition of a low-volume hospital
under section 1886(d)(12)(C) of the Act. Sections 3125 and 10314 of the
Affordable Care Act also revised the methodology for calculating the
payment adjustment for low-volume hospitals.
Prior to the amendments made by the Affordable Care Act, section
1886(d)(12)(C)(i) of the Act defined a low-volume hospital as ``a
subsection (d) hospital (as defined in paragraph (1)(B)) that the
Secretary determines is located more than 25 road miles from another
subsection (d) hospital and that has less than 800 discharges during
the fiscal year.'' Section 1886(d)(12)(C)(ii) of the Act further
stipulates that the term ``discharge'' means ``an inpatient acute care
discharge of an individual regardless of whether the individual is
entitled to benefits under Part A.'' Therefore, the term ``discharge''
refers to total discharges, not merely Medicare discharges.
Furthermore, under section 406(a) of Public Law 108-173, which
initially added subparagraph (12) to section 1886(d) of the Act, the
provision requires the Secretary to determine an applicable percentage
increase for these low-volume hospitals based on the ``empirical
relationship'' between ``the standardized cost-per-case for such
hospitals and the total number of discharges of such hospitals and the
amount of the additional incremental costs (if any) that are associated
with such number of discharges.'' The statute thus mandates that the
Secretary develop an empirically justifiable adjustment based on the
relationship between costs and discharges for these low-volume
hospitals. The statute also limits the adjustment to no more than 25
percent.
Based on an analysis we conducted for the FY 2005 IPPS final rule
(69 FR 49099 through 49102), a 25 percent low-volume adjustment to all
qualifying hospitals with less than 200 discharges was found to be most
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher
incremental costs are associated with low numbers of total discharges.
In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we stated
that a multivariate analyses supported the existing low-volume
adjustment implemented in FY 2005. Therefore, the low-volume adjustment
of an additional 25 percent would continue to be provided for
qualifying hospitals with less than 200 discharges.
2. Temporary Changes for FYs 2011 and 2012
As stated above, section 1886(d)(12) of the Act was amended by
sections 3125 and 10314 of the Affordable Care Act. The changes made by
these sections of the Affordable Care Act are effective only for
discharges occurring during FYs 2011 and 2012. Beginning with FY 2013,
the preexisting low-volume hospital payment adjustment and qualifying
criteria, as implemented in FY 2005, will resume.
Sections 3125(3) and 10314(1) of the Affordable Care Act amended
the qualifying criteria for low-volume hospitals under section
1886(d)(12)(C)(i) of the Act to make it easier for hospitals to qualify
for the low-volume adjustment. Specifically, the revised provision
specifies that, for FYs 2011 and 2012, a hospital qualifies as a low-
volume hospital if it is ``more than 15 road miles from another
subsection (d) hospital and has less than 1,600 discharges of
individuals entitled to, or enrolled for, benefits under Part A during
the fiscal year.'' In addition, section 1886(d)(12)(D) of the Act, as
added by section 3125(4) and amended by section 10314 of the Affordable
Care Act, provides that the payment adjustment (the applicable
percentage increase) is to be determined ``using a continuous linear
sliding scale ranging from 25 percent for low-volume hospitals with 200
or fewer discharges of individuals entitled to, or enrolled for,
benefits under Part A in the fiscal year to 0 percent for low-volume
hospitals with greater than 1,600 discharges of such individuals in the
fiscal year.''
Section 3125(3)(A) of the Affordable Care Act revised the distance
requirement for FYs 2011 and 2012 from ``25 road miles'' to ``15 road
miles'' such that a low-volume hospital is required to be only more
than 15 road miles, rather than more than 25 road miles, from another
subsection (d) hospital for purposes of qualifying for the low-volume
payment adjustment in FYs 2011 and 2012. Therefore, in the June 2, 2010
supplemental proposed rule, we proposed to revise our regulations at 42
CFR 412.101(b)(2)(ii) to provide that, to qualify for the low-volume
adjustment in FYs 2011 and 2012, a hospital must be located more than
15 road miles from the nearest subsection (d) hospital. The statute
specifies the 15 mile distance in ``road miles.'' The existing
regulations at Sec. 412.101 also specify the current 25 mile distance
requirement in ``road miles,'' but do not provide a definition of the
term ``road miles.'' In the June 2, 2010 supplemental proposed rule, we
proposed to define the term ``road miles'' consistent with the term
``miles'' as defined at Sec. 412.92 for purposes of determining
whether a hospital qualifies as a SCH. Specifically, Sec. 412.92(c)(i)
defines ``miles'' as ``the shortest distance in miles measured over
improved roads. An improved road for this purpose is any road that is
maintained by a local, State, or Federal government entity and is
available for use by the general public. An improved road includes the
paved surface up to the front entrance of the hospital.'' We noted that
while the proposed change in the qualifying criteria from 25 to 15 road
miles is applicable only for FYs 2011 and 2012, the proposed definition
of ``road miles'' would continue to apply even after the distance
requirement reverts to 25 road miles beginning in FY 2013.
Sections 3125(3)(B) and 10314(1) of the Affordable Care Act revised
the discharge requirement for FYs 2011 and 2012 to less than 1,600
discharges of individuals entitled to, or enrolled for, benefis under
Medicare Part A during a fiscal year. Prior to enactment of the
Affordable Care Act, under section 1886(d)(12) of the Act, as added by
section 406(a) of Public Law 108-173, the discharge requirement to
qualify as a low-volume hospital is less than 800 total discharges
annually, which includes discharges of both Medicare and non-Medicare
patients. This discharge requirement will apply also for fiscal years
after FY 2012.
Section 226(a) of the Act provides that an individual is
automatically ``entitled'' to Medicare Part A when the person reaches
age 65 or becomes disabled, provided that the individual is entitled to
Social Security benefits under section

[[Page 50239]]

202 of the Act. Once a person becomes entitled to Medicare Part A, the
individual does not lose such entitlement simply because there is no
Part A coverage of a specific inpatient stay. For example, a patient
does not lose entitlement to Medicare Part A simply because the
individual's Part A hospital benefits have been exhausted; other items
and services (for example, skilled nursing services) still might be
covered under Part A, and the patient would qualify for an additional
90 days of Part A hospital benefits if at least 60 days elapsed between
the individual's first and second hospital stay (Sec. 409.60(a) and
(b)(1) and Sec. 409.61(a)(1) and (c) of the regulations).
In addition, beneficiaries who are enrolled in Medicare Advantage
(MA) plans provided under Medicare Part C continue to meet all of the
statutory criteria for entitlement to Part A benefits under section
226. First, in order to enroll in Medicare Part C, a beneficiary must
be ``entitled to benefits under Part A and enrolled under Part B''
(section 1852(a)(1)(B)(i) of the Act). There is nothing in the Act that
suggests that beneficiaries who enroll in a Part C plan forfeit their
entitlement to Part A benefits. Second, once a beneficiary enrolls in
Part C, the MA plan must provide the beneficiary with the benefits to
which the enrollee is entitled under Medicare Part A, even though it
may also provide for additional supplemental benefits (section
1852(a)(1)(A) of the Act). Third, under certain circumstances, Medicare
Part A pays for care furnished to patients enrolled in Part C plans.
For example, if, during the course of the year, the scope of benefits
provided under Medicare Part A expands beyond a certain cost threshold
due to Congressional action or a national coverage determination,
Medicare Part A will pay the provider for the cost of those services
directly (section 1852(a)(5) of the Act). Similarly, Medicare Part A
also pays for federally qualified health center services and hospice
care furnished to MA patients (section 1853(a)(4) and (h)(2) of the
Act). Thus, a patient enrolled in a Part C plan remains entitled to
benefits under Medicare Part A.
Accordingly, for purposes of determining the number of discharges
for ``individuals entitled to, or enrolled for, benefits under Part
A,'' we proposed to include all discharges associated with individuals
entitled to Part A, including discharges of individuals whose inpatient
benefits are exhausted or whose stay was not covered by Medicare and
discharges of individuals enrolled in an MA plan under Medicare Part C.
Because a hospital may only qualify for this adjustment if the hospital
has fewer than 1,600 discharges for patients entitled to Part A, the
hospital must submit a claim to Medicare on behalf of all Part A
entitled individuals, including a no-pay claim for patients who are
enrolled in Part C, in order for Medicare to assure that these
discharges are included in the determination of whether the hospital
has fewer than 1,600 discharges for patients entitled to Part A.
Section 3125(4) of the Affordable Care Act added section
1886(d)(12)(D) to the Act, and section 10314(2) of the Affordable Care
Act modified section 1886(d)(12)(D) of the Act. Section 1886(d)(12)(D)
of the Act modified the methodology for calculating the payment
adjustment under section 1886(d)(12)(A) of the Act for low-volume
hospitals for discharges occurring in FYs 2011 and 2012. For FY 2010
and prior fiscal years, and beginning again in FY 2013, sections
1886(d)(12)(A) and (B) of the Act require the Secretary to determine an
applicable percentage increase for low-volume hospitals based on the
``empirical relationship'' between ``the standardized cost-per-case for
such hospitals and the total number of discharges of such hospitals and
the amount of the additional incremental costs (if any) that are
associated with such number of discharges.'' The statute thus requires
the Secretary to develop an empirically justifiable adjustment based on
the relationship between costs and discharges for these low-volume
hospitals. The statute also limits the adjustment to no more than 25
percent. Based on analyses we conducted for the FY 2005 IPPS final rule
(69 FR 49099 through 49102) and the FY 2006 IPPS final rule (70 FR
47432 through 47434), a 25 percent low-volume adjustment to all
qualifying hospitals with less than 200 discharges was found to be most
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher
incremental costs are associated with low numbers of total discharges.
However, section 1886(d)(12)(D) of the Act, as added by the Affordable
Care Act, provides that, for discharges occurring in FYs 2011 and 2012,
the Secretary shall determine the applicable percentage increase using
a continuous, linear sliding scale ranging from an additional 25
percent payment adjustment for hospitals with 200 or fewer Medicare
discharges to 0 percent additional payment for hospitals with more than
1,600 Medicare discharges. In the June 2, 2010 supplemental proposed
rule (75 FR 30925), we proposed to apply this payment adjustment based
on increments of 100 discharges (beginning with more than 200
discharges), with the applicable percentage increase decreasing
linearly in equal amounts by 1.6667 percent for every additional 100
Medicare discharges, with no payment adjustment for hospitals with more
than 1,599 Medicare discharges. We did not propose an adjustment for a
hospital with exactly 1,600 discharges because, as specified in section
1886(d)(12)(C)(i) of the Act, as amended, a hospital must have ``less
than'' 1,600 discharges in order to qualify as a low-volume hospital.
Consistent with the statute, we proposed that hospitals with 200 or
fewer Medicare discharges would receive an applicable percentage
increase of 25 percent. We proposed that the payment adjustment would
be as determined below:

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While we proposed to revise the qualifying criteria and the payment
adjustment for low-volume hospitals for FYs 2011 and 2012, consistent
with the amendments made by the Affordable Care Act, we noted that we
did not propose to modify the process for requesting and obtaining the
low-volume hospital payment adjustment. In order to qualify, a hospital
must provide to its fiscal intermediary or MAC sufficient evidence to
document that it meets the number of Medicare discharges and distance
requirements. The fiscal intermediary or MAC will determine, based on
the most recent data available, if the hospital qualifies as a low-
volume hospital, so that the hospital will know in advance whether or
not it will receive a payment adjustment and, if so, the add-on
percentage. The fiscal intermediary or MAC and CMS may review available
data, in addition to the data the hospital submits with its request for
low-volume status, in order to determine whether or not the hospital
meets the qualifying criteria. In the June 2, 2010 supplemental
proposed rule (75 FR 30925), we also noted that currently a prior cost
reporting period is used to determine if the hospital meets the
discharge criteria to receive the low-volume payment adjustment in the
current year.
In the June 2, 2010 supplemental proposed rule (75 FR 30925), we
also noted that as compared to the existing methodology for determining
the payment adjustment for low-volume hospitals, no hospital would
receive a lower payment adjustment under our proposed methodology for
FYs 2011 and 2012. Although the statute specifies that, for years other
than FYs 2011 and 2012, a hospital is a low-volume hospital if it has
less than 800 discharges, currently only hospitals with fewer than 200
discharges receive a payment adjustment, an additional 25 percent,
because the statute requires that the adjustment be empirically based
to provide relief to low-volume hospitals where there is empirical
evidence that higher incremental costs are associated with low numbers
of total discharges. Consistent with section 1886(d)(12)(D) of the Act,
for FYs 2011 and 2012, we indicated that under our proposal we would
continue to pay hospitals with fewer than 200 discharges a payment
adjustment amount equal to an additional 25 percent.
We proposed to revise our regulations at Sec. 412.101 to reflect
our proposal outlined above. We also proposed a clarification to the
existing regulations to indicate that a hospital must continue to
qualify as a low-volume hospital in order to receive the payment
adjustment in that year; that is, it is not based on a one-time
qualification. Specifically, existing Sec. 412.101(a)(3) states that
``The fiscal intermediary makes the determination of the discharge
count for purposes of determining a hospital's qualification for the
adjustment based on the hospital's most recent submitted cost report.''
This may mistakenly be interpreted to mean that once a hospital
qualifies as a low-volume hospital, no further qualification is needed.
Comment: Several commenters stated that the statute requires the
low-volume payment adjustment to be made using a ``continuous linear
sliding scale,'' but that the proposed payment adjustments based on
increments of 100 discharges are not continuous. The commenters
requested the low-volume adjustment for FYs 2011 and 2012 be determined
using a specific continuous, linear equation that they included in
their comments. The commenters also stated that determining the payment
adjustment using their submitted linear equation, rather than the
proposed 100-discharge increments, would avoid a significant change in
the payment adjustment for a hospital if the hospital experienced only
a small change in its number of Medicare discharges from one year to
the next.
Response: We disagree with the commenters that our proposal to
determine the low-volume payment adjustment for FYs 2011 and 2012 based
on increments of 100 discharges does not meet the ``continuous linear
sliding scale'' statutory requirement. Our proposed methodology
provided for a continuous linearly decreasing adjustment in the amount
of a fixed percentage for every additional 100 Medicare discharges.
However, after consideration of public comments regarding the
``continuous linear sliding scale'' specified by the statute for the
low-volume payment adjustment for FYs 2011 and 2012, we agree that an
adjustment based on the linear equation provided by the commenters
would result in less fluctuation in the payment amount in situations in
which the number of discharges varied slightly in both years. We
believe this will assist hospitals in their annual fiscal planning.
Therefore, in this final rule, we are

[[Page 50241]]

adopting the continuous linear sliding scale equation suggested by
commenters, to determine the low-volume payment adjustment for FYs 2011
and 2012 for eligible low-volume hospitals with Medicare discharges of
more than 200 and less than 1,600 (that is, from 201 to 1,599 Medicare
discharges). Consistent with the statute and as we proposed, for FYs
2011 and 2012 for eligible low-volume hospitals with 200 or fewer
Medicare discharges, we are finalizing a low-volume payment adjustment
of 25 percent. Therefore, under new Sec. 412.101(c)(2), for FYs 2011
and 2012, the low-volume adjustment will be determined as follows:
Low-volume hospitals with 200 or fewer Medicare discharges
will receive a low-volume adjustment of an additional 25 percent for
each discharge.
Low-volume hospitals with Medicare discharges of more than
200 and fewer than 1,600 will receive for each discharge a low-volume
adjustment of an additional percent calculated using the formula: [(4/
14)-(Medicare discharges/5600)].
Commenters have suggested that the correct formula to apply the
linear scale specified in section 1886(d)(12)(D) of the Act is (4/14)-
(Medicare discharges/5600). This mathematical interpretation is
consistent with the plain language of section 1886(d)(12)(D) of the
Act. For qualifying hospitals with fewer than 1,600 Medicare discharges
but more than 200 Medicare discharges, the low-volume add-on payment is
calculated by subtracting from 25 percent the proportion of payments
associated with the Medicare discharges in excess of 200. That
proportion is calculated by multiplying the Medicare discharges in
excess of 200 by a fraction that is equal to the maximum available add-
on payment (25 percent) divided by a number represented by the range of
Medicare discharges for which this policy applies (1,600 minus 200, or
1,400).
In other words, for qualifying hospitals with fewer than 1,600
Medicare discharges but more than 200 Medicare discharges, the add-on
payment is calculated using the following formula:

Low volume add-on payment = 0.25-[(0.25/1400)*(Number of Medicare
discharges-200)] = (4/14)-(Medicare discharges/5600).

Our proposal had been to apply this formula through use of a linear
scale that represented this formula for every 100 discharges. In light
of the commenters' suggestion, we will apply this formula for each
discharge. We believe this is an equally appropriate application of the
statutory provision and that it creates a more precise calculation for
the add-on payment.
As we proposed and described in greater detail above, in this final
rule, we are revising the regulations to specify at Sec. 412.101(a)
that ``Medicare discharges'' means a discharge of inpatients entitled
to Medicare Part A, including discharges associated with individuals
whose inpatient benefits are exhausted or whose stay was not covered by
Medicare and also discharges of individuals enrolled in a MA
organization under Medicare Part C. As stated above, beginning with FY
2013, that is, with discharges occurring on or after October 1, 2012,
the existing low-volume hospital payment adjustment and qualifying
criteria as implemented in FY 2005 will resume.
Comment: A few commenters asked for clarification regarding what is
required of the hospital in order to receive the low-volume adjustment
for FYs 2011 and 2012, that is, what is the process, what documentation
is required to verify Medicare discharges, which data will be used, and
can the distance from comparable hospitals be documented with Web-based
tools such as MapQuest.
Response: In order to determine the low-volume adjustment for FYs
2011 and 2012, CMS will determine the number of Medicare discharges
from the most recent available Medicare discharge data from the MedPAR
files. These data will provide the number of discharges for individuals
that are entitled to or enrolled for Medicare Part A, as required by
statute. As noted elsewhere in this final rule, the MedPAR discharge
data now include discharges for individuals enrolled in a MA
organization under Medicare Part C and discharges for patients who are
entitled to Medicare Part A, but whose Part A inpatient benefits have
been exhausted or whose stay was not covered by Medicare. Therefore,
for FY 2011, the low-volume payment adjustment will be determined using
Medicare discharge data for FY 2009 from the March 2010 update of the
MedPAR files, as these are the most recent available data. (We expect
to use Medicare claims data for FY 2010 to determine the low-volume
payment adjustment for FY 2012, as these will be the most recent
available data at that time.)
Below we are providing a chart that lists the hospitals with fewer
than 1,600 Medicare discharges based on the March 2010 update of the FY
2009 MedPAR files. Eligibility for the low-volume payment adjustment
for FY 2011 and FY 2012 is also dependent upon meeting the mileage
criteria specified at Sec. 412.101(b)(2)(ii), as finalized in this
final rule.
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BILLING CODE 4120-01-C
We note that this list of hospitals with fewer than 1,600 Medicare
discharges does not reflect whether or not the hospital meets the
mileage criterion, that is, the hospital also must be located more than
15 road miles from any other IPPS hospital. In order to receive the
applicable low-volume percentage add-on payment, a hospital must notify
and provide documentation to its fiscal intermediary or MAC that it
meets this mileage criterion. The use of a Web-based mapping tool, such
as MapQuest, as part of documenting that the hospital meets the mileage
criterion for low-volume hospitals is acceptable. The fiscal
intermediary or MAC will determine if the information submitted by the
hospital, such as the name and street address of the nearest hospitals,
location on a map, and distance (in road miles, as defined in the
regulations at Sec. 412.101(a)) from the hospital requesting low-
volume hospital status, is sufficient to document that it meets the
mileage criterion. If not, the fiscal intermediary or MAC will follow
up with the hospital in order to obtain additional necessary
information to determine whether or not the hospital meets the low-
volume mileage criterion. The fiscal intermediary or MAC will refer to
the hospital's Medicare discharge data determined by CMS (as shown in
the chart above for FY 2011 and posted on the CMS Web site at: http://www.cms.gov) to determine whether or not the hospital meets the
discharge criterion, and the amount of the payment adjustment, once it
is determined that both the mileage and discharge criteria are met. The
Medicare discharge data shown in the chart above, as well as the
Medicare discharge data for all hospitals with claims in the March 2010
update of the FY 2009 MedPAR files, also will be available on the CMS
Web site for hospitals to check their Medicare discharges to help them
to decide whether or not to apply for low-volume hospital status. We
are revising the regulations at Sec. 412.101(b) to reflect the policy
of basing the discharge criterion for FYs 2011 and 2012 (using Medicare
discharges) on the most recently available MedPAR data. We will
continue to base the discharge criterion (using total discharges,
Medicare and non-Medicare) on the hospital's most recently submitted
cost report data, as we do under the existing policy, for FY 2005
through FY 2010 and FY 2013 and subsequent fiscal years.
For FY 2011, the hospital should make its request for low-volume
hospital status in writing to its fiscal intermediary or MAC by
September 1, 2010, so that the applicable low-volume percentage add-on
will be applied to payments for its discharges beginning on or after
October 1, 2010. For FY 2012, a hospital that qualified for the low-
volume adjustment in FY 2011 may continue to receive the add-on
payment, without reapplying, if it continues to

[[Page 50275]]

meet the Medicare discharge criterion based on the latest available
MedPAR data. However, the hospital must verify in writing to its fiscal
intermediary or MAC that it continues to be more than 15 miles from any
other IPPS hospital. (As noted above, we expect Medicare claims data
from FY 2010 to be available to determine the low-volume payment
adjustment for FY 2012.) A hospital that was not a low-volume hospital
in FY 2011, and believes it meets the discharge and mileage criterion
for FY 2012, should make its request in writing, with documentation
that it meets the mileage criterion, to its fiscal intermediary or MAC
by September 1, 2011, in order for the applicable low-volume percentage
add-on to be applied beginning with discharges on or after October 1,
2011.
Comment: A few commenters requested clarification regarding the
application of the low-volume payment adjustment at section 1886(d)(12)
of the Act to SCHs and MDHs, given that these types of hospitals are
also subsection (d) hospitals. These commenters also requested that CMS
explicitly state that the applicable low-volume percentage add-on is
applied to an SCH's or a MDH's payments at the Federal rate or the
hospital-specific rate.
Response: Section 1886(d)(12)(C)(i) defines a low-volume hospital,
in part, as a ``subsection (d) hospital.'' SCHs and MDHs are
``subsection (d) hospitals'' although they can be paid under a
hospital-specific rate instead of under the Federal standardized amount
under the IPPS. As subsection (d) hospitals, SCHs and MDHs are eligible
to receive the low-volume adjustment if the hospital meets the
discharge and mileage criteria. Section 1886(d)(12)(A) states that the
applicable low-volume percentage add-on payment will be ``[i]n addition
to any payments calculated [under section 1886]''. For SCHs and MDHs,
payment under section 1886 is determined using either the Federal rate
or the hospital-specific rate, whichever results in a greater payment.
After consideration of the public comments we received, we are
adopting the continuous linear sliding scale equation set forth by
commenters to determine the low-volume payment adjustment for FYs 2011
and 2012 for eligible low-volume hospitals with Medicare discharges of
more than 200 and less than 1,600 (that is, from 201 to 1,599 Medicare
discharges), and we have modified Sec. 412.101(c)(2) of the
regulations in this final rule accordingly. We are revising Sec.
412.101 to reflect the final changes as discussed above. In addition,
we note that we are making structural changes to the final regulation
text at Sec. 412.101 as compared to the proposed regulation text at
Sec. 412.101(for example, we are combining proposed paragraph
(b)(2)(iii) into paragraph (b)(2)(i) to more concisely reflect the
final policy that we are establishing in this final rule).

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

1. Background
Section 1886(d)(5)(B) of the Act provides for an additional payment
amount under the IPPS for hospitals that have residents in an approved
graduate medical education (GME) program in order to reflect the higher
indirect patient care costs of teaching hospitals relative to
nonteaching hospitals. The regulations regarding the calculation of
this additional payment, known as the indirect medical education (IME)
adjustment, are located at Sec. 412.105.
Public Law 105-33 (BBA 1987) established a limit on the number of
allopathic and osteopathic residents that a hospital may include in its
full-time equivalent (FTE) resident count for direct GME and IME
payment purposes. Under section 1886(h)(4)(F) of the Act, for cost
reporting periods beginning on or after October 1, 1997, a hospital's
unweighted FTE count of residents for purposes of direct GME may not
exceed the hospital's unweighted FTE count for its most recent cost
reporting period ending on or before December 31, 1996. Under section
1886(d)(5)(B)(v) of the Act, a similar limit on the FTE resident count
for IME purposes is effective for discharges occurring on or after
October 1, 1997.
2. IME Adjustment Factor for FY 2011
The IME adjustment to the MS-DRG payment is based in part on the
applicable IME adjustment factor. The IME adjustment factor is
calculated by using a hospital's ratio of residents to beds, which is
represented as r, and a formula multiplier, which is represented as c,
in the following equation: c x [{1 + r{time} \.405\ - 1]. The formula
is traditionally described in terms of a certain percentage increase in
payment for every 10-percent increase in the resident-to-bed ratio.
Section 502(a) of Public Law 108-173 modified the formula
multiplier (c) to be used in the calculation of the IME adjustment.
Prior to the enactment of Public Law 108-173, the formula multiplier
was fixed at 1.35 for discharges occurring during FY 2003 and
thereafter. In the FY 2005 IPPS final rule, we announced the schedule
of formula multipliers to be used in the calculation of the IME
adjustment and incorporated the schedule in our regulations at Sec.
412.105(d)(3)(viii) through (d)(3)(xii). Section 502(a) modified the
formula multiplier beginning midway through FY 2004 and provided for a
new schedule of formula multipliers for FYs 2005 and thereafter as
follows:
For discharges occurring on or after April 1, 2004, and
before October 1, 2004, the formula multiplier is 1.47.
For discharges occurring during FY 2005, the formula
multiplier is 1.42.
For discharges occurring during FY 2006, the formula
multiplier is 1.37.
For discharges occurring during FY 2007, the formula
multiplier is 1.32.
For discharges occurring during FY 2008 and fiscal years
thereafter, the formula multiplier is 1.35.
Accordingly, for discharges occurring during FY 2011, the formula
multiplier is 1.35. We estimate that application of this formula
multiplier for the FY 2011 IME adjustment will result in an increase in
IPPS payment of 5.5 percent for every approximately 10-percent increase
in the hospital's resident-to-bed ratio.
3. IME-Related Changes in Other Sections of this Final Rule
We refer readers to section IV.H.2. and IV.H.3. of the preamble of
this final rule for a discussion of changes to the policies for
identifying ``approved medical residency programs'' and the electronic
submission of Medicare GME affiliation agreements.

F. Payment Adjustment for Medicare Disproportionate Share Hospitals
(DSHs): Supplemental Security Income (SSI) Fraction (Sec. 412.106)

1. Background
Section 1886(d)(5)(F) of the Act provides for additional Medicare
payments to subsection (d) hospitals that serve a significantly
disproportionate number of low-income patients. The Act specifies two
methods by which a hospital may qualify for the Medicare
disproportionate share hospital (DSH) adjustment. Under the first
method, hospitals that are located in an urban area and have 100 or
more beds may receive a Medicare DSH payment adjustment if the hospital
can demonstrate that, during its cost reporting period, more than 30
percent of its net inpatient care revenues are derived from State and
local government payments for care furnished to needy patients with low
incomes. This method is commonly referred to as the ``Pickle method.''
The second method for qualifying for the DSH payment adjustment,
which is

[[Page 50276]]

the most common, is based on a complex statutory formula under which
the DSH payment adjustment is based on the hospital's geographic
designation, the number of beds in the hospital, and the level of the
hospital's disproportionate patient percentage (DPP). A hospital's DPP
is the sum of two fractions: the ``Supplemental Security Income (SSI)
fraction'' and the ``Medicaid fraction.'' The SSI fraction (also known
as the ``SSI ratio'' or the ``Medicare fraction'') is computed by
dividing the number of the hospital's inpatient days that are furnished
to patients who were entitled to both Medicare Part A (including
patients who are enrolled in a Medicare Advantage (Part C) plan) and
SSI benefits by the hospital's total number of patient days furnished
to patients entitled to benefits under Medicare Part A (including
patients who are enrolled in a Medicare Advantage (Part C) plan). The
Medicaid fraction is computed by dividing the hospital's number of
inpatient days furnished to patients who, for such days, were eligible
for Medicaid, but were not entitled to benefits under Medicare Part A,
by the hospital's total number of inpatient days in the same period.
Because the DSH payment adjustment is part of the IPPS, the DSH
statutory references (under section 1886(d)(5)(F) of the Act) to
``days'' apply only to hospital acute care inpatient days. Regulations
located at 42 CFR 412.106 govern the Medicare DSH payment adjustment
and specify how the DPP is calculated as well as how beds and patient
days are counted in determining the DSH payment adjustment. Under Sec.
412.106(a)(1)(i), the number of beds for the Medicare DSH payment
adjustment is determined in accordance with bed counting rules for the
IME adjustment under Sec. 412.105(b).
2. CMS' Current Data Matching Process for the SSI Fraction
As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24002), from the inception of the Medicare DSH adjustment in 1986, CMS
(formerly HCFA) has calculated the SSI fraction for each acute care
hospital paid under the IPPS. This fraction, in combination with the
Medicaid fraction, is used to determine whether the provider qualifies
for a DSH payment adjustment and the amount of any such payment (51 FR
16772, 16777, May 6, 1986 interim final rule). In determining the
number of inpatient days for individuals entitled to both Medicare Part
A and SSI, as required for calculation of the numerator of the SSI
fraction, CMS matches the Medicare records and SSI eligibility records
for each hospital's patients during the Federal fiscal year, unless the
provider requests calculation of the SSI fraction on a cost reporting
period basis (in which case the provider would receive its SSI fraction
based on its own cost reporting period). The data underlying the match
process are drawn from: (a) The Medicare Provider Analysis and Review
(MedPAR) data file; and (b) SSI eligibility data provided by the Social
Security Administration (SSA). CMS has matched Medicare and SSI
eligibility records using Title II numbers (included in the SSI
records) and Health Insurance Claims Account Numbers (HICANs)
(contained in the MedPAR file). Below we provide a more detailed
description of both a Title II number and a HICAN.
Title II Number: If a person qualifies for retirement or disability
benefits under Title II of the Act (42 U.S.C. 401 et seq.), SSA assigns
a ``Title II number'' to the individual. If the Title II beneficiary's
own earnings history (or the individual's disability) were the basis
for such benefits, the person's Social Security number (SSN) would
constitute the ``root'' of the individual's Title II number. However,
if the person's Title II benefits were based on the earnings history of
another individual (for example, a spouse), that other person's SSN
would provide the root for the beneficiary's Title II number. In
addition to a root SSN, each Title II number ends with a Beneficiary
Identification Code (BIC) that identifies the basis for an individual's
entitlement to benefits. For example, a person who becomes eligible for
benefits under his or her own account would be described by his or her
SSN followed by the BIC ``A'' whereas a wife who becomes eligible for
benefits under her husband's account would be described by his SSN
followed by the BIC ``B.'' Children who become eligible under a
parent's account would be described by the parent's SSN followed by the
BIC ``C1,'' ``C2,'' etc.
HICAN: When a person becomes entitled to Medicare benefits, he or
she is assigned a HICAN for purposes of processing claims submitted on
his or her behalf for Medicare services. A beneficiary's HICAN (which
may not necessarily contain his or her SSN) is included on the Medicare
inpatient hospital claim.
Each HICAN for a beneficiary should be identical, at the same point
in time, to that individual's Title II number. This is because HICANs
and Title II numbers are both assigned on the basis of the same data
source, the SSA-maintained Master Beneficiary Record, and by using the
same rules (that is, the rules for determining which person's SSN will
serve as the root for an individual's HICAN and Title II number and for
determining the BIC for both types of numbers).
We note that a person's Title II number and HICAN can change over
time. For example, if the individual's entitlement to Title II and
Medicare benefits was originally based on the earnings history of a
first spouse, but the beneficiary later qualified for such benefits on
the basis of a second spouse's earnings history, the beneficiary's
HICAN and Title II number would change accordingly. Specifically, the
first spouse's SSN would be the root of the beneficiary's original
HICAN and Title II number; later, the second spouse's SSN would become
the root of the beneficiary's second HICAN and Title II number.
The SSI eligibility data that CMS receives from SSA contain monthly
indicators to denote which month(s) each person was eligible for SSI
benefits during a specific time period. The current matching process
uses only one Title II number (which is included in the SSI file) and
one HICAN (found in the MedPAR file) for each beneficiary. In the
current matching process, CMS has used the HICAN because it is the
patient identifier that is provided by hospitals on the Medicare claim.
Because SSNs are not included on Medicare inpatient claims, CMS has not
historically used SSNs in the match process.
For a given fiscal year, CMS determines the numerator of the
hospital's SSI fraction (that is, the number of the hospital's
inpatient days for all of its patients who were simultaneously entitled
to Medicare Part A benefits and SSI benefits) by calculating the sum of
the number of the hospital's inpatient days that are associated with
all of the identical Title II numbers and HICANs for the hospital's
claims that are found through the data matching process. In turn, CMS
determines the denominator of the hospital's SSI fraction by
calculating the sum of the number of the hospital's inpatient days for
patients entitled to benefits under Medicare Part A (regardless of SSI
eligibility) that are included in the hospital's inpatient claims for
the period.
3. Baystate Medical Center v. Leavitt Court Decision
In Baystate Medical Center v. Leavitt, 545 F. Supp. 2d 20, as
amended, 587 F. Supp. 2d 37, 44 (D.D.C. 2008), the district court
concluded that, in certain respects, CMS' current matching process (as
described above) did not use the

[[Page 50277]]

``best available data'' to match Medicare patient day information with
SSI eligibility data when calculating the plaintiff's SSI fractions for
FYs 1993 through 1996. Specifically, the court found that:
Stale SSI Records and Forced Pay SSI Records. For the
earliest years in question in Baystate, the SSI eligibility data did
not include ``stale'' records--that is, records for individuals whose
SSI records were no longer active from SSA's perspective. (We note that
it is our understanding that, as of the year 2000, SSA no longer
differentiates between inactive and active records and therefore, no
longer uses the ``stale record'' indicator in its databases.) The court
also found that the SSI data file only included SSI eligibility
information for SSI payments that were automated (as opposed to
manual), thereby excluding those people who, for whatever reason,
received manual or ``forced pay'' payments. Baystate, 545 F. Supp. 2d
at 44-46.
Match Based on Only One Title II Number and One HICAN. The
court found fault with CMS' use of only a single Title II number and
one HICAN in the match process. As a beneficiary may receive SSI and
Medicare Part A benefits under more than one Title II number and HICAN
over a period of time, CMS would not have matched a beneficiary's
records if there had been a change in the person's Title II number and
HICAN between the time of an inpatient stay and when the match process
was completed. Baystate, 545 F. Supp. 2d at 46-49.
Retroactive SSI Eligibility Determinations and Lifting of
Payment Suspensions. The court found that the match process did not
appropriately account for retroactive eligibility determinations of SSI
eligibility and the lifting of payment suspensions because the match
process used SSI eligibility data that did not include more recent
retroactive determinations of SSI eligibility and the lifting of SSI
payment suspensions. By not using more recent SSI eligibility
information that was available to CMS at the time of the hospital's
cost report settlement, the court concluded that CMS did not use the
``best available data'' to calculate the provider's SSI fraction.
Baystate, 545 F. Supp. 2d at 42-44.
CMS continues to believe that its current data matching process and
the resultant SSI fraction and DSH payments were lawful. Nonetheless,
the agency did not appeal the Baystate decision. Accordingly, CMS
implemented the court's decision by recalculating the plaintiff's SSI
fractions for 1993 through 1996. In recalculating the SSI fractions at
issue in the Baystate case, we worked closely with SSA to ensure that
stale and forced pay SSI records were included in the SSI eligibility
data. Also, we used a revised data matching process (described in more
detail below) that comports with the court's decision. As the revised
data matching process was completed using SSI eligibility data compiled
between 13 and 16 years beyond the fiscal years at issue in the
Baystate case, we believe any issues associated with retroactive
determinations of SSI eligibility and the lifting of payment
suspensions had been long since resolved. Furthermore, because we
believe that the revised match process used to implement the Baystate
decision addressed all of the concerns found by the court, in the FY
2011 IPPS/LTCH PPS proposed rule we proposed to use the same revised
data matching process for calculating hospitals' SSI fractions for FY
2011 and subsequent fiscal years.
4. CMS' Process for Matching Medicare and SSI Eligibility Data
a. Inclusion of Stale Records and Forced Pay Records in the SSI
Eligibility Data Files
In recalculating the SSI fractions at issue in the Baystate case,
stale records and forced pay records were included in the SSI
eligibility data files that CMS used in the revised data match for the
four fiscal years at issue. All SSI payment records, whether the
payments were automated or manual or were for an individual whose
record was active or stale, are now included in the data files provided
by SSA and will continue to be included in the future.
b. Use of SSNs in the Revised Match Process
As indicated above, the current matching process only uses one
Title II number and one HICAN in the data match process. As we
discussed in the FY 2011 IPPS/LTCH PPS proposed rule, by contrast, our
revised match process would make use of the Medicare Enrollment
Database (EDB), which is CMS' system of records for all individuals who
have ever been enrolled in Medicare. The EDB includes SSNs as well as
all of an individual's HICANs. In our proposed revised match process,
the individual's SSN, contained in the SSI eligibility data file, would
be compared to the SSNs in the Medicare EDB, and each matched SSN would
then be ``cross-walked'' within the EDB to find any and all HICANs
associated with the individual's SSN. The resulting HICANs would then
be matched against those HICANs contained in the MedPAR claims data
files.
As stated in the proposed rule, before explaining our proposed
revised match process in more detail, we believe it is appropriate to
provide some background regarding SSNs and the three databases that
would be used in our proposed match process. An individual should have
only one SSN, which should be unique to that individual. The SSN may be
assigned by SSA when the individual begins gainful employment (if not
earlier). However, if an applicant for SSI benefits does not already
have a SSN, SSA then assigns a SSN to the person. Thus, in the SSI
eligibility data that SSA provides to CMS, each individual identified
in those data should have a unique SSN.
The first database that we proposed to use in our revised match
process was the SSI eligibility data file, which contains a unique SSN
for every SSI record and could include as many as 10 different
historical Title II numbers for the records related to one individual.
We proposed to use 10 as the maximum number of Title II numbers for a
beneficiary because that is likewise the maximum number of HICANs that
can be attributed to any one individual in our EDB. However, we noted
that, as a practical matter, the greatest number of historical HICANs
associated with any beneficiary appears to be 7. The SSI eligibility
file serves as the system of record for whether or not SSA made a
payment of SSI benefits to an individual who applied for SSI benefits.
The second relevant database, the Medicare EDB, contains a SSN for
virtually every record in the EDB. Furthermore, the EDB has the
capacity to hold up to 10 historical HICANs for a specific Medicare
enrollee. (It is important to note that, of the more than 100 million
records in the EDB, less than 0.07 percent (that is, fewer than 7 of
every 10,000 records) relate to individuals for whom the EDB does not
include a SSN for the person. The EDB might not include a SSN for an
individual if, for example, the person lives in another country but is
entitled to Medicare benefits through his or her spouse.)
The third relevant database that we proposed to use in our revised
match process was the MedPAR file. Hospitals submit claims to Medicare
for inpatient services provided to Medicare beneficiaries. These claims
are eventually accumulated in the MedPAR database. We noted that the
MedPAR database does not contain SSNs. The MedPAR database contains one
HICAN number for each and every record of services provided to a
Medicare

[[Page 50278]]

beneficiary who was admitted to a Medicare-certified hospital or
skilled nursing facility. This database allows us to calculate the
number of Medicare inpatient hospital days, which we use in determining
each hospital's DSH SSI fraction.
Utilizing the steps set forth below, in the proposed rule, we
proposed to use these three databases in a revised match process for FY
2011 and subsequent fiscal years:
Step 1--Use SSNs to find any and all relevant HICANs. We proposed
to use the SSI eligibility file provided by SSA to compare the
individual SSNs in that file to the SSNs contained in the Medicare EDB.
Each matched SSN would then be ``cross-walked'' (within the EDB) to
find any and all HICANs associated with the individual's SSN. The
resulting HICANs would then be matched against those HICANs contained
in the MedPAR claims data files. This process should identify all
relevant SSI records in which a SSN is associated with an individual
who is simultaneously enrolled in Medicare Part A and in the SSI
program.
Step 2--Utilize any and all Title II numbers. In order to provide
further assurance that all of the Title II numbers and HICANs for SSI-
eligible individuals have been identified, next we proposed to compare
the complete list of Title II numbers from the SSI data file (up to 10
Title II numbers for any one individual) to the list of HICANs
generated through Step 1 above. If the SSI data file includes any Title
II numbers that were not already identified in Step 1, the Title II
number would be included in our revised match process and compared to
any and all HICANs in MedPAR. We noted that by including this second
step (that is, adding all Title II numbers not previously identified by
Step 1), we were addressing the very small universe of individuals for
whom the EDB does not include a SSN. If an individual is entitled to
SSI benefits and Medicare benefits, the new format of the SSI
eligibility file will contain up to 10 Title II numbers and, if they
have not already been captured, each of those numbers will be included
in our revised match process. Even if an individual does not have a SSN
in the EDB, this second step should ensure that our revised match
process will include that individual.
Step 3--Ensure consistency between the HICANs in the EDB, Title II
numbers, and the HICANs in the MedPAR file. The EDB stores the
beneficiary's record at the most specific level of detail. For example,
if the beneficiary's Medicare eligibility was originally based on the
earnings history of a spouse who subsequently dies, the beneficiary
would have two HICANs. Both HICANs, which would have the same root, but
different BICs, would be stored in the EDB. However, the inpatient
claim in the MedPAR file will only have the individual's HICAN at a
more general level of detail; in the preceding example, the BIC would
identify the beneficiary only as a spouse without specifying whether
the spouse (that is, the ``primary'' beneficiary) was alive or
deceased. This third step should ensure consistency between the HICANs
from Step 1 and the Title II numbers from Step 2 by ``equating'' (or
converting) the BIC identifiers to the identifiers that are on the
inpatient claim that is included in the MedPAR file. In addition, we
proposed that, for any SSI-eligible beneficiary who is receiving
Medicare benefits based on his or her own account but whose records
have not been matched already, we would attempt to match the
beneficiary's HICAN in the MedPAR file. Specifically, we proposed to
simply add an ``A'' to all the SSNs in the SSI eligibility data file so
that, if that individual was not captured by Steps 1 and 2 above (for
whatever unlikely reason) but MedPAR indicated that the person had
received Medicare services, the individual would be included in the
data match process by this third step.
Step 4--Calculate the SSI fraction. We did not propose any changes
with respect to the final step in determining the SSI fraction. To
calculate the numerator of the SSI fraction, CMS would continue to sum
a hospital's Medicare inpatient days in the acute care part of the
hospital (excluding IPPS-exempt units such as rehabilitation and
psychiatric units) where the Medicare beneficiary was simultaneously
entitled to SSI benefits. To calculate the denominator, CMS would
continue to sum a hospital's total Medicare inpatient days in the acute
care part of the hospital.
Comment: Many commenters supported the proposed data matching
process and applauded CMS for working to refine the data matching
process and for sharing details of the process in the proposed rule.
Some commenters stated that it was difficult to determine the accuracy
of the proposed data matching process without more details about the
matching process, including more information on steps, testing, and
validation processes or, alternatively, providing the underlying data
files to the hospitals. Some commenters asked that CMS ensure that all
HICANs included in the MedPAR file match to a HICAN in the EDB. The
commenters requested that CMS exclude any HICANs from the MedPAR file
that did not match to the EDB so that the SSI fractions would not be
understated. Commenters also asked that CMS ensure that the proposed
data matching process is consistent with Federal Information Processing
Standards (FIPS). One commenter asked that CMS include SSI indicators
in the EDB and give access to authorized parties so that hospitals can
calculate their own SSI fractions and litigation over the SSI fractions
would be reduced.
Response: We appreciate the commenters' support of our proposed
data matching process. We believe that the proposed data matching
process will produce more accurate SSI fractions. We also believe that
we have shared all relevant details about the proposed revised data
matching process in order to allow the public a meaningful opportunity
to submit comments. Specifically, we have described the specific data
files we intend to use, provided information and background about those
data files along with a detailed, step-by-step description of how we
intend to use those files for purposes of the data matching process,
and provided specific information, including examples, of the specific
timeframes in which we intend to conduct the various aspects of the
data matching processes. However, per the commenters' request, we are
sharing additional details in this final rule about the testing and
validation procedures we intend to use. Specifically, as part of our
internal data validation processes, we will track certain summary
statistics in an effort to minimize any errors or omissions of data
that might lead to inaccurate SSI fractions. The summary statistics we
produce when calculating each fiscal year's SSI fractions for FY 2011
and beyond will include the number of SSI records received from SSA and
will include at least all of the following information about SSI
records that ``matched'' to Medicare inpatient hospital claims using
the revised data matching process: (1) The number of SSI records
matched using the new data matching process; (2) the number of records
indicating that the individual is deceased; and (3) the number of
records where at least one SSI monthly indicator reflects that the
individual was in forced pay or forced due status. Additionally, we
will produce summary statistics relating to SSI records that did not
match to a Medicare inpatient claim, and will include at least all of
the following information: (1) The number of unmatched SSI records with
no Title II numbers; (2) the number of unmatched SSI records with one
or

[[Page 50279]]

more Title II numbers; and (3) the number of records in the EDB with a
HICAN, but no SSN. As these data will be used as part of our internal
data validation process, we do not intend to provide them to the
public.
In response to the comment requesting that we ensure that every
HICAN on the MedPAR file match a HICAN in the EDB, we agree that every
HICAN in the MedPAR file should match a HICAN in the EDB. We believe
that this is necessarily the case because a Medicare claim must be
submitted with a valid HICAN in order to populate the MedPAR database.
As we stated in the proposed rule, the EDB is CMS' system of records
for all individuals who have ever been enrolled in Medicare and
includes SSNs as well as all of an individual's (current and
historical) HICANs. The MedPAR file includes the HICAN under which the
Medicare beneficiary received hospital benefits for a particular
inpatient stay. Therefore, there should not be a HICAN in the MedPAR
file that does not match to a HICAN in the EDB. Because there is no
apparent reason for there to be a case where a HICAN in the MedPAR file
did not match to a HICAN in the EDB, we did not propose to match HICANs
in the MedPAR file to those in the EDB. We also note that ``Step 3'' of
our proposed process should ensure consistency between the HICANs in
the EDB and those in the MedPAR file by ``equating'' (or converting)
the BIC identifiers in the EDB to the identifiers that are on the
inpatient claim that is included in the MedPAR file. We also proposed
that, for any SSI-eligible beneficiary who is receiving Medicare
benefits based on his or her own account but whose records have not
been matched in steps 1 or 2 of the proposed data matching process, we
would attempt to match directly to the beneficiary's HICAN in the
MedPAR file. Specifically, we proposed to add an ``A'' to all the SSNs
in the SSI eligibility data file so that, if that individual was not
captured by Steps 1 and 2 above, but the MedPAR file indicated that the
person had received Medicare services, the individual would be included
in the data match process by this third step. We believe that this step
further helps us to capture any SSI-entitled individual who is
receiving Medicare benefits based on his or her own account. However,
after consideration of this public comment, in an attempt to provide
even more assurances that our data matching process will yield accurate
SSI fractions and capture all Medicare beneficiaries who were entitled
to SSI at the time of their inpatient hospital stay, we will add this
step to our validation procedures when conducting the data matching
process. That is, we will test the MedPAR data to determine whether
each HICAN in the MedPAR file matches to a HICAN in the EDB. In the
unlikely event that we find a HICAN in the MedPAR file that we are not
able to locate in the EDB, we will investigate the record to determine
whether the HICAN is valid (in which case we would include it in our
data matching process). However, if we find that the HICAN is not
valid, we are adopting a policy to exclude that record from the data
matching process, and we also will exclude that invalid record from the
calculation of both the numerator and the denominator of the SSI
fraction.
With respect to the comment about FIPS, we note that the data
matching process is consistent with the FIPS, to the extent the data
used in the data matching process are covered under FIPS.
In response to the comment that we populate the EDB with the
monthly SSI indicators and grant access to certain members of the
public so that hospitals could calculate their own SSI fractions, we
note that the EDB contains several elements of protected personally
identifiable information and is the sole system of records for Medicare
eligibility. As such, we may only provide access to the EDB to persons
authorized under the Privacy Act or the HIPAA Privacy Rule. However, we
agree that there are advantages to allowing hospitals to compute their
own SSI fraction and provide supporting documentation for the amount of
DSH claimed, consistent with the process under the regulations for
computing the Medicaid fraction. We are open to suggestions from the
public regarding how CMS and SSA could provide the data necessary for
hospitals to compute their own SSI fractions without compromising
protected personally identifiable information and other protected
information. We also welcome suggestions describing how CMS or its
contractors should verify the accuracy of the hospitals' computations
without significantly increasing administrative burden.
Comment: A few commenters requested that CMS release each
hospital's detailed SSI fraction data or give hospitals access to
patient-level detail data, including SSI eligibility information, so
each hospital could determine the accuracy of its SSI fractions. One
commenter asked that CMS publish both the Federal fiscal year SSI
fractions and each hospital's cost reporting period SSI fractions. Some
commenters asked that CMS provide assurances that there are no other
data errors or omissions in the SSI file or the data matching process
and asked that CMS work collaboratively with SSA to ensure the accuracy
of the SSI file and to obtain SSNs for records in the EDB that are
missing an SSN.
Response: Under the proposed data matching process for FY 2011 and
beyond, CMS will continue to share certain detailed SSI fraction data
used to calculate the hospital's SSI fraction as long as the hospital
has a valid data use agreement with CMS and submits a request for such
data. More detail on obtaining these data may be found on our Web site
at: http://www.cms.gov/PrivProtectedData/07_DSHRateData.asp and the
data use agreement application may be found on our Web site at: http://cmsnet.cms.hhs.gov/hpages/oisnew/sysndata/access_to_data/cms-DUA.pdf.
As we stated in the proposed rule, we publish these data for every
hospital based on the Federal fiscal year but, under the regulations at
Sec. 412.106(b)(3), a hospital with a cost reporting period that
differs from the Federal fiscal year may request a revised SSI fraction
that is based on its own cost reporting period rather than the Federal
fiscal year. In such a case, we would revise the hospital's SSI
fraction using SSI and Medicare data derived from the data match
process for the two Federal fiscal years that spanned the hospital's
cost reporting period. We believe that the statute governing the SSI
fraction (section 1886(d)(5)(F)(vi)(I) of the Act) requires that one
SSI fraction be calculated and used for purposes of determining a
hospital's disproportionate patient percentage. We believe that
allowing individual hospitals to request their own cost reporting
period SSI fractions is sufficient and goes above and beyond what the
statute requires. The current policy of calculating all hospitals' SSI
fractions based on the Federal fiscal year does not require that we
maintain a list of each individual hospital's cost reporting period,
nor does it require that we perform multiple iterations of the data
matching process. It would be administratively unwieldy to not only
track every hospital's cost reporting period, but to calculate SSI
fractions based on the many different cost reporting periods that
hospitals across the country may have.
With respect to the comment requesting that CMS work with SSA to
ensure accuracy of the SSI file, we note that CMS has worked
collaboratively with SSA throughout the development of the data
matching process that was described in the FY 2011 proposed rule.

[[Page 50280]]

We are committed to continue working with SSA to ensure that the file
we receive from SSA for the purposes of the SSI fraction data matching
process is complete and comprehensive and includes all individuals who
are entitled to SSI. To our knowledge, there are no omissions or data
errors on the SSI file that we receive from SSA. If we become aware of
any such omissions or errors, we will work with SSA to correct them as
quickly as possible. With respect to obtaining an SSN for each record
in the EBD that does not have an SSN, we remind the commenters that
``of the more than 100 million records in the EDB, less than 0.07
percent (that is, fewer than 7 of every 10,000 records) relate to
individuals for whom the EDB does not include a SSN for the person.''
There are valid reasons that a person in the EDB may not have an SSN.
For example, as we noted in the proposed rule, a person could live in a
country other than the United States, but be entitled to Medicare
benefits through his or her spouse. Another example of a record in the
EDB that may validly lack an SSN is if the person filed for a spouse's
or widow/er's benefit prior to the 1980's because SSA did not require
that the person filing for benefits have an SSN at that time. There may
be other valid reasons that a record in the EDB does not have an SSN,
and as we previously stated, less than 0.07 percent of records in the
EDB lack an SSN. We do not believe that it is possible to add an SSN
for every record if the person became entitled to Title II or Medicare
benefits without ever applying or receiving an SSN. However, we note
that the EDB is populated by SSA on a frequent basis; to the extent
that a record is added to the EDB, the SSN that SSA has on file for
that person should be included in the EDB as well. Moreover, even if
there were instances in which a record in the EDB was missing an SSN,
the lack of an SSN for certain records in the EDB should have no effect
on the data matching process because, in order to be entitled to SSI
benefits, an individual must have an SSN. That is, a person who does
not have an SSN, by definition, cannot be entitled to SSI. (We refer
readers to the proposed rule language at 75 FR 24003 that states:
``However, if an applicant for SSI benefits does not already have a
SSN, SSA then assigns a SSN to the person.'') Thus, in the SSI
eligibility data that SSA provides to CMS, each individual identified
in those data should have a unique SSN. Additionally, as we stated
under Step 2 of the proposed data matching process, if an individual is
entitled to SSI benefits and Medicare benefits, the new format of the
SSI eligibility file will contain up to 10 Title II numbers and, if
they have not already been captured, each of those numbers will be
included in our revised match process. Even if an individual does not
have a SSN in the EDB, this second step should ensure that our revised
match process will include that individual.
In response to the comment that CMS share the SSI file data with
hospitals, the SSI program is under the authority of SSA and CMS is not
authorized to share SSA data. Additionally, CMS is only permitted to
use the SSI data for the sole purpose of conducting the data match
process and calculating the SSI fractions. To the extent that a third
party wishes to obtain direct access to the SSI file, it must contact
SSA directly and meet SSA's requirements to become an authorized user.
Comment: One commenter stated that CMS uses total (that is, ``paid
and unpaid'') Medicare days in the denominator of the SSI fraction, but
uses paid SSI days in the numerator of the SSI fraction. The commenter
requested that CMS interpret the word ``entitled'' to mean ``paid'' for
both SSI-entitled days used for the numerator and Medicare-entitled
days used in the denominator, or alternatively, that CMS include both
paid and unpaid days for both SSI entitlement and Medicare entitlement
such that there is consistency between the numerator and the
denominator of the SSI fraction. The commenter stated that there were
several SSI codes that represent individuals who were eligible for SSI,
but not eligible for SSI payments, that should be included as SSI-
entitled for purposes of the data matching process. Specifically, the
commenter stated that at least the following codes should be considered
to be SSI-entitlement:
E01 and E02
N06, N10, N11, N18, N35, N39, N42, N43, N46, N50, and N54
P01
S04, S05, S06, S07, S08, S09, S10, S20, S21, S90, and S91
T01, T20, T22, and T31
Response: In response to the comment that we are incorrectly
applying a different standard in interpreting the word ``entitled''
with respect to SSI entitlement versus Medicare entitlement, we
disagree. The authorizing DSH statute at section 1886(d)(5)(F)(vi)(I)
of the Act limits the numerator to individuals entitled to Medicare
benefits who are also ``entitled to supplemental security income
benefits (excluding any State supplementation)'' (emphasis added).\19\
Consistent with this requirement, we have requested, and are using in
the data matching process, those SSA codes that reflect ``entitlement
to'' receive SSI benefits. Section 1602 of the Act provides that
``[e]very aged, blind, or disabled individual who is determined under
Part A to be eligible on the basis of his income and resources shall,
in accordance with and subject to the provisions of this title, be paid
benefits by the Commissioner of the Social Security'' (emphasis added).
However, eligibility for SSI benefits does not automatically mean that
an individual will receive SSI benefits for a particular month. For
example, section 1611(c)(7) of the Act provides that an application for
SSI benefits becomes effective on the later of either the month
following the filing of an application for SSI benefits or the month
following eligibility for SSI benefits.
---------------------------------------------------------------------------

\19\ As a side note, we have used the phrase ``SSI-eligible''
interchangeably with the term ``SSI-entitled'' in the FY 2011
proposed rule as well as prior proposed and final rules, but the
statute requires that we include individuals who were entitled to
SSI benefits in the SSI fractions. Although we have used these terms
interchangeably, we intended no different meaning, and our policy
has always been to include only Medicare beneficiaries who are
entitled to receive SSI benefits in the numerator of the SSI
fraction.
---------------------------------------------------------------------------

On the other hand, section 226 of the Act provides that an
individual is automatically ``entitled'' to Medicare Part A when the
person reaches age 65 and is entitled to Social Security benefits under
section 202 of the Act (42 U.S.C. 402) or becomes disabled and has been
entitled to disability benefits under section 223 of the Act (42 U.S.C.
423) for 24 calendar months. Section 226A of the Act provides that
qualifying individuals with end-stage renal disease shall be entitled
to Medicare Part A. In addition, section 1818(a)(4) of the Act provides
that, ``unless otherwise provided, any reference to an individual
entitled to benefits under [Part A] includes an individual entitled to
benefits under [Part A] pursuant to enrollment under [section 1818] or
section 1818A.'' We believe that Congress used the phrase ``entitled to
benefits under part A'' in section 1886(d)(5)(F)(vi) of the Act to
refer individuals who meet the criteria for entitlement under these
sections.
Moreover, unlike the SSI program (in which entitlement to receive
SSI benefits is based on income and resources and, therefore, can vary
from time to time), once a person becomes entitled to Medicare Part A,
the individual does not lose such entitlement simply because there was
no Medicare Part A coverage of a

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specific inpatient stay. Entitlement to Medicare Part A reflects an
individual's entitlement to Medicare Part A benefits, not the
hospital's entitlement or right to receive payment for services
provided to such individual. Such Medicare entitlement does not cease
to exist simply because Medicare payment for an individual inpatient
hospital claim is not made. Again, we are bound by section
1886(d)(5)(F)(vi)(I) of the Act, which defines the SSI fraction
numerator as the number of SSI-entitled inpatient days for persons who
were ``entitled to benefits under [P]art A,'' and the denominator as
the total number of inpatient days for individuals who were
``entitled'' to Medicare Part A benefits.
In response to the comment about specific SSI status codes, SSA has
provided information regarding all of the SSI status codes mentioned by
the commenter to assist in the determination of whether any of these
codes represent individuals who were entitled to SSI benefits for the
purposes of calculating the SSI fraction for Medicare DSH. With respect
to the codes that begin with the letter ``T,'' SSA informed us that all
of the codes represent individuals whose SSI entitlement was
terminated. Code ``T01'' represents records that were terminated
because of the death of the individual, but we confirmed that this code
would not be used until the first full month after the death of the
individual. That is, for example, if a Medicare individual was entitled
to SSI during the month of October, was admitted to the hospital on
October 1 and died in the hospital on October 15, the individual would
show up as entitled to SSI for the entire month of October on the SSI
file (code T01 would not be used on the SSI file until November) and 15
Medicare/SSI inpatient hospital days for that individual would be
counted in the numerator and the denominator of the SSI fraction for
that hospital.
Codes beginning with the letter ``S'' reflect records that are in a
``suspended'' status and, according to SSA, do not represent
individuals who are entitled to SSI benefits.
SSA maintains that code ``P01'' is obsolete and has not been used
since the mid-1980s. Therefore, it would not be used on any SSI files
reflecting SSI entitlement for FY 2011 and beyond.
Codes that begin with the letter ``N'' represent records on
``nonpayment'' and are not used for individuals who are entitled to SSI
benefits.
Code ``E01'' represents an individual who is a resident of a
medical treatment facility and is subject to a $30 payment limit, but
has countable income of $30 or more. Such an individual is not entitled
to receive SSI payment. Alternatively, an individual who is a resident
of a medical treatment facility and is subject to a $30 payment limit,
but does not have countable income of at least $30, would be reflected
on the SSI file as a ``C01'' (which denotes SSI entitlement) for any
month in which the requirements described in this sentence are met.
Code ``E02'' is used to identify a person who is not entitled to SSI
payments in the month in which that code is used pursuant to section
1611(c)(7) of the Act, which provides that an application for SSI
benefits shall be effective on the later of (1) the first day of the
month following the date the application is filed, or (2) the first day
of the month following the date the individual becomes eligible for SSI
based on that application. Such an individual is not entitled to SSI
benefits during the month that his or her application is filed or is
determined to be eligible for SSI, but, for the following month, would
be coded as a ``C01'' because he or she would then be entitled to SSI
benefits.
Therefore, both codes E01 and E02 represent individuals who are not
entitled to SSI benefits and are reflected accordingly on the SSI file.
If the individual's entitlement to SSI benefits is initiated the
ensuing month, that individual would then be coded as a ``C01'' on the
SSI file and would be included as SSI-entitled for purposes of the data
matching process.
As we have described above, none of the SSI status codes that the
commenter mentioned would be used to describe an individual who was
entitled to receive SSI benefits during the month that one of those
status codes was used. SSI entitlement can change from time to time,
and we believe that including SSI codes of C01, M01, and M02 accurately
captures all SSI-entitled individuals during the month(s) that they are
entitled to receive SSI benefits.
After consideration of the public comments we received, we are
adopting the proposed data matching process for FY 2011 and beyond as
final. The only modification we are making to the proposed data
matching process is adopting a policy to exclude a record from the data
matching process if we find a HICAN in the MedPAR file that we are not
able to locate in the EDB, which is an extremely unlikely situation as
noted in the prior discussion in this final rule. We are adopting this
additional step in our validation process in response to public
comments to provide even more assurances that our data matching process
will yield accurate SSI fractions and capture all Medicare
beneficiaries who were entitled to SSI at the time of their inpatient
hospital stay.
c. Timing of the Match
One of the district court's findings in the Baystate decision was
that CMS did not use a more recent SSI entitlement file to calculate
the provider's SSI fractions. As a result, it might be possible that if
a beneficiary treated at the hospital was later determined
retroactively to be SSI entitled, or if a suspension of the
individual's SSI payments was later lifted, that inpatient stay might
not be included in the numerator of the SSI fraction. We believe that,
in our recalculation of the Baystate hospital's SSI fractions and DSH
payments, retroactive SSI entitlement determinations and the lifting of
SSI payment suspensions were not an issue due to the long period of
time that elapsed between the provider's 1993 through 1996 fiscal years
and our use of updated SSI entitlement data during our completion of
the revised match process in 2009. However, we stated our belief that
further consideration of the timing of both the SSI entitlement
information that SSA provides to CMS and our proposed revised match
process for FY 2011 and subsequent fiscal years was warranted.
At present, SSA provides an annual file to CMS with SSI entitlement
information that is current through March 31, or 6 months after the end
of the prior Federal fiscal year on September 30 (70 FR 47278, 47440,
August 12, 2005). Based on this date, for a hospital with an October 1
to September 30 cost reporting period, the SSI entitlement information
we currently use contains 6 to 18 months worth of retroactive SSI
entitlement determinations and payment suspension closures--6 months
from September (that is, the end of the cost reporting period), and 18
months from October (that is, the beginning of the cost reporting
period). The time lag between the close of a hospital's cost reporting
period and the date that CMS receives SSI entitlement information could
actually be longer or shorter for some hospitals, depending on the
hospital's specific cost reporting period. The SSI fractions are
generally based on the Federal fiscal year; however, under the
regulations at Sec. 412.106(b)(3), a hospital with a cost reporting
period that differs from the Federal fiscal year may request a revised
SSI fraction that is based on its own cost reporting period rather than
the Federal fiscal year. In such a case, we would revise the hospital's
SSI fraction using SSI and Medicare data derived from the data match
process for the two Federal fiscal years that

[[Page 50282]]

spanned the hospital's cost reporting period.
As we stated in the FY 2006 IPPS final rule, we believe that
administrative finality with respect to the calculation of a hospital's
SSI fraction is important (70 FR 47440). We continue to believe that it
is important to find an appropriate balance between administrative
finality (that is, the final settlement of a hospital's cost report)
and the inclusion of retroactive SSI eligibility determinations and the
lifting of SSI payment suspensions by using the best and latest
available SSI eligibility data at the time of cost report settlement.
Further, we believe it is important to account for the time period in
which hospitals are allowed to submit timely Medicare claims in order
to ensure that the point in time that we perform the match process
includes as many timely submitted inpatient hospital claims as are
administratively practicable.
In accordance with the regulations at 42 CFR 424.44 and the
Medicare Claims Processing Manual (Pub. 100-04), Chapter 1, Section 70,
a hospital must generally file a claim by December 31 of the following
year (for services furnished during the first 9 months of a calendar
year) and by December 31 of the second following year (for services
provided during the last 3 months of the calendar year). Section 6404
of the Affordable Care Act recently changed these deadlines to no more
than ``1 calendar year after the date of service'' effective for
services provided on or after January 1, 2010. Therefore, Medicare
claims for hospital services furnished in FY 2011 would have to be
submitted no later than September 30, 2012.
Generally speaking, providers have a financial incentive to submit
fee-for-service claims as close as possible to the date of the
patient's discharge, and providers have no incentive to wait until the
claims submission deadline. Thus, while conducting a data match with
MedPAR files that were updated 6 months after the end of the Federal
fiscal year may not capture all of a provider's Medicare inpatient
claims, we believe that, in large part, the provider's fee-for-service
claims are very likely to be included in that MedPAR file. The same may
not be true for the ``information only'' or ``no pay'' claims that
hospitals are required to submit to their fee-for-service contractor
for Medicare Advantage (MA) beneficiaries. Because claims for MA
beneficiaries are paid by MA plans and not the fee-for-service
contractor, hospitals may not have the same incentive to file these
claims as close as possible to the date of the patient's discharge.\20\
However, in accordance with Transmittal 1396 (issued December 14, 2007)
and Transmittal 1695 (issued March 6, 2009), which changed the
instructions in the Medicare Claims Processing Manual (Pub. 100-04),
all IPPS hospitals that do not qualify for IME payments, direct GME
payments, or nursing and allied health (N&AH) payments are specifically
directed to submit informational-only claims for all MA inpatients to
ensure that all data for MA beneficiaries are included in the SSI
fraction. Accordingly, we indicated that we also were considering
changes to the timing of the data match process to ensure that all of a
hospital's MA claims are included in the revised matching process,
given the current timing requirements for when hospitals must submit
these claims after the time of the patient's discharge.
---------------------------------------------------------------------------

\20\ Teaching hospitals have an incentive to submit these claims
as close as possible to the date of the patient's discharge because
these claims are used, in part, to compute those hospitals' indirect
graduate medical education payments. The claims are also used for a
teaching hospital's direct medical education payments. Non-teaching
DSH hospitals do not have the same direct incentives to submit these
claims as close as possible to the date of the patient's discharge,
but to the extent that the MA beneficiary is also SSI eligible, it
would be to the hospital's advantage to ensure these claims are
included in the match process. However, nonteaching DSH hospitals
are required to submit MA claims for all MA beneficiaries,
regardless of whether the beneficiaries were eligible for SSI
benefits.
---------------------------------------------------------------------------

In addition, in matching eligibility records for Medicare
beneficiaries and SSI recipients to calculate the SSI fractions for FY
2011 and future fiscal years, we proposed to use more recent SSI
eligibility information from SSA and a more updated version of the
MedPAR file that is likely to contain more claims data. We currently
use SSI eligibility data and MedPAR claims data that are updated 6
months after the close of the Federal fiscal year. We proposed to use,
for FY 2011 and subsequent years, SSI eligibility data files compiled
by SSA and MedPAR claims information that are updated 15 months after
the close of each Federal fiscal year. This proposal would more closely
align the timing of the match process with the timing of our
requirements (described above) for the timely submission of claims. For
example, under our proposal, to calculate the FY 2011 SSI fractions, we
would use the December 2012 update of the FY 2011 MedPAR file
(containing claims information for patient discharges between October
1, 2010 and September 30, 2011), and a December 2012 SSI eligibility
file (containing FY 2011 SSI eligibility data updated through December
2012, with a lag time relative to the Federal fiscal year of between 15
and 27 months). We expect that the FY 2011 SSI fractions would be
published around March 2013 and would be used to settle cost reports
for cost reporting periods that began in FY 2011. In addition, we would
continue our practice of using each hospital's latest available SSI
fraction in determining IPPS interim payments from the time that the
SSI fractions are published until the SSI fractions for the next fiscal
year are published.
Under current law as amended by section 6404 of the Affordable Care
Act, Medicare inpatient claims for FY 2011 can be submitted no later
than 1 calendar year from the date of service or by September 30, 2012,
for claims with a September 30, 2011 date of service. Therefore, we
believe that using the version of MedPAR that is updated 15 months
after the end of the fiscal year would contain more accurate and
complete inpatient claims information, as we would be using claims data
from 3 months after the filing deadline for claims with a date of
service occurring on the last day of the second preceding fiscal year.
Furthermore, a later update of the SSI eligibility file would contain
more accurate eligibility information and would account for all
retroactive changes in SSI eligibility and the lifting of SSI payment
suspensions through that date.
We proposed that the FY 2011 SSI fractions would be used to
determine the hospitals' Medicare DSH payments for cost reporting
periods beginning in FY 2011 (that is, October 1, 2010 through
September 30, 2011). The proposed timing of the data match for the SSI
fractions, effective for FY 2011, would result in FY 2011 SSI fractions
being published around March 2013 and would generally coincide with the
final settlement of cost reports for cost reporting periods beginning
in FY 2011.
We believe that, by calculating SSI fractions on the basis of SSI
eligibility data and MedPAR claims data that are updated 15 months
after the end of the Federal fiscal year, we would be using the best
data available to us, given the deadlines for the submission and final
settlement of Medicare cost reports. Cost reports must be submitted to
the Medicare fiscal intermediary or MAC no later than 5 months after
the end of the provider's cost reporting period; the fiscal
intermediary or MAC must make a determination of cost report
acceptability within 30 days of receipt of the provider's cost report
(42 CFR 413.24(f)(2)(i) and 413.24(f)(5)(iii)). In accordance with the
Medicare Financial Manual (Pub. 100-06), Chapter 8,

[[Page 50283]]

Section 90, the fiscal intermediary or MAC is expected to settle each
cost report that is not scheduled for audit within 12 months of the
contractor's acceptance of the cost report. We believe that our
proposed timing of the data match would achieve an appropriate balance
between accounting for additional retroactive SSI eligibility
determinations and the lifting of SSI payment suspensions using all
timely submitted Part A inpatient claims, and facilitating
administrative finality through the timely final settlement of Medicare
cost reports.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR16AU10.085

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BILLING CODE 4120-01-C
Comment: Many commenters supported the proposed timing of the data
matching process. Some commenters asked that CMS explain how cost
report settlement would coincide with the proposed timing.
Specifically, commenters asked whether contractors would issue Notices
of Program Reimbursement prior to the availability of the SSI
fractions. One commenter asked that CMS calculate an additional SSI
fraction at the time of cost report audit for cost reports that are
audited after the initial SSI fractions are published. One commenter
noted that under the proposed timeline for calculating the SSI
fractions, some hospitals would have already submitted their cost
reports and had desk reviews and audits before the release of the SSI
fractions. In particular, some commenters were concerned that hospitals
with fiscal years beginning between October 1 and December 1 would have
their cost reports settled before the release of the SSI fractions. One
commenter cited Medicare Financial Management Manual Publication 100-
06, Chapter 8, Section 90 that requires final settlement of cost
reports within 12 months of acceptance. Commenters are concerned that
the 12-month cost report settlement deadline may occur before the
publication of the SSI fractions for certain cost reporting periods.
Commenters questioned whether CMS will instruct Medicare contractors to
hold the Notice of Program Reimbursement until the SSI fractions are
released or will the contractors settle cost reports using the prior
year's SSI fraction. In addition, commenters questioned whether
contractors would automatically re-open cost reports to use the current
year's SSI fractions if they were settled using the prior year's SSI
fraction before the publication of the current year's SSI fractions.
Response: We appreciate the support for our proposal to change the
timing of our match and calculation of the SSI fractions from 6 months
after the end of the Federal fiscal year to 15 months after the end of
the Federal fiscal year. We believe that our proposal to conduct the
SSI eligibility match and calculate the SSI fractions 15 months after
the end of the Federal fiscal year will ensure that the SSI fractions
are calculated with the best data available to us at that time. We note
that the 15-month timeframe proposed is an approximation and subject to
the data validation protocols as described previously in this final
rule. We believe that the match will be conducted no sooner than 15
months after the end of the Federal fiscal year and the match process,
including all appropriate validation steps as finalized, will be
performed as efficiently as possible and in accordance with the
production cycles of the required data files.
Hospitals submit their cost reports based on their cost reporting
period, which varies by hospital. Thus, it would be administratively
unwieldy to conduct the SSI match in ``real-time'' and calculate an
individual hospital's SSI fraction whenever that hospital's cost report
needed to be settled. By calculating the SSI fractions 15 months after
the end of the Federal fiscal year, we believe that we are striking an
appropriate balance between the best data available to us at the time
and the agency's operational needs, using the best available data that
does not unduly hinder the cost report settlement process. As we
discussed in the proposed rule, hospital cost reports are submitted to
the Medicare contractor no later than 5 months after the end of the
provider's cost reporting period. The Medicare contractor must accept
the cost report within 30 days of receipt (in accordance with 42 CFR
413.24(f)(2)(i) and 413.24(f)(5)(iii)), and is expected to settle the
cost reports that are not audited within 12 months of acceptance of the
cost report (in accordance with Medicare Financial Management Manual
Publication 100-06, Chapter 8, Section 90). Generally, hospital cost
reports are not final settled without the SSI fraction that corresponds
to the fiscal year in which the cost report began. Commenters raised
concerns that hospitals with fiscal years beginning October 1, 2010 or
December 1, 2010 (thus, ending September 30, 2011 or November 30, 2011)
would be settled before the release of the SSI fractions. Those cost
reports would be submitted by the end of February 2012 or April 2012;
they would be accepted by March 2012 or May 2012 and would need to be
final settled no later than March 2013 or May 2013. We believe that
under our proposal to calculate the SSI match 15 months after the end
of the Federal fiscal year, cost reports will be settled with the
appropriate SSI fraction within the timeframe of cost report settlement
and that cost reports will be final settled with the SSI fraction of
the given year. In the case where a cost report is required to be
settled before the SSI fractions are published, CMS may instruct that
the contractors settle the cost report with the latest SSI fraction
available and may reopen the cost report to issue a revised notice of
program reimbursement once the appropriate SSI fraction is available,
or we may instruct the contractors to wait to settle the cost report
until the appropriate SSI fractions are published. We will continue to
evaluate what would be the best approach in such a scenario.
Comment: One commenter stated that the chart in the proposed rule
that displayed the timeline for the revised match process indicated
that, for FY 2011, the timely filing of claims ends in December 2012
when it should be September 2012. The commenter asked that CMS correct
the deadline for the timely filing of claims for FY 2011 to read
September 2012.
Response: We agree with the commenter. Under section 6404 of the
Affordable Care Act, the deadline for timely filing of claims has been
revised to be one year after the end of the Federal fiscal year,
effective January 1, 2010. Therefore, hospitals will have until
September 2012 to file their FY 2011 claims. The chart has been revised
in this final rule to reflect this change. Although the deadline for
the timely filing of claims is 12 months after the end of the Federal
fiscal year, we are finalizing our proposal to conduct the data
matching process and calculate SSI fractions approximately 15 months
after the end of the Federal fiscal year to ensure we have captured all
of the inpatient claims and to capture as many retroactive SSI
entitlement determinations as possible.
After consideration of the public comments that we received, we are
adopting a policy to conduct the data matching process approximately 15
months after the end of the Federal fiscal year.
5. CMS Ruling 1498-R
On April 28, 2010, the CMS Administrator issued a CMS Ruling, CMS-
1498-R (Ruling), that addresses three Medicare DSH issues, including
CMS' process for matching Medicare and SSI eligibility data and
calculating hospitals' SSI fractions. With respect to the data matching
process issue, the Ruling requires the Medicare administrative appeals
tribunal (that is, the Administrator of CMS, the PRRB, the fiscal
intermediary hearing officer, or the CMS reviewing official) to remand
each qualifying appeal to the appropriate Medicare contractor. The
Ruling also explains how, on remand, CMS and the contractor will
recalculate the provider's DSH payment adjustment and make any payment
deemed owing. The Ruling further provides that CMS and the Medicare
contractors will apply the provisions of the Ruling on the data
matching process issue (and two other DSH issues, as applicable), in
calculating the DSH payment

[[Page 50285]]

adjustment for each hospital cost reporting period where the contractor
has not yet final settled the provider's Medicare cost report through
the issuance of an initial notice of program reimbursement (NPR) (42
CFR 405.1801(a) and 405.1803).
More specifically, the Ruling provides that, for qualifying appeals
of the data matching issue and for cost reports not yet final settled
by an initial NPR, CMS will apply any new data matching process that is
adopted in the forthcoming FY 2011 IPPS final rule for each appeal that
is subject to the Ruling. The data matching process provisions of the
Ruling would apply to properly pending appeals and open cost reports
for cost reporting periods beginning prior to October 1, 2010 (that is,
those preceding the effective date of the FY 2011 IPPS final rule).
The Ruling further states that, if a new data matching process is
not adopted in the forthcoming FY 2011 IPPS final rule, CMS would apply
to claims subject to the Ruling the same data matching process as the
agency used to implement the Baystate decision by recalculating that
provider's SSI fractions. As indicated above, we have adopted the
proposed data matching process for FY 2011 and beyond as final. The
only modification we are making to the proposed matching process is
adopting a policy to exclude a record from the data matching process if
we find a HICAN in the MedPAR file that we are not able to locate in
the EDB, which is an extremely unlikely situation as noted in the prior
discussion in this final rule. We are adopting this additional step in
our validation process to respond to public comment and provide even
more assurances that our data matching process will yield accurate SSI
fractions and capture all Medicare beneficiaries who were entitled to
SSI at the time of their inpatient hospital stay. The same data
matching process will be used to calculate SSI fractions for cost
reporting periods covered under the Ruling.
Comment: Several commenters addressed a variety of issues related
to the Ruling.
Response: We note that Administrator Rulings are not subject to
public comment and that we did not seek public comment on CMS Ruling
1498-R. Accordingly, we are not summarizing or providing responses to
comments related to the Ruling in this final rule.
6. Clarification of Language on Inclusion of Medicare Advantage Days in
the SSI Fraction of the Medicare DSH Calculation
In the FY 2005 IPPS final rule (69 FR 49099), we discussed in the
preamble the codification of our policy of including the days
associated with Medicare + Choice (now Medicare Advantage (MA))
beneficiaries under Medicare Part C in the SSI fraction of the DSH
calculation. In that rule, we indicated that we were revising the
regulation text at Sec. 412.106(b)(2)(i) to incorporate this policy.
However, we inadvertently did not make a change in the regulation text
to conform to the preamble language. We also inadvertently did not
propose to change Sec. 412.106(b)(2)(iii) in the FY 2005 final rule,
although we intended to do so. Accordingly, in the FY 2007 IPPS final
rule (72 FR 47384), we made a technical correction to amend the
regulations at Sec. 412.106(b)(2)(i) and Sec. 412.106(b)(2)(iii) to
make them consistent with the preamble language of the FY 2005 IPPS
final rule and to conform to the policy implemented in that rule.
Section 412.106(b)(2)(i) of the regulations discusses the numerator of
the SSI fraction of the Medicare disproportionate patient percentage
(DPP) calculation, while Sec. 412.106(b)(2)(iii) of the regulations
discusses the denominator of the SSI fraction of the Medicare DPP.
In the proposed rule, we indicated that we were aware that there
might be some confusion about our policy to include MA days in the SSI
fraction, specifically regarding whether we have implied that MA
beneficiaries are not actually ``entitled to receive benefits under
Part A'' by using the word ``or'' in Sec. 412.106(b)(2)(i)(B) and
Sec. 412.106 (b)(2)(iii)(B) with respect to MA days. We note that, in
the FY 2005 final rule, we stated that we believed that Medicare +
Choice (now MA) beneficiaries are patients who are entitled to benefits
under Medicare Part A. With respect to the change to the regulatory
text that we intended to make in the FY 2005 IPPS final rule, we stated
``* * * we are adopting a policy to include patient days for M+C
beneficiaries in the Medicare fraction'' (69 FR 49099) (emphasis
added). In order to further clarify our policy that patients days
associated with MA beneficiaries are to be included in the SSI fraction
because they are still entitled to benefits under Medicare Part A, in
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24006 and 24007), we
proposed to replace the word ``or'' with the word ``including'' in
Sec. 412.106(b)(2)(i)(B) and Sec. 412.106(b)(2)(iii)(B).
Comment: We did not receive any public comments on this specific
proposal. However, several commenters urged CMS to reconsider its
policy to include Medicare Advantage days and days for which a
beneficiary exhausted his or her Medicare inpatient hospital benefits
in the SSI fraction. The commenters stated that such days did not
represent days that individuals were ``entitled to benefits under
Medicare [P]art A'' (because the patient days were not paid for under
Medicare Part A) and as such, should not be included in either the
numerator or denominator of the SSI fraction. The commenters stated
that, to the extent that dually eligible (that is, simultaneously
enrolled in Medicare and Medicaid) Medicare Advantage patients or
exhausted benefits patients had an inpatient hospital stay, those days
should be included in the Medicaid fraction. Additionally, a commenter
stated that CMS did not have sufficient processes in place to assure
that the agency is properly counting all of the days in the SSI
fraction and ``is not double counting any of them in both the numerator
of the Medicaid fraction and the denominator of the SSI fraction.'' The
commenter asked that CMS address why it ``* * * thinks it need not
properly capture all of these days in the denominator of the SSI
fraction or the precise steps that CMS has or will take to assure that
the agency is capturing all of these days in that denominator.''
Response: We did not propose any changes to the categories of
Medicare days that we include in the SSI fractions. Specifically, the
proposed rule states that ``We did not propose any changes with respect
to the final step in determining the SSI fraction. As we stated in the
proposed rule, to calculate the numerator of the SSI fraction, CMS will
continue to sum a hospital's Medicare inpatient days in the acute care
part of the hospital (excluding IPPS-exempt units such as
rehabilitation and psychiatric units) where the Medicare beneficiary
was simultaneously entitled to SSI benefits. To calculate the
denominator, CMS will continue to sum a hospital's total Medicare
inpatient days in the acute care part of the hospital.''
Accordingly, we are not responding to these comments in detail.
However, we disagree that Medicare Advantage days and exhausted benefit
days should be excluded from the SSI fraction. We believe that the days
of all patients who are entitled to SSI and Medicare Part A should be
included in the Medicare fraction. We adopted a policy to include

[[Page 50286]]

exhausted benefit and other noncovered days in the SSI fraction, after
notice and comment rulemaking, in FY 2005 (69 FR 49099). We adopted a
policy to include Medicare health maintenance organization (HMO) days
in the September 4, 1990 final IPPS rule (55 FR 35994), and this
longstanding policy has continued as Medicare HMOs have evolved, and
these patient days have been included with every iteration of Medicare
HMOs, including patient days for beneficiaries entitled to Medicare
Part A but who elect to obtain their benefits through Medicare
Advantage. As discussed above, we codified this policy in our
regulations in the FY 2005 IPPS final rule (69 FR 49099).
As we have previously explained, we believe that, in the statutory
section which sets forth the Medicare DSH fraction, the phrase
``entitled to benefits under [P]art A'' refers to individuals who are
entitled to Part A benefits under Part A pursuant to section 226,
section 226A, section 1818, or section 1818A (42 U.S.C. 426, 42 U.S.C.
426-1, 42 U.S.C. 1395i-2, or 42 U.S.C. 1395i-2(a), respectively). We
note that the statute uses mandatory language, unambiguously stating
that qualifying individuals ``shall be entitled to benefits under
[P]art A.'' Patients who have exhausted their Part A hospital benefits
or enrolled in Medicare Advantage still meet the statutory criteria for
entitlement to Medicare Part A benefits, even though Medicare Part A
does not directly pay for a particular inpatient day.
With respect to exhausted benefit days, we note that a
beneficiary's right to have Medicare make a payment is subject to the
limitations in Part A. The rule that Medicare will not pay for days
after Part A hospital benefits are exhausted is an example of one of
those restrictions. Thus, a patient remains entitled to benefits under
Part A on days where Medicare does not make a payment because of those
limitations, and consistent with section 1886(d)(5)(F)(vi)(I) of the
Act, these days should be included in the SSI fraction.
With respect to the days of patients enrolled in Medicare Advantage
plans, we believe that the sections of the Social Security Act which
create Part C clearly demonstrate that Part C enrollees remain entitled
to Medicare Part A benefits, and we do not believe that Congress
intended to alter the calculation of the DSH payment adjustment when it
enacted Medicare Part C. Moreover, we also believe that the commenters'
objections to including the days of patients enrolled in Medicare
Advantage would be equally applicable to patients enrolled in section
1876 risk plans, but section 1876 of the Act repeatedly makes clear
that patients enrolled in section 1876 risk plans remain entitled to
benefits under Medicare Part A.
Finally, while the commenters suggest that patients who have
exhausted their Part A hospital benefits or enrolled in Medicare
Advantage should be counted in the Medicaid fraction, we note that not
all patients who are entitled to SSI are also eligible for Medicaid.
Thus, adopting the commenters' proposal would result in some patients
entitled to SSI and Medicare Part A not being counted in the numerator
of either of the DSH fractions. We believe that this result would be
contrary to Congressional intent. Consequently, we see no reason to
revise our policy at this time.
In response to the comment requesting that CMS assure that it is
including all exhausted days and Medicare Advantage days in the SSI
fraction and asserting that CMS does not have sufficient processes in
place to assure accurate counting, we believe that we are properly
counting these types of days, to the extent that hospitals comply with
Medicare requirements and submit claims for those days. We do not
believe it is necessary to go into further detail about our processes
for capturing these types of days in this final rule because we did not
make any proposal related to that issue.
We are adopting our proposed revision of Sec. 412.106(b)(2)(i)(B)
and Sec. 412.106(b)(2)(iii)(B) as final, without modification.

G. Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec. 412.108)

1. Background
Under the IPPS, separate special payment protections are provided
to a Medicare-dependent, small rural hospital (MDH). MDHs are paid
based on the higher of the Federal rate for their hospital inpatient
services or a blended rate based in part on the Federal rate and in
part on the MDH's hospital-specific rate. Section 1886(d)(5)(G)(iv) of
the Act defines an MDH as a hospital that is located in a rural area,
has not more than 100 beds, is not an SCH, and has a high percentage of
Medicare discharges (that is, not less than 60 percent of its inpatient
days or discharges either in its 1987 cost reporting year or in two of
its most recent three settled Medicare cost reporting years). The
regulations at 42 CFR 412.108 set forth the criteria that a hospital
must meet to be classified as an MDH.
Although MDHs are paid under an adjusted payment methodology, they
are still IPPS hospitals paid under section 1886(d) of the Act. Like
all IPPS hospitals paid under section 1886(d) of the Act, MDHs are paid
for their discharges based on the DRG weights calculated under section
1886(d)(4) of the Act.
Through and including FY 2006, under section 1886(d)(5)(G) of the
Act, MDHs are paid based on the Federal rate or, if higher, the Federal
rate plus 50 percent of the amount by which the Federal rate is
exceeded by the updated hospital-specific rate based on the hospital's
FY 1982 or FY 1987 costs per discharge, whichever of these hospital-
specific rates is higher. Section 5003(b) of Public Law 109-171 (DRA
2005) amended section 1886(d)(5)(G) of the Act to provide that, for
discharges occurring on or after October 1, 2006, MDHs are paid based
on the Federal rate or, if higher, the Federal rate plus 75 percent of
the amount by which the Federal rate is exceeded by the updated
hospital-specific rate based on FY 1982, FY 1987, or FY 2002 costs per
discharge, whichever of these hospital-specific rates is highest.
For each cost reporting period, the fiscal intermediary or MAC
determines which of the payment options will yield the highest
aggregate payment. Interim payments are automatically made at the
highest rate using the best data available at the time the fiscal
intermediary or MAC makes the determination. However, it may not be
possible for the fiscal intermediary or MAC to determine in advance
precisely which of the rates will yield the highest aggregate payment
by year's end. In many instances, it is not possible to accurately
forecast the outlier payments, the amount of the DSH adjustment or the
IME adjustment, all of which are applicable only to payments based on
the Federal rate and not to payments based on the hospital-specific
rate. The fiscal intermediary or MAC makes a final adjustment at the
settlement of the cost report after it determines precisely which of
the payment rates would yield the highest aggregate payment to the
hospital.
If a hospital disagrees with the fiscal intermediary's or the MAC's
determination regarding the final amount of program payment to which it
is entitled, it has the right to appeal the determination in accordance
with the procedures set forth in 42 CFR part 405, subpart R, which
govern provider payment determinations and appeals.

[[Page 50287]]

2. Medicare-Dependency: Counting Medicare Inpatients
Currently, as specified in the regulations at Sec.
412.108(a)(1)(iii), in order for an IPPS hospital to qualify as an MDH,
at least 60 percent of its inpatient days or discharges must be
attributable to individuals receiving Medicare Part A benefits.
The MDH policy, as explained in the FY 1991 final rule (55 FR 35994
through 35998), does not include in the count of Medicare inpatients
those Medicare beneficiaries who have exhausted their Medicare Part A
inpatient benefits. In addition, section 1886(d)(5)(G)(iv)(IV) of the
Act specifies that a hospital is Medicare-dependent if ``not less than
60 percent of its inpatient days or discharges during the cost
reporting period beginning in fiscal year 1987, or two of the three
most recently audited cost reporting periods for which the Secretary
has a settled cost report, were attributable to inpatients entitled to
benefits under part A.'' The use of the word ``entitled'' in the
statute would encompass individuals who are entitled to Medicare Part A
even though they have exhausted their Part A hospital days. Individuals
who have exhausted their Part A inpatient benefit coverage remain
``entitled'' to Medicare Part A because they retain the Medicare Part A
insurance benefit coverage (for example, covered SNF days), and they
continue to meet all statutory criteria for entitlement to Part A
benefits under section 226, 226A, 1818, or 1818A of the Act
(Entitlement to Hospital Insurance Benefits). In fact, for purposes of
determining DSH payment adjustments under the IPPS in accordance with
section 1886(d)(5)(F)(vi)(I) of the Act, our policy includes, in the
Medicare inpatient count, all individuals entitled to Medicare Part A
benefits, including Medicare patients who have exhausted Medicare Part
A coverage. This policy is discussed in the FY 2005 IPPS final rule (69
FR 49090 through 49099).
Accordingly, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23999), we proposed to revise the Medicare-dependency criterion at
Sec. 412.108(a)(1)(iii) of the regulations to replace the term
``receiving'' with the phrase ``entitled to.'' As a result, we would
include in the count of Medicare inpatient days or discharges all days
or discharges attributable to individuals entitled to the Medicare Part
A insurance benefit, including individuals who have exhausted their
Medicare Part A inpatient hospital coverage benefit, as well as
individuals enrolled in Medicare Advantage plans and section 1876 cost
contracts (health maintenance organizations (HMOs) and competitive
medical plans (CMPs)). We note that, for inpatient care provided to
Medicare Part A entitled beneficiaries enrolled with an HMO or a CMP,
we provided that the days and discharges for those stays are counted
for purposes of determining Medicare-dependency for MDH purposes (55 FR
35995). This was the case when HMOs and CMPs were included under
Medicare Part A, and continues to be the case since 1997 when HMOs and
CMPs were placed under Medicare Part C.
Comment: Several commenters supported the proposed change to the
MDH policy to include in the count of Medicare inpatient days or
discharges individuals entitled to Medicare Part A, not just those
receiving Medicare Part A benefits. Another commenter asked if the
proposed change in policy would be effective October 1, 2010, applying
to MDH status determinations from that date forward, or if the proposed
change would be considered a clarification of current policy and,
therefore, would apply retroactively.
Response: The MDH proposal to better conform the regulations to the
statute by including in the count of Medicare inpatient days or
discharges individuals entitled to Medicare Part A even if they are not
receiving Part A hospital inpatient benefits because they have
exhausted these benefits is a proposed change in policy. Because we are
finalizing the proposed change in this final rule, the final policy
change will be effective beginning October 1, 2010, at which time all
Medicare days or discharges of patients entitled to Medicare Part A
will be counted as Medicare days or discharges, affecting the
determination of MDH status for hospitals from October 1, 2010 forward.
After consideration of the public comments we received, we are
adopting the proposed revision to the Medicare-dependency criterion at
Sec. 412.108(a)(1)(iii) as final.
3. Extension of the MDH Program
As we discussed in the June 2, 2010 supplemental proposed rule to
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 30926), section 3124 of
the Affordable Care Act extended the MDH program from the end of FY
2011 (that is, for discharges occurring before October 1, 2011) to the
end of FY 2012 (that is, for discharges occurring before October 1,
2012). Under prior law, as specified in section 5003(a) of Public Law
109-171 (DRA 2005), the MDH program was to be in effect through the end
of FY 2011 only. Section 3124(a) of the Affordable Care Act amended
sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to
extend the MDH program and payment methodology from the end of FY 2011
to the end of FY 2012, by striking ``October 1, 2011'' and inserting
``October 1, 2012''. Section 3124(b) of the Affordable Care Act also
made conforming amendments to sections 1886(b)(3)(D)(i) and
1886(b)(3)(D)(iv) of the Act. Section 3124(b)(2) of the Affordable Care
Act also amended section 13501(e)(2) of OBRA 1993 to extend the
provision permitting hospitals to decline reclassification as an MDH
through FY 2012. We proposed to amend the regulations at Sec.
412.108(a)(1) and (c)(2)(iii) to reflect these legislative changes.
Comment: One commenter supported the extension of the MDH program
for an additional year, through FY 2012.
Response: We appreciate the support of the commenter.
We are adopting as final, without modification, the proposed
changes to Sec. 412.108(a)(1) and (c)(2)(iii) to reflect the statutory
extension of the MDH program for an additional year, through FY 2012.

H. Payments for Direct Graduate Medical Education (GME) (Sec. 413.75)

1. Background
Under section 1886(a)(4) of the Act, costs of approved educational
activities are excluded from the operating costs of hospital inpatient
services. Section 1886(h) of the Act, as implemented in regulations at
Sec. 413.75 through Sec. 413.83, establishes a methodology for
determining payments to hospitals for the direct costs of approved GME
programs. Section 1886(h)(2) of the Act sets forth a methodology for
the determination of a hospital-specific, base-period per resident
amount (PRA) that is calculated by dividing a hospital's allowable
direct costs of GME for a base period by its number of residents in the
base period. The base period is, for most hospitals, the hospital's
cost reporting period beginning in FY 1984 (that is, the period of
October 1, 1983, through September 30, 1984). Medicare direct GME
payments are calculated by multiplying the PRA by the weighted number
of full-time equivalent (FTE) residents working in all areas of the
hospital complex (and nonhospital sites, when applicable), and the
hospital's Medicare share of total inpatient days. The base year PRA is
updated annually for inflation.
Hospitals may receive direct GME and IME payments for residents in
``approved medical residency training programs.'' Section 1886(h)(5)(A)
of the Act defines an ``approved medical

[[Page 50288]]

residency training program'' as ``a residency or other postgraduate
medical training program participation in which may be counted toward
certification in a specialty or subspecialty and includes formal
postgraduate training programs in geriatric medicine approved by the
Secretary.'' Section 1886(h)(4)(F) of the Act established a limit on
the number of allopathic and osteopathic FTE residents that a hospital
may include in its FTE resident count for purposes of calculating
direct GME payments. For most hospitals, the limit, or cap, is the
unweighted number of allopathic and osteopathic FTE residents training
in the hospital's most recent cost reporting period ending on or before
December 31, 1996.
2. Identifying ``Approved Medical Residency Programs''
As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24007), despite the fact that current policies regarding the counting
of FTE residents for IME and direct GME purposes have been in effect
since October 1985, we continue to receive questions as to whether
certain residents are training in approved medical residency programs,
and whether these residents should be included in the Medicare direct
GME and IME FTE counts. Although the fundamental rules defining an
approved medical residency training program seem straightforward, some
confusion apparently exists regarding whether certain trainees in a
teaching hospital should be included in the FTE count for IME and
direct GME purposes, or whether certain trainees should be treated as
physicians and should instead bill for their services under Medicare
Part B. These questions arise most often with regard to subspecialty
training and ``fellows.'' It is important for hospitals to understand
when each of these types of payment applies.
a. Residents in Approved Medical Residency Programs
As stated earlier, section 1886(h)(5)(A) of the Act defines an
``approved medical residency training program'' as ``a residency or
other postgraduate medical training program participation in which may
be counted toward certification in a specialty or subspecialty and
includes formal postgraduate training programs in geriatric medicine
approved by the Secretary.'' The regulations at Sec. 413.75(b) define
an ``approved medical residency program'' as a program that meets one
of the following criteria (emphasis added):
(1) Is approved by one of the national organizations listed in
Sec. 415.152 of the regulations.
(2) May count towards certification of the participant in a
specialty or subspecialty listed in the current edition of either of
the following publications:
(i) The Directory of Graduate Medical Education Programs published
by the American Medical Association; or
(ii) The Annual Report and Reference Handbook published by the
American Board of Medical Specialties.
(3) Is approved by the Accreditation Council for Graduate Medical
Education (ACGME) as a fellowship program in geriatric medicine.
(4) Is a program that would be accredited except for the
accrediting agency's reliance upon an accreditation standard that
requires an entity to perform an induced abortion or require, provide,
or refer for training in the performance of induced abortions, or make
arrangements for such training, regardless of whether the standard
provides exceptions or exemptions.
The regulations at Sec. 415.152 define an ``approved graduate
medical education program'' as a residency program approved by one of
the following national organizations (or their predecessors): The
Accreditation Council for Graduate Medical Education (ACGME) of the
American Medical Association, the American Osteopathic Association
(AOA), the Commission on Dental Accreditation (CODA) of the American
Dental Association, and the Council on Podiatric Medical Education
(CPME) of the American Podiatric Medical Association. (We note that the
ACGME is now a separate entity from the American Medical Association.
Therefore, in this final rule, we are making a technical amendment to
the regulations at Sec. 415.152 to remove the words ``of the American
Medical Association.'') The statutory basis for this regulation is at
section 1861(b)(6) of the Act, which cites these accrediting bodies for
residency programs. Thus, in general, under Sec. 413.75(b), an
``approved'' program can be a program that is accredited by one of
these national organizations, or one that leads toward board
certification by the American Board of Medical Specialties (ABMS). In
the September 29, 1989 final rule (54 FR 40295), we explained that, in
order to reconcile the two statutory definitions of approved programs
at sections 1861(b)(6) and 1886(h)(5)(A) of the Act, we did not limit
our regulatory definition of ``approved medical residency program'' to
one that may count toward certification in a specialty, but added that
a program is also ``approved'' for purposes of IME and direct GME if it
is approved by one of the national accrediting bodies. Furthermore, we
understood that, especially with respect to subspecialty training,
there historically were some formal programs for which none of the
listed national accrediting bodies had established standards. However,
the ABMS had established a national board examination for some of those
unaccredited programs and, consequently, those programs do count toward
certification. Accordingly, such programs also meet the definition of
an ``approved medical residency training program.''
b. Determining Whether an Individual Is a Resident or a Physician
The statute and the regulations (in at least two places in the
teaching context) define the term ``resident.'' Section 1861(b)(6) of
the Act refers to services provided in a hospital by an ``intern or
resident-in-training under a teaching program approved'' by one of the
listed accrediting bodies for residency programs. In addition, section
1886(h)(5)(I) of the Act states that the term ``resident'' includes
``an intern or other participant in an approved medical residency
training program.'' The regulations at Sec. 413.75(b) state that the
term resident means ``an intern, resident, or fellow who participates
in an approved medical residency program, including programs in
osteopathy, dentistry, and podiatry, as required in order to become
certified by the appropriate specialty board.''
As discussed above, an ``approved'' program is one that is
accredited by one of the listed national organizations, or one that may
count towards board certification. Generally, residency programs today,
whether they are core or subspecialty programs, are both accredited,
and lead toward board certification through an explicit board
examination for that field. Thus, in the typical instance, a resident
is accepted into an accredited program in a particular specialty,
completes that program over the course of what is typically 3 to 5
years, and then qualifies to take the board certifying examination in
the particular specialty of that program. This resident may or may not
train in an additional accredited subspecialty program, which would
typically last for 1 to 3 years, and which would also lead to board
certification through an additional board certifying examination which
the individual would be qualified to take upon completion.
We receive questions from time to time regarding whether
individuals are considered to be trainees in approved

[[Page 50289]]

programs or whether they are considered to be physicians and should
bill accordingly. These questions frequently involve programs of
further training that certain senior and junior faculty at hospitals,
typically at large academic medical centers, undertake on their own,
not under the auspices of any accrediting body, and in an area of
practice for which there is no board certification. Therefore, there is
no actual standardized curriculum or formally organized ``program'' in
which the individual trainee is participating. Another type of trainee
about which we have received questions is one that has completed an
accredited program in a certain specialty, but subsequently
participates in additional training in that specialty that he or she
could have participated in while still within the accredited program.
Sometimes this individual may even train with residents who are
actually still training in that accredited program (for example, an
individual who has completed a dermatology residency may choose to do
additional training with PGY4 dermatology residents). In these
scenarios, in order to decide whether an individual is considered a
resident or a physician for purposes of Medicare payment, the pertinent
questions are whether--
(1) The individual actually needs the training in order to meet
board certification requirements in that specialty; and
(2) Whether the individual is formally participating in an
organized, standardized, structured course of study.
With regard to the junior faculty who are ``training'' with senior
faculty to learn highly specialized skills, we believe that individuals
participating in a course of training that one or more senior
physicians creates absent the involvement and approval of an
accrediting body, and for which there is no specific existing board
certification examination, should not be considered ``residents'' or
counted for IME and direct GME purposes. Similarly, individuals that
already completed an accredited residency program, but subsequently
participate in additional training in that same specialty that they
could have participated in while still within that accredited program,
should also not be considered ``residents'' or be included in the IME
and direct GME count. This is because these individuals have already
completed accredited residency programs in a particular specialty or
subspecialty, and do not need to complete the additional training in
order to meet board certification requirements in that field in which
they continue to ``train.'' The definition of ``resident'' at Sec.
413.75(b) is ``an intern, resident, or fellow who participates in an
approved medical residency program, including programs in osteopathy,
dentistry, and podiatry, as required in order to become certified by
the appropriate specialty board'' (emphasis added). Accordingly, the
individuals described in the scenarios above do not meet the definition
of ``resident'' at Sec. 413.75(b) for IME and direct GME purposes.
Instead, these individuals should be treated and receive payment as
physicians.
As we explained in the September 29, 1989 Federal Register rule:
``The costs relating to patient care services of licensed physicians
who are classified as ``fellows'' but who are not in an identifiable
formal program leading to certification as defined in section
1886(h)(5) of the Act but remain at a teaching hospital/medical school
complex to enhance their expertise in a field of study are payable on a
Part B reasonable charge basis [now under the Medicare physician fee
schedule] as physicians' services'' (54 FR 40295). Similarly, in the
Provider Reimbursement Manual, Part I, section 2405.3.F.2, we state,
``Intermediaries must not count an individual in the indirect medical
education adjustment if * * * [A]n individual designated as a
``fellow'' has elected to remain at a teaching hospital/university
complex for additional work to gain expertise in a particular field but
is no longer in a formally organized program to fulfill certification
requirements. The services of such an individual are generally covered
as physicians' services payable on a reasonable charge basis''
(emphasis added). (Note: Although we used the term ``fellow,'' which is
defined synonymously with ``resident'' in the regulations at Sec.
413.75, in these paragraphs in the September 29, 1989 Federal Register
and in the PRM-I, by stating that such ``fellows'' are not in
identifiable, formally organized programs and their services should be
billed under Part B as physician services, we clearly were indicating
that these ``fellows'' are licensed physicians, not residents, and
should not be included in the IME and direct GME FTE counts. Perhaps
``junior faculty'' would have been a more apt characterization of these
individuals.)
The passage from the September 29, 1989 Federal Register also
mentions an ``identifiable formal program leading to certification as
defined in section 1886(h)(5) of the Act'' which refers to the
statutory definition of ``approved medical residency program.'' The
word ``approved'' connotes formality; a planned, structured course of
study with a curriculum based on national (rather than individual
physician or hospital) standards with a standardized outcome based on
standardized evaluations. Since the early days of Medicare, prior to
the enactment of section 1886(h) of the Act, when hospitals received
payment on a reasonable cost basis for ``approved educational
activities,'' we defined such activities as ``formally organized or
planned programs of study operated or supported by an institution, as
distinguished from `on-the-job,' `inservice,' or similar work-learning
programs'' (emphasis added) (PRM-I, section 402.1). We believe the
education that junior faculty receive when working closely with senior
faculty to gain highly specialized skills is more appropriately
characterized as on-the-job, or inservice training, rather than
training in an ``approved medical residency program.''
In order for the training to be considered an ``approved medical
residency program,'' the training must prepare the individual for
certification in the particular specialty or subspecialty in which the
individual is training. The mere possibility that the training could be
construed as leading toward or counting toward certification in some
existing board examination is insufficient. For example, an individual
who is enrolled and participating in a two year accredited subspecialty
program in allergy and immunology and, as part of that program,
completes an elective in allergic reactions to insect stings is
considered a resident during that elective, and may be included in the
IME and direct GME FTE count (assuming all other requirements are met).
However, if, after completion of the 2-year allergy and immunology
subspecialty program, this individual decides to remain at the teaching
hospital for a year to shadow a physician who has unique expertise in
allergic reactions to insect stings, this individual would not be
considered a resident, nor would this training be considered an
approved program, because this individual is not formally enrolled in a
planned, structured, standardized course of study, nor is this year of
training required for any individual to qualify to take the board
examination in allergy and immunology. This individual already
completed the 2-year subspecialty program, and therefore, the extra
year spent studying allergic reactions to insect stings is extraneous.
Accordingly, this individual would not be viewed as a resident
participating in an approved

[[Page 50290]]

medical residency training program. Rather, this individual is
considered a physician and should bill Medicare for services furnished
under the physician fee schedule.
c. Formal Enrollment and Participation in a Program
We understand that the participation of individuals in an approved
medical residency program under which they would be considered
residents as defined at Sec. 413.75 is marked by a formal application,
acceptance, and enrollment process. We believe that in order for an
individual to be considered a resident for purposes of inclusion in the
IME and direct GME counts, whether the individual is a graduate of an
allopathic medical school, an osteopathic medical school, or a school
of podiatry or dentistry, the individual must be:
(1) Formally accepted and enrolled in the training program, and
(2) Fully participating in that training (unless there is a
documented arrangement for the resident to work part time).
In general, we would expect formal acceptance to include an
application process (for example, the national residency match
process), and an enrollment process which would include letters or
other official notifications from the hospital or program sponsor
regarding the resident's acceptance to train in a particular program.
We also would expect the resident to have an employment contract with
the institution(s) sponsoring the program and/or the institution(s) in
which he or she is training. A hospital must be able to document that
the individual's participation in the particular course of training
represents a definitive (not hypothetical) path for that individual's
certification, and that satisfactory completion of such training would
fulfill all required elements in order for the individual to qualify to
take a specific board examination.
In order to make these rules clearer for the future, in the FY 2011
IPPS/LTCH PPS proposed rule, we proposed to revise the definition of
``resident'' to specify that the trainee must be ``formally accepted
and enrolled'' in the approved program in order to be considered a
resident for IME and direct GME purposes. Specifically, we proposed to
revise the definition of ``resident'' at Sec. 413.75(b) to mean ``an
intern, resident, or fellow who is formally accepted, enrolled, and
participating in an approved medical residency program, including
programs in osteopathy, dentistry, and podiatry, as required in order
to become certified by the appropriate specialty board.'' We also
proposed to make a similar conforming change to the definition of
``primary care resident'' at Sec. 413.75(b). We proposed that this
change in the definitions of ``resident'' and ``primary care resident''
would be effective for IME and direct GME for cost reporting periods
beginning on or after October 1, 2010.
Comment: Several commenters expressed appreciation for CMS'
clarifications regarding which programs are ``approved medical
residency training programs'' and which individuals are residents or
physicians. Other commenters indicated CMS' clarification is consistent
with their understanding of when an individual is treated as a resident
or physician.
Response: We appreciate the commenters' support and understanding
of our policy regarding approved medical residency training programs
described in the proposed rule.
Comment: Some commenters noted that CMS did not specifically
address the applicability of existing Line 70 on Worksheet B, Part I of
the Medicare cost report, which historically has been used to report
the costs of interns and residents in unapproved programs, nor did CMS
discuss the treatment of residents with limited medical licenses. The
commenters requested that CMS clarify its position regarding these
categories of residents in unapproved programs and hoped that CMS did
not intend to eliminate the use of Line 70 of Worksheet B, Part I.
Another commenter noted that CMS clarified that residents and
fellows only fall into two categories: (1) Residents and fellows in
programs recognized as approved for GME purposes; and (2) residents and
fellows in non-approved programs classified as physicians who would
bill under the MPFS. The commenter noted that many residents, such as
the residents in the transplant surgery program or other advanced but
unaccredited training programs, would not fall under either category
(1) or category (2) because they are not fully licensed. Another
commenter noted that States also have different licensure laws, with
some states requiring residents to have temporary licenses, while other
States expect residents to be fully licensed by the second or third
year of residency after completion of an internship (the first year of
training after medical school), and taking Step III of the United
States Medical Licensing Examination (USMLE). The commenter added that
bylaws in academic medical centers differ, and that the trainees in
unapproved programs cannot always bill for services provided because
they may not be authorized under their institution's bylaws to do so
because they are ``in a formal training program.''
Response: The commenters are correct that the Medicare cost report
does include a line (Line 70 on Worksheets A and B) for hospitals to
receive payment for the services provided by residents who are not in
approved programs. In the case of programs that are not either
accredited or do not count toward board certification, in the September
29, 1989 final rule (54 FR 40295), we explained that:
``Medicare would pay its share of the costs of residents not in
approved programs as described in Sec. 405.523 of our regulations
regarding residents not in approved teaching programs. Under Sec.
405.523, hospitals are paid under Part B for up to 80 percent of the
reasonable costs of services (that is, salaries and salary-related
fringe benefits) of interns and residents who are not in approved
programs, after payment of the Part B deductible by the Medicare
beneficiary. No other educational program costs (that is, faculty
compensation costs and other direct and indirect program expenses) in
connection with such residents are payable. The Medicare beneficiary
incurs the expense of deductible and coinsurance amounts as determined
on the basis of the hospital's charges under Part B of the Medicare
program.''
``The costs relating to patient care services of licensed
physicians who are classified as fellows but who are not in an
identifiable formal program leading to certification as defined in
section 1886(h)(5) of the Act but remain at a teaching hospital/medical
school complex to enhance their expertise in a field of study are
payable on a Part B reasonable charge basis as physicians' services.''
(We note that the regulations that were previously located at Sec.
405.523 are currently located at Sec. 415.202.)
The regulation at Sec. 415.202(a) state, as a general rule, that
``For services of a physician employed by a hospital who is authorized
to practice only in a hospital setting and for the services of a
resident who is not in any approved GME program, payment is made to the
hospital on a Part B reasonable cost basis regardless of whether the
services are furnished to hospital inpatients or outpatients.''
We understand that there are advanced training programs that exist,
such as those in transplant surgery and surgical oncology, which are
not accredited by the ACGME, nor do they lead to board certification in
those subspecialties, yet they are ``accredited''

[[Page 50291]]

by their respective medical societies. As such, they are formally
organized, planned, structured courses of study that are at least one
year in duration. We also understand that, although the participants in
these advanced training programs have already completed at least one
residency, there may be reasons unique to them, their teaching
institution, or state as to why these trainees are not always fully
licensed. Therefore, we understand that some trainees who are not
participating in an ``approved medical residency program'' are not
currently billing under the MPFS for the services they provide in the
programs.
We believe Part B reasonable cost payment under Sec. 415.202 may
be applicable only in the instance where the trainee is not fully
licensed in the State in which he or she is participating in an
unapproved program. Services provided by fully licensed physicians, for
example, those who are shadowing an experienced senior physician but
are not in a formally organized, planned, standard course of study, or
who are gaining practice experience, would not be paid under Sec.
415.202. However, we are contemplating future rulemaking that would
revise the regulations at Sec. 415.202 to not allow Part B reasonable
cost payment for the services of any individuals who have already
completed one residency program, regardless of licensure status.
Comment: Some commenters requested that fellowship programs that
are approved by the American Society of Transplant Surgeons (ASTS) be
considered approved programs for purposes of direct GME and IME
payment, even though the ASTS is not listed currently as one of the
accrediting agencies at Sec. 413.75(b), nor is there any board
certification examination. The commenters noted that the ASTS is a
national accrediting body, the programs are ``formally organized,
standardized, structured courses of study,'' and residents desiring to
complete these programs participate in a formal match through the
National Resident Matching Program (NRMP). A commenter also pointed out
that training of these fellows occurs in ``Medicare approved transplant
programs'' approved by CMS to receive Medicare payment.
Another commenter asked that CMS clarify the proposed rule to state
that an ``approved'' program can be (1) one that is accredited by a
national organization listed at Sec. 415.152 or (2) one that leads to
certification by its governing body or toward board certification by
the ABMS. The commenter added that as medical training evolves over
time, many specialties are not currently part of CMS' ``approved''
list, even though they are recognized by national organizations, such
as the ASTS. Another commenter added that the ACGME's Green Book lists
some subspecialty training programs approved by various specialty
societies and academies, and that often this level of approval is the
first step to becoming eventually accredited by the ACGME. The
commenters requested that CMS update and expand the list of
``approved'' accrediting agencies accordingly.
Response: As we noted above, section 1886(h)(5)(A) of the Act
defines an approved medical residency training program as a ``residency
or other postgraduate medical training program participation in which
may be counted toward certification in a specialty or subspecialty.''
Our regulations at Sec. 415.152 define an ``approved graduate medical
education (GME) program'' to include a residency program approved by
one of the accrediting bodies identified at section 1861(b)(6) of the
Act, or ``a program otherwise recognized as an `approved medical
residency program' under Sec. 413.75(b)'' of our regulations. Section
1861(b)(6) of the Act lists only four accrediting bodies--the Council
on Medical Education of the American Medical Association (now the
ACGME), the Committee on Hospitals of the Bureau of Professional
Education of the American Osteopathic Association (now the AOA), the
Council on Dental Education of the American Dental Association (now
known as CODA), and the Council on Podiatric Medical Education of the
American Podiatric Association. The ASTS is not listed in the Act. We
cannot update or expand this list without a change in the law. In
addition, the regulation at Sec. 413.75(b) defines an ``approved
medical residency program'' as one that is either approved by one of
the four national organizations noted above or one that ``may count
towards certification of the participant in a specialty or subspecialty
listed in the current edition'' of either the AMA or the ABMS
directory. Because there is no board certification examination
specifically for these transplant and other advanced training programs,
they cannot be recognized as approved medical residency training
programs for purposes of receiving direct GME and IME payments under
Medicare under our current regulations.
Comment: One commenter asked for clarification regarding
participants in programs that are accredited by the ACGME and lead to
receipt of a Certificate of Additional Qualifications (CAQs) from a
specialty board. The commenter indicated that the participants in these
programs, often referred to as ``fellows,'' already received board
certification in the initial specialty. The commenter requested
assurance that these fellows can still be counted as residents for GME
purposes, even though they are not required to sit for an additional
board examination, and indicated that completion of the fellowship is
sufficient for receipt of the CAQ.
Response: As we noted previously, there are numerous subspecialty
programs that the ACGME accredits. Because these programs are
accredited by the ACGME, which is one of the accrediting bodies
specified at section 1861(b)(6) of the Act and the regulations at Sec.
415.152 for an approved medical residency training program, the
participants in the program are considered to be residents for IME and
direct GME payment purposes, even though they have already received an
initial board certification.
Comment: One commenter requested that CMS more clearly define what
constitutes a ``fellowship'' for the direct GME and IME FTE counts.
Another commenter also requested clarification regarding fellows,
stating that there are four types of fellows: (1) Fellows in formal
programs that qualify as Medicare approved programs; (2) fellows in
formal programs that qualify as nonapproved programs; (3) junior
faculty with a dual appointment as a fellow but who are not in a formal
program at all; and (4) fellows solely engaged in research outside the
scope of an approved program. The commenter stated that most major
academic medical center bylaws distinguish between these individuals
based on whether they have patient billing privileges. The commenter
believed that the last two cited categories of fellows should be
categorized as physicians, not residents.
Response: The existing regulations at Sec. 413.75(b) define
``resident'' as an intern, resident, or fellow who participates in an
approved medical residency program, including programs in osteopathy,
dentistry, and podiatry, as required in order to become certified by
the appropriate specialty board. In the FY 2011 IPPS/LTCH PPS proposed
rule (75 FR 24009), we proposed to revise the definition of
``resident'' at Sec. 413.75(b) to mean ``an intern, resident, or
fellow who is formally accepted, enrolled, and participating in an
approved medical residency program, including programs in osteopathy,
dentistry, and podiatry, as required in order to become certified by
the appropriate specialty board.'' In both the existing and proposed
revised

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definitions, a ``resident'' is defined to include interns, fellows, and
residents. In other words, regardless of the term used by the academic
medical community, as long as the individual is participating in an
``approved medical residency program,'' the ``fellow'' is considered to
be a ``resident'' for Medicare IME and direct GME payment purposes.
To respond to the commenter that mentioned the four categories of
fellows, as we have explained in response to other comments, we do not
agree that ``fellows'' in formal but nonapproved programs, such as
those recognized by specialty medical societies, should be categorized
as residents for IME and direct GME purposes. However, we do agree with
the commenter that junior faculty not in an approved or any training
program, whether approved or nonapproved, and fellows engaged in
research that is outside the scope of any approved residency program,
should not be categorized as residents.
Comment: One commenter disagreed with the statement in the proposed
rule that additional training in the same specialty or subspecialty
should not be counted for IME and direct GME payment purposes. The
commenter believed that this type of training should be included if a
board considers such training necessary to be admitted to the board.
The commenter asserted that qualifying for an examination is based on
skill level, rather than only completion of time requirements, and that
most boards rely on the residency program director's attestation about
the individual physician's readiness. For example, after a physician
completes the minimum years of training, the program director may
require additional formal training in one or more subspecialties to
raise the resident's skill level. The commenter noted that there is no
rule that a candidate must apply for admission to an examination after
he or she completes the minimum training required, and that the boards
consider quality, not quantity, which can include a broad range of
formal training.
Response: As we stated in the proposed rule, in instances where an
individual has already completed a residency program, and is continuing
to participate in additional training, in order to decide whether an
individual is considered a resident or a physician for purposes of
Medicare payment, the pertinent considerations are: (1) Whether the
individual actually needs the training in order to meet the generally
applicable board certification requirements in that specialty; and (2)
whether the individual is formally participating and enrolled in an
organized, standardized, structured course of study. The commenter
believed that additional training in the same specialty or subspecialty
should be considered part of an approved program for IME and direct GME
payment purposes if a board considers such training necessary for the
individual to be admitted to the board. However, we do not agree that
training in the specialty or subspecialty that is not part of the
generally applicable requirements for board certification, but is
supplemental training to raise the skill level of a particular
individual, is considered to be participation in an approved program as
required in order to become certified. The ACGME and the ABMS establish
minimum, generally applicable standards for successful completion of
training and qualifications for board certification. While certain
individuals may need to pursue additional supplemental training in
order to ensure their personal skill levels are sufficient prior to
pursuing actual board certification, we do not believe such training
would be part of the generally applicable requirements for taking a
board examination. The ACGME and the ABMS are national organizations
that establish and apply these minimum standards nationally across all
programs, and not on a resident-by-resident basis. The regulations at
Sec. 413.75(b) state that the term resident means ``an intern,
resident, or fellow who participates in an approved medical residency
program, including programs in osteopathy, dentistry, and podiatry, as
required in order to become certified by the appropriate specialty
board'' (emphasis added). ``As required'' means nationally applicable
standards, not requirements that are determined on an individual, case-
by-case basis. Medicare is also a national program. It would be highly
impractical for hospital administrators and the Medicare contractors to
determine whether each individual trainee (particularly in large
teaching hospitals where there could be many such individuals) is
participating in training that may or may not be considered necessary
for board certification for that specific individual.
Accordingly, we believe that training that is only intended to
enhance an individual's skills beyond the minimum required level is not
part of an approved medical residency program. While it is true that
there is no rule that a candidate must apply for a board examination
immediately after he or she completes the minimum amount of training,
the completion of additional training is not part of the generally
applicable requirements for the board examination. Therefore, an
individual who undertakes such additional training is not considered a
resident for IME and direct GME payment purposes.
We recognize that a board may look favorably upon an individual's
additional training beyond the minimum requirements in the process of
considering a particular individual for certification. While we
understand that there could be some degree of personalized
consideration when an individual applies to sit for a board
examination, as stated in response to the previous comment, this does
not mean that all of the training that the individual has completed is
actually required. It could be true that, in certain cases, completion
of the minimum training requirements does not guarantee admittance to a
board examination. However, because the boards set forth national
standards, in most cases, the minimum training requirements are
sufficient. Further, we are not convinced that additional GME payments
should be made with respect to trainees who choose a customized
approach to their training (that is, one that differs from their
colleagues in the same program), extending that training beyond the
minimum requirements established by the ACGME and the ABMS. At the
point where a trainee has completed the national standard minimum
requirements for certification, and chooses to pursue additional
training that is not generally required for board certification in that
specialty, that individual should no longer be considered a resident
for IME and direct GME purposes.
Comment: One commenter believed that the proposed revision to Sec.
413.75(b) that seeks to clarify which trainees are allowable for
Medicare GME payment by including the terms ``formally accepted,
enrolled, and participating in'' to the definition of a ``resident''
needs to be more comprehensive and more focused. The commenter stated
that codifying that an approved program must be formally organized does
not help to resolve questions regarding unaccredited programs,
particularly for ``services of residents not in approved GME programs''
(42 CFR 415.202) or attending or junior attending physicians
participating in informal training or ``nontraining.'' The commenter
suggested that expansing the definition of an ``approved program''
would be more appropriate than expanding the definition of a
``resident.'' According to the commenter, the main issue is ``formal
unaccredited programs,'' and ``it

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would be more helpful to define what they are rather than focus on a
few obvious examples of what they are not.'' The commenter suggested
the following expanded definition of an ``approved residency program''
that ``may count toward certification of the participant in a specialty
or subspecialty'' (42 CFR 413.75(b)): ``A training program that `may
count toward certification' would be one that is a formally organized
unaccredited program and may be counted by individual ABMS boards when
accepting a candidate's admission to a board certification examination.
Allowable training includes training considered by an individual
board's application process.''
The commenter also referred to the original conference language
accompanying the original Medicare legislation. The commenter quoted
the following: ``Medicare shares in the hospital's training cost
because it increases the quality of care in the institution'' (Senate
Finance Committee Report 89-404, June 30, 1965). The commenter was
concerned that the proposed rule discussion appears to state that
Medicare will not share in the hospital's medical education costs for
an individual training beyond the minimum requirements, but rather
treat these costs as nonhospital costs to be paid under the MPFS. Yet,
the commenter added, section 1832(a)(2) of the Act clearly states that
residents are not paid as physicians. The distinction is that resident
services are hospital costs because training involves a group of
patients, whereas physicians' services are billed professional fees for
services to a specific patient. The commenter did not believe that it
was the Congressional intent to change training activities of residents
once they completed minimum accredited specialty and subspecialty
requirements.
Response: We disagree with the commenter's assertion that our
proposed revised definition of ``resident'' at Sec. 413.75(b) is not
sufficiently comprehensive or focused. Rather, we believe our proposed
revised definition of ``resident'' correctly characterizes what a
resident is for IME and direct GME payment purposes. We do not believe
that residents not in approved programs (as discussed at Sec. 415.202)
should be counted as residents for IME and direct GME payment purposes.
Perhaps the commenter is confused because ``resident'' is defined in
two places in the regulations, first at Sec. 413.75(b) for purposes of
direct GME and IME payment, and second at Sec. 415.152 for purposes of
payment for physician services in teaching settings. Furthermore, we do
not believe that attending and junior attending physicians
participating in informal training or nontraining should be counted as
residents for IME and direct GME payment purposes either. We believe
that formal unaccredited programs are easy to identify, in that they
are not accredited by the ACGME or AOA. If there is no explicit board
certification for these programs, the participants in these programs
cannot be counted for IME and direct GME payment purposes. Therefore,
we do not agree with the commenter's recommended expanded definition of
``approved residency program.''
With regard to the commenter's reference to section 1832(a)(2) of
the Act, section 1832 addresses the scope of benefits for which payment
is made under Medicare Part B, including physician services. Section
1832(a)(2) specifically addresses services other than inpatient
hospital services furnished by or under arrangements with a provider of
services by residents of a hospital. We do not believe this refers to
individuals who are licensed (in other words, those are physicians as
defined at section 1861(r) of the Act) and are not in approved
programs. Therefore, because the individuals are licensed and are not
in approved programs, we believe they should be billing for their
services under the MPFS. If an individual is in an approved program, he
or she is a resident for purposes of a hospital's IME and direct GME
FTE count. Further, although the commenter is correct that Congress did
not limit Medicare direct GME payment or IME payment to training only
occurring within the initial residency period, the ACGME and the ABMS
have established minimum standards required for successful completion
of a particular specialty or subspecialty. If a physician is involved
in training that is not part of the established requirements, payment
for the services provided by that physician should be made under the
MPFS, not as part of direct GME or IME. Further, we note that it is
specious for the commenter to assert that it was not ``Congressional
intent to change training activities of residents once they completed
minimum accredited specialty and subspecialty requirements.'' In fact,
as expressed in the conference report accompanying the original
Medicare legislation, funding for GME activities was intended to be
time limited. Specifically, the conference report stated, ``Educational
activities enhance the quality of care in an institution and it is
intended, until the community undertakes to bear such education costs
in some other way, that a part of the net cost of such activities
(including stipends of trainees as well as compensation of teachers and
other costs) should be considered as an element in the cost of patient
care, to be borne to an appropriate extent by the hospital insurance
program'' (emphasis added) (S. Rep. No. 404, 89th Cong., 1st Sess. 36
(1965); H.R. No. 213, 89th Cong., 1st Sess. 32 (1965)). Accordingly, we
believe that Medicare GME funding for trainees should be ``time
limited'' and not be made in perpetuity for trainees that are not in an
approved medical residency training program or for whom the training is
not required in order to meet the standard requirements for board
certification.
Comment: One commenter read the proposed rule discussion to suggest
that if all training must be necessary to meet board certification,
formal training beyond the minimum amount specified in the board
certification requirements should not be included for GME payment
purposes. The commenter believed this statement contradicts policy
expressed in the September 29, 1989 Federal Register (54 FR 40306),
which states, ``If it is clear that these individuals are actually in
formally approved programs, we believe that they should be counted as
residents in approved programs even if the individual has completed the
requirements for board certification.'' The commenter believed that
chief residents are enrolled in accredited programs and are eligible
for inclusion in the IME and direct GME FTE counts, even though certain
chief residencies extend beyond the minimum accredited length of the
program. The commenter also noted that there are several instances,
particularly in prestigious teaching institutions, where the ACGME
allows a hospital to offer a program length that is longer than the
typical minimum accredited length for that specialty. For example, a
hospital may choose to operate a 6- or 7-year (as opposed to the usual
5-year) surgery program, wherein accreditation accrues to the entire
program, candidates compete for slots through the National Residency
Match Program, and sign formal contracts upon entering these programs.
The commenter referred to a letter from CMS (then HCFA) written in 1996
that acknowledged that, in some cases, a university's formal program
may be longer than the ACGME's published accreditation length, and
stated that the school length, rather than the accreditation length,
would apply. The commenter urged CMS to clarify

[[Page 50294]]

that training beyond the accredited length of a formally organized
program is included in the IME and direct GME FTE resident counts.
Response: We made the statement in the September 29, 1989 Federal
Register (54 FR 40305) that was referenced by the commenter in response
to a comment we received from representatives of the specialties of
internal medicine and family practice who requested clarification of
the status of individuals who are spending a fourth year in internal
medicine or family practice (both 3-year programs). The commenters
noted that some programs add a fourth year for a variety of reasons,
and in some instances, ``individuals who have completed their
requirements for board certification spend a fourth year as a chief
resident and are technically no longer in a program leading to
certification in a specialty or subspecialty'' (54 FR 40305). Our
response was as follows:
``If it is clear that these individuals are actually in formally
approved programs, we believe that they should be counted as residents
in approved programs even if the individual has completed the
requirements for board certification. The situation is not unlike those
we discussed in the proposed rule concerning Transitional Year programs
and General Dentistry programs, neither of which, in itself, lead to
certification in a specialty or subspecialty. We do not believe that
Congress enacted section 1886(h) of the Act to reduce the types of
programs recognized by Medicare. Thus, if the ACGME and other
accrediting bodies recognize such individuals as residents in the
General Internal Medicine or Family Practice program, we would count
them for purposes of direct GME payment at .5 or 1.0 FTE depending on
whether they are still in their initial residency period. We would
differentiate these individuals from those who have completed their
residency but remain for an additional period of time with the academic
settings to continue their training outside the context of a formally
organized approved program. Individuals in the latter group should be
paid as physicians.'' (54 FR 40305 and 40306)
We recently consulted with the ACGME to determine what its policy
is regarding individuals, such as ``chief residents,'' that, in certain
programs, stay beyond the minimum accredited length of the program. We
learned that in the surgical specialties and a few of the other
hospital-based specialties, all fifth year (or final year of training)
residents are considered ``chief resident,'' or in their chief resident
year. This is the final year of the ACGME-accredited program.
Therefore, we consider ``chief residents'' in surgery programs to be
residents for IME and direct GME payment purposes. However, we learned
from the ACGME that in internal medicine and pediatrics, acting as a
``chief resident'' is not a requirement. There are only a select few
``chief residents'' per program, and the chief residency is completed
after the final year of the ACGME-accredited residency. According to
the ACGME, it is not part of the accredited training. Therefore,
although our policy in the September 29, 1989 Federal Register allowed
chief residency years that were completed after the minimum
requirements for board certification have been met to be considered
part of an approved program for IME and direct GME payment purposes,
effective for cost reporting periods beginning on or after October 1,
2010, we are revising our policy regarding chief residencies that occur
after the accredited program is completed and when minimum requirements
for board certification are already satisfied. That is, individuals
that act as chief residents after they have completed the accredited
program and have satisfied minimum requirements for board certification
are no longer considered residents for IME and direct GME payment
purposes. (We understand they would be considered junior faculty in
many teaching hospitals.) This is consistent with our policy as
expressed in the proposed rule, which states that in order to decide
whether an individual is considered a resident or a physician for
purposes of Medicare payment, the pertinent questions are (1) whether
the individual actually needs the training in order to meet board
certification requirements in that specialty; and (2) whether the
individual is formally enrolled and participating in an organized,
standardized, structured course of study. Because the chief residents
in internal medicine and pediatrics do not need the training in order
to meet board certification requirements, effective for cost reporting
periods beginning on or after October, 1, 2010, we are not considering
them to be residents for IME and direct GME payment purposes.
With regard to the comment asserting that the ACGME allows a
hospital to offer a program length that is longer than the typical
minimum accredited length for that specialty, and that accreditation
accrues to the entire program, we consulted with the ACGME on this
point as well. We were informed that this additional time is not part
of the accredited program, nor is the ACGME aware of when the
situations described by the commenter occur. Therefore, individuals
training in a hospital's program that extend beyond the actual
accredited length are not considered residents for IME and direct GME
payment purposes because they are no longer training in an accredited
program according to the ACGME. Thus, for example, an individual
training in a 6- or 7-year general surgery program would only be
counted as a resident for IME and direct GME purposes in PGYs 1 through
5. The commenter references a letter that CMS (then HCFA) wrote in 1996
that addresses this point of hospitals that operate programs that
extend beyond the minimum accredited length. CMS was asked ``What are
the criteria for determining [sic] approved program length for IME?''
We responded, in part, as follows:
``* * * we do believe the length of an approved program may be of
relevance in the intermediary's IME determination. The question then
is, what is to be considered the program's recognized length? In your
letter, you stated that BCCA's (Blue Cross of California) position is
that `the approved program length is the ACGME published accreditation
length for the specific university.' We generally agree with this
position. However, we acknowledge that the ACGME published
accreditation length may reflect only the minimum number of years and
that in some cases, the university's formal program may be longer. For
the intermediary to recognize a program length that is longer than that
published by the ACGME, the intermediary should expect to see that a
majority of residents are in the program for the same length of time.
This establishes a base by which aberrancies can be identified. There
may be a legitimate reason for a full-time resident to be formally
enrolled in an approved program for a length of time that is greater
than the norm, but, again, this would need to be explained and
documented by the provider. If residents are serving as fellows or
chief residents, they must be doing so under an approved program to be
counted.''
In this response above, we were allowing participants in a program
that extends beyond the minimum accredited length to be counted as
residents for IME (and direct GME) purposes if the hospital could
document to the intermediary that the majority of participants were
training in the program for the same length of time. However, based on
what we have recently learned from the ACGME, this position expressed
in the 1996 letter is not consistent with the ACGME's policy. That is,
the time spent in a

[[Page 50295]]

program beyond the minimum accredited length is not recognized by the
ACGME, even if the majority of the participants in the program are
training beyond the accredited length for the same length of time.
Accordingly, effective for cost reporting periods beginning on or after
October 1, 2010, we are changing our policy regarding programs that
hospitals operate for longer than the accredited (that is, the minimum)
length. That is, individuals training in a program that extends beyond
the actual accredited length are not considered residents for IME and
direct GME payment purposes for the period of time extending beyond the
minimum accredited length, because they are no longer training in an
accredited program according to the ACGME.
Comment: One commenter recommended that CMS adopt a policy that in
order for a program to be approved, it should be at least a year in
length. The commenter believed that this would distinguish formal
programs from shorter continuing medical education and inservice
training of physicians.
Response: We are sympathetic to the commenter's recommendation
because it seems consistent with our existing policy regarding what an
approved, formal, structured program is. As we indicated in the
proposed rule, since the early days of Medicare, prior to the enactment
of section 1886(h) of the Act, when hospitals received payment on a
reasonable cost basis for ``approved educational activities,'' we
defined such activities as ``formally organized or planned programs of
study operated or supported by an institution, as distinguished from
`on-the-job,' `inservice,' or similar work-learning programs''
(emphasis added) (PRM-I, section 402.1). However, we do not believe we
need to change the regulations text to specify that an approved program
must be ``at least 1 year in length'' because we believe that programs
that meet the definition of ``approved'' are 1 year in length. We may
consider this recommendation for future rulemaking if we find that it
is necessary.
Comment: One commenter indicated that from its experience,
certifying boards do allow unaccredited training as part of the
required training, and the boards may not want to provide specific
statements regarding the types of allowable unaccredited training in
order to maintain flexibility in the requirements. The commenter
mentioned that the requirements listed by the American Board of
Radiology for certification in vascular and interventional radiology
include one year of training in an ACGME accredited subspecialty
program and ``one year of practice or additional training (one-third of
that time) in the subspecialty.'' Accordingly, the commenter stated
that a hospital may only be able to document that unaccredited training
was accepted by a board after a resident achieved certification.
Response: A distinction should be made between training that an
individual pursues that is in addition to the minimum standards
required for completion of the accredited program and for board
certification, and unaccredited training that is actually required for
board certification. As we stated in response to a previous comment,
while we understand that there could be some degree of personalized
consideration when an individual applies to sit for a board
examination, this does not mean that all of the training that the
individual has completed is actually required. Accordingly, GME
payments should not be made with respect to training that extends
beyond the minimum requirements. With regard to unaccredited training
that is actually required for board certification, we understand that,
in certain cases, a board may accept unaccredited training as
fulfilling part of the requirements for certification. However, the
board would not typically accept only unaccredited training, nor would
a hospital or trainee know with certainty whether a particular
``training'' experience will ultimately be accepted, if, as the
commenter mentioned (as in the case of vascular and interventional
radiology), often the training, and its content and quality, must be
verified by the program director and then reviewed by the board.
Further, we do not believe it is prudent or practical to wait until
after an individual's training was accepted by a board to know if that
individual should be included in the IME and direct GME resident
counts. To encourage simplicity in administering a national program, it
is not unreasonable for CMS to establish guidelines for determining
whether an individual should be included in the FTE count. Therefore,
in the absence of accreditation and foreknowledge as to whether
unaccredited training would be accepted by a board, it is simpler and
more practical for such an individual to be categorized as a physician,
not a resident, even if the particular ``training'' is ultimately
accepted by the board.
In the case of vascular and interventional radiology subspecialty
programs, the American Board of Radiology (ABR) states that the
requirements for board certification in vascular and interventional
radiology are (in part) as follows: ``You must successfully complete
one year of fellowship training (after residency) in a vascular and
interventional radiology program accredited by the ACGME or by the
RCPSC (Canada). You must also complete one year of practice or
additional approved training, with one-third of that year spent in
vascular and interventional radiology'' (emphasis added). (http://www.theabr.org/ic/ic_vir/ic_vir_req.html). The commenter excluded
the word ``approved'' from its comment. We have spoken with the ABR and
learned that ``approved'' means some kind of one year experience (July
to June) that the ABR would approve, not before the training begins,
but during or toward the end of the training year, when the individual
registers with the ABR in order to schedule the examination in vascular
and interventional radiology. Again, we believe that when it is not
known with certainty at the time an individual begins a course of
``training'' whether the board will ultimately accept that training,
that experience should not be counted as a residency for IME and direct
GME payment purposes.
A clear example of time that may be counted toward board
certification but certainly should not be considered residency training
for inclusion in the IME and direct GME resident counts is practice
experience. Regarding the time spent in ``one year of practice,'' while
the ABR clearly accepts such time as counting toward certification, we
do not believe that during that time in which the individual is
``practicing'' that he or she is considered a resident, particularly
not for IME and direct GME payment purposes. It is appropriate for an
individual who is practicing to be billing under the MPFS. With regard
to the DIRECT pathway (http://www.theabr.org/ic/ic_vir/ic_vir_direct.html), which is another method of attaining board certification
in vascular and interventional radiology, PGYs 1 through 6 are training
years that are accredited by the ACGME. Therefore, the trainee can be
considered a resident during those 6 years. However, PGY7 is 12 months
of clinical practice, and an individual would be considered a physician
during this year and should bill under the MPFS accordingly.
Comment: One commenter urged CMS to work with the ABMS to identify
unaccredited training programs that the certifying boards accept toward
meeting the requirements for board certification, so as to establish
more clearcut guidelines for hospitals to use to

[[Page 50296]]

identify which programs would be considered residencies for GME payment
purposes under Medicare.
Response: We believe it is important to consult with the
accrediting and certifying agencies to ensure that our policies are
consistent with theirs, and we welcome communication with them now and
in the future. However, for the purpose of this final rule, we are
providing clear policy guidance to hospitals and Medicare contractors
for purposes of determining whether an individual should be treated as
a resident or a physician. Essentially, a resident for IME and direct
GME payment purposes is an individual who, in accordance with our
revised definition of ``resident'' at Sec. 413.75(b), is formally
accepted, enrolled, and participating in an approved medical residency
program, including programs in osteopathy, dentistry, and podiatry, as
required in order to become certified by the appropriate specialty
board. The program would be ``approved'' if it is either accredited by
one of the four recognized accrediting bodies, or if not accredited,
the individual may be counted as a ``resident'' if the individual
actually needs the training in order to meet the standard board
certification requirements established for that specialty.
Comment: One commenter noted that, in addition to clarifying
whether an individual is a resident or a physician, CMS proposed to
revise the definitions of ``resident'' and ``primary care resident''
effective for cost reporting periods beginning on or after October 1,
2010. The commenter asked whether these definitions reflect a
clarification of existing policy, or, as the existence of a prospective
effective date suggests, a change in policy. If it is a change in
policy, the commenter asked what criteria should be applied for periods
prior to October 1, 2010, in determining whether an individual is a
resident because some contractors have been using criteria similar to
those described in the proposed rule's preamble to determine which
individuals should be included in the IME and direct GME FTE counts.
Response: In the recent past, we had been made aware of a situation
at a hospital where graduates of allopathic medical schools were
training in programs that were accredited by the AOA. The AOA has had a
longstanding policy that only graduates of osteopathic schools may
enroll and participate in osteopathic residency programs; graduates of
allopathic medical schools may not be accepted and train in osteopathic
programs. Nevertheless, despite this rule, a hospital did train
allopathic individuals in an osteopathic accredited program and sought
to count those allopathic FTEs in the IME and direct GME counts.
Because the hospital was able to show that at least one of those
allopathic individuals was able to use the osteopathic training toward
fulfillment of the allopathic board's requirements (and, in fact,
successfully achieved allopathic board certification), the hospital
argued that although the allopathic individuals were not formally
enrolled in the AOA accredited program (since doing so was against AOA
policy), the training did count toward board certification, as
evidenced by the one trainee who did successfully sit for the
allopathic board. Therefore, the hospital added, the training of these
allopathic individuals in the osteopathic program was sufficient for
all the allopathic individuals in the osteopathic program to be counted
as residents for IME and direct GME purposes.
Because the existing definition of ``resident'' at Sec. 413.75(b)
states, ``Resident means an intern, resident, or fellow who
participates in an approved medical residency program, including
programs in osteopathy, dentistry, and podiatry, as required in order
to become certified by the appropriate specialty board'' (emphasis
added), we were persuaded to allow the hospital to count as residents
those allopathic individuals who trained in the AOA accredited program.
We were persuaded because those individuals arguably did
``participate'' in an otherwise AOA-approved medical residency program
as required ``in order to become certified by the appropriate specialty
board.'' (We understand that the hospital has since stopped training
allopathic graduates in the osteopathic accredited program.) We note
that, in part, the statutory and regulatory intent behind the
definitions of ``approved medical residency training program'' and
``resident'' is to protect the ``approved'' status of training in
typical accredited programs for residents who may participate in the
formal program but, on rare occasions, may not complete their course of
training. We do not believe the definitions were intended to include a
program such as the particular hospital's program, which, from its
inception, in its entirety, was not accredited by the AOA, and where
only on rare occasions did participation in the osteopathic program
count towards certification in an ACGME accredited program. However,
the previous regulation could be read differently such that if even one
trainee went on to become board certified on the basis of that
training, all participants in that program could be counted as
residents for IME and direct GME payment purposes. We believe that it
is appropriate to close the loopholes that, for example, had previously
allowed the allopathic graduates to be counted as residents while
inappropriately training in an AOA program by clarifying that a
resident must actually be formally enrolled and participating in an
approved medical residency program. Therefore, we proposed to make a
prospective change to the definition of ``resident,'' effective for
cost reporting periods beginning on or after October 1, 2010, to
emphasize that it is not sufficient for an individual to merely
``participate'' in an otherwise approved medical residency program
which may ultimately be counted toward board eligibility for his or her
own certification, or the certification of any of the other trainees in
the program. Rather, under the proposed revised definition of
``resident'' and ``primary care resident'' which we are finalizing in
this final rule, the individual must be ``formally accepted, enrolled,
and participating in an approved medical residency program, including
programs in osteopathy, dentistry, and podiatry, as required in order
to become certified by the appropriate specialty board.'' We believe
this addition to the definition of ``resident'' that the individual
must be formally accepted and enrolled in the program also will further
ensure that junior faculty or other advanced trainees who merely
``participate'' in some training but are not actually formally accepted
and enrolled in the program are not counted as FTEs for IME and direct
GME purposes.
To respond to the commenter's specific question as to what criteria
should be applied for periods prior to October 1, 2010, in determining
whether an individual is a resident, because some contractors have been
using criteria similar to those described in the preamble of the
proposed rule to determine which individuals should be included in the
IME and direct GME FTE counts, we believe that prior to October 1,
2010, the existing regulations text would be controlling. Thus, much of
the policy prior to and after October 1, 2010, is the same. However, as
explained in response to a previous comment, we are changing our policy
with respect to chief residencies and to programs that hospitals
operate that extend beyond the accredited length. Prior to cost
reporting periods beginning on or after October 1, 2010, according to
the September 29, 1989 Federal Register (54 FR 40305), if it is clear
that chief residents are actually in formally organized approved
programs, they

[[Page 50297]]

could be counted as residents even if they have completed the
requirements for board certification. However, effective for cost
reporting periods beginning on or after October 1, 2010, we are
changing our policy regarding chief residencies that occur after the
accredited program is completed and when minimum requirements for board
certification are already satisfied. That is, individuals that act as
chief residents after they have completed the accredited program and
have satisfied minimum requirements for board certification are not
considered residents for IME and direct GME payment purposes.
With regard to programs that are offered for longer than the
minimum accredited length for that specialty, prior to cost reporting
periods beginning on or after October 1, 2010, we are allowing
participants in a program that extends beyond the minimum accredited
length to be counted as residents for IME and direct GME purposes if
the hospital could document to the fiscal intermediary or MAC that the
majority of participants were training in the program for the same
length of time. However, effective for cost reporting periods beginning
on or after October 1, 2010, we are changing our policy regarding
programs that hospitals extend beyond the minimum accredited program
length for the specialty. That is, individuals training in a program
that extends beyond the actual accredited length are not considered
residents for IME and direct GME purposes for the time extending beyond
the minimum accredited length because such training is not part of the
accredited program according to the ACGME. We would expect that an
individual who has trained in an accredited program for the number of
years for which the program is accredited (for example, in a surgery
program, this would be 5 years) would have satisfied the minimum
requirements for board certification in that specialty.
Comment: One commenter listed several examples of specialties where
the boards for those specialties require unaccredited training for
certification. The commenter pointed out that, in addition to some
subspecialties of radiology, the American Board of Pathology used to
require a ``credentialing'' year in addition to ACGME-accredited
training in pathology. In addition, in the late 1990s, the American
Board of Pediatrics offered several new certificates in subspecialties
such as Adolescent Medicine, Pediatric Emergency Medicine,
Developmental-Behavioral Pediatrics, although ACGME accreditation for
these subspecialties did not yet exist at that time. Between 2005 to
2009, the Board of Psychology and Neurology allowed a ``grandfathering
period'' for certain fellows who did not participate in ACGME-
accredited vascular neurology programs since 2003. Subspecialties of
obstetrics and gynecology are currently not accredited by the ACGME,
but it is well known that board certificates are available from the
American Board of Obstetrics and Gynecology for these subspecialties.
The commenter listed other examples of unaccredited training accepted
by various boards, with the point being that CMS should allow
participants in these programs to be counted in the IME and direct GME
FTE counts.
Response: We understand that, historically, it was not unusual for
a particular board to begin offering certificates in a subspecialty
prior to the ACGME's establishment of accreditation standards for those
programs. Training in a specialized area may go on for several years
before it is recognized by ACGME as an accredited sub-specialty. We
understand that the certifying boards, in certain instances, allow for
individuals who have received applicable training prior to the
existence of board certification in a subspecialty to be
``grandfathered'' and receive a board certificate even though there was
no board examination in existence yet at the time of the individual's
training, and the training was not accredited by ACGME. However, this
practice varies by board and subspecialty; there is no uniform policy.
Regardless, for Medicare IME and direct GME purposes, if at the time of
the individual's training, there did not exist either ACGME
accreditation or a specific board certificate in that subspecialty,
those individuals could not be considered residents during their
training, nor could a hospital subsequently request reopening of its
contemporaneous cost reports to include those individuals in the FTE
count after the fact once board certification or ACGME accreditation
becomes available for that program. As we stated above, in the absence
of accreditation and foreknowledge as to whether unaccredited training
would be accepted by a board, the individual should be categorized as a
resident for IME and direct GME purposes, even if the particular
``training'' is ultimately accepted by the board.
With respect to subspecialties of obstetrics and gynecology, those
subspecialties continue to not be accredited by the ACGME. It is widely
known that the American Board of Obstetrics and Gynecology
independently recognizes and offers certification to participants in
those subspecialties. We believe that trainees in subspecialties of
obstetrics and gynecology for which an explicit board certification is
offered are considered residents, in accordance with the definition of
``approved medical residency training program'' at Sec. 413.75(b).
We received some comments that were not within the scope of the
proposals, such as funding for second year pharmacy residencies and
what constitutes a new medical residency training program. We are not
responding to these comments at this time.
After consideration of the public comments we received, we are
adopting as final, with some modification, our proposed revisions.
Specifically, we are clarifying that individuals participating in a
specialized course of training created by a senior physician, and not
under the auspices of a national accrediting body, and for which there
is no explicit existing board certification examination, may not be
counted for IME and direct GME payment purposes. Such individuals
should be treated as physicians (assuming full licensure) and their
services billed to Medicare for payment as physicians' services. If an
individual has already successfully completed at least one residency
program and has met the generally applicable requirements to be board
eligible in a specialty (regardless of whether the individual has
passed the board examination for that specialty), and is engaged in
subsequent training that will not provide additional knowledge or
skills that could be applied for board certification in another
different subspecialty, the individual will be treated and bill for
services provided as a physician (assuming full licensure). We are
making a technical change to the definition of ``approved medical
residency program'' under Sec. 415.152 relating to payment for
physician services in teaching settings. We also are revising the
definition of ``resident'' at Sec. 413.75(b) to mean ``an intern,
resident, or fellow who is formally accepted, enrolled, and
participating in an approved medical residency program, including
programs in osteopathy, dentistry, and podiatry, as required in order
to become certified by the appropriate specialty board.'' We are making
a conforming change to the definition of ``primary care resident'' to
mean ``a resident who is formally accepted, enrolled, and participating
in an approved medical residency training program in family medicine,
general

[[Page 50298]]

internal medicine, general pediatrics, preventive medicine, geriatric
medicine or osteopathic general practice.'' These change in the
definitions of ``resident'' and ``primary care resident'' are effective
for IME and direct GME for cost reporting periods beginning on or after
October 1, 2010. Essentially, a resident for IME and direct GME
purposes is an individual who, in accordance with our revised
definition of ``resident'' at Sec. 413.75(b), is formally accepted,
enrolled, and participating in an approved medical residency program,
including programs in osteopathy, dentistry, and podiatry, as required
in order to become certified by the appropriate specialty board. The
program would be an ``approved program'' if it is either accredited by
one of the four recognized accrediting bodies, or if not accredited,
the individual who is formally accepted, enrolled, and participating in
the program actually needs the training in order to meet the
established minimum standards for board certification requirements in
that specialty.
With regard to chief residencies, effective for cost reporting
periods beginning on or after October 1, 2010, we are changing our
policy to provide that individuals that act as chief residents after
they have completed the accredited program and have satisfied minimum
requirements for board certification are not considered residents for
IME and direct GME payment purposes. With regard to programs that are
extended by a hospital for longer than the minimum accredited length
for that specialty, effective for cost reporting periods beginning on
or after October 1, 2010, we are changing our policy to provide that
such training is not part of an approved program. That is, individuals
training in a program that extends beyond the actual accredited program
length are not considered residents for IME and direct GME purposes
because they are no longer training in an accredited program according
to the ACGME.
3. Electronic Submission of Affiliation Agreements
Sections 1886(h)(4)(F) and 1886(d)(5)(B)(v) of the Act establish
limits on the number of allopathic and osteopathic FTE residents that
hospitals may count for purposes of calculating direct GME payments and
the IME adjustment. In addition, under the authority granted by section
1886(h)(4)(H)(ii) of the Act, the Secretary issued regulations on May
12, 1998 (63 FR 26358) to allow institutions that are members of the
same Medicare GME affiliated group to elect to apply their direct GME
and IME FTE resident caps based on the aggregate cap of all hospitals
that are part of the Medicare GME affiliated group. Under the
regulations, specified at Sec. 413.79(f) for direct GME and at Sec.
412.105(f)(1)(vi) for IME, hospitals that are part of the same Medicare
GME affiliated group are permitted to adjust their caps to reflect the
rotation of residents among affiliated hospitals during an academic
year. Under Sec. 413.75(b), a Medicare GME affiliated group may be
formed by two or more hospitals (1) If the hospitals are located in the
same urban or rural area or in a contiguous area and have a shared
rotational arrangement as specified at Sec. 413.79(f)(2); or (2) if
the hospitals are not located in the same or in a contiguous area, but
have a shared rotational arrangement and they are jointly listed as the
sponsor, primary clinical site, or major participating institution for
one or more programs as these terms are used in the most recent
publication of the Graduate Medical Education Directory, or are jointly
listed as the sponsor is listed under ``affiliations and outside
rotations'' for one or more programs in Opportunities, Directory of
Osteopathic Post-doctoral Education Programs; or (3) effective
beginning July 1, 2003, if the hospitals are under common ownership and
have a shared rotational arrangement under Sec. 413.79(f)(2).
The existing regulations at Sec. 413.79(f)(1) specify that each
hospital in a Medicare GME affiliated group must submit a Medicare GME
affiliation agreement (as defined under Sec. 413.75(b)) to the CMS
fiscal intermediary or MAC servicing the hospital and send a copy of
the agreement to CMS' Central Office no later than July 1 of the
residency program year during which the Medicare GME affiliation
agreement will be in effect. For example, in order for a hospital to
receive a temporary adjustment to its FTE resident caps to reflect
participation in a Medicare GME affiliated group for the academic year
July 1, 2009-June 30, 2010, each hospital in the affiliated group had
to submit a Medicare GME affiliation agreement to the fiscal
intermediary or MAC servicing the hospital and send a copy of the
agreement to CMS' Central Office no later than July 1, 2009.
As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule, over
the last several years, we have received numerous inquiries regarding
the possibility of submitting the Medicare GME affiliation agreement
electronically. To date, CMS has only accepted signed hard copies of
Medicare GME affiliation agreements. Facsimile (FAX) and other
electronic submissions of affiliation agreements have not been
acceptable means of transmission of affiliation agreements to CMS
Central Office in order for a hospital to meet the requirements of
Sec. Sec. 413.79(f) and 412.105(f)(1)(vi).
The increasing frequency of these inquiries and our concerns
regarding the environment and paperwork reduction have prompted us to
reconsider our procedure for hospitals to submit Medicare GME
affiliation agreements to the CMS Central Office. Accordingly, in the
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24008) we proposed to change
our policy to provide for electronic submission of the affiliation
agreement that is required to be sent to the CMS Central Office. We
indicated that this proposal would not affect the authority of the
fiscal intermediary or MAC to continue to specify its requirements for
submission for hospitals in its servicing area.
We proposed an electronic submission process that would consist of
either an e-mail mailbox or a Web site where hospitals would submit
their Medicare GME affiliation agreements to the CMS Central Office. As
part of this process, a copy of the Medicare GME affiliation agreement
would need to be received through the electronic system no later than
11:59 p.m. on July 1 of each academic year. We proposed that the
electronic affiliation agreement would need to be submitted either as a
scanned copy or a Portable Document Format (PDF) version of that hard
copy agreement or in another electronic format that cannot be subject
to manipulation. This requirement will enable CMS to ensure that the
agreements are signed and dated as required in the regulations at Sec.
413.75.
Comment: Commenters supported the proposal for the electronic
submission process for affiliation agreements and stated that it would
help reduce hospitals' administrative burdens. Many commenters also
stated that the proposed electronic process was a logical and more
administratively simple method of submitting affiliation agreements.
Several commenters suggested that CMS provide hospitals with
documentation of the agency's receipt of the electronic submissions of
their affiliation agreements, due to the time sensitive nature of this
policy.
Response: We appreciate these commenters' support for the proposed
process. As we begin the development of the electronic submission
system for affiliation agreements, we intend to include a mechanism
within that system for acknowledging receipt of the agreements to
hospitals upon the

[[Page 50299]]

submission of their agreements, as the commenters suggested.
Comment: One commenter praised CMS' efforts to ease the paperwork
burden for hospitals, but also claimed that the proposal was not far-
reaching enough toward that end. The commenter requested that CMS
establish an electronic submission process that was easy to use and
that fiscal intermediaries and MACs are required to use to receive
affiliation agreements as well. The commenter also recommended that CMS
ease the Medicare GME affiliation agreement criteria in general and
allow affiliation agreements to become effective as of the date that
the agreement is filed with the CMS Central Office.
Response: We appreciate these comments, and we will take them into
consideration for the future as we plan to implement the electronic
submission system that will accept affiliation agreements. One of the
goals in planning the development of the system is to make the system
user-friendly as possible.
The comments that we received regarding the criteria for
affiliation agreements are not within the scope of the proposed rule.
Therefore we are not addressing them in this final rule. We did not
propose to make any additional changes to our policies regarding
Medicare GME affiliation agreements for FY 2011.
After consideration of the public comments we received, we are
finalizing our proposed policy for accepting electronic submission of
Medicare GME affiliation agreements. We believe that allowing the
electronic submission of affiliation agreements to the CMS Central
Office will assist CMS in more effectively tracking the groups of
hospitals that affiliate as well as the numbers of FTE cap slots that
are being transferred within those groups. In addition, we believe an
electronic submission process will minimize the paperwork burden for
hospitals.
We are currently in the process of developing the electronic
submission system for Medicare GME affiliation agreements. If a system
is developed that is ready to receive affiliation agreements for the
academic year beginning July 1, 2011, we will notify teaching hospitals
by May 2011 of the electronic submission process in order to allow
ample time for the preparation and electronic submission of affiliation
agreements before the July 1, 2011 deadline. We will continue to accept
hard copies of affiliation agreements even if the electronic submission
system is in operation for the academic year beginning July 1, 2011.
Hard copies of affiliation agreements should continue to be sent to:
Director, Division of Acute Care, Centers for Medicare and Medicaid
Services, Attn: Tzvi Hefter, Mailstop C4-08-06, 7500 Security
Boulevard, Baltimore, MD 21244.
4. Technical Correction to the Regulations Relating to the Cost of
Approved Nursing and Allied Health Education Activities
Medicare has historically paid providers for the program's share of
the costs that providers incur in connection with approved educational
activities, which can be divided into three categories: (1) The costs
of approved GME programs in medicine, osteopathy, dentistry and
podiatry; (2) approved nursing and allied health education activities
operated by a provider; and (3) all other costs that can be categorized
as educational programs and activities that are considered to be part
of normal operating costs. Existing regulations on nursing and allied
health education program costs are located at Sec. 413.85. Costs of
approved nursing and allied health education programs that are operated
by a provider are excluded from the definition of inpatient hospital
operating costs and are not included in the calculation of the payment
rates for hospitals paid under the IPPS or in the calculation of the
payments to hospitals and hospital units excluded from the IPPS. These
costs are separately identified and ``passed through'' (that is, paid
separately on a reasonable cost basis).
We recently discovered that a passage in the January 12, 2001
Nursing and Allied Health Education final rule (66 FR 3371) incorrectly
states that pass-through payment for the time students train in
hospital outpatient departments is not allowed. That is, the passage
incorrectly indicates that pass-through payment is only allowed for
training while providing care directly to hospital inpatients. The
regulations in two places at Sec. 413.85 also incorrectly limit the
allowable costs to the inpatient areas of the hospital as follows: (1)
``Approved educational activities'' are defined at Sec. 413.85(c)(2),
in part, as programs that ``Enhance the quality of inpatient care at
the provider,'' (emphasis added); and (2) under the general payment
rules at Sec. 413.85(d)(1)(i)(C), payment for the net costs of nursing
and allied health education activities is determined on a reasonable
cost basis, if, in part, the approved medical education activity
``Enhances the quality of inpatient care at the provider'' (emphasis
added). However, we note that the Provider Reimbursement Manual, Part
1, section 402.1.A, states that the ``approved educational activity''
must be ``designed to enhance the quality of health care in the
institution or to improve the administration of the institution''
(emphasis added). The PRM expresses the correct longstanding policy,
indicating that both inpatient and outpatient training costs are
allowable for pass-through payment. We are correcting the regulations
at Sec. 413.85(c)(2) and Sec. 413.85(d)(1)(i)(C) to indicate that
``approved educational activities'' are those that ``Enhance the
quality of health care at the provider.'' However, costs of training
activities occurring in areas of the hospital other than the IPPS or
OPPS areas or in nonprovider settings continue to not be allowed for
pass-through payment.

I. Certified Registered Nurse Anesthetist (CRNA) Services Furnished in
Rural Hospitals and CAHs (Sec. 412.113)

Section 2312 of the Deficit Reduction Act of 1984 (Pub. L. 98-369)
provided for reimbursement to hospitals on a reasonable cost basis for
the costs that hospitals incur in connection with the services of
certified registered nurse anesthetists (CRNAs). Section 2312(c)
provided that pass-through of CRNA costs was effective for cost
reporting periods beginning on or after October 1, 1984, and before
October 1, 1987. Section 9320 of the Omnibus Budget Reconciliation Act
of 1986 (Pub. L. 99-509) (which established a fee schedule for the
services of nurse anesthetists) amended section 2312(c) of Pub. L. 98-
369 by extending the CRNA pass-through provision through cost reporting
periods beginning before January 1, 1989. In addition, Public Law 99-
509 amended section 1861 of the Act to add a new subsection (bb), which
provides that CRNA services include anesthesia services and related
care furnished by a CRNA. Section 608 of the Family Support Act of 1988
(Pub. L. 100-485) extended pass-through payments for CRNA services
through 1991 and amended section 9320 of Public Law 99-509 by including
language referring to eligibility for pass-through payments for CRNA
services if the facility is ``* * * a hospital located in a rural area
(as defined for purposes of section 1886(d) of the Social Security
Act). * * *'' Reasonable cost-based payment for CRNA services was
extended indefinitely by section 6132 of the Omnibus Budget
Reconciliation Act of 1989 (Pub. L. 101-239).
Section 1886(d) of the Act defines ``rural'' as any area outside an
urban area. This definition of ``rural'' was in effect when Public Law
100-485 was implemented. In 1999, the Balanced Budget Refinement Act
(Pub. L. 106-

[[Page 50300]]

113) amended section 1886(d)(8) of the Act by adding a new subparagraph
(E), which permits a hospital physically located in an urban area to
apply for reclassification to be treated as rural. In addition, Public
Law 106-113 made a corresponding change to section 1820(c)(2)(B)(i) of
the Act, which specifies the location requirements for CAH designation,
by adding the phrase ``or is treated as being located in a rural area
pursuant to section 1886(d)(8)(E).''
The regulations implementing pass-through payments for anesthesia
services and related care furnished by qualified nonphysician
anesthetists employed by a hospital or CAH, including CRNAs, are
located at Sec. 412.113(c). Section 412.113(c)(2)(i)(A) specifies the
location requirement for facilities that furnish these services and are
eligible to be paid based on reasonable cost for the services. The
regulations require that the hospital or CAH be located in a rural area
as defined at Sec. 412.62(f) and not be deemed to be located in an
urban area under the provisions of Sec. 412.64(b)(3). The regulations
at Sec. 412.62(f) mirror section 1886(d)(2)(D) of the Act and define a
rural area as ``* * * any area outside an urban area.'' The regulations
at Sec. 412.64(b)(3) implement section 1886(d)(8)(B) of the Act, also
known as the ``Lugar'' provision, which requires a hospital located in
a rural county adjacent to one or more urban areas to be treated as
being located in the urban metropolitan statistical area to which the
greatest number of workers in the county commute.
Under existing regulations, neither CAHs nor hospitals that have
reclassified from urban to rural under the regulations at Sec. 412.103
and neither CAHs nor hospitals located in Lugar counties are eligible
to receive pass-through payments for anesthesia services and related
care furnished by qualified nonphysician anesthetists. However, because
the statute, as revised by section 608 of Public Law 100-485, allows
reasonable cost payments for CRNA services if the facility is a
hospital located in a rural area as defined for purposes of section
1886(d) of the Act, we believe our regulations should likewise permit
urban hospitals that have been reclassified as rural under section
1886(d)(8)(E) of the Act to qualify for these payments. Therefore, in
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24010), we proposed to
revise Sec. 412.113(c)(2)(i)(A) to state that, effective for cost
reporting periods beginning on or after October 1, 2010, CAHs and
hospitals that have reclassified pursuant to section 1886(d)(8)(E) of
the Act and Sec. 412.103 of the regulations also are rural for
purposes of section 1886(d) of the Act and, therefore, are eligible to
be paid based on reasonable cost for anesthesia services and related
care furnished by a qualified nonphysician anesthetist.
We did not propose to change our regulations to permit Lugar
facilities to be paid based on reasonable cost for anesthesia services
and related care furnished by qualified nonphysician anesthetists. As
noted above, in order to be paid based on reasonable cost for
anesthesia services and related care furnished by a qualified
nonphysician anesthetist, a hospital or CAH must be considered rural
for purposes of section 1886(d) of the Act. Lugar facilities
(facilities that have been reclassified under Sec. Sec. 412.63(b)(3)
and 412.64(b)(3)) are considered urban for purposes of section 1886(d)
of the Act. As a result, in the proposed rule, we stated that we do not
believe it would be consistent with the statute and our regulations to
permit these facilities to also be paid on a reasonable cost basis for
anesthesia services and related care furnished by qualified
nonphysician anesthetists.
Comment: Several commenters supported CMS' proposal to provide for
reasonable cost-based payment for anesthesia services and related care
furnished by qualified nonphysician anesthetists in rural hospitals and
CAHs that have reclassified under Sec. 412.103. One commenter stated
there are three facilities in its State that would now qualify for CRNA
reasonable cost-based payments and that the State hospital association
had been working with CMS and Congress for several years to address
this issue. One commenter stated that the role of CRNAs in small rural
CAHs includes, in addition to administering and maintaining anesthesia,
airway management, IV starts, and other triage, trauma, and emergency
services. The commenter stated that, at its facility, CRNAs take call
24 hours a day, 7 days a week and their clinical skills help to provide
constant emergency and obstetric services. Another commenter in a large
State noted that the proposed policy would increase access to essential
anesthesia services in rural areas of the State, allowing CAHs and
rural hospitals to provide continuous surgical and maternity coverage.
One commenter stated the proposed policy would allow three CAHs in its
State, which previously received CRNA reasonable cost-based payments
and were excluded from such payment in 2005, to once again be paid
based on reasonable cost for anesthesia services and related care
furnished by qualified nonphysician anesthetists.
Response: We appreciate the commenters' support of CMS' proposed
policy to provide rural hospitals and CAHs that have reclassified under
Sec. 412.103 with reasonable cost-based payments for anesthesia
services and related care furnished by qualified nonphysician
anesthetists.
Comment: Although commenters supported the proposed policy
regarding payment for services provided by qualified nonphysician
anesthetists, the majority of commenters disagreed with CMS' statement
in the proposed rule that it was not proposing to change its policy to
provide for reasonable cost-based payment for services furnished by
qualified nonphysician anesthetists in facilities located in Lugar
counties (75 FR 24011). Several commenters stated that, in the proposed
rule, CMS proposed to revise the regulations, which limited
reimbursement for CRNA services provided in CAHs to the Medicare
Resource-Based Relative Value Scale, to allow for cost-based
reimbursement for these services. The commenters stated that while the
proposed rule would allow for reimbursement for CRNA services based on
cost, the proposal does not include CAHs located in Lugar counties;
instead, these facilities would continue to be reimbursed using the
Medicare Physician Fee Schedule. The commenters stated that this policy
approach is inappropriate. Commenters stated that they believed there
may be some confusion that CAHs located in Lugar counties receive a
financial advantage. These commenters stated that CAHs located in Lugar
counties do not receive any benefit from being located in such counties
because CAHs are reimbursed based on cost and not based on Medicare DRG
payments. Commenters stated that CAHs located in Lugar counties are
faced with ``double jeopardy'' because these CAHs do not receive the
higher DRG payments that IPPS hospitals receive as a result of being
located in a Lugar county, nor do they receive CRNA reasonable cost-
based payments. Commenters stated that very few CAHs are located in
Lugar counties and therefore a change in CMS' policy to enable these
CAHs to receive CRNA reasonable cost-based payments would have a very
small financial impact on the Medicare program. Another commenter
stated that in its State, there are at least 13 CAHs that would be
negatively affected by the proposed provision.
Commenters referenced the FY 2006 IPPS final rule (70 FR 47469),
where CMS stated the Lugar provision does not apply in determining CAH
status because the Lugar provision applies for

[[Page 50301]]

purposes of payment under the IPPS and CAHs are not subject to the
IPPS. The commenters stated that as a result of the policy published in
the FY 2006 IPPS final rule, CAHs located in Lugar counties have not
sought to reclassify as rural for purposes of CAH designation. Many
commenters stated that it is inappropriate for CMS to state that Lugar
designation does not apply to CAHs in one context, for determining CAH
eligibility, but does apply for the purpose of determining whether a
CAH will receive CRNA reasonable cost-based payments. One commenter
requested that if CMS does not change its policy with respect to CAHs
located in Lugar counties and CRNA reasonable cost-based payment that
``* * * the broad powers conferred upon the Secretary by Congress be
used to resolve such conflict and correct this issue for CAHs located
in Lugar counties.'' One commenter stated that, in 2005-2006, CMS
issued provisions allowing facilities already certified as CAHs, which
were classified as urban, an opportunity to reclassify as rural based
on either the CAH's ability to comply with either the Federal or State
definition of rural. The commenter referenced language included in an
April 25, 2005 memorandum which referred to a proposal discussed in the
FY 2006 IPPS proposed rule, in which CMS proposed to clarify that CAHs
that were located in a county that, in FY 2004, was not part of a Lugar
county, but as of FY 2005 were included in such a county as a result of
the labor market area definitions announced by OMB on June 6, 2003, had
through September 30, 2006, to reclassify as rural under Sec. 412.103
of the regulations. The commenter stated that the two CAHs in its State
located in Lugar counties were reclassified as rural prior to October
2006, and these facilities were able to maintain their CAH status. The
commenter stated that ``Excluding CAHs located in Lugar counties,
because of lack of clarity with [the] definition and fear [that] Lugar
county reimbursement is an advantage for CRNAs, is not accurate.'' One
commenter stated that CMS' proposal not to permit CAHs located in Lugar
counties to receive CRNA reasonable cost-based payments is not
supported by section 1886(d)(8)(B) of the Act. The commenter stated
that the only basis for excluding rural CAHs such as its facility, is
that CMS believes that section 1886(d)(8)(B) of the Act converts these
CAHs into urban facilities if they are located in Lugar counties. The
commenter quoted the statutory language at section 1886(d)(8)(B) of the
Act: ``For purposes of this section, the Secretary shall treat a
hospital located in a rural county adjacent to one or more urban areas
as being located in the urban metropolitan statistical area * * *''
(emphasis added by commenter). The commenter further referred to
section 1861(e) of the Act, which states the ``* * * term `hospital'
does not include, unless the context otherwise requires, a critical
access hospital (as defined in section 1861(mm)(1)).'' The commenter
stated that because section 1886(d)(8)(B) of the Act describes the
geographic classification for subsection 1886(d) hospitals, which CAHs
are not, ``it is clear that the `context does not require'
incorporating CAHs into the definition of hospital for such purposes.''
Therefore, the commenter believes section 1886(d)(8)(B) of the Act,
does not change CAHs located in Lugar counties into urban facilities.
The commenter stated that because CAHs in Lugar counties do not lose
their rural status, they must remain eligible for CRNA reasonable cost-
based payments despite being located in a Lugar county. The commenter
stated that its facility did not apply for reclassification under Sec.
412.103 when it applied for CAH designation, which supports the claim
that its facility (a CAH located in a Lugar county) is a rural
facility.
Response: We thank the commenters for their comments. In response
to the commenters who stated that CMS proposed to revise a longstanding
regulation that limited Medicare reimbursement for CRNA services
provided in CAHs to the Medicare Resource-Based Relative Value Scale
amounts in lieu of cost, we note that CAHs located in a rural area as
defined at section 1886(d)(2)(D) of the Act were eligible to receive
CRNA reasonable cost-based payments prior to this final rule. In
response to the commenter who referred to a provision included in the
FY 2006 IPPS proposed rule, where CMS proposed to clarify that CAHs
located in Lugar counties as a result of the labor market areas
definitions announced by OMB on June 6, 2003, could reclassify as rural
through September 30, 2006, we note that, in the FY 2006 IPPS final
rule, we adopted a policy that, for purposes of CAH participation, a
CAH located in a Lugar county is considered to be located in a rural
area. In response to the commenters who disagreed with our proposal not
to extend reasonable cost-based payments for nonphysician anesthesia
services to facilities located in Lugar counties, we continue to
believe, consistent with the plain language of the applicable statutory
provisions, that it is appropriate to exclude hospitals and CAHs
located in Lugar counties from reasonable cost-based payment for
anesthesia services and related care furnished by qualified
nonphysician anesthetists. Section 608 of the Family Support Act of
1988 (Pub. L. 100-485) amended section 9320 of the Omnibus Budget
Reconciliation Act of 1986 (Pub. L. 99-509) to state: ``* * * the
amendments made by this section shall not apply during 1989, 1990, and
1991 to a hospital located in a rural area (as defined for purposes of
section 1886(d) of the Social Security Act) * * *'' (emphasis added).
Section 1886(d) of the Act includes both sections 1886(d)(8)(B), the
Lugar provision, and section 1886(d)(8)(E), the reclassification
provision. Section 1886(d)(8)(B) of the Act treats facilities located
in Lugar counties as urban facilities and section 1886(d)(8)(E), treats
urban facilities that have reclassified under that section as rural
facilities. Therefore, ``as defined for purposes of section 1886(d) of
the Social Security Act'' clearly indicates that Lugar facilities are
urban for purposes of receiving CRNA reasonable cost-based payment and
those facilities that have reclassified under section 1886(d)(8)(E) of
the Act are rural for purposes of receiving CRNA reasonable cost-based
payments.
In response to commenters who stated CMS' position that facilities
located in Lugar counties can be granted CAH status but these same
facilities are not eligible to receive CRNA reasonable cost-based
payments is inconsistent, CAH status and CRNA reasonable cost-based
payments are determined through the application of two separate and
distinct provisions under the Act. Section 1820(c)(2)(B)(i) of the Act
permits a facility to qualify for designation as a CAH only if it is
located ``in a rural area (as defined in section 1886(d)(2)(D)) or is
being treated as being located in a rural area pursuant to section
1886(d)(8)(E). * * *'' Because section 1820(c)(2)(B)(i) of the Act does
not include any reference to the Lugar provision (section 1886(d)(8)(B)
of the Act), we do not believe that the statute requires CMS to treat a
facility as being in an urban area for purposes of CAH participation if
it is in a Lugar county. That is, the specific omission of section
1886(d)(8)(B) from section 1820(c)(2)(B)(i) of the Act indicates that
being located in a Lugar county may be considered irrelevant for
purposes of CAH designation. Consistent with this reading of section
1820(c)(2)(B)(i) of the Act, in the FY 2006 IPPS final rule, we amended
the CAH regulations at

[[Page 50302]]

Sec. 485.610(b)(1)(i) to remove all references to a facility being
recognized as urban under the regulations implementing the Lugar
provision. The effect of this change was that facilities in Lugar
counties are now considered to be located in rural areas for purposes
of CAH participation. In the FY 2006 IPPS final rule, we emphasized
that this change was ``effective only for purposes of CAH participation
and will not otherwise affect the status of hospitals or CAHs in Lugar
counties (70 FR 47469).
In contrast, in order to qualify for reasonable cost-based payments
for CRNA services, a facility must be rural ``as defined for purposes
of section 1886(d) of the Social Security Act,'' which we believe
includes all of the designations at section 1886(d) of the Act,
including sections 1886(d)(8)(B) and 1886(d)(8)(E). Because section 608
of the Family Support Act of 1988 refers to all of section 1886(d) of
the Act, we interpret this to encompass all of the area designations
included in section 1886(d) of the Act, including section
1886(d)(8)(B). That is, because section 608 of the Family Support Act
referenced section 1886(d) of the Act and not just section
1886(d)(2)(D), we continue to believe it is appropriate to preclude
CRNA reasonable cost-based payments to those hospitals and CAHs located
in Lugar counties. In addition, we believe that if we recognize as
rural the urban-to-rural hospitals that have reclassified under section
1886(d)(8)(E) of the Act, we should also recognize as urban the Lugar
hospitals that are redesignated pursuant to section 1886(d)(8)(B) of
the Act. Both of these provisions are incorporated within subsection
(d), and we believe it is most internally consistent to recognize both
reclassifications, rather than recognizing one type of reclassification
without recognizing the other. Finally, we note that hospitals and CAHs
located in Lugar counties could apply to reclassify under Sec. 412.103
of the regulations and thus become eligible to receive reasonable cost-
based payments for anesthesia services and related care furnished by
qualified nonphysician anesthetists.
Comment: One commenter opposed CMS' proposal to reimburse
facilities that have reclassified under Sec. 412.103 at 100 percent of
reasonable cost for anesthesia and related services provided by
qualified nonphysician anesthetists. The commenter stated that,
starting in 2002, when the regulations were revised to increase the cap
on surgical procedures from 500 to 800 to qualify for CRNA reasonable
cost-based payments, the commenter requested that CMS review the law
and its regulations to determine whether the regulations could be
revised to include anesthesiologists in the same reasonable cost-based
payments that other anesthesia providers receive. The commenter stated
that not providing equitable payment to anesthesiologists who work in
rural settings prohibits patients from receiving high-level anesthesia
services, which CRNAs lack the training or licensure to provide. The
commenter stated CMS' current regulations regarding reasonable cost-
based payment for anesthesia services discourages rural hospitals from
employing or contracting with anesthesiologists. The commenter stated
that, due to the lack of anesthesiologists in rural hospitals, these
hospitals are forced to transfer medically complex patients to large
urban hospitals, which results in greater risk and inconvenience to the
patient. The commenter urged CMS not to finalize its proposal until all
anesthesia providers are eligible to be paid based on reasonable cost.
The commenter stated that not finalizing CMS' proposal is reasonable
due to the uncertainty of how many facilities would be affected by the
proposed change. The commenter urged CMS to extend reasonable cost-
based payments to services provided by anesthesiologists in rural
hospitals and CAHs, and if such a change cannot be made through
regulations and CMS makes this determination publicly, that CMS
recommend to Congress that the statute be amended to provide for
reasonable cost-based payments for anesthesiologist services provided
by anesthesiologists in rural hospitals and CAHs. The commenter
requested if CMS cannot establish the current number of facilities that
would be eligible for reasonable cost-based payments, prior to making
any change which would expand the number of facilities that could be
eligible for reasonable cost-based payments, CMS should provide a list
of hospitals or CAHs that would have been eligible to receive
reasonable cost-based payments in previous years.
Response: Reasonable cost-based payment for anesthesia services and
related care does not apply to physician anesthesiologists under
section 6132 of the Omnibus Budget Reconciliation Act of 1989 (Pub. L.
101-239) and prior applicable legislation. Physician anesthesiologists
receive payment under the Medicare Physician Fee Schedule. Therefore,
under current law, CMS does not have the authority to extend reasonable
cost-based payment to rural hospitals and CAHs for anesthesia services
and related care furnished by physician anesthesiologists. We
appreciate the commenter's concern that access to high-level anesthesia
services may not be adequate in rural areas because there may be a
limited number of physician anesthesiologists practicing in these
areas. However, we believe that not finalizing our proposal to extend
reasonable cost-based payments for services furnished by qualified
nonphysician anesthetists in rural hospitals and CAHs that reclassified
under Sec. 412.103 would run counter to this very concern, that access
to anesthesia services is limited in rural areas. That is, not
extending reasonable cost-based payment for anesthesia services and
related care furnished by qualified nonphysician anesthetists to rural
hospitals and CAHs that reclassify under Sec. 412.103 would, in fact,
further limit access to anesthesia services.
Comment: One commenter requested that the effective date of the
proposed policy on payment for anesthesia services and related care for
qualified nonphysician services be changed from cost reporting periods
beginning on or after October 1, 2010 to calendar years beginning on or
after January 1, 2011 because the CRNA reasonable cost-based payment
elections are made on a calendar year basis rather than a cost
reporting year basis. Another commenter stated CMS should not force
rural hospitals and CAHs affected by this proposed provision to engage
in appeals of this issue due to CMS' unwillingness to revise the
regulations as a result of the statute as revised by the Family Support
Act of 1988. The commenter stated court cases such as Bayside Community
Hospital v. Sebelius have considered this issue and have maintained
``It is true that the physical location of the hospital does not
change; however, Congress has directed that a hospital qualifying under
1886(d)(8)(E) be treated as if it were in a rural location. The purpose
of this is to overcome the actual physical location and cause a
hospital to qualify as rural. Thus, the deeming provision does impact
the definition of rural at section 1886(d). A regulation does not
override a clearly stated statute.'' The commenter stated that, to
prevent litigation for all parties involved, it would be efficient if
CMS modified the proposed provision as a clarification effective as of
1988 and direct that for all cost reports that have an appropriate
pending appeal, all open cost reports, and all cost reports that are
within three years of settlement, CAHs and hospitals that have
reclassified under section 1886(d)(8)(E) of the Act are eligible to be
paid on a reasonable cost basis for anesthesia services and

[[Page 50303]]

related care furnished by qualified nonphysician anesthetists.
Response: The provisions published in the IPPS final rule for each
respective year are generally effective October 1 of that respective
year. Therefore, we proposed that this provision be effective for cost
reporting periods beginning on or after October 1, 2010. Although the
commenter requested that the proposal be amended to state that it would
be effective for calendar years beginning on or after January 1, 2011,
we do not believe this change is necessary because if the provision is
effective for cost reporting periods beginning on or after October 1,
2010, it will also be in effect for the calendar year beginning January
1, 2011.
In response to the commenter who requested that the proposed
provision be applied retroactively to the effective date of the Family
Support Act of 1988, section 1871(e)(1)(A) of the Act generally
prohibits the Secretary from making retroactive substantive changes in
policy unless retroactive application of the change is necessary to
comply with statutory requirements or failure to apply the change
retroactively would be contrary to the public interest. We do not
believe this provision meets such a threshold.
Comment: Several commenters addressed issues regarding reasonable
cost-based payment for on-call services provided by CRNAs as well as
stand-by costs. In general, commenters requested that reasonable cost-
based payments include on-call CRNA costs as allowable costs. One
commenter requested that CMS consider amending the regulations to
provide for an exception to the requirement that a hospital or CAH must
have employed or contracted with a qualified nonphysician anesthetist
as of January 1, 1988, as one of the requirements to be eligible for
reasonable cost-based payments.
Response: We consider these comments to be outside of the scope of
the proposed rule and, therefore, are not responding to them in this
final rule.
Comment: One commenter requested that CMS change the CoPs to remove
the requirement for physician supervision in CAHs.
Response: We consider this comment to be outside of the scope of
the proposed rule. Therefore we are not responding to the comment in
this final rule.
After consideration of the public comments that we received, we are
adopting, as final without modification, our proposal to revise Sec.
412.113(c)(2)(i)(A) to state that, effective for cost reporting periods
beginning on or after October 1, 2010, CAHs and hospitals that have
reclassified pursuant to section 1886(d)(8)(E) of the Act and Sec.
412.103 of the regulations are also rural for purposes of section
1886(d) of the Act and, therefore, are eligible to be paid based on
reasonable cost for anesthesia services and related care furnished by a
qualified nonphysician anesthetist.

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

1. Background
Section 1109 of Public Law 111-152 provides for additional payments
for FY 2011 and 2012 for ``qualifying hospitals.'' Section 1109(d)
defines a ``qualifying hospital'' as a ``subsection (d) hospital * * *
that is located in a county that ranks, based upon its ranking in age,
sex and race adjusted spending for benefits under parts A and B * * *
per enrollee within the lowest quartile of such counties in the United
States.'' Therefore, a ``qualifying hospital'' is one that meets the
following conditions: (1) A ``subsection (d) hospital'' as defined in
section 1886(d)(1)(B) of the Act; and (2) located in a county that
ranks within the lowest quartile of counties based upon its spending
for benefits under Medicare Part A and Part B per enrollee adjusted for
age, sex, and race. Section 1109(b) of Public Law 111-152 makes
available $400 million to qualifying hospitals for FY 2011 and FY 2012.
Section 1109(c) of Public Law 111-152 requires the $400 million to be
divided among each qualifying hospital in proportion to the ratio of
the individual qualifying hospital's FY 2009 IPPS operating hospital
payments to the sum of total FY 2009 IPPS operating hospital payments
made to all qualifying hospitals.
2. Eligible Counties
Section 1109 of Public Law 111-152 provides $400 million for FYs
2011 and 2012 for supplemental payments to qualifying hospitals located
in counties that rank within the lowest quartile of counties in the
United States for spending for benefits under Medicare Part A and Part
B. The provision requires that the Medicare Part A and Part B county-
level spending per enrollee be adjusted by age, sex and race. In the FY
2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30926 through
30960), we proposed our methodology for determining the bottom quartile
of counties with the lowest Medicare Part A and Part B spending
adjusted by age, sex, and race and invited public comment on the
methodology we proposed to use to adjust for age, sex, and race
described below. We further proposed that we would determine this
bottom quartile of counties one time in this FY 2011 IPPS/LTCH PPS
final rule for the purpose of disbursing the $400 million as required
by section 1109 of Public Law 111-152.
We developed an adjustment model by age, sex, and race, as required
under the provision. We then applied this adjustment to the county
Medicare Part A and Part B spending data to account for the
demographics of the Medicare beneficiaries in those counties. After
those adjustments are applied, we determined the Medicare Part A and
Part B spending by county per enrollee. Our proposed methodology to
determine the Medicare Part A and Part B spending per enrollee by
county adjusted for age, sex, and race is similar to how we calculate
risk adjustment models for Medicare Advantage (MA) ratesetting. Risk
adjustment for MA ratesetting is discussed in the annual announcement
of calendar year MA capitation rates and MA and Part D payment
policies. For more information on the methodology for risk adjustment
used for MA ratesetting, we refer readers to the CMS Web site where we
announce MA rates through our 45-day notice (http://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Announcement2010.pdf).
a. Development of Risk Adjustment Model
As required by section 1109(d) of Public Law 111-152, we proposed a
risk adjustment model that accounts for differentials in Medicare
spending by age, sex, and race. Consistent with how we develop our risk
adjustment models for MA ratesetting as described above, we developed a
prospective risk adjustment model using 2006 data for beneficiary
characteristics and 2007 data for Part A and Part B spending. However,
unlike the risk adjustment model used for MA which includes diseases
and demographic factors, the only independent variables or prospective
factors in the model for payments under section 1109 of Public Law 111-
152 are age, sex and race, as required by the provision. The dependent
variable was annualized Medicare Part A and B spending at the
beneficiary level for 2007 as it is the most recent and complete data
available. The categorization of age, sex, and race variables are
described below.
The age, sex, race (ASR) model(s) was estimated using 5-percent of
the Standard Analytic Denominator File, a standard 5-percent sample
from the 2007 Denominator File which is also used to estimate CMS risk
adjustment

[[Page 50304]]

models for payment to MA organizations. We chose to use the 5-percent
Standard Analytic Denominator File from 2007 in order to optimize the
amount of time after the timely claim submission deadlines and the
latest available data; in other words, because it is the most complete
data currently available. This file has the demographic and enrollment
characteristics of all Medicare beneficiaries. The Denominator File is
an abbreviated file of the Enrollment Data Base (EDB). The Denominator
File contains data on all Medicare beneficiaries enrolled and/or
entitled to be enrolled in Medicare in a given year while the EDB is
the source of enrollment and entitlement information for all people who
are or were ever entitled to Medicare. The model was estimated using
all beneficiaries residing in the community and long-term care
institutions. The sample had 1,603,998 beneficiaries.
The Denominator File contains a sex variable where the
beneficiaries can identify themselves as male or female. The file also
contains an age variable which is defined as the beneficiary's age at
the end of the prior year. Beneficiaries with an age greater than 98
are coded as age 98. The race demographic variable in the Denominator
File is populated by data from the Social Security Administration
(SSA). The SSA's data for this race demographic variable are collected
on Form SS-5. Prior to 1980, Form SS-5 included three categories for
race: White, Black or Other. Since that time, Form SS-5 instructed a
beneficiary to voluntarily select one of the following five categories:
(1) Asian, Asian-American or Pacific Islander; (2) Hispanic; (3) Black
(Not Hispanic); (4) North American Indian or Alaskan Native; and (5)
White (Not Hispanic). Form SS-5 is completed when an individual does
the following: (1) Applies for a Social Security number; (2) requests a
replacement of the Social Security card; or (3) requests changes to
personal information on their record such as a name change. (We refer
readers to the SSA Web site for instructions at: http://ssa.gov/online/ss-5.pdf). Each January, CMS obtains data from SSA to update the EDB
for beneficiaries who were added during the previous calendar year as
well as all living beneficiaries whose race is identified as ``Other''
or ``Unknown.''
Discussed in the context of the ESRD payment system in the ESRD
proposed rule on September 29, 2009 (74 FR 49962), we noted concerns
with using the EDB as a data source due to missing data, and that
racial and ethnic categories are not well defined. However, we believe
that the current EDB, particularly with respect to the more recent and
ongoing updates we perform, remains a useful source of race and
ethnicity data on 46 million Medicare beneficiaries. Additionally,
because this is our only currently available data source on the racial
and ethnic demographics of Medicare beneficiaries, we proposed to the
use the EDB as our data source for beneficiary race so that we can
fulfill the requirements of section 1109(d) of Public Law 111-152 to
adjust county Medicare Part A and Part B spending by race.
We used the MedPAR claims file as the source to determine Medicare
inpatient spending. We used the National Claims History File to
determine spending on DMEPOS and supplies. The other spending under
Medicare Part A and Part B was determined using the Standard Analytic
File. The Standard Analytic File and MedPAR claims file are subsets of
the National Claims History File. These data files are also used in the
MA ratesetting process and are our data source for Medicare spending
stored at the beneficiary level.
In order to determine annual spending (the dependent variable in
the risk adjustment model), we annualized the Medicare Part A and Part
B spending for beneficiaries with less than a full year of eligibility,
and these amounts were weighted in the analysis by the fraction of the
year they were in the data.
We used a linear regression model to determine the demographic
adjustments. This is consistent with how we model our risk adjustment
for the MA rates. The linear regression used 24 age-sex regression
categories, 12 age categories each for males and females. The age
categories are as follows; 0-34, 35-44, 45-49, 50-54, 55-59, 60-64, 65-
69, 70-74, 75-79, 80-84, 85-89, and 90+. The age-sex coefficients
displayed in the table below reflect the difference in Medicare Part A
and Part B spending per enrollee in those age-sex categories relative
to national average Part A and Part B spending based on our linear
regression model.
In addition, we used the same linear regression model to determine
how to adjust Medicare Part A and Part B spending for race. In addition
to the age-sex regression categories described above, we included
variables to adjust for race. We considered two methods to adjust for
race in county spending because of the way that Form SS-5 collects race
information, which is then reported in the same format in the EDB. As
discussed earlier, the EDB currently categorizes race by the following
five categories, as reported by the Medicare beneficiary: (1) Asian,
Asian-American or Pacific Islander; (2) Hispanic; (3) Black (Not
Hispanic); (4) North American Indian or Alaskan Native; and (5) White
(Not Hispanic). One method categorized race by White, Black, Hispanic,
and Other (WBHO). The ``Other'' category includes Asian/Pacific
Islander, American Indian/Alaska Native, and all others. The second
method categorized race by White, Black, and Other (WBO), where
beneficiaries who identified themselves as Hispanic were categorized as
Other. The race/ethnicity categories are mutually exclusive; if a
beneficiary identified themselves as Hispanic he or she was not further
classified as another category, such as White or Black. In our
regression modeling, we used the largest group, White, as the reference
group; the coefficients on the difference in spending by race,
displayed in the table below, are additive to the reference group. In
other words, the coefficients for each race category represent the
difference in predicted Medicare Part A and Part B spending relative to
our reference group. Where the coefficients are positive, this implies
that the predicted spending for that category is higher than that of
the reference group. Conversely, where the coefficients are negative,
this implies that the predicted spending for that category is lower
than that of the reference group.
Below are two tables representing the coefficients used to adjust
Medicare Part A and Part B spending by county. The first table shows
the coefficients for each age and sex category. The second table shows
the coefficients for race. These national coefficients are applied to
each counties' relative demographic for age, sex and race, so that each
county has a risk score by age, sex and race.

[[Page 50305]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.086

We proposed to adjust for race using the WBHO method where we
separately account for cost differences associated with Hispanic
beneficiaries. The Office of Management and Budget (OMB) has
promulgated standards for the classification of federal data on race
and ethnicity. Under OMB's classification standards, the category of
Hispanic is treated as an ethnic category as opposed to a race
category. The current OMB Standards of 1997 require collection of
specific demographic data using a total of five race categories, plus
other (62 FR 58782 through 58790). The five race categories are--(1)
American Indian or Alaska Native; (2) Asian; (3) Black or African
American; (4) Native Hawaiian or Other Pacific Islander; and (5) White.
In addition, OMB specified two separate ethnic categories--Hispanic or
Latino, and not Hispanic or Latino. However, as explained above,
Hispanic or Latino ethnicity is treated as a race category by EDB, and
beneficiaries can self-identify as Hispanic among mutually exclusive
racial categories. Despite the inconsistency in reporting by the OMB
and the EDB, we proposed to treat the category of Hispanic as a
separate category for purposes of the race adjustment required by
section 1109 of Public Law 111-152. We found that the coefficient for
the Hispanic category was statistically significant, suggesting that
Medicare Part A and Part B spending associated with this category of
beneficiaries is different from the spending for our reference group
and that it should be a separate coefficient to adjust county spending.
In addition, the EDB treats Hispanic as a separate racial
classification, consistent with our WBHO method. Therefore, we believe
that our proposal appropriately interpreted the required race
adjustment. In the supplemental proposed rule, we proposed to adjust
for race using the WBHO method.
For purposes of the supplemental proposed rule, we also adjusted
county spending using the WBO methodology to compare the two
approaches. We found minimal difference in the county rankings under
the two methodologies. We found that some counties would qualify as an
eligible county only under the WBO methodology, and others would no
longer qualify as an eligible county using this alternative. The
decision to use the WBHO methodology affects whether nine subsection
(d) hospitals, located in five counties, would be eligible to receive a
payment under section 1109 of Public Law 111-152. In Table 3 of the
supplemental proposed rule (75 FR 30949 through 30958), we published
the differences in counties, eligible hospitals, and payments by State
under the two methodologies. This was the first time we had developed
an adjustment for Medicare spending based on race, and we welcomed
public comment on our proposal to use the WBHO methodology to adjust
for race as required by section 1109 of Public Law 111-152. We also
welcomed public comment on the WBO methodology to adjust for race
though we noted that we were not proposing this methodology at this
time.
b. Calculation of County Level Part A and Part B Spending
In order to rank counties by Medicare Part A and B spending, we
first calculated Medicare Part A and Part B county level spending for
each county in the 50 States and the District of Columbia using a
similar methodology used to establish county level fee-for-service
rates for MA payments. Using a 5-year average of each county's actual
spending (from 2002 to 2006), our actuaries calculated an average
geographic adjuster (AGA), which reflects the county's expenditure
relative to the national expenditure. We believe a 5-year average is
appropriate, as it accounts for fluctuations in year-to-year
expenditures, which could distort the counties' historic level of
spending and is consistent with how MA rates are calculated. The AGA
was then applied to the 2009 United States Per Capita Cost (USPCC)
estimate, which is the national average cost per Medicare beneficiary,
to determine 2009 Medicare Part A and Part B spending for each county.
We welcomed public comment on this methodology to calculate county-
level Medicare Part A and Part B spending.
3. Application of the Age/Sex/Race Adjustment to Part A and Part B
County Spending
To estimate the county level risk scores for 2009, beneficiary
enrollment information was first extracted from the EDB. We chose to
calculate Medicare Part A and Part B county spending for 2009 to be
consistent with how we are required to determine qualifying hospitals'
payment amounts, under section 1109(c) of Public Law 111-152. That is,
section 1109(c) of Public Law 111-152 requires that qualifying
hospitals located in the bottom quartile

[[Page 50306]]

of counties with the lowest Medicare Part A and Part B spending per
enrollee will receive a portion of the allotted $400 million based on
their FY 2009 operating payments. Therefore, we proposed to calculate
Medicare Part A and Part B county spending for 2009 as well. We only
included beneficiaries enrolled in Medicare Part A and/or Part B,
consistent with the language of section 1109(d) of Public Law 111-152,
which refers to spending under Medicare Part A and Part B. Based on
these criteria, there were 30,666,295 beneficiaries included in the
adjustment process. To determine the age, sex and race makeup of the
Part A and/or Part B beneficiaries for each county, we used the EDB to
identify date of birth, sex, race, and State/county of residence to
create a person-level file with the data needed to run the ASR model.
A county-level average risk score was developed for each county in
the United States by applying the ASR model to each individual in the
county enrolled in Medicare Part A and/or Part B, summing the resulting
risk scores and dividing by the number of beneficiaries by county
enrolled in Medicare Part A and/or Part B. The county-level Medicare
Part A and/or Part B spending was adjusted by dividing the county-level
Medicare Part A and/or Part B spending by the county-level average risk
score. The resulting spending distribution was then sorted lowest to
highest dollars; the 786 counties in the lowest quartile of spending
(that is, lowest adjusted spending per enrollee) were determined to be
eligible counties under section 1109 of Public Law 111-152.
We invited comment on our methodology for determining the age, sex,
race adjustments for determining adjusted Medicare Part A and B
spending by county for the purpose of determining eligible counties
under section 1109 of Public Law 111-152.
Comment: Some commenters supported the proposed methodology for
determining the eligible counties, calculating the county rates,
identifying the qualifying hospitals and allocating the allotted
payments.
Response: We appreciate the comments in support of our methodology.
We are finalizing our proposed methodology, with a few adjustments in
response to specific comments discussed below, in this final rule.
Comment: Some commenters expressed disappointment that CMS did not
provide data to determine which hospitals qualify for payments,
including those used for the risk-adjustment model, calculation of the
county-level spending and application of the risk-adjustments to the
Part A and Part B spending. Commenters requested that CMS publish the
data used to calculate the ASR model, the county spending, and the FY
2009 IPPS operating payments for the qualifying hospitals.
Response: As the commenters noted, several data sources were used
to calculate our age-sex-race adjustments, the county-level Medicare
Part A and Part B spending per enrollee, and our qualifying providers'
payment weighting factors. As discussed above, our data source to
calculate the ASR model was the 2007 Standard Analytic File, which is a
5-percent sample of the Denominator File. In addition, to calculate
spending for the ASR model, we used the MedPAR claims file to calculate
inpatient spending, the National Claims History File to calculate
DMEPOS and supplies spending, and the Standard Analytic File to
calculate other Medicare Part A and Part B spending from 2007. The
Standard Analytic File is available for purchase from CMS (as discussed
in section IV.J.6. of this preamble). Additional information on this
file can be found on the CMS Web site at: http://www.cms.gov/LimitedDataSets/12_StandardAnalyticalFiles.asp.
As described above, to calculate the 2009 unadjusted county
spending, we used a 5-year average (from 2002 to 2006) of each county's
Medicare Part A and Part B spending to calculate an AGA for each county
and applied that to the 2009 USPCC. We calculated the county age-sex-
race risk scores based on county demographics from the EDB from 2009
and applied the county age-sex-race risk score to the unadjusted county
spending to determine the Medicare Part A and Part B spending adjusted
for age, sex and race. We divided this adjusted county-level spending
by the number of Medicare Part A and Part B beneficiaries from 2009 in
each county.
Soon after the publication of the FY 2011 IPPS/LTCH PPS
supplemental proposed rule, we published the proposed unadjusted county
rates, the age-sex-race adjustments applied to the county rates, and
the county rates adjusted for age-sex-race for the eligible counties on
the CMS Web site at: http://www.cms.gov/AcuteInpatientPPS/IPPS2010/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=1&sortOrder=ascending&itemID=CMS1235590&intNumPerPage=10.
We are publishing the final unadjusted county rates, the age-sex-
race adjustments applied to the county rates, and the county rates
adjusted for age-sex-race for the eligible counties that are included
in this final rule on the CMS Web site at: http://www.cms.gov/AcuteInpatientPPS/IPPS2011/list.asp#TopOfPage.
To calculate the final payment weighting factors for the qualifying
hospitals, we used the actual payments reported on the March 2010
update of the FY 2009 MedPAR file, which, as discussed in section
IV.J.6. of this preamble, the public can purchase. As required by the
statute, a hospital receives the proportion of the $400 million based
on its FY 2009 IPPS operating payments made under section 1886(d) of
the Act relative to the FY 2009 IPPS operating payments made to all the
qualifying hospitals under section 1886(d) of the Act. We defined IPPS
operating payments to include DRG and wage-adjusted payments made under
the IPPS standardized amount with add-on payments for operating DSH,
operating IME, operating outliers and new technology. We excluded
capital PPS payments. As we proposed, we also included IME MA payments
made to IPPS hospitals because these payments are made under section
1886(d) of the Act. We only included section 1886(d) IPPS operating
payments for cases that occurred in IPPS acute care units of the
qualifying hospitals.
Comment: Some commenters opposed the proposed methodology to
calculate the Medicare Part A and Part B county spending per enrollee
adjusted for age, sex and race. Commenters believed that the
methodology should include adjustments for poor health status,
incidence of chronic disease or other factors that drive utilization
and health care spending.
Response: Section 1109(d) of the Public Law 111-152 specified that
we are to calculate Medicare Part A and Part B spending per enrollee
adjusted for age, sex and race by county. This specific statutory
language did not provide us with any flexibility to include, as part of
our adjustment, other factors that may influence Medicare spending.
Therefore, we are finalizing our proposed model, which only adjusts
Medicare Part A and Part B spending per enrollee at the county level
for age, sex and race, as specified by the statute.
Comment: Some commenters requested that CMS use a 3 year's worth of
spending data to calculate the AGA instead of our proposal to include 5
years' worth of Medicare spending data to reflect fluctuations in year-
to-year spending. Some commenters also requested that CMS use the most
recent

[[Page 50307]]

spending data through 2008 to calculate the AGA.
Response: In the supplemental proposed rule (75 FR 30928), we
discussed our rationale for using a 5-year average of each county's
actual spending from 2002 to 2006 to calculate the average geographic
adjuster, which reflects a county's expenditure relative to the
national expenditure. We believe that a 5-year average accounts for
fluctuations in year-to-year spending that could distort counties'
level of spending. As explained in the supplemental proposed rule, in
order to calculate county spending adjusted for age, sex and race, we
followed a methodology similar to the development of the MA fee-for-
service (FFS) rates under section 1853(c)(1)(D) of the Act. MA FFS
ratesetting uses 5 years' worth of Medicare spending data to calculate
the fee-for-service county spending rates. Due to fluctuations in
county spending that occur, particularly in counties with few Medicare
beneficiaries, our actuaries used 5 years' worth of county-level fee-
for-service Medicare spending data to minimize variability for purposes
of MA FFS ratesetting. We chose to apply a methodology consistent with
MA FFS ratesetting because of our experience under MAFFS ratesetting in
calculating Medicare Part A and Part B spending per enrollee at the
county level and our experience under MA FFS ratesetting in adjusting
for factors that can influence spending such as age and gender. We
believe that, subject to the specific requirements of section 1109 of
Public Law 111-152, we should use the same methodology that we use to
develop the fee-for-service rates under section 1853(c)(1)(D) of the
Act in MA ratesetting.
In response to the commenters' suggestions that we use data through
2008, we are not adopting these suggestions. Instead, we are using 2002
to 2006 data to calculate the AGA to be consistent with how 2009 MA FFS
rates were calculated for the reasons explained above. We note that the
average geographic adjuster using 2002 to 2006 data is then applied to
2009 USPCC to calculate the 2009 spending rates, where the USPCC
includes more recent spending data.
After consideration of the public comments we received, we are
finalizing, without change, our proposed methodology to calculate our
Medicare Part A and Part B county spending per enrollee, which uses 5
years' worth of Medicare spending data from 2002 to 2006 to calculate
the AGA and adjusts for age, sex, and race.
4. Qualifying Hospitals and Annual Payment Amounts
We have developed a methodology to identify the qualifying
hospitals located in our list of eligible counties. Consistent with
section 1109(d) of Public Law 111-152, a qualifying hospital is a
``subsection (d) hospital'' (as defined for purposes of section 1886(d)
of the Act) that is ``located in'' an eligible county (as identified
using the methodology we proposed and discuss in section IV.J.2. of
this preamble). A subsection (d) hospital is defined in section
1886(d)(1)(B) of the Act, in part, as a ``hospital located in one of
the 50 States or the District of Columbia''. The term ``subsection (d)
hospital'' does not include hospitals located in the territories or
hospitals located in Puerto Rico. Section 1886(d)(9)(A) of the Act
separately defines a ``subsection (d) Puerto Rico hospital'' as a
hospital that is located in Puerto Rico and that ``would be a
subsection (d) hospital * * * if it were located in one of the 50
States.'' Therefore, Puerto Rico hospitals are not eligible for these
additional payments. Indian Health Services hospitals enrolled as
Medicare providers meet the definition of a subsection (d) hospital and
can qualify to receive this payment if they are located in an eligible
county. In addition, hospitals that are MDHs and SCHs, although they
can be paid under a hospital-specific rate instead of under the Federal
standardized amount under the IPPS, are ``subsection (d)'' hospitals.
The statutory definition of a ``subsection (d)'' hospital in section
1886(d)(1)(B) of the Act specifically excludes hospitals and hospital
units excluded from the IPPS, such as psychiatric, rehabilitation, long
term care, children's, and cancer hospitals. In addition, CAHs are not
considered qualifying hospitals because they do not meet the definition
of a ``subsection (d) hospital'' as they are paid under section 1814(l)
of the Act. CAHs are not paid under the IPPS. Rather, they are paid
under a reasonable cost methodology and, therefore, do not meet the
definition of ``qualifying hospital'' under section 1109(d) of Public
Law 111-152.
For the purposes of section 1109 of Public Law 111-152, we proposed
to identify ``qualifying hospitals'' based on their Medicare provider
number or CMS certification number (CCN), because one of these numbers
is also how hospitals identify themselves when they file their Medicare
cost reports. We also proposed that, in order to meet the definition of
a ``qualifying hospital,'' the hospital, as identified by the Medicare
provider number or CCN, must: (1) Have existed as a subsection (d)
hospital as of April 1, 2010; (2) be geographically located in an
eligible county; and (3) have received IPPS operating payments (in
accordance with section 1886(d)) of the Act) under its Medicare
provider number or CNN in FY 2009. We used the Online Survey,
Certification and Reporting (OSCAR) database to determine a hospital's
county location associated with that Medicare provider number or CCN.
County data in OSCAR is supplied by the U.S Postal Service and is
crosswalked to the address reported by the provider. Under this
proposal, the address listed for a hospital's Medicare provider number
must be currently located in a qualifying county in order for a
hospital to meet the definition of a ``qualifying hospital.''
We published a list of the qualifying IPPS hospitals that we
identified based on the factors described above in Table 3 of the
supplemental proposed rule. We invited comment on our methodology for
identifying qualifying hospitals. We also invited comment on whether
our list was accurate and whether any providers were missing from this
list using the methodology described above.
Comment: Several commenters identified specific providers that were
located in an eligible county, but were not included in the listing of
qualifying hospitals in Table 3 of the supplemental proposed rule.
Commenters stated that Augusta Medical Center (provider number 490018)
and Carilion New River Valley (provider number 490042) are located in
eligible counties but were not listed in Table 3 as qualifying
hospitals. Commenters requested that these providers be included as
qualifying hospitals.
Response: We have verified the locations of these providers and
have found them to be located in eligible counties. These providers
will receive a portion of the $400 million for FY 2011 and FY 2012. We
have included these providers in Table 2 of this final rule and have
included a payment weighting factor for them.
Comment: Commenters stated that the county locations of certain
qualifying hospitals were mislabeled. Specifically, commenters stated
that the county locations of Halifax Regional Hospital (provider number
490013), North Hawaii Community Hospital, Cibola General Hospital
(provider number 320037) and Acoma Canoncito Laquna PHS hospital
(provider number 320070) were mislabeled.
Response: We listed these providers as qualifying hospitals in the
proposed rule, but had misidentified their SSA county location. (The
SSA county

[[Page 50308]]

location is found in the OSCAR database used to identify hospitals
located in eligible counties.) We have corrected the SSA county
locations of these providers and they remain qualifying hospitals under
section 1109 of Public Law 111-152 because their correct SSA county
locations are eligible counties.
Comment: Several commenters stated that the names associated with
the county codes in supplemental county data posted on the CMS Web site
were incorrectly labeled. Specifically, commenters stated that the
labels for both SSA county codes 06064 and 06060 were listed as Boulder
County, CO. In addition, commenters stated that the labels for both SSA
county codes 12020 and 12030 were listed as Honolulu County, HI.
Response: We verified our SSA county code listing. We have
determined that SSA county code 06064 is Broomfield County, CO, and SSA
county code 06060 is Boulder County, CO. We are finalizing that SSA
county code 06064 (Broomfield County CO) is an eligible county, but SSA
county code 06060 (Boulder County CO) is not an eligible county. In
addition, SSA county code 12020 has been corrected to be the sole
county code for Honolulu County, HI, and SSA county code 12030 is
corrected to indicate that it refers to Kalawao County, HI. Hawaii
County, HI, with an SSA county code of 12030, is an eligible county, as
proposed. Kalawao County, HI, with an SSA county code of 12030, is not
an eligible county. Correcting the county names associated with these
county codes does not impact the list of qualifying hospitals. We have
corrected the supplemental county data that is posted on the CMS Web
site.
Comment: One commenter stated that CMS had failed to list several
Colorado hospitals located in SSA county code 06060, which the
commenter believed to be an eligible county, and that these hospitals
are qualifying hospitals under section 1109 of Public Law 111-152. In
addition, the commenter stated that a hospital located in SSA county
code 06500 should be included as a qualifying hospital.
Response: SSA county code 06060 is Boulder County, CO. In Table 2
of the supplemental proposed rule, we inadvertently labeled SSA county
code 06064 as Boulder County, CO, when, as the commenter stated, SSA
county code 06064 is Broomfield County, CO. As explained above, SSA
county code 06064 (Broomfield County CO) is an eligible county.
However, SSA county code 06060 (Boulder County, CO) is not an eligible
county. Therefore, Colorado hospitals located in SSA county code 06060
(Boulder County, CO) are not qualifying hospitals under section 1109 of
Public Law 111-152 using the methodology we are finalizing in this
final rule. In Table 1 below, we have corrected the information that
appeared in Table 2 of the supplement proposed rule.
We disagree that the hospital located in SSA county code 06500
(Pueblo County, CO) is a qualifying hospital. SSA county code 06500
(Pueblo County, CO) was not listed as an eligible county using the
methodology we proposed in the supplemental proposed rule, and remains
ineligible in this final rule. Therefore, IPPS hospitals located in
that county are not qualifying hospitals under section 1109 of Public
Law 111-152.
Comment: Commenters stated that SSA county code 43650 (Washabaugh
County, SD) was incorrectly listed as a eligible county. Commenters
stated that this county has been incorporated into county code 43350
(Jackson County, SD). Commenters also stated that SSA county code 49867
(South Boston City, VA) is incorporated into SSA county code 49410
(Halifax County, VA).
Response: We verified our SSA county code listing and agree with
the commenters that Washabaugh County, SD and Jackson County, SD should
not be listed as separate counties. We have rerun the relevant
calculations for determining an eligible county using the methodology
finalized in this rule, treating Washabaugh County, SD and the Jackson
County, SD as a single county; the result is that Jackson County, SD
remains an eligible county as proposed. Therefore, we have removed
Washabaugh County, SD from the eligible county list. In addition, when
we reran the relevant calculations for determining an eligible county
using the methodology finalized in this rule, treating Halifax County,
VA and South Boston City, VA as a single county, Halifax County remains
an eligible county as proposed.
In the FY 2011 IPPS/LTCH PPS supplemental proposed rule, we had
stated that there were 3,144 counties nationwide, with 786 counties in
the lowest quartile eligible to receive payments under section 1109 of
the Public Law 111-152. With these changes, there are 3,142 counties,
with the lowest quartile having 785.50 eligible counties, which rounds
to 786 eligible counties. While the number of counties in the lowest
quartile has remained the same, the removal of two counties has allowed
two additional counties to be added. The additional counties added to
the list are SSA county code 38060 (Crook County, OR) and SSA county
code 35040 (Bottineu County, ND). We have not identified any qualifying
IPPS hospitals located in Crook County, OR or in Bottineu County, ND.
Because we have replaced two counties on our list of eligible
counties, we are providing the public an opportunity to notify CMS
whether there are any qualifying IPPS hospitals located in either of
these two newly added counties. We note that the list of eligible
counties and qualifying hospitals is otherwise finalized in this rule
in Tables 2 and 3 in this section IV.J. We are soliciting public input
until August 30, 2010, solely on the issue of whether there are any
IPPS hospitals located in Crooks County, OR and Bottineu County, ND.
The public may submit input via e-mail to Nisha Bhat at
[email protected]. All information must be received by August 30,
2010. If we add qualifying hospitals in these counties as a result of
accurate notification from the public, we will publish a revised list
of qualifying hospitals and their payment weighting factors on the CMS
Web site at: http://www.cms.gov/AcuteInpatientPPS/IPPS2011/list.asp#TopOfPage.
5. Payment Determination and Distribution
As mentioned above, under section 1109(b) of Public Law 111-152,
the total pool of payments available to qualifying hospitals for FY
2011 and FY 2012 is $400 million. The statute is not specific as to the
timing of these payments. Because Congress has allocated a set amount
($400 million) for hospitals for FYs 2011 and 2012 under this
provision, we believe it is consistent with the statute to spread these
payments over the 2-year period. In the supplemental proposed rule, we
proposed to distribute $150 million for FY 2011 and $250 million for FY
2012. Because this is a new policy, we proposed to distribute a smaller
amount of money for the first year, $150 million for FY 2011 and gave
the public an opportunity to review our policy and notify us of any
possible revisions to the list of qualifying hospitals, so that we
could adjust payments for FY 2012. This would ensure that we correctly
identified qualifying hospitals and their proper payment amounts
without exceeding the program's funding. We invited public comment to
give hospitals the opportunity to request necessary changes to the
qualifying hospital list for FY 2011 in order to ensure the accuracy of
the qualifying hospital list based on the methodology that we proposed
(and are finalizing in

[[Page 50309]]

this final rule). However, we proposed to identify eligible counties,
qualifying hospitals, and their payment amounts under section 1109 of
Public Law 111-152 only once. Because Congress allocated a specific
amount of money, we proposed to identify eligible counties, qualifying
hospitals, and their payment amounts once to ensure that we do not
exceed the fixed amount of money and to ensure predictability of
payments.
We proposed to distribute payments through the individual
hospital's Medicare contractor through an annual one-time payment
during each of FY 2011 and FY 2012. We believe that annual payments
made by the fiscal intermediaries and MACs would be an expeditious way
to give the qualifying hospitals the money allotted under section 1109
of Public Law 111-152. Alternatively, these payments could be
distributed to qualifying hospitals at the time of cost report
settlement for the qualifying providers' fiscal year end FY 2011 and FY
2012 cost reports. However, cost report settlement typically takes
several years beyond a hospital's fiscal year end. If we distributed
these additional payments at the time of cost report settlement, it may
take several years until hospitals receive these additional payments.
Therefore, we believe our proposal to give hospitals their section 1109
payments as annual payments during FY 2011 and FY 2012 presents the
most expedient method to distribute these payments to hospitals, and is
in the spirit of the intent of Congress. We welcomed public comment on
our proposal to distribute $150 million in FY 2011 and $250 million in
FY 2012 through an annual payment in each of those years made to the
qualifying providers through their fiscal intermediary or MAC.
We proposed that qualifying hospitals report these additional
payments on their Medicare hospital cost report corresponding to the
appropriate cost reporting period that the hospitals receive the
payments. The Medicare hospital cost report, Form 2552, has an ``Other
adjustment'' line on Worksheet E, Part A, that can used by hospitals to
report the payments received under section 1109 of Public Law 111-152.
We plan to issue additional cost reporting instructions for qualifying
hospitals to report these additional payments on a subscripted line of
the ``Other adjustment'' line to identify this payment. We noted that
we are requiring these payments be reported on the cost report for
tracking purposes only. These additional payments will not be adjusted
or settled by the fiscal intermediary or MAC on the cost report.
Comment: One commenter suggested that, for the purposes of cost
reporting, payments received under the provision of section 1109 of
Public Law 111-152 be reported on Worksheet S-2, instead of Worksheet
E, Part A on the ``other adjustment'' line. The commenter recommended
that these payments be reported on Worksheet S-2 so that the payments
would not be mixed with the Medicare Part A settlement amounts.
Response: We proposed that hospitals report this information on the
``Other adjustment'' line of Worksheet E, Part A, on the Medicare
hospital cost report, Form 2552, because the funding from section 1109
has been allocated from the Federal Hospital Insurance Trust Fund.
Funding from the Federal Hospital Insurance Trust Fund is generally
reported on Worksheet E, Part A. Therefore, we do not believe that it
is appropriate to report these payments on Worksheet S-2. The funding
will not be reconciled through the Medicare cost report because
payments will be distributed through a one-time payment made in FY 2011
and a one-time payment made in FY 2012 to the qualifying hospitals by
the Medicare contractor. Rather, hospitals will report the payments
received under this provision for tracking purposes.
Comment: Several commenters disagreed with the proposal to
distribute $150 million for FY 2011 and $250 million for FY 2012 and,
instead, recommended that funding be distributed in equal amounts of
$200 million for FY 2011 and $200 million for FY 2012. One commenter
suggested that, due to the current economic conditions, $250 million be
distributed for FY 2011 and $150 million for FY 2012. Several
commenters requested that if hospitals are left off the list of
qualifying hospitals for FY 2011 and added for FY 2012, they should be
given their full share of the $400 million allotted by Congress.
Response: Section 1109(b) of the Public Law 111-152 makes available
$400 million from the Federal Hospital Insurance Trust Fund to be
allocated for FY 2011 and for FY 2012 for qualifying hospitals. We
proposed to allocate $150 million for FY 2011 and $250 million for FY
2012 because of concerns that we might need to revise our list of
qualifying hospitals after the publication of FY 2011 IPPS/LTCH PPS
final rule. If we determine that we need to revise the list, we also
would need to ensure that we allocated the proper amount without
exceeding the program's funding. We invited public comment on the
accuracy of our list of eligible counties and qualifying hospitals in
those counties. As discussed earlier, based on the public comments that
we received, we identified two additional qualifying hospitals. We also
have added two additional eligible counties with no qualifying
hospitals and are inviting public input as to whether there are
qualifying hospitals located in those two new qualifying counties.
Because we are allowing the public to notify us on the issue of whether
our determination that there are no qualifying hospitals in the two
additional eligible counties is accurate, and we want to ensure that we
do not exceed the allotted amount of funding from the provision, we
continue to believe it is prudent to disburse less funds in FY 2011.
Therefore, we are finalizing our proposal to distribute $150 million
for FY 2011 and $250 million for FY 2012 through two annual payments
made by the Medicare contractors.
It was not our intention to allocate a lesser share of the $400
million to hospitals that were not on the qualifying list in this final
rule, but later found to qualify. We are committed to ensuring that
qualifying hospitals, regardless of when their qualification is
confirmed, receive their appropriate share of the $400 million. As
discussed in the supplemental proposed rule, because this is a new
provision, we were uncertain as to whether we had correctly identified
all of the qualifying hospitals in the eligible counties to receive
money under section 1109 of the Public Law 111-152. However, based on
the public comments, we believe we have been able to identify the
qualifying hospitals. In the supplemental proposed rule, we proposed to
make only one determination of eligible counties and qualifying
hospitals for FY 2011 and FY 2012.
We have concluded that our comment period allowed the public the
opportunity to comment on the accuracy of the list of eligible counties
and qualifying hospitals. Therefore, after consideration of the
comments we received, we are finalizing the list of the hospitals that
qualify to receive their payments and their payment amounts in this
final rule, with the caveat that we will accept additional public input
on the limited issue of whether there are any qualifying hospitals in
the two newly identified eligible counties. We also are finalizing our
proposal to make only one determination of eligible counties and
qualifying hospitals for FY 2011 and FY 2012, also with the caveat that
we will accept additional public input on the limited issue of whether
there are any qualifying hospitals in the two newly identified eligible
counties. We are finalizing our proposal to

[[Page 50310]]

distribute $150 million for FY 2011 and $250 million for FY 2012. To
the extent that there are qualifying hospitals that were not identified
in this final rule after we receive any additional public input, we
will review that issue in future rulemaking, and those hospitals will
be eligible for their allocation of the entire $400 million.
6. Hospital Weighting Factors
Section 1109(c) of Public Law 111-152 requires that the payment
amount for a qualifying hospital shall be determined ``in proportion to
the portion of the amount of the aggregate payments under section
1886(d) of the Social Security Act to the hospital for fiscal year 2009
bears to the sum of all such payments to all qualifying hospitals for
such fiscal year.'' We proposed that the portion of a hospital's
payment under section 1109 is based on the proportion of its IPPS
operating payments made in FY 2009 under section 1886(d) of the Act
relative to the total IPPS operating payments made to all qualifying
hospitals in FY 2009 under section 1886(d) of the Act. These FY 2009
IPPS operating payments made under section 1886(d) of the Act include
DRG and wage-adjusted payments made under the IPPS standardized amount
with add-on payments for operating DSH, operating IME, operating
outliers and new technology (collectively referred to in the proposed
rule and this final rule as the IPPS operating payment amount). We
proposed to include IME MA payments made to IPPS hospitals because
these payments are made under section 1886(d) of the Act. Under 42 CFR
412.105(g) of the regulations and as implemented in Transmittal A-98-21
(Change Request 332), hospitals that are paid under the IPPS and train
residents in approved GME programs may submit claims associated with MA
enrollees to the fiscal intermediary or MAC for the purpose of
receiving an IME payment. No IPPS operating payment or other add-on
payment is made for these MA enrollees. This is consistent with how the
IPPS includes these IME MA payments when adjusting for budget
neutrality of the IPPS standardized amounts.
In addition, we included in the FY 2009 IPPS operating payment
amount beneficiary liabilities (coinsurance, copayments, and
deductibles) because the payments made under section 1886(d) of the Act
``are subject to the provisions of section 1813.'' That is, the payment
received by the hospital includes the amount paid by Medicare, as well
as the amount for which the beneficiary is responsible, as set forth in
section 1813 of the Act. We proposed to exclude IPPS capital payments
because they are payments made under section 1886(g) of the Act. We
also proposed to exclude payments for organ acquisition costs because
they are payments made under section 1881(d) of the Act. In addition,
we proposed to exclude payments for blood clotting factor because they
are payments made under section 1886(a)(4) of the Act.
Consistent with our IPPS ratesetting process, we proposed to use
the FY 2009 MedPAR inpatient claims data to determine the FY 2009 IPPS
operating payments made to qualifying hospitals in order to set the
ratio for determining a qualifying hospital's share of the $400 million
payment under section 1109 of Public Law 111-152. Although these claim
payments may be later changed and adjusted at cost report settlement,
this settlement generally occurs after FY 2011 and FY 2012.
Furthermore, we believe that the use of the FY 2009 MedPAR inpatient
claims data is consistent with our proposal to make the payments under
section 1109 of Public Law 111-152 in two annual payments in FY 2011
and FY 2012 instead of waiting for cost report settlement. Furthermore,
we used MedPAR data in other areas of the IPPS, including calculating
IPPS MS-DRG relative weights, budget neutrality factors, outlier
thresholds, and the standardized amount. The FY 2009 MedPAR data can be
ordered to allow the public to verify qualifying hospitals' FY 2009
IPPS operating payments. Interested individuals may order these files
through the CMS Web site at: http://www.cms.hhs.gov/LimitedDataSets/ LimitedDataSets/
by clicking on MedPAR Limited Data Set (LDS)--Hospital (National). This
Web page describes the file and provides directions and further
detailed instructions for how to order.
Persons placing an order must send the following: a Letter of
Request, the LDS Data Use Agreement and Research Protocol (refer to the
Web site for further instructions), the LDS Form, and a check for
$3,655 to:

Mailing address if using the U.S. Postal Service: Centers for Medicare
& Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520,
Baltimore, MD 21207-0520.
Mailing address if using express mail: Centers for Medicare & Medicaid
Services, OFM/Division of Accounting--RDDC, Mailstop C3-07-11, 7500
Security Boulevard, Baltimore, MD 21244-1850.

For the supplemental proposed rule, we used the December 2009
update to the FY 2009 MedPAR claims data file (which was the latest
available update to the file at that time) to determine the proposed
qualifying hospitals' IPPS operating payment amounts. For this FY 2011
IPPS/LTCH PPS final rule, we used the March 2010 update to the FY 2009
MedPAR data to determine qualifying hospitals' IPPS operating payment
amounts, which is used to set the hospital weighting factors for FYs
2011 and 2012.
As discussed previously in section IV.J.3. of this preamble,
qualifying hospitals can include SCHs and MDHs because they meet the
definition of subsection (d) hospitals. SCHs are paid in the interim
(prior to cost report settlement) on a claim-by-claim basis at the
amount that is the higher of the payment based on the hospital-specific
rate or the IPPS Federal rate based on the standardized amount. At cost
report settlement, the fiscal intermediary or MAC determines if the
hospital would receive higher IPPS payments in the aggregate using the
hospital's specific rate (on all claims) or the Federal rate (on all
claims). The fiscal intermediary or MAC then assigns the hospital the
higher payment amount (either the hospital specific rate for all claims
or the Federal rate amount for all claims) for the cost reporting
period. To determine the FY 2009 operating payment amount for SCHs that
meet the definition of a qualifying hospital, we proposed to use the
IPPS operating payment made on the Medicare IPPS claim in the FY 2009
MedPAR file rather than the SCH's final payment rate that is determined
at cost report settlement. We believe this approach is consistent with
the treatment of other qualifying hospitals under our proposal, and
again allows for the timely distribution of funds in two annual
payments, as discussed above. MDHs are paid the sum of the Federal
payment amount plus 75 percent of the amount by which the hospital-
specific rate exceeds the Federal payment amount. This amount is
considered their IPPS operating payment reported on their Medicare IPPS
claims.
In order to calculate payment amounts consistent with section
1109(c) of Public Law 111-152, we proposed to use a weighting factor
for each qualifying hospital that is equal to the qualifying hospital's
FY 2009 IPPS operating payment amount (as described above) divided by
the sum of FY 2009 IPPS operating payment amounts for all qualifying
hospitals. We believe this methodology is consistent with the
requirement of section 1109(c) of Public Law 111-152, because a
qualifying hospital with a larger proportion of operating payments
would have a

[[Page 50311]]

proportionately higher weighting factor and would receive the
proportionately larger share of the $400 million, while a hospital with
a smaller proportion of operating payments would have a proportionately
smaller weighting factor and would receive proportionately smaller
shares of the $400 million. We welcomed public comment on our
methodology to determine the amount of money distributed to qualifying
hospitals consistent with the language in section 1109(c) of Public Law
111-152.
Comment: One commenter suggested that payments made under
reasonable cost contracts under section 1876 of the Act be included in
the calculation of a qualifying hospital's payment weighting factor.
The commenter stated that there are a significant number of Medicare
beneficiaries enrolled in these cost plans in Hawaii and that they
comprise a large proportion of Hawaii hospitals' payments. Payments to
hospitals are made using the Medicare fee-for-service rate or the
reasonable cost for treating inpatients in these cost plans. The
commenter believed that, because these hospitals are paid at the
Medicare fee-for-service rate, those payments should be included in the
qualifying hospitals' payment weighting factors.
Response: Section 1876 reasonable cost contracts are entered into
with Medicare managed care cost plans (HMOs/CMPs) that cover Medicare-
eligible beneficiaries. The commenter suggested that inpatient hospital
payments for Medicare enrollees in the section 1876 cost plans that
directly pay for inpatient hospital benefits should be included in the
qualifying hospital's weighting factor. Section 1109(c) of Public Law
111-152 specifies that the proportion of the $400 million given to a
qualifying hospital is based on the qualifying hospital's payments
under section 1886(d) of the Act for FY 2009 relative to the total
payments under section 1886(d) of the Act for all of the qualifying
hospitals for FY 2009. Payments to hospitals that treat Medicare
enrollees in these managed care cost plans that pay directly for
inpatient hospital benefits are paid by the managed care cost plan
under section 1876 of the Act; the payments are not under section
1886(d) of the Act. Therefore, we believe that these payments do not
meet the requirement under section 1109(c) of Public Law 111-152, and
we are excluding inpatient hospital payments made under section 1876 of
the Act from qualifying hospitals' payment weighting factors.
Additionally, we proposed to use the FY 2009 MedPAR inpatient
claims data to determine the FY 2009 IPPS operating payments to
calculate the qualifying hospitals' payment weighting factors. IPPS
hospitals submit these inpatient claims to receive IPPS operating
payments under section 1886(d) of the Act. Because Medicare
beneficiaries enrolled in these managed care cost plans have their
inpatient services paid for by their cost plan under section 1876 of
the Act, the MedPAR file does not have their hospital inpatient payment
information. Therefore, we believe that hospital payments received for
beneficiaries in section 1876 reasonable cost plans should not qualify
as a ``payment[ ] under section 1886(d)'' of the Act for purposes of
section 1109(c) of Public Law 111-152.
Comment: One commenter was concerned with the proposal to base
payments on the FY 2009 MedPAR data for SCHs and MDHs. The commenter
suggested that MedPAR would not accurately calculate payments for SCHs
and MDHs, which are IPPS hospitals that are paid under the higher of
the IPPS Federal rate or the hospital-specific rate. The commenter
stated that the MedPAR file assumes that a high level of outlier
payments exists for most SCHs and MDHs, and therefore
disproportionately understates their actual payment, which is
determined at cost report settlement. The MedPAR file contains interim
payments where outlier payments may be higher or lower than the actual
outlier payment amount, which is reconciled at cost report settlement.
The commenter requested that CMS use the cost report to determine SCH
and MDH payment weighting factors because the cost report contains the
final IPPS operating payment amounts.
Response: We note that interim payments to SCH and MDHs are made on
the basis of the best available data at the time and can include other
interim payment amounts, such as DSH and IME. Interim payments can be
adjusted and changed at cost report settlement. However, these interim
payment changes are not limited to SCHs and MDHs, as IPPS hospitals
that are not SCHs or MDHs receive interim payments for DSH and IME that
are paid through the inpatient claim. Therefore, SCHs and MDHs are not
necessarily more or less disadvantaged than other IPPS hospitals under
our proposal to use inpatient claims in the MedPAR file as opposed to
finalized cost reports to determine qualifying hospitals' payment
weighting factors. Additionally, section 1109(a) of Public Law 111-152
requires the Secretary to make payments ``to qualifying hospitals * * *
for fiscal years 2011 and 2012,'' and section 1109(b) of Public Law
111-152 makes $400 million available for payments ``for fiscal years
2011 and 2012'' based on qualifying hospitals' IPPS operating payments
from FY 2009. It generally takes several years to finalize hospitals'
Medicare cost report. If we waited for cost report settlement to
finalize interim values such as DSH, IME, and interim payment to SCHs
and MDHs, we would be delaying making these additional payments well
beyond FYs 2011 and 2012. As we noted in the preamble to the
supplemental proposed rule (75 FR 30929), we proposed to make payments
under section 1109 of Public Law 111-152 during FYs 2011 and 2012 based
on available interim MedPAR data, because of this delay. Although
waiting until cost reports are settled might yield somewhat more
precise payment information for some qualifying hospitals receiving
interim payments, including SCHs and MDHs, we believe it is in the
interest of the hospitals to use the best available at this time to
expedite disbursement of the funds in FY 2011 and FY 2012. We believe
the FY 2009 MedPAR file contains the best data available, and using
these data is the most expeditious method to determine a hospital's
weighting factor and is consistent with this decision to make payments
in the relevant fiscal years.
Comment: One commenter supported determining qualifying hospitals
only once in FY 2011 for the purposes of making payments in FY 2011 and
FY 2012. The commenter stated that this approach provides certainty to
qualifying hospitals to allow them to budget for the next 2 fiscal
years.
Response: We agree that finalizing the list of eligible counties
and qualifying hospitals once will ease implementation of the provision
and will allow hospitals to plan their budgets accordingly. As
discussed earlier, we have modified our proposed approach because we
have replaced two eligible counties and have not identified any
qualifying IPPS hospitals located in those counties. We are allowing
the public until August 30, 2010 to give input via e-mail as to whether
there are any qualifying hospitals located in those two additional
eligible counties. If there are any changes to the list, we will
republish that information on the CMS Web site. To the extent that
there are any other issues that arise after the publication of this
final rule, we would consider those issues in future rulemaking.
We are finalizing our methodology to calculate the qualifying
hospitals' payment weighting factors as proposed using the March 2010
update of the FY

[[Page 50312]]

2009 MedPAR inpatient claims information. We are finalizing our
proposal to distribute $150 million for FY 2011 and $250 million for FY
2012.
7. Results
In calculating county-level Medicare Part A and B spending and
after consideration of the public comments we received, we have found
that there are 3,142 counties in the United States. Therefore, there
are 786 counties that rank in the lowest quartile of counties with
regards to adjusted Medicare Part A and Part B spending per enrollee.
Of those 786 eligible counties, there are only 273 counties in which
qualifying hospitals are located, using the methodology we proposed in
section II.E.3. of the preamble to the supplemental proposed rule and
that we are finalizing in this final rule. Using Medicare provider
numbers, we identified 416 IPPS hospitals that are currently located in
those eligible counties and received IPPS operating payments in FY
2009.
In accordance with our responses to the comments and our final
methodology, we have set out the final list of eligible counties in
Table 1 below. In addition, we have set out the final list of
qualifying hospitals, location, and payment weighting factors (subject
to our consideration of any comments we receive regarding whether there
are any qualifying hospitals in the two newly added eligible counties)
based on the March 2010 update of the FY 2009 MedPAR in Table 2 below.
Finally, we have set out the payments under section 1109 by State for
FY 2011 (again, subject to our consideration of any public input we
receive regarding whether there are any qualifying hospitals in the two
newly added eligible counties) in Table 3 below.
8. Finalization of Eligible Counties, Qualifying Hospitals and
Qualifying Hospitals' Weighting Factors
We noted in the proposed rule that, based on public comments, it
would be possible that we finalized a methodology to determine the list
of eligible counties and hospitals that differs from our current
proposal. A change in our methodology could, in turn, result in changes
to the list of eligible counties or qualifying hospitals. We note again
that we proposed to identify eligible counties, qualifying providers,
and their payments under section 1109 of Public Law 111-152 only once
in the FY 2011 IPPS/LTCH PPS final rule, and we are finalizing this
proposal in this final rule. As we proposed, the methodology for
determining a final list of eligible counties produced the actual list
of eligible counties that are being finalized in this FY 2011 IPPS/LTCH
PPS final rule and will not be updated in a future fiscal year based on
updated data.
However, as discussed earlier, we replaced two counties in the
eligible counties list and did not identify qualifying hospitals
located in those new counties and we are seeking public input via e-
mail by August 30, 2010, as to whether there are any qualifying
hospitals located in those counties. If there are additional changes to
our qualifying hospitals list, we will publish that information on the
CMS Web site soon after August 30, 2010.
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BILLING CODE 4120-01-C

K. Rural Community Hospital Demonstration Program

We note that we included a discussion of continued implementation
of the rural community hospital demonstration program in the FY 2011
IPPS/LTCH PPS proposed rule (75 FR 24011). We issued a supplemental
proposed rule (75 FR 30961) to the FY 2011 proposed rule (75 FR 23852)
to address the provisions of the Affordable Care Act, which made
changes to the demonstration program, and full implementation of the
program for FY 2011. The discussion below reflects the provisions of
both the proposed rule and the supplemental proposed rule.
1. Background
Section 410A(a) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA), Public Law 108-173, required the
Secretary to establish a demonstration program to test the feasibility
and advisability of establishing ``rural community hospitals'' to
furnish covered inpatient hospital services to Medicare beneficiaries.
The demonstration pays rural community hospitals for such services
under a cost-based methodology for Medicare payment purposes for
covered inpatient hospital services furnished to Medicare
beneficiaries. A rural community hospital, as defined in section
410A(f)(1) of MMA, is a hospital that--
Is located in a rural area (as defined in section
1886(d)(2)(D) of the Act) or is treated as being located in a rural
area under section 1886(d)(8)(E) of the Act;
Has fewer than 51 beds (excluding beds in a distinct part
psychiatric or rehabilitation unit) as reported in its most recent cost
report;
Provides 24-hour emergency care services; and
Is not designated or eligible for designation as a CAH
under section 1820 of the Act.
Section 410A(a)(4) of Public Law 108-173, in conjunction with
subsections (2) and (3) of section 410A(a), provided that the Secretary
was to select for participation no more than 15 rural community
hospitals in rural areas of States that the Secretary identified as
having low population densities. Using 2002 data from the U.S Census
Bureau, we identified the 10 States with the lowest population density
in which rural community hospitals were to be located in order to
participate in the demonstration: Alaska, Idaho, Montana, Nebraska,
Nevada, New Mexico, North Dakota, South Dakota, Utah, and Wyoming.
(Source: U.S. Census Bureau, Statistical Abstract of the United States:
2003).
We originally solicited applicants for the demonstration in May
2004; 13 hospitals began participation with cost reporting years
beginning on or after October 1, 2004. (Four of these 13 hospitals
withdrew from the program and became CAHs). In a notice published in
the Federal Register on February 6, 2008 (73 FR 6971), we announced a
solicitation for up to 6 additional hospitals to participate in the
demonstration program. Four additional hospitals were selected to
participate under this solicitation. These four additional hospitals
began under the demonstration payment methodology with the hospital's
first cost reporting period starting on or after July 1, 2008. Three
hospitals (2 of the hospitals were among the 13 hospitals that were
original participants in the demonstration and 1 of the hospitals was
among the 4 hospitals that began the demonstration in 2008) withdrew
from the demonstration during CY 2009. (Two of these hospitals
indicated that they will be paid more for Medicare inpatient services
under the rebasing allowed under the SCH methodology allowed by the
Medicare Improvement for Patients and Providers Act of 2008 (Pub. L.
110-275). The other hospital restructured to become a CAH.)
Section 410A(a)(5) of Public Law 108-173 originally required a 5-
year demonstration period of participation. Prior to the enactment of
the Affordable Care Act, for the seven currently participating
hospitals that began the demonstration during FY 2005 (``originally
participating hospitals''), the demonstration was scheduled to end for
each of these hospitals on the last day of its cost reporting period
that ends in FY 2010. The end of the participation for the three
participating hospitals that began the demonstration in CY 2008 was
scheduled to be September 30, 2010.
In addition, section 410A(c)(2) of Public Law 108-173 required
that, ``[i]n conducting the demonstration program under this section,
the Secretary shall ensure that the aggregate payments made by the
Secretary do not exceed the amount which the Secretary would have paid
if the demonstration program under this section was not

[[Page 50343]]

implemented.'' This requirement is commonly referred to as ``budget
neutrality.''
Generally, when we implement a demonstration program on a budget
neutral basis, the demonstration program is budget neutral in its own
terms; in other words, the aggregate payments to the participating
hospitals do not exceed the amount that would be paid to those same
hospitals in the absence of the demonstration program. Typically, this
form of budget neutrality is viable when, by changing payments or
aligning incentives to improve overall efficiency, or both, a
demonstration program may reduce the use of some services or eliminate
the need for others, resulting in reduced expenditures for the
demonstration program's participants. These reduced expenditures offset
increased payments elsewhere under the demonstration program, thus
ensuring that the demonstration program as a whole is budget neutral or
yields savings. However, the small scale of this demonstration program,
in conjunction with the payment methodology, makes it extremely
unlikely that this demonstration program could be viable under the
usual form of budget neutrality. Specifically, cost-based payments to
participating small rural hospitals are likely to increase Medicare
outlays without producing any offsetting reduction in Medicare
expenditures elsewhere. Therefore, a rural community hospital's
participation in this demonstration program is unlikely to yield
benefits to the participant if budget neutrality were to be implemented
by reducing other payments for these same hospitals.
In the past six IPPS final regulations, spanning the period for
which the demonstration has been implemented, we have adjusted the
national inpatient PPS rates by an amount sufficient to account for the
added costs of this demonstration program, thus applying budget
neutrality across the payment system as a whole rather than merely
across the participants in the demonstration program. As we discussed
in the FY 2005, FY 2006, FY 2007, FY 2008, FY 2009, and FY 2010 IPPS
final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR
48670; and 74 FR 43922, respectively), we believe that the language of
the statutory budget neutrality requirements permits the agency to
implement the budget neutrality provision in this manner.
In light of the statute's budget neutrality requirement, we
proposed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24012) a
methodology to calculate a budget neutrality adjustment factor to the
FY 2011 national IPPS rates. In the FY 2011 IPPS/LTCH PPS proposed
rule, the only amount that was identified to be offset for the FY 2011
IPPS/LTCH final rule was that by which the costs of the demonstration
program, as indicated by settled cost reports beginning in FY 2007 for
hospitals participating in the demonstration during FY 2007, exceeded
the amount that was identified in the FY IPPS 2007 final rule as the
budget neutrality offset for FY 2007. No dollar amount was specified
for purpose of this offset, because of a delay in the settlement
process of FY 2007 cost reports. Due to the timing of the proposed rule
in relation to the enactment of the Affordable Care Act, we were unable
to include in the proposed budget neutrality adjustment factor to the
FY 2011 national IPPS rates an offset that would account for the
estimated financial impact that the demonstration would have for
certain timeframes under the extension required by the Affordable Care
Act.
2. Changes to the Demonstration Program Made by the Affordable Care Act
Section 3123 of Public Law 111-148 and section 10313 of Public Law
111-152 amended section 410A of Public Law 108-173 which established
the rural community hospital demonstration program. Sections 3123 and
10313 of the Affordable Care Act changed the rural community hospital
demonstration program in several ways. First, the Secretary is required
to conduct the demonstration program for an additional 5-year period
that begins on the date immediately following the last day of the
initial 5-year period under section 410A(a)(5) of Public Law 108-173,
as amended (section 410A(g)(1) of Public Law 108-173, as added by
section 3123(a) of the Affordable Care Act and further amended by
section 10313 of such Act). Further, the Affordable Care Act requires
that, in the case of a rural community hospital that is participating
in the demonstration program as of the last day of the initial 5-year
period, the Secretary shall provide for the continued participation of
such rural hospital in the demonstration program during the 5-year
extension, unless the hospital makes an election, in such form and
manner as the Secretary may specify, to discontinue participation
(section 410A(g)(4)(A) of Public Law 108-173, as added by section
3123(a) of the Affordable Care Act and further amended by section 10313
of such Act). In addition, the Affordable Care Act provides that during
the 5-year extension period, the Secretary shall expand the number of
States with low population densities determined by the Secretary to 20
(section 410A(g)(2) of Public Law 108-173, as added by section 3123(a)
and amended by section 10313 of the Affordable Care Act). Further, the
Secretary is required to use the same criteria and data that the
Secretary used to determine the States under section 410A(a)(2) of
Public Law 108-173 for purposes of the initial 5-year period. The
Affordable Care Act also allows not more than 30 rural community
hospitals in such States to participate in the demonstration during the
5-year extension period (section 410A(g)(3) of Public Law 108-173, as
added by section 3123(a) of the Affordable Care Act and as further
amended by section 10313 of such Act). Additionally, the Affordable
Care Act provides that the amount of payment under the demonstration
program for covered inpatient hospital services furnished in a rural
community hospital, other than services furnished in a psychiatric or
rehabilitation unit of the hospital that is a distinct part, is the
reasonable costs of providing such services for discharges occurring in
the first cost reporting period beginning on or after the first day of
the 5-year extension period (section 410A(g)(4)(b) of Public Law 108-
173, as added by section 3123(a) of the Affordable Care Act and as
further amended by section 10313 of such Act). For discharges occurring
in a subsequent cost reporting period paid under the demonstration, the
formula in section 410A(b)(1)(B) of Public Law 108-173, as amended,
would apply. In addition, various other technical and conforming
changes were made to section 410A of Public Law 108-173 by section
3123(a) of the Affordable Care Act and as further amended by section
10313 of such Act.
3. FY 2011 Budget Neutrality Adjustment
In order to ensure that the demonstration is budget neutral as is
required by the statute, in the June 2, 2010 supplemental proposed
rule, we proposed to adjust the national IPPS rates in the FY 2011 IPPS
final rule to account for any added costs attributable to the
demonstration. Specifically, the proposed budget neutrality adjustment
would account for: (1) The estimated costs of the demonstration in FY
2011 for the 10 currently participating hospitals; (2) the estimated FY
2010 costs of the demonstration that were not accounted for in the FY
2010 IPPS/RY 2010 LTCH PPS final rule for the 7 ``originally
participating hospitals''

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because we estimated those hospitals' FY 2010 costs under the
assumption that the demonstration would be concluding before the end of
FY 2010 for those hospitals; (3) the estimated FY 2011 costs for up to
20 new hospitals selected to participate in the demonstration; and (4)
the amount by which the costs of the demonstration program, as
indicated by settled cost reports for cost reporting periods beginning
in FY 2007 for hospitals participating in the demonstration during FY
2007, exceeded the amount that was identified in the FY 2007 IPPS final
rule as the budget neutrality offset for FY 2007.
a. Component of the FY 2011 Budget Neutrality Adjustment That Accounts
for Estimated FY 2011 Costs of the Demonstration of the 10 Currently
Participating Hospitals
In the June 2, 2010 supplemental proposed rule (75 FR 30962 and
30963), we indicated that the component of the proposed FY 2011 budget
neutrality adjustment to the national IPPS rates that accounts for the
estimated cost of the demonstration in FY 2011 for the 10 currently
participating hospitals would be calculated by utilizing separate
methodologies for the 7 hospitals that have participated in the
demonstration since its inception and that we consider to be continuing
to participate in the demonstration (``originally participating
hospitals''), and the 3 hospitals that are currently participating in
the demonstration that were among the 4 hospitals that joined the
demonstration in 2008. Different methods are used because fiscal
intermediaries' most recent final settlements of cost reports are for
periods beginning in FY 2006 for the ``originally participating
hospitals,'' whereas we relied on available submitted documentation for
the hospitals that began participation in the demonstration in 2008.
Because the hospitals that began the demonstration in 2008 have no
settled cost reports for the demonstration, we proposed to use ``as
submitted'' cost reports. The proposed budget neutrality analysis was
based on the assumption that all 10 of these hospitals would continue
in the demonstration under the 5-year extension provided by the
Affordable Care Act. We note that all 10 participating hospitals,
whether they began participation in 2005 or in 2008, have elected to
continue participation in the extension period mandated by the
Affordable Care Act.
The estimate of the portion of the proposed budget neutrality
adjustment that accounts for the estimated costs of the demonstration
in FY 2011 for the 7 ``originally participating hospitals'' was based
on data from their second year cost reports--that is, for cost
reporting periods beginning in FY 2006. We proposed to use these cost
reports because they were the most recent complete cost reports and,
thus, we believed they enabled us to estimate FY 2011 costs as
accurately as possible. In addition, we estimated the cost of the
demonstration in FY 2011 for 2 of the 4 hospitals that joined the
demonstration in 2008 based on data from each of their cost reporting
periods beginning January 1, 2008. Similarly, we proposed to use these
cost reports because they were the most recent cost reports and, thus,
we believed they enabled us to estimate FY 2011 costs for these 2
hospitals as accurately as possible. Because 1 of the 4 hospitals that
began in 2008 has withdrawn, there is 1 hospital remaining among those
that began in that year. The remaining hospital of the 4 hospitals that
began in 2008 is an Indian Health Service provider. Historically, the
hospital has not filed standard Medicare cost reports. Therefore, in
order to estimate its costs, we proposed to use an analysis of Medicare
inpatient costs and payments submitted by the hospital for the cost
reporting period of October 1, 2005 through September 30, 2006. In
addition, we proposed that we may revise this estimate [that is, the
estimated cost of the demonstration in FY 2011 for the 10 currently
participating hospitals] for the final rule if updated cost report data
became available. This is because we believe that updated data would
enable us to estimate costs as accurately as possible.
For this final rule, we are finalizing an estimate of the costs of
the demonstration in FY 2011 for the 10 currently participating
hospitals. Consistent with our proposal, updated data have become
available for this final rule, and we are using them to estimate the
costs of the demonstration in FY 2011. The finalized amount differs
from that stated in the proposed rule in two respects: (1) A more
recently available IPPS market basket update factor for FY 2011 is
applied to the difference between the dollar amount attributable to
Medicare inpatient costs calculated under the applicable reasonable
cost methodology in section 410A of Public Law 108-173, as amended, and
what would have otherwise been paid under the IPPS. (An IPPS market
basket update is applied for every year between the year of the
respective cost report and 2011.) (2) The updated cost report data have
become available for the Indian Health Service provider because the
provider has filed a full cost report for its cost reporting period
ending September 30, 2009.
For this final rule, the estimated costs under the demonstration
for FY 2011 for the 10 currently participating hospitals is calculated
as follows: Consistent with the proposed rule, in order to estimate the
FY 2011 costs of the demonstration for the seven ``originally
participating hospitals,'' for each hospital we subtracted the amount
it would have been paid under the IPPS from the amount paid for FY 2006
under the applicable reasonable cost methodology in section 410A of
Public Law 108-173 as amended. We summed these differences for the
seven hospitals and applied the IPPS market basket updates and a 2-
percent annual volume adjustment for the years between 2006 and 2011.
As proposed, for this final rule for the two hospitals that began the
demonstration in 2008, for each of these hospitals we subtracted the
amount it would have been paid under the IPPS from the amount to be
paid under the applicable reasonable cost methodology in section 410A
of Public Law 108-173 as amended for FY 2008 using as submitted 2008
cost reports. We summed these differences and applied the IPPS market
basket updates and a 2-percent annual volume adjustment for the years
between 2008 and 2011. For the Indian Health Service provider, we used
its as submitted cost report ending in September 2009 to estimate its
FY 2011 costs under the applicable reasonable cost methodology set
forth in section 410A of Public Law 108-173 as amended and what its
Medicare inpatient payment would have been absent the demonstration. We
added the amounts for all 10 hospitals, resulting in an estimated
amount of $21,331,721.
b. Portion of the FY 2011 Budget Neutrality Adjustment That Accounts
for Estimated FY 2010 Costs of the Demonstration That Were Not
Accounted for in the FY 2010 IPPS/RY 2010 LTCH PPS Final Rule for the
Seven ``Originally Participating Hospitals''
As explained above, section 410A(g)(4)(A) of Public Law 108-173, as
added by section 3123(a) of the Affordable Care Act and further amended
by section 10313 of such Act, provided for the continued participation
of rural community hospitals that were participating in the
demonstration as of the last day of the initial 5-year [demonstration]
period. One of the effects of this extension is that the seven
``originally participating hospitals'' (those hospitals that have
participated in the demonstration since its inception

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and that continue to participate in the demonstration or were
participating in the demonstration as of the last day of their initial
5-year demonstration period, that is, the two rural community hospitals
that concluded their initial period of performance in December 2009)
that were scheduled to end their participation in the demonstration
before the end of FY 2010 would continue to participate for the
remainder of FY 2010 and beyond, as applicable. However, we note that
the portion of the FY 2010 budget neutrality adjustment to the national
IPPS rates that was included in the FY 2010 IPPS final rule that
accounted for the estimated costs of the demonstration in FY 2010 did
not take into account costs of the demonstration for those hospitals
beyond the anticipated end date of their initial demonstration period.
(For example, for a hospital whose cost report ended in June 30, 2010,
we counted only 9 months for the budget neutrality adjustment for the
FY 2010 IPPS/LTCH PPS final rule. Under our proposal, we would adjust
the national IPPS rates to account for the estimated costs for this
hospital for the remaining 3 months of FY 2010.) Therefore, as
proposed, in this final rule, we are including a component in the FY
2011 budget neutrality adjustment to account for the estimated costs of
the demonstration in FY 2010 that were not accounted for in the FY 2010
IPPS/RY 2010 LTCH PPS final rule for the seven ``originally
participating hospitals'' because we calculated the FY 2010 cost
estimate for that year's final rule assuming that the demonstration
would end before the end of that fiscal year for those hospitals. As we
proposed, we are using the following methodology to account for such
estimated costs:
Step One. For each of the seven ``originally participating
hospitals,'' we divide the number of months that were not included in
the estimate of the FY 2010 demonstration costs included in the FY 2010
IPPS/RY 2010 LTCH PPS final rule by 12. This step is necessary to
determine for each of the seven ``originally participating hospitals''
the fraction of FY 2010 for which the estimate of the FY 2010
demonstration was not included.
Step Two. For each of the seven ``originally participating
hospitals,'' the percentage that results in step one is multiplied by
the estimate of the cost attributable to the demonstration in FY 2010
for the hospital. The estimate for the fraction of the hospital's cost
for FY 2010 not included in the estimate in the FY 2010 IPPS/RY 2010
LTCH PPS final rule is arrived at by multiplying this fraction by the
estimate of costs for the entire year.
The estimate of the costs of the demonstration for FY 2010 for the
seven ``originally participating'' hospitals is derived from data found
in their cost reports for cost reporting years beginning in FY 2006.
These cost reports show dollar amounts for costs for Medicare inpatient
services (that is, the Medicare payment amount in that cost reporting
year for Medicare inpatient services that results from application of
the applicable methodology set forth in section 410A of Pub. L. 108-
173) and the dollar amount that would have been paid under the IPPS.
Because these cost reporting years all ended during FY 2007, this
difference (that is, the difference between the Medicare payment amount
in that cost reporting year for Medicare inpatient services that is
calculated under the methodology set forth in section 410A of Pub. L.
108-173 and the dollar amount that would have been paid under the
IPPS), respective to each of the seven ``originally participating
hospitals,'' is updated according to the market basket updates for
inpatient hospital costs reported by the CMS Office of the Actuary for
the years from FY 2008 through FY 2011. (We also have assumed an annual
2 percent volume increase in accordance with guidance from the CMS
Office of the Actuary.) The difference for each hospital is summed to
arrive at the estimate of additional costs attributable to the
demonstration in FY 2010 for such hospitals. (This calculation is not
necessary for the hospitals that began participating in the
demonstration in 2008 because the portion of the FY 2010 budget
neutrality adjustment that accounts for estimated FY 2010 demonstration
costs in the FY 2010 IPPS/RY 2010 LTCH PPS final rule incorporates a
cost estimate for each of these hospitals based on the entirety of the
Federal fiscal year.) The estimate of additional costs attributable to
the demonstration in FY 2010 for the seven ``originally participating
hospitals'' that were not accounted for in the FY 2010 final rule is
$6,488,221.
c. Portion of the FY 2011 Budget Neutrality Adjustment That Accounts
for Estimated FY 2011 Costs for Hospitals Newly Selected To Participate
in the Demonstration
Section 410A(g)(3) of Public Law 108-173, as added by section 3123
of the Affordable Care Act and as further amended by section 10313 of
such Act, provides that ``[n]otwithstanding subsection (a)(4), during
the 5-year extension period, not more than 30 rural community hospitals
may participate in the demonstration program under this section.''
Consequently, up to 20 additional hospitals may be added to the
demonstration (30 hospitals minus the 10 currently participating
hospitals). In order to ensure budget neutrality for 20 new
participating hospitals, as we proposed in the June 2, 2010
supplemental proposed rule, we are including a component in the budget
neutrality adjustment factor to the FY 2011 national IPPS rates to
account for the estimated FY 2011 costs of those new hospitals. As
proposed, for this final rule, for purposes of estimating the FY 2011
costs of the demonstration for 20 new hospitals, we are estimating such
costs from the average annual cost per hospital derived from the
estimate of the 10 currently participating hospitals' costs
attributable to the demonstration for FY 2011. Because the statute
allows the potential for 20 additional hospitals for the demonstration,
we are basing this estimate on the assumption that 20 hospitals will
join. Our experience analyzing the cost reports so far for
demonstration hospitals shows a wide variation in costs among the
hospitals. Given the wide variation in cost profiles that might occur
for additional hospitals, we believe that estimating the total
demonstration cost for FY 2011 for 20 additional hospitals from the
average annual cost of the currently existing hospitals yields the most
accurate prediction because it is reflective of the historical trend of
participant behavior under the demonstration and should give an
accurate as possible prediction of future participant behavior. We
believe that, although there is variation in costs, formulating an
estimate from the average costs of as many as 10 hospitals gives as
good as possible a prediction of what the demonstration costs for each
of 20 additional hospitals would be. We are estimating the average cost
for each of the 20 additional hospitals, not a range of costs.
According to the estimate of this average cost per hospital, obtained
by dividing $21,331,721, the cost amount for FY 2011 identified for the
10 participating hospitals in IV.F.3.a. of this preamble, by 10 and
then multiplying by 20, the estimate for costs attributable to the
demonstration for 20 additional hospitals in FY 2011 is $42,663,442.
(In the proposed rule, we neglected to state that the estimated costs
attributable to the demonstration for 20 additional hospitals in FY
2011 was the average cost attributable to the demonstration per
hospital for FY 2011 times 20,

[[Page 50346]]

although the estimated costs for such hospitals reflected this
calculation).
d. Portion of the FY 2011 Budget Neutrality Adjustment To Offset the
Amount by Which the Costs of the Demonstration in FY 2007 Exceeded the
Amount That Was Identified in the FY 2007 IPPS Final Rule as the Budget
Neutrality Offset for FY 2007
In addition, in order to ensure that the demonstration in FY 2007
was budget neutral, in the June 2, 2010 supplemental proposed rule (75
FR 30964), we proposed to incorporate a component into the budget
neutrality adjustment factor to the FY 2011 national IPPS rates, which
would offset the amount by which the costs of the demonstration program
as indicated by settled cost reports beginning in FY 2007 for hospitals
participating in the demonstration during FY 2007 exceeded the amount
that was identified in the FY 2007 IPPS final rule as the budget
neutrality offset for FY 2007. Specifically, we proposed the following
methodology:
Step One: Calculate the FY 2007 costs of the demonstration
program according to the settled cost reports that began in FY 2007 for
the then participating hospitals (which represent the third year of the
demonstration for each of the then participating hospitals). (We
proposed to use these settled cost reports, which represent the third
year of the demonstration for each of the then participating hospitals,
because they correspond most precisely to FY 2007 and, therefore, we
believe correctly represent FY 2007 inpatient costs for the
demonstration during that period.)
Step Two: Subtract the amount that was offset by the
budget neutrality adjustment for FY 2007 ($9,197,870) from the costs of
the demonstration in FY 2007 as calculated in step one.
Step Three: The result of step two is a dollar amount, for
which we would calculate a factor that would offset such amounts and
would be incorporated into the overall budget neutrality adjustment to
national IPPS rates for FY 2011. This specific component to the overall
budget neutrality adjustment for FY 2011 would account for the
difference between the costs of the demonstration in FY 2007 and the
amount of the budget neutrality adjustment published in the FY 2007
IPPS final rule and, therefore, would ensure that the demonstration is
budget neutral for FY 2007.
Because the settlement process for the demonstration hospitals'
third year cost reports, that is, for cost reporting periods starting
in FY 2007, had experienced a delay, for the FY 2011 IPPS/LTCH PPS
proposed rule and the supplemental propose rule, we were unable to
state the costs of the demonstration corresponding to FY 2007 and as a
result were unable to propose the specific numeric adjustment
representing this offsetting process that would be applied to the
national IPPS rates. Due to operational issues in the cost report
settlement process, settled cost reports for the hospitals that
participate in the demonstration in FY 2007 are not available in time
for this final rule either, although we expected them to be available.
Therefore, the estimated adjustment to the national IPPS rates in this
final rule cannot include a component to account for these costs. We
anticipate that this information may be available for the FY 2012 IPPS/
LTCH PPS proposed rule, at which time we would include a similar
proposal.
For this final FY 2011 IPPS/LTCH PPS final rule, the estimated
amount for the adjustment to the national IPPS rates is the sum of the
amounts specified in sections V.K.3.a. through c. of this final rule,
which is $70,483,384. Section V.K.3.a. through c. of this final rule
state dollar amounts, which represent estimated costs attributable to
the demonstration for the respective component of the overall estimated
calculation of the budget neutrality factor for FY 2011. This estimated
amount is based on the specific assumptions identified, as well as from
data sources that are used because they represent either the most
recently finalized or, if as submitted, recent available cost reports.
We did not receive any public comments on the proposed provisions
for extension of the rural hospital community demonstration program.

L. Technical Change to Regulations

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43939
through 43940), in response to public comments we received on the FY
2010 proposed rule relating to the effects on CAH status arising from
the redesignation by OMB of three Micropolitan Statistical Areas as
MSAs, we amended our regulations at Sec. 485.610 by adding a paragraph
(b)(4) to provide for a transition period for the CAHs that are located
in counties that are reclassified from rural to urban to obtain a rural
redesignation. However, when we added the new paragraph (b)(4) to Sec.
485.610, we inadvertently failed to make a conforming change to the
introductory text of paragraph (b) to include a reference to paragraph
(b)(4) as one of the requirements that the CAH must meet in order to
satisfy the conditions of participation for CAHs. In the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 23998), we proposed to make this
conforming change. We did not receive any public comments on our
proposal. Therefore, we are adopting the proposed conforming change as
final without modification.

M. Interim Final Rule With Comment Period: Bundling of Payments for
Services Provided to Outpatients Who Later Are Admitted as Inpatients:
3-Day Payment Window

1. Introduction
On June 25, 2010, the Preservation of Access to Care for Medicare
Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192) was
enacted. Section 102 of Public Law 111-192 pertains to Medicare's
policy for payment of outpatient services provided on either the day of
or during the 3 days (or, in the case of a hospital that is not a
subsection (d) hospital, during the 1 day) prior to a Medicare
beneficiary's inpatient admission. This policy is generally known as
the ``3-day payment window''. Under the 3-day payment window, a
hospital (or an entity that is wholly owned or wholly operated by the
hospital) must include on the claim for a Medicare beneficiary's
inpatient stay, the charges for all outpatient diagnostic services and
admission-related nondiagnostic services provided during the payment
window. The new law makes the policy pertaining to admission-related
nondiagnostic services more consistent with common hospital billing
practices. Section 102 is effective for services furnished on or after
the date of enactment, June 25, 2010.
2. Background for Policy
Section 1886(a)(4) of the Act originally defined the operating
costs of inpatient hospital services to include ``all routine operating
costs, ancillary service operating costs, and special care unit
operating costs with respect to inpatient hospital services as such
costs are determined on an average per admission or per discharge
basis.'' On November 5, 1990, the Omnibus Budget Reconciliation Act of
1990 (Pub. L. 101-508) was enacted. Section 4003(a) of Public Law 101-
508 amended the statutory definition of ``operating costs of inpatient
hospital services'' to include the costs of certain services furnished
prior to admission. These preadmission services are to be included on
the Medicare Part A bill for the subsequent inpatient stay. As amended,
section 1886(a)(4) of the Act defines the operating costs of inpatient
hospital services to include diagnostic services

[[Page 50347]]

(including clinical diagnostic laboratory tests) or other services
related to the admission (as defined by the Secretary) furnished by the
hospital (or by an entity that is wholly owned or wholly operated by
the hospital) to the patient during the 3 days prior to the date of the
patient's admission to the hospital. The provisions of section 4003(b)
of Public Law 101-508 were fully implemented by October 1, 1991.
On January 12, 1994, we published an interim final rule with
comment period (59 FR 1654) regarding section 4003 of Public Law 101-
508. In that final rule with comment period, we revised the regulations
at 42 CFR 412.2 relating to hospitals paid under the IPPS (also
referred to as ``subsection (d) hospitals'') and 42 CFR 413.40(c)
relating to hospitals excluded from the IPPS (also referred to as
``non-subsection (d) hospitals''). Specifically, we added Sec. 412.2
(c)(5) and revised Sec. 413.40(c) to provide that a hospital is
considered the sole operator of an entity if the hospital has exclusive
responsibility for conducting or overseeing the entity's routine
operations, regardless of whether the hospital also has policymaking
authority over the entity. In addition, we stated that ambulance
services are excluded from preadmission services subject to the payment
window and defined ``services related to the admission'' as those
nondiagnostic services that are furnished in connection with the
principal diagnosis that requires the beneficiary to be admitted as an
inpatient.
Section 1886(a)(4) of the Act was further amended by section 110 of
the Social Security Amendments of 1994 (Pub. L. 103-432, enacted on
October 31, 1994). That provision revised the payment window for
hospitals that are excluded from the IPPS to include only those
services furnished by the hospital or an entity wholly owned or
operated by the hospital during the 1 day (not 3 days) prior to a
patient's hospital inpatient admission. In a September 1, 1995 final
rule (60 FR 45840), we revised Sec. 413.40(c)(2) of the regulations to
provide for the 1-day payment window for hospitals and hospital units
excluded from the IPPS. The hospitals and hospital units excluded from
the IPPS and affected by this policy are psychiatric hospitals and
units, inpatient rehabilitation hospitals and units, long-term care
hospitals (LTCHs), children's hospitals, and cancer hospitals. CMS also
noted that the term ``day'' refers to the entire calendar day
immediately preceding the date of admission, not the 24-hour time
period that immediately precedes the hour of admission.
On February 11, 1998, we published a final rule (63 FR 6864) that
responded to public comments received on the January 12, 1994 interim
final rule with comment period. In that final rule, CMS stated again
that ambulance services are excluded from the payment window provision
and also stated that chronic maintenance renal dialysis are excluded,
as reflected in Sec. Sec. 412.2(c)(5)(iii) and Sec. Sec.
413.40(c)(2)(iii) of the regulations. We also clarified in that final
rule that the payment window applies to outpatient services that are
otherwise billable under Part B and does not apply to nonhospital
services that are generally covered under Part A (such as home health,
skilled nursing facility, and hospice). In addition, we further
clarified the terms ``admission-related'' and ``wholly owned or
operated.''
In an April 2006 update to the Medicare Claims Processing Manual
(Pub. 100-4), Chapter 3, section 40.3 (Change Request 4089, Transmittal
714), we revised the manual instructions to clarify that the 3-day (or
1-day) payment window policy also applies to outpatient services
provided on the date of a beneficiary's admission, consistent with
Medicare's longstanding administrative policy for treating preadmission
outpatient services as inpatient. We also clarified that critical
access hospitals (CAHs) are not subject to the 3-day (nor 1-day)
payment window.
3. Requirements of Section 102 of Public Law 111-192
Section 102(a)(1) of Public Law 111-192 added a provision to
section 1886(a)(4) of the Act to specify that the term ``other services
related to the admission'' includes ``all services that are not
diagnostic services (other than ambulance and maintenance renal
dialysis services) for which payment may be made under this title
[Title XVIII] that are provided by a hospital (or an entity wholly
owned or wholly operated by the hospital) to a patient--(A) on the date
of the patient's inpatient admission; or (B) during the 3 days (or, in
the case of a hospital that is not a subsection (d) hospital, during
the 1 day) immediately preceding the date of admission unless the
hospital demonstrates (in a form and manner, and at a time, specified
by the Secretary) that such services are not related (as determined by
the Secretary) to such admission.''
Section 102(b) specifies that the amendments made by section 102(a)
of the law apply ``to services furnished on or after the date of the
enactment'' (that is, June 25, 2010).
The law makes no changes to the billing of ``diagnostic services''
furnished during this period, which are included in the ``operating
costs of inpatient hospital services'' pursuant to section 1886(a)(4)
of the Act (which we discuss in our regulations and in section 40.3(B),
Chapter 3, of the Medicare Claims Processing Manual). All diagnostic
services provided to a Medicare beneficiary by a hospital (or an entity
wholly owned or operated by the hospital) on the date of the
beneficiary's inpatient admission and during the 3 calendar days (1
calendar day for a nonsubsection (d) hospital) immediately preceding
the date of admission would continue to be required to be included on
the bill for the inpatient stay.
Section 102(c) of Public Law 111-192 also prohibits Medicare from
reopening a claim, adjusting a claim, or making payments pursuant to
any request for payment under Title 18, submitted by an entity
(including a hospital or an entity wholly owned or operated by the
hospital), for services (as described in section 102(c)(2) of Pub. L.
111-192), for purposes of treating, as unrelated to a patient's
inpatient admission, services provided during the 3 days (or, in the
case of a hospital that is not a subsection (d) hospital, during the 1
day) immediately preceding the date of the patient's inpatient
admission. Services described in section 102(c)(2) of Public Law 111-
192 are other services related to the admission which were previously
included on a claim or request for payment submitted under part A of
Title XVIII for which a reopening, adjustment, or request for payment
under part B of Title XVIII, was not submitted prior to June 25, 2010
for purposes of treating, as unrelated to a patient's inpatient
admission.
4. Application of the Provisions of Section 102 of Public Law 111-192
In accordance with section 1886(a)(4) of the Act, outpatient
nondiagnostic services that are related to an inpatient admission must
be bundled with the billing for the inpatient stay. An outpatient
service is related to the admission if it is clinically associated with
the reason for a patient's inpatient admission. In accordance with
section 102 of Public Law 111-192, for outpatient services furnished on
or after June 25, 2010, all nondiagnostic services, other than
ambulance and maintenance renal dialysis services, provided by the
hospital (or an entity wholly owned or wholly operated by the hospital)
on the date of a

[[Page 50348]]

beneficiary's inpatient admission are deemed related to the admission
and, therefore, must be billed with the inpatient stay. In addition,
outpatient nondiagnostic services, other than ambulance and maintenance
renal dialysis services, provided by the hospital (or an entity wholly
owned or wholly operated by the hospital) on the first, second, and
third calendar days (first calendar day for nonsubsection (d)
hospitals) preceding the date of a beneficiary's admission are deemed
related to the admission and, therefore, must be billed with the
inpatient stay, unless the hospital attests to certain nondiagnostic
services as unrelated to the hospital claim (that is, the preadmission
services are clinically distinct or independent from the reason for the
beneficiary's admission). Outpatient nondiagnostic services provided
during the applicable payment window that are unrelated to the
admission, and are covered by Medicare Part B, should be separately
billed to Medicare Part B.
We intend to establish a process for hospitals to attest to
nondiagnostic services as being unrelated to the hospital claim when a
hospital submits an outpatient claim. As part of the process, hospitals
would be required to maintain documentation in the beneficiary's
medical record to support their claim that the outpatient nondiagnostic
services are unrelated to the beneficiary's inpatient admission. We
note that hospitals have experience with making similar attestations on
the outpatient or inpatient claim. For example, under Medicare's
current policy, when a patient is discharged or transferred from an
acute care prospective payment system (PPS) hospital, and is readmitted
to the same acute care PPS hospital on the same day for symptoms
related to the prior stay, the second stay is bundled into payment for
the first stay and not separately paid. However, when a patient is
discharged or transferred from an acute care PPS hospital and is
readmitted to the same acute care PPS hospital on the same day for
symptoms unrelated to the prior stay, hospitals can place condition
code (CC) B4 on the inpatient claim that contains an admission date
equal to the prior admissions discharge date that would allow the
second stay to be paid separately. If the condition code is not
included on the claim for a same day readmission, edits will bundle the
claim for the second admission into the first one and Medicare will
only pay for one inpatient discharge. (We refer readers to section
40.2.5, Chapter 3 of the Medicare Claims Processing Manual and the FY
2003 IPPS final rule (68 FR 45404-06) for further details of Medicare's
policy on this issue.) We plan to develop a similar process using a
condition code, modifier, or some other indicator for the 3-day (1-day)
payment window.
In accordance with the requirements of section 1886(a)(4) of the
Act, as amended by section 102(a) of Public Law 111-192, we are
modifying the Medicare regulations at Sec. 412.2 by revising paragraph
(c)(5) and adding a new paragraph (c)(5)(iv) to specify that all
nondiagnostic services provided on or after June 25, 2010, other than
ambulance and maintenance renal dialysis services, provided by a
subsection (d) hospital (or by an entity wholly owned or operated by
the subsection (d) hospital) on the date of a beneficiary's inpatient
admission are deemed related to and, therefore, part of the
beneficiary's inpatient stay. In addition, outpatient nondiagnostic
services provided on the first, second, and third calendar day prior to
admission by a subsection (d) hospital are also deemed related to and,
therefore, part of the beneficiary's inpatient stay, unless a hospital
attests that specific nondiagnostic services are clinically unrelated
to the inpatient admission (that is, the preadmission services are
distinct or independent from the admission) when the hospital submits
an outpatient claim.
For nonsubsection (d) hospitals, in accordance with section
1886(a)(4) of the Act, the payment window is 1 day. Therefore, in this
interim final rule with comment period, we are amending Sec. 413.40 by
revising paragraph (c)(2) and (c)(2)(iii) and adding a new paragraph
(c)(2)(iv) to provide that all nondiagnostic services provided on or
after June 25, 2010 (other than ambulance and maintenance renal
dialysis services) that are provided on the date of a beneficiary's
admission by a nonsubsection (d) hospital (or by an entity wholly owned
or operated by the nonsubsection (d) hospital) are deemed related to
and, thus, part of the beneficiary's inpatient stay at that
nonsubsection (d) hospital. In addition, nondiagnostic services
provided by a nonsubsection (d) hospital (or by an entity wholly owned
or operated by the nonsubsection (d) hospital) during the 1 calendar
day immediately preceding the date of admission to that nonsubsection
(d) hospital are deemed related to and, thus, part of the inpatient
stay, unless the hospital attests that specific nondiagnostic services
are clinically unrelated to the inpatient admission when the hospital
submits an outpatient claim.
In this interim final rule with comment period, we also are
codifying the same statutory requirements of the payment window for
IPFs, LTCHs, and IRFs by adding a new Sec. 412.405 applicable to
payments to IPFs for treating preadmission services as inpatient
operating costs under the IPF prospective payment system, a new Sec.
412.540 applicable to payments to LTCHs for treating preadmission
services as inpatient operating costs under the LTCH prospective
payment system, and a new paragraph (f) (existing paragraph (f) is
redesignated as paragraph (g)) to Sec. 412.604 to be applicable to
payments to IRFs for treating preadmission services as inpatient
operating costs under the IRF PPS.
In addition, we are making a technical correction to our existing
regulation at Sec. 412.521(b)(1), which sets forth our policy under
the LTCH PPS for what constitutes payment in full to providers for
covered operating costs for inpatient services. This is a conforming
change that is necessary to recognize the addition of Sec. 412.540
described previously. Consequently, we are amending the cross-reference
at Sec. 412.521(b) to read instead ``Sec. 412.2(c)(1) through (c)(4)
of this Part and Sec. 412.540.'' This correction results in an
accurate description of the policy under the LTCH PPS for determining
Medicare payment in full for inpatient operating costs.
Section 102(c) of Public Law 111-192 also prohibits Medicare from
reopening a claim, adjusting a claim, or making payments pursuant to
any request for payment under Title XVIII, submitted by an entity
(including a hospital or an entity wholly owned or operated by the
hospital), for services (as described under section 102(c)(2) of Pub.
L. 111-192) for purposes of treating, as unrelated to a patient's
inpatient admission, services provided during the 3 days (or, in the
case of a hospital that is not a subsection (d) hospital, during the 1
day) immediately preceding the date of the patient's inpatient
admission. Services described in section 102(c)(2) of Public Law 111-
192 are other services related to the admission which were previously
included on a claim or request for payment submitted under Part A of
Title XVIII for which a reopening, adjustment, or request for payment
under Part B of Title XVIII, was not submitted prior to June 25, 2010
for purposes of treating, as unrelated to a patient's inpatient
admission.
For example, if a beneficiary presented with chest pain at the
emergency department of a subsection (d) hospital on June 1, 2010, was

[[Page 50349]]

retained for observation until admitted as an inpatient on June 3, 2010
(with a principal diagnosis of myocardial infarction), was released
from the hospital on June 7, 2010, and the hospital billed Medicare
Part A on June 10, 2010, for the beneficiary's entire stay (bundling
all of the outpatient charges and procedures on the inpatient stay
bill), Medicare will make no payment to the hospital for any Part A
adjustment claims submitted on or after June 25, 2010, to remove
unrelated outpatient nondiagnostic services, nor for any new Part B
claims submitted on or after June 25, 2010, to separately bill Medicare
for unrelated outpatient nondiagnostic services, that the hospital had
previously included on its June 10, 2010 bill for services furnished to
the beneficiary.
In the near future, we also expect to update the instructions in
the Medicare Claims Processing Manual, Chapter 3, section 40.3, to
conform to the requirements of section 102 of Public Law 111-192. Even
before the final regulations, instructions, and process for attesting
to certain services as being unrelated to an admission are in place,
hospitals are required by law to comply with the requirements of
section 102 of Public Law 111-192. That is, hospitals must include on a
Medicare claim for a beneficiary's inpatient stay the diagnoses,
procedures, and charges for all outpatient preadmission diagnostic
services and all outpatient preadmission nondiagnostic services that
meet the requirements of section 1886(a)(4) of the Act, as amended by
section 102 of Public Law 111-192. If a hospital believes that
outpatient nondiagnostic services provided during the first, second,
and third calendar days (first calendar day for a nonsubsection (d)
hospital) preceding the date of a beneficiary's admission are unrelated
to the inpatient admission, the hospital may separately bill for the
service to Medicare Part B, provided that the hospital can document,
and maintain such documentation as part of the beneficiary's medical
record to support its belief, that the service is unrelated to the
admission. Such separately billed outpatient preadmission services may
be subject to subsequent CMS review.
5. Waiver of Notice of Proposed Rulemaking
In section IV.M. of this document, we are implementing section 102
of Pub. L. 111-192, which addresses Medicare payment for outpatient
services provided prior to a Medicare beneficiary's inpatient
admission, through an interim final rule with comment period. We
ordinarily publish a notice of proposed rulemaking in the Federal
Register to provide for public comment before the provisions of a rule
take effect, in accordance with section 553(b) of the Administrative
Procedure Act (APA) and section 1871 of the Act. This process may be
waived, however, if an agency finds good cause that a notice and
comment procedure is impracticable, unnecessary, or contrary to the
public interest. In such cases, the agency must incorporate a statement
of this finding and its reasons in the rule, or explain that the agency
is promulgating interpretive rules, general statements of policy, or
rules of agency procedure or practice outside the scope of notice and
comment rulemaking.
We believe that there is good cause to implement the requirements
of section 102 of Public Law 111-192 through an interim final rule with
comment period. Notice and comment rulemaking would be unnecessary and
contrary to the public interest in this case. The provisions of section
102 are self-implementing; we are conforming our regulations to
specific statutory requirements contained in that section or that
directly result from those statutory requirements and informing the
public of the procedures and practices the agency will follow to ensure
compliance with those statutory provisions. Moreover, section 102 of
Public Law 111-192 was effective on June 25, 2010, and it is imperative
that the regulatory provisions be set forth as soon as possible to
deliver the guidance necessary for providers to comply with
requirements that are already in place.
In addition, the requirements of section 102 of Public Law 111-192
may be implemented as an interim final rule with comment period because
they fall under the exception to notice and comment rulemaking
contained in section 1871(b)(1)(B) of the Act. Section 1871(b)(1)(B) of
the Act provides that the Secretary is not required to issue a notice
of proposed rulemaking before issuing a final rule if ``a statute
establishes a specific deadline for the implementation of a provision
and the deadline is less than 150 days after the date of the enactment
of the statute in which the deadline is contained.'' Section 102 of
Public Law 111-192 was effective on the date of enactment, thereby
meeting this requirement.
Section 553(d) of the APA and section 1871(e)(1)(B)(i) of the Act
ordinarily require that a regulation be effective no earlier than 30
days after publication. Under section 553(d)(3), this requirement can
be waived for good cause, and under section 1871(e)(1)(B)(ii) of the
Act, this requirement can be waived if necessary to comply with
statutory requirements, or if a delay is contrary to the public
interest. As noted above, section 102 of Public Law 111-192 is required
by statute to be in effect on the date of enactment. For the reasons
identified above for waiving notice and comment procedures under the
APA and the Act, we find good cause to waive the 30-day delay in
effective date that would otherwise apply.
In addition, 5 U.S.C. 801 generally requires that agencies submit
major rules to the Congress 60 days before the rules are scheduled to
become effective. This delay does not apply, however, when there has
been a finding of good cause for waiver of prior notice and comment as
set forth above.
6. Collection of Information Requirements
This document does not impose any new information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995.
7. Response to Public Comments
Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all public comments we
receive by the date and time specified in the DATES section of this
preamble, and, when we proceed with a subsequent document, we will
respond to the comments in the preamble of that document.
8. Regulatory Impact Analysis
We have examined the impacts of this final rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major rules with economically
significant effects ($100 million or more in any 1 year).

[[Page 50350]]

As discussed earlier in this interim final rule with comment
period, section 1886(a)(4) of the Act defines the operating costs of
inpatient hospital services to include diagnostic services (including
clinical diagnostic laboratory tests) or other services related to the
admission (as defined by the Secretary) furnished by the hospital (or
by an entity that is wholly owned or wholly operated by the hospital)
to the patient during the 3 days (or, in the case of a hospital that is
not a subsection (d) hospital, during the 1 day) prior to the date of
the patient's admission to the hospital. This policy is generally known
as the ``3-day payment window.'' Section 102(a)(1) of Public Law 111-
192, enacted June 25, 2010, added a provision to section 1886(a)(4) of
the Act to specify that the term ``other services related to the
admission'' includes ``all services that are not diagnostic services
(other than ambulance and maintenance renal dialysis services) for
which payment may be made under this title [Title XVIII] that are
provided by a hospital (or an entity wholly owned or wholly operated by
the hospital) to a patient (A) on the date of the patient's inpatient
admission; or (B) during the 3 days (or, in the case of a hospital that
is not a subsection (d) hospital, during the 1 day) immediately
preceding the date of admission unless the hospital demonstrates (in a
form and manner, and at a time, specified by the Secretary) that such
services are not related (as determined by the Secretary) to such
admission.'' Section 102(b) specifies that the amendments made by
section 102(a) of Public Law 111-192 apply ``to services furnished on
or after the date of the enactment'' (that is, June 25, 2010).
The law makes no changes to the existing policy regarding billing
of ``diagnostic services'' furnished during this period, which are
included in the ``operating costs of inpatient hospital services''
pursuant to section 1886(a)(4) (which we discuss in our regulations and
in section 40.3(B), Chapter 3, of the MCPM). All diagnostic services
provided to a Medicare beneficiary by a hospital (or an entity wholly
owned or operated by the hospital) on the date of the beneficiary's
inpatient admission and during the 3 calendar days (1 calendar day for
a nonsubsection (d) hospital) immediately preceding the date of
admission would continue to be required to be included on the bill for
the inpatient stay.
Section 102(c) of Public Law 111-192 also prohibits Medicare from
reopening a claim, adjusting a claim, or making payments pursuant to
any request for payment under Title 18, submitted by an entity
(including a hospital or an entity wholly owned or operated by the
hospital), for services (as described in section 102(c)(2) of Public
Law 111-192), for purposes of treating, as unrelated to a patient's
inpatient admission, services provided during the 3 days (or, in the
case of a hospital that is not a subsection (d) hospital, during the 1
day) immediately preceding the date of the patient's inpatient
admission. Services described in section 102(c)(2) of Public Law 111-
192 are other services related to the admission which were previously
included on a claim or request for payment submitted under part A of
Title 18 for which a reopening, adjustment, or request for payment
under part B of Title 18, was not submitted prior to June 25, 2010 for
purposes of treating the services as unrelated to a patient's inpatient
admission.
We note that, in a final rule published on February 11, 1998 (63 FR
6864), we had defined ``other services'' as being ``related to the
admission'' only when there was an exact match (for all 5 digits, if
applicable) between the principal (or primary) ICD-9-CM diagnosis codes
assigned for both the preadmission services (provided by the admitting
hospital or by an entity that is wholly owned or operated by the
admitting hospital) and the inpatient stay. If hospitals, prior to the
June 25, 2010 effective date of section 102 of Public Law 111-192, were
applying the definition of ``related'' as adopted in that final rule,
we estimate that the impact of the provisions of section 102 of Public
Law 111-192, for FY 2011, would be a savings of approximately $2.6
billion to Medicare Part B, and the impact on Medicare Part A would be
negligible. In addition, we estimate that the impact on beneficiaries
would be a savings of about $0.5 billion for FY 2011. However, we were
informed by many hospitals, Medicare contractors, and others in the
hospital community that the policy established in 1998 was generally
unknown to hospitals and that the policy being enacted under section
102(a) is more consistent with hospitals' longstanding billing
practices. The hospitals and others asserted that, for the most part,
hospitals have been treating virtually all outpatient services
furnished to a patient during the payment window as admission-related
and bundling the services onto the Part A claim for the patient's
inpatient stay, particularly when a patient is admitted as an inpatient
directly from an outpatient department of the hospital, such as the
emergency department. If this assertion is correct, then the impact of
the provisions of section 102 of Public Law 111-192 for FY 2011 on the
Medicare program and its beneficiaries would be negligible.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis for any proposed or final rule that may have
a significant impact on the operations of a substantial number of small
rural hospitals. This analysis must conform to the provisions of
section 604 of the RFA. With the exception of hospitals located in
certain New England counties, for purposes of section 1102(b) of the
Act, we now define a small rural hospital as a hospital that is located
outside of an urban area and has fewer than 100 beds. Section 601(g) of
the Social Security Amendments of 1983 (Pub. L. 98-21) designated
hospitals in certain New England counties as belonging to the adjacent
urban area. Thus, for purposes of the IPPS and LTCH PPS, we continue to
classify these hospitals as urban hospitals. We believe that this rule
will not have a significant impact on small rural hospitals.
Accordingly, the Secretary certifies that this interim final rule with
comment period would not have a significant economic impact on the
operations of a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4) also requires that agencies assess anticipated costs and
benefits before issuing any rule whose mandates require spending in any
1 year of $100 million in 1995 dollars, updated annually for inflation.
That threshold level is currently approximately $133 million. This
interim final rule with comment period would not mandate any
requirements for State, local, or tribal governments, nor would it
affect private sector costs.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. Because this interim final rule with comment period does
not impose any costs on State or local government, the requirements of
Executive Order 13132 are not applicable.
In accordance with the provisions of Executive Order 12866, this
interim final rule with comment period was reviewed by the Office of
Management and Budget.

[[Page 50351]]

N. Changes in the Inpatient Hospital Market Basket Update

Below we discuss the adjustments to the FY 2010 and FY 2011 market
basket as required by the Affordable Care Act and our incorporation of
the statutory provisions in the Medicare regulations. In this final
rule, we are not addressing the provisions of section 3401 of the
Affordable Care Act that provide for a productivity adjustment for FY
2012 and subsequent fiscal years. This statutory change will be
addressed in future rulemaking.
1. FY 2010 Inpatient Hospital Update
In accordance with section 1886(b)(3)(B)(i) of the Act, each year
we update the national standardized amount for inpatient operating
costs by a factor called the ``applicable percentage increase.'' Prior
to enactment of the Affordable Care Act, section 1886(b)(3)(B)(i)(XX)
of the Act set the applicable percentage increase equal to the rate-of-
increase in the hospital market basket for IPPS hospitals in all areas,
subject to the hospital submitting quality data information under rules
established by the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act. For hospitals that do not provide these
quality data, the update is equal to the market basket percentage
increase less an additional 2.0 percentage points. In accordance with
these statutory provisions, in the FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43850), we finalized an applicable percentage increase
equal to the full market basket update of 2.1 percent based on IHS
Global Insight, Inc.'s second quarter 2009 forecast of the FY 2010
market basket increase, provided the hospital submits quality data in
accordance with our rules. For hospitals that do not submit quality
data, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we finalized an
applicable percentage increase equal to 0.1 percent (that is, the FY
2010 estimate of the market basket rate-of-increase minus 2.0
percentage points).
Sections 3401(a) and 10319 of the Affordable Care Act amended
section 1886(b)(3)(B)(i) of the Act. As amended, section
1886(b)(3)(B)(i) sets the FY 2010 applicable percentage increase for
IPPS hospitals equal to the rate-of-increase in the hospital market
basket for IPPS hospitals in all areas minus a 0.25 percentage point,
subject to the hospital submitting quality data under rules established
by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the
Act. For hospitals that do not provide these data, the update is equal
to the market basket percentage increase minus 0.25 percentage point
less an additional 2.0 percentage points. Section 3401(a)(4) of the
Affordable Care Act further states that these amendments may result in
the applicable percentage increase being less than zero. Although these
amendments modify the applicable percentage increase applicable to the
FY 2010 rates under the IPPS, section 3401(p) of the Affordable Care
Act states that the amendments do not apply to discharges occurring
prior to April 1, 2010. In other words, for discharges occurring on or
after October 1, 2009 and prior to April 1, 2010, the rate for a
hospital's inpatient operating costs under the IPPS will be based on
the applicable percentage increase set forth in the FY 2010 IPPS/RY
2010 LTCH PPS final rule.
In the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR
30922), we proposed to revise the regulations at 42 CFR 412.64(d) to
reflect current law. Specifically, in accordance with section
1886(b)(3)(B)(i) of the Act as amended by sections 3401(a) and 10319(a)
of the Affordable Care Act, we proposed to revise Sec. 412.64(d) to
state that, for the first half of FY 2010 (that is, discharges on or
after October 1, 2009 through March 30, 2010), the applicable
percentage change equals the market basket index for IPPS hospitals
(which is defined under Sec. 413.40(a)) in all areas for hospitals
that submit quality data in accordance with our rules, and the market
basket index for IPPS hospitals in all areas less 2.0 percentage points
for hospitals that fail to submit quality data in accordance with our
rules. As noted above, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule,
we calculated that the full market basket update equals 2.1 percent
based on IHS Global Insight, Inc.'s second quarter 2009 forecast of the
FY 2010 market basket increase. In addition, in the supplemental
proposed rule, we proposed to revise Sec. 412.64(d) to state that, for
the second half of FY 2010 (discharges on or after April 1, 2010
through September 30, 2010), in accordance with section 3401(a) of the
Affordable Care Act, the applicable percentage change equal to the
market basket index for IPPS hospitals in all areas reduced by 0.25
percentage points for hospitals that submit quality data in accordance
with our rules. For those hospitals that fail to submit quality data,
in accordance with our rules, we proposed to specify that the market
basket index for IPPS hospitals is reduced by an additional 2.0
percentage points (which is in addition to the 0.25 percentage point
reduction required by section 1886(b)(3)(B)(i) of the Act as amended by
section 3401(a) of the Affordable Care Act and as further amended by
section 10319(a) of that Act). Based on IHS Global Insight, Inc.'s
second quarter 2009 forecast of the FY 2010 market basket increase, the
FY 2010 applicable percentage change that applies to rates for
inpatient hospital operating costs under the IPPS for discharges
occurring in the second half of FY 2010 is 1.85 percent (that is, the
FY 2010 estimate of the market basket rate-of-increase of 2.1 percent
minus 0.25 percentage points) for hospitals in all areas, provided the
hospital submits quality data in accordance with our rules. For
hospitals that do not submit quality data, the payment update to the
operating standardized amount is -0.15 percent (that is, the adjusted
FY 2010 estimate of the market basket rate-of-increase of 1.85 percent
minus 2.0 percentage points). We received one public comment which we
respond to below on our proposal to revise Sec. 412.64(d) to reflect
current law. However, due to the statutory requirement, in this final
rule, we are adopting as final, without modification, the proposed
changes to Sec. 412.64(d).
Section 1886(b)(3)(B)(iv) of the Act provides that the applicable
percentage increase applicable to the hospital-specific rates for SCHs
and MDHs equals the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all
other hospitals subject to the IPPS). Because the Act sets the update
factor for SCHs and MDHs equal to the update factor for all other IPPS
hospitals, the update to the hospital specific rates for SCHs and MDHs
is also subject to the amendments to section 1886(b)(3)(B)(i) made by
section 3401(a) of the Affordable Care Act. Accordingly, for hospitals
paid for their inpatient operating costs on the basis of a hospital-
specific rate, the rates paid to such hospitals for discharges
occurring during the first half of FY 2010 are based on an annual
update estimated to be 2.1 percent for hospitals submitting quality
data or 0.1 percent for hospitals that fail to submit quality data; and
the rates paid to such hospitals for the second half of FY 2010 are
based on an update that is estimated to be 1.85 percent for hospitals
submitting quality data or -0.15 percent for hospitals that fail to
submit quality data. In the FY 2011 IPPS/LTCH PPS supplemental proposed
rule, we proposed to revise Sec. Sec. 412.73(c)(15), 412.75(d),
412.77(e), 412.78(e), and 412.79(d) to reflect current law. We did

[[Page 50352]]

not receive any public comments on this proposal. Therefore, in this
final rule, we are adopting as final, without modification, the
proposed changes to Sec. Sec. 412.73(c)(15), 412.75(d), 412.77(e),
412.78(e), and 412.79(d).
2. FY 2011 Inpatient Hospital Update
As with the FY 2010 applicable percentage increase, sections
3401(a) and 10319(a) of the Affordable Care Act amended section
1886(b)(3)(B)(i) of the Act to provide that the FY 2011 applicable
percentage increase for IPPS hospitals equals the rate-of-increase in
the hospital market basket for IPPS hospitals in all areas reduced by
0.25 percentage point, subject to the hospital submitting quality data
under rules established by the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act. For hospitals that do not provide these
data, the update is equal to the market basket percentage increase
minus a 0.25 percentage point less an additional 2.0 percentage points.
Section 3401(a)(4) of the Affordable Care Act further states that this
amendment may result in the applicable percentage increase being less
than zero.
In Appendix B of the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24321), we announced that due to the timing of the passage of the
Affordable Care Act, we were unable to address those provisions in the
proposed rule. In that proposed rule, consistent with current law,
based on IHS Global Insight, Inc.'s first quarter 2010 forecast, with
historical data through the 2009 fourth quarter, of the FY 2011 IPPS
market basket increase, we estimated that the FY 2011 update to the
operating standardized amount would be 2.4 percent (that is, the
current estimate of the market basket rate-of-increase) for hospitals
in all areas, provided the hospital submits quality data in accordance
with our rules. For hospitals that do not submit quality data, we
estimated that the update to the operating standardized amount would be
0.4 percent (that is, the current estimate of the market basket rate-
of-increase minus 2.0 percentage points). In the FY 2011 IPPS/LTCH PPS
supplemental proposed rule (75 FR 30923), we stated that, consistent
with the amendments to section 1886(b)(3)(B)(i) of the Act made by
section 3401 of the Affordable Care Act, for FY 2011 we are required to
reduce the hospital market basket update by a 0.25 percentage point.
Therefore, based on IHS Global Insight, Inc.'s first quarter 2010
forecast of the FY 2011 market basket increase, the estimated update to
the FY 2011 operating standardized amount was 2.15 percent (that is,
the FY 2011 estimate of the market basket rate-of-increase of 2.4
percent minus 0.25 percentage point) for hospitals in all areas,
provided the hospital submits quality data in accordance with our
rules. For hospitals that do not submit quality data, the estimated
update to the operating standardized amount is 0.15 percent (that is,
the adjusted FY 2011 estimate of the market basket rate-of-increase of
2.15 percent minus 2.0 percentage points). Since publication of the FY
2011 IPPS/LTCH PPS supplemental proposed rule, our estimate of the
market basket for FY 2011 has been updated based on more recently
available data. Therefore, based on IHS Global Insight, Inc.'s second
quarter 2010 forecast of the FY 2011 market basket increase, the update
to the FY 2011 operating standardized amount is 2.35 percent (that is,
the FY 2011 estimate of the market basket rate-of-increase of 2.6
percent minus 0.25 percentage point) for hospitals in all areas,
provided the hospital submits quality data in accordance with our
rules. For hospitals that do not submit quality data, the update to the
operating standardized amount is 0.35 percent (that is, the adjusted FY
2011 market basket rate-of-increase of 2.35 percent minus 2.0
percentage points). In the FY 2011 IPPS/LTCH PPS supplemental proposed
rule, we proposed to revise Sec. 412.64(d) to reflect the provisions
of section 3401(a) of the Affordable Care Act for FY 2011.
Comment: Some commenters opposed the reduction to the market basket
by 0.25 percentage point for updating the operating standardized
amounts for FY 2010 and FY 2011 that was mandated by the Affordable
Care Act. The commenters believed that the reduction of payments due to
the reduction of the market basket would cause serious harm to
hospitals.
Response: As stated above, the reduction to the market basket for
updating the operating standardized amounts is a statutory requirement
that must be implemented for FY 2010 and FY 2011. Therefore, in this
final rule, we are adopting as final, without modification, the
proposed changes to Sec. 412.64(d) to reflect current law.
Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2011
applicable percentage increase in the hospital-specific rates for SCHs
and MDHs equals the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all
other hospitals subject to the IPPS). Similar to the FY 2010 applicable
percentage increase in the hospital-specific rates, because the Act
requires us to apply to the hospital-specific rates the update factor
for all other IPPS hospitals, the update to the hospital-specific rates
for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) of the
Act, as amended by the Affordable Care Act. Accordingly, the update to
the hospital-specific rates applicable to SCHs and MDHs for FY 2011 is
2.35 percent for hospitals that submit quality data or 0.35 percent for
hospitals that fail to submit quality data. In the FY 2010 IPPS/LTCH
PPS supplemental proposed rule (75 FR 30923), we proposed to revise
Sec. Sec. 412.73(c)(15), 412.75(d), 412.77(e), 412.78(e), and
412.79(d) to incorporate these provisions.
We did not receive any public comments on this proposal. Therefore,
we are adopting as final, without modification, the proposed changes to
Sec. Sec. 412.73(c)(15), 412.75(d), 412.77(e), 412.78(e), and
412.79(d).
3. FY 2010 and FY 2011 Puerto Rico Hospital Update
Puerto Rico hospitals are paid a blended rate for their inpatient
operating costs based on 75 percent of the national standardized amount
and 25 percent of the Puerto Rico-specific standardized amount. Section
1886(d)(9)(C)(i) of the Act is the basis for determining the applicable
percentage increase applied to the Puerto Rico-specific standardized
amount. Section 1886(d)(9)(C)(i) of the Act provides that the Puerto
Rico standardized amount shall be adjusted in accordance with the final
determination of the Secretary under section 1886(d)(4) of the Act.
Section 1886(e)(4)(1) of the Act in turn directs the Secretary to
recommend an appropriate change factor for Puerto Rico hospitals taking
in to account amounts necessary for the efficient and effective
delivery of medically appropriate and necessary care of high quality,
as well as the recommendations of MedPAC. In order to maintain
consistency between the portion of the rates paid to Puerto Rico
hospitals under the IPPS based on the national standardized amount and
the portion based on the Puerto Rico-specific standardized rate,
beginning in FY 2004 we have set the update to the Puerto Rico-specific
operating standardized amount equal to the update to the national
operating standardized amount for all IPPS hospitals. This policy is
reflected in our regulations at 42 CFR 412.211.
The amendments made to section 1886(b)(3)(B)(i) of the Act by
sections 3401(a) and 10319(a) of the Affordable Care Act affected only
the update factor

[[Page 50353]]

applicable to the national standardized rate for IPPS hospitals and the
hospital-specific rates; they do not mandate any revisions to the
update factor applicable to the Puerto Rico-specific standardized
amount. Rather, as noted above, sections 1886(d)(9)(C)(i) and (e)(4) of
the Act direct us to adopt an appropriate change factor for the FY 2010
Puerto Rico-specific standardized amount, which we did in the FY 2010
IPPS/LTCH PPS final rule after notice and consideration of public
comments. Therefore, as we indicated in the FY 2011 IPPS/LTCH PPS
supplemental proposed rule, we do not believe we have the authority to
set the FY 2010 update factor for the Puerto Rico-specific operating
standardized amount for the second half of FY 2010 equal to the update
factor applicable to the national standardized amount or the hospital-
specific rates (that is the market basket minus a 0.25 percentage
point). Accordingly, the FY 2010 update to the Puerto Rico-specific
operating standardized amount is 2.1 percent (that is, the FY 2010
estimate of the market basket rate-of-increase) for the entire FY 2010.
For FY 2011, consistent with our past practice of applying the same
update factor to the Puerto Rico-specific standardized amount as
applied to the national standardized amount, in the FY 2011 IPPS/LTCH
PPS supplemental proposed rule (75 FR 30923), we proposed to revise
Sec. 412.211(c) to set the update factor for FY 2011 for the Puerto
Rico-specific operating standardized amount equal to the update factor
applied to the national standardized amount for all IPPS hospitals. We
proposed an update factor for the Puerto Rico-specific standardized
amount equal to the FY 2011 IPPS operating market basket rate-of-
increase, which at that time was estimated to be 2.4 percent minus 0.25
percentage points, or 2.15 percent, for FY 2011. Since publication of
the FY 2011 IPPS/LTCH PPS supplemental proposed rule, the estimate of
the market basket for FY 2011 has been updated based on more recently
available data. Therefore, based on the current estimate of the IPPS
operating market basket rate-of-increase, the update factor for the
Puerto Rico-specific standardized amount is 2.6 percent minus 0.25
percentage point, or 2.35 percent, for FY 2011. We did not receive any
public comments on our proposal to revise Sec. 412.211(c) to set the
update factor for FY 2011 for the Puerto Rico-specific operating
standardized amount equal to the update factor applied to the national
standardized amount for all IPPS hospitals. Therefore, we are adopting
as final, without modification, the proposed changes to Sec.
412.211(c).

V. Changes to the IPPS for Capital-Related Costs

On March 23, 2010, the Patient Protection and Affordable Care Act
(PPACA), Public Law 111-148 was enacted. Following the enactment of
Public Law 111-148, the Health Care and Education Reconciliation Act of
2010, Public Law 111-152 (enacted on March 30, 2010), amended certain
provisions of Public Law 111-148. A number of the provisions of Public
Law 111-148, as amended by Public Law 111-152 (collectively referred to
as the Affordable Care Act) affected the IPPS and the LTCH PPS and the
providers and suppliers addressed in this proposed rule. However, due
to the timing of the passage of the legislation, we were unable to
address those provisions in the FY 2011 IPPS/LTCH PPS proposed rule
issued in the Federal Register on May 4, 2010 (75 FR 23852). On June 2,
2010, we issued a supplemental proposed rule to the FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 30918) that included proposed policies and
payment rates to implement certain provisions of the Affordable Care
Act.
Although the provisions of the Affordable Care Act do not directly
affect the payment rates and policies for the IPPS for capital-related
costs, in section II. of the Addendum of the June 2, 2010 supplemental
proposed rule, we proposed revised capital IPPS standard Federal rates
for FY 2011. This was necessary because the wage index changes required
by the provisions of the Affordable Care Act (discussed in section III.
of this preamble) affected the proposed budget neutrality adjustment
factor for changes in DRG classifications and weights and the
geographic adjustment factor (GAF) (that were issued in the FY 2011
IPPS/LTCH PPS proposed rule) because the GAF values are derived from
the wage index values (Sec. 412.316(a)). In addition, certain
provisions of the Affordable Care Act also necessitated a revision to
the proposed outlier payment adjustment factor that were issued in the
FY 2011 IPPS/LTCH PPS proposed rule because a single set of thresholds
is used to identify outlier cases for both inpatient operating and
inpatient capital-related payments (Sec. 412.312(c)). The outlier
thresholds are set so that operating outlier payments are projected to
be 5.1 percent of total operating IPPS DRG payments. Section
412.308(c)(2) provides that the standard Federal rate for inpatient
capital-related costs be reduced by an adjustment factor equal to the
estimated proportion of capital-related outlier payments to total
inpatient capital-related PPS payments. The revised proposed capital
IPPS standard Federal rates for FY 2011 were discussed in section II.
of the Addendum to the June 2, 2010 supplemental proposed rule and are
discussed and being finalized in section III. of the Addendum to this
final rule.

A. Overview

Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient acute hospital services ``in
accordance with a prospective payment system established by the
Secretary.'' Under the statute, the Secretary has broad authority in
establishing and implementing the IPPS for acute care hospital
inpatient capital-related costs. We initially implemented the IPPS for
capital-related costs in the Federal fiscal year (FY) 1992 IPPS final
rule (56 FR 43358), in which we established a 10-year transition period
to change the payment methodology for Medicare hospital inpatient
capital-related costs from a reasonable cost-based methodology to a
prospective methodology (based fully on the Federal rate).
FY 2001 was the last year of the 10-year transition period
established to phase in the IPPS for hospital inpatient capital-related
costs. For cost reporting periods beginning in FY 2002, capital IPPS
payments are based solely on the Federal rate for almost all acute care
hospitals (other than hospitals receiving certain exception payments
and certain new hospitals). (We refer readers to the FY 2002 IPPS final
rule (66 FR 39910 through 39914) for additional information on the
methodology used to determine capital IPPS payments to hospitals both
during and after the transition period.) The basic methodology for
determining capital prospective payments using the Federal rate is set
forth in Sec. 412.312 of the regulations. For the purpose of
calculating payments for each discharge, currently the standard Federal
rate is adjusted as follows:
(Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment
Factor (GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1
+ Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if
applicable).

B. Exception Payments

The regulations at Sec. 412.348(f) provide that a hospital may
request an additional payment if the hospital incurs unanticipated
capital expenditures in excess of $5 million due

[[Page 50354]]

to extraordinary circumstances beyond the hospital's control. This
policy was originally established for hospitals during the 10-year
transition period, but as we discussed in the FY 2003 IPPS final rule
(67 FR 50102), we revised the regulations at Sec. 412.312 to specify
that payments for extraordinary circumstances are also made for cost
reporting periods after the transition period (that is, cost reporting
periods beginning on or after October 1, 2001). Additional information
on the exception payment for extraordinary circumstances in Sec.
412.348(f) can be found in the FY 2005 IPPS final rule (69 FR 49185 and
49186).
During the transition period, under Sec. Sec. 412.348(b) through
(e), eligible hospitals could receive regular exception payments. These
exception payments guaranteed a hospital a minimum payment percentage
of its Medicare allowable capital-related costs depending on the class
of the hospital (Sec. 412.348(c)), but were available only during the
10-year transition period. After the end of the transition period,
eligible hospitals can no longer receive this exception payment.
However, even after the transition period, eligible hospitals receive
additional payments under the special exceptions provisions at Sec.
412.348(g), which guarantees all eligible hospitals a minimum payment
of 70 percent of its Medicare allowable capital-related costs provided
that special exceptions payments do not exceed 10 percent of total
capital IPPS payments. Special exceptions payments may be made only for
the 10 years from the cost reporting year in which the hospital
completes its qualifying project, and the hospital must have completed
the project no later than the hospital's cost reporting period
beginning before October 1, 2001. Thus, an eligible hospital may
receive special exceptions payments for up to 10 years beyond the end
of the capital IPPS transition period. Hospitals eligible for special
exceptions payments are required to submit documentation to the fiscal
intermediary or MAC indicating the completion date of their project.
(For more detailed information regarding the special exceptions policy
under Sec. 412.348(g), we refer readers to the FY 2002 IPPS final rule
(66 FR 39911 through 39914) and the FY 2003 IPPS final rule (67 FR
50102).)

C. New Hospitals

Under the IPPS for capital-related costs, Sec. 412.300(b) of the
regulations defines a new hospital as a hospital that has operated
(under current or previous ownership) for less than 2 years. For
example, the following hospitals are not considered new hospitals: (1)
A hospital that builds new or replacement facilities at the same or
another location, even if coincidental with a change of ownership, a
change in management, or a lease arrangement; (2) a hospital that
closes and subsequently reopens; (3) a hospital that has been in
operation for more than 2 years but has participated in the Medicare
program for less than 2 years; and (4) a hospital that changes its
status from a hospital that is excluded from the IPPS to a hospital
that is subject to the capital IPPS. For more detailed information, we
refer readers to the FY 1992 IPPS final rule (56 FR 43418). During the
10-year transition period, a new hospital was exempt from the capital
IPPS for its first 2 years of operation and was paid 85 percent of its
reasonable costs during that period. Originally, this provision was
effective only through the transition period and, therefore, ended with
cost reporting periods beginning in FY 2002. Because, as discussed in
the FY 2003 IPPS final rule (67 FR 50101), we believe that special
protection to new hospitals is also appropriate even after the
transition period, we revised the regulations at Sec. 412.304(c)(2) to
provide that, for cost reporting periods beginning on or after October
1, 2002, a new hospital (defined under Sec. 412.300(b)) is paid 85
percent of its Medicare allowable capital-related costs through its
first 2 years of operation, unless the new hospital elects to receive
full prospective payment based on 100 percent of the Federal rate. (We
refer readers to the FY 2003 IPPS final rule (67 FR 50101 through
50102) for a detailed discussion of the special payment provisions for
new hospitals under the capital IPPS after the 10-year transition
period.)

D. Hospitals Located in Puerto Rico

Section 412.374 of the regulations provides for the use of a
blended payment amount for prospective payments for capital-related
costs to hospitals located in Puerto Rico. Accordingly, under the
capital IPPS, we compute a separate payment rate specific to Puerto
Rico hospitals using the same methodology used to compute the national
Federal rate for capital-related costs. In general, hospitals located
in Puerto Rico are paid a blend of the applicable capital IPPS Puerto
Rico rate and the applicable capital IPPS Federal rate.
Prior to FY 1998, hospitals in Puerto Rico were paid a blended
capital IPPS rate that consisted of 75 percent of the capital IPPS
Puerto Rico specific rate and 25 percent of the capital IPPS Federal
rate. However, effective October 1, 1997 (FY 1998), in conjunction with
the change to the operating IPPS blend percentage for hospitals located
in Puerto Rico required by section 4406 of Public Law 105-33, we
revised the methodology for computing capital IPPS payments to
hospitals in Puerto Rico to be based on a blend of 50 percent of the
capital IPPS Puerto Rico rate and 50 percent of the capital IPPS
Federal rate. Similarly, in conjunction with the change in operating
IPPS payments to hospitals located in Puerto Rico for FY 2005 required
by section 504 of Public Law 108-173, we again revised the methodology
for computing capital IPPS payments to hospitals located in Puerto Rico
to be based on a blend of 25 percent of the capital IPPS Puerto Rico
rate and 75 percent of the capital IPPS Federal rate effective for
discharges occurring on or after October 1, 2004.

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

1. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009
In the FY 2008 IPPS final rule with comment period (72 FR 47175
through 47186), we adopted the MS-DRG patient classification system for
the IPPS, effective October 1, 2007, to better recognize patient
severity of illness in Medicare payment rates. Adoption of the MS-DRGs
resulted in the expansion of the number of DRGs from 538 in FY 2007 to
745 in FY 2008. (Currently, there are 746 MS-DRGs, including one
additional MS-DRG created in FY 2009. For FY 2011, there are 747 DRGs
with the finalization of our proposal in this final rule to delete one
MS-DRG and to create two new MS-DRGs.) By increasing the number of DRGs
and more fully taking into account patient severity of illness in
Medicare payment rates, the MS-DRGs encourage hospitals to change their
documentation and coding of patient diagnoses. In that same final rule
with comment period (72 FR 47183), we indicated that we believe the
adoption of the MS-DRGs had the potential to lead to increases in
aggregate payments without a corresponding increase in actual patient
severity of illness due to the incentives for changes in documentation
and coding. Accordingly, we established adjustments to both the
national operating standardized amount and the national capital Federal
rate to eliminate the estimated effect of changes in documentation and
coding resulting from the adoption of the MS-DRGs that do not reflect
real changes in case-mix. Specifically, we established prospective
documentation and coding adjustments of -1.2 percent for FY 2008, -1.8

[[Page 50355]]

percent for FY 2009, and -1.8 percent for FY 2010. However, to comply
with section 7(a) of Public Law 110-90, enacted on September 29, 2007,
in a final rule published in the Federal Register on November 27, 2007
(72 FR 66886 through 66888), we modified the documentation and coding
adjustment for FY 2008 to -0.6 percent, and consequently revised the FY
2008 IPPS operating and capital payment rates, factors, and thresholds
accordingly, with these revisions effective October 1, 2007.
For FY 2009, section 7(a) of Public Law 110-90 required a
documentation and coding adjustment of -0.9 percent instead of the -1.8
percent adjustment established in the FY 2008 IPPS final rule with
comment period. As discussed in the FY 2008 IPPS final rule with
comment period (72 FR 48447 and 48733 through 48774), we applied a
documentation and coding adjustment of 7-0.9 percent to the FY 2009
IPPS national standardized amounts and the capital Federal rate. The
documentation and coding adjustments established in the FY 2009 IPPS
final rule, as amended by Pub. L. 110-90, are cumulative. As a result,
the -0.9 percent documentation and coding adjustment in FY 2009 was in
addition to the -0.6 percent adjustment in FY 2008, yielding a combined
effect of -1.5 percent. (For additional details on the development and
implementation of the documentation and coding adjustments for FY 2008
and FY 2009, we refer readers to section II.D. of this preamble and the
following rules published in the Federal Register: August 22, 2007 (72
FR 47175 through 47186 and 47431 through 47432); November 27, 2007 (72
FR 66886 through 66888); and August 19, 2008 (73 FR 48447 through 48450
and 48773 through 48775).)
2. Retrospective Evaluation of FY 2008 Claims Data
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we presented
the results of a retrospective evaluation of the FY 2008 data for
claims paid through December 2008. Based on this evaluation, our
actuaries determined that implementation of the MS-DRG system resulted
in a 2.5 percent change due to documentation and coding that did not
reflect real changes in case-mix for discharges occurring during FY
2008 (74 FR 24092 through 24101). We also sought public comment on our
methodology and analysis and the proposed -1.9 percent prospective
adjustment to address the effect of documentation and coding changes
unrelated to changes in real case-mix in FY 2008 (that is, the
estimated -2.5 percent documentation and coding effect for FY 2008
minus the -0.6 percent documentation and coding adjustment that was
applied to the national capital Federal rate for FY 2008). In addition,
we sought public comment on addressing in the FY 2011 rulemaking cycle
any differences between the increase in FY 2009 case-mix due to
documentation and coding changes that do not reflect real changes in
case-mix for discharges occurring during FY 2009 and the -0.9 percent
prospective documentation and coding adjustment applied in determining
the FY 2009 capital Federal rate established in the FY 2009 IPPS final
rule. However, after consideration of the public comments received on
the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, consistent with the
application of the documentation and coding adjustment to the operating
IPPS standardized amounts, we determined that it would be appropriate
to postpone the adoption of any additional documentation and coding
adjustments to the capital IPPS rates until a full analysis of FY 2009
case-mix changes could be completed. We stated that although we only
proposed to make a -1.9 percent adjustment to account for the portion
of the estimated 2.5 percent change in FY 2008 case-mix due to
documentation and coding changes that exceeds the -0.6 percent
prospective documentation and coding adjustment applied to the FY 2008
capital Federal rate (that is, -2.5 percent minus -0.6 percent = -1.9
percent), our then current estimate of the MS-DRG documentation and
coding effect for FY 2009 was 2.3 percent (that is, the 4.8 percent
total increase minus the 2.5 percent increase from FY 2008). We
indicated that if the estimated documentation and coding effect
determined based on a full analysis of FY 2009 claims data is more or
less than our then current estimates, it would change the anticipated
cumulative adjustments that we then estimated we would have to make for
FY 2008 and FY 2009 combined. We indicated that, in future rulemaking,
we would consider applying a prospective documentation and coding
adjustment to the capital IPPS rates based on a complete analysis of FY
2008 and FY 2009 claims data (74 FR 43926 through 43928).
3. Retrospective Analysis of FY 2009 Claims Data
For the FY 2011 IPPS/LTCH PPS proposed rule, we performed a
thorough retrospective evaluation of the most recent available claims
data, and the results of this evaluation were used by our actuaries to
determine any necessary payment adjustments beyond the cumulative -1.5
percent adjustment that has already been applied to the national
capital Federal rate to ensure budget neutrality for the implementation
of MS-DRGs (75 FR 24014). Specifically, as discussed in greater detail
in section II.D.5. of the preamble of the proposed rule and this final
rule, we performed a retrospective evaluation of the FY 2009 claims
data updated through December 2009 using the same analysis methodology
as we did for FY 2008 claims in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed and final rules. Based on this evaluation, our actuaries
determined that the implementation of the MS-DRG system resulted in a
5.4 percent change in case-mix due to documentation and coding that did
not reflect real changes in case-mix for discharges occurring during FY
2009. We also noted our intent to update our analysis with FY 2009 data
on claims paid through March 2009 (sic) for this FY 2011 IPPS/LTCH PPS
final rule. (We note that the March 2009 update date for claims paid
data in the proposed rule should have been March 2010.) As intended, we
have updated our analysis with FY 2009 data on claims paid through
March 2010 in this FY 2011 IPPS/LTCH PPS final rule.
For this final rule, applying the same analysis methodology as we
did for the proposed rule to an FY 2009 claims data updated through
March 2010 verified the 5.4 percent change in case-mix due to
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2009. As we discussed in the FY 2011
IPPS/LTCH PPS proposed rule (75 FR 24014), the 5.4 percent estimate of
the cumulative effect of changes in documentation and coding under the
MS-DRG system that did not reflect real changes in case-mix for FYs
2008 and 2009 exceeds the cumulative -1.5 percent prospective
documentation and coding adjustment that has already been applied to
the national capital Federal rate by 3.9 percentage points (5.4 percent
minus 1.5 percent). We indicated that an additional cumulative
adjustment of -3.9 percent to the national capital Federal rate would
be necessary to eliminate the full effect of the documentation and
coding changes due to the adoption of the MS-DRGs on future payments.
4. Prospective MS-DRG Documentation and Coding Adjustment to the
National Capital Federal Rate for FY 2011 and Subsequent Years
We continue to believe that it is appropriate to make adjustments
to the capital IPPS rates to eliminate the effect

[[Page 50356]]

of any documentation and coding changes as a result of the
implementation of the MS-DRGs. These adjustments are intended to ensure
that future annual aggregate IPPS payments are the same as payments
that otherwise would have been made had the prospective adjustments for
documentation and coding applied in FY 2008 and FY 2009 accurately
reflected the change due to documentation and coding that occurred in
those years. As noted in section V.A. of this preamble, under section
1886(g) of the Act, the Secretary has broad authority in establishing
and implementing the IPPS for acute care hospital inpatient capital-
related costs (that is, the capital IPPS). We have consistently stated
since the initial implementation of the MS-DRG system that we do not
believe it is appropriate for Medicare expenditures under the capital
IPPS to increase due to MS-DRG related changes in documentation and
coding. Accordingly, we believe that it is appropriate under the
Secretary's broad authority under section 1886(g) of the Act, in
conjunction with section 1886(d)(3)(A)(vi) of the Act and section 7(b)
of Public Law 110-90, to make adjustments to the capital Federal rate
to eliminate the full effect of the documentation and coding changes
resulting from the adoption of the MS-DRGs. We believe that this is
appropriate because, in absence of such adjustments, the effect of the
documentation and coding changes resulting from the adoption of the MS-
DRGs results in inappropriately high capital IPPS payments because that
portion of the increase in aggregate payments is not due to an increase
in patient severity of illness (and costs).
As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24014) and as noted above, based on our retrospective evaluation of the
FY 2009 claims, our actuaries' determined that implementation of the
MS-DRG system resulted in a 5.4 percent change in case-mix due to
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2009. The estimated 5.4 percent
cumulative documentation and coding effect for FYs 2008 and 2009
exceeds the cumulative 1.5 percent prospective documentation and coding
reduction that has already been applied to the national capital Federal
rate. In that same proposed rule, we also discussed that for FY 2011,
we proposed a retrospective adjustment of -2.9 percent under the
authority of section 7(b)(1)(B) of Public Law 110-90. Under that
proposal, although an additional cumulative adjustment of -3.9 percent
would be necessary to meet the requirements of section 7(b)(1)(A) of
Public Law 110-90 to make an appropriate prospective adjustment to the
IPPS operating average standardized amounts in order to eliminate the
full effect of the documentation and coding changes on future payments,
we did not proposed a prospective adjustment to the IPPS operating
average standardized amounts under section 7(b)(1)(A) of Public Law
110-90 for FY 2011.
Given the increase in IPPS payments that we have determined is due
to documentation and coding (discussed above in this section), in the
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24014), we explained that we
believe it is necessary and appropriate under the Secretary's broad
authority under section 1886(g) of the Act, consistent with section
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, to
make further adjustments to the capital Federal rate to eliminate the
full effect of the documentation and coding changes resulting from the
adoption of the MS-DRGs. We also discussed that it is often our
practice to phase in rate adjustments over more than one year in order
to moderate the effect on rates in any one year. Therefore, consistent
with transitional policies we have adopted in many similar cases and in
order to maintain consistency as far as possible with the adjustments
that we proposed to apply to IPPS hospitals, under the Secretary's
broad authority under section 1886(g) of the Act, in conjunction with
section 1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law
110-90, we proposed an adjustment of -2.9 percent in FY 2011 to the
national capital Federal rate to account for a portion of the
cumulative effect of the estimated changes in documentation and coding
changes under the MS-DRG system through FY 2009 that did not reflect
real changes in case-mix. We stated that we believe that this proposed
adjustment would allow us to moderate the effects to hospitals in one
year and to maintain equity between hospitals paid on the basis of
different prospective rates. Furthermore, consistent with our proposal
for the hospital-specific rates under the operating IPPS, we proposed
to leave that proposed -2.9 percent adjustment in place for subsequent
fiscal years to account for the effect of that documentation and coding
change in subsequent years. We also sought public comment on the
proposed -2.9 percent prospective adjustment to the national capital
Federal rate for FY 2011 and our plans to address in future rulemaking
cycles the cumulative effect of changes in case-mix due to changes in
documentation and coding that do not reflect real changes in case-mix
based on an analysis of occurring during FY 2008 and FY 2009, noting
that our current estimates of the remaining adjustment to the national
capital Federal rate is -1.0 percent (that is, the estimated cumulative
effect of documentation and coding changes under the MS-DRG system for
FYs 2008 and 2009 of -5.4 percent minus the existing -0.6 percent and -
0.9 adjustments and the proposed FY 2011 of -2.9 percent adjustment).
Comment: Several commenters opposed the proposed -2.9 percent
prospective adjustment to the national capital Federal rate for FY 2011
to partially account for the cumulative effect of the estimated changes
in documentation and coding changes under the MS-DRG system that did
not reflect real changes in case-mix. Most of these commenters cited
the potentially severe negative fiscal impact that would be experienced
by providers if the proposed documentation and coding adjustment were
to be implemented.
Response: We understand commenters' concern about the possible
financial disruption that may be caused by the proposed documentation
and coding improvement payment adjustment. However, as discussed in the
FY 2011 IPPS/LTCH PPS proposed rule and reiterated above, given the
increase in IPPS payments that we have determined is due to changes in
documentation and coding under the MS-DRG system, we believe it is
necessary and appropriate under the Secretary's broad authority under
section 1886(g) of the Act, consistent with section 1886(d)(3)(A)(vi)
of the Act and section 7(b) of Public Law 110-90, to make further
adjustments to the capital Federal rate to eliminate the full effect of
the documentation and coding changes resulting from the adoption of the
MS-DRGs which have resulted in an inappropriate increase in IPPS
payments. These payment adjustments are necessary to correct these past
overpayments due to increases in aggregate payments that do not reflect
real change in case-mix severity of illness levels, but instead are
caused solely by documentation and coding improvements. In addition, we
proposed a transitional implementation of the full adjustment to
provide hospitals with time to adjust to future payment differences and
to moderate the effect of this adjustment in any given year.
Comment: In its public comments, MedPAC discussed that ``the shift
to

[[Page 50357]]

MS-DRGs was taken to improve the distribution of payments, not change
the aggregate level of payments.'' MedPAC performed an independent
analysis of claims data to determine the effect of documentation and
coding in FYs 2008 and 2009. MedPAC stated, ``In our judgment, CMS's
analytic methods are valid. Using similar methods, our analysis of
Medicare hospital inpatient claims for 2007-2009 confirms all of CMS's
findings.'' Consistent with our analysis, MedPAC's analysis
demonstrated that the cumulative effect of documentation and coding in
FY 2009 is 5.4 percent and they recommend for both the operating and
capital IPPS that ``overpayments should be stopped [and] all
overpayment should be recovered.'' In making that recommendation,
MedPAC directed CMS to its March 2010 Report to Congress where it
recommended that Congress change the law to require CMS to recover all
overpayments with interest. MedPAC noted that this would shift CMS'
focus to the prevention of future overpayments in the operating and
capital IPPS. Such a shift might be implemented as prospective
adjustments and would result in slower accumulation of future
overpayments. A detailed summary of MedPAC's comment on our proposed
documentation and coding adjustments for FY 2011 for all hospitals paid
under the operating and capital IPPS and our full response can be found
in section II.D.7. of the preamble of this final rule.
Response: We appreciate MedPAC's independent validation and support
of our methodology, which corroborates our estimate of the cumulative
documentation and coding effect net of measurement error of 5.4
percent. Furthermore, we agree with MedPAC's conclusions on the overall
financial implications of implementing our proposed -2.9 percent
payment rate adjustment. We share MedPAC's concerns about delaying the
prevention of future overpayments in both the capital and operating
IPPS, but we appreciate its acknowledgment of CMS' discretion on this
policy and of the potential financial disruption from implementation of
the full prospective reduction in FY 2011 (-3.9 percent).
As discussed in section II.D.7. of the preamble of this final rule,
after considering the public comments we received, as well as MedPAC's
detailed analysis, we believe that the methodology we have employed to
determine the cumulative effect of documentation and coding changes is
sound. Therefore, we have decided to finalize our proposal to make an
adjustment to the national capital Federal rate of -2.9 percent, which
represents a portion of the remaining prospective adjustment of 3.9
percent (5.4 percent documentation and coding effect minus the 1.5
percent adjustment already applied the national capital Federal rate).
The adjustment we are finalizing in this final rule is consistent with
the magnitude of the retrospective adjustment of -2.9 percent that we
are applying under section 7(b)(1)(B) of Public Law 110-90 to the
operating IPPS standardized amount for FY 2011 (discussed in section
II.D.7. of this preamble). As discussed above, while we are sympathetic
to the concerns expressed by many commenters about the potential
adverse financial effects on hospitals, given the increase in IPPS
payments that we have determined is due to changes in documentation and
coding under the MS-DRG system, as we proposed, we believe it is
necessary and appropriate to make further adjustments to the capital
Federal rate to eliminate the full effect of the documentation and
coding changes resulting from the adoption of the MS-DRGs. We also
believe the proposed transitional approach is a reasonable and fair way
to accomplish the elimination of the full effect of these documentation
and coding changes while moderating the fiscal impact on hospitals.
Therefore, in this final rule, under the Secretary's broad
authority under section 1886(g) of the Act, consistent with section
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, as
we proposed, in FY 2011 we are implementing an adjustment to the
capital Federal rate of -2.9 percent to account for the effect of the
estimated changes in documentation and coding changes under the MS-DRG
system that occurred in FYs 2008 and 2009 that did not reflect real
changes in case-mix. Furthermore, consistent with our proposal and the
policy we are adopting in this final rule for the hospital-specific
rates under the operating IPPS, we will leave the -2.9 percent
adjustment in place for subsequent fiscal years to account for the
effect of that documentation and coding change in subsequent years. As
discussed in the FY 2011 IPPS/LTCH PPS proposed rule and reiterated
above, we intend to address in future rulemaking cycles the remaining
estimated adjustment to the national capital Federal rate of -1.0
percent (that is, the estimated effect of documentation and coding
changes under the MS-DRG system of -5.4 percent minus the existing -0.6
percent and -0.9 percent adjustments and the -2.9 percent adjustment
for FY 2011).
5. Documentation and Coding Adjustment to the Puerto Rico-Specific
Capital Rate
Under Sec. 412.74, Puerto Rico hospitals are currently paid based
on 75 percent of the national capital Federal rate and 25 percent of
the Puerto Rico-specific capital rate. In the FY 2009 IPPS final rule
(73 FR 48775), consistent with our development of the FY 2009 Puerto
Rico-specific operating standardized amount, we did not apply the
additional -0.9 percent documentation and coding adjustment (or the
cumulative -1.5 percent adjustment) to the FY 2009 Puerto Rico-specific
capital rate. However, the statute gives broad authority to the
Secretary under section 1886(g) of the Act, with respect to the
development of and adjustments to a capital PPS, and therefore we would
not be outside the authority of section 1886(g) of the Act in applying
the documentation and coding adjustment to the Puerto Rico-specific
portion of the capital payment rate. To date, we had not applied a
documentation and coding adjustment to the Puerto Rico-specific capital
rate because we have historically made changes to the capital IPPS
consistent with those changes made to the operating IPPS. We stated
that we may propose to apply such an adjustment to the Puerto Rico
capital rates in the future.
As discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43928), when we performed a retrospective evaluation of the FY 2008
claims data of hospitals located in Puerto Rico using the same
methodology discussed above, we found that the change in case-mix due
to documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 from hospitals located in
Puerto Rico was approximately 1.3 percent. Given this case-mix increase
due to changes in documentation and coding under the MS-DRGs, we had
proposed to adjust the Puerto Rico-specific capital rate by -1.3
percent in FY 2010 for the FY 2008 increase in case-mix due to changes
in documentation and coding under the MS-DRGs. However, in that same
final rule, we postponed the adoption of any documentation and coding
adjustments to the capital IPPS rates until a full analysis of FY 2009
case-mix changes could be completed. We indicated that any future
documentation and coding adjustment to the capital Puerto Rico-specific
IPPS rates based on a complete analysis of FY 2008 and FY 2009 claims
data for Puerto Rico hospitals would be established

[[Page 50358]]

through the notice and comment rulemaking process.
As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24015), when we performed a retrospective evaluation of the FY 2009
claims data from the December 2009 update of the MedPAR file of
hospitals located in Puerto Rico using the same methodology to estimate
documentation and coding changes under IPPS for non-Puerto Rico
hospitals, we found that the change in case-mix due to documentation
and coding that did not reflect real changes in case-mix for discharges
occurring during FYs 2008 and 2009 from hospitals located in Puerto
Rico was approximately 2.4 percent. (As discussed in section II.D.10.b.
of this preamble, our updated analysis of FY 2009 claims paid through
March 2010 using the same methodology as the one used for the proposed
rule, shows that the change in case-mix due to documentation and coding
that did not reflect real changes in case-mix for discharges occurring
during FYs 2008 and 2009 from hospitals located in Puerto Rico is
approximately 2.6 percent.) Given this case-mix increase due to changes
in documentation and coding under the MS-DRGs, consistent with our
proposal to adjust the FY 2011 capital Federal rate (discussed above)
and consistent with our proposed adjustment to the FY 2011 Puerto Rico-
specific standardized amount discussed in section II.D.9. of the
preamble of that same proposed rule, under the Secretary's broad
authority under section 1886(g) of the Act, we proposed to adjust the
Puerto Rico-specific capital rate by -2.4 percent in FY 2011 for the
cumulative increase in case-mix due to changes in documentation and
coding under the MS-DRGs for FYs 2008 and 2009. In addition, consistent
with our other proposals concerning prospective MS-DRG documentation
and coding adjustments to the capital Federal rate and operating IPPS
standardized amounts presented in this proposed rule, we proposed to
leave that proposed -2.4 percent adjustment in place for subsequent
fiscal years in order to ensure that changes in documentation and
coding resulting from the adoption of the MS-DRGs do not lead to an
increase in aggregate payments not reflective of an increase in real
case-mix.
In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public
comment on the proposed prospective adjustment of -2.4 percent to
Puerto Rico-specific standardized amount and the Puerto Rico-specific
capital rate. We noted our intent to update our analysis with FY 2009
data on ``claims paid through March 2009'' (sic) for this FY 2011 IPPS/
LTCH PPS final rule. (We note that the March 2009 update date for
claims paid data in the proposed rule should have been March 2010.) As
intended, we have updated our analysis with FY 2009 data on claims paid
through March 2010 in this FY 2011 IPPS/LTCH PPS final rule, as
discussed below.
As described section II.D.10.b. of this preamble, MedPAC responded
to our request for comments regarding the level of adjustment for
special categories of hospitals, such as Puerto Rico hospitals, by
pointing out that these hospitals have the same financial incentives
for documentation and coding improvements and the same ability to
benefit from increased payments that do not reflect real change in
case-mix. Therefore, MedPAC recommended that ``all IPPS hospitals
should be treated the same.'' At the same time, MedPAC also stateds
that ``delaying prevention of overpayments * * * creates a problem
because overpayments will continue to accumulate in 2010 and later
years until the effect of documentation and coding improvement is fully
offset in the payment rates.''
We agree with MedPAC that Puerto Rico hospitals have had the same
financial incentives to improve documentation and coding as other IPPS
hospitals. We further agree with MedPAC that it is appropriate to focus
on minimizing the accumulation of overpayments; we interpret this
statement to mean that MedPAC recommends that CMS should move forward
as quickly as possible with appropriate prospective adjustments. We
appreciate MedPAC's guidance that ``all hospitals be treated the
same,'' and we agree that it is important to treat various classes of
hospitals that are similarly situated with respect to their ability to
adjust their documentation and coding changes consistently in our
payment policy determinations.
Therefore, consistent with the policy we are implementing to adjust
the FY 2011 capital Federal rate (discussed above) and consistent with
the adjustment we are establishing in FY 2011 Puerto Rico-specific
standardized amount (discussed in section II.D.10.b. of this preamble),
under the Secretary's broad authority under section 1886(g) of the Act,
we are finalizing our proposal to adjust the Puerto Rico-specific
capital rate in FY 2011 for the increase in case-mix due to changes in
documentation and coding under the MS-DRGs through FY 2009. As
discussed in section II.D.10.b. of this preamble and as noted above,
our updated analysis of FY 2009 claims paid through March 2010 using
the same methodology as the one used for the proposed rule, shows that
the change in case-mix due to documentation and coding that did not
reflect real changes in case-mix for discharges occurring during FY
2009 from hospitals located in Puerto Rico is approximately 2.6
percent. Accordingly, in this final rule, we are establishing an
adjustment of -2.6 percent to the Puerto Rico-specific capital rate in
FY 2011 to account for changes in case-mix due to documentation and
coding that did not reflect real changes in case-mix. As we proposed,
we will leave this -2.6 percent adjustment in place for subsequent
fiscal years in order to ensure that changes in documentation and
coding resulting from the adoption of the MS-DRGs do not lead to an
increase in aggregate payments not reflective of an increase in real
case-mix. We continue to believe that such an adjustment is appropriate
because, as MedPAC noted, all hospitals have the same financial
incentives for documentation and coding improvements, and the same
ability to benefit from the resulting increase in aggregate payments
that do not reflect real changes in case-mix.
As we proposed, the -2.6 percent documentation and coding
adjustment that we are establishing in this final rule applies to the
Puerto Rico-specific capital rate that accounts for 25 percent of
capital IPPS payments to hospitals located in Puerto Rico, with the
remaining 75 percent based on the national capital Federal rate, which
is being further adjusted for the effects of documentation and coding
as described above. Consequently, the overall reduction to the FY 2011
payment rates for hospitals located in Puerto Rico to account for
documentation and coding changes is slightly less than the reduction
for IPPS hospitals paid based on 100 percent of the national capital
Federal rate. As discussed above, the Puerto Rico-specific capital rate
was not adjusted for the cumulative effects of documentation and coding
changes in FY 2008 or FY 2009 as is the case with the national capital
Federal rate.

F. Other Changes for FY 2011

The final annual update to the capital IPPS national Federal and
Puerto Rico-specific rates, as provided for at Sec. 412.308(c), for FY
2011 is discussed in section III. of the Addendum to this final rule.

[[Page 50359]]

VI. Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

Historically, hospitals and hospital units excluded from the
prospective payment system received payment for inpatient hospital
services they furnished on the basis of reasonable costs, subject to a
rate-of-increase ceiling. A per discharge limit (the target amount as
defined in Sec. 413.40(a)) was set for each hospital or hospital unit
based on the hospital's own cost experience in its base year, and
updated annually by a rate-of-increase percentage. The updated target
amount was multiplied by total Medicare discharges during that period
and applied as an aggregate upper limit (the ceiling as defined in
Sec. 413.40(a)) on total inpatient operating costs for a hospital's
cost reporting period. Prior to October 1, 1997, these payment
provisions applied consistently to all categories of excluded
providers, which included rehabilitation hospitals and units (now
referred to as IRFs), psychiatric hospitals and units (now referred to
as IPFs), LTCHs, children's hospitals, and cancer hospitals.
Payment to children's hospitals and cancer hospitals that are
excluded from the IPPS continues to be subject to the rate-of-increase
ceiling based on the hospital's own historical cost experience. (We
note that, in accordance with Sec. 403.752(a) of the regulations,
RNHCIs are also subject to the rate-of-increase limits established
under Sec. 413.40 of the regulations.)
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24016), we
proposed that the rate-of-increase percentage to be applied to the
target amount for cancer and children's hospitals and RNHCIs was the
proposed FY 2011 percentage increase in the IPPS operating market
basket. Beginning with FY 2006, we have used the percentage increase in
the IPPS operating market basket to update the target amounts for
children's and cancer hospitals. As explained in the FY 2006 IPPS final
rule (70 FR 47396 through 47398), with IRFs, IPFs, and LTCHs being paid
under their own PPS, the remaining number of providers being paid based
on reasonable cost subject to a ceiling (that is, children's and cancer
hospitals and RNHCIs) is too small and the cost report data are too
limited to be able to create a market basket solely for these
hospitals. For FY 2011, we proposed to continue to use the IPPS
operating market basket to update the target amounts for children's and
cancer hospitals and RNHCIs for the reasons discussed in the FY 2006
IPPS final rule.
In the FY 2011 IPPS/LTCH PPS we proposed to use the revised and
rebased FY 2006-based IPPS operating market basket to update the target
amounts for children's and cancer hospitals and RNHCIs for FY 2011.
Therefore, based on IHS Global Insight, Inc.'s 2010 first quarter
forecast, with historical data through the 2009 fourth quarter, we
estimated that the FY 2011 update to the IPPS operating market basket
would be 2.4 percent (that is, the estimate of the market basket rate-
of-increase).
Consistent with our historical approach, we calculated the proposed
rate-of-increase in the IPPS operating market basket for FY 2011 using
the most recent data available. However, we proposed that if more
recent data became available for the final rule, we would use them to
calculate the IPPS operating market basket update for FY 2011.
Therefore, based on IHS Global Insight's 2010 second quarter forecast,
with historical data through the 2010 first quarter, the final IPPS
operating market basket update factor for FY 2011 is 2.6 percent.
Moreover, consistent with our proposal that the percentage increase in
the rate-of-increase limits for cancer and children's hospitals and
RNHCIs would be the percentage increase in the FY 2011 IPPS operating
market basket, the FY 2011 rate-of-increase percentage that is applied
to the FY 2010 target amounts in order to calculate the final FY 2011
target amounts for cancer and children's hospitals and RNHCIs is 2.6
percent, in accordance with the applicable regulations in 42 CFR
413.40.
We note that IRFs, IPFs, and LTCHs, which were paid previously
under the reasonable cost methodology, now receive payment under their
own prospective payment systems, in accordance with changes made to the
statute. In general, the prospective payment systems for IRFs, IPFs,
and LTCHs provided transition periods of varying lengths during which
time a portion of the prospective payment was based on cost-based
reimbursement rules under part 413. (However, certain providers do not
receive a transition period or may elect to bypass the transition
period as applicable under 42 CFR part 412, subparts N, O, and P.) We
note that the various transition periods provided for under the IRF
PPS, the IPF PPS, and the LTCH PPS have ended.
The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We
refer readers to section IV. of the Addendum to this final rule for the
specific proposed update changes to the Federal payment rates for LTCHs
under the LTCH PPS for FY 2011. The annual updates for the IRF PPS and
the IPF PPS are issued by the agency in separate Federal Register
documents.

B. Critical Access Hospitals (CAHs)

1. Background
Section 1820 of the Act provides for the establishment of Medicare
Rural Hospital Flexibility Programs (MRHFPs) under which individual
States may designate certain facilities as critical access hospitals
(CAHs). Facilities that are so designated and that meet the CAH
conditions of participation under 42 CFR part 485, subpart F, will be
certified as CAHs by CMS. Regulations governing payments to CAHs for
services to Medicare beneficiaries are located in 42 CFR part 413.
2. CAH Optional Method Election for Payment of Outpatient Services
Section 1834(g) of the Act establishes the payment rules for
outpatient services furnished by a CAH. Section 403(d) of Public Law
106-113 (BBRA) amended section 1834(g) of the Act to provide for two
methods of payment for outpatient services furnished by a CAH.
Specifically, section 1834(g)(1) of the Act, as amended by Public Law
106-113, provided that the amount of payment for outpatient services
furnished by a CAH is equal to the reasonable cost of providing such
services (unless the CAH makes an election, under section 1834(g)(2) of
the Act). The physician or other practitioner providing the
professional service receives payment under the Medicare Physician Fee
Schedule (MPFS). In the alternative, the CAH may make an election under
section 1834(g)(2) of the Act to receive amounts that are equal to the
``reasonable costs'' of the CAH for facility services, plus, with
respect to the professional services, the amount otherwise paid for
professional services under Medicare, less the applicable Medicare
deductible and coinsurance amount. The election made under section
1834(g)(2) of the Act is sometimes referred to as ``method II'' or
``the optional method.'' Throughout this section of this preamble, we
refer to this election as the ``optional method.'' Section 202 of
Public Law 106-554 (BIPA) amended section 1834(g)(2)(B) of the Act to
increase the payment for professional services under the optional
method to 115 percent of the amount otherwise paid for professional
services under Medicare. In addition, section 405(a)(1) of Pub. L. 108-
173 (MMA) amended section 1834(g)(l) of the Act by inserting the phrase
``equal to 101 percent of'' before the phrase ``the

[[Page 50360]]

reasonable costs.'' However, the MMA made no changes to the amount of
reasonable cost payment under the optional method at section
1834(g)(2)(A) of the Act.
Accordingly, section 1834(g) of the Act provides for two methods of
payment for outpatient CAH services. Under the method specified at
section 1834(g)(1) of the Act, facility services are paid at 101
percent of reasonable costs to the CAH through the Medicare fiscal
intermediary or the Medicare Part A/B MAC, while payments for physician
and other professional services are made to the physician or other
practitioner under the MPFS through the Medicare carriers. Under
section 1834(g)(2) of the Act (the optional method), a CAH submits
bills for both the facility and the professional services to its
Medicare fiscal intermediary or its Medicare Part A/B MAC. If a CAH
chooses this optional method for outpatient services, the physician or
other practitioner must reassign his or her billing rights to the CAH
to bill the Medicare program for those services. In accordance with
section 1834(g)(2) of the Act in effect prior to implementation of
section 3128 of the Affordable Care Act, under this optional method,
the CAH received reasonable cost payment for its facility costs and,
with respect to the professional services, 115 percent of the amount
otherwise paid for professional services under Medicare. (We refer
readers to section VI.B.3. of this preamble for a discussion of the
policy changes to payments for outpatient facility services made by
section 3128 of the Affordable Care Act.)
The existing regulations at Sec. 413.70(b)(3)(i)(A) require that
if a CAH wishes to elect the optional method, that election must be
made in writing, made on an annual basis, and delivered to the fiscal
intermediary servicing the CAH at least 30 days before the start of the
cost reporting period for which the election is made. The regulations
at Sec. 413.70(b)(3)(i)(B) specify that once an election is made for a
cost reporting period, that election remains in effect for all of that
period. Therefore, under the existing regulations, a CAH that is being
paid under the optional method is required to submit an election on an
annual basis if it wishes to continue to be paid under the optional
method for a subsequent cost reporting period.
We have been informed that, in past years, there have been
instances where some CAHs have submitted their elections several days
late, which has caused these CAHs to lose their optional method
election for the entire cost reporting year and has resulted in
financial hardship for these providers. Such untimely submission of the
optional method election may be due to staffing turnovers at the CAH as
well as a change in fiscal intermediary or MAC assignments because, in
the past, some CAHs received correspondence from their fiscal
intermediaries or MACs reminding them to elect the optional method on
an annual basis. Due to the significant consequences if a CAH fails to
make a timely election, in the FY 2011 IPPS/LTCH PPS proposed rule (75
FR 24017), we proposed to amend the regulations at Sec.
413.70(b)(3)(i) to state that, effective for CAH cost reporting periods
beginning on or after October 1, 2010, if a CAH has elected the
optional method for its most recent cost reporting period beginning
prior to October 1, 2010 or chooses to elect the optional method for
its upcoming cost reporting period, that election will remain in place
until it is terminated.
We believe that removing the annual election requirement will
reduce any perceived burden associated with the election process and
make it easier for CAHs to maintain their election if they experience
administrative staffing changes. If a CAH is being paid under the
traditional method and wishes to elect the optional method, it must
submit its election in writing to its servicing fiscal intermediary or
MAC at least 30 days prior to the first cost reporting period for which
the election is effective. Once that initial election is made, it will
remain in place until it is terminated.
We proposed to revise the regulations to include a mechanism for
CAHs that are being paid under the optional method to terminate that
election. Specifically, we proposed that if a CAH is being paid under
the optional method and wishes to terminate that election, it must
submit its termination request to the fiscal intermediary or MAC
servicing the CAH at least 30 days prior to the start of the next cost
reporting period. Because the proposed effective date for this
provision was for cost reporting periods beginning on or after October
1, 2010, we acknowledged that CAHs that have cost reporting periods
beginning in October 2010 or November 2010 may not have sufficient time
to terminate their optional method election at least 30 days prior to
the start of the cost reporting period. Therefore, we proposed that
CAHs that have cost reporting periods beginning in October 2010 or
November 2010 and elected the optional method in 2009 that wish to
terminate that election would have until December 1, 2010, to terminate
their prior year election. The termination would be effective for the
entire FY 2011 cost reporting period. Thus, if a CAH with a cost
reporting period beginning in October 2010 or November 2010 terminates
its optional method election after the beginning of its cost reporting
period but before December 1, 2010, the fiscal intermediary or MAC
would be instructed to reprocess any payments made under the optional
method for services provided during that period, as efficiently as
possible.
Section 1834(g)(2)(B) of the Act provides that if a CAH elects the
optional method, it is not required that each physician or other
practitioner providing professional services in the CAH must reassign
billing rights with respect to the services. Rather, the reassignment
of billing rights is physician/practitioner specific. For this reason,
the optional payment method should not apply to the computation of
payments to the CAH for its facility services in conjunction with
services furnished by physicians and practitioners who have not
reassigned such billing rights. Accordingly, if a physician or
practitioner has not reassigned his or her billing rights to the CAH,
the CAH will be paid for its facility services at 101 percent of
reasonable cost, as specified at Sec. 413.70(b)(2)(i) of the
regulations. If a CAH experiences changes in its physician or
practitioner staffing, there may be a change in which physicians or
practitioners choose to reassign their billing rights in order to
permit the CAH to bill for their professional services. In order to
ensure appropriate payments, and specifically, in order to ensure that
there is no duplicate billing for a physician's or practitioner's
professional services by the CAH to the fiscal intermediary or MAC and
by the physician or practitioner providing the service to the carrier,
a CAH must continue to notify its fiscal intermediary or MAC when
changes in reassignment occur.
Comment: Many commenters supported the proposal that, effective for
cost reporting periods beginning on or after October 1, 2010, if a CAH
has elected the optional method for its most recent cost reporting
period beginning prior to October 1, 2010, or chooses to elect the
optional method for its upcoming cost reporting period, that election
will remain in place until it is terminated. The commenters stated the
proposed change would reduce CAHs' administrative burdens and ensure
continued access to payment under the optional method. One commenter
stated its State has 77 CAHs and the proposed change would help provide
continued access to the optional method. Another commenter stated that
most CAHs in its

[[Page 50361]]

State have elected the optional method and the proposed change would
save staff time and help prevent billing errors. One commenter stated
approximately 72 out of 82 CAHs in its State have elected the optional
method and the proposed change will help eliminate an annual
administrative burden. Another commenter stated the proposed change
would help ensure continued access to care in rural areas of its State.
Response: We thank the commenters for their support of the proposed
provision, which we are adopting as final in this final rule.
Comment: One commenter stated that because physician bills under
the traditional method (the method specified at section 1834(g)(1) of
the Act) are paid by the carrier instead of by the fiscal intermediary
or the MAC, the CAH should be required to inform the carrier, in
addition to the fiscal intermediary or the MAC, of any billing
assignment changes.
Response: In the proposed rule, we stated that in order to ensure
there is no duplicate billing and that appropriate payments are made, a
CAH must continue to notify its fiscal intermediary or MAC when changes
in reassignment occur. We agree with the commenter that the carrier
should be notified of any billing reassignment changes. Therefore, if a
physician/practitioner reassignment changes such that there is a change
in which physician/practitioner bills would be paid by the carrier, in
addition to notifying the fiscal intermediary or MAC, the CAH must also
notify the carrier. We believe this practice will help ensure
appropriate payments are made to the CAH and the physician/
practitioner.
Comment: Several commenters requested that CMS apply the same
policy as it proposed for the CAH optional method election to hospitals
redesignated under section 1886(d)(8)(B) of the Act.
Response: We did not propose any changes to the redesignation
requirements. Therefore, these requests are not within the scope of
this final rule. We will consider these comments as we develop future
rulemaking.
Accordingly, after consideration of the public comments we
received, we are adopting our proposal as final, as follows: We are
adopting as final, with some technical revisions discussed below, the
proposed revision of Sec. 413.70(b)(3)(i) to specify that for CAH cost
reporting periods beginning on or after October 1, 2010, once a CAH
elects the optional method, including an election made for its most
recent cost reporting period beginning prior to October 1, 2010, its
election will remain in place until it is terminated. That is, CAHs
will no longer be required to make an annual election in order to
continue to be paid under the optional method in a subsequent year.
However, we are making some technical revisions to the proposed
language of Sec. 413.70(b)(3)(i)(A)(2) in order to state more clearly
that if a CAH did not elect the optional method in its most recent
preceding cost reporting period and chooses to be paid under the
optional method for a cost reporting period beginning on or after
October 1, 2010, it must submit a request in writing to the fiscal
intermediary or MAC at least 30 days prior to the start of the cost
reporting period for which the election is to be effective. Finally, we
are adopting as final our revision of the regulations to specify that
if a CAH wishes to terminate its optional method election, it must
submit its termination request to the fiscal intermediary or MAC
servicing the CAH at least 30 days prior to the start of the next cost
reporting period. CAHs will have until December 1, 2010, to terminate
their prior year election if they have cost reporting periods beginning
in October 2010 or November 2010, had elected the optional method in
2009, and wish to terminate that election in 2010. The termination will
be effective for the entire FY 2011 cost reporting period.
We also are adopting as final the conforming change to Sec. 413.70
(b)(3)(i)(D).
3. Changes in Payments to CAHs Made by the Affordable Care Act
As stated earlier in this preamble, section 1834(g) of the Act
establishes the payment rules for outpatient services furnished by a
CAH. Section 403(d) of Public Law 106-113 (BBRA) amended section
1834(g) of the Act to provide for two methods of payment for outpatient
services furnished by a CAH. Section 1834(g)(1) of the Act, as amended
by Public Law 106-113, provided that the amount of payment for
outpatient services furnished by a CAH is equal to the reasonable costs
of the CAH in providing such services. Under the optional method,
described under section 1834(g)(2) of the Act, the CAH may make an
election to receive amounts that are equal to ``the reasonable costs''
of the CAH for facility services plus, with respect to professional
services, the amount otherwise paid for professional services under
Medicare, less the applicable Medicare deductible and coinsurance
amount. Section 202 of Public Law 106-554 (BIPA) amended section
1834(g)(2)(B) of the Act to increase the payment for professional
services under the optional method to 115 percent of the amount
otherwise paid for professional services under Medicare. In addition,
section 405(a)(1) of Public Law 108-173 (MMA) amended section
1834(g)(l) of the Act by inserting the phrase ``equal to 101 percent
of'' before the phrase ``the reasonable costs.'' However, the MMA made
no changes to the amount of payment under the optional method at
section 1834(g)(2)(A) of the Act.
Section 1834(l)(8), as added by section 205 of Public Law 106-554,
establishes the payment methodology for ambulance services furnished by
a CAH or by an entity that is owned and operated by a CAH. This
provision states that payment is made based on the reasonable costs
incurred in furnishing ambulance services if such services are
furnished by a CAH (as defined in section 1861(mm)(1) of the Act), or
by an entity that is owned and operated by a CAH, but only if the CAH
or entity is the only provider or supplier of ambulance services that
is located within a 35-mile drive of such CAH.
Section 3128(a) of the Affordable Care Act amended sections
1834(g)(2)(A) and 1834(l)(8) of the Act by inserting ``101 percent of''
before ``the reasonable costs.'' As such, section 3128(a) increases
payment for outpatient facility services under the optional method and
payment for ambulance services furnished by a CAH or an entity owned
and operated by a CAH, to 101 percent of reasonable costs. Section
3128(b) of the Affordable Care Act states that the amendments made
under section 3128(a) shall take effect as if they were included in the
enactment of section 405(a) of Public Law 108-173. Section 405(a) of
Public Law 108-173 provided that, in general, inpatient, outpatient,
and covered SNF services provided by a CAH would be reimbursed at 101
percent of reasonable costs, and was applicable to payments for
services furnished during cost reporting periods beginning on or after
January 1, 2004.
Because of the date of enactment of the Affordable Care Act, we
were unable to include these provisions in the FY 2011 IPPS/LTCH PPS
proposed rule. Therefore, in a separate supplemental proposed rule
which appeared in the Federal Register on June 2, 2010 (75 FR 30965),
we included proposals to implement the changes made by section 3128.
The final policies discussed below take into consideration public
comments that we received on the supplemental proposed rule.
In order to implement section 3128 of the Affordable Care Act, in
the supplemental proposed rule, we

[[Page 50362]]

proposed to amend the regulations at Sec. 413.70(b)(3)(ii)(A) to state
that, effective for cost reporting periods beginning on or after
January 1, 2004, under the optional method, payment for facility
services will be made at 101 percent of reasonable costs. Accordingly,
regardless of whether a physician or practitioner has reassigned his or
her billing rights to the CAH, payment for CAH facility services would
be made at 101 percent of reasonable costs. In addition, we proposed to
implement the change in payment for ambulance services provided by
section 3128 of the Affordable Care Act by amending the regulations at
Sec. 413.70(b)(5)(i) to state that, effective for cost reporting
periods beginning on or after January 1, 2004, payment for ambulance
services furnished by a CAH or an entity that is owned and operated by
a CAH is 101 percent of the reasonable costs of the CAH or the entity
in furnishing those services, but only if the CAH or the entity is the
only provider or supplier of ambulance services located within a 35-
mile drive of the CAH or the entity.
Comment: Several commenters supported the proposed provisions
implementing section 3128 of the Affordable Care Act. One commenter
stated that, in Iowa, there are 82 CAHs and 72 of them have elected to
be paid under the optional method. The commenter stated the proposed
provision will have a positive impact on these small hospitals.
Another commenter disagreed with CMS' finalized policy in the FY
2010 IPPS/LTCH PPS final rule, which reduced payment for CAH facility
services under the optional method to 100 percent of reasonable costs.
The commenter had requested CMS ``* * * to reference the MMA conference
report which clearly indicated that Congress intended to set all CAH
outpatient reimbursement at 101 percent of reasonable cost.'' The
commenter further stated that, as part of the supplemental proposed
rule, ``CMS proposed to restore 101 percent of cost-based reimbursement
for CAHs election Method II billing, and is proposing to extend this
change retroactively to FFY 2010.''
Response: We appreciate the commenters' support of the proposed
implementation of the provision to increase payment for CAH outpatient
facility services paid under the optional method and increase payment
for CAH ambulance services to 101 percent of reasonable costs. In the
response to the commenter who stated we were proposing to extend this
change retroactively to FY 2010, we note that we proposed to make this
change in payment to 101 percent of reasonable costs effective for cost
reporting periods beginning on or after January 1, 2004, to conform to
the requirements of section 3128(b) of the Affordable Care Act.
After consideration of the public comments we received, we are
adopting our proposed revisions to the regulations at Sec. Sec.
413.70(b)(3)(ii)(A) and 413.70(b)(5)(i) as final, without modification.
Accordingly, effective for cost reporting periods beginning on or after
January 1, 2004, CAHs that are paid under the optional method will be
paid based on 101 percent of reasonable costs for outpatient facility
services and all CAHs will be paid based on 101 percent of reasonable
cost for ambulance services. We note that, as we indicated in the
proposed rule, we do not believe these revisions will result in
additional payments to CAHs for prior periods because we believe, in
fact, that CMS has paid CAHs for these services at 101 percent of
reasonable costs during these prior periods.
4. Costs of Provider Taxes as Allowable Costs for CAHs
a. Background and Statutory Basis
Currently, certain taxes assessed against a provider may be
allowable costs under Medicare to the extent that such taxes are
related to the reasonable and necessary cost of providing patient care
and represent costs actually incurred. Reasonable cost reimbursement is
addressed in section 1861(v)(1)(A) of the Act. Section 1861(v)(1)(A) of
the Act defines ``reasonable cost,'' in part, as the cost actually
incurred, excluding costs found to be unnecessary in the efficient
delivery of needed health services and are determined in accordance
with regulations establishing the method or methods to be used and the
items to be included. Section 1861(v)(1)(A) of the Act does not
specifically address the determination of reasonable costs, but
authorizes the Secretary to promulgate regulations and principles to be
applied in determining reasonable costs.
We have issued regulations implementing this provision of the Act,
including 42 CFR 413.9(a), which provide that the determination of
reasonable cost ``must be based on the reasonable cost of services
covered under Medicare and related to the care of beneficiaries.'' In
addition, Sec. 413.9(c) requires that the provision for payment of
reasonable cost of services is intended to meet the actual costs
incurred in providing services. Therefore, in accordance with the
statute, the regulations include two principles that help guide the
determination of which expenses may be considered allowable reasonable
costs that can be paid under Medicare; that is, such costs must be
``related'' to the care of Medicare beneficiaries, and such costs must
actually be ``incurred.''
Consistent with these provisions, we also have issued policy
instructions in the Provider Reimbursement Manual, Part 1 (PRM-1) for
determining allowable reasonable costs under Medicare. Specifically,
section 2122 of the PRM-1 sets forth Medicare policy on determining
when taxes levied on providers are allowable costs and provides a list
of taxes that are considered unallowable costs. Specifically, section
2122.1 (General Rule) of the PRM-1 states: ``The general rule is that
taxes assessed against the provider, in accordance with the levying
enactments of the several States and lower levels of government and for
which the provider is liable for payment, are allowable costs. Tax
expenses should not include fines and penalties.'' Section 2122.2
(Taxes Not Allowable as Costs) of the PRM-1 lists certain taxes that
are levied on providers that are not allowable costs. The listed taxes
are:
Federal income and excess profit taxes, including any
interest or penalties paid thereon (A).
State or local income and excess profit taxes (B).
Taxes in connection with financing, refinancing, or
refunding operations, such as taxes on the issuance of bonds, property
transfers, issuance or transfer of stocks, etc. Generally, these costs
are either amortized over the life of the securities or depreciated
over the life of the asset. However, they are not recognized as tax
expense. (C)
Taxes from which exemptions are available to the provider.
(D)
Special assessments on land which represent capital
improvements such as sewers, water, and pavements should be capitalized
and depreciated over their estimated useful lives. (E)
Taxes on property which is not used in the rendition of
covered services. (F)
Taxes, such as sales taxes, levied against the patient and
collected and remitted by the provider. (G)
Self-employment (FICA) taxes applicable to individual
proprietors, partners, members of a joint venture, etc. (H)
b. Clarification of Payment Policy for Provider Taxes
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24019), we stated
that we have learned that there is some

[[Page 50363]]

confusion relating to the determination of whether a tax is an
allowable cost. We believe that much of this confusion has arisen
because it may be possible to read sections 2122.1 and 2122.2 of the
PRM-1 as permitting all taxes assessed on a provider by a State that
are not specifically listed in section 2122.2 to be treated as
allowable costs. Section 2122 of the PRM-1 was last updated in 1979
when States typically raised revenue only from income, sales, and
property taxes. The list in section 2212.2 is incomplete now, as it
does not reflect the variety of provider taxes imposed by States. In
addition, we are concerned that, even if a particular tax may be an
allowable cost that is related to the care of Medicare beneficiaries,
providers may not, in fact, ``incur'' the entire amount of these
assessed taxes. For example, in accordance with the Medicaid statute
and regulations, some States levy tax assessments on hospitals. The
assessed taxes may be paid by the hospitals into a fund that includes
all taxes paid, all Federal matching monies, and any penalties for
nonpayment. The State is then authorized to disburse monies from the
fund to the hospitals. We believe that these types of subsequent
disbursements to providers are associated with the assessed taxes and
may, in fact, offset some, if not all, of the taxes originally paid by
the hospitals.
We believe that the treatment of these types of payments on the
Medicare cost report should be analogous to the adjustments described
at Sec. 413.98 of the regulations. Specifically, Sec. 413.98(d)
provides that the ``true cost of the goods or services is the net
amount actually paid for them.'' Section 413.98 specifically addresses
the purchase of goods and services and reflects the statutory mandate
that a provider's allowable costs are the net expenses it incurs for
items and services. In situations in which payments that are associated
with the assessed tax are made to providers specifically to make the
provider whole or partly whole for the tax expenses, Medicare should
similarly recognize only the net expense incurred by the provider.
Thus, while a tax may be an allowable Medicare cost in that it is
related to beneficiary care, the provider may only treat as a
reasonable cost the net tax expense; that is, the tax paid by the
provider, reduced by payments the provider received that are associated
with the assessed tax. In addition, we do not believe that
determinations made regarding whether the structure of specific taxes
and subsequent reimbursements are consistent with Medicaid ``hold
harmless'' provisions necessarily require the Medicare program to find
that the same tax is an allowable cost. The Medicare statute and
regulations set forth a different standard that requires a
determination of how much of the allowable tax expense is actually
``incurred'' by the provider.
Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24018), we proposed to clarify our policy concerning when provider
taxes may be considered allowable costs under Medicare. As stated
above, section 2122 of the PRM was last updated in 1979, and it no
longer reflects the variety of provider taxes that may be imposed by
States. Although some of the more recently enacted provider taxes may
be allowable costs, we were concerned that some of these taxes may not
be ``related to the care of beneficiaries'' and that some, if not all,
of the costs of these taxes might not be actually ``incurred'' by the
providers. This payment policy may not directly affect providers that
are paid under a Medicare prospective payment system unless a cost-
based prospective payment system is rebased on more current reported
reasonable costs. However, we stated that this policy clarification
could impact certain providers that are paid on the basis of their
incurred reasonable costs, such as CAHs. Therefore, we proposed to
clarify the policy set forth in sections 2122.1 and 2122.2 of the PRM-1
to reflect our concerns set forth above regarding when certain provider
taxes may be allowable costs under the Medicare program.
Comment: Commenters disagreed with our statement that the provision
in the proposed rule was a clarification in policy. They expressed
concern that the provision was a policy change that could be applied
retroactively and could potentially have serious negative fiscal
impact. A number of commenters also raised concern that the language in
the proposed rule did not clearly articulate the revisions to the PRM
and is vague regarding when certain provider taxes may be allowable.
Specifically, the commenters were concerned that Medicare would not
reimburse the cost of these taxes. Specifically, the commenters were
concerned that the payment of the net expense of a provider tax, as
reported on a CAH's Medicare cost report, would have a negative
financial impact on the CAH.
Response: We believe that this provision, as articulated in the
proposed rule, is a clarification of our current, longstanding policy
which requires that ``reasonable costs'' claimed by providers must be
``actually incurred.'' Currently, CMS and its Medicare contractors
apply the longstanding reasonable cost principles at section
1861(v)(1)(A) of the Act and at 42 CFR 413.9 of the regulations to
determine if a particular expense is an allowable cost under Medicare.
One such principle, as discussed above, is that a ``reasonable cost''
must be ``actually incurred.''
We disagree that sections 2122.1 and 2122.2 of the PRM-1 take a
contrary position. The discussion of taxes and allowable costs in the
PRM-1 does not specifically address the requirement that costs must be
``actually incurred.'' However, the discussion of provider taxes in the
PRM-1 should be considered in conjunction with the reasonable costs
requirements set forth in the statute and regulations. To the extent
that providers considered the list in section 2122.2 of the PRM-1 to
permit a facility from counting, as part of its allowable costs, all
but the listed provider taxes, regardless of whether the taxes listed
were ``actually incurred,'' we are now clarifying that this approach is
inconsistent with reasonable cost principles.
We believe that it is consistent with the current and longstanding
principles of cost reimbursement, as set forth in the statute and
regulations, to remind both providers and our contractors, that
although a particular tax may be an allowable cost, the amount of that
tax that providers may claim for reasonable cost purposes, must reflect
the amount of these assessed taxes that are actually incurred. Thus, in
accordance with the Medicare statute, regulations, and PRM policies,
Medicare contractors will continue to apply the current reasonable cost
principles to determine if a provider tax incurred is an allowable cost
and how much of that allowable cost is actually incurred to determine
reimbursement.
As stated in the proposed rule, we intended to address the
potential confusion that arises when providers interpret sections of
the PRM-1 to allow taxes assessed against a provider that are not
specifically listed in section 2122.2, regardless of whether those
costs are actually incurred. We believe that clarifying the PRM-1 to
explain that the list of taxes is only an example of the enumerated
taxes is consistent with the current and longstanding reasonable cost
principles. Moreover, to the extent that a particular tax might be an
allowable expense, it still must be ``actually incurred.''
This clarification will not have an effect of disallowing any
particular tax but rather make clear that our Medicare contractors will
continue to make a determination of whether a provider tax is
allowable, on a case-by-case basis, using our current and longstanding

[[Page 50364]]

reasonable cost principles. In addition, the Medicare contractors will
continue to determine if an adjustment to the amount of allowable
provider taxes is warranted to account for payments a provider receives
that are associated with the assessed tax.
After consideration of the public comments we received, we are
adopting our proposed clarification, as final, without modification. We
will modify section 2122 of the PRM-1 to specifically reference our
current, longstanding reasonable cost principles.

C. Report of Adjustment (Exceptions) Payments

Section 4419(b) of Public Law 105-33 requires the Secretary to
publish annually in the Federal Register a report describing the total
amount of adjustment payments made to excluded hospitals and hospital
units by reason of section 1886(b)(4) of the Act, during the previous
fiscal year.
The process of requesting, adjusting, and awarding an adjustment
payment is likely to occur over a 2-year period or longer. First,
generally, an excluded hospital or an excluded unit of a hospital must
file its cost report for a fiscal year in accordance with Sec.
413.24(f)(2). The fiscal intermediary or MAC reviews the cost report
and issues a notice of program reimbursement (NPR). Once the hospital
receives the NPR, if its operating costs are in excess of the ceiling,
the hospital or hospital unit may file a request for an adjustment
payment. After the fiscal intermediary or MAC receives the hospital's
or hospital unit's request in accordance with applicable regulations,
the fiscal intermediary or MAC or CMS, depending on the type of
adjustment requested, reviews the request and determines if an
adjustment payment is warranted. This determination is sometimes not
made until more than 6 months after the date the request is filed
because there are times when the applications are incomplete and
additional information must be requested in order to have a completed
application. However, in an attempt to provide interested parties with
data on the most recent adjustments for which we do have data, we are
publishing data on adjustment payments that were processed by the
fiscal intermediary or MAC or CMS during FY 2009.
The table below includes the most recent data available from the
fiscal intermediaries or MACs and CMS on adjustment payments that were
adjudicated during FY 2009. As indicated above, the adjustments made
during FY 2009 only pertain to cost reporting periods ending in years
prior to FY 2008. Total adjustment payments given to excluded hospitals
and hospital units during FY 2009 are $7,824,339. The table depicts for
each class of hospitals, in the aggregate, the number of adjustment
requests adjudicated, the excess operating costs over the ceiling, and
the amount of the adjustment payments.

----------------------------------------------------------------------------------------------------------------
Excess cost Adjustment
Class of hospital Number over ceiling payments
----------------------------------------------------------------------------------------------------------------
Psychiatric..................................................... 4 $2,878,357 $1,396,564
Children's...................................................... 3 1,414,635 902,889
Cancer.......................................................... 2 12,949,901 4,753,072
Religious Nonmedical Health Care Institution (RNHCI)............ 7 1,570,555 771,814
-----------------------------------------------
Total....................................................... .............. .............. 7,824,339
----------------------------------------------------------------------------------------------------------------

VII. Changes to the Long-Term Care Hospital Prospective Payment System
(LTCH PPS) for FY 2011

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority
Section 123 of the Medicare, Medicaid, and SCHIP (State Children's
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113) as amended by section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) (Pub. L. 106-554) provides for payment for both the operating
and capital-related costs of hospital inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part A based on prospectively set
rates. The Medicare prospective payment system (PPS) for LTCHs applies
to hospitals that are described in section 1886(d)(1)(B)(iv) of the
Social Security Act (the Act), effective for cost reporting periods
beginning on or after October 1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a
hospital which has an average inpatient length of stay (as determined
by the Secretary) of greater than 25 days.'' Section
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative
definition of LTCHs: specifically, a hospital that first received
payment under section 1886(d) of the Act in 1986 and has an average
inpatient length of stay (LOS) (as determined by the Secretary of
Health and Human Services (the Secretary)) of greater than 20 days and
has 80 percent or more of its annual Medicare inpatient discharges with
a principal diagnosis that reflects a finding of neoplastic disease in
the 12-month cost reporting period ending in FY 1997.
Section 123 of the BBRA requires the PPS for LTCHs to be a ``per
discharge'' system with a diagnosis-related group (DRG) based patient
classification system that reflects the differences in patient
resources and costs in LTCHs.
Section 307(b)(1) of the BIPA, among other things, mandates that
the Secretary shall examine, and may provide for, adjustments to
payments under the LTCH PPS, including adjustments to DRG weights, area
wage adjustments, geographic reclassification, outliers, updates, and a
disproportionate share adjustment.
In the August 30, 2002 Federal Register, we issued a final rule
that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR
55954). For the initial implementation of the LTCH PPS (FYs 2003)
through FY 2007, the system used information from LTCH patient records
to classify patients into distinct long-term care diagnosis-related
groups (LTC-DRGs) based on clinical characteristics and expected
resource needs. Beginning in FY 2008, we adopted the Medicare Severity-
long-term care diagnosis-related groups (MS-LTC-DRGs) as the patient
classification system used under the LTCH PPS. Payments are calculated
for each MS-LTC-DRG and provisions are made for appropriate payment
adjustments. Payment rates under the LTCH PPS are updated annually and
published in the Federal Register.
The LTCH PPS replaced the reasonable cost-based payment system
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH

[[Page 50365]]

with a cost reporting period beginning on or after October 1, 2002.
(The regulations implementing the TEFRA reasonable cost-based payment
provisions are located at 42 CFR part 413.) With the implementation of
the PPS for acute care hospitals authorized by the Social Security
Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the
Act, certain hospitals, including LTCHs, were excluded from the PPS for
acute care hospitals and were paid their reasonable costs for inpatient
services subject to a per discharge limitation or target amount under
the TEFRA system. For each cost reporting period, a hospital-specific
ceiling on payments was determined by multiplying the hospital's
updated target amount by the number of total current year Medicare
discharges. (Generally, in section VIII. of this preamble, when we
refer to discharges, the intent is to describe Medicare discharges.)
The August 30, 2002 final rule further details the payment policy under
the TEFRA system (67 FR 55954).
In the August 30, 2002 final rule, we provided for a 5-year
transition period. During this 5-year transition period, a LTCH's total
payment under the PPS was based on an increasing percentage of the
Federal rate with a corresponding decrease in the percentage of the
LTCH PPS payment that is based on reasonable cost concepts. However,
effective for cost reporting periods beginning on or after October 1,
2006, total LTCH PPS payments are based on 100 percent of the Federal
rate.
In addition, in the August 30, 2002 final rule, we presented an in-
depth discussion of the LTCH PPS, including the patient classification
system, relative weights, payment rates, additional payments, and the
budget neutrality requirements mandated by section 123 of the BBRA. The
same final rule that established regulations for the LTCH PPS under 42
CFR part 412, subpart O also contained LTCH provisions related to
covered inpatient services, limitation on charges to beneficiaries,
medical review requirements, furnishing of inpatient hospital services
directly or under arrangement, and reporting and recordkeeping
requirements. We refer readers to the August 30, 2002 final rule for a
comprehensive discussion of the research and data that supported the
establishment of the LTCH PPS (67 FR 55954).
In the June 6, 2003 Federal Register, we published a final rule
that set forth the FY 2004 annual update of the payment rates for the
Medicare PPS for inpatient hospital services furnished by LTCHs (68 FR
34122). It also changed the annual period for which the payment rates
were to be effective, such that the annual updated rates were effective
from July 1 through June 30 instead of from October 1 through September
30. We referred to the July through June time period as a ``long-term
care hospital rate year'' (LTCH PPS rate year). In addition, we changed
the publication schedule for the annual update to allow for an
effective date of July 1. The payment amounts and factors used to
determine the annual update of the LTCH PPS Federal rate are based on a
LTCH PPS rate year. In the past, while the LTCH payment rate updates
were effective July 1, the annual update of the DRG classifications and
relative weights for LTCHs continued to be linked to the annual
adjustments of the acute care hospital inpatient DRGs and were
effective each October 1.
As discussed in detail in the RY 2009 LTCH PPS final rule (73 FR
26797 through 26798), we again changed the schedule for the annual
updates of the LTCH PPS Federal payment rates beginning with RY 2010.
We consolidated the rulemaking cycle for the annual update of the LTCH
PPS Federal payment rates and description of the methodology and data
used to calculate these payment rates with the annual update of the MS-
LTC-DRG classifications and associated weighting factors for LTCHs so
that the updates to the rates and the weights now occur on the same
schedule and appear in the same publication. As a result, the updates
to the rates and the weights are now effective on October 1 (on a
Federal fiscal year schedule), and the annual updates to the LTCH PPS
Federal rates are no longer published with a July 1 effective date.
Public Law 110-173 (MMSEA), enacted on December 29, 2007, included
provisions that have various effects on the LTCH PPS. In addition to
amending section 1861 of the Act to add a subsection (ccc) which
provided an additional definition of LTCHs, Public Law 110-173 also
required the Secretary to submit, no later than 18 months after the
date of enactment of the law, a report to Congress on a study of
national long-term care hospital facility and patient criteria that
included ``recommendations for such legislation and administrative
actions, including timelines for the implementation of LTCH patient
criteria or other actions, as the Secretary determines appropriate.''
The payment policy provisions under sections 114(c)(1) and 114(c)(2) of
Pub. L. 110-173 focused on providing 3 years of relief for certain
LTCHs from the percentage threshold payment adjustment policy at 42 CFR
412.534 and 412.536. However, because of the original implementation
schedule of those sections of the regulations, the payment provisions
had varying timeframes of applicability (73 FR 29701 through 29704). In
addition, section 114(c)(3) of Public Law 110-173 provided that the
Secretary shall not apply, for the 3-year period beginning on the date
of enactment of the Act the revision to the short-stay outlier (SSO)
policy that was finalized in the RY 2008 LTCH PPS final rule (72 FR
26904 and 26992). In addition, section 114(c)(4) of Public Law 110-173
provided that the Secretary shall not, for the 3-year period beginning
on the date of enactment of the Act, make the one-time adjustment to
the payment rates provided for in Sec. 412.523(d)(3) or any similar
provision (73 FR 26800 through 26804). The statute also provided that
the base rate for RY 2008 be the same as the base rate for RY 2007 (the
revised base rate, however, does not apply to discharges occurring on
or after July 1, 2007, and before April 1, 2008) (73 FR 24875 through
24877). Section 114(d) of Public Law 110-173 established a 3-year
moratorium (with specified exceptions) on the establishment and
classification of new LTCHs, LTCH satellites, and on the increase in
the number of LTCH beds in existing LTCHs or satellite facilities.
Finally, section 114(f) of Public Law 110-173 provided for an expanded
review of medical necessity for admission and continued stay at LTCHs.
In the RY 2009 LTCH PPS final rule (73 FR 26804 through 26812), we
established the applicable Federal rates for RY 2009, consistent with
section 1886(m)(2) of the Act as amended by Public Law 110-173. We also
revised the regulations at Sec. 412.523(d)(3) to change the
methodology for the one-time budget neutrality adjustment and to comply
with section 114(c)(4) of Public Law 110-173. Other policy revisions
that were necessary as a result of the statutory changes of Public Law
110-173 were addressed in separate interim final rules with comment
period (73 FR 24871 and 73 FR 29699). In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43976 through 43990), we addressed all of the
public comments received and finalized these two interim final rules
with comment period.
Section 4302 of the ARRA, Public Law 111-5, enacted on February 17,
2009, included several amendments to the provisions set forth in
section 114 of Public Law 110-173. Specifically, section 4302(a)
modified the effective dates of the provisions of section 114(c) of
Public Law 110-173, described

[[Page 50366]]

above, and added an additional category of LTCHs or satellite
facilities that would not be subject to the percentage threshold
payment adjustment at Sec. 412.536 for a 3-year period. In addition,
section 4302(a)(2)(A) of Public Law 111-5 added ``grandfathered''
satellites (specified in Sec. 412.22(h)(3)(i) of the regulations) to
those ``applicable'' LTCHs (specified in Sec. 412.534(g) of the
regulations) originally granted relief under section 114(c) of Pub. L.
110-173. We issued instructions to the fiscal intermediaries and MACs
interpreting the provisions of section 4302 of Public Law 111-5 (Change
Request 6444). In addition, in the FY 2010 IPPS/RY 2010 LTCH PPS final
rule (43990 through 43992), we implemented the provisions of section
4302 of Public Law 111-5 through an interim final rule with comment
period. We received one piece of timely correspondence regarding the
provisions of section 4302 of Public Law 111-5 that were implemented
through the interim final rule with comment period that was included in
the FY 2010 IPPS/RY 2010 LTCH PPS final rule. We address this public
comment and finalize the interim final rule with comment period in
section VII.F. of the preamble of this final rule.
As discussed in section I.C. of this preamble, a number of the
provisions of the Affordable Care Act affected the policies, payment
rates and factors under the LTCH PPS. Due to the timing of the passage
of the legislation, we were unable to address those provisions in the
May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule, and some of the
proposed policies and payment rates in that proposed rule did not
reflect the new legislation. On June 2, 2010, we issued a FY 2011 IPPS/
LTCH PPS supplemental proposed rule that addressed the provisions of
the Affordable Care Act that affected our proposed policies and payment
rates for FY 2011 under the LTCH PPS. In this final rule, we address
both the provisions of the May 4, 2010 proposed rule and the June 2,
2010 supplemental proposed rule and respond to public comments
received.
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
Under the existing regulations at Sec. 412.23(e)(1) and (e)(2)(i),
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to
be paid under the LTCH PPS, a hospital must have a provider agreement
with Medicare and must have an average Medicare inpatient length of
stay (LOS) of greater than 25 days. Alternatively, Sec.
412.23(e)(2)(ii) states that for cost reporting periods beginning on or
after August 5, 1997, a hospital that was first excluded from the PPS
in 1986 and can demonstrate that at least 80 percent of its annual
Medicare inpatient discharges in the 12-month cost reporting period
ending in FY 1997 have a principal diagnosis that reflects a finding of
neoplastic disease must have an average inpatient length of stay for
all patients, including both Medicare and non-Medicare inpatients, of
greater than 20 days.
b. Hospitals Excluded From the LTCH PPS
The following hospitals are paid under special payment provisions,
as described in Sec. 412.22(c), and therefore, are not subject to the
LTCH PPS rules:
Veterans Administration hospitals.
Hospitals that are reimbursed under State cost control
systems approved under 42 CFR Part 403.
Hospitals that are reimbursed in accordance with
demonstration projects authorized under section 402(a) of the Social
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject
to the rate-of-increase test at section 1814(b) of the Act).
Nonparticipating hospitals furnishing emergency services
to Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
In the August 30, 2002 final rule, we presented an in-depth
discussion of beneficiary liability under the LTCH PPS (67 FR 55974
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we
clarified that the discussion of beneficiary liability in the August
30, 2002 final rule was not meant to establish rates or payments for,
or define Medicare-eligible expenses. Under Sec. 412.507, if the
Medicare payment to the LTCH is the full LTC-DRG payment amount, as
consistent with other established hospital prospective payment systems,
a LTCH may not bill a Medicare beneficiary for more than the deductible
and coinsurance amounts as specified under Sec. 409.82, Sec. 409.83,
and Sec. 409.87 and for items and services as specified under Sec.
489.30(a). However, under the LTCH PPS, Medicare will only pay for days
for which the beneficiary has coverage until the SSO threshold is
exceeded. Therefore, if the Medicare payment was for a SSO case (Sec.
412.529) that was less than the full LTC-DRG payment amount because the
beneficiary had insufficient remaining Medicare days, the LTCH could
also charge the beneficiary for services delivered on those uncovered
days (Sec. 412.507).
4. Administrative Simplification Compliance Act (ASCA) and Health
Insurance Portability and Accountability Act (HIPAA) Compliance
Claims submitted to Medicare must comply with both the
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105),
and the Health Insurance Portability and Accountability Act of 1996
(HIPAA) (Pub. L. 104-191). Section 3 of the ASCA requires that the
Medicare Program deny payment under Part A or Part B for any expenses
incurred for items or services ``for which a claim is submitted other
than in an electronic form specified by the Secretary.'' Section
1862(h) of the Act (as added by section 3(a) of the ASCA) provides that
the Secretary shall waive such denial in two specific types of cases
and may also waive such denial ``in such unusual cases as the Secretary
finds appropriate'' (68 FR 48805). Section 3 of the ASCA operates in
the context of the HIPAA regulations, which include, among other
provisions, the transactions and code sets standards requirements
codified as 45 CFR parts 160 and 162, subparts A and I through R
(generally known as the Transactions Rule). The Transactions Rule
requires covered entities, including covered health care providers, to
conduct certain electronic healthcare transactions according to the
applicable transactions and code sets standards.

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

1. Background
Section 123 of the BBRA requires that the Secretary implement a PPS
for LTCHs (that is, a per discharge system with a diagnosis-related
group (DRG)-based patient classification system reflecting the
differences in patient resources and costs). Section 307(b)(1) of the
BIPA modified the requirements of section 123 of the BBRA by requiring
that the Secretary examine ``the feasibility and the impact of basing
payment under such a system [the long-term care hospital (LTCH) PPS] on
the use of existing (or refined) hospital DRGs that have been modified
to account for different resource use of LTCH patients, as well as the
use of the most recently available hospital discharge data.''
When the LTCH PPS was implemented for cost reporting periods

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beginning on or after October 1, 2002, we adopted the same DRG patient
classification system (that is, the CMS DRGs) that was utilized at that
time under the IPPS. As a component of the LTCH PPS, we refer to this
patient classification system as the ``long-term care diagnosis-related
groups (LTC-DRGs).'' Although the patient classification system used
under both the LTCH PPS and the IPPS are the same, the relative weights
are different. The established relative weight methodology and data
used under the LTCH PPS result in relative weights under the LTCH PPS
that reflect ``the differences in patient resource use * * *'' of LTCH
patients (section 123(a)(1) of the BBRA (Pub. L. 106-113)).
As part of our efforts to better recognize severity of illness
among patients, in the FY 2008 IPPS final rule with comment period (72
FR 47130), the MS-DRGs and the Medicare severity long-term care
diagnosis-related groups (MS-LTC-DRGs) were adopted under the IPPS and
the LTCH PPS, respectively, effective beginning October 1, 2007 (FY
2008). For a full description of the development and implementation and
rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers
to the FY 2008 IPPS final rule with comment period (72 FR 47141 through
47175 and 47277 through 47299). (We note that, in that same final rule,
we revised the regulations at Sec. 412.503 to specify that for LTCH
discharges occurring on or after October 1, 2007, when applying the
provisions of 42 CFR part 412, subpart O applicable to LTCHs for policy
descriptions and payment calculations, all references to LTC-DRGs would
be considered a reference to MS-LTC-DRGs. For the remainder of this
section, we present the discussion in terms of the current MS-LTC-DRG
patient classification system unless specifically referring to the
previous LTC-DRG patient classification system that was in effect
before October 1, 2007.) We believe the MS-DRGs (and by extension, the
MS-LTC-DRGs) represent a substantial improvement over the previous CMS
DRGs in their ability to differentiate cases based on severity of
illness and resource consumption.
The MS-DRGs adopted in FY 2008 represent an increase in the number
of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). In FY 2009, an
additional MS-DRG was adopted for a total of 746 distinct groupings (73
FR 48497). For FY 2011, we are finalizing our proposal to delete one
MS-DRG and create two new MS-DRGs, for a net gain of one MS-DRG, as
noted in section II. of the preamble of this final rule. This results
in 747 distinct MS-DRG groupings for FY 2011. Consistent with section
123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and Sec.
412.515, we use information derived from LTCH PPS patient records to
classify LTCH discharges into distinct MS-LTC-DRGs based on clinical
characteristics and estimated resource needs. We then assign an
appropriate weight to the MS-LTC-DRGs to account for the difference in
resource use by patients exhibiting the case complexity and multiple
medical problems characteristic of LTCHs.
In a departure from the IPPS, and as discussed in greater detail
below in section VII.B.3.f. of this preamble, we use low-volume MS-LTC-
DRGs (that is, MS-LTC-DRGs with less than 25 LTCH cases) in determining
the MS-LTC-DRG relative weights because LTCHs do not typically treat
the full range of diagnoses as do acute care hospitals. For purposes of
determining the relative weights for the large number of low-volume MS-
LTC-DRGs, we group all of the low-volume MS-LTC-DRGs into five
quintiles based on average charge per discharge. (A detailed discussion
of the initial development and application of the quintile methodology
appears in the August 30, 2002 LTCH PPS final rule (67 FR 55978).) We
also account for adjustments to payments for short-stay outlier (SSO)
cases (that is, cases where the covered LOS at the LTCH is less than or
equal to five-sixths of the geometric ALOS for the MS-LTC-DRG).
Furthermore, we make adjustments to account for nonmonotonically
increasing weights, when necessary. That is, theoretically, cases under
the MS-LTC-DRG system that are more severe require greater expenditure
of medical care resources and will result in higher average charges
such that, in the severity levels within a base MS-LTC-DRG, the weights
should increase monotonically with severity from the lowest to highest
severity level. (We discuss nonmonotonicity in greater detail and our
methodology to adjust the RY 2010 MS-LTC-DRG relative weights to
account for nonmonotonically increasing relative weights in section
VII.B.3.g. (Step 6) of this preamble).
2. Patient Classifications Into MS-LTC-DRGs
a. Background
The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under
the LTCH PPS) are based on the CMS DRG structure. As noted above in
this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs
although they are structurally identical to the MS-DRGs used under the
IPPS.
The MS-DRGs are organized into 25 major diagnostic categories
(MDCs), most of which are based on a particular organ system of the
body; the remainder involve multiple organ systems (such as MDC 22,
Burns). Within most MDCs, cases are then divided into surgical DRGs and
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy
that orders operating room (O.R.) procedures or groups of O.R.
procedures by resource intensity. The GROUPER software program does not
recognize all ICD-9-CM procedure codes as procedures affecting DRG
assignment. That is, procedures that are not surgical (for example,
EKG), or minor surgical procedures (for example, biopsy of skin and
subcutaneous tissue (procedure code 86.11)) do not affect the MS-LTC-
DRG assignment based on their presence on the claim.
Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge and that payment varies
by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into MS-LTC-DRGs for payment based on the following six data
elements:
Principal diagnosis;
Additional or secondary diagnoses;
Surgical procedures;
Age;
Sex; and
Discharge status of the patient.
Through FY 2010, the number of secondary or additional diagnoses
and the number of surgical procedures considered for MS-DRG assignment
was limited to eight and six, respectively. Elsewhere in this final
rule, however, as proposed, we are establishing that, for claims
submitted on the 5010 format beginning January 1, 2011, we will
increase the capacity to process diagnosis and procedure codes up to 25
diagnoses and 25 procedures. This will include one principal diagnosis
and up to 24 secondary diagnoses for severity of illness
determinations. We refer readers to section II.G.11.c. of this preamble
for a complete discussion of this change.
Upon the discharge of the patient from a LTCH, the LTCH must assign
appropriate diagnosis and procedure codes from the most current version
of the International Classification of Diseases, Ninth Revision,
Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets
Standards regulations at 45 CFR parts 160 and 162 require that no later
than October 16, 2003, all covered entities must comply with the
applicable requirements of

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Subparts A and I through R of Part 162. Among other requirements, those
provisions direct covered entities to use the ASC X12N 837 Health Care
Claim: Institutional, Volumes 1 and 2, Version 4010, and the applicable
standard medical data code sets for the institutional health care claim
or equivalent encounter information transaction (45 CFR 162.1002 and 45
CFR 162.1102). For additional information on the ICD-9-CM Coding
System, we refer readers to the FY 2008 IPPS final rule with comment
period (72 FR 47241 through 47243 and 47277 through 47281). We also
refer readers to the detailed discussion on correct coding practices in
the August 30, 2002 LTCH PPS final rule (67 FR 55981 through 55983).
Additional coding instructions and examples are published in the Coding
Clinic for ICD-9-CM, a product of the American Hospital Association.
(We refer readers to section II.G.11. of this preamble for additional
information on the annual revisions to the ICD-9-CM codes.)
With respect to the ICD-9-CM coding system, we have been discussing
the conversion to the ICD-10-CM and the ICD-10-PCS coding systems for
many years. As is discussed in detail in section II.G.11. of this
preamble, the ICD-10 coding systems applicable to hospital inpatient
services will be implemented on October 1, 2013. In order for the
industry to make the necessary conversions from ICD-9-CM to ICD-10-CM
and ICD-10-PCS, we proposed, through the ICD-9-CM Coordination and
Maintenance Committee, to consider a moratorium on updates to the ICD-
9-CM and ICD-10 coding sets. We refer readers to section II.G.11. of
this preamble for additional information on the adoption of ICD-10-CM
and ICD-10-PCS.
To create the MS-DRGs (and by extension, the MS-LTC-DRGs),
individual DRGs were subdivided according to the presence of specific
secondary diagnoses designated as complications or comorbidities (CCs)
into three, two, or one level, depending on the impact of the CCs on
resources used for those cases. Specifically, there are sets of MS-DRGs
that are split into 2 or 3 subgroups based on the presence or absence
of a CC or a major complication and comorbidity (MCC). We refer readers
to section II.D. of the FY 2008 IPPS final rule with comment period for
a detailed discussion about the creation of MS-DRGs based on severity
of illness levels (72 FR 47141 through 47175).
Medicare contractors (that is, fiscal intermediaries and MACs)
enter the clinical and demographic information submitted by LTCHs into
their claims processing systems and subject this information to a
series of automated screening processes called the Medicare Code Editor
(MCE). These screens are designed to identify cases that require
further review before assignment into a MS-LTC-DRG can be made. During
this process, certain cases are selected for further development (74 FR
43949).
After screening through the MCE, each claim is classified into the
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the
basis of diagnosis and procedure codes and other demographic
information (age, sex, and discharge status). The GROUPER software used
under the LTCH PPS is the same GROUPER software program used under the
IPPS. Following the MS-LTC-DRG assignment, the Medicare contractor
determines the prospective payment amount by using the Medicare PRICER
program, which accounts for hospital-specific adjustments. Under the
LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG
assignments made by the Medicare contractor and to submit additional
information within a specified timeframe as provided in Sec.
412.513(c).
The GROUPER software is used both to classify past cases to measure
relative hospital resource consumption to establish the MS-LTC-DRG
weights and to classify current cases for purposes of determining
payment. The records for all Medicare hospital inpatient discharges are
maintained in the MedPAR file. The data in this file are used to
evaluate possible MS-DRG and MS-LTC-DRG classification changes and to
recalibrate the MS-DRG and MS-LTC-DRG relative weights during our
annual update under both the IPPS (Sec. 412.60(e)) and the LTCH PPS
(Sec. 412.517), respectively.
b. Changes to the MS-LTC-DRGs for FY 2011
As specified by our regulations at Sec. 412.517(a), which requires
that the LTC-MS-DRG classifications and relative weights be updated
annually and consistent with our historical practice of using the same
patient classification system under the LTCH PPS as is used under the
IPPS, in this final rule, as was proposed we are updating the MS-LTC-
DRG classifications effective October 1, 2010, through September 30,
2011 (FY 2011) consistent with the changes to specific MS-DRG
classifications presented above in section II.G. of this final rule
(that is, GROUPER Version 28.0). Therefore, the MS-LTC-DRGs for FY 2011
presented in this final rule are the same as the MS-DRGs that will be
used under the IPPS for FY 2011. In addition, because the MS-LTC-DRGs
for FY 2011 are the same as the MS-DRGs for FY 2011, the other changes
that affect MS-DRG (and by extension MS-LTC-DRG) assignments under
Version 28.0 of the GROUPER discussed in section II.G. of the preamble
of this final rule, including the changes to the MCE software and
changes to the ICD-9-CM coding system, are also applicable under the
LTCH PPS for FY 2011.
3. Development of the FY 2011 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative
Weights
As we stated in the August 30, 2002 LTCH PPS final rule (67 FR
55984), one of the primary goals for the implementation of the LTCH PPS
is to pay each LTCH an appropriate amount for the efficient delivery of
medical care to Medicare patients. The system must be able to account
adequately for each LTCH's case-mix in order to ensure both fair
distribution of Medicare payments and access to adequate care for those
Medicare patients whose care is more costly. To accomplish these goals,
we have annually adjusted the LTCH PPS standard Federal prospective
payment system rate by the applicable relative weight in determining
payment to LTCHs for each case.
Although the adoption of the MS-LTC-DRGs resulted in some
modifications of existing procedures for assigning weights in cases of
zero volume and/or nonmonotonicity (as discussed in the FY 2008 IPPS
final rule with comment period (72 FR 47289 through 47295) and the FY
2009 IPPS final rule (73 FR 48542 through 48550)), the basic
methodology for developing the FY 2011 MS-LTC-DRG relative weights in
this final rule continues to be determined in accordance with the
general methodology established in the August 30, 2002 LTCH PPS final
rule (67 FR 55989 through 55991). Under the LTCH PPS, relative weights
for each MS-LTC-DRG are a primary element used to account for the
variations in cost per discharge and resource utilization among the
payment groups (Sec. 412.515). To ensure that Medicare patients
classified to each MS-LTC-DRG have access to an appropriate level of
services and to encourage efficiency, we calculate a relative weight
for each MS-LTC-DRG that represents the resources needed by an average
inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-
LTC-DRG with a relative weight of 2 will, on average, cost twice as
much to treat as

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cases in an MS-LTC-DRG with a relative weight of 1.
b. Development of the MS-LTC-DRG Relative Weights for FY 2011
Beginning with the FY 2008 update, we established a budget neutral
requirement for the annual update to the MS-LTC-DRG classifications and
relative weights at Sec. 412.517(b) (in conjunction with Sec.
412.503), such that estimated aggregate LTCH PPS payments would be
unaffected, that is, would be neither greater than nor less than the
estimated aggregate LTCH PPS payments that would have been made without
the classification and relative weight changes (RY 2008 LTCH PPS final
rule (May 11, 2007; 72 FR 26882 through 26884)). Consistent with Sec.
412.517(b), we apply a two-step budget neutrality methodology, which is
based on the current year MS-LTC-DRG classifications and relative
weights. (For additional information on the established two-step budget
neutrality methodology, we refer readers to the FY 2008 IPPS final rule
(72 FR 47295 through 47296).) As was proposed, for this final rule the
annual update to the MS-LTC-DRG classifications and relative weights
for FY 2011 is based on the FY 2010 MS-LTC-DRG classifications and
relative weights.
c. Data
In both the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24023 through 24043) and the June 2, 2010 FY 2011 IPPS/LTCH PPS
supplemental proposed rule (75 FR 30970 and 30971), we proposed to
calculate the proposed MS-LTC-DRG relative weights for FY 2011 using
total charges from FY 2009 Medicare LTCH bill data from the December
2009 update of the FY 2009 MedPAR file, which were the best available
data at that time, and to use the proposed Version 28.0 of the GROUPER
to classify LTCH cases. We also proposed that if more recent data
become available, we would use those data and the finalized Version
28.0 of the GROUPER in establishing the FY 2011 MS-LTC-DRG relative
weights in the final rule.
In this final rule, to calculate the MS-LTC-DRG relative weights
for FY 2011, we obtained total charges from FY 2009 Medicare LTCH bill
data from the March 2010 update of the MedPAR file, which are the best
available data at this time, and used the final Version 28.0 of the
GROUPER to classify LTCH cases.
Consistent with our historical methodology, we proposed to exclude
the data from LTCHs that are all-inclusive rate providers and LTCHs
that are reimbursed in accordance with demonstration projects
authorized under section 402(a) of Public Law 90-248 or section 222(a)
of Public Law 92-603. In addition, as is the case with the IPPS,
Medicare Advantage (Part C) claims are now included in the MedPAR files
(74 FR 43808). Consistent with IPPS policy, we proposed to exclude such
claims in the calculations for the relative weights under the LTCH PPS
that are used to determine payments for fee-for-service Medicare
claims. Specifically, we added an edit to the relative weight
calculation to remove any claims from the MedPAR files that have a GHO
Paid indicator value of ``1,'' which effectively removes Medicare
Advantage claims from the relative weight calculations (73 FR 48532).
We received one comment on these proposals. Therefore, in the
development of the FY 2011 MS-LTC-DRG relative weights in this final
rule, as we proposed, we excluded the data of 13 all-inclusive rate
providers and the 2 LTCHs that are paid in accordance with
demonstration projects that had claims in the FY 2009 MedPAR file, as
well as any Medicare Advantage claims.
Comment: One commenter expressed concern that the proposed FY 2011
MS-LTC-DRG relative weights were computed using covered charges instead
of total charges. The commenter requested that CMS explain the
rationale if it changed its methodology for computing the MS-LTC-DRG
relative weights using covered charges.
Response: When we implemented the LTCH PPS in the FY 2003 LTCH PPS
final rule (67 FR 55984), we established a policy of determining the
LTC-DRG relative weights and average length of stay based on total
charges and total days. Consistent with our established policy, in the
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24024), we proposed to
calculate the proposed MS-LTC-DRG relative weights for FY 2011 using
``total'' charges from FY 2009 Medicare LTCH bill data from the MedPAR
file. We did not change our methodology and we have verified that the
proposed FY 2011 MS-LTC-DRG relative weights were calculated using
total charges, not covered charges. Furthermore, as stated above, the
FY 2011 MS-LTC-DRG relative weights established in this final rule were
calculated using total charges.
d. Hospital-Specific Relative Value (HSRV) Methodology
By nature, LTCHs often specialize in certain areas, such as
ventilator-dependent patients and rehabilitation and wound care. Some
case types (DRGs) may be treated, to a large extent, in hospitals that
have, from a perspective of charges, relatively high (or low) charges.
This nonrandom distribution of cases with relatively high (or low)
charges in specific MS-LTC-DRGs has the potential to inappropriately
distort the measure of average charges. To account for the fact that
cases may not be randomly distributed across LTCHs, consistent with the
methodology we have used since the implementation of the LTCH PPS, as
we proposed, we continue to use a hospital-specific relative value
(HSRV) methodology to calculate the MS-LTC-DRG relative weights. We
believe this method removes this hospital-specific source of bias in
measuring LTCH average charges (67 FR 55985). Specifically, we reduce
the impact of the variation in charges across providers on any
particular MS-LTC-DRG relative weight by converting each LTCH's charge
for a case to a relative value based on that LTCH's average charge.
Under the HSRV methodology, we standardize charges for each LTCH by
converting its charges for each case to hospital-specific relative
charge values and then adjust those values for the LTCH's case-mix. The
adjustment for case-mix is needed to rescale the hospital-specific
relative charge values (which, by definition, average 1.0 for each
LTCH). The average relative weight for a LTCH is its case-mix, so it is
reasonable to scale each LTCH's average relative charge value by its
case-mix. In this way, each LTCH's relative charge value is adjusted by
its case-mix to an average that reflects the complexity of the cases it
treats relative to the complexity of the cases treated by all other
LTCHs (the average case-mix of all LTCHs).
In accordance with our established methodology, as we proposed, we
continue to standardize charges for each case by first dividing the
adjusted charge for the case (adjusted for SSOs under Sec. 412.529 as
described in section VII.B.3.g. (step 3) of the preamble of this final
rule) by the average adjusted charge for all cases at the LTCH in which
the case was treated. SSO cases are cases with a length of stay that is
less than or equal to five-sixths the average length of stay of the MS-
LTC-DRG (Sec. 412.529 and Sec. 412.503). The average adjusted charge
reflects the average intensity of the health care services delivered by
a particular LTCH and the average cost level of that LTCH. The
resulting ratio is multiplied by that LTCH's case-mix index to
determine the standardized charge for the case. (67 FR 55989)
Multiplying by the LTCH's case-mix index accounts for the fact that
the same

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relative charges are given greater weight at a LTCH with higher average
costs than they would at a LTCH with low average costs, which is needed
to adjust each LTCH's relative charge value to reflect its case-mix
relative to the average case-mix for all LTCHs. Because we standardize
charges in this manner, we count charges for a Medicare patient at a
LTCH with high average charges as less resource intensive than they
would be at a LTCH with low average charges. For example, a $10,000
charge for a case at a LTCH with an average adjusted charge of $17,500
reflects a higher level of relative resource use than a $10,000 charge
for a case at a LTCH with the same case-mix, but an average adjusted
charge of $35,000. We believe that the adjusted charge of an individual
case more accurately reflects actual resource use for an individual
LTCH because the variation in charges due to systematic differences in
the markup of charges among LTCHs is taken into account.
e. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative
Weights
For purposes of determining the MS-LTC-DRG relative weights, there
are three different categories of DRGs based on volume of cases within
specific MS-LTC-DRGs. MS-LTC-DRGs with at least 25 cases are each
assigned a unique relative weight; low-volume MS-LTC-DRGs (that is, MS-
LTC-DRGs that contain between 1 and 24 cases based on a given year's
claims data) are grouped into quintiles (as described below) and
assigned the relative weight of the quintile. No-volume MS-LTC-DRGs
(that is, no cases in the given year's claims data were assigned to
those MS-LTC-DRGs) are cross-walked to other MS-LTC-DRGs based on the
clinical similarities and assigned the relative weight of the cross-
walked MS-LTC-DRG (as described in greater detail below). (We provide
in-depth discussions of our policy regarding weight-setting for low-
volume MS-LTC-DRGs in section VII.B.3.f. of the preamble of this final
rule and for no-volume MS-LTC-DRGs, under Step 5 in section VII.B.3.g.
of the preamble of this final rule.)
As also noted above, while the LTCH PPS and the IPPS use the same
patient classification system, the methodology that is used to set the
DRG relative weights for use in each payment system differs because the
overall volume of cases in the LTCH PPS is much less than in the IPPS.
In general, consistent with our existing methodology, as we proposed,
we used the following steps to determine the FY 2011 MS-LTC-DRG
relative weights: (1) If a MS-LTC-DRG has at least 25 cases, it is
assigned its own relative weight; (2) if a MS-LTC-DRG has between 1 and
24 cases, it is assigned to a quintile for which we compute a relative
weight for all of the MS-LTC-DRGs assigned to that quintile; and (3) if
a MS-LTC-DRG has no cases, it is cross-walked to another MS-LTC-DRG
based upon clinical similarities to assign an appropriate relative
weight (as described below in detail in Step 5 of section VII.B.3.g. of
this preamble). Furthermore, in determining the FY 2011 MS-LTC-DRG
relative weights, when necessary, as we proposed, we made adjustments
to account for nonmonotonicity, as discussed in greater detail below in
Step 6 of section VII.B.3.g. of this preamble. We refer readers to the
discussion in the FY 2010 IPPS/RY LTCH PPS final rule for our rationale
for including an adjustment for nonmonotonicity (74 FR 43953 through
43954).
f. Low-Volume MS-LTC-DRGs
In order to account for MS-LTC-DRGs with low volume (that is, with
fewer than 25 LTCH cases), consistent with our existing methodology and
as we proposed, for purposes of determining the MS-LTC-DRG relative
weights, we continue to employ the quintile methodology for low-volume
MS-LTC-DRGs, such that we group those ``low-volume MS-LTC-DRGs'' (that
is, MS-LTC-DRGs that contained between 1 and 24 cases annually) into
one of five categories (quintiles) based on average charges (67 FR
55984 through 55995 and 72 FR 47283 through 47288). In determining the
FY 2011 MS-LTC-DRG relative weights in this final rule, in cases where
the initial assignment of a low-volume MS-LTC-DRG to quintiles resulted
in nonmonotonicity within a base-DRG, in order to ensure appropriate
Medicare payments, consistent with our historical methodology and as we
proposed, we made adjustments to the treatment of low-volume MS-LTC-
DRGs to preserve monotonicity, as discussed in detail below in section
VII.B.3.g. (Step 6) in this preamble.
In this final rule, using LTCH cases from the March 2010 update of
the FY 2009 MedPAR file, we identified 283 MS-LTC-DRGs that contained
between 1 and 24 cases. This list of MS-LTC-DRGs was then divided into
one of the 5 low-volume quintiles, each containing a minimum of 56 MS-
LTC-DRGs (283/5 = 56 with 3 MS-LTC-DRG as the remainder). We assigned a
low-volume MS-LTC-DRG to a specific low-volume quintile by sorting the
low-volume MS-LTC-DRGs in ascending order by average charge in
accordance with our established methodology. Furthermore, because the
number of MS-LTC-DRGs with less than 25 cases was not evenly divisible
by 5, the average charge of the low-volume quintile was used to
determine which of the low-volume quintiles would contain the 3
additional low-volume MS-LTC-DRGs. Specifically, after organizing the
MS-LTC-DRGs by ascending order by average charge, we assigned the first
fifth (1st through 56th) of low-volume MS-LTC-DRGs (with the lowest
average charge) into Quintile 1. The MS-LTC-DRGs with the highest
average charge cases are assigned into Quintile 5. Because the average
charge of the 57th low-volume MS-LTC-DRG in the sorted list is closer
to the average charge of the 56th low-volume MS-LTC-DRG (assigned to
Quintile 1) than to the average charge of the 58th low-volume MS-LTC-
DRG (assigned to Quintile 2), we assigned it to Quintile 1 (such that
Quintile 1 contains 57 low-volume MS-LTC-DRGs before any adjustments
for nonmonotonicity, as discussed below). This process was repeated
through the remaining low-volume MS-LTC-DRGs so that 2 of the 5 low-
volume quintiles contain 56 MS-LTC-DRGs (Quintiles 4 and 5) and the
other 3 low-volume quintiles contain 57 MS-LTC-DRGs (Quintiles 1, 2,
and 3).
Accordingly, in order to determine the FY 2011 relative weights for
the MS-LTC-DRGs with low volume, we used the 5 low-volume quintiles
described above. The composition of each of the 5 low-volume quintiles
shown in the chart below was used in determining the FY 2011 MS-LTC-DRG
relative weights (as shown in Table 11 of the Addendum to this final
rule). We determined a relative weight and (geometric) average length
of stay for each of the 5 low-volume quintiles using the methodology
that we applied to the MS-LTC-DRGs (25 or more cases), as described in
section VII.B.3.g. of the preamble of this final rule. We assigned the
same relative weight and average length of stay to each of the low-
volume MS-LTC-DRGs that make up an individual low-volume quintile. We
note that, as this system is dynamic, it is possible that the number
and specific type of MS-LTC-DRGs with a low volume of LTCH cases will
vary in the future. We used the best available claims data in the
MedPAR file to identify low-volume MS-LTC-DRGs and to calculate the
relative weights based on our methodology.
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We note that we will continue to monitor the volume (that is, the
number of LTCH cases) in the low-volume quintiles to ensure that our
quintile assignments used in determining the MS-LTC-DRG relative
weights result in appropriate payment for such cases and do not result
in an unintended financial incentive for LTCHs to inappropriately admit
these types of cases.
g. Steps for Determining the FY 2011 MS-LTC-DRG Relative Weights
In the FY 2011 IPPS/LTCH PPS proposed and supplemental proposed
rules, we proposed, in general, to determine the FY 2011 MS-LTC-DRG
relative weights based on our existing methodology. We received no
comment on this proposal and are adopting it as final in this final
rule. For additional information on the original development of this
methodology, and modifications to it since the adoption of the MS-LTC-
DRGs, we refer readers to the August 30, 2002 LTCH PPS final rule (67
FR 55989 through 55995) and the FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43951 through 43966).
In summary, for FY 2011, to determine the FY 2011 MS-LTC-DRG
relative weights, we grouped LTCH cases to the appropriate MS-LTC-DRG,
while taking into account the low-volume MS-LTC-DRGs (as described
above). After grouping the cases to the appropriate MS-LTC-DRG (or low-
volume quintile), we calculated the FY 2011 relative weights by first
removing statistical outliers and cases with a length of stay of 7 days
or less (as discussed in greater detail below). Next, we adjusted the
number of cases in each MS-LTC-DRG (or low-volume quintile) for the
effect of SSO cases (step 3 below). After removing statistical outliers
(step 1 below) and cases with a length of stay of less than 8 days
(step 2 below), the SSO adjusted discharges and corresponding charges
were then used to calculate ``relative adjusted weights'' for each MS-
LTC-DRG (or low-volume quintile) using the HSRV method.
Below we discuss in detail the steps for calculating the FY 2011
MS-LTC-DRG relative weights. We received no comments on our proposed
steps for calculating the FY 2011 MS-LTC-DRG relative weights.
Therefore, for the reasons described above, we are employing our
proposed methodology to calculate the FY 2011 MS-LTC-DRG relative
weights discussed below. We note that, as we stated in section
VII.B.3.c. of this preamble, we excluded the data of all-inclusive rate
LTCHs, LTCHs that are paid in accordance with demonstration projects,
and any Medicare Advantage claims in the FY 2009 MedPAR file.
Step 1--Remove statistical outliers.
The first step in the calculation of the FY 2011 MS-LTC-DRG
relative weights is to remove statistical outlier cases. Consistent
with our historical relative weight methodology, we continue to define
statistical outliers as cases that are outside of 3.0 standard
deviations from the mean of the log distribution of both charges per
case and the charges per day for each MS-LTC-DRG. These statistical
outliers are removed prior to calculating the relative weights because
we believe that they may represent aberrations in the data that distort
the measure of average resource use. Including those LTCH cases in the
calculation of the relative weights could result in an inaccurate
relative weight that does not truly reflect relative resource use among
the MS-LTC-DRGs. (For additional information on this step of the
relative weight methodology, we refer readers to 67 FR 55989 and 74 FR
43959.)
Step 2--Remove cases with a length of stay of 7 days or less.
The MS-LTC-DRG relative weights reflect the average of resources
used on representative cases of a specific type. Generally, cases with
a length of stay of 7 days or less do not belong in a LTCH because
these stays do not fully receive or benefit from treatment that is
typical in a LTCH stay, and full resources are often not used in the
earlier stages of admission to a LTCH. If we were to include stays of 7
days or less in the computation of the FY 2011 MS-LTC-DRG relative
weights, the value of many relative weights would decrease and,
therefore, payments would decrease to a level that may no longer be
appropriate. We do not believe that it would be appropriate to
compromise the integrity of the payment determination for those LTCH
cases that actually benefit from and receive a full course of treatment
at a LTCH by including data from these very short-stays. Therefore,
consistent with our historical relative weight methodology, in
determining the FY 2011 MS-LTC-DRG relative weights, as proposed, we
removed LTCH cases with a length of stay of 7 days or less. (For
additional information on this step of the relative weight methodology,
we refer readers to 67 FR 55989 and 74 FR 43959.)
Step 3--Adjust charges for the effects of SSOs.
After removing cases with a length of stay of 7 days or less, we
are left with cases that have a length of stay of greater than or equal
to 8 days. As the next step

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in the calculation of the FY 2011 MS-LTC-DRG relative weights,
consistent with our historical relative weight methodology, as
proposed, we adjusted each LTCH's charges per discharge for those
remaining cases for the effects of SSOs (as defined in Sec. 412.529(a)
in conjunction with Sec. 412.503).
We make this adjustment by counting an SSO case as a fraction of a
discharge based on the ratio of the length of stay of the case to the
average length of stay for the MS-LTC-DRG for non-SSO cases. This has
the effect of proportionately reducing the impact of the lower charges
for the SSO cases in calculating the average charge for the MS-LTC-DRG.
This process produces the same result as if the actual charges per
discharge of an SSO case were adjusted to what they would have been had
the patient's length of stay been equal to the average length of stay
of the MS-LTC-DRG.
Counting SSO cases as full discharges with no adjustment in
determining the RY 2011 MS-LTC-DRG relative weights would lower the FY
2011 MS-LTC-DRG relative weight for affected MS-LTC-DRGs because the
relatively lower charges of the SSO cases would bring down the average
charge for all cases within an MS-LTC-DRG. This would result in an
``underpayment'' for non-SSO cases and an ``overpayment'' for SSO
cases. Therefore, as proposed, we adjust for SSO cases under Sec.
412.529 in this manner because it results in more appropriate payments
for all LTCH cases. (For additional information on this step of the
relative weight methodology, we refer readers to 67 FR 55989 and 74 FR
43959.)
Step 4--Calculate the FY 2011 MS-LTC-DRG relative weights on an
iterative basis.
Consistent with our historical relative weight methodology, we
calculate the FY 2011 MS-LTC-DRG relative weights using the HSRV
methodology, which is an iterative process. First, for each LTCH case,
we calculate a hospital-specific relative charge value by dividing the
SSO adjusted charge per discharge (see Step 3) of the LTCH case (after
removing the statistical outliers (see Step 1)) and LTCH cases with a
length of stay of 7 days or less (see Step 2) by the average charge per
discharge for the LTCH in which the case occurred. The resulting ratio
is then multiplied by the LTCH's case-mix index to produce an adjusted
hospital-specific relative charge value for the case. An initial case-
mix index value of 1.0 is used for each LTCH.
As proposed, for each MS-LTC-DRG, the FY 2011 relative weight was
calculated by dividing the average of the adjusted hospital-specific
relative charge values (from above) for the MS-LTC-DRG by the overall
average hospital-specific relative charge value across all cases for
all LTCHs. Using these recalculated MS-LTC-DRG relative weights, each
LTCH's average relative weight for all of its cases (that is, its case-
mix) was calculated by dividing the sum of all the LTCH's MS-LTC-DRG
relative weights by its total number of cases. The LTCHs' hospital-
specific relative charge values above were multiplied by these
hospital-specific case-mix indexes. These hospital-specific case-mix
adjusted relative charge values were then used to calculate a new set
of MS-LTC-DRG relative weights across all LTCHs. This iterative process
was continued until there was convergence between the weights produced
at adjacent steps, for example, when the maximum difference was less
than 0.0001.
Step 5--Determine a FY 2011 relative weight for MS-LTC-DRGs with no
LTCH cases.
As we stated above, as proposed, we determined the FY 2011 relative
weight for each MS-LTC-DRG using total Medicare allowable total charges
reported in the best available LTCH claims data (that is, the March
2010 update of the FY 2009 MedPAR file for this final rule). Using
these data, we identified a number of MS-LTC-DRGs for which there were
no LTCH cases in the database, such that no patients who would have
been classified to those MS-LTC-DRGs were treated in LTCHs during FY
2009 and, therefore, no charge data were available for these MS-LTC-
DRGs. Thus, in the process of determining the MS-LTC-DRG relative
weights, we were unable to calculate relative weights for the MS-LTC-
DRGs with no LTCH cases using the methodology described in Steps 1
through 4 above. However, because patients with a number of the
diagnoses under these MS-LTC-DRGs may be treated at LTCHs, consistent
with our historical methodology, as proposed, we assigned a relative
weight to each of the no-volume MS-LTC-DRGs based on clinical
similarity and relative costliness (with the exception of
``transplant'' MS-LTC-DRGs and ``error'' MS-LTC-DRGs, as discussed
below). (For additional information on this step of the relative weight
methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through
43960.)
In general, we determined FY 2011 relative weights for the MS-LTC-
DRGs with no LTCH cases in the FY 2009 MedPAR file used in this final
rule (that is, ``no-volume'' MS-LTC-DRGs) by cross-walking each no-
volume MS-LTC-DRG to another MS-LTC-DRG with a calculated relative
weight (determined in accordance with the methodology described above).
Then, the ``no-volume'' MS-LTC-DRG was assigned the same relative
weight (and average length of stay) of the MS-LTC-DRG to which it was
cross-walked (as described in greater detail below).
Of the 747 MS-LTC-DRGs for FY 2011, we identified 223 MS-LTC-DRGs
for which there were no LTCH cases in the database (including the 8
``transplant'' MS-LTC-DRGs and 2 ``error'' MS-LTC-DRGs). As stated
above, as proposed, for this final rule we assigned relative weights
for each of the 213 no-volume MS-LTC-DRGs (with the exception of the 8
``transplant'' MS-LTC-DRGs and the 2 ``error'' MS-LTC-DRGs, which are
discussed below) based on clinical similarity and relative costliness
to one of the remaining 524 (747-223 = 524) MS-LTC-DRGs for which we
were able to determine relative weights based on FY 2009 LTCH claims
data using the steps described above. (For the remainder of this
discussion, we refer to the ``cross-walked'' MS-LTC-DRGs as the MS-LTC-
DRGs to which we crosswalk one of the 213 ``no volume'' MS-LTC-DRGs for
purposes of determining a relative weight.) Then, we assigned the no-
volume MS-LTC-DRG the relative weight of the cross-walked MS-LTC-DRG.
(As explained below in Step 6, when necessary, we made adjustments to
account for nonmonotonicity.)
For this final rule, there are the same 213 ``no volume'' MS-LTC-
DRGs that there were in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed
rule (75 FR 24036 through 24041). We did not receive any public
comments on our proposed methodology for determining FY 2011 relative
weights for these no-volume MS-LTC-DRGs and, therefore, for the reasons
described above, we are adopting it as final. For reference, below we
describe the methodology that was used to determine FY 2011 relative
weights for the no-volume MS-LTC-DRGs. We crosswalked the no-volume MS-
LTC-DRG to a MS-LTC-DRG for which there were LTCH cases in the FY 2009
MedPAR file and to which it was similar clinically in intensity of use
of resources and relative costliness as determined by criteria such as
care provided during the period of time surrounding surgery, surgical
approach (if applicable), length of time of surgical procedure,
postoperative care, and length of stay. We evaluated the relative
costliness in determining the applicable MS-LTC-DRG to which a no-
volume MS-LTC-DRG was cross-walked in order to assign an appropriate
relative

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weight for the no-volume MS-LTC-DRGs in FY 2011. (For more detail on
our process for evaluating relative costliness, we refer readers to the
FY 2010 IPPS/RY 2010 LTCH PPS final rule (73 FR 48543).) We believe in
the rare event that there would be a few LTCH cases grouped to one of
the no-volume MS-LTC-DRGs in FY 2011, the relative weights assigned
based on the cross-walked MS-LTC-DRGs would result in an appropriate
LTCH PPS payment because the crosswalks, which are based on similar
clinical similarity and relative costliness, generally require
equivalent relative resource use.
We then assigned the relative weight of the cross-walked MS-LTC-DRG
as the relative weight for the no-volume MS-LTC-DRG such that both of
these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-
walked MS-LTC-DRG) have the same relative weight for FY 2011. We note
that if the cross-walked MS-LTC-DRG had 25 cases or more, its relative
weight, which was calculated using the methodology described in Steps 1
through 4 above, was assigned to the no-volume MS-LTC-DRG as well.
Similarly, if the MS-LTC-DRG to which the no-volume MS-LTC-DRG is
cross-walked had 24 or less cases and, therefore, was designated to one
of the low-volume quintiles for purposes of determining the relative
weights, we assigned the relative weight of the applicable low-volume
quintile to the no-volume MS-LTC-DRG such that both of these MS-LTC-
DRGs (that is, the no-volume MS-LTC-DRG and the cross-walked MS-LTC-
DRG) have the same relative weight for FY 2011. (As we noted above, in
the infrequent case where nonmonotonicity involving a no-volume MS-LTC-
DRG results, additional adjustments as described in Step 6 are required
in order to maintain monotonically increasing relative weights.)
For this final rule, a list of the no-volume MS-LTC-DRGs and the
MS-LTC-DRG to which it is cross-walked (that is, the cross-walked MS-
LTC-DRG) for FY 2011 is shown in the chart below.
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To illustrate this methodology for determining the relative weights
for the FY 2011 MS-LTC-DRGs with no LTCH cases, we are providing the
following example, which refers to the no-volume MS-LTC-DRGs crosswalk
information for FY 2011 provided in the chart above.
Example: There were no cases in the FY 2009 MedPAR file used for
this final rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of
Thrombolytic Agent with MCC). We determined that MS-LTC-DRG 70
(Nonspecific Cebrovascular Disorders with MCC) was similar clinically
and based on resource use to MS-LTC-DRG 61. Therefore, we assigned the
same relative weight of MS-LTC-DRG 70 of 0.9165 for FY 2011 to MS-LTC-
DRG 61 (Table 11 of the Addendum to this final rule).
Again, we note that, as this system is dynamic, it is entirely
possible that the

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number of MS-LTC-DRGs with no volume of LTCH cases based on the system
will vary in the future. We used the most recent available claims data
in the MedPAR file to identify no-volume MS-LTC-DRGs and to determine
the relative weights in this final rule.
Furthermore, for FY 2011, consistent with our historical relative
weight methodology and as we proposed, we established MS-LTC-DRG
relative weights of 0.0000 for the following transplant MS-LTC-DRGs:
Heart Transplant or Implant of Heart Assist System with MCC (MS-LTC-DRG
1); Heart Transplant or Implant of Heart Assist System without MCC (MS-
LTC-DRG 2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-
DRG 5); Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant
(MS-LTC-DRG 7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8);
Pancreas Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG
652). This is because Medicare will only cover these procedures if they
are performed at a hospital that has been certified for the specific
procedures by Medicare and presently no LTCH has been so certified. At
the present time, we include these eight transplant MS-LTC-DRGs in the
GROUPER program for administrative purposes only. Because we use the
same GROUPER program for LTCHs as is used under the IPPS, removing
these MS-LTC-DRGs would be administratively burdensome. (For additional
information regarding our treatment of transplant MS-LTC-DRGs, we refer
readers to the RY 2010 LTCH PPS final rule (74 FR 43964).)
Step 6--Adjust the FY 2011 MS-LTC-DRG relative weights to account
for nonmonotonically increasing relative weights.
As discussed earlier in this section, the MS-DRGs contain base DRGs
that have been subdivided into one, two, or three severity of illness
levels. Where there are three severity levels, the most severe level
has at least one code that is referred to as an MCC (that is, major
complication or comorbidity). The next lower severity level contains
cases with at least one code that is a CC (that is, complication or
comorbidity). Those cases without an MCC or a CC are referred to as
``without CC/MCC.'' When data do not support the creation of three
severity levels, the base DRG is subdivided into either two levels or
the base DRG is not subdivided. The two-level subdivisions could
consist of the DRG with CC/MCC and the DRG without CC/MCC.
Alternatively, the other type of two-level subdivision may consist of
the DRG with MCC and the DRG without MCC.
In those base MS-LTC-DRGs that are split into either two or three
severity levels, cases classified into the ``without CC/MCC'' MS-LTC-
DRG are expected to have a lower resource use (and lower costs) than
the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or
both the ``with CC'' and the ``with MCC'' MS-LTC-DRGs (in the case of a
three-level split). That is, theoretically, cases that are more severe
typically require greater expenditure of medical care resources and
will result in higher average charges. Therefore, in the three severity
levels, relative weights should increase by severity, from lowest to
highest. If the relative weights decrease as severity decreased (that
is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher
relative weight than one with MCC, or the MS-LTC-DRG without CC/MCC has
a higher relative weight than either of the others), they are
nonmonotonic. We continue to believe that utilizing nonmonotonic
relative weights to adjust Medicare payments would result in
inappropriate payments because the payment for the cases in the higher
severity level in a base MS-LTC-DRG (which are generally expected to
have higher resource use and costs) would be lower than the payment for
cases in a lower severity level within the same base MS-LTC-DRG (which
are generally expected to have lower resource use and costs).
Consequently, in determining the FY 2011 MS-LTC-DRG relative weights in
this rule, consistent with our historical methodology and as we
proposed, we combined MS-LTC-DRG severity levels within a base MS-LTC-
DRG for the purpose of computing a relative weight when necessary to
ensure that monotonicity is maintained. For a comprehensive description
of our existing methodology to adjust for nonmonotonicity, we refer
readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964
through 43966). Any adjustments for nonmonotonicity that were made in
determining the FY 2011 MS-LTC-DRG relative weights in this final rule
by applying this methodology are denoted in Table 11 of the Addendum to
this final rule.
Step 7--Calculate the FY 2011 budget neutrality factor.
As we established in the RY 2008 LTCH PPS final rule (72 FR 26882),
under the broad authority conferred upon the Secretary to develop the
LTCH PPS under section 123 of Public Law 106-113, as amended by section
307(b) of Public Law 106-554, beginning with the MS-LTC-DRG update for
FY 2008, the annual update to the MS-LTC-DRG classifications and
relative weights is done in a budget neutral manner such that estimated
aggregate LTCH PPS payments would be unaffected, that is, would be
neither greater than nor less than the estimated aggregate LTCH PPS
payments that would have been made without the MS-LTC-DRG
classification and relative weight changes (Sec. 412.517(b) in
conjunction with Sec. 412.503). (For a detailed discussion on the
establishment of the budget neutrality requirement for the annual
update of the MS-LTC-DRG classifications and relative weights, we refer
readers to the RY 2008 LTCH PPS final rule (72 FR 26881).)
The MS-LTC-DRG classifications and relative weights are updated
annually based on the most recent available LTCH claims data to reflect
changes in relative LTCH resource use (Sec. 412.517(a) in accordance
with Sec. 412.503). Under the budget neutrality requirement at Sec.
412.517(b), for each annual update, the MS-LTC-DRG relative weights are
uniformly adjusted to ensure that estimated aggregate payments under
the LTCH PPS would not be affected (that is, decreased or increased).
Consistent with that provision, in both the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24042 through 24043) and the June 2, 2010
FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30970 through
30971), we proposed to update the MS-LTC-DRG classifications and
relative weights for FY 2011 based on the most recent available LTCH
data, and to apply a budget neutrality adjustment in determining the FY
2011 MS-LTC-DRG relative weights.
Comment: One commenter objected to the budget neutrality
requirement for the annual update to the MS-LTC-DRG relative weights.
The commenter asserted that LTCHs with high acuity patients are being
penalized because of the growth in lower acuity cases, and that CMS'
budget neutrality methodology dilutes the LTCH aggregate case-mix from
year-to-year.
Response: We disagree with the commenter that our budget neutrality
methodology dilutes a LTCH's case-mix or that LTCHs with more resource-
intensive cases are being penalized because of the growth in lower
resource-intensive cases. By definition, the MS-LTC-DRG relative
weights ``reflect the estimated relative cost of hospital resources
used with that group compared to discharges classified within other
groups'' (Sec. 412.515). Thus, the relative weights themselves are not
intended to increase or decrease aggregate payments under the LTCH PPS.
If in fact there is growth in less intensive, lower acuity cases, then
our established budget neutrality methodology would act to increase the

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relative weights for all MS-LTC-DRGs. This is because under our
established budget neutrality methodology, each MS LTC DRG relative
weight is uniformly adjusted to ensure that estimated aggregate
payments under the LTCH PPS would not be affected. As we discussed when
we established the budget neutrality requirement for the annual update
of the MS-LTC-DRG classifications and relative weights, we believe the
LTC-DRG relative weights should reflect the true costs of treating LTCH
patients and should be updated annually, based on the latest available
data, to reflect relative LTCH resource without affecting aggregate
LTCH PPS (72 FR 26881 through 26883). For these reasons, we continue to
believe that it is appropriate to update the MS-LTC-DRG classifications
and relative weights in a budget neutral manner, and are not modifying
our existing budget neutrality requirement or methodology in this final
rule.
As noted above, in section VII.A.1. of this preamble, a number of
the provisions of the Affordable Care Act affected the policies,
payment rates and factors under the LTCH PPS. Due to the timing of the
passage of the legislation, we were unable to address those provisions
in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule, and the
proposed policies and payment rates in that proposed rule did not
reflect the new legislation. On June 2, 2010, we issued a FY 2011 IPPS/
LTCH PPS supplemental proposed rule that addressed the provisions of
the Affordable Care Act that affected our proposed policies and payment
rates for FY 2011 under the LTCH PPS. In that supplemental proposed
rule, we proposed a standard Federal rate for FY 2011 that incorporates
the ``other adjustment'' required in section 1886(m)(3)(A)(ii) as
amended and described in section 1886(m)(4) as amended. This revision
to the proposed standard Federal rate for FY 2011 also required us to
revise the proposed relative weights for the MS-LTC-DRGs for FY 2011
since our established methodology for updating the annual update to the
MS-LTC-DRG classifications and relative weights in a budget neutral
manner requires that estimated aggregate LTCH PPS payments would be
unaffected. That is, under the budget neutrality requirement estimated
aggregate LTCH PPS payments would be neither greater than nor less than
the estimated aggregate LTCH PPS payments that would have been made
without the MS-LTC-DRG classification and relative weight changes. (75
FR 30970)
To ensure budget neutrality in the update to the MS-LTC-DRG
classifications and relative weights under Sec. 412.517(b), in both
the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24042
through 24043) and the June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental
proposed rule (75 FR 30970 through 30971), we proposed to continue to
use our established two-step budget neutrality methodology. We received
no specific comments on our proposal to continue to apply our
established two-step budget neutrality methodology in determining the
FY 2011 MS-LTC-DRG relative weights. Therefore, we are adopting it in
this final rule. In this final rule, in the first step of our MS-LTC-
DRG budget neutrality methodology, we calculated and applied a
normalization factor to the recalibrated relative weights (the result
of Steps 1 through 6 above) to ensure that estimated payments are not
influenced by changes in the composition of case types or the changes
to the classification system. That is, the normalization adjustment is
intended to ensure that the recalibration of the MS-LTC-DRG relative
weights (that is, the process itself) neither increases nor decreases
the average CMI.
To calculate the normalization factor for FY 2011 (the first step
of our budget neutrality methodology), we used the following three
steps: (1.a.) We used the most recent available LTCH claims data (FY
2009) and grouped them using the FY 2011 GROUPER (Version 28.0) and the
recalibrated FY 2011 MS-LTC-DRG relative weights (determined in steps 1
through 6 of the Steps for Determining the FY 2011 MS-LTC-DRG Relative
Weights above) to calculate the average CMI; (1.b.) we grouped the same
LTCH claims data (FY 2009) using the FY 2010 GROUPER (Version 27.0) and
FY 2010 MS-LTC-DRG relative weights and calculated the average CMI; and
(1.c) we computed the ratio of these average CMIs by dividing the
average CMI for FY 2010 (determined in Step 1.b.) by the average CMI
for FY 2011 (determined in step 1.a.). In determining the MS-LTC-DRG
relative weights for FY 2011, each recalibrated MS-LTC-DRG relative
weight was multiplied by 1.10382 in the first step of the budget
neutrality methodology, which produced ``normalized relative weights.''
In this final rule, in the second step of our MS-LTC-DRG budget
neutrality methodology, we determined a budget neutrality factor to
ensure that estimated aggregate LTCH PPS payments (based on the most
recent available LTCH claims data) after reclassification and
recalibration (that is, the FY 2011 MS-LTC-DRG classifications and
relative weights) are equal to estimated aggregate LTCH PPS payments
before reclassification and recalibration (that is, the FY 2010 MS-LTC-
DRG classifications and relative weights). Accordingly, consistent with
our existing methodology, we used FY 2009 discharge data to simulate
payments and compare estimated aggregate LTCH PPS payments using the FY
2010 MS-LTC-DRGs and relative weights to estimate aggregate LTCH PPS
payments using the FY 2011 MS-LTC-DRGs and relative weights.
Furthermore, consistent with our historical policy of using the best
available data, we used the most recently available claims data for
determining the budget neutrality adjustment factor in the final rule,
that is, data from the March 2010 update of the FY 2009 MedPAR file.
For this final rule, we determined the FY 2011 budget neutrality
adjustment factor using the following three steps: (2.a.) We simulated
estimated total LTCH PPS payments using the normalized relative weights
for FY 2011 and GROUPER Version 28.0 (as described above); (2.b.) we
simulated estimated total LTCH PPS payments using the FY 2010 GROUPER
(Version 27.0) and the FY 2010 MS-LTC-DRG relative weights shown in
Table 11 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44183
through 44192); and (2.c.) we calculated the ratio of these estimated
total LTCH PPS payments by dividing the estimated total LTCH PPS
payments using the FY 2010 GROUPER (Version 27.0) and the FY 2010 MS-
LTC-DRG relative weights (determined in step 2.b.) by the estimated
total LTCH PPS payments using the FY 2011 GROUPER (Version 28.0) and
the normalized MS-LTC-DRG relative weights for FY 2011 (determined in
Step 2.a.). In determining the FY 2011 MS-LTC-DRG relative weights,
each normalized relative weight was multiplied by a budget neutrality
factor of 0.988124 in the second step of the budget neutrality
methodology to determine the budget neutral FY 2011 relative weight for
each MS-LTC-DRG.
Accordingly, in determining the FY 2011 MS-LTC-DRG relative weights
in this final rule, consistent with our existing methodology and as we
proposed, we applied a normalization factor of 1.10382 and a budget
neutrality factor of 0.988124 (computed as described above). Table 11
in the Addendum to this final rule lists the MS-LTC-DRGs and their
respective relative weights, geometric mean length of stay, and five-
sixths of the geometric mean length of stay (used in determining SSO
payments under

[[Page 50387]]

Sec. 412.529) for FY 2011. The FY 2011 MS-LTC-DRG relative weights in
Table 11 in the Addendum to this final rule reflect both the
normalization factor of 1.10382 and the budget neutrality factor of
0.988124.

C. Changes to the LTCH Payment Rates and Other Changes to the FY 2011
LTCH PPS

1. Overview of Development of the LTCH Payment Rates
The LTCH PPS was effective beginning with a LTCH's first cost
reporting period beginning on or after October 1, 2002. Effective
beginning with that cost reporting period, LTCHs were paid, during a 5-
year transition period, a total LTCH prospective payment that was
comprised of an increasing proportion of the LTCH PPS Federal rate and
a decreasing proportion based on reasonable cost-based principles,
unless the hospital made a one-time election to receive payment based
on 100 percent of the Federal rate, as specified in Sec. 412.533. New
LTCHs (as defined at Sec. 412.23(e)(4)) are paid based on 100 percent
of the Federal rate, with no phase-in transition payments.
The basic methodology for determining LTCH PPS Federal prospective
payment rates is set forth at Sec. 412.515 through Sec. 412.536. In
this section, we discuss the factors that will be used to update the
LTCH PPS standard Federal rate for FY 2011, that is, effective for LTCH
discharges occurring on or after October 1, 2010 through September 30,
2011.
For further details on the development of the FY 2003 standard
Federal rate, we refer readers to the August 30, 2002 LTCH PPS final
rule (67 FR 56027 through 56037). For subsequent updates to the LTCH
PPS Federal rate, we refer readers to the following final rules: RY
2004 LTCH PPS final rule (68 FR 34134 through 34140), RY 2005 LTCH PPS
final rule (69 FR 25682 through 25684), RY 2006 LTCH PPS final rule (70
FR 24179 through 24180), RY 2007 LTCH PPS final rule (71 FR 27819
through 27827), RY 2008 LTCH PPS final rule (72 FR 26870 through
27029), RY 2009 LTCH PPS final rule (73 FR 26800 through 26804), and RY
2010 LTCH PPS final rule (74 FR 44021 through 44030). The update to the
LTCH PPS standard Federal rate for FY 2011 is presented in section V.A.
of the Addendum to this final rule. The two components of the update to
the LTCH PPS standard Federal rate for FY 2011 are discussed below.
2. Market Basket for LTCHs Reimbursed Under the LTCH PPS
a. Overview
Historically, the Medicare program has used a market basket to
account for price increases in the services furnished by providers. The
market basket used for the LTCH PPS includes both operating and
capital-related costs of LTCHs because the LTCH PPS uses a single
payment rate for both operating and capital-related costs. With the
initial implementation of the LTCH PPS for FY 2003, we established the
use of the excluded hospital with capital market basket as the LTCH PPS
market basket (67 FR 56016 through 56017). The development of the
initial LTCH PPS standard Federal rate for FY 2003, using the excluded
hospital with capital market basket, is discussed in further detail in
the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56033).
For further details on the development of the excluded hospital with
capital market basket, we refer readers to the RY 2004 LTCH PPS final
rule (68 FR 34134 through 34137).
Beginning in RY 2007, we adopted the rehabilitation, psychiatric,
long-term care (RPL) hospital market basket based on FY 2002 data as
the appropriate market basket of goods and services under the LTCH PPS
for discharges occurring on or after July 1, 2006. As discussed in the
RY 2007 LTCH PPS final rule (71 FR 27810), based on our research, we
did not develop a market basket specific to LTCH services. We were
unable to create a separate market basket specifically for LTCHs at
that time due to the small number of facilities and the limited amount
of data that was reported.
For further details on the development of the FY 2002-based RPL
market basket, we refer readers to the RY 2007 LTCH PPS final rule (71
FR 27810 through 27817).
b. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
As discussed in the FY 2011 IPPS/LTCH PPS supplemental proposed
rule issued on June 2, 2010 (75 FR 30965 through 30971), several
provisions of the Affordable Care Act affected the policies and payment
rates for RY 2010 and FY 2011 under the LTCH PPS. Section
1886(m)(3)(A)(ii) of the Act, as added by section 3401(c) of the
Affordable Care Act, specifies that for each of rate years 2010 through
2019, any annual update to the standard Federal rate shall be reduced
by the other adjustment specified in new section 1886(m)(4) of the Act.
Furthermore, section 1886(m)(3)(A)(i) of the Act specifies that, for
rate year 2012 and subsequent rate years, any annual update to the
standard Federal rate shall be reduced by the productivity adjustment
described in section 1886(b)(3)(B)(xi)(II) of the Act. Section
1886(m)(3)(A)(ii) and sections 1886(m)(4)(A) and (B) of the Act require
a 0.25 percentage point reduction for rate year 2010 and a 0.50
percentage point reduction for rate year 2011. Section 1886(m)(3)(B) of
the Act provides that the application of paragraph (3) of section
1886(m) of the Act may result in the annual update being less than zero
for a rate year, and may result in payment rates for a rate year being
less than such payment rates for the preceding rate year. Furthermore,
section 3401(p) of the Affordable Care Act specifies that the
amendments made by section 3401(c) of such Act shall not apply to
discharges occurring before April 1, 2010. (75 FR 30968 through 30971)
We note that in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24026 through 24027), since the annual update to the LTCH PPS policies,
rates and factors now occurs on October 1, we proposed to adopt the
term ``fiscal year'' (FY) rather than ``rate year'' (RY) under the LTCH
PPS beginning October 1, 2010, to conform with the standard definition
of the Federal fiscal year (October 1 through September 30) used by
other PPSs, such as the IPPS. Consequently, in that proposed rule and
in the FY 2011 IPPS/LTCH PPS supplemental proposed rule, for purposes
of clarity, when discussing the annual update for the LTCH PPS, we
employed ``fiscal year'' rather than ``rate year'' because it is our
intent that the phrase ``fiscal year'' be used prospectively in all
circumstances dealing with the LTCH PPS. Similarly, although the
language of section 3401(c) and section 10319 and section 1105(b) of
the Affordable Care Act refer to years 2010 and thereafter under the
LTCH PPS as ``rate year,'' consistent with our proposal to change the
terminology used under the LTCH PPS from ``rate year'' to ``fiscal
year,'' for purposes of clarity, in both the FY 2011 IPPS/LTCH PPS
proposed and supplemental proposed rules, when discussing the annual
update for the LTCH PPS, including the provisions of the Affordable
Care Act, we employed ``fiscal year'' rather than ``rate year'' for
2011 and subsequent years because it is our intent that ``fiscal year''
be used prospectively in all circumstances dealing with the LTCH PPS.
(As discussed below in VII.D. of this preamble, we are finalizing our

[[Page 50388]]

proposal to adopt the term ``fiscal year'' (FY) rather than ``rate
year'' (RY) under the LTCH PPS beginning October 1, 2010. Therefore, in
this final rule, we employ ``fiscal year'' rather than ``rate year''
for 2011 and subsequent years in all circumstances dealing with the
LTCH PPS.)
c. Change to Reflect the Market Basket Update for LTCHs for RY 2010
(Sec. 412.523(c)(3)(vi))
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule appearing in the
Federal Register on August 27, 2009 (74 FR 43754), we established
policies, payment rates and factors for determining payments under the
LTCH PPS for RY 2010 (October 1, 2009 through September 30, 2010).
Several provisions of the Affordable Care Act affected some of the
policies, payment rates, and factors for determining payments under the
LTCH PPS for RY 2010. In a notice issued on June 2, 2010 in the Federal
Register (75 FR 31128 through 31130), we established revised RY 2010
LTCH PPS rates and factors consistent with the provisions of sections
1886(m)(3) and (4) of the Act, as added and amended by sections
3401(c), 3401(p), 10319(b), and 1105(b) of the Affordable Care Act.
Section 1886(m)(3)(A)(ii) of the Act provides for each of RYs 2010
through 2019, the annual update to the standard Federal rate is reduced
by the ``other adjustment'' described in section 1886(m)(4) of the Act.
Specifically, sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act
require a 0.25 percentage point reduction to the annual update to the
standard Federal rate for RY 2010. Section 1886(m)(3)(A) of the Act, on
its face, explicitly provides for a revised annual update to the
standard Federal rate beginning RY 2010, thus resulting in a single
revised RY 2010 standard Federal rate. Section 3401(p) of the
Affordable Care Act provides that, notwithstanding the previous
provisions of this section, the amendments made by subsections (a), (c)
and (d) shall not apply to discharges occurring before April 1, 2010.
When read in conjunction, we believe section 1886(m)(3)(A) of the Act
and section 3401(p) of the Affordable Care Act provide for a single
revised RY 2010 standard Federal rate. However, for payment purposes,
discharges occurring on or after October 1, 2009 and before April 1,
2010, simply will not be based on the revised RY 2010 standard Federal
rate.
As discussed in the June 2, 2010 Federal Register notice (75 FR
31128 through 31129), consistent with our historical practice and the
methodology used in the FY 2010 IPPS/RY 2010 final rule, we announced
an update to the LTCH PPS standard Federal rate for RY 2010 of 1.74
percent. This annual update for RY 2010 is based on the full forecasted
estimated increase in the LTCH PPS market basket for RY 2010 of 2.5
percent, adjusted by the 0.25 percentage point reduction required by
sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act, and an adjustment
to account for the increase in case-mix in a prior period (FY 2007)
resulting from changes in documentation and coding practices of -0.5
percent. In the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR
30969), under the authority of sections 1886(m)(3)(A)(ii) and (m)(4)(A)
of the Act, we proposed to amend Sec. 412.523(c)(3)(vi) to specify
that the standard Federal rate for the LTCH PPS rate year beginning
October 1, 2009 and ending September 30, 2010, is the standard Federal
rate for the previous rate year updated by 1.74 percent. Furthermore,
in that same supplemental proposed rule, consistent with section
3401(p) of the Affordable Care Act, we also proposed to revise Sec.
412.523(c)(3)(vi) to specify that, with respect to discharges occurring
on or after October 1, 2009 and before April 1, 2010, payments are
based on the standard Federal rate specified under Sec.
412.523(c)(3)(v) updated by 2.0 percent (that is, a standard Federal
rate of $39,896.65 (74 FR 44022)). We also noted that the provisions of
the law that add sections 1886(m)(3) and (m)(4) of the Act are self-
implementing, and in the FY 2011 IPPS/LTCH PPS supplemental proposed
rule, we proposed to incorporate existing law regarding the 0.25
percentage point reduction to the annual update to the standard Federal
rate for RY 2010 (including the application of the revised standard
Federal rate that reflects that 0.25 percentage point reduction in
making payments for discharges on or after April 1, 2010) into the
regulations at Sec. 412.529(c)(3)(vi) to reflect this required policy
change.
Comment: One commenter on the June 2, 2010 notice stated that the
methodology CMS used to apply the market basket adjustment required by
the Affordable Care Act appears to be a departure from what is intended
by the statute and questions why CMS did not simply subtract the
required 0.25 percentage point reduction for RY 2010 from the
previously established RY 2010 update (implemented in the FY 2010 IPPS/
RY 2010 LTCH PPS final rule). The commenter believed that the required
market basket reduction should be implemented by subtraction and
requested that CMS explain its method for implementing the required
0.25 percentage point reduction for RY 2010.
Response: We disagree with the commenter that our implementation of
the required market basket reduction for RY 2010 required by the
Affordable Care Act is inconsistent with the intent of that statutory
provision. As we stated in the notice that implemented the required
0.25 percentage point reduction for RY 2010, ``consistent with sections
1886(m)(3)(A)(ii) and (m)(4)(A) of the Act, the market basket update
under the LTCH PPS for RY 2010 is 2.25 percent (that is, the second
quarter 2009 forecast estimate of the RY 2010 LTCH PPS market basket
increase of 2.5 percent minus the 0.25 percentage point required by
sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act.)'' (emphasis
added; 75 FR 31128). Thus, we implemented the statutorily required
market basket reduction (0.25 percentage point for RY 2010) by
subtraction from the full market basket update (2.5 percent) that was
established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (2.5
percent minus 0.25 percentage point = 2.25 percent).
However, in addition to the full market basket update, in
determining the update for the standard Federal rate for RY 2010, we
applied an adjustment to account for the increase in case-mix due to
changes in documentation and coding in a prior period that do not
reflect increased severity of illness. Specifically, in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR 43972), we established a -0.5
percent adjustment to account for the increase in case-mix due to
changes in documentation and coding in a prior period (FY 2007) that do
not reflect increased severity of illness. Therefore, consistent with
our methodology for determining the update to the standard Federal rate
for RY 2010 (74 FR 44022), in the June 2, 2010 notice (75 FR 31128), we
established an update factor to the standard Federal rate for RY 2010
of 1.74 percent calculated as 1.0225 x (1 divided by 1.005) = 1.0174 or
1.74 percent. For the reasons explained above, we believe the
determination of the 1.74 percent update for RY 2010 based on the
market basket update of 2.25 percent (computed as the full RY 2010
market basket increase of 2.5 percent minus the 0.25 percentage point
required by sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act) and an
adjustment of -0.5 percent to account for the increase in case-mix due
to changes in documentation and coding in a prior period that do not
reflect increased severity of illness is

[[Page 50389]]

consistent with the provisions of the Affordable Care Act.
In this final rule, we are adopting as final the proposed changes
to the update for RY 2010 to the standard Federal rate at Sec.
412.523(c)(3)(vi) to reflect the provisions of the Affordable Care Act.
Accordingly, under the authority of sections 1886(m)(3)(A)(ii) and
(m)(4)(A) of the Act, we are revising Sec. 412.523(c)(3)(vi) to
specify that the standard Federal rate for the LTCH PPS rate year
beginning October 1, 2009 and ending September 30, 2010, is the
standard Federal rate for the previous rate year updated by 1.74
percent. Furthermore, consistent with section 3401(p) of the Affordable
Care Act, we also are revising Sec. 412.523(c)(3)(vi) to specify that,
with respect to discharges occurring on or after October 1, 2009 and
before April 1, 2010, payments are based on the standard Federal rate
in Sec. 412.523(c)(3)(v) updated by 2.0 percent.
d. Market Basket Under the LTCH PPS for FY 2011
As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24044), when we initially created the FY 2002-based RPL market basket,
we were unable to create a separate market basket specifically for
LTCHs due, in part, to the small number of facilities and the limited
data that were provided in the Medicare cost reports. Over the last
several years, however, the number of LTCH facilities submitting valid
Medicare cost report data has increased. Based on this development, as
well as our desire to move from one RPL market basket to three stand-
alone and provider-specific market baskets (for IRFs, IPFs, and LTCHs,
respectively), we plan to begin exploring the viability of creating
these market baskets for future use. However, as we discussed in the RY
2010 LTCH PPS final rule (74 FR 43967 through 43968), we are conducting
further research to assist us in understanding the reasons for the
variations in costs and cost structure between freestanding IRFs and
hospital-based IRFs. We also are researching the reasons for similar
variations in costs and cost structure between freestanding IPFs and
hospital-based IPFs. Therefore, as we continue to explore the
development of stand-alone market baskets for LTCHs, IRFs and IPFs,
respectively, as we stated in the FY 2011 IPPS/LTCH PPS proposed rule,
we believe that it is appropriate to continue to use the FY 2002-based
RPL market basket for LTCHs, IRFs and IPFs under their respective PPSs.
As we also stated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24044), for the reasons discussed when we adopted the RPL market basket
for use under the LTCH PPS in the RY 2007 LTCH PPS final rule (71 FR
27810 through 27817), we continue to believe that the RPL market basket
appropriately reflects the cost structure of LTCHs. For the reasons
explained above, in that same proposed rule, we proposed to continue to
use the FY 2002-based RPL market basket under the LTCH PPS for FY 2011.
We also stated that we are hopeful that progress can be made in the
near future with respect to creating stand-alone market baskets for
LTCHs, IRFs, and IPFs and, as a result, may propose to rebase the
appropriate market basket(s) for subsequent updates in the future.
Comment: One commenter stated that there are sufficient LTCHs now
to support the development of a separate LTCH market basket. The
commenter stated that in order for the LTCH PPS to accurately reflect
the costs of providing services in an LTCH, CMS should adopt a market
basket that is limited to LTCH goods and services.
Response: As stated in the FY 2011 IPPS/LTCH PPS proposed rule (75
FR 24044), we continue to explore the possibility of implementing three
separate, stand-alone market baskets for hospitals excluded from the
IPPS, rather than use a single RPL market basket for IRFs, IPFs, and
LTCHs. We addressed a similar comment in the FY 2010 IPPS/LTCH PPS
final rule (74 FR 43968) where we stated that while the number of LTCHs
submitting cost report data has increased, we believe further research
is required to determine the feasibility of developing stand-alone
market baskets for LTCHs, IRFs, and IPFs. Furthermore, we stated that
we will be exploring the viability and technical appropriateness of a
stand-alone market basket. At this time, we are still conducting
further research to assist us in understanding the reasons for the
variations in costs and cost structure between freestanding and
hospital based providers, specifically IRFs and IPFs. Therefore, as we
continue to explore the development of stand-alone market baskets for
LTCHs, IRFs and IPFs, respectively, we believe that it is appropriate
to continue to use the FY 2002-based RPL market basket for LTCHs, IRFs
and IPFs under their respective PPSs.
In this final rule, under the authority of section 123 of the BBRA
as amended by section 307(b) of the BIPA, we are establishing the
continued use of the FY 2002-based RPL market basket under the LTCH PPS
for FY 2011. For the reasons explained above in this section, we
continue to believe that the RPL market basket appropriately reflects
the cost structure of LTCHs.
e. Market Basket Update for LTCHs for FY 2011
Consistent with our historical practice, we estimate the RPL market
basket update based on IHS Global Insight, Inc.'s forecast using the
most recent available data. IHS Global Insight, Inc. is a nationally
recognized economic and financial forecasting firm that contracts with
CMS to forecast the components of the hospital market baskets. In the
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24044), based on IHS Global
Insight Inc.'s first quarter 2010 forecast, the proposed FY 2011 market
basket estimate for the LTCH PPS using the FY 2002-based RPL market
basket was 2.4 percent, as this was the best available data at that
time. In addition, consistent with our historical practice of using
market basket estimates based on the most recent available data, we
proposed that if more recent data are available when we develop the
final rule, we would use such data, if appropriate.
Section 1886(m)(3)(A)(ii) of the Act as added by section 3401(c) of
the Affordable Care Act specifies that, for each of RYs 2010 through
2019, any annual update to the standard Federal rate shall be reduced
by the other adjustment specified in new section 1886(m)(4) of the Act.
Furthermore, section 1886(m)(3)(A)(i) of the Act specifies that, for
rate year 2012 and each subsequent rate year, any annual update to the
standard Federal rate shall be reduced by the productivity adjustment
described in section 1886(b)(3)(B)(xi)(II) of the Act.
As discussed in the FY 2011 IPPS/LTCH PPS supplemental proposed
rule (75 FR 30969 through 30970), for FY 2011, section 1886(m)(4)(B) of
the Act, as added and amended by sections 3401(c), 10319(b), and
1105(b) of the Affordable Care Act, requires a 0.50 percentage point
reduction to the annual update to the standard Federal rate for rate
year 2011. Therefore in that same supplemental proposed rule, we
proposed a market basket update under the LTCH PPS for FY 2011 of 1.9
percent (that is, the most recent estimate of the LTCH PPS market
basket update at that time of 2.4 percent minus the 0.50 percentage
point required in section 1886(m)(4)(B) of the Act. Again, consistent
with our historical practice of using market basket estimates based on
the most recent available data, we proposed that if more recent data
are available when we develop the final rule, we would use such data,
if appropriate, in determining the final

[[Page 50390]]

market basket update under the LTCH PPS for FY 2011. (We note that in
the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30969
through 30970), we proposed to update the LTCH PPS standard Federal
rate by -0.59 percent for FY 2011, which reflected the proposed market
basket update of 1.9 percent (discussed above) and a proposed
adjustment to account for the increase in case-mix in the prior periods
that resulted from changes in documentation and coding practices rather
than increases in patients' severity of illness (discussed in the FY
2011 IPPS/LTCH PPS proposed rule (75 FR 24045 through 24046)).
We did not receive any public comments on our proposed market
basket update under the LTCH PPS for FY 2011 of 1.9 percent. However,
we received a few comments that stated that the market basket update
for FY 2011 should not be adjusted to account for the increase in case-
mix in the prior periods that resulted from changes in documentation
and coding practices rather than increases in patients' severity of
illness. We summarize and respond to these comments below in section
VII.C.3. of this preamble.
In this final rule, as proposed and consistent with our historical
practice, we estimate the RPL market basket update based on IHS Global
Insight, Inc.'s forecast using the most recent available data. IHS
Global Insight, Inc. is a nationally recognized economic and financial
forecasting firm that contracts with CMS to forecast the components of
the hospital market baskets. Based on IHS Global Insight, Inc.'s second
quarter 2010 forecast, the FY 2011 market basket estimate for the LTCH
PPS using the FY 2002-based RPL market basket is 2.5 percent.
As discussed above, for FY 2011, section 1886(m)(4)(B) of the Act
as added and amended by sections 3401(c), 10319 and 1105(b) of the
Affordable Care Act, requires a 0.50 percentage point reduction to the
annual update to the standard Federal rate for rate year 2011.
Therefore, in this final rule, we are establishing a market basket
update under the LTCH PPS for FY 2011 of 2.0 percent (that is, the most
recent estimate of the LTCH PPS market basket of 2.5 percent minus the
0.50 percentage point required in section 1886(m)(4)(B) of the Act. (We
note that in section III.A. of the Addendum to this final rule, for FY
2011, we are establishing an update to the LTCH PPS standard Federal
rate of -0.49 percent, based on the market basket update for FY 2011 of
2.0 percent (discussed above) and an adjustment of -2.5 percent to
account for the increase in case-mix in the prior periods that resulted
from changes in documentation and coding practices rather than
increases in patient severity of illness (discussed below in section
VII.C.3. of this preamble).)
f. Labor-Related Share Under the LTCH PPS for FY 2011
As discussed in section V.B. of the Addendum to this final rule,
under the authority of section 123 of the BBRA as amended by section
307(b) of the BIPA, we established an adjustment to the LTCH PPS
payments to account for differences in LTCH area wage levels at Sec.
412.525(c). The labor-related portion of the LTCH PPS Federal rate,
hereafter referred to as the labor-related share, is adjusted to
account for geographic differences in area wage levels by applying the
applicable LTCH PPS wage index.
The labor-related share is determined by identifying the national
average proportion of operating and capital costs that are related to,
influenced by, or vary with the local labor market. We continue to
classify a cost category as labor-related if the costs are labor-
intensive and vary with the local labor market. In the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24044), consistent with our proposal to
continue to use the FY 2002-based RPL market basket under the LTCH PPS
for FY 2011 discussed above, we proposed to continue to define the
labor-related share as the national average proportion of operating
costs that are attributable to wages and salaries, employee benefits,
contract labor, professional fees, labor-intensive services, and a
labor-related portion of capital based on the FY 2002-based RPL market
basket. (Additional information on the development of the FY 2002-based
RPL market basket used under the LTCH PPS can be found in the RY 2007
LTCH PPS final rule (71 FR 27809 through 27818).) Furthermore,
consistent with our historical practice of using the best available
data, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed to use
IHS Global Insight, Inc.'s first quarter 2010 forecast of the FY 2002-
based RPL market basket for FY 2011 to determine the proposed labor-
related share for the LTCH PPS for FY 2011 that would be effective for
discharges occurring on or after October 1, 2010, and through September
30, 2011, as these were the most recent available data at that time.
Consistent with our historical practice of using the best data
available, we also proposed that if more recent data are available to
determine the labor-related share used under the LTCH PPS for FY 2011,
we would use these data for determining the FY 2011 LTCH PPS labor-
related share in the final rule.
As discussed in the FY 2011 IPPS/LTCH PPS proposed rule, the labor-
related share for FY 2011 would continue to be determined as the sum of
the FY 2011 relative importance of each labor-related cost category,
and would reflect the different rates of price change for these cost
categories between the base year (FY 2002) and FY 2011. Using the best
available data at that time and our proposed methodology, we proposed a
labor-related share of 75.407 percent for use under the LTCH PPS in FY
2011. We did not receive any public comments on our proposed labor-
related share for FY 2011. Therefore, we are adopting our proposed
methodology for determining the labor-related share as final and
applying it to the best available data consistent with our historical
practice in this final rule.
In this final rule, as we proposed, for FY 2011 we continue to
define the labor-related share as the national average proportion of
operating costs that are attributable to wages and salaries, employee
benefits, contract labor, professional fees, labor-intensive services,
and a labor-related portion of capital based on the FY 2002-based RPL
market basket. Consistent with our historical practice of using the
best available data, for this final rule, we are using IHS Global
Insight, Inc.'s second quarter 2010 forecast of the FY 2002-based RPL
market basket for FY 2011 to determine the labor-related share under
the LTCH PPS for FY 2011 that will be effective for discharges
occurring on or after October 1, 2010, and through September 30, 2011,
as these are the most recent available data.
Based on IHS Global Insight, Inc.'s second quarter 2010 forecast of
the FY 2002-based RPL market based basket for FY 2011, which is
currently the best available data, the sum of the relative importance
for FY 2011 for operating costs (wages and salaries, employee benefits,
professional fees, and all-other labor-intensive services) is 71.384
percent, as shown in the chart below. As stated in the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24044), the portion of capital that is
influenced by the local labor market is estimated to be 46 percent.
Because the relative importance for capital in FY 2011 is 8.450 percent
of the FY 2002-based RPL market basket, we are taking 46 percent of
8.450 percent to determine the labor-related share of capital for FY
2011. The result is 3.887 percent, which we added to 71.384 percent for
the operating cost amount to determine the total labor-related share
for FY 2011. Accordingly, under the authority set forth in section

[[Page 50391]]

123 of the BBRA as amended by section 307(b) of the BIPA, we are
establishing a labor-related share of 75.271 percent under the LTCH PPS
for the FY 2011.
The chart below shows the FY 2011 relative importance labor-related
share using the FY 2002-based RPL market basket.

FY 2011 Labor-Related Share Based on the FY 2002-Based RPL Market Basket
------------------------------------------------------------------------
FY 2011
relative
Cost category importance
(percent)
------------------------------------------------------------------------
Wages and Salaries......................................... 52.449
Employee Benefits.......................................... 13.971
Professional Fees.......................................... 2.855
All Other Labor-Intensive Services......................... 2.109
------------
Subtotal............................................... 71.384
Labor-Related Share of Capital Costs (46 percent x 8.450).. 3.887
------------
Total Labor-Related Share.............................. 75.271
------------------------------------------------------------------------

3. Adjustment for Changes in LTCHs' Case-Mix Due to Changes in
Documentation and Coding Practices That Occurred in a Prior Period
a. Background
Beginning in RY 2007, in updating the standard Federal rate for the
LTCH PPS, we have accounted for increases in payments from a past
period that were due to changes in case-mix due to changes in
documentation and coding practices. For additional information on the
adjustments established for changes in LTCHs' case-mix due to changes
in documentation and coding practices that occurred in a prior period,
we refer readers to the following final rules published in the Federal
Register: the RY 2007 LTCH PPS final rule (71 FR 27820); the RY 2008
LTCH PPS final rule (72 FR 26880 through 26890); the RY 2009 LTCH PPS
final rule (73 FR 26805 through 26812); and the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43969 through 43970).
For RY 2010, we performed an analysis of LTCHs' case-mix index
(CMI) changes in the prior periods (FY 2007 and FY 2008) and
established a methodology to determine if an adjustment to account for
changes in documentation and coding practices was applicable (74 FR
43969 through 43970). This methodology is consistent with the
methodology established for case-mix analysis under the IPPS. In
general, under our established methodology, in order to isolate the
documentation and coding effect, we divided the combined effect of the
changes in documentation and coding and measurement by the measurement
effect (74 FR 43970).
For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a
retrospective evaluation of the FY 2007 and FY 2008 data for LTCH
claims paid through December 2008. Based on this evaluation, our
actuaries determined that case-mix increased 0.5 percent in FY 2007 and
1.3 percent in FY 2008 due to documentation and coding that did not
reflect real changes in case-mix. In light of this analysis, in the FY
2010 IPPS/RY 2010 LTCH PPS proposed rule, we proposed to apply a
cumulative adjustment for the effect of documentation and coding that
do not reflect an increase in patients' severity of illness of -1.8
percent (that is, -0.5 percent for FY 2007 plus -1.3 percent for FY
2008). We also invited public comment on our proposed methodology and
analysis. (For additional information on our methodology and the
results of the retrospective evaluation, we refer reader to sections
VIII.C.3. of the preamble of the FY 2010 IPPS/RY 2010 LTCH PPS proposed
and final rules (74 FR 24229 through 24230 and 74 FR 43970 through
43972, respectively).)
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we responded to
comments on our methodology for the retrospective evaluation of FY 2007
and FY 2008 claims data, as well as our proposed -1.8 percent
documentation and coding adjustment for RY 2010. In that same final
rule, we finalized our proposal and established an adjustment of -0.5
percent to account for the effect of documentation and coding increase
that occurred in FY 2007. After consideration of public comments, and
consistent with the decision to postpone the application of the
prospective adjustment for estimated FY 2008 documentation and coding
effect under the IPPS, we delayed the application of the FY 2008
documentation and coding adjustment of -1.3 percent that was proposed
under the LTCH PPS for RY 2010. We also stated our intent to address
any future documentation and coding adjustment to the LTCH PPS standard
Federal rate based on our analysis of the FY 2008 LTCH claims data in
the FY 2011 rulemaking cycle through the notice-and-comment rulemaking
process. (74 FR 43970 through 43972)
b. Evaluation of FY 2009 Claims Data
For the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24045 through
24046), we performed a thorough retrospective evaluation of the most
recent available claims data (that is, FY 2009 claims updated through
December 2009) using the methodology that was adopted in the FY 2010
IPPS/RY 2010 LTCH PPS final rule and that was used to assess whether an
adjustment for RY 2010 to account for the effect of documentation and
coding practices that occurred in a prior period was appropriate. (We
refer readers to the explanation of our rationale for adopting this
methodology as well as its intended purpose in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43970 through 43972).) Based on the results
of this analysis, we estimated that the effect of documentation and
coding changes that occurred in FYs 2008 and 2009 was 2.5 percent. (We
refer readers to the discussion in the FY 2011 IPPS/LTCH PPS proposed
rule (74 FR 24045 through 24046) for additional details on the
methodology and results of the retrospective evaluation of the FY 2009
claims updated through December 2009.) We also noted in the FY 2010
IPPS/RY 2010 LTCH PPS proposed and final rules that we applied our
methodology separately to FY 2007 and FY 2008 LTCH claims data because
those data were generated under different patient classification
systems (that is, FY 2007 was the last year under the CMS LTC-DRGs and
FY 2008 was the first year under the MS-LTC-DRGs). Because the same
patient classification system was in effect for both FY 2008 and FY
2009 (that is, the MS-LTC-DRGs), consistent with the application of
this methodology under the IPPS, in the FY 2011 IPPS/LTCH PPS proposed
rule, we explained that we believe it is appropriate to propose to
apply our established methodology for determining the cumulative
effects of documentation and coding for FYs 2008 and 2009, rather than
proposing to applying the methodology separately to FY 2008 and FY 2009
LTCH claims data. We sought public comment on this proposal. We did not
receive any public comments on the proposal to apply our established
methodology for determining the cumulative effects of documentation and
coding for FYs 2008 and 2009. Therefore, we are adopting this proposal
as final in this final rule.
For this final rule, consistent with our historical practice and as
we proposed, we updated our analysis using FY 2010 claims updated
through March 2010 and the same methodology employed in the FY 2011
IPPS/LTCH PPS proposed rule. This analysis also resulted in an
estimated effect of documentation and coding in FYs 2008 and 2009 of
2.5 percent. We received several comments on our proposed methodology
for estimating the effect of documentation

[[Page 50392]]

and coding in FYs 2008 and 2009 and our proposal to apply an adjustment
for the effect of documentation and coding in a prior period (FYs 2008
and 2009) that do not reflect an increase in severity of illness of -
2.5 percent (discussed below), especially from national LTCH
associations, hospital systems, and individual hospitals. MedPAC also
commented on these proposals. A summary of these comments and our
responses are presented below in the section VII.C.3.c. of this
preamble.
c. FY 2011 Documentation and Coding Adjustment
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046), based on
retrospective analysis of FY 2009 LTCH claims data (discussed above),
we proposed to apply an adjustment for changes in documentation and
coding in a prior period (FYs 2008 and 2009) that do not reflect an
increase in severity of illness of -2.5 percent. Accordingly, we
proposed to update the standard Federal rate for FY 2011 based on the
most recent estimate of the market basket increase, including the
required percentage point reduction and a proposed adjustment to
account for changes in documentation and coding practices of -2.5
percent. We received the following public comments on that proposal:
Comment: MedPAC concurred with CMS' methodology used to estimate
the documentation and coding effect for LTCH and CMS' proposal to
reduce LTCH payment rates by 2.5 percent, noting that the
implementation of MS-LTC-DRGs in 2008 gave LTCHs a financial incentive
to improve documentation and coding to more fully account for each
patient's severity of illness and that there was a need for
``counterbalancing adjustments to LTCH payments to offset the effects
of case-mix increases due to changes in documentation and coding
practice.''
Response: We appreciate MedPAC's independent validation and support
of our methodology, and its support of our proposal to reduce LTCH
payment rates by 2.5 percent to prevent overpayments under the LTCH
PPS.
Comment: Most commenters questioned our proposed methodology for
determining the magnitude of the effect of documentation and coding due
to the adoption of the MS-LTC-DRGs. As commenters have argued in
response to prior rulemaking, most of these commenters again asserted
that our proposed methodology made assumptions about the cause of the
case-mix increase that were unsupported and that failed to consider
``other explanations'' for those case-mix changes, in particular
whether actual patient severity of illness (that is, ``real'' case-mix)
has increased or whether the adoption of a more refined patient
classification system (that is, the MS-LTC-DRGs) by its design reflects
increased case-mix.
Response: We disagree that the methodology employed by our
actuaries to determine the effect of documentation and coding due to
the adoption of the MS-LTC-DRGs is based on unsupported assumptions. As
discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43971), overall case-mix change is predominately comprised of three
factors: ``real'' case-mix change; a documentation and coding effect
(``apparent'' change); and a measurement effect. Because our proposed
methodology uses the same year of claims data, it is not necessary to
account for ``real'' case-mix-growth. This is because there can be no
real case-mix growth measured if the same claims are used since the
same set of patients (that is, the same claims data) is being used
under the two GROUPERs classifications and relative weights.
We agree that the MS-LTC-DRGs were designed to better recognize
severity of illness among patients and may reflect case-mix increase.
However, consistent with the budget neutrality requirement that was
established concurrent with the adoption of the MS-LTC-DRG patient
classification system in FY 2008, the annual update to the
classifications and weights should not increase or decrease aggregate
LTCH PPS payments. In other words, these changes were intended to be
done in a budget neutral manner. Therefore, to the extent that the
adoption of the MS-LTC-DRGs themselves reflects a change in case-mix
that results in an increase or decrease in aggregate LTCH PPS payments,
it is appropriate to make an adjustment to account for such changes. In
other words, a documentation and coding adjustment is now necessary
because the changes in the classifications and weights associated with
the adoption of the MS-LTC-DRGs should not increase or decrease the
aggregate LTCH PPS payments.
Furthermore, as summarized above, in its public comments on our
proposal, MedPAC concurred with our proposed methodology to estimate
the documentation and coding effect for LTCH and independently verified
our results that the effect is 2.5 percent. MedPAC also noted that the
implementation of MS-LTC-DRGs in 2008 gave LTCHs a financial incentive
to improve documentation and coding to more fully account for each
patient's severity of illness.
Accordingly, we continue to find the methodology used by our
actuaries and endorsed by MedPAC to determine the magnitude of the
increase in case-mix due to the changes in documentation and coding in
FYs 2008 and 2009 that do not reflect patient severity of illness to be
the most appropriate methodology.
Comment: Most commenters opposed the proposed -2.5 percent
adjustment to account for the increase in case-mix due to the effects
of documentation and coding in FYs 2008 and 2009 that do not reflect
severity of illness. As in prior rulemaking on this issue, most
commenters again questioned the methodology used by our actuaries and
endorsed by MedPAC to estimate LTCH case-mix increase due to the
effects of documentation and coding that do not reflect increased
severity of illness. Many of these comments were similar to or
referenced the comment by NALTH, which in summary stated: ``NALTH takes
issue with the proposed adjustment of -2.5 percent to the update factor
for changes in documentation and coding practices that CMS claims
occurred between FYs 2007 through 2009. * * * In summary, we have made
findings that CMS' methodology does not result in an accurate
identification of `apparent' as differentiated from `real' case-mix
severity change from FY 2007 to FY 2009.''
NALTH asserted that this conclusion is supported by a number of
factors. First, NALTH stated that changes in the law have led to
changes in the distribution of patients admitted to LTCHs between FY
2007 and FY 2009. Second, NALTH asserted that, under our methodology, a
finding of no increase in case-mix due to documentation and coding
changes ``could only occur by pure chance'' and that the adoption of
the ``decompressed'' MS-LTC-DRG GROUPER results in a more accurate
measurement of severity for high acuity patients. Third, NALTH
indicated that changes between primary and secondary diagnosis codes
led to a decrease, not increase, in case-mix. Fourth, NALTH used a
regression analysis to compare the actual and predicted prevalence of
diagnoses and procedure codes for FY 2009 LTCH discharges. Fifth, NALTH
cited standards of ethical coding applied by coding professionals that
prevent changing a primary diagnosis to a secondary diagnosis to
maximize reimbursement. Sixth, NALTH cited ``resequencing guidelines''
that have been in effect since 2005 and the SSO policy, under which
NALTH believes

[[Page 50393]]

that 50 percent to 60 percent of all LTCH cases are typically paid less
than a full MS-LTC-DRG payment, as reasons that there is no evidence to
conclude that documentation and coding practices contribute
significantly to case-mix changes. Lastly, NALTH stated that
approximately 60 percent of the change in FY 2009 GROUPER case-mix from
FY 2007 to FY 2009 is due to a redistribution in case-mix from FY 2007
through FY 2009 and approximately 25 percent of the case-mix growth is
due to an increase in the comorbidities of certain high volume ICD-9-CM
codes from FY 2007 through FY 2009. NALTH stated that the remaining 15
percent could be due to an ``apparent'' increase in case-mix and,
therefore, believed that, at most, the proposed coding adjustment
should be -0.8 percent.
Response: Both the adoption of the severity-adjusted MS-LTC-DRGs as
the patient classification system under the LTCH PPS and the
establishment of the budget neutrality requirement for the annual
update to the MS-LTC-DRG classifications and relative weights were
effective beginning in FY 2008. The changes in the classifications and
relative weights associated with FY 2008 and FY 2009 MS-LTC-DRGs were
established to improve the accuracy of the distribution of payments
among LTCH patients, not to increase or decrease aggregate LTCH PPS
payments. In other words, these changes were intended to be done in a
budget neutral manner. A retrospective review of LTCH claims data
allows a determination to be made as to the extent to which these
changes resulted in an increase or decrease in aggregate LTCH PPS
payments, so an offsetting budget neutrality adjustment can be made.
Specifically, a retrospective analysis of the LTCH claims data can
examine the change in the average case-mix under the old (for example,
FY 2007) and new (for example, FY 2009) classifications and weights. As
stated above in our discussion of the documentation and classification
adjustment for IPPS hospitals in section II.D. of this preamble and
also in prior rulemaking (74 FR 43771 and 43971), overall case-mix
change is predominately comprised of three factors: ``real'' case-mix
change; a documentation and coding effect (``apparent'' change); and a
measurement effect. Because year-to-year changes in real case-mix are
not intended to be budget neutral, this must be accounted for in the
analysis of case-mix change. The simplest and most straightforward way
to account for changes in real case-mix is to directly remove them from
the calculation. This is exactly what the proposed methodology employed
by our actuaries and endorsed by MedPAC does. Our actuaries compare the
case-mix calculated using the same FY 2009 cases grouped using the FY
2009 MS-LTC-DRG classifications and relative weights and the FY 2007
LTC-DRG classifications and relative weights to determine the combined
effect of documentation and coding changes and measurement. An
adjustment is then made to net out the measurement effect. Therefore,
differences in case-mix calculated using the FY 2007 and FY 2009
classifications and relative weights on the FY 2009 data are not
affected by real case-mix change, by definition, because the same set
of patients (that is, the same claims data) is being used under the two
GROUPERs classifications and relative weights. This simple fact refutes
the NALTH assertion that our methodology ``does not result in an
accurate identification of `apparent' as differentiated from `real'
case mix severity change from FY 2007 to FY 2009.''
Furthermore, none of the supporting factors listed by NALTH refute
our methodology. The first factor, changes in the distribution of
patients admitted to LTCHs between FY 2007 and FY 2009, and the portion
of the seventh factor involving increases in patient acuity, would
influence the change in real case-mix. As explained above, our
methodology directly removes the changes in real case-mix from the
determination of the increase in case-mix due to the effects of
documentation and coding in FYs 2008 and 2009 that do not reflect
increased severity of illness.
A number of the remaining factors (specifically, factors two,
three, four and seven) listed by NALTH involve differences in the
distribution of cases between FY 2007 and FY 2009. Again, the purpose
of the proposed documentation and coding adjustment is to ensure that
the changes in the classification and relative weights associated with
FY 2008 and FY 2009 MS-LTC-DRGs do not increase or decrease the
aggregate LTCH PPS payments. We agree that there is a difference
between the distribution of cases in FY 2007 and the distribution of
cases in FY 2009. However, this is not a refutation of our methodology.
In fact, it supports the necessity of our proposed documentation and
coding adjustment. Had we known the actual distribution of FY 2009
cases when we initially determined the FY 2009 budget neutral update to
the MS-LTC-DRG classifications and relative weights back in 2008, we
would have used this information at that time and no further adjustment
would now be necessary to ensure that the FY 2009 update did not
increase or decrease the aggregate LTCH PPS payments. As this
information was unknown in 2008, we used the most recent full year of
LTCH claims data available to us to update the MS-LTC-DRG
classifications and relative weights for FY 2009 in a budget neutrality
manner. A finding that the actual distribution of cases differs from
the distribution used in determining the initial budget neutral
relative weights is precisely the reason that an additional adjustment
is now necessary: we do not want changes in the classifications and
weights associated with FY 2008 and FY 2009 MS-LTC-DRGs to increase or
decrease the aggregate LTCH PPS payments.
In response to the assertion that the standards of ethical coding
applied by coding professionals prevent changing a primary diagnosis to
a secondary diagnosis to maximize reimbursement, we have never asserted
that any party acted inappropriately, unethically, or otherwise in bad
faith by employing documentation and coding improvement practices
associated with the adoption the MS-LTC-DRG system. Under the previous
DRG definitions, it was possible for high-severity cases to be paid the
same as cases with lower severity if they grouped to the same DRG. The
MS-LTC-DRGs were introduced as part of the effort to ensure that the
relative Medicare payment rates that hospitals received more reasonably
matched the resources hospitals expended in furnishing care, and CMS
encouraged hospitals to code as accurately as possible with that goal
in mind. However, it is our finding that the systematic effect of
changing documentation and coding practices has led to an increase in
LTCHs' overall case-mix that does not reflect a commensurate increase
in LTCH patient severity of illness, and as we discuss in greater
detail below, it is appropriate to adjust the LTCH PPS payment rates to
account for the increased level of LTCH PPS payments due to such
documentation and coding.
The sixth factor noted by NALTH, which contends that ``resequencing
guidelines'' that have been effective since April 2005 and the SSO
policy may result in a decrease in payment upon the adoption of the MS-
LTC-DRGs, is not evidence that changes in documentation and coding
practices do not contribute significantly to case-mix changes. We agree
that, in some cases, the ICD-9-CM coding guidelines may result in a
case being grouped to a MS-LTC-DRG with a lower weight

[[Page 50394]]

compared to an alternative sequencing of ICD-9-CM codes for that case
and, therefore, will receive a lower payment. However, in other
instances, the ICD-9-CM coding guidelines may result in a case being
grouped to a MS-LTC-DRG with a higher weight and, therefore, will
receive a higher payment. This fact demonstrates that documentation and
coding practices have an impact on case-mix and, therefore, also on
aggregate LTCH PPS payments. As we have discussed above, we believe it
is appropriate to make an adjustment to the LTCH PPS payment rates to
account for any changes in aggregate LTCH PPS payments due to such
documentation and coding under the MS-LTC-DRGs as compared to the
effect of the CMS LTC-DRGs (that were in effect prior to the adoption
of the MS-LTC-DRGs) on LTCHs' case-mix.
Similarly, with regard to the SSO policy, we agree that when a case
is grouped to a higher weighted MS-LTC-DRG for FY 2009 (relative to the
weight of the FY 2007 LTC-DRG to which it groups), it may become a SSO
case (and receive a payment that is less than the full LTC-DRG
payment). This is the case because the average length of stay for the
``higher weighted'' FY 2009 MS LTC-DRG is based on the data for higher
severity, more resource intensive cases, which generally have a
relatively longer length of stay. However, it is also true that the
cases in a ``lower weighted'' FY 2009 MS-LTC-DRGs will generally have a
relatively shorter length of stay under the MS-LTC-DRGs, as compared to
the FY 2007 LTC-DRGs, because the lower weighted MS-LTC-DRG will
require less resources. Therefore, a case that would have been a SSO
under the FY 2007 LTC-DRG classifications may no longer be a SSO case
under the FY 2009 MS-LTC-DRGs (and is paid a full MS-LTC-DRG payment).
As discussed above, under our budget neutrality requirement for the
annual update to the MS-LTC-DRGs, we believe it is appropriate to make
an adjustment to the LTCH PPS payment rates to account for any changes
in aggregate LTCH PPS payments as a result of the transition from the
LTC-DRGs to the MS-LTC-DRGs. Furthermore, we disagree with the
commenter that 50 percent to 60 percent of all LTCH cases are typically
paid less than a full MS-LTC-DRG payment under the SSO policy.
Historically, approximately 30 to 35 percent of all LTCH cases are
typically paid under the SSO policy. Specifically, an analysis of FY
2009 LTCH claims data shows that approximately 31 percent of all LTCH
cases were paid under the SSO policy (and received less than a full MS-
LTC-DRG payment). Moreover, of those cases paid under the SSO policy,
the payment for approximately 40 percent of those SSO cases is
determined in part based on the MS-LTC-DRG relative weight for the
case. Thus, the LTCH PPS payment to the vast majority of LTCH cases is
determined based on the MS-LTC-DRG relative weight. Therefore,
documentation and coding under the FY 2009 MS-LTC-DRGs that results in
the aggregate grouping to a higher weighted MS-LTC-DRG do affect
aggregate LTCH PPS payments. To the extent this occurs, as discussed in
greater detail above, it is appropriate to make an adjustment to the
LTCH PPS payment rates to account for any changes in aggregate LTCH PPS
payments.
After consideration of these public comments, we continue to find
the methodology used by our actuaries and endorsed by MedPAC to
determine the magnitude of the increase in case-mix due to the effects
of documentation and coding resulting from the adoption of the MS-LTC-
DRGs in FYs 2008 and 2009 that do not reflect increased severity of
illness to be the most appropriate methodology because it directly
removes real changes in case-mix from the calculation. The
distributional analyses submitted by NALTH also indicate that the
classifications and relative weights associated with FY 2008 and FY
2009 MS-LTC-DRGs increased aggregate LTCH PPS payments and support the
need for a documentation and coding adjustment.
Comment: In addition to challenging the proposed methodology for
determining the proposed -2.5 percent documentation and coding
adjustment, some commenters argued, as they have in response to past
rulemaking, that there is no statutory authority to apply the proposed
-2.5 percent documentation and coding adjustment. Again, these
commenters stated that Public Law 110-90 contains explicit authority to
make a documentation and coding adjustment to IPPS hospitals, but does
not extend that authority to hospitals paid under the LTCH PPS. One
commenter argues that the Secretary lacks the authority to make a
documentation and coding adjustment under the LTCH PPS based on the
statutory construct, wherein the LTCH PPS is explicitly omitted from
the requirements of Public Law 110-90. The commenter also asserted that
the Secretary's ``broad authority'' under section 123 of the BBRA, as
amended by section 307(b) of the BIPA, is ``misplaced,'' given such a
statutory construct.
Response: We continue to disagree with commenters that the
Secretary's broad authority under section 123 of the BBRA, as amended
by section 307(b) of the BIPA, ``to provide for appropriate
adjustments,'' including updates, is misplaced and cannot be applied in
this instance. We have discussed the basis for applying an adjustment
for the effects of documentation and coding that do not reflect
increased severity of illness in prior rules (most recently in the FY
2010 IPPS/RY 2010 LTCH final rule (74 FR 43970)) and do not agree that
the omission of the applicability of the requirements of Pub. L. 110-90
to the LTCH PPS limits our authority under section 123 of the BBRA, as
amended by section 307(b) of the BIPA, to make such an adjustment.
Comment: Some commenters believed that, in proposing a -2.5 percent
adjustment to account for ``apparent'' case-mix increases from prior
years, CMS is not appropriately applying the market basket update,
whose purpose is to account for the expected increase in the prices of
goods and services for the upcoming year. The commenters stated that
CMS provides no data that prices in FY 2011 will increase less than the
full market basket estimate, nor does CMS explain how case-mix changes
relate to the changes in the price of inputs measured by the market
basket. A few commenters also argued that there is no basis in the
existing regulations to adjust for changes in case-mix in determining
an appropriate market basket increase. The commenters stated that CMS
should update the standard Federal rate by ``the full market basket
update'' for FY 2011.
Response: In the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule
(75 FR 24046), we proposed to update to the standard Federal rate for
FY 2011 based on the most recent estimate of the full market basket
increase at that time and based on a proposed adjustment to account for
changes in documentation and coding practices. As noted above, due to
the timing of the passage of the Affordable Care Act, we were unable to
address those provisions in the May 4, 2010 FY 2011 IPPS/LTCH PPS
proposed rule, and the proposed policies and payment rates in that
proposed rule did not reflect the new legislation. Consequently, in the
June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR
30968 through 30970), we revised our proposed update to the standard
Federal rate for FY 2011, consistent with the provisions of the
Affordable Care Act, which added sections 1886(m)(3)(A)(ii) and
1886(m)(4)(B) to the Act that require a

[[Page 50395]]

0.50 percentage point reduction to the annual update for rate year
2011.
Consistent with this requirement, in that same supplemental
proposed rule, we proposed an update to the standard Federal rate for
FY 2011 based on the most recent estimate of the full market basket
increase at that time minus the 0.50 percentage point required in
section 1886(m)(4)(B) of the Act and based on a proposed adjustment to
account for changes in documentation and coding practices. Therefore,
we disagree with the commenters that we did not appropriately apply the
market basket update because our proposed update did include the full
market basket increase to account for the expected increase in prices
for FY 2011, adjusted by the statutorily required 0.50 percentage point
reduction. However, the full market basket increase (including the
required statutory reduction) is not the only factor used in
determining our proposed update for FY 2011. As discussed above, the
Secretary has broad authority under the statute to determine
appropriate updates under the LTCH PPS, and we believe it is
appropriate that the update to the standard Federal rate reflect an
adjustment to account for changes in case-mix due to the effects of
documentation and coding that do not reflect increased patient severity
of illness and costs (``apparent'' case-mix changes).
The component of our proposed update to the standard Federal rate
for FY 2011 to account for ``apparent'' case-mix changes is not
intended to adjust for the expected changes in the price of inputs for
the upcoming year, FY 2011 (as measured by the market basket), but to
prospectively adjust the rate so that the increased level of payments
that occurred due to the effects of documentation and coding that do
not reflect increased patient severity of illness do not continue into
future years. As MedPAC stated in its public comment, LTCH payment
rates should be reduced by the proposed adjustment for the effects of
documentation and coding in FYs 2008 and 2009 that do not reflect
increased severity of illness ``to prevent further overpayments.''
We disagree that prior annual updates to the LTCH PPS have
addressed the effects of documentation and coding practices in FYs 2008
and 2009. Although we have made adjustments for the effects of
documentation and coding practices that do not reflect increased
patient severity of illness in establishing an update to the standard
Federal rate for the past 4 years (RYs 2007 through 2010), those
adjustments were based on LTCH claims data from FYs 2004 through 2007,
respectively. To date, we have never based any adjustment based on the
change in case-mix identified in FYs 2008 or FY 2009 claims data.
Specifically, in the FY 2008 and FY 2009 final rules, we explained that
we believe that the adoption of the MS-LTC-DRGs would create a risk of
increased aggregate levels of payment as a result of changes in
documentation and coding practices. However, we did not establish any
prospective adjustment to account for the effect of documentation and
coding for FY 2008 or FY 2009 resulting from the adoption of the MS-
LTC-DRG system because, at the time, we had not been able to determine
an appropriate adjustment factor for LTCHs and because we had an
established mechanism to adjust LTCH PPS payments to account for the
effects of documentation and coding practices in a prior period based
on actual LTCH data. Instead, we indicated that we would continue to
monitor the LTCH payment system, and should we find any ``apparent''
case-mix increase due to the adoption of the MS-LTC-DRG classification
system, we would propose appropriate adjustments to account for that
case-mix increase that is not due to increased severity of illness. We
also discussed our intended future evaluation of LTCH claims data and
resulting case-mix growth from the implementation of the MS-LTC-DRG
system, similar to the evaluation that we intended for the MS-DRG
system under the IPPS, and stated that the analysis, findings, and any
resulting proposals to adjust payments to offset the estimated amount
of increase or decrease in aggregate payments that occurred in FY 2008
and FY 2009 for LTCHs as a result of the effect of documentation and
coding, will be discussed in future years' proposed rules, which would
be open for public comment. ((72 FR 47297 through 47299) and (73 FR
26809))
With respect to the comment that there is no basis in the existing
regulations to adjust for changes in case-mix in determining an
appropriate market basket increase, as we discuss above, we are not
accounting for case-mix changes in determining an appropriate market
basket increase. Rather, as explained above, our proposed update to the
standard Federal rate for FY 2011 is based on the full market increase
(including the required statutory reduction) and a separate component
to adjust for the effect of case-mix changes in a prior period (FYs
2008 and 2009). Furthermore, we point out that the existing regulations
in 42 CFR part 412, subpart 0 (the subpart governing the LTCH PPS) do
not address future updates to the standard Federal rate, including the
update for FY 2011.
Comment: Many of the commenters expressed concern that many of the
proposals affecting the LTCH PPS payment rates for FY 2011, including
the proposed decrease to the standard Federal rate and the proposed
increase to the fixed-loss amount, violates the premise that the
Medicare program will adequately reimburse LTCHs for the costs of
treating Medicare beneficiaries and will result in payments that are
below the costs incurred for treating these patients. The commenters
contended that CMS did not consider all of its payment rate and policy
changes in developing its proposals for FY 2011, especially the impact
of the proposed increase in the high-cost outlier threshold, nor did
CMS consider the combined impact of the proposed -2.5 percent
documentation and coding adjustment and the reductions to the market
basket update mandated by the Affordable Care Act.
Response: We understand the commenters' concern regarding the
possible financial impact that may be caused by the proposed changes to
the LTCH payment rates and factors for FY 2011. However, we disagree
that we did not consider the overall impact of all proposed policy
changes in developing our proposals for FY 2011 under the LTCH PPS. As
we discussed in greater detail above in this preamble and in section V.
of the Addendum of this final rule, we believe that the changes we
proposed (and are finalizing) to the payment rates and factors for FY
2011 will result in an appropriate level of payments under the LTCH
PPS. Specifically, with regard to the update to the standard Federal
rate, which includes the reductions to the market basket update
mandated by the Affordable Care Act (discussed in V. of the Addendum to
this final rule), we agree with MedPAC that it is appropriate to focus
on minimizing the accumulation of overpayments resulting from the
effects of documentation and coding practices that do not reflect
increased severity of illness (and costs) and should not further delay
making the -2.5 percent adjustment to account for changes in
documentation and coding practices in FYs 2008 and 2009 that do not
reflect patient severity of illness. With regard to the increase to the
high-cost outlier fixed-loss amount, as discussed in section V. C. of
the Addendum of this final rule, based on the latest available data and
payment rate changes we are establishing in this final rule, it is
necessary to increase the fixed-loss amount for FY 2011 in order

[[Page 50396]]

to maintain the regulatory requirement that estimated high-cost outlier
payments would be equal to 8 percent of estimated aggregate LTCH PPS
payments.
Comment: Some commenters contended that the proposed -2.5 percent
adjustment to account for the increase in case-mix due to the effects
of documentation and coding practices that do not reflect increased
severity of illness is ``punitive,'' ``excessive'' and
``unprecedented,'' stating that ``the size, scope and timing of the
proposed adjustment will have a severe impact on LTCHs.'' The
commenters pointed out that CMS has never imposed an adjustment for the
effect of documentation and coding practices that reduced the standard
Federal rate to a level that falls below the rate of the prior year.
The commenters stated further that CMS has never implemented a single
adjustment based on multiple years of data, and asserted that adopting
a reduction to the rates in a single fiscal year to reflect changes in
case-mix that occurred over a 2-year period will have a significant
financial impact on LTCHs. Although disagreeing that the proposed -2.5
percent adjustment to account for the increase case-mix due to the
effects of documentation and coding practices that do not reflect
increased severity of illness is warranted, the commenters recommended
that, to mitigate the financial impact, CMS maintain the RY 2010
standard Federal rate or phase-in the proposed 2.5 percent reduction
over a 3-year period.
Response: We understand the commenters' concern regarding the
possible financial impact that may be caused by the proposed changes to
the LTCH payment rates and factors for FY 2011. However, we disagree
that we did not consider the overall impact of all proposed policy
changes in developing our proposals for FY 2011 under the LTCH PPS. As
we discussed in the regulatory impact analysis of the June 2, 2010
supplemental proposed rule, which reflected the provisions of the
Affordable Care Act as well as other proposed rate and policy, we
believe that the changes we proposed to the payment rates and factors
for FY 2011 will result in an appropriate level of payments under the
LTCH PPS. In that impact analysis, we projected an average 0.3 percent
increase in aggregate LTCH PPS payments in FY 2011 as compared to RY
2010. In this final rule, we projected an average 0.5 percent increase
in aggregate LTCH PPS payments in FY 2011, as compared to RY 2010.
It is true that we never implemented an adjustment for the effect
of documentation and coding practices that reduced the standard Federal
rate to a level below the rate that is currently in effect. It is also
true that we previously have not implemented a single adjustment based
on multiple years of data. However, as we have discussed in great
detail in this section, we believe that documentation and coding
adjustments to LTCH payments is necessary to offset the effects of
case-mix increases due to documentation and coding practices under the
MS-LTC-DRGs. We have consistently stated since the adoption of the MS-
LTC-DRGs beginning in FY 2008 that we believe that the adoption of the
MS-LTC-DRGs would create a risk of increased aggregate levels of
payment as a result of the effects of documentation and coding
practices. However, we did not establish any prospective adjustment to
account for improved coding practices for FY 2008 or FY 2009 resulting
from the adoption of the MS-LTC-DRG system because, at the time, we had
not been able to determine an appropriate adjustment factor for LTCHs
and because we had an established mechanism to adjust LTCH PPS payments
to account for the effects in documentation and coding practices in a
prior period based on actual LTCH data. Furthermore, as stated above,
we agree with MedPAC that it is appropriate to focus on minimizing the
accumulation of overpayments resulting from the effects of
documentation and coding practices that do not reflect increased
severity of illness (and costs) and should not further delay making the
-2.5 percent adjustment to account for the effects of documentation and
coding practices in FYs 2008 and 2009 that do not reflect severity of
illness. Therefore, we are not adopting the commenters' suggestion to
limit the adjustment so that the standard Federal rate remains at its
current level or to phase-in the adjustment over more than one year.
Accordingly, for the reasons discussed above, in this final rule, we
are finalizing our proposal to apply a -2.5 percent adjustment to
account for the effect of documentation and coding practices that do
not reflect an increase in severity of illness due to the adoption of
the MS-LTC-DRGs.
Therefore, in this final rule, under the Secretary's broad
authority under section 123 of the BBRA, as amended by section 307(b)
of the BIPA, to provide for appropriate adjustments, including updates,
we are applying an adjustment for the effect of documentation and
coding in a prior period (FYs 2008 and 2009) that do not reflect an
increase in patient severity of illness of -2.5 percent. Accordingly,
as discussed in section V. of the Addendum to this final rule, the
update to the standard Federal rate for FY 2011 is -0.49 percent, which
is based on the most recent estimate of the market basket increase,
including the required percentage point reduction, of 2.0 percent and
an adjustment to account for the effect of documentation and coding
practices of -2.5 percent.

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

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046), we made
several proposals that were designed to promote clarity regarding the
changes that have been made to the schedule and terminology associated
with the annual update for the LTCH standard Federal payment rates and
the MS-LTC-DRG relative weights as well as the publication cycle for
rulemaking for the LTCH PPS. A historical review of these changes is as
follows:
Initially, the standard Federal rates and the LTC-DRG
classification and relative weights were established on a Federal
Fiscal year (FY) cycle of October 1 through September, beginning
October 1, 2002 (FY 2003).
In the June 6, 2003 Federal Register (68 FR 34125), the
LTCH PPS final rule changed the annual update of the standard Federal
rate to a July 1 to June 30 cycle (the LTCH PPS rate year (RY)) while
it continued to provide for an update of the LTC-DRG classification and
relative weights on the FY schedule, effective from October 1 through
September 30 in conformity with the IPPS.
Beginning with the annual update to the LTCH PPS that took
effect on October 1, 2009, we consolidated the rulemaking cycle for the
annual update of the LTCH PPS Federal payment rates with the annual
update of the MS-LTC-DRG classifications and weights for LTCHs so that
the updates to the rates and factors have an October 1 effective date
and occur on the same schedule and appear in the same Federal Register
document. To reflect this change to the annual payment rate update
cycle, we revised the regulations at Sec. 412.503 to specify that,
beginning on or after October 1, 2009, the LTCH PPS rate year is
defined as October 1 through September 30 (73 FR 26797 through 26798
and 26838).
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046 and 24047),
we proposed to change the terminology used under the LTCH PPS with
respect to the annual update to the standard

[[Page 50397]]

Federal rate and the MS-LTC-DRG relative weight recalibration cycle.
Specifically, we proposed to change from using the term ``rate year''
to ``fiscal year,'' in order to conform with the standard definition of
the Federal fiscal year (October 1 through September 30) used by the
IPPS. Because the annual updates to both the LTCH PPS standard Federal
rate (and associated factors) and the MS-LTC-DRG classifications and
relative weights now occur at the same time as the annual updates under
the IPPS, we believe this change eliminates any possible confusion that
may be caused by continuing to identify the LTCH update cycle as a
``rate year.'' Therefore, we proposed to use the term ``fiscal year''
when referring to the annual updates for the LTCH standard Federal
payment rates and the MS-LTC-DRG relative weights as well as to the
publication cycle for rulemaking for the LTCH PPS. We proposed to add a
definition of ``long-term care hospital prospective payment system
fiscal year'' at Sec. 412.503 (75 FR 24058). We also proposed to
revise our definition of ``long-term care hospital prospective payment
system rate year'' in the regulations at Sec. 412.503 to reflect that
such term does not apply to time periods after September 30, 2010 (75
FR 24046 and 24058).
For a detailed description of our rationale regarding the above-
described proposed changes, we refer the reader to the discussion in
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046 and 24047).
In addition, we proposed to add a definition of ``long-term care
hospital prospective payment system payment year'' to Sec. 412.503 in
order to encompass both the long-term care hospital prospective payment
system rate year and the long-term care hospital prospective payment
system fiscal year. It is our intent that this term would be used when
describing ongoing policy features of the LTCH PPS for which, depending
upon the time period, either the term ``long-term care hospital
prospective payment system rate year'' or ``long-term care hospital
prospective payment system fiscal year'' would be applicable. We refer
readers to the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046) for a
discussion of our rationale for this change. Also, as a conforming
change, we proposed to change the terminology in Sec. 412.525(a)(1)
and (a)(2), which describes the high-cost outlier policy (an ongoing
feature of the LTCH PPS from its inception), from ``long-term care
hospital prospective payment system rate year'' to ``long-term care
hospital prospective payment system payment year.'' We believe that
this change, which would reference the proposed new definition of the
long-term care hospital prospective payment system payment year period
at Sec. 412.503, reflects the application of the high-cost outlier
policy for the period encompassed by both the current ``rate year''
terminology and the proposed change to ``fiscal year'' terminology,
described above. We believe that these changes present a
straightforward way to provide additional clarity to our regulations in
a circumstance that reflects changes in terminology but does not entail
any change to the high-cost outlier policy.
We received several comments on this proposed clarification and
revision of terminology, all of them strongly in favor of the proposed
changes. Therefore, for the reasons set forth in the FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 24046 through 24047) and in light of the
public's support for our proposals, we are adopting as final without
modification the proposed change in terminology from LTCH PPS ``rate
year'' to LTCH PPS ``fiscal year'' beginning October 1, 2010 (FY 2011)
and the proposed changes to Sec. 412.503 with the addition of the
definition of ``long-term care hospital prospective payment system
fiscal year'' and the modification of the definition of ``long-term
care hospital prospective payment system rate year.'' We also are
finalizing the addition of the term ``long-term care hospital
prospective payment system payment year'' at Sec. 412.503 and the
conforming regulation text changes at Sec. 412.525(a)(1) and (a)(2) to
capture this new term.

E. Finalization of Interim Final Rule With Comment Period Implementing
Section 4302 of the American Recovery and Reinvestment Act of 2009
(Pub. L. 111-5) Relating to Payments to LTCHs and LTCH Satellite
Facilities

1. Background
On August 27, 2009, we published in the Federal Register (74 FR
43990 through 43992), an interim final rule with comment period to
implement certain provisions of section 4302 of the American Recovery
and Reinvestment Act of 2009 (ARRA) (Pub. L. 111-5). Section 4302 of
the ARRA amended several provisions of section 114 of the MMSEA
relating to LTCHs. Specifically, section 4302(a) amended sections
114(c)(1) and (c)(2) of the MMSEA, and section 4302(b) amended section
114(d)(3)(A) of the MMSEA. In both cases, these ARRA provisions were to
be effective and applicable as if the amendments had been included in
the MMSEA. (The enactment of the Affordable Care Act amended certain
provisions of the MMSEA which had been amended by the ARRA.) Below we
briefly review the amendments made to sections 114(c)(1) and (c)(2) and
section 114(d) of the MMSEA by section 4302(a) and (b), respectively,
of the ARRA, respond to the one public comment that we received on the
August 27, 2009 interim final rule with comment period, and finalize
the policies as described below. (We note that the timeframes in these
provisions were subsequently amended by the provisions of the
Affordable Care Act as discussed below in section VII.F. of this
preamble.)
2. Amendments Relating to Payment Adjustment to LTCHs and LTCH
Satellite Facilities Made by Section 4302 of the ARRA
Section 114(c)(1)(A) and (B) of the MMSEA established a 3-year
delay, for cost reporting periods beginning on or after December 29,
2007, for freestanding LTCHs (defined at Sec. 412.23(e)(5)) and
``grandfathered'' long-term care hospitals-within-hospitals (HwHs),
from the application of the percentage threshold payment adjustment
established under Sec. 412.536 or Sec. 412.534, respectively, or any
similar provision. Section 4302(a)(1) of the ARRA amended the
provisions of sections 114(c)(1)(A) and (B) of the MMSEA as follows:
First, under section 4302(a)(1)(A) of the ARRA, the heading of
section 114(c)(1) is changed to ``Delay in Application of 25 Percent
Patient Threshold Payment Adjustment'' from the original ``No
Application of 25 Percent Patient Threshold Payment Adjustment to
Freestanding and Grandfathered LTCHs.''
Second, under section 4302(a)(1)(B) of the ARRA, the effective date
of the delay in application of the 25-percent patient threshold payment
adjustment found in section 114(c)(1) of the MMSEA is changed from the
date of enactment of the MMSEA (that is, December 29, 2007) to July 1,
2007. As a result, for a ``grandfathered'' long-term care HwH or a
``freestanding'' LTCH with a cost reporting period beginning before
December 29, 2007, the applicable payment adjustments at Sec.
412.534(h) and Sec. 412.536 would be delayed 3 years. This is the case
because our regulations at Sec. 412.534(h), with respect to
``grandfathered'' LTCHs, and Sec. 412.536 with respect to all LTCHs,
were to be effective beginning with cost reporting periods beginning on
or after July 1, 2007. Therefore, the amendment made by section
4302(a)(1)(B) of the ARRA to section 114(c)(1) of the MMSEA results

[[Page 50398]]

in a uniform application of the statutory 3-year relief from the 25
percentage threshold payment adjustment.
Third, section 4302(a)(1)(C) of the ARRA added, for 3 years, a
third category of LTCHs that will not be subject to Sec. Sec. 412.534
and 412.536, or any similar provisions of the regulations for a 3-year
period for cost reporting periods beginning on or after July 1, 2007.
Specifically, section 4302(a)(1)(C) of the ARRA extended the 3-year
exemption from the percentage threshold payment adjustments at
Sec. Sec. 412.534 and 412.536 to include ``* * * a long-term care
hospital, or satellite facility, that as of December 29, 2007, was co-
located with an entity that is a provider-based, off-campus location of
a subsection (d) hospital which did not provide services payable under
section 1886(d) of the Social Security Act at the off-campus location *
* *.'' Therefore, no percentage threshold (and therefore, no payment
adjustment) will be applied for patients discharged from an acute care
hospital who are admitted to a LTCH or LTCH satellite facility that is
co-located with an entity that is a provider-based, off-campus location
of an acute care hospital (as set forth in our regulations at Sec.
413.65) as long as there are no inpatient acute care hospital services
payable under section 1886(d) of the Act offered at that off-campus
location. For example, this would apply to a situation where an acute
care hospital, that Medicare pays under the IPPS, is located on the
main campus of a multicampus entity and, on a second campus of that
acute care hospital, the LTCH shares a building with an IRF unit or an
outpatient clinic that is provider-based to the acute care hospital as
long as there are no services payable under the IPPS hospital provided
at that second campus.
Section 114(c)(2) of the MMSEA provided, for a 3-year period,
increases in the percentage thresholds (``payment adjustments'')
established under Sec. 412.534 for ``applicable'' LTCHs or satellite
facilities for cost reporting periods beginning on or after December
29, 2007. Specifically, if the threshold percentage would have been 25
percent, for 3 years it will increase to 50 percent; and if the
threshold would have been 50 percent prior to the enactment of the
MMSEA, it will increase to 75 percent. The term ``applicable'' was
defined as ``* * * a hospital or satellite facility that is subject to
the transition rules under section 412.534(g) of title 42 of the Code
of Federal Regulations.'' The revisions made by section 114(c)(2) of
the MMSEA were limited to a hospital or a satellite subject to the
transition rules at Sec. 412.534(g) of the regulations. However,
because ``grandfathered'' LTCH satellite facilities are subject to the
transition at Sec. 412.534(h) of the regulations, not at Sec.
412.534(g), the percentage increase resulting from the application of
section 114(c)(2) did not apply to them (73 FR 29703).
Section 4302(a)(2)(A) of the ARRA modified the definition of
``applicable long-term care hospital or satellite facility.'' This
provision amended section 114(c)(2)(B)(ii) of the MMSEA by specifying
that those ``grandfathered satellites'' described in Sec.
412.22(h)(3)(i) of the regulations were to be included in the
definition. (Under Sec. 412.22(h)(3)(i), ``grandfathered'' satellites
were exempted from compliance with the ``separateness and control''
rules specified in Sec. 412.22(h) if they had been structured as a
satellite facility on or before September 30, 1999.) However, we note
that ``grandfathered satellites'' under Sec. 412.22(h)(3) continue to
be subject to the applicable percentage thresholds outlined in Sec.
412.536 for patients admitted from any individual hospital with which
they were not co-located because there were no exceptions for such
entities for purposes of payment as provided in Sec. 412.536. Section
4302(a)(1)(C) of the ARRA provided that grandfathered satellite
facilities under Sec. 412.22(h)(3) will not be subject to Sec. Sec.
412.534 and 412.536, or any similar provision of the regulations, for a
3-year period for cost reporting periods beginning on or after July 1,
2007. Specifically, under section 4302(a)(1)(C) of the ARRA that
amended section 114(c)(1) of the MMSEA, no percentage threshold (and,
therefore, no payment adjustment) will be applied for patients
discharged from an acute care hospital who are admitted to a LTCH or
LTCH satellite facility that, as of December 29, 2007, was co-located
with an entity that is a provider-based, off-campus location of an
acute care hospital (as set forth in the regulations at Sec. 413.65)
as long as there are no inpatient acute care hospital services payable
under section 1886(d) of the Act provided at that off-campus location.
Section 114(c)(2)(C) of the MMSEA applied the 3-year increase in
the percentage thresholds at Sec. 412.534 of the regulations for cost
reporting periods beginning on or after the date of enactment of the
MMSEA (December 29, 2007). Section 4302(a)(2)(B) of the ARRA revised
the effective date of the MMSEA provisions to cost reporting periods
beginning on or after October 1, 2007, for LTCHs and LTCH satellite
facilities that were subject to the transition rules under Sec.
412.534(g) and also established the effective date as cost reporting
periods beginning on or after July 1, 2007, ``* * * in the case of a
satellite facility described in section 412.22(h)(3)(i) of title 42 of
the Code of Federal Regulations.'' (Different dates are applicable
because the effective date for the 25 percent threshold payment
adjustment policy for LTCHs and LTCH satellite facilities governed
under Sec. 412.534(g) was October 1, 2005, while the percent threshold
for ``grandfathered'' LTCH satellite facilities policy was effective
for cost reporting periods beginning on or after July 1, 2007.)
The result of this modification in the effective date of the 3-year
increase in the percentage threshold for ``applicable'' LTCHs and LTCH
satellite facilities (now including ``grandfathered satellites'') is
that LTCHs and LTCH satellite facilities will not have the fully
phased-in 25 percentage threshold payment adjustment applied for cost
reporting periods beginning on or after October 1, 2007, and
``grandfathered'' satellite facilities will not be subject to the
transition to the 25 percentage threshold for cost reporting periods
beginning on or after July 1, 2007.
To implement the provisions of section 4302 of the ARRA, in the
August 27, 2009 interim final rule with comment period, we revised the
regulations at Sec. Sec. 412.534 and 412.536 to reflect the statutory
revisions described above.
Comment: One commenter stated that CMS had failed to specify that a
``grandfathered'' LTCH satellite facility that met the description of
the third category of LTCHs and LTCH satellite facilities included in
the amendment to section 114(c)(1) of the MMSEA by section
4302(a)(1)(C) of the ARRA (that is, ``* * * a long-term care hospital,
or satellite facility, that as of December 29, 2007, was co-located
with an entity that is a provider-based, off-campus location of a
subsection (d) hospital which did not provide services payable under
section 1886(d) of the Social Security Act at the off-campus
location'') was also exempt from compliance with the 25-percent policy
for 3 years.
Response: We agree all those LTCH satellite facilities described
above are exempt from the 25-percent policy at Sec. 412.536 for 3
years.
In this final rule, we are finalizing the provisions of the August
27, 2009 interim final rule with comment period which revised the
regulations at Sec. Sec. 412.534 and 412.536 to reflect the ARRA
statutory revisions.

[[Page 50399]]

3. Amendment to the Moratorium on the Increase in Number of Beds in
Existing LTCHs or LTCH Satellite Facilities Made by Section 4302 of the
ARRA
Section 114(d) of the MMSEA provided a 3-year moratorium on any
increase in the number of hospital beds in existing LTCHs and LTCH
satellite facilities. (The definition of an existing LTCH and LTCH
satellite facility for purposes of this policy is codified at Sec.
412.23(e)(7)(i).) Section 114(d) of the MMSEA included an exception to
the moratorium on the increase in hospital beds in existing LTCHs and
LTCH satellite facilities. Specifically, section 114(d)(3)(A) of the
MMSEA provided that the moratorium on the increase in beds in an
existing LTCH or LTCH satellite facility would not apply to an increase
in beds if an existing LTCH or LTCH satellite facility is ``located in
a State where there is only one other long-term care hospital; and
requests an increase in beds following the closure or the decrease in
the number of beds of another long-term care hospital in the State.''
Section 4302(b) of the ARRA added an additional exception to the
bed-increase moratorium in an existing LTCH or LTCH satellite facility
``* * * if the hospital or facility obtained a certificate of need for
an increase in beds that is in a State for which such certificate of
need is required and that was issued on or after April 1, 2005, and
before December 29, 2007.''
Accordingly, in the August 27, 2009 interim final rule with comment
period, we revised our regulations at Sec. 412.23(e)(7)(ii)(B) to
include the new exception to the moratorium on an increase in the
number of beds in existence in an existing LTCH or LTCH satellite
facility beyond those in existence on December 29, 2007.
Section 4302(c) of the ARRA specifies that the ``* * * effective
date of the amendments made by this section shall be effective and
apply as if included in the enactment of the Medicare, Medicaid, and
SCHIP Extension Act of 2007'' (Pub. L. 110-173).
We did not receive any public comments on this provision in the
August 27, 2009 interim final rule with comment period. Therefore, we
are finalizing, without modification, our revision of Sec.
412.23(e)(7)(ii)(B) to include the new exception to the moratorium on
an increase in the number of beds in existence in an existing LTCH or
LTCH satellite facility beyond those in existence on December 29, 2007.

F. Extension of Certain Payment Rules for LTCH Services and Moratorium
on the Establishment of Certain Hospitals and Facilities and the
Increase in Number of Beds in Existing LTCHs or LTCH Satellite
Facilities

1. Background
As explained in the June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental
proposed rule, sections 114(c) and (d) of MMSEA (Pub. L. 110-173,
enacted December 29, 2007), made various changes to certain LTCH PPS
policies. These changes were implemented in two interim final rules
published in May 2008 (73 FR 24871 and 73 FR 29699). The ARRA (Pub. L.
111-5) was enacted on February 17, 2009, and section 4302 of the ARRA
amended sections 114(c) and (d) of the MMSEA. These changes were
implemented in an interim final rule with comment period, which was
published with the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43990 through 43994). In that same rule, the MMSEA provisions that were
not affected by the passage of ARRA were finalized. (For a more
complete description of the MMSEA, as amended by ARRA changes to LTCH
PPS policies, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43976 through 43990).
Subsequent to the passage of the ARRA, the Patient Protection and
Affordable Care Act and the Health Care Education Reconciliation Act of
2010 (collectively referred to as the Affordable Care Act) was passed.
Sections 3106 and 10312 of the Affordable Care Act together provide for
a 2-year extension to the payment policies applicable to LTCHs and LTCH
satellite facilities set forth in sections 114(c) and (d)(1) of the
MMSEA, as amended by the ARRA. Specifically, sections 3106 and 10312 of
the Affordable Care Act together result in the phrase ``3-year period''
being replaced with the phrase ``5-year period'' each place it appears
in sections 114(c) and (d)(1) of MMSEA, as amended by the ARRA. (The
ARRA amendments, which were implemented in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43990 through 43994) are finalized in
section VII. E. of this final rule.) We note that the changes required
by sections 3106 and 10312 of the Affordable Care Act are self-
implementing and were announced in the FY 2011 IPPS/LTCH PPS
supplemental proposed rule. In that same proposed rule, we also
proposed to revise the regulation text to incorporate such existing
law.
Sections 3106 and 10312 of the Affordable Care Act, which amended
sections 114(c) and (d)(1) of the MMSEA, as amended by the ARRA, result
in the following:
An additional 2-year delay in the application of the SSO
payment adjustment, which would have applied the additional payment
option of an ``IPPS comparable'' payment to LTCHs for certain SSO cases
where the covered length of stay is less than or equal to the ``IPPS
comparable threshold'' (75 FR 30966 and 72 FR 26904 through 26918).
Therefore, the Secretary will not apply this SSO payment adjustment for
the 5-year period beginning on the date of enactment of MMSEA (December
29, 2007). As proposed, in this final rule the regulations at Sec.
412.529(c)(2) and (c)(3) are revised to incorporate this additional 2-
year delay provided for under the Affordable Care Act.
An additional 2-year delay in the one-time prospective
budget neutrality adjustment to the standard Federal rate (Sec.
412.523(d)(3)). Thus, the Secretary is precluded from making the one-
time adjustment to standard Federal rate until December 29, 2012. For a
detailed description of this change, we refer readers to the discussion
in the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30966).
As proposed, in this final rule the regulations at Sec. 412.523(d)(3)
are revised to incorporate this additional 2-year delay.
An increase from 3 years to 5 years to the timeframes set
forth in section 114(c) of the MMSEA as amended by the ARRA, thereby
extending for an additional 2 years the delay in the application of the
25-percent payment threshold policy for certain LTCHs and LTCH
satellite facilities (Sec. Sec. 412.534 and 412.536), and extending
for an additional 2 years, the increased percentage thresholds outlined
at section 114(c)(2) of the MMSEA as amended by the ARRA (which is
discussed in detail in section VII. E. of this final rule). As
proposed, in this final rule we are amending the regulations at Sec.
412.534(c)(1) through (c)(3), (d)(1) through (d)(3), (e)(1) through
(e)(3), (h)(4) through (h)(5) and Sec. 412.536(a)(2) to incorporate
the 2-year delay and extension, as applicable, provided for under the
Affordable Care Act. For a detailed description of sections 114(c)(1)
and (c)(2) of the MMSEA as amended by the ARRA and the regulations
implementing those provisions, we refer readers to the LTCH PPS interim
final rule with comment period at 73 FR 29701 through 29704, the FY
2010 IPPS/RY 2010 LTCH PPS final rule at 74 FR 43980 through 43984, and
section VII. E. of this final rule where we finalize the interim final
rule with comment period implementing

[[Page 50400]]

section 4302 of the ARRA, which we published in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43990 through 43993).
Additional 2-year extensions of the moratorium on the
establishment of new LTCHs and LTCH satellite facilities and the
moratorium on the increase of LTCH beds in existing LTCHs or satellite
facilities as provided by section 114(d) of the MMSEA as amended by the
ARRA. In general, section 114(d) of the MMSEA as amended by the ARRA
precluded the establishment and classification of new LTCHs or LTCH
satellite facilities or additional beds from being added to existing
LTCHs or LTCH satellite facilities unless one of the specified
exceptions to the particular moratorium was met. For a detailed
description of the moratoriums, we refer readers to the discussions at
73 FR 29704 through 29707, 74 FR 43985 through 43992, and 75 FR 30968.
As proposed, in this final rule we are amending the regulations at
Sec. 412.23(e)(6)(i) and (e)(7)(ii) to incorporate the additional 2-
year extension of the moratoriums, discussed above.
We did not receive any public comments on the provisions as
presented in the June 2, 2010 supplemental proposed rule, and
therefore, in this final rule, we are finalizing these provisions as
presented.

VIII. Effective Date of Provider Agreements and Supplier Approvals

A. Background

Section 1866 of the Act states that any provider of services as
defined under section 1861(u) of the Act (except a fund designated for
purposes of sections 1814(g) and 1835(e) of the Act) shall be qualified
to participate in the Medicare program and shall be eligible for
Medicare payments if it files with the Secretary a Medicare provider
agreement and abides by the requirements applicable to Medicare
provider agreements. These requirements are incorporated into our
regulations in 42 CFR part 489, subparts A and B. Section 1866(b)(2) of
the Act provides that the Secretary may refuse to enter into, or may
terminate, an agreement with a provider for various reasons, including
the provider's failure to comply with the provisions of the agreement
and if it has been determined that the provider fails to meet the
applicable provisions of section 1861 of the Act, including health and
safety standards. Certain suppliers are also required under the Act to
meet health and safety standards specified by the Secretary: Section
1861(aa)(2)(K), with respect to rural health clinics; section
1832(a)(2)(F)(i), with respect to ambulatory surgical centers; and
section 1881(b)(1)(A), with respect to providers of renal dialysis
services.
Under section 1864(a) of the Act, the Secretary enters into
agreements with State agencies to determine if providers and suppliers
meet the requisite Medicare requirements. Section 1865 of the Act
permits CMS to ``deem'' facilities that have been accredited by a
national accreditation organization under a CMS-approved accreditation
program as having met the Medicare health and safety standards. Section
1871 of the Act authorizes the Secretary to adopt such regulations as
may be necessary to carry out the requirements of Title XVIII of the
Act.
On August 18, 1997, we adopted regulations, effective September 17,
1997 (1997 final rule), establishing uniform criteria for determining
the effective dates of provider agreements and supplier approvals in
the Medicare and Medicaid programs (62 FR 43931). Included in these
regulations was 42 CFR 489.13, governing the determination of the
effective date of a Medicare provider agreement or supplier approval
for health care facilities that are subject to survey and
certification. Facilities subject to survey and certification are those
that must comply with Medicare health and safety standards, that is,
the conditions of participation (CoPs), long-term care requirements,
conditions for coverage (CfC), or conditions for certification,
depending on the type of facility. (The regulations exempt clinical
laboratories, community mental health centers, and federally qualified
health centers from its general provisions, establishing alternative
requirements for these entities.) Compliance with the applicable health
and safety standards is determined through an onsite survey by a State
survey agency, CMS, or a CMS contractor, or, in accordance with section
1865 of the Act, CMS may ``deem'' an entity to have satisfied these
requirements if it has been accredited by a national accreditation
program approved by CMS. Currently, we have approved 15 accreditation
programs offered by 7 national accreditation organizations for the
following types of providers or suppliers: Hospitals, CAHs, HHAs,
hospices, and ambulatory surgical centers.
Under Sec. 489.13(b) of the regulations, the date the survey is
completed is the effective date of the provider agreement or supplier
approval, if all applicable Federal requirements have been met on that
date. Similarly, Sec. 489.13(d) provides that the effective date for a
provider or supplier accredited by a national accreditation
organization under a CMS-approved program, and which is subject to
additional requirements not contained in the approved program, is the
date on which all Federal requirements have been met, including the
additional requirements. We have interpreted these provisions to mean
not only that the survey/accreditation decision must show that the
prospective provider or supplier is in compliance with all of the
applicable health and safety standards, but also that all other Federal
requirements related to the prospective provider's or supplier's
participation in the Medicare program have been met.
Other Federal requirements include, but are not limited to, the
submission of an application to enroll in the Medicare program that has
been reviewed by our legacy fiscal intermediaries, legacy carriers, or
MACs, as applicable, and has been found to meet the enrollment
requirements established in 42 CFR part 424, subpart P. Other Federal
requirements also include, for providers, compliance with Office for
Civil Rights requirements. There also are additional Federal
requirements specific to certain provider types, such as IPPS exclusion
requirements for certain types of hospitals, capitalization and surety
bond requirements for home health agencies, among others.
Under our current process, section 2003B of the State Operations
Manual (SOM) (Publication No. 100-07) states that: ``The SA [State
Survey agency] should not perform a survey of a new facility until it
has received notice from the FI [fiscal intermediary] or carrier that
the information provided on the enrollment application has been
verified.'' Section 2005 of the SOM further states: ``The MAC/legacy FI
will process the Form CMS-855A and the MAC/legacy Carrier will process
the Form CMS-855B, depending on which contractor is responsible for
processing bills or claims for the provider/supplier. * * * The State
Survey Agency will be responsible for surveying initial applicants
following the contractor's recommendation for approval, and providing
the initial certification package.'' (Emphasis added.)
In accordance with Sec. 488.8(a)(2) of the regulations, one of the
requirements for our approval of a national accreditation program is
the comparability of its survey process to that of State survey
agencies. Consistent with this requirement, in Survey and Certification
Policy Memorandum S&C-09-08, dated October 17, 2008, we indicated that
a CMS-approved national accreditation organization also must not
conduct a

[[Page 50401]]

survey of a facility seeking a Medicare provider agreement or supplier
approval until after the MAC, the legacy fiscal intermediary, or the
legacy carrier has completed its review of the enrollment application
and notified the applicant that its review has been completed and a
recommendation has been made to CMS.
Therefore, historically, in the normal course of events, the survey
(including the Life Safety Code survey, if applicable) of a prospective
provider or supplier has usually occurred after it has demonstrated
that it meets the Medicare enrollment requirements (that is, CMS
contractor processing of the Form CMS-855 application), and, as a
result, the effective date of a provider agreement or supplier approval
is generally later than the date when the contractor has verified that
all enrollment requirements have been met. However, on occasion, a
survey can take place before the CMS contractor has verified that
enrollment requirements have been met. This has tended to happen more
frequently in the case of facilities that seek to satisfy Medicare
participation requirements through accreditation by a CMS-approved
accreditation program, because the accreditation organization relies
upon the facility to advise it when it has received notice of
completion of the review of its enrollment application. This can result
in the date of an accreditation decision preceding the date when the
CMS contractor determination has occurred. In addition, in order to
prevent fraud and abuse, there may be other situations in which the CMS
contractor performs additional enrollment verification activities even
after a health and safety survey has been performed.
In cases where the CMS contractor finds that the prospective
provider's or supplier's compliance with enrollment requirements did
not occur until after a survey by the State survey agency or after the
accreditation survey and accreditation decision take place, it is our
policy, consistent with our interpretation of Sec. 489.13(b), to make
the effective date of the provider agreement or supplier approval the
date when the enrollment requirements are considered to have been met.
Specifically, the effective date would be the date that CMS determines,
pursuant to its contractor review and verification activities, that the
applicant is in compliance with all enrollment requirements and CMS is
prepared to convey Medicare billing privileges to the provider or
supplier. However, if there are still other Federal requirements that
remain to be satisfied, such as submission of required civil rights
compliance documentation or satisfaction of the specialized
requirements governing IPPS-excluded hospitals, the effective date
would be the date when the last requirement has been satisfied, as
determined by CMS.

B. Departmental Appeals Board Decision

In a decision dated September 28, 2009, the Appellate Division of
the Departmental Appeals Board (DAB), in the case of Renal CarePartners
of Delray Beach, LLC v. Centers for Medicare and Medicaid Services (DAB
Decision No. 2271), rejected our longstanding interpretation of Sec.
489.13(b). In this case, a State survey agency completed an initial
certification survey on July 6, 2007, of an end-stage renal disease
supplier, Renal CarePartners, prior to the CMS contractor's November
21, 2007 recommendation of approval of the supplier's enrollment
application. The DAB concluded that there was no basis in regulation or
policy issuances for our position that CMS contractor approval is a
requirement a supplier must satisfy ``before it may furnish services
for which it will be reimbursed under Medicare once it is enrolled and
obtains billing privileges'' (DAB Decision No. 2271, page 2). The DAB
further characterized the issue as ``* * * not whether the effective
date may be earlier than the date Renal CarePartners complied with a
prerequisite it was required to meet in order to enroll, but whether
the effective date must be delayed until the date the Medicare
contractor notified CMS that the requirements were met'' (DAB Decision
No. 2271, page 5) (emphasis in original). The DAB agreed with Renal
CarePartners that the requirement for the Medicare contractor to verify
and determine whether an application should be approved is not a
requirement for the supplier to meet, but a requirement for Medicare
contractor action (DAB Decision No. 2271, page 5). The DAB further
cited the provisions of Sec. 489.13(d), concerning accredited
facilities, as an example to bolster its contention that there is
precedent for providers or suppliers to be retroactively reimbursed for
services provided before the date of approval of the supplier or
provider agreement (DAB Decision No. 2271, page 7).
We disagree with the DAB's reading of our existing regulations. We
believe that the intent of the existing regulations is to require that
all applicable Federal requirements, including a determination of
whether the enrollment requirements have been satisfied, must be met
before a provider agreement or supplier approval may be effective. Any
other reading of the regulations could result in a provider or supplier
being permitted to bill the Medicare program for services provided at a
time when its compliance with Medicare's requirements is unknown and
possibly deficient. For example, in the event a State survey precedes
the CMS contractor's review of the enrollment application of a
prospective provider or supplier, it might be possible that the
application originally submitted to the CMS contractor is not complete
or accurate, or both, and the applicant must provide additional
information to the CMS contractor to demonstrate compliance with the
enrollment requirements. It would not be consistent with our duty to
protect the Medicare Trust Funds from unsupported claims against it to
permit payment for services furnished by a health care facility after
it has passed a State survey or been accredited, but before it has
satisfied all other Medicare participation requirements, including
enrollment requirements.
Such a reading also might undermine the incentives inherent in our
longstanding policy, affirmed in the June 1, 1994 decision of the U.S.
Court of Appeals for the Fifth Circuit in U.S. v. Vernon Home Health,
Inc. (21 F. 3d 693 (5th Cir. 1994), cert. denied, 115 S.Ct. 575
(1994)).
Under CMS regulations at 42 CFR 489.18(c), a ``change of
ownership'' includes accepting assignment of the seller's existing
provider agreement or supplier approval. Section 489.18(d) states that
the provider or supplier continues to be subject to the same statutes
and regulations, and to the terms and conditions under which it was
originally issued. This means that the new owner receives the assets
and liabilities associated with that agreement or approval. This has
proven to be an important tool in protecting the Medicare Trust Funds
through continuity in the ability to recover outstanding overpayments.
Under that policy, if a buyer of a Medicare-participating facility
chooses not to accept assignment of the provider agreement or supplier
approval, the provider agreement or supplier approval terminates. Then,
the new owner must be treated as an initial applicant to the Medicare
program. In this situation, Medicare will not reimburse the provider or
supplier for services it provides before the date on which the provider
or supplier qualifies as an initial applicant.
Any requirement to make payments retroactive to the date of a State
survey or accreditation decision, despite the fact that all other
Federal requirements

[[Page 50402]]

may not yet have been met, could provide an incentive for more buyers
to refuse assumption of the seller's provider agreement or supplier
approval, because there would potentially be no break in payments.
Therefore, effectively, a buyer who does not accept assignment of the
seller's active provider agreement could potentially begin receiving
Medicare payments immediately (assuming it meets all the requirements),
but not be responsible for any existing liabilities of the provider
agreement. This would also be an incentive for existing providers or
suppliers with civil money penalties or overpayments to sell their
facilities in order to escape any financial responsibility to the
Medicare program.

C. Revisions to Regulations

In the FY 2011 IPPS/LTCH proposed rule (75 FR 24047), we proposed
to amend Sec. 489.13 and make a technical amendment to Sec. 489.1 in
order to clarify our policy. Specifically, we proposed to revise Sec.
489.13(a) to make it clearer that it is only CMS that determines
whether health care facilities have satisfied the requirements for
participation in the Medicare program, not State survey agencies or
national accreditation organizations. We noted that, although this CMS
determination is sometimes referred to as a ``certification,'' or
``certification decision,'' Sec. 488.1 defines ``certification'' as
``a recommendation made by the State survey agency on the compliance of
providers and suppliers with the conditions of participation,
requirements (for SNFs and NFs), and conditions of coverage.'' Further,
Sec. 488.12 provides that CMS makes the determination on whether a
provider or supplier is eligible to participate in or be covered by the
Medicare program, based on the State survey agency's recommendation, or
on the facility's accreditation.
We also proposed to add language to Sec. 489.13(a) in order to
clarify that surveys of nonaccredited facilities may be conducted not
only by State survey agencies, but also by CMS staff or contractors, as
appropriate. We have used contractors to conduct certain types of
surveys, such as life safety code, transplant program and psychiatric
hospital special conditions surveys, and may continue to do so in the
future. In addition, certain types of facilities, such as Indian Health
Services (IHS) facilities and RNHCIs, have traditionally been surveyed
by CMS employees rather than State survey agencies.
We proposed to revise Sec. 489.13(b) to make explicit that the
effective date of a provider agreement or supplier approval may not be
earlier than the latest of the dates on which each applicable Federal
requirement is determined to be met. We also proposed to state
explicitly that ``Federal requirements'' include, but are not limited
to, the enrollment requirements established in 42 CFR part 424, subpart
P, that have been determined by CMS to have been met. In addition, we
proposed to revise Sec. 489.13(b) to include language concerning
accredited facilities, to assure that accredited and nonaccredited
facilities are treated in the same manner.
In the proposed rule, we further explained the rationale behind the
proposed change to Sec. 489.13(b), particularly with respect to the
requirements in the provider/supplier enrollment process.
A CMS contractor will review and conduct an initial assessment of a
prospective provider's or supplier's enrollment. If the contractor
finds that a prospective provider or supplier meets the basic
enrollment requirements to participate in the Medicare program for its
identified certified provider or supplier type, the contractor will
notify the appropriate CMS Regional Office. Essentially, the
contractor's initial assessment means that it has concluded its
preliminary review of the enrollment application and has concluded that
the survey and certification process can be initiated, and,
consequently, it issues a recommendation of approval. In order to help
ensure compliance with enrollment requirements throughout this process,
the contractor may continue to perform a number of enrollment
verification tasks even after it has issued a recommendation for
approval. These include, but are not limited to, conducting onsite
visits of the prospective provider or supplier to ensure that it is
still operational; verifying an HHA applicant's compliance with the
capitalization provisions in 42 CFR 489.28; and requesting the provider
or supplier applicant to reaffirm the accuracy of the information it
furnished on its initial enrollment application. Given the potentially
significant length of time between when the contractor issues its
recommendation of approval after its initial assessment and when the
health and safety survey (or accreditation) and certification process
is completed, we believe that it is essential for the contractor to
verify that a provider or supplier applicant continues to meet
enrollment requirements prior to the issuance of a Medicare provider
agreement or supplier approval and the issuance of Medicare billing
privileges.
To that end, we believe that the CMS contractor should verify that
a provider or supplier is in compliance with all enrollment
requirements when an enrollment application is submitted, during the
period in which a provider or supplier is undergoing the health and
safety survey and certification process and before the issuance of a
Medicare provider agreement or supplier approval and billing
privileges. If a provider or supplier is determined to be in compliance
with all Medicare requirements, including the enrollment requirements,
the enrollment and initial certification process will be completed, and
the Medicare provider agreement or supplier approval and billing
privileges will be issued to the applicant. However, if a provider or
supplier is determined to be out of compliance with Medicare enrollment
requirements prior to the issuance of a Medicare provider agreement or
supplier approval and billing privileges to the applicant, we believe
that CMS must deny Medicare billing privileges using the applicable
denial reason found in 42 CFR 424.530 and afford the applicant with the
applicable Medicare appeal rights.
We proposed to revise Sec. 489.13(c) to make clear that this
paragraph addresses those situations in which a facility has met all
other Federal requirements but, upon survey, has been found to not meet
all applicable CoPs, long-term care requirements, CfCs, or conditions
for certification. We also proposed to revise this paragraph to include
language concerning accredited facilities, to assure that accredited
and nonaccredited facilities are treated in the same manner.
We proposed to remove Sec. 489.13(d), concerning the determination
of the effective date for accredited facilities. We indicated that we
saw no reason for differential treatment of accredited and
nonaccredited facilities with respect to the determination of their
effective date, and, in practice, we have not treated them
differentially. In particular, as a matter of policy, we noted that we
have not exercised the discretion permitted under Sec. 489.13(d)(2) to
grant accredited facilities an effective date retroactive up to 1 year
prior to what otherwise would be their effective date. Permitting such
retroactive payment would provide accredited facilities an unwarranted
advantage when compared to nonaccredited facilities. It would also
seriously undermine our policy concerning change of ownership without
assumption of the seller's provider agreement or supplier approval.
However, the existence of this discretionary provision appears to cause

[[Page 50403]]

confusion among accredited providers and suppliers who incorrectly
believe they are entitled to a retroactive effective date.
In the proposed rule, we explained that this discretionary
provision was included in the 1997 final rule as a result of public
comments that concerned the Medicaid program. The commenters were
concerned that the proposed rule would not have allowed for a
retroactive agreement for a facility that was already accredited and
cited two Medicaid program scenarios to illustrate their concern. In
one scenario, a facility participates in its own State's Medicaid
program and provides services to a Medicaid recipient from another
State. In the other scenario, a facility does not participate in
Medicaid but provides services to a Medicaid recipient before learning
of the individual's Medicaid status. Neither of these scenarios is
pertinent to the Medicare program because Medicare beneficiary
enrollment is managed nationally. However, the stated intent of the
1997 final rule was to use a standard approach for both Medicare and
Medicaid to determine the effective date of a provider agreement and a
supplier approval, and, as a result, the provisions of Sec.
489.13(d)(2) are identical to those at Sec. 431.108(d)(2) for the
Medicaid program.
Upon further consideration, we believe it is important to recognize
the significant differences resulting from a State-based versus
national system of beneficiary enrollment, and to ensure that the
provisions of Sec. 489.13 are tailored to the requirements of the
Medicare program. As stated, as a matter of longstanding policy,
reflected in issuances dating back at least as far as 1994, we have
required new owners who do not accept the seller's Medicare provider
agreement or supplier approval to be treated as initial applicants to
the Medicare program. In a 1999 issuance, reaffirmed in several
subsequent issuances, including the 2004 publication of the online
version of the SOM and in Survey and Certification Memorandum S&C-09-08
issued on October 17, 2008, we explicitly state that this policy
applies to accredited facilities as well. Therefore, in the proposed
rule, we stated that we believed it was appropriate to remove Sec.
489.13(d), and to instead make appropriate reference to the situation
of accredited facilities in Sec. Sec. 489.13(b) and (c).
Finally, we proposed to make several technical amendments to Sec.
489.1. Specifically, we proposed to revise that section to add a
reference to section 1865 of the Act, which permits CMS to ``deem''
facilities that have been accredited by a national accreditation
organization under a CMS-approved accreditation program as having met
the Medicare health and safety standards. We also proposed to revise
and renumber the existing provision of Sec. 489.1 and to add
references to ``the Act'' where the section refers to a provision of
the Social Security Act.
Comment: One commenter expressed concern that the new post-survey
reviews by the contractor [that is, the Medicare Administrative
Contractor (MAC) or legacy fiscal intermediary or carrier] will
significantly delay the effective date of new provider agreements,
particularly for home health agencies that must meet certain
capitalization requirements. The commenter recommended that CMS direct
its contractors to perform all possible tasks in the pre-survey
timeframe and to limit the post-survey tasks. The commenter also called
for the contractor in the post-survey review of a home health agency
application to merely require certification that the provider retains
capitalization for the first 3 months of operation. The commenter
further recommended that CMS establish processing timeframes for the
post-survey activities of its contractors, and also require the
contractors to notify the applicant's accreditation organization when
the contractor recommends approval of enrollment. Finally, the
commenter recommended that CMS require the accreditation organization
to notify the contractor and the CMS Regional Office when a provider
applicant has satisfied accreditation requirements.
Response: CMS has the regulatory authority to verify the
information on an enrollment application at any time, including post-
survey or post-accreditation. Further, the regulatory requirements in
Sec. 489.13 can accommodate whatever contractor (MAC or legacy fiscal
intermediary/carrier) verification processes for providers and
suppliers that CMS employs; such contractor verification processes are
governed by the regulations under 42 CFR part 424 and associated policy
instructions issued by CMS. In the proposed rule at Sec. 489.13(b)(1),
it states that CMS determines the date on which the completeness and
accuracy of the enrollment application has been verified by the CMS
contractor. However, we note that a second contractor review that takes
place after the survey will only delay the effective date of a provider
agreement or supplier approval if that review identifies noncompliance
with any Federal requirements. If a provider or supplier that is
subject to Sec. 489.13 is found upon a post-survey second contractor
review to continue to meet all requirements, there would be no change
in the compliance determination date previously provided by the
contractor to the CMS Regional Office or State survey agency. On the
other hand, if the provider or supplier does not meet all Federal
requirements, there would be a delay in the effective date of any
provider agreement or supplier approval that might eventually be issued
to the applicant.
The issues of processing timeframes or the criteria to be used in
the case of a post-survey review of a home health agency applicant by
the contractor, such as for capitalization, as well as the issue of
notices to or from accreditation organizations are matters that are
specified through manual and policy instructions by CMS rather than
through regulation. However, with respect to the accreditation
organizations, we note that they are already required to provide notice
of their survey results and accreditation decisions to the CMS Regional
Office. Further, the contractor is already required to notify the
applicant when it has completed its pre-survey review of an enrollment
application, and CMS instructs accreditation organizations not to
conduct a survey related to an initial application for Medicare
participation until the applicant provides evidence to the
accreditation organization of the notice from the contractor.
Comment: One commenter expressed concern in response to our
statement in the proposal that other Federal requirements that must be
satisfied before a provider agreement could be effective included
compliance with Office of Civil Rights (OCR) requirements. The
commenter stated that the proposal to include OCR clearance before the
provider agreement is made effective will significantly delay the
effective date of the agreement for all but the largest entities that
have a Corporate Agreement with OCR. The commenter noted that currently
the provider agreement is made effective while OCR performs its
compliance review. The commenter recommended that the State survey
agencies and accreditation organizations review the provider's civil
rights policies and procedures as part of the survey process. The
commenter referred to the requirements at 42 CFR 484.12 for home health
agencies and 42 CFR 418.116 for hospices as evidence of the commenter's
view that State survey agencies and accreditation organizations already
perform assessments of compliance with OCR requirements.

[[Page 50404]]

Response: We do not intend to change our current policy related to
OCR compliance. Currently, in the transmittal letter sent to a
prospective provider or supplier informing that a provider agreement
(including its effective date) is being issued, it states that the
applicant's Medicare participation is contingent upon compliance with
all civil rights requirements, as determined by OCR, usually at a date
later than the effective date of the provider agreement. Thus, the
commenter's concern that we are changing this policy, with the result
that the effective date of a provider agreement would be delayed until
OCR completes its review, is unfounded; therefore, it is not necessary
to consider adopting the commenter's recommendation concerning how to
ameliorate the impact of a change by having State survey agency or
accreditation organization assessment of OCR compliance. In our
proposal, we referred to ``submission of required civil rights
compliance documentation'' as an example of other Federal requirements
that must be met. There are occasions where an applicant's required
documentation of assurance of compliance with civil rights laws and
regulations, Form HHS-690, and related documents, are not submitted
until after a survey is conducted. In such cases, the effective date of
the provider agreement may not be prior to the date when the complete
required civil rights compliance documentation was received by CMS.
Although it is not necessary to consider the commenter's
recommendation of State or accreditation organization assessment of
compliance with OCR requirements in view of there being no change in
our current practice concerning OCR compliance determinations, we do
note that the commenter's assumption concerning who makes such
compliance determinations is not correct. OCR has the authority to
determine compliance with Federal civil rights requirements; CMS does
not have such authority. Although there generally are requirements in
the various CMS regulations for providers, including home health and
hospice agencies, to comply with applicable Federal, State, and local
law, such requirements do not mean that CMS has in all, or even most,
cases the authority to determine compliance with such law. Where CMS
does not have such authority, CMS and the State survey agencies and
accreditation organizations must rely upon the determinations of the
agencies that do have such authority before they find a provider to be
noncompliant with a CMS provision requiring compliance with other laws.
Comment: Two commenters expressed concern with the proposal to
remove the provisions of Sec. 489.13(d)(2), which gives CMS the
discretion to make the effective date of a provider agreement or
supplier approval retroactive up to 1 year. One commenter stated that
this would remove an important flexibility in how the effective date is
established, resulting in unnecessary delays in enrollment, and may
inadvertently limit access to Medicare services or inappropriately
shift the costs of caring for Medicare beneficiaries to providers. This
commenter indicated that CMS provided no analysis of how this change
would reduce fraud and abuse. Another commenter stated that a ``snafu''
in an accreditation organization may result in excessive delay in its
issuing its accreditation decision, and recommended that CMS retain its
authority for retroactive effective dates for deemed accredited
facilities and specify in the regulation that such authority will be
exercised only when equity so requires and when the accrediting
determination delay was due to no fault of the provider or supplier.
Response: The commenters' concerns that removal of Sec.
489.13(d)(2) would eliminate a current flexibility and, therefore,
would result in unnecessary delays in Medicare enrollment are not
warranted because we have not exercised the discretion afforded to us
in this provision. This was a discretionary provision that we have not
utilized for the reasons noted in the preamble to the proposed rule.
Further, we do not believe that the accreditation of a facility should
afford the facility preferential treatment in its provider agreement or
supplier approval effective date determination compared to a
nonaccredited facility that chooses to be surveyed by the State agency
or CMS.
With respect to the rationale for deleting this provision in order
to protect the Medicare Trust Funds, as we stated in the proposed rule,
exercising the discretion to permit such retroactive effective dates
for accredited facilities would seriously undermine our policy
concerning accepting assignment of the seller's provider agreement or
supplier approval. As a matter of longstanding policy reflected in
issuances dating as far back as 1994, new owners of existing providers
or suppliers who do not accept the seller's existing Medicare provider
agreement or supplier approval and who intend to continue Medicare
participation are treated as new applicants to the Medicare program and
must submit to the same process as any new provider or supplier. This
process necessarily entails a break in Medicare payment for services
provided during the period between the termination of the seller's
provider agreement and the issuance of a new provider agreement to the
new owner. As a result, new owners of a Medicare participating facility
must carefully weigh the costs and benefits of their decision of
whether or not to assume the seller's existing Medicare provider
agreement. Thus, the Medicare Trust Funds are better protected because
new owners generally decide to assume the seller's provider agreement,
including outstanding liabilities (such as any overpayments or money
penalties) owed to the Medicare program. In some cases, this would also
result in the new owner receiving any outstanding Medicare
underpayments owed under the existing agreement. In the State
Operations Manual (Pub. 100-07) and in the October 17, 2008 Survey and
Certification Memorandum S&C-09-08, we explicitly stated that
accredited facilities also are subject to the policy requiring new
owners who reject assignment of the seller's existing provider
agreement to be treated as an initial applicant to the Medicare
program, with the break in coverage that this entails. If, on the other
hand, a new owner of an accredited provider who chooses not to accept
assignment of the seller's existing Medicare provider agreement could
be issued a new provider agreement on the basis of deemed status with a
retroactive effective date that bridged the coverage gap since the
termination of the seller's provider agreement, then this would provide
a strong incentive for new owners to routinely refuse to accept
assignment of the seller's provider agreement. The resulting impact on
the Medicare Trust Funds would be negative, in terms of both any
outstanding liabilities owed to the Medicare program under the seller's
terminated provider agreement or supplier approval and the cost of
paying for services provided by a new applicant prior to the date when
that applicant satisfies all Federal requirements.
Finally, delay in issuance of an accreditation decision due solely
to internal administrative issues within the accreditation organization
should not, contrary to the commenter's concern, delay the effective
date of the accreditation decision, and thus the effective date of the
applicant's provider agreement or supplier approval. The standard
practice expected for Medicare-approved accreditation

[[Page 50405]]

programs is for the accreditation organizations to make their
accreditation decision effective as of the date that all accreditation
program requirements were met, regardless of when the decision is
actually issued. We are revising the regulatory text upon adoption to
make this clearer. In view of this standard practice and in light of
the fact that the retroactive effective date provision for accredited
providers and suppliers has not been utilized by us, we do not believe
there is need to retain the ability to make retroactive provider
agreement or supplier approval effective date determinations in the
case of accredited facilities.
Comment: One commenter stated that it was not clear whether CMS
intended Sec. 489.13 to apply to durable medical equipment,
prosthetics, orthotics, and supplies (DMEPOS) applicants, but indicated
that the issues presented in the proposed rule do not apply to DMEPOS
supplier enrollment.
Response: We did not propose any changes with respect to the
entities that are covered by the provisions of Sec. 489.13. Generally,
these provisions do not apply to DMEPOS applicants because they are not
subject to our survey and certification process. However, because there
are now Medicare accreditation requirements for certain types of
suppliers that are not subject to the survey and certification process,
we understand why the commenter was unclear about this application. As
a result, we have revised the final regulatory text at Sec.
489.13(a)(1)(ii) to indicate that this provision applies to providers
and suppliers that are subject to survey by a State survey agency or
CMS, or, in lieu of such survey, are accredited by an accreditation
organization whose program has CMS approval in accordance with section
1865 of the Act at the time of the accreditation survey and
accreditation decision. Because accreditation requirements for certain
Medicare suppliers, such as DMEPOS and imaging services suppliers, are
established under sections 1834(a) and (e) of the Act rather than
section 1865 of the Act, this revision to the regulation makes it clear
that the provisions of Sec. 489.13 do not apply to these other
supplier types.
After consideration of the public comments we received, we are
adopting as final our proposed revisions of Sec. 489.13(a), (b), and
(c), removal of existing Sec. 489.13(d), and technical amendments to
Sec. 489.1, with the following modifications and technical
corrections:
We have revised Sec. 489.13(a)(1)(i) to delete the word ``staff''
after ``CMS''. This word was inadvertently included in the proposed
text, but, as we stated in the preamble to the proposed rule, the
intent is to cover surveys conducted by CMS staff or contractors.
We have revised Sec. 489.13(a)(1)(ii) to add a reference to
accreditation programs approved in accordance with section 1865 of the
Act, thus making it clear that Sec. 489.13 is applicable only to
providers and suppliers that are subject to CMS or State survey or, in
lieu of such survey, are accredited by an accreditation organization
whose program has CMS approval in accordance with section 1865 of the
Act. Also, we are adding the word ``survey'' in paragraph (a)(1)(ii) so
that it states ``State survey agency''; this change will make this
paragraph consistent with Sec. 489.13(a)(1)(i).
We have revised Sec. 489.13(b) to add the word ``effective'' prior
to ``date of the accreditation decision'' in order to make clear our
intent that we are referring to the date an accreditation organization
indicates its accreditation was effective.
We have revised Sec. 489.13(c) to reword the final sentence of the
introductory text as follows: ``However, if other Federal requirements
remain to be satisfied, notwithstanding the provisions of paragraphs
(c)(1) through (c)(3) of this section, the effective date of the
agreement or approval may not be earlier than the latest of the dates
on which CMS determines that each applicable Federal requirement is
met'' We added the phrase ``CMS determines that'' prior to ``each
applicable Federal requirement is met'' to correct an inadvertent
omission that could have created ambiguity as to our intent and makes
the language in paragraph (c) match that employed in Sec. 489.13(b)
for the same purpose. We also added the above language to make it clear
that the provisions in paragraphs (c)(1) through (c)(3) apply when all
other Federal requirements have been met, but where this is not the
case, the effective date would be the latest date.
We have renumbered proposed Sec. 489.13(c)(2)(ii)(C) as final
Sec. 489.13(c)(3), which was our original intent; this paragraph is a
logically distinct provision from other provisions contained in Sec.
489.13(c)(2).
We have made conforming changes to Sec. 424.510(c) and Sec.
424.520(a) by removing the cross-reference to paragraph (d) of Sec.
489.13.

IX. Medicare Hospital Conditions of Participation Affecting
Rehabilitation Services and Respiratory Care Services

Recently, CMS received several public requests for clarification of
the Medicare conditions of participation (CoPs) for hospitals relating
to rehabilitation services at Sec. 482.56 and respiratory care
services at Sec. 482.57. The questions concerning these conditions
have been in the context of apparent inconsistencies between the two
CoPs themselves, and between the two CoPs and many State laws,
regarding which practitioners are allowed to order rehabilitation and
respiratory care services in the hospital setting.
Many States, under their scope-of-practice laws and other
regulations, allow only specific qualified, licensed practitioners
(including physicians, nurse practitioners (NPs), and physician
assistants (PAs)) to order rehabilitation services and respiratory care
services, in addition to other common hospital services such as dietary
and social work services. However, the current standard at Sec.
482.56(b) (Delivery of services) requires only that hospital
rehabilitation services (for example, physical therapy, occupational
therapy, audiology, and speech-pathology services) be ordered by
``practitioners who are authorized by the medical staff to order the
services.'' We believe that this requirement is too open to
interpretation and does not explicitly acknowledge various State laws
that limit the ordering of hospital services (including diagnostic
tests, drugs and biologicals, and inpatient treatment modalities) to
specific qualified, licensed practitioners who are responsible for the
care of the patient.
By contrast, the current requirement for respiratory care services
at Sec. 482.57(b)(3), which explicitly states that these services
``must be provided only on, and in accordance with, the orders of a
doctor of medicine or osteopathy,'' is too narrow. While doctors of
medicine or doctors of osteopathy have the option of delegating this
task to NPs and PAs, this delegation requires physicians to countersign
all orders by NPs or PAs for respiratory care services. We have not
found any evidence that indicates that the ordering of respiratory care
services should be kept to a different, and possibly higher, standard
than rehabilitation and other hospital services. Nor have we found any
documented studies indicating that qualified, licensed practitioners
such as NPs and PAs should be restricted from ordering these necessary
services for their patients. Further, we believe that the process of
physician countersignature of orders written by qualified, licensed NPs
and PAs, specifically for common hospital services such as
rehabilitation and respiratory care services, is burdensome to
practitioners (physicians as well as NPs and PAs) and the hospitals
that they serve. In addition, we believe that

[[Page 50406]]

this process also runs counter to what many States have already decided
for NPs and PAs in their individual State regulations and scope-of-
practice laws.
As a result of our analysis of the issues surrounding conflict of
the Medicare CoPs with State laws, and conflict of the Medicare CoPs
with each other, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24050), we proposed several revisions to the existing regulations. We
proposed to revise Sec. 482.56 to clarify the types of practitioners
that are allowed to order rehabilitation services. Further, we proposed
to limit those types of individuals to qualified, licensed
practitioners who are responsible for the care of the patient and who
are acting within the scope of practice under State law. We also
proposed that these practitioners would need to be authorized to order
rehabilitation services by the hospital's medical staff, in accordance
with both hospital policies and procedures and State laws.
In addition, we proposed changes to the existing requirements for
the ordering of respiratory care services at Sec. 482.57. Existing
requirements only allow for services to be provided on the orders of a
doctor of medicine or osteopathy. As stated above, we recently received
several public requests (including requests from various hospitals as
well as from The Joint Commission) for clarification of this
requirement in the context of what is currently allowed under many
State laws. Many States, under their scope-of-practice laws and other
regulations, allow qualified, licensed practitioners (including NPs and
PAs) to order respiratory care services. We proposed to revise the
existing requirements at Sec. 482.57 to allow these practitioners, in
addition to physicians as currently allowed, to order these services as
long as such privileges are authorized by the medical staff and are in
accordance with both hospital policies and procedures and State laws.
As is required under the CoPs for all patient orders, the ordering
practitioner must also be an individual who is responsible for the care
of the patient.
In both of the CoPs for rehabilitation services and respiratory
care services, we also proposed that all orders for these services be
documented in accordance with the requirements at Sec. 482.24, Medical
records.
Comment: The majority of commenters supported the proposed changes
for the CoPs for rehabilitation services and respiratory care services.
Some of the commenters commended CMS for proposing changes that they
believed accurately reflected current standards of practice. Many of
the commenters supported the proposed changes focused exclusively on
the proposed requirements for respiratory care services.
Response: We appreciate the commenters' support for the proposed
changes. We believe that many of the commenters focused exclusively on
the proposed revisions to the respiratory care services CoP because
these revisions would allow for qualified, licensed practitioners, such
as NPs and PAs, to order respiratory care services in addition to
physicians, that is, doctors of medicine and doctors of osteopathy, as
is currently allowed under the requirements. While we believe that the
proposed change to the rehabilitation services CoP is more of a
clarification of which types of practitioners (as delineated by State
law, hospital policy, and medical staff authorization) would be allowed
to order such services, we believe that the proposed revision to the
respiratory care services CoP represents a regulatory recognition of
the qualifications that nonphysician practitioners, such as NPs and
PAs, bring to hospital patient care and that this recognition accounts
for many of the commenters focusing exclusively on the change to this
CoP.
Comment: Several commenters questioned what they saw as an
exclusion from the proposed rule of other types of advanced practice
registered nurses (APRNs) (for example, clinical nurse specialists
(CNSs), certified registered nurse anesthetists (CRNAs), and certified
nurse midwives (CNMs)), as well as rehabilitation professionals such as
physical therapists (PTs) and speech-language pathologists (SLPs).
Response: Our intention was not to exclude other types of
nonphysician practitioners such as APRNs, PTs, SLPs, or other types of
rehabilitation professionals from the proposed rule provisions. We
recognize the important role that these practitioners and professionals
play in the delivery of quality care to hospital patients. We point out
that the proposed regulatory language does not specifically mention any
``type ``of practitioner, including NPs and PAs. Instead, the proposed
revisions to both CoPs would require that services be provided only
under the orders of a qualified, licensed practitioner, responsible for
the care of the patient, acting within his or her scope of practice,
and authorized by the medical staff to order the services in accordance
with hospital policies and procedures and all State laws. Although NPs
and PAs were the only examples of practitioner types that we used in
our discussion of the proposed changes in the preamble of the proposed
rule, our intention, as reflected in the proposed regulation text, is
to include those qualified, licensed practitioners who meet the
parameters of the proposed requirements discussed above.
Comment: A few commenters took exception to our discussion in the
preamble of conflict of interest and coordination of care issues in the
context of rehabilitation professionals (such as PTs and SLPs) who
might order their own rehabilitation services for a hospital patient
without the knowledge of the attending physician or of the practitioner
responsible for the overall care of the patient (such as APRNs and
PAs). They questioned ``why CMS would conclude that these problems
[conflict of interest and coordination of care] would occur in the
outpatient hospital setting when patients receive rehabilitation
services,'' and asked that the final rule not adopt language that would
exclude rehabilitation professionals from acting within their
individual State's scope of practice. One commenter suggested that
language distinguishing between hospital inpatient and outpatient
rehabilitation services be added to the proposed requirement at Sec.
482.56(b).
Response: The proposed requirements would apply to both inpatient
and outpatient hospital services. Because the language allows for the
ordering of rehabilitation services based on (and in deference to)
State laws and scope-of-practice acts, medical staff authorization, and
hospital policies and procedures, we firmly believe that nothing in our
proposed requirement would preclude a hospital rehabilitation
professional from acting within the scope of practice under State law.
For this reason also, we disagree that the requirement needs to make
distinctions between inpatients and outpatients.
Comment: A few commenters correctly pointed out that the hospital
CoPs apply to both inpatient and outpatient services. With regard to
this application of the hospital CoPs to the outpatient services of a
hospital, they commented that the proposed changes would be in direct
conflict with both CMS payment policy, which they state allows for
rehabilitation professionals to order their own services for hospital
outpatients without physician referral, and the regulations of some
States, which they state allow for ``direct access'' to rehabilitation
services for hospital outpatients.
Response: As we have previously stated, we do not believe that the
proposed changes would conflict with either CMS payment policy or State

[[Page 50407]]

regulations. In fact, we have drafted the regulatory text in a way that
would not only defer to hospital policy and medical staff authority in
granting ordering privileges for these services to qualified, licensed
practitioners, but also to State laws and scope-of-practice acts. We
believe that these proposed regulations would give hospitals and their
medical staffs as much flexibility in determining which types of
practitioners could order these services as they would choose to
exercise within the constraints of their own State laws and
regulations.
Comment: One commenter noted that as many as 35 States have some
form of regulatory language that states, in effect, that hospital
respiratory care services orders must be ``written by a licensed
physician only.''
Response: As stated in our previous response, the proposed
regulations are written in such a way as to avoid the preemption of
State law and regulation. We expect hospitals to apply the laws of
their respective States to their policy regarding which types of
practitioners would be allowed to order respiratory care services. For
those States that allow APRNs and PAs to order respiratory care
services without the need for a physician co-signature, we expect
hospitals in those States to determine which types of practitioners
would be authorized by the medical staff to write these orders in
accordance with State law. We also expect that practitioners will act
within the limitations of their individual State laws and hospitals'
policies.
Comment: One commenter requested that changes similar to the ones
proposed be made to other hospital CoPs, such as nuclear medicine and
dietary services, and their interpretive guidelines, and also
specifically proposed changes to Sec. 482.25(b)(6) to require that
``drug administration errors, adverse drug reactions, and
incompatibilities be immediately reported to the ordering
practitioner.'' In addition, the commenter recommended that the
interpretative guidelines issued for Sec. 482.24(c)(1) be revised.
Response: While we appreciate the input from the commenter
regarding the other hospital CoPs and the interpretative guidelines,
changes to other CoPs are outside the scope of this final rule. Any
revisions to the interpretative guidelines are outside the purview of
the rulemaking process.
Comment: A few commenters, in addition to voicing full support for
the proposed changes, encouraged CMS to revise the CoPs and
interpretative guidelines regarding the administration of propofol (a
rapidly acting, short duration, intravenous hypnotic anesthetic
induction agent used as a general anesthetic or as an adjunct to
anesthesia) by an anesthesiologist or CRNA in the context of
recognition of State laws addressing this issue.
Response: As we stated in our previous response, while we
appreciate the input from commenters, we cannot address it at this time
because the issues are outside the scope of this rule. Furthermore, any
revision of the interpretative guidelines would be outside the purview
of the rulemaking process.
After consideration of the public comments we received, we are
adopting as final without modification, our proposals to revise Sec.
482.56 and Sec. 482.57 to clarify the types of practitioners who are
allowed to order rehabilitation services and respiratory care services,
respectively in accordance with both hospital policies and procedures
and State laws; and to provide that all orders for these services be
documented in accordance with existing requirements at Sec. 482.24.

X. Changes to the Accreditation Requirements for Medicaid Providers of
Inpatient Psychiatric Services for Individuals Under Age 21

A. Background

Inpatient psychiatric services provided to individuals under the
age of 21 were authorized as part of the Medicaid program by the Social
Security Amendments of 1972 (Pub. L. 92-603). At that time, these
services were only permitted to be provided by psychiatric hospitals
accredited by the Joint Commission on Accreditation of Hospitals (later
renamed as the Joint Commission on Accreditation of Healthcare
Organizations and now named The Joint Commission). In 1984, Congress
eliminated the requirement that such hospitals be accredited
exclusively by The Joint Commission (section 2340(b) of Pub. L. 98-
369).
Through statutory and regulatory amendments, inpatient psychiatric
services provided to individuals under the age of 21 were also
authorized to be provided in inpatient psychiatric programs within
hospitals and in psychiatric facilities other than hospitals, called
psychiatric residential treatment facilities (PRTFs). While PRTFs were
given flexibility through rulemaking in 1998 to obtain accreditation
from several specific accrediting organizations, or any other
accrediting body with comparable standards recognized by the State,
accreditation by The Joint Commission has remained a Federal regulatory
requirement for psychiatric hospitals and inpatient psychiatric
programs within hospitals.
We have been contacted by several psychiatric hospitals and
hospitals with inpatient psychiatric programs asking for relief from
The Joint Commission accreditation requirement. In addition, The Joint
Commission has previously expressed concern with the mandate for Joint
Commission accreditation contained in existing regulation, as its
policy is for facilities to seek accreditation voluntarily.

B. Revision of Policy and Regulations

In response to the concerns described above, in the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24051), we proposed to remove the
requirement that psychiatric hospitals and hospitals with inpatient
psychiatric programs providing inpatient psychiatric services to
individuals under age 21 obtain accreditation from The Joint Commission
in order to provide these services under the Medicaid program. Under
our proposed policy change, psychiatric hospitals would have the choice
of undergoing a State survey to determine whether the hospital meets
the requirements to participate in Medicare as a psychiatric hospital
under 42 CFR 482.60 or obtaining accreditation from a national
accrediting organization whose psychiatric hospital accrediting program
has been approved by CMS. Likewise, hospitals with inpatient
psychiatric programs would have the choice of undergoing a State survey
to determine whether the hospital meets the requirements for
participation in Medicare as a hospital as specified in 42 CFR Part 482
or obtaining accreditation from a national accrediting organization
whose hospital accreditation program has been approved by CMS. These
national accreditation bodies must provide reasonable assurance to CMS
that their hospital accrediting programs require adherence to
requirements that are at least as stringent as the Medicare
requirements.
In addition, we proposed to revise the accreditation requirements
for PRTFs by removing any specific references to accreditation
organizations, to afford them flexibility in obtaining accreditation by
a national accrediting organization whose program has been approved by
CMS, or by any other accrediting organization with comparable standards
that is recognized by the State. This proposed revision would have
removed specific reference to national accrediting bodies to provide
appropriate administrative flexibility to account for any changes in
qualifying

[[Page 50408]]

accrediting organizations. Accrediting bodies approved by CMS must have
accrediting requirements for a provider or supplier type that are
comparable to the CMS requirements for the type of provider or
supplier, and must have survey procedures comparable to those of State
survey agencies. For the reasons described below, we are not finalizing
this proposed change to the PRTF accreditation requirements, and will
retain the language currently set out at 42 CFR 440.160 (b)(2) and
441.151(a)(2)(ii).
To incorporate the proposed changes described above in our
regulations, we proposed to revise Sec. 440.160(b)(1) and Sec.
441.151(a)(2)(i) by removing the requirement for accreditation by The
Joint Commission of psychiatric hospitals and hospitals with inpatient
psychiatric programs. We also proposed to revise Sec. 440.160(b)(2)
and Sec. 441.151(a)(2)(ii) by removing references to specific
accreditation organizations.
Comment: Several commenters supported the proposed revisions. These
commenters agreed with CMS' assessment that allowing increased
flexibility for psychiatric hospitals and inpatient psychiatric
programs within general hospitals to either obtain accreditation from a
CMS-approved accrediting organization or adhere to Medicare standards
would not negatively impact the quality of service provision. Most of
these commenters were silent regarding the proposed changes to the PRTF
language, which would have removed reference to specific accrediting
organizations. However, one commenter expressed support for this
proposed change as well.
Response: We appreciate the commenters' support. However, we are
not finalizing the proposed changes to the PRTF accreditation
requirements. We have decided that changes to these provisions are
unnecessary because our regulations already permit a PRTF to be
accredited by a variety of accrediting bodies. Our current provisions
are not proscriptive. The Joint Commission on Accreditation of
Healthcare Organizations, the Council on Accreditation of Services for
Families and Children, and the Commission on Accreditation of
Rehabilitation Facilities will remain available to accredit PRTFS, as
will any other accrediting organizations with comparable standards that
are recognized by the States.
Comment: One comment indicated that ``CMS must remain the sole
accreditation agency for psychiatric facilities as well as emergency
rooms (ERs)''. The commenter further stated that third party
accreditation would not maintain the same level of adherence to the
restraint and seclusion regulatory requirement.
Response: We have never been the ``sole accreditation agency'' for
these providers. CMS approves third party accrediting organizations to
perform the accreditation reviews. The restraint and seclusion CoP is a
requirement that is surveyed by CMS and/or the accreditation
organizations, as applicable.
Comment: One commenter offered suggestions to improve the care
provided to individuals in psychiatric settings. The commenter's
suggestions included telling patients the names of all medications
being given; developing a written treatment plan; keeping patients
clean; and utilizing a ``comfort room'' for patients who are in
critical condition.
Response: Although we appreciate these suggestions, they fall
outside the scope of the proposed rule. We did solicit public comments
on our proposed accreditation revisions for inpatient psychiatric
services provided to children. However, these comments appear to
address the overall care furnished in psychiatric settings. Existing
regulations governing psychiatric hospitals, general hospitals, and
PRTFs currently require that the beneficiary receive care based upon an
individualized treatment plan. We do not anticipate that patients in
critical condition (life-threatening medical situations) would be
maintained in the psychiatric inpatient setting, but rather would be
transferred to a medically appropriate facility. We encourage all
providers, including those furnishing inpatient psychiatric services to
individuals under age 21, to bring an attitude of respect to the
treatment process, caring for patients in a way that maximizes
information sharing and comprehensive care. However, we are not
modifying the regulations for this specific service to include these
suggestions.
After consideration of the public comments we received, we are
adopting as final, without modification, our proposed revision of Sec.
440.160(b)(1) and Sec. 441.151(a)(2)(i) by removing the requirement
for accreditation by The Joint Commission of psychiatric hospitals and
hospitals with inpatient psychiatric programs. Under the final
regulations, psychiatric hospitals will have the choice of undergoing a
State survey to determine whether the hospital meets the requirements
to participate in Medicare as a psychiatric hospital under 42 CFR
482.60 or obtaining accreditation from a national accrediting
organization whose psychiatric hospital accrediting program has been
approved by CMS. Likewise, hospitals with inpatient psychiatric
programs will have the choice of undergoing a State survey to determine
whether the hospital meets the requirements for participation in
Medicare as a hospital as specified in 42 CFR part 482 or obtaining
accreditation by a national accrediting organization whose hospital
accrediting program has been approved by CMS.
As described above, we are not finalizing our proposed revision of
Sec. 440.160(b)(2) and Sec. 441.151(a)(2)(ii) to remove specific
references to accreditation organizations to afford PRTFs the
flexibility in obtaining accreditation by a national accrediting
organization whose program has been approved by CMS, or by any other
accrediting organization with comparable standards that is recognized
by the State. The language currently specified in Sec. 440.160(b)(2)
and Sec. 441.151(a)(2)(ii) is being retained.

XI. MedPAC Recommendations

Under section 1886(e)(4)(B) of the Act, the Secretary must consider
MedPAC's recommendations regarding hospital inpatient payments. Under
section 1886(e)(5) of the Act, the Secretary must publish in the annual
proposed and final IPPS rules the Secretary's recommendations regarding
MedPAC's recommendations. We have reviewed MedPAC's March 2010 ``Report
to the Congress: Medicare Payment Policy'' and have given the
recommendations in the report consideration in conjunction with the
policies set forth in this final rule.
MedPAC's Recommendation 2A-1 states that ``The Congress should
increase payment rates for the acute inpatient and outpatient
prospective payment systems in 2011 by the projected rate of increase
in the hospital market basket index, concurrent with implementation of
a quality incentive payment program.'' This recommendation for the IPPS
is discussed in Appendix B to this final rule.
MedPAC's Recommendation 2A-2 states that ``To restore budget
neutrality, the Congress should require the Secretary to fully offset
increases in inpatient payments due to hospitals' documentation and
coding improvements. To accomplish this goal, the Secretary must reduce
payment rates in the inpatient prospective payment system by the same
percentage (not to exceed 2 percentage points) each year in 2011, 2012,
and 2013. The lower rates

[[Page 50409]]

would remain in place until overpayments are fully recovered.''
Response to Recommendation 2A-2: Beginning in FY 2008, CMS adopted
the new MS-DRG patient classification system for the IPPS 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. The increase in the number of DRGs provides
incentives for hospitals to change documentation and coding that can
increase Medicare expenditures without any corresponding increase in
underlying patient severity. Consistent with the statutory requirement
to maintain budget neutrality, 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 when the new MS-DRG system was
implemented in FY 2008. Subsequent to issuance of the FY 2008 IPPS
final rule, section 7 of the TMA of 2007 (Pub. L. 110-90) divided in
half the documentation and coding adjustments for the MS-DRG system
that we adopted in the FY 2008 IPPS final rule to -0.6 percent for FY
2008 and -0.9 percent for FY 2009. Section 7 requires that, if the
implementation of the new MS-DRG payment system resulted in actual
changes in documentation and coding in FY 2008 or FY 2009, or both
years, that are different from those reflected in the -0.6 percent and
-0.9 percent documentation and coding adjustments applied to payment
rates in FY 2008 and FY 2009, respectively, the Secretary further
adjust operating IPPS rates. This further adjustment must offset the
estimated amount of the increase or decrease in aggregate payments for
discharges occurring during FY 2008 and FY 2009, and must be made
during FY 2010, FY 2011, and/or FY 2012. These adjustments are referred
to as the recoupment adjustments and apply only to acute IPPS operating
payments. In addition, the law requires that the Secretary eliminate
the effect of all actual documentation and coding changes occurring in
FY 2008 and FY 2009 incorporated into FY 2010 IPPS operating rates not
already accounted for beyond the -0.6 and -0.9 percent adjustments.
These adjustments are referred to as the prospective adjustments. As
discussed in section II.D. of the preamble of this final rule, our
current estimate is that an aggregate adjustment of 9.7 percent (in
addition to the -0.6 percent adjustment and the -0.9 percent adjustment
previously made in FY 2008 and FY 2009, respectively) is necessary to
satisfy these requirements.
We discuss the public comments we received on the FY 2011 IPPS/LTCH
PPS proposed rule, and our responses, regarding our proposed
adjustments to correct for the effects of improved documentation and
coding on Medicare payments to hospitals in section II.D. of the
preamble of this final rule for IPPS operating payments, in section
V.E. of the preamble of this final rule for IPPS capital payments, and
in section VII.C.3. of the preamble of this final rule for LTCH PPS
payments. In this context, we note that, in considering whether to
adopt MedPAC's recommendation, we took into consideration the statutory
requirement that the adjustment must offset the estimated amount of the
increase or decrease in aggregate payments for discharges occurring
during FY 2008 and FY 2009 must be made during FY 2010, FY 2011, and/or
FY 2012.
For further information relating specifically to the MedPAC reports
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226,
or visit MedPAC's Web site at: http://www.medpac.gov.

XII. Other Required Information

A. Requests for Data From the Public

In order to respond promptly to public requests for data related to
the prospective payment system, we have established a process under
which commenters can gain access to raw data on an expedited basis.
Generally, the data are now available on compact disc (CD) format.
However, many of the files are available on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS. We listed the data files and the
cost for each file, if applicable, in the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 24052 and 24053).
Commenters interested in discussing any data used in constructing
this final rule should contact Nisha Bhat at (410) 786-5320.

B. Collection of Information Requirements

1. Legislative Requirement for Solicitation of Comments
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
2. Requirements in Regulation Text
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24054 through
24056), we solicited public comment on each of these issues listed in
section XII.B.1. of this preamble for the following sections of this
document that contain information collection requirements (ICRs). We
discuss and respond to any public comments we received in each
individual section.
a. ICRs Regarding Withdrawing an Application, Terminating an Approved
3-Year Reclassification, or Canceling a Previous Withdrawal or
Termination (Revised Sec. 412.273)
We have revised much of Sec. 412.273 to make the provisions
clearer and more easily understood. Although the majority of the
information collections under this section exist under current law, as
we are modifying the provision, in this section we discuss the
information collections that will exist under the revised Sec.
412.273.
As discussed in section III.I. of this preamble, revised Sec.
412.273(b) states that the MGCRB allows a hospital, or group of
hospitals, to withdraw its application or to terminate an already
existing 3-year reclassification. Revised Sec. 412.273(c) further
specifies the timing requirements for the withdrawal or termination
requirements. Revised Sec. 412.273(c)(1) provides that a request for
withdrawal must be received by the MGCRB at any time before the MGCRB
issues a decision on the application; or after the MGCRB issues a
decision, provided that the request for withdrawal is received by the
MGCRB within 45 days of publication of CMS' annual notice of proposed
rulemaking concerning changes to the IPPS and proposed payment rates
for the fiscal year for which the application has been filed.
The burden associated with this requirement is the time and effort
necessary for a hospital to submit a written withdrawal request to the
MGCRB. While this requirement is subject to the PRA, we cannot
accurately quantify the burden

[[Page 50410]]

associated with this requirement. We currently review each request on a
case-by-case basis. We believe the associated burden is thereby exempt
from the PRA as stipulated under 5 CFR 1320.3(h)(6).
Revised Sec. 412.273(c)(2) provides that a request for termination
must be received by the MGCRB within 45 days of the publication of CMS'
annual notice of proposed rulemaking concerning changes to the IPPS and
proposed payment rates for the fiscal year for which the termination is
to apply. The burden associated with this requirement is the time and
effort necessary for a hospital to submit a written termination request
to the MGCRB. While this requirement is subject to the PRA, we cannot
accurately quantify the burden associated with this requirement. We
currently review each request on a case-by-case basis. We believe the
associated burden is thereby exempt from the PRA as stipulated under 5
CFR 1320.3(h)(6).
Revised Sec. 412.273(d)(1) states that a hospital (or group of
hospitals) may cancel a withdrawal or termination in a subsequent year
and request the MGCRB to reinstate the wage index reclassification for
the remaining fiscal year(s) of the 3-year period. Revised Sec.
412.273(d)(2) requires that cancellation requests be received in
writing by the MGCRB no later than the deadline for submitting
reclassification applications for the following fiscal year, as
specified in Sec. 412.256(a)(2). The burden associated with this
requirement is the time and effort necessary for a hospital to submit a
written request to the MGCRB, requesting that the current withdrawal or
termination request be cancelled. While this requirement is subject to
the PRA, we cannot accurately quantify the burden associated with this
requirement. We currently review each request on a case-by-case basis.
We believe the associated burden is thereby exempt from the PRA as
stipulated under 5 CFR 1320.3(h)(6).
Section 412.273(d)(3) states that a hospital will be able to apply
for reclassification to a different area (that is, an area different
from the one to which it was originally reclassified for the 3-year
period). If the application is approved, the reclassification will be
effective for 3 years. Once a 3-year reclassification becomes
effective, a hospital may no longer cancel a withdrawal or termination
of another 3-year reclassification, regardless of whether the
withdrawal or termination request is made within 3 years from the date
of the withdrawal or termination. The burden associated with the
reapplication requirement is the time and effort necessary for a
hospital to submit a reclassification request to the MGCRB. While this
requirement is subject to the PRA, the associated burden is approved
under OMB control number 0938-0573, with an expiration date of December
31, 2011.
Section 412.273(f)(1) states that a hospital may file an appeal of
the MGCRB's denial of its request for withdrawal or termination, or of
the MGCRB's denial of its request for a cancellation of such withdrawal
or termination, to the Administrator. The appeal must be received
within 15 days of the date of the notice of the denial. The burden
associated with this requirement is the time and effort necessary for a
hospital to file a written appeal of the MGCRB's denial. While this
requirement is subject the PRA, the associated burden is exempt under 5
CFR 1320.4. The burden associated with collection information as part
of or subsequent to an administrative action is not subject to the PRA.
b. ICRs Regarding Condition of Participation: Respiratory Care Services
(Sec. 482.57)
Section IX. of this preamble discusses the revisions to Sec.
482.57(b)(4), which impose a recordkeeping requirement. Section
482.57(b)(4) requires all respiratory care services orders to be
documented in the patient's medical record in accordance with the
requirements at Sec. 482.24. The burden associated with this
requirement is the time and effort necessary for hospital staff to
document and maintain the respiratory care services orders in a
patient's medical record. While these requirements are subject to the
PRA, the associated burden is exempt from the PRA under 5 CFR
1320.3(b)(2). We believe hospitals will not incur any burden above and
beyond that associated with the usual and customary business practice
of maintaining detailed patient medical records.
3. Additional Information Collection Requirements
This final rule imposes collection of information requirements as
outlined in the regulation text and specified above. However, this
final rule also makes reference to several associated information
collections that are not discussed in the regulation text contained in
this document. The following is a discussion of these information
collections, some of which have already received OMB approval.
a. Present on Admission (POA) Indicator Reporting
Section II.F.6. of the preamble of this final rule discusses the
POA indicator reporting program. As stated earlier, collection of POA
indicator data is necessary to identify which conditions were acquired
during hospitalization for the HAC payment provision and for broader
public health uses of Medicare data. Through Change Request 5499 dated
May 11, 2007, CMS issued instructions that require IPPS hospitals to
submit POA indicator data for all diagnosis codes on Medicare claims.
The burden associated with this requirement is the time and effort
necessary to place the appropriate POA indicator codes on Medicare
claims. This requirement is subject to the PRA; however, the associated
burden is currently approved under OMB control number 0938-0997, with
an expiration date of October 31, 2012.
b. Add-On Payments for New Services and Technologies
Section II.I.1. of the preamble of this final rule discusses add-on
payments for new services and technologies. Specifically, this section
states that applicants for add-on payments for new medical services or
technologies for FY 2011 must submit a formal request. A formal request
includes a full description of the clinical applications of the medical
service or technology and the results of any clinical evaluations
demonstrating that the new medical service or technology represents a
substantial clinical improvement. In addition, the request must contain
a significant sample of the data to demonstrate that the medical
service or technology meets the high-cost threshold. We detailed the
burden associated with this requirement in the September 7, 2001, IPPS
final rule (66 FR 46902). As stated in that final rule, collection of
the information for this requirement is conducted on an individual
case-by-case basis. We believe the associated burden is thereby exempt
from the PRA as stipulated under 5 CFR 1320.3(h)(6). Similarly, we also
believe the burden associated with this requirement is exempt from the
PRA under 5 CFR 1320.3(c), which defines the agency collection of
information subject to the requirements of the PRA as information
collection imposed on 10 or more persons within any 12-month period.
This information collection does not impact 10 or more entities in a
12-month period. In FYs 2008, 2009, 2010, and 2011, we received 1, 4,
5, and 3 applications, respectively.
c. Reporting of Hospital Quality Data for Annual Hospital Payment
Update
As discussed in section IV.A. of this final rule, the RHQDAPU
program was originally established to implement section 501(b) of
Public Law 108-173.

[[Page 50411]]

The RHQDAPU program originally consisted of a ``starter set'' of 10
quality measures. OMB approved the collection of data associated with
the original starter set of quality measures under OMB control number
0938-0918, with a current expiration date of January 31, 2011.
As part of our implementation of section 5001(a) of the DRA, we
expanded the number of quality measures reported in the RHQDAPU
program. Specifically, section 1886(b)(3)(B)(viii)(III) of the Act,
added by section 5001(a) of the DRA, requires that the Secretary expand
the ``starter set'' of 10 quality measures that were established by the
Secretary as of November 1, 2003, to include measures ``that the
Secretary determines to be appropriate for the measurement of the
quality of care (including medication errors) furnished by hospitals in
inpatient settings.'' Under this provision, we established additional
program measures to bring the total number of measures to 30. The
burden associated with these reporting requirements is currently
approved under OMB control number 0938-1022, with a current expiration
date of June 30, 2011.
In the FY 2010 IPPS proposed rule (74 FR 24168), we solicited
public comments on several considerations for expanding and updating
quality measures. We responded to the public comments received in the
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43866 through 43868).
We also expanded and finalized the RHQDAPU program measure set for the
FY 2011 payment determination. As part of the expansion effort, we
finalized 46 measures in the FY 2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 43872).
In the FY 2011 IPPS/LTCH PPS proposed rule, we proposed to retire
one measure for the FY 2011 payment determination (75 FR 23961). For
the FY 2012 through FY 2014 payment determinations, we proposed to
retain the remaining 45 of the 46 current measures; and for FY 2012, to
add 10 new measures and to require all-patient volume data for selected
MS-DRGs that relate to RHQDAPU program measures; for FY 2013, to retain
the FY 2012 measures and add 35 new measures; and for FY 2014, to
retain the FY 2013 measures and to add 4 new measures. In addition, we
listed 28 new measures that are under consideration for adoption in
future years. We proposed that, beginning with CY 2011 discharges,
hospitals submit some of the new measure data to a qualified registry.
We also solicited public comments on retiring one or more of the 11
additional measures suggested by commenters in the FY 2010 IPPS/RY 2010
LTCH PPS final rule based on topped out performance and other
rationales.
In summary, we proposed to retire one measure for the FY 2011
annual payment update and sought comments on whether to retire 11
additional measures suggested by commenters in the FY 2010 IPPS/RY 2010
LTCH PPS final rule. In addition, we proposed to expand the RHQDAPU
program measure set to: 55 measures for the FY 2012 annual payment
update (taking into account our proposal to retire one measure for the
FY 2011 annual payment update); 90 measures for the FY 2013 annual
payment update, and 94 measures for the FY 2014 annual payment update.
We also proposed 28 possible measures and topics for future years.
Finally, we proposed that, beginning with the FY 2012 annual payment
update, hospitals that participate in the RHQDAPU program submit all-
patient volume data for selected MS-DRGs that relate to RHQDAPU program
measures beginning with CY 2011 discharges.
We submitted a revised version of the information collection
request approved under OMB control number 0938-1022, to obtain approval
for the proposed new measures.
Section IV.A.10. of the FY 2011 IPPS/LTCH PPS proposed rule
addressed the reconsideration and appeal procedures for a hospital that
we believe did not meet the RHQDAPU program requirements. If a hospital
disagrees with our determination, it may submit a written request to
CMS to reconsider our decision. The hospital's request for
reconsideration must explain the reasons why it believes it satisfied
the RHQDAPU program requirements.
While this is a reporting requirement, the burden associated with
it is not subject to the PRA under 5 CFR 1320.4(a)(2). The burden
associated with information collection requirements imposed subsequent
to an administrative action is not subject to the PRA.
For the FY 2011 annual payment update, we are retiring the AHRQ
mortality for selected surgical procedures composite measure. We refer
readers to section IV.A.3. of this final rule for the list of RHQDAPU
measures that we are adopting as final for FY 2012 through FY 2014.
Over the three year period, we are retiring 2 additional measures from
the measurement set (PN-2, and PN-7) and adding 17 new measures to the
measure set, for a total of 60 measures. We are not adopting any of our
proposed registry-based measures, or our proposal for all-patient
volume reporting.
In summary, after consideration of the public comments we received,
we are:
Retiring one measure for the FY 2011 annual payment
update.
Retaining the measures used for the FY 2011 annual payment
update (except for the 1 we are retiring) and adopting 10 additional
claims--based measures for reporting in 2011 that will be used to
determine the FY 2012 annual payment update.
Retaining the measures used for the FY 2012 annual payment
update and adopting an additional 1 chart-abstracted measure and 1 HAI
measure (to be reported through the NHSN) for reporting in 2011 that
will be used to determine the FY 2013 annual payment update.
Retaining the measures used for the FY 2013 annual payment
update (except for 2 measures we are retiring) and adopting 5
additional measures for reporting in 2012 that will be used to
determine the FY 2014 annual payment update.
d. Occupational Mix Adjustment to the FY 2011 Index (Hospital Wage
Index Occupational Mix Survey)
Section II.D. of the preamble of this final rule discusses the
occupational mix adjustment to the FY 2011 wage index. While the
preamble does not contain any new ICRs, it is important to note that
there is an OMB approved information collection request associated with
the hospital wage index.
Section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E)
of the Act to require CMS to collect data at least once every 3 years
on the occupational mix of employees for each short-term, acute care
hospital participating in the Medicare program in order to construct an
occupational mix adjustment to the wage index. We collect the data via
the occupational mix survey.
The burden associated with this information collection requirement
is the time and effort required to collect and submit the data in the
Hospital Wage Index Occupational Mix Survey to CMS. The aforementioned
burden is subject to the PRA; however, it is currently approved under
OMB control number 0938-0907, with an expiration date of February 28,
2013.
e. Hospital Applications for Geographic Reclassifications by the MGCRB
Section III.I.3. of the preamble of this final rule discusses
revisions to the wage index based on hospital redesignations. As stated
in that section, under section 1886(d)(10) of the Act, the

[[Page 50412]]

MGCRB has the authority to accept short-term IPPS hospital applications
requesting geographic reclassification for wage index or standardized
payment amounts and to issue decisions on these requests by hospitals
for geographic reclassification for purposes of payment under the IPPS.
The burden associated with this application process is the time and
effort necessary for an IPPS hospital to complete and submit an
application for reclassification to the MGCRB. While this requirement
is subject to the PRA, the associated burden is currently approved
under OMB control number 0938-0573, with an expiration date of December
31, 2011.
f. Direct GME Payments: General Requirements
Existing regulations at Sec. 413.75(b) permit hospitals that share
residents to elect to form a Medicare GME affiliated group if they are
in the same or contiguous urban or rural areas, if they are under
common ownership, or if they are jointly listed as program sponsors or
major participating institutions in the same program. The purpose of a
Medicare GME affiliated group is to provide flexibility to hospitals in
structuring rotations under an aggregate FTE resident cap when they
share residents. The existing regulations at Sec. 413.79(f)(1) specify
that each hospital in a Medicare GME affiliated group must submit a
Medicare GME affiliation agreement (as defined under Sec. 413.75(b))
to the Medicare fiscal intermediary or MAC servicing the hospital and
send a copy to CMS' Central Office no later than July 1 of the
residency program year during which the Medicare GME affiliation
agreement will be in effect.
In section V.H.3. of the preamble of this final rule, as we
proposed, we are allowing hospitals to electronically submit the copy
of the affiliation agreement that is required to be sent to the CMS
Central Office. As stated earlier in the preamble, the electronic
submission process will consist of either an e-mail mailbox or a Web
site where hospitals will submit their Medicare GME affiliation
agreements to the CMS Central Office to a designated online mailbox. We
are providing that a copy of the Medicare GME affiliation agreement
will need to be received through the electronic system no later than
11:59 p.m. on July 1 of each academic year. We are specifying that the
electronic affiliation agreement will need to be submitted either as a
scanned copy or a Portable Document Format (PDF) version of that hard
copy agreement; we will not accept an agreement in any electronic
format that could be subject to manipulation. The scanned and/or PDF
format will enable CMS to ensure that the agreements are signed and
dated as required in the regulations at Sec. 413.75. Under this
policy, hospitals will have the option to continue to submit a hard
copy of its affiliation agreement to the CMS Central Office. In
addition, each fiscal intermediary or MAC will continue to have the
authority to specify its requirements for submittal of the Medicare GME
affiliation agreement by hospitals that are part of the affiliation.
The burden associated with this requirement is the time and effort
it would take for the new hospital to develop and submit the Medicare
GME affiliation agreement, to submit the agreement to its fiscal
intermediary or MAC, and to submit a copy to CMS. In the proposed and
final rules that published on May 22, 2009 (74 FR 24080) and August 27,
2009 (74 FR 43754), we stated that it was difficult for us to estimate
the annual burden associated with this requirement because we cannot
estimate the additional number of hospitals that will be permitted to
submit Medicare GME affiliation agreements in any given year as a
result of the change. However, we now have better data available to
quantify the burden associated with the existing requirement for
hospitals to submit GME affiliation agreements to the fiscal
intermediary or MAC servicing the hospital and new requirement for the
electronic submission of a copy of the affiliation agreement to CMS. We
are submitting a new information collection request to OMB for review
and approval of the associated burden.
We anticipate receiving between 100 and 150 GME affiliation
agreements annually. For the purposes of our information collection
request, we estimate that we will receive 125 agreements annually. CMS
provides a two-page sample agreement for hospitals; however, some
facilities may submit additional information that is not required. We
estimate that it will take 1 hour for a hospital to develop a GME
affiliation agreement or to follow the format provided by CMS.
Similarly, we estimate that it will take each hospital 15 minutes to
submit a hard copy of the affiliation agreement to its fiscal
intermediary or MAC. Finally, we estimate that it will take each
hospital 5 minutes to submit an electronic copy of its GME affiliation
agreement to CMS. The total annual burden associated with developing
the affiliation agreement is 125 hours. The total annual burden
associated with submitting a hard copy of the affiliation agreement is
31 hours. The total annual burden associated with submitting the
agreement electronically is 10 hours. The total annual burden
associated with all of the requirements in this section is 166 hours.
The total cost associated with this requirement is $5,000 ($40.00 x 125
agreements).

List of Subjects

42 CFR Part 412

Administrative practice and procedure, Health facilities, Medicare,
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and recordkeeping requirements.

42 CFR Part 415

Health facilities, Health professions, Medicare and Reporting and
recordkeeping requirements.

42 CFR Part 424

Conditions for Medicare payment.

42 CFR Part 440

Grant program--health, Medicaid.

42 CFR Part 441

Family planning, Grant program--health, Infants and children,
Medicaid, Penalties, Prescription drugs, Reporting and recordkeeping
requirements.

42 CFR Part 482

Grant program--health, Hospitals, Medicaid, Medicare, Reporting and
recordkeeping requirements.

42 CFR Part 485

Grant programs--health, Health facilities, Medicaid, Medicare,
Reporting and recordkeeping requirements.

42 CFR Part 489

Health facilities, Medicare, Reporting and recordkeeping
requirements.

0
For the reasons stated in the preamble of this final rule, the Centers
for Medicare & Medicaid Services is amending 42 CFR chapter IV as
follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES

0
1. The authority citation for part 412 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh), and sec. 124 of Pub. L. 106-113 (113 Stat.
1501A-332).

0
2. Section 412.2 is amended by--
0
a. Revising paragraph (c)(5) introductory text.

[[Page 50413]]

0
b. Revising paragraph (c)(5)(iii).
0
c. Adding a new paragraph (c)(5)(iv).
The revision and addition read as follows:

Sec. 412.2 Basis of payment.

* * * * *
(c) * * *
(5) Preadmission services otherwise payable under Medicare Part B
furnished to a beneficiary on the date of the beneficiary's admission
to the hospital and during the 3 calendar days immediately preceding
the date of the beneficiary's admission to the hospital that meet the
condition specified in paragraph (c)(5)(i) of this section and at least
one of the conditions specified in paragraphs (c)(5)(ii) through
(c)(5)(iv).
* * * * *
(iii) For services furnished on or after October 1, 1991, through
June 24, 2010, the services are furnished in connection with the
principal diagnosis that requires the beneficiary to be admitted as an
inpatient and are not the following:
(A) Ambulance services.
(B) Maintenance renal dialysis.
(iv) Nondiagnostic services furnished on or after June 25, 2010,
other than ambulance services and maintenance renal dialysis services,
that are furnished on the date of the beneficiary's inpatient admission
or on the first, second, or third calendar day immediately preceding
the date of the beneficiary's inpatient admission and the hospital does
not attest that such services are unrelated to the beneficiary's
inpatient admission.

0
3. Section 412.4 is amended by--
0
a. Republishing the introductory text of paragraph (b).
0
b. Removing the word ``or'' at the end of paragraph (b)(1).
0
c. Removing the period at the end of paragraph (b)(2) and adding in its
place a semicolon.
0
d. Adding new paragraphs (b)(3) and (b)(4).
The additions read as follows:

Sec. 412.4 Discharges and transfers.

* * * * *
(b) Acute care transfers. A discharge of a hospital inpatient is
considered to be a transfer for purposes of payment under this part if
the patient is readmitted the same day (unless the readmission is
unrelated to the initial discharge) to another hospital that is--
* * * * *
(3) An acute care hospital that would otherwise be eligible to be
paid under the IPPS, but does not have an agreement to participate in
the Medicare program; or
(4) A critical access hospital.
* * * * *

Sec. 412.23 [Amended]

0
4. In Sec. 412.23, paragraphs (e)(6)(i) and (e)(7)(ii) are amended by
removing the date ``December 28, 2010'' and adding the date ``December
28, 2012'' in its place.

0
5. Section 412.64 is amended by--
0
a. Revising paragraphs (d)(1) and (e)(4).
0
b. Adding a new paragraph (m).

Sec. 412.64 Federal rates for inpatient operating costs for Federal
fiscal year 2005 and subsequent fiscal years.

* * * * *
(d) * * *
(1) Subject to the provisions of paragraph (d)(2) of this section,
the applicable percentage change for updating the standardized amount
is--
(i) For fiscal year 2005 through fiscal year 2009, the percentage
increase in the market basket index for prospective payment hospitals
(as defined in Sec. 413.40(a) of this subchapter) for hospitals in all
areas.
(ii) For fiscal year 2010, for discharges--
(A) On or after October 1, 2009 and before April 1, 2010, the
percentage increase in the market basket index for prospective payment
hospitals (as defined in Sec. 413.40(a) of this subchapter) for
hospitals in all areas; and
(B) On or after April 1, 2010 and before October 1, 2010, the
percentage increase in the market basket index minus 0.25 percentage
points for prospective payment hospitals (as defined in Sec. 413.40(a)
of this subchapter) for hospitals in all areas.
(iii) For fiscal year 2011, the percentage increase in the market
basket index minus 0.25 percentage points for prospective payment
hospitals (as defined in Sec. 413.40(a) of this subchapter) for
hospitals in all areas.
* * * * *
(e) * * *
(4) CMS makes an adjustment to the wage index to ensure that
aggregate payments after implementation of the rural floor under
section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and
the imputed floor under paragraph (h)(4) of this section are equal to
the aggregate prospective payments that would have been made in the
absence of such provisions as follows:
(i) Beginning October 1, 2008, such adjustment is transitioned from
a nationwide to a statewide adjustment as follows:
(A) From October 1, 2008 through September 30, 2009, the wage index
is a blend of 20 percent of a wage index with a statewide adjustment
and 80 percent of a wage index with a nationwide adjustment.
(B) From October 1, 2009 through September 30, 2010, the wage index
is a blend of 50 percent of a wage index with a statewide adjustment
and 50 percent of a wage index with a nationwide adjustment.
(ii) Beginning October 1, 2010, such adjustment is a full
nationwide adjustment.
* * * * *
(m) Adjusting the wage index to account for the Frontier State
floor.
(1) General criteria. For discharges occurring on or after October
1, 2010, CMS adjusts the hospital wage index for hospitals located in
qualifying States to recognize the wage index floor established for
frontier States. A qualifying frontier State meets both of the
following criteria:
(i) At least 50 percent of counties located within the State have a
reported population density less than 6 persons per square mile.
(ii) The State does not receive a nonlabor-related share adjustment
determined by the Secretary to take into account the unique
circumstances of hospitals located in Alaska and Hawaii.
(2) Amount of wage index adjustment. A hospital located in a
qualifying State will receive a wage index value not less than 1.00.
(3) Process for determining and posting wage index adjustments. (i)
CMS uses the most recent Population Estimate data published by the U.S.
Census Bureau to determine county definitions and population density.
This analysis will be periodically revised, such as for updates to the
decennial census data.
(ii) CMS will include a listing of qualifying frontier States and
denote the hospitals receiving a wage index increase attributable to
this provision in its annual updates to the hospital inpatient
prospective payment system published in the Federal Register.

0
6. Section 412.73 is amended by--
0
a. Revising paragraph (c)(15).
0
b. Adding a new paragraph (c)(16).
The revision and addition read as follows:

Sec. 412.73 Determination of the hospital-specific rate based on a
Federal fiscal year 1982 base period.

* * * * *
(c) * * *
(15) For Federal fiscal year 2003 through Federal fiscal year 2009.
For Federal fiscal year 2003 through Federal fiscal year 2009, the
update factor is the percentage increase in the market basket

[[Page 50414]]

index for prospective payment hospitals (as defined in Sec. 413.40(a)
of this chapter).
(16) For Federal fiscal year 2010 and subsequent years. For Federal
fiscal year 2010 and subsequent years, the update factor is the
percentage increase specified in Sec. 412.64(d).
* * * * *

Sec. 412.75 [Amended]

0
7. In Sec. 412.75, paragraph (d) is amended by removing the citation
``Sec. 412.73(c)(15)'' and adding the citation ``Sec. 412.73(c)(15)
and Sec. 412.73(c)(16)'' in its place.

Sec. 412.77 [Amended]

0
8. In Sec. 412.77, paragraph (e) is amended by removing the reference
``(c)(15)'' and adding the reference ``(c)(16)'' in its place.

Sec. 412.78 [Amended]

0
9. In Sec. 412.78, paragraph (e) is amended by removing the citation
``Sec. 412.73(c)(15)'' and adding the citation ``Sec. 412.73(c)(15)
and Sec. 412.73(c)(16)'' in its place.

Sec. 412.79 [Amended]

0
10. In Sec. 412.79, paragraph (d) is amended by removing the phrase
``and (c)(15)'' and adding the phrase ``through (c)(16)'' in its place.

0
11. Section 412.101 is revised to read as follows:

Sec. 412.101 Special treatment: Inpatient hospital payment adjustment
for low-volume hospitals.

(a) Definitions. Beginning in FY 2011, the terms used in this
section are defined as follows:
Medicare discharges means discharge of inpatients entitled to
Medicare Part A, including discharges associated with individuals whose
inpatient benefits are exhausted or whose stay was not covered by
Medicare and also discharges of individuals enrolled in a MA
organization under Medicare Part C.
Road miles means ``miles'' as defined in Sec. 412.92(c)(1).
(b) General considerations. (1) CMS provides an additional payment
to a qualifying hospital for the higher incremental costs associated
with a low volume of discharges. The amount of any additional payment
for a qualifying hospital is calculated in accordance with paragraph
(c) of this section.
(2) In order to qualify for this adjustment, a hospital must meet
the following criteria:
(i) For FY 2005 through FY 2010 and FY 2013 and subsequent fiscal
years, a hospital must have fewer than 200 total discharges, which
includes Medicare and non-Medicare discharges, during the fiscal year,
based on the hospital's most recently submitted cost report, and be
located more than 25 road miles (as defined in paragraph (a) of this
section) from the nearest ``subsection (d)'' (section 1886(d) of the
Act) hospital.
(ii) For FY 2011 and FY 2012, a hospital must have fewer than 1,600
Medicare discharges, as defined in paragraph (a) of this section,
during the fiscal year, based on the hospital's Medicare discharges
from the most recently available MedPAR data as determined by CMS, and
be located more than 15 road miles, as defined in paragraph (a) of this
section, from the nearest ``subsection (d)'' (section 1886(d) of the
Act) hospital.
(3) In order to qualify for the adjustment, a hospital must provide
its fiscal intermediary or Medicare administrative contractor with
sufficient evidence that it meets the distance requirement specified
under paragraph (b)(2) of this section. The fiscal intermediary or
Medicare administrative contractor will base its determination of
whether the distance requirement is satisfied upon the evidence
presented by the hospital and other relevant evidence, such as maps,
mapping software, and inquiries to State and local police,
transportation officials, or other government officials.
(c) Determination of the adjustment amount. The low-volume
adjustment for hospitals that qualify under paragraph (b) of this
section is as follows for the applicable fiscal year:
(1) For FY 2005 through FY 2010 and FY 2013 and subsequent fiscal
years, the adjustment is an additional 25 percent for each Medicare
discharge.
(2) For FY 2011 and FY 2012, the adjustment is as follows:
(i) For low-volume hospitals with 200 or fewer Medicare discharges
(as defined in paragraph (a) of this section), the adjustment is an
additional 25 percent for each Medicare discharge.
(ii) For low-volume hospitals with Medicare discharges (as defined
in paragraph (a) of this section) of more than 200 and fewer than
1,600, the adjustment for each Medicare discharge is an additional
percent calculated using the formula [(4/14)--(number of Medicare
discharges/5600)]. The ``number of Medicare discharges'' is determined
as described in paragraph (b)(2)(ii) of this section.
(d) Eligibility of new hospitals for the adjustment. For FYs 2005
through 2010 and FY 2013 and subsequent fiscal years, a new hospital
will be eligible for a low-volume adjustment under this section once it
has submitted a cost report for a cost reporting period that indicates
that it meets discharge requirements during the applicable fiscal year
and has provided its fiscal intermediary or Medicare administrative
contractor with sufficient evidence that it meets the distance
requirement, as specified under paragraph (b)(2) of this section.

Sec. 412.106 [Amended]

0
12. Section 412.106 is amended by--
0
a. In paragraph (b)(2)(i)(B), removing the word ``or'' and adding in
its place the word ``including''.
0
b. In paragraph (b)(2)(iii)(B), removing the word ``or'' and adding in
its place the word ``including''.

Sec. 412.108 [Amended]

0
13. Section 412.108 is amended as follows:
0
a. In paragraph (a)(1) introductory text, the phrase ``before October
1, 2011'' is removed and the phrase ``before October 1, 2012'' is added
in its place.
0
b. In paragraph (a)(1)(iii) introductory text, the word ``receiving''
is removed and the phrase ``entitled to'' is added in its place.
0
c. In paragraph (c)(2)(iii) introductory text, the phrase ``before
October 1, 2011'' is removed and the phrase ``before October 1, 2012''
is added in its place.
0
14. Section 412.113 is amended by revising paragraph (c)(2)(i)(A) to
read as follows:

Sec. 412.113 Other payments.

* * * * *
(c) * * *
(2)(i) * * *
(A) The hospital or CAH is located in a rural area as defined in
Sec. 412.62(f) and is not deemed to be located in an urban area under
the provisions of Sec. 412.64(b)(3). For cost reporting periods
beginning on or after October 1, 2010, the hospital or CAH is either
located in a rural area as defined in Sec. 412.62(f) and is not deemed
to be located in an urban area under the provisions of Sec.
412.64(b)(3) or the hospital or CAH has reclassified as rural under the
provisions at Sec. 412.103.
* * * * *

0
15. Section 412.211 is amended by revising paragraph (c) to read as
follows:

Sec. 412.211 Puerto Rico rates for Federal fiscal year 2004 and
subsequent fiscal years.

* * * * *
(c) Computing the standardized amount. CMS computes a Puerto Rico
standardized amount that is applicable to all hospitals located in all
areas. The applicable percentage change for updating the Puerto Rico
specific standardized amount is as follows:

[[Page 50415]]

(1) For fiscal year 2004 through fiscal year 2009, increased by the
applicable percentage change specified in Sec. 412.64(d)(1)(ii)(A).
(2) For fiscal year 2010, increased by the market basket index for
prospective payment hospitals (as defined in Sec. 413.40(a) of this
subchapter) for hospitals in all areas.
(3) For fiscal year 2011, increased by the applicable percentage
change specified in Sec. 412.64(d)(1)(iii).
* * * * *

Sec. 412.230 [Amended]

0
16. In Sec. 412.230 paragraph (d)(1)(iv)(E) is amended by removing the
figures ``86'' and ``88'' adding the figures ``82'' and ``84'' in their
place, respectively.

Sec. 412.232 [Amended]

0
17. In Sec. 412.232, paragraph (c)(3) is amended by removing the
figure ``88'' and adding the figure ``85'' in its place.

Sec. 412.234 [Amended]

0
18. In Sec. 412.234, paragraph (b)(3) is amended by removing the
figure ``88'' and adding the figure ``85'' in its place.

0
19. Section 412.273 is revised to read as follows:

Sec. 412.273 Withdrawing an application, terminating an approved 3-
year reclassification, or canceling a previous withdrawal or
termination.

(a) Definitions. For purposes of this section, the following
definitions apply.
Termination refers to the termination of an already existing 3-year
MGCRB reclassification where such reclassification has already been in
effect for 1 or 2 years, and there are 1 or 2 years remaining on the 3-
year reclassification. A termination is effective only for the full
fiscal year(s) remaining in the 3-year period at the time the request
is received. Requests for terminations for part of a fiscal year are
not considered.
Withdrawal refers to the withdrawal of a 3-year MGCRB
reclassification that has not yet gone into effect or where the MGCRB
has not yet issued a decision on the application.
(b) General rule. The MGCRB allows a hospital, or group of
hospitals, to withdraw its application or to terminate an already
existing 3-year reclassification, in accordance with this section.
(c) Timing. (1) A request for withdrawal must be received by the
MGCRB--
(i) At any time before the MGCRB issues a decision on the
application; or
(ii) After the MGCRB issues a decision, provided that the request
for withdrawal is received by the MGCRB within 45 days of publication
of CMS' annual notice of proposed rulemaking concerning changes to the
inpatient hospital prospective payment system and proposed payment
rates for the fiscal year for which the application has been filed.
(2) A request for termination must be received by the MGCRB within
45 days of the publication of CMS' annual notice of proposed rulemaking
concerning changes to the inpatient hospital prospective payment system
and proposed payment rates for the fiscal year for which the
termination is to apply.
(d) Reapplication within the approved 3-year period, cancellations
of terminations and withdrawals, and prohibition on overlapping
reclassification approvals. (1) Cancellation of terminations or
withdrawals. Subject to the provisions of this section, a hospital (or
group of hospitals) may cancel a withdrawal or termination in a
subsequent year and request the MGCRB to reinstate the wage index
reclassification for the remaining fiscal year(s) of the 3-year period.
(Withdrawals may be cancelled only in cases where the MGCRB issued a
decision on the geographic reclassification request.)
(2) Timing and process of cancellation request. Cancellation
requests must be received in writing by the MGCRB no later than the
deadline for submitting reclassification applications for the following
fiscal year, as specified in Sec. 412.256(a)(2).
(3) Reapplications. A hospital may apply for reclassification to a
different area (that is, an area different from the one to which it was
originally reclassified for the 3-year period). If the application is
approved, the reclassification will be effective for 3 years. Once a 3-
year reclassification becomes effective, a hospital may no longer
cancel a withdrawal or termination of another 3-year reclassification,
regardless of whether the withdrawal or termination request is made
within 3 years from the date of the withdrawal or termination.
(4) Termination of existing 3-year reclassification. In a case in
which a hospital with an existing 3-year wage index reclassification
applies to be reclassified to another area, its existing 3-year
reclassification will be terminated when a second 3-year wage index
reclassification goes into effect for payments for discharges on or
after the following October 1.
(e) Written request only. A request to withdraw an application must
be made in writing to the MGCRB by all hospitals that are party to the
application. A request to terminate an approved reclassification must
be made in writing to the MGCRB by an individual hospital or by an
individual hospital that is party to a group classification.
(f) Appeal of the MGCRB's denial of a hospital's request for
withdrawal or termination, or for cancellation of a withdrawal or
termination. (1) A hospital may file an appeal of the MGCRB's denial of
its request for withdrawal or termination, or of the MGCRB's denial of
its request for a cancellation of such withdrawal or termination, to
the Administrator. The appeal must be received within 15 days of the
date of the notice of the denial.
(2) Within 20 days of receipt of the hospital's request for appeal,
the Administrator affirms or reverses the denial.

0
20. A new Sec. 412.405 is added to read as follows:

Sec. 412.405 Preadmission services as inpatient operating costs under
the inpatient psychiatric facility prospective payment system.

The prospective payment system includes payment for inpatient
operating costs of preadmission services if the inpatient operating
costs are for--
(a) Preadmission services otherwise payable under Medicare Part B
furnished to a beneficiary on the date of the beneficiary's inpatient
admission, and during the calendar day immediately preceding the date
of the beneficiary's inpatient admission, to the inpatient psychiatric
facility that meet the following conditions:
(1) The services are furnished by the inpatient psychiatric
facility or by an entity wholly owned or wholly operated by the
inpatient psychiatric facility. An entity is wholly owned by the
inpatient psychiatric facility if the inpatient psychiatric facility is
the sole owner of the entity. An entity is wholly operated by an
inpatient psychiatric facility if the inpatient psychiatric facility
has exclusive responsibility for conducting and overseeing the entity's
routine operations, regardless of whether the inpatient psychiatric
facility also has policymaking authority over the entity.
(2) The services are diagnostic (including clinical diagnostic
laboratory tests).
(3) The services are nondiagnostic when furnished on the date of
the beneficiary's inpatient admission, the services are nondiagnostic
when furnished on the calendar day preceding the date of the
beneficiary's inpatient admission and the hospital does not demonstrate
that such services are unrelated to the beneficiary's inpatient

[[Page 50416]]

admission, and are not one of the following:
(i) Ambulance services.
(ii) Maintenance renal dialysis services.
(b) The preadmission services are furnished on or after June 25,
2010.

0
21. Section 412.503 is amended by--
0
a. Adding a definition of ``Long-term care hospital prospective payment
system fiscal year''.
0
b. Adding a definition of ``Long-term care hospital prospective payment
system payment year''.
0
c. Revising paragraph (3) of the definition of ``Long-term care
hospital prospective payment system rate year''.
The additions and revision read as follows:

Sec. 412.503 Definitions.

* * * * *
Long-term care hospital prospective payment system fiscal year
means, beginning October 1, 2010, the 12-month period of October 1
through September 30.
Long-term care hospital prospective payment system payment year
means the general term that encompasses both the definition of ``long-
term care hospital prospective payment system rate year'' and ``long-
term care hospital prospective payment system fiscal year'' specified
in this section.
Long-term care hospital prospective payment system rate year
means--
* * * * *
(3) From October 1, 2009 through September 30, 2010, the 12-month
period of October 1 through September 30.
* * * * *

Sec. 412.521 [Amended]

0
22. In paragraph (b)(1) of Sec. 412.521, remove the reference ``Sec.
412.2(c)'' and add in its place the reference ``Sec. Sec. 412.2(c)(1)
through (c)(4) of this Part and Sec. 412.540''.

0
23. Section 412.523 is amended by--
0
a. Revising paragraph (c)(3)(vi).
0
b. Adding paragraph (c)(3)(vii).
0
c. In paragraph (d)(3), removing the phrase ``December 29, 2010, and by
no later than October 1, 2012'' and adding the phrase ``December 29,
2012,'' in its place.
The revision and addition read as follows:

Sec. 412.523 Methodology for calculating the Federal prospective
payment rates.

* * * * *
(c) * * *
(3) * * *
(vi) For long-term care hospital prospective payment system rate
year beginning October 1, 2009 and ending September 30, 2010. (A) The
standard Federal rate for long-term care hospital prospective payment
system rate year beginning October 1, 2009 and ending September 30,
2010 is the standard Federal rate for the previous long-term care
hospital prospective payment system rate year updated by 1.74 percent.
The standard Federal rate is adjusted, as appropriate, as described in
paragraph (d) of this section.
(B) With respect to discharges occurring on or after October 1,
2009 and before April 1, 2010, payments are based on the standard
Federal rate in paragraph (c)(3)(v) of this section updated by 2.0
percent.
(vii) For long-term care hospital prospective payment system fiscal
year beginning October 1, 2010, and ending September 30, 2011. The
standard Federal rate for the long-term care hospital prospective
payment system fiscal year beginning October 1, 2010, and ending
September 30, 2011, is the standard Federal rate for the previous long-
term care hospital prospective payment system rate year updated by -
0.49 percent. The standard Federal rate is adjusted, as appropriate, as
described in paragraph (d) of this section.
* * * * *

0
24. Section 412.525 is amended by revising paragraphs (a)(1) and (a)(2)
to read as follows:

Sec. 412.525 Adjustments to the Federal prospective payment.

(a) * * *
(1) CMS provides for an additional payment to a long-term care
hospital if its estimated costs for a patient exceed the adjusted LTC-
MS-DRG payment plus a fixed-loss amount. For each long-term care
hospital prospective payment system payment year, as described in Sec.
412.503, CMS determines a fixed-loss amount that is the maximum loss
that a hospital can incur under the prospective payment system for a
case with unusually high costs.
(2) The fixed-loss amount is determined for the long-term care
hospital prospective payment system payment year, as defined in Sec.
412.503, using the LTC-MS-DRG relative weights that are in effect at
the start of the applicable long-term care hospital prospective payment
system payment year, as defined in Sec. 412.503.
* * * * *

Sec. 412.529 [Amended]

0
25. In Sec. 412.529, paragraphs (c)(2) introductory text and (c)(3)
introductory text are amended by removing the date ``December 29,
2010'' and adding in its place the date ``December 29, 2012'' each time
it appears.

Sec. 412.534 [Amended]

0
26. Section 412.534 is amended as follows:
0
a. Paragraphs (c)(1) introductory text, (c)(1)(i), (c)(1)(ii), (c)(2)
introductory text, (d)(1) introductory text, (d)(1)(i), (d)(2)
introductory text, (e)(1) introductory text, (e)(1)(i), and (e)(2)
introductory text are amended by removing the date ``October 1, 2010''
and adding in its place the date ``October 1, 2012'' each time it
appears.
0
b. Paragraphs (c)(3), (d)(3), (e)(3), (h)(4), and (h)(5) are amended by
removing the date ``July 1, 2010'' and adding in its place the date
``July 1, 2012'' each time it appears.

Sec. 412.536 [Amended]

0
27. In Sec. 412.536, paragraph (a)(2) introductory text is amended by
removing the date ``July 1, 2010'' and adding in its place the date
``July 1, 2012'' in its place.

0
28. A new Sec. 412.540 is added to read as follows:

Sec. 412.540 Method of payment for preadmission services under the
long-term care hospital prospective payment system.

The prospective payment system includes payment for inpatient
operating costs of preadmission services that are--
(a) Otherwise payable under Medicare Part B;
(b) Furnished to a beneficiary on the date of the beneficiary's
inpatient admission, and during the calendar day immediately preceding
the date of the beneficiary's inpatient admission, to the long-term
care hospital, or to an entity wholly owned or wholly operated by the
long-term care hospital; and
(1) An entity is wholly owned by the long-term care hospital if the
long-term care hospital is the sole owner of the entity.
(2) An entity is wholly operated by a long-term care hospital if
the long-term care hospital has exclusive responsibility for conducting
and overseeing the entity's routine operations, regardless of whether
the long-term care hospital also has policymaking authority over the
entity.
(c) Related to the inpatient stay. A preadmission service is
related if--
(1) It is diagnostic (including clinical diagnostic laboratory
tests); or
(2) It is nondiagnostic when furnished on the date of the
beneficiary's inpatient admission; or
(3) On or after June 25, 2010, it is nondiagnostic when furnished
on the

[[Page 50417]]

calendar day preceding the date of the beneficiary's inpatient
admission and the hospital does not attest that such service is
unrelated to the beneficiary's inpatient admission.
(d) Not one of the following--
(1) Ambulance services.
(2) Maintenance renal dialysis services.

0
29. Section 412.604 is amended by--
0
a. Redesignating paragraph (f) as paragraph (g).
0
b. Adding a new paragraph (f).
The addition reads as follows:

Sec. 412.604 Conditions for payment under the prospective payment
system for inpatient rehabilitation services.

* * * * *
(f) The prospective payment system includes payment for inpatient
operating costs of preadmission services that are--
(1) Otherwise payable under Medicare Part B;
(2) Furnished to a beneficiary on the date of the beneficiary's
inpatient admission, and during the calendar day immediately preceding
the date of the beneficiary's inpatient admission, to the inpatient
rehabilitation facility, or to an entity wholly owned or wholly
operated by the inpatient rehabilitation facility; and
(i) An entity is wholly owned by the inpatient rehabilitation
facility if the inpatient rehabilitation facility is the sole owner of
the entity.
(ii) An entity is wholly operated by an inpatient rehabilitation
facility if the inpatient rehabilitation facility has exclusive
responsibility for conducting and overseeing the entity's routine
operations, regardless of whether the inpatient rehabilitation facility
also has policymaking authority over the entity.
(3) Related to the inpatient stay. A preadmission service is
related if--
(i) It is diagnostic (including clinical diagnostic laboratory
tests); or
(ii) It is nondiagnostic when furnished on the date of the
beneficiary's inpatient admission; or
(iii) On or after June 25,, 2010, it is nondiagnostic when
furnished on the calendar day preceding the date of the beneficiary's
inpatient admission and the hospital does not attest that such service
is unrelated to the beneficiary's inpatient admission.
(4) Not one of the following--
(i) Ambulance services.
(ii) Maintenance renal dialysis services.
* * * * *

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED NURSING FACILITIES

0
30. The authority citation for part 413 continues to read as follows:

Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act
(42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n),
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of Pub.
L. 106-133 (113 Stat. 1501A-332).

0
31. Section 413.40 is amended by--
0
a. Revising paragraph (c)(2) introductory text.
0
b. Revising paragraph (c)(2)(iii).
0
c. Adding a new paragraph (c)(2)(iv).
The revision and addition read as follows:

Sec. 413.40 Ceiling on the rate of increase in hospital inpatient
costs.

* * * * *
(c) * * *
(2) Preadmission services otherwise payable under Medicare Part B
furnished to a beneficiary on the date of the beneficiary's admission
to the hospital and during the calendar day immediately preceding the
date of the beneficiary's admission to the hospital that meet the
condition specified in paragraph (c)(2)(i) of this section and at least
one of the conditions specified in paragraphs (c)(2)(ii) through
(c)(2)(iv):
* * * * *
(iii) For services furnished on or after October 1, 1991 through
June 24, 2010, the services are furnished in connection with the
principal diagnosis that requires the beneficiary to be admitted as an
inpatient and are not the following:
(A) Ambulance services.
(B) Maintenance renal dialysis services.
(iv) Nondiagnostic services furnished on or after June 25, 2010,
other than ambulance services and maintenance renal dialysis services,
that are furnished on the date of the beneficiary's inpatient admission
or on the calendar day immediately preceding the date of the
beneficiary's inpatient admission and the hospital does not attest that
such services are unrelated to the beneficiary's inpatient admission.
* * * * *
0
32. Section 413.70 is amended by--
0
a. Revising paragraph (b)(3)(i)(A).
0
b. Revising paragraph (b)(3)(i)(B).
0
c. Revising paragraph (b)(3)(i)(D).
0
d. Revise paragraph (b)(3)(ii)(A).
0
e. Redesignate paragraph (b)(5)(i) as (b)(5)(i)(A).
0
f. In newly redesignated paragraph (b)(5)(i)(A), the phrase ``on or
after December 21, 2000,'' is removed and the phrase ``on or after
December 21, 2000 and on or before December 31, 2003,'' is added in its
place.
0
g. Add a new paragraph (b)(5)(i)(B).
The revision and addition read as follows:

Sec. 413.70 Payment for services of a CAH.

* * * * *
(b) * * *
(3) * * *
(i) * * *
(A)(1) For cost reporting periods beginning before October 1, 2010.
The election must be made in writing, made on an annual basis, and
delivered to the fiscal intermediary or MAC servicing the CAH at least
30 days before the start of the cost reporting period for which the
election is made. An election, once made for a cost reporting period,
remains in effect for all of that period.
(2) For cost reporting periods beginning on or after October 1,
2010. If a CAH had elected the method specified in paragraph (b)(3)(i)
of this section in its most recent cost reporting period beginning
prior to October 1, 2010, that election remains in effect for all of
that period and for all subsequent cost reporting periods, unless the
CAH submits a termination request to the fiscal intermediary or MAC
servicing the CAH at least 30 days before the start of the next cost
reporting period. However, for cost reporting periods beginning in
October 2010 and November 2010, if a CAH wishes to terminate its
previous election, the CAH must submit a termination request to the
fiscal intermediary or MAC servicing the CAH prior to December 1, 2010.
If a CAH had no election in effect in its most recent preceding cost
reporting period and chooses to elect the method specified in paragraph
(b)(3)(i) of this section on or after October 1, 2010, the election
must be made in writing and delivered to the fiscal intermediary or MAC
servicing the CAH at least 30 days before the start of the first cost
reporting period for which the election is made. Once the election is
made, it remains in effect for all of that period and for all
subsequent cost reporting periods unless the CAH submits a termination
request to the fiscal intermediary or MAC servicing the CAH at least 30
days before the start of the next cost reporting period.

[[Page 50418]]

(B) An election of the payment method specified under paragraph
(b)(3)(i) of this section applies to all services furnished to
outpatients by a physician or other practitioner who has reassigned his
or her rights to bill for those services to the CAH in accordance with
subpart F of part 424 of this chapter. If a physician or other
practitioner does not reassign his or her billing rights to the CAH in
accordance with subpart F of Part 424 of this chapter, payment for the
physician's or practitioner's services furnished to CAH outpatients
will be made on a fee schedule or other applicable basis as specified
in subpart B of part 414 of this subchapter.
* * * * *
(D) An election made under paragraph (b)(3)(i) of this section is
effective as provided for under paragraph (b)(3)(i)(A) or paragraph
(b)(3)(i)(C) of this section and does not apply to an election that was
terminated prior to the start of the cost reporting period for which it
would otherwise apply.
(ii) * * *
(A) Effective for cost reporting periods beginning on or after
January 1, 2004, for facility services not including any services for
which payment may be made under paragraph (b)(3)(ii)(B) of this
section, 101 percent of the reasonable costs of the services as
determined under paragraph (b)(2)(i) of this section; and
* * * * *
(5) * * *
(i) * * *
(B) Effective for cost reporting periods beginning on or after
January 1, 2004, payment for ambulance services furnished by a CAH or
an entity that is owned and operated by a CAH is 101 percent of the
reasonable costs of the CAH or the entity in furnishing those services,
but only if the CAH or the entity is the only provider or supplier of
ambulance services located within a 35-mile drive of the CAH or the
entity.
* * * * *

0
33. Section 413.75(b) is amended by revising the definitions of
``Primary care resident'', and ``Resident'' to read as follows:

Sec. 413.75 Direct GME payments: General requirements.

* * * * *
(b) * * *
Primary care resident is a resident who is enrolled in an approved
medical residency training program in family medicine, general internal
medicine, general pediatrics, preventive medicine, geriatric medicine
or osteopathic general practice. Effective for cost reporting periods
beginning on or after October 1, 2010, primary care resident is a
resident who is formally accepted, enrolled, and participating in an
approved medical residency training program in family medicine, general
internal medicine, general pediatrics, preventive medicine, geriatric
medicine or osteopathic general practice.
* * * * *
Resident means an intern, resident, or fellow who participates in
an approved medical residency program, including programs in
osteopathy, dentistry, and podiatry, as required in order to become
certified by the appropriate specialty board. Effective for cost
reporting periods beginning on or after October 1, 2010, resident means
an intern, resident, or fellow who is formally accepted, enrolled, and
participating in an approved medical residency program, including
programs in osteopathy, dentistry, and podiatry, as required in order
to become certified by the appropriate specialty board.
* * * * *

0
34. Section 413.85 is amended by--
0
a. Revising paragraph (c)(2).
0
b. Revising paragraph (d)(1)(i)(C).
The revisions read as follows:

Sec. 413.85 Cost of approved nursing and allied health education
activities.

* * * * *
(c) * * *
(2) Enhance the quality of health care at the provider; and
* * * * *
(d) * * *
(1) * * *
(i) * * *
(C) Enhance the quality of health care at the provider.
* * * * *

PART 415--SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS,
SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN
CERTAIN SETTINGS

0
35. The authority citation for Part 415 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).

0
36. In Sec. 415.152, the definition of ``Approved graduate medical
education'' is amended by revising paragraph (1) to read as follows:

Sec. 415.152 Definitions.

* * * * *
Approved graduate medical education program means one of the
following:
(1) A residency program approved by the Accreditation Council for
Graduate Medical Education, by the American Osteopathic Association, by
the Commission on Dental Accreditation of the American Dental
Association, or by the Council on Podiatric Medical Education of the
American Podiatric Medical Association.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
37. The authority citation for part 424 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).

Sec. 424.510 [Amended]

0
38. In 424.510, paragraph (c), remove the reference ``Sec. 489.13(d)''
and add the reference ``Sec. 489.13'' in its place.

Sec. 424.520 [Amended]

0
39. In 424.520, paragraph (a), remove the reference ``Sec. 489.13(d)''
and add the reference ``Sec. 489.13'' in its place.

PART 440--SERVICES: GENERAL PROVISIONS

0
40. The authority citation for part 440 continues to read as follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).

0
41. Section 440.160 is amended by revising paragraph (b)(1) to read as
follows:

Sec. 440.160 Inpatient psychiatric services for individuals under age
21.

* * * * *
(b) * * *
(1) A psychiatric hospital that undergoes a State survey to
determine whether the hospital meets the requirements for participation
in Medicare as a psychiatric hospital as specified in Sec. 482.60 of
this chapter, or is accredited by a national organization whose
psychiatric hospital accrediting program has been approved by CMS; or a
hospital with an inpatient psychiatric program that undergoes a State
survey to determine whether the hospital meets the requirements for
participation in Medicare as a hospital, as specified in part 482 of
this chapter, or is accredited by a national accrediting organization
whose hospital accrediting program has been approved by CMS.
* * * * *

PART 441--SERVICES: REQUIREMENTS AND LIMITS APPLICABLE TO SPECIFIC
SERVICES

0
42. The authority citation for part 441 continues to read as follows:

[[Page 50419]]

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).

0
43. Section 441.151 is amended by revising paragraph (a)(2)(i) to read
as follows:

Sec. 441.151 General requirements.

(a) * * *
(2) * * *
(i) A psychiatric hospital that undergoes a State survey to
determine whether the hospital meets the requirements for participation
in Medicare as a psychiatric hospital as specified in Sec. 482.60 of
this chapter, or is accredited by a national organization whose
psychiatric hospital accrediting program has been approved by CMS; or a
hospital with an inpatient psychiatric program that undergoes a State
survey to determine whether the hospital meets the requirements for
participation in Medicare as a hospital, as specified in part 482 of
this chapter, or is accredited by a national accrediting organization
whose hospital accrediting program has been approved by CMS.
* * * * *

PART 482--CONDITIONS OF PARTICIPATION FOR HOSPITALS

0
44. The authority citation for part 482 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395(hh)).
0
45. Section 482.56 is amended by revising paragraph (b) to read as
follows:

Sec. 482.56 Condition of participation: Rehabilitation services.

* * * * *
(b) Standard: Delivery of services. Services must only be provided
under the orders of a qualified and licensed practitioner who is
responsible for the care of the patient, acting within his or her scope
of practice under State law, and who is authorized by the hospital's
medical staff to order the services in accordance with hospital
policies and procedures and State laws.
(1) All rehabilitation services orders must be documented in the
patient's medical record in accordance with the requirements at Sec.
482.24.
(2) The provision of care and the personnel qualifications must be
in accordance with national acceptable standards of practice and must
also meet the requirements of Sec. 409.17 of this chapter.
0
46. Section 482.57 is amended by revising paragraph (b)(3) and by
adding paragraph (b)(4) to read as follows:

Sec. 482.57 Condition of participation: Respiratory care services.

* * * * *
(b) * * *
(3) Services must only be provided under the orders of a qualified
and licensed practitioner who is responsible for the care of the
patient, acting within his or her scope of practice under State law,
and who is authorized by the hospital's medical staff to order the
services in accordance with hospital policies and procedures and State
laws.
(4) All respiratory care services orders must be documented in the
patient's medical record in accordance with the requirements at Sec.
482.24.

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

0
47. The authority citation for part 485 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395(hh)).

0
48. Section 485.610 is amended by revising the introductory text of
paragraph (b) to read as follows:

Sec. 485.610 Condition of participation: Status and location.

* * * * *
(b) Standard: Location in a rural area or treatment as rural. The
CAH meets the requirements of either paragraph (b)(1) or (b)(2) of this
section or the requirements of either (b)(3) or (b)(4) of this section.
* * * * *

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

0
49. The authority citation for part 489 continues to read as follows:

Authority: Secs. 1102, 1819, 1820(e), 1861, 1864(m), 1866,
1869, and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i-3,
1395x, 1395aa(m), 1395cc, 1395ff, and 1395hh).

0
50. Section 489.1 is revised to read as follows:

Sec. 489.1 Statutory basis.

(a) This part implements section 1866 of the Social Security Act
(the Act). Section 1866 of the Act specifies the terms of provider
agreements, the grounds for terminating a provider agreement, the
circumstances under which payment for new admissions may be denied, and
the circumstances under which payment may be withheld for failure to
make timely utilization review. The sections of the Act specified in
paragraphs (a)(1) through (a)(4) of this section are also pertinent.
(1) Section 1861 of the Act defines the services covered under
Medicare and the providers that may be reimbursed for furnishing those
services.
(2) Section 1864 of the Act provides for the use of State survey
agencies to ascertain whether certain entities meet the conditions of
participation.
(3) Section 1865(a)(1) of the Act provides that an entity
accredited by a national accreditation body found by the Secretary to
satisfy the Medicare conditions of participation, conditions for
coverage, or conditions of certification or requirements for
participation shall be treated as meeting those requirements. Section
1865(a)(2) of the Act requires the Secretary to consider when making
such a finding, among other things, the national accreditation body's
accreditation requirements and survey procedures.
(4) Section 1871 of the Act authorizes the Secretary to prescribe
regulations for the administration of the Medicare program.
(b) Although section 1866 of the Act speaks only to providers and
provider agreements, the effective date rules in this part are made
applicable also to the approval of suppliers that meet the requirements
specified in Sec. 489.13.
(c) Section 1861(o)(7) of the Act requires each HHA to provide CMS
with a surety bond.

0
52. Section 489.13 is revised to read as follows:

Sec. 489.13 Effective date of agreement or approval.

(a) Applicability--(1) General rule. Except as provided in
paragraph (a)(2) of this section, this section applies to Medicare
provider agreements with, and supplier approval of, entities that, as a
basis for participation in Medicare are subject to a determination by
CMS on the basis of--
(i) A survey conducted by the State survey agency or CMS surveyors;
or
(ii) In lieu of such State survey agency or CMS conducted survey,
accreditation by an accreditation organization whose program has CMS
approval in accordance with section 1865 of the Act at the time of the
accreditation survey and accreditation decision.
(2) Exceptions. (i) For an agreement with a community mental health
center (CMHC) or a federally qualified health center (FQHC), the
effective date is the date on which CMS accepts a signed agreement
which assures that the CMHC or FQHC meets all Federal requirements.
(ii) A Medicare supplier approval of a laboratory is effective only
while the laboratory has in effect a valid CLIA certificate issued
under part 493 of this chapter, and only for the specialty and
subspecialty tests it is authorized to perform.

[[Page 50420]]

(b) All health and safety standards are met on the date of survey.
The agreement or approval is effective on the date the State agency,
CMS, or the CMS contractor survey (including the Life Safety Code
survey, if applicable) is completed, or on the effective date of the
accreditation decision, as applicable, if on that date the provider or
supplier meets all applicable Federal requirements as set forth in this
chapter. (If the agreement or approval is time-limited, the new
agreement or approval is effective on the day following the expiration
of the current agreement or approval.) However, the effective date of
the agreement or approval may not be earlier than the latest of the
dates on which CMS determines that each applicable Federal requirement
is met. Federal requirements include, but are not limited to--
(1) Enrollment requirements established in part 424, subpart P, of
this chapter. CMS determines, based upon its review and verification of
the prospective provider's or supplier's enrollment application, the
date on which enrollment requirements have been met;
(2) The requirements identified in Sec. Sec. 489.10 and 489.12;
and
(3) The applicable Medicare health and safety standards, such as
the applicable conditions of participation, the requirements for
participation, the conditions for coverage, or the conditions for
certification.
(c) All health and safety standards are not met on the date of
survey. If, on the date the survey is completed, the provider or
supplier has failed to meet any one of the applicable health and safety
standards, the following rules apply for determining the effective date
of the provider agreement or supplier approval, assuming that no other
Federal requirements remain to be satisfied. However, if other Federal
requirements remain to be satisfied, notwithstanding the provisions of
paragraphs (c)(1) through (c)(3) of this section, the effective date of
the agreement or approval may not be earlier than the latest of the
dates on which CMS determines that each applicable Federal requirement
is met.
(1) For an agreement with an SNF, the effective date is the date on
which--
(i) The SNF is in substantial compliance (as defined in Sec.
488.301 of this chapter) with the requirements for participation; and
(ii) CMS or the State survey agency receives from the SNF, if
applicable, an approvable waiver request.
(2) For an agreement with, or an approval of, any other provider or
supplier, (except those specified in paragraph (a)(2) of this section),
the effective date is the earlier of the following:
(i) The date on which the provider or supplier meets all applicable
conditions of participation, conditions for coverage, or conditions for
certification; or, if applicable, the date of a CMS-approved
accreditation organization program's positive accreditation decision,
issued after the accreditation organization has determined that the
provider or supplier meets all applicable conditions.
(ii) The date on which a provider or supplier is found to meet all
conditions of participation, conditions for coverage, or conditions for
certification, but has lower-level deficiencies, and--
(A) CMS or the State survey agency receives an acceptable plan of
correction for the lower-level deficiencies (the date of receipt is the
effective date regardless of when the plan of correction is approved);
or, if applicable, a CMS-approved accreditation organization program
issues a positive accreditation decision after it receives an
acceptable plan of correction for the lower-level deficiencies; or
(B) CMS receives an approvable waiver request (the date of receipt
is the effective date regardless of when CMS approves the waiver
request).
(3) For an agreement with any other provider or an approval of any
other supplier (except those specified in paragraph (a)(2) of this
section) that is found to meet all conditions of participation,
conditions for coverage, or conditions for certification, but has
lower-level deficiencies and has submitted both an approvable plan of
correction/positive accreditation decision and an approvable waiver
request, the effective date is the later of the dates that result when
calculated in accordance with paragraph (c)(2)(ii)(A) or (c)(2)(ii)(B)
of this section.

(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; Program No. 93.774, Medicare--
Supplementary Medical Insurance Program; and Program No. 93.778,
Medical Assistance)

Dated: July 23, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
Dated: July 28, 2010
Kathleen Sebelius,
Secretary.

Note: The following Addendum will not appear in the Code of
Federal Regulations.

Addendum--Schedule of Standardized Amounts, Update Factors, and Rate-
of-Increase Percentages Effective With Cost Reporting Periods Beginning
on or After October 1, 2010

I. Summary and Background

Several provisions of the Affordable Care Act affect the
hospital inpatient update for both FYs 2010 and 2011. However, due
to the timing of the passage of the legislation, we were unable to
address those provisions in the FY 2011 IPPS/LTCH PPS proposed rule
issued in the Federal Register on May 4, 2010 (75 FR 23852). On June
2, 2010, we issued a supplemental proposed rule to the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 30756) to address these provisions.
The discussion below reflects both the provisions of the initial FY
2011 proposed rule and the supplemental proposed rule relative to
the FY 2011 payment rates and factors and any public comments that
we received on both documents.
In this Addendum, we are setting forth a description of the
methods and data we used to determine the prospective payment rates
for Medicare hospital inpatient operating costs and Medicare
hospital inpatient capital-related costs for FY 2011 for acute care
hospitals. In this final rule, we also are setting forth the final
rate-of-increase percentages for updating the target amounts for
certain hospitals excluded from the IPPS for FY 2011. We note that,
because certain hospitals excluded from the IPPS are paid on a
reasonable cost basis subject to a rate-of-increase ceiling (and not
by the IPPS), these hospitals are not affected by the figures for
the standardized amounts, offsets, and budget neutrality factors.
Therefore, in this final rule, we are finalizing the rate-of-
increase percentages for updating the target amounts for certain
hospitals excluded from the IPPS that are effective for cost
reporting periods beginning on or after October 1, 2010.
In addition, we are setting forth a description of the methods
and data we used to determine the final standard Federal rate that
will be applicable to Medicare LTCHs for FY 2011.
In general, except for SCHs, MDHs, and hospitals located in
Puerto Rico, each hospital's payment per discharge under the IPPS is
based on 100 percent of the Federal national rate, also known as the
national adjusted standardized amount. This amount reflects the
national average hospital cost per case from a base year, updated
for inflation.
Currently, SCHs are paid based on whichever of the following
rates yields the greatest aggregate payment: the Federal national
rate; the updated hospital-specific rate based on FY 1982 costs per
discharge; the updated hospital-specific rate based on FY 1987 costs
per discharge; the updated hospital-specific rate based on FY 1996
costs per discharge; or the updated hospital-specific rate based on
the FY 2006 costs per discharge.
Under section 1886(d)(5)(G) of the Act, MDHs historically have
been paid based on the Federal national rate or, if higher, the
Federal national rate plus 50 percent of the difference between the
Federal national rate

[[Page 50421]]

and the updated hospital-specific rate based on FY 1982 or FY 1987
costs per discharge, whichever was higher. However, section
5003(a)(1) of Public Law 109-171 extended and modified the MDH
special payment provision that was previously set to expire on
October 1, 2006, to include discharges occurring on or after October
1, 2006, but before October 1, 2011. Section 3124(a) of the
Affordable Care Act amended sections 1886(d)(5)(G)(i) and
1886(d)(5)(G)(ii)(II) of the Act to extend the MDH program and
payment methodology from the end of FY 2011 to the end of FY 2012,
by striking ``October 1, 2011'' and inserting ``October 1, 2012''.
Section 3124(b) of the Affordable Care Act also made conforming
amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the
Act. Section 3124(b)(2) of the Affordable Care Act also amended
section 13501(e)(2) of OBRA 1993 to extend the provision permitting
hospitals to decline reclassification as an MDH through FY 2012. In
section IV.G.2. of the preamble to this final rule, we are adopting
as final the proposed changes to Sec. 412.108(a)(1) and (c)(2)(iii)
to reflect the legislative extension of the MDH program for an
additional year, through FY 2012. Under section 5003(b) of Pub. L.
109-171, if the change results in an increase to an MDH's target
amount, we must rebase an MDH's hospital-specific rates based on its
FY 2002 cost report. Section 5003(c) of Public Law 109-171 further
required that MDHs be paid based on the Federal national rate or, if
higher, the Federal national rate plus 75 percent of the difference
between the Federal national rate and the updated hospital-specific
rate. Further, based on the provisions of section 5003(d) of Public
Law 109-171, MDHs are no longer subject to the 12-percent cap on
their DSH payment adjustment factor.
For hospitals located in Puerto Rico, the payment per discharge
is based on the sum of 25 percent of an updated Puerto Rico-specific
rate based on average costs per case of Puerto Rico hospitals for
the base year and 75 percent of the Federal national rate. (We refer
readers to section II.D.3. of this Addendum for a complete
description.)
As discussed below in section II. of this Addendum, we are
making changes in the determination of the prospective payment rates
for Medicare inpatient operating costs for acute care hospitals for
FY 2011. In section III. of this Addendum, we discuss our policy
changes for determining the prospective payment rates for Medicare
inpatient capital-related costs for FY 2011. In section IV. of this
Addendum, we are setting forth our changes for determining the rate-
of-increase limits for certain hospitals excluded from the IPPS for
FY 2011. In section V. of this Addendum, we are making changes in
the determination of the standard Federal rate for LTCHs under the
LTCH PPS for FY 2011. The tables to which we refer in the preamble
of this final rule are presented in section VI. of this Addendum.

II. Changes to Prospective Payment Rates for Hospital Inpatient
Operating Costs for Acute Care Hospitals for FY 2011

The basic methodology for determining prospective payment rates
for hospital inpatient operating costs for acute care hospitals for
FY 2005 and subsequent fiscal years is set forth at Sec. 412.64.
The basic methodology for determining the prospective payment rates
for hospital inpatient operating costs for hospitals located in
Puerto Rico for FY 2005 and subsequent fiscal years is set forth at
Sec. Sec. 412.211 and 412.212. Below we discuss the factors used
for determining the prospective payment rates for FY 2011.
In summary, the standardized amounts set forth in Tables 1A, 1B,
and 1C of section VI. of this Addendum reflect--
Equalization of the standardized amounts for urban and
other areas at the level computed for large urban hospitals during
FY 2004 and onward, as provided for under section
1886(d)(3)(A)(iv)(II) of the Act.
The labor-related share that is applied to the
standardized amounts and Puerto Rico-specific standardized amounts
to give the hospital the highest payment, as provided for under
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act.
Updates of 2.35 percent for all areas (that is, the
estimated full market basket percentage increase of 2.6 percent
minus 0.25 percentage points), as required by section
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a)
and10319(a) of the Affordable Care Act, and reflecting the
requirements of section 1886(b)(3)(B)(viii) of the Act, as added by
section 5001(a)(3) of Public Law 109-171, to reduce the applicable
percentage increase by 2.0 percentage points for a hospital that
fails to submit data, in a form and manner, and at the time
specified by the Secretary, relating to the quality of inpatient
care furnished by the hospital.
An update of 2.35 percent to the Puerto Rico-specific
standardized amount (that is, the estimated full market basket
percentage increase of 2.6 percent minus 0.25 percentage point), as
finalized in the preamble of this final rule under Sec. 412.211(c),
which states that we update the Puerto Rico-specific standardized
amount using the percentage increase specified in Sec.
412.64(d)(1), or the percentage increase in the market basket index
for prospective payment hospitals for all areas.
An adjustment to the standardized amount to ensure
budget neutrality for DRG recalibration and reclassification, as
provided for under section 1886(d)(4)(C)(iii) of the Act.
An adjustment to ensure the wage index changes are
budget neutral, as provided for under section 1886(d)(3)(E)(i) of
the Act. We note that section 1886(d)(3)(E)(i) of the Act requires
that we do not consider the labor-related share of 62 percent to
compute wage index budget neutrality.
An adjustment to ensure the effects of geographic
reclassification are budget neutral, as provided for in section
1886(d)(8)(D) of the Act, by removing the FY 2010 budget neutrality
factor and applying a revised factor.
An adjustment to ensure the effects of the rural
community hospital demonstration required under section 410A of
Public Law 108-173 as amended by sections 3123 and 10313 of Public
Law 111-148 which extends the demonstration for an additional 5
years are budget neutral, as required under section 410A (c)(2) of
Public Law 108-173.
An adjustment to remove the FY 2010 outlier offset and
apply an offset for FY 2011, as provided for in section
1886(d)(3)(B) of the Act.
As discussed below and in section II.D. of the preamble
to this final rule, an adjustment to meet the requirements of
section 7(b)(1)(B) of Public Law 110-90 to adjust the standardized
amounts to offset the estimated amount of the increase in aggregate
payments (including interest) due to the effect of documentation and
coding that did not reflect real changes in case-mix for discharges
occurring during FY 2008 and FY 2009.
We note that, beginning in FY 2008, we applied the budget
neutrality adjustment for the rural floor to the hospital wage
indices rather than the standardized amount. As we did for FY 2010,
for FY 2011, we are continuing to apply the rural floor budget
neutrality adjustment to hospital wage indices rather than the
standardized amount. In addition, instead of applying the budget
neutrality adjustment for the imputed floor adopted under section
1886(d)(3)(E) of the Act to the standardized amount, for FY 2011, we
are continuing to apply the imputed floor budget neutrality
adjustment to the wage indices. For this final rule, consistent with
section 3141 of the Affordable Care Act, instead of applying a State
level rural floor budget neutrality adjustment on the wage index, we
are restoring the budget neutrality adjustment for the rural and
imputed floors to a uniform, national adjustment, beginning with the
FY 2011 wage index.

A. Calculation of the Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

In general, the national standardized amount is based on per
discharge averages of adjusted hospital costs from a base period
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted
in accordance with the provisions of section 1886(d) of the Act. For
Puerto Rico hospitals, the Puerto Rico-specific standardized amount
is based on per discharge averages of adjusted target amounts from a
base period (section 1886(d)(9)(B)(i) of the Act), updated and
otherwise adjusted in accordance with the provisions of section
1886(d)(9) of the Act. The September 1, 1983 interim final rule (48
FR 39763) contained a detailed explanation of how base-year cost
data (from cost reporting periods ending during FY 1981) were
established for urban and rural hospitals in the initial development
of standardized amounts for the IPPS. The September 1, 1987 final
rule (52 FR 33043 and 33066) contains a detailed explanation of how
the target amounts were determined and how they are used in
computing the Puerto Rico rates.
Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act require us
to update base-year per discharge costs for FY 1984 and then
standardize the cost data in order to remove the effects of certain
sources of cost variations among hospitals. These effects include
case-mix, differences in area wage levels, cost-of-living
adjustments for Alaska and Hawaii, IME costs, and costs to hospitals
serving a disproportionate share of low-income patients.
In accordance with section 1886(d)(3)(E) of the Act, the
Secretary estimates, from time-

[[Page 50422]]

to-time, the proportion of hospitals' costs that are attributable to
wages and wage-related costs. In general, the standardized amount is
divided into labor-related and nonlabor-related amounts; only the
proportion considered to be the labor-related amount is adjusted by
the wage index. Section 1886(d)(3)(E) of the Act requires that 62
percent of the standardized amount be adjusted by the wage index,
unless doing so would result in lower payments to a hospital than
would otherwise be made. (Section 1886(d)(9)(C)(iv)(II) of the Act
extends this provision to the labor-related share for hospitals
located in Puerto Rico.)
For FY 2011, we are continuing to use a labor-related share of
68.8 percent for discharges occurring on or after October 1, 2010
for the national standardized amounts and 62.1 percent for the
Puerto Rico-specific standardized amount. Consistent with section
1886(d)(3)(E) of the Act, we are applying the wage index to a labor-
related share of 62 percent for all IPPS hospitals whose wage index
values are less than or equal to 1.0000. For all IPPS hospitals
whose wage indices are greater than 1.0000, we are applying the wage
index to a labor-related share of 68.8 percent of the national
standardized amount. For FY 2011, all Puerto Rico hospitals have a
wage index less than 1.0. Therefore, the national labor-related
share will always be 62 percent because the wage index for all
Puerto Rico hospitals is less than 1.0.
For hospitals located in Puerto Rico, we are applying a labor-
related share of 62.1 percent if its Puerto Rico-specific wage index
is greater than 1.0000. For hospitals located in Puerto Rico whose
Puerto-Rico specific wage index values are less than or equal to
1.0000, we are applying a labor share of 62 percent.
The standardized amounts for operating costs appear in Table 1A,
1B, and 1C of the Addendum to this final rule.

2. Computing the Average Standardized Amount

Section 1886(d)(3)(A)(iv)(II) of the Act requires that,
beginning with FY 2004 and thereafter, an equal standardized amount
be computed for all hospitals at the level computed for large urban
hospitals during FY 2003, updated by the applicable percentage
update. Section 1886(d)(9)(A)(ii)(II) of the Act equalizes the
Puerto Rico-specific urban and rural area rates. Accordingly, we are
calculating the FY 2011 national and Puerto Rico standardized
amounts irrespective of whether a hospital is located in an urban or
rural location.

3. Updating the Average Standardized Amount

In accordance with section 1886(b)(3)(B)(i) of the Act, as
amended by sections 3401(a) and 10319(a) of the Affordable Care Act,
we are updating the standardized amount for FY 2011 by the estimated
market basket percentage increase minus 0.25 percentage points for
hospitals in all areas. Section 3401(a)(4) of Pub. L. 111-148
further states that this amendment may result in the applicable
percentage increase being less than zero. The percentage increase in
the market basket reflects the average change in the price of goods
and services comprising routine, ancillary, and special care unit
hospital inpatient services. Based on IHS Global Insight, Inc.'s
2010 second quarter forecast of the hospital market basket increase
(as discussed in Appendix B of this final rule), the most recent
forecast of the hospital market basket increase for FY 2011 is 2.6
percent. Thus, for FY 2011, the update to the average standardized
amount is 2.35 percent for hospitals in all areas (that is, the
estimated full market basket percentage increase of 2.6 percent
minus 0.25 percentage point).
Section 1886(b)(3)(B) of the Act specifies the applicable
percentage increase used to update the standardized amount for
payment for inpatient hospital operating costs. Section
1886(b)(3)(B)(viii) of the Act, as added by section 5001(a)(3) of
Public Law 109-171, provides for a reduction of 2.0 percentage
points from the applicable percentage increase (the market basket
update) for FY 2007 and each subsequent fiscal year for any
``subsection (d) hospital'' that does not submit quality data, as
discussed in section V.A. of the preamble of this final rule. Thus,
for hospitals that do not submit quality data, the estimated update
to the operating standardized amount is 0.35 percent (that is, the
adjusted FY 2011 estimate of the market basket rate-of-increase of
2.35 percent minus 2.0 percentage points). The standardized amounts
in Tables 1A through 1C of section VI. of this Addendum reflect
these differential amounts.
Section 412.211(c) states that we update the Puerto Rico-
specific standardized amount using the percentage increase specified
in Sec. 412.64(d)(1), or the percentage increase in the market
basket index for prospective payment hospitals for all areas. As
finalized in the preamble to this final rule, we are applying the
full rate-of-increase in the hospital market basket minus 0.25
percentage point to the Puerto Rico-specific standardized amount.
Therefore, the update to the Puerto Rico-specific standardized
amount is also 2.35 percent.
Although the update factors for FY 2011 are set by law, we are
required by section 1886(e)(4) of the Act to recommend, taking into
account MedPAC's recommendations, appropriate update factors for FY
2011 for both IPPS hospitals and hospitals and hospital units
excluded from the IPPS. Section 1886(e)(5)(A) of the Act requires
that we publish our proposed recommendations in the Federal Register
for public comment. Our recommendation on the update factors is set
forth in Appendix B of this final rule.

4. Other Adjustments to the Average Standardized Amount

As in the past, we are adjusting the FY 2011 standardized amount
to remove the effects of the FY 2010 geographic reclassifications
and outlier payments before applying the FY 2011 updates. We then
apply budget neutrality offsets for outliers and geographic
reclassifications to the standardized amount based on FY 2011
payment policies.
We do not remove the prior year's budget neutrality adjustments
for reclassification and recalibration of the DRG weights and for
updated wage data because, in accordance with sections
1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act, estimated aggregate
payments after updates in the DRG relative weights and wage index
should equal estimated aggregate payments prior to the changes. If
we removed the prior year's adjustment, we would not satisfy these
conditions.
Budget neutrality is determined by comparing aggregate IPPS
payments before and after making changes that are required to be
budget neutral (for example, changes to DRG classifications,
recalibration of the DRG relative weights, updates to the wage
index, and different geographic reclassifications). We include
outlier payments in the simulations because they may be affected by
changes in these parameters.
Similar to last year, because IME Medicare Advantage payments
are made to IPPS hospitals under section 1886(d) of the Act, we
believe these payments must be part of these budget neutrality
calculations. However, we note that it is not necessary to include
Medicare Advantage IME payments in the outlier threshold calculation
or the outlier offset to the standardized amount because the statute
requires that outlier payments be not less than 5 percent nor more
than 6 percent of total ``operating DRG payments,'' which does not
include IME and DSH payments. In order to account for these Medicare
Advantage IME payments in determining the budget neutrality
adjustments for this final rule, we identified Medicare Advantage
claims from IPPS teaching hospitals in the MedPAR data. The GHO Paid
indicator with a value of ``1'' on the MedPAR file indicates that
the claim was paid by a Medicare Advantage plan (other than the IPPS
IME payment specified at Sec. 412.105(g)). We note that we also
modified our method for identifying MA claims from IPPS teaching
hospitals in the MedPAR data pursuant to public comment. We describe
this modification below in our response to that comment. For these
Medicare Advantage claims from IPPS teaching hospitals, we computed
a transfer-adjusted CMI by provider based on the FY 2009 MS-DRG
GROUPER Version 27.0 assignment and relative weights. We also
computed a transfer-adjusted CMI for these Medicare Advantage claims
from IPPS teaching hospitals based on the FY 2010 MS-DRG GROUPER
Version 28.0 assignments and relative weights. These transfer-
adjusted CMIs (and corresponding case counts) were used to calculate
an IME teaching add-on payment in accordance with Sec. 412.105(g).
The total Medicare Advantage IME payment amount was then added to
the total Federal payment amount for each provider (where
applicable) in order to account for the Medicare Advantage IME
payment in determining the budget neutrality adjustments. We note
that we did not include Medicare Advantage IME claims when
estimating outlier payments for providers because Medicare Advantage
claims are not eligible for outlier payments under the IPPS.
Comment: Commenters noted that it appeared CMS had inadvertently
included approximately 74,000 MA claims submitted by teaching
hospitals as regular IPPS claims instead of identifying these claims
as MA claims. The commenter explained that these

[[Page 50423]]

claims lacked an ``HMO Paid'' designation but the only payment made
on the claim was the IME payment. Therefore, in the commenters
opinion these claims should have been considered MA IME claims for
the purpose of our calculations.
Response: We examined the MedPAR file and have determined that
there are claims that do not have a GHO Paid indicator with a value
of ``1'' but the IME payment field is equal to the DRG payment
field. We agree with the commenter and included these claims in our
determination of the total Medicare Advantage IME payment amount.
Specifically, we first searched the MedPAR file for all claims with
an IME payment greater than zero. We then filtered these claims for
a subset of claims with a GHO Paid indicator with a value of ``1''
or with the IME payment field equal to the DRG payment field. As
mentioned above, we then added the total Medicare Advantage IME
payment amount to the total Federal payment amount for each provider
(where applicable) in order to account for the Medicare Advantage
IME payment in determining the budget neutrality adjustments.
Comment: Commenters also noted that it is likely that CMS
included charges for anti hemophilic blood factor for the budget
neutrality adjustments.
Response: With respect to charges for anti hemophilic blood
factor, we examined the MedPAR and have removed pharmacy charges
with an indicator of `3' for blood clotting with a revenue code of
`0636'from the covered charge field. We also removed organ
acquisition charges from the covered charge field since organ
acquisition is a pass through payment not paid under the IPPS.
We finally note that on June 2, 2010, we issued a notice that
contains the final wage indices, hospital reclassifications, payment
rates, impacts, and other related tables effective for the FY 2010
IPPS and RY 2010 LTCH PPS. The rates, tables, and impacts included
in the FY 2010 IPPS/LTCH PPS notice reflect changes required by or
resulting from the implementation of several provisions from the
Affordable Care Act. Specifically, sections 3401(a) and 10319(a) of
the Affordable Care Act amended section 1886(b)(3)(B)(i) of the Act
to set the FY 2010 applicable percentage increase for IPPS hospitals
equal to the rate-of-increase in the hospital market basket for IPPS
hospitals in all areas minus a 0.25 percentage point, subject to the
hospital submitting quality information under rules established by
the Secretary in accordance with section 1886(b)(3)(B)(viii) of the
Act. Section 1886(b)(3)(B)(i) of the Act establishes the applicable
percentage increase used for annual updates to the Federal rates.
Section 1886(b)(3)(B)(xii)(I) explicitly adjusts the applicable
percentage for the FY 2010 Federal rates. Section 3401(p) of the
Affordable Care Act provides that, notwithstanding the previous
provisions of this section, the amendments made by subsections (a),
(c) and (d) shall not apply to discharges occurring before April 1,
2010. When read together, we believe sections 1886(b)(3)(B)(i) and
1886(b)(3)(B)(xii) of the Act and section 3401(p) of the Affordable
Care Act provide for revised FY 2010 Federal rates for the entire
fiscal year; however, discharges occurring on or after October 1,
2009 and before April 1, 2010, are not paid be based on the updated
FY 2010 standard Federal rate. When we refer to FY 2010 payments in
the discussion below, these payments are modeled for the entire FY
2010 based on the revised rates consistent with the Affordable Care
Act. Also, because there were no updates to the pre-reclassified
wage file for FY 2010, when we refer below to the pre-reclassified
wage data for FY 2010, this is the same pre reclassified wage data
from the FY 2010 IPPS/LTCH PPS final rule.

a. Recalibration of DRG Weights and Updated Wage Index--Budget
Neutrality Adjustment

Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning
in FY 1991, the annual DRG reclassification and recalibration of the
relative weights must be made in a manner that ensures that
aggregate payments to hospitals are not affected. As discussed in
section II. of the preamble of this final rule, we normalized the
recalibrated DRG weights by an adjustment factor so that the average
case weight after recalibration is equal to the average case weight
prior to recalibration. However, equating the average case weight
after recalibration to the average case weight before recalibration
does not necessarily achieve budget neutrality with respect to
aggregate payments to hospitals because payments to hospitals are
affected by factors other than average case weight. Therefore, as we
have done in past years, we are making a budget neutrality
adjustment to ensure that the requirement of section
1886(d)(4)(C)(iii) of the Act is met.
Section 1886(d)(3)(E)(i) of the Act requires us to update the
hospital wage index on an annual basis beginning October 1, 1993.
This provision also requires us to make any updates or adjustments
to the wage index in a manner that ensures that aggregate payments
to hospitals are not affected by the change in the wage index.
Section 1886(d)(3)(E)(i) of the Act requires that we implement the
wage index adjustment in a budget neutral manner. However, section
1886(d)(3)(E)(ii) of the Act sets the labor-related share at 62
percent for hospitals with a wage index less than or equal to 1.0,
and section 1886(d)(3)(E)(i) of the Act provides that the Secretary
shall calculate the budget neutrality adjustment for the adjustments
or updates made under that provision as if section 1886(d)(3)(E)(ii)
of the Act had not been enacted. In other words, this section of the
statute requires that we implement the updates to the wage index in
a budget neutral manner, but that our budget neutrality adjustment
should not take into account the requirement that we set the labor-
related share for hospitals with indices less than or equal to 1.0
at the more advantageous level of 62 percent. Therefore, for
purposes of this budget neutrality adjustment, section
1886(d)(3)(E)(i) of the Act prohibits us from taking into account
the fact that hospitals with a wage index less than or equal to 1.0
are paid using a labor-related share of 62 percent. Consistent with
current policy, for FY 2011, we are adjusting 100 percent of the
wage index factor for occupational mix. We describe the occupational
mix adjustment in section III.D. of the preamble of this final rule.
For FY 2011, to comply with the requirement that DRG
reclassification and recalibration of the relative weights be budget
neutral for the Puerto Rico standardized amount and the hospital-
specific rates, we used FY 2009 discharge data to simulate payments
and compared aggregate payments using the FY 2010 labor-related
share percentages, the FY 2010 relative weights, and the FY 2010
pre-reclassified wage data to aggregate payments using the FY 2010
labor-related share percentages, the FY 2011 relative weights, and
the FY 2010 pre-reclassified wage data. Based on this comparison, we
computed a budget neutrality adjustment factor equal to 0.996731. As
discussed in section IV. of this Addendum, we apply the DRG
reclassification and recalibration budget neutrality factor of
0.996731 to the hospital-specific rates that are to be effective for
cost reporting periods beginning on or after October 1, 2010.
Comment: One commenter commented that CMS' current methodology
for reclassifying and recalibrating the DRGs does not comport with
the statutory requirement in section 1886(d)(4)(C)(iii) of the Act.
The commenter noted that CMS attempts to achieve budget neutrality
by calculating a separate, subsequent budget neutrality factor,
which it then applies to the standardized amount and the HSP, rather
than to the DRG weights. The commenter further noted that CMS has
broad discretion in implementing the technical details of the
Medicare program, and the commenter understood the rationale for
CMS's methodology. However, the commenter maintains that this
methodology fails to satisfy the express directive set forth in
section 1886(d)(4)(C)(iii) of the Act. The commenter explained that
section 1886(d)(4)(C)(iii) of the Act provides that the annual
adjustments to DRG classifications and weighting factors must ``be
made in a manner that assures'' budget neutrality. The commenter
believes that the statute directs that the budget neutrality
adjustment and the reclassifications and recalibrations themselves
are the subject of the budget neutrality requirement (instead of
applying an adjustment factor to the payment rates). The commenter
asserts that this meaning is evident on the face of the statute.
Response: As stated above, section 1886(d)(4)(C)(iii) of the Act
specifies that, beginning in FY 1991, the annual DRG
reclassification and recalibration of the relative weights must be
made in a manner that ensures that aggregate payments to hospitals
are not affected. In order to ensure budget neutrality, we normalize
the recalibrated DRG weights by an adjustment factor so that the
average case weight after recalibration is equal to the average case
weight prior to recalibration. However, equating the average case
weight after recalibration to the average case weight before
recalibration does not necessarily achieve budget neutrality with
respect to aggregate payments to hospitals because payments to
hospitals are affected by factors other than average case weight.
Therefore, we make a budget neutrality adjustment to the

[[Page 50424]]

payment rates to ensure that the requirement of section
1886(d)(4)(C)(iii) of the Act is met. We believe our methodology of
applying the DRG reclassification and recalibration budget
neutrality adjustment to the payment rates is the correct
interpretation of the statute since this ensures that ``aggregate
payments to hospitals'' are not affected, which is consistent with
the statute in section 1886(d)(4)(C)(iii) of the Act.
In order to meet the statutory requirements that we do not take
into account the labor-related share of 62 percent when computing
wage index budget neutrality, it was necessary to use a three-step
process to comply with the requirements that DRG reclassification
and recalibration of the relative weights and the updated wage index
and labor-related share have no effect on aggregate payments for
IPPS hospitals. We first determined a DRG reclassification and
recalibration budget neutrality factor of 0.996731 by using the same
methodology described above to determine the DRG reclassification
and recalibration budget neutrality factor for the Puerto Rico
standardized amount and hospital-specific rates. Secondly, to
compute a budget neutrality factor for wage index and labor-related
share changes, we used FY 2009 discharge data to simulate payments
and compared aggregate payments using FY 2011 relative weights and
FY 2010 pre-reclassified wage indices, and applied the FY 2010
labor-related share of 68.8 percent to all hospitals (regardless of
whether the hospital's wage index was above or below 1.0) to
aggregate payments using the FY 2011 relative weights and the FY
2011 pre-reclassified wage indices, and applied the labor-related
share for FY 2011 of 68.8 percent to all hospitals (regardless of
whether the hospital's wage index was above or below 1.0). In
addition, we applied the DRG reclassification and recalibration
budget neutrality factor (derived in the first step) to the rates
that were used to simulate payments for this comparison of aggregate
payments from FY 2010 to FY 2011. By applying this methodology, we
determined a budget neutrality factor of 1.000013 for changes to the
wage index. Finally, we multiplied the DRG reclassification and
recalibration budget neutrality factor of 0.996731 (derived in the
first step) by the budget neutrality factor of 1.000013 for changes
to the wage index (derived in the second step) to determine the DRG
reclassification and recalibration and updated wage index budget
neutrality factor of 0.996744.

b. Reclassified Hospitals--Budget Neutrality Adjustment

Section 1886(d)(8)(B) of the Act provides that, effective with
discharges occurring on or after October 1, 1988, certain rural
hospitals are deemed urban. In addition, section 1886(d)(10) of the
Act provides for the reclassification of hospitals based on
determinations by the MGCRB. Under section 1886(d)(10) of the Act, a
hospital may be reclassified for purposes of the wage index.
Under section 1886(d)(8)(D) of the Act, the Secretary is
required to adjust the standardized amount to ensure that aggregate
payments under the IPPS after implementation of the provisions of
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal
to the aggregate prospective payments that would have been made
absent these provisions. We note that the wage index adjustments
provided under section 1886(d)(13) of the Act are not budget
neutral. Section 1886(d)(13)(H) of the Act provides that any
increase in a wage index under section 1886(d)(13) shall not be
taken into account ``in applying any budget neutrality adjustment
with respect to such index'' under section 1886(d)(8)(D) of the Act.
To calculate the budget neutrality factor for FY 2011, we used FY
2009 discharge data to simulate payments and compared total IPPS
payments with FY 2011 relative weights, FY 2011 labor share
percentages, and FY 2011 wage data prior to any reclassifications
under sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act to
total IPPS payments with FY 2011 relative weights, FY 2011 labor
share percentages, and FY 2011 wage data after such
reclassifications. Based on these simulations, we calculated an
adjustment factor of 0.991264 to ensure that the effects of these
provisions are budget neutral, consistent with the statute.
The FY 2011 budget neutrality adjustment factor is applied to
the standardized amount after removing the effects of the FY 2010
budget neutrality adjustment factor. We note that the FY 2011 budget
neutrality adjustment reflects FY 2011 wage index reclassifications
approved by the MGCRB or the Administrator. We note that for this
final rule, as discussed in section III.B. of the preamble to this
final rule, section 3137(c) of Public Law 111-148 resulted in some
additional hospitals receiving reclassifications, or some hospitals
receiving reclassifications to a different area. These
reclassifications are included in the calculation of
reclassification budget neutrality.

c. Rural Floor and Imputed Floor Budget Neutrality Adjustment

We make an adjustment to the wage index to ensure that aggregate
payments after implementation of the rural floor under section 4410
of the BBA (Pub. L. 105-33) and the imputed floor under Sec.
412.64(h)(4) of the regulations are made in a manner that ensures
that aggregate payments to hospitals are not affected. As discussed
in section III.B. of the preamble of the FY 2009 IPPS final rule (73
FR 48570 through 48574), we adopted as final State level budget
neutrality for the rural and imputed floors, effective beginning
with the FY 2009 wage index. In response to the public's concerns
and taking into account the potentially significant payment cuts
that could occur to hospitals in some States if we implemented this
change with no transition, we decided to phase in, over a 3-year
period, the transition from the national rural floor budget
neutrality adjustment on the wage index to the State level rural
floor budget neutrality adjustment on the wage index. In the FY 2011
IPPS/LTCH PPS proposed rule, in the absence of provisions of Public
Law 111-148, the proposed adjustment would have been completely
transitioned to the State level methodology, such that the wage
index that was proposed in the FY 2011 IPPS/LTCH PPS proposed rule
was determined by applying 100 percent of the State level budget
neutrality adjustment. However, section 3141 of Public Law 111-148
restores the budget neutrality adjustment for the rural and imputed
floors to a uniform, national adjustment, beginning with the FY 2011
wage index.
Using the same methodology in prior final rules to calculate the
national rural and imputed floor budget neutrality adjustment factor
(which was part of the methodology to calculate the blended rural
and imputed floor budget neutrality adjustment factors), to
determine the wage index adjusted by the national rural and imputed
floor budget neutrality adjustment, we used FY 2009 discharge data
and FY 2011 wage indices to simulate IPPS payments. First, we
compared the national simulated payments without the rural and
imputed floors applied to national simulated payments with the rural
and imputed floors applied to determine the national rural and
imputed floor budget neutrality adjustment factor of 0.996641. This
national adjustment was then applied to the wage indices to produce
a national rural and imputed floor budget neutral wage index.

d. Case-Mix Budget Neutrality Adjustment

(1) Adjustment to the FY 2011 IPPS Standardized Amount

As stated earlier, beginning in FY 2008, we adopted the MS-DRG
patient classification system for the IPPS to better recognize
patients' severity of illness in Medicare payment rates. In the FY
2008 IPPS final rule with comment period (73 FR 47175 through
47186), we indicated that we believe the adoption of the MS-DRGs had
the potential to lead to increases in aggregate payments without a
corresponding increase in actual patient severity of illness due to
the incentives for changes in documentation and coding. In that
final rule, using the Secretary's authority under section
1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by
adjusting the national standardized amounts to eliminate the effect
of changes in documentation and coding 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 (for a total adjustment of -4.8
percent). On September 29, 2007, Public Law 110-90 was enacted.
Section 7 of Public Law 110-90 included a provision that reduces the
documentation and coding adjustment for the MS-DRG system that we
adopted in the FY 2008 IPPS final rule with comment period to -0.6
percent for FY 2008 and -0.9 percent for FY 2009. To comply with the
provision of section 7(a) 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 national standardized
amounts (as well as other payment factors and thresholds)
accordingly, with these revisions being effective as of October 1,
2007. For FY 2009, section 7(a) of Public Law 110-90 required a
documentation and coding adjustment of -0.9 percent instead of the -
1.8 percent adjustment specified in the FY 2008 IPPS

[[Page 50425]]

final rule with comment period. As required by statute, we applied 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 was in addition to the -0.6 percent
adjustment in FY 2008, yielding a combined effect of -1.5 percent.
In the FY 2010 IPPS proposed and final rules, we discussed our
analysis of FY 2008 claims data which showed an increase in case-mix
of 2.5 percent due to changes in documentation and coding that do
not reflect real changes in case-mix for discharges occurring during
FY 2008. For FY 2010, we proposed to reduce the average standardized
amounts under section 1886(d) of the Act in FY 2010 by -1.9 percent,
which represents the difference between changes in documentation and
coding that do not reflect real changes in case-mix for discharges
occurring during FY 2008 and the prospective adjustment applied
under Public Law 110-90. As discussed in section II.D. of the
preamble of the FY 2010 IPPS final rule, after consideration of the
public comments we received on our analysis and proposals presented
in the proposed rule, we decided to postpone adopting documentation
and coding adjustments as authorized under section 7(a) of Public
Law 110-90 and section 1886(d)(3)(A)(vi) of the Act until a full
analysis of FY 2009 case-mix changes could be completed.
Accordingly, in the FY 2010 IPPS final rule, for FY 2010, we did not
apply any additional documentation and coding adjustments to the
average standardized amounts under section 1886(d) of the Act.
As indicated in section II.D.4 in the preamble to this final
rule, the change due to documentation and coding that did not
reflect real changes in case mix for discharges occurring during FY
2008 and FY 2009 exceeded the -0.6 and -0.9 percent prospective
documentation and coding adjustment applied under section 7(a) of
Public Law 110-90 for those 2 years respectively by 1.9 percentage
points in FY 2008 and 3.9 percentage points in FY 2009. In total,
this change exceeded the cumulative prospective adjustments by 5.8
percentage points. Our actuaries currently estimate that this 5.8
percentage point increase resulted in an increase in aggregate
payments of approximately $6.9 billion. We note that there may be a
need to actuarially adjust the recoupment adjustment in FY 2012 to
accurately reflect accumulated interest. Therefore, an aggregate
adjustment of -5.8 percent in FYs 2011 and 2012, subject to
actuarial adjustment to reflect accumulated interest, is necessary
in order to meet the requirements of section 7(b)(1)(B) of Public
Law 110-90 to adjust the standardized amounts for discharges
occurring in FYs 2010, 2011, and/or 2012 to offset the estimated
amount of the cumulative increase in aggregate payments (including
interest) in FYs 2008 and 2009. We refer the reader to section II.D.
of the preamble to this final rule for more discussion.
It is often our practice to phase in rate adjustments over more
than one year in order to moderate the effect on rates in any one
year. Therefore, we are making an adjustment in FY 2011 to the
standardized amount of -2.9 percent, representing half of the
aggregate adjustment required under section 7(b)(1)(B) of Public Law
110-90, for FY 2011. As we have previously noted, unlike the
prospective adjustment to the standardized amounts under section
7(b)(1)(A) of Public Law 110-90 described earlier, the recoupment or
repayment adjustment to the standardized amounts under section
7(b)(1)(B) of Public Law 110-90 is not cumulative, but would be
removed for subsequent fiscal years once we have offset the increase
in aggregate payments for discharges for FY 2008 expenditures and FY
2009 expenditures. We note that we are not establishing an
adjustment for the further implementation of section 7(b)(1)(B) of
Public Law 110-90 in FY 2012 in this final rule.

(2) Adjustment to the FY 2011 Hospital-Specific Rates for SCHs and MDHs

As discussed in section II.D. of the preamble of this final
rule, because hospitals (SCHs and MDHs) paid based in whole or in
part on the hospital-specific rate use the same MS-DRG system as
other hospitals, we believe they have the potential to realize
increased payments from documentation and coding changes that do not
reflect real increases in patients' severity of illness. Under
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 changes that do not reflect real increases
in patients' severity of illness. While we continue to believe that
section 1886(d)(3)(A)(vi) of the Act does not provide explicit
authority for application of the documentation and coding adjustment
to the hospital-specific rates, we believe that we have the
authority to apply the documentation and coding adjustment to the
hospital-specific rates using our special exceptions and adjustment
authority under section 1886(d)(5)(I)(i) of the Act.
As discussed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule,
based on our analysis of FY 2008 claims data, we found that,
independently for both SCHs and MDHs, the change due to
documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 slightly exceeded the
2.5 percent result discussed earlier, but did not significantly
differ from that result.
Therefore, in FY 2010, we proposed to use our authority under
section 1886(d)(5)(I)(i) of the Act to prospectively adjust the
hospital-specific rates by -2.5 percent in FY 2011 for our estimated
documentation and coding effect in FY 2008 that does not reflect
real changes in case-mix. We also noted that, unlike the national
standardized rates, the FY 2010 hospital-specific rates were not
previously reduced in order to account for anticipated changes in
documentation and coding that do not reflect real changes in case-
mix resulting from the adoption of the MS-DRGs.
Consistent with our approach for determining the national
average standardized amounts discussed earlier, after consideration
of the public comments we received on our analysis and proposals
presented in the FY 2010 IPPS proposed rule, for FY 2010, we also
postponed adoption of a documentation and coding adjustment to the
hospital-specific rate until a full analysis of FY 2009 case-mix
changes could be completed. Accordingly, for FY 2010, we did not
apply a documentation and coding adjustment to the hospital-specific
rates.
As we discuss in section II.D. of the preamble of this final
rule, because SCHs and MDHs use the same DRG system as all other
hospitals, we believe they have the potential to realize increased
payments from documentation and coding changes that do not reflect
real increases in patients' severity of illness. Therefore, we
believe they should be equally subject to a prospective budget
neutrality adjustment that we are applying for adoption of the MS-
DRGs to all other hospitals. While the findings of the effects of
documentation and coding are different for SCHs/MDHs and other IPPS
hospitals, we continue to believe that the documentation and coding
adjustments for all subsection (d) hospitals should be the same. We
continue to believe that this is the appropriate policy so as to
neither advantage nor disadvantage different types of providers.
As we have also discussed in section II.D of the preamble to
this final rule, our best estimate, based on the most recently
available data, is that a cumulative adjustment of -5.4 percent is
required to eliminate the full effect of the documentation and
coding changes on future payments. Unlike the case of standardized
amounts paid to IPPS hospitals, we have not made any previous
adjustments to the hospital specific rates paid to SCHs and MDHs to
account for documentation and coding changes. Therefore, the entire
-5.4 percent adjustment remains to be implemented. Consequently, in
order to maintain consistency as far as possible with the
adjustments applied to IPPS hospitals, we are making an adjustment
of -2.9 percent in FY 2011 to the hospital-specific rates paid to
SCHs and MDHs. We believe that this adjustment is the most
appropriate means to take into full account the effect of
documentation and coding changes on payments, and to maintain equity
between hospitals paid on the basis of different prospective rates.

(3) Adjustment to the FY 2011 Puerto Rico Standardized Amount

As stated in section II.D. of the preamble of this final rule,
we believe that we have the authority to apply the documentation and
coding adjustment to the Puerto Rico-specific standardized amount
using our special exceptions and adjustment authority under section
1886(d)(5)(I)(i) of the Act. Similar to SCHs and MDHs that are paid
based on the hospital-specific rate, we believe that Puerto Rico
hospitals that are paid based on the

[[Page 50426]]

Puerto Rico-specific standardized amount should not have the
potential to realize increased payments due to documentation and
coding changes that do not reflect real increases in patients'
severity of illness. In the FY 2010 IPPS proposed rule, we discussed
our analysis of FY 2008 claims data for Puerto Rico hospitals, which
showed that, for Puerto Rico hospitals, the increase in payments for
discharges occurring during FY 2008 due to documentation and coding
changes that did not reflect real changes in case-mix for discharges
occurring during FY 2008 was approximately 1.1 percent. We noted
that, unlike the national standardized rates, the FY 2009 Puerto
Rico-specific standardized amount was not previously reduced in
order to account for anticipated changes in documentation and coding
that do not reflect real changes in case-mix resulting from the
adoption of the MS-DRGs. Therefore, for FY 2010, we proposed to use
our authority under section 1886(d)(5)(I)(i) of the Act to adjust
the Puerto Rico-specific standardized amount by -1.1 percent in FY
2010 to account for the FY 2008 documentation and coding changes
that are not due to changes in real case-mix and to leave that
adjustment in place for subsequent fiscal years.
Consistent with our approach for determining the national
average standardized amounts and hospital-specific rates of SCHs and
MDHs discussed above, after consideration of the public comments we
received on our analysis and proposals presented in the FY 2010 IPPS
proposed rule, for FY 2010, we also postponed adoption of a
documentation and coding adjustment to the Puerto Rico-specific
rates until a full analysis of FY 2009 case-mix changes could be
completed. Accordingly, in the FY 2010 IPPS final rule, for FY 2010,
we did not apply a documentation and coding adjustment to the Puerto
Rico-specific rates.
As we have noted above, similar to SCHs and MDHs, hospitals in
Puerto Rico use the same DRG system as all other hospitals and we
believe they have the potential to realize increased payments from
documentation and coding changes that do not reflect real increases
in patients' severity of illness. Therefore, we believe they should
be equally subject to a prospective budget neutrality adjustment
that we are applying for adoption of the MS-DRGs to all other
hospitals.
As we have discussed in section II.D. of the preamble of this
final rule, our best estimate, based on the most recently available
data, is that a cumulative adjustment of -2.6 percent is required to
eliminate the full effect of the documentation and coding changes on
future payments from the Puerto Rico-specific rate. Unlike the case
of standardized amounts paid to IPPS hospitals, we have not made any
previous adjustments to the hospital-specific rates paid to Puerto
Rico hospitals to account for documentation and coding changes.
Therefore, the entire -2.6 percent adjustment remains to be
implemented. In order to maintain consistency as far as possible
with the adjustments applied to IPPS hospitals but to take into
consideration the fact that the cumulative impact was smaller in
Puerto Rico hospitals, we are therefore making an adjustment of -2.6
percent in FY 2011 to the Puerto Rico-specific rate that accounts
for 25 percent of payments to Puerto Rico hospitals, with the
remaining 75 percent based on the national standardized amount,
which we are adjusting as described above. Consequently, the overall
reduction to rates for Puerto Rico hospitals to account for the
documentation and coding changes will be slightly less than the
reduction for IPPS hospitals based on 100 percent of the national
standardized amount. We note that this -2.6 percent prospective
adjustment would eliminate the full effect of the documentation and
coding changes on future payments from the Puerto Rico-specific
rate. We believe that this adjustment is the most appropriate means
to take into full account the effect of documentation and coding
changes on payments, and to maintain equity between hospitals paid
on the basis of different prospective rates.

e. Rural Community Hospital Demonstration Program Adjustment

As discussed in section IV.K. of the preamble to this final
rule, section 410A of Public Law 108-173 originally required the
Secretary to establish a demonstration that modifes reimbursement
for inpatient services for up to 15 small rural hospitals. Section
410A(c)(2) of Public Law 108-173 requires that ``[i]n conducting the
demonstration program under this section, the Secretary shall ensure
that the aggregate payments made by the Secretary do not exceed the
amount which the Secretary would have paid if the demonstration
program under this section was not implemented.'' In the May 4, 2010
FY 2011 IPPS/LTCH PPS proposed rule, although we proposed to apply
an adjustment to the IPPS rates to account for the amount by which
the costs of the demonstration as indicated by the settled cost
reports beginning in FY 2007 for hospitals participating in the
demonstration during FY 2007 exceeded the amount that was identified
in the FY 2007 IPPS final rule as the budget neutrality offset for
2007, we were unable to calculate a numeric adjustment to the
standardized amount to ensure the effects of the rural community
hospital demonstration are budget neutral. This is because we were
waiting for settled cost reports. In addition, we noted that the
proposed rule did not account for changes to the demonstration
required by the Affordable Care Act. Specifically, among other
things, sections 3123 and 10313 of the Affordable Care Act extended
the demonstration for an additional 5 year period, and allow not
more than 30 hospitals to participate in 20 States with low
population densities determined by the Secretary. (In determining
which States to include in the expansion, the Secretary is required
to use the same criteria and data that the Secretary used to
determine the States for purposes of the initial 5-year period.) In
the FY 2011 IPPS/LTCH PPS supplemental proposed rule, we proposed to
adjust the IPPS rate by an amount sufficient to account for the
added costs of this demonstration. We proposed an adjustment factor
to account for the added costs associated with the demonstration for
certain time periods as a result of the Affordable Care Act, as
explained at 75 FR 30961 through 30965, as well as proposed to
offset the IPPS standardized rate for the added costs of the
demonstration in FY 2007, although we were unable to propose a
specific numeric adjustment to correspond to FY 2007 in the
supplemental proposed rule.
In order to achieve budget neutrality, as proposed (except as
indicated later in this section and elsewhere in the preamble of
this final rule), we are making an adjustment to the national IPPS
rates by an amount sufficient to account for the added costs of this
demonstration as described in section IV.K of this final rule. In
other words, we are applying budget neutrality across the payment
system as a whole rather than merely across the participants of this
demonstration, consistent with past practice. We believe that the
language of the statutory budget neutrality requirement permits the
agency to implement the budget neutrality provision in this manner.
The statutory language requires that ``aggregate payments made by
the Secretary do not exceed the amount which the Secretary would
have paid if the demonstration * * * was not implemented,'' but does
not identify the range across which aggregate payments must be held
equal. As mentioned in section IV.K of the preamble to this final
rule, the estimated amount for the adjustment to the national IPPS
rates for FY 2011 is $70,483,384. Accordingly, to account for the
changes to the demonstration required by the Affordable Care Act for
specific time periods as explained in detail in section IV.K of this
final rule, for FY 2011 we computed a factor of 0.999302 for the
rural community hospital demonstration program adjustment that will
be applied to the IPPS standardized rate. We note that because the
settlement process for the demonstration hospitals' third year cost
reports, that is, for cost reporting periods starting in FY 2007,
has experienced a delay, for the FY 2011 IPPS/LTCH PPS proposed rule
and the supplemental proposed rule, we were unable to state the
costs of the demonstration corresponding to FY 2007 and as a result
were unable to propose the specific numeric adjustment representing
this offsetting process that would be applied to the national IPPS
rates. Due to operational issues in the cost report settlement
process, settled cost reports for the hospitals that participated in
the demonstration in FY 2007 are not available in time for this
final rule either although we expected them to be available.
Therefore, the estimated adjustment to the national IPPS rate in
this final rule cannot include a component to account for these
costs. We anticipate that this information may be available for the
FY 2012 IPPS/LTCH PPS proposed rule, at which time we would include
a similar proposal.

f. Outlier Payments

Section 1886(d)(5)(A) of the Act provides for payments in
addition to the basic prospective payments for ``outlier'' cases
involving extraordinarily high costs. To qualify for outlier
payments, a case must have costs greater than the sum of the
prospective payment rate for the DRG, any IME and DSH payments, any
new technology add-on payments, and the ``outlier threshold'' or
``fixed-loss'' amount (a dollar amount by which the costs of a case
must exceed

[[Page 50427]]

payments in order to qualify for an outlier payment). We refer to
the sum of the prospective payment rate for the DRG, any IME and DSH
payments, any new technology add-on payments, and the outlier
threshold as the outlier ``fixed-loss cost threshold.'' To determine
whether the costs of a case exceed the fixed-loss cost threshold, a
hospital's CCR is applied to the total covered charges for the case
to convert the charges to estimated costs. Payments for eligible
cases are then made based on a marginal cost factor, which is a
percentage of the estimated costs above the fixed-loss cost
threshold. The marginal cost factor for FY 2011 is 80 percent, the
same marginal cost factor we have used since FY 1995 (59 FR 45367).
In accordance with section 1886(d)(5)(A)(iv) of the Act, outlier
payments for any year are projected to be not less than 5 percent
nor more than 6 percent of total operating DRG payments plus outlier
payments. We note that the statute requires outlier payments to be
not less than 5 percent nor more than 6 percent of total ``operating
DRG payments'' (which does not include IME and DSH payments) plus
outlier payments. When setting the outlier threshold, we compute the
5.1 percent target by dividing the total operating outlier payments
by the total operating DRG payments plus outlier payments. We do not
include any other payments such as IME and DSH within the outlier
target amount. Therefore, it is not necessary to include Medicare
Advantage IME payments in the outlier threshold calculation. Section
1886(d)(3)(B) of the Act requires the Secretary to reduce the
average standardized amount by a factor to account for the estimated
proportion of total DRG payments made to outlier cases. Similarly,
section 1886(d)(9)(B)(iv) of the Act requires the Secretary to
reduce the average standardized amount applicable to hospitals
located in Puerto Rico to account for the estimated proportion of
total DRG payments made to outlier cases. More information on
outlier payments may be found on the CMS Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage.

(1) FY 2011 Outlier Fixed-Loss Cost Threshold

The FY 2011 IPPS/LTCH PPS supplemental proposed rule contained a
summary of the provisions from the Affordable Care Act that affected
the initial FY 2011 proposed outlier threshold and then specified
our proposed revised FY 2011 outlier threshold (74 FR 30975). The
revised FY 2011 proposed outlier threshold used the same methodology
as the initial FY 2011 proposed outlier threshold but did not repeat
the entire methodology that was discussed in the FY 2011 IPPS/LTCH
PPS proposed rule (74 FR 24068 through 24069). Below we discuss in
full the methodology used to compute the revised FY 2011 proposed
outlier threshold.
For FY 2011, we proposed to continue to use the same methodology
used for FY 2009 (73 FR 48763 through 48766) to calculate the
outlier threshold. Similar to the methodology used in the FY 2009
IPPS final rule, for FY 2011, we proposed to apply an adjustment
factor to the CCRs to account for cost and charge inflation (as
explained below). As we have done in the past, to calculate the
proposed FY 2011 outlier threshold, we simulated payments by
applying FY 2011 rates and policies using cases from the FY 2009
MedPAR files. Therefore, in order to determine the proposed FY 2011
outlier threshold, we inflated the charges on the MedPAR claims by 2
years, from FY 2009 to FY 2011.
We proposed to continue to use a refined methodology that takes
into account the lower inflation in hospital charges that are
occurring as a result of the outlier final rule (68 FR 34494), which
changed our methodology for determining outlier payments by
implementing the use of more current CCRs. Our refined methodology
uses more recent data that reflect the rate-of-change in hospital
charges under the new outlier policy.
Using the most recent data available, we calculated the 1-year
average annualized rate-of-change in charges-per-case from the last
quarter of FY 2008 in combination with the first quarter of FY 2009
(July 1, 2008 through December 31, 2008) to the last quarter of FY
2009 in combination with the first quarter of FY 2010 (July 1, 2009
through December 31, 2009). This rate of change was 5.16 percent
(1.0516) or 10.59 percent (1.1059) over 2 years.
As we have done in the past, we established the proposed FY 2011
outlier threshold using hospital CCRs from the December 2009 update
to the Provider-Specific File (PSF)--the most recent available data
at the time of the proposed rule. This file includes CCRs that
reflect implementation of the changes to the policy for determining
the applicable CCRs that became effective August 8, 2003 (68 FR
34494).
As discussed in the FY 2007 IPPS final rule (71 FR 48150), we
worked with the Office of Actuary to derive the methodology
described below to develop the CCR adjustment factor. For FY 2011,
we proposed to continue to use the same methodology to calculate the
CCR adjustment by using the FY 2009 operating cost per discharge
increase in combination with the actual FY 2009 operating market
basket percentage increase determined by IHS Global Insight, Inc.,
as well as the charge inflation factor described above to estimate
the adjustment to the CCRs. (We note that the FY 2009 actual
(otherwise referred to as ``final'') operating market basket
percentage increase reflects historical data, whereas the published
FY 2009 operating market basket update factor was based on IHS
Global Insight, Inc.'s 2008 second quarter forecast with historical
data through the first quarter of 2008. We also note that while the
FY 2009 published operating market basket update was based on the FY
2002-based IPPS market basket, the actual or ``final'' market basket
percentage increase is based on the FY 2006-based IPPS market
basket. Similarly, the FY 2009 published capital market basket
update factor was based on the FY 2002-based capital market basket
and the actual or ``final'' capital market basket percentage
increase is based on the FY 2006-based capital market basket.) By
using the operating market basket percentage increase and the
increase in the average cost per discharge from hospital cost
reports, we are using two different measures of cost inflation. For
FY 2011, we determined the adjustment by taking the percentage
increase in the operating costs per discharge from FY 2007 to FY
2008 (1.0513) from the cost report and dividing it by the final
operating market basket percentage increase from FY 2008 (1.040).
This operation removes the measure of pure price increase (the
market basket) from the percentage increase in operating cost per
discharge, leaving the nonprice factors in the cost increase (for
example, quantity and changes in the mix of goods and services). We
repeated this calculation for 2 prior years to determine the 3-year
average of the rate of adjusted change in costs between the
operating market basket percentage increase and the increase in cost
per case from the cost report (the FY 2005 to FY 2006 percentage
increase of operating costs per discharge of 1.0577 divided by the
FY 2006 final operating market basket percentage increase of 1.040,
the FY 2006 to FY 2007 percentage increase of operating costs per
discharge of 1.0466 divided by FY 2007 final operating market basket
percentage increase of 1.036). For FY 2011, we averaged the
differentials calculated for FY 2006, FY 2007, and FY 2008, which
resulted in a mean ratio of 1.0127. We multiplied the 3-year average
of 1.0127 by the FY 2009 final operating market basket percentage
increase of 1.027, which resulted in an operating cost inflation
factor of 4.00 percent or 1.0400. We then divided the operating cost
inflation factor by the 1-year average change in charges (1.0515)
and applied an adjustment factor of 0.989016 to the operating CCRs
from the PSF (calculation performed on unrounded numbers).
As stated in the FY 2009 IPPS final rule (73 FR 48763), we
continue to believe it is appropriate to apply only a 1-year
adjustment factor to the CCRs. On average, it takes approximately 9
months for a fiscal intermediary or MAC to tentatively settle a cost
report from the fiscal year end of a hospital's cost reporting
period. The average ``age'' of hospitals' CCRs from the time the
fiscal intermediary or the MAC inserts the CCR in the PSF until the
beginning of FY 2009 is approximately 1 year. Therefore, as stated
above, we believe a 1-year adjustment factor to the CCRs is
appropriate.
We used the same methodology for the capital CCRs and determined
the adjustment by taking the percentage increase in the capital
costs per discharge from FY 2007 to FY 2008 (1.0800) from the cost
report and dividing it by the final capital market basket percentage
increase from FY 2008 (1.015). We repeated this calculation for 2
prior years to determine the 3-year average of the rate of adjusted
change in costs between the capital market basket percentage
increase and the increase in cost per case from the cost report (the
FY 2005 to FY 2006 percentage increase of capital costs per
discharge of 1.0464 divided by the FY 2006 final capital market
basket percentage increase of 1.011, the FY 2006 to FY 2007
percentage increase of capital costs per discharge of 1.0512 divided
by the FY 2007 final capital market basket percentage increase of
1.012). For FY 2011,

[[Page 50428]]

we averaged the differentials calculated for FY 2006, FY 2007, and
FY 2008, which resulted in a mean ratio of 1.0459. We multiplied the
3-year average of 1.0459 by the FY 2009 final capital market basket
percentage increase of 1.014, which resulted in a capital cost
inflation factor of 6.06 percent or 1.0606. We then divided the
capital cost inflation factor by the 1-year average change in
charges (1.0516) and applied an adjustment factor of 1.008534 to the
capital CCRs from the PSF (calculation performed on unrounded
numbers). We proposed to use the same charge inflation factor for
the capital CCRs that was used for the operating CCRs. The charge
inflation factor is based on the overall billed charges. Therefore,
we believe it is appropriate to apply the charge factor to both the
operating and capital CCRs.
As stated above, for FY 2011, we applied the proposed FY 2011
rates and policies using cases from the FY 2009 MedPAR files in
calculating the proposed outlier threshold. As discussed in section
II.A. of the preamble to the FY 2011 IPPS/LTCH PPS supplemental
proposed rule (75 FR 30975), in accordance with section 10324(a) of
Public Law 111-148, beginning in FY 2011, we created a wage index
floor of 1.00 for all hospitals located in States determined to be
frontier States. We noted that the frontier State floor adjustments
will be calculated and applied after rural and imputed floor budget
neutrality adjustments are calculated for all labor market areas, so
as to ensure that no hospital in a frontier State will receive a
wage index lesser than 1.00 due to the rural and imputed floor
adjustment. In accordance with section 10324(a) of the Affordable
Care Act, the frontier State adjustment will not be subject to
budget neutrality, and will only be extended to hospitals
geographically located within a frontier State. However, for
purposes of estimating the proposed outlier threshold for FY 2011,
it was necessary to apply this provision by adjusting the wage index
of those eligible hospitals in a Frontier State when calculating the
outlier threshold that results in outlier payments being 5.1 percent
of total payments for FY 2011. If we did not take into account this
provision, our estimate of total FY 2011 payments would be too low,
and as a result, our proposed outlier threshold would be too high,
such that estimated outlier payments would be less than our
projected 5.1 percent of total payments.
Also, in FY 2010, for purposes of estimating the proposed
outlier threshold, we took into account the remaining projected
case-mix growth when calculating the outlier threshold that results
in outlier payments being 5.1 percent of total payments for FY 2010.
As explained in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
44008), for the FY 2010 analysis, we inflated the FY 2008 claims
data by an additional 1.6 percent for the additional case-mix growth
projected to have occurred since FY 2008. If we did not take into
account the remaining 1.6 percent projected case-mix growth, our
estimate of total FY 2010 payments would have been too low, and, as
a result, the FY 2010 final outlier threshold would have been too
high, such that estimated outlier payments would be less than our
projected 5.1 percent of total payments. For the proposed rule, we
used the FY 2009 claims data to calculate the FY 2011 proposed
outlier threshold. Our estimate of the cumulative effect of changes
in documentation and coding due to the adoption of the MS-DRGs
through FY 2009 is 5.4 percent, which is already included within the
claims data (FY 2009 MedPAR files) used to calculate the proposed FY
2011 outlier threshold. Furthermore, we estimated that there would
be no continued changes in documentation and coding in FYs 2010 and
2011. Therefore, the cumulative effect of documentation and coding
that has occurred is already reflected within the FY 2009 MedPAR
claims data, and we do not believe there is any need to inflate FY
2009 claims data for any additional case-mix growth projected to
have occurred since FY 2009.
Using this methodology, in the supplemental proposed rule, we
proposed an outlier fixed-loss cost threshold for FY 2011 equal to
the prospective payment rate for the DRG, plus any IME and DSH
payments, and any add-on payments for new technology, plus $24,165.
As we did in establishing the FY 2009 outlier threshold (73 FR
57891), in our projection of FY 2011 outlier payments, we did not
propose to make any adjustments for the possibility that hospitals'
CCRs and outlier payments may be reconciled upon cost report
settlement. We continue to believe that, due to the policy
implemented in the June 9, 2003 outlier final rule (68 FR 34494),
CCRs will no longer fluctuate significantly and, therefore, few
hospitals will actually have these ratios reconciled upon cost
report settlement. In addition, it is difficult to predict the
specific hospitals that will have CCRs and outlier payments
reconciled in any given year. We also noted that reconciliation
occurs because hospitals' actual CCRs for the cost reporting period
are different than the interim CCRs used to calculate outlier
payments when a bill is processed. Our simulations assume that CCRs
accurately measure hospital costs based on information available to
us at the time we set the outlier threshold. For these reasons, we
proposed not to make any assumptions about the effects of
reconciliation on the outlier threshold calculation.
Comment: Many commenters, including major hospital associations,
noted that CMS currently estimates outlier payments in FY 2010 at
4.7 percent of total payments. The commenters commended CMS for
making refinements such as applying an adjustment factor to CCRs
when computing the outlier threshold but noted that, because CMS is
still not reaching the 5.1 percent target, there is still room for
improvement. The commenters further stated that although CMS
currently projects outlier payments in FY 2010 to be estimated at
4.7 percent of total payments, which is lower than the 5.1 percent
target, this estimate is based on discharges from a prior year
(2009) and will likely not reflect the actual result. The commenters
noted that in prior years when CMS provided its projected estimate
of outlier payments for a given fiscal year, once the actual claims
were available to determine the actual outlier payment (in the
following fiscal year), the estimate declined between 0.2 percent
and 0.3 percent from the projection.
The commenters also suggested that the methodology developed by
the CMS Office of the Actuary to determine a cost adjustment factor
to the CCRs (which is then divided by the charge adjustment factor)
is unnecessarily complicated and does not lead to a more accurate
result. The commenters urged CMS to adopt a methodology that uses
recent historical industry wide average rate of change, similar to
the methodology used to develop the charge inflation factor.
Further, in addition to recommending that CMS apply a cost
adjustment to the CCRs based on historical data, the commenters
suggested that the charge adjustment to the CCRs be projected over
different periods of time, some less or more than one year, based on
variations in hospital fiscal year ends. The commenters opposed
CMS's use of the December 2009 update of the PSF without projecting
CCRs over different periods of time for purposes of estimating FY
2010 outlier payments and asserted that CMS's methodology is
oversimplified. The commenters believed that their methodology would
more accurately project the decline in CCRs.
The commenters also suggested that if CMS did not incorporate
their recommended changes to the methodology for estimating outlier
payments, that they would recommend incorporating an ``estimate
adjustment factor'' into the outlier projections. The commenters
explained that outlier payments have been underpaid in every year
since 2004. Based on actual payments, the commenters estimate that
underpayment has exceeded 0.24 percent in all years. The commenters
recommended that CMS maintain the outlier threshold at 5.1 percent
but should apply an estimate adjustment factor when projecting the
outlier threshold. The commenters provided an example and computed
this factor for FY 2008 and FY 2009 by taking the average variance
in the actual payment (from the annual estimate of maintaining
outliers at 5.1 percent) for FY 2008 and FY 2009 which was 0.385
percent. Based on this factor, the commenters suggest CMS would
model the threshold to a level of 5.485 percent (5.1 plus .385
percent). If CMS were to overpay outliers in a specific year, then
the adjustment would be become negative. The commenters stated that
this would fulfill the statutory requirement in section
1886(d)(5)(A) of the Act that requires that CMS establish thresholds
such that outlier payments will be projected to achieve at least 5.1
percent of DRG payments and would more closely achieve a result that
is fully consistent with the statute.
Response: Commenters to previous rules have raised similar
concerns regarding our estimates of outlier payments. We refer
readers to a similar discussion in the FY 2008 final rule (72 FR
47418). As we have mentioned in the past, in response to the comment
that CCRs should be projected over different periods of time, it is
possible that some of the CCRs in the March PSF will be used in FY
2009 for actual outlier payments, while other CCRs may be one year
old. Therefore, we apply a 1-year adjustment to

[[Page 50429]]

the CCRs. With respect to the comment on our methodology used to
adjust the CCRs, as we stated in the FY 2008 IPPS final rule with
comment period (72 FR 47418), we continue to believe this
calculation of an adjustment to the CCRs is more accurate and stable
than the commenter's methodology because it takes into account the
costs per discharge and the market basket percentage increase when
determining a cost adjustment factor. There are times where the
market basket and the cost per discharge will be constant, while
other times these values will differ from each other, depending on
the fiscal year. Therefore, as mentioned above, using the market
basket in conjunction with the cost per discharge takes into account
two sources that measure potential cost inflation and ensures a more
accurate and stable cost adjustment factor. Therefore, we continue
to believe that our methodology for adjusting the cost-to-charge
ratios is an appropriate method for use in determining the outlier
threshold. We also note that with respect to FY 2009 calculations,
we are currently projecting FY 2009 payments at an estimate of 5.4
percent of overall payments. The commenter noted that once actual
data is available to determine the outlier payment, the outlier
estimate tends to decline by 0.2 percent or 0.3 percent. If this
trend stays constant, it appears the FY 2009 threshold would result
in an outlier payout very close to 5.1 percent according to the
commenters.
With respect to the comment of computing an ``estimate
adjustment factor'', our outlier policy is intended to reimburse
hospitals for treating extraordinarily costly cases and, under the
statute, outlier payments are intended to approximate the marginal
cost of providing care above the outlier fixed-loss cost threshold.
Any ``estimate adjustment factor'' to the outlier threshold or
standardized amount in a given year to account for ``overpayments''
or ``underpayments'' of outliers in other years would result in us
making outlier payments that were not directly related to the cost
of furnishing care in extraordinarily costly cases. Additionally,
when we conduct our modeling to determine the outlier threshold, we
factor all in all payments and policies that would affect actual
payments for the fiscal year at hand (as discussed above, including
the frontier wage index for FY 2011 and the cumulative effect of
documentation and coding that has occurred that is already reflected
within the FY 2009 MedPAR claims data) in order to ensure accuracy
when determining outlier payments that are 5.1 percent of total DRG
payments. Including an ``estimate adjustment factor'' that is not
relative to the current fiscal year does not lend greater accuracy
to the estimate of payments that are 5.1 percent of total DRG
payments. Finally, consistent with the policy and statutory
interpretation we have maintained since the inception of the IPPS,
we do not make retroactive adjustments to outlier payments to ensure
that total outlier payments in a past year are equal to 5.1 percent
of total DRG payments. In short, we believe our outlier policies are
consistent with the statute and the goals of the prospective payment
system.
Comment: One commenter was concerned that CMS did not include
outlier reconciliations in developing the outlier threshold. The
commenter requested that CMS disclose in the final rule and future
proposed and final IPPS rules the amount of money it has recovered
through reconciliation. The commenter explained that this
information will allow others to comment specifically on how this
provision would impact the threshold.
Response: We thank the commenter for their concern regarding not
including outlier reconciliation within the development of the
outlier threshold. However, as stated above, we continue to believe
that, due to the policy implemented in the June 9, 2003 outlier
final rule (68 FR 34494), CCRs will no longer fluctuate
significantly and, therefore, few hospitals will actually have these
ratios reconciled upon cost report settlement. In addition, it is
difficult to predict the specific hospitals that will have CCRs and
outlier payments reconciled in any given year. We also noted that
reconciliation occurs because hospitals' actual CCRs for the cost
reporting period are different than the interim CCRs used to
calculate outlier payments when a bill is processed. Our simulations
assume that CCRs accurately measure hospital costs based on
information available to us at the time we set the outlier
threshold. For these reasons, we proposed and are finalizing our
policy not to make any assumptions about the effects of
reconciliation on the outlier threshold calculation.
Comment: Commenters noted that it appears CMS has inadvertently
included approximately 74,000 MA claims submitted by teaching
hospitals, which appear in the MedPAR file when hospitals submit no-
pay bills for purposes of IME payment. The commenter explained that
these claims lacked an ``HMO Paid'' designation but the only payment
made on the claim was the IME payment. The commenter recommended
that CMS exclude these claims from the outlier threshold calculation
since they are not paid under the IPPS.
Commenters also noted that it is likely that CMS included
charges for anti hemophilic blood factor, which are paid separately
under the IPPS. The commenter further noted that in the FY 2010
IPPS/LTCH PPS final rule, CMS agreed that the clotting factor issue
was a problem and CMS stated it would seek a solution in future
years. The commenter requested that CMS disclose if a solution has
been determined.
Response: We examined the MedPAR file and have determined that
there are claims that do not have a GHO Paid indicator with a value
of ``1'' but the IME payment field is equal to the DRG payment
field. We agree with the commenter and have excluded claims from the
outlier calculation that have a GHO Paid indicator with a value of
``1'' or do not have a GHO Paid indicator with a value of ``1'' but
do have an IMEPAY filed equal to the DRGPAY field since these are
probably MA claims that are likely not paid under the IPPS and
therefore would not incur an outlier payment.
With respect to charges for anti hemophilic blood factor, we
examined the MedPAR and have removed pharmacy charges with an
indicator of ``3'' for blood clotting with a revenue code of
``0636''from the covered charge field. We also removed organ
acquisition charges from the covered charge field since organ
acquisition is a pass through payment not paid under the IPPS.
Because we are not making any changes to our methodology for
this final rule, for FY 2011, we are using the same methodology we
proposed to calculate the outlier threshold.
Using the most recent data available, we calculated the 1-year
average annualized rate-of-change in charges-per-case from the first
quarter of FY 2009 in combination with the second quarter of FY 2009
(October 1, 2008 through March 31, 2009) to the first quarter of FY
2010 in combination with the second quarter of FY 2010 (October 1,
2009 through March 31, 2010). This rate of change was 4.8257 percent
(1.048257) or 9.8843 percent (1.098843) over 2 years.
As we have done in the past, we established the final FY 2011
outlier threshold using hospital CCRs from the March 2010 update to
the Provider-Specific File (PSF)--the most recent available data at
the time of this final rule. This file includes CCRs that reflect
implementation of the changes to the policy for determining the
applicable CCRs that became effective August 8, 2003 (68 FR 34494).
For FY 2010, we calculated the CCR adjustment by using the
operating cost per discharge increase in combination with the actual
FY 2009 operating market basket percentage increase determined by
IHS Global Insight, Inc., as well as the charge inflation factor
described above to estimate the adjustment to the CCRs. (We note
that the FY 2009 actual--otherwise referred to as ``final''--
operating market basket percentage increase reflects historical
data, whereas the published FY 2009 operating market basket update
factor was based on IHS Global Insight, Inc.'s 2008 second quarter
forecast with historical data through the first quarter of 2008. We
also note that while the FY 2009 published operating market basket
update was based on the FY 2002-based IPPS market basket, the actual
or ``final'' market basket percentage increase is based on the FY
2006-based IPPS market basket. Similarly, the FY 2009 published
capital market basket update factor was based on the FY 2002-based
capital market basket and the actual or ``final'' capital market
basket percentage increase is based on the FY 2006-based capital
market basket.) By using the operating market basket percentage
increase and the increase in the average cost per discharge from
hospital cost reports, we are using two different measures of cost
inflation. For FY 2011, we determined the adjustment by taking the
percentage increase in the operating costs per discharge from FY
2007 to FY 2008 (1.0511) from the cost report and dividing it by the
final operating market basket percentage increase from FY 2008
(1.040). This operation removes the measure of pure price increase
(the market basket) from the percentage increase in operating cost
per discharge, leaving the nonprice factors in the cost increase
(for example, quantity and changes in the mix of goods and
services). We repeated this calculation for 2 prior years to
determine the 3-year average of the rate of adjusted change in costs
between the operating market basket percentage increase

[[Page 50430]]

and the increase in cost per case from the cost report (the FY 2005
to FY 2006 percentage increase of operating costs per discharge of
1.0574 divided by the FY 2006 final operating market basket
percentage increase of 1.040, the FY 2006 to FY 2007 percentage
increase of operating costs per discharge of 1.0464 divided by FY
2007 final operating market basket percentage increase of 1.036).
For FY 2011, we averaged the differentials calculated for FY 2006,
FY 2007, and FY 2008, which resulted in a mean ratio of 1.0125. We
multiplied the 3-year average of 1.0125 by the FY 2009 final
operating market basket percentage increase of 1.026, which resulted
in an operating cost inflation factor of 3.88 percent or 1.0388. We
then divided the operating cost inflation factor by the 1-year
average change in charges (1.048257) and applied an adjustment
factor of 0.990983 to the operating CCRs from the PSF (calculation
performed on unrounded numbers).
We used the same methodology for the capital CCRs and determined
the adjustment by taking the percentage increase in the capital
costs per discharge from FY 2007 to FY 2008 (1.0813) from the cost
report and dividing it by the final capital market basket percentage
increase from FY 2008 (1.015). We repeated this calculation for 2
prior years to determine the 3-year average of the rate of adjusted
change in costs between the capital market basket percentage
increase and the increase in cost per case from the cost report (the
FY 2005 to FY 2006 percentage increase of capital costs per
discharge of 1.0470 divided by the FY 2006 final capital market
basket percentage increase of 1.011, the FY 2006 to FY 2007
percentage increase of capital costs per discharge of 1.0504 divided
by the FY 2007 final capital market basket percentage increase of
1.013). For FY 2011, we averaged the differentials calculated for FY
2006, FY 2007, and FY 2008, which resulted in a mean ratio of
1.0459. We multiplied the 3-year average of 1.0459 by the FY 2009
final capital market basket percentage increase of 1.014, which
resulted in a capital cost inflation factor of 6.06 percent or
1.0606. We then divided the capital cost inflation factor by the 1-
year average change in charges (1.048257) and applied an adjustment
factor of 1.011768 to the capital CCRs from the PSF (calculation
performed on unrounded numbers). We are using the same charge
inflation factor for the capital CCRs that was used for the
operating CCRs. The charge inflation factor is based on the overall
billed charges. Therefore, we believe it is appropriate to apply the
charge factor to both the operating and capital CCRs.
As stated above, for FY 2011, we applied the FY 2011 rates and
policies using cases from the FY 2009 MedPAR files in calculating
the final outlier threshold. As discussed in section II.B.3. of the
preamble to this final rule, in accordance with section 10324(a) of
Public Law 111-148, beginning in FY 2011, we created a wage index
floor of 1.00 for all hospitals located in States determined to be
Frontier States. We noted that the Frontier State floor adjustments
will be calculated and applied after rural and imputed floor budget
neutrality adjustments are calculated for all labor market areas, so
as to ensure that no hospital in a Frontier State will receive a
wage index lesser than 1.00 due to the rural and imputed floor
adjustment. In accordance with section 10324(a) of the Affordable
Care Act, the frontier State adjustment will not be subject to
budget neutrality, and will only be extended to hospitals
geographically located within a frontier State. However, for
purposes of estimating the final outlier threshold for FY 2011, it
was necessary to apply this provision by adjusting the wage index of
those eligible hospitals in a Frontier State when calculating the
outlier threshold that results in outlier payments being 5.1 percent
of total payments for FY 2011. If we did not take into account this
provision, our estimate of total FY 2011 payments would be too low,
and as a result, our final outlier threshold would be too high, such
that estimated outlier payments would be less than our projected 5.1
percent of total payments.
Also, in FY 2010, for purposes of estimating the final outlier
threshold, we took into account the remaining projected case-mix
growth when calculating the outlier threshold that results in
outlier payments being 5.1 percent of total payments for FY 2010. As
explained in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
44008), for the FY 2010 analysis, we inflated the FY 2008 claims
data by an additional 1.6 percent for the additional case-mix growth
projected to have occurred since FY 2008. If we did not take into
account the remaining 1.6 percent projected case-mix growth, our
estimate of total FY 2010 payments would have been too low, and, as
a result, the FY 2010 final outlier threshold would have been too
high, such that estimated outlier payments would be less than our
projected 5.1 percent of total payments. For the final rule, we used
the FY 2009 claims data to calculate the FY 2011 final outlier
threshold. Our estimate of the cumulative effect of changes in
documentation and coding due to the adoption of the MS-DRGs through
FY 2009 is 5.4 percent, which is already included within the claims
data (FY 2009 MedPAR files) used to calculate the final FY 2011
outlier threshold. Furthermore, we estimate that there would be no
continued changes in documentation and coding in FYs 2010 and 2011.
Therefore, the cumulative effect of documentation and coding that
has occurred is already reflected within the FY 2009 MedPAR claims
data, and we do not believe there is any need to inflate FY 2009
claims data for any additional case-mix growth projected to have
occurred since FY 2009.
Using this methodology, we calculated a final outlier fixed-loss
cost threshold for FY 2011 equal to the prospective payment rate for
the DRG, plus any IME and DSH payments, and any add-on payments for
new technology, plus $23,075.
We note that the final threshold is lower than the proposed
outlier threshold in the FY 2011 IPPS/LTCH PPS supplemental proposed
rule (and is similar to the estimate of the outlier threshold
calculated by the commenters above). We believe that the increase in
the market basket from 2.15 percent in the FY 2011 IPPS/LTCH PPS
supplemental proposed rule (that is, the estimated full market
basket percentage increase of 2.4 percent minus 0.25 percentage
point) to 2.35 percent for this final rule (that is, the estimated
full market basket percentage increase of 2.6 percent minus 0.25
percentage point) contributed to a lower final fixed loss outlier
threshold for FY 2011. Specifically, adding an extra 0.2 percent to
the standardized amount increases funds to typical cases and
requires that we lower the outlier threshold to increase the amount
of atypical cases in order to reach the 5.1 percent target.

(2) Other Changes Concerning Outliers

As stated in the FY 1994 IPPS final rule (58 FR 46348), we
establish an outlier threshold that is applicable to both hospital
inpatient operating costs and hospital inpatient capital-related
costs. When we modeled the combined operating and capital outlier
payments, we found that using a common threshold resulted in a lower
percentage of outlier payments for capital-related costs than for
operating costs. We project that the thresholds for FY 2011 will
result in outlier payments that will equal 5.1 percent of operating
DRG payments and 5.96 percent of capital payments based on the
Federal rate.
In accordance with section 1886(d)(3)(B) of the Act, we are
reducing the FY 2011 standardized amount by the same percentage to
account for the projected proportion of payments paid as outliers.
The outlier adjustment factors that would be applied to the
standardized amount based on the FY 2011 outlier threshold are as
follows:

------------------------------------------------------------------------
Operating Capital
standardized Federal
amounts rate
------------------------------------------------------------------------
National..................................... 0.948999 0.940415
Puerto Rico.................................. 0.948079 0.918951
------------------------------------------------------------------------

We are applying apply the outlier adjustment factors to the FY
2011 rates after removing the effects of the FY 2010 outlier
adjustment factors on the standardized amount.
To determine whether a case qualifies for outlier payments, we
apply hospital-specific CCRs to the total covered charges for the
case. Estimated operating and capital costs for the case are
calculated separately by applying separate operating and capital
CCRs. These costs are then combined and compared with the outlier
fixed-loss cost threshold.
Under our current policy at Sec. 412.84, for hospitals for
which the fiscal intermediary or MAC computes operating CCRs greater
than 1.175 or capital CCRs greater than 0.159, or hospitals for
which the fiscal intermediary or MAC is unable to calculate a CCR
(as described at Sec. 412.84(i)(3) of our regulations), we use
statewide average CCRs to determine whether a hospital qualifies for
outlier payments.\21\ Table 8A in this Addendum contains the
statewide average operating CCRs for urban hospitals and for rural

[[Page 50431]]

hospitals for which the fiscal intermediary or MAC is unable to
compute a hospital-specific CCR within the above range. Effective
for discharges occurring on or after October 1, 2010, these
statewide average ratios would replace the ratios published in the
IPPS final rule for FY 2010 (74 FR 44159). Table 8B in this Addendum
contains the comparable statewide average capital CCRs. Again, the
CCRs in Tables 8A and 8B would be used during FY 2011 when hospital-
specific CCRs based on the latest settled cost report are either not
available or are outside the range noted above. Table 8C contains
the statewide average total CCRs used under the LTCH PPS as
discussed in section V. of this Addendum.
---------------------------------------------------------------------------

\21\ These figures represent 3.0 standard deviations from the
mean of the log distribution of CCRs for all hospitals.
---------------------------------------------------------------------------

We finally note that we published a manual update (Change
Request 3966) to our outlier policy on October 12, 2005, which
updated Chapter 3, Section 20.1.2 of the Medicare Claims Processing
Manual. The manual update covered an array of topics, including
CCRs, reconciliation, and the time value of money. We encourage
hospitals that are assigned the statewide average operating and/or
capital CCRs to work with their fiscal intermediary or MAC on a
possible alternative operating and/or capital CCR as explained in
Change Request 3966. Use of an alternative CCR developed by the
hospital in conjunction with the fiscal intermediary or MAC can
avoid possible overpayments or underpayments at cost report
settlement, thus ensuring better accuracy when making outlier
payments and negating the need for outlier reconciliation. We also
note that a hospital may request an alternative operating or capital
CCR ratio at any time as long as the guidelines of Change Request
3966 are followed. To download and view the manual instructions on
outlier and CCRs, we refer readers to CMS Web site: http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf.

(3) FY 2009 and FY 2010 Outlier Payments

In the FY 2010 IPPS final rule (74 FR 44012), we stated that,
based on available data, we estimated that actual FY 2009 outlier
payments would be approximately 5.4 percent of actual total DRG
payments. This estimate was computed based on simulations using the
FY 2008 MedPAR file (discharge data for FY 2008 claims). That is,
the estimate of actual outlier payments did not reflect actual FY
2009 claims, but instead reflected the application of FY 2009 rates
and policies to available FY 2008 claims.
Our current estimate, using available FY 2009 claims data, is
that actual outlier payments for FY 2009 were approximately 5.3
percent of actual total DRG payments. Thus, the data indicate that,
for FY 2009, the percentage of actual outlier payments relative to
actual total payments is higher than we projected for FY 2009.
Consistent with the policy and statutory interpretation we have
maintained since the inception of the IPPS, we do not plan to make
retroactive adjustments to outlier payments to ensure that total
outlier payments for FY 2009 are equal to 5.1 percent of total DRG
payments.
We currently estimate that actual outlier payments for FY 2010
will be approximately 4.7 percent of actual total DRG payments,
approximately 0.4 percentage points lower than the 5.1 percent we
projected when setting the outlier policies for FY 2010. This
estimate of 4.7 percent is based on simulations using the FY 2009
MedPAR file (discharge data for FY 2009 claims).
Comment: Commenters requested that CMS clarify and review how
the actual outlier payments for FY 2009, as reported in the proposed
rule, were calculated. The commenters noted that in the proposed
rule, CMS indicated that the actual outlier payments for FY 2009
will be 5.3 percent of actual DRG payments. However, the commenter
performed their own analysis using payment information in the MedPAR
and concluded that actual outlier payments for FY 2009 would be 4.9
percent of actual DRG payments. The commenter recommended that CMS
determine the FY 2009 outlier payment percentage using a data
element that they asserted represented actual payments rather than
using a modeled estimate of actual payments. The commenter also
noted that, while they differed on the FY 2009 estimate, they were
able to match the FY 2010 and FY 2011 outlier percentages we
published in the proposed rule.
Response: We believe that modeling the estimated actual payments
for FY 2009 is a reasonable approach to approximating the outlier
payment percentage for FY 2009. In modeling the FY 2009 payments we
use the same programming approach used in determining the FY 2010
and FY 2011 outlier payment percentages. We continue to believe that
our modeling approach is sound; we note that the commenters were
able to match our published percentages for FY 2010 and 2011 using
their own models,. In calculating the estimated FY 2009 outlier
payment percentage we use the FY 2009 payment rates, rules and
factors and the latest update of the FY 2009 MedPAR file. This is
consistent with our approach for the rate setting for FY 2011 (which
also models the FY 2010 payments for use in the FY 2011 rate
setting). Although the MedPAR file contains a field labeled the DRG
PRICE that represents the actual amounts paid to hospitals by claim,
we believe that modeling enhances the completeness and the accuracy
of our estimates of actual payments. While accurate at the time the
MedPAR file is constructed, claims can be cancelled, edited and
resubmitted to NCH after the MedPAR file is built, and therefore the
payment field shown on MedPAR is subject to change and does not
necessarily represent the final payment on that claim. Additionally,
various payment exceptions under the IPPS such as the hospital
specific rate payment adjustment for Sole Community Hospitals and
Medicare Dependant Hospitals complicate the use of the payment field
shown on the MedPAR file. PRICER, the IPPS payment software,
calculates payments on a claim by claim basis and consequently
claims may be paid on either the federal rate or the hospital
specific rate depending on which produces a greater payment; the
payments to these hospitals are not finalized until the cost report
settlement and at that time must either be based on one hundred
percent of either the hospital specific amount or the federal
amount. Due to these additional concerns, the DRG PRICE field would
also only generate an estimate, rather than an actual, amount of
outlier payments. For these reasons, we continue to believe that
modeling is an acceptable and accurate approach to estimating the
outlier payment percentage in a given year. We also note that our
model has been replicated by the commenters.

5. FY 2011 Standardized Amount

The adjusted standardized amount is divided into labor-related
and nonlabor-related portions. Tables 1A and 1B of this Addendum
contain the national standardized amounts that we are applying to
all hospitals, except hospitals located in Puerto Rico, for FY 2011.
The Puerto Rico-specific amounts are shown in Table 1C of this
Addendum. The amounts shown in Tables 1A and 1B differ only in that
the labor-related share applied to the standardized amounts in Table
1A is the labor-related share of 68.8 percent, and Table 1B is 62
percent. In accordance with sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act, we are applying a labor-related share
of 62 percent, unless application of that percentage would result in
lower payments to a hospital than would otherwise be made. In
effect, the statutory provision means that we will apply a labor-
related share of 62 percent for all hospitals (other than those in
Puerto Rico) whose wage indices are less than or equal to 1.0000.
In addition, Tables 1A and 1B include the standardized amounts
reflecting the applicable percentage increase of 2.35 percent update
for FY 2011, and standardized amounts reflecting the 2.0 percentage
point reduction to that update (a 0.35 percent update) applicable
for hospitals that fail to submit quality data consistent with
section 1886(b)(3)(B)(viii) of the Act.
Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion
of the Puerto Rico payment rate is based on the discharge-weighted
average of the national large urban standardized amount (this amount
is set forth in Table 1A). The labor-related and nonlabor-related
portions of the national average standardized amounts for Puerto
Rico hospitals for FY 2011 are set forth in Table 1C of this
Addendum. This table also includes the Puerto Rico standardized
amounts. The labor-related share applied to the Puerto Rico specific
standardized amount is the labor-related share of 62.1 percent, or
62 percent, depending on which provides higher payments to the
hospital. (Section 1886(d)(9)(C)(iv) of the Act, as amended by
section 403(b) of Public Law 108-173, provides that the labor-
related share for hospitals located in Puerto Rico be 62 percent,
unless the application of that percentage would result in lower
payments to the hospital.)
The following table illustrates the changes from the FY 2010
national standardized amount. The second column shows the changes
from the FY 2010 standardized amounts for hospitals that satisfy the
quality data submission requirement for receiving the update of 2.35
percent. The third column shows the changes for hospitals receiving
the reduced update of 0.35 percent. The first row of the table shows
the updated (through FY 2010) average standardized amount after
restoring the FY 2010 offsets for outlier

[[Page 50432]]

payments, demonstration budget neutrality and the geographic
reclassification budget neutrality. The DRG reclassification and
recalibration wage index budget neutrality factors are cumulative.
Therefore, the FY 2010 factor is not removed from this table.
BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C

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

Tables 1A through 1C, as set forth in this Addendum, contain the
labor-related and nonlabor-related shares that we are using to
calculate the prospective payment rates for hospitals located in the
50 States, the District of Columbia, and Puerto Rico for FY 2011.
This section addresses two types of adjustments to the standardized
amounts that are made in determining the prospective payment rates
as described in this Addendum.

1. Adjustment for Area Wage Levels

Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require
that we make an adjustment to the labor-related portion of the
national and Puerto Rico prospective payment rates, respectively, to
account for area differences in hospital wage levels. This
adjustment is made by multiplying the labor-related portion of the
adjusted standardized amounts by the appropriate wage index for the
area in which the hospital is located. In section III. of the
preamble of this final rule, we discuss the data and methodology for
the FY 2011 wage index.

2. Adjustment for Cost-of-Living in Alaska and Hawaii

Section 1886(d)(5)(H) of the Act authorizes the Secretary to
make an adjustment to take into account the unique circumstances of
hospitals in Alaska and Hawaii. Higher labor-related costs for these
two States are taken into account in the adjustment for area wages
described above. For FY 2011, we are adjusting the payments for
hospitals in Alaska and Hawaii by multiplying the nonlabor-related
portion of the standardized amount by the applicable adjustment
factor contained in the table below. These factors were obtained
from the U.S. Office of Personnel Management (OPM) and are the same
as the factors currently in use under the IPPS for FY 2010.

[[Page 50433]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.130

(The above factors are based on data obtained from the U.S. Office
of Personnel Management Web site at: http://www.opm.gov/oca/cola/rates.asp.)

C. MS-DRG Relative Weights

As discussed in section II.H. of the preamble of this final
rule, we have developed relative weights for each MS-DRG that
reflect the resource utilization of cases in each MS-DRG relative to
Medicare cases in other MS-DRGs. Table 5 of this Addendum contains
the relative weights that we are applying to discharges occurring in
FY 2011. These factors have been recalibrated as explained in
section II. of the preamble of this final rule.

D. Calculation of the Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY
2011

In general, the operating prospective payment rate for all
hospitals paid under the IPPS located outside of Puerto Rico, except
SCHs and MDHs, for FY 2011 equals the Federal rate.
Currently, SCHs are paid based on whichever of the following
rates yields the greatest aggregate payment: The Federal national
rate; the updated hospital-specific rate based on FY 1982 costs per
discharge; the updated hospital-specific rate based on FY 1987 costs
per discharge; the updated hospital-specific rate based on FY 1996
costs per discharge; or the updated hospital-specific rate based on
the FY 2006 costs per discharge to determine the rate that yields
the greatest aggregate payment.
The prospective payment rate for SCHs for FY 2011 equals the
higher of the applicable Federal rate, or the hospital-specific rate
as described below. The prospective payment rate for MDHs for FY
2011 equals the higher of the Federal rate, or the Federal rate plus
75 percent of the difference between the Federal rate and the
hospital-specific rate as described below. For MDHs, the updated
hospital-specific rate is based on FY 1982, FY 1987 or FY 2002 costs
per discharge, whichever yields the greatest aggregate payment.
The prospective payment rate for hospitals located in Puerto
Rico for FY 2011 equals 25 percent of the Puerto Rico rate plus 75
percent of the applicable national rate.

1. Federal Rate

The Federal rate is determined as follows:
Step 1--Select the applicable average standardized amount
depending on whether the hospital submitted qualifying quality data
(full update for qualifying hospitals, update minus 2.0 percentage
points for nonqualifying hospitals).
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable wage index for the geographic area in which
the hospital is located or the area to which the hospital is
reclassified.
Step 3--For hospitals in Alaska and Hawaii, multiply the
nonlabor-related portion of the standardized amount by the
applicable cost-of-living adjustment factor.
Step 4--Add the amount from Step 2 and the nonlabor-related
portion of the standardized amount (adjusted, if applicable, under
Step 3).
Step 5--Multiply the final amount from Step 4 by the relative
weight corresponding to the applicable MS-DRG (see Table 5 of this
Addendum).
The Federal rate as determined in Step 5 may then be further
adjusted if the hospital qualifies for either the IME or DSH
adjustment. In addition, for hospitals that qualify for a low-volume
payment adjustment under section 1886(d)(12) of the Act and 42 CFR
412.101(b), the payment in Step 5 would be increased by 25 percent.

2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)

a. Calculation of Hospital-Specific Rate

Section 1886(b)(3)(C) of the Act provides that currently SCHs
are paid based on whichever of the following rates yields the
greatest aggregate payment: The Federal rate; the updated hospital-
specific rate based on FY 1982 costs per discharge; the updated
hospital-specific rate based on FY 1987 costs per discharge; the
updated hospital-specific rate based on FY 1996 costs per discharge;
or the updated hospital-specific rate based on the FY 2006 costs per
discharge to determine the rate that yields the greatest aggregate
payment.
As discussed previously, currently 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 greater of the updated hospital-specific rates based on either
FY 1982, FY 1987 or FY 2002 costs per discharge.
Hospital-specific rates have been determined for each of these
hospitals based on the FY 1982 costs per discharge, the FY 1987
costs per discharge, or, for SCHs, the FY 1996 costs per discharge
or the FY 2006 costs per discharge, and for MDHs, the FY 2002 cost
per discharge. For a more detailed discussion of the calculation of
the hospital-specific rates, we refer the reader to the FY 1984 IPPS
interim final rule (48 FR 39772); the April 20, 1990 final rule with
comment period (55 FR 15150); the FY 1991 IPPS final rule (55 FR
35994); and the FY 2001 IPPS final rule (65 FR 47082). In addition,
for both SCHs and MDHs, the hospital-specific rate effective is
adjusted by the DRG reclassification and recalibration budget
neutrality factor of 0.996731 as discussed in section III. of this
Addendum. The resulting rate will be used in determining the payment
rate an SCH or MDH will receive for its discharges beginning on or
after October 1, 2010.

b. Updating the FY 1982, FY 1987, FY 1996, FY 2002, and FY 2006
Hospital-Specific Rates for FY 2011

[[Page 50434]]

the update to the hospital specific rates for SCHs and MDHs is
subject to the amendments to section 1886(b)(3)(B)(i) of the Act
made by section 3401(a) of the Affordable Care Act. Accordingly, the
applicable percentage increase to the hospital-specific rates
applicable to SCHs and MDHs is 2.35 percent (that is, the FY 2011
estimate of the market basket rate-of-increase of 2.6 percent minus
0.25 percentage points) for hospitals that submit quality data or
0.35 percent (that is, the FY 2011 applicable percentage increase of
2.35 percent minus 2.0 percentage points) for hospitals that fail to
submit quality data.

3. General Formula for Calculation of Prospective Payment Rates for
Hospitals Located in Puerto Rico Beginning On or After October 1, 2010,
and Before October 1, 2011

Section 1886(d)(9)(E)(iv) of the Act provides that, effective
for discharges occurring on or after October 1, 2004, hospitals
located in Puerto Rico are paid based on a blend of 75 percent of
the national prospective payment rate and 25 percent of the Puerto
Rico-specific rate.

a. Puerto Rico Rate

The Puerto Rico prospective payment rate is determined as
follows:
Step 1--Select the applicable average standardized amount
considering the applicable wage index (Table 1C of this Addendum).
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable Puerto Rico-specific wage index.
Step 3--Add the amount from Step 2 and the nonlabor-related
portion of the standardized amount.
Step 4--Multiply the amount from Step 3 by the applicable MS-DRG
relative weight (Table 5 of this Addendum).
Step 5--Multiply the result in Step 4 by 25 percent.

b. National Rate

The national prospective payment rate is determined as follows:
Step 1--Select the applicable average standardized amount.
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable wage index for the geographic area in which
the hospital is located or the area to which the hospital is
reclassified.
Step 3--Add the amount from Step 2 and the nonlabor-related
portion of the national average standardized amount.
Step 4--Multiply the amount from Step 3 by the applicable MS-DRG
relative weight (Table 5 of this Addendum).
Step 5--Multiply the result in Step 4 by 75 percent.
The sum of the Puerto Rico rate and the national rate computed
above equals the prospective payment for a given discharge for a
hospital located in Puerto Rico. This rate would then be further
adjusted if the hospital qualifies for either the IME or DSH
adjustment.

III. Changes to Payment Rates for Acute Care Hospital Inpatient
Capital-Related Costs for FY 2011

The PPS for acute care hospital inpatient capital-related costs
was implemented for cost reporting periods beginning on or after
October 1, 1991. Effective with that cost reporting period,
hospitals were paid during a 10-year transition period (which
extended through FY 2001) to change the payment methodology for
Medicare acute care hospital inpatient capital-related costs from a
reasonable cost-based methodology to a prospective methodology
(based fully on the Federal rate).
The basic methodology for determining Federal capital
prospective rates is set forth in the regulations at 42 CFR 412.308
through 412.352. Below we discuss the factors that we used to
determine the capital Federal rate for FY 2011, which will be
effective for discharges occurring on or after October 1, 2010.
The 10-year transition period ended with hospital cost reporting
periods beginning on or after October 1, 2001 (FY 2002). Therefore,
for cost reporting periods beginning in FY 2002, all hospitals
(except ``new'' hospitals under Sec. 412.304(c)(2)) are paid based
on the capital Federal rate. For FY 1992, we computed the standard
Federal payment rate for capital-related costs under the IPPS by
updating the FY 1989 Medicare inpatient capital cost per case by an
actuarial estimate of the increase in Medicare inpatient capital
costs per case. Each year after FY 1992, we update the capital
standard Federal rate, as provided at Sec. 412.308(c)(1), to
account for capital input price increases and other factors. The
regulations at Sec. 412.308(c)(2) provide that the capital Federal
rate be adjusted annually by a factor equal to the estimated
proportion of outlier payments under the capital Federal rate to
total capital payments under the capital Federal rate. In addition,
Sec. 412.308(c)(3) requires that the capital Federal rate be
reduced by an adjustment factor equal to the estimated proportion of
payments for (regular and special) exceptions under Sec. 412.348.
Section 412.308(c)(4)(ii) requires that the capital standard Federal
rate be adjusted so that the effects of the annual DRG
reclassification and the recalibration of DRG weights and changes in
the geographic adjustment factor (GAF) are budget neutral.
For FYs 1992 through 1995, Sec. 412.352 required that the
capital Federal rate also be adjusted by a budget neutrality factor
so that aggregate payments for inpatient hospital capital costs were
projected to equal 90 percent of the payments that would have been
made for capital-related costs on a reasonable cost basis during the
respective fiscal year. That provision expired in FY 1996. Section
412.308(b)(2) describes the 7.4 percent reduction to the capital
Federal rate that was made in FY 1994, and Sec. 412.308(b)(3)
describes the 0.28 percent reduction to the capital Federal rate
made in FY 1996 as a result of the revised policy for paying for
transfers. In FY 1998, we implemented section 4402 of Public Law
105-33, which required that, for discharges occurring on or after
October 1, 1997, the budget neutrality adjustment factor in effect
as of September 30, 1995, be applied to the unadjusted capital
standard Federal rate and the unadjusted hospital-specific rate.
That factor was 0.8432, which was equivalent to a 15.68 percent
reduction to the unadjusted capital payment rates. An additional 2.1
percent reduction to the rates was effective from October 1, 1997
through September 30, 2002, making the total reduction 17.78
percent. As we discussed in the FY 2003 IPPS final rule (67 FR
50102) and implemented in Sec. 412.308(b)(6), the 2.1 percent
reduction was restored to the unadjusted capital payment rates
effective October 1, 2002.
To determine the appropriate budget neutrality adjustment factor
and the regular exceptions payment adjustment during the 10-year
transition period, we developed a dynamic model of Medicare
inpatient capital-related costs; that is, a model that projected
changes in Medicare inpatient capital-related costs over time. With
the expiration of the budget neutrality provision, the capital cost
model was only used to estimate the regular exceptions payment
adjustment and other factors during the transition period. As we
explained in the FY 2002 IPPS final rule (66 FR 39911), beginning in
FY 2002, an adjustment for regular exception payments is no longer
necessary because regular exception payments were only made for cost
reporting periods beginning on or after October 1, 1991, and before
October 1, 2001 (see Sec. 412.348(b)). Because payments are no
longer made under the regular exception policy effective with cost
reporting periods beginning in FY 2002, we discontinued use of the
capital cost model. The capital cost model and its application
during the transition period are described in Appendix B of the FY
2002 IPPS final rule (66 FR 40099).
Section 412.374 provides for blended payments to hospitals
located in Puerto Rico under the IPPS for acute care hospital
inpatient capital-related costs. Accordingly, under the capital PPS,
we compute a separate payment rate specific to hospitals located in
Puerto Rico using the same methodology used to compute the national
Federal rate for capital-related costs. In accordance with section
1886(d)(9)(A) of the Act, under the IPPS for acute care hospital
operating costs, hospitals located in Puerto Rico are paid for
operating costs under a special payment formula. Prior to FY 1998,
hospitals located in Puerto Rico were paid a blended operating rate
that consisted of 75 percent of the applicable standardized amount
specific to Puerto Rico hospitals and 25 percent of the applicable
national average standardized amount. Similarly, prior to FY 1998,
hospitals located in Puerto Rico were paid a blended capital rate
that consisted of 75 percent of the applicable capital Puerto Rico-
specific rate and 25 percent of the applicable capital Federal rate.
However, effective October 1, 1997, in accordance with section 4406
of Public Law 105-33, the methodology for operating payments made to
hospitals located in Puerto Rico under the IPPS was revised to make
payments based on a blend of 50 percent of the applicable
standardized amount specific to Puerto Rico hospitals and 50 percent
of the applicable national average standardized amount. In
conjunction with this change to the operating blend percentage,
effective with discharges occurring on or after October 1, 1997, we
also revised the methodology for computing

[[Page 50435]]

capital payments to hospitals located in Puerto Rico to be based on
a blend of 50 percent of the Puerto Rico capital rate and 50 percent
of the national capital Federal rate.
As we discussed in the FY 2005 IPPS final rule (69 FR 49185),
section 504 of Public Law 108-173 increased the national portion of
the operating IPPS payments for hospitals located in Puerto Rico
from 50 percent to 62.5 percent and decreased the Puerto Rico
portion of the operating IPPS payments from 50 percent to 37.5
percent for discharges occurring on or after April 1, 2004 through
September 30, 2004 (refer to the March 26, 2004 One-Time
Notification (Change Request 3158)). In addition, section 504 of
Public Law 108-173 provided that the national portion of operating
IPPS payments for hospitals located in Puerto Rico is equal to 75
percent and the Puerto Rico-specific portion of operating IPPS
payments is equal to 25 percent for discharges occurring on or after
October 1, 2004. Consistent with that change in operating IPPS
payments to hospitals located in Puerto Rico, for FY 2005 (as we
discussed in the FY 2005 IPPS final rule), we revised the
methodology for computing capital payments to hospitals located in
Puerto Rico to be based on a blend of 25 percent of the Puerto Rico-
specific capital rate and 75 percent of the national capital Federal
rate for discharges occurring on or after October 1, 2004.

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

In the correction notice to the FY 2010 IPPS/RY 2010 LTCH PPS
final rule published on October 7, 2009 (74 FR 51499), we
established a capital Federal rate of $429.26 for FY 2010. However,
as discussed earlier in this final rule, in the June 2, 2010 Federal
Register, we announced the revised policies and payment rates for FY
2010 under the IPPS that reflected the provisions of the Affordable
Care Act. Specifically, in the FY 2010 IPPS/RY 2010 LTCH PPS final
notice (75 FR 31127), we established a capital Federal rate of
$429.56 for FY 2010. For comparison purposes, the payment rates and
factors in this section are based on the revised FY 2010 rates and
factors announced in that final notice published in Federal Register
on June 2, 2010.
As also discussed previously in this final rule, several
provisions of the Affordable Care Act affected our proposed IPPS
policies and payment rates for FY 2011. However, due to the timing
of the passage of that legislation we were unable to address those
provisions in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule,
and the proposed policies and payment rates in that proposed rule
did not reflect the new legislation. Although the provisions of the
Affordable Care Act do not directly affect capital IPPS payment
rates and factors, we revised our proposed FY 2011 capital rates and
factors in the June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental
proposed rule (75 FR 30977 through 30972) due to the effect of
certain provisions of the Affordable Care Act.
In the discussion that follows, we explain the factors that we
used to determine the capital Federal rate for FY 2011. In
particular, we explain why the FY 2011 capital Federal rate will
decrease approximately 2.27 percent, compared to the FY 2010 capital
Federal rate. As discussed in the impact analysis in Appendix A of
this final rule, we estimate that capital payments per discharge
will decrease 0.5 percent during that same period. Because capital
payments constitute about 10 percent of hospital payments, a 1-
percent change in the capital Federal rate yields only about a 0.1
percent change in actual payments to hospitals.

1. Projected Capital Standard Federal Rate Update

a. Description of the Update Framework

Under Sec. 412.308(c)(1), the capital standard Federal rate is
updated on the basis of an analytical framework that takes into
account changes in a capital input price index (CIPI) and several
other policy adjustment factors. Specifically, we adjust the
projected CIPI rate-of-increase as appropriate each year for case-
mix index-related changes, for intensity, and for errors in previous
CIPI forecasts. The update factor for FY 2011 under that framework
is 1.5 percent based on the best data available at this time. The
update factor under that framework is based on a projected 1.2
percent increase in the CIPI, a 0.0 percent adjustment for
intensity, a 0.0 percent adjustment for case-mix, a 0.0 percent
adjustment for the FY 2009 DRG reclassification and recalibration,
and a forecast error correction of 0.3 percent. As discussed below
in section III.C. of this Addendum, we continue to believe that the
CIPI is the most appropriate input price index for capital costs to
measure capital price changes in a given year. We also explain the
basis for the FY 2011 CIPI projection in that same section of this
Addendum. We note, as discussed in section VI.E.1. of the preamble
of this final rule, we applied a -2.9 percent adjustment to the
capital rate in FY 2011 to account for the cumulative effect of
changes in documentation and coding under the MS-DRGs that do not
correspond to changes in real increases in patients' severity of
illness. Below we describe the policy adjustments that we applied in
the update framework for FY 2011.
The case-mix index is the measure of the average DRG weight for
cases paid under the IPPS. Because the DRG weight determines the
prospective payment for each case, any percentage increase in the
case-mix index corresponds to an equal percentage increase in
hospital payments.
The case-mix index can change for any of several reasons:
The average resource use of Medicare patients changes
(``real'' case-mix change);
Changes in hospital documentation and coding of patient
records result in higher weight DRG assignments (``coding
effects''); and
The annual DRG reclassification and recalibration
changes may not be budget neutral (``reclassification effect'').
We define real case-mix change as actual changes in the mix (and
resource requirements) of Medicare patients as opposed to changes in
documentation and coding behavior that result in assignment of cases
to higher weighted DRGs but do not reflect higher resource
requirements. The capital update framework includes the same case-
mix index adjustment used in the former operating IPPS update
framework (as discussed in the May 18, 2004 IPPS proposed rule for
FY 2005 (69 FR 28816)). (We no longer use an update framework to
make a recommendation for updating the operating IPPS standardized
amounts as discussed in section II. of Appendix B in the FY 2006
IPPS final rule (70 FR 47707).)
Absent any increase in case-mix resulting from changes in
documentation and coding due to the adoption of the MS-DRGs, for FY
2011, we are projecting a 1.0 percent total increase in the case-mix
index. We estimated that the real case-mix increase will also equal
1.0 percent for FY 2011. The net adjustment for change in case-mix
is the difference between the projected real increase in case-mix
and the projected total increase in case-mix. Therefore, the net
adjustment for case-mix change in FY 2011 is 0.0 percentage points.
The capital update framework also contains an adjustment for the
effects of DRG reclassification and recalibration. This adjustment
is intended to remove the effect on total payments of prior year's
changes to the DRG classifications and relative weights, in order to
retain budget neutrality for all case-mix index-related changes
other than those due to patient severity. Due to the lag time in the
availability of data, there is a 2-year lag in data used to
determine the adjustment for the effects of DRG reclassification and
recalibration. For example, we have data available to evaluate the
effects of the FY 2009 DRG reclassification and recalibration as
part of our update for FY 2011. To adjust for reclassification and
recalibration effects, under our historical methodology, we ran the
FY 2009 cases through the FY 2008 GROUPER and through the FY 2009
GROUPER. The resulting ratio of the case-mix indices equated to 1.0.
If the resulting ratio of the case-mix indices had not equated to
1.0 under our historical methodology, in the update framework for FY
2011 we would have made an adjustment to adjust for the
reclassification and recalibration effects in FY 2009. As discussed
in detail in section II.B. of the preamble of this final rule,
however, when we adopted the MS-DRGs beginning in FY 2008 to better
recognize severity of illness in Medicare payment rates, we also
recognized that changes in documentation and coding could
potentially lead to increases in aggregate payments without a
corresponding increase in patients' severity of illness (that is,
increased case-mix index other than real case-mix index increase).
To maintain budget neutrality for the adoption of the MS-DRGs, as
discussed in greater detail in section V.E. of the preamble of this
final rule, we made an adjustment to the capital Federal rate for FY
2011 based on actuarial estimates of the cumulative effects of
documentation and coding changes that occurred in FYs 2008 and 2009
(based on FYs 2008 and 2009 claims data). Therefore, as we proposed,
we did not adjust for reclassification and

[[Page 50436]]

recalibration effects from FY 2009 in the update framework for FY
2011 because it is already accounted for in the documentation and
coding adjustment to the capital Federal rates for FY 2011.
Consequently, there is a 0.0 percent adjustment for DRG
reclassification and recalibration in the FY 2011 update framework.
The capital update framework also contains an adjustment for
forecast error. The input price index forecast is based on
historical trends and relationships ascertainable at the time the
update factor is established for the upcoming year. In any given
year, there may be unanticipated price fluctuations that may result
in differences between the actual increase in prices and the
forecast used in calculating the update factors. In setting a
prospective payment rate under the framework, we make an adjustment
for forecast error only if our estimate of the change in the capital
input price index for any year is off by 0.25 percentage points or
more. There is a 2-year lag between the forecast and the
availability of data to develop a measurement of the forecast error.
A forecast error of 0.3 percentage points was calculated for the FY
2011 update. That is, current historical data indicate that the
forecasted FY 2009 CIPI (1.4 percent) used in calculating the FY
2009 update factor slightly understated the actual realized price
increases (1.7 percent) by 0.3 percentage points. This is due to the
prices associated with both the depreciation and interest cost
categories growing faster than anticipated. Historically, when the
estimation of the change in the CIPI is greater than 0.25 percentage
points, it is reflected in the update recommended under this
framework. Therefore, we made a 0.3 percent adjustment for forecast
error in the update for FY 2011.
Under the capital IPPS update framework, we also make an
adjustment for changes in intensity. Historically, we have
calculated this adjustment using the same methodology and data that
were used in the past under the framework for operating IPPS. The
intensity factor for the operating update framework reflects how
hospital services are utilized to produce the final product, that
is, the discharge. This component accounts for changes in the use of
quality-enhancing services, for changes within DRG severity, and for
expected modification of practice patterns to remove non-cost-
effective services. Our intensity measure is based on a 5-year
average.
Historically, we have calculated case-mix constant intensity as
the change in total charges per admission, adjusted for price level
changes (the CIPI for hospital and related services) and changes in
real case-mix. Without reliable estimates of the proportions of the
overall annual intensity increases that are due, respectively, to
ineffective practice patterns and the combination of quality-
enhancing new technologies and complexity within the DRG system, we
assume that one-half of the annual increase is due to each of these
factors. The capital update framework thus provides an add-on to the
input price index rate of increase of one-half of the estimated
annual increase in intensity, to allow for increases within DRG
severity and the adoption of quality-enhancing technology.
We have developed a Medicare-specific intensity measure based on
a 5-year average. Past studies of case-mix change by the RAND
Corporation (Has DRG Creep Crept Up? Decomposing the Case Mix Index
Change Between 1987 and 1988 by G.M. Carter, J.P. Newhouse, and D.A.
Relles, R-4098-HCFA/ProPAC (1991)) suggest that real case-mix change
was not dependent on total change, but was usually a fairly steady
increase of 1.0 to 1.5 percent per year. However, we used 1.4
percent as the upper bound because the RAND study did not take into
account that hospitals may have induced doctors to document medical
records more completely in order to improve payment.
As we noted above, in accordance with Sec. 412.308(c)(1)(ii),
we began updating the capital standard Federal rate in FY 1996 using
an update framework that takes into account, among other things,
allowable changes in the intensity of hospital services. For FYs
1996 through 2001, we found that case-mix constant intensity was
declining, and we established a 0.0 percent adjustment for intensity
in each of those years. For FYs 2002 and 2003, we found that case-
mix constant intensity was increasing, and we established a 0.3
percent adjustment and a 1.0 percent adjustment for intensity,
respectively. For FYs 2004 and 2005, we found that the charge data
appeared to be skewed as a result of hospitals attempting to
maximize outlier payments, while lessening costs, and we established
a 0.0 percent adjustment in each of those years. Furthermore, we
stated that we would continue to apply a 0.0 percent adjustment for
intensity until any increase in charges can be tied to intensity
rather than attempts to maximize outlier payments. For FYs 2006
through 2010, we continued to apply a 0.0 percent adjustment for
intensity in the capital update framework.
In an effort to further refine the intensity adjustment and more
accurately reflect allowable changes in hospital intensity, as we
proposed, we used changes in hospital costs per discharge over a 5-
year average rather than changes in hospital charges, which have
been the basis of the intensity adjustment in prior years. The
unique nature of capital--how and when it is purchased, its
longevity, and how it is financed--creates a greater degree of
variance in capital cost among hospitals than does operating cost.
We believe that using changes in capital costs per discharge as the
basis for the intensity adjustment in lieu of changes in charges
will decrease some of the variability of this adjustment. A case in
point is the charge data over much of the last decade: The annual
change in hospital charges has fluctuated erratically from as little
as 3 percent to as large as 16 percent. As we have discussed for
several years in past rulemaking, we believe the effects of
hospitals' charge practices prior to the implementation of the
outlier policy revisions established in the June 9, 2003 final rule
were the main cause of the variability and large annual increases in
hospital charges for much of the past decade. However, even after
the outlier policy was implemented, we continued to see evidence of
these charge practices in the data, as it may have taken hospitals
some time to adopt changes in their behavior in response to the new
outlier policy. Thus, we believe that the charge data for much of
the past decade was skewed because if hospitals were treating new or
different types of cases, which would result in an appropriate
increase in charges per discharge, we would expect hospitals' case-
mix to increase proportionally, and it did not.
Therefore, for the reasons discussed above, we believe it would
be more appropriate to use our intensity adjustment based on the
change in capital cost per discharge. To determine the intensity
adjustment for FY 2011, and as we proposed, we replaced charge data
with capital cost per discharge data. As expected, there are
significantly smaller increases in cost per discharge over this time
period and less fluctuation from year to year. As we did when using
charge data, we based the intensity measure on a 5-year average.
Therefore, the intensity measure for FY 2011 is based on an average
of cost per discharge data from the 5-year period beginning with FY
2004 and extending through FY 2008. Based on these data, we
estimated that case-mix constant intensity declined during FYs 2004
through 2008. In the past (FYs 1996 through 2001) when we found
intensity to be declining, we believed a zero (rather than negative)
intensity adjustment was appropriate. Because we estimated that
intensity declined during that 5-year period, we believe that it is
appropriate to continue to apply a zero intensity adjustment for FY
2011. Therefore, we made a 0.0 percent adjustment for intensity in
the update for FY 2011.
Above, we described the basis of the components used to develop
the 1.5 percent capital update factor under the capital update
framework for FY 2011 as shown in the table below.

CMS FY 2011 Update Factor to the Capital Federal Rate
------------------------------------------------------------------------

------------------------------------------------------------------------
Capital Input Price Index.................................... 1.2
Intensity.................................................... 0.0
Case-Mix Adjustment Factors:
Real Across DRG Change................................... -1.0
Projected Case-Mix Change................................ 1.0
----------
Subtotal............................................. 1.2

[[Page 50437]]

Effect of FY 2009 Reclassification and Recalibration......... 0.0
Forecast Error Correction................................ 0.3
----------
Total Update............................................. 1.5
------------------------------------------------------------------------

b. Comparison of CMS and MedPAC Update Recommendation

In its March 2010 Report to Congress, MedPAC did not make a
specific update recommendation for capital IPPS payments for FY
2011. (MedPAC's Report to the Congress: Medicare Payment Policy,
March 2010, Section 2A.)

2. Outlier Payment Adjustment Factor

Section 412.312(c) establishes a unified outlier payment
methodology for inpatient operating and inpatient capital-related
costs. A single set of thresholds is used to identify outlier cases
for both inpatient operating and inpatient capital-related payments.
Section 412.308(c)(2) provides that the standard Federal rate for
inpatient capital-related costs be reduced by an adjustment factor
equal to the estimated proportion of capital-related outlier
payments to total inpatient capital-related PPS payments. The
outlier thresholds are set so that operating outlier payments are
projected to be 5.1 percent of total operating IPPS DRG payments.
For FY 2010, we estimated that outlier payments for capital
would equal 5.22 percent of inpatient capital-related payments based
on the capital Federal rate in FY 2010. Based on the thresholds as
set forth in section II.A. of this Addendum, we estimate that
outlier payments for capital-related costs will equal 5.96 percent
for inpatient capital-related payments based on the capital Federal
rate in FY 2011. Therefore, we applied an outlier adjustment factor
of 0.9404 in determining the capital Federal rate. Thus, we estimate
that the percentage of capital outlier payments to total capital
standard payments for FY 2011 would be higher than the percentage
for FY 2010. This increase in capital outlier payments is primarily
due to the estimated decrease in capital IPPS payments per
discharge. That is, because capital payments per discharge are
projected to be slightly lower in FY 2011 compared to FY 2010, as
shown in Table III. in section VIII. of Appendix A to this final
rule, more cases would qualify for outlier payments.
The outlier reduction factors are not built permanently into the
capital rates; that is, they are not applied cumulatively in
determining the capital Federal rate. The FY 2011 outlier adjustment
of 0.9404 is a -0.78 percent change from the FY 2010 outlier
adjustment of 0.9478. Therefore, the net change in the outlier
adjustment to the capital Federal rate for FY 2011 is 0.9922
(0.9404/0.9478). Thus, the outlier adjustment decreases the FY 2011
capital Federal rate by 0.78 percent compared with the FY 2010
outlier adjustment.

3. Budget Neutrality Adjustment Factor for Changes in DRG
Classifications and Weights and the GAF

Section 412.308(c)(4)(ii) requires that the capital Federal rate
be adjusted so that aggregate payments for the fiscal year based on
the capital Federal rate after any changes resulting from the annual
DRG reclassification and recalibration and changes in the GAF are
projected to equal aggregate payments that would have been made on
the basis of the capital Federal rate without such changes. Because
we implemented a separate GAF for Puerto Rico, we apply separate
budget neutrality adjustments for the national GAF and the Puerto
Rico GAF. We apply the same budget neutrality factor for DRG
reclassifications and recalibration nationally and for Puerto Rico.
Separate adjustments were unnecessary for FY 1998 and earlier
because the GAF for Puerto Rico was implemented in FY 1998.
In the past, we used the actuarial capital cost model (described
in Appendix B of the FY 2002 IPPS final rule (66 FR 40099)) to
estimate the aggregate payments that would have been made on the
basis of the capital Federal rate with and without changes in the
DRG classifications and weights and in the GAF to compute the
adjustment required to maintain budget neutrality for changes in DRG
weights and in the GAF. During the transition period, the capital
cost model was also used to estimate the regular exception payment
adjustment factor. As we explained in section III.A. of this
Addendum, beginning in FY 2002, an adjustment for regular exception
payments was no longer necessary. Therefore, we no longer use the
capital cost model. Instead, we use historical data based on
hospitals' actual cost experiences to determine the exceptions
payment adjustment factor for special exceptions payments.
To determine the factors for FY 2011, we compared (separately
for the national capital rate and the Puerto Rico capital rate)
estimated aggregate capital Federal rate payments based on the FY
2010 MS-DRG classifications and relative weights and the FY 2010 GAF
to estimated aggregate capital Federal rate payments based on the FY
2010 MS-DRG classifications and relative weights and the FY 2011
GAFs. In making the comparison, we set the exceptions reduction
factor to 1.00. To achieve budget neutrality for the changes in the
national GAFs, based on calculations using updated data, we applied
an incremental budget neutrality adjustment of 0.9999 for FY 2011 to
the previous cumulative FY 2010 adjustment of 0.9911, yielding an
adjustment of 0.9910, through FY 2011 (calculated with unrounded
numbers). For the Puerto Rico GAFs, we applied an incremental budget
neutrality adjustment of 1.0005 for FY 2011 to the previous
cumulative FY 2010 adjustment of 0.9969, yielding a cumulative
adjustment of 0.9974 through FY 2011.
We then compared estimated aggregate capital Federal rate
payments based on the FY 2010 DRG relative weights and the FY 2011
GAFs to estimated aggregate capital Federal rate payments based on
the cumulative effects of the FY 2011 MS-DRG classifications and
relative weights and the FY 2011 GAFs. The incremental adjustment
for DRG classifications and changes in relative weights is 0.9991
both nationally and for Puerto Rico. The cumulative adjustments for
MS-DRG classifications and changes in relative weights and for
changes in the GAFs through FY 2011 are 0.9902 nationally and 0.9965
for Puerto Rico. The following table summarizes the adjustment
factors for each fiscal year:
BILLING CODE 4120-01-P

[[Page 50438]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.131

BILLING CODE 4120-01-C
The methodology used to determine the recalibration and
geographic adjustment factor (GAF/DRG) budget neutrality adjustment
is similar to the methodology

[[Page 50439]]

used in establishing budget neutrality adjustments under the IPPS
for operating costs. One difference is that, under the operating
IPPS, the budget neutrality adjustments for the effect of geographic
reclassifications are determined separately from the effects of
other changes in the hospital wage index and the DRG relative
weights. Under the capital IPPS, there is a single GAF/DRG budget
neutrality adjustment factor (the national capital rate and the
Puerto Rico capital rate are determined separately) for changes in
the GAF (including geographic reclassification) and the DRG relative
weights. In addition, there is no adjustment for the effects that
geographic reclassification has on the other payment parameters,
such as the payments for DSH or IME.
For FY 2010, we calculated a revised final GAF/DRG budget
neutrality factor of 0.9994 (75 FR 31125). For FY 2011, we
established a GAF/DRG budget neutrality factor of 0.9990. The GAF/
DRG budget neutrality factors are built permanently into the capital
rates; that is, they are applied cumulatively in determining the
capital Federal rate. This follows the requirement that estimated
aggregate payments each year be no more or less than they would have
been in the absence of the annual DRG reclassification and
recalibration and changes in the GAFs. The incremental change in the
adjustment from FY 2010 to FY 2011 is 0.9990. The cumulative change
in the capital Federal rate due to this adjustment is 0.9902 (the
product of the incremental factors for FYs 1995 though 2010 and the
incremental factor of 0.9990 for FY 2011). (We note that averages of
the incremental factors that were in effect during FYs 2005 and
2006, respectively, were used in the calculation of the cumulative
adjustment of 0.9902 for FY 2011.)
The factor accounts for the MS-DRG reclassifications and
recalibration and for changes in the GAFs. It also incorporates the
effects on the GAFs of FY 2011 geographic reclassification decisions
made by the MGCRB compared to FY 2010 decisions. However, it does
not account for changes in payments due to changes in the DSH and
IME adjustment factors.

4. Exceptions Payment Adjustment Factor

Section 412.308(c)(3) of our regulations requires that the
capital standard Federal rate be reduced by an adjustment factor
equal to the estimated proportion of additional payments for both
regular exceptions and special exceptions under Sec. 412.348
relative to total capital PPS payments. In estimating the proportion
of regular exception payments to total capital PPS payments during
the transition period, we used the actuarial capital cost model
originally developed for determining budget neutrality (described in
Appendix B of the FY 2002 IPPS final rule (66 FR 40099)) to
determine the exceptions payment adjustment factor, which was
applied to both the Federal and hospital-specific capital rates.
An adjustment for regular exception payments is no longer
necessary in determining the FY 2011 capital Federal rate because,
in accordance with Sec. 412.348(b), regular exception payments were
only made for cost reporting periods beginning on or after October
1, 1991 and before October 1, 2001. Accordingly, as we explained in
the FY 2002 IPPS final rule (66 FR 39949), in FY 2002 and subsequent
fiscal years, no payments are made under the regular exceptions
provision. However, in accordance with Sec. 412.308(c), we still
need to compute a budget neutrality adjustment for special exception
payments under Sec. 412.348(g). We describe our methodology for
determining the exceptions adjustment used in calculating the FY
2011 capital Federal rate below.
Under the special exceptions provision specified at Sec.
412.348(g)(1), eligible hospitals include SCHs, urban hospitals with
at least 100 beds that have a disproportionate share percentage of
at least 20.2 percent or qualify for DSH payments under Sec.
412.106(c)(2), and hospitals with a combined Medicare and Medicaid
inpatient utilization of at least 70 percent. An eligible hospital
may receive special exceptions payments if it meets the following
criteria: (1) A project need requirement as described at Sec.
412.348(g)(2), which, in the case of certain urban hospitals,
includes an excess capacity test as described at Sec.
412.348(g)(4); (2) an age of assets test as described at Sec.
412.348(g)(3); and (3) a project size requirement as described at
Sec. 412.348(g)(5).
Based on information compiled from our fiscal intermediaries and
MACs, six hospitals have qualified for special exceptions payments
under Sec. 412.348(g). One of these hospitals closed in May 2005.
Because we have cost reports covering FY 2008 for four of these five
hospitals, we calculated the adjustment based on actual cost
experience. (We note that the one hospital for which we do not have
FY 2008 cost report data has had zero special exception payments for
all available past cost reports. Consequently, we expect that this
hospital would not have any special exceptions payments in FY 2008,
and the lack of this hospital's FY 2008 cost report data would not
distort the calculation of the adjustment.) Using data from cost
reports covering FY 2008 from the March 2010 update of the HCRIS
data, we divided the capital special exceptions payment amounts for
the four available hospitals that qualified for special exceptions
by the total capital PPS payment amounts (including special
exception payments) for all hospitals. Based on the data from cost
reports covering FY 2008, this ratio rounds to 0.0004, and we made
an adjustment of 0.0004. Because special exceptions are budget
neutral, we offset the capital Federal rate by 0.04 percent for
special exceptions payments for FY 2011. Therefore, the exceptions
adjustment factor is equal to 0.9996 (1 - 0.0004) to account for
special exceptions payments in FY 2011.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44019),
we estimated that total (special) exceptions payments for FY 2010
would equal 0.02 percent of aggregate payments based on the capital
Federal rate. Therefore, we applied an exceptions adjustment factor
of 0.9998 (1 - 0.0002) to determine the FY 2010 capital Federal
rate. As we stated above, we applied an exceptions payment
adjustment factor of 0.9996 (1 - 0.0004) to the capital Federal rate
for FY 2011 based on our estimate that exceptions payments in FY
2011 would equal 0.04 percent of aggregate payments based on the FY
2011 capital Federal rate. The exceptions reduction factors are not
built permanently into the capital rates; that is, the factors are
not applied cumulatively in determining the capital Federal rate.
Therefore, the net change in the exceptions adjustment factor used
in determining the FY 2011 capital Federal rate is 0.9998 (0.9996/
0.9998).

5. Capital Standard Federal Rate for FY 2011

For FY 2010, we established a final capital Federal rate of
$429.56. Consistent with section 3401(p) of Public Law 111-148, this
rate is applicable to discharges occurring on or after April 1, 2010
(75 FR 31127). We established an update of 1.5 percent in
determining the FY 2011 capital Federal rate for all hospitals.
However, as discussed in greater detail in section V.E. of the
preamble of this final rule, under the statutory authority at
section 1886(g) of the Act, consistent with section
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90,
we are making an additional 2.9 percent reduction to the national
capital Federal payment rate in FY 2011. The -2.9 percent adjustment
is based on our actuary's analysis of the effect of changes in case-
mix resulting from documentation and coding changes that do not
reflect real changes in the case-mix in light of the adoption of MS-
DRGs. Accordingly, we applied a cumulative documentation and coding
adjustment factor of 0.9574 in determining the FY 2011 capital
Federal rate (that is, the existing -0.6 percent adjustment in FY
2008 plus the -0.9 percent adjustment in FY 2009 plus the additional
-2.9 percent adjustment, computed as 1 divided by (1.006 x 1.009 x
1.029). (We note that we did not apply a documentation and coding
adjustment to the capital Federal rate in FY 2010 (74 FR 43927).) As
a result of the 1.5 percent update and other budget neutrality
factors discussed above, we established a national capital Federal
rate of $420.01 for FY 2011. The national capital Federal rate for
FY 2011 was calculated as follows:
The FY 2011 update factor is 1.015, that is, the update
is 1.5 percent.
The FY 2011 budget neutrality adjustment factor that is
applied to the capital standard Federal payment rate for changes in
the MS-DRG classifications and relative weights and changes in the
GAFs is 0.9990.
The FY 2011 outlier adjustment factor is 0.9404.
The FY 2011 (special) exceptions payment adjustment
factor is 0.9996.
The cumulative adjustment factor for FY 2011 applied to
the national capital Federal rate for changes in documentation and
coding under the MS-DRGs is 0.9574.
Because the capital Federal rate has already been adjusted for
differences in case-mix, wages, cost-of-living, indirect medical
education costs, and payments to hospitals serving a
disproportionate share of low-income patients, we did not make
additional adjustments in the capital standard Federal rate for
these factors, other than the budget neutrality factor for changes
in the MS-DRG

[[Page 50440]]

classifications and relative weights and for changes in the GAFs.
We are providing the following chart that shows how each of the
factors and adjustments for FY 2011 affects the computation of the
FY 2011 national capital Federal rate in comparison to the FY 2010
national capital Federal rate. The FY 2011 update factor has the
effect of increasing the capital Federal rate by 1.5 percent
compared to the FY 2010 capital Federal rate. The GAF/DRG budget
neutrality factor of 0.9990 has the effect of decreasing the capital
Federal rate by 0.10 percent. The FY 2011 outlier adjustment factor
has the effect of decreasing the capital Federal rate by 0.78
percent compared to the FY 2010 capital Federal rate. The FY 2011
exceptions payment adjustment factor has the effect of decreasing
the capital Federal rate by 0.02 percent compared to the FY 2010
capital Federal rate. Furthermore, as shown in the chart below, the
resulting cumulative adjustment for changes in documentation and
coding that do not reflect real changes in patients' severity of
illness (that is, the cumulative adjustment factor of 0.9574 has the
net effect of decreasing the FY 2011 national capital Federal rate
by 2.80 percent as compared to the FY 2010 national capital Federal
rate. (As discussed in section VI.E.1. of the preamble of this final
rule, a cumulative adjustment of -1.5 percent (that is, the -0.6
percent in FY 2008 and -0.9 percent in FY 2009) or a cumulative
adjustment factor of 0.985 has already been applied to the FY 2010
capital Federal rate for changes in documentation and coding that do
not reflect real changes in patients' severity of illness. We did
not apply any additional documentation and coding adjustments to the
capital Federal rate in FY 2010). The combined effect of all the
changes will decrease the national capital Federal rate by
approximately 2.2 percent compared to the FY 2010 national capital
Federal rate.
[GRAPHIC] [TIFF OMITTED] TR16AU10.132

We also are providing the following chart that shows how the
final FY 2011 capital Federal rate differs from the proposed FY 2011
capital Federal rate as presented in the June 2, 2010 FY 2011 IPPS/
LTCH PPS supplemental proposed rule.

[[Page 50441]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.133

6. Special Capital Rate for Puerto Rico Hospitals

Section 412.374 provides for the use of a blended payment system
for payments to hospitals located in Puerto Rico under the PPS for
acute care hospital inpatient capital-related costs. Accordingly,
under the capital PPS, we compute a separate payment rate specific
to hospitals located in Puerto Rico using the same methodology used
to compute the national Federal rate for capital-related costs.
Under the broad authority of section 1886(g) of the Act, as
discussed in section V. of the preamble of this final rule,
beginning with discharges occurring on or after October 1, 2004,
capital payments to hospitals located in Puerto Rico are based on a
blend of 25 percent of the Puerto Rico capital rate and 75 percent
of the capital Federal rate. The Puerto Rico capital rate is derived
from the costs of Puerto Rico hospitals only, while the capital
Federal rate is derived from the costs of all acute care hospitals
participating in the IPPS (including Puerto Rico).
To adjust hospitals' capital payments for geographic variations
in capital costs, we apply a GAF to both portions of the blended
capital rate. The GAF is calculated using the operating IPPS wage
index, and varies depending on the labor market area or rural area
in which the hospital is located. We use the Puerto Rico wage index
to determine the GAF for the Puerto Rico part of the capital-blended
rate and the national wage index to determine the GAF for the
national part of the blended capital rate.
Because we implemented a separate GAF for Puerto Rico in FY
1998, we also apply separate budget neutrality adjustments for the
national GAF and for the Puerto Rico GAF. However, we apply the same
budget neutrality factor for DRG reclassifications and recalibration
nationally and for Puerto Rico. The national GAF budget neutrality
factor is 1.0005 and the DRG adjustment is 0.9991, for a combined
cumulative adjustment of 0.9965.
In computing the payment for a particular Puerto Rico hospital,
the Puerto Rico portion of the capital rate (25 percent) is
multiplied by the Puerto Rico-specific GAF for the labor market area
in which the hospital is located, and the national portion of the
capital rate (75 percent) is multiplied by the national GAF for the
labor market area in which the hospital is located (which is
computed from national data for all hospitals in the United States
and Puerto Rico). In FY 1998, we implemented a 17.78 percent
reduction to the Puerto Rico capital rate as a result of Pub. L.
105-33. In FY 2003, a small part of that reduction was restored.
For FY 2010, the special capital rate for hospitals located in
Puerto Rico was $203.57 (75 FR 31128). Consistent with our
development of the FY 2010 Puerto Rico-specific operating
standardized amount, we have not applied the -0.6 percent adjustment
in FY 2008 or the -0.9 percent documentation and coding adjustment
in FY 2009 (that is, the cumulative -1.5 percent adjustment) that
was applied to the national capital Federal rate to the Puerto Rico-
specific capital rate. However, we noted in the FY 2009 IPPS final
rule (73 FR 48449 through 48550) that we may propose to apply such
an adjustment to the Puerto Rico operating and capital rates in the
future.
As noted above and discussed in greater detail in section V.E.4.
of the preamble of this final rule, consistent with our development
of the Puerto Rico-specific operating standardized amount, we
applied a -2.6 percent adjustment to account for changes in
documentation and coding that resulted from the adoption of the MS-
DRGs in determining the FY 2011 Puerto Rico-specific capital rate.
With the changes we made to the other factors used to determine the
capital rate, the FY 2011 special capital rate for hospitals in
Puerto Rico is $197.66.

B. Calculation of the Inpatient Capital-Related Prospective
Payments for FY 2011

Because the 10-year capital PPS transition period ended in FY
2001, all hospitals (except ``new'' hospitals under Sec. 412.324(b)
and under Sec. 412.304(c)(2)) are paid based on 100 percent of the
capital Federal rate in FY 2011.
For purposes of calculating payments for each discharge during
FY 2011, the capital standard Federal rate is adjusted as follows:
(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals
located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME
Adjustment Factor, if applicable). The result is the adjusted
capital Federal rate.
Hospitals also may receive outlier payments for those cases that
qualify under the thresholds established for each fiscal year.
Section 412.312(c) provides for a single set of thresholds to
identify outlier cases for both inpatient operating and inpatient
capital-related payments. The outlier thresholds for FY 2011 are in
section II.A. of this Addendum. For FY 2011, a case would qualify as
a cost outlier if the cost for the case plus the (operating) IME and
DSH payments is greater than the prospective payment rate for the
MS-DRG plus the fixed-loss amount of $23,075.
An eligible hospital may also qualify for a special exceptions
payment under Sec. 412.348(g) up through the 10th year beyond the
end of the capital transition period if it meets the following
criteria: (1) A project need requirement described at Sec.
412.348(g)(2), which in the case of certain urban hospitals includes
an excess capacity test as described at Sec. 412.348(g)(4); and (2)
a project size requirement as described at Sec. 412.348(g)(5).
Eligible hospitals include SCHs, urban hospitals with at least 100
beds that have a DSH patient percentage of at least 20.2 percent or
qualify for DSH payments under Sec. 412.106(c)(2), and hospitals
that have a combined Medicare and Medicaid inpatient utilization of
at least 70 percent. Under Sec. 412.348(g)(8), the amount of a
special exceptions payment is determined by comparing the cumulative
payments made to the hospital under the capital PPS to the
cumulative minimum payment level. This amount is offset by: (1) Any
amount by which a hospital's cumulative capital payments exceed its
cumulative minimum payment levels applicable under the regular
exceptions process for cost reporting periods beginning during which
the hospital has been subject to the capital PPS; and (2) any amount
by which a hospital's current year operating and capital payments
(excluding 75 percent of operating DSH payments) exceed its
operating and capital costs. Under Sec. 412.348(g)(6), the minimum
payment level is 70 percent for all eligible hospitals. We note that
this was a 10-year provision. Therefore, FY 2012 is the final year
hospitals

[[Page 50442]]

will be eligible for the special exceptions payment.
Currently, as provided in Sec. 412.304(c)(2), we pay a new
hospital 85 percent of its reasonable costs during the first 2 years
of operation unless it elects to receive payment based on 100
percent of the capital Federal rate. Effective with the third year
of operation, we pay the hospital based on 100 percent of the
capital Federal rate (that is, the same methodology used to pay all
other hospitals subject to the capital PPS).

C. Capital Input Price Index

1. Background

Like the operating input price index, the capital input price
index (CIPI) is a fixed-weight price index that measures the price
changes associated with capital costs during a given year. The CIPI
differs from the operating input price index in one important
aspect--the CIPI reflects the vintage nature of capital, which is
the acquisition and use of capital over time. Capital expenses in
any given year are determined by the stock of capital in that year
(that is, capital that remains on hand from all current and prior
capital acquisitions). An index measuring capital price changes
needs to reflect this vintage nature of capital. Therefore, the CIPI
was developed to capture the vintage nature of capital by using a
weighted-average of past capital purchase prices up to and including
the current year.
We periodically update the base year for the operating and
capital input price indexes to reflect the changing composition of
inputs for operating and capital expenses. In the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 44021), we rebased and revised the
CIPI to a FY 2006 base year to reflect the more current structure of
capital costs in hospitals. A complete discussion of this rebasing
is provided in section IV. of the preamble of that final rule.

2. Forecast of the CIPI for FY 2011

Based on the latest forecast by IHS Global Insight, Inc. (second
quarter of 2010), we are forecasting the FY 2006-based CIPI to
increase 1.2 percent in FY 2011. This reflects a projected 1.7
percent increase in vintage-weighted depreciation prices (building
and fixed equipment, and movable equipment), and a 1.6 percent
increase in other capital expense prices in FY 2011, partially
offset by 2.1 percent decline in vintage-weighted interest expenses
in FY 2011. The weighted average of these three factors produces the
1.2 percent increase for the FY 2006-based CIPI as a whole in FY
2011.

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

Historically, hospitals and hospital units excluded from the
prospective payment system received payment for inpatient hospital
services they furnished on the basis of reasonable costs, subject to
a rate-of-increase ceiling. An annual per discharge limit (the
target amount as defined in Sec. 413.40(a)) was set for each
hospital or hospital unit based on the hospital's own cost
experience in its base year, and updated annually by a rate-of-
increase percentage. The updated target amount for that period was
multiplied by the Medicare discharges during that period and applied
as an aggregate upper limit (the ceiling as defined in Sec.
413.40(a)) on total inpatient operating costs for a hospital's cost
reporting period. Prior to October 1, 1997, these payment provisions
applied consistently to all categories of excluded providers
(rehabilitation hospitals and units (now referred to as IRFs),
psychiatric hospitals and units (now referred to as IPFs), LTCHs,
children's hospitals, and cancer hospitals).
Payments for services furnished in children's hospitals and
cancer hospitals that are excluded from the IPPS continue to be
subject to the rate-of-increase ceiling based on the hospital's own
historical cost experience. (We note that, in accordance with Sec.
403.752(a), RNHCIs are also subject to the rate-of-increase limits
established under Sec. 413.40 of the regulations.)
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24016 and
24082), we proposed that the FY 2011 rate-of-increase percentage for
updating the target amounts for cancer and children's hospitals and
RNHCIs was the estimated percentage increase in the FY 2011 IPPS
operating market basket, estimated to be 2.4 percent, in accordance
with applicable regulations at Sec. 413.40. We also proposed to use
the most recent data when determining the estimated percentage
increase for the FY 2011 IPPS market basket for the final rule, to
the extent these data were available. For this final rule, we are
using the most recent data available to determine the FY 2011 IPPS
operating market basket. Based on IHS Global Insight, Inc.'s second
quarter 2010 forecast, with historical data through the 2010 first
quarter, the IPPS operating market basket is 2.6 percent for FY
2011. Therefore, for cancer and children's hospitals and RNHCIs, the
FY 2011 rate-of-increase percentage that is applied to the FY 2010
target amounts in order to determine the FY 2011 target amount is
2.6 percent.
IRFs, IPFs, and LTCHs were previously paid under the reasonable
cost methodology. However, the statute was amended to provide for
the implementation of prospective payment systems for IRFs, IPFs,
and LTCHs. In general, the prospective payment systems for IRFs,
IPFs, and LTCHs provide transitioning periods of varying lengths of
time during which a portion of the prospective payment is based on
cost-based reimbursement rules under 42 CFR part 413 (certain
providers do not receive a transitioning period or may elect to
bypass the transition as applicable under 42 CFR part 412, subparts
N, O, and P.) We note that all of the various transitioning periods
provided for under the IRF PPS, the IPF PPS, and the LTCH PPS have
ended.
The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually.
We refer readers to section VII. of the preamble and section V. of
the Addendum to this final rule for the update changes to the
Federal payment rates for LTCHs under the LTCH PPS for FY 2011. The
annual updates for the IRF PPS and the IPF PPS are issued by the
agency in separate Federal Register documents.

V. Changes to the Payment Rate for the LTCH PPS for FY 2011

A. LTCH PPS Standard Federal Rate for FY 2011

1. Background

In section VII. of the preamble of this final rule, we discuss
our changes to the payment rates, factors, and specific policies
under the LTCH PPS for FY 2011. As discussed earlier, we note that
the Affordable Care Act made a number of changes that affected the
LTCH PPS for FY 2010 and FY 2011. Because we were unable to
incorporate the provisions of the Affordable Care Act in the FY 2011
IPPS/LTCH PPS proposed rule that appeared in the Federal Register on
May 4, 2010 due to the timing of enactment of the Affordable Care
Act, we issued in the Federal Register on June 2, 2010, a
supplemental proposed rule that proposed to implement the provisions
of the Affordable Care Act affecting the IPPS and LTCH PPS for FY
2011. The final policies and payment rates in this final rule
reflect the applicable provisions of this new legislation and
address the public comments that we received on both the May 4, 2010
proposed rule and the June 2, 2010 supplemental proposed rule. We
also note that we issued a final notice in the Federal Register on
June 2, 2010, to implement the provisions of the Affordable Care Act
that affect the policies and payment rates for RY 2010 under the
LTCH PPS.
At Sec. 412.523(c)(3)(ii) of the regulations, for LTCH PPS rate
years beginning RY 2004 through RY 2006, we updated the standard
Federal rate by a factor to adjust for the most recent estimate of
the increases in prices of an appropriate market basket of goods and
services for LTCHs. We established a policy of annually updating the
standard Federal rate because, at that time, we believed that was
the most appropriate method for updating the LTCH PPS standard
Federal rate annually for years after the initial implementation of
the LTCH PPS in FY 2003. Thus, under Sec. 412.523(c)(3)(ii), for
RYs 2004 through 2006, the annual update to the LTCH PPS standard
Federal rate was equal to the previous rate year's Federal rate
updated by the most recent estimate of increases in the appropriate
market basket of goods and services included in covered inpatient
LTCH services.
In determining the annual update to the standard Federal rate
for RY 2007, based on our ongoing monitoring activity, we believed
that, rather than solely using the most recent estimate of the LTCH
PPS market basket as the basis of the update factor, it was
appropriate to adjust the standard Federal rate to account for the
effect of documentation and coding in a prior period that was
unrelated to patients' severity of illness (71 FR 27818).
Accordingly, we established regulations at Sec. 412.523(c)(3)(iii)
to specify that the update to the standard Federal rate for RY 2007
was zero percent based on the most recent estimate of the LTCH PPS
market basket at that time, offset by an adjustment to account for
changes in case-mix in prior periods due to the effect of
documentation and coding that were unrelated to patients' severity
of illness in FY 2004. For RYs 2008 through 2010, we also

[[Page 50443]]

considered the effect of documentation and coding that was unrelated
to patients' severity of illness in establishing the annual update
to the standard Federal rate as set forth in the regulations at
Sec. Sec. 412.523(c)(3)(iv) through (c)(3)(vi). (We note that
section 114(e)(1) of Public Law 110-173 provided that the standard
Federal rate for RY 2008 shall be the same as the standard Federal
rate for RY 2007. In addition, section 114(e)(2) of Public Law 110-
173 specified that the revised standard Federal rate provided for
under section 114(e)(1) ``shall not apply to discharges occurring on
or after July 1, 2007, and before April 1, 2008,'' effectively
resulting in a delay of the application of the updated standard
Federal rate for RY 2007 established in the RY 2008 LTCH PPS final
rule (72 FR 26890).)
Consistent with our historical practice, in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 44022), we established an annual
update to the standard Federal rate for RY 2010 based on the most
recent estimate of the increase in the LTCH PPS market basket at
that time of 2.5 percent and an adjustment of -0.5 percent to
account for the increase in case-mix in a prior period (FY 2007) due
to the effect of documentation and coding unrelated to an increase
in patients' severity of illness. Accordingly, we established
regulations at Sec. 412.523(c)(3)(vi) to specify that the update to
the standard Federal rate for RY 2010 is 2.0 percent. However, as
noted above, the Affordable Care Act revised the update to the
standard Federal rate for RY 2010. Newly added section
1886(m)(3)(A)(ii) of the Act provides that, for each of RYs 2010
through 2019, any annual update to the standard Federal rate is
reduced by the ``other adjustment'' described in section 1886(m)(4)
of the Act. Specifically, newly added sections 1886(m)(3)(A)(ii) and
(m)(4)(A) of the Act require a 0.25 percentage point reduction to
the annual update to the standard Federal rate for RY 2010. Section
1886(m)(3)(A) of the Act, on its face, explicitly provides for a
revised annual update to the standard Federal rate beginning RY
2010, thus resulting in a single revised RY 2010 standard Federal
rate. Section 3401(p) of Public Law 111-148 provides that,
notwithstanding the previous provisions of this section, the
amendments made by subsections (a), (c) and (d) shall not apply to
discharges occurring before April 1, 2010. When read in conjunction,
we believe section 1886(m)(3)(A) of the Act and section 3401(p) of
Public Law 111-148 provide for a single revised RY 2010 standard
Federal rate. However, for payment purposes, discharges occurring on
or after October 1, 2009, and before April 1, 2010, simply will not
be paid based on the revised RY 2010 standard Federal rate (and will
be paid based on the standard Federal rate of $39,896.65 as
established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
44022)).
Accordingly, in the June 2, 2010 FY 2010 IPPS/RY 2010 LTCH PPS
notice (75 FR 31128), we established an update to the LTCH PPS
standard Federal rate for RY 2010 of 1.74 percent, based on the full
forecasted estimated increase in the LTCH PPS market basket (2.5
percent), adjusted by the 0.25 percentage point reduction required
by sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act, and an
adjustment to account for the increase in case-mix in a prior period
(FY 2007) resulting from the effect of documentation and coding of -
0.5 percent.
As discussed in section VII.C.2.c. of the preamble of this final
rule, we are finalizing the proposal contained in the June 2, 2010
FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30969) to
revise Sec. 412.523(c)(3)(vi) to specify that the standard Federal
rate for the LTCH PPS rate year beginning October 1, 2009 and ending
September 30, 2010, is the standard Federal rate for the previous
rate year updated by 1.74 percent. Furthermore, consistent with
section 3401(p) of Public Law 111-148, in this final rule, we also
are finalizing our proposal to revise Sec. 412.523(c)(3)(vi) to
specify that with respect to discharges occurring on or after
October 1, 2009 and before April 1, 2010, payments are based on the
standard Federal rate in Sec. 412.523(c)(3)(v) updated by 2.0
percent (75 FR 30969).

2. Development of the FY 2011 LTCH PPS Standard Federal Rate

While we continue to believe that an update to the LTCH PPS
standard Federal rate should be based on the most recent estimate of
the increase in the LTCH PPS market basket, we also believe it is
appropriate that the standard Federal rate be offset by an
adjustment to account for any effect of documentation and coding
practices that does not reflect increased severity of illness. Such
an adjustment protects the integrity of the Medicare Trust Funds by
ensuring that the LTCH PPS payment rates better reflect the true
costs of treating LTCH patients. Furthermore, as we discussed most
recently in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
44022), we did not establish a case-mix budget neutrality factor
(that is, a documentation and coding adjustment for changes in case-
mix that are not due to changes in patients' severity of illness)
for the adoption of the severity adjusted MS-LTC-DRG patient
classification system. Rather, we noted that, consistent with past
LTCH payment policy, we would continue to monitor LTCH data, and we
could propose to make adjustments when updating the LTCH PPS
standard Federal rate in the future to account for the effect of
documentation and coding that does not reflect any real changes in
case-mix during these years that we are implementing MS-LTC-DRGs. As
described above, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we
applied a -0.5 percent adjustment to account for the effect of
documentation and coding on the increase in case-mix in FY 2007.
Although we proposed a -1.3 percent adjustment to account for the
effect of documentation and coding on the increase in case-mix in FY
2008, in that same final rule after consideration of public comments
and consistent with IPPS policy, we delayed the application of that
adjustment (74 FR 43970 through 43972).
For FY 2011, as discussed in the May 4, 2010 FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 24045 through 24047), we performed a case-
mix analysis using the most recent available LTCH claims data (FY
2009) under both the current MS-LTC-DRG and the former CMS LTC-DRG
patient classification systems. Based on this evaluation, we
determined that there was a cumulative increase in LTCH case-mix of
2.5 percent due to the effect of documentation and coding that did
not reflect real changes in severity of illness for LTCH discharges
occurring in FY 2008 and FY 2009. Consistent with our historical
practice, in that same proposed rule, we proposed to update the LTCH
PPS standard Federal rate for FY 2011 based on the full proposed
LTCH PPS market basket increase estimate at that time (2.4 percent)
and a proposed adjustment to account for the increase in case-mix in
prior periods (FYs 2008 and 2009) that resulted from the effect of
documentation and coding practices of -2.5 percent. As noted above
in this section, although a number of the provisions of the
Affordable Care Act affect the LTCH PPS, due to the timing of the
passage of that legislation, we were unable to address those
provisions in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule.
Therefore, the proposed policies and payment rates in that proposed
rule did not reflect the new legislation. We addressed the
provisions of the Affordable Care Act that affected our proposed
policies and payment rates for FY 2011 under the LTCH PPS in the
June 2, 2010 IPPS/LTCH PPS supplemental proposed rule (75 FR 30918).
As discussed in the June 2, 2010 FY 2010 IPPS/LTCH PPS
supplemental proposed rule (75 FR 30969), section 1886(m)(3)(A)(ii)
of the Act provides that, for each of RYs 2010 through 2019, any
annual update to the standard Federal rate is reduced by the ``other
adjustment'' described in section 1886(m)(4) of the Act.
Specifically, sections 1886(m)(3)(A)(ii) and (m)(4)(B) of the Act
require a 0.50 percentage point reduction to the annual update to
the standard Federal rate for FY 2011. Consistent with our
historical practice, in that same supplemental proposed rule, we
proposed to update the LTCH PPS standard Federal rate for FY 2011
based on the full proposed LTCH PPS market basket increase estimate
at that time (2.4 percent), adjusted by the 0.50 percentage point
reduction required by sections 1886(m)(3)(A)(ii) and (m)(4)(B) of
the Act, and a proposed adjustment to account for the increase in
case-mix in prior periods (FYs 2008 and 2009) that resulted from the
effect of documentation and coding practices (-2.5 percent).
Consequently, we proposed an update factor to the standard Federal
rate for FY 2011 of -0.59 percent (that is, we proposed to apply a
factor of 0.9941 in determining the LTCH PPS standard Federal rate
for FY 2011, calculated as 1.019 x 1 divided by 1.025 = 0.9941 or -
0.59 percent (0.9941 minus 1 equals 0.59 percent)).
Consistent with our historical practice of updating the standard
Federal rate for the previous rate year, we applied the proposed
update factor of 0.9941 to the revised RY 2010 standard Federal rate
that was established in accordance with the provisions of sections
1886(m)(3)(A)(ii) and (m)(4)(A) of the Act (that is, $39,794.95 as
established in the FY 2010 IPPS/RY 2010 LTCH PPS final notice (75 FR
31128 through 31129). Consequently, the proposed standard Federal
rate for FY 2011 was $39,560.16.

[[Page 50444]]

Furthermore, in the June 2, 2010 FY 2010 IPPS/LTCH PPS supplemental
proposed rule (75 FR 30971), we proposed to amend Sec. 412.523 to
add a new paragraph (c)(3)(vii) to specify that the standard Federal
rate for discharges occurring on or after October 1, 2010 through
September 30, 2011, is the standard Federal rate for the previous
rate year updated by -0.59 percent. We also proposed that if more
recent data become available, we would use those data, if
appropriate, to determine the update to the standard Federal rate
for FY 2011 in the final rule, and, thus, the standard Federal rate
update specified in the proposed regulation text at Sec.
412.523(c)(3)(vii) could change accordingly.
In this final rule, as discussed in greater detail in section
VII.C.3. of the preamble of this final rule, we are finalizing our
proposal to apply a -2.5 percent adjustment to the standard Federal
rate to account for the effect of documentation and coding that did
not reflect real changes in patient severity of illness for LTCH
discharges that occurred in FYs 2008 and 2009 based on our case-mix
analysis using the most recent available LTCH claims data (FY 2009)
under both the current MS-LTC-DRG and the former CMS LTC-DRG patient
classification systems. At this time, as discussed in section
VII.C.2. of the preamble of this final rule, the most recent
estimate of the increase in the LTCH PPS market basket (that is, the
FY 2002-based RPL market basket) for FY 2011 is 2.5 percent.
Consistent with our historical practice and as we proposed, in this
final rule, we are establishing an update to the LTCH PPS standard
Federal rate for FY 2011 based on the full LTCH PPS market basket
increase estimate, including the statutorily required 0.50
percentage point reduction, of 2.0 percent and an adjustment to
account for the increase in case-mix in prior periods (FYs 2008 and
2009) that resulted from the effect of documentation and coding
practices of -2.5 percent. Accordingly, the update factor to the
standard Federal rate for FY 2011 is -0.49 percent (that is, we are
applying a factor of 0.9951 in determining the LTCH PPS standard
Federal rate for FY 2011, calculated as 1.020 x 1 divided by 1.025 =
0.9951 or -0.49 percent).
Therefore, in this final rule, under the broad authority
conferred upon the Secretary under the BBRA and the BIPA to
determine appropriate updates under the LTCH PPS and under the
authority of sections 1886(m)(3)(A)(ii) and (m)(4)(B) of the Act,
consistent with our proposal, we are revising Sec. 412.523 to add a
new paragraph (c)(3)(vii) to specify that the standard Federal rate
for discharges occurring on or after October 1, 2010 through
September 30, 2011, is the standard Federal rate for the previous
rate year updated by -0.49 percent. Consistent with our historical
practice, and as we proposed, in determining the standard Federal
rate for FY 2011, we are applying the update factor of 0.9951 to the
RY 2010 Federal rate of $39,794.95 (as established in the June 2,
2010 FY 2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31128 through
31129)). Consequently, in this final rule, we are establishing a
standard Federal rate for FY 2011 of $39,599.95, which will apply to
LTCH PPS discharges occurring on or after October 1, 2010 through
September 30, 2011.

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

1. Background

Under the authority of section 123 of the BBRA as amended by
section 307(b) of the BIPA, we established an adjustment to the LTCH
PPS standard Federal rate to account for differences in LTCH area
wage levels at Sec. 412.525(c). The labor-related share of the LTCH
PPS standard Federal rate is adjusted to account for geographic
differences in area wage levels by applying the applicable LTCH PPS
wage index. The applicable LTCH PPS wage index is computed using
wage data from inpatient acute care hospitals without regard to
reclassification under section 1886(d)(8) or section 1886(d)(10) of
the Act.
As we discussed in the August 30, 2002 LTCH PPS final rule (67
FR 56015), when we implemented the LTCH PPS, we established a 5-year
transition to the full wage index adjustment. The wage index
adjustment was completely phased in for cost reporting periods
beginning in FY 2007. Therefore, for cost reporting periods
beginning on or after October 1, 2006, the applicable LTCH wage
index values are the full (five-fifths) LTCH PPS wage index values
calculated based on acute care hospital inpatient wage index data
without taking into account geographic reclassification under
section 1886(d)(8) and section 1886(d)(10) of the Act. For
additional information on the phase-in of the wage index adjustment
under the LTCH PPS, we refer readers to the August 30, 2002 LTCH PPS
final rule (67 FR 56017 through 56019) and the RY 2008 LTCH PPS
final rule (72 FR 26891).

2. Updates to the Geographic Classifications/Labor Market Area
Definitions

a. Background

As discussed in the August 30, 2002 LTCH PPS final rule, which
implemented the LTCH PPS (67 FR 56015 through 56019), in
establishing an adjustment for area wage levels, the labor-related
portion of a LTCH's Federal prospective payment is adjusted by using
an appropriate wage index based on the labor market area in which
the LTCH is located. Specifically, the application of the LTCH PPS
wage index adjustment at Sec. 412.525(c) is made on the basis of
the location of the LTCH in either an urban area or a rural area as
defined in Sec. 412.503. Currently under the LTCH PPS at Sec.
412.503, an ``urban area'' is defined as a Metropolitan Statistical
Area (which would include a metropolitan division, where applicable)
as defined by the Executive OMB and a ``rural area'' is defined as
any area outside of an urban area.
In the RY 2006 LTCH PPS final rule (70 FR 24184 through 24185),
in regulations at Sec. 412.525(c), we revised the labor market area
definitions used under the LTCH PPS effective for discharges
occurring on or after July 1, 2005, based on the Executive OMB's
CBSA designations, which are based on 2000 Census data. We made this
revision because we believe that the CBSA-based labor market area
definitions will ensure that the LTCH PPS wage index adjustment most
appropriately accounts for and reflects the relative hospital wage
levels in the geographic area of the hospital as compared to the
national average hospital wage level. We note that these are the
same CBSA-based designations implemented for acute care hospitals
under the IPPS at Sec. 412.64(b), effective October 1, 2004 (69 FR
49026 through 49034). (For further discussion of the CBSA-based
labor market area (geographic classification) definitions currently
used under the LTCH PPS, we refer readers to the RY 2006 LTCH PPS
final rule (70 FR 24182 through 24191).) We have updated the LTCH
PPS CBSA-based labor market area definitions annually since they
were adopted for RY 2006 (73 FR 26812 through 26814, and 74 FR 44023
through 44204).

b. Update to the CBSA-Based Labor Market Area Titles and Principal
Cities

On December 1, 2009, the Executive OMB announced changes to the
principal cities and titles of a number of CBSAs and Metropolitan
Divisions (OMB Bulletin No. 10-02). In the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 24084), under the broad authority conferred
upon the Secretary by section 123 of the BBRA, as amended by section
307(b) of BIPA, to determine appropriate adjustments under the LTCH
PPS, we presented the following update to our titles and definitions
using the Executive OMB's bulletin, which is effective for
discharges occurring on or after October 1, 2010. We did not receive
any public comments on our update to the CBSA titles and definitions
for FY 2011.
For FY 2011, as presented in the FY 2011 IPPS/LTCH PPS proposed
rule, the following CBSAs have new titles and new principal cities:
San Marcos, TX qualifies as a new principal city of the
Austin-Round Rock, TX CBSA. The new title is Austin-Round Rock-San
Marcos, TX CBSA (CBSA Code 12420).
Delano, CA qualifies as a new principal city of the
Bakersfield, CA CBSA. The new title: Bakersfield-Delano, CA CBSA
(CBSA Code 12540).
Conroe, TX qualifies as a new principal city of the
Houston-Sugar Land-Baytown, TX CBSA (CBSA Code 26420). The CBSA
title is unchanged.
North Port, FL qualifies as a new principal city of the
Bradenton-Sarasota-Venice, FL CBSA (currently CBSA Code 14600). The
new title is North Port-Bradenton-Sarasota, FL CBSA. The new code is
CBSA 35840.
Sanford, FL qualifies as a new principal city of the
Orlando-Kissimmee, FL CBSA (CBSA Code 36740). The new title is
Orlando-Kissimmee-Sanford, FL CBSA.
Glendale, AZ qualifies as a new principal city of the
Phoenix-Mesa-Scottsdale, AZ CBSA. The new title is Phoenix-Mesa-
Glendale, AZ CBSA (CBSA Code 38060).
Palm Desert, CA qualifies as a new principal city of
the Riverside-San Bernardino-Ontario, CA CBSA (CBSA Code 40140). The
CBSA title is unchanged.
New Braunfels, TX qualifies as a new principal city of
the San Antonio, TX CBSA. The new title is San Antonio-New
Braunfels, TX CBSA (CBSA Code 41700).

[[Page 50445]]

Auburn, WA qualifies as a new principal city of the
Seattle-Tacoma-Bellevue, WA CBSA (CBSA Code 42644). The CBSA title
is unchanged.
In addition, the following CBSAs have new titles as a result of
changes to the order of principal cities based on population:
Rockville, MD replaces Frederick, MD as the second most
populous principal city in the Bethesda-Frederick-Rockville, MD
Metropolitan Division. The new title is Bethesda-Rockville-
Frederick, MD Metropolitan Division (CBSA Code 13644).
Rock Hill, SC replaces Concord, NC as the third most
populous principal city in the Charlotte-Gastonia-Concord, NC-SC
CBSA. The new title is Charlotte-Gastonia-Rock Hill, NC-SC CBSA
(CBSA Code 16740).
Joliet, IL replaces Naperville, IL as the second most
populous principal city in the Chicago-Naperville-Joliet, IL
Metropolitan Division. The new title is Chicago-Joliet-Naperville,
IL Metropolitan Division (CBSA Code 16974).
Crestview, FL replaces Fort Walton Beach, FL as the
most populous principal city in the Fort Walton Beach-Crestview-
Destin, FL CBSA (currently CBSA Code 23020). The new title is
Crestview-Fort Walton Beach-Destin, FL CBSA. The new code is 18880.
Hillsboro, OR replaces Beaverton, OR as the third most
populous principal city in the Portland-Vancouver-Beaverton, OR-WA
CBSA. The new title is Portland-Vancouver-Hillsboro, OR-WA CBSA
(CBSA Code 38900).
Steubenville, OH replaces Weirton, WV as the most
populous principal city in the Weirton-Steubenville, WV-OH CBSA
(currently CBSA Code 48260). The new title is Steubenville-Weirton,
OH-WV CBSA. The new CBSA code is 44600.
OMB Bulletin No. 10-02 is available on the OMB Web site at
http://www.whitehouse.gov/OMB--go to ``Bulletins'' or ``Statistical
Programs and Standards.''
The FY 2011 LTCH PPS wage index values presented in Tables 12A
and 12B in the Addendum of this final rule reflect the updates to
the CBSA-based labor market area titles and codes described above.

3. LTCH PPS Labor-Related Share

As noted above in this section, under the adjustment for
difference in area wage levels at Sec. 412.525(c), the labor-
related share of a LTCH's PPS Federal prospective payment is
adjusted by the applicable wage index for the labor market area in
which the LTCH is located. The LTCH PPS labor-related share
represents the sum of the labor-related portion of operating costs
(wages and salaries, employee benefits, professional fees, and all
other labor-intensive services) and a labor-related portion of
capital costs using the applicable LTCH PPS market basket.
Currently, as established in the RY 2007 LTCH PPS final rule (71 FR
27829 through 27830), the LTCH PPS labor-related share is based on
the relative importance of the labor-related share of operating
costs and capital costs of the rehabilitation psychiatric long-term
care (hospital) (RPL) market basket based on FY 2002 data, as they
are the best available data that reflect the cost structure of
LTCHs. For the past 3 years (RYs 2008, 2009, and 2010), we updated
the LTCH PPS labor-related share annually based on the latest
available data for the RPL market basket. For RY 2010, the labor-
related share is 75.779 percent, as established in the RY 2010 LTCH
PPS final rule (74 FR 43968 and 44024). (Additional background
information on the historical development of the labor-related share
under the LTCH PPS and the development of the RPL market basket can
be found in the RY 2007 LTCH PPS final rule (71 FR 27810 through
27817 and 27829 through 27830) and the RY 2010 LTCH PPS final rule
(74 FR 43968).)
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24085), we
proposed a labor-related share under the LTCH PPS for FY 2011 of
75.407 percent based on IHS Global Insight, Inc.'s first quarter
2010 forecast of the FY 2002-based RPL market basket for FY 2011, as
these were the most recent available data at that time. Consistent
with our historical practice of using the best data available, we
also proposed that if more recent data were available to determine
the labor-related share used under the LTCH PPS for FY 2011, we
would use these data for determining the FY 2011 LTCH PPS labor-
related share in the final rule. We did not receive any public
comments on our proposed update to the labor-related share for FY
2011.
As discussed in greater detail in section VII.C.2.d. of the
preamble of this final rule, we are using IHS Global Insight, Inc.'s
second quarter 2010 forecast of the FY 2002-based RPL market basket
for FY 2011 to determine the labor-related share for the LTCH PPS
for FY 2011 that will be effective for discharges occurring on or
after October 1, 2010, and through September 30, 2011, as these are
the most recent available data. As we proposed, the labor-related
share for FY 2011 is the sum of the FY 2011 relative importance of
each labor-related cost category, and reflects the different rates
of price change for these cost categories between the base year (FY
2002) and FY 2011. The sum of the relative importance for FY 2011
for operating costs (wages and salaries, employee benefits,
professional fees, and all-other labor-intensive services) is 71.384
percent and the labor-related share of capital costs is 3.887
percent. Thus, under the authority set forth in section 123 of the
BBRA as amended by section 307(b) of the BIPA, we are establishing a
labor-related share of 75.271 percent (71.384 percent + 3.887
percent) under the LTCH PPS for the FY 2011, as shown in the chart
in section VII.C.2.d. of the preamble of this final rule.

4. LTCH PPS Wage Index for FY 2011

Historically, under the LTCH PPS, we have established LTCH PPS
wage index values calculated from acute care IPPS hospital wage data
without taking into account geographic reclassification under
sections 1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). The
wage adjustment established under the LTCH PPS is based on a LTCH's
actual location without regard to the urban or rural designation of
any related or affiliated provider.
In the RY 2010 LTCH PPS final rule (74 FR 44024 through 44026),
we calculated the LTCH PPS wage indices using the same data used for
the FY 2010 acute care hospital IPPS (that is, data from cost
reporting periods beginning during FY 2006), without taking into
account geographic reclassification under sections 1886(d)(8) and
1886(d)(10) of the Act.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24085 through
24086), to determine the applicable wage index values under the LTCH
PPS for FY 2011, consistent with our historical methodology, we
proposed to use wage data collected from cost reports submitted by
IPPS hospitals for cost reporting periods beginning during FY 2007,
without taking into account geographic reclassification under
sections 1886(d)(8) and 1886(d)(10) of the Act, because these data
(FY 2007) are the most recent complete data available. These are the
same data used to compute the proposed FY 2011 acute care hospital
inpatient wage index, as discussed in section III. of the preamble
of that proposed rule. (For our rationale for using IPPS hospital
wage data as a proxy for determining the wage index values used
under the LTCH PPS, we refer readers to the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 44024 through 44025).) In that same
proposed rule, we proposed to compute the FY 2011 LTCH PPS wage
index values consistent with the urban and rural geographic
classifications (labor market areas) and consistent with the pre-
reclassified IPPS wage index policy (that is, our historical policy
of not taking into account IPPS geographic reclassifications in
determining payments under the LTCH PPS). We also proposed to
continue to use our existing policy for determining wage index
values in areas where there are no IPPS wage data. We received no
comments on our proposed wage index for FY 2011, and are adopting
our proposed methodology as final in this final rule, which is
described below.
For this final rule, consistent with our historical methodology
and as we proposed, to determine the applicable wage index values
under the LTCH PPS for FY 2011, under the broad authority conferred
upon the Secretary by section 123 of the BBRA, as amended by section
307(b) of BIPA, to determine appropriate adjustments under the LTCH
PPS, we are using wage data collected from cost reports submitted by
IPPS hospitals for cost reporting periods beginning during FY 2007,
without taking into account geographic reclassification under
sections 1886(d)(8) and 1886(d)(10) of the Act. We are using FY 2007
data because these data are the most recent complete data available.
These are the same data used to compute the FY 2011 acute care
hospital inpatient wage index, as discussed in section III. of the
preamble of this final rule. (As noted above, for our rationale for
using IPPS hospital wage data as a proxy for determining the wage
index values used under the LTCH PPS, we refer readers to the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44024 through 44025).)
As we proposed, the FY 2011 LTCH PPS wage index values we are
establishing in this final rule are computed consistent with the
urban and rural geographic classifications (labor market areas)
discussed above in section V.B.2. of the Addendum to this final rule
and consistent with the pre-reclassified

[[Page 50446]]

IPPS wage index policy (that is, our historical policy of not taking
into account IPPS geographic reclassifications in determining
payments under the LTCH PPS). As we noted in the proposed rule, as
with the IPPS wage data, wage data for multicampus hospitals with
campuses located in different labor market areas (CBSAs) are
apportioned to each CBSA where the campus or campuses are located
(discussed in section III.C. of the preamble of this final rule).
Furthermore, as we proposed, in determining the FY 2011 LTCH PPS
wage index values in this final rule, we continued to use our
existing policy for determining wage index values in areas where
there are no IPPS wage data.
As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
2408), we established a methodology for determining a LTCH PPS wage
index values for areas that have no IPPS wage data in the RY 2009
LTCH PPS final rule, and as we proposed, we continued to use this
methodology for FY 2011. (We refer readers to 73 FR 26817 through
26818 for an explanation of and rationale for our policy.) Under
this methodology, the LTCH PPS wage index value for urban CBSAs with
no IPPS wage data is determined by using an average of all of the
urban areas within the State. As was the case in RY 2010, there are
currently no LTCHs located in labor areas without IPPS hospital wage
data (or IPPS hospitals) for FY 2011. However, we calculate LTCH PPS
wage index values for these areas using our established methodology
in the event that, in the future, a LTCH should open in one of those
areas.
Based on the FY 2007 IPPS wage data that we are using to
determine the FY 2011 LTCH PPS wage index values in this final rule,
there are no IPPS wage data for the urban area Hinesville-Fort
Stewart, GA (CBSA 25980). (We note, based on the data used for the
proposed rule, there were no IPPS wage data for the urban area of
Anderson, SC (CBSA 11340). However, based on the updated IPPS wage
data used for this final rule, there is now data to compute a wage
index value for CBSA 11340; therefore, it is no longer necessary to
use our established methodology for determining a wage index value
for areas that have no IPPS wage data for CBSA 11340 for FY 2011 in
this final rule.) Consistent with the methodology discussed above,
as proposed, we calculated the FY 2011 wage index value for CBSA
25980 as the average of the wage index values for all of the other
urban areas within the State of Georgia (that is, CBSAs 10500,
12020, 12060, 12260, 15260, 16860, 17980, 19140, 23580, 31420,
40660, 42340, 46660 and 47580) (reflected in Table 12A of the
Addendum to this final rule). (As noted above, there are currently
no LTCHs located in CBSA 25980.) As noted in the proposed rule, as
IPPS wage data are dynamic, it is possible that urban areas without
IPPS wage data will vary in the future.
As we proposed, in this final rule for FY 2011, using our
established methodology, we calculated a LTCH PPS wage index value
for rural areas with no IPPS wage data using the unweighted average
of the wage indices from all of the CBSAs that are contiguous to the
rural counties of the State (for an explanation of this policy, we
refer readers to 73 FR 26818). For this purpose, we define
``contiguous'' as sharing a border. Based on the FY 2007 IPPS wage
data that we are using to determine the FY 2011 LTCH PPS wage index
values in this final rule, there are no IPPS wage data for the rural
area of Massachusetts (CBSA code 22). Consistent with the
methodology discussed above, as proposed, the FY 2011 wage index
value for rural Massachusetts is computed using the unweighted
average of the wage indices from all of the CBSAs contiguous to the
rural counties in that State. Specifically, the entire Massachusetts
rural area consists of Dukes and Nantucket counties. The borders of
Dukes and Nantucket counties are ``contiguous'' with Barnstable
County, MA, and Bristol County, MA. Therefore, the FY 2011 LTCH PPS
wage index value for rural Massachusetts is computed as the
unweighted average of the FY 2011 wage indexes for Barnstable County
and Bristol County (reflected in Tables 12A and 12B in the Addendum
to this final rule). (There are currently no LTCHs located in rural
Massachusetts.) As noted above, as IPPS wage data are dynamic, it is
possible that rural areas without IPPS wage data will vary in the
future.
The FY 2011 LTCH wage index values that will be applicable for
LTCH discharges occurring on or after October 1, 2010, through
September 30, 2011, are presented in Table 12A (for urban areas) and
Table 12B (for rural areas) in the Addendum of this final rule.

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

In the August 30, 2002 final rule (67 FR 56022), we established,
under Sec. 412.525(b), a cost-of-living adjustment (COLA) for LTCHs
located in Alaska and Hawaii to account for the higher costs
incurred in those States. In the FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 44026) (under the broad authority conferred upon the
Secretary by section 123 of the BBRA as amended by section 307(b) of
BIPA to determine appropriate adjustments under the LTCH PPS), for
RY 2010, we applied a COLA to payments to LTCHs located in Alaska
and Hawaii by multiplying the standard Federal payment rate by the
factors listed in Table III of that same rule.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24086), for FY
2011, consistent with our current policy, we proposed to apply a
COLA to payments to LTCHs located in Alaska and Hawaii by
multiplying the standard Federal payment rate by the factors listed
in the chart in section V.B.5. of the Addendum to the proposed rule
because those factors were the most recent available data at that
time. The proposed factors were obtained from the U.S. Office of
Personnel Management (OPM) and were also proposed to be used under
the IPPS, effective October 1, 2010 (section II.B.2. of the Addendum
to the proposed rule). We also noted that there had been no change
in the COLA factors since the current factors were established in
the FY 2010 IPPS/RY 2010 LTCH PPS final rule. Furthermore, we
proposed that if OPM released revised COLA factors before
publication of the final rule, we would use the revised factors for
the development of LTCH PPS payments for FY 2011 and publish those
revised COLA factors in the final rule. We did not receive any
public comments on our proposed COLA to payments to LTCHs located in
Alaska and Hawaii for FY 2011. We note OPM has not released revised
COLA factors since the publication of the proposed rule.
In this final rule, for FY 2011, under the broad authority
conferred upon the Secretary by section 123 of the BBRA, as amended
by section 307(b) of BIPA, to determine appropriate adjustments
under the LTCH PPS, consistent with our current policy, we will
apply a COLA to payments to LTCHs located in Alaska and Hawaii by
multiplying the standard Federal payment rate by the factors listed
in the chart below because they are the most recent available data
at this time. These factors were obtained from the U.S. Office of
Personnel Management (OPM) and will also be used under the IPPS,
effective October 1, 2010 (section II.B.2. of the Addendum to this
final rule). As noted above, there has been no change in the COLA
factors since the current factors were established in the FY 2010
IPPS/RY 2010 LTCH PPS final rule.

Cost-of-Living Adjustment Factors for Alaska and Hawaii Hospitals for
the LTCH PPS for FY 2011
------------------------------------------------------------------------

------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer (50-mile) radius by 1.23
road..................................................
City of Fairbanks and 80-kilometer (50-mile) radius by 1.23
road..................................................
City of Juneau and 80-kilometer (50-mile) radius by 1.23
road..................................................
All other areas of Alaska.............................. 1.25
Hawaii:
City and County of Honolulu............................ 1.25
County of Hawaii....................................... 1.18
County of Kauai........................................ 1.25
County of Maui and County of Kalawao................... 1.25
------------------------------------------------------------------------

[[Page 50447]]

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

1. Background

Under the broad authority conferred upon the Secretary by
section 123 of the BBRA as amended by section 307(b) of BIPA, in the
regulations at Sec. 412.525(a), we established an adjustment for
additional payments for outlier cases that have extraordinarily high
costs relative to the costs of most discharges. We refer to these
cases as high cost outliers (HCOs). Providing additional payments
for outliers strongly improves the accuracy of the LTCH PPS in
determining resource costs at the patient and hospital level. These
additional payments reduce the financial losses that would otherwise
be incurred when treating patients who require more costly care and,
therefore, reduce the incentives to underserve these patients. We
set the outlier threshold before the beginning of the applicable
rate year so that total estimated outlier payments are projected to
equal 8 percent of total estimated payments under the LTCH PPS.
Under Sec. 412.525(a) in the regulations (in conjunction with
Sec. 412.503), we make outlier payments for any discharges if the
estimated cost of a case exceeds the adjusted LTCH PPS payment for
the MS-LTC-DRG plus a fixed-loss amount. Specifically, in accordance
with Sec. 412.525(a)(3) (in conjunction with Sec. 412.503), we pay
outlier cases 80 percent of the difference between the estimated
cost of the patient case and the outlier threshold, which is the sum
of the adjusted Federal prospective payment for the MS-LTC-DRG and
the fixed-loss amount. The fixed-loss amount is the amount used to
limit the loss that a hospital will incur under the outlier policy
for a case with unusually high costs. This results in Medicare and
the LTCH sharing financial risk in the treatment of extraordinarily
costly cases. Under the LTCH PPS HCO policy, the LTCH's loss is
limited to the fixed-loss amount and a fixed percentage of costs
above the outlier threshold (MS-LTC-DRG payment plus the fixed-loss
amount). The fixed percentage of costs is called the marginal cost
factor. We calculate the estimated cost of a case by multiplying the
Medicare allowable covered charge by the hospital's overall hospital
CCR.
Under the LTCH PPS, we determine a fixed-loss amount, that is,
the maximum loss that a LTCH can incur under the LTCH PPS for a case
with unusually high costs before the LTCH will receive any
additional payments. We calculate the fixed-loss amount by
estimating aggregate payments with and without an outlier policy.
The fixed-loss amount results in estimated total outlier payments
being projected to be equal to 8 percent of projected total LTCH PPS
payments. Currently, MedPAR claims data and CCRs based on data from
the most recent Provider-Specific File (PSF) (or from the applicable
statewide average CCR if a LTCH's CCR data are faulty or
unavailable) are used to establish a fixed-loss threshold amount
under the LTCH PPS.

2. Determining LTCH CCRs Under the LTCH PPS

a. Background

The following is a discussion of CCRs that are used in
determining payments for HCO and SSO cases under the LTCH PPS, at
Sec. 412.525(a) and Sec. 412.529, respectively. Although this
section is specific to HCO cases, because CCRs and the policies and
methodologies pertaining to them are used in determining payments
for both HCO and SSO cases (to determine the estimated cost of the
case at Sec. 412.529(d)(2)), we are discussing the determination of
CCRs under the LTCH PPS for both of these types of cases
simultaneously.
In determining both HCO payments (at Sec. 412.525(a)) and SSO
payments (at Sec. 412.529), we calculate the estimated cost of the
case by multiplying the LTCH's overall CCR by the Medicare allowable
charges for the case. In general, we use the LTCH's overall CCR,
which is computed based on either the most recently settled cost
report or the most recent tentatively settled cost report, whichever
is from the latest cost reporting period, in accordance with Sec.
412.525(a)(4)(iv)(B) and Sec. 412.529(f)(4)(ii) for HCOs and SSOs,
respectively. (We note that, in some instances, we use an
alternative CCR, such as the statewide average CCR in accordance
with the regulations at Sec. 412.525(a)(4)(iv)(C) and Sec.
412.529(f)(4)(iii), or a CCR that is specified by CMS or that is
requested by the hospital under the provisions of the regulations at
Sec. 412.525(a)(4)(iv)(A) and Sec. 412.529(f)(4)(i).) Under the
LTCH PPS, a single prospective payment per discharge is made for
both inpatient operating and capital-related costs. Therefore, we
compute a single ``overall'' or ``total'' LTCH-specific CCR based on
the sum of LTCH operating and capital costs (as described in Section
150.24, Chapter 3, of the Medicare Claims Processing Manual (Pub.
100-4)) as compared to total charges. Specifically, a LTCH's CCR is
calculated by dividing a LTCH's total Medicare costs (that is, the
sum of its operating and capital inpatient routine and ancillary
costs) by its total Medicare charges (that is, the sum of its
operating and capital inpatient routine and ancillary charges).

b. LTCH Total CCR Ceiling

Generally, a LTCH is assigned the applicable statewide average
CCR if, among other things, a LTCH's CCR is found to be in excess of
the applicable maximum CCR threshold (that is, the LTCH CCR
ceiling). This is because CCRs above this threshold are most likely
due to faulty data reporting or entry, and, therefore, CCRs based on
erroneous data should not be used to identify and make payments for
outlier cases. Thus, under our established policy, generally, if a
LTCH's calculated CCR is above the applicable ceiling, the
applicable LTCH PPS statewide average CCR is assigned to the LTCH
instead of the CCR computed from its most recent (settled or
tentatively settled) cost report data.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44027),
in accordance with Sec. 412.525(a)(4)(iv)(C)(2) for HCOs and Sec.
412.529(f)(4)(iii)(B) for SSOs, using our established methodology
for determining the LTCH total CCR ceiling, based on IPPS total CCR
data from the March 2009 update of the PSF, we established a total
CCR ceiling of 1.232 under the LTCH PPS, effective October 1, 2009,
through September 30, 2010. (For further detail on our current
methodology for annually determining the LTCH total CCR ceiling, we
refer readers to the FY 2007 IPPS final rule (71 FR 48119 through
48121).)
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24087), in
accordance with Sec. 412.525(a)(4)(iv)(C)(2) for HCOs and Sec.
412.529(f)(4)(iii)(B) for SSOs, using our established methodology
for determining the LTCH total CCR ceiling (described above), based
on IPPS total CCR data from the December 2009 update of the PSF, we
proposed to establish a total CCR ceiling of 1.230 under the LTCH
PPS that would be effective for discharges occurring on or after
October 1, 2010, through September 30, 2011.
In this final rule, in accordance with Sec.
412.525(a)(4)(iv)(C)(2) for HCOs and Sec. 412.529(f)(4)(iii)(B) for
SSOs, consistent with our policy of using the best available data
and using our established methodology for determining the LTCH total
CCR ceiling (described above), based on IPPS total CCR data from the
March 2010 update of the PSF, we are establishing a total CCR
ceiling of 1.231 under the LTCH PPS that will be effective for
discharges occurring on or after October 1, 2010, through September
30, 2011.

c. LTCH Statewide Average CCRs

Our general methodology established for determining the
statewide average CCRs used under the LTCH PPS is similar to our
established methodology for determining the LTCH total CCR ceiling
(described above) because it is based on ``total'' IPPS CCR data.
Under the LTCH PPS HCO policy at Sec. 412.525(a)(4)(iv)(C) and the
SSO policy at Sec. 412.529(f)(4)(iii), the fiscal intermediary or
MAC may use a statewide average CCR, which is established annually
by CMS, if it is unable to determine an accurate CCR for a LTCH in
one of the following circumstances: (1) new LTCHs that have not yet
submitted their first Medicare cost report (for this purpose,
consistent with current policy, a new LTCH is defined as an entity
that has not accepted assignment of an existing hospital's provider
agreement in accordance with Sec. 489.18); (2) LTCHs whose CCR is
in excess of the LTCH CCR ceiling; and (3) other LTCHs for whom data
with which to calculate a CCR are not available (for example,
missing or faulty data). (Other sources of data that the fiscal
intermediary or MAC may consider in determining a LTCH's CCR include
data from a different cost reporting period for the LTCH, data from
the cost reporting period preceding the period in which the hospital
began to be paid as a LTCH (that is, the period of at least 6 months
that it was paid as a short-term acute care hospital), or data from
other comparable LTCHs, such as LTCHs in the same chain or in the
same region.)
In Table 8C of the Addendum to the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 44160 through 44161), in accordance with the
regulations at Sec. 412.525(a)(4)(iv)(C) for HCOs and Sec.
412.529(f)(4)(iii) for SSOs, using our established methodology for
determining

[[Page 50448]]

the LTCH statewide average CCRs, based on using the most recent
complete IPPS total CCR data from the March 2009 update of the PSF,
we established the LTCH PPS statewide average total CCRs for urban
and rural hospitals effective for discharges occurring on or after
October 1, 2009, through September 30, 2010. (For further detail on
our current methodology for annually determining the LTCH statewide
average CCRs, we refer readers to the FY 2007 IPPS final rule (71 FR
48119 through 48121).)
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24087), using
our established methodology for determining the LTCH statewide
average CCRs, based on the most recent complete IPPS total CCR data
from the December 2009 update of the PSF, we proposed to establish
LTCH PPS statewide average total CCRs for urban and rural hospitals
that would be effective for discharges occurring on or after October
1, 2010, through September 30, 2011, in Table 8C of the Addendum to
that proposed rule.
In this final rule, consistent with our historical practice of
using the best available data and using our established methodology
for determining the LTCH statewide average CCRs, based on the most
recent complete IPPS total CCR data from the March 2010 update of
the PSF, we are establishing LTCH PPS statewide average total CCRs
for urban and rural hospitals that will be effective for discharges
occurring on or after October 1, 2010, through September 30, 2011,
in Table 8C of the Addendum to this final rule.
As we noted in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
24088), all areas in the District of Columbia, New Jersey, Puerto
Rico, and Rhode Island are classified as urban. Therefore, there are
no rural statewide average total CCRs listed for those jurisdictions
in Table 8C of the Addendum to this final rule. This policy is
consistent with the policy that we established when we revised our
methodology for determining the applicable LTCH statewide average
CCRs in the FY 2007 IPPS final rule (71 FR 48119 through 48121) and
is the same as the policy applied under the IPPS. In addition,
although Massachusetts has areas that are designated as rural, there
are no short-term acute care IPPS hospitals or LTCHs located in
those areas as of March 2010. Therefore, there is no rural statewide
average total CCR listed for rural Massachusetts in Table 8C of the
Addendum to this final rule.
In addition, as we discussed in the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 24088), consistent with our existing
methodology, in determining the urban and rural statewide average
total CCRs for Maryland LTCHs paid under the LTCH PPS, in this final
rule, we use, as a proxy, the national average total CCR for urban
IPPS hospitals and the national average total CCR for rural IPPS
hospitals, respectively. We use this proxy because we believe that
the CCR data on the PSF for Maryland hospitals may not be entirely
accurate (as discussed in greater detail in the FY 2007 IPPS final
rule (71 FR 48120)).

d. Reconciliation of LTCH HCO and SSO Payments

We note that under the LTCH PPS HCO policy at Sec.
412.525(a)(4)(iv)(D) and the LTCH PPS SSO policy at Sec.
412.529(f)(4)(iv), the payments for HCO and SSO cases, respectively,
are subject to reconciliation. Specifically, any reconciliation of
outlier payments is based on the CCR that is calculated based on a
ratio of CCRs computed from the relevant cost report and charge data
determined at the time the cost report coinciding with the discharge
is settled. For additional information, we refer readers to the RY
2009 LTCH PPS final rule (73 FR 26820 through 26821).

3. Establishment of the LTCH PPS Fixed-Loss Amount for FY 2011

When we implemented the LTCH PPS, as discussed in the August 30,
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the
broad authority of section 123 of the BBRA as amended by section
307(b) of BIPA, we established a fixed-loss amount so that total
estimated outlier payments are projected to equal 8 percent of total
estimated payments under the LTCH PPS. To determine the fixed-loss
amount, we estimate outlier payments and total LTCH PPS payments for
each case using claims data from the MedPAR files. Specifically, to
determine the outlier payment for each case, we estimate the cost of
the case by multiplying the Medicare covered charges from the claim
by the applicable CCR. Under Sec. 412.525(a)(3) (in conjunction
with Sec. 412.503), if the estimated cost of the case exceeds the
outlier threshold (the sum of the adjusted Federal prospective
payment for the MS-LTC-DRG and the fixed-loss amount), we pay an
outlier payment equal to 80 percent of the difference between the
estimated cost of the case and the outlier threshold (the sum of the
adjusted Federal prospective payment for the MS-LTC-DRG and the
fixed-loss amount).
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44028),
we used our existing methodology to calculate the fixed-loss amount
for RY 2010 in order to maintain estimated HCO payments at the
projected 8 percent of total estimated LTCH PPS payments.
Specifically, we used LTCH claims data from the March 2009 update of
the FY 2008 MedPAR files and CCRs from the March 2009 update of the
PSF to determine a fixed-loss amount that would result in estimated
outlier payments projected to be equal to 8 percent of total
estimated payments in RY 2010 because those data were the most
recent complete LTCH data available at that time. In that same final
rule, we established a fixed-loss amount of $18,425 for RY 2010.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24088), we
proposed to continue to use our existing methodology to calculate
the proposed fixed-loss amount for FY 2011 (based on updated data
and the proposed rates and policies presented in that proposed rule)
in order to maintain estimated HCO payments at the projected 8
percent of total estimated LTCH PPS payments. (For an explanation of
our rationale for establishing an HCO payment ``target'' of 8
percent of total estimated LTCH payments, we refer readers to the
August 30, 2002 LTCH PPS final rule (67 FR 56022 through 56024).)
Consistent with our historical practice of using the best data
available, in determining the proposed fixed-loss amount for FY
2011, we used the most recent available LTCH claims data and CCR
data at that time. Specifically, we used LTCH claims data from the
December 2009 update of the FY 2009 MedPAR files and CCRs from the
December 2009 update of the PSF to determine a fixed-loss amount
that would result in estimated outlier payments projected to be
equal to 8 percent of total estimated payments in FY 2011 because
these data are the most recent complete LTCH data currently
available. Consistent with the historical practice of using the best
available data, we also proposed that if more recent LTCH claims
data become available, we would use them for determining the fixed-
loss amount for FY 2011 in the final rule. Furthermore, we proposed
to determine the FY 2011 fixed-loss amount based on the MS-LTC-DRG
classifications and relative weights from the version of the GROUPER
that will be in effect as of the beginning of FY 2011, that is,
proposed Version 28.0 of the GROUPER.
As noted above in section V.A. of this Addendum, although a
number of the provisions of the Affordable Care Act affected the
LTCH PPS, due to the timing of the passage of the legislation, we
were unable to address those provisions in the May 4, 2010 FY 2011
IPPS/LTCH PPS proposed rule, and therefore, the proposed policies
and payment rates in that proposed rule did not reflect the new
legislation. We addressed the provisions of the Affordable Care Act
that affected our proposed policies and payment rates for FY 2011
under the LTCH PPS in the June 2, 2010 FY 2010 IPPS/LTCH PPS
supplemental proposed rule (75 FR 30918). In that supplemental
proposed rule (75 FR 30980 through 30981), we proposed a revised
standard Federal rate for FY 2011 that was developed consistent with
the provisions of newly added sections 1886(m)(3)(A)(ii) and
(m)(4)(B) of the Act. This revision to the proposed standard Federal
rate for FY 2011 also required us to revise the proposed HCO fixed-
loss amount for FY 2011. This was necessary in order to maintain the
requirement that the fixed-loss amount results in estimated total
outlier payments being projected to be equal to 8 percent of
projected total LTCH PPS payments.
In the June 2, 2010 FY 2010 IPPS/LTCH PPS supplemental proposed
rule (75 FR 30981), under the broad authority of section 123(a)(1)
of the BBRA and section 307(b)(1) of BIPA, we proposed to establish
a fixed-loss amount of $19,254 for FY 2011. Thus, we would pay an
outlier case 80 percent of the difference between the estimated cost
of the case and the outlier threshold (the sum of the adjusted
Federal LTCH payment for the MS-LTC-DRG and the fixed-loss amount of
$19,254). We also discussed that the proposed fixed-loss amount of
$19,254 for FY 2011 is slightly higher than the revised RY 2010
fixed-loss amount of $18,615 (established in the June 2, 2010 FY
2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31130)). Based on our
payment simulations using the most recent available data at that
time and the proposed 0.59 percent reduction to the standard Federal
rate for FY 2011, the proposed increase in the fixed-loss amount for
FY 2011 would be necessary to maintain the existing requirement that
estimated

[[Page 50449]]

outlier payments would equal 8 percent of estimated total LTCH PPS
payments. (For further information on the existing 8 percent HCO
``target'' requirement, as noted above, we refer readers to the
August 30, 2002 LTCH PPS final rule (67 FR 56022 through 56024.)
Maintaining the fixed-loss amount at the current level would result
in HCO payments that are greater than the current regulatory
requirement 8 percent requirement because a higher fixed-loss amount
would result in fewer cases qualifying as outlier cases as well as
decreases the amount of the additional payment for a HCO case
because the maximum loss that a LTCH must incur before receiving an
HCO payment (that is, the fixed-loss amount) would be larger. For
these reasons, we believed that proposing to raise the fixed-loss
amount was appropriate and necessary to maintain that estimated
outlier payments would equal 8 percent of estimated total LTCH PPS
payments as required under Sec. 412.525(a).
Comment: One commenter expressed concern that CMS erred in its
calculation or changed its methodology for determining the proposed
fixed-loss amount of $19,254 for FY 2011, and requested that CMS
review its calculation of the FY 2011 fixed-loss amount for the
final rule. The commenter stated that its calculation of the fixed-
loss amount for FY 2011 was ``significantly lower'' than the
proposed fixed-loss amount of $19,254. The commenter suggested that
CMS may have failed to account for cost inflation when using the FY
2009 LTCH claims data or that CMS may have incorrectly computed the
``blend'' for SSO cases (that is, the SSO payment option at Sec.
412.529(c)(2)(iv)) that are also eligible for HCO payments.
Response: We reviewed our calculation of the proposed FY 2011
fixed-loss amount of $19,254 from the FY 2011 IPPS/LTCH PPS proposed
rule, and we have found no errors or misapplication of our stated
methodology. Specifically, we have ensured that our calculation
accounts for cost inflation when using the FY 2009 claims data to
estimate HCO and SSO payments for FY 2011 as we noted in the FY 2011
IPPS/LTCH PPS proposed rule. Consistent with our historical
practice, we stated in the FY 2011 IPPS/LTCH PPS proposed rule that
to model HCO and SSO payments for FY 2011 we applied an inflation
factor of 1.049 (determined by our actuaries) to the estimated costs
of each case determined from the charges reported on the claims in
the FY 2009 MedPAR files and the best available CCRs from the
December 2009 update of the PSF (75 FR 31113). We also reviewed our
calculations to ensure that we were correctly determining SSO
payments, especially for those SSO cases that are eligible for HCO
payments, and found no miscalculations. As noted below, generally it
is only in rare circumstances that a LTCH case qualifies as both a
SSO case and a HCO case. In fact, SSO cases that are eligible for
HCO payments typically represent less than 1 percent of all LTCH
cases and, therefore, have little effect on the derivation of the
fixed-loss amount. Therefore, we are adopting our proposed
methodology as final and consistent with our proposal, we applied
that methodology to the latest available data to determine the FY
2011 fixed-loss amount in this final rule.
For FY 2011, in this final rule, as proposed, we continue to use
our existing methodology to calculate the fixed-loss amount (based
on updated data and the rates and policies presented in this final
rule) in order to maintain estimated HCO payments at the projected 8
percent of total estimated LTCH PPS payments. (For an explanation of
our rationale for establishing an HCO payment ``target'' of 8
percent of total estimated LTCH PPS payments, we refer readers to
the August 30, 2002 LTCH PPS final rule (67 FR 56022 through
56024).) Consistent with our historical practice of using the best
data available, as we proposed, in determining the fixed-loss amount
for FY 2011, we use the most recent available LTCH claims data and
CCR data. Specifically, for this final rule, we used LTCH claims
data from the March 2010 update of the FY 2009 MedPAR files and CCRs
from the March 2010 update of the PSF to determine a fixed-loss
amount that would result in estimated outlier payments projected to
be equal to 8 percent of total estimated payments in FY 2011 because
these data are the most recent complete LTCH data currently
available. Furthermore, as we proposed, we determined the FY 2011
fixed-loss amount based on the MS-LTC-DRG classifications and
relative weights from the version of the GROUPER that will be in
effect as of the beginning of FY 2011, that is, Version 28.0 of the
GROUPER (discussed in section VII.B. of the preamble of this final
rule).
In this final rule, under the broad authority of section
123(a)(1) of the BBRA and section 307(b)(1) of BIPA, we are
establishing a fixed-loss amount of $18,785 for FY 2011. Thus, we
will pay an outlier case 80 percent of the difference between the
estimated cost of the case and the outlier threshold (the sum of the
adjusted Federal LTCH payment for the MS-LTC-DRG and the fixed-loss
amount of $18,785).
The fixed-loss amount for FY 2011 of $18,785 is slightly higher
than the RY 2010 fixed-loss amount of $18,425. As discussed in the
FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30981) and
as reiterated above, we believe that increasing the fixed-loss
amount is appropriate and necessary to maintain that estimated
outlier payments would equal 8 percent of estimated total LTCH PPS
payments as required under Sec. 412.525(a). We also note that the
FY 2011 fixed-loss amount of $18,785 is slightly less than the
proposed FY 2011 fixed-loss amount of $19,254. We believe that the
increase in the LTCH PPS FY 2011 market basket estimate from 1.9
percent in the FY 2011 IPPS/LTCH PPS supplemental proposed rule
(that is, the estimated full market basket percentage increase of
2.4 percent minus 0.50 percentage point) to 2.0 percent for this
final rule (that is, the estimated full market basket percentage
increase of 2.5 percent minus 0.50 percentage point) contributed to
a slightly lower final HCO fixed-loss amount for FY 2011.
Specifically, the additional 0.1 percentage point increase to the
standard federal rate increases payments to all cases, which reduces
the amount of HCO payments for ``unusually costly'' cases, and
therefore requires that we establish a lower fixed-loss amount for
FY 2011 (as compared to the proposed FY 2011 fixed-loss amount) to
increase HCO payments in order to maintain the established HCO
payment ``target'' of 8 percent of total estimated LTCH PPS
payments.

4. Application of Outlier Policy to SSO Cases

As we discussed in the August 30, 2002 final rule (67 FR 56026),
under some rare circumstances, a LTCH discharge could qualify as a
SSO case (as defined in the regulations at Sec. 412.529 in
conjunction with Sec. 412.503) and also as a HCO case. In this
scenario, a patient could be hospitalized for less than five-sixths
of the geometric average length of stay for the specific MS-LTC-DRG,
and yet incur extraordinarily high treatment costs. If the costs
exceeded the HCO threshold (that is, the SSO payment plus the fixed-
loss amount), the discharge is eligible for payment as a HCO. Thus,
for a SSO case in FY 2011, the HCO payment would be 80 percent of
the difference between the estimated cost of the case and the
outlier threshold (the sum of the fixed-loss amount of $18,785 and
the amount paid under the SSO policy as specified in Sec. 412.529).

D. Computing the Adjusted LTCH PPS Federal Prospective Payments for
FY 2011

In accordance with Sec. 412.525, the standard Federal rate is
adjusted to account for differences in area wages by multiplying the
labor-related share of the standard Federal rate by the appropriate
LTCH PPS wage index (as shown in Tables 12A and 12B of the Addendum
of this final rule). The standard Federal rate is also adjusted to
account for the higher costs of hospitals in Alaska and Hawaii by
multiplying the nonlabor-related share of the standard Federal rate
by the appropriate cost-of-living factor (shown in the chart in
section V.C.5. of the Addendum of this final rule). In this final
rule, we are establishing a standard Federal rate for FY 2011 of
$39,599.95, as discussed in section VII.C.2. of the Addendum of this
final rule. We illustrate the methodology to adjust the LTCH PPS
Federal rate for FY 2011 in the following example:
Example:
During FY 2011, a Medicare patient is in a LTCH located in
Chicago, Illinois (CBSA 16974). The FY 2011 LTCH PPS wage index
value for CBSA 16974 is 1.0593 (Table 12A of the Addendum of this
final rule). The Medicare patient is classified into MS-LTC-DRG 28
(Spinal Procedures with MCC), which has a relative weight for FY
2011 of 1.0928 (Table 11 of the Addendum of this final rule).
To calculate the LTCH's total adjusted Federal prospective
payment for this Medicare patient, we compute the wage-adjusted
Federal prospective payment amount by multiplying the unadjusted
standard Federal rate ($39,599.05) by the labor-related share
(75.271 percent) and the wage index value (1.0593). This wage-
adjusted amount is then added to the nonlabor-related portion of the
unadjusted standard Federal rate (24.729 percent; adjusted for cost
of living, if applicable) to determine the adjusted Federal rate,
which is then multiplied by the MS-LTC-DRG relative weight (1.0928)
to calculate the total

[[Page 50450]]

adjusted Federal LTCH PPS prospective payment for FY 2011
($45,206.43). The table below illustrates the components of the
calculations in this example.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Unadjusted Standard Federal Prospective Payment Rate.. $39,599.95
Labor-Related Share................................... x 0.75271
Labor-Related Portion of the Federal Rate............. = $29,807.28
Wage Index (CBSA 16974)............................... x 1.0593
Wage-Adjusted Labor Share of Federal Rate............. = $31,574.85
Nonlabor-Related Portion of the Federal Rate + $9,792.67
($39,599.95 x 0.24729)...............................
Adjusted Federal Rate Amount.......................... = $41,367.52
MS-LTC-DRG 28 Relative Weight......................... x 1.0928
---------------------------------------------------------
Total Adjusted Federal Prospective Payment........ = $45,206.43
----------------------------------------------------------------------------------------------------------------

VI. Tables

This section contains the tables referred to throughout the
preamble to this final rule and in this Addendum. Tables 1A, 1B, 1C,
1D, 1E, 2, 3A, 3B, 4A, 4B, 4C, 4D-2, 4E, 4F, 4J, 5, 7A, 7B, 8A, 8B,
8C, 9A, 9C, 10, 11, 12A, and 12B are presented below. The following
tables are available only through the Internet on the CMS Web site
at http://www.cms.hhs.gov/AcuteInpatientPPS/:

Table 6G.--Additions to the CC Exclusions List
Table 6H.--Deletions From the CC Exclusions List
Table 6I.--Complete MCC List
Table 6I.1.--Additions to the MCC List
Table 6I.2.--Deletions to the MCC List
Table 6J.--Complete CC List
Table 6J.1.--Additions to the CC List
Table 6J.2.--Deletions to the CC List
Table 6K.--Complete List of CC Exclusions

The tables presented below are as follows:

Table 1A.--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (68.8 Percent Labor Share/31.2 Percent Nonlabor Share If
Wage Index Is Greater Than 1)
Table 1B.--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 1E.--LTCH Standard Federal Prospective Payment Rate
Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges
Occurring in Federal Fiscal Year 2009; Hospital Wage Indexes for
Federal Fiscal Year 2011; Hospital Average Hourly Wages for Federal
Fiscal Years 2009 (2005 Wage Data), 2010 (2006 Wage Data), and 2011
(2007 Wage Data); and 3-Year Average of Hospital Average Hourly
Wages
Table 3A.--FY 2011 and 3-Year Average Hourly Wage for Acute Care
Hospitals in Urban Areas by CBSA
Table 3B.--FY 2011 and 3-Year Average Hourly Wage for Acute Care
Hospitals in Rural Areas by CBSA
Table 4A.--Wage Index and Capital Geographic Adjustment Factor (GAF)
for Acute Care Hospitals in Urban Areas by CBSA and by State--FY
2011
Table 4B.--Wage Index and Capital Geographic Adjustment Factor (GAF)
for Acute Care Hospitals in Rural Areas by CBSA and by State--FY
2011
Table 4C.--Wage Index and Capital Geographic Adjustment Factor (GAF)
for Acute Care Hospitals That Are Reclassified by CBSA and by
State--FY 2011
Table 4D-2.--States Designated as Frontier, with Acute Care
Hospitals Receiving at a Minimum the Frontier State Floor Wage
Index; Urban Areas With Acute Care Hospitals Receiving the Statewide
Rural Floor or Imputed Floor Wage Index--FY 2011
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care
Hospitals--FY 2011
Table 4F.--Puerto Rico Wage Index and Capital Geographic Adjustment
Factor (GAF) for Acute Care Hospitals by CBSA--FY 2011
Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY
2011
Table 5.--List of Medicare Severity Diagnosis-Related Groups (MS-
DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean
Length of Stay
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 7A.--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2009 MedPAR Update--March 2010 GROUPER V27.0 MS-
DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2009 MedPAR Update--March 2010 GROUPER V28.0 MS-
DRGs
Table 8A.--Statewide Average Operating Cost-to-Charge Ratios (CCRs)
for Acute Care Hospitals--July 2010
Table 8B.--Statewide Average Capital Cost-to-Charge Ratios (CCRs)
for Acute Care Hospitals-- July 2010
Table 8C.--Statewide Average Total Cost-to-Charge Ratios (CCRs) for
LTCHs-- July 2010
Table 9A.--Hospital Reclassifications and Redesignations--FY 2011
Table 9C.--Hospitals Redesignated as Rural Under Section
1886(d)(8)(E) of the Act--FY 2011
Table 10.--Geometric Mean Plus the Lesser of .75 of the National
Adjusted Operating Standardized Payment Amount (Increased to Reflect
the Difference Between Costs and Charges) or .75 of One Standard
Deviation of Mean Charges by Medicare Severity Diagnosis-Related
Group (MS-DRG)--July 2010
Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average Length
of Stay, and Short-Stay Outlier (SSO) Threshold for Discharges
Occurring From October 1, 2010 through September 30, 2011 Under the
LTCH PPS
Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges
Occurring from October 1, 2010 Through September 30, 2011
Table 12B.--LTCH PPS Wage Index for Rural Areas for Discharges
Occurring From October 1, 2010 Through September 20, 2011
BILLING CODE 4120-01-P

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[[Page 50647]]

BILLING CODE 4120-01-C

Note: The following Appendices will not appear in the Code of
Federal Regulations.

Appendix A: Regulatory Impact Analysis

I. Overall Impact

We have examined the impacts of this final rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and
Review), the Regulatory Flexibility Act (RFA) (September 19, 1980,
Pub. L. 96-354), section 1102(b) of the Social Security Act, the
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive
Order 13132 on Federalism, and the Congressional Review Act (5
U.S.C. 804(2)).
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net
benefits (including potential economic, environmental, public health
and safety effects, distributive impacts, and equity). A regulatory
impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1
year).
We have determined that this final rule is a major rule as
defined in 5 U.S.C. 804(2). We estimate that the final changes for
FY 2011 acute care hospital operating and capital payments will
redistribute amounts in excess of $100 million among different types
of inpatient cases. The final applicable percentage increase to the
IPPS rates required by the statute, in conjunction with other final
payment changes in this final rule, will result in an estimated $440
million decrease in FY 2011 operating payments (or -0.4 percent
decrease) and an estimated $21 million decrease in FY 2011 capital
payments (or -0.5 percent change). The impact analysis of the
capital payments can be found in section VIII. of this Appendix. In
addition, as described in section IX. of this Appendix, LTCHs are
expected to experience an increase in payments by $22.3 million (or
0.5 percent).
Our operating impact estimate includes the final -2.9 percent
documentation and coding adjustment applied to the hospital-specific
rates, the final -2.6 percent documentation and coding adjustment
applied to the Puerto Rico-specific rates and the final -2.9 percent
adjustment for documentation and coding changes to the IPPS
standardized amounts. In addition, our operating impact estimate
includes the final 2.35 percent market basket update to the
standardized amount (which includes the final 2.6 percent update
with the 0.25 percentage point reduction required under the
Affordable Care Act). The estimates of IPPS operating payments to
acute care hospitals do not reflect any changes in hospital
admissions or real case-mix intensity, which would also affect
overall payment changes.
The RFA requires agencies to analyze options for regulatory
relief of small businesses. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
government jurisdictions. Most hospitals and most other providers
and suppliers are considered to be small entities, either by being
nonprofit organizations or by meeting the Small Business
Administration definition of a small business (having revenues of
$34.5 million or less in any 1 year). (For details on the latest
standards for health care providers, we refer readers to the Table
of Small Business Size Standards for NAIC 622 found on the Small
Business Administration Office of Size Standards Web site at: http://www.sba.gov/contractingopportunities/officials/table/index.html.)
For purposes of the RFA, all hospitals and other providers and
suppliers are considered to be small entities. Individuals and
States are not included in the definition of a small entity. We
believe that the provisions of this final rule relating to acute
care hospitals would have a significant impact on small entities as
explained in this Appendix. Because we lack data on individual
hospital receipts, we cannot determine the number of small
proprietary LTCHs. Therefore, we are assuming that all LTCHs are
considered small entities for the purpose of the analysis in section
IX. of this Appendix. Medicare fiscal intermediaries and MACs are
not considered to be small entities. Because we acknowledge that
many of the affected entities are small entities, the analysis
discussed throughout the preamble of this final rule constitutes our
final regulatory flexibility analysis. Therefore, in the FY 2011
IPPS/LTCH PPS proposed rule and the supplemental proposed rule (75
FR 24287 and 31093, respectively), we solicited public comments on
our estimates and analysis of the impact of our proposals on those
small entities. We address any public comments that we received on
the impact of the changes that we are finalizing in the applicable
sections of this Appendix.
The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA), Public Law 104-121, as amended by section 8302 of Public
Law 110-28, requires an agency to provide compliance guides for each
rule or group of related rules for which an agency is required to
prepare a final regulatory flexibility analysis. The compliance
guides associated with this final rule are available on the CMS IPPS
Web page at http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. We also note that the Hospital Center Web page at
http://www.cms.hhs.gov/center/hospital.asp was developed to assist
hospitals in understanding and adapting to changes in Medicare
regulations and in billing and payment procedures. This Web page
provides hospitals with substantial downloadable explanatory
materials.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis for any proposed or final rule that may
have a significant impact on the operations of a substantial number
of small rural hospitals. This analysis must conform to the
provisions of section 603 of the RFA. With the exception of
hospitals located in certain New England counties, for purposes of
section 1102(b) of the Act, we now define a small rural hospital as
a hospital that is located outside of an urban area and has fewer
than 100 beds. Section 601(g) of the Social Security Amendments of
1983 (Pub. L. 98-21) designated hospitals in certain New England
counties as belonging to the adjacent urban area. Thus, for purposes
of the IPPS and the LTCH PPS, we continue to classify these
hospitals as urban hospitals. (We refer readers to Table 1 and
section VI. of this Appendix for the quantitative effects of the
final policy changes under the IPPS for operating costs.)
Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4) also requires that agencies assess anticipated costs and
benefits before issuing any rule whose mandates require spending in
any 1 year of $100 million in 1995 dollars, updated annually for
inflation. That threshold level is currently approximately $133
million. This final rule would not mandate any requirements for
State, local, or tribal governments, nor would it affect private
sector costs.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on
State and local governments, preempts State law, or otherwise has
Federalism implications. As stated above, this final rule would not
have a substantial effect on State and local governments.
The following analysis, in conjunction with the remainder of
this document, demonstrates that this final rule is consistent with
the regulatory philosophy and principles identified in Executive
Order 12866, the RFA, and section 1102(b) of the Act. The final rule
would affect payments to a substantial number of small rural
hospitals, as well as other classes of hospitals, and the effects on
some hospitals may be significant.

II. Objectives of the IPPS

The primary objective of the IPPS is to create incentives for
hospitals to operate efficiently and minimize unnecessary costs
while at the same time ensuring that payments are sufficient to
adequately compensate hospitals for their legitimate costs. In
addition, we share national goals of preserving the Medicare
Hospital Insurance Trust Fund.
We believe the changes in this final rule would further each of
these goals while maintaining the financial viability of the
hospital industry and ensuring access to high quality health care
for Medicare beneficiaries. We expect that these finalized changes
would ensure that the outcomes of the prospective payment systems
are reasonable and equitable while avoiding or minimizing unintended
adverse consequences.

III. Limitations of Our Analysis

The following quantitative analysis presents the projected
effects of our finalized policy changes, as well as statutory
changes effective for FY 2011, on various hospital groups. We
estimate the effects of individual policy changes by estimating
payments per case while holding all other payment policies constant.
We use the best data available, but, generally, we do not attempt to
make adjustments for future changes in such

[[Page 50648]]

variables as admissions, lengths of stay, or case-mix.

IV. Hospitals Included in and Excluded From the IPPS

The prospective payment systems for hospital inpatient operating
and capital-related costs of acute care hospitals encompass most
general short-term, acute care hospitals that participate in the
Medicare program. There were 33 Indian Health Service hospitals in
our database, which we excluded from the analysis due to the special
characteristics of the prospective payment methodology for these
hospitals. Among other short-term, acute care hospitals, only the 46
such hospitals in Maryland remain excluded from the IPPS pursuant to
the waiver under section 1814(b)(3) of the Act.
As of June 2010, there are 3,472 IPPS acute care hospitals to be
included in our analysis. This represents about 64 percent of all
Medicare-participating hospitals. The majority of this impact
analysis focuses on this set of hospitals. There also are
approximately 1,317 CAHs. These small, limited service hospitals are
paid on the basis of reasonable costs rather than under the IPPS.
(We refer readers to section VII. of this Appendix for a further
description of the impact of CAH-related final policy changes.)
There are also 1,260 IPPS-excluded hospitals and 2,150 IPPS-excluded
hospital units. These IPPS-excluded hospitals and units include
IPFs, IRFs, LTCHs, RNHCIs, children's hospitals, and cancer
hospitals, which are paid under separate payment systems. Changes in
the prospective payment systems for IPFs and IRFs are made through
separate rulemaking. Payment impacts for these IPPS-excluded
hospitals and units are not included in this final rule. The impact
of the final update and policy changes to the LTCH PPS for FY 2011
are discussed in section IX. of this Appendix.

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

As of June 2010, there were 3,415 hospitals and hospital units
excluded from the IPPS. Of these, 78 children's hospitals, 11 cancer
hospitals, and 17 RNHCIs are being paid on a reasonable cost basis
subject to the rate-of-increase ceiling under Sec. 413.40. The
remaining providers, 230 rehabilitation hospitals and 953
rehabilitation units, and 433 LTCHs, are paid the Federal
prospective per discharge rate under the IRF PPS and the LTCH PPS,
respectively, and 507 psychiatric hospitals and 1,197 psychiatric
units are paid the Federal per diem amount under the IPF PPS. As
stated above, IRFs and IPFs are not affected by rate updates
discussed in this final rule. The impacts of the changes to LTCHs
are discussed in section IX. of this Appendix.
In the past, certain hospitals and units excluded from the IPPS
have been paid based on their reasonable costs subject to limits as
established by the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA). Cancer and children's hospitals continue to be paid on a
reasonable cost basis subject to TEFRA limits for FY 2011. For these
hospitals (cancer and children's hospitals), consistent with the
authority provided in section 1886(b)(3)(B)(ii) of the Act, the
update is the percentage increase in the FY 2011 IPPS operating
market basket. In compliance with section 404 of the MMA, in the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43930), we replaced the
FY 2002-based IPPS operating and capital market baskets with the
revised and rebased FY 2006-based IPPS operating and capital market
baskets. Therefore, consistent with current law, based on IHS Global
Insight, Inc.'s 2010 second quarter forecast, with historical data
through the 2010 first quarter, the final FY 2011 update to the IPPS
operating market basket is 2.6 percent (that is, the current
estimate of the market basket rate-of-increase). However, the
Affordable Care Act requires a 0.25 percentage point reduction to
the market basket update resulting in a final 2.35 percent
applicable percentage increase for IPPS hospitals. RNCHIs,
children's hospitals and cancer hospitals are not subject to the
reduction in the applicable percentage increase required under the
Affordable Care Act. In accordance with Sec. 403.752(a) of the
regulations, RNHCIs are paid under Sec. 413.40. Therefore, for
RNHCIs, the final update is the same as for children's and cancer
hospitals, which is the percentage increase in the FY 2011 IPPS
operating market basket, estimated to be 2.6 percent, without the
reductions required under the Affordable Care Act.
The impact of the final update in the rate-of-increase limit on
those excluded hospitals depends on the cumulative cost increases
experienced by each excluded hospital since its applicable base
period. For excluded hospitals that have maintained their cost
increases at a level below the rate-of-increase limits since their
base period, the major effect is on the level of incentive payments
these excluded hospitals receive. Conversely, for excluded hospitals
with per-case cost increases above the cumulative update in their
rate-of-increase limits, the major effect is the amount of excess
costs that will not be reimbursed.
We note that, under Sec. 413.40(d)(3), an excluded hospital
that continues to be paid under the TEFRA system and whose costs
exceed 110 percent of its rate-of-increase limit receives its rate-
of-increase limit plus 50 percent of the difference between its
reasonable costs and 110 percent of the limit, not to exceed 110
percent of its limit. In addition, under the various provisions set
forth in Sec. 413.40, cancer and children's hospitals can obtain
payment adjustments for justifiable increases in operating costs
that exceed the limit.

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

A. Basis and Methodology of Estimates

In this final rule, we are announcing final policy changes and
payment rate updates for the IPPS for operating costs of acute care
hospitals. Updates to the capital payments to acute care hospitals
are discussed in section VIII. of this Appendix. Based on the
overall percentage change in payments per case estimated using our
payment simulation model, we estimate that total FY 2011 operating
payments would decrease by 0.4 percent compared to FY 2010, largely
due to the documentation and coding adjustments and the applicable
percentage increase applied to the IPPS rates. This amount reflects
the FY 2011 documentation and coding adjustments described in
Section X of this final rule: -2.9 percent for the IPPS national
standardized amounts, -2.9 percent for the IPPS hospital-specific
rates, and -2.6 percent for the IPPS Puerto Rico-specific
standardized amount. The impacts do not illustrate changes in
hospital admissions or real case-mix intensity, which will also
affect overall payment changes.
We have prepared separate impact analyses of the finalized
changes to each system. This section deals with changes to the
operating inpatient prospective payment system for acute care
hospitals. Our payment simulation model relies on the most recent
available data to enable us to estimate the impacts on payments per
case of certain changes in this final rule. However, there are other
finalized changes for which we do not have data available that would
allow us to estimate the payment impacts using this model. For those
finalized changes, we have attempted to predict the payment impacts
based upon our experience and other more limited data.
The data used in developing the quantitative analyses of changes
in payments per case presented below are taken from the FY 2009
MedPAR file and the most current Provider-Specific File that is used
for payment purposes. Although the analyses of the final changes to
the operating PPS do not incorporate cost data, data from the most
recently available hospital cost reports were used to categorize
hospitals. Our analysis has several qualifications. First, in this
analysis, we do not make adjustments for future changes in such
variables as admissions, lengths of stay, or underlying growth in
real case-mix. Second, due to the interdependent nature of the IPPS
payment components, it is very difficult to precisely quantify the
impact associated with each change. Third, we use various data
sources to categorize hospitals in the tables. In some cases,
particularly the number of beds, there is a fair degree of variation
in the data from the different sources. We have attempted to
construct these variables with the best available source overall.
However, for individual hospitals, some miscategorizations are
possible.
Using cases from the FY 2009 MedPAR file, we simulated payments
under the operating IPPS given various combinations of payment
parameters. Any short-term, acute care hospitals not paid under the
IPPS (Indian Health Service hospitals and hospitals in Maryland)
were excluded from the simulations. The impact of payments under the
capital IPPS, or the impact of payments for costs other than
inpatient operating costs, are not analyzed in this section.
Estimated payment impacts of the capital IPPS for FY 2011 are
discussed in section VIII. of this Appendix.
We discuss the following changes below:
The effects of the annual reclassification of diagnoses
and procedures, full implementation of the MS-DRG system and 100
percent cost-based MS-DRG relative weights.
The effects of the changes in hospitals' wage index
values reflecting updated wage

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data from hospitals' cost reporting periods beginning during FY
2007, compared to the FY 2006 wage data.
The effects of the recalibration of the MS-DRG relative
weights as required by section 1886(d)(4)(C) of the Act, including
the wage and recalibration budget neutrality factors.
The effects of geographic reclassifications by the
MGCRB that will be effective in FY 2011.
The effects of the frontier wage index provision that
requires that hospitals located in States that qualify as frontier
states cannot have a wage index less than 1.0. This provision is not
budget neutral.
The effects of the rural floor and imputed floor with a
national budget neutrality applied to the wage index, as required by
the Affordable Care Act.
The effects of section 505 of Public Law 108-173, which
provides for an increase in a hospital's wage index if the hospital
qualifies by meeting a threshold percentage of residents of the
county where the hospital is located who commute to work at
hospitals in counties with higher wage indexes.
The total estimated change in payments based on the FY
2011 policies relative to payments based on FY 2010 policies that
include the applicable percentage increase of 2.35 percent (or 2.6
percent market basket with a 0.25 percentage point reduction, as
required under the Affordable Care Act). The FY 2010 operating
payments also account for provisions under the Affordable Care Act
that were effective for FY 2010.
To illustrate the impact of the FY 2011 changes, our analysis
begins with a FY 2010 baseline simulation model using: The FY 2011
applicable percentage increase of 2.35 percent; the FY 2010 MS-DRG
GROUPER (Version 27.0); the most current CBSA designations for
hospitals based on OMB's MSA definitions; the FY 2010 wage index;
and no MGCRB reclassifications. Outlier payments are set at 5.1
percent of total operating MS-DRG and outlier payments.
Section 1886(b)(3)(B)(viii) of the Act, as added by section
5001(a) of Public Law 109-171, as amended by section 4102(b)(1)(A)
of the ARRA (Pub. L. 111-5) and by section 3401(a)(2) of the
Affordable Care Act (Pub. L. 111-148), provides that, for FY 2007
through FY 2014, the update factor will be reduced by 2.0 percentage
points for any hospital that does not submit quality data in a form
and manner and at a time specified by the Secretary. (Beginning in
FY 2015, the reduction is one-quarter of such applicable percentage
increase determined without regard to section 1886(b)(3)(B)(ix),
(xi), or (xii) of the Act.) At the time that this impact was
prepared, 104 hospitals did not receive the full market basket rate-
of-increase for FY 2010 because they failed the quality data
submission process or did not choose to participate. For purposes of
the simulations shown below, we modeled the payment changes for FY
2011 using a reduced update for these 104 hospitals. However, we do
not have enough information at this time to determine which
hospitals will not receive the full market basket rate-of-increase
for FY 2011.
Each policy change, statutory or otherwise, is then added
incrementally to this baseline, finally arriving at an FY 2011 model
incorporating all of the changes. This simulation allows us to
isolate the effects of each change.
Our final comparison illustrates the percent change in payments
per case from FY 2010 to FY 2011. Three factors not discussed
separately have significant impacts here. The first factor is the
update to the standardized amount. In accordance with section
1886(b)(3)(B)(i) of the Act, we are updating the standardized
amounts for FY 2011 using an applicable percentage increase of 2.35
percent. This includes our forecasted hospital market basket
increase of 2.6 percent with a 0.25 percentage point reduction as
required under the Affordable Care Act. (Hospitals that fail to
comply with the quality data submission requirements to receive the
full update will receive an update reduced by 2.0 percentage points
from 2.35 percent to 0.35 percent.) Under section 1886(b)(3)(B)(iv)
of the Act, the updates to the hospital-specific amounts for SCHs
and for MDHs are also equal to the market basket percentage
increase, or 2.35 percent. In addition, we are updating the Puerto
Rico specific amount by an applicable percentage increase of 2.35
percent.
A second significant factor that affects the changes in
hospitals' payments per case from FY 2010 to FY 2011 is the change
in hospitals' geographic reclassification status from one year to
the next. That is, payments may be reduced for hospitals
reclassified in FY 2010 that are no longer reclassified in FY 2011.
Conversely, payments may increase for hospitals not reclassified in
FY 2010 that are reclassified in FY 2011.
A third significant factor is that we currently estimate that
actual outlier payments during FY 2010 will be 4.7 percent of total
MS-DRG payments. Our updated FY 2010 outlier estimate accounts for
changes to the FY 2010 IPPS payments required under the Affordable
Care Act. When the FY 2010 final rule was published, we projected FY
2010 outlier payments would be 5.1 percent of total MS-DRG plus
outlier payments; the average standardized amounts were offset
correspondingly. The effects of the lower than expected outlier
payments during FY 2010 (as discussed in the Addendum to this
proposed rule) are reflected in the analyses below comparing our
current estimates of FY 2010 payments per case to estimated FY 2011
payments per case (with outlier payments projected to equal 5.1
percent of total MS-DRG payments).

B. Analysis of Table I

Table I displays the results of our analysis of the final
changes for FY 2011. The table categorizes hospitals by various
geographic and special payment consideration groups to illustrate
the varying impacts on different types of hospitals. The top row of
the table shows the overall impact on the 3,472 acute care hospitals
included in the analysis.
The next four rows of Table I contain hospitals categorized
according to their geographic location: All urban, which is further
divided into large urban and other urban; and rural. There are 2,494
hospitals located in urban areas included in our analysis. Among
these, there are 1,362 hospitals located in large urban areas
(populations over 1 million), and 1,132 hospitals in other urban
areas (populations of 1 million or fewer). In addition, there are
978 hospitals in rural areas. The next two groupings are by bed-size
categories, shown separately for urban and rural hospitals. The
final groupings by geographic location are by census divisions, also
shown separately for urban and rural hospitals.
The second part of Table I shows hospital groups based on
hospitals' FY 2011 payment classifications, including any
reclassifications under section 1886(d)(10) of the Act. For example,
the rows labeled urban, large urban, other urban, and rural show
that the numbers of hospitals paid based on these categorizations
after consideration of geographic reclassifications (including
reclassifications under sections 1886(d)(8)(B) and 1886(d)(8)(E) of
the Act that have implications for capital payments) are 2,551;
1,404; 1,147; and 921, respectively.
The next three groupings examine the impacts of the changes on
hospitals grouped by whether or not they have GME residency programs
(teaching hospitals that receive an IME adjustment) or receive DSH
payments, or some combination of these two adjustments. There are
2,429 nonteaching hospitals in our analysis, 805 teaching hospitals
with fewer than 100 residents, and 238 teaching hospitals with 100
or more residents.
In the DSH categories, hospitals are grouped according to their
DSH payment status, and whether they are considered urban or rural
for DSH purposes. The next category groups together hospitals
considered urban or rural, in terms of whether they receive the IME
adjustment, the DSH adjustment, both, or neither.
The next five rows examine the impacts of the changes on rural
hospitals by special payment groups (SCHs, RRCs, and MDHs). There
were 180 RRCs, 332 SCHs, 194 MDHs, and 117 hospitals that are both
SCHs and RRCs, and 13 hospitals that are both an MDH and an RRC.
The next series of groupings are based on the type of ownership
and the hospital's Medicare utilization expressed as a percent of
total patient days. These data were taken from the FY 2008 or FY
2007 Medicare cost reports.
The next two groupings concern the geographic reclassification
status of hospitals. The first grouping displays all urban hospitals
that were reclassified by the MGCRB for FY 2011. The second grouping
shows the MGCRB rural reclassifications. These groupings account for
the change in the MGCRB reclassification policy as required under
the Affordable Care Act.
The final category shows the impact of the policy changes on the
19 cardiac hospitals in our analysis.
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C. Effects of the Changes to the MS-DRG Reclassifications and
Relative Cost-Based Weights (Column 1)

In Column 1 of Table I, we present the effects of the final MS-
DRG reclassifications, as discussed in section II. of the preamble
to this final rule. Section 1886(d)(4)(C)(i) of the Act requires us
annually to make appropriate classification changes in order to
reflect changes in treatment patterns, technology, and any other
factors that may change the relative use of hospital resources.
As discussed in section II.E. of the preamble of this final
rule, the FY 2011 MS-DRG relative weights will be 100 percent cost-
based and 100 percent MS-DRGs. For FY 2011, the MS-DRGs are
calculated using the FY 2009 MedPAR data grouped to the Version 28.0
(FY 2011) MS-DRGs. The methods of calculating the relative weights
and the reclassification changes to the GROUPER are described in
more detail in section II.H. of this final rule. The changes to the
relative weights and MS-DRGs shown in Column 2 are prior to any
offset for budget neutrality. Overall, hospitals will experience a
0.3 percent increase and a 0.4 percent increase, respectively, in
payments due to the changes in the MS-DRGs and relative weights
prior to budget neutrality. Urban hospitals and rural hospitals will
experience a 0.3 percent increase in payments under the updates to
the relative weights and MS-DRGs.

D. Effects of the Application of Recalibration Budget Neutrality
(Column 2)

Column 2 shows the effects of the changes to the MS-DRGs and
relative weights with the application of the recalibration budget
neutrality factor to the standardized amounts. Consistent with
section 1886(d)(4)(C)(iii) of the Act, we are calculating a
recalibration budget neutrality factor to account for the changes in
MS-DRGs and relative weights to ensure that the overall payment
impact is budget neutral.
The ``All Hospitals'' line in Column 1 indicates that changes
due to MS-DRGs and relative weights will increase payments by 0.3
percent before application of the budget neutrality factor. The
recalibration budget neutrality factor is 0.996731, which is applied
to the standardized amount. Thus, the impact after accounting only
for budget neutrality for changes to the MS-DRG relative weights and
classification is somewhat lower than the figures shown in Column 1
(approximately 0.3 percent). Consequentially, urban hospitals will
not experience a change in payments, while rural hospitals will
experience a 0.1 percent increase in payments when recalibration
budget neutrality is applied.

E. Effects of Wage Index Changes (Column 3)

Section 1886(d)(3)(E) of the Act requires that, beginning
October 1, 1993, we annually update the wage data used to calculate
the wage index. In accordance with this requirement, the wage index
for acute care hospitals for FY 2011 is based on data submitted for
hospital cost reporting periods beginning on or after October 1,
2006 and before October 1, 2007. The estimated impact of the updated
wage data and labor share on hospital payments is isolated in Column
3 by holding the other payment parameters constant in this
simulation. That is, Column 3 shows the percentage change in
payments when going from a model using the FY 2010 wage index, based
on FY 2006 wage data, the current labor-related share and having a
100-percent occupational mix adjustment applied, to a model using
the FY 2011 pre-reclassification wage index with the labor-related
share, also having a 100-percent occupational mix adjustment
applied, based on FY 2007 wage data (while holding other payment
parameters such as use of the Version 28.0 MS-DRG GROUPER constant).
The occupational mix adjustment is based on the FY 2008/2009
occupational mix survey.
Column 3 shows the impacts of updating the wage data using FY
2007 cost reports. Overall, the new wage data will lead to a 0.0
percent change for all hospitals before being combined with the wage
budget neutrality adjustment shown in Column 5. Among the regions,
the largest increase is in the rural New England region, which
experiences a 0.5 percent increase before applying an adjustment for
budget neutrality. The largest decline from updating the wage data
is seen in the urban New England region (0.5 percent decrease).
In looking at the wage data itself, the national average hourly
wage increased 4.3 percent compared to FY 2010. Therefore, the only
manner in which to maintain or exceed the previous year's wage index
was to match or exceed the national 4.3 percent increase in average
hourly wage. Of the 3,441 hospitals with wage data for both FYs 2010
and 2011, 1,621, or 47.1 percent, experienced an average hourly wage
increase of 4.3 percent or more.
The following chart compares the shifts in proposed wage index
values for hospitals for FY 2011 relative to FY 2010. Among urban
hospitals, 38 will experience an increase of more than 5 percent and
less than 10 percent and 8 will experience an increase of more than
10 percent. Among rural hospitals, 2 will experience an increase of
more than 5 percent and less than 10 percent, and none will
experience an increase of more than 10 percent. However, 939 rural
hospitals will experience increases or decreases of less than 5
percent, while 2,424 urban hospitals will experience increases or
decreases of less than 5 percent. Thirteen urban hospitals will
experience decreases in their wage index values of more than 5
percent and less than 10 percent. Sixteen urban hospitals will
experience decreases in their wage index values of greater than 10
percent. One rural hospital will experience a decrease of more than
10 percent. These figures reflect changes in the wage index which is
an adjustment to either 68.8 percent or 62 percent of a hospital's
standardized amount, depending upon whether its wage index is
greater than 1.0 or less than or equal to 1.0. Therefore, these
figures illustrate a somewhat larger change in the wage index than
will occur to the hospital's total payment.
The following chart shows the projected impact for urban and
rural hospitals.

------------------------------------------------------------------------
Number of hospitals
Percentage change in area wage index values -------------------------
Urban Rural
------------------------------------------------------------------------
Increase more than 10 percent................. 8 0
Increase more than 5 percent and less than 10 38 2
percent......................................
Increase or decrease less than 5 percent...... 2,424 939
Decrease more than 5 percent and less than 10 13 0
percent......................................
Decrease more than 10 percent................. 16 1
------------------------------------------------------------------------

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

Column 4 shows the impact of the new wage data with the
application of the wage budget neutrality factor. In FY 2010, we
began calculating separate wage budget neutrality and recalibration
budget neutrality factors, in accordance with section 1886(d)(3)(E)
of the Act, which specifies that budget neutrality to account for
wage changes or updates made under that subparagraph must be made
without regard to the 62 percent labor-related share guaranteed
under section 1886(d)(3)(E)(ii) of the Act. Therefore, for FY 2011,
we are calculating the wage budget neutrality factor to ensure that
payments under updated wage data and the labor-related share are
budget neutral without regard to the lower labor-related share of 62
percent applied to hospitals with a wage index less than or equal to
1. In other words, the wage budget neutrality is calculated under
the assumption that all hospitals receive the higher labor-related
share of the standardized amount. Because the wage data changes did
not change overall payments (displayed in Column 3), the revised
wage budget neutrality factor is 1.000013, and the overall payment
change is 0.0 percent.

G. Combined Effects of the MS-DRG and Wage Index Changes (Column 5)

Section 1886(d)(4)(C)(iii) of the Act requires that changes to
MS-DRG reclassifications and the relative weights cannot increase or
decrease aggregate payments. In addition, section 1886(d)(3)(E) of
the Act specifies that any updates or

[[Page 50657]]

adjustments to the wage index are to be budget neutral. We computed
a wage budget neutrality factor of 1.000013, and a recalibration
budget neutrality factor of 0.996731 (which is applied to the Puerto
Rico-specific standardized amount and the hospital-specific rates).
The product of the two budget neutrality factors is the cumulative
wage and recalibration budget neutrality factor. The cumulative wage
and recalibration budget neutrality adjustment is 0.996744, or
approximately -0.3 percent, which is applied to the national
standardized amounts. Because the wage budget neutrality and the
recalibration budget neutrality are calculated under different
methodologies according to the statute, when the two budget
neutralities are combined and applied to the standardized amount,
the overall payment impact is not necessarily budget neutral.
However, in this rule, we are estimating that the changes in the MS-
DRG relative weights and updated wage data with wage and budget
neutrality applied will result in a 0.0 change in payments.
We estimate that the combined impact of the changes to the
relative weights and MS-DRGs and the updated wage data with budget
neutrality applied will result in no change in payments for urban or
rural hospitals. Urban New England would experience a 0.7 decrease
in payments due to reductions in their case-mix and wages compared
to the national average, while the urban Pacific area would
experience a 0.6 percent increase in payments because of above
average increases in wages and case-mix. Among the rural hospital
categories, rural South Atlantic hospitals would experience the
greatest decline in payment (-0.9 percent) primarily due to the
changes to MS-DRGs and the relative cost weights, while the rural
West South Central area would experience a 0.8 percent increase in
payments.

H. Effects of MGCRB Reclassifications (Column 6)

Our impact analysis to this point has assumed acute care
hospitals are paid on the basis of their actual geographic location
(with the exception of ongoing policies that provide that certain
hospitals receive payments on other bases than where they are
geographically located). The changes in Column 6 reflect the per
case payment impact of moving from this baseline to a simulation
incorporating the MGCRB decisions for FY 2011 which affect
hospitals' wage index area assignments.
By spring of each year, the MGCRB makes reclassification
determinations that will be effective for the next fiscal year,
which begins on October 1. The MGCRB may approve a hospital's
reclassification request for the purpose of using another area's
wage index value. Hospitals may appeal denials of MGCRB decisions to
the CMS Administrator. Further, hospitals have 45 days from
publication of the IPPS rule in the Federal Register to decide
whether to withdraw or terminate an approved geographic
reclassification for the following year. Provisions in the
Affordable Care Act required us to revert to FY 2008 average hourly
wage reclassification criteria for reclassifications effective in FY
2011. Therefore, additional hospitals qualify for MGCRB
reclassification.
The overall effect of geographic reclassification is required by
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore,
for the purposes of this impact analysis, we are applying an
adjustment of 0.991264 to ensure that the effects of the section
1886(d)(10) reclassifications are budget neutral (section II.A. of
the Addendum to this final rule). Geographic reclassification
generally benefits hospitals in rural areas. We estimate that
geographic reclassification will increase payments to rural
hospitals by an average of 1.7 percent. By region, all the rural
hospital categories will experience increases in payments due to
MGCRB reclassification where rural hospitals in the Mountain region
will experience a 0.4 percent increase in payments and rural
hospitals in the New England region will experience a 2.5 percent
increase in payments.
Table 9A of the Addendum to this final rule reflects the
approved reclassifications for FY 2011.

I. Effects of the Rural Floor and Imputed Floor, Including
Application of National Budget Neutrality (Column 7)

As discussed in section III.B. of the preamble of the FY 2009
IPPS final rule, the FY 2010 IPPS/RY 2010 LTCH final rule and this
final rule, section 4410 of Public Law 105-33 established the rural
floor by requiring that the wage index for a hospital in any urban
area cannot be less than the wage index received by rural hospitals
in the same State. In FY 2008, we changed how we applied budget
neutrality to the rural floor. Rather than applying a budget
neutrality adjustment to the standardized amount, a uniform budget
neutrality adjustment is applied to the wage index. In the FY 2009
final rule, we finalized the policy to apply the rural floor budget
neutrality at the State level with a 3-year transition. In FY 2009,
hospitals received a blended wage index that is 20 percent of a wage
index with the State level rural and imputed floor budget neutrality
adjustment and 80 percent of a wage index with the national budget
neutrality adjustment. In FY 2010, hospitals received a blended wage
index that is 50 percent of a wage index with the State level rural
and imputed floor budget neutrality and 50 percent of a wage index
with the national budget neutrality adjustment. For FY 2011, the
Affordable Care Act requires that we apply one rural floor budget
neutrality factor to the wage index, nationally. The FY 2011 rural
floor budget neutrality factor applied to the wage index is
0.996641.
Furthermore, the FY 2005 IPPS final rule (69 FR 49109)
established a temporary imputed floor for all urban States from FY
2005 to FY 2007. The rural floor requires that an urban wage index
cannot be lower than the wage index for any rural hospital in that
State. Therefore, an imputed floor was established for States that
do not have rural areas or rural IPPS hospitals. In the FY 2008 IPPS
final rule with comment period (72 FR 47321), we finalized our
proposal to extend the imputed floor for 1 additional year. In the
FY 2009 IPPS final rule (73 FR 48573), we extended the imputed floor
for an additional 3 years through FY 2011. The Affordable Care Act
requires that, effective for FY 2011, we apply rural floor and
imputed floor budget neutrality at the national level, as we did in
FY 2008.
Column 7 shows the projected impact of the rural floor and the
imputed floor with the national rural and imputed floor budget
neutrality factor applied to the wage index. The column compares the
post-reclassification FY 2011 wage index of providers before the
rural floor adjustment and the post-reclassification FY 2011 wage
index of providers with the rural floor and imputed floor
adjustment. Only urban hospitals can benefit from the rural floor
provision. Because the provision is budget neutral, all other
hospitals (that is, all rural hospitals and those urban hospitals to
which the adjustment is not made) experience a decrease in payments
due to the budget neutrality adjustment applied nationally to their
wage index.
We project that, in aggregate, rural hospitals will experience a
0.1 percent decrease in payments as a result of the application of
rural floor budget neutrality because the rural hospitals do not
benefit from the rural floor, but have their wage indexes downwardly
adjusted to ensure that the application of the rural floor is budget
neutral overall. We project hospitals located in other urban areas
(populations of 1 million or fewer) will experience a 0.1 percent
increase in payments because those providers benefit from the rural
floor. Urban hospitals in the New England region can expect 0.8
percent increase in payments because a large percentage of hospitals
in this region receive the rural floor. Urban hospitals in the
Middle Atlantic can expect a 0.2 percent increase in payments
because New Jersey hospitals benefit from the imputed floor. Rural
hospitals in most regions can expect a 0.1 to 0.2 percent decrease
in payments because the rural and imputed floors only benefit urban
hospitals.

J. Effects of the Application of the Frontier Wage Index (Column 8)

Section 10324(a) of Affordable Care Act requires that we
establish a minimum post-reclassified wage-index of 1.00 for all
hospitals located in ``frontier States.'' ``Frontier States'' is
defined in the statute as a State in which at least 50 percent of
its counties have a population density lesser than 6 persons per
square mile. Based on these criteria, five states (Montana, North
Dakota, Nevada, South Dakota, and Wyoming) are considered frontier
States and 51 hospitals located in those States will receive a
frontier wage index of 1.0. This provision is not budget neutral and
is estimated to increase IPPS operating payments by approximately
$50 million.
Urban hospitals located in the West North Central region and
urban hospitals located in the Mountain region will experience an
increase in payments by 0.5 percent and 0.3 percent, respectively
because many of the hospitals located in this region are frontier
hospitals. Similarly, rural hospitals located in the Mountain region
and rural hospitals in the West North Central region will

[[Page 50658]]

experience an increase in payments by 0.5 and 0.1, respectively.

K. Effects of the Wage Index Adjustment for Out-Migration (Column
9)

Section 1886(d)(13) of the Act, as added by section 505 of
Public Law 108-173, provides for an increase in the wage index for
hospitals located in certain counties that have a relatively high
percentage of hospital employees who reside in the county, but work
in a different area with a higher wage index. Hospitals located in
counties that qualify for the payment adjustment are to receive an
increase in the wage index that is equal to a weighted average of
the difference between the wage index of the resident county, post-
reclassification and the higher wage index work area(s), weighted by
the overall percentage of workers who are employed in an area with a
higher wage index. With the out-migration adjustment, small rural
providers with less than 100 beds will experience a 0.4 percent
increase in payments in FY 2011 relative to no adjustment at all. We
included these additional payments to providers in the impact table
shown above, and we estimate the impact of these providers receiving
the out-migration increase to be approximately $30 million.

L. Effects of All Changes Prior to Documentation and Coding (or
CMI) Adjustment (Column 10)

Column 10 shows our estimate of the changes in payments per
discharge from FY 2010 and FY 2011, resulting from all changes
reflected in this final rule, other than the documentation and
coding adjustment. Column 10 reflects the impact of all other FY
2011 changes relative to FY 2010, including those shown in Columns 1
through 9. We note that our baseline FY 2010 operating estimates
account for the provisions under the Affordable Care Act that
affected the FY 2010 operating payments. The average increase in
payments under the IPPS for all hospitals is approximately 2.5
percent. This includes the 2.35 percent applicable percentage
increase (including the -0.25 reduction to the market basket
increase required under the Affordable Care Act). The application of
-0.25 percentage point reduction to the FY 2010 required by the
Affordable Care Act only affected payments for discharges on or
after April 1, 2010, reducing payments by 0.1 percent in FY 2010.
However, the 0.25 percentage point reduction for FY 2011 required
under the Affordable Care Act was a cumulative reduction on the FY
2010 reduction, resulting in an additional 0.1 percent decrease in
payments in FY 2011. In addition, it reflects the estimated 0.4
percentage point difference between the projected outlier payments
in FY 2010 (5.1 percent of total MS-DRG payments) and the current
estimate of the percentage of actual outlier payments in FY 2010
(4.7 percent), as described in the introduction to this Appendix and
the Addendum to this final rule. It accounts for the non-budget
neutral wage index provisions, including the frontier State wage
index and the Section 505 out-commuting adjustment that increases
payments by 0.1 percent. Finally, it accounts for -0.1 percent
decrease in payments due to the expiration of section 508
reclassifications that had been extended for FY 2010 under the
Affordable Care Act.
There might also be interactive effects among the various
factors comprising the payment system that we are not able to
isolate. For these reasons, the values in Column 10 may not equal
the sum of the percentage changes described above.

M. Effects of All FY 2011 Changes With CMI Adjustment (Column 11)

Column 11 shows our estimate of the changes in payments per
discharge from FY 2010 and FY 2011, resulting from all changes
reflected in this final rule for FY 2011. The FY 2010 baseline
estimates account for the provisions under the Affordable Care Act
that affected the FY 2010 operating payments. Specifically, the FY
2010 baseline payment estimates account for the additional -0.25
reduction in the applicable percentage increase (hospitals are paid
based on the updated FY 2010 rate for discharges occurring on or
after April 1, 2010), and accounts for the extension of section 508
reclassifications for FY 2010. As discussed in section II.D. of the
preamble of this final rule, this column includes the FY 2011
documentation and coding adjustment of -2.9 percent on the national
standardized amount, -2.9 percent on the hospital-specific rates,
and -2.6 percent on the Puerto Rico-specific standardized amount,
which overall accounts for a 2.9 percent decrease in payments.
The average decrease in payments under the IPPS for all
hospitals is approximately -0.4 percent. As described in Column 10,
this average decrease includes the effects of the 2.35 percent
applicable increase (including the 0.25 percentage point reduction)
to the market basket update required under the Affordable Care Act),
the 0.4 percentage point difference between the projected outlier
payments in FY 2011 (5.1 percent of total MS-DRG payments), and the
current estimate of the percentage of actual outlier payments in FY
2010 (4.7 percent). In addition, it includes a -0.1 percent decrease
in payments due to the expiration of section 508 reclassifications
that had been extended for FY 2010 under the Affordable Care Act.
Section 508 reclassification was not a budget-neutral provision.
There might also be interactive effects among the various factors
comprising the payment system that we are not able to isolate. For
these reasons, the values in Column 11 may not equal the sum of the
percentage changes described above.
The overall change in payments per discharge for hospitals paid
under the IPPS in FY 2011 is estimated to decrease by 0.4 percent.
The payment decreases among the hospital categories are largely
attributed to the documentation and coding adjustments. Hospitals in
urban areas would experience an estimated 0.4 percent decrease in
payments per discharge in FY 2011 compared to FY 2010. Hospital
payments per discharge in rural areas are estimated to decrease by
0.4 percent in FY 2011 as compared to FY 2010.
Among urban census divisions, the largest estimated payment
decreases will be 0.9 percent in the Middle Atlantic region because
many of the urban providers in this region had benefited from
section 508 reclassifications in FY 2010 that has expired for FY
2011. Urban hospitals in the Pacific will see the largest payment
increases (0.4 percent) because urban providers in this region will
experience increases in their wage index above the national average.
Among the rural regions, the providers in the Middle Atlantic and
South Atlantic region will experience the largest decrease in
payments (1.2 percent) while rural hospitals in the Mountain region
will experience an increase in payments by 0.3 percent because the
rural providers in this region benefit from MGCRB reclassification
and the frontier State wage index provision, implemented under the
Affordable Care Act.
Among special categories of rural hospitals, MDHs will receive
an estimated payment decrease 0.8 percent. MDHs are paid the higher
of the IPPS rate based on the national standardized amount, that is,
the Federal rate, or, if the hospital-specific rate exceeds the
Federal rate, the Federal rate plus 75 percent of the difference
between the Federal rate and the hospital-specific rate. MDHs will
experience a decrease in payments because of the documentation and
coding adjustments applied to both the hospital-specific rate and
the Federal rate. SCHs are also paid the higher of their hospital-
specific rate or the Federal rate. Overall, SCHs will experience an
estimated decrease in payments by 0.6 percent due to the
documentation and coding adjustments to the national standardized
amount and the hospital-specific rates.
Rural hospitals reclassified for FY 2011 are anticipated to
receive a 0.1 percent payment decrease, and rural hospitals that are
not reclassifying are estimated to receive a payment decrease of 0.7
percent.
Cardiac hospitals are expected to experience a payment increase
of 0.3 percent in FY 2011 relative to FY 2010 due to increases in
payments attributable to changes in the MS-DRGs and relative
weights.

N. Impact Analysis of Table II

Table II presents the projected impact of the changes for FY
2011 for urban and rural hospitals and for the different categories
of hospitals shown in Table I. It compares the estimated average
payments per discharge for FY 2010 with the payments per discharge
for FY 2011, as calculated under our models. The estimated FY 2010
payments per discharge incorporate the provisions in the Affordable
Care Act. Thus, this table presents, in terms of the average dollar
amounts paid per discharge, the combined effects of the changes
presented in Table I. The estimated percentage changes shown in the
last column of Table II equal the estimated percentage changes in
average payments per discharge from Column 11 of Table I.
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VII. Effects of Other Policy Changes

In addition to those policy changes discussed above that we are
able to model using our IPPS payment simulation model, we are making
various other changes in this final rule. Generally, we have limited
or no specific data available with which to estimate the impacts of
these changes. Our estimates of the likely impacts associated with
these other changes are discussed below.

A. Effects of Proposed Policy on HACs, Including Infections

In section II.F. of the preamble of this final rule, we discuss
our implementation of section 1886(d)(4)(D) of the Act, which
requires the Secretary to identify conditions that are: (1) High
cost, high volume, or both; (2) result in the assignment of a case
to an MS-DRG that has a higher payment when present as a secondary
diagnosis; and (3) could reasonably have been prevented through
application of evidence-based guidelines. For discharges occurring
on or after October 1, 2008, hospitals will not receive additional
payment for cases in which one of the selected conditions was not
present on admission, unless, based on data and clinical judgment,
it cannot be determined at the time of admission whether a condition
is present. That is, the case will be paid as though the secondary
diagnosis were not present. However, the statute also requires the
Secretary to continue counting the condition as a secondary
diagnosis that results in a higher IPPS payment when doing the
budget neutrality calculations for MS-DRG reclassifications and
recalibration. Therefore, we will perform our budget neutrality
calculations as though the payment provision did not apply, but
Medicare will make a lower payment to the hospital for the specific
case that includes the secondary diagnosis. Thus, the provision
results in cost savings to the Medicare program.
We note that the provision will only apply when one or more of
the selected conditions are the only secondary diagnosis or
diagnoses present on the claim that will lead to higher payment.
Medicare beneficiaries will generally have multiple secondary
diagnoses during a hospital stay, such that beneficiaries having one
MCC or CC will frequently have additional conditions that also will
generate higher payment. Only a small percentage of the cases will
have only one secondary diagnosis that would lead to a higher
payment. Therefore, if at least one nonselected secondary diagnosis
that leads to higher payment is on the claim, the case will continue
to be assigned to the higher paying MS-DRG and there will be no
Medicare savings from that case. In addition, as discussed in
section II.F.3.e. of the preamble of this final rule, it is possible
to have two severity levels where the HAC does not affect the MS-DRG
assignment or for an MS-DRG not to have severity levels. In either
of these circumstances, the case will continue to be assigned to the
higher paying MS-DRG and there will be no Medicare savings from that
case.
The HAC payment provision went into effect on October 1, 2008.
Our savings estimates for the next 5 fiscal years are shown below:

------------------------------------------------------------------------
Savings (in
Year millions)
------------------------------------------------------------------------
FY 2011.................................................... $20
FY 2012.................................................... 22
FY 2013.................................................... 23
FY 2014.................................................... 25
FY 2015.................................................... 27
------------------------------------------------------------------------

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

In section II.I. of the preamble to this final rule, we discuss
the three applications for add-on payments for new medical services
and technologies for FY 2011, as well as the status of the new
technologies that were approved to receive new technology add-on
payments in FY 2010. As explained in that section, add-on payments
for new technology under section 1886(d)(5)(K) of the Act are not
required to be budget neutral. However, we are providing an estimate
of additional payments for new technology add-on payments because
such payments will have an impact on total operating IPPS payments
in FY 2010.
We are continuing to make new technology add-on payments in FY
2011 for the Cardiowest^TM Temporary Total Artificial
Heart System (TAH-t) and the Spiration[supreg] IBV[supreg] Valve
System. Therefore, we are providing an estimate of total payments
for these technologies in FY 2011. We note that new technology add-
on payments per case are limited to the lesser of: (1) 50 percent of
the costs of the new technology; or (2) 50 percent of the amount by
which the costs of the case exceed the standard MS-DRG payment for
the case. Because it is difficult to predict the actual new
technology add-on payment for each case, our estimate below is based
on the increase in add-on payments for FY 2011 as if every claim
that would qualify for a new technology add-on payments would
receive the maximum add-on payment. Therefore, we currently estimate
that payments for the Cardiowest^TM Temporary Total
Artificial Heart System (TAH-t) will increase overall FY 2011
payments by $9.54 million. For FY 2010, the applicant, Spiration,
Inc., estimated that approximately 2,286 Medicare beneficiaries
would be eligible for the Spiration[supreg] IBV[supreg]

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Valve System. Therefore, based on the applicant's estimate from FY
2010, we currently estimate that payments for the Spiration[supreg]
IBV[supreg] Valve System will increase overall FY 2011 payments by
$7.80 million.
In addition to continuing to make new technology add-on payments
in FY 2011 for the Cardiowest^TM Temporary Total
Artificial Heart System (TAH-t) and the Spiration[supreg]
IBV[supreg] Valve System, as discussed in section II.I. of the
preamble to this final rule, we are approving the
AutoLITT^TM for new technology add-on payments for FY
2011. The applicant, Monteris Medical, estimates that approximately
170 Medicare beneficiaries would be eligible for the
AutoLITT^TM. Therefore, based on the applicant's estimate
and 50 percent of the estimated operating cost per case ($5,300), we
currently estimate that payments for the AutoLITT^TM will
increase overall FY 2011 payments by $900,000.

C. Effects of Requirements for Hospital Reporting of Quality Data
for Annual Hospital Payment Update

In Appendix A, section VII.C. of the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 44224), we discussed the impact of the FY 2011
RHQDAPU program requirements. In this final rule, we are retiring
one of the FY 2011 quality measures. We believe that this will not
have a significant effect on our previous analysis. We note that, in
that final rule, we estimated that 96 hospitals would not receive
the full payment update in FY 2010 and that 96 hospitals would not
receive the full payment update in FY 2011. As noted above, at the
time this analysis was prepared, 104 hospitals did not receive the
full payment update in FY 2010.
In section IV.A. of this final rule, we discuss our requirements
for hospitals to report quality data in order to receive the full
annual payment update for FY 2011, FY 2012, FY 2013, and FY 2014. We
estimate that approximately 95 hospitals may not receive the full
annual payment update in any fiscal year. Most of these hospitals
are either small rural or small urban hospitals. However, at this
time, information is not available to determine the number of
hospitals that will not meet the requirements for the full payment
update for FY 2011, FY 2012, FY 2013, and FY 2014.
For the FY 2012 payment determination, we did not adopt our
proposal to require hospitals to submit all-patient volume data for
selected MS-DRGs that relate to RHQDAPU program measures.
For the FY 2013 payment determination, we did not adopt our
proposal that hospitals would choose one of four proposed registry-
based topics for which there are currently a number of nationwide
registries each individually collecting data from a significant
proportion of IPPS hospitals. We believe that the AMI-statin at
discharge measure, which we adopted for FY 2013 payment
determination, will create minimal additional burden as hospitals
can collect the data elements from the same charts already being
pulled for existing RHQDAPU program AMI measures.
For the FY 2014 payment determination, the addition of four
chart-abstracted measures and the one measure collected via NHSN
that require hospitals to submit data on all inpatients is expected
to create an additional burden for hospitals. The information needed
for the 2 ED-Throughput measures is captured as routine
documentation, and therefore is not expected to impose much
additional burden. The 2 Global Immunization measures will require
hospitals to collect information on all inpatients regarding flu and
pneumonia vaccinations that they are currently only collecting for
patients admitted for pneumonia. Therefore, the number of patients
for which these data need to be collected will increase. However,
this additional burden will be offset to some extent by our decision
to retire two measures (PN-2 and PN-7). The information needed for
the fifth measure, an SSI measure to be collected via NHSN, is
structured to keep additional burden to a minimum, since hospitals
in 21 States are already using NHSN and CDC supports more than 2000
hospitals that are already using NHSN.
We discussed the validation requirements for the FY 2011 annual
payment update in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74
FR 43883 through 43884). In the FY 2011 IPPS/LTCH PPS proposed rule,
we noted that for the FY 2012 payment update, hospitals must pass
our validation requirement of a minimum of 75 percent reliability,
based upon our chart-audit validation process, for three quarters of
data from first quarter CY 2010 through third quarter CY 2010 (75 FR
23991 through 23993). These data are due to the QIO Clinical
Warehouse by August 15, 2010 (first quarter CY 2010 discharges),
November 15, 2010 (second quarter CY 2010 discharges), and February
15, 2011 (third quarter CY 2010 discharges). We have continued our
efforts to ensure that QIOs provide assistance to all hospitals that
wish to participate in the RHQDAPU program. The requirement of 12
charts per hospital submitted for validation will result in
approximately 9,600 charts per quarter being submitted to CMS.
We reimburse hospitals for the cost of sending charts to the
Clinical Data Abstraction Center (CDAC) contractor at the rate of 12
cents per page for copying and approximately $4.00 per chart for
postage. Our experience shows that the average chart received by the
CDAC contractor is approximately 150 pages. Thus as a result of the
validation requirements effective for the FY 2012 annual payment
update, CMS will have expenditures of approximately $212,000 per
quarter, which is a reduction from the $597,600 per quarter to
collect the charts for the FY 2010 and FY 2011 annual payment
updates. Given that we reimburse for the data collection effort, we
believe that a requirement for twelve charts per hospital per
quarter represents a minimal burden to the participating hospital.
We are adopting as final our proposal to modify our validation
process for FY 2012. We believe that our FY 2012 policy, which will
only validate data submitted by 800 hospitals for the FY 2012
RHQDAPU payment determination (as compared with our previous policy
under which we validated data submitted by all hospitals
participating in the RHQDAPU program), will not change the number of
hospitals that fail the validation requirement for FY 2012 from
previous years. We have changed the way we calculate the validation
matches (that is, all relevant data elements submitted by the
hospital must match the independently re-abstracted data elements to
count as a match), which will make it more difficult for hospitals
to satisfy the validation requirement. However, we also are adopting
as final our proposal to validate data for a smaller number of
hospitals each year. In combination, we believe that these two
proposed revisions will counterbalance each other and result in no
additional impact to the number of hospitals failing our validation
requirement for FY 2012. In addition, CMS conducted analysis in FY
2010 of past validation data which indicates that at least 95
percent of sampled hospitals are expected to pass the current 75
percent validation threshold starting in FY 2012.
If we determine that a hospital is not entitled to receive the
full FY 2012 payment update because it failed to satisfy the
validation requirement, and the hospital asks for a reconsideration
of that decision, the hospital must submit complete copies of the
medical records that it submitted to the CDAC contractor for
purposes of the validation for which the hospital incurs the cost.
We estimate that no greater than 20 hospitals would fail this
requirement for FY 2012. We estimate that this requirement would
cost hospitals approximately 12 cents per page for copying and
approximately $4.00 per chart for postage. We have found based on
experience that an average sized medical chart is approximately 150
pages. Hospitals would be required to return all 36 sampled medical
records for the three quarters of data from FY 2010. We estimate
that the total cost to the 40 impacted hospitals would be
approximately $17,600, or $440 per hospital. We believe that this
cost is minimal, compared with the 2.0 percent RHQDAPU component of
the annual payment update at risk. This requirement is necessary so
that CMS has all the information it needs to fairly and timely make
a decision on the hospital's reconsideration request. We also
anticipate that this requirement will benefit hospitals seeking
reconsiderations because it will enable us to resolve potential
issues earlier in the appeals process, obviating the need for a
hearing before the Provider Reimbursement Review Board (PRRB). We
believe that this benefit will greatly outweigh the burden of
copying and mailing the requested records.
We note that beginning with FY 2014 and future years, we are
considering adding two strata to the current RHQDAPU validation
sample of SCIP, AMI, HF, and PN cases. We will consider selecting 2
additional samples of 3 cases per selected hospital per quarter to
validate proposed surgical site infection, blood stream infection,
ED-Throughput and global immunization measures, If proposed and
adopted as final through a later rulemaking, CMS would randomly
select a total of 18 records per quarter per validated hospital in
six strata (SCIP, AMI, HF, PN, CDC/NHSN measures and ED-Throughput/
Global Immunization). The requirement of an

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additional 6 charts per hospital submitted for validation will
result in approximately 4800 additional charts per quarter being
submitted to CMS. We reimburse hospitals for the cost of sending
charts to the Clinical Data Abstraction Center (CDAC) contractor at
the rate of 12 cents per page for copying and approximately $4.00
per chart for postage. Our experience shows that the average chart
received by the CDAC contractor is approximately 150 pages. Thus, as
a result of the validation requirements effective for the FY 2014
annual payment update, CMS will have expenditures of approximately
$105,600 per quarter to collect the charts for the FY 2014 and
future years annual payment update. Given that we reimburse for the
data collection effort, we believe that a requirement of the
additional records in FY 2014 per hospital per quarter represents a
minimal burden to the participating hospital.

D. Effects of Policy on Payment for Transfer Cases From Medicare
Participating Hospitals to Nonparticipating Hospitals and CAHs

In section IV.B. of the preamble of this final rule, we are
expanding the acute care transfer policy to transfers to
nonparticipating acute care hospitals and to CAHs. This expansion of
the acute care transfer policy aims to further align the policy with
its original intent, that is, to pay a hospital commensurate with
the resources it expends in treating a Medicare beneficiary who is
transferred. However, the impacts of this change are not possible to
measure, although we believe that any change in Medicare payments to
hospitals associated with this change will be negligible.
Specifically, because there are relatively few nonparticipating
acute care hospitals, we expect that there would be few, if any,
transfers to nonparticipating hospitals in a given period. In
addition, based on the capped inpatient bed size of CAHs (that is,
not more than 25 inpatient beds) and the CAH distance requirements
(that is, a CAH must generally be located at least 35 miles from
another hospital), we believe that transfers from an IPPS acute care
hospital to a CAH occur very infrequently. Therefore, we estimate
that this expansion of the acute care transfer policy will not have
a material impact on Medicare payments to acute care hospitals.

E. Effects of the Low-Volume Hospital Payment Adjustment: Changes
for FYs 2011 and 2012

As discussed in section IV.D. of the preamble to this final
rule, the low-volume hospital payment adjustment changes for FYs
2011 and 2012 expand eligibility for the low-volume hospital payment
adjustment to hospitals with less than 1,600 Medicare discharges
(instead of the prior requirement of less than 800 total, Medicare
and non-Medicare, discharges) and more than 15 miles from other IPPS
hospitals (rather than the prior requirement of more than 25 miles).
The payment adjustment is changed also from an empirically
determined additional 25-percent payment adjustment to qualifying
hospitals with less than 200 total discharges (69 FR 49099 through
49102 and 70 FR 47432 through 47434), to a continuous, linear
sliding scale adjustment ranging from an additional 25 percent
payment adjustment to qualifying hospitals with 200 or fewer
Medicare discharges to no additional payment to hospitals with 1,600
or more Medicare discharges.
We estimate, based on FY 2009 claims data (March 2010 update of
the MedPAR file), an additional 1,444 hospitals would meet the
Medicare discharges criterion to qualify as a low-volume hospital.
However, we are not able to estimate the number of these 1,444
hospitals that would also meet the distance criterion. The actual
number of hospitals that would also meet the distance criterion to
qualify as a low-volume hospital would be less, very likely much
less, than the estimated 1,444 maximum number of potential low-
volume hospitals for FY 2011. If all 1,444 hospitals that meet the
Medicare discharge requirement also meet the distance requirement,
an additional estimated $835 million would be required for FY 2011,
based on each hospital's number of Medicare discharges and the
corresponding payment adjustment amount. At this time, we are not
able to estimate the impact of the change for FY 2012.
Our actuaries chose a 40-percent factor to estimate the
percentage of hospitals that would meet the distance requirement, in
addition to the discharge requirement, to be a low-volume hospital.
For FY 2011, our actuaries estimate that there will be an additional
cost of $380 million; for FY 2012, $450 million; and an additional
$50 million being paid in FY 2013, for hospital stays at the end of
FY 2012 that are paid at the beginning of FY 2013.

F. Effects of Change Relating to Payment Adjustment for
Disproportionate Share Hospitals

In section IV.F. of the preamble of this final rule, we discuss
the change, effective for FY 2011 and subsequent years, to the data
matching process used to calculate the SSI fraction for the Medicare
DSH payment adjustment. The SSI fraction is part of the formula used
to determine whether a subsection (d) hospital qualifies for a DSH
payment adjustment and the amount of any DSH payment.
The numerator of a hospital's DSH SSI fraction is the number of
inpatient days for the provider's patients who were entitled to both
Medicare Part A and SSI benefits. The denominator of the hospital's
SSI fraction is the total number of inpatient days for the
provider's patients who were entitled to Part A benefits. In order
to calculate the numerator of a hospital's DSH SSI fraction, CMS
matches certain Medicare data files with SSI eligibility data files
that are furnished by SSA. In Baystate Medical Center v. Leavitt
(545 F. Supp. 2d 20, as amended, 587 F. Supp. 2d 37, 44 (D.D.C.
2008)), the district court concluded that, in certain respects, CMS'
current matching process did not use the ``best available data'' to
match Medicare patient day information with SSI eligibility data. In
implementing the Baystate decision, CMS recalculated the plaintiff's
SSI fractions and DSH payments for its FYs 1993 through 1996 by
using a revised data matching process that comports with the
district court's decision.
We are adopting a similar revised data matching process for
calculating hospitals' DSH SSI fractions for FY 2011 and subsequent
fiscal years. In addition, we will use, in the revised matching
process, a later update of the MedPAR claims data file and the SSI
eligibility data file. Specifically, we will use MedPAR claims files
and SSI eligibility data that are updated 15 months after the end of
the Federal fiscal year, rather than continue with our current
practice of using data updated 6 months after the end of the Federal
fiscal year. We believe that our revision to the timing of the data
match achieves an appropriate balance between accounting for
additional retroactive SSI eligibility determinations and the
lifting of SSI payment suspensions and facilitating administrative
finality through the timely final settlement of Medicare cost
reports.
We are not able to provide a detailed analysis of the impact of
the revised data matching process. That is, it is not possible to
determine whether Medicare DSH adjustment payments to hospitals will
generally increase or decrease, because hospitals' SSI fractions
will vary depending on various factors, including the use of a more
updated MedPAR claims data file, use of a more updated SSI
eligibility data file, and the other features of our revised data
matching process.
With respect to the use of a more updated MedPAR claims data
file, we expect that using a later version of the MedPAR claims file
will increase the number of inpatient claims for a given Federal
fiscal year and, therefore, will increase the number of Medicare
inpatient days included in the denominator of the SSI fraction.
Depending on whether or not the additional claims in the MedPAR file
are for Medicare patients who are also eligible for SSI during the
inpatient stay, the numerator of the SSI fraction might increase or
decrease.
As for the use of an updated SSI eligibility file, we note that
retroactive SSI eligibility determinations include both the granting
and the denial of SSI benefits. Therefore, assuming that some of the
retroactive SSI eligibility determinations are for Medicare
patients, the use of an updated SSI eligibility file also could
increase or decrease the numerator of the SSI fraction. We expect
that, as a result of using an updated SSI eligibility file, the SSI
fraction for some hospitals will increase while it will decrease for
other hospitals.
We also note that, in the Baystate decision, the district court
found that certain records (for example, ``stale records'' and
``forced pay records'') were not included in the SSI eligibility
data that SSA gave to CMS for use in the data matching process.
However, the SSI eligibility data files began to include certain of
these records in the mid-1990's, and stale records and forced pay
records were included in the SSI eligibility data files that CMS
used in recalculating the specific SSI fractions and DSH adjustment
payments at issue in the Baystate case. As certain of these records
are already included in the data matching process and we are making
no change to this policy, we are unable to determine if this issue
has any cost or savings for FY 2011 and subsequent years.

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Finally, our revised data matching process includes the use of
SSNs and a greater number of Title II numbers and HICANs. As a
result, we might be able to identify some individuals who are
entitled to both Part A and SSI benefits that our current data
matching process might not have identified. Therefore, we would
expect an increase in the SSI fraction for certain providers, but we
are unable to determine the extent to which DSH adjustment payments
will increase.
We did not receive any specific public comments on this impact
section.

G. Effects of Change in Policy Relating to MDHs

1. Medicare Dependency: Counting Medicare Inpatients

In section IV.G.2. of the preamble of this final rule, we
discuss our revision of the existing Medicare-dependency criterion
for MDHs at Sec. 412.108(a)(1)(iii) of the regulations which
specify that ``At least 60 percent of the hospital's inpatient days
or discharges were attributable to individuals receiving Medicare
Part A benefits during the hospital's cost reporting period * * *
'', by replacing the word ``receiving'' with the phrase ``entitled
to.'' As a result, we will include in the count of Medicare
inpatient days or discharges, all days or discharges attributable to
individuals entitled to Medicare Part A benefits, including
individuals who have exhausted their Medicare Part A hospital
inpatient coverage benefit.
Based on our analysis of data for cost reporting periods
beginning in FYs 2007 and 2008, we estimate that this change to the
MDH definition of Medicare dependency may allow 48 more IPPS
hospitals to qualify as an MDH. We estimate that this change will
result in increased expenditure of $3.6 million in FY 2011.

2. Extension of the MDH Program

In section IV.G.3. of the preamble to this final rule, we
discuss section 3124 of the Affordable Care Act, which extended the
MDH program for 1 additional year, from the end of FY 2011 (that is,
for discharges before October 1, 2011) to the end of FY 2012 (that
is, for discharges before October 1, 2012). The extension of the MDH
program has no impact for FY 2011. For FY 2012, the extension allows
the continuation of MDH status and the payment methodology for an
MDH to be paid its hospital-specific rate, based on its FY 1982,
1987, or 2002 costs per discharge, rather than the Federal rate, if
this results in a greater aggregate payment. Therefore, the impact
of the MDH program extension is 1 additional year of updated
hospital-specific rate payments for each MDH, if this results in a
greater aggregate payment than Federal rate payments, rather than
Federal rate payments for IPPS hospitals without special treatment
as MDHs. Our actuaries estimate that this 1-year extension of the
MDH program through FY 2012 will cost an additional $110 million.

H. Effects of Changes Relating to Payments for IME and Direct GME

1. Identifying ``Approved Medical Residency Programs''

In section IV.H.2. of the preamble of this final rule, we
discuss our clarification of policy regarding whether an individual
is considered to be training in an approved medical residency
program such that the individual's time should be included in the
FTE count for IME and direct GME purposes, or whether that
individual should be treated and bill as a physician. Specifically,
our clarification states that individuals should be treated as and
bill as physicians if they have already successfully completed at
least one residency program (regardless of whether they have passed
the board examination for that specialty program), and are engaged
in subsequent training that is not required for additional board
certification in another subspecialty. We also are revising the
definition of ``resident'' at Sec. 413.75(b) to mean ``an intern,
resident, or fellow who is formally accepted, enrolled, and
participating in an approved medical residency program, including
programs in osteopathy, dentistry, and podiatry, as required in
order to become certified by the appropriate specialty board.''
With respect to the policy regarding the treatment of trainees
that have already successfully completed at least one residency
program, there is no financial impact on the Medicare program
because this is a clarification of existing policy and is not a
policy revision or addition of a new policy. The policy change to
the regulations might have some limited financial impact to the
extent that a hospital previously included trainees who were not
formally enrolled in an approved program in its FTE counts, and as a
result of the change to the regulations, will no longer be able to
include such trainees in its FTE count for IME and direct GME
purposes. We believe it would be rare for a hospital to have
included in its FTE count trainees who are not formally enrolled in
a residency program in the typical fashion. Further, we believe that
it would be rare for such a hospital to have sufficient room under
its IME and direct GME FTE resident caps to include any such
``informally enrolled'' residents in addition to the typically
enrolled residents. Thus, the financial impact of the change in the
regulatory definition of ``resident'' would be insignificant.

2. Submission of Electronic Affiliation Agreements

In section IV.H.3. of the preamble of this final rule, we
discuss our finalized policy to allow hospitals to submit Medicare
GME affiliation agreements to the CMS Central Office by electronic
submission. Over the last several years, we have received numerous
inquiries regarding the possibility of submitting the Medicare GME
affiliation agreement electronically. To date, CMS has only accepted
signed hard copies of Medicare GME affiliation agreements that are
received through the mail. Facsimile (FAX) and other electronic
submissions of affiliation agreements have not been an acceptable
means of transmission of affiliation agreements to CMS Central
Office in order for a hospital to meet the requirements of
Sec. Sec. 413.79(f) and 412.105(f)(1)(vi).
The increasing frequency of these inquiries and our concerns
regarding environmental and paperwork reduction have prompted us to
reconsider our procedure for hospitals to submit Medicare GME
affiliation agreements to the CMS Central Office. Accordingly, we
are changing our policy to provide for electronic submission of the
affiliation agreement that is required to be sent to the CMS Central
Office. This policy change will not affect the authority of the
fiscal intermediary or MAC to continue to specify its requirements
for submission for hospitals in its servicing area.
We are establishing an electronic submission process that will
consist of either an e-mail mailbox or a Web site where hospitals
will be able to submit their Medicare GME affiliation agreements to
the CMS Central Office. As part of this process, a copy of the
Medicare GME affiliation agreement must be received through the
electronic system no later than 11:59 p.m. on July 1 of each
academic year. We are requring that the electronic affiliation
agreement must be submitted either as a scanned copy, a Portable
Document Format (PDF) version of that hard copy agreement, or in
another electronic format that cannot be subject to manipulation.
This requirement will ensure that the agreements are signed and
dated as required in the regulations at Sec. 413.75.
We believe that allowing an electronic submission of the
affiliation agreement to the CMS Central Office will assist us in
more effectively tracking the groups of hospitals that become an
affiliation as well as the numbers of FTE cap slots that are being
transferred within those groups. In addition, we believe an
electronic submission process will minimize the paperwork burden for
hospitals.

I. Effects of Changes Relating to CRNA Services Furnished in Rural
Hospitals and CAHs

In section IV.I. of the preamble of this final rule, we discuss
our amendment to the regulations at Sec. 412.113(c)(2)(i)(A) to
state that, effective for cost reporting periods beginning on or
after October 1, 2010, hospitals and CAHs that have reclassified
under section 1886(d)(8)(E) of the Act and Sec. 412.103 are
eligible to be paid based on reasonable cost for anesthesia and
related care furnished by qualified nonphysician anesthetists. Under
existing regulations, a hospital or CAH is not eligible to be paid
based on reasonable cost for anesthesia and related care furnished
by qualified nonphysician anesthetists if the hospital or CAH has
been granted rural status under Sec. 412.103. However, because the
Act, as revised by section 608 of Public Law 100-485, allows for
reasonable cost payments for CRNA services if the facility is a
hospital located in a rural area as defined for purposes of section
1886(d) of the Act, we are revising the regulations to permit urban
hospitals that have been reclassified as rural, in accordance with
section 1886(d)(8)(E) of the Act, to qualify for these payments. We
are revising the regulations to state that, effective for cost
reporting periods beginning on or after October 1, 2010, hospitals
and CAHs that have reclassified as rural pursuant to section

[[Page 50665]]

1886(d)(8)(E) of the Act and Sec. 412.103 of the regulations are
eligible to be paid based on reasonable cost for anesthesia services
and related care provided by qualified nonphysician anesthetists.
We believe it is difficult to quantify the payment impact of
this change because, in order to qualify for reasonable cost-based
payment for anesthesia and related services provided by qualified
nonphysician anesthetists, a rural hospital or CAH cannot exceed an
annual limit of 800 surgical procedures requiring anesthesia. We
cannot establish the number of facilities that will meet this
threshold. In addition, although a hospital or CAH may contract with
more than one qualified nonphysician anesthetist and be paid based
on reasonable cost for anesthesia and related services performed by
these nonphysician anesthetists, the total number of hours of
service furnished by the nonphysician anesthetists may not exceed
2,080 hours annually. We also cannot determine the number of
facilities that will exceed this threshold. Therefore, while we
believe the impact will be relatively minor, we are unable to
quantify the impact of the change.

J. Effect of the Additional Payments to Qualifying Hospitals in Low
Medicare Spending Counties

Under section 1109 of Public Law 111-152, Congress allocated
$400 million to be spent for FYs 2011 and 2012 to qualifying
hospitals located in the bottom quartile of counties with the lowest
Medicare Part A and Part B spending per enrollee. In section IV.J.
of the preamble to this final rule, we have identified the list of
eligible counties and the qualifying hospitals located in those
counties that will receive the $400 million. We are finalizing our
proposal to spend $150 million in FY 2011 and $250 million in FY
2012. This money will be given to the qualifying hospitals by the
fiscal intermediaries or MAC through a one-time annual payment. In
section IV.J. of the preamble to this final rule, Table 1 lists the
distribution of payments among the list of qualifying hospitals. In
addition, Table 2 in section IV.J. of the preamble to this final
rule lists the distribution of payment by State for FY 2011.

K. Effects of Implementation of Rural Community Hospital
Demonstration Program

In section IV.K of the preamble of this final rule, we discuss
our implementation of section 410A of Public Law 108-173, which
required the Secretary to establish a demonstration that would
modify reimbursement for inpatient services for up to 15 small rural
hospitals. Section 410A(c)(2) requires that ``[i]n conducting the
demonstration program under this section, the Secretary shall ensure
that the aggregate payments made by the Secretary do not exceed the
amount which the Secretary would have paid if the demonstration
program under this section was not implemented.'' As discussed in
section V.K. of the preamble of this final rule, in the IPPS final
rule for each of the previous 6 fiscal years, we have estimated the
additional payments as a result of the demonstration for each of the
participating hospitals. In order to achieve budget neutrality, we
are adjusting the national IPPS rates by an amount sufficient to
account for the added costs of this demonstration. In other words,
we are applying budget neutrality across the payment system as a
whole rather than merely across the participants of this
demonstration. We believe that the language of the statutory budget
neutrality requirement permits the agency to implement the budget
neutrality provision in this manner. The statutory language requires
that ``aggregate payments made by the Secretary do not exceed the
amount which the Secretary would have paid if the demonstration * *
* was not implemented'' but does not identify the range across which
aggregate payments must be held equal.
In addition, an extension of this demonstration was mandated by
the Affordable Care Act. The demonstration is extended for an
additional 5 years and will be expanded to up to 30 hospitals. We
are making an adjustment in this final rule of $70,483,384 to the
national IPPS rates. This amount accounts for an estimate of the
demonstration cost for FY 2011 for the 10 hospitals that are
currently participating in the demonstration, and an estimate of the
cost of the continuation of the 7 hospitals that have participated
in the demonstration since its inception and that are still
participating. This amount accounts for the portions of their cost
reporting periods in FY 2010 that were not covered in the estimated
cost of the demonstration in the FY 2010 IPPS final rule because we
formulated these estimates under the assumption that the
demonstration would end in FY 2010. The adjustment for this final
rule also includes an estimate of the cost of participation in the
demonstration for 20 additional hospitals in FY 2011. In addition,
for this final rule, we had proposed in the May 4, 2010 proposed
rule to account for any differences between the cost of the
demonstration program for hospitals participating in the
demonstration during FY 2007, represented by their cost reports
beginning in FY 2007, and the amount that was offset by the budget
neutrality adjustment for FY 2007. However, this final rule does not
contain this adjustment because the specific numeric value
associated with this component of the adjustment to the national
IPPS rates cannot be known because settled cost reports beginning in
FY 2007 of the hospitals participating during FY 2007 in the
demonstration are not available yet. We anticipate that those
settled cost reports may be available prior to the publication of
the FY 2012 IPPS proposed rule, at which time we would include a
similar proposal.

L. Effects of Proposed Changes Relating to CAHs

1. CAH Optional Method of Payment for Outpatient Services

In section VI.B.2. of the preamble of this final rule, we
discuss our amendment to the regulations to permit a CAH's election
to be paid for outpatient services under the optional method to stay
in effect until it is terminated. Under existing regulations, if a
CAH wishes to be paid under the optional method for outpatient
services on a continuous basis, it must submit an annual election to
the fiscal intermediary or MAC servicing the CAH at least 30 days
prior to the cost reporting period for which the election is made.
Due to the significant consequences that result if a CAH fails to
make a timely election, we are amending the regulations at Sec.
413.70(b)(3)(i) to state that, effective for CAH cost reporting
periods beginning on or after October 1, 2010, if a CAH has elected
the optional method for its most recent cost reporting period
beginning prior to October 1, 2010, or chooses to elect the optional
method for its upcoming cost reporting period, that election will
remain in place until it is terminated. If a CAH chooses to
terminate its election, it must submit a termination request to the
fiscal intermediary or MAC servicing the CAH at least 30 days prior
to the start of the next cost reporting period. In order to provide
CAHs that have cost reporting periods beginning in October or
November 2010 time to choose to terminate an existing election of
the optional method, we are specifying that these CAHs will have
until December 1, 2010, to terminate their election. We anticipate
that there will be no additional Medicare expenditure associated
with this change because we are not making any changes that govern
payment rules for CAHs. Rather, we believe the regulatory changes
will reduce any perceived burden associated with the election
process and make it easier for CAHs to maintain their election of
the optional method on a continuous basis.

2. Effects of the Payment for CAH Outpatient Services and Ambulance
Services

In section VII.B.3. of the preamble of this final rule, we
discuss our implementation of section 3128 of Public Law 111-148,
which amends the regulations at Sec. 413.70(b)(3)(ii)(A) to state
that, effective for cost reporting periods beginning on or after
January 1, 2004, payment for outpatient facility services under the
optional method will be made at 101 percent of reasonable costs. We
also are amending the regulations at Sec. 413.70(b)(5)(i) to state
that, effective for cost reporting periods beginning on or after
January 1, 2004, payment for ambulance services furnished by a CAH
or an entity that is owned and operated by a CAH is 101 percent of
the reasonable costs of the CAH or the entity in furnishing those
services, but only if the CAH or the entity is the only provider or
supplier of ambulance services located within a 35-mile drive of the
CAH or the entity. We do not believe these amendments will result in
additional payments to CAHs for prior periods because we believe
that, in fact, we have paid CAHs for these services at 101 percent
of reasonable costs during these prior periods.

3. Consideration of Costs of Provider Taxes as Allowable Costs for CAHs

In section VI.B.4. of the preamble of this final rule, we
discuss our clarification of our policy regarding the extent to
which certain provider taxes may be considered allowable costs under
Medicare, as described in sections 2212.1 and 2212.2 of the PRM-1.
This is a clarification of our longstanding policy. Therefore, we
have determined that there is no financial impact of the change.

[[Page 50666]]

M. Effects of Policy Relating to Effective Date of Provider
Agreements and Supplier Approvals

In section VIII. of the preamble of this final rule, we discuss
our clarification of the requirements supporting the existing
process for assignment of an effective date for a provider agreement
or supplier approval. Approximately 54,500 Medicare providers and
suppliers are subject to survey and certification requirements under
this proposal. However, this clarification will not change the
process for providers and suppliers. Therefore, we believe that the
impact of our clarification is negligible.

N. Effects of Changes Relating to Hospital Rehabilitation Services
and Respiratory Care Services Conditions of Participation

In section IX. of the preamble of this final rule, we discuss
our changes to the conditions of participation for hospital
rehabilitation services and respiratory care services to clarify the
categories of practitioners allowed to order rehabilitation services
and respiratory care services. We believe that these changes will
impose minimal additional costs on hospitals. In fact, hospitals may
realize some minimal cost savings due to the regulatory flexibility
of these changes, which may allow for greater consistency with
existing State laws and with hospital policies and procedures. The
cost of implementing these changes will largely be limited to the
one-time cost related to the revision of a hospital's medical staff
bylaws and its policies and procedures as they relate to the
requirements for the categories of practitioners allowed to order
rehabilitation and respiratory care services. There also may be some
minimal cost associated with communicating these changes to affected
hospital staff. However, we believe that these costs will be offset
by the benefits derived from the overall intent of these changes to
allow qualified, licensed practitioners, who are authorized by the
medical staff, to order these services as long as they are
responsible for the care of the patient for whom they are ordering
the services and as long as such privileges are in accordance with
hospital policies and applicable State laws and regulations.
Furthermore, the changes will clarify existing hospital CoPs to make
them more consistent not only with each other, but also with many
State laws and with current practice. Therefore, no burden is being
assessed as a result of the revisions of these CoPs, or on the
communication of these revisions to staff that will be required by
this final rule, as these practices are usual and customary business
practices.

VIII. Effects of Changes in the Capital IPPS

A. General Considerations

Provisions of the Affordable Care Act necessitated revising the
May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule. While the IPPS
payment rates for capital-related costs were not directly affected
by provisions of the Affordable Care Act, changes to the wage index
as well as to the outlier payment adjustment factor were required by
the law. Changes to the wage index affect the geographic adjustment
factor (GAF) under the capital IPPS which is used in conjunction
with a factor for changes in DRG classifications and weights to
determine a budget neutrality adjustment factor in calculating the
capital IPPS rate. A revision of the outlier payment adjustment
factor was required because both inpatient operating and inpatient
capital-related payments use a single set of thresholds to identify
outlier cases. Changes resulting from the provisions of the
Affordable Care Act are discussed in more detail in section II.A. of
the preamble of the FY 2011 IPPS//LTCH PPS supplemental proposed
rule published in the Federal Register on June 2, 2010.
For the impact analysis presented below, we used data from the
March 2010 update of the FY 2009 MedPAR file and the March 2010
update of the Provider-Specific File (PSF) that is used for payment
purposes. Although the analyses of the changes to the capital
prospective payment system do not incorporate cost data, we used the
March 2010 update of the most recently available hospital cost
report data (FYs 2007 and 2008) to categorize hospitals. Our
analysis has several qualifications. We use the best data available
and make assumptions about case-mix and beneficiary enrollment as
described below. In addition, as discussed in section V.E. of the
preamble to this final rule, we made a -2.9 percent documentation
and coding adjustment to the national capital rate for FY 2011 in
addition to the -0.6 percent adjustment established for FY 2008, and
the -0.9 percent adjustment for FY 2009. This results in a
cumulative adjustment factor of 0.9574 that we applied to the
national capital rate to account for improvements in documentation
and coding that do not reflect real changes in case mix under the
MS-DRGs in FY 2011. We also adjusted the Puerto Rico-specific
capital rate in FY 2011 to account for changes in documentation and
coding resulting from the adoption of the MS-DRGs.
Due to the interdependent nature of the IPPS, it is very
difficult to precisely quantify the impact associated with each
change. In addition, we draw upon various sources for the data used
to categorize hospitals in the tables. In some cases (for instance,
the number of beds), there is a fair degree of variation in the data
from different sources. We have attempted to construct these
variables with the best available sources overall. However, it is
possible that some individual hospitals are placed in the wrong
category.
Using cases from the March 2010 update of the FY 2009 MedPAR
file, we simulated payments under the capital IPPS for revised FY
2010 and revised FY 2011 (both years have been revised to account
for provisions in the Affordable Care Act that required changes to
the wage index and outlier threshold, as discussed above in this
section) for a comparison of total payments per case. Any short-
term, acute care hospitals not paid under the general IPPS (Indian
Health Service hospitals and hospitals in Maryland) are excluded
from the simulations.
The methodology for determining a capital IPPS payment is set
forth at Sec. 412.312. The basic methodology for calculating
capital IPPS payments in FY 2011 is as follows:

(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals
located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME
adjustment factor, if applicable).

In addition to the other adjustments, hospitals may also receive
outlier payments for those cases that qualify under the threshold
established for each fiscal year. We modeled payments for each
hospital by multiplying the capital Federal rate by the GAF and the
hospital's case-mix. We then added estimated payments for indirect
medical education, disproportionate share, and outliers, if
applicable. For purposes of this impact analysis, the model includes
the following assumptions:
We estimate that the Medicare case-mix index will
increase by 1.0 percent in both FYs 2010 and 2011.
We estimate that the Medicare discharges will be
approximately 11.3 million in FY 2010 and 11.5 million in FY 2011.
The capital Federal rate was updated beginning in FY
1996 by an analytical framework that considers changes in the prices
associated with capital-related costs and adjustments to account for
forecast error, changes in the case-mix index, allowable changes in
intensity, and other factors. As discussed in section III.A.1.a. of
this final rule, the update is 1.5 percent for FY 2011.
In addition to the FY 2011 update factor, the FY 2011
capital Federal rate was calculated based on a GAF/DRG budget
neutrality factor of 0.9990, an outlier adjustment factor of 0.9404,
and a (special) exceptions adjustment factor of 0.9996.
For FY 2011, as discussed above and in section V.E. of
the preamble to this final rule, we applied a 0.9574 adjustment to
the FY 2011 national capital rate for changes in documentation and
coding that are expected to increase case-mix under the MS-DRGs but
do not reflect real case-mix change.

B. Results

We used the actuarial model described above to estimate the
potential impact of our changes for FY 2011 on total capital
payments per case, using a universe of 3,472 hospitals. As described
above, the individual hospital payment parameters are taken from the
best available data, including the March 2010 update of the FY 2009
MedPAR file, the March 2010 update to the PSF, and the most recent
cost report data from the March 2010 update of HCRIS. In Table III,
we present a comparison of estimated total payments per case for FY
2010, as revised per the Affordable Care Act, compared to FY 2011
based on the FY 2011 payment policies. Column 2 shows estimates of
payments per case under our model for FY 2010 (as revised). Column 3
shows estimates of payments per case under our model for FY 2011.
Column 4 shows the total percentage change in payments from revised
FY 2010 to FY 2011. The change represented in Column 4 includes the
1.5 percent update to the capital Federal rate and other changes in
the adjustments to the capital Federal rate. The comparisons are
provided by: (1) Geographic location; (2) region; and (3) payment
classification.
The simulation results show that, on average, capital payments
per case in FY

[[Page 50667]]

2011 are expected to decrease as compared to capital payments per
case in FY 2010. The capital rate for FY 2011 will increase 1.5
percent as compared to the FY 2010 capital rate. The changes to the
GAFs are expected to result, on average, in a slight decrease in
capital payments, although, for rural regions, it is more of a
contributing factor to the overall decrease in capital payments than
to urban areas, mostly due to the application of the rural floor to
the wage index. We also are estimating an increase in outlier
payments from FY 2010 to FY 2011 due primarily to an estimated
decrease in capital IPPS payments per discharge. Since capital
payments per discharge are projected to be slightly lower in FY 2011
compared to FY 2010, more cases would qualify for outlier payments.
The net impact of these changes is an estimated -0.5 percent change
in capital payments per discharge from FY 2010 to FY 2011 for all
hospitals (as shown below in Table III).
The geographic comparison shows that, on average, all urban
hospitals, as well as hospitals in large urban areas, are expected
to experience a 0.5 percent decrease in capital IPPS payments per
case in FY 2011 as compared to FY 2010. Capital IPPS payments per
case for rural hospitals are expected to decrease 0.7 percent.
The change comparisons by regions show some regions experiencing
slight increases in total capital payments, while most other regions
are estimated to experience slight decreases in capital payments
from FY 2010 to FY 2011. For the urban regions, changes in capital
payments range from a -1.0 percent in both the New England region
and Middle Atlantic region to an increase of 0.2 percent for the
Pacific region. The rural regions show estimates of a 1.7 percent
change in capital payments from FY 2010 to FY 2011 in the Middle
Atlantic region and Pacific region to a 1.9 percent increase for the
Mountain region.
By type of ownership, proprietary and government hospitals are
estimated to experience a 0.3 percent decrease in capital payments,
while voluntary hospitals are estimated to experience a 0.6 percent
decrease in capital payments per case from FY 2010 to FY 2011.
Section 1886(d)(10) of the Act established the MGCRB. Hospitals
may apply for reclassification for purposes of the wage index for FY
2011. Reclassification for wage index purposes also affects the GAFs
because that factor is constructed from the hospital wage index.
To present the effects of the hospitals being reclassified for
FY 2011, we show the average capital payments per case for
reclassified hospitals for FY 2010, as revised per the Affordable
Care Act. All reclassified and non-reclassified hospitals are
expected to experience a decrease in capital payments in FY 2011 as
compared to FY 2010. Urban reclassified and rural reclassified
hospitals are expected to have a decrease in capital payments of 0.6
percent and 0.5 percent, respectively. For non-reclassified
hospitals, the estimated decrease in capital payments is 0.4 percent
for urban non-reclassified hospitals, and 0.9 percent for rural non-
reclassified hospitals. Other reclassified hospitals (that is,
hospitals reclassified under section 1886(d)(8)(B) of the Act) are
expected to experience a decrease of 1.2 percent in capital payments
from FY 2010 to FY 2011.
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IX. Effects of Payment Rate Changes and Policy Changes Under the LTCH
PPS

A. Introduction and General Considerations

In section VII. of the preamble and section VII. of the Addendum
to this final rule, we set forth the annual update to the payment
rates for the LTCH PPS for FY 2011. In the preamble, we specify the
statutory authority for the provisions that are presented, identify
the policies and rationales for our decisions as well as
alternatives that were considered. In this section IX. of Appendix
A. to this final rule, we discuss the impact of the final changes to
the payment rates, factors, and other payment rate policies related
to the LTCH PPS that are presented in the preamble of this final
rule in terms of their estimated fiscal impact on the Medicare
budget and on LTCHs.
A number of the provisions of the Affordable Care Act affected
the LTCH PPS. The provisions of the Affordable Care Act that
affected LTCH payments for FY 2011 are reflected in this impact
analysis.
Currently, our database of 423 LTCHs includes the data for 78
nonprofit (voluntary ownership control) LTCHs and 306 proprietary
LTCHs. Of the remaining 39 LTCHs, 13 LTCHs are government-owned and
operated and the ownership type of the other 26 LTCHs is unknown. In
the impact analysis, we used the final rates, factors, and policies
presented in this final rule, including the 0.50 percentage point
reduction to the market basket update required by sections
1886(m)(3) and (m)(4) of the Act and the updated wage index values
and the labor-related share, and the best available claims and CCR
data to estimate the change in payments for FY 2011. The standard
Federal rate for RY 2010 is $39,794.95, which reflects the 0.25
percentage point reduction applied to the RY 2010 market basket
update required under sections 1886(m)(3) and (m)(4) of the Act (as
established in the FY 2010 IPPS/LTCH PPS notice published in the
Federal Register on June 2, 2010). Discharges in RY 2010 occurring
on or after April 1, 2010 are paid under the revised RY 2010
standard Federal rate consistent with section 3401(p) of the
Affordable Care Act. Discharges in RY 2010 occurring on or after
October 1, 2009, and on or before March 31, 2010, are paid under the
standard Federal rate of $39,896.65 (74 FR 44022). As discussed in
section VII.A.2. of the Addendum to this final rule, consistent with
our historical practice, we are finalizing an update to the standard
Federal rate for FY 2011 by -0.49 percent and establishing a
standard Federal rate of $39,599.95 for FY 2011. This includes a
market basket update of 2.5 percent with a 0.50 percentage point
reduction as required under sections 1886(m)(3) and (m)(4) of the
Act, and the documentation and coding adjustment of -2.5 percent to
account for increases in case-mix associated with the adoption of
the MS-LTC-DRGs. Based on the best available data for the 423 LTCHs
in our database, we estimate that the update to the standard Federal
rate for FY 2011 (discussed in section VII.A.2. of the Addendum to
this final rule) and the changes to the area wage adjustment for FY
2011 (discussed in section VII.B. of the Addendum to this final
rule), in addition to an estimated increase in HCO payments and an
estimated increase in SSO payments, would result in an increase in
estimated payments from RY 2010 of approximately $22.3 million (or
about 0.5 percent). Based on the 423 LTCHs in our database, we
estimate FY 2011 LTCH PPS payments to be approximately $4.932
billion, an increase from RY 2010 LTCH PPS payments of approximately
$4.909 billion. Because the combined distributional effects and
estimated changes to the Medicare program payments would be greater
than $100 million, this final rule is considered a major economic
rule, as defined in this section. We note the approximately $22.3
million projected increase in estimated aggregate LTCH PPS payments
from RY 2010 to FY 2011 does not reflect changes in LTCH admissions
or case-mix intensity in estimated LTCH PPS payments, which also
would affect overall payment changes.
The projected 0.5 percent increase in estimated payments per
discharge from RY 2010 to FY 2011 is attributable to several
factors, including the -0.49 percent decrease to the standard
Federal rate, changes in the

[[Page 50670]]

wage index values (including the change to the labor-related share)
presented in section VII.B. of the Addendum to this final rule and
projected increases in estimated HCO and SSO payments. As Table IV
shows, the change attributable solely to the standard Federal rate
is projected to result in an decrease of 0.4 percent in estimated
payments per discharge from RY 2010 to FY 2011, on average, for all
LTCHs, while the changes to the area wage adjustment are projected
to result in an increase in estimated payments of 0.1 percent, on
average, for all LTCHs.
As discussed in section VII.B. of this final rule, we are
updating the wage index values for FY 2011 based on the most recent
available data. In addition, we are finalizing a slight decrease in
the labor-related share from 75.779 percent to 75.271 percent under
the LTCH PPS for FY 2011 based on the most recent available data on
the relative importance of the labor-related share of operating and
capital costs of the RPL market basket. The wage data and the labor-
related share are expected to increase LTCH PPS payments by 0.1
percent.
Table IV below shows the impact of the final payment rate and
final policy changes on LTCH PPS payments for FY 2011 presented in
this final rule by comparing RY 2010 estimated payments to FY 2011
estimated payments. The projected increase in payments per discharge
from RY 2010 to FY 2011 is 0.5 percent (shown in Column 8). This
projected increase in payments is attributable to the impacts of the
change to the standard Federal rate (-0.4 percent in Column 6) and
the change due to the area wage adjustment (0.1 percent in Column
7), as well as the effect of the estimated increase in payments for
HCO cases and SSO cases in FY 2011 as compared to RY 2010 (0.6
percent and 0.3 percent, respectively). That is, estimated total HCO
payments are projected to increase from RY 2010 to FY 2011 in order
to ensure that estimated HCO payments will be 8 percent of the total
estimated LTCH PPS payments in FY 2011. An analysis of the most
recent available LTCH PPS claims data (that is, FY 2009 claims data
from the March 2010 update of the MedPAR file) indicates that the RY
2010 HCO threshold of $18,615 (as announced in the June 2, 2010 FY
2010 IPPS/LTCH PPS notice) may result in HCO payments in RY 2010
that fall below the estimated 8 percent. Specifically, we currently
estimate that HCO payments will be approximately 7.4 percent of the
estimated total LTCH PPS payments in RY 2010. We note that the RY
2010 outlier payment estimate in this impact analysis takes into
account for the revised RY 2010 rate and outlier threshold
determined consistent with sections 1886(m)(3) and (4) of the Act
and section 3401(p) of the Affordable Care Act that are used to make
payments for discharges in RY 2010 that occur on or after April 1,
2010. We estimate that the impact of the increase in HCO payments
would result in approximately a 0.6 percent increase in estimated
payments from RY 2010 to FY 2011, on average, for all LTCHs.
Furthermore, in calculating the estimated increase in payments from
RY 2010 to FY 2011 for HCO and SSO cases, we increased estimated
costs by the applicable market basket percentage increase as
projected by our actuaries, which increases payments by 0.3 percent
relative to last year. We note that estimated payments for all SSO
cases comprise approximately 14 percent of the estimated total LTCH
PPS payments, and estimated payments for HCO cases comprise
approximately 8 percent of the estimated total LTCH PPS payments.
Payments for HCO cases are based on 80 percent of the estimated cost
of the case above the HCO threshold, while the majority of the
payments for SSO cases (over 65 percent) are based on the estimated
cost of the SSO case.
As we discuss in detail throughout this final rule, based on the
most recent available data, we believe that the provisions of this
final rule relating to the LTCH PPS will result in an increase in
estimated aggregate LTCH PPS payments and that the resulting LTCH
PPS payment amounts result in appropriate Medicare payments.

B. Impact on Rural Hospitals

For purposes of section 1102(b) of the Act, we define a small
rural hospital as a hospital that is located outside of an urban
area and has fewer than 100 beds. As shown in Table IV, we are
projecting a 0.9 percent increase in estimated payments per
discharge for FY 2011 as compared to RY 2010 for rural LTCHs that
will result from the changes presented in this final rule, as well
as the effect of estimated changes to HCO and SSO payments. This
estimated impact is based on the data for the 26 rural LTCHs in our
database (out of 423 LTCHs), for which complete data were available.
The RY 2010 average payment per case in Table IV accounts for the
changes required by sections 1886(m)(3) and (4) of the Act and
section 3401(p) of the Affordable Care Act, which affects payments
for discharges occurring on or after April 1, 2010, as described
below in section IX.C.3. of the Appendix to this final rule.
The estimated increase in LTCH PPS payments from RY 2010 to FY
2011 for rural LTCHs is primarily due to the higher than average
impacts from the changes to the area wage adjustment and the
reduction in the labor-related share from 75.779 to 75.271, which
results in an estimated 0.6 percent increase in payments.

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

1. Budgetary Impact

Section 123(a)(1) of the BBRA requires that the PPS developed
for LTCHs ``maintain budget neutrality.'' We believe that the
statute's mandate for budget neutrality applies only to the first
year of the implementation of the LTCH PPS (that is, FY 2003).
Therefore, in calculating the FY 2003 standard Federal rate under
Sec. 412.523(d)(2), we set total estimated payments for FY 2003
under the LTCH PPS so that estimated aggregate payments under the
LTCH PPS were estimated to equal the amount that would have been
paid if the LTCH PPS had not been implemented.
As discussed in section IX.A. of this Appendix, we project an
increase in aggregate LTCH PPS payments in FY 2011 of approximately
$22.3 million (or 0.5 percent) based on the 423 LTCHs in our
database.

2. Impact of Moratorium and Other Provisions

Section 114(c) and (d) of the Medicare, Medicaid, and SCHIP
Extension Act of 2007 (MMSEA), as amended by section 4302 of the
American Recovery and Reinvestment Act of 2009 (ARRA), provided for
a 3-year delay in certain payment policies relating to LTCHs and
LTCH satellite facilities. Sections 3106 and 10312 of the Affordable
Care Act together provide for a 2-year extension of the 3-year delay
in implementation of certain payment policies relating to certain
LTCHs and LTCH satellite facilities. Specifically, these provisions
affect payment adjustments for ``very'' short stay outliers (SSOs),
the one-time adjustment to the standard Federal rate, the 25 percent
payment threshold policy, and the moratorium on the establishment of
new LTCHs and LTCH satellite facilities and the moratorium on the
increase in LTCH beds in existing LTCHs or satellite facilities.
Sections 3106 and 10312 of the Affordable Care Act together
provide for a 2-year extension of the 3-year delay in implementation
of the revision to the SSO policy at Sec. 412.529(c)(3)(i) that was
finalized in the RY 2008 final rule. We estimate that the extension
of the SSO provision will result in a projected increase in
estimated aggregate LTCH PPS payments of approximately $20 million
in FY 2011. Sections 3106 and 10312 of the Affordable Care Act
together provide for a 2-year extension to several modifications to
the regulations at Sec. 412.534 and Sec. 412.536 required by
section 114(c) of MMSEA, as amended by section 4302 of the ARRA,
which addressed the percentage thresholds between referring
hospitals and LTCHs and satellites of LTCHs. We estimate that the
implementation of this extension of the MMSEA provisions, as amended
by the ARRA, pertaining to Sec. 412.534 and Sec. 412.536 will
result in a projected increase in estimated aggregate LTCH PPS
payments of approximately $20 million for FY 2011.
Regarding the 2-year extension of the moratorium on the
development of new LTCHs and LTCH satellites and on the increase in
beds in existing LTCHs and LTCH satellites, as we noted in the May
22, 2008 interim final rule with comment period when the original 3-
year delay required by section 114(d) of the MMSEA, as amended by
the ARRA, was implemented, we are unable to quantify the impact of
the additional 2-year moratorium on the establishment of LTCHs, LTCH
satellite facilities, and on the increase of LTCH beds in existing
LTCHs or satellite facilities with limited exceptions. We are unable
to provide an estimate of the impact of the 2-year extension of this
provision because we have no way of determining how many LTCHs would
have opened in the absence of the moratorium, nor do we have
sufficient information at this time to determine how many new LTCHs
will meet the criteria for an exception described in the statute.

3. Impact on Providers

The basic methodology for determining a per discharge LTCH PPS
payment is set forth in Sec. 412.515 through Sec. 412.536. In
addition to

[[Page 50671]]

the basic MS-LTC-DRG payment (the standard Federal rate multiplied
by the MS-LTC-DRG relative weight), we make adjustments for
differences in area wage levels, the COLA for Alaska and Hawaii, and
SSOs. Furthermore, LTCHs may also receive HCO payments for those
cases that qualify based on the threshold established each year.
To understand the impact of the changes to the LTCH PPS payments
presented in this final rule on different categories of LTCHs for FY
2011, it is necessary to estimate payments per discharge for RY 2010
using the rates, factors (including the FY 2010 GROUPER (Version
27.0), and relative weights and the policies established in the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43945 through 43994 and
44021 through 44030) and to include any changes to payments due to
the provisions under sections 1886(m)(3) and (4) of the Act and
section 3401(p) of the Affordable Care Act, which affects payments
for discharges occurring on or after April 1, 2010 in RY 2010 (as
announced in the June 2, 2010 FY 2010 IPPS/LTCH PPS notice). It is
also necessary to estimate the payments per discharge that would be
made under the final LTCH PPS rates, factors, policies, and GROUPER
(Version 28.0) for FY 2011 (as discussed in III. of the preamble and
section VII. of the Addendum to this final rule). These estimates of
RY 2010 and FY 2011 LTCH PPS payments are based on the best
available LTCH claims data and other factors, such as the
application of inflation factors to estimate costs for SSO and HCO
cases in each year. We also evaluated the change in estimated RY
2010 payments to estimated FY 2011 payments (on a per discharge
basis) for each category of LTCHs.
Hospital groups were based on characteristics provided in the
OSCAR data, FY 2007 through FY 2008 cost report data in HCRIS, and
PSF data. Hospitals with incomplete characteristics were grouped
into the ``unknown'' category. Hospital groups include the
following:
Location: large urban/other urban/rural.
Participation date.
Ownership control.
Census region.
Bed size.

To estimate the impacts of the payment rates and policy changes
among the various categories of existing providers, we used LTCH
cases from the FY 2009 MedPAR file to estimate payments for RY 2010
and to estimate payments for FY 2011 for 423 LTCHs. We believe that
the discharges based on the FY 2009 MedPAR data for the 423 LTCHs in
our database, which includes 306 proprietary LTCHs, provide
sufficient representation in the MS-LTC-DRGs containing discharges
for patients who received LTCH care for the most commonly treated
LTCH patients' diagnoses.

4. Calculation of Prospective Payments

For purposes of this impact analysis, to estimate per discharge
payments under the LTCH PPS, we simulated payments on a case-by-case
basis using LTCH claims from the FY 2009 MedPAR files. For modeling
estimated LTCH PPS payments for RY 2010, we calculated a blended RY
2010 payment to account for changes in the rate in accordance with
sections 1886(m)(3) and (m)(4) of the Act and section 3401(p) of the
Affordable Care Act. Specifically, we applied the RY 2010 standard
Federal rate (that is, $39,896.65, under which LTCH discharges
occurring on or after October 1, 2009, and through March 31, 2010
are paid, and $39,794.95, under which LTCH discharges occurring on
or after April 1, 2010 and through September 30, 2010 are paid). For
modeling estimated LTCH PPS payments for FY 2011, we applied the FY
2011 standard Federal rate of $39,599.95, which will be effective
for LTCH discharges occurring on or after October 1, 2010, and
through September 30, 2011.
Furthermore, in modeling estimated LTCH PPS payments for both RY
2010 and FY 2011 in this impact analysis, we applied the RY 2010 and
the FY 2011 adjustments for area wage differences and the COLA for
Alaska and Hawaii. Specifically, we adjusted for area wage
differences for estimated RY 2010 payments using the current LTCH
PPS labor-related share of 75.779 percent (74 FR 43968), the wage
index values established in the Tables 12A and 12B of the Addendum
to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44192 through
44213) and the RY 2010 COLA factors shown in the table in section V.
of the Addendum to that final rule (74 FR 44026). Similarly, we
adjusted for area wage differences for estimated FY 2011 payments
using the finalized LTCH PPS FY 2011 labor-related share of 75.271
percent, the FY 2011 wage index values presented in Tables 12A and
12B of the Addendum to this final rule, and the FY 2011 COLA factors
shown in the table in section VII.B.5. of the Addendum to the final
rule.
As discussed above, our impact analysis reflects an estimated
change in payments for SSO cases, as well as an estimated increase
in payments for HCO cases (as described in section VII.C. of the
Addendum to this final rule). In modeling payments for SSO and HCO
cases in RY 2010, we applied an inflation factor of 1.025 percent
(determined by OACT) to the estimated costs of each case determined
from the charges reported on the claims in the FY 2009 MedPAR files
and the best available CCRs from the March 2010 update of the PSF.
In modeling payments for SSO and HCO cases in FY 2011, we applied an
inflation factor of 1.050 (determined by OACT) to the estimated
costs of each case determined from the charges reported on the
claims in the FY 2009 MedPAR files and the best available CCRs from
the March 2010 update of the PSF. Furthermore, in modeling estimated
LTCH PPS payments for both RY 2010 and FY 2011 in this impact
analysis, we applied the RY 2010 HCO fixed-loss amount of $18,425
(74 FR 44029) for the first half of RY 2010, the revised RY 2010 HCO
fixed-loss amount of $18,615 established in conjunction with
implementing the provisions of sections 1886(m)(3) and (m)(4) of the
Act and section 3401(p) of the Affordable Care Act for the second
half of RY 2010, and the FY 2011 fixed loss amount of $18,785 (as
discussed in section VII.C. of the Addendum to this final rule).
These impacts reflect the estimated ``losses'' or ``gains''
among the various classifications of LTCHs from the RY 2010 to FY
2011 based on the payment rates and policy changes presented in this
final rule. Table IV illustrates the estimated aggregate impact of
the LTCH PPS among various classifications of LTCHs.
The first column, LTCH Classification, identifies the
type of LTCH.
The second column lists the number of LTCHs of each
classification type.
The third column identifies the number of LTCH cases.
The fourth column shows the estimated payment per
discharge for RY 2010 (as described above).
The fifth column shows the estimated payment per
discharge for FY 2011 (as described above).
The sixth column shows the percentage change in
estimated payments per discharge from RY 2010 to FY 2011 for changes
to the standard Federal rate (as discussed in section VII.A.2. of
the Addendum to this final rule).
The seventh column shows the percentage change in
estimated payments per discharge from RY 2010 to FY 2011 for changes
to the area wage adjustment at Sec. 412.525(c) (as discussed in
section VII.B. of the Addendum to the final rule).
The eighth column shows the percentage change in
estimated payments per discharge from RY 2010 (Column 4) to FY 2011
(Column 5) for all finalized and statutory changes (and includes the
effect of estimated changes to HCO and SSO payments).
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5. Results

Based on the most recent available data for 423 LTCHs, we have
prepared the following summary of the impact (as shown in Table IV)
of the LTCH PPS payment rate and policy changes presented in this
final rule. The impact analysis in Table IV shows that estimated
payments per discharge are expected to increase approximately 0.5
percent, on average, for all LTCHs from RY 2010 to FY 2011 as a
result of the finalized payment rate and policy changes presented in
this final rule, as well as estimated increases in HCO and SSO
payments. We note that we applied a -0.49 percent update to the
standard Federal rate for FY 2011, based on the latest market basket
estimate (2.5 percent), the -0.50 percentage point reduction
required under sections 1886(m)(3) and (m)(4) of the Act, and the
adjustment for the effect of changes in documentation and coding in
FY 2008 and FY 2009 of -2.5 percent. We noted earlier in this
section that for most categories of LTCHs, as shown in Table IV
(Column 6), the impact of the decrease of approximately -0.5 percent
to the standard Federal rate is projected to result in approximately
a -0.4 percent change in estimated payments per discharge for all
LTCHs from RY 2010 to FY 2011. Because payments to cost-based SSO
cases and a portion of payments to SSO cases that are paid based on
the ``blend'' option of the SSO payment formula at Sec.
412.529(c)(2)(iv) are not affected by the update to the standard
Federal rate, we estimate that the effect of the 0.49 percent
reduction to the standard Federal rate would result in a 0.4 percent
reduction on estimated aggregate LTCH PPS payments to all LTCH PPS
cases, including SSO cases. Furthermore, as discussed previously in
this regulatory impact analysis, the average increase in estimated
payments per discharge from the RY 2010 to FY 2011 for all LTCHs of
approximately 0.5 percent (as shown in Table IV) was determined by
comparing estimated FY 2011 LTCH PPS payments (using the final
rates, final policies and statutory changes discussed in this final
rule) to estimated RY 2010 LTCH PPS payments (as described above in
section IX.C.3. of this Appendix).

a. Location

Based on the most recent available data, the vast majority of
LTCHs are located in urban areas. Only approximately 6 percent of
the LTCHs are identified as being located in a rural area, and
approximately 4 percent of all LTCH cases are treated in these rural
hospitals. The impact analysis presented in Table IV shows that the
average percent increase in estimated payments per discharge from RY
2010 to FY 2011 for all hospitals is 0.5 percent for all changes.
For rural LTCHs, the percent change for all changes is estimated to
be 0.9 percent, while for urban LTCHs, we estimate the increase to
be 0.4 percent. Large urban LTCHs are projected to experience an
increase of 0.5 percent in payments per discharge from RY 2010 to FY
2011, while other urban LTCHs are projected to experience an
increase of 0.3 percent in payments per discharge from RY 2010 to FY
2011, as shown in Table IV.

b. Participation Date

LTCHs are grouped by participation date into four categories:
(1) Before October 1983; (2) between October 1983 and September

[[Page 50674]]

1993; (3) between October 1993 and September 2002; and (4) after
October 2002. Based on the most recent available data, the majority
(approximately 49 percent) of the LTCH cases are in hospitals that
began participating in the Medicare program between October 1993 and
September 2002. These hospitals are projected to experience nearly
the average increase (0.3 percent) in estimated payments per
discharge from RY 2010 to FY 2011, as shown in Table IV.
In the participation category where LTCHs began participating in
the Medicare program before October 1983, LTCHs are projected to
experience a higher than average percent increase (0.6 percent) in
estimated payments per discharge from RY 2010 to FY 2011, as shown
in Table IV. Approximately 4 percent of LTCHs began participating in
Medicare before October 1983. The LTCHs in this category are
projected to experience a slightly higher than average increase in
estimated payments because of increases in their wage data, increase
under the MS-LTC-DRG GROUPER (Version 28) and relative weights, and
estimated increases in their SSO payments relative to last year.
Approximately 10 percent of LTCHs began participating in Medicare
between October 1983 and September 1993. These LTCHs are also
projected to experience a slightly higher than average increase (0.6
percent) in estimated payments from RY 2010 to FY 2011. LTCHs that
began participating in Medicare after October 2002 currently
represent approximately 39 percent of all LTCHs, and are projected
to experience an average increase (0.5 percent) in estimated
payments from RY 2010 to FY 2011.

c. Ownership Control

Other than LTCHs whose ownership control type is unknown, LTCHs
are grouped into three categories based on ownership control type:
Voluntary, proprietary, and government. Based on the most recent
available data, approximately 18 percent of LTCHs are identified as
voluntary (Table IV). We expect that, for these LTCHs in the
voluntary category, estimated FY 2011 LTCH payments per discharge
will increase higher than the average (0.8 percent) in comparison to
estimated payments in RY 2010 primarily because we project an
increase in estimated HCO payments and SSO payments to be higher
than the average for these LTCHs. The majority (72 percent) of LTCHs
are identified as proprietary and these LTCHs are projected to
experience an average increase (0.4 percent) in estimated payments
per discharge from RY 2010 to FY 2011. Finally, government-owned and
operated LTCHs (3 percent) are expected to experience a higher than
the average increase (1.0 percent) in estimated payments primarily
due to a larger than the average increase in estimated HCO payments
and increases under the MS-LTC-DRG GROUPER (Version 28) and relative
weights.

d. Census Region

Estimated payments per discharge for FY 2011 are projected to
increase for LTCHs located in all regions in comparison to RY 2010.
Of the 9 census regions, we project that the increase in estimated
payments per discharge will have the largest positive impact on
LTCHs in the Pacific region (0.7 percent, as shown in Table IV). The
estimated percent increase in payments per discharge from RY 2010 to
FY 2011 for the Pacific is largely attributable to the projected
increase in estimated HCO and SSO payments and changes in their wage
adjustment.
In contrast, LTCHs located in the Middle Atlantic region are
projected to experience the smallest increase in estimated payments
per discharge from RY 2010 to FY 2011. The average estimated
increase in payments of 0.2 percent for LTCHs in the Middle Atlantic
region is primarily due to estimated decreases in payments
associated with the wage index because 50 percent of LTCHs located
in this region will have a FY 2011 wage index value that is less
than their RY 2010 wage index value.

e. Bed Size

LTCHs were grouped into six categories based on bed size: 0-24
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater
than 200 beds. We project that payments for small LTCHs (0-24 beds)
would experience a 1.0 percent increase in payments due to increases
in their wage index while large LTCHs (200+ beds) would experience a
0.2 percent increase in payments. LTCHs with between 75 and 124 beds
and between 125 and 199 beds are expected to experience an above
average increase in payments per discharge from RY 2010 to FY 2011
(0.8 percent and 0.6 percent, respectively) primarily due to a
larger than average estimated increase in payments from the FY 2011
changes to the area wage adjustment.

D. Effect on the Medicare Program

As noted previously, we project that the provisions of this
final rule would result in an increase in estimated aggregate LTCH
PPS payments in FY 2011 of approximately $22.3 million (or about 0.5
percent) for the 423 LTCHs in our database.

E. Effect on Medicare Beneficiaries

Under the LTCH PPS, hospitals receive payment based on the
average resources consumed by patients for each diagnosis. We do not
expect any changes in the quality of care or access to services for
Medicare beneficiaries under the LTCH PPS, but we expect that paying
prospectively for LTCH services would enhance the efficiency of the
Medicare program.

X. Effects of Policy Changes Regarding Accreditation Requirements for
Medicaid Providers of Inpatient Psychiatric Services for Individuals
Under Age 21

In section X. of the preamble of this final rule, we discuss the
removal of the Medicaid requirement for Joint Commission
accreditation of psychiatric hospitals and hospitals with inpatient
psychiatric programs. Psychiatric hospitals will have the choice of
undergoing a State survey to determine whether the hospital meets
the requirements to participate in Medicare as a psychiatric
hospital under 42 CFR 482.60, or obtaining accreditation from a
national accrediting organization whose psychiatric hospital
accrediting program has been approved by CMS. Likewise, hospitals
with inpatient psychiatric programs will have the choice of
undergoing a State survey to determine whether the hospital meets
the requirements for participation in Medicare as a hospital as
specified in 42 CFR part 482 or obtaining accreditation from a
national accrediting organization whose hospital accreditation
program has been approved by CMS.
Ensuring access to services is a priority for CMS, and we
believe that this revision to the regulations will result in an
increased number of psychiatric hospitals and hospitals with
inpatient psychiatric programs being able to provide services. In
addition, the revision to the accreditation requirement aligns
Medicaid standards with existing standards in the Medicare program.
We believe that this flexibility in obtaining accreditation will
facilitate the provision of medically necessary, Medicaid-
reimbursable psychiatric services to vulnerable children, while
maintaining the high quality of care demanded by the Medicaid
program.
We are not preparing an analysis for this policy under the RFA
because we have determined that the policy will not have a
significant economic impact on a substantial number of small
entities.
We are not preparing an analysis for section 1102(b) of the Act
because this policy will not have a significant impact on the
operations of a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in expenditure in any one year of
$100 million in 1995 dollars, updated annually for inflation. That
threshold level is currently approximately $135 million. This policy
will not result in an impact of $135 million or more on State, local
or tribal governments, in the aggregate, or on the private sector.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on
State and local governments, preempts State law, or otherwise has
Federalism implications. Because this policy does not impose any
costs on State or local governments, the requirements of Executive
Order 13132 are not applicable.

XI. Alternatives Considered

This final rule contains a range of policies. The preamble of
this final rule provides descriptions of the statutory provisions
that are addressed, identifies policies and presents rationales for
our decisions and, where relevant, alternatives that were
considered.

XII. Overall Conclusion

A. Acute Care Hospitals

Table I of section VI. of this Appendix demonstrates the
estimated distributional impact of the IPPS budget neutrality
requirements for the final MS-DRG and wage index changes, and for
the wage index reclassifications under the MGCRB. Table I also shows
an overall decrease of 0.4 percent

[[Page 50675]]

in operating payments. We estimate that operating payments will
decrease by approximately $440 million in FY 2011. In addition, we
estimates the reporting of hospital quality data program costs at
$2.4 million, a savings of $20 million associated with the HACs
policies, an additional spending of $18.2 million for new technology
add-on payments, an additional $150 million to hospitals that
qualify for an additional payment as provided under section 1109 of
Public Law 111-152, and all other operating payment policies
described in section VII. of this Appendix. These estimates, added
to our FY 2011 operating estimate of -$440 million, result in a
decrease of $290 million for FY 2011. We estimate that capital
payments will experience -0.5 percent change in payments per case,
as shown in Table III of section VIII. of this Appendix. We project
that there will be a $21 million decrease in capital payments in FY
2011 compared to FY 2010. The cumulative operating and capital
payments should result in a net decrease of $311 million to IPPS
providers. The discussions presented in the previous pages, in
combination with the rest of this final rule constitute a regulatory
impact analysis.

B. LTCHs

Overall, LTCHs are projected to experience an increase in
estimated payments per discharge in FY 2011. In the impact analysis,
we are using the final rates, factors, and policies presented in
this final rule, including final updated wage index values and
relative weights, and the best available claims and CCR data to
estimate the change in payments under the LTCH PPS for FY 2011.
Accordingly, based on the best available data for the 423 LTCHs in
our database, we estimate that FY 2011 LTCH PPS payments will
increase approximately $22 million (or about 0.5 percent).

XIII. Accounting Statements

A. Acute Care Hospitals

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table V below, we
have prepared an accounting statement showing the classification of
the expenditures associated with the provisions of this final rule
as they relate to acute care hospitals. This table provides our best
estimate of the change in Medicare payments to providers as a result
of the finalized changes to the IPPS presented in this final rule.
All expenditures are classified as transfers to Medicare providers.

Table V--Accounting Statement: Classification of Estimated Expenditures
Under the IPPS From FY 2010 to FY 2011
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............ -$311 million.
From Whom to Whom......................... Federal Government to IPPS
Medicare Providers.
-----------------------------
Total................................. -$311 million.
------------------------------------------------------------------------

B. LTCHs

As discussed in section IX. of this Appendix, the impact
analysis for the finalized changes under the LTCH PPS for this final
rule projects an increase in estimated aggregate payments of
approximately $22 million (or about 0.5 percent) for the 423 LTCHs
in our database that are subject to payment under the LTCH PPS.
Therefore, as required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table VI below,
we have prepared an accounting statement showing the classification
of the expenditures associated with the provisions of this final
rule as they relate to changes to the LTCH PPS. Table VI provides
our best estimate of the estimated increase in Medicare payments
under the LTCH PPS as a result of the finalized provisions presented
in this final rule based on the data for the 423 LTCHs in our
database. All expenditures are classified as transfers to Medicare
providers (that is, LTCHs).

Table VI--Accounting Statement: Classification of Estimated Expenditures
From the 2010 LTCH PPS Rate Year to the FY 2011 LTCH PPS
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers. Positive transfer--Estimated
increase in expenditures:
$22 million.
From Whom to Whom......................... Federal Government to LTCH
PPS Medicare Providers.
-----------------------------
Total................................. $22 million.
------------------------------------------------------------------------

XIV. Executive Order 12866

In accordance with the provisions of Executive Order 12866, the
Executive Office of Management and Budget reviewed this final rule.

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

I. Background

Section 1886(e)(4)(A) of the Act requires that the Secretary,
taking into consideration the recommendations of the MedPAC,
recommend update factors for inpatient hospital services for each
fiscal year that take into account the amounts necessary for the
efficient and effective delivery of medically appropriate and
necessary care of high quality. Under section 1886(e)(5) of the Act,
we are required to publish update factors recommended by the
Secretary in the proposed and final IPPS rules, respectively.
Accordingly, this Appendix provides the recommendations for the
update factors for the IPPS national standardized amount, the Puerto
Rico-specific standardized amount, the hospital-specific rates for
SCHs and MDHs, and the rate-of-increase limits for certain hospitals
excluded from the IPPS, as well as LTCHs, IPFs, and IRFs. We also
discuss our response to MedPAC's recommended update factors for
inpatient hospital services.

II. Inpatient Hospital Update for FY 2011

Several provisions of the Affordable Care Act (Pub. L. 111-148
and Pub. L. 111-152, collectively) affected the hospital inpatient
update for both FYs 2010 and 2011. However, due to the timing of the
passage of the legislation, we were unable to address those
provisions in the FY 2011 IPPS/LTCH PPS proposed rule issued in the
Federal Register on May 4, 2010 (75 FR 30756). On June 2, 2010, we
issued a supplemental proposed rule (75 FR 30918) to the FY 2011
IPPS/LTCH PPS proposed rule to address these provisions. The
discussion below reflects both the provisions of the initial FY 2011
proposed rule and the supplemental proposed rule relative to the FY
2011 hospital inpatient update and any public comments that we
received on both documents. We note that, in the June 2, 2010
supplemental proposed rule, we did not propose to address the
provisions of section 3401 of the Affordable Care Act, which
provided for a productivity adjustment for FY 2012 and subsequent
fiscal years. Rather, we indicated that the provisions of section
3401 that affect FY 2012 would be addressed in future rulemaking.

A. FY 2011 Inpatient Hospital Update

Section 3401(a) of the Affordable Care Act amended section
1886(b)(3)(B)(i) of the Act to provide that the FY 2011 applicable
percentage increase for IPPS hospitals equals the rate-of-increase
in the hospital market basket for IPPS hospitals in all areas is
reduced by 0.25 percentage point, subject to the hospital submitting
quality data under rules established by the Secretary in accordance
with section 1886(b)(3)(B)(viii) of the Act. For hospitals that do
not provide quality data, the update is equal to the market basket
percentage increase minus a 0.25 percentage point less an additional
2.0 percentage points. Section 3401(a)(4) of the Affordable Care Act
further states that this amendment may result in the applicable
percentage increase being less than zero.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24321 and
24322), we announced that, due to the timing of the passage of the
Affordable Care Act, we were unable to address those statutory
provisions in that proposed rule. In that proposed rule, consistent
with current law, based on IHS Global Insight, Inc.'s first quarter
2010 forecast, with historical data through the 2009 fourth quarter,
of the FY 2011 IPPS market basket increase, we estimated that the FY
2011 update to the operating standardized

[[Page 50676]]

amount would be 2.4 percent (that is, the then estimate of the
market basket rate-of-increase) for hospitals in all areas, provided
the hospital submits quality data in accordance with our rules. For
hospitals that do not submit quality data, we estimated that the
update to the operating standardized amount would be 0.4 percent
(that is, the then current estimate of the market basket rate-of-
increase minus 2.0 percentage points).
In the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR
30921 through 30923), we stated that, consistent with the amendments
to section 1886(b)(3)(B)(i) of the Act made by section 3401 of the
Affordable Care Act, for FY 2011, we are required to reduce the
hospital market basket update by 0.25 percentage points. Therefore,
based on IHS Global Insight, Inc.'s first quarter 2010 forecast of
the FY 2011 market basket increase, the estimated update to the FY
2011 operating standardized amount was 2.15 percent (that is, the FY
2011 estimate of the market basket rate-of-increase of 2.4 percent
minus 0.25 percentage points) for hospitals in all areas, provided
the hospital submits quality data in accordance with our rules. For
hospitals that do not submit quality data, the estimated update to
the operating standardized amount was 0.15 percent (that is, the
adjusted FY 2011 estimate of the market basket rate-of-increase of
2.15 percent minus 2.0 percentage points).
Since publication of the FY 2011 IPPS/LTCH PPS supplemental
proposed rule, our estimate of the market basket for FY 2011 has
changed. Therefore, we are adopting in this final rule, based on IHS
Global Insight, Inc.'s second quarter 2010 forecast of the FY 2011
market basket increase, with historical data through the 2010 first
quarter, an applicable percentage increase for FY 2011 of 2.35
percent (that is, the current FY 2011 estimate of the market basket
rate-of-increase of 2.6 percent minus 0.25 percentage point) for
hospitals in all areas, provided the hospital submits quality data
in accordance with our rules. For hospitals that do not submit
quality data, the update to the operating standardized amount is
0.35 percent (that is, the FY 2011 applicable percentage increase of
2.35 percent minus 2.0 percentage points). As discussed in section
IV.N. of the preamble to this final rule, we are adopting as final,
without modification, our proposed changes to Sec. 412.64(d) to
reflect current law.

B. Update for SCHs and MDHs for FY 2011

Section 1886(b)(3)(B)(iv) of the Act provides that the
applicable percentage increase applicable to the hospital-specific
rates for SCHs and MDHs equals the applicable percentage increase
set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same
update factor as for all other hospitals subject to the IPPS).
Because the Act sets the update factor for SCHs and MDHs equal to
the update factor for all other IPPS hospitals, the update to the
hospital specific rates for SCHs and MDHs is also subject to the
amendments to section 1886(b)(3)(B)(i) of the Act made by section
3401(a) of the Affordable Care Act. Because the Act requires us to
apply to the hospital-specific rates the update factor for all other
IPPS hospitals, the update to the hospital specific rates for FY
2011 for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i)
of the Act, as amended by the Affordable Care Act. Accordingly, the
FY 2011 update to the hospital-specific rates applicable to SCHs and
MDHs is 2.35 percent for hospitals that submit quality data or 0.35
percent for hospitals that fail to submit quality data. As discussed
in section IV.N. of the preamble to this final rule, we are adopting
as final our proposed changes to the regulations at Sec. Sec.
412.73(c)(15), 412.75(d), 412.77(e), 412.78(e), and 412.79(d) to
implement the statutory reduction to the FY 2011 market basket.

C. FY 2011 Puerto Rico Hospital Update

Section 1886(d)(9)(C)(i) of the Act is the basis for determining
the applicable percentage increase applied to the Puerto Rico-
specific standardized amount. Section 1886(d)(9)(C)(i) of the Act
provides that the Puerto Rico standardized amount shall be adjusted
in accordance with the final determination of the Secretary under
section 1886(d)(4) of the Act. Section 1886(e)(4)(1) of the Act in
turn directs the Secretary to recommend an appropriate change factor
for Puerto Rico hospitals taking into account amounts necessary for
the efficient and effective delivery of medically appropriate and
necessary care of high quality, as well as the recommendations of
MedPAC. In order to maintain consistency between the portion of the
rates paid to Puerto Rico hospitals under the IPPS based on the
national standardized amount and the portion based on the Puerto
Rico-specific standardized rate, beginning in FY 2004, we have set
the update to the Puerto Rico-specific operating standardized amount
equal to the update to the national operating standardized amount
for all IPPS hospitals.
As discussed in the preamble to this final rule, the amendments
to section 1886(b)(3)(B)(i) of the Act by sections 3401(a) and
10319(a) of the Affordable Care Act affected only the update factor
applicable to the national standardized rate for IPPS hospitals and
the hospital-specific rates; they do not mandate any revisions to
the update factor applicable to the Puerto Rico-specific
standardized amount. Rather, as noted above, sections
1886(d)(9)(C)(i) and (e)(4) of the Act direct us to adopt an
appropriate change factor for the FY 2010 Puerto Rico-specific
standardized amount, which we did in the FY 2010 IPPS/LTCH PPS final
rule after notice and consideration of public comments. Therefore,
we do not believe we have the authority to adjust the FY 2010 update
factor for the Puerto Rico-specific operating standardized amount
for the second half of FY 2010 equal to the update factor applicable
to the national standardized amount or the hospital-specific rates
(that is the market basket minus 0.25 percentage points).
Accordingly, the FY 2010 update to the Puerto Rico-specific
operating standardized amount is 2.1 percent (that is, the FY 2010
estimate of the market basket rate-of-increase) for the entire FY
2010.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24321), for FY
2011, consistent with our past practice, we proposed to apply the
full rate-of-increase in the hospital market basket for IPPS
hospitals to the Puerto Rico-specific standardized amount. In the
June 2, 2010 supplemental proposed rule (75 FR 30923), consistent
with our past practice of applying the same update factor to the
Puerto Rico-specific standardized amount as applied to the national
standardized amount (and to conform to the changes to calculation of
the national standardized amount made by the Affordable Care Act),
for FY 2011, we proposed to revise the regulations at Sec.
412.211(c) to set the update factor for the Puerto Rico-specific
operating standardized amount equal to the update factor applied to
the national standardized amount for all IPPS hospitals. We did not
receive any public comments on our proposal. Therefore, in the
preamble of this final rule, we adopted as final, without
modification, the proposed changes to revise Sec. 412.211(c).
Consequently, we are applying an update factor for the Puerto Rico-
specific standardized amount equal to the FY 2011 IPPS applicable
percentage increase (the market basket rate-of-increase of 2.6
percent minus 0.25 percentage point, or 2.35 percent), for FY 2011.

D. Update for Hospitals Excluded From the IPPS

Section 1886(b)(3)(B)(ii) of the Act is used for purposes of
determining the percentage increase in the rate-of-increase limits
for children's and cancer hospitals. Section 1886(b)(3)(B)(ii) of
the Act sets the percentage increase in the rate-of-increase limits
equal to the market basket percentage increase. In accordance with
Sec. 403.752(a) of the regulations, RNHCIs are paid under Sec.
413.40, which also uses section 1886(b)(3)(B)(ii) of the Act to
update the percentage increase in the rate-of-increase limits.
Section 1886(j)(3)(C) of the Act addresses the increase factor for
the Federal prospective payment rate of IRFs. Section 123 of Public
Law 106-113, as amended by section 307(b) of Public Law 106-554,
provides the statutory authority for updating payment rates under
the LTCH PPS. In addition, section 124 of Public Law 106-113
provides the statutory authority for updating all aspects of the
payment rates for IPFs.
Currently, children's hospitals, cancer hospitals, and RNHCIs
are the remaining three types of hospitals still reimbursed under
the reasonable cost methodology. As we proposed, we are providing
our current estimate of the FY 2011 IPPS operating market basket
percentage increase (2.6 percent) to update the target limits for
children's hospitals, cancer hospitals, and RNHCIs.
For FY 2011, as discussed in section VII. of the preamble to
this final rule, we are establishing an update to the LTCH PPS
standard Federal rate for FY 2011 based on the full LTCH PPS market
basket increase estimate (2.5 percent), including the requirement
that we reduce the LTCH PPS market basket increase by 0.50
percentage point reduction in accordance with sections 3401(c),
10319(b) and 1105(b) of the Affordable Care Act which amended
section 1886(m) of the Act, of 2.0 percent and an adjustment to
account for the increase in case-mix in prior periods (FYs 2008 and

[[Page 50677]]

2009) that resulted from changes in documentation and coding
practices of -2.5 percent. Accordingly, the update factor to the
standard Federal rate for FY 2011 is -0.49 percent (that is, we are
applying a factor of 0.9951 in determining the LTCH PPS standard
Federal rate for FY 2011, calculated as 1.020 x 1 divided by 1.025 =
0.9951 or -0.49 percent).
Effective for cost reporting periods beginning on or after
January 1, 2005, IPFs are paid under the IPF PPS. IPF PPS payments
are based on a Federal per diem rate that is derived from the sum of
the average routine operating, ancillary, and capital costs for each
patient day of psychiatric care in an IPF, adjusted for budget
neutrality. Section 1886(s)(3)(A) of the Act, which was added by
section 3401(f) of the Affordable Care Act, as further amended by
section 10319(e) and by section 1105 of such Act, requires the
application of an ``Other Adjustment'' that reduces any update to
the IPF PPS base rate by 0.25 percentage point for the rate year
beginning in 2010. Therefore, as announced in the IPF RY 2011 notice
(75 FR 23109), we reduced the update to the IPF PPS base rate of 2.4
percent (based on the FY 2002-based RPL market basket and IHS Global
Insight, Inc.'s first quarter 2010 forecast) by 0.25 percentage
point for RY 2011.
IRFs are paid under the IRF PPS for cost reporting periods
beginning on or after January 1, 2002. For cost reporting periods
beginning on or after October 1, 2002 (FY 2003), and thereafter, the
Federal prospective payments to IRFs are based on 100 percent of the
adjusted Federal IRF prospective payment amount, updated annually
(69 FR 45721). Section 1886(j)(3)(D) of the Act, which was added by
Section 3401(d) of the Affordable Care Act, as further amended by
section 10319 and by section 1105 of such Act, requires the
Secretary to reduce the market basket factor by 0.25 percentage
point for FY 2011. Therefore, as announced in the IRF FY 2011 notice
(75 FR 42848 and 42849), we reduced the update to the IRF PPS
Federal rate of 2.5 percent (based on the FY 2002-based RPL market
basket and IHS Global Insight, Inc.'s second quarter 2010 forecast)
by 0.25 percentage point for FY 2011. Thus, the adjusted RPL market
basket increase factor is 2.25 percent for FY 2011.

III. Secretary's Final Recommendations

MedPAC is recommending an inpatient hospital update equal to the
market basket rate of increase for FY 2011. MedPAC's rationale for
this update recommendation is described in more detail below. As
mentioned above, section 1886(e)(4)(A) of the Act requires that the
Secretary, taking into consideration the recommendations of the
MedPAC, recommend update factors for inpatient hospital services for
each fiscal year that take into account the amounts necessary for
the efficient and effective delivery of medically appropriate and
necessary care of high quality. Consistent with the update factor in
the President's budget (and prior to other adjustments required
under the statute), we are recommending an update to the
standardized amount of 2.9 percent. We are recommending that this
same update factor apply to SCHs and MDHs.
Section 1886(d)(9)(C)(i) of the Act is the basis for determining
the percentage increase to the Puerto Rico-specific standardized
amount. As discussed above, we finalized our proposal to revise
Sec. 412.211(c) to set the update factor for the Puerto Rico-
specific operating standardized amount equal to the update factor
applied to the national standardized amount for all IPPS hospitals.
Therefore, we are applying an update factor for the Puerto Rico-
specific standardized amount equal to the FY 2011 IPPS applicable
percentage increase (the market basket rate-of-increase of 2.6
percent minus 0.25 percentage points), or 2.35 percent, for FY 2011.
In addition to making a recommendation for IPPS hospitals, in
accordance with section 1886(e)(4)(A) of the Act, we also are
recommending update factors for all other types of hospitals.
Consistent with the update factor in the President's budget, we are
recommending an update for children's hospitals, cancer hospitals,
and RNHCIs of 2.9 percent.
For FY 2011, consistent with policy set forth in section VII. of
the preamble of this final rule, we are recommending an update of -
0.49 percent to the LTCH PPS standard Federal rate. In addition,
consistent with the update specified in the FY 2011 IRF PPS notice
(as described above), we are recommending an update of 2.25 percent
to the IRF PPS Federal rate for FY 2011. Finally, consistent with
the update specified in the FY 2011 IPF PPS notice (as described
above), we are recommending an update of 2.4 percent reduced by 0.25
percentage point to the IPF PPS Federal rate for RY 2011 for the
Federal per diem payment amount.

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

In its March 2010 Report to Congress, MedPAC assessed the
adequacy of current payments and costs, and the relationship between
payments and an appropriate cost base. MedPAC recommended an update
to the hospital inpatient rates equal to the increase in the
hospital market basket in FY 2011, concurrent with implementation of
a quality incentive program. MedPAC's reasoning is that under a
quality program, an individual hospital's quality performance should
determine whether its net increase in payments is above or below the
market basket increase. MedPAC noted the importance of hospitals to
control their costs rather than accommodate the current rate of cost
growth.
MedPAC also noted that indicators of payment adequacy are
positive. MedPAC expects Medicare margins to remain low in 2011. At
the same time though, MedPAC's analysis finds that high-performing
hospitals have been able to maintain relatively low costs while
maintaining a relatively high quality of care. In addition, roughly
half of these providers are generating a profit on their Medicare
business.
Response: Similar to our response last year, we agree with
MedPAC that hospitals should control costs rather than have Medicare
accommodate the current rate of growth. As MedPAC noted, the lack of
financial pressure at certain hospitals can lead to higher costs and
in turn bring down the overall Medicare margin for the industry.
In addition to the quality data that hospitals are required to
submit to CMS, as discussed in section II. of the preamble of this
final rule, CMS implemented the MS-DRGs in FY 2008 to better account
for severity of illness under the IPPS and is basing the DRG weights
on costs rather than charges. We continue to believe that these
refinements will better match Medicare payment of the cost of care
and provide incentives for hospitals to be more efficient in
controlling costs.
We note that, because the operating and capital prospective
payment systems remain separate, we are continuing to use separate
updates for operating and capital payments. The update to the
capital rate is discussed in section III. of the Addendum to this
final rule.
We did not receive any public comments on MedPAC's
recommendation.

[FR Doc. 2010-19092 Filed 7-30-10; 4:15 pm]
BILLING CODE 4120-01-P