[Federal Register Volume 76, Number 160 (Thursday, August 18, 2011)]
[Rules and Regulations]
[Pages 51475-51846]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19719]



[[Page 51475]]

Vol. 76

Thursday,

No. 160

August 18, 2011

Part II





Department of Health and Human Services





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





Centers for Medicare & Medicaid Services





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





42 CFR Parts 412, 413 and 476





Medicare Program; Hospital Inpatient Prospective Payment Systems for 
Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and FY 2012 Rates; Hospitals' FTE Resident Caps for 
Graduate Medical Education Payment; Final Rule

Federal Register / Vol. 76 , No. 160 / Thursday, August 18, 2011 / 
Rules and Regulations

[[Page 51476]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, and 476

[CMS-1518-F; CMS-1430-F]
RIN 0938-AQ24; RIN 0938-AQ92


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and FY 2012 Rates; Hospitals' FTE Resident Caps for 
Graduate Medical Education Payment

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

ACTION: Final rules.

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

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 statutory 
provisions contained in the Patient Protection and Affordable Care Act 
and the Health Care and Education Reconciliation Act of 2010 
(collectively known as the Affordable Care Act) and other legislation. 
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 implementing 
certain statutory changes made by the Affordable Care Act. In addition, 
we are finalizing an interim final rule with comment period that 
implements section 203 of the Medicare and Medicaid Extenders Act of 
2010 relating to the treatment of teaching hospitals that are members 
of the same Medicare graduate medical education affiliated groups for 
the purpose of determining possible full-time equivalent (FTE) resident 
cap reductions.

DATES: Effective dates: These final rules are effective on October 1, 
2011, except for the provisions of Sec.  412.230(d)(5), which are 
effective September 1, 2011. Effective July 29, 2011, the interim rule 
published March 14, 2011, at 76 FR 13515, is confirmed as final without 
change.
    Applicability dates: 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 is applicable beginning on or after 
October 1, 2011. The payment policy and the annual payment rates for 
inpatient hospital services provided by IPPS hospitals and by long-term 
care hospitals (LTCHs) and for implementing certain statutory changes 
made by the Affordable Care Act and other legislation are applicable to 
discharges occurring on or after October 1, 2011 unless otherwise 
specified in this final rule.

FOR FURTHER INFORMATION CONTACT:

Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548, 
Operating Prospective Payment, MS-DRGs, Hospital Acquired Conditions 
(HAC), Wage Index, New Medical Service and Technology Add-On Payments, 
Hospital Geographic Reclassifications, Graduate Medical Education, 
Capital Prospective Payment, Excluded Hospitals, Medicare 
Disproportionate Share Hospital (DSH), and Postacute Care Transfer 
Issues.
Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, 
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG 
Relative Weights Issues.
Bridget Dickensheets, (410) 786-8670, Rebasing and Revising of the 
Market Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
James Poyer, (410) 786-2261, Inpatient Quality Reporting--Program 
Administration, Validation, and Reconsideration Issues.
Shaheen Halim, (410) 786-0641, Inpatient Quality Reporting--Measures 
Issues Except Hospital Consumer Assessment of Healthcare Providers and 
Systems Issues; and Readmission Measures for Hospitals Issues.
Elizabeth Goldstein, (410) 786-6665, Inpatient Quality Reporting--
Hospital Consumer Assessment of Healthcare Providers and Systems 
Measures Issues.
Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.
Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing 
Efficiency Measures Issues.

SUPPLEMENTARY INFORMATION:

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 
software, or by telnet to swais.access.gpo.gov, then log in as guest 
(no password required). Dial-in users should use communications 
software and modem to call (202) 512-1661; type swais, then log in as 
guest (no password required).

Tables Available Only Through the Internet on the CMS Web Site

    In the past, a majority of the tables referred to throughout this 
preamble and in the Addendum to this final rule were published in the 
Federal Register as part of the annual proposed and final rules. 
However, beginning in FY 2012, some of the IPPS tables and LTCH PPS 
tables will no longer be published as part of the annual IPPS and LTCH 
PPS proposed and final rules. Instead, these tables will be available 
only through the Internet. The IPPS tables for this final rule are 
available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. Click on the link 
on the left side of the screen titled, ``FY 2012 IPPS Final Rule Home 
Page'' or ``Acute Inpatient--Files for Download.'' The LTCH PPS tables 
for this FY 2012 final rule are available only through the Internet on 
the CMS Web site at: http://www.cms.gov/LongTermCareHospitalPPS/LTCHPPSRN/list.asp under the list item for Regulation Number CMS-1518-
F. For complete details on the availability of the tables referenced in 
this final rule, we refer readers to section VI. of the Addendum to 
this final rule.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified above should contact 
Nisha Bhat at (410) 786-4487.

Acronyms

3M 3M Health Information System
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association

[[Page 51477]]

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
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
EHR Electronic health record
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of Healthcare Providers and 
Systems
HCFA Health Care Financing Administration
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HICAN Health Insurance Claims Account Number
HIPAA 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
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, 
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision, 
Procedure Coding System
ICR Information collection requirement
IGI IHS Global Insight, Inc.
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
IQR Inpatient Quality Reporting
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of 
the Tax Relief and Health Care Act of 2006, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
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]
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

[[Page 51478]]

SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 
97-248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and 
QI [Qualifying Individuals] Programs Extension Act of 2007, Public 
Law 110-90
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) Applicable to FY 2012
    C. Issuance of a Notice of Proposed Rulemaking
    1. Proposed Changes to MS-DRG Classifications and Recalibrations 
of Relative Weights
    2. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    3. Other Decisions and Proposed Changes to the IPPS for 
Operating Costs and GME Costs
    4. Proposed FY 2012 Policy Governing the IPPS for Capital-
Related Costs
    5. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    6. Proposed Changes to the LTCH PPS
    7. Determining Proposed Prospective Payment Operating and 
Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
    8. Determining Proposed Prospective Payments Rates for LTCHs
    9. Impact Analysis
    10. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    11. Discussion of Medicare Payment Advisory Commission 
Recommendations
    D. Public Comments Received in Response to the FY 2012 IPPS/LTCH 
PPS Proposed Rule
    E. Finalization of Interim Final Rule With Comment Period on 
Revisions to the Reductions and Increases to Hospitals' FTE Resident 
Caps for Graduate Medical Education Payment Purposes
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
    D. FY 2012 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 and FY 2009 Claims Data
    5. 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
    6. Recoupment or Repayment Adjustment for FY 2010 Authorized by 
Section 7(b)(1)(B) of Public Law 110-90
    7. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    8. Documentation and Coding Adjustment to the Hospital-Specific 
Rates for FY 2011 and Subsequent Fiscal Years
    9. Application of the Documentation and Coding Adjustment to the 
Puerto Rico-Specific Standardized Amount
    a. Background
    b. Documentation and Coding Adjustment to the Puerto Rico-
Specific Standardized Amount
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Summary of the RTI Study of Charge Compression and CCR 
Refinement
    3. Summary of Policy Changes Made in FY 2011
    4. Discussion for FY 2012
    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. Additions and Revisions to the HAC Policy for FY 2012
    a. Contrast-Induced Acute Kidney Injury
    b. New Diagnosis Codes Added to Existing HACs
    c. Revision to HAC Subcategory Title
    d. Conclusion
    3. RTI Program Evaluation Summary
    a. Background
    b. FY 2009 Data Analysis
    c. FY 2010 Data Analysis
    d. FY 2010 RTI Analysis on POA Indicator Reporting of Current 
HACs.
    e. FY 2010 RTI Analysis of Frequency of Discharges and POA 
Indicator Reporting for Current HACs
    f. RTI Analysis of Circumstances When Application of HAC 
Provisions Would Not Result in MS-DRG Reassignment for Current HACs
    g. RTI Analysis of Coding Changes for HAC-Associated Secondary 
Diagnoses for Current HACs
    h. RTI Analysis of Estimated Net Savings for Current HACs
    i. Previously Considered Candidate HACs--RTI Analysis of 
Frequency of Discharges and POA Indicator Reporting
    j. Current and Previously Considered Candidate HACs--RTI Report 
on Evidence-Based Guidelines
    k. Final Policy Regarding Current HACs and Previously Considered 
Candidate HACs
    G. Changes to Specific MS-DRG Classifications
    1. Pre-Major Diagnostic Categories (Pre-MDCs)
    a. Noninvasive Mechanical Ventilation
    b. Debridement With Mechanical Ventilation Greater Than 96 Hours 
With Major Operating Room (O.R.) Procedure
    c. Autologous Bone Marrow Transplant
    2. MDC 1 (Diseases and Disorders of the Nervous System): 
Rechargeable Dual Array Deep Brain Stimulation System
    3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and 
Throat): Skull Based Surgeries
    4. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Percutaneous Mitral Valve Repair With Implant
    b. Aneurysm Repair Procedure Codes
    5. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue)
    a. Artificial Discs
    b. Major Joint Replacement or Reattachment of Lower Extremities
    c. Combined Anterior/Posterior Spinal Fusion
    6. MDC 9 (Diseases and Disorders of the Skin, Subcutaneous 
Tissue, and Breast): Excisional Debridement of Wound, Infection, or 
Burn
    7. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and 
Disorders)
    a. Nutritional and Metabolic Diseases: Update of MS-DRG Titles
    b. Sleeve Gastrectomy Procedure for Morbid Obesity
    8. MDC 15 (Newborns and Other Neonates with Conditions 
Originating in the Perinatal Period): Discharge Status Code 66 
(Discharged/Transferred to Critical Access Hospital (CAH))
    9. Medicare Code Editor (MCE) Changes
    10. Surgical Hierarchies
    11. Complications or Comorbidity (CC) Exclusions List
    a. Background
    b. CC Exclusions List for FY 2012
    12. Review of Procedure Codes in MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-
DRGs 987 Through 989 Into MDCs
    b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    c. Adding Diagnosis or Procedure Codes to MDCs
    13. Changes to the ICD-9-CM Coding System, Including Discussion 
of the

[[Page 51479]]

Replacement of the ICD-9-CM System With the ICD-10-CM and ICD-10-PCS 
Systems in FY 2014
    a. ICD-9-CM Coding System
    b. Code Freeze
    c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on 
Hospital Inpatient Claims
    d. ICD-10 MS-DRGs
    14. Other Issues
    a. O.R./Non-O.R. Status of Procedures
    b. IPPS Recalled Device Policy Clarification
    15. Public Comments on Issues Not Addressed in Proposed Rule
    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 2012 Status of Technologies Approved for FY 2011 Add-On 
Payments
    a. Spiration[supreg] IBV Valve System
    b. Cardio West\TM\ Temporary Artificial Heart System (Cardio 
West\TM\ TAH-t)
    c. Auto Laser Interstitial Thermal Therapy (AutoLITT\TM\) System
    4. FY 2012 Applications for New Technology Add-On Payments
    a. AxiaLIF[supreg] 2L+\TM\ System
    b. PerfectCLEAN with Micrillon[supreg]
III. Changes to the Hospital Wage Index for Acute Care Hospitals
    A. Background
    B. Core-Based Statistical Areas for the Hospital Wage Index
    C. Occupational Mix Adjustment to the FY 2012 Wage Index
    1. Development of Data for the FY 2012 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 2012
    D. Worksheet S-3 Wage Data for the FY 2012 Wage Index
    1. Included Categories of Costs
    2. Changes to the Reporting Requirements for Pension Costs for 
the Medicare Wage Index
    a. Background
    b. Allowable Pension Cost for the Medicare Wage Index
    3. Excluded Categories of Costs
    4. Use of Wage Index Data by Providers Other Than Acute Care 
Hospitals under the IPPS
    E. Verification of Worksheet S-3 Wage Data
    F. Method for Computing the FY 2012 Unadjusted Wage Index
    1. Steps for Computation
    2. Imputed Floor Policy
    3. FY 2012 Puerto Rico Wage Index
    G. Analysis and Implementation of the Occupational Mix 
Adjustment and the FY 2012 Occupational Mix Adjusted Wage Index
    H. Revisions to the Wage Index Based on Hospital Redesignations 
and Reclassifications
    1. General
    2. Effects of Reclassification/Redesignation
    3. FY 2012 MGCRB Reclassifications
    a. FY 2012 Reclassification Requirements and Approvals
    b. Applications for Reclassifications for FY 2013
    4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of 
the Act
    5. Reclassifications Under Section 1886(d)(8)(B) of the Act
    6. Reclassifications Under Section 508 of Public Law 108-173
    7. Waiving Lugar Redesignation for the Out-Migration Adjustment
    8. Other Geographic Reclassification Issues
    a. Requested Reclassification for Single Hospital MSAs
    b. Requests for Exceptions to Geographic Reclassification Rules
    I. FY 2012 Wage Index Adjustment Based on Commuting Patterns of 
Hospital Employees
    J. Process for Requests for Wage Index Data Corrections
    K. Labor-Related Share for the FY 2012 Wage Index
IV. Other Decisions and Changes to the IPPS for Operating Costs and 
GME Costs
    A. Hospital Inpatient Quality Reporting Program
    1. Background
    a. Overview
    b. Statutory History and History of Measures Adopted for the 
Hospital IQR Program
    c. Maintenance of Technical Specifications for Quality Measures
    d. Public Display of Quality Measures
    2. Retirement of Hospital IQR Program Measures
    a. Considerations in Retiring Quality Measures from the Hospital 
IQR Program
    b. Retirement of Hospital IQR Program Measures for the FY 2014 
Payment Determination and Subsequent Years
    3. Measures for the FY 2014 and FY 2015 Hospital IQR Payment 
Determinations
    a. Considerations in Expanding and Updating Quality Measures 
Under the Hospital IQR Program
    b. Hospital IQR Program Measures for the FY 2014 Hospital IQR 
Payment Determination
    c. Hospital IQR Program Quality Measures for the FY 2015 Payment 
Determination
    4. Possible New Quality Measures and Measure Topics for Future 
Years
    5. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Procedural Requirements for the FY 2012 Payment 
Determinations and Subsequent Years
    c. Procedural Requirements for FY 2013 and Subsequent Years
    d. Data Submission Requirements for Chart-Abstracted Measures
    e. Sampling and Case Thresholds Beginning With the FY 2015 
Payment Determination
    f. HCAHPS Requirements for the FY 2013, FY 2014, and FY 2015 
Payment Determinations
    g. Procedures for Claims-Based Measures
    h. Data Submission Requirements for Structural Measures
    i. Data Submission and Reporting Requirements for Healthcare-
Associated Infection (HAI) Measures Reported via NHSN
    6. Chart Validation Requirements for Chart-Abstracted Measures
    a. Changes to the Chart Validation Requirements and Methods for 
the FY 2012 Payment Determination and Subsequent Years
    b. Supplements to the Chart Validation Process for the FY 2014 
Payment Determination and Subsequent Years
    7. QIO Regulation Changes for Provider Medical Record Deadlines 
Possibly Including Serious Reportable Events
    8. Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2012 Payment Determination and Subsequent Years
    9. Public Display Requirements for the FY 2014 Payment 
Determination and Subsequent Years
    10. Reconsideration and Appeal Procedures for the FY 2012 
Payment Determination
    11. Hospital IQR Program Disaster Waivers
    12. Electronic Health Records (EHRs)
    a. Background
    b. HITECH Act EHR Provisions
    B. Hospital Value-Based Purchasing (VBP) Program
    1. Background
    2. Overview of the Hospital VBP Program Proposed Rule
    3. FY 2014 Hospital VBP Program Measures
    a. Background
    b. Efficiency Measure--Medicare Spending per Beneficiary 
Measure--for the FY 2014 Hospital VBP Program
    4. Efficiency Domain (Medicare Spending per Beneficiary Measure) 
Performance Period and Baseline Period
    5. Simultaneous Specification of Additional Measures for the 
Hospital VBP Program and the Hospital IQR Program
    6. Responses to Additional Hospital VBP Program Comments
    C. Hospital Readmissions Reduction Program
    1. Background
    a. Overview
    b. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Implementation of the Hospital Readmissions Reduction Program
    a. Overview
    b. Provisions in the FY 2012 IPPS/LTCH PPS Rulemaking
    c. Provisions to be Included in the FY 2013 IPPS/LTCH PPS 
Proposed Rule
    d. Expansion of the Applicable Conditions To Be Included in the 
Future Rulemaking
    3. Provisions of the Hospital Readmissions Reduction Program
    a. Applicable Conditions for FY 2013 Hospital Readmissions 
Reduction Program
    b. Definition of ``Readmissions''
    c. Readmission Measures and Related Methodology
    D. Rural Referral Centers (RRCs) (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    E. Payment Adjustment for Low-Volume Hospitals (Sec.  412.101)

[[Page 51480]]

    1. Background
    2. Temporary Changes for FYs 2011 and 2012
    3. Discharge Data Source Used to Identify Qualifying Low-Volume 
Hospitals and Calculate the Payment Adjustment (Percentage Increase) 
for FY 2012
    F. Indirect Medical Education (IME) Adjustment
    1. Background
    2. IME Adjustment Factor for FY 2012
    G. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs) and Indirect Medical Education (IME) (Sec. Sec.  
412.105 and 412.106)
    1. Background
    2. Policy Change Relating to the Exclusion of Hospice Beds and 
Patient Days From the Calculation of the Medicare DSH Payment 
Adjustment and the IME Payment Adjustment
    a. Background
    b. Hospice Inpatient Services
    H. Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec.  
412.108)
    1. Background
    2. Extension of the MDH Program
    I. Certified Register Nurse Anesthetists (CRNA) Services 
Furnished in Rural Hospitals and CAHs (Sec.  412.113)
    J. Additional Payments for Qualifying Hospitals With Lowest per 
Enrollee Medicare Spending
    1. Background
    2. Method for Identifying Qualifying Hospitals and Eligible 
Counties
    3. Determination of Annual Payment Amounts
    4. Eligible Counties and Qualifying Hospitals
    5. Payment Determination and Distributions for FY 2011 and FY 
2012
    K. Changes in the Inpatient Hospital Update
    1. FY 2012 Inpatient Hospital Update
    2. FY 2012 Puerto Rico Hospital Update
    3. Productivity Adjustment
    L. Additional Payments to Hospitals With High Percentage of End-
Stage Renal Disease (ESRD) Discharges (Sec.  412.104)
    M. Changes to the Reporting Requirements for Pension Costs for 
Medicare Cost-Finding Purposes
    1. Background
    2. Allowable Defined Benefit Pension Plan Cost for Medicare 
Cost-Finding Purposes
    N. Rural Community Hospital Demonstration Program
    1. Background
    2. Changes to the Demonstration Program Made by the Affordable 
Care Act
    3. FY 2012 Budget Neutrality Adjustment
    a. Component of the FY 2012 Budget Neutrality Adjustment that 
Accounts for Estimated Demonstration Program Costs of the ``Pre-
Expansion'' Participating Hospitals
    b. Portion of the FY 2012 Budget Neutrality Adjustment That 
Accounts for Estimated FY 2012 Demonstration Program Costs for 
Hospitals Newly Selected to Participate in the Demonstration Program
    c. Portion of the FY 2012 Budget Neutrality Adjustment to Offset 
the Amount by Which the Costs of the Demonstration Program in FYs 
2007 and 2008 Exceeded the Amount That Was Identified in the FYs 
2007 and 2008 IPPS Final Rules as the Budget Neutrality Offset for 
FYs 2007 and 2008
    O. Bundling of Payments for Services Provided to Outpatients Who 
Later Are Admitted as Inpatients: 3-Day Payment Window
    1. Background
    2. Establishment of Condition Code 51 (Attestation of Unrelated 
Outpatient Nondiagnostic Services)
    3. Applicability of the Payment Window Policy to Services 
Furnished at Physicians' Practices
    P. Changes to MS-DRGs Subject to the Postacute Care Transfer 
Policy
    1. Background
    2. Changes to the Postacute Care Transfer MS-DRGs
    Q. Hospital Services Furnished Under Arrangements
    R. Finalization of Interim Final Rule With Comment Period on 
Revisions to the Reductions and Increases to Hospitals' FTE Resident 
Caps for Graduate Medical Education Purposes
    1. Background and Provisions of the Interim Final Rule With 
Comment Period
    a. Statutory Authority
    b. Reductions and Increases to Hospitals' FTE Resident Caps for 
GME Payment Purposes Under Section 5503 of the Affordable Care Act
    c. Treatment of Affiliated Groups Under Section 5503 of the 
Affordable Care Act
    d. Section 203 of the Medicare and Medicaid Extenders Act of 
2010 (Pub. L. 111-309)
    2. Summary of the Provisions of the Interim Final Rule With 
Comment Period
    3. Summary of Public Comments, Departmental Responses, and 
Statements of Final Policies
    a. Summary of Public Comments and Departmental Responses
    b. Final Policies
    4. Collection of Information Requirements
    5. Regulatory Impact Statement
    a. Statement of Need
    b. Overall Impact
    c. Anticipated Effects
    d. Alternatives Considered
    e. Conclusion
    6. Comment on Issues Outside of the Scope of the Interim Final 
Rule With Comment Period
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 2012: MS-DRG Documentation and Coding 
Adjustment
    1. Background
    2. Prospsective MS-DRG Documentation and Coding Adjustment to 
the National Capital Federal Rate for FY 2012 and Subsequent Years
    3. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
    F. Other Proposed Changes for FY 2012
VI. Changes for Hospitals Excluded From the IPPS
    A. Excluded Hospitals
    B. Critical Access Hospital (CAH) Payment for Ambulance Services
    1. Background
    2. Requirement for CAH Ambulance Within a 35-Mile Location of a 
CAH or Entity
    C. Report of Adjustment (Exceptions) Payments
VII. Changes to the Long-Term Care Hospital Prospective Payment 
System (LTCH PPS) for FY 2012
    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 2012
    3. Development of the FY 2012 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 2012
    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 Proposed FY 2012 MS-LTC-DRG 
Relative Weights
    C. Quality Reporting Program for LTCHs
    1. Background and Statutory Authority
    2. Quality Measures for the LTCH Quality Reporting Program for 
FY 2014
    a. Considerations in the Selection of the Quality Measures
    b. LTCH Quality Measures for FY 2014 Payment Determination
    3. Possible LTCH Quality Measures Under Consideration for Future 
Years
    4. Data Submission Methods and Timelines
    a. Method of Data Submission for HAIs
    b. Timeline for Data Reporting Related to HAIs
    c. Method of Data Collection and Submission for the Pressure 
Ulcer Measure Data
    d. Timeline for Data Reporting Related to Pressure Ulcers
    5. Public Reporting and Availability of Data Submitted
    D. Rebasing and Revising of the Market Basket Used Under the 
LTCH PPS
    1. Background
    2. Overview of the FY 2008-Based RPL Market Basket
    3. Rebasing and Revising of the RPL Market Basket
    a. Development of Cost Categories

[[Page 51481]]

    b. Final Cost Category Computation
    c. Selection of Price Proxies
    d. Methodology for Capital Portion of the RPL Market Basket
    e. FY 2012 Market Basket Update for LTCHs
    f. Labor-Related Share
    E. Changes to the LTCH Payment Rates and Other Changes to the FY 
2012 LTCH PPS
    1. Overview of Development of the LTCH Payment Rates
    2. FY 2012 LTCH PPS Annual Market Basket Update
    a. Overview
    b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    c. Market Basket Under the LTCH PPS for FY 2012
    d. Productivity Adjustment
    e. Annual Market Basket Update for LTCHs for FY 2012
    3. Budget Neutrality Adjustment for the Changes to the Area Wage 
Level Adjustment
    4. Greater Than 25 Day Average Length of Stay Requirement for 
LTCHs
    a. Determining the Average Length of Stay When There is a Change 
of Ownership
    b. Inclusion of Medicare Advantage (MA) Days in the Average 
Length of Stay Calculation
    F. Application of LTCH Moratorium on the Increase in Beds at 
Section 114(d)(1)(B) of Public Law 110-173 (MMSEA) to LTCHs and LTCH 
Satellite Facilities Established or Classified as Such Under Section 
114(d)(2) of Public Law 110-173
VIII. MedPAC Recommendations
IX. Other Required Information
    A. Requests for Data From the Public
    B. Collection of Information Requirements
    1. Statutory Requirement for Solicitation of Comments
    2. ICRs for Add-On Payments for New Services and Technologies
    3. ICRs for the Hospital Inpatient Quality Reporting (IQR) 
Program
    4. ICRs for the Occupational Mix Adjustment to the FY 2012 Index 
(Hospital Wage Index Occupational Mix Survey)
    5. Hospital Applications for Geographic Reclassifications by the 
MGCRB
    6. ICRs for the Quality Reporting Program for LTCHs
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, 2011
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2012
    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 2012
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2012
    C. Capital Input Price Index
IV. Changes to Payment Rates for Certain Excluded Hospitals: Rate-
of-Increase Percentages for FY 2012
V. Changes to the Payment Rates for the LTCH PPS for FY 2012
    A. LTCH PPS Standard Federal Rate for FY 2012
    B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 
2012
    C. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
    D. Computing the Adjusted LTCH PPS Federal Prospective Payments 
for FY 2012
VI. Tables Referenced in This Final Rulemaking and Available Through 
the Internet on the CMS Web Site
Appendix A--Economic Analyses
I. Regulatory Impact Analysis
    A. Introduction
    B. Need
    C. Objectives of the IPPS
    D. Limitations of Our Analysis for the IPPS
    E. Hospitals Included in and Excluded From the IPPS
    F. Effects on Hospitals and Hospital Units Excluded From the 
IPPS
    G. Quantitative Effects of the Policy Changes Under the IPPS for 
Operating Costs
    1. Basis and Methodology of Estimates
    2. Analysis of Table I
    3. Impact Analysis of Table II
    H. Effects of Other Policy Changes
    1. Effects of Policy on HACs, Including Infections
    2. Effects of Policy Changes Relating to New Medical Service and 
Technology Add-On Payments
    3. Effects of Requirements for Hospital Inpatient Quality 
Reporting (IQR) Program
    4. Effects of Additional Hospital Value-Based Purchasing (VBP) 
Program Requirements
    5. Effects of Requirements for Hospital Readmissions Reduction 
Program
    6. Effects of Policy Changes Relating to Payment Adjustments for 
Medicare Disproportionate Share Hospitals (DSHs) and Indirect 
Medical Education (IME)
    7. Effects of the FY 2012 Low-Volume Hospital Payment Adjustment
    8. Effects of Changes Relating to MDHs
    9. Effects of Policy Relating to CRNA Services Furnished in 
Rural Hospitals and CAHs
    10. Effects of Changes Relating to ESRD Add-On Payment
    11. Effects of Changes Relating to the Reporting Requirements 
for Pension Costs for Medicare Cost-Finding and Wage Reporting 
Purposes
    12. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    13. Effects of Changes to List of MS-DRGs Subject to the 
Postacute Care Transfer and DRG Special Pay Policy
    14. Effects of Changes Relating to Hospital Services Furnished 
Under Arrangements
    15. Effects of Change Relating to CAH Payment for Ambulance 
Services
    16. Effects of Finalization of Revisions to the Reductions and 
Increases to Hospitals' FTE Resident Caps for Graduate Medical 
Education Payment Purposes
    I. Effects of Changes in the Capital IPPS
    1. General Considerations
    2. Results
    J. Effects of Payment Rate Changes and Policy Changes Under the 
LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals
    3. Anticipated Effects of LTCH PPS Payment Rate Change and 
Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    K. Alternatives Considered
    L. Overall Conclusion
    1. Acute Care Hospitals
    2. LTCHs
    M. Accounting Statements and Tables
    1. Acute Care Hospitals
    2. LTCHs
II. Regulatory Flexibility Act (RFA) Analysis
III. Unfunded Mandate Reform Act (UMRA) Analysis
IV. 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 2012
    A. Final FY 2012 Inpatient Hospital Update
    B. Final Update for SCHs and MDHs for FY 2012
    C. Final FY 2012 Puerto Rico Hospital Update
    D. Final Update for Hospitals Excluded From the IPPS
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and 
Updating Payments in Traditional Medicare

I. Background

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
    Section 1886(d) of the Social Security Act (the Act) sets forth a 
system of payment for the operating costs of acute care hospital 
inpatient stays under Medicare Part A (Hospital Insurance) based on 
prospectively set rates. Section 1886(g) of the Act requires the 
Secretary to pay for the capital-related costs of hospital inpatient 
stays under a prospective payment system (PPS). Under these PPSs, 
Medicare payment for hospital inpatient operating and capital-related 
costs is made at predetermined, specific rates for each hospital 
discharge. Discharges are classified according to a list of diagnosis-
related groups (DRGs).
    The base payment rate is comprised of a standardized amount that is 
divided

[[Page 51482]]

into a labor-related share and a nonlabor-related share. The labor-
related share is adjusted by the wage index applicable to the area 
where the hospital is located. If the hospital is located in Alaska or 
Hawaii, the nonlabor-related share is adjusted by a cost-of-living 
adjustment factor. This base payment rate is multiplied by the DRG 
relative weight.
    If the hospital treats a high percentage of certain low-income 
patients, it receives a percentage add-on payment applied to the DRG-
adjusted base payment rate. This add-on payment, known as the 
disproportionate share hospital (DSH) adjustment, provides for a 
percentage increase in Medicare payments to hospitals that qualify 
under either of two statutory formulas designed to identify hospitals 
that serve a disproportionate share of low-income patients. For 
qualifying hospitals, the amount of this adjustment varies based on the 
outcome of the statutory calculations.
    If the hospital is an approved teaching hospital, it receives a 
percentage add-on payment for each case paid under the IPPS, known as 
the indirect medical education (IME) adjustment. This percentage 
varies, depending on the ratio of residents to beds.
    Additional payments may be made for cases that involve new 
technologies or medical services that have been approved for special 
add-on payments. To qualify, a new technology or medical service must 
demonstrate that it is a substantial clinical improvement over 
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG 
payment.
    The costs incurred by the hospital for a case are evaluated to 
determine whether the hospital is eligible for an additional payment as 
an outlier case. This additional payment is designed to protect the 
hospital from large financial losses due to unusually expensive cases. 
Any eligible outlier payment is added to the DRG-adjusted base payment 
rate, plus any DSH, IME, and new technology or medical service add-on 
adjustments.
    Although payments to most hospitals under the IPPS are made on the 
basis of the standardized amounts, some categories of hospitals are 
paid in whole or in part based on their hospital-specific rate, which 
is determined from their costs in a base year. For example, sole 
community hospitals (SCHs) receive the higher of a hospital-specific 
rate based on their costs in a base year (the highest of FY 1982, FY 
1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the 
standardized amount. Through and including FY 2006, a Medicare-
dependent, small rural hospital (MDH) received the higher of the 
Federal rate or the Federal rate plus 50 percent of the amount by which 
the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 
hospital-specific rate. As discussed below, for discharges occurring on 
or after October 1, 2007, but before October 1, 2012, an MDH will 
receive the higher of the Federal rate or the Federal rate plus 75 
percent of the amount by which the Federal rate is exceeded by the 
highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. 
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, Public Law 105-33), the 
Medicare, Medicaid and SCHIP [State Children's Health Insurance 
Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-
113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the 
implementation of PPSs for rehabilitation hospitals and units (referred 
to as inpatient rehabilitation facilities (IRFs)), LTCHs, and 
psychiatric hospitals and units (referred to as inpatient psychiatric 
facilities (IPFs)). (We note that the annual updates to the LTCH PPS 
are now included as part of the IPPS annual update document. Updates to 
the IRF PPS and IPF PPS are issued as separate documents.) Children's 
hospitals, cancer hospitals, and RNHCIs continue to be paid solely 
under a reasonable cost-based system subject to a rate-of-increase 
ceiling on inpatient operating costs per discharge.
    The existing regulations governing payments to excluded hospitals 
and hospital units are located in 42 CFR Parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    The Medicare prospective payment system (PPS) for LTCHs applies to 
hospitals described in section 1886(d)(1)(B)(iv) effective for cost 
reporting periods beginning on or after October 1, 2002. The LTCH PPS 
was established under the authority of sections 123(a) and (c) of 
Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as 
codified under section 1886(m)(1) of the Act). During the 5-year 
(optional) transition period, a LTCH's payment under the PPS was based 
on an increasing proportion of the LTCH Federal rate with a 
corresponding decreasing proportion based on reasonable cost 
principles. Effective for cost reporting periods beginning on or after 
October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. 
The existing regulations governing payment under the LTCH PPS are 
located in 42 CFR Part 412, Subpart O. Beginning

[[Page 51483]]

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) Applicable to FY 2012

    The Patient Protection and Affordable Care Act (Pub. L. 111-148), 
enacted on March 23, 2010, and the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 
2010, made a number of changes that affect the IPPS and the LTCH PPS. 
(Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as 
the ``Affordable Care Act.'') A number of the provisions of the 
Affordable Care Act affect the updates to the IPPS and the LTCH PPS and 
providers and suppliers. The provisions of the Affordable Care Act that 
were applicable to the IPPS and the LTCH PPS for FYs 2010 and 2011 were 
implemented in the following documents:
    On June 2, 2010, we issued in the Federal Register a notice (75 FR 
31118) that contained the final wage indices, hospital 
reclassifications, payment rates, impacts, and other related tables, 
effective for the FY 2010 IPPS and the RY 2010 LTCH PPS, which were 
required by or directly resulted from implementation of provisions of 
the Affordable Care Act.
    On August 16, 2010, we issued in the Federal Register a final rule 
(75 FR 50042) that implemented provisions of the Affordable Care Act 
applicable to the IPPS and LTCH/PPS for FY 2011.
    In this final rule, we are implementing the following provisions 
(or portions of the following provisions) of the Affordable Care Act 
that are applicable to the IPPS and LTCH PPS for FY 2012:
     Section 3001 of Public Law 111-148, which provides for 
establishment of a hospital value-based purchasing program and 
applicable measures for value-based incentive payments with respect to 
discharges occurring during FY 2013.
     Section 3004 of Public Law 111-148, which provides for the 
submission of quality data for LTCHs beginning in FY 2013 in order to 
receive the full annual update to the payment rates beginning with FY 
2014 and the establishment of quality data measures by FY 2012 for the 
FY 2014 payment determination.
     Section 3025 of Public Law 111-148, which provides for a 
hospital readmissions reduction program and related quality data 
reporting measures.
     Section 3124 of Public Law 111-148, which provides for 
extension of the Medicare-dependent, small rural hospital (MDH) program 
through FY 2012.
     Section 3401 of Public Law 111-148, which provides for the 
incorporation of productivity improvements into the market basket 
updates for IPPS hospitals and LTCHs.
    In addition, we are continuing in FY 2012 to implement the 
following provisions, which were initiated in FY 2011:
     Section 10324 of Public Law 111-148, which provided for a 
wage adjustment for hospitals located in frontier States.
     Sections 3401 and 10319 of Public Law 111-148 and section 
1105 of Public Law 111-152, which revise certain market basket update 
percentages for IPPS and LTCH PPS payment rates for FY 2012.
     Sections 3125 and 10314 of Public Law 111-148, which 
provide for temporary percentage increases in payment adjustments to 
low-volume hospitals for discharges occurring in FY 2012.
     Section 1109 of Public Law 111-152, which provides for 
additional payments in FY 2012 for qualifying hospitals in the lowest 
quartile of per capita Medicare spending.
     Section 5503 of Public Law 111-148, as amended by Public 
Law 111-152 and section 203 of Public Law 111-309, which provides for 
the reduction in FTE resident caps for direct GME under Medicare for 
certain hospitals, and to authorize the ``redistribution'' of the 
estimated number of FTE resident slots to other qualified hospitals. In 
addition, section 5503 requires the application of these provisions to 
IME in the same manner as the FTE resident caps for direct GME.

C. Issuance of a Notice of Proposed Rulemaking

    The May 5, 2011 Federal Register (76 FR 25788) included the 
proposed rule that set forth proposed changes to the Medicare IPPS for 
operating costs and for capital-related costs of acute care hospitals 
in FY 2012. We also set forth proposed changes relating to payments for 
IME costs and payments to certain hospitals that continue to be 
excluded from the IPPS and paid on a reasonable cost basis. In 
addition, we set forth proposed changes to the payment rates, factors, 
and other payment rate policies under the LTCH PPS for FY 2012.
    Below is a summary of the major changes that we proposed to make:
1. 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 2012 resulting from implementation of the MS-DRG 
system.
     A discussion of the Research Triangle Institute, 
International (RTI) reports and recommendations relating to charge 
compression.
     Proposed recalibrations of the MS-DRG relative weights.
     Proposed changes to hospital-acquired conditions (HACs) 
and a listing and discussion of HACs, including infections, that would 
be subject to the statutorily required quality adjustment in MS-DRG 
payments for FY 2012.
    We discussed the FY 2012 status of new technologies approved for 
add-on payments for FY 2011 and presented our evaluation and analysis 
of the FY 2012 applicants for add-on payments for high-cost new medical 
services and technologies (including public input, as directed by 
Public Law 108-173, obtained in a town hall meeting).

[[Page 51484]]

2. 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:
     The proposed FY 2012 wage index update using wage data 
from cost reporting periods beginning in FY 2008.
     Analysis and implementation of the proposed FY 2012 
occupational mix adjustment to the wage index for acute care hospitals, 
including discussion of the 2010 occupational mix survey.
     A proposal to change the reporting requirements for 
pension costs for the Medicare wage index.
     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 2012 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 2012 hospital wage index.
     Determination of the labor-related share for the proposed 
FY 2012 wage index.
3. 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 476, including the following:
     The reporting of hospital quality data under the Hospital 
Inpatient Quality Reporting (IQR) Program as a condition for receiving 
the full annual payment update increase.
     The proposed implementation of the Hospital Value-Based 
Purchasing Program measures.
     The proposed establishment of hospital readmission 
measures for reporting of hospital quality data.
     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 
2012.
     Proposed payment adjustment for low-volume hospitals.
     Proposal for counting hospice days in the formula for 
determining the payment adjustment for disproportionate share 
hospitals.
     Proposal for making additional payments for qualifying 
hospitals with lowest per enrollee Medicare spending for FY 2012.
     Proposal to clarify ESRD add-on payment requirements based 
on cost report requirements.
     Proposal relating to changes to the reporting requirements 
for pension costs for Medicare cost-finding purposes.
     Proposal to implement statutory change to the hospital 
payment update, including incorporation of a productivity adjustment.
     Discussion of the Rural Community Hospital Demonstration 
Program and a proposal for making a budget neutrality adjustment for 
the demonstration program.
     Discussion of August 2010 interim final rule with comment 
period and further proposed changes relating to the 3-day payment 
window for payments for services provided to outpatients who are later 
admitted as inpatients.
4. Proposed FY 2012 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 2012 and the proposed MS-DRG 
documentation and coding adjustment for FY 2012.
5. 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 certain excluded hospitals. In 
addition, we discussed proposed changes relating to payment for TEFRA 
services furnished under arrangements and payment for ambulance 
services furnished by CAH-owned and operated entities.
6. 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 2012, including the annual update of 
the MS-LTC-DRG classifications and relative weights for use under the 
LTCH PPS for FY 2012 and the proposed rebasing and revising of the 
market basket for LTCHs. In addition, we set forth proposals for 
implementing the quality data reporting program for LTCHs. We also 
proposed to clarify two policies regarding the calculation of the 
average length of stay requirement for LTCHs, and proposed a policy to 
address a LTCH moratorium issue.
7. 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 2012 
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 2012 for certain hospitals excluded 
from the IPPS.
8. 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 2012 
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 amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH 
PPS.
9. 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.
10. 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 2012 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.
11. 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

[[Page 51485]]

and makes recommendations on Medicare payment policies. MedPAC's March 
2011 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 2011 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.

D. Public Comments Received in Response to the FY 2012 IPPS/LTCH PPS 
Proposed Rule

    We received approximately 385 timely pieces of correspondence 
containing multiple comments on the FY 2012 IPPS/LTCH PPS proposed 
rule. We note that some of these public comments were outside of the 
scope of the proposed rule. These out-of-scope public comments are not 
addressed with policy responses in this final rule. Summaries of the 
public comments that are within the scope of the proposed rule and our 
responses to those comments are set forth in the various sections of 
this final rule under the appropriate heading.

E. Finalization of Interim Final Rule With Comment Period on Revisions 
to the Reductions and Increases to Hospitals' FTE Resident Caps for 
Graduate Medical Education Payment Purposes

    On March 14, 2011, we issued in the Federal Register (76 FR 13515) 
an interim final rule with comment period to implement section 203 of 
the Medicare and Medicaid Extenders Act of 2010 (MMEA), Public Law 111-
309, relating to the treatment of teaching hospitals that are members 
of the same Medicare graduate medical education (GME) affiliated groups 
for the purpose of determining possible full-time equivalent (FTE) 
resident cap reductions. We received nine timely pieces of 
correspondence in response this interim final rule with comment period. 
In section IV.R. of this document, we are summarizing and responding to 
these public comments and are finalizing the policies contained in the 
interim final rule with comment period without modification.

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 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

[[Page 51486]]

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 2012, cases will be assigned to 
one of 751 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 28.0), 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

[[Page 51487]]

assignment for certain principal diagnoses. An example is 
extracorporeal shock wave lithotripsy for patients with a principal 
diagnosis of urinary stones. Lithotripsy procedures are not routinely 
performed in an operating room. Therefore, lithotripsy codes are not 
classified as O.R. procedures. However, our clinical advisors believe 
that patients with urinary stones who undergo extracorporeal shock wave 
lithotripsy should be considered similar to other patients who undergo 
O.R. procedures. Therefore, we treat this group of patients similar to 
patients undergoing O.R. procedures.
    Once the medical and surgical classes for an MDC were formed, each 
diagnosis class was evaluated to determine if complications or 
comorbidities would consistently affect hospital resource consumption. 
Each diagnosis was categorized into one of three severity levels. These 
three levels include a major complication or comorbidity (MCC), a 
complication or comorbidity (CC), or a non-CC. Physician panels 
classified each diagnosis code based on a highly iterative process 
involving a combination of statistical results from test data as well 
as clinical judgment. As stated earlier, we refer readers to section 
II.D. of the FY 2008 IPPS final rule with comment period for a full 
detailed discussion of how the MS-DRG system was established based on 
severity levels of illness (72 FR 47141).
    A patient's diagnosis, procedure, discharge status, and demographic 
information is entered into the Medicare claims processing systems and 
subjected to a series of automated screens called the Medicare Code 
Editor (MCE). The MCE screens are designed to identify cases that 
require further review before classification into an MS-DRG.
    After patient information is screened through the MCE and 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 depend 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 2012 proposed 
rule was based on data from the September 2010 update of the FY 2010 
MedPAR file, which contained hospital bills received through September 
30, 2010, for discharges occurring through September 30, 2010. For this 
FY 2012 final rule, our MS-DRG analysis is based on data from the March 
2011 update of the FY 2010 MedPAR file, which contained hospital bills 
received through March 31, 2011, for discharges occurring through 
September 30, 2010.
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

[[Page 51488]]

of recommendations made by MedPAC regarding revisions to the DRG system 
used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 through 
47939; and 72 FR 47140 through 47189). As we noted in the FY 2006 IPPS 
final rule, we had insufficient time to complete a thorough evaluation 
of these recommendations for full implementation in FY 2006. However, 
we did adopt severity-weighted cardiac DRGs in FY 2006 to address 
public comments on this issue and the specific concerns of MedPAC 
regarding cardiac surgery DRGs. We also indicated that we planned to 
further consider all of MedPAC's recommendations and thoroughly analyze 
options and their impacts on the various types of hospitals in the FY 
2007 IPPS proposed rule.
    For FY 2007, we began this process. In the FY 2007 IPPS proposed 
rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 
2008 (if not earlier). Based on public comments received on the FY 2007 
IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007 
IPPS final rule (71 FR 47906 through 47912), we discussed several 
concerns raised by 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, 2010, and 2011, and our proposed and 
final actions for FY 2012 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 2012 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 2012.
    We believe that revisions to the DRG system to better recognize 
severity of illness and changes to the relative weights based on costs 
rather than charges are improving the accuracy of the payment rates in 
the IPPS. We agree with MedPAC that these refinements should be 
pursued. Although we continue to caution that any prospective payment 
system based on grouping cases will always present some opportunities 
for providers to specialize in cases they believe have higher margins, 
we believe that the changes we have adopted and the continuing reforms 
we are proposing to make in this proposed rule for FY 2012 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

[[Page 51489]]

on severity levels of illness (72 FR 47141).

D. FY 2012 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 751 MS-DRGs, which include 4 additional MS-DRGs 
that we are adopting for FY 2012.) By increasing the number of MS-DRGs 
and more fully taking into account patient severity of illness in 
Medicare payment rates for acute care hospitals, MS-DRGs encourage 
hospitals to improve their documentation and coding of patient 
diagnoses.
    In the FY 2008 IPPS final rule with comment period (72 FR 47175 
through 47186), we indicated that the adoption of the MS-DRGs had the 
potential to lead to increases in aggregate payments without a 
corresponding increase in actual patient severity of illness due to the 
incentives for additional documentation and coding. In that final rule 
with comment period, we exercised our authority under section 
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget 
neutrality by adjusting the national standardized amount, to eliminate 
the estimated effect of changes in coding or classification that do not 
reflect real changes in case-mix. Our actuaries estimated that 
maintaining budget neutrality required an adjustment of -4.8 percent to 
the national standardized amount. We provided for phasing in this -4.8 
percent adjustment over 3 years. Specifically, we established 
prospective documentation and coding adjustments of -1.2 percent for FY 
2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010.
    On September 29, 2007, Congress enacted the TMA [Transitional 
Medical Assistance], Abstinence Education, and QI [Qualifying 
Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 
7(a) of Public 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, in the case of underpayments) spending in excess of (or less 
than) spending that would have occurred had the prospective adjustments 
for changes in documentation and coding applied in FY 2008 and FY 2009 
precisely matched the changes that occurred in those years. Public Law 
110-90 requires that the Secretary make these recoupment or repayment 
adjustments for discharges occurring during FYs 2010, 2011, and 2012.
4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
    In order to implement the requirements of section 7 of Public Law 
110-90, we 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

[[Page 51490]]

data and invited public input on our proposed methodology.
    In that proposed rule, we indicated that we intended to measure and 
corroborate the extent of the overall national average changes in case-
mix for FY 2008 and FY 2009. We expected that the two largest parts of 
this overall national average change would be attributable to 
underlying changes in actual patient severity of illness and to 
documentation and coding improvements under the MS-DRG system. In order 
to separate the two effects, we planned to isolate the effect of shifts 
in cases among base DRGs from the effect of shifts in the types of 
cases within base DRGs.
    The MS-DRGs divide the base DRGs into three severity levels (with 
MCC, with CC, and without CC); the previously used CMS DRGs had only 
two severity levels (with CC and without CC). Under the CMS DRG system, 
the majority of hospital discharges had a secondary diagnosis which was 
on the CC list, which led to the higher severity level. The MS-DRGs 
significantly changed the code lists of what was classified as an MCC 
or a CC. Many codes that were previously classified as a CC are no 
longer included on the MS-DRG CC list because the data and clinical 
review showed these conditions did not lead to a significant increase 
in resource use. The addition of a new level of high severity 
conditions, the MCC list, also provided a new incentive to code more 
precisely in order to increase the severity level. We anticipated that 
hospitals would examine the MS-DRG MCC and CC code lists and then work 
with physicians and coders on documentation and coding practices so 
that coders could appropriately assign codes from the highest possible 
severity level. We note that there have been numerous seminars and 
training sessions on this particular coding issue. The topic of 
improving documentation practices in order to code conditions on the 
MCC list was also discussed extensively by participants at the March 
11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. 
Participants discussed their hospitals' efforts to encourage physicians 
to provide more precise documentation so that coders could 
appropriately assign codes that would lead to a higher severity level. 
Because we expected most of the documentation and coding changes under 
the MS-DRG system would occur in the secondary diagnoses, we believed 
that the shifts among base DRGs were less likely to be the result of 
the MS-DRG system and the shifts within base DRGs were more likely to 
be the result of the MS-DRG system. We also anticipated evaluating data 
to identify the specific MS-DRGs and diagnoses that contributed 
significantly to the documentation and coding payment effect and to 
quantify their impact. This step entailed analysis of the secondary 
diagnoses driving the shifts in severity within specific base DRGs.
    In 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), we 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 FY 2010 IPPS/RY 2010 LTCH PPS final rule, we 
updated this analysis with FY 2008 data for claims paid through March 
2009, and we noted that the estimates for all IPPS remained essentially 
the same to those in the proposed rule (42 FR 43770, 43775). Also, 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. We refer readers to 
that final rule for a detailed description of our analysis and prior 
responses to comments.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 
50068), we performed the same analysis for FY 2009 claims data using 
the same methodology as we did for FY 2008 claims. 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 the FY 2011 IPPS/LTCH PPS 
final rule, we updated the analysis with FY 2009 claims paid through 
March 2010, as we discussed in the proposed rule. We note that, for all 
IPPS hospitals, other than those in Puerto Rico, the estimates were 
unchanged from those in the proposed rule. We refer readers to the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50068) for a 
detailed description of our analysis and prior responses to comments. 
The results of the analysis for the FY 2011 proposed and final rules 
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.
5. 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

[[Page 51491]]

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. In the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), we solicited public 
comment on our proposal to make a -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 the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule, in response to public comments, 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, and 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 refer readers to the FY 2010 IPPS/LTCH 
PPS final rule (74 FR 43767 through 43777) for a detailed description 
of our proposal, responses to comments, and finalized policy.
    After analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH 
PPS final rule (75 FR 50057 through 50073), we found a total 
prospective documentation and coding effect of 1.054. After accounting 
for the -0.6 percent and the -0.9 percent documentation and coding 
adjustments in FYs 2008 and 2009, we found a remaining documentation 
and coding effect of 3.9 percent. As we have discussed, an additional 
cumulative adjustment of -3.9 percent would be necessary to meet the 
requirements of section 7(b)(1)(A) of Public Law 110-90 to make an 
adjustment to the average standardized amounts in order to eliminate 
the full effect of the documentation and coding changes on future 
payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section 
7(b)(1)(A) does not specify when we must apply the prospective 
adjustment, but merely requires us to make an ``appropriate'' 
adjustment. Therefore, as we stated in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50061), we believe we have some discretion as to the manner 
in which we apply the prospective adjustment of -3.9 percent. We 
indicated that applying the full prospective adjustment of -3.9 percent 
for FY 2011, in combination with the proposed recoupment adjustment of 
-2.9 percent in FY 2011 (discussed below) would require an aggregate 
adjustment of -6.8 percent. As we discuss elsewhere in this section 
II.D., and more extensively in the FY 2011 IPPS/LTCH PPS final rule, it 
has been our practice to moderate payment adjustments when necessary to 
mitigate the effects of significant downward adjustments on hospitals, 
to avoid what could be widespread, disruptive effects of such 
adjustments on hospitals. As we also discuss below in this section 
II.D., we are required to implement the remaining adjustment in section 
7(b)(1)(B) of Public Law 110-90 no later than the FY 2012 rulemaking 
period, and accordingly, in the FY 2011 IPPS/LTCH PPS proposed rule, we 
proposed a recoupment adjustment under section 7(b)(1)(B) of -2.9 
percent for FY 2011 (75 FR 23870 and 23871). Therefore, we stated that 
we believed it was appropriate to not implement any or all of the -3.9 
percent prospective adjustment in FY 2011. Accordingly, we did not 
propose a prospective adjustment under section 7(b)(1)(A) of Public Law 
110-90 for FY 2011 (75 FR 23868 through 23870) for FY 2011. We note 
that, as a result, payments in FY 2011 (and in each future year until 
we implement the requisite adjustment) would be 3.9 percent higher than 
they would have been if we had implemented an adjustment under section 
7(b)(1)(A) of Public Law 110-90. Our actuaries estimate that this 3.9 
percentage point increase will result in an aggregate payment of 
approximately $4 billion. We also noted that payments in FY 2010 were 
also expected to be 3.9 percent higher than they would have been if we 
had implemented an adjustment under section 7(b)(1)(A) of Public Law 
110-90, which our actuaries estimated increased aggregate payments by 
approximately $4 billion in FY 2010.
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25803 and 25804), 
we indicated that because further delay of this prospective adjustment 
will result in a continued accrual of unrecoverable overpayments, it 
was imperative that we proposed a prospective adjustment for FY 2012, 
while recognizing CMS' continued desire to mitigate the effects of any 
significant downward adjustments to hospitals. Therefore, we proposed a 
-3.15 percent prospective adjustment to the standardized amount to 
partially eliminate the full effect of the documentation and coding 
changes on future payments. Due to the offsetting nature of the 
remaining recoupment adjustment under section 7(b)(1)(B) of Public Law 
110-90 (described below in section II.D.6. of this preamble), and after 
considering other payment adjustments to FY 2012 rates proposed 
elsewhere within the proposed rule, we indicated that we believe the 
proposed -3.15 percent adjustment would allow for a significant 
reduction in potential unrecoverable overpayments, yet would maintain a 
comparable adjustment level between FY 2011 and FY 2012, reflecting the 
applicable percentage increase with a documentation and coding 
adjustment. We stated that we recognize that an additional adjustment 
of -0.75 (3.9 minus 3.15) percent would be required in future rule 
making to complete the necessary -3.9 adjustment to meet CMS' statutory 
requirement under section 7(b)(1)(A) of Public Law 110-90. In the 
proposed rule, we indicated that we were not at that time proposing a 
timeline to implement the remainder of this prospective adjustment.
6. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 
7(b)(1)(B) of Public Law 110-90
    As discussed in section II.D.1. of this preamble, section 
7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an 
adjustment to the standardized amounts under section 1886(d) of the Act 
to offset the estimated increase or decrease in aggregate payments for 
FY 2008 and FY 2009 (including interest) resulting from the difference 
between the estimated actual documentation and coding effect and the 
documentation and coding adjustments applied under section 7(a) of 
Public Law 110-90. This determination must be based on a retrospective 
evaluation of claims data.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule with comment period 
(74 FR 43773), we estimated 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, 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 in FY 2008. 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. In the FY 2010 IPPS/RY 2010 LTCH PPS

[[Page 51492]]

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 performed a retrospective 
evaluation of the FY 2009 claims data. In response to public 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 recover 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 expected to address this issue in the FY 2011 
rulemaking. We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (74 FR 43767 through 43777) for a detailed description of our 
proposal, responses to comments, and finalized policy.
    As we indicated in the FY 2011 IPPS/LTCH PPS 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 
adjustments 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 (1.9 plus 3.9) percentage 
points. Our actuaries estimated that this 5.8 percentage point increase 
resulted in an increase in aggregate payments of approximately $6.9 
billion. In the FY 2011 IPPS/LTCH PPS final rule, we noted that there 
may be a need to actuarially adjust the recoupment adjustment to 
accurately reflect accumulated interest. Therefore, we determined that 
an aggregate adjustment of -5.8 percent in FYs 2011 and 2012, subject 
to actuarial adjustment to reflect accumulated interest, would be 
necessary in order to meet the requirements of section 7(b)(1)(B) of 
Public Law 110-90 to adjust the standardized amounts for discharges 
occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount 
of the increase in aggregate payments (including interest) in FYs 2008 
and 2009. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23871), we 
stated that we intended 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.
    It is often our practice to phase in rate adjustments over more 
than one year in order to moderate the effect on rates in any one year. 
Therefore, consistent with the policies that we have adopted in many 
similar cases, in the FY 2011 IPPS/LTCH PPS 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 would allow us to moderate the effects on 
hospitals in one year while simultaneously making it possible to 
implement the entire adjustment within the timeframe required under 
section 7(b)(1)(B) of Public Law 110-90 (that is, no later than FY 
2012).
    Unlike the permanent prospective adjustment to the standardized 
amounts under section 7(b)(1)(A) of Public Law 110-90 described 
earlier, the recoupment adjustment to the standardized amounts under 
section 7(b)(1)(B) of Public Law 110-90 is not cumulative, and, 
therefore, would be removed for subsequent fiscal years once we have 
completely offset the increase in aggregate payments for discharges for 
FY 2008 and FY 2009 expenditures. In keeping with our practice of 
moderating payment adjustments when necessary, we stated that we 
anticipated that the proposal of phasing in the recoupment adjustment 
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.
    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 received numerous 
comments on our proposal, especially from national and regional 
hospital associations, hospital systems, and individual hospitals. 
MedPAC also commented on our proposal. We refer readers to the FY 2011 
IPPS/LTCH PPS final rule with comment period (75 FR 50055 through 
50073) for a detailed description of our analysis and prior responses 
to comments, and finalized policy.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 
50068), we finalized the proposed adjustment to the standardized amount 
of -2.9 percent, which represented approximately half of the aggregate 
recoupment adjustment required under section 7(b)(1)(B) of Public Law 
110-90, for FY 2011. We were persuaded by both the MedPAC's analysis, 
and our own review of the methodologies recommended by various 
commenters, that the methodology we employed to determine the required 
recoupment adjustment was sound. Since the statute required that we 
implement the entire recoupment adjustment no later than FY 2012, 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. As we stated in prior rulemaking, a major advantage of making the 
-2.9 percent adjustment to the standardized amount in FY 2011 was that, 
because the required recoupment adjustment is not cumulative, we 
anticipated removing the FY 2011 -2.9 percent adjustment from the rates 
(in other words, making a positive 2.9 percent adjustment to the rates) 
in FY 2012, at the same time that the law required us to apply the 
remaining approximately -2.9 percent adjustment required by section 
7(b)(1)(B) of Public Law 110-90. 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 of these two steps would be an aggregate 
adjustment of approximately 0.0 percent. While we stated in the FY 2011 
IPPS/LTCH PPS final rule the need to potentially adjust the remaining -
2.9 percent estimate to account for accumulated interest, our actuaries 
have determined that there has been no significant interest 
accumulation and that no additional adjustment will be required. 
Therefore, for FY 2012, pursuant to the timeframes set forth by section 
7(b)(1)(B) of Public Law 110-90, and consistent with the discussion in 
the FY 2011 IPPS/LTCH PPS final rule, we proposed to complete the 
recoupment adjustment by implementing the remaining -2.9 percent 
adjustment, in addition to removing the effect of the -2.9 percent 
adjustment to the standardized amount finalized for FY 2011. Because 
these adjustments will, in effect, balance out, there will be no year-
to-year change in the standardized amount due to this recoupment 
adjustment. As this

[[Page 51493]]

adjustment will complete the required recoupment for overpayments due 
to documentation and coding effects on discharges occurring in FYs 2008 
and 2009, we anticipate removing the effect of this adjustment by 
adding 2.9 percent to the standardized amount in FY 2013. We continue 
to believe that this is a reasonable and fair approach that satisfies 
the requirements of the statute while substantially moderating the 
financial impact on hospitals.
    Comment: One commenter, MedPAC, reiterated its general support for 
the methodology used by our actuaries to estimate the magnitude of 
documentation and coding effect on IPPS payments due to the adoption of 
the MS-DRG system. In its letter, MedPAC explained that the methodology 
used by our actuaries ``is akin to comparing two sets of payments: What 
payments actually were in fiscal year 2009 under the 2009 MS-DRGs and 
relative weights; and what payments would have been in 2009 if MS-DRGs 
had not been adopted and CMS had continued to use the prior (2007) CMS 
DRGs and weights.'' MedPAC noted that by taking the difference between 
these two sets of payments, the methodology is designed to capture 
``the new GROUPER's interaction with how hospitals changed their 
documentation and coding. After the adoption of MS-DRGs in 2008, 
hospitals switched from recording general descriptions of patients' 
chronic conditions--which no longer affect payments under MS-DRGs--to 
recording the specific acute manifestations of patients' chronic 
conditions, which trigger higher payments under MS-DRGs. However, the 
same changes in diagnosis documentation and coding have little or no 
effect on the CMI measured using the 2007 CMS-DRGs and weights. This is 
because in that version of the GROUPER, both acute manifestations of 
chronic conditions and general descriptions of chronic conditions 
trigger higher payments. In contrast, when hospitals had little 
incentive to change documentation and coding--in 2007, for example--the 
two CMIs are approximately equal.''
    Consistent with its comments in prior years, MedPAC's comment noted 
that its analysis of Medicare hospital inpatient claims for 2007-2009 
yielded similar estimates of the documentation and coding effect. 
MedPAC concluded that ``CMS would need to reduce IPPS payments 
temporarily by 5.8 percent to recover overpayments that occurred in 
2008 and 2009. CMS also expected that overpayments equal to 3.9 percent 
of annual IPPS payments would continue through 2010, 2011, and future 
years until CMS makes a prospective offsetting adjustment (-3.9 
percent) to the IPPS payments rates.''
    MedPAC's comment described potential circumstances in which the 
methodology used both by our actuaries and MedPAC could overestimate 
the documentation and coding effect, noting that these possible 
circumstances ``could cause only a small change in the estimated effect 
of documentation changes.''
    MedPAC stated, ``In response to the new MS-DRGs, hospitals had an 
incentive to report diagnoses that count as CCs in the new system. 
MedPAC's argument is that hospitals may also have stopped reporting 
diagnoses that counted as CCs in the old system, but do not count in 
the new one.'' In short, MedPAC argued that the disappearance of the 
general chronic condition codes could have caused the CMIs based on the 
old FY 2007 GROUPER and weights to be understated in FYs 2008 and 2009. 
Thus, because CMIs based on the 2007 GROUPER and weights are the 
denominators of the documentation change estimates, understatement 
would bias the estimates upward. However, understatement would occur 
only to the extent that hospitals, when coding: (1) Did not replace 
such general chronic condition codes with corresponding acute 
manifestation codes and (2) the patient had no other secondary 
diagnosis code that qualified as a CC in the old GROUPER and are now 
CCs or MCCs under the MS-DRGs.
    MedPAC's analysis concluded that the maximum possible effect of 
this potential overestimation is 0.36 percent, and ``that total 
overpayments due to documentation changes in 2008 and 2009 may have 
ranged from 5.1 to 5.8 percent of IPPS payments ($6.0 to $6.9 
billion).''
    MedPAC recommended that CMS slow the pace of the payment 
adjustments so that hospitals would receive a net 1 percent update in 
FY 2012, as it recommend in its March 2011 Report to Congress. 
Furthermore, MedPAC stated that legislation should be enacted to 
require the Secretary of Health and Human Services to adjust payments 
further to recover all overpayments that have occurred or will occur in 
FYs 2010, 2011, and 2012 because the prospective adjustment was not 
completed. MedPAC asserted that:
    ``To allow payments to increase due to documentation and coding 
changes would undermine Congressional policy on updates. If Congress 
wants more money to flow into the hospital sector, a higher update is 
the appropriate mechanism, not cumulative changes in documentation and 
coding. Indeed, allowing those changes to increase hospital payments 
through the back door could eventually discourage needed refinements to 
the case-mix system in a tight budget era. In other words, if more 
money inevitably leaks into the system every time case-mix is refined, 
then there may be pressure to stop refining. That would lead to 
inequities for both providers and patients.''
    Response: We appreciate MedPAC's analysis and continued support of 
the methodology used to determine the documentation and coding effect, 
and we agree that this methodology appropriately isolates the 
documentation and coding effect from real case-mix. With the exception 
of the possible overstatement described above, we note that MedPAC's 
analysis yielded results similar to CMS' determination of the 
documentation and coding effect. Based on our evaluation of FY 2008 and 
FY 2009 claims, we continue to believe that $6.9 billion dollars in 
overpayments were made during the period of FY 2008 and 2009. We 
estimate that a recoupment adjustment totaling 5.8 percent is necessary 
to recover these overpayments, and that operating IPPS rates are 
currently overstated by 3.9 percent. We also note that section 
7(b)(1)(B) of the TMA requires the agency to recover these overpayments 
by FY 2012 and that section 7(b)(1)(A) of the TMA requires the agency 
to adjust rates to ensure that aggregate payments do not continue to be 
overstated.
    With regard to MedPAC's analysis regarding the possible 
overestimate of the documentation and coding effect, we note that 
MedPAC characterized the potential effect as ``small'' and provided no 
corroborating analysis or specific examples of when this scenario may 
have occurred. We consulted with our medical coding experts and were 
unable to identify specific examples to support MedPAC's hypothesis. We 
note that MedPAC stated in its comment letter that the potential for 
overestimation exists only to the extent that ``hospitals (1) did not 
replace such general chronic condition codes with corresponding acute 
manifestation codes and (2) the patient had no other secondary 
diagnosis code that qualified as a CC in the old grouper.'' We reviewed 
coding changes that occurred during the transition to MS-DRGs and were 
able to identify codes that would result in a CC prior to MS-DRGs but 
would not result in a CC in the MS-DRG system. However, we were unable 
to identify an instance where this would necessarily result in a lower 
MS-DRG assignment because more specific codes were

[[Page 51494]]

developed to support the more refined MS-DRG system and we would expect 
hospitals to use the more specific codes. For instance, congestive 
heart failure was a CC under CMS DRGs, but is not a CC under MS-DRGs. 
Under MS-DRGs, we started requiring more specific information on the 
type of heart failure in order to count this as a CC or MCC. Generally, 
under the MS-DRG system, the ``unspecified'' codes in a category no 
longer result in CCs.
    We did not receive any other public comments regarding MedPAC's 
statements that we may have overestimated the effect of the 
documentation and coding by considering cases grouped under the MS-DRG 
system as having a higher severity due to being coded without 
appropriate CCs under the pre-MS-DRG system.
    At this time, we believe it would not be appropriate to revise our 
estimates based solely on MedPAC's analysis without knowing of any 
specific examples of the scenario described above. Without this 
information, we cannot determine whether there was a sufficient volume 
of cases to cause a potential documentation and coding overestimate. 
However, we welcome specific examples from the public to possibly 
inform future rulemaking.
    We acknowledge MedPAC's recommendation to provide hospitals with a 
net 1 percent update. As noted above, the comment restates MedPAC's 
recommendation from its March 2011 Report to Congress. We address this 
issue below in our response to comments by the provider community that 
expressed concern regarding the impact of various payment adjustments 
on hospitals.
    We also acknowledge MedPAC's request that additional statutory 
authority be granted to the Secretary of Health and Human Services to 
recover overpayments made during subsequent fiscal years.
    Lastly, we agree with MedPAC that it is important to continue 
refining the methodology of how case mix is measured to ensure payment 
accuracy. We note that in this final rule we discuss potential 
refinements to the MS-DRG relative weight system, and CMS' active 
engagement in implementing the ICD-10 system. These discussions 
illustrate the efforts the agency is undertaking to improve the ability 
to measure case mix precisely and to pay hospitals for inpatient 
services more accurately.
    Comment: Most commenters, including national hospital associations, 
continued to acknowledge that there were documentation and coding 
increases in FY 2008 and FY 2009 that were in excess of the statutory 
0.6 percent and 0.9 percent adjustments specified in section 7(a) of 
the TMA. However, as in prior rulemakings on this issue, most 
commenters again questioned the methodology employed by MedPAC and our 
actuaries to determine the magnitude of the excess.
    We also received Congressional correspondence from numerous members 
of Congress stating that hospitals had expressed concerns regarding the 
CMS Actuary's methodology and requesting that CMS ensure that its 
methodology accurately reflects changes in patient severity prior to 
finalizing adjustments for documentation and coding in response to 
hospitals' concerns. Specifically, the correspondence suggested that 
CMS could consider alternative methodologies for estimating the effect 
of documentation and coding, including trend-based analysis and chart 
abstraction.
    Several commenters stated that historical case mix trend is 
inconsistent with our estimate of the effect of the FY 2008 and FY 2009 
documentation and coding changes due to the implementation of the MS-
DRGs. One commenter stated ``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 cumulative 
documentation and coding effect of 3.6 percent for FYs 2008 and 2009, 
as opposed to the 5.4 percent that CMS found.''
    Several commenters submitted an historical case-mix trend analysis 
last year, which showed a documentation and coding effect of 2.3 
percent. An analysis submitted by the same commenters this year showed 
a cumulative documentation and coding increase through FY 2009 of 3.6 
percent. The commenters revised their analysis to respond to CMS 
comments made in last year's rule. Specifically, the national hospital 
associations stated that, ``This year we make several modifications to 
that trend-based analysis to respond to CMS' critiques as enumerated in 
the FY 2011 inpatient PPS final rule. Given that we have addressed the 
agency's concerns, we are hopeful that it will give our methodology 
fresh consideration.'' One hospital association also pointed out that 
CMS included an assumption regarding real case-mix growth in the 
adjustment for ``changes in case-mix'' in the capital update framework 
at Sec.  412.308(c)(1)(ii) and suggested that the estimate made by our 
actuaries regarding documentation and coding be reduced by this 
assumption in order to maintain consistency with the capital update 
framework.
    Commenters also examined the methodology used by our actuaries and 
MedPAC using index number theory. As stated by these commenters, ``the 
relative case weights in a given grouper are like relative prices in a 
price index calculation (in fact they are relative prices for the 
different MS-DRGs) and the quantities of discharges in various MS-DRGs 
are like the quantities of goods in the price index calculation.'' 
Commenters claimed that, based on index number theory, the methodology 
employed by MedPAC and our actuaries can only provide upper and lower 
bounds of the combined effect of documentation and coding and real 
case-mix change. MedPAC, however, indicated that knowledge of the 2007 
MS-DRG GROUPER, the new MS-DRG GROUPER, historical documentation of 
patients' diagnoses, and the changes CMS made when it created the MS-
DRGs can be used to narrow the range of the potential documentation and 
coding effect as described above, although they noted that these 
``could cause only a small change in the estimated effect of 
documentation changes.''
    As in past years, several commenters indicated that CMS should use 
medical records data to distinguish documentation and coding changes 
from real case-mix changes. MedPAC disagreed with the commenters' 
rationale that the use of medical records data could determine the 
effect of both documentation and coding, and stated the following: 
``Gold-standard coders, however, only see the diagnoses written in the 
record and therefore are not able to distinguish changes in 
documentation from real changes in patients' diagnoses. This method of 
recoding existing documentation only works in situations where 
hospitals have no incentive to change documentation. That is clearly 
not the case with the transition to MS-DRGs.''
    Response: We disagree that the new analysis presented by the 
national hospital associations has addressed our concerns with the use 
of a trend analysis to determine the documentation and coding increase 
when a more direct measurement of the relevant increase can be obtained 
using our proposed methodology. In last year's rule, we expressed 
several concerns with regard to the use of a trend analysis, stating, 
``We believe that the determination of an appropriate

[[Page 51495]]

historical trend is less straightforward than our methodology, which, 
as described above, simply removes real case-mix growth from the 
calculation'' (75 FR 50066). While we pointed out certain analytical 
flaws in the trend analysis used last year (for a full discussion, we 
refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50065 
through 50066)), we did not state the correction of those flaws would 
yield a better documentation and coding estimate than the direct 
estimate obtained under our proposed methodology. In fact, we noted 
that ``changes in case-mix do not necessarily follow a consistent 
pattern over time.'' MedPAC provided analysis in its comment letter 
which supported CMS' position. MedPAC's analysis demonstrated that CMI 
growth was modest at best, never exceeding plus or minus 1 percent the 
decade prior to the introduction of MS-DRGs, and in some years was 
negative.
[GRAPHIC] [TIFF OMITTED] TR18AU11.000

    The national hospital associations' most significant response to 
our critique of their previous analysis in the FY 2011 IPPS/LTCH PPS 
final rule was to expand the time period upon which its trend analysis 
is based to include years where there were sustained negative changes 
in actual CMI. This raised their estimate of documentation and coding 
from 2.3 percent to 3.6 percent. We believe that this increase 
demonstrates the variability in the estimates that can be obtained 
using trend analyses. We also stated in last year's final rule that 
``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 the 
MedPAC, if an appropriate historical trend can be determined.''
    We reiterate our concerns with the use of historical trends to 
determine documentation and coding this year, and we do not believe 
that the modifications to the commenters' analysis address all of these 
concerns. In particular, we agree with MedPAC that ``absent changes in 
documentation and coding and the shift away from inpatient surgeries, 
real changes in the CMI in 2008 through 2010 would be completely 
consistent with historical CMI changes since 2001.'' In performing its 
analysis, MedPAC adjusted for changes in the share of cases with 
surgery, share of cases with CCs, and the estimated effects of changes 
in documentation and coding. MedPAC summarized the results of its 
analysis in the following graph.

[[Page 51496]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.001

    In summary, with respect to trend analysis, we continue to believe 
that the determination of an appropriate historical trend is less 
straightforward than our proposed methodology, which simply removes 
real case-mix growth from the calculation. In addition, the estimates 
obtained using our proposed methodology are consistent with the 
historical case-mix growth, as demonstrated by MedPAC.
    We also disagree with commenters who stated that the methodology 
employed by MedPAC and our actuaries can only provide upper and lower 
bounds of the combined effect of documentation and coding and real 
case-mix change and cannot separate documentation and coding effects 
from real case-mix change. While MedPAC recognized that the potential 
for a range of estimates may exist, MedPAC disagreed with the 
conclusion that index number theory, as described above, should be used 
to determine this range. MedPAC stated that ``in this instance at 
least, the estimated range between the lower and upper bounds based on 
this approach is so wide that the estimates are useless for policy 
making.'' We agree with MedPAC that the wide range resulting from an 
index number theory approach renders such an approach useless in this 
context.
    In response to commenters' support for using hospital records to 
distinguish documentation and coding effect from real case-mix changes, 
we agree with MedPAC's rationale that such an analysis would fail to 
capture changes in documentation. MedPAC stated: ``In our view, this 
approach does not work. The reason is that hospitals had an incentive 
to persuade attending physicians to be more specific in describing 
patients' acute manifestations of chronic conditions in their medical 
records. Some hospitals hired documentation specialists with the goal 
of changing physicians' medical record documentation, not simply to do 
a better job of coding what they wrote in the record (Hahey 2008). 
Gold-standard coders, however, only see the diagnoses written in the 
record and therefore are not able to distinguish changes in 
documentation from real changes in patients' diagnoses. This method of 
recoding existing documentation only works in situations where 
hospitals have no incentive to change documentation. That is clearly 
not the case with the transition to MS-DRGs. Thus, a very important 
part of the effect of changes in documentation and coding cannot be 
detected by the proposed method.''
    We also note that as one part of our initial documentation and 
coding analysis, we attempted to examine coding changes based on 
hospital chart data from the Medicare Clinical Data Abstraction Center 
(CDAC). However, as we described in the FY 2010 IPPS/LTCH PPS final 
rule, it was not possible to perform this analysis due to aberrant CDAC 
data. We stated, ``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-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.'' (74 FR 43769)
    Finally, we disagree with the commenters' suggestion that the 
assumptions in the capital update framework should be applied in our 
actuaries' estimate of documentation and coding, because the capital 
update framework is intended for projection purposes and would be 
inappropriate to use as a proxy for historical trends.
    After careful consideration of all of the public comments we 
received, including alternatives suggested by commenters, we remain 
confident in the accuracy of our methodology and its appropriateness in 
determining the required adjustment amounts.
    Comment: Numerous commenters expressed concern regarding the 
potentially severe negative fiscal impact that would be experienced by 
providers if the proposed documentation and coding improvement 
adjustment were to

[[Page 51497]]

be implemented. As noted above, MedPAC recommended that CMS reduce its 
proposed -3.15 percent adjustment to be consistent with a net update 
factor of +1.0 percent, as it recommended in its March 2011 Report to 
Congress.
    As noted previously, we also received Congressional correspondence 
from numerous members of Congress that requested CMS to reconsider what 
would be an appropriate adjustment to hospital payments and also 
requested that CMS reexamine its methodology. This correspondence noted 
that hospitals would experience payment reductions if the proposed rule 
were finalized without modification and further stated that hospitals 
needed ``adequate Medicare reimbursement to ensure that patients and 
communities receive the care they need.''
    Response: We recognize the concerns regarding possible financial 
disruption that may be caused by the proposed documentation and coding 
improvement payment adjustment. We note, however, that these payment 
adjustments are necessary to correct past overpayments due solely to 
documentation and coding improvements. We have already delayed 
implementation of the required prospective adjustment amount, and we 
proposed only a portion of the remaining required adjustment to allow 
hospitals time to adjust to future payment differences and to moderate 
the effect of this adjustment in any given year. We are required under 
section 7(b)(1)(B) of the TMA to complete the remaining one-time -2.9 
percent recoupment adjustment for FY 2008 and FY 2009 overpayments in 
FY 2012, and we believe the impact of completing this adjustment to be 
reasonable considering it will be completely offset by removing the FY 
2011 recoupment adjustment by placing a +2.9 percent adjustment back to 
the standardized amount. In FY 2013, a positive +2.9 percent adjustment 
will be made, completing the recoupment process.
    In the proposed rule, we stated it was imperative that CMS make a 
significant prospective adjustment amount in FY 2012 to prevent the 
accumulation of unrecoverable overpayments. As stated in previous 
responses to comments, we remain confident in the accuracy of the 
overall methodology and its appropriateness in determining the required 
adjustment amount. However, after consideration of the public comments, 
and in keeping with our longstanding policy to mitigate, when possible, 
the effects of significant downward adjustments on hospitals, we are 
finalizing a prospective adjustment of -2.0 percent, which is a 
reduction from our proposed adjustment of -3.15 percent. We note that 
this adjustment will result in a total update of +1.0 percent, in 
accordance with MedPAC's recommendation in its March 2011 Report to 
Congress for hospitals that report quality data consistent with the 
requirements of the Hospital IQR Program. Specifically, as discussed 
elsewhere in this final rule, the applicable percentage increase for FY 
2012 is +1.9 percent (based on a market basket of +3.0 percent, a 
multifactor productivity adjustment of -1.0 percentage point, and a 
statutory adjustment of -0.1 percentage point in accordance with 
section 3401 of the Affordable Care Act). When combined with the +1.1 
adjustment in light of Cape Cod v. Sebelius, 630 F.3d 203 (D.C. Cir. 
2011) discussed elsewhere in this final rule, the applicable percentage 
increase of +1.9 percent and this proposed prospective adjustment of -
2.0 percent results in a net total update of +1.0 percent, prior to 
additional adjustments for budget neutrality and other policy 
adjustments. We believe that this level of adjustment will help to 
minimize year to year volatility in payment rates due to the required 
documentation and coding adjustment. As we stated in the proposed rule, 
our analysis found that a prospective adjustment of -3.9 percent 
continues to be necessary. Because we are making a -2.0 percent 
prospective adjustment for FY 2012, a remaining prospective of 
adjustment of -1.9 percent will be necessary. While we are not at this 
time stating when we will make the remaining required -1.9 percent 
prospective adjustment, we consider it feasible to make all or most of 
the adjustment in FY 2013, when a +2.9 percent adjustment will be 
factored into rates to offset the one-time FY 2012 recoupment 
adjustment.
    The table below summarizes the adjustments for FY 2012 for 
documentation and coding for IPPS hospitals.

                                                   FY 2012 MS-DRG Documentation and Coding Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Remaining
                                                        Required         required                        Prospective       Recoupment       Remaining
                                                      prospective       recoupment    Total remaining   adjustment for   adjustment to     prospective
                                                     adjustment for   adjustment for     adjustment        FY 2012          FY 2012         adjustment
                                                     FYs 2008-2009    FYs 2008-2009                                         payments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Level of Adjustments..............................           -3.9%            -2.9%            -6.8%            -2.0%            -2.9%            -1.9%
--------------------------------------------------------------------------------------------------------------------------------------------------------

7. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on 
whichever of the following rates yields the greatest aggregate payment: 
The Federal rate; the updated hospital-specific rate based on FY 1982 
costs per discharge; the updated hospital-specific rate based on FY 
1987 costs per discharge; the updated hospital-specific rate based on 
FY 1996 costs per discharge; or the updated hospital-specific rate 
based on FY 2006 costs per discharge. Under section 1886(d)(5)(G) of 
the Act, MDHs are paid based on the Federal national rate or, if 
higher, the Federal national rate plus 75 percent of the difference 
between the Federal national rate and the updated hospital-specific 
rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs 
per discharge. 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

[[Page 51498]]

rescinded the application of the documentation and coding adjustment to 
the hospital-specific rates retroactive to October 1, 2007. In that 
final rule, we indicated that, while we still believe it would be 
appropriate to apply the documentation and coding adjustment to the 
hospital-specific rates, upon further review, we decided that the 
application of the documentation and coding adjustment to the hospital-
specific rates is not consistent with the plain meaning of section 
1886(d)(3)(A)(vi) of the Act, which only mentions adjusting ``the 
standardized amount'' under section 1886(d) of the Act and does not 
mention adjusting the hospital-specific rates.
    In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that 
we continued to have concerns about this issue. Because hospitals paid 
based on the hospital-specific rate use the same MS-DRG system as other 
hospitals, we believe they have the potential to realize increased 
payments from documentation and coding changes that do not reflect real 
increases in patient severity of illness. In section 1886(d)(3)(A)(vi) 
of the Act, Congress stipulated that hospitals paid based on the 
standardized amount should not receive additional payments based on the 
effect of documentation and coding changes that do not reflect real 
changes in case-mix. Similarly, we believe that hospitals paid based on 
the hospital-specific rates should not have the potential to realize 
increased payments due to documentation and coding changes that do not 
reflect real increases in patient severity of illness. While we 
continue to believe that section 1886(d)(3)(A)(vi) of the Act does not 
provide explicit authority for application of the documentation and 
coding adjustment to the hospital-specific rates, we believe that we 
have the authority to apply the documentation and coding adjustment to 
the hospital-specific rates using our special exceptions and adjustment 
authority under section 1886(d)(5)(I)(i) of the Act. The special 
exceptions and adjustment provision authorizes us to provide ``for such 
other exceptions and adjustments to [IPPS] payment amounts * * * as the 
Secretary deems appropriate.'' In the FY 2009 IPPS final rule (73 FR 
48448 through 48449), we indicated that, for the FY 2010 rulemaking, we 
planned to examine our FY 2008 claims data for hospitals paid based on 
the hospital-specific rate. We further indicated that if we found 
evidence of significant increases in case-mix for patients treated in 
these hospitals that do not reflect real changes in case-mix, we would 
consider proposing application of the documentation and coding 
adjustments to the FY 2010 hospital-specific rates under our authority 
in section 1886(d)(5)(I)(i) of the Act.
    In response to public comments received on the FY 2009 IPPS 
proposed rule, we stated in the FY 2009 IPPS final rule that we would 
consider whether such a proposal was warranted for FY 2010. To gather 
information to evaluate these considerations, we indicated that we 
planned to perform analyses on FY 2008 claims data to examine whether 
there has been a significant increase in case-mix for hospitals paid 
based on the hospital-specific rate. If we found that application of 
the documentation and coding adjustment to the hospital-specific rates 
for FY 2010 was warranted, we indicated that we would propose to make 
such an adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule.
8. Documentation and Coding Adjustment to the Hospital-Specific Rates 
for FY 2011 and Subsequent Fiscal Years
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and final rule 
(74 FR 24098 through 24100 and 74 FR 43775 through 43776, 
respectively), we discussed our retrospective evaluation of the FY 2008 
claims data for SCHs and MDHs using the same methodology described 
earlier for other IPPS hospitals. We found that, independently for both 
SCHs and MDHs, the change due to documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2008 slightly exceeded the proposed 2.5 percent result discussed 
earlier for other IPPS hospitals, but did not significantly differ from 
that result. We refer readers to those rules for a more complete 
discussion.
    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 this proposal. 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. We 
refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule for a 
more detailed discussion of our proposal, responses to comments, and 
finalized policy.
    As we have noted previously, because SCHs and MDHs use the same MS-
DRG system as all other IPPS hospitals, we believe they have the 
potential to realize increased payments from documentation and coding 
changes that do not reflect real increases in patient severity of 
illness. Therefore, we believe they should be equally subject to a 
prospective budget neutrality adjustment that we are applying for 
adoption of the MS-DRGs to all other hospitals. We believe the 
documentation and coding estimates for all subsection (d) hospitals 
should be the same. While the findings for the documentation and coding 
effect for all IPPS hospitals are similar to the effect for SCHs and 
slightly different to the effect for MDHs, we continue to believe that 
this is the appropriate policy so as to neither advantage or 
disadvantage different types of providers. As we discuss in section 
II.D.4. of this preamble, our best estimate, based on the most recently 
available data, is that a cumulative adjustment of -5.4 percent is 
required to eliminate the full effect of the documentation and coding 
changes on future payments to SCHs and MDHs. Unlike the case of 
standardized amounts paid to IPPS hospitals, prior to FY 2011, we had 
not made any previous adjustments to the hospital-specific rates paid 
to SCHs and MDHs to account for documentation and coding changes. 
Therefore, the entire -5.4 percent recoupment adjustment needed to be 
made, as opposed to a -3.9 percent remaining adjustment for IPPS 
hospitals.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50068 through 
50071), we made an adjustment to the standardized

[[Page 51499]]

amount for IPPS hospitals of -2.9 percent under section 7(b)(1)(B) of 
Public Law 110-90, for FY 2011. As we noted in the FY 2011 IPPS/LTCH 
PPS final rule, 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. Therefore, we finalized a 
prospective adjustment of -2.9 percent to the hospital-specific rates 
paid to SCHs and MDHs. We refer readers to the FY 2011 IPPS/LTCH PPS 
final rule for a more detailed discussion of our proposal, responses to 
comments, and finalized policy.
    As discussed earlier in this section II.D., in the FY 2012 IPPS/
LTCH PPS proposed rule, we proposed a net -3.15 percent documentation 
and coding adjustment for IPPS hospitals in FY 2012 (-3.15 percent 
prospective adjustment plus a -2.9 percent recoupment adjustment in FY 
2012, offset by the removal of the -2.9 percent recoupment adjustment 
for FY 2010). The proposed IPPS adjustment exceeded the remaining -2.5 
percent documentation and coding adjustment for hospitals receiving a 
hospital-specific rate (that is, the entire -5.4 percent adjustment, 
minus the -2.9 percent adjustment finalized for FY 2011). As we 
indicated in the FY 2011 IPPS/LTCH PPS proposed rule and final rule, we 
are continuing, as much as possible, consistent with section 7(b)(1) of 
Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such 
consistency and equity into account in developing future proposals for 
implementing documentation and coding adjustments. We believe that any 
adjustment to the hospital-specific rate due to documentation and 
coding effect should be as similar as possible to adjustments to the 
IPPS rate. Accordingly, we proposed a -2.5 percent payment adjustment 
to the hospital-specific rate. We believe that proposing the entire 
remaining prospective adjustment of -2.5 percent would allow CMS to 
maintain, to the extent possible, similarity and consistency in payment 
rates for different IPPS hospitals paid using the MS-DRG. As discussed 
below, we took a similar approach in finalizing an adjustment to the 
Puerto-Rico specific rate in FY 2011.
    Comment: Numerous commenters requested that CMS rescind its 
proposed documentation and coding adjustment for 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 IPPS final rule (73 FR 48448), and the FY 2010 
IPPS/RY 2010 LTCH PPS 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 hospitals have the same financial incentives for documentation and 
coding improvements and the same ability to benefit from the resulting 
change in case-mix, and by recommending 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 multi-year 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 appreciate MedPAC's comments and agree that it is 
appropriate to conclude that hospitals paid under the hospital-specific 
rate have experienced a 5.4-percent increase documentation and coding 
in FYs 2008 and 2009, insofar as these hospitals had the same financial 
incentives to improve documentation and coding in those years as other 
IPPS hospitals. We further agree with MedPAC that it is appropriate to 
focus on minimizing the accumulation of overpayments, and we interpret 
this to mean that MedPAC recommends that CMS move forward as quickly as 
possible with prospective adjustments at an appropriate level. We 
appreciate MedPAC's guidance that ``all hospitals be treated the 
same,'' and stress the importance of consistent treatment of various 
classes of similarly situated hospitals in our payment policy 
determinations.
    We continue to believe that any adjustment to the hospital-specific 
rate due to documentation and coding effect should be as similar as 
possible to adjustments to the standardized amount. Accordingly, 
because we are finalizing a prospective adjustment to the standardized 
amount of -2.0 percent for FY 2012, we are also finalizing a 
prospective adjustment to the hospital-specific rate of -2.0 percent 
for FY 2012, instead of our proposed adjustment of -2.5 percent. Making 
this level of adjustment allows CMS to maintain, for FY 2012, 
consistency in payment rates for different IPPS hospitals paid using 
the MS-DRG. Because this -2.0 percent adjustment no longer reflects the 
entire remaining requirement adjustment amount of -2.5 percent, an 
additional -0.5 percent adjustment to the hospital-specific payment 
rates will be required in future rulemaking.
9. Application of the Documentation and Coding Adjustment to the Puerto 
Rico-Specific Standardized Amount
a. Background
    Puerto Rico hospitals are paid based on 75 percent of the national 
standardized amount and 25 percent of the Puerto Rico-specific 
standardized amount. As noted previously, the documentation and coding 
adjustment we adopted in the FY 2008 IPPS final rule with comment 
period relied upon our authority under section 1886(d)(3)(A)(vi) of the 
Act, which provides the Secretary the authority to

[[Page 51500]]

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 (that is, we made a positive 0.6 
percent adjustment, increasing the 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 to apply 
documentation and coding adjustments to the FY 2010 Puerto Rico-
specific standardized amount under our authority in section 
1886(d)(5)(I)(i) of the Act.
b. Documentation and Coding Adjustment to the Puerto Rico-Specific 
Standardized Amount
    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. 
However, as we noted 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 was 
more or less than our then current estimates, it would change, possibly 
lessen, the anticipated cumulative adjustments that we had estimated 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.
    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 and solicited public comment on the proposed 
-1.1 percent prospective adjustment. However, in parallel to our 
decision to postpone adjustments to the Federal standardized amount, we 
also 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. 
We noted that, as with the hospital-specific rates, the Puerto Rico-
specific standardized amount had not previously been adjusted based on 
estimated changes in documentation and coding associated with the 
adoption of the MS-DRGs.
    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.
    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.
    As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 
through 50073), using the same methodology we applied to estimate 
documentation and coding changes under IPPS for non-Puerto Rico 
hospitals, our best estimate, based on the then most recently available 
data (FY 2009 claims paid through March 2010), was that, for 
documentation and coding that occurred over FY 2008 and FY 2009, a 
cumulative adjustment of -2.6 percent was required to eliminate the 
full effect of the documentation and coding changes on future payments 
from the Puerto Rico-specific rate. As we stated above, we believe it 
important to maintain both consistency and equity among all hospitals 
paid on the basis of the same MS-DRG system. At the same time, however, 
we recognize that the estimated cumulative impact on aggregate payment 
rates resulting from implementation of the MS-DRG system was smaller 
for Puerto Rico hospitals as compared to IPPS hospitals and SCHs and 
MDHs. Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23876), we proposed an adjustment to eliminate the full effect of the 
documentation and coding changes on the portion of future payments to 
Puerto Rico hospitals based on the Puerto Rico-specific rate. We stated 
that we believed that a full prospective adjustment was the most 
appropriate means to take into full account the effect of documentation 
and coding changes on payments, while maintaining equity as much as 
possible between hospitals paid on the basis of different prospective 
rates. We noted that our updated data analysis in the FY 2011 IPPS/LTCH 
PPS final rule (75 FR 50072 through 50073) showed that this adjustment 
would be -2.6 percent. The previous estimate in the proposed rule was a 
-2.4 percent adjustment.
    One reason we proposed the full prospective adjustment for the 
Puerto Rico-specific rate in FY 2011 was to

[[Page 51501]]

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 did not anticipate proposing any additional adjustments to this rate 
for documentation and coding effects.
    Therefore, because the Puerto Rico-specific rate received a full 
prospective adjustment of -2.6 percent in FY 2011, we proposed no 
further adjustment in the proposed rule for FY 2012.

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 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.
2. 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

[[Page 51502]]

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).
3. Summary of Policy Changes Made in FY 2011
    In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48458 through 
48467), in response to the RTI's recommendations concerning cost report 
refinements, 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 refer readers to the 
Web site: http://www.rand.org/pubs/working_papers/WR560/, and the FY 
2009 IPPS/LTCH PPS final rule for details on the RAND report (73 FR 
48453 through 48457).) We acknowledged, as RTI had found, that charge 
compression occurs in several cost centers that exist on the Medicare 
cost report. However, as we stated in the FY 2009 IPPS/LTCH PPS final 
rule, we focused on the CCR for Medical Supplies and Equipment because 
RTI found that the largest impact on the MS-DRG relative weights could 
result from correcting charge compression for devices and implants. In 
determining 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. 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 has been available for use for cost 
reporting periods beginning on or after May 1, 2009.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 
50080), we finalized our proposal to create standard cost centers for 
CT scans, MRI, and cardiac catheterization, and to require that 
hospitals report the costs and charges for these services under new 
cost centers on the revised Medicare cost report Form CMS 2552-10. As 
we discussed in the FY 2009 IPPS/LTCH PPS and CY 2009 OPPS/ASC proposed 
and final rules, RTI found that the costs and charges of CT scans, MRI, 
and cardiac catheterization differ significantly from the costs and 
charges of other services included in the standard associated cost 
center. RTI also concluded that both the IPPS and OPPS relative weights 
would better estimate the costs of those services if CMS were to add 
standard costs centers for CT scans, MRI, and cardiac catheterization 
in order for hospitals to report separately the costs and charges for 
those services and in order for CMS to calculate unique CCRs to 
estimate the cost from charges on claims data. (We refer readers to the 
FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a more 
detailed discussion on the reasons for the creation of standard cost 
centers for CT scans, MRI, and cardiac catheterization.) The new 
standard cost centers for MRI, CT scans, and cardiac catheterization 
are effective for cost report periods beginning on or after May 1, 
2010, on the revised cost report Form CMS-2552-10. CMS issued the new 
hospital cost report Form CMS-2552-10 on December 30, 2010. The new 
cost report form can be accessed at the CMS Web site at: https://www.cms.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=1&sortOrder=ascending&itemID=CMS021935&intNumPerPage=10. 
Once at this Web site, users should double click on ``Chapter 40.''
4. Discussion for FY 2012
    In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48468), we stated 
that, due to what is typically a 3-year lag between the reporting of 
cost report data and the availability for use in ratesetting, we 
anticipated that we might be able to use data from the new 
``Implantable Devices Charged to Patients'' cost center to develop a 
CCR for Implantable Devices Charged to Patients in the FY 2012 or FY 
2013 IPPS rulemaking cycle. Specifically, we stated, ``Because there is 
approximately a 3-year lag between the availability of cost report data 
for IPPS and OPPS rate-setting purposes in a given fiscal year, we may 
be able to derive two distinct CCRs, one for medical supplies and one 
for devices, for use in calculating the FY 2012 or FY 2013 IPPS 
relative weights and the CY 2012 or CY 2013 OPPS relative weights'' (73 
FR 48468). However, as noted in the FY 2010 IPPS/LTCH PPS final rule 
(74 FR 43782), due to delays in the issuance of the revised cost report 
CMS 2552-10, a new CCR for Implantable Devices Charged to Patients may 
not be available until FY 2013. Similarly, when we finalized the 
decision in the FY 2011 IPPS/LTCH PPS final rule to add new cost 
centers for MRI, CT scans, and cardiac catheterization, we explained 
that data from any new cost centers that may be created will not be 
available until at least 3 years after they are first used (75 FR 
50077). That is, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50077), 
we stated that the data from the standard cost centers for MRI, CT 
scans, and cardiac catheterization respectively, 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 further 
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. We also reassured public commenters that there was no need for 
immediate concern regarding possible negative payment impacts on MRI 
and CT scans under the IPPS and the OPPS because the cost report data 
that would be used for the calculation of the relative weights were at 
least 3 years from being available. We stated that we will first 
thoroughly analyze and run impacts on the data and provide the public 
with the opportunity to comment before distinct CCRs for MRI and CT 
scans would be finalized for use in the calculation of the relative 
weights. We also urged 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 (75 FR 50077).
    Accordingly, in preparation for the FY 2012 IPPS/LTCH PPS proposed 
rule, we assessed the availability of data in the ``Implantable Devices 
Charged to Patients'' cost center. In order to develop a robust 
analysis regarding the use of cost data from the ``Implantable Devices 
Charged to Patients'' cost center, it was necessary to have a critical 
mass of cost reports filed with data in this cost center. The cost 
center for ``Implantable Devices Charged to Patients'' is effective for 
cost reporting periods beginning on or after May 1, 2009. While 
developing the FY 2012 IPPS/LTCH PPS proposed rule, we checked the 
availability of FY 2009 cost reports in the December 31, 2010 quarter 
ending update of HCRIS, which was the latest upload of FY 2009 cost 
report data that we could use for the proposed rule. We determined that 
there were only 437 hospitals (out of approximately 3,500 IPPS 
hospitals)

[[Page 51503]]

that completed the ``Implantable Devices Charged to Patients'' cost 
center. We did not believe that this was a sufficient amount of data 
from which to generate a meaningful analysis in this particular 
situation. Therefore, we did not propose to use data from the 
``Implantable Devices Charged to Patients'' cost center to create a 
distinct CCR for Implantable Devices Charged to Patients for use in 
calculating the MS-DRG relative weights for FY 2012. We indicated that 
we would reassess the availability of data for the ``Implantable 
Devices Charged to Patients'' cost center, and the ``MRI, CT Scans, and 
Cardiac Catheterization'' cost centers, for the FY 2013 IPPS rulemaking 
cycle and, if appropriate, we would propose to create a distinct CCR at 
that time.
    Comment: Commenters requested that CMS reconsider its position to 
not use the data from the implantable device cost center to calculate 
the MS-DRG relative weights for FY 2012. The commenter noted that 
during the development of the proposed rule, CMS found that only 437 
hospitals out of approximately 3,500 IPPS hospitals reported data in 
the ``Implantable Devices Charged to Patients'' cost center of the 
Medicare hospital cost report based on the December 2010 update of FY 
2009 HCRIS. One commenter found, while reviewing the March 2011 update 
of FY 2009 HCRIS, that there are approximately 800 hospitals that are 
reporting cost information in the implantable medical device cost 
center.
    Another commenter stated that, based on the December 2010 update of 
FY 2009 HCRIS, 804 hospitals reported data on either line 55 (Medical 
Supplies Charged to Patients) or line 55.30 (Implantable Devices 
Charged to Patients), and in the March 2011 update of FY 2009 HCRIS, 
approximately 1,600 hospitals were reporting data on either of those 
lines. As such, the commenters believed there is now a sufficient 
amount of data to use the implantable device CCR to calculate the 
relative weights and improve accuracy of the payment rates. Commenters 
also noted that if we do not use the implantable device cost center to 
calculate the FY 2012 relative weights, there will be enough data to 
develop an implantable device CCR for FY 2013.
    One commenter suggested that CMS adopt regression-based CCRs to 
calculate the FY 2012 MS-DRG relative weights because CMS does not yet 
have sufficient cost report data to develop the implantable device CCR. 
This would allow CMS to address charge compression immediately and 
improve payment accuracy for medical devices and implantables.
    Response: In the FY 2012 IPPS/LTCH PPS proposed rule, we indicated 
that we did not have sufficient cost report data to develop the kind of 
robust analysis that we assured the public we would provide prior to 
implementing a new CCR for implantable medical devices. Therefore, we 
stated that we will reassess the availability of data for FY 2013. We 
have reviewed the availability of FY 2009 cost reports in the March 31, 
2011 quarter ending update of HCRIS, which is the latest upload of FY 
2009 cost report data that we currently have available. We have 
determined that, for cost reporting periods beginning on or after May 
1, 2009, the effective date of line 55.30 (Implantable Devices Charged 
to Patients), there are 961 hospitals (out of approximately 3,500 IPPS 
hospitals) that have completed the ``Implantable Devices Charged to 
Patients'' cost center. This represents an increase of 524 compared to 
the 437 entries that we found when developing the FY 2012 proposed 
rule. Regardless of the number of hospitals currently reporting data in 
the ``Implantable Devices Charged to Patients'' cost center, the data 
that were available at the time we were developing our proposed 
policies for FY 2012 were insufficient, and we believe it would be 
inappropriate to finalize a specific CCR for implantable devices 
charged to patients for FY 2012 without an opportunity for the public 
to review and comment on our analysis. Rather, we believe that it is 
appropriate to wait until FY 2013, when we hope to be able to provide a 
proper impact analysis of the addition of a CCR for implantable devices 
charged to patients in the relative weights calculation. Accordingly, 
we are not implementing a regression-based CCR for implantable devices 
at this time. Therefore, we are not implementing any new CCRs for use 
in the relative weights calculation for FY 2012.
    Comment: Commenters urged CMS to increase education efforts to 
encourage faster hospital adoption of the use of the implantable 
medical device cost center. Commenters noted that, at the time of the 
development of the FY 2012 IPPS/LTCH PPS proposed rule, only 437 
hospitals had completed the implantable device cost center, and this 
demonstrated that CMS needs to undertake additional outreach to 
hospitals to ensure that they appropriately complete the Medicare 
hospital cost report.
    Response: We agree that it is important that hospitals understand 
how to accurately report data in the ``Implantable Devices Charged to 
Patients'' cost center, and we have worked to add more clarity to the 
cost report instructions. However, we do believe that the December 31, 
2010 update of HCRIS reflected relatively few entries for this cost 
center because the corresponding cost center line was only available 
for use for cost reporting periods beginning on or after May 1, 2009. 
This effective date was somewhat awkward in terms of timing and would 
not have applied to a large number of hospitals whose data would not be 
evident to CMS until the March 31, 2011 update to HCRIS.
    Comment: Commenters suggested that CMS monitor the accuracy of the 
data reported in the implantable device cost center on the Medicare 
hospital cost report. Commenters urged CMS to impress the importance 
upon the Medicare Administrative Contractors (MACs) of establishing a 
mechanism to audit the implantable device cost center to ensure that 
the costs and charges are appropriately reported. One commenter 
suggested that CMS require MACs to require hospitals to explain why 
they had not reported in the implantable device cost center. In 
addition, the commenters suggested that CMS reissue instructions, 
similar to Transmittal 321, dated February 28, 2009, to the MACs with 
recommendations that MACs develop an audit program for line 55 (Medical 
Supplies Charged to Patients) and line 55.30 (Implantable Devices 
Charged to Patients). Commenters noted that potential audit mechanisms 
include identifying the presence of revenue codes 274, 275, 276 and 624 
reported on the PS&R used to settle the cost report, and comparing the 
CCR based on line 55.30 to the CCR based on line 55. In addition, one 
commenter suggested that the cost reporting software be modified to 
create a level 1 error in the case where no data is reported on line 
55.30 (Implantable Devices Charged to Patients) to compel hospitals to 
report that information.
    Response: We agree with the commenters that the cost reporting 
lines, whether they are for Implantable Devices Charged to Patients, 
MRI, CT scans, cardiac catheterization, or any others, should be 
subject to greater audit scrutiny from the Medicare contractors. The 
new Medicare cost report form CMS-2552-10, on line 121 of Worksheet S-
2, Part I, asks ``Did this facility incur and report costs for 
implantable devices charged to a patient? Enter in column 1 ``Y'' for 
yes or ``N'' for no.'' All hospital types, including non-IPPS 
hospitals, CAHs, and Maryland inpatient short-term acute hospitals, are 
required to properly report their costs and charges, and if the answer 
to this question is Y for any type of hospital, then line 72, column 
26, of

[[Page 51504]]

Worksheet B, Part I must be greater than 0, with an accurate amount 
that reflects the hospital's costs for implantable devices charged to 
patients. In addition, we note that a Level 1 edit on the CMS-2552-10 
form already exists that ensures that line 72, column 26, of Worksheet 
B, Part I (Implantable Devices Charged to Patients on Worksheet A of 
the CMS-2552-10 form) is greater than 0 if Worksheet S-2, Part I, line 
121 is ``Y''. The edit is also set up for the reverse scenario; that 
is, if there is an amount on Worksheet B, Part I, line 72, column 26, 
then the response on Worksheet S-2, Part I, line 121 must be ``Y.''
    Comment: Some commenters supported not making major refinements to 
the calculation of MS-DRG relative weights. Commenters valued the 
consistency, transparency, and predictability of the calculation of the 
MS-DRG relative weights.
    Response: We appreciate the commenters' support for our proposal of 
not making major refinements to the MS-DRG relative weights in the 
absence of sufficient data from which to create new CCRs. We also value 
consistency, transparency, and predictability in the calculation of the 
MS-DRG relative weights.
    Comment: One commenter supported our decision to create standard 
cost centers for CT, MRI, and cardiac catheterization for hospitals to 
report their costs and charges on the Medicare hospital cost report. In 
addition, the commenter supported urgently adopting the use of the CT, 
MRI, and cardiac catheterization cost centers in calculating the MS-DRG 
relative weights.
    Response: We appreciate the commenter's support. As we stated in 
the proposed rule, we will reassess the availability of data for the 
``Implantable Devices Charged to Patients'' cost center, and the ``MRI, 
CT Scans, and Cardiac Catheterization'' cost centers, for the FY 2013 
IPPS rulemaking cycle, and, if appropriate, we will propose to create 
distinct CCRs for these cost centers at that time.
    Comment: One commenter noted that allogeneic stem cell acquisition 
charges are reported using revenue code 0819 for ``Other Organ 
Acquisition.'' However, the commenter added, this revenue code is not 
part of the 15 national cost center CCRs used in the calculation of the 
MS-DRG relative weights. In addition, the commenter stated, the 
Medicare hospital cost report does not specifically identify a cost 
center for bone marrow acquisition costs. The commenter requested 
direction on capturing these acquisition costs and how those costs and 
charges are accounted for in the MS-DRG relative weight calculation.
    Response: We appreciate this comment, but note that it is not 
within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS 
proposed rule regarding the calculation of the MS-DRG relative weights. 
However, we also note that allogeneic bone marrow transplant charges 
are included in the 15 CCRs, specifically as part of the Blood and 
Blood Products CCR and that CCR's associated cost centers on the cost 
report.
    Comment: One commenter stated that CMS should specifically exclude 
sleeve gastrectomy charges derived from the Medicare claims data and 
sleeve gastrectomy costs from the Medicare hospital cost report data 
from the MS-DRG weight recalibrations. The commenter noted that CMS 
excludes Medicare claims for services that are non-covered for Medicare 
beneficiaries from the MS-DRG relative weight calculation and, 
therefore, sleeve gastrectomy charges should be excluded. In addition, 
the commenter recommended that CMS remind providers that Medicare cost 
reports should exclude charges and costs associated with the sleeve 
gastrectomy procedure, as it is a noncovered service.
    Response: We appreciate this comment, but note that it is not 
within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS 
proposed rule regarding the calculation of the MS-DRG relative weights. 
We will take this issue into consideration for future rulemaking.
    Comment: One commenter suggested that CMS evaluate the MedPAR 
claims database to ensure that it is not using Medicare managed care 
claims data to calculate the MS-DRG relative weights, as CMS has 
proposed to only use fee-for-service claims to calculate the MS-DRG 
relative weights.
    Response: We appreciate this comment, but note that it is not 
within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS 
proposed rule regarding the calculation of the MS-DRG relative weights. 
However, we note that it is already our policy to exclude managed care 
claims from the MS-DRG relative weights calculation.
    After consideration of the public comments received, we are not 
implementing any new CCRs for use in the relative weights calculation 
for FY 2012.

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

[[Page 51505]]

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 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 these 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.
    This effort is 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-DRG system that took effect in FY 2008 
and that has been refined through rulemaking in subsequent years, 
certain conditions can generate higher payments even if the outlier 
payment requirements are not met. Under the MS-DRG system, there are 
currently 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 set forth proposals, and solicited 
and responded to public comments, to implement section 1886(d)(4)(D) of 
the Act through the IPPS annual rulemaking process. For specific 
policies addressed in each rulemaking cycle, 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); the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule (74 FR 24106) and final rule (74 FR 43782); and the FY 
2011 IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR 
50080). 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 PPS final rule (75 FR 50080 through 
50101), we did not add any categories of additional HACs or make any 
changes to policies already established under the authority of section 
1886(d)(4)(D) of the Act.
c. Collaborative Process
    In establishing the HAC payment policy under section 1886(d)(4)(D) 
of the Act, our experts have worked closely with public health and 
infectious disease professionals from across the Department of Health 
and Human Services, including CDC, the Agency for Healthcare Research 
and Quality (AHRQ), and the Office of Public Health and Science (OPHS), 
to identify the candidate preventable HACs, review comments, and select 
HACs. CMS and CDC also have 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. In addition, as discussed below, we have used 
rulemaking 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):

[[Page 51506]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.002

e. Public Input Regarding Selected and Potential Candidate HACs
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50080 through 
50101), we did not add or remove categories of HACs, nor did we make 
any changes to previously established policies. However, we continue to 
encourage public dialogue about refinement of the HAC list.
    Given the timeliness of the HAC discussion, particularly when 
considered within the context of recent legislative health care reform 
initiatives, 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 Research Triangle Institute, 
International (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 (75 FR 23381) (and as noted 
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50081)), 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 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/icdguide10.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.gov/HospitalAcqCond/.
    In preparation for the transition to the ICD-10-CM/PCS code set 
effective October 1, 2013, further information regarding the use of the 
POA indictor with the ICD-10-CM/PCS classification as it pertains to 
the HAC policy will be discussed in future rulemaking. In the meantime, 
we encourage readers to review the educational materials and draft code 
sets currently available for ICD-10-CM/PCS at the CMS Web site at: 
http://www.cms.gov/ICD10/. In addition, the draft ICD-10-CM/PCS coding 
guidelines can be viewed at the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/10cmguidelines2011.
    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 will 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 previous IPPS proposed and final rules, there are 
five POA indicator reporting options, as defined by the ICD-9-CM 
Official Guidelines for Coding and Reporting:

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

    In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we 
adopted 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

[[Page 51507]]

HACs coded with ``N'' and ``U'' indicators.
    Beginning 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. 
However, for claims that continue to be submitted using the 4010 
electronic transmittal standards format, the POA indicator of ``1'' is 
still necessary because of reporting restrictions from the use of the 
4010 electronic transmittal standards format.
    Hospitals that began reporting with the 5010 format on and after 
January 1, 2011, can no longer report a POA indicator of ``1'' for POA 
exempt codes. The POA field should instead be left blank for codes 
exempt from POA reporting. We have issued CMS instructions on this 
reporting change as a One-Time Notification, Pub. No. 100-20, 
Transmittal No. 756, Change Request 7024, effective on August 13, 2010. 
These instructions, entitled ``5010 Implementation-Changes to Present 
on Admission (POA) Indicator `1' and the K3 Segment,'' can be located 
at the following link on the CMS Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf.
    We are continuing our efforts to clarify instructions regarding use 
of the POA indicator. As discussed in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50088), we received public comments in response to the FY 
2011 IPPS/LTCH PPS proposed rule that expressed concern about the 
accuracy of reporting of POA indicators for HACs related to 
intracranial injury with loss of consciousness. The codes for loss of 
consciousness are listed in the Falls and Trauma HAC category, within 
the ``Intracranial Injury'' subcategory. Because loss of consciousness 
is a component of intracranial injuries rather than a separate 
condition, we agreed that the POA guidelines that instructed coders to 
assign an ``N'' indicator if any part of the combination code was not 
present on admission did not apply to the loss of consciousness codes. 
As a member of the Editorial Advisory Board for the Coding Clinic for 
ICD-9-CM, we worked with the American Hospital Association (AHA), 
American Health Information Management Association (AHIMA), and CDC to 
provide additional clarification on how these conditions should be 
reported. Additional guidance on how these cases should be reported can 
be found in AHA's Coding Clinic for ICD-9-CM, 2nd Quarter 2010, 
``Frequently Asked POA Questions'' section. That publication clarified 
the POA reporting for patients in whom a single code captures the fact 
that the patient was admitted as a result of a head injury and then 
subsequently lost consciousness after the admission. For these cases, 
we clarified that the POA indicator assigned should be ``Y,'' 
indicating that the head injury and resulting loss of consciousness 
occurred prior to (and was present on) admission.
    We expect that this clarification will lead to greater consistency 
and accuracy in POA indicator reporting for these conditions. We look 
forward to continuing our efforts as part of the AHA'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 coding and 
POA reporting. We encourage hospitals to send any other questions about 
ICD-9-CM codes or POA indicator selection to the AHA 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.
2. Additions and Revisions to the HAC Policy for FY 2012
a. Contrast-Induced Acute Kidney Injury
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25813 and 25814), 
we discussed our analysis for a proposed new condition as a possible 
candidate for selection for FY 2012 under section 1886(d)(4)(D) of the 
Act. As described in more detail in section II.F.1.a. of this preamble, 
each HAC must be: (1) High cost, high volume, or both; (2) assigned to 
a higher paying MS-DRG when present as a secondary diagnosis (that is, 
conditions under the MS-DRG system that are CCs or MCCs); and (3) could 
reasonably have been prevented through the application of evidence-
based guidelines. We also discussed other considerations relating to 
the selection of a HAC, including any administrative or operational 
issues associated with a proposed condition. For example, the condition 
may only be able to be identified by multiple codes, thereby requiring 
the development of special GROUPER logic to also exclude similar or 
related ICD-9-CM codes from being classified as a CC or an MCC. 
Similarly, a condition acquired during a hospital stay may arise from 
another condition that the patient had prior to admission, making it 
difficult to determine whether the condition was reasonably 
preventable. We invited public comment on clinical, coding, and 
prevention issues on our proposal to add contrast-induced acute kidney 
injury as a condition subject to the HAC payment provision for FY 2012 
(for discharges occurring on or after October 1, 2011).
    Contrast-induced acute kidney injury is a significant complication 
of the use of iodinated contrast media and accounts for a large number 
of cases of hospital-acquired acute kidney injury cases. A published 
study has shown that renal failure associated with contrast 
administration is correlated with up to 11 percent of cases of renal 
failure that occur in hospitals (Nash, K., Hafeez, A., et al: 
``Hospital-Acquired Renal Insufficiency,'' American Journal on Kidney 
Disease, 2002, Vol. 39, No. 5, pp. 930-936). Patients who experience 
acute kidney injury have an increased risk of inhospital mortality even 
after adjustments for disease comorbidities (McCullough, J.: 
``Contrast-Induced Acute Kidney Injury,'' Journal of the American 
College of Cardiology, 2008, Vol. 51, No. 15, pp. 1419-1428). Data 
suggest that the risk for mortality extends beyond the period of 
hospitalization, resulting in 1-year and 5-year mortality rates 
significantly higher than those patients who have not developed acute 
kidney injury. In addition, contrast-induced acute kidney injury is 
associated with an increased incidence of myocardial infarction, 
bleeding requiring transfusion, and prolonged hospital stays 
(McCullough, J.: American Journal of Medicine, 1997, Vol. 103, pp. 368-
375). We note that ``acute kidney injury'' is a new terminology 
endorsed by the National Kidney Foundation to replace ``acute renal 
failure.''
    There is not a unique code that identifies kidney injury. However, 
kidney injury can be identified as a subset of discharges with ICD-9-CM 
diagnosis code 584.9 (Acute kidney failure, unspecified). As we 
discussed in the FY 2012 IPPS/LTCH PPS proposed rule, our clinical 
advisors believe that diagnosis code 584.9, in combination with the 
associated procedure codes listed below, can accurately identify 
contrast-induced acute kidney injury:

 88.40 (Arteriography using contrast material, unspecified 
site)
 88.41 (Arteriography of cerebral arteries)
 88.42 (Aortography)
 88.43 (Arteriography of pulmonary arteries)
 88.44 (Arteriography of other intrathoracic vessels)
 88.45 (Arteriography of renal arteries)
 88.46 (Arteriography of placenta)
 88.47 (Arteriography of other intra-abdominal arteries)

[[Page 51508]]

 88.48 (Arteriography of femoral and other lower extremity 
arteries)
 88.49 (Arteriography of other specified sites)
 88.50 (Angiocardiography, not otherwise specified)
 88.51 (Angiocardiography of venae cavae)
 88.52 (Angiocardiography of right heart structures)
 88.53 (Angiocardiography of left heart structures)
 88.54 (Combined right and left heart angiocardiography)
 88.55 (Coronary arteriography using a single catheter)
 88.56 (Coronary arteriography using two catheters)
 88.57 (Other and unspecified coronary arteriography)
 88.58 (Negative-contrast cardiac roentgenography)
 88.59 (Intra-operative coronary fluorescence vascular 
angiography)
 88.60 (Phlebography using contrast material, unspecified site)
 88.61 (Phlebography of veins of head and neck using contrast 
material)
 88.62 (Phlebography of pulmonary veins using contrast materal)
 88.63 (Phlebography of other intrathoracic veins using 
contrast material)
 88.64 (Phlebography of the portal venous system using contrast 
material)
 88.65 (Phlebography of other intra-abdominal veins using 
contrast material)
 88.66 (Phlebography of femoral and other lower extremity veins 
using contrast material)
 88.67 (Phlebography of other specified sites using contrast 
material)
 87.71 (C.A.T. of kidney)
 87.72 (Other nephrotomogram)
 87.73 (Intravenous pyelogram)
 87.74 (Retrograde pyelogram)
 87.75 (Percutaneous pyelogram)

    We proposed to identify contrast-induced acute kidney injury with 
diagnosis code 584.9 in combination with one or more of the above 
associated procedure codes.
    We also considered identifying contrast-induced acute kidney injury 
through the use of external injury codes, or E-codes. Code E947.8 
(Other drugs and medicinal substances) has an inclusion term ``Contrast 
media used for diagnostic x-ray procedures'' to identify the use of 
contrast. However, as we noted in the proposed rule, we do not 
currently require the reporting of E-codes for the HAC payment 
provisions under the IPPS. Therefore, we were unable to rely on the 
identification of contrast-induced acute kidney injury through E-codes 
on Medicare IPPS HACs claims.
    Section 1886(d)(4)(D) of the Act requires that a HAC be a condition 
that is ``high cost, high volume, or both.'' In FY 2009, there were 
38,324 inpatient discharges coded with acute renal failure as specified 
by ICD-9-CM diagnosis code 584.9 reported as not present on admission 
(POA status = N) when reported with one of the above procedure codes 
submitted through Medicare claims. The cases had an average charge of 
$29,122 for the entire hospital stay. Studies suggest the additional 
average cost per day for a patient who has acquired contrast-induced 
acute kidney injury is $2,654. Other data report patients stays 
increases by 3.75 days once they have acquired the diagnosis 
(Subramanian, S.: ``Economic Burden of Contrast-Induced Nephropathy: 
Implications for Prevention Strategies,'' Journal of Medical Economics, 
2007, Vol. 10, pp. 119-134).
    There are widely recognized guidelines for the prevention of acute 
kidney injury that address the prevention of contrast-induced acute 
kidney injury, and we believe the condition is reasonably preventable. 
One of these guidelines can be found at: http://www.renal.org/Clinical/GuidelinesSection/AcuteKidneyInjury.aspx.
    The condition of contrast-induced acute kidney injury as specified 
in our proposal is a CC under the MS-DRGs.
    We indicated in the proposed rule that we had not identified any 
additional administrative or operational difficulties with proposing 
this condition as a HAC. We invited public comment on whether contrast-
induced acute kidney injury meets the requirements set forth under 
section 1886(d)(4)(D) of the Act, as well as other coding and 
prevention issues associated with our proposal to add this injury as a 
condition subject to the HAC payment provision for FY 2012 (for 
discharges occurring on or after October 1, 2011). We also indicated 
that we were particularly interested in receiving comments on the 
degree to which contrast-induced acute kidney injury is reasonably 
preventable through the application of evidence-based guidelines.
    Comment: One commenter supported CMS' proposal to add contrast-
induced acute kidney injury as a HAC under section 1886(d)(4)(D) of the 
Act. The commenter applauded the inclusion of contrast-induced acute 
kidney injury to the HAC policy for FY 2012, and encouraged CMS to 
continue to expand and refine the HACs and categories.
    Response: We appreciate the commenter's support.
    Comment: Many commenters discussed their concerns regarding the 
specificity and sensitivity of the ICD-9-CM codes proposed to identify 
the proposed new contrast-induced acute kidney injury HAC. The 
commenters believed that these codes would not solely capture contrast-
induced acute kidney injury and would capture other conditions as well. 
The commenters expressed concern about the specificity of the current 
ICD-9-CM code 584.9 in reliably identifying cases of acute kidney 
injury that occurred due to a specific diagnosis instead of acute 
kidney injury that is believed to occur secondary to being correlated 
with exposure to contrast. The commenter stated that, for example, a 
patient admitted to a hospital could experience drug-induced kidney 
injury that has resolved; later during that hospital stay, the patient 
has a subsequent angiographic procedure. Under our proposed 
methodology, the commenter added, this patient would be erroneously 
identified as having contrast-induced acute kidney injury.
    Some commenters suggested that CMS use E-codes, which identify 
injuries, while others did not support the use of E-codes because they 
are not consistently coded for Medicare billing purposes. Commenters 
further noted that the list of ICD-9-CM procedure codes proposed to 
assist in identifying the use of contrast as the reason for the acute 
kidney injury occurring are often not reported on hospital claims. The 
commenters explained that most of the codes do not represent procedures 
affecting payment, are not required, and, therefore, are not reported.
    Other commenters recommended waiting to finalize this proposed 
candidate condition until the ICD-10 code set is implemented. The 
commenters suggested that a unique code to identify and describe 
contrast-induced acute kidney injury could be proposed in ICD-10, and 
this would eliminate the coding limitations that currently exist for 
this condition in ICD-9-CM.
    Response: We acknowledge the commenters' concerns regarding the 
current ICD-9-CM coding issues surrounding contrast-induced acute 
kidney injury, and that our proposal could inadvertently include claims 
for beneficiaries who experience acute kidney injury that may not be 
contrast-induced. We note that, as discussed in the FY 2008 IPPS final 
rule with comment period (72 FR 47216), under 42 CFR 412.60(d), a 
hospital has 60 days after the date of the notice of the initial

[[Page 51509]]

assignment of a discharge to a DRG to request a review of that 
assignment. The hospital may submit additional information as a part of 
its request. A hospital that believes a discharge was assigned to the 
incorrect DRG as a result of application of the payment adjustment for 
HACs may request review of the DRG assignment by its fiscal 
intermediary or MAC. However, we also recognize that it is important to 
be as precise as possible in specifying which codes to use to identify 
a HAC, and that a lack of precision could increase hospitals' 
administrative burden in pursuing these appeals.
    In addition, we recognize that E-codes do capture injuries and 
could offer more precision in identifying contrast-induced acute kidney 
injury than our proposal. We also agree with the commenters who pointed 
out that E-codes are currently not required for Medicare billing 
purposes and, therefore, are inconsistently reported on claims. We note 
further that because these codes are not required for Medicare IPPS 
payment purposes, MS-DRG assignments do not currently take E-codes into 
account.
    We also appreciate the comments that pointed out that the procedure 
codes identified in our proposal are often not reported. We note that 
commenters asserted that these codes were not reported because they did 
not affect payment. We are concerned that the potential for reduced 
payment would create a further disincentive to include these procedure 
codes on Medicare claims. As we stated earlier, we recognize that it is 
important to be as precise as possible in the interest of payment 
accuracy in specifying which codes to use to identify a HAC.
    We also agree that ICD-10 will offer a greater degree of 
specificity. Currently, no code exists within ICD-10 that would 
exclusively capture contrast-induced acute kidney injury. We note that, 
as discussed in the FY 2012 IPPS/LTCH proposed rule (76 FR 25843), and 
in section II.G.13.b. of this final rule, a partial code freeze was 
discussed at multiple meetings of the ICD-9-CM Coordination and 
Maintenance Committee, and public comment was actively solicited. At 
the September 15-16, 2010 meeting, an announcement was made that the 
ICD-9-CM Coordination and Maintenance Committee will implement a 
partial freeze of the ICD-9-CM and ICD-10 (ICD-10-CM and ICD-10-PCS) 
codes prior to the implementation of ICD-10 on October 1, 2013. There 
was considerable support for this partial freeze. The partial freeze 
will be implemented as follows:
     The last regular, annual updates to both ICD-9-CM and ICD-
10 code sets will be made on October 1, 2011.
     On October 1, 2012, there will be only limited code 
updates to both the ICD-9-CM and ICD-10 code sets to capture new 
technologies and diseases as required by section 503(a) of Public Law 
108-173.
     On October 1, 2013, there will be only limited code 
updates to ICD-10 code sets to capture new technologies and diagnoses 
as required by section 503(a) of Public Law 108-173. There will be no 
updates to ICD-9-CM, as it will no longer be used for reporting.
     On October 1, 2014, regular updates to ICD-10 will begin.
    The ICD-9-CM Coordination and Maintenance Committee will continue 
to meet twice a year during the partial freeze. At these meetings, the 
public will be asked to comment on whether or not requests for new 
diagnosis or procedure codes should be created based on the criteria of 
the need to capture a new technology or disease. Any code requests that 
do not meet the criteria will be evaluated for implementation within 
ICD-10 on and after October 1, 2014, once the partial freeze has ended.
    In summary, we agree with the commenters' recommendations regarding 
coding and are deferring decision making regarding the inclusion of 
contrast-induced acute kidney injury as a HAC until such a time when 
improved coding is available.
    Comment: Several commenters submitted comments pertaining to the 
sufficiency or strength of the evidence-based guidelines in terms of 
providing information or direction that would lead to the prevention of 
contrast-induced acute kidney injury 100 percent of the time. The 
commenters stated that evidence-based guidelines are based on varying 
levels of evidence, from expert consensus based on opinion (the 
``weakest'' level) to expert consensus based on data produced in 
randomized controlled trials (the ``strongest'' level). According to 
the commenters, in many cases, the guidelines do not address all 
patient populations. Commenters also stated that current evidence-based 
guidelines for decreasing the incidence of contrast-induced acute 
kidney injury are limited. The commenters also noted that new 
guidelines addressing the topic of contrast-induced acute kidney injury 
are being published in late summer of 2011 by an international 
organization, Kidney Disease Improving Global Outcomes (KDIGO), after a 
multiyear development process. They noted that CMS should take these 
guidelines into consideration when they become available.
    Response: We acknowledge that different types of evidence-based 
guidelines exist. However, we believe that the inclusion of contrast-
induced acute kidney injury in the current evidence-based guidelines 
for Acute Kidney Injury supports the inclusion of contrast-induced 
acute kidney injury as a condition on the HAC list. We agree that any 
new evidence-based guidelines for contrast-induced acute kidney injury 
should be considered when they become available.
    Comment: A few commenters expressed concern about the proposal 
potentially creating an incentive for practitioners to avoid necessary 
contrast use in patients with high risk of acute kidney disease.
    Response: We acknowledge and are sensitive to the theoretical 
possibility of patient access to care being restricted. We are unaware 
of significant data supporting this assertion, but we will continue to 
monitor the situation for potential unintended consequences with regard 
to this concern.
    Comment: Some commenters recommended that CMS not reduce payment 
for this condition, but to instead develop a quality measure that would 
track it. The commenters noted that such a measure could track whether 
the appropriate evidence-based steps to prevent contrast-induced acute 
kidney injury have been performed and documented.
    Response: We appreciate the commenters' recommendation. We note 
that we did not propose to develop a quality measure for contrast-
induced acute kidney injury in the proposed rule. Thus, we consider 
this comment to be outside of the scope of the provisions discussed in 
the proposed rule. However, this subject area represents an area of 
continued interest and opportunity for the agency, and we will take 
this recommendation into consideration during the development of future 
rulemaking.
    In conclusion, after consideration of the public comments we 
received, we are deferring the decision making on the addition of 
contrast-induced acute kidney injury as a HAC until future rulemaking, 
and such a time when improved coding is available for the reasons 
described above. We note that the reduction of contrast-induced acute 
kidney injury represents an area of continued interest for the agency, 
and we believe that substantial opportunity exists for hospitals to 
improve quality in this area.

[[Page 51510]]

b. Additional New Diagnosis Codes for Existing HACs
    As we discussed in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 
25814), 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. We included in Table 6A of 
the proposed rule (which was made available via the Internet) the five 
new ICD-9-CM diagnosis codes that we proposed to add to three of the 
current HAC categories. We proposed to add two new codes for the Falls 
and Trauma HAC category, two new codes for the Surgical Site Infection 
(SSI) Following Certain Bariatric Procedures HAC category, and one new 
code for the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) 
Following Certain Orthopedic Procedures HAC category. The two new 
diagnosis codes that we proposed to add to the Falls and Trauma HAC 
category were code 808.44 (Multiple closed pelvic fractures without 
disruption of pelvic circle) and code 808.54 (Multiple open pelvic 
fractures without disruption of pelvic circle). These codes fall within 
the range of the fracture code subcategory (800 through 829). The two 
new diagnosis codes that we proposed to add to the Surgical Site 
Infection (SSI) Following Certain Bariatric Procedures HAC category 
were code 539.01 (Infection due to gastric band procedure) and code 
539.81 (Infection due to other bariatric procedure). We stated our 
belief that these diagnosis codes are appropriate for inclusion in the 
existing category when reported as a secondary diagnosis with the 
specified principal diagnosis code of morbid obesity (code 278.01) and 
one of the designated bariatric procedure codes (code 44.38, 44.39, or 
44.95). Lastly, the one new diagnosis code that we proposed to add to 
the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following 
Certain Orthopedic Procedures HAC category was code 415.13 (Saddle 
embolus of pulmonary artery). Diagnosis code 415.13 would be applicable 
when reported along with one of the following procedures codes 
describing certain orthopedic procedures: 00.85 through 00.87, 81.51, 
81.52, or 81.54. Shown in the table below are these five new diagnosis 
codes with their corresponding descriptions and their proposed CC/MCC 
designations.

------------------------------------------------------------------------
                                                        Proposed CC/MCC
         ICD-9-CM code             Code descriptor        designation
------------------------------------------------------------------------
539.01........................  Infection due to       CC
                                 gastric band
                                 procedure.
539.81........................  Infection due to       CC
                                 other bariatric
                                 procedure.
415.13........................  Saddle embolus of      MCC
                                 pulmonary artery.
808.44........................  Multiple closed        CC
                                 pelvic fractures
                                 without disruption
                                 of pelvic circle.
808.54........................  Multiple open pelvic   MCC
                                 fractures without
                                 disruption of pelvic
                                 circle.
------------------------------------------------------------------------

    We invited public comments on the proposed adoption of these five 
new ICD-9-CM diagnosis codes as CC/MCCs that are listed above, which, 
if finalized, would be added to the current Falls and Trauma HAC 
category, Surgical Site Infection (SSI) Following Certain Bariatric 
Procedures HAC category and Deep Vein Thrombosis and Pulmonary Embolism 
(DVT/PE) Following Certain Orthopedic Procedures HAC category and would 
be subject to the HAC payment provision for FY 2012.
    Comment: Several commenters supported CMS' proposal to adopt the 
five new ICD-9-CM diagnosis codes with their proposed CC/MCC 
designations for addition to the current Falls and Trauma HAC category, 
Surgical Site Infection (SSI) Following Certain Bariatric Procedures 
HAC category, and Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) 
Following Certain Orthopedic Procedures HAC category and to subject 
them to the HAC payment provision for FY 2012.
    Response: We appreciate the commenters' support.
    Comment: One commenter expressed concern regarding the 
appropriateness of adding ICD-9-CM diagnosis code 415.13 as a condition 
that, when reported along with the designated procedure codes 
describing certain orthopedic procedures (00.85 through 00.87, 81.51, 
81.52, or 81.54) in the Deep Vein Thrombosis and Pulmonary Embolism 
(DVT/PE) Following Certain Orthopedic Procedures HAC category, be 
subject to the HAC payment provision. The commenter stated that HAC 
selection should be based on conditions considered to be reasonably 
preventable with adherence to evidence-based practice guidelines. The 
commenter further believed that a saddle embolus of the pulmonary 
artery, when reported with the cited orthopedic procedure codes, is not 
a condition that is ``reasonably preventable'' and that patients 
undergoing total knee replacement and total hip replacement in the 
Medicare population are at the highest risk for developing a DVT/PE.
    The commenter also stated that the current structure of the MS-DRG 
system does not specifically risk-adjust for these conditions in the 
MS-DRGs related to primary total hip replacement (code 81.51) or 
primary total knee replacement (code 81.54). The commenter believed 
that risk adjustment is an indispensible component of an equitable HAC 
policy. The commenter suggested that CMS account for the patient-
specific risk factors that affect preventability and reported that many 
hospitalized patients have comorbidities and other patient 
characteristics that put them at an increased risk of complications. 
The commenter suggested that CMS take these factors into account in 
creating a policy that is reasonable and equitable, in order to 
minimize incentives for limiting access for patients who are at higher 
risk for complications.
    This same commenter also expressed support of CMS' efforts to 
encourage the adoption of evidence-based treatment guidelines that 
could improve the quality of care for patients. However, while the 
commenter noted that evidence-based guidelines can reduce events, the 
commenter asserted that CMS selected one of the patient populations at 
highest risk for DVT/PE, diverging from the concept of ``reasonably 
preventable.''
    Response: We appreciate the commenter's detailed comments on the 
proposal to add diagnosis code 415.13 as a condition that, when 
reported along with the designated procedure codes described above, is 
subject to the HAC payment provision. In the FY 2008 IPPS final rule 
with comment period (72 FR 47200 through 47218), we discussed the 
evidence based guidelines regarding DVT/PE and agreed with commenters 
that this is reasonably preventable. In the FY 2009 IPPS final rule (73 
FR 48481), we addressed commenters' concerns regarding the 
preventability of DVT/PE and noted that the statute does not require 
that a condition be ``always preventable''' in order to qualify as an

[[Page 51511]]

HAC, but rather that it be ``reasonably preventable,'' which 
necessarily implies something less than 100 percent.
    With regard to the commenter's assertion that risk adjustment is an 
indispensible component of an equitable HAC policy, we refer readers to 
the FY 2009 IPPS final rule and the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule. In the FY 2009 IPPS final rule (73 FR 48487 through 48488), we 
discussed risk adjustment of payments related to HACs. We addressed 
this issue again in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43785), where we noted that a risk adjustment methodology may lead to 
greater precision of HAC payment determinations. As part of the RTI 
evaluation of the HAC-POA program, the concept of risk adjustment 
continues to be an important area of interest and study for the agency. 
We will consider the results of RTI's evaluation when it is complete 
and, if appropriate, make a proposal and solicit public comment in 
future rulemaking.
    After consideration of the public comments we received, we are 
finalizing the adoption of the five new ICD-9-CM diagnosis codes 
described above as CC/MCCs to be added to their respective HAC 
categories as proposed. Therefore, effective October 1, 2011 (FY 2012), 
procedure codes 808.44 and 808.54 describing multiple pelvic fractures 
will be added to the Falls and Trauma HAC category, procedure codes 
539.01 and 539.81 describing infections related to gastric procedures 
will be added to the Surgical Site Infection (SSI) Following Certain 
Bariatric Procedures HAC category, and procedure code 415.13 describing 
a type of pulmonary embolus will be added to the Deep Vein Thrombosis 
and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures 
HAC category. All of these conditions will be subject to the HAC 
payment provision for FY 2012.
c. Revision to HAC Subcategory Title
    After publication of the FY 2011 IPPS/LTCH PPS final rule, we 
received a comment stating that the subcategory title ``Electric 
Shock'' that is included in the Falls and Trauma HAC category was 
misleading. The commenter stated that this subcategory title did not 
accurately describe the CC/MCC ICD-9-CM diagnoses codes (991 through 
994) contained within this subcategory. The commenter requested that 
CMS develop a new title that would more accurately describe this group 
of codes.
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25814), we stated 
that we agreed with the commenter that the HAC subcategory title 
``Electric Shock'' is potentially misleading because the codes included 
within these ranges contain a variety of injuries, including the 
following:

 Category 991 (Effects of Reduced Temperature)
 Category 992 (Effects of Heat and Light)
 Category 993 (Effects of Air Pressure)
 Category 994 (Effects of Other External Causes)

    We proposed to change the title of this HAC subcategory from 
``Electric Shock'' to ``Other Injuries'' because it includes a variety 
of injury codes. The subcategory will continue to include the codes 
within the 991 through 994 code ranges appearing on the CC/MCC list. We 
did not propose any changes to the list of codes in this subcategory; 
we simply proposed to rename the subcategory title. We invited public 
comments on the proposed title change to the HAC subcategory from 
``Electric Shock'' to ``Other Injuries'' for FY 2012.
    Comment: Several commenters supported CMS' proposal to change the 
title of this HAC subcategory from ``Electric Shock'' to ``Other 
Injuries'' because it includes a variety of injury codes. The 
commenters stated that this title change would better describe the 
conditions included in the range of codes.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the title of the HAC subcategory from 
``Electric Shock'' to ``Other Injuries.'' The subcategory will continue 
to include the codes within the 991 through 994 code ranges appearing 
on the CC/MCC list. In addition, we are not making any changes to the 
list of codes in this subcategory; the subcategory title will simply be 
renamed effective FY 2012.
d. Conclusion
    In the FY 2012 IPPS/LTCH PPS proposed rule, we listed the current 
HAC categories and the ICD-9-CM codes that identify the conditions and 
have been finalized through FY 2011. For FY 2012, we proposed that 
these conditions continue to be subject to the HAC payment provision, 
along with the creation of a new HAC category for contrast-induced 
acute kidney injury. (We note that, as discussed in section II.F.2.a. 
of the preamble of the proposed rule and this final rule, we are not 
adopting our proposal to add a new HAC category for contrast-induced 
acute kidney injury for FY 2012.) In addition, we proposed to add five 
new ICD-9-CM diagnosis codes and to revise the title of the ``Electric 
Shock'' subcategory in the Falls and Trauma HAC category.
    Comment: Several commenters supported maintaining the current HAC 
categories and the ICD-9-CM codes that identify those conditions. These 
commenters agreed that the conditions should continue to be subject to 
the HAC payment provision for FY 2012.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
adopting the following list of HAC categories and the ICD-9-CM codes 
that identify the conditions that have been finalized through FY 2011 
and that we are finalizing in this final rule for FY 2012.

------------------------------------------------------------------------
                  HAC                         CC/MCC (ICD-9-CM Code)
------------------------------------------------------------------------
Foreign Object Retained After Surgery..  998.4 (CC)
                                         998.7 (CC)
Air Embolism...........................  999.1 (MCC)
Blood Incompatibility..................  999.60 (CC)
                                         999.61 (CC)
                                         999.62 (CC)
                                         999.63 (CC)
                                         999.69 (CC)
Pressure Ulcer Stages III & IV.........  707.23 (MCC)
                                         707.24 (MCC)
Falls and Trauma:                        Codes within these ranges on
                                          the CC/MCC list:
    --Fracture.........................     800-829
    --Dislocation......................     830-839

[[Page 51512]]

 
    --Intracranial Injury..............     850-854
    --Crushing Injury..................     925-929
    --Burn.............................     940-949
    --Other Injuries...................     991-994
Catheter-Associated Urinary Tract        996.64 (CC)
 Infection (UTI).                        Also excludes the following
                                          from acting as a CC/MCC:
                                            112.2 (CC)
                                            590.10 (CC)
                                            590.11 (MCC)
                                            590.2 (MCC)
                                            590.3 (CC)
                                            590.80 (CC)
                                            590.81 (CC)
                                            595.0 (CC)
                                            597.0 (CC)
                                            599.0 (CC)
Vascular Catheter-Associated Infection.  999.31 (CC)
Manifestations of Poor Glycemic Control  250.10-250.13 (MCC)
                                         250.20-250.23 (MCC)
                                            251.0 (CC)
                                            249.10-249.11 (MCC)
                                            249.20-249.21 (MCC)
------------------------------------------------------------------------
                        Surgical Site Infections
------------------------------------------------------------------------
Surgical Site Infection, Mediastinitis,  519.2 (MCC)
 Following Coronary Artery Bypass Graft  And one of the following
 (CABG).                                  procedure codes:
                                            36.10-36.19
Surgical Site Infection Following        996.67 (CC)
 Certain Orthopedic Procedures.          998.59 (CC)
                                         And one of the following
                                          procedure codes: 81.01-81.08,
                                          81.23-81.24, 81.31-81.38,
                                          81.83, 81.85
Surgical Site Infection Following        Principal Diagnosis--278.01
 Bariatric Surgery for Obesity.          539.01 (CC)
                                         539.81 (CC)
                                         998.59 (CC)
                                         And one of the following
                                          procedure codes: 44.38, 44.39,
                                          or 44.95
Deep Vein Thrombosis and Pulmonary       415.11 (MCC)
 Embolism Following Certain Orthopedic   415.13 (MCC)
 Procedures.                             415.19 (MCC)
                                            453.40-453.42 (CC)
                                         And one of the following
                                          procedure codes: 00.85-00.87,
                                          81.51-81.52, or 81.54
------------------------------------------------------------------------

    We refer readers to section II.F.6. of the FY 2008 IPPS final rule 
with comment period (72 FR 47202 through 47218) and to section II.F.7. 
of the FY 2009 IPPS final rule (73 FR 48474 through 48486) for detailed 
analyses supporting the selection of each of the HACs selected through 
FY 2012.
3. RTI Program Evaluation Summary
a. Background
    On September 30, 2009, a contract was awarded to Research Triangle 
Institute, International (RTI) to evaluate the impact of the Hospital-
Acquired Condition-Present on Admission (HAC-POA) provisions on the 
changes in the incidence of selected conditions, effects on Medicare 
payments, impacts on coding accuracy, unintended consequences, and 
infection and event rates. This is an intra-agency project with funding 
and technical support coming from CMS, OPHS, AHRQ, and CDC. The 
evaluation will also examine the implementation of the program and 
evaluate additional conditions for future selection.
    RTI's evaluation of the HAC-POA provisions is divided into several 
parts. In the FY 2011 IPPS/LTCH PPS final rule (50085 through 50101), 
we summarized the analyses by RTI that had been completed at that time. 
These RTI analyses of POA indicator reporting, frequencies and net 
savings associated with current HACs, and frequencies of previously 
considered candidate HACs reflected MedPAR claims from October 2008 
through September 2009.
b. FY 2009 Data Analysis
    As we describe in section II.F.1.f. of this preamble, we have 
provided instructions to IPPS hospitals and 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) 
and note 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/icdguide10.pdf. After 
publication of the FY 2011 IPPS/LTCH PPS final rule, we identified a 
discrepancy between the claims data that hospitals submitted and the 
CMS data file used to calculate the HAC measures. Specifically, this 
error led to incorrect HAC assignments in cases where a hospital 
reported an external cause of injury (E-code). Since then, we have 
corrected this error in the data file.
    As a result, the RTI analysis of the HAC-POA program that was 
conducted using FY 2009 claims data was updated using the corrected 
data file. The corrected data do not appear to have a

[[Page 51513]]

material impact on our previous findings for FY 2009. Revised data 
tables were made publicly available on the CMS Web site at http://www.cms.gov/HospitalAcqCond/01_Overview.asp and the RTI Web site at 
http://www.rti.org/reports/cms/ after publication of the FY 2012 IPPS/
LTCH PPS proposed rule.
c. FY 2010 Data Analysis
    RTI's analysis of the FY 2010 MedPAR data file for the HAC-POA 
program evaluation was prepared for publication in the FY 2012 IPPS/
LTCH PPS proposed rule. We indicated in the proposed rule that we would 
provide the results from the study on the CMS Web site at http://www.cms.gov/HospitalAcqCond/01_Overview.asp and on the RTI Web site at 
http://www.rti.org/reports/cms/ when it became available. We also 
stated that we anticipated that the examination of FY 2010 MedPAR data 
would be completed soon after publication of the proposed rule. We 
invited public comment on RTI's analysis of the FY 2010 MedPAR data for 
the HAC-POA program.
    Since publication of the FY 2012 IPPS/LTCH proposed rule, we 
determined that it would be beneficial to the public if we provided a 
summary of the results of RTI's HAC-POA program evaluation of the FY 
2010 MedPAR data in this FY 2012 IPPS/LTCH final rule, in addition to 
making these results available on both the CMS and RTI Web sites 
mentioned above. Below we present a summary of these results.
d. FY 2010 RTI Analysis on POA Indicator Reporting of Current HACs.
    To better understand the impact of HACs on the Medicare program, it 
is necessary to first examine the incidence of POA indicator reporting 
across all eligible Medicare discharges. As mentioned previously, only 
IPPS hospitals are required to submit POA indicator data for all 
diagnosis codes on Medicare claims. Therefore, all non-IPPS hospitals 
were excluded, as well as providers in waiver States (Maryland) and 
territories other than Puerto Rico.
    Using MedPAR claims data from October 2009 through September 2010, 
RTI found a total of approximately 74.38 million secondary diagnoses 
across approximately 10.2 million discharges. As shown in Chart A 
below, the majority of all secondary diagnoses (80.94 percent) were 
reported with a POA indicator of ``Y,'' meaning the condition was POA.

      Chart A--POA Code Distribution Across All Secondary Diagnoses
------------------------------------------------------------------------
                                           Number          Percentage
------------------------------------------------------------------------
Total Discharges in Final File                                10,189,168
------------------------------------------------------------------------
 Total Number of Secondary Diagnoses        74,382,681            100.00
       Across Total Discharges
------------------------------------------------------------------------
POA Indicator Description:
Y Condition present on admission....        60,206,593             80.94
W Status cannot be clinically                   13,145              0.02
 determined.........................
N Condition not present on admission         5,001,138              6.72
U Documentation not adequate to              2,223,318              2.99
 determine if condition was present
 on admission.......................
1 Exempted ICD-9-CM code............         6,938,487              9.33
------------------------------------------------------------------------
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through
  September 2010.

    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 approximately 10.2 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 189,231 HAC-associated diagnosis codes 
being reported for that HAC category. Of these 189,231 diagnoses, 5,762 
reported a POA indicator of ``N'' and 326 reported a POA indicator of 
``U'' for not POA. Similarly, 183,048 diagnoses reported a POA 
indicator of ``Y'' for POA and 95 diagnoses reported a POA indicator of 
``W.'' The lowest frequency appears in the Surgical Site Infection 
(SSI) Following Bariatric Surgery for Obesity HAC category with only 18 
HAC-associated secondary diagnosis codes (and procedure codes) 
reported, where 17 diagnoses were reported with a POA indicator of 
``N'' and 1 diagnosis was reported with a POA indicator of ``Y.''

                                        Chart B--POA Status of Current HACS: October 2009 Through September 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Treated as hospital acquired          Not treated as Hospital acquired
                                                                                        conditions                              conditions
                                                         Frequency as a  -------------------------------------------------------------------------------
                     Selected HAC                          secondary            POA = N             POA = U             POA = Y             POA = W
                                                           diagnosis     -------------------------------------------------------------------------------
                                                                           Number    Percent   Number    Percent   Number    Percent   Number    Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After Surgery (CC)........                565       278      49.2         1       0.2       286      50.6         0       0.0
2. Air Embolism (MCC)................................                 42        29      69.0         0       0.0        13      31.0         0       0.0
3. Blood Incompatibility (CC)........................                 35        12      34.3         0       0.0        23      65.7         0       0.0
4. Pressure Ulcer Stages III & IV (MCC)..............            120,582     1,407       1.2        81       0.1   119,065      98.7        29       0.0

[[Page 51514]]

 
5. Falls and Trauma (MCC & CC).......................            189,231     5,762       3.0       326       0.2   183,048      96.7        95       0.1
6. Catheter-Associated UTI (CC)......................             18,247     3,877      21.2        24       0.1    14,319      78.5        27       0.1
7. Vascular Catheter-Associated Infection (CC).......             10,066     4,346      43.2        25       0.2     5,673      56.4        22       0.2
8. Poor Glycemic Control (MCC).......................             16,468       565       3.4        14       0.1    15,888      96.5         1       0.0
9A. Surgical Site Infection Mediastinitis CABG (CC)..                 40        36      90.0         0       0.0         4      10.0         0       0.0
9B. Surgical Site Infection Following Certain                        365       220      60.3         1       0.3       144      39.5         0       0.0
 Orthopedic Procedures (CC)..........................
9C. Surgical Site Infection Following Bariatric                       18        17      94.4         0       0.0         1       5.6         0       0.0
 Surgery for Obesity (CC)............................
10. Pulmonary Embolism & DVT Orthopedic (MCC)........              3,820     3,132      82.0        16       0.4       648      17.0        24       0.6
                                                      --------------------------------------------------------------------------------------------------
    Total*...........................................            359,479    19,681       5.5       488       0.1   339,112      94.3       198       0.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As described in section II.F.1.f. of this preamble, 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. We also discussed the comments 
we received urging CMS to 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 (74 FR 43784 and 43785), we also 
discussed and responded to comments regarding HACs coded with the ``U'' 
indicator. As shown in Chart B above, RTI's analysis provides data on a 
total of 488 HAC-associated secondary diagnoses reported with a POA 
indicator of ``U.'' These 488 diagnoses represented 2.4 percent of the 
20,169 diagnoses that were considered not POA (that is, POA indicator 
of ``N'' or ``U''). Approximately 3 of the 10 conditions reported no 
diagnoses with POA indicators of ``U'': Air embolism, Blood 
Incompatibility, and two of the three surgical site infections 
(Mediastinitis after CABG and SSI after bariatric surgery for obesity). 
For the two most frequently occurring conditions, the Falls and Trauma 
HAC category and Stage III and/or IV Pressure Ulcers, diagnoses with a 
POA indicator of ``U'' represented a small proportion of diagnoses that 
were considered not POA (that is, POA indicator of ``N'' or ``U''). For 
the Falls and Trauma HAC category, 5.7 percent of diagnoses (326 cases) 
considered not POA were reported with a POA indicator of ``U.'' For 
Stage III and/or IV Pressure Ulcers, 5.4 percent of diagnoses (81 
cases) considered not POA were reported with a POA indicator of ``U.'' 
These two categories also represented the conditions where diagnoses 
with a POA indicator of ``U'' were the highest proportion of diagnoses 
considered not POA. We consider the range of 0 to 5.7 percent to 
indicate that ``U'' is not used with great frequency for these 10 
conditions. In the proposed rule, we stated that we did not contemplate 
a proposal 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.'' The data analysis described above 
continues to support our policy.
    We encourage readers to further review the RTI detailed report 
which demonstrates the frequency of each individual HAC-associated 
diagnosis code within the HAC categories. As an example, we note that 
in the Foreign Object Retained After Surgery HAC category, there are 
two unique ICD-9-CM diagnosis codes used to identify that condition: 
diagnosis code 998.4 (Foreign body accidentally left during a 
procedure) and diagnosis code 998.7 (Acute reaction to foreign 
substance accidentally left during a procedure). In the detailed RTI 
report, readers can view that diagnosis code 998.4 was reported 547 
times and diagnosis code 998.7 was reported 18 times, across all MS-
DRGs, for a total of 565 times. The RTI detailed report is available at 
the following Web site: http://www.rti.org/reports/cms/.
e. FY 2010 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 with 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. Column 
B shows the percent of discharges reporting a HAC-associated diagnosis 
code relative to the total discharges ``at risk'' in each HAC category. 
For HAC categories 1 through 8, both medical and surgical MS-DRGs are 
included in the total discharges ``at risk'' so this equates to 
10,189,168 discharges. The remaining HAC categories are defined by the 
combination of diagnosis and procedure codes; therefore, only the 
surgical MS-DRGs that include the designated procedure codes are 
included in the total discharges ``at risk.'' For HAC 9a, the total 
discharges ``at risk'' equates to 97,341. For HAC 9b, the total 
discharges ``at risk'' equates to 118,815 and for HAC 9c, the total 
discharges ``at risk'' equates to 15,698. Lastly, for HAC 10, the total 
discharges ``at risk'' equates to 440,571.
    Column C shows the number of discharges for each HAC reported with 
a POA indicator of ``N'' or ``U.'' For example, there were 42 
discharges that reported Air Embolism as a secondary diagnosis. The 
chart shows that, of these 42 reported discharges, 29 discharges (69.05 
percent) had a POA indicator of ``N'' or ``U'' and was identified as a 
HAC discharge. The HAC policy applied to these 29 discharges, and they 
could, therefore, have had an MS-DRG reassignment. Column E shows the 
number of discharges where an actual MS-DRG reassignment occurred. For 
the Air Embolism HAC, Column E shows that the number of discharges that 
resulted in actual MS-DRG reassignments is 15 (51.72 percent of the 29 
discharges with a POA indicator of ``N'' or ``U''). Thus, while there 
were 29 discharges (69.05 percent of the original

[[Page 51515]]

42 that had air embolism reported as a secondary diagnosis) 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, 15 
discharges (51.72 percent) experienced 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 317,644 discharges with a 
HAC-associated diagnosis as a secondary diagnosis, 3,587 discharges 
ultimately resulted in MS-DRG reassignment. As we discuss below, there 
were 15 claims that resulted in MS-DRG reassignment where 2 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 154,371 discharges. Of 
these 154,371 discharges, 5,454 (3.53 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 5,454 discharges within this HAC category that were not POA, 
1,672 (30.66 percent) resulted in an MS-DRG reassignment.
    Of the 317,644 total discharges reporting HAC-associated diagnoses 
as a secondary diagnosis, 3,494 discharges were coded with a secondary 
diagnosis of PE/DVT Orthopedic. Of these 3,494 discharges, 2,876 (82.31 
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 2,876 discharges in this HAC category 
that were not POA, 1,206 discharges (41.93 percent) resulted in an MS-
DRG reassignment.
    The Pressure Ulcer Stages III & IV category had the second most 
frequently coded secondary diagnoses, with 114,138 discharges. Of these 
discharges, 1,444 (1.27 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 1,444 discharges 
in this HAC category that were not POA, 292 discharges (20.22 percent) 
resulted in an MS-DRG reassignment.
    The Catheter-Associated UTI category had the third most frequently 
coded secondary diagnoses, with 18,247 discharges. Of these discharges, 
3,885 (21.29 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 3,885 discharges 
in this HAC category that were not POA, 223 discharges (5.74 percent) 
resulted in a MS-DRG reassignment.
    The remaining 6 HAC categories only had 194 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 22 of the 4,366 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 364 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 6 HAC categories: Pressure 
Ulcer Stages III and IV (29 cases); Falls and Trauma (263 cases); 
Catheter-Associated UTI (16 cases); Vascular Catheter-Associated 
Infection (5 cases); Manifestations of Poor Glycemic Control (50 
cases); and Surgical Site Infection Following Certain Orthopedic 
Procedures (1 case). 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 in the RTI detailed report, which can be found at: http://www.rti.org/reports/cms/.
    In summary, Chart C below demonstrates that there were a total of 
317,644 discharges with a reported HAC-associated secondary diagnosis. 
Of the total 317,644 discharges, 6.0 percent, or 19,143 discharges, 
were HACs reported with a POA indicator of ``N'' or ``U'' that were 
identified as a HAC discharge. Approximately 18.7 percent, or 3,587 
discharges, of these 19,143 discharges resulted in MS-DRG 
reassignments.

             Chart C--Discharge Frequencies of Current CMS HACS October 2009 Through September 2010
----------------------------------------------------------------------------------------------------------------
                                      Discharges with this    Discharges identified as   Discharges that change
                                     condition as secondary             a HAC               MS-DRG due to HAC
                                            diagnosis        ---------------------------------------------------
       Selected HAC category       --------------------------
                                       Number    Percent \2\     Number    Percent \3\     Number    Percent \4\
                                     (column a)   (column b)   (column c)   (column d)   (column e)   (column f)
----------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After            563         0.01          278        49.38           44        15.83
 Surgery..........................
2. Air Embolism...................           42         0.00           29        69.05           15        51.72
3. Blood Incompatibility..........           35         0.00           12        34.29            0         0.00
4. Pressure Ulcer Stages III & IV.      114,138         1.12        1,444         1.27          292        20.22
5. Falls and Trauma...............  ...........  ...........  ...........  ...........  ...........  ...........
a. Fracture.......................      137,888         1.35        4,700         3.41        1,439        30.62

[[Page 51516]]

 
b. Dislocation....................        1,105         0.01           35         3.17            4        11.43
c. Intracranial Injury............       15,844         0.16          706         4.46          234        33.14
d. Crushing Injury................           41         0.00            2         4.88            1        50.00
e. Burn...........................        2,297         0.02           39         1.70            6        15.38
f. Electric Shock.................          818         0.01            9         1.10            0         0.00
Less: Discharges with multiple           -3,622        -0.04          -37        -1.02          -12       -32.43
 Falls & Trauma...................
5. Falls and Trauma: Unduplicated       154,371         1.52        5,454         3.53        1,672        30.66
 Total............................
6. Catheter-Associated UTI........       18,247         0.18        3,885        21.29          223         5.74
7. Vascular Catheter-Associated          10,066         0.10        4,366        43.37           22         0.50
 Infection........................
8. Poor Glycemic Control..........       16,267         0.16          526         3.23          107        20.34
9a. SSI Mediastinitis CABG........           40         0.04           36        90.00            4        11.11
9b. SSI Orthopedic................          363         0.31          220        60.61            2         0.91
9c. SSI Bariatric.................           18         0.11           17        94.44            0         0.00
10. Pulmonary Embolism & DVT              3,494         0.79        2,876        82.31        1,206        41.93
 Orthopedic.......................
                                   -----------------------------------------------------------------------------
    Total \1\.....................      317,644  ...........       19,143  ...........        3,587  ...........
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row. The total figure is not adjusted for the 94 discharges with more
  than one HAC that appear as secondary diagnoses (15 of these resulted in MS-DRG reassignment).
\2\ Percent computed relative to total discharges ``at risk'' for this HAC. For HACs 1-8, this is 10,189,168.
  For HAC 9a, this is 97,341. For HAC 9b, this is 118,815. For HAC 9c, this is 15,698. For HAC 10, this is
  440,571.
\3\ Percent computed relative to discharges with condition as a secondary diagnosis.
\4\ Percent computed relative to discharges with this HAC (Column C).
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.

    An extremely small number of discharges had multiple HACs reported 
during the same stay. In reviewing the approximately 10.2 million 
claims, RTI found approximately 94 cases in which 2 HACs were reported 
on the same discharge. Chart D below summarizes these cases. Thirty-two 
of the cases with 2 HACs involved Pressure Ulcer Stages III & IV, and 
31 cases involved Falls or Trauma. Other multiple HAC cases included 27 
Catheter-Associated UTI cases, 3 Vascular Catheter-Associated Infection 
cases and 1 Foreign Object Retained After Surgery case. There were 
eight cases in which a Falls and Trauma HAC was reported together with 
a Pressure Ulcer Stages III & IV HAC.
    Some of these cases with multiple HACs reported had both HAC codes 
ignored in the MS-DRG assignment. Of these 66 claims, 49 did not 
receive higher payments based on the presence of these reported HACs, 
and we describe these claims in section II.F.3.f.(2) of this preamble. 
Depending on the MS-DRG to which the cases were originally assigned, 
ignoring the HAC codes would have led to a MS-DRG reassignment if there 
were no other MCCs or CCs reported, if the MS-DRG was subdivided into 
severity levels, and if the case were not already in the lowest 
severity level prior to ignoring the HAC codes.

         Chart D--Claims With More Than One HAC Secondary Diagnosis October 2009 Through September 2010
----------------------------------------------------------------------------------------------------------------
                                                                                                    7. Vascular
                                    1. Foreign      4. Pressure    5. Falls and    6. Catheter-      catheter-
               HAC                  object--CC     ulcer stages    trauma--MCC &    associated      associated
                                                   III & IV--MCC        CC            UTI--CC      infection--CC
----------------------------------------------------------------------------------------------------------------
5. Falls and trauma--MCC & CC...  ..............               8  ..............  ..............  ..............
6. Catheter-Associated UTI--CC..  ..............               8              12  ..............  ..............
7. Vascular Catheter-Associated   ..............              12               6              21  ..............
 Infection--CC..................
8. Poor Glycemic Control--MCC...  ..............               1               2  ..............               1
9B. Surgical Site Infection                    1  ..............  ..............  ..............               2
 Following Certain Orthopedic
 Procedures--CC.................
10. Pulmonary Embolism & DVT      ..............               3              11               6  ..............
 Orthopedic--MCC................
                                 -------------------------------------------------------------------------------
    Total.......................               1              32              31              27               3
----------------------------------------------------------------------------------------------------------------

f. 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 there is a HAC as a secondary 
diagnosis (meaning 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

[[Page 51517]]

B shows the frequency of discharges where the HAC-associated secondary 
diagnosis was coded as not POA and, therefore, 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 (cases with HAC-
associated diagnosis codes with a POA of ``N'' or ``U'') 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 156 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 11,818 cases with HACs did not have a change in the MS-
DRG assignment because of the presence of other reported MCCs and CCs. 
This represents approximately 76 percent of the 15,556 cases with HACs 
that did not have a change in MS-DRG assignment.
(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 (cases with HAC-associated diagnosis codes with a POA of 
``N'' or ``U'') did not result in an MS-DRG change because the MS-DRG 
is subdivided solely by the presence or absence of an MCC. A claim with 
a HAC and a POA indicator of either ``N'' or ``U'' may be assigned to 
an MS-DRG that is subdivided solely by the presence or absence of an 
MCC. In such cases, removing a HAC ICD-9-CM CC code will not lead to 
further changes in the MS-DRG assignment. Examples of these MS-DRG 
subdivisions are shown in the footnotes to the chart and include the 
following examples:

 MS-DRGs 100 and 101 (Seizures with or without MCC, 
respectively)
 MS-DRGs 102 and 103 (Headaches with or without MCC, 
respectively)

    The codes that fall under the HAC category of Foreign Object 
Retained After Surgery are CCs. If this case were assigned to a MS-DRG 
with an MCC subdivision such as MS-DRGs 100 and 101, the presence of 
the HAC code would not affect the MS-DRG severity level assignment. In 
other words, if the Foreign Object Retained After Surgery code were the 
only secondary diagnosis reported, then the case would be assigned to 
MS-DRG 101 (Seizure without MCC). 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 2,282 cases where 
the HAC code was reported with an ``N'' or ``U'' and the MS-DRG 
assignment did not change because the case was already assigned to the 
lowest severity level. This represents approximately 15 percent of the 
15,556 cases with HACs that did not have a change in MS-DRG assignment.
(3) No Severity Levels
    Column F (Number of MS-DRGs with No Severity Levels) shows the 
frequency with which discharges with an HAC (cases with HAC-associated 
diagnosis codes with a POA of ``N'' or ``U'') did not result in an MS-
DRG change because the MS-DRG that the case was assigned to is not 
subdivided by 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 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 1,449 cases reporting a HAC (cases with HAC-associated 
diagnosis codes with a POA of ``N'' or ``U'') 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). 
This represents approximately 9 percent of the 15,556 cases with HACs 
that did not have a change in MS-DRG assignment.
(4) MS-DRG Logic
    Column G (MS-DRG Logic Issues) shows the frequency with which a HAC 
(cases with HAC-associated diagnosis codes with a POA of ``N'' or 
``U'') did not result in an MS-DRG change because of MS-DRG assignment 
logic. There were seven discharges where the HAC criteria were met and 
the HAC logic was applied. However, due to the structure of the MS-DRG 
logic, these cases did not result in MS-DRG reassignment. These cases 
may appear similar to those discharges where the MS-DRG is subdivided 
into two severity levels by the presence or absence of an MCC and did 
not result in MS-DRG reassignment. However, these discharges differ 
slightly in that the MS-DRG logic also considers specific procedures 
that were reported on the claim. In other words, for certain MS-DRGs, a 
procedure may be considered the equivalent of an MCC or a 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 non-HAC secondary diagnosis code 599.0 (Urinary 
tract infection, site not specified), having POA indicators of ``Y,'' 
``N,'' and ``N,'' respectively, and procedure code 39.73 (Endovascular 
implantation of graft in thoracic aorta) currently 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 assignment. Other examples of MS-

[[Page 51518]]

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 three of the seven cases 
that did not result in MS-DRG reassignment due to the MS-DRG logic were 
in the Falls and Trauma HAC category, two cases were in the Catheter 
Associated UTI HAC category and two cases were in the Vascular 
Catheter-Associated Infection HAC Category.
    In conclusion, a total of 15,556 cases (11,818 + 2,282 +1,449 + 7) 
did not have a change in MS-DRG assignment, regardless of the presence 
of a HAC. The reasons described above explain why only 3,587 cases had 
a change in MS-DRG assignment despite the fact that there were 19,143 
HACs (cases with HAC-associated diagnosis codes with a POA of ``N'' or 
``U'').

                                Chart E--Reasons HAC Did Not Change MS-DRG Assignment October 2009 Through September 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     HAC discharges that do not change MS-DRG
                                                                                         ---------------------------------------------------------------
                                             Number of                     Number of HAC                   Number of MS-
                                            discharges       Number of      discharges                     DRGs with two
                                             with this      discharges    that change MS-    Number of       severity      Number of MS-
          Selected HAC category            condition as    identified as  DRG due to HAC  other MCCs/CCs   levels where    DRGs with no    Other MS-DRG
                                             secondary    a HAC  (Column     (Column C)    that prevent    HAC does not      severity      logic issues
                                             diagnosis          B)                         reassignment    affect MS-DRG      levels      **  (Column G)
                                            (Column A)                                      (Column D)     assignment *     (Column F)
                                                                                                            (Column E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After                     563             278              44             156              67              11               0
 Surgery--CC............................
2. Air Embolism--MCC....................              42              29              15              14               0               0               0
3. Blood Incompatibility--CC............              35              12               0               9               0               3               0
4. Pressure Ulcer Stages III & IV--MCC..         114,138           1,444             292             895               0             257               0
5. Falls and Trauma--MCC & CC...........         154,371           5,454           1,672           2,858             570             351               3
6. Catheter-Associated UTI--CC..........          18,247           3,885             223           2,930             490             240               2
7. Vascular Catheter-Associated                   10,066           4,366              22           3,656             189             497               2
 Infection--CC..........................
8. Poor Glycemic Control--MCC & CC......          16,267             526             107             364               3              52               0
9A. Surgical Site Infection,                          40              36               4              24               0               8               0
 Mediastinitis, Following Coronary
 Artery Bypass Graft (CABG)--MCC........
9B. Surgical Site Infection Following                363             220               2             136              79               3               0
 Certain Orthopedic Procedures--CC......
9C. Surgical Site Infection Following                 18              17               0              17               0               0               0
 Bariatric Surgery for Obesity--CC......
10. Pulmonary Embolism & DVT Orthopedic--          3,494           2,876           1,206             759             884              27               0
 MCC & CC...............................
                                         ---------------------------------------------------------------------------------------------------------------
    Total \1\...........................         317,644          19,143           3,587          11,818           2,282           1,449               7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row. The total figure is not adjusted for the approximately 94 discharges with more than one HAC that appear
  as secondary diagnoses (15 of these discharges resulted in MS-DRG reassignment).
* Examples where an HAC classified as a CC would not affect the DRG assignment if it were removed. The MS-DRG is subdivided by the presence or absence
  of an MCC. A CC would not impact this DRG assignment.
[dec221]MS-DRGs 100 and 101 (Seizures with or without MCC, respectively).
[dec221]MS-DRGs 102 and 103 (Headaches with or without MCC, respectively).
** Examples where HAC did not change MS-DRG assignment because of the MS-DRG logic.
[dec221]MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators).
[dec221]MS-DRG 120 (Major Head & Neck Procedures with CC/MCC or Major Device).
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.


[[Page 51519]]

g. RTI Analysis of Coding Changes for HAC-Associated Secondary 
Diagnoses for Current HACs
    In addition to studying claims from October 2009 through September 
2010, RTI evaluated claims data from 3 years prior to determine if 
there were significant changes in the number of discharges with a HAC-
associated code being reported as a secondary diagnosis. To provide 
consistency with the FY 2010 data studied, RTI examined claims using 
discharge dates from October 2006 through September 2007 (for FY 2007), 
October 2007 through September 2008 (for FY 2008), October 2008 through 
September 2009 (FY 2009) and compared these data to the FY 2010 data.
    We refer readers to the RTI detailed report for further information 
regarding all the conditions in each fiscal year (FY 2007 through FY 
2010) as described above at the Web site: http://www.rti.org/reports/cms/.
h. RTI Analysis of Estimated Net Savings for Current HACs
    RTI determined estimates of the net savings generated by the HAC 
payment policy based on MedPAR claims for FY 2010, from October 2009 
through September 2010.
(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 calculate this payment impact, 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 27 of the Medicare Severity GROUPER software 
(applicable to discharges between October 1, 2009 and September 30, 
2010). IPPS MedPAR claims were run through this file to obtain needed 
HAC-POA output variables.
     The FY 2010 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/IPPS2010, 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 file for FY 2010, as downloaded from the 
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2010/. 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 hospital-specific 
payment rates.
     The IPPS impact file for FY 2011, as downloaded from the 
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/11FR/. This file 
includes indirect medical education (IME) and disproportionate share 
(DSH) percent adjustments as well as the operating and capital CCRs 
that were in effect as of March 2010.
     CMS historical provider-specific files (PSFs). These files 
include the indicator to identify providers subject to the full or 
reduced standardized rates and the applicable operating and capital 
CCRs. 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 2010 impact file, of which 11 also did not appear 
in the FY 2011 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/IPPS2010/. For providers in 
the FY 2011 file but not the FY 2010 file, we used IME and DSH rates 
from FY 2011. The 11 providers in neither impact file were identified 
as non-IME and non-DSH providers in the historical PSF file.
    The steps for estimating the HAC payment impact are as follows:
    Step 1: Re-run the Medicare Severity GROUPER on all records in the 
analysis file. This is needed to obtain information on actual HAC-
related MS-DRG reassignments in the file, and to identify the CCs and 
MCCs that contribute to each MS-DRG assignment.
    Step 2: Model the base payment and outlier amounts associated with 
the initial MS-DRG if the HAC were excluded using the computations laid 
out in the CMS file ``Outlier Example 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 2010 factors. 
RTI's first round of computations treated all claims as though paid 
under standard IPPS rules without adjusting for short-stay transfers or 
hospital-specific payment amounts.
    Step 3: Model the base payment and outlier amounts associated with 
the final MS-DRG where the HAC was excluded using the computations laid 
out in the CMS file ``Outlier Example 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 2010 factors. 
RTI's first round of computations treated all claims as though paid 
under standard IPPS rules without adjusting for short-stay transfers or 
hospital-specific payment amounts.
    Step 4: Compute MS-DRG base savings as the difference between the 
nonoutlier payments for the initial and final MS-DRGs. Compute outlier 
amounts as the difference in outlier amounts due under the initial and 
final reassigned MS-DRG. Compute net savings due to HAC reassignment as 
the sum of base savings plus outlier amounts.
    Step 5: Adjust the model to incorporate short-stay transfer payment 
adjustments.
    Step 6: Adjust the model to incorporate hospital-specific payments 
for qualifying rural providers receiving the hospital-specific payment 
rates.
    It is important to mention that using the methods described above, 
the MS-DRG and outlier payments amounts that are modeled for the final 
assigned MS-DRG do not always match the MS-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 60 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 2 
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

[[Page 51520]]

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 2009 through 2010, 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 15 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 15 discharges 
with an MS-DRG reassignment resulted in a total net savings of 
$118,785. Column C shows the net savings per discharge for each HAC 
category. For the Air Embolism HAC category, the net savings per 
discharge is $7,919. Because a single discharge can have more than one 
HAC, discharges can appear in more than one row. The total net savings 
shown in the last line of Column B is adjusted to avoid duplicate 
counting and is therefore less than the sum of the net savings from the 
lines above.

               Chart F--Estimated Net Savings of Current HACs October 2009 Through September 2010
----------------------------------------------------------------------------------------------------------------
                                                                Number of
                                                             discharges that   Net savings (in   Net savings per
                       Selected HAC                           change MS-DRG       dollars)        discharge (in
                                                               due to HAC                           dollars)
----------------------------------------------------------------------------------------------------------------
                                                                  (Column A)        (Column B)        (Column C)
1. Foreign Object Retained After Surgery..................                44          $159,841            $3,633
2. Air Embolism...........................................                15           118,785             7,919
3. Blood Incompatibility..................................                 0                 0                 0
4. Pressure Ulcer Stages III & IV.........................               292         1,795,456             6,149
5. Falls and Trauma:
    a. Fracture...........................................             1,439         8,119,308             5,642
    b. Dislocation........................................                 4            13,244             3,311
    c. Intracranial Injury................................               234         1,127,066             4,817
    d. Crushing Injury....................................                 1             7,826             7,826
    e. Burn...............................................                 6            15,594             2,599
    f. Shock..............................................                 0                 0                 0
    Less: Discharges with Multiple Falls & Trauma \1\.....               -12           -82,330            -6,861
                                                           -----------------------------------------------------
        5. Falls and Trauma: Unduplicated Total...........             1,672         9,200,708             5,503
6. Catheter-Associated UTI................................               223           696,662             3,124
7. Vascular Catheter-Associated Infection.................                22            77,690             3,531
8. Poor Glycemic Control..................................               107           604,308             5,648
9a. SSI Mediastinitis CABG................................                 4            32,392             8,098
9b. SSI Orthopedic........................................                 2            15,044             7,522
9c. SSI Bariatric.........................................                 0                 0                 0
10. Pulmonary Embolism & DVT Orthopedic...................             1,206         8,826,912             7,319
                                                           -----------------------------------------------------
    Total.................................................             3,587        21,527,798             6,002
                                                           -----------------------------------------------------
    Less: Discharges with Multiple HACs \2\...............               -15           -77,703            -5,180
                                                           -----------------------------------------------------
        Unduplicated Total................................             3,572        21,450,095             6,005
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can have more than one Falls and Trauma HAC and therefore appear in more than one row.
\2\ Discharges can have more than one HAC and therefore appear in more than one row.
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.

    As shown in Chart F above, the unduplicated total net savings 
calculated for the 12-month period from October 2009 through September 
2010 was approximately $21.5 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 approximately $19.83 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 approximately $9.20 million. 
Estimated net savings associated with Orthopedic PE/DVT for the 12-
month period were approximately $8.83 million. Estimated net savings 
for the 12-month period associated with Pressure Ulcer Stages III & IV 
were approximately $1.80 million.
    The mean net savings per discharge calculated for the 12-month 
period from October 2009 through September 2010 was approximately 
$6,005. 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 and 
SSI Following Bariatric Surgery for Obesity, where no savings occurred 
because no discharges resulted in MS-DRG reassignment, Catheter-
Associated UTI had the lowest net savings per discharge.
    We refer readers to the RTI detailed report available at the Web 
site: http://www.rti.org/reports/cms/.
    As mentioned previously, an extremely small number of cases in the 
12-month period of FY 2010 analyzed by RTI had multiple HACs during the 
same stay. In reviewing approximately 10.2 million claims, RTI found

[[Page 51521]]

approximately 94 cases where 2 HACs were reported on the same admission 
as noted in section II.F.3.g.(2) of this preamble. Of these 
approximately 94 claims, 15 resulted in MS-DRG reassignment. Chart G 
below summarizes these cases. There were 15 cases that had 2 HACs not 
POA that resulted in an MS-DRG reassignment. Of these, four discharges 
involved Pressure Ulcer Stages III & IV, four discharges involved Falls 
and Trauma, and seven discharges involved Vascular Catheter-Associated 
Infection.

   Chart G--Claims With More Than One HAC Secondary Diagnosis Where MS-DRG Reassignment Occurred October 2009
                                             Through September 2010
----------------------------------------------------------------------------------------------------------------
                                                                                                   7. Vascular
                                                               4. Pressure      5. Falls and        Catheter-
                       Selected HAC                         Ulcer Stages III  Trauma--MCC & CC     Associated
                                                                & IV-MCC                          Infection--CC
----------------------------------------------------------------------------------------------------------------
5. Falls and Trauma--MCC & CC.............................                 2  ................  ................
6. Catheter-Associated Urinary Tract Infection (UTI)--CC..                 1                 2                 6
7. Vascular Catheter-Associated Infection--CC.............                 1                 2  ................
9B. Surgical Site Infection Following Certain Orthopedic    ................  ................                 1
 Procedures--CC...........................................
                                                           -----------------------------------------------------
    Total.................................................                 4                 4                 7
----------------------------------------------------------------------------------------------------------------

    As we discuss in section II.F.1.b. of this preamble, implementation 
of this policy is the part of an array of Medicare VBP tools that we 
are using to promote increased quality and efficiency of care. We point 
out that a decrease over time in the number of discharges where these 
conditions are not POA is a desired consequence. We recognize that 
estimated net savings would likely decline as the number of such 
discharges decline. However, we believe that the sentinel effect 
resulting from CMS identifying these conditions is critical. (We refer 
readers to section IV.A. of this preamble for a discussion of the 
inclusion of the incidence of these conditions in the Hospital IQR 
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.
i. 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 approximately 10.2 million discharges), 
as well as the POA indicator assignments for these conditions. Chart H 
below indicates that the four 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 90,243 secondary diagnoses codes 
being reported for that condition, of which 29,306 reported a POA 
indicator of ``N''; (2) Methicillin-Resistant Staphylococcus aureus, 
with a total of 72,313 secondary diagnoses codes being reported for 
that condition, with 2,165 of those reporting a POA indicator of ``N''; 
and (3) Staphylococcus aureus Septicemia, with a total of 24,327 
secondary diagnoses codes being reported for that condition, with 5,490 
of those reporting a POA indicator of ``N''; and (4) Iatrogenic 
Pneumothorax, with a total of 22,506 secondary diagnoses codes being 
reported for that condition, with 19,581 of those reporting a POA 
indicator of ``N.'' As these four conditions had the most significant 
impact for reporting a POA indicator of ``N,'' it is reasonable to 
believe that these same three conditions would have the greatest number 
of potential MS-DRG reassignments. The frequency of discharges for the 
previously considered HACs that could lead to potential changes in MS-
DRG assignment is discussed in the next section. We take this 
opportunity to remind readers that because more than one previously 
considered HAC diagnosis code can be reported per discharge (on a 
single claim) that the frequency of these diagnosis codes may be more 
than the actual number of discharges with a previously considered 
candidate condition reported as a secondary diagnosis.

                     Chart H--POA Status of Previously Considered ``Candidate'' HAC Conditions--October 2009 Through September 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Not Present on Admission                  Present on Admission
                                                         Frequency as a  -------------------------------------------------------------------------------
         Previously considered HAC condition               secondary            POA = N             POA = U             POA = Y             POA = W
                                                           diagnosis     -------------------------------------------------------------------------------
                                                                           Number    Percent   Number    Percent   Number    Percent   Number    Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Clostridium Difficile-Associated Disease (CDAD)...             90,243    29,306     32.47       416      0.46    60,397     66.93       124      0.14
2. Delirium..........................................                757       190     25.10  ........  ........       567     74.90         0      0.00
3. Legionnaire's Disease.............................                426        27      6.34         2      0.47       397     93.19         0      0.00
4. Staphylococcus aureus Septicemia..................             24,327     5,490     22.57        65      0.27    18,738     77.03        34      0.14
5. Methicillin-Resistant Staphylococcus aureus.......             72,313     2,165      2.99       124      0.17    70,008     96.81        16      0.02
6. Iatrogenic Pneumothorax...........................             22,506    19,581     87.00        15      0.07     2,907     12.92         3      0.01
7. Ventilator-Associated Pneumonia...................              4,278     3,159     73.84         5      0.12     1,110     25.95         4      0.09
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 90,243 
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).

[[Page 51522]]

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 90,243 discharges, 
29,722 discharges (32.94 percent) had a POA indicator of ``N'' or 
``U.'' Therefore, there were a total of 29,722 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 830 (2.79 percent). Thus, while there were 
29,722 discharges with CDAD reported with a POA indicator of ``N'' or 
``U'' that could potentially have had an MS-DRG reassignment, the 
result was 830 (2.79 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 
214,785 discharges with a previously considered candidate HACs reported 
as a secondary diagnosis. Of those 60,538 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 3,768.

   Chart I--Previously Considered ``Candidate'' HAC Discharge Frequencies--October 2009 Through September 2010
----------------------------------------------------------------------------------------------------------------
                                      Discharges with this      Discharges with this     Cases that could change
                                     condition as secondary   condition not present on        MS-DRG due to
                                          diagnosis \2\         Admission (POA = ``N''    previously considered
     Previously considered HAC     --------------------------       or ``U'') \3\           candidate HAC \4\
             condition                                       ---------------------------------------------------
                                       Number      Percent       Number      Percent       Number      Percent
                                     (Column A)   (Column B)   (Column C)   (Column D)   (Column E)   (Column F)
----------------------------------------------------------------------------------------------------------------
1. Clostridium Difficile-                90,243         0.89       29,722        32.94          830         2.79
 Associated Disease (CDAD)........
2. Delirium.......................          757         0.01          190        25.10           14         7.37
3. Legionnaire's Disease..........          426         0.00           29         6.81            3        10.34
4. Staphylococcus aureus                 24,288         0.24        5,549        22.85           97         0.02
 Septicemia.......................
5. Methicillin-Resistant                 72,287         0.71        2,288         3.17            0         0.00
 Staphylococcus aureus............
6. Iatrogenic Pneumothorax........       22,506         0.22       19,596        87.07        2,821        14.40
7. Ventilator-Associated Pneumonia        4,278         0.04        3,164        73.96            3         0.09
                                   -----------------------------------------------------------------------------
    Total \1\.....................      214,785  ...........       60,538  ...........        3,768  ...........
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row.
\2\ Percent computed relative to total cases ``at risk,'' which is 10,189,168 for all candidate conditions.
\3\ Percent computed relative to discharges with condition as a secondary diagnosis.
\4\ Percent computed relative to discharges with condition as a secondary diagnosis and identified as a
  previously considered HAC (that is, coded as not present on admission).
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.

j. Current and Previously Considered Candidate HACs--RTI Report on 
Evidence-Based Guidelines
    The RTI program evaluation includes an annual report that provides 
references for all evidence-based guidelines available for each of the 
selected and previously considered candidate HACs that provide 
recommendations for the prevention of the corresponding conditions. 
Guidelines were primarily identified using the AHRQ National Guidelines 
Clearing House (NGCH) and the CDC, along with relevant professional 
societies. Guidelines published in the United States were used, if 
available. In the absence of U.S. guidelines for a specific condition, 
international guidelines were included.
    Evidence-based guidelines that included specific recommendations 
for the prevention of the condition were identified for each of the 10 
selected conditions. In addition, evidence-based guidelines were also 
found for the previously considered candidate conditions.
    RTI prepared the annual report to summarize its findings regarding 
evidence-based guidelines, which can be found on the Web site at: 
http://www.rti.org/reports/cms.
k. Final Policy Regarding Current HACs and Previously Considered 
Candidate HACs
    We believe that the RTI analysis summarized above does not provide 
additional information that would require us to change our previous 
determinations regarding either current HACs (as described in section 
II.F.2. of this preamble) or previously considered candidate HACs in 
the FY 2008 IPPS final rule with comment period (72 FR 47200 through 
47218), the FY 2009 IPPS final rule (73 FR 48471 through 48491), and 
the FY 2010 IPPS/RY 2010 LTCH final rule (74 FR 43782 through 43785). 
We note that we are finalizing revisions to the Falls and Trauma HAC 
category, Surgical Site Infection Following Certain Bariatric 
procedures and DVT/PE Following Certain Orthopedic Procedures HAC 
categories as discussed in section II.F.2. of this preamble. (We also 
note that, as discussed in section II.F.3.b. of this preamble, we are 
not contemplating changing 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 2012 IPPS/LTCH PPS proposed rule (76 FR 25816), 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

[[Page 51523]]

claims data. Below, we summarize the public comments that we received, 
if any, on our proposals, present our responses, and state our final 
policies.
1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Noninvasive Mechanical Ventilation
    We received a request from the National Association for Medical 
Direction of Respiratory Care (NAMDRC) which suggested that we create a 
new MS-DRG for patients with certain respiratory conditions who receive 
noninvasive mechanical ventilation (NIV). The requestor stated that 
patients who receive NIV are almost always placed within an intensive 
care unit (ICU) or an emergency department and use the resources 
available in those areas. The requestor recommended that this new MS-
DRG recognize current practice and allow for appropriate reimbursement 
for the technical complexity and monitoring required for NIV as a form 
of acute life support. According to the requestor, NIV has evolved to 
become first-line supportive therapy for several forms of acute 
respiratory failure. Lastly, the requestor recommended that the new MS-
DRG identify NIV usage of approximately 6 to 12 hours to account for 
the ``legitimate but very short term use of this therapy.''
    Historically, the concept of mechanical ventilation for critically 
ill patients included establishment of an artificial airway, 
invasively, through endotracheal intubation or a tracheostomy. 
According to the requestor, a significant portion of these patients can 
now be treated through noninvasive mechanical ventilation with the use 
of a face or nasal mask. In the ICD-9-CM classification system, NIV is 
described by procedure code 93.90 (Noninvasive mechanical ventilation), 
while invasive mechanical ventilation is described by procedure codes 
96.70 (Continuous invasive mechanical ventilation of unspecified 
duration), 96.71 (Continuous invasive mechanical ventilation for less 
than 96 consecutive hours), and 96.72 (Continuous invasive mechanical 
ventilation for 96 consecutive hours or more). The requestor submitted 
external data to illustrate trends in NIV use over the past decade. 
These data were derived from a survey conducted during 2002-2003 of 
several hospitals located in Massachusetts and Rhode Island. The 
requestor believed that these data indicate patients with exacerbation 
of chronic obstructive pulmonary disease (COPD), acute pulmonary edema, 
or worsening congestive heart failure are successfully managed with 
NIV.
    For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed FY 2010 
MedPAR claims data that are representative of the respiratory 
conditions the requestor identified when reported with NIV. We found 14 
MS-DRGs reporting procedure code 93.90 using the above specifications. 
The MS-DRGs are as follows:

Pre-MDC MS-DRGs:

 MS-DRG 003 (ECMO or Tracheostomy with Mechanical Ventilation 
96+ Hrs or PDX Except Face, Mouth & Neck with Major O.R.)
 MS-DRG 004 (Tracheostomy with Mechanical Ventilation 96+ Hrs 
or PDX Except Face, Mouth & Neck without Major O.R.)

 MS-DRGs:

 MS-DRG 189 (Pulmonary Edema & Respiratory Failure)
 MS-DRG 190 (Chronic Obstructive Pulmonary Disease with MCC)
 MS-DRG 191 (Chronic Obstructive Pulmonary Disease with CC)
 MS-DRG 192 (Chronic Obstructive Pulmonary Disease without CC/
MCC)
 MS-DRG 204 (Respiratory Signs & Symptoms)
 MS-DRG 207 (Respiratory System Diagnosis with Ventilator 
Support 96+ Hours)
 MS-DRG 208 (Respiratory System Diagnosis with Ventilator 
Support <96 Hours)
 MS-DRG 222 (Cardiac Defibrillator Implant with Cardiac 
Catheterization with AMI/HF/Shock with MCC)
 MS-DRG 223 (Cardiac Defibrillator Implant with Cardiac 
Catheterization with AMI/HF/Shock without MCC)
 MS-DRG 291 (Heart Failure & Shock with MCC)
 MS-DRG 292 (Heart Failure & Shock with CC)
 MS-DRG 293 (Heart Failure & Shock without CC/MCC)

    As shown in the list above and in the chart below, the MS-DRGs 
identified also include those that describe invasive mechanical 
ventilation. The ICD-9-CM coding convention instructs the reporting of 
both types of mechanical ventilation when patients are admitted on 
noninvasive mechanical ventilation that subsequently requires invasive 
mechanical ventilation therapy.
    The data demonstrate that, in certain MS-DRGs, for example, MS-DRGs 
003, 004, and 222 that the cases with NIV primarily have shorter 
lengths of stay and lower average costs compared to all the cases in 
those MS-DRGs. Alternatively, the data for MS-DRGs 189, 190, 191, and 
192 demonstrate that the cases with NIV have an increased length of 
stay and higher average costs, but a relatively low volume compared to 
all the cases in those MS-DRGs. Combining the current surgical and 
medical MS-DRGs into a single, new MS-DRG would include noninvasive 
mechanical ventilation cases with a wide range of costs for several 
indications with varying levels of severity. The average costs for 
these cases range from a low of $5,794 in MS-DRG 293 to a high of 
$95,940 in MS-DRG 003. In the proposed rule, we indicated that we 
believe the cases are more appropriately assigned and reimbursed in the 
MS-DRGs to which they are currently assigned.

----------------------------------------------------------------------------------------------------------------
                                                                               Average length
                          MS-DRG                             Number of cases       of stay        Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 003--All cases.....................................            18,223              34.7          $103,492
MS-DRG 003--Cases with code 93.90 without code 96.70,                     58              33.3            95,940
 96.71, or 96.72..........................................
MS-DRG 004--All cases.....................................            19,599             25.79            63,022
MS-DRG 004--Cases with code 93.90 without code 96.70,                    170             25.43            58,500
 96.71, or 96.72..........................................
MS-DRG 189--All cases.....................................            87,668              5.36             8,317
MS-DRG 189--Cases with code 93.90 without code 96.70,                 22,023              6.07            10,383
 96.71, or 96.72..........................................
MS-DRG 190--All cases.....................................           130,731              5.30             7,140
MS-DRG 190--Cases with code 93.90 without code 96.70,                  8,450              6.78            11,207
 96.71 or 96.72...........................................
MS-DRG 191--All cases.....................................           135,851              4.49             6,236
MS-DRG 191--Cases with code 93.90 without code 96.70,                  4,563              5.41             8,819
 96.71 or 96.72...........................................
MS-DRG 192--All cases.....................................           115,153              3.52             4,621
MS-DRG 192--Cases with code 93.90 without code 96.70,                  2,334              4.25             6,803
 96.71 or 96.72...........................................
MS-DRG 204--All cases.....................................            21,049              2.61             4,310
MS-DRG 204--Cases with code 93.90 without code 96.70,                    265              4.17             7,591
 96.71 or 96.72...........................................
MS-DRG 207--All cases.....................................            32,752             14.61            32,897

[[Page 51524]]

 
MS-DRG 207--Cases with code 93.90 without code 96.70,                      0                 0                 0
 96.71 or 96.72...........................................
MS-DRG 208--All cases.....................................            67,724              6.98            14,742
MS-DRG 208--Cases with code 93.90 without code 96.70,                      0                 0                 0
 96.71 or 96.72...........................................
MS-DRG 222--All cases.....................................             2,279             11.98            57,478
MS-DRG 222--Cases with code 93.90 without code 96.70,                     52             11.79            55,011
 96.71 or 96.72...........................................
MS-DRG 223--All cases.....................................             3,230              6.17            41,754
MS-DRG 223--Cases with code 93.90 without code 96.70,                     19             11.05            47,064
 96.71 or 96.72...........................................
MS-DRG 291--All cases.....................................           170,399              6.05             9,585
MS-DRG 291--Cases with code 93.90 without code 96.70,                 14,274              6.95            12,320
 96.71 or 96.72...........................................
MS-DRG 292--All cases.....................................           220,031              4.72             6,584
MS-DRG 292--Cases with code 93.90 without code 96.70,                  5,171              5.58             9,180
 96.71 or 96.72...........................................
MS-DRG 293--All cases.....................................            98,134              3.20             4,410
MS-DRG 293--Cases with code 93.90 without code 96.70,                  1,381              3.43             5,794
 96.71 or 96.72...........................................
----------------------------------------------------------------------------------------------------------------

    As mentioned in the requestor's comments, and our clinical advisors 
agree, NIV encompasses a broad range of interventions and utilizes 
periods of time that range from a few hours to a few days of continuous 
chronic use. Resource requirements are vastly different for the various 
intended indications. For example, as also noted by the requestor, 
respiratory failure can have many forms. Our clinical advisors provided 
three subsets of patients as an example: Those that are given oxygen 
support, those that are given pressure (rate) support, and those that 
are intubated. There is overlap between the three subsets in that a 
patient may require one, two, or all three types of therapy and there 
are multiple options for any given patient. Our clinical advisors 
stated that these various subsets of patients can require significantly 
different resources. Lastly, respiratory failure reflects the severity 
of the diagnosis (it is a complication) while NIV is a therapeutic 
option. Unlike a major surgical intervention where the intervention 
creates morbidity, NIV merely reflects the severity of the underlying 
respiratory failure.
    The requestor further noted in its comments that a significant 
number of patients who receive NIV fail this therapy and must be 
intubated and subsequently placed on a ventilator. However, those 
patients who require both noninvasive and invasive mechanical 
ventilation are already accounted for in the invasive mechanical 
ventilation MS-DRGs. Similar to patients with respiratory failure, 
patients with heart failure and shock have a comparable severity of 
illness where each condition reflects the severity of the diagnosis (it 
is a complication). Therefore, the cost is already reflected in the 
high resource expenditure estimates for MS-DRGs 222, 223, 291, 292, and 
293, as are all other severity-correlated resource costs.
    In conclusion, we indicated in the proposed rule that we believe 
that the data do not support the creation of a single MS-DRG to 
identify NIV cases. As stated previously, the average costs for the NIV 
cases range from a low of $5,794 in MS-DRG 293 to a high of $95,940 in 
MS-DRG 003. If created, this single MS-DRG would include patients with 
a wide range in average costs. We believe the cases are more 
appropriately captured in their current MS-DRGs. In addition to the 
clinical points raised by our clinical advisors and outlined above, the 
volume and length of stay data for cases where NIV was reported with 
the specified respiratory conditions further support their present MS-
DRG assignments. Therefore, we did not propose to create a new MS-DRG 
for patients receiving NIV. We invited public comment on our proposal 
not to create a new MS-DRG for patients receiving NIV for FY 2012.
    Comment: Several commenters agreed with CMS' proposal to not create 
a new MS-DRG for patients receiving NIV for FY 2012. One commenter did 
not have a position on whether or not a new MS-DRG should be created 
for patients receiving noninvasive mechanical ventilation. However, the 
commenter was concerned that reported hospital data may be incomplete. 
The commenter indicated that procedure code 93.90 (Noninvasive 
mechanical ventilation) is most likely underreported or not reported 
consistently because it is not required for reporting purposes. Another 
commenter stated that the data analysis performed on patients receiving 
NIV appeared to be supported by the current MS-DRG assignment. 
Therefore, the commenter agreed with the proposal not to create a new 
MS-DRG. This commenter also urged CMS to consider the Uniform Hospital 
Discharge Data Set (UHDDS) definition of a ``reportable condition'' in 
future analyses. This commenter noted that the UHDDS requires all 
significant procedures to be reported and that Medicare requires the 
reporting of any procedure that affects payment, whether or not it 
meets the definition of significant procedure. This commenter further 
noted that procedure code 93.90 is not considered significant by the 
UHDDS definition nor does it affect payment.
    Response: We appreciate the commenters' support of our proposal to 
not create a new MS-DRG for patients receiving NIV for FY 2012. We 
agree with the commenters that procedure code 93.90 is likely not 
reported consistently and, therefore, the data included in evaluating 
the request may be incomplete. We encourage complete and accurate 
reporting of ICD-9-CM codes on each admission. As discussed in section 
II.G.13.b. of this final rule, we have expanded our ability to accept 
and process up to 25 diagnosis codes and 25 procedure codes with the 
implementation of 5010. We agree with the commenters who state that the 
current data do not support a new MS-DRG for patients receiving NIV.
    We also agree with the commenter that NIV (procedure code 93.90) is 
not considered to be a significant procedure under UHDDS definitions 
and does not affect payment under Medicare policy. UHDDS definitions 
are used by hospitals to report inpatient data elements in a 
standardized manner. For further information regarding UHDDS data 
elements and their definitions, we refer readers to the July 31, 1985 
Federal Register (50 FR 31038 through 31040) and the Internet Web site 
at: http://www.ncvhs.hhs.gov/ncvhsr1.htm.
    Comment: The organization that submitted the original request to 
create a new MS-DRG for NIV expressed appreciation to CMS for 
considering their request and for providing data that was unavailable 
to them at the time they submitted their original request. The 
commenter also acknowledged the potential for underreporting of NIV 
(procedure code 93.90). However, the commenter specifically asked to 
further

[[Page 51525]]

refine their original request based on the data that were displayed in 
the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25818). The commenter 
suggested that CMS now limit consideration of a new MS-DRG for NIV to 
only the data that were displayed for 4 of the 14 MS-DRGS analyzed in 
response to their original request. The commenter asked CMS to now only 
focus on the data that was provided for the following MS-DRGs:

 MS-DRG 189 (Pulmonary Edema & Respiratory Failure)
 MS-DRG 190 (Chronic Obstructive Pulmonary Disease with MCC)
 MS-DRG 191 (Chronic Obstructive Pulmonary Disease with CC)

     MS-DRG 192 (Chronic Obstructive Pulmonary Disease without 
CC/MCC)

    The commenter recommended that CMS utilize respiratory failure, 
pulmonary edema, and chronic obstructive pulmonary disease as diagnoses 
that, when present with NIV, define the structure of a new NIV MS-DRG.
    Response: We acknowledge the commenter's request that we now 
consider a refined request that focuses on only 4 of the 14 MS-DRGs 
originally analyzed. However, due to time constraints, we were unable 
to conduct the necessary analysis for evaluation. We would need to 
perform a new and separate analysis with exact specifications that were 
not provided by the commenter in their modified request before we could 
make a final determination. For example, there are numerous ICD-9-CM 
codes that describe respiratory failure, pulmonary edema, and chronic 
obstructive pulmonary disease. The commenter did not specify the exact 
codes they believe would warrant this modified MS-DRG when reported 
with procedure code 93.90 (NIV) for us to conduct a thorough analysis 
in time to include our evaluation in this final rule.
    Therefore, after consideration of public comments we received, we 
are finalizing our proposal to not create a new MS-DRG for NIV for FY 
2012.
b. Debridement With Mechanical Ventilation Greater Than 96 Hours With 
Major Operating Room (O.R.) Procedure
    We received a comment concerning the use of excisional debridement 
in cases with complications that lead to the need for extended 
mechanical ventilation. The commenter stated that patients undergoing 
procedures such as excisional debridement may also develop extensive 
complications such as respiratory failure and sepsis. The commenter 
indicated that these patients tend to use significant resources. The 
commenter stated that these cases are currently assigned to MS-DRG 207 
(Respiratory System Diagnosis with Ventilator Support 96+ Hours) or MS-
DRG 870 (Septicemia with or Severe Sepsis with Mechanical Ventilation 
96+ Hours). The commenter expressed a concern that the operating room 
(OR) procedure of the excisional debridement was not fully recognized 
through either of these two medical MS-DRGs. The commenter requested 
that a new MS-DRG be created that would include mechanical ventilation 
of greater than 96 hours with the presence of an additional major OR 
procedure.
    We agree that patients with long-term mechanical ventilation 
greater than 96 hours and a major OR procedure utilize extensive 
resources. However, we point out that these patient cases are not 
currently assigned to MS-DRG 207 or MS-DRG 870 as the commenter stated. 
Many of these long-term mechanical ventilation patient cases are 
instead assigned to MS-DRG 003 (ECMO or Tracheostomy with Mechanical 
Ventilation 96+ Hours or PDX, Excluding Face, Mouth & Neck with Major 
Operating Room Procedure). Cases that require mechanical ventilation 
for greater than 96 hours, that have a tracheostomy performed, and that 
have a procedure on the major O.R. list (including excisional 
debridement) are assigned to MS-DRG 003. We specifically created MS-DRG 
003 to capture these complicated patients on long-term mechanical 
ventilation who also have a major O.R. procedure. Therefore, in the FY 
2012 IPPS/LTCH PPS proposed rule, we did not propose to create a second 
MS-DRG to capture these patients. We welcomed public comments on our 
proposal not to create a new MS-DRG for these patients for FY 2012.
    Comment: Several commenters supported our proposal not to create a 
second MS-DRG to capture patients with mechanical ventilation of 
greater than 96 hours with the presence of an additional major OR 
procedure. One commenter stated that the limited data and documentation 
from the requestor for the creation of a second MS-DRG prohibited them 
from evaluating the need for this new MS-DRG.
    Response: We agree with the commenters that CMS should not create a 
second MS-DRG to capture patients with mechanical ventilation of 
greater than 96 hours with the presence of an additional major OR 
procedure. MS-DRG 003 (ECMO or Tracheostomy with Mechanical Ventilation 
96+ Hours or PDX, Excluding Face, Mouth & Neck with major Operating 
Room Procedure) appropriately captures these patients.
    After consideration of the public comments we received, we are not 
creating a new MS-DRG to capture patients on mechanical ventilation of 
greater than 96 hours who also have an additional major OR procedure 
for FY 2012.
c. Autologous Bone Marrow Transplant
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50101), effective 
October 1, 2011, we deleted MS-DRG 009 (Bone Marrow Transplant) and 
created two new MS-DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) 
and MS-DRG 015 (Autologous Bone Marrow Transplant). We created new MS-
DRGs 014 and 015 because of differences in costs associated with these 
procedures. During the comment period for the FY 2011 IPPS/LTCH PPS 
proposed rule, two commenters who supported the proposed 
reclassification of the bone marrow transplant MS-DRGs requested 
further refinement to account for severity of illness. At that time, we 
did not subdivide MS-DRG 014 and MS-DRG 015 based on severity of 
illness because they did not meet our criteria for subdivision (75 FR 
50102).
    As we outlined in our FY 2008 IPPS/LTCH PPS final rule with comment 
period (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. 
The original criteria were based on average charges; we now use average 
costs (FY 2007 IPPS final rule, 71 FR 47882). 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 cost 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 cost 
between subgroups.
     There is a $2,000 difference in average cost between 
subgroups.
    For the FY 2012 IPPS/LTCH PPS proposed rule, we examined FY 2010 
MedPAR claims data for these newly created MS-DRGs, and based on these 
criteria, we identified MS-DRG 015 as a possible MS-DRG that would 
require further subdivision. MS-DRG 014 was not identified, as this MS-
DRG did not meet the criteria stated above for possible subdivision. 
Autologous bone

[[Page 51526]]

marrow transplantation utilizes the patient's own bone marrow or stem 
cells in the treatment of certain cancers and bone marrow diseases. 
These procedures restore stem cells that have been destroyed either by 
chemotherapy and/or radiation treatment.
    In our analysis, we found 1,338 total cases assigned to MS-DRG 015 
with average costs of approximately $38,608 and an average length of 
stay of approximately 18.8 days. There were 1,092 cases that had a 
secondary diagnosis code reported on the claim that was designated as a 
CC or an MCC with average costs of approximately $40,974 and an average 
length of stay of approximately 19.7 days. There were 246 cases without 
a secondary diagnosis code reported on the claim that had a CC or an 
MCC designation with average cost of approximately $28,105 and an 
average length of stay of approximately 14.6 days. The following table 
illustrates our findings:

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 015--All cases............        1,338         18.8      $38,608
MS-DRG 015--Cases with MCC/CC....        1,092         19.7       40,974
MS-DRG 015--Cases without MCC/CC.          246         14.6       28,105
------------------------------------------------------------------------

    We found that the cases reported with a secondary diagnosis code of 
a CC or an MCC were more costly and had a longer average length of stay 
than both the overall cases assigned to MS-DRG 015 and the cases 
without a CC or an MCC. The cases without a CC or an MCC were less 
costly and had a shorter average length of stay than both the cases 
with a CC or an MCC and the overall cases assigned to that MS-DRG. 
Based on our analysis, all five criteria for a subgroup division were 
met, thereby supporting a 2-level severity split for MS-DRG 015. 
Therefore, for FY 2012, we proposed to delete MS-DRG 015 and create two 
new MS-DRGs:
     Proposed MS-DRG 016 (Autologous Bone Marrow Transplant 
with MCC/CC); and
     Proposed MS-DRG 017 (Autologous Bone Marrow Transplant 
without MCC/CC).
    We invited public comment on our proposal to delete MS-DRG 015 and 
create two new MS-DRGs 016 and 017 for autologous bone marrow 
transplant for FY 2012.
    Comment: Several commenters supported our proposed changes for a 2-
level severity split for autologous bone marrow transplant cases. One 
commenter stated that it appreciated CMS' further refinement to account 
for severity of illness as it reflects current experience with 
transplant eligible patients who present with a range of comorbidities 
and other complicating factors.
    Response: We appreciate the support of the commenters.
    Comment: One commenter disagrees with our proposed refinement of 
MS-DRG 014 to account for severity of illness. The commenter contended 
that the recipient patient population for both autologous and 
allogeneic transplants is similar and that recognition of the variation 
in the patient population for both is warranted. The commenter 
requested a re-review of the cost variances for MS-DRG 014 because 
allogeneic transplant patients are often treated for similar 
comorbidities as autologous transplant patients prior to transplant and 
during post transplant care.
    Response: As we outlined in the proposed rule (76 FR 25819), to 
warrant creation of a CC or MCC subgroup within a base MS-DRG, the 
subgroup must meet all of the five criteria. MS-DRG 014 did not meet 
the criteria for possible subdivision because at least 500 cases were 
not in the CC or MCC subgroup.
    After consideration of the public comments we received, we are 
finalizing our proposal to delete MS-DRG 015 and to create two new MS-
DRGs: MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC); and 
MS-DRG 017 (Autologous Bone Marrow Transplant without CC/MCC). We note 
that we have amended the final titles of new MS-DRGs 015 and 016 to 
place ``CC'' before ``MCC.''
2. MDC 1 (Diseases and Disorders of the Nervous System): Rechargeable 
Dual Array Deep Brain Stimulation System
    We received a public comment in response to the FY 2011 IPPS/LTCH 
PPS proposed rule regarding the MS-DRG assignment for rechargeable dual 
array deep brain neurostimulators. In the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50128), we indicated that we considered this comment 
outside of the scope of the proposed rule as we did not propose any 
changes for these procedures for FY 2011. However, we addressed this 
issue in the FY 2012 IPPS/LTCH PPS proposed rule.
    Deep brain stimulation is a surgical treatment that involves the 
implantation of a neurostimulator, used in the treatment of essential 
tremor, Parkinson's disease, dystonia, and chronic pain. The commenter 
recommended that CMS assign the combination of procedure codes 
representing rechargeable systems for deep brain stimulation therapy, 
procedure code 02.93 (Implantation or replacement of intracranial 
neurostimulator lead(s)) and procedure code 86.98 (Insertion or 
replacement of dual array rechargeable neurostimulator pulse generator) 
to MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex CNS 
PDX with MCC or Chemo Implant) and MS-DRG 024 (Craniotomy with Major 
Device Implant/Acute Complex CNS PDX without MCC).
    The commenter stated that this recommendation would allow all full 
system dual array deep brain stimulation cases to be appropriately 
grouped to the same MS-DRGs. Currently, procedure codes 02.93 and 86.98 
are assigned to MS-DRG 025 (Craniotomy and Endovascular Intracranial 
Procedures with MCC), MS-DRG 026 (Craniotomy and Endovascular 
Intracranial Procedures with CC), and MS-DRG 027 (Craniotomy and 
Endovascular Intracranial Procedures without CC/MCC), while the 
procedure codes for the nonrechargeable dual array systems, procedure 
codes 02.93 and 86.95 (Insertion or replacement of dual array 
neurostimulator pulse generator, not specified as rechargeable), are 
already assigned to MS-DRGs 023 and 024. The commenter stated that the 
procedures to implant the rechargeable and nonrechargeable dual array 
systems are similar clinically as well as comparable in resource 
utilization.
    For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed FY 2010 
MedPAR data and found a total of 16 full system rechargeable dual array 
deep brain stimulation systems reported with procedure codes 02.93 and 
86.98 assigned to MS-DRGs 025 through 027. We found one case assigned 
to MS-DRG 025 and one case assigned to MS-DRG

[[Page 51527]]

026. The majority of the cases, 14, were assigned to MS-DRG 027, with 
average costs of approximately $23,870 and an average length of stay of 
approximately 2.2 days. We found that the deep brain stimulation cases 
assigned to MS-DRG 027 had higher average costs than the overall cases 
assigned to MS-DRG 027 of approximately $14,200. However, the average 
length of stay was shorter for these cases than the overall length of 
stay for MS-DRG 027 cases of approximately 3.7 days.
    We also examined the data for the nonrechargeable dual array 
systems to assess the commenter's assumption that both the rechargeable 
and nonrechargeable dual array systems are similar in resource use. We 
found 155 total nonrechargeable dual array systems (procedure codes 
02.93 and 86.95) assigned to MS-DRGs 023 and 024. There were 5 cases 
assigned to MS-DRG 023, with average costs of approximately $36,159 and 
an average length of stay of approximately 10 days. We found that the 
majority of the cases, 150, were assigned to MS-DRG 024, with average 
costs of approximately $25,855 and an average length of stay of 
approximately 2.2 days. We believe that these data support the 
commenter's statement that, for the majority of these cases, the 
resource use is similar for both systems.
    For comparison purposes, if we proposed the changes that the 
commenter suggested, those deep brain stimulation cases currently 
assigned to MS-DRG 027 and the one case assigned to MS-DRG 026 (with 
average costs of approximately $27, 836) would be reassigned to MS-DRG 
024. The average costs of approximately $23,870 of these deep brain 
stimulation cases assigned to MS-DRG 027 are similar to the overall 
average costs of approximately $23,249 for MS-DRG 024. The one case 
assigned to MS-DRG 025 (with average costs of approximately $29,361) 
would be reassigned to MS-DRG 023 (with average costs of approximately 
$34,168). The following table illustrates our findings:

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 023--All cases............        4,238         11.8      $34,168
MS-DRG 023--Cases with codes                 5         10.0       36,159
 02.93 and 86.95.................
MS-DRG 024--All cases............        1,592          7.6      23, 249
MS-DRG 024--Cases with codes               150          2.2       25,855
 02.93 and 86.95.................
MS-DRG 025--All cases............       11,505         11.0       29,524
MS-DRG 025--Cases with codes                 1          2.0      29, 361
 02.93 and 86.98.................
MS-DRG 026--All cases............        9,782          7.0       19,125
MS-DRG 026--Cases with codes                 1          3.0       27,836
 02.93 and 86.98.................
MS-DRG 027--All cases............       10,936          3.7       14,200
MS-DRG 027--Cases with codes                14          2.2       23,870
 02.93 and 86.98.................
------------------------------------------------------------------------

    Based on our findings, in the proposed rule, we indicated that we 
believe that the data support reassigning the combination of procedure 
codes representing rechargeable systems for deep brain stimulation 
therapy, code 02.93 and code 86.98, to MS-DRGs 023 and 024. Our 
clinical advisors support this reassignment. Therefore, we proposed to 
assign rechargeable dual array systems for deep brain stimulation cases 
identified by reporting both procedure codes 02.93 and 86.98 to MS-DRGs 
023 and 024 for FY 2012. We invited public comment on our proposal to 
assign these cases to MS-DRG 023 and 024 for FY 2012.
    Comment: Several commenters supported our proposal to reassign 
rechargeable dual array deep brain stimulation cases.
    Response: We appreciate the support of the commenters. As stated 
above, we believe that the assignment of these cases to MS-DRG 023 and 
024 is appropriate.
    After consideration of public comments we received, we are adopting 
as final our proposal to assign rechargeable dual array systems for 
deep brain stimulation cases identified by reporting both procedure 
codes 02.93 and 86.98 to MS-DRGs 023 and 024 for FY 2012.
3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat): 
Skull Based Surgeries
    We received a request from a commenter recommending that CMS 
reclassify skull-based surgical procedures that are currently assigned 
to MS-DRGs 135 and 136 (Sinus and Mastoid Procedures with CC/MCC and 
without CC/MCC, respectively) and reassign them to MS-DRGs 025, 026, 
and 027 (Craniotomy and Endovascular Intracranial Procedures with MCC, 
with CC, and without CC/MCC, respectively). The commenter stated that 
the current MS-DRG assignment does not reflect the resource utilization 
and technical complexity of these difficult procedures when performed 
for anterior skull base tumors.
    Skull (or cranial) based surgery is performed for a variety of 
serious medical conditions including esthesioneuroblastomas, which are 
rare, malignant tumors that arise from the epithelium overlying the 
olfactory bulb; sinonasal melanomas, which are malignant melanomas that 
may develop in the mucosa of the nose and sinuses; and sinonasal 
undifferentiated carcinomas, which are rapidly growing malignant tumors 
arising in the nasal cavity and/or sinuses. These types of conditions 
are generally identified by the following ICD-9-CM diagnosis codes:

 160.0 (Malignant neoplasm of nasal cavities)
 160.1 (Malignant neoplasm of auditory tube, middle ear, and 
mastoid air cells)
 160.2 (Malignant neoplasm of maxillary sinus)
 160.3 (Malignant neoplasm of ethmoidal sinus)
 160.4 (Malignant neoplasm of frontal sinus)
 160.5 (Malignant neoplasm of sphenoidal sinus)
 160.8 (Malignant neoplasm of other accessory sinuses)
 160.9 (Malignant neoplasm of accessory sinus, unspecified)
 210.7 (Benign neoplasm of nasopharynx)
 212.0 (Benign neoplasm of nasal cavities, middle ear, and 
accessory sinuses)

    According to the commenter, procedure code 22.63 (Ethmoidectomy) 
describes the type of surgery being performed for these patients and is 
currently assigned to MS-DRGs 135 and 136.
    For the FY 2012 IPPS/LTCH PPS proposed rule, using the FY 2010 
MedPAR file, we examined data on

[[Page 51528]]

cases identified by procedure code 22.63 when reported with one of the 
above listed diagnosis codes in MS-DRGs 135 and 136. We found a total 
of 402 cases in MS-DRG 135 with an average length of stay of 6.30 days 
and average costs of $12,869. We found only 23 cases in MS-DRG 135 
identified by procedure code 22.63 with one of the diagnosis codes 
listed above with an average length of stay of 3.96 days and average 
costs of $10,510. In MS-DRG 136, there were a total of 320 cases with 
an average length of stay of 2.36 days and average costs of $6,683. We 
found only 27 cases in MS-DRG 136 identified by procedure code 22.63 
with one of the diagnosis codes listed above with an average length of 
stay of 2.04 days and average costs of $6,844. As shown in the table 
below, the cases reporting procedure code 22.63 in MS-DRGs 135 and 136 
have a lower volume, a shorter length of stay, and primarily lower 
average costs compared to all cases in MS-DRGs 135 and 136. As we 
indicated in the proposed rule, the data demonstrated that these cases 
are appropriately assigned to their current MS-DRG classifications.

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 135--All cases............          402         6.30      $12,869
MS-- DRG 135--Cases with                    23         3.96       10,510
 procedure code 22.63 and
 diagnosis code 160.0 through
 160.9 or 210.7 or 212.0.........
MS-DRG 136--All cases............          320         2.36        6,683
MS-DRG 136--Cases with procedure            27         2.04        6,844
 code 22.63 and diagnosis code
 160.0 through 160.9 or 210.7 or
 212.0...........................
------------------------------------------------------------------------

    We also analyzed claims data for MS-DRGs 25 through 27. We 
determined that if the cases identified by procedure code 22.63 were to 
be reassigned to MS-DRGs 25-27, they would be significantly overpaid. 
As shown in the table below, we found that the average costs for these 
MS-DRGs range from $14,200 to $29,524.

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 025--All cases............       11,505        10.95      $29,524
MS-DRG 026--All cases............        9,782         7.00       19,125
MS-DRG 027--All cases............       10,936         3.71       14,200
------------------------------------------------------------------------

    In summary, we indicated in the proposed rule that the data did not 
support moving cases with procedure code 22.63 when reported with one 
of the previously listed diagnosis codes from MS-DRGs 135 and 136 to 
MS-DRGs 25, 26 and 27. We invited public comment on our proposal not to 
make any MS-DRG modifications for these codes for FY 2012.
    Comment: Several commenters supported our proposal to not make any 
revisions to reclassify skull-based surgical procedures that are 
currently assigned to MS-DRGs 135 and 136 and reassign them to MS-DRGs 
025, 026, and 027.
    Response: We appreciate the commenters' support.
    After consideration of the public comment we received, we are 
finalizing our proposal to not make any modifications for skull-based 
surgeries for FY 2012.
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Mitral Valve Repair With Implant
    Procedure code 35.97 (Percutaneous mitral valve repair with 
implant) was created for use beginning October 1, 2010 (FY 2011) after 
the concept of a percutaneous valve repair was presented and approved 
at the February 2010 ICD-9-CM Coordination and Maintenance Committee 
Meeting. Procedure code 35.97 was created at that time to describe the 
MitraClip\TM\ device and any other percutaneous mitral valve repair 
devices currently on the market. This procedure code is assigned to the 
following MS-DRGs: 231 and 232 (Coronary Bypass with PTCA with MCC and 
without MCC, respectively); 246 (Percutaneous Cardiovascular Procedure 
with Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 247 
(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without 
MCC); 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting 
Stent with MCC or 4+ Vessels/Stents); 249 (Percutaneous Cardiovascular 
Procedure with Non-Drug-Eluting Stent without MCC); 250 (Percutaneous 
Cardiovascular Procedure without Coronary Artery Stent or AMI with 
MCC); and 251 (Percutaneous Cardiovascular Procedure without Coronary 
Artery Stent or AMI without MCC).
    According to the Food and Drug Administration's (FDA's) terms of 
the clinical trial for MitraClip\TM\, the device is to be implanted in 
patients without any additional surgeries performed. Therefore, based 
on these terms, we believe that the most likely MS-DRG assignments 
would be MS-DRGs 250 and 251, as described above. However, because 
procedure code 35.97 has only been in use since October 1, 2010, there 
are no claims data in the most recent MedPAR update file with which to 
evaluate any alternative MS-DRG assignments. Therefore, we did not 
propose to make any MS-DRG changes for procedure code 35.97 for FY 
2012. We proposed to keep procedure code 35.97 in its current MS-DRG 
assignments. We invited public comment on this proposal.
    Comment: Several commenters addressed our proposal. One commenter 
supported our proposal not to make any MS-DRG changes in the current 
assignment of procedure code 35.97, but also recommended that CMS 
review the MS-DRG assignment for FY 2013 when more claims data become 
available. In addition, one commenter indicated that it ``* * * has no 
objections to CMS' proposed changes to the MS-DRG classifications and 
the Medicare Code Editor, which seem reasonable, given the data and 
information provided.''
    Response: We appreciate the commenters' support and suggestion.
    After consideration of the public comments we received, we are 
adopting as final without modification our

[[Page 51529]]

proposal to keep procedure code 35.97 (Percutaneous mitral valve repair 
with implant) in its current MS-DRG assignments of 231 and 232 
(Coronary Bypass with PTCA with MCC and without MCC, respectively); 246 
(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC 
or 4+ Vessels/Stents); 247 (Percutaneous Cardiovascular Procedure with 
Drug-Eluting Stent without MCC); 248 (Percutaneous Cardiovascular 
Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 
249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent 
without MCC); 250 (Percutaneous Cardiovascular Procedure without 
Coronary Artery Stent or AMI with MCC); and 251 (Percutaneous 
Cardiovascular Procedure without Coronary Artery Stent or AMI without 
MCC).
    In addition, we plan to conduct a review of the MedPAR data for 
code 35.97 in our next annual IPPS update cycle (that is, for FY 2013) 
to determine if the MS-DRG assignments as listed above are the most 
appropriate MS-DRGs for this procedure.
b. Aneurysm Repair Procedure Codes
    Thoracic aorta defects, such as aneurysm, dissection, or injury, 
are uncommon but serious conditions that may arise from a disease or an 
accident. Some patients can be medically managed but most are treated 
with surgery. Often these defects result in death if they are not 
diagnosed and treated promptly. Currently, there are two techniques 
used for repair of aortic defects; both are O.R. procedures performed 
in an inpatient hospital setting. These two procedures are described by 
ICD-9-CM procedure codes 38.45 (Resection of vessel with replacement, 
thoracic vessel) and 39.73 (Endovascular implantation of graft in 
thoracic aorta). Both procedure codes 38.45 and 39.73 are currently 
assigned to MS-DRGs 237 (Major Cardiovascular Procedures with MCC or 
Thoracic Aortic Aneurysm Repair) and 238 (Major Cardiovascular 
Procedures without MCC).
    We received a request that we consider the reassignment of 
procedure codes 38.45 and 39.73 within the MS-DRG structure by removing 
the procedure codes from MS-DRGs 237 and 238 and adding them to a more 
clinically coherent set of MS-DRGs reflecting higher resource 
consumption. The requestors believed that, based on their analysis of 
MedPAR claims data of MS-DRGs 237 and 238, the resource utilization of 
both the endovascular and open repairs of the abdominal and thoracic 
aortas are higher than the overall average resource utilization for the 
MS-DRGs to which these procedures are currently assigned. The 
requestors also believed that an unusually high number of cases 
probably fall into cost outlier status.
    For the FY 2012 IPPS/LTCH PPS proposed rule, we reviewed the MedPAR 
claims data for these two procedure codes. Our findings are shown in 
the following two tables.

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 237--All cases............       20,680        10.03      $34,268
MS-DRG 237--Cases with procedure         1,851         7.73       41,033
 code 39.73......................
MS-DRG 237--Cases without               18,829        10.26       33,603
 procedure code 39.73............
MS-DRG 238--All cases............       35,705         4.08       20,597
MS-DRG 238--Cases with procedure             0            0            0
 code 39.73......................
MS-DRG 238--Cases without               35,705         4.08       20,597
 procedure code 39.73............
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 237--All cases............       20,680        10.03      $34,268
MS-DRG 237--Cases with procedure           448        13.29       51,953
 code 38.45......................
MS-DRG 237--Cases without               20,234         9.96       33,878
 procedure code 38.45............
MS-DRG 238--All cases............       35,705         4.08       20,597
MS-DRG 238--Cases with procedure           466         7.29       30,219
 code 38.45......................
MS-DRG 238--Cases without               35,239         4.03       20,465
 procedure code 38.45............
------------------------------------------------------------------------

    Our findings of the analysis of the cases with procedure code 39.73 
showed that the average costs are substantially higher than those costs 
for the cases overall in both MS-DRGs 237 and 238. We found that the 
average length of stay for the 1,851 cases identified in MS-DRG 237 is 
somewhat lower at 7.73 days than the average length of stay of 10.26 
days in cases not containing procedure code 39.73.
    Our findings of the analysis of the cases with procedure code 38.45 
showed that both the average costs and the average length of stay are 
considerably higher than the average costs and the average length of 
stay for those cases without procedure code 38.45.
    In addition, we reviewed the cases in which both procedure codes 
38.45 and 39.73 were documented during the same admission. As can be 
seen in the charts below, we found 22 cases in which both procedure 
codes 38.45 and 39.73 were reported. Therefore, the sum of the values 
in the next two charts below will differ from the charts above because 
the cases containing both procedure codes have been removed and the 
data have been reworked.

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 237--All cases............       20,680        10.03      $34,268
MS-DRG 237--Cases with procedure         1,829         7.68       40,862
 code 39.73 and without procedure
 code 38.45......................
MS-DRG 237--Cases with procedure           424        13.36       51,783
 code 38.45 and without procedure
 code 39.73......................
MS-DRG 238--All cases............       35,705         4.08       20,597

[[Page 51530]]

 
MS-DRG 238--Cases with procedure             0            0            0
 code 39.73 and without procedure
 code 38.45......................
MS-DRG 238--Cases with procedure           466         7.29       30,219
 code 38.45 and without procedure
 code 39.73......................
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 237--All cases............       20,680        10.03      $34,268
MS-DRG 237--Cases with procedure            22        11.86       55,243
 code 38.45 and with procedure
 code 39.73......................
MS-DRG 237--Cases without               18,405        10.19       33,184
 procedure code 38.45 or
 procedure code 39.73............
MS-DRG 238--All cases............       35,705         4.08       20,597
MS-DRG 238--Cases with procedure             0            0            0
 code 38.45 and with procedure
 code 39.73......................
MS-DRG 238--Cases without               35,239         4.03       20,465
 procedure code 38.45 or
 procedure code 39.73............
------------------------------------------------------------------------

    We found in our analysis of the claims data for cases with both 
procedure codes 38.45 and 39.73 that the average costs are 
substantially higher than those costs for the cases overall in MS-DRG 
237. In addition, we found that the average length of stay for the 22 
cases with both procedure codes 38.45 and 39.73 is higher at 11.86 days 
than the average length of stay of 10.03 days for all cases in MS-DRG 
237.
    Our analysis of the claims data for the procedure codes in MDC 5 
showed that procedure code 38.45 is also assigned to MS-DRGs 228 (Other 
Cardiothoracic Procedures with MCC), 229 (Other Cardiothoracic 
Procedures with CC), and 230 (Other Cardiothoracic Procedures without 
CC/MCC) when it occurs in combination with procedure code 38.44 
(Resection of vessel with replacement, aorta, abdominal). Procedure 
code 39.73 is not assigned to MS-DRGs 228 through 230, and review of 
the data showed that there were no cases that had been reported in 
these MS-DRGs.
    The table below shows our findings of the average costs and the 
average length of stay for procedure code 38.45 reported in combination 
with procedure code 38.44 in MS-DRGs 228 through 230 and the average 
costs and the average length of stay in all cases in MS-DRGs 228 
through 230 when both procedure codes 38.45 and 38.44 are not assigned.

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 228--All cases............        2,084        13.79      $49,488
MS-DRG 228--Cases with procedure           276        15.18       56,246
 code 38.45 and procedure code
 38.44...........................
MS-DRG 228--Cases without                1,808        13.58       48,456
 procedure code 38.45 and without
 procedure code 38.44............
MS-DRG 229--All cases............        2,354         8.31       31,148
MS-DRG 229--Cases with procedure           157        10.68       37,723
 code 38.45 and procedure code
 38.44...........................
MS-DRG 229--Cases without                2,197         8.14       30,678
 procedure code 38.45 and without
 procedure code 38.44............
MS-DRG 230--All cases............          628         5.45       24,236
MS-DRG-230--Cases with procedure            34         7.18       27,054
 code 38.45 and procedure code
 38.44...........................
MS-DRG 230--Cases without                  594         5.35       24,075
 procedure code 38.45 and without
 procedure code 38.44............
------------------------------------------------------------------------

    Our findings show that both the average length of stay and average 
costs are higher in those cases containing procedure code 38.45 than 
those cases without this procedure code in MS-DRGs 228 through 230.
    We then analyzed the 1,851 cases containing procedure code 39.73 in 
MS-DRGs 237 and 238 and the 912 cases containing procedure code 38.45 
in MS-DRGs 237 and 238 to determine if they would meet the established 
criteria for a 3-way severity of illness split. This criterion is 
described in section III.G.1.c. of this preamble. The chart below shows 
our findings, with MS-DRG 237 acting as a severity of illness proxy for 
all cases, as there were no cases in MS-DRG 238. In the chart, the 
extensions ``-1,'' ``-2,'' and ``-3'' correspond to severity levels, 
with ``-1'' representing cases with MCC, ``-2'' representing cases with 
CC, and ``-3'' representing cases without CC/MCC.

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 237-1--All cases..........       20,680        10.03      $34,268
MS-DRG 237-1--Cases with                   637        12.14       57,834
 procedure code 39.73............
MS-DRG 237-1--Cases with                   446        13.29       51,954
 procedure code 38.45............
MS-DRG 237-2--All cases..........       17,356         5.73       22,083
MS-DRG 237-2--Cases with                   659         6.89       38,673
 procedure code 39.73............
MS-DRG 237-2--Cases with                   353         8.14       31,480
 procedure code 38.45............
MS-DRG 237-3--All cases..........       18,349         2.52       19,183
MS-DRG 237-3--Cases with                   555         3.65       27,993
 procedure code 39.73............
MS-DRG 237-3--Cases with                   113         6.30       26,280
 procedure code 38.45............
------------------------------------------------------------------------


[[Page 51531]]

    Our next step was to analyze the claims data for the cases in the 
clinically coherent MS-DRGs to which we proposed to move these cases. 
These six MS-DRGs are: 216 (Cardiac Valve & Other Major Cardiothoracic 
Procedures with Cardiac Catheterization with MCC); 217 (Cardiac Valve & 
Other Major Cardiothoracic Procedures with Cardiac Catheterization with 
CC); 218 (Cardiac Valve & Other Major Cardiothoracic Procedures with 
Cardiac Catheterization without CC/MCC); 219 (Cardiac Valve & Other 
Major Cardiothoracic Procedures without Cardiac Catheterization with 
MCC), 220 (Cardiac Valve & Other Major Cardiothoracic Procedures 
without Cardiac Catheterization with CC); and 221 (Cardiac Valve & 
Other Major Cardiothoracic Procedures without Cardiac Catheterization 
without CC/MCC). For the sake of the grouping algorithm, procedure 
codes 39.73 and 38.45 must also be added to MS-DRGs 216 through 219. 
However, if these codes are documented in cases in which a cardiac 
catheterization occurs, they will be ``trumped'' by those 
catheterizations. Therefore, when we reviewed the data in order to make 
length of stay and cost comparisons, we only used the three MS-DRGs to 
which procedure codes 39.73 and 38.45 would appear without cardiac 
catheterization; that is MS-DRGs 219, 220, and 221. Our findings 
describing these three MS-DRGs are displayed in the following chart:

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 219.......................       12,805        12.76      $51,399
MS-DRG 220.......................       15,988         7.65       34,270
MS-DRG 221.......................        4,043         5.90       28,974
------------------------------------------------------------------------

    Our evaluation of the severity levels in the cases containing 
procedure codes 39.73 and 38.45 using the proxy MS-DRGs 237-1, 237-2, 
and 237-3 compared to the claims data in the table above with MS-DRGs 
219 through 221 demonstrates that the cases are similar in resource 
consumption. In addition, the cases are clinically coherent.
    We indicated in the proposed rule that, by moving procedure code 
38.45 to MS-DRGs 216 through 221, we did not believe that there is a 
need for combination codes 38.45 plus 38.44 to be specifically assigned 
to MS-DRGs 228, 229, and 230. Because MS-DRGs 216 through 221 are 
higher in the surgical hierarchy for MDC 5 than MS-DRGs 228 through 
230, the result of the proposal would be that either procedure code 
38.45 by itself or in combination with procedure code 38.44 will always 
be assigned to MS-DRGs 216 through 221. We indicated that when reported 
alone, under this policy, procedure code 38.44 would continue to be 
assigned to MS-DRGs 237 and 238, as it has been in the past.
    Therefore, for FY 2012, we proposed to remove procedure codes 38.45 
and 39.73 from MS-DRGs 237 and 238 and to add these codes to MS-DRGs 
216, 217, 218, 219, 220, and 221 based on our findings of similar 
resource consumption and clinical coherence. To conform to this 
proposed change, we also proposed to revise the title of MS-DRG 237 
(Major Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm 
Repair) by removing the terms ``or Thoracic Aortic Aneurysm Repair.'' 
Therefore, the new proposed title of MS-DRG 237 was ``Major 
Cardiovascular Procedures with MCC.'' We invited public comment on 
these proposals.
    Comment: Several commenters supported the proposed changes.
    Response: We appreciate the commenters' support.
    Therefore, as we proposed, we are adopting our proposed changes as 
final. In summary, we are removing procedure codes 38.45 and 39.73 from 
MS-DRGs 237 and 238 and adding these two codes to the following six MS-
DRGs: 216; 217; 218; 219; 220; and 221. In addition, we are revising 
the title of MS-DRG 237 to read ``Major Cardiovascular Procedures with 
MCC.'' The title of MS-DRG 238 (Major Cardiovascular Procedures without 
MCC) will remain the same.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue)
a. Artificial Discs
    In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received 
a public comment that was outside of the scope of any proposal in that 
proposed rule. The commenter urged CMS to reassign procedure code 84.62 
(Insertion of total spinal disc prosthesis, cervical) from MS-DRG 490 
(Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc 
Device/Neurostimulator) into MS-DRGs 471 through 473 (Cervical Spinal 
Fusion with MCC, with CC, and without CC/MCC, respectively). In 
addition, the commenter requested that CMS reassign procedure code 
84.65 (Insertion of total spinal disc prosthesis, lumbosacral) from MS-
DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or 
Disc Device/Neurostimulator) to MS-DRGs 459 and 460 (Spinal Fusion 
Except Cervical with MCC and without MCC, respectively). However, the 
commenter also provided an alternative option to reassigning the 
procedure codes to different MS-DRGs. The commenter suggested the 
creation of a new, separate MS-DRG for the two artificial disc 
procedures if reassignment to the fusion MS-DRGs was not feasible.
    We refer the reader to the FY 2008 IPPS proposed rule and final 
rule with comment period (72 FR 24731 through 24735 and 47226 through 
47232) for discussion on the comprehensive evaluation of all the spinal 
DRGs in the development of the MS-DRG classification system. The 
modifications made to the spinal DRGs for FY 2008 recognized the 
similar utilization of resources, differences in levels of severity, 
and the complexity of the services being performed on patients 
undergoing the various types of spinal procedures.
    For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed FY 2010 
MedPAR claims data for procedure codes 84.62 and 84.65 in MS-DRG 490 
and compared those results to the claims data for MS-DRGs 459, 460, 
471, 472, and 473. We found a total of 19,840 cases in MS-DRG 490 with 
an average length of stay of 4.24 days and average costs of $11,940. As 
displayed in the chart below, we found 97 cases reporting procedure 
code 84.62, with an average length of stay of 1.80 days and average 
costs of $13,194 in MS-DRG 490. We also found 35 cases reporting 
procedure code 84.65, with an average length of stay of 2.91 days and 
average costs of $20,753. While average costs for the artificial disc 
cases were slightly higher ($1,254 for procedure code 84.62 and $8,813 
for procedure code 84.65) compared to the average cost for all cases in 
MS-DRG 490, the artificial disc cases were of extremely low volume and 
reflected shorter lengths of stay

[[Page 51532]]

compared to all the cases in MS-DRG 490.

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 459--All cases............        3,650         8.92      $40,218
MS-DRG 460--All cases............       60,865         3.75       25,268
MS-DRG 471--All cases............        2,686         8.92       29,837
MS-DRG 472--All cases............        8,586         3.78       18,494
MS-DRG 473--All cases............       24,323         1.80       13,775
MS-DRG 490--All cases............       19,840         4.24       11,940
MS-DRG 490--Cases with code 84.62           97         1.80       13,194
MS-DRG 490--Cases with code 84.65           35         2.91       20,753
------------------------------------------------------------------------

    We recognized the disparity in average costs for cases reporting 
the insertion of a cervical or lumbar artificial disc in MS-DRG 490 
compared to all the cases in that MS-DRG. However, we did not believe 
this supports reassignment of procedure codes 84.62 and 84.65 to the 
MS-DRGs for spinal fusion as the commenter requested. Even with the 
disparity in costs, clinically, the insertion of an artificial disc is 
not a spinal fusion. Therefore, reassignment of the artificial disc 
cases to the fusion MS-DRGs would be clinically inappropriate. In 
addition, for certain Medicare populations, the insertion of an 
artificial disc is considered a noncovered procedure.
    As stated earlier, the commenter also provided an alternative 
option to reassigning procedure codes 84.62 and 84.65. The commenter 
suggested the creation of a new, separate MS-DRG for the two artificial 
disc procedures if reassignment to the fusion MS-DRGs was not feasible. 
In our evaluation of the claims data and as shown above in the data 
chart, the artificial disc cases are of extremely low volume; 
therefore, we do not believe the findings warrant the creation of a 
separate MS-DRG.
    We invited public comment on our proposal not to reassign procedure 
code 84.62 from MS-DRG 490 to MS-DRGs 471 through 473 and procedure 
code 84.65 from MS-DRG 490 to MS-DRGs 459 and 460. We also invited 
public comment on our proposal not to create a new, separate MS-DRG for 
artificial disc procedures (codes 84.62 and 84.65) for FY 2012.
    Comment: Several commenters supported our proposal not to create a 
new MS-DRG for artificial disc procedures, as well as not to reassign 
the procedure codes for insertion of a cervical or lumbar artificial 
disc (codes 84.62 and 84.65) to the fusion MS-DRGs (459 and 460 and 471 
through 473). One commenter agreed with our statement that the 
insertion of an artificial disc is not the same as a fusion and should 
not be included in the fusion MS-DRGs. Another commenter agreed that 
reassignment of the artificial discs to the fusion MS-DRGs does not 
appear to be a clinically appropriate classification despite 
comparative costs. This commenter believed that limitations in the 
data, such as the low volume of cases, may be due to artificial discs 
being a noncovered procedure for certain Medicare populations and 
recommended revisiting our analysis for a new separate MS-DRG if the 
coverage policy is revised in the future.
    Response: We appreciate the commenters' support for our proposals. 
We also acknowledge the commenters recommendation to conduct further 
analysis for total disc replacement procedures should the coverage 
policy pertaining to certain Medicare populations be modified in the 
future.
    Comment: One commenter expressed appreciation to CMS for reviewing 
the current MS-DRG assignment for total disc replacement (TDR) 
procedures involving the cervical and lumbar areas. However, the 
commenter disagreed with the proposed rule analysis, stating it was 
limited to only the MedPAR database. The commenter believed that 
information from two publicly available databases, the Healthcare Cost 
and Utilization Project (HCUP) database and the California Patient 
Discharge database, support modifications to the TDR procedures. 
According to the commenter, ``CMS' current MS-DRG assignment and 
resulting reimbursement at thirty to fifty percent (30-50%) of fusion 
procedures is well below the average eighty-eight percent (88%) ratio 
of TDR to fusion charges observed in the two additional databases 
analyzed.''
    The commenter acknowledged that procedure code 84.62 and procedure 
code 84.65 are currently assigned to MS-DRG 490, regardless of whether 
or not the patient has a CC or MCC. The commenter also acknowledged the 
evaluation of the spinal procedure MS-DRGs in the FY 2008 IPPS proposed 
and final rules (72 FR 24731 through 24735 and 47226 through 47232), 
respectively. However, according to the commenter, the MS-DRG 
assignment for TDR procedures requires a more recent and thorough 
evaluation.
    The commenter provided a comparison of how TDR procedures differ 
from other procedures assigned to MS-DRG 490. The commenter also stated 
that TDR procedures are more complex than other procedures in the MS-
DRG. For example, the commenter noted that MS-DRG 490 includes 
procedure codes 84.58 and 84.59, representing spinal disc devices such 
as the X-Stop, Coflex, Dynesys, and M-Brace which do not involve 
removal of a disc. The commenter also noted that procedure code 80.51 
(Excision of intervertebral disc), which comprises only one aspect of 
the total surgery required for TDR, is assigned to the same MS-DRG. The 
commenter further noted that because the two procedures are in the same 
MS-DRG, the hospital payment is the same for both procedures.
    In addition, the commenter included a comparison of TDR cases and 
fusion cases, noting that there appeared to be greater similarity in 
resource use between fusion and TDR procedures than between TDR and 
other procedures in MS-DRG 490. The commenter reported that TDR is an 
alternative treatment option to spinal fusion and that patients 
receiving TDR have the same diagnosis as those receiving spinal fusion. 
In terms of similarity, the commenter stated that during both a TDR and 
spinal fusion surgery, the affected disc is removed, allowing normal 
disc height to be restored by the use of an implant. In spinal fusion, 
stability of the spinal segment is accomplished by the use of an 
implant and instrumentation such as plates, rods or screws and use of 
bone graft promotes osseous fusion of the vertebrae. For TDR 
procedures, an implant that allows motion is inserted into the disc 
space. According to the

[[Page 51533]]

commenter, these factors demonstrate clinical homogeneity and resource 
utilization for both TDR and spinal fusion.
    The commenter did not dispute our findings that TDR procedures have 
shorter lengths of stay and are higher in costs compared to other 
procedures within MS-DRG 490. The commenter also acknowledged that TDR 
procedures are low volume and represent a fraction of all the 
procedures assigned to the MS-DRG.
    Response: We appreciate and acknowledge the commenter's provision 
of data related to the HCUP database and the California Patient 
Discharge database. However, we point out that the commenter failed to 
identify the data related to each specified type of artificial disc 
replacement procedure in its analysis. We do not consider the data to 
be reliable for purposes of determining MS-DRG reclassifications in the 
form provided, as the data do not identify the number of cases, average 
length of stay, or average costs associated with a cervical versus a 
lumbar disc replacement. Further, in its own submitted comments, the 
commenter notes that the data provided were based on charges, not 
costs. In addition, as stated in the FY 2012 IPPS proposed rule (76 FR 
25800), in order for us to consider using particular non-MedPAR data, 
we must have sufficient time to evaluate and test the data. This allows 
us time to test the data and make a preliminary assessment as to the 
feasibility of using the data. We evaluate patient care costs using 
average charges and lengths of stay as proxies for costs and rely on 
the judgment of our medical advisors to decide whether patients are 
clinically distinct or similar to other patients in the MS-DRG. We also 
consider variations and whether observed average differences are 
consistent across patients or attributable to cases that were extreme 
in terms of charges, length of stay, or both. Lastly, we consider the 
number of patients who will have a given set of characteristics and 
generally prefer not to create a new MS-DRG unless it would include a 
substantial number of cases.
    In response to the commenter's comparison of how TDR procedures 
differ from other procedures in MS-DRG 490, we point out that procedure 
code 84.58 (Implantation of interspinous process decompression device), 
which previously identified the X-Stop device, was deleted effective 
October 1, 2007 (FY 2008). In addition, the other spinal disc devices 
that were noted by the commenter (Coflex, Dynesys, and M-Brace) were 
reassigned from procedure code 84.59 (Insertion of other spinal 
devices) to unique codes that were created in response to industry 
requests to describe a newer category of devices identified as motion 
preserving technologies. This new procedure code category, 84.8 
(Insertion, replacement and revision of posterior spinal motion 
preservation device(s)), also became effective as of October 1, 2007 
(FY 2008). As discussed above, the commenter recommended that CMS 
conduct a more recent and thorough evaluation of the spinal procedures 
in MS-DRG 490. However, in its own submitted comments, the commenter 
referred to outdated, deleted codes for its comparison to TDR.
    With regard to clinical homogeneity and resource utilization, 
spinal fusion, TDR and a subset of the motion preserving technologies 
utilizing implant devices that allow motion in the spinal column were 
discussed extensively as noted above in the FY 2008 IPPS proposed rule 
and final rule with comment period (72 FR 24731 through 24735 and 47226 
through 47232), respectively.
    We will continue to evaluate the MS-DRGs on an annual basis and to 
respond to requests for code reassignments and MS-DRG 
reclassifications. We performed an analysis of the cervical and lumbar 
artificial disc replacement procedures in comparison to the fusion MS-
DRGs in response to the commenter's request, as described above. Our 
data did not support reassignment of the artificial disc replacement 
codes, nor did our clinical advisors agree that these procedures are 
clinically coherent to be grouped in the same MS-DRGs. In addition, the 
data did not support the creation of a new, separate MS-DRG for total 
disc replacement procedures.
    As mentioned previously, we performed a comprehensive analysis of 
all the spinal DRGs in our FY 2008 rulemaking process and we recognized 
the costs of procedures involving insertion of a disc device. As a 
result, we modified MS-DRG 490 (the higher severity level) to include 
those procedures with disc devices. The data analysis conducted at that 
time supported that modification.
    We will continue to monitor the resource utilization of procedure 
codes 84.62 and 84.65 to determine if future MS-DRG reassignments are 
warranted.
    After consideration of the public comments we received, we are 
finalizing our proposal to not create a new, separate MS-DRG for 
cervical or lumbar total disc replacement procedures and to not 
reassign procedure code 84.62 from MS-DRG 490 to MS-DRGs 471 through 
473 and procedure code 84.65 from MS-DRG 490 to MS-DRGs 459 and 460 for 
FY 2012.
b. Major Joint Replacement or Reattachment of Lower Extremities
    We received a request to add an additional severity level for MS-
DRG 469 (Major Joint Replacement or Reattachment of Lower Extremity 
with MCC) and MS-DRG 470 Major Joint Replacement or Reattachment of 
Lower Extremity without MCC). For the FY 2012 IPPS/LTCH PPS proposed 
rule, we examined FY 2010 MedPAR claims data to determine if we could 
subdivide the base MS-DRG into three severity levels: with MCC, with 
CC, and without CC/MCC. We applied the criteria used in the development 
of the MS-DRGs included in the FY 2008 IPPS final rule with comment 
period (72 FR 47169). We refer readers to this final rule with comment 
period for a complete description of these criteria. As discussed 
earlier, the original criteria were based on average charges. However, 
subsequent to the FY 2007 IPPS final rule (71 FR 47882), we now use 
average costs. The five criteria using costs are listed below. 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 costs of at least 3 percent.
     At least 5 percent of the patients in the MS-DRG fall 
within the CC or MCC subgroup.
     At least 500 cases are in the CC or MCC subgroup.
     There is at least a 20-percent difference in average costs 
between subgroups.
     There is a $2,000 difference in average costs between 
subgroups
    The following table shows our determination of the number of cases 
and average costs by MCC, CC, and non-CC levels.

------------------------------------------------------------------------
                                                  Average
       MS-DRGs 469 and 470          Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
Cases with MCC...................       25,717         7.72      $21,016

[[Page 51534]]

 
Cases with CC....................      179,116         3.99       14,233
Cases without CC/MCC.............      220,739         3.21       13,250
                                  --------------------------------------
    Total........................      425,572          3.8       14,133
------------------------------------------------------------------------

    We determined that these cases do not meet our five criteria for 
adding a new severity level. The cases failed to meet criterion four 
(requiring at least a 20-percent difference in average costs between 
subgroups) and criterion five (requiring a $2,000 difference in average 
costs between subgroups). Therefore, we did not propose the addition of 
a new severity level for the base MS-DRG. Instead, we proposed to 
maintain the two existing severity levels for MS-DRGs 469 and 470. We 
welcomed public comments on our proposal not to add an additional 
severity level to MS-DRGs 469 and 470.
    Comment: Several commenters supported our proposal to maintain the 
two existing severity levels for MS-DRGs 469 and 470 and not to add a 
third severity level. The commenters stated that the proposal seemed 
reasonable, given the data and information provided.
    One commenter opposed our proposal. The commenter acknowledged the 
five criteria used to evaluate the establishment of a new severity 
level and the fact that this set of MS-DRGs did not meet the criterion 
requiring at least a 20-percent difference in average costs between 
subgroups or the criterion requiring a $2,000 difference in average 
costs between subgroups. However, the commenter stated that the large 
number of ``with CC'' cases that are currently classified in the 
``without CC/MCC'' group places an unfair burden on providers who treat 
these patients and presents a distorted picture of the actual severity 
level of cases assigned to those providers. The commenter believed that 
adding an additional severity level to MS-DRGs 469 and 470 would better 
identify those conditions that lead to higher severity of illness and 
resource use relative to the average Medicare patient.
    Another commenter opposed our proposal of maintaining the current 
two severity levels. The commenter stated that while the data appear to 
show that there is not a significant average cost difference between 
cases without CC/MCC compared to cases with CC, the commenter believed 
the data are biased. The commenter believed that diagnoses that do not 
affect DRG assignment are less likely to be reported on claims. The 
commenter speculated that it was reasonable to assume that, for cases 
assigned to these MS-DRGs, complications and comorbidities are 
underreported, as hospitals know that coding complications and 
comorbidities do not result in higher reimbursement. The commenter 
stated that a more reasonable approach would be to establish a third 
severity level for major joint replacement, with the intent of 
analyzing the data over the next 2 years to determine whether this was 
an appropriate MS-DRG modification. The commenter stated that the fact 
that ``Revision of a Hip or Knee Replacement'' has three levels 
strongly suggests that three levels would be appropriate for major 
joint replacement also.
    Response: We agree with the commenters' statements that the data 
analysis shows that two of the five established criteria for creating a 
new severity level were not met. The cases failed to meet criterion two 
requiring at least a 20-percent difference in average costs between 
subgroups and criterion five requiring a $2,000 difference in average 
costs between subgroups. The criteria were developed to evaluate the 
need for severity levels across all MS-DRGs. We applied the criteria 
used in the development of the MS-DRGs included in the FY 2008 IPPS 
final rule with comment period (72 FR 47169). We refer readers to that 
final rule with comment period for a complete description of these 
criteria. As discussed earlier, the original criteria were based on 
average charges. However, subsequent to the FY 2007 IPPS final rule (71 
FR 47882), we now use average costs. We believe it is important to 
apply these criteria consistently as requests are evaluated to create 
new severity levels. The cases in MS-DRGs 469 and 470 failed to meet 
the five criteria for adding a new severity level. We agree with the 
commenters who supported our proposal to maintain the two existing 
severity levels for MS-DRGs 469 and 470 and not creating a third 
severity level.
    We disagree with the commenters who stated that CMS should ignore 
the criteria and add the additional severity level. One commenter 
suggested that we could retroactively review this new severity level by 
examining claims data 2 years after the update is made. We believe it 
is inappropriate to make an exception to the severity level criteria 
based on an assumption that hospitals may be under reporting secondary 
diagnoses that are on the CC list for certain types of cases. We 
encourage hospitals to code and report accurately. We will continue to 
review data to determine if additional severity levels are needed for 
specific MS-DRGs based on our published criteria. We do not believe it 
is appropriate to make exceptions for certain MS-DRGs.
    After consideration of the public comments we received, as we 
proposed, we are maintaining MS-DRGs 469 and 470 with the current two 
severity levels for FY 2012.
c. Combined Anterior/Posterior Spinal Fusion
    A manufacturer requested that CMS reassign spinal fusion cases 
utilizing the AxiaLIF technology from MS-DRGs 459 and 460 (Spinal 
Fusion Except Cervical with MCC and without MCC, respectively) to MS-
DRGs 453, 454, and 455 (Combined Anterior/Posterior Spinal Fusion with 
MCC, with CC, and without CC/MCC, respectively). The commenter stated 
that an anterior lumbar interbody spinal fusion performed with a 
lateral approach, the extreme lateral interbody fusion (XLIF[supreg]), 
with posterior spinal fixation, can report two codes resulting in 
assignment to the combined fusion MS-DRGs. The commenter also stated 
that the AxiaLIF technology, which is also utilized in an anterior 
lumbar interbody spinal fusion and uses a pre-sacral approach, can only 
report one code, resulting in assignment to the single fusion MS-DRGs. 
The commenter expressed concern that the payment incentives are not 
properly aligned for the recently available minimally invasive spinal 
fusion technologies. The commenter compared the XLIF[supreg] to the 
AxiaLIF and urged CMS to consider the AxiaLIF technology similar to the 
XLIF[supreg] for purposes of MS-DRG assignment.
    Spinal fusion is a surgical procedure that joins two or more 
vertebrae by the use of bone graft (or bone graft substitute), with the 
goal of maintaining

[[Page 51535]]

alignment, providing stability, decreasing pain, and restoring the 
function of the spinal nerves. Routinely, a spinal fusion also utilizes 
internal fixation devices (instrumentation) to assist in stabilizing 
the spine. These fixation devices may include pedicle screws, cages, 
rods, or plates. Effective October 1, 2010, ICD-9-CM procedure code 
81.06 (Lumbar and lumbosacral fusion of the anterior column, anterior 
technique) describes the XLIF[supreg] procedure, and code 81.08 (Lumbar 
and lumbosacral fusion of the anterior column, posterior technique) 
describes the AxiaLIF technology.
    The spinal fusion codes and their corresponding MS-DRG assignment 
include the use of bone graft and internal fixation. The requestor's 
comment regarding the assignment of one procedure code for one 
technology versus assigning two procedure codes for another technology 
indicates that the commenter may not fully understand the MS-DRG 
GROUPER logic for spinal fusions. For example, if an anterior lumbar 
interbody fusion is performed and posterior spinal fixation (or 
instrumentation) is also utilized, this requires one code and results 
in a single fusion MS-DRG assignment. However, if a posterior spinal 
fusion (procedure code 81.07 (Lumbar and lumbosacral fusion of the 
posterior column, posterior technique) was performed in addition to an 
anterior fusion, for example, the XLIF[reg] procedure (procedure code 
81.06), that scenario would necessitate the assignment of both codes, 
resulting in assignment to the combined spinal fusion MS-DRGs (453, 
454, or 455). MS-DRGs 453, 454, and 455 were created to capture 
patients who have both an anterior and posterior fusion. We believe the 
requestor may have confused the terms ``fixation'' and ``fusion'' for 
MS-DRG assignment in its request.
    For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed the FY 
2010 MedPAR data to evaluate claims reporting procedure codes 81.06, 
81.07, and 81.08 in MS-DRGs 456 through 458 (Spinal Fusion Except 
Cervical with Spinal Curvature/Malignancy/Infection or 9+ Fusions with 
MCC, with CC and without CC/MCC, respectively) and MS-DRGs 459 and 460. 
We found a total of 1,115 cases in MS-DRG 456, with an average length 
of stay of 13.14 days and average costs of $63,856. We found 278 cases 
reporting procedure code 81.08, with an average length of stay of 12.04 
days and average costs of $56,585. Similar results can be seen for 
procedure code 81.08 in the remaining MS-DRGs as shown in the chart 
below in terms of volume, length of stay, and average cost. Clearly, 
the data demonstrate that the AxiaLIF technology (procedure code 81.08) 
is appropriately assigned to its current MS-DRG assignments, as is the 
XLIF[supreg] procedure (procedure code 81.06).

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 456--All cases............        1,115        13.14      $63,856
MS-DRG 456--Cases with code 81.06           54        14.37       52,392
MS-DRG 456--Cases with code 81.07           22        12.32       46,828
MS-DRG 456--Cases with code 81.08          278        12.04       56,585
MS-DRG 457--All cases............        3,079         6.74       41,500
MS-DRG 457--Cases with code 81.06          119         6.42       36,468
MS-DRG 457--Cases with code 81.07           98         6.49       36,532
MS-DRG 457--Cases with code 81.08        1,194         5.73       35,272
MS-DRG 458--All cases............        1,389         3.91       32,946
MS-DRG 458--Cases with code 81.06          115         3.49       29,089
MS-DRG 458--Cases with code 81.07           76         3.16       30,551
MS-DRG 458--Cases with code 81.08          827         3.60       30,570
MS-DRG 459--All cases............        3,650         8.92       40,218
MS-DRG 459--Cases with code 81.06          164         9.12       40,150
MS-DRG 459--Cases with code 81.07          165         8.65       37,970
MS-DRG 459--Cases with code 81.08        2,468         8.25       38,010
MS-DRG 460--All cases............       60,865         3.75       25,268
MS-DRG 460--Cases with code 81.06        2,681         3.27       26,464
MS-DRG 460--Cases with code 81.07        3,709         3.67       23,334
MS-DRG 460--Cases with code 81.08       46,565         3.66       24,571
------------------------------------------------------------------------

    We also analyzed data for combinations of the spinal fusion codes 
that result in assignment to MS-DRGs 453, 454, and 455. We evaluated 
the following combinations:
     81.06 (Lumbar and lumbosacral fusion of the anterior 
column, anterior technique) and 81.07 (Lumbar and lumbosacral fusion of 
the posterior column, posterior technique).
     81.06 (Lumbar and lumbosacral fusion of the anterior 
column, anterior technique) and 81.08 (Lumbar and lumbosacral fusion of 
the anterior column, posterior technique).
    We further analyzed data with the following combination of spinal 
fusion codes in MS-DRGs 456, 457, and 458 and MS-DRGs 459 and 460:
     81.07 (Lumbar and lumbosacral fusion of the posterior 
column, posterior technique) and 81.08 (Lumbar and lumbosacral fusion 
of the anterior column, posterior technique).
    The chart below shows the results of the data analysis for the 
combination of procedure codes listed above where an anterior and 
posterior spinal fusion was performed in the same episode of care. 
There were a total of 1,190 cases in MS-DRG 453, with an average length 
of stay of 13.08 days and average costs of $71,693. The cases reporting 
the combination of procedure codes 81.06 and 81.08 in this same MS-DRG 
totaled 431, with an average length of stay of 11.59 days and average 
costs of $69,859. Results for the procedure code combination (81.06 and 
81.08) in MS-DRGs 454 and 455 with regard to volume of cases, length of 
stay, and average costs data also support that these spinal fusion 
procedure code combinations are appropriately placed in their current 
MS-DRG assignments. Likewise, for MS-DRGs 456, 457, and 458, the data 
support that the spinal fusion procedure code combinations of 81.07 and 
81.08 are appropriately placed in their current MS-DRG assignments. 
There were a total of 1,115 cases in MS-DRG 456 with an average length 
of stay of 13.14 days and average

[[Page 51536]]

costs of $68,856. The cases reporting the combination of procedure 
codes 81.07 and 81.08 in this same MS-DRG totaled 54, with an average 
length of stay of 14.37 days and average costs of $52,392. Results for 
the procedure code combination (81.07 and 81.08) in MS-DRGs 457 and 458 
with regard to volume of cases and average length of stay were lower 
compared to all the cases in those two MS-DRGs. While the data show 
higher average costs for the procedure code combination of 81.07 and 
81.08 in MS-DRGs 457 and 458, as stated previously, the volume was 
extremely low.

------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 453--All cases............        1,190        13.08      $71,693
MS-DRG 453--Cases with codes                 8        14.00      109,089
 81.06 and 81.07.................
MS-DRG 453--Cases with codes               431        11.59       69,859
 81.06 and 81.08.................
MS-DRG 454--All cases............        3,052         6.38       48,311
MS-DRG 454--Cases with codes                47         6.83       60,743
 81.06 and 81.07.................
MS-DRG 454--Cases with codes             1,825         5.71       47,144
 81.06 and 81.08.................
MS-DRG 455--All cases............        2,747         3.63       37,378
MS-DRG 455--Cases with codes                40         4.28       47,794
 81.06 and 81.07.................
MS-DRG 455--Cases with codes             2,053         3.43       37,793
 81.06 and 81.08.................
MS-DRG 456--All cases............        1,115        13.14       63,856
MS-DRG 456--Cases with codes                54        14.37       52,392
 81.07 and 81.08.................
MS-DRG 457--All cases............        3,079         6.74       41,500
MS-DRG 457--Cases with codes                29         5.97       60,820
 81.07 and 81.08.................
MS-DRG 458--All cases............        1,389         3.91       32,946
MS-DRG 458--Cases with code 81.07           23         3.22       51,942
 and 81.08.......................
------------------------------------------------------------------------

    As the focus of the analysis was to evaluate procedure code 81.08 
in comparison to procedure code 81.06, we believe the AxiaLIF 
technology (procedure code 81.08) is grouped appropriately in its 
current MS-DRG assignments, as is the XLIF[supreg] procedure (procedure 
code 81.06). The volume, length of stay, and cost data analyzed 
demonstrate that the complexity of services and resources utilized for 
each of these technologies are properly accounted for in their 
respective MS-DRG assignments. Therefore, the data did not support 
making changes for procedure code 81.08. As a result, we did not 
propose to reassign cases reporting this procedure code to the combined 
fusion MS-DRGs. We invited public comment on our proposal to not 
reassign procedure code 81.08 from MS-DRGs 456 through 460 to MS-DRGs 
453 through 455 for FY 2012.
    Comment: Several commenters supported our proposal to not reassign 
procedure code 81.08 to MS-DRGs 453 through 455.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to not reassign procedure code 81.08 to MS-DRGs 
453 through 455.
6. MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue, and 
Breast): Excisional Debridement of Wound, Infection, or Burn
    We received a request that we remove procedure code 86.22 
(Excisional debridement of wound, infection, or burn) from the list of 
codes considered to be O.R. procedures. The commenter stated that many 
inpatient excisional debridements are performed in a patient's room 
instead of in an operating room. The commenter believed that the 
original assignment of procedure code 86.22 to the O.R. list served to 
help reflect the resource intensity required by a patient with wounds 
and ulcers that required an excisional debridement. The commenter 
stated that, by doing so, the code served as a proxy for severity of 
illness in the original CMS DRGs prior to the implementation of MS-DRGs 
in FY 2008. The commenter stated that the creation of the most serious 
pressure ulcer codes for stage 3 and stage 4 pressure ulcers (codes 
707.23 and 707.24) allows these conditions to be classified as MCCs. 
Therefore, the commenter stated that the need to use procedure code 
86.22 to capture severity of illness was no longer needed. The 
commenter also stated that procedure code 86.22 is a non-O.R. code 
under the APR-DRGs and does not affect the DRG assignment. The 
commenter requested that procedure code 86.22 be changed from an O.R. 
procedure code to a non-O.R. procedure code.
    As the commenter stated, excisional debridements are currently 
captured in procedure code 86.22. Procedure code 88.22 is classified as 
an O.R. procedure in the current MS-DRGs and, therefore, leads to a 
surgical MS-DRG assignment. We examined MedPAR claims data on all 
excisional debridement cases and found that these debridement cases use 
appreciably fewer resources than other cases in their current surgical 
DRGs. However, for the proposed rule, we determined that if we were to 
classify debridement cases as non-O.R. cases and assign them to medical 
DRGs, we would significantly underpay these cases. The following chart 
shows differences in average costs for all excisional debridement cases 
compared to other cases within their current MS-DRG and compared to 
medical DRGs to which the patients would be assigned if the procedure 
were reclassified as a non-O.R. procedure.

----------------------------------------------------------------------------------------------------------------
                                                                                 Average costs
                                                                                  in surgical     Average costs
                                               All cases with    Average cost    DRGs to which   in medical DRGs
               Procedure code                   no other OR          (A)         the  patients     to which the
                                                 procedure                       are  assigned    patients would
                                                                                      (B)        be assigned (C)
----------------------------------------------------------------------------------------------------------------
86.22.......................................          32,152          $12,427          $17,332           $8,070
----------------------------------------------------------------------------------------------------------------


[[Page 51537]]

    The chart illustrates that when debridement is the only O.R. 
procedure, it is assigned to MS-DRGs that have an average cost that is 
approximately $5,000 more than the actual cost of the debridement 
($12,427 versus $17,332). Conversely, if the debridement is made a non-
O.R. code, it would, on average, be assigned to MS-DRGs that have an 
average cost that is approximately $4,000 less than the actual cost of 
the debridement ($8,070 versus $12,427). Therefore, we believe it would 
be inappropriate to propose to classify these procedures as a non-O.R. 
procedure.
    For the proposed rule, we explored alternative approaches to 
classifying procedure code 86.22 as a non-O.R. procedure. We evaluated 
the possibility of removing excisional debridements from their current 
MS-DRG assignments within the following skin-related MS-DRGs, where 
they are combined with skin grafts, and creating a new set of 
debridement MS-DRGs. The current MS-DRGs that combine skin grafts and 
debridements into the same MS-DRGs are as follows:
     MS-DRGs 573 through 575 (Skin Graft &/or Debridement for 
Skin Ulcer or Cellulitis with MCC, with CC, and without CC/MCC, 
respectively).
     MS-DRGs 576 through 578 (Skin Graft &/or Debridement 
Except for Skin Ulcer or Cellulitis with MCC, with CC, and without CC/
MCC, respectively).
    We analyzed MedPAR claims data on the severity level of graft cases 
without any debridements in these six MS-DRGs. Our findings are shown 
in the chart below.

                    Skin Grafts Without Debridements
------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRGs 573-575--Cases with                751        14.56      $23,975
 severity level of MCC...........
MS-DRGs 573-575--Cases with              1,720        10.16       14.869
 severity level of CC............
MS-DRGs 573-575--Cases with                540         5.36        8,469
 severity level of without CC/MCC
MS-DRGs 576-578--Cases with                335        10.28       22,996
 severity level of MCC...........
MS-DRGs 576-578--Cases with              1,482         5.28       11,299
 severity level of CC............
MS-DRGs 576-578--Cases with              1,849         3.01        6,986
 severity level of without CC/MCC
------------------------------------------------------------------------

    We compared these data to a proposed new set of skin-related MS-
DRGs that would include only debridements. The results of the findings 
of the severity levels of debridements without skin grafts in these six 
MS-DRGs are shown in the chart below.

                    Debridements Without Skin Grafts
------------------------------------------------------------------------
                                                  Average
              MS-DRG                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 573-575--Cases with               3,177        11.73      $18,381
 severity level of MCC...........
MS-DRG 573-575--Cases with               6,649         7.67       10,730
 severity level of CC............
MS-DRG 573-575--Cases with               2,555         4.94        6,372
 severity level of without CC/MCC
MS-DRG 576-578--Cases with                 271        11.59       19,429
 severity level of MCC...........
MS-DRG 576-578--Cases with                 638         7.61       11,913
 severity level of CC............
MS-DRG 576-578--Cases with                 285         4.45        6,928
 severity level of without CC/MCC
------------------------------------------------------------------------

    Our findings indicate that the graft procedure cases have higher 
average costs than the excisional debridement cases. The average costs 
for the excisional debridement cases in MS-DRGs 573 through 575 
compared to the debridement cases in MS-DRGs 576 through 578 are very 
similar. We believe that the data support creating a single set of 
skin-related excisional debridement MS-DRGs composed of cases 
previously captured in MS-DRGs 573 through 575 as well as MS-DRGs 576 
through 578. The following chart illustrates those combined average 
costs.

 Excisional Debridements From Ms-Drgs 573 Through 578 Split on Severity
                                  Level
------------------------------------------------------------------------
                                                  Average
         MS-DRGs 573--578           Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
Combined Excisional Debridement          3,448        11.71      $18,463
 Cases with Severity Level of MCC
Combined Excisional Debridement          7,287         7.76       10,833
 Cases with Severity Level of CC.
Combined Excisional Debridement          2,840         4.89        6,428
 Cases with Severity Level of
 without CC/MCC..................
------------------------------------------------------------------------

    As we stated in the proposed rule, we believe that the data support 
separating skin graft procedures from excisional debridements by 
creating a new set of MS-DRGs. This would result in more accurate 
payment for both skin grafts and debridement. Therefore, we proposed to 
remove excisional debridements (procedure code 86.22) from their 
current MS-DRG assignments within MS-DRGs 573 through 578 for skin 
grafts and assign them to new excisional debridement MS-DRGs. We 
proposed to maintain MS-DRGs 573 through 578 for skin grafts. The 
following list describes the proposed new and revised MS-DRG titles:

[[Page 51538]]

    Proposed new MS-DRGs based on procedure code 86.22:

 Proposed MS-DRG 570 (Skin Debridement with MCC)
 Proposed MS-DRG 571 (Skin debridement with CC)
 Proposed MS-DRG 572 (Skin Debridement without CC/MCC)

    Proposed Revised MS-DRGs based on codes currently assigned to MS-
DRGs 573 through 578, excluding procedure code 86.22:

 Proposed revised MS-DRG 573 (Skin Graft for Skin Ulcer or 
Cellulitis with MCC)
 Proposed revised MS-DRG 574 (Skin Graft for Skin Ulcer or 
Cellulitis with CC)
 Proposed revised MS-DRG 575 (Skin Graft for Skin Ulcer or 
Cellulitis without CC/MCC)
 Proposed revised MS-DRG 576 (Skin Graft Except for Skin Ulcer 
or Cellulitis with MCC)
 Proposed revised MS-DRG 577 (Skin Graft except for Skin Ulcer 
or Cellulitis with CC)
 Proposed revised MS-DRG 578 (Skin Graft Except for Skin Ulcer 
or Cellulitis without CC/MCC)

    In the proposed rule, we invited public comments on our proposal 
for FY 2012 to create three new debridement MS-DRGs 570, 571, and 572 
for skin debridement and to revise MS-DRGs 573 through 578 to include 
skin grafts only, as indicated above.
    Comment: Several commenters supported our proposal to create three 
new debridement MS-DRGs, MS-DRGs 570, 571, and 572 for skin debridement 
and to revise MS-DRGs 573 through 578 to include skin grafts only, as 
described above. One commenter stated that the proposal seemed 
reasonable, given the data and the information provided. Another 
commenter who supported this MS-DRG modification expressed appreciation 
for the change because the relative weights better reflect resource 
intensive cases with the proposed new and revised MS-DRGs 570 through 
578.
    One commenter supported our recommendation not to remove the code 
for excisional debridement from the O.R. list. However, the commenter 
opposed removing excisional debridements (procedure code 86.22) from 
their current MS-DRG assignments within MS-DRGs 573 through 578 for 
skin grafts and assigning them to new excisional debridement MS-DRGs 
and maintaining MS-DRGs 573 through 578 for skin grafts. The commenter 
stated that excisional debridement is not exclusively a bedside 
procedure. Rather, the commenter noted, it can be performed in or out 
of the operation room, based on the judgment of the surgeon. The 
commenter stated that, in many instances, this procedure cannot be 
performed at the bedside due to variables such as patient anxiety, the 
size of the wound, bleeding risk, among others. The commenter stated 
that removing excisional debridements from their current MS-DRG 
assignments could harm many hospitals that perform procedures such as 
split thickness skin grafts for extensive wound or burns. The commenter 
recommended that, instead of removing excisional debridements from the 
current MS-DRG assignments, CMS create a separate ICD-9-CM code for 
debridement that is performed in the operating room due to anesthesia, 
equipment, or monitoring requirements.
    Another commenter opposed the creation of separate debridement and 
skin graft MS-DRGs out of concern that this would create significant 
confusion among hospital coders. The commenter stated that skin grafts 
and skin debridements are often performed on the same patient. The 
commenter stated that the current descriptions of MS-DRGs 573 through 
575 (Skin Graft and/or Debridement for Skin Ulcer or Cellulitis with 
MCC, with CC, and without CC/MCC, respectively) and MS-DRGs 576 through 
578 (Skin Graft and/or Debridement Except for Skin Ulcer or Cellulitis 
with MCC, with CC, and without CC/MCC, respectively) appropriately 
describe the interrelationship between skin grafts and debridement. The 
commenter expressed concern that de-linking this relationship would 
lead to confusion for coders.
    Response: We agree with the commenters that data support the 
creation of three new debridement MS-DRGs 570, 571, and 572 for skin 
debridement and the revision of MS-DRGs 573 through 578 to include skin 
grafts only.
    We disagree with the commenter who recommends that, instead of 
creating separate MS-DRGs for skin debridements and skin grafts, CMS 
pursue the creation of a new skin debridement code that would be 
limited to those procedures performed in an operating room setting. 
ICD-9-CM codes are not currently subdivided based on the location of 
the procedure such as in an operating room, endoscopy room, 
catheterization room, treatment room, or patient room. ICD-9-CM codes 
are assigned based on the procedure performed, not the location in 
which the procedure was performed. Furthermore, we have just begun a 
period of a partial freeze of both ICD-9-CM and ICD-10 codes. This 
partial freeze is discussed in section II.G.13.b. of this preamble. We 
do not believe it is appropriate to postpone refinements to the MS-DRGs 
until a code update could be made and data on cases reported with the 
new code could be evaluated. We believe the current data support this 
proposed modification. However, as stated earlier, ICD-9-CM codes do 
not indicate the setting in which a procedure is performed. Therefore, 
it is unlikely that such a code would be created even if we were not in 
a period of a code freeze.
    We also disagree with the commenter who stated that creating 
separate MS-DRGs for skin debridements and skin grafts will create 
confusion for coders. We believe that coders clearly understand the 
difference between skin debridements and skin grafts. If both are 
performed, then coders code and report both procedures. The fact that 
the MS-DRGs would be modified would not affect the way in which coders 
assign codes for skin debridements and skin grafts. We also note that 
organizations representing coders, including the American Health 
Information Management Association, supported this proposed MS-DRG 
modification. These organizations did not express concerns about any 
possible confusion for coders.
    After consideration of the public comments we received, we are 
finalizing our proposal to create the following new and revised MS-
DRGs:
    New MS-DRGs based on procedure code 86.22:
 MS-DRG 570 (Skin Debridement with MCC)
 MS-DRG 571 (Skin debridement with CC)
 MS-DRG 572 (Skin Debridement without CC/MCC)
    Revised MS-DRGs based on codes currently assigned to MS-DRGs 573 
through 578, excluding procedure code 86.22:
 Revised MS-DRG 573 (Skin Graft for Skin Ulcer or Cellulitis 
with MCC)
 Revised MS-DRG 574 (Skin Graft for Skin Ulcer or Cellulitis 
with CC)
 Revised MS-DRG 575 (Skin Graft for Skin Ulcer or Cellulitis 
without CC/MCC)
 Revised MS-DRG 576 (Skin Graft Except for Skin Ulcer or 
Cellulitis with MCC)
 Revised MS-DRG 577 (Skin Graft except for Skin Ulcer or 
Cellulitis with CC)
 Revised MS-DRG 578 (Skin Graft Except for Skin Ulcer or 
Cellulitis without CC/MCC)

[[Page 51539]]

7. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and 
Disorders)
a. Nutritional and Metabolic Diseases: Update of MS-DRG Titles
    We received a request to revise the MS-DRG titles for MS-DRGs 640 
through 642 to more clearly capture the cases that are currently 
assigned to these MS-DRGs. The current titles for these MS-DRGs are: 
MS-DRGs 640 (Nutritional & Miscellaneous Metabolic Disorders with MCC); 
MS-DRG 641 (Nutritional & Miscellaneous Metabolic Disorders without 
MCC); and MS-DRG 642 (Inborn Errors of Metabolism). The requestor 
suggested that we change the titles to: MS-DRG 640 (Miscellaneous 
Disorders of Nutrition, Metabolism, and Fluids and Electrolytes with 
MCC); MS-DRG 641 (Miscellaneous Disorders of Nutrition, Metabolism, and 
Fluids and Electrolytes without MCC); and MS-DRG 642 (Inborn and Other 
Disorders of Metabolism).
    Our clinical advisors supported these suggested changes to the 
titles, as the suggested changes would provide a better description of 
the diagnoses assigned to MS-DRGs 640, 641, and 642. Therefore, in the 
FY 2012 IPPS/LTCH PPS proposed rule, we proposed to revise the MS-DRG 
titles for MS-DRGs 640, 641, and 642 as the requestor suggested. We 
invited public comment on our proposal to change the MS-DRG titles for 
MS-DRGs 640, 641, and 642 for FY 2012.
    Comment: Several commenters supported our proposed changes to the 
titles of MS-DRGs 640 through 642 to better reflect the cases that are 
assigned to these MS-DRGs.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the titles for MS-DRGs 640 through 
642. The final tiles are as follows:

 MS-DRG 640 (Miscellaneous Disorders of Nutrition, Metabolism, 
and Fluids and Electrolytes with MCC)
 MS-DRG 641 (Miscellaneous Disorders of Nutrition, Metabolism, 
and Fluids and Electrolytes without MCC)
 MS-DRG 642 (Inborn and Other Disorders of Metabolism).
b. Sleeve Gastrectomy Procedure for Morbid Obesity
    Sleeve gastrectomy is a 70 percent to 80 percent greater curvature 
gastrectomy (sleeve resection of the stomach) with continuity of the 
gastric lesser curve being maintained while simultaneously reducing 
stomach volume. It may be the first step in a two-stage procedure when 
performing Roux-en-Y Gastric Bypass (RYGBP). Sleeve gastrectomy, 
whether open or laparoscopic, is currently coded using ICD-9-CM 
procedure code 43.89 (Other total gastrectomy). Procedure code 43.89 is 
currently assigned to several MS-DRGs. However, the code is not 
assigned to MS-DRG 619, 620, or 621 (O.R. Procedures for Obesity with 
MCC, with CC, and without CC/MCC, respectively).
    We received a request for CMS to review MDC 10 (Endocrine, 
Nutritional, and Metabolic Diseases and Disorders) for consistency. 
Specifically, the requestor questioned why diagnosis code 278.01 
(Morbid obesity), when paired on a claim with procedure code 43.89, 
would be assigned to MS-DRG 981, 982, or 983 (Extensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, or without CC/MCC, 
respectively) instead of MS-DRG 619, 620, or 621.
    Upon review for the FY 2012 IPPS/LTCH PPS proposed rule, we 
determined that diagnosis code 278.01 is assigned to MDC 10. However, 
procedure code 43.89 is not assigned to any MS-DRG set in this MDC. 
Therefore, the cases are assigned to MS-DRGs 981 through 983, 
reflecting procedures not related to the principal diagnosis. This was 
an inadvertent oversight on CMS' part when the MS-DRGs were created. 
Therefore, we proposed to add a procedure code or codes identifying 
sleeve gastrectomy to MS-DRGs 619 through 621 for FY 2012.
    Currently, sleeve gastrectomy is identified in the ICD-9-CM 
procedure code Index as follows: Gastrectomy (partial) (subtotal) NEC 
43.89. At procedure code 43.89 in the ICD-9-CM procedure code Tabular, 
an inclusion note identifies this code as including sleeve resection of 
the stomach.
    In our proposal to add a procedure code or codes to MS-DRGs 619 
through 621, we pointed out that there is an NCD that has precluded 
coverage of sleeve gastrectomy when performed either open or 
laparoscopically. This decision may be found in the Medicare National 
Coverage Determination Manual, Section 100.1, Nationally Noncovered 
Indications for Bariatric Surgery for Treatment of Morbid Obesity, 
effective on February 12, 2009. This manual is available on the CMS Web 
site through a link at: http://www.cms.gov/manuals/downloads/mcd103c1_Part2.pdf. This manual entry affirms that treatment for obesity via use 
of the open or laparoscopic sleeve gastrectomy is determined to be 
noncovered for Medicare beneficiaries.
    Noncoverage of these cases is determined by our Medicare 
contractors, the fiscal intermediary or A-B/MAC, because of the nature 
of procedure code 43.89, which is a code that identifies several 
gastrectomy procedures. To identify a code in the MCE that describes 
many procedures would inappropriately restrict other procedures which 
are also described by that code, but which are covered. We received a 
request to create specific codes uniquely identifying both laparoscopic 
sleeve gastrectomy and the open procedure, vertical sleeve gastrectomy. 
We addressed this request at the ICD-9-CM Coordination and Maintenance 
Committee meeting held on March 9, 2011.
    We had stated that should a code or codes be created as a result of 
this request, we would then be able to add this code or codes to the 
MCE as a conforming noncoverage edit when combined with diagnosis code 
278.01. The background information discussing sleeve gastrectomy coding 
can be accessed on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticcodes/03_meetings.asp#TopOfPage. A summary of 
the meeting can be found on CMS' Web site for the ICD-9-CM Coordination 
and Maintenance Committee at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp#TopOfPage by scrolling 
down to the .pdf zip files containing the meeting agenda and handouts.
    Therefore, for FY 2012, we proposed to add a procedure code or 
codes identifying sleeve gastrectomy to MS-DRGs 619 through 621. 
However, we also indicated that we intended to add any code or codes 
created at the ICD-9-CM Coordination and Maintenance Committee on March 
9, 2011, to the MCE because sleeve gastrectomy, whether open or 
laparoscopic, is not covered for Medicare beneficiaries. The code or 
codes would appear in the ``Noncovered Procedures'' edit of the MCE. As 
the timing of the development of the proposed rule and the date of the 
March 2011 meeting of the ICD-9-CM Coordination and Maintenance 
Committee overlapped, we could not determine if additional sleeve 
gastrectomy codes would be created, to what code number or numbers they 
would be assigned, or how the narrative describing them would read. 
However, we indicated that should a code or codes be created, we 
proposed that they would simultaneously be placed in both MS-DRGs 619 
through 621 and the MCE. This decision may seem to be counterintuitive, 
but CMS realizes that

[[Page 51540]]

our MS-DRGs and the Medicare GROUPER program are used for other 
beneficiaries and by other insurance plans rather than strictly for 
Medicare beneficiaries. Any new code or codes created as a result of 
the ICD-9-CM Coordination and Maintenance Committee meeting are 
included in Table 6B (which is listed in section VI. of the Addendum to 
this final rule and available via the Internet at http://www.cms.gov/ICD9ProviderDiagnosticCodes/04_addendum.asp#TopOfPage); we indicated 
that we did not have a mechanism to make the codes from the March 9, 
2011 meeting available in the proposed rule prior to the final rule's 
publication.
    As a result of the March 9, 2011 ICD-9-CM Coordination and 
Maintenance Committee Meeting, one code was created: Procedure code 
43.82 (Laparoscopic vertical (sleeve) gastrectomy). To address open 
gastrectomies, the title of existing code 43.89 was revised to read 
``Open and other partial gastrectomy''. Both codes can be found in 
Table 6B (New Procedure Codes) and Table 6F (Revised Procedure Code 
Titles), which are listed in the Addendum to this final rule and 
available via the Internet on the CMS Web site.
    Comment: Several commenters addressed both the creation of a code 
or codes for laparoscopic or open sleeve gastrectomy discussed above 
and the proposed changes to the MCE. Several commenters indicated that 
they had no objections to the proposed changes to the MS-DRG 
classifications and the MCE, stating that the proposed changes seemed 
reasonable, given the data and information provided. One commenter 
specifically requested that CMS finalize its proposal to add new 
procedure code 43.82 to the MCE as a noncovered procedure.
    Response: We appreciate the commenters' support of our proposal.
    Comment: One commenter stated that they understood that procedure 
code 43.89 was inadvertently omitted from MS-DRGs 619, 620, and 621 
when the MS-DRGs were created and supported the addition of this code 
to these MS-DRGs. In addition, this commenter stated that because 
procedure code 43.89 is not specific to open sleeve gastrectomy, it 
cannot be incorporated as a ``noncovered procedure'' in the MCE.
    Response: We appreciate the commenter's support for this proposal 
and agree that procedure code 43.89 includes several gastrectomy 
procedures. Therefore, to identify a code describing many procedures in 
an MCE edit would inappropriately restrict other procedures included in 
that code that are covered.
    After consideration of the public comments we received, we are 
adopting as final our proposal to assign both the new procedure code 
43.82 (Laparoscopic vertical (sleeve) gastrectomy) and the existing 
procedure code 43.89 (Other total gastrectomy) to MS-DRGs 619, 620, and 
621 (O.R. Procedures for Obesity with MCC, with CC, and without CC/MCC, 
respectively). In addition, we are adding procedure code 43.82 to the 
``Noncovered Procedures'' edit of the MCE because laparoscopic sleeve 
gastrectomy is not covered for Medicare beneficiaries. Because 
procedure code 43.89 includes several gastrectomy procedures, its 
inclusion in the MCE would be inappropriate. Therefore, it will not be 
placed on the MCE.
8. MDC 15 (Newborns and Other Neonates With Conditions Originating in 
the Perinatal Period): Discharge Status Code 66 (Discharged/Transferred 
to Critical Assess Hospital (CAH))
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50236), we finalized 
our transfer policy regarding transfer of patients from an acute care 
hospital to a CAH. In that final rule, we stated that hospitals are 
required to use patient discharge status code 66 on the IPPS claims to 
identify transfers to CAHs.
    With this new requirement, a discharge from an IPPS hospital to a 
CAH equates to a transfer status. However, discharge status code 66 is 
currently not included in the MS-DRG GROUPER logic for MS-DRG 789 
(Neonate, Died or Transferred to Another Acute Care Facility). 
Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to 
add discharge status code 66 to the MS-DRG GROUPER logic for MS-DRG 
789. We invited public comment on our proposal to add discharge status 
code 66 to the MS-DRG GROUPER logic for MS-DRG 789 for FY 2012.
    Comment: Several commenters supported our proposal to add discharge 
status code 66 to the MS-DRG GROUPER logic for MS-DRG 789.
    Response: We appreciate the support of the commenters.
    After consideration of the public comments we received, we are 
finalizing our proposal to add discharge status code 66 (Discharged/
Transferred to Critical Assess Hospital (CAH)) to the MS-DRG GROUPER 
logic for MS-DRG 789.
9. 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 an MS-DRG. In this 
final rule, we discuss our intention to make the following change to 
the MCE edits.
    In section II.G.7.b. of this preamble, we discuss that the current 
ICD-9-CM procedure code for sleeve gastrectomy (43.89 (Other partial 
gastrectomy, other)) is a noncovered code when performed for resection 
of the stomach in patients with morbid obesity. We also discuss that 
noncoverage for Medicare beneficiaries of cases containing procedure 
code 43.89 is determined by the fiscal intermediaries or A-B/MACs 
because of the nature of procedure code 43.89. This code is imprecise 
and identifies several other gastrectomy procedures in addition to 
sleeve resection. Therefore, to limit coverage by identifying a code 
that describes many procedures through the use of the MCE would 
inappropriately restrict other procedures that are covered by Medicare. 
In that section, we also state that we received a request to create 
specific procedure codes identifying both laparoscopic sleeve 
gastrectomy and open vertical sleeve gastrectomy. As we stated above, 
we addressed this request at the ICD-9-CM Coordination and Maintenance 
Committee meeting held on March 9, 2011. In the FY 2012 IPPS/LTCH PPS 
proposed rule (FR 76 25833 and 25834), we indicated that if a code or 
codes should be created as a result of this request, we would then be 
able to add these codes to the MCE as a conforming noncoverage edit 
when combined with diagnosis code 278.01 (Morbid obesity).
    As the timing of development of the proposed rule and the 
scheduling of the ICD-9-CM Coordination and Maintenance Committee 
meeting on March 9, 2011 overlapped, it was not possible to determine 
what those codes might be, or even if they would be created for FY 
2012. However, we indicated in the proposed rule that should a code or 
codes be created, we proposed that any code or codes for laparoscopic 
or open sleeve resection of the stomach would be added to the MCE as a 
noncovered procedure or

[[Page 51541]]

procedures, in combination with diagnosis code 278.01. The background 
information discussing sleeve gastrectomy coding can be accessed on the 
CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticcodes/03_meetings.asp#TopOfPage. New codes describing sleeve gastrectomy are 
included in Table 6B (which is listed in section VI. of the Addendum to 
this final rule and are also available via the Internet at http://www.cms.gov/ICD9ProviderDiagnosticCodes/04_addendum.asp#TopOfPage). In 
the proposed rule, we indicated that we did not have a mechanism to 
make the codes available prior to the final rule's publication, and 
invited public comments on this proposal.
    As a result of the March 9, 2011 ICD-9-CM Coordination and 
Maintenance Committee Meeting, one code was created: procedure code 
43.82 (Laparoscopic vertical (sleeve) gastrectomy). To address open 
gastrectomies, the title of existing procedure code 43.89 was revised 
to read ``Open and other partial gastrectomy''. Both codes can be found 
in Tables 6B and 6F, which are listed in the Addendum to this final 
rule and available via the Internet.
    Comment: Several commenters indicated that they had no objections 
to the proposed changes to the MS-DRG classifications and the MCE, 
stating that the proposed changes seemed reasonable, given the data and 
information provided. One commenter specifically requested that CMS 
finalize its proposal to add new procedure code 43.82 to the MCE as a 
noncovered procedure.
    Response: We appreciate the commenters' support of our proposals.
    Comment: Several commenters stated that because procedure code 
43.89 is not specific to open sleeve gastrectomy it cannot be 
incorporated as a ``noncovered procedure'' in the MCE.
    Response: We agree that procedure code 43.89 includes several 
gastrectomy procedures, and to identify this code describing many 
procedures in an MCE edit would be inappropriately restricting other 
procedures that are covered.
    Comment: One commenter recognized that procedure codes discussed at 
the ICD-9-CM Coordination and Maintenance Committee Meeting of March 9, 
2011 could not logistically be included in the IPPS proposed rule. The 
commenter urged CMS to apply current logic to code revisions that were 
discussed at the March 2011 ICD-9-CM Coordination and Maintenance 
Committee meeting, but which could not be finalized in time to include 
them in the proposed rule.
    Response: We appreciate that the public understands some of the 
timing constraints under which we must operate. We assure the public 
that the same logic considerations regarding code assignment to 
predecessor MS-DRGs as well as O.R. determinations are applied to newly 
created codes from the March 2011 ICD-9-CM Coordination and Maintenance 
Committee Meeting as were applied to the codes created as a result of 
the September 15, 2010 ICD-9-CM Coordination and Maintenance Committee 
Meeting.
    After consideration of the public comments we received, we are 
adopting as final our proposal to add procedure code 43.82 to the 
``Noncovered Procedures'' edit of the MCE, given that laparoscopic 
sleeve gastrectomy is not covered for Medicare beneficiaries. Because 
procedure code 43.89 includes several gastrectomy procedures, its 
inclusion in the MCE would be inappropriate. Therefore, we are not 
placing it on the MCE.
10. Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different MS-DRG within the MDC to which the principal diagnosis 
is assigned. Therefore, it is necessary to have a decision rule within 
the GROUPER by which these cases are assigned to a single MS-DRG. The 
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function. 
Application of this hierarchy ensures that cases involving multiple 
surgical procedures are assigned to the MS-DRG associated with the most 
resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of MS-DRG reclassification and recalibrations, we 
reviewed the surgical hierarchy of each MDC, as we have for previous 
reclassifications and recalibrations, to determine if the ordering of 
classes coincides with the intensity of resource utilization.
    A surgical class can be composed of one or more MS-DRGs. For 
example, in MDC 11, the surgical class ``kidney transplant'' consists 
of a single MS-DRG (MS-DRG 652) and the class ``major bladder 
procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655). 
Consequently, in many cases, the surgical hierarchy has an impact on 
more than one MS-DRG. The methodology for determining the most 
resource-intensive surgical class involves weighting the average 
resources for each MS-DRG by frequency to determine the weighted 
average resources for each surgical class. For example, assume surgical 
class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs 
3, 4, and 5. Assume also that the average costs of MS-DRG 1 is higher 
than that of MS-DRG 3, but the average costs of MS-DRGs 4 and 5 are 
higher than the average costs of MS-DRG 2. To determine whether 
surgical class A should be higher or lower than surgical class B in the 
surgical hierarchy, we would weigh the average costs of each MS-DRG in 
the class by frequency (that is, by the number of cases in the MS-DRG) 
to determine average resource consumption for the surgical class. The 
surgical classes would then be ordered from the class with the highest 
average resource utilization to that with the lowest, with the 
exception of ``other O.R. procedures'' as discussed below.
    This methodology may occasionally result in assignment of a case 
involving multiple procedures to the lower-weighted MS-DRG (in the 
highest, most resource-intensive surgical class) of the available 
alternatives. However, given that the logic underlying the surgical 
hierarchy provides that the GROUPER search for the procedure in the 
most resource-intensive surgical class, in cases involving multiple 
procedures, this result is sometimes unavoidable.
    We note that, notwithstanding the foregoing discussion, there are a 
few instances when a surgical class with a lower average cost is 
ordered above a surgical class with a higher average cost. For example, 
the ``other O.R. procedures'' surgical class is uniformly ordered last 
in the surgical hierarchy of each MDC in which it occurs, regardless of 
the fact that the average costs for the MS-DRG or MS-DRGs in that 
surgical class may be higher than those for other surgical classes in 
the MDC. The ``other O.R. procedures'' class is a group of procedures 
that are only infrequently related to the diagnoses in the MDC, but are 
still occasionally performed on patients in the MDC with these 
diagnoses. Therefore, assignment to these surgical classes should only 
occur if no other surgical class more closely related to the diagnoses 
in the MDC is appropriate.
    A second example occurs when the difference between the average 
costs for two surgical classes is very small. We have found that small 
differences generally do not warrant reordering of the hierarchy 
because, as a result of reassigning cases on the basis of the hierarchy 
change, the average costs are likely to shift such that the higher-

[[Page 51542]]

ordered surgical class has a lower average costs than the class ordered 
below it.
    As we proposed, based on the changes that we are make for FY 2012, 
as discussed in sections II.G.1. and 6. of this preamble, we are 
revising the surgical hierarchy for Pre-MDCs and MDC 9 (Diseases and 
Disorders of the Skin, Subcutaneous Tissue, and Breast) as follows:
    In Pre-MDCs, we are reordering new MS-DRG 016 (Autologous Bone 
Marrow Transplant with CC/MCC) and new MS-DRG 017 (Autologous Bone 
Marrow Transplant without CC/MCC) above MS-DRG 010 (Pancreas 
Transplant).
    In MDC 9, we are reordering--
     MS-DRG 578 (Skin Graft Except for Skin Ulcer or Cellulitis 
without CC/MCC) above new MS-DRG 570 (Skin Debridement with MCC);
     New MS-DRG 570 above new MS-DRG 571 (Skin Debridement with 
CC);
     New MS-DRG 571 above new MS-DRG 572 (Skin Debridement 
without CC/MCC; and
     New MS-DRG 572 above MS-DRG 579 (Other Skin, Subcutaneous 
Tissue, and Breast Procedures with MCC).
    Comment: Commenters generally supported our proposals.
    Response: Based on these public comments and our review of the 
proposed revisions using the March 2011 update of the FY 2010 MedPAR 
file and the revised GROUPER software, we found that the revisions are 
still supported by the data. Therefore, we have incorporated the 
proposed revisions to the surgical hierarchy as final for FY 2012.
11. 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 2012
    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), the FY 2010 final rule (74 FR 43799); and the FY 2011 final 
rule (75 FR 50114). 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 2012, we proposed to make 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, 2011. (We refer readers to 
section II.G.13. of the preamble of this final rule for a discussion of 
ICD-9-CM changes.) We proposed to make these changes in accordance with 
the principles established when we created the CC Exclusions List in 
1987. In addition, we indicated 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.
    CMS encourages input from our stakeholders concerning the annual 
IPPS updates when that input is made available to us by December of the 
year prior to the next annual proposed rule update. For example, to be 
considered for any updates or changes in FY 2012, comments and 
suggestions should have been submitted by early December 2010. The 
following comments were submitted in a timely manner and, therefore, 
are being discussed in this section.
(A) Pressure Ulcer Diagnosis Codes
    We received a comment recommending that CMS remove diagnosis codes 
707.23 (Pressure ulcer, stage III) and 707.24 (Pressure ulcer, stage 
IV) from the CC Exclusion List when reported as a secondary diagnosis 
code with a principal diagnosis code for the pressure ulcer site: 
Diagnosis code 707.00 (Pressure ulcer, unspecified); diagnosis code 
707.01 (Pressure ulcer,

[[Page 51543]]

elbow); diagnosis code 707.02 (Pressure ulcer, upper back); diagnosis 
code 707.03 (Pressure ulcer, lower back); diagnosis code 707.04 
(Pressure ulcer, hip); diagnosis code 707.05 (Pressure ulcer, buttock); 
diagnosis code 707.06 (Pressure ulcer, ankle); diagnosis code 707.07 
(Pressure ulcer, heel); or diagnosis code 707.09 (Pressure ulcer, other 
site). Currently, when a patient is admitted with a pressure ulcer, the 
CC Exclusion List prevents a pressure ulcer stage diagnosis code from 
being designated as an MCC when reported as a secondary diagnosis. The 
commenter disagreed with this approach and contended that a patient 
admitted for treatment of a stage III or stage IV pressure ulcer likely 
requires resources that would qualify the case as a diagnosis with an 
MCC or, at a minimum, as a CC.
    Our clinical advisors agreed with the commenter. Therefore, in the 
FY 2012 IPPS/LTCH PPS proposed rule, we proposed to remove diagnosis 
codes 707.23 and 707.24 from the CC Exclusion List when a principal 
diagnosis code of one of codes 707.00 through 707.09 is reported. Under 
this proposal, diagnosis code 707.23 or diagnosis code 707.24 would be 
an MCC when reported as a secondary diagnosis code with a principal 
diagnosis code of one of codes 707.00 through 707.09.
    Comment: Several commenters supported the proposed removal of 
diagnosis codes 707.23 and 707.24 from the CC Exclusion list when a 
principal diagnosis code of one of the codes 707.00 through 707.09 is 
reported.
    Response: We appreciate the support of the commenters. As stated 
above, we believe this proposed change has merit.
    After consideration of the public comments we received, we are 
adopting as final our proposal to remove diagnosis codes 707.23 
(Pressure ulcer stage III) and 707.24 (Pressure ulcer stage IV) from 
the CC Exclusion List when reported as a secondary diagnosis code with 
a principal diagnosis code for the pressure ulcer site: diagnosis code 
707.00 (Pressure ulcer, unspecified); diagnosis code 707.01 (Pressure 
ulcer, elbow); diagnosis code 707.02 (Pressure ulcer, upper back); 
diagnosis code 707.03 (Pressure ulcer, lower back); diagnosis code 
707.04 (Pressure ulcer, hip); diagnosis code 707.05 (Pressure ulcer, 
buttock); diagnosis code 707.06 (Pressure ulcer, ankle); diagnosis code 
707.07 (Pressure ulcer, heel); or diagnosis code 707.09 (Pressure 
ulcer, other site).
(B) End-Stage Renal Disease Diagnosis Code
    We received a suggestion from a commenter that diagnosis code 585.6 
(End-stage renal disease) be added to the CC Exclusion List when 
reported with a principal diagnosis code of 403.90 (Hypertensive 
chronic kidney disease, unspecified, with chronic kidney disease stage 
I through stage IV, or unspecified) or diagnosis code 403.91 
(Hypertensive chronic kidney disease, unspecified, with chronic kidney 
disease stage V or end-stage renal disease). Currently, diagnosis code 
585.6 is designated as an MCC.
    According to the commenter, diagnosis codes 585.6 and 403.91 are 
essentially the same diagnosis but coding guidelines require the 
reporting of two codes to identify the stage of chronic kidney disease 
when associated with hypertensive chronic kidney disease. The commenter 
suggested that there is no need for diagnosis code 585.6 to be 
designated as an MCC when reported with a principal diagnosis of 
hypertensive chronic kidney disease, stage V or end-stage renal 
disease. The commenter also pointed out that, while coding guidelines 
would preclude diagnosis codes 403.90 and 585.6 from being reported 
together, the MS-DRG GROUPER allows diagnosis code 585.6 to act as an 
MCC when reported as a secondary diagnosis with principal diagnosis 
code 403.90.
    As discussed in the proposed rule, in response to the first issue, 
our clinical advisors disagree with the commenter. Diagnosis code 
403.91 includes chronic kidney disease stage V or end-stage renal 
disease. These are two separate conditions (or stages) that are 
identified by two unique codes. Diagnosis code 585.5 identifies stage V 
chronic kidney disease and is classified as a CC. Diagnosis code 585.6 
identifies end-stage renal disease, is classified as an MCC, and 
describes patients who require chronic dialysis. The patients diagnosed 
with stage V chronic kidney disease are a different population who 
require different resources than those patients who are diagnosed with 
end-stage renal disease. Therefore, in the FY 2012 IPPS/LTCH PPS 
proposed rule, we did not propose to add diagnosis code 585.6 to the CC 
Exclusion List when reported with a principal diagnosis of code 403.91.
    On the second issue raised by the commenter, our clinical advisors 
agreed. Diagnosis code 403.90 identifies patients with chronic kidney 
disease, stages I through IV or unspecified, and diagnosis code 585.6 
identifies end-stage renal disease. Our clinical advisors indicate that 
the reporting of diagnosis code 585.6 should not be designated as an 
MCC in this case. We agreed with the commenter that diagnosis codes 
403.90 and 585.6 should not be reported together as instructed by the 
Coding Guidelines. Only a code from the 585.1 through 585.4 range 
(stages I through IV, or unspecified) should be reported with diagnosis 
code 403.90. Diagnosis code 585.6 is the exclusive code that uniquely 
identifies end-stage renal disease and should only be reported with 
diagnosis code 403.91. Therefore, in the FY 2012 IPPS/LTCH PPS proposed 
rule, we proposed to add diagnosis code 585.6 to the CC Exclusion List 
when reported with a principal diagnosis code of 403.90.
    Comment: Several commenters supported our proposal to add diagnosis 
code 585.6 to the CC Exclusion List when reported with a principal 
diagnosis code of 403.90.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
adopting as final our proposal to add diagnosis code 585.6 (End stage 
renal disease) to the CC Exclusion List when reported with a principal 
diagnosis code of 403.90 (Hypertensive chronic kidney disease, 
unspecified, with chronic kidney disease stage I through stage IV, or 
unspecified).
(C) Hypertensive Chronic Kidney Disease With Chronic Kidney Disease 
Stage V or End-Stage Renal Disease Code
    We received a comment recommending the addition of diagnosis code 
403.91 (Hypertensive chronic kidney disease, unspecified, with chronic 
kidney disease stage V or end-stage renal disease) to the CC Exclusion 
List when reported as a secondary diagnosis code with principal 
diagnosis code 585.6 (End stage renal disease). The commenter stated 
that it would be unlikely that diagnosis code 403.91 would be reported 
as a secondary diagnosis code with diagnosis code 585.6 as the 
principal diagnosis code due to sequencing rules for end-stage renal 
disease with hypertension. Currently, diagnosis code 403.91 is 
designated as a CC.
    Our clinical advisors agreed with the commenter. Therefore, in the 
FY 2012 IPPS/LTCH PPS proposed rule, we proposed to add diagnosis code 
403.91 to the CC Exclusion List when reported as a secondary diagnosis 
code with principal diagnosis code 585.6.
    Comment: Several commenters supported our proposal to add diagnosis 
code 403.91 to the CC Exclusion List

[[Page 51544]]

when reported as a secondary diagnosis code with principal diagnosis 
code 585.6.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
adopting as final our proposal to add diagnosis code 403.91 
(Hypertensive chronic kidney disease, unspecified, with chronic kidney 
disease stage V or end stage renal disease) to the CC Exclusion List 
when reported as a secondary diagnosis code with principal diagnosis 
code 585.6 (End stage renal disease).
(2) Suggested Changes to Severity Levels for Encephalopathy
    We received a request that we consider changing the following 
diagnosis codes from an MCC to a CC:

 348.30 (Encephalopathy NOS)
 348.31 (Metabolic encephalopathy)
 348.39 (Encephalopathy NEC)
 349.82 (Toxic encephalopathy)
 572.2 (Hepatic encephalopathy)

    For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed the claims 
data for the diagnosis codes mentioned above related to encephalopathy. 
We used the same approach we used in initially creating the MS-DRGs and 
classifying secondary diagnosis codes as non-CCs, CCs, or MCCs. A 
detailed discussion of the process and criteria we used in this process 
is described in the FY 2008 IPPS final rule (72 FR 47158 through 
47161). We refer the readers to this discussion for complete 
information on our approach to developing the non-CC, CC, and MCC 
lists. Each diagnosis for which Medicare data were available was 
evaluated to determine its impact on resource use and to determine the 
most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order 
to make this determination, the average cost for each subset of cases 
was compared to the expected cost for cases in that subset. The 
following format was used to evaluate each diagnosis:

--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                Code       Diagnosis                   Cnt1               C1                 Cnt2               C2                 Cnt3               C3
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Cnt 1                 Cnt 2                 Cnt 3
                   Code                          Diagnosis description        CC level    Cnt 1      impact     Cnt 2      impact     Cnt 3      impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
34830....................................  Encephalopathy NOS..............        MCC     10,082     2.1206     39,042     2.7774     60,381     3.3702
34831....................................  Metabolic encephalopathy........        MCC      6,389     2.0580     29,651     2.6952     49,343     3.4011
34839....................................  Encephalopathy NEC..............        MCC      4,004     2.1118     15,003     2.7355     19,732     3.3708
34982....................................  Toxic encephalopathy............        MCC      4,333     2.3158     18,126     3.0023     26,009     3.5714
5722.....................................  Hepatic encephalopathy..........        MCC      1,375     1.5448      9,885     2.5054     12,421     3.4435
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We ran the following data as described in FY 2008 IPPS final rule 
(72 FR 47158 through 47161). The C1 value reflects a patient with no 
other secondary diagnosis or with all other secondary diagnoses that 
are non-CCs. The C2 value reflects a patient with at least one other 
secondary diagnosis that is a CC but none that is a MCC. The C3 value 
reflects a patient with at least one other secondary diagnosis that is 
a MCC.
    The chart above shows that the C1 findings ranged from a low of 
1.5448 to a high of 2.3158. As stated earlier, a C1 value close to 2.0 
suggests the condition is more like a CC than a non-CC but not as 
significant in resource usage as an MCC. The C1 findings suggest that 
these codes are more like a CC than a MCC. However, the C2 findings 
ranged from a low of 2.5054 to a high of 3.0023. Values close to 3.0 
suggests the condition is more similar to an MCC than a CC or non-CC. 
The C2 findings support maintaining the encephalopathy codes as an MCC 
level. The data are clearly mixed between the C1 and C2 findings, and 
does not consistently support a change in the severity level. Our 
clinical advisers recommended that these encephalopathy codes remain at 
an MCC level because these patients with encephalopathy typically 
utilize significant resources and are at a higher severity level. Based 
on the clinical analysis and the lack of consistent claims data support 
for the severity level change, we indicated in the proposed rule that 
we believe that the encephalopathy codes should remain on the MCC list. 
Therefore, we proposed to retain the following encephalopathy codes on 
the MCC list:
 348.30 (Encephalopathy NOS)
 348.31 (Metabolic encephalopathy)
 348.39 (Encephalopathy NEC)
 349.82 (Toxic encephalopathy)
 572.2 (Hepatic encephalopathy)
    We invited public comment on our proposal not to change the 
severity level classification for these codes.
    Comment: Several commenters supported our proposal not to change 
the MCC severity level classification for the encephalopathy codes 
listed above. The commenters agreed with our findings that the data 
were mixed between the C1 and C2 findings for these codes, which are 
currently on the MCC list, and that clinical evaluation of these 
conditions supports maintaining them on the MCC list.
    Response: We appreciate the commenters' support. As stated above, 
our data showed mixed findings for C1 and C2 with C1 findings 
supporting a change to CC, but C2 findings supporting maintaining the 
codes on the MCC list. Our clinical advisors' evaluation of 
encephalopathy patients supports our proposal to maintain these 
encephalopathy codes on the MCC list.

[[Page 51545]]

    After consideration of the public comments we received, as we 
proposed, we are keeping the following encephalopathy codes on the MCC 
list.

 348.30 (Encephalopathy NOS) MCC
 348.31 (Metabolic encephalopathy) MCC
 348.39 (Encephalopathy NEC) MCC
 349.82 (Toxic encephalopathy) MCC
 572.2 (Hepatic encephalopathy) MCC

    (3) Suggested Changes to Severity Levels for Mechanical 
Complication and Infection Due to Device-Related Codes
    We received a request to change the severity classification from 
CCs to MCCs for the following diagnosis codes:
     996.01 (Mechanical of cardiac device, implant and graft 
due to cardiac pacemaker (electrode)).
     996.04 (Mechanical complication of cardiac device, 
implant, and graft due to automatic implantable cardiac defibrillator).
     996.61 (Infection and inflammatory reaction due to 
internal prosthetic device, implant, and graft due to cardiac device, 
implant, and graft).
    Currently, all three diagnosis codes are classified as a CC. For 
the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed claims data using 
the methodology described previously in this section for these 
diagnosis codes. The following chart shows our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Cnt 1                 Cnt 2                 Cnt 3
                  Code                         Diagnosis description         CC Level     Cnt 1      Impact     Cnt 2      Impact     Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
99601..................................  Malfunc cardiac pacemaker........           CC     1,296     1.6723      1,920     2.4332      1,333     3.1134
99604..................................  Mch cmp autm mplnt dfbrl.........           CC       419     1.7041      1,032     2.5190        660     3.1508
99661..................................  React-cardiac dev/graft..........           CC       149     1.9922        633     2.8134      1,253     3.5036
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We reviewed the findings from these data. The C1 findings ranged 
from a low of 1.6723 to a high of 1.9922. As stated earlier, a value 
close to 2.0 in the C1 field suggests that the condition is more like a 
CC than a non-CC but not as significant in resource usage as an MCC. 
The C1 findings clearly support the current classification of these 
three codes on the CC list and the C2 findings supports this 
classification. Our clinical advisors agree that the data findings and 
their own clinical evaluation of the severity level of these conditions 
support the classification of these three codes on the CC list. 
Therefore, we proposed that these codes remain on the CC list. We 
invited public comment on this proposal.
    Comment: Several commenters supported our proposal to maintain the 
mechanical complication and infection due to device-related codes 
mentioned above on the CC list. The commenters agreed that the data as 
well as our clinical advisors' evaluation support the current 
classification.
    Several commenters opposed our proposal to keep the mechanical 
complication and infection due to device-related codes on the CC list. 
In support of their position, the commenters cited our decision to keep 
the encephalopathy codes on the MCC list. They pointed out that the 
encephalopathy codes had C1 findings of a low of 1.5448 to a high of 
2.3158 and C2 findings of a low of 2.5054 to a high of 3.0023, yet they 
were maintained on the MCC list. The commenters believed that the same 
logic should be applied to the mechanical complication and infection 
due to device-related codes which had C1 findings of a low of 1.6723 to 
a high of 1.9922 and C2 findings of a low of 2.4332 to a high of 
2.8134. One commenter also offered data from the Healthcare Utilization 
Project (HCUP) database which showed 2008 national statistics of 
average costs for patients admitted with one of these codes as a 
principal diagnosis. This commenter stated that these data showed 
average costs as follows:

       2008 National Statistics--Principal Diagnosis Only Ranked by Costs, Descending Order: Medicare Only
----------------------------------------------------------------------------------------------------------------
                                           Total number of   Length of stay
    ICD-9-CM Principal diagnosis code        discharges       (LOS) (mean)    Charges $ (mean)   Costs $ (mean)
----------------------------------------------------------------------------------------------------------------
996.61--React-Cardiac Dev/Graft.........             8,944              10.7            95,251            26,893
996.04--Mch Comp Aut, Mplnt Dfbri.......             8,095               3.2            59,924            16,891
996.01--Malfunc Cardiac Pacemake........             8,664               2.8            37,056            11,044
427.5--Cardiac Arrest...................             4,781               3.6            35,499            10,908
349.82--Toxic Encephalopathy............             6,835               6.5            37,913            10,765
428.23--Ac On Chr Syst Hrt Fail.........            75,511               5.8            33,732            10,689
428.1--Left Heart Failure...............             2,261               5.1            26,777            10,252
348.39--Encephalopathy Nec..............             4,880               6.3            32,124             9,609
428.31--Ac Diastolic Hrt Failure........            37,216               5.5            30,167             9,298
348.30--Encephalopathy Nos..............            11,057               5.9            31,933             9,232
572.2--Hepatic encephalopathy...........            20,154               5.4            28,056             8,580
----------------------------------------------------------------------------------------------------------------

    The commenter stated that these data support changing these codes 
to the MCC list since the costs associated with these admissions were 
higher than admissions for encephalopathy.
    Response: We agree with the commenters who supported maintaining 
the current CC severity level for the mechanical complication and 
infection due to device related codes. As discussed above the C1 and C2 
findings as well as the advice of our clinical advisors supports this 
recommendation.
    We disagree with the commenters who made comparisons to our 
proposals for the encephalopathy codes. The encephalopathy codes had C1 
findings of a low of 1.5448 to a high of 2.3158 and C2 findings of a 
low of 2.5054 to a high of 3.0023. The encephalopathy codes C1 findings 
supported a change to a CC level. The C2 findings of a high of 3.0023 
support the current MCC assignment for those codes.
    The mechanical complication and infection due to device-related 
codes had C1 findings of a low of 1.6723 and

[[Page 51546]]

a high of 1.9922, which are more like a CC than a non-CC but not as 
significant in resource usage as an MCC. The C2 findings of a low of 
2.4332 and a high of 2.8134 are also supportive of a CC classification 
because, while one was a high of 2.8134, the other was only 2.4332. 
Only one of the codes had a finding that approached 3.0 and neither 
exceeded 3.0. Furthermore, our clinical advisors' evaluation of data on 
patients with encephalopathy as a secondary diagnosis indicates that 
these patients are at a higher severity level. Our clinical advisors 
did not believe that patients who have one of the mechanical 
complication and infection due to device-related codes as a secondary 
diagnoses would require resources justifying the MCC severity level.
    We point out that the data that the commenter shared focused on 
patients admitted for either a mechanical complication or infection due 
to device-related code or for encephalopathy. In other words, these 
conditions were the principal diagnosis in this data. These cases did 
not report the codes as secondary diagnoses. Our clinical criteria are 
based on these conditions being reported as a secondary diagnosis and 
the effect that has on all types of admissions. A detailed discussion 
of the process and criteria we used in this process is described in the 
FY 2008 IPPS final rule with comment period (72 FR 47158 through 
47161). It may well make a difference in the overall costs of the 
admission if a patient were admitted for these types of complications 
and required a pacemaker insertion during the stay. Clearly, the 
encephalopathy cases would not have had a device inserted. Therefore, 
it is not possible to determine the effect of the impact of these 
conditions as a secondary diagnosis based on these data because the 
additional costs of a device is included. Our approach isolates the 
effect of the individual code on all types of admissions when it is 
reported as a secondary diagnosis. It also looks at whether this code 
is the only CC or MCC reported (C1 cases), reported with another CC 
diagnosis (C2 cases), or reported with another MCC diagnosis (C3). We 
cannot determine what, if any, secondary diagnoses were present for the 
cases shown in the HCUP data shown above.
    We believe our consistent approach to evaluating the effect of a 
secondary diagnosis is more appropriate than looking at average costs 
when the condition is reported as a principal diagnosis in establishing 
the severity level of these codes. Modifying the approach by also 
looking at the principal diagnosis would significantly modify our 
current approach that focuses solely on evaluating the impact of 
secondary diagnoses on increasing the severity of the overall 
admission. We also note that our clinical advisors' evaluation of these 
cases, who advised that the codes should remain on the CC lists, 
supports the findings of the data and maintaining the codes on the CC 
list.
    After consideration of the public comments we received, as we 
proposed, we are maintain the mechanical complication and infection due 
to device-related codes listed below on the CC list for FY 2012.
     996.01 (Mechanical of cardiac device, implant and graft 
due to cardiac pacemaker (electrode))--CC
     996.04 (Mechanical complication of cardiac device, 
implant, and graft due to automatic implantable cardiac 
defibrillator)--CC
     996.61 (Infection and inflammatory reaction due to 
internal prosthetic device, implant, and graft due to cardiac device, 
implant, and graft)--CC
    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, 2011, 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, which are listed in section VI. of the Addendum to this final rule 
(and available via the Internet) 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, 2011, the indented diagnoses will not be recognized by 
the GROUPER as valid CCs for the asterisked principal diagnosis.
    To assist readers in identifying the changes to the MCC and CC 
lists that occurred as a result of updates to the ICD-9-CM codes, as 
described in Tables 6A, 6C, and 6E, which are listed in section VI. of 
the Addendum to this final rule and available via the Internet, we are 
providing the following summaries of those MCC and CC changes for FY 
2012.

         Summary of Additions to the MS-DRG MCC List--Table 6I.1
------------------------------------------------------------------------
                 Code                              Description
------------------------------------------------------------------------
284.11................................  Antineoplastic chemotherapy
                                         induced pancytopenia.
284.12................................  Other drug-induced pancytopenia.
348.82................................  Brain death.
415.13................................  Saddle embolus of pulmonary
                                         artery.
444.01................................  Saddle embolus of abdominal
                                         aorta.
488.81................................  Influenza due to identified
                                         novel influenza A virus with
                                         pneumonia.
516.4.................................  Lymphangioleiomyomatosis.
516.61................................  Neuroendocrine cell hyperplasia
                                         of infancy.
516.62................................  Pulmonary interstitial
                                         glycogenosis.
516.63................................  Surfactant mutations of the
                                         lung.
516.64................................  Alveolar capillary dysplasia
                                         with vein misalignment.
516.69................................  Other interstitial lung diseases
                                         of childhood.
518.51................................  Acute respiratory failure
                                         following trauma and surgery.
518.52................................  Other pulmonary insufficiency,
                                         not elsewhere classified,
                                         following trauma and surgery.
518.53................................  Acute and chronic respiratory
                                         failure following trauma and
                                         surgery.
747.31................................  Pulmonary artery coarctation and
                                         atresia.
747.32................................  Pulmonary arteriovenous
                                         malformation.
747.39................................  Other anomalies of pulmonary
                                         artery and pulmonary
                                         circulation.
808.54................................  Multiple open pelvic fractures
                                         without disruption of pelvic
                                         circle.
998.01................................  Postoperative shock,
                                         cardiogenic.

[[Page 51547]]

 
998.02................................  Postoperative shock, septic.
998.09................................  Postoperative shock, other.
------------------------------------------------------------------------


        Summary of Deletions From the MS-DRG MCC List--Table 6I.2
------------------------------------------------------------------------
                 Code                              Description
------------------------------------------------------------------------
518.5.................................  Pulmonary insufficiency
                                         following trauma and surgery.
747.3.................................  Anomalies of pulmonary artery.
------------------------------------------------------------------------


         Summary of Additions to the MS-DRG CC List--Table 6J.1
------------------------------------------------------------------------
                 Code                              Description
------------------------------------------------------------------------
284.19................................  Other pancytopenia.
286.52................................  Acquired hemophilia.
286.53................................  Antiphospholipid antibody with
                                         hemorrhagic disorder.
286.59................................  Other hemorrhagic disorder due
                                         to intrinsic circulating
                                         anticoagulants, antibodies, or
                                         inhibitors.
294.21................................  Dementia, unspecified, with
                                         behavioral disturbance.
358.30................................  Lambert-Eaton syndrome,
                                         unspecified.
358.31................................  Lambert-Eaton syndrome in
                                         neoplastic disease.
358.39................................  Lambert-Eaton syndrome in other
                                         diseases classified elsewhere.
425.11................................  Hypertrophic obstructive
                                         cardiomyopathy.
425.18................................  Other hypertrophic
                                         cardiomyopathy.
444.09................................  Other arterial embolism and
                                         thrombosis of abdominal aorta.
512.2.................................  Postoperative air leak.
512.81................................  Primary spontaneous
                                         pneumothorax.
512.82................................  Secondary spontaneous
                                         pneumothorax.
512.83................................  Chronic pneumothorax.
512.84................................  Other air leak.
512.89................................  Other pneumothorax.
516.33................................  Acute interstitial pneumonitis.
516.35................................  Idiopathic lymphoid interstitial
                                         pneumonia.
516.36................................  Cryptogenic organizing
                                         pneumonia.
516.37................................  Desquamative interstitial
                                         pneumonia.
516.5.................................  Adult pulmonary Langerhans cell
                                         histiocytosis.
539.01................................  Infection due to gastric band
                                         procedure.
539.09................................  Other complications of gastric
                                         band procedure.
539.81................................  Infection due to other bariatric
                                         procedure.
539.89................................  Other complications of other
                                         bariatric procedure.
596.81................................  Infection of cystostomy.
596.82................................  Mechanical complication of
                                         cystostomy.
596.83................................  Other complication of
                                         cystostomy.
808.44................................  Multiple closed pelvic fractures
                                         without disruption of pelvic
                                         circle.
996.88................................  Complications of transplanted
                                         organ, stem cell.
997.32................................  Postprocedural aspiration
                                         pneumonia.
997.41................................  Retained cholelithiasis
                                         following cholecystectomy.
997.49................................  Other digestive system
                                         complications.
998.00................................  Postoperative shock,
                                         unspecified.
999.32................................  Bloodstream infection due to
                                         central venous catheter.
999.33................................  Local infection due to central
                                         venous catheter.
999.34................................  Acute infection following
                                         transfusion, infusion, or
                                         injection of blood and blood
                                         products.
999.41................................  Anaphylactic reaction due to
                                         administration of blood and
                                         blood products.
999.42................................  Anaphylactic reaction due to
                                         vaccination.
999.49................................  Anaphylactic reaction due to
                                         other serum.
999.51................................  Other serum reaction due to
                                         administration of blood and
                                         blood products.
999.52................................  Other serum reaction due to
                                         vaccination.
999.59................................  Other serum reaction.
------------------------------------------------------------------------


        Summary of Deletions From the MS-DRG CC List--Table 6J.2
------------------------------------------------------------------------
                 Code                              Description
------------------------------------------------------------------------
284.1.................................  Pancytopenia.
286.5.................................  Hemorrhagic disorder due to
                                         intrinsic circulating
                                         anticoagulants.
425.1.................................  Hypertrophic obstructive
                                         cardiomyopathy.
444.0.................................  Embolism and thrombosis of
                                         abdominal aorta.
512.8.................................  Other spontaneous pneumothorax.
516.3.................................  Idiopathic fibrosing alveolitis.

[[Page 51548]]

 
997.4.................................  Digestive system complications.
998.0.................................  Postoperative shock.
999.4.................................  Anaphylactic shock due to serum.
999.5.................................  Other serum reaction.
------------------------------------------------------------------------

    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 28.0, is available on a CD 
for $225.00. Version 29.0 of this manual, which will include the final 
FY 2012 MS-DRG changes, will be available on a CD for $225.00. These 
manuals may be obtained by writing 3M/HIS at the following address: 100 
Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303, or by 
obtaining an order form at the Web site: http://www.3MHIS.com. Please 
specify the revision or revisions requested.
12. 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, FY 2010, 
and FY 2011, 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), the FY 2010 final rule (74 FR 43796); and the FY 2011 
final rule (75 FR 50122).
---------------------------------------------------------------------------

    Our review of MedPAR claims data showed that there were no cases 
that merited movement or should logically be assigned to any of the 
other MDCs. Therefore, for FY 2012, we did not propose to change the 
procedures assigned among these MS-DRGs.
    We did not receive any public comments on this proposal. Therefore, 
as we proposed, we are not making any changes to the procedures 
assigned to MS-DRGs 981 through 983, 984 through 986, and 987 through 
989 for FY 2012.
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

[[Page 51549]]

which the diagnosis falls. As noted above, there were no cases that 
merited movement or that should logically be assigned to any of the 
other MDCs. Therefore, for FY 2012, 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. Therefore, 
as we proposed, we are not making any changes to the procedures 
assigned to MS-DRGs 981 through 983 or 987 through 989 for FY 2012.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    We also annually review the list of ICD-9-CM procedures that, when 
in combination with their principal diagnosis code, result in 
assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R. 
procedure unrelated to principal diagnosis with MCC, with CC, or 
without CC/MCC, respectively), and 987 through 989, to ascertain 
whether any of those procedures should be reassigned from one of these 
three MS-DRGs to another of the three MS-DRGs based on average charges 
and the length of stay. We look at the data for trends such as shifts 
in treatment practice or reporting practice that would make the 
resulting MS-DRG assignment illogical. If we find these shifts, we 
would propose to move cases to keep the MS-DRGs clinically similar or 
to provide payment for the cases in a similar manner. Generally, we 
move only those procedures for which we have an adequate number of 
discharges to analyze the data.
    There were no cases representing shifts in treatment practice or 
reporting practice that would make the resulting MS-DRG assignment 
illogical, or that merited movement so that cases should logically be 
assigned to any of the other MDCs. Therefore, for FY 2012, we did not 
propose to move any procedure codes among these MS-DRGs.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not moving any procedures assigned to MS-DRGs 
981 through 983, 984 through 986, and 987 through 989 for FY 2012.
c. Adding Diagnosis or Procedure Codes to MDCs
    Based on the review of cases in the MDCs as described above in 
sections III.G.12.a. and b., we did not propose to add any diagnosis or 
procedure codes to MDCs for FY 2012.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not adding any diagnosis or procedure codes to 
MDCs for FY 2012.
13. 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 2012 at a public meeting held on September 15-16, 
2010 and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 19, 2010. Those 
coding changes were announced in Tables 6A through 6F, which were 
listed in section VI. of the Addendum to the proposed rule and 
available via the Internet.
    The Committee held its 2011 meeting on March 9-10, 2011. New codes 
for which there was a consensus of public support and for which 
complete tabular and indexing changes were made by May 2011 are 
included in the October 1, 2011 update to ICD-9-CM. Code revisions that 
were discussed at the March 9-10, 2011 Committee meeting but that could 
not be finalized in time to include them in the tables listed in 
section VI. of the Addendum to the proposed rule are included in Tables 
6A through 6F, which are listed in section VI. of the Addendum to this 
final rule and available via the Internet, and are marked with an 
asterisk (*).
    Copies of the minutes of the procedure codes discussions at the 
Committee's September 15-16, 2010 meeting and March 9-10, 2011 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 15-16, 2010 meeting and 
March 9-10, 2011 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

[[Page 51550]]

diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM 
Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo 
Road, Hyattsville, MD 20782. Comments may be sent by E-mail to: 
dfp4@cdc.gov.
    Questions and comments concerning the procedure codes should be 
addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination 
and Maintenance Committee, CMS, Center for Medicare Management, 
Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 
7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent 
by E-mail to: patricia.brooks2@cms.hhs.gov.
    The ICD-9-CM code changes that have been approved will become 
effective October 1, 2011. 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), which are listed in 
section VI. of the Addendum to this final rule and available via the 
Internet. 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 2012 IPPS/LTCH PPS proposed rule, we solicited comments 
on the proposed classification of these new codes, which were shown in 
Tables 6A and 6B listed in section VI. of the Addendum to the proposed 
rule and available via the Internet.
    Comment: Several commenters generally supported the proposed 
changes to the MS-DRG classifications. One commenter supported the non-
CC designation for the following new diagnosis codes: 282.40 
(Thalassemia, unspecified); 282.43 (Alpha thalassemia); code 282.44 
(Beta thalassemia); 282.45 (Delta-beta thalassemia); 282.46 
(Thalassemia minor); 282.47 (Hemoglobin E-beta Thalassemia); 516.31 
(Idiopathic pulmonary fibrosis); 516.32 (Idiopathic non-specific 
interstitial pneumonitis); and 516.34 (Respiratory bronchiolitis 
interstitial lung disease). The commenter also supported the non-CC 
designation for and the assignment of code 573.5 (Hepatopulmonary 
syndrome) in MDC 4, MS-DRGs 205 and 206 (Other Respiratory System 
Diagnoses with and without MCC, respectively).
    However, the commenter did not support the non-CC designation of 
code 294.21 (Dementia, unspecified, with behavioral disturbance). The 
commenter noted that a similar diagnosis with behavioral disturbance 
such as code 294.11 (Dementia in conditions classified elsewhere with 
behavioral disturbance) is designated as a CC and questioned why the 
same logic had not been considered for code 294.21.
    Response: Our medical advisors agree with the commenter's 
assessment that diagnosis code 294.21 should qualify as a CC, similar 
to code 294.11. Both codes identify dementia with behavioral 
disturbance and use similar resource use. Therefore, in this final 
rule, we are changing the proposed non-CC designation for code 294.21 
and classifying it as a CC in Table 6A. This change is reflected in 
Table 6A of this final rule which is available via the Internet on the 
CMS Web site.
    Comment: One commenter did not support the non-CC designation for 
diagnosis code 414.4 (Coronary atherosclerosis due to calcified 
coronary lesion). The commenter stated that this code should be 
designated as a CC, the same designation assigned to diagnosis code 
414.02 (Coronary atherosclerosis of autologous vein bypass graft) and 
diagnosis code 414.03 (Coronary atherosclerosis of nonautologous 
biological bypass graft).
    Response: Our medical advisors do not agree with the commenter. 
According to our medical advisors, diagnosis code 414.4 is similar to 
code 414.01 (Coronary atherosclerosis of native coronary artery) which 
is not designated as a CC. Both codes indicate general atherosclerosis 
and are not similar to codes 414.02 and 414.03, which indicate 
atherosclerosis of an artery that has been replaced by graft. 
Therefore, we are not making any modifications to the proposed non-CC 
designation for code 414.4.
    Comment: One commenter supported the CC designation for the 
following diagnosis codes: 425.11(Hypertrophic obstructive 
cardiomyopathy); 425.18 (Other hypertrophic cardiomyopathy); 512.2 
(Postoperative air leak); 512.81 (Primary spontaneous pneumothorax); 
512.82 (Secondary spontaneous pneumothorax); 512.83 (Chronic 
pneumothorax); 512.84 (Other air leak); 512.89 (Other pneumothorax); 
516.35 (Idiopathic lymphoid interstitial pneumonia); 516.36 
(Cryptogenic organizing pneumonia); and 516.37 (Desquamative 
interstitial pneumonia). Some commenters supported the CC designations 
for code 998.00 (Postoperative shock, unspecified).
    One commenter representing a national medical specialty society for 
neurology supported our proposed CC designations for codes 358.30 
(Lambert-Eaton syndrome, unspecified); 358.31 (Lambert-Eaton syndrome 
in neoplastic disease); and 358.39 (Lambert-Eaton syndrome in other 
diseases classified elsewhere). The commenter stated that Lambert-Eaton 
syndrome is increasingly diagnosed and not always a paraneoplastic 
syndrome.
    One commenter supported the CC designation for code 348.82 (Brain 
death), while another commenter did not support this proposed 
designation. The commenter that did not support the proposal stated 
that this code should be designated as an MCC.
    Response: Our medical advisors agree with the commenter that code 
348.82 should be designated as a MCC because this diagnosis requires 
extensive intensive care resources. Therefore, in this final rule, we 
are amending the proposed CC designation of code 348.82 (Brain death) 
to MCC for FY 2012 in Table 6A. This change is reflected in Table 6A in 
this final rule which is available via the Internet on the CMS Web 
site.
    Comment: One commenter did not support the CC designation for code 
516.30 (Idiopathic interstitial pneumonia, not other specified). The 
commenter did not see the differences among codes 516.30, 516.31 
(Idiopathis pulmonary fibrosis), and 516.32 (Idiopathic nonspecific 
interstitial pneumonitis), recognizing that the nonspecific code is 
designated as a CC while the more specific codes are not designated as 
CCs.
    Response: We agree with the commenter that code 516.30 should not 
be designated as a CC because this code identifies an unspecified 
pneumonia which is more reflective of a non-CC. Therefore, in this 
final rule, we are amending the proposed CC designation for of code 
516.30 (Idiopathic interstitial pneumonia, not other specified) to non-
CC for FY 2012 in Table 6A. This change is reflected in Table 6A, 
which, for this final rule, is available via the Internet on the CMS 
Web site.
    Comment: Several commenters supported the MCC designation for the 
following diagnosis codes: 284.11 (Antineoplastic chemotherapy induced 
pancytopenia); 284.12 (Other drug induced pancytopenia); 
488.81(Influenza due to identified novel influenza A virus with 
pneumonia); 998.01 (Postoperative shock, cardiogenic); 998.02 
(Postoperative shock, septic); and 998.09 (Postoperative shock, other). 
In addition, one commenter supported the MCC designation for the 
following diagnosis codes: 518.51 (Acute respiratory failure following 
trauma and surgery); 518.52 (Other pulmonary insufficiency, not 
elsewhere classified);

[[Page 51551]]

and 518.53 (Acute and chronic respiratory failure following trauma and 
surgery).
    Response: We appreciate the commenters' support.
    Comment: One commenter representing a national organization for 
orthopedic surgeons did not support the proposed MCC designation for 
diagnosis code 415.13 (Saddle embolus of pulmonary artery). The 
commenter stated that this designation is clinically inaccurate as a 
saddle embolus is a subcategory of deep vein thrombosis/pulmonary 
embolism.
    Response: Our medical advisors do not agree with the commenter's 
assessment that this diagnosis code does not warrant an MCC 
designation. The diagnosis of saddle embolus is life-threatening, 
requiring intensive care resources. Therefore, we are not making any 
modifications to the proposed MCC designation for code 415.13. We point 
out that diagnosis codes 415.11 (Iatrogenic pulmonary embolism and 
infarction), 415.12 (Septic pulmonary embolism) and 415.19 (Other 
Pulmonary embolism and infarction) are designated as MCCs.
    Comment: One commenter suggested that, as new codes are added to 
the MS-DRG classification, the new codes be assigned to the same MS-DRG 
classification as its predecessor code.
    Response: CMS' longstanding practice has been, where possible, to 
assign new ICD-9-CM codes to the same MS-DRGs(s) as their predecessor 
code.
    Comment: One commenter supported the proposed MS-DRG assignment to 
MS-DRG 264 (Other Circulatory System O.R. Procedures) for procedure 
code 38.26 (Insertion of implantable pressure sensor without lead for 
intracardiac or great vessel hemodynamic monitoring). Another commenter 
supported the surgical classification of procedure code 68.24 (Uterine 
artery embolization [UAE] with coils) and code 68.25 (Uterine artery 
embolization [UAE] without coils).
    Response: We appreciate the support of the commenters.
    For codes that have been replaced by new or expanded codes, the 
corresponding new or expanded diagnosis codes are included in Table 6A, 
which is listed in section VI. of the Addendum to this final rule and 
available via the Internet. New procedure codes are shown in Table 6B, 
which is listed in section VI. of the Addendum to this final rule and 
available via the Internet. Diagnosis codes that have been replaced by 
expanded codes or other codes or have been deleted are in Table 6C 
(Invalid Diagnosis Codes), which is listed in section VI. of the 
Addendum to this final rule and available via the Internet. These 
invalid diagnosis codes will not be recognized by the GROUPER beginning 
with discharges occurring on or after October 1, 2011. Table 6D, which 
is listed in section VI. of the Addendum to this final rule and 
available via the Internet, contains invalid procedure codes. These 
invalid procedure codes will not be recognized by the GROUPER beginning 
with discharges occurring on or after October 1, 2011. Revisions to 
diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles), 
which is listed in section VI. of the Addendum to this final rule and 
available via the Internet, and also includes the MS-DRG assignments 
for these revised codes. Table 6F, which is listed in section VI. of 
the Addendum to this final rule and available via the Internet includes 
revised procedure code titles for FY 2012.
    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, 2011 Committee meeting that 
received consensus and that were finalized by May 2011 are included in 
Tables 6A through 6F, which are listed in section VI. of the Addendum 
to this final rule and available via the Internet.
    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)

[[Page 51552]]

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, 2011 implementation of an 
ICD-9-CM code at the September 15-16, 2010 Committee meeting. 
Therefore, there were no new ICD-9-CM codes implemented on April 1, 
2011.
    Current addendum and code title information is published on the CMS 
Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along 
with the Official ICD-9-CM Coding Guidelines, can be found on the Web 
site at: http://www.cdc.gov/nchs/icd9.htm. Information on new, revised, 
and deleted ICD-9-CM codes is also provided to the AHA for publication 
in the Coding Clinic for ICD-9-CM. AHA also distributes information to 
publishers and software vendors.
    CMS also sends copies of all ICD-9-CM coding changes to its 
Medicare contractors for use in updating their systems and providing 
education to providers.
    These same means of disseminating information on new, revised, and 
deleted ICD-9-CM codes will be used to notify providers, publishers, 
software vendors, contractors, and others of any changes to the ICD-9-
CM codes that are implemented in April. The code titles are adopted as 
part of the ICD-9-CM Coordination and Maintenance Committee process. 
Thus, although we publish the code titles in the IPPS proposed and 
final rules, they are not subject to comment in the proposed or final 
rules. We will continue to publish the October code updates in this 
manner within the IPPS proposed and final rules. For codes that are 
implemented in April, we will assign the new procedure code to the same 
MS-DRG in which its predecessor code was assigned so there will be no 
MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates 
will be available through the Web sites indicated above and through the 
Coding Clinic for ICD-9-CM. Publishers and software vendors currently 
obtain code changes through these sources in order to update their code 
books and software systems. We will strive to have the April 1 updates 
available through these Web sites 5 months prior to implementation 
(that is, early November of the previous year), as is the case for the 
October 1 updates.
b. Code Freeze
    The International Classification of Diseases, 10th Revision (ICD-
10) coding system applicable to hospital inpatient services will be 
implemented on October 1, 2013, as described in the Health Insurance 
Portability and Accountability Act (HIPAA) Administrative 
Simplification: Modifications to Medical Data code Set Standards to 
Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362, 
January 16, 2009). The ICD-10 coding system includes the International 
Classification of Diseases, 10th Revision, Clinical Modification (ICD-
10-CM) for diagnosis coding and the International Classification of 
Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for 
inpatient hospital procedure coding, as well as the Official ICD-10-CM 
and ICM-10-PCS Guidelines for Coding and Reporting. In the January 16, 
2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362), 
there was a discussion of the need for a partial or total freeze in the 
annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The 
public comment addressed in that final rule stated that the annual code 
set updates should cease l year prior to the implementation of ICD-10. 
The commenters stated that this freeze of code updates would allow for 
instructional and/or coding software programs to be designed and 
purchased early, without concern that an upgrade would take place 
immediately before the compliance date, necessitating additional 
updates and purchases.
    We responded to comments in the ICD-10 final rule that the ICD-9-CM 
Coordination and Maintenance Committee has jurisdiction over any action 
impacting the ICD-9-CM and ICD-10 code sets. Therefore, we indicated 
that the issue of consideration of a moratorium on updates to the ICD-
9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of the 
adoption of ICD-10-CM and ICD-10-PCS would be addressed through the 
Committee at a future public meeting.
    The code freeze was discussed at multiple meetings of the ICD-9-CM 
Coordination and Maintenance Committee and public comment was actively 
solicited. The Committee evaluated all comments from participants 
attending the Committee meetings as well as written comments that were 
received. There was an announcement at the September 15-16, 2010 ICD-9-
CM Coordination and Maintenance Committee meeting that a partial freeze 
of both ICD-9-CM and ICD-10 codes would be implemented as follows:
     The last regular annual update to both ICD-9-CM and ICD-10 
code sets will be made on October 1, 2011.
     On October 1, 2012, there will be only limited code 
updates to both ICD-9-CM and ICD-10 code sets to capture new technology 
and new diseases.
     There will be no updates to ICD-9-CM on October 1, 2013, 
as the system will no longer be a HIPAA standard. There will be only 
limited code updates to ICD-10 code sets on October 1, 2013, to capture 
new technology and new diseases.
     On October 1, 2014, regular updates to ICD-10 will begin.
    The ICD-9-CM Coordination and Maintenance Committee announced that 
it would continue to meet twice a year during the freeze. At these 
meetings, the public will be encouraged to comment on whether or not 
requests for new diagnosis and procedure codes should be created based 
on the need to capture new technology and new diseases. Any code 
requests that do not meet the criteria will be evaluated for 
implementation within ICD-10 on or after October 1, 2014, once the 
partial freeze is ended.
    Complete information on the partial code freeze and discussions of 
the issues at the Committee meetings can be found on the ICD-9-CM 
Coordination and Maintenance Committee Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03. A summary of the September 15-16, 2010 
Committee meeting, along with both written and audio transcripts of 
this meeting, are posted on the ``Download'' section of this Web page.
    Comment: Several commenters supported the partial code freeze. The 
commenters stated that the partial freeze was needed to allow providers 
time to prepare for the implementation of ICD-

[[Page 51553]]

10 and the accompanying system and product updates.
    Response: We appreciate the commenters' support. We agree with the 
commenters that the partial code freeze will be useful in providing a 
greater opportunity to focus on ICD-10 implementation issues.
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital 
Inpatient Claims
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50127), we discussed 
that we had received repeated requests from the hospital community to 
process all 25 diagnosis codes and 25 procedure codes submitted on 
electronic hospital inpatient claims. Prior to January 1, 2011, 
hospitals could submit up to 25 diagnoses and 25 procedures; however, 
CMS' system limitations allowed for the processing of only the first 9 
diagnoses and 6 procedures. We indicated in that final rule that, as 
part of our efforts to update Medicare systems prior to the 
implementation of ICD-10 on October 1, 2013, we were undergoing 
extensive system updates as part of the move to 5010, which includes 
the ability to accept ICD-10 codes. This complicated transition 
involved converting many internal systems prior to October 1, 2013, 
when ICD-10 will be implemented. We stated that, as one important step 
in this planned conversion process, we were planning to complete the 
expansion of our internal system capability so that we are able to 
process up to 25 diagnoses and 25 procedures on hospital inpatient 
claims as part of the HIPAA ASC X12 Technical Reports Type 3, Version 
005010 (Version 5010) standards system update. We have completed this 
expansion, and, as a result, we were able to process up to 25 diagnosis 
codes and 25 procedure codes when received on the 5010 format starting 
on January 1, 2011. (We note that we made a typographical error in the 
proposed rule (76 FR 25843) and indicated that ``we have not completed 
this expansion.'' This error was pointed out to us by several 
commenters. We corrected this typographical error in a correction 
notice issued in the Federal Register on June 14, 2011 (76 FR 24633).) 
We continue to recognize the value of the additional information 
provided by this coded data for multiple uses such as for payment, 
quality measures, outcome analysis, and other important uses. We will 
continue to process up to 25 diagnosis codes and 25 procedure codes 
when received on the 5010 format.
d. ICD-10 MS-DRGs
    In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received 
comments on the creation of the ICD-10 version of the MS-DRGs, which 
will be implemented on October 1, 2013 (FY 2014) when we implement the 
reporting of ICD-10 codes (75 FR 50127 and 50128). While we did not 
propose an ICD-10 version of the MS-DRGs in the FY 2011 IPPS/LTCH PPS 
proposed rule, we noted that we have been actively involved in 
converting our current MS-DRGs from ICD-9-CM codes to ICD-10 codes and 
sharing this information through the ICD-9-CM Coordination and 
Maintenance Committee. We undertook this early conversion project to 
assist other payers and providers in understanding how to go about 
their own conversion projects. We posted ICD-10 MS-DRGs based on 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 the CMS Web site at: 
http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. 
We have continued to keep the public updated on our maintenance efforts 
for ICD-10-CM and ICD-10-PCS coding systems as well as the General 
Equivalence Mappings that assist in conversion through the ICD-9-CM 
Coordination and Maintenance Committee. Information on these committee 
meetings can be found at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
    During FY 2011, we developed and posted Version 28.0 of the ICD-10 
MS-DRGs based on the FY 2011 MS-DRGs (Version 28.0) that we finalized 
in the FY 2011 IPPS/LTCH PPS final rule on the CMS Web site. This ICD-
10 MS-DRG Version 28.0 also includes the CC Exclusion List and the ICD-
10 version of the hospital acquired conditions (HACs), which was not 
posted with Version 26.0. We also discussed this update at the 
September 15-16, 2010 and the March 9-10, 2011 meetings of the ICD-9-CM 
Coordination and Maintenance Committee. The minutes of these two 
meetings are posted on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. We 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.
14. Other Issues
a. O.R./Non-O.R. Status of Procedures
(1) Brachytherapy Code
    We received a request that we add ICD-9-CM procedure code 92.27 
(Implantation or Insertion of Radioactive Elements) [Brachytherapy] 
into 41 MS-DRGs that are listed below:

 129 (Major Head and Neck Procedures with CC/MCC or Major 
Device)
 130 (Major Head and Neck Procedures without CC/MCC)
 163 (Major Chest Procedures with MCC)
 164 (Major Chest Procedures with CC)
 165 (Major Chest Procedures without CC/MCC)
 180 (Respiratory Neoplasms with MCC)
 181 (Respiratory Neoplasms with CC)
 182 (Respiratory Neoplasms without CC/MCC)
 326 (Stomach, Esophageal and Duodenal Procedures with MCC)
 327 (Stomach, Esophageal and Duodenal Procedures with CC)
 328 (Stomach, Esophageal and Duodenal Procedures without CC/
MCC)
 329 (Major Small and Large Bowel Procedures with MCC)
 330 (Major Small and Large Bowel Procedures with CC)
 331 (Major Small and Large Bowel Procedures without CC/MCC)
 332 (Rectal Resection with MCC)
 333 (Rectal Resection with CC)
 334 (Rectal Resection without CC/MCC)
 344 (Minor Small and Large Bowel Procedures with MCC)
 345 (Minor Small and Large Bowel Procedures with CC)
 346 (Minor Small and Large Bowel Procedures without CC/MCC)
 347 (Anal and Stomal Procedures with MCC)
 348 (Anal and Stomal Procedures with CC)
 349 (Anal and Stomal Procedures without CC/MCC)
 405 (Pancreas, Liver and Shunt Procedures with MCC)
 406 (Pancreas, Liver and Shunt Procedures with CC)
 407 (Pancreas, Liver and Shunt Procedures without CC/MCC)
 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC 
or Disc Device/Neurostimulator)
 491 (Back and Neck Procedures Except Spinal Fusion without CC/
MCC)

[[Page 51554]]

 500 (Soft Tissue procedures with MCC)
 501 (Soft Tissue procedures with CC)
 502 (Soft Tissue procedures without CC/MCC)
 584 (Breast Biopsy, Local Excision and Other Breast Procedures 
with CC/MCC)
 585 (Breast Biopsy, Local Excision and Other Breast Procedures 
without CC/MCC)
 597 (Malignant Breast Disorders with MCC)
 598 (Malignant Breast Disorders with CC)
 599 (Malignant Breast Disorders without CC/MCC)
 653 (Major Bladder Procedures with MCC)
 654 (Major Bladder Procedures with CC)
 655 (Major Bladder Procedures without CC/MCC)
 656 (Kidney and Ureter Procedures for Neoplasm with MCC)
 657 (Kidney and Ureter Procedures for Neoplasm with CC)
 658 (Kidney and Ureter Procedures for Neoplasm without CC/MCC)
 662 (Minor Bladder Procedures with MCC)
 663 (Minor Bladder Procedures with CC)
 664 (Minor Bladder Procedures without CC/MCC)
 668 (Transurethral Procedures with MCC)
 669 (Transurethral Procedures with CC)
 670 (Transurethral Procedures without CC/MCC)
 671 (Urethral Procedures with CC/MCC)
 672 (Urethral Procedures without CC/MCC)
 707 (Major Male Pelvic Procedures with CC/MCC)
 708 (Major Male Pelvic Procedures without CC/MCC)
 736 (Uterine and Adnexa Procedures for Ovarian or Adnexal 
Malignancy with MCC)
 737 (Uterine and Adnexa Procedures for Ovarian or Adnexal 
Malignancy with CC)
 738 (Uterine and Adnexa Procedures for Ovarian or Adnexal 
Malignancy without CC/MCC)
 739 (Uterine and Adnexa Procedures for Nonovarian or Adnexal 
Malignancy with MCC)
 740 (Uterine and Adnexa Procedures for Nonovarian or Adnexal 
Malignancy with CC)
 741 (Uterine and Adnexa Procedures for Nonovarian or Adnexal 
Malignancy without CC/MCC)
 746 (Vagina, Cervix and Vulva Procedures with CC/MCC)
 747 (Vagina Cervix and Vulva Procedures without CC/MCC)
 748 (Female Reproductive System Reconstructive Procedures)
 749 (Other Female Reproductive System O.R. Procedures with CC/
MCC)
 750 (Other Female Reproductive System O.R. Procedures without 
CC/MCC)

    For the FY 2012 IPPS/LTCH PPS proposed rule, we examined MedPAR 
claims data on this request and only found 150 cases throughout these 
MS-DRGs. Our findings are presented in the table below.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         MS-DRG with Code 92.27                                                      MS-DRG without Code 92.27
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Number of    Average length                      Number of    Average length
                          DRG                                 cases          of stay      Average costs        cases          of stay      Average costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
129....................................................               6            6.67         $15,793            1,326            5.35         $14,400
130....................................................               2            1.00           7,587              904            2.78           7,860
163....................................................              17            8.18          24,166           11,871           13.90          31,860
164....................................................              52            5.94          17,505           16,487            7.13          16,865
165....................................................              41            2.95          10,638            9,260            4.27          11,754
180....................................................               0            0                  0           19,304            7.37          11,396
181....................................................               0            0                  0           22,205            5.30           8,014
182....................................................               0            0                  0            2,365            3.59           5,580
326....................................................               0            0                  0           10,321           15.48          35,437
327....................................................               1            4.00           9,302            9,671            8.67          17,889
328....................................................               0            0                  0            8,461            3.49           9,161
329....................................................               1           24.00          37,654           41,107           15.10          33,003
330....................................................               2            9.00          20,043           53,584            8.91          16,736
331....................................................               0            0                  0           22,105            5.13          10,654
332....................................................               1           48.00          61,169            1,439           13.40          29,727
333....................................................               1           10.00          11,446            4,494            7.86          16,008
334....................................................               1           16.00          27,312            2,855            4.76          10,518
344....................................................               0            0                  0              756           11.30          21,590
345....................................................               0            0                  0            2,906            6.67          11,190
346....................................................               0            0                  0            2,331            4.52           7,757
347....................................................               0            0                  0            1,430            8.80          16,644
348....................................................               0            0                  0            3,975            5.40           9,326
349....................................................               0            0                  0            3,512            2.75           5,311
405....................................................               1            8.00           8,444            3,940           15.45          35,970
406....................................................               2           10.50          23,231            4,749            7.83          17,333
407....................................................               0            0                  0            1,799            8.04          12,148
490....................................................               0            0                  0           19,840            4.24          11,940
491....................................................               0            0                  0           38,574            2.05           6,794
500....................................................               0            0                  0            1,935           10.86          20,600
501....................................................               5            7.00          12,896            4,961            5.77          10,256
502....................................................               5            7.40          13,876            5,009            2.78           6,844
584....................................................               0            0                  0              790            5.32          11,126
585....................................................               0            0                  0            1,318            2.12           7,283
597....................................................               0            0                  0              532            7.41          10,990
598....................................................               0            0                  0            1,369            5.32           7,624
599....................................................               0            0                  0              165            3.26           4,368
653....................................................  ..............  ..............  ...............           1,589           16.34          35,856
654....................................................  ..............  ..............  ...............           3,502            9.13          19,367
655....................................................               0            0                  0            1,121            5.53         413,162

[[Page 51555]]

 
656....................................................               1           20.00          77,737            3,110           10.00          24,022
657....................................................               0            0                  0            7,885            5.63          13,345
658....................................................               0            0                  0            6,150            3.25           9,718
662....................................................               0            0                  0              763           10.21          19,455
663....................................................               0            0                  0            1,818            2.18           9,729
664....................................................               0            0                  0            2,705            1.86           7,457
668....................................................               2            3.50           3,972            2,908            8.99          16,852
669....................................................               4            6.50           7,832           13,776            4.25           8,398
670....................................................               2            1.50           5,639            7,321            2.24           5,158
671....................................................               0            0                  0              746            5.45           9,778
672....................................................               0            0                  0              613            2.31           5,575
707....................................................               0            0                  0            4,719            4.26          12,080
708....................................................               1            3.00          11,252           14,329            1.80           8,572
736....................................................               0            0                  0              775           13.18          29,827
737....................................................               1            6.00          13,045            2,844            6.49          13,348
738....................................................               0            0                  0              642            3.47           7,966
739....................................................               0            0                  0              790           10.18          23,070
740....................................................               0            0                  0            3,914            4.34          10,214
741....................................................               1            1.00           3,225            4,917            2.31           7,438
746....................................................               0            0                  0            2,282            3.97           8,504
747....................................................               0            0                  0            6,243            1.72           5,995
748....................................................               0            0                  0           14,682            1.67           6,285
749....................................................               0            0                  0              920            8.58          16,781
750....................................................               0            0                  0              285            2.88           7,116
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The numbers of cases in any of the MS-DRGs listed were minimal. 
Many of the MS-DRGs listed had no occurrences of procedure code 92.27. 
The highest number of cases found was 52, in MS-DRG 164 (Major Chest 
Procedures with CC). Based on these findings, we do not believe that 
making a MS-DRG change based on such a minimal number of cases can be 
justified. Therefore, for FY 2012, we did not propose to add procedure 
code 92.27 to any of the 41 MS-DRGs listed above. Further, we did not 
propose any MS-DRG changes for procedure code 92.27. We welcomed public 
comment on our proposal not to make changes to procedure code 92.27.
    Comment: Several commenters supported our proposal to not add 
procedure code 92.27 to any of the 41 MS-DRGs listed above and to not 
propose any MS-DRG changes for procedure code 92.27.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, as we 
proposed, we are not adding procedure code 92.27 to any of the 41 MS-
DRGs listed above and are not making any MS-DRG changes for procedure 
code 92.27 for FY 2012.
(2) Intraoperative Electron Radiation Therapy (IOERT)
    We received a public comment that was outside of the scope of the 
FY 2011 IPPS/LTCH PPS proposed rule regarding the MS-DRG assignment for 
intraoperative electron radiation therapy (IOERT). This issue was 
discussed briefly in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50128). However, we addressed this issue in the FY 2012 IPPS/LTCH PPS 
rulemaking. IOERT is the direct application of radiation to a tumor 
and/or tumor bed while the patient is undergoing surgery for cancer. 
This technology may be used for cancers of the rectum, head/neck, 
pancreas, lung, genitourinary, soft tissue, and breast. IOERT is a 
secondary procedure performed during the primary tumor removal surgery.
    The commenter requested that CMS update the MS-DRG assignments for 
procedure code 92.41 (Intraoperative electron radiation therapy) to 
ensure that 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. Currently, this code is not 
assigned to a specific MS-DRG as the primary procedure performed, the 
tumor removal, would determine the appropriate MS-DRG assignment.
    The commenter provided a recommended list of MS-DRGs to which IOERT 
should be assigned:

------------------------------------------------------------------------
                 MS-DRG                            Description
------------------------------------------------------------------------
129....................................  Major Head and Neck Procedures
                                          with CC/MCC or Major Device.
130....................................  Major Head and Neck Procedures
                                          without CC/MCC.
133....................................  Other Ear, Nose, Mouth and
                                          Throat O,R, Procedures with CC/
                                          MCC.
134....................................  Other Ear, Nose, Mouth and
                                          Throat O.R. Procedures without
                                          CC/MCC.
163....................................  Major Chest Procedures with
                                          MCC.
164....................................  Major Chest Procedures with CC.
165....................................  Major Chest Procedures without
                                          CC/MCC.
166....................................  Other Respiratory System O.R.
                                          Procedures with MCC.
167....................................  Other Respiratory System O.R.
                                          Procedures with CC.
168....................................  Other Respiratory System O.R.
                                          Procedures without CC/MCC.
326....................................  Stomach, Esophageal and
                                          Duodenal Procedures with MCC.
327....................................  Stomach, Esophageal and
                                          Duodenal Procedures with CC.
328....................................  Stomach, Esophageal and
                                          Duodenal Procedures without CC/
                                          MCC.
329....................................  Major Small and Large Bowel
                                          Procedures with MCC.
330....................................  Major Small and Large Bowel
                                          Procedures with CC.
331....................................  Major Small and Large Bowel
                                          Procedures without CC/MCC.
332....................................  Rectal Resection with MCC.
333....................................  Rectal Resection with CC.
334....................................  Rectal Resection without CC/
                                          MCC.
344....................................  Minor Small and Large Bowel
                                          Procedures with MCC.
345....................................  Minor Small and Large Bowel
                                          Procedures with CC.
346....................................  Minor Small and Large Bowel
                                          Procedures without CC/MCC.
347....................................  Anal and Stomal Procedures with
                                          MCC.
348....................................  Anal and Stomal Procedures with
                                          CC.

[[Page 51556]]

 
349....................................  Anal and Stomal Procedures
                                          without CC/MCC.
356....................................  Other Digestive System O.R.
                                          Procedures with MCC.
357....................................  Other Digestive System O.R.
                                          Procedures with CC.
358....................................  Other Digestive System O.R.
                                          Procedures without CC/MCC.
405....................................  Pancreas, Liver and Shunt
                                          Procedures with MCC.
406....................................  Pancreas, Liver and Shunt
                                          Procedures with CC.
407....................................  Pancreas, Liver and Shunt
                                          Procedures without CC/MCC.
490....................................  Back and Neck Procedures Except
                                          Spinal Fusion with CC/MCC.
491....................................  Back and Neck Procedures Except
                                          Spinal Fusion without CC/MCC.
500....................................  Soft Tissue Procedures with
                                          MCC.
501....................................  Soft Tissue Procedures with CC.
502....................................  Soft Tissue Procedures without
                                          CC/MCC.
579....................................  Other Skin, Subcutaneous Tissue
                                          and Breast Procedures with
                                          MCC.
580....................................  Other Skin, Subcutaneous Tissue
                                          and Breast Procedures with CC.
581....................................  Other Skin, Subcutaneous Tissue
                                          and Breast Procedures without
                                          CC/MCC.
584....................................  Breast Biopsy, Local Excision
                                          and Other Breast Procedures
                                          with CC/MCC.
585....................................  Breast Biopsy, Local Excision
                                          and Other Breast Procedures
                                          without CC/MCC.
653....................................  Major Bladder Procedures with
                                          MCC.
654....................................  Major Bladder Procedures with
                                          CC.
655....................................  Major Bladder Procedures
                                          without CC/MCC.
656....................................  Kidney and Ureter Procedures
                                          For Neoplasm with MCC.
657....................................  Kidney and Ureter Procedures
                                          For Neoplasm with CC.
658....................................  Kidney and Ureter Procedures
                                          for Neoplasm without MCC/CC.
662....................................  Minor Bladder Procedures with
                                          MCC.
663....................................  Minor Bladder Procedures with
                                          CC.
664....................................  Minor Bladder Procedures
                                          without CC/MCC.
668....................................  Transurethral Procedures with
                                          MCC.
669....................................  Transurethral Procedures with
                                          CC.
670....................................  Transurethral Procedures
                                          without CC/MCC.
671....................................  Urethral Procedures with CC/
                                          MCC.
672....................................  Urethral Procedures without CC/
                                          MCC.
707....................................  Major Male Pelvic Procedures
                                          with CC/MCC.
708....................................  Major Male Pelvic Procedures
                                          without CC/MCC.
715....................................  Other Male Reproductive System
                                          O.R. Procedures For Malignancy
                                          with CC/MCC.
716....................................  Other Male Reproductive System
                                          O.R. Procedures For Malignancy
                                          without CC/MCC.
736....................................  Uterine and Adnexa Procedures
                                          for Ovarian or Adnexal
                                          Malignancy with MCC.
737....................................  Uterine and Adnexa Procedures
                                          for Ovarian or Adnexal
                                          Malignancy with CC.
738....................................  Uterine and Adnexa Procedures
                                          for Ovarian or Adnexal
                                          Malignancy without CC/MCC.
739....................................  Uterine and Adnexa Procedures
                                          for Nonovarian or Adnexal
                                          Malignancy with MCC.
740....................................  Uterine and Adnexa Procedures
                                          for Nonovarian or Adnexal
                                          Malignancy with CC.
741....................................  Uterine and Adnexa Procedures
                                          for Nonovarian or Adnexal
                                          Malignancy without CC/MCC.
746....................................  Vagina, Cervix and Vulva
                                          Procedures with CC/MCC.
747....................................  Vagina Cervix and Vulva
                                          Procedures without CC/MCC.
748....................................  Female Reproductive System
                                          Reconstructive Procedures.
749....................................  Other Female Reproductive
                                          System O.R. Procedures with CC/
                                          MCC.
750....................................  Other Female Reproductive
                                          System O.R. Procedures without
                                          CC/MCC.
------------------------------------------------------------------------

    For the FY 2012 IPPS/LTCH PPS proposed rule, based on our review of 
the FY 2010 MedPAR claims data, we found a total of 12 cases with 
procedure code 92.41 reported. There were three cases assigned to MS-
DRG 502; two cases each assigned to two different MS-DRGs: MS-DRG 333 
and MS-DRG 501; and one case assigned each to five MS-DRGs: MS-DRGs 
130, 168, 327, 329, and 330.
    The IOERT cases were assigned to an MS-DRG that included the tumor 
removal of that particular site, which was listed on the table above. 
Therefore, the cost of this technology is appropriately identified in 
the MS-DRG assignment for the removal of the tumor by specific site, 
and no change is warranted at this time. Therefore, we did not propose 
any changes to the assignment for IOERT cases for FY 2012. We invited 
public comment on our proposal to not change the assignment for IOERT 
cases for FY 2012.
    Comment: Several commenters supported our proposal to not make any 
MS-DRG modifications for FY 2012 for IOERT cases reported with 
procedure code 92.41.
    Response: We appreciate the commenters' support. Based on our 
findings, these cases are appropriately assigned to the MS-DRG for the 
removal of the tumor by specific site and warrant no further 
modification.
    After consideration of the public comments we received, we are 
finalizing our proposal to not make any MS-DRG modifications for FY 
2012 for intraoperative electron radiation therapy cases.
b. IPPS Recalled Device Policy Clarification
    In the FY 2008 IPPS final rule with comment period (72 FR 47246 
through 47251), we discussed the topic of Medicare payment for devices 
that are replaced without cost or where credit for a replaced device is 
furnished to the hospital. We implemented a policy to reduce a 
hospital's IPPS payment for certain MS-DRGs where the implantation of a 
device that has been recalled determined the base MS-DRG assignment. At 
that time, we specified that we would reduce a hospital's IPPS payment 
for those MS-DRGs where the hospital received a credit equal to 50 
percent or more of the cost of the device when a manufacturer provided 
a credit for a recalled device.
    A similar policy was adopted under the Hospital Outpatient 
Prospective Payment System (OPPS) in CY 2008 (the ``partial credit'' 
policy). This policy can be viewed in its entirety at 72 FR 66743 
though 66748. In general terms, under the partial credit policy, CMS 
reduces the amount of payment for an implanted device made under the 
OPPS for which CMS determines that a significant portion of the payment 
is attributable to the cost of an implanted device when the provider 
receives partial credit for the cost of a replaced device, but only 
where the amount of the device credit is greater than or equal to 50 
percent of the cost of the new replacement device being implanted.
    It came to our attention that there is a discrepancy between the 
IPPS policy and the OPPS partial credit policy for replacement devices. 
In particular, the OPPS partial credit policy specifies that the credit 
must be 50 percent or greater of the cost of the replacement device. 
However, the IPPS policy does not specify whether the credit should be 
50 percent or greater of the replacement device or the original device. 
We believe that the OPPS partial credit policy and the IPPS policy 
should be consistent with each other on the issue of whether the 50 
percent or more credit is with respect to the replacement device or the 
original device. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, 
we proposed to clarify the IPPS policy to state that the policy applies 
where ``the hospital received a credit equal to 50 percent or more of 
the cost of the replacement device.'' We invited public comment on this 
proposal.
    Comment: Several commenters approved of parallel policies for 
recalled

[[Page 51557]]

device credit for both the inpatient setting and the outpatient 
hospital setting.
    Response: We appreciate the commenters' support.
    Comment: One commenter suggested additional clarifications. The 
commenter recommended that CMS reconcile condition codes 49 and 50 with 
the ``FB'' and ``FC'' modifiers from OPPS to include devices obtained 
at reduced or no cost for reasons other than those currently specified 
in condition codes 49 and 50. Condition code 49 addresses ``product 
replacement within product lifecycle'' while condition code 50 covers 
``product replacement for known recall of a product.'' The commenter 
stated that, as currently defined, these two condition codes do not 
represent all of the reasons that devices are obtained at reduced or no 
cost and, therefore, create confusion as to when the device credit 
policy applies. The commenter added that, by comparison, in OPPS, 
modifier ``FB'' covers ``devices that are obtained at no cost to the 
provider'' and modifier ``FC'' covers ``partial credit received for 
replaced device.'' Further, the commenter stated, the definitions of 
the ``FB'' and ``FC'' modifiers denote whether the replacement device 
was obtained at no cost or reduced cost, and generally reflect all 
situations when the device credit policy would apply. As part of the 
clarification, the commenter suggested that CMS further explain whether 
value code ``FD'' as well as modifiers ``FB'' and ``FC'' are for 
``replacement'' devices only.
    Response: We are not clear about the clarifications suggested by 
the commenter. The OPPS modifier ``-FB'' (Item Provided without Cost to 
Provider, Supplier or Practitioner) can be used to describe an item 
provided under warranty, replaced due to defect, or provided as a free 
sample. OPPS modifier ``-FC'' (Partial Credit Received for Replaced 
Device) describes cases in which the hospital receives a partial credit 
of 50 percent or more of the cost of a new replacement device under 
warranty, recall, or field action.
    Value code ``FD'' is used for Medicare Part A reporting of 
replacement devices. Hospitals must use the combination of condition 
code 49 or 50, described above, along with value code ``FD'' to 
correctly bill for a replacement device that was provided with a credit 
or no cost. Condition code 49 or 50 identifies a replacement device 
while value code ``FD'' communicates to Medicare the amount of the 
credit, or cost reduction, received by the hospital for the replaced 
device. We do not believe that hospitals find these reporting 
requirements confusing. Regardless of the actual reason that a device 
is provided at no cost to a hospital or an ambulatory surgical center 
(ASC), the end result is that neither the hospital nor the ASC is 
incurring the full cost of the device, although the Medicare payment is 
calculated based on the full cost of the device.
    Comment: One commenter pointed out that the FY 2009 IPPS/LTCH PPS 
final rule (73 FR 48496) finalized an MS-DRG change by removing several 
procedure codes for AICD leads from MS-DRG 245 as well as revising the 
title of that MS-DRG to read ``AICD Generator Procedures''. New MS-DRG 
265 (AICD Lead Procedures) was also created and included the AICD lead 
procedure codes that were transferred from MS-DRG 245. The commenter 
pointed out that CMS has not issued a new table through its transmittal 
process indicating that MS-DRG 265 should also be included in the list 
of MS-DRGs that are subject to the device recall policy.
    Response: We are aware of this oversight and have begun the process 
to create an updated Change Request to address this issue. We expect to 
issue the Change Request shortly.
    Comment: One commenter suggested that no-charge devices should be 
removed from the calculation of MS-DRG relative weights.
    Response: We appreciate this comment, but we point out that no-
charge devices are not reported on claims. Therefore, charges for the 
device have not been included in the computation of the MS-DRG relative 
weights.
    After consideration of the public comments we received, we are 
finalizing our proposed clarification of the IPPS recalled device 
policy to state that the policy applies where ``the hospital received a 
credit equal to 50 percent or more of the cost of the replacement 
device,'' and we will issue instructions to hospitals accordingly.
15. Public Comments on Issues Not Addressed in the Proposed Rule
    We received a number of public comments regarding MS-DRG issues 
that were outside the scope of the proposals included in the FY 2012 
IPPS/LTCH PPS proposed rule. We have summarized these public comments 
below. However, because these public comments were outside of the scope 
of the proposed rule, we are not addressing them in this final rule. As 
stated in section II.B.2. of this preamble, we encourage individuals 
with comments about MS-DRG classifications to submit these comments no 
later than December of each year so they can be considered for possible 
inclusion in the annual proposed rule and, if included, may be 
subjected to public review and comment. We will consider these comments 
for possible proposals in future rulemaking as part of our annual 
review process.
    Commenters requested that CMS create new MS-DRGs for (1) disorders 
of porphyrin metabolism and (2) related and unrelated allogeneic bone 
marrow transplants. The commenters also requested that CMS create a new 
MS-DRG that would distinguish between ventricular assist device (VAD) 
implantation and heart transplants.
    Commenters requested that CMS evaluate the non-CC, CC, or MCC 
designation of the following codes:

 263.0 (Malnutrition of moderate degree)
 263.1 (Malnutrition of mild degree)
 263.9 (Unspecified protein-calorie malnutrition)
 285.3 (Antineoplastic chemotherapy induced anemia)
 425.4-425.9 (Cardiomyopathy)
 428.0 (Heart failure, unspecified)
 707.25 (Pressure ulcer, unstageable)

    One commenter recommended that CMS consider the reassignment of 
cases of patients diagnosed with influenza with pneumonia and who also 
have secondary diagnoses that would otherwise qualify the assignment of 
the cases to MS-DRGs 177 (Respiratory Infections and Inflammations with 
MCC), 178 (Respiratory Infections and Inflammations with CC), and 179 
(Respiratory Infections and Inflammations without MCC/CC). The 
commenter recommended these cases be reassigned from MS-DRGs 193 
(Simple Pneumonia and Pleurisy with MCC), 194 (Simple Pneumonia and 
Pleurisy with CC), and 195 (Simple Pneumonia and Pleurisy without MCC/
CC) to MS-DRGs 177, 178, and 179.

H. Recalibration of MS-DRG Weights

    In developing the FY 2012 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 2010 MedPAR data used in this final rule include 
discharges occurring on October 1, 2009, through September 30, 2010, 
based on bills received by CMS through March 31, 2011, from all 
hospitals subject to the IPPS and short-term, acute care hospitals in 
Maryland (which are under a waiver from the IPPS under section 
1814(b)(3) of the Act). The FY 2010

[[Page 51558]]

MedPAR file used in calculating the relative weights includes data for 
approximately 10,836,723 Medicare discharges from IPPS providers. 
Discharges for Medicare beneficiaries enrolled in a Medicare Advantage 
managed care plan are excluded from this analysis. These discharges are 
excluded when the MedPAR ``GHO Paid'' indicator field on the claim 
record is equal to ``1'' or when the MedPAR DRG payment field, which 
represents the total payment for the claim, is equal to the MedPAR 
``Indirect Medical Education (IME)'' payment field, indicating that the 
claim was an ``IME only'' claim submitted by a teaching hospital on 
behalf of a beneficiary enrolled in a Medicare Advantage managed care 
plan. In addition, the March 31, 2011 update of the FY 2010 MedPAR was 
updated to comply with version 5010 of the X12 HIPAA Transaction and 
Code Set Standards. The expansion of the MedPAR to the 5010 format 
includes a new variable called ``claim type.'' Claim type ``60'' 
indicates that the claim was an inpatient claim paid as fee-for-
service. Claim types of ``61,'' ``62,'' ``63,'' and ``64'' relate to 
encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. 
Therefore, beginning with the calculation of the relative weights for 
FY 2012, we are also excluding claims with claim type values not equal 
to ``60.'' The data exclude CAHs, including hospitals that subsequently 
became CAHs after the period from which the data were taken. The second 
data source used in the cost-based relative weighting methodology is 
the FY 2009 Medicare cost report data files from HCRIS (that is, cost 
reports beginning on or after October 1, 2008, and before October 1, 
2009), which represents the most recent full set of cost report data 
available. We used the March 31, 2011 update of the HCRIS cost report 
files for FY 2009 in setting the relative cost-based weights.
    The methodology we used to calculate the DRG cost-based relative 
weights from the FY 2010 MedPAR claims data and FY 2009 Medicare cost 
report data is as follows:
     To the extent possible, all the claims were regrouped 
using the FY 2012 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 2010 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those 
facilities that have received approval from CMS as transplant centers.)
     Organ acquisition costs for kidney, heart, heart-lung, 
liver, lung, pancreas, and intestinal (or multivisceral organs) 
transplants continue to be paid on a reasonable cost basis. Because 
these acquisition costs are paid separately from the prospective 
payment rate, it is necessary to subtract the acquisition charges from 
the total charges on each transplant bill that showed acquisition 
charges before computing the average cost for each MS-DRG and before 
eliminating statistical outliers.
     Claims with total charges or total lengths of stay less 
than or equal to zero were deleted. Claims that had an amount in the 
total charge field that differed by more than $10.00 from the sum of 
the routine day charges, intensive care charges, pharmacy charges, 
special equipment charges, therapy services charges, operating room 
charges, cardiology charges, laboratory charges, radiology charges, 
other service charges, labor and delivery charges, inhalation therapy 
charges, emergency room charges, blood charges, and anesthesia charges 
were also deleted.
     At least 96.2 percent of the providers in the MedPAR file 
had charges for 10 of the 15 cost centers. Claims for providers that 
did not have charges greater than zero for at least 10 of the 15 cost 
centers were deleted.
     Statistical outliers were eliminated by removing all cases 
that were beyond 3.0 standard deviations from the mean of the log 
distribution of both the total charges per case and the total charges 
per day for each MS-DRG.
     Effective October 1, 2008, because hospital inpatient 
claims include a POA indicator field for each diagnosis present on the 
claim, only for purposes of relative weight-setting, the POA indicator 
field was reset to ``Y'' for ``Yes'' for all claims that otherwise have 
an ``N'' (No) or a ``U'' (documentation insufficient to determine if 
the condition was present at the time of inpatient admission) in the 
POA field.
    Under current payment policy, the presence of specific HAC codes, 
as indicated by the POA field values, can generate a lower payment for 
the claim. Specifically, if the particular condition is present on 
admission (that is, a ``Y'' indicator is associated with the diagnosis 
on the claim), it is not a HAC, and the hospital is paid for the higher 
severity (and, therefore, the higher weighted MS-DRG). If the 
particular condition is not present on admission (that is, an ``N'' 
indicator is associated with the diagnosis on the claim) and there are 
no other complicating conditions, the DRG GROUPER assigns the claim to 
a lower severity (and, therefore, the lower weighted MS-DRG) as a 
penalty for allowing a Medicare inpatient to contract a HAC. While the 
POA reporting meets policy goals of encouraging quality care and 
generates program savings, it presents an issue for the relative 
weight-setting process. Because cases identified as HACs are likely to 
be more complex than similar cases that are not identified as HACs, the 
charges associated with HAC cases are likely to be higher as well. 
Thus, if the higher charges of these HAC claims are grouped into lower 
severity MS-DRGs prior to the relative weight-setting process, the 
relative weights of these particular MS-DRGs would become artificially 
inflated, potentially skewing the relative weights. In addition, we 
want to protect the integrity of the budget neutrality process by 
ensuring that, in estimating payments, no increase to the standardized 
amount occurs as a result of lower overall payments in a previous year 
that stem from using weights and case-mix that are based on lower 
severity MS-DRG assignments. If this would occur, the anticipated cost 
savings from the HAC policy would be lost.
    To avoid these problems, we reset the POA indicator field to ``Y'' 
only for relative weight-setting purposes for all claims that otherwise 
have 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 2009 cost report data.

[[Page 51559]]

    The 15 cost centers that we used in the relative weight calculation 
are shown in the following table. The table shows the lines on the cost 
report and the corresponding revenue codes that we used to create the 
15 national cost center CCRs.
BILLING CODE 4120-01-P

[[Page 51560]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.003


[[Page 51561]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.004


[[Page 51562]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.005


[[Page 51563]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.006


[[Page 51564]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.007


[[Page 51565]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.008


[[Page 51566]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.009


[[Page 51567]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.010


[[Page 51568]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.011


[[Page 51569]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.012


[[Page 51570]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.013

BILLING CODE 4120-01-C

[[Page 51571]]

    We developed the national average CCRs as follows:
    Taking the FY 2009 cost report data, we removed CAHs, Indian Health 
Service hospitals, all-inclusive rate hospitals, and cost reports that 
represented time periods of less than 1 year (365 days). We included 
hospitals located in Maryland because we include their charges in our 
claims database. We then created CCRs for each provider for each cost 
center (see prior table for line items used in the calculations) and 
removed any CCRs that were greater than 10 or less than 0.01. We 
normalized the departmental CCRs by dividing the CCR for each 
department by the total CCR for the hospital for the purpose of 
trimming the data. We then took the logs of the normalized cost center 
CCRs and removed any cost center CCRs where the log of the cost center 
CCR was greater or less than the mean log plus/minus 3 times the 
standard deviation for the log of that cost center CCR. Once the cost 
report data were trimmed, we calculated a Medicare-specific CCR. The 
Medicare-specific CCR was determined by taking the Medicare charges for 
each line item from Worksheet D-4 and deriving the Medicare-specific 
costs by applying the hospital-specific departmental CCRs to the 
Medicare-specific charges for each line item from Worksheet D-4. Once 
each hospital's Medicare-specific costs were established, we summed the 
total Medicare-specific costs and divided by the sum of the total 
Medicare-specific charges to produce national average, charge-weighted 
CCRs.
    After we multiplied the total charges for each MS-DRG in each of 
the 15 cost centers by the corresponding national average CCR, we 
summed the 15 ``costs'' across each MS-DRG to produce a total 
standardized cost for the MS-DRG. The average standardized cost for 
each MS-DRG was then computed as the total standardized cost for the 
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The 
average cost for each MS-DRG was then divided by the national average 
standardized cost per case to determine the relative weight.
    The new cost-based relative weights were then normalized by an 
adjustment factor of 1.5808272736 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 2012 are as follows:

------------------------------------------------------------------------
                            Group                                 CCR
------------------------------------------------------------------------
Routine Days.................................................      0.525
Intensive Days...............................................      0.453
Drugs........................................................      0.199
Supplies & Equipment.........................................      0.329
Therapy Services.............................................      0.380
Laboratory...................................................      0.146
Operating Room...............................................      0.251
Cardiology...................................................      0.155
Radiology....................................................      0.140
Emergency Room...............................................      0.236
Blood and Blood Products.....................................      0.402
Other Services...............................................      0.402
Labor & Delivery.............................................      0.454
Inhalation Therapy...........................................      0.191
Anesthesia...................................................      0.116
------------------------------------------------------------------------

    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 2012 IPPS/LTCH PPS proposed 
rule, we proposed to use that same case threshold in recalibrating the 
MS-DRG weights for FY 2012. Using the FY 2010 MedPAR data set, there 
were 8 MS-DRGs that contain fewer than 10 cases. Under the MS-DRGs, we 
have fewer low-volume DRGs than under the CMS DRGs because we no longer 
have separate DRGs for patients aged 0 to 17 years. With the exception 
of newborns, we previously separated some DRGs based on whether the 
patient was age 0 to 17 years or age 17 years and older. Other than the 
age split, cases grouping to these DRGs are identical. The DRGs for 
patients aged 0 to 17 years generally have very low volumes because 
children are typically ineligible for Medicare. In the past, we have 
found that the low volume of cases for the pediatric DRGs could lead to 
significant year-to-year instability in their relative weights. 
Although we have always encouraged non-Medicare payers to develop 
weights applicable to their own patient populations, we have 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 2012, 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 2011 weights by the percentage change in the average weight of 
the cases in other MS-DRGs. The crosswalk table is shown below:

----------------------------------------------------------------------------------------------------------------
         Low[dash]volume  MS-DRG                      MS-DRG title                     Crosswalk to MS-DRG
----------------------------------------------------------------------------------------------------------------
768.....................................  Vaginal Delivery with O.R. Procedure  FY 2011 FR weight (adjusted by
                                           Except Sterilization and/or D&C.      percent change in average
                                                                                 weight of the cases in other MS-
                                                                                 DRGs).
789.....................................  Neonates, Died or Transferred to      FY 2011 FR weight (adjusted by
                                           Another Acute Care Facility.          percent change in average
                                                                                 weight of the cases in other MS-
                                                                                 DRGs).
790.....................................  Extreme Immaturity or Respiratory     FY 2011 FR weight (adjusted by
                                           Distress Syndrome, Neonate.           percent change in average
                                                                                 weight of the cases in other MS-
                                                                                 DRGs).
791.....................................  Prematurity with Major Problems.....  FY 2011 FR weight (adjusted by
                                                                                 percent change in average
                                                                                 weight of the cases in other MS-
                                                                                 DRGs).
792.....................................  Prematurity without Major Problems..  FY 2011 FR weight (adjusted by
                                                                                 percent change in average
                                                                                 weight of the cases in other MS-
                                                                                 DRGs).
793.....................................  Full-Term Neonate with Major          FY 2011 FR weight (adjusted by
                                           Problems.                             percent change in average
                                                                                 weight of the cases in other MS-
                                                                                 DRGs).
794.....................................  Neonate with Other Significant        FY 2011 FR weight (adjusted by
                                           Problems.                             percent change in average
                                                                                 weight of the cases in other MS-
                                                                                 DRGs).
795.....................................  Normal Newborn......................  FY 2011 FR weight (adjusted by
                                                                                 percent change in average
                                                                                 weight of the cases in other MS-
                                                                                 DRGs).
----------------------------------------------------------------------------------------------------------------


[[Page 51572]]

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

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 discharges occurring in FY 2008, CMS transitioned from 
CMS-DRGs to MS-DRGs.
    The regulations implementing these provisions specify three 
criteria for a new medical service or technology to receive the 
additional payment: (1) The medical service or technology must be new; 
(2) the medical service or technology must be costly such that the DRG 
rate otherwise applicable to discharges involving the medical service 
or technology is determined to be inadequate; and (3) the service or 
technology must demonstrate a substantial clinical improvement over 
existing services or technologies. These three criteria are explained 
below in the ensuing paragraphs in further detail.
    Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a 
specific medical service or technology will be considered ``new'' for 
purposes of new medical service or technology add-on payments until 
such time as Medicare data are available to fully reflect the cost of 
the technology in the MS-DRG weights through recalibration. Typically, 
there is a lag of 2 to 3 years from the point a new medical service or 
technology is first introduced on the market (generally on the date 
that the technology receives FDA approval/clearance) and when data 
reflecting the use of the medical service or technology are used to 
calculate the MS-DRG weights. For example, data from discharges 
occurring during FY 2010 were used to calculate the FY 2012 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 2009 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, 2012 (the start 
of FY 2013). Because the FY 2013 MS-DRG weights would be calculated 
using FY 2011 MedPAR data, the costs of such a new technology would be 
fully reflected in the FY 2013 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 2013 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

[[Page 51573]]

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 
adopted a policy to 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 ineligible for the new technology add-on payment.
    Under the second criterion, Sec.  412.87(b)(3) further provides 
that, to be eligible for the add-on payment for new medical services or 
technologies, the MS-DRG prospective payment rate otherwise applicable 
to the discharge involving the new medical services or technologies 
must be assessed for adequacy. Under the cost criterion, to assess the 
adequacy of payment for a new technology paid under the applicable MS-
DRG prospective payment rate, we evaluate whether the charges for cases 
involving the new technology exceed certain threshold amounts. In the 
FY 2004 IPPS final rule (68 FR 45385), we established the threshold at 
the geometric mean standardized charge for all cases in the MS-DRG plus 
75 percent of 1 standard deviation above the geometric mean 
standardized charge (based on the logarithmic values of the charges and 
converted back to charges) for all cases in the MS-DRG to which the new 
medical service or technology is assigned (or the case-weighted average 
of all relevant MS-DRGs, if the new medical service or technology 
occurs in more than one MS-DRG).
    However, section 503(b)(1) of Public Law 108-173 amended section 
1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005, 
CMS will apply ``a threshold * * * that is the lesser of 75 percent of 
the standardized amount (increased to reflect the difference between 
cost and charges) or 75 percent of one standard deviation for the 
diagnosis-related group involved.'' (We refer readers to section IV.D. 
of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a 
discussion of the revision of the regulations to incorporate the change 
made by section 503(b)(1) of Public Law 108-173.) Table 10 that was 
included in the IPPS/LTCH PPS final rule published in the Federal 
Register on August 16, 2010, contained the final thresholds that were 
used to evaluate applications for new technology add-on payments for 
this final rule for FY 2012 (75 FR 50605 through 50613).
    In the September 7, 2001 final rule that established the new 
technology add-on payment regulations (66 FR 46917), we discussed the 
issue of whether the Health Insurance Portability and Accountability 
Act (HIPAA) Privacy Rule at 45 CFR Parts 160 and 164 applies to claims 
information that providers submit with applications for new technology 
add-on payments. Specifically, we explained that health plans, 
including Medicare, and providers that conduct certain transactions 
electronically, including hospitals that would receive new technology 
add-on payments, 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 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 (that is, 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

[[Page 51574]]

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 longstanding 
practice of how CMS evaluates the eligibility criteria for new medical 
service or technology add-on payment applications. That is, we first 
determine whether a medical service or technology meets the newness 
criteria, and only if so, do we then make a determination as to whether 
the technology meets the cost threshold and represents a substantial 
clinical improvement over existing medical services or technologies. We 
also amended Sec.  412.87(c) to specify that all applicants for new 
technology add-on payments must have FDA approval or clearance for 
their new medical service or technology by July 1 of each year prior to 
the beginning of the fiscal year that the application is being 
considered.
    The Council on Technology and Innovation (CTI) at CMS oversees the 
agency's cross-cutting priority on coordinating coverage, coding and 
payment processes for Medicare with respect to new technologies and 
procedures, including new drug therapies, as well as promoting the 
exchange of information on new technologies between CMS and other 
entities. The CTI, composed of senior CMS staff and clinicians, was 
established under section 942(a) of Public Law 108-173. The Council is 
co-chaired by the Director of the Office of Clinical Standards and 
Quality (OCSQ) and the Director of the Center for Medicare (CM), who is 
also designated as the CTI's Executive Coordinator.
    The specific processes for coverage, coding, and payment are 
implemented by CM, OCSQ, and the local claims-payment contractors (in 
the case of local coverage and payment decisions). The CTI supplements, 
rather than replaces, these processes by working to assure that all of 
these activities reflect the agency-wide priority to promote high-
quality, innovative care. At the same time, the CTI also works to 
streamline, accelerate, and improve coordination of these processes to 
ensure that they remain up to date as new issues arise. To achieve its 
goals, the CTI works to streamline and create a more transparent coding 
and payment process, improve the quality of medical decisions, and 
speed patient access to effective new treatments. It is also dedicated 
to supporting better decisions by patients and doctors in using 
Medicare-covered services through the promotion of better evidence 
development, which is critical for improving the quality of care for 
Medicare beneficiaries.
    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.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.
    As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we 
invite any product developers or manufacturers of new medical 
technologies to contact the agency early in the process of product 
development if they have questions or concerns about the evidence that 
would be needed later in the development process for the agency's 
coverage decisions for Medicare.
    The CTI aims to provide useful information on its activities and 
initiatives to stakeholders, including Medicare beneficiaries, 
advocates, medical product manufacturers, providers, and health policy 
experts. Stakeholders with further questions about Medicare's coverage, 
coding, and payment processes, or who want further guidance about how 
they can navigate these processes, can contact the CTI at 
CTI@cms.hhs.gov.
    We note that applicants for add-on payments for new medical 
services or technologies for FY 2013 must submit a formal request, 
including a full description of the clinical applications of the 
medical service or technology and the results of any clinical 
evaluations demonstrating that the new medical service or technology 
represents a substantial clinical improvement, along with a significant 
sample of data to demonstrate that the medical service or technology 
meets the high-cost threshold. Complete application information, along 
with final deadlines for submitting a full application, will be posted 
as it becomes available on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp. To allow interested parties to 
identify the new medical services or technologies under review before 
the publication of the proposed rule for FY 2013, the Web site also 
will post the tracking forms completed by each applicant.
    Comment: A number of commenters submitted public comments that 
addressed topics relating to the substantial similarity criteria, 
marginal cost factor for the new technology add-on payment, 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 invite public comments nor propose to make any 
changes to any of the issues summarized above. Because these public 
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

[[Page 51575]]

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 2012 prior 
to publication of the FY 2012 IPPS/LTCH PPS proposed rule, we published 
a notice in the Federal Register on November 29, 2010 (75 FR 73091 
through 73094), and held a town hall meeting at the CMS Headquarters 
Office in Baltimore, MD, on February 2, 2011. 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 2012 new medical service and 
technology add-on payment applications before the publication of the FY 
2012 proposed rule.
    Approximately 50 individuals registered to attend the town hall 
meeting in person, while additional individuals listened over an open 
telephone line. Each of the three FY 2012 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 2012 in the FY 2012 proposed rule and in this final 
rule.
    In response to the published notice and the new technology town 
hall meeting, we received three written comments regarding applications 
for FY 2012 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 proposed rule. We refer readers to the FY 2012 IPPS/LTCH PPS 
proposed rule for a complete iteration of the comments received in 
response to the published notice and the new technology town hall 
meeting and CMS' responses (76 FR 25861 through 25863).
3. FY 2012 Status of Technologies Approved for FY 2011 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. In the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43819), the applicant stated 
that the first IRB approval for the Spiration[supreg] IBV[supreg] was 
March 12, 2009. In that final rule, based on the information above from 
the applicant, we determined that the Spiration[supreg] IBV[supreg] 
meets the newness criterion and the newness period for the 
Spiration[supreg] IBV[supreg] begins on March 12, 2009.
    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 in response to 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 with a maximum add-on payment of $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 
continued 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.
    The new technology add-on payment regulations provide that ``a 
medical service or technology may be considered new within 2 or 3 years 
after the point at which data begin to become available reflecting the 
ICD-9-CM code assigned to the new medical service or technology'' (42 
CFR 412.87(b)(2)). Our practice has been to begin and end new 
technology add-on payments on the basis of a fiscal year, and we have 
generally followed a guideline that uses a 6-month window before and 
after the start of the fiscal year to determine whether to extend the 
new technology add-on payment for an additional fiscal year. In 
general, we extend add-on payments for an additional year only if the 
3-year anniversary date of the product's entry on the market occurs in 
the latter half of the fiscal year (70 FR 47362). With regard to the 
newness criterion for the Spiration[supreg] IBV[supreg], as stated 
above, we consider the beginning of the newness period for the device 
to have commenced on the date of the first IRB approval for the 
Spiration[supreg] IBV[reg], which was March 12, 2009. For FY 2012, as 
of March 12, 2012, the Spiration[supreg] IBV[supreg] will have been on 
the market for 3 years, and is therefore no longer considered ``new'' 
as of March 12, 2012. Because the 3-year anniversary date of the 
Spiration[supreg] IBV[supreg]'s entry onto the market will occur in the 
first half of the fiscal year, we proposed to discontinue its new 
technology add-on payment for FY 2012.
    Comment: One commenter requested that the new technology add-on 
payments for the Spiration[supreg] IBV[supreg] be extended for a third 
year. The commenter reasoned that, although two hospital IRBs approved 
the use of the Spiration[supreg] IBV[supreg], those two hospitals did 
not implant the valve until June 2010 and September 2010, respectively. 
The commenter explained that there was a delay in the hospitals' 
implantation of the device from the time of IRB approval due to the 
following

[[Page 51576]]

reasons: (1) Infrequent number of cases; and (2) the clinical, 
administrative, and operation processes that needed to be completed in 
order to make the technology available under HDE approval at each 
institution. Therefore, the commenter stated that even though a 
hospital would have received IRB approval, it would not expect the 
first case to be performed immediately. The commenter believed that for 
these reasons, the newness period should begin with the first 
implantation of the Spiration[supreg] IBV[supreg], which occurred in 
June 2009. Using this date, the commenter determined that the newness 
period for the Spiration[supreg] IBV[supreg] would end June 2012, 
during the latter half of FY 2012, thus making the Spiration[supreg] 
IBV[supreg] eligible for a third year of new technology add-on 
payments.
    Response: CMS' policy is that the newness period begins with the 
product's or device's FDA approval date, except in limited 
circumstances that could limit the availability of the product (69 FR 
49002). In this case, the product was approved as an HDE, which 
included IRB approval as a requirement. Therefore, we determined that 
the date of IRB approval was the appropriate start date of the newness 
period (74 FR 43819). We do not agree that the start date for the 
newness period should be further adjusted if a hospital then decided 
not to immediately utilize the technology. In this case, the hospital's 
IRB approved the product for use on March 12, 2009, and the product was 
available, but no patients had the product implanted until June 2010. 
We believe this is similar to a situation in which a technology is FDA 
approved (without any additional qualifications for use, such as IRB 
approval), but no hospital uses the technology for a period of time 
after FDA approval. In such a case, the newness period would still 
begin with FDA approval, and we would not delay the beginning of the 
newness period until a hospital uses the drug or device for the first 
time. Therefore, we disagree with the commenter, and we continue to 
believe it is appropriate to start the newness period for the 
Spiration[supreg] IBV[supreg] with the first IRB approval, which was 
March 12, 2009. As mentioned above, for FY 2012, as of March 12, 2012, 
the Spiration[supreg] IBV[supreg] will have been available for 
hospitals' utilization for 3 years, and it is therefore no longer 
considered ``new'' as of March 12, 2012. Because this date occurs in 
the first half of the fiscal year, we are finalizing our proposal to 
discontinue its new technology add-on payment for FY 2012.
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 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 final rule, 
although we generally believe that the newness period would begin on 
the date that FDA approval was granted, in cases where the applicant 
can demonstrate a documented delay in market availability subsequent to 
FDA approval, we would consider delaying the start of the newness 
period. This technology's situation represented such a case. We also 
noted that section 1886(d)(5)(K)(ii)(II) of the Act requires that we 
provide for the collection of cost data for a new medical service or 
technology for a period of at least 2 years and no more than 3 years 
``beginning on the date on which an inpatient hospital code is issued 
with respect to the service or technology.'' Furthermore, the statute 
specifies that the term ``inpatient hospital code'' means any code that 
is used with respect to inpatient hospital services for which payment 
may be made under the IPPS and includes ICD-9-CM codes and any 
subsequent revisions. Although the TAH-t has been described by the ICD-
9-CM code(s) since the time of its FDA approval, because the TAH-t had 
not been covered under the Medicare program (and, therefore, no 
Medicare payment had been made for this technology), this code could 
not be ``used with respect to inpatient hospital services for which 
payment'' is made under the IPPS, and thus we assumed that none of the 
costs associated with this technology would be reflected in the 
Medicare claims data used to recalibrate the MS-DRG relative weights 
for FY 2009. For this reason, as discussed in the FY 2009 IPPS 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 proposed rule, we approved the TAH-t for new technology 
add-on payments for FY 2009 (73 FR 48557). We also continued to make 
new technology add-on payments for the TAH-t in FY 2010 and FY 2011.
    We describe the new technology add-on payment requirements with 
regard to newness above. With regard to the newness criterion for the 
TAH-t, as stated above, we consider the beginning of the newness period 
for the device to have commenced from the Medicare NCD date of May 1, 
2008; it is no longer considered new as of May 11, 2011. Because the 3-
year anniversary date of the TAH-t will occur prior to the start of FY 
2012, we proposed to discontinue the new technology add-on payment for 
the TAH-t in FY 2012.

[[Page 51577]]

    We did not receive any public comments on this proposal. Therefore, 
we are finalizing our proposal to discontinue new technology add-on 
payments for the TAH-t in FY 2012.
c. 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\. 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 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.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for the AutoLITT\TM\ 
and consideration of the public comments we received in response to the 
FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, including the additional 
analysis of clinical data and supporting information submitted by the 
applicant, we approved the AutoLITT\TM\ for new technology add-on 
payments for FY 2011. Consistent with the applicant's clinical trial, 
the add-on payment is intended only for use of the device in cases of 
Glioblastoma Multiforme. Therefore, we limited the new technology add-
on payment to cases involving the AutoLITT\TM\ in MS-DRGs 025 
(Craniotomy and Endovascular Intracranial Procedures with MCC), 026 
(Craniotomy and Endovascular Intracranial Procedures with CC), and 027 
(Craniotomy and Endovascular Intracranial Procedures without CC or 
MCC). Cases involving the AutoLITT\TM\ that are eligible for the new 
technology add-on payment are identified by assignment to MS-DRGs 025, 
026, and 027 with a procedure code of 17.61 (Laser interstitial 
thermotherapy of lesion or tissue of brain under guidance) in 
combination with a primary diagnosis codes that begins with a prefix of 
191 (Malignant neoplasm of brain). We note that using the procedure and 
diagnosis codes above and restricting the add-on payment to cases that 
map to MS-DRGs 025, 026, and 027 is consistent with information 
provided by the applicant, which demonstrated that cases of the 
AutoLITT\TM\ would only map to MS-DRGs 025, 026, and 027. Procedure 
code 17.62 (Laser interstitial thermotherapy of lesion or tissue of 
head and neck under guidance) does not map to MS-DRGs 025, 026, or 027 
under the GROUPER software and, therefore, is ineligible for new 
technology add-on payment.
    The average cost of the 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.
    We describe the new technology add-on payment requirements with 
regard to newness above. With regard to the newness criterion for the 
AutoLITT\TM\, as stated above, we consider the beginning of the newness 
period for the device to commence from the market release date of 
December 2009. Therefore, the device will be considered ``new'' until 
December 2012. Because the 3-year anniversary date for the AutoLITT\TM\ 
will occur after FY 2012, we proposed to continue to make new 
technology add-on payments for the AutoLITT\TM\ in FY 2012.
    We did not receive any public comments on this proposal. Therefore, 
we are finalizing our proposal to continue to make new technology add-
on payments for the AutoLITT\TM\ in FY 2012. The maximum add-on payment 
for a case involving the AutoLITT\TM\ will continue to be $5,300 for FY 
2012.
4. FY 2012 Applications for New Technology Add-On Payments
    We received three applications for new technology add-on payments 
for FY 2012. However, one applicant, the Champion\TM\ HF Monitoring 
System by CardioMems, Inc., withdrew its application after publication 
of the proposed rule because the applicant believed it would not 
receive FDA approval for its technology prior to the July 1 deadline, 
as required under Sec.  412.87(c) of our regulations. Because the 
applicant withdrew its application, and we did not receive any public 
comments on this application, we are not discussing this application in 
this final rule. A discussion of the remaining two applications is 
presented below.
    a. AxiaLIF[supreg] 2L+\TM\ System
    TranS1 submitted an application for new technology add-on payments 
for the AxiaLIF[supreg] 2L+\TM\ System for FY 2012. The AxiaLIF[supreg] 
2L+\TM\ System is an implantable spinal fixation system, delivered 
through a pre-sacral approach, facilitating spinal fusion through axial 
stabilization of the anterior lumbar spine at Lumbar vertebrae 4 
through Sacral vertebrae 1 (L4-S1).
    The AxiaLIF[supreg] 2L+\TM\ System received 510K FDA clearance 
(K092124) on January 21, 2010, and the applicant asserts that the 
device was available on the market immediately afterward through a 
limited market release program. The AxiaLIF[supreg] 2L+\TM\ System is 
indicated for use to provide anterior stabilization of the L4-S1 spinal 
segments as an adjunct to spinal fusion. It is also indicated for 
minimally invasive access to the anterior portion of the lower spine 
for assisting in the treatment of degeneration of the lumbar disc, 
performing lumbar discectomy, or for assistance in the performance of 
L4-S1 interbody fusion. The AxiaLIF[supreg] 2L+\TM\ System may be used 
in patients requiring fusion to treat pseudoarthrosis, unsuccessful 
previous fusion, spinal stenosis, spondylolisthesis (Grade 1), or 
degenerative disc disease as defined as back pain of discogenic origin 
with degeneration of the disc confirmed by history and radiographic 
studies. The AxiaLIF[supreg] 2L+\TM\ System is coded using ICD-9-CM 
procedure code 81.08 (Lumbar and lumbosacral fusion of the anterior 
column, posterior technique).
    In the FY 2012 IPPS/LTCH PPS proposed rule, we expressed numerous

[[Page 51578]]

concerns regarding the application for new technology add-on payments 
for the AxiaLIF[supreg] 2L+\TM\ System. With regard to the newness 
criterion, we were concerned that the AxiaLIF[supreg] 2L+\TM\ System 
may be substantially similar to the other devices manufactured by the 
applicant, AxiaLIF[supreg] System and AxiaLIF[supreg] II\TM\ System, 
the latter of which is listed as the predicate device on the 
AxiaLIF[supreg] 2L+\TM\ System's application for FDA 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 outcome; (2) whether a 
product is assigned to the same or different 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.
    We were particularly concerned that the AxiaLIF[supreg] 
2L+\TM\System uses the same or similar mechanism of action as the 
AxiaLIF[supreg] II\TM\ System to achieve a therapeutic outcome. 
According to the applicant's 510K summary submitted to the FDA 
(K073514), the AxiaLIF[supreg] System is a multicomponent system 
including titanium alloy implantable devices and instrumentation for 
creating a pre-sacral axial track to the L5-S1 disk space. Similarly, 
the AxiaLIF[supreg] II\TM\ System is described in the applicant's 510K 
summary submitted to the FDA (K073643) as a system of medical grade 
titanium alloy for the anterior stabilization of the L4-S1 spinal 
segments as an adjunct to spinal fusion. As we stated in the proposed 
rule, the applicant states that the AxiaLIF[supreg] 2L+\TM\ System was 
created from the AxiaLIF[supreg] II\TM\ System platform. The applicant 
submitted the following to distinguish the AxiaLIF[supreg] 2L+\TM\ 
System from the AxiaLIF[supreg] II\TM\ System:
     There have been internal thread changes for the 2L+ 
implant to accompany the Spanning Distraction Rod, which is designed to 
create and hold distraction in the L5-S1 disc space and allow for a 
higher degree of control over the Rod advancement and distraction;
     The design enhancements in the 2L+ System remove the 
dependence of distraction on size and placement of the S1 Rod, thus 
allowing precise implant placement in the vertebral bodies;
     In the 2L+ Implant, the L4 section of the L4-L5 Rod 
incorporates a conical design to increase fixation. The outer diameter 
(O.D.) of the L5 section is increased to be identical to the O.D. of 
the S1 implant to provide more surface area bone contact;
     The 2L+ Instrumentation incorporates Dilator Trials as an 
opportunity to enhance and simplify the intraoperative measuring 
technique by providing a direct visual means of measurement; and
     The 2L+ Fixation Rod fills the cannulation to prevent 
graft from moving into the rod from the disc space. The Fixation Rod 
also fixates the S1 Anchor and L4-L5 Rod together such that these 
components cannot passively separate.
    Based on indications for use listed by the FDA for the 
AxiaLIF[supreg] System (K073514), the AxiaLIF[supreg] IITM 
System (K073643), and the AxiaLIF[supreg] 2L+TM System (as 
described above), we also were concerned that all of these devices 
involve the treatment of the same or similar type of disease and the 
same or similar patient population. With respect to whether a product 
is assigned to the same or different DRG, we noted in the proposed rule 
that currently the AxiaLIF[supreg] System and the AxiaLIF[supreg] 
2L+TM System both generally map to MS-DRGs 459 (Spinal 
Fusion Except Cervical with MCC) and 460 (Spinal Fusion Except Cervical 
without MCC). Though the AxiaLIF[supreg] IITM System is no 
longer on the market, it would also map to the same DRGs.
    If the AxiaLIF[supreg] 2L+TM System is found to be 
substantially similar to the AxiaLIF[supreg] System or the 
AxiaLIF[supreg] IITM System, the AxiaLIF[supreg] 
2L+TM System would no longer qualify for the new technology 
add-on payment. Specifically, the appropriate start date for the 
AxiaLIF[supreg] 2L+TM System would be the start date of the 
device that is found to be substantially similar to the AxiaLIF[supreg] 
2L+TM System. As noted above, the AxiaLIF[supreg] 
IITM System received FDA approval on April 28, 2008. The 3-
year newness period for the AxiaLIF[supreg] IITM System ends 
prior to the start of FY 2012 (July 28, 2011). Given the length of time 
since the AxiaLIF[supreg] IITM System's entry into the 
market, cost-related data for the AxiaLIF[supreg] IITM 
System is already reflected in the most recent MS-DRG relative weights. 
Additionally, the AxiaLIF[supreg] System received multiple FDA 
approvals, the most recent of which was on January 11, 2008. The 3-year 
newness period for the AxiaLIF[supreg] System also ends prior to the 
start of FY 2012 (January 11, 2011). Given the length of time since the 
AxiaLIF[supreg] System's entry into the market, cost-related data for 
the AxiaLIF[supreg] System is already reflected in the most recent MS-
DRG relative weights. However, if the AxiaLIF[supreg] 2L+TM 
System is not substantially similar to any of the predicate devices 
mentioned above, then the newness period for the AxiaLIF[supreg] 
2L+TM System would begin on January 21, 2010 (the 
AxiaLIF[supreg] 2L+TM System's FDA approval date) and would 
be within the year newness period for FY 2012.
    We invited public comment regarding whether or not the 
AxiaLIF[supreg] 2L+TM System meets the newness criteria, 
and, in particular, whether it is substantially similar to the 
AxiaLIF[supreg] System or the AxiaLIF[supreg] IITM System. 
We did not receive any public comments regarding the newness criteria 
or the substantial similarity of the AxiaLIF[supreg] 2L+TM 
System to the AxiaLIF[supreg] System or the AxiaLIF[supreg] 
IITM System.
    In the proposed rule, we also expressed concerns with the 
applicant's methodology for demonstrating that it met the cost 
criterion. Specifically, in determining the projected standardized 
charge for the AxiaLIF[supreg] 2L+TM System, the applicant 
relied on a charge markup for defibrillators because it is also a high-
cost implantable device for which a hospital purchase price is known. 
We were concerned about whether more direct data or different proxies 
are available, including a charge markup for the AxiaLIF[supreg] System 
or AxiaLIF[supreg] IITM System. In reviewing the applicant's 
charge markup, we also were concerned about the source data for 
determining the 2.77 charge markup ratio for defibrillators. We invited 
public comment on whether the AxiaLIF[supreg] 2L+TM System 
meets the cost criterion for a new technology add-on payment for FY 
2012.
    We did not receive any public comments that addressed our concerns 
regarding the cost criterion for new technology add-on payment.
    With respect to the substantial clinical improvement criterion, the 
applicant asserted that it meets this criterion in its application. The 
applicant stated that substantial clinical improvement is demonstrated 
by the AxiaLIF[supreg] 2L+TM System's facilitation of spinal 
fusion surgery without a laparotomy. By avoiding a laparotomy, the 
AxiaLIF[supreg] 2L+TM System reduces blood loss, 
postoperative pain, narcotic use, denervation, morbidity, the 
probability of complications, and the risk of trauma to the tissue area 
surrounding the lumbar. The applicant further stated that the 
AxiaLIF[supreg] 2L+TM System reduces morbidity and has 
reduced risk of injuring vital organs and important intrinsic 
stabilizing structures, with a lower complication profile than 
traditional open fusion techniques. The applicant noted that long-term 
results can include better support of lordosis and prevention of 
adjacent level disease. In the proposed rule, we also expressed concern 
that this

[[Page 51579]]

does not demonstrate a substantial clinical improvement from the 
AxiaLIF[supreg] IITM System, which also facilitated spinal 
fusion surgery without a laparotomy.
    The applicant has not conducted clinical trials, but the 300 cases 
of AxiaLIF[supreg] 2L+TM System's use (through the Limited 
Market Release) yielded a complication rate of 0.7 percent. The 
applicant also asserts that the pre-sacral approach results in a lower 
average length of stay than a non-sacral approach.
    The applicant referred us to several sources of literature 
presenting data related to the pre-sacral approach for the applicant's 
AxiaLIF[supreg] device. Again, we expressed concern that the applicant 
generally repeated the statements made regarding the clinical 
improvement of its AxiaLIF[supreg] device and had not provided 
information that indicates that the AxiaLIF[supreg] 2L+TM 
System offers a substantial clinical benefit over the earlier 
AxiaLIF[supreg] or AxiaLIF[supreg] IITM devices. Moreover, 
the applicant failed to provide any clinical outcomes data for the 
AxiaLIF[supreg] 2L+TM System to substantiate its assertions 
regarding substantial clinical improvement for the AxiaLIF[supreg] 
2L+TM System. While the applicant maintains that data from 
the AxiaLIF[supreg] device are relevant and can be used to substantiate 
its assertions for the AxiaLIF[supreg] 2L+TM System, we were 
concerned that data directly associated with the use of the 
AxiaLIF[supreg] 2L+TM System are not available. For example, 
we stated in the proposed rule that it was not clear the degree to 
which the population that required treatment with the AxiaLIF[supreg] 
2L+TM System differed from the population that required 
treatment with the AxiaLIF[supreg] device or the AxiaLIF[supreg] 
IITM System, and that it was also not clear the degree to 
which the differences amongst the devices discussed above may affect 
clinical outcomes. We invited public comments on whether the 
AxiaLIF[supreg] 2L+TM System meets the substantial clinical 
improvement criterion for the new technology add-on payment for FY 
2012. We did not receive any public comments regarding the substantial 
clinical improvement criterion.
    We did not receive any public comments with regard to this 
application. In the absence of comments with information addressing our 
various concerns with this application, we are not approving the 
AxiaLIF[supreg] 2L+TM System for new technology add-on 
payments for FY 2012.
b. PerfectCLEAN With Micrillon[supreg]
    UMF Corporation (the manufacturer) submitted an application for a 
technology called the PerfectCLEAN with Micrillon[supreg] 
(PerfectCLEAN). PerfectCLEAN is a cleaning textile product (or cleaning 
mat/wipe) with chlorine embedded or bound to the extruded fiber. The 
manufacturer asserts that PerfectCLEAN is intended to be used to trap 
and eliminate pathogens such as Methicillin-resistant Staphylococcus 
aureus (MRSA), Clostridium difficile (C diff.) and the H1N1 flu virus 
from surfaces within the hospital (as well as other health care 
facilities and locations). The applicant asserts that it can trap and 
remove more than 99.99 percent of bacteria on hard surfaces.
    The manufacturer stated that the PerfectCLEAN is an Environmental 
Protection Agency (EPA) approved antimicrobial/disinfectant that will 
be available on the market in the first quarter of 2011. The applicant 
maintains that PerfectCLEAN is subject to review and approval by the 
EPA per the EPA's Federal Insecticide, Fungicide, Rodenticide Act 
(FIFRA) Treated Article Exemption and, therefore, is not subject to 
review by the FDA. The applicant states that it was determined in a 
pre-registry meeting with the EPA that the underlying chemistries used 
to create the chlorine binding effects of Micrillon[supreg] chemistry 
are EPA and FDA approved even though no FDA claims are being sought.
    With respect to whether the PerfectCLEAN is eligible for new 
technology add-on payments, in the proposed rule we noted that our 
regulations at Sec.  412.87(c) state, ``CMS will only consider, for 
add-on payments for a particular fiscal year, an application for which 
the new medical service or technology has received FDA approval or 
clearance by July 1 prior to the particular fiscal year.'' FDA 
``approval,'' refers to the premarket approval application (PMA) 
process for most Class III devices, and FDA ``clearance'' refers to the 
510(k) premarket notification submission process for most Class II 
devices and some Class I and Class III devices (section 515 of the 
Food, Drug and Cosmetic Act (FDCA) for PMA) and sections 510(k) and 
513(i) of the FDCA (for premarket notification submission process)). 
Therefore, we believe our regulations, by requiring applicants to 
receive an FDA approval or clearance in order to be eligible for new 
technology add-on payments, limit the universe of items and services 
eligible to receive these payments to those that require FDA approval 
or clearance. The applicant has informed CMS that it is in the process 
of registering and listing its product with the FDA under section 
510(b) through (d) and (j) and anticipates this process to be completed 
prior to the July 1 regulatory deadline. The registration process that 
the applicant is currently pursing will result in neither FDA approval 
nor clearance. In the proposed rule, we stated that we were therefore 
concerned that the PerfectCLEAN is not eligible for new technology add-
on payments under our existing regulations, which require ``FDA 
approval or clearance by July 1 prior to the particular fiscal year'' 
(42 CFR Sec.  412.87(c)). We welcomed public comments on whether the 
PerfectCLEAN is eligible for new technology add-on payments under the 
current regulations.
    We did not receive any public comments in response to our concern 
that the PerfectCLEAN does not meet the newness criteria. Therefore, we 
conclude that the PerfectCLEAN does not meet the requirement specified 
under Sec.  412.87(c) of our regulations that we requires applicants to 
receive an FDA approval or clearance by July 1 prior to the particular 
fiscal year, rather than registering and listing its product with the 
FDA, in order to be eligible for new technology add-on payments. As a 
result, we are not approving new technology add-on payments for the 
PerfectCLEAN for FY 2012. However, we will consider whether it would be 
appropriate for a product that is registered and listed with the FDA to 
be eligible for new technology add-on payments. If we conclude that 
such products should be eligible for new technology add-on payments in 
the future, we will propose changes to our regulations in a future 
rulemaking.
    With regard to the cost criterion, the applicant used data from the 
FY 2011 After Outliers Removed (AOR) file (posted on the CMS Web site) 
for its cost analysis, which is based on the FY 2009 MedPAR file. The 
applicant considered MS-DRGs that relate to surgeries, skin abrasions, 
open sores, wounds, and similar inflamed tissue conditions where 
infection sites are thought to be more likely to occur for inpatient 
care situations. This resulted in the applicant determining that the 
technology would be most frequently used in 622 different MS-DRGs. The 
applicant noted that the charges from the FY 2011 AOR file were not 
inflated from FY 2009 to FY 2011; therefore the applicant applied a 2-
year inflation factor of 12 percent (to update the charges from FY 2009 
to FY 2011). The applicant based the 2-year inflation factor of 12 
percent on a 3-year average of the 2 year rate-of-change in charges 
(the 2-year rate-of-change for FY 2009 of 11.841 percent (73 FR 48764); 
the 2-year rate-of-change for FY 2010 of 14.184

[[Page 51580]]

percent (74 FR 44010); and the 2-year rate-of-change for FY 2011 of 
9.8843 percent (75 FR 50429)) that CMS uses in its outlier threshold 
calculation as published in section II. of the Addendum to the annual 
IPPS final rule. The applicant computed a case-weighted standardized 
charge per case of $40,442 for all 622 MS-DRGs, which did not include 
any charges related to the PerfectCLEAN. Therefore, it added the 
charges related to the technology to the case-weighted average 
standardized charge per case in evaluating the cost threshold 
criterion. The manufacturer estimates a charge per patient of $100 per 
day for the PerfectCLEAN. The applicant includes in this amount charges 
for payroll, treated textiles, packaging and protective gloves, 
laundering, storage, and distribution. The applicant multiplied the 
average length of stay for each MS-DRG (as found in Table 5 of the 
Addendum to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50547 through 
50566)) by the charge per patient per day to determine the total 
charges per stay by MS-DRG related to the PerfectCLEAN. The applicant 
added additional charges per stay for the PerfectCLEAN to the case-
weighted standardized charge per case and determined a total case-
weighted average standardized charge per case of $41,105. Based on the 
622 MS-DRGs to which the technology mapped, the applicant computed a 
case-weighted threshold of $40,834. Because the total case-weighted 
average standardized charge per case of $41,105 exceeds the case 
weighted threshold of $40,834, the applicant maintains that it meets 
the cost criteria.
    In the proposed rule, we discussed several concerns regarding the 
applicant's cost analysis. First, although the technology can 
potentially be used in every single Medicare case, the application 
targets specific MS-DRGs. The applicant did not provide a detailed 
clinical justification regarding their selection of MS-DRGs, or a 
detailed justification for why the technology could not be used in 
other MS-DRGs. We believe it would be more appropriate to target all 
cases in every MS-DRG when conducting the cost analysis for this type 
of non-procedure or condition specific item. Using the FY 2011 AOR 
file, we conducted our own analysis with the same methodology above 
(and inflated the charges and included the total charges per stay 
related to the PerfectCLEAN) across all MS-DRGs. Based on our analysis, 
we determined a total case-weighted average standardized charge per 
case of $29,535. Using the applicant's methodology, we also determined 
a case-weighted threshold of $37,384 across all MS-DRGs. Because the 
total case-weighted average standardized charge per case of $29,535 is 
less than the case-weighted threshold of $37,384, we believe the 
PerfectCLEAN may not meet the cost criteria.
    Second, the applicant included in the average charge per day more 
general charges unrelated to the specific new technology, such as 
payroll, packaging and protective gloves, laundering, storage and 
distribution. We do not believe it is appropriate to include charges 
for expenses already accounted for in MS-DRG based payments, such as 
laundering, storage, and distribution, and supplies already used by 
hospital staff such as packaging and protective gloves. We also note 
that the applicant states in its substantial clinical improvement 
discussion that the PerfectCLEAN represents the first comprehensive 
process for the removal and elimination of harmful micro-organisms 
responsible for HAIs from patient environments, the elimination of 
cross-contamination, and significant savings across many cost centers. 
If the PerfectCLEAN is a substitute for other cleaning mechanisms such 
as wiping down a hospital room with a spray and can produce significant 
savings across many cost centers, then it would be appropriate to 
deduct some charges from the average charge per day in order to 
accurately reflect the cost to hospitals of this technology. For these 
reasons, we remain concerned about the accuracy of the computation of a 
charge per patient of $100 per day and whether the PerfectCLEAN meets 
the cost criterion.
    Thirdly, the applicant based the 12-percent, 2-year rate-of-change 
in charges on a 3-year average (FY 2009 through FY 2011) of the 2-year 
rate-of-change in charges as published in section II. of the Addendum 
to the annual IPPS final rule. We do not believe it is appropriate to 
use a 3-year average of the 2-year rate-of-change in charges as the 2-
year rate-of-change in charges already uses the most recent data 
available to measure this change and, therefore, does not need to be 
averaged with prior years. Specifically, as described in section II. of 
the Addendum to this final rule, to calculate the proposed FY 2012 2-
year rate-of-change in charges, we compared the 1-year average 
annualized rate-of-change in charges per case from the last quarter of 
FY 2009 in combination with the first quarter of FY 2010 (July 1, 2009 
through December 31, 2009) to the last quarter of FY 2010 in 
combination with the first quarter of FY 2011 (July 1, 2010 through 
December 31, 2010). This rate-of-change was 4.43 percent (1.044394) or 
9.07 percent (1.090759) over 2 years. If we substitute the FY 2012 
proposed 2-year rate-of-change in charges of 9.07 percent for the 12-
percent 3-year average of the 2-year rate-of-change in charges that the 
applicant used in its cost analysis, the total case-weighted average 
standardized charge per case would be $40,047 across the 622 MS-DRGs to 
which the applicant believes the technology would map. As mentioned 
above, the applicant computed a case-weighted threshold of $40,834. 
Because the total case-weighted average standardized charge per case of 
$40,047 is less than the case-weighted threshold of $40,834, it appears 
the applicant would not meet the cost criteria. We invited public 
comment on whether the PerfectCLEAN meets the cost criterion.
    Comment: Several commenters expressed concerns that the cost 
estimates assume that this product would replace other items currently 
used in the hospital.
    Response: As mentioned above, because PerfectCLEAN does not meet 
the requirements specified under Sec.  412.87(c) of our regualtions it 
was not approved for FY 2012 new technology add-on payments. Once an 
applicant does not meet one of our criteria (newness, cost and 
substantial clinical improvement; in that order), we typically do not 
respond to public comments on the rest of the new technology add-on 
payment criteria. However, we are responding to the public comment 
above to ensure our cost criteria policy is clear.
    The applicant substituted and added charges related to their 
product as part of its efforts to demonstrate that the product's costs 
exceed the cost threshold. While we have concerns regarding certain 
aspects of the applicant's methodology, it is common practice for new 
technology add-on payment applicants to substitute and/or add charges 
related to their technology in order to develop an average standardized 
charge per case to demonstrate that a technology exceeds the cost 
threshold.
    The applicant maintained that it met the substantial clinical 
improvement criteria for the following reasons: The applicant believes 
the PerfectCLEAN significantly improves clinical outcomes for a patient 
population as compared to currently available treatments, decreases 
rate of subsequent diagnostic or therapeutic interventions, and 
decreases the number of future hospitalizations or physician visits. 
The applicant cited independent laboratory studies that set forth the 
level of removal and elimination of pathogens achieved by

[[Page 51581]]

the PerfectCLEAN. The applicant stated that the PerfectCLEAN includes 
``more precise and focused patient room procedures that when properly 
applied utilize the textile and micro-denier efficacies'' listed in the 
product's independent test reports. The applicant stated that this 
results ``in a safer patient environment where the likelihood of cross 
contamination is reasonable.'' The applicant included test report data 
for the product, which demonstrated a 99.99 percent effectiveness of 
removing pathogens such as MRSA and C diff. The applicant cited 
industry and clinical support to demonstrate that improved patient 
environment can save lives. The applicant also stated that PerfectCLEAN 
represents the first comprehensive process for the removal and 
elimination of harmful micro-organisms responsible for hospital 
acquired infections from patient environments, the elimination of 
cross-contamination, and significant savings across many cost centers. 
The applicant stated that this new innovative system delivers reliable 
and repeatable results not currently achieved using currently available 
protocols and products. The applicant provided the following example: a 
traditional method of disinfection is to apply liquid disinfectants, 
which the applicant stated typically requires a 10-minute dwell time 
(which in most cases is not completed by the hospital) and then wiping 
or mopping up the nonevaporated liquids. Compared to this method, the 
applicant asserts that the PerfectCLEAN first removes the micro-
organisms from those surfaces using specially designed microscopic 
fibers. The applicant asserted that these pathogens are trapped in a 
formulation of a chlorine binding technology which eliminates the 
pathogens.
    The applicant further asserted that the PerfectCLEAN maintains its 
disinfecting capability longer than other methods because the chlorine-
binding technology is introduced at the pellet stage of fiber extrusion 
so that it is present throughout the fiber, as opposed to a finish or 
coating process that wears off as textiles are used and laundered. 
Additionally, the applicant asserted that the technology's non-leaching 
chlorination system recharges in the wash process by attracting and 
binding free molecules of chlorine. The applicant further asserted that 
in this way the PerfectCLEAN recharges back to its original strength 
and efficacy which allows it to work more rapidly than other 
techniques. The applicant asserted that this reduces cross-
contamination by those persons handling soiled textiles after the 
people contact surfaces which have been cleaned of harmful micro-
organisms. The applicant added that the training in use of color coated 
textiles (different color mats) affords superior monitoring and 
compliance supervision of the hygiene specialists charged with 
responsibility to reduce cross contamination. We invited public comment 
on whether the PerfectCLEAN meets the substantial clinical improvement 
criterion.
    Comment: Several commenters opposed consideration of this product 
for new technology add-on payments. The commenters stated that neither 
CMS nor the applicant provided sufficient supporting data to approve 
this technology for add-on payments. The commenters also stated that a 
cursory review of information sources on this product, including the 
company's own Web site, did not identify any scientific, peer-reviewed 
studies demonstrating efficacy against cross transmission, or 
prevention or mitigation of Healthcare-Acquired Infections (HAIs). The 
commenters urged CMS not to approve the application for new technology 
add-on payments for this or any product that lacks scientific evidence 
of its efficacy and urged CMS to use objective rigor to evaluate the 
methodological quality and strength of evidence submitted in support of 
new technology add-on payment applications.
    Response: Because PerfectCLEAN does not meet the requirements 
specified under Sec.  412.87(c) of our regulations (and was not 
approved for FY 2012 new technology add-on payments), we are not 
responding to these public comments in this final rule.

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 delineations 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the FY 2012 hospital wage index based on the 
statistical areas, including OMB's revised definitions of Metropolitan 
Areas, appears under section III.B. of this preamble.
    Beginning October 1, 1993, section 1886(d)(3)(E) of the Act 
requires that we update the wage index annually. Furthermore, this 
section of the Act provides that the Secretary base the update on a 
survey of wages and wage-related costs of short-term, acute care 
hospitals. The survey must exclude the wages and wage-related costs 
incurred in furnishing skilled nursing services. This provision also 
requires us to make any updates or adjustments to the wage index in a 
manner that ensures that aggregate payments to hospitals are not 
affected by the change in the wage index. The adjustment for FY 2012 is 
discussed in section II.B. of the Addendum to this final rule.
    As discussed below in section III.H. of this preamble, we also take 
into account the geographic reclassification of hospitals in accordance 
with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating 
IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the 
Secretary is required to adjust the standardized amounts so as to 
ensure that aggregate payments under the IPPS after implementation of 
the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the 
Act are equal to the aggregate prospective payments that would have 
been made absent these provisions. The budget neutrality adjustment for 
FY 2012 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, 2011 (the FY 2012 wage index) appears under 
section III.C. of this preamble.

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

    The wage index is calculated and assigned to hospitals on the basis 
of the labor market area in which the hospital is located. In 
accordance with the broad discretion under section 1886(d)(3)(E) of the 
Act, beginning with FY 2005, we define hospital labor market areas 
based on the Core-Based Statistical Areas (CBSAs) established by OMB 
and announced in December 2003 (69 FR 49027). For a discussion of OMB's 
revised delineations of CBSAs and our implementation of the CBSA 
definitions, we refer readers to the

[[Page 51582]]

preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032).
    As with the FY 2011 final rule, and as we proposed, in this FY 2012 
final rule, we are providing that hospitals receive 100 percent of 
their wage index based upon the CBSA configurations. Specifically, for 
each hospital, we determined a wage index for FY 2012 employing wage 
index data from hospital cost reports for cost reporting periods 
beginning during FY 2008 and using the CBSA labor market definitions. 
We consider CBSAs that are Metropolitan Statistical Areas (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)).
    In OMB Bulletin No. 10-2, issued on December 1, 2009, OMB announced 
that the CBSA changes in that bulletin would be the final update prior 
to the 2010 Census of Population and Housing. CMS adopted those changes 
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50162), beginning 
October 1, 2010, and they are reflected in this FY 2012 final rule. In 
2013, OMB plans to announce new area delineations based on its 2010 
standards (75 FR 37246) and the 2010 Census data.
    The OMB bulletin is available on the OMB Web site at http://www.whitehouse.gov/OMB--go to ``Agency Information'' and click on 
``Bulletins''.

C. Occupational Mix Adjustment to the FY 2012 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 2012 Occupational Mix Adjustment 
Based on the 2007-2008 Occupational Mix Survey
    As provided for under section 1886(d)(3)(E) of the Act, we collect 
data every 3 years on the occupational mix of employees for each short-
term, acute care hospital participating in the Medicare program.
    For the FY 2010 hospital wage index, we used occupational mix data 
collected on a revised 2007-2008 Medicare Wage Index Occupational Mix 
Survey (the 2007-2008 survey) to compute the occupational mix 
adjustment for FY 2010. (We refer readers to the FY 2010 IPPS final 
rule (74 FR 43827) for a detailed discussion of the 2007-2008 survey.) 
Again, for the 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.
    As we proposed, for the FY 2012 hospital wage index, we again used 
occupational mix data collected on the 2007-2008 Medicare Wage Index 
Occupational Mix Survey to compute the occupational mix adjustment for 
FY 2012. We included data for 3,168 hospitals that also have wage data 
included in the FY 2012 wage index.
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 and 
are using the 2007-2008 occupational mix survey data in this final rule 
for the FY 2012 wage index. Therefore, a new measurement of 
occupational mix will be required for FY 2013.
    The new 2010 survey (Form CMS-10079 (2010)) provides 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. The 2010 survey was adopted in the Federal Register on January 
15, 2010 (75 FR 2548) and approved by OMB on February 26, 2010 (OMB 
control number 0938-0907). The survey is available on the CMS Web site 
at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage 
and through the fiscal intermediaries/MACs. Hospitals were required to 
submit their completed 2010 surveys to their fiscal intermediaries/MACs 
by July 1, 2011. The preliminary, unaudited 2010 survey data will be 
released in early October 2011, along with the FY 2009 Worksheet S-3 
wage data, for the FY 2013 wage index review and correction process.
3. Calculation of the Occupational Mix Adjustment for FY 2012
    For FY 2012 (as we did for FY 2011), 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: (1) 
Registered nurses; (2) licensed practical nurses; (3) nursing aides, 
orderlies, and attendants; and (4) 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

[[Page 51583]]

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.F. 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).
    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.F. 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 2012 occupational mix adjusted national average hourly wage is 
$36.2481.
    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 2012 
occupational mix adjusted Puerto Rico-specific average hourly wage is 
$15.4142.
    The table below is an illustrative example of the occupational mix 
adjustment.
BILLING CODE 4120-01-P

[[Page 51584]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.014


[[Page 51585]]


[GRAPHIC] [TIFF OMITTED] TR18AU11.015

BILLING CODE 4120-01-C

[[Page 51586]]

    Because the occupational mix adjustment is required by statute, all 
hospitals that are subject to payments under the IPPS, or any hospital 
that would be subject to the IPPS if not granted a waiver, must 
complete the occupational mix survey, unless the hospital has no 
associated cost report wage data that are included in the FY 2012 wage 
index. For the FY 2007-2008 survey, the response rate was 90.8 percent.
    In computing the FY 2012 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 its 
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 2012 occupational mix adjusted wage index. In addition, 
if a hospital submitted a survey, but that survey data could not be 
used because we determined the survey data 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 hospitals that did not submit occupational mix survey 
data, the occupational mix adjustment factor ranged from a low of 
0.9246 (CBSA 17780, College Station-Bryan, TX), to a high of 1.0761 
(CBSA 19, Rural Louisiana). 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 2012, 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 36140, Ocean City, NJ (1 hospital)
 CBSA 22140, Farmington, NM (1 hospital)
 CBSA 41900, San German-Cabo Rojo, PR (2 hospitals)
 CBSA 49500, Yauco, PR (1 hospital)
 CBSA 21940, Fajardo, PR (1 hospital)

    Since the FY 2007 IPPS final rule, we have periodically discussed 
applying a hospital-specific penalty to hospitals that fail to submit 
occupational mix survey data (71 FR 48013 through 48014; 72 FR 47314 
through 47315; 73 FR 48580; 74 FR 43832, and 75 FR 50167). 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 developed the FY 2011 wage 
index.
    In the FY 2011 IPPS/LTCH PPS proposed and final rules (75 FR 23943 
and 50167, respectively), we stated that, in order to gain a better 
understanding of why some hospitals are not submitting the occupational 
mix data, we will require hospitals that do not submit occupational mix 
data to provide an explanation for not complying. This requirement will 
be effective beginning with the new 2010 occupational mix survey (the 
2010 survey is discussed in section III.C.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.

D. Worksheet S-3 Wage Data for the FY 2012 Wage Index

    The FY 2012 wage index values are based on the data collected from 
the Medicare cost reports submitted by hospitals for cost reporting 
periods beginning in FY 2008 (the FY 2011 wage index was based on data 
from cost reporting periods beginning during FY 2007).
1. Included Categories of Costs
    The FY 2012 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.
2. Changes to the Reporting Requirements for Pension Costs for the 
Medicare Wage Index
a. Background
    The instructions for determining and reporting costs of qualified 
defined benefit pension on the cost report for Medicare cost-finding 
purposes are located in section 2142 of the Provider Reimbursement 
Manual, Part I (PRM-I). For Medicare wage index purposes, the 
instructions in section 3605.2 of the Provider Reimbursement Manual, 
Part II (PRM-II) for Worksheet S-3, Part II, Lines 13 through 20, 
require hospitals to comply with the requirements in section 2142 of 
the PRM-I.
    Specifically, section 2142.5 of the PRM-I defines the current 
period liability for pension cost (that is, the maximum allowable 
pension cost) based on the actuarial accrued liability, normal cost, 
and unfunded actuarial liability. Under section 2142.4(A) of the PRM-I, 
these liability measurements are to be computed in accordance with the 
Employee Retirement Income Security Act of 1974 (ERISA), regardless of 
whether or not the pension plan is subject to ERISA. Also, section 
2142.6(A) of the PRM-I requires the current period liability for 
pension costs to be funded in order to be allowable. In addition, 
section 2142.6(C) of the PRM-I allows for funding in excess of

[[Page 51587]]

the current period liability to be carried forward and recognized in 
future periods. We note that, on March 28, 2008, CMS published Revision 
436, a technical clarification to section 2142 of the PRM-I.
    Under ERISA, the actuarial accrued liability and normal cost are 
typically determined on an ongoing plan basis using long-term, best-
estimate assumptions. The interest assumption reflects the average 
rates of return expected over the period during which benefits were 
payable, taking into account the investment mix of plan assets. Pension 
costs for plans not subject to ERISA (such as church plans and plans 
sponsored by public sector employers) are also typically based on the 
actuarial accrued liability and normal cost using long-term, best 
estimate assumptions.
    The Pension Protection Act (PPA) of 2006 (Pub. L. 109-280) amended 
ERISA. Under the PPA amendments to ERISA, the actuarial accrued 
liability and normal cost are no longer used as a basis for determining 
ERISA minimum required or maximum tax deductible contributions. ERISA 
contribution limits are now based on a ``funding target'' and ``target 
normal cost'' measured on a settlement basis using the current market 
interest rates for investment grade corporate bonds that match the 
duration of the benefit payouts. The Internal Revenue Service (IRS) 
publishes the applicable interest rate tables on a monthly basis. 
Because pension liabilities are very sensitive to changes in the 
interest rate used to discount future benefit payouts, pension costs 
based on the PPA ``funding target'' and ``target normal cost'' values 
are expected to be less stable than those based on the pre-PPA 
traditional long-term, best-estimate assumptions, which change 
infrequently. Furthermore, plans not subject to the ERISA requirements, 
as amended by the PPA, are not likely to use the new ``funding target'' 
and ``target normal cost'' basis for determining pension costs, and 
ERISA plans are not likely to continue to report costs developed using 
the actuarial accrued liability and normal cost based on long-term, 
best estimate assumptions. Accordingly, there is no longer a standard 
actuarial basis used by all plans.
    In response to the PPA amendments to ERISA, we began a review of 
the rules for determining pension costs for Medicare cost finding and 
wage index purposes. As an interim measure, we issued a Joint Signature 
Memorandum (JSM) in November 2009 that contained 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). Although these 
instructions were released for purposes of the wage index, they also 
serve as interim guidance for Medicare cost-finding purposes.
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25874 through 
25876), we proposed to revise our policy for determining pension cost 
for Medicare purposes. As mentioned above, due to the ERISA rules, as 
amended by the PPA, there is no longer a standard actuarial cost basis 
used by all types of plans. Therefore, we proposed to no longer rely on 
actuarial computations to determine the maximum annual cost limitation 
for Medicare. Instead, the general parameters of our policy would 
maintain the current requirement that pension costs must be funded to 
be reportable, and would require all hospitals to report the actual 
pension contributions funded during the reporting period, on a cash 
basis.
    In addition, under this cash basis approach, we proposed separate 
methodologies for measuring pension costs for Medicare cost-finding 
purposes (discussed in section IV.M. of this preamble) and for purposes 
of updating the wage index (discussed below in section III.D.2.b. of 
this preamble). It is necessary to have two distinct policies in order 
to address the different goals of determining a hospital's payments and 
updating the average hourly wage to establish the geographic area wage 
index. The function of the wage index is to measure relative hospital 
labor costs across areas. This function is distinct from Medicare 
payment determinations, where the goal is to measure the actual costs 
incurred by individual hospitals. These two distinct policies would 
require separate updated instructions to section 2142 of the PRM-I for 
Medicare cost-finding purposes and section 3605.2 of the PRM-II for 
purposes of the wage index. Below is a detailed discussion of our 
proposal for reporting pension costs under the wage index, as well as 
our final policy. A full discussion of our new methodology for Medicare 
cost-finding purposes is discussed in section IV.M. of this preamble, 
along with a summary of the public comments we received, our responses, 
and statements of our final policy.
    The final policy below reflects our commitment to the general 
principles of the President's Executive Order released January 18, 
2011, entitled ``Improving Regulation and Regulatory Review.''
b. Proposed and Final Policy for Allowable Pension Cost for the 
Medicare Wage Index
    As mentioned above, the function of the Medicare wage index is to 
measure relative hospital labor costs across all areas. Therefore, 
while we believe pension costs must be funded in order to be reportable 
(we refer readers to the August 12, 2010 Federal Register (74 FR 47369) 
for an explanation of this longstanding policy), it also is important 
for pension costs to be relatively stable from year to year so that 
there is less volatility in the wage index. Thus, in the FY 2012 IPPS/
LTCH PPS proposed rule, we proposed to include, in the wage index, 
pension costs equal to a hospital's average actual cash contributions 
deposited to its defined benefit pension plan over a 3-year period. The 
use of cash contributions as a measure of the costs incurred is 
necessary to ensure uniformity among all hospitals, regardless of their 
tax status or ERISA coverage. The 3-year average is intended to reduce 
the volatility that often occurs due to timing of contributions. Most 
pension plan sponsors have flexibility to determine the pension funding 
for a particular period and their decisions may be based on cash-flow 
considerations or other factors unrelated to the normal operation of 
the plan. Furthermore, the funding of current period pension costs may 
be delayed by almost a full year after the close of the period to which 
it applies. By using a 3-year average, we hope to enhance the stability 
of the wage index.
    To ensure that the average annual pension cost reflected in the 
wage index is consistent with the reporting period applicable to all 
other costs included in the index, we proposed that the 3-year average 
be centered on the current cost reporting period for the wage index. 
For example, the 2013 wage index is based on cost reporting periods 
beginning during Federal Fiscal Year (FFY) 2009 and would therefore 
reflect the average pension contributions made in hospitals' cost 
reporting periods beginning during FFYs 2008, 2009, and 2010. Thus, 
this policy would require pension plan contribution data for the cost 
reporting periods immediately preceding and immediately following the 
current cost reporting period for the wage index.
    In the proposed rule, we indicated that we do not anticipate that 
the use of contributions made in the period immediately following the 
current cost reporting period will create an administrative burden 
because, even under the existing rule, contributions to

[[Page 51588]]

fund current period costs are often deferred until the following 
period. In addition, trust account statements and general ledger 
reports to support the contributions should be readily available.
    We proposed to apply the above methodology for reporting pension 
costs for the wage index beginning with the FY 2013 IPPS update. We 
solicited public comment on this policy proposal and indicated that we 
were especially interested in receiving comments related to the 
proposed 3-year averaging period.
    Comment: A number of commenters suggested that CMS convene a 
Medicare Technical Advisory Group (MTAG) before establishing a policy 
on pension costs.
    Response: An MTAG is not required by statute. Engaging in notice 
and comment rulemaking provides sufficient process for developing a 
policy on this issue. In addition, timeliness of an updated rule is 
needed because the actuarial terminology used in section 2142 of the 
PRM-I is no longer used under ERISA as amended by the PPA. Also, as 
many commenters noted, there have been numerous appeals related to 
pension cost adjustments in recent years, and we believe our policy 
will alleviate the confusion demonstrated by such appeals. Proposing 
the issue through the notice and comment rulemaking process will allow 
CMS to address the issue by finalizing the policy effective October 1, 
2011.
    Comment: Many commenters supporting an MTAG also stated that an 
MTAG might recommend adoption of Generally Accepted Accounting 
Principles (GAAP) (with no funding limit) for the wage index. These 
commenters generally called for CMS to propose a methodology that 
accurately reflects the total resources hospitals expend over the life 
of their defined benefit plans and recognizes those costs fully in the 
wage index. They implied that GAAP could be the most appropriate method 
to satisfy this goal. One commenter noted that a proposal to base 
pension expense for both the wage index and cost-finding purposes on a 
3-year average of actual funding is inconsistent with the other 
principles of the cost report relying on GAAP and accrual versus cash-
basis accounting.
    Response: There is no consistently applied, standardized pension 
cost accounting methodology that produces a stable measure of the 
actual cost incurred over the life of a pension plan. Moreover, not all 
providers are subject to the same GAAP standards, and the rules 
applicable to pension costs under the various standards are not 
consistent. Uniformity of costs for the wage index would require all 
providers to compute pension costs under a particular GAAP standard. 
This would create an administrative burden for some and would limit 
transparency.
    Even under GAAP as promulgated by the Financial Accounting 
Standards Board (FASB), significant inconsistencies may exist because 
the rules allow gains and losses to either be recognized immediately 
(as a current period cost), or spread over future periods. Until 
recently, immediate recognition of gains and losses was seldom used 
because it can cause pension costs to be extremely volatile. For 
example, those who have adopted immediate recognition of gains and 
losses are likely to see their GAAP pension costs shift to pension 
income (negative costs) when interest rates begin to rise.
    Finally, the GAAP standards are currently in a state of flux. The 
Government Accounting Standards Board (GASB) and the International 
Accounting Standards Board (IASB) are both in the process of reviewing 
their rules for pension accounting. The FASB and IASB are discussing 
how U.S. accounting can be reconciled with international accounting. We 
anticipate changes in GAAP pension rules will reflect the trend towards 
mark-to-market financial reporting (immediate recognition of gains and 
losses) and thereby further increase the potential volatility of those 
cost measurements.
    Comment: Most commenters expressed concern that hospitals with 
prefunded pension plans would be disadvantaged, while those with 
underfunded plans would be rewarded. A number of these commenters 
called for a ``true-up'' of costs to ensure absolute equity between 
past and future periods, similar to the carry forward provision in the 
current PRM.
    Response: We continue to believe that absolute equity between past 
and future periods is not necessary since the wage index is a relative 
rather than an absolute measure of costs. However, in response to 
public comments, we agree that it would be appropriate to allow certain 
prefunded amounts to be reported as pension costs in future periods. 
Although most plan sponsors follow a relatively stable pattern of 
funding over time, accelerated funding may have been required due to 
stock market losses and declining interest rates in recent years. We 
are particularly sensitive to the fact that many hospitals were 
required to make contributions in excess of the amount reportable for 
Medicare purposes to satisfy ERISA requirements based on the ``current 
liability.'' We are also aware that some hospitals accelerated their 
pension plan funding in order to avoid benefit restrictions or other 
penalties under the PPA amendments to ERISA. As a result, we are 
finalizing a transition policy based on funding that may have exceeded 
the amounts reportable for the FY 2007 through FY 2012 wage indexes 
(cost reports with begin dates during the period of (on or after) 
October 1, 2002 through (on or before) September 30, 2008). We believe 
this period is representative of the period when contributions may have 
exceeded the amounts reportable for Medicare purposes.
    Our transition policy will allow providers to establish a 
prefunding balance equal to (A) minus (B), where (A) is the sum of cash 
contributions made during a period of consecutive provider cost 
reporting periods commencing no earlier than October 1, 2002 (the cost 
reporting period applicable for the FY 2007 wage index), and ending 
with the cost reporting period applicable for the FY 2012 wage index, 
and (B) is the sum of pension costs actually reflected in the wage 
index for the same cost reporting periods. It should be noted that the 
prefunding balance is not the same as the carry forward amount 
described in section 2142.6C of the PRM-I since the carry forward 
amount may include different periods and may include contributions made 
after the end of the cost reporting period ending immediately prior to 
the effective date of this new policy.
    The transition policy permits a hospital to include 1/10th of the 
prefunding balance in the wage index pension cost each year commencing 
with the FY 2013 wage index and ending with the FY 2022 wage index, 
that is, in 10 equal prefunding installments. Any prefunding 
installment that is not included in the wage index pension cost for the 
current cost reporting period cannot be reassigned and added to the 
wage index pension cost of any subsequent period. To take advantage of 
all 10 prefunding installments, hospitals must determine and begin 
claiming the prefunding installment in the pension cost for the FY 2013 
wage index. Distributing excess funding over a period of 10 years will 
ensure that when hospitals have substantial prefunding balances, the 
amount assigned to any one year will not unduly influence the wage 
index in that year. An example of how the pension cost (including the 
prefunding balance) is to be calculated is included in our response to 
another comment.

[[Page 51589]]

    For each cost reporting period that a prefunding installment is 
included in the reported pension cost, the provider must have 
documentation to support the calculation of the prefunding balance, 
including the contributions made to the pension plan and pension costs 
reported in the wage index for each applicable cost reporting period 
reflected in the calculation. In order to notify the public of this 
transition policy, we will issue a memorandum to Medicare contractors 
after the publication of this final policy, requiring them to notify 
hospitals in writing of these changes. In addition, we plan to post 
this letter on our Web site and will announce these changes through our 
regular open door forums.
    Comment: A number of commenters expressed support for our proposed 
rule. One viewed it as a compromise between methods required for 
private, public, and non-profit entities and thought its simplicity 
will help to maintain consistency. Another felt it would fairly reflect 
the actual costs, mitigate year-to-year volatility, and encourage 
adequate funding. One commenter agreed with our decision to eliminate 
actuarial based measurements because they were too complex and lead to 
inconsistency. A number of commenters noted that the Medicare wage 
index methodology ``should be transparent so that it can be easily 
reviewed and replicated by providers and other constituents, which 
allows providers and others to have confidence in the resulting 
indices.''
    Response: We appreciate the commenters' support of our proposal. 
Our final policy is intended to be one of simplicity that will help 
maintain consistency. We believe that this final policy will satisfy 
the objectives of a transparent methodology for including pension costs 
in the wage index.
    Comment: One commenter expressed concern that our proposal would 
hurt financially strapped hospitals that cannot afford to fund their 
plans. Another commenter believed that the proposal in the proposed 
rule would understate wage related costs in periods when a provider was 
not able to fund, and overstate wage costs in other periods. One 
commenter was concerned that the proposal in the proposed rule would 
``incent a hospital to `over fund' their plan in a particular year to 
increase its hourly rate.'' One commenter stated that our policy will 
penalize good management of investments while rewarding bad management.
    Response: Our policy is that costs must be funded to be reportable 
for Medicare purposes. Some providers have no legal obligation to fund 
their pension liabilities. There may be organizations that cannot 
afford to maintain their plan and will ultimately terminate the plan 
with unfunded liabilities. Moreover, some liabilities reflected in 
current period costs may never materialize due to future gains or 
benefit cutbacks.
    We understand that the level of funding will vary from one period 
to the next due to financial constraints or other factors, but believe 
that the 3-year average will help to limit volatility caused by short-
term fluctuations.
    We do not believe that Medicare wage index policy will have a 
material effect on the ultimate level of pension plan funding. Because 
pension contributions made to a qualified trust are generally 
irrevocable and most providers have limited financial resources, 
significant overfunding is not likely to occur solely because of 
Medicare wage index policy.
    Over the long term, pension costs may increase or decrease due to 
changes in plan coverage, benefit levels, or gains and losses from 
investment performance or other sources. However, these changes would 
ultimately affect the level of future pension costs regardless of how 
those costs have been reported in the past. Thus, we do not expect that 
providers will choose investments with poor returns or elevate their 
contribution levels for the sole purpose of increasing their wage 
index.
    Comment: Several commenters requested clarification on technical 
aspects of the proposed rule on timing or procedural issues. There was 
confusion regarding the treatment of payments made after the end of a 
fiscal year but within the 1-year period (or 3 years with extension) 
permitted under the liquidation of liabilities provision in section 
2305 of PRM-I.
    Response: The pension cost to be reflected in the wage index will 
be reported on Worksheet S-3, Part II and will equal the average 
contributions paid, on a cash basis, over the applicable 3-year period 
(plus any prefunding installment discussed above). The applicable 
period for the 3-year average includes the current cost reporting 
period applicable to the wage index (4 year lag), and the periods 
immediately preceding and immediately following the applicable wage 
index reporting period. The 3-year average is reportable even if it 
exceeds the current period contribution. There is no requirement to 
demonstrate that the 3-year average, prefunding installment or the 
amount funded in any particular period are necessary to satisfy a 
liability under ERISA or any other actuarial basis. Since actuarial 
measurements are not used to compute pension costs under the final 
policy, there is no longer a need for a crosswalk between the different 
terminology used by IRS and GAAP.
    For a new plan, the averaging period will be limited to the number 
of years the plan was in effect. If there is a merger (plan or 
corporate), contributions should include a provider's pension plan 
payments made either to a predecessor plan or the current plan during 
the applicable 3-year period. Increased costs attributable to benefit 
improvements will be recognized when funded. This is consistent with 
the amortization of costs associated with plan changes under GAAP and 
ERISA.
    The actual funded amounts for each cost reporting period to be 
included in the average will not necessarily appear on the cost report 
for the period in which they were made. We are considering 
modifications to the cost report to allow for reporting of current 
period contributions. Instead, provider will be required to obtain 
contribution data from the pension trustee, insurance carrier, Schedule 
B or SB of IRS Form 5500, and, if applicable, from accounting records 
showing the allocation of total plan contributions to each 
participating provider. These records should be maintained as needed 
for subsequent periods.
    The following is an example of the calculation of pension cost to 
be included in the FY 2013 wage index calculation for a hospital with a 
June 30 fiscal year end and a June 30 cost reporting period:

----------------------------------------------------------------------------------------------------------------
                                              Provider fiscal year                               Reported wage
           Wage index year           --------------------------------------   Total pension      index pension
                                          Beginning            Ending         contributions           cost
----------------------------------------------------------------------------------------------------------------
2007................................           7/1/2003          6/30/2004         $3,200,000         $2,500,000
2008................................           7/1/2004          6/30/2005      not available          2,800,000
2009................................           7/1/2005          6/30/2006          1,300,000            800,000
2010................................           7/1/2006          6/30/2007          2,700,000          3,000,000

[[Page 51590]]

 
2011................................           7/1/2007          6/30/2008          4,100,000          3,600,000
2012................................           7/1/2008          6/30/2009          3,000,000            200,000
2013................................           7/1/2009          6/30/2010          1,000,000  .................
                                               7/1/2010          6/30/2011          2,000,000  .................
----------------------------------------------------------------------------------------------------------------

    Since this hospital can only produce supporting documentation of 
contributions for the continuous fiscal years beginning 2005 through 
2008, the determination of the prefunding balance must exclude 
contributions from fiscal years beginning (FYB) in 2003 and 2004. The 
sum of contributions made during FYB in 2005 through 2008 is 
$11,100,000. The sum of pension costs reflected in the wage index for 
FYB in 2005 through 2008 is $7,600,000. The prefunding balance is 
$3,500,000 ($11,100,000--$7,600,000) and the prefunding installment is 
$350,000 ($3,500,000/10). The $350,000 prefunding installment can be 
added to the pension costs reported each year for the FY 2013 through 
FY 2022 wage index.
    In this illustration, the hospital determines the 3-year average 
pension contribution for the FY 2013 wage index is $2,000,000 based on 
cash contributions made during FYB in 2008, 2009, and 2010. It should 
report pension costs of $2,350,000 (the sum of the current 3-year 
average contribution of $2,000,000 [($1,000,000 + $3,000,000 + 
$2,000,000) 3] plus the prefunding installment of $350,000) on 
Worksheet S-3, Part II for the FY 2013 wage index. For audit purposes, 
the hospital must retain and make available its supporting 
documentation for the 3-year average, the prefunding balance and 
prefunding installment.
    We note that contributions are to be determined on a cash basis 
rather than an accrual basis. Since there is no recognition of funding 
which occurs after June 30, 2011, all of the data needed to determine 
the pension cost for the FY 2013 wage index will be readily available 
when the reporting process begins in October 2011. Under this final 
policy, neither section 2142 nor 2305 will be applicable for wage index 
purposes.
    Comment: One commenter believed that we may be ``attempting 
retroactive rulemaking.'' Another commenter stated that ``if it goes 
forward with the proposal or a revised version of the proposal, CMS 
should do so in a prospective manner * * * CMS should apply it only as 
of the FY 2016 wage index (which would, if using a 3-year rolling 
average, include pension costs from cost reporting periods beginning 
during Federal fiscal years 2011, 2012 and 2013).''
    Response: We disagree with the commenter that our policy represents 
retroactive rulemaking. We proposed this change through notice and 
comment rulemaking and have given the public sufficient time to provide 
input through public comments before making any policy change 
concerning the reporting of pension costs under the wage index. The use 
of data from prior periods to implement prospective policy changes does 
not constitute retroactive rulemaking. Therefore, we believe we have 
applied this policy change prospectively.
    Comment: One commenter recommended that there should be specific 
statements in the cost report that pension costs for cost-finding will 
be treated differently from pension costs for the wage index. The 
commenter also suggested separate PRM cost reporting instructions for 
the Medicare cost report versus the Medicare wage index, given that 
there will be separate methodologies for determining pension costs.
    Response: CMS is implementing different pension cost policies for 
wage index and cost finding purposes. Accordingly, the PRM will be 
revised to include separate and distinct pension cost provisions for 
wage index and cost-finding purposes.
    We would like to thank the provider community for their public 
comments on the proposed rule for reporting pension costs for Medicare 
wage index purposes. After considering their concerns and suggestions, 
we are finalizing our policy with modifications for reporting pension 
costs for Medicare wage index purposes. The final policy is effective 
for the FY 2013 wage index for which the wage index process begins in 
October 2011.
    Under the final policy, the pension cost to be included in the wage 
index equals a hospital's average cash contributions deposited to its 
defined benefit pension plan over a 3-year period, or number of years 
that the hospital has sponsored a defined benefit plan if less than 3 
years. Any reversion or other withdrawal of assets from the pension 
fund or trust is treated as a negative contribution for purposes of 
measuring the 3-year average. The 3-year average is centered on the 
base cost reporting period for the wage index. For example, the FY 2013 
wage index will be based on Medicare cost reporting periods beginning 
during FFY 2009 and will reflect the average pension contributions made 
in hospitals' cost reporting periods beginning during FFYs 2008, 2009, 
and 2010.
    In response to the public comments as discussed above, we are 
finalizing a transition policy that permits a hospital to determine a 
``prefunding balance'' based on pension contributions made but not 
reflected in the wage index during certain prior periods. Our 
transition policy will allow providers to establish a prefunding 
balance equal to (A) minus (B), where (A) is the sum of cash 
contributions made during a period of consecutive provider cost 
reporting periods commencing no earlier than October 1, 2002 (the cost 
reporting period applicable for the FY 2007 wage index), and ending 
with the cost reporting period applicable for the FY 2012 wage index, 
and (B) is the sum of pension costs actually reflected in the wage 
index for the same cost reporting periods.
    The transition policy permits a hospital to include 1/10th of the 
prefunding balance in the wage index pension cost each year commencing 
with the FY 2013 wage index and ending with the FY 2022 wage index, 
that is, in 10 equal prefunding installments. Any prefunding 
installment that is not included in the wage index pension cost for the 
current year cannot be reassigned and added to the wage index pension 
cost of any subsequent year.
3. Excluded Categories of Costs
    Consistent with the wage index methodology for FY 2011, the wage 
index for FY 2012 also excludes the direct and overhead salaries and 
hours for services not subject to IPPS payment, such as SNF services, 
home health services, costs related to GME (teaching physicians and 
residents) and certified registered nurse anesthetists (CRNAs), and 
other subprovider components that are not paid under the IPPS. The FY 
2012 wage index also excludes the

[[Page 51591]]

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).
4. 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.

E. Verification of Worksheet S-3 Wage Data

    The wage data for the FY 2012 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, 2007, and before 
October 1, 2008. For wage index purposes, we refer to cost reports 
during this period as the ``FY 2008 cost report,'' the ``FY 2008 wage 
data,'' or the ``FY 2008 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 2008 data submitted to us as of June 27, 
2011. As in past years, we performed an intensive review of the wage 
data, mostly through the use of edits designed to identify aberrant 
data.
    We asked our fiscal intermediaries/MACs to revise or verify data 
elements that result in specific edit failures. For the proposed FY 
2012 wage index, we identified and excluded 23 providers with data that 
was too aberrant to include in the proposed wage index, although we 
stated that if data elements for some of these providers are corrected, 
we intended to include some of these providers in the FY 2012 final 
wage index. We have received corrected data for seven providers, and 
therefore, we are including the data for these seven providers in the 
FY 2012 final wage index. However, we have also determined that the 
data for three additional providers are too aberrant to include in the 
FY 2012 final wage index. Thus, in total, we are excluding the data of 
27 (23 + 7--3) providers from the FY 2012 final wage index.
    In constructing the FY 2012 wage index, we included the wage data 
for facilities that were IPPS hospitals in FY 2008, 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). In the proposed rule, we removed 
19 hospitals that converted to CAH status between February 16, 2010, 
the cut-off date for CAH exclusion from the FY 2011 wage index, and 
February 15, 2011, the cut-off date for CAH exclusion from the FY 2012 
wage index. However, since the issuance of the proposed rule, we have 
learned of four additional hospitals that have converted to CAH status 
between February 16, 2010, and February 15, 2011. We have excluded the 
wage data of these four hospitals as well. After removing hospitals 
with aberrant data and hospitals that converted to CAH status, the FY 
2012 final wage index is calculated based on 3,489 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 included separate 
wage data for campuses of three multicampus hospitals.
    For FY 2012, as we discussed in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50168), and as we proposed, we are no longer allowing 
hospitals to use 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 (Form CMS-2552-96, Worksheet S-2, lines 61 and 62). The data 
from cost reporting periods that begin in FY 2008 are now available for 
calculating the wage index for FY 2012. Therefore, a multicampus 
hospital will not have the option 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. Table 2 for the FY 2012 wage index, which 
is listed in section VI. of the Addendum to this proposed rule and 
available via the Internet, includes separate wage data for campuses of 
three multicampus hospitals.

F. Method for Computing the FY 2012 Unadjusted Wage Index

1. Steps for Computation
    The method used to compute the FY 2012 wage index without an 
occupational mix adjustment follows:
    Step 1--As noted above, we based the proposed FY 2012 wage index on 
wage data reported on the FY 2008 Medicare cost reports. We gathered 
data from each of the non-Federal, short-term, acute care hospitals for 
which data were reported on the Worksheet S-3, Parts II and III of the 
Medicare cost report for the hospital's cost reporting period beginning 
on or after October 1, 2007, and before October 1, 2008. In addition, 
we included data from some hospitals that had cost reporting periods 
beginning before October 2007 and reported a cost reporting period 
covering all of FY 2008. 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 2008 data. We note that, if a hospital 
had more than one cost reporting period beginning during FY 2008 (for 
example, a hospital had two short cost reporting periods beginning on 
or after October 1, 2007, and before October 1, 2008), 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),

[[Page 51592]]

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, 2005, through April 15, 
2007, 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 2012. 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
------------------------------------------------------------------------
                                                              Adjustment
               After                         Before             factor
------------------------------------------------------------------------
10/14/2007.........................  11/15/2007............      1.03990
11/14/2007.........................  12/15/2007............      1.03699
12/14/2007.........................  01/15/2008............      1.03402
01/14/2008.........................  02/15/2008............      1.03113
02/14/2008.........................  03/15/2008............      1.02831
03/14/2008.........................  04/15/2008............      1.02555
04/14/2008.........................  05/15/2008............      1.02286
05/14/2008.........................  06/15/2008............      1.02024
06/14/2008.........................  07/15/2008............      1.01766
07/14/2008.........................  08/15/2008............      1.01511
08/14/2008.........................  09/15/2008............      1.01258
09/14/2008.........................  10/15/2008............      1.01015
10/14/2008.........................  11/15/2008............      1.00787
11/14/2008.........................  12/15/2008............      1.00575
12/14/2008.........................  01/15/2009............      1.00375
01/14/2009.........................  02/15/2009............      1.00183
02/14/2009.........................  03/15/2009............      1.00000
03/14/2009.........................  04/15/2009............      0.99820
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2008, and ending December 31, 2008, is June 30, 2008. An 
adjustment factor of 1.01766 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 2008 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.

[[Page 51593]]

    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 
national average hourly wage (unadjusted for occupational mix) is 
$36.2784.
    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 average hourly wage 
(unadjusted for occupational mix) of $15.3899 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 which is listed in section VI. of the Addendum 
to this final rule and available via the Internet.
    In the FY 2012 IPPS/LTCH PPS proposed rule, we made no proposals 
for changing our policies pertaining to the rural floor provision. 
However, we received several public comments, particularly regarding 
the FY 2012 rural floor wage index for Massachusetts, which was 
discussed in section VI.B.7. of Appendix A (76 FR 26059 and 26060) as 
part of the regulatory impact analysis for the proposed rule.
    Comment: Some commenters stated that CMS had correctly calculated 
the Massachusetts rural floor wage index in accordance with existing 
law and regulations. One commenter agreed with the basic policy and 
premise of the rural floor limit but opined that all hospitals in 
Massachusetts receiving a significant increase in Medicare revenues as 
a result of a small hospital converting to an acute care provider is 
inconsistent with the intent and spirit of the law. The commenter 
suggested that CMS revisit its regulatory and policy options as it 
relates to section 4410 of the BBA.
    The MedPAC stated that the Massachusetts rural floor situation is 
suggestive of why a new wage index system is needed, adding that the 
current system is not equitable because extra payments made to 
hospitals receiving such exceptions are budget neutral; therefore, all 
hospitals must absorb the cost. A national hospital association 
requested that CMS provide a table indicating the state-by-state impact 
of the rural floor provision for providers in each state, including a 
schedule of what the area wage indexes would be if the rural floor was 
not applied. The commenter also suggested that CMS publish this 
information annually.
    Response: Beginning with this FY 2012 IPPS-LTCH final rule, we are 
including in the impact section of Appendix A of both the proposed and 
final rules a table indicating State level impacts of the rural floor 
provision. For FY 2012, this table includes the impacts of both the 
rural and imputed floors, as discussed under section III.F.2. of this 
preamble. In addition, we are revising Table 4D of the Addendum, which 
specifies the wage index for States or urban areas receiving the 
frontier, rural, or imputed floor, to include a column indicating the 
pre-floor area wage index. We will consider the commenters' other 
suggestions as part of our development of the Report to Congress on 
reforming the wage index, required by section 3137(b) of the Affordable 
Care Act and due to the Congress by December 31, 2011.
2. Imputed Floor Policy
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25878 and 25879), 
we discussed the expiration of the imputed floor policy. (We refer 
readers to FY 2005 IPPS final rule (69 FR 49109 through 49111) for an 
explanation of CMS' adoption of the ``imputed'' floor as a temporary 3-
year regulatory measure to address concerns that hospitals in all-urban 
States were disadvantaged by the absence of rural hospitals to set a 
wage index floor in those States; the FY 2008 IPPS final rule with 
comment period (72 FR 47321) for a discussion of the extension of the 
imputed floor through FY 2008; and the FY 2009 IPPS final rule (73 FR 
48570 through 48574 and 48584) for a discussion of the extension of the 
imputed floor for an additional 3 years, through FY 2011, due to 
applying statewide budget neutrality for the rural and imputed floors.) 
As noted in the FY 2012 IPPS/LTCH PPS proposed rule and the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50160), section 3141 of the Affordable 
Care Act replaced the statewide budget neutrality policy and required 
that budget neutrality for the rural and imputed floor be applied 
``through a uniform, national adjustment to the area wage index'' 
instead of within each State beginning in FY 2011. However, the 
Affordable Care Act did not include a provision to extend the imputed 
floor or to make the imputed floor permanent.
    As discussed in the FY 2008 IPPS proposed rule and final rule with 
comment period (72 FR 24786 and 72 FR 47322, respectively), the 
application of the national budget neutrality requirement for the rural 
and imputed floors requires a transfer of payments from hospitals in 
States with rural hospitals but where the rural floor is not applied to 
hospitals in States where the rural or imputed floor is applied. In the 
final FY 2012 wage index, the rural floor will apply to 297 hospitals 
in 29 States. Continuing the imputed floor policy into FY 2012 results 
in an imputed floor applied for 39 hospitals in New Jersey. In the FY 
2012 IPPS/LTCH PPS proposed rule, we did not propose to extend the 
imputed floor but sought public comments regarding the expiration of 
the imputed floor.
    Comment: Although a few commenters, including a national hospital 
association, supported CMS making no proposal to extend the imputed 
floor policy and agreed that this type of floor benefits only one State 
at the expense of all others, applies even though there are no rural 
areas in the State, and should apply only when required by statute, 
several commenters requested that CMS extend the current imputed floor 
policy. These commenters, including a national hospital association and 
a few State hospital associations, noted that, absent any new wage 
index policies that address the original need for the imputed floor, an 
imputed floor should be continued. Some of the commenters suggested 
that CMS make the imputed floor policy permanent. They asserted that 
hospitals in all-urban States suffer financial and competitive 
disadvantages, and they believed that CMS' permanent adoption of an 
imputed floor policy would remedy these disadvantages. The commenters 
stated that other States could potentially benefit from the imputed 
floor in the future should their circumstances

[[Page 51594]]

change, and the fact that only one State currently benefits from the 
policy should not serve as CMS' rationale for eliminating it. One 
commenter also suggested that if the imputed floor is to expire, it 
should be phased out over several years to avoid dramatic cost cutting 
and elimination of vital services.
    Response: In response to commenters' concerns regarding the 
proposed September 30, 2011 expiration of the imputed floor, we have 
decided to extend the policy for 2 additional years, for FYs 2012 and 
2013 (that is, through September 30, 2013), after which time we will 
reevaluate the policy. We believe that continuing the current imputed 
floor policy through FY 2013 is a reasonable accommodation for the 
hospitals that have benefited from the imputed floor. Also, a 2-year 
extension period coincides with the requirement under section 3137(c) 
of Public Law 111-148 that CMS must apply the reclassification average 
hourly wage comparison standards that were in place during FY 2008 
``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 reforming the wage index under 3137(b) of Public 
Law 111-148.'' (We refer readers to a complete discussion of this 
requirement in the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 
FR 30919).) The report to Congress is due by December 31, 2011. 
Therefore, because the first fiscal year beginning after December 31, 
2012 (a year after the report to Congress is due) starts on October 1, 
2013, CMS cannot make any changes to the reclassification average 
hourly wage comparison standards before FY 2014. Given our current 
study of the entire wage index system, including geographic 
reclassification and the rural and imputed floor policies, we believe 
it is reasonable to continue the current imputed floor policy through 
the same evaluation period specified under section 3137(c) of Public 
Law 111-148.
    Therefore, in this FY 2012 final rule, we are providing an 
extension of the current imputed floor policy, including a national 
budget neutrality adjustment, through FY 2013 (that is, through 
September 30, 2013). Accordingly, we also have revised the Medicare 
regulations in Sec.  412.64(h)(4) to reflect this extension. We note 
that, although the extension of the imputed floor policy in this final 
rule is partially based on the due date of the report to Congress under 
section 3137(b) of Public Law 111-148 and the time period for which CMS 
is prohibited from making any changes to the FY 2008 reclassification 
average hourly wage comparison standards, under 3137(c) of Public Law 
111-148, this extension of the imputed floor policy is effective 
through the end of FY 2013, regardless of any changes that may be 
subsequently made pursuant to these statutory provisions.
    Thus, the final FY 2012 wage index and impact tables associated 
with this final rule and published on CMS' Web site include the 
application of the imputed floor policy and a national budget 
neutrality adjustment for the imputed floor. As mentioned above, 39 
providers in New Jersey will receive an increase in their FY 2012 wage 
index due to the imputed floor policy.
3. FY 2012 Puerto Rico Wage Index
    We note that, for the FY 2012 wage index, there is one new hospital 
in rural Puerto Rico when previously there were none. However, this 
hospital has no cost reporting period beginning during FY 2008 and, 
therefore, has no wage data for inclusion in the FY 2012 wage index 
calculation for rural Puerto Rico. We discussed in the FY 2005 IPPS 
final rule that the imputed floor policy in Sec.  412.64(h)(4) of the 
regulations does not apply to Puerto Rico hospitals (69 FR 49111). (We 
note that in this discussion in the FY 2012 IPPS/LTCH PPS proposed 
rule, we incorrectly stated that the imputed floor policy would apply 
to Puerto Rico. We have revised the discussion in the preamble of this 
final rule to accurately reflect our policies.) However, we adopted the 
policy in the FY 2008 IPPS final rule with comment period (72 FR 47323) 
that if there are no hospitals' cost report wage data available to 
calculate a State's rural floor, and the imputed floor policy has 
expired (or, in the case of Puerto Rico, the imputed floor is not 
applicable), ``we will use the unweighted average of the wage indices 
from all CBSAs (urban areas) that are contiguous to the rural counties 
of the State to compute the State's rural floor. (We define contiguous 
as sharing a border.)'' Except for Fajardo, Puerto Rico (CBSA 21940), 
all other Puerto Rico urban areas are contiguous to a rural area. 
Therefore, based on our existing policy, the FY 2012 rural Puerto Rico 
wage index is calculated based on the average of the FY 2012 wage 
indices for the following urban areas: Aguadilla-Isabela-San 
Sebasti[aacute]n, PR (CBSA 10380); Guayama, PR (CBSA 25020); 
Mayag[uuml]ez, PR (CBSA 32420); Ponce, PR (CBSA 38660), San 
Germ[aacute]n-Cabo Rojo, PR (CBSA 41900), San Juan-Caguas-Guaynabo, PR 
(CBSA 41980), and Yauco, PR (CBSA 49500).

G. Analysis and Implementation of the Occupational Mix Adjustment and 
the FY 2012 Occupational Mix Adjusted Wage Index

    As discussed in section III.C. of this preamble, for FY 2012, we 
apply the occupational mix adjustment to 100 percent of the FY 2012 
wage index. We calculated the occupational mix adjustment using data 
from the 2007-2008 occupational mix survey data, using the methodology 
described in section III.C.3. of this preamble.
    Using the occupational mix survey data and applying the 
occupational mix adjustment to 100 percent of the FY 2012 wage index 
results in a national average hourly wage of $36.2481 and a Puerto-Rico 
specific average hourly wage of $15.4142. After excluding data of 
hospitals that either submitted aberrant data that failed critical 
edits, or that do not have FY 2008 Worksheet S-3 cost report data for 
use in calculating the FY 2012 wage index, we calculated the FY 2012 
wage index using the occupational mix survey data from 3,168 hospitals. 
Using the Worksheet S-3 cost report data of 3,489 hospitals and 
occupational mix survey data from 3,168 hospitals represents a 90.8 
percent survey response rate. The FY 2012 national average hourly wages 
for each occupational mix nursing subcategory as calculated in Step 2 
of the occupational mix calculation are as follows:

------------------------------------------------------------------------
                                                          Average hourly
          Occupational mix nursing subcategory                 wage
------------------------------------------------------------------------
National RN............................................    $36.075785685
National LPN and Surgical Technician...................     20.860811964
National Nurse Aide, Orderly, and Attendant............     14.619464256
National Medical Assistant.............................     16.443954736
National Nurse Category................................     30.463606009
------------------------------------------------------------------------

    The national average hourly wage for the entire nurse category as 
computed in Step 5 of the occupational mix calculation is 
$30.463606009. 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

[[Page 51595]]

employees in the nurse category is 44.31 percent, and the national 
percentage of hospital employees in the all other occupations category 
is 55.69 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 FY 2012 occupational mix adjusted wage indices for 
each CBSA to the unadjusted wage indices for each CBSA. As a result of 
applying the occupational mix adjustment to the wage data, the wage 
index values for 209 (53.5 percent) urban areas and 32 (66.7 percent) 
rural areas would increase. One hundred nine (27.9 percent) urban areas 
would increase by 1 percent or more, and 5 (1.3 percent) urban areas 
would increase by 5 percent or more. Seventeen (35.4 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 182 
(46.5 percent) urban areas and 16 (33.3 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 (14.6 percent) rural areas would decrease by 1 percent or more, 
and no rural areas would decrease by 5 percent or more. The largest 
positive impacts are 7.83 percent for an urban area and 2.91 percent 
for a rural area. The largest negative impacts are 4.45 percent for an 
urban area and 2.78 percent for a rural area. No urban or rural areas 
are unaffected. These results indicate that a larger percentage of 
rural areas (66.7 percent) would benefit from the occupational mix 
adjustment than do urban areas (53.5 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 (33.3 percent) of rural CBSAs would still 
experience a decrease in their wage indices as a result of the 
occupational mix adjustment.
    The wage index values for FY 2012 (except those for hospitals 
receiving wage index adjustments under section 1886(d)(13) of the Act) 
included in Tables 4A, 4B, 4C, and 4F, which are listed in section VI. 
of the Addendum to this final rule and available via the Internet, 
include the occupational mix adjustment.
    Tables 3A and 3B, which are listed in section VI. of the Addendum 
to this final rule and available via the Internet, list the 3-year 
average hourly wage for each labor market area before the redesignation 
or reclassification of hospitals based on FYs 2010, 2011, and 2012 cost 
reporting periods. Table 3A lists these data for urban areas, and Table 
3B lists these data for rural areas. In addition, Table 2, which is 
listed in section VI. of the Addendum to this final rule and available 
via the Internet, includes the adjusted average hourly wage for each 
hospital from the FY 2006 and FY 2007 cost reporting periods, as well 
as the FY 2008 period used to calculate the FY 2012 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 average hourly wages in Tables 2, 3A, and 3B, which 
are listed in section VI. of the Addendum to this final rule and 
available via the Internet, include the occupational mix adjustment. 
The wage index values in Tables 4A, 4B, 4C, and 4D also include the 
national rural and imputed floor budget neutrality adjustment.

H. 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. (We refer readers to a discussion of the proximity 
requirements in the FY 2002 IPPS final rule (66 FR 39874 and 39875).)
    Section 1886(d)(10)(D)(v) of the Act provides that, beginning with 
FY 2001, a MGCRB decision on a hospital reclassification for purposes 
of the wage index is effective for 3 fiscal years, unless the hospital 
elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of 
the Act provides that the MGCRB must use average hourly wage data from 
the 3 most recently published hospital wage surveys in evaluating a 
hospital's reclassification application for FY 2003 and any succeeding 
fiscal year.
    Section 304(b) of Public Law 106-554 provides that the Secretary 
must establish a mechanism under which a statewide entity may apply to 
have all of the geographic areas in the State treated as a single 
geographic area for purposes of computing and applying a single wage 
index, for reclassifications beginning in FY 2003. The implementing 
regulations for this provision are located at 42 CFR 412.235.
    Section 1886(d)(8)(B) of the Act requires the Secretary to treat a 
hospital located in a rural county adjacent to one or more urban areas 
as being located in the labor market area to which the greatest number 
of workers in the county commute, if the rural county would otherwise 
be considered part of an urban area under the standards for designating 
MSAs and if the commuting rates used in determining outlying counties 
were determined on the basis of the aggregate number of resident 
workers who commute to (and, if applicable under the standards, from) 
the central county or counties of all contiguous MSAs. In light of the 
CBSA definitions and the Census 2000 data that we implemented for FY 
2005 (69 FR 49027), we undertook to identify those counties meeting 
these criteria. Eligible counties are discussed and identified under 
section III.H.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

[[Page 51596]]

wage data for the redesignated hospitals applies to the redesignated 
hospitals.
     If including the wage data for the redesignated hospitals 
reduces the wage index value for the area to which the hospitals are 
redesignated by more than 1 percentage point, the area wage index 
determined inclusive of the wage data for the redesignated hospitals 
(the combined wage index value) applies to the redesignated hospitals.
     If including the wage data for the redesignated hospitals 
increases the wage index value for the urban area to which the 
hospitals are redesignated, both the area and the redesignated 
hospitals receive the combined wage index value. Otherwise, the 
hospitals located in the urban area receive a wage index excluding the 
wage data of hospitals redesignated into the area.
     Rural areas whose wage index values would be reduced by 
excluding the wage data for hospitals that have been redesignated to 
another area continue to have their wage index values calculated as if 
no redesignation had occurred (otherwise, redesignated rural hospitals 
are excluded from the calculation of the rural wage index). The wage 
index value for a redesignated rural hospital cannot be reduced below 
the wage index value for the rural areas of the State in which the 
hospital is located.
    CMS also has adopted the following policies:
     The wage data for a reclassified urban hospital is 
included in both the wage index calculation of the urban area to which 
the hospital is reclassified (subject to the rules described above) and 
the wage index calculation of the urban area where the hospital is 
physically located.
     In cases where hospitals have reclassified to rural areas, 
such as urban hospitals reclassifying to rural areas under 42 CFR 
412.103, the hospital's wage data are: (a) included in the rural wage 
index calculation, unless doing so would reduce the rural wage index; 
and (b) included in the urban area where the hospital is physically 
located. The effect of this policy, in combination with the statutory 
requirement at section 1886(d)(8)(C)(ii) of the Act, is that rural 
areas may receive a wage index based upon the highest of: (1) Wage data 
from hospitals geographically located in the rural area; (2) wage data 
from hospitals geographically located in the rural area, but excluding 
all data associated with hospitals reclassifying out of the rural area 
under section 1886(d)(8)(B) or section 1886(d)(10) of the Act; or (3) 
wage data associated with hospitals geographically located in the area 
plus all hospitals reclassified into the rural area.
    In addition, in accordance with the statutory language referring to 
``hospitals'' in the plural under sections 1886(d)(8)(C)(i) and 
1886(d)(8)(C)(ii) of the Act, our longstanding policy is to consider 
reclassified hospitals as a group when deciding whether to include or 
exclude them from both urban and rural wage index calculations.
3. FY 2012 MGCRB Reclassifications
a. FY 2012 Reclassification Requirements and Approvals
    Under section 1886(d)(10) of the Act, the MGCRB considers 
applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. The specific procedures and rules that apply 
to the geographic reclassification process are outlined in 42 CFR 
412.230 through 412.280.
    At the time this final rule was constructed, the MGCRB had 
completed its review of FY 2012 reclassification requests. Based on 
such reviews, there were 280 hospitals approved for wage index 
reclassifications by the MGCRB for FY 2012. Because MGCRB wage index 
reclassifications are effective for 3 years, for FY 2012, hospitals 
reclassified during FY 2010 or FY 2011 are eligible to continue to be 
reclassified to a particular labor market area based on such prior 
reclassifications. There were 283 hospitals approved for wage index 
reclassifications in FY 2010 and 294 hospitals approved for wage index 
reclassifications in FY 2011. Of all of the hospitals approved for 
reclassification for FY 2010, FY 2011, and FY 2012, based upon the 
review at the time of this final rule, 659 hospitals are in a 
reclassification status for FY 2012.
    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. CMS became aware that an error was 
made in the calculation of the proposed wage index out-migration 
adjustment in Table 4J of the FY 2012 IPPS/LTCH PPS proposed rule. This 
error in the calculation affected 104 providers that became eligible to 
receive the out-migration adjustment. We published a correction notice 
in the Federal Register on July 13, 2011 (76 FR 41178), which had a 
display date of July 11, 2011, announcing the corrections to the 
tables. Additionally, we issued a letter to hospitals on July 1, 2011, 
through their fiscal intermediaries/MACs advising that we extended the 
45-day deadline and allowed hospitals a 7-day period from the date of 
display of the correction notice (that is, by July 18, 2011) for 
hospitals that wished to request a revision to an already submitted 
withdrawal/termination request under 42 CFR 412.73, or that wished to 
request a withdrawal of a reclassification or termination of an 
existing 3-year section 1886(d)(10) reclassification that would be 
effective in FY 2012. Hospitals also may cancel prior reclassification 
withdrawals or terminations in certain circumstances. For further 
information about withdrawing, terminating, or canceling a previous 
withdrawal or termination of a 3-year reclassification for wage index 
purposes, we refer the reader to 42 CFR 412.273, as well as the FY 2002 
IPPS final rule (66 FR 39887) and the FY 2003 IPPS final rule (67 FR 
50065). Additional discussion on withdrawals and terminations, and 
clarifications regarding reinstating reclassifications and ``fallback'' 
reclassifications, were included in the FY 2008 IPPS final rule (72 FR 
47333).
    Changes to the wage index that result from withdrawals of requests 
for reclassification, terminations, wage index corrections, appeals, 
and the Administrator's review process for FY 2012 are incorporated 
into the wage index values published in the FY 2012 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 2013
    Applications for FY 2013 reclassifications are due to the MGCRB by 
September 1, 2011. 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 2011, 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.

[[Page 51597]]

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, 2011, 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.

 Rural Counties Containing Hospitals Redesignated as Urban Under Section
                        1886(d)(8)(B) of the Act
                  [Based on CBSAs and Census 2000 Data]
------------------------------------------------------------------------
              Rural county                             CBSA
------------------------------------------------------------------------
Cherokee, AL...........................  Rome, GA.
Macon, AL..............................  Auburn-Opelika, AL.
Talladega, AL..........................  Anniston-Oxford, AL.
Hot Springs, AR........................  Hot Springs, AR.
Windham, CT............................  Hartford-West Hartford-East
                                          Hartford, CT.
Bradford, FL...........................  Gainesville, FL.
Hendry, FL.............................  West Palm Beach-Boca Raton-
                                          Boynton, FL.
Levy, FL...............................  Gainesville, FL.
Walton, FL.............................  Fort Walton Beach-Crestview-
                                          Destin, FL.
Banks, GA..............................  Gainesville, GA.
Chattooga, GA..........................  Chattanooga, TN-GA.
Jackson, GA............................  Atlanta-Sandy Springs-Marietta,
                                          GA.
Lumpkin, GA............................  Atlanta-Sandy Springs-Marietta,
                                          GA.
Morgan, GA.............................  Atlanta-Sandy Springs-Marietta,
                                          GA.
Peach, GA..............................  Macon, GA.
Polk, GA...............................  Atlanta-Sandy Springs-Marietta,
                                          GA.
Talbot, GA.............................  Columbus, GA-AL.
Bingham, ID............................  Idaho Falls, ID.
Christian, IL..........................  Springfield, IL.
DeWitt, IL.............................  Bloomington-Normal, IL.
Iroquois, IL...........................  Kankakee-Bradley, IL.
Logan, IL..............................  Springfield, IL.
Mason, IL..............................  Peoria, IL.
Ogle, IL...............................  Rockford, IL.
Clinton, IN............................  Lafayette, IN.
Henry, IN..............................  Indianapolis-Carmel, IN.
Spencer, IN............................  Evansville, IN-KY.
Starke, IN.............................  Gary, IN.
Warren, IN.............................  Lafayette, IN.
Boone, IA..............................  Ames, IA.
Buchanan, IA...........................  Waterloo-Cedar Falls, IA.
Cedar, IA..............................  Iowa City, IA.
Allen, KY..............................  Bowling Green, KY.
Assumption Parish, LA..................  Baton Rouge, LA.
St. James Parish, LA...................  Baton Rouge, LA.
Allegan, MI............................  Holland-Grand Haven, MI.
Montcalm, MI...........................  Grand Rapids-Wyoming, MI.
Oceana, MI.............................  Muskegon-Norton Shores, MI.
Shiawassee, MI.........................  Lansing-East Lansing, MI.
Tuscola, MI............................  Saginaw-Saginaw Township North,
                                          MI.
Fillmore, MN...........................  Rochester, MN.
Dade, MO...............................  Springfield, MO.
Pearl River, MS........................  Gulfport-Biloxi, MS.
Caswell, NC............................  Burlington, NC.
Davidson, NC...........................  Greensboro-High Point, NC.
Granville, NC..........................  Durham, NC.
Harnett, NC............................  Raleigh-Cary, NC.
Lincoln, NC............................  Charlotte-Gastonia-Concord, NC-
                                          SC.
Polk, NC...............................  Spartanburg, SC.
Los Alamos, NM.........................  Santa Fe, NM.
Lyon, NV...............................  Carson City, NV.
Cayuga, NY.............................  Syracuse, NY.
Columbia, NY...........................  Albany-Schenectady-Troy, NY.
Genesee, NY............................  Rochester, NY.
Greene, NY.............................  Albany-Schenectady-Troy, NY.
Schuyler, NY...........................  Ithaca, NY.
Sullivan, NY...........................  Poughkeepsie-Newburgh-
                                          Middletown, NY.
Wyoming, NY............................  Buffalo-Niagara Falls, NY.
Ashtabula, OH..........................  Cleveland-Elyria-Mentor, OH.
Champaign, OH..........................  Springfield, OH.

[[Page 51598]]

 
Columbiana, OH.........................  Youngstown-Warren-Boardman, OH-
                                          PA.
Cotton, OK.............................  Lawton, OK.
Linn, OR...............................  Corvallis, OR.
Adams, PA..............................  York-Hanover, PA.
Clinton, PA............................  Williamsport, PA.
Greene, PA.............................  Pittsburgh, PA.
Monroe, PA.............................  Allentown-Bethlehem-Easton, PA-
                                          NJ.
Schuylkill, PA.........................  Reading, PA.
Susquehanna, PA........................  Binghamton, NY.
Clarendon, SC..........................  Sumter, SC.
Lee, SC................................  Sumter, SC.
Oconee, SC.............................  Greenville, SC.
Union, SC..............................  Spartanburg, SC.
Meigs, TN..............................  Cleveland, TN.
Bosque, TX.............................  Waco, TX.
Falls, TX..............................  Waco, TX.
Fannin, TX.............................  Dallas-Plano-Irving, TX.
Grimes, TX.............................  College Station-Bryan, TX.
Harrison, TX...........................  Longview, TX.
Henderson, TX..........................  Dallas-Plano-Irving, TX.
Milam, TX..............................  Austin-Round Rock, TX.
Van Zandt, TX..........................  Dallas-Plano-Irving, TX.
Willacy, TX............................  Brownsville-Harlingen, TX.
Buckingham, VA.........................  Charlottesville, VA.
Floyd, VA..............................  Blacksburg-Christiansburg-
                                          Radford, VA.
Middlesex, VA..........................  Virginia Beach-Norfolk-Newport
                                          News, VA.
Page, VA...............................  Harrisonburg, VA.
Shenandoah, VA.........................  Winchester, VA-WV.
Island, WA.............................  Seattle-Bellevue-Everett, WA.
Mason, WA..............................  Olympia, WA.
Wahkiakum, WA..........................  Longview, WA.
Jackson, WV............................  Charleston, WV.
Roane, WV..............................  Charleston, WV.
Green, WI..............................  Madison, WI.
Green Lake, WI.........................  Fond du Lac, WI.
Jefferson, WI..........................  Milwaukee-Waukesha-West Allis,
                                          WI.
Walworth, WI...........................  Milwaukee-Waukesha-West Allis,
                                          WI.
------------------------------------------------------------------------

    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 (which 
was listed in section VI. of the Addendum to the proposed rule and 
available via the Internet) 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 2012 proposed rule. As discussed in section III.H.3.a. of this 
preamble, we published a correction notice in the Federal Register on 
July 13, 2011 (76 FR 41178), which had a display date of July 11, 2011, 
announcing corrections to the FY 2012 proposed out-migration adjustment 
in Table 4J. Additionally, we issued a letter to hospitals on July 1, 
2011, through their fiscal intermediaries/MACs advising that we 
extended the 45-day deadline and allowed hospitals a 7-day period from 
the date of display of the correction notice (that is, by July 18, 
2011) for hospitals redesignated under section 1886(d)(8)(B) of the Act 
that also were eligible for an out-migration adjustment to notify CMS 
that they wished to receive the out-migration adjustment instead of 
their redesignation under section 1886(d)(8)(B) of the Act. Section 
1886(d)(8)(B) hospitals that had already notified CMS that they wished 
to receive the out-migration adjustment instead of the section 
1886(d)(8)(B) redesignation could withdraw such notifications.
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, beginning with reclassifications 
for the FY 2011

[[Page 51599]]

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 Medicare and Medicaid Extenders Act of 2010 (Pub. L. 111-309) on 
December 15, 2010, the extension of the 508 provision was included in 
sections 3137(a) and 10317 of the Affordable Care Act (Pub. L. 111-
148). Section 3137 of the Affordable Care Act extended, through FY 
2010, section 508 reclassifications as well as certain special 
exceptions. The most recent extension of the provision was included in 
section 102 of the Medicare and Medicaid Extender Act, which extends, 
through FY 2011, section 508 reclassifications as well as certain 
special exceptions. The latest extension of these provisions expires on 
September 30, 2011, and will no longer be applicable effective with FY 
2012.
7. Waiving Lugar Redesignation for the Out-Migration Adjustment
    We have received several inquiries regarding the effect on a 
hospital's deemed urban status when a hospital waives its 
reclassification under section 1886(d)(8) of the Act in order to accept 
an out-migration adjustment to the wage index under section 1886(d)(13) 
of the Act. (We refer readers to a discussion of the out-migration 
adjustment under section III.I. of the preamble of this final rule.) In 
the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25885 and 25886), we 
clarified that Lugar hospitals will be required to waive their Lugar 
urban status in its entirety in order to receive the out-migration 
adjustment. We stated our belief that this represents one permissible 
reading of the statute, given that section 1886(d)(13)(G) of the Act 
states that a hospital with an out-migration adjustment is not 
``eligible'' for a reclassification under subsection (8). Therefore, 
beginning with FY 2012, we proposed that an eligible hospital that 
waives its Lugar status in order to receive the out-migration 
adjustment has effectively waived its deemed urban status and, thus, is 
rural for all purposes under the IPPS, including being considered rural 
for the DSH payment adjustment, effective for the fiscal year in which 
the hospital receives the out-migration adjustment. (We refer readers 
to a discussion of DSH payment adjustment under section IV.G. of this 
preamble.)
    In addition, we proposed to make a minor procedural change that 
would allow a Lugar hospital that qualifies for and accepts the out-
migration adjustment (through written notification to CMS within the 
requisite number of days from the publication of the proposed rule \4\) 
to automatically waive its urban status for the 3-year period for which 
its out-migration adjustment is effective. That is, such a Lugar 
hospital would no longer be required during the second and third years 
of eligibility for the out-migration adjustment to advise us annually 
that it prefers to continue being treated as rural and receive the 
adjustment. We made this proposal in response to public comments we 
received on the FY 2011 IPPS/LTCH PPS proposed rule that discussed the 
burden of this annual request (74 FR 43840). Thus, under the proposed 
procedural change, a Lugar hospital that requests to waive its urban 
status in order to receive the rural wage index in addition to the out-
migration adjustment would be deemed to have accepted the out-migration 
adjustment and agrees to be treated as rural for the duration of its 3-
year eligibility period, unless prior to its second or third year of 
eligibility the hospital explicitly notifies CMS in writing, within the 
required period (generally 45 days from the publication of the proposed 
rule), that it instead elects to return to its deemed urban status and 
no longer wishes to accept the out-migration adjustment.
---------------------------------------------------------------------------

    \4\ Hospitals generally have 45 days from publication of the 
proposed rule to request an out-migration adjustment in lieu of the 
section 1886(d)(8) deemed urban status. As noted in sections 
III.H.3. and III.H.4. of this preamble, due to the correction of the 
FY 2012 proposed out-migration adjustment, we extended the 45 day 
deadline and allowed hospitals a 7-day period from the date of 
display of the July 13, 2011 correction notice (that is, by July 18, 
2011) (76 FR 41178).
---------------------------------------------------------------------------

    Comment: Commenters supported CMS' proposed policy clarification 
that an eligible hospital that waives its Lugar status in order to 
receive the out-migration adjustment has effectively waived its deemed 
urban status and, thus, is rural for all IPPS purposes. Some of the 
commenters stated that this policy provides the flexibility necessary 
to allow hospitals to revert to their true rural status if they wish. 
Commenters also supported the proposed minor procedural change that 
would allow a Lugar hospital that qualifies for and accepts the out-
migration adjustment to automatically waive its urban status for the 3-
year period for which its out-migration adjustment is effective. Some 
commenters asked CMS to clarify whether the procedural change will 
apply to letters already filed for the FY 2012 update, in which a 
request was made to waive Lugar redesignation and to instead receive 
the out-migration adjustment.
    Response: Beginning with FY 2012, we are adopting as final the 
policy that an eligible hospital that waives its Lugar status in order 
to receive the out-migration adjustment has waived its deemed urban 
status and, thus, is rural for all IPPS purposes. In addition, we are 
adopting as final the procedural change that would allow a Lugar 
hospital that qualifies for and accepts the out-migration adjustment to 
automatically waive its urban status for the 3-year period for which 
the out-migration adjustment is effective. This clarified policy and 
procedural change will be effective beginning with the FY 2013 wage 
index. Therefore, hospitals that sent requests to waive Lugar status 
for the out-migration adjustment for FY 2012, and still have 2 or 3 
years of eligibility available for the out-migration adjustment, must 
request again next year for the waiver to apply to the FY 2013 wage 
index. That request would be effective for the remaining years of its 
eligibility.
    At the time hospitals made their decisions with respect to waiving 
Lugar status for the out-migration adjustment for FY 2012, the 
procedural change

[[Page 51600]]

allowing a 3-year waiver was not yet in effect. Therefore, those 
decisions were based on the existing policy in place for the proposed 
rule, which required annual waivers. As discussed in section III.H.4. 
of this preamble, counties remain eligible for a consistent out-
migration adjustment for a period of 3 years. Each year, we revise the 
list of counties to (1) add new counties eligible for an adjustment for 
3 years; (2) remove counties where 3 years have elapsed and the 
counties no longer qualify for an adjustment; or (3) revise the 
adjustment value for counties in cases where 3 years have elapsed and 
the counties, once again, qualify for an adjustment. Some hospitals may 
not know whether they are in the first, second, or third year of the 
out-migration adjustment; and therefore, whether they are able to waive 
deemed urban Lugar status for 1, 2, or 3 years. For these reasons, 
beginning with FY 2013, we intend to make available, shortly after we 
publish the proposed rule, a public use file which will list Lugar/out-
migration hospitals (that is, hospitals that have Lugar status and are 
located in a county that qualifies for an out-migration adjustment), 
and which will identify whether the hospital is in its first, second, 
or third year of eligibility for the out-migration adjustment. We will 
update this file annually and release it to the public after each 
fiscal year's proposed rule.
    Comment: Some commenters expressed concerns with respect to 
hospitals reclassified from urban to rural under section 1886(d)(8)(E) 
of the Act (Sec.  412.103 of the regulations). The commenters expressed 
concern that a hospital reclassified from urban to rural status under 
Sec.  412.103 has to cancel this reclassification to return to Lugar 
status, so that it can then waive its Lugar status to become rural and 
retain a special rural status (such as SCH or MDH), and also receive 
the out-migration adjustment. However, a Sec.  412.103 cancellation 
takes effect only at the beginning of the next cost reporting period, 
whereas waiving Lugar status is effective on October 1. The commenters 
indicated that this presents a problem for hospitals that do not have a 
September 30 cost reporting period end date. The commenters urged CMS 
to create a process by which hospitals can simultaneously cancel a 
Sec.  412.103 reclassification and waive Lugar status.
    Response: In circumstances where a Lugar hospital has acquired 
rural status through Sec.  412.103 in order to be classified by 
Medicare as an SCH or a MDH, we will allow the act of waiving Lugar 
status for the out-migration adjustment to simultaneously waives the 
hospital's deemed urban status and cancel the hospital's acquired rural 
status, thus treating the hospital as a rural provider effective on 
October 1. (We note that there are special rules that apply to rural 
referral centers under Sec.  412.103(g)(1) requiring that urban-to-
rural status be maintained for a certain period of time, in order to 
avoid gaming situations. We are not revising these rules for rural 
referral centers due to these considerations.)
    Comment: Some commenters asked for a policy that would allow 
waivers of Lugar redesignation in all instances--not just when a 
hospital is eligible for the out-migration adjustment.
    Response: The statute provides two methods for a Lugar hospital to 
be treated as rural for Medicare payment purposes: (1) If the hospital 
is eligible for an out-migration adjustment under section 1886(d)(13) 
of the Act; or (2) if the hospital applies for an urban to rural 
reclassification under section 1886(d)(8)(E) of the Act. There are no 
other provisions under the Medicare statute that would allow a Lugar 
hospital to be treated as a rural provider, given that Lugar status is 
a deemed status.
8. Other Geographic Reclassification Issues
a. Requested Reclassification for Single Hospital MSAs
    Section 412.230 of the regulations sets forth criteria for an 
individual hospital to apply for geographic reclassification to a 
higher rural or urban wage index area. Specifically, under Sec.  
412.230(a)(3)(ii), an individual hospital may be redesignated from an 
urban area to another urban area, from a rural area to another rural 
area, or from a rural area to an urban area for the purpose of using 
the other area's wage index value. Such a hospital must also meet other 
criteria. One required criterion (under Sec.  412.230(d)(1)(iii)(C) of 
the regulations) is that the hospital must demonstrate that its own 
average hourly wage is higher than the average hourly wage of hospitals 
in the area in which the hospital is located (108 percent for urban 
hospitals and 106 percent for rural hospitals). In cases in which a 
hospital wishing to reclassify is the only hospital in its MSA, that 
hospital is unable to satisfy this criterion because it cannot 
demonstrate that its average hourly wage is higher than that of the 
other hospitals in the area in which the hospital is located (because 
there are no other hospitals in the area). For hospitals in the 
category described above, our current policy provides an alternative 
that allows hospitals to seek reclassification using the group 
reclassification rules under Sec.  412.232 or Sec.  412.234. 
Specifically, if a hospital is the single hospital in its area for the 
3-year period over which the average hourly wage is calculated for the 
purpose of the comparison under Sec.  412.230(d)(1)(iii)(C), the 
hospital may apply for geographic reclassification as a single hospital 
county group in accordance with the procedures set forth at Sec.  
412.232 or Sec.  412.234. In addition to specifying the average hourly 
wage criteria, these regulations state that the county in which the 
hospital is located must be adjacent to the urban area to which it 
seeks redesignation. In addition, a certain level of economic 
integration needs to exist between the two areas. For example, for 
urban county group reclassifications (for FY 2008 and subsequent 
periods), Sec.  412.234(a)(3)(iv) states that ``hospitals located in 
counties that are in the same Combined Statistical Area (CSA) or Core-
Based Statistical Area (CBSA) * * * as the urban area to which they 
seek redesignation qualify as meeting the proximity requirements for 
reclassification to the urban area to which they seek redesignation.''
    Recently, we have been advised of a single hospital MSA scenario of 
concern to a particular hospital. In this scenario, an urban hospital 
located in an area in which there was only one other hospital had 
previously applied for and was granted a reclassification by the MGCRB 
to an adjacent urban area with a higher wage index. During the 3-year 
reclassification timeframe, the other hospital in its labor market area 
closed. After the expiration of its reclassification, the hospital 
became ineligible for reclassification to that same adjacent urban area 
with a higher wage index because it was no longer able to satisfy the 
wage data comparison criteria to reclassify individually under Sec.  
412.230(d)(1)(iii)(C). In addition, the hospital could not apply for 
redesignation under the urban county group regulation at Sec.  412.234 
because the hospital was not located in the same CSA or CBSA as the 
urban area to which it sought reclassification. In this example, the 
concern that was shared with CMS was that the hospital was 
competitively disadvantaged in competing for labor with neighboring 
hospitals where the hospital had a comparable average hourly wage, 
compared to the other hospitals in its surrounding area, because it 
receives a lower wage index.
    We stated in the proposed rule that we believe that the geographic 
reclassification regulations should not

[[Page 51601]]

be revised to accommodate this situation. We discussed the fact that we 
have repeatedly rejected special rules to accommodate single hospital 
MSAs (69 FR 48915, 49109; 71 FR 47869, 48071 and 48072). In these 
explanations, we have highlighted the fact that hospitals in single 
hospital MSAs not only may be eligible for out-commuting adjustments, 
but that they also may apply to an adjacent MSA within the same CSA 
using the group reclassification rules without meeting the 108-percent 
test. We explained that each year we propose to adopt the OMB's 
statistical area definitions (75 FR 50162), so if a hospital in a 
single hospital MSA cannot meet group reclassification criteria because 
of the CSA standard, it means that OMB has determined that there is not 
a sufficient degree of employment interchange to suggest that the areas 
compete for the same labor. In addition, we explained that when we 
originally adopted the 108-percent test, we noted that ``with respect 
to single hospital MSAs, a hospital in such an MSA receives a wage 
index value that is based entirely on its own wage data and, therefore, 
its actual wage levels. Because such a hospital is clearly not 
disadvantaged by its inclusion in a labor market area where its wage 
index is determined based on its own wage levels, it is appropriate 
under this guideline that a hospital should not be reclassified if it 
is the only one in its area'' (57 FR 39746). In the proposed rule, we 
expressed concern that allowing a hospital representing 100 percent of 
its area's wages to be exempt from the wage data comparison test could 
undermine the 108-percent test for hospitals in other circumstances 
where the standard cannot be met. Finally, we referred to section 
3137(c) of the Affordable Care Act, which prohibits us from altering 
average hourly wage comparison criteria for FY 2012. That provision 
states that ``notwithstanding any other provision of law,'' the MGCRB 
is required to use the ``average hourly wage comparison criteria used 
in making such decisions as of September 30, 2008,'' until the first 
fiscal year beginning on the date that is one year after the Secretary 
submits a report to Congress.
    In the proposed rule, we solicited public comments on this issue. 
In particular, we invited comments on the types of regulatory solutions 
that could be made available to a hospital in this type of situation.
    Comment: Commenters suggested that, among other solutions to this 
issue, the 108 percent test should be waived for hospitals that are the 
single hospital in the MSA, as it is mathematically impossible to be 
108 percent of your own average hourly wage. In addition, commenters 
suggested that establishing one's own wage index or being eligible for 
an out-migration adjustment may not result in adequate compensation for 
a hospital's services. Commenters also noted that, despite the existing 
remedies of the out-migration adjustment and county group 
reclassification, a hospital may still be at a disadvantage and unable 
to compete for labor with a neighboring labor market area that receives 
a higher wage index. Commenters believed that Congress did not intend 
to exclude a hospital in a single hospital MSA from the ability to 
reclassify to another labor market area. Commenters further stated that 
recognizing county boundaries does not always accurately reflect labor 
markets, which is why in 1989 Congress established the reclassification 
process. Therefore, commenters believed the very purpose of Congress 
creating the reclassification process, that is, to give hospitals an 
opportunity to be included in a labor market area in which they compete 
for labor, is not being fulfilled by excluding a hospital in a single 
hospital MSA the ability to seek reclassification.
    Response: While we continue to be concerned regarding the precedent 
that might be set by exempting a category of hospitals from the 108 
percent test, we agree that the current policies for geographic 
reclassification are disparate for hospitals located in single hospital 
MSAs compared to hospitals located in multiple hospital MSAs. We 
acknowledge the commenters' views that this disparity is sometimes a 
disadvantage because hospitals in single hospital MSAs have fewer 
options for qualifying for geographic reclassification than hospitals 
in multiple hospital MSAs. To address the concerns of the commenters, 
in this final rule, we are making a change in our policy in order to 
waive a hospital in a single hospital MSA from the average hourly wage 
comparison criterion under Sec.  412.230(d)(1)(iii)(C) beginning with 
applications for geographic reclassification for the FY 2013 wage 
index. That is, a hospital in a single hospital MSA will be exempt from 
meeting the 108 percent average hourly wage criterion. Accordingly, we 
are amending our regulation at Sec.  412.230 by adding a new paragraph 
(d)(5) to reflect this exception for single hospital MSAs. We note that 
section 3137(b) of Public Law 111-148 requires CMS to submit a report 
on reforming the wage index to Congress by December 31, 2011. As a 
result of this statutory requirement, we are currently studying of the 
entire wage index system, including geographic reclassification. 
Although we are adopting this new policy for hospitals in single 
hospital MSAs for reclassification applications starting with FY 2013, 
we may reevaluate this policy as we formulate a plan to reform the wage 
index system under the requirements of section 3137(b).
b. Requests for Exceptions to Geographic Reclassification Rules
    Over the last several years, CMS has received numerous requests for 
exceptions to current Medicare law and regulation regarding geographic 
reclassification or requests to revise the existing regulations in 
order to allow a hospital or group of hospitals the ability to 
reclassify to a labor market area with a higher wage index. Section 
3137(b) of the Affordable Care Act requires the Secretary to submit a 
report to Congress that includes a ``plan to reform the hospital wage 
index.'' This report to Congress is due by December 31, 2011. As part 
of our efforts in this regard, in the FY 2012 IPPS/LTCH PPS proposed 
rule, we solicited public comments, to be considered only as part of 
our report to Congress and not to be addressed in the FY 2012 IPPS/LTCH 
PPS final rule, on ways to redefine the geographic reclassification 
requirements to more accurately define labor markets.

I. FY 2012 Wage Index Adjustment Based on Commuting Patterns of 
Hospital Employees

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

[[Page 51602]]

after the 3-year period, or it may qualify but receive a different 
adjustment to the wage index level. Hospitals that receive this 
adjustment to their wage index are not eligible for reclassification 
under section 1886(d)(8) or section 1886(d)(10) of the Act. Adjustments 
under this provision are not subject to the budget neutrality 
requirements under section 1886(d)(3)(E) of the Act.
    Hospitals located in counties that qualify for the wage index 
adjustment are to receive an increase in the wage index that is equal 
to the average of the differences between the wage indices of the labor 
market area(s) with higher wage indices and the wage index of the 
resident county, weighted by the overall percentage of hospital workers 
residing in the qualifying county who are employed in any labor market 
area with a higher wage index. Beginning with the FY 2008 wage index, 
we use post-reclassified wage indices when determining the out-
migration adjustment (72 FR 47339).
    For the FY 2012 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 2011 will be eligible to retain the adjustment for 
FY 2012. 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, 2011.
    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 2011 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. Hospitals that reclassified under section 1886(d)(10) 
of the Act that wished to receive the out-migration adjustment, rather 
than their reclassification adjustment, had to follow the termination/
withdrawal procedures specified in 42 CFR 412.273 and section III.H.3. 
of the preamble of the FY 2012 proposed rule. Otherwise, they were 
deemed to have waived the out-migration adjustment. Hospitals 
redesignated under section 1886(d)(8)(B) 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 2012 proposed rule that 
they elected to receive the out-migration adjustment instead. As noted 
in sections III.H.3.a. and III.H.4. of this preamble, due to the 
correction of the FY 2012 proposed outmigration adjustment, we extended 
the 45-day deadline and allowed hospitals a 7-day period from the date 
of display of the July 13, 2011 correction notice (that is, by July 18, 
2011) (76 FR 41178).
    Table 4J, which is listed in section VI. of the Addendum to this 
final rule and available via the Internet, lists the out-migration wage 
index adjustments for FY 2012. Hospitals that are not otherwise 
reclassified or redesignated under section 1886(d)(8) or section 
1886(d)(10) of the Act will automatically receive the listed 
adjustment. In accordance with the procedures discussed above, 
redesignated/reclassified hospitals will be deemed to have waived the 
out-migration adjustment unless CMS was otherwise notified within the 
timeframe stated above. 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, which is listed in section VI. of the 
Addendum to this final rule and available via the Internet.

J. Process for Requests for Wage Index Data Corrections

    The preliminary, unaudited Worksheet S-3 wage data and occupational 
mix survey data files for the proposed FY 2012 wage index were made 
available on October 4, 2010, 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 13, 2010, we instructed all fiscal 
intermediaries/MACs to inform the IPPS hospitals they service of the 
availability of the wage index data files and the process and timeframe 
for requesting revisions (including the specific deadlines listed 
below). We also instructed the fiscal intermediaries/MACs to advise 
hospitals that these data were also made available directly through 
their representative hospital organizations.
    If a hospital wished to request a change to its data as shown in 
the October 4, 2010 wage and occupational mix data files, the hospital 
had to submit corrections along with complete, detailed supporting 
documentation to its fiscal intermediary/MAC by December 6, 2010. 
Hospitals were notified of this deadline and of all other deadlines and 
requirements, including the requirement to review and verify their data 
as posted on the preliminary wage index data files on the Internet, 
through the October 13, 2010 memorandum referenced above.
    In the October 13, 2010 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

[[Page 51603]]

documentation to its fiscal intermediary/MAC no later than December 6, 
2010.
    The fiscal intermediaries/MACs notified the hospitals by mid-
February 2011 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 2011. CMS published the proposed 
wage index public use files that included hospitals' revised wage index 
data on February 22, 2011. Hospitals had until March 7, 2011, to submit 
requests to the fiscal intermediaries/MACs for reconsideration of 
adjustments made by the fiscal intermediaries/MACs as a result of the 
desk review, and to correct errors due to CMS' or the fiscal 
intermediary's (or, if applicable, the MAC's) mishandling of the wage 
index data. Hospitals also were required to submit sufficient 
documentation to support their requests.
    After reviewing requested changes submitted by hospitals, fiscal 
intermediaries/MACs were required to transmit any additional revisions 
resulting from the hospitals' reconsideration requests by April 13, 
2011. 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 20, 2011.
    Hospitals were given the opportunity to examine Table 2, which is 
listed in section VI. of the Addendum to the proposed rule and 
available via the Internet. Table 2 contained each hospital's adjusted 
average hourly wage used to construct the wage index values for the 
past 3 years, including the FY 2008 data used to construct the proposed 
FY 2012 wage index. We noted that the hospital average hourly wages 
shown in Table 2 only reflected changes made to a hospital's data that 
were transmitted to CMS by March 2011.
    We released the final wage index data public use files in early May 
2011 on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The May 2011 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 13, 2011). 
If, after reviewing the May 2011 final public use 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 existed 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 6, 2011.
    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.
    After the release of the May 2011 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 13, 2011.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 22, 
2011 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 6, 2011) 
were incorporated into the final wage index in the FY 2012 IPPS/LTCH 
PPS final rule, which will be effective October 1, 2011.
    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 2012 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 appeals to the PRRB for wage index data corrections.
    Again, we believe the wage index data correction process described 
above provides hospitals with sufficient opportunity to bring errors in 
their wage and occupational mix data to the fiscal intermediary's (or, 
if applicable, the MAC's) attention. Moreover, because hospitals had 
access to the final wage index data by early May 2011, they had the 
opportunity to detect any data entry or tabulation errors made by the 
fiscal intermediary or the MAC or CMS before the development and 
publication of the final FY 2012 wage index by August 2011, and the 
implementation of the FY 2012 wage index on October 1, 2011. 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 6, 2011, 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 6 deadline for making corrections 
to the wage data for the following fiscal year's wage index. This 
provision is not available to a hospital seeking to revise another 
hospital's data that may be affecting the requesting hospital's wage 
index for the labor market area. As indicated earlier, because CMS 
makes the wage index data available to hospitals on the CMS Web site 
prior to publishing both the proposed and final IPPS rules, and the 
fiscal intermediaries or the MACs notify hospitals directly of any wage 
index data changes after completing their desk reviews, we do not 
expect that midyear corrections will be necessary. However,

[[Page 51604]]

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 6, 
2011 deadline for the FY 2012 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 6, 2011 deadline), and CMS acknowledges that the error 
in the hospital's wage index data was caused by CMS' or the fiscal 
intermediary's (or, if applicable, the MAC's) mishandling of the data, 
we believe that the hospital should not be penalized by our delay in 
publishing or implementing the correction. As with our current policy, 
we indicated that the provision is not available to a hospital seeking 
to revise another hospital's data. In addition, the provision cannot be 
used to correct prior years' wage index data; and it can only be used 
for the current Federal fiscal year. In other situations where our 
policies would allow midyear corrections, we continue to believe that 
it is appropriate to make prospective-only corrections to the wage 
index.
    We note that, as with prospective changes to the wage index, the 
final retroactive correction will be made irrespective of whether the 
change increases or decreases a hospital's payment rate. In addition, 
we note that the policy of retroactive adjustment will still apply in 
those instances where a judicial decision reverses a CMS denial of a 
hospital's wage index data revision request.

K. Labor-Related Share for the FY 2012 Wage Index

    Section 1886(d)(3)(E) of the Act directs the Secretary to adjust 
the proportion of the national prospective payment system base payment 
rates that are attributable to wages and wage-related costs by a factor 
that reflects the relative differences in labor costs among geographic 
areas. It also directs the Secretary to estimate from time to time the 
proportion of hospital costs that are labor-related: ``The Secretary 
shall adjust the proportion (as estimated by the Secretary from time to 
time) of hospitals' costs which are attributable to wages and wage-
related costs of the DRG prospective payment rates * * *'' We refer to 
the portion of hospital costs attributable to wages and wage-related 
costs as the labor-related share. The labor-related share of the 
prospective payment rate is adjusted by an index of relative labor 
costs, which is referred to as the wage index.
    Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of 
the Act to provide that the Secretary must employ 62 percent as the 
labor-related share unless this ``would result in lower payments to a 
hospital than would otherwise be made.'' However, this provision of 
Public Law 108-173 did not change the legal requirement that the 
Secretary estimate ``from time to time'' the proportion of hospitals' 
costs that are ``attributable to wages and wage-related costs.'' We 
believe that this reflected Congressional intent that hospitals receive 
payment based on either a 62-percent labor-related share, or the labor-
related share estimated from time to time by the Secretary, depending 
on which labor-related share resulted in a higher payment.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 
through 43856), we rebased and revised the hospital market basket for 
operating costs. We established a FY-2006-based IPPS hospital market 
basket to replace the FY 2002-based IPPS hospital market basket, 
effective October 1, 2009. In that final rule, we presented our 
analysis and conclusions regarding the frequency and methodology for 
updating the labor-related share for FY 2010. We also recalculated a 
labor-related share of 68.8 percent, using the FY 2006-based IPPS 
market basket, for discharges occurring on or after October 1, 2009. In 
addition, we implemented this revised and rebased labor-related share 
in a budget neutral manner, but consistent with section 1886(d)(3)(E) 
of the Act, we did not take into account the additional payments that 
would be made as a result of hospitals with a wage index less than or 
equal to 1.0 being paid using a labor-related share lower than the 
labor-related share of hospitals with a wage index greater than 1.0.
    The labor-related share is used to determine the proportion of the 
national IPPS base payment rate to which the area wage index is 
applied. In this final rule, as we proposed, we are not making any 
further changes to the national average proportion of operating costs 
that are attributable to wages and salaries, fringe benefits, contract 
labor, the labor-related portion of professional fees, administrative 
and business support services, and all other labor-related services 
(previously referred to in the FY 2002-based IPPS market basket as 
labor-intensive).
    Therefore, for FY 2012, we are continuing to use a labor-related 
share of 68.8 percent for discharges occurring on or after October 1, 
2011. Tables 1A and 1B, which are published in section VI. of the 
Addendum to this final rule and available via the Internet, reflect 
this labor-related share. We note that section 403 of Public Law 108-
173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to 
provide that the Secretary must employ 62 percent as the labor-related 
share unless this employment ``would result in lower payments to a 
hospital than would otherwise be made.'' Therefore, for all IPPS 
hospitals whose wage indices are less than 1.0000, we applied 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 applied 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, 2011. 
This Puerto Rico labor-related share of 62.1 percent was also adopted 
in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43857) at the time the 
FY 2006-based hospital market basket was established, effective October 
1, 2009. Consistent with our methodology for determining the national 
labor-related share, we added the Puerto Rico-specific relative weights 
for wages and salaries, fringe benefits, contract labor, the labor-
related portion of professional fees, administrative and business 
support services, and all other labor-related services (previously 
referred to in the FY 2002-based IPPS market

[[Page 51605]]

basket as labor-intensive) to determine the labor-related share. Puerto 
Rico hospitals are paid based on 75 percent of the national 
standardized amounts and 25 percent of the Puerto Rico-specific 
standardized amounts. The labor-related share of a hospital's Puerto 
Rico-specific rate will be either the Puerto Rico-specific labor-
related share of 62.1 percent or 62 percent, depending on which results 
in higher payments to the hospital. If the hospital has a Puerto Rico-
specific wage index of greater than 1.0, we will set the hospital's 
rates using a labor-related share of 62.1 percent for the 25 percent 
portion of the hospital's payment determined by the Puerto Rico 
standardized amounts because this amount will result in higher 
payments. Conversely, a hospital with a Puerto Rico-specific wage index 
of less than 1.0 will be paid using the Puerto Rico-specific labor-
related share of 62 percent of the Puerto Rico-specific rates because 
the lower labor-related share will result in higher payments. The 
Puerto Rico labor-related share of 62.1 percent for FY 2012 is 
reflected in the Table 1C, which is published in section VI. of the 
Addendum to this final rule and available via the Internet.

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

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. Overview
    CMS is seeking to promote higher quality and more efficient 
healthcare 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 measures various aspects 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 Hospital Inpatient Quality Reporting 
(IQR) Program (formerly referred to as 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 Reporting (OQR) Program 
(formerly referred to as the Hospital Outpatient Quality Data Reporting 
Program (HOP QDRP)), and for physicians and other eligible 
professionals, the Physician Quality Reporting System (formerly 
referred to as the Physician Quality Reporting Program 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 
incentive program (76 FR 628 through 646) that links payment to 
performance.
    In implementing the Hospital IQR Program and other quality 
reporting programs, we have 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 the Hospital IQR Program 
with various other programs, including those authorized by the Health 
Information Technology for Economic and Clinical Health (HITECH) Act so 
that the burden for reporting will be reduced.
    We also are implementing a Hospital Value-Based Purchasing (VBP) 
Program under section 1886(o) of the Act. Earlier this year, we issued 
a final rule (76 FR 26490 through 26547) (the Hospital Inpatient VBP 
Program final rule) that implemented the Hospital VBP Program. We 
proposed additional policies for the Hospital VBP Program in section 
IV.B. of the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25926 through 
25928) and in section XVI. of the CY 2012 OPPS/ASC proposed rule (76 FR 
42354 through 42365). In the Hospital Inpatient VBP Program proposed 
rule (76 FR 2454 through 2491), we proposed that hospitals would 
receive value-based incentive payments if they meet performance 
standards with respect to measures for a performance period for the 
fiscal year involved. The measures under the Hospital VBP Program must 
be selected from the measures specified under the Hospital IQR Program. 
The Hospital VBP Program will apply to payments for discharges 
occurring on or after October 1, 2012, in accordance with section 
1886(o) of the Act.
    The Hospital IQR Program is intertwined with the Hospital VBP 
Program because the measures and reporting infrastructure for both 
programs will overlap. We view the Hospital VBP Program as the next 
step in promoting higher quality care for Medicare beneficiaries by 
transforming Medicare into an active purchaser of quality health care 
for its beneficiaries. As we stated in the Hospital Inpatient VBP 
Program proposed rule (76 FR 2455), in developing that proposed rule as 
well as other value-based payment initiatives, we applied the following 
principles for the development and use of measures and scoring 
methodologies:
    Purpose:
     We view value-based purchasing as an important step to 
revamping how care and services are paid for, moving increasingly 
toward rewarding better value, outcomes, and innovations instead of 
merely volume.
    Use of Measures:
     Public reporting and value-based payment systems should 
rely on a mix of standards, process, outcomes, and patient experience 
of care measures, including measures of care transitions and changes in 
patient functional status. Across all programs, we seek to move as 
quickly as possible to the use of primarily outcome and patient 
experience measures. To the extent practicable and appropriate, outcome 
and patient experience measures should be adjusted for risk or other 
appropriate patient population or provider characteristics.
     To the extent possible and recognizing differences in 
payment system maturity and statutory authorities, measures should be 
aligned across public reporting and payment systems under Medicare and 
Medicaid. The measure sets should evolve so that they include a focused 
core set of measures appropriate to the specific provider category that 
reflects the level of care and the most important areas of service and 
measures for that provider.
     The collection of information should minimize the burden 
on providers to the extent possible. As part of that effort, we will 
continuously seek to align our measures with the adoption of meaningful 
use standards for health information technology (HIT), so the 
collection of performance information is part of care delivery.
     To the extent practicable, measures used by CMS should be 
nationally endorsed by a multi-stakeholder organization. Measures 
should be aligned with best practices among other payers and the needs 
of the end users of the measures.
    We invited public comment on these principles.
    Comment: Many commenters supported CMS' measure selection 
principles for the Hospital IQR Program and the Hospital VBP Program. 
The commenters believed that these principles reflect the efficacy of 
quality measure reporting, reduce data collection burdens and 
facilitate alignment of measures across Medicare programs. Furthermore, 
the commenters applauded CMS' overarching goal of

[[Page 51606]]

improving the quality and cost-effectiveness of care provided in health 
care institutions.
    Response: We appreciate the commenters' support. We will continue 
implementing these principles to reach our goal to foster quality 
improvement, establish strong and effective quality standards, and 
systematically link quality to payment in various healthcare settings.
    Comment: Many commenters overwhelmingly supported our efforts to 
enhance healthcare quality transparency through the public reporting of 
quality measures.
    Response: We appreciate the commenters' support of public reporting 
of quality measures.
    Comment: Many commenters stated that with the increasing number of 
measures across the Medicare and Medicaid programs, CMS should align 
the measures adopted for various Medicare programs whenever possible to 
reduce the hospital reporting burden. One commenter further suggested 
that future measure reporting alignment across payers would reduce the 
burden of quality reporting and also allow for the meaningful 
comparison of healthcare quality.
    Response: We recognize that the addition of manually chart-
abstracted measures to the Hospital IQR Program over time has increased 
the reporting burden on hospitals. Aligning and harmonizing measures 
across Medicare programs and implementing electronic measure reporting 
are high priority goals for us, and we seek to further these goals as 
we select measures for our programs. We agree with the commenters 
regarding the importance of measure alignment across our programs in 
order to provide meaningful comparative information for beneficiaries, 
and we have sought to collect and utilize all-patient data for the 
measures used in our programs wherever possible. Currently, we collect 
all-patient data for all of the chart-abstracted and survey-based 
measures for the Hospital IQR, and Hospital OQR Programs. We also agree 
that alignment of measure reporting requirments across payers would 
also reduce burden among providers responding to multiple reporting 
requirements. CMS has adopted many measures that are in widespread use 
in the industry and by other payers, and will continue to do so when 
feasible and practicable.
    Comment: One commenter encouraged CMS to articulate the 
relationship between the measures selected for the Hospital IQR Program 
and the framework laid out in the National Quality Strategy.
    Response: In March 2011, HHS issued a Report to Congress entitled 
``National Strategy for Quality Improvement in Health Care [National 
Quality Strategy].'' The National Quality Strategy was developed with 
input from stakeholders across the health care system, including 
Federal and State agencies, local communities, provider organizations, 
clinicians, patients, businesses, employers, and payers. The National 
Quality Strategy is located at: http://www.healthcare.gov/center/reports/nationalqualitystrategy032011.pdf.
    The purpose of the National Quality Strategy is to provide a 
strategic plan for improving health care, of which measurement is an 
integral component. The National Quality Strategy promotes three 
overarching aims--Better Care (improving overall quality by making 
health care more patient-centered reliable, accessible and safe), 
Healthy People/Healthy Communities (improving the health of the U.S. 
population by supporting proven interventions to address behavioral, 
social and, environmental determinants of health in addition to 
delivering higher-quality care), and Affordable Care (reducing the cost 
of quality health care for individuals, families, employers, and 
government). The NQS also lists six priorities to target in furthering 
these goals: (1) Making care safer by reducing harm caused in the 
delivery of care; (2) ensuring that each person and family are engaged 
as a partner in their care; (3) promoting effective communication and 
coordination of care; (4) promoting the most effective prevention and 
treatment practices for the leading causes of mortality, starting with 
cardiovascular disease; (5) working with communities to promote wide 
use of best practices to enable healthy living; and (6) making quality 
care more affordable for individuals, families, employers, and 
governments by developing and spreading new health care delivery 
models.
    Our measure selection activity for the Hospital IQR Program 
directly addresses the first five of these six priorities. For example, 
the selection of Hospital Acquired Condition (HAC) measures, 
Healthcare-Associated Infection (HAI) measures, and AHRQ Patient Safety 
Indicators (PSIs) and Inpatient Quality Indicators (IQIs) addresses the 
first priority of safer healthcare, and reduction of harm. The 
selection of the HCAHPS survey addresses the second priority of 
patient/family engagement. The risk-adjusted 30-day readmission and 30-
day mortality measures address effective coordination of care. The 
current process of care measures for AMI, HF, PN, and Surgical Care 
address effective prevention and treatment practices. Lastly, the 
structural measures adopted for the Hospital IQR Program address 
encouragement of best practices. To the extent that the measures we 
have adopted for Hospital IQR are used in CMS value-based purchasing 
programs, alternative payment demonstrations, and the evaluation of new 
delivery system models, the measures also address the sixth priority 
area of the National Quality Strategy.
    Comment: One commenter expressed concern about the overlap in the 
use of the same HACs in the Hospital IQR and Hospital VBP Programs. The 
commenter suggested that CMS adopt mutually exclusive HAC measures so 
that hospitals are not penalized for the same HAC measures adopted for 
various Medicare programs.
    Response: We do not agree with the commenter's view that the 
implementation of the same HAC measures in both the Hospital VBP and 
Hospital IQR Programs would penalize hospitals twice with respect to 
these measures. Under section 1886(o)(1)(C)(ii)(I) of the Act, a 
hospital that is subject to the payment reduction under the Hospital 
IQR Program with respect to a fiscal year is excluded from the Hospital 
VBP Program for that year.
    Also, as we stated in the Hospital Inpatient VBP Program final rule 
(76 FR 26504), we view the program authorized by section 3008 of the 
Affordable Care Act and the Hospital VBP Program as being related but 
separate efforts to reduce HACs. Although the Hospital VBP Program is 
an incentive program that provides incentive-based payments to 
hospitals based on quality performance, the program established by 
section 3008 of the Affordable Care Act creates a payment adjustment 
resulting in payment reductions for the lowest performing hospitals.
    We also view programs that could potentially affect a hospital's 
Medicaid payment as separate from programs that could potentially 
affect a hospital's Medicare payment, although we intend to monitor the 
various interactions of programs authorized by the Affordable Care Act 
and their overall impact on providers and suppliers.
    Comment: A few commenters suggested that CMS should adopt NQF-
endorsed measures whenever possible. A commenter further noted that if 
CMS adopts non-NQF-endorsed measures, these measures should be formally 
tested prior to their inclusion in the Hospital IQR Program. Another 
commenter stated that if CMS considers

[[Page 51607]]

adopting measures that are endorsed by organizations other than the 
NQF, CMS should ensure that such organizations demonstrate strong 
consensus activities from consumers, healthcare organizations, 
physicians and other relevant professionals, purchasers and payers, and 
the organizations should have demonstrated expertise in healthcare 
quality measurement. A commenter suggested that CMS seek expedited NQF 
review of non-NQF-endorsed measures under consideration.
    Response: We thank the commenters for all their suggestions for 
measure endorsement. We have generally adopted NQF-endorsed measures 
whenever possible. For non-NQF endorsed measures developed by CMS, we 
use a consensus-based measure development process that includes broad 
stakeholder input, and as part of this development process, we test 
feasibility, validity, and reliability whenever feasible and 
practicable.
    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 Hospital IQR Program for payments 
beginning with FY 2013. Under the amended provision of the Act, for 
payments beginning with FY 2013, each measure specified by the 
Secretary must be endorsed by a consensus entity that has a contract 
with the Secretary under section 1890(a) of the Act (currently the 
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.
    We thank the commenters for suggesting that we attempt to expedite 
NQF review of non-NQF-endorsed measures under consideration for the 
Hospital IQR Program, and we will consider doing so for measures for 
which CMS is the steward.
    Comment: One commenter expressed concerns about the sufficiency of 
the risk-adjustment methods for the proposed process of care and 
outcome measures. The commenter recommended that CMS and AHRQ convene 
an expert panel to develop risk-adjustment for the measures used in the 
Hospital IQR, Hospital Readmissions Reduction and Hospital VBP 
Programs. Commenters stated that risk-adjustments should include 
patient demographic factors (for example, age, sex, race, and 
socioeconomic status), severity of illness, and types of services being 
provided.
    Response: The current 30-day outcome measures and AHRQ PSIs and 
IQIs in the Hospital IQR Program are NQF-endorsed, and are risk 
adjusted using NQF-endorsed risk adjustment methodologies that include 
clinical risk factors. The current NQF policy for risk adjustment does 
not encourage risk adjustment for non-clinical patient demographic 
factors, because doing so may obscure disparities in care provided by 
hospitals to disadvantaged groups. The risk adjustment methodology 
employed in the NQF-endorsed outcome measures adopted for the Hospital 
IQR Program, therefore, would follow these principles.
    Most of the outcome measures used in these programs are restricted 
to a specific condition or procedure, and therefore do not need to be 
adjusted for the type of service being provided as suggested by one of 
the commenters. Other outcome measures, such as the HACs, assess 
``never events'' or serious reportable events that would not be 
appropriate to risk adjust for either clinical or demographic factors. 
CMS and AHRQ both participate in Measure Application Partnership 
workgroups convened by the NQF. These workgroups are tasked with 
issuing recommendations to HHS on various aspects of measurement (such 
as appropriate risk adjustment) for consideration in HHS' programs.
    Comment: Some commenters urged CMS to focus heavily on outcome 
measures.
    Response: We agree with the commenters. The adoption of outcome 
measures has always been and will remain as a priority goal for the 
Hospital IQR and Hospital VBP Programs.
    We thank the commenters for their comments on our measure 
development principles, and we will consider these comments as we 
develop and select measures in the future.
b. Statutory History and History of Measures Adopted for the Hospital 
IQR Program
    We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 43860) and the FY 2011 IPPS/LTCH PPS final rule (75 FR 50180) 
for detailed discussions of the history of the Hospital IQR Program, 
including the statutory history and the measures we have adopted for 
the Hospital IQR measure set through FY 2014.
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25891), we sought 
comments on an option that would allow us from time to time to consider 
a range of consensus endorsement entities or bodies that can assist us 
with our measure development process. We believe that this approach 
would provide for a diverse endorsement process and the best body of 
evidence to support measures used in our quality programs.
    Comment: Several commenters recommended that CMS use the NQF as the 
sole consensus entity. These commenters stated that the NQF, which is 
composed of healthcare stakeholders, has developed a robust measurement 
evaluation system for the measure's importance, scientific 
acceptability, feasibility and usability, and their endorsed measures 
are gold standards. Other commenters recommended the NQF, Hospital 
Quality Alliance (HQA), and Measure Application Partnership (MAP) as 
consensus endorsement entities for assisting CMS in the measure 
development process. These commenters considered these organizations as 
the primary consensus groups for hospital quality reporting. These 
commenters believed that the HQA, composed of public and private 
partners, can appropriately select NQF-endorsed measures that best 
assess quality in high priority areas. These commenters also pointed 
out that the MAP was created under the Affordable Care Act, and aimed 
to recommend a coordinated set of measures for acute hospital, 
physician and long-term care hospital quality reporting. One commenter 
requested clarification as to which other entities are being considered 
by CMS for inclusion in its list(s) of consensus endorsement entities.
    Response: We thank the commenters for their suggestions. Under 
section 1886(b)(3)(B)(viii)(IX) of the Act, for payments beginning with 
FY 2013, each measure specified by the Secretary under the Hospital IQR 
Program must be endorsed by the entity with a contract under section 
1890(a) of the Act, except in certain circumstances. This contract is 
currently held by the NQF, and for this reason, we generally look to 
the NQF for endorsement of the measures we are considering for the 
Hospital IQR Program. However, 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.

[[Page 51608]]

    We also note that we give consideration to suggestions from other 
organizations such as the HQA, and the newly convened MAP, as well as 
from public comment received through rulemaking. As stated in the 
proposed rule, we strive to align measures where possible and 
appropriate across programs.
c. Maintenance of Technical Specifications for Quality Measures
    The technical specifications for the Hospital IQR 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.
    The technical specifications for the HCAHPS patient experience of 
care survey are contained in the current HCAHPS Quality Assurance 
Guidelines manual, which is available at the HCAHPS On-Line Web site, 
http://www.hcahpsonline.org. We maintain the HCAHPS technical 
specifications by updating the HCAHPS Quality Assurance Guidelines 
manual annually, and include detailed instructions on survey 
implementation, data collection, data submission and other relevant 
topics. As necessary, HCAHPS Bulletins are issued to provide notice of 
changes and updates to technical specifications in HCAHPS data 
collection systems.
    Comment: One commenter requested that CMS exercise its 
administrative authority to add the new FDA-approved Fidaxomicin off-
cycle via Release Note to the current Specification Manual for National 
Hospital Inpatient Quality Measures (3.3a), Medication List--Appendix 
C--Table 2.1 ``Antimicrobial Medications--for hospital discharges as of 
April 1, 2011.''
    Response: We convene Technical Expert Panels (TEPs) for measure 
development and maintenance in order to ensure that our measures 
reflect current science, evidence-based clinical practice guidelines, 
and best practices. We will take this suggestion under consideration 
during our measure maintenance process, which informs changes to the 
Specification Manual.
d. 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. In the 
FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25891 through 25892), we 
proposed to display information regarding the measures (such as names 
of measures for which data will be displayed in the future) on the 
Hospital Compare Web site under this provision, and invited public 
comment on this proposal. We will continue our current practice of 
reporting data from the Hospital IQR Program as soon as it is feasible 
on CMS Web sites such as the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov, after a 30-day preview period.
    The Hospital Compare Web site is an interactive Web tool that 
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 Hospital IQR Program currently includes 
process of care measures, risk-adjusted outcome measures, the HCAHPS 
patient experience-of-care survey, and structural measures, all of 
which are featured on the Hospital Compare Web site.
    However, information that may not be relevant to or easily 
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 
information regarding measures submitted under the Hospital IQR Program 
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: Many commenters overwhelmingly supported the increasing 
transparency in public reporting and appreciated CMS's principles for 
selecting measures. The commenters believed that these principles 
reflect practical aspects of quality data reporting such as reducing 
the burden of data collection on providers as well as aligning measures 
across programs. The commenters stated that CMS should ensure that this 
performance measure information is meaningful in improving patient care 
outcomes. Some commenters stated that more consumer education on 
performance measure data displayed on Hospital Compare is needed for 
meaningful interpretation of the data and identification of 
opportunities to improve patient outcomes.
    Response: We greatly appreciate the commenters' support of public 
quality reporting and agree that consumer education is an ongoing 
process. We continuously strive to improve the user-friendliness of 
Hospital Compare Web site design and educate Medicare beneficiaries in 
understanding healthcare quality and healthcare trends. For example, we 
conduct periodic consumer testing to find out consumer preference for 
measure domains, understanding of measures and associated explanatory 
text. We believe that the reporting of various hospital quality metrics 
incentivizes hospitals to assess their patient care performance and 
identify opportunities to improve patient outcomes. In addition, the 
healthcare information released on Hospital Compare has become a 
popular resource for beneficiaries when they need to make decisions 
regarding their healthcare.
    Comment: A few commenters opposed our intention to display measure 
names for which data will be displayed in the future on the Hospital 
Compare Web site. The commenters believed that the display of more 
descriptive information on future measures would help consumers better 
understand what the future measures are. The commenters believed that 
displaying only the measure names would not be helpful to consumers who 
need to choose a hospital for medical care.
    Response: We use the Hospital Compare ``spotlight'' section to

[[Page 51609]]

highlight upcoming changes to the site, including the addition of new 
measures, topics, and future potential Hospital VBP Program measures. 
The measure names alone are not intended to drive consumer choice 
regarding which hospital to select, but we believe that highlighting 
names of measures to be added to Hospital Compare introduces possible 
new topic areas that consumers can discuss with their physicians in 
choosing a hospital. We also provide information about why the new 
measure topic may be important to know about.
    Comment: Some commenters stated that data display on Hospital 
Compare should cater to consumers who visit Hospital Compare for 
information related to short-term healthcare decisions.
    Response: We interpret the commenters' statements to mean that the 
information displayed on the Hospital Compare should provide 
information to help consumers to make informed decisions regarding 
inpatient acute care services (for example, treatments, tests, 
procedures or surgeries) that may be provided by a hospital. Hospital 
Compare is designed to be a consumer-oriented Web site where consumers 
can obtain information on how well hospitals provide care to their 
patients. The Web site displays quality data on process of care and 
outcome measures for heart attack, heart failure, pneumonia and 
surgical care as measured by the Surgical Care Improvement Project 
(SCIP). In the future, we will display data on other topics, such as 
Hospital-Associated Infections (HAIs) and complications of care. We 
will continue to post data to the Web site in a manner that is easy for 
consumers of the data to understand.
    Comment: A few commenters opposed CMS' current practice of 
publishing performance measure information on Web sites other than 
Hospital Compare for information that may not be relevant to or easily 
understood by beneficiaries and information for which there are 
unresolved display issues or design considerations for inclusion on 
Hospital Compare. The commenters were concerned that it would be 
difficult for providers and consumers to navigate and track information 
on multiple sites and supported Hospital Compare as the sole source for 
public display of quality reporting. The commenters recommended 
Hospital Compare be the sole Web site for display of quality data and 
supported continued improvement in the Hospital Compare Web site to 
make its data comprehensive and meaningful to consumers.
    Response: We believe that Hospital Compare should be the primary 
vehicle for displaying hospital quality data reported for the Hospital 
IQR Program. As we stated in the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50185), the data we display on Web sites other than Hospital Compare 
is displayed on a temporary basis because of pending display design and 
other unresolved issues so as to not confuse beneficiaries who intend 
to use data in making healthcare decisions. Once an appropriate display 
mechanism has been determined, the information is added to the Hospital 
Compare Web site.
    Comment: One commenter noted that results displayed on Hospital 
Compare should always exclude results based on a small number of cases 
or those results that may be misinterpreted by consumers.
    Response: Currently, hospital-level process of care measures based 
on fewer than 25 cases are displayed with a footnote indicating that 
the number of cases may be too few for meaningful comparisons to be 
made. Hospital-level risk-adjusted outcome measure rates based on fewer 
than 25 cases are not displayed at all. This minimum case threshold may 
be subject to change in the future to match the minimum case threshold 
for the various measures established for the Hospital VBP Program. We 
thank the commenter for this suggestion.
    Comment: One commenter suggested the standalone display of the PSI-
12 Post-operative PE and DVT measure due to its significance as an 
indicator of hospital quality for Medicare beneficiaries undergoing 
surgeries that may put them at risk for thromboembolism.
    Response: We appreciate this comment. We have not finalized the 
display options for the AHRQ PSI and IQI composite measures, in which 
PSI-12 is included. We will take this suggestion into consideration for 
the display of the AHRQ measures.
    Comment: One commenter suggested that public reporting should be 
presented in different formats to meet the needs of consumers, 
healthcare providers and researchers.
    Response: We are exploring options as to how best meet the needs of 
our multiple stakeholders, including beneficiaries and researchers. A 
new Web site, http://www.data.medicare.gov, allows researchers and 
other interested parties to view and manipulate multiple data sources, 
including downloadable databases from hospitals, nursing homes and 
dialysis facilities.
    Comment: One commenter asked whether the data displayed on Hospital 
Compare included data from Medicare Advantage affiliated hospitals.
    Response: Section 1886(b)(3)(B)(viii)(VII) of the Act requires that 
the Secretary establish procedures for making information regarding 
measures submitted under the Hospital IQR Program available to the 
public. The Hospital IQR Program applies to subsection (d) hospitals, 
many of which treat beneficiaries enrolled in Medicare Advantage (MA) 
plans. With respect to the process of care measures, the data are 
collected, and subsequently displayed, on all patients, including these 
MA beneficiaries. However, the claims-based measures are currently 
calculated using only Medicare Part A fee for service claims and do 
not, for that reason, capture MA beneficiary data. In the future, we 
hope to collect outcome measure data on all patients.
    After consideration of the public comments we received, we are 
finalizing our proposal to display information regarding the measures 
(such as names of measures for which data will be displayed in the 
future) on the Hospital Compare Web site.
2. Retirement of Hospital IQR Program Measures
a. Considerations in Retiring Quality Measures From the Hospital IQR 
Program
    We generally retain measures from the previous year's Hospital IQR 
Program measure set for subsequent years' measure sets. We previously 
retired one ``topped out'' measure, PN-1: Oxygenation Assessment for 
Pneumonia, from the Hospital IQR Program on the basis of high unvarying 
performance among hospitals, because 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 Hospital IQR Program 
because it no longer ``represent[ed] the best clinical practice,'' as 
required under section 1886(b)(3)(B)(viii)(VI) of the Act. 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, it is appropriate for CMS to take immediate action to remove 
a measure from the Hospital IQR Program and not wait for the annual 
rulemaking cycle. Therefore, we adopted the policy (74 FR 43864 and 
43865) that we would promptly retire such a measure, confirm

[[Page 51610]]

the retirement in the next IPPS rulemaking cycle, and notify hospitals 
and the public of the decision to promptly retire measures through the 
usual hospital and QIO communication channels used for the Hospital IQR 
Program. These channels include memos, e-mail notification, and 
QualityNet Web site postings.
    As we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50185), 
among the criteria that we consider when determining whether to retire 
Hospital IQR Program measures are the following: (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) 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 or public 
reporting of a measure leads to negative unintended consequences other 
than patient harm. These criteria were suggested by commenters during 
rulemaking, and we agreed that these criteria should be among those 
considered in evaluating Hospital IQR Program measures for retirement.
b. Retirement of Hospital IQR Program Measures for the FY 2014 Payment 
Determination and Subsequent Years
    In order to reduce the reporting burden on hospitals, and in 
particular, the burden associated with reporting chart-abstracted 
measures, we have considered options to accommodate the expansion of 
the measure set through the retirement of additional Hospital IQR 
measures. Specifically, we have considered retiring one or more of the 
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 commenters recommended for retirement 11 Hospital IQR 
Program chart-abstracted measures. Seven of these 11 measures were 
recommended by commenters for retirement based on their performance 
being uniformly high nationwide, with little variability among 
hospitals (topped-out measures). Based on our own analysis, we 
concluded that these measures are topped out and for this reason, we 
proposed not to include them in the FY 2013 Hospital VBP Program 
measure set (76 FR 2460). These measures are listed below:
 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 INF-6 Appropriate Hair Removal

    The methodology we used to determine that these measures are topped 
out is detailed in the Hospital VBP Program proposed rule (76 FR 2460). 
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25892), we proposed 
to retire these topped out measures from the Hospital IQR measure set. 
In addition, we proposed to not include an eighth measure in the FY 
2013 Hospital VBP Program measure set because we believe that inclusion 
of this measure would result in the unintended consequence of 
inappropriate antibiotic use (76 FR 2462). This measure is PN-5c Timing 
of receipt of initial antibiotic following hospital arrival. In the FY 
2012 IPPS/LTCH PPS proposed rule (76 FR 25892), we also proposed to 
retire this measure from the Hospital IQR Program because of the 
potential for this negative unintended consequence.
    For these reasons, we proposed to retire these eight measures from 
the Hospital IQR measure set for FY 2014 and subsequent years, and that 
hospitals would no longer be required to submit data on these measures 
starting with January 1, 2012 discharges. We invited public comment on 
this proposal.
    Comment: Several commenters supported the CMS measure retirement 
criteria and the proposed retirement of the 8 proposed topped out 
measures to reduce burden. The commenters encouraged CMS to replace 
process measures with comparable outcome measures whenever possible.
    Response: We thank the commenters for their support and agree with 
the suggestion that, when possible, process measures should be replaced 
by suitable outcome measures.
    Comment: A few commenters suggested that CMS should proceed 
cautiously in its decisions whether to retire topped-out measures or 
measures no long supported by scientific evidence. Some commenters 
recommended the continuation of data collection for topped out measures 
because they were concerned that there may be unintended consequences, 
such as a deterioration of the standard of care, if data collection and 
monitoring are discontinued.
    Response: We believe it is appropriate to retire measures based on 
our measure retirement criteria. Retirement using these criteria also 
meets our goals of minimizing the reporting burden, and staying current 
with the latest scientific evidence. Furthermore, we believe that in 
many cases, the proposed topped out measures have been integrated into 
standard hospital clinical practices and for this reason, we believe it 
is unlikely that the types of beneficiary care addressed by these 
measures would deteriorate as a result of their retirement from the 
Hospital IQR Program measure set. However, as explained below, we have 
decided not to retire four of the eight measures we proposed to retire. 
Instead, we will retain these measures in the Hospital IQR Program but 
suspend data collection on them. We believe this will address the 
commenters' concern that we proceed cautiously when deciding whether to 
retire measures.
    Comment: A few commenters opposed the retirement of the quality 
measures that have been deemed clinically meaningful or that were part 
of long-standing measure sets. A commenter suggested that CMS consider 
including topped out measures in composite measures. Commenters were 
concerned that the retirement of these measures may disrupt quality 
improvement efforts in hospitals. A commenter noted that quality 
measurement in general has the optimal impact on quality of care and 
patient outcomes when multiple related metrics are used. Another 
commenter believed that topped out measures that are NQF-endorsed 
should stay in the Hospital IQR Program until the NQF has retired them.
    Response: While we are dedicated to the care and safety of our 
beneficiaries, we are also concerned with the burden placed on 
hospitals in order to collect data for the Hospital IQR Program. We do 
not believe we should continue collecting measures simply because they 
are part of a long standing measure set or that it would be generally 
meaningful to combine topped out measures into a composite topped out 
measure. Our decision to retire a measure from the Hospital IQR Program 
would not preclude a hospital from continuing to improve its own 
performance on the measure. Moreover, as discussed below, we are 
keeping four of the measures we proposed for retirement in the Hospital 
IQR Program, but are suspending the data submission requirements for 
these

[[Page 51611]]

measures. This approach will reduce data collection burdens on 
hospitals, but will enable us to resume data collection should we 
observe abrupt declines in adherence to these measures.
    Comment: A few commenters supported the retirement of AMI-4, HF-4, 
and PN-4 because they are topped out. A few commenters stated that 
these 3 measures and the PN-5c measure do not meet the The Joint 
Commission accountability measure criteria and should be retired. 
Another commenter requested clarification on the reason for retiring 
PN-5c since this measure has been a high priority in hospitals which 
have geared up training efforts for this measure.
    Response: We thank the commenters for supporting our proposal to 
retire these four measures, and we are finalizing our proposal to 
retire these measures beginning with January 1, 2012 discharges. The 
three adult smoking cessation counseling measures (AMI-4, HF-4, and PN-
4) are no longer NQF-endorsed. They are also topped out, which provides 
us with some assurance that these processes have been incorporated into 
routine hospital care. With respect to the PN-5c measure, we believe 
that the continued collection of this measure might lead to the 
unintended consequence of antibiotic overuse, which is a practice that 
could negatively affect beneficiary health and one that should not be 
incentivized through the Hospital IQR Program. Should we decide in the 
future that the clinical evidence supports the re-adoption of one or 
more of these measures into the Hospital IQR Program measure set, we 
will propose to re-adopt the measure(s) in rulemaking.
    Comment: One commenter suggested that CMS establish policies to 
retire a quality measure midyear if the measure is found to have 
unintended serious consequences.
    Response: We appreciate this suggestion. Our current policy is to 
immediately suspend collection of a measure when there is reason to 
believe that continued collection of the measure raises patient safety 
concerns. In these circumstances, we will take action outside of the 
rulemaking cycle, and then confirm the retirement in the next IPPS 
rulemaking cycle. We will also disseminate this information to 
hospitals and the public through the usual hospital and QIO 
communication channels used for the Hospital IQR Program, including the 
QualityNet Web site, e-mail blasts, memos and other information 
postings as needed.
    Comment: One commenter recommended that the following four measures 
also be considered for retirement: HF-1 (because it is a ``check the 
box'' measure and is not related to the quality of the discharge 
process), SCIP-Inf-2 (because it is a process measure which can be 
replaced by its outcome measure which is the Surgical Site Infection 
measure scheduled for implementation for FY 2014), SCIP-INF-VTE-1 and 
SCIP-VTE-2 (because these 2 proposed VTE measures are already included 
in the VTE measure set for FY 2015) and PN-3b (because of the 
incompatible EHR integration with the clinical workflow).
    Response: We thank the commenter for these recommendations and will 
evaluate them in our measure review for future rulemaking.
    Comment: Many commenters agreed that the retirement of all eight 
measures would result in a reduction in chart abstraction burden for 
hospitals. However, a few commenters were particularly concerned about 
retiring AMI-1, AMI-3, AMI-5, and SCIP Infection-6 because they have 
been designated as accountability measures by The Joint Commission.\5\ 
The commenters agreed that these measures should not be used in the 
Hospital VBP Program but urged CMS to keep these measures in the 
Hospital IQR Program and continue their display on Hospital Compare in 
order to prevent a decline in adherence to the important care processes 
assessed by these measures that are clinically associated with better 
outcomes. Commenters supported the cessation of data collection for 
these measures that we proposed for retirement (AMI-1, AMI-3, AMI-5, 
and SCIP INF-6) in order to ease the data collection burden.
---------------------------------------------------------------------------

    \5\ Accountability measures are defined by the Joint Commission 
as measures that: (1) Support a strong link between the measure and 
improved outcomes; (2) accurately assess the relevant clinical 
process; and (3) have minimal unintended adverse consequences if 
implemented.
---------------------------------------------------------------------------

    Response: We have been persuaded by these commenters that it might 
be premature to retire these measures (AMI-1, AMI-3, AMI-5 and SCIP 
INF-6) from the Hospital IQR Program. As the commenters pointed out, 
these measures, unlike the other four measures we proposed to retire, 
have been defined by The Joint Commission as measures of 
accountability. In addition, these measures, unlike three of the other 
four measures, are currently still endorsed by the NQF.
    We are sensitive, however, to comments noting how the continued 
adoption of chart-abstraction measures over time has increased the 
burden to hospitals. Therefore, in an effort to balance our goal to 
incentivize high quality care with the goal to work where possible to 
minimize the data collection burden for hospitals, we have decided to 
retain these measures in the Hospital IQR Program but to suspend data 
collection on them until such time that the evidence shows that 
hospital adherence to these practices has unacceptably declined. In 
these circumstances, we would resume data collection using the same 
form and manner and on the same quarterly schedule that we finalized 
for these and other chart abstracted measures for the applicable period 
of collection, providing at least 3 months of notice prior to resuming 
data collection. Hospitals would be notified of this via CMS listservs, 
CMS e-mail blasts, national provider calls, and QualityNet 
announcements. In addition, we would comply with any requirements 
imposed by the Paperwork Reduction Act before resuming data collection 
of these 4 measures.
    In summary, based upon the public comments we received, we are 
retiring the following four measures beginning with January 1, 2012 
discharges:

 AMI-4 Adult smoking cessation advice/counseling
 HF-4 Adult smoking cessation advice/counseling
 PN-4 Adult smoking cessation advice/counseling
 PN-5c Timing of receipt of initial antibiotic following 
hospital arrival
    We are suspending data collection for the following four measures 
beginning with January 1, 2012 discharges:
 AMI-1 Aspirin at arrival
 AMI-3 ACEI/ARB for left ventricular systolic dysfunction
 AMI-5 Beta-blocker prescribed at discharge
 SCIP INF-6 Appropriate Hair Removal
3. Measures for the FY 2014 and FY 2015 Hospital IQR Payment 
Determinations
a. Considerations in Expanding and Updating Quality Measures Under the 
Hospital IQR Program
    In general, we seek to adopt measures for the Hospital IQR Program 
that promote better, safer, more efficient care. Our measure 
development and selection activities for the Hospital IQR Program take 
into account national priorities, such as those established by the 
National Priorities Partnership, HHS Strategic Plan, the National 
Strategy for Quality Improvement in Healthcare, as well as other widely 
accepted criteria established in medical literature. (We refer readers 
to the following Web sites regarding these priorities: http://

[[Page 51612]]

www.nationalprioritiespartnership.org/(National Priorities 
Partnership); http://www.hhs.gov/secretary/about/priorities/priorities.html (HHS Strategic Plan); and http://www.healthcare.gov/center/reports/quality03212011a.html (National Strategy for Quality 
Improvement in Healthcare)). To the extent practicable, we have sought 
to adopt measures which have been endorsed by a national consensus 
organization, recommended by multi-stakeholder organizations, and 
developed with the input of providers, purchasers/payers and other 
stakeholders. Because measures for the Hospital VBP Program must be 
selected from the measures specified for the Hospital IQR Program, the 
measures to be selected for inclusion in the Hospital VBP Program also 
reflect these priorities. In addition, we believe it is important to 
expand the pool of measures to include measures that are directed 
toward improving patient safety. This goal is supported by at least two 
Federal reports documenting that tens of thousands of patients do not 
receive safe care in the nation's hospitals.\6\ \7\
---------------------------------------------------------------------------

    \6\ OEI-06-09-00090, ``Adverse Events in Hospitals: National 
Incidence Among Medicare Beneficiaries.'' Department of Health and 
Human Services, Office of Inspector General, November 2010.
    \7\ 2009 National Healthcare Quality Report, pp. 107-122. 
``Patient Safety,'' Agency for Healthcare Research and Quality.
---------------------------------------------------------------------------

    Section 3001(a)(2) of the Affordable Care Act amended the Act by 
adding a new section 1886(b)(3)(B)(viii)(VIII) of the Act. This section 
states that, ``[e]ffective for payments beginning with fiscal year 
2013, with respect to quality measures for outcomes of care, the 
Secretary shall 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.'' Section 
3001(a)(2) of the Affordable Care Act also added new sections 
1886(b)(3)(B)(viii)(IX)(aa) and (bb) of the Act. These sections state 
that ``* * * effective for payments beginning with fiscal year 2013, 
each measure specified by the Secretary under this clause shall be 
endorsed by the entity with a contract under section 1890(a) [of the 
Act],'' and ``[i]n the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible and 
practical has not been endorsed by the entity with a contract under 
section 1890(a) [of the Act], the Secretary may specify a measure that 
is not so endorsed as long as due consideration is given to measures 
that have been endorsed or adopted by a consensus organization 
identified by the Secretary.'' In the FY 2011 IPPS/LTCH PPS final rule, 
we established that all of the measures adopted in that rule for the FY 
2013 and FY 2014 payment determinations meet these standards (75 FR 
50200).
    We have previously acknowledged the data collection burden for 
hospitals participating in the Hospital IQR Program, and reiterated our 
desire to expand the Hospital IQR Program measure set while minimizing 
burden and seeking to provide alternative mechanisms for data 
submission (75 FR 50189). We also stated that in future expansions and 
updates to the Hospital IQR 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 Hospital IQR 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 databases; and, (f) weighing the relevance and utility of the 
measures compared to the burden on hospitals in submitting data under 
the Hospital IQR Program.
    Specifically, we give priority to 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 Hospital IQR 
Program measure set. In addition, in selecting measures, we seek to 
address the six quality aims of effective, safe, timely, efficient, 
patient-centered, and 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; HAIs 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 HIT.
    Hospital IQR 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 measures and claims-based 
measures that we can calculate using other data sources. This approach 
supports our goal of expanding the measures for the Hospital IQR 
Program while minimizing the burden on hospitals and, in particular, 
without significantly increasing the chart abstraction burden.
    In addition to structural measures and claims-based measures, we 
previously noted that registries are potential alternative sources of 
hospital data for the Hospital IQR Program. (A registry is a collection 
of clinical data for purposes of assessing clinical performance, 
quality of care, and opportunities for quality improvement.) We 
envisioned that instead of requiring hospitals to submit the same data 
to CMS that many hospitals are already submitting to registries, we 
would collect the data directly from the registries. This could enable 
the expansion of the Hospital IQR Program measure set without 
increasing the burden of data collection for those hospitals 
participating in the registries. We have previously adopted structural 
measures of registry participation, and we continue to evaluate the 
feasibility of leveraging registry-based data collection mechanisms for 
the Hospital IQR Program.
    We also stated our intention to explore mechanisms for data 
submission using electronic health records (EHRs) (73 FR 48614; 74 FR 
43866, 43892; and 75 FR 50189). 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 capturing, formatting, and 
transmitting the 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 
Hospital IQR Program measure set with less cost and burden

[[Page 51613]]

to hospitals. We believe that automatic collection and reporting of 
data through EHRs will greatly simplify and streamline reporting for 
various CMS quality reporting programs and that at a future date, 
currently targeted to be FY 2015, hospitals will be able to switch 
solely to EHR-based reporting of data that are currently manually 
chart-abstracted and submitted to CMS for the Hospital IQR Program.
    We reiterate our commitment to pursue our goals to expand and 
update quality measures under the Hospital IQR Program and also to 
minimize burden. We note that in addition to the input we described 
above, we take into consideration the measures adopted by the Hospital 
Quality Alliance (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.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50191 through 
502192), we finalized our proposal to adopt measures for the Hospital 
IQR Program for three consecutive payment determinations. The intent of 
this policy was to provide greater certainty for hospitals to plan to 
meet future reporting requirements and implement related quality 
improvement efforts. In addition to giving hospitals more advance 
notice in planning quality reporting, this 3-year approach also 
provides more time for us to prepare, organize and implement the 
infrastructure needed to collect data on the measures and make payment 
determinations. We indicated, however, that these preliminary measure 
sets could still be updated through the rulemaking process should we 
need to respond to agency and/or legislative changes.
    Finally, in section IV.A.5.a.(2) of the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50219 through 50220), we adopted a proposal to make 
Hospital IQR Program payment determinations beginning with FY 2013 
using one calendar year of data for chart-abstracted measures. We will 
use this approach, which synchronizes the quarters for which data on 
these measures must be submitted during each year with the quarters 
used to make payment determinations with respect to a fiscal year 
beginning with January 1, 2011 discharges. However, it will not affect 
our payment determinations until FY 2013.
    Section 1886(o)(2)(A) of the Act requires the Secretary to select 
measures, other than readmission measures, for the Hospital VBP Program 
from the measures specified under the Hospital IQR Program. Section 
1886(o)(2)(B)(i)(I) of the Act states that, for FY 2013, the selected 
measures must cover at least the following five specified conditions or 
procedures: Acute myocardial infarction (AMI), Heart failure (HF), 
Pneumonia (PN), Surgeries, as measured by the Surgical Care Improvement 
Project (SCIP), and HAIs, as measured by the prevention metrics and 
targets established in the HHS Action Plan to Prevent Healthcare-
Associated Infections [HAIs] (or any successor HHS plan). Section 
1886(o)(2)(B)(i)(II) of the Act provides that, for FY 2013, measures 
selected for the Hospital VBP Program must also be related to the 
Hospital Consumer Assessment of Healthcare Providers and Systems survey 
(HCAHPS).
    In selecting measures for the Hospital IQR Program, we are mindful 
of the conceptual framework of the Hospital VBP Program. We will focus 
on selecting measures that we believe will also meet the Hospital VBP 
Program measure inclusion criteria and advance the goals of the 
Hospital VBP Program by targeting hospitals' ability to improve patient 
care and patient outcomes.
    In addition, in order to support HHS priorities such as patient 
safety, reduction of HAIs, and readmissions, and to meet more of the 
widespread goals of the Affordable Care Act in terms of improving the 
quality of care provided to Medicare beneficiaries, in the FY 2012 
IPPS/LTCH PPS proposed rule we proposed to adopt measures for the FY 
2014 and FY 2015 Hospital IQR payment determinations. However, we noted 
that the final measure sets to be used for these years' payment 
determinations could be changed via future rulemaking. This allows us 
the flexibility to accommodate changes in program needs and legislative 
changes. We invited public comment on these proposals.
    Comment: Some commenters were pleased to see CMS's move to align 
measures used for various Medicare programs in order to reduce the 
reporting burden. Some commenters supported the alignment of all new 
measures with the objectives of the National Priorities Partnership, 
the HHS Strategic Plan, and the National Strategy for Quality 
Improvement in Healthcare, while other commenters recommended aligning 
reporting approaches across payers to reduce the burden of quality 
reporting and to also allow for meaningful comparisons across payers.
    Response: We appreciate the commenters' support of our ongoing 
alignment strategy. We may consider an approach to align measures 
across payers in the future.
    Comment: Many commenters strongly opposed the adoption of 
additional chart-abstracted measures because they believed these 
measures would increase hospital burden. One commenter urged CMS to 
limit its adoption of new chart-abstracted measures to a maximum of 
three per payment determination. Some commenters recommended that CMS 
either: stop adopting additional new chart-abstracted measures 
altogether; propose to adopt new chart-abstracted measures only if it 
simultaneously proposes to retire the same number of measures; or 
retire chart-abstracted measures when related outcome measures could 
instead be used.
    A commenter suggested that CMS should monitor whether the adoption 
of new measures for the Hospital IQR Program would create redundancy in 
terms of what data is being collected. This commenter cited the 
following measures and measure topics included in the table of measures 
and topics under consideration for future implementation (76 FR 25899 
through 25901) which was included the FY 2012 IPPS/LTCH PPS proposed 
rule as examples of potentially duplicative measures: Timing of 
Antibiotic Prophylaxis; Selection of Antibiotic Prophylaxis; Pre-
Operative Beta Blockade; and Duration of Prophylaxis.
    A few commenters cited several other examples of measures that they 
believed are already duplicative. Specifically, these commenters 
believed that the 30-day mortality rate and 30-day readmission rate 
measures for AMI, HF, and PN were duplicative of the 9 chart-abstracted 
process measures currently included in the Hospital IQR measure set for 
these 3 conditions, and that for this reason, the chart-abstracted 
measures could be retired. Commenters further noted that the periodic 
evaluation of measures for redundancy would significantly reduce the 
administrative burden for hospitals while maintaining incentive for 
hospitals to focus on their quality improvement efforts.
    Commenters also suggested that the HAC measure (Vascular Catheter-
Associated Infections) is so similar to the CLABSI measure that it is 
redundant for CMS to include both of these measures in the Hospital IQR 
Program measure set. These commenters believed that it is unnecessary 
and potentially confusing and inefficient to

[[Page 51614]]

collect data on these two measures simultaneously.
    Response: We agree that chart-abstracted measures are burdensome 
for hospitals to collect. As soon as we can obtain quality data from 
EHRs, we intend to limit the adoption of chart-abstracted measures for 
future payment determinations. To ease the burden before then, we are 
finalizing our proposal to retire four chart-abstracted measures 
beginning with January 1, 2012 discharges. Additionally, we are 
finalizing a policy in this final rule under which the collection of 
data on four chart-abstracted measures will be suspended until such 
time that the clinical evidence indicates that hospital adherence to 
these practices has unacceptably declined. We also continuously seek to 
harmonize and align measure specifications where applicable in an 
effort to reduce the incidence of duplicative measures both within and 
across programs. We also seek to reduce redundancy in measurement. We 
will carefully consider whether the measures cited by commenters 
significantly overlap with each other and, for that reason, whether 
some of the measures cited should be retired.
    Comment: One commenter suggested that for initial transition into 
EHR reporting, CMS should limit the number of electronic measures that 
could be collected via EHR technology.
    Response: We are mindful of the potential challenges that could be 
faced by hospitals during a transition to EHR-based reporting. We will 
keep these challenges in mind as we develop our proposals for adopting 
measures that can be reported through EHRs.
    Comment: In response to our projected timeframe for transitioning 
to EHR-based data collection, a commenter noted that given the slow 
progress of EHR software development, it was premature to anticipate 
that Hospital IQR Program measures could be collected via EHRs by 2015.
    Response: We believe FY 2015 is a reasonable transition date for 
switching from chart-abstracted measures to EHR-based reporting for the 
Hospital IQR Program because that is the year when certain hospitals 
will become subject to payment adjustments if they do not demonstrate 
meaningful use of certified EHR technology. For this reason, we believe 
that these hospitals will be EHR-technology-ready by FY 2015.
    Comment: A few commenters supported using registries and the EHR 
reporting mechanism to ease burden and to obtain robust clinical data. 
Some commenters believed that registries assist hospitals in managing 
specific patient populations more effectively. A commenter noted that 
reporting to a registry is not the long term solution to advance the 
reporting of the increasingly complex quality data, but could be an 
interim solution. A few commenters opposed using registries and 
believed that registry-based measures would create an extra burden for 
hospitals. These commenters explained that many registries require data 
collection from the medical record only, whereas other registries 
require the collection and submission of a significant number of data 
elements. Another commenter noted that registry-based reporting would 
not be meaningful when EHR-based reporting becomes more common in FY 
2015.
    Response: We believe that registries, in general, hold promise for 
less burdensome quality reporting, and that is why we adopted several 
structural measures that monitor participation in systematic clinical 
database registries for the Hospital IQR Program. We agree that 
registry requirements may vary. We also agree that registries could 
serve as an interim solution until we implement wide-spread EHR-based 
reporting for the Hospital IQR Program.
    Comment: Some commenters encouraged CMS to consistently evaluate 
the relevancy and need to modify quality measures in its quality 
reporting expansion efforts, for small rural hospitals with limited 
resources.
    Response: We thank the commenter for this suggestion. In general, 
we seek to adopt measures that are broadly applicable to all hospitals, 
including small rural hospitals. However, we are mindful of the 
challenges faced by small rural hospitals with limited resources.
    In summary, we will continue to pursue goals regarding the 
expansion and updating of quality measures under the Hospital IQR 
Program while minimizing burden. We will take into account the public 
comments we received on this issue, including the possible uses of EHRs 
and registries in the Hospital IQR Program. We also note that in 
accordance with the policy we are finalizing in this final rule to 
suspend data collection on four measures (AMI-1, AMI-3, AMI-5, and 
SCIP-6), the measure set for FY 2014 and/or FY 2015 that we finalize in 
this final rule might change if we resume the collection of data on one 
or more of these measures.
b. Hospital IQR Program Measures for the FY 2014 Hospital IQR Payment 
Determination
(1) Retention of 56 Hospital IQR Program Measures Finalized in the FY 
2011 IPPS/LTCH PPS Final Rule for the FY 2014 Payment Determination
    We previously finalized 60 measures for the FY 2014 Hospital IQR 
Program measure set. In general, we retain measures used in prior 
payment determinations for subsequent payment determinations unless 
otherwise stated. However, as we discussed above, in the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25892), we proposed to retire 8 measures 
from the FY 2014 measure set and to retain the remaining 52 of the 60 
quality measures finalized in the FY 2011 IPPS/LTCH PPS final rule for 
the FY 2014 payment determination. We invited public comment on our 
proposal to retain these 52 measures for the FY 2014 payment 
determination. We note that in this final rule we are finalizing a 
policy under which we will retain four of the eight measures we 
proposed to retire and will retain but suspend data collection for the 
other four measures.
    Comment: One commenter was concerned about the burden of chart-
abstraction of two Hospital IQR measures: ED-1: Median time from 
emergency department arrival to time of departure from the emergency 
room for patients admitted to the hospital; and ED-2: Median time from 
admit decision to time of departure from the emergency department for 
emergency department patients admitted to the inpatient status. To 
reduce the chart-abstraction burden for these measures, the commenter 
suggested that patients with principal diagnosis codes unrelated to the 
cause for the ED visit be excluded from the denominator.
    Response: We share the commenter's concern regarding the burden 
hospitals face to collect data on Hospital IQR measures. We acknowledge 
that patients seek medical attention in the hospital ED for a variety 
of reasons, some of which may not appear to be linked with a discharge 
diagnosis. We will consider whether it is appropriate to modify the ED 
throughput measures to exclude patients with a principal diagnosis code 
seemingly unrelated to the cause for the ED visit in the denominator. 
In such case, we will seek an NQF ad hoc review to have the new 
specifications endorsed. However, we believe that all patients, 
regardless of chief complaint or discharge diagnosis, should have 
access to timely and efficient care.
    Comment: One commenter recommended that for the Surgical Site 
Infection (SSI) measure that was

[[Page 51615]]

finalized in the FY 2011 IPPS/LTCH final rule for the FY 2014 payment 
determination, CMS should limit the surgical procedures to not more 
than two and increase the number of surgical procedures gradually in 
the future.
    Response: We thank the commenter for the suggestion. In the measure 
Specifications Manual, there are currently 395 SCIP procedures summed 
up into 6 stratifications: cardiac surgery, other cardiac surgery, hip 
arthroplasty, colon surgery, hysterectomy and vascular surgery. We are 
working with CDC on the collection of the Surgical Site Infection data. 
The data collection is consistent with the specifications, and as 
recommended by the CDC, we will be collecting data on 2 surgical 
procedure categories. This will not only reduce burden, but will allow 
the CDC to collect data in a phased roll out. Consistent with current 
NQF harmonization efforts underway for this measure, and based on 
recommendations by CDC, we will be collecting Surgical Site Infection 
data only for colon and abdominal hysterectomy procedures via NHSN for 
the FY 2014 payment determination.
    Comment: A commenter stated that current mortality and readmissions 
outcome measures in the Hospital IQR Program pose challenges for 
hospitals. Other commenters stated that the hierarchical regression 
model on which these measures are based includes a risk-adjustment 
methodology that hospitals cannot replicate or validate. These 
commenters believed that this hampered hospitals from generating 
internal reports to assess performance and that hospitals have to wait 
for CMS to provide the information annually.
    Response: Although it provides some challenges to hospitals, we 
believe that there are several reasons supporting our conclusion that 
hierarchical modeling, which is NQF-endorsed, is the appropriate 
statistical approach for calculating the hospital outcome measures: 30-
day risk-adjusted all-cause readmission and mortality measures. This 
conclusion is based on the structure of the data and the underlying 
assumption that hospital quality of care influences 30-day mortality/
readmission rates. First, patients are clustered within hospitals and, 
therefore, have a shared exposure to the hospital quality and 
processes. The use of hierarchical modeling accounts for the clustering 
of patients within hospitals. Second, hierarchical models distinguish 
within-hospital variation and between-hospital variation to estimate 
the hospital's contribution to the risk of mortality or readmission. 
This allows for an estimation of the hospital's influence on patient 
outcomes. Finally, within hierarchical models we can account for both 
differences in case mix and sample size to fairly profile hospital 
performance. If we did not use hierarchical modeling we could 
overestimate variation and potentially misclassify hospitals' 
performance.
    This approach to calculating the numerator, therefore, although 
more complex than that used for logistic regression, is more 
statistically accurate and fairer to hospitals. We agree that hospitals 
currently cannot replicate the RSMRs or RSRRs independently. Although 
hospitals have access to the inclusion/exclusion criteria and risk-
adjustment coefficients used; the model requires the input of patient 
longitudinal data across care settings and data from the entire 
national sample to estimate the hospital-specific effects used in the 
calculations. We will consider whether it is operationally possible to 
provide these data to hospitals and whether sharing these data would be 
consistent with patient privacy considerations.
    Comment: A few commenters opposed the retention of the HAC measure: 
Manifestations of Poor Glycemic Control and the two Global Immunization 
measures (Immunization for Influenza and Immunization for Pneumonia) 
because they believed that these measures are more appropriate to 
collect at the physician level.
    Response: We disagree with the commenters' belief that the measures 
are better suited for the physician office. The HAC measure, 
manifestation of poor glycemic control, has ICD-9 codes that are 
specific to a secondary diagnosis in the hospital, not to ambulatory 
settings. Certain acute illnesses and procedures, such as influenza or 
surgery, can cause blood glucose to become uncontrolled in some 
patients. In these instances, a patient may react to high or low blood 
sugar with adverse events such as coma, or a secondary illness or 
infection. In response to the comments on the two Global Immunization 
measures, we believe that the acute care setting offers a unique 
opportunity to assess a patient's immunization status and offer a 
service they may not otherwise receive.
    Comment: A commenter stated that the current AMI and HF measures 
adopted for the FY 2014 payment determination are not well-aligned with 
current evidence and treatment guidelines for AMI or HF that are 
reflected in the current performance measures developed by the American 
Heart Association/American College of Cardiology/Physician Consortium 
for Performance Improvement. The commenter also stated that the HF-1 
discharge instruction measure does not have a valid process outcome 
link.
    Response: We are interested in the heart failure measure set 
referenced by the commenter, and we included these measures in our list 
of measures under future consideration for this program. However, the 
AMI and HF measures proposed for retention in the Hospital IQR measure 
set were developed using the most up to date clinical evidence. The CMS 
TEP convened as part of our measure maintenance work for these measures 
includes members and guideline authors from both the American Heart 
Association and the American College of Cardiology. We look to TEPs to 
inform us of vital changes to the guidelines, assuring our measures are 
scientifically credible. We believe that the processes assessed by the 
HF-1 measure, which assesses whether discharge instructions for heart 
failure patients were issued, are vital in assuring that patients are 
appropriately informed of activities and behaviors that promote health 
and positive outcomes.
    Comment: A commenter recommended that CMS separate the IQI-11 
Abdominal aortic aneurysm (AAA) mortality rate (with or without volume) 
measure into two distinct measures: one measure for those patients 
undergoing elective repair and one measure for those undergoing 
emergency or urgent repair. The commenter believed that this measure 
should be stratified by open surgical and endovascular repair, and that 
the risk-adjustment model should be tested prospectively for accuracy.
    Response: We thank the commenter for this suggestion. AAA repair is 
a technically difficult procedure with a relatively high mortality rate 
(we refer readers to http://www.qualityindicators.ahrq.gov/modules/iqi_resources.aspx). We have adopted the measure as it is currently 
specified by the Agency for Healthcare Research and Quality, and 
endorsed by the NQF which includes both elective and emergent cases and 
is not stratified. We believe that the measure is appropriately risk-
adjusted to account for differences in risk factors in the elective and 
emergent populations undergoing this procedure.
    After consideration of the public comments we received, we are 
finalizing the retention of 56 measures that we finalized in the FY 
2011 IPPS/LTCH PPS final rule for the FY 2014 payment determination. We 
note that this number includes the four measures which, as discussed 
above, we are also

[[Page 51616]]

retaining but on which we are suspending data collection.
(2) Additional Hospital IQR Program Measures for the FY 2014 Payment 
Determination
(A) CDC/NHSN-Based Healthcare-Associated Infection (HAI) Measures
    HAIs are among the leading causes of death in the U.S. CDC 
estimates that as many as 2 million infections are acquired each year 
in hospitals and result in approximately 90,000 deaths per year.\8\ 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 healthcare costs.
---------------------------------------------------------------------------

    \8\ 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 with widely publicized interventions 
such as better hygiene and advanced scientifically tested techniques 
for surgical patients. Therefore, the public reporting of HAIs has been 
of great interest to many healthcare consumers and advocacy 
organizations because it promotes awareness and permits health care 
consumers to choose the hospitals with lower HAI rates, as well as 
gives hospitals an incentive to improve infection control efforts. To 
maximize the efficiency and improve the coordination of HAI prevention 
efforts across the Department, HHS established in 2008 a senior-level 
Steering Committee for the Prevention of Healthcare-Associated 
Infections. In 2009, the Steering Committee, along with scientists and 
program officials across the government, developed the HHS Action Plan 
to Prevent HAIs providing a roadmap for HAI prevention in acute care 
hospitals. In the first iteration of the Action Plan, the Steering 
Committee chose to focus on infections in acute care hospitals because 
the associated morbidity and mortality was most severe in that setting 
and the scientific information on prevention and the capacity to 
measure improvement was most complete. Thus, prevention of HAIs in 
acute care hospitals became the first phase of the Action Plan and it 
focuses on six high priority HAI-related areas.
    In addition, the Steering Committee included in the Action Plan 
five-year goals for nine specific measures of improvement tied to the 
six HAI prevention priority areas. Since the release of the first 
Action Plan in June 2009, the Steering Committee has been developing a 
successor plan in collaboration with public and private partners which 
is expected to incorporate advances in science and technology and 
expand the scope to the outpatient environment. The successor plan is 
also expected to address the health and safety of healthcare personnel, 
as well as the risks of influenza transmission from healthcare 
personnel to patients. The second Action Plan is due for publication in 
2011.
    We also note that the House Committee on Appropriations asked in a 
2009 Report that CMS include in its ``pay for reporting'' system two 
infection control measures developed by the Hospital Quality Alliance 
(HQA)--Central line-associated bloodstream infections and a surgical 
site infection rate (H. Rep. No. 111-220, at 159 (2009)). In the 
report, the Committee stated that ``if the measures are included in 
Hospital Compare, the public reporting of the data is likely to reduce 
HAI occurrence, an outcome demonstrated in previous research.''
    In the FY 2011 IPPS/LTCH PPS final rule, we adopted the two HAI 
measures identified by the House Committee on Appropriations in its 
2009 report: Central Line [catheter] Associated Blood Stream Infection 
(CLABSI) measure, and Surgical Site Infection (SSI) measure. The CLABSI 
measure is currently being collected as part of the FY 2013 Hospital 
IQR measure set, and data submission on the measure began with January 
2011 events.\9\ The Surgical Site Infection (SSI) measure is currently 
part of the FY 2014 Hospital IQR measure set, and data submission on 
the measure will begin with January 2012 events.
---------------------------------------------------------------------------

    \9\ The CDC captures HAI data based on the onset of an event, 
rather than based on the discharge date.
---------------------------------------------------------------------------

    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25894 through 
25896), we proposed to adopt two additional HAI measures for the FY 
2014 Hospital IQR measure set. These measures are: (1) Central Line 
Insertion Practices, or CLIP (which is NQF  298 and 
operationalized by the CDC for collection through the NHSN); and (2) 
Catheter Associated Urinary Tract Infection (CAUTI) (NQF  
138). Both measures are high priority HAI measures that are included 
among the prevention metrics established in the HHS Action Plan To 
Prevent HAIs which, as we noted above, underscores the importance of 
reducing HAIs. As detailed below, both measures also meet Hospital IQR 
Program statutory requirements for measure selection.
    Furthermore, both measures are currently collected by the NHSN, 
which is a secure, Internet-based surveillance system maintained and 
managed by the CDC, and can be used by all types of healthcare 
facilities in the U.S., 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 patient-level data 
on the measures mandated through their specific State legislation. 
Currently, 28 States require hospitals to report HAIs using NHSN, and 
CDC provides support to more than 4,000 hospitals that are using NHSN. 
NHSN data collection occurs via a Web-based tool hosted by CDC provided 
free of charge to providers. In addition, data submission for HAI 
measures through EHRs may be possible in the near future.
    Comment: A commenter encouraged CMS to include only those HACs that 
could reasonably be prevented. A commenter requested clarification on 
how the proposed HAI measures differ from the ``never events'' 
currently being reported.
    Response: In our selection of HACs, we have to meet the 
requirements under section 1886(d)(4)(D) of the Act. Section 
1886(d)(4)(D) of the Act specifies that by October 1, 2007, the 
Secretary was required to select, in consultation with the 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. Under this provision, the 
HACs we select must be reasonably preventable. Many of the HACs also 
are ``never events'' or serious reportable events defined by the NQF. 
The HAI measures, unlike the HACs, are designed to look at more than 
ICD codes. The CDC criteria for the HAIs rely on chart-abstracted and 
point of care assessments to identify HAIs. Many of these infections 
can be identified during the acute stay, before hospital discharge, 
thereby providing a more real time view of the patient.
    Comment: A commenter suggested that CMS should propose to adopt 
only outcome HAI measures rather than

[[Page 51617]]

process HAI measures. Furthermore, the commenter recommended that CDC 
should streamline the amount of information required for collection 
within HAI modules to ease the data collection burden for providers.
    Response: We agree with the commenters regarding the preference for 
outcome measures over process of care measures. For example, we discuss 
below our decision to not finalize the proposed CLIP measure because we 
have been persuaded by commenters that the CLABSI measure already 
adopted for the Hospital IQR Program is sufficiently related and 
captures the outcome of the process of care. We have shared the comment 
regarding streamlining data collection with the CDC.
(i) Central Line Insertion Practice Adherence Percentage (CLIP)
    Central line associated blood stream infections (CLABSIs) can be 
prevented through proper management of the central line. The CDC's 
Healthcare Infection Control Practices Advisory Committee (CDC/HICPAC) 
Guidelines for the Prevention of Intravascular Catheter-Related 
Infections recommends evidence-based central line insertion practices 
known to reduce the risk of subsequent central line-associated 
bloodstream infection.\10\ These include hand-washing by inserters, use 
of maximal sterile barriers during insertion, proper use of a skin 
antiseptic prior to insertion, and allowing that skin antiseptic to dry 
before catheter insertion. Despite the scientific evidence supporting 
these practices, several reports suggest that adherence to these 
practices remains low in United States hospitals. The proposed CLIP 
process measure is a companion measure to the previously adopted CLABSI 
measure, and it assesses the extent to which a facility employs 
practices consistent with CDC/HICPAC recommendations that are known to 
reduce CLABSI. There are 2 States that currently require facilities to 
report to NHSN at least one month of CLIP data.
---------------------------------------------------------------------------

    \10\ O'Grady NP, Alexander M, Dellinger EP, Gerberding JL, Heard 
SO, Maki DG, et al., Guidelines for the Prevention of Intravascular 
Catheter-Related Infections. MMWR 2002; 51 (No. RR-10:1-26).
---------------------------------------------------------------------------

    The CLIP measure is used in State reporting initiatives and is an 
NQF-endorsed measure (NQF  298) that is operationalized for 
collection by the CDC via the NHSN. Therefore, the measure meets the 
selection criteria under section 1886(b)(3)(B)(viii)(IX)(aa) of the 
Act. This CLIP prevention metric is also listed in the HHS Action Plan 
To Prevent HAIs and, as we detailed above, has been widely identified 
as a high priority for public reporting.
    Comment: A few commenters strongly believed that the CLABSI measure 
in the Hospital IQR Program is a valid, well-constructed, and risk-
adjusted outcome measure. These commenters pointed out that the 
decreasing incidence of central line-associated infections was 
attributed to the implementation of this measure in early 2011 in 
conjunction with other ongoing patient safety infection initiatives. 
Some commenters noted the current CLABSI rates have been excellent.
    Commenters opposed the adoption of the CLIP measure because they 
believed that it is labor-intensive to collect, hard to validate, and 
does not address the need for quick removal of the central line which 
is the key to reducing CLABSI. Based on these reasons, the commenters 
opposed the adoption of the proposed CLIP measure, which is a process 
measure, because the outcome itself (CLABSI) is being already reported 
by hospitals. Furthermore, one commenter suggested that if CMS adopts 
the measure, it should clarify that the measure is only applicable to 
high risk units such as ICUs where central lines are generally placed 
and should only apply to hospitals with bad CLABSI outcomes. A 
commenter suggested that the measure be risk-adjusted based on the 
morbidity of the patient at the time of admission. A few commenters 
recommended delaying the adoption of the proposed CLIP measure until FY 
2015 to allow time to refine its specifications. Some commenters 
requested the removal of the CLABSI HAC claims measure if the CLIP 
measure is implemented. A commenter believed that the proposed time 
frame to begin data collection does not allow proper time for hospitals 
to assure the collection of these elements for all the central line 
insertions.
    Response: We agree with the commenters that the existing CLABSI 
outcome measure is preferable because it captures the outcome that the 
process of care measure (CLIP) is designed to prevent. Therefore, by 
measuring the outcome, we are inherently assessing the effectiveness of 
central line insertion and maintenance processes being employed by the 
facility. Consistent with our goal to shift toward outcome measures, we 
are not finalizing our proposal to adopt the CLIP measure for the 
Hospital IQR measure set.
    Comment: A few commenters asked CMS for clarification whether the 
CLIP measure developed by the Institute for Healthcare Improvement 
(IHI) or the CDC/NHSN CLIP measure is being proposed for adoption into 
the Hospital IQR measure set.
    Response: We proposed to adopt the CDC CLIP measure, and we believe 
that it is an operationalization of the NQF-endorsed CLIP measure (NQF 
 0298) for which IHI (not CDC) is the steward. Although the 
NQF-endorsed CLIP measure was developed by the IHI, it is based upon 
the CDC prevention guidelines for preventing Central Line Associated 
Blood Stream Infections. However, the CDC specifications for the 
measure do not require that the hospital report its daily monitoring of 
central lines. For the reasons stated previously, we will not be 
adopting the proposed CLIP measure for the Hospital IQR Program at this 
time.
(ii) Catheter Associated Urinary Tract Infection (CAUTI)
    The urinary tract is the most common site of HAI, accounting for 
more than 30 percent of infections reported by acute care 
hospitals.\11\ Healthcare-associated urinary tract infections (UTIs) 
are commonly attributed to catheterization of the urinary tract. CAUTI 
can lead to such complications as cystitis, pyelonephritis, gram-
negative bacteremia, prostatitis, epididymitis, and orchitis in males 
and, less commonly, endocarditis, vertebral osteomyelitis, septic 
arthritis, endophthalmitis, and meningitis in all patients. 
Complications associated with CAUTI cause discomfort to the patient, 
prolonged hospital stay, and increased cost and mortality. Each year, 
more than 13,000 deaths are associated with UTIs.\12\ Prevention of 
CAUTIs is discussed in the CDC/HICPAC document, Guideline for 
Prevention of Catheter-associated Urinary Tract Infections. The NQF-
endorsed CAUTI measure we proposed is currently collected by the NHSN 
as part of State-mandated reporting and surveillance requirements for 
hospitals. There are 3 States that require facilities to report to NHSN 
at least one month of CAUTI data.
---------------------------------------------------------------------------

    \11\ Klevens RM, Edward JR, et al., Estimating Health Care-
Associated Infections and Deaths in U.S. Hospitals, 2002. Public 
Health Reports 2007; 122:160-166.
    \12\ Wong ES., Guideline for Prevention of Catheter-Associated 
Urinary Tract Infections. Infect Control 1981; 2:126-30.
---------------------------------------------------------------------------

    Section 1886(b)(3)(B)(viii)(IX)(aa) of the Act requires that 
effective for payments beginning with FY 2013, each measure specified 
by the Secretary for inclusion in the Hospital IQR Program be endorsed 
by the entity with a contract under section 1890(a) of the Act, unless 
the exception set forth in section 1886(b)(3)(B)(viii)(IX)(bb) of the

[[Page 51618]]

Act applies. The NQF currently holds the contract under section 1890(a) 
of the Act, and the NQF has endorsed this CAUTI measure (NQF  
138). For this reason, we believe that this measure satisfies the 
endorsement requirement applicable to the Hospital IQR Program. This 
proposed measure is currently risk stratified, and therefore is 
consistent with section 1886(b)(3)(B)(viii)(VIII) of the Act. Risk 
stratification means that it is calculated using different categories 
of patients with varying risk of developing an infection. At the time 
of the FY 2012 IPPS/LTCH PPS proposed rule, this CAUTI measure (NQF 
 138) was undergoing measure maintenance review by the NQF and 
we note that the review may result in changes to the specifications. We 
invited public comment on our proposal to adopt these two HAI measures 
into the Hospital IQR Program for the FY 2014 payment determination. We 
proposed that hospitals would begin submitting data on these measures 
beginning with events that occur on or after January 1, 2012. We also 
proposed that hospitals use the NHSN infrastructure and protocols, as 
well as the specifications (available at http://www.cdc.gov/nhsn/PDFs/HSPmanual/HPS_Manual.pdf) to report the measures for Hospital IQR 
Program purposes. The proposed reporting mechanism for these HAI 
measures is discussed in greater detail in section IV.A.5.i. of the FY 
2012 IPPS/LTCH PPS proposed rule (76 FR 25919 through 25920).
    Comment: Many commenters supported the CAUTI measure and suggested 
that CMS monitor a CAUTI project initiative that is underway to test 
the effects of collecting data for both device days and patient days, 
each of which might have different implications for the urinary tract 
infection rate. Several commenters cautioned against using device days 
as the measure denominator because that might have the unintended 
consequence of artificially inflating the UTI rate.
    Response: We thank the commenters for the suggestions. We will 
monitor this project as suggested by the commenter. Currently, we seek 
to adopt the measures targeted in the 2009 HHS Action Plan To Prevent 
HAIs. These measures include the proposed NQF-endorsed CAUTI measure 
and that measure is based on device days. We do not believe that 
reporting a measure by device days would have a negative effect on 
patient care or result in patient harm.
    Comment: A commenter remarked that the measure might encourage 
hospitals to reduce the CAUTI incidence rate, but would not completely 
bring the rate down to zero. The commenter also noted that it would be 
difficult to diagnose every UTI at the time of admission without 
increasing the volume of potentially unnecessary screenings. The 
commenter believed that the pressure to remove catheters quickly in the 
ICU and post-surgery can have unintended consequences and 
complications. Several commenters stated that the CAUTI measure should 
have exclusions for patients considered to be high-risk to avoid 
unintended consequences (for example, removal of catheter too quickly). 
Commenters believed that this measure should also include a data 
capture point for catheter reinsertion to collect the rate of repeat 
instrumentation and infection risk for those with early catheter 
removal.
    Response: We thank the commenters for these suggestions. As stated 
above, UTI is the leading cause of HAIs in the acute care setting, and 
significantly reducing UTIs is a component of the HHS Action Plan To 
Prevent HAIs, and we have proposed to use the metric that is listed in 
the Action Plan. We do not believe that the screening of catheterized 
patients according to the NQF-endorsed specifications for this measure 
will cause undue treatment or patient harm. To date, there are no 
published studies that we are aware of that recommend a urinary 
catheter be maintained in ICU and post-surgical patients. We also thank 
the commenters' suggestions for a catheter reinsertion measure. 
However, we are not aware of such NQF-endorsed measure. We are adopting 
the measure as currently specified in order to support the reduction 
efforts of the HHS Action Plan. However, we have forwarded these 
suggestions to the CDC.
    Comment: A few commenters recommended that CMS delay the adoption 
of this proposed measure to FY 2015 or until: (1) The CDC has addressed 
the validation and implementation issues; (2) all hospitals have 
attested to the installation of fully functional EHR systems; (3) 
hospitals and States have had enough time to develop the proper 
infrastructure to report these data (only 3 States currently require 
hospitals to report these data); and (4) the measure is risk-adjusted 
based on the morbidity of the patient at the time of admission.
    Response: We disagree with these recommendations. The measure is 
NQF-endorsed with appropriate risk-stratification as previously 
described. We have been working in collaboration with the CDC, and are 
assured that the measure is ready for implementation in the Hospital 
IQR Program beginning with January 1, 2012 discharges. The data are 
collected via the NHSN, and hospitals do not need a fully functional 
EHR system in order to submit data to the NHSN.
    Comment: A commenter suggested that CMS retire the current claims-
based Catheter-Associated Urinary Tract Infection HAC measure once the 
proposed CAUTI measure is adopted for the Hospital IQR Program.
    Response: We agree that the claims-based CAUTI measure and the NHSN 
CAUTI measure may overlap. However, because the topic of HAIs is of 
great importance, and a large quantity of data for the NHSN version of 
the measure will not be available to CMS for some time, we will 
continue to utilize the claims-based measure until such time as the 
NHSN version is available to CMS. We will seek an appropriate time to 
retire the claims-based version of the measure, taking into account the 
needs of and impact on other programs, such as the Hospital VBP 
Program.
    After consideration of the public comments we received, we are 
finalizing the CAUTI measure that we proposed to adopt for the FY 2014 
payment determination.
(B) New Claims-Based Measure
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25896 through 
25897), we proposed to add the following new claim-based measure to the 
Hospital IQR Program measure set for the FY 2014 payment determination: 
Medicare Spending per Beneficiary. The details of this measure are 
discussed below.
(i) Medicare Spending per Beneficiary Measure
    Healthcare costs consume an ever-increasing amount of our Nation's 
resources, straining family, business, and government budgets. 
Healthcare costs take up a growing share of Federal and State budgets 
and imperil the governments' long-term fiscal outlooks. In the U.S., 
the sources of inefficiency that are leading to rising healthcare costs 
include payment systems that reward medical inputs rather than 
outcomes. Medicare is transforming from a system that rewards volume of 
service to one that rewards efficient, effective care and reduces 
delivery system fragmentation.
    In order to further this transformation and help address the 
critical issue of health care costs, in the FY 2012 IPPS/LTCH PPS 
proposed rule (76 FR 25896 through 25897) we proposed to add a measure 
of Medicare spending per beneficiary to the Hospital IQR Program 
measure set for the FY 2014 payment determination. This proposed 
Medicare

[[Page 51619]]

spending per beneficiary measure addressing the cost of care is a type 
of measure that is not currently included in the Hospital IQR Program. 
We are not aware that the NQF or any other consensus organizations 
under section 1886(b)(3)(B)(viii)(IX) of the Act have currently 
endorsed any Medicare spending per beneficiary measures. We will give 
due consideration under section 1886(b)(3)(B)(viii)(IX)(bb) of the Act 
to any Medicare spending per beneficiary measures that become endorsed 
in the future. It is important that the cost of care be explicitly 
measured so that, in conjunction with other quality measures included 
in the Hospital IQR Program, we can recognize hospitals that are 
involved in the provision of high quality care at lower cost.
    We proposed that this Medicare spending per beneficiary measure 
would be calculated using claims data for hospital discharges occurring 
between May 15, 2012 and February 14, 2013. Therefore, the addition of 
this proposed measure would not increase the data submission burden on 
hospitals. We outline below the methodology that we proposed to use to 
calculate the measure.

 The Medicare Spending per Beneficiary Episode

    As we stated in the proposed rule, in order to calculate the 
Medicare spending per beneficiary for each hospital, we believe that it 
is necessary to determine: (1) The timeframe, or length of the 
``spending per beneficiary episode'' during which Medicare payments 
would be aggregated; (2) the types of Medicare payments to be 
aggregated over this timeframe; and (3) how to adjust or standardize 
these payments across hospitals (for example, risk adjustment).

 Length of the Medicare Spending per Beneficiary Episode

    Encouraging delivery of coordinated care in an efficient manner is 
an important goal which can best be achieved through inclusion of 
Medicare payments made outside the timeframe of the hospital inpatient 
stay. We proposed to use an episode that runs from three days prior to 
an inpatient PPS hospital admission (the index admission) through 90 
days post hospital discharge.
    We also sought public comment on an alternative 30-day time period 
for the initial implementation of this measure that would be more 
consistent with the 30-day time period currently in use for some 
outcome measures.
    We received numerous public comments on the proposed length of the 
Medicare spending per beneficiary episode.
    Comment: The majority of commenters stated an episode spanning 90 
days post-discharge was too long to represent factors which are within 
hospitals' control, and that a shorter period would focus on factors 
which are more directly influenced by the hospital. Commenters noted 
physician care and patient compliance with post-discharge instructions 
as examples of factors which are outside the hospital's control. 
Several commenters suggested a 30-day post-discharge period would be 
more appropriate. Several commenters noted that a 30-day post-discharge 
period would be consistent with the measures used in the Hospital 
Readmissions Reduction Program. One commenter noted that it would be 
consistent with the bundling pilot included in the Affordable Care Act. 
Many commenters suggested a 15-day post-discharge period, and a few 
suggested a 7- or 15-day post-discharge period. Three commenters 
suggested no more than 14 days, with one suggesting that this shorter 
period would simplify separation of episodes for complex patients.
    Response: We are accepting the suggestions that we align the length 
of the spending per beneficiary episode with other agency initiatives, 
including the post-discharge period that applies to the readmission 
measures under the Hospital IQR Program and the one we are adopting in 
this final rule for the readmission measures we are finalizing for the 
Hospital Readmissions Reduction Program, for the initial implementation 
of this measure. We also believe that a shorter length will allow 
hospitals to gain experience with this measure while we consider 
whether it would be appropriate to propose to hold them accountable for 
coordinating services over a longer post-discharge period. Therefore, 
we are adopting a shorter length of the Medicare spending per 
beneficiary episode than we proposed for the Medicare spending per 
beneficiary measure to be included in the FY 2014 Hospital IQR Program. 
We also believe that a shorter Medicare spending per beneficiary 
episode will enable us to include a larger number of episodes in the 
measure calculation because admissions occurring more than 30 days 
after a discharge will now represent new index admissions, rather than 
having the Medicare payments associated with them attributed back to 
the first index admission. This will potentially allow more opportunity 
for hospitals to improve their performance on the measure.
    We are finalizing a Medicare spending per beneficiary episode which 
spans from 3 days prior to hospital admission through 30 days post 
hospital discharge, for the initial implementation of this measure. Our 
intent is to revisit the episode length in future rulemaking as we gain 
more experience with this measure and as hospitals gain more experience 
in redesigning care processes and coordinating patient care in the 
post-hospital discharge period, and we will strongly consider 
lengthening the Medicare spending per beneficiary episode.
    Comment: A few commenters suggested that a 90-day post-discharge 
period was not long enough. One commenter suggested that an episode of 
1 year or more post-discharge would be required in order to realize 
savings achieved by selection of treatment alternatives which are more 
costly initially. Another commenter suggested that a minimum of 6 
months would be necessary to recognize system-wide cost savings across 
all Part A and Part B payments and stated that a 90-day post-discharge 
period, if adopted, should only count inpatient hospital costs, in 
recognition that other provider types do not have similar incentives 
and that readmissions could likely be reduced over 90 days.
    Response: We acknowledge that including a longer post-discharge 
period in the Medicare spending per beneficiary episode could recognize 
system-wide cost savings. However, we are going to implement a 30-day 
post-discharge period for the measure for the FY 2014 Hospital IQR 
Program for the reasons discussed above. We intend to revisit the 
episode length in the future in order to determine whether a longer 
Medicare spending per beneficiary post-discharge window would be 
appropriate for incentivizing greater efficiency, care coordination, 
and care transitions.
    Comment: One commenter expressed strong support for the 90-day 
post-discharge period, noting that it encourages the teamwork and care 
coordination that is necessary to achieve the delivery of high quality, 
efficient healthcare.
    Response: We agree that a 90-day episode would encourage teamwork 
and cooperation for the provision of quality care to Medicare 
beneficiaries. However, we are finalizing a 30-day post discharge 
window in order for hospitals to gain experience with the measure, and 
work toward redesign of care processes, while we consider whether it 
would be appropriate to propose to hold them accountable for 
coordinating services over a longer post-discharge period.

[[Page 51620]]

    Comment: Several commenters requested clarification as to whether 
the spending per beneficiary measure was intended to measure general 
per-beneficiary spending or to measure the per-beneficiary spending of 
specific hospitals. These commenters suggested that a 90-day post 
discharge period was appropriate for inclusion in an episode to measure 
general per-beneficiary spending, but that if that spending was to be 
attributed to a specific hospital, then a shorter period, such as 7 or 
15 days would be more appropriate.
    Response: The intent of the Medicare spending per beneficiary 
measure is to measure hospital-specific Medicare spending per 
beneficiary, as compared to the median Medicare spending amount across 
all hospitals nationally. We believe that a comparison of individual 
hospitals' spending to hospital spending on a national level will best 
allow hospitals to recognize where opportunities for improved 
efficiencies exist. We do not believe that display of general per 
beneficiary spending would achieve this intent, because it would not 
indicate to hospitals how their individual Medicare spending per 
beneficiary amount compares to other hospitals.
    After consideration of all public comments we received on the 
length of the Medicare spending per beneficiary episode, we are 
finalizing a Medicare spending per beneficiary episode, spanning from 3 
days prior to hospitalization through 30-days post discharge. We are 
finalizing the policy that only discharges occurring within 30 days 
before the end of the performance period will be counted as index 
admissions for purposes of calculating episodes. We intend to revisit 
the length of the Medicare spending per beneficiary episode as we gain 
more experience with the use of this measure and as hospitals 
increasingly focus on working to redesign care processes and to 
coordinate with other providers of care, in the interest of providing 
the highest-quality, most efficient coordinated care possible to the 
beneficiaries they serve.

 Medicare Payments Included in the Spending per Beneficiary 
Episode

    In order to calculate the Medicare spending per beneficiary, it is 
necessary to define the Medicare payments included in the spending per 
beneficiary episode. Subject to the adjustments described below, we 
proposed to include all Medicare Part A and Part B payments made for 
services provided to the beneficiary during the episode, including 
payments made by beneficiaries that we can determine using our claims 
data, such as Part B deductibles and coinsurance amounts. We believe 
that this comprehensive inclusion of Medicare Part A and Part B 
spending emphasizes the importance of care coordination in improving 
patient care. Encouraging delivery of coordinated care in an efficient 
manner over an extended time period is an important goal which can best 
be achieved through the inclusion of comprehensive Medicare Part A and 
Part B spending.
    We also proposed that transfers, readmissions, and additional 
admissions that began during the post discharge period of an index 
admission would be included in the episode used for calculating the 
measure.
    We proposed to exclude from the Medicare spending per beneficiary 
calculation episodes where at any time during the episode the 
beneficiary is not enrolled in both Medicare Part A and Medicare Part 
B, including if the beneficiary is enrolled in a Medicare Advantage 
plan at any time during the episode or becomes deceased. We also 
proposed to exclude any episodes where the beneficiary is covered by 
the Railroad Retirement Board, and where Medicare is a secondary payer. 
We also proposed to exclude episodes where the beneficiary is not 
enrolled in both Medicare Part A and Medicare Part B, for the 90 days 
prior to the episode, because we would not be able to capture all the 
data necessary for the severity of illness adjustment discussed later 
in this preamble. The rationale for exclusion of these episodes from 
the calculation of the Medicare spending per beneficiary is that we do 
not have full payment data to identify and standardize spending which 
would otherwise be attributable to these episodes.
    We received numerous public comments on the payments proposed for 
inclusion in the Medicare spending per beneficiary measure.
    Comment: Almost half of the commenters requested clarification of 
the proposed handling of transfer cases, and many requested 
clarification of the proposed handling of readmissions. One commenter 
requested clarification of the proposed handling of cases in which the 
beneficiary's primary insurance becomes Medicaid during the episode, 
due to exhaustion of Medicare Part A benefits.
    Response: We proposed to include in the spending per beneficiary 
episode all Medicare Part A and Part B payments made for services 
provided to the beneficiary during the episode that we can determine 
using our claims data. Readmissions and transfers would have been 
attributed to the hospital at which the index hospitalization occurred 
as long as they occurred during the post-discharge window of the index 
admission. For example, Medicare payments for any of the following 
which happened during the hospital stay or the post-discharge window 
would have been included in the Medicare spending per beneficiary 
episode: A beneficiary was transferred from the subsection (d) hospital 
to another subsection (d) hospital for the purposes of receiving 
inpatient services; a beneficiary was transferred from the subsection 
(d) hospital to a post-acute care setting, such as a SNF, LTCH, or 
home; a beneficiary was readmitted to the same subsection (d) hospital; 
and/or the beneficiary was admitted to a different subsection (d) 
hospital. As noted above, we are finalizing a Medicare spending per 
beneficiary episode, spanning from 3 days prior to hospitalization 
through 30-days post discharge, in response to public comment.
    Based on public comment, however, we have reconsidered the proposed 
handling of transfers from one subsection (d) hospital to another, as 
discussed below. We also note that, in response to public comment, we 
have reconsidered whether statistical outliers should be included in 
the Medicare spending per beneficiary amount, and we will exclude them, 
as discussed below. To clarify our proposal regarding beneficiaries 
whose primary insurance becomes Medicaid during the episode, due to 
exhaustion of Medicare Part A benefits, we will not include Medicaid 
payments made for services rendered to those beneficiaries during the 
episode, because this is a measure of Medicare spending per 
beneficiary, not Medicaid spending. We will include all Medicare Part A 
payments made before benefits are exhausted and all Medicare Part B 
payments made during the episode, consistent with our policy for 
inclusion of all Medicare Part A and Part B payments, with the 
exception of statistical outliers, as discussed below, in the 
calculation of hospitals' Medicare spending per beneficiary amounts in 
all cases. We intend to analyze the impact of including episodes in 
which beneficiaries' primary insurance changes to Medicaid in this 
measure and will consider refinements to this policy in the future. We 
will also include Medicare payments made for services rendered to 
beneficiaries who are eligible for both Medicare and Medicaid in the 
Medicare spending per beneficiary amount.
    Comment: Several commenters stated that inclusion of Medicare 
payments for all Part A and Part B services occurring

[[Page 51621]]

during the post-discharge period would penalize hospitals for ensuring 
that patients receive necessary post-discharge follow-up care.
    Response: We do not believe that inclusion of all Part A and Part B 
Medicare spending during the Medicare spending per beneficiary episode 
will penalize hospitals for ensuring that beneficiaries receive needed 
post-discharge care. The measure's purpose is to assess the amount of 
payments Medicare makes surrounding an inpatient hospital stay at a 
subsection (d) hospital, as compared to a national benchmark. We 
believe that hospitals which provide quality inpatient care and 
appropriate discharge planning and work with providers and suppliers on 
appropriate follow-up care will realize efficiencies and perform well 
on the measure, because the Medicare beneficiaries they serve will have 
a reduced need for excessive post-discharge services. We believe that 
including a 30-day post-discharge period, as compared to a shorter 
post-discharge period, such as 7 or 14 days, will further reduce the 
risk that hospitals might delay needed post-discharge care.
    Comment: Six commenters expressed the opinion that readmissions 
should be excluded from the measure, and four of those commenters 
believed that the Affordable Care Act prohibits inclusion of 
readmissions in this measure. Two of those commenters noted that 
readmissions are addressed in other measures. One commenter suggested 
that readmissions should not be attributed to the hospital at which the 
index admission occurred, and another commenter suggested that 
readmissions should not be treated as index admissions, for the 
purposes of creating new, distinct episodes. Six commenters suggested 
that unrelated readmissions should be excluded, and one commenter 
suggested that unrelated readmissions should not be attributed to the 
hospital where the index hospitalization occurred.
    Response: We disagree with the interpretation that the inclusion of 
Medicare spending for readmissions is contrary to the intent of the 
Affordable Care Act that the Hospital VBP Program may not include 
measures of readmissions. The Medicare spending per beneficiary measure 
is not a measure of readmission rates, but rather it is a measure of 
total Medicare spending per beneficiary, relative to a hospital stay. A 
Medicare spending per beneficiary measure is required by the Affordable 
Care Act to be included in the Hospital VBP Program, and therefore, in 
the Hospital IQR Program. We believe that the Medicare payments made 
for readmissions must be attributable to the index hospital stay, in 
order: to fully capture Medicare spending relative to a hospital stay; 
to encourage the provision of comprehensive inpatient care, discharge 
planning, and follow-up; and to strengthen incentives to reduce 
readmissions.
    With regard to exclusion of unrelated readmissions, we acknowledge 
the commenters who suggested that unforeseen events which are unrelated 
to the hospital stay could occur. However, we note that the measure is 
consistent with all cause readmission measures and that determinations 
of the degree of relatedness of each subsequent hospital stay to an 
initial hospitalization could be subjective and prohibitively complex. 
We believe that inclusion of all readmissions in the episode 
attributable to the index hospital stay is the best way to encourage 
quality inpatient care, care coordination, and care transitions. We 
note that all hospitals will be subject to the same method of 
calculation of their Medicare spending per beneficiary amounts, as 
compared to the median Medicare spending per beneficiary amount across 
all hospitals, so we do not believe that inclusion of all readmissions 
will notably disadvantage any individual hospital. We also note that, 
in response to public comment, we will exclude statistical outliers 
from the calculation of the Medicare spending per beneficiary amount, 
as discussed below.
    We agree with the commenter who suggested that a readmission 
occurring during a Medicare spending per beneficiary episode should not 
represent a new index hospitalization, for the purpose of generating a 
new Medicare spending per beneficiary episode. We also acknowledge the 
importance of aligning payment initiatives across CMS. Based on our 
consideration of the comments we received, we are shortening the 
proposed post-discharge period included in the Medicare spending per 
beneficiary episode to 30 days in this final rule, which is consistent 
with the Hospital Readmissions Reduction Program.
    Comment: One commenter stated that no services for conditions 
unrelated to the index hospitalization should be attributed to the 
hospital at which that hospitalization occurred.
    Response: We acknowledge the fact that health events which are 
unrelated to the hospital stay could occur and require treatment post-
discharge, during the Medicare spending per beneficiary episode. 
However, we believe that determinations of the degree of relatedness of 
each subsequent hospital stay to an initial hospitalization would be 
subjective and prohibitively complex. In order to capture the potential 
efficiencies which hospitals might achieve through provision of 
comprehensive, high-quality inpatient care, discharge planning, and 
care transitions, we believe that it is necessary to capture all Part A 
and Part B Medicare payments which occur during the Medicare spending 
per beneficiary episode surrounding the hospital stay. We also note 
that all hospitals will be subject to the same method of calculation of 
their Medicare spending per beneficiary amounts, as compared to the 
median Medicare spending per beneficiary amount across all hospitals, 
so we do not believe that inclusion of all post-discharge follow-up 
care will notably disadvantage any individual hospital. Again, we note 
that, in response to public comment, we will exclude statistical 
outliers from the calculation of the Medicare spending per beneficiary 
amount, as discussed below.
    Comment: Four commenters stated that transfer cases should be 
excluded, in order to avoid penalizing hospitals often called upon to 
receive transfers, because follow-up care may be received in a region 
outside the influence of the hospital receiving the transfer, and for 
consistency with the Hospital Readmissions Reduction Program.
    Response: The comments regarding attribution of Medicare payments 
for hospitalizations resulting in acute to acute transfers, and 
specifically, the potential impact on hospitals who transfer patients 
to another subsection (d) hospital or those who receive large numbers 
of transfers, have persuaded us that that the attribution of Medicare 
payments for hospitalizations resulting in acute to acute transfers 
requires further consideration. At this time, we will exclude cases 
involving acute to acute transfers from being considered index 
admissions. A case involving an acute to acute transfer will therefore 
not generate a new Medicare spending per beneficiary episode. This 
means that neither the hospital which transfers a patient to another 
subsection (d) hospital, nor the receiving subsection (d) hospital will 
have an index admission attributed to them for an acute-to-acute 
transfer case. The rationale for exclusion of these acute to acute 
transfer cases as index admissions is that CMS wishes to perform 
further analysis of hospital impacts and explore potential unintended 
consequences of attribution of the Medicare spending per beneficiary 
episode relative to the cases

[[Page 51622]]

to either the transferring or the receiving hospital. Therefore, at 
this time we will exclude acute-to-acute transfer cases from being 
counted as index admissions, and these cases will not create a new 
Medicare spending per beneficiary episode. However, if a patient is 
readmitted during the post-discharge window and then transferred to 
another acute care hospital, we will attribute these costs to the 
hospital where the original index admission occurred.
    For example, if a beneficiary is hospitalized in a subsection (d) 
hospital (Hospital A), then discharged from that hospital to home or to 
another subacute level of care, such as a SNF, then that 
hospitalization would represent an index admission, and the Medicare 
Part A and Part B payments (with the exception of statistical outliers) 
which are made during the Medicare spending per beneficiary episode 
spanning from 3 days prior to admission through 30 days post discharge 
(including payments to a subacute facility) would be included in the 
Medicare spending per beneficiary amount attributed to Hospital A. We 
would also include, in the total Part A and Part B payments attributed 
to hospital A, any Medicare payments made for the beneficiary's 
readmission to the same or a different subsection (d) hospital during 
the 30 day post-discharge window, including any case where during that 
subsequent hospitalization, the beneficiary is transferred to another 
subsection (d) hospital.
    Comment: Several commenters offered their views regarding the 
importance of looking at Medicare spending concurrently with other 
measures of quality, and potential unintended consequences of a measure 
which is specific to Medicare spending. These commenters stated that 
the scope of the measure should not be Medicare spending alone, but 
that spending data should be tied to other measures. One commenter 
suggested that the measure should assess conformity toward an endorsed 
care process. Several commenters stated that an efficiency measure 
should measure cost concurrently with quality or outcomes measures, and 
three commenters stated that Medicare spending data could be 
misinterpreted in the absence of quality data.
    One commenter stated that the measure should be implemented for FY 
2014, but should be adjusted to tie in a new HCAHPS measure of care 
transitions. Three commenters stated that a spending-only measure could 
result in the unintended consequence of efforts to cut cost by limiting 
needed care, and another commenter suggested that it could result in a 
risk of hospital avoidance of complex patients. One commenter stated 
that the measure would penalize hospitals that work to keep all but the 
sickest patients out of the hospital. One commenter stated that the 
measure would result in physicians placing more patients into inpatient 
care, post hospital discharge, in order to assure proper care 
transitions, and one commenter questioned the measure's inclusion in a 
quality reporting program when it does not inherently measure quality.
    Response: We agree with the commenters that it is useful to view a 
measure of Medicare spending per beneficiary in conjunction with other 
quality measures. We will provide explanatory language on Hospital 
Compare, in order to assist beneficiaries in interpreting the Medicare 
spending per beneficiary measure data. We also note that we developed 
this measure with the intent of including it in the Hospital VBP 
Program, where it will represent the first measure in a new Efficiency 
domain. Under that program, we will weight and combine the Efficiency 
domain with the other, individual domain scores, in order to calculate 
each hospital's Total Performance Score (TPS). This procedure for 
calculating a TPS ensures that spending per beneficiary makes up only a 
portion of the TPS, and that the remainder is based on hospitals' 
performance on the other measures.
    We disagree that Medicare spending per beneficiary should be tied 
to a new HCAHPS measure. The Affordable Care Act requires the inclusion 
of efficiency measures, and specifically the inclusion of a measure of 
Medicare spending per beneficiary, in the Hospital VBP Program, which 
in turn, means that the measure must also be adopted for the Hospital 
IQR Program. We believe the intent of this statutory mandate is for 
Medicare spending to be independently measured.
    The data for the Medicare spending per beneficiary measure will be 
posted on Hospital Compare, along with the other hospital quality 
measure data available on that Web site. We will also provide 
explanatory language, in order to assist beneficiaries in interpreting 
the Medicare spending per beneficiary measure data. We appreciate the 
commenters' concerns regarding unintended consequences of a spending 
per beneficiary measure, and will monitor for any utilization changes 
which may result from this measure.
    We disagree that the measure will penalize hospitals that work to 
keep all but the sickest beneficiaries out of the hospital. We proposed 
to utilize the primary diagnoses and comorbidities from claims 
submitted during the 90-days preceding the Medicare spending per 
beneficiary episode to risk-adjust Medicare payments made for services 
provided to beneficiaries during an inpatient hospital stay and during 
the Medicare spending per beneficiary episode surrounding the stay. We 
believe that this will adequately account for hospital treatment of 
complex patients. We also disagree with the comment that the measure 
provides an incentive for increased discharges from hospitals to other 
inpatient settings. We believe that hospitals will have an incentive to 
coordinate care and discharge beneficiaries to the most appropriate 
setting, including utilizing less-costly outpatient levels of care for 
post-discharge care. With regard to inclusion of the Medicare spending 
per beneficiary in a quality reporting program, we disagree with the 
comment that it does not belong in the program. We believe that 
hospitals' provision of quality, coordinated care will result in more 
efficient and effective delivery of care for Medicare beneficiaries and 
provides an incentive to eliminate unnecessary services. Therefore, we 
believe that a measure of Medicare spending per beneficiary is a 
measure of quality.
    Comment: Two commenters objected to the use of an episode in the 
Medicare spending per beneficiary measure because they believed that it 
did not meet the intent of the Affordable Care Act to measure spending 
per beneficiary.
    Response: The Affordable Care Act requires that the Hospital VBP 
Program include measures of efficiency, including Medicare spending per 
beneficiary. As we expand the Hospital VBP Program Efficiency domain, 
we will consider adding additional measures of efficiency, which could 
include measures of internal hospital efficiencies, through future 
rulemaking.
    Comment: One commenter suggested that spending for Medicare 
Advantage beneficiaries should be included in the measure, because non-
managed care beneficiaries are costlier.
    Response: We do not have evidence that managed care beneficiaries 
are less expensive. In order to minimize burden on hospitals, CMS has 
proposed the Medicare spending per beneficiary measure as a claims-
based measure. Therefore, we cannot include spending for managed care 
beneficiaries in the measure calculation since we do not have fee-for-
service claims for these patients. In order to fairly compare 
hospitals' spending, we have proposed

[[Page 51623]]

to exclude from the measure any episodes in which we do not have 
complete Medicare FFS claims data, such as those enrolled in Medicare 
Advantage plans. We will account for the complexities and resulting 
costs associated with caring for Medicare beneficiaries who have 
complex conditions by risk-adjusting for beneficiary age and severity 
of illness.
    Comment: One commenter suggested that Medicare payments for drugs 
should be included, because expenditure on a new technology, for 
example, could offset future costs for drugs.
    Response: We appreciate this comment and will take it into 
consideration in future rulemaking for the Medicare spending per 
beneficiary measure. At this time, we are able to include Part A and 
Part B payments, so payments for Part B drugs will be included in the 
Medicare spending per beneficiary amount. We will consider whether to 
propose to include Medicare payments made under the Medicare Part D 
drug payment system in the future.
    Comment: Two commenters stated that a hospital cost efficiency 
measure should be limited to hospital resource use, such as resources 
used to treat HAIs and falls, or provision of appropriate lengths of 
stay.
    Response: We disagree with these comments. The Affordable Care Act 
requires that the Hospital VBP Program include measures of efficiency, 
including Medicare spending per beneficiary. We do not believe that a 
measure of hospital resource use, rather than Medicare payments, as 
suggested by the commenters, would meet the intent of the law that we 
include a measure of Medicare spending per beneficiary. As we expand 
the Hospital VBP Program Efficiency domain, we will consider adding 
additional measures of efficiency, which could include measures of 
internal hospital efficiencies, through future rulemaking.
    Comment: One commenter stated that CMS policies should not punish 
the most efficient states and that CMS should seek savings from 
providers and regions that use the highest levels of respurces to care 
for patients.
    Response: We agree that efficient providers should not be 
penalized, and we believe they will be incentivized under this measure. 
We are finalizing our proposal to calculate hospitals' Medicare 
spending per beneficiary ratios as compared to the median spending 
across all hospitals; therefore, we believe that hospitals who 
demonstrate efficiencies in the provision of care for their patients 
will perform well on the measure, regardless of where the hospital is 
located.
    Comment: Two commenters stated that there was no scientific or 
evidentiary support for the measure.
    Response: We recognize that this Medicare spending per beneficiary 
measure is a new type of measure for the Hospital IQR and Hospital VBP 
Programs. A measure of Medicare spending per beneficiary is is mandated 
by the Affordable Care Act, so we developed a measure to capture 
Medicare payments made in an episode surrounding a hospital stay, in 
order to compare hospitals' individual spending to spending across all 
hospitals. We considered many factors in developing the measure and 
outlined in detail our methodology in the proposed rule. We believe 
that this measure will provide an incentive to hospitals to redesign 
care systems in order to better coordinate and provide high-quality, 
cost-efficient care to Medicare beneficiaries. As we gain more 
experience with the use of this new type measure for the Hospital IQR 
Program, we will continue to analyze and refine the measure as 
appropriate, based on that experience.
    Comment: Several commenters recommended that the scope of Medicare 
payments included in the Medicare spending per beneficiary be narrowed. 
MedPAC suggested focus on a subset of episode costs associated with the 
stay, such as the stay itself and post acute care provided during a 
shortened post-discharge period. Two commenters suggested use of 
condition-specific measures to address costs associated with diagnoses 
such as acute myocardial infarction (AMI), heart failure (HF), or 
pneumonia. One commenter suggested that the measure should be better 
targeted, consistent with the Hospital Readmissions Reduction Program 
and the bundling pilot, and another commenter suggested that the 
measure should use criteria similar to those required for the bundling 
pilot. One commenter suggested that the measure be limited to inpatient 
hospital spending over 90 days, in an effort to reduce readmissions 
through care coordination, but with the recognition that other types of 
providers do not have the same incentives to reduce Medicare spending.
    Response: We appreciate the commenters suggestion that the Medicare 
spending per beneficiary measure should be aligned with measures used 
in other Medicare payment incentive programs. We believe that inclusion 
of Medicare spending for all Part A and Part B services in the 
calculation of the hospital's Medicare spending per beneficiary amount 
aligns with the aim of reducing readmissions under the Hospital 
Readmissions Reduction Program. We also note that the bundling pilot is 
under development and we will seek to align the Hospital VBP Program 
with that program as it develops.
    We appreciate the comments regarding the use of targeted or 
condition-specific measures in the interest of aligning with other CMS-
initiatives. While the Affordable Care Act does not limit the Secretary 
to adopting only one efficiency measure, it does specify that the 
efficiency measures must include a measure of Medicare spending per 
beneficiary, not per condition. At this time, we believe that inclusion 
of Medicare spending related to hospital stays for all diagnoses is the 
best approach to enable hospitals identify where opportunities for 
improved coordination and efficiency exist, by measuring hospitals' 
individual Medicare spending per beneficiary amount, as compared to 
Medicare spending per beneficiary on a national basis. We will consider 
adding condition-specific measures to the Hospital IQR Program and to 
the Efficiency domain in the Hospital VBP Program in the future, 
through rulemaking. We have shortened the post-discharge period during 
which Medicare payments will be included in the calculation of the 
Medicare spending per beneficiary amount in order to more closely align 
the measure with the Hospital Readmissions Reduction Program and other 
related initiatives.
    We disagree with the comment that only inpatient payments should be 
counted toward the Medicare spending per beneficiary amount. As we 
explained above, we do not believe that inclusion of inpatient hospital 
payments only will sufficiently address the need for care coordination 
and care transitions across all settings, in the interest of providing 
the highest-quality, most efficient care to Medicare beneficiaries.
    Comment: Some commenters stated that CMS should collect more data 
regarding the impact of inclusion of spending for post-acute care 
services in the measure, due to variability in access across different 
geographic areas, prior to including spending for these services in the 
measure. Two commenters suggested that no post-discharge services 
should be included in the measure, and expressed their belief that 
post-discharge services are not within a hospital's control. A few 
commenters stated that the measure should address processes or outcomes 
which are under

[[Page 51624]]

hospital control, and that all Medicare spending within a 90-day post-
discharge period is not under hospital control. A few commenters 
expressed that post-discharge payments depend more on physician 
management, beneficiary compliance with care planning, and community 
resources than they depend on care coordination by the hospital.
    Response: We acknowledge the comments that geographic variability 
in access to post-acute care services exists. However, we believe that 
hospitals have a responsibility to encourage the highest-quality, most 
coordinated and efficient care for the beneficiaries they serve, 
regardless of their geographic location.
    We disagree with commenters who stated that Medicare spending for 
post-discharge services is outside the hospitals' control, even within 
a 90-day post-discharge period. (As previously discussed, we are 
finalizing a 30-day post-discharge period for the initial 
implementation of this measure.) We believe that as hospitals focus on 
working to redesign care systems and to coordinate with other providers 
of care they can have a significant impact on the quality and 
efficiency of services provided to the Medicare beneficiaries they 
serve. As a result, we plan to revisit the issue of expanding the 
episode duration by lengthening the period of time post discharge in 
future rulemaking. We acknowledge that physician management, 
beneficiary compliance with post-discharge instructions, and 
availability of community resources contribute to Medicare spending 
after hospital discharge. However, we believe that hospitals have a 
significant influence on Medicare spending during the episode 
surrounding a hospitalization, through the provision of appropriate, 
high-quality care before and during inpatient hospitalization and 
through proper hospital discharge planning, care coordination, and care 
transitions. We believe that this measure will add an additional 
incentive for hospitals to apply this influence in ways that will 
promote the provision of the highest quality, most efficient care for 
hospitalized Medicare beneficiaries.
    After consideration of all public comments we received on our 
proposals regarding which Medicare payments we will include in the 
Medicare spending per beneficiary episode, we are finalizing the 
inclusion of Medicare payments for all Part A and Part B services 
rendered to Medicare beneficiaries during the Medicare spending per 
beneficiary episode, with the exception of statistical outliers, in the 
Medicare spending per beneficiary amount, which we will attribute to 
the hospital at which the index admission occurred. We will exclude 
cases involving acute to acute transfers from being counted as index 
admissions. A case involving an acute to acute transfer will therefore 
not generate a new Medicare spending per beneficiary episode. This 
means that neither the hospital which transfers a patient to another 
subsection (d) hospital, nor the receiving subsection (d) hospital will 
have an index admission attributed to them for purposes of creating a 
Medicare spending per beneficiary episode. However, if a patient is 
readmitted during the post-discharge window and then transferred to 
another acute care hospital, we will attribute these costs to the 
hospital where the original index admission occurred.
    We will attribute Medicare payments for acute to subacute 
transfers, such as discharges from a subsection (d) hospital to a SNF, 
IRF, or LTCH, to the index admission, as proposed.

 Adjusting the Medicare Payments Included in the Spending per 
Beneficiary Episode

    Section 1886(o)(2)(B)(ii) of the Act requires that a Medicare 
spending per beneficiary measure adopted for the Hospital VBP Program 
be ``adjusted for factors such as age, sex, race, severity of illness, 
and other factors that the Secretary determines appropriate.'' 
Consistent with these statutory requirements, we proposed to adjust the 
proposed Medicare spending per beneficiary measure for age and severity 
of illness. We proposed to adjust for severity of illness based on the 
hierarchical condition categories (HCCs) for the period 90 days prior 
to the episode and based on the MS-DRG during the index admission. 
Adding the MS-DRG to the use of the HCC improves the severity of 
illness adjustment and better standardizes the data, allowing for more 
valid comparisons of Medicare spending per beneficiary amounts across 
hospitals. Note that we would exclude episodes where the beneficiary is 
not enrolled in both Medicare Part A and Medicare Part B, for the 90 
days prior to the episode because we would not be able to capture all 
the data necessary for the severity of illness adjustment.
    We did not propose to adjust the Medicare spending per beneficiary 
for sex and race, consistent with our understanding of NQF's position 
strongly discouraging adjusting measures based on these factors.
    In addition, we proposed to exclude geographic payment rate 
differences (for example, based on the wage index and geographic 
practice cost index) in order to standardize the spending per 
beneficiary. We did not propose to adjust for geographic differences in 
spending that are unrelated to geographic payment rate differences. 
However, we sought comment on whether there are geographic factors 
other than payment rate differences that should be considered in the 
spending per beneficiary measure. We also proposed to standardize 
spending by excluding the portion of IPPS payments resulting from the 
payment differentials caused by hospital-specific rates, IME, and DSH. 
We did not propose to exclude spending for hospitals that are paid 
Hospital-Specific Rates, rather we proposed to exclude the differential 
additional spending that results from the use of the hospital-specific 
rates. Making these adjustments allows for more valid comparisons of 
Medicare spending per beneficiary amounts across hospitals. For 
example, without adjusting for geographic payment rate differences, a 
hospital might have higher or lower spending per beneficiary amounts 
compared to other hospitals based on its wage index and not its 
performance.
    Comment: The majority of commenters supported the proposal to 
adjust for beneficiary age and severity, as well as for geographic and 
hospital-specific payment differences. Many commenters suggested that 
payment standardization should also go further, to adjust for 
beneficiary demographic and socioeconomic factors, including sex, race, 
working status, disability status, and Medicaid eligibility.
    Response: We appreciate the comments supporting the severity of 
illness and age adjustments proposed. We disagree with the comments 
that risk-adjustment for the Medicare spending per beneficiary measure 
should include further adjustment for socioeconomic factors. Consistent 
with NQF's position on not adjusting for potential demographic (sex or 
race) or socioeconomic factors, we believe that the best adjustment for 
a payment measure is based on the beneficiaries' underlying health 
status, not demographic or socioeconomic factors. We intend to further 
analyze the implications of risk-adjustment for additional factors; 
however at this time, we feel that for initial implementation, 
consistency with the NQF position is the best approach to risk-
adjusting the Medicare spending per beneficiary measure. As we 
proposed, we will take into account the underlying health status and 
acuity levels for all patients before the episode in risk-adjusting

[[Page 51625]]

because these factors reflect the complexities these patients may 
present.
    Comment: Three commenters suggested that physician services should 
be risk-adjusted, as well as the hospital services.
    Response: We agree with these commenters. We intend to adjust total 
Medicare Part A and Part B payments for services received during 
hospitalization as well as for those received during the episode 
surrounding the hospital stay.
    Comment: One commenter stated that there is little evidence that 
the use of the diagnosis categories used for hierarchical condition 
category (HCC) scores accurately quantify severity. Three commenters 
suggested that HCCs should look back further than 90 days, and one 
stated that they should factor in not only primary diagnoses, but also 
comorbities.
    Response: First, we are clarifying that we are not applying the 
HCCs in a hierarchical manner, in which some diagnoses would in effect 
cancel others out. Rather, we are utilizing the diagnosis codes, both 
primary diagnoses and comorbidities, from the 90 days preceding the 
Medicare spending per beneficiary episode to risk adjust the Medicare 
Part A and Part B payments for services received during the Medicare 
spending per beneficiary episode. We believe that this approach is 
sensitive to all of the diagnoses most directly affecting the hospital 
stay. In addition, we will perform a risk adjustment for the 
beneficiary's age. We are open to future refinements to the risk-
adjustment methodology, including potentially looking back further than 
90 days for risk adjustment to the Medicare spending per beneficiary 
episode calculation, in future rulemaking.
    Comment: Some commenters suggested that CMS should also exclude 
from the calculation of the Medicare spending per beneficiary measure 
any payment differences resulting from other policy or incentive 
payments, including payment differences for physician services rendered 
in Federally-qualified health centers (FQHC), rural health center 
(RHC), and Outpatient PPS (OPPS) settings, new technology add-ons, sole 
community providers, and Medicare-dependent hospitals, as well as 
incentives from the Hospital VBP Program, meaningful use under the EHR 
Incentive Program, PQRS, or other current or future incentive payment 
adjustments.
    Response: We agree with the commenters that Medicare payment 
incentives, including the Hospital VBP Program, meaningful use under 
the EHR Incentive Program, PQRS, should not be factored in to the 
Medicare spending per beneficiary amount. They will not be included, in 
order to avoid penalizing high-quality and efficient hospitals. 
Likewise, we will exclude hospital-specific rates from the Medicare 
spending per beneficiary amount, so payment differentials for sole 
community hospitals and Medicare-dependent hospitals would not be 
included. We are excluding these payment adjustments from the 
calculation of the Medicare spending per beneficiary amount because we 
believe that they represent differences in the Medicare payments made 
to these types of hospitals, rather than differences resulting from 
hospitals' choices in provision of care or coordination of post-
discharge services.
    We disagree with the comment that the Medicare spending per 
beneficiary amount should be adjusted for the differential amount paid 
for physician services rendered in RHCs, FQHCs, or OPPS setting. First, 
we believe that adjustment for these ``site of services'' differences 
would undermine the ability of this measure to meaningfully capture 
differences in Medicare spending per beneficiary related to inpatient 
hospitalizations. Also, we do not believe that adjusting out such 
differences would result in a significant impact to any hospital's 
Medicare spending per beneficiary amount or their subsequent value-
based incentive payment amount. Physician services make up only a 
portion of the Medicare payments which are summed to calculate a 
hospital's Medicare spending per beneficiary amount, so the 
differential impact of physician services on the measure would be 
further minimized. In addition we are moving to a 30-day post-discharge 
period, which we believe will further reduce the impact of any payment 
differentials resulting from the receipt of physician services in 
various settings.
    We are therefore not adjusting out differential payments made for 
physician services based on site of service such as RHCs, FQHCs, or 
OPPS settings. We appreciate the comments on adjusting for the new-
technology add-on payment. We intend to address this payment through 
future rulemaking, prior to the implementation of the FY 2014 Hospital 
VBP Program payment adjustment, and we will seek to align with other 
CMS incentive programs in addressing new technology add-on payments.
    Comment: Four commenters stated that CMS should adjust for hospital 
case mix, in order to avoid penalizing hospitals serving specific 
populations, such as transplant centers or areas with high levels of 
chronic illness. One commenter suggested that CMS could adjust for 
underuse, or hospitals' failure to provide needed care, in order to 
avoid setting a benchmark reflecting underuse, and for overuse, or 
excessive use of healthcare services, due to poverty by stratifying the 
beneficiaries into cohorts reflecting disability status and Medicaid 
eligibility status.
    Response: We disagree that an additional adjustment should be made 
to the Medicare spending per beneficiary amount to account for hospital 
case mix. As we proposed, we are applying a severity adjustment on a 
per-beneficiary basis, so hospitals serving large proportions of 
Medicare beneficiaries with complex conditions will not be 
disadvantaged.
    We appreciate the comment regarding stratifying beneficiaries 
according to disability and Medicaid eligibility status, as a method to 
avoid setting benchmarks and making comparisons which are not 
appropriate for all populations. At this time, we are implementing this 
measure with adjustments for beneficiary age and severity of illness, 
which is consistent with NQF's position on not risk-adjusting potential 
race, socioeconomic, or gender disparities. Stratification of 
beneficiaries is an approach which we may consider in future 
refinements to the risk adjustment methodology, through future 
rulemaking. We intend to analyze the risk-adjustment methodology, as we 
gain experience with this measure, for potential changes to the 
methodology we are finalizing for the initial implementation.
    Comment: Two commenters suggested that CMS convene a panel to 
determine the best risk-adjustment strategy. One commenter suggested 
that no further risk adjustment beyond what was proposed should be 
undertaken without further analysis.
    Response: We agree that a panel may be a useful tool in achieving 
consensus on a strategy. We are open to suggestions for future 
refinements to the Medicare spending per beneficiary measure, for 
future fiscal years' payment adjustments. However, at this time 
convening a panel would delay implementation of this important measure 
emphasizing coordination and efficiency in the delivery of health care 
services to Medicare beneficiaries.
    After considering all public comments we received on our proposals 
for adjusting the Medicare payments included in the Medicare spending 
per beneficiary episode, we are finalizing our proposal to adjust the 
Medicare spending per beneficiary amount for beneficiary age and 
severity of illness,

[[Page 51626]]

as calculated by applying the hierarchical condition categories which 
apply to the beneficiary during the 90 days preceding the Medicare 
spending per beneficiary episode. We will also adjust for geographic 
payment differences such as wage index and geographic practice cost 
differences. We will further adjust for Medicare payment differences 
resulting from hospital-specific rates, IME and DSH payments, as 
proposed. In addition, in response to public comment as discussed 
above, we will exclude statistical outliers and Medicare payment 
incentives, including the Hospital VBP Program, meaningful use under 
the EHR Incentive Program, and PQRS incentives, from the calculation of 
the Medicare spending per beneficiary amount.

 Calculating a Hospital's Medicare Spending per Beneficiary 
Amount

    For each subsection (d) hospital participating in the Hospital IQR 
Program, we proposed to add together all the adjusted Medicare Part A 
and Part B payments, as defined above, with the exception of 
statistical outliers, included in all the Medicare spending per 
beneficiary episodes, as defined above, for that hospital. We would 
then divide this sum by the total number of Medicare spending per 
beneficiary episodes for that hospital. The resulting amount would 
constitute the hospital's Medicare spending per beneficiary amount for 
the period. The discharge period that we proposed to apply the proposed 
measure for the FY 2014 Hospital IQR Program is May 15, 2012 through 
February 14, 2013.
    Comment: A few commenters questioned whether CMS has sufficient 
internal controls to ensure accurate calculation of a complex measure 
spanning time and service areas. Three commenters expressed concern 
that outliers would skew the calculation.
    Response: We acknowledge that a Medicare spending per beneficiary 
measure is new to the Hospital IQR Program. However, we will have in 
place internal checks to ensure that calculations are complete and 
accurate. Hospitals wil also have an opportunity to review and correct 
any information made public about them, with respect to this measure. 
We agree with the commenters' suggestion that statistical outliers 
should be excluded, so that low-volume hospitals are not potentially 
disadvantaged by one or two anomalous high-cost outliers having a 
significant impact on their Medicare spending per beneficiary amount. 
We will exclude them from the calculation of individual hospitals' 
Medicare spending per beneficiary amount and from the calculation of 
the median Medicare spending per beneficiary amount across hospitals.
    Comment: Nine commenters requested that the data used to calculate 
the Medicare spending per beneficiary amount be made public in time for 
public comment, and so that hospitals and advocacy groups could check 
CMS' calculations. One commenter suggested that a relative-value unit 
(RVU) system be used for simplicity and transparency in calculating 
standardized payment amounts.
    Response: We appreciate the suggestion that an RVU system could be 
used for the calculation of a Medicare spending per beneficiary amount 
and may consider such an approach for future refinements through 
rulemaking. We understand the importance of hospital access to data 
used to calculate the Medicare spending per beneficiary measure. In 
response to these comments, we intend to make a public use file 
available, so that hospitals can determine their own historical 
Medicare spending per beneficiary amounts and identify the drivers of 
those amounts.
    After considering the public comments received on our proposals for 
calculating a hospital's Medicare spending per beneficiary amount, we 
are finalizing calculation of a Medicare spending per beneficiary 
amount which is inclusive of most Medicare Part A and Part B payments 
made for services provided to Medicare beneficiaries during the 
Medicare spending per beneficiary episode. In addition to the 
exclusions we identified above, we will exclude statistical outliers 
from the calculation of individual hospitals Medicare spending per 
beneficiary amounts and from the calculation of the median Medicare 
spending per beneficiary amount across hospitals. We intend to make a 
public use file available so that hospitals may determine their own 
historical Medicare spending per beneficiary amounts.

 Calculating a Hospital's Medicare Spending per Beneficiary 
Ratio

    We proposed to calculate a hospital's Medicare spending per 
beneficiary ratio as the hospital's Medicare spending per beneficiary 
amount divided by the median Medicare spending per beneficiary amount 
across all hospitals.
    As noted above, we also proposed to adopt this proposed measure for 
the Hospital VBP Program FY 2014 measure set. The proposed method for 
scoring and incorporating this Medicare spending per beneficiary ratio 
into the hospital's TPS for the Hospital VBP Program, as part of a new 
Efficiency domain, is fully described in section IV.B.3.b.(3)(C) of the 
FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25928) and the method we are 
adopting is fully described in section IV.B.3.b.(3)(C) of this final 
rule. The proposed weighting for the Efficiency domain is proposed in 
the FY 2012 OPPS/ASC proposed rule.
    Comment: One commenter suggested that CMS use the mean, rather than 
the median spending per beneficiary amount for the purposes of 
calculating the Medicare spending per beneficiary ratio, stating that 
the mean is less sensitive to being skewed by outliers.
    Response: We disagree with the comment that the median is more 
sensitive to being skewed by outliers than the mean is. That is why we 
proposed to use the median for the purposes of comparison and 
calculation of the Medicare spending per beneficiary ratio. 
Furthermore, we are finalizing our proposal to exclude outliers from 
the calculations.
    Comment: MedPAC suggested that CMS should align incentives for 
hospitals and post-acute care providers to reduce readmissions, toward 
an end goal of alignment of incentives across the sectors, in order to 
improve the quality and reduce the cost of episodes of care, and to 
reduce the number of unnecessary inpatient episodes.
    Response: We agree that alignment of incentives is an important 
goal. We will keep that goal in mind as we work to refine the Medicare 
spending per beneficiary measure. However, we acknowledge that this 
measure alone would not be a sufficient vehicle to fully accomplish 
that goal.
    After consideration of the public comments received on our proposal 
for calculating a hospital's Medicare spending per beneficiary ratio, 
we are finalizing our proposal to calculate individual hospitals' 
Medicare spending per beneficiary ratios as their individual Medicare 
spending per beneficiary amount divided by the median Medicare spending 
per beneficiary amount across all hospitals.
    In summary, after consideration of all public comments we received, 
we are finalizing the following policies related to the inclusion of 
the Medicare spending per beneficiary measure in the Hospital IQR 
Program.
    We are finalizing a Medicare spending per beneficiary episode, 
spanning from three days prior to hospitalization through 30-days post 
discharge. We are finalizing the policy that only discharges occurring 
within 30 days before the end of the performance period will be counted 
as index admissions.

[[Page 51627]]

    We are finalizing the inclusion of all Medicare Part A and Part B 
payments for services rendered to Medicare beneficiaries during the 
Medicare spending per beneficiary episode, with the exception of 
statistical outliers, in the Medicare spending per beneficiary amount, 
which we will attribute to the hospital at which the index admission 
occurred. We are finalizing that cases involving acute to acute 
transfers will be excluded from being counted as index admissions and 
that those cases will not generate new Medicare spending per 
beneficiary episodes.
    We are finalizing our proposal to adjust the Medicare spending per 
beneficiary amount for beneficiary age and for severity of illness, as 
calculated by applying the hierarchical condition categories which 
apply to the beneficiary during the 90 days preceding the Medicare 
spending per beneficiary episode. We are finalizing our proposal to 
adjust for geographic payment differences such as wage index and 
geographic practice cost differences. We are finalizing our proposal to 
adjust for Medicare payment differences resulting from hospital-
specific rates, IME and DSH payments, and to adjust for Medicare 
payment incentives, including Hospital VBP Program, meaningful use 
under the EHR Incentive Program, and PQRS.
    We are finalizing calculation of a Medicare spending per 
beneficiary amount which is inclusive of all Medicare Part A and Part B 
payments made for services provided to Medicare beneficiaries during 
the Medicare spending per beneficiary episode surrounding an index 
hospitalization, excluding statistical outliers. We intend to make a 
public use file available so that hospitals may determine their own 
historical Medicare spending per beneficiary amount.
    We are finalizing our proposal to calculate individual hospitals' 
Medicare spending per beneficiary ratios as their individual Medicare 
spending per beneficiary amount divided by the median Medicare spending 
per beneficiary amount across all hospitals.
    We note that after consideration of the comments, this measure is 
also being finalized for inclusion in the Hospital VBP Program, and 
this discussion is located in section IV.B.3.b. of this final rule.
(C) New Web-Based Structural Measure
    Structural measures assess the characteristics and capacity of the 
provider to deliver quality health care. In the FY 2009 IPPS final 
rule, we finalized the ``Participation in a Systematic Database 
Registry for Cardiac Surgery'' measure (73 FR 48609) for the FY 2010 
payment determination. This measure does not require the hospital to 
actually participate in a cardiac surgery registry, instead, it only 
requires the hospital to report whether or not it participates in a 
cardiac surgery registry. In the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (74 FR 43871 and 43872), we adopted two more structural measures: 
Participation in a Systematic Clinical Database Registry for Stroke 
Care; and Participation in a Systematic Clinical Database Registry for 
Nursing Sensitive Care under the Hospital IQR Program for the FY 2011 
payment determination. Based on public comments, we collect these 
structural measures once annually.
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25897 through 
25898), we proposed to include a new structural measure, Participation 
in a Systematic Clinical Database Registry for General Surgery, in the 
Hospital IQR Program beginning with the FY 2014 payment determination. 
The Participation in a Systematic Clinical Database Registry for 
General Surgery measure would require each hospital that participates 
in Hospital IQR Program to indicate whether it is participating in a 
Systematic Clinical Database Registry for General Surgery and, if so, 
to identify the registry. This measure, like two of the previously 
adopted structural measures on registry participation (Participation in 
a Systematic Clinical Database Registry for Stroke Care; and 
Participation in a Systematic Clinical Database Registry for Nursing 
Sensitive Care), is an application of an NQF-endorsed measure (NQF 
 0493) ``Participation by a physician or other clinician in a 
systematic clinical database registry that includes consensus endorsed 
quality measures'' to the inpatient facility.
    We recognize that the NQF has endorsed this measure for the 
physician/clinician setting, but believe that this measure is highly 
relevant to the hospital setting, in that participation in a systematic 
clinical database registry for various topics is quite common in 
hospitals. Therefore, we previously adopted the Stroke and Nursing 
Sensitive Care registry participation measures as applications of the 
measure appropriate to the hospital inpatient setting. We reviewed the 
NQF's consensus endorsed measures, as well as measures endorsed or 
adopted by other organizations, and were unable to identify any other 
measures specifically for participation in a systematic clinical 
database registry for general surgery that have been endorsed for the 
hospital inpatient setting. Having given due consideration to other 
measures that have been endorsed or adopted by a consensus entity, we 
proposed to adopt an application of this non-NQF endorsed measure under 
the Secretary's authority to select non-NQF endorsed measures where 
such measures do not exist for a specified topic or medical topic. We 
proposed to adopt the measure under the exception authority provided in 
section 1886(b)(3)(B)(IX)(bb) of the Act. Additionally, we believe 
that, for the same reasons, the previously adopted structural measures 
for Stroke and Nursing Sensitive Care registries also meet the 
requirements under this authority and proposed to continue collecting 
them on that basis.
    We proposed that annual data submission for this proposed 
structural measure via a Web-based collection tool would occur between 
April 1, 2013 and May 15, 2013 with respect to the time period January 
1, 2012, through December 31, 2012. This collection period and time 
period were included in a correction notice to the FY 2012 IPPS/LTCH 
proposed rule published at (76 FR 34633).
    We believe that participation in a registry provides hospitals with 
valuable ongoing quality improvement information and demonstrates a 
commitment to improve. Many registries also collect outcome data and 
provide feedback to hospitals about their performance. We invited 
public comment on this proposal to include this structural measure for 
the FY 2014 payment determination.
    Comment: Some commenters did not support the adoption of the 
proposed structural measure because they believed that the measure is 
neither tightly linked to improving the quality of patient care, nor is 
it NQF-endorsed or adopted by the HQA.
    Response: This measure is an application of an NQF-endorsed measure 
for the hospital inpatient setting. We believe that structural measures 
are backbones to quality care as they assess whether infrastructure or 
conditions conducive to providing high quality care are present.
    Comment: Some commenters did not support the adoption of this 
structural measure because they believed that registry participation 
might create a false assumption among beneficiaries that the quality of 
a hospital can be judged by its participation or non-participation in 
the registry. The commenters also objected because they felt they would 
be required to participate in a registry and incur fees, and believed 
that registry participation should be voluntary. Furthermore, the

[[Page 51628]]

commenters stated that the addition of another registry measure is not 
meaningful given CMS' goal of establishing an EHR-based quality data 
reporting program by 2015.
    Response: We understand the commenters' concerns. We want to 
clarify that the structural registry measure that we are finalizing 
does not require participation in any registry. To meet the reporting 
requirements for the structural measure, hospitals only have to answer 
yes or no to a question about whether they participate in a systematic 
clinical database registry for general surgery, and if so to indicate 
the registry. We do not believe adoption of a structural measure is 
incompatible with our goal to switch to EHR-based reporting by 2015, 
because many registries accept data from EHRs. After consideration of 
the public comments received, we are finalizing the proposed structural 
measure for FY 2014 payment determination.
    In summary, after consideration of the public comments received, we 
are finalizing the retirement of 4 measures from the FY 2014 measure 
set that was finalized in the FY 2011 IPPS/LTCH PPS final rule, 
suspending collection for 4 measures beginning with January 1, 2012 
discharges, and adding 3 new measures to the measure set for the FY 
2014 payment determination: 1 HAI measure (CAUTI) collected through the 
NHSN, 1 claims-based measure (Medicare Spending Per Beneficiary), and 1 
structural measure (Participation in a Systematic Clinical Database 
Registry for General Surgery). As a result, there will be a total of 59 
measures in the FY 2014 Hospital IQR measure set, but we will only be 
collecting data on 55 of those measures for purposes of the FY 2014 
payment determination. The 59 measures are listed below, and the 4 
measures for which we will not be collecting data are designated with 
the word ``SUSPENDED.''

------------------------------------------------------------------------
                                    Hospital IQR program measures for FY
                                         2014 payment determination
                                    reflecting retirement of 4 measures,
               Topic                 suspension of data collection for 4
                                       measures and adoption of 3 new
                                                  measures
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI).   AMI-1 Aspirin at arrival
                                     [SUSPENDED].
                                     AMI-2 Aspirin prescribed at
                                     discharge.
                                     AMI-3 ACEI/ARB for left
                                     ventricular systolic dysfunction
                                     [SUSPENDED].
                                     AMI-5 Beta-blocker
                                     prescribed at discharge
                                     [SUSPENDED].
                                     AMI-7a Fibrinolytic
                                     (thrombolytic) agent received
                                     within 30 minutes of hospital
                                     arrival.
                                     AMI-8a Timing of Receipt of
                                     Primary Percutaneous Coronary
                                     Intervention (PCI).
                                     AMI-10 Statin Prescribed at
                                     Discharge.
Heart Failure (HF)................   HF-1 Discharge
                                     instructions.
                                     HF-2 Evaluation of left
                                     ventricular systolic function.
                                     HF-3 Angiotensin Converting
                                     Enzyme Inhibitor (ACE-I) or
                                     Angiotensin II Receptor Blocker
                                     (ARB) for left ventricular systolic
                                     dysfunction.
Pneumonia (PN)....................   PN-3b Blood culture
                                     performed in the emergency
                                     department prior to first
                                     antibiotic received in hospital.
                                     PN-6 Appropriate initial
                                     antibiotic selection.
Surgical Care Improvement Project    SCIP INF-1 Prophylactic
 (SCIP).                             antibiotic received within 1 hour
                                     prior to surgical incision.
                                     SCIP INF-2: Prophylactic
                                     antibiotic selection for surgical
                                     patients.
                                     SCIP INF-3 Prophylactic
                                     antibiotics discontinued within 24
                                     hours after surgery end time (48
                                     hours for cardiac surgery).
                                     SCIP INF-4: Cardiac surgery
                                     patients with controlled 6AM
                                     postoperative serum glucose.
                                     SCIP INF-6 Appropriate Hair
                                     Removal [SUSPENDED].
                                     SCIP INF-9: Postoperative
                                     urinary catheter removal on post
                                     operative day 1 or 2 with day of
                                     surgery being day zero.
                                     SCIP INF-10: Surgery
                                     patients with perioperative
                                     temperature management.
                                     SCIP Cardiovascular-2:
                                     Surgery Patients on a Beta Blocker
                                     prior to arrival who received a
                                     Beta Blocker during the
                                     perioperative period.
                                     SCIP INF--VTE[dash]1:
                                     Surgery patients with recommended
                                     Venous Thromboembolism (VTE)
                                     prophylaxis ordered.
                                     SCIP-VTE[dash]2: Surgery
                                     patients who received appropriate
                                     VTE prophylaxis within 24 hours pre/
                                     post surgery.
Mortality Measures (Medicare         Acute Myocardial Infarction
 Patients).                          (AMI) 30-day mortality rate.
                                     Heart Failure (HF) 30-day
                                     mortality rate.
                                     Pneumonia (PN) 30-day
                                     mortality rate.
Patients' Experience of Care......   HCAHPS survey.
Readmission Measure (Medicare        Acute Myocardial Infarction
 Patients).                          30-day Risk Standardized
                                     Readmission Measure.
                                     Heart Failure 30-day Risk
                                     Standardized Readmission Measure.
                                     Pneumonia 30-day Risk
                                     Standardized Readmission Measure.
AHRQ Patient Safety Indicators       PSI 06: Iatrogenic
 (PSIs), Inpatient Quality           pneumothorax, adult.
 Indicators (IQIs) and Composite     PSI 11: Post Operative
 Measures.                           Respiratory Failure.
                                     PSI 12: Post Operative PE
                                     or DVT.
                                     PSI 14: Postoperative wound
                                     dehiscence.
                                     PSI 15: Accidental puncture
                                     or laceration.
                                     IQI 11: Abdominal aortic
                                     aneurysm (AAA) mortality rate (with
                                     or without volume).
                                     IQI 19: Hip fracture
                                     mortality rate.
                                     Complication/patient safety
                                     for selected indicators
                                     (composite).
                                     Mortality for selected
                                     medical conditions (composite).
AHRQ PSI and Nursing Sensitive       PSI 04 Death among surgical
 Care.                               in patients with serious treatable
                                     complications.
Structural measures...............   Participation in a
                                     Systematic Database for Cardiac
                                     Surgery.
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for Stroke Care.
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for Nursing Sensitive
                                     Care.
                                     Participation in a
                                     Systematic Clinical Database
                                     Registry for General Surgery**.
Healthcare-Associated Infections..   Central Line Associated
                                     Bloodstream Infection.
                                     Surgical Site Infection.*
                                     Catheter-Associated Urinary
                                     Tract Infection.**

[[Page 51629]]

 
Hospital Acquired Condition          Foreign Object Retained
 Measures.                           After Surgery.
                                     Air Embolism.
                                     Blood Incompatibility.
                                     Pressure Ulcer Stages III &
                                     IV.
                                     Falls and Trauma:
                                     (Includes: Fracture Dislocation
                                     Intracranial Injury Crushing Injury
                                     Burn Electric Shock).
                                     Vascular Catheter-
                                     Associated Infection.
                                     Catheter-Associated Urinary
                                     Tract Infection (UTI).
                                     Manifestations of Poor
                                     Glycemic Control.
Emergency Department Throughput...   ED-1 Median time from
                                     emergency department arrival to
                                     time of departure from the
                                     emergency room for patients
                                     admitted to the hospital.*
                                     ED-2 Median time from admit
                                     decision to time of departure from
                                     the emergency department for
                                     emergency department patients
                                     admitted to the inpatient status.*
Prevention: Global Immunization      Immunization for
 Measures.                           Influenza.*
                                     Immunization for
                                     Pneumonia.*
Cost Efficiency...................   Medicare Spending per
                                     Beneficiary.**
------------------------------------------------------------------------
* Measures finalized in the FY 2011 IPPS/LTCH PPS final rule for the FY
  2014 payment determination.
** Additional measures adopted in this final rule for FY 2014 payment
  determination.

c. Hospital IQR Program Quality Measures for the FY 2015 Payment 
Determination
(1) Retention of FY 2014 Payment Determination Measures for the FY 2015 
Payment Determination
    We generally retain the Hospital IQR Program measures from one year 
to the next. Consistent with this approach, in the FY 2012 IPPS/LTCH 
PPS proposed rule (76 FR 25901), we proposed to retain all of the 
proposed measures for the FY 2014 payment determination, if finalized, 
for the FY 2015 payment determination.
    We did not receive any comments related to this proposal and are, 
therefore, finalizing it.
(2) New Hospital IQR Program Measures for the FY 2015 Payment 
Determination
(A) New CDC/NHSN-Based Healthcare-Associated Infection (HAI) Measures 
for the 2015 Payment Determination
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25901 through 
25903), for the FY 2015 payment determination, we proposed to adopt 
three additional HAI measures that are currently collected by CDC via 
the NHSN. These measures are: (1) Methicillin-resistant Staphylococcus 
Aureus (MRSA) Bacteremia measure; (2) Clostridium difficile (C. 
difficile) standardized infection ratio (SIR); and (3) Healthcare 
Personnel (HCP) Influenza Vaccination and the specifications for these 
measures are available at http://www.cdc.gov/nhsn/PDFs/HSPmanual/HPS_Manual.pdf. Like the CLIP and the CAUTI measures that we proposed for 
the FY 2014 payment determination, all three proposed HAI measures are 
high priority HAI measures listed in the HHS Action Plan to Prevent 
HAIs and were listed in previous rulemaking as possible quality 
measures for future payment determinations.
    Our review indicated that there are no measures for MRSA or C. 
difficile SIR that have been endorsed by the NQF or another consensus 
entity for the hospital inpatient setting. Therefore, we proposed to 
adopt these non-NQF-endorsed measures under the Secretary's authority 
to select non-NQF endorsed measures where such measures do not exist 
for a specified topic or medical topic. We proposed to adopt these two 
CDC-developed measures (MRSA and C. difficile SIR) under the exception 
authority provided in section 1886 (b)(3)(B)(IX)(bb) of the Act.
    The HCP Influenza Vaccination measure is NQF-endorsed (NQF 
0431) for the hospital setting. Therefore, this measure meets 
the requirement for measure selection under section 
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
    The proposed reporting mechanism for these proposed HAI measures is 
discussed in greater detail in section IV.A.5.i. of the FY 2012 IPPS/
LTCH PPS proposed rule. We invited public comment on these proposed HAI 
measures.
    Comment: One commenter applauded CMS's proposed use of the measure 
exception authority under section 1886(b)(3)(B)(IX)(bb) of the Act to 
adopt the CDC-developed, non-NQF-endorsed MRSA and C. difficile SIR 
measures in the interest of public safety. The commenter believed that 
CMS's proposal has met Congressional intent and takes into account the 
statutory requirements that govern the Hospital VBP Program, which 
mandate that measures be selected for that program on HAIs, as measured 
by the prevention metrics and targets established in the HHS Action 
Plan to Prevent HAIs.
    Response: We appreciate the commenter's recognition of our efforts 
to adopt measures for the Hospital IQR Program to protect patient 
safety while fulfilling statutory mandates and promoting HHS 
initiatives.
    Comment: A commenter believed that the three proposed HAI measures 
for the FY 2015 payment determination need further refinement before 
they can be included in the Hospital IQR Program.
    Response: We thank the commenter for the comment. We will continue 
to collaborate with CDC to assure the specifications for the three 
proposed HAI measures are complete before the data collection period 
begins.
    Comment: Some commenters did not support the proposed MRSA and C. 
difficile SIR HAI measures because they are not NQF-endorsed.
    Response: Given the high priority of the MRSA and C. difficile SIR 
measures in the HHS Action Plan to Prevent HAIs, we proposed to 
implement these two measures to advance the goals of this initiative, 
despite of the lack of endorsement for the measures. As stated 
previously, we were unable to identify any other measures specifically 
for MRSA and C. Difficile SIR that have been NQF-endorsed for the 
hospital inpatient setting. We found no other measures that have been 
endorsed or adopted by a consensus entity. Therefore, we proposed to 
adopt these two non NQF-endorsed measures under the Secretary's 
exception authority set out in section 1886(b)(3)(B)(IX)(bb) of the Act 
to select non-NQF endorsed

[[Page 51630]]

measures where such measures do not exist for a specified area or 
medical topic. We have chosen to leverage the existing NHSN reporting 
system to collect HAI measures because we have already established a 
mechanism for reporting to the NHSN and it reduces potential hospital 
burden since many hospitals currently use the system.
(1) Methicillin-Resistant Staphylococcus Aureus (MRSA) Bacteremia 
Measure
    There are different types of staphylococcus aureus bacteria, 
commonly called ``staph.'' Staph bacteria are normally found on the 
skin or in the nose. The bacteria are generally harmless unless they 
enter the body through a cut or other wound, and even then they usually 
cause only minor skin problems in healthy people. MRSA infection is 
caused by a strain of staph bacteria that has become resistant to the 
antibiotics commonly used to treat ordinary staph infections. Older 
adults with weakened immune systems and patients in hospital or nursing 
home settings are most vulnerable to MRSA infections. Health care-
associated MRSA infections typically are associated with invasive 
procedures or devices, such as surgeries, intravenous tubing, urinary 
catheters, or artificial joints. MRSA infections account for about 60 
percent of skin infections seen in United States emergency departments 
and invasive MRSA infections may cause about 18,000 deaths during a 
hospital stay a year.\13\ Currently, there are 6 States that require 
facilities to report MRSA information to NHSN. As stated above, we were 
unable to identify any other measures specifically for MRSA that have 
been endorsed by the NQF for the hospital inpatient setting. We found 
no other measures that have been endorsed or adopted by a consensus 
entity. Therefore, we proposed to adopt this non-NQF-endorsed and CDC-
developed measure under the Secretary's authority to select non-NQF-
endorsed measures where such measures do not exist for a specified area 
or medical topic, under the exception authority provided in section 
1886(b)(3)(B)(IX)(bb) of the Act. The proposed reporting mechanism for 
the MRSA measure is discussed in greater detail in section IV.A.5.i. of 
the FY 2012 IPPS/LTCH PPS proposed rule. We invited public comment on 
this proposed HAI measure.
---------------------------------------------------------------------------

    \13\ Catherine Liu, Arnold Bayer, et al., Clinical practice 
Guidelines by the for the treatment of Methicillin-Resistant 
Staphylococcus Aureus Infections in Adult and Children. Infectious 
Disease Society of America 2011; 52:e18
---------------------------------------------------------------------------

    Comment: A commenter pointed out that the MRSA measure poses 
particular issues because it requires linkages between laboratory data 
with admission-discharge-transfer systems. The commenter indicated that 
hospitals using this measure must manually enter the data. Therefore, 
the commenter recommended delaying the adoption of this measure until 
there is adequate vendor support for hospitals to manage the demands of 
reporting NHSN measures.
    Response: Like C. difficile laboratory identified events, MRSA 
bacteremia event data are a combination of laboratory results and 
admission/discharge/transfer data. As with C. difficile laboratory 
event reporting, these two data types are often available 
electronically, and CDC expects that hospitals will increasingly use 
electronic data sources to report MRSA event data.
    According to CDC, users can enter the required LabID Event data 
either manually or electronically. Capacity to electronically link 
admission/discharge/transfer and laboratory results data is not a 
prerequisite for reporting LabID event data to NHSN, but that capacity 
is a way to significantly improve efficiency and economy of reporting. 
CDC is already working with a number of vendors who are submitting 
LabID data via the CDC Clinical Document Architecture (CDA) import 
function and that number continues to grow. In addition, the monthly 
patient day and admission counts for an entire facility are often 
regularly tabulated for the facility for other administrative uses and 
so is more likely to be readily available compared to location specific 
monthly counts, which often require separate efforts to be tabulated 
within the facility's data system.
    The denominator and laboratory data demands that are required for 
C. Difficile and MRSA Bacteremia have proven to be manageable among 
facilities who are already reporting at the facility-wide inpatient 
level in the States who have mandated such reporting. Facilities that 
do not use vendor CDA reporting, may still receive helpful lab 
printouts and reports to assist with identification of results that 
meet criteria for LabID Event reporting. The LabID form is short and 
requires only a limited number of variables, and the number of C. 
difficile and MRSA blood tests identified using the 14-day rule has 
shown to be within reasonable and manageable limits for currently 
participating facilities. If such numbers are very high for an entire 
facility, this may indicate the need for this important monitoring and 
surveillance to help guide appropriate facility infection control 
response.
    Comment: A commenter recommended that CMS allow hospitals to select 
two most applicable patient care units for purposes of reporting data 
on this proposed measure. The selected units should initially report a 
year of baseline data, followed by reporting data to CDC for no more 
than 6 months each year.
    Response: The MRSA bacteremia measure that we proposed and are 
finalizing in this final rule applies to patients hospital-wide, which 
is consistent with how the measure is presented in the HHS Action Plan 
to Prevent HAIs. We thank the commenter for the recommendation to allow 
hospitals to select two most applicable patient care units to report 
data on. However, allowing hospitals to choose two units could possibly 
skew the data and make it impossible to compare performance among 
hospitals. We found that monitoring at the location level and allowing 
facilities to choose their specific locations has not provided enough 
substantial data for meaningful nationwide comparative rates. This type 
of reporting was attempted in the CMS 9th SOW and showed that 
facilities tended to not choose locations with the highest rates and in 
need of further prevention efforts and also did not provide enough 
numbers by location type for reliable benchmarked, risk-adjusted rates.
    After consideration of the public comments we received, we are 
finalizing the MRSA measure for the FY 2015 payment determination.
(2) C. difficile SIR Measure
    Clostridium difficile (C. difficile) is a bacterium that can cause 
symptoms ranging from diarrhea, pseudo-membranous colitis, and toxic 
megacolon to life-threatening sepsis and even death. Illness from C. 
difficile most commonly affects older adults in hospitals or in long 
term care facilities where germs spread easily, antibiotic use is 
common and people are especially vulnerable to infection. Illness from 
C. difficile typically occurs after use of antibiotic medications. C. 
difficile spreads mainly on hands from person to person, but also on 
commonly touched services such as cart handles, bedrails, bedside 
tables, toilets, sinks, stethoscopes, thermometers, and telephones.
    In recent years, C. difficile infections have become more frequent, 
more severe and more difficult to treat. Each year, tens of thousands 
of people in the United States get sick from C. difficile, including 
some otherwise healthy people who are not hospitalized or taking 
antibiotics. Healthcare providers

[[Page 51631]]

have become more aware of the C. difficile infection and therefore, 
more testing is being done for symptomatic patients. The C. difficile 
pathogens may require specialized monitoring to evaluate if intensified 
infection control efforts are required to reduce the occurrence of 
these organisms and related infections. Currently, there are 3 States 
that require facilities to report C. difficile data to NHSN. Our goal 
for this proposed C. difficile SIR measure is to provide a common 
mechanism (CDC/NHSN) for all hospitals including hospitals 
participating in the Hospital IQR Program to report and analyze these 
data in order to inform infection control staff of the impact of 
targeted prevention efforts. The NHSN is listed in the HHS Action Plan 
to Prevent HAIs as the data source for HAI measures.
    Comment: Some commenters believed that the calculation of C. 
difficile SIRs will be challenging because hospitals use testing 
mechanisms with differing sensitivity to identify the presence of C. 
difficile. These commenters were concerned that the resulted difference 
in C. difficile SIR measurement may unfairly portray hospitals that use 
the more sensitive testing technology as having more C. difficile 
cases. A commenter pointed out that the C. difficile SIR measure poses 
particular issues because it requires linkages between laboratory data 
with admission-discharge-transfer systems. The commenter noted that 
currently, hospitals using this measure must manually enter the data. 
Therefore, the commenter recommended delaying the proposed adoption of 
this measure until there is adequate vendor support for hospitals to 
electronically interface with the NHSN for reporting.
    Response: CDC acknowledged that differences in the sensitivity of 
C. difficile laboratory testing methods could make a difference in the 
C. difficile event data that hospitals report. CDC is currently 
evaluating the impact and possible implications for C. difficile 
reporting through NHSN. C. difficile laboratory event data is a 
combination of laboratory results and admission/discharge/transfer 
data. These two data types are often available electronically, and CDC 
expects that hospitals will increasingly use electronic data sources to 
report C. difficile event data. However, EHRs are not the only means of 
capturing such information. The same data can be abstracted from 
hospital reports and entered manually into NHSN. Therefore, there is 
not a dependence on electronic data capture, but there is an important 
opportunity to use electronic means to report, and waiting until 
widespread EHR adoption would delay progress that could be made on 
these HAIs. Like MRSA Bacteremia, C. difficile facility-wide Lab-ID 
event reporting will be risk-adjusted by hospital type, teaching and 
med affiliation, and bed size. In addition, NHSN has added a question 
on the required annual facility survey beginning with 2010 data that 
asks about the type of testing the lab conducts for C. difficile and 
this information will be used for additional risk-adjustment along with 
review of usability of admission on prevalence.
    Comment: One commenter requested clarification that the measure is 
only applicable to high-risk units and not hospital-wide.
    Response: The CDC measure of C. difficile listed in the HHS Action 
Plan to Prevent HAIs calls for hospital-wide measurement of C. 
difficile events. Because the risk of C. difficile extends throughout 
the hospital, the measure applies to all hospital C. difficile events, 
and this is part of the specifications for this measure.
    After consideration of the public comments we received, we are 
finalizing this measure for the FY 2015 payment determination. Data 
collection will begin with January 1, 2013 infection events.
(3) Healthcare Personnel (HCP) Influenza Vaccination (NQF  
0431)
    For the FY 2015 payment determination, in the FY 2012 IPPS/LTCH PPS 
proposed rule (76 FR 25902 through 25903), we proposed to adopt one 
additional HAI measure that is currently collected by CDC via the NHSN: 
Healthcare Personnel (HCP) Influenza Vaccination (NQF  0431). 
This measure assesses the percentage of HCP employed at the facility 
that received a prophylactic vaccination for influenza. This measure is 
NQF-endorsed, and therefore, the measure meets the selection criteria 
under section 1886(b)(3)(B)(viii)(IX)(aa) of the Act.
    Rates of serious illness and death resulting from influenza and its 
complications are increased in high-risk populations such as persons 
over 50 years or under four years of age, and persons of any age who 
have underlying conditions that put them at an increased risk. HCP can 
acquire influenza from patients and can transmit influenza to patients 
and other HCP. Many HCP provide care for, or are in frequent contact 
with, patients with influenza or patients at high risk for 
complications of influenza. The involvement of HCP in influenza 
transmission has been a long-standing concern.14 15 16
---------------------------------------------------------------------------

    \14\ Maltezou HC, Drancourt M., Nosocomial influenza