Federal Register, Volume 77 Issue 92 (Friday, May 11, 2012)

[Federal Register Volume 77, Number 92 (Friday, May 11, 2012)]
[Proposed Rules]
[Pages 27870-28192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-9985]

[[Page 27869]]

Vol. 77

Friday,

No. 92

May 11, 2012

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 412, 413, 424, et. al

Medicare Program; Hospital Inpatient Prospective Payment Systems for
Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System and Fiscal Year 2013 Rates; Hospitals' Resident Caps for
Graduate Medical Education Payment Purposes; Quality Reporting
Requirements for Specific Providers and for Ambulatory Surgical
Centers; Proposed Rule

Federal Register / Vol. 77, No. 92 / Friday, May 11, 2012 / Proposed
Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 424, 476, and 489

[CMS-1588-P]
RIN 0938-AR12

Medicare Program; Hospital Inpatient Prospective Payment Systems
for Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System and Fiscal Year 2013 Rates; Hospitals' Resident Caps for
Graduate Medical Education Payment Purposes; Quality Reporting
Requirements for Specific Providers and for Ambulatory Surgical Centers

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

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the Medicare hospital inpatient
prospective payment systems (IPPS) for operating and capital-related
costs of acute care hospitals to implement changes arising from our
continuing experience with these systems 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.
These changes would be applicable to discharges occurring on or after
October 1, 2012. We also are proposing to update the rate-of-increase
limits for certain hospitals excluded from the IPPS that are paid on a
reasonable cost basis subject to these limits. The updated rate-of-
increase limits would be effective for cost reporting periods beginning
on or after October 1, 2012.
We are proposing to update the payment policy and the annual
payment rates for the Medicare prospective payment system (PPS) for
inpatient hospital services provided by long-term care hospitals
(LTCHs) and implementing certain statutory changes made by the
Affordable Care Act. These proposed changes would be applicable to
discharges occurring on or after October 1, 2012.
In addition, we are proposing changes relating to determining a
hospital's full-time equivalent (FTE) resident cap for the purpose of
graduate medical education (GME) and indirect medical education (IME)
payments. We are proposing new requirements or revised requirements for
quality reporting by specific providers (acute care hospitals, PPS-
exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities
(IPFs)) that are participating in Medicare. We also are proposing new
administrative, data completeness, and extraordinary circumstance
waivers or extension requests requirements, as well as a
reconsideration process, for quality reporting by ambulatory surgical
centers (ASCs) that are participating in Medicare.
We are proposing requirements for the Hospital Value-Based
Purchasing (VBP) Program and the Hospital Readmissions Reduction
Program.

DATES: Comment Period: To be assured consideration, comments must be
received at one of the addresses provided below, no later than 5 p.m.
EDT on June 25, 2012.

ADDRESSES: When commenting, please refer to file code CMS-1588-P.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation at http://www.regulations.gov. Follow the instructions for
``Comment or Submission'' and enter the file code CMS-1588-P to submit
comments on this proposed rule.
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-1588-P, P.O. Box 8011, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1588-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to either of the following addresses:
a. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue
SW., Washington, DC 20201.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
For information on viewing public comments, see the beginning of
the Supplementary Information section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487, and Ing-
Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs,
Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and
Technology Add-On Payments, Hospital Geographic Reclassifications,
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.
Mollie Knight, (410) 786-7948, Market Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Program Issues.
James Poyer, (410) 786-2261, Inpatient Quality Reporting and
Hospital Value-Based Purchasing--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.
James Poyer, (410) 786-2261, and Barbara Choo, (410) 786-4449,
Inpatient Psychiatric Facility Quality Reporting Issues and PPS-Exempt
Cancer Hospital Quality Reporting Issues.

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Anita Bhatia, (410) 786-7236, Ambulatory Surgical Center Quality
Reporting Issues.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions at the Web site to
view public comments.
Comments received timely will also be available for public
inspection, generally beginning approximately 3 weeks after publication
of a document, at the headquarters of the Centers for Medicare &
Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244,
Monday through Friday of each week from 8:30 a.m. to 4:00 p.m. To
schedule an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

This Federal Register document is also available from the Federal
Register online database through the U.S. Government Printing Office
Web page at: http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=FR. 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), by using local WAIS client software, or by telnet to
swais.access.gpo.gov, then login as guest (no password required). Dial-
in users should use communications software and modem to call (202)
512-1661; type swais, then login as guest (no password required).

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 proposed 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 are no longer 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 proposed 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 2013 IPPS Final Rule Home
Page'' or ``Acute Inpatient--Files for Download''. The LTCH PPS tables
for this FY 2013 proposed 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-1588-
F. For complete details on the availability of the tables referenced in
this proposed rule, we refer readers to section VI. of the Addendum to
this proposed 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
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
ASCQR Ambulatory Surgical Center Quality Reporting
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
CDC Center for Disease Control and Prevention
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 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

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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
LTCHQR Long-Term Care Hospital Quality Reporting
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
NHSN National Healthcare Safety Network
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]
PCH PPS-exempt cancer hospital
PCHQR PPS-exempt cancer hospital quality reporting
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPACA Patient Protection and Affordable Care Act, Public Law 111-148
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
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
TPS Total Performance Score
UHDDS Uniform hospital discharge data set

Table of Contents

I. Executive Summary and Background
A. Executive Summary
1. Purpose and Legal Authority
2. Summary of the Major Provisions of Rule
3. Summary of Costs and Benefits
B. Background
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)
C. 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 2013
D. Major Contents of This Proposed Rule
II. Proposed Changes to Medicare Severity Diagnosis-Related Group
(MS-DRG) Classifications and Relative Weights
A. Background
B. MS-DRG Reclassifications
1. General
2. Yearly Review for Making MS-DRG Changes
C. Adoption of the MS-DRGs in FY 2008
D. Proposed FY 2013 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 Pub. L. 110-90
4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
5. Prospective Adjustment for FY 2008 and FY 2009 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 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 Standard Amount
10. Proposed Prospective Adjustments for FY 2010 Documentation
and Coding Effect
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
2. Summary of Policy Discussions in FY 2012
3. Discussion for FY 2013
F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections
1. Background
2. HAC Selection

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a. Diagnosis Codes Proposed To Be Added to Existing HACs
b. Proposals To Add New HAC Candidate: Surgical Site Infection
(SSI) Following Cardiac Implantable Electronic Device (CIED)
Procedures
c. Proposal Regarding Previously Considered HAC Candidate:
Iatrogenic Pneumothorax With Venous Catheterization
3. Present on Admission (POA) Indicator Reporting
4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS
5. Proposed Changes to the HAC Policy for FY 2013
6. RTI Program Evaluation Summary
G. Proposed Changes to Specific MS-DRG Classifications
1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Ventricular Assist Device
b. Allogeneic Bone Marrow Transplant
2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and
Throat): Influenza With Pneumonia
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Mitral Valve Repair
b. Endovascular Implantation of Branching or Fenestrated Grafts
in Aorta
4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and
Disorders): Disorders of Porphyrin Metabolism
5. Proposed Medicare Code Editor (MCE) Changes
6. Surgical Hierarchies
7. Complications or Comorbidity (CC) Exclusions List
a. Background
b. CC Exclusions List for FY 2013
(1) No Revisions Based on Changes to the ICD-9-CM Diagnosis
Codes for FY 2013
(2) Suggested Changes to MS-DRG Severity Levels for Diagnosis
Codes for FY 2013
(A) Protein-Calorie Malnutrition
(B) Antineoplastic Chemotherapy Induced Anemia
(C) Cardiomyopathy and Congestive Heart Failure, Unspecified
(D) Chronic Total Occlusion of Artery of the Extremities
(E) Acute Kidney Failure With Other Specified Pathological
Lesion in Kidney
(F) Pressure Ulcer, Unstageable
8. 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
9. Proposed Changes to the ICD-9-CM Coding System, Including
Discussion of the Replacement of the ICD-9-CM System With the ICD-
10-CM and ICD-10-PCS Systems in FY 2014
a. ICD-9-CM Coding System
b. Code Freeze
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on
Hospital Inpatient Claims
d. ICD-10 MS-DRGs
H. Recalibration of MS-DRG Weights
1. Data Sources for Developing the Proposed Weights
2. Methodology for Calculation of the Proposed Relative Weights
3. Development of National Average CCRs
4. Bundled Payments for Care Improvement (BPCI) Initiative
I. Proposed Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed
Rulemaking on Add-On Payments
3. FY 2013 Status of Technology Approved for FY 2012 Add-On
Payments: AutoLaser Interstitial Thermal Therapy (AutoLITT\TM\)
4. FY 2013 Applications for New Technology Add-On Payments
a. Glucarpidase (Trade Brand Voraxaze[supreg])
b. DIFICID\TM\ (Fidaxomicin) Tablets
c. Zilver[supreg] PTX[supreg] Drug-Eluting Stent
d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA)
Endovascular Graft
III. Proposed Changes to the Hospital Wage Index for Acute Care
Hospitals
A. Background
B. Core-Based Statistical Areas for the Hospital Wage Index
C. Worksheet S-3 Wage Data for the Proposed FY 2013 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Providers Other Than Acute Care
Hospitals Under the IPPS
D. Verification of Worksheet S-3 Wage Data
E. Method for Computing the Proposed FY 2013 Unadjusted Wage
Index
F. Proposed Occupational Mix Adjustment to the FY 2013 Wage
Index
G. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2013 Occupational Mix Adjusted Wage
Index
1. Analysis of the Occupational Mix Adjustment and the
Occupational Mix Adjusted Wage Index
2. Application of the Rural, Imputed, and Frontier Floors
a. Rural Floor
b. Imputed Floor and Proposal for an Alternative, Temporary
Methodology for Computing the Imputed Floor
c. Frontier Floor
3. Proposed FY 2013 Wage Index Tables
H. Revisions to the Wage Index Based on Hospital Redesignations
and Reclassifications
1. General
2. Effects of Reclassification/Redesignation
3. FY 2013 MGCRB Reclassifications
a. FY 2013 Reclassification Requirements and Approvals
b. Applications for Reclassifications for FY 2014
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. Proposed FY 2013 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 2013 Wage Index
IV. Other Proposed Decisions and Changes to the IPPS for Operating
Costs and GME Costs
A. Hospital Readmission Reduction Program
1. Statutory Basis for the Hospital Readmissions Reduction
Program
2. Overview
3. FY 2013 Proposed Policies for the Hospital Readmissions
Reduction Program
a. Overview
b. Proposals Regarding Base Operating DRG Payment Amount,
Including Special Rules for SCHs and MDHs and Hospitals Paid Under
Section 1814 of the Act
(1) Proposed Definition of Base Operating DRG Payment Amount
(Proposed Sec. 412.152)
(2) Proposal on Special Rules for Certain Hospitals: Hospitals
Paid Under Section 1814(b)(3) of the Act (Proposed Sec. 412.154(d))
c. Proposals Regarding Adjustment Factor (Both the Ratio and
Floor Adjustment Factor (Proposed Sec. 412.154(c))
d. Proposals Regarding Aggregate Payments for Excess
Readmissions and Aggregate Payment for All Discharges (Proposed
Sec. 412.152)
e. Proposals Regarding Applicable Hospital (Proposed Sec.
412.152)
4. Limitations on Review (Proposed Sec. 412.154(e))
5. Reporting Hospital-Specific Information, Including
Opportunity To Review and Submit Corrections ((Proposed Sec.
412.154(f))
B. Sole Community Hospitals (SCHs) (Sec. 412.92)
1. Background
2. Clarification of Regulations Regarding Duration of
Classification (Proposed Sec. 412.92(b)(3)(iv))
3. Proposed Change to Effective Date of Classification for MDHs
Applying for SCH Status Upon the Expiration of the MDH Program
(Proposed Sec. 412.92(b)(3)(v))
C. Rural Referral Centers (RRCs): Annual Update to Case-Mix
Index (CMI) and Discharge Criteria (Sec. 412.96)
1. Case-Mix Index (CMI)
2. Discharges
D. Proposed Payment Adjustment for Low-Volume Hospitals (Sec.
412.101)
1. Expiration of the Affordable Care Act Provision for FYs 2011
and 2012
2. Background
3. Affordable Care Act Provisions for FYs 2011 and 2012
4. Proposed Payment Adjustment for FY 2013 and Subsequent Years

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E. Indirect Medical Education (IME) Adjustment (Sec. 412.105)
1. IME Adjustment Factor for FY 2013
2. Clarification and Proposal Regarding Timely Filing
Requirements Under Fee-for-Service Medicare
F. Payment Adjustment for Medicare Disproportionate Share
Hospitals (DSHs) and Indirect Medical Education (IME) (Sec. Sec.
412.105 and 412.106)
1. Background
2. Proposed Policy Change Relating to Treatment of Labor and
Delivery Beds in the Calculation of the Medicare DSH Payment
Adjustment and the IME Payment Adjustment
G. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.
412.108)
H. Proposed Changes in the Inpatient Hospital Update
1. FY 2013 Inpatient Hospital Update
2. FY 2013 Puerto Rico Hospital Update
I. Payment for Graduate Medical Education Costs
1. Background
2. New Teaching Hospitals: Proposed Change in New Growth Period
From 3 Years to 5 Years
3. Clarification Related to 5-Year Period Following
Implementation of Reductions and Increases to Hospitals' FTE
Resident Caps for GME Payment Purposes Under Section 5503 of the
Affordable Care Act
4. Preservation of Resident Cap Positions From Closed Hospitals
(Section 5506 of the Affordable Care Act)
a. Background
b. Proposed Change in Amount of Time Provided for Submitting
Applications Under Section 5506 of the Affordable Care Act
c. Proposed Change to the Ranking Criteria Under Section 5506
d. Effective Dates of Slots Awarded Under Section 5506
e. Clarification of Relationship Between Ranking Criteria One,
Two, and Three
f. Proposed Modifications to the Section 5506 CMS Evaluation
Form
J. Proposed Changes to the Reporting Requirements for Pension
Costs for Medicare Cost-Finding Purposes
K. Rural Community Hospital Demonstration Program
1. Background
2. Proposed FY 2013 Budget Neutrality Offset Amount
L. Hospital Routine Services Furnished Under Arrangements
M. Proposed Technical Change
V. Proposed Changes to the IPPS for Capital-Related Costs
A. Overview
B. Additional Provisions
1. Exception Payments
2. New Hospitals
3. Hospitals Located in Puerto Rico
C. Proposed Changes in the Documentation and Coding Adjustment
for FY 2013
1. Background
2. Prospective Documentation and Coding Adjustment to the
National Capital Federal Rate for FY 2013 and Subsequent Years
3. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
D. Proposed Changes for Annual Update for FY 2013
VI. Proposed Changes for Hospitals Excluded From the IPPS
VII. Proposed Changes to the Long-Term Care Hospital Prospective
Payment System (LTCH PPS) for FY 2013
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded From the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification Compliance Act (ASCA) and
Health Insurance Portability and Accountability Act (HIPAA)
Compliance
B. Proposed Medicare Severity Long-Term Care Diagnosis-Related
Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2013
1. Background
2. Patient Classifications Into MS-LTC-DRGs
a. Background
b. Proposed Changes to the MS-LTC-DRGs for FY 2013
3. Development of the Proposed FY 2013 MS-LTC-DRG Relative
Weights
a. General Overview of the Development of the MS-LTC-DRG
Relative Weights
b. Development of the Proposed MS-LTC-DRG Relative Weights for
FY 2013
c. Data
d. Hospital-Specific Relative Value (HSRV) Methodology
e. Proposed Treatment of Severity Levels in Developing the MS-
LTC-DRG Relative Weights
f. Proposed Low-Volume MS-LTC-DRGs--Steps for Determining the
Proposed FY 2013 MS-LTC-DRG Relative Weights
g. Steps for Determining the Proposed FY 2013 MS-LTC-DRG
Relative Weights
C. Proposed Use of a LTCH-Specific Market Basket Under the LTCH
PPS
1. Background
2. Overview of the Proposed FY 2009-Based LTCH-Specific Market
Basket
3. Proposed Development of a LTCH-Specific Market Basket
a. Development of Cost Categories
b. Cost Category Computation
c. Selection of Price Proxies
d. Proposed Methodology for the Capital Portion of the Proposed
FY 2009-Based LTCH-Specific Market Basket
e. Proposed FY 2013 Market Basket for LTCHs
f. Proposed FY 2013 Labor-Related Share
D. Proposed Changes to the LTCH Payment Rates and Other Changes
to the FY 2013 LTCH PPS
1. Overview of Development of the LTCH Payment Rates
2. Proposed FY 2013 LTCH PPS Annual Market Basket Update
a. Overview
b. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
c. Proposed Market Basket Under the LTCH PPS for FY 2013
d. Proposed Annual Market Basket Update for LTCHs for FY 2013
3. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs
Located in Alaska and Hawaii
E. Expiration of Certain Payment Rules for LTCH Services and the
Moratorium on the Establishment of Certain Hospitals and Satellite
Facilities and on the Increase in Number of Beds at in LTCHs and
LTCH Satellite Facilities
1. Background
2. The 25-Percent Payment Adjustment Threshold
3. The ``IPPS Comparable Per Diem Amount'' Payment Option for
Very Short Stays Under the SSO Policy
4. Proposed One-Time Prospective Adjustment to the Standard
Federal Rate Under Sec. 412.523(d)(3)
VIII. Proposed Quality Data Reporting Requirements for Specific
Providers and Suppliers
A. Hospital Inpatient Quality Reporting (IQR) Program
1. Background
a. History of Measures Adopted for the Hospital IQR Program
b. Maintenance of Technical Specifications for Quality Measures
c. Public Display of Quality Measures
2. Removal and Suspension of Hospital IQR Program Measures
a. Considerations in Removing Quality Measures From the Hospital
IQR Program
b. Hospital IQR Program Measures Removed in Previous Rulemakings
c. Proposed Removal of Hospital IQR Program Measures for the FY
2015 Payment Determination and Subsequent Years
(1) Proposed Removal of One Chart-Abstracted Measure
(2) Proposed Removal of 16 Claims-Based Measures
(A) Proposed Removal of Eight Hospital-Acquired Condition (HAC)
Measures
(B) Proposed Removal of Three AHRQ IQI Measures
(C) Proposed Removal of Five AHRQ PSI Measures
d. Suspension of Data Collection for the FY 2014 Payment
Determination and Subsequent Years
3. Proposed Measures for the FY 2015 and FY 2016 Hospital IQR
Program Payment Determinations
a. Additional Considerations in Expanding and Updating Quality
Measures Under the Hospital IQR Program
b. Proposed Hospital IQR Program Measures for the FY 2015
Payment Determination and Subsequent Years
(1) Process for Retention of Hospital IQR Program Measures
Adopted in Previous Payment Determinations
(2) Proposed Additional Hospital IQR Program Measures for FY
2015 Payment Determination and Subsequent Years
(A) Proposed New Survey-Based Measure Items for Inclusion in the
HCAHPS Survey Measure for the FY 2015 Payment Determination and
Subsequent Years
(B) Proposed New Claims-Based Measures for the FY 2015 Payment
Determination and Subsequent Years

[[Page 27875]]

(C) Proposed New Chart-Abstracted Measure: Elective Delivery
Prior to 39 Completed Weeks Gestation: Percentage of Babies
Electively Delivered Prior to 39 Completed Weeks Gestation (NQF
469)
(D) Clarification Regarding Existing Hospital IQR Program
Measures That Have Undergone Changes During NQF Measure Maintenance
Processes
c. Proposed Hospital IQR Program Quality Measures for the FY
2016 Payment Determination and Subsequent Years
4. Possible New Quality Measures and Measure Topics for Future
Years
5. Form, Manner, and Timing of Quality Data Submission
a. Background
b. Proposed Procedural Requirements for the FY 2015 Payment
Determination and Subsequent Years
c. Proposed Data Submission Requirements for Chart-Abstracted
Measures
d. Proposed Sampling and Case Thresholds Beginning With the FY
2015 Payment Determination
e. Proposed HCAHPS Requirements for the FY 2014, FY 2015, and FY
2016 Payment Determinations
f. Proposed Data Submission Requirements for Structural Measures
g. Proposed Data Submission and Reporting Requirements for
Healthcare-Associated Infection (HAI) Measures Reported via NHSN
6. Proposed Supplements to the Chart Validation Process for the
Hospital IQR Program for the FY 2015 Payment Determination and
Subsequent Years
a. Separate Validation Approaches for Chart-Abstracted Clinical
Process of Care and HAI Measures
(1) Background and Rationale
(2) Selection and Sampling of Clinical Process of Care Measures
for Validation
(3) Selection and Sampling of HAI Measures for Validation
(4) Validation Scoring for Chart-Abstract Clinical Process of
Care and HAI Measures
(5) Criteria To Evaluate Whether a Score Passes or Fails
b. Number and Manner of Selection for Hospitals Included in the
Base Annual Validation Random Sample
c. Targeting Criteria for Selection of Supplemental Hospitals
for Validation
7. Proposed Data Accuracy and Completeness Acknowledgement
Requirements for the FY 2015 Payment Determination and Subsequent
Years
8. Public Display Requirements for the FY 2015 Payment
Determination and Subsequent Years
9. Reconsideration and Appeal Procedures for the FY 2015 Payment
Determination
10. Hospital IQR Program Disaster Extensions or Waivers
11. Electronic Health Records (EHRs)
a. Background
b. HITECH Act EHR Provisions
B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
1. Statutory Authority
2. Covered Entities
3. Proposed Quality Measures for PCHs for FY 2014 Program and
Subsequent Program Years
a. Considerations in the Selection of the Quality Measures
b. Proposed PCHQR Program Quality Measures for FY 2014 Program
and Subsequent Program Years
(1) Proposed CDC/NHSN-Based Healthcare-Associated Infection
(HAI) Measures
(A) Proposed Central Line Associated Blood Stream Infections
((CLABSI), NQF 0139)
(B) Proposed Catheter Associated Urinary Tract Infection
((CAUTI), NQF 0138)
(2) Proposed Cancer-Specific Measures
(A) Proposed Adjuvant Chemotherapy Is Considered or Administered
Within 4 Months (120 Days) of Surgery to Patient Under the Age of 80
With AJCC III (Lymph Node Positive Colon Cancer) (NQF 0223)
(B) Proposed Combination Chemotherapy Is Considered or
Administered Within 4 Months (120 Days) of Diagnosis for Women Under
70 With AJCC T1c or Stage II or III Hormone Receptor Negative Breast
Cancer (NQF 0559)
(C) Proposed Adjuvant Hormonal Therapy (NQF 0220)
4. Possible New Quality Measure Topics for Future Years
5. Maintenance of Technical Specifications for Quality Measures
6. Proposed Public Display Requirements for the FY 2014 Program
and Subsequent Program Years
7. Proposed Form, Manner, and Timing of Data Submission for FY
2014 Program and Subsequent Program Years
a. Background
b. Proposed Procedural Requirements for FY 2014 Program and
Subsequent Program Years
c. Proposed Reporting Mechanisms for FY 2014 Program and
Subsequent Program Years
(1) Proposed Reporting Mechanism for the Proposed HAI Measures
(2) Proposed Reporting Mechanism for the Proposed Cancer-
Specific Measures
d. Proposed Data Submission Timelines for FY 2014 Program and
Subsequent Program Years
e. Proposed Data Accuracy and Completeness Acknowledgement
(DACA) Requirements for FY 2014 Program and Subsequent Program Years
C. Hospital Value-Based Purchasing (VBP) Program
1. Statutory Background
2. Overview of the FY 2013 Hospital VBP Program
3. FY 2014 Hospital VBP Program Measures
4. Other Previously Finalized Requirements for the Hospital VBP
Program
5. Proposed Hospital VBP Payment Adjustment Calculation
Methodology
a. Proposed Definitions of the Term ``Base Operating DRG Payment
Amount'' for Purposes of the Hospital VBP Program
b. Proposals for Calculating the Funding Amount for Value-Based
Incentive Payments Each Year
c. Proposed Methodology To Calculate the Value-Based Incentive
Payment Adjustment
d. Proposed Timing of the Base Operating DRG Payment Amount
Reduction and Value-Based Incentive Payment Adjustment for FY 2013
and Future Hospital VBP Program Years
e. Proposed Process for Reducing the Base Operating DRG Payment
Amount and Applying the Value-Based Incentive Payment Amount
Adjustment for FY 2013
6. Proposed Review and Corrections Processes
a. Background
b. Proposed Review and Corrections Process for Claims-Based
Measure Rates
c. Proposed Review and Corrections Process for Condition-
Specific Scores, Domain-Specific Scores and TSPs
7. Proposed Appeal Process Under the Hospital VBP Program
a. Background
b. Proposed Appeal Process
8. Proposed Measures for the FY 2015 Hospital VBP Program
a. Relationship Between the National Strategy and the Hospital
VBP Program
b. Proposed FY 2015 Measures
c. Proposed General Process for Hospital VBP Program Measure
Adoption for Future Program Years
9. Proposed Measures and Domains for the FY 2016 Hospital VBP
Program
a. Proposed FY 2016 Measures
b. Proposed Quality Measure Domains for the FY 2016 Hospital VBP
Program
c. Proposed Performance Standards for FY 2016 Hospital VBP
Program Measures
10. Proposed Performance Periods and Baseline Periods for the FY
2015 Hospital VBP Program
a. Proposed Clinical Process of Care Domain Performance Period
and Baseline Periods for FY 2015
b. Proposed Patient Experience of Care Domain Performance Period
and Baseline Period for FY 2015
c. Proposed Efficiency Domain Measure Performance Period and
Baseline Period for FY 2015
d. Proposed Outcome Domain Performance Periods for FY 2015
(1) Mortality Measures
(2) Proposed AHRQ PSI Composite Measure
(3) CLABSI Measure
e. Proposed Performance Periods for Proposed FY 2016 Measures
11. Proposed Performance Periods for the Hospital VBP Program
for FY 2015 and FY 2016
a. Background
b. Proposed Performance Standards for the FY 2015 Hospital VBP
Program Measures
c. Proposed Performance Standards for FY 2016 Hospital VBP
Program Measures
d. Adopting Performance Periods and Standards for Future Program
Years
12. Proposed FY 2015 Hospital VBP Program Scoring Methodology
a. General Hospital VBP Program Scoring Methodology
b. Proposed Domain Weighting for the FY 2015 Hospital VBP
Program for Hospitals That Receive a Score on All Four Proposed
Domains

[[Page 27876]]

c. Proposed Domain Weighting for Hospitals Receiving Scores on
Fewer Than Four Domains
13. Applicability of the Hospital VBP Program to Hospitals
a. Background
b. Proposed Exemption Request Process for Maryland Hospitals
14. Proposed Minimum Numbers of Cases and Measures for the FY
2015 Program
a. Background
b. Proposed Minimum Numbers of Cases and Measures for the FY
2015 Outcome Domain
c. Proposed Medicare Spending per Beneficiary Measure Case
Minimum
15. Immediate Jeopardy Citations
D. Long-Term Care Hospital Quality Reporting (LTCHQR) Program
1. Statutory History
2. LTCH Program Measures for the FY 2014 Payment Determination
and Subsequent Fiscal Years Payment Determinations
a. Proposed Process for Retention of LTCHQR Program Measures
Adopted in Previous Payment Determinations
b. Proposed Process for Adoption of Changes to LTCHQR Program
Measures
3. Proposal To Retain Previously Adopted Finalized Measures for
the LTCHQR Program FY 2014 Payment Determination
4. Proposed LTCHQR Program Quality Measures for the FY 2016
Payment Determinations and Subsequent Fiscal Years Payment
Determinations
a. Considerations in Updating and Expanding Quality Measures
Under the LTCHQR Program for FY 2016 and Subsequent Payment Update
Determinations
b. Proposed New LTCHQR Program Quality Measures Beginning With
the FY 2016 Payment Determination
(1) Proposed New Quality Measure 1 for the FY 2016
Payment Determination and Subsequent Fiscal Years Payment
Determinations: Percent of Nursing Home Residents Who Were Assessed
and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay)
(NQF 0680)
(2) Proposed New LTCH Quality Measure 2 for the FY 2016
Payment Determination and Subsequent Fiscal Years Payment
Determinations: Percentage of Residents or Patients Who Were
Assessed and Appropriately Given the Pneumococcal Vaccine (Short-
Stay) (NQF 0682)
(3) Proposed New LTCH Quality Measure 3 for the FY 2016
Payment Determination and Subsequent Fiscal Years Payment
Determinations: Influenza Vaccination Coverage Among Healthcare
Personnel (NQF 0431)
(4) Proposed New LTCH Quality Measure 4 for the FY 2016
Payment Determination and Subsequent Fiscal Years Payment
Determinations: Ventilator Bundle (NQF 0302)
(5) Proposed New LTCH Quality Measure 5 for the FY 2016
Payment Determination and Subsequent Fiscal Years Payment
Determinations: Restraint Rate per 1,000 Patient Days
5. Proposed Timeline for Data Submission Under the LTCHQR
Program for the FY 2015 Payment Determination
6. Proposed Timeline for Data Submission Under the LTCHQR
Program for the FY 2016 Payment Determination
7. Proposed Public Display of Data Quality Measures
E. Proposed Quality Reporting Requirements for Ambulatory
Surgical Centers (ASCs)
1. Background
2. Proposed Requirements for Reporting of ASC Quality Data
a. Proposed Administrative Requirements
(1) Proposals Regarding QualityNet Account and Administrator for
the CYs 2014 and 2015 Payment Determinations
(2) Proposals Regarding Participation Status for the CY 2014
Payment Determination and Subsequent Payment Determination Years
b. Proposals Regarding Form, Manner, and Timing for Claims-Based
Measures for CYs 2014 and 2015 Payment Determinations
(1) Background
(2) Proposed Minimum Threshold for Claims-Based Measures Using
QDCs
c. ASC Quality Reporting Program Validation of Claims-Based and
Structural Measures
3. Proposed Extraordinary Circumstances Extension or Waiver for
the CY 2014 Payment Determination and Subsequent Payment
Determination Years
4. Proposed ASC Quality Reporting Program Reconsideration
Procedures for the CY 2014 Payment Determination and Subsequent
Payment Determination Years
F. Inpatient Psychiatric Facilities Quality Reporting (IPFQR)
Program
1. Statutory Authority
2. Application of the Payment Update Reduction for Failure To
Report for FY 2014 Payment Determination and Subsequent Years
3. Covered Entities
4. Proposed Quality Measures
a. Considerations in Selecting Quality Measures
b. Proposed Quality Measures Beginning With FY 2014 Payment
Determination and Subsequent Years
(1) HBIPS-2 (Hours of Physical Restraint Use)
(2) HBIPS-3 (Hours of Seclusion Use)
(3) HBIPS-4 (Patients Discharged on Multiple Antipsychotic
Medications)
(4) HBIPS-5 (Patients Discharged on Multiple Antipsychotic
Medications With Appropriate Justification)
(5) HBIPS-6 (Post Discharge Continuing Care Plan Created)
(6) HBIPS-7 (Post Discharge Continuing Care Plan Transmitted to
the Next Level of Care Provider Upon Discharge)
c. Maintenance of Technical Specifications for Quality Measures
5. Possible New Quality Measures for Future Years
6. Public Display Requirements for the FY 2014 Payment
Determination and Subsequent Years
7. Form, Manner, and Timing of Quality Data Submission for the
FY 2014 Payment Determination and Subsequent Years
a. Background
b. Proposed Procedural Requirements for the FY 2014 Payment
Determination and Subsequent Years
c. Proposed Reporting and Submission Requirements for the FY
2014 Payment Determination
d. Proposed Reporting and Submission Requirements for the FY
2015 and FY 2016 Payment Determinations
e. Proposed Population, Sampling, and Minimum Case Threshold for
FY 2014 and Subsequent Years
f. Proposed Data Accuracy and Completeness Acknowledgement
Requirements for the FY 2014 Payment Determination and Subsequent
Years
8. Reconsideration and Appeals Procedure for the FY 2014 Payment
Determination and Subsequent Years
9. Proposed Waivers From Quality Reporting Requirements for the
FY 2014 Payment Determination and Subsequent Years
10. Electronic Health Records (EHRs)
IX. MedPAC Recommendations and Other Related Reports and Studies for
the IPPS and LTCH PPS
A. MedPAC Recommendations for the IPPS for FY 2013
B. Studies and Reports on Reforming the Hospital Wage Index
1. Secretary's Report to Congress on Wage Index Reform
2. Institute of Medicine (IOM) Study on Medicare's Approach to
Measuring Geographic Variations in Hospitals' Wage Costs
X. Proposed Quality Improvement Organization (QIO) Regulation
Changes Relating to Provider and Practitioner Medical Record
Deadlines and Claim Denials
XI. 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 Occupational Mix Adjustment to the FY 2013 Index
(Hospital Wage Index Occupational Mix Survey)
4. Hospital Applications for Geographic Reclassifications by the
MGCRB
5. ICRs for Application for GME/IME Resident Slots
6. ICRs for the Hospital Inpatient Quality Reporting (IQR)
Program
7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR)
Program
8. ICRs for Hospital Value-Based Purchasing (VBP) Program
9. ICRs for the Quality Reporting Program for LTCHs
10. ICRs for the Ambulatory Surgical Center (ASC) Quality
Reporting Program
11. ICRs for the Inpatient Psychiatric Facilities Quality
Reporting (IPFQR) Program
C. Response to Public Comments

[[Page 27877]]

Regulation Text Addendum--Proposed Schedule of Standardized Amounts,
Update Factors, and Rate-of-Increase Percentages Effective With Cost
Reporting Periods Beginning on or After October 1, 2012 and Proposed
Payment Rates for LTCHs Effective With Discharges Occurring on or After
October 1, 2012

I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital
Inpatient Operating Costs for Acute Care Hospitals for FY 2013
A. Calculation of the Proposed Adjusted Standardized Amount
B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
C. Proposed MS-DRG Relative Weights
D. Calculation of the Proposed Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2013
A. Determination of Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update
B. Calculation of the Proposed Inpatient Capital-Related
Prospective Payments for FY 2013
C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages for FY 2013
V. Proposed Changes to the Payment Rates for the LTCH PPS for FY
2013
A. Proposed LTCH PPS Standard Federal Rate for FY 2013
B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS
for FY 2013
1. Background
2. Geographic Classifications/Labor Market Area Definitions
3. Proposed LTCH PPS Labor-Related Share
4. Proposed LTCH PPS Wage Index for FY 2013
5. Proposed Budget Neutrality Adjustment for Changes to the Area
Wage Level Adjustment
C. Proposed LTCH PPS Cost-of-Living Adjustment for LTCHs Located
in Alaska and Hawaii
D. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO)
Cases
E. Computing the Proposed Adjusted LTCH PPS Federal Prospective
Payments for FY 2013
VI. Tables Referenced in This Proposed 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 Proposed 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 Proposed Other Policy Changes
1. Effects of Proposed Policy on HACs, Including Infections
2. Effects of Proposed Policy Changes Relating to New Medical
Service and Technology Add-On Payments
3. Effects of Proposed Policy Changes Relating to SCHs
4. Effects of Proposed Payment Adjustment for Low-Volume
Hospitals for FY 2013
5. Effects of Proposed Policy Changes Relating to Payment
Adjustments for Medicare Disproportionate Share Hospitals (DSHs) and
Indirect Medical Education (IME)
6. Effects of the Proposed Policy Changes Relating to Direct GME
and IME
a. Effects of Clarification and Proposal Regarding Timely Filing
Requirements for Claims for Medicare Advantage Enrollees Under Fee-
for-Service Medicare
b. Effects of Proposed Policy Changes Relating to New Teaching
Hospitals: New Program Growth From 3 Years to 5 Years
c. Effects of Proposed Changes Relating to 5-Year Period
Following Implementation of Reductions and Increases to Hospitals'
FTE Resident Caps for GME Payment Purposes Under Section 5503 of the
Affordable Care Act
d. Preservation of Resident Cap Positions From Closed Hospitals
(Section 5506 of the Affordable Care Act)
7. Effects of Proposed Changes Relating to the Reporting
Requirements for Pension Costs for Medicare Cost-Finding Purposes
8. Effects of Proposed Budget Neutrality Offset Amount for the
Rural Community Hospital Demonstration Program
9. Effects of Proposed Change in Effective Date for Policies
Relating to Hospital Services Furnished Under Arrangements
I. Effects of Proposed Changes in the Capital IPPS
1. General Considerations
2. Results
J. Effects of Proposed Payment Rate Changes and Policy Changes
Under the LTCH PPS
1. Introduction and General Considerations
2. Impact on Rural Hospitals
3. Anticipated Effects of Proposed LTCH PPS Payment Rate Change
and Policy Changes
4. Effect on the Medicare Program
5. Effect on Medicare Beneficiaries
K. Effects of Proposed Requirements for Hospital Inpatient
Quality Reporting (IQR) Program
L. Effects of Proposed PPS-Exempt Cancer Hospital Quality
Reporting (PCHQR) Program
M. Effects of Proposed Hospital Value-Based Purchasing (VBP)
Program Requirements
N. Anticipated Effects of Proposed New Measures To Be Added to
the LTCH Quality Reporting (LTCHQR) Program
O. Effects of Proposed Quality Reporting Requirements for
Ambulatory Surgical Centers
P. Effects of Proposed Requirements for the Inpatient
Psychiatric Facilities Quality Reporting Program
Q. Alternatives Considered
R. Overall Conclusion
1. Acute Care Hospitals
2. LTCHs
II. Accounting Statements and Tables
A. Acute Care Hospitals
B. LTCHs
III. Regulatory Flexibility Act (RFA) Analysis
IV. Impact on Small Rural Hospitals
V. Unfunded Mandate Reform Act (UMRA) Analysis
VI. 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 2013
A. Proposed FY 2013 Inpatient Hospital Update
B. Proposed Update for SCHs for FY 2013
C. Proposed FY 2013 Puerto Rico Hospital Update
D. Proposed Update for Hospitals Excluded From the IPPS
E. Proposed Update for LTCHs
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
This proposed rule would make payment and policy changes under the
Medicare inpatient prospective payment systems (IPPS) for operating and
capital-related costs of acute care hospitals as well as for certain
hospitals and hospital units excluded from the IPPS. In addition, it
would make payment and policy changes for the Medicare hospitals under
the long-term care hospital prospective payment system (LTCH PPS). It
also makes policy changes to programs associated with Medicare IPPS
hospitals and LTCHs.
Under various statutory authorities, we are proposing to make
changes to the Medicare IPPS, to the LTCH PPS, and to other related
payment methodologies and programs for FY 2013. These statutory
authorities include, but are not limited to, the following:
Section 1886(d) of the Social Security Act (the Act),
which 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 that, instead of paying for capital-related costs of inpatient
hospital services on a

[[Page 27878]]

reasonable cost basis, the Secretary use a prospective payment system
(PPS).
Section 1886(d)(1)(B) of the Act, which specifies that
certain hospitals and hospital units are excluded from the IPPS. These
hospitals and units are: rehabilitation hospitals and units; LTCHs;
psychiatric hospitals and units; children's hospitals; and cancer
hospitals. Religious nonmedical health care institutions (RNHCIs) are
also excluded from the IPPS.
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), which provide for the development and implementation of a
prospective payment system for payment for inpatient hospital services
of long-term care hospitals (LTCHs) described in section
1886(d)(1)(B)(iv) of the Act.
Sections 1814(l), 1820, and 1834(g) of the Act, which
specifies that payments are made to critical access hospitals (CAHs)
(that is, rural hospitals or facilities that meet certain statutory
requirements) for inpatient and outpatient services and that these
payments are generally based on 101 percent of reasonable cost.
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.
Section 1886(d)(4)(D) of the Act, which 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.
Section 1886(a)(4) of the Act, which specifies that 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.
Section 1886(b)(3)(B)(viii) of the Act, which requires the
Secretary to reduce the applicable percentage increase in payments to a
subsection (d) hospital for a fiscal year if the hospital does not
submit data on measures in a form and manner, and at a time, specified
by the Secretary.
Section 1886(o) of the Act, which requires the Secretary
to establish a Hospital Value-Based Purchasing (VBP) Program under
which value-based incentive payments are made in a fiscal year to
hospitals meeting performance standards established for a performance
period for such fiscal year. Both the performance standards and the
performance period for a fiscal year are to be established by the
Secretary. Section 1886(o)(1)(B) of the Act directs the Secretary to
begin making value-based incentive payments under the Hospital
Inpatient VBP Program to hospitals for discharges occurring on or after
October 1, 2012.
Section 1886(q) of the Act, as added by section 3025 of
the Affordable Care Act and amended by section 10309 of the Affordable
Care Act, which establishes the ``Hospital Readmission Reduction
Program'' effective for discharges from an ``applicable hospital''
beginning on or after October 1, 2012, under which payments to those
hospitals under section 1886(d) of the Act will be reduced to account
for certain excess readmissions.
2. Summary of the Major Provisions
a. MS-DRG Documentation and Coding Adjustment, Including the
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount
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 prospective adjustment under
section 1886(d)(3)(A)(vi) of the Act.
Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to
make an additional one-time adjustment to the standardized amounts to
offset the estimated increase or decrease in aggregate payments for FYs
2008 and 2009 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.
After accounting for adjustments made in FYs 2008 and 2009, we have
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. Without making this adjustment, our actuaries
estimated that annual aggregate payments would be increased by
approximately $4 billion. Furthermore, an additional one-time
adjustment of -5.8 percent would be required to fully recapture
overpayments (estimated at approximately $6.9 billion) due to
documentation and coding that occurred in FY 2008 and FY 2009, as
required by section 7(b)(1)(B) of Public Law 110-90.
CMS has thus far implemented a -2.0 percent (of a required -3.9
percent) prospective adjustment, and completed the full one-time -5.8
percent recoupment adjustment (-2.9 percent in both FYs 2011 and 2012).
In FY 2013, we are proposing to complete the remaining -1.9 percent
prospective adjustment, while also making a +2.9 percent adjustment to
remove the effect of the FY 2012 one-time recoupment adjustment. We
have also determined that a cumulative adjustment of -5.4 percent is
required to eliminate the full effect of documentation and coding
changes on future payments to SCHs and MDHs. After accounting for
adjustments made to the hospital-specific rate in FY 2011 and FY 2012,
an additional prospective adjustment of -0.5 percent is necessary to
complete the full -5.4 adjustment. We are proposing a full -0.5 percent
adjustment to the hospital-specific rate, in keeping with our policy of
applying equivalent adjustments, when applicable, to other subsection
(d) hospital payment systems.
We also are proposing an additional adjustment to account for
documentation and coding effects that occurred in FY 2010. After review
of comments and recommendations from MedPAC, CMS analyzed FY 2010
claims

[[Page 27879]]

using the same methodology as previously applied to FYs 2008 and 2009
claims. CMS estimates that there was a 0.8 percentage point effect due
to documentation and coding that did not reflect an actual increase in
patient severity. Our actuaries estimate that this 0.8 percentage point
increase resulted in additional aggregate payments of approximately
$1.19 billion. Therefore, we are proposing an adjustment of -0.8 to the
standardized amount and a -0.8 percent adjustment to the hospital-
specific rate. This would result in a total documentation and coding
adjustment of +0.2 percent (-1.9 plus +2.9 plus -0.8) to the
standardized amount and a -1.3 percent (-0.5 plus -0.8) adjustment to
the hospital-specific rate.
b. Hospital-Acquired Conditions (HACs)
Section 1886(d)(4)(D) 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.
In this proposed rule, we are proposing two new conditions,
Surgical Site Infection (SSI) Following Cardiac Implantable Electronic
Device (CIED) Procedures and Pneumothorax with Venous Catheterization,
for the HAC payment provisions for FY 2013 under section 1886(d)(4)(D)
of the Act. We also are proposing to add diagnosis codes 999.32
(Bloodstream infection due to central venous catheter) and 999.33
(Local infection due to central venous catheter) to the existing
Vascular Catheter-Associated Infection HAC category for FY 2013.
c. Reduction of Hospital Payments for Excess Readmissions
We are proposing a number of policies to implement section 1886(q)
of the Act, as added by section 3025 of the Affordable Care Act, which
establishes the Hospital Readmissions Reduction Program. The Hospital
Readmissions Reduction Program requires a reduction to a hospital's
base operating DRG payments to account for excess readmissions of
selected applicable conditions, which are acute myocardial infarction,
heart failure, and pneumonia. We are proposing the applicable hospitals
that included in the Hospital Readmissions Reduction Program, the
methodology to calculate the adjustment factor, the portion of the
hospital's payment that is reduced by the adjustment factor, and the
process under which the hospitals have the opportunity to review and
submit corrections for their readmissions information prior to the
information being posted on the Hospital Compare Web site.
d. Long-Term Care Hospital-Specific Market Basket
We are proposing to update LTCH payment rates with a separate
market basket comprised of data from only LTCHs, which we refer to as a
``LTCH-specific market basket.'' We are proposing to implement a stand-
alone LTCH market basket based on FY 2009 Medicare cost report data.
The method used to calculate the cost weights and the price proxies
used are generally similar to those used in the FY 2008-based RPL
market basket that was finalized for the FY 2012 IPPS/LTCH PPS final
rule. The primary difference is that we are using data from LTCH
providers only.
e. Expiration of Certain Payment Rules for LTCH Services and the
Moratorium on the Establishment of Certain Hospitals and Satellite
Facilities and the Increase in the Number of Beds in LTCHs and LTCH
Satellite Facilities
Moratoria on the implementation of certain LTCH payment policies
and on the development of new LTCHs and LTCH satellite facilities and
on bed increases in existing LTCHs and LTCH satellite facilities
established under sections 114(c) and (d) of the MMSEA (Pub. L. 110-
173) as amended by section 4302 of the ARRA (Pub. L. 111-5) and further
amended by sections 3106 and 10312 of the Affordable Care Act are set
to expire during CY 2012, under current law.
The moratoria established by these provisions delayed the full
implementation of the following policies for 5 years beginning at
various times in CY 2007:
The full application of the ``25-percent payment
adjustment threshold'' to certain LTCHs, including hospitals-within-
hospitals (HwHs) and LTCH satellite facilities for cost reporting
periods beginning on or after July 1, 2007, and before July 1, 2012, or
cost reporting periods beginning on or after October 1, 2007, and
before October 1, 2012, as applicable under the regulations at
Sec. Sec. 412.534 and 412.536.
The inclusion of an ``IPPS comparable per diem amount''
option for payment determinations under the short stay outlier (SSO)
adjustment at Sec. 412.529 of the regulations for LTCH discharges
occurring on or after December 29, 2007, but prior to December 29,
2012.
The application of any one-time budget neutrality
adjustment to the LTCH PPS standard Federal rate provided for in Sec.
412.523(d)(3) of the regulations from December 29, 2007, through
December 28, 2012.
In general, the development of new LTCHs and LTCH
satellite facilities, or increases in the number of beds in existing
LTCHs and LTCH satellite facilities from December 29, 2007, through
December 28, 2012, unless one of the specified exceptions to the
particular moratorium was met.
In this proposed rule, we are proposing to extend the existing
delay of the full implementation of the 25-percent payment adjustment
threshold for an additional year; that is, for cost reporting periods
beginning on or after October 1, 2012, and before October 1, 2013, as
applicable. Although we are proposing to extend the moratoria relating
to the application of the ``25-percent threshold'' payment adjustment
for cost reporting periods beginning on or after October 1, 2012, and
before October 1, 2013, the moratoria will expire for several
regulatory provisions for cost reporting periods beginning before July
1, 2012, prior to the effective date of the proposed extension,
affecting freestanding LTCHs, grandfathered hospitals-within-hospitals
(HwHs), and grandfathered satellites. This gap in the continued
application of the moratorium is a result of the July 1, 2007 effective
date of section 114(c)(1) of the MMSEA as amended by section 4302(a)(1)
of the ARRA which was based on the former July 1 through June 30
regulatory cycle for the LTCH PPS.
We are proposing an additional 1-year extension in the delay of the
full application of the 25-percent payment adjustment threshold policy
because we believe, based on a recent research initiative, that we
could soon be in a position to propose revisions to our payment
policies that could render the 25-percent payment adjustment threshold
policy unnecessary. In light of this potential result, we believe it is
prudent to avoid requiring LTCHs (or CMS systems) to implement the full
reinstatement of the policy for what could be a relatively short period
of time.
We are not proposing to make any changes to the SSO policy as it
currently exists in the regulations at Sec. 412.529.

[[Page 27880]]

Accordingly, consistent with the existing regulations at Sec.
412.529(c)(3), for SSO discharges occurring on or after December 29,
2012, the ``IPPS comparable per diem amount'' option at Sec.
412.529(c)(3)(i)(D) would apply to payment determinations for cases
with a covered length of stay that was equal to or less than one
standard deviation from the geometric average length of stay for the
same MS-DRG under the IPPS (that is, the ``IPPS comparable
threshold'').
The moratoria on the development of new LTCHs or LTCH satellite
facilities and on an increase in the number of beds in existing LTCHs
or LTCH satellite facilities are set to expire on December 29, 2012,
under current law.
We are proposing to make a one-time prospective adjustment under
Sec. 412.523(d)(3) of the regulations (which would not apply to
payments for discharges occurring on or before December 28, 2012,
consistent with the statute) and to transition the application of this
adjustment over a 3-year period. Regulations at Sec. 412.523(d)(3)
provide for the possibility of making a one-time prospective adjustment
to the LTCH PPS rates so that the effect of any significant difference
between the data used in the original computations of budget neutrality
for FY 2003 and more recent data to determine budget neutrality for FY
2003 is not perpetuated in the prospective payment rates for future
years.
f. Hospital Inpatient Quality Reporting (IQR) Program
Under section 1886(b)(3)(B)(vii) of the Act, hospitals are required
to report data on measures selected by the Secretary for the Hospital
IQR Program in order to receive the full annual percentage increase. In
past rules, we have established measures for reporting and the process
for submittal and validation of the data.
In this proposed rule, we are proposing programmatic changes to the
Hospital IQR Program for the FY 2015 payment determination and
subsequent years. These proposed changes would streamline and simplify
the process for hospitals and reduce burden. We are proposing to reduce
the number of measures in the Hospital IQR Program from 72 to 59 for
the FY 2015 payment determination. We are proposing to remove 1 chart-
abstracted measure and 16 claims based measures from the program for
the FY 2015 payment determination and subsequent years. We are
proposing to remove these measures for a number of reasons, including
that these measures are losing NQF endorsement, are included in an
existing composite measure, are duplicative of other measures in the
Hospital IQR Program, or could otherwise be reported on Hospital
Compare in the future under the authority of section 3008 of the
Affordable Care Act. In addition, we are proposing to adopt three
claims-based measures, one chart-abstracted measure and a survey-based
measure regarding care transitions, which we will collect using the
existing HCAHPS survey, to the measure set for the FY 2015 payment
determination and subsequent years. We also are proposing to adopt a
structural measure for the FY 2016 payment determination and subsequent
years.
In an effort to streamline the rulemaking process, we are proposing
to retain measures for all subsequent payment determinations, unless
specifically stated otherwise, through rulemaking. We also are
proposing to adopt certain changes to the Hospital IQR Program measures
that arise out of the NQF endorsement maintenance process without going
through further rulemaking to adopt such changes. To ensure that
hospitals that participate in the Hospital IQR Program are submitting
data for a full year, we are proposing that hospitals that would like
to participate in the Hospital IQR Program for the first time must
submit a completed Notice of Participation by December 31 of the
calendar year preceding the first quarter of the calendar year in which
chart-abstracted data submission is required for any given fiscal year.
In addition, if a hospital wishes to withdraw from the program, it
would have until May 15 prior to the start of the payment year affected
to do so. In order reduce the burden associated with validation, we are
proposing to reduce the base annual validation sample from 800 to 400,
with an additional sample of up to 200 targeted hospitals. All
hospitals failing validation would be included in the 200 hospital
supplement, with a random sample drawn from hospitals meeting one or
more additional targeting criteria. We also are proposing to require
passing scores on both the chart-abstracted clinical process of care
and hospital-acquired infection measure set groupings to pass
validation, rather than only requiring one passing score for all
validated measures.
g. Hospital Value-Based Purchasing Program
Section 1886(o)(1)(B) of the Act directs the Secretary to begin
making value-based incentive payments under the Hospital Inpatient VBP
Program to hospitals for discharges occurring on or after October 1,
2012. These incentive payments will be funded for FY 2013 through a
reduction to the FY 2013 base operating MS-DRG payment for each
discharge of 1 percent, as required by section 1886(o)(7)(B)(i) of the
Act. The applicable percentage for FY 2014 is 1.25 percent, for FY 2015
is 1.5 percent, for FY 2016 is 1.75 percent, and for FY 2017 and
subsequent years is 2 percent.
We previously published the requirements and related measures to
implement the Hospital Inpatient VBP Program in a final rule issued in
the Federal Register on April 29, 2011 (76 FR 26490, May 6, 2011, and
76 FR 26495 through 26511) and in the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51653 through 51660). In this proposed rule, we are proposing to
add requirements for the FY 2015 Hospital Inpatient VBP Program.
Specifically, we are proposing to add one additional clinical process
of care measure, AMI-10: Statin Prescribed at Discharge, and two
additional outcomes measures--an AHRQ Patient Safety Indicators
composite measure and CLABSI: Central Line-Associated Blood Stream
Infection. We also are proposing to add a measure of Medicare Spending
per Beneficiary in the Efficiency domain.
3. Summary of Costs and Benefits
Proposed FY 2013 Documentation and Coding Adjustment:
Section 7(b)(1)(A) of Pub. L. 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 prospective adjustment under section
1886(d)(3)(A)(vi) of the Act. Section 7(b)(1)(B) of Public Law 110-90
requires the Secretary to make an additional one-time adjustment to the
standardized amounts to offset the estimated increase or decrease in
aggregate payments for FYs 2008 and 2009 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.
After accounting for adjustments made in FYs 2008 and 2009, we have
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.

[[Page 27881]]

Without making this adjustment, our actuaries estimated that annual
aggregate payments would be increased by approximately $4 billion.
Furthermore, an additional one-time adjustment of -5.8 percent would be
required to fully recapture overpayments (estimated at approximately
$6.9 billion) due to documentation and coding that occurred in FY 2008
and FY 2009, as required by section 7(b)(1)(B) of Public Law 110-90.
CMS has thus far implemented a -2.0 percent (of a required -3.9
percent) prospective adjustment, and completed the full one-time -5.8
percent recoupment adjustment (-2.9 percent in both FYs 2011 and 2012).
In FY 2013, we are proposing to complete the remaining -1.9 percent
prospective adjustment, while also making a +2.9 percent adjustment to
remove the effect of the FY 2012 one-time recoupment adjustment. We
have also determined that a cumulative adjustment of -5.4 percent is
required to eliminate the full effect of documentation and coding
changes on future payments to SCHs and MDHs. After accounting for
adjustments made to the hospital-specific rate in FY 2011 and FY 2012,
an additional prospective adjustment of -0.5 percent is necessary to
complete the full -5.4 percent adjustment. We are proposing a full -0.5
percent adjustment to the hospital-specific rate, in keeping with our
policy of applying equivalent adjustments, when applicable, to other
subsection (d) hospital payment systems.
In addition, we are proposing an additional adjustment to account
for documentation and coding effects that occurred in FY 2010. After
review of comments and recommendations from MedPAC, CMS analyzed FY
2010 claims using the same methodology as previously applied to FYs
2008 and 2009 claims. CMS estimates that there was a 0.8 percentage
point effect due to documentation and coding that did not reflect an
actual increase in patient severity. Our actuaries estimate that this
0.8 percentage point increase resulted in additional aggregate payments
of approximately $1.19 billion. Therefore we are proposing an
adjustment of -0.8 to the standardized amount, and a -0.8 percent
adjustment to the hospital-specific rate.
The total IPPS documentation and coding adjustment of +0.2 percent
(-1.9 plus +2.9 plus -0.8) would increase total payments by
approximately $200 million. The total adjustment to the hospital-
specific rate would be -1.3 percent (-0.5 plus -0.8), and would
decrease total payment by $312 million. The combined impact of the
proposed FY 2013 documentation and coding adjustments would reduce
total payments by approximately $112 million.
Hospital-Acquired Conditions (HACs). For FY 2013, we are
proposing to continue to implement section 1886 (d)(4)(D) of the Act
that addresses certain hospital-acquired conditions (HACs), including
infections. We are proposing to add two additional conditions for FY
2013, Surgical Site Infection (SSI) Following Cardiac Implantable
Electronic Device (CIED) Procedures and Iatrogenic Pneumothorax with
Venous Catheterization. The projected savings estimate for these two
conditions is less than $1 million, with the total estimated savings
from HACs for FY 2013 projected at $24 million dollars.
Reduction to Hospital Payments for Excess Readmissions. We
are proposing a number of policies to implement section 1886(q) of the
Act, as added by section 3025 of the Affordable Care Act, which
establishes the Hospital Readmissions Reduction Program. The Hospital
Readmissions Reduction Program requires a reduction to a hospital's
base operating DRG payments to account for excess readmissions of
selected applicable conditions, which are acute myocardial infarction,
heart failure, and pneumonia. This provision is not budget neutral. A
hospital's readmission payment adjustment is the higher of a ratio of a
hospital's aggregate dollars for excess readmissions to their aggregate
dollars for all discharges, or 0.99 (that is, or a 1-percent reduction)
for FY 2013. In this proposed rule, we estimate that the Hospital
Readmissions Reduction Program will result in a 0.3 percent decrease,
or approximately $300 million, in payments to hospitals.
Long-Term Care Hospital-Specific Market Basket. The
proposed FY 2009-based LTCH-specific market basket update (as measured
by percentage increase) for FY 2013 is currently forecasted to be the
same as the market basket update based on the FY 2008-based RPL market
basket at 3.0 percent (currently used under the LTCH PPS). Therefore,
we are projecting that there would be no fiscal impact on the LTCH PPS
payment rates in FY 2013 as a result of this proposal. In addition, we
are proposing to update the labor-related share under the LTCH PPS for
FY 2013 based on the proposed relative importance of each labor-related
cost category in the proposed FY 2009-based LTCH-specific market
basket. Although this proposal would result in a decrease in the LTCH
PPS labor-related share for FY 2013, we are projecting that there would
be no effect on aggregate LTCH PPS payments due to the regulatory
requirement that any changes to the LTCH area wage adjustment
(including the labor-related share) are adopted in a budget neutral
manner.
Update to the LTCH PPS Standard Federal Rate, including
the Expiration of Certain Payment Rules for LTCH Services and the
Moratorium on the Establishment of Certain Hospitals and Satellite
Facilities and the Increase in the Number of Beds in LTCHs and LTCH
Satellite Facilities. Based on the best available data for the 427
LTCHs in our database, we estimate that the changes we are presenting
in the preamble and Addendum of this proposed rule, including the
proposed update to the standard Federal rate for FY 2013, the proposed
changes to the area wage adjustment for FY 2013, and changes to short-
stay outliers and high cost outlier would result in an increase in
estimated payments from FY 2012 of approximately $100 million (or about
1.9 percent). Although we are generally projecting an increase in
payments for all LTCHs in FY 2013 as compared to FY 2012, we expect
rural LTCHs to experience a larger than average increase in payments
(3.6 percent) primarily due to the proposed changes to the area wage
level adjustment. Rural hospitals generally have a wage index of less
than 1; therefore, the proposed decrease to the labor-related share
results in their proposed wage index reducing a smaller portion of the
standard Federal rate, resulting in an estimated increase in payments
in FY 2013 as compared to FY 2012. In addition, the effect of the
proposed extension of the moratorium on the application of the ``25
percent threshold'' payment adjustment policy, as provided by section
114(c) of the MMSEA, as amended by section 4302(a) of the ARRA and
sections 3106(a) and 10312(a) of the Affordable Care Act, for cost
reporting periods beginning on or after October 1, 2012, and before
October 1, 2012, is estimated to result in a payment impact of
approximately $170 million to LTCHs. Overall, we estimate that the
increase in aggregate LTCH PPS payments in FY 2013 will be $270
million.
Hospital Inpatient Quality Reporting Program. In this
proposed rule, we discuss our requirements for hospitals to report
quality data under the Hospital IQR Program in order to receive the
full annual percentage increase for FY 2015. We estimate that
approximately 95 hospitals may not receive the full annual percentage
increase in any fiscal year. However, at this time, information is not
available to

[[Page 27882]]

determine the precise number of hospitals that will not meet the
requirements to receive the full annual percentage increase for FY
2015.
We are proposing supplements to the chart validation process for
the Hospital IQR Program. Starting with the FY 2015 payment
determination, we are proposing a modest increase to the current
Hospital IQR Program validation sample of 18 cases per quarter to 27
cases per quarter in order to capture data on CLABSI, CAUTI, and SSI
measures. However, in order not to increase the Hospital IQR validation
program's overall burden to hospitals, we are proposing to reduce the
total sample size of hospitals included in the annual validation sample
from 800 eligible hospitals to 600 eligible hospitals.
We provide payment to hospitals for the cost of sending charts to
the CDAC contractor at the rate of 12 cents per page for copying and
approximately $4.00 per chart for postage. Our experience shows that
the average chart received by the CDAC contractor is approximately 275
pages. The requirement of an additional 9 charts per hospital submitted
for validation, combined with the decreased sample size, will result in
approximately 1,800 additional charts per quarter being submitted to
CMS by all selected hospitals. Thus, we estimate that we would expend
approximately $66,600 per quarter to collect the additional charts we
need to validate all measures.
Hospital Value-Based Purchasing Program. The Hospital
Value-Based Purchasing Program for FY 2013 is statutorily mandated to
be budget neutral. We believe that the program's benefits will be seen
in improved patient outcomes, safety, and experience of care. We cannot
estimate these benefits in actual dollar and patient terms because the
program does not commence until FY 2013 payments.

B. 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 use a prospective payment system (PPS) to pay for the
capital-related costs of inpatient hospital services for these
``subsection (d) hospitals.'' Under these PPSs, Medicare payment for
hospital inpatient operating and capital-related costs is made at
predetermined, specific rates for each hospital discharge. Discharges
are classified according to a list of diagnosis-related groups (DRGs).
The base payment rate is comprised of a standardized amount that is
divided into a labor-related share and a nonlabor-related share. The
labor-related share is adjusted by the wage index applicable to the
area where the hospital is located. If the hospital is located in
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the
DRG relative weight.
If the hospital treats a high percentage of 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. (We
note that the statutory provision for payments to MDHs expires at the
end of FY 2012, that is, after September 30, 2012.) 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

[[Page 27883]]

the operating IPPS. In addition, hospitals may receive outlier payments
for those cases that have unusually high costs.
The existing regulations governing payments to hospitals under the
IPPS are located in 42 CFR Part 412, Subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain
hospitals and hospital units are excluded from the IPPS. These
hospitals and units are: Rehabilitation hospitals and units; long-term
care hospitals (LTCHs); psychiatric hospitals and units; children's
hospitals; and cancer hospitals. Religious nonmedical health care
institutions (RNHCIs) are also excluded from the IPPS. Various sections
of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare,
Medicaid and SCHIP [State Children's Health Insurance Program] Balanced
Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs
for rehabilitation hospitals and units (referred to as inpatient
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and
units (referred to as inpatient psychiatric facilities (IPFs)). (We
note that the annual updates to the LTCH PPS are now included as part
of the IPPS annual update document. Updates to the IRF PPS and IPF PPS
are issued as separate documents.) Children's hospitals, cancer
hospitals, and RNHCIs continue to be paid solely under a reasonable
cost-based system subject to a rate-of-increase ceiling on inpatient
operating costs.
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) of the Act effective
for cost reporting periods beginning on or after October 1, 2002. The
LTCH PPS was established under the authority of sections 123(a) and (c)
of Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as
codified under section 1886(m)(1) of the Act). During the 5-year
(optional) transition period, a LTCH's payment under the PPS was based
on an increasing proportion of the LTCH Federal rate with a
corresponding decreasing proportion based on reasonable cost
principles. Effective for cost reporting periods beginning on or after
October 1, 2006, all LTCHs are paid 100 percent of the Federal rate.
The existing regulations governing payment under the LTCH PPS are
located in 42 CFR part 412, Subpart O. Beginning October 1, 2009, we
issue the annual updates to the LTCH PPS in the same documents that
update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and 1834(g) of the Act, payments are
made to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services are generally based on 101 percent of reasonable
cost. Reasonable cost is determined under the provisions of section
1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts
413 and 415.
5. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational
activities are excluded from the operating costs of inpatient hospital
services. Hospitals with approved graduate medical education (GME)
programs are paid for the direct costs of GME in accordance with
section 1886(h) of the Act. The amount of payment for direct GME costs
for a cost reporting period is based on the hospital's number of
residents in that period and the hospital's costs per resident in a
base year. The existing regulations governing payments to the various
types of hospitals are located in 42 CFR part 413.

C. 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 2013

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, 2011, and
2012 were implemented in the June 2, 2010 Federal Register notice (75
FR 31118), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50042) and the
FY 2012 IPPS/LTCH PPS final rule (76 FR 51476).
In this proposed rule, we are proposing to implement, or continuing
in FY 2013 to implement, the following provisions (or portions of the
following provisions) of the Affordable Care Act that are applicable to
the IPPS, the LTCH PPS, and PPS-exempt cancer hospitals:
Section 3001 of Public Law 111-148, which provides for
establishment of a hospital inpatient value-based purchasing program
under which value-based incentive payments will be made in a fiscal
year to hospitals that meet performance standards established for a
performance period with respect to discharges occurring during FY 2014.
Section 3004 of Public Law 111-148, which provides for the
submission of quality data for LTCHs beginning in FY 2014 in order to
receive the full annual update to the payment rates beginning with FY
2015 and the establishment of quality data measures by FY 2013 for the
FY 2015 payment determination.
Section 3005 of Public Law 111-148, which provides for the
establishment of a quality reporting program for PPS-exempt cancer
hospitals beginning with the FY 2014 program year, and for subsequent
program years.
Section 3025 of Public Law 111-148, which establishes a
hospital readmissions reduction program and requires the Secretary to
reduce payments to applicable hospitals with excess readmissions
effective for discharges beginning on or after October 1, 2012.
Section 3125 and 10314 of Public Law 111-148, which
modified the definition of a low-volume hospital and the methodology
for calculating the payment adjustment for low-volume hospitals,
effective only for discharges occurring during FYs 2011 and 2012.
Beginning with FY 2013, the preexisting low-volume hospital qualifying
criteria and payment adjustment, as implemented in FY 2005, will
resume.
Section 3401 of Public Law 111-148, which provides for the
incorporation of productivity adjustments into the market basket
updates for IPPS hospitals and LTCHs.
Section 10324 of Public Law 111-148, which provides 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

[[Page 27884]]

IPPS and LTCH PPS payment rates for FY 2013.
Section 3137 of Public Law 111-148, which requires the
Secretary to submit to Congress a report that includes a plan to
comprehensively reform the Medicare wage index under the IPPS. In
developing the plan, the Secretary was directed to take into
consideration the goals for reforming the wage index that were set
forth by MedPAC in its June 2007 Report to Congress and to consult with
relevant affected parties.
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 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.
Section 5506 of Public Law 111-148, which added a
provision to the Act that instructs the Secretary to establish a
process by regulation under which, in the event a teaching hospital
closes, the Secretary will permanently increase the FTE resident caps
for hospitals that meet certain criteria up to the number of the closed
hospital's FTE resident caps. The Secretary is directed to ensure that
the aggregate number of FTE resident cap slots distributed is equal to
the amount of slots in the closed hospital's direct GME and IME FTE
resident caps, respectively.

D. Major Contents of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the
Medicare IPPS for operating costs and for capital-related costs of
acute care hospitals in FY 2013. We also are setting 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, in this proposed rule, we are
setting forth proposed changes to the payment rates, factors, and other
payment rate policies under the LTCH PPS for FY 2013.
Below is a summary of the major changes that we are proposing to
make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of this proposed rule, we include
the following:
Proposed changes to MS-DRG classifications based on our
yearly review.
Proposed application of the documentation and coding
adjustment for FY 2013 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 adjustment in MS-DRG payments
for FY 2013.
A discussion of the FY 2013 status of new technologies
approved for add-on payments for FY 2012 and a presentation of our
evaluation and analysis of the FY 2013 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).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
In section III. of the preamble to this proposed rule, we are
proposing revisions to the wage index for acute care hospitals and the
annual update of the wage data. Specific issues addressed include the
following:
The proposed FY 2013 wage index update using wage data
from cost reporting periods beginning in FY 2009.
Analysis and implementation of the proposed FY 2013
occupational mix adjustment to the wage index for acute care hospitals.
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 2013 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 2013 hospital wage index.
Determination of the labor-related share for the proposed
FY 2013 wage index.
3. Other Decisions and Proposed Changes to the IPPS for Operating
Costs and GME Costs
In section IV. of the preamble of this proposed rule, we discussed
proposed changes or clarifications of a number of the provisions of the
regulations in 42 CFR parts 412, 413, and 476, including the following:
The proposed rules for payment adjustments under the
Hospital Readmissions Reduction Program based on hospital readmission
measures and the process for hospital review and correction of those
rates.
Proposed clarification regarding the duration of the
classification status of SCHs.
The proposed updated national and regional case-mix values
and discharges for purposes of determining RRC status.
Proposed payment adjustment for low-volume hospitals for
FY 2013.
The statutorily required IME adjustment factor for FY
2013, a clarification of the requirements of timely filing of claims
for Medicare Advantage enrollees for IME, direct GME, and nursing and
allied health education payment purposes, and a proposal to apply the
timely filing requirements to the submission of no-pay bills for
purposes of calculating the DSH payment adjustment.
Proposal for counting labor and delivery beds in the
formula for determining the payment adjustment for disproportionate
share hospitals and IME payments.
Discussion of the expiration of the MDH program in FY
2012.
Proposed changes to the inpatient hospital update for FY
2013, including incorporation of a productivity adjustment.
Proposed changes relating to GME and IME payments,
including proposed changes in new growth period for new residency
programs from 3 years to 5 years for new teaching hospitals;
clarification related to the 5-year period following implementation of
reductions and increases to hospitals' FTE resident caps; and proposals
and clarifications related to the preservation of resident cap
positions from closed hospitals.
Proposed conforming changes to regulations relating to
reporting requirements for pension costs for Medicare cost-finding
purposes.
Discussion of the Rural Community Hospital Demonstration
Program and a proposal for making a budget neutrality adjustment for
the demonstration program.
Proposed delay in the effective date of regulations
relating to hospital routine services furnished under arrangements.
4. Proposed FY 2013 Policy Governing the IPPS for Capital-Related Costs
In section V. of the preamble to this proposed rule, we discuss the
proposed payment policy requirements for capital-related costs and
capital payments to hospitals for FY 2013 and

[[Page 27885]]

the proposed MS-DRG documentation and coding adjustment for FY 2013.
5. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
In section VI. of the preamble of this proposed rule, we discuss
proposed changes to payments to certain excluded hospitals.
6. Proposed Changes to the LTCH PPS
In section VII. of the preamble of this proposed rule, we set forth
proposed changes to the payment rates, factors, and other payment rate
policies under the LTCH PPS for FY 2013. Specifically, we are proposing
the following major changes: a 1-year extension of the moratorium on
the full implementation of the ``25-percent threshold'' payment
adjustment at 42 CFR 412.534 and 412.536; a ``one-time prospective
adjustment'' to the standard Federal rate phased in over a 3-year
period (which would not be applicable to payments for discharges
occurring on or before December 28, 2012, consistent with the statute);
an LTCH-specific market basket; and annual updates to the LTCH PPS
standard Federal rate and to other payment factors.
7. Proposed Changes Relating to Quality Data Reporting for Specific
Providers and Suppliers
In section VIII. of the preamble of this proposed rule, we
address--
Proposed requirements for the Hospital Inpatient Quality
Reporting (IQR) Program as a condition for receiving the full
applicable percentage increase.
The proposed establishment of a quality reporting program
for PPS-exempt cancer hospitals.
Proposed requirements for the Hospital Value-Based
Purchasing Program.
Proposed revisions to the quality reporting measures under
the LTCH quality reporting program.
Proposed quality data reporting requirements for
ambulatory surgical centers (ASCs).
The establishment of the Inpatient Psychiatric Facilities
Quality Reporting Program
8. Determining Proposed Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits for Acute Care Hospitals
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the proposed FY 2013
prospective payment rates for operating costs and capital-related costs
for acute care hospitals. We also are proposing to establish the
threshold amounts for outlier cases. In addition, we address the
proposed update factors for determining the rate-of-increase limits for
cost reporting periods beginning in FY 2013 for certain hospitals
excluded from the IPPS.
9. Determining Proposed Prospective Payment Rates for LTCHs
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the proposed FY 2013
prospective standard Federal rate. We also are proposing 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.
10. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of
the impact that the proposed changes would have on affected acute care
hospitals, LTCHs, ASCs, and IPFs.
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
In Appendix B of this proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the
appropriate percentage changes for FY 2013 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).
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.
12. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a
report to Congress, no later than March 1 of each year, in which MedPAC
reviews and makes recommendations on Medicare payment policies.
MedPAC's March 2012 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 this proposed rule. For further
information relating specifically to the MedPAC March 2012 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.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as DRGs) for inpatient
discharges and adjust payments under the IPPS based on appropriate
weighting factors assigned to each DRG. Therefore, under the IPPS,
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

For general information about the MS-DRG system, including yearly
reviews and changes to the MS-DRGs, we refer readers to the previous
discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053
through 50055), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485
through 51487).

C. Adoption of the MS-DRGs in FY 2008

For information on the adoption of the MS-DRGs in FY 2008, we refer
readers to the FY 2008 IPPS final rule with comment period (72 FR 47140
through 47189).

[[Page 27886]]

D. Proposed FY 2013 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
In the FY 2008 IPPS final rule with comment period (72 FR 47140
through 47189), 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 adopted 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 Law110-90 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, and we finalized the FY 2008 adjustment
through rulemaking, effective on October 1, 2007 (72 FR 66886).
For FY 2009, section 7(a) of Public Law 110-90 required a
documentation and coding adjustment of -0.9 percent, and we finalized
that adjustment through rulemaking (73 FR 48447). The documentation and
coding adjustments established in the FY 2008 IPPS final rule with
comment period, which reflected the amendments made 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 only 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 performed a retrospective evaluation of the FY 2008 data for
claims paid through December 2008 using the methodology first described
in the FY 2009 IPPS/LTCH PPS final rule (73 FR 43768 and 43775) and
later discussed in the FY 2010 final rule (74 FR 43768 through 43772).
We performed the same analysis for FY 2009 claims data using the same
methodology as we did for FY 2008 claims (75 FR 50057 through 50068).
The results of the analysis for the FY 2011 proposed and final rules,
and subsequent evaluations in FY 2012, supported that the 5.4 percent
estimate accurately reflected the FY 2009 increases in documentation
and coding under the MS-DRG system. We were persuaded by both MedPAC's
analysis (as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR
50064 through 50065) and our own review of the methodologies
recommended by various commenters that the methodology we employed to
determine the required documentation and coding adjustments were sound.
5. Prospective Adjustments for FY 2008 and FY 2009 Authorized by
Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of
the Act
In the FY 2010 IPPS/LTCH PPS final rule (74 FR 43767 through
43777), we

[[Page 27887]]

opted to delay the implementation of any documentation and coding
adjustment until a full analysis case-mix changes based on FY 2009
claim data could be completed. We refer readers to the FY 2010 IPPS/
LTCH PPS final rule 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 percent. 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 that do not reflect real changes in case-mix 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 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. 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 because we
finalized a -2.9 percent recoupment adjustment for that year.
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). 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 final rule (76 FR 51489 and 51497), we
indicated that because further delay of this prospective adjustment
will result in a continued accrual of unrecoverable overpayments, it
was imperative that we implement a prospective adjustment for FY 2012,
while recognizing CMS' continued desire to mitigate the effects of any
significant downward adjustments to hospitals. Therefore, we
implemented a -2.0 percent prospective adjustment (a reduction of a
proposed -3.15 percent adjustment) to the standardized amount to
partially eliminate the full effect of the documentation and coding
changes that do not reflect real changes in case-mix 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 in
section II.D.6. of this preamble), and after considering other payment
adjustments to FY 2012 rates proposed elsewhere in the FY 2012 proposed
rule, we indicated that we believe a -2.0 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 -1.9 percent (3.9 percent minus 2.0
percent) would be required in future rulemaking to complete the
necessary -3.9 adjustment to meet CMS' statutory requirement under
section 7(b)(1)(A) of Public Law 110-90.
For FY 2013, we are proposing to complete the prospective portion
of the adjustment required under section 7(b)(1)(B) of Public Law 110-
90. We are proposing a -1.9 percent adjustment to the standardized
amount for FY 2013. This adjustment would remove the remaining effect
of the documentation and coding changes that do not reflect real
changes in case-mix that occurred in FY 2008 and FY 2009. We believe it
is imperative to implement the full remaining adjustment, as any
further delay would result in an overstated standardized amount in FY
2013 and any future years until a full adjustment is made. We believe
that the offsetting nature of the FY 2012 recoupment adjustment
(described in section II.D.6. of this preamble) will mitigate any
negative financial impacts of this prospective adjustment.
6. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B)
of Public Law 110-90
As discussed in section II.D.3. 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. Our actuaries estimated that this 5.8
percentage point increase resulted in an increase in aggregate payments
of approximately $6.9 billion. Therefore, as discussed in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50062 through 50067), we determined
that an aggregate adjustment of -5.8 percent in FYs 2011 and 2012 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.
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 final rule, we made 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 allowed 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).
As we stated in prior rulemaking, a major advantage of making the -
2.9 percent adjustment to the standardized

[[Page 27888]]

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.
Therefore, for FY 2012, in accordance with 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 completed 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 (76 FR
51489 and 51498). Because these adjustments, in effect, balanced out,
there was no year-to-year change in the standardized amount due to this
recoupment adjustment for FY 2012.
The -2.9 percent adjustment in each of the 2 previous fiscal years
completed the required recoupment for overpayments due to documentation
and coding effects on discharges occurring in FYs 2008 and 2009. In
this FY 2013 proposed rule, we are proposing to make a final +2.9
percent adjustment to the standardized amount. This adjustment would
remove the effect of the onetime -2.9 percent adjustment implemented in
FY 2012. 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.
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. (We note that the MDH program expires in FY 2012, as
discussed in section IV.H. of this proposed rule.) 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 documentation and coding that do not
reflect real change in case-mix.
However, in the final rule that appeared in the Federal Register on
November 27, 2007 (72 FR 66886), we rescinded the application of the
documentation and coding adjustment to the hospital-specific rates
retroactive to October 1, 2007. In that final rule, we indicated that,
while we still believe it would be appropriate to apply the
documentation and coding adjustment to the hospital-specific rates,
upon further review, we decided that the application of the
documentation and coding adjustment to the hospital-specific rates is
not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of
the Act, which only mentions adjusting ``the standardized amount''
under section 1886(d) of the Act and does not mention adjusting the
hospital-specific rates.
In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that
we continued to have concerns about this issue. Because hospitals paid
based on the hospital-specific rate use the same MS-DRG system as other
hospitals, we believe they have the potential to realize increased
payments from documentation and coding changes that do not reflect real
increases in 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

[[Page 27889]]

IPPS hospitals, but did not significantly differ from that result. We
refer readers to those FY 2010 proposed and final rules for a more
complete discussion.
As we have noted previously, because hospitals paid on the basis of
their hospital-specific rate, including SCHs (and MDHs until the end of
FY 2012), 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 were 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. 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
hospitals paid on the basis of their hospital-specific rate. We note
that, for FY 2013, this adjustment would only apply the SCHs because
the MDH program expires in FY 2012 (as discussed in section IV.G. of
this preamble). 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
adjustment needed to be made, as opposed to a -3.9 percent remaining
adjustment for IPPS hospitals.
After finalizing a -2.9 percent prospective adjustment in FY 2011
(75 FR 50067 through 50071), we finalized a prospective adjustment to
the hospital-specific rate of -2.0 percent for FY 2012 (76 FR 51499)
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. We
indicated in the final rule that 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 would be required in future rulemaking.
For this FY 2013 proposed rule, we are proposing to complete the
remaining prospective adjustment to account for the documentation and
coding effect that occurred in FY 2008 and FY 2009 by applying a -0.5
percent adjustment to the hospital-specific rate. We continue to
believe that SCHs had the same opportunity to benefit from improvements
in documentation and coding that did not reflect an increase in patient
severity, and we continue to believe that any resulting adjustments
should be applied similarly to all subsection (d) hospitals, when
possible. In FY 2013, we are proposing a prospective adjustment of -1.9
percent to the standardized amount. Therefore, we believe it is also
appropriate to propose a -0.5 percent adjustment to the hospital-
specific rate for FY 2013.
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 adjust ``the
standardized amounts computed under this paragraph'' to eliminate the
effect of changes in documentation and coding 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.
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 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
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 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 that do not reflect real changes in case-mix 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. In the FY 2011 IPPS/LTCH PPS final rule (75 FR
50072 through 50073), 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.
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. For FY 2013, we also are
not proposing any adjustment to the Puerto Rico-specific rate.

[[Page 27890]]

10. Proposed Prospective Adjustments for FY 2010 Documentation and
Coding Effect
Section 7(b)(1)(A) of Public Law 110-90 required CMS to make
prospective documentation and coding adjustments under section
1886(d)(3)(A)(iv) of the Act if, based upon a review of FY 2008 and FY
2009 discharges, we determined that implementation of the MS-DRG system
resulted in changes in documentation and coding that did not reflect
real changes in case-mix during FY 2008 or FY 2009 and that were
different than the prospective documentation and coding adjustments
applied under section 7(a) of Public Law 110-90. However, section
1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average
standardized amounts if the Secretary determines such adjustments to be
necessary for any subsequent fiscal years in order to eliminate the
effect of coding or classification changes that do not reflect real
changes in case-mix. After review of comments and recommendations
received in a FY 2012 comment letter from MedPAC (available on the
Internet at: http://www.medpac.gov/documents/06172011_FY12IPPS_MedPAC_COMMENT.pdf), we analyzed claims data in FY 2010 to determine
whether any additional adjustment would be required to ensure that the
introduction of MS-DRGs was implemented in a budget neutral manner.
While we expect that the impacts of documentation and coding behavior
in response to the introduction of MS-DRGs in FY 2008 will eventually
decline to insignificant levels, we analyzed FY 2010 data on claims
paid through December 2011 using the same claims-based methodology as
described in previous rulemaking (73 FR 43768 and 43775). We determined
a total prospective documentation and coding effect of 1.008 percent
for FY 2010. Our actuaries have estimated that this 0.8 percentage
point increase resulted in an increase in aggregate payments of
approximately $1.19 billion in FY 2010. Therefore, we also are
proposing an additional -0.8 percent adjustment to account for the
effects of documentation and coding changes that did not reflect real
changes in case-mix in FY 2010.
The combined total prospective adjustment to the standardized
amount proposed for FY 2013 under Public Law 110-90 to account for
documentation and coding effects in FY 2008 and FY 2009 and under
section 1886(d)(3)(A)(vi) of the Act to account for documentation and
coding effect in FY 2010 is -2.7 percent (-1.9 percent plus -0.8
percent). The proposed adjustment would eliminate the effect of
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FYs 2008, 2009, 2010. While we are
making no proposals regarding future fiscal years at this time, we plan
to continue to monitor and analyze additional claims data and make
adjustments, when necessary, as authorized under 1886(d)(3)(A)(vi) of
the Act. We note that the proposed total adjustment to the proposed FY
2013 standardized amount would be +0.2 percent because these
prospective adjustments will be offset by the completion of the
recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90, as
discussed below.
We note that while we have decided to review FY 2010 claims data to
determine whether additional prospective adjustments are necessary (as
discussed earlier), section 7(b)(1)(B) of Public Law 110-90 does not
authorize CMS to calculate any retrospective adjustment for
overpayments made in FY 2010, nor to recover any related overpayments
beyond FY 2012. The Secretary's authority under section
1886(d)(3)(A)(vi) of the Act is limited to prospective adjustments.

--------------------------------------------------------------------------------------------------------------------------------------------------------
Removal of
Remaining Prospective Proposed onetime Combined proposed
prospective adjustment for FY prospective recoupment documentation &
adjustment for 2010 adjustment for FY adjustment in FY coding adjustment
FYs 2008-2009 2013 2013 for FY 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Level of Adjustments..................................... -1.9% -0.8% -2.7% +2.9% +0.2%
--------------------------------------------------------------------------------------------------------------------------------------------------------

Consistent with our proposal for IPPS hospitals paid on the basis
of the standardized amount, our special exceptions and adjustment
authority under section 1886(d)(5)(I)(i) of the Act, and based upon our
review of FY 2010 claims data, we also are proposing an additional -0.8
percent adjustment to the hospital-specific rate to account for
documentation and coding changes in FY 2010 that did not reflect real
changes in case-mix. We believe that a full prospective adjustment for
hospitals paid based on the hospital-specific rate is the most
appropriate means to take into 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. Therefore, we are proposing a combined adjustment of -1.3
percent (-0.5 percent + -0.8 percent) to the hospital-specific rate,
accounting for all documentation and coding effects observed between FY
2008 though FY 2010.
Based upon our analysis of FY 2010 claims data, we found no
significant additional effect of documentation and coding in FY 2010
that would warrant any additional adjustment to the Puerto Rico-
specific rate.
As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files
are available to the public to allow independent analysis of the FY
2008 and FY 2009 documentation and coding effects. 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.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
Beginning in FY 2007, we implemented relative weights for DRGs
based on cost report data instead of charge information. We refer
readers to the FY 2007 IPPS final rule (71 FR

[[Page 27891]]

47882) for a 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.
As we implemented 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 the Research
Triangle Institute, International (RTI) to study the effects of charge
compression in calculating the relative weights and to consider methods
to reduce the variation in the cost-to-charge ratios (CCRs) across
services within cost centers. For a detailed summary of RTI's findings,
recommendations, and public comments that we received on the report, we
refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48452
through 48453).
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, we discussed our decision to pursue changes to the cost
report to split the cost center for Medical Supplies Charged to
Patients into one line for ``Medical Supplies Charged to Patients'' and
another line for ``Implantable Devices Charged to Patients.'' We
acknowledged, as RTI had found, that charge compression occurs in
several cost centers that exist on the Medicare cost report. However,
as we stated in the 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
the items that should be reported in these respective cost centers, we
adopted the commenters' recommendations that hospitals should use
revenue codes established by the AHA's National Uniform Billing
Committee to determine the items that 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 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.
As we discussed in the FY 2009 IPPS final rule (73 FR 48458,
respectively) and in the CY 2009 OPPS/ASC final rule with comment
period (73 FR 68519 through 68527), in addition to the findings
regarding implantable devices, RTI also found that the costs and
charges of computed tomography (CT) scans, magnetic resonance imaging
(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 the 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 costs from charges on claims data. 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. (We refer readers to the FY 2011
IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a detailed
discussion of the reasons for the creation of standard cost centers for
CT scans, MRI, and cardiac catheterization.) The new standard cost
centers for CT scans, MRI, 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.
2. Summary of Policy Discussion in FY 2012
In the FY 2009 IPPS 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.
However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74
FR 43782), due to delays in the issuance of the revised cost report CMS
2552-10, we determined that a new CCR for Implantable Devices Charged
to Patients might not be available before FY 2013. Similarly, when we
finalized the decision in the FY 2011 IPPS/LTCH PPS final rule to add
new cost centers for CT scans, MRI, 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).
Accordingly, during the FY 2012 IPPS rulemaking (76 FR 51502), 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. We checked the
availability of data in the ``Implantable Devices Charged to Patients''
cost center on the FY 2009 cost reports, but we did not believe that
there 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
Devises 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 for the FY 2013 IPPS/LTCH PPS rulemaking cycle
and, if appropriate, we would propose to create a distinct CCR at that
time.
3. Discussion for FY 2013
To calculate the MS-DRG relative weights, we use two data sources:
the MedPAR file as the claims data source and the HCRIS as the cost
data source. We adjust the charges from the claims to costs by applying
the 15 national average CCRs developed from the cost reports. In the
past several years, we have made progress in changing the cost report
to add the ``Implantable Devices Charged to Patients'' cost center. At
this time, there is a sizeable number of hospitals in the FY 2010 HCRIS
that have reported data for ``Implantable Devices Charged to Patients''
on their cost reports beginning during FY 2010. However, we note that,
during the development of this proposed rule, we have been able to
access only those cost reports in the FY 2010 HCRIS with fiscal year
begin dates on or after October 1, 2009, and before May 1, 2010. This
is because cost reports with fiscal year begin dates of May 1, 2010,

[[Page 27892]]

through September 30, 2010, were filed on the new cost report Form
2552-10, and cost reports filed on the Form 2552-10 are not currently
accessible in the HCRIS. Normally, we pull the HCRIS dataset that is 3
years prior to the IPPS fiscal year (that is, for the FY 2013 relative
weights, we would use the FY 2010 HCRIS, which includes data from cost
reports that begin on or after October 1, 2009, and before October 1,
2010). However, because data from the Form 2552-10 cost reports are not
currently available, to ensure that the relative weights are calculated
with a data set that is as comprehensive and accurate as possible, we
are proposing to calculate the FY 2013 relative weights with data from
FY 2010 cost reports for providers with fiscal year begin dates of on
or after October 1, 2009, and before May 1, 2010, and to back fill with
data from FY 2009 cost reports for those providers that have fiscal
year begin dates on or after May 1, 2010 through September 30, 2010.
Further complicating matters is that, due to additional unforeseen
technical difficulties, the corresponding information regarding charges
for implantable devices on hospital claims is not yet available to us
in the MedPAR file. Without the breakout in the MedPAR file of charges
associated with implantable devices to correspond to the costs of
implantable devices on the cost report, we believe that we have no
choice but to propose to continue computing the relative weights with
the current CCR that combines the costs and charges for supplies and
implantable devices. When we do have the necessary supplies and
implantable device data on the claims in the MedPAR file to create
distinct CCRs for supplies and implantable devices, perhaps for FY
2014, we also hope that we will have data for an analysis of creating
distinct CCRs for MRI, CT scans, and cardiac catheterization. Prior to
proposing to create these CCRs, we will first thoroughly analyze and
determine the impacts of the data. Distinct CCRs for implantable
devices, MRIs, and CT scans would be used in the calculation of the
relative weights only if they were first finalized through rulemaking.

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

1. Background
Section 1886(d)(4)(D) of the Act addresses certain hospital-
acquired conditions (HACs), including infections. This provision is
part of an array of Medicare tools that we are using to promote
increased quality and efficiency of care. 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 261 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.
Section 1886(d)(4)(D) 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.
Effective for discharges occurring on or after October 1, 2008,
pursuant to the authority of section 1886(d)(4)(D) of the Act, Medicare
no longer assigns an inpatient hospital discharge to a higher paying
MS-DRG if a selected condition is not present on admission (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. In addition,
Medicare continues to assign a discharge to a higher paying MS-DRG if a
selected condition is POA. When a HAC is not POA, payment can be
effected in a manner shown in the diagram below.

[[Page 27893]]

[GRAPHIC] [TIFF OMITTED] TP11MY12.000

2. 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, including a detailed
discussion of the collaborative interdepartmental process and public
input regarding selected and potential candidate HACs, we refer readers
to the following rules: 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); the FY 2011
IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR 50080);
and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25810 through 25816)
and final rule (76 FR 51504 through 51522). A complete list of the 10
current categories of HACs is included on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25813 through
25814) and FY 2012 IPPS/LTCH PPS final rule (76 FR 51507 through
50509), we proposed but did not finalize the candidate condition
Contrast-Induced Acute Kidney Injury. Instead, we deferred the decision
making on this condition as a selected HAC until future rulemaking and
such a time when improved coding for the condition is available.
3. Present on Admission (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 previous rulemaking, we provided both CMS and CDC Web site resources
that are available to hospitals for assistance in this reporting
effort. For detailed information regarding these sites and materials,
including the application and use of POA indicators, we refer the
reader to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 through
51507).
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: Under the HAC policy, we
treat HACs coded with ``Y'' and ``W'' indicators as POA and allow the
condition on its own to cause an increased payment at the CC/MCC level.
We treat HACs coded with ``N'' and ``U'' indicators as Not Present on
Admission (NPOA) and do not allow the condition on its own to cause an
increased payment at the CC/MCC level. We refer readers to the
following rules for a detailed discussion: The FY 2009 IPPS proposed
rule (73 FR 23559) and final rule (73 FR 48486 through 48487); the FY
2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule
(74 FR 43784 through 43785); the FY 2011 IPPS/LTCH PPS proposed rule
(75 FR 23881 through 23882) and final rule (75 FR 50081 through 50082);
and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25812 through 25813)
and final rule (76 FR 51506 through 51507).

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

[[Page 27894]]

Beginning on or after January 1, 2011, hospitals were 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. 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, which can be located at the
following link on the CMS Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf. 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.
In addition, as discussed elsewhere in section III.G.9. of the
preamble of this proposed rule, the 5010 format allows the reporting
and effective January 1, 2011, the processing of up to 25 diagnoses and
25 procedure codes. As such, it is necessary to report a valid POA
indicator for each diagnosis code, including the principal and all
secondary diagnoses up to 25.
4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS
As we stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506
and 51507), in preparation for the transition to the ICD-10-CM and ICD-
10-PCS code sets, further information regarding the use of the POA
indicator with the ICD-10-CM/ICD-10-PCS classifications as they pertain
to the HAC policy will be discussed in future rulemaking.
At the March 5, 2012 meeting of the ICD-9-CM Coordination and
Maintenance Committee, an announcement was made with regard to the
availability of the ICD-9-CM HAC list translation to ICD-10-CM and ICD-
10-PCS code sets. Participants were informed that the list of the
current ICD-9-CM selected HACs has been translated into codes using the
ICD-10-CM and ICD-10-PCS classification system. It was recommended that
the public review this list of ICD-10-CM/ICD-10-PCS code translations
of the current selected HACs available on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. The
translations can be found under the link titled ICD-10-CM/PCS MS-DRG
v29 Definitions Manual Table of Contents--Full Titles--HTML Version in
Appendix I--Hospital Acquired Conditions (HACs). The translation list
also is available on the CMS Web page at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/icd10_hacs.html. We
encourage the public to submit comments on these translations through
the HACs Web page using the CMS ICD-10-CM/PCS HAC Translation Feedback
Mailbox that has been set up for this purpose under the Related Links
section titled ``CMS HAC Feedback.'' The final HAC list translation
from ICD-9-CM to ICD-10-CM/ICD-10-PCS will be subject to formal
rulemaking.
In the meantime, we continue to encourage readers to review the
educational materials and draft code sets currently available for ICD-
10-CM/ICD-10-PCS on the CMS Web site at: http://www.cms.gov/ICD10/. In
addition, the draft ICD-10-CM/ICD-10-PCS coding guidelines can be
viewed on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm.
5. Proposed Changes to the HAC Policy for FY 2013
a. Proposed Additional Diagnosis Codes to Existing HACs
As changes to diagnosis codes and new diagnosis codes have been
proposed and finalized for the list of CCs and MCCs, we have modified
the list of selected HACs to reflect these changes. While there are not
any new diagnosis codes being proposed for FY 2013, there were new and
revised diagnosis codes effective October 1, 2011 (FY 2012) that were
not finalized in time for inclusion in the FY 2012 IPPS rulemaking.
Therefore, we are now proposing to add two of these codes to an
existing HAC category. We are proposing to add diagnosis codes 999.32
(Bloodstream infection due to central venous catheter) and 999.33
(Local infection due to central venous catheter) to the Vascular
Catheter-Associated Infection HAC category for FY 2013. These codes
were created in response to a request discussed at the March 9-10, 2011
ICD-9-CM Coordination and Maintenance Committee meeting to better
identify specific types of infections (systemic vs. local) that occur
as a result of central venous catheter placement.
Previously, there was only one existing HAC code (999.31 (Infection
due to central venous catheter)) in the Vascular Catheter-Associated
Infection HAC category. With the creation of codes 999.32 and 999.33,
effective October 1, 2011, the title for code 999.31 was revised to
``Other and unspecified infection due to central venous catheter.''
Therefore, codes 999.32 and 999.33 provide further specificity as to
the type of infection due to a central venous catheter. We refer
readers to page 45 of the topic packet found at the following link on
the CDC ICD-9-CM Web page at http://www.cdc.gov/nchs/data/icd9/TopicpacketforMarch2011_HA1.pdf for further information.
Shown in the table below are these proposed two diagnosis codes
with their corresponding descriptions and their CC/MCC designations.

------------------------------------------------------------------------
CC/MCC
ICD-9-CM code Code descriptor designation
------------------------------------------------------------------------
999.32........................ Bloodstream infection CC
due to central
venous catheter.
999.33........................ Local infection due CC
to central venous
catheter.
------------------------------------------------------------------------

We are inviting public comments on the proposed adoption of these
two ICD-9-CM diagnosis codes designated as CC/MCCs that are listed
above, to be added to the Vascular Catheter-Associated Infection HAC
category as indicated for FY 2013.
b. Proposal To Add New HAC Condition: Surgical Site Infection (SSI)
Following Cardiac Implantable Electronic Device (CIED) Procedures
We discuss below our rationale for proposing a new condition,
Surgical Site Infection (SSI) Following Cardiac Implantable Electronic
Device (CIED) Procedures, for selection for FY 2013 as a HAC under
section 1886(d)(4)(D) of the Act. As described in more detail in
section II.F.1. 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 discuss other
considerations relating to the selection of a HAC, including any

[[Page 27895]]

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 are inviting public comment on
the degree to which these conditions fulfill these statutory
requirements, as well as clinical, coding, and prevention issues on our
proposal to add Surgical Site Infection (SSI) Following Cardiac
Implantable Electronic Device (CIED) Procedures as a condition subject
to the HAC payment provision for discharges occurring on or after
October 1, 2012.
CIED therapy reduces morbidity and mortality in selected patients
with cardiac rhythm disturbances.\1\ More than 500,000 CIEDs are
implanted each year in the United States and 70 percent of CIED
recipients are age 65 or older.\2\ However, this benefit with regard to
the treatment of cardiac rhythm disturbances is somewhat reduced by
complications following device placement, including infections.
Patients can present with early or late infections because of CIED
placement.\3\ Two-thirds of these infections are caused by
Staphylococcus aureus and coagulase-negative Staphylococcus species.
Treatment of these infections usually entails surgical explantation of
the device, sometimes under general anesthesia and a prolonged course
of intravenous antibiotics, along with external electrical support in a
monitored intensive care setting. The rate of CIED infection is
increasing faster than the rate of CIED implantation,\4\ and there are
published data on the mortality and cost associated with CIED infection
or the relationship of these outcomes to different CIED types.
---------------------------------------------------------------------------

\1\ Epstein, A. E., J. P. DiMarco, et al. (2008). ``ACC/AHA/HRS
2008 Guidelines for Device-Based Therapy of Cardiac Rhythm
Abnormalities: a report of the American College of Cardiology/
American Heart Association Task Force on Practice Guidelines
(Writing Committee to Revise the ACC/AHA/NASPE 2002 Guideline Update
for Implantation of Cardiac Pacemakers and Antiarrhythmia Devices):
developed in collaboration with the American Association for
Thoracic Surgery and Society of Thoracic Surgeons.'' Circulation
117(21): e350-408.
\2\ Zhan, C., W. B. Baine, et al. (2007). ``Cardiac device
implantation in the United States from 1997 through 2004: a
population-based analysis.'' J Gen Intern Med, 23 Suppl 1: 13-19.
\3\ Baddour, L. M., A. E. Epstein, et al. (2010). ``Update on
cardiovascular implantable electronic device infections and their
management: a scientific statement from the American Heart
Association.'' Circulation, 121(20048212): 458-477.
Baddour, L. M., A. E. Epstein, et al. (2010). ``Update on
Cardiovascular Implantable Electronic Device Infections and Their
Management: A Scientific Statement From the American Heart
Association.'' Circulation, 121(3): 458-477.
\4\ Greenspon, A. J., J. D. Patel, et al. (2011). ``16-Year
Trends in the Infection Burden for Pacemakers and Implantable
Cardioverter-Defibrillators in the United States 1993 to 2008.''
Journal of the American College of Cardiology 58(10): 1001-1006.
---------------------------------------------------------------------------

There is not a unique code that identifies SSI Following CIED
Procedures. However, the condition can be identified as a subset of
discharges with ICD-9-CM diagnosis code 996.61 (Infection and
inflammatory reaction due to cardiac device, implant and graft) or
998.59 (Other postoperative infection). Our clinical advisors believe
that diagnosis code 996.61 or 998.59, in combination with the
associated procedure codes below, can accurately identify SSI Following
CIED Procedures. The procedure codes are:
00.50 (Implantation of cardiac resynchronization pacemaker
without mention of defibrillation, total system [CRT-P]);
00.51 (Implantation of cardiac resynchronization
defibrillator, total system [CRT-D]);
00.52 (Implantation or replacement of transvenous lead
[electrode] into left ventricular coronary venous system);
00.53 (Implantation or replacement of cardiac
resynchronization pacemaker pulse generator only [CRT-P]);
00.54 (Implantation or replacement of cardiac
resynchronization defibrillator pulse generator device only [CRT-D]);
37.80 (Insertion of permanent pacemaker, initial or
replacement, type of device not specified);
37.81 (Initial insertion of single-chamber device, not
specified as rate responsive);
37.82 (Initial insertion of single-chamber device, rate
responsive);
37.83 (Initial insertion of dual-chamber device);
37.85 (Replacement of any type pacemaker device with
single-chamber device, not specified as rate responsive);
37.86 (Replacement of any type of pacemaker device with
single-chamber device, rate responsive);
37.87 (Replacement of any type pacemaker device with dual-
chamber device);
37.94 (Implantation or replacement of automatic
cardioverter/defibrillator, total system [AICD]);
37.96 (Implantation of automatic cardioverter/
defibrillator pulse generator only);
37.98 (Replacement of automatic cardioverter/defibrillator
pulse generator only);
37.74 (Insertion or replacement of epicardial lead
[electrode] into epicardium);
37.75 (Revision of lead [electrode]);
37.76 (Replacement of transvenous atrial and/or
ventricular lead(s) [electrode]);
37.77 (Removal of lead(s) [electrode] without
replacement);
37.79 (Revision or relocation of cardiac device pocket);
and
37.89 (Revision or removal of pacemaker device).
We are proposing to identify Surgical Site Infection Following CIED
Procedures with diagnosis code 996.61 or 998.59 in combination with one
or more of the above associated procedure codes. We believe the
condition meets the three criteria for inclusion on the HAC list, as
discussed in greater detail below.
First, the condition is one that is high cost and high volume. We
reviewed Medicare claims data in the FY 2011 MedPAR file. For FY 2011,
we found that there were 859 inpatient discharges coded with Surgical
Site Infection Following CIED Procedures as specified by diagnosis code
996.61 or 998.59 when reported with one or more of the above cited
associated procedure codes submitted through Medicare claims. The cases
had an average cost of $51,795 for the entire hospital stay. We found
that there were 583 inpatient discharges coded with Surgical Site
Infection Following CIED Procedures as specified by diagnosis code
996.61 or 998.59 when reported with one or more of the above cited
associated procedure codes submitted through Medicare claims reported
as POA. These POA cases had an average cost of $41,999. We also found
that there were 276 inpatient discharges coded with Surgical Site
Infection Following CIED Procedures as specified by diagnosis code
996.61 or 998.59 when reported with one or more of the above cited
associated procedure codes submitted through Medicare claims reported
as NPOA. These NPOA cases had an average cost of $72,485. We note that
these data are consistent with other data presented for current HACs.
Therefore, we believe this condition is high cost and high volume.
In addition, we reviewed the literature regarding this condition.
Infection associated with CIED procedures resulted in a substantial
incremental increase in admission mortality and long-term mortality,
and varies with the type of CIED. For the purposes of this proposal, we
are considering CIED procedures in the

[[Page 27896]]

aggregate. Several large studies showed CIED infection associated with
an approximately 5 percent to 8 percent inhospital mortality as well as
a 17.5 percent to 35.1 percent one year mortality.\5\ Additionally,
there is a significant cost impact for patients who suffer infections
after CIED implantation. A recent large analysis of 2007 data on over
200,000 Medicare beneficiaries demonstrated the mean hospital cost of
CIED infections to be $28,676 to $53,349, compared with a mean hospital
cost ranging from $12,468 to $36,851 for beneficiaries without
infection.\6\ This additional information supports our conclusion from
our analysis of data in the MedPAR file that this condition is high
cost.
---------------------------------------------------------------------------

\5\ Tarakji, K. G., E. J. Chan, et al. (2010). ``Cardiac
implantable electronic device infections: Presentation, management,
and patient outcomes.'' Heart Rhythm 7(8): 1043-1047.
\6\ Sohail, M. R., C. A. Henrikson, et al. (2011). ``Mortality
and cost associated with cardiovascular implantable electronic
device infections.'' Arch Intern Med 171(20): 1821-1828.
---------------------------------------------------------------------------

Second, the condition of Surgical Site Infection Following CIED
Procedures, as specified in our proposal, is a CC under the MS-DRG
system. We have not identified any additional administrative or
operational difficulties associated with proposing this condition as a
HAC.
Third, because there are widely recognized guidelines for the
prevention of Surgical Site Infection Following CIED Procedures, we
believe the condition is reasonably preventable through application of
evidenced-based guidelines. A large randomized controlled trial
demonstrated that prophylactic preoperative antibiotics reduced CIED
infection by 81 percent in patients who received them.\7\ Well-accepted
guidelines for the prevention and prophylaxis of CIED infection now
exist supporting the use of prophylactic antibiotics.
---------------------------------------------------------------------------

\7\ de Oliveira, J. C., M. Martinelli, et al. (2009). ``Efficacy
of Antibiotic Prophylaxis Before the Implantation of Pacemakers and
Cardioverter-Defibrillators: Results of a Large, Prospective,
Randomized, Double-Blinded, Placebo-Controlled Trial.'' Circ
Arrhythm Electrophysiol, 2(1): 29-34.
---------------------------------------------------------------------------

We are inviting public comment on whether Surgical Site Infection
Following CIED Procedures 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 condition as
a proposed condition subject to the HAC payment provision for FY 2013
(for discharges occurring on or after October 1, 2012). We are
particularly interested in receiving comments on the degree to which
Surgical Site Infection Following CIED Procedures is reasonably
preventable through the application of evidence-based guidelines.
c. Proposal To Add New HAC: Iatrogenic Pneumothorax With Venous
Catheterization
We discuss below our rationale for proposing a new condition,
Iatrogenic Pneumothorax with Venous Catheterization, for selection as a
HAC for FY 2013 under section 1886(d)(4)(D) of the Act. We had
previously proposed Iatrogenic Pneumothorax more generally as a HAC in
the FY 2009 IPPS rulemaking (73 FR 48485).
In the FY 2009 IPPS final rule (73 FR 48485), we considered
Iatrogenic Pneumothorax as a condition but did not finalize it due to
commenters' concerns about the preventability of the condition when
following the evidence-based guidelines. Most commenters opposed the
selection of Iatrogenic Pneumothorax as a HAC and indicated that the
evidence-based guidelines often acknowledge that Iatrogenic
Pneumothorax is a known relatively common risk for certain procedures.
Further, with regard to evidence-based guidelines, many commenters
opposed designation of this condition as a HAC due to a lack of
consensus within the medical community regarding its preventability.\8\
Some commenters offered suggestions to exclude certain procedures or
situations, including central line placement, thoracotomy, and the use
of a ventilator, if Iatrogenic Pneumothorax were to be selected as a
HAC. In that rule, we noted that we would continue to review the
development of evidence-based guidelines for the prevention of
Iatrogenic Pneumothorax if evidence warrants and consider Iatrogenic
Pneumothorax as a HAC in the future. We refer readers to that final
rule for a more detailed discussion (73 FR 48485). To address concerns
raised by commenters in FY 2009, we reviewed changes in the standard of
care and evidence-based guidelines to identify specific situations
where Iatrogenic Pneumothorax would be considered reasonably
preventable and identified venous catheterization as one such instance.
---------------------------------------------------------------------------

\8\ Ahan, et al. ``Accidental Iatrogenic Pneumothorax in
Hospitalized Patients,'' Medical Care, 44(2):182-6, Feb. 2006.
---------------------------------------------------------------------------

Pneumothorax is defined as the presence of air or gas in the
pleural cavity, which is the space between the covering of the tissue
of the lung and parietal pleura, or the part of the pleura that lines
the chest wall. The presence of air in this space partially or
completely collapses the lung and is life threatening. Air can enter
the intrapleural space through a passage through the chest wall.
Iatrogenic Pneumothorax is a type of traumatic pneumothorax that
results from incursion into the pleural space secondary to diagnostic
or therapeutic medical intervention, such as needle placement for
central line catheter guidance.
There is no unique code that identifies Iatrogenic Pneumothorax
with Venous Catheterization. However, Iatrogenic Pneumothorax with
Venous Catheterization can be identified as a subset of discharges with
ICD-9-CM diagnosis code 512.1 (Iatrogenic pneumothorax). Our clinical
advisors believe that diagnosis code 512.1, in combination with the
associated procedure code 38.93 (Venous catheterization NEC), can
accurately identify Iatrogenic Pneumothorax with Venous
Catheterization. We are proposing to identify Iatrogenic Pneumothorax
with Venous Catheterization reported in combination with diagnosis code
512.1 (Iatrogenic pneumothorax) and procedure code 38.93 (Venous
catheterization NEC). We recognize that, in quality measurement such as
with the Agency for Healthcare Research and Quality (AHRQ) Patient
Safety Indicator (PSI) Number 6 (Iatrogenic Pneumothorax Rate),
exclusion criteria are used to increase the accuracy of identifying
these cases. We believe that, by limiting our proposal to include
Iatrogenic Pneumothorax as a HAC only in the context of venous
catheterization, we have improved our ability to accurately identify
these cases. While we are not proposing exclusion criteria, we welcome
public comment in this regard. In addition, we believe this more
narrowly tailored condition meets the three criteria for inclusion on
the HAC list, as discussed in greater detail below.
First, the condition is one that is high cost and high volume. We
reviewed Medicare claims data in the FY 2011 MedPAR file. We found that
there were 4,467 inpatient discharge cases coded for Iatrogenic
Pneumothorax with Venous Catheterization as specified by diagnosis code
512.1 reported with procedure code 38.93. The cases had an average cost
of $39,128 for the entire hospital stay. We found that there were 612
inpatient discharge cases coded for Iatrogenic Pneumothorax with Venous
Catheterization as specified by diagnosis code 512.1 reported with
procedure code 38.93 submitted through Medicare claims reported as POA.
These POA cases had an average cost of $26,693. We also found that
there were 3,855 inpatient discharge cases coded for

[[Page 27897]]

Iatrogenic Pneumothorax with Venous Catheterization as specified by
diagnosis code 512.1 reported with procedure code 38.93 submitted
through Medicare claims reported as NPOA. These NPOA cases had an
average cost of $41,102. We note that these data are consistent with
other data presented for current HACs. Therefore, we believe this
condition is high cost and high volume.
In addition, we reviewed the literature regarding this condition.
The cannulation of veins (that is insertion of a catheter) with central
venous catheterization is an important aspect of patient care for the
administration of fluids and medications and for monitoring purposes.
Eight percent of hospitalized patients receive a central venous
catheter, and more than 5 million central venous catheters are inserted
in the United States each year. Indwelling catheters have several known
complications and side effects associated with their use, such as
infections or vessel damage. Additionally, there are risks associated
with the placement of central venous catheters including the risk of
pneumothorax for central catheters placed in the upper area of the
patient's neck or chest when placed in the internal jugular or
subclavian veins. Mechanical complications associated with Iatrogenic
Pneumothorax are reported to occur in 5 to 19 percent of patients.\9\
---------------------------------------------------------------------------

\9\ McGee, D. C. and M. K. Gould (2003). ``Preventing
Complications of Central Venous Catheterization.'' New England
Journal of Medicine, 348(12): 1123-1133.
---------------------------------------------------------------------------

Second, the condition of Iatrogenic Pneumothorax with Venous
Catheterization as specified in our proposal is a CC under the MS-DRGs.
Third, there are widely recognized guidelines that address the
prevention of Iatrogenic Pneumothorax with Venous Catheterization, and
we believe that Iatrogenic Pneumothorax in the context of venous
catheterization is reasonably preventable through application of these
evidenced-based guidelines.
In terms of guidelines, the AHRQ, in a 2001 report ``Making Health
Care Safer: A Critical Analysis of Patient Safety Practices'' (AHRQ
Publication No. 01-EO58) recommended the use of ultrasound for the
placement of all central venous catheters as one of its 11 practices
aimed at improving patient care. Current standard placement techniques
for these venous catheters rely on the knowledge of anatomic landmarks
and other indicators to guide the initial cannulation of the vein. The
increase in the number of small, advanced and portable 2D ultrasound
devices has inspired the use of these newer ultrasound devices in
central venous line placement, as now direct visualization of the
target vessel can be achieved, making it easier to avoid these
complications. Recommendations for the use of ultrasound as an adjunct
to central venous line placement now exist and are based on supportive
literature Category A (Randomized controlled trials report
statistically significant (P -- .01) differences between clinical
interventions for a specified clinical outcome) with a Level 1 weight
of scientific evidence (multiple randomized controlled trials with the
aggregated findings supported by meta-analysis).\10\ Several studies
have shown a decrease in the mechanical complication rate with the use
of ultrasound during line placement.\11\ Guidelines for performing
ultrasound guided vascular cannulation have been recently
published.\12\
---------------------------------------------------------------------------

\10\ Echoc, A., U. R., B. T., A. S., O. A., A. T., S. O., C. A.,
T. F., O. T. (2010). ``Practice Guidelines for Perioperative
Transesophageal Echocardiography.'' Anesthesiology, 112(5): 1084-
1096 1010.1097/ALN.1080b1013e3181c1051e1090.
\11\ Hind, D.: ``Ultrasonic device for central venous
cannulation: Meta-analysis.'' BJM, 2003, vol. 327, 7411:361-364; and
Troianos, C. A., G. S. Hartman, et al. (2012). ``Guidelines for
Performing Ultrasound Guided Vascular Cannulation: Recommendations
of the American Society of Echocardiography and the Society of
Cardiovascular Anesthesiologists.'' Anesthesia and Analgesia,
114(1): 46-72.
\12\ Troianos, C. A., G. S. Hartman, et al. (2012). ``Guidelines
for Performing Ultrasound Guided Vascular Cannulation:
Recommendations of the American Society of Echocardiography and the
Society of Cardiovascular Anesthesiologists.'' Anesthesia and
Analgesia, 114(1): 46-72.
---------------------------------------------------------------------------

We believe new evidence-based guidelines provide substantial
clinical guidance for reasonable prevention when this condition occurs
in the context of venous catheterization. We are inviting public
comment on whether Iatrogenic Pneumothorax with Venous Catheterization
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 proposed condition, as a condition subject to the
HAC payment provision for discharges occurring on or after October 1,
2012. We are particularly interested in public comment on how limiting
the condition to situations in which it occurs in conjunction with
venous catheterization influences preventability, and whether
additional limits should be considered in the context of venous
catheterization.
With the exception of the condition of Iatrogenic Pneumothorax with
Venous Catheterization, at this time, we do not believe that additional
analysis exists that would require us to change our previous
determinations regarding the 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), the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782 through 43785), and
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51510 through 51511). We
refer readers to these rules for a detailed discussion that supports
our determination regarding each of the previously considered candidate
HACs and continue to encourage public dialogue about refinements to the
HAC list.
6. RTI Program Evaluation Summary
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. The evaluation includes conditions that are currently treated as
HACs and also previously considered candidate conditions. We refer
readers to the FY 2011 IPPS/LTCH PPS final rule (50085 through 50101),
and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51512 through 51522)
for a fuller description of this evaluation and findings to date
regarding analysis of FY 2009 and FY 2010 data, respectively. Summary
and detailed data 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/. RTI's analysis of the FY 2011
MedPAR data file for the HAC-POA program evaluation is being prepared
for the FY 2013 IPPS/LTCH PPS final rule. When these summary and
detailed data are available, they also will be made publicly available
on the two Web sites noted above.
In addition to the evaluation of HAC and POA MedPAR claims data,
RTI has also conducted analyses on readmissions due to HACs and the
incremental costs of HACs to the health care system, a study of
spillover effects and unintended consequences, as well

[[Page 27898]]

as an updated analysis of the evidence-based guidelines for selected
and previously considered HACs. Reports on these analyses have been
made publicly available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/index.html.

G. Proposed Changes to Specific MS-DRG Classifications

In this FY 2013 IPPS/LTCH PPS proposed rule, we are inviting public
comment on each of the MS-DRG classification proposed changes described
below, as well as our proposals to maintain certain existing MS-DRG
classifications, which are also discussed below. In some cases, we are
proposing changes to the MS-DRG classifications based on our analysis
of claims data. In other cases, we are proposing to maintain the
existing MS-DRG classification based on our analysis of claims data.
We encourage 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 2013, comments and
suggestions should have been submitted by early December 2011. The
comments that were submitted in a timely manner are discussed below in
this section.
1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Ventricular Assist Devices (VADs)
A ventricular assist device (VAD) is a mechanical circulatory
device or pump that is used to partially or completely support heart
function and blood flow in patients with a damaged or weakened heart.
The device takes blood from the ventricles of the heart and helps pump
the blood to the rest of the body.
Some VADs are intended for short-term use, often for patients who
are recovering from heart attacks or heart surgery, while other VADs
are intended for long-term use (months to years and, in some cases, for
life). VADs are not the same device as artificial hearts, which are
designed to completely take over cardiac function and generally require
the removal of the patient's native heart.
VADs are designed to assist the ventricles, either the right (RVAD)
or the left (LVAD), and, in some cases, both ventricles at once
(BiVAD). The type of VAD used depends on the patient's underlying heart
disease and the pulmonary arterial resistance that determines the load
on the right ventricle. LVADs are the most commonly used, but when
pulmonary arterial resistance is high, right ventricular assistance
becomes necessary and an RVAD may be inserted. Long-term VADs are
normally used to help maintain a patient's quality of life while he or
she awaits a heart transplant. This process is known as a ``bridge to
transplant.'' However, sometimes the insertion of an LVAD becomes the
final treatment for the patient, which is known as ``destination
therapy.'' In this case, the VAD is a permanent implant, and no heart
transplantation occurs. In a smaller number of cases, the implantation
of a VAD, combined with pharmaceutical therapy, has enabled the native
heart to recover sufficiently to allow the VAD to be explanted, a
``bridge to recovery.''
We have issued a national coverage determination (NCD) entitled
``Artificial Hearts and Related Devices'' under Section 20.9 of the
Medicare Coverage Manual (Pub. No. 100-3). This NCD, which describes
CMS' requirements for coverage of medical services provided to Medicare
beneficiaries for the insertion of VADs, can be found at the CMS Web
site at: https://www.cms.gov/medicare-coverage-database/details/ncd-details.aspx?NCDId=246&ncdver=5&NCAId=211&ver=20&NcaName=Artificial+Hearts&bc=ACAAAAAAIAAA&. We refer readers to this Web site for the complete
viewing of the NCD for the insertion of VADs.
The assignment of procedure codes used to describe the insertion of
VADs has been discussed repeatedly in IPPS rulemaking, for the CMS-DRGs
(in effect prior to FY 2008) and more recently for the MS-DRGs (FY 2008
to present). We refer readers to the FY 2003 IPPS final rule (67 FR
49989) for a complete discussion of the assignment of these procedure
codes up to that date. In addition, the topic was discussed in FY 2005;
we refer readers to the FY 2005 IPPS final rule (69 FR 48927 through
48930) for a complete discussion regarding the assignment of these
procedure codes for FY 2005. Specifically, for FY 2005, we moved ICD-9-
CM procedure code 37.66 (Insertion of implantable heart assist system)
from CMS-DRG 525 (Other Heart Assist System Implant) to CMS-DRG 103
(Heart Transplant). When we adopted the MS-DRG classification system in
FY 2008, former CMS-DRG 103 remained in the Pre-MDC section but was
renamed and subdivided into MS-DRG 001 (Heart Transplant or Implant of
Heart Assist System with MCC) and MS-DRG 002 (Heart Transplant or
Implant of Heart Assist System without MCC).
For FY 2013, we have received a request to restructure MS-DRGs 001
and 002 by removing all of the procedure codes that describe the
insertion of a device, leaving only procedure codes 33.6 (Combined
heart-lung transplantation) and 37.51 (Heart transplantation) in the
heart transplant DRGs. The requestor further asked that the remaining
device codes be assigned to newly created MS-DRGs. The requestor
believed that, within the existing MS-DRG grouping, CMS is underpaying
for services to patients who have a VAD implanted and overpaying for
services to patients who have heart transplantations. The requestor
believed that the recommended restructuring ``would allow defined
grouping of cases with the higher level of resource [sic] required
reflected in payment.''
We have reviewed data in the September 2011 update of the FY 2011
MedPAR file and found that the average length of stay for heart
transplantations and VAD implantation cases are very similar (35.1 days
for heart transplantations and 36.63 days for VAD implantations). We
also found that the average cost for VAD implantation cases alone is
higher than the average cost of heart transplantation cases. The table
below includes our findings.

[[Page 27899]]

We believe that this higher average cost could be attributable to
the cost of the device itself. There are very few VADs approved by FDA;
therefore, we believe this small group of manufacturers is able to set
their own charges in the market. We point out that the IPPS is not
designed to pay solely for the cost of devices. The MS-DRG
classification system (and more importantly, the IPPS) is not based
solely on the cost of devices.
Rather, the MS-DRG system is a patient classification system that
provides an average means of relating the type of patients a hospital
treats (that is, case-mix) to the costs incurred by the hospital. We
have previously stated that, ``Central to the success of the Medicare
inpatient hospital prospective payment system is that DRGs have
remained a clinical description of why the patient required
hospitalization. We believe it would be undesirable to transform DRGs
into detailed descriptions of the technology and processes used by the
hospital to treat the patient. If such a transformation were to happen,
the DRGs would become largely a repackaging of fee-for-service without
the management and communication benefits. The separation of the
clinical and payment weight methodologies allows a stable clinical
methodology to be maintained, while the payment weights evolve in
response to changing practice patterns. The packaging of all services
associated with the care of a particular type of patient into a single
payment amount provides the incentive for efficiency inherent in a DRG-
based prospective payment system. Substantial disaggregation of the
DRGs into smaller units of payment, or a substantial number of cases
receiving extra payments, would undermine the incentives and
communication value in the DRG system.'' (66 FR 46904)
The results of our review of the claims data for MS-DRGs 001 and
002 are summarized in the following table.

------------------------------------------------------------------------
Description of Number of
Code code(s) cases
------------------------------------------------------------------------
MS-DRG 001 (Heart Transplant or Implant of Heart Assist System With MCC)
------------------------------------------------------------------------
All codes......................... .................... 1,235
33.6 or 37.51..................... Combined heart-lung 384
transplantation or
Heart
transplantation.
33.6 or 37.51 with 37.66.......... Combined heart-lung 11
transplantation or
Heart
transplantation
with Insertion of
implantable heart
assist system (VAD).
37.52............................. Implantation of 2
total internal
biventricular heart
replacement system
(Artificial heart).
37.66............................. Insertion of 811
implantable heart
assist system (VAD).
37.60 with 37.64.................. Implantation or 1
insertion of
biventricular
external heart
assist system +
Removal of external
heart assist
system(s) or
device(s).
37.63 with 37.64.................. Repair of heart 0
assist system +
Removal of external
heart assist
system(s) or
device(s).
37.64 with 37.65.................. Removal of external 22
heart assist
system(s) or
device(s) + plant
of single
ventricular
(extracorporeal)
external heart
assist system.
Multiple VADs 22
without heart
transplant.
------------------------------------------------------------------------
MS-DRG 002 (Heart Transplant or Implant of Heart Assist System With MCC)
------------------------------------------------------------------------
All codes......................... .................... 313
33.6 or 37.51..................... Combined heart-lung 172
transplantation or
Heart
transplantation.
33.6 or 37.51 with 37.66.......... Combined heart-lung 0
transplantation or
Heart
transplantation
with Insertion of
implantable heart
assist system (VAD).
37.52............................. Implantation of 0
total internal
biventricular heart
replacement system
(Artificial heart).
37.66............................. Insertion of 140
implantable heart
assist system (VAD).
37.60 with 37.64.................. Implantation or 0
insertion of
biventricular
external heart
assist system plus
Removal of external
heart assist
system(s) or
device(s).
37.63 with 37.64.................. Repair of heart 0
assist system +
Removal of external
heart assist
system(s) or
device(s).
37.64 with 37.65.................. Removal of external 1
heart assist
system(s) or
device(s) + plant
of single
ventricular
(extracorporeal)
external heart
assist system.
Multiple VADs 4
without heart
transplant.
------------------------------------------------------------------------

In general, we believe that the IPPS should accurately recognize
differences in utilization for clinically distinct procedures. However,
we also reiterate the language in the FY 2009 IPPS final rule that the
payments under a prospective payment system are predicated on averages
(73 FR 48443). To create a new MS-DRG specific to VAD implantation
would require basing that MS-DRG almost exclusively on the presence of
procedure code 37.66, representing a single procedure and currently one
manufacturer with FDA approval. Currently, other manufacturers are
reported to be in clinical trials with their VADs. This approach
negates our longstanding method of grouping like procedures and
diminishes the concept of averaging. Further, we are concerned that
ignoring the structure of the MS-DRG system solely for the purpose of
increasing payment for one device would set an unwarranted precedent
for defining all of the other MS-DRGs in the system (73 FR 48497 and
48498).
The commenter requested that we create two new MS-DRGs for the VADs
and that the requested MS-DRGs be divided based on the presence or
absence of an MCC. We point out that the final rule establishing the
MS-DRGs sets forth five criteria, all five of which are required to be
met in order to warrant creation of a CC or an MCC subgroup within a
base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule
with comment period (72 FR 47169). The original criteria were based on
average charges; we now use average costs (FY 2007 IPPS final rule (71
FR 47882)). To reiterate, these criteria are as follows:
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.

[[Page 27900]]

There is a $2,000 difference in average cost between
subgroups.
As procedure code 37.66 predominates in our claims data for VAD
implantations, we are including the following table demonstrating the
cost difference between MS-DRG 001 and MS-DRG 002.

------------------------------------------------------------------------
Number of
MS-DRG cases Average cost
------------------------------------------------------------------------
001--Cases with procedure code 37.66.... 811 $181,915
002--Cases with procedure code 37.66.... 140 128,069
------------------------------------------------------------------------

As stated in the FY 2008 IPPS final rule with comment period, all
five criteria must be met in order to subdivide an MS-DRG into MCC and
non-MCC severity levels. In this instance, the number of cases in MS-
DRG 002 containing procedure code 37.66 is 140, not the minimum number
of 500 cases as established by the MS-DRG severity criteria. Therefore,
even if we were to create a new MS-DRG for VAD implantation, unless we
further divided the MS-DRG based on the presence of an MCC, we would
substantially overpay approximately 15 percent of total VAD cases.
However, we could not create multiple MS-DRGs for VAD implantation
without ignoring our rules for subdividing MS-DRGs.
For these reasons, for FY 2013, we are not proposing to make any
changes to the structure of MS-DRGs 001 and 002. We are inviting public
comment on our proposal.
b. Allogeneic Bone Marrow Transplant
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50101), 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 MS-DRGs 014 and 015 because of
differences in costs associated with the procedures in these two MS-
DRGs. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51525 through
51526), we further subdivided MS-DRG 015 into two severity levels, by
deleting MS-DRG 015 and creating MS-DRG 016 (Autologous Bone Marrow
Transplant with CC/MCC); and MS-DRG 017 (Autologous Bone Marrow
Transplant without CC/MCC). We created MS-DRGs 014 and 015 as these
groups meet all five criteria for subdivision by severity level that we
established in the FY 2008 IPPS final rule with comment period (72 FR
47169). As we discussed in the FY 2012 IPPS/LTCH PPS final rule, MS-DRG
014 did not meet the criteria for subdivision by severity level.
During the comment period for the FY 2012 IPPS/LTCH PPS proposed
rule, we received a public comment regarding related and unrelated
allogeneic bone marrow transplants (which are captured in MS-DRG 014)
that had not been the subject of a proposal in that proposed rule. This
issue was referred to briefly in the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51557), but we did not address the issue because we considered
the comment to be out of the scope of provisions of the proposed rule.
However, we are addressing this issue in this FY 2013 proposed rule.
The commenter recommended that MS-DRG 014 be subdivided into two MS-
DRGs based on related and unrelated transplant donor source.
Allogeneic bone marrow transplantation utilizes the bone marrow or
stem cells from a donor that is either related (sibling or other close
family member) or unrelated (not a close family member of the
recipient) in the treatment of certain cancers and bone marrow
diseases. Allogeneic transplant recipients must have a tissue type that
matches the donor. According to the commenter, a related donor will
typically be managed by the transplant facility from human leukocyte
antigen (HLA) molecular typing through mobilization and collection,
while an unrelated donor requires the use of donor registry for
searching and collection process. According to the commenter, the
unrelated donor setting adds significant costs to the transplant that
would not be incurred in the related transplant setting.
Currently, there are three ICD-9-CM procedure codes that identify
the transplant donor source:

00.91 (Transplant from live related donor)
00.92 (Transplant from live non-related donor)
00.93 (Transplant from cadaver)

In our analysis of data in the FY 2011 MedPAR file, we found 467
cases assigned to MS-DRG 014 with average costs of approximately
$64,403 and an average length of stay of approximately 24.8 days. There
were 125 cases that reported procedure code 00.91 on the claim as the
related transplant donor source with average costs of approximately
$55,969 and an average length of stay of approximately 24.1 days. In
our analysis of the unrelated donor source, we included the cases
reported with the transplant from a cadaver donor source (code 00.93)
with the transplant from a live nonrelated donor source (code 00.92).
There were 213 cases that reported either code 00.92 or 00.93 as the
transplant donor source with average costs of approximately $64,837 and
an average length of stay of approximately 23 days. There were 129
cases that did not report a transplant donor source with average costs
of approximately $71,859 and an average length of stay of approximately
28.5 days. The following table illustrates our findings:

We note that one quarter of the cases (129 out of 467 cases) that
did not report a transplant donor source code had the highest average
costs of approximately $71,859, compared to $55,969 for live related
donors and $64,837 for live nonrelated or cadaver donors and $64,403
for the overall average cost of cases within MS-DRG 014. The cases
without a transplant donor source code also had a longer length of stay
(28.5 days) than the live-related donor cases

[[Page 27901]]

(24.1 days), the live nonrelated or cadaver cases (23 days), and the
overall cases (24.8 days) assigned to MS-DRG 014.
Based on these findings, we believe that it would not be advisable
to include cases without a transplant donor source code with the live
nonrelated or cadaver donor cases, as we believe it would encourage
providers not to report the transplant donor source code. All possible
options must be included in any MS-DRG reconfiguration. Therefore,
cases with no reported transplant donor source code must be included in
the updated logic because this is the group with the highest average
costs. Our clinical advisors reviewed this issue and do not support
splitting MS-DRG 014 into two MS-DRGs because a quarter of the cases
did not provide a transplant donor source. Therefore, we have concluded
that the cases reported with a transplant donor source code are
appropriately assigned to MS-DRG 014 and that MS-DRG does not warrant
further subdivision. Without more complete information on donor source,
we are not proposing that MS-DRG 014 be subdivided at this time. We are
inviting public comment on our proposal not to subdivide MS-DRG 014
into two MS-DRGs based on related and unrelated donor source.
2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat):
Influenza With Pneumonia
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557), we discussed
a public comment that we considered out of the scope of the FY 2012
proposed rule. Therefore, we did not address the issues in the final
rule. The commenter requested that we consider reassigning cases with a
combined diagnosis of influenza with pneumonia from a set of simple
pneumonia MS-DRGs to a set of MS-DRGs that captures a more severe type
of pneumonia. The specific request involves cases now assigned to 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) being moved 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).
We examined data in the FY 2011 MedPAR file on cases that reported
diagnosis code 487.0 (Influenza with pneumonia) as the principal
diagnosis with an additional secondary diagnosis code for one of the
following types of pneumonia:

482.0 (Pneumonia due to Klebsiella pneumoniae)
482.1 (Pneumonia due to Pseudomonas)
482.40 (Pneumonia due to Staphylococcus, unspecified)
482.41 (Methicillin susceptible pneumonia due to
Staphylococcus aureus)
482.42 (Methicillin resistant pneumonia due to Staphylococcus
aureus)
482.49 (Other Staphylococcus pneumonia)
482.81 (Pneumonia due to anaerobes)
482.82 (Pneumonia due to Escherichia coli [E. coli])
482.83 (Pneumonia due to other gram-negative bacteria)
482.84 (Pneumonia due to Legionnaires' disease)
482.89 (Pneumonia due to other specified bacteria)

Currently, when one of the pneumonia codes listed above is reported
as a principal diagnosis, the case is assigned to MS-DRG 177, 178, or
179. However, when the patient has been diagnosed with one of these
types of pneumonia and also has influenza, the ICD-9-CM coding book
directs the coder to report diagnosis code 487.0 as the principal
diagnosis and to assign an additional secondary code to describe the
specific type of pneumonia. This reporting results in cases with
diagnoses of both influenza and specific types of pneumonia being
assigned to MS-DRG 193, 194, or 195 (Simple Pneumonia and Pleurisy with
MCC, with CC, or without CC/MCC, respectively), instead of MS-DRG 177,
178, or 179. The commenter requested that we reassign cases reporting
code 487.0 as the principal diagnosis with one of the specific
pneumonia codes listed above as a secondary diagnosis to MS-DRGs 177,
178, and 179.
We analyzed data from the MedPAR file on cases with patients with
pneumonia and found the following:

----------------------------------------------------------------------------------------------------------------
Number of Average length
MS-DRG cases of stay Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 177--All cases........................................... 69,128 8.20 $13,002
MS-DRG 178--All cases........................................... 59,559 6.40 9,193
MS-DRG 179--All cases........................................... 14,108 4.65 6,365
MS-DRG 193--All cases........................................... 125,892 6.28 9,589
MS-DRG 193--Cases with principal diagnosis code 487.0 and with a 57 9.3 15,867
secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89......
MS-DRG 193--Cases with principal diagnosis code 487.0 and 1,320 6.93 10,416
without a secondary diagnosis code of 482.0, 482.1, 482.40,
482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or
482.89.........................................................
MS-DRG 194--All cases........................................... 191,030 4.73 6,524
MS-DRG 194--Cases with principal diagnosis code 487.0 and with a 59 6.9 9,752
secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89......
MS-DRG 194--Principal diagnosis code 487.0 and without a 2,088 5.16 6,871
secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89......
MS-DRG 195--All cases........................................... 80,253 3.53 4,660
MS-DRG 195--Cases with a principal diagnosis code 487.0 and a 12 4.8 5,842
secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89......
MS-DRG 195--Cases with principal diagnosis code 487.0 and 1,065 3.78 4,580
without a secondary diagnosis code of 482.0, 482.1, 482.40,
482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or
482.89.........................................................
----------------------------------------------------------------------------------------------------------------

[[Page 27902]]

The data showed that cases reporting a principal diagnosis code
487.0 with one of the pneumonia codes listed above as a secondary
diagnosis have significantly higher average costs ($15,867 in MS-DRG
193, $9,752 in MS-DRG 194, and $5,842 in MS-DRG 195) than those cases
reported without one of the pneumonia codes listed above as a secondary
diagnosis ($10,416 in MS-DRG 193, $6,871 in MS-DRG 194, and $4,580 in
MS-DRG 195), and also the overall average costs for all cases in MS-
DRGs 193, 194, and 195 ($9,589, $6,524, and $4,660, respectively). The
influenza and pneumonia cases had average costs that more closely align
with the average costs of cases currently assigned to MS-DRGs 177, 178,
and 179 ($13,002, $9,193, and $6,365, respectively).
As a result of our analysis, the data support the commenter's
request that we reassign cases reporting a principal diagnosis code
487.0 and an additional secondary diagnosis code for one of the
pneumonia codes listed above, from MS-DRGs 193, 194, and 195 to MS-DRGs
177, 178, and 179. Our clinical advisors also support reassigning these
cases to MS-DRGs 177, 178, and 179. Therefore, for FY 2013, we are
proposing to reassign cases with a principal diagnosis code 487.0 and
an additional secondary diagnosis code of one of the following
pneumonia codes listed as a secondary diagnosis codes from MS-DRGs 193,
194, and 195 to MS-DRGs 177, 178, and 179: 482.0; 482.1; 482.40;
482.41; 482.42; 482.49; 482.81; 482.82; 482.83; 482.84; and 482.89.
We are inviting public comment on our proposal for FY 2013.
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Mitral Valve Repair With Implant
We received a request to reassign procedure code 35.97
(Percutaneous mitral valve repair with implant) to the following MS-
DRGs:
MS-DRG 216 (Cardiac Valve & Other Major Cardiothoracic
Procedures with Cardiac with MCC);
MS-DRG 217 (Cardiac Valve & Other Major Cardiothoracic
Procedures with Cardiac with CC);
MS-DRG 218 (Cardiac Valve & Other Major Cardiothoracic
Procedures with Cardiac without CC/MCC);
MS-DRG 219 (Cardiac Valve & Other Major Cardiothoracic
Procedures without Cardiac with MCC);
MS-DRG 220 (Cardiac Valve & Other Major Cardiothoracic
Procedures without Cardiac with CC); and
MS-DRG 221 (Cardiac Valve & Other Major Cardiothoracic
Procedures without Cardiac without CC/MCC).
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51528 through
51529), we discussed reassigning procedure code 35.97 from MS-DRGs 231
and 232 (Coronary Bypass with PTCA with MCC and without MCC,
respectively) and MS-DRGs 246 (Percutaneous Cardiovascular Procedure
with Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 247
(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without
MCC), 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting
Stent with MCC or 4+ Vessels/Stents), 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 that final rule, we stated that we
did not have sufficient claims data on which to base and evaluate any
proposed changes to the current MS-DRG assignment. Procedure code 35.97
was created for use beginning October 1, 2010 (FY 2011) after the
concept of percutaneous valve repair was presented at the March 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 was 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 stated that while the procedure code is assigned to
MS-DRGs 246 through 251, the most likely MS-DRG assignments would be
MS-DRGs 250 and 251, as described above. As we stated in the FY 2012
IPPS/LTCH PPS final rule, because procedure code 35.97 had only been in
use since October 1, 2010, there were no claims data in the most recent
update of the MedPAR file at that time to evaluate any alternative MS-
DRG assignments. Therefore, we did not make any MS-DRG assignment
changes for procedure code 35.97 for FY 2012.
For this proposed rule, we have analyzed claims data from the FY
2011 MedPAR file on the procedure that describes mitral valve repair
with implant and found the following:

[[Page 27903]]

MS-DRG 250--All Cases........................................... 8,313 7.07 19,673
MS-DRG 250--Cases with Procedure Code 35.97..................... 39 9.77 29,753
MS-DRG 251--All Cases........................................... 31,316 2.92 12,658
MS-DRG 251--Cases with Procedure Code 35.97..................... 98 2.69 18,651
----------------------------------------------------------------------------------------------------------------

We note that most of the cases were found in MS-DRGs 250 and 251,
as we predicted in the FY 2012 IPPS/LTCH PPS final rule based on FDA's
terms of the clinical trial for MitraClip\TM\. As stated earlier, the
device is to be implanted in patients without any additional surgeries
performed. There were 39 cases in MS-DRG 250 with average costs of
$29,753 (which includes cases with an MCC). These average costs are
significantly lower than the average costs of $61,015 for cases in MS-
DRG 216, and the average costs of $50,176 for cases in MS-DRG 219
(which includes cases with an MCC). There were 98 cases in MS-DRG 251
(without MCC) with average costs of $18,651. These average costs also
are lower than the average costs of comparable cases in MS-DRGs 217,
218, 220, and 221, whose average costs range from a high of $41,324 to
a low of $29,082. While the average costs of mitral valve repair cases
are higher than the average costs of other cases assigned to MS-DRGs
250 and 251, they are significantly less than the average costs of
cardiac valve replacement cases assigned to MS-DRGs 216 through 221.
Our analysis of the claims data does not support reassigning the
procedure that describes percutaneous mitral valve repair with implant
from MS-DRGs 250 and 251 to MS-DRGs 216 through 221. Our clinical
advisors also support maintaining the current assignment of this
procedure in MS-DRGs 250 and 251. Therefore, based on our findings, we
are not proposing to reassign procedure code 35.97 from MS-DRGs 250 and
251 to MS-DRGs 216 through 221.
We are inviting public comment on our proposal to maintain the
current assignment of procedure code 35.97 in MS-DRGs 250 and 251 and
not to reassign the procedure code to MS-DRGs 217 through 221.
b. Endovascular Implantation of Branching or Fenestrated Grafts in
Aorta
The fenestrated (with holes) graft device is designed to treat
patients with abdominal aortic aneurysms (AAA). Current treatment
options for patients with AAAs include open surgical repair,
endovascular repair using stent-grafts, or medical management.
Aneurysmal disease that extends proximally to the level of the
renal arteries is usually indicative of more extensive aortic disease
and comorbidities. As a result, many of these patients are at a higher
overall risk when undergoing open surgical repair. In addition, these
patients are often not suitable for endovascular treatment with
currently available endografts because the length of healthy aorta is
insufficient to provide an adequate seal at the proximal end. The
indications for use for many of the standard endografts call for an
aortic neck length greater than or equal to 15 millimeters.
Published industry reports estimate that 8 percent to 30 percent of
patients with AAAs that need repair have aortic necks of less than 15
millimeters in length. One institution has reported that over half of
its patients with AAAs were considered ineligible for endovascular
aneurysm repair or endovascular aortic repair (EVAR) due to an
inadequate length of nondiseased aorta. These patients also were
predominantly contraindicated for open repair.
Prior to the development of a fenestrated graft device, the only
treatment option available to a large number of these high-risk
patients would have been medical management. Open surgical repair is
too challenging to frail patients, as it requires supraceliac clamping
of the aorta and may result in renal ischemia, mesenteric ischemia, or
atheroembolization of the visceral vessels of the aorta. EVAR with a
standard endograft is not a viable option either because the shortened
neck precludes an adequate proximal end seal, which can lead to type I
endoleaks (leaking of blood around the device into the aneurysm
resulting in continued pressurization of the aneurysm). Medical
management alone leaves these patients at high risk for AAA-related
morbidity and mortality. These suboptimal choices led to the creation
of fenestrated endografts that can seal above the renal arteries while
maintaining access and uninterrupted blood flow to branch vessels of
the aorta.
The fenestrated graft is currently under clinical trial in the
United States, but has not yet received FDA approval. One of the two
companies that are conducting clinical trials expects to receive FDA
approval in the second quarter of 2012. Both companies listed on the
FDA clinical trial Web site are still recruiting participants.
At the September 15, 2010 meeting of the ICD-9-CM Coordination and
Maintenance Committee, the topic of fenestrated graft was presented
with a request for a unique procedure code. As a result of that
meeting, and additional meetings with manufacturers throughout the
year, procedure code 39.78 (Endovascular implantation of branching or
fenestrated graft(s) in aorta) was created for use beginning October 1,
2011 (FY 2012). This code is assigned to MS-DRGs 252, 253, and 254
(Other Vascular Procedures with MCC, with CC, and without CC/MCC,
respectively).
We have received a request from a manufacturer to reassign
procedure code 39.78 from MS-DRGs 252, 253, and 254 and to MS-DRGs 237
and 238 (Major Cardiovascular Procedures with MCC and without MCC,
respectively). The requestor stated that the assignment to MS-DRGs 252,
253, and 254 violates both of CMS' stated principles regarding
assigning new codes to MS-DRGs that reflect both clinical coherence and
similar consumption of resources.
From the standpoint of clinical coherence, the requestor noted
that, while procedures in MS-DRGs 252, 253, and 254 are vascular
procedures, the procedures do not involve the aorta. The requestor
further notes that AAA repairs, both open and endovascular, are
assigned to MS-DRGs 237 and 238. From the standpoint of similar
consumption of resources, the requestor included anticipated device
costs of $17,424 to $21,824 for a fenestrated endovascular procedure.
The requestor noted that these costs only represent the device and do
not include any additional resources required during the
hospitalization. The requestor believed that the device costs are more
similar to devices used in MS-DRGs 237 and 238.
CMS' practice is to assign new codes to MS-DRGs where similar
procedures are also located. In terms of clinical coherence, CMS
assigned the new code to the vascular procedure MS-DRGs (252, 253, and
254) where other noncoronary endovascular procedures for blood vessel
repair also are assigned. This decision was based on our practice

[[Page 27904]]

to group similar procedures together, in this case repairs to blood
vessels, especially for new codes when CMS has no data history.
With regard to resource consumption, we point out that procedure
code 39.78 was created for use effective with discharges on or after
October 1, 2011. Our review of data in the MedPAR file shows no
utilization of this code because it is too new. That is, we have no
claims data that would either prove or disprove the requestor's
supposition that procedure code 39.78 is not adequately paid under MS-
DRGs 252, 253, and 254. As discussed elsewhere in this preamble, CMS is
not a device classification system. Therefore, because there are very
few companies currently marketing their fenestrated graft devices, we
are concerned that these companies are able to set their own charges in
the market.
In addition, the requestor opined that ``an argument could possibly
be made that the increased device costs and longer procedural times for
[procedure code] 39.78 suggest assignment into MS-DRG 237 alone would
be appropriate,'' although the requestor further stated that, without a
significant volume of actual claims data, it might be more reasonable
[for CMS] to take a conservative approach and assign these procedures
to either MS-DRG 237 or MS-DRG 238. We note that MS-DRGs 237 and 238
are paired MS-DRGs, with both MS-DRGs containing the same procedure
codes, but which have been subdivided based on the formula for the
presence or absence of comorbid or complicating conditions. It is not
an inherent part of the GROUPER logic to assign a code to only one DRG
in a set of paired or triplicate MS-DRGs.
We will continue to evaluate the clinical coherence and resource
consumption costs that impact this code and the current MS-DRG
assignment. We also note that the requestor has expressed its intent to
apply for New Technology status, provided that its anticipated FDA
approval is granted in time for this year's IPPS update.
Because there is no data history for procedure code 39.78 that
would justify a reassignment based on either clinical coherence or
resource consumption, we are not proposing to make a change to the MS-
DRG assignment of procedure code 39.78 for FY 2013. We believe that
procedure code 39.78 has been appropriately placed within the MS-DRG
structure. We are inviting public comment on our proposal.
4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and
Disorders): Disorders of Porphyrin Metabolism
We received a request for the creation of a new MS-DRG to better
identify cases where patients with disorders of porphyrin metabolism
exist, to recognize the resource requirements in caring for these
patients, to ensure appropriate payment for these cases, and to
preserve patient access to necessary treatments. Porphyria is defined
as a group of rare disorders (``porphyrias'') that interfere with the
production of hemoglobin that is needed for red blood cells. While some
of these disorders are genetic (inborn) and others can be acquired,
they all result in the abnormal accumulation of hemoglobin building
blocks, called porphyrins, which can be deposited in the tissues where
they particularly interfere with the functioning of the nervous system
and the skin.
Treatment for patients suffering from disorders of porphyrin
metabolism consists of an intravenous injection of Panhematin[supreg]
(hemin for injection). This pharmaceutical agent became the first drug
approved under the Orphan Drug Act for rare diseases in 1983. It is the
only FDA-approved prescription treatment for acute intermittent
porphyria.
ICD-9-CM diagnosis code 277.1 (Disorders of porphyrin metabolism)
describes these cases, which are currently assigned to MS-DRG 642
(Inborn and Other Disorders of Metabolism). We analyzed data from the
FY 2011 MedPAR file for cases assigned to this MS-DRG. As shown in the
table below, we found a total of 1,447 cases in MS-DRG 642 with an
average length of stay of 4.63 days and average costs of $7,400. We
then analyzed the data for cases reporting diagnosis code 277.1 as the
principal diagnosis in this same MS-DRG. We found a total of 330 cases,
with an average length of stay of 6.12 days and average costs of
$11,476.

While the average costs for the 330 cases reporting a principal
diagnosis code of 277.1 were higher than all cases in MS-DRG 642
($11,476 versus $7,400), the volume of affected cases is small,
representative of approximately 20 percent of all of the cases in MS-
DRG 642. Under our existing policy (76 FR 51487 and 51488), in deciding
whether to make modifications to the MS-DRGs, we consider whether the
resource consumption and clinical characteristics of the patients with
a given set of conditions are significantly different from the
remaining patients in the MS-DRG. We evaluate the utilization of
resources related to patient care using average costs and length of
stay 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. In evaluating resource costs, we consider both the absolute and
percentage differences in average costs between the cases we selected
for review and the reminder of cases in the MS-DRG. We also consider
variation in costs within these groups; that is, whether observed
average differences are consistent across patients or attributable to
cases that were extreme in terms of charges or length of stay. Further,
we consider the number of patients who 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. Therefore, we have
determined that the findings do not support the creation of a new MS-
DRG.
We acknowledge the importance of ensuring that patients diagnosed
with a disorder of porphyrin metabolism have adequate access to care
and receive the necessary treatment. Despite the fact that our data
analysis did not demonstrate support for the creation of a new MS-DRG
at this time, we also explored an alternative option. In reviewing the
medical MS-DRGs in terms of resources and clinical coherence that are
also located within MDC 10, we found three MS-DRGs that we believe are
similar to MS-DRG 642. We analyzed data from the MedPAR file on cases
in MS-DRGs 643, 644, and 645 (Endocrine Disorders with MCC, with CC,
and without CC/MCC, respectively) to determine if the cases reporting a
principal diagnosis code of 277.1 would be more appropriately
reassigned from MS-DRG 642 to MS-DRGs 643, 644, and 645. Upon
examination of the data,

[[Page 27905]]

we found that the average costs of these cases were $10,835, $6,816,
and $4,762, respectively, as shown in the table below.

Based on these findings, if we were to reassign cases where
disorders of porphyrin metabolism (diagnosis code 277.1) were reported
as the principal diagnosis with a secondary diagnosis designated as a
CC (MS-DRG 644) or with a secondary diagnosis that was not a CC/MCC
(MS-DRG 645), Medicare would pay significantly less for these cases
than they are now paid under MS-DRG 642. Therefore, it would not be
appropriate to reassign cases reporting a principal diagnosis code of
277.1 from MS-DRG 642 to MS-DRGs 643, 644, and 645. In addition, our
clinical advisors did not support this reassignment. The MS-DRG
classification system on which the IPPS is based comprises a system of
averages. As such, it is understood that, in any particular MS-DRG, it
is not unusual for a small number of cases to demonstrate higher than
average costs, nor is it unusual for a small number of cases to
demonstrate lower than average costs. Upon review of the MedPAR data
and the alternative option discussed, our clinical advisors agree that
the current MS-DRG assignment for diagnoses of disorders of porphyrin
metabolism (diagnosis code 277.1) to MS-DRG 642 is most appropriate at
this time.
As stated previously, we acknowledge and recognize the severity of
symptoms that patients diagnosed with disorders of porphyrin metabolism
may experience. We also are sensitive to concerns about access to care
and treatment for these patients. We will continue to monitor this
issue and determine how to better account for the variation in resource
utilization within the IPPS for these cases.
In summary, we are not proposing to create a new MS-DRG or to
reassign cases reporting a principal diagnosis code of 277.1 to MS-DRGs
643, 644, and 645 for FY 2013. We are inviting public comment on our
proposal.
5. Proposed Medicare Code Editor (MCE) Changes
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.
We are proposing to make a change to the MCE edits which includes
the creation of a new length of stay edit for continuous invasive
mechanical ventilation for 96 consecutive hours or more.
It was brought to our attention that a number of hospitals
reporting ICD-9-CM procedure code 96.72 (Continuous invasive mechanical
ventilation for 96 consecutive hours or more) may be inaccurately
reporting this code. As the title of the procedure code implies, a
patient must have received continuous mechanical ventilation for 96
hours or more in order for this code to be assigned. This equates to a
patient being hospitalized for at least a 4-day length of stay and
having received continuous invasive mechanical ventilation for a
minimum of 4 days. Therefore, a patient with a length of stay less than
4 days who received continuous invasive mechanical ventilation should
not have procedure code 96.72 reported on the claim.
The ICD-9-CM classification system contains three procedure codes
that identify and describe continuous invasive mechanical ventilation:
Procedure code 96.70 (Continuous invasive mechanical ventilation of
unspecified duration); procedure code 96.71 (Continuous invasive
mechanical ventilation for less than 96 consecutive hours); and
procedure code 96.72 (Continuous invasive mechanical ventilation for 96
consecutive hours or more). To assist in the accurate assignment of
these codes, guidance in the form of a ``Note'' is provided within the
designated procedure section of ICD-9-CM. This ``Note'' describes the
calculation of the number of hours during a hospitalization in which a
patient receives continuous invasive mechanical ventilation. In
addition, coding advice pertaining to appropriate code assignment for
mechanical ventilation has been published in various editions of the
American Hospital Association's (AHA's) Coding Clinic for ICD-9-CM.
We analyzed the FY 2011 MedPAR data to determine how many cases
reported procedure code 96.72 with a length of stay less than 4 days.
Specifically, we reviewed cases reporting procedure code 96.72 with a
length of stay of 1 day, 2 days, or 3 days. We found a total of 595
cases meeting those criteria. The data analysis showed there were 89
cases reporting procedure code 96.72 with a length of stay of 1 day and
average costs of $5,948, 134 cases reporting procedure code 96.72 with
a length of stay of 2 days and average costs of $7,776, and 372 cases
reporting procedure code 96.72 with a length of stay of 3 days and
average costs of $11,613.
The data also demonstrate that the 595 cases found were distributed
across a wide range of MS-DRGs, with the top two (in terms of volume)
being MS-DRG 207 (Respiratory System Diagnosis with Ventilator Support
96+ Hours) and MS-DRG 870 (Septicemia or Severe Sepsis with Mechanical
Ventilation 96+ hours). We note that the two MS-DRGs with the highest
volume of cases reporting procedure code 96.72 and having a length of
stay less than 4 days are the two MS-DRGs that specifically reference
``96+ hours'' in their titles. More importantly, a large percentage of
these cases reporting procedure code 96.72 in error are being grouped
to the incorrect MS-DRGs, resulting in significant overpayments. For
example, of the 89 cases reporting procedure code 96.72 with a length
of stay of 1 day, 31 cases were grouped to MS-DRGs 207 and 870. Of the
134 cases reporting procedure code 96.72 with a length of stay of 2
days, 54 cases were grouped to MS-DRGs 207 and 870. Lastly, of the 372
cases reporting procedure code 96.72 with a length of stay of 3 days,
160 cases were grouped to MS-DRGs 207 and 870. Therefore, the data show
that a total of 245 cases (41 percent) were grouped to MS-DRGs 207 and
870 in error, resulting in approximately $25,000 in increased payments
for each case (or approximately $6 million in increased payments for
all 245 cases). Based on the results of these figures for that portion
of the total 595 cases found,

[[Page 27906]]

there is an even larger dollar amount that is being overpaid to
hospitals. These overpayments justify the proposed corrective actions.
However, we also note that the presumed amount of overpayments for
claims having a length of stay less than 4 days, as discussed above, is
merely an estimate based on the data analysis that has been conducted
at this time. We are aware that, for particular circumstances such as
those patients who may require observation services, it is possible to
have procedure code 96.72 reported on the claim with a length of stay
less than 4 days. Although unlikely, a patient might be briefly
ventilated in an extended outpatient stay following a toxic ingestion
with loss of protective reflexes or following outpatient procedures
with a prolonged effect of anesthesia. A subsequent conversion to an
inpatient stay would cause the costs to be attributable to the stay,
while the days themselves were not reported in the inpatient date span
on the claim. Similar effects could occur following an observation stay
for a patient on chronic home or skilled nursing facility ventilation.
It is for this reason that we are proposing a new edit in which claims
found to have procedure code 96.72 with a length of stay less than 4
days would be returned to the provider for validation and resubmission.
Instructions in the form of a Change Request (CR) would be issued prior
to the implementation date. We are inviting the public to comment on
our proposal to create this edit, effective for FY 2013.
6. 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-
ordered surgical class has lower average costs than the class ordered
below it.
We are proposing limited changes to the MS-DRG classifications for
FY 2013, as discussed in sections II.G.1. and 4. of this preamble. In
our review of these proposed changes, we did not identify any needed
changes to the surgical hierarchy. Therefore, we are not proposing any
changes to the surgical hierarchy for Pre-MDCs and MDCs for FY 2013.
7. Complications or Comorbidity (CC) Exclusions List
a. Background
Under the IPPS MS-DRG classification system, we have developed a
standard list of diagnoses that are considered CCs. Historically, we
developed this list using physician panels that classified each
diagnosis code based on whether the diagnosis, when present as a
secondary condition, would be considered a substantial complication or
comorbidity. A substantial complication or comorbidity was defined as a
condition that, because of its presence with a specific principal
diagnosis, would cause an increase in the length of stay by at least 1
day in at least 75 percent of the patients. We refer readers to section
II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with
comment period for a discussion of the refinement of CCs in relation to
the MS-DRGs we adopted for FY 2008 (72 FR 47121 through 47152).
b. Proposed CC Exclusions List for FY 2013
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

[[Page 27907]]

(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.\13\
---------------------------------------------------------------------------

\13\ 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); the FY 2011 final rule
(75 FR 50114); and the FY 2012 final rule (76 FR 51542). 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) No Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for
FY 2013
For FY 2013, we are not proposing to make any revisions to the CC
Exclusions List. There were no changes made to the ICD-9-CM coding
system, effective October 1, 2012, due to the partial code freeze. (We
refer readers to section II.G.9. of the preamble of this proposed rule
for a discussion of ICD-9-CM coding system.)
(2) Suggested Changes to the MS-DRG Severity Levels for Diagnosis Codes
for FY 2013
(A) Protein-Calorie Malnutrition
We received a request that we consider changing the severity levels
for the following protein-calorie malnutrition diagnosis codes:
263.0 (Malnutrition of moderate degree)
263.1 (Malnutrition of mild degree)
263.9 (Unspecified protein-calorie malnutrition)
It was suggested that we change the severity level for diagnosis
codes 263.0 and 263.1 from a non-CC to a CC, while changing the
severity level for diagnosis code 263.9 from a CC to a non-CC. We
received this comment during the comment period for the FY 2012 IPPS/
LTCH PPS proposed rule. We referred to this issue briefly in the FY
2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated that we
considered this comment outside of the scope of the proposed rule, as
we did not propose any severity level changes to these codes for FY
2012, and did not address it in the final rule. However, we are
addressing this issue in this FY 2013 proposed rule.
For this proposed rule, we analyzed the claims data in the FY 2011
MedPAR file for diagnosis codes 263.0, 263.1, and 263.9. 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 with comment period (72 FR
47158 through 47161). We refer the readers to this discussion for
complete information on our approach to developing the non-CC, CC, and
MCC lists. Each diagnosis for which Medicare data were available was
evaluated to determine its impact on resource use and to determine the
most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order
to make this determination, the average cost for each subset of cases
was compared to the expected cost for cases in that subset. The
following format was used to evaluate each diagnosis:

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

Count (Cnt) is the number of patients in each subset. C1, C2, and
C3 are a measure of the impact on resource use of patients in each of
the subsets. The C1, C2, and C3 values are a measure of the ratio of
average costs for patients with these conditions to the expected
average cost across all cases. The C1 value reflects a patient with no
other secondary diagnosis or with all other secondary diagnoses that
are non-CCs. The C2 value reflects a patient with at least one other
secondary diagnosis that is a CC but none that is a MCC. The C3 value
reflects a patient with at least one other secondary diagnosis that is
a MCC. A value close to 1.0 in the C1 field suggests 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 with comment period (72 FR 47158
through 47161).
The following chart shows the analysis for each of the protein-
calorie malnutrition diagnosis codes:

[[Page 27908]]

--------------------------------------------------------------------------------------------------------------------------------------------------------
Cnt 1 Cnt 2 Cnt 3
Code Diagnosis description CC level Cnt 1 impact Cnt 2 impact Cnt 3 impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
263.0.................................... Malnutrition of moderate degree. Non-CC 6,040 2.14 21,383 2.61 21,635 3.20
263.1.................................... Malnutrition of mild degree..... Non-CC 4,139 2.22 11,598 2.50 8,921 3.13
263.9.................................... Unspecified protein-calorie CC 2,737 2.16 165,825 2.54 178,044 3.34
malnutrition.
--------------------------------------------------------------------------------------------------------------------------------------------------------

We ran the following data as described in FY 2008 IPPS final rule
with comment period (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
2.14 to a high of 2.22. 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 a MCC. The C1 findings suggest that
these codes are more like a CC than a non-CC. The C2 findings ranged
from 2.50 to 2.61. 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. The C2 findings
of 2.50 for diagnosis code 263.1 and 2.54 for diagnosis code 263.9
suggest these codes are more similar to a CC than a non-CC, while the
finding of 2.61 for diagnosis code 263.0 is borderline more similar to
a MCC than a CC or non-CC when there is at least one other secondary
diagnosis code that is a CC but none that is an MCC.
CC conditions typically have a C1 value over 1.75, a C2 value under
2.5, and a C3 value under 3.2. MCC conditions typically have a C1 value
over 2.4, a C2 value over 2.8, and a C3 value over 3.3. We concluded
that diagnosis code 263.0 is more similar to a CC than an MCC.
Therefore, the C1 and C2 findings support changing diagnosis codes
263.0 and 263.1 from a non-CC to a CC and maintaining code 263.9 as a
CC. Our clinical advisors reviewed this issue and are in support of
these findings that these conditions are more appropriately classified
as CCs. Based on the data and clinical analysis, we are proposing for
FY 2013 to change diagnosis codes 263.0 and 263.1 from a non-CC to a
CC. We are not proposing any change to the severity level for diagnosis
code 263.9. We are inviting public comment on our proposals.
(B) Antineoplastic Chemotherapy Induced Anemia
We received a request from a commenter that the severity level for
diagnosis code 285.3 (Antineoplastic chemotherapy induced anemia) be
changed from a non-CC to a CC. We received this comment during the
comment period for the FY 2012 IPPS/LTCH PPS proposed rule. We referred
to this issue briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR
51557). In that rule, we indicated that we considered this comment
outside of the scope of the proposed rule because we did not propose
any severity level changes to diagnosis code 285.3 for FY 2012;
therefore, we did not address the issue in the final rule. However, we
are addressing this issue in this FY 2013 proposed rule. We examined
claims data in the FY 2011 MedPAR file for diagnosis code 285.3
according to the approach that we used in FY 2008 as described above.
The following table illustrates our findings:

As discussed above, a value close to 1.0 in the C1 field suggests
that the diagnosis code produces the same expected value as a non-CC. A
value of 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
finding for diagnosis code 285.3 of 1.36 supports the current severity
level of a non-CC. The C2 finding of 2.21 for diagnosis code 285.3
suggests that this code is more similar to a CC than a non-CC but not
as significant as an MCC when there is at least one other secondary
diagnosis code that is a CC. CC conditions typically have a C1 value
over 1.75, a C2 value under 2.5, and a C3 value under 3.2.
Therefore, the C1 and C2 findings do not support changing the
severity level for diagnosis code 285.3 to a CC. In addition, our
clinical advisors reviewed this issue and support the decision not to
change the severity level for diagnosis code 285.3 because the anemia
is inherent in the treatment of cancer and does not qualify as a CC. As
a result of our data analysis as well as the advice of our clinical
advisors, we are not proposing any change to the severity level for
diagnosis code 285.3 for FY 2013. We are inviting public comment on our
proposal.
(C) Cardiomyopathy and Congestive Heart Failure, Unspecified
We received a comment that recommended changes to the severity
levels for the cardiomyopathy and congestive heart failure, unspecified
codes. The commenter recommended that cardiomyopathy codes, which are
currently classified as CCs, be changed to non-CCs and diagnosis code
428.0 (Congestive heart failure, unspecified) be changed from a non-CC
to a CC. According to the commenter, these proposed changes would
better represent the resources utilized in caring for this population
and reduce the administrative burden in clarifying these diagnoses with
providers. We received this comment during the comment period for the
FY 2012 IPPS/LTCH PPS proposed rule. We referred to this issue briefly
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated
that we considered this comment outside of the scope of the proposed
rule because we did not propose any severity level changes to these
codes for FY 2012; therefore, we did not address it in the final rule.
However, we are addressing this issue in this FY 2013 proposed rule.
The commenter did not provide a list of the cardiomyopathy codes.
We identified the following codes for analysis of the claims data in
the FY 2011 MedPAR file:

[[Page 27909]]

425.4 (Other primary cardiomyopathies)
425.5 (Alcoholic cardiomyopathy)
425.7 (Nutritional and metabolic cardiomyopathy)
425.8 (Cardiomyopathy in other diseases classified
elsewhere)
425.9 (Secondary cardiomyopathy, unspecified)
428.0 (Congestive heart failure, unspecified)
We did not include diagnosis codes 425.11(Hypertrophic obstructive
cardiomyopathy) and 425.18 (Other hypertrophic cardiomyopathy) for our
analysis because these two codes were created in FY 2012 and the data
are not yet available. We examined claims data according to the
approach that we used in FY 2008 as described above. The following
table illustrates our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Cnt 1 Cnt 2 Cnt 3
Code Diagnosis description CC Level Cnt 1 impact Cnt 2 impact Cnt 3 impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
425.4.................................... Other primary cardiomyopathies.. CC 39,489 1.47 243,719 2.18 139,689 3.20
425.5.................................... Alcoholic cardiomyopathy........ CC 438 1.68 2,643 2.19 1,670 3.26
425.7.................................... Nutritional and metabolic CC 60 1.18 869 2.17 799 3.14
cardiomyopathy.
425.8.................................... Cardiomyopathy in other diseases CC 940 1.19 5,967 2.15 5,171 3.14
classified elsewhere.
425.9.................................... Secondary cardiomyopathy, CC 356 1.56 2,078 2.07 1.372 3.22
unspecified.
428.0.................................... Congestive heart failure, Non-CC 304,963 1.40 634,241 2.16 748,649 3.06
unspecified.
--------------------------------------------------------------------------------------------------------------------------------------------------------

The table above shows that the C1 findings for the cardiomyopathy
codes ranged from a low of 1.18 to a high of 1.68. A value close to 1.0
in the C1 field suggests that the diagnosis code produces the same
expected value as a non-CC. A value of 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 the majority of
these cardiomyopathy codes are more similar to a non-CC than a CC. The
C2 findings ranged from a low of 2.07 to a high of 2.19. These findings
suggest that these cardiomyopathy codes are more similar to a CC.
The C1 finding for diagnosis code 428.0 of 1.40 suggests that the
condition is more similar to a non-CC than a CC. The C2 finding for
diagnosis code 428.0 of 2.16 suggests that the secondary diagnosis is
more similar to a CC than a non-CC.
The data are mixed between the C1 and C2 findings for the
cardiomyopathy codes and do not consistently support a change in the
severity level. Our clinical advisors reviewed these issues and are not
in support of proposing any changes to the severity levels for these
codes. Our clinical advisors stated that the diagnosis of
cardiomyopathy (diagnosis codes 425.4 through 425.9) is generally
severe, with significant impact on the patient requiring additional
monitoring resources and cognitive effort, and is appropriately
classified as a CC.
The data are mixed between the C1 and C2 findings for the
congestive heart failure, unspecified, diagnosis code 428.0. Our
clinical advisors reviewed these issues and are not in support of
proposing any changes to the severity level of code 428.0. They
indicated that diagnosis code 428.0 is very nonspecific and does not
identify the severity of the heart failure, and concluded that the
current classification for code 428.0 as a non-CC is appropriate. As a
result of our data analysis and clinical advisors' review of these
issues, we are not proposing any changes to the severity level for the
cardiomyopathy and congestive heart failure, unspecified codes for FY
2013. We are inviting public comment on our proposal.
(D) Chronic Total Occlusion of Artery of the Extremities
We received a request to change the severity level designation for
diagnosis code 440.4 (Chronic total occlusion of artery of the
extremities) to a CC. Currently, the diagnosis code is classified as a
non-CC. Chronic total occlusion of artery of the extremities forms when
plaque accumulates in an artery over an extended period of time,
resulting in total cessation of blood flow. We analyzed claims data in
the FY 2011 MedPAR file for this diagnosis code according to the
approach that we used in FY 2008 as described above. The following
table illustrates our findings:

The C1 finding of 1.38 for diagnosis code 440.4 supports the
current designation of this diagnosis code as a non-CC. However, the C2
findings of 2.70 suggests that this code is similar to a CC or perhaps
an MCC, as this value is near to 3.0, which suggests that this
condition is similar to an MCC. However, we would expect a higher C1
value such as 2.4 for this condition to qualify as an MCC.
The C1 and C2 findings support changing diagnosis code 440.4 from a
non-CC to a CC. Our clinical advisors reviewed this issue and are in
support of changing the severity level because this condition behaves
as a CC. Therefore, we are proposing to change the severity level for
diagnosis code 440.4 from a non-CC to a CC for FY 2013. We are inviting
public comment on our proposal.
(E) Acute Kidney Failure With Other Specific Pathological Lesion in
Kidney
We received a request to consider changing the severity level for
diagnosis code 584.8 (Acute kidney failure with other specified
pathological lesion in kidney). This diagnosis code's severity level is
currently classified as an MCC. We examined claims data for this code
in the FY 2011 MedPAR file according to the approach described above.
The following table illustrates those findings.

[[Page 27910]]

As discussed above, a C1 value close to 1.0 in the C1 field
suggests that the diagnosis code produces the same expected value as a
diagnosis code that has been classified as a non-CC. A value close to
2.0 in the C1 field suggests that the condition is more similar to a CC
severity level than a non-CC severity level, but not as significant in
resource usage as an MCC severity level. In this case, the C1 value
finding for diagnosis code 584.8 of 0.98 suggests that this diagnosis
code is more similar to a non-CC than an MCC. A C2 value close to 3.0
suggests that the condition is more similar to an MCC than a CC or a
non-CC. A C2 value close to 2.0 suggests that the condition is more
similar to a CC than a non-CC. The C2 value finding for diagnosis code
584.8 of 1.89 supports classifying the severity level of this diagnosis
code as a CC. Therefore, the C1 and C2 value findings support changing
the severity level of diagnosis code 584.8 from an MCC to a lower
severity level, that is, a CC. Our clinical advisors reviewed this
issue and stated that this condition behaves as a CC. Therefore, they
supported changing the severity level of this diagnosis code to a CC.
Based on the clinical analysis and consistent with supporting claims
data, we believe that the severity level of diagnosis code 584.8 should
be changed from an MCC to a CC. Therefore, we are proposing to change
the severity level of diagnosis code 584.8 from an MCC to a CC for FY
2013. We are inviting public comment on our proposal.
(F) Pressure Ulcer, Unstageable
We received a request to consider changing the severity level for
diagnosis code 707.25 (Pressure ulcer, unstageable) from its current
classification as a non-CC to an MCC. This issue was referred to as an
out-of-scope public comment in the FY 2012 IPPS/LTCH PPS final rule (76
FR 51557), but was not addressed in that rule.
For this FY 2013 proposed rule, we analyzed claims data for
diagnosis code 707.25 from the FY 2011 MedPAR file according to the
process and approach described above. The following table illustrates
our findings:

As discussed above, a C1 value close to 2.0 suggests the condition
is more similar to a CC than a non-CC severity level but not as
significant in resource usage as an MCC. The C1 value finding of 1.87
for diagnosis code 707.25, which is near but not that close to a 2.0,
suggests that this code is more similar to a CC than an MCC. A C2 value
of close to 3.0 suggests the condition is more similar to an MCC than a
CC or non-CC. The C2 value finding for diagnosis code 707.25 is 2.46,
which is not close to 3.0 and, therefore, the data do not support
classifying this as an MCC. The C1 and C2 findings are more supportive
of a classification as a CC than an MCC. There is another problem with
this request to change diagnosis code 707.25 from a non-CC to an MCC.
Currently, only stages III and IV pressure ulcers are MCCs. This
unstageable code captures a pressure ulcer whose stage has not been
determined. It would be inappropriate to assume that a pressure ulcer
reported with diagnosis code 707.25 might be a stage III or IV pressure
ulcer. Our claims data C1 and C2 findings do not support the fact that
this code acts as an MCC. As mentioned earlier, the claims data are
more supportive of a classification as a CC than an MCC. We asked our
clinical advisors to review this issue. Our clinical advisors agree
that the data findings and their own clinical evaluation support not
changing the severity level of this diagnosis code to a CC or an MCC.
Our clinical advisors recommend that unstageable pressure ulcers should
continue to be classified as a non-CC because the stage is not clearly
designated as a stage III or IV. Unstageable codes do not delineate
what the stage of the ulcer might be. As a result of our data analysis
as well as the advice of our clinical advisors, we believe that
unstageable pressure ulcers should continue to be classified as a non-
CC. Therefore, we are proposing that diagnosis code 707.25 remain a
non-CC for FY 2013.
We are inviting public comment on our proposal not to change the
severity level for diagnosis code 707.25 for FY 2013.
For FY 2013, there are proposed changes to Table 6G (Additions to
the CC Exclusion List). As we discuss earlier, we are proposing to
change the severity level for diagnosis codes 263.0, 263.1, and 440.4
from a non-CC to a CC. There are no proposed changes to Table 6H
(Deletions to the CC Exclusion List). These tables, which contain codes
that are effective for discharges occurring on or after October 1,
2012, are not being published in the Addendum to this proposed rule
because of the length of the two tables. Instead, we are making them
available through the Internet on the CMS Web site at: http://www/
cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnosis for
which there is a CC exclusion is shown in Tables 6G and 6H 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 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 were not recognized by the GROUPER as
valid CCs for the asterisked principal diagnosis.
To assist readers in identifying the proposed changes to the MCC
and CC lists that occur as a result of our review of severity levels
for several ICD-9-CM diagnosis codes, we are providing the following
summaries of those proposed MCC and CC changes for FY 2013. There will
be no new, revised, or deleted diagnosis codes for FY 2013. Therefore,
there will be no Tables 6A, 6C, and 6E published for FY 2013.

[[Page 27911]]

Summary of Proposed Additions to The MS-DRG MCC List--Table 6I.1

There are no proposed additions to the MS-DRG MCC List.

Summary of Proposed Deletions From the MS-DRG MCC List--Table 6I.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Code Description
--------------------------------------------------------------------------------------------------------------------------------------------------------
584.8...................................... Acute kidney failure with other specified pathological lesion in kidney.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Summary of Proposed Additions to the MS-DRG CC List--Table 6J.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Code Description
--------------------------------------------------------------------------------------------------------------------------------------------------------
263.0...................................... Malnutrition of moderate degree.
263.1...................................... Malnutrition of mild degree.
440.4...................................... Chronic total occlusion of artery of the extremities.
584.8...................................... Acute kidney failure with other specified pathological lesion in kidney.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Summary of Proposed Deletions From the MS-DRG CC List--Table 6J.2

There are no proposed deletions from the MS-DRG CC list.
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 29.0, is available on a CD
for $225.00. Version 30.0 of this manual, which will include the final
FY 2013 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.
8. 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.\14\
---------------------------------------------------------------------------

\14\ 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,
FY 2011 and FY 2012, 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); the FY
2011 final rule (75 FR 50122); and the FY 2012 final rule (76 FR
51549).
---------------------------------------------------------------------------

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.

[[Page 27912]]

Therefore, for FY 2013, we are not proposing to change the procedures
assigned among these MS-DRGs.
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987
Through 989 Into MDCs
We annually conduct a review of procedures producing assignment to
MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to
principal diagnosis with MCC, with CC, and without CC/MCC,
respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure
unrelated to principal diagnosis with MCC, with CC, and without CC/MCC,
respectively) on the basis of volume, by procedure, to see if it would
be appropriate to move procedure codes out of these MS-DRGs into one of
the surgical MS-DRGs for the MDC into which the principal diagnosis
falls. The data are arrayed in two ways for comparison purposes. We
look at a frequency count of each major operative procedure code. We
also compare procedures across MDCs by volume of procedure codes within
each MDC.
We identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical MS-DRGs for the MDC in which the diagnosis falls.
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 2013, we are not proposing to remove any procedures from MS-DRGs 981
through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs
for the MDC into which the principal diagnosis is assigned.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984
Through 986, and 987 Through 989
We also annually review the list of ICD-9-CM procedures that, when
in combination with their principal diagnosis code, result in
assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R.
procedure unrelated to principal diagnosis with MCC, with CC, or
without CC/MCC, respectively), and 987 through 989, to ascertain
whether any of those procedures should be reassigned from one of these
three MS-DRGs to another of the three MS-DRGs based on average charges
and the length of stay. We look at the data for trends such as shifts
in treatment practice or reporting practice that would make the
resulting MS-DRG assignment illogical. If we find these shifts, we
would propose to move cases to keep the MS-DRGs clinically similar or
to provide payment for the cases in a similar manner. Generally, we
move only those procedures for which we have an adequate number of
discharges to analyze the data.
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 2013, we are not
proposing to move any procedure codes among these MS-DRGs.
c. Adding Diagnosis or Procedure Codes to MDCs
Based on the review of cases in the MDCs as described above in
sections III.G.1. through 4. of this preamble, we are not proposing to
add any diagnosis or procedure codes to MDCs for FY 2013.
9. Proposed 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
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 $29.00 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 2013 at a public meeting held on September 14,
2011 and finalized the coding changes after consideration of comments
received at the meetings and in writing by November 18, 2011. For FY
2013, there were no changes to the ICD-9-CM coding system due to the
partial code freeze or for new technology. Therefore, there will be no
new, revised, or deleted diagnosis and procedure codes that are usually
announced in Tables 6A (New Diagnosis Codes), 6B (New Procedure Codes),
6C (Invalid Diagnosis Codes), 6D (Invalid Procedure Codes), 6E (Revised
Diagnosis Code Titles), and 6F (Revised Procedure Codes). Therefore,
these tables will not be published as part of this FY 2013 proposed
rulemaking.
Copies of the minutes of the procedure codes discussions at the
Committee's September 14, 2011 meeting and March 5, 2012 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 14, 2011 meeting and March
5, 2012 meeting are found at: http://www.cdc.gov/nchs/icd.htm. These
Web

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sites also provide detailed information about the Committee, including
information on requesting a new code, attending a Committee meeting,
and timeline requirements and meeting dates.
We encourage commenters to address suggestions on coding issues
involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM
Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo
Road, Hyattsville, MD 20782. Comments may be sent by E-mail to:
[email protected].
Questions and comments concerning the procedure codes should be
addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination
and Maintenance Committee, CMS, Center for Medicare Management,
Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06,
7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent
by E-mail to: [email protected].
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.
Section 503(a) of Public Law 108-173 included a requirement for
updating ICD-9-CM codes twice a year instead of a single update on
October 1 of each year. This requirement was included as part of the
amendments to the Act relating to recognition of new technology under
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by
adding a clause (vii) which states that the ``Secretary shall provide
for the addition of new diagnosis and procedure codes on April 1 of
each year, but the addition of such codes shall not require the
Secretary to adjust the payment (or diagnosis-related group
classification) * * * until the fiscal year that begins after such
date.'' This requirement improves the recognition of new technologies
under the IPPS system by providing information on these new
technologies at an earlier date. Data will be available 6 months
earlier than would be possible with updates occurring only once a year
on October 1.
While section 1886(d)(5)(K)(vii) of the Act states that the
addition of new diagnosis and procedure codes on April 1 of each year
shall not require the Secretary to adjust the payment, or DRG
classification, under section 1886(d) of the Act until the fiscal year
that begins after such date, we have to update the DRG software and
other systems in order to recognize and accept the new codes. We also
publicize the code changes and the need for a mid-year systems update
by providers to identify the new codes. Hospitals also have to obtain
the new code books and encoder updates, and make other system changes
in order to identify and report the new codes.
The ICD-9-CM Coordination and Maintenance Committee holds its
meetings in the spring and fall in order to update the codes and the
applicable payment and reporting systems by October 1 of each year.
Items are placed on the agenda for the ICD-9-CM Coordination and
Maintenance Committee meeting if the request is received at least 2
months prior to the meeting. This requirement allows time for staff to
review and research the coding issues and prepare material for
discussion at the meeting. It also allows time for the topic to be
publicized in meeting announcements in the Federal Register as well as
on the CMS Web site. The public decides whether or not to attend the
meeting based on the topics listed on the agenda. Final decisions on
code title revisions are currently made by March 1 so that these titles
can be included in the IPPS proposed rule. A complete addendum
describing details of all changes to ICD-9-CM, both tabular and index,
is published on the CMS and NCHS Web sites in May of each year.
Publishers of coding books and software use this information to modify
their products that are used by health care providers. This 5-month
time period has proved to be necessary for hospitals and other
providers to update their systems.
A discussion of this timeline and the need for changes are included
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance
Committee minutes. The public agreed that there was a need to hold the
fall meetings earlier, in September or October, in order to meet the
new implementation dates. The public provided comment that additional
time would be needed to update hospital systems and obtain new code
books and coding software. There was considerable concern expressed
about the impact this new April update would have on providers.
In the FY 2005 IPPS final rule, we implemented section
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law
108-173, by developing a mechanism for approving, in time for the April
update, diagnosis and procedure code revisions needed to describe new
technologies and medical services for purposes of the new technology
add-on payment process. We also established the following process for
making these determinations. Topics considered during the Fall ICD-9-CM
Coordination and Maintenance Committee meeting are considered for an
April 1 update if a strong and convincing case is made by the requester
at the Committee's public meeting. The request must identify the reason
why a new code is needed in April for purposes of the new technology
process. The participants at the meeting and those reviewing the
Committee meeting summary report are provided the opportunity to
comment on this expedited request. All other topics are considered for
the October 1 update. Participants at the Committee meeting are
encouraged to comment on all such requests. There were no requests
approved for an expedited April l, 2012 implementation of an ICD-9-CM
code at the September 14, 2011 Committee meeting. Therefore, there were
no new ICD-9-CM codes implemented on April 1, 2012.
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

[[Page 27914]]

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 was to 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). However, the Secretary of Health and Human Services
has issued a proposed rule that would delay, from October 1, 2013, to
October 1, 2014, the compliance date for the International
Classification of Diseases, 10th Edition diagnosis and procedure codes
(ICD-10). The proposed rule, CMS-0040-P, went on display at the Office
of the Federal Register on April 9, 2012, and was published in the
Federal Register on April 17, 2012 (77 FR 22950) and is available for
viewing at: http://www/gpo.gov/fdsys/browse/
collection.action?collectionCode=FR.
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 and
September 14, 2011 ICD-9-CM Coordination and Maintenance Committee
meetings that a partial freeze of both ICD-9-CM and ICD-10 codes will
be implemented as follows:
The last regular annual update to both ICD-9-CM and ICD-10
code sets was 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.
On October 1, 2013, there were to be only limited code
updates to ICD-10 code sets to capture new technology and diagnoses as
required by section 503(a) of Pub. L. 108-173. There were to be no
updates to ICD-9-CM on October 1, 2013, as the system would no longer
be a HIPAA standard and, therefore, no longer be used for reporting.
With the proposed ICD-10 implementation delay, there will be only
limited code updates to both ICD-9-CM and ICD-10 to capture new
technology and new diagnoses on October 1, 2013.
On October 1, 2014, regular updates to ICD-10 were to
begin. As stated earlier, HHS has issued a proposed rule that would
delay the compliance date of ICD-10 from October 1, 2013, to October 1,
2014. If this delay is implemented, there would be only limited ICD-10
code updates for new technologies and new diseases on October 1, 2014.
There will be no updates to ICD-9-CM on October 1, 2014, as the system
will no longer be a HIPAA standard and, therefore, no longer be used
for reporting. Full ICD-10 updates would begin on October 1, 2015, 1
year after the implementation of ICD-10.
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 14, 2011
Committee meeting, along with both written and audio transcripts of
this meeting, are posted on the ``Download'' section of this Web page.
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital
Inpatient Claims
CMS is currently processing 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 diagnosis and 25
procedures; however, CMS' system limitations allowed for the processing
of only the first 9 diagnosis codes and 6 procedure codes. We discussed
this change in processing claims in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50127), in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR
25843), in a correction notice issued in the Federal Register on June
14, 2011 (76 FR 24633), and in the FY 2012 IPPS/LTCH PPS final rule (76
FR 51553). As discussed in these prior rules, CMS undertook an
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 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 at the same time as ICD-10 (75 FR 50127 and 50128).
As we

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stated earlier, the Secretary of Health and Human Services has issued a
proposed rule that would delay the compliance date of ICD-10 from
October 1, 2013 to October 1, 2014. 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 Version 26.0 (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-DRGs Version 28.0 also included 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 reviewed comments on the ICD-10 MS-DRGs Version 28.0 and made
updates as a result of these comments. We called the updated version
the ICD-10 MS-DRGs Version 28 R1. We posted a Definitions Manual of
ICD-10 MS-DRGs Version 28 R1 on our ICD-10 MS-DRG Conversion Project
Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. To make the review of Version 28 R1 updates easier for the
public, we also made available pilot software on a CD-ROM that could be
ordered through the National Technical Information Service (NTIS). A
link to the NTIS ordering page was provided on the CMS ICD-10 MS-DRG
Web page. We stated that we believed that, by providing the ICD-10 MS-
DRG Version 28 R1 Pilot Software (distributed on CD-ROM), the public
would be able to more easily review and provide feedback on updates to
the ICD-10 MS-DRGs. We discussed the updated ICD-10 MS-DRGs Version 28
R1 at the September 14, 2011 ICD-9-CM Coordination and Maintenance
Committee meeting. We encouraged the public to continue to review and
provide comments on the ICD-10 MS-DRGs so that CMS could continue to
update the system.
In FY 2012, we prepared the ICD-10 MS-DRGs Version 29.0, based on
the FY 2012 MS-DRGs (Version 29.0) that we finalized in the FY 2012
IPPS/LTCH PPS final rule. We posted a Definitions Manual of ICD-10 MS-
DRGs Version 29.0 on our ICD-10 MS-DRGs Web site. We also prepared a
document that describes changes made from Version 28.0 to Version 29.0
to facilitate a review. The ICD-10 MS-DRGs Version 29.0 was discussed
at the ICD-9-CM Coordination and Maintenance Committee meeting on March
5, 2012. Information was provided on the types of updates made. Once
again the public was encouraged to review and comment on the most
recent update to the ICD-10 MS-DRGs.
We provided information on a study conducted on the impact on
converting MS-DRGs to ICD-10-CM and ICD-10-PCS. Information on this
study is summarized in a paper entitled ``Impact of the Transition to
ICD-10 on Medicare Inpatient Hospital Payments.'' This paper is posted
on the CMS ICD-10 MS-DRG conversion Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. The paper describes
CMS' approach to the conversion of the MS-DRGs from ICD-9-CM codes to
ICD-10 codes. The study was undertaken using the ICD-9-CM MS-DRGs
Version 27.0 (FY 2010) and converted to the ICD-10 MS-DRGs Version
27.0. The study estimated the impact on aggregate payment to hospitals
and the distribution of payments across hospitals. The paper was
distributed and discussed at the September 15, 2010 ICD-9-CM
Coordination and Maintenance Committee. The impact of the conversion
from ICD-9-CM to ICD-10 on Medicare MS-DRG hospital payments was
estimated using 2009 Medicare data. The study found a hospital payment
increase of 0.05 percent using the ICD-10 MS-DRGs Version 27.0. For
detailed information on this study, we refer readers to the complete
report which is posted on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp.
CMS provided an overview of this hospital payment impact study at
the March 5, 2012 ICD-9-CM Coordination and Maintenance Committee
meeting. This presentation followed presentations on the creation of
ICD-10 MS-DRGs Version 29.0. A summary report of this meeting can be
found on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. At this March 2012
meeting, CMS announced that it would produce an update on this impact
study based on an updated version of the ICD-10 MS-DRGs. This update
will provide additional information to the public as CMS is evaluating
refinements made to the ICD-10 MS-DRGs based on public comments.
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 will be implemented at the same time as ICD-10 and
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.

H. Recalibration of MS-DRG Weights

1. Data Sources for Developing the Proposed Weights
In developing the proposed FY 2013 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 2011 MedPAR data used in this proposed rule include
discharges occurring on October 1, 2010, through September 30, 2011,
based on bills received by CMS through December 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 2011 MedPAR file used in calculating the
proposed relative weights includes data for approximately 10,354,422
Medicare discharges from IPPS providers. Discharges for Medicare
beneficiaries enrolled in a Medicare

[[Page 27916]]

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 December 31, 2011 update
of the FY 2011 MedPAR file complies with version 5010 of the X12 HIPAA
Transaction and Code Set Standards, and includes a variable called
``claim type.'' Claim type ``60'' indicates that the claim was an
inpatient claim paid as fee-for-service. Claim types ``61,'' ``62,''
``63,'' and ``64'' relate to encounter claims, Medicare Advantage IME
claims, and HMO no-pay claims. Therefore, the calculation of the
proposed relative weights for FY 2013 also excludes 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 Medicare cost report data files from the
HCRIS. Normally, we use the HCRIS dataset that is 3 years prior to the
IPPS fiscal year (that is, for the calculation of the FY 2013 MS-DRG
relative weights, we use data from the FY 2010 HCRIS, which are data
from cost reports that began on or after October 1, 2009 and before
October 1, 2010). However, during the development of this proposed
rule, we have found that those cost reports in the FY 2010 HCRIS
dataset with fiscal year begin dates that are on or after May 1, 2010,
and before October 1, 2010, are not accessible. This inaccessibility is
because cost reports with fiscal year begin dates of May 1, 2010,
through September 30, 2010, were filed on the new cost report Form
2552-10, and cost reports filed on Form 2552-10 are not currently
accessible in the HCRIS. However, because data from cost reports filed
on Form 2552-10 are not currently available, to ensure that the FY 2013
MS-DRG relative weights are calculated with a dataset that is as
comprehensive and accurate as possible, we are proposing to calculate
the FY 2013 MS-DRG relative weights with data from FY 2010 cost reports
for providers with fiscal year begin dates of on or after October 1,
2009 and before May 1, 2010, and to backfill with data from FY 2009
cost reports for those providers that have fiscal year begin dates on
or after May 1, 2010 through September 30, 2010. We used cost report
data for the December 31, 2011 update of the HCRIS for FY 2009 and FY
2010 in calculating the proposed FY 2013 relative cost-based weights.
2. Methodology for Calculation of the Proposed Relative Weights
The methodology we used to calculate the proposed FY 2013 MS-DRG
cost-based relative weights based on claims data in the FY 2011 MedPAR
file and data from the FY 2009 and FY 2010 Medicare cost reports is as
follows:
To the extent possible, all the claims were regrouped
using the proposed FY 2013 MS-DRG classifications discussed in sections
II.B. and G. of the preamble of this proposed rule.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively)
were limited to those Medicare-approved transplant centers that have
cases in the FY 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 96.3 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

[[Page 27917]]

claims that otherwise have an ``N'' or a ``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 and FY 2010 cost report data.
The 15 cost centers that we used in the proposed 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 27918]]

[GRAPHIC] [TIFF OMITTED] TP11MY12.001

[[Page 27919]]

[GRAPHIC] [TIFF OMITTED] TP11MY12.002

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[GRAPHIC] [TIFF OMITTED] TP11MY12.003

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[GRAPHIC] [TIFF OMITTED] TP11MY12.004

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[GRAPHIC] [TIFF OMITTED] TP11MY12.006

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[GRAPHIC] [TIFF OMITTED] TP11MY12.007

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[GRAPHIC] [TIFF OMITTED] TP11MY12.008

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[GRAPHIC] [TIFF OMITTED] TP11MY12.009

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[GRAPHIC] [TIFF OMITTED] TP11MY12.010

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[GRAPHIC] [TIFF OMITTED] TP11MY12.011

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[GRAPHIC] [TIFF OMITTED] TP11MY12.012

BILLING CODE 4120-01-C

[[Page 27930]]

3. Development of National Average CCRs
We developed the national average CCRs as follows:
Using the FY 2009 and FY 2010 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 proposed FY 2013 cost-based relative weights were then
normalized by an adjustment factor of 1.5877342556 so that the average
case weight after recalibration was equal to the average case weight
before recalibration. The normalization adjustment is intended to
ensure that recalibration by itself neither increases nor decreases
total payments under the IPPS, as required by section
1886(d)(4)(C)(iii) of the Act.
The 15 proposed national average CCRs for FY 2013 are as follows:

------------------------------------------------------------------------
Group CCR
------------------------------------------------------------------------
Routine Days............................................ 0.514
Intensive Days.......................................... 0.442
Drugs................................................... 0.199
Supplies & Equipment.................................... 0.335
Therapy Services........................................ 0.370
Laboratory.............................................. 0.142
Operating Room.......................................... 0.238
Cardiology.............................................. 0.145
Radiology............................................... 0.136
Emergency Room.......................................... 0.226
Blood and Blood Products................................ 0.389
Other Services.......................................... 0.397
Labor & Delivery........................................ 0.451
Inhalation Therapy...................................... 0.189
Anesthesia.............................................. 0.109
------------------------------------------------------------------------

Since FY 2009, the relative weights have been based on 100 percent
cost weights based on our MS-DRG grouping system.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. In this FY 2013 IPPS/LTCH PPS proposed
rule, we are proposing to use that same case threshold in recalibrating
the MS-DRG weights for FY 2013. Using data from the FY 2011 MedPAR
file, 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
received 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 2013, because we do not have sufficient MedPAR data to set
accurate and stable cost weights for these low-volume MS-DRGs, we are
proposing to compute weights for the low-volume MS-DRGs by adjusting
their FY 2012 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 FY 2012 FR weight
O.R. Procedure Except (adjusted by percent
Sterilization and/or change in average
D&C. weight of the cases
in other MS-DRGs).
789.................... Neonates, Died or FY 2012 FR weight
Transferred to Another (adjusted by percent
Acute Care Facility. change in average
weight of the cases
in other MS-DRGs).
790.................... Extreme Immaturity or FY 2012 FR weight
Respiratory Distress (adjusted by percent
Syndrome, Neonate. change in average
weight of the cases
in other MS-DRGs).
791.................... Prematurity with Major FY 2012 FR weight
Problems. (adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
792.................... Prematurity without FY 2012 FR weight
Major Problems. (adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
793.................... Full-Term Neonate with FY 2012 FR weight
Major Problems. (adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
794.................... Neonate with Other FY 2012 FR weight
Significant Problems. (adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
795.................... Normal Newborn......... FY 2012 FR weight
(adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
------------------------------------------------------------------------

[[Page 27931]]

4. Bundled Payments for Care Improvement (BPCI) Initiative
a. Background
Section 3021 of the Affordable Care Act, codified at section 1115A
of the Act, authorizes CMS to test innovative payment and service
delivery models with the goal of reducing Medicare program expenditures
while preserving or enhancing the quality of care furnished to
individuals. Because initiatives established under this authority could
result in IPPS hospitals receiving a payment different than what they
otherwise would receive under the IPPS, we believe it is important to
identify how these initiatives are addressed in the context of MS-DRG
recalibration and ratesetting, budget neutrality, and the impact
analysis in the Addendum of this proposed rule.
Under the Bundled Payments for Care Improvement (BPCI) initiative,
CMS would link payments for multiple services that patients receive
during an episode of care. CMS is working in partnership with providers
to develop and test models of bundling payments through the BPCI
initiative. On August 23, 2011, CMS invited providers to apply to help
develop and test four different models of bundling payments. For
additional information, we refer readers to the CMS Web site at: http://www.innovations.cms.gov/initiatives/Bundled-Payments/index.html. We
are providing below a brief overview of payments under each model.
However, the BPCI initiative Request for Application and related
information on the CMS Web site at http://innovations.cms.gov/initiatives/bundled-payments/ provide more details of this initiative.
As described below and also in the Addendum to this proposed rule,
we are generally proposing to include data from hospitals participating
in the BPCI initiative and to treat these hospitals without regard to
their participation in the BPCI initiative for the purposes of IPPS
ratesetting.
Model 1
In Model 1, the episode of care is defined as the inpatient
hospital services for the acute care hospital stay only. Applicants for
this model were asked to propose discount percentages for various
periods of the 3-year program, which would be applied to the IPPS
operating MS-DRG payment for each participating hospital's MS-DRGs over
the lifetime of the initiative. That is, for hospitals participating in
Model 1, Medicare would continue to pay participating acute care
hospitals under the IPPS. However, these payments to participating
acute care hospitals would be at a reduced payment amount that reflects
the applicable discount percentage for cases in all MS-DRGs for the
specific period of the program. We note that an adjustment would be
made such that payments for IME, DSH, and outliers would be calculated
based on the nondiscounted MS-DRG operating IPPS payment amount and
then paid, if applicable, in addition to the discounted MS-DRG
operating IPPS payment. The minimum discount percentage that awardees
are expected to offer would be phased in over time, with the discount
percentage updated as frequently as every 6 months.
Model 2
In Model 2, the episode of care is defined as the inpatient acute
care hospital stay for specific clinical conditions and a specified
period of time following discharge (with a minimum episode length of at
least 30 days following hospital discharge). The payment bundle for
Model 2 would encompass all Medicare Part A payments for designated MS-
DRGs, Part B professional services paid under the Medicare Physician
Fee Schedule (MPFS) during the hospital stay, and related professional
services furnished after discharge during the episode, ``related
readmissions'' (as defined under the BPCI initiative), care by a
postacute care provider such as an HHA, IRF, SNF, LTCH, and other
related services furnished during the episode (that is, all Medicare
Part A and Part B with the exception of hospice care). Applicants,
which may be a Medicare supplier or provider, groups of such entities,
or other organizations that bring together providers and suppliers to
test the model, are asked to propose specific MS-DRG(s) for the
clinical condition(s) to be tested in Model 2. Furthermore, the
applicants are asked to propose the target price on an MS-DRG basis for
the episode that includes a single rate of discount off of the expected
Medicare payment (including hospital, postacute care, Medicare Part B
professional services, and other services, as applicable) for all Model
2 beneficiaries discharged from the inpatient hospital stay with the
specified MS-DRG(s). We note that, when proposing the target price,
applicants are instructed to include IPPS outlier payments in their
calculation; however, IPPS IME and DSH payments should be excluded from
the target price. In Model 2, payments would be made at the usual fee-
for-service payment rates to the participating providers through the
regular claims processing system, after which the aggregate Medicare
payment for the episode would be reconciled against the target price.
If aggregate Medicare expenditures are less than the target price, the
awardee would be paid the difference as a reconciliation payment.
Conversely, if aggregate Medicare expenditures exceed the target price,
CMS would recoup that amount from the awardee.
Model 3
In Model 3, the episode of care begins at initiation of postacute
services at one of four postacute care providers (HHAs, IRFs, SNFs, and
LTCHs) within 30 days after discharge from any acute care hospital for
specific clinical conditions. As with the other three models,
applicants may be one or more Medicare providers or supplier or other
organization(s) bringing those entities together to test the model.
Applicants are asked to propose an episode length that would extend to
at least 30 days following initiation of care at an HHA, IRF, SNF, or
LTCH. The payment bundle for Model 3 would encompass care by a
postacute care provider, and other related services furnished during
the episode, including Medicare Part B professional services paid under
the MPFS, and inpatient hospital readmissions (as defined under the
BPCI initiative). In contrast to Model 2, the payment bundle for Model
3 does not include services provided in the initial acute care hospital
stay. We note that, while the episode is initiated at one of the four
postacute care providers rather than at an acute care hospital,
applicants are asked to specify the clinical condition(s) to be tested
in Model 3 by proposing relevant MS-DRG(s). Therefore, applicable to
all Model 3 beneficiaries discharged from any inpatient acute care
hospital stay with the specified MS-DRG(s), applicants are to propose a
target price on an MS-DRG basis for the episode that includes a single
rate of discount off of the expected Medicare payment, which includes
care by a postacute care provider, related Medicare Part B professional
services paid under the MPFS, inpatient hospital readmissions, and
other related services furnished during the episode. In Model 3,
payments would be made at the usual fee-for-service payment rates to
the participating providers through the regular claims processing
process, after which the aggregate Medicare payment for the episode
would be reconciled against the target price. Like Model 2, if
aggregate Medicare expenditures are less than the target price, the
awardee would be paid the difference as a reconciliation payment.
Conversely, if

[[Page 27932]]

aggregate Medicare expenditures exceed the target price, CMS would
recoup that amount from the awardee. We note that Model 3 does address
payment for related hospital readmissions.
Model 4
In Model 4, the episode of care is defined as the acute care
hospital stay and includes all ``related readmissions'' (as defined
under the BPCI initiative). The payment bundle for Model 4 would
encompass Medicare inpatient hospital services, Medicare Part B
professional services paid under the MPFS furnished during the initial
hospitalization, as well as hospital services and Medicare Part B
professional services during any related readmissions. Applicants are
asked to propose specific MS-DRG(s) for the clinical condition(s) to be
tested in Model 4. Applicants for this model are asked to propose a
target price for the episode that includes a single rate of discount
off of expected Medicare payment (including both Medicare Part A
hospital services and Part B professional services) for all
beneficiaries discharged from the inpatient hospital stay with the
specified MS-DRG(s).
In contrast to Models 2 and 3, where usual Medicare fee-for-service
payments are made to all providers and reconciliation of Medicare
spending against the target price for the episode is conducted
retrospectively, under Model 4, hospitals would receive a prospectively
established bundled payment for specified MS-DRGs. This payment would
include both the MS-DRG payment for the hospital and a fixed payment
amount for the Medicare Part B professional services anticipated to be
furnished during the episode. That is, separate payment for providers'
professional services furnished during the inpatient hospital stay
would not be made. Participating Model 4 hospitals receiving payment
would take responsibility for distributing payment to providers that
would otherwise be paid separately. We note that IPPS IME and DSH
payments to Model 4 hospitals would be calculated based on the
nondiscounted base MS-DRG operating IPPS payment that would have been
made in the absence of the model. Other applicable payment adjustors
would also be calculated based on the base MS-DRG operating IPPS
payment amount that would otherwise have applied to the case, as
opposed to the prospectively established amount paid through this
initiative, which would be higher as it includes payment for Part B
services as well as the base MS-DRG payment. Under Model 4, no separate
IPPS outlier payments would be made.
b. Proposed Treatment of Data From Hospitals Participating in the BPCI
Initiative
As discussed above, acute care hospitals have the opportunity to
apply and participate in the BPCI payment models described above. For
Model 1 and Model 2, participating acute care hospitals would continue
to receive an IPPS payment under section 1886(d) of the Act (subject to
a predetermined discount for hospitals participating in Model 1). For
Model 2, participating hospitals may also receive a reconciliation
payment under the BPCI initiative (based on their predetermined target
price). Under Model 3, services provided in the initial acute care
hospital stay are not included; however, the model does address payment
for possible hospital readmissions. Under Model 1, hospitals
participate for all MS-DRGs, while, under Model 2, hospitals
participate for only pre-selected MS-DRGs. We believe it is appropriate
to include all applicable data from these subsection(d) hospitals in
our IPPS payment modeling and ratesetting calculations because these
hospitals are still receiving IPPS payments under section 1886(d) of
the Act (in addition to, with respect to Model 2 hospitals, any
reconciliation payment the hospital may receive under the BPCI
initiative). Moreover, even if these hospitals were not receiving IPPS
payments under section 1886(d) of the Act (and were participating in
Models 1 and 2), the Secretary has the authority to make appropriate
adjustments for payment amounts under section 1886(d)(5)(I)(i) of the
Act to include all applicable data from these subsection(d) hospitals
in our IPPS ratesetting calculations. We believe it is appropriate to
use the Secretary's authority under section 1886(d)(5)(I)(i) of the Act
to include all IPPS, short-term, acute care hospitals within the IPPS
ratesetting calculations because excluding these hospitals would
diminish the number of providers used to determine the IPPS rates,
which could cause fluctuations in the IPPS rates and could produce
instability to the IPPS rates. Therefore, because we believe it is
appropriate to include all claims from hospitals participating within
Models 1 and 2 within the IPPS ratesetting calculations, using the
Secretary's authority under section 1886(d)(5)(I)(i) of the Act, we are
proposing to include all applicable data from ``subsection (d)''
hospitals participating in Models 1 and 2 under the BPCI initiative in
our IPPS payment modeling and ratesetting calculations (which includes
recalibration of the MS-DRG weights, ratesetting, calculation of the
budget neutrality factors, and the impact analysis). In essence, we
would continue to treat these hospitals the same as prior fiscal years
for purposes of the FY 2013 (and subsequent years) IPPS payment
modeling and ratesetting process without regard to a hospital's
participation within these two bundled payment models (that is, we
would treat these hospitals as if they are not participating in Model 1
or Model 2 under the BPCI initiative).
In contrast to BPCI Models 1 and 2 (wherein participating IPPS
hospitals would receive an IPPS payment under section 1886(d) of the
Act, and, in the case of Model 2, may also receive a reconciliation
payment under the BPCI initiative), IPPS hospitals participating in
Model 4 would receive a predetermined bundled payment for Medicare Part
A and Part B services for a pre-specified MS-DRG ``episode'' (and any
``related readmissions'' as defined under the BPCI initiative). These
bundled payments are for certain pre-specified MS- DRG(s) episodes (not
all cases) and would be made in accordance with the terms of the model,
as authorized by section 1115A of the Act (these IPPS hospitals would
also receive ``regular'' IPPS payments under section 1886(d) of the Act
for those MS-DRGs not included in the bundling model). Similar to
Models 1 and 2, we believe it is appropriate to keep all applicable
data from these ``subsection (d)'' hospitals in our IPPS payment
modeling and ratesetting calculations because the majority of Medicare
payments these hospitals would receive would be IPPS payments under
section 1886(d) of the Act (that is, payments for cases in MS-DRGs that
are not included in the bundled payment model). Moreover, although
these hospitals are not receiving payments under 1886(d) of the Act for
the cases included in the prospective bundled payment under Model 4,
the Secretary has the authority to make appropriate adjustments for
payment amounts at section 1886(d)(5)(I)(i) of the Act to include all
applicable data from these subsection(d) hospitals in our IPPS
ratesetting calculations. We believe it is appropriate to use the
Secretary's authority under section 1886(d)(5)(I)(i) of the Act to
include all IPPS, short-term, acute care hospitals and their claims
within the IPPS ratesetting calculations because excluding these
hospitals would diminish the number of providers used to determine the
IPPS rates, which could cause fluctuations in the IPPS rates and could
produce

[[Page 27933]]

instability to the IPPS rates. Therefore, because we believe it is
appropriate to include all claims from hospitals participating within
Models 1 and 2 within the IPPS ratesetting calculations and use the
Secretary's authority under section 1886(d)(5)(I)(i) of the Act to
include those hospitals and claims, we also believe it is appropriate
to include all applicable data from subsection (d) hospitals
participating in Model 4 in our IPPS payment modeling and ratesetting
calculations (which includes recalibration of the MS-DRG weights,
ratesetting, calculation of the budget neutrality factors, and the
impact analysis) and propose to do so. In essence, we would continue to
treat these hospitals the same as prior fiscal years for purposes of
the FY 2013 (and subsequent years) IPPS payment modeling and
ratesetting process without regard to a hospital's participation within
this bundled payment model (that is, we would treat these hospitals as
if they are not participating in Model 4 under the BPCI initiative).
We note that Model 3 only addresses payments for related
readmissions and postacute care services (rather than IPPS payments).
Therefore, we believe it is not necessary to propose to address the
treatment of any data for participating hospitals in Model 3.

I. Proposed Add-On Payments for New Services and Technologies

1. Background
Sections 1886(d)(5)(K) and (L) of the Act establish a process of
identifying and ensuring adequate payment for new medical services and
technologies (sometimes collectively referred to in this section as
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the
Act specifies that a medical service or technology will be considered
new if it meets criteria established by the Secretary after notice and
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act
specifies that a new medical service or technology may be considered
for new technology add-on payment if, ``based on the estimated costs
incurred with respect to discharges involving such service or
technology, the DRG prospective payment rate otherwise applicable to
such discharges under this subsection is inadequate.'' We note that
beginning with discharges occurring in FY 2008, CMS transitioned from
CMS-DRGs to MS-DRGs.
The regulations at 42 CFR 412.87 implement these provisions and
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. Below we highlight
some of the major statutory and regulatory provisions relevant to the
new technology add-on payment criteria as well as other information.
For a complete discussion on the new technology add-on payment
criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76
FR 51572 through 51574).
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. We note
that 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) and FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43813 and 43814), we explained our policy
regarding substantial similarity in detail.
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. Table 10
that was released with the FY 2012 IPPS/LTCH PPS final rule contains
the final thresholds that will be used to evaluate applications for new
technology add-on payments for FY 2013. We refer readers to the Web
site http://www.cms.gov/AcuteInpatientPPS/FR2012/list.asp#TopOfPage for
a complete viewing of Table 10 from the FY 2012 IPPS/LTCH PPS final
rule.
In the September 7, 2001 final rule that established the new
technology add-on payment regulations (66 FR 46917), we discussed the
issue of whether the 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. We refer readers to the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51573) for complete information on this issue.
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 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

[[Page 27934]]

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.
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
[email protected].
We note that applicants for add-on payments for new medical
services or technologies for FY 2014 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 2014, the Web site also
will post the tracking forms completed by each applicant.
2. Public Input Before Publication of a Notice of Proposed Rulemaking
on Add-On Payments
Section 1886(d)(5)(K)(viii) of the Act, as amended by section
503(b)(2) of Public Law 108-173, provides for a mechanism for public
input before publication of a notice of proposed rulemaking regarding
whether a medical service or technology represents a substantial
clinical improvement or advancement. The process for evaluating new
medical service and technology applications requires the Secretary to--
Provide, before publication of a proposed rule, for public
input regarding whether a new service or technology represents an
advance in medical technology that substantially improves the diagnosis
or treatment of Medicare beneficiaries;
Make public and periodically update a list of the services
and technologies for which applications for add-on payments are
pending;
Accept comments, recommendations, and data from the public
regarding whether a service or technology represents a substantial
clinical improvement; and
Provide, before publication of a proposed rule, for a
meeting at which organizations representing hospitals, physicians,
manufacturers, and any other interested party may present comments,
recommendations, and data regarding whether a new medical service or
technology represents a substantial clinical improvement to the
clinical staff of CMS.
In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2013 prior
to publication of this FY 2013 IPPS/LTCH PPS proposed rule, we
published a notice in the Federal Register on November 18, 2011 (76 FR
71571 through 71572), and held a town hall meeting at the CMS
Headquarters Office in Baltimore, MD, on February 14, 2012. 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 2013 new
medical service and technology add-on payment applications before the
publication of this FY 2013 proposed rule.
Approximately 70 individuals registered to attend the town hall
meeting in person, while additional individuals listened over an open
telephone line. Four of the five FY 2013

[[Page 27935]]

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 that were received by the due date of March 6, 2012,
in our evaluation of the new technology add-on applications for FY 2013
in this proposed rule.
In response to the published notice and the new technology town
hall meeting, we received written comments regarding applications for
FY 2013 new technology add-on payments. We summarize these comments
below or, if applicable, indicate that there were no comments received,
at the end of each discussion of the individual applications in this
proposed rule.
Comment: A number of attendees at the new technology town hall
meeting provided comments that were unrelated to the issue of whether
the FY 2013 new technology add-on applications met the ``substantial
clinical improvement'' criterion.
Response: As explained above and in the Federal Register notice
announcing the new technology town hall meeting (76 FR 71571), the
purpose of the new technology town hall meeting was specifically to
discuss the substantial clinical improvement criterion in regard to
pending new technology applications for FY 2013. Therefore, we are not
summarizing those comments in this proposed rule. Commenters are
welcome to resubmit these comments in response to proposals presented
in this proposed rule.
3. FY 2013 Status of Technology Approved for FY 2012 Add-On Payments:
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
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 principal diagnosis code 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.
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 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, for FY 2013,
as of December 2012, the AutoLITT^TM will have been on the
market for 3 years, and would therefore no longer be considered ``new''
as of December 2012 nor be considered eligible for new technology add-
on payments in FY 2013. However, we received information from the
manufacturer that the market release date of the AutoLITT^TM
occurred after April 2010 (which occurs in the latter half of the
fiscal year) and, therefore, it appears that the AutoLITT^TM
would still be considered ``new'' for FY 2013 and would still be
eligible for new technology add-on payments in FY 2013. We note that we
received this information in close proximity to the

[[Page 27936]]

publication of the proposed rule and anticipate receiving further
information on the delayed market release date from the manufacturer
and welcome public comment as well.
4. FY 2013 Applications for New Technology Add-On Payments
We received six applications for new technology add-on payments for
FY 2013. However, two applicants withdrew their applications prior to
the publication of this proposed rule.
a. Glucarpidase (Trade Brand Voraxaze[supreg])
BTG International, Inc. submitted an application for new technology
add-on payments for Glucarpidase (trade brand Voraxaze[supreg]) for FY
2013. Glucarpidase is used in the treatment of patients who have been
diagnosed with toxic methotrexate (MTX) concentrations as a result of
renal impairment. The administration of Glucarpidase causes a rapid and
sustained reduction of toxic MTX concentrations.
Methotrexate (MTX) is a widely used anticancer agent. The
administration of high-dose methotrexate (HDMTX) is an important
component of the treatment provided to patients who have been diagnosed
with various types of cancer. According to the applicant, HDMTX, in
particular, is specifically used in the treatment of patients who have
been diagnosed with osteosarcoma, acute lymphoblastic leukemia, non-
Hodgkin's lymphoma, or primary CNS lymphoma. The applicant further
stated that the administration of HDMTX can cause renal dysfunction.
Renal dysfunction impairs the elimination of MTX, which in turn causes
the levels of MTX to rise to the point of life-threatening toxicity.
The applicant maintains that there are not any currently FDA-
approved pharmaceutical treatment options available to rapidly decrease
MTX levels in patients who have been diagnosed with toxic MTX
concentrations as a result of renal impairment. The applicant asserts
that extracorporeal treatment options that are routinely employed to
rapidly treat this condition, such as hemodialysis, hemodiafiltration,
high-flux hemodialysis, charcoal hemoperfusion or hemofiltration,
peritoneal dialysis, exchange transfusion, or plasma exchange, are
invasive, may add excess morbidity to the treatment regimen, and have
proven to have limited effects.\15\ High flux hemodialysis is the most
effective method of extracorporeal MTX removal, but this method
requires 5 to 6 days of daily treatment (4 to 6 hours per session).\16\
The risks associated with repeated hemodialysis procedures such as
anemia, infection, and increased mortality, especially in neutropenic
or thrombocytopenic patients, are significant and cause rebounds in MTX
levels. The applicant maintains that other treatment options, such as
the administration of leucovorin, hydration, and urinary
alkalinization, also are commonly used to reduce harmful levels of MTX.
However, these treatment options do not reduce toxic MTX concentrations
in all patient populations.\17\
---------------------------------------------------------------------------

\15\ Widemann et al., [Cancer, 2004, and Vilay et al.,],
Pharmacotherapy, Vol 30, January, 2010).
\16\ Wall et al., American Journal of Kidney Diseases, Vol. 28,
No. 6, 1996.
\17\ Pinedo et al, Cancer Research, 36, 4418-4424 December,
1976.
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Voraxaze[supreg] is an orphan drug that was approved by the FDA on
January 17, 2012. Beginning in 1993, certain patients could obtain
expanded access for treatment use to Voraxaze[supreg] as an
investigational drug. Since 2007, the applicant has been authorized to
recover the costs of making Voraxaze[supreg] available through its
expanded access program. We describe expanded access for treatment use
of investigational drugs and authorization to recover certain costs of
investigational drugs in more detail below. The applicant intends to
make Voraxaze[supreg] available on the market in the United States as a
commercial product to the larger population in April 2012.
With regard to newness, we are concerned that Voraxaze[supreg] may
no longer be considered ``new''. Specifically, 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''. In addition, the regulations at Sec.
412.87(b)(2) state 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
service or technology (depending on when a new code is assigned and
data on the new service or technology become available for DRG
recalibration). After CMS has recalibrated the DRGs, based on available
data, to reflect the costs of an otherwise new medical service or
technology, the medical service or technology will no longer be
considered `new' under the criterion of this section.'' As we have
indicated in the past, we generally believe that the newness period
begins on the date that FDA approval is granted. The FDA approval date
is typically the date when new technologies are available on the market
and as a result begin to be reflected within the MS-DRGs cost data.
As noted above, Voraxaze[supreg] was approved by the FDA in January
2012. However, starting in 1993, certain patients were able to obtain
access to Voraxaze[supreg] as an investigational drug through an
expanded access program, and the applicant has been authorized to
recover certain costs of making Voraxaze[supreg] available through its
expanded access program since 2007. We discuss below in more detail
whether the cost of Voraxaze[supreg] is already reflected within the
MS-DRG relative weights.
To determine the date of newness for Voraxaze[supreg], we believe
it is appropriate to compare investigational drugs provided under the
expanded access program to devices eligible for the Humanitarian Use
Device (HUD) Program because these programs contain similarities to
evaluate the newness criterion.
In prior final rules, we have evaluated and approved technologies
with a Humanitarian Device Exemption (HDE) approval. In the FY 2010
IPPS/LTCH PPS final rule, we approved new technology add-on payments
for the Spiration[supreg] IBV[supreg], which received a HDE approval
from the FDA on October 24, 2008, and had its first IRB approval on
March 12, 2009 (74 FR 43754, 43819). Therefore, technologies with an
HDE approval may be eligible for new technology add-on payments. In
other words, we have concluded that HDE approval constitutes an FDA
approval in the context of the newness criterion and would begin the
newness period, subject to market availability.
There are separate processes and standards for providing expanded
access to investigational drugs for treatment use and for the HUD
Program. The term ``expanded access'' refers to the use of
investigational drugs, or approved drugs where availability is limited
by a risk evaluation or mitigation strategy, when the primary purpose
is to diagnose, monitor, or treat a patient's disease or condition.
When the requirements in (FDA's regulations at) 21 CFR part 312,
Subpart I are met, a patient or group of patients with a serious or
immediately life-threatening disease or condition, and no comparable or
satisfactory alternative therapy, may obtain expanded access to an
investigational drug. When patients obtain expanded access to an
unapproved investigational drug, the safety and effectiveness of the
drug have

[[Page 27937]]

not been fully established, and the drug does not have formal FDA
approval under a New Drug Application (NDA) or Biologics Licensing
Application (BLA) for commercial marketing. Manufacturers may continue
conducting clinical trials in parallel to the expanded access program
in order to pursue formal market approval from the FDA under an NDA or
BLA for commercial marketing. The FDA's Office of Orphan Products
Development administers the HUD Program. A HUD is a device that is
intended to benefit patients by treating or diagnosing a disease or
condition that affects fewer than 4,000 individuals in the United
States per year. To obtain approval for a HUD, a HDE application is
submitted to FDA. A HDE application is similar in both form and content
to a Premarket Approval (PMA) application, but is exempt from the
effectiveness requirements of a PMA. A HDE application must, however,
contain sufficient information for FDA to determine that the device
does not pose an unreasonable or significant risk of illness or injury,
and that the probable benefit to health outweighs the risk of injury or
illness from its use, taking into account the probable risks and
benefits of currently available devices or alternative forms of
treatment. An approved HDE authorizes marketing of the HUD, however, an
HDE approval requires that the device only be used in facilities that
have established a local Institutional Review Board (IRB) to supervise
clinical testing of devices, and that an IRB approve the use of the
device to treat or diagnose the specific disease. Although HUDs can be
marketed, they are subject to a general prohibition on profit; that is,
they may not, except in narrow circumstances, be sold for an amount
that exceeds the cost of research and development, fabrication and
distribution.
Expanded access to investigational drugs and the HUD Program have
similarities and differences that are relevant to the newness
criterion. Both have limits on who is eligible to receive a drug or use
a device. In addition, to satisfy the requirements for expanded access
in FDA's regulations, and for a HDE to meet the standard for approval,
a sponsor is not required to demonstrate effectiveness of the product
at the same level as for approval of a PMA, NDA, or BLA. Expanded
access to investigational drugs and the HUD Program differ in many
ways, including that the HUD Program is for devices, and the expanded
access programs provide access to drugs. In addition, under the HUD
Program, the device is granted FDA approval for limited use. However,
while FDA authorizes expanded access to an investigational drug, FDA
does not approve the investigational drug when it authorizes expanded
access.
This second difference is key to our interpretation of our policy
to recognize a HDE approval as an FDA approval. We believe that the
availability of a drug through the expanded access program would not
constitute FDA approval in the context of the newness criterion because
unapproved, investigational drugs made available to certain patients
through the expanded access program do not receive FDA approval prior
to enrollment in the program and cannot be marketed. In other words, we
believe that for the purposes of evaluating whether a new technology
meets the newness criterion, it may be appropriate not to consider the
date when Voraxaze[supreg] became available to certain patients through
the applicant's expanded access program as the date of market
availability.
We note that cost recovery for investigational drugs is of concern
with regard to the newness criterion. Although a sponsor (for example,
a drug manufacturer) may not commercially distribute an investigational
drug, in certain circumstances, a sponsor of a clinical trial or an
expanded access program may receive authorization from FDA to charge
for certain costs associated with making an investigational drug
available. The applicant has been authorized to recover certain costs
by making Voraxaze[supreg] available since 2007. As we stated earlier,
once CMS has recalibrated the DRGs based on available data to reflect
the costs of an otherwise new technology, that technology will no
longer be considered ``new''' for the purposes of the new technology
add-on payments. It is possible that a hospital may have submitted a
claim to Medicare for the cost of Voraxaze[supreg] provided through the
applicant's expanded access program. Therefore, it is also possible
that the costs associated with this technology may already be reflected
in some limited fashion in the data used to determine the MS-DRG
relative weights. While these are possibilities, we have not in the
past been confronted with a situation where an applicant has indicated
that hospitals have sought cost recovery for their technology when the
technology was available through the expanded access program. We also
have not been confronted with a situation where an applicant has
indicated that cost recovery was sought for technologies (that were not
available via an expanded access program) during clinical trials. We
note that our data do not distinguish charges for drugs by FDA approval
status, and, therefore, we do not exclude from the relative weight
calculation costs (as derived from charges) associated with
investigational drugs if they are included by hospitals on a claim.
Therefore, cost data for non-FDA approved technologies (that is, still
involved in clinical trials) may be present in the relative weights on
a very limited basis prior to FDA approval, regardless of whether a
technology received new technology add-on payments.
We are inviting public comment regarding the issue of whether a
drug is considered ``new'' for the purposes of new technology add-on
payments starting with its availability in the expanded access program,
and how that may differ from devices being considered ``new'' starting
from the date the device received FDA approval under a HDE (subject to
market availability or availability to Medicare beneficiaries) and
specifically request comment on these considerations in the context of
Voraxaze[supreg]. We also are inviting public comment on whether the
costs of Voraxaze[supreg], or more generally, any unapproved
investigational drug for which cost recovery is authorized are already
included in data used to determine relative weights, and how that
influences the start of a newness period, if at all. In addition, we
are inviting public comment regarding the market availability of
Voraxaze[supreg] between its FDA approval date of January 17, 2012, and
the market availability date according to the applicant of April 2012
and the reasons for the delay in availability.
The applicant submitted a request to the ICD-9-CM Coordination and
Maintenance Committee for a new procedure code, which was discussed at
the committee's March 2012 meeting. For further information regarding
the code proposal, we refer readers to the following CMS Web site:
http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html.
We are inviting public comment on whether or not Voraxaze[supreg]
meets the newness criterion, especially in light of its reported
availability date through the applicant's expanded access program, and
the ability for the applicant to charge for certain costs associated
with making an investigational drug available. In addition, we are
inviting public comment on considerations that should be given in
regard to the technology's delay in availability after FDA's approval
was granted, in addition to the reason for the delay, as it relates to
the newness criterion.

[[Page 27938]]

With respect to cost criterion, the applicant researched the 2009
Standard Analytic Inpatient File (SAF) for cases with a principal or
secondary diagnosis of osteosarcoma (ICD-9-CM code series 170.xx),
acute lymphoblastic leukemia (ICD-9-CM code series 204.0x), non-
Hodgkin's lymphoma (ICD-9-CM code series 200.xx and 202.xx), or primary
CNS lymphoma (ICD-9-CM code series 200.5x) with a corresponding ICD-9-
CM procedure code for chemotherapy (99.25) that may be eligible for
Voraxaze[supreg], based on the product's approved indications. The
applicant's search yielded potentially eligible cases within 249 MS-
DRGs, of which 56 MS-DRGs captured 12 or more cases.
Using this universe of cases (249 MS-DRGs), the applicant added the
additional costs of Voraxaze[supreg] to the case-weighted average
standardized charge per case. Although the applicant submitted data
related to the estimated cost of Voraxaze[supreg], the applicant noted
that the cost of the technology was proprietary information. According
to the applicant, it did not convert the costs to charges for this
analysis because of the technology's high cost. The applicant maintains
that an average adult receiving treatment for one of the diagnoses
above would require a minimum of four vials of Voraxaze[supreg].
The applicant used the following multiple analysis of different
subsets of MS-DRGs to compare the average case-weighted standardized
charge per case to the average case-weighted threshold to determine
that Voraxaze[supreg] met the cost criteria:
The applicant found 12,324 eligible cases within 249 MS-
DRGs, and determined a case-weighted average standardized charge per
case of $87,582 (which includes the cost of Voraxaze[supreg]) and a
case-weighted threshold of $39,216. The applicant maintains that
Voraxaze[supreg] meets the cost criterion because the case-weighted
average standardized charge per case exceeds the case-weighted
threshold.
The applicant excluded those MS-DRGs that had fewer than
11 cases, which resulted in 12,134 eligible cases within 56 MS-DRGs.
The applicant determined a case-weighted average standardized charge
per case of $84,039 (which includes the cost of Voraxaze[supreg]) and a
case-weighted threshold of $37,195. The applicant maintains that
Voraxaze[supreg] meets the cost criterion because the case-weighted
average standardized charge per case exceeds the case-weighted
threshold.
The applicant analyzed the 20 MS-DRGs that contained the
highest number of cases and, based on the 20 cases they stated they
found, determined a case-weighted average standardized charge per case
of $80,400 (which includes the cost of Voraxaze[supreg]) and a case-
weighted threshold of $34,990. The applicant maintains that
Voraxaze[supreg] meets the cost criterion because the case-weighted
average standardized charge per case exceeds the case-weighted
threshold.
We are inviting public comment on whether or not Voraxaze[supreg]
meets the cost criterion. Specifically, we welcome public comment on
the methodologies used in the applicant's analysis, including (1) the
methods used to identify the eligible cases used in the cost analysis
of this technology, especially if there are cases that should be
excluded from the analysis because of clinical reasons, and if there
are other ways to identify cases for which this technology may be
appropriate, and (2) the appropriateness of not converting the costs to
charges for the purposes of this analysis and what would be an accurate
and appropriate CCR for this technology.
With regard to substantial clinical improvement, the applicant
maintains that Voraxaze[supreg] is a clinical improvement compared to
current treatment options because it is less time intensive, allows
certain patient populations to avoid risks associated with current
treatment options, and has characteristics that allows it to reduce MTX
concentrations more effectively. As noted above, the applicant
maintains that current treatment options for renal impairment as a
result of toxic MTX concentrations are limited to extracorporeal
methods that are time-intensive and could subject patients in certain
populations to harm from the associated risks. The applicant states
that the administration of Voraxaze[supreg] to patients who have been
diagnosed with HDMTX-induced renal dysfunction metabolizes circulating
MTX to the inactive metabolite DAMPA. The applicant asserts that this
characteristic action of the technology represents a substantial
clinical improvement over current treatment options available to
patients who have toxic MTX concentrations in a more effective, and
rapid way, and provides protection to eligible patient populations
against potential harm associated with current treatment options.
In addition, the applicant provided the results from a study of 23
patients diagnosed with MTX-induced renal dysfunction treated with
Voraxaze[supreg]. During this study, the applicant reported that the
administration of Voraxaze[supreg] lowered toxic MTX concentrations in
patients within 15 minutes after the administration by more than 98
percent. Because the administration of Voraxaze[supreg] could
metabolize both leucovorin and its active metabolite, 5-mTHF, these
patients were also administered Thymidine, a drug used to enhance the
treatment for patients with high levels of MTX. The applicant notes
that the combination of Voraxaze[supreg] and Thymidine rescue was well
tolerated by the 23 patients studied, and MTX-related toxicities were
reduced from severe to mild to moderate. The range of age of these 23
patients was 19 to 94 years old. The applicant asserts that the types
of health conditions treated with HDMTX, such as acute lymphoblastic
leukemia, osteosarcoma, central nervous system (CNS) lymphoma, and
leptomeningeal cancer, tend to occur within the Medicare population and
cites research that states ``HD-MTX-induced renal failure with
persistence of toxic blood MTX levels is a rare but life threatening
complication that occurs more frequently in adults, particularly those
with advanced age and CNS lymphoma.'' \18\ When these malignancies
arise which require treatment with HDMTX, HDMTX-induced renal failure
with persistent toxic MTX levels is a complication that occurs more
frequently in adults. The applicant asserts that the administration of
Voraxaze[supreg] has been shown to be well-tolerated by older adult
patients, while achieving similar reduction rates in younger patient
populations who have been diagnosed with toxic MTX concentrations and
treated with Voraxaze[supreg].\19\ The applicant also provided
additional published peer-reviewed articles
^{20,21,22,23,24,25} relevant to their application to support
their

[[Page 27939]]

assertion that they meet the substantial clinical improvement criteria.
---------------------------------------------------------------------------

\18\ Schwartz, Borner et al., The Oncologist, December 2007.
\19\ Schwartz, Borner et al., The Oncologist, December 2007.
\20\ Levy CC, Goldman P. The enzymatic hydrolysis of
methotrexate and folic acid. J Biol Chem. 1967; 242:2993-2998.
\21\ Minton NP, Atkinson T, Sherwood RF. Molecular cloning of
the Pseudomonas carboxypeptidase G2 gene and its expression in
Escherichia coli and Pseudomonas putida. J Bacteriol. 1983; 156:
1222-1227.
\22\ Widemann BC, Balis FM, Kim A, et al. Glucarpidase,
leucovorin and thymidine for high-dose methotrexate induced renal
dysfunction. Clinical and pharmacologic factors affecting outcome. J
Clin Oncology 2010; 28:1-8.
\23\ Patterson DM, Lee SM. Glucarpidase following high-dose
methotrexate: Update on development. Expert Opin Biol Ther.
2010;10(1):105-111.
\24\ Phillips M, Smith W, Balan G, et al. Pharmacokinetics of
glucarpidase in subjects with normal and impaired renal function. J
Clin Pharmacol 2008; 48:279-284.
\25\ Bleyer WA. Methotrexate: Clinical pharmacology, current
status and therapeutic guidelines. Cancer Treat Rev. 1977;4:87-101.
---------------------------------------------------------------------------

We are inviting public comment on whether or not Voraxaze[supreg]
meets the criterion of representing a substantial clinical improvement
for Medicare beneficiaries.
b. DIFICID^TM (Fidaxomicin) Tablets
Optimer Pharmaceuticals, Inc. submitted an application for new
technology add-on payments for FY 2013 for the use of
DIFICID^TM (Fidaxomicin) tablets. The applicant asserts that
Fidaxomicin is a major clinical advancement in the options available to
treat Clostridium difficile-associated diarrhea (CDAD).
Clostridium difficile (C. Diff.) is a bacterium that can cause
infection with symptoms that range from diarrhea to life-threatening
inflammation of the colon, and is also commonly referred to as CDAD.
The symptoms associated with CDAD can be treated by stopping
administration of an antibiotic because often antibiotics can alter the
native intestinal microflora and thus trigger CDAD. For mild cases of
CDAD, this step may be sufficient to relieve the associated symptoms.
However, many patients who have been diagnosed with more severe cases
of CDAD require further treatment. Further treatment options include
prescribing antibiotics such as Metronidazole or Vancomycin,
prescribing probiotics administered in conjunction with antibiotics,
and performing surgery using a fecal transplant to restore healthy
intestinal bacteria by placing donor stool in the colon. According to
the applicant, about one-fourth of the patients diagnosed with CDAD
experience a recurrence of these associated symptoms.
As indicated on the labeling submitted to the FDA, the applicant
noted that Fidaxomicin is taken twice a day as a daily dosage (200 mg
tablet twice daily = 400 mg per day) as an oral antibiotic. The
applicant asserts that Fidaxomicin provides potent bactericidal
activity against C. Diff., and moderate bactericidal activity against
certain other gram-positive organisms, such as enterococcus and
staphylococcus. Unlike other antibiotics used to treat CDAD, the
applicant noted that the effects of Fidaxomicin preserve bacteroides
organisms in the fecal flora. These are markers of normal anaerobic
microflora. The applicant asserts that this helps prevent pathogen
introduction or persistence, which potentially inhibits the re-
emergence of C. Diff., and reduces the likelihood of overgrowths as a
result of vancomycin-resistant Enterococcus (VRE). Because of this
narrow spectrum of activity, the applicant asserts that Fidaxomicin
does not alter this native intestinal microflora.\26\
---------------------------------------------------------------------------

\26\ Koo, Garey et al. Future novel therapeutic agents for
Clostridium difficile infection. Expert Opin Investig Drugs,
2010;19(7):825-836. Tannock, Munro et al., A new macrocyclic
antibiotic, fidaxomicin (OPT-80), causes less alteration to the
bowel microbiota of Clostridium difficile-infected patients than
does vancomycin. Microbiology. 2010 Nov;156(Pt 11):3354-9.
---------------------------------------------------------------------------

With regard to the newness criterion, Fidaxomicin was approved by
the FDA on May 27, 2011, for the treatment of CDAD in adult patients,
18 years of age and older. Fidaxomicin was commercially available on
the market within 7 weeks after the FDA's approval was granted.
Currently, there are not any ICD-9-CM diagnosis or procedure codes that
exist to uniquely identify the use of Fidaxomicin, or any oral drug, as
a procedure. Optimer has submitted a request to the ICD-9-CM
Coordination and Maintenance Committee for a new ICD-9-CM procedure
code, which was discussed at the committee's meeting on March 5, 2012.
For further information regarding the code proposal, we refer readers
to the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html.
We believe that under our current new technology add-on payment
policy, eligibility for consideration for new technology add-on
payments is limited to new technologies associated with procedures
described by ICD-9-CM codes. In the FY 2002 IPPS final rule, we
establish the framework for our current policy (66 FR 46907 through
46915). The discussion of technologies in that rule focuses on those
technologies identifiable by ICD-9-CM codes. We also discuss in
response to comments the feasibility and appropriateness of HCPCS codes
and V-codes. Similar to ICD-9-CM codes, HCPCS codes are also a
procedure-based system and identify procedures. We noted in that rule
that V-codes would not be appropriate to use for identification of new
technology because they are not a substitute for procedure coding.
Volume 3 of ICD-9-CM contains codes that describe inpatient procedures
(65 FR 50325). In other words, we have not considered drugs that are
only taken orally to be eligible for consideration for new technology
add-on payments, because there is no procedure associated with these
drugs and, therefore, no ICD-9-CM code(s).
This interpretation is also consistent with other Medicare payment
policies. For example, when drugs taken orally are given as part of an
outpatient encounter, they would likely be considered self-administered
drugs under the Hospital Outpatient Prospective Payment System (OPPS).
If a Medicare beneficiary who has outpatient status were to be provided
a self-administered drug by a hospital or wholly-owned or wholly-
operated entity of that hospital and that beneficiary were subsequently
admitted to that hospital for a related reason within three days, the
hospital may not include these self-administered drugs on the inpatient
bill (under the 3-day payment window policy), because self-administered
drugs are not covered under the OPPS. However, they would be required
to include nondiagnostic services related to admission and all other
diagnostic services on the inpatient bill (under the 3-day payment
window).
We are inviting public comment on our interpretation of our policy
regarding drugs that are only self-administered for consideration for
new technology add-on payments. Further, we are inviting public comment
on whether or not Fidaxomicin meets the newness criterion.
With regard to the cost criterion, Optimer researched the FY 2010
MedPAR file for cases that would be eligible for treatment with
Fidaxomicin to determine it if would qualify for the cost criterion for
new technology add-on payments. Based on its analysis, the applicant
identified cases in which a patient had been diagnosed with CDAD by
searching the MedPAR file for claims that included ICD-9-CM diagnosis
code 008.45 (Intestinal infection due to Clostridium difficile) as a
principal diagnosis or secondary diagnosis. Optimer provided three
examples of how the results of the analyses of different MS-DRGs
demonstrate that it meets the cost criterion.
Under the first analysis, the applicant researched the FY 2010
MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 as a
principal or secondary diagnosis across all MS-DRGs. The applicant
found 162,310 cases within 536 MS-DRGs, and determined a case-weighted
average standardized charge per case (excluding charges for the cost of
Fidaxomicin) of $50,136. Using a factor of 6.5 percent to inflate the
charges to 2012 rates based on the Medical Consumer Price Index (CPI),
the applicant determined a case-weighted standardized charge per case
that equals $53,394. The applicant then added the charges related to
the technology to the inflated charges. The applicant then determined a
final case-weighted average standardized charge per case of $58,994,
which exceeds the

[[Page 27940]]

case-weighted threshold of $43,673. Because the final case-weighted
average standardized charge per case for the applicable MS-DRGs exceeds
the case-weighted threshold amount in this first analysis, the
applicant maintains that Fidaxomicin meets the cost criterion for new
technology add-on payments.
Under the second analysis, the applicant researched the FY 2010
MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 only
as a principal diagnosis, which mapped to MS-DRGs 371 (Major
Gastrointestinal Disorders and Peritoneal Infections with MCC), 372
(Major Gastrointestinal Disorders and Peritoneal Infections with CC),
and 373 (Major Gastrointestinal Disorders and Peritoneal Infections
without CC/MCC). The applicant found 55,410 cases, and determined a
case-weighted average standardized charge per case (excluding charges
for the cost of Fidaxomicin) of $28,007. Using a factor of 6.5 percent
to inflate the charges to 2012 rates based on the Medical CPI, the
applicant determined a case-weighted standardized charge per case that
equals $29,828. The applicant then added the charges related to the
drug to the inflated charges. The applicant then determined a final
case-weighted average standardized charge per case of $35,428, which
exceeds the case-weighted threshold of $34,730. Because the final case-
weighted average standardized charge per case for the applicable MS-
DRGs exceeds the case-weighted threshold amount in this second
analysis, the applicant maintains that Fidaxomicin meets the cost
criterion for new technology add-on payments.
Under the third analysis, the applicant again researched the FY
2010 MedPAR file for cases that included ICD-9-CM diagnosis code 008.45
as a principal or secondary diagnosis across all MS-DRGs. The applicant
then narrowed the results of the analysis to include only the top 37
MS-DRGs (in volume of cases), which accounted for 75 percent of all
cases. The applicant's methodology resulted in 121,748 cases, and the
applicant determined a case-weighted average standardized charge per
case (excluding charges for the cost of Fidaxomicin) of $45,523. Using
a factor of 6.5 percent to inflate the charges to 2012 rates based on
the Medical CPI, the applicant determined a case-weighted standardized
charge per case that equals $48,482. The applicant then added the
charges related to the drug to the inflated charges. The applicant then
determined a final case-weighted average standardized charge per case
of $54,082, which exceeds the case-weighted threshold of $42,452.
Because the final case-weighted average standardized charge per case
for the applicable MS-DRGs exceeds the case-weighted threshold amount
in this third analysis, the applicant maintains that Fidaxomicin meets
the cost criterion for new technology add-on payments.
In the three analyses discussed above, the applicant submitted data
related to the estimated cost and charge of the drug (using a charge
markup). However, the applicant has not released the cost of the
technology, asserting that it is proprietary information. The applicant
converted the cost of the technology to a charge using a charge markup
(a factor of 6.5 percent based on the Medical CPI) that represented a
10-day dosage.
We are concerned that these analyses do not take into account
situations in which patients would be prescribed Fidaxomicin later in
the duration of their inpatient stay, and may finish the course of
Fidaxomicin sometime after being discharged from the hospital. In
addition, as discussed above, if Fidaxomicin is prescribed and self-
administered during the 3-day period prior to admission to an IPPS
hospital for a related encounter, we do not believe that this service
is payable under the OPPS, nor that it can be included on the inpatient
claim submitted to Medicare because of the 3-day payment window policy.
Therefore, it may not be appropriate to include in the applicant's
calculations the full charges related to Fidaxomicin and the
corresponding proprietary charges for the 10-day dose. In addition, we
believe that it is necessary for the applicant to adjust its estimates
to remove from the MedPAR file's claims for the charges that describe
other types of treatment options such as Vancomycin, since use of these
treatments would preclude use of Fidaxomicin. Furthermore, to identify
the cases that may be eligible for the technology's use, the applicant
researched and analyzed claims that included ICD-9-CM diagnosis code
008.45 as the principal diagnosis or as the principal or secondary
diagnosis. We are concerned that this baseline for eligible cases may
not represent the appropriate universe of cases, such as if all MS-DRGs
were considered or if a subset of MS-DRGs were considered.
We are inviting public comment on whether or not Fidaxomicin meets
the cost criterion. In addition, we are inviting public comment on the
methodologies used by the applicant in its analyses, in particular the
assumptions made about the dosage in developing the cost analysis. We
also are interested in comments about the applicant's selection of
claims with an ICD-9-CM diagnosis code 008.45 as the principal
diagnosis or secondary diagnosis, and whether those cases accurately
represent the Medicare population that may benefit from the
technology's use.
With regard to the substantial clinical improvement criterion, the
applicant maintains that Fidaxomicin represents a substantial clinical
improvement to the treatment options currently available. According to
the applicant, Fidaxomicin represents the first major clinical
advancement in the treatment options available to address CDAD in more
than 25 years, and it is one of only two agents indicated by the FDA to
treat this condition. The applicant notes that reports from its
clinical trials show that a higher proportion of patients achieve
positive clinical response to treatment with Fidaxomicin as opposed to
treatment with Vancomycin. The applicant reported that these patients
did not experience recurrences of associated symptoms for at least 25
days after the end of treatment. The applicant asserts that Fidaxomicin
has longer acting antimicrobial activity and inhibits spore production
in C. difficile in vitro. The applicant stated that C. difficile cells
produce spores when exposed to air; therefore, transmission of
infection occurs even when the cells themselves are killed.
The applicant reported on two randomized, double-blinded trials
^27,28. A non-inferiority design was utilized to demonstrate
the efficacy of administering Fidaxomicin (200 mg twice daily for 10
days) compared to administering Vancomycin (125 mg four times daily for
10 days) to adult patients diagnosed with CDAD. The demographic profile
and baseline CDAD characteristics of the subjects enrolled in both
trials were similar. These patients had a median age of 64 years, were
mainly white (90 percent), female (58 percent), and inpatients (63
percent).
---------------------------------------------------------------------------

\27\ Pivotal trial 101.1.C.003:
Thomas J. Louie, M.D., Mark A. Miller, M.D., Kathleen M.
Mullane, D.O., Karl Weiss, M.D., Arnold Lentnek, M.D., Yoav Golan,
M.D., Sherwood Gorbach, M.D., Pamela Sears, Ph.D., and Youe-Kong
Shue, Ph.D. for the OPT-80-003 Clinical Study Group. Fidaxomicin
versus Vancomycin for Clostridium difficile Infection. N Engl J Med
2011; 364:422-431 February 3, 2011. Attached reference: 12--
LouieNEJM2011.pdf.
\28\ Crook D, Weiss K, Comely O, Miller M, Esposito R, Gorbach
8. Randomized Clinical Trial (RCT) in Clostridium difficile
Infection (CDI) Confirms Equivalent Cure Rate and Lower Recurrence
Rate of Fidaxomicin (FDX) versus Vancomycin (VCN). 20th European
Congress of Clinical Microbiology and Infectious Diseases; April 10-
13, 2010; Vienna, Austria.
---------------------------------------------------------------------------

The applicant reported that the primary efficacy endpoint (for both
trials) was the clinical response rate at

[[Page 27941]]

the end of therapy, based upon improvement in diarrhea or other
symptoms such that, in the investigator's judgment, further CDAD
treatment was not needed. An additional efficacy endpoint was sustained
clinical response 25 days after the end of treatment. Sustained
response was only evaluated for patients who were clinical successes at
the end of treatment. Sustained response was defined as clinical
response at the end of treatment, and survival without proven or
suspected reoccurrence of a diagnosis of CDAD beyond 25 days after the
end of treatment. The results for clinical response at the end of
treatment in both trials, which the applicant submitted in the table
below, indicate that the effects of administering Fidaxomicin is
noninferior to the effects of administering Vancomycin based on the 95
percent confidence interval (CI) lower limit being greater than the
non-inferiority margin of -10 percent.
The applicant stated that the results for sustained clinical
response at the end of the follow-up period, also shown in the table
below, indicate that the effects of administering Fidaxomicin is
superior to the effects of administering Vancomycin on this endpoint.
Because clinical success at the end of treatment and mortality rates
were similar across treatment arms (approximately 6 percent in each
group), the applicant determined that the differences in sustained
clinical response were due to lower rates of proven or suspected
reoccurrence of diagnoses of CDAD in patients during the follow-up
period. In addition, the applicant asserts that the effects of
administering Fidaxomicin has minimal impact on normal gut flora due to
its limited specificity, and could be associated with a lower risk of
acquisition of VRE if used as a treatment option instead of
administering Vancomycin.

Clinical Response Rates at End-of-Therapy and Sustained Response at 25 Days Post-Therapy
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Clinical response at end of treatment Sustained response at follow-up
----------------------------------------------------------------------------------------------------------------------------------------------------------------
FIDAXOMICIN % (N) Vancomycin % (N) Difference (95% CI) FIDAXOMICIN % (N) Vancomycin % (N) Difference (95% CI)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Trial 1........................ 88% (N = 289) 86% (N = 307) 2.6% (-2.9%, 8.0%) 70% (N = 289) 57% (N = 307) 12.7% (4.4%, 20.9%)
Trial 2........................ 88% (N = 253) 87% (N = 256) 1.0% (-4.8%, 6.8%) 72% (N = 253) 57% (N = 256) 14.6% (5.8%, 23.3%)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Based on the analysis described above, the applicant asserts
Fidaxomicin meets the substantial clinical improvement criterion as a
treatment option with the potential to decrease hospitalizations and
physician office visits, as well as to improve the quality of life for
patients who have been diagnosed with CDAD.
We are concerned that this technology may not offer a substantial
clinical improvement compared to other effective treatment alternatives
already available in the treatment of patients who have been diagnosed
with CDAD. In addition, although the applicant maintains that there is
no evidence of significant clinical resistance developing with the use
of this drug, we are still concerned about the long-term possibility
that patients may develop resistance to this drug since the applicant
provided no data to substantiate its claim. We are inviting public
comment on whether or not Fidaxomicin meets the substantial clinical
improvement criterion based on the analysis and results presented by
the applicant.
c. Zilver[supreg] PTX[supreg] Drug Eluting Stent
Cook[supreg] Medical submitted an application for new technology
add-on payments for the Zilver[supreg] PTX[supreg] Drug Eluting Stent
(Zilver[supreg] PTX[supreg]) for FY 2013. The Zilver[supreg]
PTX[supreg] is intended for use in the treatment of peripheral artery
disease (PAD) of the above-the-knee femoropopliteal arteries
(superficial femoral arteries). According to the applicant, the stent
is percutaneously inserted into the artery(s), usually by accessing the
common femoral artery in the groin. The applicant states that an
introducer catheter is inserted over the wire guide and into the target
vessel where the lesion will first be treated with an angioplasty
balloon to prepare the vessel for stenting. The applicant indicates
that the stent is self-expanding, made of nitinol (nickel titanium),
and is coated with the drug Paclitaxel. Paclitaxel is a drug approved
for use as an anticancer agent and for use with coronary stents to
reduce the risk of renarrowing of the coronary arteries after stenting
procedures.
The manufacturer maintains that there are currently no FDA approved
drug-eluting stents used for superficial femoral arteries. The
applicant expects to receive FDA approval for the stent in the second
quarter of 2012. The technology is currently described by ICD-9-CM
procedure code 00.60 (Insertion of drug-eluting stent(s) of the
superficial femoral artery). We are inviting public comment regarding
how the Zilver[supreg] PTX[supreg] meets the newness criterion.
With regard to the cost criterion, the applicant believes that
cases of superficial femoral arteries typically map to MS-DRGs 252
(Other Vascular Procedures with MCC), 253 (Other Vascular Procedures
with CC), and 254 (Other Vascular Procedures without CC/MCC). The
applicant searched the FY 2009 MedPAR file for cases with a procedure
code of 39.90 (Insertion of non-drug-eluting peripheral vessel stents)
in combination with a diagnosis code of 440.20 (Atherosclerosis of the
extremities, unspecified), 440.21 (Atherosclerosis of the extremities,
with intermittent claudication), 440.22 (Atherosclerosis of the
extremities with rest pain), 440.23 (Atherosclerosis of the extremities
with ulceration), and 440.24 (Atherosclerosis of the extremities with
gangrene). The applicant found 7,144 cases (or 24.4 percent of all
cases) in MS-DRG 252; 9,146 cases (or 31.2 percent of all cases) in MS-
DRG 253; and 13,012 cases (or 44.4 percent of all cases) in MS-DRG 254.
The average charge per case was $78,765 for MS-DRG 252, $63,758 for MS-
DRG 253, and $47,586 for MS-DRG 254, equating to a case-weighted
average charge per case of $60,236.
The case-weighted average charge per case above does not include
charges related to the Zilver[supreg] PTX[supreg]; therefore, it is
first necessary to remove the amount of charges related to the nondrug-
eluting peripheral vessel stents and replace them with charges related
to the Zilver[supreg] PTX[supreg]. The applicant used two methodologies
to remove the charges of the nondrug-eluting peripheral vessel stents
and replace them with charges related to the Zilver[supreg]
PTX[supreg]. Although the applicant submitted data related to the
estimated cost of the nondrug-eluting peripheral vessel stents and the
Zilver[supreg] PTX[supreg], the applicant noted that the cost of these
devices was proprietary information.
Under the first methodology, the applicant determined the amount of

[[Page 27942]]

stents per case based on the following ICD-9-CM codes on each claim:
00.45 (Insertion of one vascular stent), 00.46 (Insertion of two
vascular stents), 00.47 (Insertion of three vascular stents) and 00.48
(Insertion of four or more vascular stents). If a claim had a code of
00.48, the applicant assumed a maximum of four stents per case. The
applicant multiplied the amount of stents used per case by the average
market price for nondrug-eluting peripheral vessel stents and then
converted the cost of the stents used per case to a charge by dividing
the results by the national average CCR of 0.329 for supplies and
equipment (76 FR 51571). The applicant removed the appropriate amount
of charges per case and then standardized the charges per case. Because
the applicant used FY 2009 MedPAR data, it was necessary to inflate the
charges from FY 2009 to FY 2012. Using data from the U.S. Department of
Labor Bureau of Labor Statistics Consumer Price Index, the applicant
inflated the average standardized charge per case with an inflation
factor of 6 percent. To determine the amount of Zilver[supreg]
PTX[supreg] stents per case, instead of using the amount of stents used
per case based on the ICD-9-CM codes above, the applicant used an
average of 1.9 stents per case based on the Zilver[supreg] PTX[supreg]
Global Registry Clinical Study.\29\ The applicant believed that it is
appropriate to use data from the clinical study (to determine the
average amount of stents used per case) rather than the actual data
from the claims because the length of a nondrug-eluting peripheral
vessel stent typically ranges from 80mm to 120 mm, while the length of
the Zilver[supreg] PTX[supreg] is 80 mm (which could cause a variance
in the actual amount of stents used per case when using the
Zilver[supreg] PTX[supreg]). Similar to above, the applicant multiplied
the average of 1.9 stents used per case by the future market price for
the Zilver[supreg] PTX[supreg] and then converted the cost of the
stents used per claim to a charge by dividing the results by the
national average CCR of 0.329 for supplies and equipment. The applicant
then added the amount of charges related to the Zilver[supreg]
PTX[supreg] to the inflated average standardized charge per case and
determined a final case-weighted average standardized charge per case
of $60,014. Using the FY 2013 Table 10 thresholds, the case-weighted
threshold for MS-DRGs 252, 253, and 254 was $52,293 (all calculations
above were performed using unrounded numbers). Because the case-
weighted average standardized charge per case for the applicable MS-
DRGs exceed the case-weighted threshold amount, the applicant maintains
that the Zilver[supreg] PTX[supreg] meets the cost criterion.
---------------------------------------------------------------------------

\29\ Dake, M.D., Ansel, G.M., Jaff, M.R., Ohki, T., Saxon, R.R.,
Smouse, H.B., Zeller, T., Roubin, G.S., Burket, M.W., Khatib, Y.,
Snyder, S.A., Ragheb, A.O., White, J.K., Machan, L.S.(2011),
Paclitaxel-eluting stents show superiority to balloon angioplasty
and bare metal stents in femoropopliteal disease: twelve-month
zilver PTX randomized study results. Circulation Cardiovascular
Interventions, published online September 27, 2011, 495-504.
---------------------------------------------------------------------------

The second methodology was similar to the first methodology
described above, but the applicant used hospital-specific CCRs from the
FY 2009 IPPS impact file to convert the cost of the nondrug-eluting
peripheral vessel stents and the cost of the Zilver[supreg] PTX[supreg]
to charges. In summary, the applicant determined the amount of nondrug-
eluting peripheral vessel stents used per case based on the ICD-9-CM
codes on each claim (as discussed above). The applicant multiplied the
amount of stents used per case by the average market price for nondrug-
eluting peripheral vessel stents and then converted the cost of the
stents used per case to a charge by dividing by the hospital-specific
CCR (from the FY 2009 IPPS impact file). The applicant removed the
appropriate amount of charges per case and then standardized the
charges per case. Similar to the step described above, because the
applicant used FY 2009 MedPAR data, it was necessary to inflate the
charges from FY 2009 to FY 2012. Using data from the Bureau of Labor
Statistics Consumer Price Index, the applicant inflated the average
standardized charge per case with an inflation factor of 6 percent. To
determine the amount of Zilver[supreg] PTX[supreg] stents per case,
instead of using the amount of stents used per case based on the ICD-9-
CM codes above, the applicant used an average of 1.9 stents per case
based on the Zilver[supreg] PTX[supreg] Global Registry Clinical Study
(because of the reason stated in the first methodology). The applicant
then multiplied the average of 1.9 stents used per case by the future
market price for the Zilver[supreg] PTX[supreg] and then converted the
cost of the stents used per claim to a charge by dividing the results
by the hospital-specific CCR (from the FY 2009 IPPS impact file). The
applicant then added the amount of charges related to the
Zilver[supreg] PTX[supreg] to the inflated average standardized charge
per case and determined a final case-weighted average standardized
charge per case of $60,339. Using the FY 2013 Table 10 thresholds, the
case-weighted threshold for MS-DRGs 252, 253, and 254 was $52,293 (all
calculations above were performed using unrounded numbers). Because the
case-weighted average standardized charge per case for the applicable
MS-DRGs exceed the case-weighted threshold amount, the applicant
maintains that the Zilver[supreg] PTX[supreg] would meet the cost
criterion.
We are inviting public comment on whether or not the Zilver[supreg]
PTX[supreg] meets the cost criterion. Additionally, we are inviting
public comment on the methodologies used by the applicant in its
analysis, including its assumptions regarding the types of cases in
which this technology could potentially be used, the number of stents
required for each case, and the CCRs used in the cost calculation.
In an effort to demonstrate that the technology meets the
substantial clinical improvement criterion, the applicant shared
several findings from the clinical trial data. The applicant stated
that current treatment options for patients who have been diagnosed
with PAD includes angioplasty, bare metal stenting, bypass graft and
endarterectomy. The applicant asserts that the Zilver[supreg]
PTX[supreg] meets the substantial clinical improvement because it
decreases the recurrence of symptoms arising from restenotic SFA
lesions, the rate of subsequent diagnostic or therapeutic interventions
required to address restenotic lesions, and the number of future
hospitalizations.
The applicant cited a 480-patient, multicenter, multinational
randomized controlled trial that compared the Zilver[supreg]
PTX[supreg] to balloon angioplasty; an additional component of the
study allowed a direct comparison of the Zilver[supreg] PTX[supreg] to
a bare (uncoated) metal Zilver[supreg] stent. The primary safety
endpoint of the randomized controlled study was ``Event-Free Survival''
(EFS), defined as ``freedom from the major adverse events of death,
target lesion revascularization, target limb ischemia requiring
surgical intervention or surgical repair of the target vessel, and
freedom of worsening systems as described by the Rutherford
classification by 2 classes or to class 5 or 6.'' The primary
effectiveness endpoint was primary patency (defined as a less than 50
percent renarrowing).
The applicant noted that the Zilver[supreg] PTX[supreg] had an EFS
of 90.4 percent compared to balloon angioplasty, which had an EFS of
83.9 percent, demonstrating that the Zilver[supreg] PTX[supreg] is as
safe or safer than balloon angioplasty. In addition, the applicant
noted that the Zilver[supreg] PTX[supreg] demonstrated a 50-percent
reduction in restenosis rates compared to angioplasty and a 20-percent
reduction compared to bare metal stents. The 12-month patency rate

[[Page 27943]]

for the Zilver[supreg] PTX[supreg] was 83.1 percent, which compared
favorably to the balloon angioplasty patency rate of 32.8 percent. In
the provisional stenting arm of the study, which allowed a direct
comparison of the Zilver[supreg] PTX[supreg] and a bare metal stent,
the Zilver[supreg] PTX[supreg] primary patency exceeded the bare metal
stent patency by nearly 20 percent (89.9 percent versus 73.0 percent).
The applicant stated that these differences are significant, as they
result in a substantial clinical improvement compared to angioplasty
and bare metal stenting, with patients being spared a recurrence of
their leg pain and the need to be admitted to the hospital for repeat
procedures on these treated lesions.
The applicant also cited a prospective, multicenter, multinational,
787-patient single arm study on the Zilver[supreg] PTX[supreg] that
demonstrated similar safety and effectiveness results consistent with
those from the pivotal randomized controlled study above. The applicant
cited an EFS for the Zilver[supreg] PTX[supreg] of 89.0 percent and an
86.2 percent primary patency rate. The applicant stated that these
results confirm the safety and effectiveness of the Zilver[supreg]
PTX[supreg], and compare favorably to current results for angioplasty
and bare metal stenting. The applicant added that these results also
demonstrate a 67 to 81 percent relative reduction in Target Lesion
Revascularization (the need to retreat an already treated lesion that
has restenosed, resulting in a recurrence of symptoms) rates compared
to recently published results of contemporary bare metal stents.\30\
---------------------------------------------------------------------------

\30\ Dake, M. D., Scheinert, D., Tepe, G., Tessarek, J.,
Fanelli, F., Bosiers, M., et al. (2011). Nitinol stents with
polymer-free paclitaxel coating for lesions in the superficial
femoral and popliteal arteries above the knee: Twelve-month safety
and effectiveness results from the zilver PTX single-arm clinical
study. Journal of Endovascular Therapy, 18(5), 613-623.
---------------------------------------------------------------------------

We are inviting public comment regarding whether the Zilver[supreg]
PTX[supreg] meets the substantial clinical improvement criterion.
d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA)
Endovascular Graft
Cook[supreg] Medical submitted an application for new technology
add-on payments for the Zenith[supreg] Fenestrated Abdominal Aortic
Aneurysm (AAA) Endovascular Graft (Zenith[supreg] F. Graft) for FY
2013. The applicant stated that the current treatment for patients who
have had an AAA is an endovascular graft. The applicant explained that
the Zenith[supreg] F. Graft is an implantable device designed to treat
patients who have an AAA and who are anatomically unsuitable for
treatment with currently approved AAA endovascular grafts because of
the length of the infrarenal aortic neck. The applicant noted that,
currently, an AAA is treated through an open surgical repair or medical
management for those patients not eligible for currently approved AAA
endovascular grafts.
The applicant stated that the Zenith[supreg] F. Graft is custom-
made for each patient. It is a modular system consisting of three
components: a two-part main body graft and one iliac leg. The two-part
main body of the graft consists of a proximal tubular graft and a
distal bifurcated graft body. The proximal body graft contains
precisely located holes (fenestrations) and/or cut-outs from the
proximal margin (scallops) of the polyester graft material along with a
bare proximal stent with barbs to provide fixation. The iliac leg
component, which couples with the main bifurcated body, completes the
basic fenestrated endograft.
With respect to newness, the applicant stated that FDA approval for
the use of the Zenith[supreg] F. Graft was granted on April 4, 2012.
The technology is described by ICD-9-CM procedure code 39.78
(Endovascular implantation of branching or fenestrated graft(s) in
aorta), which became effective October 1, 2011. While procedure code
39.78 maps to MS-DRGs 252, 253, and 254 (Other Vascular Procedures with
MCC, with CC, and without MCC/CC, respectively), the applicant believes
that MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and
without MCC, respectively) would be a more appropriate assignment for
procedure code 39.78. (We note that in section III.G.3.b. of this
preamble, we discuss our response to the request for consideration of
MS-DRGs 237 and 238 as a more appropriate assignment for procedure code
39.78.) We are inviting public comment regarding whether the
Zenith[supreg] F. Graft meets the newness criterion for new technology
add-on payment.
With regard to the cost criterion, the applicant used clinical
trial data and three separate analyses of FY 2010 MedPAR data to
demonstrate that the Zenith[supreg] F. Graft meets the cost criteria.
The clinical trial data \31\ was based on 173 claims (all Medicare
patients except one patient). The applicant found that, of the 173
cases, 35 cases (or 20.2 percent of all cases) mapped to MS-DRG 252, 86
cases (or 49.7 percent of all cases) mapped to MS-DRG 253, and 52 cases
(or 30.1 percent of all cases) mapped to MS-DRG 254, equating to a
case-weighted average charge per case of $87,733.
---------------------------------------------------------------------------

\31\ Evaluation of the Safety and Effectiveness of the Zenith(R)
Fenestrated AAA Endovascular Graft, Zenith Fenestrated AAA
Endovascular Graft Pivotal Study, Clinicaltrials.gov: Identifier
NCT00875563 and a Physician Sponsored IDE.
---------------------------------------------------------------------------

The applicant noted that the investigational devices (the bare
metal renal stents that are used in the procedure and the
Zenith[supreg] F. Graft) were sold to the trial sites at reduced
prices. Therefore, the average charge per case cited above contains
reduced charges for the investigational devices rather than commercial
charges. As a result, the applicant believes it is necessary to remove
the reduced charges for the investigational devices and replace them
with commercial charges, in order to determine the cost of the
investigational devices for each of the three analyses. Although the
applicant submitted data related to the estimated cost of the
investigational devices, the applicant noted that the cost of these
devices was proprietary information.
To remove the reduced charges for the investigational devices, the
applicant searched the clinical trial claims data and removed those
charges with a revenue code of 0624 (investigational device exempt).
Because the claims data for the clinical trial ranged from 2002 to
2010, it was necessary to inflate the charges. Using data from the U.S.
Department of Labor Bureau of Labor Statistics (BLS) Consumer Price
Index, the applicant applied an inflation factor to the claim charges
ranging from 3 percent to 27 percent, depending on the year of the
claim. After inflating the charges, the applicant then added the
commercial charges of the investigational devices to the inflated
charge per case. To determine the amount of commercial charges related
to the investigational devices, the applicant divided the cost of the
investigational devices by the hospital-specific CCR from the FY 2012
IPPS Final Rule Impact File. After adding the charges of the
investigational devices to the inflated charges, the applicant then
standardized the charges on each claim. As a result, the applicant
determined a final case-weighted average standardized charge per case
of $122,821. Using the FY 2013 Table 10 thresholds, the case-weighted
threshold for MS-DRGs 252, 253, and 254 was $53,869 (all calculations
above were performed using unrounded numbers). Because the final case-
weighted average standardized charge per case for the applicable MS-
DRGs exceeds the case-weighted threshold amount, the applicant
maintains that the Zenith[supreg] F.

[[Page 27944]]

Graft meets the cost criterion for new technology add-on payment.
We note that, in addition to the analysis above, the applicant
conducted a similar cost analysis using drug eluting renal stents
instead of bare metal renal stents. The applicant noted that the price
of drug eluting renal stents exceeds the price of bare metal renal
stents by approximately $2,200 per stent. Therefore, the applicant
asserted that if the price of drug eluting renal stents is more
expensive than bare metal renal stents and the Zenith[supreg] F. Graft
meets the cost criteria with bare metal renal stents, the
Zenith[supreg] F. Graft also meets the cost criteria when the applicant
uses drug eluting renal stents in its analysis.
As mentioned above, the applicant conducted three separate analyses
using FY 2010 MedPAR data to identify cases eligible for the
Zenith[supreg] F. Graft to demonstrate that it meets the cost
criterion. Cases of endovascular implantation of branching or
fenestrated graft(s) in the aorta are coded with procedure code 39.78,
which currently map to MS-DRGs 252, 253, and 254. Because procedure
code 39.78 was effective October 1, 2011, the applicant noted that it
was unable to conduct a MedPAR data analysis with claims that contained
a procedure code of 39.78. Therefore, in order to identify cases
eligible for the Zenith[supreg] F. Graft prior to October 1, 2011, the
applicant searched the MedPAR file for the following three scenarios.
The first analysis searched the FY 2010 MedPAR file for cases with
procedure code 39.71 (Endovascular implantation of graft in abdominal
aorta) in combination with a diagnosis code of 441.4 (Abdominal
aneurysm without mention of rupture). The applicant conducted this
analysis using MS-DRGs 237 and 238 rather than MS-DRGs 252, 253, and
254 because procedure code 39.71 maps to MS-DRGs 237 and 238. The
applicant found 1,679 cases (or 9.1 percent of all cases) in MS-DRG 237
and 16,793 cases (or 90.9 percent of all cases) in MS-DRG 238. The
average charge per case was $122,252 for MS-DRG 237 and $76,883 for MS-
DRG 238, equating to a case-weighted average charge per case of
$81,006.
The applicant noted that these MedPAR claims data included charges
for the existing stent graft but did not include charges for the
Zenith[supreg] F. Graft. Therefore, the applicant stated that it was
first necessary to remove the amount of charges related to the existing
stent graft and replace them with charges for the Zenith[supreg] F.
Graft. Although the applicant submitted data related to the estimated
cost of the existing stent graft and the Zenith[supreg] F. Graft, the
applicant noted that the cost of these devices was proprietary
information.
To determine the amount of charges for the existing stent graft,
the applicant divided the costs for the existing stent graft by the
national average CCR of 0.329 for supplies and equipment (76 FR 51571).
The applicant removed the appropriate amount of charges per case from
the average charge per case. Because the applicant used FY 2010 MedPAR
data, it was necessary to inflate the charges from FY 2010 to FY 2012.
Using data from the BLS' Consumer Price Index, the applicant inflated
the case-weighted average standardized charge per case with an
inflation factor of 4 percent. The applicant then determined the amount
of charges for the Zenith[supreg] F. Graft by dividing the costs of the
Zenith[supreg] F. Graft by the national average CCR of 0.329 for
supplies. The applicant then added the amount of charges related to the
Zenith[supreg] F. Graft to the inflated charges and then standardized
the charges. The applicant determined a final case-weighted average
standardized charge per case of $80,509. Using the FY 2013 Table 10
thresholds, the case-weighted threshold for MS-DRGs 237and 238 was
$72,512 (all calculations above were performed using unrounded
numbers). Because the final case-weighted average standardized charge
per case for the applicable MS-DRGs exceeds the case-weighted threshold
amount under this first analysis, the applicant maintains that the
Zenith[supreg] F. Graft meets the cost criterion for new technology
add-on payment. The applicant noted that the FY 2013 Table 10
thresholds for MS-DRGs 237 and 238 are much higher than the FY 2013
Table 10 thresholds for MS-DRGs 252, 253, and 254. Therefore, the
applicant believes that if the final case-weighted average standardized
charge per case exceeds the case-weighted threshold for MS-DRGs 237 and
238, it would exceed any case-weighted threshold for MS-DRGs 252, 253,
and 254.
For their second analysis, the applicant searched the FY 2010
MedPAR file for cases with procedure code 38.44 (Resection of vessel
with replacement, aorta) in combination with a diagnosis code of 441.4.
Similar to the first analysis, the applicant conducted this analysis
using MS-DRGs 237 and 238 rather than MS-DRGs 252, 253, and 254 because
procedure code 38.44 maps to MS-DRGs 237 and 238. The applicant found
1,310 cases (or 37.9 percent of all cases) in MS-DRG 237 and 2,145
cases (or 62.1 percent of all cases) in MS-DRG 238. The average charge
per case was $110,708 for MS-DRG 237 and $64,095 for MS-DRG 238,
equating to a case-weighted average charge per case of $81,769.
The next steps of the applicant's second analysis were similar to
the steps in the first analysis. The applicant noted that the MedPAR
claims data included charges for the vascular graft for open procedures
but did not include charges for the Zenith[supreg] F. Graft. Therefore,
the applicant indicated that it was first necessary to remove the
amount of charges related to the vascular graft for open procedures and
replace them with charges for the Zenith[supreg] F. Graft. Although the
applicant submitted data related to the estimated cost of the vascular
graft for open procedures and the Zenith[supreg] F. Graft, the
applicant noted that the cost of these devices was proprietary
information.
To determine the amount of charges for the vascular graft for open
procedures, the applicant divided the costs for the vascular graft for
open procedures by the national average CCR of 0.329 for supplies and
equipment (76 FR 51571). The applicant removed the appropriate amount
of charges per case from the average charge per case. Similar to the
first analysis, the applicant inflated the case-weighted average charge
per case with an inflation factor of 4 percent (based on data from the
BLS' Consumer Price Index). The applicant then determined the amount of
charges for the Zenith[supreg] F. Graft by dividing the costs of the
Zenith[supreg] F. Graft by the national average CCR of 0.329 for
supplies. The applicant then added the amount of charges related to the
Zenith[supreg] F. Graft to the inflated charges and then standardized
the charges. The applicant determined a final case-weighted average
standardized charge per case of $118,774. Using the FY 2013 Table 10
thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was
$81,776 (all calculations above were performed using unrounded
numbers). Because the final case-weighted average standardized charge
per case for the applicable MS-DRGs exceeds the case-weighted threshold
amount in this second analysis, the applicant maintains that the
Zenith[supreg] F. Graft meets the cost criterion for new technology
add-on payments. As discussed above, the applicant noted that the FY
2013 Table 10 thresholds for MS-DRGs 237 and 238 are much higher
($101,728 for MS-DRG 237 and $69,591 for MS-DRG 238) than the FY 2013
Table 10 thresholds for MS-DRGs 252, 253, and 254 ($60,619 for MS-DRG
252, $56,719 for MS-DRG 253 and $44,611 for MS-DRG 254).

[[Page 27945]]

Therefore, the applicant believes that if the final case-weighted
average standardized charge per case exceeds the case-weighted
threshold for MS-DRGs 237 and 238, it would exceed any case-weighted
threshold for MS-DRGs 252, 253, and 254.
While the applicant removed charges for the vascular graft for open
procedures, we are concerned that the applicant did not remove charges
for other services such as extra operating room time and other possible
charges that would be incurred during an open procedure but would
possibly not be incurred during cases when the Zenith[supreg] F. Graft
is implanted.
The third analysis was a combination of the first and second
analyses discussed above. The applicant searched the FY 2010 MedPAR
file for cases with a procedure code of 38.44 or 39.71 in combination
with a diagnosis code of 441.4. Similar to the first and second
analyses, the applicant conducted this analysis using MS-DRGs 237 and
238 rather than MS-DRGs 252, 253, and 254 because both procedure codes
map to MS-DRGs 237 and 238. The applicant found 2,981 cases (or 13.6
percent of all cases) in MS-DRG 237 and 18,928 cases (or 86.4 percent
of all cases) in MS-DRG 238. The applicant removed those cases that had
both procedure codes 38.44 and 39.71 on the claim. The average charge
per case was $116,826 for MS-DRG 237 and $75,298 for MS-DRG 238,
equating to a case-weighted average charge per case of $80,948.
The applicant noted that the MedPAR claims data included charges
for the existing stent graft or vascular graft for open procedures but
did not include charges for the Zenith[supreg] F. Graft. Therefore, the
applicant stated that it was first necessary to remove the amount of
charges related to the existing stent graft or vascular graft for open
procedures and replace them with charges for the Zenith[supreg] F.
Graft. Similar to the first and second analyses, to determine the
amount of charges for the existing stent graft or vascular graft for
open procedures, the applicant divided the costs for these devices by
the national average CCR of 0.329 for supplies and equipment (76 FR
51571). The applicant removed the appropriate amount of charges per
case from the average charge per case. The applicant inflated the case-
weighted average standardized charge per case with an inflation factor
of 4 percent (based on data from the BLS' Consumer Price Index). The
applicant then determined the amount of charges for the Zenith[supreg]
F. Graft by dividing the costs of the Zenith[supreg] F. Graft by the
national average CCR of 0.329 for supplies. The applicant then added
the amount of charges related to the Zenith[supreg] F. Graft to the
inflated charges and then standardized the charges. As a result, the
applicant determined a final case-weighted average standardized charge
per case of $86,081. Using the FY 2013 Table 10 thresholds, the case-
weighted threshold for MS-DRGs 237 and 238 was $73,964 (all
calculations above were performed using unrounded numbers). Because the
final case-weighted average standardized charge per case for the
applicable MS-DRGs exceeds the case-weighted threshold amount, the
applicant maintains that the Zenith[supreg] F. Graft meets the cost
criterion for new technology add-on payment. As discussed above, the
applicant noted that the FY 2013 Table 10 thresholds for MS-DRGs 237
and 238 are much higher than the FY 2013 Table 10 thresholds for MS-
DRGs 252, 253, and 254. The applicant believes that if the final case-
weighted average standardized charge per case exceeds the case-weighted
threshold for MS-DRGs 237-238, it would exceed any case-weighted
threshold for MS-DRGs 252, 253, and 254.
Similar to our concerns with the second analysis, we are concerned
that for this third analysis the applicant did not remove charges for
other services such as extra operating room time and other possible
charges that would be incurred during an open procedure, but would
possibly not be incurred during cases when the Zenith[supreg] F. Graft
is implanted.
We appreciate the multiple analyses of the FY 2010 MedPAR data
provided by the applicant and are inviting public comment on whether or
not the Zenith[supreg] F. Graft meets the cost criterion for new
technology add-on payments. In addition, we are inviting public comment
on the methodologies used by the applicant, specifically on whether and
the degree to which the second and third analyses may contain charges
not relevant to the final case-weighted standardized charge per case
determined by the applicant.
The applicant maintains that the technology also meets the
substantial clinical improvement criterion. The applicant first
explained that current treatment for those patients who are not
eligible for standard endovascular AAA devices is an open repair. The
applicant referenced data from a published series \32\ that
demonstrated an open repair can lead to a high risk of morbidity and
increased mortality. The applicant added that an open procedure
requires suprarenal aortic cross-clamping.\33\ The applicant also noted
that there is a high risk of blood loss during an open procedure and
the de-branching of vessels increases the level of surgical risk. The
applicant further noted that 30 to 40 percent of patients who have an
infrarenal AAA cannot be treated with current commercial devices
because of anatomical reasons (for example, insufficient neck length to
achieve graft adequate seal). The applicant added that use of standard
endografts in patients with neck lengths less than 10 mm can result in
a fourfold increase in an endoleak.\34\
---------------------------------------------------------------------------

\32\ Wilderman, M. et al. Fenestrated Grafts or Debranching
Procedures for Complex Abdominal Aortic Aneurysms. Perspectives in
Vascular Surgery and Endovascular Therapy, March 2009; 21(1): 13-18.
\33\ Jongkind V, Yeung K, et al. Juxtarenal aortic aneurysm
repair. Journal of Vascular Surgery 2010 Sept; 29(3) 760-767.
\34\ Amiot, S., et al., Fenestrated endovascular grafting: The
French multicentre experience. Eur J Vasc Endovasc Surg, 2010.
39(5): p. 537-44.
---------------------------------------------------------------------------

The applicant also stated that the intended use of the
Zenith[supreg] F. Graft differs from standard AAA endovascular grafts
in that the fenestrated device provides physicians the ability to treat
patients who have infrarenal aortic neck lengths as short as 4 mm,
where standard endovascular AAA devices require an infrarenal aortic
neck length of at least 10 to 15 mm. Therefore, the applicant believes
that the Zenith[supreg] F. Graft offers an additional AAA repair option
to those patients who have limited surgical treatment options (for
example, if short infrarenal neck lengths make the patients at too high
a risk to be candidates for open surgical repair).
The applicant also stated, for patients who have AAAs and short
infrarenal neck lengths, the Zenith[supreg] F. Graft offers a less
invasive treatment option than open surgical repair. The applicant
referred to several sources of literature to support the following
endpoints for fenestrated endovascular aortic repair (EVAR) versus open
repair of the juxtarenal AAA relative to open repair of the juxtarenal
AAA: Reduced peri-operative mortality (2.4 percent (range: 0 to 5.7
percent)) \35,36,37,38,39,40,41,42,43\

[[Page 27946]]

reported for fenestrated EVAR repairs versus 2.9 percent (range 0 to
7.4 percent) \44,45\ reported for open repair of juxtarenal AAA); \46\
reduced morbidity by reducing renal failure requiring permanent
dialysis (1.9 percent (pooled average) for fenestrated EVAR repairs
versus 3.4 percent reported for open repair of juxtarenal AAA); shorter
hospital stay and less operative blood loss to open repair. The
applicant maintains that fenestrated EVAR repair results in an average
length of stay of 3.5 days, compared to 14.2 days for open repair of
juxtarenal AAA, and blood loss of 537 ml, compared to 2586 ml for open
repair of juxtarenal AAA.
---------------------------------------------------------------------------

\35\ Nordon, I.M., et al., Modern treatment of juxtarenal
abdominal aortic aneurysms with fenestrated endografting and open
repair--a systematic review. Eur J Vasc Endovasc Surg, 2009. 38(1):
p. 35-41
\36\ Verhoeven, E.L., et al., Fenestrated stent grafting for
short-necked and juxtarenal abdominal aortic aneurysm: An 8-year
single-centre experience. Eur J Vasc Endovasc Surg, 2010. 39(5): p.
529-36.
\37\ Chisci E, Kristmundsson T, de Donato G, et al. The AAA with
a challenging neck: Outcome of open versus endovascular repair with
standard and fenestrated stent-grafts. J Endovasc Ther 2009;16:137-
146.
\38\ Amiot, S., et al., Fenestrated endovascular grafting: The
French multicentre experience. Eur J Vasc Endovasc Surg, 2010.
39(5): p. 537-44.
\39\ Kristmundsson T, Sonesson B, Malina M, et al. Fenestrated
endovascular repair for juxtarenal aortic pathology. J Vasc Surg
2009;49:568-574.
\40\ Beck AW, Bos WT, Vourliotakis G, et al. Fenestrated and
branched endograft repair of juxtarenal aneurysms after previous
open aortic reconstruction. J Vasc Surg 2009;49:1387-1394.
\41\ Tambyraja, A.L., et al., Fenestrated aortic endografts for
juxtarenal aortic aneurysm: Medium term outcomes. Eur J Vasc
Endovasc Surg, 2011. 42(1): p. 54-8.
\42\ Unpublished results, Evaluation of the Safety and
Effectiveness of the Zenith(R) Fenestrated AAA Endovascular Graft,
Zenith Fenestrated AAA Endovascular Graft Pivotal Study,
Clinicaltrials.gov identifier NCT00875563.
\43\ Unpublished results, British Society of Endovascular
Therapy-sponsored GlobalStar Collaborative Study.
\44\ Jongkind V, Yeung K, et al. Juxtarenal aortic aneurysm
repair. J. Vasc. Surg. 2010 Sept; 29(3) 760-767.
\45\ Landry G, Lau I, Liem T, Mitchell E, Moneta G.. Open
abdominal aortic aneurysm repair in the endovascular era: Effect of
clamp site on outcomes. Arch. Surg., 144 (9) Sep. 2009, 811-6.
---------------------------------------------------------------------------

We note that the information provided by the applicant to evaluate
substantial clinical improvement compares this technology to open
surgical repair. We are concerned that the applicant does not present
publicly available information comparing the technology to medical
management, which the applicant mentions as another method for treating
patients anatomically unsuited for currently approved AAA endovascular
grafts. In these comparisons, we are also concerned that information
regarding the longevity of the Zenith[supreg] F. Graft as well as long-
term complications and secondary interventions or reinterventions has
not been presented. In terms of the data presented by the applicant, we
are concerned that these clinical study data were nonrandomized, did
not differentiate between patients by infrarenal neck length and/or
suitability for other endovascular grafts, and were of noninferiority.
We are inviting public comment on whether or not the Zenith[supreg] F.
Graft meets the substantial clinical improvement criterion.

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

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary must adjust the standardized amounts ``for area differences
in hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level.'' In
accordance with the broad discretion conferred under the Act, we
currently define hospital labor market areas based on the delineations
of statistical areas established by the Office of Management and Budget
(OMB). A discussion of the proposed FY 2013 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 proposed adjustment for
FY 2013 is discussed in section II.B. of the Addendum to this proposed
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 proposed budget neutrality
adjustment for FY 2013 is discussed in section II.A.4.b. of the
Addendum to this proposed rule.
Section 1886(d)(3)(E) of the Act also provides for the collection
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in
order to construct an occupational mix adjustment to the wage index. A
discussion of the occupational mix adjustment that we are proposing to
apply beginning October 1, 2012 (the FY 2013 wage index) appears under
section III.F. of this preamble.
In response to concerns frequently expressed by providers and other
relevant parties that the current wage index system does not
effectively reflect the true variation in labor costs for a large
cross-section of hospitals, two studies were undertaken by the
Department. First, section 3137(b) of the Affordable Care Act required
the Secretary to submit to Congress a report that includes a plan to
comprehensively reform the Medicare wage index applied under section
1886(d) of the Act. In developing the plan, the Secretary was directed
to take into consideration the goals for reforming the wage index that
were set forth by the Medicare Payment Advisory Commission (MedPAC) in
its June 2007 report entitled ``Report to Congress: Promoting Greater
Efficiency in Medicare'' and to ``consult with relevant affected
parties.'' Second, the Secretary commissioned the Institute of Medicine
(IOM) to ``evaluate hospital and physician geographic payment
adjustments, the validity of the adjustment factors, measures and
methodologies used in those factors, and sources of data used in those
factors.'' Reports on both of these studies recently have been
released. We refer readers to section IX.B. of this preamble for
summaries of the studies, their findings, and recommendations on
reforming the wage index system.

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
delineations of CBSAs and our implementation of the CBSA definitions,
we refer readers to the preamble of the FY 2005 IPPS final rule (69 FR
49026 through 49032). We also discussed in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51582) that, in 2013, OMB plans to announce new area
delineations based on new standards adopted in 2010 (75 FR 37246) and
the

[[Page 27947]]

2010 Census of Population and Housing data. For the FY 2013 wage index,
to be effective October 1, 2012 and before the availability of OMB's
new area delineations, we are proposing to use the same labor market
areas that we used for the FY 2012 wage index (76 FR 51581).

C. Worksheet S-3 Wage Data for the FY 2013 Proposed Wage Index

The FY 2013 proposed wage index values are based on the data
collected from the Medicare cost reports submitted by hospitals for
cost reporting periods beginning in FY 2009 (the FY 2012 wage indices
were based on data from cost reporting periods beginning during FY
2008).
1. Included Categories of Costs
The FY 2013 proposed 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 pension costs (based on
policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586
through 51590) and other deferred compensation costs.
2. Excluded Categories of Costs
Consistent with the wage index methodology for FY 2012, the
proposed wage index for FY 2013 also excludes the direct and overhead
salaries and hours for services not subject to IPPS payment, such as
SNF services, home health services, costs related to GME (teaching
physicians and residents) and certified registered nurse anesthetists
(CRNAs), and other subprovider components that are not paid under the
IPPS. The proposed FY 2013 wage index also excludes the salaries,
hours, and wage-related costs of hospital-based rural health clinics
(RHCs), and Federally qualified health centers (FQHCs) because Medicare
pays for these costs outside of the IPPS (68 FR 45395). In addition,
salaries, hours, and wage-related costs of CAHs are excluded from the
wage index, for the reasons explained in the FY 2004 IPPS final rule
(68 FR 45397).
3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals
Under the IPPS
Data collected for the IPPS wage index are also currently used to
calculate wage indices applicable to other providers, such as SNFs,
home health agencies (HHAs), and hospices. In addition, they are used
for prospective payments to IRFs, IPFs, and LTCHs, and for hospital
outpatient services. We note that, in the IPPS rules, we do not address
comments pertaining to the wage indices for non-IPPS providers, other
than for LTCHs. Such comments should be made in response to separate
proposed rules for those providers.

D. Verification of Worksheet S-3 Wage Data

The wage data for the FY 2013 proposed 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, 2008, and
before October 1, 2009. For wage index purposes, we refer to cost
reports during this period as the ``FY 2009 cost report,'' the ``FY
2009 wage data,'' or the ``FY 2009 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 2009 data submitted to us as of
March 2, 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 FY 2013
proposed wage index, we identified and excluded 32 providers with data
that was too aberrant to include in the proposed wage index, although
if data elements for some of these providers are corrected, we intend
to include some of these providers in the FY 2013 final wage index. We
instructed fiscal intermediaries/MACs to complete their data
verification of questionable data elements and to transmit any changes
to the wage data no later than April 11, 2012. We intend that all
unresolved data elements will be resolved by the date the final rule is
issued. The revised data will be reflected in the FY 2013 IPPS final
rule.
In constructing the FY 2013 proposed wage index, we included the
wage data for facilities that were IPPS hospitals in FY 2009, inclusive
of those facilities that have since terminated their participation in
the program as hospitals, as long as those data did not fail any of our
edits for reasonableness. We believe that including the wage data for
these hospitals is, in general, appropriate to reflect the economic
conditions in the various labor market areas during the relevant past
period and to ensure that the current wage index represents the labor
market area's current wages as compared to the national average of
wages. However, we excluded the wage data for CAHs as discussed in the
FY 2004 IPPS final rule (68 FR 45397). For this proposed rule, we
removed 7 hospitals that converted to CAH status between February 15,
2011, the cut-off date for CAH exclusion from the FY 2012 wage index,
and February 14, 2012, the cut-off date for CAH exclusion from the FY
2013 wage index. After removing hospitals with aberrant data and
hospitals that converted to CAH status, the proposed FY 2013 wage index
is calculated based on 3,443 hospitals.
For the FY 2013 proposed wage index, we allotted the wages and
hours data for a multicampus hospital among the different labor market
areas where its campuses are located in the same manner we allotted
such hospitals' data in the FY 2012 wage index (76 FR 51591). Table 2
containing the FY 2013 proposed wage index associated with this
proposed rule (available on the CMS Web site) includes separate wage
data for the campuses of four multicampus hospitals.

E. Method for Computing the Proposed FY 2013 Unadjusted Wage Index

The method used to compute the FY 2013 proposed wage index without
an occupational mix adjustment follows the same methodology that we
used to compute the FY 2012 final wage index without an occupational
mix adjustment (76 FR 51591 through 51593).
As discussed in that final rule, in ``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, 2008, through April 15, 2010, for private industry
hospital workers from the BLS' Compensation and Working Conditions. We
have consistently used the ECI as the data source for our wages and
salaries and other price proxies in the IPPS market basket, and we are
not proposing any changes to the usage for FY 2013. The factors used to
adjust the hospital's data were based on the midpoint of the cost
reporting period, as indicated below.

[[Page 27948]]

Midpoint of Cost Reporting Period
------------------------------------------------------------------------
Adjustment
After Before factor
------------------------------------------------------------------------
10/14/2008.............................. 11/15/2008 1.03003
11/14/2008.............................. 12/15/2008 1.02786
12/14/2008.............................. 01/15/2009 1.02582
01/14/2009.............................. 02/15/2009 1.02386
02/14/2009.............................. 03/15/2009 1.02199
03/14/2009.............................. 04/15/2009 1.02014
04/14/2009.............................. 05/15/2009 1.01826
05/14/2009.............................. 06/15/2009 1.01635
06/14/2009.............................. 07/15/2009 1.01446
07/14/2009.............................. 08/15/2009 1.01263
08/14/2009.............................. 09/15/2009 1.01086
09/14/2009.............................. 10/15/2009 1.00910
10/14/2009.............................. 11/15/2009 1.00728
11/14/2009.............................. 12/15/2009 1.00539
12/14/2009.............................. 01/15/2010 1.00352
01/14/2010.............................. 02/15/2010 1.00172
02/14/2010.............................. 03/15/2010 1.00000
03/14/2010.............................. 04/15/2010 0.99830
------------------------------------------------------------------------

For example, the midpoint of a cost reporting period beginning
January 1, 2009, and ending December 31, 2009, is June 30, 2009. An
adjustment factor of 1.01446 would be applied to the wages of a
hospital with such a cost reporting period.
Using the data as described above and in the FY 2012 IPPS-LTCH PPS
final rule, the FY 2013 proposed national average hourly wage
(unadjusted for occupational mix) is $37.4023. The proposed Puerto Rico
overall average hourly wage (unadjusted for occupational mix) is
$15.8467.

F. Proposed Occupational Mix Adjustment to the FY 2013 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 2013 Proposed Occupational Mix
Adjustment Based on the 2010 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.
As discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582
through 51586), the FY 2013 proposed wage index is based on data
collected on the new 2010 Medicare Wage Index Occupational Mix Survey
(Form CMS-10079 (2010)). 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 was
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.
2. Calculation of the Proposed Occupational Mix Adjustment for FY 2013
For FY 2013, we are proposing to calculate the occupational mix
adjustment factor using the same methodology that we used for the FY
2012 wage index (76 FR 51582 through 51586). As a result of applying
this methodology, the FY 2013 proposed occupational mix adjusted
national average hourly wage is $37.3721. The FY 2013 proposed
occupational mix adjusted Puerto Rico-specific average hourly wage is
$15.8838.
Because the occupational mix adjustment is required by statute, all
hospitals that are subject to payments under the IPPS, or any hospital
that would be subject to the IPPS if not granted a waiver, must
complete the occupational mix survey, unless the hospital has no
associated cost report wage data that are included in the proposed FY
2013 wage index. For the FY 2010 survey, the response rate was 91.7
percent. In the FY 2013 proposed wage index established in this
proposed rule, we applied proxy data for noncompliant hospitals, new
hospitals, or hospitals that submitted erroneous or aberrant data in
the same manner that we applied proxy data for such hospitals in the FY
2012 wage index occupational mix adjustment (76 FR 51586).
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 was
effective beginning with the new 2010 occupational mix survey. We
instructed fiscal intermediaries/MACs to begin gathering this
information as part of the FY 2013 wage index desk review process. We
will review these data for future analysis and consideration of
potential penalties for noncompliant hospitals.

[[Page 27949]]

G. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2013 Occupational Mix Adjusted Wage
Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix
Adjusted Wage Index
As discussed in section III.F. of this preamble, for FY 2013, we
are proposing to apply the occupational mix adjustment to 100 percent
of the proposed FY 2013 wage index. We calculated the proposed
occupational mix adjustment using data from the 2010 occupational mix
survey data, using the methodology described in the FY 2012 IPPS-LTCH
PPS final rule (76 FR 51582 through 51586).
Using the occupational mix survey data and applying the
occupational mix adjustment to 100 percent of the FY 2013 wage index
results in a proposed national average hourly wage of $37.3721 and a
proposed Puerto-Rico specific average hourly wage of $15.8838. After
excluding data of hospitals that either submitted aberrant data that
failed critical edits, or that do not have FY 2009 Worksheet S-3, Parts
II and III, cost report data for use in calculating the proposed FY
2013 wage index, we calculated the proposed FY 2013 wage index using
the occupational mix survey data from 3,443 hospitals. Using the
Worksheet S-3, Parts II and III, cost report data of 3,443 hospitals
and occupational mix survey data from 3,157 hospitals represents a 91.7
percent survey response rate. The proposed FY 2013 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............................................ 37.362735568
National LPN and Surgical Technician................... 21.762566488
National Nurse Aide, Orderly, and Attendant............ 15.312800678
National Medical Assistant............................. 17.240367808
National Nurse Category................................ 31.807020884
------------------------------------------------------------------------

The proposed national average hourly wage for the entire nurse
category as computed in Step 5 of the occupational mix calculation is
$31.807020884. 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 2010 occupational mix survey data, we determined (in
Step 7 of the occupational mix calculation) that the national
percentage of hospital employees in the nurse category is 43.34
percent, and the national percentage of hospital employees in the all
other occupations category is 56.66 percent. At the CBSA level, the
percentage of hospital employees in the nurse category ranged from a
low of 27.03 percent in one CBSA, to a high of 59.70 percent in another
CBSA.
We also compared the FY 2013 wage data adjusted for occupational
mix from the 2010 survey to the FY 2013 wage data adjusted for
occupational mix from the 2007-2008 survey. This analysis illustrates
the effect on area wage indices of using the 2010 survey data compared
to the 2007-2008 survey data; that is, it shows whether hospitals' wage
indices are increasing or decreasing under the current survey data as
compared to the prior survey data. Our analysis shows that the FY 2013
wage index values for 190 (48.6 percent) urban areas and 18 (37.5
percent) rural areas will increase. Fifty (12.8 percent) urban areas
will increase by 1 percent or more, and no urban areas will increase by
5 percent or more. Three (6.3 percent) rural areas will increase by 1
percent or more, and no rural areas will increase by 5 percent or more.
However, the wage index values for 197 (50.4 percent) urban areas and
30 (62.5 percent) rural areas will decrease using the 2010 data. Sixty-
four (16.4 percent) urban areas will decrease by 1 percent or more, and
no urban areas will decrease by 5 percent or more. Three (6.3 percent)
rural areas will decrease by 1 percent or more, and no rural areas will
decrease by 5 percent or more. The largest positive impacts using the
2010 data compared to the 2007-2008 data are 4.37 percent for an urban
area and 3.24 percent for a rural area. The largest negative impacts
are 4.86 percent for an urban area and 2.28 percent for a rural area.
Four urban areas and no rural areas will be unaffected. These results
indicate that the wage indices of more CBSAs overall (51.7 percent)
will be decreasing due to application of the 2010 occupational mix
survey data as compared to the 2007-2008 survey data to the wage index.
Further, a larger percentage of urban areas (48.6 percent) will benefit
from the 2010 occupational mix survey as compared to the 2007-2008
survey than will rural areas (37.5 percent).
We compared the proposed FY 2013 occupational mix adjusted wage
indices for each CBSA to the proposed unadjusted wage indices for each
CBSA. As a result of applying the occupational mix adjustment to the
wage data, the proposed wage index values for 207 (52.9 percent) urban
areas and 32 (66.7 percent) rural areas would increase. One hundred
seventeen (29.9 percent) urban areas would increase by 1 percent or
more, and 3 (0.77 percent) urban areas would increase by 5 percent or
more. Fourteen (29.2 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 184 (47.1 percent) urban areas and
15 (31.3 percent) rural areas would decrease. Eighty-five (21.7
percent) urban areas would decrease by 1 percent or more, and one urban
area would decrease by 5 percent or more (0.26 percent). 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 6.71 percent for an urban area and 3.10 percent for a rural area.
The largest negative impacts are 5.22 percent for an urban area and
3.10 percent for a rural area. No urban areas are unaffected, but one
rural area is 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 (52.9 percent). While
these results are more positive overall for rural areas than under the
previous occupational mix adjustment that used survey data from 2007-
2008, approximately one-third (31.3 percent) of rural CBSAs would still
experience a decrease in their wage indices as a result of the
occupational mix adjustment.
2. Application of the Rural, Imputed, and Frontier Floors
a. Rural Floor
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. This provision is referred to as the ``rural floor.''
Section 3141 of Public Law 111-148 also requires that a national budget
neutrality adjustment be applied in implementing the rural floor. In
the FY 2013 proposed wage index associated with this proposed rule and
available on the CMS Web site, 393 hospitals are receiving an increase
in their FY 2013 proposed wage index due to the application of the
rural floor.

[[Page 27950]]

b. Imputed Floor and Proposal for an Alternative, Temporary Methodology
for Computing the Imputed Floor
In the FY 2005 IPPS final rule (69 FR 49109), we adopted the
``imputed floor'' policy as a temporary 3-year regulatory measure to
address concerns from hospitals in all-urban States that have argued
that they are disadvantaged by the absence of rural hospitals to set a
wage index floor for those States. Since its initial implementation, we
have extended the imputed floor policy three times, with the latest
extension being set to expire on September 30, 2013 (we refer readers
to the discussion in the FY 2012 IPPS/LTCH PPS final rule (76 FR
51593)). There are currently two all-urban States, New Jersey and Rhode
Island, that have a range of wage indices assigned to hospitals in the
State, including through reclassification or redesignation (we refer
readers to discussions of geographic reclassifications and
redesignations in section III.H. of this preamble). However, as we
explain below, the current method for computing the imputed floor
benefits only New Jersey, and not Rhode Island.
The current methodology for computing the imputed floor is
contained in our regulations at 42 CFR 412.64(h)(4). In computing the
imputed floor, we calculate the ratio of the lowest-to-highest CBSA
wage index for each all-urban State (that is, New Jersey and Rhode
Island) as well as the average of the ratios of lowest-to-highest CBSA
wage indices of those all-urban States. We compare the State's own
ratio to the average ratio and whichever is higher is multiplied by the
highest CBSA wage index value in the State--the product of which
establishes the imputed floor for the State. Rhode Island has only one
CBSA (Providence-New Bedford-Fall River, RI-MA); therefore, Rhode
Island's own ratio equals 1.0, and its imputed floor is equal to its
original CBSA wage index value. Conversely, New Jersey has 10 CBSAs. As
the average ratio of New Jersey and Rhode Island is higher than New
Jersey's own ratio, the current methodology provides a benefit for New
Jersey.
For the FY 2013 wage index, the final year of the extension of the
imputed floor policy under Sec. 412.64(h)(4), we are proposing an
alternative, temporary methodology for computing the imputed floor wage
index to address the concern that the current imputed floor methodology
guarantees a benefit for one all-urban State with multiple wage indices
but cannot benefit the other. This proposed alternative methodology for
calculating the imputed floor would be established using empirical data
from the application of the rural floor policy for FY 2013. Under this
proposal, we would first determine the average percentage difference
between the post-reclassified, pre-floor area wage index and the post-
reclassified, rural floor wage index (without rural floor budget
neutrality applied) for all CBSAs receiving the rural floor. (Table 4D
associated with this proposed rule and available on the CMS Web site
includes the CBSAs receiving a State's rural floor wage index.) The
lowest post-reclassified wage index assigned to a hospital in an all-
urban State having a range of such values would then be increased by
this factor, the result of which would establish the State's
alternative imputed floor. We are proposing to amend Sec. 412.64(h)(4)
to add new paragraphs (v)(A) and (B) to incorporate this proposed
alternative methodology, and to make conforming references.
In addition, for the FY 2013 wage index, we are proposing no
changes to the current imputed floor methodology at Sec. 412.64(h)(4)
and, therefore, no changes to the New Jersey imputed floor computation
for FY 2013. Instead, for FY 2013, we are proposing a second,
alternative methodology that would be used in cases where an all-urban
State has a range of wage indices assigned to its hospitals, but the
State cannot benefit from the methodology in existing Sec.
412.64(h)(4). We intend to further evaluate the need, applicability,
and methodology for the imputed floor before the September 30, 2013
expiration of the imputed floor policy and address these issues in the
FY 2014 proposed rule.
The proposed wage index and impact tables associated with this FY
2013 proposed rule that are available on the CMS Web site include the
application of the imputed floor policy at Sec. 412.64(h)(4) and a
national budget neutrality adjustment for the imputed floor. There are
29 providers in New Jersey that would receive an increase in their FY
2013 proposed wage index due to the imputed floor policy. The proposed
wage index and impact tables for this proposed rule do not reflect the
application of the proposed second alternative methodology for
computing the imputed floor, which we anticipate would benefit four
hospitals in Rhode Island.
c. Frontier Floor
Section 10324 of Public Law 111-148 requires that hospitals in
frontier States cannot be assigned a wage index of less than 1.0000 (we
refer readers to a discussion of the implementation of this provision
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160). Four States in
the FY 2013 proposed wage index are being treated as frontier States:
Montana, North Dakota, South Dakota, and Wyoming; 51 providers in these
States are receiving the frontier floor value of 1.0000 in the FY 2013
proposed wage index associated with this proposed rule. Although Nevada
is also, by definition, a frontier State and was assigned a frontier
floor value of 1.0000 for FY 2012, its FY 2013 proposed rural floor
value of 1.0293 is greater and, therefore, is the State's proposed
minimum wage index for FY 2013.
The areas affected by the rural, imputed, and frontier floor
policies for the FY 2013 proposed wage index are identified in Table 4D
associated with this proposed rule and available on the CMS Web site.
3. Proposed FY 2013 Wage Index Tables
The proposed wage index values for FY 2013 (except those for
hospitals receiving wage index adjustments under section 1886(d)(13) of
the Act), included in Tables 4A, 4B, 4C, and 4F, available on the CMS
Web site, include the proposed occupational mix adjustment, geographic
reclassification or redesignation as discussed in section III.H. of
this preamble, and the application of the rural, imputed, and frontier
State floors as discussed in section III.G.2. of this preamble.
Tables 3A and 3B, available on the CMS Web site, list the 3-year
average hourly wage for each labor market area before the redesignation
or reclassification of hospitals based on FYs 2007, 2008, and 2009 cost
reporting periods. Table 3A lists these data for urban areas, and Table
3B lists these data for rural areas. In addition, Table 2, which is
available on the CMS Web site, includes the adjusted average hourly
wage for each hospital from the FY 2007 and FY 2008 cost reporting
periods, as well as the FY 2009 period used to calculate the proposed
FY 2013 wage index. The 3-year averages are calculated by dividing the
sum of the dollars (adjusted to a common reporting period using the
method described previously) across all 3 years, by the sum of the
hours. If a hospital is missing data for any of the previous years, its
average hourly wage for the 3-year period is calculated based on the
data available during that period. The proposed average hourly wages in
Tables 2, 3A, and 3B, which are available on the CMS Web site, include
the proposed occupational mix adjustment. The proposed wage index
values in Tables 4A, 4B, 4C, and 4D also

[[Page 27951]]

include the proposed national rural and imputed floor budget neutrality
adjustment. The proposed wage index values in Table 2 also include the
proposed outmigration adjustment for eligible hospitals.

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

1. General Policies and Effects of Reclassification and Redesignation
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).)
The general policies for reclassifications and redesignations that we
are proposing for FY 2013, and the policies for the effects of
hospitals' reclassifications and redesignations on the wage index, are
the same as those discussed in the FY 2012 IPPS/LTCH PPS final rule for
the FY 2012 final wage index (76 FR 51595 and 51596). Also, in the FY
2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage
index of urban hospitals reclassifying to rural areas under 42 CFR
412.103. Hospitals that are geographically located in States without
any rural areas are ineligible to apply for rural reclassification
pursuant to 42 CFR 412.103.
2. FY 2013 MGCRB Reclassifications
a. FY 2013 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 regulations
under 42 CFR 412.230 through 412.280.
At the time this proposed rule was constructed, the MGCRB had
completed its review of FY 2013 reclassification requests. Based on
such reviews, there were 238 hospitals approved for wage index
reclassifications by the MGCRB for FY 2013. Because MGCRB wage index
reclassifications are effective for 3 years, for FY 2013, hospitals
reclassified during FY 2011 or FY 2012 are eligible to continue to be
reclassified to a particular labor market area based on such prior
reclassifications. There were 277 hospitals approved for wage index
reclassifications in FY 2011, and 255 hospitals approved for wage index
reclassifications in FY 2012. Of all of the hospitals approved for
reclassification for FY 2011, FY 2012, and FY 2013, based upon the
review at the time of this proposed rule, 770 hospitals are in a
reclassification status for FY 2013.
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. For information about withdrawing,
terminating, or canceling a previous withdrawal or termination of a 3-
year reclassification for wage index purposes, we refer readers 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 2013 will be incorporated
into the wage index values published in the FY 2013 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 2014
Applications for FY 2014 reclassifications are due to the MGCRB by
September 4, 2012 (the first working day of September 2012). 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 2012, via the Internet on the CMS 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.
3. 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. The FY 2013 chart with the listing of the rural
counties containing the hospitals designated as urban under section
1886(d)(8)(B) of the Act is available via the Internet on the CMS Web
site.
4. Reclassifications Under Section 1886(d)(8)(B) of the Act
As in the past, hospitals redesignated under section 1886(d)(8)(B)
of the Act are also eligible to be reclassified to a different area by
the MGCRB. Affected hospitals are permitted to compare the reclassified
wage index for the labor market area in Table 4C associated with this
proposed rule (available on the CMS Web site) into which they would be
reclassified by the MGCRB to the wage index for the area to which they
are redesignated under section 1886(d)(8)(B) of the Act. Hospitals may
withdraw from an MGCRB reclassification within 45 days of the
publication of this FY 2013 proposed rule. (We refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR 51598 through 51599) for the
procedural rules and requirements for a hospital that is redesignated
under section 1886(d)(8)(B) of the Act and seeking reclassification
under the MGCRB, as well as our policy of measuring the urban area,
exclusive of the Lugar County, for purposes of meeting proximity
requirements.) 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

[[Page 27952]]

FR 47337) for a discussion of this policy.)
5. 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 2012 notice, CMS-1442-N, which
went on public display at the Office of the Federal Register on April
19, 2012, and was published in the Federal Register on April 20, 2012.
The most recent extension of the provision was included in section 302
of the Temporary Payroll Tax Cut Continuation Act of 2011 (Pub. L. 112-
78), as amended by section 3001 of the Middle Class Tax Relief and Job
Creation Act of 2012 (Pub. L. 112-96), which extends certain section
508 reclassifications and special exception wage indices for a 6-month
period during FY 2012, from October 1, 2011 through March 31, 2012. As
of the drafting of this proposed rule, section 508 reclassifications
and certain special exceptions have not been extended for FY 2013.
6. Waiving Lugar Redesignation for the Out-Migration Adjustment
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through
51600), we adopted the policy that, beginning with FY 2012, 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 adopted 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 \47\) 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. Thus, under the 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.
---------------------------------------------------------------------------

\47\ 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.
---------------------------------------------------------------------------

We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR
51599 through 51600) for a detailed discussion of the policy and
process for waiving Lugar status for the out-migration adjustment.

I. Proposed FY 2013 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. The proposed FY 2013 out-migration adjustment is
based on the same policies, procedures, and computation that were used
for the FY 2012 out-migration adjustment (we refer readers to a full
discussion of the adjustment, including rules on deeming hospitals
reclassified under section 1886(d)(8) or section 1886(d)(10) to have
waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51601 through 51602)). Table 4J, available via the Internet
on the CMS Web site, lists the out-migration adjustments for the FY
2013 proposed wage index.

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 2013 wage index were made
available on October 4, 2011, 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 notify 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 encourage hospitals to sign up for automatic notifications of
information about hospital issues and the scheduling of the Hospital
Open Door forums at the CMS Web site at: http://www.cms.hhs.gov/OpenDoorForums/.
In a memorandum dated September 29, 2011, 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, 2011 wage and occupational mix data files, the hospital
was to submit corrections along with complete, detailed supporting
documentation to its fiscal intermediary/MAC by December 5, 2011.
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 September 29, 2011 memorandum referenced above.
In the September 29, 2011 memorandum, we also specified that a
hospital requesting revisions to its occupational mix survey data was
to copy its record(s) from the CY 2010 occupational mix preliminary
files posted to the CMS Web site in October, highlight the revised
cells on its spreadsheet, and submit its spreadsheet(s) and complete

[[Page 27953]]

documentation to its fiscal intermediary/MAC no later than December 5,
2011.
The fiscal intermediaries/MACs notified the hospitals by mid-
February 2012 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 2012. CMS published the proposed
wage index public use files that included hospitals' revised wage index
data on February 21, 2012. Hospitals had until March 5, 2012, 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 11,
2012. 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 18, 2012.
Hospitals should examine Table 2, which is listed in section VI. of
the Addendum to this proposed rule and available on the CMS Web site
at: http://www.cms.gov. Table 2 contains each hospital's adjusted
average hourly wage used to construct the wage index values for the
past 3 years, including the FY 2009 data used to construct the proposed
FY 2013 wage index. We note that the hospital average hourly wages
shown in Table 2 only reflect changes made to a hospital's data that
were transmitted to CMS by March 2012.
We will release the final wage index data public use files in early
May 2012 on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The May 2012 public use files are made available solely
for the limited purpose of identifying any potential errors made by CMS
or the fiscal intermediary/MAC in the entry of the final wage index
data that resulted from the correction process described above
(revisions submitted to CMS by the fiscal intermediaries/MACs by April
11, 2012). If, after reviewing the May 2012 final public use files, a
hospital believes that its wage or occupational mix data are incorrect
due to a fiscal intermediary/MAC or CMS error in the entry or
tabulation of the final data, the hospital should send a letter to both
its fiscal intermediary/MAC and CMS that outlines why the hospital
believes an error exists and provide all supporting information,
including relevant dates (for example, when it first became aware of
the error). CMS and the fiscal intermediaries (or, if applicable, the
MACs) must receive these requests no later than June 4, 2012.
Each request also must be sent to the fiscal intermediary/MAC. The
fiscal intermediary/MAC will review requests upon receipt and contact
CMS immediately to discuss any findings.
After the release of the May 2012 wage index data files, changes to
the wage and occupational mix data will only be made in those very
limited situations involving an error by the fiscal intermediary/MAC or
CMS that the hospital could not have known about before its review of
the final wage index data files. Specifically, neither the fiscal
intermediary/MAC nor CMS will approve the following types of requests:
Requests for wage index data corrections that were
submitted too late to be included in the data transmitted to CMS by
fiscal intermediaries or the MACs on or before April 11, 2012.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the February 21,
2012 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 4, 2012)
will be incorporated into the final wage index in the FY 2013 IPPS/LTCH
PPS final rule, which will be effective October 1, 2012.
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 2013 payment rates. Accordingly,
hospitals that do 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 have
access to the final wage index data by early May 2012, they have the
opportunity to detect any data entry or tabulation errors made by the
fiscal intermediary or the MAC or CMS before the development and
publication of the final FY 2013 wage index by August 2012, and the
implementation of the FY 2013 wage index on October 1, 2012. If
hospitals avail 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 4, 2012, 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 4 deadline for making corrections
to the wage data for the following fiscal year's wage index. This
provision is not available to a hospital seeking to revise another
hospital's data that may be affecting the requesting hospital's wage
index for the labor market area. As indicated earlier, because CMS
makes the wage index data available to hospitals on the CMS Web site
prior to publishing both the proposed and final IPPS rules, and the
fiscal intermediaries or the MACs notify hospitals directly of any wage
index data changes after completing their desk reviews, we do not
expect that midyear corrections will be necessary. However, under our
current policy, if the correction of a data error changes the

[[Page 27954]]

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 4,
2012 deadline for the FY 2013 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 4, 2012 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 Proposed FY 2013 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.'' Thus,
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 FY 2013 proposed rule, we are not proposing to make
any further changes to the national average proportion of operating
costs that are attributable to wages and salaries, fringe benefits,
contract labor, the labor-related portion of professional fees,
administrative and business support services, and all other labor-
related services (previously referred to in the FY 2002-based IPPS
market basket as labor-intensive).
Therefore, for FY 2013, we are proposing to continue to use a
labor-related share of 68.8 percent for discharges occurring on or
after October 1, 2012. Tables 1A and 1B, which are published in section
VI. of the Addendum to this proposed 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 are
proposing to apply the wage index to a labor-related share of 62
percent of the national standardized amount. For all IPPS hospitals
whose wage indices are greater than 1.0000, we are proposing to apply
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. In this proposed rule, we are
proposing to continue to use a labor-related share for the Puerto Rico-
specific standardized amounts of 62.1 percent for discharges occurring
on or after October 1, 2012. 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

[[Page 27955]]

in the FY 2002-based IPPS market basket as labor-intensive) to
determine the labor-related share. Puerto Rico hospitals are paid based
on 75 percent of the national standardized amounts and 25 percent of
the Puerto Rico-specific standardized amounts. The labor-related share
of a hospital's Puerto Rico-specific rate will be either the Puerto
Rico-specific labor-related share of 62.1 percent or 62 percent,
depending on which results in higher payments to the hospital. If the
hospital has a Puerto Rico-specific wage index of greater than 1.0, we
will set the hospital's rates using a labor-related share of 62.1
percent for the 25 percent portion of the hospital's payment determined
by the Puerto Rico standardized amounts because this amount will result
in higher payments. Conversely, a hospital with a Puerto Rico-specific
wage index of less than 1.0 will be paid using the Puerto Rico-specific
labor-related share of 62 percent of the Puerto Rico-specific rates
because the lower labor-related share will result in higher payments.
The Puerto Rico labor-related share of 62.1 percent for FY 2013 is
reflected in Table 1C, which is published in section VI. of the
Addendum to this proposed rule and available via the Internet.

IV. Other Decisions and Proposed Changes to the IPPS for Operating
Costs and Graduate Medical Education (GME) Costs

A. Hospital Readmissions Reduction Program

1. Statutory Basis for the Hospital Readmissions Reduction Program
Section 3025 of the Affordable Care Act, as amended by section
10309 of the Affordable Care Act, added a new subsection (q) to section
1886 of the Act. Section 1886(q) of the Act establishes the ``Hospital
Readmissions Reduction Program'' effective for discharges from an
``applicable hospital'' beginning on or after October 1, 2012, under
which payments to those hospitals under section 1886(d) of the Act will
be reduced to account for certain excess readmissions.
Section 1886(q)(1) of the Act sets forth the methodology by which
payments to ``applicable hospitals'' will be adjusted to account for
excess readmissions. Pursuant to section 1886(q)(1) of the Act,
payments for discharges from an ``applicable hospital'' will be an
amount equal to the product of the ``base operating DRG payment
amount'' and the adjustment factor for the hospital for the fiscal
year. That is, ``base operating DRG payments'' are reduced by an
adjustment factor that accounts for excess readmissions. Section
1886(q)(1) of the Act requires the Secretary to make payments for a
discharge in an amount equal to the product of ``the base operating DRG
payment amount'' and ``the adjustment factor'' for the hospital in a
given fiscal year. Section 1886(q)(2) of the Act defines the base
operating DRG payment amount as ``the payment amount that would
otherwise be made under subsection (d) (determined without regard to
subsection (o) [the Hospital VBP Program]) for a discharge if this
subsection did not apply; reduced by * * * any portion of such payment
amount that is attributable to payments under paragraphs (5)(A),
(5)(B), (5)(F), and (12) of subsection (d).'' Paragraphs (5)(A),
(5)(B), (5)(F), and (12) of subsection(d) refer to outlier payments,
IME payments, DSH payments, and payments for low-volume hospitals,
respectively.
Furthermore, section 1886(q)(2)(B) of the Act specifies special
rules for defining ``the payment amount that would otherwise be made
under subsection (d)'' for certain hospitals. Specifically, section
1886(q)(2)(B) of the Act states that ``[i]n the case of a Medicare-
dependent, small rural hospital (with respect to discharges occurring
during fiscal years 2012 and 2013) or a sole community hospital * * *
the payment amount that would otherwise be made under subsection (d)
shall be determined without regard to subparagraphs (I) and (L) of
subsection (b)(3) and subparagraphs (D) and (G) of subsection (d)(5).''
We are proposing policies to implement the statutory provisions related
to the definition of ``base operating DRG payment amount'' in this
proposed rule.
Section 1886(q)(3)(A) of the Act defines the ``adjustment factor''
for an applicable hospital for a fiscal year as equal to the greater of
``(i) the ratio described in subparagraph (B) for the hospital for the
applicable period (as defined in paragraph (5)(D)) for such fiscal
year; or (ii) the floor adjustment factor specified in subparagraph
(C).'' Section 1886(q)(3)(B) of the Act, in turn, describes the ratio
used to calculate the adjustment factor. It states that the ratio is
``equal to 1 minus the ratio of--(i) the aggregate payments for excess
readmissions * * * and (ii) the aggregate payments for all discharges *
* *.'' Section 1886(q)(3)(C) of the Act describes the floor adjustment
factor, which is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97
for FY 2015 and subsequent fiscal years.
Section 1886(q)(4) of the Act sets forth the definitions of
``aggregate payments for excess readmissions'' and ``aggregate payments
for all discharges'' for an applicable hospital for the applicable
period. The term ``aggregate payments for excess readmissions'' is
defined in section 1886(q)(4)(A) of the Act as ``the sum, for
applicable conditions * * * of the product, for each applicable
condition, of (i) the base operating DRG payment amount for such
hospital for such applicable period for such condition; (ii) the number
of admissions for such condition for such hospital for such applicable
period; and (iii) the ``Excess Readmission Ratio * * * for such
hospital for such applicable period minus 1.'' The ``Excess Readmission
Ratio'' is a hospital-specific ratio based on each applicable
condition. Specifically, section 1886(q)(4)(C) of the Act defines the
Excess Readmission Ratio as the ratio of ``risk-adjusted readmissions
based on actual readmissions'' for an applicable hospital for each
applicable condition, to the ``risk-adjusted expected readmissions''
for the applicable hospital for the applicable condition.
Section 1886(q)(5) of the Act provides definitions of ``applicable
condition,'' ``expansion of applicable conditions,'' ``applicable
hospital,'' ``applicable period,'' and ``readmission.'' The term
``applicable condition,'' which is addressed in detail in section
IV.C.3.a. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51665 through
51666), is defined as a ``condition or procedure selected by the
Secretary among conditions and procedures for which: (i) Readmissions *
* * represent conditions or procedures that are high volume or high
expenditures * * * and (ii) measures of such readmissions * * * have
been endorsed by the entity with a contract under section 1890(a) * * *
and such endorsed measures have exclusions for readmissions that are
unrelated to the prior discharge (such as a planned readmission or
transfer to another applicable hospital).'' Section 1886(q)(5)(B) of
the Act also requires the Secretary, beginning in FY 2015, ``to the
extent practicable, [to] expand the applicable conditions beyond the 3
conditions for which measures have been endorsed * * * to the
additional 4 conditions that have been identified by the Medicare
Payment Advisory Commission in its report to Congress in June 2007 and
to other conditions and procedures as determined appropriate by the
Secretary.''
Section 1886(q)(5)(C) of the Act defines ``applicable hospital,''
that is, a hospital subject to the Hospital Readmissions Reduction
Program, as a ``subsection (d) hospital or a hospital that is paid
under section 1814(b)(3) [of the Act], as the case may be.'' The term
``applicable period,'' as defined under

[[Page 27956]]

section 1886(q)(5)(D) of the Act, ``means, with respect to a fiscal
year, such period as the Secretary shall specify.'' As explained in the
FY 2012 IPPS/LTCH PPS final rule, the ``applicable period'' is the
period from which data are collected in order to calculate various
ratios and adjustments under the Hospital Readmissions Reduction
Program.
Section 1886(q)(6) of the Act sets forth the public reporting
requirements for hospital-specific readmission rates. Section
1886(q)(7) of the Act limits administrative and judicial review of
certain determinations made pursuant to section 1886(q) of the Act.
Finally, section 1886(q)(8) of the Act requires the Secretary to
collect data on readmission rates for all hospital inpatients for
``specified hospitals'' in order to calculate the hospital-specific
readmission rates for all hospital inpatients and to publicly report
these readmission rates.
2. Overview
As we stated in the FY 2012 IPPS/LTCH PPS final rule, we intend to
implement the requirements of the Hospital Readmissions Reduction
Program in the FY 2012, FY 2013, and future IPPS/LTCH PPS rulemaking
cycles.
As explained above, the payment adjustment factor set forth in
section 1886(q) of the Act does not apply to discharges until FY 2013.
Therefore, we elected to implement the Hospital Readmissions Reduction
Program over a 2-year period, beginning in FY 2012. In the FY 2012
IPPS/LTCH PPS final rule, we addressed the issues of the selection of
readmission measures and the calculation of the excess readmission
ratio, which will be used, in part, to calculate the readmission
adjustment factor. Specifically, in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51660 through 51676), we addressed portions of section
1886(q) of the Act related to the following provisions:
Selection of applicable conditions;
Definition of ``readmission;''
Measures for the applicable conditions chosen for
readmission;
Methodology for calculating the excess readmission ratio;
and
Definition of ``applicable period.''
With respect to the topics of ``measures for readmission'' for the
applicable conditions, and ``methodology for calculating the excess
readmission ratio,'' we specifically addressed the following:
Index hospitalizations;
Risk adjustment;
Risk standardized readmission rate;
Data sources; and
Exclusion of certain readmissions.
We are providing below a summary of the provisions of section
1886(q) of the Act that were finalized in the FY 2012 IPPS/LTCH PPS
final rule.
Applicable conditions: In the FY 2012 IPPS/LTCH PPS final rule (76
FR 51665 through 51666), we finalized the applicable conditions for the
FY 2013 Hospital Readmissions Reduction Program as heart failure (HF),
acute myocardial infarction (AMI), and pneumonia (PN). Section
1886(q)(5)(A) of the Act requires that the ``applicable conditions'' be
conditions or procedures for which readmissions are ``high volume or
high expenditure'' and that ``measures of such readmissions'' have been
endorsed by the entity with a contract under section 1890(a) of the Act
(currently National Quality Forum (NQF)) and such endorsed measures
have exclusions for readmissions that are unrelated to the prior
discharge. In this proposed rule, we are proposing to codify this
definition of ``applicable conditions'' in the regulations we are
proposing at 42 CFR 412.152.
In the FY 2012 IPPS/LTCH PPS final rule, we discussed how each of
the finalized ``applicable conditions'' for FY 2013 meets these
statutory requirements. We noted that section 1886(q)(5)(B) of the Act
allows for the Secretary to expand the conditions for the Hospital
Readmissions Reduction Program starting in FY 2015.
Readmission: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51666),
we finalized a definition of ``readmission'' as occurring when a
patient is discharged from an applicable hospital and then admitted to
the same or another acute care hospital, that is, another applicable
hospital, within a specified time period (30 days) from the date of
discharge from the initial index hospitalization. In this proposed
rule, we are proposing to codify this definition of ``readmission''
under the regulations we are proposing at 42 CFR 412.152. As also
discussed in the FY 2012 IPPS/LTCH PPS final rule, only one readmission
during the 30 days following the discharge from the initial
hospitalization will count as a readmission for purposes of calculating
the ratios set forth in section 1886(q)(3) of the Act. For any given
patient, none of the subsequent readmissions he or she experiences
within 30 days after discharge would be counted as a new ``index''
admission (that is, an admission evaluated for a subsequent
readmission).
Measures for applicable conditions: As finalized in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51666 and 51667), we will use three
NQF-endorsed, hospital risk-standardized readmission measures for FY
2013, which are currently in the Hospital IQR Program: Acute Myocardial
Infarction 30-day Risk Standardized Readmission Measure (NQF
0505); Heart Failure 30-Day Risk Standardized Readmission
Measure (NQF 0330); and Pneumonia 30-day Risk Standardized
Readmission Measure (NQF 0506). The measures, as endorsed by
the NQF, include the 30-day time window, risk-adjustment methodology,
and exclusions for certain readmissions.
As finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673),
we will use the risk-standardized readmission ratio of the NQF-endorsed
readmission measures as the excess readmission ratio. The ratio is a
measure of relative performance. If a hospital performs better than an
average hospital that admitted similar patients (that is, patients with
the same risk factors for readmission such as age and comorbidities),
the ratio will be less than 1.0. If a hospital performs worse than
average, the ratio will be greater than 1.0.
Measure methodology: In the FY 2012 IPPS/LTCH PPS final rule (76 FR
51668 through 51669), we finalized the methodology of the measures and
are summarizing it briefly below.
Index hospitalizations included in the measure calculation: We
finalized the definition of ``index hospital'' consistent with the NQF-
endorsed definition. The measures define an index hospitalization as a
hospitalization evaluated in the measure for a possible readmission
within 30 days after discharge (that is, a hospitalization included in
the measure calculation). The measures exclude as index
hospitalizations any hospitalization for patients with an in-hospital
death, without at least 30 days post-discharge enrollment in Medicare
fee-for-service (FFS), discharged against medical advice, and under the
age of 65.
Risk adjustment: The three measures, as endorsed by the NQF and
finalized in the FY 2012 IPPS/LTCH PPS final rule, adjust for key
factors that are clinically relevant and have strong relationships with
the outcome (for example, patient demographic factors, patient
coexisting medical conditions, and indicators of patient frailty).
Under the current NQF-endorsed methodology, these covariates are
obtained from Medicare claims extending 12 months prior to, and
including, the index admission. This risk-adjustment approach adjusts
for differences in the clinical status of the patient at the time of
the index admission as well as for demographic variables. A complete
list of the

[[Page 27957]]

variables used for risk adjustment and the clinical and statistical
process for selecting the variables for each NQF-endorsed measure, as
proposed, is available at the Web site: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
Data sources: The finalized measures use Medicare inpatient claims
data for Medicare FFS patients 65 years and older to identify index
hospitalizations and readmissions. For risk adjustment, the measures
use Part A and Part B claims for the 12 months prior to the index
hospitalization as well as index hospitalization claims.
Exclusion of certain readmissions: The NQF-endorsed measures of
readmissions finalized in the FY 2012 IPPS/LTCH PPS final rule include
exclusions of readmissions consistent with the statutory requirement
that all measures exclude certain readmissions that are unrelated to
the prior discharge, such as transfers to other acute care facilities
and planned readmissions.
Minimum number of discharges for applicable conditions: Section
1886(q)(4)(C)(ii) of the Act allows the Secretary discretion to
determine the minimum number of discharges for the applicable
condition. We finalized a policy in the FY 2012 IPPS/LTCH PPS final
rule that the minimum number of discharges for applicable conditions is
25 for each condition for the FY 2013 Hospital Readmissions Reduction
Program.
Applicable period: Under 1886(q)(5)(D) of the Act, the Secretary
has the authority to specify the applicable period with respect to a
fiscal year. In the FY 2012 IPPS/LTCH PPS final rule, we finalized our
policy to use 3 years worth of claims data to calculate the proposed
readmission measures. Specifically, we finalized the policy to use
claims data from July 1, 2008, to June 30, 2011, to calculate the
excess readmission ratios and to calculate the FY 2013 Hospital
Readmissions Reduction Program payment adjustment. As discussed in
section IV.A.3.d. of this preamble, for the purpose of this proposed
rule, the excess readmission ratios used to model our proposed
methodology to calculate the Hospital Readmissions Reduction Program
payment adjustment will be based on the 3-year time period of July 1,
2007 to June 30, 2010. For the final rule, we intend to use excess
readmission ratios based on the applicable period of July 1, 2008 to
June 30, 2011, as finalized in the FY 2012 IPPS/LTCH PPS final rule. In
this proposed rule, we are proposing to codify the definition of
``applicable period'' under the regulations we are proposing at 42 CFR
412.152 as the 3-year period from which data are collected in order to
calculate excess readmission ratios and adjustments for the fiscal
year.
Excess Readmission Ratio calculation: In the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51673 through 51676), we finalized the excess
readmission ratio pursuant to section 1886(q)(4)(C) of the Act. We
established the excess readmission ratio as the risk-standardized
readmission ratio from the NQF-endorsed measures. The ratio is
calculated using hierarchical logistic regression. The method adjusts
for variation across hospitals in how sick their patients are when
admitted to the hospital (and therefore variation in hospital patients'
readmission risk) as well as the variation in the number of patients
that a hospital treats to reveal difference in quality. The method
produces an adjusted actual (or ``predicted'') number in the numerator
and an ``expected'' number in the denominator. The expected calculation
is similar to that for logistic regression--it is the sum of all
patients' expected probabilities of readmission, given their risk
factors and the risk of readmission at an average hospital.
For each hospital, the numerator of the ratio used in the NQF-
endorsed methodology (actual adjusted readmissions) is calculated by
estimating the probability of readmission for each patient at that
hospital and summing up over all the hospital's patients to get the
actual adjusted number of readmissions for that hospital.
Mathematically, the numerator equation can be expressed as:
[GRAPHIC] [TIFF OMITTED] TP11MY12.013

The denominator of the risk-standardized ratio (excess readmission
ratio) under this NQF-endorsed methodology sums the probability of
readmission for each patient at an average hospital. This can be
expressed mathematically as:

[[Page 27958]]

[GRAPHIC] [TIFF OMITTED] TP11MY12.014

Thus, the ratio compares the total adjusted actual readmissions at
the hospital to the number that would be expected if the hospital's
patients were treated at an average hospital with similar patients.
Hospitals with more adjusted actual readmissions than expected
readmissions will have a risk-standardized ratio (excess readmission
ratio) greater than one. In summary, in the FY 2012 IPPS/LTCH PPS final
rule, we defined the ``excess readmission ratio'' as the risk-
standardized readmission ratio of the NQF-endorsed readmission
measures. More in-depth detail surrounding the methodology of excess
readmission ratio calculation can be accessed on the Web site at:
http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
In this proposed rule, we are proposing to codify the definition of
``excess readmission ratio'' under the regulations we are proposing at
42 CFR 412.152 as a hospital-specific ratio for each applicable
condition for an applicable period, which is the ratio (but not less
than 1.0) of (1) risk-adjusted readmissions based on actual
readmissions for an applicable hospital for each applicable condition
to (2) the risk-adjusted expected readmissions for the applicable
hospital for the applicable condition.
3. FY 2013 Proposed Policies for the Hospital Readmissions Reduction
Program
a. Overview
In this proposed rule, we are addressing the provisions in section
1886(q) of the Act that are related to the Hospital Readmissions
Reduction Program payment adjustment, as well as any other provisions
in section 1886(q) of the Act that were not addressed in the FY 2012
IPPS/LTCH PPS final rule that are effective for discharges beginning on
or after October 1, 2012. Specifically, in this proposed rule, we are
addressing section 1886(q) of the Act related to the following
provisions:
Base operating DRG payment amount, including policies for
SCHs and MDHs and hospitals paid under section 1814(b) of the Act;
Adjustment factor (both the ratio and floor adjustment
factor);
Aggregate payments for excess readmissions and aggregate
payments for all discharges;
Applicable hospital;
Limitations on review;
Reporting of hospital-specific information, including the
process for hospitals to review and submit corrections.
We are proposing to establish a new Subpart I under 42 CFR Part 412
to incorporate the rules relating to the payment adjustments under the
Hospital Readmissions Reduction Program.
b. Proposals Regarding Base Operating DRG Payment Amount, Including
Special Rules for SCHs and MDHs and Hospitals Paid Under Section 1814
of the Act
(1) Proposed Definition of Base Operating DRG Payment Amount (Proposed
Sec. 412.152)
Under the Hospital Readmissions Reduction Program at section
1886(q) of the Act, payments for discharges from an ``applicable
hospital'' will be an amount equal to the product of the ``base
operating DRG payment amount'' and an ``adjustment factor'' that
accounts for excess readmissions for the hospital for the fiscal year,
for discharges beginning on or after October 1, 2012. Specifically,
section 1886(q)(1) of the Act requires the Secretary to make payments
for a discharge in an amount equal to the product of ``the base
operating DRG payment amount'' and ``the adjustment factor'' for the
hospital in a given fiscal year. The ``base operating DRG payment
amount'' is defined under section 1886(q)(2) of the Act as ``the
payment amount that would otherwise be made under subsection (d)
(determined without regard to subsection (o) [the Hospital VBP
Program]) for a discharge if this subsection did not apply; reduced by
* * * any portion of such payment amount that is attributable to
payments under paragraphs (5)(A), (5)(B), (5)(F), and (12) of
subsection (d).'' Paragraphs (5)(A), (5)(B), (5)(F), and (12) of
subsection (d) [of section 1886 of the Act] refer to outlier payments,
indirect medical education (IME) payments, disproportionate share (DSH)
payments, and low-volume hospital payments, respectively.
In general, ``the payment amount that would otherwise be made under
subsection (d) * * * for a discharge'' (that is, the discharge payment
amount made under section 1886(d) of the Act) determined without
consideration of the adjustments to payments made under the Hospital
VBP Program (section 1886(o) of the Act) or under the Hospital
Readmissions Reduction Program (section 1886(q) of the Act) is the
applicable average standardized amount adjusted for resource
utilization by the applicable MS-DRG relative weight and adjusted for
differences in geographic costs by the applicable area wage index (and
by the applicable cost-of-living adjustment (COLA) for hospitals
located in Alaska and Hawaii), which is often

[[Page 27959]]

referred to as the ``wage-adjusted DRG operating payment.'' This
payment amount may then be further adjusted if the hospital qualifies
for an IME adjustment (under section 1886(d)(5)(B) of the Act), a DSH
payment adjustment (under section 1886(d)(5)(F) of the Act), and/or a
low-volume payment adjustment (under section 1886(d)(12) of the Act),
or if the discharge qualifies for an outlier payment (under section
1886(d)(5)(A) of the Act). Furthermore, certain discharges may qualify
for an additional payment for new medical services or technologies
under section 1886(d)(5)(K) of the Act (often referred to as a ``new
technology add-on payment'').
Consistent with section 1886(q)(2) of the Act, under the
regulations we are proposing at 42 CFR 412.152, we would define the
``base operating DRG payment amount'' under the Hospital Readmissions
Reduction Program as the wage-adjusted DRG operating payment plus any
applicable new technology add-on payments. As required by the statute,
the proposed definition of ``base operating DRG payment amount'' does
not include adjustments or add-on payments for IME, DSH, outliers and
low-volume hospitals provided for under sections 1886(d)(5)(B),
(d)(5)(F), (d)(5)(A), and (d)(12) of the Act, respectively. Section
1886(q)(2) of the Act does not exclude new technology payments made
under section 1886(d)(5)(K) of the Act; therefore, any payments made
under section 1886(d)(5)(K) of the Act are included in the proposed
definition of ``base operating DRG payment amount.'' In addition, under
the regulations we are proposing at 42 CFR 412.152, we are proposing to
define ``wage-adjusted DRG operating payment'' as the applicable
average standardized amount adjusted for resource utilization by the
applicable MS-DRG relative weight and adjusted for differences in
geographic costs by the applicable area wage index (and by the
applicable COLA for hospitals located in Alaska and Hawaii). We are
proposing that, under Sec. 412.154(b)(1), to account for excess
readmissions, an applicable hospital's base operating DRG payment
amount is adjusted for each discharge occurring during the fiscal year.
The payment adjustment for each discharge is determined by subtracting
the product of the base operating DRG payment amount for such discharge
by the hospital's admission payment adjustment factor for the fiscal
year from the base operating DRG payment amount for such discharge.
Under this proposal, consistent with section 1886(q)(2)(B)(i) of
the Act and proposed Sec. 412.154(b)(2), for SCHs that receive
payments based on their hospital-specific payment rate, we also are
proposing to exclude the difference between the hospital's applicable
hospital-specific payment rate and the Federal payment rate from the
definition of ``base operating DRG payment amount.'' We note that,
under the Hospital Readmissions Reduction Program at section 1886(q) of
the Act, the proposed definition of ``base operating DRG payment
amount'' would be used to calculate both the ``aggregate payments for
excess readmissions'' and ``aggregate payments for all discharges''
under sections 1886(q)(4)(A) and (B) of the Act, which would then be
used to determine the readmission adjustment factor that accounts for
excess readmissions under section 1886(q)(3) of the Act (as discussed
in greater detail in section IV.A.3.c. of this preamble), and would
also be used to determine which payment amounts will be adjusted to
account for excess readmissions. (We note that, as discussed in section
IV.G. of this preamble, under current law, the MDH program expires at
the end of FY 2012 (that is, the MDH program is currently only
applicable to discharges occurring before October 1, 2012). Therefore,
due to the expiration of the MDH program beginning with FY 2013, we are
not including MDHs in the discussion of our proposals regarding the
base operating DRG payment amount in this proposed rule.)
(2) Proposal on Special Rules for Certain Hospitals: Hospitals Paid
Under Section 1814(b)(3) of the Act (Proposed Sec. 412.154(d))
Although the definition of ``applicable hospital'' under section
1886(q)(5)(C) of the Act includes hospitals paid under section
1814(b)(3) of the Act (that is, certain Maryland hospitals), section
1886(q)(2)(B)(ii) of the Act allows the Secretary to exempt such
hospitals from the Hospital Readmissions Reduction Program, provided
that the State submits an annual report to the Secretary describing how
a similar program to reduce hospital readmissions in that State
achieves or surpasses the measured results in terms of health outcomes
and cost savings established by Congress for the program as applied to
``subsection (d) hospitals.'' Accordingly, a program established by the
State of Maryland that could serve to exempt the State from the
Hospital Readmissions Reduction program would focus on those
``applicable'' Maryland hospitals operating under the ``waiver''
provided by section 1814(b)(3) of the Act, that is, those hospitals
that would otherwise have been paid by Medicare under the IPPS, absent
the provision.
In this proposed rule, we are proposing to establish criteria for
evaluation of an annual report to CMS to determine whether Maryland
should be exempted from the program each year. Accordingly, we would
evaluate a report submitted by the State of Maryland documenting how
its program that is described below meets those criteria. Based on the
information in the report, we would determine whether or not Maryland's
readmission program meets our criteria to be exempt from the Hospital
Readmissions Reduction Program for FY 2013. We note that our proposed
criteria to evaluate Maryland's program is for FY 2013, the first year
of the program, and our evaluation criteria may change through notice-
and-comment rulemaking as the Hospital Readmissions Reduction Program
evolves. We are proposing to codify this requirement at Sec.
412.154(d) of the regulations.
Based on preliminary discussions with the State, we understand
that, effective July 1, 2011, Maryland has established the Admission-
Readmission Revenue (ARR) Program. The State has described its program
as a voluntary program for acute care hospitals, of which 30 out of the
46 acute care hospitals in the State are currently enrolled. Under the
program, the State pays hospitals under a case-mix adjusted bundled
payment per episode of care, where the episode of care is defined as
the initial admission and any subsequent readmissions to the same
hospital or linked hospital system that occur within 30 days of the
original discharge. According to the State, an initial admission with
no readmissions provides the hospital with the same weight as an
initial admission with multiple readmissions. Therefore, hospitals
receive a financial reward for decreased readmissions (as determined
through the case mix adjusted, episode of care weights). Unlike the
Hospital Readmissions Reduction Program under section 1886(q) of the
Act, which is currently based on measures for three conditions (HF,
AMI, and PN) for the Medicare FFS population and only adjusts the IPPS
operating payments, Maryland's program applies to all conditions for
all patients. In addition, while the Hospital Readmissions Reduction
Program considers a readmission to be a subsequent admission to either
the original acute care hospital from where the patient was initially
discharged or an admission to another acute care hospital, currently
Maryland only tracks readmissions to the same acute care hospital (or
linked

[[Page 27960]]

hospital system) from which the patient was originally discharged. The
State has noted that, under its ARR program, the readmission rates for
the hospitals participating in the ARR program for the first quarter of
its fiscal year compared to the first quarter of its previous fiscal
year decreased from 9.86 percent to 8.96 percent.
We are proposing to evaluate Maryland's ARR program based on
whether the State can demonstrate that cost savings under its program
achieve or exceed the savings to the Medicare program due to the
Hospital Readmissions Reduction Program under section 1886(q) of the
Act. We also are proposing to evaluate whether Maryland's program can
demonstrate similar results in reducing unnecessary readmissions among
hospitals in the State, as described in more detail below. With
specific regard to Maryland's demonstration of cost savings, we are
proposing to evaluate whether Maryland's ARR program can demonstrate
savings to the Medicare program that are at least similar to those
expected under the Hospital Readmissions Reduction Program. As
discussed later in this proposed rule, we estimate that, under the
Hospital Readmissions Reduction Program, for FY 2013, Medicare IPPS
operating payments will decrease by approximately $300 million (or 0.3
percent) of total Medicare IPPS operating payments. Maryland has
indicated that it believes it can achieve comparable savings because it
intends to reduce the rate update factor for all hospitals by 0.3
percent, regardless of a hospital's performance on readmissions.
In addition, we plan to propose in future rulemaking to evaluate
whether Maryland's ARR program can meet or exceed health outcomes that
we expect to improve under the Hospital Readmissions Reduction Program.
Because the Hospital Readmissions Reduction Program is not effective
until October 1, 2012, we do not yet have measured health outcomes
against which we can evaluate Maryland's ARR program. However, we
intend to have outcomes data in the future with which to evaluate
Maryland's ARR program. We anticipate that, under the Hospital
Readmissions Reduction Program, hospitals will experience a reduction
in unnecessary readmissions. Therefore, in future rulemaking, we intend
to propose to evaluate whether Maryland's ARR program can demonstrate
similar decreases in potential preventable readmissions among hospitals
in the State. Furthermore, we are proposing that the State's annual
report and request for exemption from the Hospital Readmissions
Reduction Program must be resubmitted and reconsidered annually in
accordance with the statute and as proposed at Sec. 412.154(d)(2).
Based on preliminary information provided by Maryland, the State
believes that its program can meet our evaluation criteria and
demonstrate that its program achieves or surpasses the measured results
in terms of health outcomes and cost savings. We are reviewing whether
the Maryland's ARR program, which currently cannot monitor readmissions
to other hospitals and a financial reward for hospitals that reduce
within-hospital readmissions and provides a 0.3 percent reduction to
the annual rate update to account for comparable savings to the
Hospital Readmissions Reduction Program, meets the criteria to exempt
Maryland hospitals from the Hospital Readmissions Reduction Program. We
welcome public comments on whether the Maryland ARR program meets the
requirements for exemption from the Hospital Readmissions Reduction
Program set forth in section 1886(q)(2)(B)(ii) of the Act.
For the purposes of modeling the impacts of this proposal in this
proposed rule, we have modeled under the assumption that Maryland
hospitals will not have Hospital Readmission Reduction Program
adjustment factors applied to them. Although the adjustment factors do
not apply to these hospitals under our models, Maryland hospitals have
excess readmission ratios, consistent with the definition of excess
readmission ratio. Any readmission to a Maryland hospital from a
subsection(d) hospital in another State is still considered a
readmission for purposes of the original hospital in another State.
This is consistent with the definition of readmissions in section
1886(q)(5)(E) of the Act, which includes admissions to the same or
another ``applicable hospital.'' As discussed above, we interpret the
definition of ``applicable hospital'' under section 1886(q)(5)(C) of
the Act includes both subsection (d) hospitals and hospitals paid under
section 1814(b)(3) of the Act that would, absent the provisions of
section 1814(b)(3) of the Act, be paid under subsection (d).
c. Proposals Regarding Adjustment Factor (Both the Ratio and Floor
Adjustment Factor) (Proposed Sec. 412.154(c))
Section 1886(q)(3)(A) of the Act defines the ``adjustment factor''
for an applicable hospital for a fiscal year as equal to the greater of
``(i) the ratio described in subparagraph (B) for the hospital for the
applicable period (as defined in paragraph (5)(D)) for such fiscal
year; or (ii) the floor adjustment factor specified in subparagraph
(C).'' Section 1886(q)(3)(B) of the Act in turn describes the ratio
used to calculate the adjustment factor. Specifically, it states that
the ratio is ``equal to 1 minus the ratio of--(i) the aggregate
payments for excess readmissions * * *; and (ii) the aggregate payments
for all discharges. * * *'' We are proposing to codify the calculation
of this ratio at Sec. 412.154(c)(1) of the regulations. Section
1886(q)(3)(C) of the Act specifies the floor adjustment factor, which
is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97 for FY 2015 and
subsequent fiscal years. We are proposing to codify the floor
adjustment factor at Sec. 412.154(c)(2) of the regulations.
For FY 2013, under proposed Sec. 412.154(c), we are proposing that
an applicable hospital would receive an adjustment factor that is
either the greater of the ratio described in section IV.A.3.d. of this
preamble or a floor adjustment factor of 0.99. We are proposing that
the ratio would be rounded to the fourth decimal place, consistent with
the calculation of other IPPS payment adjustments such as the wage
index, DSH adjustment, and the IME adjustment. In other words, a
hospital included in this program can have an adjustment factor that is
between 1.0 and 0.9900 for FY 2013. Consistent with section 1886(q)(3)
of the Act, under proposed Sec. 412.154(c), we are proposing that, for
FY 2013, the hospital will receive an adjustment factor under the
Hospital Readmissions Reduction Program that is the greater of the
ratio or the floor of 0.99. Consistent with this proposal, under the
regulations we are proposing at 42 CFR 412.152, we are proposing to
define the ``floor adjustment factor'' as the value that the
readmissions adjustment factor cannot be less than for a given fiscal
year. As noted above, the floor adjustment factor is set at 0.99 for FY
2013, 0.98 for FY 2014, and 0.97 for FY 2015 and subsequent fiscal
years.
d. Proposals Regarding Aggregate Payments for Excess Readmissions and
Aggregate Payments for All Discharges (Proposed Sec. 412.152)
As discussed earlier, section 1886(q)(3)(B) of the Act specifies
the ratio used to calculate the adjustment factor under the Hospital
Readmissions Reduction Program. It states that the ratio is ``equal to
1 minus the ratio of--(i) the aggregate payments for excess
readmissions * * *; and (ii) the aggregate payments for all discharges
* * *.'' In this section, we set forth

[[Page 27961]]

proposals to define aggregate payments for excess readmissions and
aggregate payments for all discharges, as well as a methodology for
calculating the numerator of the ratio (aggregate payments for excess
readmissions) and the denominator of the ratio (aggregate payments for
all discharges).
Section 1886(q)(4) of the Act sets forth the definitions of
``aggregate payments for excess readmissions'' and ``aggregate payments
for all discharges'' for an applicable hospital for the applicable
period. The term ``aggregate payments for excess readmissions'' is
defined in section 1886(q)(4)(A) of the Act as ``for a hospital for an
applicable period, the sum, for applicable conditions * * * of the
product, for each applicable condition, of (i) the base operating DRG
payment amount for such hospital for such applicable period for such
condition; (ii) the number of admissions for such condition for such
hospital for such applicable period; and (iii) the `Excess Readmission
Ratio' * * * for such hospital for such applicable period minus 1.'' We
are proposing to include this definition of ``aggregate payments for
excess readmissions'' under the regulations we are proposing at 42 CFR
412.152.
The ``excess readmission ratio'' is a hospital-specific ratio
calculated for each applicable condition. Specifically, section
1886(q)(4)(C) of the Act defines the excess readmission ratio as the
ratio of ``risk-adjusted readmissions based on actual readmissions''
for an applicable hospital for each applicable condition, to the
``risk-adjusted expected readmissions'' for the applicable hospital for
the applicable condition. The methodology for the calculation of the
excess readmission ratio was finalized in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51673). ``Aggregate payments for excess
readmissions'' is the numerator of the ratio used to calculate the
adjustment factor under the Hospital Readmissions Reduction Program.
The term ``aggregate payments for all discharges'' is defined at
section 1886(q)(4)(B) of the Act as ``for a hospital for an applicable
period, the sum of the base operating DRG payment amounts for all
discharges for all conditions from such hospital for such applicable
period.'' ``Aggregate payments for all discharges'' is the denominator
of the ratio used to calculate the adjustment factor under the Hospital
Readmissions Reduction Program. We are proposing to include this
definition of ``aggregate payments for all discharges'' under the
regulations we are proposing at Sec. 412.152.
As discussed above, when calculating the numerator (aggregate
payments for excess readmission), CMS determines the base operating DRG
for the applicable period. ``Aggregate payments for excess
readmissions'' (the numerator) is defined as ``the sum, for applicable
conditions * * * of the product, for each applicable condition, of (i)
the base operating DRG payment amount for such hospital for such
applicable period for such condition; (ii) the number of admissions for
such condition for such hospital for such applicable period; and (iii)
the `Excess Readmission Ratio' * * * for such hospital for such
applicable period minus 1.''
We discussed above our proposed definition of ``base operating DRG
payment amount.'' When determining the base operating DRG payment
amount for an individual hospital for such applicable period for such
condition, we are proposing to use Medicare inpatient claims from the
MedPAR file with discharge dates that are within the same applicable
period that was finalized in the FY 2012 IPPS/LTCH PPS final rule (76
FR 51671) to calculate the excess readmission ratio. We are proposing
to use MedPAR claims data as our data source for determining aggregate
payments for excess readmissions and aggregate payments for all
discharges, as this data source is consistent with the claims data
source used in IPPS rulemaking in order to determine IPPS rates. For FY
2013, we are proposing to use data from MedPAR claims with discharge
dates that are on or after July 1, 2008, and no later than June 30,
2011, the applicable period finalized in the FY 2012 IPPS/LTCH PPS
final rule. We are proposing to use the update of the MedPAR file for
each Federal fiscal year, which is updated 6 months after the end of
each Federal fiscal year within the applicable period, as our data
source (that is, the March updates of the respective Federal fiscal
year MedPAR files for the final rules, as described in greater detail
below). These are the same MedPAR files that are used in the annual
IPPS rulemaking for each Federal fiscal year.
For the purposes of this proposed rule, for FY 2013, we are
proposing to use the March 2009 update of the FY 2008 MedPAR file to
identify claims within FY 2008 with discharges dates that are on or
after July 1, 2008, the March 2010 update of the FY 2009 MedPAR file to
identify claims within FY 2009, the March 2011 update of the FY 2010
MedPAR file to identify claims within FY 2010, and the December 2011
update of the FY 2011 MedPAR file to identify claims within FY 2011
with discharge dates no later than June 30, 2011. However, for the FY
2013 IPPS/LTCH PPS final rule, we plan to use the March 2012 update of
the FY 2011 MedPAR file to identify claims within FY 2011, as these
would be the most recently available FY 2011 claims data used for FY
2013 rulemaking. These MedPAR data files are used each year in other
areas of the IPPS, including calculating the IPPS relative weights,
budget neutrality factors, outlier thresholds, and the standardized
amount. Accordingly, we believe it is appropriate to use these same
data files for the purpose of calculating the readmission adjustment
factors. The FY 2008 through FY 2011 MedPAR data files can be purchased
from CMS. These files allow the public to verify the readmission
adjustment factors. Interested individuals may order these files
through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by
clicking on the MedPAR Limited Data Set (LDS)-Hospital (National). This
Web page describes the files and provides directions and further
detailed instructions for how to order the data sets. 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 and Medicaid Services, RDDC Account, Accounting Division, P.O
Box 7520, Baltimore, MD 21207-0520.
Mailing address if using express mail: Centers for Medicare and
Medicaid Services, OFM/Division of Accounting RDDC, Mailstop
C-07-11, 7500 Security Boulevard, Baltimore, MD 21244-1850.
We note that, in this proposed rule, we are proposing to determine
aggregate payments for excess readmissions and aggregate payments for
all discharges using data from MedPAR claims with discharge dates that
are on or after July 1, 2008, and no later than June 30, 2011, which is
the applicable period finalized in the FY 2012 IPPS/LTCH PPS final
rule. However, in this proposed rule, for the purposes of modeling, we
are using excess readmission ratios based on an older performance
period of July 1, 2007 to June 30, 2010. For the final rule, we intend
to use both the excess readmission ratios and MedPAR claims data to
calculate aggregate payments for excess readmissions and aggregate
payments for all discharges based on the applicable period finalized in
the FY 2012 IPPS/LTCH PPS final rule (July 1, 2008 to June 30, 2011).

[[Page 27962]]

In order to identify the admissions for each condition for an
individual hospital for calculating the aggregate payments for excess
readmissions, we are proposing to identify each applicable condition
using the same ICD-9-CM codes used to identify applicable conditions to
calculate the excess readmission ratios. In the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51669), in our discussion of the methodology of the
readmissions measures, we stated that we identify eligible
hospitalizations and readmissions of Medicare patients discharged from
an applicable hospital having a principal diagnosis for the measured
condition in an applicable period. The discharge diagnoses for each
applicable condition are based on a list of specific ICD-9-CM codes for
that condition. These codes are listed in the 2010 Measures Maintenance
Technical Report: Acute Myocardial Infarction, Heart Failure, and
Pneumonia 30-Day Risk-Standardized Readmission Measures. They also are
posted on the Web site at: http://www.QualityNet.org > Hospital-
Inpatient > Readmission Measures > methodologies.
In order to identify the applicable conditions to calculate the
aggregate payments for excess readmissions, we are proposing to
identify the claim as an applicable condition if the ICD-9-CM code for
that condition is listed as the principal diagnosis on the claim,
consistent with the methodology to identify conditions to calculate the
excess readmission ratio. Furthermore, we are proposing to only
identify Medicare FFS claims that meet the criteria (that is, claims
paid for under Part C, Medicare Advantage, would not be included in
this calculation), consistent with the methodology to calculate excess
readmission ratios based on readmissions for Medicare FFS patients. The
tables below list the ICD-9-CM codes we are proposing to use to
identify each applicable condition to calculate the aggregate payments
for excess readmissions under this proposal. These ICD-9-CM codes will
also be used to identify the applicable conditions to calculate the
excess readmission ratios, consistent with our policy finalized in the
FY 2012 IPPS/LTCH PPS final rule.

ICD-9-CM Codes To Identify Pneumonia Cases
------------------------------------------------------------------------
ICD-9-CM Code Description of code
------------------------------------------------------------------------
480.0................................. Pneumonia due to adenovirus.
480.1................................. Pneumonia due to respiratory
syncytial virus.
480.2................................. Pneumonia due to parainfluenza
virus.
480.3................................. Pneumonia due to SARS-associated
coronavirus.
480.8................................. Viral pneumonia: pneumonia due
to other virus not elsewhere
classified.
480.9................................. Viral pneumonia unspecified.
481................................... Pneumococcal pneumonia
[streptococcus pneumoniae
pneumonia].
482.0................................. Pneumonia due to klebsiella
pneumoniae.
482.1................................. Pneumonia due to pseudomonas.
482.2................................. Pneumonia due to hemophilus
influenzae [h. influenzae].
482.30................................ Pneumonia due to streptococcus
unspecified.
482.31................................ Pneumonia due to streptococcus
group a.
482.32................................ Pneumonia due to streptococcus
group b.
482.39................................ Pneumonia due to other
streptococcus.
482.40................................ Pneumonia due to staphylococcus
unspecified.
482.41................................ Pneumonia due to staphylococcus
aureus.
482.42................................ Methicillin Resistant Pneumonia
due to Staphylococcus Aureus.
482.49................................ Other staphylococcus pneumonia.
482.81................................ Pneumonia due to anaerobes.
482.82................................ Pneumonia due to escherichia
coli [e.coli].
482.83................................ Pneumonia due to other gram-
negative bacteria.
482.84................................ Pneumonia due to legionnaires'
disease.
482.89................................ Pneumonia due to other specified
bacteria.
482.9................................. Bacterial pneumonia unspecified.
483.0................................. Pneumonia due to mycoplasma
pneumoniae.
483.1................................. Pneumonia due to chlamydia.
483.8................................. Pneumonia due to other specified
organism.
485................................... Bronchopneumonia organism
unspecified.
486................................... Pneumonia organism unspecified.
487.0................................. Influenza with pneumonia.
488.11................................ Influenza due to identified
novel H1N1 influenza virus with
pneumonia.
------------------------------------------------------------------------

ICD-9-CM Codes To Identify Heart Failure Cases
------------------------------------------------------------------------
ICD-9-CM Code Code description
------------------------------------------------------------------------
402.01................................ Hypertensive heart disease,
malignant, with heart failure.
402.11................................ Hypertensive heart disease,
benign, with heart failure.
402.91................................ Hypertensive heart disease,
unspecified, with heart
failure.
404.01................................ Hypertensive heart and chronic
kidney disease, malignant, with
heart failure and with chronic
kidney disease stage I through
stage IV, or unspecified.
404.03................................ Hypertensive heart and chronic
kidney disease, malignant, with
heart failure and with chronic
kidney disease stage V or end
stage renal disease.
404.11................................ Hypertensive heart and chronic
kidney disease, benign, with
heart failure and with chronic
kidney disease stage I through
stage IV, or unspecified.
404.13................................ Hypertensive heart and chronic
kidney disease, benign, with
heart failure and with chronic
kidney disease stage I through
stage IV, or unspecified
failure and chronic kidney
disease stage V or end stage
renal disease.

[[Page 27963]]

404.91................................ Hypertensive heart and chronic
kidney disease, unspecified,
with heart failure and chronic
kidney disease stage V or end
stage renal disease heart
failure and with chronic kidney
disease stage I through stage
IV, or unspecified.
404.93................................ Hypertensive heart and chronic
kidney disease, unspecified,
with heart failure and chronic
kidney disease stage V or end
stage renal disease.
428.xx................................ Heart Failure.
------------------------------------------------------------------------

ICD-9-CM Codes To Identify Acute Myocardial Infarction Cases
------------------------------------------------------------------------
ICD-9-CM Code Description of Code
------------------------------------------------------------------------
410.00................................ AMI (anterolateral wall)--
episode of care unspecified.
410.01................................ AMI (anterolateral wall)--
initial episode of care.
410.10................................ AMI (other anterior wall)--
episode of care unspecified.
410.11................................ AMI (other anterior wall)--
initial episode of care.
410.20................................ AMI (inferolateral wall)--
episode of care unspecified.
410.21................................ AMI (inferolateral wall)--
initial episode of care.
410.30................................ AMI (inferoposterior wall)--
episode of care unspecified.
410.31................................ AMI (inferoposterior wall)--
initial episode of care.
410.40................................ AMI (other inferior wall)--
episode of care unspecified.
410.41................................ AMI (other inferior wall)--
initial episode of care.
410.50................................ AMI (other lateral wall)--
episode of care unspecified.
410.51................................ AMI (other lateral wall)--
initial episode of care.
410.60................................ AMI (true posterior wall)--
episode of care unspecified.
410.61................................ AMI (true posterior wall)--
initial episode of care.
410.70................................ AMI (subendocardial)--episode of
care unspecified.
410.71................................ AMI (subendocardial)--initial
episode of care.
410.80................................ AMI (other specified site)--
episode of care unspecified.
410.81................................ AMI (other specified site)--
initial episode of care.
410.90................................ AMI (unspecified site)--episode
of care unspecified.
410.91................................ AMI (unspecified site)--initial
episode of care.
------------------------------------------------------------------------

Section 1886(q)(2) of the Act defines the base operating DRG
payment amount as ``the payment amount that would otherwise be made
under subsection (d) (determined without regard to subsection (o) [the
Hospital VBP Program]) for a discharge if this subsection did not
apply; reduced by * * * any portion of such payment amount that is
attributable to payments under paragraphs (5)(A), (5)(B), (5)(F), and
(12) of subsection (d).'' Paragraphs (d)(5)(A), (d)(5)(B), (d)(5)(F),
and (d)(12) of section 1886 refer to outlier payments, IME payments,
DSH payments, and payments for low-volume hospitals, respectively.
As discussed earlier in section IV.A.3.b.(1) of this preamble, we
are proposing to define ``base operating DRG payment amount'' under the
Hospital Readmissions Reduction Program as the wage-adjusted DRG
operating payment plus any new technology add-on payments. Thus, in
order to calculate the base operating DRG payment amount for such
condition for such hospital, we are proposing to identify the base
operating DRG payment amount for such conditions based on the payment
amounts in the MedPAR files on the claims identified to meet those
conditions based on their ICD-9-CM code.
As discussed in section IV.A.3.b. of this preamble, applicable
hospitals in the Hospital Readmissions Reduction Program include SCHs
and current MDHs (whose status is set to expire at the end of FY 2012),
as these hospitals meet the definition of subsection (d) hospitals.
SCHs are paid in the interim (prior to cost report settlement) on a
claim-by-claim basis at the amount that is the higher of the payment
based on the hospital-specific rate or the IPPS Federal rate based on
the standardized amount. At cost report settlement, the fiscal
intermediary or MAC determines whether the hospital would receive
higher IPPS payments in the aggregate using the hospital-specific rate
(on all claims) or the Federal rate (on all claims). MDHs are paid the
sum of the Federal payment amount plus 75 percent of the amount by
which their hospital-specific rate exceeds the Federal payment amount.
Although MDH status is to expire beginning in FY 2013, because we are
using historical data to determine the base operating DRG payments to
calculate adjustment factor, the payments reflected on claims for
current MDHs may be based on the hospital-specific rate. For SCHs and
current MDHs, we are proposing to model their base operating DRG
payment amount as they would have been paid under the Federal
standardized amount, rather than using the information on the claim
(which may represent a payment either made under the hospital-specific
rate or the Federal rate) so that their payments are consistent with
our proposed definition of base operating DRG payment. As such, the
payment difference between the payment made under the hospital-specific
rate and the payment made under the Federal rate is not included in the
base operating DRG amount to determine the readmission adjustment
factor; that is, it is neither included in the numerator of the
aggregate dollars for excess readmissions nor in the denominator of the
aggregate dollars for all discharges.
As discussed earlier, we are proposing to use data from the MedPAR
files that contain claims from the 3-year applicable period of July 1,
2008, to June 30, 2011, for FY 2013 to calculate aggregate payments for
excess readmissions (the numerator of the ratio). To calculate
aggregate payments for excess readmissions, we are proposing to
calculate the base operating DRG payment amounts for all the claims in
the 3-year applicable period that list each applicable

[[Page 27964]]

condition as the principal diagnosis (as described above). Once we have
calculated the base operating DRG payment amounts for all the claims
that list each condition as the principal diagnosis, we are proposing
to add up the base operating DRG payment amounts by each condition,
resulting in three summed amounts, one amount for each of the three
applicable conditions. We then are proposing to multiply each amount
for each condition by their respective excess readmission ratio minus
1. The methodology for the calculation of the excess readmission ratio
was finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673). We
are proposing that the excess readmission ratios for each condition
used to calculate the numerator of this ratio are excess readmission
ratios that have gone through the proposed review and correction
process described later in this proposed rule. Each product in this
computation represents the payment for excess readmissions for that
condition. We are proposing to then sum the resulting products, which
represent a hospital's proposed ``aggregate payments for excess
readmissions'' (the numerator of the ratio).
If a hospital has an excess readmission ratio that is greater than
1 for a condition, that hospital has performed, with respect to
readmissions for that applicable condition, worse than the average
hospital with similar patients. As such, it will have aggregate
payments for excess readmissions. If a hospital has an excess
readmission ratio that is less than (or equal) to one, that hospital
has performed better (or on average), with respect to readmissions for
that applicable condition, than an average hospital with similar
patients. As such, that hospital would not be considered to have
``aggregate payments'' for excess readmissions, and its payments would
not be reduced under section 1886(q) of the Act. As described in
section 1886(q)(4)(C) of the Act, and finalized in the FY 2012 IPPS/
LTCH PPS final rule, the excess readmission ratio used cannot be less
than 1 because the hospital will not have aggregate payments for excess
readmissions and will not be subject to a readmission payment
adjustment, as the hospital will have performed better than average.
Because this calculation is performed separately for the three
conditions, a hospital's excess readmission ratio must be less than or
equal to 1 on each measure to avoid aggregate payments for excess
readmissions.
Section 1886(q)(4)(B) of the Act defines ``aggregate payments for
all discharges'' (the denominator of the ratio) as ``for a hospital for
an applicable period, the sum of the base operating DRG payment amounts
for all discharges for all conditions from such hospital for such
applicable period.'' We are proposing to use the same MedPAR files to
calculate the denominator as we are proposing to use to calculate the
numerator, for the 3-year applicable period of July 1, 2008 to June 30,
2011, for FY 2013. We are proposing to calculate base operating DRG
payments in the same manner as we calculate base operating DRG payments
for the numerator. We are proposing to sum the base operating DRG
payment amounts for all Medicare FFS claims for such hospital during
the 3-year applicable period. We also are proposing that we would model
base operating DRG payment amount for SCHs and current MDHs as they
would have been paid under the Federal standardized amount, rather than
using the information on the claim (as described above).
We are proposing that the ratio described in section 1886(q)(3)(B)
of the Act is 1 minus the ratio of the numerator and denominator
described above. In addition, we are proposing that the readmission
adjustment for an applicable hospital is the higher of this ratio under
section 1886(q)(3)(B) of the Act or the floor of 0.99 for FY 2013.
Consistent with this proposal, under the regulations we are proposing
at 42 CFR 412.152, we are proposing to define ``readmissions adjustment
factor'' as equal to the greater of: (i) 1 minus the ratio of the
aggregate payments for excess readmissions to aggregate payments for
all discharges or (ii) the floor adjustment factor.
For this proposed rule, for the purpose of modeling the proposed
aggregate payments for excess readmissions and the proposed
readmissions adjustment factors, we are using excess readmission ratios
for the applicable hospitals from the 3-year period of July 1, 2007 to
June 30, 2010, because the underlying data from this period have
already been available to the public on the Hospital Compare Web site
(as of July 2011). The data from the 3-year applicable period for FY
2013 of July 1, 2008 to June 30, 2011, have not been through the review
and correct process required by section 1886(q)(6) of the Act (as
discussed below). For the final rule, we intend to use excess
readmission ratios based on discharges for the finalized applicable
period of July 1, 2008 to June 30, 2011, to calculate the aggregate
payments for excess readmissions and, ultimately, to calculate the
readmission adjustment factors. Applicable hospitals will have had the
opportunity to review and correct these data before they are made
public under our proposal set forth below regarding the reporting of
hospital-specific readmission rates, consistent with section 1886(q)(6)
of the Act.

Formulas To Calculate the Readmission Adjustment Factor

Aggregate payments for excess readmissions = [sum of base operating DRG
payments for AMI x (Excess Readmission Ratio for AMI-1)] + [sum of base
operating DRG payments for HF x (Excess Readmission Ratio for HF-1)] +
[sum of base operating DRG payments for PN x (Excess Readmission Ratio
for PN-1)].
Aggregate payments for all discharges = sum of base operating DRG
payments for all discharges.
Ratio = 1-(Aggregate payments for excess readmissions/Aggregate
payments for all discharges).
Readmissions Adjustment Factor for FY 2013 is the higher of the ratio
or 0.99.

*Based on claims data from July 1, 2008 to June 30, 2011 for FY
2013.

During the FY 2012 IPPS rulemaking cycle, we received public
comments expressing concern that hospitals that treat a larger
proportion of patients of lower socioeconomic circumstances may have
higher readmission rates and could be unfairly penalized under the
Hospital Readmissions Reduction Program. The table below shows, based
on the excess readmission ratios and the proposed methodology to
calculate the readmissions adjustment factor discussed in this proposed
rule, the estimated distribution of the readmission adjustment factors
among hospitals ranked by their DSH patient percentage (DPP). The DPP
is used as a proxy for low-income patients and is the sum of the
hospital's Medicare fraction and Medicaid fraction. The Medicare
fraction is computed by dividing the number of a hospital's inpatient
days that are furnished to patients who were entitled to both Medicare
Part A and Supplemental Security Income (SSI) benefits by the
hospital's total number of patient days furnished to patients entitled
to benefits under Medicare Part A. The Medicaid fraction is computed by
dividing the hospital's number of inpatient days furnished to patients
who, for such days, were eligible for Medicaid, but were not entitled
to benefits under Medicare Part A, by the hospital's total number of
inpatient days. The DPP is used to determine a hospital's Medicare DSH
payment adjustment. Thus, hospitals with higher

[[Page 27965]]

percentages of Medicare patients entitled to SSI and higher percentages
of Medicaid patients have higher DPPs. In the table, the hospitals are
ranked by their estimated DPP and categorized into deciles. The table
shows the number of hospitals within each decile that are subject to no
proposed readmission payment adjustment, the -1 percent floor
readmission payment adjustment, and a readmission payment adjustment
that is less than the -1 percent floor. We are inviting public comment
on this analysis.

Distribution of Hospitals Readmission Adjustment Factor by DSH Patient Percentage (DPP)
----------------------------------------------------------------------------------------------------------------
Payment
Number of adjustment of -1 Percent floor No readmission
Decile hospitals less than -1 adjustment adjustment
percent factor
----------------------------------------------------------------------------------------------------------------
Lowest DPP.............................. 339 156 38 145
Second.................................. 339 164 57 118
Third................................... 339 168 44 127
Fourth.................................. 339 170 48 121
Fifth................................... 339 182 42 115
Sixth................................... 339 171 43 125
Seventh................................. 339 187 44 108
Eighth.................................. 339 182 43 114
Ninth................................... 339 179 58 102
Highest DPP............................. 342 185 61 96
-----------------------------------------------------------------------
Total............................... 3,393 1,744 478 1,171
----------------------------------------------------------------------------------------------------------------

In addition, we have examined the estimated distribution of the
proposed readmission adjustment factor based on the excess readmission
ratios in this proposed rule (determined using the 2007-2010 data
discussed above). The table below shows the number and percentage of
hospitals ranked by the percent reduction received under the Hospital
Readmissions Reduction Program. The table shows that about 71 percent
of hospitals would receive either no adjustment or a readmission
adjustment factor that would reduce their base operating DRG payments
by less than 0.5 percent.

Distribution of Readmission Adjustment Factors
------------------------------------------------------------------------
Number of Percent of
Percent reduction hospitals hospitals
------------------------------------------------------------------------
No Adjustment....................... 1,171 34.5
Up to -.09 Percent.................. 347 10.2
-0.1 Percent to -0.19 Percent....... 280 8.3
-0.20 Percent to -0.29 Percent...... 228 6.7
-0.30 Percent to -0.39 Percent...... 196 5.8
-0.40 Percent to -0.49 Percent...... 180 5.3
-0.50 Percent to -0.59 Percent...... 129 3.8
-0.60 Percent to -0.69 Percent...... 118 3.5
-0.70 Percent to -0.79 Percent...... 110 3.2
-0.80 Percent to -0.89 Percent...... 77 2.3
-0.90 Percent to -0.99 Percent...... 76 2.2
-1.0 Percent........................ 481 14.2
-----------------------------------
Total........................... 3,393 100.0
------------------------------------------------------------------------

e. Proposals Regarding Applicable Hospitals
An ``applicable hospital,'' is defined at section 1886(q)(5)(C) of
the Act as (1) ``a subsection(d) hospital or (2) a hospital that is
paid under section 1814(b)(3).'' Specifically, hospitals subject to the
Hospital Readmissions Reduction Program are hospitals paid under the
IPPS and hospitals paid under the authority of section 1814(b)(3) of
the Act. We are interpreting this reference to section 1814(b)(3) of
the Act to mean those Maryland hospitals that are paid under section
1814(b)(3) of the Act and that, absent the ``waiver'' specified by
section 1814(b)(3) of the Act, would have been paid under the IPPS. A
subsection (d) hospital is defined in section 1886(d)(1)(B) of the Act,
in part, as a ``hospital located in one of the fifty States or the
District of Columbia.'' The term subsection (d) hospital does not
include hospitals located in the Territories or hospitals located in
Puerto Rico. Section 1886(d)(9)(A) of the Act separately defines a
``subsection(d) Puerto Rico hospital'' as a hospital that is located in
Puerto Rico and that ``would be a subsection(d) hospital * * * if it
were located in one of the 50 States.'' Therefore, Puerto Rico
hospitals are not considered applicable hospitals under the Hospital
Readmissions Reduction Program. Indian Health Services hospitals
enrolled as a Medicare provider meet the definition of a subsection (d)
hospital and, therefore, are considered an applicable hospital under
the Hospital Readmissions Reduction Program, even if they are not paid
under the IPPS. In addition, hospitals that are SCHs and current MDHs,
although they may be paid under a hospital-specific rate instead of
under the Federal rate under the IPPS, are subsection (d) hospitals
and, therefore, are included in the definition of an applicable
hospital

[[Page 27966]]

under the Hospital Readmissions Reduction Program.
A subsection (d) hospital as defined in section 1886(d)(1)(B) of
the Act does not include hospitals and hospital units excluded from the
IPPS, such as LTCHs, cancer hospitals, children's hospitals, IRFs, and
IPFs, and, therefore, these hospitals are not considered ``applicable
hospitals.'' CAHs are not ``applicable hospitals'' because they do not
meet the definition of a ``subsection (d) hospital,'' as they are
separately defined under section 1886(mm) of the Act and are paid under
a reasonable cost methodology under section 1814(l) of the Act.
Consistent with the statute, therefore, we are proposing to define
``applicable hospital'' under the regulations at 42 CFR 412.152 to
include both (1) subsection (d) hospitals, that is, hospitals paid
under the IPPS and (2) hospitals in Maryland that are paid under
section 1814(b)(3) of the Act and that, absent the ``waiver'' specified
by section 1814(b)(3) of the Act, would have been paid under the IPPS.
The term ``applicable hospital'' is also referenced in the
definition of readmission in section 1886(q)(5)(E) of the Act, which
defines ``readmission'' as ``in the case of an individual who is
discharged from an applicable hospital, the admission of the individual
to the same or another applicable hospital within a time period
specified by the Secretary from the date of such discharge.'' In the FY
2012 IPPS/LTCH PPS final rule (76 FR 51666), we finalized the
definition of readmission as ``occurring when a patient is discharged
from the applicable hospital and then is admitted to the same or
another acute care hospital within a specified time period from the
time of discharge from the index hospitalization.'' Furthermore, we
finalized the time period specified for these readmission measures as
30 days. With our proposal to define an applicable hospital as a
subsection (d) hospital or certain Maryland hospitals described above,
we also are proposing to refine the definition of readmission to only
include admissions and readmissions occurring from an applicable
hospital (that is, a subsection (d) hospital or certain Maryland
hospitals) to the same or another applicable hospital (again, a
subsection (d) hospital or certain Maryland hospitals) (proposed Sec.
412.152). Accordingly, excess readmission ratios calculated for the
purpose of the Hospital Readmissions Reduction Program would include
only admissions and readmissions to ``applicable hospitals.''
We note that because the Hospital Readmissions Reduction Program
only includes admissions and readmissions to ``applicable hospitals''
to calculate the excess readmission ratios used under section 1886(q)
of the Act, these excess readmission ratios will differ from the
readmission rates reported on Hospital Compare for the purpose of the
Hospital IQR Program. The excess readmission ratios for the purpose of
the Hospital IQR Program were determined based on admissions and
readmissions to all hospitals, not just hospitals specified in sections
1886(d) and 1814(b)(3) of the Act. Therefore, as discussed above, the
excess readmission ratios used in this proposed rule will use a subset
of the claims used to calculate the readmission rates reported on
Hospital Compare for the purpose of the Hospital IQR Program and would
be limited to admissions and readmissions to ``applicable hospitals''
and are based on the period of June 30, 2007 to July 1, 2010. In this
proposed rule, we are using these excess readmission ratios, as they
are based on the most recent data available and will allow the public
to replicate our methodology to understand how the readmission
adjustment factor is calculated. We believe that the differences
between these proposed excess readmission ratios and those excess
readmission ratios currently published on Hospital Compare under the
Hospital IQR Program are minimal, and we believe that it is helpful for
hospitals to see the impact of our proposed methodology to calculate
the readmission adjustment using excess readmission ratios calculated
under our methodology finalized in the FY 2012 IPPS/LTCH PPS final
rule. For the final rule, we intend to use excess readmission ratios
based on the applicable period of June 30, 2008 to July 1, 2011, as
finalized in the FY 2012 IPPS/LTCH PPS final rule, and hospitals will
have the opportunity to review and correct their data related to their
excess readmission ratios prior to the publication of those excess
readmission ratios.
We are specifically inviting public comment on our readmissions
proposal, including our proposed definition of base operating DRG
payment, our proposed methodology to calculate the readmission
adjustment factor, the minimum number of cases, and our proposed
definition of applicable hospital.
4. Limitations on Review (Proposed Sec. 412.154(e))
Section 1886(q)(7) of the Act provides that there will be no
administrative or judicial review under section 1869 of the Act, under
section 1878 of the Act, or otherwise for any of the following:
The determination of base operating DRG payment amounts.
The methodology for determining the adjustment factor,
including the excess readmissions ratio, aggregate payments for excess
readmissions, and aggregate payments for all discharges, and applicable
periods and applicable conditions.
We are proposing to include under proposed Sec. 412.154(e) that
the provisions listed above will not be subject to administrative or
judicial review, consistent with section 1886(q)(7) of the Act. We note
that section 1886(q)(6) of the Act requires that the Secretary ``make
information available to the public regarding readmissions rates of
each subsection (d) hospital under the [Hospital Readmissions Reduction
Program]'' and also requires the Secretary to ``ensure that a
subsection (d) hospital has the opportunity to review and submit
corrections for, the information to be made public.'' Our proposal for
reporting hospital-specific information, including a hospital's
opportunity to review and submit corrections, consistent with section
1886(q)(7) of the Act, is discussed below.
5. Reporting Hospital-Specific Information, Including Opportunity To
Review and Submit Corrections (Proposed Sec. 412.154(f))
Section 1886(q)(6)(A) of the Act requires the Secretary to ``make
information available to the public regarding readmissions rates of
each subsection (d) hospital under the [Hospital Readmissions Reduction
Program]''. Section 1886(q)(6)(B) of the Act also requires the
Secretary to ``ensure that a subsection (d) hospital has the
opportunity to review, and submit corrections for, the information to
be made public with respect to the hospital.'' In addition, section
1886(q)(6)(C) of the Act requires the Secretary to post the hospital-
specific readmission information for each subsection (d) hospital on
the Hospital Compare Web site in an easily understood format.
For purposes of the Hospital Readmissions Reduction Program for FY
2013, we will calculate excess readmission ratios for each of the three
conditions, AMI, HF, and PN, using the previously finalized 3-year
applicable period for the FY 2013 payment determination that spans from
July 1, 2008 through June 30, 2011 (76 FR 51671), data sources, and the
minimum number of discharges previously finalized in the FY 2012 IPPS/
LTCH

[[Page 27967]]

PPS final rule for each applicable hospital (76 FR 51671 through
51672). We intend to make these excess readmission ratios available to
the public, consistent with the requirements of section 1886(q)(6)(B)
of the Act, as part of the FY 2013 rulemaking process, in addition to
posting this information on the Hospital Compare Web site in a
subsequent release.
In the FY 2012 IPPS/LTCH PPS final rule, we indicated that we would
provide hospitals an opportunity to review and submit corrections using
a process similar to what is currently used for posting results on
Hospital Compare. We currently provide hospitals with the data elements
necessary to verify the accuracy of their readmission rates for the
Hospital IQR Program prior to posting their rates on Hospital Compare.
Because we believe it is important to provide hospitals with relevant
information available to hospitals for assessing payment impacts for
purposes of the Hospital Readmissions Reduction Program, we plan to
make the excess readmission ratios used for the Hospital Readmissions
Reduction Program adjustment factor calculation available during the
rulemaking cycle. As a result, the timeline and details of this process
must accommodate the rulemaking timeline in addition to posting on
Hospital Compare. We are proposing below the details regarding the
process for hospitals to review and submit corrections to their excess
readmission ratios prior to making this information available to the
public in rulemaking and on Hospital Compare.
For FY 2013, we are proposing to deliver confidential reports and
accompanying confidential discharge-level information to applicable
hospitals as defined in section IV.A.2. of this preamble, which contain
their excess readmission ratios for the three applicable conditions by
June 20, 2012. These reports will be delivered in hospitals' secure
QualityNet accounts. The information in the confidential reports and
accompanying confidential discharge-level information would be
calculated using the claims information we had available approximately
90 days after the last discharge date in the applicable period, which
is when we would create the data extract for the calculations (we
discuss this practice in more detail later).
The discharge-level information accompanying the excess readmission
ratios would include the risk-factors for the discharges that factor
into the calculation of the excess readmission ratio, as well as
information about the readmissions associated with these discharges
(such as dates, provider numbers, and diagnosis upon readmission). Our
intent in providing this information is twofold: (1) To facilitate
hospitals' verification of the excess readmission ratio calculations we
provide during the review and correction period based upon the
information CMS had available at the time our data extract was created;
and (2) to facilitate hospitals' quality improvement efforts with
respect to readmissions.
We are proposing to provide hospitals with a period of 30 days to
review and submit corrections for their excess readmission ratios for
the Hospital Readmissions Reduction Program. This 30-day period would
begin the day hospitals' confidential reports and accompanying
discharge-level information are posted to their QualityNet accounts.
Based on previous experience with public reporting of measures under
the Hospital IQR program, including the 30-day risk standardized
readmission rates, we believe this 30-day period would allow enough
time for hospitals to review their data and notify CMS of calculation
errors, and for CMS to incorporate appropriate corrections to the
excess readmission ratio calculations prior to the publication of the
final rule, at which time the excess readmission ratios would be made
available to the public in a table to be cited in the final rule and
available via the Internet on the CMS Web site. During the review and
correction period, hospitals should notify CMS of suspected errors in
their excess readmission ratio calculations using the technical
assistance contact information provided in their confidential reports.
The review and correction process we are proposing for the excess
readmission ratios above would not allow hospitals to submit additional
corrections related to the underlying claims data we used to calculate
the ratios, or allow hospitals to add new claims to the data extract we
used to calculate the ratios. This is because it is necessary to take a
static ``snapshot'' of the claims in order to perform the calculations.
For purposes of this program, we would calculate the excess readmission
ratios using a static snapshot (data extract) taken at the conclusion
of the 90 day period following the last date of discharge used in the
applicable period. We recognize that under our current timely claims
filing policy, hospitals have up to one year from the date of discharge
to submit a claim to CMS. However, in using claims data to calculate
measures for this program, we are proposing to create data extracts
using claims in CMS' Common Working File (CWF) 90 days after the last
discharge date in the applicable period which we will use for the
calculations. For example, if the last discharge date in the applicable
period for a measure is June 30, 2011, we would create the data extract
on September 30, 2011, and use that data to calculate the ratios for
that applicable period. Hospitals would then receive the excess
readmission ratio calculations in their confidential reports and
accompanying discharge-level information and they would have an
opportunity to review and submit corrections for the calculations. As
we stated above, hospitals would not be able to submit corrections to
the underlying data that were extracted on September 30, 2011, and
would also not be able to add claims to the data set. Therefore, we
would consider hospitals' claims data to be complete for purposes of
calculating the excess readmission ratios for the Hospital Readmissions
Reduction Program at the conclusion of the 90-day period following the
last date of discharge used in the applicable period.
We considered a number of factors in determining that a 90-day
``run-out'' period is appropriate for purposes of calculating claims
based measures. First, we seek to provide timely quality data to
hospitals for the purpose of quality improvement and to the public for
the purpose of transparency. Next, we seek to make payment adjustments
to hospitals based on their performance on measures as close in time to
the performance period as possible. Finally, with respect to claims-
based measures, we seek to have as complete a data set as possible,
recognizing that hospitals have up to one year from the date of
discharge to submit a claim under CMS' timely claims filing policy.
After the data extract is created, it takes several months to
incorporate other data needed for the calculations (particularly in the
case of risk-adjusted, and/or episode-based measures). We then need to
generate and check the calculations, as well as program, populate, and
deliver the confidential reports and accompanying data to be delivered
to hospitals. We also are aware that hospitals would prefer to receive
the calculations to be used for the Hospital Readmissions Reduction
Program as soon as possible. Because several months lead time is
necessary after acquiring the data to generate these claims-based
calculations, if we were to delay our data extraction point to 12
months after the last date of the last discharge in the applicable
period, we would not be able to deliver the calculations to hospitals
sooner than 18 to 24 months after the last discharge

[[Page 27968]]

date. We believe this would create an unacceptably long delay both for
hospitals and for CMS to deliver timely calculations to hospitals for
quality improvement and transparency, and ultimately timely readmission
adjustment factors for purposes of this program. Therefore, we are
proposing to extract the data needed to calculate the excess
readmission ratios for this program 90 days after the last date of
discharge for the applicable period so that we can balance the need to
provide timely program information to hospitals with the need to
calculate the claims-based measures using as complete a data set as
possible.
During the 30-day review and correction process for the excess
readmission ratios, if a subsection (d) hospital suspects that such
discrepancies exist in the CMS application of the measures'
methodology, it should notify CMS during the review and correction
period using the technical support contacts provided in the hospital's
confidential report. We would investigate the validity of each
submitted correction and notify hospitals of the results. If we confirm
that we made an error in creating the data extract or in calculating
the excess readmission ratios, we would strive to correct the
calculations, issue new confidential reports to subsection (d)
hospitals, and then publicly report the corrected excess readmission
ratios through the rulemaking process, and subsequently on Hospital
Compare. However, if the errors take more time than anticipated to
correct, not allowing for publication of the corrected ratios in the
final rule, we would notify hospitals in the final rule that corrected
ratios will be made available after the final rule through delivery of
confidential reports followed by a second 30-day review and correction
period, subsequent publication, and posting on Hospital Compare. In
addition, we are proposing that any corrections to a hospital's excess
readmission ratios would then be used to recalculate a hospital's ratio
under section 1886(q)(4)(B) of the Act in order to determine the
hospital's adjustment factor in accordance with section 1886(q)(3) of
the Act.
We believe that this proposed process would fulfill the statutory
requirements at section 1886(q)(6)(A), section 1886(q)(6)(B), and
section 1886(q)(6)(C) of the Act. We further believe that the proposed
process would allow hospitals to review and correct their excess
readmission ratios. We note that, under the proposed process, hospitals
would retain the ability to submit new claims and corrections to
submitted claims for payment purposes in line with CMS' timely claims
filing policies. However, we emphasize that the administrative claims
data used to calculate the excess readmission ratios reflect the state
of the claims at the time of extraction from CMS' Common Working File.
Under the proposed process, a hospital's opportunity to submit
corrections to the calculation of the excess readmission ratios ends at
the conclusion of the review and correction period. We welcome public
comments on the proposed review and corrections process for the
Hospital Readmissions Reduction Program.

B. Sole Community Hospitals (SCHs) (Sec. 412.92)

1. Background
Section 1886(d)(5)(D)(iii) of the Act defines a sole community
hospital (SCH) in part 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 inpatient hospital services reasonably available to Medicare
beneficiaries. The regulations at 42 CFR 412.92 set forth the criteria
that a hospital must meet to be classified as a SCH. For more
information on SCHs, we refer readers to the FY 2009 IPPS/LTCH PPS
final rule (74 FR 43894 through 463897).
2. Clarification of Regulations Regarding Duration of Classification
(Proposed Sec. 412.92(b)(3)(iv))
The regulations at Sec. 412.92(b)(2) and (b)(3) address the
effective dates of a classification as an SCH and the duration of this
classification. Currently, a hospital's SCH classification status
remains in effect without the need for reapproval unless there is a
change in the circumstances under which the classification was
approved. Section 412.92(b)(3) requires a hospital to notify the fiscal
intermediary (or MAC) within 30 days of when a change occurs that could
affect its classification as an SCH. Specifically, the regulations
require an SCH to notify its fiscal intermediary or MAC if any of the
following changes specified in Sec. 412.92(b)(3)(ii) (A) through (E)
occur:
The opening of a new hospital in its service area.
The opening of a new road between itself and a like
provider within 35 miles.
An increase in the number of beds to more than 50, if the
hospital qualifies as an SCH under Sec. 412.92(a)(1)(ii).
Its geographic classification changes.
Any changes to the driving conditions that result in a
decrease in the amount of travel time between itself and a like
provider if the hospital qualifies as an SCH under Sec. 412.92(a)(3).
As discussed in the FY 2007 IPPS final rule (71 FR 48060), in the
context of CMS becoming aware of several hospitals that had been paid
based on SCH status, even after the original circumstances that led to
the classification changed, CMS determined that an SCH's classification
status would end 30 days after CMS notifies the SCH that it no longer
meets the requirements to be classified as an SCH. However, if a
hospital does not report when any one of the changes listed above
occurs, CMS will cancel the hospital's SCH classification effective
with the date that the hospital no longer met the criteria for SCH
classification, subject to the reopening rules at 42 CFR 405.1885
(Sec. 412.92(a)(3)(i)).
For any change that is not listed under Sec. 412.92(b)(3)(ii)(A)
through (E) that affects an SCH's classification status, CMS requires a
hospital to report that change to the fiscal intermediary or MAC only
if it ``becomes aware'' of the change. If a hospital does not report a
change, other than those listed under Sec. 412.92(b)(3)(ii)(A) through
(E), and it becomes known to CMS that the hospital had knowledge of
that change, CMS will cancel the hospital's SCH classification
effective with the date the hospital became aware of the event.
Specifically, Sec. 412.92(b)(3)(iii) states that ``a sole community
hospital must report to the fiscal intermediary if it becomes aware of
any change that would affect its classification as a sole community
hospital beyond the events listed in paragraph (b)(3)(ii) of this
section within 30 days of the event. If CMS determines that a sole
community hospital has failed to comply with this requirement, CMS will
cancel the hospital's classification as a sole community hospital
effective with the date the hospital became aware of the event that
resulted in the sole community hospital no longer meeting the criteria
for such classification, consistent with the provisions of Sec.
405.1885 of this chapter.'' (Emphasis added.)
It has come to our attention that the existing regulations only
address a situation where an SCH no longer meets the requirements to be
classified as an SCH. The existing language at Sec. 412.92(b)(3)(iii)
only refers to a hospital becoming aware of a ``change,'' because it
deals specifically with a situation where a hospital was

[[Page 27969]]

appropriately classified as an SCH because it had previously met the
requirements to become an SCH. However, the regulations do not
explicitly address the situation where a hospital never met the
requirements to be classified as an SCH, but was incorrectly classified
as an SCH. We believe that the regulations need to be clarified to
state explicitly our current authority that if a determination is
subsequently made that, in fact, a hospital did not ever qualify as an
SCH, the withdrawal of SCH status could be made retroactively to revoke
the SCH status for the entire time period, consistent with the
reopening rules at Sec. 405.1885.
We continue to believe that any factor or information, not only a
change or an event, that could affect a hospital's SCH classification
status, must be reported by the SCH to its fiscal intermediary or MAC.
Accordingly, we are proposing to revise the regulations by adding a new
paragraph (b)(3)(iv) to Sec. 412.92 to clarify our current authority
that if CMS determines that the hospital was incorrectly classified as
an SCH, SCH status could be cancelled retroactively, consistent with
the provisions at Sec. 405.1885.
3. Proposed Change to Effective Date of Classification for MDHs
Applying for SCH Status Upon the Expiration of the MDH Program
(Proposed Sec. 412.92(b)(2)(v))
Under existing regulations at Sec. 412.92(b)(2), a SCH's status is
generally effective 30 days after CMS's written notification of
approval. It has come to our attention that there may be a number of
hospitals currently classified as MDHs under Sec. 412.108 of the
regulations that intend to apply for classification as SCHs upon the
expiration of the MDH program provision on September 30, 2012. Those
hospitals may be reluctant to apply for SCH classification status well
before the expiration of their MDH status because they would prefer to
maintain their MDH status for as long as possible. Conversely, if those
hospitals were to wait to apply for SCH classification status after
expiration of their MDH status, they could experience a financial
hardship if there were a delay in the approval for SCH classification
status. In order to facilitate a seamless transition for hospitals that
are currently classified as MDHs and that will qualify as SCHs, we are
proposing to add an exception to the effective dates of SCH
classification by adding a new paragraph (v) under Sec. 412.92(b)(2).
We are proposing that, for any MDH that applies for SCH classification
status at least 30 days prior to the expiration of the MDH program
provision and requests that SCH classification status be effective with
the expiration of the MDH program provision, and the MDH is approved
for SCH classification status, the effective date of the hospital's
classification as an SCH would be the day following the expiration date
of the MDH program provision (that is, October 1, 2012). For example,
Hospital A is an MDH that would like to maintain its MDH status for as
long as possible and be classified as an SCH only after its MDH status
expires. In order to seamlessly transition from MDH status to SCH
status, Hospital A must apply for SCH status prior to September 1,
2012, and must request that, if approved, SCH classification status be
effective with the expiration of the MDH program provision. If CMS
determines that Hospital A qualifies for SCH status, the effective date
of its SCH classification will be October 1, 2012.

C. Rural Referral Centers (RRCs): Annual Update to Case-Mix Index (CMI)
and Discharge Criteria (Sec. 412.96)

Under the authority of section 1886(d)(5)(C)(i) of the Act, the
regulations at Sec. 412.96 set forth the criteria that a hospital must
meet in order to qualify under the IPPS as a rural referral center
(RRC). RRCs receive some special treatment under both the DSH payment
adjustment and the criteria for geographic reclassification.
Section 402 of Public Law 108-173 raised the DSH payment adjustment
for RRCs such that they are not subject to the 12-percent cap on DSH
payments that is applicable to other rural hospitals. RRCs are also not
subject to the proximity criteria when applying for geographic
reclassification. In addition, they do not have to meet the requirement
that a hospital's average hourly wage must exceed, by a certain
percentage, the average hourly wage of the labor market area where the
hospital is located.
Section 4202(b) of Public Law 105-33 states, in part, ``[a]ny
hospital classified as an RRC by the Secretary * * * for fiscal year
1991 shall be classified as such an RRC for fiscal year 1998 and each
subsequent year.'' In the August 29, 1997 IPPS final rule with comment
period (62 FR 45999), CMS reinstated RRC status for all hospitals that
lost the status due to triennial review or MGCRB reclassification.
However, CMS did not reinstate the status of hospitals that lost RRC
status because they were now urban for all purposes because of the OMB
designation of their geographic area as urban. Subsequently, in the
August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were
revisiting that decision. Specifically, we stated that we would permit
hospitals that previously qualified as an RRC and lost their status due
to OMB redesignation of the county in which they are located from rural
to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC
status must satisfy all of the other applicable criteria. We use the
definitions of ``urban'' and ``rural'' specified in Subpart D of 42 CFR
part 412. One of the criteria under which a hospital may qualify as an
RRC is to have 275 or more beds available for use (Sec.
412.96(b)(1)(ii)). A rural hospital that does not meet the bed size
requirement can qualify as an RRC if the hospital meets two mandatory
prerequisites (a minimum CMI and a minimum number of discharges), and
at least one of three optional criteria (relating to specialty
composition of medical staff, source of inpatients, or referral
volume). (We refer readers to Sec. 412.96(c)(1) through (c)(5) and the
September 30, 1988 Federal Register (53 FR 38513).) With respect to the
two mandatory prerequisites, a hospital may be classified as an RRC
if--
The hospital's CMI is at least equal to the lower of the
median CMI for urban hospitals in its census region, excluding
hospitals with approved teaching programs, or the median CMI for all
urban hospitals nationally; and
The hospital's number of discharges is at least 5,000 per
year, or, if fewer, the median number of discharges for urban hospitals
in the census region in which the hospital is located. (The number of
discharges criterion for an osteopathic hospital is at least 3,000
discharges per year, as specified in section 1886(d)(5)(C)(i) of the
Act.)
1. Case-Mix Index (CMI)
Section 412.96(c)(1) provides that CMS establish updated national
and regional CMI values in each year's annual notice of prospective
payment rates for purposes of determining RRC status. The methodology
we used to determine the national and regional CMI values is set forth
in the regulations at Sec. 412.96(c)(1)(ii). The proposed national
median CMI value for FY 2013 includes data from all urban hospitals
nationwide, and the proposed regional values for FY 2013 are the median
CMI values of urban hospitals within each census region, excluding
those hospitals with approved teaching programs (that is, those
hospitals that train residents in an approved GME program as provided
in Sec. 413.75). These proposed values are based on discharges
occurring during FY 2011 (October 1, 2010 through September 30, 2011),
and include bills

[[Page 27970]]

posted to CMS' records through December 2011.
We are proposing that, in addition to meeting other criteria, if
rural hospitals with fewer than 275 beds are to qualify for initial RRC
status for cost reporting periods beginning on or after October 1,
2012, they must have a CMI value for FY 2011 that is at least--
1.5378; or
The median CMI value (not transfer-adjusted) for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 413.75) calculated by CMS for the census region in
which the hospital is located.
The proposed median CMI values by region are set forth in the
following table:

------------------------------------------------------------------------
Case-mix index
Region value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)............... 1.3085
2. Middle Atlantic (PA, NJ, NY)....................... 1.3739
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 1.4647
4. East North Central (IL, IN, MI, OH, WI)............ 1.4557
5. East South Central (AL, KY, MS, TN)................ 1.4025
6. West North Central (IA, KS, MN, MO, NE, ND, SD).... 1.4734
7. West South Central (AR, LA, OK, TX)................ 1.5861
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).......... 1.6132
9. Pacific (AK, CA, HI, OR, WA)....................... 1.5156
------------------------------------------------------------------------

The preceding numbers will be revised in the FY 2013 final rule to
the extent required to reflect the updated FY 2011 MedPAR file, which
will contain data from additional bills received through March 2012.
A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its fiscal intermediary
or MAC. Data are available on the Provider Statistical and
Reimbursement (PS&R) System. In keeping with our policy on discharges,
the CMI values are computed based on all Medicare patient discharges
subject to the IPPS MS-DRG-based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that CMS set forth the national
and regional numbers of discharges in each year's annual notice of
prospective payment rates for purposes of determining RRC status. As
specified in section 1886(d)(5)(C)(ii) of the Act, the national
standard is set at 5,000 discharges. We would normally propose to
update the regional standards based on discharges for urban hospitals'
cost reporting periods that began during FY 2010 (that is, October 1,
2009 through September 30, 2010), which would normally be the latest
cost report data available at the time of the development of this
proposed rule. However, due to a transition in our data system, in lieu
of a full year of FY 2010 cost report data, we needed to use a
combination of FY 2009 and FY 2010 cost report data in order to create
a full fiscal year of cost report data for this analysis. Due to CMS'
transition to a new cost reporting form effective for cost reporting
periods beginning on or after May 1, 2010, cost reports with fiscal
year begin dates of May 1, 2010 through September 30, 2010 were not
accessible on our system for analysis at the time of the development of
this proposed rule. Therefore, in order to have a complete fiscal year
of cost report data, we utilized FY 2009 cost report data for providers
with fiscal years beginning on or after May 1, 2010 and by September
30, 2010, in addition to the FY 2010 cost report data for providers
with fiscal years beginning on or after October 1, 2009 and before May
1, 2010.
Therefore, we are proposing that, in addition to meeting other
criteria, a hospital, if it is to qualify for initial RRC status for
cost reporting periods beginning on or after October 1, 2012, must
have, as the number of discharges for its cost reporting period that
began during FY 2010 (based on a combination of FY 2009 and FY 2010
cost report data as explained in the preceding paragraph), at least--
5,000 (3,000 for an osteopathic hospital); or
The median number of discharges for urban hospitals in the
census region in which the hospital is located, as indicated in the
following table.

------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)............... 8,159
2. Middle Atlantic (PA, NJ, NY)....................... 11,448
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 11,728
4. East North Central (IL, IN, MI, OH, WI)............ 8,833
5. East South Central (AL, KY, MS, TN)................ 7,234
6. West North Central (IA, KS, MN, MO, NE, ND, SD).... 8,129
7. West South Central (AR, LA, OK, TX)................ 6,253
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).......... 9,347
9. Pacific (AK, CA, HI, OR, WA)....................... 8,745
------------------------------------------------------------------------

These numbers will be revised in the FY 2013 final rule based on
the latest available cost report data.
We note that the median number of discharges for hospitals in each
census region is greater than the national standard of 5,000
discharges. Therefore, 5,000 discharges is the minimum criterion for
all hospitals under this proposed rule.
We reiterate that, if an osteopathic hospital is to qualify for RRC
status for cost reporting periods beginning on or after October 1,
2012, the hospital would be required to have at least 3,000 discharges
for its cost reporting period that began during FY 2010 (based on a
combination of FY 2009 and FY 2010 cost report data as explained
earlier in this section).

[[Page 27971]]

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

1. Expiration of the Affordable Care Act Provision for FYs 2011 and
2012
For FYs 2011 and 2012, the Affordable Care Act expanded the
definition of low-volume hospital and modified the methodology for
determining the payment adjustment for hospitals meeting that
definition. Beginning with FY 2013, the low-volume hospital qualifying
criteria and payment adjustment will revert to the statutory
requirements that were in effect prior to the amendments made by the
Affordable Care Act. We discuss the proposed payment policies for FY
2013 in section IV.D.4. of this preamble.
2. Background
Section 1886(d)(12) of the Act, as added by section 406(a) of
Public Law 108-173, provides for a payment adjustment to account for
the higher costs per discharge for low-volume hospitals under the IPPS,
effective beginning FY 2005. The additional payment adjustment to a
low-volume hospital provided for under section 1886(d)(12) of the Act
is ``in addition to any payment calculated under this section.''
Therefore, the additional payment adjustment is based on the per
discharge amount paid to the qualifying hospital under section 1886 of
the Act. In other words, the low-volume add-on payment amount is based
on total per discharge payments made under section 1886 of the Act,
including capital, DSH, IME, and outliers. For SCHs and MDHs, the low-
volume add-on payment amount is based on either the Federal rate or the
hospital-specific rate, whichever results in a greater operating IPPS
payment.
Section 1886(d)(12)(C)(i) of the Act defined a low-volume hospital
as ``a subsection (d) hospital (as defined in paragraph (1)(B)) that
the Secretary determines is located more than 25 road miles from
another subsection (d) hospital and that has less than 800 discharges
during the fiscal year.'' Section 1886(d)(12)(C)(ii) of the Act further
stipulates that the term ``discharge'' means ``an inpatient acute care
discharge of an individual regardless of whether the individual is
entitled to benefits under Part A.'' Therefore, the term ``discharge''
refers to total discharges, regardless of payer (that is, not only
Medicare discharges). Furthermore, under section 406(a) of Public Law
108-173, which initially added subparagraph (12) to section 1886(d) of
the Act, the provision requires the Secretary to determine an
applicable percentage increase for these low-volume hospitals based on
the ``empirical relationship'' between ``the standardized cost-per-case
for such hospitals and the total number of discharges of such hospitals
and the amount of the additional incremental costs (if any) that are
associated with such number of discharges.'' The statute thus mandates
that the Secretary develop an empirically justifiable adjustment based
on the relationship between costs and discharges for these low-volume
hospitals. Section 1886(d)(12)(B)(iii) of the Act limits the applicable
percentage increase adjustment to no more than 25 percent.
Based on an analysis we conducted for the FY 2005 IPPS final rule
(69 FR 49099 through 49102), a 25 percent low-volume adjustment to all
qualifying hospitals with less than 200 discharges was found to be most
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher
incremental costs are associated with low numbers of total discharges.
In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we stated
that multivariate analyses supported the existing low-volume adjustment
implemented in FY 2005. Therefore, the low-volume adjustment of an
additional 25 percent continues to be provided for qualifying hospitals
with less than 200 discharges.
3. Affordable Care Act Provisions for FYs 2011 and 2012
Sections 3125 and 10314 of the Affordable Care Act amended section
1886(d)(12) of the Act, modifying the definition of a low-volume
hospital and the methodology for calculating the payment adjustment for
low-volume hospitals, effective only for discharges occurring during
FYs 2011 and 2012. Beginning with FY 2013, the preexisting low-volume
hospital qualifying criteria and payment adjustment, as implemented in
FY 2005, will resume.
Sections 3125(3) and 10314(1) of the Affordable Care Act amended
the qualifying criteria for low-volume hospitals under section
1886(d)(12)(C)(i) of the Act to make it easier for hospitals to qualify
for the low-volume adjustment. Specifically, the provision specifies
that, for FYs 2011 and 2012, a hospital qualifies as a low-volume
hospital if it is ``more than 15 road miles from another subsection (d)
hospital and has less than 1,600 discharges of individuals entitled to,
or enrolled for, benefits under Part A during the fiscal year.'' In
addition, section 1886(d)(12)(D) of the Act, as added by section
3125(4) and amended by section 10314 of the Affordable Care Act,
provides that the payment adjustment (the applicable percentage
increase) is to be determined ``using a continuous linear sliding scale
ranging from 25 percent for low-volume hospitals with 200 or fewer
discharges of individuals entitled to, or enrolled for, benefits under
Part A in the fiscal year to 0 percent for low-volume hospitals with
greater than 1,600 discharges of such individuals in the fiscal year.''
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275
and 50414), we revised our regulations at 42 CFR 412.101 to reflect the
changes to the qualifying criteria and the payment adjustment for low-
volume hospitals according to the provisions of the Affordable Care
Act. In addition to changing the regulations to conform them to the
Affordable Care Act changes, we also defined, at Sec. 412.101(a), the
term ``road miles'' to mean ``miles'' as defined at Sec. 412.92(c)(i).
The definition of ``road miles'' continues to apply even after the
Affordable Care Act provisions expire at the end of FY 2012. We also
clarified the existing regulations to indicate that a hospital must
continue to qualify as a low-volume hospital in order to receive the
payment adjustment in that year; that is, it is not based on a one-time
qualification. Furthermore, in that same final rule, we discussed the
process for requesting and obtaining the low-volume hospital payment
adjustment (75 FR 50240).
4. Proposed Payment Adjustment for FY 2013 and Subsequent Fiscal Years
In accordance with section 1886(d)(12) of the Act, beginning with
FY 2013, the low-volume hospital definition and payment adjustment
methodology will revert back to the statutory requirements that were in
effect prior to the amendments made by the Affordable Care Act.
Therefore, effective for FY 2013 and subsequent years, in order to
qualify as a low-volume hospital, a subsection (d) hospital must be
more than 25 road miles from another subsection (d) hospital and have
less than 200 discharges (that is, less than 200 discharges total,
including both Medicare and non-Medicare discharges) during the fiscal
year. As discussed above, the statute specifies that a low-volume
hospital must have less than 800 discharges during the fiscal year.
However, as required by section 1886(d)(12)(B)(i) of the Act and as
discussed above, the Secretary has developed an empirically justifiable
payment adjustment based on the relationship, for IPPS hospitals with
less than 800 discharges, between the

[[Page 27972]]

additional incremental costs (if any) that are associated with a
particular number of discharges. Based on an analysis we conducted for
the FY 2005 IPPS final rule (69 FR 49099 through 49102), a 25-percent
low-volume adjustment to all qualifying hospitals with less than 200
discharges was found to be most consistent with the statutory
requirement to provide relief for low-volume hospitals where there is
empirical evidence that higher incremental costs are associated with
low numbers of total discharges. (Under the policy we established in
that same final rule, hospitals with between 200 and 799 discharges do
not receive a low-volume hospital adjustment.)
As described above, for FYs 2005 through 2010 and FY 2013 and
subsequent years, the discharge determination is made based on the
hospital's number of total discharges, that is, Medicare and non-
Medicare discharges. The hospital's most recently submitted cost report
is used to determine if the hospital meets the discharge criterion to
receive the low-volume payment adjustment in the current year (Sec.
412.101(b)(2)(i)). We use cost report data to determine if a hospital
meets the discharge criterion because this is the best available data
source that includes information on both Medicare and non-Medicare
discharges. We note that, for FYs 2011 and 2012, CMS used the most
recently available MedPAR data to determine the hospital's Medicare
discharges because only Medicare discharges were used to determine if a
hospital met the discharge criterion for those years.
For FY 2013 and for subsequent fiscal years, in addition to a
discharge criterion, the eligibility for the low-volume payment
adjustment is also dependent upon the hospital meeting the mileage
criterion specified at Sec. 412.101(b)(2)(i). Specifically, to meet
the mileage criterion to qualify for the low-volume payment adjustment
for FY 2013 and subsequent fiscal years, a hospital must be located
more than 25 road miles from the nearest ``subsection (d) hospital.''
As mentioned above, we define, at Sec. 412.101(a), the term ``road
miles'' to mean ``miles'' as defined at Sec. 412.92(c)(i) (75 FR 30238
through 50275 and 50414).
As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 30238
through 50275 and 50414), we discussed the process for requesting and
obtaining the low-volume hospital payment adjustment. In order to
qualify for the low-volume hospital payment adjustment, a hospital must
provide to its fiscal intermediary or MAC sufficient evidence to
document that it meets the discharge and distance requirements. The
fiscal intermediary or MAC will determine, based on the most recent
data available, if the hospital qualifies as a low-volume hospital, so
that the hospital will know in advance whether or not it will receive a
payment adjustment. The fiscal intermediary or MAC and CMS may review
available data, in addition to the data the hospital submits with its
request for low-volume hospital status, in order to determine whether
or not the hospital meets the qualifying criteria.
In order to receive a low-volume hospital payment adjustment under
Sec. 412.101, a hospital must notify and provide documentation to its
fiscal intermediary or MAC that it meets the mileage criterion. The use
of a Web-based mapping tool, such as MapQuest, as part of documenting
that the hospital meets the mileage criterion for low-volume hospitals,
is acceptable. The fiscal intermediary or MAC will determine if the
information submitted by the hospital, such as the name and street
address of the nearest hospitals, location on a map, and distance (in
road miles, as defined in the regulations at Sec. 412.101(a)) from the
hospital requesting low-volume hospital status, is sufficient to
document that it meets the mileage criterion. If not, the fiscal
intermediary or MAC will follow up with the hospital to obtain
additional necessary information to determine whether or not the
hospital meets the low-volume mileage criterion. In addition, the
fiscal intermediary or MAC will refer to the hospital's most recently
submitted cost report to determine whether or not the hospital meets
the discharge criterion. A hospital should refer to its most recently
submitted cost report for total discharges (Medicare and non-Medicare)
in order to decide whether or not to apply for low-volume hospital
status for a particular fiscal year. As noted previously, a hospital
must continue to meet the qualifying criterion at Sec.
412.101(b)(2)(i) as a low-volume hospital (that is, the discharge
criterion and the mileage criterion) in order to receive the payment
adjustment in that year; that is, low-volume hospital status is not
based on a ``one-time'' qualification.
In order to be a low-volume hospital in FY 2013 and subsequent
fiscal years, in accordance with our previously established procedure,
a hospital must make its request for low-volume hospital status in
writing to its fiscal intermediary or MAC by September 1 immediately
preceding the start of the Federal fiscal year for which the hospital
is applying for low-volume hospital status in order for the 25 percent
low-volume add-on payment adjustment to be applied to payments for its
discharges for the fiscal year beginning on or after October 1
immediately following the request (that is, the start of the Federal
fiscal year). For a hospital whose request for low-volume hospital
status is received after September 1, if the fiscal intermediary or MAC
determines the hospital meets the criteria to qualify as a low-volume
hospital, the fiscal intermediary or MAC will apply the 25 percent low-
volume add-on payment adjustment to determine payment for the
hospital's discharges for the fiscal year, effective prospectively
within 30 days of the date of the fiscal intermediary's or MAC's low-
volume status determination.
Specifically, for FY 2013, a hospital must make its request for
low-volume hospital status in writing to its fiscal intermediary or MAC
by September 1, 2012, in order for the 25 percent low-volume add-on
payment adjustment to be applied to payments for its discharges
beginning on or after October 1, 2012 (through September 30, 2013). If
a hospital's request for low-volume hospital status for FY 2013 is
received after September 1, 2012, and if the fiscal intermediary or MAC
determines the hospital meets the criteria to qualify as a low-volume
hospital, the fiscal intermediary or MAC will apply the 25 percent low-
volume add-on payment adjustment to determine the payment for the
hospital's FY 2013 discharges, effective prospectively within 30 days
of the date of the fiscal intermediary's or MAC's low-volume status
determination. For additional information on our established
application process for the low-volume hospital payment adjustment, we
refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 20574
through 20575), Transmittal 2060 (Change Request 7134; October 1,
2010), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680).
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275
and 50414), in addition to implementing the Affordable Care Act
provisions affecting low-volume hospitals for FYs 2011 and 2012, we
also implemented changes to the regulations at 42 CFR 412.101 to
conform them to the statutory requirements to require that, beginning
with FY 2013, the low-volume hospital qualifying criteria and payment
adjustment methodology will return to that which was in effect prior to
the amendments made by the Affordable Care Act (that is, the low-volume
hospital payment policy in effect for FYs 2005 through 2010).
Therefore, no further revisions to the policy or to the

[[Page 27973]]

regulations at Sec. 412.101 are required to conform them to the
statutory requirement that the low-volume hospital policy in effect
prior to the Affordable Care Act returns for FY 2013 and subsequent
years.

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

1. IME Adjustment Factor for FY 2013
Under the IPPS, an additional payment amount is made to hospitals
that have residents in an approved graduate medical education (GME)
program in order to reflect the higher indirect patient care costs of
teaching hospitals relative to nonteaching hospitals. The payment
amount is determined by use of a statutorily specified adjustment
factor. The regulations regarding the calculation of this additional
payment, known as the IME adjustment, are located at Sec. 412.105. We
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680) for
a full discussion of the IME adjustment and IME adjustment factor.
Section 1886(d)(5)(B) of the Act states that, for discharges occurring
during FY 2008 and fiscal years thereafter, the IME formula multiplier
is 1.35. Accordingly, for discharges occurring during FY 2013, the
formula multiplier is 1.35. We estimate that application of this
formula multiplier for the FY 2013 IME adjustment will result in an
increase in IPPS payment of 5.5 percent for every approximately 10-
percent increase in the hospital's resident-to-bed ratio.
2. Clarification and Proposal Regarding Timely Filing Requirements
Under Fee-for-Service Medicare
a. IME and Direct GME
The Balanced Budget Act of 1997 (Pub. L. 105-33) amended sections
1886(d) and 1886(h) of the Act by adding paragraphs (d)(11) and
(h)(3)(D), respectively, to establish payment provisions for IME and
direct GME costs to hospitals providing services to Medicare + Choice
(now Medicare Advantage) enrollees. Sections 1886(d)(11) and
1886(h)(3)(D) of the Act specify that the Secretary shall provide for
an ``additional payment amount'' for services furnished to individuals
who are enrolled in a Medicare Advantage plan under Medicare Part C. To
implement sections 1886(d)(11) and 1886(h)(3)(D) of the Act, we issued
two final rules in the Federal Register that specifically addressed IME
and direct GME payments to teaching hospitals for services provided to
Medicare Advantage enrollees (the FY 1997 IPPS final rule (62 FR 46003)
and the FY 1998 IPPS final rule (63 FR 26341)). Subsequent to the FY
1998 IPPS final rule, we (then HCFA) issued a Program Memorandum (PM),
A-98-21, in July 1998, which outlined fiscal intermediary and standard
system changes needed to process requests for IME and direct GME
supplemental payments for services provided to Medicare Advantage
enrollees. The PM explained that hospitals must submit their Medicare
claims to the fiscal intermediary in UB-92 format in order for the
standard system to process the claims so that hospitals may be paid the
supplemental IME and direct GME payments for services provided to
Medicare Advantage enrollees. It was always our intent that the claims
filing requirements under 42 CFR Part 424, including the time limits at
42 CFR 424.44, fully applied to these claims submissions.
Existing Sec. 424.44 of the regulations contains the time limits
for filing all Medicare claims. In this proposed rule, we are
clarifying again that the regulations governing time limits for filing
claims at Sec. 424.44 apply to claims submitted for IME and direct GME
payments associated with services provided to Medicare Advantage
enrollees. The process that was established by PM A-98-21 is within the
same framework of the preexisting methodology for submitting claims
under Medicare Part A. Therefore, because IME and direct GME payments
for services provided to Medicare Advantage enrollees are also made
under Medicare Part A, the same timely filing requirements that apply
to other Part A claims for payments also apply to claims for IME and
direct GME payments for services provided to Managed Advantage
enrollees. In this proposed rule, we are clarifying once again that
when hospitals submit claims for services provided to Medicare
Advantage enrollees for additional IME and direct GME payments, the
hospitals must comply with the regulations governing time limits for
filing claims at Sec. 424.44.
b. Nursing and Allied Health Education
Section 541 of the Balanced Budget Refinement Act (BBRA) of 1999
(Pub. L. 106-113) further amended section 1886 of the Act by adding
subsection (l) to provide for additional payments to hospitals that
operate nursing or allied health education programs and incur costs
associated with services provided to Medicare+Choice (now Medicare
Advantage) enrollees. Section 512 of the Benefits Improvement and
Protection Act (BIPA) (Pub. L. 106-554) changed the formula for
determining the additional payment amount paid to hospitals that
operate nursing or allied health education programs and incur costs for
services provided to Medicare+Choice (now Medicare Advantage)
enrollees. We issued several PMs (Transmittals A-00-86 on November 22,
2000, and A-03-043 on May 23, 2003) to implement section 541 of the
BBRA and section 512 of the BIPA. We also issued related Transmittal A-
03-007 on February 3, 2003, and Transmittal A-03-045 on May 30, 2003,
to instruct hospitals that operate a nursing or allied health education
program and that qualify for additional payment related to services
provided to Medicare Advantage enrollees to also submit those claims
for processing as no-pay bills in the UB-92 format. These transmittals
also instructed hospitals that are not paid under the IPPS, hospitals
with rehabilitation and psychiatric units, and hospitals that operate
approved nursing or allied health education programs (but may not have
approved GME residency programs) to submit claims for services provided
to Medicare Advantage enrollees to their fiscal intermediary in UB-92
format with specific condition codes present. In this proposed rule, we
also are clarifying that the regulations governing the time limits for
filing claims at Sec. 424.44 also apply to claims submitted for
nursing or allied health education program payments for services
provided to Medicare Advantage enrollees.
c. Disproportionate Share Hospital (DSH) Payments
On July 20, 2007, we issued Change Request 5647 instructing
applicable hospitals to submit no pay bills for their Medicare
Advantage patients for FY 2007 forward in order for these days to be
captured in the DSH calculation. Because we issued this request in the
middle of FY 2007, we later believed it was appropriate to extend the
deadline for submission of FY 2007 and FY 2008 no pay Medicare
Advantage bills to August 31, 2010.
In this proposed rule, we are proposing to adopt a policy that
hospitals that are required to submit no pay bills for services
furnished on a prepaid capitation basis by a Medicare Advantage
organization, or through cost settlement with either a health
maintenance organization (HMO), a competitive medical plan (CMP), a
health care prepayment plan (HCPP), or a demonstration, for the purpose
of calculating the DSH patient percentage (DPP) must also do so within
the time limits for filing claims specified at Sec. 424.44. In the FY
2011 IPPS/LTCH PPS final rule (75 FR 50282), we

[[Page 27974]]

changed our methodology for calculating the SSI fraction of the DSH
adjustment, in part, by using claims information that is updated 15
months after the close of each Federal fiscal year. We believed that
allowing for a 15-month run-out period would more closely align the
timing of the match process with the requirements for the timely
submission of claims. As we stated in that final rule, hospitals may
not have an incentive to submit no pay bills in as timely a manner as
they would for fee-for-service claims. In order to ensure that no pay
claims are properly incorporated into the DSH calculation, in this
proposed rule, we are proposing to extend our rules regarding the
timely submission of claims to no pay bills submitted for the purposes
of calculating the DPP.
To clarify our existing policy for hospitals to file timely claims
in order to receive supplemental IME, direct GME and/or nursing or
allied health education payments for Medicare Advantage enrollees and
to propose that hospitals that are required to submit no pay bills for
the purpose of calculating the DPP must also follow the time limits for
filing claims, we are proposing to revise the regulations at Sec.
424.30 to reflect these requirements.
3. Other Related Proposed Policy Changes
In sections IV.F. and IV.I of this preamble, we present other
proposed policy changes relating to determining labor and delivery bed
counts for purposes of the DSH payment adjustment and relating to
determining FTE resident caps for direct GME and IME payment purposes
that would have an effect on the IME payment adjustment.

F. Payment Adjustment for Medicare Disproportionate Share Hospitals
(DSHs) and Indirect Medical Education (IME) (Sec. Sec. 412.105 and
412.106)

1. Background
For the most recent background discussion regarding the Medicare
payment adjustment for subsection (d) hospitals that serve a
significantly disproportionate number of low-income patients, we refer
readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51681).
As we did in FY 2012 IPPS/LTCH PPS final rule, we are combining,
under section IV.I.2. of this preamble, our discussion of proposed
changes to the policies for counting beds in relation to the
calculations for the IME adjustment at Sec. 412.105(b) and the DSH
payment adjustment at Sec. 412.106(a)(1)(i) because the underlying
concepts are similar, and we believe they should generally be
interpreted in a consistent manner for both purposes.
2. Proposed Policy Change Relating to Treatment of Labor and Delivery
Beds in the Calculation of the Medicare DSH Payment Adjustment and the
IME Payment Adjustment
a. Background
Medicare's policy with respect to the treatment of labor and
delivery services in the calculation of the Medicare DSH payment
adjustment has undergone a number of changes over the years. (We refer
readers to the background discussion regarding these policy changes in
the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43899 through
43901)). The most recent change in policy was adopted in the FY 2010
IPPS/RY 2010 LTCH PPS final rule. Prior to FY 2010, our policy was to
exclude from the count of inpatient days for purposes of the Medicare
DSH calculation labor and delivery patient days associated with beds
used for ancillary labor and delivery services when the patient did not
occupy a routine bed prior to occupying an ancillary labor and delivery
bed. This policy applied whether the hospital maintained separate labor
and delivery rooms and postpartum rooms, or whether it maintained
``maternity suites'' in which labor, delivery, and postpartum services
all occurred in the same bed. However, in the latter case, patient days
were counted proportionally based on the proportion of (routine/
ancillary) services furnished. (We refer readers to the example
provided in the FY 2004 IPPS final rule (68 FR 45420) that describes
how routine and ancillary days are allocated under this policy.)
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we revised our
regulations to include in the DPP of the Medicare DSH adjustment all
patient days associated with patients occupying labor and delivery beds
once the patient has been admitted to the hospital as an inpatient,
regardless of whether the patient days are associated with patients who
occupied a routine bed prior to occupying an ancillary labor and
delivery bed. Our rationale for adopting this change was that the costs
associated with labor and delivery patient days are generally payable
under the IPPS. Although we adopted this change with respect to labor
and delivery patient days, we did not make a similar change to our
policy for counting hospital beds.
b. Proposed Policy Change
As we recently stated in the FY 2012 IPPS/LTCH PPS final rule (76
FR 51682), our policy for counting hospital beds is to include bed days
available for IPPS-level acute care hospital services. In the FY 2004
IPPS final rule (68 FR 45417), we stated that beds in a particular unit
would be considered available for IPPS-level acute care services if the
services furnished in that unit were generally payable under the IPPS.
Moreover, as stated above, our policy for counting patient days with
respect to the Medicare DSH payment adjustment is to include patient
days in units that provide services that are generally payable under
the IPPS. Under our current policy, the services furnished to a labor
and delivery patient are considered to be generally payable under the
IPPS (74 FR 43900).
We recognize that, under our current policy, while the services
furnished to a labor and delivery patient are considered to be
generally payable under the IPPS, under Sec. 412.105(b)(4), the bed
where the services are furnished is not considered to be available for
IPPS-level care.
Upon further examination of our existing policies, we believe that
if a patient day is counted because the services furnished are
generally payable under the IPPS, the bed in which the services were
furnished should also be considered to be available for IPPS-level
care. Accordingly, we believe it is appropriate to extend our current
approach of including labor and delivery patient days in the DPP of the
Medicare DSH payment adjustment to our rules for counting hospital beds
for purposes of both the IME payment adjustment and the Medicare DSH
payment adjustment. Specifically, because we have described labor and
delivery patient days as being generally payable under the IPPS (74 FR
43900), we believe that the bed in which such services are furnished
should also be considered to be available for IPPS-level care, and
should be included in the count of beds available for IPPS-level acute
care hospital services. The rules for counting hospital beds for
purposes of the IME payment adjustment are codified in the IME
regulations at Sec. 412.105(b), which are cross-referenced in Sec.
412.106(a)(1)(i) for purposes of determining the DSH payment
adjustment.
In light of the similar policy rationales for determining patient
days in the calculation of the Medicare DSH payment adjustment, and for
determining bed days for both the Medicare DSH payment adjustment and

[[Page 27975]]

IME payment adjustment, we are proposing to include labor and delivery
bed days in the count of available beds used in the IME and DSH
calculations. Moreover, our proposal to treat labor and delivery
patient days and bed days consistently is consistent with our approach
with respect to the observation, swing-bed, and hospice days, which are
excluded from both the patient day count and the available bed count.
Accordingly, we are proposing to revise the regulations at Sec.
412.105(b)(4) to remove from the list of currently excluded beds those
beds associated with ``ancillary labor/delivery services.'' We are
proposing that this regulation change would be effective for cost
reporting periods beginning on or after October 1, 2012.
As we noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43900), our policy for counting labor and delivery patient days does
not allow for the inclusion of days of labor and delivery patients who
are not admitted to the hospital as inpatients. For example, if a woman
presents at a hospital for labor and delivery services, but is
determined by medical staff to be in false labor and is sent home
without ever being admitted to the hospital as an inpatient, any days
associated with such services furnished by the hospital would not be
included in the DPP for purposes of the calculation of the Medicare DSH
payment adjustment. For the same reason, days on which labor and
delivery beds are used for such services also will be excluded from the
count of available bed days.

G. Expiration of the Medicare-Dependent, Small Rural Hospital (MDH)
Program (Sec. 412.108)

Under current law, separate special payment protections are
provided to a Medicare-dependent, small rural hospital (MDH) under the
IPPS through the end of FY 2012. (For additional information on the MDH
program and the payment methodology, we refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51683 through 51684.) The provisions
for MDHs at section 1886(d)(5) of the Act expire at the end of FY 2012
(that is, with discharges occurring on September 30, 2012). As we
discussed in the FY 2012 IPPS/LTCH PPS final rule, section 3124 of the
Affordable Care Act extended the MDH program from the end of FY 2011
(that is, for discharges occurring before October 1, 2011) to the end
of FY 2012 (that is, for discharges occurring before October 1, 2012).
Under prior law, as specified in section 5003(a) of Public Law 109-171
(DRA 2005), the MDH program was to be in effect through the end of FY
2011 only. Section 3124(a) of the Affordable Care Act amended sections
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to extend the MDH
program and payment methodology from the end of FY 2011 to the end of
FY 2012, by striking ``October 1, 2011'' and inserting ``October 1,
2012''. Section 3124(b) of the Affordable Care Act also made conforming
amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the
Act. Section 3124(b)(2) of the Affordable Care Act also amended section
13501(e)(2) of OBRA 1993 to extend the provision permitting hospitals
to decline reclassification as an MDH through FY 2012. In the FY 2011
IPPS/LTCH PPS final rule (75 FR 50287 and 50414), we amended the
regulations at Sec. 412.108(a)(1) and (c)(2)(iii) to reflect the
statutory extension of the MDH program through FY 2012. In the FY 2012
IPPS/LTCH PPS final rule (76 FR 51683 through 51684), we did not make
any additional changes to this regulatory text for FY 2012.
Because the MDH program is not authorized by statute beyond FY
2012, all hospitals that previously qualified for MDH status will no
longer have MDH status and will be paid based on the Federal rate
beginning in FY 2013. (We note that, in section IV.B.3. of this
preamble, we are proposing to revise our SCH policies to allow MDHs to
apply for SCH status and be paid as such under certain proposed
conditions, following expiration of the MDH program.) For the FY 2013
impact of the expiration of the MDH program at the end of FY 2012, we
refer readers to section I.G.2.j. of Appendix A to this proposed rule.

H. Proposed Changes in the Inpatient Hospital Update

1. FY 2013 Inpatient Hospital Update
In accordance with section 1886(b)(3)(B)(i) of the Act, each year
we update the national standardized amount for inpatient operating
costs by a factor called the ``applicable percentage increase.'' Prior
to enactment of the Affordable Care Act, section 1886(b)(3)(B)(i)(XX)
of the Act set the applicable percentage increase equal to the rate-of-
increase in the hospital market basket for subsection (d) hospitals
(hereafter referred to as ``IPPS hospitals'') in all areas, subject to
the hospital submitting quality information under rules established by
the Secretary in accordance with section 1886(b)(3)(B)(viii) of the
Act. For hospitals that did not provide these data, the update was
equal to the market basket percentage increase less an additional 2.0
percentage points. The update for the hospital-specific rates for SCHs
is set by section 1886(b)(3)(B)(iv) of the Act as discussed further
below.
Section 1886(b)(3)(B) of the Act, as amended by sections 3401(a)
and 10319(a) of the Affordable Care Act, sets the applicable percentage
increase under the IPPS for FY 2013 as equal to the rate-of-increase in
the hospital market basket for IPPS hospitals in all areas (which is
currently based on the first quarter 2012 forecast of the FY 2006-based
IPPS market basket), subject to a reduction of 2.0 percentage points if
the hospital fails to submit quality information under rules
established by the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act, and then subject to an adjustment based
on changes in economy-wide productivity (the multifactor productivity
(MFP) adjustment), and an additional reduction of 0.1 percentage point.
Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by
section 3401(a) of the Affordable Care Act, state that application of
the MFP adjustment and the additional FY 2013 adjustment of 0.1
percentage point may result in the applicable percentage increase being
less than zero.
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through
51692), we finalized our methodology for calculating and applying the
MFP adjustment. For FY 2013, we are not proposing any change in our
methodology for calculating and applying the MFP adjustment. Similar to
the market basket increase, we are using the most recent data available
for this proposed rule to compute the MFP adjustment. Using the
methodology that we finalized in the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51690), based on the most recent data available for this
proposed rule, in accordance with section 1886(b)(3)(B) of the Act, we
based the proposed FY 2013 market basket update used to determine the
applicable percentage increase for the IPPS on the IHS Global Insight,
Inc. (IGI's) first quarter 2012 forecast of the FY 2006-based IPPS
market basket rate-of-increase, which is estimated to be 3.0 percent.
This proposed percentage increase, subject to the hospital submitting
quality data under rules established by the Secretary in accordance
with section 1886(b)(3)(B)(viii) of the Act, is then reduced by the
most recent estimate of the MFP adjustment (the 10-year moving average
of MFP for the period ending FY 2013) of 0.8 percent, which is
calculated using the methodology described in the FY 2012 IPPS/LTCH

[[Page 27976]]

PPS final rule (76 FR 51690) and based on IGI's first quarter 2012
forecast. Following application of the MFP adjustment, the applicable
percentage increase is then reduced by 0.1 percentage point, as
required by section 1886(b)(3)(B)(xii) of the Act (as discussed in
section I. of the Addendum to this proposed rule).
Consistent with current law, and based on IGI's first quarter 2012
forecast of the FY 2013 market basket increase, we are proposing an
applicable percentage increase to the FY 2013 operating standardized
amount of 2.1 percent (that is, the FY 2013 estimate of the market
basket rate-of-increase of 3.0 percent less an adjustment of 0.8
percentage point for economy-wide productivity (that is, the MFP
adjustment) and less 0.1 percentage point) for hospitals in all areas,
provided the hospital submits quality data under rules established in
accordance with section 1886(b)(3)(B)(viii) of the Act in accordance
with our rules. For hospitals that do not submit these quality data, we
are proposing an applicable percentage increase to the operating
standardized amount of 0.1 percent (that is, the FY 2013 estimate of
the market basket rate-of-increase of 3.0 percent, less 2.0 percentage
points for failure to submit quality data, less an adjustment of 0.8
percentage point for the MFP adjustment, and less an additional
adjustment of 0.1 percentage point). Lastly, we also are proposing that
if more recent data are subsequently available (for example, a more
recent estimate of the market basket and MFP adjustment), we would use
such data, if appropriate, to determine the FY 2013 market basket
update and MFP adjustment in the final rule.
We are proposing to revise the existing regulations at 42 CFR
412.64(d)(1)(iv) to reflect the current law for the FY 2013 update.
Specifically, in accordance with section 1886(b)(3)(B) of the Act, we
are proposing to revise paragraph (d)(1)(iv) to reflect the applicable
percentage increase to the FY 2013 operating standardized amount as the
percentage increase in the market basket index less an MFP adjustment
and less an additional reduction of 0.1 percentage point.
Section 1886(b)(3)(B)(iv) of the Act provides that the applicable
percentage increase to the hospital-specific rates for SCHs equals the
applicable percentage increase set forth in section 1886(b)(3)(B)(i) of
the Act (that is, the same update factor as for all other hospitals
subject to the IPPS). Therefore, the update to the hospital-specific
rates for SCHs is also subject to section 1886(b)(3)(B)(i) of the Act,
as amended by sections 3401(a) and 10319(a) of the Affordable Care Act.
Accordingly, we are proposing an update to the hospital-specific rates
applicable to SCHs of 2.1 percent for hospitals that submit quality
data or 0.1 percent for hospitals that fail to submit quality data. For
FY 2013, the regulations in Sec. Sec. 412.73(c)(16), 412.75(d),
412.77(e) and 412.78(e) already contain provisions that set the update
factor for SCHs equal to the update factor applied to the national
standardized amount for all IPPS hospitals. Therefore, we are not
proposing to make further changes to these four regulatory provisions
to reflect the FY 2013 update factor for the hospital-specific rates of
SCHs.
We note that, as discussed in section IV.G. of this preamble,
section 3124 of the Affordable Care Act extended the MDH program from
the end of FY 2011 (that is, for discharges occurring before October 1,
2011) to the end of FY 2012 (that is, for discharges occurring before
October 1, 2012). Under prior law, the MDH program was to be in effect
through the end of FY 2011 only. Absent additional legislation further
extending the MDH program, the MDH program will expire for discharges
beginning in FY 2013. Accordingly, we are not including MDHs in our
proposal to update the hospital-specific rates for FY 2013.
2. FY 2013 Puerto Rico Hospital Update
Puerto Rico hospitals are paid a blended rate for their inpatient
operating costs based on 75 percent of the national standardized amount
and 25 percent of the Puerto Rico-specific standardized amount. Section
1886(d)(9)(C)(i) of the Act is the basis for determining the applicable
percentage increase applied to the Puerto Rico-specific standardized
amount. Section 401(c) of Pub. L. 108-173 amended section
1886(d)(9)(C)(i) of the Act, which states that, for discharges
occurring in a fiscal year (beginning with FY 2004), the Secretary
shall compute an average standardized amount for hospitals located in
any area of Puerto Rico that is equal to the average standardized
amount computed under subclause (I) for fiscal year 2003 for hospitals
in a large urban area (or, beginning with FY 2005, for all hospitals in
the previous fiscal year) increased by the applicable percentage
increase under subsection (b)(3)(B) for the fiscal year involved.
Therefore, the update to the Puerto Rico-specific operating
standardized amount equals the applicable percentage increase set forth
in section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a)
and 10319(a) of the Affordable Care Act (that is, the same update
factor as for all other hospitals subject to the IPPS). Accordingly, we
are proposing an applicable percentage increase to the Puerto Rico-
specific operating standardized amount of 2.1 percent for FY 2013. The
regulations at Sec. 412.211(c) already set the update factor for the
Puerto Rico-specific operating standardized amount equal to the update
factor applied to the national standardized amount for all IPPS
hospitals. Therefore, it is not necessary for us to propose changes to
the existing regulatory text.

I. Payment for Graduate Medical Education (GME) and Indirect Medical
Education (IME) Costs (Sec. Sec. 412.105, 413.75 Through 413.83)

1. Background
Section 1886(h) of the Act, as added by section 9202 of the
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L.
99-272) and as currently implemented in the regulations at 42 CFR
413.75 through 413.83, establishes a methodology for determining
payments to hospitals for the direct costs of approved graduate medical
education (GME) programs. Section 1886(h)(2) of the Act sets forth a
methodology for the determination of a hospital-specific base-period
per resident amount (PRA) that is calculated by dividing a hospital's
allowable direct costs of GME in a base period by its number of full-
time equivalent (FTE) residents in the base period. The base period is,
for most hospitals, the hospital's cost reporting period beginning in
FY 1984 (that is, October 1, 1983 through September 30, 1984). The base
year PRA is updated annually for inflation. In general, Medicare direct
GME payments are calculated by multiplying the hospital's updated PRA
by the weighted number of FTE residents working in all areas of the
hospital complex (and at nonprovider sites, when applicable), and the
hospital's Medicare share of total inpatient days.
Section 1886(d)(5)(B) of the Act provides for a payment adjustment
known as the indirect medical education (IME) adjustment under the
hospital inpatient prospective payment system (IPPS) for hospitals that
have residents in an approved GME program, in order to account for the
higher indirect patient care costs of teaching hospitals relative to
nonteaching hospitals. The regulations regarding the calculation of
this additional payment are located at 42 CFR 412.105. The

[[Page 27977]]

hospital's IME adjustment applied to the DRG payments is calculated
based on the ratio of the hospital's number of FTE residents training
in either the inpatient or outpatient departments of the IPPS hospital
to the number of inpatient hospital beds.
The calculation of both direct GME and IME payments is affected by
the number of FTE residents that a hospital is allowed to count.
Generally, the greater the number of FTE residents a hospital counts,
the greater the amount of Medicare direct GME and IME payments the
hospital will receive. In an attempt to end the implicit incentive for
hospitals to increase the number of FTE residents, Congress, through
the Balanced Budget Act of 1997 (Pub. L. 105-33), established a limit
on the number of allopathic and osteopathic residents that a hospital
may include in its FTE resident count for direct GME and IME payment
purposes. Under section 1886(h)(4)(F) of the Act, for cost reporting
periods beginning on or after October 1, 1997, a hospital's unweighted
FTE count of residents for purposes of direct GME may not exceed the
hospital's unweighted FTE count for direct GME in its most recent cost
reporting period ending on or before December 31, 1996. Under section
1886(d)(5)(B)(v) of the Act, a similar limit based on the FTE count for
IME during that cost reporting period is applied effective for
discharges occurring on or after October 1, 1997. Dental and podiatric
residents are not included in this statutorily mandated cap.
The Affordable Care Act made a number of statutory changes relating
to the determination of a hospital's FTE resident count for direct GME
and IME payment purposes and the manner in which FTE resident limits
are calculated and applied to hospitals under certain circumstances.
Section 5503 of the Affordable Care Act added a new section 1886(h)(8)
to the Act to provide for the reduction in FTE resident caps for direct
GME under Medicare for certain hospitals training fewer residents than
allowed by their caps, and to authorize the ``redistribution'' of the
estimated number of excess FTE resident slots to other qualified
hospitals. In addition, section 5503 amended section 1886(d)(5)(B)(v)
of the Act to require the application of the section 1886(h)(8) of the
Act provisions ``in the same manner'' to the IME FTE resident caps. The
regulations implementing section 5503 of the Affordable Care Act were
included in the November 24, 2010 final rule with comment period (75 FR
72263).
2. New Teaching Hospitals: Proposed Change in New Program Growth From 3
Years to 5 Years
Section 1886(h)(4)(H)(i) of the Act requires CMS to establish rules
for calculating the direct GME caps of teaching hospitals training
residents in new programs established on or after January 1, 1995.
Under section 1886(d)(5)(B)(viii) of the Act, these rules also apply to
the establishment of a hospital's IME cap. CMS implemented these
statutory requirements in the August 29, 1997 Federal Register (62 FR
46005) and in the May 12, 1998 Federal Register (63 FR 26333).
Generally, under existing regulations at 42 CFR 413.79(e)(1) and 42 CFR
412.105(f)(1)(vii), if a hospital did not train any allopathic or
osteopathic residents in its most recent cost reporting period ending
on or before December 31, 1996, and it begins to participate in
training residents in a new residency program (allopathic or
osteopathic) on or after January 1, 1995, the hospital's unweighted FTE
resident cap (which would otherwise be zero) may be adjusted based on
the product of the highest number of FTE residents in any program year
during the third year of the first new program, for all new residency
training programs established during that 3-year period, and the
minimum accredited length for each type of program. The number of FTE
resident cap slots that a teaching hospital receives for each new
program may not exceed the number of accredited slots that are
available for each new program. Once a hospital's FTE resident cap is
established, no subsequent cap adjustments may be made for new programs
unless the teaching hospital is a rural hospital. A rural hospital's
FTE resident caps may be adjusted for participation in subsequent new
residency training programs. As a reminder, a hospital that did not
train any allopathic or osteopathic residents in its most recent cost
reporting period ending on or before December 31, 1996, may only
receive a permanent FTE resident cap adjustment for training residents
in a truly ``new'' residency training program; no permanent cap
adjustment would be given for training residents associated with an
existing program. That is, if a hospital that did not train any
allopathic or osteopathic residents in its most recent cost reporting
period ending on or before December 31, 1996, serves as a training site
for residents in a program that exists or existed previously at another
teaching hospital that remains open, that ``new'' teaching hospital
does not receive a ``new program'' cap adjustment because it is not
participating in training residents in a truly ``new'' program.
However, it is possible for that hospital to receive a temporary cap
adjustment if the new teaching hospital enters into a Medicare GME
affiliation agreement with the existing teaching hospital as specified
at 42 CFR 413.79(f) and 412.105(f)(1)(vi). (For a detailed discussion
of the distinctions between a new residency program and an existing
residency program, we refer readers to the August 27, 2009 final rule
(74 FR 43908).)
As stated previously, the existing regulations provide for a 3-year
period in which a new teaching hospital can ``grow'' its programs, for
the purpose of establishing its FTE resident caps. This 3-year period,
which we will refer to as the ``3-year window'' for ease of reference,
starts when (typically a July 1) the new teaching hospital first begins
to train residents in its first new program, and it ends when the third
program year of that first new program ends. For example, assume
residents begin training in a new program for the first time on July 1,
2012. The 3-year window begins on July 1, 2012, and ends on June 30,
2015, the end of the third program year of that (first) new program. At
this point in time, regardless of the actual accredited length of the
new program, or the number of new programs started, the new teaching
hospital's FTE resident caps are established permanently and are
effective beginning with the fourth program year from the date the
first new program started (using the same example, this would be July
1, 2015).
The provider community has expressed concerns that 3 years do not
provide for a sufficient amount of time for a hospital to ``grow'' its
new residency programs and to establish FTE resident caps that are
properly reflective of the number of FTE residents that it will
actually train, once the programs are fully grown. Providers have
explained that 3 years is an insufficient amount of time primarily
because a period of 3 years is not compatible with program
accreditation requirements, particularly in instances where the new
teaching hospital wishes to start more than one new program. For
example, we understand that a new teaching hospital may not begin all
of its new programs at the same time because of accreditation
prerequisites; rather, a new teaching hospital must wait until the
first program is in place for a specified amount of time before it can
begin training residents in a second or third program. This potential
delay means that a new teaching hospital may not be able to
sufficiently ``grow'' all of

[[Page 27978]]

its new programs by the end of the ``3-year window.'' We understand,
for example, that the Accreditation Council for Graduate Medical
Education (ACGME) requires that, for a hospital to sponsor an
anesthesiology program, the hospital must sponsor or be affiliated with
at least one internal medicine program and one general surgery program.
Furthermore, we understand that the ACGME can require new residency
training programs to pass through an ``initial'' accreditation period
of up to 3 years until they can be granted ``continued'' accreditation.
During this initial accreditation period, a hospital is not allowed to
add any additional positions to its new program. Therefore, even if a
hospital has plans to expand its new training program beyond the number
of positions for which it is initially accredited, it may not be
possible for the hospital to actually do so until this initial period
has expired. Lastly, we have been made aware that providers may want to
stagger the start dates for their residency training programs if they
plan on training residents in several programs because they may want to
gain some experience in residency training before they begin all of
their new programs.
Given the concerns about new teaching hospitals having insufficient
time to ``grow'' their new residency training programs and to establish
an appropriately reflective permanent FTE resident cap within a 3-year
window, we are proposing that a new teaching hospital will have 5
years, or a ``5-year window,'' in which to establish and grow new
programs. At the end of the fifth program year of the first new program
in which the new teaching hospital participates, the new teaching
hospital's FTE resident caps would be determined, and set permanently,
effective with the beginning of the sixth program year. We are
proposing that this change would apply to new teaching hospitals that
begin training residents in new programs for the first time on or after
October 1, 2012. Although we understand that many residency training
programs begin July 1 of the calendar year, consistent with the
proposed effective date of the FY 2013 IPPS provisions in this proposed
rule, we are proposing an effective date for this change of October 1,
2012. We are proposing to amend the regulations at Sec. 413.79(e)(1)
to state that if a new teaching hospital participates in training
residents in a new program for the first time on or after October 1,
2012, the new teaching hospital's FTE resident cap may be adjusted
based on the product of the highest number of FTE residents training in
any program year during the fifth year of the first program's existence
for all new residency training program(s) and the number of years in
which residents are expected to complete the program based on the
minimum accredited length for each type of program. This proposed
policy would apply to the establishment of a hospital's cap for both
direct GME and IME payment purposes. The IME regulations at Sec.
412.105(f)(1)(vii) refer to the direct GME regulations at Sec.
413.79(e)(1) through (e)(4) for the rules for the establishment of a
new teaching hospital's cap. As is required under existing regulations,
the number of cap slots associated with each new program cannot exceed
the number of accredited slots available to the hospital for that new
program.
We note that we are not proposing to make any changes to
regulations governing treatment of the rolling average and the intern
and resident-to-bed (IRB) ratio for new programs. That is, new program
FTE residents will continue to be exempt from the rolling average and
the cap on the IRB ratio for the minimum accredited length for the
specific type of residency training program. These exceptions are
discussed in the regulations at Sec. Sec. 412.105(a)(1)(i) through
(a)(1)(ii) and 413.79(d)(5). The current cost report instructions for
Worksheet E-4, Line 6 (current year unweighted allopathic and
osteopathic FTE count) instruct hospitals to contact their Medicare
contractor for instructions on how to complete that line if the
hospital has a new program for which the period of years is less than
or greater than 3 years. Similarly, in the case of this proposed policy
where the exemption from the rolling average for a new program could
expire prior to the hospital's cap being set in the sixth year of the
first new program, we would encourage our Medicare contractors to
contact us if they have questions on the method of reporting FTE
resident counts that are subject to the rolling average but not subject
to the cap.
We also are proposing to revise the regulations at Sec.
413.79(e)(1)(i) that discuss the methodology used to calculate a new
teaching hospital's cap adjustment for a new residency training program
if residents training in the new program are rotating to more than one
hospital during the 5-year window. This same methodology would apply to
a rural teaching hospital because a rural teaching hospital can always
receive a cap adjustment for starting a brand-new program. We are
proposing to revise the regulations to specify that, in calculating the
cap adjustment for each new program started within the 5-year window,
we would look at the highest total number of FTE residents training in
any program year during the fifth academic year of the first new
program's existence at all participating hospitals involved and
multiply that highest FTE resident count by the number of years in
which residents are expected to complete the program, based on the
minimum accredited length of the specific program. Furthermore, we are
proposing that, for each new program started within the 5-year window,
we would then take that product and multiply it by each hospital's
ratio of the number of FTE residents in the new program training over
the course of the 5-year period at each hospital to the total number
FTE residents training at all participating hospitals over the course
of the 5 years. We believe it is appropriate to propose to apportion
the overall FTE cap among the hospitals participating in training
residents in the new program based on the percentage of FTE residents
each hospital trained over the course of the entire 5-year period,
rather than the percentage of FTE residents each hospital trained only
during the fifth academic year, because the trend of training over the
entire 5-years may reflect more completely the patterns in the training
in years subsequent to the fifth academic year. Otherwise, a hospital's
FTE cap adjustment, which is permanent, may reflect too heavily the
share of training time solely in the fifth academic year, which may or
may not be beneficial to the hospital. We note that a hospital's cap
adjustment could differ, depending on whether we look only at the fifth
academic year of the first new program or look at every available year
(up to 5 years) for which training occurred to calculate each
hospital's share of the aggregate cap for a specific program.
In addition, we are proposing to revise the existing regulation
text at Sec. 413.79(e)(1)(i) to include the phrase ``the number of
years in which residents are expected to complete the program based on
the minimum accredited length for the type of program.'' This proposed
language is consistent with our past, current, and proposed policy. We
also note that Sec. 413.79(e)(1) applies in instances where the
residents in the new program train only at one hospital; Sec.
413.79(e)(1)(i) applies when residents in the new program train at more
than one hospital, regardless of whether each of those hospitals are
new hospitals or existing teaching hospitals with previously
established caps. The example below illustrates the proposed
methodology of how we would calculate

[[Page 27979]]

a new teaching hospital's cap (or rural teaching hospital's cap) if we
changed the cap-building period from 3 years to 5 years. In this
example, as explained above, we are proposing that we would calculate
the cap based on what is occurring at the new teaching hospital(s)
during the fifth academic year of the new teaching hospital's first new
program (or the fifth academic year of the rural teaching hospital's
new residency training program). The provider community has requested
that the cap-building period be increased from 3 years to 5 years.
Therefore, we are proposing that we would only look at the training
that is occurring during the fifth academic year of the first new
program to calculate the aggregate cap adjustment. However, we would
look at the FTE residents training at the hospital(s) during all 5
years to determine how we would distribute the aggregate cap adjustment
among the participating hospitals.

Example: Hospital A is a hospital that becomes a new teaching
hospital by training residents in a new family medicine program in
academic year 1. Within its 5-year window, it also begins a new
surgery program in academic year 4 of the first new program, the
family medicine program. The family medicine program is accredited
for 15 positions, 5 positions per year (the minimum accredited
length of a family medicine program is 3 years). The surgery program
is accredited for 20 positions, 4 positions per year (the minimum
accredited length of a surgery program is 5 years). Residents in
both the family medicine program and the surgery program also rotate
to Hospital B. Hospital B is an existing teaching hospital
(nonrural) with a cap that is already established; therefore, it
will not receive any cap adjustments for training FTE residents in
the new family medicine program or the new surgery program. However,
because both of these programs are approved programs and FTE
residents are training at Hospital B for part of the time, Hospital
B can count the FTE residents training in the family medicine
program and the surgery program at its facility if it has room under
its caps to do so.

First, we will determine the cap adjustment that Hospital A will
receive for training FTE residents in the family medicine program. The
following table includes the allowable FTE resident counts in the
family medicine program at both Hospital A and Hospital B during the 5-
year window. These numbers are FTE resident counts because they reflect
the share of training time spent at Hospital A and Hospital B, and also
assume for this example that we have excluded some nonallowable time,
such as the time residents spend training in didactic activities in a
medical school lecture hall.

Hospital A
----------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5
----------------------------------------------------------------------------------------------------------------
0.75 PGY 1...................... 2.60 PGY 1........ 4.00 PGY 1........ 4.10 PGY 1........ 4.20 PGY 1.
0.00 PGY 2...................... 2.80 PGY 2........ 3.40 PGY 2........ 3.40 PGY 2........ 3.70 PGY 2.
0.00 PGY 3...................... 0.00 PGY 3........ 2.40 PGY 3........ 2.80 PGY 3........ 2.80 PGY 3.
----------------------------------------------------------------------------------------------------------------
Total 0.75...................... Total 5.40........ Total 9.80........ Total 10.30....... Total 10.70.
----------------------------------------------------------------------------------------------------------------

Hospital A's 5 year total = 36.95.

Hospital B
----------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5
----------------------------------------------------------------------------------------------------------------
3.75 PGY 1...................... 2.20 PGY 1........ 0.90 PGY 1........ 0.80 PGY 1........ 0.60 PGY 1.
0.00 PGY 2...................... 2.00 PGY 2........ 1.50 PGY 2........ 1.50 PGY 2........ 1.20 PGY 2.
0.00 PGY 3...................... 0.00 PGY 3........ 2.40 PGY 3........ 2.00 PGY 3........ 2.00 PGY 3.
----------------------------------------------------------------------------------------------------------------
Total 3.75...................... Total 4.20........ Total 4.80........ Total 4.30........ Total 3.80.
----------------------------------------------------------------------------------------------------------------

Hospital B's 5 year total = 20.85.
Total Hospital A and Hospital B over 5 years = 36.95 + 20.85 =
57.80 FTEs.
To calculate the cap adjustment for Hospital A with respect to the
family medicine program, we need to take the highest number of FTE
residents training in any program year in the program (that is, FTE
residents training at both Hospital A and Hospital B) in the fifth
academic year of the first new program (which is the family medicine
program). If we add the PGY 1s, the PGY 2s, and the PGY 3s at both
hospitals, in year 5, we see that we would use the total number of PGY
2s to calculate the FTE cap adjustment for the family medicine program,
because the total number of PGY 2s at both hospitals is 4.90 FTEs (3.70
+ 1.20), whereas the total number of PGY 1s and PGY 3s is only 4.80. We
multiply 4.90 by the minimum accredited length of the family medicine
program to get the total possible cap adjustment for the family
medicine program (4.90 x 3 = 14.70). The cap adjustment that Hospital A
receives for the family medicine program will be some number less than
14.70 based on the ratio of the number of FTEs in the new program
training over the course of the 5-year period at Hospital A to the
total number FTE residents training at both hospitals over the course
of the 5 year period.
To determine this ratio, note that Hospital A's total FTE residents
in the new family medicine program over the course of 5 years is the
numerator, 36.95. The total FTE residents at Hospitals A and B in the
new family medicine program over the course of 5 years is the
denominator, 57.80 (that is, 36.95 + 20.85). The ratio of training that
occurred at Hospital A is 36.95/57.80 = 0.64. Therefore, Hospital A's
cap for its share of the family medicine program is 0.64 x 14.70, or
9.41. (If Hospital B had been eligible to receive a cap adjustment, its
ratio of the cap would have been 0.36, that is, (20.85/57.80), and its
share would have been 5.30 (0.36 x 14.70). If we add 9.41 to 5.30, we
get 14.71 (we note that 14.71 is ``approximately'' equal to 14.70, the
total cap determined for the entire family medicine program, with a
slight difference due to rounding). Thus, we have ensured that, in
assigning a cap of 9.41 to Hospital A on behalf of its family medicine
program, the total allowable and accredited number of slots has not
been exceeded).
Now we will determine the cap adjustment that Hospital A will
receive for training FTE residents in the new

[[Page 27980]]

surgery program that began in year 4 of the first new program. The
following tables include the allowable FTE resident counts in the
surgery program at Hospital A and Hospital B, respectively, during the
hospital's 5-year window. Again, assume we have excluded nonallowable
time, such as time residents spent training in didactic activities in a
medical school lecture hall.

Hospital A
----------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5.
----------------------------------------------------------------------------------------------------------------
0.00 PGY 1...................... 0.00 PGY 1........ 0.00 PGY 1........ 4.10 PGY 1........ 4.20 PGY 1.
0.00 PGY 2...................... 0.00 PGY 2........ 0.00 PGY 2........ 0.00 PGY 2........ 2.70 PGY 2.
0.00 PGY 3...................... 0.00 PGY 3........ 0.00 PGY 3........ 0.00 PGY 3........ 0.00 PGY 3.
0.00 PGY 4...................... 0.00 PGY 4........ 0.00 PGY 4........ 0.00 PGY 4........ 0.00 PGY 4.
0.00 PGY 5...................... 0.00 PGY 5........ 0.00 PGY 5........ 0.00 PGY 5........ 0.00 PGY 5.
----------------------------------------------------------------------------------------------------------------
Total 0.00...................... Total 0.00........ Total 0.00........ Total 4.10........ Total 6.90.
----------------------------------------------------------------------------------------------------------------

Hospital A's 5 year total = 11.00.

Hospital B
----------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5
----------------------------------------------------------------------------------------------------------------
0.00 PGY 1...................... 0.00 PGY 1........ 0.00 PGY 1........ 1.70 PGY 1........ 0.60 PGY 1.
0.00 PGY 2...................... 0.00 PGY 2........ 0.00 PGY 2........ 0.00 PGY 2........ 1.50 PGY 2.
0.00 PGY 3...................... 0.00 PGY 3........ 0.00 PGY 3........ 0.00 PGY 3........ 0.00 PGY 3.
0.00 PGY 4...................... 0.00 PGY 4........ 0.00 PGY 4........ 0.00 PGY 4........ 0.00 PGY 4.
0.00 PGY 5...................... 0.00 PGY 5........ 0.00 PGY 5........ 0.00 PGY 5........ 0.00 PGY 5.
----------------------------------------------------------------------------------------------------------------
Total 0.00...................... Total 0.00........ Total 0.00........ Total 1.70........ Total 2.10.
----------------------------------------------------------------------------------------------------------------

Hospital B's 5 year total = 3.80.
Total Hospital A and Hospital B over 5 years = 11.00 + 3.80 = 14.80
FTEs.
To calculate the cap adjustment for Hospital A with respect to the
surgery program, we need to take the highest number of FTE residents
training in the program (that is, FTE residents training at both
Hospital A and Hospital B) in the fifth academic year of the first new
program (which is the family medicine program). Because the surgery
program only started in Year 4 of the family medicine program, there
are only PGY 1s and PGY 2s training at both Hospitals A and B in year
5. If we add the PGY 1s and the PGY 2s at both hospitals in year 5, we
see that we would use the total number of PGY 1s to calculate the FTE
cap adjustment for the surgery program, because the total number of PGY
1s is 4.80 FTEs (4.20 + 0.60), whereas the total number of PGY 2s is
only 4.20. We multiply 4.80 by the minimum accredited length of the
surgery program to get the total possible cap adjustment for the
surgery program (4.80 x 5 = 24.00). However, because the surgery
program is only accredited for 20 positions, the overall FTE resident
cap associated with the surgery program that is to be apportioned
between Hospital A and Hospital B is limited to a maximum of 20. In
this instance, because the surgery program started in Year 4 of the
family medicine program, and it only ``grew'' for 2 years, we only have
2 years of FTE resident counts to consider and not 5 years.
Nevertheless, the cap adjustment that Hospital A receives for the
surgery program will be some number less than 20 and is based on the
ratio of the number of FTE residents in the new program training over
the course of the 2-year period at Hospital A to the total number of
FTEs training at both hospitals over the course of the 2-year period.
To determine this ratio, note that Hospital A's total FTE residents
in the new surgery program over the course of 2 years is the numerator,
11.00. The total number of FTE residents at Hospitals A and B in the
new surgery program over the course of 5 years is the denominator,
14.80 (that is, 11.00 + 3.80). The ratio of training that occurred at
Hospital A is 11.00/14.80 = 0.74. Hospital A's cap for its share of the
surgery program is 0.74 x 20 = 14.80. (If Hospital B had been eligible
to receive a cap adjustment, its share of the cap would have been 5.20
((3.80/14.80) x 20) = 5.20. Thus, we have ensured that, in assigning a
cap of 14.80 to Hospital A on behalf of its surgery program, the total
allowable and accredited number of slots has not been exceeded).
Adding together the cap adjustment Hospital A receives for the new
family medicine program and the cap adjustment it receives for the new
surgery program, Hospital A's total permanent cap is 24.21 (9.41 +
14.80 = 24.21).
In summary, we are proposing to revise the regulations at Sec.
413.79(e)(1) for the purposes of direct GME and, by reference, Sec.
412.105(f)(1)(vii) for purposes of IME to state that if a hospital
begins training residents in a new program for the first time on or
after October 1, 2012, that hospital's caps may be adjusted based on
the product of the highest number of FTE residents training in any
program year during the fifth academic year of the first program's
existence for all new residency training programs and the number of
years in which residents are expected to complete the program based on
the minimum accredited length for the type of program. The cap would be
applied beginning with the sixth academic year of the first new
program. We also are proposing conforming changes throughout paragraph
(e)(1) of Sec. 413.79 to correspond with the proposed change to
increase the length of the cap-building period from 3 to 5 years. In
addition, we are proposing to change the regulation text at Sec.
413.79(e)(1)(i) to reflect a methodology to calculate a new teaching
hospital's cap adjustment if the residents in the new training program
are training at more than one hospital. We are proposing that these
changes would be effective for a hospital that begins training
residents for the first time on or

[[Page 27981]]

after October 1, 2012. Lastly, we are making a clarification to the
existing regulation text at Sec. 413.79(e)(1)(i) to insert the missing
phrase ``and the number of years in which residents are expected to
complete the program based on the minimum accredited length for the
type of program.'' This change is consistent with our past, current,
and proposed policy.
3. Clarification Related to 5-Year Period Following Implementation of
Reductions and Increases to Hospitals' FTE Resident Caps for GME
Payment Purposes Under Section 5503 of the Affordable Care Act
As previously discussed, in an attempt to end the implicit
incentive for hospitals to increase the number of FTE residents,
Congress instituted a cap on the number of allopathic and osteopathic
residents a hospital is allowed to count for direct GME and IME
purposes. Some hospitals have trained a number of allopathic and
osteopathic residents in excess of their FTE resident caps, while other
hospitals are training a number of allopathic and osteopathic residents
at some level below their FTE resident caps. Section 5503 of the
Affordable Care Act added a new section 1886(h)(8) to the Act to
provide for reductions in the statutory FTE resident caps for direct
GME payment purposes under Medicare for certain hospitals that are
training allopathic and osteopathic residents at a level below their
FTE resident caps, and to authorize a ``redistribution'' to certain
hospitals of the estimated number of FTE resident slots resulting from
the reductions. Section 5503 of the Affordable Care Act also amended
section 1886(d)(5)(B)(v) of the Act to require application of the
provisions of section 1886(h)(8) of the Act ``in the same manner'' to
the FTE resident caps for IME payment purposes.
Section 1886(h)(8)(A)(i) of the Act provides that, effective for
portions of cost reporting periods occurring on or after July 1, 2011,
a hospital's FTE resident cap will be reduced by 65 percent of the
difference between the hospital's ``otherwise applicable resident
limit'' and its ``reference resident level,'' if its ``reference
resident level'' is less than its ``otherwise applicable resident
limit'' (as defined at section 1886(h)(8)(H) of the Act). (We refer
readers to the November 24, 2010 final rule with comment period (75 FR
72155 through 72161) for a discussion of these terms.) Section
1886(h)(8)(A)(ii) of the Act and the November 24, 2010 final rule with
comment period (75 FR 72147) describe which hospitals are exempt from a
cap reduction under section 5503 of the Affordable Care Act, including
rural hospitals with fewer than 250 acute care inpatient beds.
Under section 1886(h)(8)(B) of the Act, the Secretary is authorized
to increase the FTE resident caps for certain categories of hospitals
for portions of cost reporting periods occurring on or after July 1,
2011, in the aggregate, by a number that does not exceed the estimated
overall reduction in FTE resident caps for all hospitals under section
1886(h)(8)(A) of the Act. In determining which hospitals will receive
an increase in their FTE resident caps, sections 1886(h)(8)(C) through
1886(h)(8)(E) of the Act direct us to do all of the following:
Take into account the demonstrated likelihood of the
hospital filling the additional positions within the first three cost
reporting periods beginning on or after July 1, 2011.
Take into account whether the hospital has an accredited
rural training track program.
Distribute 70 percent of the resident slots to hospitals
located in States with resident-to-population ratios in the lowest
quartile.
Distribute 30 percent of the resident slots to hospitals
located in a State, a territory of the United States, or the District
of Columbia that are among the top 10 States, territories, or the
District in terms of the ratio of the total population living in an
area designated as a health professional shortage area (HSPA), as of
March 23, 2010, to the total population, and/or to hospitals located in
rural areas.
A comprehensive description of the rules implementing the cap slot
redistribution under section 1886(h)(8) of the Act can be found in the
November 24, 2010 final rule with comment period (75 FR 72168). Section
1886(h)(8)(B)(ii) of the Act, as added by section 5503(a)(4) of the
Affordable Care Act, specifies that a hospital that receives an
increase in its cap shall ensure, during the 5-year period beginning on
the date of such increase (July 1, 2011), that certain requirements,
referred to as the primary care average and the 75-percent threshold,
are met in order to retain those slots. Otherwise, section
1886(h)(8)(B)(iii)(I) of the Act authorizes the Secretary to reduce the
FTE resident caps of the hospital by the same number of FTE residents
by which the hospital's FTE resident caps were increased if the
hospital fails to meet either requirement; and section
1886(h)(8)(B)(iii)(II) of the Act authorizes the Secretary to
redistribute those positions.
Specifically, section 1886(h)(8)(B)(ii) of the Act states, ``* * *
a hospital that receives an increase in the otherwise applicable
resident limit under this subparagraph shall ensure, during the 5-year
period beginning on the date of such increase, that--
(I) The number of full-time equivalent primary care residents, as
defined in paragraph (5)(H) (as determined by the Secretary), excluding
any additional positions under subclause (II), is not less than the
average number of fulltime equivalent primary care residents (as so
determined) during the 3 most recent cost reporting periods ending
prior to the date of enactment of this paragraph; and
(II) Not less than 75 percent of the positions attributable to such
increase are in a primary care or general surgery residency (as
determined by the Secretary).
The Secretary may determine whether a hospital has met the
requirements under this clause during such 5-year period in such manner
and at such time as the Secretary determines appropriate, including at
the end of such 5-year period.''
In a case where the Secretary determines that a hospital did not
meet the requirements in a cost reporting year during the 5-year time
period, section 1886(h)(8)(B)(iii) of the Act states that ``* * * the
Secretary shall--
(I) Reduce the otherwise applicable resident limit of the hospital
by the amount by which such limit was increased under this paragraph;
and
(II) Provide for the distribution of positions attributable to such
reduction in accordance with the requirements of this paragraph.''
In the November 24, 2010 final rule with comment period (75 FR
72195 through 72203), we stated that the ``5-year period beginning on
the date of such increase'' is July 1, 2011 through June 30, 2016, and
we provided a detailed discussion of what the two requirements under
sections 1886(h)(8)(B)(ii)(I) and 1886(h)(8)(B)(ii)(II) of the Act
entail. In that final rule, we noted that section 1886(h)(8)(B)(ii) of
the Act allows the Secretary to ``determine whether a hospital has met
the requirements * * * during such 5-year period in such manner and at
such time as the Secretary determines appropriate, including at the end
of such 5-year period,'' and section 1886(h)(8)(B)(iii) of the Act
instructs the Secretary to ``reduce the otherwise applicable resident
limit of the hospital by the amount by which such limit was increased *
* *.'' We also explained that we believe the Secretary has the
discretion to consider a hospital's performance over more than one year
or

[[Page 27982]]

to review each year during the 5 years independently in determining
whether or not a hospital is in compliance with the primary care
average and the 75-percent threshold, as required (75 FR 72196 and
72197 and 72200 and 72201). We emphasized that it is within CMS' and
the Medicare contractors' authority to adjust a hospital's IME and
direct GME payments as early as it is feasible within a cost report's
submission and review cycle, and that we need not wait until final
settlement to do so. We further stated in the November 24, 2010 final
rule with comment period implementing section 5503 that ``We also
understand that we should consider that hospitals might not immediately
fill all the slots they receive, particularly because they are only
required to demonstrate the likelihood of filling the slots within the
first three cost reporting periods beginning on or after July 1, 2011''
(75 FR 72197). However, we gave an example that indicated that, of the
section 5503 FTE slots that the hospital does begin to use, 75 percent
of those slots must be in primary care or general surgery.
Since we awarded the section 5503 slots pursuant to section
1886(h)(8) of the Act, we have received questions from hospitals asking
if and how CMS would enforce the primary care average and the 75-
percent threshold requirements under sections 1886(h)(8)(B)(ii)(I) and
1886(h)(8)(B)(ii)(II) of the Act if a hospital does not use any of its
section 5503 slots until year 4 or year 5 of the 5-year period, or if a
hospital does not use any of the section 5503 slots until after
expiration of the 5-year period. We have informed hospitals that the
75-percent threshold requirement applies once the hospital starts using
any of the section 5503 slots, and the 3-year primary care average
requirement applies immediately on July 1, 2011, regardless of whether
or not the hospital begins to use its additional section 5503 slots in
year 1 of the 5-year period. This is because the 3-year primary care
average test applies to the hospital's pre-section 5503 resident
complement as well, and not exclusively to the additional FTE residents
associated with slots awarded under section 5503.
In determining which hospitals applying for slots under section
5503 will receive slots, section 1886(h)(8)(C)(i) of the Act specifies
that the Secretary shall take into account the demonstrated likelihood
of the hospital filling the slots within the first three cost reporting
periods beginning on or after July 1, 2011. Hospitals included evidence
supporting the demonstrated likelihood stipulation in their
applications and we took that into consideration in awarding slots
under section 5503. We believe that it is inappropriate and in direct
conflict with a base consideration in the awarding of slots under
section 5503 for hospitals to refrain from using their section 5503
slots until after the initial 3 years after the slots have been awarded
in an attempt to circumvent the primary care average or the 75-percent
threshold requirements, or both.
As stated in the November 14, 2010 final rule, CMS reserves the
right to assess as many times as necessary in the 5-year period whether
a hospital is meeting the required criteria. The agency also may remove
the slots awarded to a hospital at any point during the 5-year period
(75 FR 72196 and 72197 and 72200 and 72201). Because a statutorily
directed criterion for consideration in awarding slots under section
5503 included the requirement that hospitals applying for slots
demonstrate the likelihood of filling the slots within the first three
cost reporting periods beginning on or after July 1, 2011, and we
relied on that information in awarding slots, we believe it is
reasonable to expect that hospitals that received slots under section
5503 should begin to use their slots within the first three 12-month
cost reporting periods beginning on or after July 1, 2011, of the 5-
year period in order to give full effect to the requirements under
section 1886(h)(8)(B)(ii) of the Act. Therefore, we are proposing that
a hospital must fill at least half of its section 5503 slots, IME and
direct GME respectively, in at least one of the following timeframes,
or lose its section 5503 slots: (A) in its first 12-month cost
reporting period of the 5-year period; and/or (B) in its second 12-
month cost reporting period of the 5-year period; and/or (C) in its
third 12-month cost reporting period of the 5-year period. For example,
Hospital A and Hospital B both have June 30 fiscal year ends (FYEs),
and they received 10 slots under section 5503. In its FYE June 30,
2012, Hospital A filled 8 slots. In its FYE June 30, 2013, Hospital A
filled 0 slots. In its FYE June 30, 2014, Hospital A filled 5 slots.
However, Hospital B, in its FYEs June 30, 2012, 2013, and 2014, only
filled 3 slots respectively in each of the 3 years. Hospital A would
have complied with our proposed requirement, because it filled at least
half of its section 5503 slots in either its first, and/or second, and/
or its third 12-month cost reporting period during the 5-year period.
Hospital B would not have complied with our proposed requirement
because in neither its first, second, or third 12-month cost reporting
period had it filled at least 5 (half of 10) slots.
We are proposing to interpret that a hospital's failure to use
slots awarded under section 5503 in a timely manner to also be a
failure to meet the 75-percent threshold. We believe that we have the
authority to interpret section 1886(h)(8)(B)(ii) of the Act in such a
manner and to propose this requirement because section
1886(h)(8)(B)(ii) of the Act allows the Secretary to ``* * * determine
whether a hospital has met the requirements under this clause during
such 5-year period in such manner and at such time as the Secretary
determines appropriate, including at the end of such 5-year period.''
We are reiterating that the 75-percent threshold applies in the
instance where a hospital uses less than half, or any amount, of its
slots prior to its third 12-month cost reporting period during the 5-
year period (75 FR 72197). In other words, the 75-percent threshold
applies throughout the 5-year period, as long as the hospital is using
some amount of its section 5503 slots in the respective cost reporting
period. If a hospital is using some of its section 5503 slots in a cost
reporting period, the 75-percent threshold would be enforced; if a
hospital is not using any of its section 5503 slots in a cost reporting
period, the 75-percent threshold would not be enforced. However, as
stated earlier, we are proposing that a hospital must use its section
5503 slots no later than the hospital's third 12-month cost reporting
period (and that at least half of its section 5503 slots must be used
in either the first, or second, or third 12-month cost reporting
period).
We note that we did not specify that a hospital must use at least
half of its section 5503 slots in its third 12-month cost reporting
period of the 5-year period in the November 24, 2010 final rule with
comment period because the possibility that a hospital might not begin
to use its section 5503 slots for several years only came to our
attention after July 1, 2011, in response to questions raised by
hospitals. Furthermore, given the huge demand for these slots (to the
extent that we ran out of slots during the redistribution process and
were unable to award any slots to hospitals in qualifying, but lower
ranking, States), and that the slots were slated to be distributed in
States where there was an acute need for additional residents (that is,
as sections 1886(h)(8)(D) and 1886(h)(8)(E) of the Act specify, to
States with resident-to-population ratios in the lowest quartile, and
to States that are among the top 10 in terms of the HPSA population to
total

[[Page 27983]]

population ratios), we did not expect that hospitals that received
section 5503 slots would not be able to make almost immediate use of
the slots. Consequently, given the presumed huge need for these slots
in the States where Congress directed that they be awarded, we believe
it is appropriate to use our authority to reasonably ensure that those
slots awarded are used in compliance with section 5503 (hence, the
proposals in this proposed rule), and, if not, are able to be
redistributed to other hospitals in need of slots as Congress intended.
Section 1886(h)(8)(B)(iii) of the Act states that if the Secretary
determines that a hospital does not meet either the primary care
average or the 75-percent threshold, ``the Secretary shall (I) reduce
the otherwise applicable resident limit of the hospital by the amount
by which such limit was increased under this paragraph; and (II)
provide for the distribution of positions attributable to such
reduction in accordance with the requirements of this paragraph.''
Accordingly, we are exercising the broad authority that the Secretary
is given to determine whether the requirements at section
1886(h)(8)(B)(ii) of the Act are met by proposing that if a hospital
fails to fill at least half of its section 5503 slots, IME and direct
GME respectively, in its first 12-month cost reporting period of the 5-
year period, and/or in its second 12-month cost reporting period, and/
or in its third 12-month cost reporting period of the 5-year period,
this would mean failure to meet the 75-percent threshold. In the case
of such failure, CMS would instruct the Medicare contractor after audit
to permanently remove all of the hospital's section 5503 slots from the
earliest cost reporting period that is subject to reopening and in
which it would be determined that the hospital did not meet the
requirements (in accordance with existing Sec. 413.79(n)(2)(iii),
which is proposed to be redesignated as Sec. 413.79(n)(2)(iv) in this
proposed rule), even if the hospital had used at least half of its
section 5503 slots in its fourth or subsequent cost reporting year of
the 5-year period. Thus, as part of the Medicare contractors' reviews
of the hospitals that received section 5503 slots, we are proposing
that the Medicare contractors would determine whether a hospital filled
at least half of its section 5503 slots in its first 12-month cost
reporting period of the 5-year period, and/or in its second 12-month
cost reporting period, and/or in its third 12-month cost reporting
period of the 5-year period. We believe it is appropriate to remove the
slots from a hospital that has not filled at least half of its slots in
any 12-month cost reporting year prior to and including the third 12-
month cost reporting period so that these slots may be redistributed to
other hospitals that may have greater success in filling the slots and
that are located in States that are described in sections
1886(h)(8)((D) and 1886(h)(8)(E) of the Act.
We note that, as explained in the November 24, 2010 final rule with
comment period, the start and end of each year of the 5-year period
depend on the fiscal year begin date of each hospital's cost reporting
periods. Hospitals with fiscal year begin dates of July 1 will have
five 12-month cost reporting periods starting on July 1, 2011, and
ending on June 30, 2016, while hospitals with fiscal year begin dates
of other than July 1 will have a partial cost reporting period that
includes July 1, 2011, four 12-month cost reporting periods, and
another partial cost reporting period that includes June 30, 2016 (75
FR 72197). For example, if Hospital A has a June 30 fiscal year end,
its third 12-month cost reporting period of the 5-year period would be
July 1, 2013, to June 30, 2014, and Hospital A must fill at least half
of its section 5503 slots, IME and direct GME respectively, in its
first 12-month cost reporting period of the 5-year period, and/or in
its second 12-month cost reporting period, and/or in its third 12-month
cost reporting period of the 5-year period. If Hospital B has a
September 30 fiscal year end, its cost reporting periods occurring
during July 1, 2011 through June 30, 2016 are as follows:
Year 1--July 1, 2011-September 30, 2011
Year 2--October 1, 2011-September 30, 2012
Year 3--October 1, 2012-September 30, 2013
Year 4--October 1, 2013-September 30, 2014
Year 5--October 1, 2014-September 30, 2015
Year 6--October 1, 2015-June 30, 2016
Hospital B's third 12-month cost reporting period would be October
1, 2013, to September 30, 2014, and Hospital B must fill at least half
of its section 5503 slots, IME and direct GME, respectively, in its
first 12-month cost reporting period of the 5-year period, and/or in
its second 12-month cost reporting period, and/or in its third 12-month
cost reporting period of the 5-year period. As explained in the
November 24, 2010 final rule with comment period (75 FR 72197), if
hospitals have other than a June 30 fiscal year end, for their cost
reports that include July 1, 2011 and June 30, 2016 respectively, we
will consider whether the hospital meets the primary care average and
the 75-percent threshold requirements based on an annualized FTE count.
Also, if during the period of July 1, 2011 through June 30, 2016,
hospitals, for whatever reason, actually have less than 12-month cost
reports, we would consider on a case-by-case basis which cost reports
we would evaluate for purposes of meeting the proposed requirement of
filling at least half of the section 5503 slots in its first, second,
and/or third cost reporting period. As under existing policy, if the
hospital does begin to fill its section 5503 slots but fails to meet
the 75-percent threshold, the Medicare contractor would also remove the
section 5503 slots, effective with the earliest year that the 75-
percent threshold is not met.
Lastly, considering again that hospitals that received section 5503
slots had to demonstrate the likelihood of filling the slots within the
first three cost reporting periods beginning on or after July 1, 2011,
we are proposing to require that hospitals that received section 5503
slots must fill all of the slots they received in their final cost
reporting period beginning during the timeframe of July 1, 2011 through
June 30, 2016 (IME and direct GME respectively), or lose all of their
section 5503 slots after June 30, 2016. As stated above, we consider it
to be appropriate to remove the slots from a hospital that has not
filled at least half of its slots in any 12-month cost reporting period
prior to and including the third 12-month cost reporting period, so
that these slots may be redistributed to other hospitals that otherwise
qualified to receive slots, but did not receive them because the
available slots were granted to higher ranking hospitals. We also are
interested in commenters' recommendations regarding alternative
approaches to encouraging compliance with the 3-year primary care
average requirement and the 75-percent threshold.
In summary, we are proposing that a hospital must fill at least
half of its section 5503 slots, IME and direct GME respectively, in at
least one of the following timeframes or lose its section 5503 slots:
(A) in its first 12-month cost reporting period of the 5-year period;
and/or (B) in its second 12-month cost reporting period of the 5-year
period; and/or (C) in its third 12-month cost reporting period of the
5-year period. We are proposing to enforce the 75-percent threshold
test once the hospital begins to use its section 5503 slots,

[[Page 27984]]

which we are proposing must be no later than the hospital's third 12-
month cost reporting period (and that at least half of its section 5503
slots must be used in either the first, or second, or third 12-month
cost reporting period). In addition, we are proposing that a hospital
does not meet the 75-percent threshold if it fails to fill at least
half of its section 5503 slots, IME and direct GME, respectively, in
one or a combination of the first three 12-month cost reporting period
of the 5-year period, and upon that basis, CMS would instruct the
Medicare contractor, after audit, to permanently remove all of the
hospital's section 5503 slots from the earliest cost reporting period
that is subject to reopening and in which it would be determined that
the hospital did not meet the requirements (in accordance with existing
Sec. 413.79(n)(2)(iii), which is proposed to be redesignated as Sec.
413.79(n)(2)(iv) in this proposed rule), even if the hospital had used
at least half of its section 5503 slots in its fourth or subsequent
cost reporting year of the 5-year period. Thus, as part of the Medicare
contractors' reviews of the hospitals that received section 5503 slots,
we are proposing that the Medicare contractors would determine whether
a hospital filled at least half of its section 5503 slots in its first
12-month cost reporting period of the 5-year period, and/or in its
second 12-month cost reporting period, and/or in its third 12-month
cost reporting period of the 5-year period. Lastly, we are proposing to
require that a hospital that received section 5503 slots must fill all
of the slots it received in their final cost reporting period beginning
during the timeframe of July 1, 2011 through June 30, 2016 (IME and
direct GME respectively), or lose all of its section 5503 slots after
June 30, 2016.
We are proposing that these requirements would be effective for a
hospital's third 12-month cost reporting period occurring during the 5-
year period of July 1, 2011 through June 30, 2016. For example, for
hospitals with a June 30 fiscal year end, this would be July 1, 2013
through June 30, 2014. For hospitals with a September 30 fiscal year
end, this would be October 1, 2013 through September 30, 2014. For
hospitals with a December 31 fiscal year end, this would be January 1,
2014 through December 31, 2014. We are proposing to make appropriate
changes to the regulations text at Sec. 413.79(n)(2) to incorporate
our proposals. The IME regulations regarding section 5503 slots that
are at existing Sec. 412.105(f)(1)(iv)(C)(2) reference the direct GME
regulations text at Sec. 413.79(n) and would not require amendments.
4. Preservation of Resident Cap Positions From Closed Hospitals
(Section 5506 of the Affordable Care Act)
a. Background
Under existing regulations at Sec. 413.79(h) for direct GME and
Sec. 412.105(f)(1)(ix) for IME, a hospital that is training FTE
residents at or in excess of its FTE resident caps and takes in
residents displaced by the closure of another teaching hospital may
receive a temporary increase to its FTE residents caps so that it may
receive direct GME and IME payment associated with those displaced FTE
residents. However, those temporary FTE resident caps are associated
with those specific displaced FTE residents, and the temporary caps
expire as those displaced residents complete their training program.
Thus, in the past, if a teaching hospital closed, its direct GME and
IME FTE resident cap slots would be ``lost,'' because those cap slots
are associated with a specific hospital's Medicare provider agreement,
which would be retired upon the hospital's closure. Section 5506 of the
Affordable Care Act addressed that situation by amending section
1886(h)(4)(H) of the Act to add a new clause (vi) that instructs the
Secretary to establish a process by regulation under which, in the
event a teaching hospital closes, the Secretary will permanently
increase the FTE resident caps for hospitals that meet certain criteria
up to the number of the closed hospital's FTE resident caps. The
Secretary is directed to ensure that the total number of FTE resident
cap slots distributed shall be equal to the amount of slots in the
closed hospital's direct GME and IME FTE resident caps, respectively.
Under existing regulations at Sec. 489.52 and Sec. 413.79(h),
``closure of a hospital'' means the hospital terminates its Medicare
provider agreement. As finalized in the November 24, 2010 final rule
with comment period (75 FR 72213), we also specified that the FTE
resident cap slots of the hospital that closed no longer exist as part
of any other hospital's permanent FTE resident cap.
Section 1886(h)(4)(H)(vi)(II) of the Act, as added by section
5506(a) of the Affordable Care Act, specifies that the Secretary shall
distribute the FTE cap increases in the following priority order,
``with preference given within each category to hospitals that are
members of the same affiliated group'' (as defined by the Secretary) as
the closed hospital:
First, to hospitals located in the same core-based
statistical area (CBSA) as, or in a CBSA contiguous to, the hospital
that closed.
Second, to hospitals located in the same State as the
closed hospital.
Third, to hospitals located in the same region of the
country as the hospital that closed.
Fourth, only if the slots are not able to be fully
distributed under the third priority group, to qualifying hospitals in
accordance with the criteria established under section 5503
(``Distribution of Additional Residency Positions'') of the Affordable
Care Act.
For a detailed discussion on these ranking categories, we refer
readers to the November 24, 2010 final rule with comment period (75 FR
72214 and 72215). In the November 24, 2010 final rule with comment
period (75 FR 72212 through 72240), we also finalized the following
Ranking Criteria:
[square] Ranking Criterion One. The applying hospital is requesting
the increase in its FTE resident cap(s) because it is assuming (or
assumed) an entire program (or programs) from the hospital that closed,
and the applying hospital is continuing to operate the program(s)
exactly as it had been operated by the hospital that closed (that is,
same residents, possibly the same program director, and possibly the
same (or many of the same) teaching staff).
[square] Ranking Criterion Two. The applying hospital was listed as
a participant of a Medicare GME affiliated group on the most recent
Medicare GME affiliation agreement of which the closed hospital was a
member before the hospital closed, and under the terms of that Medicare
GME affiliation agreement, the applying hospital received slots from
the hospital that closed, and the applying hospital will use the
additional slots to continue to train at least the number of FTE
residents it had trained under the terms of the Medicare GME
affiliation agreement. If the most recent Medicare GME affiliation
agreement of which the closed hospital was a member before the hospital
closed was with a hospital that itself has closed or is closing,
preference would be given to an applying hospital that was listed as a
participant in the next most recent Medicare GME affiliation agreement
(but not one which was entered into more than 5 years prior to the
hospital's closure) of which the first closed hospital was a member
before the hospital closed, and that applying hospital received slots
from the closed hospital under the terms of that affiliation agreement.

[[Page 27985]]

[square] Ranking Criterion Three. The applying hospital took in
residents displaced by the closure of the hospital, but is not assuming
an entire program or programs, and will use the additional slots to
continue training residents in the same programs as the displaced
residents, even after those displaced residents complete their training
(that is, the applying hospital is permanently expanding its own
existing programs).
[square] Ranking Criterion Four. The applying hospital does not fit
into Ranking Criteria One, Two, or Three, and will use additional slots
to establish a new or expand an existing geriatrics residency program.
[square] Ranking Criterion Five: Applying hospital does not meet
Ranking Criterion One, Two, or Three, is located in a HPSA, and will
use all the additional slots to establish or expand a primary care or
general surgery residency program.
[square] Ranking Criterion Six: Applying hospital does not meet
Ranking Criterion One, Two, or Three, is not located in a HPSA, and
will use all the additional slots to establish or expand a primary care
or general surgery residency program.
[square] Ranking Criterion Seven: Applying hospital seeks the slots
for purposes that do not fit into any of the above ranking criteria.
In determining which hospitals should receive the slots associated
with the closed hospital, in addition to considering the ranking
categories and criteria listed above, section 1886(h)(4)(H)(vi) of the
Act, as added by section 5506(a) of the Affordable Care Act, states
that the Secretary may only award slots to an applying hospital ``if
the Secretary determines that the hospital has demonstrated a
likelihood of filling the positions made available under this clause
within 3 years.'' ``Within 3 years'' means within the 3 academic years
immediately following the application deadline to receive slots after a
particular hospital closes (75 FR 72224). For example, where the
application deadline is April 1, 2011, the immediately following
academic year is July 1, 2011; therefore, hospitals must demonstrate
the likelihood of filling their slots by June 30, 2014.
Finally, section 5506(d) of the Affordable Care Act specifies that
``the Secretary shall give consideration to the effect of the
amendments made by this section on any temporary adjustment to a
hospital's FTE cap under Sec. 413.79(h) * * * (as in effect on the
date of enactment of this Act) in order to ensure that there is no
duplication of FTE slots * * *.'' In distributing slots permanently
under section 5506, we need to be cognizant of the number of FTE
residents for whom a temporary FTE cap adjustment was provided under
existing regulations at Sec. 413.79(h), and when those residents will
complete their training, at which point the temporary slot associated
with those displaced residents would be available for permanent
redistribution.
b. Proposed Change in Amount of Time Provided for Submitting
Applications Under Section 5506 of the Affordable Care Act
In the August 3, 2010 proposed rule (75 FR 46422), we proposed to
establish an application process for hospitals to apply to CMS to
receive an increase in FTE caps based on slots from closed hospitals.
Section 5506 of the Affordable Care Act did not specify an application
deadline for hospitals to request an increase to their caps when a
hospital closes. With respect to the first application process, which
applied to all teaching hospital closures between March 23, 2008, and
August 3, 2010, we established an application deadline of April 1,
2011. For future teaching hospital closures, we finalized a policy
whereby we would inform the public through an appropriate medium that
increases to hospitals' FTE resident caps are available for
distribution due to the closure of a teaching hospital, and the
application deadline would be 4 months following the issuance of that
notice to the public (75 FR 72215).
Some representatives of the provider community have commented that
providing hospitals with 4 months following the announcement of a
teaching hospital closure to apply for slots under section 5506 is
longer than necessary. They asserted that such a long application
period unnecessarily delays CMS' review of applications and the
resulting distribution of resident cap slots from closed hospitals to
the applicants. The provider representatives suggested that perhaps a
2-month application window is sufficient and is more practical.
We have considered the suggestion of the provider representatives,
and after our initial experience in implementing section 5506 of the
Affordable Care Act, we agree that 4 months may be more time than is
needed for hospitals to properly prepare and submit section 5506
applications to CMS. Accordingly, as recommended, we are proposing to
set the application deadline for future section 5506 applications to be
60 days following CMS' public notice of a hospital's closure and the
availability of resident cap slots increases. We believe that reducing
the application submission timeframe from 4 months to 60 days will
shorten the entire process for awarding FTE resident cap slots from
closed hospitals considerably.
c. Proposed Change to the Ranking Criteria Under Section 5506
In the November 24, 2010 final rule with comment period (75 FR
72223), we finalized the Ranking Criteria within each of the three
first statutory priority categories (that is, same or contiguous CBSAs,
same State, and same region) to be used to rank applications. For each
application, we assigned slots based on Ranking Criteria, with Ranking
Criterion One being the highest ranking and Ranking Criterion Seven
being the lowest. For a complete list of the Ranking Criteria, we refer
readers to section IV.I.4.a. of this preamble, which discusses the
background for preservation of resident cap positions from closed
hospitals under section 5506 of the Affordable Care Act. For a detailed
discussion of the ranking categories, we refer readers to the November
24, 2010 final rule with comment period (75 FR 72212 through 72240).
After reviewing applications from the first section 5506
application process (those applications that were due to CMS on April
1, 2011), we observed that the overwhelming majority of applications
fell under Ranking Criterion Seven, that is, the applying hospital
seeks the slots for purposes that do not fit into any of Ranking
Criterion One through Ranking Criterion Six. These applications
included applications from hospitals that applied for FTE cap slots for
both primary care and/or general surgery and for nonprimary care
specialties as well as applications for general cap relief. The sheer
number of applications we received under Ranking Criterion Seven was
indicative of a need to further prioritize among the applicants that
would have qualified under Ranking Criterion Seven. Therefore, we are
proposing to replace current Ranking Criterion Seven with the two
separate proposed Ranking Criteria listed below. We note that we are
not proposing to make any changes to Ranking Criteria One through Six.
We are proposing the following two criteria to replace existing Ranking
Criterion Seven:
Proposed Ranking Criterion Seven: The program does not
meet Ranking Criterion One through Six, and the slots for which the
hospital is applying are for a primary care or a general surgery
program, but the hospital is also applying for slots under Ranking
Criterion Eight.
Proposed Ranking Criterion Eight: Applying hospital seeks
the slots for

[[Page 27986]]

purposes that do not fit into any of the above ranking criteria.
Our proposal to modify Ranking Criterion Seven is consistent with
current Medicare policy goals to increase residency training in primary
care and general surgery, because we are proposing to give a higher
ranking to those applications from hospitals applying for primary care
and general surgery FTE cap slots, as well as nonprimary care programs.
Under the current Ranking Criteria, when a hospital applies for
additional FTE cap slots for primary care and/or general surgery as
well as nonprimary care programs, we do not distinguish between the
primary care/general surgery and nonprimary care applications.
Therefore, because the hospital would be applying for nonprimary
program(s), all the hospital's applications would fall under proposed
Ranking Criterion Seven. Under this proposal, although the hospital's
application that requests FTE cap slots for primary care/general
surgery would qualify for proposed Ranking Criterion Seven, the
application for nonprimary care/general surgery would be classified as
proposed Ranking Criterion Eight.
Following is an example of how the proposed Ranking Criteria Seven
and Eight would be assigned:
Hospital A applies for slots from closed Hospital B. Hospital A is
seeking to expand its internal medicine and dermatology programs. Under
the current ranking system, both of Hospital A's applications would
receive consideration under Ranking Criterion Seven. That is, the
internal medicine application is ranked equally with the dermatology
application even though internal medicine is a primary care specialty.
Under the proposed change to the Ranking Criteria, Hospital A's
internal medicine program would receive consideration under proposed
Ranking Criterion Seven while the dermatology program would receive
consideration under proposed Ranking Criterion Eight.
d. Effective Dates of Slots Awarded Under Section 5506
As stated previously, section 5506(d) of the Affordable Care Act
instructs the Secretary, in pertinent part, ``* * * to ensure that
there is no duplication of FTE slots. * * *'' Accordingly, in
distributing slots permanently under section 5506, we need to be
cognizant of the number of FTE residents for whom a temporary FTE cap
adjustment was provided under existing regulations at Sec. 413.79(h),
when those residents will complete their training, and at which point
the temporary slots associated with those displaced residents would be
available for permanent redistribution. With that in mind, in the first
distribution of section 5506 cap slots from hospitals that closed
between March 23, 2008, and August 3, 2010, we used the following
several effective dates based on the ranking criterion under which a
hospital applied:
Date of hospital closure. This effective date could have
applied to Ranking Criterion Two. It also could have applied to Ranking
Criteria One and Three if there were no temporary cap adjustments given
for any displaced FTE residents.
Cost reporting period following date of hospital closure.
This effective date could have been used for awarding slots to
hospitals that were training displaced FTE residents and qualified for
Ranking Criterion One or Ranking Criterion Three because they were
taking over an entire program or part of a program from a closed
hospital and had received a temporary cap adjustment to train those
displaced residents under 42 CFR 413.79(h).
July 1 effective date. This effective date, which could
have been retroactive, could have been used for awarding slots to
hospitals that qualified under Ranking Criteria Four through Seven
where there were temporary cap adjustments made for displaced FTE
residents that completed training in a program on a specific June 30.
Date of award announcement (January 30, 2012). This
effective date could have applied to hospitals that qualified under
Ranking Criteria Four through Seven either where there were no
temporary cap increases under 42 CFR 413.79(h), or where there were
temporary cap increases but those slots associated with the temporary
cap increases were already accounted for. That is, displaced FTE
residents graduated prior to a specific July 1, and, therefore, the cap
slots associated with these FTE residents had already been permanently
assigned that specific July 1, but the closed hospital still had
remaining cap slots available for permanent assignment.
Based on comments we have received from hospitals that were
involved in the initial phase of section 5506 implementation (hospitals
that applied for cap slots from hospitals that closed between March 23,
2008 and August 3, 2010), we believe we need to clarify certain
existing policies and propose a change to the effective dates
associated with several ranking criteria.
First, we are clarifying the effective date of slots awarded under
section 5506 with respect to Ranking Criterion Two. Ranking Criterion
Two applies to hospitals that participated in a Medicare GME
affiliation agreement with the closed hospital (but not one that was
entered into more than 5 years prior to the hospital's closure),
received slots from the closed hospital as part of the affiliation
agreement, and will use any additional awarded slots to continue to
train at least the same number of FTE resident slots it trained as part
of the affiliation agreement. For hospitals that qualify for additional
slots under Ranking Criterion Two, we award the 5506 slots effective on
a permanent basis with the date of the hospital's closure. However, for
hospitals that qualify under Ranking Criteria One and Three and are
already receiving temporary cap adjustments for displaced FTE residents
under 42 CFR 413.79(h), we award the 5506 slots effective on a
permanent basis with the cost reporting period following the date of
the hospital's closure. Because these hospitals are already receiving
temporary cap adjustments for their portion of their cost reporting
period following the closure, for administrative ease, slots became
permanent due to the section 5506 award effective with the cost
reporting period following the date of the hospital's closure. However,
this policy, applicable to hospitals that qualify under Ranking
Criterion One or Three, is not appropriate for hospitals that qualify
under Ranking Criterion Two and that participated in a Medicare GME
affiliation agreement with the closed hospital and received cap slots
from the closed hospital as part of that affiliation agreement. This
policy is not appropriate because, in this case, there were no
displaced FTE residents from the Medicare GME affiliation agreement
and, therefore, the hospital did not receive a temporary cap
adjustment. For example, if Hospital A received slots from Hospital B
as part of an affiliation agreement so that FTE residents could train
at Hospital A and Hospital B closes, Hospital A lost the cap adjustment
it received from Hospital B as part of the affiliation agreement as of
the date of the hospital's closure, and a temporary cap adjustment
under 42 CFR 413.79(h) is not available to Hospital A. In this case, no
FTE residents are displaced.
In this proposed rule, we are clarifying that, for hospitals
qualifying under Ranking Criterion Two that are awarded cap slots from
the closed hospital, the award is effective with the date of the
hospital's closure. This effective date allows a hospital applying
under Ranking Criterion Two to receive funding for training the
additional FTE

[[Page 27987]]

residents it was training as part of the Medicare GME affiliation
agreement with the closed hospital immediately after the closure,
without having to wait until the following cost reporting period to
receive that cap adjustment. We note that, under existing regulations
at 42 CFR 413.79(d), additional FTEs that a hospital receives under the
terms of a Medicare GME affiliation agreement are subject to the 3-year
rolling average. Therefore, hospitals that receive permanent assignment
of FTE resident cap slots under Ranking Criterion Two do not receive an
exemption from the rolling average. With regard to the IME intern and
resident-to-bed (IRB) ratio, the existing regulations at 42 CFR
412.105(a)(1)(i) indicate that the numerator of the prior year IRB
ratio may be adjusted to reflect FTEs added under a Medicare GME
affiliation agreement. The affiliation agreement would terminate when
the hospital closes. Thus, on the cost report of the hospital that
receives slots under Ranking Criterion Two, the prior year numerator of
the IRB ratio would only be adjusted to reflect the portion of the
affiliated FTEs that the hospital received prior to the other
hospital's closure and the termination of the affiliation agreement.
We also are clarifying that when there are no temporary cap
adjustments for displaced FTE residents from hospitals that closed, and
an applying hospital qualifies under Ranking Criterion One or Ranking
Criterion Three, the FTE resident cap slots are awarded effective with
the date of the hospital's closure. This was indicated in the November
24, 2010 final rule with comment period (75 FR 72225), but we
understand, based on comments received after the initial phase of
section 5506 slot awards, that this policy was not clearly understood.
These slots are also immediately included in applying the rolling
average and IRB ratio cap.
We are proposing to change the effective date of an award of
additional FTE caps for hospitals that qualify under Ranking Criterion
Four through proposed Ranking Criterion Eight where temporary caps were
given for displaced FTE residents (we refer readers to section
IV.I.4.b. of this preamble for a discussion of proposed Ranking
Criteria Seven and Eight). As a general matter, hospitals that apply
under Ranking Criterion Four through proposed Ranking Criterion Eight
are applying either to establish or expand a program or to seek cap
relief. We do not believe that, when a hospital receives additional cap
slots to establish or expand a residency training program, we need to
award the cap slots retroactively to a previous July 1 effective date.
Rather, the awarded cap slots are to be used on a prospective basis to
allow hospitals to expand current programs or establish new ones. We
understand that if a hospital is applying for cap relief under proposed
Ranking Criterion Eight (current Ranking Criterion Seven), the hospital
would want its cap slots awarded retroactively to the date of the
hospital's closure or the July 1 after a specific displaced resident
has graduated if that date is prior to the date of the award
announcement. However, we do not believe such a policy is consistent
with the spirit of the BBA caps. Furthermore, the purpose of section
5506 is for hospitals to receive slots from the closed hospital to
facilitate the continuity of the closed hospital's programs and to
promote stability in the number of physicians in a community. The
proposed Ranking Criterion Eight of section 5506 does not serve to
encourage the continuity of the closed hospital's programs; it merely
provides Medicare funding for a certain amount of slots in excess of
the BBA caps. Accordingly, we believe that hospitals applying for cap
relief under proposed Ranking Criterion Eight should only receive their
permanent cap slots effective on a prospective basis. Therefore, while
under the initial section 5506 application process, it was possible for
an applying hospital that qualified under Ranking Criteria Four through
Seven to receive slots retroactive to the July 1 after a specific
displaced FTE resident's graduation date, we are proposing that, for
hospitals that qualify under Ranking Criteria Four through Eight for
cap slots from a closed hospital even where there were temporary caps
given for displaced FTE residents, the applying hospitals would receive
the permanent FTE cap slots effective no earlier than the date of the
award announcement. That is, if an applying hospital that qualified
under Ranking Criterion Four through proposed Ranking Criterion Eight
receives cap slots associated with a displaced FTE resident and that
resident graduated prior to the date of the award announcement, the
earliest the applying hospital could receive the permanent cap
adjustment would be the date of the award announcement. If a hospital
qualified under Ranking Criterion Four through proposed Ranking
Criterion Eight, and the only available cap slots are temporarily being
used to train displaced FTE residents that are expected to graduate
after the date of the award, the applying hospital will receive the
permanent slots effective the July 1 after those displaced FTE
residents complete their training. For example, if a hospital closed
January 1, 2012, and the section 5506 slot awards were announced May 1,
2013, but residents displaced from the closed hospital did not complete
their training until June 30, 2013, the applying hospital will receive
section 5506 slots for those displaced residents effective July 1,
2013, following the completion of training of those displaced
residents. We are not proposing to change the effective date of section
5506 awards for applying hospitals that qualify under Ranking Criterion
Four through proposed Ranking Criterion Eight where there were no
temporary caps given for displaced residents; as described in the
November 24, 2010 final rule with comment period (75 FR 72227), those
applying hospitals will continue to receive their section 5506 cap
slots effective with the date of the award announcement.
Alternatively, another option to consider for the effective date of
Ranking Criteria Four through proposed Ranking Criterion Seven, which
are ranking criteria associated with either starting a program or
expanding a program, would be to award the slots in accordance with
when the hospital actually needs the slots, as asserted in the
hospital's section 5506 application. (The proposed effective date for
proposed Ranking Criterion Eight would still be no earlier than the
date of the award announcement.) For example, assume a hospital applies
under Ranking Criterion Five to expand an internal medicine program by
nine positions. As described in its section 5506 application, the
hospital plans that expansion to occur beginning on July 1, 2012, and
at that time, the hospital would add three residents, and on July 1,
2013, the hospital would add another three residents, and then on July
1, 2014, the hospital would add the last three internal medicine
residents. Therefore, the effective date of three slots could be July
1, 2012, the effective date of three additional slots would be July 1,
2013, and the effective date of the last three slots would be July 1,
2014. We are interested in receiving public comments on this policy
alternative. We would still propose that the effective date for
proposed Ranking Criterion Eight would be no earlier than date of the
award.
Thus far, we have clarified when various effective dates have been
used (that is, the date of closure, or the cost reporting period
following the date of the closure, or a July 1 date), and we have
proposed a change to the effective date of Ranking Criteria Four
through proposed Ranking Criterion Eight when

[[Page 27988]]

temporary cap adjustments for displaced residents were given (to be no
earlier than the date of the award announcement). However, due to
concerns expressed by recipients of slots under the first round of
section 5506, particularly regarding the interaction with the rolling
average as the retroactive section 5506 slots become effective, we are
soliciting public comments on alternative approaches to implementing
section 5506. While bearing in mind that section 5506(d) of the
Affordable Care Act instructs the Secretary ``* * * to ensure that
there is no duplication of FTE slots * * *,'' we would be interested in
public comments regarding whether to either make the effective dates
prospective for all section 5506 slots awarded under all ranking
criteria, or, in certain instances such as when slots are awarded under
Ranking Criteria One or Three, make the effective dates of the section
5506 slots seamless with the expiration of applicable temporary cap
adjustments under Sec. 413.79(h). We also are soliciting public
comments on whether the regulatory temporary cap adjustment for
residents displaced from closed hospitals under Sec. 413.79(h) is
still necessary and appropriate, now that there is a provision in the
statute that addresses permanent reassignment of slots from closed
teaching hospitals. Alternatively, we would be interested in comments
regarding whether the regulatory temporary cap adjustment for displaced
residents under Sec. 413.79(h) should be preserved, but the exemption
from the rolling average for those displaced FTE residents should be
eliminated. These options should be considered by commenters not only
in the context of section 5506 slots that have already been assigned,
but also in the context of future teaching hospital closures, and how
previously awarded section 5506 slots that have not as yet been filled
might interact with eligibility for temporary cap adjustments for
additional displaced residents in the future.
e. Clarification of Relationship Between Ranking Criteria One, Two, and
Three
In the November 24, 2010 final rule with comment period, as part of
the response to a comment we received requesting that the order of
Ranking Criterion One (regarding an applicant hospital that assumes an
entire program from a closed hospital) and Ranking Criterion Two
(regarding an applicant hospital that received slots under the terms of
a Medicare GME affiliation agreement from a closed hospital) be
switched, we stated:

Furthermore, the commenter need not be concerned that hospitals
that would fit into Ranking Criterion Two would be at a disadvantage
and deprived of their fair share of slots to hospitals that would
fit under Ranking Criterion One. In fact, Ranking Criteria One and
Two are not competing with each other, and hospitals fitting into
each category would get their `fair' share of slots. For example,
assume a hospital with an FTE resident cap of 100 closes. Hospital A
assumes the entire programs in which 80 FTE residents were training
when the hospital closed. Hospital B had been receiving 20 FTE slots
from the closed hospital under the terms of a Medicare GME
affiliation agreement. Hospital A applies for 80 slots under Ranking
Criterion One and, all other things being equal, is awarded 80
slots. Hospital A could apply for more than 80 slots, but it could
only receive consideration under Ranking Criterion One for a maximum
of 80 slots. Therefore, 20 slots would remain for Hospital B to
apply for and receive under Ranking Criterion Two. Accordingly, we
do not believe it is necessary to reorder Ranking Criteria One and
Two (75 FR 72218).

We have recently been made aware that it may not always be true
that Ranking Criteria One, Two, and even Three are not competing with
each other. For example, in the case where the closed hospital was
training residents in excess of its FTE resident caps, it is possible
for hospitals to apply under Ranking Criteria One, Two, and/or Three
for more slots than are available. However, under the policy expressed
in the response quoted above from the November 24, 2010 final rule with
comment period, because a hospital that takes over an entire program
from the closed hospital is ranked under Ranking Criterion One, and a
hospital that received slots from a Medicare GME affiliation agreement
from the closed hospital is ranked under Ranking Criterion Two, all the
slots could be assigned to the hospital under Ranking Criterion One,
leaving no slots for hospitals ranked under Ranking Criterion Two or
Three. (We note that in the first round of section 5506 awards
associated with hospitals that closed between March 23, 2008, and
August 3, 2010, this turned out not to be a concern because even in the
case where a closed hospital was training residents in excess of its
FTE caps at the time of closure, there were no applicants for the slots
that simultaneously qualified under Ranking Criteria One, Two, and/or
Three). For example, a hospital that closed has an FTE resident cap of
10, but when it closed, it was training 15 FTEs in an internal medicine
program. Hospital A assumes at least 90 percent of the internal
medicine program; that is, the ``entire'' program (a hospital that
takes on 90 percent of the residents training in a particular program
at the closed hospital within 5 years prior to the hospital's closure
or at the time of the hospital's closure would be deemed to have
assumed an ``entire'' program (75 FR 72218)). Ninety percent of the
internal medicine program is 13.5 FTEs. Because Hospital A took over
the ``entire'' internal medicine program, it applies for slots under
Ranking Criterion One. Hospital B applies under Ranking Criterion Three
because it assumes the other 10 percent of the program, or 1.5 FTEs.
However, because the closed hospital's FTE resident cap was limited to
10, it would seem that all 10 slots would be assigned to Hospital A
under Ranking Criterion One, leaving no slots for Hospital B under
Ranking Criterion Three. Conversely, if Ranking Criteria One and Three
were ranked as equals, the 10 slots could be prorated so that both
Hospital A and Hospital B each receive a ``fair'' share.
Another example might be one in which a closed hospital that was
training residents in excess of its FTE resident cap of 10 ``lent'' 2
of those 10 cap slots to Hospital C under the terms of a Medicare GME
affiliation agreement. Although under the terms of the Medicare GME
affiliation agreement, the hospital's FTE resident cap was reduced from
10 to 8, the hospital actually trained 9 FTEs, and continued to do so
until it closed. Hospital D then assumes the 9 FTEs, or the entirety of
the program that remained at the closed hospital when it closed. Again,
one policy approach would be to rank the ranking criteria in descending
order, and assign all 10 slots to Hospital D since Hospital D qualifies
under Ranking Criterion One. Alternatively, another policy approach
would be to treat Ranking Criteria One and Two as equals, and then a
prorata share of the 10 slots could be given each to Hospital C and
Hospital D.
After consideration of these scenarios, we believe that in the case
where the closed hospital was training residents in excess of its FTE
resident caps, prorating among hospitals that qualify under Ranking
Criteria One, Two, and Three is not warranted. This is because we
believe that a hospital that assumes an entire program from the closed
hospital should be ranked highest, as it has taken the boldest step to
ensuring the continuity of the closed hospital's program. As we
explained first in the August 3, 2010 proposed rule (75 FR 46423) and
again in the November 24, 2010 final rule with comment period (75 FR
72218), ``We note that we are proposing this ranking criterion
regarding affiliated hospitals as second, after the first ranking
criterion regarding applying hospitals that assume an entire

[[Page 27989]]

program or programs from the closed hospital because, even though
section 5506 of the Affordable Care Act directs the Secretary to give
preference to members of the same affiliated group, we believe that a
hospital that assumes the responsibility for an entire program or
programs demonstrates a commitment to maintain the programs to an even
greater degree than does a hospital that was affiliated with the
hospital that closed and may only be maintaining a portion of the
residency program or programs.'' Similarly, we believe that because
section 5506 of the Affordable Care Act does give preference to members
of the same affiliated group as the closed hospital, hospitals
qualifying for Ranking Criterion Two should receive slots first before
hospitals qualifying for slots under Ranking Criterion Three. While we
would encourage a hospital to assume a part of a closed hospital's
program if it does not have the capacity to assume the entire program,
such a hospital would be ranked under Ranking Criterion Three, still
receiving preference before all hospitals that did not necessarily have
any relationship with the closed hospital and that qualify under
Ranking Criteria Four and below. As we stated in the November 24, 2010
final rule with comment period (75 FR 72226), ``we would still assign
the slots to hospitals qualifying under Ranking Criteria One, Two, and
Three in descending order.'' Therefore, in the instance where a closed
hospital is training residents in excess of its FTE resident caps when
it closes, we are clarifying that we would not prorate a closed
hospital's FTE resident caps among applicant hospitals that qualify
under Ranking Criteria One, Two, and Three.
f. Proposed Modifications to the Section 5506 CMS Evaluation Form
We are proposing to make numerous changes to the Section 5506 CMS
Evaluation Form. Most of the changes are not substantive, but are
intended to clarify the requirements on the form, and therefore, we
will not list them each individually. There are several proposed
changes that are more substantive, and we will enumerate those. First,
we are proposing to change the name of the CMS Evaluation Form to the
CMS Application Form. We believe this is a more appropriate name, as it
is the form used by hospitals to apply for slots under section 5506.
Second, there are several instances on the proposed CMS Application
Form where we prompt the applicant to specify whether the application
is for a particular program, or for general cap relief, or for slots
associated with a Medicare GME affiliation agreement with the closed
hospital (which we did not do on the preceding form). Third, we are
clarifying the titles of the Demonstrated Likelihood Criteria (DLC).
Specifically, the proposed title for Demonstrated Likelihood Criterion
1 is ``Establishing a New Residency Program'', the proposed title for
Demonstrated Likelihood Criterion 2 is ``Taking Over All or Part of an
Existing Residency Program from the Closed Hospital, or Expanding an
Existing Residency Program,'' the proposed title for Demonstrated
Likelihood Criterion 3 is ``Receiving Slots for General Cap Relief,''
and the proposed title for Demonstrated Likelihood Criterion 4 is
``Receiving Slots by Virtue of Medicare GME Affiliated Group Agreement
with Closed Hospital.'' Fourth, we are proposing to add a category
under Demonstrated Likelihood Criterion 2 stating that if the hospital
currently has unfilled positions in a residency program that have
previously been approved by the ACGME, AOA, or the ABMS, and the
hospital is now seeking to fill those positions, the hospital must
attach documentation clearly showing its current number of approved
positions, and its current number of filled positions (as proof of the
unfilled positions). Fifth, we are proposing to change the wording in
Ranking Criteria 4, 5, and 6, respectively, from ``The applying
hospital does not meet ranking criteria 1, 2, or 3'' to ``The program
does not meet ranking criterion 1, 2, or 3'' because the latter is more
accurate. That is, it is possible for a hospital to qualify under
Ranking Criterion 1, 2, or 3 for a particular program, and also to
apply for slots separately under Ranking Criterion 4, 5, or 6 for a
different program. Sixth, we are proposing to add a new Ranking
Criterion 7: The program does not meet ranking criteria 1 through 6,
and the slots for which the hospital is applying are for a primary care
or a general surgery program, but the hospital is also applying for
slots under Ranking Criterion Eight. We also are renumbering what had
been the previous Ranking Criterion 7 to be the proposed Ranking
Criterion 8.
Following is the proposed revised section 5506 CMS Application
Form:

CMS Application Form

As Part of the Application for the Increase in a Hospital's FTE Cap(s)
under Section 5506 of the Affordable Care Act: Preservation of FTE Cap
Slots from Teaching Hospitals that Close

Directions: Please fill out the information below for each
residency program for which the applicant hospital intends to use the
increase in its FTE cap(s). If the hospital is applying for general FTE
cap relief (an increase in the hospital's FTE cap(s) in recognition of
already training residents in excess of the hospital's cap(s)), that
application must be submitted separately from an individual program
request. If the hospital is applying for slots associated with a
Medicare GME affiliation agreement with a hospital that closed, that
application must also be submitted separately from an individual
program request.
NAME OF HOSPITAL:
-----------------------------------------------------------------------
MEDICARE PROVIDER NUMBER:
-----------------------------------------------------------------------
NAME OF MEDICARE CONTRACTOR:
-----------------------------------------------------------------------
CORE-BASED STATISTICAL AREA (CBSA in which the hospital is physically
located--write the 5 digit code here):
-----------------------------------------------------------------------
COUNTY NAME (in which the hospital is physically located):
-----------------------------------------------------------------------

Complete the following, as applicable:

1. Name of Specialty Training Program:
-----------------------------------------------------------------------
2. General FTE Cap Relief:
-----------------------------------------------------------------------
3. Medicare GME Affiliated Group:
-----------------------------------------------------------------------

(Check one):
[squ] Allopathic Program
[squ] Osteopathic Program

NUMBER OF FTE SLOTS REQUESTED FOR SPECIFIC PROGRAM (OR HOSPITAL OVERALL
IF SEEKING GENERAL CAP RELIEF OR SLOTS ASSOCIATED WITH A MEDICATE GME
AFFILIATED GROUP) AT YOUR HOSPITAL:

Direct GME: ----------IME:----------

Section A: Demonstrated Likelihood Criteria (DLC) of Filling the FTE
Slots

The applicant hospital must provide documentation to demonstrate
the likelihood of filling requested slots under section 5506 within the
3 academic years immediately following the application deadline to
receive slots after a particular hospital closes. Please indicate the
specific use for which you are requesting an increase in your
hospital's FTE cap(s). If you are requesting an increase in the
hospital's FTE cap(s) for a combination of DLC1, DLC2, or DLC3, you
must complete a separate CMS Application Form for each DLC and specify
the distinct

[[Page 27990]]

criterion from the list below within each Form.

Demonstrated Likelihood Criterion 1: Establishing a New Residency
Program

The hospital does not have sufficient room under its direct GME FTE
cap or IME FTE cap, or both, and will establish a new residency program
in the specialty. (The hospital must check at least one of the
following.)
[squ] Application for approval of the new residency program has
been submitted to the ACGME, AOA or the ABMS (The hospital must attach
a copy.)
[squ] The hospital has submitted an institutional review document
or program information form concerning the new program in an
application for approval of the new program. (The hospital must attach
a copy.)
[square] The hospital has received written correspondence from the
ACGME, AOA or ABMS acknowledging receipt of the application for the new
program, or other types of communication from the accrediting bodies
concerning the new program approval process (such as notification of
site visit). (The hospital must attach a copy.)
[square] The hospital has other documentation demonstrating that it
has made a commitment to start a new program (The hospital must attach
a copy.)

Demonstrated Likelihood Criterion 2: Taking Over All or Part of an
Existing Residency Program From the Closed Hospital, or Expanding an
Existing Residency Program

The hospital does not have sufficient room under its direct GME FTE
cap or IME FTE cap, or both, and a) has permanently taken over the
closed hospital's entire residency program, or b) is permanently
expanding its own previously established and approved residency program
resulting from taking over part of a residency program from the closed
hospital, or c) is permanently expanding its own existing residency
program. (The hospital must check at least one of the following.)
[square] Application for approval to take over the closed
hospital's residency program has been submitted to the ACGME, AOA, or
the ABMS, or approval has been received from the ACGME, AOA, or the
ABMS. (The hospital must attach a copy.)
[square] Application for approval of an expansion of the number of
approved positions in its residency program resulting from taking over
part of a residency program from the closed hospital has been submitted
to the ACGME, AOA or the ABMS, or approval has been received from the
ACGME, AOA, or the ABMS. (The hospital must attach a copy.)
[square] Application for approval of an expansion of the number of
approved positions in its residency program has been submitted to the
ACGME, AOA or the ABMS, or approval has been received from the ACGME,
AOA, or the ABMS. (The hospital must attach a copy.)
[square] The hospital currently has unfilled positions in its
residency program that have previously been approved by the ACGME, AOA,
or the ABMS, and is now seeking to fill those positions. (The hospital
must attach documentation clearly showing its current number of
approved positions, and its current number of filled positions).
[square] The hospital has submitted an institutional review
document or program information form concerning the program in an
application for approval of an expansion to the program (The hospital
must attach a copy).

Demonstrated Likelihood Criterion 3: Receiving Slots for General Cap
Relief

[square] The hospital does not have sufficient room under its
direct GME FTE cap or IME cap, or both, and is seeking an increase in
its FTE cap(s) for general cap relief for residents that it is already
training.

Demonstrated Likelihood Criterion 4: Receiving Slots by Virtue of
Medicare GME Affiliated Group Agreement with Closed Hospital

[square] The hospital was listed as a participant of a Medicare GME
affiliated group on the most recent Medicare GME affiliation agreement
of which the closed hospital was a member before the hospital closed,
and under the terms of that Medicare GME affiliation agreement, the
applying hospital received slots from the hospital that closed, and the
applying hospital will use the additional slots to continue to train at
least the number of FTE residents it had trained under the terms of the
Medicare GME affiliation agreement. If the most recent Medicare GME
affiliation agreement of which the closed hospital was a member before
the hospital closed was with a hospital that itself has closed or is
closing, the applying hospital was listed as a participant in the next
most recent Medicare GME affiliation agreement (but not one which was
entered into more than 5 years prior to the hospital's closure) of
which the first closed hospital was a member before the hospital
closed, and that applying hospital received slots from the closed
hospital under the terms of that affiliation agreement. (Copies of EACH
of the following must be attached.)
[ssquf] Copies of the recent Medicare GME affiliation agreement of
which the applying hospital and the closed hospital were a member of
before the hospital closed.
[ssquf] Copies of the most recent accreditation letters for all of
the hospital's training programs in which the hospital had a shared
rotational arrangement (as defined at Sec. 413.75(b)) with the closed
hospital.

Section B. Level Priority Category

(Place an ``X'' in the appropriate box that is applicable to the
level priority category that describes the applicant hospital.)
[square] First, to hospitals located in the same core-based
statistical area (CBSA) as, or in a CBSA contiguous to, the hospital
that closed.
[square] Second, to hospitals located in the same State as the
closed hospital.
[square] Third, to hospitals located in the same region as the
hospital that closed.
[square] Fourth, if the slots have not yet been fully distributed,
to qualifying hospitals in accordance with the criteria established
under section 5503, ``Distribution of Additional Residency Positions''

Section C. Evaluation Criteria

(Place an ``X'' in the box for each criterion that is appropriate
for the applicant hospital and for the program for which the increase
in the FTE cap is requested.)
[square] Ranking Criterion One. The applying hospital is requesting
the increase in its FTE resident cap(s) because it is assuming (or
assumed) an entire program (or programs) from the hospital that closed,
and the applying hospital is continuing to operate the program (s)
exactly as it had been operated by the hospital that closed (that is,
same residents, possibly the same program director, and possibly the
same (or many of the same) teaching staff).
[square] Ranking Criterion Two. The applying hospital was listed as
a participant of a Medicare GME affiliated group on the most recent
Medicare GME affiliation agreement of which the closed hospital was a
member before the hospital closed, and under the terms of that Medicare
GME affiliation agreement, the applying hospital received slots from
the hospital that closed, and the applying hospital will use the
additional slots to continue to train at least the number of FTE
residents it had trained under the terms of the Medicare GME
affiliation agreement. If the most recent Medicare

[[Page 27991]]

GME affiliation agreement of which the closed hospital was a member
before the hospital closed was with a hospital that itself has closed
or is closing, preference would be given to an applying hospital that
was listed as a participant in the next most recent Medicare GME
affiliation agreement (but not one which was entered into more than 5
years prior to the hospital's closure) of which the first closed
hospital was a member before the hospital closed, and that applying
hospital received slots from the closed hospital under the terms of
that affiliation agreement.
[square] Ranking Criterion Three. The applying hospital took in
residents displaced by the closure of the hospital, but is not assuming
an entire program or programs, and will use the additional slots to
continue training residents in the same programs as the displaced
residents, even after those displaced residents complete their training
(that is, the applying hospital is permanently expanding its own
existing programs).
[square] Ranking Criterion Four. The program does not meet Ranking
Criteria 1, 2, or 3, and the applying hospital will use additional
slots to establish a new or expand an existing geriatrics residency
program.
[square] Ranking Criterion Five: The program does not meet Ranking
Criteria 1 through 4, the applying hospital is located in a HPSA, and
will use all the additional slots to establish or expand a primary care
or general surgery residency program.
[square] Ranking Criterion Six: The program does not meet Ranking
Criteria 1 through 5, and the applying hospital is not located in a
HPSA, and will use all the additional slots to establish or expand a
primary care or general surgery residency program.
[square] Ranking Criterion Seven: The program does not meet Ranking
Criteria 1 through 6, and the slots for which the hospital is applying
are for a primary care or a general surgery program, but the hospital
is also applying for slots under Ranking Criterion Eight.
[square] Ranking Criterion Eight: The applying hospital seeks the
slots for purposes that do not fit into any of the above ranking
criteria.

Application Process and CMS Central Office and Regional Office Mailing
Addresses for Receiving Increases in FTE Resident Caps

In order for hospitals to be considered for increases in their FTE
resident caps, each qualifying hospital must submit a timely
application. The following information must be submitted on
applications to receive an increase in FTE resident caps:
[ssquf] The name and Medicare provider number, and Medicare
contractor (to which the hospital submits its cost report) of the
hospital.
[ssquf] The total number of requested FTE resident slots for direct
GME or IME, or both.
[ssquf] A completed copy of the CMS Application Form for each
residency program for which the hospital intends to use the requested
increase in FTE residents.
[ssquf] Source documentation to support the assertions made by the
hospital on the CMS Application Form.
[ssquf] FTE resident counts for direct GME and IME and FTE resident
caps for direct GME and IME reported by the hospital in the most recent
as-filed cost report. (If the CMS Form 2552-96 is applicable, include
copies of Worksheets E, Part A, E-3, Part IV, and if a hospital
received an increase to its FTE cap(s) under section 422 of the MMA, a
copy of E-3, Part VI. If the CMS Form 2552-10 is applicable, include
copies of Worksheets E, Part A, and E-4).
[ssquf] An attestation, signed and dated by an officer or
administrator of the hospital who signs the hospital's Medicare cost
report, of the following information:
``I hereby certify that I understand that misrepresentation or
falsification of any information contained in this application may be
punishable by criminal, civil, and administrative action, fine and/or
imprisonment under federal law. Furthermore, I understand that if
services identified in this application were provided or procured
through payment directly or indirectly of a kickback or were otherwise
illegal, criminal, civil, and administrative action, fines and/or
imprisonment may result. I also certify that, to the best of my
knowledge and belief, it is a true, correct, and complete application
prepared from the books and records of the hospital in accordance with
applicable instructions, except as noted. I further certify that I am
familiar with the laws and regulations regarding Medicare payment to
hospitals for the training of interns and residents.''

J. Proposed Changes to the Reporting Requirements for Pension Costs for
Medicare Cost-Finding Purposes

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51693 through
51697), we finalized our policy for reporting costs of qualified
defined benefit pension plans for Medicare cost-finding purposes.
Specifically, beginning with cost reporting periods on or after October
1, 2011, a provider's pension cost for cost-finding purposes equals the
cash basis contribution deposits plus any carry forward contributions,
subject to a limitation. Providers with current contributions and carry
forward contributions in excess of the limit may request approval of
excess contributions, which will be reviewed on a case-by-case basis.
Some or all of the excess contributions will be approved, as
applicable, if it is determined that all or a portion of the excess
contribution(s) are reasonable and necessary. To the extent that
approval is granted, that portion of the excess is allowable as current
period pension costs. We refer readers to the FY 2012 IPPS/LTCH PPS
final rule for full details on this policy.
In addition to finalizing this new policy in the FY 2012 IPPS/LTCH
PPS final rule, we stated that we intended to make future amendments to
conform existing regulations to this final policy (76 FR 51693). The
existing regulations at 42 CFR 413.24 and 413.100 specify that pension
costs of qualified defined benefit plans are reported on an accrual
basis of accounting method. Sections 413.24 and 413.100 provide that
revenue is reported in the period in which it is earned, regardless of
when it is collected and expenses are reported in the period in which
they are incurred, regardless of when it is paid. For Medicare payment
purposes, the costs are generally allowable in the year in which the
costs are accrued and claimed, subject to specific exceptions.
Furthermore, for accrued costs to be recognized for Medicare payment in
the year of the accrual, the requirements must be met with respect to
the liquidation of related liabilities. Therefore, to conform these two
existing regulations to the final policy we adopted in the FY 2012
IPPS/LTCH PPS final rule with regard to pension costs for Medicare
cost-finding purposes, we are proposing to amend the general cost
reporting rules under Sec. Sec. 413.24 and 413.100 to note the
exception for recognizing actual pension contributions funded during
the cost reporting period on a cash basis. We also plan to revise
section 2305.2 of the Provider Reimbursement Manual to reflect this
policy change.

K. Rural Community Hospital Demonstration Program

1. Background
Section 410A(a) of Public Law 108-173 required the Secretary to
establish a demonstration program to test the feasibility and
advisability of establishing ``rural community hospitals'' to furnish
covered inpatient hospital services to Medicare

[[Page 27992]]

beneficiaries. The demonstration pays rural community hospitals under a
reasonable cost-based methodology for Medicare payment purposes for
covered inpatient hospital services furnished to Medicare
beneficiaries. A rural community hospital, as defined in section
410A(f)(1), is a hospital that--
Is located in a rural area (as defined in section
1886(d)(2)(D) of the Act) or is treated as being located in a rural
area under section 1886(d)(8)(E) of the Act;
Has fewer than 51 beds (excluding beds in a distinct part
psychiatric or rehabilitation unit) as reported in its most recent cost
report;
Provides 24-hour emergency care services; and
Is not designated or eligible for designation as a CAH
under section 1820 of the Act.
Section 410A(a)(4) of Public Law 108-173 specified that the
Secretary was to select for participation no more than 15 rural
community hospitals in rural areas of States that the Secretary
identified as having low population densities. Using 2002 data from the
U.S. Census Bureau, we identified the 10 States with the lowest
population density in which rural community hospitals were to be
located in order to participate in the demonstration: Alaska, Idaho,
Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota,
Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of
the United States: 2003).
CMS originally solicited applicants for the demonstration in May
2004; 13 hospitals began participation with cost report years beginning
on or after October 1, 2004. In 2005, 4 of these 13 hospitals withdrew
from the program and converted to CAH status. This left nine hospitals
participating at that time. In 2008, we announced a solicitation for up
to six additional hospitals to participate in the demonstration
program. Four additional hospitals were selected to participate under
this solicitation. These four additional hospitals began under the
demonstration payment methodology with the hospital's first cost
reporting period starting on or after July 1, 2008. At that time, 13
hospitals were participating in the demonstration.
Five hospitals (3 of the hospitals were among the 13 hospitals that
were original participants in the demonstration program and 2 of the
hospitals were among the 4 hospitals that began the demonstration
program in 2008) withdrew from the demonstration program during CYs
2009 and 2010. (Three of these hospitals indicated that they would be
paid more for Medicare inpatient services under the rebasing option
allowed under the SCH methodology provided for under section 122 of the
Medicare Improvements for Patients and Providers Act of 2008 (Pub. L.
110-275). One hospital restructured to become a CAH, and one hospital
closed.) In CY 2011, one hospital that was among the original set of
hospitals that participated in the demonstration withdrew from the
demonstration. These actions left 7 of the originally participating
hospitals (that is, hospitals that were selected to participate in
either 2004 or 2008), participating in the demonstration program as of
June 1, 2011.
Sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-
148) amended section 410A of Public Law 108-173, which established the
rural community hospital demonstration program. Sections 3123 and 10313
of the Affordable Care Act changed the rural community hospital
demonstration program in several ways. First, the Secretary is required
to conduct the demonstration program for an additional 5-year period
that begins on the date immediately following the last day of the
initial 5-year period. Further, the Affordable Care Act requires, in
the case of a rural community hospital that is participating in the
demonstration program as of the last day of the initial 5-year period,
the Secretary to provide for the continued participation of such rural
hospital in the demonstration program during the 5-year extension,
unless the hospital makes an election, in such form and manner as the
Secretary may specify, to discontinue participation (section
410A(g)(4)(A) of Pub. L. 108-173, as added by section 3123(a) of the
Affordable Care Act and further amended by section 10313 of such Act).
In addition, the Affordable Care Act provides that, during the 5-year
extension period, the Secretary shall expand the number of States with
low population densities determined by the Secretary to 20 (section
410A(g)(2) of Public Law 108-173, as added by section 3123(a) and
amended by section 10313 of the Affordable Care Act). Further, the
Secretary is required to use the same criteria and data that the
Secretary used to determine the States under section 410A(a)(2) of
Public Law 108-173 for purposes of the initial 5-year period. The
Affordable Care Act also allows not more than 30 rural community
hospitals in such States to participate in the demonstration program
during the 5-year extension period (section 410A(g)(3) of Pub. L. 108-
173, as added by section 3123(a) of the Affordable Care Act and as
further amended by section 10313 of such Act).
We published a solicitation for applications for additional
participants in the rural community hospital demonstration program in
the Federal Register on August 30, 2010 (75 FR 52960). Applications
were due on October 14, 2010. The 20 States with the lowest population
density that are eligible for the demonstration program are: Alaska,
Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Minnesota,
Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota,
Oklahoma, Oregon, South Dakota, Utah, and Wyoming (Source: U.S. Census
Bureau, Statistical Abstract of the United States: 2003). We approved
19 new hospitals for participation in the demonstration program. We
determined that each of these new hospitals would begin participating
in the demonstration with its first cost reporting period beginning on
or after April 1, 2011.
Three of these 19 hospitals declined participation prior to the
start of the cost report periods for which they would have begun the
demonstration. In addition to the 7 hospitals that were selected in
either 2004 or 2008 and that are still participating, the new selection
led to a total of 23 hospitals in the demonstration.
In addition, section 410A(c)(2) of Public Law 108-173 required
that, ``[i]n conducting the demonstration program under this section,
the Secretary shall ensure that the aggregate payments made by the
Secretary do not exceed the amount which the Secretary would have paid
if the demonstration program under this section was not implemented.''
This requirement is commonly referred to as ``budget neutrality.''
Generally, when we implement a demonstration program on a budget
neutral basis, the demonstration program is budget neutral in its own
terms; in other words, the aggregate payments to the participating
hospitals do not exceed the amount that would be paid to those same
hospitals in the absence of the demonstration program. Typically, this
form of budget neutrality is viable when, by changing payments or
aligning incentives to improve overall efficiency, or both, a
demonstration program may reduce the use of some services or eliminate
the need for others, resulting in reduced expenditures for the
demonstration program's participants. These reduced expenditures offset
increased payments elsewhere under the demonstration program, thus
ensuring that the demonstration program as a whole is budget neutral or

[[Page 27993]]

yields savings. However, the small scale of this demonstration program,
in conjunction with the payment methodology, makes it extremely
unlikely that this demonstration program could be viable under the
usual form of budget neutrality. Specifically, cost-based payments to
participating small rural hospitals are likely to increase Medicare
outlays without producing any offsetting reduction in Medicare
expenditures elsewhere. Therefore, a rural community hospital's
participation in this demonstration program is unlikely to yield
benefits to the participant if budget neutrality were to be implemented
by reducing other payments for these same hospitals.
In the past eight IPPS final regulations, spanning the period for
which the demonstration program has been implemented, we have adjusted
the national inpatient PPS rates by an amount sufficient to account for
the added costs of this demonstration program, thus applying budget
neutrality across the payment system as a whole rather than merely
across the participants in the demonstration program. As we discussed
in the FYs 2005 through 2012 IPPS final rules (69 FR 49183; 70 FR
47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343,
and 76 FR 51698, respectively), we believe that the language of the
statutory budget neutrality requirements permits the agency to
implement the budget neutrality provision in this manner. In light of
the statute's budget neutrality requirement, we are proposing a
methodology to calculate a budget neutrality adjustment factor to the
FY 2013 national IPPS rates.
In general terms, in each of these previous years, we used
available cost reports for the participating hospitals to derive an
estimate of the additional costs attributable for the demonstration. We
used finalized, or settled, cost reports, as available, and ``as
submitted'' cost reports for hospitals for which finalized cost reports
were not available. Annual market basket percentage increase amounts
provided by the CMS Office of the Actuary reflecting the growth in the
prices of inputs for inpatient hospitals were applied to these cost
amounts. An annual update factor provided by the CMS Office of the
Actuary reflecting growth in the volume of inpatient operating services
was also applied. For the budget neutrality calculations in the IPPS
final rules for FYs 2005 through 2011, the annual volume adjustment
applied was 2 percent; for the IPPS final rule for FY 2012, it was 3
percent. For a detailed discussion of our budget neutrality offset
calculations, we refer readers to the IPPS final rule applicable to the
fiscal year involved.
In general, for FYs 2005 through 2009, we based the budget
neutrality offset estimate on the estimated cost of the demonstration
in an earlier given year. For these periods, we derived that estimated
cost by subtracting the estimated amount that would otherwise be paid
without the demonstration in an earlier given year from the estimated
amount for the same year that would be paid under the demonstration
under the reasonable cost-based methodology authorized by section 410A
of Public Law 108-173. (The reasonable cost-based methodology
authorized by section 410A of Pub. L. 108-173, and as later amended by
Pub. L. 111-148, as applicable to the year, is hereafter referred to as
the ``reasonable cost methodology.'' We refer readers to section
410A(b) and (g)(4) of Pub. L. 108-173 and Pub. L. 111-148.) (We
ascertained the estimated amount that would be paid in an earlier given
year under the reasonable cost methodology and the estimated amount
that would otherwise be paid without the demonstration in an earlier
given year from ``as submitted'' cost reports that were submitted by
the hospitals prior to the inception of the demonstration.) We then
updated the estimated cost described above to the current year by
multiplying it by the market basket percentage increases applicable to
the years involved and the applicable annual volume adjustments. For
the FY 2010 IPPS final rule, data from finalized cost reports
reflecting the participating hospitals' experience under the
demonstration were available. Specifically, the finalized cost reports
for the first 2 years of the demonstration, that is, cost reports for
cost reporting years beginning in FYs 2005 and 2006 (CYs 2004, 2005,
and 2006) were available. These data showed that the actual costs of
the demonstration for these years exceeded the amounts originally
estimated in the respective final rules for the budget neutrality
adjustment. In the FY 2010 IPPS/LTCH PPS final rule, we included in the
budget neutrality offset amount an amount in addition to the estimate
of the demonstration costs in that fiscal year. This additional amount
was based on the amount that the costs of the demonstration for FYs
2005 and 2006 exceeded the budget neutrality offset amounts finalized
in the IPPS rules applicable for those years.
Following upon the FY 2010 IPPS/LTCH PPS final rule, we have
continued to propose a methodology for calculating the budget
neutrality offset amount to account for both the estimated
demonstration costs in the upcoming fiscal year and an amount by which
the actual demonstration costs corresponding to an earlier, given year
(which would be known once we have finalized cost reports for that
year) exceeded the budget neutrality offset amount finalized in the
corresponding year's IPPS final rule. However, we note that on account
of a delay affecting the settlement process for cost reports for IPPS
hospitals occurring on a larger scale than merely for the
demonstration, we have been unable to finalize this component of the
budget neutrality offset amount accounting for the amount by which the
actual demonstration costs in a given year exceeded the budget
neutrality offset amount finalized in the corresponding year's IPPS
final rule for cost reports of demonstration hospitals dating to those
beginning in FY 2007. (For only a small fraction of the hospitals that
have participated in the demonstration from FY 2007 to FY 2010 have
cost reports been finalized in any year, making the overall calculation
of this component of the budget neutrality impossible at this time for
any given year.)
2. Proposed FY 2013 Budget Neutrality Offset Amount
We revisited the issue of which cost reports to propose to use for
calculating the FY 2013 budget neutrality offset amount. Although we
used finalized cost reports where available for the FYs 2010, 2011, and
2012 IPPS/LTCH PPS final rules, for FY 2013, we are proposing to use
the ``as submitted'' cost report for each hospital participating in the
demonstration for the cost report period ending in CY 2010 in
estimating the costs of the demonstration. We believe a way to
streamline our methodology for calculating the budget neutrality offset
amount would be to use cost reports all with the same status (that is,
only ``as submitted'' cost reports as opposed to a mix of ``as
submitted'' and ``settled'' cost reports) from the same time period for
all hospitals participating in the demonstration (as opposed to varying
cost reports of statuses from varying years for the various hospitals
as has been done previously). Therefore, because ``as submitted'' cost
reports ending in CY 2010 are the most recent complete set of cost
reports for all demonstration hospitals, we are proposing to use these
cost reports for our budget neutrality offset estimate. Further,
because ``as submitted'' cost reports ending in CY 2010 are recent
available cost reports, we believe they would be an accurate predictor
of the costs of the

[[Page 27994]]

demonstration in FY 2013 because they give us a recent picture of the
participating hospitals' costs.
In revisiting the issue of which data sets to propose to use in the
budget neutrality offset amount calculation, we also revisited the
methodology for calculating the budget neutrality offset amount. In
this proposed rule, we are proposing changes to that methodology in an
effort to further improve and refine it. We note that the proposed
methodology varies, in part, from that finalized in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51698 through 51707). Specifically, in
proposing refinements to the methodology, we would simplify the
calculation so that it includes only a few steps. In addition, we are
proposing to incorporate different update factors (the market basket
percentage increase and the applicable percentage increase, as
applicable, to several years of data as opposed to solely using the
market basket percentage increase) for the calculation of the budget
neutrality offset amount. As explained in greater detail below, we
believe this approach would maximize the precision of our calculation
because we believe it would more closely replicate payments made with
and without the demonstration.
We note that, although we are proposing changes to certain aspects
of the budget neutrality offset amount calculation, several core
components of the methodology would remain unchanged. For example, we
are continuing to propose to include in the budget neutrality offset
amount the estimate of the demonstration costs for the upcoming fiscal
year and the amount by which the actual demonstration costs
corresponding to an earlier given year (which would be known once we
have finalized cost reports for that year) exceeded the budget
neutrality offset amount finalized in the corresponding year's IPPS
final rule).
The proposed methodology for calculating the estimated FY 2013
demonstration cost for the 23 currently participating hospitals is as
follows:
Step 1: For each of the 23 participating hospitals, we are
proposing to identify the general reasonable cost amount calculated
under the reasonable cost methodology for covered inpatient hospital
services (as indicated on the ``as submitted'' cost report for the
hospital's cost reporting period ending in CY 2010) in FY 2010. The
general reasonable cost amount calculated under the reasonable cost
methodology for any applicable year is hereafter referred to as the
``reasonable cost amount.''
Because section 410A of Public Law 108-173 stipulates swing-bed
services are to be included among the covered inpatient hospital
services for which the demonstration payment methodology applies, we
also are proposing to include the cost of these services, as reported
on the cost reports for the hospitals that provide swing-bed services,
within the general total estimated FY 2010 reasonable cost amount for
covered inpatient hospitals services under the demonstration. As
indicated above, we are proposing to use ``as submitted'' cost reports
for the hospital's cost reporting period ending in CY 2010 for this
calculation.
We are proposing to sum the two above-referenced amounts to
calculate the general total estimated FY 2010 reasonable cost amount
for covered inpatient hospital services for all 23 hospitals.
We are proposing to multiply this sum (that is, the general total
estimated FY 2010 reasonable cost amount for covered inpatient hospital
services for all 23 hospitals) by the FYs 2011 through 2013 IPPS market
basket percentage increases, which were formulated by the CMS Office of
the Actuary. In this proposed rule, the current estimate of the FY 2013
IPPS market basket percentage increase provided by the CMS Office of
the Actuary is indicated in section IV.H.1. of this preamble.) We also
are proposing to then multiply the product of the general total
estimated FY 2010 reasonable cost amount for all 23 hospitals and the
market basket percentage increases applicable to the years involved by
a 3-percent annual volume adjustment for the years 2011 through 2013--
the result would be the general total estimated FY 2013 reasonable cost
amount for covered inpatient hospital services for all 23 hospitals.
We are proposing to apply the IPPS market basket percentage
increases applicable for FYs 2011 through 2013 to the FY 2010
reasonable cost amount described above to model the estimated FY 2013
reasonable cost amount under the demonstration. We are proposing to use
the IPPS market basket percentage increases because we believe that
these update factors appropriately indicate the trend of increase in
inpatient hospital operating costs under the reasonable cost
methodology for the years involved. The 3-percent annual volume
adjustment was stipulated last year by the CMS Office of the Actuary
and is proposed because it is intended to accurately reflect the
tendency of hospitals' inpatient caseloads to increase. We acknowledge
the possibility that inpatient caseloads for small hospitals may
fluctuate, and are proposing to incorporate into the estimate of
demonstration costs a factor to allow for a potential increase in
inpatient hospital services.
Step 2: For each of the 23 hospitals, we are proposing to identify
the general estimated amount that would otherwise be paid in FY 2010
under applicable Medicare payment methodologies for covered inpatient
hospital services (as indicated on the ``as submitted'' cost report for
cost reporting periods ending in CY 2010) if the demonstration was not
implemented. Similarly, as in Step 1, for the hospitals that provide
swing-bed services, we are proposing to identify the estimated amount
that generally would otherwise be paid for these services (as indicated
on the ``as submitted'' cost report for cost reporting periods ending
in CY 2010) and include it in the total FY 2010 general estimated
amount that would otherwise be paid for covered inpatient hospital
services without the demonstration. We are proposing to sum these two
amounts in order to calculate the estimated FY 2010 total payments that
generally would otherwise be paid for covered inpatient hospital
services for all 23 hospitals without the demonstration.
We are proposing to multiply the above amount (that is, the
estimated FY 2010 total payments that generally would otherwise be paid
for covered inpatient hospital services for all 23 hospitals without
the demonstration) by the FYs 2011 through 2013 IPPS applicable
percentage increases and the proposed 3 percent annual volume
adjustment for FYs 2011 through 2013--the result would be the general
total estimated FY 2013 costs that would be paid without the
demonstration for covered inpatient hospital services to the 23
participating hospitals. In this proposed rule, the current estimate of
the FY 2013 IPPS applicable percentage increase is 2.1 percent. This
methodology differs from Step 1, in which we are proposing to apply the
market basket percentage increases to the sum of the hospitals' general
total FY 2010 estimated reasonable cost amount for covered inpatient
hospital services. We believe that the IPPS applicable percentage
increases are appropriate factors to update the estimated amounts that
generally would otherwise be paid without the demonstration. This is
because IPPS payments would constitute the majority of payments that
would otherwise be made without the demonstration and the applicable
percentage increase is the factor used under the IPPS to update the
inpatient hospital payment rates.

[[Page 27995]]

Hospitals participating in the demonstration would be participating
under the IPPS payment methodology if they were not in the
demonstration. We note that such use of the applicable percentage
increase would represent a shift from formulations in previous years of
the budget neutrality offset amount. In this FY 2013 proposed rule, we
are trying to increase the precision of the different nature of the
projections that we are proposing for estimating the reasonable cost
amounts and the estimated payments that would otherwise be paid without
the demonstration.
Step 3: We are proposing to subtract the amount derived in Step 2
(representing the sum of estimated amounts that generally would
otherwise be paid to the 23 hospitals for covered inpatient hospital
services for FY 2013 if the demonstration was not implemented) from the
amount derived in Step 1 (representing the sum of the estimated
reasonable cost amount that generally would be paid under the
demonstration to all 23 hospitals for covered inpatient hospital
services for FY 2013). We are proposing that the resulting difference
would be the amount for which an adjustment to the national IPPS rates
would be calculated.
For this proposed rule, the resulting difference is $35,077,708.
For this FY 2013 IPPS/LTCH PPS proposed rule, this amount is the
estimated amount for which an adjustment to the national IPPS rates is
being calculated. This estimated amount is based on the specific
assumptions identified regarding the data sources that are used, that
is, ``as submitted'' recently available cost reports. We note that if
updated data become available prior to the FY 2013 final rule, we are
proposing to use them to the extent appropriate to estimate the costs
of the demonstration program in FY 2013. Therefore, this estimated
budget neutrality offset amount may change in the final rule depending
on the availability of updated data. Similar to previous years, we are
proposing that if settled cost reports for all of the demonstration
hospitals that participated in the applicable fiscal year (FY 2007,
2008, 2009, or 2010) are available prior to the FY 2013 IPPS/LTCH PPS
final rule, we will include in the budget neutrality offset amount any
additional amounts by which the final settled costs of the
demonstration for the year (FY 2007, 2008, 2009, or 2010) exceeded the
budget neutrality offset amount applicable to such year as finalized in
the respective year's IPPS final rule. (The final settled costs of the
demonstration for a year would be calculated by subtracting the total
amount that would otherwise be paid under the applicable Medicare
payment systems without the demonstration for the year from the amount
paid to those hospitals under the reasonable cost methodology for such
year.)

L. Hospital Routine Services Furnished Under Arrangements

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51711 through
51714), we included a provision that limits the circumstances under
which a hospital may furnish services to Medicare beneficiaries ``under
arrangement.'' Under the revised policy, therapeutic and diagnostic
services are the only services that may be furnished under arrangements
outside of the hospital to Medicare beneficiaries. ``Routine services''
(that is, bed, board, and nursing and other related services) must be
furnished by the hospital. Under this revised policy, routine services
furnished to Medicare beneficiaries as inpatients of the hospital are
considered services furnished by the hospital. If these services are
furnished outside of the hospital, the services are considered to be
furnished ``under arrangement.''
We have become aware that a number of affected hospitals need
additional time to restructure existing arrangements and establish
necessary operational protocols to comply with the requirement that
therapeutic and diagnostic services are the only services that may be
furnished outside of the hospital to Medicare beneficiaries ``under
arrangement,'' and that ``routine services'' must be furnished by the
hospital. While we still believe that our policy is correct and
consistent with the statutory language, we also believe that because a
number of hospitals are actively pursuing compliance (often building
construction or restructuring is involved), it is appropriate to
postpone the effective date of this requirement to give hospitals
additional time to comply with the provision.
Therefore, we are proposing to change the implementation date of
this requirement to be effective for cost reporting periods beginning
on or after October 1, 2013. We expect that, during FY 2013, hospitals
will complete the work needed to ensure compliance with the new
requirement. Beginning with a hospital's FY 2014 cost reporting period,
we expect that all hospitals would be in full compliance with the
revised policy for services furnished under arrangement. We will
continue to work with affected hospitals to communicate the requirement
established by this provision, and to provide continued guidance
regarding compliance with the provision.

M. Proposed Technical Change

In an interim final rule that appeared in the November 27, 2007
Federal Register (72 FR 66895 through 66897), we made changes to the
regulations governing the application of the emergency Medicare GME
affiliation agreement rules in order to address the needs of hospitals
located in the section 1135 emergency area in the aftermath of
Hurricane Katrina and Rita. In that rule, we changed the length of
emergency affiliation agreements from 3 years to 5 years under 42 CFR
413.79(f)(7) (then Sec. 413.79(f)(6)); that is, we specified that the
emergency Medicare GME affiliation agreement must terminate no later
than the conclusion of 4 academic years following the academic year
during which the section 1135 emergency period began. However, we
inadvertently did not make a conforming change to 42 CFR
413.79(f)(7)(i)(B). We are proposing to change the regulatory text
specified Sec. 413.79(f)(7)(i)(B) to make it consistent with the
regulatory text under Sec. 413.79(f)(7).

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

A. Overview

Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient acute hospital services ``in
accordance with a prospective payment system established by the
Secretary.'' Under the statute, the Secretary has broad authority in
establishing and implementing the IPPS for acute care hospital
inpatient capital-related costs. The IPPS for capital-related costs was
initially implemented in the Federal fiscal year (FY) 1992 IPPS final
rule (56 FR 43358), in which we established a 10-year transition period
to change the payment methodology for Medicare hospital inpatient
capital-related costs from a reasonable cost-based methodology to a
prospective methodology (based fully on the Federal rate).
FY 2001 was the last year of the 10-year transition period
established to phase in the IPPS for hospital inpatient capital-related
costs. For cost reporting periods beginning in FY 2002, capital IPPS
payments are based solely on the Federal rate for almost all acute care
hospitals (other than hospitals receiving certain exception payments
and certain new hospitals). (We refer readers to the FY 2002 IPPS final
rule (66 FR 39910 through 39914) for additional information on the
methodology used to

[[Page 27996]]

determine capital IPPS payments to hospitals both during and after the
transition period.)
The basic methodology for determining capital prospective payments
using the Federal rate is set forth in Sec. 412.312 of the
regulations. For the purpose of calculating capital payments for each
discharge, the standard Federal rate is adjusted as follows:

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

In addition, under Sec. 412.312(c), hospitals also may receive
outlier payments under the capital IPPS for extraordinarily high-cost
cases that qualify under the thresholds established for each fiscal
year.

B. Additional Provisions

1. Exception Payments
The regulations at Sec. 412.348 provide for certain exception
payments under the capital IPPS. The regular exception payments
provided under Sec. Sec. 412.348(b) through (e) were available only
during the 10-year transition period. For a certain period after the
transition period, eligible hospitals may have received additional
payments under the special exceptions provisions at Sec. 412.348(g).
However, as noted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725
and 51804), FY 2012 was the final year hospitals could receive special
exceptions payments. For additional details regarding these exceptions
policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76
FR 51725).
Finally, under Sec. 412.348(f), a hospital may request an
additional payment if the hospital incurs unanticipated capital
expenditures in excess of $5 million due to extraordinary circumstances
beyond the hospital's control. Additional information on the exception
payment for extraordinary circumstances in Sec. 412.348(f) can be
found in the FY 2005 IPPS final rule (69 FR 49185 and 49186).
2. New Hospitals
Under the capital IPPS, Sec. 412.300(b) of the regulations defines
a new hospital as a hospital that has operated (under previous or
current ownership) for less than 2 years and lists examples of
hospitals that are not considered new hospitals. In accordance with
Sec. 412.304(c)(2), under the capital IPPS a new hospital is paid 85
percent of its Medicare allowable capital-related costs through its
first 2 years of operation, unless the new hospital elects to receive
full prospective payment based on 100 percent of the Federal rate. We
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725) for
additional information on payments to new hospitals under the capital
IPPS.
3. Hospitals Located in Puerto Rico
Section 412.374 of the regulations provides for the use of a
blended payment amount for prospective payments for capital-related
costs to hospitals located in Puerto Rico. Accordingly, under the
capital IPPS, we compute a separate payment rate specific to Puerto
Rico hospitals using the same methodology used to compute the national
Federal rate for capital-related costs. In general, hospitals located
in Puerto Rico are paid a blend of the applicable capital IPPS Puerto
Rico rate and the applicable capital IPPS Federal rate. Capital IPPS
payments to hospitals located in Puerto Rico are computed based on a
blend of 25 percent of the capital IPPS Puerto Rico rate and 75 percent
of the capital IPPS Federal rate. For additional details on capital
IPPS payments to hospitals located in Puerto Rico, we refer readers to
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725).

C. Proposed Changes in the Documentation and Coding Adjustment for FY
2013

1. Background
In the FY 2008 IPPS final rule with comment period (72 FR 47175
through 47186), we established adjustments to both the national
operating standardized amount and the national capital Federal rate to
eliminate the estimated effect of changes in documentation and coding
resulting from the adoption of the MS-DRGs that do not reflect real
changes in case-mix. Specifically, we established prospective
documentation and coding adjustments of -1.2 percent for FY 2008, -1.8
percent for FY 2009, and -1.8 percent for FY 2010. However, to comply
with section 7(a) of Public Law 110-90, enacted on September 29, 2007,
in a final rule published in the Federal Register on November 27, 2007
(72 FR 66886 through 66888), we modified the documentation and coding
adjustment for FY 2008 to -0.6 percent, and consequently revised the FY
2008 IPPS operating and capital payment rates, factors, and thresholds
accordingly, with these revisions effective October 1, 2007.
For FY 2009, section 7(a) of Public Law 110-90 required a
documentation and coding adjustment of -0.9 percent instead of the -1.8
percent adjustment established in the FY 2008 IPPS final rule with
comment period. As discussed in the FY 2009 IPPS final rule with
comment period (73 FR 48447 and 48733 through 48774), we applied an
additional documentation and coding adjustment of -0.9 percent to the
FY 2009 IPPS national standardized amounts and the national capital
Federal rate. The documentation and coding adjustments established in
the FY 2009 IPPS final rule, as amended by Public Law 110-90, are
cumulative. As a result, the -0.9 percent documentation and coding
adjustment in FY 2009 was in addition to the -0.6 percent adjustment in
FY 2008, yielding a combined effect of -1.5 percent. (For additional
details on the development and implementation of the documentation and
coding adjustments for FY 2008 and FY 2009, we refer readers to section
II.D. of this preamble and the following rules published in the Federal
Register: August 22, 2007 (72 FR 47175 through 47186 and 47431 through
47432); November 27, 2007 (72 FR 66886 through 66888); and August 19,
2008 (73 FR 48447 through 48450 and 48773 through 48775).)
For the FY 2011 IPPS/LTCH PPS proposed and final rules, we
performed a retrospective evaluation of the FY 2009 claims data updated
through December 2009 using the same analysis methodology as we did for
FY 2008 claims in the FY 2010 IPPS/RY 2010 LTCH PPS proposed and final
rules. Based on this evaluation, our actuaries determined that the
implementation of the MS-DRG system resulted in a 5.4 percent change in
case-mix due to documentation and coding that did not reflect real
changes in case-mix for discharges occurring during FY 2009. In the FY
2011 IPPS/LTCH PPS final rule (75 FR 50355), we implemented an
additional adjustment to the FY 2011 national capital Federal rate of -
2.9 percent to account for part of the effect of the estimated changes
in documentation and coding changes under the MS-DRG system that
occurred in FYs 2008 and 2009 that did not reflect real changes in
case-mix. Consistent with past practice, this -2.9 percent adjustment
was applied in a cumulative manner, which yielded a combined effect of
-4.4 percent. (For additional information on our estimate of the 5.4
percent cumulative documentation effect under the MS-DRG system for FYs
2008 and 2009 and the additional -2.9 percent documentation and coding
adjustment applied to the national capital Federal rate in FY 2011, we
refer readers to the

[[Page 27997]]

FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24014) and the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50355)).
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51727), we made an
additional -1.0 percent adjustment to the national capital Federal rate
to account for the remainder of the 5.4 percent estimate of the
cumulative effect of documentation and coding changes under the MS-DRG
system that occurred during FYs 2008 and 2009. Consistent with past
practice, this -1.0 percent adjustment was applied in a cumulative
manner, which yielded a combined effect of -5.4 percent.
2. Prospective Documentation and Coding Adjustment to the National
Capital Federal Rate for FY 2013 and Subsequent Years
We continue to believe that it is appropriate to make adjustments
to the capital IPPS rates to eliminate the effect of any documentation
and coding changes as a result of the implementation of the MS-DRGs.
These adjustments are intended to ensure that future annual aggregate
IPPS payments are the same as payments that otherwise would have been
made in those years absent the change to the MS-DRGs. Under section
1886(g) of the Act, the Secretary has broad authority in establishing
and implementing the IPPS for acute-care hospital inpatient capital-
related costs (that is, the capital IPPS). We have consistently stated
since the initial implementation of the MS-DRG system that we do not
believe it is appropriate for Medicare expenditures under the capital
IPPS to increase due to MS-DRG related changes in documentation and
coding. Accordingly, we believe that it is appropriate under the
Secretary's broad authority under section 1886(g) of the Act, in
conjunction with section 1886(d)(3)(A)(vi) of the Act and section 7(b)
of Public Law 110-90, to make adjustments to the national capital
Federal rate to eliminate the full effect of the documentation and
coding changes resulting from the adoption of the MS-DRGs. We believe
that this is appropriate because, in absence of such adjustments, the
effect of the documentation and coding changes resulting from the
adoption of the MS-DRGs results in inappropriately high capital IPPS
payments because that portion of the increase in aggregate payments is
not due to an increase in patient severity of illness (and costs).
As noted above, based on our retrospective evaluation of the FY
2009 claims, our actuaries determined that implementation of the MS-DRG
system resulted in a 5.4 percent change in case-mix due to
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2009. To date, we have made
adjustments to the national capital Federal rate to account for the
estimated 5.4 percent documentation and coding effect of documentation
and coding changes under the MS-DRG system for FYs 2008 and 2009 (that
is, -0.6 percent in FY 2008, -0.9 percent in FY 2009, -2.9 percent in
FY 2011, and -1.0 in FY 2012).
As discussed in greater detail in section II.D.10. of this
preamble, we believe it is appropriate to analyze claims data from FY
2010 to determine whether any additional adjustment would be required
to ensure that the adoption of MS-DRGs was implemented in a budget
neutral manner. Specifically, for this proposed rule, we analyzed FY
2010 data on claims paid through December 2011 using our existing
methodology (as described in section II.D.4. of this preamble). Based
on this analysis, our actuaries determined that implementation of the
MS-DRG system resulted in a 6.2 percent change in case-mix due to
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2010. This is an estimated
additional 0.8 percentage point increase over the 5.4 percent reduction
currently applied to the national capital Federal rate.
Therefore, in this proposed rule, under the Secretary's broad
authority under section 1886(g) of the Act, in conjunction with section
1886(d)(3)(A)(vi) of the Act, and consistent with our proposal for the
operating IPPS standardized amounts (discussed in section II.D.5. of
this preamble), we are proposing to reduce the national capital Federal
rate in FY 2013 by an additional 0.8 percent to account for the
remainder of the cumulative effect of the estimated changes in
documentation and coding under the MS-DRG system that did not reflect
an increase in case-mix severity in FY 2010. Furthermore, consistent
with the documentation and coding adjustments we have made in the past,
we are proposing to leave the proposed -0.8 percent adjustment in place
for FY 2013 and subsequent fiscal years to account for the effect those
years. As explained above, this proposed -0.8 percent adjustment
accounts for the remainder of our current estimate of the cumulative
effect of documentation and coding changes under the MS-DRG system that
occurred during FYs 2008, 2009, and 2010 of 6.2 percent minus the
existing cumulative adjustment already applied to the national capital
Federal rate of -5.4 percent. We note that this proposed adjustment
only adjusts the national capital Federal rate prospectively. It does
not attempt to recoup any excess payments that have resulted in FYs
2010, 2011, and 2012 as a result of this additional effect of
documentation and coding in those years.
3. Documentation and Coding Adjustment to the Puerto Rico-Specific
Capital Rate
Under Sec. 412.74, Puerto Rico hospitals are currently paid based
on 75 percent of the national capital Federal rate and 25 percent of
the Puerto Rico-specific capital rate. In the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50358 through 50359), we discussed the retrospective
evaluation of the FY 2009 claims data from the March 2010 update of the
MedPAR file of hospitals located in Puerto Rico using the same
methodology used to estimate documentation and coding changes under
IPPS for non-Puerto Rico hospitals. This analysis shows that the change
in case-mix due to documentation and coding that did not reflect real
changes in case-mix for discharges occurring during FYs 2008 and 2009
from hospitals located in Puerto Rico was approximately 2.6 percent. We
also explained that we continue to believe that an adjustment for such
increases is appropriate because all hospitals have the same financial
incentives for documentation and coding improvements, and the same
ability to benefit from the resulting increase in aggregate payments
that do not reflect real changes in case-mix.
Given this case-mix increase due to changes in documentation and
coding under the MS-DRGs, under the Secretary's broad authority under
section 1886(g) of the Act, we established an adjustment to the Puerto
Rico-specific capital rate of -2.6 percent in FY 2011 for the
cumulative increase in case-mix due to changes in documentation and
coding under the MS-DRGs for FYs 2008 and 2009. In addition, consistent
with our implementation of other prospective MS-DRG documentation and
coding adjustments to the capital Federal rate and operating IPPS
standardized amounts, we established that the -2.6 percent adjustment
will remain in place for subsequent fiscal years in order to ensure
that changes in documentation and coding resulting from the adoption of
the MS-DRGs do not lead to an increase in aggregate payments not
reflective of an increase in real case-mix in subsequent years.
Therefore, the -2.6 percent adjustment to the capital

[[Page 27998]]

Puerto Rico-specific rate made in FY 2011 reflects the entire amount of
our estimate at that time of the effects of documentation and coding
that did not reflect real changes in case-mix for discharges occurring
during FYs 2008 and 2009 from hospitals located in Puerto Rico.
As discussed above, for this proposed rule, we analyzed FY 2010
data on claims paid through December 2011 using our existing
methodology to determine if any additional adjustment for the effects
of documentation and coding that did not reflect real changes in case-
mix is warranted. Based on this analysis (which is described in greater
detail in section II.D.10. of this preamble), we found no significant
additional effect of documentation and coding that would warrant any
additional adjustment. Therefore, we are not proposing any additional
adjustment to the capital Puerto Rico-specific rate for FY 2013 for the
effect of documentation and coding that did not reflect real changes in
case-mix.

D. Proposed Changes for Annual Update for FY 2013

The annual update to the capital IPPS Federal and Puerto Rico-
specific rates, as provided for at Sec. 412.308(c), proposed for FY
2013 is discussed in section III. of the Addendum to this proposed
rule.

VI. Proposed Changes for Hospitals Excluded From the IPPS

Historically, hospitals and hospital units excluded from the
prospective payment system received payment for inpatient hospital
services they furnished on the basis of reasonable costs, subject to a
rate-of-increase ceiling. A per discharge limit (the target amount as
defined in Sec. 413.40(a)) was set for each hospital or hospital unit
based on the hospital's own cost experience in its base year, and
updated annually by a rate-of-increase percentage. The updated target
amount was multiplied by total Medicare discharges during that period
and applied as an aggregate upper limit (the ceiling as defined in
Sec. 413.40(a)) on total inpatient operating costs for a hospital's
cost reporting period. Prior to October 1, 1997, these payment
provisions applied consistently to all categories of excluded
providers, which included rehabilitation hospitals and units (now
referred to as IRFs), psychiatric hospitals and units (now referred to
as IPFs), LTCHs, children's hospitals, and IPPS-excluded cancer
hospitals.
Payment to children's hospitals and cancer hospitals that are
excluded from the IPPS continues to be subject to the rate-of-increase
ceiling based on the hospital's own historical cost experience. (We
note that, in accordance with Sec. 403.752(a) of the regulations,
RNHCIs are also subject to the rate-of-increase limits established
under Sec. 413.40 of the regulations.)
We are proposing that the FY 2013 rate-of-increase percentage to be
applied to the target amount for cancer and children's hospitals and
RNHCIs would be the FY 2013 percentage increase in the IPPS operating
market basket. For this proposed rule, the FY 2013 percentage increase
in the IPPS operating market basket is currently estimated to be 3.0
percent. Beginning with FY 2006, we have used the percentage increase
in the IPPS operating market basket to update the target amounts for
children's and cancer hospitals. As explained in the FY 2006 IPPS final
rule (70 FR 47396 through 47398), with IRFs, IPFs, and LTCHs being paid
under their own PPS, the remaining number of providers being paid based
on reasonable cost subject to a ceiling (that is, children's hospitals,
11 cancer hospitals, and RNHCIs) is too small and the cost report data
are too limited to be able to create a market basket solely for these
hospitals. For FY 2013, we are proposing to continue to use the IPPS
operating market basket to update the target amounts for children's and
cancer hospitals and RNHCIs for the reasons discussed in the FY 2006
IPPS final rule.
We are proposing to use the FY 2006-based IPPS operating market
basket to update the target amounts for children's and cancer hospitals
and RNHCIs for FY 2013. Therefore, based on IHS Global Insight, Inc.'s
2012 first quarter forecast, with historical data through the 2011
fourth quarter, the current estimate of the IPPS operating market
basket update for FY 2013 is 3.0 percent (that is, the estimate of the
market basket rate-of-increase). We are proposing that if more recent
data become available for the final rule, we would use them to
calculate the IPPS operating market basket update for FY 2013.
We note that IRFs, IPFs, and LTCHs, which were paid previously
under the reasonable cost methodology, now receive payment under their
own prospective payment systems, in accordance with changes made to the
statute. In general, the prospective payment systems for IRFs, IPFs,
and LTCHs provided transition periods of varying lengths during which
time a portion of the prospective payment was based on cost-based
reimbursement rules under Part 413. (However, certain providers do not
receive a transition period or may elect to bypass the transition
period as applicable under 42 CFR Part 412, Subparts N, O, and P.) We
note that the various transition periods provided for under the IRF
PPS, the IPF PPS, and the LTCH PPS have ended.
The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We
refer readers to section IV. of the Addendum to this proposed rule for
the specific proposed update changes to the Federal payment rates for
LTCHs under the LTCH PPS for FY 2013. The annual updates for the IRF
PPS and the IPF PPS are issued by the agency in separate Federal
Register documents.

VII. Proposed Changes to the Long-Term Care Hospital Prospective
Payment System (LTCH PPS) for FY 2013

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority
Section 123 of the Medicare, Medicaid, and SCHIP (State Children's
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113) as amended by section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) (Pub. L. 106-554) provides for payment for both the operating
and capital-related costs of hospital inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part A based on prospectively set
rates. The Medicare prospective payment system (PPS) for LTCHs applies
to hospitals that are described in section 1886(d)(1)(B)(iv) of the
Social Security Act (the Act), effective for cost reporting periods
beginning on or after October 1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a
hospital which has an average inpatient length of stay (as determined
by the Secretary) of greater than 25 days.'' Section
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative
definition of LTCHs: specifically, a hospital that first received
payment under section 1886(d) of the Act in 1986 and has an average
inpatient length of stay (LOS) (as determined by the Secretary of
Health and Human Services (the Secretary)) of greater than 20 days and
has 80 percent or more of its annual Medicare inpatient discharges with
a principal diagnosis that reflects a finding of neoplastic disease in
the 12-month cost reporting period ending in FY 1997.
Section 123 of the BBRA requires the PPS for LTCHs to be a ``per
discharge'' system with a diagnosis-related group (DRG) based patient
classification system that reflects the differences in patient
resources and costs in LTCHs.

[[Page 27999]]

Section 307(b)(1) of the BIPA, among other things, mandates that
the Secretary shall examine, and may provide for, adjustments to
payments under the LTCH PPS, including adjustments to DRG weights, area
wage adjustments, geographic reclassification, outliers, updates, and a
disproportionate share adjustment.
In the August 30, 2002 Federal Register, we issued a final rule
that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR
55954). For the initial implementation of the LTCH PPS (FYs 2003
through FY 2007), the system used information from LTCH patient records
to classify patients into distinct long-term care diagnosis-related
groups (LTC-DRGs) based on clinical characteristics and expected
resource needs. Beginning in FY 2008, we adopted the Medicare severity
long-term care diagnosis-related groups (MS-LTC-DRGs) as the patient
classification system used under the LTCH PPS. Payments are calculated
for each MS-LTC-DRG and provisions are made for appropriate payment
adjustments. Payment rates under the LTCH PPS are updated annually and
published in the Federal Register.
The LTCH PPS replaced the reasonable cost-based payment system
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH
with a cost reporting period beginning on or after October 1, 2002.
(The regulations implementing the TEFRA reasonable cost-based payment
provisions are located at 42 CFR Part 413.) With the implementation of
the PPS for acute care hospitals authorized by the Social Security
Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the
Act, certain hospitals, including LTCHs, were excluded from the PPS for
acute care hospitals and were paid their reasonable costs for inpatient
services subject to a per discharge limitation or target amount under
the TEFRA system. For each cost reporting period, a hospital-specific
ceiling on payments was determined by multiplying the hospital's
updated target amount by the number of total current year Medicare
discharges. (Generally, in section VIII. of this preamble, when we
refer to discharges, the intent is to describe Medicare discharges.)
The August 30, 2002 final rule further details the payment policy under
the TEFRA system (67 FR 55954).
In the August 30, 2002 final rule, we provided for a 5-year
transition period from payments under the TEFRA System to payments
under the LTCH PPS. During this 5-year transition period, a LTCH's
total payment under the PPS was based on an increasing percentage of
the Federal rate with a corresponding decrease in the percentage of the
LTCH PPS payment that is based on reasonable cost concepts. However,
effective for cost reporting periods beginning on or after October 1,
2006, total LTCH PPS payments are based on 100 percent of the Federal
rate.
In addition, in the August 30, 2002 final rule, we presented an in-
depth discussion of the LTCH PPS, including the patient classification
system, relative weights, payment rates, additional payments, and the
budget neutrality requirements mandated by section 123 of the BBRA. The
same final rule that established regulations for the LTCH PPS under 42
CFR part 412, Subpart O, also contained LTCH provisions related to
covered inpatient services, limitation on charges to beneficiaries,
medical review requirements, furnishing of inpatient hospital services
directly or under arrangement, and reporting and recordkeeping
requirements. We refer readers to the August 30, 2002 final rule for a
comprehensive discussion of the research and data that supported the
establishment of the LTCH PPS (67 FR 55954).
We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR
51733 through 51743) for a chronological summary of the main
legislative and regulatory developments affecting the LTCH PPS through
the annual update cycles prior to this FY 2013 rulemaking cycle.
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
Under the existing regulations at Sec. Sec. 412.23(e)(1) and
(e)(2)(i), which implement section 1886(d)(1)(B)(iv)(I) of the Act, to
qualify to be paid under the LTCH PPS, a hospital must have a provider
agreement with Medicare and must have an average Medicare inpatient LOS
of greater than 25 days. Alternatively, Sec. 412.23(e)(2)(ii) states
that, for cost reporting periods beginning on or after August 5, 1997,
a hospital that was first excluded from the PPS in 1986 and can
demonstrate that at least 80 percent of its annual Medicare inpatient
discharges in the 12-month cost reporting period ending in FY 1997 have
a principal diagnosis that reflects a finding of neoplastic disease
must have an average inpatient length of stay for all patients,
including both Medicare and non-Medicare inpatients, of greater than 20
days.
b. Hospitals Excluded From the LTCH PPS
The following hospitals are paid under special payment provisions,
as described in Sec. 412.22(c), and therefore, are not subject to the
LTCH PPS rules:
Veterans Administration hospitals.
Hospitals that are reimbursed under State cost control
systems approved under 42 CFR part 403.
Hospitals that are reimbursed in accordance with
demonstration projects authorized under section 402(a) of the Social
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject
to the rate-of-increase test at section 1814(b) of the Act).
Nonparticipating hospitals furnishing emergency services
to Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
In the August 30, 2002 final rule, we presented an in-depth
discussion of beneficiary liability under the LTCH PPS (67 FR 55974
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we
clarified that the discussion of beneficiary liability in the August
30, 2002 final rule was not meant to establish rates or payments for,
or define Medicare-eligible expenses. Under Sec. 412.507, if the
Medicare payment to the LTCH is the full LTC-DRG payment amount, as
consistent with other established hospital prospective payment systems,
a LTCH may not bill a Medicare beneficiary for more than the deductible
and coinsurance amounts as specified under Sec. Sec. 409.82, 409.83,
and 409.87 and for items and services as specified under Sec.
489.30(a). However, under the LTCH PPS, Medicare will only pay for days
for which the beneficiary has coverage until the short-stay outlier
(SSO) threshold is exceeded. Therefore, if the Medicare payment was for
a SSO case (Sec. 412.529) that was less than the full LTC-DRG payment
amount because the beneficiary had insufficient remaining Medicare
days, the LTCH could also charge the beneficiary for services delivered
on those uncovered days (Sec. 412.507).
4. Administrative Simplification Compliance Act (ASCA) and Health
Insurance Portability and Accountability Act (HIPAA) Compliance
Claims submitted to Medicare must comply with both the
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105),
and the Health

[[Page 28000]]

Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. L.
104-191). Section 3 of the ASCA requires that the Medicare Program deny
payment under Part A or Part B for any expenses incurred for items or
services ``for which a claim is submitted other than in an electronic
form specified by the Secretary.'' Section 1862(h) of the Act (as added
by section 3(a) of the ASCA) provides that the Secretary shall waive
such denial in two specific types of cases and may also waive such
denial ``in such unusual cases as the Secretary finds appropriate'' (68
FR 48805). Section 3 of the ASCA operates in the context of the HIPAA
regulations, which include, among other provisions, the transactions
and code sets standards requirements codified as 45 CFR parts 160 and
162, Subparts A and I through R (generally known as the Transactions
Rule). The Transactions Rule requires covered entities, including
covered health care providers, to conduct certain electronic health
care transactions according to the applicable transactions and code
sets standards.

B. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group
(MS-LTC-DRG) Classifications and Relative Weights for FY 2013

1. Background
Section 123 of the BBRA requires that the Secretary implement a PPS
for LTCHs (that is, a per discharge system with a diagnosis-related
group (DRG)-based patient classification system reflecting the
differences in patient resources and costs). Section 307(b)(1) of the
BIPA modified the requirements of section 123 of the BBRA by requiring
that the Secretary examine ``the feasibility and the impact of basing
payment under such a system [the long-term care hospital (LTCH) PPS] on
the use of existing (or refined) hospital DRGs that have been modified
to account for different resource use of LTCH patients, as well as the
use of the most recently available hospital discharge data.''
When the LTCH PPS was implemented for cost reporting periods
beginning on or after October 1, 2002, we adopted the same DRG patient
classification system (that is, the CMS DRGs) that was utilized at that
time under the IPPS. As a component of the LTCH PPS, we refer to this
patient classification system as the ``long-term care diagnosis-related
groups (LTC-DRGs).'' Although the patient classification system used
under both the LTCH PPS and the IPPS are the same, the relative weights
are different. The established relative weight methodology and data
used under the LTCH PPS result in relative weights under the LTCH PPS
that reflect ``the differences in patient resource use * * *.'' of LTCH
patients (section 123(a)(1) of the BBRA (Pub. L. 106-113)).
As part of our efforts to better recognize severity of illness
among patients, in the FY 2008 IPPS final rule with comment period (72
FR 47130), the MS-DRGs and the Medicare severity long-term care
diagnosis-related groups (MS-LTC-DRGs) were adopted under the IPPS and
the LTCH PPS, respectively, effective beginning October 1, 2007 (FY
2008). For a full description of the development and implementation and
rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers
to the FY 2008 IPPS final rule with comment period (72 FR 47141 through
47175 and 47277 through 47299). (We note that, in that same final rule,
we revised the regulations at Sec. 412.503 to specify that for LTCH
discharges occurring on or after October 1, 2007, when applying the
provisions of 42 CFR Part 412, Subpart O applicable to LTCHs for policy
descriptions and payment calculations, all references to LTC-DRGs would
be considered a reference to MS-LTC-DRGs. For the remainder of this
section, we present the discussion in terms of the current MS-LTC-DRG
patient classification system unless specifically referring to the
previous LTC-DRG patient classification system that was in effect
before October 1, 2007.)
The MS-DRGs adopted in FY 2008 represent an increase in the number
of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). The MS-DRG
classifications are updated annually. As described in section II.G. of
this preamble, for FY 2013, we are not proposing to create or delete
any MS-DRGs, and as such we would continue to have a total of 751 MS-
DRG groupings for FY 2013. Consistent with section 123 of the BBRA, as
amended by section 307(b)(1) of the BIPA, and Sec. 412.515 of the
regulations, we use information derived from LTCH PPS patient records
to classify LTCH discharges into distinct MS-LTC-DRGs based on clinical
characteristics and estimated resource needs. We then assign an
appropriate weight to the MS-LTC-DRGs to account for the difference in
resource use by patients exhibiting the case complexity and multiple
medical problems characteristic of LTCHs.
In a departure from the IPPS, and as discussed in greater detail
below in section VII.B.3.f. of this preamble, we are proposing to
continue to use low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs with less
than 25 LTCH cases) in determining the MS-LTC-DRG relative weights
because LTCHs do not typically treat the full range of diagnoses as do
acute care hospitals. For purposes of determining the relative weights
for the large number of low-volume MS-LTC-DRGs, we are proposing to
group all of the low-volume MS-LTC-DRGs into five quintiles based on
average charge per discharge. (A detailed discussion of the initial
development and application of the quintile methodology appears in the
August 30, 2002 LTCH PPS final rule (67 FR 55978).) Consistent with our
existing methodology, we also are proposing to account for adjustments
to payments for SSO cases (that is, cases where the covered length of
stay at the LTCH is less than or equal to five-sixths of the geometric
average length of stay for the MS-LTC-DRG). Furthermore, we are
proposing to continue to make adjustments to account for
nonmonotonically increasing weights, when necessary. That is,
theoretically, cases under the MS-LTC-DRG system that are more severe
require greater expenditure of medical care resources and will result
in higher average charges such that, in the severity levels within a
base MS-LTC-DRG, the weights should increase monotonically with
severity from the lowest to highest severity level. (We discuss
nonmonotonicity in greater detail and our methodology to adjust the MS-
LTC-DRG relative weights to account for nonmonotonically increasing
relative weights in section VII.B.3.g. (Step 6) of this preamble.)
2. Patient Classifications Into MS-LTC-DRGs
a. Background
The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under
the LTCH PPS) are based on the CMS DRG structure. As noted above in
this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs
although they are structurally identical to the MS-DRGs used under the
IPPS.
The MS-DRGs are organized into 25 major diagnostic categories
(MDCs), most of which are based on a particular organ system of the
body; the remainder involve multiple organ systems (such as MDC 22,
Burns). Within most MDCs, cases are then divided into surgical DRGs and
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy
that orders operating room (O.R.) procedures or groups of O.R.
procedures by resource intensity. The

[[Page 28001]]

GROUPER software program does not recognize all ICD-9-CM procedure
codes as procedures affecting DRG assignment. That is, procedures that
are not surgical (for example, EKG), or minor surgical procedures (for
example, biopsy of skin and subcutaneous tissue (procedure code 86.11))
do not affect the MS-LTC-DRG assignment based on their presence on the
claim.
Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge and that payment varies
by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into MS-LTC-DRGs for payment based on the following six data
elements:
Principal diagnosis;
Additional or secondary diagnoses;
Surgical procedures;
Age;
Sex; and
Discharge status of the patient.
Through FY 2010, the number of secondary or additional diagnoses
and the number of surgical procedures considered for MS-DRG assignment
was limited to nine and six, respectively. However, for claims
submitted on the 5010 format beginning January 1, 2011, we increased
the capacity to process diagnosis and procedure codes up to 25
diagnoses and 25 procedures. This includes one principal diagnosis and
up to 24 secondary diagnoses for severity of illness determinations. We
refer readers to section II.G.11.c. of the preamble of the FY 2011
IPPS/LTCH PPS final rule for a complete discussion of this change (75
FR 50127).
Upon the discharge of the patient from a LTCH, the LTCH must assign
appropriate diagnosis and procedure codes from the most current version
of the International Classification of Diseases, Ninth Revision,
Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets
Standards regulations at 45 CFR parts 160 and 162 require that no later
than October 16, 2003, all covered entities must comply with the
applicable requirements of Subparts A and I through R of Part 162.
Among other requirements, those provisions direct covered entities to
use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2,
Version 4010, and the applicable standard medical data code sets for
the institutional health care claim or equivalent encounter information
transaction (45 CFR 162.1002 and 45 CFR 162.1102). For additional
information on the ICD-9-CM Coding System, we refer readers to the FY
2008 IPPS final rule with comment period (72 FR 47241 through 47243 and
47277 through 47281). We also refer readers to the detailed discussion
on correct coding practices in the August 30, 2002 LTCH PPS final rule
(67 FR 55981 through 55983). Additional coding instructions and
examples are published in the Coding Clinic for ICD-9-CM, a product of
the American Hospital Association. (We refer readers to section
II.G.13. of this preamble for additional information on the annual
revisions to the ICD-9-CM codes.)
With respect to the ICD-9-CM coding system, we have been discussing
the conversion to the ICD-10-CM and the ICD-10-PCS coding systems for
many years. In prior rules published in the Federal Register (for
example, section II.G.11. of the FY 2011 IPPS/LTCH PPS final rule (75
FR 50122 through 50128)), we discussed the implementation date for the
conversion to the ICD-10-CM and ICD-10-PCS coding systems. We refer
readers to section II.G.9. of this preamble for additional information
on the adoption of the ICD-10-CM and ICD-10-PCS systems.
To create the MS-DRGs (and by extension, the MS-LTC-DRGs),
individual DRGs were subdivided according to the presence of specific
secondary diagnoses designated as complications or comorbidities (CCs)
into one, two, or three levels of severity, depending on the impact of
the CCs on resources used for those cases. Specifically, there are sets
of MS-DRGs that are split into 2 or 3 subgroups based on the presence
or absence of a CC or a major complication and comorbidity (MCC). We
refer readers to section II.D. of the FY 2008 IPPS final rule with
comment period for a detailed discussion about the creation of MS-DRGs
based on severity of illness levels (72 FR 47141 through 47175).
Medicare contractors (that is, fiscal intermediaries and MACs)
enter the clinical and demographic information submitted by LTCHs into
their claims processing systems and subject this information to a
series of automated screening processes called the Medicare Code Editor
(MCE). These screens are designed to identify cases that require
further review before assignment into a MS-LTC-DRG can be made. During
this process, certain cases are selected for further development (74 FR
43949).
After screening through the MCE, each claim is classified into the
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the
basis of diagnosis and procedure codes and other demographic
information (age, sex, and discharge status). The GROUPER software used
under the LTCH PPS is the same GROUPER software program used under the
IPPS. Following the MS-LTC-DRG assignment, the Medicare contractor
determines the prospective payment amount by using the Medicare PRICER
program, which accounts for hospital-specific adjustments. Under the
LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG
assignments made by the Medicare contractor and to submit additional
information within a specified timeframe as provided in Sec.
412.513(c).
The GROUPER software is used both to classify past cases to measure
relative hospital resource consumption to establish the MS-LTC-DRG
weights and to classify current cases for purposes of determining
payment. The records for all Medicare hospital inpatient discharges are
maintained in the MedPAR file. The data in this file are used to
evaluate possible MS-DRG and MS-LTC-DRG classification changes and to
recalibrate the MS-DRG and MS-LTC-DRG relative weights during our
annual update under both the IPPS (Sec. 412.60(e)) and the LTCH PPS
(Sec. 412.517), respectively.
b. Proposed Changes to the MS-LTC-DRGs for FY 2013
As specified by our regulations at Sec. 412.517(a), which requires
that the MS-LTC-DRG classifications and relative weights be updated
annually and consistent with our historical practice of using the same
patient classification system under the LTCH PPS as is used under the
IPPS, we are proposing to update the MS-LTC-DRG classifications
effective October 1, 2012, through September 30, 2013 (FY 2013)
consistent with the changes to specific MS-DRG classifications
presented in section II.G. of this preamble (that is, proposed GROUPER
Version 30.0). Therefore, the proposed MS-LTC-DRGs for FY 2013
presented in this proposed rule are the same as the proposed MS-DRGs
that are being proposed for use under the IPPS for FY 2013. In
addition, because the proposed MS-LTC-DRGs for FY 2013 are the same as
the proposed MS-DRGs for FY 2013, the other changes that affect MS-DRG
(and by extension MS-LTC-DRG) assignments under proposed Version 30.0
of the GROUPER discussed in section II.G. of the preamble of this
proposed rule, including the proposed changes to the MCE software and
proposed changes to the ICD-9-CM coding system, also would be
applicable under the LTCH PPS for FY 2013.

[[Page 28002]]

3. Development of the Proposed FY 2013 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative
Weights
As we stated in the August 30, 2002 LTCH PPS final rule (67 FR
55984), one of the primary goals for the implementation of the LTCH PPS
is to pay each LTCH an appropriate amount for the efficient delivery of
medical care to Medicare patients. The system must be able to account
adequately for each LTCH's case-mix in order to ensure both fair
distribution of Medicare payments and access to adequate care for those
Medicare patients whose care is more costly. To accomplish these goals,
we have annually adjusted the LTCH PPS standard Federal prospective
payment system rate by the applicable relative weight in determining
payment to LTCHs for each case.
Although the adoption of the MS-LTC-DRGs resulted in some
modifications of our historical procedures for assigning relative
weights in cases of zero volume and/or nonmonotonicity, the basic
methodology for developing the proposed FY 2013 MS-LTC-DRG relative
weights in this proposed rule continues to be determined in accordance
with the general methodology established in the August 30, 2002 LTCH
PPS final rule (67 FR 55989 through 55991). (For additional details on
the modifications to our historical procedures for assigning relative
weights in cases of zero volume and/or nonmonotonicity, we refer
readers to the FY 2008 IPPS final rule with comment period (72 FR 47289
through 47295) and the FY 2009 IPPS final rule (73 FR 48542 through
48550).) Under the LTCH PPS, relative weights for each MS-LTC-DRG are a
primary element used to account for the variations in cost per
discharge and resource utilization among the payment groups (Sec.
412.515). To ensure that Medicare patients classified to each MS-LTC-
DRG have access to an appropriate level of services and to encourage
efficiency, we calculated a relative weight for each MS-LTC-DRG that
represents the resources needed by an average inpatient LTCH case in
that MS-LTC-DRG. For example, cases in a MS-LTC-DRG with a relative
weight of 2 will, on average, cost twice as much to treat as cases in a
MS-LTC-DRG with a relative weight of 1.
b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2013
Beginning with the FY 2008 update, we established a budget
neutrality requirement for the annual update to the MS-LTC-DRG
classifications and relative weights at Sec. 412.517(b) (in
conjunction with Sec. 412.503), such that estimated aggregate LTCH PPS
payments would be unaffected, that is, would be neither greater than
nor less than the estimated aggregate LTCH PPS payments that would have
been made without the classification and relative weight changes (72 FR
26882 through 26884). Consistent with Sec. 412.517(b), we are
proposing to continue to apply our established two-step budget
neutrality methodology, which is based on the current year MS-LTC-DRG
classifications and relative weights. (For additional information on
the established two-step budget neutrality methodology, we refer
readers to the FY 2008 IPPS final rule (72 FR 47295 through 47296).)
Thus, for this proposed rule, the proposed annual update to the MS-LTC-
DRG classifications and relative weights for FY 2013 are based on the
FY 2012 MS-LTC-DRG classifications and relative weights established in
Table 11 listed in section VI. of the Addendum to the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51813).
c. Data
In this proposed rule, to calculate the proposed MS-LTC-DRG
relative weights for FY 2013, we are proposing to obtain total charges
from FY 2011 Medicare LTCH bill data from the December 2011 update of
the FY 2011 MedPAR file, which are the best available data at this
time, and to use the proposed Version 30.0 of the GROUPER to classify
LTCH cases. Consistent with our existing methodology, we also are
proposing that if more recent data become available, we would use those
data and the finalized Version 30.0 of the GROUPER in establishing the
FY 2013 MS-LTC-DRG relative weights in the final rule.
Consistent with our historical methodology, we are proposing to
exclude the data from LTCHs that are all-inclusive rate providers and
LTCHs that are reimbursed in accordance with demonstration projects
authorized under section 402(a) of Public Law 90-248 or section 222(a)
of Public Law 92-603. Furthermore, consistent with our historical
practice, we are proposing to continue to exclude Medicare Advantage
(Part C) claims, which are now included in the MedPAR files, in the
calculations for the relative weights under the LTCH PPS that are used
to determine payments for Medicare fee-for-service claims.
Specifically, under this proposal, we are not using any claims from the
MedPAR files that have a GHO Paid indicator value of ``1,'' which
effectively removes Medicare Advantage claims from the relative weight
calculations (73 FR 48532). Accordingly, in the development of the
proposed FY 2013 MS-LTC-DRG relative weights in this proposed rule, we
are proposing to exclude the data of 14 all-inclusive rate providers
and the 2 LTCHs that are paid in accordance with demonstration projects
that had claims in the December 2011 update of the FY 2011 MedPAR file,
as well as any Medicare Advantage claims.
d. Hospital-Specific Relative Value (HSRV) Methodology
By nature, LTCHs often specialize in certain areas, such as
ventilator-dependent patients and treatment of infections and wound
care. Some case types (DRGs) may be treated, to a large extent, in
hospitals that have, from a perspective of charges, relatively high (or
low) charges. This nonrandom distribution of cases with relatively high
(or low) charges in specific MS-LTC-DRGs has the potential to
inappropriately distort the measure of average charges. To account for
the fact that cases may not be randomly distributed across LTCHs,
consistent with the methodology we have used since the implementation
of the LTCH PPS, we are proposing to continue to use a hospital-
specific relative value (HSRV) methodology to calculate the proposed
MS-LTC-DRG relative weights for FY 2013. We believe this method removes
this hospital-specific source of bias in measuring LTCH average charges
(67 FR 55985). Specifically, under this proposed methodology, we reduce
the impact of the variation in charges across providers on any
particular proposed MS-LTC-DRG relative weight by converting each
LTCH's charge for a case to a relative value based on that LTCH's
average charge.
Under the HSRV methodology, we standardize charges for each LTCH by
converting its charges for each case to hospital-specific relative
charge values and then adjust those values for the LTCH's case-mix. The
adjustment for case-mix is needed to rescale the hospital-specific
relative charge values (which, by definition, average 1.0 for each
LTCH). The average relative weight for a LTCH is its case-mix, so it is
reasonable to scale each LTCH's average relative charge value by its
case-mix. In this way, each LTCH's relative charge value is adjusted by
its case-mix to an average that reflects the complexity of the cases it
treats relative to the complexity of the cases treated by all other
LTCHs (the average case-mix of all LTCHs).

[[Page 28003]]

In accordance with our established methodology, under this
proposal, we would continue to standardize charges for each case by
first dividing the adjusted charge for the case (adjusted for SSOs
under Sec. 412.529 as described in section VII.B.3.g. (Step 3) of this
preamble) by the average adjusted charge for all cases at the LTCH in
which the case was treated. SSO cases are cases with a length of stay
that is less than or equal to five-sixths the average length of stay of
the MS-LTC-DRG (Sec. 412.529 and Sec. 412.503). The average adjusted
charge reflects the average intensity of the health care services
delivered by a particular LTCH and the average cost level of that LTCH.
The resulting ratio is multiplied by that LTCH's case-mix index to
determine the standardized charge for the case (67 FR 55989).
Multiplying the resulting ratio by the LTCH's case-mix index
accounts for the fact that the same relative charges are given greater
weight at a LTCH with higher average costs than they would at a LTCH
with low average costs, which is needed to adjust each LTCH's relative
charge value to reflect its case-mix relative to the average case-mix
for all LTCHs. Because we standardize charges in this manner, we count
charges for a Medicare patient at a LTCH with high average charges as
less resource intensive than they would be at a LTCH with low average
charges. For example, a $10,000 charge for a case at a LTCH with an
average adjusted charge of $17,500 reflects a higher level of relative
resource use than a $10,000 charge for a case at a LTCH with the same
case-mix, but an average adjusted charge of $35,000. We believe that
the adjusted charge of an individual case more accurately reflects
actual resource use for an individual LTCH because the variation in
charges due to systematic differences in the markup of charges among
LTCHs is taken into account.
e. Proposed Treatment of Severity Levels in Developing the MS-LTC-DRG
Relative Weights
For purposes of determining the MS-LTC-DRG relative weights, under
our historical methodology, there are three different categories of
DRGs based on volume of cases within specific MS-LTC-DRGs. MS-LTC-DRGs
with at least 25 cases are each assigned a unique relative weight; low-
volume MS-LTC-DRGs (that is, MS-LTC-DRGs that contain between 1 and 24
cases based on a given year's claims data) are grouped into quintiles
(as described below) and assigned the relative weight of the quintile.
No-volume MS-LTC-DRGs (that is, no cases in the given year's claims
data are assigned to those MS-LTC-DRGs) are cross-walked to other MS-
LTC-DRGs based on the clinical similarities and assigned the relative
weight of the cross-walked MS-LTC-DRG (as described in greater detail
below). In this proposed rule, we are proposing to continue to utilize
these same three categories of MS-LTC-DRGs for purposes of the
treatment of severity levels in determining the proposed MS-LTC-DRG
relative weights for FY 2013. (We provide in-depth discussions of our
policy regarding weight-setting for proposed low-volume MS-LTC-DRGs in
section VII.B.3.f. of the preamble of this proposed rule and for
proposed no-volume MS-LTC-DRGs, under Step 5 in section VII.B.3.g. of
this preamble.)
As also noted above, while the LTCH PPS and the IPPS use the same
patient classification system, the methodology that is used to set the
DRG relative weights for use in each payment system differs because the
overall volume of cases in the LTCH PPS is much less than in the IPPS.
In general, consistent with our existing methodology we are proposing
to use the following steps to determine the proposed FY 2013 MS-LTC-DRG
relative weights: (1) if a proposed MS-LTC-DRG has at least 25 cases,
it is assigned its own proposed relative weight; (2) if a proposed MS-
LTC-DRG has between 1 and 24 cases, it is assigned to a quintile for
which we compute a proposed relative weight for all of the proposed MS-
LTC-DRGs assigned to that quintile; and (3) if a proposed MS-LTC-DRG
has no cases, it is cross-walked to another proposed MS-LTC-DRG based
upon clinical similarities to assign an appropriate proposed relative
weight (as described below in detail in Step 5 of section VII.B.3.g. of
this preamble). Furthermore, in determining the proposed FY 2013 MS-
LTC-DRG relative weights, when necessary, we are proposing to make
adjustments to account for nonmonotonicity, as discussed in greater
detail below in Step 6 of section VII.B.3.g. of this preamble. We refer
readers to the discussion in the FY 2010 IPPS/RY LTCH PPS final rule
for our rationale for including an adjustment for nonmonotonicity (74
FR 43953 through 43954).
f. Proposed Low-Volume MS-LTC-DRGs
In order to account for proposed MS-LTC-DRGs with low volume (that
is, with fewer than 25 LTCH cases), consistent with our existing
methodology, for purposes of determining the proposed FY 2013 MS-LTC-
DRG relative weights, we are proposing to continue to employ the
quintile methodology for proposed low-volume MS-LTC-DRGs, such that we
group the proposed ``low-volume MS-LTC-DRGs'' (that is, proposed MS-
LTC-DRGs that contained between 1 and 24 cases annually) into one of
five categories (quintiles) based on average charges (67 FR 55984
through 55995 and 72 FR 47283 through 47288). In determining the
proposed FY 2013 MS-LTC-DRG relative weights in this proposed rule, in
cases where the initial assignment of a proposed low-volume MS-LTC-DRG
to quintiles resulted in nonmonotonicity within a base-DRG, in order to
ensure appropriate Medicare payments, consistent with our historical
methodology, we are proposing to make adjustments to the treatment of
proposed low-volume MS-LTC-DRGs to preserve monotonicity, as discussed
in detail below in section VII.B.3.g. (Step 6) in this preamble.
In this proposed rule, using LTCH cases from the December 2011
update of the FY 2011 MedPAR file, we identified 307 MS-LTC-DRGs that
contained between 1 and 24 cases. This list of proposed MS-LTC-DRGs was
then divided into one of the 5 low-volume quintiles, each containing a
minimum of 61 proposed MS-LTC-DRGs (307/5 = 61 with 2 proposed MS-LTC-
DRG as the remainder). We assigned a proposed low-volume MS-LTC-DRG to
a specific low-volume quintile by sorting the proposed low-volume MS-
LTC-DRGs in ascending order by average charge in accordance with our
established methodology. Furthermore, because the number of MS-LTC-DRGs
with less than 25 cases is not evenly divisible by 5, the average
charge of the low-volume quintile was used to determine which of the
proposed low-volume quintiles would contain the 2 additional proposed
low-volume MS-LTC-DRGs. Specifically, after organizing the MS-LTC-DRGs
by ascending order by average charge, we assigned the first fifth (1st
through 55th) of proposed low-volume MS-LTC-DRGs (with the lowest
average charge) into Quintile 1. The proposed MS-LTC-DRGs with the
highest average charge cases would be assigned into Quintile 5. Because
the average charge of the 184th proposed low-volume MS-LTC-DRG in the
sorted list is closer to the average charge of the 185th proposed low-
volume MS-LTC-DRG (assigned to Quintile 4) than to the average charge
of the 183rd proposed low-volume MS-LTC-DRG (assigned to Quintile 3),
we are proposing to assign it to Quintile 4 (such that Quintile 4
contains 62 proposed low-volume MS-LTC-DRGs before any adjustments for
nonmonotonicity, as discussed below).

[[Page 28004]]

This process was repeated through the remaining proposed low-volume MS-
LTC-DRGs so that 3 of the 5 low-volume quintiles contain 61 MS-LTC-DRGs
(Quintiles 1, 2, and 3) and the other 2 low-volume quintiles contain 62
MS-LTC-DRGs (Quintiles 4 and 5). Table 13A, which is listed in section
VI. of the Addendum to this proposed rule and is available via the
Internet, lists the composition of the proposed low-volume quintiles
for MS-LTC-DRGs for FY 2013.
Accordingly, in order to determine the proposed FY 2013 relative
weights for the proposed MS-LTC-DRGs with low volume, we are proposing
to use the 5 low-volume quintiles described above. The proposed
composition of each of the 5 low-volume quintiles shown in Table 13A
(listed in section VI. of the Addendum to this proposed rule and
available via the Internet) was used in determining the proposed FY
2013 MS-LTC-DRG relative weights (as shown in Table 11 listed in
section VI. of the Addendum to this proposed rule and available via the
Internet). We determined a proposed relative weight and (geometric)
average length of stay for each of the 5 low-volume quintiles using the
methodology that we are proposing to apply to the proposed MS-LTC-DRGs
(25 or more cases), as described in section VII.B.3.g. of this
preamble. We are proposing to assign the same relative weight and
average length of stay to each of the proposed low-volume MS-LTC-DRGs
that made up an individual low-volume quintile. We note that, as this
system is dynamic, it is possible that the number and specific type of
MS-LTC-DRGs with a proposed low volume of LTCH cases will vary in the
future. We are proposing to use the most recent available claims data
in the MedPAR file to identify proposed low-volume MS-LTC-DRGs and to
calculate the proposed relative weights based on our methodology.
We note that we will continue to monitor the volume (that is, the
number of LTCH cases) in the low-volume quintiles to ensure that our
quintile assignments used in determining the proposed MS-LTC-DRG
relative weights result in appropriate payment for such cases and do
not result in an unintended financial incentive for LTCHs to
inappropriately admit these types of cases.
g. Steps for Determining the Proposed FY 2013 MS-LTC-DRG Relative
Weights
In this proposed rule, we are proposing to determine the FY 2013
MS-LTC-DRG relative weights based on our existing methodology. (For
additional information on the original development of this methodology,
and modifications to it since the adoption of the MS-LTC-DRGs, we refer
readers to the August 30, 2002 LTCH PPS final rule (67 FR 55989 through
55995) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43951
through 43966).) In summary, to determine the proposed FY 2013 MS-LTC-
DRG relative weights, we are proposing to group LTCH cases to the
appropriate proposed MS-LTC-DRG, while taking into account the proposed
low-volume quintile (as described above). After grouping the cases to
the appropriate MS-LTC-DRG (or low-volume quintile), we are proposing
to calculate the proposed FY 2013 relative weights by first removing
statistical outliers and cases with a length of stay of 7 days or less
(Steps 1 and 2 below). Next, we are proposing to adjust the number of
cases in each MS-LTC-DRG (or low-volume quintile) for the effect of SSO
cases (Step 3 below). After removing statistical outliers (Step 1
below) and cases with a length of stay of 7 days or less (Step 2
below), the SSO adjusted discharges and corresponding charges were then
used to calculate proposed ``relative adjusted weights'' for each
proposed MS-LTC-DRG (or proposed low-volume quintile) using the HSRV
method.
Below we discuss in detail the steps for calculating the proposed
FY 2013 MS-LTC-DRG relative weights. We note that, as we discussed in
section VII.B.3.c. of this preamble, we excluded the data of all-
inclusive rate LTCHs, LTCHs that are paid in accordance with
demonstration projects, and any Medicare Advantage claims in the
December 2011 update of the FY 2011 MedPAR file.
Step 1--Remove statistical outliers.
The first step in the calculation of the proposed FY 2013 MS-LTC-
DRG relative weights is to remove statistical outlier cases. Consistent
with our historical relative weight methodology, we are proposing to
continue to define statistical outliers as cases that are outside of
3.0 standard deviations from the mean of the log distribution of both
charges per case and the charges per day for each MS-LTC-DRG. These
statistical outliers are removed prior to calculating the proposed
relative weights because we believe that they may represent aberrations
in the data that distort the measure of average resource use. Including
those LTCH cases in the calculation of the proposed relative weights
could result in an inaccurate relative weight that does not truly
reflect relative resource use among the proposed MS-LTC-DRGs. (For
additional information on this step of the relative weight methodology,
we refer readers to 67 FR 55989 and 74 FR 43959.)
Step 2--Remove cases with a length of stay of 7 days or less.
The proposed MS-LTC-DRG relative weights reflect the average of
resources used on representative cases of a specific type. Generally,
cases with a length of stay of 7 days or less do not belong in a LTCH
because these stays do not fully receive or benefit from treatment that
is typical in a LTCH stay, and full resources are often not used in the
earlier stages of admission to a LTCH. If we were to include stays of 7
days or less in the computation of the proposed FY 2013 MS-LTC-DRG
relative weights, the value of many relative weights would decrease
and, therefore, payments would decrease to a level that may no longer
be appropriate. We do not believe that it would be appropriate to
compromise the integrity of the payment determination for those LTCH
cases that actually benefit from and receive a full course of treatment
at a LTCH by including data from these very short stays. Therefore,
consistent with our historical relative weight methodology, in
determining the proposed FY 2013 MS-LTC-DRG relative weights, we
removed LTCH cases with a length of stay of 7 days or less. (For
additional information on this step of the relative weight methodology,
we refer readers to 67 FR 55989 and 74 FR 43959.)
Step 3--Adjust charges for the effects of SSOs.
After removing cases with a length of stay of 7 days or less, we
are left with cases that have a length of stay of greater than or equal
to 8 days. As the next step in the calculation of the proposed FY 2013
MS-LTC-DRG relative weights, consistent with our historical relative
weight methodology, we are proposing to adjust each LTCH's charges per
discharge for those remaining cases for the effects of SSOs (as defined
in Sec. 412.529(a) in conjunction with Sec. 412.503).
We are proposing to make this adjustment by counting an SSO case as
a fraction of a discharge based on the ratio of the length of stay of
the case to the average length of stay for the proposed MS-LTC-DRG for
non-SSO cases. This has the effect of proportionately reducing the
impact of the lower charges for the SSO cases in calculating the
average charge for the proposed MS-LTC-DRG. This process produces the
same result as if the actual charges per discharge of an SSO case were
adjusted to what they would have been had the patient's length of stay

[[Page 28005]]

been equal to the average length of stay of the proposed MS-LTC-DRG.
Counting SSO cases as full discharges with no adjustment in
determining the proposed FY 2013 MS-LTC-DRG relative weights would
lower the proposed FY 2013 MS-LTC-DRG relative weight for affected
proposed MS-LTC-DRGs because the relatively lower charges of the SSO
cases would bring down the average charge for all cases within a
proposed MS-LTC-DRG. This would result in an ``underpayment'' for non-
SSO cases and an ``overpayment'' for SSO cases. Therefore, we are
proposing to adjust for SSO cases under Sec. 412.529 in this manner
because it results in more appropriate payments for all LTCH cases.
(For additional information on this step of the relative weight
methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)
Step 4--Calculate the proposed FY 2013 MS-LTC-DRG relative weights
on an iterative basis.
Consistent with our historical relative weight methodology, we are
proposing to calculate the FY 2013 MS-LTC-DRG relative weights using
the HSRV methodology, which is an iterative process. First, for each
LTCH case, we are proposing to calculate a hospital-specific relative
charge value by dividing the SSO adjusted charge per discharge (see
Step 3) of the LTCH case (after removing the statistical outliers (see
Step 1) and LTCH cases with a length of stay of 7 days or less (see
Step 2)) by the average charge per discharge for the LTCH in which the
case occurred. The resulting ratio is then multiplied by the LTCH's
case-mix index to produce a proposed adjusted hospital-specific
relative charge value for the case. An initial case-mix index value of
1.0 is used for each LTCH.
For each proposed MS-LTC-DRG, we are proposing to calculate the
proposed FY 2013 relative weight by dividing the average of the
adjusted hospital-specific relative charge values (from above) for the
proposed MS-LTC-DRG by the overall average hospital-specific relative
charge value across all cases for all LTCHs. Using these recalculated
proposed MS-LTC-DRG relative weights, each LTCH's average relative
weight for all of its cases (that is, its case-mix) is calculated by
dividing the sum of all the LTCH's proposed MS-LTC-DRG relative weights
by its total number of cases. These LTCHs' hospital-specific relative
charge values (from above) are then multiplied by these hospital-
specific case-mix indexes. These hospital-specific case-mix adjusted
relative charge values are then used to calculate a new set of proposed
MS-LTC-DRG relative weights across all LTCHs. This iterative process is
continued until there is convergence between the weights produced at
adjacent steps, for example, when the maximum difference is less than
0.0001.
Step 5--Determine a proposed FY 2013 relative weight for MS-LTC-
DRGs with no LTCH cases.
As we stated above, we are proposing to determine the proposed FY
2013 relative weight for each proposed MS-LTC-DRG using total Medicare
allowable total charges reported in the best available LTCH claims data
(that is, the December 2011 update of the FY 2011 MedPAR file for this
proposed rule). Using these data, we identified the proposed MS-LTC-
DRGs for which there are no LTCH cases in the database, such that no
patients who would have been classified to those proposed MS-LTC-DRGs
were treated in LTCHs during FY 2011 and, therefore, no charge data are
available for these proposed MS-LTC-DRGs. Thus, in the process of
determining the proposed MS-LTC-DRG relative weights, we are unable to
calculate proposed relative weights for the proposed MS-LTC-DRGs with
no LTCH cases using the methodology described in Steps 1 through 4
above. However, because patients with a number of the diagnoses under
these proposed MS-LTC-DRGs may be treated at LTCHs, consistent with our
historical methodology, we are proposing to assign a proposed relative
weight to each of the proposed no-volume MS-LTC-DRGs based on clinical
similarity and relative costliness (with the exception of
``transplant'' MS-LTC-DRGs and ``error'' MS-LTC-DRGs, as discussed
below). (For additional information on this step of the relative weight
methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through
43960.)
In general, we are proposing to determine proposed FY 2013 relative
weights for the proposed MS-LTC-DRGs with no LTCH cases in the December
2011 update of the FY 2011 MedPAR file used in this proposed rule (that
is, proposed ``no-volume'' MS-LTC-DRGs) by cross-walking each no-volume
proposed MS-LTC-DRG to another proposed MS-LTC-DRG with a calculated
proposed relative weight (determined in accordance with the proposed
methodology described above). Then, the proposed ``no-volume'' MS-LTC-
DRG is assigned the same relative weight (and average length of stay)
of the proposed MS-LTC-DRG to which it is cross-walked (as described in
greater detail below).
Of the 751 proposed MS-LTC-DRGs for FY 2013, we identified 213
proposed MS-LTC-DRGs for which there are no LTCH cases in the database
(including the 8 ``transplant'' proposed MS-LTC-DRGs and 2 ``error''
proposed MS-LTC-DRGs). As stated above, we are proposing to assign
relative weights for each of the 213 proposed no-volume MS-LTC-DRGs
(with the exception of the 8 ``transplant'' proposed MS-LTC-DRGs and
the 2 ``error'' proposed MS-LTC-DRGs, which are discussed below) based
on clinical similarity and relative costliness to one of the remaining
538 (751 - 213 = 538) proposed MS-LTC-DRGs for which we are able to
determine proposed relative weights based on FY 2011 LTCH claims data
using the steps described above. (For the remainder of this discussion,
we refer to the proposed ``cross-walked'' MS-LTC-DRGs as the proposed
MS-LTC-DRGs to which we crosswalk one of the 213 proposed ``no volume''
MS-LTC-DRGs for purposes of determining a proposed relative weight.)
Then, we assigned the proposed no-volume MS-LTC-DRG the proposed
relative weight of the proposed cross-walked MS-LTC-DRG. (As explained
below in Step 6, when necessary, we made adjustments to account for
nonmonotonicity.)
For this proposed rule, we are proposing to crosswalk the proposed
no-volume MS-LTC-DRG to a proposed MS-LTC-DRG for which there are LTCH
cases in the December 2011 update of the FY 2011 MedPAR file, and to
which it is similar clinically in intensity of use of resources and
relative costliness as determined by criteria such as care provided
during the period of time surrounding surgery, surgical approach (if
applicable), length of time of surgical procedure, postoperative care,
and length of stay. We evaluated the relative costliness in determining
the applicable proposed MS-LTC-DRG to which a proposed no-volume MS-
LTC-DRG is cross-walked in order to assign an appropriate proposed
relative weight for the proposed no-volume MS-LTC-DRGs in FY 2013. (For
more details on our process for evaluating relative costliness, we
refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (73 FR
48543).) We believe in the rare event that there would be a few LTCH
cases grouped to one of the proposed no-volume MS-LTC-DRGs in FY 2013,
the proposed relative weights assigned based on the proposed cross-
walked MS-LTC-DRGs would result in an appropriate LTCH PPS payment
because the crosswalks, which are based on similar clinical similarity
and

[[Page 28006]]

relative costliness, generally require equivalent relative resource
use.
We are proposing to then assign the proposed relative weight of the
proposed cross-walked MS-LTC-DRG as the proposed relative weight for
the proposed no-volume MS-LTC-DRG such that both of these proposed MS-
LTC-DRGs (that is, the proposed no-volume MS-LTC-DRG and the proposed
cross-walked MS-LTC-DRG) have the same proposed relative weight for FY
2013. We note that if the proposed cross-walked MS-LTC-DRG had 25 cases
or more, its proposed relative weight, which is calculated using the
proposed methodology described in Steps 1 through 4 above, is assigned
to the proposed no-volume MS-LTC-DRG as well. Similarly, if the
proposed MS-LTC-DRG to which the no-volume MS-LTC-DRG is cross-walked
had 24 or less cases and, therefore, is designated to one of the low-
volume quintiles for purposes of determining the proposed relative
weights, we assigned the proposed relative weight of the applicable
low-volume quintile to the proposed no-volume MS-LTC-DRG such that both
of these proposed MS-LTC-DRGs (that is, the proposed no-volume MS-LTC-
DRG and the proposed cross-walked MS-LTC-DRG) have the same proposed
relative weight for FY 2013. (As we noted above, in the infrequent case
where nonmonotonicity involving a proposed no-volume MS-LTC-DRG
results, additional adjustments as described in Step 6 are required in
order to maintain monotonically increasing relative weights.)
For this proposed rule, a list of the proposed no-volume MS-LTC-
DRGs and the proposed MS-LTC-DRG to which it is cross-walked (that is,
the proposed cross-walked MS-LTC-DRG) for FY 2013 is shown in Table
13B, which is listed in section VI. of the Addendum to this proposed
rule and is available via the Internet.
To illustrate this methodology for determining the proposed
relative weights for the FY 2013 MS-LTC-DRGs with no LTCH cases, we are
providing the following example, which refers to the proposed no-volume
MS-LTC-DRGs crosswalk information for FY 2013 provided in Table 13B.
Example: There are no cases in the FY 2011 MedPAR file used for
this proposed rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of
Thrombolytic Agent with MCC). We determined that MS-LTC-DRG 70
(Nonspecific Cerebrovascular Disorders with MCC) is similar clinically
and based on resource use to MS-LTC-DRG 61. Therefore, we assigned the
same proposed relative weight of MS-LTC-DRG 70 of 0.8135 for FY 2013 to
MS-LTC-DRG 61 (Table 11, which is listed in section VI. of the Addendum
to this proposed rule and is available via the Internet).
Again, we note that, as this system is dynamic, it is entirely
possible that the number of MS-LTC-DRGs with no volume of LTCH cases
based on the system will vary in the future. We used the most recent
available claims data in the MedPAR file to identify proposed no-volume
MS-LTC-DRGs and to determine the proposed relative weights in this
proposed rule.
Furthermore, for FY 2013, consistent with our historical relative
weight methodology, we are proposing to establish proposed MS-LTC-DRG
relative weights of 0.0000 for the following transplant proposed MS-
LTC-DRGs: Heart Transplant or Implant of Heart Assist System with MCC
(proposed MS-LTC-DRG 1); Heart Transplant or Implant of Heart Assist
System without MCC (proposed MS-LTC-DRG 2); Liver Transplant with MCC
or Intestinal Transplant (proposed MS-LTC-DRG 5); Liver Transplant
without MCC (proposed MS-LTC-DRG 6); Lung Transplant (proposed MS-LTC-
DRG 7); Simultaneous Pancreas/Kidney Transplant (proposed MS-LTC-DRG
8); Pancreas Transplant (proposed MS-LTC-DRG 10); and Kidney Transplant
(proposed MS-LTC-DRG 652). This is because Medicare will only cover
these procedures if they are performed at a hospital that has been
certified for the specific procedures by Medicare and presently no LTCH
has been so certified. At the present time, we include these proposed
eight transplant MS-LTC-DRGs in the GROUPER program for administrative
purposes only. Because we use the same GROUPER program for LTCHs as is
used under the IPPS, removing these proposed MS-LTC-DRGs would be
administratively burdensome. (For additional information regarding our
treatment of transplant MS-LTC-DRGs, we refer readers to the RY 2010
LTCH PPS final rule (74 FR 43964).)
Step 6--Adjust the proposed FY 2013 MS-LTC-DRG relative weights to
account for nonmonotonically increasing relative weights.
As discussed earlier in this section, the MS-DRGs contain base DRGs
that have been subdivided into one, two, or three severity of illness
levels. Where there are three severity levels, the most severe level
has at least one code that is referred to as an MCC (that is, major
complication or comorbidity). The next lower severity level contains
cases with at least one code that is a CC (that is, complication or
comorbidity). Those cases without an MCC or a CC are referred to as
``without CC/MCC.'' When data do not support the creation of three
severity levels, the base DRG is subdivided into either two levels or
the base DRG is not subdivided. The two-level subdivisions could
consist of the DRG with CC/MCC and the DRG without CC/MCC.
Alternatively, the other type of two-level subdivision may consist of
the DRG with MCC and the DRG without MCC.
In those base MS-LTC-DRGs that are split into either two or three
severity levels, cases classified into the ``without CC/MCC'' MS-LTC-
DRG are expected to have a lower resource use (and lower costs) than
the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or
both the ``with CC'' and the ``with MCC'' MS-LTC-DRGs (in the case of a
three-level split). That is, theoretically, cases that are more severe
typically require greater expenditure of medical care resources and
will result in higher average charges. Therefore, in the three severity
levels, proposed relative weights should increase by severity, from
lowest to highest. If the proposed relative weights decrease as
severity increases (that is, if within a base proposed MS-LTC-DRG, a
proposed MS-LTC-DRG with CC has a higher proposed relative weight than
one with MCC, or the proposed MS-LTC-DRG ``without CC/MCC'' has a
higher proposed relative weight than either of the others), they are
nonmonotonic. We continue to believe that utilizing nonmonotonic
relative weights to adjust Medicare payments would result in
inappropriate payments because the payment for the cases in the higher
severity level in a base MS-LTC-DRG (which are generally expected to
have higher resource use and costs) would be lower than the payment for
cases in a lower severity level within the same base MS-LTC-DRG (which
are generally expected to have lower resource use and costs).
Consequently, in determining the proposed FY 2013 MS-LTC-DRG relative
weights in this proposed rule, consistent with our historical
methodology, we are proposing to combine proposed MS-LTC-DRG severity
levels within a base proposed MS-LTC-DRG for the purpose of computing a
proposed relative weight when necessary to ensure that monotonicity is
maintained. For a comprehensive description of our existing methodology
to adjust for nonmonotonicity, we refer readers to the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43964 through 43966). Any adjustments
for nonmonotonicity

[[Page 28007]]

that were made in determining the proposed FY 2013 MS-LTC-DRG relative
weights in this proposed rule by applying this methodology are denoted
in Table 11, which is listed in section VI. of the Addendum to this
proposed rule and is available via the Internet.
Step 7-- Calculate the proposed FY 2013 budget neutrality factor.
In accordance with the regulations at Sec. 412.517(b) (in
conjunction with Sec. 412.503), the annual update to the MS-LTC-DRG
classifications and relative weights is done in a budget neutral manner
such that estimated aggregate LTCH PPS payments would be unaffected,
that is, would be neither greater than nor less than the estimated
aggregate LTCH PPS payments that would have been made without the MS-
LTC-DRG classification and relative weight changes. (For a detailed
discussion on the establishment of the budget neutrality requirement
for the annual update of the MS-LTC-DRG classifications and relative
weights, we refer readers to the RY 2008 LTCH PPS final rule (72 FR
26881 and 26882).)
The MS-LTC-DRG classifications and relative weights are updated
annually based on the most recent available LTCH claims data to reflect
changes in relative LTCH resource use (Sec. 412.517(a) in conjunction
with Sec. 412.503). Under the budget neutrality requirement at Sec.
412.517(b), for each annual update, the MS-LTC-DRG relative weights are
uniformly adjusted to ensure that estimated aggregate payments under
the LTCH PPS would not be affected (that is, decreased or increased).
Consistent with that provision, we are proposing to update the MS-LTC-
DRG classifications and relative weights for FY 2013 based on the most
recent available LTCH data, and to apply a budget neutrality adjustment
in determining the proposed FY 2013 MS-LTC-DRG relative weights.
To ensure budget neutrality in the proposed update to the MS-LTC-
DRG classifications and relative weights under Sec. 412.517(b), we are
proposing to continue to use our established two-step budget neutrality
methodology. In this proposed rule, in the first step of our proposed
MS-LTC-DRG budget neutrality methodology, for FY 2013, we are proposing
to calculate and apply a proposed normalization factor to the
recalibrated proposed relative weights (the result of Steps 1 through 6
above) to ensure that estimated payments are not influenced by changes
in the composition of case types or the changes to the classification
system. That is, the proposed normalization adjustment is intended to
ensure that the recalibration of the proposed MS-LTC-DRG relative
weights (that is, the process itself) neither increases nor decreases
the average CMI.
To calculate the proposed normalization factor for FY 2013 (the
first step of our budget neutrality methodology), we are proposing to
use the following three steps: (1.a.) we used the most recent available
LTCH claims data (FY 2011) and grouped them using the proposed FY 2013
GROUPER (Version 30.0) and the proposed recalibrated FY 2013 MS-LTC-DRG
relative weights (determined in steps 1 through 6 of the Steps for
Determining the Proposed FY 2013 MS-LTC-DRG Relative Weights above) to
calculate the average CMI; (1.b.) we grouped the same LTCH claims data
(FY 2011) using the FY 2012 GROUPER (Version 29.0) and FY 2012 MS-LTC-
DRG relative weights and calculated the average CMI; and (1.c.) we
computed the ratio of these average CMIs by dividing the average CMI
for FY 2012 (determined in Step 1.b.) by the average proposed CMI for
FY 2013 (determined in Step 1.a.). In determining the proposed MS-LTC-
DRG relative weights for FY 2013, each proposed recalibrated MS-LTC-DRG
relative weight was multiplied by 1.12393 (determined in Step 1.c.) in
the first step of the budget neutrality methodology, which produced
proposed ``normalized relative weights.''
In the second step of our proposed MS-LTC-DRG budget neutrality
methodology, we are proposing to determine a budget neutrality factor
to ensure that estimated aggregate LTCH PPS payments (based on the most
recent available LTCH claims data) after reclassification and
recalibration (that is, the proposed FY 2013 MS-LTC-DRG classifications
and relative weights) are equal to estimated aggregate LTCH PPS
payments before reclassification and recalibration (that is, the FY
2012 MS-LTC-DRG classifications and relative weights). Accordingly,
consistent with our existing methodology, we are proposing to use FY
2011 discharge data to simulate payments and compare estimated
aggregate LTCH PPS payments using the FY 2012 MS-LTC-DRGs and relative
weights to estimate aggregate LTCH PPS payments using the proposed FY
2013 MS-LTC-DRGs and relative weights. Furthermore, consistent with our
historical policy of using the best available data, we also are
proposing that if more recent data become available, we would use such
data to determine the budget neutrality adjustment factor for FY 2013
in the final rule.
For this proposed rule, we are proposing to determine the proposed
FY 2013 budget neutrality adjustment factor using the following three
steps: (2.a.) we simulated estimated total LTCH PPS payments using the
proposed normalized relative weights for FY 2013 and proposed GROUPER
Version 30.0 (as described above); (2.b.) we simulated estimated total
LTCH PPS payments using the FY 2012 GROUPER (Version 29.0) and the FY
2012 MS-LTC-DRG relative weights in Table 11 of the Addendum to the FY
2012 IPPS/LTCH PPS final rule available on the Internet (76 FR 51813);
and (2.c.) we calculated the ratio of these estimated total LTCH PPS
payments by dividing the estimated total LTCH PPS payments using the FY
2012 GROUPER (Version 29.0) and the FY 2012 MS-LTC-DRG relative weights
(determined in Step 2.b.) by the estimated total LTCH PPS payments
using the proposed FY 2013 GROUPER (Version 30.0) and the proposed
normalized MS-LTC-DRG relative weights for FY 2013 (determined in Step
2.a.). In determining the proposed FY 2013 MS-LTC-DRG relative weights,
each proposed normalized relative weight was multiplied by a budget
neutrality factor of 0.9881603 (determined in Step 2.c.) in the second
step of the proposed budget neutrality methodology to determine the
proposed budget neutral FY 2013 relative weight for each proposed MS-
LTC-DRG.
Accordingly, in determining the proposed FY 2013 MS-LTC-DRG
relative weights in this proposed rule, consistent with our existing
methodology, we are proposing to apply a normalization factor of
1.12393 and a budget neutrality factor of 0.9881603 (computed as
described above). Table 11, which is listed in section VI. of the
Addendum to this proposed rule and is available via the Internet, lists
the proposed MS-LTC-DRGs and their respective proposed relative
weights, geometric mean length of stay, five-sixths of the geometric
mean length of stay (used to identify SSO cases under Sec.
412.529(a)), and the proposed ``IPPS Comparable Thresholds'' (used in
determining SSO payments under Sec. 412.529(c)(3)), for FY 2013. The
proposed FY 2013 MS-LTC-DRG relative weights in Table 11, which is
listed in section VI. of the Addendum to this proposed rule and
available via the Internet, reflect both the proposed normalization
factor of 1.12393 and the proposed budget neutrality factor of
0.9881603.

C. Proposed Use of a LTCH-Specific Market Basket Under the LTCH PPS

1. Background
The input price index (that is, the market basket) that was used to
develop the LTCH PPS for FY 2003 was the

[[Page 28008]]

``excluded hospital with capital'' market basket. That market basket
was based on 1997 Medicare cost report data and included data for
Medicare-participating IRFs, IPFs, LTCHs, cancer hospitals, and
children's hospitals. Although the term ``market basket'' technically
describes the mix of goods and services used in providing hospital
care, this term is also commonly used to denote the input price index
(that is, cost category weights and price proxies combined) derived
from that market basket. Accordingly, the term ``market basket,'' as
used in this section, refers to an input price index.
Beginning with RY 2007, LTCH PPS payments were updated using a FY
2002-based market basket reflecting the operating and capital cost
structures for IRFs, IPFs, and LTCHs (hereafter referred to as the
rehabilitation, psychiatric, and long-term care (RPL) market basket).
We excluded cancer and children's hospitals from the RPL market basket
because their payments are based entirely on reasonable costs subject
to rate-of-increase limits established under the authority of section
1886(b) of the Act, which are implemented in regulations at Sec.
413.40. Those types of hospitals are not paid under a PPS. Also, the FY
2002 cost structures for cancer and children's hospitals are noticeably
different from the cost structures for freestanding IRFs, freestanding
IPFs, and LTCHs. A complete discussion of the FY 2002-based RPL market
basket appears in the RY 2007 LTCH PPS final rule (71 FR 27810 through
27817).
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 21062),
we expressed our interest in exploring the possibility of creating a
stand-alone LTCH market basket that only reflects the cost structures
for LTCHs. However, as we discussed in the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43967 through 43968), we were in the process of
conducting further research to assist us in understanding the
underlying reasons for the variations in costs and cost structures
between freestanding IRFs and hospital-based IRFs, as well as between
freestanding IPFs and hospital-based IPFs. At this time, we remain
unable to sufficiently explain the observed differences in costs and
cost structures between hospital-based IRFs and freestanding IRFs and
between hospital-based IPFs and freestanding IPFs.
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51756), we finalized
the rebasing and revising of the FY 2002-based RPL market basket by
creating and implementing an FY 2008-based RPL market basket. We also
discussed that we were exploring the viability of creating two separate
market baskets from the current RPL market basket: One market basket
would include freestanding IRFs and freestanding IPFs and could be used
to update payments under both the IPF and IRF payment systems. We
continue our research in this area. The other market basket would be a
stand-alone LTCH market basket. We stated that, depending on the
outcome of our research, we may propose a stand-alone LTCH market
basket in the next LTCH PPS update cycle. We received several public
comments in response to the FY 2012 proposed rule, all of which
supported deriving a stand-alone LTCH market basket (76 FR 51756
through 51757).
As we routinely do, we have revisited the issue of the market
basket used in the LTCH PPS. We previously did not estimate stand-alone
market baskets for IRFs, IPFs, and LTCHs because of small sample sizes
for freestanding facilities and the data concerns associated with the
hospital-based facilities. Although we continue to do research in this
area, at this time, we believe it is appropriate to move forward with a
proposal to create a LTCH-specific market basket. This is because we
believe we have sufficiently robust data to create such a market
basket, and no longer need to rely on the cost report data from IPPS
hospitals or from IRFs, IPFs, and LTCHs combined. Specifically, over
the last several years, the number of LTCH facilities submitting a
Medicare cost report has increased, helping to address concerns
regarding the size of the available pool of facilities. The
completeness and quality of the Medicare cost reports that we have been
evaluating over the last several years have improved as well.
Therefore, consistent with our intention to use the latest available
and complete cost report data, we believe that it would be appropriate
to create a market basket that would specifically reflect the cost
structures of LTCHs based on Medicare cost report data for FY 2009,
which are for cost reporting periods beginning on and after October 1,
2008, and before October 1, 2009. We are proposing to use data from
cost reports beginning in FY 2009 because these data are the latest
available complete data and, therefore, we believe it will enable us to
accurately calculate cost weights that specifically reflect the cost
structures of LTCHs. As a result, in this FY 2013 proposed rule, we are
proposing to create a LTCH-specific market basket based solely on
Medicare cost report data from LTCHs of which the majority of the
reports are settled. In the following discussion, we provide an
overview of the proposed market basket and describe the methodologies
we are proposing to use for determining the operating and capital
portions of the proposed FY 2009-based LTCH-specific market basket.
2. Overview of the Proposed FY 2009-Based LTCH-Specific Market Basket
The proposed FY 2009-based LTCH-specific market basket is a fixed-
weight, Laspeyres-type price index. A Laspeyres price index measures
the change in price, over time, of the same mix of goods and services
purchased in the base period. Any changes in the quantity or mix (that
is, intensity) of goods and services purchased over time are not
measured.
The index itself is constructed in three steps. First, a base
period is selected (in this proposed rule, we are proposing to use FY
2009 as the base period) and total base period expenditures are
estimated for a set of mutually exclusive and exhaustive spending
categories, with the proportion of total costs that each category
represents being calculated. These proportions are called ``cost
weights'' or ``expenditure weights.'' Second, each expenditure category
is matched to an appropriate price or wage variable, referred to as a
``price proxy.'' In almost every instance, these price proxies are
derived from publicly available statistical series that are published
on a consistent schedule (preferably at least on a quarterly basis).
Finally, the expenditure weight for each cost category is multiplied by
the level of its respective price proxy. The sum of these products
(that is, the expenditure weights multiplied by their price levels) for
all cost categories yields the composite index level of the market
basket in a given period. Repeating this step for other periods
produces a series of market basket levels over time. Dividing an index
level for a given period by an index level for an earlier period
produces a rate of growth in the input price index over that timeframe.
As noted above, the market basket is described as a fixed-weight
index because it represents the change in price over time of a constant
mix (quantity and intensity) of goods and services needed to furnish
hospital services. The effects on total expenditures resulting from
changes in the mix of goods and services purchased subsequent to the
base period are not measured. For example, a hospital hiring more
nurses to accommodate the needs of patients would increase the volume
of goods and services purchased by the hospital, but would not be
factored into the price

[[Page 28009]]

change measured by a fixed-weight hospital market basket. Only when the
index is rebased would changes in the quantity and intensity be
captured, with those changes being reflected in the cost weights.
Therefore, we rebase the market basket periodically so that the cost
weights reflect recent changes in the mix of goods and services that
hospitals purchase (hospital inputs) to furnish inpatient care between
base periods.
3. Proposed Development of a LTCH-Specific Market Basket
We are inviting public comments on our proposed methodology,
discussed below, for deriving a LTCH-specific market basket.
a. Development of Cost Categories
(1) Medicare Cost Reports
The proposed FY 2009-based LTCH-specific market basket consists of
several major cost categories derived from the FY 2009 LTCH Medicare
cost reports as described previously, including wages and salaries,
employee benefits, contract labor, pharmaceuticals, professional
liability insurance, capital, and a residual. These FY 2009 Medicare
cost reports are for cost reporting periods beginning on and after
October 1, 2008, and before October 1, 2009. We are proposing to use FY
2009 as the base year because we believe that the FY 2009 Medicare cost
reports represent the most recent, complete set of Medicare cost report
data available for LTCHs.
Medicare cost report data include costs for all patients, including
Medicare, Medicaid, and private payer. Because our goal is to measure
cost shares for facilities that serve Medicare beneficiaries, and are
reflective of case-mix and practice patterns associated with providing
services to Medicare beneficiaries in LTCHs, we are proposing to limit
our selection of Medicare cost reports to those from LTCHs that have a
Medicare average length of stay that is within a comparable range of
their total facility average length of stay. We believe this provides a
more accurate reflection of the structure of costs for Medicare covered
days. Similar to our methodology for the FY 2008-based RPL market
basket, we are proposing to use the cost reports submitted by LTCHs
with Medicare average lengths of stay within 15 percent (that is, 15
percent higher or lower) of the total facility average length of stay
for the hospital. This is the same edit we applied to derive the FY
2008-based RPL market basket and generally includes those LTCHs with
Medicare average length of stay within approximately 5 days of the
facility average length of stay of the hospital.
Using this set of Medicare cost reports, we then calculated cost
weights for six cost categories, and a residual category as represented
by all other costs, directly from the FY 2009 Medicare cost reports
submitted by LTCHs (found in Table VII.C-1 below). These Medicare cost
report cost weights were then supplemented with information obtained
from other data sources (explained in more detail below) to derive the
proposed FY 2009-based LTCH-specific market basket cost weights.
The methodology used to develop the proposed FY 2009-based LTCH-
specific market basket cost weights is generally the same methodology
used to develop the FY 2008-based RPL market basket cost weights, with
the exception of the employee benefits and contract labor cost weights.
For the FY 2008-based RPL market basket, there was an issue with
obtaining data specifically for employee benefits and contract labor
from the set of FY 2008 Medicare cost reports, as IRFs, IPFs, and LTCHs
were not required to complete the Medicare cost report worksheet from
which these data were collected (Worksheet S3, Parts II and III). As a
result, only a proportion of the total number of IRFs, IPFs, and LTCHs
reported data for employee benefits and contract labor; therefore, we
developed these cost weights for the FY 2008-based RPL market basket
using data obtained from IPPS Medicare cost reports. However, when we
reviewed LTCH Medicare cost reports for FY 2009, we found that a
greater proportion of LTCHs submitted data for employee benefits and
contract labor (approximately 40 percent of LTCHs, whose total costs
account for approximately 50 percent of total costs for all LTCHs,
submitted a cost report) compared to the proportion of IRFs and IPFs
that submitted these data. We believe that it is better to use the
LTCH-specific cost report data whenever possible to further our goal to
create a market basket that represents the cost structures of LTCHs
serving Medicare beneficiaries. Therefore, we are proposing to use the
LTCH-specific cost reports to derive the employee benefits and contract
labor cost weights for the proposed FY 2009-based LTCH-specific market
basket, as opposed to using the IPPS Medicare cost reports as a proxy,
as was done for the FY 2008-based RPL market basket.

Table VII.C-1--Proposed Major Cost Categories and Their Respective Cost
Weights as Calculated Directly From FY 2009 Medicare Cost Reports
------------------------------------------------------------------------
Proposed FY 2009-based LTCH- specific
Major cost categories market basket cost weights obtained
from Medicare cost reports (percent)
------------------------------------------------------------------------
Wages and Salaries............... 40.407
Employee Benefits................ 6.984
Contract Labor................... 6.947
Professional Liability Insurance 0.830
(Malpractice)...................
Pharmaceuticals.................. 8.877
Capital.......................... 9.829
All Other (Residual)............. 26.126
------------------------------------------------------------------------

(2) Other Data Sources
In addition to the data from Medicare cost reports submitted by
LTCHs, the other data source we are proposing to use to develop the
proposed FY 2009-based LTCH-specific market basket cost weights is the
2002 Benchmark Input-Output (I-O) Tables created by the Bureau of
Economic Analysis (BEA), U.S. Department of Commerce. We are proposing
to use the 2002 BEA Benchmark I-O data to disaggregate the ``All Other
(Residual)'' cost category (26.126 percent) into more detailed hospital
expenditure category shares. We note that we use these data to derive
most of the CMS market baskets, including the FY 2008-based RPL and

[[Page 28010]]

FY 2006-based IPPS market baskets. The BEA Benchmark I-O accounts
provide the most detailed information on the goods and services
purchased by an industry, which allows for a more detailed
disaggregation of expenses in the market basket for which we can then
proxy the appropriate price inflation.
The BEA Benchmark I-O data are generally scheduled for publication
every 5 years. The most recent data available are for 2002. BEA also
produces Annual I-O estimates; however, the 2002 Benchmark I-O data
represent a much more comprehensive and detailed set of data that are
derived from the 2002 Economic Census. We used the 2002 BEA Benchmark
I-O data for the FY 2008-based RPL market basket. Because BEA has not
released new Benchmark I-O data, and we believe the data to be
comprehensive and complete as indicated above, we are proposing to use
the 2002 Benchmark I-O data in the proposed FY 2009-based LTCH-specific
market basket.
Instead of using the less detailed Annual I-O data, we aged the
2002 Benchmark I-O data forward to 2009. The methodology we used to age
the data forward involves applying the annual price changes from the
respective price proxies to the appropriate cost categories. We repeat
this practice for each year.
The ``All Other'' cost category expenditure shares are determined
as being equal to each category's proportion to total ``All Other''
expenditures based on the aged 2002 Benchmark I-O data. For instance,
if the cost for telephone services represented 10 percent of the sum of
the ``All Other'' Benchmark I-O hospital expenditures, telephone
services would represent 10 percent of the ``All Other'' cost category
of the LTCH-specific market basket.
b. Cost Category Computation
As stated previously, for the proposed FY 2009-based LTCH-specific
market basket, we are proposing to use data from the Medicare cost
reports submitted by LTCHs to derive six major cost categories. The six
major categories are: Wages and Salaries, Employee Benefits, Contract
Labor, Professional Liability Insurance, Pharmaceuticals, and Capital,
as shown above in Table VII.C-1. These represent the most detailed cost
categories available from the Medicare cost reports, and, as stated
above, in order to further disaggregate expenses, we then utilize the
Benchmark I-O data. This is the same methodology used to derive most of
the CMS market baskets, including the FY 2008-based RPL and FY 2006-
based IPPS market baskets. The proposed FY 2009-based LTCH market
basket includes the same major cost categories that were included in
the FY 2008-based RPL market basket (76 FR 51758), and two additional
categories, Employee Benefits and Contract Labor.
c. Selection of Price Proxies
After computing the FY 2009 cost weights for the proposed LTCH
market basket, it was necessary to select appropriate wage and price
proxies to reflect the rate of price change for each expenditure
category. With the exception of the proxy for Professional Liability
Insurance, all of the proxies for the operating portion of the proposed
FY 2009-based LTCH market basket are based on Bureau of Labor
Statistics (BLS) data and are grouped into one of the following BLS
categories:
Producer Price Indexes--Producer Price Indexes (PPIs) measure price
changes for goods sold in markets other than the retail market. PPIs
are preferable price proxies for goods and services that hospitals
purchase as inputs because PPIs better reflect the actual price changes
encountered by hospitals. For example, we are proposing to use a PPI
for prescription drugs, rather than the Consumer Price Index (CPI) for
prescription drugs, because hospitals generally purchase drugs directly
from a wholesaler. The PPIs that we are proposing to use measure price
changes at the final stage of production.
Consumer Price Indexes--Consumer Price Indexes (CPIs) measure
change in the prices of final goods and services bought by the typical
consumer. Because they may not represent the price encountered by a
producer, we are proposing to use CPIs only if an appropriate PPI is
not available, or if the expenditures are more like those faced by
retail consumers in general rather than by purchasers of goods at the
wholesale level. For example, the CPI for food purchased away from home
is proposed to be used as a proxy for contracted food services.
Employment Cost Indexes--Employment Cost Indexes (ECIs) measure the
rate of change in employee wage rates and employer costs for employee
benefits per hour worked. These indexes are fixed-weight indexes and
strictly measure the change in wage rates and employee benefits per
hour. Appropriately, they are not affected by shifts in employment mix.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance. Reliability indicates that the
index is based on valid statistical methods and has low sampling
variability. Timeliness implies that the proxy is published regularly,
preferably at least once a quarter. Availability means that the proxy
is publicly available. Finally, relevance means that the proxy is
applicable and representative of the cost category weight to which it
is applied. We believe the proposed PPIs, CPIs, and ECIs selected meet
these criteria.
Table VII.C-2 below sets forth the proposed FY 2009-based LTCH-
specific market basket, including the cost categories and their
respective weights and price proxies. For comparison purposes, the
corresponding FY 2008-based RPL market basket cost weights also are
listed. For example, ``Wages and Salaries'' are 46.330 percent of total
costs in the proposed FY 2009-based LTCH-specific market basket
compared to 49.447 percent for the FY 2008-based RPL market basket.
``Employee Benefits'' are 8.008 percent in the proposed FY 2009-based
LTCH-specific market basket compared to 12.831 percent for the FY 2008-
based RPL market basket. As a result, compensation costs (wages and
salaries plus employee benefits) for the proposed FY 2009-based LTCH
market basket are 54.338 percent of total costs compared to 62.278
percent for the FY 2008-based RPL market basket. We note that the
``Wages and Salaries'' cost weight contained in Table VII.C-2 (46.330
percent) differs from that contained in Table VII.C-1 (40.407 percent).
We attribute this difference to our allocation of the ``Contract
Labor'' cost weight obtained from the Medicare cost reports (6.947
percent) proportionately across the ``Wages and Salaries'' and
``Employee Benefits'' cost weights obtained from the Medicare cost
reports.
Following Table VII.C-2 is a summary of the proxies we are
proposing to use for the operating portion of the proposed FY 2009-
based LTCH-specific market basket. We note that the proxies we are
proposing for the operating portion of the proposed FY 2009-based LTCH-
specific market basket are the same as those used for the FY 2008-based
RPL market basket. Because these proposed proxies meet our criteria of
reliability, timeliness, availability, and relevance, we believe they
are the best measures of price changes for the cost categories. For
further discussion on the FY 2008-based RPL market basket, we refer
readers to the discussion in the FY 2012 IPPS/LTCH PPS final rule (76
FR 51759). The price proxies proposed for the capital portion of the
proposed FY 2009-based LTCH market basket are the same as those used
for the FY 2008-based RPL market basket (prior to any vintage
weighting), as described in the

[[Page 28011]]

FY 2012 IPPS/LTCH PPS final rule (75 FR 51765), and as described in
more detail in the capital methodology section in section VII.C.3.d. of
the preamble of this proposed rule.

Table VII.C-2--Proposed FY 2009-Based LTCH-Specific Market Basket Cost Categories, Cost Weights, and Price
Proxies Compared to FY 2008-Based RPL Market Basket Cost Weights
----------------------------------------------------------------------------------------------------------------
Proposed FY FY
2009-based 2008[dash]based
Cost categories LTCH-specific RPL market Proposed FY 2009-based LTCH market
market basket basket cost basket price proxies
cost weights weights
----------------------------------------------------------------------------------------------------------------
1. Compensation............................ 54.338 62.278 ..................................
A. Wages and Salaries \1\.................. 46.330 49.447 ECI for Wages and Salaries,
Civilian Hospital Workers.
B. Employee Benefits \1\................... 8.008 12.831 ECI for Benefits, Civilian
Hospital Workers.
2. Utilities............................... 1.751 1.578 ..................................
A. Electricity............................. 1.367 1.125 PPI for Commercial Electric Power.
B. Fuel, Oil, and Gasoline................. 0.281 0.371 PPI for Petroleum Refineries.
C. Water and Sewage........................ 0.103 0.082 CPI-U for Water and Sewerage
Maintenance.
3. Professional Liability Insurance........ 0.830 0.764 CMS Hospital Professional
Liability Insurance Premium
Index.
4. All Other Products and Services......... 33.252 26.988 ..................................
A. All Other Products...................... 19.531 15.574 ..................................
(1.) Pharmaceuticals....................... 8.877 6.514 PPI for Pharmaceutical
Preparations for Human Use
(Prescriptions).
(2.) Food: Direct Purchases................ 3.409 2.959 PPI for Processed Foods and Feeds.
(3.) Food: Contract Services............... 0.478 0.392 CPI-U for Food Away From Home.
(4.) Chemicals \2\......................... 1.275 1.100 Blend of Chemical PPIs.
(5.) Medical Instruments................... 2.141 1.795 PPI for Medical, Surgical, and
Personal Aid Devices.
(6.) Rubber and Plastics................... 1.329 1.131 PPI for Rubber and Plastic
Products.
(7.) Paper and Printing Products........... 1.226 1.021 PPI for Converted Paper and
Paperboard Products.
(8.) Apparel............................... 0.250 0.210 PPI for Apparel.
(9.) Machinery and Equipment............... 0.127 0.106 PPI for Machinery and Equipment.
(10.) Miscellaneous Products............... 0.419 0.346 PPI for Finished Goods less Food
and Energy.
B. All Other Services...................... 13.721 11.414 ..................................
(1.) Labor-Related Services................ 5.349 4.681 ..................................
(a.) Professional Fees: Labor-Related...... 2.256 2.114 ECI for Compensation for
Professional and Related
Occupations.
(b.) Administrative and Business Support 0.508 0.422 ECI for Compensation for Office
Services. and Administrative Services.
(c.) All Other: Labor-Related Services..... 2.585 2.145 ECI for Compensation for Private
Service Occupations.
(2.) Nonlabor-Related Services............. 8.372 6.733 ..................................
(a.) Professional Fees: Nonlabor-Related... 5.332 4.211 ECI for Compensation for
Professional and Related
Occupations.
(b.) Financial Services.................... 1.013 0.853 ECI for Compensation for Financial
Activities.
(c.) Telephone Services.................... 0.501 0.416 CPI-U for Telephone Services.
(d.) Postage............................... 0.779 0.630 CPI-U for Postage.
(e.) All Other: Nonlabor[dash]Related 0.747 0.623 CPI-U for All Items less Food and
Services. Energy.
5. Capital-Related Costs................... 9.829 8.392 ..................................
A. Depreciation............................ 5.707 5.519 ..................................
(1.) Building and Fixed Equipment.......... 3.838 3.286 BEA chained price index for
Nonresidential Construction for
Hospitals and Special Care
Facilities--vintage weighted (20
years).
(2.) Movable Equipment..................... 1.869 2.233 PPI for Machinery and Equipment--
vintage weighted (8 years).
B. Interest Costs.......................... 2.434 1.954 ..................................
(1.) Government/Nonprofit.................. 0.702 0.653 Average yield on Domestic
Municipal Bonds (Bond Buyer 20
bonds)--vintage-weighted (20
years).
(2.) For Profit............................ 1.732 1.301 Average yield on Moody's Aaa
Bonds--vintage-weighted (20
years).
C. Other Capital-Related Costs............. 1.688 0.919 CPI-U for Residential Rent.
---------------------------------
Total.................................. 100.000 100.000 ..................................
----------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Contract Labor is distributed to Wages and Salaries and Employee Benefits based on the share of total
compensation that each category represents.
\2\ To proxy the Chemicals cost category, we used a blended PPI composed of the PPI for Industrial Gas
Manufacturing, the PPI for Other Basic Inorganic Chemical Manufacturing, the PPI for Other Basic Organic
Chemical Manufacturing, and the PPI for Soap and Cleaning Compound Manufacturing. For more detail about this
proxy, we refer readers to the FY 2012 IPPS/LTCH final rule (76 FR 51761).

[[Page 28012]]

(1) Wages and Salaries
We are proposing to use the ECI for Wages and Salaries for Hospital
Workers (All Civilian) (BLS series code CIU1026220000000I) to measure
the price growth of this cost category.
(2) Employee Benefits
We are proposing to use the ECI for Employee Benefits for Hospital
Workers (All Civilian) to measure the price growth of this cost
category.
(3) Electricity
We are proposing to use the PPI for Commercial Electric Power (BLS
series code WPU0542) to measure the price growth of this cost category.
(4) Fuel, Oil, and Gasoline
We are proposing to use the PPI for Petroleum Refineries (BLS
series code PCU324110324110) to measure the price growth of this cost
category. We are proposing this proxy based on the same reasons set
forth in the FY 2012 IPPS/LTCH final rule when this proxy was adopted
for use in the FY 2008-based RPL market basket (76 FR 51761).
(5) Water and Sewage
We are proposing to use the CPI for Water and Sewerage Maintenance
(All Urban Consumers) (BLS series code CUUR0000SEHG01) to measure the
price growth of this cost category.
(6) Professional Liability Insurance
We are proposing to proxy price changes in hospital professional
liability insurance premiums (PLI) using percentage changes as
estimated by the CMS Hospital Professional Liability Index. To generate
these estimates, we collect commercial insurance premiums for a fixed
level of coverage while holding nonprice factors constant (such as a
change in the level of coverage). This method is also used to proxy PLI
price changes in the Medicare Economic Index (75 FR 73268).
(7) Pharmaceuticals
We are proposing to use the PPI for Pharmaceuticals for Human Use,
Prescription (BLS series code WPUSI07003) to measure the price growth
of this cost category.
(8) Food: Direct Purchases
We are proposing to use the PPI for Processed Foods and Feeds (BLS
series code WPU02) to measure the price growth of this cost category.
(9) Food: Contract Services
We are proposing to use the CPI for Food Away From Home (All Urban
Consumers) (BLS series code CUUR0000SEFV) to measure the price growth
of this cost category.
(10) Chemicals
We are proposing to use a blended PPI composed of the PPI for
Industrial Gas Manufacturing (NAICS 325120) (BLS series code
PCU325120325120P), the PPI for Other Basic Inorganic Chemical
Manufacturing (NAICS 325180) (BLS series code PCU32518-32518-), the PPI
for Other Basic Organic Chemical Manufacturing (NAICS 325190) (BLS
series code PCU32519-32519), and the PPI for Soap and Cleaning Compound
Manufacturing (NAICS 325610) (BLS series code PCU32561-32561). We are
proposing to use this blended index based on the reasons as set forth
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51761) when this proxy
was adopted for use in the FY 2008-based RPL market basket.
(11) Medical Instruments
We are proposing to use the PPI for Medical, Surgical, and Personal
Aid Devices (BLS series code WPU156) to measure the price growth of
this cost category. We are proposing to use this index based on the
reasons as set forth in the FY 2012 IPPS/LTCH PPS final rule (76 FR
51761 through 51762) when this proxy was adopted for use in the FY
2008-based RPL market basket.
(12) Rubber and Plastics
We are proposing to use the PPI for Rubber and Plastic Products
(BLS series code WPU07) to measure the price growth of this cost
category.
(13) Paper and Printing Products
We are proposing to use the PPI for Converted Paper and Paperboard
Products (BLS series code WPU0915) to measure the price growth of this
cost category.
(14) Apparel
We are proposing to use the PPI for Apparel (BLS series code
WPU0381) to measure the price growth of this cost category.
(15) Machinery and Equipment
We are proposing to use the PPI for Machinery and Equipment (BLS
series code WPU11) to measure the price growth of this cost category.
(16) Miscellaneous Products
We are proposing to use the PPI for Finished Goods Less Food and
Energy (BLS series code WPUSOP3500) to measure the price growth of this
cost category.
(17) Professional Fees: Labor-Related
We are proposing to use the ECI for Compensation for Professional
and Related Occupations (Private Industry) (BLS series code
CIS2020000120000I) to measure the price growth of this category. It
includes occupations such as legal, accounting, and engineering
services.
(18) Administrative and Business Support Services
We are proposing to use the ECI for Compensation for Office and
Administrative Support Services (Private Industry) (BLS series code
CIU2010000220000I) to measure the price growth of this category. We
believe this compensation index appropriately reflects the changing
price of labor associated with the provision of Administrative and
Business Support Services.
(19) All Other: Labor-Related Services
We are proposing to use the ECI for Compensation for Service
Occupations (Private Industry) (BLS series code CIU2010000300000I) to
measure the price growth of this cost category.
(20) Professional Fees: Nonlabor-Related
We are proposing to use the ECI for Compensation for Professional
and Related Occupations (Private Industry) (BLS series code
CIS2020000120000I) to measure the price growth of this category. This
is the same price proxy that we are proposing to use for the
Professional Fees: Labor-related cost category.
(21) Financial Services
We are proposing to use the ECI for Compensation for Financial
Activities (Private Industry) (BLS series code CIU201520A000000I) to
measure the price growth of this cost category. We believe that this
compensation index appropriately reflects the changing price of labor
associated with the provision of Financial Services.
(22) Telephone Services
We are proposing to use the CPI for Telephone Services (BLS series
code CUUR0000SEED) to measure the price growth of this cost category.
(23) Postage
We are proposing to use the CPI for Postage (BLS series code
CUUR0000SEEC01) to measure the price growth of this cost category.
(24) All Other: Nonlabor-Related Services
We are proposing to use the CPI for All Items Less Food and Energy
(BLS

[[Page 28013]]

series code CUUR0000SA0L1E) to measure the price growth of this cost
category. We believe that using the CPI for All Items Less Food and
Energy avoids double counting of changes in food and energy prices as
they are already captured elsewhere in the market basket.
d. Proposed Methodology for the Capital Portion of the Proposed FY
2009-Based LTCH-Specific Market Basket
In order to ensure consistency in the proposed FY 2009-based LTCH-
specific market basket, we are proposing to calculate the capital-
related cost weights using the same set of FY 2009 Medicare cost
reports used to develop the operating cost weights with the same
length-of-stay edit as applied when calculating the operating cost
weights as described in section VII.C.3.a. of this preamble. The
resulting proposed capital weight for the FY 2009 base year is 9.829
percent. We then separated the total capital cost weight into more
detailed cost categories.
From the Medicare cost reports, we are able to derive cost weights
for depreciation, interest, lease, and other capital-related expenses.
Lease expenses are unique in that they are not broken out as a separate
cost category in the proposed LTCH-specific market basket, but rather
are proportionally distributed among the cost categories of
Depreciation, Interest, and Other Capital-Related, reflecting the
assumption that the underlying cost structure of leases is similar to
that of capital costs in general. As was done in the FY 2008-based RPL
market basket, we first assumed 10 percent of lease expenses represents
overhead and assigned those costs to the Other Capital-Related Costs
category accordingly. The remaining lease expenses were distributed
across the three cost categories based on the respective weights of
depreciation, interest, and other capital-related, not including lease
expenses. This is the same method that was applied in the FY 2008-based
RPL market basket.
Depreciation contains two subcategories: (1) Building and Fixed
Equipment (or Fixed Assets); and (2) Movable Equipment. In the FY 2008-
based RPL market basket, we disaggregated total depreciation expenses
into Building and Fixed Equipment and Movable Equipment, using
depreciation data from the FY 2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs, and LTCHs. Based on FY 2009 LTCH
Medicare cost report data, we have determined that depreciation costs
for building and fixed equipment account for 42 percent of total
depreciation costs, while depreciation costs for movable equipment
account for 58 percent of total depreciation costs. As mentioned above,
we are proposing to allocate lease expenses among the ``Depreciation,''
``Interest,'' and ``Other Capital'' cost categories. We determined that
leasing building and fixed equipment expenses account for 80 percent of
total leasing expenses, while leasing movable equipment expenses
account for 20 percent of total leasing expenses. We are proposing to
sum the depreciation and leasing expenses for building and fixed
equipment together, as well as sum the depreciation and leasing
expenses for movable equipment. This results in the final building and
fixed equipment depreciation cost weight (after leasing costs are
included) being 67 percent of total depreciation costs and the movable
equipment depreciation cost weight (after leasing costs are included)
being 33 percent of total depreciation costs. We note that total
leasing costs account for approximately one-half of total capital
expenses.
The total ``Interest'' cost category is split between government/
nonprofit interest and for-profit interest. The FY 2008-based RPL
market basket allocated 33 percent of the total ``Interest'' cost
weight to government/nonprofit interest and proxied that category by
the average yield on domestic municipal bonds. The remaining 67 percent
of the ``Interest'' cost weight was allocated to for-profit interest
and was proxied by the average yield on Moody's Aaa bonds (76 FR
51760). This was based on the FY 2008 Medicare cost report data on
interest expenses for government/nonprofit and for-profit freestanding
IRFs, freestanding IPFs, and LTCHs. For the proposed FY 2009-based
LTCH-specific market basket, we are proposing to use the FY 2009
Medicare cost report data on interest expenses for government/nonprofit
and for-profit LTCHs. Based on these data, we calculated a proposed 29/
71 split between government/nonprofit and for-profit interest. We
believe it is important that this split reflects the latest relative
cost structure of interest expenses for LTCHs.
Because capital is acquired and paid for over time, capital
expenses in any given year are determined by both past and present
purchases of physical and financial capital. The vintage-weighted
capital portion of the proposed FY 2009-based LTCH-specific market
basket is intended to capture the long-term consumption of capital,
using vintage weights for depreciation (physical capital) and interest
(financial capital). These vintage weights reflect the proportion of
capital purchases attributable to each year of the expected life of
building and fixed equipment, movable equipment, and interest. We are
proposing to use vintage weights to compute vintage-weighted price
changes associated with depreciation and interest expense.
Vintage weights are an integral part of the proposed FY 2009-based
LTCH-specific market basket. Capital costs are inherently complicated
and are determined by complex capital purchasing decisions, over time,
based on such factors as interest rates and debt financing. In
addition, capital is depreciated over time instead of being consumed in
the same period it is purchased. By accounting for the vintage nature
of capital, we are able to provide an accurate and stable annual
measure of price changes. Annual nonvintage price changes for capital
are unstable due to the volatility of interest rate changes and,
therefore, do not reflect the actual annual price changes for Medicare
capital-related costs. The capital component of the proposed FY 2009-
based LTCH market basket would reflect the underlying stability of the
capital acquisition process and provides hospitals with the ability to
plan for changes in capital payments.
To calculate the vintage weights for depreciation and interest
expenses, we needed a time series of capital purchases for building and
fixed equipment and movable equipment. We found no single source that
provides an appropriate time series of capital purchases by hospitals
for all of the above components of capital purchases. The early
Medicare cost reports did not have sufficient capital data to meet this
need. Data we obtained from the American Hospital Association (AHA) do
not include annual capital purchases. However, the AHA does provide a
consistent database of total expenses back to 1963. Consequently, we
used data from the AHA Panel Survey and the AHA Annual Survey to obtain
a time series of total expenses for hospitals. We then used data from
the AHA Panel Survey supplemented with the ratio of depreciation to
total hospital expenses obtained from the Medicare cost reports to
derive a trend of annual depreciation expenses for 1963 through 2009.
In order to estimate capital purchases using data on depreciation
expenses, the expected life for each cost category (Building and Fixed
Equipment, Movable Equipment, and Interest) is needed to calculate
vintage weights. For the FY 2008-based RPL market basket, we used FY
2008 Medicare cost reports for IPPS hospitals to determine the

[[Page 28014]]

expected life of building and fixed equipment and movable equipment (76
FR 51763). The FY 2008-based RPL market basket was based on an expected
average life of building and fixed equipment of 26 years and an
expected average life of movable equipment of 11 years, which were both
calculated using data for IPPS hospitals. We believed that this data
source reflected the latest relative cost structure of depreciation
expenses for hospitals at the time and was analogous to freestanding
IRFs, freestanding IPFs, and LTCHs.
The expected life of any asset can be determined by dividing the
value of the asset (excluding fully depreciated assets) by its current
year depreciation amount. This calculation yields the estimated useful
life of an asset if the rates of depreciation were to continue at
current year levels, assuming straight-line depreciation. Following a
similar method to what was applied for the FY 2008-based RPL market
basket, we are proposing to use the average expected life of building
and fixed equipment to be equal to 20 years, and the average expected
life of movable equipment to be 8 years. These expected lives are
calculated using a 3-year average of data from Medicare cost reports
for LTCHs for FY 2007 through FY 2009. We believe that using LTCH-
specific data to calculate the expected lives of assets best reflects
the cost structures of LTCH facilities.
We also are proposing to use the ``Building and Fixed Equipment''
and ``Movable Equipment'' cost weights derived from FY 2009 Medicare
cost reports for LTCHs to separate the depreciation expenses into
annual amounts of building and fixed equipment depreciation and movable
equipment depreciation. Year-end asset costs for building and fixed
equipment and movable equipment were determined by multiplying the
annual depreciation amounts by the expected life calculations. We then
calculated a time series, back to 1963, of annual capital purchases by
subtracting the previous year's asset costs from the current year's
asset costs. From this capital purchase time series, we were able to
calculate the vintage weights for building and fixed equipment and for
movable equipment. Each of these sets of vintage weights is explained
in more detail below.
For the proposed building and fixed equipment vintage weights, we
used the real annual capital purchase amounts for building and fixed
equipment to capture the actual amount of the physical acquisition, net
of the effect of price inflation. This real annual purchase amount for
building and fixed equipment was produced by deflating the nominal
annual purchase amount by the building and fixed equipment price proxy,
BEA's Chained Price Index for Nonresidential Construction for Hospitals
and Special Care Facilities. This is the same proxy used for the FY
2008-based RPL market basket. Because building and fixed equipment have
an expected average life of 20 years, the vintage weights for building
and fixed equipment are deemed to represent the average purchase
pattern of building and fixed equipment over 20-year periods. With real
building and fixed equipment purchase estimates available from 2009
back to 1963, we averaged twenty-seven 20-year periods to determine the
average vintage weights for building and fixed equipment that are
representative of average building and fixed equipment purchase
patterns over time. Vintage weights for each 20-year period are
calculated by dividing the real building and fixed capital purchase
amount in any given year by the total amount of purchases in the 20-
year period. This calculation is done for each year in the 20-year
period, and for each of the twenty-seven 20-year periods. We used the
average of each year across the twenty-seven 20-year periods to
determine the average building and fixed equipment vintage weights for
the proposed FY 2009-based LTCH-specific market basket.
For the proposed movable equipment vintage weights, the real annual
capital purchase amounts for movable equipment were used to capture the
actual amount of the physical acquisition, net of price inflation. This
real annual purchase amount for movable equipment was calculated by
deflating the nominal annual purchase amounts by the movable equipment
price proxy, the PPI for Machinery and Equipment. This is the same
proxy used for the FY 2008-based RPL market basket. Based on our
determination that movable equipment has an expected average life of 8
years, the vintage weights for movable equipment represent the average
expenditure for movable equipment over an 8-year period. With real
movable equipment purchase estimates available from 2009 back to 1963,
thirty-nine 8-year periods were averaged to determine the average
vintage weights for movable equipment that are representative of
average movable equipment purchase patterns over time. Vintage weights
for each 8-year period are calculated by dividing the real movable
capital purchase amount for any given year by the total amount of
purchases in the 8-year period. This calculation was done for each year
in the 8-year period and for each of the thirty-nine 8-year periods. We
used the average of each year across the thirty-nine 8-year periods to
determine the average movable equipment vintage weights for the
proposed FY 2009-based LTCH-specific market basket.
For the proposed interest vintage weights, the nominal annual
capital purchase amounts for total equipment (building and fixed, and
movable) were used to capture the value of the debt instrument
(including, but not limited to, mortgages and bonds). We are proposing
that the vintage weights for interest should represent the average
purchase pattern of total equipment over 20-year periods, which is the
average useful life of building and fixed equipment as calculated using
the LTCH Medicare cost report data. We believe vintage weights for
interest should represent the average useful life of buildings and
fixed equipment because, based on previous research described in the FY
1997 IPPS final rule (61 FR 46198), the expected life of hospital debt
instruments and the expected life of buildings and fixed equipment are
similar. With nominal total equipment purchase estimates available from
2009 back to 1963, twenty-seven 20-year periods were averaged to
determine the average vintage weights for interest that are
representative of average capital purchase patterns over time. Vintage
weights for each 20-year period are calculated by dividing the nominal
total capital purchase amount for any given year by the total amount of
purchases in the 20-year period. This calculation is done for each year
in the 20-year period and for each of the twenty-seven 20-year periods.
We used the average of each year across the twenty-seven 20-year
periods to determine the average interest vintage weights for the
proposed FY 2009-based LTCH-specific market basket. The vintage weights
for the capital portion of the FY 2008-based RPL market basket and the
proposed FY 2009-based LTCH-specific market basket are presented in
Table VII.C-4 below.

[[Page 28015]]

Table VII.C-4--FY 2008 RPL and Proposed FY 2009 LTCH Vintage Weights for Capital-Related Price Proxies
----------------------------------------------------------------------------------------------------------------
Building and fixed Movable equipment Interest
equipment ---------------------------------------------------
Year --------------------------
FY 2008 26 FY 2009 20 FY 2008 11 FY 2009 8 FY 2008 26 FY 2009 20
years years years years years years
----------------------------------------------------------------------------------------------------------------
1................................. 0.021 0.034 0.071 0.102 0.010 0.021
2................................. 0.023 0.037 0.075 0.108 0.012 0.024
3................................. 0.025 0.039 0.080 0.114 0.014 0.026
4................................. 0.027 0.042 0.083 0.123 0.016 0.029
5................................. 0.028 0.043 0.085 0.129 0.018 0.032
6................................. 0.030 0.045 0.089 0.134 0.020 0.035
7................................. 0.031 0.046 0.092 0.142 0.021 0.037
8................................. 0.033 0.047 0.098 0.149 0.024 0.040
9................................. 0.035 0.049 0.103 ........... 0.026 0.043
10................................ 0.037 0.051 0.109 ........... 0.029 0.047
11................................ 0.039 0.053 0.116 ........... 0.033 0.050
12................................ 0.041 0.053 ........... ........... 0.035 0.053
13................................ 0.042 0.053 ........... ........... 0.038 0.055
14................................ 0.043 0.054 ........... ........... 0.041 0.059
15................................ 0.044 0.055 ........... ........... 0.043 0.062
16................................ 0.045 0.057 ........... ........... 0.046 0.068
17................................ 0.046 0.059 ........... ........... 0.049 0.073
18................................ 0.047 0.059 ........... ........... 0.052 0.077
19................................ 0.047 0.061 ........... ........... 0.053 0.082
20................................ 0.045 0.062 ........... ........... 0.053 0.086
21................................ 0.045 ........... ........... ........... 0.055 ...........
22................................ 0.045 ........... ........... ........... 0.056 ...........
23................................ 0.046 ........... ........... ........... 0.060 ...........
24................................ 0.046 ........... ........... ........... 0.063 ...........
25................................ 0.045 ........... ........... ........... 0.064 ...........
26................................ 0.046 ........... ........... ........... 0.068 ...........
-----------------------------------------------------------------------------
Total......................... 1.000 1.000 1.000 1.000 1.000 1.000
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not add to total due to rounding.

After the capital cost category weights were computed, it was
necessary to select appropriate price proxies to reflect the rate-of-
increase for each expenditure category. We are proposing to use the
same price proxies (prior to any vintage weighting) for the capital
portion of the proposed FY 2009-based LTCH market basket that were used
in the FY 2008-based RPL market. We believe these are the most
appropriate proxies for hospital capital costs that meet our selection
criteria of relevance, timeliness, availability, and reliability.
The price proxies (prior to any vintage weighting) for each of the
capital cost categories, as shown in Table VII.C-2 above, are the same
as those used for the FY 2008-based RPL market basket, as described in
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51765), as well as the FY
2006-based Capital Input Price Index (CIPI) as described in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR 43857). The process of creating
vintage-weighted price proxies requires applying the vintage weights to
the price proxy index where the last applied vintage weight in Table
VII.C-4 is applied to the most recent data point. We have provided on
the CMS Web site an example of how the vintage weighting price proxies
are calculated, using example vintage weights and example price
indices. The example can be found at the following link: http://www.cms.gov/MedicareProgramRatesStats/05_MarketBasketResearch.asp#TopOfPage in the zip file titled ``Weight
Calculations as described in the IPPS FY 2010 Proposed Rule''.
e. Proposed FY 2013 Market Basket Update for LTCHs
For FY 2013 (that is, October 1, 2012, through September 30, 2013),
we are proposing to use an estimate of the proposed FY 2009-based LTCH-
specific market basket to update payments to LTCHs based on the best
available data. Consistent with historical practice, we estimate the
LTCH market basket update for the LTCH PPS based on IHS Global Insight,
Inc.'s (IGI's) forecast using the most recent available data. IGI is a
nationally recognized economic and financial forecasting firm that
contracts with CMS to forecast the components of the market baskets.
Based on IGI's first quarter 2012 forecast with history through the
fourth quarter of 2011, the projected market basket update for FY 2013
is 3.0 percent. Therefore, consistent with our historical practice of
estimating market basket increases based on the best available data, we
are proposing a market basket update of 3.0 percent for FY 2013.
Furthermore, because the proposed FY 2013 annual update is based on the
most recent market basket estimate for the 12-month period (currently
3.0 percent), we also are proposing that if more recent data are
subsequently available (for example, a more recent estimate of the
market basket), we would use such data, if appropriate, to determine
the FY 2013 annual update in the final rule. (As discussed in greater
detail in section V.A.2. of the Addendum to this proposed rule, we are
proposing an annual update of 2.1 percent to the LTCH PPS standard
Federal rate for FY 2013 under proposed Sec. 412.523(c)(3)(viii) of
the regulations.)
Using the current FY 2008-based RPL market basket and IGI's first
quarter 2012 forecast for the market basket components, the FY 2013
market basket update would be 3.0 percent (before taking into account
any statutory adjustment). Table VII.C-5 below compares the FY 2008-
based RPL market basket and the proposed FY

[[Page 28016]]

2009-based LTCH-specific market basket percent changes.

Table VII.C-5--FY 2008-Based RPL Market Basket and Proposed FY 2009-
Based LTCH Market Basket Percent Changes; FY 2008 Through FY 2015
------------------------------------------------------------------------
Proposed FY 2009-
FY 2008-based based LTCH
Fiscal year (FY) RPL market market basket
basket index index percent
percent change change
------------------------------------------------------------------------
Historical data:
FY 2008......................... 3.7 3.9
FY 2009......................... 2.7 2.8
FY 2010......................... 2.2 2.2
FY 2011......................... 2.5 2.6
Average 2008-2011............... 2.8 2.9
Forecast:
FY 2012......................... 2.4 2.5
FY 2013......................... 3.0 3.0
FY 2014......................... 3.1 3.1
FY 2015......................... 3.2 3.1
Average 2012-2015............... 2.9 2.9
------------------------------------------------------------------------
Note that these market basket percent changes do not include any further
adjustments as may be statutorily required.
Source: IHS Global Insight, Inc. first quarter 2012 forecast.

For FY 2013, the proposed FY 2009-based LTCH-specific market basket
update (as measured by percentage increase) is currently forecasted to
be the same as the market basket update based on the FY 2008-based RPL
market basket at 3.0 percent. The lower total compensation weight in
the proposed FY 2009-based LTCH-specific market basket (54.338 percent)
relative to the FY 2008-based RPL market basket (62.278 percent),
absent other factors, would have resulted in a slightly lower market
basket update for FY 2013 using the proposed FY 2009-based LTCH market
basket. However, this impact is partially offset by the impact of the
larger cost weights associated with the Pharmaceuticals and All Other
Services cost categories. The net effect of these offsetting factors is
that the market basket update is currently forecasted to be the same
for FY 2013 based on the current FY 2008-based RPL market basket and
the proposed FY 2009-based LTCH-specific market basket. As stated
above, we are proposing that if more recent data (such as a revised IGI
forecast) are subsequently available, we would use such data, if
appropriate, to determine the FY 2013 annual update in the final rule.
f. Proposed FY 2013 Labor-Related Share
As discussed in section V.B. of the Addendum to this proposed rule,
under the authority of section 123 of the BBRA as amended by section
307(b) of the BIPA, we established an adjustment to the LTCH PPS
payments to account for differences in LTCH area wage levels (Sec.
412.525(c)). The labor-related portion of the LTCH PPS standard Federal
rate, hereafter referred to as the labor-related share, is adjusted to
account for geographic differences in area wage levels by applying the
applicable LTCH PPS wage index.
The labor-related share is determined by identifying the national
average proportion of total costs that are related to, influenced by,
or vary with the local labor market. As discussed in more detail below
and similar to the FY 2008-based RPL market basket and FY 2006 IPPS
market basket (74 FR 43850), we classify a cost category as labor-
related and include it in the labor-related share if the cost category
is defined as being labor-intensive and its cost varies with the local
labor market. Given this, based on our definition of the labor-related
share, we are proposing to include in the labor-related share the sum
of the relative importance of Wages and Salaries, Employee Benefits,
Professional Fees: Labor-related, Administrative and Business Support
Services, All Other: Labor-related Services, and a portion of the
Capital-Related cost weight. These are the same cost categories that
were proposed and adopted in the FY 2012 labor-related share using the
FY 2008-based RPL market basket, as we continue to believe these
categories meet our criteria of being labor-intensive and whose costs
vary with the local labor market. For a more detailed discussion of the
selection of cost categories for inclusion in the FY 2012 labor-related
share, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR
51766). We note that, similar to the FY 2008-based RPL market basket
and as described above, the wages and salaries and benefit cost weights
reflect allocated contract labor costs.
For the FY 2008-based RPL market basket rebasing, in an effort to
more accurately determine the share of professional fees for services
such as accounting and auditing services, engineering services, legal
services, and management and consulting services that should be
included in the labor-related share, we obtained data from a survey of
IPPS hospitals regarding the proportion of those fees that go to
companies that are located beyond their own local labor market. The
results from this survey were then used to separate a portion of the
Professional Fees cost category into labor-related and nonlabor-related
costs. These results and our allocation methodology are discussed in
more detail in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51766). For
the proposed FY 2009-based LTCH-specific market basket, we are
proposing to apply these survey results using this same methodology to
separate the Professional Fees category into Professional Fees: Labor-
related and Professional Fees: Nonlabor-related cost categories. We
believe using the survey results serves as an appropriate proxy for the
purchasing patterns of professional services for LTCHs as they also are
providers of institutional care.
In addition to the professional services listed above, we also are
proposing to classify expenses under NAICS 55, Management of Companies
and Enterprises, into the Professional Fees: Labor-related and
Professional Fees: Nonlabor-related cost categories, as was done for
the FY 2008-based RPL

[[Page 28017]]

market basket. The NAICS 55 industry is mostly comprised of corporate,
subsidiary, and regional managing offices (otherwise referred to as
home offices). As stated above, we classify a cost category as labor-
related and include it in the labor-related share if the cost category
is labor-intensive and if its costs vary with the local labor market.
We believe many of the costs associated with NAICS 55 are labor-
intensive and vary with the local labor market. However, data indicate
that not all LTCHs with home offices have home offices located in their
local labor market. Therefore, we are proposing to include in the
labor-related share only a proportion of the NAICS 55 expenses based on
the methodology described below.
For the FY 2008-based RPL market basket, we used data primarily
from the Medicare cost reports and a CMS database of Home Office
Medicare Records (HOMER) (a database that provides city and state
information (addresses) for home offices) and determined that 19
percent of the total number of freestanding IRFs, freestanding IPFs,
and LTCHs that had home offices had those home offices located in their
respective local labor markets--defined as being in the same
Metropolitan Statistical Area (MSA). For a detailed discussion of this
analysis, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76
FR 51766 through 51767).
For the proposed FY 2009-based LTCH-specific market basket, we
conducted a similar analysis of home office data. However, instead of
using data on freestanding IRF, freestanding IPF, and LTCHs, we began
with the initial set of LTCH Medicare cost reports that were used to
derive the cost weights for the proposed FY 2009-based LTCH-specific
market basket. For consistency, we believe it is important for our
analysis on home office data to be conducted on the same LTCHs used to
derive the proposed FY 2009 LTCH market basket cost weights.
The Medicare cost report requires a hospital to report information
regarding their home office provider. Approximately 82 percent of LTCHs
reported some type of home office information on their Medicare cost
report for FY 2009 (for example, home office number, city, state, zip
code, or name). For the majority of these providers, we were able to
identify in which MSA the LTCH's home office was located using the
HOMER database and the Medicare cost reports. We then compared the home
office MSA with the MSA in which the LTCH was located.
We found that 13 percent of the LTCHs with home offices had those
home offices located in the same MSA as their facilities. We then
concluded that these providers were located in the same local labor
market as their home office. As a result, we are proposing to apportion
the NAICS 55 expense data by this percentage. Thus, we are proposing to
classify 13 percent of these costs into the ``Professional Fees: Labor-
related Services'' cost category and the remaining 87 percent into the
``Professional Fees: Nonlabor-related Services'' cost category.
Using this proposed method and the IGI forecast for the first
quarter 2012 of the proposed FY 2009-based LTCH-specific market basket,
the proposed LTCH labor-related share for FY 2013 would be the sum of
the FY 2013 relative importance of each labor-related cost category.
Consistent with our proposal to update the labor-related share with the
most recent available data, the labor-related share for this proposed
rule reflects IGI's first quarter 2012 forecast of the proposed FY
2009-based LTCH-specific market basket. Table VII.C-6 below shows the
proposed FY 2013 relative importance labor-related share using the
proposed FY 2009-based LTCH-specific market basket and the FY 2012
relative importance labor-related share using the FY 2008-based RPL
market basket.

Table VII.C-6--Comparison of the FY 2012 Relative Importance Labor-
Related Share Based on the FY 2008-Based RPL Market Basket and the
Proposed FY 2013 Relative Importance Labor-Related Share Based on the
Proposed FY 2009-Based LTCH Market Basket
------------------------------------------------------------------------
Proposed FY 2013
FY 2012 relative relative
importance labor- importance labor-
related share related share
\1\ \2\
------------------------------------------------------------------------
Wages and Salaries.................. 48.984 45.604
Employee Benefits................... 12.998 8.143
Professional Fees: Labor-Related.... 2.072 2.216
Administrative and Business Support 0.416 0.502
Services...........................
All Other: Labor-Related Services... 2.094 2.513
-----------------------------------
Subtotal........................ 66.564 58.978
Labor-Related Portion of Capital 3.635 4.239
Costs (46%)........................
-----------------------------------
Total Labor-Related Share....... 70.199 63.217
------------------------------------------------------------------------
\1\ Published in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51767) and
based on the second quarter 2011 IGI forecast.
\2\ Based on the first quarter 2012 IGI forecast.

The proposed labor-related share for FY 2013 is the sum of the
proposed FY 2013 relative importance of each labor-related cost
category, and would reflect the different rates of price change for
these cost categories between the base year (FY 2009) and FY 2013. The
sum of the proposed relative importance for FY 2013 for operating costs
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
related, Administrative and Business Support Services, and All Other:
Labor-related Services) would be 58.978 percent, as shown in Table
VII.C-6 above. We are proposing that the portion of capital-related
costs that is influenced by the local labor market is estimated to be
46 percent, which is the same percentage applied to the FY 2008-based
RPL market basket. Because the relative importance for capital-related
costs would be 9.216 percent of the proposed FY 2009-based LTCH-
specific market basket in FY 2013, we are proposing to take 46 percent
of 9.216 percent to determine the proposed labor-related share of
capital-related costs for FY 2013 (.46 * 9.216). The result would be
4.239 percent, which we are proposing to add to 58.978 percent for the
operating cost amount to determine the total proposed labor-related
share for FY

[[Page 28018]]

2013. Thus, the labor-related share that we are proposing to use for
the LTCH PPS in FY 2013 would be 63.217 percent. This proposed labor-
related share is determined using the same methodology as employed in
calculating all previous LTCH labor-related shares.

D. Proposed Changes to the LTCH Payment Rates for FY 2013 and Other
Proposed Changes to the LTCH PPS for FY 2013

1. Overview of Development of the LTCH Payment Rates
The basic methodology for determining LTCH PPS Federal prospective
payment rates is set forth at Sec. 412.515 through Sec. 412.536. In
this section, we discuss the factors that we are proposing to use to
update the LTCH PPS standard Federal rate for FY 2013, that is,
effective for LTCH discharges occurring on or after October 1, 2012
through September 30, 2013.
For further details on the development of the FY 2003 standard
Federal rate when the LTCH PPS was initially implemented, we refer
readers to the August 30, 2002 LTCH PPS final rule (67 FR 56027 through
56037). For subsequent updates to the LTCH PPS Federal rate, we refer
readers to the following final rules: RY 2004 LTCH PPS final rule (68
FR 34134 through 34140); RY 2005 LTCH PPS final rule (68 FR 25682
through 25684); RY 2006 LTCH PPS final rule (70 FR 24179 through
24180); RY 2007 LTCH PPS final rule (71 FR 27819 through 27827); RY
2008 LTCH PPS final rule (72 FR 26870 through 27029); RY 2009 LTCH PPS
final rule (73 FR 26800 through 26804); RY 2010 LTCH PPS final rule (74
FR 44021 through 44030); FY 2011 IPPS/LTCH PPS final rule (75 FR 50443
through 50444); and FY 2012 IPPS/LTCH PPS final rule (76 FR 51769
through 51773).
The proposed update to the LTCH PPS standard Federal rate for FY
2013 is presented in section V.A. of the Addendum to this proposed
rule. The components of the proposed annual market basket update to the
LTCH PPS standard Federal rate for FY 2013 are discussed below.
Furthermore, as discussed in section VII.E.4. of this preamble, for FY
2013, in addition to the proposed update factor, we are proposing to
make a one-time prospective adjustment to the standard Federal rate for
FY 2013 so that the effect of any significant difference between the
data used in the original computations of budget neutrality for FY 2003
and more recent data to determine budget neutrality for FY 2003 is not
perpetuated in the prospective payment rates for future years under
existing Sec. 412.523(d)(3) (this adjustment would not apply to
payments made for discharges occurring on or before December 28, 2012,
consistent with the statute). Furthermore, as discussed in section V.A.
of the Addendum of this proposed rule, we are proposing to make an
adjustment to the standard Federal rate to account for the estimated
effect of the proposed changes to the area wage level adjustment for FY
2013 on estimated aggregate LTCH PPS payments, in accordance with Sec.
412.523(d)(4).
2. Proposed FY 2013 LTCH PPS Annual Market Basket Update
a. Overview
Historically, the Medicare program has used a market basket to
account for price increases in the services furnished by providers. The
market basket used for the LTCH PPS includes both operating and
capital-related costs of LTCHs because the LTCH PPS uses a single
payment rate for both operating and capital-related costs. As discussed
in section VII.C. of this preamble, we are proposing to adopt the newly
created FY 2009-based LTCH-specific market basket for use under the
LTCH PPS beginning in FY 2013. For additional details on the historical
development of the market basket used under the LTCH PPS, we refer
readers to section VII.C.1. of this preamble.
Section 3401(c) of the Affordable Care Act provides for certain
adjustments to any annual update to the standard Federal rate and
refers to the timeframes associated with such adjustments as a ``rate
year.'' (The adjustments are discussed in more detail in section
VII.D.2.b. of this preamble.) We note that because the annual update to
the LTCH PPS policies, rates, and factors now occurs on October 1, we
adopted the term ``fiscal year'' (FY) rather than ``rate year'' (RY)
under the LTCH PPS beginning October 1, 2010, to conform with the
standard definition of the Federal fiscal year (October 1 through
September 30) used by other PPSs, such as the IPPS (75 FR 50396 through
50397). Although the language of sections 3401(c), 10319, and 1105(b)
of the Affordable Care Act refers to years 2010 and thereafter under
the LTCH PPS as ``rate year,'' consistent with our change in the
terminology used under the LTCH PPS from ``rate year'' to ``fiscal
year,'' for purposes of clarity, when discussing the annual update for
the LTCH PPS, including the provisions of the Affordable Care Act, we
employ ``fiscal year'' rather than ``rate year'' for 2011 and
subsequent years.
b. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of
the Affordable Care Act, specifies that, for rate year 2010 and each
subsequent rate year through 2019, any annual update to the standard
Federal rate shall be reduced:
For rate year 2010 through 2019, by the ``other
adjustment'' specified in sections 1886(m)(3)(A)(ii) and (m)(4) of the
Act; and
For rate year 2012 and each subsequent year, by the
productivity adjustment (which we refer to as ``the multifactor
productivity (MFP) adjustment'') described in section
1886(b)(3)(B)(xi)(II) of the Act.
Section 1886(m)(3)(B) of the Act provides that the application of
paragraph (3) of section 1886(m) of the Act may result in the annual
update being less than zero for a rate year, and may result in payment
rates for a rate year being less than such payment rates for the
preceding rate year.
As discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51770
through 51771), section 1886(b)(3)(B)(xi)(II) of the Act defines the
MFP adjustment as equal to the 10-year moving average of changes in
annual economy-wide, private nonfarm business multifactor productivity
(as projected by the Secretary for the 10-year period ending with the
applicable fiscal year, calendar year, cost reporting period, or other
annual period). As discussed in the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51691 through 51692 and 51771), we proposed and finalized that
the end of the 10-year moving average of changes in the MFP should
coincide with the end of the appropriate FY update period. Therefore,
the MFP adjustment that is applied in determining any annual update to
the LTCH PPS standard Federal rate is the same adjustment that is
required to be applied in determining the applicable percentage
increase under the IPPS under section 1886(b)(3)(B)(i) of the Act as
they are both based on a fiscal year. As we established in that same
final rule, the MFP adjustment is derived using a projection of MFP
that is currently produced by IHS Global Insight, Inc. We established
our methodology for calculating and applying the MFP adjustment in
determining any annual update to the LTCH PPS standard Federal rate in
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51771 through 51772). In
this proposed rule, we are not proposing to change our methodology

[[Page 28019]]

for calculating and applying the MFP adjustment to determine the annual
update to the LTCH PPS standard Federal rate for FY 2013. (For details
on the development of the MFP, including our finalized methodology for
calculating and applying the MFP adjustment, we refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692).)
c. Proposed Market Basket Under the LTCH PPS for FY 2013
As discussed above in section VII.C. of this preamble, under the
authority of section 123 of the BBRA as amended by section 307(b) of
the BIPA, we are proposing to adopt a newly created FY 2009-based LTCH-
specific market basket for use under the LTCH PPS beginning in FY 2013
because we believe it appropriately reflects the cost structure of
LTCHs. The proposed FY 2009-based LTCH-specific market basket is based
solely on the Medicare cost report data submitted by LTCHs and,
therefore, specifically reflects the cost structures of only LTCHs.
d. Proposed Annual Market Basket Update for LTCHs for FY 2013
Consistent with our historical practice, we are proposing to
estimate the proposed market basket update and the proposed MFP
adjustment based on IGI's forecast using the most recent available
data. As discussed in section VII.C.3.e. of this preamble, based on
IGI's first quarter 2012 forecast, the proposed FY 2013 full market
basket estimate for the LTCH PPS using the proposed FY 2009-based LTCH-
specific market basket is 3.0 percent. Using our established
methodology for determining the MFP adjustment (discussed in section
VII.D.2.b. of this preamble), the current estimate of the proposed MFP
adjustment for FY 2013 based on IGI's first quarter 2012 forecast is
0.8 percent. Consistent with our historical practice of using the best
available data, we are proposing that if more recent data become
available to determine the market basket estimate or the MFP
adjustment, we would use such data for the final rule, if appropriate.
For FY 2013, section 1886(m)(3)(A)(i) of the Act requires that any
annual update to the standard Federal rate be reduced by the
productivity adjustment (``the MFP adjustment'') described in section
1886(b)(3)(B)(xi)(II) of the Act. Consistent with the statute, we are
proposing to reduce the full FY 2013 market basket update by the FY
2013 MFP adjustment. To determine the market basket update for LTCHs
for FY 2013, as reduced by the MFP adjustment, consistent with the
approach we established in the FY 2012 IPPS/LTCH PPS final rule (76 FR
51771), we are proposing to subtract the FY 2013 MFP adjustment from
the FY 2013 market basket update. Furthermore, sections
1886(m)(3)(A)(ii) and 1886(m)(4)(C) of the Act requires that any annual
update to the standard Federal rate for FY 2013 be reduced by the
``other adjustment'' described in paragraph (4), which is 0.1
percentage point for FY 2013. Therefore, following application of the
productivity adjustment, we are proposing to reduce the adjusted market
basket update (that is, the full market basket increase less the MFP
adjustment) by the ``other adjustment'' specified by sections
1886(m)(3)(A)(ii) and 1886(m)(4) of the Act.
In this proposed rule, in accordance with the statute, we are
proposing to reduce the proposed FY 2013 full market basket estimate of
3.0 percent (based on the first quarter 2012 forecast of the proposed
FY 2009-based LTCH-specific market basket) by the proposed FY 2013 MFP
adjustment (that is, the 10-year moving average of MFP for the period
ending FY 2013, as described in section VII.D.2.b. of the preamble of
this proposed rule) of 0.8 percentage point (based on IGI's first
quarter 2012 forecast). Following application of the proposed
productivity adjustment, the proposed adjusted market basket update of
2.2 percent (3.0 percent minus 0.8 percentage point) is then reduced by
0.1 percentage point, as required by sections 1886(m)(3)(A)(ii) and
1886(m)(4)(C) of the Act. Therefore, in this proposed rule, under the
authority of section 123 of the BBRA as amended by section 307(b) of
the BIPA, we are proposing to establish an annual market basket update
under the LTCH PPS for FY 2013 of 2.1 percent (that is, the most recent
estimate of the proposed LTCH PPS market basket update at this time of
3.0 percent less the proposed MFP adjustment of 0.8 percentage point
less the 0.1 percentage point required under section 1886(m)(4)(C) of
the Act). Accordingly, we are proposing to revise Sec. 412.523(c)(3)
by adding a new paragraph (ix), which would specify that the standard
Federal rate for FY 2013 is the standard Federal rate for the previous
LTCH PPS year updated by 2.1 percent, and as further adjusted, as
appropriate, as described in Sec. 412.523(d). In addition, proposed
Sec. 412.523(c)(3)(ix)(B) would specify that, with respect to
discharges occurring on or after October 1, 2012, and before December
29, 2012, payments are based on the standard Federal rate in proposed
Sec. 412.523(c)(3)(ix)(A) without regard to the one-time prospective
adjustment provided for under proposed Sec. 412.523(d)(3)(iii). As
stated above, consistent with our historical practice of using the most
recent available data, we are proposing that if more recent data become
available when we develop the final rule, we would use such data, if
appropriate, in determining the final market basket update under the
LTCH PPS for FY 2013. (We note that we are proposing to adjust the FY
2013 standard Federal rate by a one-time prospective adjustment under
proposed Sec. 412.523(d)(3) (discussed in section VII.E.4. of this
preamble) and a proposed area wage level budget neutrality factor in
accordance with Sec. 412.523(d)(4) (discussed in section V.B.5. of the
Addendum of this proposed rule).)
3. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located
in Alaska and Hawaii
Under Sec. 412.525(b), we established a cost-of-living adjustment
(COLA) for LTCHs located in Alaska and Hawaii to account for the higher
costs incurred in those States (67 FR 56022). Specifically, we apply a
COLA to payments to LTCHs located in Alaska and Hawaii by multiplying
the nonlabor-related portion of the standard Federal rate by the
applicable COLA factors established annually by CMS. Higher labor-
related costs for LTCHs located in Alaska and Hawaii are taken into
account in the adjustment for area wage levels.
Historically, we have used the most recent updated COLA factors
obtained from the U.S. Office of Personnel Management (OPM) Web site at
http://www.opm.gov/oca/cola/rates.asp to adjust the payments for LTCHs
in Alaska and Hawaii. Sections 1911 through 1919 of the Nonforeign Area
Retirement Equity Assurance Act, as contained in subtitle B of title
XIX of the National Defense Authorization Act (NDAA) for Fiscal Year
2010 (Pub. L. 111-84, October 28, 2009) transitions the Alaska and
Hawaii COLAs to locality pay. Under section 1914 of Public Law 111-84,
locality pay is being phased in over a 3-year period beginning in
January 2010, with COLA rates frozen as of the date of enactment,
October 28, 2009, and then proportionately reduced to reflect the
phase-in of locality. As we discussed in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51809), we did not believe it was appropriate to use
either the 2010 or 2011 reduced factors to adjust the nonlabor-related
portion of the standard Federal rate for LTCHs in Alaska and Hawaii for
Medicare payment purposes.

[[Page 28020]]

Therefore, we established in that same final rule that, for FY 2012, we
continued to use the same COLA factors (published by OPM) that we used
to adjust payments in FY 2011 (which were based on OPM's 2009 COLA
factors) to adjust the nonlabor-related portion of the standard Federal
rate for LTCHs located in Alaska and Hawaii.
We believe it was appropriate to use ``frozen'' COLA factors to
adjust payments in FY 2012 while we explored alternatives for updating
the COLA adjustment in the future because we believe those COLA factors
appropriately adjusted the nonlabor-related portion of the standard
Federal rate for LTCHs located in Alaska ad Hawaii, consistent with
Sec. 412.523(b) (76 FR 51809). In this proposed rule, under the
authority of section 123 of the BBRA, as amended by section 307(b) of
the BIPA, we are proposing to continue to use the same ``frozen'' COLA
factors used in FY 2012 for FY 2013 and to update the COLA factors for
Alaska and Hawaii, beginning in FY 2014, based on a comparison of the
growth in the consumer price indices (CPIs) for Anchorage, Alaska and
Honolulu, Hawaii relative to the growth in the CPI for the average U.S.
city as published by the Bureau of Labor Statistics (BLS).
Specifically, in FY 2014, under the authority of section 123 of the
BBRA, as amended by section 307(b) of the BIPA, we would update the
COLA factors published by OPM that we used to adjust payments in FY
2011 (which are based on OPM's 2009 COLA factors) as these are the last
COLA factors OPM published prior to transitioning from COLAs to
locality pay. Because the BLS publishes CPI data only for the cities of
Anchorage and Honolulu, we are proposing to use a comparison of the
relative growth in the overall CPI for those cities to update the COLA
adjustment factors for all areas in Alaska and Hawaii, respectively. We
believe that the relative price differences between these cities and
the United States are appropriate proxies for the relative price
differences of the ``other areas'' of Alaska and Hawaii.
The BLS publishes the CPI for All Items for Anchorage, Honolulu,
and for the average U.S. city. However, we are proposing to create
reweighted CPIs for each of the respective areas to reflect the
underlying composition of the IPPS market basket nonlabor-related
share. The current composition of the CPI for All Items for all the
respective areas is approximately 40 percent commodities and 60 percent
services. However, the IPPS nonlabor-related share is comprised of
approximately 60 percent commodities and 40 percent services.
Therefore, we are proposing to create reweighted indexes for Anchorage,
Honolulu, and the average U.S. city using the respective CPI
commodities index and CPI services index using the approximate 60/40
share obtained from the IPPS market basket. We believe that proposing
to use the underlying composition of the IPPS market basket nonlabor-
related share to reweighted CPIs for each of the respective areas is an
appropriate proxy for determining the COLA adjustments for LTCHs
because both LTCHs and IPPS hospitals are required to meet the same
certification criteria set forth in section 1861(e) of the Act to
participate as a hospital in the Medicare program and generally
experience similar nonlabor-related costs for providing inpatient
hospital services. We also note that the composition of the proposed
nonlabor-related share of the propose LTCH-specific market basket is
not significantly different from the approximate 60/40 share obtained
from the IPPS market basket.
We believe this proposed methodology is appropriate because we
would be able to continue updating COLA adjustments for hospitals
located in Alaska and Hawaii using the relative price differences as a
proxy for relative cost differences. We believe this is an appropriate
alternative methodology given the discontinuation of COLA factors from
OPM. We note that OPM's COLA factors were calculated with a statutorily
mandated cap of 25 percent, and since the inception of the LTCH PPS, we
have exercised our discretionary authority to adjust payments to LTCHs
located in Alaska and Hawaii by incorporating this cap. Consistent with
our existing policy, our proposed approach for FY 2014 would continue
to use such a cap, as our proposal is based on OPM's COLA factors
(updated by the proposed methodology described above). We note that
this proposal is consistent with the proposal we are making for IPPS
hospitals discussed in section II.B.2. of the Addendum to this proposed
rule.
Lastly, we are proposing to update the COLA factors using this
proposed methodology every 4 years (beginning in FY 2014), consistent
with the proposal for updating the COLA factors under the IPPS
discussed in section II.B.2. of the Addendum to this proposed rule.
Under the IPPS, we are proposing to update the COLA factors every 4
years (beginning of FY 2014) concurrently with the update to the labor-
related share of the IPPS market basket. The labor-related share of the
IPPS market basket currently is not scheduled to be updated until FY
2014. At the time of development of the FY 2014 proposed rule, we
expect to have CPI data available through 2012. Therefore, the proposed
FY 2014 COLA factors for Alaska and Hawaii would be based on the 2009
OPM COLA factors updated through 2012 by the comparison of the growth
in the CPIs for Anchorage, Alaska, and Honolulu, Hawaii, relative to
the growth in the CPI for the average U.S. city.
In this proposed rule, for FY 2013, under the broad authority
conferred upon the Secretary by section 123 of the BBRA, as amended by
section 307(b) of BIPA, to determine appropriate adjustments under the
LTCH PPS, we are proposing to use the same COLA factors used to adjust
payments in FY 2012 (which are based on OPM's 2009 COLA factors) by
multiplying the nonlabor-related portion of the standard Federal
payment rate by the proposed factors listed in the chart shown in
section V.C. of the Addendum to this proposed rule. We believe that
these proposed COLA factors would appropriately adjust the nonlabor-
related portion of the standard Federal rate in FY 2013 for LTCHs
located in Alaska and Hawaii, consistent with Sec. 412.523(b).

E. Expiration of Certain Payment Rules for LTCH Services and the
Moratorium on the Establishment of Certain Hospitals and Facilities and
the Increase in Number of Beds in LTCHs and LTCH Satellite Facilities

1. Background
Moratoria on the implementation of certain LTCH payment policies
and on the development of new LTCHs and LTCH satellite facilities and
on bed increases in existing LTCHs and LTCH satellite facilities
established under sections 114(c) and (d) of the MMSEA (Pub. L. 110-
173) as amended by section 4302 of the ARRA (Pub. L. 111-5) and further
amended by sections 3106 and 10312 of the Affordable Care Act are set
to expire during CY 2012, under current law.
The moratoria established by these provisions delayed the full
implementation of the following policies for 5 years beginning at
various times in CY 2007:
The full application of the ``25-percent payment
adjustment threshold'' to certain LTCHs, including hospitals-within-
hospitals (HwHs) and LTCH satellite facilities for cost reporting
periods beginning on or after July 1, 2007, and before July 1, 2012, or
cost reporting periods beginning on or after October 1, 2007, and
before October 1,

[[Page 28021]]

2012, as applicable under the regulations at Sec. Sec. 412.534 and
412.536.
The inclusion of an ``IPPS comparable'' option for payment
determinations under the short stay outlier (SSO) adjustment at Sec.
412.529 of the regulations for LTCH discharges occurring on or after
December 29, 2007, but prior to December 29, 2012.
The application of any one-time prospective adjustment to
the LTCH PPS standard Federal rate provided for in Sec. 412.523(d)(3)
of the regulations from December 29, 2007, until December 29, 2012.
In general, the development of new LTCHs and LTCH
satellite facilities, or increases in the number of beds in existing
LTCHs and LTCH satellite facilities from December 29, 2007, and ending
December 28, 2012, unless one of the specified exceptions to the
particular moratorium was met. (We refer readers to the May 22, 2008
interim final rule with comment period for the MMSEA (73 FR 29699,
29704 through 29707, 29709), the interim final rule for the ARRA (74 FR
43990 through 43992, and 43997), and the finalizing of the ACA changes
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50399 through 50400, and
50416) for a complete description of this moratorium.)
In this proposed rule, we are proposing to extend the existing
delay of the full implementation of the 25-percent payment adjustment
threshold for an additional year; that is, for cost reporting periods
beginning on or after October 1, 2012, and before October 1, 2013, as
applicable. We also are proposing to make a one-time prospective
adjustment to the standard Federal rate under Sec. 412.523(d)(3) of
the regulations. We are proposing to phase in this proposed one-time
prospective adjustment to the standard Federal rate over a 3-year
period, beginning in FY 2013; however, consistent with the statute,
this proposed adjustment would not apply to payments made for
discharges occurring on or before December 28, 2012. We are not
proposing to make any changes to the SSO policy as it currently exists
in the regulations at Sec. 412.529. Accordingly, consistent with the
existing regulations at Sec. 412.529(c)(3), for SSO discharges
occurring on or after December 29, 2012, the ``IPPS comparable'' option
at Sec. 412.529(c)(3)(i)(D) would apply to payment determinations as
appropriate for certain short stay cases. The moratoria on the
development of new LTCHs or LTCH satellite facilities and on an
increase in the number of beds in existing LTCHs or LTCH satellite
facilities mandated by section 114(d) of the MMSEA, as amended by
section 4302(b) of the ARRA and further amended by section 3106 and
10312 of the Affordable Care Act, are set to expire on December 29,
2012, under current law. As discussed later in this section, we are
supportive of a statutory extension of these moratoria as we anticipate
potential payment policy changes to the LTCH PPS as a result of CMS'
research initiatives.
2. The 25-Percent Payment Adjustment Threshold
We are proposing to provide a 1-year extension (that is, for cost
reporting periods beginning on or after October 1, 2012, and before
October 1, 2013) on the moratorium on the application of the 25-percent
payment adjustment threshold policy as provided by section 144(c) of
the MMSEA, as amended by section 4302(a) of the ARRA and sections
3106(c) and 10312(a) of the Affordable Care Act. Therefore, we are
proposing to revise Sec. Sec. 412.534 and 412.536 of the regulations
to reflect this proposed extension. Specifically, we are proposing to
change ``2012'' to ``2013'' in Sec. Sec. 412.534(c)(1)(i) and (ii),
(c)(2)(1), (d)(1) and (2), and (e)(1) and (2) to incorporate this
proposed change. In addition, we are proposing to revise the headings
at Sec. Sec. 412.534(c)(3), (d)(3), and (e)(3), and make conforming
changes to (h)(4) and (5) and Sec. 412.536(a)(2) to reflect this
proposed 1-year extension. This proposed 1-year extension would
continue the existing statutory exemption of grandfathered HwHs and
freestanding LTCHs from the 25-percent payment adjustment threshold and
the continued statutory increase in the percentage threshold to 50 or
75 percent, as applicable, for those LTCHs and LTCH satellite
facilities presently so affected. For a detailed description of the
moratorium on the ``25-percent threshold'' policy, we refer readers to
the May 22, 2008 interim final rule with comment period (73 FR 29699
through 29704) and the interim final rule with comment period for the
ARRA (74 FR 43990 through 43992).
Although we are proposing to extend the moratorium relating to the
application of the 25-percent payment adjustment threshold policy for
cost reporting period beginning on or after October 1, 2012, and before
October 1, 2013, this moratorium will expire for certain classes of
LTCHs prior to the effective date of the proposed extension.
Specifically, under existing regulations, the moratoria on the ``25-
percent threshold'' payment adjustment policies set forth in Sec. Sec.
412.534(h) and 412.536 for a LTCH described in Sec. 412.23(e)(2)(i)
that meets the criteria in Sec. 412.22(f) and a satellite facility of
a LTCH described under Sec. 412.22(h)(3)(i) (that is, a grandfathered
HwH and a grandfathered LTCH satellite facility, respectively), and the
moratoria on the ``25 percent threshold'' policies set forth in Sec.
412.536 for a ``freestanding'' LTCH as described in Sec. 412.23(e)(5)
will expire beginning with discharges occurring in cost reporting
periods beginning on or after July 1, 2012. In addition, under existing
regulations, the moratorium on the ``25-percent threshold'' policies
set forth in Sec. Sec. 412.534(h) and 412.536 expire beginning with
discharges occurring in cost reporting periods beginning on or after
July 1, 2012, for a LTCH or a LTCH satellite facility that, as of
December 29, 2007, was co-located with an entity that is a provider-
based, off-campus location of a subsection (d) hospital which did not
provide services payable under section 1886(d) of the Act at the off-
campus location. Therefore, under our proposed policy, there will be a
period during which the above-described LTCHs and LTCH satellite
facilities must comply with Sec. Sec. 412.534 and 412.536 before
becoming subject to the moratoria again. The period during which the
above-described LTCHs and LTCH satellite facilities would comply with
Sec. Sec. 412.534 and 412.536 would be for discharges occurring in
cost reporting periods beginning on or after July 1, 2012, and before
July 1, 2013. Then, for discharges occurring in cost reporting periods
beginning on or after July 1, 2013, and before July 1, 2014, the above-
described LTCHs and LTCH satellite facilities would be under the
proposed extension of the moratorium. We note that, if our proposal is
finalized, the proposed policy would be effective prospectively,
consistent with the prospective nature of the FY 2013 rulemaking.
We are proposing a 1-year extension in the delay of the full
application of the 25-percent payment adjustment threshold policy
because we believe, based on recent research as explained in greater
detail below, that we could be in a position within the near future to
propose revisions to our payment policies that could render the 25-
percent payment adjustment threshold policy unnecessary. In light of
this potential result, we believe it is prudent to avoid requiring
LTCHs (or CMS payment processing systems) to retool in order to
implement the full reinstatement of the policy for what could be a
relatively short period of time.
We originally instituted the 25-percent payment adjustment
threshold policy for co-located LTCHs and LTCH satellite facilities in
the FY 2005 IPPS

[[Page 28022]]

final rule (69 FR 49191 through 49214), and expanded it to all
``subclause I'' LTCHs in RY 2008 (72 FR 26919 through 26944) because
our data and medical reviews revealed a strong pattern of correlations
between growing numbers of patient discharges from IPPS hospitals to
onsite or neighboring LTCHs after shorter lengths of stay at the IPPS
hospitals and significant and increasing costs to the Medicare program.
Our concern was that such patient shifting by providers could be
financially, rather than clinically, motivated and that many LTCHs, in
effect, were functioning as long-stay units of IPPS hospitals, a
configuration not permitted under the governing statute. Section
1886(d)(1)(B) of the Act provides for an exclusion of LTCHs from the
IPPS for acute care hospitals. While the statute provides for an
exclusion for psychiatric units and rehabilitation units, it does not
provide for an exclusion for long-term care units. Our goal was to
``challenge'' this otherwise unrestricted flow of patients from one
provider to the other which we believed was resulting in two Medicare
payments, one to the IPPS hospital and one to the LTCH, for what often
could be understood as one episode of care. The policy was aimed at
altering both the financial benefits accruing to the providers and the
resulting increasing costs to the Medicare program by establishing a
percentage threshold for patient shifting beyond which a payment
adjustment would be applied to the LTCH discharge. The policy did not
include patients who had been a high-cost outlier case at the IPPS
hospital prior to discharge to the LTCH in the calculation of the
percentage threshold. The attainment of high-cost outlier status serves
as a ``benchmark,'' which we believe indicates that there has not been
a premature discharge from the IPPS hospital.
In addition, in several reports to the Congress (June 2003, Chapter
5; June 2004, Chapter 5; and March 2011, Chapter 10), MedPAC
recommended the development of patient-level and facility-level
criteria for LTCHs. It was MedPAC's belief that developing facility-
level criteria would standardize the level and delivery of services
provided by all LTCHs and that applying patient-level criteria would
limit the type of beneficiaries admitted. The criteria would target the
particular subgroup of beneficiaries who could derive the most clinical
benefit from the long-stay and specialized hospital-level treatment at
LTCHs while justifying the high Medicare payments in light of concerns
about cost effectiveness and the program's commitment to value-based
purchasing decisions (MedPAC's Report to Congress, June 2004, p. 128
through 131).
MedPAC's March 2011 Report to Congress (page 238) included the
following statement:

Previous research by the Commission found that the type of
patients long-term care hospitals (LTCHs) treat are often cared for
in alternative settings, such as acute care hospitals and skilled
nursing facilities (SNFs) (Medicare Payment Advisory Commission
2004). The Commission found that Medicare pays more for patients
using LTCHs than for similar patients using other settings; however
the payment difference narrowed considerably if LTCH care was
targeted to the most severely ill patients. The Commission has
therefore argued that, while LTCHs appear to have value for very
sick patients, they are too expensive to be used for patients who
could be treated in less intensive settings.

Since MedPAC's 2004 recommendations for the development of patient-
level and facility-level criteria for LTCHs, CMS has awarded research
contracts for the purposes of exploring the feasibility of such
criteria as a basis for ``ensuring that appropriate patients are
treated in long-term care hospitals'' (MedPAC's March 2011 Report to
Congress, p. 238). Specifically, in response to MedPAC's 2004
recommendation for the development of patient-level and facility-level
criteria, CMS awarded research contracts to Research Triangle
International, Inc. (RTI). Summaries of work done by RTI have been
published in rules issued in the Federal Register for FY 2007 (71 FR
27884 through 27885), for FY 2008 (72 FR 4884 through 4886), and FY
2009 (73 FR 5374 through 5377). Reports on the research are posted on
the Web site at: http://www.cms.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage. As these researchers discovered, developing
LTCH-specific patient-level criteria has been extremely difficult. This
is because patients fitting the profile of LTCH patients (clinically
complex, with multiple acute and chronic conditions) are far more
likely to be treated in IPPS hospitals nationwide than they are in
LTCHs, with over 3,500 general acute care hospitals as compared to
approximately 440 LTCHs and with the number of LTCHs highly
concentrated in some areas and nonexistent in others.
More recently, during the last 2 years, CMS has been engaged with
contractors in two projects that appear to be moving toward addressing
the concerns and perhaps realizing the goals that MedPAC articulated in
its recommendations, quoted above. We believe that, within the near
future, we could potentially be in a position to recommend revisions to
our payment policies that could render the 25-percent payment
adjustment threshold policy unnecessary. We are also aware that the
LTCH industry has requested legislators to, among other things,
forestall the reinstatement of the full implementation of the 25-
percent payment adjustment threshold policy at this time. In
acknowledgement of hopeful research outcomes as well as concerns raised
by the industry, we are proposing a 1-year extension (that is, for cost
reporting periods beginning on or after October 1, 2012, and before
October 1, 2013) of the existing moratoria on the full application of
the 25-percent payment adjustment threshold policy as provided by
section 144(c) of the MMSEA as amended by section 4302(a) of the ARRA
and section 3106(c) and 10312(a) of the Affordable Care Act.
3. The ``IPPS Comparable Per Diem Amount'' Payment Option for Very
Short Stays Under the Short-Stay Outlier (SSO) Policy
Prior to the enactment of section 114(c)(3) of the MMSEA, for LTCH
short stay outlier (SSO) cases with a covered length of stay that was
equal to or less than one standard deviation from the geometric average
length of stay for the same MS-DRG under the IPPS (that is, the ``IPPS
comparable threshold''), the SSO payment adjustment determination
included an additional option, the ``IPPS comparable amount per diem
amount'' (72 FR 26906). This policy was implemented in our regulations
at Sec. 412.529(c)(3)(i) in the RY 2008 LTCH PPS final rule (72 FR
26904 through 26908).
Section 114(c)(3) of the MMSEA as amended by section 3106(a) of the
Affordable Care Act provided a 5-year moratorium from the application
of the ``IPPS comparable amount'' option under the SSO payment
adjustment, which is scheduled to expire for discharges beginning on or
after December 29, 2012 (75 FR 50399 through 50400). With the
expiration of the moratorium, payment for an SSO discharge occurring on
or after December 29, 2012, the Medicare payment will be based on the
least of the following:
100 percent of the estimated cost of the case.
120 percent of the MS-LTC-DRG specific per diem amount
multiplied by the covered length of stay of the particular case.
The full MS-LTC-DRG per diem amount.

[[Page 28023]]

Comparing the covered length of stay for as an SSO case
and the ``IPPS comparable threshold,'' one of the following:
1. The blend of the 120 percent of the MS-LTC-DRG specific per diem
amount (specified in Sec. 412.529(d)(1)) and an amount comparable to
the IPPS per diem amount (specified in Sec. 412.529(d)(4)), for cases
where the covered length of stay for an SSO case is greater than the
``IPPS comparable threshold'' (as specified under Sec.
412.529(c)(3)(ii)).
2. An amount comparable to the IPPS comparable per diem amount
(specified in Sec. 412.529(d)(4)), if the covered length of stay for
an SSO case is equal to or less than one standard deviation from the
geometric average length of stay for the same MS-DRG under the IPPS
(the ``IPPS comparable threshold''), as specified under Sec.
412.529(d)(4).
For a comprehensive discussion of the SSO policy, including the
payment for very short stays under the SSO policy, we refer readers to
the May 6, 2008 interim final rule with comment period (73 FR 24874
through 24881).
The proposed FY 2013 ``IPPS comparable thresholds'' (that is, one
standard deviation from the geometric average length of stay for the
same MS-DRG under the IPPS used in determining SSO payments for
discharges occurring on or after December 29, 2012, under Sec.
412.529(c)(3) of the regulations are provided in Table 11, which is
listed in section VI. of the Addendum to this proposed rule and
available via the Internet.
Technical change. With the expiration of the moratorium on the
application of the ``IPPS comparable per diem amount'' option at Sec.
412.529(c)(3)(i)(D) to the determination of the payment adjustment
under the SSO policy, described above, we are proposing to make a
technical change to the regulation text at Sec. 412.529(d)(4)(i)(C) in
order to clarify the application of our policy. Specifically, at Sec.
412.529(d)(4)(i)(C), we are proposing to remove the following
introductory phrase that appears at the beginning of the paragraph:
``For purposes of the blend amount described in paragraph (c)(2)(iv) of
this section,'' so that the provision of the paragraph is not limited
only to the ``blend amount'' option under the SSO policy at Sec.
412.529(c)(2)(iv), but is also applicable to the ``IPPS comparable per
diem amount'' option at Sec. 412.529(c)(3)(i)(D). We are proposing to
clarify this policy by revising the language of paragraph (d)(4)(i)(C)
to read as follows:
``(C) The payment amount specified under paragraph (d)(4)(i)(B) of
this section may not exceed the full amount comparable to what would
otherwise be paid under the hospital inpatient prospective payment
system determined under paragraph (d)(4)(i)(A) of this section.''
We are proposing this technical correction in order to clarify
that, payment for a case based solely on the ``IPPS comparable per diem
amount'' described at Sec. 412.529(d)(4) is calculated in the same way
that it is calculated when payment for a case will be based on the
``blend amount'' (under Sec. 412.529(c)(2)(iv)) of the ``IPPS
comparable per diem amount'' and the ``120 percent of the LTC-DRG
specific per diem payment amount.'' When we finalized the ``IPPS
comparable per diem amount'' option to the SSO payment adjustment in
the RY 2008 LTCH PPS final rule we stated in the preamble that ``the
IPPS comparable per diem amount [was] capped at the full IPPS
comparable amount that is used under the blend option of the current
SSO policy * * *'' (72 FR 26907). However, we neglected, at that time,
to revise the regulation text. Therefore, we are proposing to clarify
our regulations at Sec. 412.52(d)(4)(i)(C) to reflect existing policy
that the ``IPPS comparable per diem amount'' is calculated as a per
diem that is capped at an amount comparable to what would have been a
full payment under the inpatient prospective payment system, such that
an SSO payment made under the ``IPPS comparable per diem amount''
option may also not exceed the full amount comparable to what would
otherwise be paid under the inpatient prospective payment system.
4. Proposed One-Time Prospective Adjustment to the Standard Federal
Rate Under Sec. 412.523(d)(3)
In the August 30, 2002 LTCH PPS final rule (67 FR 55954), we set
forth regulations implementing the LTCH PPS, based upon the broad
authority granted to the Secretary, under section 123 of the BBRA (as
amended by section 307(b) of the BIPA). Section 123(a)(1) of the BBRA
required that the system ``maintain budget neutrality.'' The statute
requires the LTCH PPS to be budget neutral in FY 2003, so that
estimated aggregate payments under the LTCH PPS for FY 2003 would be
equal to the estimated aggregate payments that would have been made if
the LTCH PPS were not implemented for FY 2003. The methodology for
determining the LTCH PPS standard Federal rate for FY 2003 that would
``maintain budget neutrality'' is described in considerable detail in
the August 30, 2002 final rule (67 FR 56027 through 56037). Our
methodology for estimating payments for the purposes of budget
neutrality calculations used the best available data, and necessarily
reflected several assumptions (for example, costs, inflation factors
and intensity of services provided) in estimating aggregate payments
that would be made if the LTCH PPS was not implemented. In performing
our budget neutrality calculations, we took into account the statute's
requirement that certain statutory provisions that affect the level of
payments to LTCHs in years prior to the implementation of the LTCH PPS
shall not be taken into account in the development and implementation
of the LTCH PPS. Specifically, section 307(a)(2) of the BIPA requires
that the increases to the target amounts and the increases to the cap
on the target amounts for LTCHs provided for by section 307(a)(1) of
the BIPA (as set forth in section 1886(b)(3)(J) of the Act) and the
enhanced continuous improvement bonus (CIB) payments for LTCHs provided
for by section 122 of the BBRA (as set forth in section 1886(b)(2)(E)
of the Act) are not to be taken into account in the development and
implementation of the LTCH PPS.
In the August 30, 2002 final rule, we also stated our intentions to
monitor LTCH PPS payment data to evaluate whether later data varied
significantly from the data available at the time of the original
budget neutrality calculations (for example, data related to inflation
factors, intensity of services provided, or behavioral response to the
implementation of the LTCH PPS). To the extent the later data
significantly differ from the data employed in the original
calculations, the aggregate amount of payments during FY 2003 based on
later data may be higher or lower than the estimates upon which the
budget neutrality calculations were based. Therefore, in that same
final rule, under the broad authority conferred upon the Secretary in
developing the LTCH PPS, including the authority for establishing
appropriate adjustments, provided by section 123(a)(1) of the BBRA, as
amended by section 307(b) of BIPA, we provided in Sec. 412.523(d)(3)
of the regulations for the possibility of making a one-time prospective
adjustment to the LTCH PPS rates by a deadline of October 1, 2006, so
that the effect of any significant difference between actual payments
and estimated payments for the first year of the LTCH PPS would not be
perpetuated in the LTCH PPS rates for future years. This deadline was
revised to July 1, 2008, in the RY 2007 LTCH PPS final rule

[[Page 28024]]

because sufficient time had not elapsed since the start of the LTCH PPS
for new data to be generated that would have enabled us to conduct a
comprehensive reevaluation of our budget neutrality calculations (71 FR
27842 through 27844). Therefore, we did not implement the one-time
prospective adjustment provided under Sec. 412.523(d)(3) at that time;
however, we stated that we would continue to collect and interpret new
data as it became available in order to determine whether we should
propose such an adjustment in the future. Furthermore, we revised Sec.
412.523(d)(3) by changing the original October 1, 2006 deadline to July
1, 2008, to postpone the prospective one-time adjustment due to the
time lag in the availability of Medicare data upon which a proposed
adjustment would be based, noting that there is a lag time between the
submission of claims data and cost report data, and the availability of
that data in the MedPAR files and HCRIS, respectively. We also
explained that we believed that postponing the deadline of the
prospective one-time prospective adjustment to the LTCH PPS rates
provided for in Sec. 412.523(d)(3) to July 1, 2008, would allow our
decisions regarding a possible adjustment to be based on more complete
and up-to-date data (71 FR 27842 through 27845).
Section 114(c)(4) of the Medicare, Medicaid, and SCHIP Extension
Act of 2007 (Pub. L. 110-173) (MMSEA) provides that the ``Secretary
shall not, for the 3-year period beginning on the date of the enactment
of this Act, make the one-time prospective adjustment to long-term care
hospital prospective payment rates provided for in section
412.523(d)(3) of title 42, Code of Federal Regulations, or any similar
provision.'' That provision delayed the effective date of any one-time
prospective adjustment until no earlier than December 29, 2010.
Accordingly, we revised Sec. 412.523(d)(3) of the regulations to
conform with this requirement (73 FR 26801 through 26804 and 26839).
Then, section 3106 of the Affordable Care Act amended section 114(c) of
the MMSEA by specifying an additional 2-year delay in the one-time
prospective adjustment to the standard Federal rate at Sec.
412.523(d)(3). Thus, under current law the Secretary is precluded from
making the one-time adjustment to standard Federal rate until December
29, 2012. Therefore, we revised Sec. 412.523(d)(3) to conform with
this requirement (75 FR 50399 and 50416).
Prior to the statutory delay in the application of any one-time
prospective adjustment required when the MMSEA was enacted on December
29, 2007, we had developed a methodology for evaluating whether to
propose a one-time prospective adjustment under Sec. 412.523(d)(3) of
the regulations. In order to inform the public of our thinking, and to
stimulate comments for our consideration during the statutory delay in
implementing any one-time prospective adjustment, we discussed our
analysis and its results in the RY 2009 LTCH PPS proposed and final
rules (73 FR 5353 through 5360 and 26800 through 26804, respectively).
Evaluating the appropriateness of the possible one-time prospective
adjustment under Sec. 412.523(d)(3) requires a thorough review of the
relevant LTCH data (as described below). As we discussed in the RY 2009
LTCH PPS proposed and final rules, we conducted a thorough review of
the relevant data, that is, cost data from FY 2002, representing the
final year LTCHs were paid under the TEFRA payment system. The cost
report data for FY 2002 is comprised of a high proportion of settled
and audited cost reports submitted by LTCHs. We also have payment data
on the first year of the LTCH PPS (that is, FY 2003). On the basis of
our review of these data sources, we discussed a potential methodology
for determining whether the one-time prospective adjustment provided
for under Sec. 412.523(d)(3) of the regulations should be proposed and
the computation an adjustment, if appropriate, based on that potential
methodology. We also discussed that under that potential methodology,
our analysis indicated that a permanent adjustment factor of 0.9625 to
the LTCH PPS standard Federal rate could be warranted. Consistent with
the requirements of section 114(c)(4) of the MMSEA, which delayed the
implementation of such an adjustment, we did not propose any one-time
prospective adjustment to the standard Federal rate. However, we
presented our analysis and welcomed public comment to inform the public
of our analysis if and when we decide to propose (and ultimately
finalize) such an adjustment under Sec. 412.523(d)(3).
As we discussed in the RY 2009 LTCH PPS final rule (73 FR 26803),
our policy objective in providing for this one-time prospective
adjustment has always been to ensure that computations based on the
earlier, necessarily limited (but at that time best available) data
available at the inception of the LTCH PPS would not be built
permanently into the rates if data available at a later date could
provide more accurate results. When we established the FY 2003 standard
Federal rate in a budget neutral manner, we used the most recent LTCH
cost data available at that time (that is, FY 1999 data), and trended
that data forward to estimate what Medicare would have paid to LTCHs in
FY 2003 under the TEFRA payment system if the PPS were not implemented
for FY 2003. As we discussed in the RY 2009 LTCH PPS final rule (73 FR
26803), after a thorough evaluation of the currently available data in
light of this stated policy objective, we believe that the most
appropriate methodology for evaluating an adjustment to the original
budget neutrality adjustment would be to compare estimated payments in
the first year under the LTCH PPS to what estimated payments would have
been under the prior TEFRA payment system for that year based on the
best available data. Accordingly, in that same final rule, we revised
Sec. 412.523(d)(3) to provide for the possibility of making a one-time
prospective adjustment to LTCH PPS rates so that ``the effect of any
significant difference between the data used in the original
computations of budget neutrality for FY 2003 and more recent data to
determine budget neutrality for FY 2003 is not perpetuated in the
prospective payment rates for future years.''
The regulations at Sec. 412.523(d)(3) provide that the Secretary
may make a one-time prospective adjustment to the LTCH PPS rates in
order to ensure that any ``significant'' difference is not perpetuated
in the LTCH PPS rates for future years. The regulation does not
specifically define what constitutes a significant difference for this
purpose. In this proposed rule, in evaluating whether a one-time
prospective adjustment under Sec. 412.523(d)(3) is warranted, we are
proposing to consider as ``significant'' any difference greater than or
equal to a 0.25 percentage point difference between the original budget
neutrality calculations and budget neutrality calculations based on the
more recent data now available. As we discussed in the RY 2009 LTCH PPS
final rule (73 FR 26804), we believe this proposed threshold would
avoid making an adjustment to account for very minor deviations between
earlier and later estimates of budget neutrality. It would also be
consistent with thresholds that we employ for similar purposes in other
prospective payment systems. For example, under the capital IPPS, we
make a forecast error correction in the framework used to update the
capital Federal rate if a previous forecast of input prices varies by
at least a 0.25 percentage point from actual input price changes (72 FR
47425). We do not

[[Page 28025]]

believe that we should treat differences greater than or equal to 0.25
percent as not ``significant,'' since the effect of any difference
would be magnified as the rates are updated each year.
In order to determine whether a one-time prospective adjustment
would be warranted, as we discussed in the RY 2009 LTCH PPS proposed
and final rules, we evaluated several issues regarding the data to use
for this purpose. These issues and our proposals related to these
issues are discussed below.
As noted previously, as we considered the appropriateness of a one-
time prospective adjustment to the standard Federal rate, it is
necessary to estimate both aggregate payments under the LTCH PPS for FY
2003 and the estimated aggregate payments that would have been made
under the TEFRA system in FY 2003 if the LTCH PPS were not implemented.
While it is possible to determine actual TEFRA payments to LTCHs for FY
2002, the last year of payment under that methodology, it is necessary
to estimate what TEFRA payments would have been in FY 2003 if the new
LTCH PPS had not been implemented. In developing our proposed
methodology for evaluating a one-time prospective adjustment, we
considered whether we should use actual FY 2003 costs to calculate
estimated TEFRA payments for FY 2003 or use costs for FY 2002 trended
forward to FY 2003 as the basis for the calculation. As we discussed in
the RY 2009 LTCH PPS final rule (73 FR 26802), basing the estimate on
actual FY 2003 costs would have the considerable advantage of avoiding
the need to inflate FY 2002 costs to FY 2003 costs. However, there is
also a potentially serious disadvantage to using actual FY 2003 costs.
Because FY 2003 was the first year of payment under the LTCH PPS, the
cost experience of LTCHs in that year would reflect their response to
the incentives provided by the new payment system, instead of
reflecting behavior under the reasonable cost payment system. Indeed,
implementation of an LTCH PPS should directly affect the behavior of
LTCHs, and, therefore, the level of costs in LTCHs. One of the
incentives of a PPS is to improve efficiency in the delivery of care,
which generally results in decreased cost per discharge. For this
reason, using FY 2003 costs directly could be a poor basis for
estimating payments that ``would have been made if the LTCH PPS were
not implemented.'' On balance, however, we believe that trending
forward for 1 year the costs incurred under the last year of the TEFRA
payment system poses a smaller prospect for distortion than using costs
incurred during the subsequent year, when the incentives faced by LTCHs
to reduce costs could have had a significant effect. We also note that
some LTCH stakeholders have expressed concern that using FY 2003 costs
directly would provide a poor basis upon which to estimate payments
that ``would have been made if the LTCH PPS were not implemented'' for
precisely the reasons discussed above. Therefore, we believe that
basing the estimate of FY 2003 TEFRA payments on FY 2002 costs trended
forward should satisfy these concerns.
In this proposed rule, under the broad authority conferred upon the
Secretary by section 123 of the BBRA as amended by section 307(b) of
BIPA, in evaluating the appropriateness of the possible one-time
prospective adjustment under Sec. 412.523(d)(3) of the regulations, we
are proposing to base our calculation of the estimated aggregate
payments that would have been made if the LTCH PPS were not implemented
(that is, estimated FY 2003 TEFRA payments) on FY 2002 costs trended
forward for the reasons discussed above. Specifically, under our
proposed methodology, we trended forward the most recent available LTCH
FY 2002 costs to FY 2003 using the excluded hospital market basket,
because we believe these data best reflect the price changes in
hospital inpatient costs realized by LTCHs from FY 2002 to FY 2003. We
believe using the excluded hospital market basket to update FY 2002
reasonable cost-based (TEFRA) payments in order to estimate FY 2003
TEFRA payments is appropriate because the TEFRA payment system under
which LTCHs were paid prior to the implementation of the LTCH PPS
utilized the excluded hospital market basket to update the hospital-
specific limits on payment for operating costs of LTCHs. In addition,
we used the excluded hospital market basket to update the inpatient
hospital operating and capital costs of LTCHs when we developed the
initial LTCH PPS standard Federal rate for FY 2003 (67 FR 56029 through
56031). We believe that the LTCH cost report data for FY 2002 currently
available is appropriate to use for this purpose because, as noted
above, it is comprised of settled and audited cost reports submitted by
LTCHs. (We note that this is the same methodology for evaluating the
appropriateness of the possible one-time prospective adjustment under
Sec. 412.523(d)(3) that we presented in the RY 2009 LTCH PPS proposed
and final rules (73 FR 5356 and 26802, respectively).)
As discussed above, to determine whether a one-time prospective
adjustment under Sec. 412.523(d)(3) may be warranted, we believe that
an estimate of the payments that would have been made in FY 2003 under
the TEFRA methodology should be compared to estimated payments under
the new LTCH PPS in FY 2003. We explained in the RY 2009 LTCH PPS final
rule (73 FR 26802) that the most direct way to determine payments under
the new LTCH PPS is simply to aggregate the actual payments calculated
under the LTCH PPS methodology for the discharges that occurred during
the first year of the LTCH PPS (FY 2003). However, that approach raises
an issue of consistency since the discharges for which Medicare
payments were made under the LTCH PPS during FY 2003 are not the same
as the discharges for which costs were incurred during the last year of
payment under the TEFRA methodology, FY 2002. For these reasons
discussed above, we believe that the best way to estimate the TEFRA
payments that would have been made to LTCHs during FY 2003 is to use
inflated FY 2002 costs as a proxy for FY 2003 costs. Comparing actual
FY 2003 LTCH PPS payments to FY 2003 TEFRA payments estimated on the
basis of FY 2002 discharges would amount to a comparison between
payments related to two different sets of discharges, potentially
skewing the results. Therefore, for the purpose of consistency, rather
than comparing TEFRA payments based on FY 2002 costs updated to FY
2003, to aggregate LTCH PPS payments for discharges that actually
occurred in FY 2003, it would be preferable to compare estimated TEFRA
payments based on updated FY 2002 costs to the estimated payments that
would have been made under LTCH PPS methodology in FY 2003 for those
same FY 2002 discharges.
In this proposed rule, under the broad authority conferred upon the
Secretary by section 123 of the BBRA as amended by section 307(b) of
BIPA, in evaluating the appropriateness of the possible one-time
prospective adjustment under Sec. 412.523(d)(3) of the regulations, we
are proposing to base our estimate of FY 2003 LTCH PPS payments on the
same set of discharges (from FY 2002) which are the basis for the
estimate of what would have been paid in FY 2003 under the reasonable
cost-based (TEFRA) payment system. Specifically we are proposing to
compare--
Estimated aggregate FY 2003 TEFRA payments calculated on
the basis of FY 2002 costs updated to FY 2003; to

[[Page 28026]]

Estimated aggregate payments that would have been made in
FY 2003 under the LTCH PPS methodology, by applying the FY 2003 LTCH
payment rules to the discharges that occurred in FY 2002.
We believe that this approach would ensure that we are comparing
the estimated FY 2003 TEFRA payments, which are based on updated costs
incurred for FY 2002 discharges, to the estimated PPS payments that
would have been made for those same FY 2002 discharges under the new
LTCH PPS payment methodology. (We note that this is the same
methodology for evaluating the appropriateness of the possible one-time
prospective adjustment under Sec. 412.523(d)(3) of the regulations
that we presented in the RY 2009 LTCH PPS proposed and final rules (73
FR 5356 and 73 FR 26802, respectively).)
Under our proposal to use FY 2002 LTCH costs as a basis for
estimating FY 2003 LTCH TEFRA payments in evaluating whether to propose
a one-time prospective adjustment under Sec. 412.523(d)(3), we are
proposing to update LTCHs' FY 2002 costs for inflation to FY 2003 by
our Office of the Actuary's current estimate of the actual increase in
the excluded hospital market basket from FY 2002 to FY 2003 of 4.2
percent. This updated amount would serve as the proxy for actual FY
2003 costs under the TEFRA payment system in the proposed budget
neutrality computation for purposes of the one-time prospective
adjustment at Sec. 412.523(d)(3). We note that when estimating
reasonable cost-based payments under the TEFRA payment system, under
our proposed methodology we updated LTCHs' TEFRA target amounts from FY
2002 to FY 2003 using the forecasted market basket percentage increase
of 3.5 percent, as discussed in greater detail below. This approach
maintains consistency with the approach taken in the FY 2003 IPPS final
rule in which we established an applicable rate-of-increase percentage
to update TEFRA target amounts from FY 2002 to FY 2003 of 3.5 percent
(67 FR 50289). This increase was based on our Office of the Actuary's
forecasted increase in the excluded hospital market basket for FY 2003,
using the best available data at that time. Based on more recent data,
our Office of the Actuary now estimates the actual increase in the
excluded hospital market based from FY 2002 to FY 2003 is 4.2 percent
(as stated above). We believe it is appropriate to propose to use the
current estimate of the actual increase in the excluded hospital market
basket based from FY 2002 to FY 2003 (4.2 percent) to update LTCHs' FY
2002 costs for inflation to FY 2003 because this reflects the most
recent estimate of increases in the prices of goods and services
realized by LTCHs when providing inpatient hospital services.
Our proposed methodology to estimate FY 2003 LTCH payments under
the TEFRA payment system is similar in concept to the methodology we
used to estimate FY 2003 LTCH total payments under the TEFRA payment
system when we determined the initial standard Federal rate in the
August 30, 2002 final rule (67 FR 56030 through 56033). We note that
our proposed methodology for estimating FY 2003 LTCH total payments
under the TEFRA payment system using FY 2002 cost data for the purposes
of the one-time prospective adjustment at Sec. 412.523(d)(3), includes
modifications to the methodology we used to estimate FY 2003 LTCH total
payments under the TEFRA system when we implemented the LTCH PPS
because we are using data from a later period (FY 2002 as compared to
FYs 1998 and 1999), as discussed in greater detail below. In general,
we are proposing to estimate total LTCH payments under the TEFRA
payment system in FY 2003 using the following steps:
Estimate each LTCH's payment per discharge for inpatient
operating costs under the TEFRA payment system for FY 2003, including
continuous bonus improvement payments (proposed step 1);
Estimate each LTCH's payment per discharge for capital-
related costs for FY 2003 (proposed step 2); and
Sum each LTCH's estimated operating and capital payment
per case to determine its estimated total FY 2003 TEFRA payment system
payment per discharge (proposed step 3).
We discuss each of these proposed steps in greater detail below.
Proposed Step 1.--Estimate each LTCH's payment per discharge for
inpatient operating costs under the TEFRA payment system for FY 2003.
Under our proposed methodology, the first step in the process of
estimating total FY 2003 payments under the TEFRA payment system would
be to estimate each LTCH's payment per discharge for inpatient
operating costs under the TEFRA payment system. Until FY 1998, the
payment methodology for inpatient operating costs under the TEFRA
payment system was a relatively straightforward process. First, we
calculated a target amount by dividing the Medicare total allowable
inpatient operating costs in a base year by the number of Medicare
discharges. The provider's target amount under the TEFRA payment system
(referred to as the TEFRA target amount) was then updated by a rate-of-
increase percentage (Sec. 413.40(c)(3) of the regulations to determine
the TEFRA target amount for the subsequent cost reporting period (Sec.
413.40(c)(4)(i) and(ii)). Generally, for any particular cost reporting
period, the Medicare payment for inpatient operating costs would be the
lesser of the hospital's allowable net inpatient operating costs, or
the updated TEFRA target amount multiplied by the number of Medicare
discharges during the cost reporting period, that is, the TEFRA ceiling
(Sec. 413.40(a)(3)).
The TEFRA payment system methodology described above, broadly
speaking, is the general approach that we are proposing to use to
arrive at an estimate of what Medicare payments for hospital inpatient
operating costs would have been in FY 2003 under the TEFRA payment
system. That is, under our proposed methodology, each LTCH's FY 2003
TEFRA target amount would be calculated by updating its estimated FY
2002 target amount per discharge by the full market basket percentage
increase. The sum of all LTCH payments for operating costs (TEFRA
target amount multiplied by Medicare discharges), bonus or relief
payments, continuous improvement bonus payments, and payments for
capital-related costs yields, in general, the estimate of what total
Medicare payments to LTCHs would have been in FY 2003 under the TEFRA
payment system if the LTCH PPS had not been implemented.
However, because sections 4413 through 4419 of the BBA of 1997,
section 122 of the BBRA of 1999, and section 307(a)(1) of the BIPA made
numerous changes to the TEFRA payment system, our proposed methodology
reflects variations in the method described above to arrive at the
estimate of FY 2003 payments for the inpatient operating costs of each
LTCH under the TEFRA payment system, depending on the participation
date of the hospital. Specifically, we are proposing to make the
requisite computations differently for two classes of hospitals,
``existing'' hospitals and ``new'' hospitals. (A detailed explanation
of the provisions affecting LTCHs, established by each of the
amendments, is found in the August 30, 2002 final rule that implemented
the LTCH PPS (67 FR 55959).) We discuss below these specific BBA, BBRA,
and BIPA changes, and their impact on the calculations of estimated FY
2003 TEFRA payments for ``existing'' and ``new'' hospitals under our
proposed methodology for estimating total LTCH payments under the TEFRA
payment

[[Page 28027]]

system in FY 2003 for purposes of the one-time prospective adjustment
under Sec. 412.523(d)(3). As discussed in greater detail below, we are
proposing to employ two approaches to estimate Medicare payments under
the TEFRA payment system to LTCHs in FY 2003, depending on how these
changes in calculating TEFRA payments, as established by the
amendments, applied to each LTCH. (We note, the discussion below of the
specific BBA, BBRA, and BIPA changes and their impact on the
calculations of estimated FY 2003 TEFRA payments for ``existing'' and
``new'' hospitals under our proposed methodology for estimating total
LTCH payments under the TEFRA payment system in FY 2003 for purposes of
the one-time prospective adjustment under Sec. 412.523(d)(3) is the
same as the discussion presented in the RY 2009 LTCH PPS proposed rule
(73 FR 5356 through 5359).)
The first set of changes that we would take into account was
included in the BBA. The BBA made significant changes to the TEFRA
payment methodology starting with cost reporting periods beginning on
or after October 1, 1997. While the changes were applicable to three
types of PPS-excluded providers (rehabilitation hospitals and units,
psychiatric hospitals and units, and LTCHs), the following discussion
will address the provisions of the amendments as they relate to LTCHs.
The first change to consider under the BBA is section 4414 that
established caps on the TEFRA target amounts for cost reporting periods
beginning on or after October 1, 1997, for LTCHs that were paid as
IPPS-excluded providers prior to that date. The cap was determined by
taking the 75th percentile of target amounts for cost reporting periods
ending in FY 1996 for each class of provider (rehabilitation hospitals
and units, psychiatric hospitals and units, and LTCHs), updating that
amount by the market basket percentage increases to FY 1998, and
applying it to the cost reporting period beginning on or after October
1, 1997 (62 FR 46018). The cap calculated for FY 1998 was updated by
the applicable market basket percentages for cost reporting periods
beginning during FY 1999 through 2002. Providers subject to the 75th
percentile cap were paid the lesser of their inpatient operating costs
or the TEFRA target amount, which was limited by the 75th percentile
cap amount (67 FR 55959). In addition, section 4411 of the BBA
established a formula for calculating the update factor for FY 1999
through FY 2002 that was dependent on the relationship of a provider's
inpatient operating costs to its ceiling amount based on data from the
most recently available cost report. Section 121 of the BBRA provided
that the 75th percentile cap amount should be wage adjusted, starting
with cost reporting periods beginning on or after October 1, 1999, and
before October 1, 2002.
The second change that we would take into account was section 4415
of the BBA. This provision revised the percentage factors used to
determine the amount of bonus and relief payments for LTCHs meeting
specific criteria. If a provider's net inpatient operating costs did
not exceed the hospital's ceiling, a bonus payment was made to the LTCH
(Sec. 413.40(d)(2) of the regulations). The bonus payment was the
lower of 15 percent of the difference between the hospital's inpatient
operating costs and the ceiling, or 2 percent of the ceiling. In
addition, relief payments were made to providers whose net inpatient
operating costs were greater than 110 percent of the ceiling (or
adjusted ceiling, if applicable). These relief payments were the lower
of 50 percent of the allowable inpatient operating costs in excess of
110 percent of the ceiling (or the adjusted ceiling, if applicable) or
10 percent of the ceiling (or adjusted ceiling, if applicable) (Sec.
413.40(d)(3)(ii) of the regulations).
The third change that should be considered would be the additional
incentive established by section 4415 of the BBA, the CIB payment for
providers meeting certain conditions and that kept their costs below
the target amount. Eligibility for the CIB payment required that a
provider had three full cost reporting periods as an IPPS-excluded
provider prior to the applicable fiscal year (62 FR 46019). To qualify
for a CIB payment, a provider's operating costs per discharge in the
current cost reporting period had to be lower than the least of any of
the following: its target amount; its expected costs, that is, the
lower of its target amount or allowable inpatient operating costs per
discharge from the previous cost reporting period, updated by the
market basket percent increase for the fiscal year; or, its trended
costs, that is, the inpatient operating costs per discharge from its
third full cost reporting period, updated by the market basket
percentage increase to the applicable fiscal year (62 FR 46019; Sec.
413.40(d)(5)(ii)(B) of the regulations). For providers with their third
or subsequent full cost reporting period ending in FY 1996, trended
costs are the lower of their allowable inpatient operating costs per
discharge or target amount updated forward to the current year (Sec.
413.40(d)(5)(ii)(A) of the regulations). The CIB payment equals the
lesser of 50 percent of the amount by which the operating costs were
less than expected costs, or 1 percent of the ceiling (Sec.
413.40(d)(4) of the regulations). Section 122 of the BBRA increased
this percentage for LTCHs for FY 2001 to 1.5 percent of the ceiling,
and beginning in FY 2002, to 2 percent of the ceiling (Sec.
413.40(d)(4)(ii) and (iii) of the regulations). The increase in the CIB
payment percentage is not to be accounted for in the development and
implementation of the LTCH PPS in accordance with section 307(a)(2) of
BIPA.
The fourth change that we would take into account was section 4416
of the BBA, which significantly revised the payment methodology for
``new'' IPPS-excluded providers. This provision applies to three
classes of providers--psychiatric hospitals and units, rehabilitation
hospitals and units, and LTCHs--that were not paid as excluded
hospitals prior to October 1, 1997. The payment amount for a new
provider for the first 12-month cost reporting period is the lower of
its Medicare inpatient operating cost per discharge or a limit based on
110 percent of the national median of target amounts for the same class
of hospital for cost reporting periods ending in FY 1996, updated by
the market basket percentage increases to the applicable period, and
wage-adjusted. The payment limit in the second 12-month cost reporting
period is the same 110 percent limit as for the first year (Sec.
413.40(f)(2)(ii)). A new provider's target amount would be established
in its third cost reporting period by updating the amount paid in its
second cost reporting period by the market basket percentage increase
for hospitals and hospital units excluded from the IPPS, applicable to
the specific year, as published annually in the Federal Register, which
then becomes the target amount for its third cost reporting period. The
target amount for the fourth and subsequent cost reporting periods is
determined by updating the target amount from the previous cost
reporting period by the applicable market basket percentage increase.
Finally, two provisions under BIPA specifically related to LTCHs.
Section 307(a) of BIPA provided a 2 percent increase to the wage-
adjusted 75th percentile cap for existing LTCHs for cost reporting
periods beginning in FY 2001, and a 25 percent increase to the target
amount for LTCHs, subject to the increased 75th percentile cap.
However, it is important to note that in accordance with section
307(a)(2) of BIPA, the 2 percent increase to the 75th percentile cap
and the 25 percent

[[Page 28028]]

increase to the target amount were not to be taken into account in the
development and implementation of the LTCH PPS.
In this proposed rule, under our proposed methodology, in order to
determine what a LTCH's estimated payments would be under the TEFRA
payment system in FY 2003, we are proposing to use cost report data for
LTCHs from the Hospital Cost Reporting Information System (HCRIS) for
FYs 1999 through 2002. In addition, to determine whether a LTCH is
``new,'' the certification date for each LTCH was obtained from the On-
line Survey & Certification Automated Reporting (OSCAR) file. Based on
the certification date, a LTCH would either be a ``new'' LTCH, meaning
a LTCH that was not paid as an excluded hospital prior to October 1,
1997, or, an ``existing'' LTCH, meaning a LTCH that was paid as an
excluded hospital prior to October 1, 1997. This could include a LTCH
that was certified as an LTCH on or after October 1, 1997, but was
previously paid as another type of IPPS-excluded provider prior to
October 1, 1997. Our proposed approach to estimating Medicare payments
in FY 2003 under the TEFRA payment system would vary somewhat,
depending on whether an LTCH was ``existing'' or ``new'' is discussed
in greater detail below. Below we discuss our proposed methodology for
estimating FY 2003 inpatient operating payments under the TEFRA payment
system for ``existing'' hospitals (proposed Step 1.a.) and ``new''
hospitals (proposed Step 1.b.), and our proposed methodology for
estimating CIB payments under the TEFRA payment system in FY 2003
(under proposed Step 1.c.).
Proposed Step 1.a.--Estimate FY 2003 inpatient operating payments
under the TEFRA payment system for ``existing'' LTCHs.
Based on the applicable statutory changes mentioned above, under
our proposed methodology, the first step would be to estimate FY 2003
inpatient operating payments under the TEFRA payment system for
``existing'' LTCHs. ``Existing'' LTCHs are those receiving payment as
IPPS-excluded providers in cost reporting periods prior to FY 1998.
These LTCHs were subject to the 75th percentile cap on their hospital-
specific target amounts. While section 307(a)(1) of BIPA provided for a
2-percent increase to the 75th percentile cap amount for LTCH's for
cost reporting periods beginning in FY 2001 and a 25-percent increase
to the target amount for cost reporting periods beginning in FY 2001
(subject to the limiting or cap amount determined under section
1886(b)(3)(H) of the Act), section 307(a)(2) of BIPA precluded
accounting for these increases in developing the LTCH PPS. In addition,
section 122 of the BBRA increased the CIB payment percentage to 1.5
percent for FY 2001 and 2.0 percent for FY 2002 (Sec. 413.40(d)(4)(ii)
and (iii)). But these increases, also, are not to be accounted for the
development and implementation of the LTCH PPS in accordance with
section 307(a)(2) of BIPA. Therefore, to ensure that these increases
would be excluded from the computations, as required by the statute, we
are proposing to estimate an existing LTCH's FY 2003 target amount by
starting with the hospital's target amount from the FY 2000 cost
report, the year prior to when these increases were effective. Target
amounts and payments for FY 2003 would be simulated using the FY 2000
target amount in the hospital's cost report and updating the target
amount for each subsequent cost reporting period by the applicable
rate-of-increase percentage as described in Sec. 413.40(c)(3)(vii)
through FY 2002. The target amount from FY 2002 would be updated by the
forecasted market basket percentage increase of 3.5 percent to arrive
at the FY 2003 target amount (Sec. 413.40(c)(3)(viii)). (We note that
the forecasted increase in the excluded hospital market basket for FY
2003 of 3.5 percent would be used to establish the applicable rate-of-
increase percentage used to update TEFRA target amounts in accordance
with Sec. 413.40(c)(3)(viii) in the FY 2003 IPPS final rule (67 FR
50289)). Based on more recent data, our Office of the Actuary currently
estimates an increase of 4.2 percent in the excluded hospital market
basket for FY 2003, which we are proposing to use to update LTCHs' FY
2002 costs to FY 2003, as described below.) In a small number of cases
where FY 2002 operating cost data were not available, we would use
operating cost data from the most recent year available and trend it
forward to FY 2003. In addition, we would estimate FY 2003 bonus or
relief payments without the inclusion of the 2-percent and 25-percent
increases to the cap amount and target amount, respectively, and
without the 1.5 percent and 2.0 percent increases to the CIB payments,
consistent with section 307(a)(2) of BIPA as discussed above.
In addition, because comparisons are made between the target amount
and Medicare inpatient operating costs to determine bonus or relief
payments, under our proposed methodology, we would estimate FY 2003
operating costs for each LTCH by updating its FY 2002 operating costs
by the actual percentage increase in operating costs for PPS-excluded
hospitals from FY 2002 to FY 2003 (4.2 percent, as determined by our
Office of the Actuary) because this is currently our best estimate of
actual cost increase from FY 2002 to FY 2003 realized by excluded
hospitals, including LTCHs. As discussed earlier, we are proposing to
estimate the FY 2003 operating costs using FY 2002 costs rather than
using the costs reported on the FY 2003 cost report.
The 75th percentile cap for LTCHs for FY 2002, without the 2-
percent and 25-percent increases to the cap and target amount,
respectively, was $30,783 for the wage-index adjusted labor-related
share, and $12,238 for the nonlabor-related share. If a LTCH's costs
and hospital-specific target amount were above the 75th percentile cap,
Medicare's payment under the TEFRA system would be the wage-index
adjusted cap amount. If under our proposed payment model a LTCH's
estimated FY 2002 TEFRA payment would have been limited by the wage-
adjusted 75th percentile cap in FY 2002, that amount would be updated
by the forecasted market basket percentage increase (of 3.5 percent) to
FY 2003 to determine the LTCH's FY 2003 target amount that was used to
estimate its TEFRA payment system amount for FY 2003 under our proposed
methodology.
Proposed Step 1.b.--Estimate FY 2003 inpatient operating payments
under the TEFRA payment system for ``new'' LTCHs.
Next, under our proposed methodology, we would estimate FY 2003
hospital operating payments under the TEFRA payment system applied to
``new'' LTCHs based on the applicable statutory changes discussed
above. A ``new'' LTCH is one that was first paid as an IPPS-excluded
hospital on or after October 1, 1997. For a ``new'' LTCH, payment in
the hospital's first 12-month cost reporting period is the lower of its
Medicare net inpatient operating costs per discharge or the wage-
adjusted 110 percent median amount determined for that particular year
(Sec. 413.40(f)(2)(ii) of the regulations). For the hospital's second
12-month cost reporting period, payment is the lower of their costs, or
the same 110 percent median amount that was used in the first cost
reporting period, that is, it is not updated. The hospital's ``target
amount'' is established in the third cost reporting period by updating
the per discharge amount that was paid in the prior cost reporting
period by the estimated market basket percentage increase for hospitals
and hospital units excluded from the IPPS,

[[Page 28029]]

applicable to the specific year, as published annually in the Federal
Register. Therefore, if the LTCH was paid its costs in the previous
cost reporting period because costs were lower than the 110 percent
median amount, the hospital's cost per discharge for the second cost
reporting period is updated and becomes the target amount for the
hospital's third cost reporting period. Target amounts for subsequent
cost reporting periods are determined by updating the previous year's
target amount by the applicable market basket percentage increase.
New LTCHs with their first 12-month cost reporting period beginning
in FY 1998 would have had a target amount calculated under section
1886(b)(7)(A)(ii) of the Act in FY 2000. Therefore, consistent with our
proposals concerning ``existing'' LTCHs (described in proposed Step
1.a. above), in estimating the FY 2003 target amount for ``new'' LTCHs
we are proposing to use the target amount from the FY 2000 cost report
and update that target amount by the applicable estimated market basket
percentage increases as published annually in the Federal Register for
the IPPS final rule, without the 25-percent increase, to FY 2003. That
is, we used 3.4 percent to update from FY 2000 to FY 2001, 3.3 percent
to update from FY 2001 to FY 2002, and 3.5 percent to update from FY
2002 to FY 2003. For LTCHs with their first 12-month cost reporting
period beginning in FY 1999, we would use the lower of their costs or
target amount from their FY 2000 cost report, and updated that amount
by the applicable estimated market basket percentage increase to
establish the target amount in FY 2001, without the 25-percent
increase. Next, we would continue to update that target amount by the
estimated market basket percentage increases to FY 2003. We believe
that it is necessary to propose to compute an estimated target amount
for LTCHs that are ``new'' in FY 1999 under our proposed methodology in
order to eliminate the potential inclusion of the increase to the
target amounts provided for by section 307(a)(1) of BIPA (consistent
with the statute).
The 25-percent increase (under section 307(a) of the BIPA) to the
target amount would not be an issue for LTCH's with their first 12-
month cost reporting period beginning in FYs 2000, 2001, and 2002
because they would not have a ``target amount'' based on sections
1886(b)(7)(A)(ii) of the Act, in FY 2001. Rather, for these LTCHs,
under our proposed methodology we would determine the estimated payment
amount for their first 12-month cost reporting period by looking at
their certification date from the OSCAR file, the applicable 110
percent median amount (adjusted by their wage-index) and their costs
from the applicable cost report, and then proceed in accordance with
the policy in Sec. 413.40(f)(2)(ii) of the regulations, to arrive at
estimated FY 2003 TEFRA payments.
Proposed Step 1c.--Estimate CIB payments that would have been made
in FY 2003 under the TEFRA payment system (for both ``existing'' and
``new'' LTCHs).
In addition to the TEFRA system payments for operating costs, and
any bonus or relief payments made, we also are proposing to add an
amount to account for the estimate of the CIB payments that would have
been made in FY 2003 under the TEFRA payment system under Sec.
413.40(d)(4). We are proposing to estimate what CIB payments would have
been in FY 2003 by using actual CIB payments from the cost reports for
FYs 1999 and 2000, as they would not include the statutory increases to
the target amount discussed above, and recalculated CIB payments for
FYs 2001 and 2002 based on cost report data. Based on these historical
CIB payments, we estimated that CIB payments in FY 2003 would have been
approximately $10 million. Just as the TEFRA payments and bonus and
relief payments had to be recalculated in particular years to eliminate
percentage increases that are not to be included in our budget
neutrality calculations (as required by the statute), we believe that
it is necessary to propose to recalculate the CIB payments in FYs 2001
and 2002 to eliminate the percentage increases to these payments as
provided for under section 122 of BBRA, such that they would not be
accounted for in the development of the LTCH in accordance with section
307(a)(2) of BIPA. Therefore, under our proposed methodology, we are
proposing to add $10 million as an estimate of the CIB payments that
would have been made in FY 2003 under the TEFRA payment system to our
estimated FY 2003 TEFRA system payments for operating costs, including
any bonus or relief payments.
Step 2.--Estimate each LTCH's payment per discharge for inpatient
capital costs under the TEFRA payment system for FY 2003.
As we discussed above, under our proposed methodology, the second
step in estimating total payments under the TEFRA payment system is to
estimate each LTCH's payment per discharge for capital-related costs
for FY 2003. Under the TEFRA payment system, in accordance with the
regulations at 42 CFR Part 413, Medicare allowable capital costs are
paid on a reasonable cost basis. Therefore, we are proposing to update
each LTCH's payment for capital-related costs directly from the FY 2002
cost report for inflation using the FY 2003 capital excluded hospital
market basket estimate of 0.7 percent, consistent with the methodology
used to establish the initial standard Federal rate (67 FR 56031).
Thus, we are proposing to determine capital-related costs per case
using capital cost data from Worksheets D, Parts I and II, and total
Medicare discharges for the cost reporting period from Worksheet S-3.
(We note that since payments for capital-related costs are on a
reasonable-cost basis, capital payments were the same for ``existing''
and ``new'' LTCHs.)
Proposed Step 3.--Sum each LTCH's estimated operating and capital
payment per case to determine its estimated total FY 2003 TEFRA payment
system payment per discharge.
Under our proposed methodology for estimating FY 2003 LTCH total
payments under the TEFRA payment system using FY 2002 cost data for the
purposes of the one-time prospective adjustment at Sec. 412.523(d)(3),
after estimating payments for inpatient operating costs under the TEFRA
payment system for FY 2003 and payments for capital-related costs under
the TEFRA payment system for FY 2003, we would sum each LTCH's
estimated operating and capital payment per case to determine its
estimated total FY 2003 TEFRA payment system payment per discharge.
Therefore, we are proposing to add the estimate of each LTCH's payment
per discharge for inpatient operating costs under the TEFRA payment
system for FY 2003, including continuous improvement bonus payments
(determined under proposed Steps 1.a. through 1.c. above) and the
estimate of each LTCH's payment per discharge for capital-related costs
for FY 2003 (determined under proposed Step 2 above).
Once we estimate total TEFRA payments as the sum of each LTCH's
estimated operating and capital payment per case, under our proposed
methodology for evaluating the one-time prospective adjustment at Sec.
412.523(d)(3), the next step is to estimate FY 2003 payments under the
LTCH PPS. As we discussed above, we believe that the best approach is
to propose to use FY 2002 LTCH claims data as a proxy for estimating FY
2003 LTCH PPS payments in evaluating the one-time prospective
adjustment at Sec. 412.523(d)(3). We note that we are proposed to use
the same FY 2002 LTCH MedPAR data that was used to

[[Page 28030]]

develop the FY 2004 LTC-DRG relative weights in the FY 2004 IPPS final
rule (68 FR 45376), as explained below. As we discussed in that final
rule, there is a data problem with the FY 2002 claims data for LTCHs
where multiple bills for the stay were submitted. Specifically, given
the long stays at LTCHs, some providers had submitted multiple bills
for payment under the reasonable cost-based reimbursement system for
the same stay. In certain LTCHs, hospital personnel apparently reported
a different principal diagnosis on each bill because, under the
reasonable cost-based (TEFRA) reimbursement system, payment was not
dependent upon principal diagnosis, as it is under a DRG-based PPS
system. As a result of this billing practice, we discovered that only
data from the final bills were being extracted for the MedPAR file.
Therefore, it was possible that the original MedPAR file was not
receiving the correct principal diagnosis. In that same IPPS final
rule, we discussed how we addressed this problem in the LTCH FY 2002
MedPAR data when we used that data to determine the FY 2004 LTC-DRG
relative weights. Therefore, for the evaluation of the one-time
prospective adjustment at Sec. 412.523(d)(3) in this proposed rule, we
are proposing to use the same ``corrected'' FY 2002 LTCH MedPAR data
that was used to develop the FY 2004 LTC-DRG relative weights. For the
reader's benefit, we are providing a summary of how we addressed the
multiple bill problem in the FY 2002 LTCH MedPAR data below. As we
explained in the FY 2004 IPPS final rule (68 FR 45376), we addressed
this problem by identifying all LTCH cases in the FY 2002 MedPAR file
for which multiple bills were submitted. For each of these cases,
beginning with the first bill and moving forward consecutively through
subsequent bills for that stay, we recorded the first unique diagnosis
codes up to 10 and the first unique procedure codes up to 10. We then
used these codes to appropriately group each LTCH case to a LTC-DRG for
FY 2004. (We note that this is the same data we used to estimate FY
2003 payments under the LTCH PPS for purposes of evaluating the one-
time prospective adjustment at Sec. 412.523(d)(3) that we presented in
the RY 2009 LTCH PPS proposed rule (73 FR 5359).)
In this proposed rule, we are proposing to estimate FY 2003 LTCH
PPS payments using the same general methodology that we used to
estimate FY 2003 payments under the LTCH PPS (without a budget
neutrality adjustment) when we determined the initial standard Federal
rate in the August 30, 2002 final rule (67 FR 56032). Specifically, we
are proposing to estimate FY 2003 LTCH PPS payments for each LTCH by
simulating payments on a case-by-case basis by applying the final FY
2003 payment policies established in the August 30, 2002 final rule
that implemented the LTCH PPS (67 FR 55954) based on the LTCH case-
specific discharge information from the FY 2002 MedPAR files (as
explained above), and we also are proposing to use LTCH provider-
specific data from the FY 2003 Provider-Specific File (PSF), as these
were the data used by fiscal intermediaries to make LTCH payments
during the first year of the LTCH PPS (FY 2003). Under our proposed
methodology, we are proposing to use the FY 2003 LTC-DRG Grouper
(Version 22.0), relative weights, and average length of stay (67 FR
55979 through 55995); we are proposing to make adjustments for
differences in area wage levels established for FY 2003 as set forth at
Sec. 412.525(c) using the appropriate phase-in wage index values for
FY 2003 (67 FR 56015 through 56020); we are proposing to make a cost-
of-living adjustment for LTCHs located in Alaska and Hawaii as set
forth at Sec. 412.525(b) (67 FR 56022); we are proposing to make
adjustments for SSO cases based on the method for determining payment
applicable for discharges occurring during FY 2003 in accordance with
Sec. 412.529(c)(1) (67 FR 55975 and 55995 through 56002); and we are
proposing to include additional payments for HCO cases in accordance
with former Sec. 412.525(a) for determining payments for discharges
occurring in FY 2003 and the FY 2003 fixed-loss amount of $24,450 (67
FR 56023). (We note that correctly billed interrupted stay cases under
Sec. 412.531 are single LTCH cases in the MedPAR files; therefore, we
estimated a single LTCH PPS payment for those cases.) Under this
proposed methodology, for purposes of this calculation we are proposing
to simulate case-by-case payments for each LTCH as if it were paid
based on 100 percent of the standard Federal rate in FY 2003 rather
than the transition blend methodology set forth at Sec. 412.533. To
determine total estimated PPS payments for all LTCHs, we are proposing
to sum the individual estimated LTCH PPS payments for each LTCH. (We
note that this is the same methodology we used to estimate FY 2003
payments under the LTCH PPS for purposes of evaluating the one-time
prospective adjustment at Sec. 412.523(d)(3) that we presented in the
RY 2009 LTCH PPS proposed rule (73 FR 5359 through 5360).)
In order to determine if there is any difference between estimated
total TEFRA payments and estimated LTCH PPS payments in FY 2003 under
our proposed methodology for evaluating a possible one-time prospective
adjustment under Sec. 412.523(d)(3), we are proposing to determine a
case-weighted average estimated TEFRA payment, consistent with the
methodology used when we determined the initial standard Federal rate
in the FY 2003 LTCH PPS final rule (68 FR 56032). Under this proposed
methodology, each LTCH's estimated total FY 2003 TEFRA payment per
discharge would be determined by summing its estimated FY 2003
operating and capital payments under the TEFRA payment system based on
FY 2002 cost report data (as described in proposed Step 3 above), and
dividing that amount by the number of discharges from the FY 2002 cost
report data. Next, we would determine each LTCH's average estimated
TEFRA payment weighted for its number of discharges in the FY 2002
MedPAR file (for the purpose of estimating FY 2003 LTCH PPS payments,
as discussed above) by multiplying its average estimated total TEFRA
payment per discharge by its number of discharges in the FY 2002 MedPAR
file. We would then estimate total case-weighted TEFRA payments by
summing each LTCH's (MedPAR) case-weighted estimated FY 2003 TEFRA
payments. Under our proposed methodology, we are proposing to compare
these estimated FY 2003 total TEFRA payments to estimated FY 2003 total
LTCH PPS payments in order to determine whether a one-time prospective
adjustment would be appropriate. (As discussed in greater detail above,
we are proposing to determine both estimated total FY 2003 TEFRA
payments and estimated total FY 2003 LTCH PPS payments based on FY 2002
cost report and claims data, respectively.) Our proposal to adjust our
proposed estimate of FY 2003 TEFRA payments for the number of
discharges that we are proposing to use to estimate FY 2003 LTCH PPS
payments would ensure that the comparison of estimated aggregate FY
2003 TEFRA payments to estimated aggregate FY 2003 LTCH PPS payments
would be based on the same number of LTCH discharges. (We note that
this is the same methodology we used to compare estimated FY 2003 total
TEFRA payments to estimated FY 2003 total LTCH PPS payments for
purposes of evaluating the one-time prospective adjustment at Sec.
412.523(d)(3) that we presented in the

[[Page 28031]]

RY 2009 LTCH PPS proposed rule (73 FR 5360).)
For this proposed rule, using the proposed methodology and data
described above, we have calculated that estimated FY 2003 LTCH PPS
payments are approximately 2.5 percent higher than estimated payments
to the same LTCHs in FY 2003 if the LTCH PPS had not been implemented
(that is, estimated total FY 2003 TEFRA payment system payments). This
analysis was based on approximately 91,300 LTCH discharges for 250
LTCHs. As discussed above, we are proposing that any difference greater
than or equal to 0.25 percentage points that is ``significant'' for
purposes of determining whether the one-time prospective adjustment
provided under Sec. 412.523(d)(3) would be warranted. Although we
project that estimated FY 2003 LTCH PPS payments are approximately 2.5
percent higher than estimated FY 2003 TEFRA payments, proposing to
reduce the standard Federal rate by 2.5 percent would not ``maintain
budget neutrality'' for FY 2003 (that is, estimated FY 2003 LTCH PPS
payments would not be equal to estimated FY 2003 TEFRA payments)
because a considerable number of LTCH discharges are projected to have
received a LTCH PPS payment in FY 2003 based on the estimated cost of
the case (rather than a payment based on the standard Federal rate)
under the payment adjustment for SSO cases at Sec. 412.529.
Specifically, under our proposed methodology our payment analysis
indicates that nearly 20 percent of estimated FY 2003 LTCH PPS payments
are SSO payments that were paid based on estimated cost and not based
on the LTCH PPS standard Federal rate. These SSO cases that receive a
payment based on the estimated cost of the case are generally
unaffected by any changes to the standard Federal rate because the
estimated cost of the case is determined by multiplying the Medicare
allowable charges by the LTCH's cost-to-charge ratio (Sec.
412.529(d)(2)). In other words, if we were to propose to reduce the
standard Federal rate by 2.5 percent, estimated total FY 2003 LTCH PPS
payments would still be greater than estimated total FY 2003 TEFRA
payments (that is, would not be budget neutral), and this difference
would be perpetuated in the LTCH PPS payment rates for future years.
This is because the estimated LTCH PPS payments for those SSO cases
that in FY 2003 were estimated to have been paid 120 percent of the
estimated cost of the case generally are not affected (that is, in this
case, not lowered) by any one-time prospective adjustment budget
neutrality factor that would be applied to the standard Federal rate
because those payments are not derived from the standard Federal rate
(as explained above). Therefore, it is necessary to propose to offset
the standard Federal rate by a factor that is larger than 2.5 percent
in order to ensure that estimated total FY 2003 LTCH PPS payments would
be equal to estimated total FY 2003 TEFRA payments in order to
``maintain budget neutrality.'' To determine the necessary adjustment
factor that would need to be applied to the standard Federal rate in
order to ``maintain budget neutrality,'' we are proposing to simulate
FY 2003 LTCH PPS payments using the same payment simulation model
discussed above (that we proposed to use to estimate FY 2003 LTCH PPS
payments without a budget neutrality factor). Using iterative payment
simulations using the data from the 250 LTCHs in our database, we
determined that we would need to apply a factor of 0.9625 (that is, a
reduction of approximately 3.75 percent rather than 2.5 percent) to the
standard Federal rate in order to make estimated total FY 2003 LTCH PPS
payments equal to estimated total FY 2003 TEFRA payments consistent
with our stated policy goal of the one-time prospective adjustment at
Sec. 412.523(d)(3) (that is, to ensure that the difference between
estimated total FY 2003 LTCH PPS payments and estimated total FY 2003
TEFRA payments is not perpetuated in the LTCH PPS payment rates in
future years). (We note that this proposed adjustment of approximately
-3.75 percent is the same result of the evaluation of the one-time
prospective adjustment at Sec. 412.523(d)(3) that we presented in the
RY 2009 LTCH PPS proposed and final rules (73 FR 5360 and 26804,
respectively).) As we note in the RY 2009 LTCH PPS proposed and final
rules, in the years following the initial implementation of the LTCH
PPS, we have adopted some revised policies and adjustments to LTCH PPS
payment levels. However, none of these revised policies and payment
adjustments have addressed the intended purpose of the one-time
prospective adjustment allowed under Sec. 412.523(d)(3) of the
regulations, to ensure that any significant difference between the data
used in the original computations of budget neutrality for FY 2003 and
more recent data to determine budget neutrality for FY 2003 are not
perpetuated in the LTCH PPS rates for future years. For example, the
adjustments that we have made to account for coding changes in excess
of real severity increases in RYs 2007 through 2010 were made to
account for changes in coding behavior in the years following the
implementation of the LTCH PPS, and not to address any issue regarding
the budget neutrality calculations that were used to establish the base
rate for the LTCH PPS.
In this proposed rule, based on the proposed methodology described
above, under the broad authority granted to the Secretary under section
123 of the BBRA, as amended by section 307(b) of the BIPA, we are
proposing to revise Sec. 412.523(d)(3) to specify that the standard
Federal rate would be permanently reduced by 3.75 percent so that the
estimated difference between projected aggregate LTCH PPS payments in
FY 2003 and the projected aggregate payments that would have been made
in FY 2003 under the TEFRA payment system if the LTCH PPS had not been
implemented. Consistent with current law, we also are proposing that
this adjustment would not apply to payments for discharges occurring on
or after October 1, 2012, and on or before December 28, 2012.
Furthermore, given the magnitude of this adjustment and in
acknowledgement of hopeful research outcomes (discussed above in
section VII.E.2. of this preamble), we are proposing to phase-in this
approximate 3.75 percent reduction to the standard Federal rate over a
3-year period. Although the adjustment to the standard Federal rate
provided for at Sec. 412.523(d)(3) is called a ``one-time''
prospective adjustment, as stated above, this proposed adjustment would
be permanently applied to the standard Federal rate so that the effect
of the estimated difference between the data used in the original
computations of budget neutrality for FY 2003 and more recent data to
determine budget neutrality for FY 2003 is not perpetuated in the
prospective payment rates for future years. During this proposed 3-year
period, we intend to further explore potential revisions to certain
LTCH PPS payment policies as discussed above in section VII.E.2. of
this preamble. Under this proposal, we would make a one-time
prospective adjustment by applying a factor of 0.98734 to the standard
Federal rate in FY 2013 (which would not be applicable to payments for
discharges occurring on or after October 1, 2012, and on or before
December 28, 2012, consistent with current law), FY 2014 and FY 2015 to
completely account for our estimate (determined using the proposed
methodology described above) that a factor of 0.9625 (that is 0.98734

[[Page 28032]]

x 0.98734 x 0.98734 = 0.9625) needs to be applied to the standard
Federal rate in order to ensure that the difference between estimated
total FY 2003 LTCH PPS payments and estimated total FY 2003 TEFRA
payments is not perpetuated in the LTCH PPS payment rates in future
years consistent with our stated policy goal of the one-time
prospective adjustment at Sec. 412.523(d)(3). In other words, we are
proposing that in determining the standard Federal rate in each year
for FYs 2013 through 2014, we would multiply the standard Federal rate
otherwise determined in absence of the one-time prospective adjustment
at Sec. 412.523(d)(3) by 0.98734 in order to ensure that the estimated
difference between estimated total FY 2003 LTCH PPS payments and
estimated total FY 2003 TEFRA payments is not perpetuated in the LTCH
PPS payment rates in future years.

VIII. Proposed Quality Data Reporting Requirements for Specific
Providers and Suppliers

CMS is seeking to promote higher quality and more efficient health
care for Medicare beneficiaries. This effort is supported by the
adoption of an increasing number of widely agreed-upon quality
measures. CMS has worked with relevant stakeholders to define measures
of quality for most settings and to measure various aspects of care for
most 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 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 inpatient rehabilitation
hospitals, hospices, and ambulatory surgical centers, and an end-stage
renal disease quality improvement 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 Medicare and Medicaid 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. As appropriate, we will consider the adoption of measures with
electronic specifications, so that the electronic collection of
performance information is part of care delivery. Establishing such a
system will require interoperability between EHRs and CMS data
collection systems, additional infrastructural 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 many 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 to hospitals. We believe that automatic collection and
reporting of data elements for many measures through EHRs will greatly
simplify and streamline reporting for various CMS quality reporting
programs and that at a future date, such as FY 2015, hospitals will be
able to switch primarily to EHR-based reporting of data for many
measures that are currently manually chart-abstracted and submitted to
CMS for the Hospital IQR Program.
We have also implemented a Hospital Value-Based Purchasing (VBP)
Program under section 1886(o) of the Act. In 2011, we issued the
Hospital Inpatient VBP Program final rule (76 FR 26490 through 26547).
We adopted additional policies for the Hospital VBP Program in section
IV.B. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through
51660) and in section XVI. of the CY 2012 OPPS/ASC final rule with
comment period (76 FR 74527 through 74547). Under the Hospital VBP
Program, hospitals will 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 (other than readmission
measures) specified under the Hospital IQR Program as required by
section 1886(o)(2)(A) of the Act.
In selecting measures for the Hospital IQR Program, we are mindful
of the conceptual framework of the Hospital VBP Program. Section
1886(o)(2)(B)(i)(I) of the Act states that for FY 2013, the selected
measures for the Hospital VBP Program must cover at least the following
five specified conditions or procedures: Acute myocardial infarction
(AMI), Heart failure (HF), Pneumonia (PN), surgical care, as measured
by the Surgical Care Improvement Project (SCIP), and Healthcare-
Associated Infections (HAIs), as measured by the prevention metrics and
targets established in the HHS Action Plan to Prevent 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).
The Hospital IQR Program is linked with the Hospital VBP Program
because the measures and reporting infrastructure for both programs
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 healthcare for its beneficiaries.
Value-based purchasing is 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. As we stated
in the Hospital Inpatient VBP Program proposed rule (76 FR 2455), we
applied the following principles for the development and use of
measures and scoring methodologies:
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

[[Page 28033]]

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 this effort, we will
continuously seek to align our measures with the adoption of e-
specified measures, so the electronic collection of performance
information is part of care delivery.
To the extent practicable, measures used by CMS should be
nationally endorsed by a multistakeholder organization. Measures should
be aligned with best practices among other payers and the needs of the
end users of the measures.
We also view the Hospital-Acquired Condition (HAC) payment
adjustment program authorized by section 3008 of the Affordable Care
Act and the Hospital VBP Program as being related but separate efforts
to reduce HACs. The Hospital VBP Program is an incentive program that
awards payments to hospitals based on quality performance, while the
program established by section 3008 of the Affordable Care Act creates
a payment adjustment resulting in payment reductions for the lowest
performing hospitals based on their rates of HACs.
Although we intend to monitor the various interactions of programs
authorized by the Affordable Care Act and their overall impact on
providers and suppliers, 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.
In this section VIII. of this proposed rule, we are proposing
changes to, or implementing, the following Medicare quality reporting
systems:
In section VIII.A., the Hospital IQR Program.
In section VIII.B., the Hospital VBP Program.
In section VIII.C., the PPS-Exempt Cancer Hospital Quality
Reporting (PCHQR) Program.
In section VIII.D., the Long-Term Care Hospital Quality
Reporting (LTCHQR) Program.
In section VIII.E., the Ambulatory Surgical Center Quality
Reporting (ASCQR) Program.
In section VIII.F., the Inpatient Psychiatric Facilities
Quality Reporting (IPFQR) Program.

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. 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 through 43861) and the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50180 through 50181) for detailed discussions of the history of
the Hospital IQR Program, including the statutory history and the FY
2012 IPPS/LTCH PPS final rule (76 FR 51636 through 51637) for the
measures we have adopted for the Hospital IQR measure set through FY
2015.
b. 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 (TJC) Specifications Manual for
National Hospital Quality Measures (Specifications Manual). This
Specifications Manual is posted on the CMS QualityNet Web site at
https://www.QualityNet.org. We generally update the Specifications
Manual on a semiannual basis and include in the updates 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.
Many of the quality measures used in different Medicare and
Medicaid reporting programs are endorsed by the National Quality Forum
(NQF). The NQF is a voluntary consensus standard-setting organization
with a diverse representation of consumer, purchaser, provider,
academic, clinical, and other healthcare stakeholder organizations. The
NQF was established to standardize healthcare quality measurement and
reporting through its consensus development process. As part of its
regular maintenance process for endorsed performance measures, the NQF
requires measure stewards to submit annual measure maintenance updates
and undergo maintenance of endorsement review every 3 years. In the
measure maintenance process, the measure steward (owner/developer) is
responsible for updating and maintaining the currency and relevance of
the measure and will confirm existing or minor specification changes to
NQF on an annual basis. NQF solicits information from measure stewards
for annual reviews and in order to review measures for continued
endorsement in a specific 3-year cycle.
Through NQF's measure maintenance process, NQF-endorsed measures
are sometimes updated to incorporate changes that we believe do not
substantially change the nature of the measure. Examples of such
changes could be updated diagnosis or procedure codes, changes to
exclusions to the patient population, definitions, or extension of the
measure endorsement to apply to other settings. We believe these types
of maintenance changes are distinct from more substantive changes to
measures that result in what are considered new or different measures,
and that they do not trigger the same agency obligations under the
Administrative Procedure Act.
In this proposed rule, we are proposing that if the NQF updates an
endorsed measure that we have adopted for the Hospital IQR Program in a
manner that we consider to not substantially change the nature of the
measure, we would use a subregulatory process to incorporate those
updates to the measure specifications that apply to the program.
Specifically, we would revise the Specifications Manual so that it
clearly identifies the updates and provide links to where additional
information on the updates can be found. We would also post the updates
on the QualityNet Web site at https://www.QualityNet.org. We would
provide sufficient lead time for hospitals to implement the changes
where changes to the data collection systems would be necessary.
We would continue to use the rulemaking process to adopt changes to
a measure that we consider to substantially change the nature of the
measure. We believe that this proposal adequately balances our need to

[[Page 28034]]

incorporate NQF updates to NQF-endorsed Hospital IQR Program measures
in the most expeditious manner possible, while preserving the public's
ability to comment on updates that so fundamentally change an endorsed
measure that it is no longer the same measure that we originally
adopted. We invite public comment on this proposal.
c. 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 final rule (76 FR 51608 through 51609), we
adopted a policy 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. 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, structural measures, Emergency
Department Throughput timing measures, hospital acquired condition
measures, immunization measures, and hospital acquired infection
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, although 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 and memorandums, Hospital Open Door Forums, national
provider calls, and QualityNet announcements regarding the release of
preview reports followed by the posting of data on a Web site other
than Hospital Compare.
2. Removal and Suspension of Hospital IQR Program Measures
a. Considerations in Removing 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 except when they
are removed or replaced as indicated. In previous rulemakings, we have
referred to the removal of measures from the Hospital IQR Program as
``retirement.'' We have used this term to indicate that Hospital IQR
Program measures are no longer included in the Hospital IQR Program
measure set for one or more indicated reasons. However, we note that
this term may imply that other payers/purchasers/programs should cease
using these measures that are no longer required for the Hospital IQR
Program. In order to clarify that this is not our intent, beginning
with this rulemaking cycle, we will use the term ``remove'' rather than
``retire'' to refer to the action of no longer including a measure in
the Hospital IQR Program.
As we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50185),
the criteria that we consider when determining whether to remove
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
(``topped out'' measures); (2) availability of alternative measures
with a stronger relationship to 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; and, (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 quality measures for removal.
Additionally, we take into account the views of the Measure
Application Partnership (MAP). The MAP is a public-private partnership
convened by the NQF for the primary purpose of providing input to HHS
on selecting performance measures for quality reporting programs and
pay for reporting programs. The MAP views patient safety as a high
priority area and it strongly supports the use of NQF-endorsed safety
measures. Furthermore, for efficiency and streamlining purposes, we
strive to eliminate redundancy of similar measures.
b. Hospital IQR Program Measures Removed in Previous Rulemakings
In previous rulemakings, we have removed several Hospital IQR
Program quality measures, including:
PN-1: Oxygenation Assessment for Pneumonia, a ``topped
out'' measure, because measures with very high performance among
hospitals present little opportunity for improvement and do not provide
meaningful distinctions in performance for consumers (73 FR 48604).
AMI-6: Beta Blocker at Arrival 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 remove such a measure,
confirm the removal in the next IPPS rulemaking cycle, and notify
hospitals and the public of the decision to promptly remove measures
through the usual hospital and QIO communication channels used for the
Hospital IQR Program. These channels include memos, email notification,
and QualityNet Web site postings.
Mortality for Selected Procedures Composite measure
because the measure is not considered suitable for

[[Page 28035]]

purposes of comparative reporting by the measure developer (75 FR
50186).
Three adult smoking cessation measures: AMI-4: Adult
Smoking Cessation Advice/Counselling; HF-4: Adult Smoking Cessation
Advice/Counselling; and PN-4: Adult Smoking Cessation Advice/
Counselling, because these measures are ``topped-out'' and no longer
NQF-endorsed (76 FR 51611).
PN-5c: Timing of Receipt of Initial Antibiotic Following
Hospital Arrival measure out of concerns that the continued collection
of this measure might lead to the unintended consequence of antibiotic
overuse (76 FR 51611).
c. Proposed Removal of Hospital IQR Program Measures for FY 2015
Payment Determination and Subsequent Years
To accommodate the expansion of the measure set, we have considered
the removal of additional Hospital IQR measures using our stated
measure removal criteria. Based on some of these criteria, we are
proposing to remove 17 measures from the Hospital IQR Program. One of
these 17 measures is chart-abstracted, and the other 16 are claims-
based.
(1) Proposed Removal of One Chart-Abstracted Measure
We are proposing to remove the SCIP-Venous Thromboembolism (VTE)
measure: ``SCIP-VTE-1: Surgery patients with recommended VTE
prophylaxis ordered'' measure because we believe that the ``SCIP-VTE-2:
Surgery patients who received appropriate VTE prophylaxis within 24
hours of pre/post surgery'' measure currently used in the Hospital IQR
Program assesses practices that are more proximal in time to better
surgical outcomes resulting from the use of VTE prophylaxis. We also
note that during a recent NQF maintenance review of SCIP-VTE-1, the
measure was not recommended for continued endorsement.
(2) Proposed Removal of 16 Claims-Based Measures
We are proposing to remove eight HAC measures, three AHRQ Inpatient
Quality Indicator (IQI) measures, and five AHRQ Patient Safety
Indicator (PSI) measures from the Hospital IQR Program measure set.
(A) Proposed Removal of Eight Hospital-Acquired Condition (HAC)
Measures
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50194 through
50196), for the FY 2012 payment determination, we adopted 8 claims-
based HAC measures based on 8 of the 10 conditions applicable under the
HAC payment provisions specified in section 1886(d)(4)(D) of the Act
apply. These eight HAC measures are: Air Embolism; Blood
Incompatibility; Catheter-Associated Urinary Tract Infection (UTI);
Falls and Trauma: (Includes Fracture Dislocation, Intracranial Injury,
Crushing Injury, Burn, Electric Shock); Foreign Object Retained After
During Surgery; Manifestations of Poor Glycemic Control; Pressure Ulcer
Stages III or IV; and Vascular Catheter Associated Infections. Six of
these HACS were identified by NQF as serious reportable events.
We are proposing to remove these eight HAC measures based on
several considerations. First, the MAP recommended that we replace the
HAC measures in the Hospital IQR Program with NQF-endorsed measures.
Second, we seek to reduce redundancy among the measures in the program.
Two of the eight HAC measures address HAIs which are addressed by other
measures currently in the Hospital IQR Program. These two HAI measures
are the NQF-endorsed CAUTI and CLABSI measures collected via the CDC's
NHSN system. An additional three of the eight HAC measures address
similar topics (pressure ulcers, air embolism, and manifestations of
poor glycemic control) to patient safety indicators that are included
in the NQF-endorsed AHRQ PSI composite that is also included in the
Hospital IQR Program. Accordingly, because more broadly applicable NQF-
endorsed measures are available that address the same HAIs and HACs, we
believe it is appropriate to remove these measures from the program. We
note that section 3008 of the Affordable Care Act will require public
reporting of HAC measures, including measures for conditions adopted
under section 1886(d)(4)(D) of the Act. HACs remain an important aspect
of our strong commitment to measure patient harm and safety. ``Safer
care'' is one of the six priorities identified to address the three
aims established under the National Quality Strategy. We intend to
pursue development of an all-cause harm composite measure for potential
use in our quality reporting programs.
(B) Proposed Removal of Three AHRQ IQI Measures
In the FY 2009 IPPS final rule (73 FR 48607), we adopted three
claims-based AHRQ IQI outcome measures for the FY 2010 payment
determination: (1) IQI-11: Abdominal aortic aneurysm (AAA) repair
mortality rate (with or without volume); (2) IQI-19: Hip fracture
mortality rate; and (3) IQI-91: Mortality for selected medical
conditions (composite).
We are proposing to remove these three AHRQ IQI measures from the
Hospital IQR Program. In removing measures from the Hospital IQR
Program, we seek to eliminate measures that would not be used under the
Hospital VBP Program, and to reduce redundancy among the measures in
the Hospital IQR Program. Three of the six conditions in the IQI
composite measure overlap with 30-day mortality measures that we have
in the Hospital IQR Program, and which were recommended by the MAP for
use in the Hospital VBP Program. The proposed removal of these AHRQ IQI
measures would eliminate unnecessary redundancy in the Hospital IQR
measure set. We also believe that inclusion of a large number of in-
hospital mortality measures, the performance on which is highly
dependent upon hospital discharge patterns, may lead to unintended
consequences of patients being discharged sooner than advisable. We
invite public comment on this proposal.
(C) Proposed Removal of Five AHRQ PSI Measures
In the FY 2009 IPPS final rule (73 FR 48607), we adopted three
claims-based PSI outcome measures for the FY 2010 payment
determination: (1) PSI-06: Iatrogenic pneumothorax; (2) PSI-14:
Postoperative wound dehiscence; and (3) PSI-15: Accidental puncture or
laceration. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50194), we
adopted two more claims-based PSI outcome measures for the FY 2012
payment determination: PSI-11: Post Operative Respiratory Failure; and
PSI 12: Post Operative PE or DVT.
We are proposing to remove these five AHRQ PSI measures from the
Hospital IQR Program because four of these five individual measures
(all but PSI 11) are included in the NQF-endorsed AHRQ PSI Composite
measure that is already included in the Hospital IQR Program. Also, the
post-operative ventilator associated events assessed in PSI-11 could be
captured more robustly using non-administrative data collected via the
NHSN in the near future. Therefore, we are proposing to remove these
five individual PSIs from the Hospital IQR Program measure set in order
to eliminate unnecessary redundancy. We invite public comment on this
proposal.
In summary, for the FY 2015 payment determination and subsequent
years, we are proposing to remove the SCIP-VTE-1 measure, eight HAC
measures, three AHRQ IQI measures, and five AHRQ PSI measures from the
Hospital IQR measure set. The list of measures we are

[[Page 28036]]

proposing to remove is set out in the table below. We invite public
comment on these proposals.

------------------------------------------------------------------------
17 Measures proposed for removal
from hospital IQR program measure
Topic set for FY 2015 and subsequent
payment determinations
------------------------------------------------------------------------
Surgical Care Improvement Project SCIP INF VTE-1 Surgery
(SCIP) Measures. patients with recommended Venous
Thromboembolism (VTE) prophylaxis
ordered.
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.
IQI 91 Mortality for
selected medical conditions
(composite).
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.
------------------------------------------------------------------------

d. Suspension of Data Collection for the FY 2014 Payment Determination
and Subsequent Years
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51611), we suspended
data collection for four measures beginning with January 1, 2012
discharges, affecting the FY 2014 payment determination and subsequent
years.

------------------------------------------------------------------------
Hospital IQR program measures
Topic suspended for FY 2015 payment
determination and subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI). AMI-1 Aspirin at arrival.
AMI-3 ACEI/ARB for left
ventricular systolic dysfunction.
AMI-5 Beta-blocker
prescribed at discharge.
Surgical Care Improvement Project SCIP INF-6 Appropriate Hair
(SCIP). Removal.
------------------------------------------------------------------------

We suspended, rather than removed, these measures because although
our analysis indicated that these measures are topped-out measures
(that is, their performance is uniformly high nationwide, with little
variability among hospitals), some commenters still believed that the
processes assessed by the measures were tied to better patient
outcomes, and that removal of the measures from the program may result
in declines in performance and hence worse outcomes.
The suspension of data collection for these four measures will be
continued unless we have evidence that performance on the measures is
in danger of declining. Should we determine that hospital adherence to
these practices has unacceptably declined, we would resume data
collection using the same form and manner and on the same quarterly
schedule that we finalize for these and other chart abstracted
measures, 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 four
measures.
3. Proposed Measures for the FY 2015 and FY 2016 Hospital IQR Program
Payment Determinations
a. Additional 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 would promote better, safer, more efficient care. We believe it is
important to expand the pool of measures to include measures that aim
toward improving patient safety. This goal is supported by many reports
documenting that tens of thousands of patients do not receive safe care
in the nation's hospitals.^48,49
---------------------------------------------------------------------------

\48\ 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.
\49\ 2009 National Healthcare Quality Report, pp. 107-122.
``Patient Safety,'' Agency for Healthcare Research and Quality.
---------------------------------------------------------------------------

In addition to our goals to align measures and support the Hospital
VBP Program, we also take into account other considerations in
implementing and expanding the Hospital IQR Program:
Our overarching purpose is to support the National Quality
Strategy's three-part aim of better health care for individuals, better
health for populations, and lower costs for health care. The Hospital
IQR Program will help achieve the three-part aim by creating
transparency around the quality of care at inpatient hospitals to
support patient decision-making and quality improvement. Given the
availability of well-validated measures and the need to balance breadth
with minimizing burden, measures should take into account and address,
as fully as possible, the six domains of measurement that arise from
the six priorities of the National Quality Strategy: Clinical care;
Person- and caregiver-centered experience and outcomes; Safety;
Efficiency and cost

[[Page 28037]]

reduction; Care coordination; and Community/population health. More
information regarding the National Quality Strategy can be found at:
http://www.hhs.gov/secretary/about/priorities/priorities.html and
http://www.ahrq.gov/workingforquality/. HHS engaged a wide range of
stakeholders to develop the National Quality Strategy, as required by
the Affordable Care Act.
We seek to collect data in a manner that balances the need
for information related to the full spectrum of quality performance and
the need to minimize the burden of data collection and reporting.
Within the framework of our statutory authority and taking into account
programmatic considerations, measures used in the Hospital IQR Program
should be harmonized with other Medicare/Medicaid quality reporting
programs and incentive programs to promote coordinated efforts to
improve quality.
As part of our burden reduction efforts, we will
continuously weigh the relevance and utility of the measures compared
to the burden on hospitals in submitting data under the Hospital IQR
Program. We seek 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. 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.
To the extent practicable, measures we use should be
nationally endorsed by a multistakeholder organization. Section
3001(a)(2) of the Affordable Care Act 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 measure 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.'' Accordingly, we attempt to utilize
endorsed measures whenever possible.
Measures should be developed with the input of providers,
purchasers/payers, and other stakeholders. Measures should be aligned
with best practices among other payers and the needs of the end users
of the measures. We take into account widely accepted criteria
established in medical literature.
Section 1890A(a)(4) of the Act, as added by section
3014(b) of the Affordable Care Act, requires the Secretary to take into
consideration input from multistakeholder groups in selecting quality
and efficiency measures that have been endorsed by the entity with a
contract under section 1890 of the Act, currently NQF, and measures
that have not been endorsed. The MAP is a partnership comprised of
multi-stakeholder groups that was convened by NQF to provide input on
measures. Accordingly, we consider the MAP's recommendations in
selecting quality and efficiency measures (http://www.qualityforum.org.map/).
HHS Strategic Plan and Initiatives. HHS is the U.S.
government's principal agency for protecting the health of all
Americans. HHS accomplishes its mission through programs and
initiatives. Every 4 years HHS updates its Strategic Plan and measures
its progress in addressing specific national problems, needs, or
mission-related challenges. The goals of the HHS Strategic Plan for
Fiscal Years 2010 through 2015 are: Strengthen Health Care; Advance
Scientific Knowledge and Innovation; Advance the Health, Safety, and
Well-Being of the American People; Increase Efficiency, Transparency,
and Accountability of HHS Programs; and Strengthen the Nation's Health
and Human Services Infrastructure and Workforce (http://www.hhs.gov/about/FY2012budget/strategicplandetail.pdf). HHS prioritizes policy and
program interventions to address the leading causes of death and
disability in the United States, including heart disease, cancer,
stroke, chronic lower respiratory diseases, unintentional injuries, and
preventable behaviors. Initiatives such as the HHS Action Plan to
Reduce HAIs in clinical settings and the Partnership for Patients
exemplify these programs.
CMS Strategic Plan. We strive to ensure that measures for
different Medicare and Medicaid programs are aligned with priority
quality goals, that measure specifications are aligned across settings,
that outcome measures are used whenever possible, and that quality
measures are collected from EHRs as appropriate.
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 in the Medicare population have been reported,
despite established clinical guidelines, across populations or
geographic areas.
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 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 multiyear 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. However, we indicated that these finalized measure sets
for multiple years 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 began
using 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.
b. Proposed Hospital IQR Program Measures for the FY 2015 Payment
Determination and Subsequent Years
(1) Process for Retention of Hospital IQR Program Measures Adopted in
Previous Payment Determinations
We previously finalized 76 measures for the FY 2015 Hospital IQR
Program measure set (76 FR 51636 through 51637). We note that this
number includes the four measures for which we have suspended data
collection.

[[Page 28038]]

In past rulemakings, we have proposed to retain previously adopted
measures for each payment determination on a year-by-year basis and
invited public comment on the proposal to retain such measures for all
future payment determinations unless otherwise specified. Specifically,
for the purpose of streamlining the rulemaking process, we are
proposing that when we adopt measures for the Hospital IQR Program
beginning with a payment determination and subsequent years, these
measures are automatically adopted for all subsequent payment
determinations unless we propose to remove, suspend, or replace the
measures. We invite public comment on this approach.
(2) Proposed Additional Hospital IQR Program Measures for the FY 2015
Payment Determination and Subsequent Years
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51636 through
51637), we finalized 17 new measures for the Hospital IQR measure set
for FY 2015 payment determination: 3 HAI measures collected through the
NHSN, (MRSA Bacteremia, C. difficile SIR, and the Healthcare Personnel
Influenza Vaccination), the Stroke measure set (8 measures) and the VTE
measure set (6 measures).
(A) Proposed New Survey-Based Measure Items for Inclusion in the HCAHPS
Survey Measure for the FY 2015 Payment Determination and Subsequent
Years
For the FY 2015 payment determination and subsequent years, we are
proposing to add the NQF-endorsed 3-Item Care Transition Measure (CTM-
3) (NQF 0228) to the existing HCAHPS survey. This measure is
NQF-endorsed; therefore, the measure meets the selection criteria under
section 1886(b)(3)(B)(viii)(IX)(aa) of the Act. The 3-Item Care
Transition was developed by the University of Colorado Health Sciences
Center for the NQF Endorsement Project entitled ``National Voluntary
Consensus Standards for Quality of Cancer Care.'' The MAP supports the
immediate inclusion of the CTM-3 measure within the Hospital IQR
Program. The three care transitions items that comprise the CTM-3,
which we are proposing to add to the HCAHPS survey beginning with
January 2013 discharges, are listed below. Detailed information on
scoring methodology can be found on the Care Transition Measure Web
site: http://www.caretransitions.org/documents/CTM3Specs0807.pdf.
The HCAHPS Survey was designed to accommodate the addition of
supplemental items, provided such items adhere to the relevant HCAHPS
survey protocols, see HCAHPS Quality Assurance Guidelines V7.0, p. 72:
http://www.hcahpsonline.org/files/HCAHPS%20Quality%20Assurance%20Guidelines%20V7.0%20March%202012.pdf.
The survey items that comprise the CTM-3 that we propose to add to
HCAHPS meet these protocols. The addition of select items to HCAHPS is
consistent with the survey's original design, development and NQF
endorsement. Further, the CTM-3 was designed by its developers to be
consistent and compatible with extant HCAHPS items and HCAHPS sampling
and survey administration protocols. The original, NQF-endorsed CTM-3
items and response options are as follows:
The hospital staff took my preferences and those of my
family or caregiver into account in deciding what my health care needs
would be when I left the hospital.
[squ] Strongly Disagree
[squ] Disagree
[squ] Agree
[squ] Strongly Agree
[squ] Don't Know/Don't Remember/Not Applicable
When I left the hospital, I had a good understanding of
the things I was responsible for in managing my health.
[squ] Strongly Disagree
[squ] Disagree
[squ] Agree
[squ] Strongly Agree
[squ] Don't Know/Don't Remember/Not Applicable
When I left the hospital, I clearly understood the purpose
for taking each of my medications.
[squ] Strongly Disagree
[squ] Disagree
[squ] Agree
[squ] Strongly Agree
[squ] Don't Know/Don't Remember/Not Applicable
In order to make the CTM-3 items more fully consistent and
compatible with the original HCAHPS Survey items, we have made a few
small modifications. Specifically, we are proposing: (1) To slightly
reword the first care transition item by adding the phrase, ``During
this hospital stay;'' (2) to delete the ``Don't Know/Don't Remember/Not
Applicable'' response option from each item; and (3) to add a new
response option, ``I was not given any medication when I left the
hospital,'' to the third care transition item. These small
modifications preserve the integrity and utility of the HCAHPS Survey
as it is expanded to encompass a new dimension of patients' experience
of hospital care. The developer of the CTM-3 has agreed to these
modifications, which we believe are consistent with the NQF
endorsements of the original 27-item HCAHPS Survey and of the CTM-3.
After incorporating these modifications, the CTM-3 items that we
are proposing to add to the HCAHPS Survey are as follows:
During this hospital stay, staff took my preferences and
those of my family or caregiver into account in deciding what my health
care needs would be when I left.
[squ] Strongly disagree
[squ] Disagree
[squ] Agree
[squ] Strongly agree
When I left the hospital, I had a good understanding of
the things I was responsible for in managing my health.
[squ] Strongly disagree
[squ] Disagree
[squ] Agree
[squ] Strongly agree
When I left the hospital, I clearly understood the purpose
for taking each of my medications.
[squ] Strongly disagree
[squ] Disagree
[squ] Agree
[squ] Strongly agree
[squ] I was not given any medication when I left the hospital
We also are proposing to add two items to the ``About You'' section
of the HCAHPS survey beginning with January 2013 discharges. These two
items would not be included in public reporting of the HCAHPS survey
but may be employed in the patient-mix adjustment of survey responses.
The two proposed ``About You'' items are as follows:
During this hospital stay, were you admitted to this
hospital through the Emergency Room?
[squ] Yes
[squ] No
In general, how would you rate your overall mental or
emotional health?
[squ] Excellent
[squ] Very good
[squ] Good
[squ] Fair
[squ] Poor
The two new ``About You'' items were developed and tested in the
Three-State Pilot Study of HCAHPS in 2003. Neither item was adopted in
the national implementation of HCAHPS in 2006; however, current
circumstances, as explained below, warrant the addition of these items
to the HCAHPS survey at this time. We invite public comment on the two
proposed ``About You'' items.

[[Page 28039]]

Until 2010, ``emergency room admission'' as a point of origin for
hospital patients was an administrative code provided by hospitals and
was used as a patient-mix adjustment for HCAHPS scores. However, since
July 2010, the ``Point of Origin for Admission or Visit'' code for
Emergency Room has been discontinued for use by Medicare payment
systems and, thus became unavailable for HCAHPS patient-mix adjustment.
In the original HCAHPS mode experiment, we determined empirically that
emergency room admission status both vary across hospitals and have an
important bearing on patient experience of care: http://www.hcahpsonline.org/files/Final%20Draft%20Description%20of%20HCAHPS%20Mode%20and%20PMA%20with%20bottom%20box%20modedoc%20April%2030,%202008.pdf. The inclusion of a new
patient-reported survey item will allow us to again use emergency room
admission as a patient-mix adjustment variable.
We have received numerous inquiries and requests from hospitals and
researchers to add a survey item concerning the patient's overall
mental health. The survey item we are proposing to add, which is very
similar in structure to the existing ``overall health'' item, will
allow us to introduce a patient-mix adjustment for this characteristic
in the future. Although we chose not to add a survey item about
patient's overall mental health status in the national implementation
of HCAHPS in 2006, we continue to receive inquiries and requests from
hospitals and researchers on this topic. Some researchers claim that
mental health status is an important factor in how patients respond to
HCAHPS survey items. The continuing interest in this topic, coupled
with the direct impact of HCAHPS performance on hospital payments
beginning in October 2012, led to the decision to add an overall mental
health item to the HCAHPS survey. The overall mental health survey item
we have chosen very closely resembles the Overall General Health item
in the HCAHPS Survey, has been extensively tested, and is currently
included in several other CAHPS surveys.
We are proposing to add these two ``About You'' items to the
existing HCAHPS survey, with required collection beginning January 1,
2013. More detail regarding HCAHPS requirements is included in the
Form, Manner and Timing section of this preamble for this program. We
invite public comment on the proposed addition of these items for the
FY 2015 payment determination.
(B) Proposed New Claims-Based Measures for the FY 2015 Payment
Determination and Subsequent Years
(i) Hip/Knee Complication: Hospital-Level Risk-Standardized
Complication Rate (RSCR) Following Elective Primary Total Hip
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) (NQF
1550)
The THA and TKA are commonly performed procedures for the Medicare
population that improve quality of life. In 2003, there were 202,500
THAs and 402,100 TKAs performed,\50\ and the number of procedures
performed annually has increased steadily over the past decades. Annual
hospital charges are projected to increase by 340 percent to $17.4
billion for THA and by 450 percent to $40.8 billion for TKA by 2015.
Annual hospital charges are projected to increase by 340 percent to
$17.4 billion for THA and by 450 percent to $40.8 billion for TKA by
2015.\51\ The post-operation complications of these procedures are high
considering these are selective procedures and usually the
complications are devastating to patients. For example, rates for
periprosthetic joint infection, a rare but devastating complication,
have been reported at 2.3 percent for THA/TKA patients with rheumatoid
arthritis,\52\ and 1.6 percent in primary elective TKA patients after 1
and 2 years of follow up, respectively.\53\ Two studies reported 90-day
death rates following THA at 0.7 percent \54\ and 2.7 percent.\55\
Reported rates for pulmonary embolism following TKA range from 0.5
percent to 0.9 percent.\56,57,58,59\ Reported rates for septicemia
range from 0.1 percent, during the index admission \60\ to 0.3 percent,
90 days following discharge for primary TKA.\61\ Rates for bleeding and
hematoma following TKA have been reported at 0.94 percent \62\ to 1.7
percent.\63\ In 2005, annual hospital charges totaled $3.95 billion and
$7.42 billion for primary THA and TKA, respectively.\64\ Combined, THA
and TKA procedures account for the largest payments for procedures
under Medicare.\65\
---------------------------------------------------------------------------

\50\ Kurtz S, Ong K, Lau E, Mowat F, Halpern M., Projections of
primary and revision hip and knee arthroplasty in the United States
from 2005 to 2030. J Bone Joint Surg Am. Apr 2007;89(4):780-785.
\51\ Kurtz SM, Ong KL, Schmier J, et al., Future clinical and
economic impact of revision total hip and knee arthroplasty. J Bone
Joint Surg Am. Oct 2007;89 Suppl 3:144-151.
\52\ Bongartz, T, Halligan CS, Osmon D, et al. Incidence and
risk factors of prosthetic joint infection after total hip or knee
replacement in patients with rheumatoid arthritis. Arthritis Rheum.
2008; 59(12): 1713-1720.
\53\ Kurtz S, Ong K, Lau E, Bozic K, Berry D, Parvizi J.
Prosthetic joint infection risk after TKA in the Medicare
population. Clin Orthop Relat Res. 2010;468:5.
\54\ Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN, Rosenthal GE.
A comparison of total hip and knee replacement in specialty and
general hospitals. J Bone Joint Surg Am. Aug 2007;89(8):1675-1684.
\55\ Soohoo NF, Farng E, Lieberman JR, Chambers L, Zingmond, DS.
Factors That Predict Short-term Complication Rates After Total Hip
Arthroplasty. Clin Orthop Relat Res. Sep 2010;468(9):2363-2371.
\56\ Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN, Rosenthal GE.
A comparison of total hip and knee replacement in specialty and
general hospitals. J Bone Joint Surg Am. Aug 2007;89(8):1675-1684.
\57\ Mahomed NN, Barrett JA, Katz JN, et al. Rates and outcomes
of primary and revision total hip replacement in the United States
medicare population. J Bone Joint Surg Am. Jan 2003;85-A(1):27-32.
\58\ Khatod M, Inacio M, Paxton EW, et al. Knee replacement:
epidemiology, outcomes, and trends in Southern California: 17,080
replacements from 1995 through 2004. Acta Orthop. Dec
2008;79(6):812-819.
\59\ Solomon DH, Chibnik LB, Losina E, et al. Development of a
preliminary index that predicts adverse events after total knee
replacement. Arthritis & Rheumatism. 2006;54(5):1536-1542.
\60\ Browne, JA, Cook C, Hofmann A, Bolognesi MP. Postoperative
morbidity and mortality following total knee arthroplasty with
computer navigation. Knee. 2010;17(2): 152-156.
\61\ Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN, Rosenthal GE.
A comparison of total hip and knee replacement in specialty and
general hospitals. J Bone Joint Surg Am. Aug 2007;89(8):1675-1684.
\62\ Browne, JA, Cook C, Hofmann A, Bolognesi MP. Postoperative
morbidity and mortality following total knee arthroplasty with
computer navigation. Knee. 2010;17(2): 152-156.
\63\ Huddleston JI, Maloney WJ, Wang Y, Verzier N, Hunt DR,
Herndon JH. Adverse Events After Total Knee Arthroplasty: A National
Medicare Study. The Journal of Arthroplasty. 2009;24(6, Supplement
1):95-100.
\64\ Kurtz S, Ong K, Lau E, Mowat F, Halpern M., Projections of
primary and revision hip and knee arthroplasty in the United States
from 2005 to 2030. J Bone Joint Surg Am. Apr 2007;89(4):780-785.
\65\ Bozic KJ, Rubash HE, Sculco TP, Berry DJ., An analysis of
medicare payment policy for total joint arthroplasty. J
Arthroplasty. Sep 2008;23(6 Suppl 1):133-138.
---------------------------------------------------------------------------

Both hip and knee arthroplasty procedures improve the function and
quality of life of patients with disabling arthritis, and the volume
and cost associated with these procedures are very high. We believe it
is important to assess the quality of care provided to Medicare
beneficiaries who undergo one or both of these procedures.
The Hip/Knee Complication: Hospital-Level Risk-Standardized
Complication Rate (RSCR) Following Elective Primary Total Hip
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) measure (NQF
1550) is an outcome measure. We are proposing this measure
for the Hospital IQR Program because outcome measures are priority
areas for the Hospital IQR Program. We believe it is important to
assess the quality of care provided to Medicare beneficiaries who
undergo one or both of these procedures and publicly report

[[Page 28040]]

the hospital rates for consumer choice of care.
The proposed measure assesses complications occurring after THA and
TKA surgery from the date of the index admission to 90 days post date
of the index admission. The outcome is one or more of the following
complications: acute myocardial infarction, pneumonia, or sepsis/
septicemia within 7 days of admission; surgical site bleeding,
pulmonary embolism or death within 30 days of admission; or mechanical
complications, periprosthetic joint infection or wound infection within
90 days of admission. The data indicated that the median hospital-level
risk-standardized complication rate for 2008 was 4.2 percent, with a
range from 2.2 percent to 8.9 percent in hospitals. The variation in
complication rates suggest that there are important differences in the
quality of care delivered across hospitals, and that there is room for
quality improvement.
In 2010, we developed a hospital-level risk-standardized
complication rate (RSCR) following elective primary THA and TKA
surgery. NQF endorsed this THA and TKA complication measure in February
2012 (NQF 1550). In its Pre-Rulemaking Report for 2012, the
MAP also recommended the inclusion of this measure in the Hospital IQR
Program. We are proposing to adopt the Hospital-Level Risk-Standardized
Complication Rate (RSCR) Following Elective Primary Total Hip
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) measure for the
Hospital IQR Program for the FY 2015 payment determination and
subsequent years. This measure is NQF-endorsed (NQF 1550);
therefore, the measure meets the selection criteria under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act. The measure specifications can
be found at: http://www.qualityforum.org/Projects/Surgery_Maintenance.aspx#t=2&s=&p=.
The proposed measure uses the same hierarchical logistic modeling
(HLM) methodology that is specified for other NQF-endorsed CMS
inpatient outcome measures previously adopted for this program,
including AMI, HF, and PN readmission and mortality measures because
this modeling has already been subjected to NQF review, and has been
determined to appropriately account for the types of patients a
hospital treats, the number of patients it treats, and the quality of
care it provides. The HLM model estimates risk-standardized
complications rates. Medicare Part A and Part B (FFS) claims are the
data source we used to develop the measure and that we are proposing to
use to calculate the measure if finalized. Index admission diagnoses
and in-hospital comorbidities would be assessed using Medicare Part A
claims. Additional comorbidities prior to the index admission would be
assessed using Part A inpatient, outpatient, and Part B office visit
Medicare claims in the 12 months prior to index (initial) admission.
Enrollment and post-discharge mortality status would be obtained from
Medicare's enrollment database which contains beneficiary demographic,
benefit/coverage, and vital status information.
The proposed Total Hip and Total Knee Arthroplasty Complication
measure includes Medicare FFS beneficiaries, aged 65 years or older,
admitted to non-Federal acute care hospitals for THA or TKA. The
measure methodology identifies eligible index admissions, using the
following ICD-9-CM procedure codes: 81.51 Total Hip Arthroplasty; and
81.54 Total Knee Arthroplasty in Medicare Part A inpatient claims data.
The measure specifications will be updated yearly and will be specified
using ICD-10.
In addition, the proposed measure includes patients who have had
continuous enrollment in Medicare FFS for one year prior to the date of
index admission to ensure full data availability for risk adjustment.
We restrict the sample to admissions of patients enrolled in Medicare
FFS coverage in the 12 months prior to and including the time of their
index admission to a non-Federal acute care hospital because of the
availability of complete administrative data for most Medicare FFS
patients.
The proposed measure does not include beneficiaries enrolled in
Medicare Managed Care (``Medicare Advantage'') plans because only
partial administrative data are reported to CMS. We would not have
complete data on these Medicare Advantage enrollees. Patients under age
65 (the qualifying age for Medicare coverage for those not considered
disabled or with end-stage renal disease) or for whom we otherwise have
incomplete information--for example, those enrolled in a Medicare
Advantage plan during any part of the relevant time period-- will also
be excluded to ensure data comparability. Additionally, these
restrictions on the data allow for an appropriately comprehensive risk-
adjustment for patient case-mix and comorbidity that would not be
possible without access to data available to this population.
The proposed measure excludes patients with hip fractures (patients
with hip fractures have higher mortality, complication rates and the
procedure (THA) is not elective); patients undergoing revision
procedures (may be performed at a disproportionately small number of
hospitals and are associated with higher mortality, complication and
readmission rates); patients undergoing partial hip arthroplasty
(primarily done for hip fractures and are typically performed on
patients who are older, more frail, and with more comorbid conditions)
; patients undergoing resurfacing procedures (different type of
procedure which is typically performed on younger, healthier patients);
patients who are transferred to the index hospital (it is likely that
the procedure is not elective); patients who leave the hospital against
medical advice (it is likely that the procedure is not elective);
patients with more than two THA/TKA procedure codes during the index
hospitalization (unlikely that patients would receive more than two
THA/TKA procedures in one hospitalization, and this pattern may reflect
coding errors); and patients with multiple admissions for THA/TKA in
the 12 months studies.
Consistent with the requirements in section
1886(b)(3)(B)(viii)(VIII) of the Act, the proposed measure is risk-
adjusted. It takes into account the patient case-mix to assess hospital
performance. The patient risk factors are defined using the
Hierarchical Condition Categories (CC), which are clinically relevant
diagnostic groups of ICD-9-CM codes.\66\ The CCs used in the risk
adjustment model for this measure, are provided at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1182785083979. The proposed measure meets the statutory requirement because it
adjusted for hospital patient mix including age and comorbidities to
ensure that hospitals that care for a less healthy patient population
are not penalized unfairly. The measure methodology defines
``complications'' as Acute myocardial infarction; Pneumonia; Sepsis/
septicemia; Pulmonary embolism; Surgical site bleeding; Death; Wound
infection; Periprosthetic joint infection; and Mechanical complication
within 30 to 90 days post the index date of admission, depending on the
complication. The decision on the appropriate follow-up period was
based on our analysis of 90-day trends in complication rates using the
2008 Medicare FFS Part A Inpatient Data. We found that rates for
mechanical complications are elevated until 90 days

[[Page 28041]]

post the date of index admission. We found that the rates for four
other complications--death, surgical site bleeding, wound infection,
and pulmonary embolism--are elevated for 30 days, and that AMI,
pneumonia, and sepsis/septicemia level off 7 days post date of index
admission. The following table presents the follow-up period for each
complication.
---------------------------------------------------------------------------

\66\ Pope G, Ellis R, Ash A, et al., Principal Inpatient
Diagnostic Cost Group Models for Medicare Risk Adjustment. Health
Care Financing Review. 2000;21(3):26.

Complication Follow-Up Periods
------------------------------------------------------------------------
Follow-up
Complication period
(days)
------------------------------------------------------------------------
Death....................................................... 30
Mechanical complications.................................... 90
Periprosthetic joint infection (PJI)........................ 90
Surgical site bleeding...................................... 30
Wound infection............................................. 30
Pulmonary embolism.......................................... 30
AMI......................................................... 7
Pneumonia................................................... 7
Sepsis/septicemia........................................... 7
------------------------------------------------------------------------

We are proposing to calculate the hospital risk-standardized
complication rate by producing a ratio of the number of ``predicted''
complications (that is, the adjusted number of complications at a
specific hospital based on its patient population) to the number of
``expected'' complications (that is, the number of complications if an
average quality hospital treated the same patients) for each hospital
and then multiplying the ratio by the national raw complication rate.
We invite public comment on the proposed inclusion of the Hospital-
Level Risk-Standardized Complication Rate (RSCR) Following Elective
Primary Total Hip Arthroplasty (THA) and Total Knee Arthroplasty
measure in the Hospital IQR Program for the FY 2015 payment
determination and future years. (ii) Hip/Knee Readmission: Hospital-
Level 30-Day All-Cause Risk-Standardized Readmission Rate (RSRR)
Following Elective Total Hip Arthroplasty (THA) and Total Knee
Arthroplasty (TKA) (NQF 1551)
As previously stated, outcome measures such as complications and
readmissions are the priority areas for the Hospital IQR Program. The
THA and TKA are commonly performed procedures that improve quality of
life. The complications are usually devastating to the patient and
costly to the Medicare program. Furthermore we believe that there is an
opportunity for quality improvement by hospitals to improve quality of
life for the patient. The 2008 Medicare FFS claims data indicate that
30-day hospital-level risk-standardized readmission rates ranged from
3.06 percent to 50.94 percent among hospitals with a median rate of
6.06 percent. The mean risk-standardized readmission rate was 6.3
percent. This variation suggests there are important differences in the
quality of care received across hospitals, and that there is room for
improvement.
Given the high volume and high cost associated with these hip and
knee procedures (relative to other elective procedures performed in the
Medicare population), we believe that it is imperative to assess the
quality of care provided to Medicare beneficiaries who undergo one or
both of these procedures. A measure that addresses readmission rates
following THA and TKA provides an opportunity to provide targets for
efforts to improve the quality of care and reduce costs for patients
undergoing these elective procedures. The measure also increases
transparency for consumers and provides patients with information that
could guide their choices. Finally, it has the potential to lower
health care costs associated with readmissions. The development of
risk-adjusted measures of patient readmission outcomes can provide a
critical perspective on the provision of care, and support improvements
in care for the Medicare patient population following THA/TKA
hospitalization.
We are proposing to adopt the Hip/Knee Readmission: Hospital 30-Day
All-Cause Readmission Following Elective Total Hip Arthroplasty (THA)
and Total Knee Arthroplasty (TKA) measure for the Hospital IQR Program
for the FY 2015 payment determination and subsequent years. This
measure is NQF-endorsed; therefore, the measure meets the selection
criteria under section 1886(b)(3)(B)(viii)(IX)(aa) of the Act. The
measure specification for this measure can be found on the Web site at:
http://www.qualityforum.org/Projects/Surgery_Maintenance.aspx#t=2&s=&p=. In its Pre-Rulemaking Report, the MAP
recommended the inclusion of this measure in the Hospital IQR Program.
The objective of this proposed measure is to assess readmission from
any cause within 30 days of the initial total hip arthroplasty and
total knee arthroplasty admissions for patients discharged from the
hospital following elective primary THA and TKA.
The proposed measure uses the same HLM methodology that is
specified for the NQF-endorsed AMI, HF, and PN 30-day risk-adjusted
all-cause readmission measures in the Hospital IQR Program because it
has already been subjected to NQF review and has been determined to
appropriately account for the types of patients the hospital treats,
the number of patients it treats, and the quality of care it provides.
The HLM model estimates risk-standardized readmission rates. The data
source we used to develop the measure and that we would use to
calculate the measure if finalized is Medicare Part A (FFS) claims.
Index admission diagnoses and in-hospital comorbidity data would be
assessed using Medicare Part A claims. Additional comorbidities prior
to the index admission would be assessed using Part A inpatient,
outpatient, and Part B office visit Medicare claims in the 12 months
prior to index (initial) admission. Enrollment status would be obtained
from Medicare's enrollment database which contains beneficiary
demographic, benefit/coverage, and vital status information.
The proposed measure includes admissions for patients who were
Medicare FFS beneficiaries, aged 65 years or older, admitted to non-
Federal acute care hospitals with an ICD-9-CM code for THA or TKA.
Eligible index admissions would be identified using the following ICD-
9-CM procedure codes: 81.51 (Total hip arthroplasty); and 81.54 (Total
knee arthroplasty) in Medicare Part A inpatient claims data.
In addition, patients must have had continuous enrollment in
Medicare FFS for one year prior to the date of index admission to
ensure full data availability for risk adjustment. We restrict the
included cases to admissions of patients enrolled in Medicare FFS
coverage in the 12 months prior to and including the time of their
index admission to a non-Federal acute care hospital because of the
availability of complete administrative data for most Medicare FFS
patients.
We are proposing not to include beneficiaries enrolled in Medicare
Managed Care (``Medicare Advantage'') plans because only partial
administrative data are reported to CMS. We would not have complete
data on these Medicare Advantage enrollees. Patients under age 65 (the
qualifying age for Medicare coverage for those not considered disabled
or with end-stage renal disease) or for whom we otherwise have
incomplete information--for example, those enrolled in a Medicare
Managed Care plan during any part of the relevant time period--will
also be excluded to ensure data comparability.
We are proposing to exclude patients with hip fractures (patients
with hip fractures have higher mortality, complication and readmission
rates and the procedure (THA) is generally not elective); patients
undergoing revision procedures (may be performed at a
disproportionately small number of hospitals and are associated with
higher readmission rates); patients undergoing

[[Page 28042]]

partial hip arthroplasty (partial arthroplasties are primarily done for
hip fractures and are typically performed on patients who are older,
more frail, and with more comorbid conditions); patients undergoing
resurfacing procedures (resurfacing procedures are a different type of
procedure which are typically performed on younger, healthier
patients); patients who are transferred into the index hospital (it is
likely that the procedure is not elective); patients who are admitted
for the index procedure and subsequently transferred to another acute
care facility (attribution of readmission to the index hospital would
not be possible in these cases); patients who leave the hospital
against medical advice (providers do not have the opportunity to
provide the highest quality care for these patients); patients with
more than two THA/TKA procedure codes during the index hospitalization
(unlikely that patients would receive more than two THA/TKA procedures
in one hospitalization and this may reflect a coding error); patients
without at least 30-days post-discharge enrollment in Medicare FFS (the
30-day readmission outcome cannot be assessed for the standardized time
period); and patients who die during the index admission (patients who
die during the initial hospitalization are not eligible for
readmission).
The proposed measure methodology does not count readmissions that
are associated with a subsequent ``planned'' THA/TKA procedure within
30-days of discharge from index hospitalization. Some patients may
elect to stage their orthopedic replacement procedures across
hospitalizations (for example, a patient may have the left and right
knees replaced within one or two weeks of each other, potentially
across multiple hospitalizations). The planned readmissions are defined
as a second admission with a procedure code for THA or TKA AND a
primary discharge diagnosis of osteoarthritis, rheumatoid arthritis,
osteonecrosis, or arthropathy (excluding septic arthropathy).
Consistent with the requirements in section
1886(b)(3)(B)(viii)(VIII) of the Act, the proposed measure is risk-
adjusted. It takes into account patient age and comorbidities to allow
a fair assessment of hospital performance. The measure defines the
patient risk factors for readmission using diagnosis codes collected
from all patient claims one year prior to patient index hospitalization
for THA and TKA. The patient diagnosis codes are grouped using
Hierarchical Condition Categories (CCs), which are clinically relevant
diagnostic groups of ICD-9-CM codes.\67\
---------------------------------------------------------------------------

\67\ Pope G, Ellis R, Ash A, et al., Principal Inpatient
Diagnostic Cost Group Models for Medicare Risk Adjustment. Health
Care Financing Review. 2000;21(3):26.
---------------------------------------------------------------------------

The CCs used in the risk adjustment model for this measure, are
provided at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069856694. Patient risk factors are used to determine how sick the patients
are on admission (that is, patient comorbidities). The hospital measure
rates are calculated taking into account how sick their patients are.
In summary, age and comorbidities present at the time of admission
would be adjusted for differences in hospital case mix (patient risk
factors).
The proposed measure uses the HLM methodology for risk adjustment.
As we do for all the other 30-day readmission measures adopted for the
Hospital IQR Program, we would calculate (using the HLM) the hospital
risk-standardized readmission rate by producing a ratio of the number
of ``predicted'' readmissions (that is, the adjusted number of
readmissions at a specific hospital) to the number of ``expected''
readmissions (that is, the number of readmissions if an average quality
hospital treated the same patients) for each hospital and then
multiplying the ratio by the national raw readmission rate.
While the hip and knee complications measure will inform quality
improvement efforts targeted toward minimizing medical and surgical
complications during surgery and in the recovery phase, the hip and
knee readmission measure portrays a broader range of medical and
surgical outcomes affected by in-hospital care and the transition to
post-acute care. This measure was endorsed by the NQF (1551)
and recommended by the MAP for the Hospital IQR Program in its Pre-
Rulemaking report for 2012.
We are proposing to include the Hospital-Level 30-Day All-Cause
Risk-Standardized Readmission Rate (RSRR) Following Elective Total Hip
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) measure in the
Hospital IQR Program for the FY 2015 payment determination and future
years. We invite public comment on this proposal.
(iii) Hospital-Wide Readmission (Tentative NQF 1789)
During 2003 and 2004, over 2.3 million Medicare patients (almost
one fifth of all Medicare beneficiaries) were rehospitalized within 30
days of discharge from an acute care hospital, and it was estimated
that readmissions within 30 days of discharge cost Medicare more than
$17 billion annually.\68\ In its 2007 Report to the Congress, MedPAC
estimated that in 2005, 17.6 percent of hospital patients were
readmitted within 30 days of discharge.\69\ MedPAC estimated that the
average payment for a ``potentially preventable'' readmission was
approximately $7,200. A 2006 Commonwealth Fund Report estimated that if
national readmission rates were lowered to the levels achieved by the
top performing regions, Medicare would save $1.9 billion annually.\70\
We believe that reducing preventable readmissions will bring down
healthcare costs.
---------------------------------------------------------------------------

\68\ Jencks SF, Williams MV, Coleman EA. Rehospitalizations
among patients in the Medicare fee-for-service program. N Engl J
Med. Apr 2 2009;360(14):1418-1428.
\69\ Medicare Payment Advisory Commission (MedPAC), Report to
the Congress: Promoting Greater Efficiency in Medicare. 2007.
\70\ The Commonwealth Fund, Why Not the Best? Results from a
National Scorecard on U.S. Health System Performance. 2006:
Harrisburg, PA.
---------------------------------------------------------------------------

Since 2009, we have publicly reported risk-standardized readmission
rates (RSRRs) for three conditions: heart failure (HF), pneumonia (PN)
and acute myocardial infarction (AMI) on Hospital Compare (http://www.hospitalcompare.hhs.gov/), as part of the efforts to improve
quality of care and lower healthcare costs. However, these three
conditions account for only a relatively small proportion of total
hospital readmissions. High RSRRs and substantial variations in
hospital RSRRs were found. The median 30-day RSRRs across hospitals is
19.9 percent for AMI (range from 15.3 percent to 26.8 percent); 24.8
percent for HF (range from 17.0 percent to 33.0 percent); and 18.4
percent for PN (range from 13.8 percent to 26.4 percent).\71\
---------------------------------------------------------------------------

\71\ Bernheim S, Wang Y, Grady J, et al. Measures Maintenance
Technical Report: Acute Myocardial Infarction. Heart Failure, and
Pneumonia 30-day Risk Standardized Mortality Measures. 2011;
Available at: http://www.qualitynet.org/.
---------------------------------------------------------------------------

A hospital's readmission rate is affected by complex and critical
aspects of care such as communication between providers or between
providers and patients; prevention of, and response to, complications;
patient safety; and coordinated transitions to the outpatient
environment. While disease-specific measures of readmission are useful
in identifying deficiencies in care for specific groups of patients,
they account for only a small minority of total readmissions.\72\ By
contrast, a hospital-

[[Page 28043]]

wide, all-condition readmission measure could portray a broader sense
of the quality of care in hospitals. Consequently, hospital-wide, all-
condition readmission measures can promote hospital quality improvement
and better inform consumers about care quality.
---------------------------------------------------------------------------

\72\ Jencks SF, Williams MV, Coleman EA. Rehospitalizations
among patients in the Medicare fee-for-service program. N Engl J
Med. Apr 2 2009;360(14):1418-1428.
---------------------------------------------------------------------------

Studies have estimated the rate of preventable readmissions to be
as low as 12 percent and as high as 76 percent.\73,74\ Some
readmissions are unavoidable, for example, those that result from
inevitable progression of disease or worsening of chronic conditions.
However, readmissions may also result from poor quality of care or
inadequate transitional care. Randomized controlled trials have shown
that improvement in the following areas can directly reduce hospital
readmission rates: Quality of care during the initial admission;
improvement in communication with patients, their caregivers and their
clinicians; patient education; pre-discharge assessment; and
coordination of care after discharge. Successful randomized trials have
reduced 30-day readmission rates by 20-40
percent.^{75,76,77,78,79,80,81} Evidence that hospitals have
been able to reduce readmission rates through these quality-of-care
initiatives illustrates the degree to which hospital best practices can
affect readmission rates.
---------------------------------------------------------------------------

\73\ Benbassat J, Taragin M. Hospital readmissions as a measure
of quality of health care: advantages and limitations. Arch Inter
Med 2000;160(8):1074-81.
\74\ Medicare Payment Advisory Commission (U.S.). Report to the
Congress promoting greater efficiency in Medicare. Washington, DC:
Medicare Payment Advisory Commission, 2007.
\75\ Jack BW, Chetty VK, Anthony D, Greenwald JL, Sanchez GM,
Johnson AE, et al. A reengineered hospital discharge program to
decrease rehospitalization: a randomized trial. Ann Intern Med
2009;150(3):178-87.
\76\ Coleman EA, Smith JD, Frank JC, Min SJ, Parry C, Kramer AM.
Preparing patients and caregivers to participate in care delivered
across settings: the Care Transitions Intervention. J Am Geriatr Soc
2004;52(11):1817-25
\77\ Courtney M, Edwards H, Chang A, Parker A, Finlayson K,
Hamilton K. Fewer emergency readmissions and better quality of life
for older adults at risk of hospital readmission: a randomized
controlled trial to determine the effectiveness of a 24-week
exercise and telephone follow-up program. J Am Geriatr Soc
2009;57(3):395-402.
\78\ Garasen H, Windspoll R, Johnsen R. Intermediate care at a
community hospital as an alternative to prolonged general hospital
care for elderly patients: a randomised controlled trial. BMC Public
Health 2007;7:68.
\79\ Koehler BE, Richter KM, Youngblood L, Cohen BA, Prengler
ID, Cheng D, et al. Reduction of 30-day postdischarge hospital
readmission or emergency department (ED) visit rates in high-risk
elderly medical patients through delivery of a targeted care bundle.
J Hosp Med 2009;4(4):211-218.
\80\ Naylor M, Brooten D, Jones R, Lavizzo-Mourey R, Mezey M,
Pauly M. Comprehensive discharge planning for the hospitalized
elderly. A randomized clinical trial. Ann Intern Med
1994;120(12):999-1006.
\81\ Naylor MD, Brooten D, Campbell R, Jacobsen BS, Mezey MD,
Pauly MV, et al. Comprehensive discharge planning and home follow-up
of hospitalized elders: a randomized clinical trial. Jama
1999;281(7):613-20.
---------------------------------------------------------------------------

Our Quality Improvement Organizations (QIOs) began projects to
improve care transitions during the 9th Statement of Work in fourteen
communities by applying successful interventions learned from clinical
trials, such as medication reconciliation, increased patient education,
follow up after discharge, and post-discharge instructions for
patients.\82\ Important interventions to integrate care for populations
and communities now continue among all 53 QIOs on a national scale in
the QIO 10th Statement of Work which began August 2011.
---------------------------------------------------------------------------

\82\ Jack BW, Chetty VK, Anthony D, Greenwald JL, Sanchez GM,
Johnson AE, et al. A reengineered hospital discharge program to
decrease rehospitalization: A randomized trial. Ann Intern Med
2009;150(3):178-87.
---------------------------------------------------------------------------

Because many studies have shown readmissions to be related to
quality of care, and that interventions have been able to reduce 30-day
readmission rates, we believe that it is appropriate to include an all-
condition readmission rate as a quality measure in the Hospital IQR
Program. Promoting quality improvements leading to successful
transition of care for patients from acute care to outpatient setting,
and reducing short term, preventable hospital-wide readmission rates
are CMS's priority objectives.
To provide a broader assessment of the quality of care at
hospitals, especially for hospitals with too few AMI/HF/PN readmissions
to count separately, we have developed a Hospital-Wide Readmission
(HWR) measure using 2008 Medicare FFS data. Detailed information and
specifications for this measure can be found on the NQF Web site at:
http://www.qualityforum.org/Projects/Readmissions_Endorsement_Maintenance.aspx#t=2&s=&p=7%7C6%7C5%7C4%7C. The objective of the
proposed HWR measure is to assess the hospital-level, risk-standardized
rate of unplanned, all-cause readmissions after admissions for any
eligible condition within 30 days of hospital discharge. The proposed
measure comprises a single summary score, derived from the results of
five different models, one for each of the following specialty cohorts
(groups of discharge condition categories or procedure categories):
Medicine, surgery/gynecology; cardiorespiratory; cardiovascular; and
neurology.
We are proposing to use one year of data to calculate the measure
rate for the HWR measure, which we believe is sufficient to calculate
this measure in a statistically reliable manner. The reliability of a
hospital's measure rate is related to its sample size. For its rate to
be calculated reliably statistically, a hospital needs to have a
sufficient number of patient cases to which the measure applies.
Because the proposed HWR measure addresses over 90 percent of Medicare
FFS hospitalizations for patients aged 65 and older, we believe one
year of data would yield a sufficient number of cases to assess
hospital performance in a statistically reliable manner. In contrast,
for the condition-specific readmission measures for AMI, Heart Failure
and Pneumonia, each of which address a smaller proportion of Medicare
FFS Hospitalizations than the HWR measure, we must use three years of
data for to have a enough patient cases to calculate the rates for
these measures. We also believe that use of one year of data for the
HWR measure is appropriate because it allows us to calculate up-to-date
hospital performance for the most recent year, rather than calculating
hospital performance over the course of three years, as we must do for
the AMI, HF, and PN readmission measures. The proposed measure
methodology is described in greater detail below.
The proposed measure uses 30 days following the index admission as
the timeframe for assessing hospital performance because within this
timeframe, readmissions are more likely attributable to care received
during the index hospitalization and during the transition to the
outpatient setting. For example, hospitals, in collaboration with their
medical communities take actions to reduce readmission, such as
ensuring patients are clinically ready at discharge, reducing risk of
infection, reconciling medications, improving communications among
providers involved in management principles, and educating patients
about symptoms to monitor, whom to contact with questions, and where
and when to seek follow-up care. Furthermore our ``time-to-event
curve'' analyses showed a readmission curve with rapid early accrual of
readmissions with a stable and consistent readmission rate thereafter;
the curve typically stabilized within 30-days of discharge. Finally,
the proposed 30-day timeframe is consistent with the other publicly
reported CMS readmission measures endorsed by the NQF.
The proposed HWR measure defines the outcome as ``all-cause''
unplanned readmissions. Unplanned readmissions

[[Page 28044]]

are acute clinical events experienced by a patient that require urgent
hospital admission. Higher than expected unplanned readmission rates
suggest lower quality of care and are the focus of quality measurement
as part of quality improvement efforts. Because planned readmissions
are not a signal of quality of care, we chose to exclude planned
readmissions from being considered as an outcome for this measure. The
proposed measure includes hospitalizations of patient who was age 65 or
older (at the time of admission) who were in Medicare Fee-for-Service
(FFS) for 12 months prior to the index admission, and who remained in
Medicare FFS for at least 30-days post-discharge. The measure excludes
patients who died during the index admission; patients who were
transferred to another acute care hospital; patients who were
discharged against medical advice; and patients who died within the 30-
day post-discharge period. The measure also excludes admissions for
medical treatment of cancer; for primary psychiatric disease (patients
admitted for psychiatric treatment are typically cared for in separate
psychiatric or rehabilitation centers which are not comparable to acute
care hospitals); or for physical rehabilitation and prosthetic
services.
The proposed measure excludes patients undergoing medical treatment
for their cancer as their primary procedure because we concluded that
readmission may not be a good quality indicator for this cohort of
patients compared to other cohorts. For example, the cancer cohort had
more than twice the post-discharge mortality of any other cohort. It
also has a planned readmission rate six times that of any other
cohort--41 percent of readmissions in this cohort were considered
planned. This indicates that readmission in this population is a
different phenomenon than for other cohorts. Most importantly, this
cohort's risk standardized readmission ratio (SRR) was poorly
correlated with the composite hospital-wide SRR of all other cohorts.
Statistically this implies that readmission for the cancer cohort is
likely measuring an aspect of quality very different from that for
other cohorts. Consequently, we elected to exclude this subset of
cancer patients from the measure.
For this measure, a patient is considered to have been readmitted
if they experience one or more inpatient admissions within the 30 days
after being discharged from an initial inpatient admission, whether the
patient was readmitted to the same hospital or another. The proposed
measure identifies ``planned readmissions'' in claims data that will
not count as readmissions in the measure using an algorithm that
identifies readmissions that are likely to be planned as opposed to
readmissions due to probable complications. The algorithm was based on
two main principles:
The ``planned'' readmissions are those in which one of a
pre-specified list of procedures took place (we refer readers to the
measure methodology documentation on the NQF Web site at: http://www.qualityforum.org/Projects/Readmissions_Endorsement_Maintenance.aspx#t=2&p=2%7C3%7C&s for the list), or those
for maintenance chemotherapy or rehabilitation. Maintenance
chemotherapy and rehabilitation are common planned readmissions that
are reliably distinguishable in the data even though they are not
accompanied by procedures.
Admissions for acute illness or for complications of care
are likely not ``planned.'' Clinically, any procedure completed during
an admission for an acute illness is not likely to have been planned,
even if that procedure is usually planned in other non-acute cases.
Therefore, the proposed measure uses procedure codes and discharge
diagnosis categories for each readmission to identify planned
readmissions. Readmissions that occur for planned procedures (we refer
readers to the measure methodology report on the NQF Web site at:
http://www.qualityforum.org/Projects/Readmissions_Endorsement_Maintenance.aspx#t=2&p=2%7C3%7C&s for the list) and which
are not for acute diagnoses or complications of care (listed below) are
identified as planned.
For example, some patients have their gallbladders removed after
having been identified as having symptomatic gallstones. Usually this
is a surgery that is planned in advance and scheduled. However,
occasionally a patient becomes acutely ill or has sudden inflammation
or infection that requires a gallbladder surgery that was not planned
in advance. The measure uses the patients' principal discharge
diagnosis to differentiate between patients coming in for gallbladder
removal with chronic gallstones (biliary disease) and patients acutely
ill with inflamed gallbladders (cholecystitis) who are having an
unplanned gallbladder removal.
Therefore, the proposed HWR measure defines planned readmissions
which are excluded from the measure as any readmission:
In which any of these procedures set out in the table
below are performed if the discharge condition category is not acute or
a complication of care, as discussed below; or
For maintenance chemotherapy.
All other readmissions are considered unplanned and are counted as
readmissions in the measure.
The following is the list of planned procedures based on the full
AHRQ Clinical Classification Software (CCS) procedure category list.

Procedure Categories Considered Planned Depending on the Discharge
Condition
------------------------------------------------------------------------
Description
------------------------------------------------------------------------
45..................................... Percutaneous transluminal
coronary angioplasty (PTCA).
Rehabilitation (condition CCS
254).
84..................................... Cholecystectomy and common duct
exploration.
157.................................... Amputation of lower extremity.
44..................................... Coronary artery bypass graft
(CABG).
78..................................... Colorectal resection.
51..................................... Endarterectomy; vessel of head
and neck.
113.................................... Transurethral resection of
prostate (TURP).
99..................................... Other OR gastrointestinal
therapeutic procedures.
48..................................... Insertion; revision;
replacement; removal of
cardiac pacemaker or
cardioverter/defibrillator.
Maintenance Chemotherapy
(condition CCS 45).
211.................................... Therapeutic radiology for
cancer treatment.
3...................................... Laminectomy; excision
intervertebral disc.
43..................................... Heart valve procedures.
152.................................... Arthroplasty knee.
158.................................... Spinal fusion.
55..................................... Peripheral vascular bypass.
52..................................... Aortic resection; replacement
or anastomosis.
36..................................... Lobectomy or pneumonectomy.
153.................................... Hip replacement; total and
partial.
60..................................... Embolectomy and endarterectomy
of lower limbs.
85..................................... Inguinal and femoral hernia
repair.
104.................................... Nephrectomy; partial or
complete.
1...................................... Incision and excision of CNS.
124.................................... Hysterectomy; abdominal and
vaginal.
167.................................... Mastectomy.
10..................................... Thyroidectomy; partial or
complete.
114.................................... Open prostatectomy.
74..................................... Gastrectomy; partial and total.
119.................................... Oophorectomy; unilateral and
bilateral.
154.................................... Arthroplasty other than hip or
knee.
Radical laryngectomy, revision
of tracheostomy, scarification
of pleura (ICD-9 codes 30.4,
31.74, 34.6).
166.................................... Lumpectomy; quadrantectomy of
breast.

[[Page 28045]]

64..................................... Bone marrow transplant.
105.................................... Kidney transplant.
176.................................... Other organ transplantation.
Electroshock therapy (ICD-9
codes 94.26, 94.27).
------------------------------------------------------------------------

The algorithm is designed to identify admissions for acute illness
or complication of care as ``unplanned'' readmissions. The acute and
complication discharge condition categories for unplanned readmissions
are listed below.

Discharge Condition Categories Considered Acute or Complications of Care
------------------------------------------------------------------------
AHRQ CCS Description
------------------------------------------------------------------------
237................................... Complication of device; implant
or graft.
106................................... Cardiac dysrhythmias.
Fracture (condition CCS 207,
225, 226, 227, 229, 230, 231,
232).
100................................... Acute myocardial infarction.
238................................... Complications of surgical
procedures or medical care.
108................................... Congestive heart failure;
nonhypertensive.
2..................................... Septicemia (except in labor).
146................................... Diverticulosis and
diverticulitis.
105................................... Conduction disorders.
109................................... Acute cerebrovascular disease.
145................................... Intestinal obstruction without
hernia.
233................................... Intracranial injury.
116................................... Aortic and peripheral arterial
embolism or thrombosis.
122................................... Pneumonia (except that caused by
TB or sexually transmitted
disease).
131................................... Respiratory failure;
insufficiency; arrest (adult).
157................................... Acute and unspecified renal
failure.
201................................... Infective arthritis and
osteomyelitis (except that
caused by TB or sexually
transmitted disease).
153................................... Gastrointestinal hemorrhage.
130................................... Pleurisy; pneumothorax;
pulmonary collapse.
97.................................... Peri-; endo-; and myocarditis;
cardiomyopathy.
127................................... Chronic obstructive pulmonary
disease and bronchiectasis.
55.................................... Fluid and electrolyte disorders.
159................................... Urinary tract infections.
245................................... Syncope.
139................................... Gastroduodenal ulcer (except
hemorrhage).
160................................... Calculus of urinary tract.
112................................... Transient cerebral ischemia.
All condition categories.
------------------------------------------------------------------------

To compare readmission performance across hospitals, the proposed
measure accounts for differences in patient characteristics (patient
case mix) as well as differences in mixes of services and procedures
offered by hospitals (hospital service-mix). The proposed measure
includes 93.4 percent of Medicare FFS hospitalizations occurring in
2008, and includes 92.1 percent of readmissions following those
hospitalizations.
The proposed measure uses the conditions and procedures defined by
the AHRQ CCS, which is a widely used and accepted method of grouping
patients into diagnostic categories. The AHRQ CCS collapsed the more
than 17,000 different ICD-9-CM diagnosis and procedure codes into 285
clinically-coherent, mutually-exclusive condition categories and 231
mutually-exclusive procedure categories. We created five major
specialty cohorts based on organization of care (medical, surgery/
gynecology, cardiorespiratory, cardiovascular, and neurology), and
assigned each condition category to a cohort. Admissions that included
major surgical procedures (regardless of condition category) were
assigned to the surgery/gynecology cohort. We estimated separate
adjustment coefficients for each cohort using a single set of risk
factors. We used hierarchical logistic regression to adjust for
differences in hospital case mix and to account for the clustering of
patients within a hospital. We adjusted for case mix differences among
hospitals by risk-adjusting for patients' comorbid conditions
identified in inpatient episodes of care for the 12 months prior to the
index admission as well as those present at admission. We did not risk
adjust for diagnoses that may have been a complication of care during
the index admission. We used CMS Condition Category groups (CMS-CCs) to
define the comorbid risk adjusters and used a fixed set of comorbid
risk variables across models. We risk adjusted for service mix
differences among hospitals within each major cohort by including
indicator variables for discharge condition categories (as defined by
AHRQ CCS) in each model.
Finally, we used each of the five cohort models to calculate
predicted and expected numbers of readmissions for each hospital in
each cohort. We then derived a single summary score from the results of
the five models by calculating the volume-weighted log average of the
predicted over expected ratios from each model and multiplying the
resulting ratio by the average national readmission rate. This approach
allowed us to take into account the variation in hospital specialty
cohort mix.
The proposed HWR measure was recommended to the NQF board of
directors for endorsement in March 2012 by the NQF Consensus Standards
Approval Committee (CSAC). The MAP supported selection of the HWR
measure for the Hospital IQR Program contingent on NQF endorsement.
This measure is in the final stages of the NQF measure endorsement
process, and we

[[Page 28046]]

expect its endorsement to be finalized in the coming months.
We are proposing to adopt this measure in the Hospital IQR Program
for the FY 2015 payment determination and subsequent years under the
exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act. This
section provides that 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 entity with a contract
under section 1890(a), 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. We reviewed the NQF-endorsed measures, and we were unable to
identify any other NQF-endorsed measures that assess hospital-wide
readmissions. We also are not aware of any other hospital-wide
readmission measures that have been endorsed or adopted by a consensus
organization other than NQF. The one other hospital-wide readmissions
measure of which we are aware is the Risk-Adjusted 30-Day All-Cause
Readmission Rate measure (formerly NQF 0329). This measure was
endorsed by NQF, but NQF removed the measure's endorsement during a
recent consensus development project that recommended endorsement of
the HWR measure. Accordingly, we propose to adopt the HWR measure under
the Secretary's authority set forth at section 1886(b)(3)(B)(IX)(bb) of
the Act. We invite public comment on this proposal.
(C) Proposed New Chart-Abstracted Measure: Elective Delivery Prior to
39 Completed Weeks Gestation: Percentage of Babies Electively Delivered
Prior to 39 Completed Weeks Gestation (NQF 0469)
For the FY 2015 payment determination and subsequent years, we are
proposing to add a chart-abstracted measure, Elective Delivery Prior to
39 Completed Weeks Gestation: Percentage of Babies Electively Delivered
Prior to 39 Completed Weeks Gestation. In launching the Strong Start
Initiative (http://www.innovation.cms.gov/initiatives/strong-start/) to
help reduce preterm births, the HHS Secretary indicated in a press
release that more than half a million infants are born prematurely in
America each year, and that this trend has increased 36 percent over
the last 20 years. Preterm births may require additional medical
attention and early intervention services. Some recent research
indicates that elective deliveries before 39 weeks increase the risk of
significant complications for mother and baby, as well as long-term
health problems.^83,84,85,86 Preterm births are a growing
public health problem that has significant consequences for families
well into a child's life.
---------------------------------------------------------------------------

\83\ Glantz, J. (Apr. 2005). Elective induction vs. spontaneous
labor associations and outcomes. J Reprod Med. 50(4):235-40.
\84\ Vardo, J., Thornburg, L., Glantz, J., (2011). Maternal and
neonatal morbidity among nulliparous women undergoing elective
induction of labor. J. Reprod Med. 56(1-2): 25-30.
\85\ Tita, A., Landon, M., Spong, C., Lai, Y., Leveno, K.,
Varner, M, et al. (2009). Timing of elective repeat cesarean
delivery at term and neonatal outcomes. [Electronic Version]. NEJM.
360:2, 111-120.
\86\ Clark, S., Miller, D., Belfort, M., Dildy, G., Frye, D., &
Meyers, J. (2009). Neonatal and maternal outcomes associated with
elective delivery. [Electronic Version]. Am J Obstet Gynecol.
200:156.e1-156.e4.
---------------------------------------------------------------------------

As a public campaign to reduce preterm births, the Strong Start
Initiative's objective is to test ways to reverse this trend by helping
provide expectant mothers with the care they need for a healthy
delivery and a healthy baby, and by focusing on reducing early elective
deliveries, which can lead to a variety of health problems for mothers
and infants.
The Strong Start Initiative cuts across many agencies within HHS
and involves external organizations including the March of Dimes, and
the American College of Obstetricians and Gynecologists (ACOG). We
believe that a reduction in the number of nonmedically indicated
elective deliveries at >=37 to <39 weeks gestation will result in a
substantial decrease in neonatal morbidity and mortality, as well as a
significant savings in healthcare costs. In addition, the rate of
cesarean sections should decrease with fewer elective inductions
resulting in decreased length of stay and healthcare costs. The
proposed measure would assist hospitals in tracking nonmedically
indicated early term elective deliveries and reduce the occurrence of
such deliveries. This measure would assess patients with elective
vaginal deliveries or elective cesarean sections at >=37 and <39 weeks
of gestation completed. The numerator for this measure is the number of
patients with elective deliveries with principal or other procedure
codes for one or more of the following: Medical induction of labor, and
cesarean section while not in active labor or experiencing spontaneous
rupture of membranes. Exclusions are: Less than 8 years of age; Greater
than or equal to 65 years of age; Length of Stay >120 days; and
enrolled in clinical trials.
We are proposing to adopt this measure for the Hospital IQR Program
because we believe this measure furthers the National Quality
Strategy's three-part aim of better health care for individuals, better
health for populations, and low costs for health care. Additionally, we
have determined that the measure is relevant to the nearly 2 million
Medicare beneficiaries who are aged 44 and under, most of whom are dual
eligible beneficiaries, who have the potential to be impacted by pre-
term births. This is evidenced by the fact that, in 2011, Medicare paid
for roughly 14,000 births. The measure is NQF-endorsed; therefore, the
measure meets the selection criteria under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act. The measure is currently under
NQF maintenance review. In its Pre-Rulemaking report for 2012, the MAP
also recommended the inclusion of this measure in the Hospital IQR
Program. TJC is the measure steward of this measure and the detailed
measure specification can be found on the TJC Web site at: http://manual.jointcommission.org/releases/TJC2012A/MIF0166.html.
We are proposing to add this measure to the Hospital IQR Program
for the FY 2015 payment determination, with collection beginning with
January 1, 2013 discharges. Although this measure is chart-abstracted,
we are proposing that this measure would be collected in aggregated
numerator, denominator, and exclusion counts per hospital via a Web-
based tool (as opposed to collecting patient-level data from
hospitals). Specific details regarding this proposed approach to data
collection are included in section VIII.A.5. of this preamble on the
form, manner, and timing of quality data submission for the Hospital
IQR Program. We anticipate that the e-specifications of this measure
will be completed in the summer of 2012. We intend to move to EHR-based
collection of this and other measures once the necessary infrastructure
to do so is in place. We invite public comment on our proposal to adopt
this measure.

(D) Clarification Regarding Existing Hospital IQR Program Measures That
Have Undergone Changes During NQF Measure Maintenance Processes

As discussed previously, once adopted, we retain measures in the
Hospital IQR Program unless specifically stated otherwise. Recently the
CLABSI and CAUTI measures were expanded to pertain to non-ICU locations
in hospitals and to other types of care settings as part of NQF

[[Page 28047]]

maintenance review. These measures retained their original NQF numbers
as these changes were not considered substantive. However, we will
continue to require hospitals to submit data for these two measures on
ICU locations only for the Hospital IQR Program. We seek comment from
hospitals on the feasibility and timing of expanding collection of
these measures to include non-ICU locations in hospitals.
NQF, in addition to expanding the care settings to which the CLABSI
and CAUTI measures could apply, also changed how these measures are
calculated. The original endorsed version of the measures calculated an
infection rate per 1,000 central line days for CLABSI and for 1,000
urinary catheter days for CAUTI. In the course of its maintenance
review, NQF changed the way the measures are calculated from an
infection rate per 1,000 days to a standardized infection ratio
(``SIR''), which is comprised of the actual rate of infection over the
expected rate of infection. We note that although the previously
endorsed versions of the CAUTI and CLABSI measures did not include the
SIR calculation, we have reported the CDC-calculated SIR for both
measures on the Hospital Compare Web site. While use of this
calculation is different from the original NQF-endorsed measure output,
we believe the SIR is a more accurate way to calculate the CLABSI and
CAUTI measures for comparative purposes rather than the rate per 1,000
infection days because it takes into account hospitals' case mix. We
will continue to report SIRs for both measures because this calculation
is now consistent with NQF's endorsement of the measures. We also note
that use of the SIR calculation does not change the type of data that
hospitals submit on the CLABSI and CAUTI measures.
In summary, we are proposing the removal of 17 measures (1 chart-
abstracted measure and 16 claims-based measures) from the measure set
for the FY 2015 payment determination and subsequent years. We are
proposing to add survey items to the existing HCAHPS survey. We also
are proposing to add 3 claims-based measures and 1 chart-abstracted
measure to the measure set for the FY 2015 payment determination and
subsequent years, for a total of 59 measures. These 59 measures are
listed below.

------------------------------------------------------------------------
Proposed hospital IQR program
Topic measures for FY 2015 payment
determination and subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI) AMI-2 Aspirin prescribed at
Measures. discharge.
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) Measures....... 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.
Stroke (STK) Measure Set.......... STK-1 VTE prophylaxis.
STK-2 Antithrombotic
therapy for ischemic stroke.
STK-3 Anticoagulation
therapy for Afib/flutter.
STK-4 Thrombolytic therapy
for acute ischemic stroke.
STK-5 Antithrombotic
therapy by the end of hospital day
2.
STK-6 Discharged on Statin.
STK-8 Stroke education.
STK-10 Assessed for rehab.
VTE Measure Set................... VTE-1 VTE prophylaxis.
VTE-2 ICU VTE prophylaxis.
VTE-3 VTE patients with
anticoagulation overlap therapy.
VTE-4 Patients receiving un-
fractionated Heparin with doses/
labs monitored by protocol.
VTE-5 VTE discharge
instructions.
VTE-6 Incidence of
potentially preventable VTE.
Pneumonia (PN) Measures........... 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) Measures. 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-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-VTE-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 (expanded to
Measures. include one 3-item care transition
set* and two new ``About You''
items).
Readmission Measures (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.
30-day Risk Standardized
Readmission following Total Hip/
Total Knee Arthroplasty.*
Hospital-Wide All-Cause
Unplanned Readmission (HWR).*
AHRQ Patient Safety Indicators Complication/patient safety
(PSIs) Composite Measures. for selected indicators
(composite).

[[Page 28048]]

AHRQ PSI and Nursing Sensitive PSI-4 Death among surgical
Care. inpatients 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
Measures. Bloodstream Infection.
Surgical Site Infection.
Catheter-Associated Urinary
Tract Infection.
MRSA Bacteremia.
Clostridium Difficile
(C.Diff).
Healthcare Personnel
Influenza Vaccination.
Surgical Complications............ Hip/Knee Complication:
Hospital-level Risk-Standardized
Complication Rate (RSCR) following
Elective Primary Total Hip
Arthroplasty.*
Emergency Department ED-1 Median time from
(ED) Throughput Measures.......... 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 Influenza.
(IMM) Measures. Immunization for Pneumonia.
Cost Efficiency................... Medicare Spending per
Beneficiary.
Perinatal Care.................... Elective delivery prior to
39 completed weeks of gestation.*
------------------------------------------------------------------------
* New measures/items proposed for the FY 2015 payment determination and
subsequent years.

c. Proposed Hospital IQR Program Quality Measures for the FY 2016
Payment Determination and Subsequent Years
In the CY 2012 OPPS/ASC final rule with comment period (76 FR
74466), we adopted the Safe Surgery Checklist Use measure for the
Hospital OQR Program for CY 2014 payment determination. In the same
rule, we adopted this measure for the ASCQR Program for CY 2015 payment
determination (76 FR 74507). This structural measure assesses whether a
hospital outpatient department utilizes a Safe Surgery checklist that
assesses whether effective communication and safe practices are
performed during three distinct perioperative periods: (1) The period
prior to the administration of anesthesia; (2) the period prior to skin
incision; and (3) the period of closure of incision and prior to the
patient leaving the operating room. The use of such checklists has been
credited with dramatic decreases in preventable harm, complications,
and post-surgical mortality.\87\ Like hospital outpatient settings and
ambulatory surgical centers, acute care hospitals also perform many
surgical procedures. Therefore, we believe this measure is also
applicable for hospital inpatient settings in strengthening patient
safety precautions in hospitals and we are proposing to adopt this
measure for the Hospital IQR Program for FY 2016 payment determination
and subsequent years.
---------------------------------------------------------------------------

\87\ Haynes, A.B.; Weiser, T.G.; Berry, W.G. et al. (2009). ``A
Surgical Safety Checklist to Reduce Morbidity and Mortality in a
Global Population.'' New England Journal of Medicine. 360: 491-499.
---------------------------------------------------------------------------

For this proposed structural measure, a hospital inpatient
department would indicate whether or not it uses a safe surgery
checklist for its surgical procedures that includes safe surgery
practices during each of the three critical perioperative periods
discussed above. The measure would not require a hospital to report
whether it uses a checklist in connection with any individual inpatient
procedures. We refer readers to the CY 2012 OPPS/ASC final rule with
comment period (76 FR 74505 through 74506) for the detailed discussion
of the Safe Surgery Checklist Use measure.
We are proposing to adopt this Safe Surgery Checklist structural
measure, which is not NQF-endorsed, under the exception authority
provided in section 1886(b)(3)(B)(IX)(bb) of the Act. This section
provides that 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 entity with a contract
under section 1890(a), 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. We reviewed the NQF-endorsed measures, and we were unable to
identify any NQF-endorsed measures that assess use of safe surgery
checklists. We also are not aware of any other safe surgery checklist
use measures that have been endorsed or adopted by a consensus
organization other than NQF. Accordingly, we propose to adopt the Safe
Surgery Checklist measure under the Secretary's authority set forth at
section 1886(b)(3)(B)(IX)(bb) of the Act.
This measure was included on the pre-rulemaking list for
consideration by the MAP, and this multistakeholder organization
comprised of affected parties supported the direction of this measure
pending availability of specifications. These specifications will be
made available in an upcoming manual release for the ASC Quality
Reporting Program which will be available on Quality Net Web site at
http://www.qualitynet.gov. The proposed safe surgery checklist measure
assesses the adoption of a best practice for surgical care that is
broadly accepted and in widespread use among affected parties. In
addition to being adopted by The World Federation of Societies of
Anesthesiologists, the use of a safe surgery checklist is one of the
safe surgery principles endorsed by the Council on Surgical and
Perioperative Safety, which is comprised of the American Association of
Nurse Anesthetists, the American College of Surgeons, the American
Association of Surgical Physician Assistants, the American Society of
Anesthesiologists, the American Society of PeriAnesthesia Nurses, the
AORN, and the Association of Surgical Technologists. Two State agencies
(Oregon and South Carolina), the Veterans Health Administration,\88\
numerous hospital systems, State hospital associations (such as
California

[[Page 28049]]

and South Carolina), national accrediting organizations, and large
private insurers have endorsed the use of a safe surgery checklist as a
best practice for reducing morbidity, mortality, and medical
errors.\89,90\ Although there is not currently an NQF endorsed measure
for safe surgery checklist use, because the use of a safe surgery
checklist is a widely accepted best practice for surgical care, we
believe that the proposed structural measure of Safe Surgery Checklist
use reflects consensus among affected parties. We also note that TJC
included safe surgery checklist practices among those to be used to
achieve National Patient Safety Goals (NPSGs) adopted for 2011 for
surgeries performed in ambulatory settings and hospitals.
---------------------------------------------------------------------------

\88\ Neily, J; Mills, PD, Young-Xu, Y. (2010). ``Association
between implementation of a Medical Team Training Program and
Surgical Mortality.'' JAMA. 304 (15): 1693-1700.
\89\ Haynes, AB; Weiser, TG; Berry, WR et al. (2009) ``A
Surgical Safety Checklist to Reduce Morbidity and Mortality in a
Global Population.'' NEJM. 360: 491-499.
\90\ Birkmeyer, JD (2010) ``Strategies for Improving Surgical
Quality--Checklists and Beyond.'' NEJM. 363: 1963-1965.
---------------------------------------------------------------------------

Given that this measure is pivotal in preventing human errors in
surgical operations which are commonly performed by acute care
hospitals, we are proposing to adopt this measure for the Hospital IQR
Program for the FY 2016 payment determination and subsequent years.
This proposal would achieve our goal to align measures across settings.
In summary, we are proposing to add one new structural measure to
the Hospital IQR measure set for the FY 2016 payment determination. The
60 measures for the FY 2016 payment determination and subsequent years
are listed below.

------------------------------------------------------------------------
Proposed hospital IQR program
Topic measures for FY 2016 payment
determination and subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI) AMI-2 Aspirin prescribed at
Measures. discharge.
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) Measures....... 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.
Stroke Measure (STK) Set.......... STK-1 VTE prophylaxis.
STK-2 Antithrombotic
therapy for ischemic stroke.
STK-3 Anticoagulation
therapy for Afib/flutter.
STK-4 Thrombolytic therapy
for acute ischemic stroke.
STK-5 Antithrombotic
therapy by the end of hospital day
2.
STK-6 Discharged on Statin.
STK-8 Stroke education.
STK-10 Assessed for rehab.
VTE Measure Set................... VTE-1 VTE prophylaxis.
VTE-2 ICU VTE prophylaxis.
VTE-3 VTE patients with
anticoagulation overlap therapy.
VTE-4 Patients receiving un-
fractionated Heparin with doses/
labs monitored by protocol.
VTE-5 VTE discharge
instructions.
VTE-6 Incidence of
potentially preventable VTE.
Pneumonia (PN) Measures........... 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) Measures. 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-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-VTE-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 (expanded to
Measures. include one 3-item care transition
set * and two new ``About You''
items).
Readmission Measures (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.
30-day Risk Standardized
Readmission following Total Hip/
Total Knee Arthroplasty.*
Hospital-Wide All-Cause
Unplanned Readmission (HWR).*
AHRQ Patient Safety Indicators Complication/patient safety
(PSIs) Composite Measures. for selected indicators
(composite).
AHRQ PSI and Nursing Sensitive PSI-4 Death among surgical
Care. inpatients 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.

[[Page 28050]]

Safe Surgery Checklist
Use.**
Healthcare-Associated Infections Central Line Associated
Measures.......................... Bloodstream Infection.
Surgical Site Infection.
Catheter-Associated Urinary
Tract Infection.
MRSA Bacteremia.
Clostridium Difficile
(C.Diff).
Healthcare Personnel
Influenza Vaccination.
Surgical Complications............ Hip/Knee Complication:
Hospital-level Risk-Standardized
Complication Rate (RSCR) following
Elective Primary Total Hip
Arthroplasty.*
Emergency Department (ED) ED-1 Median time from
Throughput Measures............... 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 Influenza.
(IMM) Measures. Immunization for Pneumonia.
Cost Efficiency................... Medicare Spending per
Beneficiary.
Perinatal Care.................... Elective delivery prior to
39 completed weeks of gestation.*
------------------------------------------------------------------------
* New measures/items proposed for FY 2015 payment determination and
subsequent years.
** New measures proposed for FY 2016 payment determination and
subsequent years.

4. Possible New Quality Measures and Measure Topics for Future Years
We anticipate that, as EHR technology evolves and more
infrastructure is put in place, we will have the capacity to accept
electronic reporting of many of the clinical chart-abstracted measures
that are currently part of the Hospital IQR Program or have been
proposed for adoption into the program. We intend for this future
progress to significantly reduce the administrative burden on hospitals
under the Hospital IQR Program. We recognize that considerable work
needs to be done by measure owners and developers to make this possible
with respect to the clinical quality measures that we proposed. This
includes completing electronic specifications for measures, pilot
testing, reliability and validity testing, and implementing such
specifications into EHR technology to capture and calculate the
results, and implementing the systems. We believe that at a future
date, such as 2015, CMS and hospitals will be able to use EHR-based
reporting for many chart-abstracted measures for the Hospital IQR
Program, and we intend to work diligently toward this goal. We believe
this will simplify measure collection and submission for the Hospital
IQR Program, and will reduce the burden on hospitals to report chart-
abstracted measures.
Once the e-specifications and the EHR-based collection mechanism
are available for the smoking and alcohol cessations measures developed
by TJC, we intend to propose two TJC smoking and alcohol cessation
measure sets for inclusion in the Hospital IQR Program. Each of these
TJC sets consists of four measures:
Smoking Cessation Set--(1) TAM-1 Tobacco Use Screening;
(2) TAM-2 Tobacco Use Treatment Provided or Offered; (3) TAM-3 Tobacco
Use Treatment Management at Discharge; and (4) TAM-4 Assessing Status
after Discharge, and
Alcohol Cessation Set--(1) TAM-5 Alcohol Use Screening;
(2) TAM-6 Alcohol Use Brief Intervention Provided or Offered; (3) TAM-7
Alcohol and Other Drug Use Disorder Treatment Provided or Offered at
Discharge; and (4) TAM-8 Substance Use: Assessing Status after
Discharge.
These measure sets were recommended by the MAP for inclusion in the
Hospital IQR Program, provided they complete the NQF endorsement
process prior to inclusion. We invite public comment on our intention
to propose these measure sets.
We also note that consistent with the updated NQF endorsements of
the CLABSI (NQF 139) and CAUTI (NQF 138) measures, we
intend to propose to collect data for non-ICU patients as well for
these two measures at a future time, and we seek public comment on the
feasibility and timing of expanding data collection for acute care
hospitals.
We intend to support the following measure domains in the Hospital
IQR measure set in future measurement proposals for the Hospital IQR
Program: Clinical quality (for example, the AMI, HF, PN, STK, and VTE
measures), care coordination (for example, the mortality measures),
patient safety (for example, the SCIP and HAI measures), patient and
caregiver experience of care (for example, the HCAHPS measure),
population/community health (for example, the global immunization
measures), and efficiency (for example, the Medicare Spending per
Beneficiary measure). This approach will enhance better patient care
while bringing the Hospital IQR Program in line with our other
established quality reporting and pay-for-performance programs.
5. Form, Manner, and Timing of Quality Data Submission
a. Background
Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act state that the
applicable percentage increase, for FY 2007 and each subsequent fiscal
year, shall be reduced by 2.0 percentage points (or, beginning with FY
2015, by one-quarter of such applicable percentage increase (determined
without regard to sections 1886(b)(3)(B)(ix), (xi), or (xii) of the
Act)) for any subsection (d) hospital that does not submit quality data
in a form and manner, and at a time, specified by the Secretary. CMS
requires that hospitals submit data in accordance with the
specifications for the appropriate discharge periods. The data
submission requirements, Specifications Manual, and submission
deadlines are posted on the QualityNet Web site at: http://www.QualityNet.org/. Hospitals submit quality data through the secure
portion of the QualityNet (formerly known as QualityNet Exchange) Web
site (https://www.QualityNet.org). This Web site meets or exceeds all
current Health Insurance Portability and Accountability Act
requirements for security of protected health information.
In order to participate in the Hospital IQR Program, hospitals must
meet specific procedural requirements. Hospitals choosing to
participate in the Hospital IQR Program must also meet specific data
collection, submission, and validation requirements.
b. Proposed Procedural Requirements for the FY 2015 Payment
Determination and Subsequent Years
The Hospital IQR Program procedural requirements are now codified
in

[[Page 28051]]

regulation at 42 CFR 412.140. Hospitals should refer to the regulation
for participation requirements. For the FY 2015 payment determination
and future years, we are proposing to modify the following procedural
requirements and the corresponding regulation text.
In order to ensure that hospitals that participate in the
Hospital IQR Program are submitting data for a full year, we are
proposing that hospitals that would like to participate in the Hospital
IQR Program for the first time, or that previously withdrew from the
program and would like to participate again, must submit to CMS a
completed Notice of Participation by December 31 of the calendar year
preceding the first quarter of the calendar year in which the chart-
abstracted IQR data submission is required for any given fiscal year.
For example, if a hospital wishes to participate in FY 2015, it must
submit a pledge by December 31, 2012, and submit data beginning with
January 1, 2013 discharges. We also are proposing to modify our
regulations at Sec. 412.140(a)(3)(i) to reflect this proposed
requirement.
Currently, CMS will accept Hospital IQR Program withdrawal
forms from hospitals on or before August 15 of the fiscal year
preceding the fiscal year for which a Hospital IQR payment
determination will be made. In order to decrease the time between final
submission of IQR data and IQR payment determination notification for
the hospitals, we are proposing that a subsection (d) hospital may
withdraw from the Hospital IQR Program by submitting to CMS a
withdrawal form that can be found in the secure portion of the
QualityNet Web site. The hospital must submit the withdrawal form by
May 15 prior to the start of the payment year affected. For example, if
a hospital seeks to withdraw from the FY 2015 payment determination,
the hospital must submit the withdrawal form to CMS by May 15, 2014. If
a hospital withdraws from the program, it will receive a reduction
until such time as it meets the participation requirements. This
proposal will also align with the final abstraction data submission
deadline which will eliminate the burden of one extra deadline for
providers and vendors. We also are proposing to modify our regulations
at Sec. 412.140(b) to reflect this proposed requirement.
c. Proposed Data Submission Requirements for Chart-Abstracted Measures
For FY 2015 andsubsequent years, we are proposing to retain the
4\1/2\ months quarterly submission deadline for chart-abstracted
quality measures. We also are proposing to retain the aggregate
population and sampling deadline of 4 months. Hospitals would continue
to be required to submit aggregate population and sample size counts to
CMS on a quarterly basis for Medicare and non-Medicare discharges for
the topic areas for which chart-abstracted data must be submitted (76
FR 51640 through 51641). We are proposing the same 14-day period after
the aggregate population and sample size count deadline to submit the
required patient-level records. For the FY 2015 payment determination
and subsequent years, hospitals must submit data for four consecutive
calendar year discharge quarters. For example for FY 2015, the
submission quarters are as follows: 1Q CY 2013, 2Q CY 2013, 3Q CY 2013
and 4Q CY 2013.
We are proposing to collect a new chart-abstracted measure for FY
2015, Elective Delivery Prior to 39 Completed Weeks Gestation:
Percentage of Babies Electively Delivered Prior to 39 Completed Weeks
Gestation. Although this is a chart-abstracted measure, we are
proposing that this measure would be collected in aggregated numerator,
denominator, and exclusion counts per hospital via a Web-based tool.
The complete data submission requirements, submission deadlines, and
data submission mechanism, known as the Web-Based Measure Tool, will be
posted on the QualityNet Web site at: http://www.qualitynet.org/. The
Web-Based Measure Tool will be an Internet database for hospitals to
submit their aggregate data. We are proposing that hospitals submit
data in accordance with the specifications for the appropriate proposed
reporting periods to the Web-Based Measures Tool that will be found in
the hospital section on the QualityNet Web site (http://www.qualitynet.org/).
d. Proposed Sampling and Case Thresholds Beginning With the FY 2015
Payment Determination
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641), we
continued, for the FY 2015 payment determination and subsequent years,
the approach we adopted in the FY 2011 IPPS/LTCH PPS final rule (75 FR
50230) regarding hospital submission of population and sampling data.
We are not proposing any changes to these requirements.
We strongly recommend that hospitals review the QIO Clinical
Warehouse Feedback Reports and the Hospital IQR Program Provider
Participation Reports that are available after patient-level data are
submitted to the QIO Clinical Warehouse. We generally update these
reports on a daily basis to provide accurate information to hospitals
about their submissions. These reports enable hospitals to ensure that
their data were submitted on time and accepted into the QIO Clinical
Warehouse.
e. Proposed HCAHPS Requirements for the FY 2014, FY 2015, and FY 2016
Payment Determinations
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641 through
51643), beginning with discharges occurring in third quarter CY 2011,
we established that hospitals will have about 13 weeks after the end of
a calendar quarter to submit HCAHPS data for that quarter to the QIO
Clinical Warehouse.
Other than this change, we did not make any other changes to the
HCAHPS requirements for the FY 2013 and FY 2014 Hospital IQR Program
payment determinations, which were adopted in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50220).
For the FY 2016 Hospital IQR payment determinations, we are
proposing to continue these HCAHPS requirements. Under these
requirements, a hospital must continuously collect and submit HCAHPS
data in accordance with the current HCAHPS Quality Assurance Guidelines
and the quarterly data submission deadlines, both of which are posted
at http://www.hcahpsonline.org. In order for a hospital to participate
in the collection of HCAHPS data, a hospital must either: (1) Contract
with an approved HCAHPS survey vendor that will conduct the survey and
submit data on the hospital's behalf to the QIO Clinical Warehouse; or
(2) self-administer the survey without using a survey vendor provided
that the hospital attends HCAHPS training and meets Minimum Survey
Requirements as specified on the HCAHPS Web site at: http://www.hcahpsonline.org. A current list of approved HCAHPS survey vendors
can be found on the HCAHPS Web site. For the FY 2016 Hospital IQR
Program, we are proposing that the HCAHPS data would be based on
discharges from January 1, 2014 through December 31, 2014.
Every hospital choosing to contract with a survey vendor must
provide the sample frame of HCAHPS-eligible discharges to its survey
vendor with sufficient time to allow the survey vendor to begin
contacting each sampled patient within 6 weeks of discharge from the
hospital. (We refer readers to the Quality Assurance Guidelines located
at http://www.hcahpsonline.org for details about HCAHPS survey
administration.)

[[Page 28052]]

Hospitals are strongly encouraged to submit their entire patient
discharge list, excluding patients who had requested ``no publicity''
status or who are excluded because of State regulations, in a timely
manner to their survey vendor to allow adequate time for sample
creation, sampling, and survey administration. We emphasize that
hospitals must also provide the administrative data that is required
for HCAHPS in a timely manner to their survey vendor. This includes the
patient MS-DRG at discharge, or alternative information that can be
used to determine the patient's service line, in accordance with the
survey protocols in the most recent HCAHPS Quality Assurance
Guidelines.
We note that the HCAHPS Quality Assurance Guidelines require that
hospitals maintain complete discharge lists that indicate which
patients were eligible for the HCAHPS survey, which patients were not
eligible, and which patients were excluded, and the reason(s) for
ineligibility and exclusion. (We refer readers to the Quality Assurance
Guidelines located at http://www.hcahpsonline.org for details about
HCAHPS eligibility and sample frame creation.) In addition, the
hospital must authorize the survey vendor to submit data via My
QualityNet, the secure part of the QualityNet Web site, on the
hospital's behalf.
Hospitals must obtain and submit at least 300 completed HCAHPS
surveys in a rolling four-quarter period unless the hospital is too
small to obtain 300 completed surveys. We wish to emphasize that the
absence of a sufficient number of HCAHPS eligible discharges is the
only acceptable reason for obtaining and submitting fewer than 300
completed HCAHPS surveys in a rolling four quarter period. If a
hospital obtains fewer than 100 completed surveys, the hospital's
HCAHPS scores will be accompanied by an appropriate footnote on the
Hospital Compare Web site alerting the Web site users that the scores
should be reviewed with caution, as the number of surveys may be too
low to reliably assess hospital performance.
After the survey vendor submits the data to the QIO Clinical
Warehouse, we strongly recommend that hospitals employing a survey
vendor promptly review the two HCAHPS Feedback Reports (the Provider
Survey Status Summary Report and the Data Submission Detail Report) and
the HCAHPS Review and Correction Report that are available. These
reports enable a hospital to ensure that its survey vendor has
submitted the data on time, the data has been accepted into the QIO
Clinical Warehouse, and the data accepted into the QIO Clinical
Warehouse are complete and accurate.
In order to ensure compliance with HCAHPS survey and administration
protocols, hospitals and survey vendors must participate in all
oversight activities. As part of the oversight process, during the
onsite visits or conference calls, the HCAHPS Project Team will review
the hospital's or survey vendor's survey systems and assess protocols
based upon the most recent HCAHPS Quality Assurance Guidelines. All
materials relevant to survey administration will be subject to review.
The systems and program review includes, but is not limited to: (a)
Survey management and data systems; (b) printing and mailing materials
and facilities; (c) telephone and Interactive Voice Response (IVR)
materials and facilities; (d) data receipt, entry and storage
facilities; and (e) written documentation of survey processes. As
needed, hospitals and survey vendors will be subject to follow-up site
visits or conference calls. We point out that the HCAHPS Quality
Assurance Guidelines state that hospitals should refrain from
activities that explicitly influence how patients respond on the HCAHPS
survey. If we determine that a hospital is not compliant with HCAHPS
program requirements, we may determine that the hospital is not
submitting HCAHPS data that meet the requirements of the Hospital IQR
Program.
We continue to strongly recommend that each new hospital
participate in an HCAHPS dry run, if feasible, prior to beginning to
collect HCAHPS data on an ongoing basis to meet Hospital IQR Program
requirements. New hospitals can conduct a dry run in the last month of
a calendar quarter. The dry run will give newly participating hospitals
the opportunity to gain first-hand experience collecting and
transmitting HCAHPS data without the public reporting of results. Using
the official survey instrument and the approved modes of administration
and data collection protocols, hospitals/survey vendors will collect
HCAHPS dry-run data and submit the data to My QualityNet, the secure
portion of QualityNet.
We again are encouraging hospitals to regularly check the HCAHPS
Web site at http://www.hcahpsonline.org for program updates and
information. We invite public comment on our proposal to continue using
these HCAHPS requirements for the FY 2016 payment determination.
f. Proposed Data Submission Requirements for Structural Measures
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51643 through
51644), beginning with FY 2013, we finalized the period of data
collection for which hospitals will submit the required registry
participation information once annually for the structural measures via
a Web-based collection tool. We finalized our proposal for FY 2014 for
submission of structural measures between April 1, 2013 and May 15,
2013 with respect to the time period of January 1, 2012 through
December 31, 2012. We are proposing to continue this policy for FY 2015
and subsequent years. For the FY 2015 payment determination, the period
of data collection for which hospitals will submit the required
registry participation information for the structural measures via a
Web-based collection tool will be between April 1, 2014 and May 15,
2014, with respect to the time period of January 1, 2013 through
December 31, 2013. We invite public comment on this proposal.
g. Proposed Data Submission and Reporting Requirements for Healthcare-
Associated Infection (HAI) Measures Reported via NHSN
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51644 through
51645), we adopted the data submission and reporting standard
procedures that have been set forth by CDC for NHSN participation in
general and for submission of the HAI measures to NHSN. The existing
data collection and submission timeframes for the HAI measures for the
FY 2014 payment determination align with the submission timeframes for
chart abstracted measures. The data submission deadlines are posted on
the QualityNet Web site at: http://www.QualityNet.org/. Hospitals will
have until the Hospital IQR Program final submission deadline to submit
their quarterly data to NHSN. After the final Hospital IQR Program
submission deadline has occurred for each calendar quarter of CY 2013,
for FY 2015 quarters, CMS will obtain the hospital-specific
calculations that have been generated by the NHSN for the Hospital IQR
Program.
We are proposing to continue this policy, with the two exceptions
discussed below, for the FY 2015 payment determination and subsequent
years.

[[Page 28053]]

------------------------------------------------------------------------
FY 2015 Payment determination:
Topic Hospital associated infection
measures (CDC/NHSN)
------------------------------------------------------------------------
Central Line Associated Blood Stream
Infection.
Surgical Site Infection.
Catheter Associated Urinary Tract
Infection.
MRSA Bacterimia.
Clostridium difficile.
Healthcare Provider Influenza
Vaccination.
------------------------------------------------------------------------

We realize that some hospitals may not have locations that meet the
NHSN criteria for CLABSI or CAUTI reporting, for example, when a
hospital has no ICUs. We are proposing to provide an exception for the
CLABSI and CAUTI measures for hospitals that do not have an ICU,
reducing the burden associated with reporting to NHSN. In addition, we
recognize that some facilities may perform so few procedures requiring
surveillance under the Surgical Site Infection (SSI) measure that the
data may not be meaningful for Hospital Compare or sufficiently
reliable to be utilized for payment determination. We are proposing to
provide an exception for these hospitals from the reporting requirement
in any given year if the hospital performed fewer than a combined total
of 10 colon and abdominal hysterectomy procedures in the calendar year
prior to the reporting year. For example, a hospital that performed
only 2 colon surgeries and 4 abdominal hysterectomies in 2012 would not
be required to report the SSI measure in 2014. We are proposing to
provide hospitals with a single HAI exception form, to be used for
seeking an exception for any of the CLABSI, CAUTI and SSI measures,
which will be available on QualityNet. We invite public comment on this
proposal.
6. Proposed Supplements to the Chart Validation Process for the
Hospital IQR Program for the FY 2015 Payment Determination and
Subsequent Years
For the FY 2015 payment determination and subsequent years, we are
proposing to continue using, with some modifications, the validation
requirements and methods we adopted in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50227 through 50229) and the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51645 through 51648). The modifications we are proposing,
explained in detail below, are as follows: (a) Using separate
validation approaches for chart-abstracted clinical process of care and
HAI measures; (b) changing the number of hospitals included in the base
annual validation random sample; and (c) using targeted selection of
supplemental hospitals to be added to the base sample. As described
below, these proposals are intended to strengthen the Hospital IQR
Program by validating a larger set of measures, increasing
opportunities to detect poor reporting through different approaches to
targeting and scoring, and increasing the rigor associated with our
validation process, all while ensuring that the wider scope and greater
rigor only modestly increases the burden of validation activities on
hospitals relative to prior years. We invite public comment on each of
these proposals.
a. Separate Validation Approaches for Chart-Abstracted Clinical Process
of Care and HAI Measures
(1) Background and Rationale
We finalized reporting to the Hospital IQR Program of 25 chart-
abstracted measures in 7 topic areas: acute myocardial infarction
(AMI); heart failure (HF); pneumonia (PN); surgical care improvement
project (SCIP); emergency department throughput (ED); immunization
(IMM); and HAIs for the FY 2014 payment determination and subsequent
years in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51628 through
51629). For the FY 2015 payment determination and subsequent years, we
are proposing to continue validating the chart-abstracted clinical
process of care measures with the exception of the SCP-VTE-1 measure,
which we are proposing for removal from the Hospital IQR program
starting with the FY 2015 payment determination. We are also proposing
to continue validating the one HAI measure--CLABSI--that we finalized
for validation in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51646).
We also are proposing to validate two additional HAI measures,
catheter-associated urinary tract infection (CAUTI) and surgical site
infection (SSI), which were finalized for inclusion in the Hospital IQR
Program for the FY 2014 payment determination and subsequent years in
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51628 through 61629). We
are proposing to add these two measures to those we validate so that we
can ensure data reliability on all chart-abstracted measures on which
hospitals will have been reporting data under the Hospital IQR Program
for at least one year prior to the FY 2015 payment determination.
The inclusion of the three chart-abstracted HAI measures--CLABSI,
CAUTI, and SSI--in the Hospital IQR Program reflects HHS' priority to
increase patient safety by preventing HAIs. As finalized in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51640 through 51645), the mechanism for
reporting HAI measures is different from the mechanism for reporting on
the chart-abstracted clinical process of care measure sets (AMI, ED,
IMM, HF, PN, SCIP). In addition, the infection events for which
hospitals would report on the HAI measures occur rarely relative to the
events for which hospitals would report on the clinical process of care
measure sets. We cannot report a single number describing the national
incidence for these three HAIs collectively or individually because
infection rates vary by the type of hospital, their patient
populations, device utilization rates, and performance of different
types of surgeries.\91\ However, we know that these events are
sufficiently rare that if we did not find a way to target records with
a higher probability of including an HAI, many hospitals would have to
submit virtually all records per quarter to effectively validate the
HAI measure set. For these reasons, we are proposing, and we describe
below in section VIII.A.6.a.(3) of this preamble, to separate the
approaches for targeting and sampling of records for HAI validation
from the approaches finalized for validation of the chart-abstracted
clinical process of care measure sets in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51647 through 51648), and summarized in
VIII.A.6.a.(2) of this preamble, and we are proposing to calculate
separate scores for the group of clinical process of care measure sets
and the HAI measure set as described in VIII.A.6.a.(4) of this
preamble.
---------------------------------------------------------------------------

\91\ Dudeck MA, Horan TC, Peterson KD, et al. National
Healthcare Safety Network (NHSN) Report, data summary for 2010,
device-associated module. Am J Infect Control. 2011 Dec;39(10):798-
816. Edwards JR, Peterson KD, Mu Y, et al. National Healthcare
Safety Network (NHSN) report: Data summary for 2006 through 2008,
issued December 2009. Am J Infect Control 2009 Dec; 37:783-805.

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

[[Page 28054]]

(2) Selection and Sampling of Clinical Process of Care Measures for
Validation
The approach to selection and sampling of clinical process of care
measure sets for validation was finalized in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51645 through 51648) for the 2014 payment
determination and subsequent years. These measures and measure sets are
shown in the table below.

Hospital Inpatient Quality Reporting (IQR) Program Chart-Abstracted
Clinical Process of Care Measures To Be Validated for the FY 2014
Payment Determination and Subsequent Years
------------------------------------------------------------------------
Topic Measures
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI) AMI-2 Aspirin prescribed at
Measures. discharge.
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) Measures....... 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) Measures........... 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) Measures. 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-9 Postoperative
urinary catheter removal on
postoperative 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-1 Surgery
patients with recommended Venous
Thromboembolism (VTE) prophylaxis
ordered.*
SCIP-VTE-2 Surgery patients
who received appropriate VTE
prophylaxis within 24 hours pre/
post surgery.
Emergency Department Throughput ED-1 Median time from
(ED) Measures. 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 Influenza.
(IMM) Measures. Immunization for Pneumonia.
------------------------------------------------------------------------
* We are proposing to remove this measure from the Hospital IQR Program
starting with the FY 2015 payment determination.

We describe the validation approach for these measures, which was
finalized in FY 2012 IPPS/LTCH PPS final rule (76 FR 51645 through
51648), for informational purposes only. A total of 15 records will be
selected per quarter for the chart-abstracted clinical process of care
measures. Three records per quarter will be sampled from among all
records submitted to the Warehouse in each of four groups defined as
part of the AMI, HF, PN, and SCIP measure sets. In addition, three
records per quarter will be sampled from among the remaining
submissions to the Warehouse and will be validated for the ED and IMM
measure sets. CMS will also abstract data regarding the ED and IMM
measure sets from records submitted for the AMI, HF, PN, and SCIP
measure sets.
We finalized our proposal in the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51648) to abstract ED and IMM data from all cases selected from
other measure sets (AMI, HF, PN, SCIP, and CLABSI). For the FY 2015
payment determination and subsequent years, we are proposing to
discontinue abstracting ED and IMM data from cases selected for the
CLABSI measure. We are proposing this change in order to be consistent
with the policy proposed in section VIII.A.6.a.(1) of this preamble to
calculate separate scores for HAI and chart-abstracted clinical process
of care measure sets.
Accordingly, for the FY 2015 payment determination and future
years, we are proposing to continue our current validation approach for
chart-abstracted clinical process of care measures as finalized in the
FY 2012 IPPS/LTCH PPS final rule (76 FR 51645 through 51648) with the
exception of discontinuing our policy of abstracting ED and IMM cases
from CLABSI records. The chart-abstracted clinical process of care
measures we have previously finalized for validation for the FY 2015
and subsequent years' payment determinations are set out above.
(3) Selection and Sampling of HAI Measures for Validation
As explained in section VIII.A.6.a.(1) of this preamble, we are
proposing separate selection, sampling, and validation scoring for HAI
measures. The HAI measures we are proposing to validate for the FY 2015
payment determination and subsequent years are CLABSI, CAUTI, and SSI.

HAI Measures in the Hospital Inpatient Quality Reporting (IQR) Program
To Be Validated for the FY 2015 Payment Determination and Subsequent
Years
------------------------------------------------------------------------

-------------------------------------------------------------------------
Measures Continued for Validation for the FY 2014 Payment Determination

[[Page 28055]]

Central line-associated blood stream infection (CLABSI)
among intensive care unit (ICU) patients.
Additional Measures Proposed for Validation for the 2015 Payment
Determination
Surgical Site Infection (SSI) among patients with
procedures for colon surgery or abdominal hysterectomy.
Catheter-associated urinary tract infection (CAUTI) among
ICU patients.
------------------------------------------------------------------------

Because the events reported in the HAI measure set occur rarely,
they require a targeted approach to validation. For the FY 2015 payment
determination and subsequent years, we are proposing to validate these
measures by identifying records that are ``candidate HAI events,''
which we define below. We would construct three separate lists of
candidate events, one for each HAI measure. The proposed process to
construct these lists is detailed further below. Each listing of
candidate events will include both actual HAI events as well as many
non-events. The purpose in creating these listings would be to identify
records that are more likely to contain HAI events than CMS could
obtain through a simple random sample of hospital discharges each
quarter. In each case, this proposed process would minimize burden to
hospitals while enriching the validation sample by targeting candidate
events. As described later in this section, a combined list of
candidate HAI events would be created from the three separate candidate
HAI lists (for CLABSI, CAUTI, and SSI). The final list would be used to
generate a random sample of medical records to be reviewed and
evaluated for the presence or absence of one or more of the HAI events.
We describe the proposed sample size later in this section and describe
the scoring process in section VIII.A.6.a.(4) of this preamble.
We are also proposing to discontinue the practice finalized in FY
2012 IPPS/LTCH final rule (76 FR 5148) of abstracting CLABSI data from
the records selected for the chart-abstracted clinical process of care
measure sets (AMI, ED/IMM, HF, PN, SCIP). We are proposing this change
in order to be consistent with the policy proposed in section
VIII.A.6.a.(1) of this preamble to calculate separate scores for HAI
and chart-abstracted clinical process of care measure sets. We invite
public comment on this proposal.
We finalized a two-phase process for identifying and constructing
lists of candidate CLABSI events in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51645 through 51648). This process is summarized for the
readers' information. In the first phase, each sampled hospital
quarterly provides CMS with listings of positive blood cultures drawn
from ICU patients. The listings include ``all blood cultures positive
for infection status taken from ICU patients conducting CLABSI
surveillance \92\ during the discharge quarter'' (76 FR 51646). These
listings are annotated to identify each ICU patient on this list who
had a central venous catheter (CVC). The listings are then reviewed by
a CMS contractor who produces a list of unique episodes of care for ICU
patients with a CVC and that include either at least one positive blood
culture for a known pathogen, or at least two positive blood cultures
for the same common commensal. A blood culture which is positive for a
common commensal may reflect a contaminated sample. Therefore, when the
only positive blood culture result is for a common commensal, the
second culture bearing the same result must be drawn from the patient
within 48 hours of the first; this would confirm that the first
positive common commensal result is not a consequence of contamination.
A list of common commensals is provided by CDC.\93\
---------------------------------------------------------------------------

\92\ http://www.cdc.gov/nhsn/PDFs/FINAL-ACH-CLABSI-Guidance.pdf.
\93\ http://www.cdc.gov/nhsn/XLS/Common-Skin-Contaminant-List-June-2011.xlsx.
---------------------------------------------------------------------------

We are proposing to modify this process for FY 2015 and subsequent
years by requiring the Medicare health insurance claim (HIC) number to
be added to the positive blood culture list if a patient has one. As
explained further below, we are proposing this addition specifically so
that we may identify candidate CLABSIs that we also identify as
candidate SSIs. Because the candidate SSIs would be identified through
claims, the HIC number is needed to match patients from the candidate
CLABSI list with those from the candidate SSI list. To protect this
sensitive information, we are proposing that positive blood culture
lists be submitted through the Secure Data Exchange on the QualityNet
Web site. We invite public comment on each of these proposed
modifications to the identification of candidate CLABSI events.
For the FY 2015 payment determination and subsequent years, we are
proposing to adapt the process finalized to identify candidate CLABSI
events in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51645 through
51648) to identify candidate CAUTI events. In the first stage of this
process, a CMS contractor would request a listing of positive urine
cultures among ICU patients from the hospitals targeted for validation.
The culture list would indicate the name of each pathogen detected and
the number of colony forming units per ml. For the same reasons and
following the same processes as those explained for CLABSI above, we
are proposing to require the hospital to report the Medicare HIC number
for Medicare patients included on this list.
In the second stage of this process, the CMS contractor would apply
NHSN criteria to eliminate those urine cultures that are not consistent
with the definition of an ICU-associated CAUTI. The contractor would
then remove duplicates from the same patient to produce a list which
would include only one entry per ICU patient. Our intent is to target a
set of patient discharges with a higher probability of having a CAUTI
event than one could obtain from a simple random sample of patient
discharges. We invite public comment on this proposal.
The final HAI measure we are proposing for targeted validation is
SSI. Consistent with Hospital IQR Program reporting requirements for
this measure, we are proposing that validation will target SSIs among
patients with colon surgeries and abdominal hysterectomy
procedures.\94\ We are proposing a process for identifying candidate
SSIs that is different from that which we are proposing for candidate
CLABSI and CAUTI both because post-discharge follow-up is so critical
to proper ascertainment and because SSIs are reported more consistently
in claims data than CLABSI and CAUTI. Thus, claims data provide a
resource for selecting candidate events for SSI using a methodology
which limits burden to hospitals. Accordingly, we are proposing to
select candidate events from among Medicare FFS claims for patients who
have had colon surgeries or abdominal hysterectomies as defined by
NHSN.\5\ For each Medicare FFS

[[Page 28056]]

patient who had a relevant surgery in the period under validation, a
CMS contractor would review the index claim (that is, the one denoting
the surgery) and all subsequent readmissions to the index hospital
within a 30 day post-discharge period. To identify ``candidate SSI
events,'' we would look specifically for discharge diagnoses on the
index claim and all inpatient claims in the 30 days post-discharge that
might indicate infection. Examples of such diagnoses include ``post-
operative shock'' (ICD-9-CM: 998.0), ``post-operative wound disruption
(ICD-9-CM: 998.3), and postoperative infection (ICD-9-CM: 998.5). A
description of our general approach, and a list of ICD-9-CM codes which
we are proposing to use to identify applicable candidate SSIs is
included in Appendix 1 of ``Platt R, Kleinman K, Thompson K, et al.
Using automated health plan data to assess infection risk from coronary
artery bypass surgery. Emerg Infect Dis. 2002 Dec;8(12):1433-41,''
which may be accessed online at http://www.cdc.gov/eid/content/8/12/pdfs/v8-n12.pdf.\95\
---------------------------------------------------------------------------

\94\ http://www.cdc.gov/nhsn/PDFs/FINAL-ACH-SSI-Guidance.pdf.
\95\ Platt R, Kleinman K, Thompson K, et al. Using automated
health plan data to assess infection risk from coronary artery
bypass surgery. Emerg Infect Dis. 2002 Dec;8(12):1433-41.
---------------------------------------------------------------------------

Although diagnoses which identify candidate SSIs may also be
identified during readmission to hospitals other than the index
hospital, for validation of SSI for the FY 2015 payment determination,
we are proposing to exclude these candidate events. We are proposing
this approach because we will be unable to distinguish between a
candidate SSI that the index hospital determined was not an actual SSI
because it did not meet properly applied NHSN case definitions, and an
actual SSI that the index hospital failed to properly identify and
document. Although records from the readmitting hospital may provide
evidence as to the likelihood that a candidate SSI was an actual SSI,
the index hospital may not have had access to this information.
Therefore, if the index hospital does not report a candidate SSI event
associated with a readmission to another hospital, and also does not
document this event, we do not know what information, if any, the index
hospital used to assess the candidate event.
This situation arises because although our regulation at 42 CFR
482.24 requires hospitals to maintain medical records that document
HAI, it does not require hospitals to document that follow-up was
performed. We understand that this represents a gap in our validation
program for SSI, and solicit public comments on how we might fill this
gap in the future.
After identifying the three separate sets of candidate events for
CLABSI, CAUTI, and SSI, we will combine the lists and remove any
duplicates for a given episode of care. Removing duplicates is a
standard statistical practice which is important for the accuracy of
the estimates.\96\ Next, we are proposing to draw a random sample of 12
candidate events per quarter from which to assess reliability of HAI
reporting. Over four quarters, this would yield a sample size of 48
candidate events per year. Whenever a sample is used to estimate a
statistic such as reliability for the entire population of events, that
estimate is said to be made with error, commonly referred to as the
margin of error. For hospitals with 480 or more candidate HAI events
each year, and assuming a relatively constant number of candidates per
quarter, the annual sample size will be sufficient to estimate a score
of 75 percent with a margin of error plus or minus 10 points with 90
percent confidence. We believe this is the smallest sample size that
would be sufficient to identify hospitals that are reporting HAI data
poorly and have 480 or more candidate events.
---------------------------------------------------------------------------

\96\ ``Duplicate listings'' in Kish L. Survey Sampling, John
Wiley & Sons, New York: 1995, pp.58-59.
---------------------------------------------------------------------------

However, if there are fewer than 480 candidate events per year, the
finite population correction applies, such that the margin of error
will decrease as the total number of candidate events per year gets
smaller.\97\ Based on our analysis of CLABSI data previously reported
under the Hospital IQR Program, estimating the relative occurrence of
CLABSI, CAUTI, and SSI, and allowing for the fact that there may be
many candidates for every confirmed HAI, we expect that most hospitals
will have fewer than 480 candidate HAI events per year (or 120 per
quarter), which will allow us to estimate a score of 75 percent for
these hospitals with a margin of error even less than plus or minus 10
points with 90 percent confidence.
---------------------------------------------------------------------------

\97\ ``2.6 The finite population correction.'' Cochran WG.
Sampling Techniques, third edition. John Wiley & Sons, New York,
1977, pp. 24-25.
---------------------------------------------------------------------------

In the event that a hospital has 12 or fewer candidate HAIs in a
given quarter, it is still possible to produce accurate estimates of
reliability. In quarters in which a hospital has 12 or fewer candidate
HAI events, we are proposing to select all candidates, which will allow
us to measure reliability without any margin of error. These quarterly
estimates will have no sampling error because we will not be drawing a
sample, but rather will be using the entire population for that
quarter. If a hospital has 12 or fewer cases in every quarter, we may
estimate reliability of HAI reporting for the year without any margin
of error. If a hospital has no candidate events in the year, we would
not be able to estimate a reliability rate. Therefore, as discussed in
section VIII.A.6.a.(4) of this preamble, we would not attempt to
estimate an HAI score for hospitals with 0 cases. We invite public
comment on these proposed sample sizes.
(4) Validation Scoring for Chart-Abstracted Clinical Process of Care
Measures and HAI Measures
As noted in section VIII.A.6.a.(1) of this preamble, HAIs occur
rarely relative to the clinical process of care measures. The rarity of
HAIs creates problems for validation scoring of this measure set. To
produce an overall score that combines the scores for the individual
measure sets, CMS computes a weighted average of each measure set score
for each quarter.\98\ The weight applied to each measure set is
proportionate to the occurrence of records that were submitted to the
Warehouse for that measure set. Because CLABSI, CAUTI, and SSI occur
rarely, we anticipate that the total number of records targeted for
validation of these measures will account for much less than 25 percent
of the combined total of all records submitted to the Warehouse.
Consequently, if the scores for HAI were combined with the other
measure sets, a hospital could potentially report incorrectly for all
HAI targeted records, and still meet our established reliability
criterion of 75 percent, thus passing validation. This would mean that
our process would fail to offer proper quality control for the HAI
measure set. Although HAIs are rare, we believe that validation of HAI
reporting is critical because it supports HHS' priority to reduce these
infections.
---------------------------------------------------------------------------

\98\ ``Confidence Interval Calculation'', http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1138115987129, last accessed March 19, 2012.
---------------------------------------------------------------------------

For all of these reasons, we are proposing separate scoring
processes for the HAI and chart-abstracted clinical process of care
measure sets, and to require hospitals to receive passing scores on
both processes to pass validation for the FY 2015 payment determination
and subsequent years. We are proposing changes to our regulations at
Sec. 412.140(d)(2) to address this proposed requirement. In
particular, our regulation currently states that ``A hospital meets the
validation

[[Page 28057]]

requirement with respect to a fiscal year if it achieves a 75-percent
score as determined by CMS.'' We are proposing to change this language
to state: ``A hospital meets the validation requirement with respect to
a fiscal year if it achieves a passing score, as determined by CMS, on
applicable measure sets.'' We propose to define ``passing score'' to
mean a score of 75-percent on both of the chart-abstracted clinical
process of care and HAI measure set groupings that apply to the
hospital. The proposed computation and evaluation of passing for these
separate scores are described further below.
For the chart-abstracted clinical process of care measures, we are
not proposing any changes to the methodology for reviewing charts,
computing the score for each measure set, computing a summary score
across all measure sets, or computing the variance around these summary
scores. This process was described in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50226).
For the FY 2015 payment determination and subsequent years, we are
proposing to use the same basic approach to CLABSI scoring that we
finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51647), but to
modify this scoring process to include consideration of all three HAI
measures simultaneously. For example, if a sampled record is determined
to include a CLABSI event and no CAUTI or SSI events, and one CLABSI
event, was reported to NHSN, we are proposing to assign the record a
score of 1/1. If a sampled record had two independent episodes of
CLABSI, CAUTI, or SSI or a combination of infections, both events would
have to be reported to NHSN to receive a score of 1/1. Similarly, if no
events were reported to NHSN and the medical record indicated there
were no events, we are proposing that the record would receive a score
of 1/1. We are proposing to assign a score of 0/1 to a record if no
event was reported to NHSN and at least one CLABSI, CAUTI, or SSI was
detected, or if an event was reported but for the wrong infection. For
example, if an SSI was reported to NHSN as a CLABSI, the record would
receive a 0/1. We are also proposing to assign a score of 0/1 to a
record if an event was reported to NHSN for CLABSI, CAUTI, or SSI, and
the CMS contractor determined that there was no such event.
For the FY 2015 payment determination and subsequent years, we are
proposing a slightly different process for requesting medical records
for SSI. Specifically, we are proposing that when a candidate SSI is
identified based on a readmission diagnosis, CDAC would request two
records per candidate SSI event. This proposal is necessary because
many SSIs are not diagnosed until after patient discharge. In these
circumstances, the hospital might first become aware of the SSI upon
readmission. Therefore, the information needed to evaluate the presence
or absence of an SSI for these candidate events would be divided across
two records: (1) The medical record for the hospitalization during
which surgery was performed; and (2) the medical record for the
readmission to treat the candidate infection. Therefore, we are further
proposing for the FY 2015 payment determination and subsequent years
that when a candidate SSI is identified based on a readmission
diagnosis, we evaluate the occurrence of an SSI event related to the
index hospitalization using data in both records. In contrast, we are
proposing to limit evaluation of CLABSI and CAUTI to the record for the
index hospitalization. We are proposing these changes to incorporate
CAUTI and SSI into HAI scoring, which were not part of previous
validation efforts. We invite comments on these proposals.
This proposed process will be used to create a mean HAI score for
each hospital. The mean will equal the number of HAI records correctly
classified divided by the total number of HAI records scored. As
described in section VIII.A.6.a.(3) of this preamble, a sample of up to
12 records is to be drawn quarterly, for annual sample of up to 48. The
approach of dividing the year into 4 quarters and drawing an
independent random sample from each is known as stratified random
sampling. When the validation sample includes all of the candidate HAI
events that a hospital generates in a year, reliability is measured
without error. In this case, the upper bound of the confidence interval
will be exactly the same as the estimate of reliability. However, when
this score is based on only a sample of records containing candidate
HAIs, we must compute a variance around this mean. We are proposing to
compute the confidence interval by applying the appropriate formula for
the variance of a proportion in a stratified random sample.\99\
---------------------------------------------------------------------------

\99\ ``Section 5.10 Stratified sampling for proportions'' in
Cochran WG. Sampling Techniques, third edition. John Wiley and Sons,
New York,1977, pp. 107-108.
---------------------------------------------------------------------------

(5) Criteria to Evaluate Whether a Score Passes or Fails
Historically, we have used two criteria for passing validation in
the Hospital IQR Program, which were described in FY 2011 IPPS/LTCH PPS
final rule (75 FR 50226):
Require all Hospital IQR Program participating hospitals
selected for validation to attain at least a 75-percent validation
score per quarter to pass the validation requirement.
Use the upper bound of a one-tailed 95 percent confidence
interval to estimate the validation score.
For the FY 2015 payment determination and subsequent years, we are
proposing to modify both of these criteria. We are proposing that
hospitals achieve scores of 75 percent or higher for both the chart-
abstracted clinical process of care measure grouping and the HAI score
to pass validation. We are proposing to compute each score by combining
the data across all four quarters, instead of by considering the
quarters separately. We are proposing to make this change because 4
quarters combined can provide a more accurate estimate of reliability
than could be attained from a single quarter.
We also are proposing that if hospital has no candidate CLABSI,
CAUTI, or SSI in the year to be validated or a hospital has been
excepted from NHSN reporting for all three HAIs, it will only be
required to achieve a 75 percent score for the chart-abstracted
clinical process of care measures to pass validation. We are making
this proposal because, in these instances, no HAI score can be
computed.
For the FY 2015 payment determination and subsequent years, we are
proposing to replace the use of a one-tailed 95 percent confidence
interval with a two-tailed 90 percent confidence interval. The reason
for this proposal is so that we may identify hospitals passing our
annual 75 percent threshold that also have scores within the
statistical margin of error for not passing this annual requirement.
The upper bound of a two-tailed 90 percent confidence interval is
exactly the same number as the upper bound of a one-tailed 95 percent
confidence interval. Therefore, this proposal will have no impact on
the number of hospitals in the base annual sample that pass or fail
validation. The Government Accountability Office (GAO) has noted that
CMS does not have a methodology to address hospitals, for which ``the
statistical margin of error for their accuracy included both passing
and

[[Page 28058]]

failing levels.'' \100\ For data included in the GAO report, one-
quarter to one-third of hospitals fell into this category. CMS has
subsequently taken steps to address other GAO concerns, which has
reduced the percentage of hospitals that neither passed nor failed
validation to 7 percent in the FY 2012 payment determination.
---------------------------------------------------------------------------

\100\ Government Accountability Office. ``Hospital Quality Data.
CMS needs more rigorous methods to ensure reliability of publicly
released data''. GAO-06-54, January 2006.
---------------------------------------------------------------------------

Nonetheless, we believe that there is value in looking more closely
at the remainder of these hospitals. For the FY 2015 payment
determination and subsequent years, we propose to identify those
hospitals which have neither passed nor failed, using a two-tailed
confidence interval. In addition, for the purpose of payment
determination in FY 2015 and subsequent years, we are proposing to
continue to pass these hospitals, while also targeting these hospitals
for validation next year, which we are proposing in section VIII.C.6.c.
of this preamble.
If, as in previous years, our only concern was in hospitals with an
upper bound for the reliability rate below 75 percent, we would have 95
percent confidence in the upper bound. However, because we are
proposing to identify hospitals for which ``the statistical margin of
error for their accuracy included both passing and failing levels,'' we
must consider both an upper and lower confidence bound. Therefore, the
same interval provides only 90 percent confidence (5 percent of samples
will have lower interval bounds based on the sample that are higher
than the actual reliability for the population and 5 percent will have
upper interval bounds that are lower than the actual reliability rate
for the population). Computing a two-tailed interval and adjusting its
confidence level from 95 to 90 percent is the only way to maintain the
computation for the upper bound using the same formula as that used in
previous years and also calculate the lower bound,\100,101\ which will
allow us to identify hospitals that would otherwise neither pass nor
fail validation. We invite public comment on this proposal.
---------------------------------------------------------------------------

\101\ ``Chapter 8 Interval estimation'' in Wonnacott TH,
Wonnacott RJ. Introductory statistics for business and economics,
2nd edition, 1977, John Wiley & Sons, New York, pp.199-201, 231-232.
---------------------------------------------------------------------------

b. Number and Manner of Selection for Hospitals Included in the Base
Annual Validation Random Sample
As finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50225-
50227), validation of chart-abstracted measures in the Hospital IQR
Program uses a base annual random sample of 800 hospitals. For the FY
2015 payment determination and subsequent years, we are proposing to
reduce the total base sample size of hospitals included in the annual
validation random sample from 800 to 400. One of our goals in targeting
a certain number of hospitals for our base annual random sample is to
estimate the total percentage of hospitals that have been reporting
unreliable data for the Hospital IQR Program. The minimum sample size
required to assess the percentage of hospitals in the Hospital IQR
Program have been reporting unreliable data depends on the expected
percentage of hospitals that fail validation. Because a very high
percentage of Hospital IQR Program hospitals pass validation (more than
99 percent of the hospitals in the FY 2012 payment determination), we
believe that we can reduce burden on hospitals by selecting fewer
hospitals for the base annual random sample without adversely affecting
our estimate of this percentage. We are not proposing to change the
criteria for selecting the annual validation random sample because we
believe that these criteria are appropriate for sample selection.
For informational purposes, we are summarizing the finalized
definition of a hospital eligible for validation, as provided in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50227). Those eligible for
validation are the subset of subsection (d) hospitals who successfully
submitted ``at least one [IQR] case for the third calendar quarter of
the year two years prior to the year to which the validation applies
would be eligible to be selected for validation.'' For example, for the
FY 2015 payment determination, we would select the sample in early
2013, and all Hospital IQR Program-eligible hospitals that submitted at
least one IQR case for third quarter 2012 discharges would be eligible
to be selected for validation.
c. Targeting Criteria for Selection of Supplemental Hospitals for
Validation
We have established policies for supplementation to the base annual
random sample of hospitals. In particular, our supplemental validation
sample includes all hospitals that fail validation in the previous year
(75 FR 50227 through 50229), a policy that we do not intend to change.
We also finalized a policy in the FY 2012 IPPS/LTCH PPS final rule (76
FR 51645 through 51646), that the validation sample drawn for the FY
2015 payment determination and subsequent years will include in the
fourth year all hospitals not randomly occurring in the sample in the
previous three years to the sample. We have reassessed this policy.
We believe that we have identified an approach with comparable
benefits to reliability which would have a smaller total burden to
hospitals, and at less cost to CMS. Based on chance alone, we would
expect that about 1,500 (slightly less than half of all IPPS-eligible)
hospitals would not have been sampled in the previous three years. Of
these, less than 200 would be expected to be randomly selected as part
of the base validation sample of 400 hospitals for the FY 2015 payment
determination. Accordingly, this means that for the FY 2015 payment
determination, the supplemental sample size would be about 1,300
hospitals. To increase the sample size by 1,300 hospitals in a single
year is unnecessarily burdensome; we believe we can have the same
influence on hospitals that have not been recently validated simply by
increasing their probability of selection through targeting in
subsequent years. Therefore, for the FY 2015 payment determination and
subsequent years, we are proposing to discontinue our policy of
including hospitals in the supplemental validation sample in the fourth
year that have not been validated in the previous three years. We are
proposing, however to use the lack of recent validation as one of
several targeting criteria for a supplemental random sample described
further below. For the FY 2015 payment determination and subsequent
years, we are proposing to add targeting criteria as a supplement to
the base random sample of up to 200 additional hospitals. We believe
that this proposal would improve data quality by increased targeting of
hospitals with possible or confirmed past data quality issues. As
finalized in the FY 2011 IPPS/LTCH PPS final rule the supplement will
include all hospitals that fail validation in the previous year. In
addition, we are proposing to draw a random sample of hospitals meeting
one or more of the following criteria to reach a total supplemental
sample size of up to 200 hospitals (including those failing). We invite
public comment on the proposal to include a targeted sample, and to use
the following as criteria for targeting the additional hospitals:
Any hospital with abnormal or conflicting data patterns.
An example of abnormal data pattern would be if a hospital has
extremely high or extremely low values for a particular measure.
Consistent with the Hospital OQR program, we propose to define an
extremely high or low value as one that falls more than 3 standard
deviations

[[Page 28059]]

from the mean (76 FR 74485). An example of a conflicting data pattern
would be if two records were identified for the same patient episode of
care but the data elements were mismatched for primary diagnosis.
Primary diagnosis is just one of many fields that should remain
constant across measure sets for an episode of care. Other examples of
fields that should remain constant across measure sets are patient age
and sex. Frequent occurrence of these types of data conflicts may
indicate larger data quality problems. Any hospital not included in the
base validation annual sample and with statistically significantly more
abnormal or conflicting data patterns per record than would be expected
based on chance alone (p <.05), would be included in the population of
hospitals targeted in the supplemental sample.
Any hospital with rapidly changing data patterns. For this
targeting criterion, we propose to define a rapidly changing data
pattern as a hospital which improves its quality for one or more
measure sets (that is, AMI, HF, PN, SCIP, ED, IMM, or HAI) by more than
2 standard deviations from one year to the next, and also has a
statistically significant difference in improvement (one-tailed p
<.05). This pattern might indicate rapid quality improvement. It may
also indicate a potential change in the accuracy of the data reported,
and would be worthy of targeted validation.
Any hospital that submits data to NHSN after the Hospital
IQR Program data submission deadline has passed, which could suggest
that the hospital had data for relevant time periods that was not used
in calculating Hospital IQR measure rates.
Any hospital that joined the Hospital IQR Program within
the previous 3 years, and which has not been previously validated. When
a hospital first enters the program, its staff may need additional
support/education to ensure their understanding of reporting
requirements. Moreover, receiving this feedback early in a hospital's
participation may ensure that good data reporting habits are
established when a hospital's process may not yet be entrenched.
Any hospital that has not been randomly selected for
validation in any of the previous 3 years.
For the FY 2016 payment determination and subsequent
years, we are proposing to add to the targeting criteria proposed for
the 2015 payment determination by identifying hospitals that passed
validation in the previous year, but had a two-tailed confidence
interval that included 75 percent. Relative to hospitals whose
confidence interval lies entirely above the target reliability rate of
75 percent, a confidence interval that includes 75 percent would
indicate a higher level of uncertainty as to the reliability of data
for that particular hospital. This proposal is related to the proposal
to produce a two-sided confidence interval (discussed in section
VIII.A.6.b of this preamble). It is intended to respond to concerns
that CMS does not have a methodology to address hospitals, for which
``the statistical margin of error for their accuracy included both
passing and failing levels.'' The reason that we are proposing
implementation of this criterion beginning with the 2016 payment
determination is that it is not feasible to implement this change until
after we implement changes to the confidence interval, as proposed in
section VIII.A.6.b. of this preamble.
As noted above, the established procedure for drawing the base
random sample involves selection of hospitals ``early'' in the calendar
year two years prior to the payment determination FY 2011 IPPS/LTCH PPS
final rule (75 FR 50227). For example, the base sample for the FY 2015
payment determination will be drawn early in 2013. We are proposing
that the selection of hospitals targeted in the supplemental sample for
the FY 2015 payment determination occur after the FY 2014 payment
determination; this will separate the timing of selection of base and
supplemental samples. We are proposing to do so because CMS may need
extra time to review hospital data before identifying the hospitals to
include in the supplemental sample. Moreover, information regarding a
hospital's status as failing or passing is not known at the time the
base sample is drawn.
As finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50219),
the quarters included in the validation effort for each year's payment
determination will be the 4th calendar quarter of the year that occurs
2 years before the payment determination and the first 3 calendar
quarters of the following calendar year. For example, for the FY 2015
payment determination, the quarters included in validation would be the
fourth quarter of calendar year 2012 through the third quarter of
calendar year 2013.
7. Proposed Data Accuracy and Completeness Acknowledgement Requirements
for the FY 2015 Payment Determination and Subsequent Years
We are proposing to require hospitals to continue to electronically
acknowledge their data accuracy and completeness once annually. For the
FY 2014 payment determination, the submission deadline for the Data
Accuracy and Completeness Acknowledgement was aligned with the final
submission quarter for each fiscal year. We are proposing to continue
this approach for FY 2015 and subsequent years. For example, we are
proposing that the submission deadline for the Data Accuracy and
Completeness Acknowledgement would be May 15, 2014, with respect to the
time period of January 1, 2013, through December 31, 2013. We invite
public comment on this proposal.
8. Public Display Requirements for the FY 2015 Payment Determination
and Subsequent Years
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650), we
continued, for the FY 2014 payment determination and subsequent years,
the approach we adopted in the FY 2011 IPPS/LTCH PPS final rule (75 FR
50230) for public display requirements for the FY 2012 payment
determination and subsequent years. We are not proposing any changes to
these requirements.
The Hospital IQR Program quality measures are typically reported on
the Hospital Compare Web site at: http://www.hospitalcompare.hhs.gov,
but on occasion are reported on other CMS Web sites. We require that
hospitals sign a Notice of Participation form when they first register
to participate in the Hospital IQR Program. Once a hospital has
submitted a form, the hospital is considered to be an active Hospital
IQR Program participant until such time as the hospital submits a
withdrawal form to CMS (72 FR 47360). Hospitals signing this form agree
that they will allow us to publicly report the quality measures
included in the Hospital IQR Program.
We will continue to display quality information for public viewing
as required by section 1886(b)(3)(B)(viii)(VII) of the Act. Before we
display this information, hospitals will be permitted to review their
information as recorded in the QIO Clinical Warehouse.
9. Reconsideration and Appeal Procedures for the FY 2015 Payment
Determination
The Hospital IQR Program reconsideration and appeals requirements
were adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650
through 51651) and are found at 42 CFR 412.140(e) of our regulations.
The form for reconsiderations and a detailed description of the
reconsideration process are available on the QualityNet Web site at:
http://www.qualitynet.org/ > Hospitals-

[[Page 28060]]

Inpatient > Hospital Inpatient Quality Reporting Program > APU
Reconsiderations.
10. Hospital IQR Program Disaster Extensions or Waivers
The Hospital IQR Program disaster extensions or waiver requirements
were adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650
through 51652) and can be found at 42 CFR 412.140(e) and (c)(2),
respectively. The forms and a detailed description of the extension or
waiver process are available on the QualityNet Web site at: http://www.qualitynet.org/ > Hospitals-Inpatient > Hospital Inpatient Quality
Reporting Program.
11. Electronic Health Records (EHRs)
a. Background
Starting with the FY 2006 IPPS final rule, we have encouraged
hospitals to take steps toward the adoption of EHRs (also referred to
in previous rulemaking documents as electronic medical records) that
will allow for reporting of clinical quality data from the EHRs
directly to a CMS data repository (70 FR 47420 through 47421). We
sought to prepare for future EHR submission of quality measures by
sponsoring the creation of electronic specifications for quality
measures under consideration for the Hospital IQR Program.
b. HITECH Act EHR Provisions
The HITECH Act (Title IV of Division B of the ARRA, together with
Title XIII of Division A of the ARRA) authorizes payment incentives
under Medicare for the adoption and use of certified EHR technology
beginning in FY 2011. Hospitals are eligible for these payment
incentives if they meet requirements for meaningful use of certified
EHR technology, which include reporting on quality measures using
certified EHR technology. With respect to the selection of quality
measures for this purpose, under section 1886(n)(3)(A)(iii) of the Act,
as added by section 4102 of the HITECH Act, the Secretary shall select
measures, including clinical quality measures, that hospitals must
provide to CMS in order to be eligible for the EHR incentive payments.
With respect to the clinical quality measures, section 1886(n)(3)(B)(i)
of the Act requires the Secretary to give preference to those clinical
quality measures that have been selected for the Hospital IQR Program
under section 1886(b)(3)(B)(viii) of the Act or that have been endorsed
by the entity with a contract with the Secretary under section 1890(a)
of the Act. All measures must be proposed for public comment prior to
their selection, except in the case of measures previously selected for
the Hospital IQR Program under section 1886(b)(3)(B)(viii) of the Act.
We continue to believe there are important synergies with respect
to the two programs. We believe the financial incentives under the
HITECH Act for the adoption and meaningful use of certified EHR
technology by hospitals will encourage the adoption and use of
certified EHRs for the anticipated future reporting of clinical quality
measures under the Hospital IQR Program. Through the EHR Incentive
Programs we expect that the anticipated future submission of quality
data through EHRs will provide a foundation for establishing the
capacity of hospitals to send, and for CMS to receive, quality measures
via hospital EHRs for certain Hospital IQR Program measures in the
future.
The HITECH Act requires that the Secretary seek to avoid redundant
and duplicative reporting, with specific reference to the Hospital IQR
Program for eligible hospitals. To the extent that quality measures are
included in both the Hospital IQR Program and the EHR Incentive
Programs, this would mean that the Hospital IQR Program would need to
transition to use of certified EHR technology rather than manual chart
abstraction. We are considering what the most practical approach to
effect such a transition might be. One option is to select a date after
which chart-abstracted data would no longer be used in the Hospital IQR
Program where it is possible to report the data via certified EHR
technology. This would require sufficient advance notice to hospitals
for hospitals to report the data via certified EHR technology. At that
point, we believe that it is likely that nearly all IPPS hospitals will
have implemented certified EHR technology as incentivized by the HITECH
Act. Another option would be to allow hospitals to submit the same
measure for the Hospital IQR Program based on either chart-abstraction
or, when available, EHR-based reporting. This would require extensive
testing to ensure equivalence given that the data for the Hospital IQR
Program supports both the public reporting of such information and the
Hospital VBP Program. We are concerned that this option would not be
feasible.
Ultimately, we do not anticipate having two different sets of
clinical quality measures for the EHR Incentive Programs and the
Hospital IQR Program. Rather, we anticipate a single set of hospital
clinical quality measures, most of which we anticipate would be
electronically specified. We envision a reporting infrastructure for
electronic submission as an additional reporting mechanism in the
future, and will strive to align the hospital quality initiative
programs to seek to avoid redundant and duplicative reporting of
quality measures for hospitals. We note that some important Hospital
IQR Program quality measures such as HCAHPS experience of care measures
are based on survey data and do not lend themselves to EHR reporting.
Similarly, certain outcome quality measures, such as the current
Hospital IQR Program readmission measures, are based on claims data
rather than clinical data. Thus, not all Hospital IQR quality measures
will necessarily be capable of being submitted through EHRs. As a
consequence, not all Hospital IQR Program measures would necessarily be
appropriate for inclusion in the EHR Incentive Programs.
We note that the provisions in this proposed rule do not implicate
or implement any HITECH statutory provisions. Those provisions are the
subject of separate rulemaking and public comment.

B. Proposed PPS-Exempt Cancer Hospital Quality Reporting (PCHQR)
Program

1. Statutory Authority
Section 3005 of the Affordable Care Act added a new subsection
(a)(1)(W) and new subsection (k) to section 1866 of the Act. Section
1866(k) of the Act establishes a Quality Reporting Program for a
hospital described in section 1886(d)(1)(B)(v) of the Act (hereafter
referred to as a ``PPS-Exempt Cancer Hospital'' or ``PCH''). Section
1866(k)(1) of the Act provides that, for FY 2014 and each subsequent
fiscal year, a PCH shall submit data to the Secretary in accordance
with section 1866(k)(2) of the Act with respect to such a fiscal year.
Section 1866(k)(2) of the Act provides that, for FY 2014 and each
subsequent fiscal year, each hospital described in section
1886(d)(1)(B)(v) of the Act shall submit data to the Secretary on
quality measures specified under section 1866(k)(3) of the Act in a
form and manner, and at a time, specified by the Secretary.
Section 1866(k)(3)(A) of the Act requires that any measure
specified by the Secretary must have been endorsed by the entity with a
contract under section 1890(a) of the Act, unless an exception under
section 1866(k)(3)(B) of the Act applies. The National Quality Forum
(NQF) currently holds this contract. The NQF is a voluntary, consensus-
based, standard-setting organization with a diverse representation of
consumer, purchaser,

[[Page 28061]]

provider, academic, clinical, and other health care stakeholder
organizations. The NQF was established to standardize healthcare
quality measurement and reporting through its consensus development
processes. We have generally adopted NQF-endorsed measures in our
reporting programs. However, section 1866(k)(3)(B) of the Act provides
an exception. Specifically, it provides that, 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
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. Under section
1866(k)(3)(C) of the Act, the Secretary must publish the measure
selection for PCHs no later than October 1, 2012, with respect to FY
2014.
Section 1866(k)(4) of the Act requires the Secretary to establish
procedures for making public the data submitted by PCHs under the PCHQR
Program. Such procedures must ensure that a PCH has the opportunity to
review the data that is to be made public with respect to the hospital
prior to such data being made public. The Secretary must report quality
measures of process, structure, outcome, patients' perspective on care,
efficiency, and costs of care that relate to services furnished by PCHs
on the CMS Internet Web site.
2. Covered Entities
Section 1886(d)(1)(B)(v) of the Act excludes particular cancer
hospitals from payment under the IPPS. This proposed regulation covers
only those PPS-excluded cancer hospitals meeting eligibility criteria
specified in 42 CFR 412.23(f).
3. Proposed Quality Measures for PCHs for FY 2014 Program and
Subsequent Program Years
a. Considerations in the Selection of the Quality Measures
Section 1866(k)(3)(A) of the Act requires that any measure
specified by the Secretary must have been endorsed by the entity with a
contract under section 1890(a) of the Act, unless an exception under
section 1866(k)(3)(B) applies. The statutory requirement under section
1866(k)(3)(B) of the Act provides an exception that, 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
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.
As appropriate, we have developed the principles we are using for
the development and use of measures for the PCHQR Program on those we
are using for the Hospital IQR Program:
Public reporting should rely on a mix of standards,
outcomes, process of care measures, and patient experience of care
measures, including measures of care transitions and changes in patient
functional status.
The measure set should evolve so that it includes a
focused core set of measures appropriate to the cancer hospital
category that reflects the level of care and the most important areas
of service and measures for cancer hospitals. Measures will address
gaps in quality of cancer care.
We also consider input solicited from the public. For
instance, CMS held a Listening Session on September 8, 2011, to receive
input from consumers, advocacy groups, and providers on the measures
under consideration for and implementation of the PCHQR Program.
We considered suggestions and input from a PCH Technical
Expert Panel (TEP), convened by a CMS measure development contractor,
which rates potential PCH quality measures for importance, scientific
soundness, usability, and feasibility. The TEP membership includes
health-care providers specializing in treatment of cancer, cancer
researchers, consumer and patient advocates, disparities experts, and
representatives from payer organizations.
Like the Hospital IQR Program, the PCHQR Program also supports the
National Quality Strategy, national priorities, HHS Strategic Plans and
Initiatives, CMS Strategic Plans, takes into consideration the
recommendations of the Measure Application Partnership (MAP), and
strives for burden reduction whenever possible. We refer readers to the
discussion of these topics in section VIII.A.3.a. of this proposed rule
on ``Additional Considerations in Expanding and Updating Quality
Measures'' under the Hospital IQR Program.
b. Proposed PCHQR Program Quality Measures for FY 2014 Program and
Subsequent Program Years
We are proposing to adopt five quality measures for the FY 2014
program and subsequent program years. Specifically, we are proposing to
adopt two CDC/NHSN-based HAI quality measures (outcome measures): (1)
Central Line-Associated Bloodstream Infection (CLABSI); and (2)
Catheter-Associated Urinary Tract Infection (CAUTI); and three cancer
process of care measures: (1) Adjuvant chemotherapy is considered or
administered within 4 months (120 days) of surgery to patients under
the age of 80 with AJCC III (lymph node positive) colon cancer; (2)
Combination chemotherapy is considered or administered within 4 months
(120 days) of diagnosis for women under 70 with AJCC T1c, or Stage II
or III hormone receptor negative breast cancer; and (3) Adjuvant
hormonal therapy.
All five of these proposed measures were reviewed by the MAP, and
were recommended for inclusion in the PCHQR Program. For details
regarding MAP input, please refer to the MAP Pre-Rulemaking reports
located at: http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx.
(1) Proposed CDC/NHSN-Based Healthcare-Associated Infection (HAI)
Measures
HAIs are among the leading causes of death in the United States.
CDC estimates that as many as 2 million infections are acquired each
year in hospitals and result in approximately 90,000 deaths per
year.\102\ 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 number of days of
hospitalization required for patients and add considerable health care
costs.
---------------------------------------------------------------------------

\102\ 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.
---------------------------------------------------------------------------

The reduction of HAIs is a priority for HHS, as evidenced by HHS's
2009 publication of an Action Plan to Reduce HAIs.\103\ 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 HAIs. In 2009, a Steering Committee,
which included 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

[[Page 28062]]

morbidity and mortality were most severe in that setting and the
scientific information on prevention and the capacity for 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.
---------------------------------------------------------------------------

\103\ Available at: http://www.hhs.gov/ash/initiatives/hai/actionplan/.
---------------------------------------------------------------------------

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 health care 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. We
note that the House Committee on Appropriations asked in a 2009 Report
that CMS include in its ``pay for reporting'' system for subsection (d)
hospitals two infection control measures, one of which was a central
line-associated bloodstream infections measure (H. Rep. No. 111-220, at
159 (2009)). In the Report, the Committee stated that ``[i]f 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 this proposed rule, we are proposing to adopt two NQF-endorsed
HAI measures as stated in the above for the FY 2014 program and
subsequent program years for the PCHQR Program: (1) National Healthcare
Safety Network (NHSN) Central Line-Associated Bloodstream Infection
(CLABSI) Outcome Measure; and (2) National Healthcare Safety Network
(NHSN) Catheter-Associated Urinary Tract Infection (CAUTI) Outcome
Measure. These proposed measures were developed by the CDC and are
currently collected by the CDC via the NHSN. We are proposing to adopt
these two measures for several reasons. First, we believe that these
measures support the National Quality Strategy priority of patient
safety as these measures focus on serious infections that can prolong
patient hospital stays and increase the risk of mortality.\104\ Second,
the Technical Expert Panel (TEP) convened by our measure development
contractor identified CLABSI and CAUTI as high priority quality issues
for PCHs as an important area of quality measurement and promoting
potential for improved outcomes. Third, MAP reviewed these HAI measures
and supported inclusion of these measures in the PCHQR Program as they
address the National Quality Strategy's priority of safer care (see MAP
Pre-Rulemaking Final Report at: http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx).
---------------------------------------------------------------------------

\104\ CDC/NHSN Manual. Device-Associated Module, CLABSI Event.
Available at http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, accessed on January 20, 2011.
---------------------------------------------------------------------------

Fourth, these two HAI measures foster alignment with other our
quality reporting programs. In the FY 2011 IPPS/LTCH PPS final rule, we
adopted the CLABSI measure for the Hospital IQR Program. 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.\105\ In the Hospital IQR Program, collection of this
measure is limited to ICU locations. This measure also has been adopted
for the FY 2014 payment determination under the LTCHQR Program; for the
LTCHQR Program, data collection for this measure extends to all
inpatient locations in the LTCH.
---------------------------------------------------------------------------

\105\ 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 final rule, we adopted the Catheter
Associated Urinary Tract Infection (CAUTI) rate per 1,000 urinary
catheter days for Intensive Care Unit Patients measure for both the FY
2014 Hospital IQR and LTCHQR measure sets. In the Hospital IQR Program,
collection of this measure is limited to ICU locations; for the LTCHQR
Program, collection of this measure extends to all inpatient locations
except neonatal ICUs. This measure is a high priority HAI measure that
is 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.
We are proposing to collect data for these two HAI measures via the
NHSN, which is a secure, Internet-based surveillance system maintained
and managed by CDC, and can be used by all types of health care
facilities in the United States, including acute care hospitals, cancer
hospitals, long term care hospitals, psychiatric hospitals,
rehabilitation hospitals, outpatient dialysis centers, and ambulatory
surgery centers. The NHSN enables health care 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 health care facilities to
submit patient-level data on measures mandated through their specific
State legislation. Currently, 28 States require hospitals to report
HAIs using NHSN, and CDC provides support to more than 5,000 hospitals
that are using NHSN.
NHSN data collection occurs via manual data entry into a Web-based
tool hosted by CDC provided without charge to providers and via
electronic reporting by providers directly to NHSN. The NHSN Agreement
to Participate and Consent Form specifies the purposes to which NHSN
data are put, including enabling providers, such as cancer hospitals,
to report data via NHSN to CMS in fulfillment of CMS's quality
measurement reporting requirements for those data.
In addition, data submission for HAI measures through electronic
health record technology (EHRs) may be possible in the near future and
this would further reduce reporting burden on hospitals.
(A) Proposed Central Line-Associated Blood Stream Infections Measure
((CLABSI), NQF 0139)
The proposed CLABSI measure was originally developed by CDC to
assess the percentage of ICU and high-risk nursery patients who, over a
certain amount of days, acquired central line catheter-associated
bloodstream infections. CDC recently updated this measure to expand the
care setting to all inpatient settings (not just ICUs). As indicated
previously, the measure has been renamed as National Healthcare Safety
Network (NHSN) Central Line-Associated Bloodstream Infection (CLABSI)
Outcome Measure and we are proposing to adopt this measure for use for
the FY 2014 program and subsequent program years. This measure is
considered an outcome measure by NQF as it relates to the results of
the quality of care provided to patients; it is risk adjusted by which
the observed infection rate for a particular location in a hospital is
compared to an expected infection rate calculated based on the specific
location within other facilities that report to the NHSN. Measure
specifications may be accessed at: http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf.
A central line is a catheter that health care providers often place
in a large vein in the neck, chest, or groin to give medication or
fluids or to collect blood for medical tests. Many patients are
discharged from short-term acute care hospital intensive care units
(ICUs) or ICU stepdown units with these central lines in place.

[[Page 28063]]

Bloodstream infections are usually serious infections typically
causing a prolongation of hospital stay and increased cost and risk of
mortality.\106\ An estimated 248,000 bloodstream infections occur in
U.S. hospitals each year.\107\ Furthermore, despite the preventability
of these infections, CLABSIs result in thousands of deaths each year
and billions of dollars in added costs to the U.S. health care system,
CDC is providing guidelines and tools to the health care community to
help reduce central line catheter-associated bloodstream infections.
CLABSIs can be prevented through proper management of the central line.
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.\108\ 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 U.S. hospitals.
---------------------------------------------------------------------------

\106\ CDC/NHSN Manual. Device-Associated Module, CLABSI Event.
Available at http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, accessed on January 20, 2011.
\107\ 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.
\108\ 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).
---------------------------------------------------------------------------

This measure is NQF-endorsed and, therefore, meets the requirement
of section 1866(k)(3)(A) of the Act, which states that quality measures
selected for the PCHQR Program must be endorsed by the entity with a
contract under section 1890(a) of the Act, unless an exception under
section 1866(k)(3)(B) of the Act applies.
We invite public comment on our proposal to adopt the NHSN Central
Line-Associated Bloodstream Infection (CLABSI) outcome measure for the
PCHQR Program for collection in both ICU and non-ICU locations within a
PCH to align with the recently-expanded NQF-endorsed measure
specifications for the FY 2014 program and subsequent program years.
(B) Proposed Catheter Associated Urinary Tract Infection Measure
((CAUTI), NQF 0138)
The catheter-associated urinary tract infection (CAUTI) measure was
developed by CDC to measure the percentage of patients with CAUTIs in
the ICU context. CDC has recently updated the specifications of this
measure to include all inpatient settings (not just ICUs). This measure
has been renamed as National Healthcare Safety Network (NHSN) Catheter-
Associated Urinary Tract Infection (CAUTI) Outcome Measure and we are
proposing to adopt this measure for use for the FY 2014 program and
subsequent program years. This measure is considered an outcome measure
as it relates to the results of the quality of care provided to
patients; it is risk adjusted by which the observed infection rate for
a particular location in a hospital is compared to an expected
infection rate calculated based on the specific location within other
facilities that report to the NHSN. Measure specifications may be
accessed at: http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf.
The urinary tract is the most common site of HAI, accounting for
more than 30 percent of infections reported by acute care
hospitals.\109\ 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.\110\ Prevention of
CAUTIs is discussed in the CDC/HICPAC document, Guideline for
Prevention of Catheter-associated Urinary Tract Infections, which
includes recommendations for proper insertion techniques, including
hand washing, insertion by trained staff, use of sterile gloves,
drapes, sponges and antiseptic or sterile solution for cleaning and
lubricant jelly for insertion.\111\
---------------------------------------------------------------------------

\109\ 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.
\110\ Wong ES., Guideline for prevention of catheter-associated
urinary tract infections. Infect Control 1981; 2:126-30.
\111\ Gould CV, Umscheid CA, Agarwal RK, Kuntz G, Pegues DA, et
al., Guideline for prevention of catheter-associated urinary tract
infections. Infect Control 2009; 31:319-326.
---------------------------------------------------------------------------

UTIs are a major cause of morbidity and mortality. The HHS Action
Plan to Prevent HAIs identified catheter associated urinary tract
infections as the leading type of HAI that is largely preventable, and
the occurrence of which can be drastically reduced in order to reduce
adverse health care related events and avoid excess costs.
This measure is NQF-endorsed and, therefore, meets the requirement
of section 1866(k)(3)(A) of the Act, which states that quality measures
selected for the PCHQR Program be endorsed by the entity with a
contract under section 1890(a) of the Act, unless an exception under
section 1866(k)(3)(B) of the Act applies.
We invite public comment on our proposal to adopt the NHSN
Catheter-Associated Urinary Tract Infection (CAUTI) outcome measure for
the PCHQR Program for collection in both ICU and non-ICU locations
within a facility to align with the recently expanded NQF-endorsed
measure specifications for the FY 2014 program and subsequent program
years.
(2) Proposed Cancer-Specific Measures
We are proposing to adopt three measures related to the treatment
of colon cancer and two types of breast cancer (hormone receptor-
negative and hormone receptor-positive). Specifically, these proposed
measures are: (i) Adjuvant chemotherapy is considered or administered
within 4 months (120 days) of surgery to patients under the age of 80
with AJCC III (lymph node positive) colon cancer (NQF 0223);
(ii) Combination chemotherapy is considered or administered within 4
months (120 days) of diagnosis for women under 70 with AJCC T1c, or
Stage II or III hormone receptor negative breast cancer (NQF
0559); and (iii) Adjuvant hormonal therapy (NQF
0220). The proposed measures were developed by the American College of
Surgeons/Commission on Cancer.
We are proposing to adopt these three cancer treatment-related
quality measures for several reasons. First, national cancer incidence
rates suggest that breast and colon cancer will become two of the more
common diagnoses (in 2012, 29 percent of cancer diagnosis in females
will be breast cancer, and 6 percent of cancer diagnosis in both
genders will be colon cancer \112\); these cancers are also highly
prevalent among Medicare beneficiaries.

[[Page 28064]]

We believe the high incidence of these types of cancer creates an
opportunity for measurements to make an impact on the quality of cancer
care. Second, these measures support the National Quality Strategy's
priority to promote the most effective prevention and treatment
practices for the leading causes of mortality due to cancer. Third, the
TEP convened by our measure development contractor identified the
treatment of breast and colon cancer as high priority quality issues
for PCHs due to the high incidence of these types of cancers and rated
these measures highest compared to other potential program measures
based on an assessment of the importance, scientific acceptability,
usability, and feasibility of these measures. Also, participants in a
CMS-convened Listening Session on September 8, 2011 expressed support
for the proposed measures. The transcript for this Listening Session
can be found at http://www.cms.gov/HospitalQualityInits/05_HospitalHighlights.asp#TopOfPage. Fourth, the MAP reviewed these
cancer-specific measures and supported inclusion of these measures in
the PCHQR Program. All of the three proposed cancer-specific measures
are NQF-endorsed; therefore they satisfy the requirement of section
1866(k)(3)(A) of the Act relating to the selection of endorsed measures
for the PCHQR Program. Furthermore, section 1866(k)(4) of the Act
provides that quality measures reported in the PCHQR Program should
assess process, structure, outcome, patients' perspective on care,
efficiency, and costs of care that relate to PCHs. We believe these
three proposed cancer-specific measures meet the above statutory
criteria, as they track important processes in the treatment of colon
and breast cancer.
---------------------------------------------------------------------------

\112\ Siegel R, Naishadham D, Jemal A. Cancer statistics, 2012.
CA Cancer J Clin 2012; 62:10-29.
---------------------------------------------------------------------------

Although these measures are not currently reported in other HHS
programs, they are reported by over 1,500 cancer programs as part of
their accreditation by the Commission on Cancer, a program of the
American College of Surgeons (see http://www.facs.org/cancer/ncdb/index.html), further indicating their importance as the Commission on
Cancer has taken a leading role in establishing national standards to
ensure quality in the provision of cancer care.
We are proposing that PCHs would submit the data needed to
calculate these measures to a CMS contractor. We believe that a CMS
contractor-based data collection mechanism would reduce the potential
reporting burden because currently the majority of PCHs are submitting
HAI and cancer-specific measures to the appropriate entities.
(A) Proposed Adjuvant Chemotherapy Is Considered or Administered Within
4 Months (120 days) of Surgery to Patient Under the Age of 80 With AJCC
III (Lymph Node Positive Colon Cancer) (NQF 0223)
This proposed measure examines whether adjuvant chemotherapy is
delivered within a specified period of time after a diagnosis of colon
cancer. Specifically, it looks at the proportion of patients 18-79 with
AJCC Stage III (lymph node positive) colon cancer for whom adjuvant
chemotherapy is considered or administered within 4 months of
diagnosis. Stage III colon cancer is colon cancer that has spread
outside the colon to one or more lymph nodes. The adjuvant chemotherapy
measure is a process measure as it addresses whether a defined
treatment was delivered to a patient; the measure is not risk adjusted
by which the measure does not attempt to account for hospital patient
populations or other differences between hospitals. Detailed
specifications for this proposed measure can be accessed on the Web
site of the measure steward, the American College of Surgeons at:
http://www.facs.org/cancer/ncdb/colonmeasures.pdf. Additionally, CMS
will provide a link to the specification manual on the QualityNet Web
site.
Colorectal cancer plays a sizeable role in affecting both health
and health care costs in the United States. The American Cancer Society
estimates that 51,690 Americans will die of colorectal cancer in
2012.\113\ According to the National Cancer Institute, more than $14.1
billion was spent on colorectal cancer in 2010.\114\
---------------------------------------------------------------------------

\113\ Siegel R, Naishadham D, Jemal A. Cancer statistics, 2012.
CA Cancer J Clin 2012; 62:10-29.
\114\ Mariotto AB, Yabroff KR, Shao Y, Feuer EJ, and Brown ML.
Projections of the Cost of Cancer Care in the United States: 2010-
2020. JNCI 2011; 103:117-128.
---------------------------------------------------------------------------

Appropriate treatment may improve survival rates and reduce the
likelihood of costly recurrence. Strong evidence suggests that treating
Stage III colon cancer patients with adjuvant chemotherapy improves
overall survival and disease-free survival.\115\ In addition to being
supported by evidence, this measure is consistent with the National
Comprehensive Cancer Network's (NCCN) guidelines for the treatment of
colon cancer (COL-4: T3-4, N1-2, MO), which recommend that colon cancer
patients should receive adjuvant chemotherapy.
---------------------------------------------------------------------------

\115\ Andr[eacute] T, Boni C, Navarro M, et al. Improved Overall
Survival With Oxaliplatin, Fluorouracil, and Leucovorin As Adjuvant
Treatment in Stage II or III Colon Cancer in the MOSIAC Trial. J
Clin Onc 2009; 27:3109-3116.
---------------------------------------------------------------------------

Section 1866(k)(3)(A) of the Act requires quality measures selected
for the PCHQR Program to be endorsed by the entity with a contract
under section 1890(a) of the Act, unless an exception under
1866(k)(3)(B) applies. This measure is NQF-endorsed and therefore, it
meets the statutory endorsement requirements.
We invite public comment on our proposal to adopt the Adjuvant
Chemotherapy Is Considered or Administered Within 4 Months (120 days)
of Surgery to Patient Under the Age of 80 With AJCC III (lymph node
positive colon cancer) measure for the PCHQR Program for the FY 2014
program and subsequent program years.
(B) Proposed Combination Chemotherapy Is Considered or Administered
Within 4 Months (120 days) of Diagnosis for Women Under 70 With AJCC
T1c, or Stage II or III Hormone Receptor Negative Breast Cancer (NQF
0559)
This proposed measure assesses the proportion of women ages 18-69
who have their first diagnosis of breast cancer at AJCC Stage IC, II or
III and whose primary tumor is hormone (estrogen and progesterone)
receptor negative for whom combination chemotherapy is considered or
administered within 4 months of diagnosis. Hormone receptor negative
means that hormones, such as estrogen, do not drive tumor growth. This
measure is a process measure as it addresses whether a defined
treatment was delivered to a patient; the measure is not risk adjusted
in that the measure does not attempt to account for differences in
hospital patient populations or other differences between hospitals.
Detailed specifications for this proposed measure can be accessed on
the Web site of the measure steward, the American College of Surgeons,
at: http://www.facs.org/cancer/ncdb/breastmeasures.pdf. Additionally,
CMS will provide a link to the specification manual on the QualityNet
Web site.
The number of deaths from breast cancer has declined while spending
has increased. The American Cancer Society estimates that 39,510
Americans will die of breast cancer in 2012.\116\ Spending on breast
cancer care is higher than for any other type of cancer: according to
the National Cancer Institute, more than $16.5 billion was

[[Page 28065]]

spent on breast cancer care in 2010.\117\ Evidence shows that treating
hormone receptor negative breast cancer patients with combination
chemotherapy is associated with a reduced risk of relapse or
death.\118\ This measure is also consistent with NCCN's guidelines for
the treatment of invasive breast cancer (BINV-4, 7-8), which recommend
adjuvant chemotherapy for patients with hormone receptor negative
tumors, and therefore the measure aligns with recognized standards of
treatment.
---------------------------------------------------------------------------

\116\ Siegel R, Naishadham D, Jemal A. Cancer statistics, 2012.
CA Cancer J Clin 2012; 62:10-29.
\117\ Mariotto AB, Yabroff KR, Shao Y, Feuer EJ, and Brown ML.
Projections of the Cost of Cancer Care in the United States: 2010-
2020. J Natl Cancer Inst 2011; 103:117-128.
\118\ Fisher B, Jeong JH, Anderson S, et al.: Treatment of
axillary lymph node-negative, estrogen receptor-negative breast
cancer: updated findings from National Surgical Adjuvant Breast and
Bowel Project clinical trials. J Natl Cancer Inst 96 (24): 1823-31,
2004.
---------------------------------------------------------------------------

This measure is NQF-endorsed and therefore, it meets the
requirements under section 1866(k)(3)(A) of the Act which states that
quality measures selected for the PCHQR Program be endorsed by the
entity with a contract under section 1890(a) of the Act, unless an
exception under section 1866(k)(3)(B) of the Act applies.
We invite public comment on our proposal to adopt the Combination
Chemotherapy is Considered or Administered Within 4 Months (120 days)
of Diagnosis for Women Under 70 With AJCC T1c, or Stage II or III
Hormone Receptor Negative Breast Cancer (NQF 0559) quality
measure for the PCHQR Program for the FY 2014 program and subsequent
program years.
(C) Proposed Adjuvant Hormonal Therapy (NQF 0220)
This proposed measure assesses whether recommended treatment is
delivered within a specified period of time from a patient's breast
cancer diagnosis. Specifically, it tracks the proportion of eligible
women 18 years or older who have their first diagnosis of breast cancer
at AJCC T1c or Stage II or III and whose primary tumor is hormone
(estrogen or progesterone) receptor positive breast cancer for whom
tamoxifen or a third generation aromatase inhibitor is considered or
administered within 1 year of diagnosis. Hormone receptor positive
means that estrogen or progesterone promotes the growth of cancer
cells. This measure is a process measure as it relates to whether a
defined treatment was delivered to a patient; it is not risk adjusted.
Detailed specifications for this proposed measure can be accessed on
the Web site of the measure steward, the American College of Surgeons,
at: http://www.facs.org/cancer/ncdb/breastmeasures.pdf. Additionally,
we will provide a link to the specification manual on the QualityNet
Web site.
The American Cancer Society estimates that two-thirds of breast
cancer cases are hormone receptor positive.\119\ As stated previously,
appropriate and effective treatment is important to both the health and
cost outcomes of breast cancer care. The measure is consistent with
NCCN's guidelines (BINV-5, 6 and 9 and BINV-E) for the treatment of
invasive breast cancer, which recommend hormone therapy for patients
with hormone receptor positive breast cancer, and with the American
Society of Clinical Oncology's (ASCO) Update on adjuvant endocrine
therapy for women with hormone receptor positive breast cancer. The
ASCO guideline cites a wide body of supporting evidence for this method
of treatment.
---------------------------------------------------------------------------

\119\ American Cancer Society. Breast Cancer Hormone Therapy.
http://www.cancer.org/Cancer/BreastCancer/DetailedGuide/breast-cancer-treating-hormone-therapy Last revised 01/06/2012.
---------------------------------------------------------------------------

This measure is NQF-endorsed and therefore, it meets the
requirement under section 1866(k)(3)(A) of the Act, which states that
quality measures selected for the PCHQR Program be endorsed by the
entity with a contract under section 1890(a) of the Act, unless an
exception under section 1866(k)(3)(B) of the Act applies.
We invite public comment on our proposal to adopt the Adjuvant
hormonal therapy measure for the PCHQR Program for the FY 2014 program
and subsequent program years.
In summary, we are proposing to adopt five quality measures for the
PCHQR Program for the FY 2014 program and subsequent program years
(listed in the table below): (1) NHSN Central Line-Associated
Bloodstream Infection (CLABSI) Outcome Measure (data submission for ICU
and non-ICU locations via CDC/NHSN); (2) NHSN Catheter-Associated
Urinary Tract Infection (CAUTI) Outcome Measure (data submission for
ICU and non-ICU locations via CDC/NHSN); (3) Adjuvant chemotherapy is
considered or administered within 4 months (120 days) of surgery to
patients under the age of 80 with AJCC III (lymph node positive) colon
cancer (data submission to CMS contractor); (4) Combination
chemotherapy is considered or administered within 4 months (120 days)
of diagnosis for women under 70 with AJCC T1c, or Stage II or III
hormone receptor negative breast cancer (data submission to CMS
contractor); and (5) Adjuvant hormonal therapy (data submission to CMS
contractor). We invite public comment on these proposed measures for
the FY 2014 program and subsequent program years. The proposed details
regarding data submission for these measures are covered in section
VIII.B. of this preamble.

------------------------------------------------------------------------
Proposed measures for PCHQR program
Topic beginning with FY 2014 program and
subsequent program years
------------------------------------------------------------------------
Safety and Healthcare Acquired NHSN Central Line-
Infections--HAI. Associated Bloodstream Infection
(CLABSI) Outcome Measure.
NHSN Catheter-Associated
Urinary Tract Infections (CAUTI)
Outcome Measure.
Cancer-Specific Treatments........ Adjuvant Chemotherapy is
considered or administered within 4
months (120 days) of surgery to
patients under the age of 80 with
AJCC III (lymph node positive)
colon cancer.
Combination Chemotherapy is
considered or administered within 4
months (120 days) of diagnosis for
women under 70 with AJCC T1c, or
Stage II or III hormone receptor
negative Breast Cancer.
Adjuvant Hormonal Therapy.
------------------------------------------------------------------------

4. Possible New Quality Measures Topics for Future Years
We seek to develop a comprehensive set of quality measures to be
available for widespread use for informed decision-making and quality
improvement in the cancer hospital setting. Therefore, through future
rulemaking, we intend to propose new measures that help us further our
goal of achieving better health care and improved health for Medicare
beneficiaries who obtain cancer services through the widespread
dissemination and use of performance information. Additionally, we are
considering initiating a call for input to assess the following measure
domains: Clinical quality of care, care coordination, patient safety,
patient and caregiver experience of care, population/

[[Page 28066]]

community health and efficiency. We believe this approach will promote
better cancer care while bringing the PCHQR Program in line with other
established quality reporting and performance improvement programs such
as the Hospital IQR, the Hospital OQR, the ESRD QIP, and others within
CMS' purview.
We welcome public comment and suggestions for these, or other,
measurement areas.
5. Maintenance of Technical Specifications for Quality Measures
Many of the quality measures used in different Medicare and
Medicaid reporting programs are NQF-endorsed. As part of its regular
maintenance process for endorsed performance measures, the NQF requires
measure stewards to submit annual measure maintenance updates and
undergo maintenance of endorsement review every 3 years. In the measure
maintenance process, the measure steward (owner/developer) is
responsible for updating and maintaining the currency and relevance of
the measure and will confirm existing or minor specification changes to
NQF on an annual basis. NQF solicits information from measure stewards
for annual reviews and in order to review measures for continued
endorsement in a specific 3-year cycle.
Through NQF's measure maintenance process, NQF endorsed measures
are sometimes updated to incorporate changes that we believe do not
substantially change the nature of the measure. Examples of such
changes could be updated diagnosis or procedure codes, changes to
exclusions to the patient population, definitions, or extension of the
measure endorsement to apply to other settings. We believe these types
of maintenance changes are distinct from more substantive changes to
measures that result in what are considered new or different measures,
and that they do not trigger the same agency obligations under the
Administrative Procedure Act. In this proposed rule, we are proposing
that if the NQF updates an endorsed measure that we have adopted for
the PCHQR Program in a manner that we consider to not substantially
change the nature of the measure, we would use a subregulatory process
to incorporate those updates to the measure specifications that apply
to the program. Specifically, we would revise the Specifications Manual
so that it clearly identifies the updates and provide links to where
additional information on the updates can be found. We would also post
the updates on the CMS QualityNet Web site at https://www.QualityNet.org. We would provide sufficient lead time for PCHs to
implement the changes where changes to the data collection systems
would be necessary.
We would continue to use the rulemaking process to adopt changes to
measures that we consider to substantially change the nature of the
measure. We believe that this proposal adequately balances our need to
incorporate NQF updates to NQF-endorsed PCH measures in the most
expeditious manner possible, while preserving the public's ability to
comment on updates that so fundamentally change an endorsed measure
that it is no longer the same measure that we originally adopted. We
invite public comment on this proposal.
Additionally, we will provide a Specifications Manual that will
contain links to measure specifications, data abstraction information,
data submission information, and other information necessary for PCHs
to participate in the PCHQR Program. This manual would be posted on the
QualityNet Web site at: https://www.QualityNet.org. We would maintain
the technical specifications for the quality measures by updating this
manual periodically, which would include detailed instructions for PCHs
to use when collecting and submitting data on the required measures.
These updates would be accompanied by notifications to PCHQR Program-
participating users, providing sufficient time between the change and
effective dates in order to allow users to incorporate changes and
updates to the measure specifications into data collection systems. We
would revise the Specification Manual and provide links to reflect such
endorsement changes which also would be posted on the QualityNet Web
site at: https://www.QualityNet.org. We invite public comment on the
previously described proposed policy on maintenance of technical
specifications for quality measures.
6. Proposed Public Display Requirements for the FY 2014 Program and
Subsequent Program Years
Section 1866(k)(4) of the Act requires the Secretary to establish
procedures for making the data submitted under the PCHQR Program
available to the public. Such procedures shall ensure that a PCH has
the opportunity to review the data that is to be made public with
respect to the hospital prior to such data being made public. Section
1866(k)(4) of the Act also provides that the Secretary shall report
quality measures of process, structure, outcome, patients' perspective
on care, efficiency, and costs of care that relate to services
furnished in such hospital on the CMS Internet Website. In order to
meet these requirements, we are proposing to publicly display the
submitted data on the Hospital Compare Web site (http://www.hospitalcompare.hhs.gov/). Before the data are publicly displayed,
we propose that PCHs will have the opportunity to review their data
prior to the public reporting of the measure rates consistent with
section 1866(k)(4) of the Act. We are proposing that PCHs have the
opportunity to review their data 30 days prior to the public reporting
of the measure rates because we would continue our current practice of
preview reporting data for the PCHQR program in alignment with the HIQR
program.
The Hospital Compare Website serves to encourage consumers 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.
However, some information that may not be relevant to or easily
understood by beneficiaries and information for which there are
unresolved display issues or design considerations that may not make
them suitable for inclusion on the Hospital Compare Web site may be
made available on other CMS Web sites, such as http://www.cms.gov and/
or http://www.qualitynet.org. In such circumstances, affected parties
would be notified via CMS listservs, CMS e-mail blasts, and QualityNet
announcements regarding the release of confidential hospital-specific
preview reports to individual hospitals followed by the posting of data
on a CMS Web site other than Hospital Compare.
We invite public comment on the previously described proposals
regarding the public display of quality measures.
7. Proposed Form, Manner, and Timing of Data Submission for FY 2014
Program and Subsequent Program Years
a. Background
Section 1866(k)(2) of the Act requires that, for the FY 2014
program and each subsequent program year, each PCH must submit to the
Secretary data on quality measures established under section 1866(k)(3)
of the Act in a form and manner, and at a time as specified by the
Secretary.
The complete data submission requirements and submission deadlines
will be posted on the QualityNet Web site at: http://www.QualityNet.org/. In general, we are proposing that PCHs

[[Page 28067]]

submit data to the CDC for the HAI measures (CLABSI and CAUTI), and the
CMS contractor for the three Cancer-Specific measures (Adjuvant
Chemotherapy for Stage III Colon Cancer; Combination Chemotherapy for
AJCC T1c or Stage II or III Hormone Receptor-Negative Breast Cancer;
and Hormone Therapy for AJCC T1c or Stage II or III Hormone Receptor-
Positive Breast Cancer). As set forth below, we are proposing to
utilize the data submission and reporting standard procedures that have
been set forth by CDC for NHSN participation in general and for
submission of the proposed HAI measures to NHSN. We refer readers to
the CDC's website for detailed data submission and reporting
procedures. We are also proposing procedures for PCHs to follow when
submitting data on the three proposed cancer-specific measures.
b. Proposed Procedural Requirements for FY 2014 Program and Subsequent
Program Years
In order to participate in the PCHQR Program for the FY 2014
program and subsequent program years, we are proposing that PCHs must
comply with the procedural requirements outlined in this section. We
have aligned these proposed procedural requirements with the Hospital
IQR Program to the extent possible to streamline the procedural
requirements across different types of providers. We are proposing that
PCHs must do the following:
Register with QualityNet before participating PCHs begin
reporting and regardless of the method used for submitting the data.
Identify QualityNet Administrator(s) who follows the
registration process located on the QualityNet Website (http://www.QualityNet.org).
PCHs participating in the PCHQR Program must complete an
online Data Accuracy and Completeness Acknowledgement (DACA) via
QualityNet, which states that the quality measure results and any and
all data including numerator and denominator data provided, are
accurate and complete. We are proposing that the time period for
submitting the DACA would be August 31 of the preceding fiscal year.
For more information on DACA, please refer to the section below
entitled, ``Proposed Data Accuracy and Completeness Acknowledgement
(DACA) Requirements for the FY 2014 Program and Subsequent Program
Years.''
Enroll in CDC/NHSN and register with the CMS contractor
collecting the Cancer-Specific measures before participating PCHs begin
reporting.
We strongly encourage PCHs to complete an online Notice of
Participation (NOP) via QualityNet. This form would grant CMS written
authorization from the PCH to publicly report the PCH's measure rate on
a CMS Web site.

Proposed CMS Notice of Participation Timeframe
------------------------------------------------------------------------
Notice of participation
Program year (fiscal year) (NOP) deadline
------------------------------------------------------------------------
FY 2014................................... August 15, 2013.
FY 2015................................... August 15, 2014.
Subsequent Fiscal Years................... August 15 of the preceding
fiscal year.
------------------------------------------------------------------------

c. Proposed Reporting Mechanisms for FY 2014 Program and Subsequent
Program Years
For the purpose of reporting quality measures under the PCHQR
Program, we are proposing to adopt the following data submission
mechanisms. With respect to the proposed HAI measures (CLABSI and
CAUTI), we are proposing that PCHs submit the data to the CDC through
the NHSN database. We are proposing to utilize the data submission and
reporting standard procedures that have been set forth by CDC for NHSN
participation in general and for submission of the proposed HAI
measures to NHSN. We refer readers to the CDC's website (http://www.cdc.gov/nhsn/) for detailed data submission and reporting
procedures. After the final submission deadline has passed, CMS will
obtain the PCH-specific calculations that have been generated by the
NHSN for the PCHQR Program.
With respect to the three proposed (3) cancer-specific measures, we
are proposing that PCHs submit the data to the CMS contractor. The CMS
Contractor would then calculate the quality measures rates and submit
those rates to CMS on a quarterly basis.
We invite public comment on our proposed reporting mechanisms.
(1) Proposed Reporting Mechanism for the Proposed HAI Measures
We are proposing to adopt a quarterly submission process for the
proposed HAI measures -CLABIS AND CAUTI, that use similar reporting
mechanism to the one finalized for the Hospital IQR program (75 FR
50223) starting with October 1, 2012 infection events. We have
successfully implemented this reporting mechanism in the Hospital IQR
program and intend to use similar reporting mechanism to collect data
for the PCHQR program. We welcome comment on this proposal.
(2) Proposed Reporting Mechanism for the Proposed Cancer-Specific
Measures
We are proposing to collect the three cancer-specific measures data
using a CMS contractor starting with the FY2014 program. Similar to the
reporting mechanism we are proposing to adopt for the proposed HAI
measures, we anticipate that PCHs would report their measure data to
the contractor, which would then calculate the measure rates and submit
those rates to CMS. Should these proposed measures be finalized, we
will publish the technical specifications and file layouts necessary
for reporting in enough time to enable PCHs to incorporate any
necessary changes to their information systems. We invite public
comment on our proposed reporting requirements.
d. Proposed Data Submission Timelines for FY 2014 Program and
Subsequent Program Years
We are proposing that PCHs must adhere to the following timelines
in reporting their measure data:

------------------------------------------------------------------------
CMS submission
Time line (calendar year) Quality measures * deadline
------------------------------------------------------------------------
Q4 (October-December 2012).... NHSN CLABSI Outcome May 15, 2013.
Measure **.
NHSN CAUTI Outcome May 15, 2013.
Measure **.
Adjuvant Chemotherapy August 15, 2013.
is considered or
administered within 4
months (120 days) of
surgery to patients
under the age of 80
with AJCC Stage III
(lymph node positive)
colon cancer \+\.
Combination August 15, 2013.
Chemotherapy is
considered or
administered within 4
months (120 days) of
diagnosis for women
under 70 with AJCC
T1c, or Stage II or
III hormone receptor
negative Breast
Cancer \+\.
Adjuvant Hormonal May 15, 2014.
Therapy \+\.
Q1 (January-March 2013)....... NHSN CLABSI Outcome August 15, 2013.
Measure **.
NHSN CAUTI Outcome August 15, 2013.
Measure **.

[[Page 28068]]

Adjuvant Chemotherapy November 15,
is considered or 2013.
administered within 4
months (120 days) of
surgery to patients
under the age of 80
with AJCC Stage III
(lymph node positive)
colon cancer \+\.
Combination November 15,
Chemotherapy is 2013.
considered or
administered within 4
months (120 days) of
diagnosis for women
under 70 with AJCC
T1c, or Stage II or
III hormone receptor
negative Breast
Cancer \+\.
Adjuvant Hormonal August 15, 2014.
Therapy \+\.
Subsequent calendar quarters.. NHSN CLABSI Outcome November 15 of
Measure **. each respective
year.
NHSN CAUTI Outcome November 15 of
Measure **. each respective
year.
Adjuvant Chemotherapy February 15 of
is considered or each respective
administered within 4 year.
months (120 days) of
surgery to patients
under the age of 80
with AJCC Stage III
(lymph node positive)
colon cancer \+\.
Combination February 15 of
Chemotherapy is each respective
considered or year.
administered within 4
months (120 days) of
diagnosis for women
under 70 with AJCC
T1c, or Stage II or
III hormone receptor
negative Breast
Cancer \+\.
Adjuvant Hormonal November 15 of
Therapy \+\. each respective
year.
------------------------------------------------------------------------
* Referred to as the HAI and Cancer-Specific Treatment Quality Measures.
** HAI event occurred in applicable quarter.
\+\ Initial diagnosis in applicable quarter.

Our principal rationale for these proposed timeframes is to align
the HAI measure submission deadlines with existing CMS deadlines to
collect the same quality measure information. We also seek to align our
timeframes with those of the ACoS, which separately collects the same
type of cancer-specific measure data from many PCHs. By aligning these
deadlines by measure, we strive to reduce burden by using information
already collected by many PCHs in their own quality measurement and
improvement efforts. The proposed quarterly CDC/NHSN submission
timeframes and deadlines also match the existing Hospital IQR quarterly
submission timeframes for the same HAI measure. In the case of the
three cancer-specific quality measures, we also believe that these
proposed submission timeframes will give PCHs enough time to measure
follow-up chemotherapy (4 months following the cancer diagnosis) and
hormone therapy visits (12 months following the cancer surgery), as
well as identify and correct discordant submitted data (2 months for
the two proposed chemotherapy measures, and 3 months for the proposed
adjuvant hormone therapy measure).
We invite public comment on the proposed data submission methods
and timelines.
e. Proposed Data Accuracy and Completeness Acknowledgement (DACA)
Requirements for FY 2014 Program and Subsequent Program Years
We are proposing to require PCHs to electronically acknowledge
their data accuracy and completeness once annually. PCHs would submit
an electronic acknowledgement that the data provided to meet the
applicable annual PCHQR Program data submission requirement is accurate
and complete to the best of the facility's knowledge at the time of
data submission. We are proposing to begin annual DACA submission
starting with the FY 2015 program, and such submission deadline would
be due to CMS no later than August 31, 2014. We are proposing to begin
the DACA with the FY 2015 program in an effort to provide ample
opportunity for the PCHs to become familiar with the reporting
processes. Therefore, we are not proposing submission of a DACA for the
FY 2014 PCHQR Program. We are proposing that the DACA submission
deadline for each program year be August 31 preceding the respective
PCHQR Program year. We are proposing August 31 as the DACA deadline for
several reasons. First, requiring PCHs to acknowledge their data's
accuracy and completeness by August 31 preceding the respective PCHQR
Program year provides us with sufficient time to ensure compliance with
the program by October 1, the start of the fiscal year. Second, we
believe it is appropriate to make the deadline for DACA the same as the
deadline for data submission. Lastly, we are proposing to align our
DACA deadline with other quality reporting programs, such as the
Hospital IQR Program.

Proposed CMS Data Accuracy and Completeness Acknowledgement (DACA)
Timeframe
------------------------------------------------------------------------
Data accuracy and
completeness
Program year (fiscal year) acknowledgement (DACA)
deadline
------------------------------------------------------------------------
FY 2014................................... Not required.
FY 2015................................... August 31, 2014.
Subsequent Fiscal Years................... August 31 of the preceding
fiscal year.
------------------------------------------------------------------------

We invite public comments on our proposed data accuracy and
completeness acknowledgement requirements.

C. Hospital Value-Based Purchasing (VBP) Program

1. Statutory Background
Section 1886(o) of the Act, as added by section 3001(a)(1) of the
Affordable Care Act, requires the Secretary to establish a hospital
value-based purchasing program (the Hospital Value-Based Purchasing
(VBP) Program) under which value-based incentive payments are made in a
fiscal year to hospitals that meet performance standards established
for a performance period for such fiscal year. Both the performance
standards and the performance period for a fiscal year are to be
established by the Secretary.
Section 1886(o)(1)(B) of the Act states that the Hospital VBP
Program applies to payments for hospital discharges occurring on or
after October 1, 2012. In accordance with section 1886(o)(6)(A) of the
Act, we are required to make value-based incentive payments under the
Hospital VBP Program to hospitals that meet or exceed performance
standards

[[Page 28069]]

for a performance period for a fiscal year. As further required by
section 1886(o)(6)(C)(ii)(I) of the Act, we will base each hospital's
value-based payment percentage on the hospital's Total Performance
Score (TPS) for a specified performance period. In accordance with
section 1886(o)(7) of the Act, the total amount available for value-
based incentive payments for a fiscal year will be equal to the total
amount of the payment reductions for all participating hospitals for
such fiscal year, as estimated by the Secretary. For FY 2013, the
available funding pool will be equal to 1.00 percent of the base-
operating DRG payments to all participating hospitals, as estimated by
the Secretary, and the size of the applicable percentage will increase
to 1.25 percent for FY 2014, 1.50 percent for FY 2015, 1.75 percent for
FY 2016, and 2.0 percent for FY 2017 and successive fiscal years.
Section 1886(o)(1)(C) of the Act generally defines the term
``hospital'' for purposes of the Hospital VBP Program as a subsection
(d) hospital (as that term is defined in section 1886(d)(1)(B) of the
Act), but excludes from the definition of the term ``hospital,'' with
respect to a fiscal year: (1) A hospital that is subject to the payment
reduction under section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital
IQR Program) for such fiscal year; (2) a hospital for which, during the
performance period for the fiscal year, the Secretary has cited
deficiencies that pose immediate jeopardy to the health or safety of
patients; and (3) a hospital for which there are not a minimum number
(as determined by the Secretary) of measures that apply to the hospital
for the performance period for the fiscal year involved, or for which
there are not a minimum number (as determined by the Secretary) of
cases for the measures that apply to the hospital for the performance
period for such fiscal year.
2. Overview of the FY 2013 Hospital VBP Program
In April 2011, we issued the Hospital Inpatient VBP Program final
rule to implement section 1886(o) of the Act (76 FR 26490 through
26547). As described more fully in that final rule, for the FY 2013
Hospital VBP Program, we adopted 13 measures, including 12 clinical
process of care measures and 8 dimensions from the Hospital Consumer
Assessment of Healthcare Providers and Systems Survey (HCAHPS), that we
categorized into two domains (76 FR 26495 through 26511). We grouped
the 12 clinical process of care measures into a clinical process of
care domain, and placed the HCAHPS survey measure into a patient
experience of care domain. We adopted a 3-quarter performance period
from July 1, 2011 through March 31, 2012 for these measures (76 FR
26494 through 26495), and performance standards on which hospital
performance will be evaluated. To determine whether a hospital meets or
exceeds the performance standards for these measures, we will assess
each hospital's achievement during this specified performance period,
as well as its improvement during this period as compared with its
performance during a 3-quarter baseline period from July 1, 2009
through March 31, 2010 (76 FR 26493 through 26495).
We will then calculate a TPS for each hospital by combining the
greater of the hospital's achievement or improvement points for each
measure to determine a score for each domain, weighting each domain
score (for the FY 2013 Hospital VBP Program, the weights will be
clinical process of care = 70 percent, patient experience of care = 30
percent), and adding together the weighted domain scores. We will
convert each hospital's TPS into a value-based incentive payment
percentage using a linear exchange function and will then convert the
value-based incentive payment percentage into a per discharge value-
based incentive payment amount. We will incorporate the reduction to
each hospital's base operating DRG payment amount for each discharge,
as well as the value-based incentive payment amounts that the hospital
earned as a result of its performance (if applicable) into our claims
processing systems in January 2013, and these adjustments will apply to
FY 2013 discharges. We refer readers to the Hospital Inpatient VBP
Program final rule for further explanation of the details of the FY
2013 Hospital VBP Program (76 FR 26490 through 26547).
3. FY 2014 Hospital VBP Program Measures
For FY 2014, we have adopted 17 measures for the Hospital VBP
Program, including the 12 clinical process of care measures and the
HCAHPS measure that we adopted for the FY 2013 program, 1 new clinical
process of care measure (SCIP-Inf-9: Postoperative Urinary Catheter
Removal on Postoperative Day 1 or 2), and 3 mortality outcome measures
(Acute Myocardial Infarction (AMI) 30-Day Mortality Rate, Heart Failure
(HF) 30-Day Mortality Rate, Pneumonia (PN) 30-Day Mortality Rate). The
clinical process of care, HCAHPS, and mortality measures are discussed
in more detail in the Hospital Inpatient VBP Program final rule (76 FR
26510 through 26511) and SCIP-Inf-9 is discussed in more detail in the
CY 2012 OPPS/ASC final rule with comment period (76 FR 74530). We are
proposing to codify this for quality measures selection in our
regulations at 42 CFR 412.164.
Although we also previously adopted 8 HAC measures, 2 AHRQ
composite measures, and a Medicare Spending Per Beneficiary Measure for
the FY 2014 program, we have suspended the effective date of these
measures, with the result that these measures will not be included in
the FY 2014 Hospital VBP Program (76 FR 74528 through 74530).
Set out below is a complete list of the measures adopted for the FY
2014 Hospital VBP Program:

Clinical Process of Care, Patient Experience of Care and Outcome
Measures for the FY 2014 Hospital VBP Program
------------------------------------------------------------------------
IV. Measure ID Measure description
------------------------------------------------------------------------
Clinical Process of Care Measures
------------------------------------------------------------------------
Acute myocardial infarction:
AMI-7a........................ Fibrinolytic Therapy Received Within
30 Minutes of Hospital Arrival.
AMI-8a........................ Primary PCI Received Within 90
Minutes of Hospital Arrival.
Heart Failure:
HF-1.......................... Discharge Instructions.
Pneumonia:
PN-3b......................... Blood Cultures Performed in the
Emergency Department Prior to
Initial Antibiotic Received in
Hospital.
PN-6.......................... Initial Antibiotic Selection for CAP
in Immunocompetent Patient.

[[Page 28070]]

Healthcare-associated infections:
SCIP-Inf-1.................... Prophylactic Antibiotic Received
Within One 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.
SCIP-Inf-4.................... Cardiac Surgery Patients with
Controlled 6AM Postoperative Serum
Glucose.
SCIP-Inf-9.................... Postoperative Urinary Catheter
Removal on Post Operative Day 1 or
2.
Surgeries:
SCIP-Card-2................... Surgery Patients on a Beta Blocker
Prior to Arrival That Received a
Beta Blocker During the
Perioperative Period.
SCIP-VTE-1.................... Surgery Patients with Recommended
Venous Thromboembolism Prophylaxis
Ordered.
SCIP-VTE-2.................... Surgery Patients Who Received
Appropriate Venous Thromboembolism
Prophylaxis Within 24 Hours Prior
to Surgery to 24 Hours After
Surgery.
------------------------------------------------------------------------
Patient Experience of Care Measures
------------------------------------------------------------------------
HCAHPS............................ Hospital Consumer Assessment of
Healthcare Providers and Systems
Survey.*
------------------------------------------------------------------------
Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI....................... Acute Myocardial Infarction (AMI) 30-
Day Mortality Rate.
MORT-30-HF........................ Heart Failure (HF) 30-Day Mortality
Rate.
MORT-30 PN........................ Pneumonia (PN) 30-Day Mortality
Rate.
------------------------------------------------------------------------
* The finalized dimensions of the HCAHPS survey for use in the FY 2014
Hospital VBP Program are: Communication with Nurses, Communication
with Doctors, Responsiveness of Hospital Staff, Pain Management,
Communication about Medicines, Cleanliness and Quietness of Hospital
Environment, Discharge Information and Overall Rating of Hospital.
These are the same dimensions that we adopted for the FY 2013 program.

4. Other Previously Finalized Requirements for the Hospital VBP Program
In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74532
through 74547), we finalized a number of other policies for the FY 2014
Hospital VBP Program including: The minimum number of cases that a
hospital must report to receive a score on a mortality measure; the
minimum number of measures that a hospital must report in order to
receive a score on the outcome domain; the baseline and performance
periods; the performance standards for the clinical process of care and
patient experience of care measures (we previously finalized the
performance standards for the 3 mortality outcome measures in the
Hospital Inpatient VBP Program final rule (76 FR 26513)); the scoring
methodology; and the domain weighting methodology. We also finalized
for all years of the program a process that will allow hospitals to
review and correct the data that they submit to the QIO Clinical
Warehouse on clinical process of care measures, their clinical process
of care measure rates, their HCAHPS data, and their patient-mix and
mode adjusted HCAHPS scores.
5. Proposed Hospital VBP Program Payment Adjustment Calculation
Methodology
a. Proposed Definitions of the Term ``Base Operating DRG Payment
Amount'' for Purposes of the Hospital VBP Program
Section 1886(o)(7)(D) of the Act generally defines the base
operating DRG payment amount, with respect to a hospital for a fiscal
year, as ``the payment amount that would otherwise be made under
section 1886(d) (determined without regard to subsection (q) [the
Hospital Readmissions Reduction Program]) for a discharge if [the
Hospital VBP Program] did not apply; reduced by any portion of such
payment amount that is attributable to payments under paragraphs
(5)(A), (5)(B), (5)(F), and (12) of subsection (d); and * * * such
other payments under subsection (d) determined appropriate by the
Secretary.'' Paragraphs (5)(A), (5)(B), (5)(F), and (12) of section
1886(d) of the Act refer to outlier payments, indirect medical
education (IME) payments, disproportionate share (DSH) payments, and
low-volume hospital payments, respectively.
The payment that would otherwise be made with respect to a
discharge is the applicable average standardized amount adjusted for
resource utilization by the applicable MS-DRG relative weight and
adjusted for differences in geographic costs by the applicable area
wage index (and by the applicable COLA for hospitals located in Alaska
and Hawaii), which is often referred to as the ``the wage-adjusted DRG
operating payment.'' The payment amount that would otherwise be made
with respect to a discharge also includes any adjustments to the wage-
adjusted DRG operating payment that the hospital qualifies for,
including an outlier adjustment (under section 1886(d)(5)(A) of the
Act) an IME adjustment (under section 1886(d)(5)(B) of the Act), a
disproportionate share payment adjustment (under section 1886(d)(5)(F)
of the Act); a low-volume payment adjustment (under section 1886(d)(12)
of the Act), an adjustment for new medical services or technologies
under section 1886(d)(5)(K) of the Act (often referred to as ``new
technology add-on payments''), and/or any other adjustment determined
appropriate by the Secretary.
Consistent with section 1886(o)(7)(D) of the Act, we are proposing
to generally define the term ``base operating DRG payment amount'' for
purposes of the Hospital VBP Program as the wage-adjusted DRG operating
payment plus any applicable new technology add-on payment. We are
proposing to include the new technology add-on payment amount in the
definition of base operating DRG payment amount for the Hospital VBP
Program because the provision of a new technology to a Medicare
beneficiary is a treatment

[[Page 28071]]

decision, unlike the other add-on payments which are excluded by
statute (for example, IME and DSH add-ons). We believe that it
represents a cost to the Medicare program that should be subject to the
applicable percent reduction to the base operating DRG payment amount
which creates the funding pool for value-based incentive payments. We
also note that this proposed definition is consistent with the
definition of ``base operating DRG payment amount'' that we are
proposing to adopt for the Hospital Readmissions Reduction Program, and
we believe that maintaining consistency to the extent possible with
other Medicare incentive payment programs is an important goal for the
Hospital VBP Program. There are no other subsection (d) payment
adjustments that would otherwise apply to the discharge on a per-claim
basis. As required by the statute, the ``base operating DRG payment
amount'' would not include an outlier, IME, DSH, or low-volume payment
adjustment that would otherwise apply to the discharge.
We are proposing to codify the definition of wage-adjusted DRG
payment amount and the general definition of base-operating DRG payment
amount in our regulations at Sec. 412.160. We welcome public comment
on these proposed definitions.
Section 1886(o)(7)(D)(ii)(I) of the Act states that in the case of
a Medicare-dependent, small rural hospital (MDH) (with respect to
discharges occurring during FY 2012 or FY 2013) or a sole community
hospital (SCH), the base operating DRG payment amount is defined as the
payment amount that would otherwise be made under section 1886(d)
without regard to certain factors that affect payments to these
categories of hospitals (sections 1886(b)(3)(I) and (L) of the Act, and
section 1886(d)(5)(D) of the Act for SCHs, and section 1886(d)(5)(G) of
the Act for MDHs). Consistent with the definition we are proposing to
adopt for other subsection (d) hospitals, we are proposing to define
the term ``base operating DRG payment amount'' for MDHs and SCHs as the
wage-adjusted DRG operating payment amount plus any applicable new
technology add-on payment. The proposed base operating DRG payment
amount for SCHs and MDHs would not include an outlier, IME, DSH, and/or
low-volume payment adjustment that would otherwise apply to the
discharge. The base operating DRG payment amount for SCHs and MDHs
would not include an outlier, IME, DSH, and/or low-volume payment
adjustment that would otherwise apply to the discharge. Consistent with
section 1886(o)(7)(D)(ii)(I) of the Act, we are also proposing to
exclude from this definition of base operating DRG payment amount the
difference between the hospital-specific payment rate and the Federal
rate payment. This proposed definition is consistent with that being
proposed under the Hospital Readmissions Reduction Program (discussed
in section IV.A. of this preamble). We are proposing to codify this
definition in our regulations at 42 CFR 412.160.
We welcome public comment on this proposed definition of the base
operating DRG payment amount for MDHs and SCHs under the Hospital VBP
Program. We note that, under current law, the MDH program is set to
expire at the end of FY 2012, after which all MDH hospitals would be
paid in the same manner as other subsection (d) hospitals, unless they
qualify for SCH status, as discussed in section VIII.C.5.b. of this
preamble.
Section 1886(o)(7)(D)(ii)(II) of the Act states that in the case of
a hospital that is paid under section 1814(b)(3) of the Act, ``the term
`base operating DRG payment amount' means the payment amount under that
section.'' Acute care hospitals located in the State of Maryland are
not paid under the IPPS but are, instead, paid under a special waiver
provided by section 1814(b)(3) of the Act. For these hospitals, we are
proposing that the term ``base operating DRG payment amount'' means the
payment amount under section 1814(b)(3) of the Act. This proposed
definition is consistent with the definition we are proposing under the
Hospital Readmissions Reduction Program (discussed in section IV.A.. of
this preamble). We are proposing to codify this definition in our
regulations at 42 CFR 412.160. We welcome public comment on the
proposed definition of base-operating DRG payment amount for Maryland
hospitals under the Hospital VBP Program.
b. Proposals for Calculating the Funding Amount for Value-Based
Incentive Payments Each Year
Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce
the base operating DRG payment amount for a hospital for each discharge
in a fiscal year by an applicable percent. Under section 1886(o)(7)(A)
of the Act, the sum total of these reductions in a fiscal year must
equal the total amount available for value-based incentive payments for
all eligible hospitals for the fiscal year, as estimated by the
Secretary. To implement these sections, and create the funding pool for
value-based incentive payments for each fiscal year, we are proposing
that beginning with FY 2013 discharges, every hospital that meets the
definition of a hospital in section 1886(o)(1)(C) of the Act (referred
to here as an eligible hospital) would receive a reduction to its base
operating DRG payment amount for each discharge in a fiscal year,
regardless of whether we have determined that the hospital has earned a
value-based incentive payment for that fiscal year. The total amount of
the reductions across all eligible hospitals for a fiscal year would
constitute the total amount available from which we could make value-
based incentive payments for that fiscal year. We are proposing to
estimate the total amount of the reductions across all eligible
hospitals and the size of the funding pool prior to the start of each
fiscal year because that is the only way, operationally, that we can
calculate each hospital's value-based incentive payment percentage in a
manner such that the estimated sum total of the value-based incentive
payments for hospitals for the fiscal year would be equal to the
estimated total amount available for value based incentive payments to
all eligible hospitals.
The data we are proposing to use to estimate these amounts is
inpatient claims data from the Medicare Provider Analysis and Review
(MedPAR) file. We believe that the use of MedPAR data is appropriate
because we also use this data to calculate other IPPS payment
adjustment amounts, including the DRG relative weights, budget
neutrality factors, outlier thresholds, and standardized amounts. The
proposed use of claims data from the MedPAR file is also consistent
with our proposal in this proposed rule to determine applicable
hospitals' base operating DRG payment amounts, for purposes of
calculating their aggregate payments for excess readmissions and
aggregate payments for all discharges for determining the readmissions
payment adjustment factor under the Hospital Readmissions Reduction
Program (section IV.A. of this preamble).
We are proposing to run the MedPAR data for purposes of estimating
the base operating DRG payment reduction amounts, as well as the size
of the funding pool that will apply to a fiscal year, in December of
the previous fiscal year so that we can provide preliminary estimates
in the IPPS/LTCH PPS proposed rule. We are also proposing to provide
the final estimates in the IPPS/LTCH PPS final rule using the March
update. The data will contain inpatient claims information related to
discharges from the fiscal year that ended the previous September. For
example, with respect to the FY 2014 Hospital VBP Program, we would run
the MedPAR

[[Page 28072]]

data in December, 2012 and that data would contain claims related to FY
2012 discharges. We would use that data to provide preliminary
estimates in the FY 2014 IPPS/LTCH PPS proposed rule. The March 2013
update of this MedPAR data would then be used to provide final
estimates in the FY 2014 IPPS/LTCH PPS final rule.
We believe that this proposed approach will enable us to gather the
most recent Medicare utilization data available in order to estimate
the total amount of the base operating DRG payment amount reductions
and the size of the value based incentive payment funding pool for the
applicable fiscal year. We also believe that this approach will enable
us to calculate each hospital's payment adjustment factor that will
apply to its discharges in the applicable fiscal year, and to notify
each hospital of such at the same time that we are proposing to notify
each hospital regarding its performance, for purposes of making this
information publicly available under section 1886(o)(10)(A) of the Act.
In this way, hospitals will be able to consider this information during
the review and correction period (the details of which are proposed
below). We believe that it is important to notify a hospital of its
value-based incentive payment adjustment factor at the start of review
and corrections, so that hospitals can consider the payment impact of
the TPS in their determination of whether or not to request review and
corrections.
In order to estimate the total base operating DRG payment
reductions across all hospitals for a fiscal year, we are proposing to
sum the estimated total base operating DRG payment amount per discharge
for each hospital in that fiscal year. We would then multiply that
estimated total annual base operating DRG payment amount by the
applicable percent, which we are proposing to define in our regulations
at Sec. 412.160 as the percentage specified in section 1886(o)(7)(C)
of the Act. The product of the estimated total annual base operating
DRG amount for a hospital and the applicable percent would be equal to
taking the applicable percent reduction from each individual base
operating DRG payment amount per hospital and then summing those
reductions. We welcome public comment on this proposed approach to
calculating the available pool of funds for value-based incentive
payments.
For the purpose of estimating the total amount available for value-
based incentive payments for a fiscal year, we are proposing to apply
an inflation factor so that our estimate of the available pool of funds
will more accurately reflect estimated total base operating DRG
payments in the fiscal year in which the value-based incentive payments
will actually be made. For example, in estimating the size of the FY
2013 funding pool, we inflated the FY 2011 MedPAR data to FY 2013
dollars because the value-based incentive payment amounts will actually
be paid in FY 2013.
Our actuaries provided us with this inflation factor, which
included assumptions on changes in Medicare fee-for-service case mix
and discharge levels. According to this proposed methodology, we
estimate the available amount for FY 2013 value-based incentive
payments to be $956 million. As noted above, under our proposed
methodology, we would update this estimate using the March 2012 update
of the FY 2011 MedPAR data for purposes of finalizing it in the FY 2013
IPPS/LTCH PPS final rule.
We note that, for the purposes of calculating the value-based
incentive payment adjustment factors under the Hospital VBP Program, we
would be able to use FY 2011 claims to accurately calculate the value-
based incentive payment percentage, without application of this
inflation factor. This is because a constant inflation factor applied
across all hospitals' total annual base-operating DRG payment amounts
would not change the slope of the payment exchange function which we
previously adopted for use in determining each hospital's value-based
incentive payment amount. Application of an inflation factor would,
therefore, not impact the amount of a hospital's value-based incentive
payment amount under the Hospital VBP program for the fiscal year.
We considered adopting a different approach that would apply only
to the FY 2013 Hospital VBP Program because we do not anticipate
beginning to make value-based incentive payments to hospitals for that
program year until January 2013. Under this approach, we would estimate
the total amount of funding available to make the value-based incentive
payments using the latest available FY 2011 claims data from MedPAR,
with payment amounts modeled using the rates, factors and policies
finalized in the FY 2013 IPPS/LTCH PPS final rule. This data would
include claims information that was not available at the time we ran
the March update. However we are not proposing to adopt this approach
because we believe that is important to establish a consistent process
for annually estimating the total amount available to make value-based
incentive payments to hospitals, as well as the payment adjustments
that will be made to hospitals as a result of their performance under
the Hospital VBP Program. Beginning with the FY 2014 Hospital VBP
Program, we intend to make the value-based incentive payments to
hospitals as part of the claims payment process, beginning at the start
of the fiscal year, so it would not be possible to use the modeled
base-operating DRG payment amount estimates based on the finalized
rates, factors and policies established in the IPPS/LTCH PPS final rule
applicable to the fiscal year, as they will typically not be finalized
in time to notify hospitals of their value-based incentive payment
adjustments at the start of the review and corrections process.
Further, these factors, rates, and policies would not typically be
finalized in time for us to notify hospitals of the net result of the
base operating DRG payment amount reduction and the value-based
incentive payment adjustment no later than 60 days prior to the start
of the fiscal year, as required by section 1866(o)(8) of the Act. We
also believe that our proposal to use the March update of the MedPAR
file represents an accurate estimate of annual base operating DRG
amounts because it reflects the most recently available utilization
data, while preserving the interest in notifying hospitals of the
payment impact in time for them to request review and correction.
We are proposing to use a different methodology for purposes of
estimating the reduced annual base operating DRG payment amounts for
SCHs and MDHs. In general, eligible hospitals in the Hospital VBP
Program include SCHs and current MDHs (we note that MDH status is set
to expire under current law after FY 2012 and would, therefore, no
longer exist in FY 2013), because they meet the definition of a
``subsection (d)'' hospital. SCHs are paid in the interim (prior to
cost report settlement) on a claim by claim basis at the amount that is
the higher of the payment based on the hospital-specific rate or the
IPPS Federal rate based on the standardized amount. At cost report
settlement, the fiscal intermediary or A/B MAC determines if the
hospital would receive higher aggregate operating IPPS payments using
the hospital-specific rate (for all claims) or the Federal rate (for
all claims). MDHs are paid the sum of the Federal payment amount plus
75 percent of any amount by which the hospital-specific rate payment
exceeds the Federal rate payment amount.
Although MDH status is to expire at the end of FY 2012, the
payments reflected on FY 2011 claims for current

[[Page 28073]]

MDHs may be based on the hospital-specific rate. As discussed above, we
are generally proposing to use historical MedPAR data to determine the
base operating DRG payment amounts that would be used to estimate the
amount of funding available for value-based incentive payments for the
FY 2013 Hospital VBP Program. Consistent with that proposal, for SCHs
and hospitals that have MDH status in FY 2012, we are proposing to use
MedPAR data to model the reduced base operating DRG payment amount for
each claim as if it were paid based on the Federal standardized amount,
rather than using the payments information on the claim (that is,
regardless of whether a claim was paid under the hospital-specific rate
or the Federal rate, the reduced base operating DRG payment amounts for
SCHs and current MDHs would be estimated using the Federal rate).
We welcome public comment on these proposals. We also welcome
comment on other suggested approaches to most accurately estimate these
amounts.
c. Proposed Methodology To Calculate the Value-Based Incentive Payment
Adjustment Factor
In accordance with section 1886(o)(6)(C)(i) of the Act, for each
eligible hospital that receives a TPS greater than zero with respect to
a fiscal year, we are proposing to calculate a value-based incentive
payment percentage for that hospital for that fiscal year. In
accordance with section 1886(o)(6)(C)(ii) of the Act, the value-based
incentive payment percentage that we calculate for the hospital will be
based on that hospital's individual TPS, and the total amount of value-
based incentive payments to all hospitals in the fiscal year will be
equal to the total amount available for value-based incentive payments
for the fiscal year, as estimated by the Secretary. We are proposing to
define the term ``value-based incentive payment percentage'' in Sec.
412.160 as the percentage of the total base operating DRG payment
amount that a hospital has earned back, based on its TPS to that fiscal
year. The hospital may earn a value-based incentive payment percentage
that is less than, equal to, or more than the applicable percent. The
applicable percent that we will use to reduce the base operating DRG
payment amount for each FY 2013 discharge is 1.0 percent.
A hospital may earn a value-based incentive payment percentage that
is greater than the applicable percent, which would result in that
hospital receiving a value-based incentive payment adjustment factor
that is greater than one and a higher base operating DRG payment amount
for each discharge than it would have received in the absence of the
Hospital VBP Program. The proposed calculation of the value-based
incentive payment adjustment factor is discussed in further detail
below. A hospital may earn a value-based incentive payment percentage
that is equal to the applicable percent, which would result in the
hospital receiving a value based incentive payment adjustment factor of
1 and the same base operating DRG payment amount that it would have
received for each discharge in the absence of the Hospital VBP Program.
Alternatively, a hospital may earn a value-based incentive payment
percentage that is less than the applicable percent, which would result
in the hospital receiving a value-based incentive payment adjustment
factor that is less than one and a lower base operating DRG payment
amount for each discharge than it would have received in the absence of
the Hospital VBP Program.
In order to convert a hospital's TPS into a value-based incentive
payment factor that would be applied to each discharge in the
applicable fiscal year, we are proposing to use the linear exchange
function that we finalized in the Hospital Inpatient VBP Program final
rule (76 FR 26534). Under this proposed methodology, we would utilize
the following computed amounts:
The hospital's estimated total annual base-operating DRG
amount for all discharges for the applicable fiscal year;
The applicable percent for the fiscal year (1.0 percent in
FY 2013);
The (linear) exchange function slope; and
The hospital's TPS.
The following six (6) steps illustrate our proposed methodology:
Step 1: Estimate the hospital's total annual base-operating DRG
amount. First, we would estimate each hospital's total annual base
operating DRG amount for all discharges in the applicable fiscal year.
As we discussed above, we are proposing to estimate this amount using
Medicare inpatient claims data taken directly from the most recently
available MedPAR files.
Step 2: Calculate the total annual estimated base operating DRG
payment reduction amount across all eligible hospitals. Second, we are
proposing to estimate the total base operating DRG reduction amount
across all eligible hospitals (which is the total amount available for
value-based incentive payments) according to the following two steps:
Step 2a: Repeat Step 1 for all eligible hospitals, and multiply the
estimated total amount for each hospital by the applicable percent. For
FY 2013, the applicable percent is 1.0 percent; then
Step 2b: Add together the amount for each hospital calculated under
Step 2a. This sum is the total amount available for value-based
incentive payments, and the numerator of the linear exchange function
slope that is calculated in Step 3 below.
Step 3: Calculate the linear exchange function slope. Third, we
would calculate the linear exchange function slope. As noted above, we
finalized the use of a linear exchange function for the purpose of
converting a hospital's TPS into a value-based incentive payment
percentage. We would calculate the linear exchange function slope using
the following steps:
Step 3a: Convert the TPS for each hospital into a decimal by
dividing it by 100. The TPS may range from zero to 100. In this step,
we express it as a number between zero and 1.
Step 3b: Multiply each hospital's estimated total base-operating
DRG payment reduction amount for the applicable fiscal year (from Step
2a above) by the hospital's TPS (decimal between zero and one from Step
3a above).
Step 3c: Add together the numbers computed in Step 3b above. This
sum represents the denominator of the linear exchange function slope
that is calculated in Step 3d below.
Step 3d: The exchange function slope equals the sum computed in
Step 2b above divided by the sum computed in Step 3c above.
Step 4: For each hospital, calculate the hospital's value-based
incentive payment percentage for the fiscal year. We are proposing to
use the exchange function slope (from Step 3) and the hospital's TPS to
calculate the hospital's value-based incentive payment percentage that
it earned as a result of its performance under the Hospital Inpatient
VBP Program for the fiscal year. We could calculate the value-based
incentive payment percentage by multiplying the applicable percent by
the amount computed for the hospital in Step 3a and the exchange
function slope as computed in Step 3d above. This is the mathematical
approach to locating the place along the linear exchange function where
a given hospital's TPS score would be located and identifying the
corresponding value-based incentive payment percentage. As we note
above, the value-based payment percentage could be greater than, equal
to, or less

[[Page 28074]]

than the applicable percent that is applied to reduce the base
operating DRG payment amount for each discharge.
Step 5: Compute the net percentage change in the hospital's base-
operating DRG payment amount for each discharge. Fifth, we are
proposing to calculate the net percentage change to the hospital's base
operating DRG payment amount for each discharge in the applicable
fiscal year. We would calculate the net change as an intermediate step,
in order to determine the value-based incentive payment adjustment
factor described in Step 6, below. The net percentage change in the
hospital's base operating DRG payment amount for each discharge would
be the difference between the applicable percent and the value-based
incentive payment percentage. We would calculate this net change for
each hospital by subtracting the applicable percent used in Step 2a (1
percent for FY 2013) from the value based incentive payment percentage
computed for the hospital in Step 4. This net change in the base-
operating DRG payment amount would be expressed as a percentage and
could be positive, zero, or negative, depending on the hospital's TPS
and the exchange function slope.
Step 6: To calculate this factor, we would convert the hospital's
individual net percentage change in its base-operating DRG payment
amount, from Step 5, from a percentage into a number (by removing the
percent sign and dividing it by 100) and add it to 1. The 1 would
reflect the base operating DRG payment amount that the hospital would
have received for a discharge in the absence of the Hospital VBP
Program. The result is that a hospital with a positive net percentage
change to its total base operating DRG payment amount would have a
value-based incentive payment adjustment factor that is greater than
one. This means that we would multiply the hospital's base operating
DRG payment amount for each discharge occurring in the applicable
fiscal year by a number greater than one.
A hospital with no net percentage change to its total base
operating DRG payment amount percentage would have a value-based
incentive payment adjustment factor of one. This means that we would
multiply its base operating DRG payment amount for each discharge
occurring in the applicable fiscal year by 1, and its base-operating
DRG payment amount would be equal to what it would have been in the
absence of the Hospital VBP Program.
A hospital with a negative net percentage change to its total base-
operating DRG payment amount percentage would have a value-based
incentive payment adjustment factor that is less than one. This means
that we would multiply the hospital's base operating DRG payment amount
for each discharge occurring in the applicable fiscal year by a number
less than one.
Example Calculation of the Value-Based Incentive Payment Amount
Adjustment: As an example, assume the following information:
The hospital's estimated total annual base operating DRG
payment amount for all discharges in the applicable fiscal year =
$1,000,000;
The applicable percent that is applied to all discharges
of eligible hospitals in FY 2013 = 1.0 percent;
The exchange function slope = 2.0;
The hospital's TPS = 80.
Under our proposal, we would replicate the six steps to convert a
hospital's TPS into a value-based incentive payment adjustment factor
as follows:
Step 1: Estimate the hospital's total annual base operating DRG
payment amount. We would add together the estimated base-operating DRG
payment amount for each FY 2013 discharge. In this example, we assume
this total amount would be $1,000,000.
Step 2: Calculate the total annual estimated base operating DRG
payment reduction amount across all eligible hospitals. Second, we
would:
Step 2a: Repeat Step 1 for all eligible hospitals, and multiply the
total amount for each hospital by the applicable percent, which is 1.0
percent in this example: $1,000,000 * .01 = $10,000; and
Step 2b: Add together the amount for each hospital calculated in
Step 2a above. In this example, we assume this amount is a given. We
note that computing this amount requires knowledge of all eligible
hospitals' estimated total base operating DRG payment reduction amount.
Step 3: Calculate the linear exchange function slope, which we
assume in this example to be 2.0. We note that computing the slope
requires knowledge of all eligible hospitals' estimated total base
operating DRG payment reduction amount and their TPS to compute the
relevant sums that are used in the numerator and denominator of the
slope.
Step 4: Calculate the hospital's value-based incentive payment
percentage. The hospital's value-based payment percentage would be
computed as follows: 0.01 (The applicable percent would be multiplied
by 0.80 (the hospital's TPS divided by 100) and 2.0 (the exchange
function slope). Mathematically, 0.01 * 0.80 * 2.0 = 0.016, which can
be written as 1.60 percent. Therefore, the hospital's value-based
incentive payment percentage for the FY 2013 Hospital VBP program would
be 1.60 percent ($16,000 in this example).
Step 5: Compute the net percentage change in the hospital's base-
operating DRG payment amount for each discharge by subtracting 1.0
percent (the applicable percent) from the value-based incentive payment
percentage that the hospital earned based on its TPS.
In this example, the net percentage change would equal 1.60 percent
minus 1.00 percent, or 0.60 percent. In this example, the net
percentage change is positive and corresponds to a dollar amount of
0.60 percent of the estimated total annual base operating DRG payment
amount for the hospital of $1,000,000(0.60 percent * $1,000,000 =
$6,000).
Step 6: Compute the value-based payment adjustment factor as equal
to the net percentage change calculated in Step 5), expressed as a
number, plus one. In this example, the hospital's value-based payment
adjustment factor would equal the sum of 0.006 (0.60 percent expressed
as a number) plus one.
Therefore, this hospital's value-based payment adjustment factor
would equal 1.006, and this factor would be multiplied by the based
operating DRG payment amount for each discharge occurring in FY 2013.
This hospital had a positive net percentage change to its total base
operating DRG payment amount and would have a value-based incentive
payment adjustment factor that is greater than one, so we would
multiply the hospital's base operating DRG payment amount for each
discharge occurring in the applicable fiscal year by a number greater
than one. In this example, the hospital would earn a total value-based
incentive payment estimated at $16,000 for all discharges in the fiscal
year) that is greater than the 1.0 percent base operating DRG payment
reduction amount applied to each discharge in the fiscal year
(estimated $10,000 total reduction), which would result in the hospital
receiving a higher payment amount for each discharge occurring in FY
2013 than it otherwise would have received, in the absence of the
Hospital VBP Program (an estimated $6000 total increase in base
operating DRG payments for the fiscal year).
We welcome comments on this proposal.

[[Page 28075]]

d. Proposed Timing of the Base Operating DRG Payment Amount Reduction
and Value-Based Incentive Payment Amount Adjustment for FY 2013 and
Future Hospital VBP Program Years
The applicable percent reduction and the value-based incentive
payment adjustments are distinct adjustments which we are required to
make to base operating DRG payment amounts for eligible hospitals under
the Hospital VBP Program. In this section, we outline our proposals for
applying these adjustments to the base-operating DRG payment amounts.
In the Hospital Inpatient VBP Program final rule, for the FY 2013
program, we established that we would incorporate the value-based
incentive payment adjustment into our claims processing system in
January 2013, and that the adjustment would apply to all FY 2013
discharges, including those that occurred beginning on October 1, 2012
(76 FR 26536). Because of this January 2013 application of the value-
based incentive payment adjustment, we are proposing that we would not
apply the 1.00 percent applicable reduction to the base operating DRG
payment amount for each discharge until we apply the value-based
incentive payment adjustment factor. In other words, we would add the
value-based incentive payment amount to the hospital's reduced base-
operating DRG payment amount for each FY 2013 discharge at the same
time that we apply the 1.00 percent reduction to the base operating DRG
payment amount. The simultaneous application of the 1.00 percent
reduction to the base-operating DRG payment amounts and the value-based
incentive payment amount (if applicable, based on the hospital's TPS)
would prevent hospitals from receiving a 1.00 percent reduction to
their base operating DRG payment amounts before they receive their
value-based incentive payment amount adjustment. Accordingly, under our
proposal, beginning in January 2013, a hospital would receive a base
operating DRG payment amount for each discharge occurring in FY 2013
that is the net result of the application of the 1.00 percent reduction
and the application of the hospital's individual value-based incentive
payment amount adjustment.
In FY 2014 and future years of the Hospital VBP Program, we are
proposing to apply both the applicable percent reduction and the value-
based incentive payment amount adjustment to the base operating DRG
payment amount for a discharge during the regular claim payment
process, beginning in October of each fiscal year. These adjustments
would be made simultaneously with respect to each discharge.
We invite public comment on this proposal.
e. Proposed Process for Reducing the Base Operating DRG Payment Amount
and Applying the Value-Based Incentive Payment Amount Adjustment for FY
2013
In developing our proposal for FY 2013, we have considered two
different methodologies for applying the 1.00 percent reduction to the
base operating DRG payment amount for each discharge, and for applying
the value-based incentive payment adjustment to the reduced base
operating DRG payment amount: (1) Reprocessing the claims submitted
prior to January 2013, which is when we expect to incorporate the
value-based incentive payment adjustments into our claims processing
system; and (2) modifying the exchange function slope, in such a way as
to redistribute the value-based incentive payment adjustments for
discharges occurring prior to incorporating the adjustments into our
claims processing system. Neither approach would require hospitals to
resubmit claims.
We are proposing to reprocess the claims submitted by hospitals for
discharges occurring between October 1, 2012 and such time as the
value-based incentive payment adjustments are incorporated into the
claims processing system. We believe that this approach is the most
straightforward way to address the January implementation of FY 2013
value-based incentive payment adjustments. For the second methodology
we considered, we would need to modify the exchange function slope,
because adjustments would not have been made beginning on October 1,
2012, the start of FY 2013. As described in section VIII.C.5.c. of this
preamble, calculation of the exchange function slope is based on the
hospital TPS and the amount available for value-based incentive
payments. The total amount available to make value based incentive
payments to eligible hospitals is equal to the total of their base-
operating DRG payment reduction amounts, as estimated by the Secretary,
according to section 1886(o)(6)(C)(ii)(I) of the Act.
Under this approach, we would account for this delay in
implementation of applicable percent reductions and value-based
incentive payment adjustments by modifying the computed exchange
function slope so that we could use it to calculate a value-based
incentive payment adjustment for each hospital that would distribute
the total amount available for value based incentive payments between
January and September 30, 2013. We would modify the exchange function
to accomplish this by multiplying its slope by the following fraction:
The total number of days in the fiscal year/(divided by) the number of
days between the date we incorporate adjustments and the end of the
fiscal year. For example, if the date the value-based adjustment is
incorporated into the system is January 15, then the number of days
between January 15, 2013 and September 30, 2013 is 258. Therefore, we
would multiply the exchange function slope by 365/258, in order to
redistribute the value-based incentive payment adjustments that occur
on or after January 15, 2013 in such a manner that they also account
for discharges occurring between October 1, 2012 and January 15, 2013.
For purpose of calculating the exchange function slope modification, we
would assume that hospitals' base operating DRG payments are constant
throughout the fiscal year (that is, DRG payments are not concentrated
in the beginning or the end of the year, for example).
We believe that this alternative approach could cause confusion
regarding payment amounts for discharges that occur between the
beginning of the fiscal year and the implementation of the value-based
incentive payment adjustments but are not billed until after the
implementation of the value-based incentive payment adjustments. Those
claims would be paid as though the applicable percent reduction and the
value-based incentive payment adjustments were not in effect, because
they would be based on date of discharge.
We invite public comment on our proposed approach to reprocess
hospital inpatient claims that are billed between October 1, 2012 and
such time as we are able to incorporate the value-based incentive
payment adjustments into our claims processing system in January 2013.
We recognize that hospitals would be responsible for maintaining their
own internal accounting systems in order to accommodate the
reprocessing of these claims in January 2013; therefore, we are also
inviting public comment on the alternative approach described above of
modifying the exchange function slope to redistribute the value-based
incentive payment adjustments, or any other approaches which might
minimize the administrative burden imposed upon hospitals.

[[Page 28076]]

6. Proposed Review and Corrections Processes
a. Background
Section 1886(o)(10)(A)(i) of the Act requires that the Secretary
make information available to the public regarding individual hospital
performance in the Hospital VBP Program, including: (1) The performance
of the hospital on each measure that applies to the hospital; (2) the
performance of the hospital with respect to each condition or
procedure; and (3) the hospital's TPS. To comply with this requirement,
we stated in the Hospital Inpatient VBP Program final rule that we
intended to publish hospital scores with respect to each measure, each
hospital's condition-specific score (that is, the performance score
with respect to each condition or procedure, for example, AMI, HF, PN,
and SCIP), each hospital's domain-specific score, and each hospital's
TPS on the Hospital Compare Web site (76 FR 26534 through 26536).
Section 1886(o)(10)(A)(ii) of the Act requires the Secretary to
ensure that each hospital has the opportunity to review, and submit
corrections for, the information to be made public with respect to each
hospital under section 1886(o)(10)(A)(i) of the Act prior to such
information being made public. In the CY 2012 OPPS/ASC final rule with
comment period (76 FR 74545), we finalized procedures that will enable
hospitals to review and correct both the underlying data and measure
rates for the clinical process of care measures and HCAHPS dimensions
under the Hospital VBP Program (76 FR 74545 through 74547).
In this proposed rule, we are making additional proposals that will
enable hospitals to review and correct their claims-based measure
rates, as well as their condition-specific scores, domain-specific
scores, and TPSs.
b. Proposed Review and Corrections Process for Claims-Based Measure
Rates
We use claims/administrative data to calculate measure rates for
measures that we have adopted for a number of pay for reporting and pay
for performance programs, such as the Hospital VBP Program. For claims-
based measures used in the Hospital IQR Program, we currently provide
hospitals with confidential reports containing the measure rate
calculations and accompanying confidential detailed discharge-level
information prior to making the rates available to the public. With
respect to the claims-based measures we adopt for the Hospital VBP
Program, we are proposing to deliver the same type of confidential
reports and accompanying confidential detailed discharge-level
information for purposes of providing hospitals an opportunity to
review and submit corrections for their claims-based measure rates
under section 1886(o)(10)(A)(ii) of the Act.
The confidential reports would contain the claims-based measure
rate calculations and would be accompanied by additional confidential
discharge-level information based on the most recent administrative
data available at the time we run the data for purposes of calculating
the rates. As we discuss below, we are proposing to create extracts of
the data to be used for measure rate calculation purposes approximately
90 days after the last discharge date in the performance period for the
measure. Our intent in providing the confidential reports and
accompanying discharge-level data to hospitals is twofold: (1) To
provide hospitals with an opportunity to review and submit corrections
for the measure rates that we will make available to the public; and
(2) to facilitate hospitals' quality improvement efforts with respect
to the measures. The discharge-level information would contain data
derived from claims and administrative data that were used in the
calculation of the measure rates. Depending on the measure, this
discharge level information might include data elements such as dates
of admission, dates of discharge, patient risk factors, primary and
secondary diagnoses, procedures, dates of death, dates of service after
discharge by the same or other providers/suppliers, and provider/
supplier numbers. The confidential reports and accompanying discharge
level data would be delivered to each hospital via its secure
QualityNet account.
We are proposing to provide hospitals a period of 30-days to review
and submit corrections for the claims-based measure rates contained in
their confidential reports. This 30-day period would begin the day
hospitals' confidential reports and accompanying discharge-level data
are posted to QualityNet. These measure rates will be used for
performance scoring, value-based incentive payment amount calculations,
and public reporting for the Hospital VBP Program. Based on our
previous experience with public reporting of measures under the
Hospital IQR Program, including the 30-day risk standardized mortality
rates and the AHRQ Patient Safety Indicators, we believe this 30-day
period will allow enough time for hospitals to review their data and
notify us of suspected errors in the measure rate calculations, and for
us to incorporate appropriate corrections to the calculations. During
the review and correction period, hospitals should notify us of
suspected errors using the technical assistance contact information
provided in their confidential reports.
The review and correction process we are proposing to adopt for the
claims-based measure rates would not allow hospitals to submit
corrections related to the underlying claims data we used to calculate
the measure rates, or allow hospitals to add new claims to the
performance period data set that we ran to calculate the rates. This is
because it is necessary to take a static ``snapshot'' of the claims in
order to perform the calculations. For purposes of this program, we
would calculate the claims-based measures using claims and corrections
to claims submitted by hospitals that were incorporated into our claims
database during the approximately 90 day period following the last date
of discharge to be included in the measure calculation.
We recognize that under our current timely claims filing policy,
hospitals have up to one year from the date of discharge to submit a
claim. However, in using claims and other administrative data to
calculate measure rates for the Hospital VBP Program, we are proposing
to create data extracts using claims information as it exists in our
Common Working File (CWF) approximately 90 days after the last
discharge date in the performance period for the measures. For example,
if the last discharge date in the performance period for a measure is
June 30, 2011, we would create the data extraction on or about
September 30, 2011 and use that data to calculate the measure rate for
that performance period. Hospitals would then receive the measure rate
in their confidential reports and accompanying data, and they would
have an opportunity to review and submit corrections to that rate. As
we stated above, hospitals would not be able to submit corrections to
the underlying data that we extracted on or about September 30, 2011,
and would also not be able to add claims to the data set. We would
consider the underlying claims and administrative data to be complete
for purposes of the Hospital VBP Program claims-based measure
calculations at the conclusion of the approximately 90 day period
following the last date of discharge used in the performance period.
We considered a number of factors in determining that an
approximately 90 day ``run-out'' period is appropriate for purposes of
calculating the claims-based measure rates. First, we seek to provide

[[Page 28077]]

timely quality data to hospitals for the purpose of quality
improvement, and to the public for the purpose of transparency. Next,
we seek to make payment adjustments to hospitals as close in time to
the applicable performance period as possible. Finally, we seek to have
as complete a data set as possible, recognizing that hospitals have up
to one year from the date of discharge to submit a claim under our
timely claims filing policy.
After we run the data and create the data extract for purposes of
calculating the measure rate for a claims-based measure, it takes
several months to incorporate other data needed to complete the rate
calculation (particularly in the case of a risk-adjusted and/or episode
based measure). We then need to generate and check the rate
calculations, as well as program, populate, and deliver the
confidential reports and accompanying data to hospitals. We are also
aware that hospitals would like to receive performance information
under the Hospital VBP Program as close in time to the performance
period as possible. If we were to wait to run the data for purposes of
calculating the claims-based measure rates until at least 12 months
after the last discharge date in the performance period, we would not,
for operational reasons, be able to provide the measure rates to
hospitals 18 to 24 months after the performance period ended. We
believe that this would create an unacceptably long delay both for
hospitals that are interested in receiving timely measure rate
calculations for their own quality improvement efforts, and for us to
(1) calculate TPSs for a program year and (2) publicly report hospital
performance on the Hospital Compare Web site. Therefore, we are
proposing to extract the data needed to calculate a claims-based
measure approximately 90 days after the last discharge date for the
measure's performance period so that we can best balance our need to
provide timely program information to hospitals against the need to
calculate the claims-based measures using as complete as a data set as
possible.
During the 30-day review and correction period, hospitals should
notify us of suspected errors in our calculation of the measure rates
using the technical support contacts provided in the hospital's
confidential report. We would investigate the validity of each
submitted correction and notify hospitals of the results. Should we
confirm that we made an error in calculating one or more claims-based
measure rates included in a hospital's confidential report, we would
correct the calculation(s) and issue a new confidential report to the
hospital. We are proposing that once the 30-day review and corrections
period has concluded, we would not accept any additional corrections
submitted by a hospital.
We invite public comment on the proposed review and correction
process for claims-based measure rates to be used in the Hospital VBP
Program.
c. Proposed Review and Correction Process for Condition-Specific
Scores, Domain-Specific Scores and TPSs
We are proposing to adopt a review and corrections process that
will enable hospitals to review and submit corrections with respect to
their performance on each condition (the condition-specific score),
their performance on each domain (the domain-specific score) and their
TPSs. Under this proposed process, we would provide each hospital with
a TPS Report (this would be a different report than the hospital
confidential report and accompanying data described above, and the
reports described in previous rules that will enable hospitals to
review and correct their chart-abstracted and HCAHPS measure data). A
hospital would have 30 days from the date we post the report on its
QualityNet account to review the TPS Report and submit any necessary
corrections to us via QualityNet. This proposed requirement will enable
us to evaluate corrections requests and provide decisions on those
requests in a timely manner. As discussed further below, we are also
proposing that the submission of a correction through this process be a
prerequisite to a hospital being able to submit an appeal of the
calculation of its performance assessment with respect to the
performance standards and/or its TPS under section 1886(o)(11)(A) of
the Act.
Hospitals would not be able to use this proposed review and
correction process to ask us to reconsider a hospital's eligibility
under section 1886(o)(1)(C) of the Act to participate in the Hospital
VBP Program for a fiscal year. However, we seek public comment on
whether our determination regarding a hospital's eligibility should be
subject to correction.
We believe that this proposed review and corrections process will
ensure that hospitals are able to fully and fairly review their
condition-specific scores, domain-specific scores, and TPS. We are
inviting public comment on this proposal. We note that we anticipate
posting FY 2013 hospital performance information on Hospital Compare in
April 2013. We are proposing to codify this for posting hospital-
specific information in our regulations at Sec. 412.163.
We view the review and corrections process as separate and distinct
from the appeals process. Each process is aimed at allowing hospitals
to seek certain reconsiderations from CMS. The review and corrections
process is aimed at correcting data that will be made public on the
Hospital Compare Web site, while the appeals process allows hospitals
to seek reconsideration for errors that may have been introduced during
the TPS calculation that may affect hospitals' payments.
7. Proposed Appeal Process Under the Hospital VBP Program
a. Background
Section 1886(o)(11)(A) of the Act requires the Secretary to
establish a process by which hospitals may appeal the calculation of a
hospital's performance assessment with respect to the performance
standards (section 1886(o)(3)(A) of the Act) and the hospital
performance score (section 1886(o)(5) of the Act).
Under section 1886(o)(11)(B) of the Act, there is no administrative
or judicial review under section 1869 of the Act, section 1878 of the
Act, or otherwise of the following: (1) The methodology used to
determine the amount of the value-based incentive payment under section
1886(o)(6) of the Act and the determination of such amount; (2) the
determination of the amount of funding available for the value-based
incentive payments under section 1886(o)(7)(A) of the Act and the
payment reduction under section 1886(o)(7)(B)(i) of the Act; (3) the
establishment of the performance standards under section 1886(o)(3) of
the Act and the performance period under section 1886(o)(4) of the Act;
(4) the measures specified under section 1886(b)(3)(B)(viii) of the Act
and the measures selected under section 1886(o)(2) of the Act; (5) the
methodology developed under section 1886(o)(5) of the Act that is used
to calculate hospital performance scores and the calculation of such
scores; or, (6) the validation methodology specified in section
1886(b)(3)(B)(viii)(XI) of the Act.
b. Proposed Appeal Process
We solicited public comments on the general structure and
procedures we should consider when developing an appeals process for
the Hospital VBP Program in the Hospital Inpatient VBP Program proposed
rule (76 FR 2484). We took these comments into consideration

[[Page 28078]]

when we developed the proposed appeals process that appears below. We
are proposing to implement an administrative appeals process that
provides hospitals with the opportunity to appeal the calculation of
their performance assessment with respect to the performance standards,
as well as their TPS.
We are proposing to codify this proposed appeals process in our
regulations at Sec. 412.167.
Under our proposed appeals process, if a hospital is seeking to
appeal a calculation of the TPS, measure/dimension score, condition-
specific score, domain specific score, or measure rate/data for which
the hospital could have submitted a correction during the review and
correction process we have both previously finalized (with respect to
chart-abstracted and HCAHPS data) and are proposing to adopt in this
proposed rule, we would require that the hospital first submit a
correction to that calculation, and receive an adverse determination
from us, as part of that process before the hospital could challenge it
under the appeals process. We are proposing to adopt this requirement
because we believe that we will be able to resolve many hospital claims
through the review and corrections process, and thus eliminate the need
for an appeal. To the extent that a hospital seeks to appeal a
calculation that was the subject of a correction request, we are
proposing that the deadline for the hospital to submit an appeal under
section 1886(o)(11)(A) of the Act would be 30 days from the date the we
informed the hospital through QualityNet of our decision on the
correction request. For any other appeals requests, we are proposing
that hospitals have up to 30 days after the conclusion of the review
and corrections period specified above to submit an appeal. We seek
public comment on the appropriateness of this proposed appeals timeline
and whether we should consider any other possible deadlines.
We are proposing that all appeals be submitted through QualityNet
and that they contain the following information:
Hospital's CMS Certification Number (CCN)
Hospital Name
Hospital's basis for requesting an appeal. This must
identify the hospital's specific reason(s) for appealing the hospital's
TPS or performance assessment with respect to the performance
standards.
CEO contact information, including name, email address,
telephone number, and mailing address (must include the physical
address, not just the post office box).
QualityNet System Administrator contact information,
including name, email address, telephone number, and mailing address
(must include the physical address, not just the post office box).
Consistent with sections 1886(o)(11)(A) and (B) of the Act, we are
proposing that hospitals would be able to submit an appeal on the
following issues:
CMS' decision to deny a hospital's correction request that
the hospital submitted under the review and corrections process;
Whether the achievement/improvement points were calculated
correctly;
Whether CMS properly used the higher of the achievement/
improvement points in calculating the hospital's measure/dimension
score;
Whether CMS correctly calculated the domain scores,
including the normalization calculation;
Whether CMS used the proper lowest dimension score in
calculating the hospital's HCAHPS consistency points;
Whether CMS calculated the HCAHPS consistency points
correctly;
Whether the correct domain scores were used to calculate
the TPS;
Whether each domain was weighted properly;
Whether the weighted domain scores were properly summed to
arrive at the TPS; and,
Whether the hospital's open/closed status (including
mergers and acquisitions) is properly specified in CMS' systems.
We invite public comment on this proposed administrative appeal
process.
8. Proposed Measures for the FY 2015 Hospital VBP Program
a. Relationship Between the National Strategy and the Hospital VBP
Program
Section 399HH of the Public Health Service Act, as added and
amended by sections 3011 and 10302 of the Affordable Care Act, requires
the Secretary to establish a national strategy to improve the delivery
of health care services, patient health outcomes, and population
health. The Secretary submitted the ``National Strategy for Quality
Improvement in Health Care'' on March 21, 2011. The strategy is
available at: http://www.healthcare.gov/law/resources/reports/nationalqualitystrategy032011.pdf.
We believe we can incorporate the goals of the National Quality
Strategy into our policies under the Hospital VBP Program. We view the
strategy as an important driver in revamping how Medicare services are
paid for, moving increasingly towards rewarding hospitals that deliver
better outcomes in health and health care at lower cost to the
beneficiaries and communities they serve. Over time, the strategy is
also helping us align the goals for quality measurement and improvement
in hospitals with those of other providers and suppliers in the health
system, promoting shared accountability across care settings for
beneficiary care and quality improvement.
We believe that, given the availability of endorsed measures and
the need to balance the number and scope of the measures against the
burden on participating hospitals, as well as ensuring that the
Hospital VBP Program's measure set reflects our quality improvement
priorities, the Hospital VBP Program measures should as fully as
possible reflect the six measurement domains that arise from the
National Quality Strategy's six priorities: Clinical Care; Person- and
Caregiver-Centered Experience and Outcomes; Safety; Efficiency and Cost
Reduction; Care Coordination; and Community/Population Health. We
believe that measure sets should generally rely on a mix of standards,
outcome, process of care measures, and patient-reported measures
including measures of care transitions, patient experience, and changes
in patient functional status, with an emphasis on measurement as close
to the patient-centered outcome of interest as possible. We took all of
these factors into consideration when developing our measure proposals
for the FY 2015 Hospital VBP Program.
In addition, we believe that measure sets should evolve to include
a focused set of measures that reflect the most important areas of
service and quality improvement for hospitals as well as a core set of
measure concepts that align quality improvement objectives across all
provider types and settings.
b. Proposed FY 2015 Measures
In the Hospital Inpatient VBP Program final rule (76 FR 26496
through 26497), we adopted a policy under which we would examine
whether any clinical process of care measures that were otherwise
eligible for inclusion in a Hospital VBP Program measure set were
topped-out, and thus, should be excluded because measuring hospital
performance on a topped-out measure would have no meaningful effect on
a hospital's TPS. Our methodology for evaluating whether a measure is
topped-out focuses on two criteria: (1) National

[[Page 28079]]

measure data show statistically indistinguishable performance levels at
the 75th and 90th percentiles, and (2) National measure data show a
truncated coefficient of variation (TCV) less than 0.10.
We analyzed the clinical process of care measures that we believe
are eligible for the FY 2015 Hospital VBP Program based on their prior
inclusion in the Hospital IQR Program and posting on Hospital Compare
for ``topped out'' status, and concluded that one of the candidate
measures for the FY 2015 Program--SCIP-Inf-10: Surgery Patients with
Perioperative Temperature Management--is now ``topped-out.'' Therefore,
we are not proposing to include this measure in the FY 2015 Hospital
VBP Program.
We welcome public comments on whether any other existing Hospital
VBP measures may be ``topped out'' and should therefore be considered
for removal from the proposed measure set. We also note that we do not
believe it is appropriate at this time to test or re-test proposed
outcome measures for ``topped-out'' status because such measures allow
CMS to reward hospitals for high-quality outcomes, which is a central
aim of quality improvement efforts in the health care system. We
further believe that these measures are critical to providing patients
with better care and believe it is important to hold hospitals
accountable for the clinical outcomes captured by these measures. We
invite public comments on this policy, including whether we should
examine the proposed outcomes measure set for ``topped-out'' status at
this time.
For the FY 2015 Hospital VBP Program, we are proposing to retain 12
of the 13 clinical process of care measures that we have adopted for
the FY 2014 program. We are proposing to remove SCIP-VTE-1 from the FY
2015 measure set because this measure is very similar to another
measure we have adopted for the program (SCIP-VTE-2) but, in our view,
is not as closely linked to better surgical outcomes because it
assesses the ordering of VTE prophylaxis, as opposed to the patient's
actual receipt of such prophylaxis within 24 hours of surgery. We also
note that, during a recent maintenance review of SCIP-VTE-1, the NQF
concluded that it would no longer endorse this measure, and we are
proposing in this proposed rule to remove the measure from the Hospital
IQR Program beginning with the FY 2015 payment determination.
Therefore, we are also proposing to retire SCIP-VTE-1 from the Hospital
VBP Program measure set beginning with the FY 2015 program. We note
that in the future, we anticipate proposing to adopt surgical outcome
measures, including one or more measures that assess complications
arising from VTE prophylaxis medications, first into the Hospital IQR
Program and then into the Hospital VBP Program.
We are proposing to adopt one additional clinical process of care
measure--AMI-10: Statin Prescribed at Discharge. This measure has been
specified under the Hospital IQR Program for the FY 2013 payment
determination (75 FR 50200). AMI-10 measure data were posted on the
Hospital Compare Web site on January 26, 2012, so as discussed further
below, we are proposing a 9-month performance period for this measure
for FY 2015. We intend to align the performance period for AMI-10 with
the other clinical process measures' performance period in future
years. The measure is NQF-endorsed (0639) and we did not find
it to be ``topped-out'' when we examined the list of candidate measures
as described above. We also note that current American College of
Cardiology (ACC)/American Heart Association (AHA) guidelines place a
strong emphasis on the initiation or maintenance of statin drugs for
patients hospitalized with AMI, particularly those with LDL-cholesterol
levels at or above 100 mg/dL. We therefore believe that this measure is
appropriate for use in the Hospital VBP Program.
For the Patient Experience of Care domain, we are proposing to
retain the eight dimensions of the HCAHPS survey that we adopted for
the FY 2013 and FY 2014 Hospital VBP Program. We believe that the 8
HCAHPS dimensions finalized for the FY 2013 and FY 2014 Hospital VBP
Programs are well-understood by hospitals and the public and capture
important aspects of the patient's experience in the acute care
environment.
For the Outcome domain, we are proposing to retain the three 30-day
mortality measures that we finalized for the FY 2014 Hospital VBP
Program. As described above, we continue to believe that these measures
are important to quality improvement efforts because outcomes measures
allow us to reward hospitals for high-quality outcomes, which is a
central aim of quality improvement efforts in the health care system.
We further believe that these measures are critical to providing
patients with better care and believe it is important to hold hospitals
accountable for the clinical outcomes captured by these measures. We
also are proposing to adopt two additional outcomes measures--PSI-90,
the AHRQ PSI composite measure, and the CLABSI: Central Line-Associated
Blood Stream Infection measure--for the Outcome domain.
We initially adopted the CLABSI measure for the FY 2013 Hospital
IQR Program in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50200
through 50202) and refer readers to that rule for further discussion of
the measure. CLABSI is an HAI measure that assesses the rate of
laboratory-confirmed cases of bloodstream infection or clinical sepsis
among ICU patients. This measure was first NQF-endorsed in 2004, and
adopted by the HQA in 2007. The measure can be stratified by the type
of ICU and is aggregated to the hospital level by the NHSN. We first
posted hospital performance on this measure on Hospital Compare on
January 26, 2012.
We believe that adoption of the CLABSI measure for the Hospital VBP
Program is consistent with the intention captured in the Hospital VBP
Program's statutory requirement that we consider measures of HAIs for
the FY 2013 Hospital VBP Program's measure set.
We initially adopted the AHRQ PSI composite measure (PSI-90) for
the FY 2010 payment determination in the FY 2009 IPPS/LTCH PPS final
rule (73 FR 48602 through 48603) and refer readers to that rule for
further discussion of that measure. PSI-90 is a composite measure of
patient safety indicators developed and maintained by AHRQ and measure
data were posted on Hospital Compare on October 14, 2011. We believe
that its use in the Hospital VBP Program is appropriate in order to
encourage hospitals to take all possible steps to avoid threats to
patient safety that may occur in the acute care environment.
For the Efficiency domain, we are proposing to adopt one new
measure: the Medicare Spending per Beneficiary measure. The proposed
measure is inclusive of all Part A and Part B payments from 3 days
prior to a subsection (d) hospital admission through 30 days post
discharge with certain exclusions. It is risk adjusted for age and
severity of illness, and the included payments are standardized to
remove differences attributable to geographic payment adjustments and
other payment factors. We anticipate submitting the proposed measure to
the NQF for endorsement in the near future.
We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR
51618 through 51627) for the measure's specifications. Additional
information on the measure, including a detailed specification document
can be found at: http://qualitynet.org/dcs/
ContentServer?c=Page&pagename=QnetPublic%

[[Page 28080]]

2FPage%2FQnetTier3&cid=1228772053996. This measure has been specified
under the Hospital IQR Program, and we anticipate publicly posting
hospital performance on the measure on the Hospital Compare Web site in
mid to late April 2012. As discussed further below, we are proposing
that the performance period for this measure for the FY 2015 Hospital
VBP Program begin on May 1, 2013, which will be more than one year
after the performance data has been publicly posted. Further, section
1886(o)(2)(B)(ii) of the Act requires us to ensure that measures
selected for the Hospital VBP Program include measures of efficiency,
including measures of Medicare spending per beneficiary, for FY 2014 or
a subsequent fiscal year. We believe that this proposed measure
fulfills that requirement.
The proposed FY 2015 Hospital VBP Program measures appear below:

Proposed Quality Measures for FY 2015 Hospital VBP Program
------------------------------------------------------------------------
Measure ID Description
------------------------------------------------------------------------
Clinical Process of Care Measures
------------------------------------------------------------------------
AMI-7a............................ Fibrinolytic Therapy Received Within
30 Minutes of Hospital Arrival.
AMI-8a............................ Primary PCI Received Within 90
Minutes of Hospital Arrival.
AMI-10............................ Statin Prescribed at Discharge.
HF-1.............................. Discharge Instructions.
PN-3b............................. Blood Cultures Performed in the
Emergency Department Prior to
Initial Antibiotic Received in
Hospital.
PN-6.............................. Initial Antibiotic Selection for CAP
in Immunocompetent Patient.
SCIP-Inf-1........................ Prophylactic Antibiotic Received
Within One 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.
SCIP-Inf-4........................ Cardiac Surgery Patients with
Controlled 6AM Postoperative Serum
Glucose.
SCIP-Inf-9........................ Urinary Catheter Removed on
Postoperative Day 1 or
Postoperative Day 2.
SCIP-Card-2....................... Surgery Patients on Beta-Blocker
Therapy Prior to Arrival Who
Received a Beta-Blocker During the
Perioperative Period.
SCIP-VTE-2........................ Surgery Patients Who Received
Appropriate Venous Thromboembolism
Prophylaxes Within 24 Hours Prior
to Surgery to 24 Hours After
Surgery.
------------------------------------------------------------------------
Patient Experience Measures
------------------------------------------------------------------------
HCAHPS *.......................... Hospital Consumer Assessment of
Healthcare Providers and Systems
Survey.
------------------------------------------------------------------------
Outcome Measures
------------------------------------------------------------------------
AHRQ PSI composite................ Complication/patient safety for
selected indicators (composite).
CLABSI............................ Central Line-Associated Blood Stream
Infection.
MORT-30-AMI....................... Acute Myocardial Infarction (AMI) 30-
day mortality rate.
MORT-30-HF........................ Heart Failure (HF) 30-day mortality
rate.
MORT-30-PN........................ Pneumonia (PN) 30-day mortality
rate.
------------------------------------------------------------------------
Efficiency Measures
------------------------------------------------------------------------
MSPB-1............................ Medicare spending per beneficiary.
------------------------------------------------------------------------
* Proposed dimensions of the HCAHPS survey for use in the FY 2015
Hospital VBP Program are: Communication with Nurses, Communication
with Doctors, Responsiveness of Hospital Staff, Pain Management,
Communication about Medicines, Cleanliness and Quietness of Hospital
Environment, Discharge Information and Overall Rating of Hospital.
These are the same dimensions of the HCAHPS survey that have been
finalized for prior Hospital VBP program years.

We invite public comment on the proposed measure set for the FY
2015 Hospital VBP Program.
c. Proposed General Process for Hospital VBP Program Measure Adoption
for Future Program Years
In order to facilitate measure adoption for the Hospital VBP
Program for future years, as well as further align the Hospital VBP
Program with the Hospital IQR Program, we are proposing to re-adopt
measures from the prior program year for each successive program year,
unless proposed and finalized otherwise (for example, because one or
more of the clinical process of care measures is topped-out). We intend
to continue monitoring Hospital VBP measures for topped-out status and
will propose topped-out measures' removal from the program as
appropriate in future rulemaking. We will therefore generally re-adopt
the prior Program year's measure set unless we propose to add or remove
measures through rulemaking and in response to public comments.
However, under this policy, once measures are finalized, we would not
separately re-propose them for each program year. We invite public
comments on this proposal.
9. Proposed Measures and Domains for the FY 2016 Hospital VBP Program
a. Proposed FY 2016 Measures
We are proposing to retain the three 30-day mortality measures that
were finalized for the FY 2014 Hospital VBP Program, and which we are
proposing to retain for the FY 2015 Hospital VBP Program, for the FY
2016 Hospital VBP Program. We also are proposing to retain PSI-90,
which is the AHRQ PSI composite measure that we are proposing to adopt
for the FY 2015 Hospital VBP Program, for the FY 2016 program. By
proposing to adopt these measures now, we believe we will be able to
adopt a longer performance period and collect more data for performance
scoring than would be possible if we waited to make this proposal until
the FY 2014 IPPS/LTCH PPS proposed rule. We are also proposing to adopt
these measures at this time because we recognize that under section
1886(o)(3)(C) of the Act, we must establish and announce performance
standards not later than 60 days prior to the beginning of the

[[Page 28081]]

performance period for the fiscal year involved. Accordingly, we are
proposing that the performance period for these measures would begin
October 1, 2012, for purposes of the FY 2016 Hospital VBP Program. If
we finalize our proposal above to automatically re-adopt measures from
year to year, then the other proposed FY 2015 measures would become
part of the FY 2016 measure set unless we proposed otherwise in future
rulemaking. We also anticipate adopting additional measures for the FY
2016 Hospital VBP Program in future rulemaking.
The proposed FY 2016 Hospital VBP Program 30-day mortality measures
and AHRQ PSI composite measure are shown below:

Proposed Outcome Measures for FY 2016 Hospital VBP Program
------------------------------------------------------------------------
Measure ID Description
------------------------------------------------------------------------
AHRQ PSI composite................ Complication/patient safety for
selected indicators (composite).
MORT-30-AMI....................... Acute Myocardial Infarction (AMI) 30-
day mortality rate.
MORT-30-HF........................ Heart Failure (HF) 30-day mortality
rate.
MORT-30-PN........................ Pneumonia (PN) 30-day mortality
rate.
------------------------------------------------------------------------

We are not proposing to adopt the CLABSI measure for the FY 2016
Hospital VBP Program at this time, but may propose it in future
rulemaking.
We invite public comment on these proposals.
b. Proposed Quality Measure Domains for the FY 2016 Hospital VBP
Program
Currently, measure domains are defined by the measure type rather
than by measure function. At the time of the Hospital VBP Program's
development, we believed this type of measure classification, which was
included in the 2007 Report to Congress, was appropriate for the
program based on its clarity and simplicity compared to alternative
scoring models. We refer readers to the Hospital Inpatient VBP Program
final rule (76 FR 26513 through 26514) for further discussion of our
decision to finalize the Three-Domain Performance Scoring Model for the
Hospital VBP Program with appropriate modifications for additional
domains as necessary. The FY 2014 program's domains are clinical
process of care, outcomes, and patient experience of care. The FY 2015
Hospital VBP Program's proposed domains are clinical process of care,
outcomes, patient experience of care, and efficiency.
We strive to align quality measurement and value-based purchasing
efforts with the National Quality Strategy and across programs. Value-
based purchasing programs in particular allow us to link the National
Quality Strategy with Medicare reimbursements to providers and
suppliers on a national scale. Given this objective, as well as our
objective to focus quality measurement on the patient-centered outcome
of interest to the extent possible, we are proposing to reclassify the
Hospital VBP measures into domains based on the six priorities of the
National Quality Strategy, beginning with the FY 2016 Hospital VBP
Program. We are making this proposal in this proposed rule to ensure
that we have ample time to consider all public comments and finalize
any policies in advance of the FY 2016 program year.
We are proposing that the following six domains serve as a
framework for measurement and TPS calculations for the Hospital VBP
Program beginning with the FY 2016 program year: Clinical Care; Person-
and Caregiver-Centered Experience and Outcomes; Safety; Efficiency and
Cost Reduction; Care Coordination; and Community/Population Health.
To illustrate how CMS would classify measures into the proposed new
domains, we offer the following example using the proposed FY 2015
Hospital VBP measure set:

------------------------------------------------------------------------
Proposed FY 2016 Proposed FY 2015
Proposed FY 2015 measures domain domain
------------------------------------------------------------------------
HF-1 Discharge Instructions..... Care Coordination. Clinical Process
of Care.
AMI-10 Statin Prescribed at Clinical Care..... Clinical Process
Discharge. of Care.
AMI-7a Fibrinolytic Agent Clinical Care..... Clinical Process
Received Within 30 Minutes of of Care.
Hospital Arrival.
AMI-8a Primary PCI Received Clinical Care..... Clinical Process
Within 90 Minutes of Hospital of Care.
Arrival.
Mortality-30-AMI Acute Clinical Care..... Outcomes.
Myocardial Infarction (AMI) 30-
day Mortality Rate.
Mortality-30-HF Heart Failure Clinical Care..... Outcomes.
(HF) 30-day Mortality Rate.
Mortality-30-PN Pneumonia (PN) Clinical Care..... Outcomes.
30-Day Mortality Rate.
PN-3b Blood Cultures Performed Clinical Care..... Clinical Process
in the Emergency Department of Care.
Prior to Initial Antibiotic
Received in Hospital.
PN-6 Initial Antibiotic Clinical Care..... Clinical Process
Selection for Community- of Care.
Acquired Pneumonia (CAP) in
Immunocompetent Patients.
SCIP Card-2 Surgery Patients on Clinical Care..... Clinical Process
Beta-Blocker Therapy Prior to of Care.
Arrival Who Received a Beta-
Blocker During the
Perioperative Period.
SCIP-Inf-01 Prophylactic Clinical Care..... Clinical Process
antibiotic received within 1 of Care.
hour prior to surgical incision.
SCIP-Inf-02 Prophylactic Clinical Care..... Clinical Process
antibiotic selection for of Care.
surgical patients.
SCIP-Inf-03 Prophylactic Clinical Care..... Clinical Process
antibiotics discontinued with of Care.
24 hours after surgery end time.
SCIP-Inf-04 Cardiac Surgery Clinical Care..... Clinical Process
Patients with Controlled 6AM of Care.
Postoperative Serum Glucose.
SCIP-VTE-2 Surgery Patients Who Clinical Care..... Clinical Process
Received Appropriate Venous of Care.
Thromboembolism Prophylaxis
Within 24 Hours Prior to
Surgery to 24 Hours After
Surgery.
Medicare spending per Efficiency and Efficiency.
beneficiary. Cost Reduction.

[[Page 28082]]

HCAHPS Hospital Consumer Person- and Patient Experience
Assessment of Healthcare Caregiver- of Care.
Providers and Systems Survey. Centered
Experience and
Outcomes.
Central Line-Associated Blood Safety............ Outcome.
Stream Infection (CLABSI).
PSI 90 Complication/Patient Safety............ Outcome.
Safety for Selected Indicators
(Composite).
------------------------------------------------------------------------

We acknowledge that some of the measures noted above could
appropriately be placed in more than one domain because the quality
improvement characteristics they seek to measure, especially for
outcome measures, are multifaceted. We believe that the measure
classification by domain should reflect the primary measurement
objective and the type of quality improvement goal the measure seeks to
capture. For example, although a reduction in CLABSIs may reflect
improved clinical care, we believe that it better reflects an
improvement in patient safety because such infections often cause harm
to patients.
We are proposing that the TPS would continue to be determined by
aggregating each hospital's scores across all domains. A hospital's
score on each domain would also continue to be calculated based on the
hospital's score on each measure within the domain, which is based on
the higher of its achievement or improvement during the applicable
performance period.
We welcome public comment on our proposal to regroup the Hospital
VBP Program's quality measures into six domains that better reflect the
National Quality Strategy, beginning with the FY 2016 Hospital VBP
Program.
We are also soliciting comments on how to properly weight the
domains in FY 2016. We believe that domain weighting should primarily
balance two factors. First, it should reflect our concept of quality as
it relates to the National Quality Strategy and the most critical needs
for quality improvement in caring for beneficiaries. Second, it should
reflect the relative depth and maturity of measures in each domain. For
example, although improvement in the proposed Care Coordination domain
is a priority, we would want to take into consideration whether the
care coordination measures available for inclusion in that domain in a
particular year capture multiple aspects of care coordination. If we
did not believe that the measures within a domain captured enough
aspects of care, we would consider proposing a relatively lower weight
for the domain. We anticipate that the domain weights will evolve over
time as the measure set changes.
We also recognize that the current domain weighting system allows
us to place higher value on measures closer to the patient-centered
outcome of interest by grouping outcome measures into a single domain.
In the proposed domain reclassification, the 30-day mortality measures
would be grouped with process measures. Although we anticipate that the
measure set will evolve over time to be more focused on outcomes, the
current measure set continues to emphasize clinical processes. We seek
public comment on whether CMS should continue to group all outcome
measures in a single domain. In addition, we seek public comment on the
implications of and alternatives to the proposed approach of including
both clinical process of care measures and outcome measures in the
proposed Clinical Care domain under the proposed domain
reclassification.
10. Proposed Performance Periods and Baseline Periods for the FY 2015
Hospital VBP Program
Section 1886(o)(4) of the Act requires the Secretary to establish a
performance period for the Hospital VBP Program for a fiscal year that
begins and ends prior to the beginning of such fiscal year.
a. Proposed Clinical Process of Care Domain Performance Period and
Baseline Period for FY 2015
In the CY 2012 OPPS/ASC final rule with comment period (76 FR
74534), for the FY 2014 Hospital VBP Program, we finalized a 9-month
(3-quarter) performance period from April 1, 2012 through December 31,
2012 for the clinical process of care domain measures.
As we stated in that final rule with comment period, adopting a 3-
quarter performance period for this domain for the FY 2014 Hospital VBP
Program would enable us to consider adopting a 12-month performance
period for this domain for FY 2015. Therefore, we are proposing to
adopt CY 2013 (January 1, 2013 through December 31, 2013) as the
performance period for all but one of the clinical process of care
domain measures for the FY 2015 program. This proposed performance
period for FY 2015 would begin immediately after the end of the FY 2014
performance period and will enable us to begin to make value-based
incentive payments to hospitals beginning October 1, 2014. A 12-month
performance period would also give us more data on which to score
hospital performance, which is an important goal both for CMS and for
stakeholders. We also note that a 12-month performance period is
consistent with the periods used for the Hospital IQR Program.
However, as noted above, AMI-10 measure data were posted on
Hospital Compare on January 26, 2012. Therefore, we do not believe we
can begin a performance period for this measure on January 1, 2013,
which would align with the proposed performance period for all other
clinical process of care measures. We considered the most appropriate
way to include this measure in the FY 2015 Hospital VBP Program and
concluded that we should propose a 9-month performance period from
April 1, 2013 through December 31, 2013. As we have stated for prior
program years, we believe that a 9-month performance period provides
sufficiently reliable quality measure data for clinical process of care
measures. We intend to align the AMI-10 measure's performance period
with all other clinical process measures for future program years. We
welcome public comment on this proposal.
As we explained in the Hospital Inpatient VBP Program final rule
(76 FR 26511), we believe that baseline data should be used from a
comparable prior period for purposes of calculating the performance
standards. However, we also strive to balance that belief with our
desire to use the most recently-available data in order to calculate
performance standards, as we believe that more recent data more closely
reflects current performance on measures. Therefore, we are proposing
to adopt CY 2011 (January 1, 2011 through December 31, 2011) as the
baseline period for all but one of the Clinical Process of Care domain
measures for the FY 2015 Hospital VBP Program. As noted above, we are
proposing to adopt a 9-month performance period for the AMI-10 measure.
In accordance with our preference for adopting a comparable prior
period for purposes of calculating the performance standards, we are
proposing to adopt a 9-month baseline period of April 1, 2011 through

[[Page 28083]]

December 31, 2011 for the AMI-10 measure.
We welcome public comment on these proposals.
b. Proposed Patient Experience of Care Domain Performance Period and
Baseline Period for FY 2015
In the CY 2012 OPPS/ASC final rule with comment period (76 FR
74534), for the FY 2014 Hospital VBP Program, we finalized a 9-month
(3-quarter) performance period from April 1, 2012 through December 31,
2012 for the Patient Experience of Care domain measure.
As we stated in that final rule with comment period, adopting a 3-
quarter performance period for this domain for the FY 2014 Hospital VBP
Program would enable us to consider adopting a 12-month performance
period for this domain for FY 2015. Consistent with our goal of
adopting a full 12-month period for this domain in order to collect a
larger amount of HCAHPS survey data compared to a 9-month period, we
are proposing to adopt CY 2013 (January 1, 2013 through December 31,
2013) as the performance period for the Patient Experience of Care
domain measure for the FY 2015 program. This proposed performance
period for FY 2015 would begin immediately after the end of the FY 2014
performance period and would enable us to begin making value-based
incentive payments to hospitals beginning on October 1, 2014. We also
note that a 12-month performance period is consistent with the periods
used for the Hospital IQR Program.
As we explained in the Hospital Inpatient VBP Program final rule
(76 FR 26511), we believe that baseline data should be used from a
comparable prior period for purposes of calculating the performance
standards. Therefore, we are proposing to adopt CY 2011 (January 1,
2011 through December 31, 2011) as the baseline period for the Patient
Experience of Care domain measure for the FY 2015 program.
We welcome public comment on these proposals.
c. Proposed Efficiency Domain Measure Performance Period and Baseline
Period for FY 2015
We plan to post performance data for the Medicare spending per
beneficiary measure on Hospital Compare in April 2012. We have
therefore concluded that the earliest we may begin a performance period
for FY 2015 is one year from the date on which the data was posted. We
are proposing an end date of December 31, 2013 for this measure's
performance period. This end date is consistent with the end dates
proposed for the Clinical Process of Care domain and for the HCAHPS
measure in the Patient Experience of Care domain.
In the interest of maintaining consistency across domains, to the
extent possible, and in order to ensure that data have been posted for
at least 1 year prior to the beginning of the measure performance
period, we are proposing to adopt an 8-month performance period (May 1,
2013 through December 31, 2013) for the Medicare spending per
beneficiary measure for the FY 2015 Hospital VBP Program. We believe
this proposed performance period enables us to collect as much measure
data as possible and the time necessary to process claims and
incorporate measure data into Hospital VBP Program scores. We are
further proposing to adopt a corresponding prior period (May 1, 2011
through December 31, 2011) as the baseline period for purposes of
calculating the performance standards. This proposed baseline period
would be consistent with the baseline period proposed for other
Hospital VBP Program measures in that it precedes the performance
period by two years.
We welcome public comment on the proposed FY 2015 performance and
baseline period for the Medicare spending per beneficiary measure.
d. Proposed Outcome Domain Performance Periods for FY 2015
(1) Mortality Measures
In the Hospital Inpatient VBP Program final rule (76 FR 26495), we
finalized a 12-month performance period (July 1, 2011-June 30, 2012)
for the Outcome domain for the FY 2014 Hospital VBP Program. We also
finalized a comparable prior period as the baseline period (July 1,
2009 through June 30, 2010) for purposes of calculating improvement
points as well as the performance standards.
Due to the lengthy time needed for us to compile claims-based
measure data at the individual hospital level and calculate the measure
rates and scores (discussed more fully in section VIII.C.6.b. of this
preamble in the context of our review and corrections proposal for
claims-based measures), we must conclude the performance period for
claims-based measures for FY 2015 by June 30, 2013.
We are concerned about the difficulty that varied performance
periods impose on participating hospitals. While we believe the public
recognizes the need for different performance periods due to varied
measure types and collection methods, we strive to propose performance
periods that are as consistent as possible from one program year to the
next. We believe this consistency is important for all hospitals that
are working to improve the quality of care they provide to Medicare
beneficiaries and to the entirety of the patient population. However,
we are also aware that the Hospital VBP statute requires that we
establish and announce performance standards for Hospital VBP measures
at least 60 days in advance of the performance period. Because we are
proposing to adopt these measures for FY 2015 in this proposed rule,
which will not be effective until 60 days after it is finalized, we do
not believe we can propose a performance period for these measures
beginning earlier than October 1, 2012.
We note that this proposed performance period is less than 12
months, which may raise seasonality concerns with regard to these
measures. We note further that we examined the independent analysis of
these measures' reliability provided by Mathematica Policy Research,
entitled, ``Reporting Period and Reliability of AHRQ, CMS 30-day and
HAC Quality Measures--Revised,'' which is available on our Web site
(http://cms.hhs.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf), and which concluded that the measures may not
achieve total reliability for all hospitals for reporting periods as
short as 6 months. However, we believe that holding all hospitals
accountable using the same period will fairly alleviate those concerns,
particularly because these measures are risk-adjusted using a
methodology that does not penalize hospitals for poor performance on
the measure without a relatively larger sample size. As described
further below, while we are concerned about these measures' reliability
when adopting a performance period of less than 12 months, we believe
that increasing the required minimum number of cases will assure
sufficient reliability for these measures for value-based purchasing.
Based on this analysis, as well as our objective to include outcome
measures in the Hospital VBP Program, we believe that the proposed 9-
month performance period for these measures will produce sufficiently
reliable results for hospitals.
Therefore, we are proposing to adopt a 9-month performance period
for the three 30-day mortality measures for FY 2015 from October 1,
2012 through June 30, 2013. We further are proposing a comparable
baseline period from October 1, 2010 through June 30, 2011.

[[Page 28084]]

We welcome public comment on our proposal to adopt a performance
period for the proposed FY 2015 mortality measures that runs from
October 1, 2012 through June 30, 2013, and a baseline period that runs
from October 1, 2010, through June 30, 2011.
(2) Proposed AHRQ PSI Composite Measure
We posted hospital performance data on the AHRQ PSI composite
measure on Hospital Compare on October 14, 2011. Based on that posting
date, we believe the earliest we could begin a performance period for
FY 2015 is October 14, 2012. As discussed above, we must conclude the
performance period for claims-based measures by June 30, 2013 in order
to allow sufficient time to calculate the measure rates and scores.
Therefore, we are proposing to adopt a nearly 9-month performance
period (October 15, 2012 through June 30, 2013) for the AHRQ PSI
composite measure for FY 2015. We believe that this performance period
will provide us with sufficiently reliable data on which to base
hospitals' scores. We further are proposing to adopt a comparable prior
period from October 15, 2010 through June 30, 2011 as the baseline
period for purposes of calculating the performance standards.
While we would prefer to adopt a performance period longer than
nearly 9-months in order to provide the most reliable measure data
possible, we believe that the proposed period enables us to ensure that
this measure, which assesses hospital performance on the critical topic
of patient safety, is included in hospitals' FY 2015 TPSs and,
therefore, will become a focus of quality improvement efforts. We note
further that we examined the independent analysis of this measure's
reliability provided by Mathematica Policy Research, entitled,
``Reporting Period and Reliability of AHRQ, CMS 30-day and HAC Quality
Measures--Revised,'' which is available on our Web site (http://cms.hhs.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf), and which concluded that the measure achieves
moderate reliability for the majority of hospitals for reporting
periods of 6 months or longer. Based on this analysis, as well as our
objective to include patient safety measures in the Hospital VBP
Program, we believe that the proposed nearly 9-month performance period
for this measure will produce reliable results for hospitals.
We welcome public comment on these proposals.
(3) CLABSI Measure
We posted CLABSI measure data on Hospital Compare on January 26,
2012. Pursuant to our commitment to post measure data on Hospital
Compare at least one year prior to the beginning of a performance
period for the Hospital VBP Program, the earliest we can begin a
performance period for this measure is January 26, 2013. Because, as
described above, we believe this measure captures important patient
safety data, in this case related to infections that present the
possibility of significant harm to hospitalized patients, we believe it
is appropriate to adopt the measure as soon as possible for as lengthy
a performance period as possible. Adopting an approximately 11-month
performance period for this measure will not, in our view, appreciably
harm the measure's statistical reliability for purposes of value-based
purchasing scoring, particularly because (as described below) we are
also proposing to adopt the measure steward's criteria for minimum
number of cases to receive a measure score.
Therefore, we are proposing to adopt an approximately 11-month
performance period for the CLABSI measure from January 26, 2013 through
December 31, 2013 with a comparable baseline period of January 26, 2011
through December 31, 2011 for purposes of calculating the performance
standards.
We welcome public comment on these proposals.
The proposed performance and baseline periods for all proposed FY
2015 measures appear below:

------------------------------------------------------------------------
Domain Baseline period Performance period
------------------------------------------------------------------------
Clinical Process of Care.... January 1, 2011- January 1, 2013-
December 31, 2011. December 31, 2013.
AMI-10 *....... April 1, April 1,
2011-December 31, 2013-December 31,
2011. 2013.
Patient Experience of Care.. January 1, 2011- January 1, 2013-
December 31, 2011. December 31, 2013.
Outcome:
Mortality...... October 1, October 1,
2010-June 30, 2011. 2012-June 30, 2013.
AHRQ........... October 15, October 15,
2010-June 30, 2011. 2012-June 30, 2013.
CLABSI......... January 26, January 26,
2011-December 31, 2013-December 31,
2011. 2013.
Efficiency:
Medicare May 1, 2011- May 1, 2013-
Spending Per December 31, 2011. December 31, 2013.
Beneficiary-1.
------------------------------------------------------------------------
*As discussed further above, we are proposing a separate performance
period for the AMI-10 measure. The proposed 12-month performance
period specified above would apply to all other clinical process of
care measures.

e. Proposed Performance Periods for Proposed FY 2016 Measures
In order to provide relatively more reliable data for the three
proposed 30-day mortality measures and the AHRQ PSI composite measure,
we considered how we could adopt a 24-month performance period for the
FY 2016 Hospital VBP Program. We do not believe it is feasible to do so
at this time given the statutory requirement that we establish and
announce performance standards at least 60 days in advance of the
applicable performance period. However, we intend to propose to adopt a
24-month performance period for these measures as soon as is
practicable and will consider a 24-month performance period in future
rulemaking.
Given the time constraints associated with the annual IPPS/LTCH PPS
rulemaking schedule, we believe that the longest performance period we
can propose for FY 2016 at this time is 21 months. We believe that this
performance period will provide relatively more reliable measure data
and will enable us to consider adopting a 24-month performance period
in the future.
We therefore are proposing to adopt a 21-month performance period
for the three proposed 30-day mortality measures and the AHRQ PSI
composite measure for the FY 2016 Hospital VBP Program, from October 1,
2012 through July 30, 2014. We are further proposing a baseline period
of October 1, 2010 through July 30, 2011, for purposes of calculating
performance standards and measuring improvement. We note that this
baseline period is identical to the proposed baseline period for these

[[Page 28085]]

measures for FY 2015. We also note that this baseline period is shorter
than the proposed performance period. We believe it is appropriate to
use the most recently-available data to calculate performance standards
and are concerned about the possibility of using data from several
years prior to the performance period for performance standards.
However, we seek public comment on whether we should adopt a 24-month
baseline period.
The table below displays the proposed performance period for the FY
2016 mortality and AHRQ PSI composite measures.

------------------------------------------------------------------------
Measure Baseline period Performance period
------------------------------------------------------------------------
Mortality/AHRQ PSI.......... October 1, 2010-June October 1, 2012-June
30, 2011. 30, 2014.
------------------------------------------------------------------------

We welcome public comment on this proposal. We also seek comments
on the possibility of adopting a ``rolling'' 2-year performance period
for certain claims-based measures during which we would score hospitals
using 24 months of data. As an example, under such a policy for
mortality measures, hospitals could be scored for the FY 2018 Hospital
VBP Program using data from the performance periods for FY 2017 (while
not yet proposed, one possibility for that year could be July 1, 2013
through June 30, 2015). For subsequent fiscal years, we would drop the
oldest 12 months of data from that period and add the next 12 months.
The performance period for the FY 2019 Hospital VBP Program under that
policy could be July 1, 2014 through June 30, 2016.
11. Proposed Performance Standards for the Hospital VBP Program for FY
2015 and FY 2016
a. Background
Section 1886(o)(3)(A) of the Act requires the Secretary to
establish performance standards for the measures selected under the
Hospital VBP Program for a performance period for the applicable fiscal
year. The performance standards must include levels of achievement and
improvement, as required by section 1886(o)(3)(B) of the Act, and must
be established and announced not later than 60 days before the
beginning of the performance period for the fiscal year involved, as
required by section 1886(o)(3)(C) of the Act. Achievement and
improvement standards are discussed more fully in the Hospital
Inpatient VBP Program final rule (76 FR 26511 through 26513). In
addition, when establishing the performance standards, section
1886(o)(3)(D) of the Act requires the Secretary to consider appropriate
factors, such as: (1) Practical experience with the measures, including
whether a significant proportion of hospitals failed to meet the
performance standard during previous performance periods; (2)
historical performance standards; (3) improvement rates; and (4) the
opportunity for continued improvement. We are proposing to codify this
for performance standards in our regulations at Sec. 412.165.
b. Proposed Performance Standards for the FY 2015 Hospital VBP Program
Measures
We are proposing to establish performance standards that apply to
the FY 2015 Hospital VBP Program using the same methodologies that we
previously adopted for the FY 2013 and FY 2014 programs. We refer
readers to the Hospital Inpatient VBP Program final rule (76 FR 26511
through 26513) for a detailed discussion of the methodology we adopted
for the clinical process of care, patient experience of care, and
outcome measures, and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51654
through 51656) for a discussion of the methodology we adopted for the
Medicare spending per beneficiary measure.
We continue to believe that the finalized methodology for
calculating performance standards is appropriate for the Hospital VBP
Program given that the program remains relatively new to hospitals and
the public. The proposed performance standards for the clinical
process, outcome, and Medicare spending per beneficiary measures appear
in the first table below, while the proposed performance standards for
the patient experience of care (HCAHPS survey) measure appears in the
second table below. We note that the performance standards displayed
below represent estimates based on the most recently-available data; we
will update the standards in the FY 2013 IPPS/LTCH PPS final rule. We
also note that the performance standards for the CLABSI measure and the
AHRQ PSI composite measure are calculated with lower values
representing better performance, in contrast to other measures, on
which higher values indicate better performance.

Proposed Performance Standards for the FY 2015 Hospital VBP Program Clinical Process of Care and Outcome
Domains, and the Medicare Spending per Beneficiary Measure
----------------------------------------------------------------------------------------------------------------
Achievement
Measure ID Description threshold Benchmark
----------------------------------------------------------------------------------------------------------------
Clinical Process of Care Measures
----------------------------------------------------------------------------------------------------------------
AMI-7a.......................... Fibrinolytic Therapy Received 0.72727 1.00000
Within 30 Minutes of Hospital
Arrival.
AMI-8a.......................... Primary PCI Received Within 90 0.92857 1.00000
Minutes of Hospital Arrival.
AMI-10.......................... Statin Prescribed at Discharge.... 0.90474 ....................
PN-3b........................... Blood Cultures Performed in the 0.97129 1.00000
Emergency Department Prior to
Initial Antibiotic Received in
Hospital.
PN-6............................ Initial Antibiotic Selection for 0.93671 0.99832
CAP in Immunocompetent Patient.
SCIP-Card-2..................... Surgery Patients on Beta-Blocker 0.95122 1.00000
Therapy Prior to Arrival Who
Received a Beta-Blocker During
the Perioperative Period.
SCIP-Inf-1...................... Prophylactic Antibiotic Received 0.97872 1.00000
Within One Hour Prior to Surgical
Incision.
SCIP-Inf-2...................... Prophylactic Antibiotic Selection 0.97882 1.00000
for Surgical Patients.
SCIP-Inf-3...................... Prophylactic Antibiotics 0.96154 0.99905
Discontinued Within 24 Hours
After Surgery End Time.
SCIP-Inf-4...................... Cardiac Surgery Patients with 0.94799 0.99824
Controlled 6AM Postoperative
Serum Glucose.

[[Page 28086]]

SCIP-Inf-9...................... Urinary Catheter Removed on 0.93333 1.00000
Postoperative Day 1 or
Postoperative Day 2.
SCIP-VTE-2...................... Surgery Patients Who Received 0.94118 0.99938
Appropriate Venous
Thromboembolism Prophylaxes
Within 24 Hours Prior to Surgery
to 24 Hours After Surgery.
----------------------------------------------------------------------------------------------------------------
Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30--AMI.................... Acute Myocardial Infarction (AMI) 0.8477 0.8673
30-Day Mortality Rate.
MORT-30-HF...................... Heart Failure (HF) 30-Day 0.8861 0.9042
Mortality Rate.
MORT-30-PN...................... Pneumonia (PN) 30-Day Mortality 0.8818 0.9021
Rate.
PSI-90.......................... Patient safety for selected 0.4006 0.2754
indicators (composite).
CLABSI.......................... Central Line-Associated Blood 0.442 0.000
Stream Infection.
----------------------------------------------------------------------------------------------------------------
Efficiency Measures
----------------------------------------------------------------------------------------------------------------
MSPB-1.......................... Medicare Spending per Beneficiary. Median Medicare Mean of the lowest
spending per decile of Medicare
beneficiary ratio spending per
across all beneficiary ratios
hospitals during across all
the performance hospitals during
period the performance
period.
----------------------------------------------------------------------------------------------------------------

Proposed Performance Standards for the FY 2015 Hospital VBP Program Patient Experience of Care Domain
----------------------------------------------------------------------------------------------------------------
Achievement
HCAHPS survey dimension Floor threshold Benchmark
(percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses....................................... 49.22 76.28 85.56
Communication with Doctors...................................... 57.31 79.61 88.72
Responsiveness of Hospital Staff................................ 34.83 62.75 78.59
Pain Management................................................. 43.05 69.24 78.24
Communication about Medicines................................... 28.11 60.46 71.72
Hospital Cleanliness & Quietness................................ 40.35 63.79 78.46
Discharge Information........................................... 55.10 83.29 89.60
Overall Rating of Hospital...................................... 29.26 67.73 83.13
----------------------------------------------------------------------------------------------------------------

We welcome public comment on these proposed performance standards.
We are also aware that once the ICD-10-CM/PCS coding transition is
completed, we will be faced with comparing hospitals' performance from
baseline periods coded using ICD-9-CM with performance periods coded
using ICD-10-CM/PCS. We note that constructing performance standards
from such baseline periods could produce unforeseen consequences for
quality measurement and performance scoring. Therefore, we seek
comments on how to fairly compare hospitals' performance on quality
measures when captured in different coding sets.
c. Proposed Performance Standards for FY 2016 Hospital VBP Program
Measures
As described further above, in this proposed rule, we are proposing
to adopt the three 30-day mortality measures and the AHRQ PSI composite
measure for the FY 2016 Hospital VBP Program. We therefore must also
propose performance standards for these measures based on the proposed
baseline periods outlined above. Proposed performance standards for
these measures appear in the table below. We note that the performance
standards displayed below represent estimates based on the most
recently-available data; we will update the standards in the FY 2013
IPPS/LTCH PPS final rule. We also note that the performance standards
for the AHRQ PSI composite measure are calculated with lower values
representing better performance, in contrast to the mortality measures,
on which higher values indicate better performance.

Proposed Performance Standards for FY 2016 Hospital VBP Programs Outcome Domain: Mortality/PSI Composite
Measures
----------------------------------------------------------------------------------------------------------------
Achievement
Measure ID Description threshold Benchmark
----------------------------------------------------------------------------------------------------------------
Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI........................... Acute Myocardial Infarction (AMI) 30-day 0.8477 0.8673
mortality rate.
MORT-30-HF............................ Heart Failure (HF) 30-day mortality rate 0.8861 0.9042

[[Page 28087]]

MORT-30-PN............................ Pneumonia (PN) 30-day mortality rate.... 0.8818 0.9021
PSI-90................................ Patient safety for selected indicators 0.4006 0.2754
(composite).
----------------------------------------------------------------------------------------------------------------

d. Adopting Performance Periods and Standards for Future Program Years
For prior program years, with the exception of the Hospital
Inpatient VBP Program proposed and final rule, we have proposed and
finalized policies for the Hospital VBP Program in the IPPS/LTCH PPS
and OPPS/ASC regulations. However, we do not believe these two
rulemaking vehicles are ideally suited for additional Hospital VBP
proposals. While we are aware that it is convenient for the public when
additional proposals are made in a relatively limited number of
rulemaking vehicles, we are concerned about the limitations that these
regulations' schedules place on our ability to propose and finalize
quality measures, performance periods, and performance standards in a
timely manner.
In order to facilitate quality measure adoption for the Hospital
VBP Program and ensure that hospitals are kept fully aware of the
performance standards to which we intend to hold them accountable and
the performance periods during which their performance will be
measured, we are proposing to update performance periods and
performance standards for future program years via notice on our Web
site or another publicly-available Web site. We would establish future
performance standards for the clinical process of care, outcome, and
patient experience of care measures using the same methodology that we
first finalized in the Hospital Inpatient VBP Program final rule (76 FR
26510 through 26513). We would establish future performance standards
for the Medicare spending per beneficiary measure using the same
methodology that we finalized in the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51654 through 51656). In the case of other types of measures
whose scoring would not be appropriately described by the methodologies
outlined above, we intend to propose and finalize additional scoring
methodologies.
We believe that this proposal will enable us to adopt measures
representing the best in medical practice into the Hospital VBP Program
more quickly and will allow us to establish and announce performance
standards and performance periods when necessary outside the annual
IPPS/LTCH PPS and OPPS/ASC rulemaking schedules. We believe this
flexibility is especially necessary as the Hospital VBP Program
continues to evolve and incorporate new types of quality measures.
We welcome public comment on this proposal.
12. Proposed FY 2015 Hospital VBP Program Scoring Methodology
a. General Hospital VBP Program Scoring Methodology
In the Hospital Inpatient VBP Program final rule, we adopted a
methodology for scoring clinical process of care, patient experience of
care, and outcome measures. As noted in that rule, this methodology
outlines an approach that we believe is well understood by patient
advocates, hospitals, and other stakeholders because it was developed
during a lengthy process that involved extensive stakeholder input, and
was based on a scoring methodology we presented in a report to
Congress. We also noted in that final rule that we had conducted
extensive additional research on a number of other important
methodology issues to ensure a high level of confidence in the scoring
methodology (76 FR 26514). In addition, we believe that, for reasons of
simplicity, transparency, and consistency, it is important to score
hospitals using the same general methodology each year, with
appropriate modifications to accommodate new domains and measures. We
finalized a scoring methodology for the Medicare spending per
beneficiary measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR
51654 through 51656).
For the FY 2015 Hospital VBP Program, we are proposing to use these
same scoring methodologies to score hospital performance. We believe
these scoring methodologies continue to appropriately capture hospital
quality as reflected by the finalized quality measure sets. We also
note that re-adopting the finalized scoring methodology from prior
program years represents the simplest and most consistent policy for
providers and the public.
b. Proposed Domain Weighting for the FY 2015 Hospital VBP Program for
Hospitals That Receive a Score on All Four Proposed Domains
As we stated in the Hospital Inpatient VBP Program final rule (76
FR 26491), we believe that domains need not be given equal weight, and
that over time, scoring methodologies should be weighted more towards
outcomes, patient experience of care, and functional status measures
(for example, measures assessing physical and mental capacity,
capability, well-being and improvement). We took these considerations
into account when developing the domain weighting proposal outlined
below.
As discussed above, we are proposing to add the Efficiency domain
to the Hospital VBP Program beginning with the FY 2015 program.
Therefore, we are proposing the following domain weights for the FY
2015 program for hospitals that receive a score on all four proposed
domains:

Proposed Domain Weights for the FY 2015 Hospital VBP Program for
Hospitals Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
Weight
Domain (percent)
------------------------------------------------------------------------
Clinical Process of Care................................... 20
Patient Experience of Care................................. 30
Outcome.................................................... 30
Efficiency................................................. 20
------------------------------------------------------------------------

We believe this domain weighting appropriately reflects our
priorities for quality improvement in the inpatient hospital setting
and aligns with the National Quality Strategy's priorities. We believe
that the proposed domain weighting will continue to improve the link
between Medicare payments to hospitals and patient outcomes, efficiency
and cost, and the patient experience. We note that the proposed domain
weighting places the strongest relative emphasis on outcomes and the
patient experience, which we view as two critical components of quality
improvement in the inpatient hospital

[[Page 28088]]

setting. We further note that the proposed domain weighting, for the
first time, incorporates a measure of efficiency and continues to
provide substantial weight to clinical processes. We welcome public
comment on this proposed weighting methodology.
c. Proposed Domain Weighting for Hospitals Receiving Scores on Fewer
Than Four Domains
In prior program years, we finalized a policy that hospitals must
have received domain scores on all finalized domains in order to
receive a TPS. However, since the Hospital VBP Program has evolved from
its initial two domains to an expanded measure set with four quality
domains, we considered whether it was appropriate to continue this
policy.
As described further below, we are proposing a higher minimum
number of cases for the three 30-day mortality measures for FY 2015
than was finalized for the FY 2014 program in order to improve these
measures' reliability given the relatively shorter proposed performance
period described above. However, we are concerned that the relatively
higher minimum number of cases could result in a substantially larger
number of hospitals being excluded from the Hospital VBP Program. We
believe that we should make a concerted effort to include as many
hospitals as possible in the Program in order to offer quality
incentives to as many hospitals as possible and encourage quality
improvement as broadly as possible throughout the health care system
while maintaining our focus on measure and scoring reliability.
Therefore, we are proposing that, for the FY 2015 Hospital VBP
Program and subsequent fiscal years, hospitals with sufficient data to
receive at least two domain scores (that is, sufficient cases and
measures to receive a domain score on at least two domains) will
receive a TPS. We also are proposing that, for hospitals with at least
two domain scores, TPSs will be reweighted proportionately to the
scored domains to ensure that the TPS is still scored out of a possible
100 points and that the relative weights for the scored domains remain
equivalent to the proposed weighting outlined above. We believe that
this proposal allows us to include relatively more hospitals in the
Hospital VBP Program while continuing to focus on reliably scoring
hospitals on their quality measure performance.
We welcome public comment on this proposal.
13. Applicability of the Hospital VBP Program to Hospitals
a. Background
Section 1886(o)(1)(C) of the Act specifies how the Hospital VBP
Program applies to hospitals. Specifically, the term ``hospital'' is
defined under section 1886(o)(1)(C)(i) of the Act as a ``subsection (d)
hospital (as defined in section 1886(d)(1)(B [of the Act])).'' Section
1886(o)(1)(C)(ii) of the Act sets forth a list of exclusions to the
definition of the term ``hospital'' with respect to a fiscal year,
including a hospital that is subject to the payment reduction under
section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital IQR Program), a
hospital for which, during the performance period for the fiscal year,
the Secretary has cited deficiencies that pose immediate jeopardy to
the health or safety of patients, a hospital for which there are not a
minimum number of measures that apply to the hospital for the
applicable performance period for the fiscal year, and a hospital for
which there are not a minimum number of cases for the measures that
apply to the hospital for the performance period for the fiscal year.
In addition, section 1886(o)(1)(C)(iv) of the Act states that in
the case of a hospital that is paid under section 1814(b)(3) of the
Act, the Secretary may exempt the hospital from the Hospital VBP
Program if the State submits an annual report to the Secretary
describing how a similar program in the State for a participating
hospital or hospitals achieves or surpasses the measured results in
terms of patient health outcomes and cost savings established under the
Hospital VBP Program. We interpret the reference to section 1814(b)(3)
of the Act to mean those Maryland hospitals that are paid under section
1814(b)(3) of the Act and that, absent the ``waiver'' specified by
section 1814(b)(3) of the Act, would have been paid under the IPPS.
b. Proposed Exemption Request Process for Maryland Hospitals
Acute care hospitals located in the State of Maryland are not
currently paid under the IPPS in accordance with a special waiver
provided by section 1814(b)(3) of the Act. In the Hospital Inpatient
VBP Program final rule (76 FR 26527 through 26530), we finalized our
policy that the Hospital VBP Program would apply to acute care
hospitals located in the State of Maryland unless the Secretary
exercises discretion pursuant to section 1886(o)(1)(C)(iv) of the Act.
We also finalized a procedure for the State to submit a report pursuant
to section 1886(o)(1)(C)(iv) of the Act in a timeframe that would allow
it to be received no later than October 1, 2011, which is the beginning
of the fiscal year prior to FY 2013.
We received an FY 2013 exemption request from the Maryland Health
Services Cost Review Commission (MHSCRC) on September 30, 2011 and the
Secretary approved the exemption request in December 2011. This report
included a discussion on how the state program achieved or surpasses
the measured results in terms of patient health outcomes and cost
savings established under the Hospital VBP Program. When evaluating the
MHSCRC's request, we considered the relevant health outcomes for the
State's hospitals as described in the MHSCRC's request and noted that
they achieve or surpass the current national results for Hospital VBP
FY 2013 clinical process of care and HCAHPS dimensions. We also
assessed closely-related clinical outcomes as measured by quality data
reported through the Hospital IQR Program. For the FY 2013 Hospital VBP
Program, however, we did not assess the criterion ``cost savings'' as
required by the statute, as the FY 2013 Hospital VBP Program does not
use any efficiency measures and is a budget-neutral program pursuant to
section 1886(o)(7)(A) of the Act. Maryland hospitals are therefore
exempt from the FY 2013 Hospital VBP Program.
Beginning with the FY 2014 program, we are proposing to adopt a new
procedure for submission of the report in order for a hospital within
the State to be exempt from the Hospital VBP Program. Under this
proposed procedure, if the State seeks an exemption with respect to a
particular program year, it would need to submit a report that meets
the requirements of section 1886(o)(1)(C)(iv) of the Act in a timeframe
that allows it to be received by the Secretary on or before November 15
prior to the effective fiscal year (for example, the report seeking an
exemption from the FY 2014 program would have to be received by the
Secretary no later than November 15, 2012). We anticipate notifying the
State, as well as each hospital for which the State has requested an
exemption, of our decision whether to grant the request no later than
90 days following the exemption request deadline.
We will evaluate each exemption request to see if the State has
demonstrated that it has implemented a similar program for
participating hospitals that achieves or surpasses the measured results
in terms of patient health outcomes and cost savings relative to the
Hospital VBP Program.

[[Page 28089]]

We welcome public comment on our proposals.
14. Proposed Minimum Numbers of Cases and Measures for the FY 2015
Hospital VBP Program
a. Background
Section 1886(o)(1)(C)(ii)(III) of the Act requires the Secretary to
exclude for the fiscal year hospitals that do not report a minimum
number (as determined by the Secretary) of measures that apply to the
hospital for the performance period for the fiscal year. Section
1886(o)(1)(C)(ii)(IV) of the Act requires the Secretary to exclude for
the fiscal year hospitals that do not report a minimum number (as
determined by the Secretary) of cases for the measures that apply to
the hospital for the performance period for the fiscal year.
In the Hospital Inpatient VBP Program final rule (76 FR 26527
through 26531), we finalized minimum numbers of 10 cases and 4 measures
in the clinical process of care domain and 100 completed HCAHPS surveys
for the patient experience of care domain. In the CY 2012 OPPS/ASC
final rule with comment period (76 FR 74532 through 74534), we
finalized a minimum number of 10 cases for the three 30-day mortality
measures. We also finalized a minimum number of 2 measures with respect
to the Outcome domain. In both rules, we finalized a policy that
hospitals must have sufficient cases and measures in all domains in
order to receive a TPS.
b. Proposed Minimum Numbers of Cases and Measures for the FY 2015
Outcome Domain
As described further above, we are proposing a 9-month performance
period for the three 30-day mortality measures for the FY 2015 Hospital
VBP Program. We have reassessed the previously finalized 10 case
minimum threshold for the three 30-day mortality measures (76 FR 74533
through 74534), as well as reexamining the independent analyses by
Brandeis University and Mathematica Policy Research, when considering
these three measures' proposed addition. We recognize that the proposed
9-month performance period for these measures would increase the number
of hospitals with insufficient cases on the measure (that is, between
10 and 24) to several hundred hospitals, based on past information. We
believe that this proposal fulfills our intent to link patient outcomes
with payment, relative to reliability and seasonality concerns from
using a 9-month performance period.
In order to ensure that the mortality measure scores remain
sufficiently reliable, we are proposing to adopt a 25-case minimum for
the three 30-day mortality measures for FY 2015. We believe that this
proposal will ensure relatively more reliable measure data than could
be obtained with the 10-case minimum as has been finalized for FY 2014
given the relatively shorter proposed performance period. As described
above, while this may result in fewer hospitals receiving scores on the
mortality measures, we have proposed to reallocate domain weighting for
hospitals with fewer domain scores than the total number of finalized
domains. By doing so, we believe we are appropriately allowing as many
hospitals as possible to participate in the Hospital VBP Program while
also ensuring reliable quality measure and quality domain data.
We note that this proposed minimum number of cases is higher than
has been finalized for other types of measures such as clinical process
of care measures. However, we note that clinical process of care
measures are not risk-adjusted and are not outcome-based. Because those
measures do not require statistical adjustment to estimate hospital-
specific differences in case mix, we believe that the relatively
smaller case minimum is acceptable for clinical process of care
measures.
For the AHRQ PSI composite measure, we are proposing to adopt
AHRQ's methodology, which uses three cases for any of the underlying
indicators as a case minimum. For the CLABSI measure, we are proposing
to adopt CDC's minimum case criteria, which calculates a standardized
infection ratio for a hospital on the CLABSI measure if the hospital
has 1 predicted infection during the applicable period. We believe that
the measure stewards' methodologies for constructing reliable measure
data are most appropriate for use in the Hospital VBP Program. Further
information on these measures may be found on the QualityNet Web site.
In the CY 2012 OPPS/ASC final rule with comment period, we
concluded based on an independent analysis that the minimum number of
measures that a hospital must report in order to receive a score on the
outcome domain is two measures. We continue to believe that this
minimum number is appropriate for the expanded outcome domain because
adding measure scores beyond the minimum number of measures has the
effect of enhancing the domain score's reliability. For that reason, we
are proposing to adopt it for the FY 2015 Hospital VBP Program.
We welcome public comment on these proposals.
c. Proposed Medicare Spending per Beneficiary Measure Case Minimum
As required by section 1886(o)(1)(C)(iii) of the Act, we obtained
an independent analysis to help us determine the appropriate minimum
number of cases for the Medicare spending per beneficiary measure. For
this measure, we are proposing to interpret the term ``case'' in
section 1886(o)(1)(C)(ii)(IV) of the Act as a Medicare spending per
beneficiary episode. A Medicare spending per beneficiary episode is
inclusive of all Part A and Part B payments from 3 days prior to a
subsection (d) hospital admission through 30 days post discharge with
certain adjustments and exclusions. The independent analysis examines
the tradeoff between: Increasing the minimum number of episodes, which
shrinks the confidence interval; and reducing the minimum number of
episodes, which widens the confidence interval but enables more
hospitals to receive a Medicare spending per beneficiary measure score.
Because the distribution of Medicare spending per beneficiary episodes
is skewed towards higher cost episodes, creating confidence intervals
using statistical techniques that assume spending is normally and
symmetrically distributed will not accurately describe the likelihood a
hospital's true efficiency level falls within the confidence interval
bounds.
To account for these statistical issues, the independent analysis
uses a simulation-based (``non-parametric bootstrap'') methodology to
measure how the confidence interval of the Medicare spending per
beneficiary measure changes when the minimum episode threshold
increases. Medicare spending per beneficiary is measured for an
``average'' hospital, where the ``average'' hospital case is considered
one with a Medicare spending per beneficiary episode distribution that
mimics that of the entire population of Medicare spending per
beneficiary episodes. This methodology simulates the process of
randomly drawing Medicare spending per beneficiary episodes from the
population, and thus approximates the actual shape of the Medicare
spending per beneficiary measure distribution from which confidence
intervals are determined. By repeatedly calculating (in this case,
10,000 times for each minimum episode threshold) a Medicare spending
per beneficiary measure for this simulated hospital under differing
assumptions on the number of episodes observed, one

[[Page 28090]]

can create a confidence interval for the Medicare spending per
beneficiary measure of this ``average'' hospital. The upper and lower
bounds of the 95 percent confidence interval indicates that 95 percent
of the time, the hospital's Medicare spending per beneficiary measure
will fall within this range when the minimum number of cases (the
minimum episode threshold) is set at different levels. As the minimum
episode threshold increases, the width of the confidence interval
becomes narrower, but the number of hospitals receiving a Medicare
spending per beneficiary measure score decreases.
In developing our proposal, we considered two options for setting
the minimum number of cases for the Medicare spending per beneficiary
measure: (1) Setting the minimum number of cases at 25; and, (2)
setting the minimum number of cases at 50.
We focused on these minimums because we believe that either of them
provides a sufficiently narrow range at the 95 percent confidence
interval. The independent analysis concludes that if the minimum number
of cases is set at 25, then 95 percent of the time a hospital with an
average underlying efficiency level (that is, 1.0) would receive an
Medicare spending per beneficiary measure score between 0.81 and 1.23.
Further, a minimum number of 25 cases would enable 97.8 percent of
hospitals to receive a Medicare spending per beneficiary measure score,
based on historical data. The analysis also showed that the alternative
minimum of 50 cases would result in a 95 percent confidence interval
range of 0.86 to 1.16 and would enable 95.9 percent of hospitals to
receive a Medicare spending per beneficiary measure score, based on
historical data.
After considering the options outlined above, we are proposing to
use 25 as the minimum number of cases required in order to receive a
score for the Medicare spending per beneficiary measure. We believe
that using a minimum number of 25 cases achieves an appropriate balance
of our interest in allowing the maximum possible number of hospitals
the opportunity to receive a score on the Medicare spending per
beneficiary measure and maintaining a sufficiently narrow range for the
95 percent confidence interval. Additionally, although we are proposing
to use a minimum of 25 cases for the Medicare spending per beneficiary
measure, we also seek comment on whether using a minimum of 50 cases
better reaches our goal of maintaining a meaningful measure of Medicare
spending across hospitals.
15. Immediate Jeopardy Citations
Under section 1886(o)(1)(C)(ii)(II) of the Act, a hospital is
excluded from the Hospital VBP Program if it has been cited by the
Secretary during the performance period for deficiencies that pose
immediate jeopardy to the health or safety of patients. In the Hospital
Inpatient VBP Program final rule (76 FR 26528 through 26530), we
finalized our interpretation of this provision to mean that any
hospital that we cite through the Medicare State Survey and
Certification process for deficiencies during the performance period
that pose immediate jeopardy to patients will be excluded from the
Hospital VBP Program for the fiscal year. We also finalized our
proposal to use the definition of the term ``immediate jeopardy'' that
appears in 42 CFR 489.3.
In proposed Sec. 412.160 we are proposing to define ``immediate
jeopardy'' in the same way as that term is defined in 42 CFR Part 489,
which governs provider agreements and supplier approval. We believe
that the language in section 1886(o)(1)(C)(ii)(II) of the Act referring
to a hospital having been ``cited'' for deficiencies posing an
immediate jeopardy is a reference to the process by which CMS, through
agreements with State survey agencies, surveys or inspects hospitals
for compliance with the hospital conditions of participation at 42 CFR
Part 482 or Emergency Medical Treatment and Labor Act (EMTALA)
regulations at Sec. 489.24, and issues deficiency citations for non-
compliance with Federal health, safety and quality standards. The
survey process is governed by provisions found in 42 CFR Part 488,
Survey, Certification and Enforcement Procedures. Further, provisions
at 42 CFR Part 489, Provider Agreements and Supplier Approval, define
the term ``immediate jeopardy'' at Sec. 489.3; authorize us at Sec.
489.53(a)(3) to terminate the Medicare provider agreement for the
hospital's failure to meet the conditions of participation; authorize
us at Sec. 489.53(b) to terminate the Medicare provider agreement of a
hospital that fails to meet the EMTALA regulatory requirements; and
provide at Sec. 489.53(d)(2)(i) for a shortened advance notice to the
public of the termination when a hospital with an emergency department
is in violation of EMTALA requirements and the violation poses
immediate jeopardy. Therefore, we believe that the term ``immediate
jeopardy'' should be defined in our Hospital VBP Program regulations in
the same manner as it is defined for the purpose of survey,
certification, enforcement, and termination procedures.
In Sec. 412.160, we are proposing to define the phrase ``cited for
deficiencies that pose immediate jeopardy.'' We are proposing a
definition in order to avoid potential ambiguities about the terms
``cited'' and ``deficiencies.'' There are several ways in which a
hospital might be found to have an immediate jeopardy situation.
Appendix Q of the State Operations Manual (SOM), Pub. No. 100-07,
provides guidance to the State survey agencies on our policies
concerning the identification and citation of immediate jeopardy and
subsequent enforcement actions. The most common way in which an
immediate jeopardy situation is identified is when a surveyor or team
of surveyors is in the process of conducting a survey at the hospital
and accurately identifies those situations which immediately jeopardize
the health and safety of patients. Surveyors may be expected, according
to State protocols, to consult immediately with their supervisors
before declaring an immediate jeopardy, and in cases involving
hospitals deemed to meet the conditions of participation based on their
accreditation, the State must first consult with the CMS Regional
Office (RO).
Once an immediate jeopardy is declared, the hospital's management
is informed and expected to take steps to remove the immediate
jeopardy, preferably before the survey team concludes the on-site
portion of its survey. If the hospital does not remove the immediate
jeopardy while the survey team is on-site, it has 23 days to submit an
acceptable plan of correction and have an onsite follow-up survey to
confirm removal. If the hospital fails to remove the immediate jeopardy
in a timely manner, we may terminate the hospital's Medicare provider
agreement. There are also situations where a survey team does not
declare an immediate jeopardy while on-site, but a subsequent
supervisory or CMS RO review of the survey team's findings identifies
an immediate jeopardy situation that should have been declared. In such
cases, the hospital is promptly advised of the immediate jeopardy and
given 23 days to submit an acceptable plan of correction and have an
onsite follow-up survey to confirm removal of the immediate jeopardy.
It can also happen that a supervisory or CMS RO review will conclude
that the survey documentation does not support a finding of an
immediate jeopardy, and in such cases no official immediate jeopardy
citation will be issued.
It should be noted that removal of an immediate jeopardy is not
necessarily the same as correction of the hospital's

[[Page 28091]]

noncompliance deficiencies. Removal may be accomplished by an interim
measure while the hospital works to create a systematic and permanent
correction of its deficient practices.
The Form CMS-2567, Statement of Deficiencies and Plan of
Correction, is issued after each survey of a hospital, even if only to
indicate that no deficiencies were found during the survey (SOM Section
2728 and SOM Exhibit 7A, Principles of Documentation, Principle
1). The CMS-2567 form constitutes the official notice to a
healthcare facility of the survey findings. Statements made by
surveyors to the facility while they are on-site are always preliminary
in nature. After surveyors have exited the facility, they prepare the
Form CMS-2567 based on their observations and survey documentation.
Their draft Form CMS-2567 is then subjected to a supervisory review
and, in the case of hospitals that are deemed to meet the conditions of
participation via accreditation and are being cited for serious
noncompliance (that is, condition-level or immediate jeopardy
citation), a CMS RO review. The Form CMS-2567 is not considered final
until it is transmitted to the healthcare facility, either by the State
survey agency or, in certain cases, the CMS RO.
In the case of a survey where an immediate jeopardy situation was
found, the Form CMS-2567 must state that the facility was found to have
immediate jeopardy. This is the case regardless of whether the
immediate jeopardy was removed while the survey team was still on-site
at the facility, although on-site removal will be noted if it occurred.
Furthermore, it is standard survey practice to cite on the Form CMS-
2567 all noncompliance deficiencies identified during a survey even
when the healthcare facility corrects those deficiencies after they
have been identified by a surveyor, but before the survey team exits
the facility (SOM Exhibit 7A, Principles of Documentation, Principle
4).
We considered whether it would be reasonable to treat only those
hospitals that failed to remove immediate jeopardy while a survey team
was still on-site as having been ``cited for an immediate jeopardy''
solely for the purposes of the Hospital VBP Program. However, we
concluded that this would not be equitable, since there are cases where
an immediate jeopardy is identified after the survey team has left the
hospital through a supervisory or CMS RO review, as described above. We
also concluded this approach would not be consistent with the statutory
requirement given that the Form CMS-2567 is the official notice to a
healthcare facility of deficiencies found during a survey and in light
of the fact that CMS includes references to the identification of an
immediate jeopardy on the CMS-2567, regardless of when or if it was
removed by the facility. We have, therefore, concluded that
``citation'' of an immediate jeopardy within the context of the
Hospital VBP Program means the identification of an immediate jeopardy
noted on the CMS-2567 that is issued to the hospital after a survey.
We also note that section 1886(o)(1)(C)(ii)(II) of the Act refers
to the citation of plural ``deficiencies'' that pose immediate jeopardy
and that this requires interpretation of its application to the
Hospital VBP Program. We use an Automated Survey Processing Environment
(ASPEN) system to catalog deficient practices identified during a
survey and to generate the CMS-2567 that is issued to the hospital
after the survey. To facilitate processing in the ASPEN system, we have
subdivided the regulations applicable to each type of certified
healthcare facility into specific ``tags,'' each one of which has
corresponding interpretive guidelines in the applicable appendix of the
SOM. Hospital tags are found in Appendix A. The ASPEN system also
differentiates between ``condition'' and ``standard'' tags for non-long
term care enforcement, since it is essential to know whether or not
identified noncompliance is found at the condition-level, that is,
whether it is considered substantial noncompliance. Each hospital
condition of participation has its own condition tag. There are also a
varying number of ``standard'' tags within each condition. The number
of standard tags identified in the SOM Appendix does not correspond to
the number of individual ``standards'' required in the regulations;
usually there are more tags than standards, because standards may
involve multiple items or requirements under specific conditions of
participation that lend themselves to separate evaluation.
While we understand that each tag identified in a CMS-2567 may be
viewed as a separate deficiency, we also recognize that the division of
the regulations for each ``condition'' and ``standard'' into individual
tags was to facilitate the survey and certification process for
surveyors. Moreover, in general a set of documented deficient practices
that constitute immediate jeopardy would be cited at least in two tags,
since there must be a citation at the condition-level to indicate
substantial noncompliance, along with citation of any pertinent
standard-level tags, which are subsets of the condition tags. We do not
believe it was the intent of the statute to count each of these tags
related to the same set of circumstances or practices as separate
deficiencies under the Hospital VBP Program.
We have concluded, therefore, that a more reasonable interpretation
of the Hospital VBP statute is to view each hospital survey for which
the CMS-2567 form cited immediate jeopardy as a deficiency. Thus, a
hospital would have to have been cited on a CMS-2567 for immediate
jeopardy on at least two surveys during the performance period in order
to be considered as having multiple deficiencies that pose immediate
jeopardy. Accordingly, we are proposing to define in our regulations
the term ``cited for deficiencies that pose immediate jeopardy'' under
the Hospital VBP Program as meaning that, during the applicable
performance period, the hospital had more than one survey for which it
was cited for an immediate jeopardy on the Form CMS-2567, Statement of
Deficiencies and Plan of Correction.
As required by the statute, hospitals cited during the performance
period for multiple deficiencies that pose immediate jeopardy to the
health or safety of patients would be excluded from the Hospital VBP
Program for the applicable fiscal year. Because we sometimes adopt
different performance periods for different measures for purposes of
the same program year, we are proposing to exclude hospitals cited for
such deficiencies during any of the finalized performance periods for
the applicable program year for purposes of that interpretation.
We welcome public comment on this interpretation of the immediate
jeopardy exclusion and on our proposals.

D. Long-Term Care Hospital Quality Reporting (LTCHQR) Program

1. Statutory History
In accordance with section 1886(m)(5) of the Act, as added by
section 3004 of the Affordable Care Act, the Secretary established the
Long-Term Care Hospital Quality Reporting (LTCHQR) Program. Under the
LTCHQR Program, for rate year 2014 and each subsequent rate year, in
the case of a long-term care hospital (LTCH) that does not submit data
to the Secretary in accordance with section 1886(m)(5)(C) of the Act
with respect to such a rate year, any annual update to a standard
Federal rate for discharges for the hospital during the rate year, and
after application of section 1886(m)(3) of the Act, shall be reduced by
two percentage points.

[[Page 28092]]

Section 1886(m)(5)(D)(iii) of the Act requires the Secretary to
publish the selected measures for the LTCHQR Program that will be
applicable with respect to FY 2014 no later than October 1, 2012.
Under section 1886(m)(5)(D)(i) of the Act, the quality measures for
the LTCHQR Program are measures selected by the Secretary that have
been endorsed by an entity that holds a contract with the Secretary
under section 1890(a) of the Act, unless an exception under section
1886(m)(5)(D)(ii) of the Act applies. This contract is currently held
by the National Quality Forum (NQF). Section 1886(m)(5)(D)(ii) of the
Act provides that an exception may be made 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 entity
that holds a contract with the Secretary under section 1890(a) of the
Act. In such a case, section 1886(m)(5)(D)(ii) of the Act authorizes
the Secretary to specify a measure(s) 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. The
LTCHQR Program was implemented in section VII.C. of the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51743 through 51756).
2. LTCH Program Measures for the FY 2014 Payment Determination and
Subsequent Fiscal Years Payment Determinations
a. Proposed Process for Retention of LTCHQR Program Measures Adopted in
Previous Payment Determinations
For the LTCHQR Program, we are proposing that once a quality
measure is adopted, it is retained for use in subsequent fiscal year
payment determinations, unless otherwise stated. For the purpose of
streamlining the rulemaking process, we are proposing that when we
initially adopt a measure for the LTCHQR Program for a payment
determination, this measure is automatically adopted for all subsequent
payment determinations or until we propose to remove, suspend, or
replace the measure. Quality measures may be considered for removal by
CMS if: (1) Measure performance among LTCHs is so high and unvarying
that meaningful distinctions in improvements in performance can be 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) a more broadly applicable
measure (across settings, populations, or conditions) for the
particular topic is available; (5) a measure that is more proximal in
time to desired patient outcomes for the particular topic is available;
(6) if a measure that is more strongly associated with desired patient
outcomes for the particular topic is available; or (7) collection or
public reporting of a measure leads to negative unintended consequences
other than patient harm. For any such removal, the public will be given
a chance to comment through the annual rulemaking process. However, if
there is reason to believe continued collection of a measure raises
potential safety concerns, we will take immediate action to remove the
measure from LTCHQR Program and not wait for the annual rulemaking
cycle. Such measures will be promptly removed with LTCHs and the public
being immediately notified of such a decision through the usual LTCHQR
Program communication channels, including listening session, memos,
email notification, and Web posting and their removal formally
announced in the next annual rulemaking cycle.
We are inviting public comment on our proposal that once a quality
measure is adopted, it is retained for use in the subsequent fiscal
year payment determinations unless otherwise stated.
b. Proposed Process for Adoption of Changes to LTCHQR Program Measures
As mentioned previously, quality measures selected for the LTCHQR
Program must be endorsed by the NQF unless they meet the statutory
criteria for exception. The NQF is a voluntary consensus standard-
setting organization with a diverse representation of consumer,
purchaser, provider, academic, clinical, and other healthcare
stakeholder organizations. The NQF was established to standardize
healthcare quality measurement and reporting through its consensus
development process (http://www.qualityforum.org/About_NQF/Mission_and_Vision.aspx). The NQF undertakes review of: (a) New quality
measures and national consensus standards for measuring and publicly
reporting on performance, (b) regular maintenance processes for
endorsed quality measures, (c) measures with time limited endorsement
for consideration of full endorsement, and (d) ad hoc review of
endorsed quality measures, practices, consensus standards, or events
with adequate justification to substantiate the review (http://www.qualityforum.org/Measuring_Performance/Ad_Hoc_Reviews/Ad_Hoc_Review.aspx).
The NQF solicits information from measure stewards for annual
reviews and in order to review measures for continued endorsement in a
specific 3-year cycle. In this measure maintenance process, the measure
steward is responsible for updating and maintaining the currency and
relevance of the measure and for confirming existing specifications to
NQF on an annual basis. As part of the ad hoc review process, the ad
hoc review requester and the measure steward are responsible for
submitting evidence for review by a NQF Technical Expert panel which,
in turn, provides input to the Consensus Standards Approval Committee
which then makes a decision on endorsement status and/or specification
changes for the measure, practice, or event.
Through NQF's measure maintenance process, NQF-endorsed measures
are sometimes updated to incorporate changes that we believe do not
substantially change the nature of the measure. Examples of such
changes could be updated diagnosis or procedure codes, changes to
exclusions to the patient population, definitions, or extension of the
measure endorsement to apply to other settings. We believe these types
of maintenance changes are distinct from more substantive changes to
measures that result in what are considered new or different measures,
and that they do not trigger the same agency obligations under the
Administrative Procedure Act. In this proposed rule, we are proposing
that if the NQF updates an endorsed measure that we have adopted for
the LTCHQR Program in a manner that we consider to not substantially
change the nature of the measure, we would use a subregulatory process
to incorporate those updates to the measure specifications that apply
to the program. Specifically, we would revise the LTCH Quality
Reporting Manual so that it clearly identifies the updates and provide
links to where additional information on the updates can be found. We
would also post the updates on our LTCH Quality Reporting Web site at:
http://www.cms.gov/LTCH-Quality-Reporting/. We would provide sufficient
lead time for LTCH to implement the changes where changes to the data
collection systems would be necessary.
We would continue to use the rulemaking process to adopt changes to
measures that we consider to substantially change the nature of the
measure. We believe that this proposal adequately balances our need to
incorporate NQF updates to NQF-endorsed LTHCQR Program measures in

[[Page 28093]]

the most expeditious manner possible, while preserving the public's
ability to comment on updates that so fundamentally change an endorsed
measure that it is no longer the same measure that we originally
adopted. We invite public comment on this proposal.
3. Proposals for the FY 2014 LTCHQR Program
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through
51756), we adopted three quality measures for the FY 2014 payment
determination as listed in the following table:

Previously Finalized Quality Measures for the FY 2014 Payment
Determination
------------------------------------------------------------------------

------------------------------------------------------------------------
NQF 0138............ Urinary Catheter[dash]Associated Urinary
Tract Infection [CAUTI] rate per 1,000
urinary catheter days, for Intensive
Care Unit [ICU] Patients.
NQF 0139............ Central Line Catheter-Associated Blood
Stream Infection (CLABSI) Rate for ICU
and High-Risk Nursery (HRN) Patients.
NQF 0678............ Percent of Residents with Pressure Ulcers
That are New or Worsened (Short-Stay).
------------------------------------------------------------------------

The three measures finalized for FY 2014 payment determination were
NQF-endorsed at the time, although not for the LTCH setting. We also
stated that we expected the NQF would review some of these measures for
applicability to the LTCH setting and we anticipated this review might
result in modifications to one or more of the measures.
As part of its endorsement maintenance process, under NQF's Patient
Safety Measures Project (http://www.qualityforum.org/projects/patient_safety_measures.aspx), the NQF reviewed the CAUTI and CLABSI measures
previously adopted and expanded the scope of endorsement to include
additional care settings, including LTCHs. The original NQF-endorsed
numbers were retained for these two expanded measures, but the measures
were retitled to reflect the expansion of the scope of endorsement:
0138 Urinary Catheter-Associated Urinary Tract Infection
[CAUTI] Rate Per 1,000 Urinary Catheter Days, for Intensive Care Unit
[ICU] Patients is now titled National Health Safety Network (NHSN)
Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure and
0139 (Central Line Catheter-Associated Blood Stream Infection
[CLABSI] Rate for ICU and High-Risk Nursery (HRN) Patients is now
titled National Health Safety Network (NHSN) Central-Line Associated
Blood Stream Infection (CLABSI) Outcome Measure (http://www.qualityforum.org/News_And_Resources/Press_Releases/2012/NQF_Endorses_Patient_Safety_Measures.aspx).
These expanded measures allow for the calculation of a standardized
infection ratio (SIR).\120,121,122,123\ For the remainder of this
proposed rule, we refer to these measures as the CAUTI measure and
CLABSI measure, respectively. We are proposing to adopt the changes to
the NQF-endorsed CAUTI and CLABSI measures that we previously finalized
for the FY 2014 payment determination, consistent with our stated
intention to update these measures with changes resulting from NQF's
review of the measures. Further, we are proposing to adopt the NQF-
endorsed CAUTI measure and CLABSI measure for the FY 2015 payment
determination and all subsequent fiscal year payment determinations. We
also are proposing to incorporate any future changes to the CAUTI
measure and CLABSI measure to the extent these changes are consistent
with our proposal in section VIII.D.2.b. of this preamble to update
measures.
---------------------------------------------------------------------------

\120\ Centers for Disease Control and Prevention. (2012,
January). Central Line-Associated Bloodstream Infection (CLABSI)
Event. Retrieved from http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf.
\121\ National Quality Forum (2012). National Healthcare Safety
Network (NHSN) Central line-associated Bloodstream Infection
(CLABSI) Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0139.
\122\ Centers for Disease Control and Prevention. (2012,
January). Catheter Associated Urinary Tract Infection Event.
Retrieved from: http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf.
\123\ National Quality Forum (2012). National Healthcare Safety
Network (NHSN) Catheter Associated Urinary Tract Infection (CAUTI)
Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0138.
---------------------------------------------------------------------------

We are proposing to retain the measure Percent of Residents with
Pressure Ulcers that are New or Worsened (Short-Stay) (NQF
0678), as finalized in the FY 2012 IPPS/LTCH PPS final rule
for the FY 2014 payment determination, for FY 2015 and all subsequent
fiscal year payment determinations. We also note that the Percent of
Residents with Pressure Ulcers that are New or Worsened (Short-Stay)
(NQF 0678) measure is undergoing NQF review for expansion in
the scope of endorsement to include additional care settings, including
LTCHs and, to the extent that the measure is updated in a manner that
does not substantially change the nature of the measure, we would
incorporate the updates consistent with our previous proposal to update
measures. For the remainder of this proposed rule, we refer to this
measure as the Pressure Ulcer measure. For more information on the
history of this measure in the LTCHQR Program, we refer readers to the
FY 2012 IPPS/LTCH PPS final rule (76 FR 51753 through 51756).
We invite public comment on our proposal to adopt the revised CAUTI
measure (NQF 0138) and CLABSI measure (NQF 0139)
beginning with the FY 2014 payment determination. We also invite public
comment to retain the Pressure Ulcer measure (NQF 0678) (which
was finalized last year for the FY 2014 payment determination) for the
FY 2015 payment determination and subsequent fiscal year payment
determinations, as shown in the following table.

Proposed Quality Measures To Be Retained for the FY 2014 and Subsequent
Fiscal Year Payment Determinations
------------------------------------------------------------------------

------------------------------------------------------------------------
NQF 0138............ National Health Safety Network (NHSN)
Catheter Associated Urinary Tract
Infection (CAUTI) Outcome Measure.
NQF 0139............ National Health Safety Network (NHSN)
Central Line Associated Blood Stream
Infection (CLABSI) Outcome Measure.
NQF 0678............ Percent of Residents with Pressure Ulcers
That are New or Worsened (Short-Stay).
------------------------------------------------------------------------

[[Page 28094]]

We are proposing to use the same data collection and submission
methods finalized for these measures (CAUTI, CLABSI and Pressure Ulcer)
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51752 through 51756). We
are proposing that data collection for these measures, if they be
adopted in the FY 2013 IPPS/LTCH PPS final rule, remain the same for FY
2014 payment determination and all subsequent fiscal year payment
determination.
For the proposed CAUTI measure and CLABSI measure, the measure
specifications are available on the NQF Web site at: http://www.qualityforum.org/QPS/0138 and http://www.qualityforum.org/QPS/0139,
respectively. The data collection and reporting requirements for CAUTI
and CLABSI are available at http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf and http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, respectively.
For the Pressure Ulcer measure, the data collection instrument is
the Long-Term Care Hospital (LTCH) Continuity Assessment Record &
Evaluation (CARE) Data Set available for download at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.\124\
Because there are no mandatory standardized data sets being used in
LTCHs, we created a new data set, the LTCH CARE Data Set, for use in
LTCHs for data reporting for the Pressure Ulcer measure beginning
October 1, 2012. This data set incorporates data items contained in
other, standardized and clinically established pressure ulcer data
sets, including but not limited to the Minimum Data Set 3.0 (MDS 3.0)
and CARE data set (Continuity Assessment Records & Evaluation).
Beginning on October 1, 2012, LTCHs will begin to use a data collection
document entitled the ``LTCH CARE Data Set'' as the vehicle by which to
collect the data for the Pressure Ulcer measure for the LTCHQR Program.
This data set consists of the following components: (1) Pressure ulcer
documentation; (2) selected covariates related to pressure ulcers; (3)
patient demographic information; and; (4) a provider attestation
section.
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\124\ The LTCH CARE Data Set, the data collection instrument
that will be used to submit data on this measure, is currently under
Paperwork Reduction Act (PRA) review by the Office of Management and
Budget. It is discussed in a PRA notice that appeared in the
September 2, 2011 Federal Register (76 FR 54776). The file number
for the LTCH PRA package is CMS-10409.
---------------------------------------------------------------------------

The measure specifications for the LTCH CARE Data Set are available
on our Web site for the LTCHQR Program at http://www.cms.gov/LTCH-Quality-Reporting/. The LTCH CARE Data Set Technical Specifications
Draft Version 1.00.1 for the Pressure Ulcer measure are available at
the LTCH Quality Reporting Technical Information Web page http://www.cms.gov/LTCH-Quality-Reporting/05_LTCHTechnicalInformation.asp#TopOfPage.
For detailed discussions of the history of the LTCHQR Program,
including the statutory authority and further details on the three
measures previously finalized for FY 2014 payment determination, we
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51743
through 51756). We have reproduced portion of the data collection and
submission timeline finalized for FY 2014 payment determination in the
FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through 51756) in the
following table.

Timeline for Submission of Data for the LTCHQR Program FY 2014 Payment
Determination
------------------------------------------------------------------------
Final submission deadline
for data related to the
Data collection timeframe: calendar year LTCH quality reporting
(CY) 2012 program FY 2014 payment
determination
------------------------------------------------------------------------
Q4 (October 1-December 31, 2012).......... May 15, 2013.
------------------------------------------------------------------------

We refer readers to section VIII.D.5. of this preamble for the
proposed timeline for data submission under the LTCHQR Program for the
FY 2015 payment determination.
4. Proposed LTCHQR Program Quality Measures for the FY 2016 Payment
Determinations and Subsequent Fiscal Years Payment Determinations
a. Considerations in Updating and Expanding Quality Measures under
the LTCHQR Program for FY 2016 and Subsequent Payment Update
Determinations
We believe that development of a LTCHQR Program that is successful
in promoting the delivery of high quality healthcare services in LTCHs
is paramount. We seek to adopt measures for the LTCHQR Program that
promote better, safer, and more efficient care. Our measure development
and selection activities for the LTCHQR Program take into account
national priorities, such as those established by the National
Priorities Partnership (http://www.nationalprioritiespartnership.org/),
HHS Strategic Plan (http://www.hhs.gov/secretary/about/priorities/priorities.html), and the National Strategy for Quality Improvement in
Healthcare (http://www.healthcare.gov/center/reports/quality03212011a.html). To the extent practicable, we have sought to
adopt measures that 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.
In addition, we consider input from the multi-stakeholder group,
the Measures Application Partnership (MAP) (http://www.qualityforum.org.map/), in selecting measures for the LTCHQR
program. Section 1890A(a)(1) of the Act, as added by section 3014(a) of
the Affordable Care Act, requires the entity with a contract under
section 1890(a) of the Act, currently NQF, to convene multi-stakeholder
groups to provide input to the Secretary on the selection of quality
and efficiency measures. Section 1890A(a)(3) of the Act, as added by
section 3014(b) of the Affordable Care Act, further requires the entity
with a contract under section 1890(a) of the Act to transmit the input
of the multistakeholder groups to the Secretary not later than February
1 of each year, beginning in 2012. Section 1890A(a)(4) of the Act
requires the Secretary to take into consideration the input of the
multi-stakeholder groups in selecting quality and efficiency measures.
The MAP is the public-private partnership comprised of multi-
stakeholder groups convened by the NQF for the primary purpose of
providing input on measures as required by section 1890A(a)(3) of the
Act. The MAP's input on quality and efficiency measures was transmitted
to the Secretary and is available at (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885). As required by
section 1890A(a)(4) of the Act, we considered the MAP's recommendations
in selecting quality and efficiency measures for the LTCHQR Program.
b. Proposed New LTCHQR Program Quality Measures Beginning with the
FY 2016 Payment Determination
For the FY 2016 payment determination and subsequent fiscal year
payment determinations, in addition to retaining the three previously
discussed measures (CAUTI measure, CLABSI measure and Pressure Ulcer
measure), we are proposing to adopt five additional quality measures
for the LTCHQR Program, see table below. Our proposal to add these five
measures is part of our effort to promote overarching health care aims
and goals in an effective and meaningful manner.

[[Page 28095]]

We also seek to minimize the burden of data collection for LTCHs.

Proposed New Quality Measures for the FY 2016 LTCHQR Program Payment
Determination and Subsequent Payment Determinations
------------------------------------------------------------------------
NQF measure ID Measure title
------------------------------------------------------------------------
NQF 0680................. Percent of Nursing Home Residents
Who Were Assessed and Appropriately
Given the Seasonal Influenza
Vaccine (Short-Stay).
NQF 0682................. Percent of Residents Assessed and
Appropriately Given the
Pneumococcal Vaccine (Short-Stay).
NQF 0431................. Influenza Vaccination Coverage among
Healthcare Personnel.
NQF 0302................. Ventilator Bundle.
Not NQF endorsed.................. Restraint Rate per 1,000 Patient
Days.
------------------------------------------------------------------------

(1) Proposed New Quality Measure 1 for the FY 2016 Payment
Determination and Subsequent Fiscal Years Payment Determinations:
Percent of Nursing Home Residents Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 0680)
According to the CDC, as of 2011, there are on average over 200,000
hospitalizations due to influenza every year.\125\ The Agency for
Healthcare Research and Quality (AHRQ) reports that, in 2004, there
were more than 37,000 hospitalizations in which influenza was noted
during the stay. For over 21,000 of these hospitalizations, influenza
was listed as the primary diagnosis. The aggregate hospital costs for
these roughly 21,000 hospitalizations were estimated at $146
million.\126\
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\125\ Centers for Medicare & Medicaid Services (2011, May).
Adult immunization: Overview. Retrieved from https://www.cms.gov/adultImmunizations/.
\126\ Milenkovic M, Russo CA, Elixhauser A. (2006). Hospital
stays for influenza, 2004 (Healthcare Cost and Utilization Project
statistical brief no. 16). Rockville, MD: Agency for Healthcare
Research and Quality. Retrieved from http://www.hcup-us.ahrq.gov/reports/statbriefs/sb16.pdf.
---------------------------------------------------------------------------

Although influenza is prevalent among all population groups, the
rates of death and serious complications related to influenza are
highest among those age 65 and older and those with medical
complications that put them at higher risk. The CDC reports that an
average of 36,000 Americans die annually from influenza and its
complications, and most of these deaths are among people 65 years of
age and over.\127\ In 2004, 70,000 deaths were caused by influenza and
pneumonia, and more than 85 percent of these were among the
elderly.\128\ Given that many individuals receiving health care
services in LTCHs are elderly and/or have several medical conditions,
many LTCH patients are within the target population for the influenza
vaccination.\129,130\ Healthy People 2010 (Objective 14-29) and Healthy
People 2020 (Objective IID-12.8) each set a goal of 90 percent of
adults vaccinated against pneumococcal disease in long-term care
facilities.\131,132\ However, among adults age 65 years and older, only
72.1 percent were vaccinated during the 2006-2007 influenza season and
only 69.6 percent of adults age 65 years and older were vaccinated
during the 2009-2010 influenza season.\133,134\ According to
information currently available on the Nursing Home Compare Web site
(http://www.medicare.gov/NHCompare), the national average for the
percentage of short-stay residents given the influenza vaccine is
roughly 82 percent.\135\ No comparable information is currently
available on patients in the LTCH setting.
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\127\ Centers for Medicare & Medicaid Services (2011, May).
Adult Immunization: Overview. Retrieved from https://www.cms.gov/Immunizations/.
\128\ Gorina Y, Kelly T, Lubitz J, et al. (2008,
February).Trends in influenza and pneumonia among older persons in
the United States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
\129\ Centers for Disease Control and Prevention. (2008,
September). Influenza e-brief: 2008-2009 flu facts for policymakers.
Retrieved from http://www.cdc.gov/washington/pdf/flu_newsletter.pdf.
\130\ Zorowitz, RD. Stroke Rehabilitation Quality Indicators:
Raising the Bar in the Inpatient Rehabilitation Facility. Topics in
Stroke Rehabilitation 2010; 17 (4):294-304.
\131\ U.S. Department of Health and Human Services, Office of
Disease Prevention and Health Promotion. (n.d.). Healthy People 2010
archive. Retrieved from http://www.healthypeople.gov/2010/ 2010/.
\132\ U.S. Department of Health and Human Services, Office of
Disease Prevention and Health Promotion. (2011, June). Healthy
People 2020: Immunization and Infectious Diseases. Retrieved from
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=23.
\133\ Centers for Disease Control and Prevention. (2008). State
specific influenza vaccination coverage among adults--United States,
2006-2007 influenza season. MMWR, 57(38), 1033-1039. Retrieved from
http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5738a1.htm.
\134\ Centers for Disease Control and Prevention (2011, May).
Seasonal influenza (flu): final estimates for 2009-10 seasonal
influenza and influenza A (H1N1) 2009 monovalent vaccination
coverage--United States, August 2009 through May 2010. Retrieved
from http://www.cdc.gov/flu/professionals/vaccination/coverage_0910estimates.htm.
\135\ Centers for Medicare & Medicaid Services. (2011). Nursing
Home Compare. Available from http://www.medicare.gov/NHCompare/.
---------------------------------------------------------------------------

In light of the evidence outlined previously, particularly that
many individuals receiving care in the LTCH setting are within the
target population for influenza vaccination, we are proposing NQF
0680, Percent of Nursing Home Residents Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (Short-Stay), for
application in the LTCHQR Program for the FY 2016 payment determination
and subsequent fiscal year payment determinations. We note that this
measure is currently endorsed for short-stay nursing home residents,
but believe this measure is highly relevant for the LTCH setting
because, as stated above, many patients receiving care in the LTCH
setting are elderly and within the target population for influenza
vaccination. The MAP supports the direction of this measure and
believes it is an important aspect of care in LTCHs.\136\
---------------------------------------------------------------------------

\136\ National Quality Forum (2012) Input on Measures for
Consideration by HHS for 2012 Rulemaking. Available from http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
---------------------------------------------------------------------------

Section 1886(m)(5)(D)(ii) of the Act, the exception authority
provides that ``[i]n 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 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.'' We reviewed NQFs consensus endorsed
measures and were unable to identify any NQF-endorsed measures for
influenza vaccination in the LTCH setting. We are unaware of any other
measures for influenza

[[Page 28096]]

vaccination in the LTCH setting that have been approved by a voluntary
consensus standards body and endorsed by NQF. We are proposing to adopt
the NQF-endorsed measure the Percent of Nursing Home Residents Who Were
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-
Stay) (NQF 0680) for application in the LTCH setting for the
LTCHQR Program under the Secretary's authority to select non-NQF
measures. This proposal is also consistent with the 2008 NQF steering
committee recommendation that ``in the interest of standardization and
minimizing the burden for those implementing and using measures,
measure harmonization is an important consideration in evaluating and
recommending measures for endorsement.'' \137\ Data on this measure is
currently collected and reported as part of the Nursing Home Quality
Initiative.
---------------------------------------------------------------------------

\137\ National Quality Forum (2008, December). National
Voluntary Consensus Standards for Influenza and Pneumococcal
Vaccinations. Available from http://www.qualityforum.org/Publications/2008/12/National_Voluntary_Consensus_Standards_for_Influenza_and_Pneumococcal_Immunizations.aspx.
---------------------------------------------------------------------------

We are proposing that data for this measure will be collected using
the same data collection and submission framework that we finalized for
the FY 2014 payment determination.\138\ We intend to revise the LTCH
CARE data set to include new items which assess patients' influenza
vaccination status should this proposed measure be adopted. These items
will be based on the items from the Minimum Data Set (MDS) 3.0
items.\139\ The specifications and data elements for this proposed
measure are available in the MDS 3.0 QM User's Manual available on our
Web site at: https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.\140\
---------------------------------------------------------------------------

\138\ The LTCH CARE Data Set, the proposed data collection
instrument that would be used to submit data on this proposed
measure, is currently under Paperwork Reduction Act (PRA) review by
the Office of Management and Budget. It is discussed in a PRA notice
that appeared in the September 2, 2011 Federal Register (76 FR
54776). The file number for the LTCH PRA package is CMS-10409.
\139\ Centers for Medicare & Medicaid Services. MDS 3.0 Item
Subsets V1.10.4 for the April 1, 2012 Release. Retrieved from
https://www.cms.gov/NursingHomeQualityInits/30_NHQIMDS30TechnicalInformation.asp.
\140\ Centers for Medicare and Medicaid Services (2012, March).
MDS 3.0 Quality Measures User's Manual. V5.0. pp. 15. Retrieved
from: https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.
---------------------------------------------------------------------------

By building on the existing reporting and submission infrastructure
for LTCHs, such as the LTCH CARE Data Set, which will be used for data
collection beginning October 1, 2012, we intend to reduce the
administrative burden related to data collection and submission for
this measure under the LTCHQR Program. We are proposing that the data
collection would cover the period from October 1 through March 31 of
each year, which corresponds with how NQF specifies this measure as
well as other endorsed influenza vaccination measures. We refer readers
to section VIII.D.6. of this preamble for more information on data
collection and submission.
We are inviting public comment on this proposed measure for the FY
2016 payment determination and subsequent FYs payment determinations.
(2) Proposed New LTCH Quality Measure 2 for the FY 2016
Payment Determination and Subsequent Fiscal Years Payment
Determinations: Percent of Residents Assessed and Appropriately Given
the Pneumococcal Vaccine (Short-Stay) (NQF 0682) According to
the CDC, pneumococcal disease kills more people in the United States
each year than all other vaccine-preventable diseases combined.\141\ In
2006, all possible pneumonia diagnoses (including viral, bacterial, and
unspecified organisms) killed 55,477 people in the United States and
were responsible for 1,232,999 hospital discharges.\142\
---------------------------------------------------------------------------

\141\ Centers for Disease Control and Prevention. (2009, March).
Pneumococcal polysaccharide vaccine: What you need to know.
Retrieved from http://www.cdc.gov/vaccines/pubs/vis/downloads/vis-ppv.pdf.
\142\ Centers for Disease Control and Prevention, National
Center for Health Statistics. (various years 1988-2006). National
Hospital Discharge Survey. Available from http://www.cdc.gov/nchs/nhds/nhds_publications.htm#nhds.
---------------------------------------------------------------------------

Older people and those with chronic health conditions are at higher
risk for pneumococcal disease. In 2011 there were more than 40,000
cases of invasive pneumococcal disease in the United States, and
approximately one-third of these occurred among persons ages 65 years
and older.\143\ A 2011 Medicare Payment Advisory Committee (MedPAC)
report found that pneumonia is among the top 20 most common Medicare
Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRG).\144\ In
2005, Medicare paid an average of $6,342 per hospital discharge for
pneumonia-related short-stay hospitalizations.\145\ Death related to
pneumonia also affects the elderly at a higher rate. In 2004, 70,000
deaths were caused by influenza and pneumonia, and more than 85 percent
of these were amongst the elderly.\146\
---------------------------------------------------------------------------

\143\ Centers for Disease Control and Prevention. (2011).
Pneumococcal diseases. In The Pink Book: epidemiology and prevention
of vaccine preventable diseases (pp. 233-248). Retrieved from:
http://www.cdc.gov/vaccines/pubs/pinkbook/downloads/pneumo.pdf.
\144\ Medicare Payment Advisory Committee (MedPac). (2011,
March) Long-term care hospital services. In Report to the Congress:
Medicare payment Policy (pp 231-456). Washington, DC. Available from
http://www.medpac.gov/documents/Mar11_EntireReport.pdf.
\145\ Health Care Financing Review. Statistical supplement no.
293. (2007). Baltimore, MD: Centers for Medicare and Medicaid
Services.
\146\ Gorina Y, Kelly T, Lubitz J, et al. (2008, February).
Trends in influenza and pneumonia among older persons in the United
States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
---------------------------------------------------------------------------

Individuals in the LTCH setting are at especially high risk of
contracting pneumonia as a complication of another medical condition,
such as stroke, previous or recent surgery, or ventilation--all of
which are conditions for which patients may spend some of their
recovery time in the LTCH.\147,148,149\
---------------------------------------------------------------------------

\147\ Fagon JY, Chastre J, Hance AJ, Montravers P, Novara A,
Gibert C. Nosocomial pneumonia in ventilated patients: a cohort
study evaluating attributable mortality and hospital stay. Am J Med
1993;94:281-8.
\148\ Gorina Y, Kelly T, Lubitz J, et al. (2008, February).
Trends in influenza and pneumonia among older persons in the United
States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
\149\ Centers for Disease Control and Prevention. (2011, June).
Post-procedure pneumonia (PPP) event. Retrieved from http://www.cdc.gov/nhsn/PDFs/pscManual/10pscPPPcurrent.pdf.
---------------------------------------------------------------------------

Healthy People 2010 (Objective 14-29f) and Healthy People 2020
(Objective IID-13.3) each set a goal of 90 percent of adults vaccinated
against pneumococcal disease in long-term care facilities.\150,151\
However, estimated pneumococcal vaccination coverage remains below 50
percent in recommended high-risk groups.\152\ No comparable information
is currently available on patients in the LTCH setting.
---------------------------------------------------------------------------

\150\ U.S. Department of Health and Human Services, Office of
Disease Prevention and Health Promotion. (n.d.). Healthy People 2010
archive. Retrieved from http://www.healthypeople.gov/2010/ 2010/.
\151\ U.S. Department of Health and Human Services, Office of
Disease Prevention and Health Promotion. (2011, June). Healthy
People 2020: Immunization and infectious diseases. Retrieved from
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=23.
\152\ Centers for Disease Control and Prevention, National
Center for Health Statistics. (various years 1988-2006). National
Hospital Discharge Survey.
---------------------------------------------------------------------------

In light of the previously described data which we believe reflects
the significant impact pneumonia has on Medicare beneficiaries in the
LTCH setting, we are proposing a quality measure on the pneumococcal
vaccine. Specifically, we are proposing the measure Percent of
Residents Assessed and Appropriately Given the Pneumococcal Vaccine
(Short-Stay) (NQF 0682) for application in the

[[Page 28097]]

LTCHQR Program for the FY 2016 payment determination and subsequent
fiscal year payment determinations. We recognize that the NQF has
endorsed this measure for short stay nursing home residents but believe
this measure is highly relevant to LTCHs as described previously. This
measure reports the percentage of short-stay nursing home residents who
were assessed and appropriately given the pneumococcal vaccine (PPV)
during a 12-month reporting period. We are proposing this measure
because, as stated previously, patients in LTCHs are at high risk of
contracting pneumonia as a complication of another medical condition.
The MAP supports the direction of this measure and believes it is an
important aspect of care in LTCHs.\153\
---------------------------------------------------------------------------

\153\ National Quality Forum (2012) Input on Measures for
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
---------------------------------------------------------------------------

\154\ National Quality Forum (2008, December) National Voluntary
Consensus Standards for influenza and pneumococcal vaccinations
rretrieved from http://www.qualityforum.org/Publications/2008/12/National_Voluntary_Consensus_Standards_for_Influenza_and_Pneumococcal_Immunizations.aspx.
---------------------------------------------------------------------------

The specifications and data elements for this proposed measure are
available in the MDS 3.0 QM User's Manual available on our Web site at:
https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.\155\
---------------------------------------------------------------------------

\155\ Centers for Medicare and Medicaid Services (2012, March).
MDS 3.0 Quality Measures User's Manual. V5.0. pp. 15. Retrieved
from: https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.
---------------------------------------------------------------------------

We are proposing that submission of data for this measure will be
incorporated into the existing data collection and submission framework
for LTCHs that we adopted for the FY 2014 payment determinations.\156\
We intend to revise the LTCH CARE data set to include new items which
assess patient's pneumococcal vaccination status should this proposed
measure be adopted. These items will be based on the items from the
Minimum Data Set (MDS) 3.0 items.\157\
---------------------------------------------------------------------------

\156\ The LTCH CARE Data Set, the proposed data collection
instrument that would be used to submit data on this proposed
measure, is currently under Paperwork Reduction Act (PRA) review by
the Office of Management and Budget. It is discussed in a PRA notice
that appeared in the September 2, 2011 Federal Register (76 FR
54776). The file number for the LTCH PRA package is CMS-10409.
\157\ Centers for Medicare & Medicaid Services. MDS 3.0 Item
Subsets V1.10.4 for the April 1, 2012 Release. Retrieved from
https://www.cms.gov/NursingHomeQualityInits/30_NHQIMDS30TechnicalInformation.asp.
---------------------------------------------------------------------------

By building on the existing LTCH reporting and submission
infrastructure, such as the LTCH CARE data set, which will be used by
LTCHs for data collection beginning October 1, 2012, we intend to
reduce the administrative burden related to data collection and
submission for this measure under the LTCHQR Program. For additional
information of data collection and submission, we refer readers to
section VIII.D.6. of this preamble. We invite public comment on this
proposed measure for the FY 2016 payment determination and subsequent
fiscal years.
(3) Proposed New LTCH Quality Measure 3 for the FY 2016
Payment Determination and Subsequent Fiscal Years Payment
Determinations: Influenza Vaccination Coverage among Healthcare
Personnel (NQF 0431)
As previously noted, influenza virus infections are a major source
of preventable mortality in the Medicare population. Between 1976 and
2007, influenza virus infections resulted in an average of 23,607
influenza-related deaths with a yearly range of 3,349 to 48,615 deaths,
with approximately 90 percent of these deaths occurring among persons
aged 65 or older.\158\ Health care personnel are at risk for both
acquiring influenza from patients and exposing it to patients, and
health care personnel often come to work when ill.\159\ One early
report of health care personnel influenza infections during the 2009
H1N1 influenza pandemic estimated 50 percent of infected health care
personnel had contracted the influenza virus from patients or coworkers
in the healthcare setting.\160\
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\158\ Thompson MG, Shay DK, Zhou H, et al. Estimates of deaths
associated with seasonal influenza--United States, 1976-2007. MMWR
Morb Mortal Wkly Rep. 59(33):1057-1062.
\159\ Wilde JA, McMillan JA, Serwint J, et al. Effectiveness of
influenza vaccine in healthcare professionals: A randomized trial.
JAMA. 1999; 281: 908-913.
\160\ Harriman K, Rosenberg J, Robinson S, et al. Novel
influenza A (H1N1) virus infections among health-care personnel--
United States, April-May 2009. MMWR Morb Mortal Wkly Rep. 2009;
58(23): 641-645.
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The Advisory Committee on Immunization Practices (ACIP) recommends
that all health care personnel get an influenza vaccine every year to
protect themselves and patients.\161\ Even though levels of influenza
vaccination among health care personnel have slowly increased over the
past 10 years, less than 50 percent of health care personnel each year
received the influenza vaccination until the 2009-2010 season, when an
estimated 62 percent of health care personnel got a seasonal influenza
vaccination. In the 2010-2011 season, 63.5 percent of health care
personnel reported influenza vaccination. Healthy People 2020
(Objective IID-12.9) set a goal of 90 percent for health care personnel
influenza vaccination.\162\ It is important to measure influenza
vaccination of health care personnel every season to track progress
toward this objective and to make sure that health care personnel and
their patients are protected from influenza.\163\ Increased influenza
vaccination coverage among health care personnel is expected to result
in reduced morbidity and mortality related to influenza virus infection
among patients, aligning with the National Quality Strategy's aims of
better care and healthy people/communities.
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\161\ Fiore AE, Uyeki TM, Broder K, et al. Prevention and
control of influenza with vaccines: Recommendations of the Advisory
Committee on Immunization Practices (ACIP), 2010. MMWR Recomm Rep.
2010. 59(08): 1-62.
\162\ U.S. Department of Health and Human Services, Office of
Disease Prevention and Health Promotion. (2011, June). Healthy
People 2020: Immunization and infectious diseases. Retrieved from
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=23.
\163\ Lindley MC, Zhang J, Euler G. Health care personnel flu
vaccination (2011, November). Retrieved from http://www.cdc.gov/flu/pdf/professionals/vaccination/1112-healthcare.pdf.
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In light of the previously described data which we believe reflects
the significant impact influenza has on Medicare beneficiaries in the
LTCH setting, we are proposing to adopt an influenza measure.
Specifically, we are

[[Page 28098]]

proposing to adopt the CDC-developed Influenza Vaccination Coverage
among Healthcare Personnel (NQF 0431) measure for the FY 2016
payment determination and subsequent fiscal year payment
determinations. We also note that this measure is undergoing NQF review
as part of measure maintenance (http://www.qualityforum.org/Projects/n-
r/Population_Health_Prevention/Population_Health__Prevention_
Endorsement_Maintenance__-Phase_1.aspx#t=2&s=&p=3%7C). We are
proposing to this measure because, as stated previously, it aligns with
national initiatives. It is also already endorsed for the LTCH care
setting. This measure has been finalized for reporting in the Hospital
IQR Program and the Ambulatory Surgical Centers Quality Reporting
Program. The MAP supports the direction of this measure and believes it
is an important aspect of care in LTCHs.\164\
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\164\ National Quality Forum (2012) Input on Measures for
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
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This measure reports on the percentage of health care personnel who
receive the influenza vaccination. Health care personnel refers to all
paid and unpaid persons working in health care settings, contractual
staff not employed by the healthcare facility, and persons not directly
involved in patient care but potentially exposed to infectious agents
that can be transmitted to and from health care personnel. This measure
is applicable to LTCHs (we refer readers to the CDC/NHSN Manual,
Healthcare Personnel Safety Component Protocol Module, Influenza
Vaccination and Exposure Management Modules, which is available at the
CDC Web site at: http://www.cdc.gov/nhsn/PDFs/HSPmanual/HPS_Manual.pdf
for measure specifications and additional details.
We are proposing that data collection for this measure would be
through the CDC/NHSN (http://www.cdc.gov/nhsn/). It is a secure
Internet based system maintained by CDC, and can be utilized by all
types of health care facilities in the United States, including LTCHs.
NHSN collects data via a Web-based tool hosted by the CDC and available
at: http://www.cdc.nhsn. For FY 2106 and subsequent future fiscal year
payment determinations, we are proposing that the data collection would
cover the period from October 1 through March 31 of each year, which
corresponds with how NQF specifies this measure as well as other
endorsed influenza vaccination measures.
CDC/NHSN is also the proposed data collection and submission
framework for reporting on CAUTI and CLABSI measures for the FY 2015
payment determination.\165\ Details related to the procedures for using
the NHSN for data submission and information on definitions, numerator
data, denominator data, data analyses, and measure specifications for
the proposed Influenza Vaccination Coverage among Healthcare Personnel
(NQF 0431) measure can be found at http://www.cdc.gov/nhsn/hps_fluVaccExpos.html. By building on the CDC/NHSN reporting and
submission infrastructure, we intend to reduce the administrative
burden related to data collection and submission for this measure under
the LTCHQR Program. For additional information on data collection and
submission, we refer readers to section VIII.D.6. of this preamble.
---------------------------------------------------------------------------

\165\ 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 (August 18, 2011; 76 FR 51745-51846). Web. http://www.gpo.gov/fdsys/pkg/FR-2011-08-18/pdf/2011-19719.pdf.
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We are inviting public comment on this proposed measure for the FY
2016 payment determination and subsequent fiscal years.
(4) Proposed New LTCH Quality Measure 4 for the FY 2016
Payment Determination and Subsequent Fiscal Years Payment
Determinations: Ventilator Bundle (NQF 0302)
In 2009, the most frequently occurring diagnosis in the LTCHs was
MS-LTC-DRG 207 (Respiratory Diagnosis with Ventilator Support for 96 or
more Hours).\166\ Ventilator-Associated Pneumonia (VAP) is a costly,
often deadly infection. A systematic review of VAP found: (1) Between
10 percent and 20 percent of patients receiving greater than 48 hours
of ventilation will develop VAP; (2) ill patients who develop VAP are
twice as likely to die as compared with similar patients without VAP;
(3) patients with VAP have significantly longer lengths of stay; and
(4) patients who have VAP incur over $10,000 in additional hospital
costs.\167\
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\166\ Medicare Payment Advisory Commission (MedPAC). (2011,
March). Long-term care hospital services. In Report to the Congress:
Medicare payment policy (pp. 231-256). Washington, DC: Retrieved
from http://medpac.gov/documents/Mar11_EntireReport.pdf.
\167\ Safdar, N., Dezfulian, C., Collard, H., Saint, S.
``Clinical and Economic Consequences of Ventilator Associated
Pneumonia''. Critical Care Medicine. 2005: 33(10): 2184-93.
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In light of the previously described data on VAP which we believe
reflects the significant impact VAP has on Medicare beneficiaries, our
measure development contractor introduced the VAP measure for
discussion at a technical expert panel convened by it on January 31,
2011. The TEP identified VAP as important for the LTCH setting due to
the high percentage of patients on ventilators. However, the panel
noted concerns about measuring the rate of VAP due to lack of a
consistent definition, concerns of inter-rater reliability, subjective
interpretation of VAP, and variability in diagnosing VAP.
Our measure development contractor reviewed this concept again and
introduced the Ventilator Bundle (NQF 0302) developed by
Institute of Healthcare Improvement for discussion to address some the
concerns noted previously at a July 7, 2011 TEP meeting. This
comprehensive ventilator care-bundle process measure is designed to
facilitate protocols such as weaning, and mitigate ventilator-related
infections, such as VAP. The NQF-endorsed ventilator bundle measure
consists of four components: (1) Head of the bed elevation >=30[deg];
(2) daily sedation interruption and assessment of readiness to wean;
(3) peptic ulcer disease (PUD) prophylaxis; and (4) deep vein
thrombosis (DVT) prophylaxis, The measure steward, the Institute for
Healthcare Improvement, also recommends a fifth element be added to the
ventilator bundle-process measure: daily oral care with Chlorhexidine
(http://www.ihi.org/offerings/MembershipsNetworks/MentorHospitalRegistry/Pages/VentilatorBundle.aspx). A meta-analysis of
oral decontamination found a statistically significant reduction in VAP
with use of antiseptic oral decontamination, which supports such an
addition.\168\
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\168\ Chan, E., Ruest, A., Meade, M., Cook, D. ``Oral
decontamination for prevention of pneumonia in mechanically
ventilated adults: systematic review and meta-analysis''. BMJ. 2007;
334: 889.
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We recognize that the Ventilator Bundle (NQF 0302) measure
is currently endorsed for ICU patients in the acute care hospital
setting; however, we believe this measure is highly relevant for the
LTCH setting because ventilator patients are a large segment of the
LTCH patient population and a process measure to reduce VAP is
important and relevant for the LTCH setting. In addition, the MAP
supports the direction of this measure, and believes it is an important
aspect of care in LTCHs, and has identified it as a high

[[Page 28099]]

priority.\169\ Further, we are proposing this measure because it
supports the National Quality Strategy by supporting better and safer
care that prevents infection among patients at risk for VAP. Therefore,
for the above-described reasons, we are proposing Ventilator Bundle NQF
0302 for application in the LTCH setting.
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\169\ National Quality Forum (2012)Input on Measures for
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
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As indicated previously, section 1886(m)(5)(D)(ii) of the Act
provides the Secretary with authority to adopt non-NQF-endorsed
measures. We reviewed the NQF's consensus-endorsed measures and were
unable to identify any NQF-endorsed measures for the ventilator bundle
in the LTCH setting. We are unaware of any other measures for the
ventilator bundle in the LTCH setting that have been approved by
voluntary consensus standards bodies and endorsed by NQF. We are
proposing to adopt the Ventilator bundle for application in the LTCHQR
Program. Therefore, under the authority of section 1886(m)(5)(D)(ii) of
the Act, we are proposing to use the Ventilator Bundle (NQF
0302) measure for application in the FY 2016 LTCHQR Program
payment determination and subsequent fiscal year payment
determinations.
We further note that this measure is undergoing endorsement
maintenance review at the NQF under the Patient Safety Measures-
Complications Project (http://www.qualityforum.org/Projects/n-r/Patient_Safety_Measures_Complications/Patient_Safety_Measures_Complications.aspx#t=2&s=&p=).
We are proposing that data collection and submission of this
measure will be through the LTCH CARE Data Set. We intend to revise the
LTCH CARE Data Set to include new items on LTCHs' compliance with each
element of the ventilator bundle measure if the measure is finalized.
These items would be based on the data elements of the ventilator
bundle in use within hospitals implementing the ventilator bundle
process measure (NQF 0302). The specifications and data
elements for this proposed measure are available at NQF Web site at:
http://www.qualityforum.org/QPS/302.
By building on the existing LTCH reporting and submission
infrastructure, such as the LTCH CARE data set, which will be used by
LTCHs for data collection beginning October 1, 2012, we intend to
reduce the administrative burden related to data collection and
submission for this measure under the LTCHQR Program. For additional
information of data collection and submission, we refer readers to
section VIII.D.6. of this preamble.
We are inviting public comment on this proposed measure for the FY
2016 payment determination and subsequent fiscal years.
(5) Proposed New LTCH Quality Measure 5 for the FY 2016
Payment Determination and Subsequent Fiscal Year Payment
Determinations: Restraint Rate per 1,000 Patient Days
Restraints are used to control behavior for people who exhibit
disruptive, aggressive, or dangerous behavior in health care
settings.^{170,171,172,173} The negative outcomes of restraints
may include strangulation, loss of muscle tone, decreased bone density
(with greater susceptibility for fractures), pressure sores, increased
infections, decreased mobility, depression, agitation, loss of dignity,
social isolation, incontinence, constipation, functional decline,
abnormal changes in body chemistry and muscular function, and in some
cases, patient death.^{174,175,176,177,178,179,180,181,182,183}
The use of physical restraints also often constitutes a
disproportionate infringement on an individuals'
autonomy.^184,185
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\170\ Sullivan-Marx E, Strumpf N, Evans L, et al. Initiation of
physical restraint in nursing home residents following restraint
reduction efforts. Res Nurs Health. 1999;22:369-79.
\171\ Capezuti E, Evans L, Strumpf N, et al. Physical restraint
use and falls in nursing home residents. J Am Geriatr Soc.
1996;44:627-33.
\172\ Castle N, Mor V. Physical restraints in nursing homes: a
review of the literature since the Nursing Home Reform Act of 1987.
Med Care Res Rev. 1998;55(2):139-70.
\173\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R.
Prevalence and variation of physical restraint in the acute care
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
\174\ Castle N, Mor V. Physical restraints in nursing homes: a
review of the literature since the Nursing Home Reform Act of 1987.
Med Care Res Rev. 1998;55(2):139-70.
\175\ Williams C, Finch C. Physical restraints: not fit for
woman, man, or beast. J Am Geriatr Soc. 1997;45:773-5.
\176\ Sullivan-Marx E. Achieving restraint-free care of acutely
confused older adults. J Gerontol Nurs.2001;27(4):56-61.
\177\ Evans L, Strumpf N, Allen-Taylor S, et al. A clinical
trial to reduce restraints in nursing homes. J Am Geriatr Soc.
1997;45(6):675-81.
\178\ Capezuti E, Maislin G, Strumpf N, et al. Side rail use and
bed-related fall outcomes among nursing home residents. J Am Geriatr
Soc. 2002;50(1):90-6.
\179\ Parker K, Miles S. Deaths caused by bed rails. J Am
Geriatr Soc. 1997;45:797-802.
\180\ Feinsod FM, Moore M, Levenson S. Eliminating full-length
bed rails from long term care facilities. Nurs Home Med. 1997;5:257-
63.
\181\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R.
Prevalence and variation of physical restraint in the acute care
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
\182\ Mohoney JE. Immobility and falls. Clin Geriatr Med. 1998.
14 (4): 699-726.
\183\ Inouye SK, Wagner DR, Acompara D, et al. A predictive
index for functional decline in hospitalized elderly medical
patients. J Gen Intern Med. 1993; 8(12):645-652.
\184\ Gastmans C, Milison K. Use of physical restraint in
nursing homes: clinical-ethical considerations. J Med Ethics.
2006;32:148-52.
\185\ McBrian B. Exercising restraint: clinical, legal and
ethical considerations for the patient with Alzheimers's disease.
Accide emeg nurs. 2997 Apr 15 (2):94-100.
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Research suggests that other clinical interventions are more
effective than restraints in preventing injuries from falls.
Interventions involving physiologic care, psychosocial care and
environmental manipulation, have been shown to be more effective than
restraints, generally without increasing staff time or overall cost of
treatment.\186,187,188,189,190,191\
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\186\ Capezuti E, Evans L, Strumpf N, et al. Physical restraint
use and falls in nursing home residents. J Am Geriatr Soc.
1996;44:627-33.
\187\ Castle N, Mor V. Physical restraints in nursing homes: a
review of the literature since the Nursing Home Reform Act of 1987.
Med Care Res Rev. 1998;55(2):139-70.
\188\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R.
Prevalence and variation of physical restraint in the acute care
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
\189\ Williams C, Finch C. Physical restraints: not fit for
woman, man, or beast. J Am Geriatr Soc. 1997;45:773-5.
\190\ Sullivan-Marx E. Achieving restraint-free care of acutely
confused older adults. J Gerontol Nurs.2001;27(4):56-61.
\191\ Evans L, Strumpf N, Allen-Taylor S, et al. A clinical
trial to reduce restraints in nursing homes. J Am Geriatr S c.
1997;45(6):675-81.
---------------------------------------------------------------------------

The principle of freedom from physical or pharmacological restraint
is generally understood and accepted by professional and academic
organizations. Groups such as the National Citizens' Coalition for
Nursing Home Reform (NCCNHR), the Alzheimer's Association, and the
American Physical Therapy Association, as well as numerous nursing
homes and academic medical research institutions are involved in
limiting the use of restraints. The Untie the Elderly campaign has been
working since 1989 to raise public awareness of restraint abuse,\192\
and the Advancing Excellence in America's Nursing Homes has recently
embedded reduction of the use of restraints in nursing homes as part of
an overall goal to increase resident mobility to help nursing home
staff address mobility issues including the use of restraints, walking,
range of motion, transfer, and prevention of falls.\193\
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\192\ Untie the Elderly Web site; accessed January 21, 2010, at
http://ute.kendaloutreach.org/Default.aspx.
\193\ Advancing Excellence in America's Nursing Homes Web site;
accessed March 24, 2012, at http://www.nhqualitycampaign.org/files/NewGoals_030612.pdf and Physical Restraints Tracking Tool v1.1
(December, 2011) accessible through http://www.nhqualitycampaign.org/files/campaign_updates.htm#cms.

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[[Page 28100]]

CMS and other Federal agencies have issued several regulations
regarding restraint use in healthcare settings. In the 2006 Medicare
and Medicaid Programs; Hospital Conditions of Participation: Patients'
Rights final rule (71 FR 71378 through 71428), we stated that the use
of restraints or seclusion ``may only be imposed to ensure the
immediate physical safety of the patient, a staff member, or others''
(71 FR 71382).\194\ Additionally, in 2010, the Food and Drug
Administration's Hospital Bed Safety workgroup released clinical
guidance for limiting the use of bed rails, reflecting concern about
the safety of restraints.\195\ To better align with our guidelines, The
Joint Commission updated its standards to establish guidelines limiting
the use of restraints and seclusion, and clarifying the documentation
and usage protocols for hospitals in 2009.\196\
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\194\ CMS Medicare and Medicaid Programs; Hospital Conditions of
Participation: Patients' Rights final rule. 2006. Available from
https://www.cms.gov/CFCsAndCoPs/downloads/finalpatientrightsrule.pdf.
\195\ FDA Hospital Bed Safety Workgroup; accessed January 25,
2010. Available from: http://www.fda.gov/MedicalDevices/ProductsandMedicalProcedures/MedicalToolsandSupplies/HospitalBeds/default.htm.
\196\ The Joint Commission. Restraint/Seclusion for hospitals
that use the joint commission for deemed status purposes. 2009.
Available from: http://www.jointcommission.org/standards_information/jcfaqdetails.aspx?StandardsFaqId=260&ProgramId=1.
---------------------------------------------------------------------------

Recognizing the importance of a restraint rate measure, our measure
development contractor convened a technical expert panel to review
restraint measures for potential use in the LTCHQR. The TEP reviewed
several NQF-endorsed measures for restraint use, including Restraint
Prevalence (vest and limb only) (NQF 0203) endorsed for short-
term acute care hospitals, HBIPS-2 Hours of Physical Restraint Use (NQF
0640) endorsed for inpatient psychiatric facilities, HBIPS-3
Hours of Seclusion Use (NQF 0641) endorsed for inpatient
psychiatric facilities, and Percent of Residents who were Physically
Restrained (Long-Stay) (NQF 0687) endorsed for residents who
have been in the nursing home for over 100 days. We note the measures
are NQF endorsed, although not for the LTCH setting. We submitted NQF
0687 mentioned above to the MAP for consideration. While the
MAP supported the direction of this measure, it also advised the
measure needed to tested in and specified for the LTCH setting.
Subsequently, we also determined that all four of the above-referenced
NQF measures were limited in their potential to produce a meaningful
measurement in the LTCH setting since these measures have look back and
monitoring periods that are problematic for the LTCH setting.
Upon further investigation, we identified the ``Restraint Rate per
1,000 Patient Days'' measure which was developed by the National
Association of Long Term Hospitals (NALTH) and is a non-core measure
for The Joint Commission ORYX Initiative. This measure is not NQF
endorsed but it is currently specified for and is in use by some LTCHs
who submit data for this measure to the NALTH Health Information
System. Thus, this measure is specified for and in use for the LTCH
setting, thereby, this measure is a feasible and practical measure for
LTCH setting. Therefore we believe it addresses the concerns raised by
MAP with respect to NQF 0687 which is the need for
specification and use in the LTCH setting
After review of the previously referenced NQF-endorsed restraint
measures, we are proposing the Restraint Rate per 1,000 Patient Days
measure for the FY 2016 LTCHQR Program payment determination and
subsequent fiscal year payment determinations under the authority in
section 1886(m)(5)(D)(ii) of the Act. We are proposing to use the
exception authority because there are no NQF endorsed measures on
restraints for the LTCH setting. Further, as explained previously, we
have given due consideration to the existing NQF measures on restraints
(although not endorsed for the LTCH setting) and we believe they are
not appropriate for the LTCHQR. We are proposing this measure because
we believe it is a relevant, scientifically sound, valid, and an
important measure which is also feasible for data collection in the
LTCH setting compared to the existing NQF-endorsed restraint measures
previously discussed. For this proposed measure, the measure
specifications will be made available on the LTCHQR Program Web site at
http://www.cms.gov/LTCH-Quality-Reporting/.
We are proposing that the data collection and submission of this
measure will be through the LTCH CARE Data Set. This is the same data
collection and submission framework which we would use to support
providers for reporting on the Percent of Residents with Pressure
Ulcers That Are New or Worsened (Short-Stay) (NQF 0678)
measure.\197\
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\197\ The LTCH CARE Data Set, the data collection instrument
that will be used to submit data on this measure, is currently under
Paperwork Reduction Act (PRA) review by the Office of Management and
Budget. It is discussed in a PRA notice that appeared in the
September 2, 2011 Federal Register (76 FR 54776). The file number
for the LTCH PRA package is CMS-10409.
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By building on existing data reporting and submission
infrastructure, we intend to reduce the administrative burden related
to data collection and submission for this measure under the LTCHQR
Program. For more information on data collection and submission, we
refer readers to section VIII.D.6. of this preamble.
We are inviting public comment on this proposed measure for the FY
2016 payment determination and subsequent fiscal year payment
determinations.
5. Proposed Timeline for Data Submission Under the LTCHQR Program for
the FY 2015 Payment Determination
For the FY 2015 payment determination, we are proposing to require
data submission on LTCH discharges occurring from January 1, 2013
through December 31, 2013 (CY 2013). LTCHs would follow the proposed
deadlines presented in the table below to complete submission of data
for each quarter for each proposed measure for the FY 2015 payment
determination. For each quarter outlined in the table below during
which LTCHs are required to collect data, we are proposing a final
submission deadline occurring approximately 135 days after the end of
each quarter by which all data collected during that quarter must be
submitted to CMS. We believe that this is a reasonable amount of time
to allow providers to submit data and make any necessary corrections.

[[Page 28101]]

Proposed Timeline for Submission of Ltchqr Program Quality Data for the
FY 2015 Payment Determination
------------------------------------------------------------------------
Proposed final submission deadline
Data collection timeframe: CY for data related to the LTCH Quality
2013 Reporting Program FY 2015 payment
determination
------------------------------------------------------------------------
Q1 (January-March 2013).......... August 15, 2013.
Q2 (April-June 2013)............. November 15, 2013.
Q3 (July-September 2013)......... February 15, 2014.
Q4 (October-December 2013)....... May 15, 2014.
------------------------------------------------------------------------

We are inviting public comment on this proposed submission timeline
for the FY 2015 payment determination.
6. Proposed Timeline for Data Submission Under the LTCHQR Program for
the FY 2016 Payment Determination
For the FY 2016 payment determination, we are proposing to require
data submission on LTCH discharges occurring from January 1, 2014
through December 31, 2014 (CY 2014). We are proposing this timeframe
because we believe this would provide sufficient time for LTCHs and CMS
to put processes and procedures in place to meet the additional quality
reporting requirements. LTCHs would follow the proposed deadlines
presented in the table below to complete submission of data for each
quarter. For each quarter outlined in the table below during which
LTCHs are required to collect data, we are proposing a final deadline
occurring approximately 45 days after the end of each quarter by which
all data collected during that quarter must be submitted to CMS. We
believe that this is a reasonable amount of time to allow providers to
submit data and make any necessary corrections. We are also proposing
that similar calendar year collection and submission deadlines would
apply to future years payment determinations.

Proposed Timeline for Submission of Ltchqr Program Quality Data for the
Fy 2016 Payment Determination and Subsequent Fiscal Year Payment
Determinations
------------------------------------------------------------------------
Final submission deadlines for the
Data collection timeframe: CY LTCHQR Program FY 2016 payment
2014 determination
------------------------------------------------------------------------
Q1 (January-March 2014).......... May 15, 2014.
Q2 (April-June 2014)............. August 15, 2014.
Q3 (July-September 2014)......... November 15, 2014.
Q4 (October-December 2014)....... February 15, 2015.
------------------------------------------------------------------------

We are inviting public comment on this proposed submission timeline
for FY 2016 Payment Determination and future year payment
determinations.
7. Proposed Public Display of Data Quality Measures
Under section 1886(m)(5)(E) of the Act, the Secretary is required
to establish procedures for making any quality data submitted by LTCHs
under section 1886(m)(5)(C) of the Act available to the public. In
addition, section 1886(m)(5)(E) of the Act requires that such
procedures shall ensure that a LTCH has the opportunity to review the
data that is to be made public with respect to its facility, prior to
such data being made public. In addition, the statute requires that the
Secretary shall report quality measures that relate to services
furnished in LTCHs on our Internet Web site. Therefore, the Secretary
will publicly report quality measure data that is reported under the
LTCHQR Program. Currently, we are not proposing procedures or timelines
for public reporting of LTCHQR Program data.

E. Proposed Quality Reporting Requirements for Ambulatory Surgical
Centers (ASCs)

1. Background
Section 109(b) of the Medicare Improvements and Extension Act of
2006 under Division B, Title I of the Tax Relief and Health Care Act of
2006, Public Law 109-432 (MIEA-TRHCA) amended section 1833(i) of the
Act by redesignating clause (iv) as clause (v) and adding new clause
(iv) to paragraph (2)(D) and by adding new paragraph (7). Section
1833(i)(2)(D)(iv) of the Act authorizes, but does not require, the
Secretary to implement the revised ASC payment system ``in a manner so
as to provide for a reduction in any annual update for failure to
report on quality measures in accordance with paragraph (7).''
Paragraph (7) contains subparagraphs (A) and (B). Subparagraph (A) of
paragraph (7) states the Secretary may provide that an ASC that does
not submit ``data required to be submitted on measures selected under
this paragraph with respect to a year'' to the Secretary in accordance
with this paragraph will incur a 2.0 percentage point reduction to any
annual increase provided under the revised ASC payment system for such
year. It also specifies that this reduction applies only with respect
to the year involved and will not be taken into account in computing
any annual increase factor for a subsequent year.
Subparagraph (B) of paragraph (7) states ``[e]xcept as the
Secretary may otherwise provide,'' the provisions of subparagraphs (B)
through (E) of paragraph (17) of section 1833(t) of the Act, which
contain requirements for quality reporting for hospital outpatient
services, ``shall apply with respect to services of [ASCs] under this
paragraph in a similar manner to the manner in which they apply under
such paragraph'' and any reference to a hospital, outpatient setting,
or outpatient hospital services is deemed a reference to an ASC, the
setting of an ASC, or services of an ASC, respectively. Pertinent to
this proposed rule are subparagraphs (B) and (E) of section 1833(t)(17)
of the Act. Subparagraph (B) of section 1833(t)(17)

[[Page 28102]]

of the Act requires subsection (d) hospitals to ``submit data on
measures selected under this paragraph to the Secretary in a form and
manner, and at a time, specified by the Secretary for purposes of this
paragraph.'' Subparagraph (E) of section 1833(t)(17) of the Act
requires the Secretary to ``establish procedures for making data
submitted under this paragraph available to the public.'' Further,
these procedures shall ensure that hospitals have the opportunity to
review the data before these data are made public. Additionally, the
Secretary must ``report quality measures of process, structure,
outcome, patients' perspectives on care, efficiency, and costs of care
that relate to services furnished in outpatient settings in hospitals''
on CMS' Internet Web site.
Thus, subsections (i)(7)(B) and (t)(17)(B) of section 1833 of the
Act, read together, require that ASCs submit quality data in a form and
manner, and at a time, that the Secretary specifies. Pertinent to this
proposed rule, subsections (i)(7)(B) and (t)(17)(B) of section 1833 of
the Act, read together, require the Secretary to establish procedures
for making data submitted available to the public and to report quality
measures of process, structure, outcome, patients' perspectives on
care, efficiency, and cost of care that relate to services furnished in
ASCs on CMS's Internet Web site. Subsection (i)(7)(B) of section 1833
of the Act also specifies that these provisions apply except as the
Secretary may otherwise provide.
In the CY 2012 OPPS/ASC final rule with comment period, we
finalized our proposal to implement the ASC Quality Reporting Program
beginning with the CY 2014 payment determination (76 FR 74492 through
74517). We adopted claims-based measures for the CY 2014 payment
determination for services furnished between October 1, 2012 and
December 31, 2012. For the CY 2015 payment determination, we adopted
the same claims-based measures as adopted for the CY 2014 payment
determination and two structural measures. We did not specify the data
collection period for the claims-based measures for the CY 2015 payment
determination, but specified that reporting for the structural measures
would be between July 1, 2013 and August 15, 2013 for services
furnished between January 1, 2012 and December 31, 2012 using an online
measure submission Web page available at: http://www.QualityNet.org.
For the CY 2016 payment determination, we adopted the same claims-based
and structural measures as adopted for the CY 2015 payment
determination and one process of care measure. We did not specify the
data collection period for the claims-based or structural measures, but
specified that data collection for the process of care measure would be
via the National Healthcare Safety Network beginning on October 1, 2014
and continuing through March 31, 2015.
In the CY 2012 OPPS/ASC final rule with comment period, we
indicated our intent to issue proposals for administrative
requirements, data validation and completeness requirements, and
reconsideration and appeals processes in the FY 2013 IPPS/LTCH PPS
proposed rule rather than in the CY 2013 OPPS/ASC proposed rule (76 FR
74515), because the FY 2013 IPPS/LTCH PPS proposed rule is scheduled to
be finalized earlier and prior to data collection for the CY 2014
payment determination, which is to begin with services furnished on
October 1, 2012.
Below we are issuing proposals for administrative requirements,
data completeness requirements, extraordinary circumstance waiver or
extension requests, and a reconsideration process. As discussed below,
we are not proposing to validate claims-based and structural measures.
Further, we intend to address appeals of reconsideration decisions in a
future rulemaking. To be eligible to receive the full annual increase,
we are proposing that ASCs must comply with the requirements specified
below for the respective payment determination year.
We invite public comment on these proposals.

2. Proposed Requirements for Reporting of ASC Quality Data

a. Proposed Administrative Requirements
(1) Proposals Regarding QualityNet Account and Administrator for the
CYs 2014 and 2015 Payment Determinations
A QualityNet account is required to submit quality measure data to
the QualityNet Web site and, in accordance with CMS policy, a
QualityNet administrator is necessary to set-up a user account for the
purpose of submitting this information to the QualityNet Web site. The
main purpose of a QualityNet administrator is to serve as a point of
contact for security purposes for quality reporting programs. We
believe from our experience that a QualityNet administrator typically
fulfills a variety of tasks related to quality reporting, such as
creating, approving, editing, and terminating QualityNet user accounts
within an organization, and monitoring QualityNet usage to maintain
proper security and confidentiality measures. Thus, we highly recommend
that ASCs have and maintain a QualityNet administrator. However, we are
not proposing that ASCs be required to do so for the CY 2014 payment
determination because ASCs are not required to submit data to the
quality data warehouse for the CY 2014 payment determination (76 FR
74504) and we do not want to unduly burden ASCs by requiring ASCs to
have a QualityNet administrator. We note that a QualityNet account is
not necessary to access information that is posted to the QualityNet
Web site, such as specifications manuals and educational materials.
As finalized in the CY 2012 OPPS/ASC final rule with comment period
(76 FR 74504 through 74509), for the CY 2015 payment determination, we
require ASCs to submit structural measure data to the QualityNet Web
page. To enter these data into the CMS data system, we are proposing
that ASCs will need to identify and register a QualityNet administrator
who follows the registration process located on the QualityNet Web site
and submits the information as specified on this site. Because
submission of structural measure data is not required until the July 1,
2013 to August 15, 2013 time period, we are proposing that ASCs would
be required to have a QualityNet administrator at the time facilities
submit structural measure data in 2013 for the CY 2015 payment
determination, which is no later than August 15, 2013. ASCs may have a
QualityNet administrator prior to this date, but we are not proposing
that ASCs be required to do so.
We note that there are necessary mailing and processing procedures
for having a QualityNet administrator assigned by CMS separate from
completion of the forms by the ASC that can require significant time to
complete and we strongly caution ASCs to not wait until the deadline to
apply; instead, we recommend allowing a minimum of 2 weeks, while
strongly suggesting allowing additional time prior to the deadline to
submit required documentation in case of unforeseen issues. Because
ASCs will need a QualityNet administrator only to have the ability to
set up a user account for the purpose of submitting structural measure
data once a year, we are proposing that ASCs would not be required to
maintain a QualityNet administrator after the entry of the structural
measure data in 2013 for the CY 2015 payment determination. Although we
highly recommend that ASCs have and maintain a QualityNet
administrator, we believe that requiring

[[Page 28103]]

an ASC to maintain a QualityNet administrator throughout the year would
increase the burden on ASCs.
As a commenter noted in the CY 2012 OPPS/ASC final rule with
comment period (76 FR 74515), QualityNet accounts are automatically
deactivated after a 120-day period of inactivity per CMS security
policy. If an account is deactivated due to inactivity, it can be
reactivated by contacting the QualityNet Help Desk; contact information
for the QualityNet Help Desk is located on the QualityNet Web site.
(2) Proposals Regarding Participation Status for the CY 2014 Payment
Determination and Subsequent Payment Determination Years
We finalized in the CY 2012 OPPS/ASC final rule with comment period
a policy to consider an ASC as participating in the ASC Quality
Reporting Program for the CY 2014 payment determination if the ASC
includes Quality Data Codes (QDCs) specified for the program on their
CY 2012 claims relating to the finalized measures (76 FR 74516).
We are proposing that once an ASC submits any quality measure data,
it would be considered as participating in the ASC Quality Reporting
Program. Further, we are proposing that, once an ASC submits any
quality measure data and is considered to be participating in the
program, an ASC would continue to be considered participating in the
program, regardless of whether the ASC continues to submit quality
measure data, unless the ASC withdraws from the program by indicating
on a participation form that it is withdrawing, as discussed below. For
example, if an ASC includes any QDCs on its claims for the CY 2014
payment determination, it would be considered participating in the ASC
Quality Reporting Program for the CY 2014 payment determination and for
every subsequent payment determination unless the ASC withdraws.
Likewise, if an ASC did not submit any QDCs for the CY 2014 payment
determination, but submitted quality measure data for the CY 2015
payment determination, the ASC would be considered participating in the
ASC Quality Reporting Program starting with the CY 2015 payment
determination and continuing for subsequent payment determinations
unless the ASC withdraws from the program.
We considered whether to propose that an ASC be required to
complete and submit a notice of participation form for the CY 2015
payment determination or subsequent payment determination years to
indicate that the ASC is participating in the program as we require for
hospitals, but decided against this proposal because we were concerned
about the burden on ASCs. We believe these proposals will reduce burden
on ASCs while accomplishing the purpose of notifying CMS of an ASC's
participation in the ASC Quality Reporting Program.
We are proposing that any and all quality measure data submitted by
the ASC while participating in the ASC Quality Reporting Program could
be made publicly available. This policy would allow us to provide
information on the quality of care provided to Medicare beneficiaries
which promotes transparency.
We are proposing that once an ASC submits quality measure data
indicating its participation in the ASC Quality Reporting Program an
ASC must complete and submit an online participation form indicating
withdrawal to withdraw from the program. This form would be located on
the QualityNet Web site starting in July 2013. We are proposing that an
ASC would indicate on the form the initial payment determination year
to which the withdrawal applies. We are proposing a different process
for ASCs to withdraw from participation than the process we are
proposing for an ASC to participate in the ASC Quality Reporting
Program because of the payment implications of withdrawal. We are
proposing that, in withdrawing from the program, the ASC would incur a
2.0 percentage point reduction in its annual payment update for that
payment determination year and any subsequent payment determination
year(s) in which it is withdrawn.
We will not make quality measure data publicly available for that
payment determination year and any subsequent payment determination
year(s) for which the ASC is withdrawn from the program.
We are proposing that an ASC would continue to be deemed withdrawn
unless the ASC starts submitting quality measure data again. Once an
ASC starts submitting quality measure data, the ASC would be considered
participating unless the ASC withdraws, as discussed above. Again, we
believe that these proposals would reduce the burden on ASCs of having
to notify CMS as to when they are participating.
We are proposing that an ASC can withdraw from the program at any
time up to August 31, 2013 for the CY 2014 payment determination; we
anticipate that this will be the latest date possible to allow an ASC
to withdraw before payment determinations affecting CY 2014 payment are
made. We are proposing that an ASC can withdraw from the program at any
time up to August 31, 2014 for the CY 2015 payment determination. We
will propose withdrawal dates for later payment determinations in
future rulemakings.
We are proposing that these administrative requirements would apply
to all ASCs designated as open in the CASPER system before January 1,
2012 for the CY 2014 payment determination. Since ASCs are not required
to include QDCs on claims until October 2012 for the CY 2014 payment
determination, an ASC designated as open in the CASPER system before
January 1, 2012 would be operating for at least 10 months before having
to report any data. We believe this would be a sufficient amount of
time for ASCs to be established to report quality data for the CY 2014
payment determination.
For the CY 2015 payment determination, we are proposing that these
administrative requirements would apply to all ASCs designated as open
in the CASPER system for at least four months prior to January 1, 2013.
We believe that this date and length of operations experience would
provide new ASCs sufficient time before having to meet quality data
reporting requirements after the program's initial implementation year.
We invite public comment on these proposals relating to
administrative requirements.
b. Proposals Regarding Form, Manner, and Timing for Claims-Based
Measures for CYs 2014 and 2015 Payment Determinations
(1) Background
In the CY 2012 OPPS/ASC final rule with comment period, we adopted
claims based measures for the CYs 2014 and 2015 payment determinations
(76 FR 74504 through 74509). We also finalized that, to be eligible for
the full CY 2014 ASC annual payment update, an ASC must submit complete
data on individual quality measures through a claims-based reporting
mechanism by submitting the appropriate QDCs on the ASC's Medicare
claims (76 FR 74515 through 74516). Further, we finalized the data
collection period for the CY 2014 payment determination, as the
Medicare fee-for-service ASC claims submitted for services furnished
between October 1, 2012 and December 31, 2012. We did not finalize a
date by which claims would be processed to be considered for CY 2014
payment determinations.

[[Page 28104]]

We are now proposing that claims for services furnished between
October 1, 2012 and December 31, 2012 would have to be paid by the
administrative contractor by April 30, 2013 to be included in the data
used for the CY 2014 payment determination. We believe that this claim
paid date would allow ASCs sufficient time to submit claims while
allowing sufficient time for CMS to complete required data analysis and
processing to make payment determinations and to supply this
information to administrative contractors.
We did not finalize a data collection and processing period for the
CY 2015 payment determination, but intend to do so in the CY 2013 OPPS/
ASC proposed rule.
(2) Proposed Minimum Threshold for Claims-Based Measures Using QDCs
In the CY 2012 OPPS/ASC final rule with comment period, we
finalized that data completeness for claims-based measures would be
determined by comparing the number of claims meeting measure
specifications that contain the appropriate QDCs with the number of
claims that would meet measure specifications, but did not have the
appropriate QDCs on the submitted claim. In other words, the numerator
will be the total number of claims meeting measure specifications that
have QDCs and the denominator will be the total number of claims
meeting measure specifications. We stated our intent to propose how we
would assess data completeness for claims-based measures in this
proposed rule (76 FR 74516). For the initial reporting years, we
believe that a lower threshold for data completeness should be
established for data collection because ASCs are not familiar with how
to report quality data under the ASC Quality Reporting Program, and
because many ASCs are relatively small and they may need more time to
set up their reporting systems. For the CYs 2014 and 2015 payment
determinations, we are proposing that the minimum threshold for
successful reporting be that at least 50 percent of claims meeting
measure specifications contain QDCs. We believe 50 percent is a
reasonable minimum threshold based upon the considerations discussed
above for the initial implementation years of the ASC Quality Reporting
Program. We intend to propose to increase this percentage for
subsequent payment determination years as ASCs become more familiar
with reporting requirements for this quality data reporting program.
As stated in CY 2012 OPPS/ASC final rule with comment period (76 FR
74516), ASCs will add the appropriate QDCs on their Medicare Part B
claim forms, the Form CMS-1500s submitted for payment, to submit the
applicable quality data. A listing of the codes with long and short
descriptors is available in transmittal 2425, Change Request 7754
released March 16, 2012 (http://www.cms.gov/transmittals/downloads/R2425CP.pdf). Details on how to use these codes for submitting
numerators and denominator information will be available in the ASC
Quality Reporting Program Specifications Manual located on our Web site
(http://www.cms.hhs.gov) beginning in April 2012.
We invite public comment on these proposals relating to form,
manner, and timing for claims-based measures.
c. ASC Quality Reporting Program Validation of Claims-Based and
Structural Measures
We received comments on the CY 2012 OPPS/ASC proposed rule
requesting that rules for data validation be adopted as soon as
possible (76 FR 74515). We noted that claims-based and structural
measures historically have not been validated through independent
medical record review in our quality reporting programs for either
hospitals or physicians due to the lack of relevant information in
medical record documentation for specific data elements of the
measures, such as use of a safe surgery checklist. Thus, consistent
with other CMS quality reporting programs, we are not proposing to
validate claims-based measures (beyond the usual claims validation
activities conducted by our administrative contractors) and structural
measures for the ASC Quality Reporting Program.
3. Proposed Extraordinary Circumstances Extension or Waiver for the CY
2014 Payment Determination and Subsequent Payment Determination Years
In our experience, there have been times when facilities have been
unable to submit information to meet program requirements due to
extraordinary circumstances that are not within their control. It is
our goal to not penalize such entities for such circumstances and we do
not want to unduly increase their burden during these times. Therefore,
we are proposing procedures for extraordinary circumstance extension or
waiver requests for the submission of information, including but not
limited to, QDCs submitted on claims, required under the ASC Quality
Reporting Program.
In the event of extraordinary circumstances, such as a natural
disaster, that is not within the control of the ASC, we are proposing
to adopt a process for an extension or waiver for submitting
information for meeting program requirements that is similar to the one
adopted for the Hospital OQR Program because this process has been
effective for hospitals, and we believe such a process also would be
effective for ASCs. We are proposing that an ASC would complete a
request form that would be made available on the QualityNet Web site
and submit the request to CMS. We are proposing that the following
information must be noted on the form:
ASC CMS Certification Number (CCN) and related National
Provider Identifier(s) [NPI(s)];
ASC Name;
Contact information for a person at the ASC with whom CMS
can communicate about this request, including name, e-mail address,
telephone number, and mailing address (must include a physical address,
a post office box address is not acceptable);
ASC's reason for requesting an extension or waiver;
Evidence of the impact of the extraordinary circumstances,
including but not limited to photographs, newspaper and other media
articles; and
A date when the ASC would be able to submit required ASC
Quality Reporting Program information, and a reasonable basis for the
proposed date.
We are proposing that the request form would be signed by a person
who has authority to sign on behalf of the ASC and a request form would
be required to be submitted within 45 days of the date that the
extraordinary circumstance occurred.
Following receipt of such a request, we are proposing that CMS
would--
(a) Provide a written acknowledgement using the contact information
provided in the request, notifying the ASC contact that the ASC's
request has been received;
(b) Provide a formal response to the ASC contact using the contact
information provided in the request notifying the ASC of our decision;
and
(c) Complete its review of any request and communicate its response
within 90 days following CMS's receipt of such a request.
We are proposing that we would also have discretion to grant
waivers or extensions to ASCs that have not been formally requested by
them when we determine that an extraordinary circumstance, such as an
act of nature (for example, hurricane) affects an entire region or
locale. We are proposing that,

[[Page 28105]]

if we make the determination to grant a waiver or extension to ASCs in
a region or locale, we would communicate this decision to ASCs and
vendors through routine communication channels, including, but not
limited to, e-mails and notices on the QualityNet Web site.
We invite public comment on this proposed process for granting
extraordinary circumstances extensions or waivers for the submission of
information for the ASC Quality Reporting Program.
4. Proposed ASC Quality Reporting Program Reconsideration Procedures
for the CY 2014 Payment Determination and Subsequent Payment
Determination Years
We have established similar processes by which participating
hospitals can submit requests for reconsideration of quality reporting
program payment determinations for the Hospital IQR Program and the
Hospital OQR Program. We believe these reconsideration processes have
been effective in the hospital quality reporting programs and such a
process would be effective for ASC quality reporting. Therefore, we are
proposing to implement a reconsideration process for the ASC Quality
Reporting Program modeled after the reconsideration processes we
implemented for the Hospital IQR and Hospital OQR Programs.
We are proposing that an ASC seeking reconsideration would be
required to submit to CMS a Reconsideration Request form that would be
made available on the QualityNet Web site. We are proposing that the
request form would be signed by a person who has authority to sign on
behalf of the ASC and that this form must be submitted by March 17 of
the affected payment year (for example, for the CY 2014 payment
determination, the request must be submitted by March 17, 2014).
We are proposing to use a deadline of March 17 to provide
sufficient time for an ASC to see the effects of a payment reduction on
its January claims. Administrative contractors have 30 days to process
(pay or deny) clean claims. Administrative contractors have 45 days to
process claims other than clean ones (that is, claims that require the
contractor to query for more information, look at medical
documentation, among others) (Claims Processing Manual, Chapter 1,
Section 80; sections 1869(a)(2), 1816(c)(2) and 1842(c)(2) of the Act).
We are proposing March 17 because this date is 45 days after an ASC
would have had the opportunity to provide one full month of services
(that is, March 17 is 45 days after January 31).
This Reconsideration Request form would contain the following
information:
ASC CCN and related NPI(s);
ASC Name;
CMS-identified reason for not meeting the affected payment
year's ASC Quality Reporting Program requirements as provided in any
CMS notification to the ASC;
ASC basis for requesting reconsideration. We are proposing
that the ASC must identify the ASC's specific reason(s) for believing
it met the affected payment year's ASC Quality Reporting Program
requirements and should receive the full ASC annual payment update;
Contact information for a person at the ASC with whom CMS
can communicate about this request, including name, e-mail address,
telephone number, and mailing address (must include physical address,
not just a post office box); and
A copy of all materials that the ASC submitted to comply
with the affected payment year's ASC Quality Reporting Program
requirements. With regard to information submitted on claims, we are
proposing ASCs would not be required to submit copies of all submitted
claims, but instead would focus on the specific claims at issue. Thus,
ASCs would submit relevant information, which could include copies of
the actual claims at issue.
Following receipt of a request for reconsideration, we are
proposing that we would:
Provide an e-mail acknowledgement, using the contact
information provided in the reconsideration request, to the ASC contact
notifying the ASC that the ASC's request has been received; and
Provide a formal response to the ASC contact, using the
contact information provided in the reconsideration request, notifying
the ASC of the outcome of the reconsideration process.
We intend to complete any reconsideration reviews and communicate
the results of these determinations within 90 days following the
deadline for submitting requests for reconsideration.
We intend to issue proposals regarding appeals of ASC Quality
Reporting Program reconsideration decisions in a future rulemaking.
We invite public comment on our proposed reconsideration
procedures.

F. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

1. Statutory Authority
Section 1886(s)(4) of the Act, as added and amended by sections
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary
to implement a quality reporting program for inpatient psychiatric
hospitals and psychiatric units. Section 1886(s)(4)(A)(i) of the Act
requires that, for rate year (RY) 2014 and each subsequent rate year,
the Secretary shall reduce any annual update to a standard Federal rate
for discharges occurring during such rate year by 2.0 percentage points
for any inpatient psychiatric hospital or psychiatric unit that does
not comply with quality data submission requirements with respect to an
applicable rate year.
We note that section 1886(s)(4)(A)(i) of the Act uses the term
``rate year.'' Beginning with the annual update of the inpatient
psychiatric facility prospective payment system (IPF PPS) that took
effect on July 1, 2011 (RY 2012), we aligned the IPF PPS update with
the annual update of the ICD-9-CM codes, which are effective on October
1 of each year. The change allows for annual payment updates and the
ICD-9-CM coding update to occur on the same schedule and appear in the
same Federal Register document, thus making updating rules more
administratively efficient. To reflect the change to the annual payment
rate update cycle, we revised the regulations at 42 CFR 412.402 to
specify that, beginning October 1, 2012, the 12-month period of October
1 through September 30 is referred to as a fiscal year (76 FR 26435).
For more information regarding this terminology change, we refer
readers to the ``Changing the IPF PPS Payment Rate Update Period from a
Rate Year to a Fiscal Year'' section of the final rule (76 FR 26434
through 26435). For purposes of the discussion below, the term ``rate
year'' and ``fiscal year'' both refer to the period beginning October 1
and ending September 30. To avoid confusion that may be caused by using
the term ``rate year'' with respect to the inpatient psychiatric
hospitals and psychiatric units quality reporting program, we will use
the term ``fiscal year'' rather than ``rate year'' throughout this
proposed rule, even when we are referring to statutory provisions that
refer to ``rate year.''
As provided in section 1886(s)(4)(A)(ii) of the Act, the
application of the reduction for failure to report under section
1886(s)(4)(A)(i) of the Act may result in an annual update of less than
0.0 for a fiscal year,

[[Page 28106]]

and may result in payment rates under section 1886(s)(1) of the Act
being less than such payment rates for the preceding year. In addition,
section 1886(s)(4)(B) of the Act requires that the application of the
reduction to a standard Federal rate update be noncumulative across
fiscal years. Thus, any reduction applied under section 1886(s)(4)(A)
of the Act will apply only with respect to the fiscal year rate
involved and the Secretary shall not take into account such reduction
in computing the payment amount under the system described in section
1886(s)(1) of the Act for subsequent years.
Section 1886(s)(4)(C) of the Act requires that, for FY 2014
(October 1, 2013 through September 30, 2014) and each subsequent year,
each psychiatric hospital and psychiatric unit shall submit to the
Secretary data on quality measures as specified by the Secretary. Such
data shall be submitted in a form and manner, and at a time, specified
by the Secretary. Under section 1886(s)(4)(D)(i) of the Act, measures
selected for the quality reporting program must have been endorsed by
the entity with a contract under section 1890(a) of the Act. The
National Quality Forum (NQF) currently holds this contract. The NQF is
a voluntary, consensus-based, standard-setting organization with a
diverse representation of consumer, purchaser, provider, academic,
clinical, and other health care stakeholder organizations. The NQF was
established to standardize health care quality measurement and
reporting through its consensus development process. We generally
prefer to adopt NQF-endorsed measures in our reporting programs with
some exceptions as provided by law.
For purposes of the Inpatient Psychiatric Facilities Quality
Reporting (IPFQR) Program, section 1886(s)(4)(D)(ii) of the Act
provides that, 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 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. Finally, pursuant to section
1886(s)(4)(D)(iii) of the Act, the Secretary shall publish the measures
applicable to the FY 2014 IPFQR Program no later than October 1, 2012.
Section 1886(s)(4)(E) of the Act requires the Secretary to
establish procedures for making public the data submitted by inpatient
psychiatric hospitals and psychiatric units under the quality reporting
program. Such procedures must ensure that a facility has the
opportunity to review its data prior to such data being made public.
The Secretary must report quality measures that relate to services
furnished by the psychiatric hospitals and units on a CMS Web site.
2. Application of the Payment Update Reduction for Failure to Report
for FY 2014 Payment Determination and Subsequent Years
Beginning in FY 2014, section 1886(s)(4)(A)(i) of the Act requires
the application of a 2.0 percentage point reduction to the applicable
annual update to a Federal standard rate for those psychiatric
hospitals and units that fail to comply with the quality reporting
requirements implemented in accordance with section 1886(s)(4)(C) of
the Act, as detailed below. The application of the reduction may result
in an annual update for a fiscal year that is less than 0.0 and in
payment rates for a fiscal year being less than the payment rates for
the preceding fiscal year. Pursuant to section 1886(s)(4)(B) of the
Act, any such reduction is not cumulative and it will apply only to the
fiscal year involved. We are proposing to add new regulatory text at 42
CFR 412.424 to codify these requirements.
We invite public comment on the proposed language for the
application of the payment reduction to an annual update to a standard
Federal rate for failure to report for FY 2014 and subsequent years.
3. Covered Entities
The quality reporting requirements in this proposed rule would
cover those psychiatric hospitals and psychiatric units that are
reimbursed under Medicare's IPF PPS (42 CFR 412.404(b)). For more
information on the application of and exceptions to the IPF PPS
reimbursement, we refer readers to the ``Overview of the IPF PPS
Payment Methodology'' section of the November 15, 2004 final rule
titled ``Medicare Program: Prospective Payment System for Inpatient
Psychiatric Facilities'' (69 FR 66922 at 66926). In this proposed rule,
we are using the term ``inpatient psychiatric facility'' (IPF) to refer
to both inpatient psychiatric hospitals and psychiatric units. This
usage follows the terminology we have used in the past in our IPF PPS
regulations (42 CFR 412.402).
4. Proposed Quality Measures
a. Considerations in Selecting Quality Measures
For purposes of the IPFQR Program, section 1886(s)(4)(D)(i) of the
Act requires that any measure specified by the Secretary must have been
endorsed by the entity with a contract under section 1890(a) of the
Act. The statutory requirements under section 1886(s)(4)(D)(ii) of the
Act provide an exception that, 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 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 implementing the IPFQR Program, our overarching objective is to
support the HHS National Quality Strategy's three-part aim of better
health care for individuals, better health for populations, and lower
costs for health care (http://www.ahrq.gov/workingforquality/nqs/#aims). Implementation of the IPFQR Program will help achieve the
three-part aim by creating transparency around the quality of care at
IPFs to support patient decision-making and quality improvement. Over
time, the IPFQR Program will help align the goals for quality
measurement and improvement at IPFs with those of other providers in
the health system.
We seek to collect data in a manner that balances the need for
information related to the full spectrum of quality performance and the
need to minimize the burden of data collection and reporting. We have
focused on measures that have high impact and support CMS and HHS
priorities for improved quality and efficiency of care provided by
IPFs. We applied the following considerations for the development and
selection of measures:
Given the availability of well-validated measures and the
need to balance breadth with minimizing burden, the measures should
address as fully as possible the six domains of measurement that arise
from the six priorities of the National Quality Strategy: clinical
care; person- and caregiver-centered experience and outcomes; safety;
efficiency and cost reduction; care coordination; and community/
population health.
Public reporting should rely on a mix of standards,
outcomes, process of care measures, and patient experience of

[[Page 28107]]

care measures, including measures of care transitions and changes in
patient functional status, with an emphasis on measurement as close to
the patient-centered outcome of interest as possible.
The measure sets should evolve so that they include a
focused set of measures appropriate to the IPF provider category that
reflects the level of care and the most important areas of service and
measures for such providers as well as measures addressing a core set
of measure concepts that align quality improvement objectives across
all provider types and settings.
Measures should address gaps in quality of inpatient
psychiatric care.
As part of our burden reduction efforts, we continuously
seek to weigh the relevance and utility of the measures compared to the
burden on hospitals in submitting data under the IPFQR Program. As
appropriate, we will align our measures with other Medicare and
Medicaid programs and may consider the adoption of meaningful use
standards for health information technology (HIT), so that the
collection of performance information is part of care delivery.
To the extent practicable, measures used by CMS should be
nationally endorsed by a multistakeholder organization. Measures should
be aligned with best practices among other payers and the needs of the
end users of the measures. We take into account widely accepted
criteria established in medical literature. We consider suggestions and
input from technical expert panels (TEPs), convened by CMS contractors,
which evaluate IPFQR quality measures for importance, scientific
soundness, usability, and feasibility.
We also take into account national priorities and HHS Strategic
Plans and Initiatives:
HHS engaged a wide range of stakeholders to develop the
National Quality Strategy, as required by the Affordable Care Act,
which pursues three aims (better care, healthy people, and affordable
care) that establish a framework with six identifiable priorities
(http://www.hhs.gov/secretary/about/priorities.html and http://www.ahrq.gov/workingforquality/ngs):
Ensuring that each person and family is engaged as
partners in their care.
Promoting effective communication and coordination
of care.
Promoting the most effective prevention and
treatment practices for the leading causes of mortality, starting with
cardiovascular disease.
Working with communities to promote wide use of
best practices to enable healthy living.
Making quality care more affordable for
individuals, families, employers, and governments by developing and
spreading new health care delivery models.
Making care safer by reducing harm caused in the
delivery of care.
We consider recommendations of the Measure Application
Partnership (MAP) for the inclusion of clinical quality measures
(http://www.qualityforum.org.map/). The MAP is a public-private
partnership convened by the NQF for the primary purpose of providing
input to HHS on selecting performance measures for quality reporting
programs and pay-for-reporting programs.
HHS is the United States Government's principal department
for protecting the health of all Americans. HHS accomplishes its
mission through programs and initiatives. The goals of the HHS
Strategic Plan for FYs 2010 through 2015 are: Strengthen Health Care;
Advance Scientific Knowledge and Innovation; Advance the Health,
Safety, and Well-Being of the American People; Increase Efficiency,
Transparency, and Accountability of HHS Programs; and Strengthen the
Nation's Health and Human Services Infrastructure and Workforce (http://www.hhs.gov/secretary/about/priorities.html). HHS will update this
strategic plan every 4 years and measure its progress in addressing
specific national problems, needs, or mission-related challenges.
HHS prioritizes policy and program interventions to address the
leading causes of death and disability in the United States, including
heart disease, cancer, stroke, chronic lower respiratory diseases,
unintentional injuries, and preventable behaviors. Initiatives such as
the HHS Action Plan to Reduce Healthcare-Associated Infections in
clinical settings and the Partnership for Patients exemplify these
programs.
CMS Strategic Plan--CMS strives: (1) To ensure measures
for different Medicare and Medicaid programs are aligned with priority
quality goals, measure specifications are aligned across settings, and
outcome measures are used whenever possible; and (2) to move towards
the collection of quality measures from electronic health records
(EHRs) as appropriate.
We invite public comments on the considerations used for the
development and selection of the proposed quality measures for the
IPFQR Program.
b. Proposed Quality Measures Beginning With FY 2014 Payment
Determination and Subsequent Years
We are proposing to adopt six quality measures for FY 2014 and
subsequent fiscal years. In selecting the proposed quality measures
discussed below, we strive to achieve several objectives. First, we
believe the measures we are proposing relate to the general aims of
better care, better health, and lower cost and address the six domains
of quality measurement as fully as possible. Second, we believe the
measures are tailored to the needs of improved quality in IPFs; thus,
the measures selected are those most relevant to IPFs. Third, we
believe the measures promote alignment of quality improvement
objectives across provider settings. Finally, we believe the measures
are minimally burdensome to IPFs.
We recognize that any quality reporting program will impose certain
data collection and reporting requirements on participating facilities.
However, we believe that the proposed measures minimize the collection
and reporting burden on IPFs because, under Medicare's IPF conditions
of participation (CoPs) (42 CFR 482.61), IPFs must maintain documentary
evidence of detailed treatment approaches and aftercare considerations.
Further, under 42 CFR 482.21, IPFs are required to develop, implement,
and maintain an effective, ongoing, hospital-wide data-driven quality
assessment and performance improvement (QAPI) program as well as
documentary evidence of such program for purposes of demonstrating
their operation to CMS. More importantly, Sec. 482.21 requires that
IPFs measure, analyze, and track certain quality indicators, including
adverse patient events, and other aspects of performance that enable
the hospital to assess processes of care, hospital services, and
operations as part of their QAPI Program. Because the proposed IPFQR
Program measures cover processes that IPFs are currently recording as
Medicare CoPs, we do not believe that reporting on the proposed
measures would impose a significant burden on IPFs. We note that over
one-quarter of IPFs \198\ are also already reporting data needed to
calculate the proposed measures to The Joint Commission (TJC) for
purposes of TJC accreditation. Thus, the IPFQR Program

[[Page 28108]]

will impose little additional burden for those IPFs.
---------------------------------------------------------------------------

\198\ Out of the 1,741 existing IPFs, 450 are currently
reporting the proposed measures to TJC. This equates to
approximately 26 percent of IPFs that already report the measures on
a regular basis.
---------------------------------------------------------------------------

After considering the recommendations and feedback from content
area experts and multiple stakeholders, we are proposing, for the FY
2014 payment determination and subsequent years, six NQF-endorsed,
Hospital-Based Inpatient Psychiatric Services (HBIPS) measures, which
have been developed by and are maintained by TJC for purposes of
assessing the quality of inpatient psychiatric services. These measures
are: (1) HBIPS-2: Hours of Physical Restraint Use (NQF 0640);
(2) HBIPS-3: Hours of Seclusion Use (NQF 0641); (3) HBIPS-4:
Patients Discharged on Multiple Antipsychotic Medications (NQF
0552); (4) HBIPS-5: Patients Discharged on Multiple
Antipsychotic Medications with Appropriate Justification (NQF
0560); (5) HBIPS-6: Post-Discharge Continuing Care Plan
Created (NQF 0557); and (6) HBIPS-7: Post-Discharge Continuing
Care Plan Transmitted to Next Level of Care Provider Upon Discharge
(NQF 0558).\199\ These six proposed process measures are NQF-
endorsed and were recommended by the MAP \200\ for inclusion in the
IPFQR Program. The six proposed measures align with three of the six
priorities of the National Quality Strategy: patient safety, promoting
effective prevention and treatment practices (clinical quality of
care), and promoting effective communication and coordination of care.
Technical specifications for these measures can currently be found on
the Web site of TJC, the measure steward, at: http://www.manual.jointcommission.org/releases/TJC2012B/HospitalBasedInpatientPsychiatricServices.html.
---------------------------------------------------------------------------

\199\ The Joint Commission has developed seven Hospital-Based
Inpatient Psychiatric Services (HBIPS) measures. Only six of these
seven measures are proposed for the FY 2014 payment determination;
HBIPS-1 is not proposed.
\200\ Measure Application Partnership, Pre-Rulemaking Final
Report: Input on Measures under Consideration by HHS for 2012
Rulemaking, pages 95-96, Available at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

As noted earlier, these six HBIPS measures are currently in use by
an estimated 450 TJC-accredited IPFs, thereby posing minimal collection
burden for these facilities. We note that an estimated 1,100
facilities, which do not routinely report to TJC, will incur some data
collection burden. In addition, summary analyses of current measure
results provided to CMS by TJC demonstrate variation in performance
among the facilities currently reporting results for these measures,
suggesting continued opportunity for quality improvement.
Section 1886(s)(4)(D)(i) of the Act requires that quality measures
selected for the IPFQR Program be endorsed by the entity with a
contract under section 1890(a) of the Act. As discussed earlier, the
current holder of this contract is NQF. The measures are currently NQF-
endorsed for reporting overall performance rates and rates for four age
groups (children, adolescents, adults, and older adults). We are
proposing to require reporting of data for all four age groups for
which the measures are currently endorsed. More details regarding this
proposal are included in section VIII.F.7. of this preamble. In
addition to aligning with previous collection and reporting of these
measures by TJC, our proposal reflects the feedback provided by the
subject-matter TEP convened by the CMS measure development contractor
for this program and focus groups of hospitals and vendors involved in
providing inpatient psychiatric services.
We are proposing to collect aggregate data rather than patient
level data for FY 2014 and subsequent years in recognition of the
considerable burden to providers not accustomed to reporting patient
level data. Hospitals are free to use our paper abstraction tool and
utilize commonly available software, like spreadsheets, to enter and
compute measure rates. We intend to provide a template using a commonly
available spreadsheet format used by many hospitals which will be
available on the QualityNet Web site (http://www.qualitynet.org/).
Further, IPFs are free to procure services from TJC vendors to assist
them with data collection. However, we note that we do not require the
use of TJC vendors. Proposals for collection requirements and
submission timeframes are included in section VIII.F.7. of this
preamble. The six proposed measures for FY 2014 and subsequent years
are described in more detail below.
(1) HBIPS-2 (Hours of Physical Restraint Use)
The use of physical restraints increases a patient's risk of
physical injury as well as psychological harm.\201,202\ This
intervention is intended for use only if a patient is in imminent
danger to him/herself or others and if less restrictive interventions
have failed. It is not intended to address staff shortages or to be
used as a form of discipline or coercion. The President's New Freedom
Commission on Mental Health \203\ explicitly recommends the reduction
of restraint use to improve quality of care. A measure designed to
reduce the use of restraints will also help achieve the National
Quality Strategy's goal to improve patient safety and reduce the risk
of harm from care.
---------------------------------------------------------------------------

\201\ Evans, D., Wood, J., & Lambert, L. (2003). Patient injury
and physical restraint devices: A systematic review. Journal of
Advanced Nursing, 41: 274-282.
\202\ New Freedom Commission on Mental Health, Achieving the
Promise: Transforming Mental Health Care in America. Final Report.
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
\203\ New Freedom Commission on Mental Health, Achieving the
Promise: Transforming Mental Health Care in America. Final Report.
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
---------------------------------------------------------------------------

In addition to initiatives to reduce the use of restraints, the
subject-matter TEP convened by our measure development contractor
identified patient safety as an important measure concept and
recommended the use of HBIPS-2 (Hours of Physical Restraint Use) for
use in a national IPF quality reporting program. HBIPS-2 is a process
measure that is reported as the total number of hours of physical
restraint (HBIPS-2) use for all patients admitted to an inpatient
psychiatric facility. We believe that fewer reported hours of physical
restraint use suggest higher quality of care because reduced restraint
time lowers patient risk for physical injury and psychological harm.
The numerator is defined as the total number of hours that all
psychiatric inpatients were maintained in physical restraint. The
denominator is defined as the number of psychiatric inpatient hours
overall. Total leave days are excluded from the denominator.
In addition to meeting the statutory requirements as provided in
section 1886(s)(4)(D) of the Act, we believe HBIPS-2 also meets a
number of additional considerations we take into account when proposing
quality measures for the IPFQR Program. The measure assesses the
quality of care provided for inpatient psychiatric patients at the
facility level. Approximately 450 IPFs are already collecting the
measure for purposes of TJC accreditation. HBIPS-2 received support
from the MAP and is aligned with the National Quality Strategy priority
for providing safer care.
We invite public comments on the inclusion of the proposed quality
measure HBIPS-2, Hours of Physical Restraint Use, in the IPFQR program
beginning with the FY 2014 payment determination. Proposals for
collection requirements and submission timeframes are included in
section VIII.F.7. of this preamble.
(2) HBIPS-3 (Hours of Seclusion Use)
The use of seclusion increases a patient's risk of physical injury
as well

[[Page 28109]]

as psychological harm.\204,205\ This intervention is intended for use
only if a patient is in imminent danger to him/herself or others and if
less restrictive interventions have failed. It is not intended to
address staff shortages or to be used as a form of discipline or
coercion. The President's New Freedom Commission on Mental Health
explicitly recommends the reduction of seclusion use to improve quality
of care.\206\ Measures designed to reduce the use of seclusion will
also help achieve the National Quality Strategy's goal to improve
patient safety and reduce the risk of harm from care.
---------------------------------------------------------------------------

\204\ Holmes, D., Kennedy, S.L., & Perron, A. (2004). The
mentally ill and social exclusion: a critical examination of the use
of seclusion from the patient's perspective. Issues in Mental Health
Nursing, 25: 559-578.
\205\ New Freedom Commission on Mental Health, Achieving the
Promise: Transforming Mental Health Care in America. Final Report.
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
\206\ New Freedom Commission on Mental Health, Achieving the
Promise: Transforming Mental Health Care in America. Final Report.
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
---------------------------------------------------------------------------

The subject-matter TEP convened by our measure development
contractor identified patient safety as an important measure concept
and recommended the use of HBIPS-3 (Hours of Seclusion Use) for use in
a national IPF quality reporting program. HBIPS-3 is a process measure
that is reported as the total number of hours of seclusion use for all
patients admitted to an IPF. We believe that fewer reported hours of
seclusion use suggest higher quality of care because reducing seclusion
time lowers patient risk for physical injury and psychological harm.
The numerator is defined as the total number of hours all
psychiatric inpatients were held in seclusion. The denominator is
defined as the number of psychiatric inpatient hours overall. Total
leave days are excluded from the denominator.
In addition to meeting the statutory requirements as provided in
section 1886(s)(4)(D) of the Act, we believe HBIPS-3 also meets a
number of additional considerations we take into account when proposing
quality measures for the IPFQR Program. The measure assesses the
quality of care provided for inpatient psychiatric patients at the
facility level. Approximately 450 IPFs are already collecting the
measure for purposes of TJC accreditation. HBIPS-3 received support
from the MAP and is aligned with the National Quality Strategy priority
for providing safer care.
We invite public comment on the inclusion of the proposed quality
measure HBIPS-3, Hours of Seclusion Use, in the IPFQR Program beginning
with the FY 2014 payment determination. Proposals for collection
requirements and submission timeframes are included in section
VIII.F.7. of this preamble.
(3) HBIPS-4 (Patients Discharged on Multiple Antipsychotic Medications)
An estimated 30 percent to 50 percent of patients in IPFs are
treated with two or more antipsychotic medications, which can lead to
serious side effects. Among patients without a history of treatment
failure on a single antipsychotic, there is insufficient evidence to
conclude that patients experience better outcomes if they are
prescribed multiple antipsychotics compared to a single antipsychotic.
Given the risk of side effects, stakeholders such as the National
Association of State Mental Health Program Directors have called for
the reduction of unnecessary use of multiple antipsychotics.\207\ The
American Psychiatric Association recommends the use of multiple
antipsychotics only if a patient has had failed attempts on single
antipsychotics. In efforts to promote effective treatment practices, a
National Quality Strategy priority, we are proposing to include the
process measure HBIPS-4, Patients Discharged on Multiple Antipsychotic
Medications, in the FY 2014 IPFQR Program. The MAP and the subject-
matter TEP convened by our measure development contractor support the
inclusion of this measure in the IPFQR Program.
---------------------------------------------------------------------------

\207\ National Association of State Mental Health Program
Directors. Technical report on polypharmacy. Alexandria, VA: 2001.
Retrieved from http://www.nasmhpd.org/general_files/publications/med_directors_pubs/Polypharmacy.PDF.
---------------------------------------------------------------------------

TJC designed HBIPS-4 as part of a paired set with HBIPS-5
(described below), meaning they were developed to be used together.
HBIPS-4 is collected on all patients admitted to an IPF and is reported
as the rate of patients discharged on multiple antipsychotics. We
believe that lower rates are indicative of higher quality of care
because reducing the use of multiple antipsychotics reduces the
potential risks of harmful side effects to patients. However, there is
no expectation that zero percent is the desired outcome because it is
recognized that in some circumstances, use of multiple antipsychotics
may be appropriate.
The numerator is defined as psychiatric inpatients discharged on
two or more routinely scheduled antipsychotic medications. The
denominator is defined as all psychiatric inpatient discharges. The
measure excludes patients who died, patients with an unplanned
departure resulting in discharge due to elopement, and patients with an
unplanned departure resulting in discharge due to failing to return
from leave.
Taken together, HBIPS-4 and HBIPS-5 are intended to help reduce
unnecessary use of multiple antipsychotics and to promote better
clinical outcomes and reduced side effects for patients.
In addition to meeting the statutory requirements as provided in
section 1886(s)(4)(D) of the Act, we believe HBIPS-4 also meets a
number of additional considerations we take into account when proposing
quality measures for the IPFQR Program. The measure assesses the
quality of care provided for inpatient psychiatric patients at the
facility level. Approximately 450 IPFs already are collecting and
reporting the measure for purposes of TJC accreditation. HBIPS-4
received support from the MAP and is aligned with the National Quality
Strategy priority for promoting effective prevention and treatment
practices.
We invite public comment on the inclusion of the proposed quality
measure HBIPS-4, Patients Discharged on Multiple Antipsychotic
Medications, in the IPFQR Program beginning with the FY 2014 payment
determination. Proposals for collection requirements and submission
timeframes are included in section VIII.F.7. of this preamble.
(4) HBIPS-5 (Patients Discharged on Multiple Antipsychotic Medications
with Appropriate Justification)
In efforts to promote effective treatment practices, a National
Quality Strategy priority, we are proposing to include the process
measure HBIPS-5, Patients Discharged on Multiple Antipsychotic
Medications with Appropriate Justification, in the FY 2014 IPFQR
Program. The MAP and the subject-matter TEP convened by our measure
development contractor support the inclusion of this measure in the
IPFQR Program.
TJC designed HBIPS-5 as part of a paired set with HBIPS-4, meaning
they were developed to be used together. HBIPS-5 is collected on those
patients discharged on multiple antipsychotics and is reported as the
rate of patients discharged on multiple antipsychotics with appropriate
justification. This measure was designed in recognition that there is a
subsample of patients for whom multiple antipsychotic use may be
appropriate. TJC has identified the following justifications as
appropriate reasons for discharging a patient on

[[Page 28110]]

multiple antipsychotics: (1) The medical record contains documentation
of a history of a minimum of three failed trials of monotherapy; (2)
the medical record contains documentation of a recommended plan to
taper to monotherapy or documentation of a plan to decrease the dosage
of one or more antipsychotic medications while increasing the dosage of
another antipsychotic medication to a level that manages the patient's
symptoms with one antipsychotic medication (that is, cross-taper); and
(3) the medical record contains documentation of augmentation of
Clozapine. Higher rates on HBIPS-5 indicate higher quality of care
because documenting the reasons for assigning two or more
antipsychotics suggests that careful consideration of the benefits of
this course of treatment were weighed against the potential patient
side effects.
The numerator statement is defined as psychiatric inpatients
discharged on two or more routinely scheduled antipsychotic medications
with appropriate justification. The denominator is defined as
psychiatric inpatients discharged on two or more routinely scheduled
antipsychotic medications. The measure excludes patients who died,
patients with an unplanned departure resulting in discharge due to
elopement, patients with an unplanned departure resulting in discharge
due to failing to return from leave, and patients with a length of stay
less than or equal to 3 days.
Taken together, we believe that HBIPS-4 and HBIPS-5 will help
reduce unnecessary use of multiple antipsychotics and will lead to
better clinical outcomes and reduced side effects for patients.
In addition to meeting the statutory requirements as provided in
section 1886(s)(4)(D) of the Act, we believe HBIPS-5 also meets a
number of additional considerations we take into account when proposing
quality measures for the IPFQR Program. The measure assesses the
quality of care provided for inpatient psychiatric patients at the
facility level. Approximately 450 IPFs are already collecting and
reporting the measure for purposes of TJC accreditation. HBIPS-5
received support from the MAP and is aligned with the National Quality
Strategy priority for promoting effective prevention and treatment
practices.
We invite public comment on the inclusion of the proposed quality
measure HBIPS-5, Patients Discharged on Multiple Antipsychotic
Medications with Appropriate Justification, in the IPFQR Program
beginning with the FY 2014 payment determination. Proposals for
collection requirements and submission timeframes are included in
section VIII.F.7. of this preamble.
(5) HBIPS-6 (Post-Discharge Continuing Care Plan Created)
When patients are discharged from the hospital, they may benefit
from communication of information regarding the care they received or
recommendations for their continued care. For a seamless transition
from one treatment setting to another, providers that receive patients
from inpatient settings need to know information regarding the
patient's treatment during hospitalization, recommendations for post-
discharge care, and any medications the patient was discharged on. A
discharge plan facilitates this transition of information from one
setting to another and has been shown to have positive effects on
readmissions.
The promotion of effective care coordination is a National Quality
Strategy priority. We are proposing process measure HBIPS-6, Post-
Discharge Continuing Care Plan Created, to promote care coordination
for patients in inpatient psychiatric settings. TJC designed HBIPS-6 as
part of a paired set with HBIPS-7; they were developed to be used
together. HBIPS-6 measures whether a post-discharge continuing care
plan is created. However, the creation of a care plan does not
necessarily mean the plan is communicated to the patient's next
provider. Therefore, HBIPS-7 measures whether a post-discharge
continuing care plan is created and transmitted to the next level of
care provider. Together, these two measures can assist facilities in
determining where breakdowns in care processes occur. Quality care
under HBIPS-6 is indicated by patients who are discharged with a
continuing care plan that includes the reason for the hospitalization,
the principal discharge diagnosis, discharge medications, and the next
level of care recommendations. HBIPS-6 is collected on all patients
admitted to IPFs. We believe that higher rates on this measure suggest
better quality of care because greater numbers of post-discharge plans
indicate greater opportunities for improved patient-provider and
provider-provider communication, thus leading to improved patient care
and health.
The numerator is defined as psychiatric inpatients for whom the
post-discharge continuing care plan is created and contains all of the
following: Reason for hospitalization, principal discharge diagnosis,
discharge medications, and next level of care recommendations. The
denominator is defined as all psychiatric inpatient discharges.
Populations excluded from the denominator include patients who died,
patients with an unplanned departure resulting in discharge due to
elopement, patients or their guardians who refused aftercare, patients
or guardians who refused to sign authorization to release information,
and patients with an unplanned departure resulting in discharge due to
failing to return from leave.
In addition to meeting the statutory requirements as provided in
section 1886(s)(4)(D) of the Act, we believe HBIPS-6 also meets a
number of additional considerations we take into account when proposing
quality measures for the IPFQR Program. It is appropriate to facility-
level assessment of quality of care provided by IPFs. Approximately 450
IPFs are already collecting and reporting the measure for purposes of
TJC accreditation. HBIPS-6 received support from the MAP and is aligned
with the National Quality Strategy priority for promoting better care
coordination.
We invite public comment on the inclusion of the proposed quality
measure HBIPS-6, Post-Discharge Continuing Care Plan Created, in the
IPFQR Program beginning with the FY 2014 payment determination.
Proposals for collection requirements and submission timeframes are
included in section VIII.F.7. of this preamble.
(6) HBIPS-7 (Post-Discharge Continuing Care Plan Transmitted to the
Next Level of Care Provider Upon Discharge)
The promotion of effective care coordination is a National Quality
Strategy priority. We are proposing process measure HBIPS-7, Post-
Discharge Continuing Care Plan Transmitted to Next Level of Care
Provider upon Discharge, to promote care coordination for patients in
inpatient psychiatric settings. TJC designed HBIPS-7 as part of a
paired set with HBIPS-6; they were developed to be used together. While
the creation of a discharge care plan (as measured in HBIPS-6) is an
important part of providing coordinated care, simply creating the plan
does not ensure that the necessary information is transferred to the
patient's next provider. HBIPS-7 measures both aspects of coordinated
care--the creation of a discharge plan and the transmittal of that plan
to the next provider. Together, these two measures can assist
facilities in determining where breakdowns in care processes occur. As
specified by TJC, the discharge plan should be transmitted by the fifth
post-discharge day. This measure is collected on all patients admitted
to IPFs. We believe

[[Page 28111]]

that higher rates on this measure suggest better quality care because
the greater the number of post-discharge plans created and transmitted,
the greater opportunities for improved patient-provider and provider-
provider communication and understanding of what is necessary to
improve patient health.
The numerator is defined as psychiatric inpatients for whom the
post-discharge continuing care plan was transmitted to the next level
of care. The denominator statement is defined as all psychiatric
inpatient discharges. Populations excluded from the denominator include
patients who died, patients with an unplanned departure resulting in
discharge due to elopement, patients who refused (or whose guardians
refused) aftercare, patients who refused to sign (or whose guardians
refused to sign) authorization to release information, and patients
with an unplanned departure resulting in discharge due to failing to
return from leave.
In addition to meeting the statutory requirements as provided in
section 1886(s)(4)(D) of the Act, we believe HBIPS-7 also meets a
number of additional considerations we take into account when proposing
quality measures for the IPFQR Program. The measure assesses the
quality of care provided for inpatient psychiatric patients at the
facility level. Approximately 450 IPFs are already collecting and
reporting the measure for purposes of TJC accreditation. HBIPS-7
received support from the MAP and is aligned with the National Quality
Strategy priority for promoting better care coordination.
We invite public comment on the inclusion of the proposed quality
measure HBIPS-7, Post-Discharge Continuing Care Plan Transmitted to
Next Level of Care Provider upon Discharge, in the IPFQR Program
beginning with the FY 2014 payment determination. Proposals for
collection requirements and submission timeframes are included in
section VIII.F.7. of this preamble.
In summary, we are proposing to include six quality measures to be
reported in aggregate form for FY 2014 and subsequent years. These six
measures are shown in the table below. Measures adopted for the IPFQR
Program would remain in the quality program for all subsequent years
unless specifically stated otherwise (for example, through removal or
replacement). Proposals for collection requirements and submission
timeframes for these measures are included in section VIII.F.7. of this
preamble.

Proposed Quality Measures Beginning With the FY 2014 IPFQR Program
----------------------------------------------------------------------------------------------------------------
National quality strategy priority NQF No. Measure ID Measure description
----------------------------------------------------------------------------------------------------------------
Patient Safety.......................... 0640 HBIPS-2................... Hours of Physical Restraint
Use.
0641 HBIPS-3................... Hours of Seclusion Use.
Clinical Quality of Care................ 0552 HBIPS-4................... Patients Discharged on Multiple
Antipsychotic Medications.
0560 HBIPS-5................... Patients Discharged on Multiple
Antipsychotic Medications with
Appropriate Justification.
Care Coordination....................... 0557 HBIPS-6................... Post-Discharge Continuing Care
Plan Created.
0558 HBIPS-7................... Post-Discharge Continuing Care
Plan Transmitted to Next Level
of Care Provider Upon
Discharge.
----------------------------------------------------------------------------------------------------------------

c. Maintenance of Technical Specifications for Quality Measures
We will provide a user manual that will contain links to measure
specifications, data abstraction information, data submission
information, a data submission mechanism known as the Web-based Measure
Tool, and other information necessary for IPFs to participate in the
IPFQR Program. This manual will be posted on the QualityNet Web site
at: https://www.QualityNet.org. We will maintain the technical
specifications for the quality measures by updating this manual
periodically and including detailed instructions for hospitals to use
when collecting and submitting data on the required measures. These
updates will be accompanied by notifications to IPFQR Program
participants, providing sufficient time between the change and
effective dates in order to allow users to incorporate changes and
updates to the measure specifications into data collection systems.
Many of the quality measures used in different Medicare and
Medicaid reporting programs are NQF-endorsed. As part of its regular
maintenance process for NQF-endorsed performance measures, the NQF
requires measure stewards to submit annual measure maintenance updates
and undergo maintenance of endorsement review every 3 years. In the
measure maintenance process, the measure steward (owner/developer) is
responsible for updating and maintaining the currency and relevance of
the measure and will confirm existing or minor specification changes to
NQF on an annual basis. NQF solicits information from measure stewards
for annual reviews, and it reviews measures for continued endorsement
in a specific 3-year cycle.
Through NQF's measure maintenance process, NQF-endorsed measures
are sometimes updated to incorporate changes that we believe do not
substantially change the nature of the measure. Examples of such
changes could be updated diagnosis or procedure codes, changes to
exclusions to the patient population, definitions, or extension of the
measure endorsement to apply to other settings. We believe these types
of maintenance changes are distinct from more substantive changes to
measures that result in what are considered new or different measures,
and that they do not trigger the same agency obligations under the
Administrative Procedure Act. In this proposed rule, we are proposing
that if the NQF updates an endorsed measure that we have adopted for
the IPFQR Program in a manner that we consider to not substantially
change the nature of the measure, we would use a subregulatory process
to incorporate those updates to the measure specifications that apply
to the program. Specifically, we would revise the Specifications Manual
so that it clearly identifies the updates and provide links to where
additional information on the updates can be found. We also would post
the updates on the CMS QualityNet Web site at https://www.QualityNet.org. We would provide sufficient lead time for IPFs to
implement the changes where changes to the data collection systems
would be necessary.
We would continue to use the rulemaking process to adopt changes to
measures that we consider to substantially change the nature of the
measure. We believe that this proposal

[[Page 28112]]

adequately balances our need to incorporate NQF updates to NQF-endorsed
IPFQR Program measures in the most expeditious manner possible, while
preserving the public's ability to comment on updates that so
fundamentally change an endorsed measure that it is no longer the same
measure that we originally adopted. We invite public comment on this
proposal.
5. Possible New Quality Measures for Future Years
We seek to develop a comprehensive set of quality measures to be
available for widespread use for informed decision-making and quality
improvement in the inpatient psychiatric setting. Therefore, through
future rulemaking, we intend to propose new measures that will help us
further our goal of achieving better health care and improved health
for Medicare beneficiaries who obtain inpatient psychiatric services,
through the widespread dissemination and use of performance
information. Additionally, we are considering initiating a call for
future measures to solicit input to assess the following measure
domains: Clinical quality of care; care coordination; patient safety;
patient and caregiver experience of care; population/community health;
and efficiency. This approach will enhance better psychiatric care
while bringing the IPFQR Program in line with other established quality
reporting and performance improvement programs such as the Hospital IQR
Program, the Hospital OQR Program, the ESRD QIP, and other CMS quality
programs.
We welcome public comment on considerations of additional measure
topics for the IPFQR Program in future rulemaking.
6. Public Display Requirements for the FY 2014 Payment Determination
and Subsequent Years
Section 1886(s)(4)(E) of the Act requires the Secretary to
establish procedures for making the data submitted under the IPFQR
Program available to the public. Such procedures shall ensure that an
IPF has the opportunity to review the data that is to be made public
with respect to the psychiatric hospital or unit prior to such data
being made public. The data collected will be displayed on our Web
site. Under these requirements, for each payment determination year, we
are proposing to publicly display the submitted data on our Web site
beginning in the first quarter of the calendar year following the
respective payment determination year. Before the data are publicly
displayed, we are proposing that IPFs will have the opportunity to
preview their data between September 20 and October 19 of the
respective payment determination year (refer to the following table).

Proposed Public Display for FY 2014, FY 2015, and FY 2016
----------------------------------------------------------------------------------------------------------------
Public display
Payment determination year (fiscal year) 30-day preview period (calendar year)
----------------------------------------------------------------------------------------------------------------
FY 2014..................................... September 20, 2013-October 19, 2013............ 2014
FY 2015..................................... September 20, 2014-October 19, 2014............ 2015
FY 2016..................................... September 20, 2015-October 19, 2015............ 2016
----------------------------------------------------------------------------------------------------------------

We believe this timeframe allows for sufficient time for both IPFs
and CMS to correct any potential mistakes and fulfill the preview
requirement in section 1886(s)(4)(E) of the Act.
We welcome public comment on the proposed preview and public
display procedures for FY 2014 and subsequent years.
7. Form, Manner, and Timing of Quality Data Submission for the FY 2014
Payment Determination and Subsequent Years
a. Background
Section 1886(s)(4)(C) of the Act requires that, for the FY 2014
payment determination and each subsequent year, each IPF submit to the
Secretary data on quality measures as specified by the Secretary. Such
data shall be submitted in a form and manner, and at a time, specified
by the Secretary. As required by section 1886(s)(4)(A) of the Act, for
any IPF that fails to submit quality data in accordance with section
1886(s)(4)(C) of the Act, the Secretary will reduce any annual update
to a standard Federal rate for discharges occurring during such fiscal
year by 2.0 percentage points. The complete data submission
requirements, submission deadlines, and data submission mechanism known
as the Web-Based Measure Tool will be posted on the QualityNet Web site
at: http://www.qualitynet.org/. The Web-Based Measure Tool is an
Internet database for IPFs to submit their aggregate data. We are
proposing that IPFs submit data in accordance with the specifications
for the appropriate proposed reporting periods to the Web-Based
Measures Tool found in the IPF section on the QualityNet Web site
(http://www.qualitynet.org/). This Web site meets or exceeds all
current Health Insurance Portability and Accountability Act (HIPAA)
requirements for security of protected health information.
b. Proposed Procedural Requirements for the FY 2014 Payment
Determination and Subsequent Years
In order to participate in the IPFQR Program for the FY 2014
payment determination and subsequent years, we are proposing that IPFs
must comply with the procedural requirements outlined below. We have
aligned these procedural requirements with the Hospital IQR Program to
avoid imposing additional burden on providers and to increase
efficiencies by virtue of allowing providers to use similar submission
requirements across programs. We are proposing that facilities must do
the following:
Register with QualityNet before the IPF begins reporting,
regardless of the method used for submitting the data.
Identify a QualityNet Administrator who follows the
registration process located on the QualityNet Web site (http://www.qualitynet.org/).
Complete a Notice of Participation (NOP). IPFs that wish
to participate in the IPFQR Program must complete an online NOP.
Submission of an NOP is an indication that the IPF agrees to
participate in the IPFQR Program and public reporting of their measure
rates. The timeframe for completing the NOP is between January 1 and
August 15 before each respective payment determination year.
Accordingly, for the FY 2014 payment determination year, we are
proposing that the timeframe for completing the NOP would be between
January 1, 2013 and August 15, 2013.
Any IPF that receives a new CMS Certification Number (CCN)
on or after the beginning of the respective payment

[[Page 28113]]

determination year and wishes to participate in the IPFQR Program but
has not otherwise submitted a NOP using the new CCN must submit a
completed NOP no later than 180 days from the date identified as the
open date (that is, the Medicare acceptance date) on the approved CMS
Quality Improvement Evaluation System to participate in the IPFQR
Program.
Withdrawals from the IPFQR Program will be accepted no
later than August 15 before the beginning of each respective payment
determination year. We believe the August 15 deadline will give us
sufficient time to update payment determinations for each respective
year. Accordingly, we are proposing that the withdrawal period for the
FY 2014 payment determination year be between January 1, 2013 and
August 15, 2013. If in a given payment determination year, an IPF
withdraws from the program, it will receive a reduction of 2.0
percentage points to that year's applicable percentage increase. Once
an IPF has submitted a NOP, it is considered to be an active IPFQR
participant until such time as the IPF submits a withdrawal form to
CMS.
We will determine if an IPF has complied with our data
submission requirements by validating each IPF's CCN and their
aggregated data submission on the QualityNet Web site.
IPFs must submit the aggregated numerator and denominator
data for all age groups, for all measures, to avoid the 2.0 percentage
point reduction.
As previously noted, we believe that this proposed aggregated data
collection mode using a Web page will reduce burden to IPFs. We
anticipate that IPFs already reporting de-identified patient level data
to TJC would be able to easily aggregate and report these data on a
secure Web page to CMS.
We welcome public comment on the proposed procedural requirements
for the FY 2014 payment determination and subsequent years.
c. Proposed Reporting and Submission Requirements for the FY 2014
Payment Determination
IPFs choosing to participate in the IPFQR Program must meet the
specific data collection and submission requirements as described on
the QualityNet Web site (http://www.qualitynet.org/) and TJC's
Specifications Manual for Joint Commission National Quality Measures
(Specifications Manual) at: http://www.manual.jointcommission.org/releases/TJC2012B/HospitalBasedInpatientPsychiatricServices.html. We
note that the Specifications Manual is updated at least twice a year
(and may be updated more often as necessary), and IPFs are responsible
for using the requirements in the most recent manual. The most current
version can be found on the Web site at: https://manual.jointcommission.org/bin/view/Manual/WebHome. We are proposing
that IPFs submit aggregate data on the measures on an annual basis,
beginning FY 2014. As noted earlier, IPFs must submit the data to the
Web-Based Measures Tool found in the Inpatient Psychiatric Facility
section on the QualityNet Web site. However, the data input forms on
the QualityNet Web site for such submission will require aggregate data
for each separate quarter. Therefore, IPFs will need to track and
maintain quarterly records for their data.
For the FY 2014 payment determination, we are proposing that IPFs
report on the proposed measures for services provided between Q4 of CY
2012 and Q1 of CY 2013. These two quarters' data constitute the
expected data available to CMS when we assess reporting compliance. The
6-month timeframe will allow us to establish a full calendar year of
reporting by FY 2016 as discussed below. We are proposing that IPFs
submit their aggregated data between July 1, 2013 and August 15, 2013.
The following table summarizes this information.

Proposed Quality Reporting and Submission Timeframes for FY 2014
----------------------------------------------------------------------------------------------------------------
Payment determination (fiscal Proposed reporting period for
year) services provided (calendar year) Proposed data submission timeframe
----------------------------------------------------------------------------------------------------------------
FY 2014....................... Q4 2012 (October 1, 2012-December
31, 2012).
Q1 2013 (January 1, 2013-March 31, July 1, 2013-August 15, 2013.
2013).
----------------------------------------------------------------------------------------------------------------

We welcome public comment on the proposed reporting and data
submission requirements for the FY 2014 payment determination.
d. Proposed Reporting and Submission Requirements for the FY 2015 and
FY 2016 Payment Determinations
We are proposing that IPFs report on measures for services provided
in Q2, Q3, and Q4 of CY 2013 for the FY 2015 payment determination and
in Q1, Q2, Q3, and Q4 of CY 2014 for the FY 2016 payment determination.
For FY 2014 and FY 2015, we are proposing that IPFs report data on the
proposed measures for inpatient psychiatric services provided for 6 and
9 months, respectively, to move towards data reporting of services
provided within a full calendar year (12 months) by FY 2016. We have
summarized this proposal in the following table.

Proposed Quality Reporting and Submission Timeframes for FY 2015 and FY 2016 Payment Determinations
----------------------------------------------------------------------------------------------------------------
Payment determination (fiscal Proposed reporting period for
year) services provided (calendar year) Proposed data submission timeframe
----------------------------------------------------------------------------------------------------------------
FY 2015....................... Q2 2013 (April 1, 2013-June 30, July 1, 2014-August 15, 2014.
2013).
Q3 2013 (July 1, 2013-September 30,
2013).
Q4 2013 (October 1, 2013-December
31, 2013).
FY 2016....................... Q1 2014 (January 1, 2014-March 31, July 1, 2015-August 15, 2015.
2014).
Q2 2014 (April 1, 2014-June 30,
2014).
Q3 2014 (July 1, 2014-September 30,
2014).
Q4 2014 (October 1, 2014-December
31, 2014).
----------------------------------------------------------------------------------------------------------------

[[Page 28114]]

The reporting of data within the timeframes outlined previously
will allow us to align the IPFQR Program with other quality reporting
programs that base their data reporting on a calendar year.
We welcome public comment on the proposed reporting and data
submission requirements for the FY 2015 and FY 2016 payment
determinations.
e. Proposed Population, Sampling, and Minimum Case Threshold for FY
2014 and Subsequent Years
We are proposing that participating IPFs must meet specific
population, sample size, and minimum reporting case threshold
requirements as specified in TJC's Specifications Manual. The
Specifications Manual is updated at least twice a year (and may be
updated more often as necessary), and IPFs must follow the requirements
in the most recent manual. The most current version can be found on the
Web site at: https://manual.jointcommission.org/bin/view/Manual/WebHome.
We are proposing that the target population for the proposed
measures include all patients, not solely Medicare beneficiaries. We
believe it is important to require IPFs to submit measures on all
patients because quality improvement is of industry-wide importance and
should not be focused exclusively on a certain subset of patients. We
are proposing that IPFs use the applicable sample size requirements
found in the Specifications Manual. We note that the Specifications
Manual gives providers the option of sampling their data quarterly or
monthly. We note that the Specifications Manual does not require
sampling procedures for measures HBIPS-2 and HBIPS-3. Therefore, IPFs
are required to submit data on all cases for these two measures.
The Specifications Manual uses the term ``minimum required stratum
sample size'' to refer to the required sample size for a given initial
patient population stratum.\208\ To comply with our proposed reporting
requirements, if the initial patient population stratum size is below a
certain number of cases,\209\ for measures HBIPS-4, HBIPS-5, HBIPS-6,
and HBIPS-7, IPFs must submit all applicable measure data rather than
sample data. More details on sampling procedures are located in the
Specifications Manual available at the Web site: https://manual.jointcommission.org/bin/view/Manual/WebHome.
---------------------------------------------------------------------------

\208\ For example, for initial population stratum size of 211-
877, the most current version of the Specifications Manual requires
a minimum stratum sample size of 20 percent of the initial
population stratum size. If the initial population size is 44-220,
the minimum required stratum sample size is 44.
\209\ In the most current version of the Specifications Manual
this number is 44.
---------------------------------------------------------------------------

IPFs that have no data to report for a given measure must enter
zero for the population and sample counts. For example, an IPF that has
no hours of physical restraint use (HBIPS-2) to report for a given
quarter is still required to submit a zero for its quarterly aggregate
population and sample count for HBIPS-2 in order to meet the reporting
requirement. We believe it is important for IPFs to submit data on all
measures even when the population size for a given measure is zero or
small because it provides us with the opportunity to identify, assess,
and evaluate the baseline for the number of cases for each measure in
future years. This will also assist us in determining the minimum case
threshold for future years in the rule. In cases where the measure
rates are calculated based on low caseloads, when the submitted data
are publicly displayed on the QualityNet Web site, we are proposing to
clearly note that the affected measure rates were calculated based on
low caseloads that may affect the result.
We invite public comment on the proposed population, sampling, and
case thresholds and welcome any comments on methods and approaches for
future years.
f. Proposed Data Accuracy and Completeness Acknowledgement Requirements
for the FY 2014 Payment Determination and Subsequent Years
We are proposing to require IPFs to acknowledge their data accuracy
and completeness once annually using a QualityNet Web site Web page. To
affirm that the data provided to meet the FY 2014 IPFQR Program data
submission requirement is accurate and complete to the best of a
facility's knowledge, an IPF would be required to submit the Data
Accuracy and Completeness Acknowledgment (DACA) form. We would provide
a link to this form once IPFs have completed entry of all aggregated
measure data. Data submission would not be complete until the IPF
submits the DACA form. We are proposing that the deadline for
submission of both measure data and the DACA form would be no later
than August 15 prior to the applicable IPFQR Program payment
determination year.
For the FY 2014 payment determination, for which participating IPFs
are required to report data for discharges occurring between Q4 of CY
2012 and Q1 of CY 2013, we are proposing to make the submission
deadline for the DACA no later than August 15, 2013. We are proposing
that the DACA submission deadlines for FY 2015 and FY 2016 would be
August 15 of CY 2014 and CY 2015, respectively. We are proposing August
15 as the DACA submission deadline for several reasons. First,
requiring IPFs to acknowledge their data's accuracy and completeness by
August 15 of the year before the respective payment determination year
provides us with sufficient time to ensure compliance with the program
by October 1, the start of the fiscal year, and, therefore, with
sufficient time to calculate and apply the annual payment update.
Second, we believe that it is reasonable to make the deadline for DACA
the same as the data submission deadline in order to reduce reporting
burden to hospitals. Lastly, using August 15 as the DACA deadline
allows us to align our data acknowledgment deadline with other quality
reporting programs, such as the Hospital IQR Program. The table below
summarizes this information.

Proposed Data Accuracy and Completeness Acknowledgment (DACA) Deadlines for FY 2014, FY 2015, and FY 2016
Payment Determinations
----------------------------------------------------------------------------------------------------------------
Proposed reporting period for
Payment determination (fiscal year) services provided (calendar Proposed data accuracy and completeness
year) acknowledgement deadline
----------------------------------------------------------------------------------------------------------------
FY 2014.............................. Q4 2012 (October 1, 2012- August 15, 2013.
December 31, 2012).
Q1 2013 (January 1, 2013-
March 31, 2013).
FY 2015.............................. Q2 2013 (April 1, 2013-June August 15, 2014.
30, 2013).
Q3 2013 (July 1, 2013-
September 30, 2013).
Q4 2013 (October 1, 2013-
December 31, 2013).
FY 2016.............................. Q1 2014 (January 1, 2014- August 15, 2015.
March 31, 2014).

[[Page 28115]]

Q2 2014 (April 1, 2014-June
30, 2014).
Q3 2014 (July 1, 2014-
September 30, 2014).
Q4 2014 (October 1, 2014-
December 31, 2014).
----------------------------------------------------------------------------------------------------------------

We invite public comment on our proposed DACA requirements.
8. Reconsideration and Appeals Procedures for the FY 2014 Payment
Determination and Subsequent Years
In the event an IPF believes that its annual payment update has
been incorrectly reduced for failure to report under the IPFQR Program,
we are proposing a reconsideration process whereby IPFs can request a
reconsideration of their payment update reduction. We are proposing to
institute an annual reconsideration process similar to the Hospital IQR
program (74 FR 43892). We would not utilize reconsideration policies
and procedures related to the Hospital IQR Validation requirement
because the IPFQR does not currently propose an annual validation
requirement for IPFs. For FY 2014 and subsequent years, we are
proposing that the deadline for IPFs to submit a request for
reconsideration of their payment determination would be 30 days from
the date identified on the payment determination notification letter.
While we want to ensure that IPFs have an opportunity to request
reconsiderations when warranted, we also need to balance this goal with
our need to complete the reconsideration process in a timely manner and
with the IPFs' need to obtain final decisions on their requests in a
timely manner. We believe that a 30-day timeframe best achieves this
balance.
We believe that requiring providers to submit a request for
reconsideration prior to filing an appeal before the Provider
Reimbursement Review Board (PRRB) is more efficient for both CMS and
IPFs because it decreases the number of appeals by resolving issues
earlier in the process. We are proposing that, together with a request
for reconsideration, an IPF must submit all documentation and evidence
that supports its request for reconsideration. The documentation should
include copies of any communication, such as emails, that the IPF
believes demonstrates its compliance with the program requirements, as
well as any other records that may support the IPF's rationale for
seeking reconsideration. We are proposing to codify the reconsideration
procedures that IPFs must follow at new Sec. 412.434 under 42 CFR Part
412, Subpart N. Under these procedures, an IPF must submit to CMS, no
later than 30 days from the date identified on the IPFQR Program
payment determination notification letter provided to the IPF, a
Reconsideration Request form containing the following information:
The IPF's CMS Certification Number (CCN).
The name of the IPF.
Contact information for the IPF's chief executive officer
and QualityNet system administrator, including each individual's name,
email address, telephone number, and physical mailing address.
A summary of the reason(s), as set forth in the IPFQR
Program Annual Payment Update Notification Letter, that CMS concluded
the IPF did not meet the requirements of the IPFQR Program.
A detailed explanation of why the IPF believes that it
complied with the requirements of the IPFQR Program for the applicable
fiscal year.
Any evidence that supports the IPF's reconsideration
request, such as e-mails and other documents.
Following receipt of a request for reconsideration, we will
provide--
An email acknowledgment, using the contact information
provided in the reconsideration request, to the CEO and the QualityNet
Administrator that the request has been received; and
Written notification to the hospital CEO, using the
contact information provided in the reconsideration request, regarding
our decision. We expect the process to take approximately 90 days from
the receipt of the reconsideration request.
We are proposing that IPFs must submit a request for
reconsideration, as described previously, and receive a decision on
that request from CMS before they can file an appeal with the PRRB. If
dissatisfied with the decision rendered at the reconsideration level,
IPFs can appeal the decision with the PRRB under 42 CFR Part 405,
Subpart R. We are proposing to codify this requirement at new Sec.
412.434(c).
We intend to work with our Medicare administrative contractors to
process updated IPF claims in an expeditious manner to pay IPFs when
our annual payment update reduction decision is overturned in
reconsideration or PRRB review. The timeframe for updating payment
through retroactive claims processing widely varies, and is dependent
on the number of IPFs, the number of affected claims, and the advance
time needed by the Medicare administrative contractor.
We invite public comment on the proposed procedures for
reconsideration and appeals.
9. Proposed Waivers From Quality Reporting Requirements for the FY 2014
Payment Determination and Subsequent Years
In our experience with other quality reporting and/or performance
programs, we have noted occasions when providers have been unable to
submit required quality data due to extraordinary circumstances that
are not within their control (for example, natural disasters). It is
our goal to avoid penalizing IPFs in such circumstances or to unduly
increase their burden during these times. Therefore, we are proposing
that, for FY 2014 and subsequent years, IPFs may request and we may
grant waivers with respect to the reporting of required quality data
when extraordinary circumstances beyond the control of the facility may
warrant. When waivers are granted, IPFs will not incur payment
reductions for failure to comply with the requirements of the IPFQR
Program.
Under the proposed process, in the event of extraordinary
circumstances not within the control of the IPF, such as a natural
disaster, the IPF may request a reporting extension or a complete
waiver of the requirement to submit quality data for one or more
quarters. Such facilities would submit a request form to CMS that would
be made available on the QualityNet Web site. The following information
should be noted on the form:
The IPF's CCN;
The IPF's name;

[[Page 28116]]

Contact information for the IPF's CEO and any other
designated personnel, including name, email address, telephone number,
and mailing address (the address must be a physical address, not a post
office box);
The IPF's reason for requesting an extension or waiver;
Evidence of the impact of extraordinary circumstances,
including but not limited to photographs, newspaper and other media
articles; and
A date when the IPF will again be able to submit IPFQR
Program data, and a justification for the proposed date.
We are proposing that the request form must be signed by the IPF's
CEO, and must be submitted within 30 days of the date that the
extraordinary circumstances occurred. Following receipt of the request
form, we would: (1) Provide a written acknowledgement, using the
contact information provided in the request, to the CEO and any
additional designated IPF personnel, notifying them that the IPF's
request has been received; and (2) provide a formal response to the CEO
and any additional designated IPF personnel, using the contact
information provided in the request, notifying them of our decision.
This proposal does not preclude us from granting waivers or
extensions to IPFs that have not requested them when we determine that
an extraordinary circumstance, such as an act of nature (for example, a
hurricane or other natural disaster that could reasonably affect a
facility's ability to compile or report data), affects an entire region
or locale. If we make the determination to grant a waiver or extension
to IPFs in a region or locale, we are proposing to communicate this
decision through routine communication channels to IPFs and vendors, by
means of memoranda, emails, and notices on the QualityNet Web site,
among other means.
We invite public comment on this proposal.
10. Electronic Health Records (EHRs)
Although for initial reporting, the opportunity to utilize EHRs for
automatic data collection is not applicable because the proposed
measures will be submitted as aggregate data, we encourage IPFs to take
steps towards adoption of EHRs (also referred to as electronic medical
records) that will allow for reporting of clinical quality data from
EHRs directly to a CMS repository. We encourage IPFs that are
implementing, upgrading, or developing EHR systems to ensure that the
technology obtained, upgraded, or developed conforms to standards
adopted by HHS. Although the IPFQR Program is in its initial
implementation stages, we suggest that IPFs take due care and be
diligent to ensure that their EHR systems accurately capture quality
data and that, ideally, such systems provide point-of-care decision
support that promotes optimal levels of clinical performance.
In the future, we will continue to work with standard-setting
organizations and other entities to explore processes through which
EHRs could speed the collection of data and minimize the resources
necessary for quality reporting.
We welcome public comment on the adoption of EHRs for the IPFQR
Program in the future.

IX. MedPAC Recommendations and Other Related Studies and Reports for
the IPPS and the LTCH PPS

A. MedPAC Recommendations for the IPPS for FY 2013

Under section 1886(e)(4)(B) of the Act, the Secretary must consider
MedPAC's recommendations regarding hospital inpatient payments. Under
section 1886(e)(5) of the Act, the Secretary must publish in the annual
proposed and final IPPS rules the Secretary's recommendations regarding
MedPAC's recommendations. We have reviewed MedPAC's March 2012 ``Report
to the Congress: Medicare Payment Policy'' and have given the
recommendations in the report consideration in conjunction with the
policies set forth in this proposed rule. MedPAC recommendations for
the IPPS for FY 2013 are addressed in Appendix B to this proposed rule.
For further information relating specifically to the MedPAC reports
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226,
or visit MedPAC's Web site at: http://www.medpac.gov.

B. Studies and Reports on Reforming the Hospital Wage Index

1. Secretary's Report to Congress on Wage Index Reform
Section 3137(b) of the Affordable Care Act requires the Secretary
of Health and Human Services to submit to Congress a report that
includes a plan to comprehensively reform the Medicare wage index
applied under section 1886(d) of the Act relating to the IPPS. In
developing the plan, the Secretary was directed to take into
consideration the goals for reforming the wage index that were set
forth by MedPAC in its June 2007 report entitled ``Report to Congress:
Promoting Greater Efficiency in Medicare.'' This report is available on
via the Internet at: http://www.medpac.gov/documents/jun07_entirereport.pdf, and was discussed in the FY 2009 IPPS final rule (73
FR 48567 through 48574), the FY 2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 43824 and 43825), and the FY 2011 IPPS/LTCH PPS final rule (75
FR 50158 and 50159.
In developing the Report to Congress required by section 3137(b) of
the Affordable Care Act, CMS contracted with Acumen L.L.C. (Acumen) to
review the June 2007 MedPAC report and recommend a methodology for an
improved Medicare wage index system. (The Acumen reports are available
via the Internet on the Web site at: http://www.acumenllc.com/reports/cms. After consultation with relevant parties during the development of
the plan (which included an April 12, 2011 special wage index reform
open door forum, along with a review of electronically submitted
comments and concerns), the Secretary submitted a ``Report to
Congress--Plan to Reform the Medicare Hospital Wage Index'') that
describes the concept of a Commuting Based Wage Index (CBWI) as a
potential replacement to the current Medicare wage index methodology.
The following is a summary of the highlights of the report. The
complete report can be accessed on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html.
As discussed in section III.B. of the preamble of this proposed
rule, the current wage index methodology relies on labor markets that
are based on statistical area definitions (Core-Based Statistical Areas
(CBSAs)) established by the Office of Management and Budget (OMB).
Hospitals are grouped by geographic location into either an urban labor
market (that is, a metropolitan statistical area (MSA) or metropolitan
division) or a statewide rural labor market (any area of a State that
is not defined as urban). The current system establishes wage indexes
for hospital labor market areas, not for individual hospitals. Many
parties have argued that these definitions, in many instances, are not
reflective of the true cost of labor for any given hospital,
particularly for hospitals located on the periphery of labor markets or
at labor market boundaries. Multiple exceptions and adjustments have
been put into place in attempts to correct perceived inequities.
However, many of these exceptions and adjustments may create or further
exacerbate distortions in labor market values. The issue of ``cliffs,''
or significant differences in wage index values between proximate
hospitals, can often be attributed to one hospital

[[Page 28117]]

benefiting from such an exception and adjustment when another hospital
cannot.
On April 11, 2012, the Secretary submitted to Congress a report,
``Plan to Reform the Medicare Hospital Wage Index.'' This broad-based
plan for reforming the hospital wage index included a fundamental
change in the description and definition of labor market areas. The
concept, referred to as the commuting based wage index (CBWI), would
improve upon Medicare's existing wage index method by using commuting
data to define hospital labor market areas. The CBWI is based on data
on the number of hospital workers commuting from home to work to define
a hospital's labor market. To derive the CBWI, commuting flows would be
used to identify the specific areas (for example, zip code or census
tracts) from which a hospital hires its workers and to determine the
proportion of its workers hired from each area. A CBWI system could use
either current hospital cost report data or other alternative sources,
such as the Bureau of Labor Statistics (BLS) Occupational Employment
Survey data, to calculate labor market area average wage values. While
the current wage index system aggregates wage data within geographic
CBSA-based areas where hospitals are located, the CBWI would aggregate
wage data based upon where the hospital workers reside.
Once the hiring proportions by area and area wage levels are
determined, the hospital's benchmark wage level would be calculated as
the weighted average of these two elements. This value would then be
divided by the national average. This calculation would result in a
hospital-specific value, which reflects wage levels in the areas from
which a hospital hires, accounting for variation in the proportion of
workers hired from each area.
Using more precisely-defined labor markets, the CBWI values can
vary for hospitals within the same CBSA or county and, thus, more
precisely reflect wage differences within and across CBSA boundaries
and address intra-area variation more precisely than the current
system. Although the CBWI would allow wage index values to vary within
a CBSA, the CBWI is less likely to produce large differences--or
``cliffs''--between wage index values for nearby hospitals in adjacent
CBSA because nearby hospitals likely hire workers from areas in similar
proportions.
Acumen found in its analysis that the CBWI system would more
closely reflect hospitals' actual wages than the current CBSA-based
system and the MedPAC proposal. As MedPAC suggested in its proposal,
the exceptions and adjustments to the wage index system are the primary
cause of the often significant ``cliffs'' between wage indexes of
nearby hospitals. We believe the CBWI has the potential to reduce the
need for exceptions and adjustments and further manipulation of wage
index values (as is central to the MedPAC proposal) to prevent these
``cliffs'' between labor market areas.
The Report to Congress detailed several findings relevant to
implementation of a CBWI:
Because the CBWI accounts for specific differences in
hospitals' geographic hiring patterns, it would yield wage index values
that more closely correlate to actual labor costs than either the
current wage index system (with or without geographic reclassification)
or a system that attempts to reduce wage index differences across
geographic boundaries, such as MedPAC's proposed wage index based on
Bureau of Labor Statistics (BLS) data for health care industry workers.
While a CBWI could be constructed with the most recent
Census commuting data, were the CBWI to be adopted, a more up-to-date
reporting system for collecting commuting data from hospitals would
have to be established so that the wage index calculations would
accurately reflect the commuting patterns of hospital employees. We
believe that creating a system of more up-to-date commuting data could
be achieved with a modest addition to the current reporting
requirements.
Concerns about a CBWI leading to hospitals altering hiring
patterns and distorting labor markets do not appear to be worse than
under the current system and could be managed with minimal policy
adjustments.
As current statutory provisions governing the Medicare
wage index and exceptions to that wage index were designed for the
current MSA-based wage index system, their applicability would need to
be reviewed if a CBWI were to be adopted.
The Medicare statute has traditionally applied payment
changes in a budget neutral manner. If a CBWI were to be adopted in a
budget neutrally manner, payments for some providers would increase
while payments for other providers would decrease.
The Secretary was directed to ``consult with relevant affected
parties'' during the development of the plan. In a special Medicare
wage index open door forum held on April 12, 2011, hospital and
hospital association representatives presented several concerns, which
included issues with commuting data availability, the continuation of
certain exceptions and adjustment policies, and the impacts of the CBWI
upon other nonhospital payment systems. Several commenters expressed
concern that a CBWI could encourage providers to alter or manipulate
hiring practices in order to improve wage index calculations. However,
based upon our findings and analysis, we believe it is dubious whether
any alteration of a hospital's employment patterns would improve its
competitive advantage over other hospitals that employ workers in the
same area. We also share a concern expressed by multiple commenters
regarding whether a CBWI should be applied to other nonhospital payment
systems. Currently, several other payment systems are based upon the
Medicare pre-reclassified hospital wage index. It is not clear whether
it would be advantageous, or even possible, to apply a CBWI to these
provider types.
2. Institute of Medicine (IOM) Study on Medicare's Approach to
Measuring Geographic Variations in Hospitals' Wage Costs
In addition to submitting the aforementioned Report to Congress, in
April 2010, the Secretary commissioned the Institute of Medicine (IOM)
to evaluate Medicare's approach for measuring geographic variation in
the wage costs faced by hospitals. The IOM's Phase I report, published
in September 2011, is available via the Internet at: http://iom.edu/Reports/2011/Geographic-Adjustment-in-Medicare-Payment-Phase-I-Improving-Accuracy.aspx. In that report, IOM's Committee on Geographic
Adjustment Factors in Medicare Payment proposed a set of
recommendations for modifying the hospital wage index in both the
method used in its construction and the data used in its calculation.
In constructing the wage index, the IOM recommends altering the
current labor market definitions to account for the out-commuting
patterns of health care workers who travel to a place of employment in
an MSA other than the one in which they live. The IOM's recommendation
is based on its theory that county-to-MSA commuting patterns reveal the
degree of integration of labor markets across geographically drawn
boundaries (that is, MSAs) and a commuting-based smoothing adjustment
to the wage index would more accurately measure the market wage each
hospital faces. The IOM model uses workers' out-commuting patterns to
smooth wage index values for hospitals in different counties, similar

[[Page 28118]]

to the out-migration adjustment used in the current wage index system.
The IOM also suggests that using out-commuting shares in the smoothing
adjustment creates an index based on the wage levels of workers living
in that area in which a hospital is located, as opposed to wage levels
of workers employed in that area, as in the CBWI model. In calculating
its smoothed wage index, the IOM uses the following four steps:
Step 1--Compute a wage index for each MSA, adhering to
Medicare's current approach for calculating the average hourly wage
(AHW) paid by all IPPS hospitals located in the MSA (this step
replicates the current pre-reclassification wage index).
Step 2--Compute an area wage for each county equal to a
weighted average of MSA-level AHWs, where the weight for each MSA
measures the share of all hospital workers living in the county who
commute to hospitals located in that MSA.
Step 3--Assign all hospitals located in the county a
hospital wage index value equal to the county area wage index.
Step 4--Normalize wage indices to ensure budget
neutrality, similar to the approach currently implemented by Medicare.
In addition, the IOM's wage index model uses hourly wage data from
the BLS Occupational Employment Survey rather than from hospital cost
reports. The IOM also recommends measuring hourly wages using data for
all health care workers rather than only hospital workers and using a
fuller set of occupations incorporated in the hospital wage index
occupational mix adjustment. The IOM suggests that BLS data would
reduce administrative burdens placed upon hospitals and, by broadening
the array of reported occupations from what is currently covered in the
hospital cost report, would achieve more accurate labor markets
definitions and reduce year-to-year volatility. The IOM encourages CMS
to establish an ongoing agreement with the BLS to use occupational
survey data specific to health care workers to calculate average hourly
wage values. The IOM suggests, for instance, that the 5-year American
Community Survey is a potential source of the necessary commuting
information, assuming CMS can arrange to obtain certain nonpublic
``micro-data'' from the BLS.
Preliminary findings demonstrate that the IOM hospital wage index
method would result in the reduction in wage index ``cliffs,'' and
would diminish the need to maintain current wage index exceptions and
adjustments. The IOM also recommends that the hospital wage values
should be applied to other nonhospital health care providers, shifting
to a single measurement of geographic variation to be used in multiple
Medicare provider payment systems. However, we believe that, by
creating a wage index that measures the wage level only of workers who
live near a hospital rather than of all workers who could potentially
work at the hospital (including those who live far away from the
hospital), IOM's approach may have some problematic implications.
First, some of the wage information used by the IOM index is based on
workers employed outside of the hospital's pertinent labor market.
Second, the IOM index neglects market-relevant information regarding
the wages of workers employed at the hospital who live outside the
county of the hospital's location. If the in-commuting workers come
from high wage areas, this information should contribute to increasing
the hospital's wage index values. Likewise, if such workers live in low
wage areas, they should contribute to decreasing the hospital's wage
index values.
We are aware of numerous concerns from hospital and hospital
association representatives regarding whether the BLS Occupational
Employment Survey data is an acceptable source for hospital wage index
calculations. (We refer readers to a discussion of the BLS occupational
survey data in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43824 and 43825.) While the IOM proposal suggested a more refined use
of BLS data than did the previous MedPAC recommendation, there may be
significant operational challenges in accessing and compiling health
care sector specific wage, occupational mix, and commuting data from
the available datasets. Additional research would be required to
determine whether the IOM recommendation for applying its hospital wage
index to nonhospital providers would be appropriate.
To assist readers in understanding key concepts and differences in
the wage index methodologies we discussed earlier in this section, we
are presenting below a chart that includes a comparison of the CBWI,
the IOM hospital wage index approaches, and MedPAC's recommendation
from its June 2007 Report to Congress.

----------------------------------------------------------------------------------------------------------------
Current wage index IOM MedPAC CBWI
----------------------------------------------------------------------------------------------------------------
Labor Market Definition
----------------------------------------------------------------------------------------------------------------
Labor Market Area............... MSAs or MSAs or Blend of county Creates separate
Metropolitan Metropolitan and MSA labor but linked labor-
Divisions/rural Divisions/rural market market for each
``rest of State'' ``rest of State'' definitions (50/ hospital using
areas. areas. 50). small geographic
areas (for
example, zip
codes).
Commuting Adjustment............ Section 505 Out- Adjusts hospitals' None.............. Uses in-commuting
Commuting wage index values patterns relevant
Adjustment. based on the out- for individual
commuting hospitals to
patterns of weight benchmark
health care wages constructed
workers. for small
geographic areas.

[[Page 28119]]

Other Adjustments............... Multiple IOM proposes three Smoothing None.
Reclassifications smoothing algorithm uses
and/or Floors specifications: iterative process
(for example, (1) Apply to all to eliminate
Frontier State counties;. large differences
floor, Lugar (2) Apply only to in index values
counties, MGCRB, counties to which across county
and Section 508 at least 10 boundaries.
reclassifications percent of
and special workers commute;.
exceptions). (3) Apply only to
counties to which
at least 10
percent of
workers commute
and hospital wage
index is higher
than home-county
hospital wage
index..
----------------------------------------------------------------------------------------------------------------
Measurement of Worker Wages
----------------------------------------------------------------------------------------------------------------
Wage Data Source................ Hospital cost BLS Occupational BLS Occupational Any source of
reports. Employment Survey. Employment Survey. establishment
wage data could
potentially be
used (for
example, hospital
cost reports, BLS
Occupational
Employment
Survey).
Industry Sectors Used to Measure Hospitals......... Health care sector All Industries The CBWI could be
Wages. (for example, implemented using
hospitals, other any industry
health care, and sector.
nonhealth care
sectors).
Occupational Mix................ Occupational mix Occupational mix Occupational mix Occupational mix
adjustment based adjustment based adjustment based adjustment based
on occupational on all on 30 occupations on all
categories of occupations. with the highest occupations
nurses reported wage share in the available in the
on cost reports. hospital industry. wage data source
selected.
----------------------------------------------------------------------------------------------------------------
Other Provider Settings
----------------------------------------------------------------------------------------------------------------
Wage Index for Nonhospital Pre-floor, pre- Use identical No recommendation. Considerations
Providers. reclassification hospital wage include:
version of the index (1) Collect
current hospital methodology, commuting data
wage index. except create an for each provider
A version of this industry-specific type and apply
index with an occupational mix CBWI;
occupational mix adjustment for (2) Apply CBWI
adjustment has each provider framework, but
also been used type. use hospital wage
for payments for and commuting
other specialized data; or
hospital (3) Measure using
inpatient a weighted
services. average of nearby-
hospital CBWI
values.
----------------------------------------------------------------------------------------------------------------

X. Proposed Quality Improvement Organization (QIO) Regulation Changes
Related to Provider and Practitioner Medical Record Deadlines and
Claims Denials

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51648 through
51649), we finalized changes to the utilization and quality control
review regulation at 42 CFR 476.78 to require providers to submit
medical records relating to services they have furnished in a shorter
timeframe than the standard 30 calendar days in certain situations.
Medical records must be submitted within 21 calendar days of serious
reportable events or where other circumstances, as deemed by the
Quality Improvement Organization (QIO), warrant earlier receipt of all
required medical information. The changes were part of our effort to
improve the QIO work, such as quality improvement assistance,
beneficiary (or beneficiary representative) requested QIO quality of
care reviews, and QIO medical necessity reviews to achieve the
following three aims: (1) Improving individual care; (2) improving
health care for populations; and (3) lowering costs through improvement
efforts.
While these changes will enhance QIOs' efforts to effectively carry
out their responsibilities in a timely manner, QIOs have historically
experienced difficulty in obtaining medical information in a timely
manner from providers and even more difficulty obtaining this
information in a timely manner from practitioners. Without this
information, QIOs are unable to carry out their review
responsibilities. This is particularly problematic in cases in which
Medicare beneficiaries may be awaiting a QIO's decision, for example,
responses to complaints about the quality of care received. Although
the regulations at 42 CFR Part 476 refer to practitioners'
responsibilities in certain instances, Sec. 476.78, which relates to
the submission of medical information, addresses only the obligations
of providers and not practitioners. No similar provisions exist within
the QIO program regulations (that is, 42 CFR parts 475 through 480)
that establish timeframes for the submission of medical information by
practitioners. Moreover, Sec. 476.90 addresses steps that

[[Page 28120]]

a QIO may take when providers or practitioners fail to cooperate with
the QIO, including the QIO's authority to deny claims for the failure
to respond to a QIO's request for information under paragraph (b) of
Sec. 476.90. However, Sec. 476.90(b) limits the QIO's authority to
deny claims to providers, and no similar provision exists for
practitioners. In fact, a QIO's only recourse against practitioners is
contained in Sec. 476.90(a), which conveys a QIO's authority to
recommend sanctions against practitioners, as well as providers, for
the failure to present evidence of the medical necessity for or the
quality of the care provided to a Medicare beneficiary. While
recommending that sanctions be pursued against a practitioner is an
option for QIOs, this is only appropriate when egregious circumstances
exist, as described in 42 CFR 1004.30.
The responsibility of practitioners and providers to supply
information to QIOs for use in completing their review activities is
implicit throughout the QIO program statute. Most notably, section
1154(a)(7)(C) of the Act makes reference to the QIO's obligation to
examine the pertinent records of any practitioner or provider of
Medicare services if the QIO has the responsibility of reviewing those
services. Section 1156(a) of the Act explicitly addresses the
obligation of providers and practitioners to provide information to the
QIO. It requires providers and practitioners to support the services or
items they have furnished with evidence of their medical necessity and
quality. Providers and practitioners must provide this evidence to the
QIO in the form and fashion and at such time as may reasonably be
required by a QIO in exercising its duties and responsibilities. A
practitioner's or provider's failure to provide this evidence could
result in the QIO reporting this failure to the Inspector General. One
of the QIO's responsibilities, as described in section 1154(a)(2) of
the Act, is to determine whether payment shall be made for Medicare
services, based on its determination of whether a provider's or
practitioner's services were reasonable and medically necessary, met
professionally recognized quality standards, and/or were provided in
the appropriate setting. It is not possible for a QIO to make a
determination that services met these standards and that payment would
be appropriate without the medical records it needs to conduct these
reviews.
In light of the issues discussed above, in this proposed rule, we
are proposing several changes to the regulations at Sec. Sec. 476.1,
476.78, and 476.90 to more clearly convey the responsibilities of
providers and practitioners in submitting medical information and to
specify the QIO's authority should the information not be received.
We are proposing to add a definition of ``providers''
under Sec. 476.1 to clearly denote that certain requirements in Part
476 apply to health care facilities, institutions, and organizations
involved in the delivery of health care services to Medicare
beneficiaries.
We are proposing to change the section heading of Sec.
476.78 from ``Responsibilities of health care facilities'' to
``Responsibilities of providers and practitioners''. In addition, we
are proposing to add references to ``practitioners'' in Sec.
476.78(b)(2) so that the 21-day and 30-day timeframes for submittal of
information apply equally to practitioners and providers. We also are
proposing one minor technical change to Sec. 476.78 that is unrelated
to the application of timeframes to providers or practitioners. We are
proposing to remove the sentence, ``QIOs pay providers paid under the
prospective payment system for the costs of photocopying records
required by the QIO in accordance with the payment rate determined
under the methodology described in paragraph (c) of this section and
for first-class postage for mailing the records to the QIO'', because
it is merely a reference to paragraph (c) of Sec. 476.78. Because the
sentence does not provide substantive information, we believe it can be
deleted without losing any of the necessary content of the paragraph.
We are proposing changes to Sec. 476.90 that will provide
improved instructions to QIOs when attempting to resolve issues
associated with practitioners and providers that fail to submit medical
information within the timeframes set forth in Sec. 476.78. These
proposed changes include: Changing the section heading from ``Lack of
cooperation by a health care facility or practitioner'' to ``Lack of
cooperation by a provider or practitioner''; incorporating the broader
term ``provider'' (as reflected in our proposed change to Sec. 476.1)
within Sec. 476.90, as well as references to ``practitioners'', where
appropriate. We note that we are proposing to add references to
``practitioners'' in Sec. 476.90(a)(2) to denote that the QIO's
authority includes the ability to make financial liability
determinations for both providers and practitioners, and we are
proposing to add the word ``may'' to clarify that the QIO has the
discretion to report a provider's or practitioner's failure to provide
evidence of the medical necessity or quality of care provided to the
Inspector General. In addition, we are proposing modifications to Sec.
476.90 (b) to denote that QIOs will also deny claims if practitioners
fail to submit medical information as requested. We have based this
proposed change on the fact that a QIO cannot make a determination
about whether payment shall be made on the basis of its reviews, as
described in section 1154(a)(2) of the Act, if the QIO does not have
the medical records it needs to determine that payment would be
appropriate. We also are proposing to add new language to Sec.
476.90(b) to convey the right of providers and practitioners to request
a reconsideration by the QIO of its decision to deny the claim based on
the failure to receive the medical information, and that no further
appeal rights exist beyond the QIO.
We are proposing to make a technical correction to a
cross-reference to ``Sec. 474.30(c)'' that appears in Sec.
476.90(a)(1). This cross-reference is to the Office of Inspector
General regulations that convey the obligations of providers and
practitioners; these regulations are now located in 42 CFR 1004.10(c).
We are inviting public comment on our proposals, including the
definition of ``providers'', the timeframes for practitioners and
providers to follow in submitting medical information, the QIO's
authority when medical information is not received, as well as the
technical corrections.

XI. Other Required Information

A. Requests for Data From the Public

In order to respond promptly to public requests for data related to
the prospective payment system, we have established a process under
which commenters can gain access to raw data on an expedited basis.
Generally, the data are now available on compact disc (CD) format.
However, many of the files are available on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS. Data files and the cost for each
file, if applicable, are listed below. Anyone wishing to purchase data
tapes, cartridges, or diskettes should submit a written request along
with a company check or money order (payable to CMS-PUF) to cover the
cost of the following address: Centers for Medicare & Medicaid
Services, Public Use Files, Accounting Division, P.O. Box 7520,
Baltimore, MD 21207-0520, (410) 786-3691. Files on the Internet may be
downloaded without charge.

[[Page 28121]]

1. CMS Wage Data Public Use File
This file contains the hospital hours and salaries from Worksheet
S-3, Parts II and III from FY 2009 Medicare cost reports used to create
the proposed FY 2013 prospective payment system wage index. Multiple
versions of this file are created each year. For a complete schedule on
the release of different versions of this file, we refer readers to the
wage index schedule in section III.L. of the preamble of this proposed
rule.

------------------------------------------------------------------------
Processing year Wage data year PPS fiscal year
------------------------------------------------------------------------
2012 2009 2013
2011 2008 2012
2010 2007 2011
2009 2006 2010
2008 2005 2009
2007 2004 2008
------------------------------------------------------------------------

Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
Periods Available: FY 2007 through FY 2013 IPPS Update.
2. CMS Occupational Mix Data Public Use File
This file contains the 2010 occupational mix survey data to be used
to compute the occupational mix adjustment wage indexes. Multiple
versions of this file are created each year. For a complete schedule on
the release of different versions of this file, we refer readers to the
wage index schedule in section III.L. of the preamble of this proposed
rule.
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
Period Available: FY 2013 IPPS Update.
3. Provider Occupational Mix Adjustment Factors for Each Occupational
Category Public Use File
This file contains each hospital's occupational mix adjustment
factors by occupational category. Two versions of these files are
created each year. They support the following:
Notice of proposed rulemaking published in the Federal
Register.
Final rule published in the Federal Register.
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
Period Available: FY 2013 IPPS Update.
4. Other Wage Index Files
CMS releases other wage index analysis files after each proposed
and final rule.
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
Periods Available: FY 2005 through FY 2013 IPPS Update.
5. FY 2012 IPPS SSA/FIPS CBSA State and County Crosswalk
This file contains a crosswalk of State and county codes used by
the Social Security Administration (SSA) and the Federal Information
Processing Standards (FIPS), county name, and a historical list of
Metropolitan Statistical Areas (MSAs).
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
Period Available: FY 2013 IPPS Update.
6. HCRIS Cost Report Data
The data included in this file contain cost reports with fiscal
years ending on or after September 30, 1996. These data files contain
the highest level of cost report status.
Media: Internet at:
http://www.cms.hhs.gov/CostReports/02_HospitalCostReport.asp and
Compact Disc (CD).
File Cost: $100.00 per year.
7. Provider-Specific File
This file is a component of the PRICER program used in the fiscal
intermediary's or the MAC's system to compute DRG/MS-DRG payments for
individual bills. The file contains records for all prospective payment
system eligible hospitals, including hospitals in waiver States, and
data elements used in the prospective payment system recalibration
processes and related activities. Beginning with December 1988, the
individual records were enlarged to include pass-through per diems and
other elements.
Media: Internet at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/03_psf_text.asp
Period Available: Quarterly Update.
8. CMS Medicare Case-Mix Index File
This file contains the Medicare case-mix index by provider number
as published in each year's update of the Medicare hospital inpatient
prospective payment system. The case-mix index is a measure of the
costliness of cases treated by a hospital relative to the cost of the
national average of all Medicare hospital cases, using DRG/MS-DRG
weights as a measure of relative costliness of cases. Two versions of
this file are created each year. They support the following:
Notice of proposed rulemaking published in the Federal
Register.
Final rule published in the Federal Register.
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage
Periods Available: FY 1985 through FY 2013.
9. MS-DRG Relative Weights (Also Table 5--MS-DRGs)
This file contains a listing of MS-DRGs, MS-DRG narrative
descriptions, relative weights, and geometric and arithmetic mean
lengths of stay as published in the Federal Register. There are two
versions of this file as published in the Federal Register.
Notice of proposed rulemaking.
Final rule.
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage
Periods Available: FY 2005 through FY 2013 IPPS Update
10. IPPS Payment Impact File
This file contains data used to estimate payments under Medicare's
hospital impatient prospective payment systems for operating and
capital-related costs. The data are taken from various sources,
including the Provider-Specific File, Minimum Data Sets, and prior
impact files. The data set is abstracted from an internal file used for
the impact analysis of the changes to the prospective payment systems
published in the Federal Register. Two versions of this file are
created each year. They support the following:
Notice of proposed rulemaking.
Final rule.
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/HIF/list.asp#TopOfPage.
Periods Available: FY 1994 through FY 2013 IPPS Update.
11. AOR/BOR Tables
This file contains data used to develop the MS-DRG relative
weights. It contains mean, maximum, minimum, standard deviation, and
coefficient of variation statistics by MS-DRG for length of stay and
standardized charges. The BOR tables are ``Before Outliers Removed''
and the AOR is ``After Outliers Removed.'' (Outliers refer to
statistical outliers, not payment outliers.)
Two versions of this file are created each year. They support the
following:
Notice of proposed rulemaking published in the Federal
Register.
Final rule published in the Federal Register.
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.

[[Page 28122]]

Periods Available: FY 2005 through FY 2013 IPPS Update.
12. Prospective Payment System (PPS) Standardizing File
This file contains information that standardizes the charges used
to calculate relative weights to determine payments under the hospital
inpatient operating and capital prospective payment systems. Variables
include wage index, cost-of-living adjustment (COLA), case-mix index,
indirect medical education (IME) adjustment, disproportionate share,
and the Core-based Statistical Area (CBSA). The file supports the
following:
Notice of proposed rulemaking published in the Federal
Register.
Final rule published in the Federal Register.
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
Period Available: FY 2013 IPPS Update.
13. Hospital Readmissions Reduction Program File
This file contains information on the calculation of the Hospital
Readmissions Reduction Program payment adjustment. Variables include
the proxy excess readmission ratios for acute myocardial infarction,
pneumonia and heart failure and the proxy readmissions payment
adjustment for each provider included in the program.
The file supports the following:
Notice of proposed rulemaking published in the Federal
Register.
Final rule published in the Federal Register.
Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
Period Available: FY 2013 IPPS Update.
For further information concerning these data tapes, contact the
CMS Public Use Files Hotline at (410) 786-3691.
Commenters interested in discussing any data used in constructing
this proposed rule should contact Nisha Bhat at (410) 786-5320.

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment on each of these issues for the
following sections of this document that contain information collection
requirements (ICRs).
2. ICRs for Add-On Payments for New Services and Technologies
Section II.I.1. of the preamble of this proposed rule discusses
add-on payments for new services and technologies. Specifically, this
section states that applicants for add-on payments for new medical
services or technologies for FY 2014 must submit a formal request. A
formal request includes a full description of the clinical applications
of the medical service or technology and the results of any clinical
evaluations demonstrating that the new medical service or technology
represents a substantial clinical improvement. In addition, the request
must contain a significant sample of the data to demonstrate that the
medical service or technology meets the high-cost threshold. We
detailed the burden associated with this requirement in the September
7, 2001, IPPS final rule (66 FR 46902). As stated in that final rule,
collection of the information for this requirement is conducted on an
individual case-by-case basis. We believe the associated burden is
thereby exempt from the PRA as stipulated under 5 CFR 1320.3(h)(6).
Similarly, we also believe the burden associated with this requirement
is exempt from the PRA under 5 CFR 1320.3(c), which defines the agency
collection of information subject to the requirements of the PRA as
information collection imposed on 10 or more persons within any 12-
month period. This information collection does not impact 10 or more
entities in a 12-month period. In FYs 2008, 2009, 2010, 2011, 2012, and
2013, we received 1, 4, 5, 3, 3, and 5 applications, respectively.
3. ICRs for the Occupational Mix Adjustment to the Proposed FY 2013
Index (Hospital Wage Index Occupational Mix Survey)
Section II.F. of the preamble of this proposed rule discusses the
occupational mix adjustment to the proposed FY 2013 wage index. While
the preamble does not contain any new ICRs, it is important to note
that there is an OMB approved information collection request associated
with the hospital wage index.
Section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E)
of the Act to require CMS to collect data at least once every 3 years
on the occupational mix of employees for each short-term, acute care
hospital participating in the Medicare program in order to construct an
occupational mix adjustment to the wage index. We collect the data via
the occupational mix survey.
The burden associated with this information collection requirement
is the time and effort required to collect and submit the data in the
Hospital Wage Index Occupational Mix Survey to CMS. The aforementioned
burden is subject to the PRA; however, it is currently approved under
OMB control number 0938-0907, with an expiration date of February 28,
2013.
4. Hospital Applications for Geographic Reclassifications by the MGCRB
Section III.H.3. of the preamble of this proposed rule discusses
proposed revisions to the wage index based on hospital redesignations.
As stated in that section, under section 1886(d)(10) of the Act, the
MGCRB has the authority to accept short-term IPPS hospital applications
requesting geographic reclassification for wage index or standardized
payment amounts and to issue decisions on these requests by hospitals
for geographic reclassification for purposes of payment under the IPPS.
The burden associated with this application process is the time and
effort necessary for an IPPS hospital to complete and submit an
application for reclassification to the MGCRB. While this requirement
is subject to the PRA, the associated burden was previously approved
under OMB control number 0938-0573. However, the information collection
expired on December 31, 2011. We are currently seeking to reinstate the
information collection and, as required by the PRA, will announce
public notice and comment periods in the Federal Register separate from
this notice of proposed rulemaking.

[[Page 28123]]

5. ICRs for Application for GME Resident Slots
The information collection requirements associated with the
preservation of resident cap positions from closed hospitals, addressed
under section IV.I.4. of this preamble, are not subject to the
Paperwork Reduction Act (44 U.S.C. Chapter 35), as stated in section
5506 of the Affordable Care Act.
6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program
The Hospital Inpatient Quality Reporting (IQR) Program (formerly
referred to as the Reporting Hospital Quality Data for Annual Payment
(RHQDAPU) Program) was originally established to implement section
501(b) of the MMA, Public Law 108-173. This program expanded our
voluntary Hospital Quality Initiative. The Hospital IQR Program
originally consisted of a ``starter set'' of 10 quality measures. The
collection of information associated with the original starter set of
quality measures was previously approved under OMB control number 0938-
0918. We are currently seeking reinstatement of the information
collection previously approved under that control number. However, we
will be combining the proposed information collection requirements
discussed below and addressed in section VIII.A. of this preamble, with
the Hospital IQR Program PRA package that was previously approved under
0938-1022. This proposed rule will serve as the required 60-day Federal
Register notice to solicit public comments. We welcome public comments
on both the plan to combine the PRA packages and the proposed
information collection requirements in this proposed rule.
We added additional quality measures to the Hospital IQR Program
and submitted an information collection request to OMB for approval.
This expansion of the Hospital IQR measures was part of our
implementation of section 5001(a) of the DRA. Section
1886(b)(3)(B)(viii)(III) of the Act, as added by section 5001(a) of the
DRA, requires that the Secretary expand the ``starter set'' of 10
quality measures that were established by the Secretary as of November
1, 2003, to include measures ``that the Secretary determines to be
appropriate for the measurement of the quality of care furnished by
hospitals in inpatient settings.'' The burden associated with these
reporting requirements was previously approved under OMB control number
0938-1022.
For the FY 2015 payment determination, we intend to seek OMB
approval for a revised information collection request using the same
OMB control number (0938-1022). In the revised request, we are
proposing to add one chart-abstracted measure (Elective Delivery Prior
to 39 Weeks Gestation), one survey-based measure, and three claims-
based measures. In addition, we are proposing to remove one chart-
abstracted measure (SCIP-VTE-1: Surgery patients with recommended
venous thromboembolism prophylaxis) and 16 claims-based measures.
In addition, in this request, for FY 2016 payment determinations,
we are proposing to add one structural measure. We estimate that the
proposed changes to our FY 2015 and FY 2016 payment determination
measure set will result in a total collection burden to IPPS hospitals
of approximately 6,273,199 hours per year.
With respect to the proposed new chart-abstracted measure for the
FY 2015 payment determination, we are proposing to add the chart-
abstracted measure, Elective Delivery Prior to 39 Completed Weeks
Gestation: Percentage of Babies Electively Delivered Prior to 39
Completed Weeks Gestation. Hospitals would be required to submit data
on patients who have elective vaginal deliveries or elective cesarean
sections at >=37 and <39 weeks of gestation completed. We estimate that
IPPS hospitals will incur an additional 117,474 burden hours resulting
from the proposed addition of this measure. We estimate that hospitals
will submit data on approximately 1,006,917 cases annually for this
measure, and it will require, on average, 7 minutes to abstract the
information from medical records for each case to calculate these
measures.
The one proposed additional survey measure would be added to the
existing HCAHPS survey. Burden for the HCAHPS data collection is
currently approved through OMB control number 0938-0981.
The structural measure we are proposing for the FY 2016 payment
determination, the Safe Surgery Checklist Use, would require hospitals
to report their yes/no response regarding use of a safe surgery
checklist. We estimate that it would take the 3,300 hospitals
approximately 2 minutes each to answer this question each year,
resulting in an estimated total increase of 110 hours for the total
burden to hospitals each year.
We also are proposing to add three new claims-based measures for
the FY 2015 payment determination. We do not believe that these claims-
based measures would create any additional burden for hospitals because
they would be collected and calculated by CMS based on the Medicare FFS
claims the hospitals have already submitted to CMS.
We believe that the overall burden on hospitals will be reduced to
some extent by the proposed removal of one chart abstracted measure,
SCIP-VTE-1: Surgery Patients with Recommended Venous Thromboembolism
Prophylaxis, beginning with the FY 2015 payment determination. In
addition, in this proposed rule, beginning with the FY 2015 payment
determination, we are proposing to remove 16 claims-based measures. We
estimate that the proposed removal of the SCIP-VTE-1- measure will
reduce the total burden to hospitals by a total of 150,000 hours.
7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR)
Program
As discussed in section VIII.B. of this preamble, pursuant to
section 1866(k) of the Act, for purposes of FY 2014 and each subsequent
fiscal years, a hospital described in section 1886(d)(1)(B)(v) of the
Act shall submit data in accordance with section 1866(k)(2) of the Act
with respect to such fiscal year. To comply with the statutory mandate,
we are implementing the PCHQR Program in our sustained efforts to
improving the quality of care for inpatient cancer patients. It is our
aim and goal to facilitate high quality of care in a manner that is
effective and meaningful, while remaining mindful of reporting burden
posed on the PCHs. Therefore, we intend to reduce and avoid duplicative
reporting efforts, whenever possible, by leveraging existing
infrastructure.
For the FY 2014 program year, we are proposing five NQF-endorsed
quality measures developed by the CDC and the American College of
Surgeons' Commission on Cancer (ACoS/CoC).

------------------------------------------------------------------------
Measure steward Quality measures
------------------------------------------------------------------------
ACoS/CoC.......................... Adjuvant Chemotherapy is considered
or administered within 4 months
(120 days) of surgery to patients
under the age of 80 with AJCC Stage
III (lymph node positive) colon
cancer (NQF0223).

[[Page 28124]]

Combination Chemotherapy is
considered or administered within 4
months (120 days) of diagnosis for
women under 70 with AJCC T1c, or
Stage II or III hormone receptor
negative Breast Cancer (NQF0559).
Adjuvant Hormonal Therapy (NQF0220).
CDC............................... National Healthcare Safety Network
(NHSN) Central Line-Associated
Bloodstream Infection (CLABSI)
Outcome Measure (NQF0139).
National Healthcare Safety Network
(NHSN)Catheter-Associated Urinary
Tract Infection (CAUTI) Outcome
Measure (NQF0138).
------------------------------------------------------------------------

We estimate that 11 PCHs will submit data on approximately 27,273
cases annually for these measures, and it will require, on average, 2.5
hours to abstract the information from medical records for each case to
calculate these measures.
Although PCHs have not reported on quality measures to CMS, they
have some familiarity with and experience in reporting of quality data.
More specifically, out of the 11 existing PCHs, 10 are currently
reporting the proposed cancer-specific measures to the ACoS/CoC. This
equates to 91 percent of PCHs that already report the measures on a
regular basis. Likewise, a majority of the PCHs have been submitting
data to the CDC. We believe the fact that the majority of the PCHs have
demonstrated the ability to report the measures indicates the proposed
regulation do not significantly impact PCHs.
Furthermore, we estimate that reporting aggregated-level data
through the CDC and the CMS contractor will not be costly to PCHs. In
our burden calculation, we have included the time used for chart
abstraction and for training personnel on collection of chart-
abstracted data, aggregation of the data, as well as training for
submitting the aggregate-level data through these entities (CDC and the
CMS contractor). We estimate that the annual hourly burden to each PCH
for the collection, submission, and training of personnel for
submitting all quality measures is approximately 6293.5 hours in a year
for each PCH. The average hourly burden to each PCH is approximately
524 hours per month. This proposed rule would affect all PCHs
participating in Medicare. The facilities would have to register with
QualityNet and take the proper training in order to be adequately
prepared to use the QualityNet system to submit the Notice of
Participation form. The anticipated burden to these providers consists
of the following: (1) The initial registration with the CDC, CMS
contractor, and CMS QualityNet; (2) training of the appropriate staff
members on how to use the QualityNet reporting program; (3) the time
required for collection and aggregation of data; and (4) the time
required for entry of the data to the CDC and the CMS contractor
database by the PCH's representative.
We believe the fact that the majority of the PCHs have demonstrated
the ability to report the measures indicates the proposed regulation do
not significantly impact PCHs. We are proposing the following approach
for data reporting. First, patient-level data would be submitted by the
PCHs to the CDC for the proposed HAI measures and to the CMS contractor
for the proposed cancer-specific measures. Second, the NHSN and CMS
contractor will submit aggregated and calculated measure rates to CMS.
We are proposing to implement some procedural requirements to meet
the statutory mandate by setting requirements and align with current
quality reporting programs. These procedural requirements would involve
submission of data to comply with the PCHQR Program requirement.
8. ICRs for the Hospital Value-Based Purchasing (VBP) Program
In section VIII.C. of the preamble of this proposed rule, we
discuss our proposal to add requirements for the FY 2015 Hospital VBP
Program. Specifically, we are proposing to add two additional clinical
process of care measures--AMI-10: Statin Prescribed at Discharge and
SCIP-Inf-10: Surgery Patients with Perioperative Temperature
Management--and two additional outcomes measures--an AHRQ Patient
Safety Indicators composite measure and CLABSI: Central Line-Associated
Blood Stream Infection. We also are proposing to add a measure of
Medicare Spending per Beneficiary in the Efficiency domain. All of
these measures are required for the Hospital IQR program; therefore,
their inclusion in the Hospital VBP Program does not result in any
additional burden because the Hospital VBP Program uses data that are
required for the Hospital IQR Program.
9. ICRs for the Long-Term Care Hospital Quality Reporting (LTCHQR)
Program
The FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through 51756)
adopted three quality measures for the FY 2014 Payment Determination:
(1) Urinary Catheter Associated Urinary Tract Infection [CAUTI] rate
per 1, 000 urinary catheter days, for Intensive Care Unit [ICU]
Patients (NQF0138); (2) Central Line Catheter-Associated Blood
Stream Infection (CLABSI) Rate for ICU and High-Risk Nursery (HRN)
Patients (NQF0139); and (3) Percent of Residents with Pressure
Ulcers That are New or Worsened (Short-Stay) (NQF 0678). The
three measures finalized for the FY 2014 payment determination were
NQF-endorsed at the time, although not for the LTCH setting. We also
stated the NQF was expected to review some of these measures for
applicability to the LTCH setting, and we anticipated this review may
result in modifications to any such measures.
As part of its endorsement maintenance process, under NQF's Patient
Safety Measures Project (http://www.qualityforum.org/projects/patient_safety_measures.aspx), the NQF reviewed the CAUTI and CLABSI measures
previously adopted and expanded the scope of endorsement to include
additional care settings, including LTCHs. The original NQF-endorsed
numbers were retained for these two expanded measures, but the measures
were retitled to reflect the expansion of the scope of endorsement. The
NQF 0138 Urinary Catheter-Associated Urinary Tract Infection
[CAUTI] Rate Per 1,000 Urinary Catheter Days measure is now titled as
National Health Safety Network (NHSN) Catheter Associated Urinary Tract
Infection (CAUTI) Outcome Measure. The NQF 0139 (Central Line
Catheter-Associated Blood Stream Infection [CLABSI] Rate for ICU and
High Risk Nursery (HRN) Patients is now titled National Health Safety
Network (NHSN) Central Line Associated Blood Stream Infection (CLABSI)
Outcome Measure (http://www.qualityforum.org/News_And_Resources/Press_Releases/2012/NQF_Endorses_Patient_Safety_Measures.aspx).
These expanded measures allow for the calculation of standardized
infection

[[Page 28125]]

ratio (SIR).^{210,211,212,213} We are proposing that the CAUTI
and CLABSI measures be adopted in their expanded form for the FY 2014
payment determination and all subsequent fiscal year payment
determinations.
---------------------------------------------------------------------------

\210\ Centers for Disease Control and Prevention. (2012,
January). Central Line-Associated Bloodstream Infection (CLABSI)
Event. Retrieved from http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf.
\211\ National Quality Forum (2012). National Healthcare Safety
Network (NHSN) Central line-associated Bloodstream Infection
(CLABSI) Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0139.
\212\ Centers for Disease Control and Prevention. (2012,
January). Catheter Associated Urinary Tract Infection Event.
Retrieved from: http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf.
\213\ National Quality Forum (2012). National Healthcare Safety
Network (NHSN) Catheter Associated Urinary Tract Infection (CAUTI)
Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0138.
---------------------------------------------------------------------------

We also are proposing in the preamble of this proposed rule to
retain the measure Percent of Residents with Pressure Ulcers that are
New or Worsened (Short-Stay) (NQF 0678), adopted in the FY
2012 IPPS/LTCH PPS final rule for the FY 2014 payment determination for
all subsequent fiscal year payment determinations. We further noted
that the Percent of Residents with Pressure Ulcers that are New or
Worsened (Short-Stay) (NQF 0678) measure is undergoing NQF
review for expansion in the scope of endorsement to include additional
care settings, including the LTCHs.
In addition, we are proposing five additional quality measures for
use in the LTCHQR Program which would affect the FY 2016 LTCHQR Program
payment determination. These measures are: (1) Percent of Nursing Home
Residents Who Were Assessed and Appropriately Given the Seasonal
Influenza Vaccine (Short-Stay) (NQF 0680); (2) Percentage of
Residents Assessed and Appropriately Given the Pneumococcal Vaccine
(short-stay) (NQF 0682); (3) Influenza Vaccination Coverage
among Healthcare Personnel (NQF 0431); (4) Ventilator Bundle
(NQF 0302); and (5) Restraint Rate per 1000 Patient Days (not
NQF-endorsed).
The information needed for the three proposed measures, NHSN
Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure,
NHSN Central line- associated Bloodstream Infection (CLABSI) Outcome
Measure, and Influenza Vaccination Coverage among Healthcare Personnel,
would be collected via the CDC/NHSN (http://www.cdc.gov/nhsn/). We are
proposing that LTCHs report data on these measures according to measure
specifications of these NQF-endorsed measures.
The NHSN is a secure, Internet-based surveillance system that is
maintained and managed by CDC. Many LTCHs already submit data to the
NHSN either voluntarily or as part of mandatory State reporting
requirements for HAIs. There are currently 442 LTCHs in operation in
the United States and, according to CDC, 80 of these LTCHs already
submit HAI data to NHSN. For these LTCHs, we believe the burden related
to complying with the requirements of the proposed quality reporting
program would be reduced because of familiarity with the NHSN
submission process.
Further, the initial setup and acclimation to the NHSN system will
have already occurred through the implementation of the of the NHSN
Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure and
the NHSN Central Line- Associated Bloodstream Infection (CLABSI)
Outcome Measure for the FY 2014 LTCHQR Program payment determination to
the extent they are adopted in the FY 2013 IPPS/LTCH PPS final rule.
Even though these measures have been recently reviewed by the NQF and
expanded to post-acute care settings, including LTCHs, there has been
no change in the way that the data for these measures is to be
collected and reported to NHSN. Likewise, there has been no change in
the registration and training requirements for providers that are new
to the NHSN reporting system. In addition, LTCH providers will begin to
use the NHSN system to report CAUTI and CLABSI data on October 1, 2012,
to the extent they are adopted in the FY 2013 IPPS/LTCH PPS final rule.
By the time that any new measures that are proposed above have been
finalized and reporting of same begins, LTCH providers should be very
familiar and comfortable with the NHSN reporting system. Thus, by that
time, the additional burden related to the reporting of any additional
measures should they be finalized in the FY 2013 IPPS/LTCH PPS final
rule.
The burden associated with these proposed quality measures is the
time and effort associated with collecting and submitting the data
concerning CAUTI, CLABSI, and Influenza Vaccination Coverage among
Healthcare Personnel to NHSN for LTCHs that are not currently reporting
such data. As we have stated above, for LTCHs that already submit data
regarding these measures to NHSN, we believe there should be little, if
any, additional burden. For LTCHs that submit data to NHSN for other
HAIs, but not data for these three proposed measures, there may be some
added burden. However, we believe that this burden would be
significantly decreased because these LTCHs will already be enrolled in
the NHSN system for the submission of measures for the FY 2014 LTCHQR
payment determination, provided the proposed CAUTI and CLABSI measures
are finalized, and will be already familiar with the NHSN data
submission process.
There are currently 442 LTCHs in the United States paid under the
LTCH PPS. We estimate that each LTCH would submit approximately 12 NHSN
submissions (6 CAUTI events and 6 CLABSI events) per month (144 events
per LTCH annually). This equates to a total of approximately 63,648
submissions of HAI data to NHSN from all LTCHs per year. We estimate
that each NHSN assessment would take approximately 25 minutes to
complete. This time estimate consists of 10 minutes of clinical (for
example, nursing time) needed to collect the clinical data and 15
minutes of clerical time necessary to enter the data into the NHSN
database. Based on this estimate, we expect each LTCH would expend 300
minutes (5 hours) per month and 60 hours per year reporting to NHSN.
Therefore, the total estimated annual hourly burden to all LTCHs in the
United States for reporting to NHSN is 26,520 hours.
The estimated cost per submission is estimated at $12.07. These
costs are estimated using an hourly wage for a registered nurse of
$41.59 and a medical billing clerk/data entry person of $20.57 (U.S.
Bureau of Labor Statistics data). Therefore, we estimate that the
annual cost per each LTCH provider would be $1,739 and the total yearly
cost to all LTCHs for the submission of CAUTI and CLABSI data to NHSN
would be $768,497 \214\ While these proposed requirements would be
subject to the Paperwork Reduction Act, we believe the associated
burden hours are accounted for in the information collection request
currently approved, OCN 0920-0666.
---------------------------------------------------------------------------

\214\ Nursing Time--24 hours @ $41.59 per hour = $998.16;
$998.16 x 442 LTCHs = approximately $441,187.
Admin Time--36 hours @ $20.57 per hour = $740.52; $740.52 x 442
LTCHs = approximately $327,310.
TOTAL = $441,187 + $327,310 = $768,497.
---------------------------------------------------------------------------

We analyzed the information collection requirements for the FY 2014
LTCHQR Program quality reporting measure ``Percent of Residents with
Pressure Ulcers that are New or Worsened (NQF 0678)'' in the
FY 2012 IPPS/LTCH PPS final rule (76 FR 51781).

[[Page 28126]]

With respect to the remaining four proposed measures, Percent of
Nursing Home Residents Who Were Assessed and Appropriately Given the
Seasonal Influenza Vaccine, Percentage of Residents Assessed and
Appropriately Given the Pneumococcal Vaccine (short-stay); Ventilator
Bundle, and Restraint Rate per 1,000 Patient Days, we are proposing
that we would post the specification for the measures, at a later date,
on our Web site along with the specific data elements necessary to be
collected. We are proposing to do so because, at this time, we have not
completed development of the information collection instrument that
LTCHs will use to submit the data for these measures. Because the forms
are still under development, we cannot make a complete burden estimate
at this time. We are proposing that reporting and submission of these
four measures be incorporated into the existing data collection and
submission framework, the LTCH CARE Data Set. This is the same data
collection and submission framework that will be used by CMS to support
providers for reporting on the Percent of Residents with Pressure
Ulcers That Are New or Worsened measure.\215\
---------------------------------------------------------------------------

\215\ The LTCH CARE Data Set, the data collection instrument
that will be used to submit data on this measure, is currently under
Paperwork Reduction Act (PRA) review by the Office of Management and
Budget. It is discussed in a PRA Notice which appeared in the
Federal Register on September 2, 2011 (Volume 76, Issue 171). The
file number for the LTCH PRA package is CMS-10409.
---------------------------------------------------------------------------

By building upon preexisting resources for data collection and
submission, we intend to foster alignment between measures that helps
to reduce the administrative burden related to data collection and
submission. We anticipate that the initial setup and acclimation to the
data collection by the LTCH CARE Data Set will have already occurred
with the adoption of the Pressure Ulcer measure for the LTCHQR Program
for the FY 2014 payment determination. Therefore, we believe the
transition to reporting the four proposed measures via the LTCH CARE
Data Set may be less burdensome.
The delivery of high quality care in the LTCH setting is
imperative. We believe that collecting quality data on all patients in
the LTCH setting supports CMS' mission to ensure quality care for
Medicare beneficiaries. Collecting data on all patients provides the
most robust and accurate reflection of quality in the LTCH setting.
At this time, we have not completed development of the information
collection instrument that LTCHs would have to submit to comply with
the aforementioned reporting requirements regarding the measures
proposed for data collection by the LTCH CARE Data Set for the FY 2016
LTCHQR payment determination. Because the forms are still under
development, we cannot make a complete burden estimate at this time.
Once the forms are available, we will prepare and submit the required
Paperwork Reduction Act (PRA) package which will fully set forth the
anticipated burden to LTCH providers as a result of the new data items
(questions) that need to be added to the LTCH CARE Data Set. The PRA
process provides for the publication of two PRA notices in the Federal
Register which are followed by 60 and 30 day comment periods
respectively. The PRA notice and comment process is similar to that
provided for with the proposed and final rule notice and comment
process. Therefore, even if it is not possible, at this time, for CMS
to provide all of the necessary burden estimate information related to
the new measures that we are proposing to add to the LTCHQR Program,
stakeholders will still be afforded opportunities to submit public
comments in accordance with the PRA rules and guidelines.
10. ICRs for the Ambulatory Surgical Center (ASC) Quality Reporting
Program
In section VIII.E. of the preamble of this proposed rule, we
discuss the proposed requirements for the ASC Quality Reporting Program
for payment determinations affecting CY 2014 and subsequent years. In
section XIV.K. of the CY 2012 OPPS/ASC final rule with comment period
(76 FR 74492 through 74517), we finalized our proposal to implement a
quality reporting program for ASCs beginning with the CY 2014 payment
determination. We refer readers to the CY 2012 OPPS/ASC final rule with
comment period (76 FR 74554) for a detailed discussion of the ASC
Quality Reporting Program collection of information requirements for
the claims-based and structural measures for the CY 2014 and CY 2015
payment determinations.
In the CY 2012 OPPS/ASC final rule with comment period (76 FR
74516), we finalized our proposal to consider an ASC to be
participating in the ASC Quality Reporting Program for the CY 2014
payment determination if the ASC includes Quality Data Codes (QDCs)
specified for the program on their CY 2012 claims relating to the
finalized measures.
For the CY 2015 payment determination and subsequent payment
determination years, we are proposing that once an ASC submits any
quality measure data, it would be considered to be participating in the
ASC Quality Reporting Program. Once an ASC submits quality measure data
indicating its participation in the ASC Quality Reporting Program, in
order to withdraw, an ASC must complete and submit an online form
indicating that it is withdrawing from the quality reporting program.
For the CY 2015 payment determination and subsequent payment
determination years, if the ASC submits quality measure data, there is
no additional action required by the ASC to indicate participation in
the program. The burden associated with the requirements to withdraw
from the program is the time and effort associated with accessing,
completing, and submitting the online form. Based on the number of
hospitals that have withdrawn from the Hospital OQR Program over the
past 4 years, we estimate that 2 ASCs would withdraw per year and that
an ASC would expend 30 minutes to access and complete the form, for a
total burden of 1 hour per year.
For the CY 2015 payment determination, we are proposing to require
ASCs to identify and register a QualityNet administrator in order to
set up accounts necessary to enter structural measure data. We estimate
that, based upon previous experience with the Hospital OQR Program, it
would take an ASC 10 hours to obtain, complete, and submit an
application for a QualityNet administrator and then set up the
necessary accounts for structural measure data entry. We estimate the
total burden to meet these requirements to be 51,750 hours (10 hours x
5,175 ASCs). We previously discussed the burden associated with the
data entry of structural measure information for the ASC Quality
Reporting Program in the CY 2012 OPPS/ASC final rule with comment
period (76 FR 74554).
We are proposing to adopt a process for an extension or waiver for
submitting information required under the program due to extraordinary
circumstances that are not within the ASC's control. We are proposing
that an ASC would complete a request form that would be available on
the QualityNet Web site, supply requested information, and submit the
request. The burden associated with these requirements is the time and
effort associated with gathering required information as well as
accessing, completing, and submitting the form. Based on the number of
hospitals that have submitted a request for an extension or waiver from
the Hospital OQR Program over the past 4 years, we estimate that 1 ASC
per

[[Page 28127]]

year would request an extension or waiver and that an ASC would expend
2 hours to gather required information as well as access, complete, and
submit the form, for a total burden of 2 hours per year.
We also are proposing a reconsideration process that would apply to
the CY 2014 payment determination and subsequent payment determination
years under the ASC Quality Reporting Program. While there is burden
associated with an ASC filing a reconsideration request, the
regulations at 5 CFR 1320.4 for the Paperwork Reduction Act of 1995
exclude collection activities during the conduct of administrative
actions such as redeterminations, reconsiderations, and/or appeals.
We are requesting public comments on these information collection
requirements.
11. ICRs for the Inpatient Psychiatric Facilities Quality Reporting
(IPFQR) Program
In section VIII.F. of the preamble of this proposed rule, we
discuss the implementation of the Inpatient Psychiatric Facilities
Quality Reporting (IPFQR) Program.
Historically, IPFs have not been required to report quality data to
CMS. However, they have been required to report quality measures to
other entities such as TJC or State survey and certification
organizations. Therefore, although IPFs have not reported on quality
measures to CMS, they have some familiarity with and experience in
reporting of quality data. More specifically, out of the 1,741 existing
IPFs, 450 are currently reporting the proposed measures to TJC. This
equates to 26.02 percent of IPFs that already report the measures on a
regular basis. The fact that over one-quarter of the IPFs have
demonstrated the ability to report the measures indicates the proposed
regulation would not significantly impact IPFs.
Furthermore, we estimate that reporting aggregated-level data on
QualityNet will not be costly to IPFs. In our burden calculation, we
have included the time used for chart abstraction and for training
personnel on collection of chart-abstracted data, aggregation of the
data, as well as training for submitting the aggregate-level data
through QualityNet. We estimate that the annual hourly burden to each
IPF for the collection, submission, and training of personnel for
submitting all quality measures is approximately 821 hours in a year
for each IPF. The average hourly burden to each IPF is approximately 68
hours per month.
This proposed rule would affect all IPFs participating in Medicare.
The facilities would have to register with QualityNet and take the
proper training in order to be adequately prepared to use the
QualityNet system to submit the data. The anticipated burden to these
providers consists of the following: (1) The initial registration of
the facility with QualityNet; (2) training of the appropriate staff
members on how to use the QualityNet reporting program; (3) the time
required for collection and aggregation of data; and (4) the time
required for entry of the data into the QualityNet database by the
IPF's representative.
This proposed rule would affect all IPFs that currently do not
already report data to CMS. These facilities will have to register with
CMS and take the proper training in order to be adequately prepared to
use the CMS QualityNet System for data submission.
Those IPFs that already report quality measures to the TJC will be
minimally affected because the abstraction methods, population,
sampling, and reporting approaches are similarly adopted by CMS.
Therefore, IPFs that report the proposed IPFQR Program quality measures
will experience a minimum burden.
We are requesting public comments on these information collection
requirements.
If you comment on these information collection and recordkeeping
requirements, please do either of the following:
1. Submit your comments electronically as specified in the
ADDRESSES section of this proposed rule; or
2. Submit your comments to the Office of Information and Regulatory
Affairs, Office of Management and Budget,
Attention: CMS Desk Officer, CMS-1588-P
Fax: (202) 395-6974; or
Email: [email protected]

C. Response to Comments

Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the ``DATES'' section of this
preamble, and, when we proceed with a subsequent document, we will
respond to the comments in the preamble to that document.

List of Subjects

42 CFR Part 412

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

42 CFR Part 413

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

42 CFR Part 424

Health facilities, Medicare, Reporting and recordkeeping
requirements.

42 CFR Part 476

Health care, Health professional, Health record, Peer Review
Organization (PRO), Penalties, Privacy, Reporting and recordkeeping
requirements.

42 CFR Part 489

Health facilities, Medicare, Reporting and recordkeeping
requirements.

For the reasons stated in the preamble of this proposed rule, the
Centers for Medicare & Medicaid Services is proposing to amend 42 CFR
Chapter IV as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES

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

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

2. Section 412.1 is amended by adding new paragraphs (a)(5) and
(a)(6) to read as follows:

Sec. 412.1 Scope of part.

(a) * * *
(5) This part implements section 1886(q) of the Act, which provides
that, effective for discharges from an ``applicable hospital''
beginning on or after October 1, 2012, payments to those hospitals
under section 1886(d) of the Act will be reduced to account for certain
excess readmissions, under the Hospital Readmissions Reduction Program.
This reduction will be made through an adjustment to the hospital's
base operating DRG payment amounts under the prospective payment system
for inpatient operating costs.
(6) This part implements section 1886(o)(1)(B) of the Act, which
directs the Secretary to begin to make value-based incentive payments
under the Hospital Value-Based Purchasing Program to hospitals for
discharges

[[Page 28128]]

occurring on or after October 1, 2012, through an adjustment to the
base operating DRG payment amounts under the prospective payment system
for inpatient operating costs.
* * * * *
3. Section 412.64 is amended by--
a. Revising paragraph (d)(1)(iv).
b. Revising the introductory text of paragraph (h)(4).
c. Revising paragraph (h)(4)(v).
d. Adding a new paragraph (h)(4)(vi).
The revisions and addition read as follows:

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

* * * * *
(d) * * *
(1) * * *
(iv) For fiscal years 2012 and 2013, the percentage increase in the
market basket index less a multifactor productivity adjustment (as
determined by CMS) and less 0.1 percentage point for prospective
payment hospitals (as defined in Sec. 413.40(a) of this subchapter)
for hospitals in all areas.
* * * * *
(h) * * *
(4) For discharges on or after October 1, 2004 and before October
1, 2013, CMS establishes a minimum wage index for each all-urban State,
as defined in paragraph (h)(5) of this section. This minimum wage index
value is computed using the following methodology.
* * * * *
(v) The product determined under paragraph (h)(4)(iv) of this
section is the minimum wage index value for the State, except as
provided under paragraph (h)(4)(vi) of this section;
(vi) For discharges on or after October 1, 2012 and before October
1, 2013, the minimum wage index value for the State is the higher of
the value determined under paragraph (h)(4)(iv) of this section or the
value computed using the following alternative methodology:
(A) CMS estimates a percentage representing the average percentage
increase in wage index for hospitals receiving the rural floor due to
such floor.
(B) For each all-urban State, CMS makes a onetime determination of
the lowest hospital wage index in the State (including all adjustments
to the hospital's wage index, except for the rural floor, the rural
floor budget neutrality, and the outmigration adjustment) and increases
this wage index by the percentage determined under paragraph
(h)(4)(vi)(A) of this section, the result of which establishes the
alternative minimum wage index value for the State.
* * * * *
4. Section 412.92 is amended by--
a. Revising paragraph (b)(2)(i).
b. Adding paragraph (b)(2)(v).
b. Adding paragraph (b)(3)(iv).
The revision and additions read as follows:

Sec. 412.92 Special treatment: Sole community hospitals.

* * * * *
(b) * * *
(2) * * * (i) Sole community hospital status is effective 30 days
after the date of CMS' written notification of approval, except as
provided in paragraph (b)(2)(v) of this section.
* * * * *
(v) If a hospital that is classified as an MDH under Sec. 412.108
applies for classification as a sole community hospital because its
status under the MDH program expires with the expiration of the MDH
program, and that hospital's sole community hospital status is
approved, the effective date of approval of sole community hospital
status is the day following the expiration date of the MDH program if
the hospital--
(A) Applies for classification as a sole community hospital prior
to 30 days before the expiration of the MDH program; and
(B) Requests that sole community hospital status be effective with
the expiration of the MDH program.
(3) * * *
(iv) A sole community hospital must report to the fiscal
intermediary or MAC any factor or information that could have affected
its initial classification as a sole community hospital. If CMS
determines that a sole community hospital has failed to comply with
this requirement, CMS may cancel the hospital's classification as a
sole community hospital effective with the date the hospital failed to
meet the criteria for such classification, consistent with the
provisions of Sec. 405.1885 of this chapter.
* * * * *
5. Section 412.105 is amended by revising paragraph (b)(4) to read
as follows:

Sec. 412.105 Special treatment: Hospitals that incur indirect costs
for graduate medical education programs.

* * * * *
(b) * * *
(4) Beds otherwise countable under this section used for outpatient
observation services, skilled nursing swing-bed services, or inpatient
hospice services.
* * * * *
6. Section 412.140 is amended by revising paragraphs (a)(3)(i),
(b), and (d)(2) to read as follows:

Sec. 412.140 Participation, data submission, and validation
requirements under the Hospital Inpatient Quality Review (IQR) Program.

(a) * * *
(3) * * *
(i) A hospital that would like to participate in the program for
the first time (and to which paragraph (a)(3)(ii) of this section does
not apply), or that previously withdrew from the program and would now
like to participate again, must submit to CMS a completed Notice of
Participation Form by December 31 of the calendar year preceding the
first quarter of the calendar year in which data submission is required
for any given fiscal year.
* * * * *
(b) Withdrawal from the Hospital IQR Program. A subsection (d)
hospital may withdraw from the Hospital IQR Program by submitting to
CMS a withdrawal form that can be found in the secure portion of the
QualityNet Web site. The hospital must submit the withdrawal form by
May 15 prior to the start of the payment year affected. For example, if
a hospital seeks to withdraw from the FY 2015 payment determination,
the hospital must submit the withdrawal form to CMS by May 15, 2014.
* * * * *
(d) * * *
(2) A hospital meets the validation requirement with respect to a
fiscal year if it achieves a passing score, as determined by CMS, on
applicable measure sets.
* * * * *
7. Subpart I is added to read as follows:

SUBPART I--ADJUSTMENTS TO THE BASE OPERATING DRG PAYMENT AMOUNTS
UNDER THE PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT OPERATING COSTS

Sec.
412.150 Basis and scope of subpart.

Payment Adjustments Under the Hospital Readmissions Reduction Program

412.152 Definitions for the Hospital Readmissions Reduction Program.
412.154 Payment adjustments under the Hospital Readmissions
Reduction Program.
412.155-412.159 [Reserved]

[[Page 28129]]

Incentive Payments Under the Hospital Value-Based Purchasing Program

412.160 Definitions for the Hospital Value-Based Purchasing Program.
412.162 Process for reducing the base operating DRG payment amount
and applying the value-based incentive payment amount adjustment
under the Hospital Value-Based Purchasing (VBP) Program.
412.163 Process for posting hospital-specific performance
information under the Hospital Value-Based Purchasing (VBP) Program.
412.164 Measures selection under the Hospital Value-Based Purchasing
(VBP) Program.
412.165 Performance standards under the Hospital Value-Based
Purchasing (VBP) Program.
412.166 Performance scoring under the Hospital Value-Based
Purchasing (VBP) Program.
412.167 Appeal under the Hospital Value-Based Purchasing (VBP)
Program.
412.168-412.169 [Reserved]

SUBPART I--ADJUSTMENTS TO THE BASE OPERATING DRG PAYMENT AMOUNTS
UNDER THE PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT OPERATING COSTS

Sec. 412.150 Basis and scope of subpart.

(a) Section 1886(q) of the Act requires the Secretary to establish
a Hospital Readmissions Reduction program, under which payments to
applicable hospitals are reduced in order to account for certain excess
readmissions, effective for discharges beginning on October 1, 2012.
The rules for determining the payment adjustment under the Hospital
Readmission Reductions Program are specified in Sec. Sec. 412.152 and
412.154.
(b) Section 1886(o) of the Act requires the Secretary to establish
a Value-Based Purchasing (VBP) Program for inpatient hospitals
(Hospital VBP Program), which requires CMS to make value-based
incentive payments to hospitals that meet performance standards for
applicable performance periods, effective for discharges beginning on
October 1, 2012. The rules for determining the payment adjustment under
the Hospital Value-Based Purchasing Program are specified in Sec. Sec.
412.160 through 412.167.

Payment Adjustments Under the Hospital Readmissions Reduction Program

Sec. 412.152 Definitions for the Hospital Readmissions Reduction
Program.

As used in this section and in Sec. 412.154, the following
definitions apply:
Aggregate payments for all discharges is, for a hospital for the
applicable period, the sum of the base operating DRG payment amounts
for all discharges for all conditions from such hospital for such
applicable period.
Aggregate payments for excess readmissions is, for a hospital for
the applicable period, the sum, for the applicable conditions, of the
product for each applicable condition of:
(1) The base operating DRG payment amount for the hospital for the
applicable period for such condition;
(2) The number of admissions for such condition for the hospital
for the applicable period; and
(3) The excess readmission ratio for the hospital for the
applicable period minus 1.
Applicable condition is a condition or procedure selected by the
Secretary among conditions and procedures for which:
(1) Readmissions represent conditions or procedures that are high
volume or high expenditures; and
(2) Measures of such readmissions have been endorsed by the entity
with a contract under section 1890 and such endorsed measures have
exclusions for readmissions that are unrelated to the prior discharge
(such as a planned readmission or transfer to another applicable
hospital).
Applicable hospital is a hospital described in section
1886(d)(1)(B) of the Act or a hospital in Maryland that is paid under
section 1814(b)(3) of the Act and that, absent the waiver specified by
section 1814(b)(3) of the Act, would have been paid under the hospital
inpatient prospective payment system.
Applicable period is, with respect to a fiscal year, the 3-year
period (specified by the Secretary) from which data are collected in
order to calculate excess readmission ratios and adjustments under the
Hospital Readmissions Reduction Program.
Base operating DRG payment amount is the wage-adjusted DRG
operating payment plus any applicable new technology add-on payments
under subpart F of this part. This amount is determined without regard
to any payment adjustments under the Hospital Value-Based Purchasing
Program, as specified under Sec. 412.162. This amount does not include
any additional payments for indirect medical education under Sec.
412.105, the treatment of a disproportionate share of low-income
patients under Sec. 412.106, outliers under subpart F of this part,
and a low volume of discharges under Sec. 412.101.
Excess readmissions ratio is a hospital-specific ratio for each
applicable condition for an applicable period, which is the ratio (but
not less than 1.0) of risk-adjusted readmissions based on actual
readmissions for an applicable hospital for each applicable condition
to the risk-adjusted expected readmissions for the applicable hospital
for the applicable condition.
Floor adjustment factor is the value that the readmissions
adjustment factor cannot be less than for a given fiscal year. The
floor adjustment factor is set at 0.99 for FY 2013, 0.98 for FY 2014,
and 0.97 for FY 2015 and subsequent fiscal years.
Readmission is the case of an individual who is discharged from an
applicable hospital, the admission of the individual to the same or
another applicable hospital within a time period of 30 days from the
date of such discharge.
Readmissions adjustment factor is equal to the greater of:
(1) 1 minus the ratio of the aggregate payments for excess
readmissions to aggregate payments for all discharges; or
(2) The floor adjustment factor.
Wage-adjusted DRG operating payment is the applicable average
standardized amount adjusted for resource utilization by the applicable
MS-DRG relative weight and adjusted for differences in geographic costs
by the applicable area wage index (and by the applicable cost-of-living
adjustment for hospitals located in Alaska and Hawaii).

Sec. 412.154 Payment adjustments under the Hospital Readmissions
Reduction Program.

(a) Scope. This section sets forth the requirements for determining
the payment adjustments under the Hospital Readmissions Reduction
Program for applicable hospitals to account for excess readmissions in
the hospital.
(b) Payment adjustment. (1) General. To account for excess
readmissions, except as provided for in paragraph (d) of this section,
an applicable hospital's base operating DRG payment amount is adjusted
for each discharge occurring during the fiscal year. The payment
adjustment for each discharge is determined by subtracting the product
of the base operating DRG payment amount (as defined in Sec. 412.152)
for such discharge by the hospital's readmission payment adjustment
factor for the fiscal year (determined under paragraph (e) of this
section) from the base operating DRG payment amount for such discharge.
(2) Special treatment for sole community hospitals. In the case of
a sole community hospital that receives payments under Sec. 412.92(d)
based on the hospital-specific rate, the difference between the
hospital-specific rate

[[Page 28130]]

payment and the Federal rate payment determined under subpart D of this
part is not affected by this payment adjustment.
(c) Methodology to calculate the readmissions payment adjustment
factor. A hospital's readmission payment adjustment factor is the
higher of the ratio described in paragraph (c)(1) of this section or
the floor adjustment factor set forth in paragraph (c)(2) of this
section.
(1) Ratio. The ratio is equal to 1 minus the ratio of the aggregate
payments for excess readmissions as defined in Sec. 412.152 and the
aggregate payments for all discharges as defined in Sec. 412.152.
(2) Floor adjustment factor. The floor adjustment factor is:
(i) For FY 2013, 0.99;
(ii) For FY 2014, 0.98; and
(iii) For FY 2015 and subsequent fiscal years, 0.97.
(d) Hospitals paid under section 1814(b)(3) of the Act (certain
Maryland hospitals). The Secretary will consider whether to exempt
Maryland hospitals that are paid under section 1814(b)(3) of the Act
and that, absent the provisions of section 1814(b)(3) of the Act, would
be paid under section 1886(d) of the Act from the Hospital Readmissions
Reduction Program, provided that the State submits an annual report to
the Secretary describing how a similar program to reduce hospital
readmissions in that State achieves or surpasses the measured results
in terms of health outcomes and cost savings for the Hospital
Readmissions Reduction Program as applied to hospitals described in
section 1886(d)(1)(B) of the Act.
(1) CMS will establish criteria for evaluation of Maryland's annual
report to the Secretary to determine whether Maryland will be exempted
from the program for a given fiscal year.
(2) Maryland's annual report to the Secretary and request for
exemption from the Hospital Readmissions Reduction Program must be
resubmitted and reconsidered annually.
(e) Limitations on review. There is no administrative or judicial
review under this subpart of the following:
(1) The determination of base operating DRG payment amounts.
(2) The methodology for determining the adjustment factor under
paragraph (c) of this section, including the excess readmissions ratio,
aggregate payments for excess readmissions, and aggregate payments for
all discharges.
(3) The applicable period.
(4) The applicable conditions.
(f) Reporting of hospital-specific information. CMS will make
information available to the public regarding readmissions rates of
each applicable hospital (as defined in Sec. 412.152) under the
Hospital Readmissions Reduction Program.
(1) To ensure that an applicable hospital has the opportunity to
review and submit corrections for its excess readmission ratios for the
applicable conditions for a fiscal year that are used to determine its
readmissions payment adjustment factor under paragraph (c) of this
section, CMS will provide each applicable hospital with confidential
hospital-specific reports and discharge level information used in the
calculation of its excess readmission ratios.
(2) Applicable hospitals will have a period of 30 days after
receipt of the information provided in paragraph (f)(1) of this section
to review and submit corrections for the excess readmission ratios for
each applicable condition that are used to calculate the readmissions
payment adjustment factor under paragraph (c) of this section for the
fiscal year.
(3) The administrative claims data used to calculate an applicable
hospital's excess readmission ratios for the applicable conditions for
a fiscal year are not subject to review and correction under paragraph
(f)(1) of this section.
(4) CMS will post the excess readmission ratios for the applicable
conditions for a fiscal year for each applicable hospital on the
Hospital Compare Web site (http://www.hospitalcompare.hhs.gov).

Sec. Sec. 412.155-412.159 [Reserved]

Incentive Payments Under the Hospital Value-Based Purchasing Program

Sec. 412.160 Definitions for the Hospital Value-Based Purchasing
Program.

As used in this section and in Sec. Sec. 412.162 through 412.167:
Achievement threshold means the median performance level among all
hospitals on a measure during the baseline period or performance
period, as applicable, for each measure for a fiscal year.
Applicable percent means the following:
(1) For FY 2013, 1.0 percent;
(2) For FY 2014, 1.25 percent;
(3) For FY 2015, 1.50 percent;
(4) For FY 2016, 1.75 percent; and
(5) For FY 2017 and subsequent fiscal years, 2.0 percent.
Base operating DRG payment amount means the following:
(1) With respect to a subsection (d) hospital (as defined in
section 1886(d)(1)(B) of the Act), the wage-adjusted DRG operating
payment plus any applicable new technology add-on payments under
subpart F of this part. This amount is determined without regard to any
payment adjustments under the Hospital Readmissions Reduction Program,
as specified under Sec. 412.154. This amount does not include any
additional payments for indirect medical education under Sec. 412.105,
the treatment of a disproportionate share of low-income patients under
Sec. 412.106, outliers under subpart F of this part, or a low volume
of discharges under Sec. 412.101.
(2) With respect to a Medicare-dependent, small rural hospital that
receives payments under Sec. 412.108(c) or a sole community hospital
that receives payments under Sec. 412.92(d), the wage-adjusted DRG
operating payment plus any applicable new technology add-on payments
under subpart F of this part. This amount does not include any
additional payments for indirect medical education under Sec. 412.105,
the treatment of a disproportionate share of low-income patients under
Sec. 412.106, outliers under subpart F of this part, or a low volume
of discharges under Sec. 412.101. This amount also does not include
the difference between the hospital-specific payment rate and the
Federal payment rate determined under subpart D of this part.
(3) With respect to a hospital that is paid under section
1814(b)(3) of the Act, the payment amount under section 1814(b)(3) of
the Act.
Benchmark means the arithmetic mean of the top decile of
performance among all hospitals on a measure during the baseline period
or performance period, as applicable, for each measure for a fiscal
year.
Cited for deficiencies that pose immediate jeopardy means that,
during the applicable performance period, the Secretary cited the
hospital for immediate jeopardy on at least two surveys using the Form
CMS-2567, Statement of Deficiencies and Plan of Correction.
Domain means a category of quality measures given weighting for
purposes of performance scoring as a component of the Total Performance
Score.
Domain score means the points awarded to a hospital for scored
measures in a domain.
Hospital means a hospital described in section 1886(d)(1)(B) of the
Act, but does not include a hospital, with respect to a fiscal year,
for which one or more of the following applies:
(1) The hospital is subject to the payment reduction under section
1886(b)(3)(B)(viii)(I) of the Act for the fiscal year;

[[Page 28131]]

(2) The hospital was cited for deficiencies that pose immediate
jeopardy by the Secretary during the performance period for the fiscal
year;
(3) There are not a minimum number of measures that apply to the
hospital for the performance period for the fiscal year; or
(4) There are not a minimum number of cases for the measures that
apply to the hospital for the performance period for the fiscal year.
Immediate jeopardy has the same meaning as that term is defined in
Sec. 489.3 of this chapter.
Improvement threshold means an individual hospital's performance
level on a measure during the baseline period for a fiscal year.
Performance period means the time period during which data are
collected for the purpose of calculating hospital performance on
measures under the Hospital VBP Program.
Performance standards are the levels of performance that hospitals
must achieve in order to earn points under the Hospital VBP Program.
Total Performance Score means the numeric score ranging from 0 to
100 awarded to each hospital based on its performance under the
Hospital VBP Program with respect to a fiscal year.
Value-based incentive payment percentage means the percentage of
the total base operating DRG payment amount for each discharge that a
hospital has earned, based on its Total Performance Score, the
applicable percent, and the exchange function slope, with respect to a
fiscal year.
Value-based payment adjustment factor is calculated by subtracting
the applicable percent from the value-based incentive payment
percentage, converting the result to a number, and adding one.
Wage-adjusted DRG operating payment is the applicable average
standardized amount adjusted for resource utilization by the applicable
MS-DRG relative weight and adjusted for differences in geographic costs
by the applicable area wage index (and by the applicable cost-of-living
adjustment for hospitals located in Alaska and Hawaii).

Sec. 412.162 Process for reducing the base operating DRG payment
amount and applying the value-based incentive payment amount adjustment
under the Hospital Value-Based Purchasing (VBP) Program.

(a) General. If a hospital meets or exceeds the performance
standards that apply to the Hospital VBP Program for a fiscal year, CMS
will make value-based incentive payments to the hospital under the
requirements and conditions specified in this section.
(b) Value-based incentive payment amount. (1) Available amount. The
value-based incentive payment amount for a discharge is the portion of
the payment amount that is attributable to the Hospital VBP Program.
The total amount available for value based incentive payments to all
hospitals is equal to the total amount of base-operating DRG payment
reductions, as estimated by the Secretary, according to section
1886(o)(6)(C)(ii)(I) of the Act.
(2) Calculation of the value-based incentive payment amount. The
value-based incentive payment is determined by multiplying the base
operating DRG payment amount and the value-based incentive payment
percentage.
(3) Calculation of the he value-based incentive payment percentage.
The value-based incentive payment percentage is calculated as the
product of: The applicable percent as specified in paragraph (d) of
this section, the hospital's Total Performance Score divided by 100,
and the exchange function slope.
(c) Methodology to calculate the value-based incentive payment
adjustment factor. (1) General. The base operating DRG payment amount
payment amount for each discharge is adjusted under the Hospital VBP
Program by multiplying the base operating DRG payment amount by the
value-based incentive payment adjustment factor.
(2) Calculation Methodology. The value-based incentive payment
adjustment factor for each discharge is determined by subtracting the
applicable percent as specified in paragraph (d) of this section from
the value-based incentive payment percentage and then adding that
difference to one.
(d) Hospitals paid under section 1814 of the Act (Maryland
hospitals). (1) The Secretary may exempt Maryland hospitals from the
requirements of the Hospital VBP Program for a fiscal year if the State
submits an annual report to the Secretary describing how a similar
program in the State for a participating hospital or hospitals achieves
or surpasses the measured results in terms of patient health outcomes
and cost savings established under the Hospital VBP Program.
(e) Limitations on review. There is no administrative or judicial
review of the following:
(1) The methodology used to determine the amount of the value-based
incentive payment under section 1886(o)(6) of the Act and the
determination of such amount.
(2) The determination of the amount of funding available for value-
based incentive payments under section 1886(o)(7)(A) of the Act and the
payment reduction under section 1886(o)(7)(B)(i) of the Act.
(3) The establishment of the performance standards under section
1886(o)(3) of the Act and the performance period under section
1886(o)(4) of the Act.
(4) The measures specified under section 1886(b)(3)(B)(viii) of the
Act and the measures selected under section 1886(o)(2) of the Act.
(5) The methodology developed under section 1886(o)(5) of the Act
that is used to calculate hospital performance scores and the
calculation of such scores.
(6) The validation methodology that is specified under section
1886(b)(3)(B)(viii)(XI) of the Act.

Sec. 412.163 Process for posting hospital-specific performance
information under the Hospital Value-Based Purchasing (VBP) Program.

(a) CMS will make information available to the public regarding the
performance of each hospital (as defined in Sec. 412.160(h) of the
subpart) under the Hospital VBP Program.
(b) To ensure that a hospital has the opportunity to review and
submit corrections for the information to be made public under this
section, CMS will provide each hospital with confidential hospital-
specific reports and discharge level information used in the
calculation of its performance with respect to each measure, condition,
and domain, and the calculation of its Total Performance Score.
(c) Hospitals will have a period of 30 days after CMS provides the
information specified in paragraph (b) of this section to review and
submit corrections for the information.
(d) CMS will post the information specified in paragraph (b) for
each hospital on the Hospital Compare Web site.

Sec. 412.164 Measures selection under the Hospital Value-Based
Purchasing (VBP) Program.

(a) CMS will select measures, other than measures of readmissions,
for purposes of the Hospital VBP Program. Such measures will be a
subset of the measures specified under section 1886(b)(3)(B)(viii) of
the Act (the Hospital Inpatient Quality Reporting Program).
(b) CMS will post data on each measure on the Hospital Compare Web
site for at least 1 year prior to the beginning of a performance period
for the measure under the Hospital VBP Program.

[[Page 28132]]

Sec. 412.165 Performance standards under the Hospital Value-Based
Purchasing (VBP) Program.

(a) Points awarded based on hospital performance. (1) CMS will
award points to hospitals for performance on each measure for which the
hospital reports the applicable minimum number of cases during the
applicable performance period.
(2) CMS will award from 1 to 9 points for achievement to each
hospital whose performance on a measure during the applicable
performance period meets or exceeds the achievement threshold but is
less than the benchmark for that measure.
(3) CMS will award from 0 to 9 points for improvement to each
hospital whose performance on a measure during the applicable
performance period exceeds the improvement threshold but is less than
the benchmark for that measure.
(4) CMS will award 10 points to a hospital whose performance on a
measure during the applicable performance period meets or exceeds the
benchmark for that measure.
(b) [Reserved]

Sec. 412.166 Performance scoring under the Hospital Value-Based
Purchasing (VBP) Program.

The hospital's Total Performance Score for a program year is
calculated as follows:
(a) CMS will calculate a domain score for a hospital when it
reports the minimum number of measures in the domain.
(b) CMS will sum all points awarded for each measure in a domain to
calculate an unweighted domain score.
(c) CMS will normalize the domain scores to ensure that the domain
score is expressed as a percentage of points earned out of 100.
(d) CMS will weight the domain scores with the finalized domain
weights for each fiscal year.
(e) The sum of the weighted domain scores is the hospital's Total
Performance Score for the fiscal year.

Sec. 412.167 Appeal under the Hospital Value-Based Purchasing (VBP)
Program.

(a) A hospital may appeal the following issues:
(1) CMS' decision to deny a hospital's correction request that the
hospital submitted under the review and corrections process;
(2) Whether the achievement/improvement points were calculated
correctly;
(3) Whether CMS properly used the higher of the achievement/
improvement points in calculating the hospital's measure/dimension
score;
(4) Whether CMS correctly calculated the domain scores, including
the normalization calculation;
(5) Whether CMS used the proper lowest dimension score in
calculating the hospital's HCAHPS consistency points;
(6) Whether CMS calculated the HCAHPS consistency points correctly;
(7) Whether the correct domain scores were used to calculate the
Total Performance Score;
(8) Whether each domain was weighted properly;
(9) Whether the weighted domain scores were properly summed to
arrive at the Total Performance Score; and,
(10) Whether the hospital's open/closed status (including mergers
and acquisitions) is properly specified in CMS' systems.
(b) Appeals must be submitted within 30 days of CMS' decision to
deny a corrections request under Sec. 412.163 or within 30 days of the
conclusion of the review and corrections period, as applicable, and
must contain the following information:
(1) Hospital's CMS Certification Number (CCN).
(2) Hospital name.
(3) Hospital's basis for requesting an appeal. This must identify
the hospital's specific reason(s) for appealing the hospital's Total
Performance Score or performance assessment with respect to the
performance standards.
(4) CEO contact information, including name, email address,
telephone number, and mailing address (must include the physical
address, not just the post office box).
(5) QualityNet System Administrator contact information, including
name, email address, telephone number, and mailing address (must
include the physical address, not just the post office box).
(c) Limitations on review. There is no administrative or judicial
review of the following:
(1) The methodology used to determine the amount of the value-based
incentive payment under section 1886(o)(6) of the Act and the
determination of such amount.
(2) The determination of the amount of funding available for value-
based incentive payments under section 1886(o)(7)(A) of the Act and the
payment reduction under section 1886(o)(7)(B)(i) of the Act.
(3) The establishment of the performance standards under section
1886(o)(3) of the Act and the performance period under section
1886(o)(4) of the Act.
(4) The measures specified under section 1886(b)(3)(B)(viii) of the
Act and the measures selected under section 1886(o)(2) of the Act.
(5) The methodology developed under section 1886(o)(5) of the Act
that is used to calculate hospital performance scores and the
calculation of such scores.
(6) The validation methodology that is specified under section
1886(b)(3)(B)(viii)(XI) of the Act.

Sec. Sec. 412.168-412.169 [Reserved]

8. Section 412.424 is amended by adding a new paragraph (d)(1)(vi)
to read as follows:

Sec. 412.424 Methodology for calculating the Federal per diem payment
amount.

* * * * *
(d) * * *
(1) * * *
(vi) Applicable percentage change for fiscal year 2014 payment
determination and for subsequent years. (A) In the case of an inpatient
psychiatric facility that is paid under the prospective payment system
in Sec. 412.1(a)(2) that does not submit quality data to CMS, in the
form and manner and at a time specified by CMS, the applicable annual
update to a Federal standard rate is reduced by 2.0 percentage points.
(B) Any reduction in the applicable annual update to a Federal
standard rate will apply only to the fiscal year involved and will not
be taken into account in computing the annual payment update for a
subsequent year.
* * * * *
9. Section 412.434 is added to subpart N to read as follows:

Sec. 412.434 Reconsideration and appeals procedures of Inpatient
Psychiatric Facilities Quality Reporting (IPFQR) Program decisions.

(a) An inpatient psychiatric facility may request reconsideration
of a decision by CMS that the inpatient psychiatric facility has not
met the requirements of the IPFQR Program for a particular fiscal year.
An inpatient psychiatric facility must submit a reconsideration request
to CMS no later than 30 days from the date identified on the IPFQR
Program Annual Payment Update Notification Letter provided to the
inpatient psychiatric facility.
(b) A reconsideration request must contain the following
information:
(1) The inpatient psychiatric facility's CMS Certification Number
(CCN);
(2) The name of the inpatient psychiatric facility;
(3) Contact information for the inpatient psychiatric facility's
chief executive officer and QualityNet system administrator, including
each individual's name, email address, telephone number, and physical
mailing address;

[[Page 28133]]

(4) A summary of the reason(s), as set forth in the IPFQR Program
Annual Payment Update Notification Letter, that CMS concluded the
inpatient psychiatric facility did not meet the requirements of the
IPFQR Program;
(5) A detailed explanation of why the inpatient psychiatric
facility believes that it complied with the requirements of the IPFQR
Program for the applicable fiscal year; and
(6) Any evidence that supports the inpatient psychiatric facility's
reconsideration request, such as emails and other documents.
(c) An inpatient psychiatric facility that is dissatisfied with a
decision made by CMS on its reconsideration request may file an appeal
with the Provider Reimbursement Review Board under part 405, subpart R
of this chapter.

10. Section 412.523 is amended by--
a. Adding a new paragraph (c)(3)(ix).
b. Revising paragraph (d)(3).
The addition and revision read as follows:

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

* * * * *
(c) * * *
(3) * * *
(ix) For long-term care hospital prospective payment system fiscal
year beginning October 1, 2012, and ending September 30, 2013. (A) The
standard Federal rate for the long-term care hospital prospective
payment system beginning October 1, 2012, and ending September 30,
2013, is the standard Federal rate for the previous long-term care
hospital prospective payment system fiscal year updated by 2.1 percent,
and further adjusted, as appropriate, as described in paragraph (d) of
this section.
(B) With respect to discharges occurring on or after October 1,
2012 and before December 29, 2012, payments are based on the standard
Federal rate in paragraph (c)(3)(ix)(A) of this section without regard
to the adjustment provided for under paragraph (d)(3)(ii) of this
section.
* * * * *
(d) * * *
(3) (i) General. The Secretary reviews payments under this
prospective payment system and may make a one-time prospective
adjustment to the long-term care hospital prospective payment system
rates no earlier than December 29, 2012, so that the effect of any
significant difference between the data used in the original
computations of budget neutrality for FY 2003 and more recent data to
determine budget neutrality for FY 2003 is not perpetuated in the
prospective payment rates for future years.
(ii) Adjustment to the standard Federal rate. The standard Federal
rate determined in paragraph (c)(3) of this section is permanently
reduced by 3.75 percent to account for the estimated difference between
projected aggregate payments in FY 2003 made under the prospective
payment system implemented under this subpart and the projected
aggregate payments that would have been made in FY 2003 under Part 413
of this chapter without regard to the implementation of the prospective
payment system implemented under this subpart, excluding the effects of
sections 1886(b)(2)(E) and (b)(3)(J) of the Act. This adjustment is
transitioned over 3 years beginning in FY 2013.
(iii) Special rule for certain discharges occurring during FY 2013.
The adjustment applied under paragraph (d)(3)(ii) of this section is
not applicable when making payments under this subpart for discharges
occurring on or after October 1, 2012, and on or before December 28,
2012.
* * * * *
11. Section 412.529 is amended by revising paragraph (d)(4)(i)(C)
to read as follows:

Sec. 412.529 Special payment provisions for short-stay outliers.

* * * * *
(d) * * *
(4) * * *
(i) * * *
(C) The payment amount specified under paragraph (d)(4)(i)(B) of
this section may not exceed the full amount comparable to what would
otherwise be paid under the hospital inpatient prospective payment
system determined under paragraph (d)(4)(i)(A) of this section.
* * * * *
12. Section 412.534 is amended by--
a. In the following paragraphs, removing the date ``October 1,
2012'' and adding in its place the date ``October 1, 2013'':
1. Paragraph (c)(1) heading;
2. Paragraph (c)(1)(i);
3. Paragraph (c)(1)(ii);
4. Paragraph (c)(2) heading;
5. Paragraph (d)(1) heading;
6. Paragraph (d)(1)(i);
7. Paragraph (d)(2) heading;
8. Paragraph (e)(1) heading;
9. Paragraph (e)(1)(i); and
10. Paragraph (e)(2) heading.
b. Revising the heading of paragraph (c)(3).
c. Revising the heading of paragraph (d)(3).
d. Revising the heading of paragraph (e)(3).
e. Revising paragraph (h)(4).
f. Revising paragraph (h)(5).
The revisions read as follows:

Sec. 412.534 Special payment provisions for long-term care hospitals
within hospitals and satellites of long-term care hospitals.

* * * * *
(c) * * *
(3) For cost reporting periods beginning on or after July 1, 2007
and before July 1, 2012 and for cost reporting periods beginning on or
after October 1, 2012 and before October 1, 2013. * * *
(d) * * *
(3) For cost reporting periods beginning on or after July 1, 2007
and before July 1, 2012 and for cost reporting periods beginning on or
after October 1, 2012 and before October 1, 2013. * * *
(e) * * *
(3) For cost reporting periods beginning on or after July 1, 2007
and before July 1, 2012 and for cost reporting periods beginning on or
after October 1, 2012 and before October 1, 2013. * * *
(h) * * *
(4) For a long-term care hospital described in Sec.
412.23(e)(2)(i) that meets the criteria in Sec. 412.22(f), the
policies set forth in this paragraph (h) and in Sec. 412.536 do not
apply for discharges occurring in cost reporting periods beginning on
or after July 1, 2007 and before July 1, 2012 and for cost reporting
periods beginning on and after October 1, 2012 and before October 1,
2013.
(5) For a long-term care hospital or satellite facility that, as of
December 29, 2007, was co-located with an entity that is a provider-
based, off-campus location of a subsection (d) hospital which did not
provide services payable under section 1886(d) of the Act at the off-
campus location, the policies set forth in this paragraph (h) and in
Sec. 412.536 of this part do not apply for discharges occurring in
cost reporting periods beginning on or after July 1, 2007 and before
July 1, 2012 and for cost reporting periods beginning on or after
October 1, 2012 and before October 1, 2013.
13. Section 412.536 is amended by revising the introductory text of
paragraph (a)(2) to read as follows:

Sec. 412.536 Special payment provisions for long-term care hospitals
and satellites of long-term care hospitals that discharged Medicare
patients admitted from a hospital not located in the same building or
on the same campus as the long-term care hospital or satellite of the
long-term care hospital.

(a) * * *

[[Page 28134]]

(2) For cost reporting periods beginning on or after July 1, 2007
and before July 1, 2012, and for cost reporting periods beginning on or
after October 1, 2012 and before October 1, 2013, the policies set
forth in this section are not applicable to discharges from:
* * * * *

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

14. The authority citation for Part 413 continues to read as
follows:

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

15. Section 413.24 is amended by revising paragraph (a) to read as
follows:

Sec. 413.24 Adequate cost data and cost finding.

(a) Principle. Providers receiving payment on the basis of
reimbursable cost must provide adequate cost data. This must be based
on their financial and statistical records which must be capable of
verification by qualified auditors. The cost data must be based on an
approved method of cost finding and on the accrual basis of accounting,
except for--
(1) Governmental institutions which operate on a cash basis method
of accounting. Cost data based on such basis of accounting will be
acceptable, subject to appropriate treatment of capital expenditures.
(2) Costs of qualified defined benefit pension plans shall be
reported on a cash basis method of accounting, as described at Sec.
413.100(c)(2)(vii)(D) for cost reporting periods beginning on or after
October 1, 2011.
* * * * *
16. Section 413.79 is amended by--
a. Revising paragraph (e)(1).
b. Revising paragraph (f)(7)(i)(B).
c. Redesignating paragraphs (n)(2)(ii) and (n)(2)(iii) as
paragraphs (n)(2)(iii) and paragraph (n)(2)(iv), respectively.
d. Adding new paragraph (n)(2)(ii).
e. Revising redesignated paragraphs (n)(2)(iii) and (n)(2)(iv).
The revisions and addition read as follows:

Sec. 413.79 Direct GME payments: Determination of the weighted number
of FTE residents.

* * * * *
(e) * * *
(1) If a hospital had no allopathic or osteopathic residents in its
most recent cost reporting period ending on or before December 31,
1996, and it establishes a new medical residency training program on or
after January 1, 1995, the hospital's unweighted FTE resident cap under
paragraph (c) of this section may be adjusted based on the product of
the highest number of FTE residents in any program year during the
third year of the first program's existence for all new residency
training programs and the number of years in which residents are
expected to complete the program based on the minimum accredited length
for the type of program. The adjustment to the cap may not exceed the
number of accredited slots available to the hospital for the new
program. If a hospital that had no allopathic or osteopathic residents
in its most recent cost reporting period ending on or before December
31, 1996, begins training residents in a new program for the first time
on or after October 1, 2012, the hospital's unweighted FTE resident cap
under paragraph (c) of this section may be adjusted based on the
product of the highest number of FTE residents in any program year
during the fifth academic year of the first program's existence for all
new residency training programs and the number of years in which
residents are expected to complete the program based on the minimum
accredited length for the type of program. The adjustment to the cap
may not exceed the number of accredited slots available to the hospital
for the new program.
(i) If the residents are spending an entire program year (or years)
at one hospital and the remainder of the program at another hospital,
the adjustment to each respective hospital's cap is equal to the
product of the highest number of FTE residents in any program year
during the third year of the first program's existence and the number
of years in which residents are expected to complete the program based
on the minimum accredited length for the type of program and the number
of years the residents are training at each respective hospital. If a
hospital begins training residents in a new program for the first time
on or after October 1, 2012, and if the residents are spending an
entire program year (or years) at one hospital and the remainder of the
program at another hospital, the adjustment to each respective new
teaching hospital's cap is equal to the product of two amounts. The
first amount is the product of the highest total number of FTE
residents in any program year during the fifth year of the first
program's existence at all of the participating hospitals involved and
the number of years in which residents are expected to complete the
program, based on the minimum accredited length for the type of
program. The second amount is the ratio of the number of FTE residents
in the new program that the hospital may count over the entire 5-year
period to the total number of FTE residents that all of the
participating hospitals may count over the entire 5-year period.
(ii) Prior to the implementation of the hospital's adjustment to
its FTE cap beginning with the fourth year of the hospital's residency
program(s), the hospital's cap may be adjusted during each of the first
3 years of the hospital's new residency program using the actual number
of residents participating in the new program. The adjustment may not
exceed the number of accredited slots available to the hospital for
each program year. If a hospital begins training residents in a new
program for the first time on or after October 1, 2012, prior to the
implementation of the hospital's adjustment to its FTE cap beginning
with the sixth year of the hospital's residency program(s), the
hospital's cap may be adjusted during each of the first 5 years of the
hospital's new residency program using the actual number of FTE
residents participating in the new program. The adjustment may not
exceed the number of accredited slots available to the hospital for
each program year.
(iii) Except for rural hospitals, the cap will not be adjusted for
new programs established more than 3 years after the first program
begins training residents. If a hospital begins training residents in a
new program for the first time on or after October 1, 2012, except for
rural hospitals, the cap will not be adjusted for new programs
established more than 5 years after the first program begins training
residents.
(iv) Effective for affiliation agreements entered into on or after
October 1, 2005, an urban hospital that qualifies for an adjustment to
its FTE cap under paragraph (e)(1) of this section is permitted to be
part of a Medicare GME affiliated group for purposes of establishing an
aggregate FTE cap only if the adjustment that results from the
affiliation is an increase to the urban hospital's FTE cap.
(v) A rural hospital that qualifies for an adjustment to its FTE
cap under paragraph (e)(1) of this section is permitted to be part of a
Medicare GME

[[Page 28135]]

affiliated group for purposes of establishing an aggregate FTE cap.
* * * * *
(f) * * *
(7) * * *
(i) * * *
(B) Specify the effective period of the emergency Medicare GME
affiliation agreement (which must, in any event, terminate at the
conclusion of four academic years following the academic year in which
the section 1135 emergency period began).
* * * * *
(n) * * *
(2) * * *
(ii) A hospital that receives an increase in the otherwise
applicable FTE resident cap under paragraph (n)(1) of this section must
fill at least half of its section 5503 slots in at least one of the
following timeframes or lose its section 5503 slots under paragraph
(n)(2)(iv) of this section: Its first 12-month cost reporting period of
the 5-year period; and/or its second 12-month cost reporting period of
the 5-year period; and/or its third 12-month cost reporting period of
the 5-year period. Such a hospital that receives an increase in the
otherwise applicable FTE resident cap under paragraph (n)(1) of this
section also must fill all of the slots it received by its final cost
reporting period beginning during the timeframe of July 1, 2011 through
June 30, 2016, or under paragraph (n)(2)(iv) of this section, lose all
of its section 5503 slots after June 30, 2016.
(iii) CMS may determine whether a hospital has met the requirements
under paragraphs (n)(2)(i) and (n)(2)(ii) of this section during the 5-
year period of July 1, 2011, through June 30, 2016, in such manner and
at such time as CMS determines appropriate, including at the end of
such 5-year period.
(iv) In a case where the Medicare contractor determines that a
hospital did not meet the requirements under paragraphs (n)(2)(i) and
(n)(2)(ii) of this section in a cost reporting period within the 5-year
time period, the Medicare contractor will reduce the otherwise
applicable FTE resident cap of the hospital by the amount by which such
limit was increased under paragraph (n)(1) of this section from the
earliest cost reporting period that is reopenable in which it would be
determined that the hospital did not meet the requirements.
* * * * *
17. Section 413.100 is amended by adding a new paragraph
(c)(2)(vii)(D) to read as follows:

Sec. 413.100 Special treatment of certain accrued costs.

* * * * *
(c) * * *
(2) * * *
(vii) * * *
(D) Exception: Qualified defined benefit pension plans, which are
funded deferred compensation arrangements, shall be reported on a cash
accounting basis as follows:
(1) The allowable pension cost shall be equal to the amount of
actual pension contributions funded during the hospital's current
Medicare cost reporting period, plus any contributions funded in a
prior period and carried forward, subject to the limit under paragraph
(c)(2)(vii)(D)(2) of this section.
(2) Except as provided in paragraph (c)(2)(vii)(D)(3) of this
section, the allowable pension cost shall not exceed 150 percent of the
average contribution(s) funded during the three consecutive Medicare
cost reporting periods that produce the highest average
contribution(s), out of the five most recent Medicare cost reporting
periods (ending with the current cost reporting period). Contributions
in excess of the limit may be carried forward to future period(s). In
the case of a newly adopted pension plan, the 5-year look-back period
and/or the 3-year averaging period will be limited to the number of
cost reporting periods the provider sponsored a qualified defined
benefit pension plan.
(3) A waiver of the limit imposed under paragraph (c)(2)(vii)(D)(2)
of this section may be granted for a specific Medicare cost reporting
period for all or a portion of the contributions in excess of the limit
imposed under paragraph (c)(2)(vii)(D)(2) of this section if it is
determined that such excess costs are reasonable and necessary for that
period.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

18. The authority citation for Part 424 continues to read as
follows:

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

19. Section 424.30 is revised to read as follows:

Sec. 424.30 Scope.

This subpart sets forth the requirements, procedures, and time
limits for claiming Medicare payments. Claims must be filed in all
cases except when services are furnished on a prepaid capitation basis
by an MA organization, or through cost settlement with a health
maintenance organization (HMO), a competitive medical plan (CMP), a
health care prepayment plan (HCPP), or a demonstration. However, claims
must be filed by hospitals seeking IME payment under Sec. 412.105(g)
of this chapter, and/or direct GME payment under Sec. 413.76(c) of
this chapter, and/or nursing or allied health education payment under
Sec. 413.87 of this chapter associated with services furnished on a
prepaid capitation basis by an MA organization. Hospitals that must
report patient data for services furnished on a prepaid capitation
basis by an MA organization, or through cost settlement with a health
maintenance organization (HMO), a competitive medical plan (CMP), a
health care prepayment plan (HCCP), or a demonstration, for purposes of
the DSH payment adjustment under Sec. 412.106 of this chapter are
required to file claims by submitting no pay bills for such patients.
Special procedures for claiming payment after the beneficiary has died
and for certain bills paid by organizations are set forth in subpart E
of this part.

PART 476--UTILIZATION AND QUALITY CONTROL REVIEW

20. The authority citation for Part 476 continues to read as
follows:

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

21. Section 476.1 is amended by adding a definition of ``Provider''
in alphabetical order, to read as follows:

Sec. 476.1 Definitions.

* * * * *
Provider means a health care facility, institution, or
organization, including but not limited to a hospital, involved in the
delivery of health care services for which payment may be made in whole
or in part under Title XVIII of the Act.
* * * * *
22. Section 476.78 is amended by revising the section heading and
the introductory text of paragraph (b)(2) to read as follows:

Sec. 476.78 Responsibilities of providers and practitioners.

* * * * *
(b) * * *
(2) Providers and practitioners must provide patient care data and
other pertinent data to the QIO at the time the QIO is collecting
review information that is required for the QIO to make its
determinations. When the QIO does postadmission, preprocedure review,

[[Page 28136]]

the provider must provide the necessary information before the
procedure is performed, unless it must be performed on an emergency
basis. Providers and practitioners must--
* * * * *
23. Section 476.90 is revised to read as follows:

Sec. 476.90 Lack of cooperation by a provider or practitioner.

(a) If a provider or practitioner refuses to allow a QIO to enter
and perform the duties and functions required under its contract with
CMS, the QIO may--
(1) Determine that the provider or practitioner has failed to
comply with the requirements of 42 CFR 1004.10(c) and report the matter
to the HHS Inspector General; or
(2) Issue initial denial determinations for those claims it is
unable to review, make the determination that financial liability will
be assigned to the provider or practitioner, and may report the matter
to the HHS Inspector General.
(b) If a QIO gives a provider or practitioner sufficient notice and
a reasonable amount of time to respond to a request for information
about a claim, and if the provider or practitioner does not respond in
a timely manner, the QIO will deny the claim. A provider or
practitioner may request that the QIO reconsider its decision to deny
the claim. No further appeal rights are available.

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

24. The authority citation for Part 489 is revised to read as
follows:

Authority: Secs. 1102, 1819, 1820(e), 1861, 1864(m), 1866,
1869, 1871 and section 1886(o) of the Social Security Act (42 U.S.C.
1302, 1395i-3, 1395x, 1395aa(m), 1395cc, 1395ff, 1395hh, and
1395ww(o)).

25. Section 489.5 is added to read as follows:

Sec. 489.5 Definitions for purposes of the Hospital Value-Based
Purchasing Program.

For purposes of the Hospital Value-Based Purchasing Program
established under section 1886(o) of the Act--
(a) Cited for deficiencies that pose immediate jeopardy means that,
during the applicable performance period, the hospital had more than
one survey by the State survey agency for which it was cited for an
immediate jeopardy on the Form CMS 2567, Statement of Deficiencies and
Plan of Correction.
(b) Immediate jeopardy has the same meaning as the definition at
Sec. 489.3.

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

Dated: April 2, 2012.
Marilyn Tavenner
Acting Administrator, Centers for Medicare & Medicaid Services.
Dated: April 13, 2012,
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

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

Addendum--Proposed Schedule of Standardized Amounts, Update Factors,
and Rate-of-Increase Percentages Effective With Cost Reporting Periods
Beginning on or After October 1, 2012 and Proposed Payment Rates for
LTCHs Effective for Discharges Occurring on or After October 1, 2012

I. Summary and Background

In this Addendum, we are setting forth a description of the
methods and data we used to determine the proposed prospective
payment rates for Medicare hospital inpatient operating costs and
Medicare hospital inpatient capital-related costs for FY 2013 for
acute care hospitals. We also are setting forth the proposed rate-
of-increase percentages for updating the target amounts for certain
hospitals excluded from the IPPS for FY 2013. We note that, because
certain hospitals excluded from the IPPS are paid on a reasonable
cost basis subject to a rate-of-increase ceiling (and not by the
IPPS), these hospitals are not affected by the figures for the
standardized amounts, offsets, and budget neutrality factors.
Therefore, in this proposed rule, we are proposing the rate-of-
increase percentages for updating the target amounts for certain
hospitals excluded from the IPPS that are effective for cost
reporting periods beginning on or after October 1, 2012.
In addition, we are setting forth a description of the methods
and data we used to determine the proposed standard Federal rate
that would be applicable to Medicare LTCHs for FY 2013.
In general, except for SCHs and hospitals located in Puerto
Rico, each hospital's payment per discharge under the IPPS is based
on 100 percent of the Federal national rate, also known as the
national adjusted standardized amount. This amount reflects the
national average hospital cost per case from a base year, updated
for inflation.
Currently, SCHs are paid based on whichever of the following
rates yields the greatest aggregate payment: the Federal national
rate; the updated hospital-specific rate based on FY 1982 costs per
discharge; the updated hospital-specific rate based on FY 1987 costs
per discharge; the updated hospital-specific rate based on FY 1996
costs per discharge; or the updated hospital-specific rate based on
the FY 2006 costs per discharge.
We note that, as discussed in section IV.G. of the preamble of
this proposed rule, section 3124 of the Affordable Care Act extended
the MDH program from the end of FY 2011 (that is, for discharges
occurring before October 1, 2011) to the end of FY 2012 (that is,
for discharges occurring before October 1, 2012). (Under prior law,
the MDH program was to be in effect through the end of FY 2011
only.) Therefore, due to the expiration of the MDH program beginning
with FY 2013, we are not including MDHs in our proposal to update
the hospital-specific rates for FY 2013.
For hospitals located in Puerto Rico, the payment per discharge
is based on the sum of 25 percent of an updated Puerto Rico-specific
rate based on average costs per case of Puerto Rico hospitals for
the base year and 75 percent of the Federal national rate. (We refer
readers to section II.D.3. of this Addendum for a complete
description.)
As discussed below in section II. of this Addendum, we are
proposing to make changes in the determination of the prospective
payment rates for Medicare inpatient operating costs for acute care
hospitals for FY 2013. In section III. of this Addendum, we discuss
our proposed policy changes for determining the prospective payment
rates for Medicare inpatient capital-related costs for FY 2013. In
section IV. of this Addendum, we are setting forth our proposed
changes for determining the rate-of-increase limits for certain
hospitals excluded from the IPPS for FY 2013. In section V. of this
Addendum, we are proposing to make changes in the determination of
the standard Federal rate for LTCHs under the LTCH PPS for FY 2013.
The tables to which we refer in the preamble of this proposed rule
are listed in section VI. of this Addendum and are available via the
Internet.

II. Proposed Changes to Prospective Payment Rates for Hospital
Inpatient Operating Costs for Acute Care Hospitals for FY 2013

The basic methodology for determining prospective payment rates
for hospital inpatient operating costs for acute care hospitals for
FY 2005 and subsequent fiscal years is set forth at Sec. 412.64.
The basic methodology for determining the prospective payment rates
for hospital inpatient operating costs for hospitals located in
Puerto Rico for FY 2005 and subsequent fiscal years is set forth at
Sec. Sec. 412.211 and 412.212. Below we discuss the factors used
for determining the proposed prospective payment rates for FY 2013.
In summary, the standardized amounts set forth in Tables 1A, 1B,
and 1C that are listed and published in section VI. of this Addendum
(and available via the Internet) reflect--
Equalization of the standardized amounts for urban and
other areas at the level computed for large urban hospitals during
FY 2004 and onward, as provided for under section
1886(d)(3)(A)(iv)(II) of the Act.
The labor-related share that is applied to the
standardized amounts and Puerto Rico-specific standardized amounts
to give the hospital the highest payment, as provided for under
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act.
Proposed updates of 2.1 percent for all areas (that is,
the FY 2013 estimate of the

[[Page 28137]]

market basket rate-of-increase of 3.0 percent less an adjustment of
0.8 percentage point for multifactor productivity and less 0.1
percentage point), as required by section 1886(b)(3)(B)(i) of the
Act, as amended by sections 3401(a) and 10319(a) of the Affordable
Care Act. For hospitals that fail to submit data, in a form and
manner, and at the time, specified by the Secretary relating to the
quality of inpatient care furnished by the hospital, pursuant to
section 1886(b)(3)(B)(viii) of the Act, the proposed update is 0.1
percent (that is, the FY 2013 estimate of the market basket rate-of-
increase of 3.0 percent, less 2.0 percentage points for failure to
submit data under the Hospital IQR Program, less an adjustment of
0.8 percentage point for multifactor productivity, and less 0.1
percentage point).
A proposed update of 2.1 percent to the Puerto Rico-
specific standardized amount (that is, the FY 2013 estimate of the
market basket rate-of-increase of 3.0 percent less an adjustment of
0.8 percentage point for multifactor productivity and less 0.1
percentage point), in accordance with section 1886(d)(9)(C)(i) of
the Act, as amended by section 401(c) of Public Law 108-173, which
sets the update to the Puerto Rico-specific standardized amount
equal to the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act.
An adjustment to the standardized amount to ensure
budget neutrality for DRG recalibration and reclassification, as
provided for under section 1886(d)(4)(C)(iii) of the Act.
An adjustment to ensure the wage index changes are
budget neutral, as provided for under section 1886(d)(3)(E)(i) of
the Act. We note that section 1886(d)(3)(E)(i) of the Act requires
that when we compute such budget neutrality, we assume that the
provisions of section 1886(d)(3)(E)(ii) of the Act (requiring a 62
percent labor-related share in certain circumstances) had not been
enacted.
An adjustment to ensure the effects of geographic
reclassification are budget neutral, as provided for in section
1886(d)(8)(D) of the Act, by removing the FY 2012 budget neutrality
factor and applying a revised factor.
An adjustment to ensure the effects of the rural
community hospital demonstration required under section 410A of
Public Law 108-173, as amended by sections 3123 and 10313 of Public
Law 111-148, which extended the demonstration for an additional 5
years are budget neutral, as required under section 410A(c)(2) of
Public Law 108-173.
An adjustment to remove the FY 2012 outlier offset and
apply an offset for FY 2013, as provided for in section
1886(d)(3)(B) of the Act.
As discussed below and in section II.D. of the preamble
to this proposed rule, an adjustment to meet the requirements of
sections 7(b)(1)(A) and 7(b)(1)(B) of Public Law 110-90 to adjust
the standardized amounts to offset the estimated amount of the
increase in aggregate payments (including interest) due to the
effect of documentation and coding that did not reflect real changes
in case-mix for discharges occurring during FY 2008, FY 2009. We are
also proposing an adjustment to the standardized amounts to offset
the estimated amount of the increase in aggregate payments) due to
the effect of documentation and coding that did not reflect real
changes in case-mix for discharges occurring during FY 2010.
Beginning in FY 2008, we applied the budget neutrality
adjustment for the rural floor to the hospital wage indices rather
than the standardized amount. As we did for FY 2012, for FY 2013, we
are proposing to continue to apply the rural floor budget neutrality
adjustment to hospital wage indices rather than the standardized
amount. Consistent with section 3141 of the Affordable Care Act,
instead of applying a State level rural floor budget neutrality
adjustment on the wage index, we are proposing to apply a uniform,
national budget neutrality adjustment to the proposed FY 2013 wage
index for the rural floor. We note that, as finalized in the FY 2012
IPPS/LTCH PPS final rule, we extended the imputed floor through FY
2013 (76 FR 51593). Therefore, for this proposed rule, we are
continuing to include the imputed floor in calculating the uniform,
national rural floor budget neutrality adjustment to the wage
indices. Thus, the imputed floor is reflected in the proposed FY
2013 wage index. Additionally, while we are proposing an alternative
temporary methodology for computing the imputed floor index in
section II.G.2. of the preamble of this proposed rule, we did not
include this proposed alternative in our calculation of rural floor
budget neutrality because of its negligible impact, although we
intend to include it in the calculation if the policy is finalized.
We note that, in the FY 2012 IPPS/LTCH PPS final rule (76 FR
51788 through 51790), we finalized an adjustment of 1.1 percent to
the standardized amount (that is, a factor of 1.011) in light of the
Cape Cod decision. The adjustment is a one-time permanent adjustment
that is left permanently on the standardized amount.

A. Calculation of the Proposed Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

In general, the national standardized amount is based on per
discharge averages of adjusted hospital costs from a base period
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted
in accordance with the provisions of section 1886(d) of the Act. For
Puerto Rico hospitals, the Puerto Rico-specific standardized amount
is based on per discharge averages of adjusted target amounts from a
base period (section 1886(d)(9)(B)(i) of the Act), updated and
otherwise adjusted in accordance with the provisions of section
1886(d)(9) of the Act. The September 1, 1983 interim final rule (48
FR 39763) contained a detailed explanation of how base-year cost
data (from cost reporting periods ending during FY 1981) were
established for urban and rural hospitals in the initial development
of standardized amounts for the IPPS. The September 1, 1987 final
rule (52 FR 33043 and 33066) contains a detailed explanation of how
the target amounts were determined and how they are used in
computing the Puerto Rico rates.
Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act require us
to update base-year per discharge costs for FY 1984 and then
standardize the cost data in order to remove the effects of certain
sources of cost variations among hospitals. These effects include
case-mix, differences in area wage levels, cost-of-living
adjustments for Alaska and Hawaii, IME costs, and costs to hospitals
serving a disproportionate share of low-income patients.
In accordance with section 1886(d)(3)(E) of the Act, the
Secretary estimates, from time-to-time, the proportion of hospitals'
costs that are attributable to wages and wage-related costs. In
general, the standardized amount is divided into labor-related and
nonlabor-related amounts; only the proportion considered to be the
labor-related amount is adjusted by the wage index. Section
1886(d)(3)(E) of the Act requires that 62 percent of the
standardized amount be adjusted by the wage index, unless doing so
would result in lower payments to a hospital than would otherwise be
made. (Section 1886(d)(9)(C)(iv)(II) of the Act extends this
provision to the labor-related share for hospitals located in Puerto
Rico.)
For FY 2013, we are proposing to continue to use a labor-related
share of 68.8 percent for discharges occurring on or after October
1, 2012, for the national standardized amounts and 62.1 percent for
the Puerto Rico-specific standardized amount. Consistent with
section 1886(d)(3)(E) of the Act, we are proposing to apply the wage
index to a labor-related share of 62 percent for all IPPS hospitals
whose wage index values are less than or equal to 1.0000. For all
IPPS hospitals whose wage indices are greater than 1.0000, we are
proposing to apply the wage index to a labor-related share of 68.8
percent of the national standardized amount. For FY 2013, all Puerto
Rico hospitals have a wage index less than 1.0. Therefore, the
national labor-related share will always be 62 percent because the
wage index for all Puerto Rico hospitals is less than 1.0.
For hospitals located in Puerto Rico, we are applying a labor-
related share of 62.1 percent if its Puerto Rico-specific wage index
is greater than 1.0000. For hospitals located in Puerto Rico whose
Puerto-Rico specific wage index values are less than or equal to
1.0000, we are applying a labor share of 62 percent.
The proposed standardized amounts for operating costs appear in
Table 1A, 1B, and 1C that are listed and published in section VI. of
the Addendum to this proposed rule and are available via Internet.

2. Computing the Average Standardized Amount

Section 1886(d)(3)(A)(iv)(II) of the Act requires that,
beginning with FY 2004 and thereafter, an equal standardized amount
be computed for all hospitals at the level computed for large urban
hospitals during FY 2003, updated by the applicable percentage
update. Section 1886(d)(9)(A)(ii)(II) of the Act equalizes the
Puerto Rico-specific urban and rural area rates. Accordingly, we are
proposing to calculate the FY 2013 national and Puerto Rico
standardized amounts irrespective of whether a hospital is located
in an urban or rural location.

[[Page 28138]]

3. Updating the Average Standardized Amount

Section 1886(b)(3)(B) of the Act specifies the applicable
percentage increase used to update the standardized amount for
payment for inpatient hospital operating costs. As discussed in
section IV.H. of the preamble of this proposed rule, in accordance
with section 1886(b)(3)(B) of the Act, as amended by section 3401(a)
of the Affordable Care Act, we are proposing to reduce the proposed
FY 2013 applicable percentage increase (which is based on the first
quarter 2012 forecast of the FY 2006-based IPPS market basket) by
the multifactor productivity (MFP) adjustment (the 10-year moving
average of MFP for the period ending FY 2013) of 0.8 percent, which
is calculated based on IHS Global Insight, Inc.'s (IGI's) first
quarter 2012 forecast. In addition, in accordance with section
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and
10319(a) of the Affordable Care Act, we are further proposing to
update the standardized amount for FY 2013 by the estimated market
basket percentage increase less 0.1 percentage point for hospitals
in all areas. Sections 1886(b)(3)(B)(xi) and (xii) of Act, as added
and amended by sections 3401(a) and 10319(a) the Affordable Care
Act, further state that these adjustments may result in the
applicable percentage increase being less than zero. The percentage
increase in the market basket reflects the average change in the
price of goods and services comprising routine, ancillary, and
special care unit hospital inpatient services. Based on IGI's 2012
first quarter forecast of the hospital market basket increase (as
discussed in Appendix B of this proposed rule), the most recent
forecast of the hospital market basket increase for FY 2013 is 3.0
percent. Thus, for FY 2013, the proposed update to the average
standardized amount is 2.1 percent for hospitals in all areas (that
is, the FY 2013 estimate of the market basket rate-of-increase of
3.0 percent less an adjustment of 0.8 percentage point for
multifactor productivity and less 0.1 percentage point). For
hospitals that do not submit quality data pursuant to section
1886(b)(3)(B)(viii) of the Act, the estimated proposed update to the
operating standardized amount is 0.1 percent (that is, the FY 2013
estimate of the market basket rate-of-increase of 3.0 percent, less
2.0 percentage points for failure to submit data under the IQR
program, less an adjustment of 0.8 percentage point for multifactor
productivity, and less 0.1 percentage point) The proposed
standardized amounts in Tables 1A through 1C that are published in
section VI. of this Addendum and available via the Internet reflect
these differential amounts.
Section 401(c) of Public Law 108-173 amended section
1886(d)(9)(C)(i) of the Act and states that, for discharges
occurring in a fiscal year (beginning with FY 2004), the Secretary
shall compute an average standardized amount for hospitals located
in any area of Puerto Rico that is equal to the average standardized
amount computed under subclause (I) for FY 2003 for hospitals in a
large urban area (or, beginning with FY 2005, for all hospitals in
the previous fiscal year) increased by the applicable percentage
increase under subsection (b)(3)(B) for the fiscal year involved.
Therefore, the proposed update to the Puerto Rico-specific operating
standardized amount is subject to the applicable percentage increase
set forth in section 1886(b)(3)(B)(i) of the Act, as amended by
sections 3401(a) and 10319(a) of the Affordable Care Act (that is,
the same update factor as for all other hospitals subject to the
IPPS). Accordingly, we are proposing an applicable percentage
increase to the Puerto Rico-specific standardized amount of 2.1
percent.
Although the update factors for FY 2013 are set by law, we are
required by section 1886(e)(4) of the Act to recommend, taking into
account MedPAC's recommendations, appropriate update factors for FY
2013 for both IPPS hospitals and hospitals and hospital units
excluded from the IPPS. Section 1886(e)(5)(A) of the Act requires
that we publish our proposed recommendations in the Federal Register
for public comment. Our recommendation on the update factors is set
forth in Appendix B of this proposed rule.

4. Other Adjustments to the Average Standardized Amount

As in the past, we are proposing to adjust the FY 2013
standardized amount to remove the effects of the FY 2012 geographic
reclassifications and outlier payments before applying the proposed
FY 2013 updates. We then apply budget neutrality offsets for
outliers and geographic reclassifications to the standardized amount
based on proposed FY 2013 payment policies.
We do not remove the prior year's budget neutrality adjustments
for reclassification and recalibration of the DRG weights and for
updated wage data because, in accordance with sections
1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act, estimated aggregate
payments after updates in the DRG relative weights and wage index
should equal estimated aggregate payments prior to the changes. If
we removed the prior year's adjustment, we would not satisfy these
conditions.
Budget neutrality is determined by comparing aggregate IPPS
payments before and after making changes that are required to be
budget neutral (for example, changes to DRG classifications,
recalibration of the DRG relative weights, updates to the wage
index, and different geographic reclassifications). We include
outlier payments in the simulations because they may be affected by
changes in these parameters.
In order to appropriately estimate aggregate payments in our
modeling, we make several inclusions and exclusions so that the
appropriate universe of claims and charges are included. We discuss
IME Medicare Advantage payment amounts, fee-for-service only claims,
and charges for antihemophilic blood factor and organ acquisition
below.
First, consistent with our methodology established in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50422 through 50433), because
IME Medicare Advantage payments are made to IPPS hospitals under
section 1886(d) of the Act, we believe these payments must be part
of these budget neutrality calculations. However, we note that it is
not necessary to include Medicare Advantage IME payments in the
outlier threshold calculation or the outlier offset to the
standardized amount because the statute requires that outlier
payments be not less than 5 percent nor more than 6 percent of total
``operating DRG payments,'' which does not include IME and DSH
payments. We refer the reader to the FY 2011 IPPS/LTCH PPS final
rule for a complete discussion on our methodology of identifying and
adding the total Medicare Advantage IME payment amount to the budget
neutrality adjustments.
Second, consistent with the methodology in the FY 2012 IPPS/LTCH
PPS final rule, in order to ensure that we capture only fee-for-
service claims, we are only including claims with a ``Claim Type''
of 60 (which is a field on the MedPAR file that indicates a claim is
a fee-for-service claim).
Third, consistent with our methodology established in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50422-50423), we examined the
MedPAR and removed pharmacy charges for antihemophilic blood factor
(which are paid separately under the IPPS) with an indicator of
``3'' for blood clotting with a revenue code of ``0636'' from the
covered charge field for the budget neutrality adjustments. We also
removed organ acquisition charges from the covered charge field for
the budget neutrality adjustments because organ acquisition is a
pass-through payment not paid under the IPPS.
Section 3021 of the Affordable Care Act, codified at section
1115A of the Social Security Act, authorizes CMS to test innovative
payment and service delivery models with the goal of reducing
Medicare program expenditures while preserving or enhancing the
quality of care furnished to individuals. Because initiatives
established under this authority could result in IPPS hospitals
receiving a payment different from what they otherwise would receive
under the IPPS, we believe it is important to identify how these
initiatives are addressed in the context of our budget neutrality
calculations.
The Bundled Payments for Care Improvement (BPCI) initiative,
developed by CMS' Center for Medicare and Medicaid Innovation under
the authority of section 3021 of the Affordable Care Act (codified
at section 1115A of the Act), will test four payment models that
link payments for multiple services during an episode of care. On
August 23, 2011, CMS invited providers to apply to help develop and
test four models of bundling payments under the BPCI. We refer the
reader to section IV.H.4. of the preamble to this proposed rule for
a discussion on the BPCI initiative. We note that under Models 1, 2,
and 4, participating IPPS hospitals could receive a payment for all
or selected IPPS claims under the BPCI that differs from payments
they would otherwise receive under the IPPS. We also note that Model
3 addresses payments for related readmissions and postacute care
services. Therefore, we believe it is not necessary to propose to
address the treatment of any data for participating hospitals in
Model 3.
For purposes of computing the budget neutrality calculations to
compute the average standardized amount, we intend to include all
applicable data from subsection (d) hospitals participating in BPCI
models 1,

[[Page 28139]]

2, and 4 in our IPPS payment modeling and ratesetting calculations
(which includes recalibration of the MS-DRG weights, ratesetting,
calculation of the budget neutrality factors, and the impact
analysis). In essence, we would continue to treat these hospitals
the same as prior fiscal years for purposes of the FY 2013 (and
subsequent years) IPPS payment modeling and ratesetting process
without regard to a hospital's participation within these three
bundled payment models (that is, we would treat these hospitals as
if they are not be participating in Model 1, Model 2, or Model 4
under the BPCI initiative). We believe it is appropriate to include
all applicable data from these subsection(d) hospitals in our IPPS
payment modeling and ratesetting calculations because these
hospitals are still receiving IPPS payments under section 1886(d) of
the Act (in addition to the reconciliation payment the hospital may
receive under Model 2 of the BPCI initiative). Moreover, the
Secretary has the authority to make appropriate adjustments for
payment amounts at section 1886(d)(5)(I)(i) of the Act to include
all applicable data from these ``subsection(d)'' hospitals in our
IPPS ratesetting calculations. We believe it is appropriate to use
the Secretary's authority under section 1886(d)(5)(I)(i) of the Act
to include all IPPS short term acute care hospitals and their data
within the IPPS ratesetting calculations since excluding these
hospitals would diminish the number of providers used to determine
the IPPS rates which could cause fluctuations to the IPPS rates and
could produce instability to the IPPS rates.
The Affordable Care Act established the Hospital Readmissions
Reduction Program and the Hospital Value-Based Purchasing Program
which adjust payments to certain IPPS hospitals beginning with
discharges on or after October 1, 2012. Because the adjustments made
under these programs affect the estimation of aggregate IPPS
payments, we believe it is appropriate to include adjustments for
these programs within our budget neutrality calculations. We discuss
the treatment of these two programs in the context of budget
neutrality adjustments below.
Section 3025 of the Affordable Care Act, as amended by section
10309 of the Affordable Care Act, added a new subsection (q) to
section 1886 of the Act. Section 1886(q) of the Act establishes the
``Hospital Readmissions Reduction Program'' effective for discharges
from an ``applicable hospital'' beginning on or after October 1,
2012, under which payments to those hospitals under section 1886(d)
of the Act will be reduced to account for certain excess
readmissions. Under the Hospital Readmissions Reduction Program at
section 1886(q) of the Act, payments for discharges from an
``applicable hospital'' will be in an amount equal to the product of
the ``base operating DRG payment amount'' and an ``adjustment
factor'' that accounts for excess readmissions for the hospital for
the fiscal year, for discharges beginning on October 1, 2012. (The
statute also specifies that hospitals that receive any applicable
add-on payments for IME, DSH, outliers and low-volume hospitals
provided for under sections 1886(d)(5)(A), (d)(5)(B), (d)(5)(F), and
(d)(12) of the Act, respectively, are not affected by the adjustment
for excess readmissions under the Hospital Readmissions Reduction
Program.) In other words, payment under section 1886(q) is the base
operating DRG payment amount multiplied by the adjustment factor, in
addition to any outliers, IME, DSH, or low-volume payment adjustment
the hospital may otherwise receive. We refer readers to section
IV.A. of the preamble of this proposed rule for full details of our
proposal implementing the Hospital Readmissions Reduction Program
for FY 2013, including definitions of the ``base operating DRG
payment amount.'' Under current law, the Hospital Readmissions
Reduction Program under section 1886(q) of the Act is not budget
neutral.
Section 1886(o) of the Act requires the Secretary to establish a
hospital value-based purchasing program under which value-based
incentive payments are made in a fiscal year to hospitals that meet
performance standards established for a performance period for such
fiscal year to payments for hospital discharges occurring on or
after October 1, 2012. As specified under section 1886(o)(7)(B)(i)
of the Act, the cost of these value-based incentive payments are
funded by a reduction applied to each eligible hospital's base-
operating DRG payment amount, for each discharge occurring in the
fiscal year, beginning with FY 2013. For FY 2013, the reduction
amount is equal to 1.00 percent, As required by section
1886(o)(7)(A) of the Act, the total amount of allocated funds
available for value-based incentive payments is equal to the total
amount of estimated base-operating DRG payment reductions (that is,
1.0 percent of eligible hospitals' base-operating DRG payment amount
for FY 2013). We refer the reader to section VIII.C. of the preamble
of this proposed rule for full details of our proposal implementing
the Hospital VBP Program for FY 2013, including definitions of the
``base operating DRG payment amount.''
Unlike the Hospital Readmissions Reduction Program (where an
adjustment factor is applied to reduce the base operating DRG
payment amount for excess readmissions), the Hospital VBP Program
has no effect on overall payments. As mentioned above, for FY 2013,
the funding pool for value-based incentive payments is 1.0 percent
of eligible hospitals' base-operating DRG payment which is equal to
the total amount of estimated base-operating DRG payment reductions.
In other words, the funding pool that CMS sets aside for the
Hospital VBP Program is then equally redistributed by applying the
hospital VBP adjustment. However, both the hospital readmissions
payment adjustment (reduction) and the hospital VBP adjustment
(redistribution) are applied on a claim by claim basis by adjusting,
as applicable, the base operating DRG payment amount for individual
IPPS hospitals which affects the overall sum of aggregate payments
on each side of the comparison within the budget neutrality
calculations. For example, when we calculate the budget neutrality
factor for DRG reclassification and recalibration of the relative
weights, we compare (section II.4.a. of this Addendum contains for
full details) aggregate payments estimated using the prior year's
GROUPER and weights to estimated payments using the new grouper and
weights. Other factors, such as the DSH and IME payment adjustments,
are the same on both sides of the comparison because we are only
seeking to ensure that aggregate payments do not increase or
decrease as a result of the proposed changes of DRG reclassification
and recalibration. In order to properly sum aggregate payments on
each side of the comparison, we would need to apply the hospital
readmissions payment adjustment and the hospital VBP adjustment on
each side of the comparison. Therefore, to assure that aggregate
payments are estimated correctly in light of the effects of the
Hospital Readmissions Reduction Program and Hospital VBP Program, we
are proposing that we would apply the readmissions payment
adjustment and the Hospital VBP payment adjustment on both sides of
our comparison of aggregate payments when determining all budget
neutrality factors described in section II.A.4. of this Addendum.
For this proposed rule, for the purpose of modeling the proposed
aggregate payments for excess readmissions and the proposed
readmissions adjustment factors, we are using excess readmission
ratios for the applicable hospitals from the 3-year period of July
1, 2007 to June 30, 2010 (the 3-year period preceding the FY 2013
``applicable period'' of July 1, 2008 to June 30, 2011 that was
finalized in last year's rulemaking (76 FR 51671 through 51672),
because the underlying data from this period have already be
available to the public on the Hospital Compare Web site (as of July
2011). The data from the 3-year applicable period of July 1, 2008 to
June 30, 2011, for FY 2013 have not been through the review and
correction process required by section 1886(q)(6) of the Act (as
proposed in section IV.A.3.d. of the preamble of this proposed
rule). For the final rule, we intend to use excess readmission
ratios based on admissions for the finalized applicable period of
July 1, 2008 to June 30, 2011, to calculate the aggregate payments
for excess readmissions and ultimately to calculate the readmissions
payment adjustment factors, as applicable hospitals will have had
the opportunity to review and correct these data before the data are
made public under our proposal set forth in this rule regarding the
reporting of hospital-specific readmission rates consistent with
section 1886(q)(6) of the Act.

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

Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning
in FY 1991, the annual DRG reclassification and recalibration of the
relative weights must be made in a manner that ensures that
aggregate payments to hospitals are not affected. As discussed in
section II.H. of the preamble of this proposed rule, we normalized
the recalibrated DRG weights by an adjustment factor so that the
average case weight after recalibration is equal to the average case
weight prior to recalibration. However, equating the average

[[Page 28140]]

case weight after recalibration to the average case weight before
recalibration does not necessarily achieve budget neutrality with
respect to aggregate payments to hospitals because payments to
hospitals are affected by factors other than average case weight.
Therefore, as we have done in past years, we are proposing to make a
budget neutrality adjustment to ensure that the requirement of
section 1886(d)(4)(C)(iii) of the Act is met.
Section 1886(d)(3)(E)(i) of the Act requires us to update the
hospital wage index on an annual basis beginning October 1, 1993.
This provision also requires us to make any updates or adjustments
to the wage index in a manner that ensures that aggregate payments
to hospitals are not affected by the change in the wage index.
Section 1886(d)(3)(E)(i) of the Act requires that we implement the
wage index adjustment in a budget neutral manner. However, section
1886(d)(3)(E)(ii) of the Act sets the labor-related share at 62
percent for hospitals with a wage index less than or equal to 1.0,
and section 1886(d)(3)(E)(i) of the Act provides that the Secretary
shall calculate the budget neutrality adjustment for the adjustments
or updates made under that provision as if section 1886(d)(3)(E)(ii)
of the Act had not been enacted. In other words, this section of the
statute requires that we implement the updates to the wage index in
a budget neutral manner, but that our budget neutrality adjustment
should not take into account the requirement that we set the labor-
related share for hospitals with indices less than or equal to 1.0
at the more advantageous level of 62 percent. Therefore, for
purposes of this budget neutrality adjustment, section
1886(d)(3)(E)(i) of the Act prohibits us from taking into account
the fact that hospitals with a wage index less than or equal to 1.0
are paid using a labor-related share of 62 percent. Consistent with
current policy, for FY 2013, we are proposing to adjust 100 percent
of the wage index factor for occupational mix. We describe the
occupational mix adjustment in section III.F. of the preamble of
this proposed rule.
For FY 2013, to comply with the requirement that DRG
reclassification and recalibration of the relative weights be budget
neutral for the Puerto Rico standardized amount and the hospital-
specific rates, we used FY 2011 discharge data to simulate payments
and compared aggregate payments using the FY 2012 labor-related
share percentages, the FY 2012 relative weights, and the FY 2012
pre-reclassified wage data and applied the estimated readmissions
payment adjustment and estimated VBP payment adjustment to aggregate
payments using the FY 2012 labor-related share percentages, the
proposed FY 2013 relative weights, and the FY 2012 pre-reclassified
wage data and applied the same estimated readmissions payment and
estimated VBP adjustments. Based on this comparison, we computed a
proposed budget neutrality adjustment factor equal to 0.998546. As
discussed in section IV. of this Addendum, we also are proposing to
apply the DRG reclassification and recalibration budget neutrality
factor of 0.998546 to the hospital-specific rates that are effective
for cost reporting periods beginning on or after October 1, 2012.
In order to meet the statutory requirements that we do not take
into account the labor-related share of 62 percent when computing
wage index budget neutrality, it was necessary to use a three-step
process to comply with the requirements that DRG reclassification
and recalibration of the relative weights and the updated wage index
and labor-related share have no effect on aggregate payments for
IPPS hospitals. We first determined a proposed DRG reclassification
and recalibration budget neutrality factor of 0.998546 by using the
same methodology described above to determine the proposed DRG
reclassification and recalibration budget neutrality factor for the
Puerto Rico standardized amount and hospital-specific rates.
Secondly, to compute a proposed budget neutrality factor for wage
index and labor-related share changes, we used FY 2011 discharge
data to simulate payments and compared aggregate payments using
proposed FY 2013 relative weights and FY 2012 pre-reclassified wage
indices, applied the FY 2012 labor-related share of 68.8 percent to
all hospitals (regardless of whether the hospital's wage index was
above or below 1.0) and applied the estimated readmissions payment
adjustment and estimated VBP payment adjustment when estimating
aggregate payments using the proposed FY 2013 relative weights and
the proposed FY 2013 pre-reclassified wage indices, applied the
proposed labor-related share for FY 2013 of 68.8 percent to all
hospitals (regardless of whether the hospital's wage index was above
or below 1.0) and applied the same estimated readmissions payment
adjustment and estimated VBP payment adjustment. In addition, we
applied the proposed DRG reclassification and recalibration budget
neutrality factor (derived in the first step) to the rates that were
used to simulate payments for this comparison of aggregate payments
from FY 2012 to FY 2013. By applying this methodology, we determined
a proposed budget neutrality factor of 1.000563 for changes to the
wage index. Finally, we multiplied the proposed DRG reclassification
and recalibration budget neutrality factor of 0.998546 (derived in
the first step) by the proposed budget neutrality factor of 1.000563
for changes to the wage index (derived in the second step) to
determine the proposed DRG reclassification and recalibration and
updated wage index budget neutrality factor of 0.999108.

b. Reclassified Hospitals--Budget Neutrality Adjustment

Section 1886(d)(8)(B) of the Act provides that, effective with
discharges occurring on or after October 1, 1988, certain rural
hospitals are deemed urban. In addition, section 1886(d)(10) of the
Act provides for the reclassification of hospitals based on
determinations by the MGCRB. Under section 1886(d)(10) of the Act, a
hospital may be reclassified for purposes of the wage index.
Under section 1886(d)(8)(D) of the Act, the Secretary is
required to adjust the standardized amount to ensure that aggregate
payments under the IPPS after implementation of the provisions of
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal
to the aggregate prospective payments that would have been made
absent these provisions. We note that the wage index adjustments
provided under section 1886(d)(13) of the Act are not budget
neutral. Section 1886(d)(13)(H) of the Act provides that any
increase in a wage index under section 1886(d)(13) shall not be
taken into account ``in applying any budget neutrality adjustment
with respect to such index'' under section 1886(d)(8)(D) of the Act.
To calculate the proposed budget neutrality factor for FY 2013, we
used FY 2011 discharge data to simulate payments and compared total
IPPS payments with proposed FY 2013 relative weights, proposed FY
2013 labor-related share percentages, and proposed FY 2013 wage data
prior to any reclassifications under sections 1886(d)(8)(B) and (C)
and 1886(d)(10) of the Act and applied the estimated readmissions
payment adjustment and the estimated VBP payment adjustment to total
IPPS payments with proposed FY 2013 relative weights, proposed FY
2013 labor-related share percentages, and proposed FY 2013 wage data
after such reclassifications and applied the same estimated
readmissions payment adjustment and the estimated VBP payment
adjustment. Based on these simulations, we calculated a proposed
adjustment factor of 0.991436 to ensure that the effects of these
provisions are budget neutral, consistent with the statute.
The proposed FY 2013 budget neutrality adjustment factor is
applied to the standardized amount after removing the effects of the
FY 2012 budget neutrality adjustment factor. We note that the
proposed FY 2013 budget neutrality adjustment reflects proposed FY
2013 wage index reclassifications approved by the MGCRB or the
Administrator.

c. Rural Floor and Imputed Floor Budget Neutrality Adjustment

As noted above, as discussed in section III.G. 2.b. of the
preamble of this proposed rule, in the FY 2012 final rule, we
extended the imputed floor through FY 2013. We make an adjustment to
the wage index to ensure that aggregate payments to hospitals after
implementation of the rural floor under section 4410 of the BBA
(Pub. L. 105-33) and the imputed floor under Sec. 412.64(h)(4) of
the regulations are not affected. In addition, we note in section
III.G.2.b. of the preamble of this proposed rule, we are proposing
an alternative temporary methodology for computing the imputed floor
index. We did not apply this proposed alternative in our calculation
of the proposed uniform, national rural floor budget neutrality
adjustment to the wage indices because the projected impact of this
proposal is less than $5 million and, therefore, would have a
negligible impact on the adjustment. If this proposed alternative
methodology policy is finalized, we intend to include it in the
calculation of the uniform, national rural floor budget neutrality
adjustment in the final rule. Consistent with section 3141 of the
Affordable Care Act and as discussed in section III.G. of the
preamble of this proposed rule, the budget neutrality adjustment for
the rural and imputed floors is a national adjustment to the wage
index.
Since FY 2012, there is one hospital in rural Puerto Rico.
Therefore, similar to our

[[Page 28141]]

calculation in the FY 2012 IPPS/LTCH final rule (76 FR 51593), for
FY 2013, we are proposing to calculate a national rural Puerto Rico
wage index (used to adjust the labor-related share of the national
standardized amount for hospitals in Puerto Rico which receive 75
percent of the national standardized amount) and a rural Puerto
Rico-specific wage index (which is used to adjust the labor-related
share of the Puerto Rico-specific standardized amount for hospitals
in Puerto Rico that receive 25 percent of the Puerto Rico-specific
standardized amount). Because this rural Puerto Rico hospital still
has no established wage data, our calculation is based on the policy
adopted in the FY 2008 IPPS final rule with comment period (72 FR
47323). A complete discussion on the computation of the rural Puerto
Rico wage index can be found in the FY 2012 final rule.
To calculate the proposed national rural floor and imputed floor
budget neutrality factor and Puerto Rico-specific rural floor budget
neutrality adjustment factor, we used FY 2011 discharge data and
proposed FY 2013 post-reclassified national and Puerto Rico-specific
wage indices to simulate IPPS payments. First, we compared the
national and Puerto Rico-specific simulated payments without the
national rural floor and imputed floor and Puerto Rico-specific
rural floor applied to national and Puerto Rico-specific simulated
payments with the national rural floor and imputed floor and Puerto
Rico-specific rural floor applied to determine the proposed national
rural budget neutrality adjustment factor of 0.992243 and the
proposed Puerto Rico-specific budget neutrality adjustment factor of
0.990686. The national adjustment was applied to the national wage
indices to produce a national rural floor budget neutral wage index
and the Puerto Rico-specific adjustment was then applied to the
Puerto Rico-specific wage indices to produce a Puerto Rico-specific
rural floor budget neutral wage index.

d. Proposed Case-Mix Budget Neutrality Adjustment

Below we summarize the proposed adjustments to the FY 2013 rates
to account for the effect of changes in documentation and coding
that do not reflect real changes in case-mix. We refer the reader to
section II.D. of the preamble to this proposed rule for a complete
discussion (including our historical adjustments to the rates) on
our proposals to eliminate the estimated effect of changes in
documentation and coding that do not reflect real changes in case-
mix.

(1) Prospective Adjustments for Documentation and Coding in FY 2008 and
FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90 and
Section 1886(d)(3)(vi) of the Act

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.
For FY 2013, we are proposing a -1.9 percent adjustment to the
standardized amount to complete the adjustment required under
section 7(b)(1)(A) of Public Law 110-90. We refer the reader to
section II.D. of the preamble to this proposed rule for a complete
discussion on our historical adjustments and our proposed FY 2013
adjustment to the standardized amount pursuant to section 7(b)(1)(A)
of Pub. L. 110-90.

(2) Prospective Adjustments for Documentation and Coding in FY 2010
Authorized by Section 1886(d)(3)(vi) of the Act

Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to
the average standardized amounts if the Secretary determines such
adjustments to be necessary for any subsequent fiscal years in order
to eliminate the effect of coding or classification changes that do
not reflect real changes in case mix. After review of comments and
recommendations received from MedPAC, we analyzed claims data in FY
2010 to determine whether any additional adjustment would be
required to ensure that the introduction of MS-DRGs was implemented
in a budget neutral manner. As discussed in section II.D. of the
preamble of this proposed rule, our analysis showed a documentation
and coding effect in FY 2010 of 0.8 percent, and we are proposing an
additional -0.8 percent adjustment to account for the effects of
documentation and coding that did not reflect an increase in case-
mix severity in FY 2010.

(3) Recoupment or Repayment Adjustment for Documentation and Coding in
FY 2008 and FY 2009 Authorized by Section 7(b)(1)(B) of Public Law 110-
90

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. As discussed in section II.D.5. of the preamble of this
proposed rule, we determined that an aggregate adjustment of -5.8
percent in FYs 2011 and 2012 would be necessary in order to meet
these statutory requirements.
In the FY 2011 IPPS/LTCH PPS final rule, for FY 2011, we made an
adjustment to the standardized amount of -2.9 percent, representing
approximately half of the required adjustment. For FY 2012, in
accordance with the timeframes set forth by section 7(b)(1)(B) of
Pub. L. 110-90, and consistent with the discussion in the FY 2011
IPPS/LTCH PPS final rule, we completed 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 (76 FR 51489 and 51498).
Therefore, the required recoupment for overpayments due to
documentation and coding effects on discharges occurring in FYs 2008
and 2009 has been completed within the required statutory
timeframes. However, to avoid continuing the -2.9 percent adjustment
finalized in FY 2012, we are proposing for FY 2013 to make a final
+2.9 percent adjustment to the standardized amount. This adjustment
removes the onetime -2.9 percent adjustment implemented in FY 2012.

(4) Documentation and Coding Adjustment to the Puerto Rico-Specific
Standardized Amount

As discussed in section II.D.9. of the preamble of this proposed
rule, 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 changes 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. In FY 2011, as
finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071
through 50073), we applied an adjustment of -2.6 percent to the
Puerto Rico-specific rate. Therefore, because the Puerto Rico-
specific rate received a full prospective adjustment of -2.6 percent
in FY 2011, in section II.D.9. of the preamble of this proposed
rule, we are proposing to make no further adjustment for FY 2013.
For a complete discussion on our proposed policy, we refer readers
to section II.D.9. of the preamble of this proposed rule.
We note that, based upon our analysis of FY 2010 claims data; we
found no significant additional effect of documentation and coding
that would warrant any additional adjustment to the Puerto Rico-
specific rate.

e. Rural Community Hospital Demonstration Program Adjustment

As discussed in section IV.K. of the preamble to this proposed
rule, section 410A of Public Law 108-173 originally required the
Secretary to establish a demonstration that modifies reimbursement
for inpatient services for up to 15 small rural hospitals. Section
410A(c)(2) of Pub. L. 108-173 requires that ``[i]n conducting the
demonstration program under this section, the Secretary shall ensure
that the aggregate payments made by the Secretary do not exceed the
amount which the Secretary would have paid if the demonstration
program under this section was not implemented.''
Sections 3123 and 10313 of the Affordable Care Act extended the
demonstration for an additional 5-year period, and allowed up to 30
hospitals to participate in 20 States with low population densities
determined by the Secretary. (In determining which States to include
in the expansion, the Secretary is

[[Page 28142]]

required to use the same criteria and data that the Secretary used
to determine the States for purposes of the initial 5-year period.)
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51700 through 51705),
in order to achieve budget neutrality, we adjusted the national IPPS
rates by an amount sufficient to account for the added costs of this
demonstration as described in section IV.K. of that final rule. In
other words, we applied budget neutrality across the payment system
as a whole rather than merely across the participants of this
demonstration, consistent with past practice. We stated that we
believe that the language of the statutory budget neutrality
requirement permits the agency to implement the budget neutrality
provision in this manner. The statutory language requires that
``aggregate payments made by the Secretary do not exceed the amount
which the Secretary would have paid if the demonstration * * * was
not implemented,'' but does not identify the range across which
aggregate payments must be held equal.
For FY 2013, for the 23 hospitals participating in the
demonstration project, we are proposing to adjust the national IPPS
rates according to the methodology set forth elsewhere in this
proposed rule. For this proposed rule, the estimated amount for the
adjustment to the national IPPS rates for FY 2013 is $35,077,708.
Accordingly, to account for the estimated costs of the demonstration
for the specific time periods as explained in detail in section
IV.K. of the preamble of this proposed rule, for FY 2013, we
computed a proposed factor of 0.999629 for the rural community
hospital demonstration program budget neutrality adjustment that
would be applied to the IPPS standardized rate.
We note that if updated data become available prior to the FY
2013 final rule, we are proposing to use them, to the extent
appropriate, to estimate the costs of the demonstration program in
FY 2013. Therefore, this estimated budget neutrality offset amount
may change in the final rule depending on the availability of
updated data. In addition, if settled cost reports for all of the
demonstration hospitals that participated in the applicable fiscal
year (2007, 2008, 2009, or 2010) are available prior to the FY 2013
IPPS/LTCH PPS final rule, we are proposing to incorporate into the
FY 2013 budget neutrality offset amount the difference between the
final cost of the demonstration in any of these years (as described
previously) and the budget neutrality offset amount applicable to
such year as finalized in the respective year's IPPS final rule.

f. Proposed Outlier Payments

Section 1886(d)(5)(A) of the Act provides for payments in
addition to the basic prospective payments for ``outlier'' cases
involving extraordinarily high costs. To qualify for outlier
payments, a case must have costs greater than the sum of the
prospective payment rate for the DRG, any IME and DSH payments, any
new technology add-on payments, and the ``outlier threshold'' or
``fixed-loss'' amount (a dollar amount by which the costs of a case
must exceed payments in order to qualify for an outlier payment). We
refer to the sum of the prospective payment rate for the DRG, any
IME and DSH payments, any new technology add-on payments, and the
outlier threshold as the outlier ``fixed-loss cost threshold.'' To
determine whether the costs of a case exceed the fixed-loss cost
threshold, a hospital's CCR is applied to the total covered charges
for the case to convert the charges to estimated costs. Payments for
eligible cases are then made based on a marginal cost factor, which
is a percentage of the estimated costs above the fixed-loss cost
threshold. The marginal cost factor for FY 2013 is 80 percent, the
same marginal cost factor we have used since FY 1995 (59 FR 45367).
In accordance with section 1886(d)(5)(A)(iv) of the Act, outlier
payments for any year are projected to be not less than 5 percent
nor more than 6 percent of total operating DRG payments plus outlier
payments. We note that the statute requires outlier payments to be
not less than 5 percent nor more than 6 percent of total ``operating
DRG payments'' (which does not include IME and DSH payments) plus
outlier payments. When setting the outlier threshold, we compute the
5.1 percent target by dividing the total operating outlier payments
by the total operating DRG payments plus outlier payments. We do not
include any other payments such as IME and DSH within the outlier
target amount. Therefore, it is not necessary to include Medicare
Advantage IME payments in the outlier threshold calculation. Section
1886(d)(3)(B) of the Act requires the Secretary to reduce the
average standardized amount by a factor to account for the estimated
proportion of total DRG payments made to outlier cases. Similarly,
section 1886(d)(9)(B)(iv) of the Act requires the Secretary to
reduce the average standardized amount applicable to hospitals
located in Puerto Rico to account for the estimated proportion of
total DRG payments made to outlier cases. More information on
outlier payments may be found on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage.

(1) Proposed FY 2013 Outlier Fixed-Loss Cost Threshold

For FY 2013, we are proposing to continue to use the same
methodology used for FY 2009 (73 FR 48763 through 48766) to
calculate the outlier threshold. Similar to the methodology used in
the FY 2009 IPPS final rule, for FY 2013, we are proposing to apply
an adjustment factor to the CCRs to account for cost and charge
inflation (as explained below). As we have done in the past, to
calculate the proposed FY 2013 outlier threshold, we simulated
payments by applying proposed FY 2013 rates and policies using cases
from the FY 2011 MedPAR files. Therefore, in order to determine the
proposed FY 2013 outlier threshold, we inflated the charges on the
MedPAR claims by 2 years, from FY 2011 to FY 2013.
We are proposing to continue to use a refined methodology that
takes into account the lower inflation in hospital charges that are
occurring as a result of the outlier final rule (68 FR 34494), which
changed our methodology for determining outlier payments by
implementing the use of more current CCRs. Our refined methodology
uses more recent data that reflect the rate-of-change in hospital
charges under the new outlier policy.
Using the most recent data available, we calculated the 1-year
average annualized rate-of-change in charges per case from the last
quarter of FY 2010 in combination with the first quarter of FY 2011
(July 1, 2010 through December 31, 2010) to the last quarter of FY
2011 in combination with the first quarter of FY 2012 (July 1, 2011
through December 31, 2011). This rate-of-change was 6.8 percent
(1.068003) or 14.06 percent (1.140630) over 2 years. As we have done
in the past, we established the proposed FY 2013 outlier threshold
using hospital CCRs from the December 2011 update to the Provider-
Specific File (PSF)--the most recent available data at the time of
this proposed rule.
As discussed in the FY 2007 IPPS final rule (71 FR 48150), we
worked with the Office of Actuary to derive the methodology
described below to develop the CCR adjustment factor. For FY 2013,
we are proposing to continue to use the same methodology to
calculate the CCR adjustment by using the FY 2011 operating cost per
discharge increase in combination with the actual FY 2011 operating
market basket percentage increase determined by IHS Global Insight,
Inc. (IGI), as well as the charge inflation factor described above
to estimate the adjustment to the CCRs. (We note that the FY 2011
actual (otherwise referred to as ``final'') operating market basket
percentage increase reflects historical data, whereas the published
FY 2011 operating market basket update factor was based on IGI's
2010 second quarter forecast with historical data through the first
quarter of 2010. We also note that while the FY 2011 published
operating market basket update was based on the FY 2002-based IPPS
market basket, the actual or ``final'' market basket percentage
increase is based on the FY 2006-based IPPS market basket.
Similarly, the FY 2011 published capital market basket update factor
was based on the FY 2002-based capital market basket and the actual
or ``final'' capital market basket percentage increase is based on
the FY 2006-based capital market basket.) By using the operating
market basket percentage increase and the increase in the average
cost per discharge from hospital cost reports, we are using two
different measures of cost inflation. For FY 2013, we determined the
adjustment by taking the percentage increase in the operating costs
per discharge from FY 2009 to FY 2010 (1.0160) from the cost report
and dividing it by the final operating market basket percentage
increase from FY 2010 (1.0210). This operation removes the measure
of pure price increase (the market basket) from the percentage
increase in operating cost per discharge, leaving the nonprice
factors in the cost increase (for example, quantity and changes in
the mix of goods and services). We repeated this calculation for 2
prior years to determine the 3-year average of the rate of adjusted
change in costs between the operating market basket percentage
increase and the increase in cost per case from the cost report (the
FY 2007 to FY 2008 percentage increase of operating costs per
discharge of 1.0505 divided by the FY 2008 final operating market
basket percentage

[[Page 28143]]

increase of 1.0400, the FY 2008 to FY 2009 percentage increase of
operating costs per discharge of 1.0295 divided by the FY 2009 final
operating market basket percentage increase of 1.0260). For FY 2013,
we averaged the differentials calculated for FY 2008, FY 2009, and
FY 2010, which resulted in a mean ratio of 1.0029. We multiplied the
3-year average of 1.0029 by the FY 2011 final operating market
basket percentage increase of 1.0270, which resulted in an operating
cost inflation factor of 2.99 percent or 1.029948. We then divided
the operating cost inflation factor by the 1-year average change in
charges (1.068003) and applied an adjustment factor of 0.964368 to
the operating CCRs from the PSF (calculation performed on unrounded
numbers).
As stated in the FY 2009 IPPS final rule (73 FR 48763), we
continue to believe it is appropriate to apply only a 1-year
adjustment factor to the CCRs. On average, it takes approximately 9
months for a fiscal intermediary or MAC to tentatively settle a cost
report from the fiscal year end of a hospital's cost reporting
period. The average ``age'' of hospitals' CCRs from the time the
fiscal intermediary or the MAC inserts the CCR in the PSF until the
beginning of FY 2009 is approximately 1 year. Therefore, as stated
above, we believe a 1-year adjustment factor to the CCRs is
appropriate.
We used the same methodology for the capital CCRs and determined
the adjustment by taking the percentage increase in the capital
costs per discharge from FY 2009 to FY 2010 (1.0102) from the cost
report and dividing it by the final capital market basket percentage
increase from FY 2010 (1.010). We repeated this calculation for 2
prior years to determine the 3-year average of the rate of adjusted
change in costs between the capital market basket percentage
increase and the increase in cost per case from the cost report (the
FY 2007 to FY 2008 percentage increase of capital costs per
discharge of 1.0809 divided by the FY 2008 final capital market
basket percentage increase of 1.0150, the FY 2008 to FY 2009
percentage increase of capital costs per discharge of 1.0499 divided
by the FY 2009 final capital market basket percentage increase of
1.0150). For FY 2013, we averaged the differentials calculated for
FY 2008, FY 2009, and FY 2010, which resulted in a mean ratio of
1.0332. We multiplied the 3-year average of 1.0332 by the FY 2011
final capital market basket percentage increase of 1.0120, which
resulted in a capital cost inflation factor of 4.56 percent or
1.045567. We then divided the capital cost inflation factor by the
1-year average change in charges (1.068003) and applied an
adjustment factor of 0.978993 to the capital CCRs from the PSF
(calculation performed on unrounded numbers). We are proposing to
use the same charge inflation factor for the capital CCRs that was
used for the operating CCRs. The charge inflation factor is based on
the overall billed charges. Therefore, we believe it is appropriate
to apply the charge factor to both the operating and capital CCRs.
As stated above, for FY 2013, we applied the proposed FY 2013
rates and policies using cases from the FY 2011 MedPAR files in
calculating the proposed outlier threshold.
As discussed in section III.B.3. of the preamble to the FY 2011
IPPS/LTCH PPS final rule (75 FR 50160 and 50161) and in section
III.G.3. of the preamble of this proposed rule, in accordance with
section 10324(a) of the Affordable Care Act, beginning in FY 2011,
we created a wage index floor of 1.00 for all hospitals located in
States determined to be frontier States. We noted that the frontier
State floor adjustments will be calculated and applied after rural
and imputed floor budget neutrality adjustments are calculated for
all labor market areas, in order to ensure that no hospital in a
frontier State will receive a wage index lesser than 1.00 due to the
rural and imputed floor adjustment. In accordance with section
10324(a) of the Affordable Care Act, the frontier State adjustment
will not be subject to budget neutrality, and will only be extended
to hospitals geographically located within a frontier State.
However, for purposes of estimating the proposed outlier threshold
for FY 2013, it was necessary to apply this provision by adjusting
the wage index of those eligible hospitals in a frontier State when
calculating the outlier threshold that results in outlier payments
being 5.1 percent of total payments for FY 2013. If we did not take
into account this provision, our estimate of total FY 2013 payments
would be too low, and, as a result, our proposed outlier threshold
would be too high, such that estimated outlier payments would be
less than our projected 5.1 percent of total payments.
Our estimate of the cumulative effect of changes in
documentation and coding due to the adoption of the MS-DRGs of 5.4
percent from FY 2008 and FY 2009 and 0.8 percent from FY 2010 is
already included within the claims data (FY 2011 MedPAR files) used
to calculate the proposed FY 2013 outlier threshold. We currently
estimate that there would be no continued changes in documentation
and coding in FYs 2011 and 2012. Therefore, the cumulative effect of
documentation and coding that has occurred is already reflected
within the FY 2011 MedPAR claims data, and we do not believe there
is any need to inflate FY 2011 claims data for any additional case-
mix growth projected to have occurred since FY 2010.
In addition, we are not proposing to make any adjustments for
the possibility that hospitals' CCRs and outlier payments may be
reconciled upon cost report settlement. We continue to believe that,
due to the policy implemented in the June 9, 2003 outlier final rule
(68 FR 34494), CCRs will no longer fluctuate significantly and,
therefore, few hospitals will actually have these ratios reconciled
upon cost report settlement. In addition, it is difficult to predict
the specific hospitals that will have CCRs and outlier payments
reconciled in any given year. We also note that reconciliation
occurs because hospitals' actual CCRs for the cost reporting period
are different than the interim CCRs used to calculate outlier
payments when a bill is processed. Our simulations assume that CCRs
accurately measure hospital costs based on information available to
us at the time we set the outlier threshold. For these reasons, we
are proposing not to make any assumptions about the effects of
reconciliation on the outlier threshold calculation.
As described in sections IV.A. and VIII.B., respectively, of the
preamble of this proposed rule, section 1886(q) and 1886(o) of the
Act establish the Hospital Readmissions Reduction Program and the
Hospital VBP Program. We do not believe it is appropriate to include
the hospital VBP payment adjustment and the readmissions payment
adjustment in the outlier threshold calculation or the outlier
offset to the standardized amount. Specifically, consistent with our
proposed definition of the base operating DRG payment amount for the
Hospital Readmissions Reduction Program under proposed Sec. 412.152
and the Hospital VBP Program (that is, the wage-adjusted DRG
operating payment amount) under proposed Sec. 412.160, outlier
payments under section 1886(d)(5)(F) of the Act are not affected by
these payment adjustments. Therefore, outlier payments would
continue to be calculated based on the unadjusted base DRG payment
amount (as opposed to using the operating base DRG payment amount
adjusted by the hospital readmissions payment adjustment and the
hospital VBP adjustment). Consequently, we are proposing to exclude
the hospital VBP payment adjustment and the readmissions payment
adjustment from the calculation of the outlier fixed-loss cost
threshold.
Using this methodology, we are proposing an outlier fixed-loss
cost threshold for FY 2013 equal to the prospective payment rate for
the DRG, plus any IME and DSH payments, and any add-on payments for
new technology, plus $27,425.
We note that the proposed FY 2013 outlier fixed-loss cost
threshold represents a $5,040 (or 22.5 percent) increase from the
final FY 2012 final outlier fixed-loss cost threshold of $22,385.
Since FY 2009, the outlier fixed-loss cost threshold has been
between $20,185 and $23,140. Therefore, we are concerned about this
large increase in the outlier fixed-loss cost threshold from FY
2012.
We further note that the 2-year charge inflation factor of 14.06
percent applied to the FY 2011 MedPAR claims used to compute the FY
2013 outlier fixed-loss cost threshold is higher than the 2-year
charge inflation factor of 7.94 percent applied to the FY 2010
MedPAR claims used to compute the FY 2012 final outlier fixed-loss
cost threshold. We believe that a large increase in the charge
inflation factor for FY 2013 (from FY 2012) increased projected
total outlier payments. With an increase in projected outlier
payments, in order for CMS to meet the 5.1 percent target, it would
be necessary to reduce the amount of outlier payments by raising the
outlier fixed-loss cost threshold. Therefore, in addition to being
concerned about the large increase in the fixed-loss threshold
proposed for FY 2013 compared to FY 2012, we are concerned about
this large charge inflation increase and how it potentially affected
the proposed FY 2013 outlier fixed-loss cost threshold. As described
above, to determine the 1-year average annualized rate-of-change in
charges per case, we currently use a methodology that compares the
average charge per case from the most recent 6-month period of

[[Page 28144]]

MedPAR data that are available to the same 6-month period of MedPAR
data from the prior year. We adopted this methodology in the FY 2005
IPPS final rule (69 FR 49277) as a result of the special
circumstances surrounding the revisions to the outlier payment
methodology at that time. In that rule, we stated that we would
continue to consider other methodologies for determining charge
inflation when calculating the outlier threshold in the future. We
welcomed comment on possible modifications to our current
methodologies, including the possibility of looking at a larger time
period beyond 6 months to determine the average charge per case to
measure the charge inflation factor.
In addition, as pointed out by commenters in last year's final
rule (76 FR 51793 through 51795), CMS has not met the 5.1 percent
target for some time and the commenters have recommended
enhancements to the methodology to improve the calculation of the
outlier fixed-loss cost threshold. Commenters have focused on CMS
underestimating actual outlier payments. Since FY 2009, we have used
the same methodology to calculate the outlier fixed-loss cost
threshold. While we have been reluctant to make changes to our
methodology, as discussed below, our estimate for FY 2011 is that
outlier payments will be approximately 4.7 percent of actual total
DRG payments and for FY 2012 outlier payments will be approximately
6.0 percent of actual total DRG payments. While these estimates
differ--with one being under the target and one above the target--
they draw attention to the potential for improving our estimation
methodology so that we meet the 5.1 percent target. We welcome
public comment on ways to enhance the accuracy of our methodology of
the calculation of the FY 2013 outlier fixed-loss cost threshold,
especially additional analyses that could inform potential technical
improvements.

(2) Other Proposed Changes Concerning Outliers

As stated in the FY 1994 IPPS final rule (58 FR 46348), we
establish an outlier threshold that is applicable to both hospital
inpatient operating costs and hospital inpatient capital-related
costs. When we modeled the combined operating and capital outlier
payments, we found that using a common threshold resulted in a lower
percentage of outlier payments for capital-related costs than for
operating costs. We project that the thresholds for FY 2013 would
result in outlier payments that will equal 5.1 percent of operating
DRG payments and 5.99 percent of capital payments based on the
Federal rate.
In accordance with section 1886(d)(3)(B) of the Act, we are
proposing to reduce the FY 2013 standardized amount by the same
percentage to account for the projected proportion of payments paid
as outliers.
The outlier adjustment factors that would be applied to the
standardized amount based on the proposed FY 2013 outlier threshold
are as follows:

------------------------------------------------------------------------
Operating
standardized Capital
amounts federal rate
------------------------------------------------------------------------
National................................ 0.948992 0.940035
Puerto Rico............................. 0.953161 0.923900
------------------------------------------------------------------------

We are proposing to apply the outlier adjustment factors to the
proposed FY 2013 rates after removing the effects of the FY 2012
outlier adjustment factors on the standardized amount.
To determine whether a case qualifies for outlier payments, we
apply hospital-specific CCRs to the total covered charges for the
case. Estimated operating and capital costs for the case are
calculated separately by applying separate operating and capital
CCRs. These costs are then combined and compared with the outlier
fixed-loss cost threshold.
Under our current policy at Sec. 412.84, we calculate operating
and capital CCR ceilings and assign a statewide average CCR for
hospitals whose CCRs exceed 3.0 standard deviations from the mean of
the log distribution of CCRs for all hospitals. Based on this
calculation, for hospitals for which the fiscal intermediary or MAC
computes operating CCRs greater than 1.137 or capital CCRs greater
than 0.158, or hospitals for which the fiscal intermediary or MAC is
unable to calculate a CCR (as described at Sec. 412.84(i)(3) of our
regulations), statewide average CCRs are used to determine whether a
hospital qualifies for outlier payments. Table 8A listed in section
VI. of this Addendum (and available only via the Internet) contains
the proposed statewide average operating CCRs for urban hospitals
and for rural hospitals for which the fiscal intermediary or MAC is
unable to compute a hospital-specific CCR within the above range.
Effective for discharges occurring on or after October 1, 2012,
these statewide average ratios would replace the ratios posted on
the Internet at http://www.cms.gov/AcuteInpatientPPS/FR2012/list.asp#TopOfPage. Table 8B listed in section VI. of this Addendum
(and available via the Internet) contains the proposed comparable
statewide average capital CCRs. Again, the CCRs in Tables 8A and 8B
would be used during FY 2013 when hospital-specific CCRs based on
the latest settled cost report are either not available or are
outside the range noted above. Table 8C listed in section VI. of
this Addendum (and available via the Internet) contains the proposed
statewide average total CCRs used under the LTCH PPS as discussed in
section V. of this Addendum.
We finally note that we published a manual update (Change
Request 3966) to our outlier policy on October 12, 2005, which
updated Chapter 3, Section 20.1.2 of the Medicare Claims Processing
Manual. The manual update covered an array of topics, including
CCRs, reconciliation, and the time value of money. We encourage
hospitals that are assigned the statewide average operating and/or
capital CCRs to work with their fiscal intermediary or MAC on a
possible alternative operating and/or capital CCR as explained in
Change Request 3966. Use of an alternative CCR developed by the
hospital in conjunction with the fiscal intermediary or MAC can
avoid possible overpayments or underpayments at cost report
settlement, thus ensuring better accuracy when making outlier
payments and negating the need for outlier reconciliation. We also
note that a hospital may request an alternative operating or capital
CCR ratio at any time as long as the guidelines of Change Request
3966 are followed. Additionally, as mentioned above, we published an
additional manual update (Change Request 7192) to our outlier policy
on December 3, 2010 which also updated Chapter 3, Section 20.1.2 of
the Medicare Claims Processing Manual. The manual update outlines
the outlier reconciliation process for hospitals and Medicare
contractors. To download and view the manual instructions on outlier
reconciliation, we refer readers to the CMS Web site: http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf.

(3) FY 2011 and FY 2012 Outlier Payments

In the FY 2012 IPPS final rule (76 FR 51795 through 51796), we
stated that, based on available data, we estimated that actual FY
2011 outlier payments would be approximately 4.7 percent of actual
total DRG payments. This estimate was computed based on simulations
using the FY 2010 MedPAR file (discharge data for FY 2010 claims).
That is, the estimate of actual outlier payments did not reflect
actual FY 2011 claims, but instead reflected the application of FY
2011 rates and policies to available FY 2010 claims.
Our current estimate, using available FY 2011 claims data, is
that actual outlier payments for FY 2011 were approximately 4.7
percent of actual total DRG payments. Thus, the data indicate that,
for FY 2011, the percentage of actual outlier payments relative to
actual total payments is lower than we projected for FY 20110.
Consistent with the policy and statutory interpretation we have
maintained since the inception of the IPPS, we do not plan to make
retroactive adjustments to outlier payments to ensure that total
outlier payments for FY 2011 are equal to 5.1 percent of total DRG
payments.
We currently estimate that actual outlier payments for FY 2012
will be approximately 6.0 percent of actual total DRG payments,
approximately 0.9 percentage points higher than the 5.1 percent we
projected when setting the outlier policies for FY 2012. This
estimate of 6.0 percent is based on simulations using the FY 2011
MedPAR file (discharge data for FY 2011 claims).

5. Proposed FY 2013 Standardized Amount

The adjusted standardized amount is divided into labor-related
and nonlabor-related portions. Tables 1A and 1B listed and published
in section VI. of this Addendum (and available via the Internet)
contain the proposed national standardized amounts that we are
proposing to apply to all hospitals, except hospitals located in
Puerto Rico, for FY 2013. The proposed Puerto Rico-specific amounts
are shown in Table 1C listed and published in section VI. of this
Addendum (and available via the Internet). The amounts shown in
Tables 1A and 1B differ only in that the labor-related share applied
to the standardized amounts in Table 1A is the labor-related share
of 68.8 percent, and Table

[[Page 28145]]

1B is 62 percent. In accordance with sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act, we are proposing to apply a labor-
related share of 62 percent, unless application of that percentage
would result in lower payments to a hospital than would otherwise be
made. In effect, the statutory provision means that we will apply a
labor-related share of 62 percent for all hospitals (other than
those in Puerto Rico) whose wage indices are less than or equal to
1.0000.
In addition, Tables 1A and 1B include the proposed standardized
amounts reflecting the applicable percentage increase of 2.1 percent
for FY 2013, and a proposed update of 0.1 percent for hospitals that
fail to submit quality data consistent with section
1886(b)(3)(B)(viii) of the Act.
Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion
of the Puerto Rico payment rate is based on the discharge-weighted
average of the national large urban standardized amount (this amount
is set forth in Table 1A). The proposed labor-related and nonlabor-
related portions of the national average standardized amounts for
Puerto Rico hospitals for FY 2013 are set forth in Table 1C listed
and published in section VI. of this Addendum (and available via the
Internet). This table also includes the proposed Puerto Rico
standardized amounts. The labor-related share applied to the Puerto
Rico specific standardized amount is the labor-related share of 62.1
percent, or 62 percent, depending on which provides higher payments
to the hospital.(Section 1886(d)(9)(C)(iv) of the Act, as amended by
section 403(b) of Public Law 108-173, provides that the labor-
related share for hospitals located in Puerto Rico be 62 percent,
unless the application of that percentage would result in lower
payments to the hospital.)
The following table illustrates the proposed changes from the FY
2012 national standardized amount. The second column shows the
proposed changes from the FY 2012 standardized amounts for hospitals
that satisfy the quality data submission requirement and therefore
receive the full proposed update of 2.1 percent. The third column
shows the proposed changes for hospitals receiving the proposed
reduced update of 0.1 percent. The first row of the table shows the
updated (through FY 2012) average standardized amount after
restoring the FY 2012 offsets for outlier payments, demonstration
budget neutrality, the geographic reclassification budget neutrality
and the retrospective documentation and coding adjustment under
section 7(b)(1)(B) of Public Law 110-90. The DRG reclassification
and recalibration wage index budget neutrality factors are
cumulative. Therefore, those FY 2012 factors are not removed from
this table.

Comparison of FY 2012 Standardized Amounts to the Proposed FY 2013 Standardized Amount With Full and Reduced
Update
----------------------------------------------------------------------------------------------------------------
Reduced update Reduced update
Full update (2.1 Full update (2.1 (0.1 percent); (0.1 percent);
percent); wage percent); wage wage index is wage index is less
index is greater index is less than greater than than or equal to
than 1.0000 or equal to 1.0000 1.0000 1.0000
----------------------------------------------------------------------------------------------------------------
FY 2012 Base Rate, after Labor: $4,060.65.. Labor: $3,659.31.. Labor: $4,060.65.. Labor: $3,659.31.
removing geographic Nonlabor: Nonlabor: Nonlabor: Nonlabor:
reclassification budget $1,841.46. $2,242.80. $1,841.46. $2,242.80.
neutrality, demonstration
budget neutrality, cumulative
FY 2008 and FY 2009
documentation and coding
adjustment, FY 2012
documentation and coding
recoupment, and outlier offset
(based on the
labor[dash]related share
percentage for FY 2012).
Proposed FY 2013 Update Factor.. 1.021............. 1.021............. 0.001............. 0.001.
Proposed FY 2013 DRG 0.999108.......... 0.999108.......... 0.999108.......... 0.999108.
Recalibration and Wage Index
Budget Neutrality Factor.
Proposed FY 2013 0.991436.......... 0.991436.......... 0.991436.......... 0.991436.
Reclassification Budget
Neutrality Factor.
Proposed FY 2013 Rural 0.999629.......... 0.999629.......... 0.999629.......... 0.999629.
Demonstration Budget Neutrality
Factor.
Proposed FY 2013 Outlier Factor. 0.948992.......... 0.948992.......... 0.948992.......... 0.948992.
Documentation and coding 0.9405............ 0.9405............ 0.9405............ 0.9405.
adjustments required under
sections 7(b)(1)(A) and
7(b)(1)(B) of Pub. L. 110-90.
Proposed Rate for FY 2013....... Labor: $3,664.03.. Labor: $3,301.88.. Labor: $3,592.26.. Labor: $3,237.21.
Nonlabor: Nonlabor: Nonlabor: Nonlabor:
$1,661.59. $2,023.74. $1,629.04. $1,984.09.
----------------------------------------------------------------------------------------------------------------

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

Tables 1A through 1C, as published in section VI. of this
Addendum (and available via the Internet), contain the proposed
labor-related and nonlabor-related shares that we used to calculate
the proposed prospective payment rates for hospitals located in the
50 States, the District of Columbia, and Puerto Rico for FY 2013.
This section addresses two types of adjustments to the standardized
amounts that are made in determining the prospective payment rates
as described in this Addendum.

1. Proposed Adjustment for Area Wage Levels

Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require
that we make an adjustment to the labor-related portion of the
national and Puerto Rico prospective payment rates, respectively, to
account for area differences in hospital wage levels. This
adjustment is made by multiplying the labor-related portion of the
adjusted standardized amounts by the appropriate wage index for the
area in which the hospital is located. In section III. of the
preamble of this proposed rule, we discuss the data and methodology
for the proposed FY 2013 wage index.

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

Section 1886(d)(5)(H) of the Act provides discretionary
authority to the Secretary to make ``such adjustments * * * as the
Secretary deems appropriate'' to take into account the unique
circumstances of hospitals located in Alaska and Hawaii. Higher
labor-related costs for these two States are taken into account in
the adjustment for area wages described above. To account for higher
nonlabor-related costs for these two States, we multiply the
nonlabor-related portion of the standardized amount for hospitals in
Alaska and Hawaii by an adjustment factor. For FY 2011 and in prior
fiscal years, we used the most recent cost-of-living adjustment
(COLA) factors obtained from the U.S. Office of Personnel Management
(OPM) Web site at http://www.opm.gov/oca/cola/rates.asp to update
this nonlabor portion.
Sections 1911 through 1919 of the Nonforeign Area Retirement
Equity Assurance Act, as contained in subtitle B of title XIX of the
National Defense Authorization Act (NDAA) for Fiscal Year 2010 (Pub.
L. 111-84, October 28, 2009), transitions the Alaska and Hawaii
COLAs to locality pay. Under section 1914 of Public Law 111-84,
locality pay is being phased in

[[Page 28146]]

over a 3-year period beginning in January 2010 with COLA rates
frozen as of the date of enactment, October 28, 2009, and then
proportionately reduced to reflect the phase-in of locality pay. As
we discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51797),
we did not believe it was appropriate to use the 2010 or 2011
reduced factors for adjusting the nonlabor-related portion of the
standardized amount for hospitals in Alaska and Hawaii for Medicare
payment purposes. Therefore, for FY 2012, we continued to use the
same COLA factors (published by OPM) that we used to adjust payments
in FY 2011 (which were based on OPM's 2009 COLA factors) to adjust
the nonlabor-related portion of the standardized amount for
hospitals located in Alaska and Hawaii.
We believe it was appropriate to use ``frozen'' COLA factors to
adjust payments in FY 2012 while we explored alternatives for
updating the COLA adjustment in the future. In this proposed rule,
for FY 2013, we are now proposing to continue to use the same
``frozen'' COLA factors used in FY 2012 and to update the COLA
factors for Alaska and Hawaii beginning in FY 2014 based on a
comparison of the growth in the Consumer Price Indices (CPIs) for
Anchorage, Alaska, and Honolulu, Hawaii, relative to the growth in
the CPI for the average U.S. city as published by the Bureau of
Labor Statistics (BLS). Specifically, for FY 2014, we would update
the COLA factors published by OPM that we used to adjust payments in
FY 2011 (which are based on OPM's 2009 COLA factors) as these are
the last COLA factors OPM published prior to transitioning from
COLAs to locality pay. Because BLS publishes CPI data for only
Anchorage and Honolulu, we are proposing to use the comparison of
the growth in the overall CPI relative to the growth in the CPI for
those cities to update the COLA adjustment factors for all areas in
Alaska and Hawaii, respectively. We believe that the relative price
differences between these cities and the U.S. (as measured by the
CPIs mentioned above) are appropriate proxies for the relative price
differences between the ``other areas'' of Alaska and Hawaii and the
U.S.
BLS publishes the CPI for All Items for Anchorage, Honolulu, and
for the average U.S. city. However, we are proposing to create
reweighted CPIs for each of the respective areas to reflect the
underlying composition of the IPPS market basket nonlabor-related
share. The current composition of the CPI for All Items for all of
the respective areas is approximately 40 percent commodities and 60
percent services. However, the IPPS nonlabor-related share is
compromised of approximately 60 percent commodities and 40 percent
services. Therefore, we are proposing to create reweighted indexes
for Anchorage, Honolulu, and the average U.S. city using the
respective CPI commodities index and CPI services index using the
60/40 share obtained from the IPPS market basket. We believe this
proposed methodology is appropriate because we would continue to
make a COLA adjustment for hospitals located in Alaska and Hawaii by
multiplying the nonlabor-related portion of the standardized amount
by a COLA factor. We note that OPM's COLA factors were calculated
with a statutorily mandated cap of 25 percent, and since at least
1984, we have exercised our discretionary authority to adjust Alaska
and Hawaii payments by incorporating this cap. In keeping with this
historical policy, our proposal for FY 2014 would continue to use
such a cap, as our proposal is based on OPM's COLA factors (updated
by the proposed methodology described above).
Lastly, we are proposing to update the COLA factors based on our
proposed methodology every 4 years, at the same time as the update
to the labor-related share of the IPPS market basket. The labor-
related share of the IPPS market basket is currently not scheduled
to be updated until FY 2014. Accordingly, under this proposal, we
would begin applying this proposed methodology to update the COLA
factors to adjust the nonlabor-related portion of the standardized
amount for hospitals located in Alaska and Hawaii for FY 2014. At
the time of development of the FY 2014 proposed rule, we expect to
have CPI data available through 2012. Therefore, the proposed FY
2014 COLA factors for Alaska and Hawaii would be based on the 2009
OPM COLA factors updated through 2012 by the comparison of the
growth in the reweighted CPIs for Anchorage, Alaska, and Honolulu,
Hawaii, relative to the growth in the reweighted CPI for the average
U.S. city.
However, in this proposed rule, for FY 2013, we are proposing to
use the same COLA factors used to adjust payments in FY 2012 (as
originally used to adjust payments in FY 2011, which are based on
OPM's 2009 COLA factors) to adjust the nonlabor-related portion of
the standardized amount for hospitals located in Alaska and Hawaii.
The table below shows the COLA factors that we are proposing to use
for FY 2013:

Table of Proposed Cost-of-Living Adjustment Factors: Alaska and Hawaii
Hospitals
------------------------------------------------------------------------
Cost of
living
Area adjustment
factor
------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer (50-mile) radius by 1.23
road....................................................
City of Fairbanks and 80-kilometer (50-mile) radius by 1.23
road....................................................
City of Juneau and 80-kilometer (50-mile) radius by road. 1.23
Rest of Alaska........................................... 1.25
Hawaii:
City and County of Honolulu.............................. 1.25
County of Hawaii......................................... 1.18
County of Kauai.......................................... 1.25
County of Maui and County of Kalawao..................... 1.25
------------------------------------------------------------------------

D. Calculation of the Proposed Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY
2012

In general, the operating prospective payment rate for all
hospitals paid under the IPPS located outside of Puerto Rico, except
SCHs, for FY 2013 equals the Federal rate. (As noted above, due to
the expiration of the MDH program, beginning with FY 2013, we are
not including MDHs in our proposal to update the hospital-specific
rates for FY 2013.)
Currently, SCHs are paid based on whichever of the following
rates yields the greatest aggregate payment: the Federal national
rate; the updated hospital-specific rate based on FY 1982 costs per
discharge; the updated hospital-specific rate based on FY 1987 costs
per discharge; the updated hospital-specific rate based on FY 1996
costs per discharge; or the updated hospital-specific rate based on
the FY 2006 costs per discharge to determine the rate that yields
the greatest aggregate payment.
The prospective payment rate for SCHs for FY 2013 equals the
higher of the applicable Federal rate, or the hospital-specific rate
as described below. The prospective payment rate for hospitals
located in Puerto Rico for FY 2013 equals 25 percent of the Puerto
Rico rate plus 75 percent of the applicable national rate.

1. Federal Rate

The Federal rate is determined as follows:
Step 1--Select the applicable average standardized amount
depending on whether the hospital submitted qualifying quality data
(full update for hospitals submitting quality data; update including
a -2.0 percent adjustment for hospitals that did not submit these
data).
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable wage index for the geographic area in which
the hospital is located or the area to which the hospital is
reclassified.
Step 3--For hospitals in Alaska and Hawaii, multiply the
nonlabor-related portion of the standardized amount by the
applicable cost-of-living adjustment factor.
Step 4--Add the amount from Step 2 and the nonlabor-related
portion of the standardized amount (adjusted, if applicable, under
Step 3).
Step 5--Multiply the final amount from Step 4 by the relative
weight corresponding to the applicable MS-DRG (Table 5 listed in
section VI. of this Addendum and available via the Internet).
The Federal rate as determined in Step 5 may then be further
adjusted if the hospital qualifies for either the IME or DSH
adjustment. In addition, for hospitals that qualify for a low-volume
payment adjustment under section 1886(d)(12) of the Act and 42 CFR
412.101(b), the payment in Step 5 would be increased by the formula
described in section IV.D. of the preamble of this proposed rule.
Finally, the base operating DRG payment amount may be further
adjusted by the hospital readmissions payment adjustment and the
hospital VBP adjustment as described under sections 1886 (q) and
1886(o) of the Act.

[[Page 28147]]

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

a. Calculation of Hospital-Specific Rate

Section 1886(b)(3)(C) of the Act provides that currently SCHs
are paid based on whichever of the following rates yields the
greatest aggregate payment: the Federal rate; the updated hospital-
specific rate based on FY 1982 costs per discharge; the updated
hospital-specific rate based on FY 1987 costs per discharge; the
updated hospital-specific rate based on FY 1996 costs per discharge;
or the updated hospital-specific rate based on the FY 2006 costs per
discharge to determine the rate that yields the greatest aggregate
payment. For a more detailed discussion of the calculation of the
hospital-specific rates, we refer the reader to the FY 1984 IPPS
interim final rule (48 FR 39772); the April 20, 1990 final rule with
comment period (55 FR 15150); the FY 1991 IPPS final rule (55 FR
35994); and the FY 2001 IPPS final rule (65 FR 47082).
We note that, in the FY 2012 IPPS/LTCH final rule (76 FR 51799),
we finalized an adjustment of 0.9 percent to the hospital-specific
rate (that is, a factor of 1.009) to remove the effects of the rural
floor from the hospital-specific rates for FYs 1998 through 2005.
The adjustment is a onetime permanent adjustment to the hospital-
specific rates.

b. Updating the FY 1982, FY 1987, FY 1996 and FY 2006 Hospital-Specific
Rate for FY 2013

Section 1886(b)(3)(B)(iv) of the Act provides that the
applicable percentage increase applicable to the hospital-specific
rates for SCHs equals the applicable percentage increase set forth
in section 1886(b)(3)(B)(i) of the Act (that is, the same update
factor as for all other hospitals subject to the IPPS). Because the
Act sets the update factor for SCHs equal to the update factor for
all other IPPS hospitals, the update to the hospital specific rates
for SCHs is subject to the amendments to section 1886(b)(3)(B) of
the Act made by sections 3401(a) and 10319(a) of the Affordable Care
Act. Accordingly, the proposed applicable percentage increase to the
hospital-specific rates applicable to SCHs is 2.1 percent (that is,
the FY 2013 estimate of the market basket rate-of-increase of 3.0
percent less an adjustment of 0.8 percentage point for multifactor
productivity and less 0.1 percentage point) for hospitals that
submit quality data or 0.1 percent (that is, the FY 2013 estimate of
the market basket rate-of-increase of 3.0 percent, less 2.0
percentage points for failure to submit data under the Hospital IQR
Program, less an adjustment of 0.8 percentage point for multifactor
productivity, and less 0.1 percentage point) for hospitals that fail
to submit quality data. For a complete discussion of the applicable
percentage increase applicable to the hospital-specific rates for
SCHs, we refer readers to section IV.B. of the preamble of this
proposed rule.
In addition, because SCHs use the same MS-DRGs as other
hospitals when they are paid based in whole or in part on the
hospital-specific rate, the hospital-specific rate is adjusted by a
budget neutrality factor to ensure that changes to the DRG
classifications and the recalibration of the DRG relative weights
are made in a manner so that aggregate IPPS payments are unaffected.
Therefore, a SCH's hospital-specific rate is adjusted by the
proposed DRG reclassification and recalibration budget neutrality
factor of 0.998546, as discussed in section III. of this Addendum.
The resulting rate is used in determining the payment rate an SCH
would receive for its discharges beginning on or after October 1,
2012.

c. Documentation and Coding Adjustment to the FY 2013 Hospital-Specific
Rate for SCHs

As discussed in section II.D. of the preamble of this proposed
rule, because hospitals paid based in whole or in part on the
hospital-specific rate (that is, SCHs and former MDHs) use the same
MS-DRG system as other hospitals, we believe they have the potential
to realize increased payments from documentation and coding changes
that do not reflect real increases in patients' severity of illness.
Under section 1886(d)(3)(A)(vi) of the Act, Congress stipulated that
hospitals paid based on the standardized amount should not receive
additional payments based on the effect of documentation and coding
changes that do not reflect real changes in case-mix. Similarly, we
believe that hospitals paid based on the hospital-specific rate
should not have the potential to realize increased payments due to
documentation and coding changes that do not reflect real increases
in patients' severity of illness. Therefore, as discussed in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50426) and in section II.D. of
the preamble of this proposed rule, we believe they should be
equally subject to a prospective budget neutrality adjustment that
we are applying for adoption of the MS-DRGs to all other hospitals.
While we continue to believe that section 1886(d)(3)(A)(vi) of the
Act does not provide explicit authority for application of the
documentation and coding adjustment to the hospital-specific rates,
we believe that we have the authority to apply the documentation and
coding adjustment to the hospital-specific rates using our special
exceptions and adjustment authority under section 1886(d)(5)(I)(i)
of the Act.
As we discuss in section II.D. of the preamble of this proposed
rule, we have determined that a cumulative adjustment of -5.4
percent is required to eliminate the full effect of changes in
documentation and coding that occurred in FY 2008 and FY 2009 on
future payments to SCHs. Currently, we have made cumulative
adjustments to the hospital-specific rates to account for 4.9
percent of the 5.4 percent effect of changes in documentation and
coding that occurred in FY 2008 and FY 2009. (For FY 2011, we
established a prospective adjustment of -2.9 percent to the
hospital-specific rates, and, for FY 2012, we established a
prospective adjustment to the hospital-specific rates of -2.0
percent.) In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51499), we
indicated that, because the -2.0 percent adjustment we made in FY
2012 did not reflect the entire remaining requirement adjustment
amount of -2.5 percent, an additional -0.5 percent adjustment to the
hospital-specific rates would be required in future rulemaking.
In this proposed rule, we are proposing a -0.5 percent
prospective adjustment to the hospital-specific rate to account for
the remainder of the 5.4 percent effect of documentation and coding
that occurred in FY 2008 and FY 2009. We continue to believe that
hospitals paid based on their hospital-specific rate (that is, SCHs)
had the same opportunity to benefit for improvements in
documentation and coding that did not reflect an increase in patient
severity, and we continue to believe that any resulting adjustments
should be applied similarly to all subsection (d) hospitals, when
possible.
As discussed in section II.D., after review of comments and
recommendations received from MedPAC, we analyzed claims data in FY
2010 to determine whether any additional adjustment (beyond the
estimated 5.4 percent for FYs 2008 and 2009 discussed above) to the
hospital-specific rate would be required to ensure that the
introduction of MS-DRGs was implemented in a budget neutral manner.
We analyzed FY 2010 claims data (for this proposed rule, we analyzed
FY 2010 claims paid through December 2011), and determined that
there is an additional documentation and coding effect of 0.8
percent.
Consistent with our proposal for IPPS hospitals based upon a
review of FY 2010 claims data using the same methodology, we also
are proposing an additional -0.8 percent adjustment to the hospital-
specific rates to account for documentation and coding that did not
reflect an actual increase in case-mix in FY 2010. We believe that a
full prospective adjustment is the most appropriate means to take
into account the effect of documentation and coding changes on
payments, while maintaining equity as much as possible between
different IPPS hospitals paid using the MS-DRG. Therefore, as
discussed in more detail the preamble to this proposed rule, we are
proposing a combined adjustment of -1.3 percent (-0.5 percent + -0.8
percent) to the hospital-specific rates, accounting for all
documentation and coding effects observed between FY 2008 though FY
2010.

3. General Formula for Calculation of Prospective Payment Rates for
Hospitals Located in Puerto Rico Beginning on or After October 1, 2012,
and Before October 1, 2013

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

a. Puerto Rico Rate

The Puerto Rico prospective payment rate is determined as
follows:
Step 1--Select the applicable average standardized amount
considering the applicable wage index (Table 1C published in section
VI. of this Addendum and available via the Internet).
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable Puerto Rico-specific wage index.
Step 3--Add the amount from Step 2 and the nonlabor-related
portion of the standardized amount.

[[Page 28148]]

Step 4--Multiply the amount from Step 3 by the applicable MS-DRG
relative weight (Table 5 listed in section VI. of this Addendum and
available via the Internet).
Step 5--Multiply the result in Step 4 by 25 percent.

b. National Rate

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

III. Proposed Changes to Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2013

The PPS for acute-care hospital inpatient capital-related costs
was implemented for cost reporting periods beginning on or after
October 1, 1991. Effective with that cost reporting period,
hospitals were paid during a 10-year transition period (which
extended through FY 2001) to change the payment methodology for
Medicare acute care hospital inpatient capital-related costs from a
reasonable cost-based methodology to a prospective methodology
(based fully on the Federal rate).
The basic methodology for determining Federal capital
prospective rates is set forth in the regulations at 42 CFR 412.308
through 412.352. Below we discuss the factors that we used to
determine the proposed capital Federal rate for FY 2013, which will
be effective for discharges occurring on or after October 1, 2012.
The 10-year transition period ended with hospital cost reporting
periods beginning on or after October 1, 2001 (FY 2002). Therefore,
for cost reporting periods beginning in FY 2002, all hospitals
(except ``new'' hospitals under Sec. 412.304(c)(2)) are paid based
on the capital Federal rate. For FY 1992, we computed the standard
Federal payment rate for capital-related costs under the IPPS by
updating the FY 1989 Medicare inpatient capital cost per case by an
actuarial estimate of the increase in Medicare inpatient capital
costs per case. Each year after FY 1992, we update the capital
standard Federal rate, as provided at Sec. 412.308(c)(1), to
account for capital input price increases and other factors. The
regulations at Sec. 412.308(c)(2) also provide that the capital
Federal rate be adjusted annually by a factor equal to the estimated
proportion of outlier payments under the capital Federal rate to
total capital payments under the capital Federal rate. In addition,
Sec. 412.308(c)(3) requires that the capital Federal rate be
reduced by an adjustment factor equal to the estimated proportion of
payments for exceptions under Sec. 412.348. (We note that, as
discussed in below in section III.A.4. of this Addendum, there is no
longer a need for an exceptions payment adjustment factor.) Section
412.308(c)(4)(ii) requires that the capital standard Federal rate be
adjusted so that the effects of the annual DRG reclassification and
the recalibration of DRG weights and changes in the geographic
adjustment factor (GAF) are budget neutral.
Section 412.374 provides for blended payments to hospitals
located in Puerto Rico under the IPPS for acute care hospital
inpatient capital-related costs. Accordingly, under the capital PPS,
we compute a separate payment rate specific to hospitals located in
Puerto Rico using the same methodology used to compute the national
Federal rate for capital-related costs. In accordance with section
1886(d)(9)(A) of the Act, under the IPPS for acute care hospital
operating costs, hospitals located in Puerto Rico are paid for
operating costs under a special payment formula. Effective October
1, 2004, in accordance with section 504 of Pub. L. 108-173, the
methodology for operating payments made to hospitals located in
Puerto Rico under the IPPS was revised to make payments based on a
blend of 25 percent of the applicable standardized amount specific
to Puerto Rico hospitals and 75 percent of the applicable national
average standardized amount. In conjunction with this change to the
operating blend percentage, effective with discharges occurring on
or after October 1, 2004, we also revised the methodology for
computing capital payments to hospitals located in Puerto Rico to be
based on a blend of 25 percent of the Puerto Rico capital rate and
75 percent of the national capital Federal rate (69 FR 49185).

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

In the discussion that follows, we explain the factors that we
used to determine the proposed capital Federal rate for FY 2013. In
particular, we explain why the proposed FY 2013 capital Federal rate
increases approximately 0.7 percent, compared to the FY 2012 capital
Federal rate. As discussed in the impact analysis in Appendix A of
this proposed rule, we estimate that capital payments per discharge
will decrease 0.2 percent during that same period. Because capital
payments constitute about 10 percent of hospital payments, a percent
change in the capital Federal rate yields only about a 0.1 percent
change in actual payments to hospitals.

1. Projected Capital Standard Federal Rate Update

a. Description of the Update Framework

Under Sec. 412.308(c)(1), the capital standard Federal rate is
updated on the basis of an analytical framework that takes into
account changes in a capital input price index (CIPI) and several
other policy adjustment factors. Specifically, we adjust the
projected CIPI rate-of-increase as appropriate each year for case-
mix index-related changes, for intensity, and for errors in previous
CIPI forecasts. The proposed update factor for FY 2013 under that
framework is 1.3 percent based on the best data available at this
time. The proposed update factor under that framework is based on a
projected 1.3 percent increase in the CIPI, a 0.0 percent adjustment
for intensity, a 0.0 percent adjustment for case-mix, a 0.0 percent
adjustment for the FY 2011 DRG reclassification and recalibration,
and a forecast error correction of 0.0 percent. As discussed below
in section III.C. of this Addendum, we continue to believe that the
CIPI is the most appropriate input price index for capital costs to
measure capital price changes in a given year. We also explain the
basis for the FY 2013 CIPI projection in that same section of this
Addendum. We note that, as discussed in section V.C. of the preamble
of this proposed rule, we are proposing to apply a -0.8 percent
adjustment to the capital rate in FY 2013 to account for the effect
of changes in documentation and coding under the MS-DRGs that do not
correspond to changes in real increases in patients' severity of
illness. Below we describe the policy adjustments that we are
proposing to apply in the update framework for FY 2013.
The case-mix index is the measure of the average DRG weight for
cases paid under the IPPS. Because the DRG weight determines the
prospective payment for each case, any percentage increase in the
case-mix index corresponds to an equal percentage increase in
hospital payments.
The case-mix index can change for any of several reasons:
The average resource use of Medicare patients changes
(``real'' case-mix change);
Changes in hospital documentation and coding of patient
records result in higher weight DRG assignments (``coding
effects''); and
The annual DRG reclassification and recalibration
changes may not be budget neutral (``reclassification effect'').
We define real case-mix change as actual changes in the mix (and
resource requirements) of Medicare patients as opposed to changes in
documentation and coding behavior that result in assignment of cases
to higher weighted DRGs but do not reflect higher resource
requirements. The capital update framework includes the same case-
mix index adjustment used in the former operating IPPS update
framework (as discussed in the May 18, 2004 IPPS proposed rule for
FY 2005 (69 FR 28816)). (We no longer use an update framework to
make a recommendation for updating the operating IPPS standardized
amounts as discussed in section II. of Appendix B in the FY 2006
IPPS final rule (70 FR 47707).)
For FY 2013, we are projecting a 0.5 percent total increase in
the case-mix index. We estimated that the real case-mix increase
will also equal 0.5 percent for FY 2013. The proposed net adjustment
for change in case-mix is the difference between the projected real
increase in case-mix and the projected total increase in case-mix.
Therefore, the proposed net adjustment for case-mix change in FY
2013 is 0.0 percentage point.

[[Page 28149]]

The capital update framework also contains an adjustment for the
effects of DRG reclassification and recalibration. This adjustment
is intended to remove the effect on total payments of prior year's
changes to the DRG classifications and relative weights, in order to
retain budget neutrality for all case-mix index-related changes
other than those due to patient severity of illness. Due to the lag
time in the availability of data, there is a 2-year lag in data used
to determine the adjustment for the effects of DRG reclassification
and recalibration. For example, we have data available to evaluate
the effects of the FY 2011 DRG reclassification and recalibration as
part of our update for FY 2013. We estimate that FY 2011 DRG
reclassification and recalibration resulted in no change in the
case-mix when compared with the case-mix index that would have
resulted if we had not made the reclassification and recalibration
changes to the DRGs. Therefore, we are proposing to make a 0.0
percent adjustment for reclassification and recalibration in the
update framework for FY 2013.
The capital update framework also contains an adjustment for
forecast error. The input price index forecast is based on
historical trends and relationships ascertainable at the time the
update factor is established for the upcoming year. In any given
year, there may be unanticipated price fluctuations that may result
in differences between the actual increase in prices and the
forecast used in calculating the update factors. In setting a
prospective payment rate under the framework, we make an adjustment
for forecast error only if our estimate of the change in the capital
input price index for any year is off by 0.25 percentage point or
more. There is a 2-year lag between the forecast and the
availability of data to develop a measurement of the forecast error.
A forecast error of 0.0 percentage point was calculated for the
proposed FY 2013 update. That is, current historical data indicate
that the forecasted FY 2011 CIPI (1.2 percent) used in calculating
the FY 2011 update factor is the same as the actual realized price
increases (1.2 percent). Because we estimate forecast error for the
FY 2011 CIPI, we are proposing to make a 0.0 percent adjustment for
forecast error in the update for FY 2013.
Under the capital IPPS update framework, we also make an
adjustment for changes in intensity. Historically, we calculated
this adjustment using the same methodology and data that were used
in the past under the framework for operating IPPS. The intensity
factor for the operating update framework reflected how hospital
services are utilized to produce the final product, that is, the
discharge. This component accounts for changes in the use of
quality-enhancing services, for changes within DRG severity, and for
expected modification of practice patterns to remove non-cost-
effective services. Our intensity measure is based on a 5-year
average.
We calculate case-mix constant intensity as the change in total
cost per discharge, adjusted for price level changes (the CIPI for
hospital and related services) and changes in real case-mix. Without
reliable estimates of the proportions of the overall annual
intensity increases that are due, respectively, to ineffective
practice patterns and the combination of quality-enhancing new
technologies and complexity within the DRG system, we assume that
one-half of the annual increase is due to each of these factors. The
capital update framework thus provides an add-on to the input price
index rate of increase of one-half of the estimated annual increase
in intensity, to allow for increases within DRG severity and the
adoption of quality-enhancing technology.
In this proposed rule, we are proposing to continue to use
Medicare-specific intensity measure that is based on a 5-year
adjusted average of cost per discharge for FY 2013 (we refer readers
to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50436) for a full
description of our Medicare-specific intensity measure).
Specifically, for FY 2013, we are proposing to use an intensity
measure that is based on an average of cost per discharge data from
the 5-year period beginning with FY 2005 and extending through FY
2010. Based on these data, we estimated that case-mix constant
intensity declined during FYs 2005 through 2010. In the past, when
we found intensity to be declining, we believed a zero (rather than
negative) intensity adjustment was appropriate. Consistent with this
approach, because we estimate that intensity declined during that 5-
year period, we believe it is appropriate to continue to apply a
zero intensity adjustment for FY 2013. Therefore, we are proposing
to make a 0.0 percent adjustment for intensity in the update for FY
2013.
Above, we described the basis of the components used to develop
the proposed 1.3 percent capital update factor under the capital
update framework for FY 2013 as shown in the table below.

Proposed CMS FY 2013 Update Factor to the Capital Federal Rate
------------------------------------------------------------------------

------------------------------------------------------------------------
Capital Input Price Index....................................... 1.3
Intensity....................................................... 0.0
Case-Mix Adjustment Factors:
Real Across DRG Change........................................ -0.5
Projected Case-Mix Change..................................... 0.5
-------
Subtotal.................................................... 1.3
Effect of FY 2011 Reclassification and Recalibration............ 0.0
Forecast Error Correction....................................... 0.0
-------
Total Update................................................ 1.3
------------------------------------------------------------------------

b. Comparison of CMS and MedPAC Update Recommendation

In its March 2012 Report to Congress, MedPAC did not make a
specific update recommendation for capital IPPS payments for FY
2013. (MedPAC's Report to the Congress: Medicare Payment Policy,
March 2012, Chapter 3.)

2. Outlier Payment Adjustment Factor

Section 412.312(c) establishes a unified outlier payment
methodology for inpatient operating and inpatient capital-related
costs. A single set of thresholds is used to identify outlier cases
for both inpatient operating and inpatient capital-related payments.
Section 412.308(c)(2) provides that the standard Federal rate for
inpatient capital-related costs be reduced by an adjustment factor
equal to the estimated proportion of capital-related outlier
payments to total inpatient capital-related PPS payments. The
outlier thresholds are set so that operating outlier payments are
projected to be 5.1 percent of total operating IPPS DRG payments.
For FY 2012, we estimated that outlier payments for capital
would equal 6.18 percent of inpatient capital-related payments based
on the capital Federal rate in FY 2012. Based on the thresholds as
set forth in section II.A. of this Addendum, we estimate that
outlier payments for capital-related costs will equal 6.00 percent
for inpatient capital-related payments based on the proposed capital
Federal rate in FY 2013. Therefore, we are proposing to apply an
outlier adjustment factor of 0.9400 in determining the capital
Federal rate for FY 2013. Thus, we estimate that the percentage of
capital outlier payments to total capital Federal rate payments for
FY 2013 will be somewhat lower than the percentage for FY 2012. This
decrease in estimated capital outlier payments is primarily due to
the proposed increase in the outlier threshold used to identify
outlier cases for both inpatient operating and inpatient capital-
related payments, which is discussed in section II.A. of this
Addendum. That is, because the outlier threshold used to identify
outlier cases is higher, cases will receive lower outlier payments
and fewer cases will qualify for outlier payments.
The outlier reduction factors are not built permanently into the
capital rates; that is, they are not applied cumulatively in
determining the capital Federal rate. The proposed FY 2013 outlier
adjustment of 0.9400 is a 0.19 percent change from the FY 2012
outlier adjustment of 0.9382. Therefore, the proposed net change in
the outlier adjustment to the capital Federal rate for FY 2013 is
1.0019 (0.9400/0.9382). Thus, the proposed outlier adjustment will
increase the FY 2013 capital Federal rate by 0.19 percent compared
with the FY 2012 outlier adjustment.

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

Section 412.308(c)(4)(ii) requires that the capital Federal rate
be adjusted so that aggregate payments for the fiscal year based on
the capital Federal rate after any changes resulting from the annual
DRG reclassification and recalibration and changes in the GAF are
projected to equal aggregate payments that would have been made on
the basis of the capital Federal rate without such changes. Because
we implemented a separate GAF for Puerto Rico, we apply separate
budget neutrality adjustments for the national GAF and the Puerto
Rico GAF. We apply the same budget neutrality factor for DRG
reclassifications and recalibration nationally and for Puerto Rico.
Separate adjustments were unnecessary for FY 1998 and earlier
because the GAF for Puerto Rico was implemented in FY 1998.

[[Page 28150]]

To determine the proposed factors for FY 2013, we compared
(separately for the national capital rate and the Puerto Rico
capital rate) estimated aggregate capital Federal rate payments
based on the FY 2012 MS-DRG classifications and relative weights and
the FY 2012 GAF to estimated aggregate capital Federal rate payments
based on the FY 2012 MS-DRG classifications and relative weights and
the proposed FY 2013 GAFs. To achieve budget neutrality for the
changes in the national GAFs, based on calculations using updated
data, we are proposing to apply an incremental budget neutrality
adjustment of 1.0006 for FY 2013 to the previous cumulative FY 2012
adjustment of 0.9905, yielding an adjustment of 0.9911, through FY
2013. For the Puerto Rico GAFs, we are proposing to apply an
incremental budget neutrality adjustment of 1.0044 for FY 2013 to
the previous cumulative FY 2012 adjustment of 1.0043, yielding a
cumulative adjustment of 1.0087 through FY 2013.
We then compared estimated aggregate capital Federal rate
payments based on the FY 2012 DRG relative weights and the proposed
FY 2013 GAFs to estimate aggregate capital Federal rate payments
based on the cumulative effects of the proposed FY 2013 MS-DRG
classifications and relative weights and the proposed FY 2013 GAFs.
The proposed incremental adjustment for DRG classifications and
proposed changes in relative weights is 0.9996 both nationally and
for Puerto Rico. The proposed cumulative adjustments for MS-DRG
classifications and proposed changes in relative weights and for
proposed changes in the GAFs through FY 2012 are 0.9907 nationally
and 1.0083 for Puerto Rico. We note that all the values are
calculated with unrounded numbers.
The methodology used to determine the recalibration and
geographic adjustment factor (GAF/DRG) budget neutrality adjustment
is similar to the methodology used in establishing budget neutrality
adjustments under the IPPS for operating costs. One difference is
that, under the operating IPPS, the budget neutrality adjustments
for the effect of geographic reclassifications are determined
separately from the effects of other changes in the hospital wage
index and the DRG relative weights. Under the capital IPPS, there is
a single GAF/DRG budget neutrality adjustment factor (the national
capital rate and the Puerto Rico capital rate are determined
separately) for changes in the GAF (including geographic
reclassification) and the DRG relative weights. In addition, there
is no adjustment for the effects that geographic reclassification
has on the other payment parameters, such as the payments for DSH or
IME.
For FY 2012, we established a GAF/DRG budget neutrality factor
of 1.0004 (76 FR 51803). For FY 2013, we are proposing to establish
a GAF/DRG budget neutrality factor of 1.0002. The GAF/DRG budget
neutrality factors are built permanently into the capital rates;
that is, they are applied cumulatively in determining the capital
Federal rate. This follows the requirement that estimated aggregate
payments each year be no more or less than they would have been in
the absence of the annual DRG reclassification and recalibration and
changes in the GAFs. The incremental change in the adjustment from
FY 2012 to FY 2013 is 1.0002. The proposed cumulative change in the
capital Federal rate due to this adjustment is 0.9907 (the product
of the incremental factors for FYs 1995 through 2012 and the
proposed incremental factor of 1.0002 for FY 2013). (For a listing
of the DRG and GAF budget neutrality adjustment factors, we refer
readers to section V. of the Addendum to the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51803).)
The proposed factor accounts for the proposed MS-DRG
reclassifications and recalibration and for proposed changes in the
GAFs. It also incorporates the effects on the proposed GAFs of FY
2013 geographic reclassification decisions made by the MGCRB
compared to FY 2012 decisions. However, it does not account for
changes in payments due to changes in the DSH and IME adjustment
factors.

4. Exceptions Payment Adjustment Factor

Section 412.308(c)(3) of our regulations requires that the
capital standard Federal rate be reduced by an adjustment factor
equal to the estimated proportion of additional payments for both
regular exceptions and special exceptions under Sec. 412.348
relative to total capital PPS payments.
Since FY 2002, an adjustment for regular exception payments was
no longer necessary in determining the capital Federal rate because,
in accordance with Sec. 412.348(b), regular exception payments were
only made for cost reporting periods beginning on or after October
1, 1991 and before October 1, 2001. Accordingly, in FY 2002 and
subsequent fiscal years, no payments are made under the regular
exceptions provision (66 FR 39949). Furthermore, as discussed in the
FY 2012 IPPS/LTCH PPS final rule (76 FR 51804), there are no longer
any remaining hospitals eligible to receive a special exceptions
payment under Sec. 412.348(g) because they have reached the
limitation on the period for exception payments under Sec.
412.348(g)(7). Therefore, beginning with FY 2012, there is no longer
a need for an exceptions payment adjustment factor.

5. Proposed Capital Standard Federal Rate for FY 2013

For FY 2012, we established a capital Federal rate of $421.42
(76 FR 51804). We are proposing to establish an update of 1.3
percent in determining the FY 2013 capital Federal rate for all
hospitals. However, as discussed in greater detail in section V.E.
of the preamble of this proposed rule, under the statutory authority
at section 1886(g) of the Act, consistent with section
1886(d)(3)(A)(vi) of the Act and section 7(b) of Pub. L. 110-90, we
are proposing to make an additional 0.8 percent reduction to the
national capital Federal payment rate in FY 2013 to account for the
effect of changes in case-mix resulting from documentation and
coding changes that do not reflect real changes in the case-mix in
light of the adoption of MS-DRGs. Accordingly, we are proposing to
apply a cumulative documentation and coding adjustment factor of
0.9404 in determining the proposed FY 2013 capital Federal rate
(that is, the existing -0.6 percent adjustment in FY 2008 plus the -
0.9 percent adjustment in FY 2009, plus the -2.9 percent adjustment
for FY 2011, plus the -1.0 percent adjustment for FY 2012, plus the
proposed -0.8 percent adjustment for FY 2013, computed as 1 divided
by (1.006 x 1.009 x 1.029 x 1.010 x 1.008). (We note that we did not
apply a documentation and coding adjustment to the capital Federal
rate in FY 2010 (74 FR 43927).) As a result of the proposed 1.3
percent update and other budget neutrality factors discussed above,
we are proposing to establish a national capital Federal rate of
$424.42 for FY 2013. The proposed national capital Federal rate for
FY 2013 was calculated as follows:
The proposed FY 2013 update factor is 1.0130, that is,
the proposed update is 1.3 percent.
The proposed FY 2013 budget neutrality adjustment
factor that is applied to the proposed capital standard Federal
payment rate for proposed changes in the MS-DRG classifications and
relative weights and proposed changes in the GAFs is 1.0002.
The proposed FY 2013 outlier adjustment factor is
0.9400.
The proposed cumulative adjustment factor for FY 2013
applied to the national capital Federal rate for changes in
documentation and coding under the MS-DRGs is 0.9404.
Because the proposed capital Federal rate has already been
adjusted for differences in case-mix, wages, cost-of-living,
indirect medical education costs, and payments to hospitals serving
a disproportionate share of low-income patients, we are not
proposing to make additional adjustments in the capital standard
Federal rate for these factors, other than the proposed budget
neutrality factor for proposed changes in the MS-DRG classifications
and relative weights and for proposed changes in the GAFs. (As
discussed in section III.A.4. of this Addendum, there is no longer a
need for an exceptions payment adjustment factor in determining the
capital Federal rate.)
We are providing the following chart that shows how each of the
proposed factors and adjustments for FY 2013 affects the computation
of the proposed FY 2013 national capital Federal rate in comparison
to the FY 2012 national capital Federal rate. The proposed FY 2013
update factor has the effect of increasing the capital Federal rate
by 1.3 percent compared to the FY 2012 capital Federal rate. The
proposed GAF/DRG budget neutrality factor has the effect of
increasing the capital Federal rate by 0.02 percent. The proposed FY
2013 outlier adjustment factor has the effect of increasing the
proposed capital Federal rate by 0.19 percent compared to the FY
2012 capital Federal rate. The proposed factor for changes in
documentation and coding under the MS-DRGs for FY 2013 has the net
effect of decreasing the proposed FY 2013 national capital Federal
rate by 0.08 percent as compared to the FY 2012 national capital
Federal rate. The combined effect of all the proposed changes would
increase the proposed national capital Federal rate by approximately
0.7 percent compared to the FY 2012 national capital Federal rate.

[[Page 28151]]

Comparison of Factors and Adjustments: FY 2012 Capital Federal Rate and
Proposed FY 2013 Capital Federal Rate
------------------------------------------------------------------------
Proposed Percent
FY 2012 FY 2013 Change change
------------------------------------------------------------------------
Update Factor \1\........... 1.0150 1.0130 1.0130 1.30
GAF/DRG Adjustment Factor 1.004 1.0002 1.0002 0.02
\1\........................
Outlier Adjustment Factor 0.9382 0.9400 1.0019 0.19
\2\........................
MS-DRG Documentation and \3\ \4\ 0.9921 -0.79
Coding Adjustment Factor... 0.9479 0.9404
Capital Federal Rate \5\.... $421.42 $424.42 1.0071 0.71
------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality factors are
built permanently into the capital rates. Thus, for example, the
incremental change from FY 2012 to FY 2013 resulting from the
application of the proposed 1.0002 GAF/DRG budget neutrality factor
for FY 2013 is a net change of 1.0002.
\2\ The outlier reduction factor is not built permanently into the
capital rate; that is, the factor is not applied cumulatively in
determining the capital rate. Thus, for example, the net change
resulting from the application of the FY 2013 outlier adjustment
factor is 0.9404/0.9382, or 1.0019.
\3\ The documentation and coding adjustment factor includes the -0.6
percent in FY 2008, -0.9 percent in FY 2009, no additional reduction
in FY 2010, the -2.9 percent in FY 2011 and the -1.0 percent in FY
2012.
\4\ The documentation and coding adjustment factor includes the -0.6
percent in FY 2008, -0.9 percent in FY 2009, no additional reduction
in FY 2010, the -2.9 percent in FY 2011, the -1.0 percent in FY 2012,
and the proposed -0.8 percent in FY 2013.
\5\ Sum of percent change may not sum due to rounding.

6. Proposed Special Capital Rate for Puerto Rico Hospitals

Section 412.374 provides for the use of a blended payment system
for payments to hospitals located in Puerto Rico under the PPS for
acute care hospital inpatient capital-related costs. Accordingly,
under the capital PPS, we compute a separate payment rate specific
to hospitals located in Puerto Rico using the same methodology used
to compute the national Federal rate for capital-related costs.
Under the broad authority of section 1886(g) of the Act, beginning
with discharges occurring on or after October 1, 2004, capital
payments to hospitals located in Puerto Rico are based on a blend of
25 percent of the Puerto Rico capital rate and 75 percent of the
capital Federal rate. The Puerto Rico capital rate is derived from
the costs of Puerto Rico hospitals only, while the capital Federal
rate is derived from the costs of all acute care hospitals
participating in the IPPS (including Puerto Rico).
To adjust hospitals' capital payments for geographic variations
in capital costs, we apply a GAF to both portions of the blended
capital rate. The GAF is calculated using the operating IPPS wage
index, and varies depending on the labor market area or rural area
in which the hospital is located. We use the Puerto Rico wage index
to determine the GAF for the Puerto Rico part of the capital-blended
rate and the national wage index to determine the GAF for the
national part of the blended capital rate.
Because we implemented a separate GAF for Puerto Rico in FY
1998, we also apply separate budget neutrality adjustments for the
national GAF and for the Puerto Rico GAF. However, we apply the same
budget neutrality factor for DRG reclassifications and recalibration
nationally and for Puerto Rico. The proposed budget neutrality
adjustments for the proposed national GAF and for the proposed
Puerto Rico GAF, and the proposed budget neutrality factor for
proposed MS-DRG reclassifications and recalibration (which is the
same nationally and for Puerto Rico) is discussed above in section
III.A.3. of this Addendum.
In computing the payment for a particular Puerto Rico hospital,
the Puerto Rico portion of the capital rate (25 percent) is
multiplied by the Puerto Rico-specific GAF for the labor market area
in which the hospital is located, and the national portion of the
capital rate (75 percent) is multiplied by the national GAF for the
labor market area in which the hospital is located (which is
computed from national data for all hospitals in the United States
and Puerto Rico).
For FY 2012, the special capital rate for hospitals located in
Puerto Rico was $203.86 (76 FR 51805). As discussed in section
V.C.3. of the preamble of this proposed rule, we are not proposing
to make any additional adjustments for the effect of documentation
and coding that did not reflect real changes in case-mix to the
capital Puerto Rico-specific rate for FY 2013. Therefore, with the
changes we are proposing to make to the other factors used to
determine the proposed capital rate, the proposed FY 2013 special
capital rate for hospitals in Puerto Rico is $206.82.

B. Calculation of the Proposed Inpatient Capital-Related
Prospective Payments for FY 2013

For purposes of calculating payments for each discharge during
FY 2013, the capital standard Federal rate is adjusted as follows:
(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals
located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME
Adjustment Factor, if applicable). The result is the adjusted
capital Federal rate.
Hospitals also may receive outlier payments for those cases that
qualify under the thresholds established for each fiscal year.
Section 412.312(c) provides for a single set of thresholds to
identify outlier cases for both inpatient operating and inpatient
capital-related payments. The proposed outlier thresholds for FY
2013 are in section II.A. of this Addendum. For FY 2013, a case
would qualify as a cost outlier if the cost for the case plus the
(operating) IME and DSH payments is greater than the prospective
payment rate for the MS-DRG plus the proposed fixed-loss amount of
$27,425.
Currently, as provided in Sec. 412.304(c)(2), we pay a new
hospital 85 percent of its reasonable costs during the first 2 years
of operation unless it elects to receive payment based on 100
percent of the capital Federal rate. Effective with the third year
of operation, we pay the hospital based on 100 percent of the
capital Federal rate (that is, the same methodology used to pay all
other hospitals subject to the capital PPS).

C. Capital Input Price Index

1. Background

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

2. Forecast of the CIPI for FY 2013

Based on the latest forecast by IHS Global Insight, Inc. (first
quarter of 2012), we are forecasting the FY 2006-based CIPI to
increase 1.3 percent in FY 2013. This reflects a projected 1.8
percent increase in vintage-weighted depreciation prices (building
and fixed equipment, and movable equipment), and a projected 1.9
percent increase in other capital expense prices in FY 2013,
partially offset by a projected 2.2 percent decline in vintage-
weighted interest expenses in FY 2013. The weighted average of these
three

[[Page 28152]]

factors produces the proposed 1.3 percent increase for the FY 2006-
based CIPI as a whole in FY 2013.

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

Historically, hospitals and hospital units excluded from the
prospective payment system received payment for inpatient hospital
services they furnished on the basis of reasonable costs, subject to
a rate-of-increase ceiling. An annual per discharge limit (the
target amount as defined in Sec. 413.40(a)) was set for each
hospital or hospital unit based on the hospital's own cost
experience in its base year, and updated annually by a rate-of-
increase percentage. The updated target amount for that period was
multiplied by the Medicare discharges during that period and applied
as an aggregate upper limit (the ceiling as defined in Sec.
413.40(a)) on total inpatient operating costs for a hospital's cost
reporting period. Prior to October 1, 1997, these payment provisions
applied consistently to all categories of excluded providers
(rehabilitation hospitals and units (now referred to as IRFs),
psychiatric hospitals and units (now referred to as IPFs), LTCHs,
children's hospitals, and cancer hospitals).
Payments for services furnished in children's hospitals and
cancer hospitals that are excluded from the IPPS continue to be
subject to the rate-of-increase ceiling based on the hospital's own
historical cost experience. (We note that, in accordance with Sec.
403.752(a), RNHCIs are also subject to the rate-of-increase limits
established under Sec. 413.40 of the regulations.)
In this proposed rule, we are proposing that the FY 2013 rate-
of-increase percentage for updating the target amounts for cancer
and children's hospitals and RNHCIs be the estimated percentage
increase in the FY 2013 IPPS operating market basket, in accordance
with applicable regulations at Sec. 413.40. In this proposed rule,
the estimated percentage increase in the FY 2013 IPPS operating
market basket is estimated to be 3.0 percent. We also are proposing
to use the most recent data available to determine the estimated
percentage increase for the FY 2013 IPPS operating market basket.
Based on IHS Global Insight, Inc.'s first quarter 2012 forecast,
with historical data through the 2011 fourth quarter, the IPPS
operating market basket update is 3.0 percent for FY 2013.
Therefore, for cancer and children's hospitals and RNHCIs, the
proposed FY 2013 rate-of-increase percentage that would be applied
to the FY 2012 target amounts in order to determine the proposed FY
2013 target amount is 3.0 percent.
IRFs, IPFs, and LTCHs were previously paid under the reasonable
cost methodology. However, the statute was amended to provide for
the implementation of prospective payment systems for IRFs, IPFs,
and LTCHs. In general, the prospective payment systems for IRFs,
IPFs, and LTCHs provide transitioning periods of varying lengths of
time during which a portion of the prospective payment is based on
cost-based reimbursement rules under 42 CFR Part 413 (certain
providers do not receive a transitioning period or may elect to
bypass the transition as applicable under 42 CFR Part 412, Subparts
N, O, and P.) We note that all of the various transitioning periods
provided for under the IRF PPS, the IPF PPS, and the LTCH PPS have
ended. The IRF PPS, the IPF PPS, and the LTCH PPS are updated
annually. We refer readers to section VII. of the preamble and
section V. of the Addendum to this proposed rule for the proposed
update changes to the Federal payment rates for LTCHs under the LTCH
PPS for FY 2013. The annual updates for the IRF PPS and the IPF PPS
are issued by the agency in separate Federal Register documents.

V. Proposed Changes to the Payment Rates for the LTCH PPS for FY 2013

A. Proposed LTCH PPS Standard Federal Rate for FY 2013

1. Background

In section VII. of the preamble of this proposed rule, we
discuss our proposed changes to the payment rates, factors, and
specific policies under the LTCH PPS for FY 2013.
Under Sec. 412.523(c)(3)(ii) of the regulations, for LTCH PPS
rate years beginning RY 2004 through RY 2006, we updated the
standard Federal rate annually by a factor to adjust for the most
recent estimate of the increases in prices of an appropriate market
basket of goods and services for LTCHs. We established this policy
of annually updating the standard Federal rate because, at that
time, we believed that was the most appropriate method for updating
the LTCH PPS standard Federal rate for years after the initial
implementation of the LTCH PPS in FY 2003. Thus, under Sec.
412.523(c)(3)(ii), for RYs 2004 through 2006, the annual update to
the LTCH PPS standard Federal rate was equal to the previous rate
year's Federal rate updated by the most recent estimate of increases
in the appropriate market basket of goods and services included in
covered inpatient LTCH services.
In determining the annual update to the standard Federal rate
for RY 2007, based on our ongoing monitoring activity, we believed
that, rather than solely using the most recent estimate of the LTCH
PPS market basket update as the basis of the annual update factor,
it was appropriate to adjust the standard Federal rate to account
for the effect of documentation and coding in a prior period that
was unrelated to patients' severity of illness (71 FR 27818).
Accordingly, we established under Sec. 412.523(c)(3)(iii) that the
annual update to the standard Federal rate for RY 2007 was zero
percent based on the most recent estimate of the LTCH PPS market
basket at that time, offset by an adjustment to account for changes
in case-mix in prior periods due to the effect of documentation and
coding that were unrelated to patients' severity of illness. For RY
2008 through FY 2011, we also made an adjustment for the effect of
documentation and coding that was unrelated to patients' severity of
illness in establishing the annual update to the standard Federal
rate as set forth in the regulations at Sec. Sec. 412.523(c)(3)(iv)
through (c)(3)(vii). For FY 2012, we updated the standard Federal
rate by the most recent estimate of the LTCH PPS market basket at
that time, including additional statutory adjustments required by
section 1886(m)(3)(A) of the Act.
Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of
the Affordable Care Act, specifies that, for rate year 2010 and each
subsequent rate year, any annual update to the standard Federal rate
shall be reduced:
For rate year 2010 through 2019, by the other
adjustment specified in section 1886(m)(3)(A)(ii) and (m)(4) of the
Act; and
For rate year 2012 and each subsequent year, by the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II)
of the Act (which we refer to as ``the multifactor productivity
(MFP) adjustment'') as discussed in section VII.D.2.d. of the
preamble of this proposed rule.
Section 1886(m)(3)(B) of the Act provides that the application
of paragraph (3) of section 1886(m) of the Act may result in the
annual update being less than zero for a rate year, and may result
in payment rates for a rate year being less than such payment rates
for the preceding rate year. (As noted in section VII.D.2.d. of the
preamble of this proposed rule, the annual update to the LTCH PPS
occurs on October 1 and we have adopted the term ``fiscal year''
(FY) rather than ``rate year'' (RY) under the LTCH PPS beginning
October 1, 2010. Therefore, for purposes of clarity, when discussing
the annual update for the LTCH PPS, including the provisions of the
Affordable Care Act, we use the term ``fiscal year'' rather than
``rate year'' for 2011 and subsequent years.)
For FY 2012, consistent with our historical practice, we
established an update to the LTCH PPS standard Federal rate based on
the full estimated LTCH PPS market basket increase of 2.9 percent,
the 1.1 percentage point reductions required by sections
1886(m)(3)(A)(i) and (m)(4)(C) of the Act. Accordingly, at Sec.
412.523(c)(3)(viii) of the regulations, we established an annual
update of 1.8 percent to the standard Federal rate for FY 2012 (76
FR 51769 through 51771 and 51807).
In this proposed rule, for FY 2013, as discussed in greater
detail in section VII.D.2. of the preamble of this proposed rule, we
are proposing to establish an annual update to the LTCH PPS standard
Federal rate based on the full estimated increase in the proposed
LTCH PPS market basket, less the MFP adjustment consistent with
section 1886(m)(3)(A)(i) of the Act and less the 0.1 percentage
point required by sections 1886(m)(3)(A)(ii) and (m)(4)(C) of the
Act. Specifically, in this proposed rule, based on the best
available data, we are proposing an annual update to the standard
Federal rate of 2.1 percent, which is based on the full estimated
increase in the proposed LTCH PPS market basket of 3.0 percent, less
the proposed MFP adjustment of 0.8 percentage point consistent with
section 1886(m)(3)(A)(i) of the Act and less the 0.1 percentage
point required by sections 1886(m)(3)(A)(ii) and (m)(4)(C) of the
Act.

[[Page 28153]]

2. Development of the Proposed FY 2013 LTCH PPS Standard Federal Rate

We continue to believe that the annual update to the LTCH PPS
standard Federal rate should be based on the most recent estimate of
the increase in the LTCH PPS market basket, including any statutory
adjustments. Consistent with our historical practice, we are
proposing to apply the annual update to the LTCH PPS standard
Federal rate from the previous year. In determining the proposed
standard Federal rate for FY 2013, we also are proposing to make
certain regulatory adjustments. Specifically, we are proposing to
make a one-time prospective adjustment to the standard Federal rate
under Sec. 412.523(d)(3), as discussed in greater detail in section
VII.E.4. of the preamble of this proposed rule (which would not be
applicable to payments for discharges occurring prior to December
29, 2012, consistent with the statute.) In addition, in determining
the proposed FY 2013 standard Federal rate, we are proposing to
apply a budget neutrality adjustment for the proposed changes to the
area wage adjustment (that is, proposed changes to the wage data and
labor-related share) in accordance with Sec. 412.523(d)(4).
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51769 through
51771 and 51807), we established an annual update to the LTCH PPS
standard Federal rate of 1.8 percent for FY 2012 based on the full
estimated LTCH PPS market basket increase of 2.9 percent, less the
MFP adjustment of 1.0 percentage point consistent with section
1886(m)(3)(A)(i) of the Act and less the 0.1 percentage point
required by sections 1886(m)(3)(A)(ii) and(m)(4)(C) of the Act.
Accordingly, at Sec. 412.523(c)(3)(viii), we established an annual
update to the standard Federal rate for FY 2012 of 1.8 percent. That
is, we applied an update factor of 1.018 to the FY 2011 Federal rate
of $39,599.95 to determine the FY 2012 standard Federal rate.
Furthermore, for FY 2012, we applied an area wage level budget
neutrality factor of 0.99775 to the standard Federal rate to ensure
that any changes to the area wage level adjustment (that is, the
annual update of the wage index values and labor-related share)
would not result in any change (increase or decrease) in estimated
aggregate LTCH PPS payments. Consequently, we established a standard
Federal rate for FY 2012 of $40,222.05 (calculated as $39,599.95 x
1.018 x 0.99775), which is applicable to LTCH PPS discharges
occurring on or after October 1, 2011, through September 30, 2012.
In this proposed rule, for FY 2013, as noted above and as
discussed in greater detail in section VII.D.2. of the preamble of
this proposed rule, consistent with our historical practice, we are
proposing to establish an annual update to the proposed LTCH PPS
standard Federal rate of 2.1 percent, based on the full estimated
increase in the proposed LTCH PPS market basket of 3.0 percent less
the proposed MFP adjustment of 0.8 percentage point consistent with
section 1886(m)(3)(A)(i) and less the 0.1 percentage point required
by sections 1886(m)(3)(A)(ii) and(m)(4)(C) of the Act. Furthermore,
as discussed in section VII.E.4. of the preamble of this proposed
rule, in determining the proposed standard Federal rate for FY 2013,
we are proposing to make a one-time prospective adjustment to the
standard Federal rate under Sec. 412.523(d)(3) (which would not be
applicable to payments for discharges occurring prior to December
29, 2012, consistent with the statute).
In this proposed rule, under proposed Sec.
412.523(c)(3)(ix)(A), we are proposing to apply a factor of 1.021 to
the FY 2012 standard Federal rate of $40,222.05 (as established in
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51807)) to determine the
proposed FY 2013 standard Federal rate. In addition, as discussed in
section VII.E.4. of the preamble of this proposed rule, the standard
Federal rate would be further adjusted by the proposed one-time
prospective adjustment factor for FY 2013 of 0.98734 under proposed
Sec. 412.523(d)(3)(ii). However, consistent with the statute, we
are proposing at Sec. 412.523(c)(3)(ix)(B) that, for payments for
discharges occurring on or after October 1, 2012, and before
December 29, 2012, payments are based on the standard Federal rate
in paragraph (c)(3)(ix)(A) of this section without regard to the
one-time prospective adjustment provided for under proposed Sec.
412.523(d)(3)(ii). In addition, as discussed in greater detail in
section V.B.5. of this Addendum, for FY 2013, we are proposing to
apply an area wage level budget neutrality factor of 0.99903 to the
standard Federal rate to ensure that any changes to the area wage
level adjustment (that is, the proposed annual update of the wage
index values and labor-related share) would not result in any change
(increase or decrease) in estimated aggregate LTCH PPS payments.
Consequently, in this proposed rule, under proposed Sec.
412.523(c)(3)(ix)(A), we are proposing to establish a standard
Federal rate for FY 2013 of $40,507.48 (calculated as $40,222.05 x
1.021 x 0.98734 x 0.99903). Furthermore, consistent with section
114(c)(4) of the MMSEA, as amended by sections 3106(a) and 10312 of
the Affordable Care Act, the proposed one-time prospective
adjustment to the standard Federal rate for FY 2013 of 0.98734 would
not apply to payments for discharges occurring before December 29,
2012. Therefore, payment for discharges occurring on or after
October 1, 2012 and on or before December 28, 2012, would not
reflect that proposed adjustment and instead would be paid based on
a standard Federal rate of $41,026.88 (calculated as $40,507.48
divided by 0.98734).

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for
FY 2013

1. Background

Under the authority of section 123 of the BBRA as amended by
section 307(b) of the BIPA, we established an adjustment to the LTCH
PPS standard Federal rate to account for differences in LTCH area
wage levels at Sec. 412.525(c). The labor-related share of the LTCH
PPS standard Federal rate is adjusted to account for geographic
differences in area wage levels by applying the applicable LTCH PPS
wage index. The applicable LTCH PPS wage index is computed using
wage data from inpatient acute care hospitals without regard to
reclassification under section 1886(d)(8) or section 1886(d)(10) of
the Act. For additional information on the development and initial
implementation of the area wage level adjustment under the LTCH PPS,
we refer readers to the August 30, 2002 LTCH PPS final rule (67 FR
56017 through 56019) and the RY 2008 LTCH PPS final rule (72 FR
26891).

2. Geographic Classifications/Labor Market Area Definitions

In establishing an adjustment for area wage levels, the labor-
related portion of a LTCH's Federal prospective payment is adjusted
by using an appropriate wage index based on the labor market area in
which the LTCH is located (67 FR 56015 through 56019). Specifically,
the application of the LTCH PPS area wage level adjustment at Sec.
412.525(c) is made on the basis of the location of the LTCH in
either an urban area or a rural area as defined in Sec. 412.503.
Currently under the LTCH PPS at Sec. 412.503, an ``urban area'' is
defined as a Metropolitan Statistical Area (which would include a
metropolitan division, where applicable) as defined by the Executive
OMB and a ``rural area'' is defined as any area outside of an urban
area.
Currently, the labor market area definitions used under the LTCH
PPS are based on the Executive OMB's CBSA designations, which are
based on 2000 Census data (as adopted in the RY 2006 LTCH PPS final
rule (70 FR 24184 through 24185)). We adopted this policy because we
believe that the CBSA-based labor market area definitions will
ensure that the LTCH PPS wage index adjustment most appropriately
accounts for and reflects the relative hospital wage levels in the
geographic area of the hospital as compared to the national average
hospital wage level. We note that these are the same CBSA-based
designations currently used for acute care hospitals under the IPPS
at Sec. 412.64(b) (69 FR 49026 through 49034). (For further
discussion of the CBSA-based labor market area (geographic
classification) definitions currently used under the LTCH PPS, we
refer readers to the RY 2006 LTCH PPS final rule (70 FR 24182
through 24191).) Each year, we update the LTCH PPS CBSA-based labor
market area definitions to reflect any changes OMB has made to the
CBSA designations (73 FR 26812 through 26814; 74 FR 44023 through
44204; and 75 FR 50444 through 50445).
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. We
adopted those changes under the LTCH PPS for FY 2011 in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50444 through 50445), and adopted
their continued use for FY 2012 in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51808). In 2013, OMB plans to announce new area
delineations based on its 2010 standards (75 FR 37246) and the 2010
Census data. Therefore, in this proposed rule, for FY 2013 wage
index, we are proposing to continue to use the same labor market
areas that we adopted for FY 2012 (76 FR 51808).

3. Proposed LTCH PPS Labor-Related Share

Under the adjustment for differences in area wage levels at
Sec. 412.525(c), the labor-

[[Page 28154]]

related share of a LTCH's Federal prospective payment is adjusted by
the applicable wage index for the labor market area in which the
LTCH is located. The LTCH PPS labor-related share currently
represents the sum of the labor-related portion of operating costs
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Business Support Services, and All
Other: Labor-Related Services) and a labor-related portion of
capital costs using the applicable LTCH PPS market basket.
For FY 2012, we revised and rebased the market basket used under
the LTCH PPS by adopting the newly created FY 2008-based
rehabilitation, psychiatric, and long-term care hospital (RPL)
market basket. Accordingly, the current LTCH PPS labor-related share
is based on the relative importance of the labor-related share of
operating costs and capital costs of the RPL market basket based on
FY 2008 data, as those were the best available data at that time
that reflected the cost structure of LTCHs. For FY 2012, in the FY
2012 IPPS/LTCH PPS final rule (76 FR 51766 through 51769 and 51808),
we established a labor-related share of 70.199 percent based on the
best available data at that time for the FY 2008-based RPL market
basket for FY 2012. (Additional background information on the
historical development of the labor-related share under the LTCH PPS
and the development of the RPL market basket can be found in the RY
2007 LTCH PPS final rule (71 FR 27810 through 27817 and 27829
through 27830).)
As discussed in section VII.C. of the preamble of this proposed
rule, we are proposing to revise and rebase the market basket used
under the LTCH PPS by adopting the newly created FY 2009-based LTCH-
specific market basket. Consistent with this proposal, we are
proposing to determine the labor-related share for FY 2013 as the
sum of the proposed FY 2013 relative importance of each labor-
related cost category of the proposed FY 2009-based LTCH-specific
market basket. Consistent with the current labor-related share
determined from the relative importance of each labor-related cost
category of the FY 2008-based RPL market basket, we are proposing to
determine the LTCH PPS labor-related share for FY 2013 based on the
relative importance of the labor-related share of operating costs
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Business Support Services, and All
Other: Labor-Related Services) and the labor-related share of
capital costs of the proposed LTCH-specific market basket based on
FY 2009 data, as we believe these are currently the best data
available to reflect the cost structure of LTCHs.
In this proposed rule, we are proposing a labor-related share
under the LTCH PPS for FY 2013 based on IGI's first quarter 2012
forecast of the proposed FY 2009-based LTCH-specific market basket
for FY 2013, as these are the most recent available data at this
time that reflect the cost structure of LTCHs. As discussed in
greater detail in section VII.C.3.f. of this preamble, the sum of
the proposed relative importance for FY 2013 for operating costs
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Business Support Services, and All-
Other: Labor-Related Services) is 58.978 percent and the proposed
labor-related share of capital costs is 4.239 percent. Therefore, in
this proposed rule, under the authority set forth in section 123 of
the BBRA as amended by section 307(b) of the BIPA, we are proposing
to establish a labor-related share of 63.217 percent (58.978 percent
plus 4.239 percent) under the LTCH PPS for FY 2013, which would be
effective for discharges occurring on or after October 1, 2012, and
through September 30, 2013. Consistent with our historical practice
of using the best data available, we also are proposing that if more
recent data become available to determine the labor-related share
used under the LTCH PPS for FY 2013, we would use those data for
determining the FY 2013 LTCH PPS labor-related share in the final
rule. (For additional details on the development of the proposed
LTCH PPS labor-related share for FY 2013, we refer readers to
section VII.C.3.f. of the preamble of this proposed rule.)

4. Proposed LTCH PPS Wage Index for FY 2013

Historically, under the LTCH PPS, we have established LTCH PPS
wage index values calculated from acute care IPPS hospital wage data
without taking into account geographic reclassification under
sections 1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). The
area wage level adjustment established under the LTCH PPS is based
on a LTCH's actual location without regard to the urban or rural
designation of any related or affiliated provider.
In the FY 2012 LTCH PPS final rule (76 FR 51808 through 51809),
we calculated the FY 2012 LTCH PPS wage index values using the same
data used for the FY 2012 acute care hospital IPPS (that is, data
from cost reporting periods beginning during FY 2008), without
taking into account geographic reclassification under sections
1886(d)(8) and 1886(d)(10) of the Act, as these were the most recent
complete data available at that time. In that same final rule, we
indicated that we computed the FY 2012 LTCH PPS wage index values
consistent with the urban and rural geographic classifications
(labor market areas) and consistent with the pre-reclassified IPPS
wage index policy (that is, our historical policy of not taking into
account IPPS geographic reclassifications in determining payments
under the LTCH PPS). This IPPS wage data for multicampus hospitals
with campuses located in different labor market areas (CBSAs) are
apportioned to each CBSA where the campus or campuses are located.
We also continued to use our existing policy for determining wage
index values in areas where there are no IPPS wage data.
Consistent with our historical methodology, to determine the
applicable wage index values under the LTCH PPS for FY 2013, under
the broad authority conferred upon the Secretary by section 123 of
the BBRA, as amended by section 307(b) of BIPA, to determine
appropriate adjustments under the LTCH PPS, we are proposing to use
wage data collected from cost reports submitted by IPPS hospitals
for cost reporting periods beginning during FY 2009, without taking
into account geographic reclassification under sections 1886(d)(8)
and 1886(d)(10) of the Act. We are proposing to use FY 2009 data
because these data are the most recent complete data available.
These are the same data used to compute the proposed FY 2012 acute
care hospital inpatient wage index, as discussed in section III. of
the preamble of this proposed rule. (For our rationale for using
IPPS hospital wage data as a proxy for determining the wage index
values used under the LTCH PPS, we refer readers to the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR 44024 through 44025).)
The proposed FY 2013 LTCH PPS wage index values we are
presenting in this proposed rule are computed consistent with the
urban and rural geographic classifications (labor market areas)
discussed above in section V.B.2. of the Addendum to this proposed
rule and consistent with the pre-reclassified IPPS wage index policy
(that is, our historical policy of not taking into account IPPS
geographic reclassifications under sections 1886(d)(8) and
1886(d)(10) of the Act in determining payments under the LTCH PPS).
As with the IPPS wage index, wage data for multicampus hospitals
with campuses located in different labor market areas (CBSAs) are
apportioned to each CBSA where the campus or campuses are located
(as discussed in section III.D. of the preamble of this proposed
rule). Furthermore, in determining the proposed FY 2013 LTCH PPS
wage index values in this proposed rule, we are proposing to
continue to use our existing policy for determining wage index
values in areas where there are no IPPS wage data.
Specifically, we established a methodology for determining LTCH
PPS wage index values for areas that have no IPPS wage data in the
RY 2009 LTCH PPS final rule, and we are proposing to continue to use
this methodology for FY 2013. (We refer readers to 73 FR 26817
through 26818 for an explanation of and rationale for our policy for
determining LTCH PPS wage index values for areas that have no IPPS
wage data.)
There are currently no LTCHs located in labor areas without IPPS
hospital wage data (or IPPS hospitals) for FY 2013. However, we
calculate LTCH PPS wage index values for these areas using our
established methodology in the event that, in the future, a LTCH
should open in one of those areas. Under our existing methodology,
the LTCH PPS wage index value for urban CBSAs with no IPPS wage data
is determined by using an average of all of the urban areas within
the State, and the LTCH PPS wage index value for rural areas with no
IPPS wage data is determined by using the unweighted average of the
wage indices from all of the CBSAs that are contiguous to the rural
counties of the State.
Based on the FY 2009 IPPS wage data that we are proposing to use
to determine the proposed FY 2013 LTCH PPS wage index values in this
proposed rule, there are no IPPS hospital wage data for the urban
area Hinesville-Fort Stewart, GA (CBSA 25980). Consistent with the
methodology discussed above, we are proposing to calculate the FY
2013 wage index value for CBSA 25980 as

[[Page 28155]]

the average of the proposed wage index values for all of the other
urban areas within the State of Georgia (that is, CBSAs 10500,
12020, 12060, 12260, 15260, 16860, 17980, 19140, 23580, 31420,
40660, 42340, 46660 and 47580), as shown in Table 12A, which is
listed in section VI. of the Addendum to this proposed rule and
available via the Internet). We note that, as IPPS wage data are
dynamic, it is possible that rural areas without IPPS hospital wage
data will vary in the future.
Based on the FY 2009 IPPS wage data that we are proposing to use
to determine the proposed FY 2013 LTCH PPS wage index values in this
proposed rule, there are no rural areas without IPPS hospital wage
data. Therefore, for this proposed rule, it is not necessary to
propose to use our established methodology to calculate a LTCH PPS
wage index value for rural areas with no IPPS wage data. We note
that, as IPPS wage data are dynamic, it is possible that rural areas
without IPPS hospital wage data will vary in the future. In
addition, we are proposing that if there are rural areas without
IPPS hospital wage data based on the updated data, we would use our
established methodology to calculate a LTCH PPS wage index value for
such rural areas with no IPPS wage data in the final rule.
The proposed FY 2013 LTCH wage index values that would be
applicable for LTCH discharges occurring on or after October 1,
2012, through September 30, 2013, are presented in Table 12A (for
urban areas) and Table 12B (for rural areas), which are listed in
section VI. of the Addendum of this proposed rule and available via
the Internet on the CMS Web site.

5. Proposed Budget Neutrality Adjustment for Changes to the Area Wage
Level Adjustment

Historically, the LTCH PPS wage index and labor-related share
are updated annually based on the latest available data. In the FY
2012 IPPS/LTCH PPS final rule (76 FR 51771 through 51773 and 51809),
under Sec. 412.525(c)(2), we established that any changes to the
wage index values or labor-related share will be made in a budget
neutral manner such that estimated aggregate LTCH PPS payments are
unaffected, that is, will be neither greater than nor less than
estimated aggregate LTCH PPS payments without such changes to the
area wage level adjustment. Under this policy, we determine an area
wage level adjustment budget neutrality factor that will be applied
to the standard Federal rate to ensure that any changes to the area
wage level adjustment are budget neutral such that any changes to
the wage index values or labor-related share will not result in any
change (increase or decrease) in estimated aggregate LTCH PPS
payments. Accordingly, under Sec. 412.523(d)(4), we established
that we will apply an area wage level adjustment budget neutrality
factor in determining the standard Federal rate and we also
established a methodology for calculating an area wage level
adjustment budget neutrality factor.
For FY 2013, in accordance with Sec. 412.523(d)(4), we are
proposing to apply an area wage level adjustment budget neutrality
factor to adjust the standard Federal rate to account for the
estimated effect of any adjustments or updates to the area wage
level adjustment under Sec. 412.525(c)(1) on estimated aggregate
LTCH PPS payments using the methodology we established in the FY
2012 IPPS/LTCH PPS final rule (76 FR 51773). Specifically, we are
proposing to determine a proposed area wage level adjustment budget
neutrality factor that is applied to the standard Federal rate under
at Sec. 412.523(d)(4) for FY 2013 using the following methodology:
Step 1--We simulate estimated aggregate LTCH PPS payments using
the FY 2012 wage index values (as established in Tables 12A and 12B
listed in the Addendum to the FY 2012 IPPS/LTCH PPS final rule and
available on the Internet) and the FY 2012 labor-related share of
70.199 percent (as established in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51767 and 51808).
Step 2--We simulate estimated aggregate LTCH PPS payments using
the proposed FY 2013 wage index values (as shown in Tables 12A and
12B listed in the Addendum to this proposed rule and available on
the Internet) and the proposed FY 2013 labor-related share of 63.217
percent (based on the latest available data as discussed in section
VII.C.3.f. of this preamble).
Step 3--We calculate the ratio of these estimated total LTCH PPS
payments by dividing the estimated total LTCH PPS payments using the
FY 2012 area wage level adjustments (calculated in Step 1) by the
estimated total LTCH PPS payments using the proposed FY 2013 area
wage level adjustments (calculated in Step 2) to determine the
proposed area wage level adjustment budget neutrality factor for FY
2013.
Step 4--We then apply the proposed FY 2013 area wage level
adjustment budget neutrality factor from Step 3 to determine the
proposed FY 2013 LTCH PPS standard Federal rate after the
application of the proposed FY 2013 annual update (discussed in
section V.A.2. of the Addendum to this proposed rule).
For this proposed rule, using the steps in the methodology
described above, we determined a proposed FY 2013 area wage level
adjustment budget neutrality factor of 0.99903. Accordingly, in
section V.A.2. of the Addendum to this proposed rule, to determine
the proposed FY 2013 LTCH PPS standard Federal rate, we applied a
proposed area wage level adjustment budget neutrality factor of
0.99903, in accordance with Sec. 412.523(d)(4). Accordingly, the
proposed FY 2013 LTCH PPS standard Federal rate shown in Table 1E of
the Addendum to this proposed rule reflects this proposed adjustment
factor.

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

Under Sec. 412.525(b), we established a cost-of-living
adjustment (COLA) for LTCHs located in Alaska and Hawaii to account
for the higher costs incurred in those States (67 FR 56022).
Specifically, we apply a COLA to payments to LTCHs located in Alaska
and Hawaii by multiplying the nonlabor-related portion of the
standard Federal payment rate by the applicable COLA factors
established annually by CMS. Higher labor-related costs for LTCHs
located in Alaska and Hawaii are taken into account in the
adjustment for area wage levels described above.
As we discuss in section VII.D.4. of the preamble of this
proposed rule, historically, we have used the most recent updated
COLA factors obtained from the OPM Web site at http://www.opm.gov/oca/cola/rates.asp to adjust the payments for LTCHs in Alaska and
Hawaii. Recent statutory changes transition the Alaska and Hawaii
COLAs to locality pay (phased in over a 3-year period beginning in
January 2010 with COLA rates frozen as of October 28, 2009, and then
proportionately reduced to reflect the phase-in of locality). As
stated previously, we do not believe it is appropriate to use either
the 2010 or 2011 reduced factors to adjust the nonlabor-related
portion of the standard Federal rate for LTCHs in Alaska and Hawaii
for Medicare payment purposes. Therefore, for FY 2012, we continued
to use the same COLA factors (published by OPM) that we used to
adjust payments in FY 2011 (which were based on OPM's 2009 COLA
factors) to adjust the nonlabor-related portion of the standard
Federal rate for LTCHs located in Alaska and Hawaii.
We believe it was appropriate to use ``frozen'' COLA factors to
adjust payments in FY 2012 while we explored alternatives for
updating the COLA adjustment in the future. As we discuss in greater
detail in section VII.D.4. of the preamble of this proposed rule, we
are proposing to continue to use the same ``frozen'' COLA factors
used in FY 2012 for FY 2013. Furthermore, we are proposing to update
the COLA factors for Alaska and Hawaii beginning in FY 2014 based on
a comparison of the growth in the CPIs for Anchorage, Alaska and
Honolulu, Hawaii relative to the growth in the CPI for the average
U.S. city as published by the Bureau of Labor Statistics (BLS). (For
additional details on our proposal to update the COLA factors for
Alaska and Hawaii beginning in FY 2014, we refer readers to section
VII.D.4. of the preamble of this proposed rule.)
In this proposed rule, for FY 2013, under the broad authority
conferred upon the Secretary by section 123 of the BBRA, as amended
by section 307(b) of BIPA, to determine appropriate adjustments
under the LTCH PPS, we are proposing to use the same COLA factors
used to adjust payments in FY 2012 (which are based on OPM's 2009
COLA factors) by multiplying the nonlabor-related portion of the
standard Federal payment rate by the proposed factors listed in the
chart below.

Proposed Cost-of-Living Adjustment Factors for Alaska and Hawaii
Hospitals for the LTCH PPS for FY 2013
------------------------------------------------------------------------

------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer (50[dash]mile) radius by 1.23
road.......................................................
City of Fairbanks and 80-kilometer (50[dash]mile) radius by 1.23
road.......................................................
City of Juneau and 80-kilometer (50[dash]mile) radius by 1.23
road.......................................................

[[Page 28156]]

All other areas of Alaska................................... 1.25
Hawaii:
City and County of Honolulu................................. 1.25
County of Hawaii............................................ 1.18
County of Kauai............................................. 1.25
County of Maui and County of Kalawao........................ 1.25
------------------------------------------------------------------------

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

1. Background

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

2. Determining LTCH CCRs Under the LTCH PPS

a. Background

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

b. LTCH Total CCR Ceiling

Generally, a LTCH is assigned the applicable statewide average
CCR if, among other things, a LTCH's CCR is found to be in excess of
the applicable maximum CCR threshold (that is, the LTCH CCR
ceiling). This is because CCRs above this threshold are most likely
due to faulty data reporting or entry, and, therefore, CCRs based on
erroneous data should not be used to identify and make payments for
outlier cases. Thus, under our established policy, generally, if a
LTCH's calculated CCR is above the applicable ceiling, the
applicable LTCH PPS statewide average CCR is assigned to the LTCH
instead of the CCR computed from its most recent (settled or
tentatively settled) cost report data.
In accordance with Sec. 412.525(a)(4)(iv)(C)(2) for HCOs and
Sec. 412.529(f)(4)(iii)(B) for SSOs, in this proposed rule, using
our established methodology for determining the LTCH total CCR
ceiling (described above), based on IPPS total CCR data from the
December 2011 update of the PSF, we are proposing to establish a
total CCR ceiling of 1.210 under the LTCH PPS that would be
effective for discharges occurring on or after October 1, 2012,
through September 30, 2013. Consistent with our historical policy of
using the best available data, we also are proposing that if more
recent data became available, we would use such data to establish a
total CCR ceiling for FY 2013 in the final rule.

c. Proposed LTCH Statewide Average CCRs

Our general methodology established for determining the
statewide average CCRs used under the LTCH PPS is similar to our
established methodology for determining the LTCH total CCR ceiling
(described above) because it is based on ``total'' IPPS CCR data.
Under the LTCH PPS HCO policy at Sec. 412.525(a)(4)(iv)(C) and the
SSO policy at Sec. 412.529(f)(4)(iii), the fiscal intermediary or
MAC may use a statewide average CCR, which is established annually
by CMS, if it is unable to determine an accurate CCR for a LTCH in
one of the following circumstances: (1) New LTCHs that have not yet
submitted their first Medicare cost report (for this purpose,
consistent with current policy, a new LTCH is defined as an entity
that has not accepted assignment of an existing hospital's provider
agreement in accordance with Sec. 489.18); (2) LTCHs whose CCR is
in excess of the LTCH CCR ceiling; and (3) other LTCHs for whom data
with which to calculate a CCR are not available (for example,
missing or faulty data). (Other sources of data that the fiscal
intermediary or MAC may consider in determining a LTCH's CCR include
data from a different cost reporting period for the LTCH, data from
the cost reporting period preceding the period in which the hospital
began to be paid as a LTCH (that is, the period of at least 6 months
that it was paid as a short-term, acute care hospital), or data from
other comparable LTCHs, such as LTCHs in the same chain or in the
same region.)
Consistent with our historical practice of using the best
available data and using our established methodology for determining
the LTCH statewide average CCRs, based on the most recent complete
IPPS ``total CCR'' data from the December 2011 update of the PSF, we
are proposing to establish LTCH PPS statewide average total CCRs for
urban and rural hospitals that would be effective for discharges
occurring on or after October 1, 2012, through September 20, 2013,
in Table 8C listed in section VI. of the Addendum to this proposed
rule (and available via the Internet). Consistent with our
historical policy of using the best available data, we

[[Page 28157]]

also are proposing that if more recent data become available, we
would use such data to establish LTCH PPS statewide average total
CCRs for urban and rural hospitals that would be effective for FY
2013 in the final rule.
All areas in the District of Columbia, New Jersey, and Rhode
Island are classified as urban. Therefore, there are no rural
statewide average total CCRs listed for those jurisdictions in Table
8C. This policy is consistent with the policy that we established
when we revised our methodology for determining the applicable LTCH
statewide average CCRs in the FY 2007 IPPS final rule (71 FR 48119
through 48121) and is the same as the policy applied under the IPPS.
In addition, consistent with our existing methodology, in
determining the proposed urban and rural statewide average total
CCRs for Maryland LTCHs paid under the LTCH PPS, in this proposed
rule, we are proposing to continue to use, as a proxy, the national
average total CCR for urban IPPS hospitals and the national average
total CCR for rural IPPS hospitals, respectively. We use this proxy
because we believe that the CCR data on the PSF for Maryland
hospitals may not be entirely accurate (as discussed in greater
detail in the FY 2007 IPPS final rule (71 FR 48120)).

d. Reconciliation of LTCH HCO and SSO Payments

We note that under the LTCH PPS HCO policy at Sec.
412.525(a)(4)(iv)(D) and the LTCH PPS SSO policy at Sec.
412.529(f)(4)(iv), the payments for HCO and SSO cases, respectively,
are subject to reconciliation. Specifically, any reconciliation of
outlier payments is based on the CCR that is calculated based on a
ratio of cost-to-charge data computed from the relevant cost report
determined at the time the cost report coinciding with the discharge
is settled. For additional information, we refer readers to sections
150.26 through 150.28 of the Medicare Claims Processing Manual (Pub.
100-4) as added by Change Request 7192 (Transmittal 2111; December
3, 2010) and the RY 2009 LTCH PPS final rule (73 FR 26820 through
26821).

3. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for FY 2013

When we implemented the LTCH PPS, as discussed in the August 30,
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the
broad authority of section 123 of the BBRA as amended by section
307(b) of BIPA, we established a fixed-loss amount so that total
estimated outlier payments are projected to equal 8 percent of total
estimated payments under the LTCH PPS. To determine the fixed-loss
amount, we estimate outlier payments and total LTCH PPS payments for
each case using claims data from the MedPAR files. Specifically, to
determine the outlier payment for each case, we estimate the cost of
the case by multiplying the Medicare covered charges from the claim
by the LTCH's CCR. Under Sec. 412.525(a)(3) (in conjunction with
Sec. 412.503), if the estimated cost of the case exceeds the
outlier threshold, we make an outlier payment equal to 80 percent of
the difference between the estimated cost of the case and the
outlier threshold (that is, the sum of the adjusted Federal
prospective payment for the MS-LTC-DRG and the fixed-loss amount).
In this proposed rule, we are proposing to continue to use our
existing methodology to calculate the proposed fixed-loss amount for
FY 2013 (based on the data and the proposed rates and policies
presented in this proposed rule) in order to maintain estimated HCO
payments at the projected 8 percent of total estimated LTCH PPS
payments. (For additional detail on the rationale for setting the
HCO payment ``target'' at 8 percent of total estimated LTCH PPS
payments, we refer readers to the to the FY 2003 LTCH PPS final rule
(67 FR 56022 through 56024.) Consistent with our historical practice
of using the best data available, in determining the proposed fixed-
loss amount for FY 2013, we use the most recent available LTCH
claims data and CCR data at this time. Specifically, for this
proposed rule, we are using LTCH claims data from the December 2011
update of the FY 2011 MedPAR file and CCRs from the December 2011
update of the PSF to determine a proposed fixed-loss amount that
would result in estimated outlier payments projected to be equal to
8 percent of total estimated payments in FY 2013 because these data
are the most recent complete LTCH data available at this time.
Consistent with the historical practice of using the best available
data, we also are proposing that if more recent LTCH claims data
become available, we would use them for determining the fixed-loss
amount for FY 2013 in the final rule.
Under the broad authority of section 123(a)(1) of the BBRA and
section 307(b)(1) of BIPA, we established a fixed-loss amount of
$17,931 for FY 2012. For this proposed rule, we are proposing to
establish a fixed-loss amount of $15,728 for FY 2013. Thus, we are
proposing to make an additional payment for an HCO case that is
equal to 80 percent of the difference between the estimated cost of
the case and the proposed outlier threshold (the sum of the proposed
adjusted Federal LTCH payment for the proposed MS-LTC-DRG and the
proposed fixed-loss amount of $15,728). We also note that the
proposed fixed-loss amount of $15,728 for FY 2013 is lower than the
FY 2012 fixed-loss amount of $17,931. Based on our payment
simulations using the most recent available data at this time, the
proposed decrease in the fixed-loss amount for FY 2013 is necessary
to maintain the existing requirement that estimated outlier payments
would equal 8 percent of estimated total LTCH PPS payments. (For
further information on the existing 8 percent HCO ``target''
requirement, as noted above, we refer readers to the August 30, 2002
LTCH PPS final rule (67 FR 56022 through 56024.) Maintaining the
fixed-loss amount at the current level would result in HCO payments
that are less than the current regulatory 8-percent requirement
because a higher fixed-loss amount would result in fewer cases
qualifying as outlier cases. In addition, maintaining the higher
fixed-loss amount would result in a decrease in the amount of the
additional payment for an HCO case because the maximum loss that a
LTCH must incur before receiving an HCO payment (that is, the fixed-
loss amount) would be larger. For these reasons, we believe that
proposing to lower the fixed-loss amount is appropriate and
necessary to maintain that estimated outlier payments would equal 8
percent of estimated total LTCH PPS payments as required under Sec.
412.525(a).

4. Application of Outlier Policy to SSO Cases

As we discussed in the August 30, 2002 final rule (67 FR 56026),
under some rare circumstances, a LTCH discharge could qualify as an
SSO case (as defined in the regulations at Sec. 412.529 in
conjunction with Sec. 412.503) and also as an HCO case. In this
scenario, a patient could be hospitalized for less than five-sixths
of the geometric average length of stay for the specific MS-LTC-DRG,
and yet incur extraordinarily high treatment costs. If the estimated
costs exceeded the HCO threshold (that is, the SSO payment plus the
fixed-loss amount), the discharge is eligible for payment as an HCO.
Thus, for an SSO case in FY 2013, the HCO payment would be 80
percent of the difference between the estimated cost of the case and
the outlier threshold (the sum of the proposed fixed-loss amount of
$15,728 and the amount paid under the SSO policy as specified in
Sec. 412.529).

E. Computing the Proposed Adjusted LTCH PPS Federal Prospective
Payments for FY 2013

Section 412.525 sets forth the adjustments to the LTCH PPS
standard Federal rate. Under Sec. 412.525(c), the standard Federal
rate is adjusted to account for differences in area wages by
multiplying the labor-related share of the standard Federal rate by
the applicable LTCH PPS wage index (proposed FY 2013 values shown in
Tables 12A and 12B listed in section VI. of the Addendum of this
proposed rule and available via the Internet). The standard Federal
rate is also adjusted to account for the higher costs of hospitals
in Alaska and Hawaii by multiplying the nonlabor-related portion of
the standard Federal rate by the applicable cost-of-living factor
(proposed FY 2013 factors shown in the chart in section V.C. of the
Addendum of this proposed rule) in accordance with Sec. 412.525(b).
In this proposed rule, we are proposing to establish a proposed
standard Federal rate for FY 2013 of $40,507.48 (however, payment
for discharges occurring on or after October 1, 2012, and before
December 29, 2012 would not reflect that proposed adjustment
consistent with the statute, and instead would be paid based on a
standard Federal rate of $41,026.88), as discussed above in section
V.A.2. of the Addendum of this proposed rule. We illustrate the
methodology to adjust the proposed LTCH PPS Federal standard rate
for FY 2013 in the following example:
Example: During FY 2013, a Medicare patient is in a LTCH located
in Chicago, Illinois (CBSA 16974) and discharged on January 1, 2013.
The proposed FY 2013 LTCH PPS wage index value for CBSA 16974 is
1.0623 (Table 12A listed in section VI. of the Addendum of this
proposed rule and available via the Internet). The Medicare patient
is classified into proposed MS-LTC-DRG 28 (Spinal Procedures with
MCC),

[[Page 28158]]

which has a proposed relative weight for FY 2013 of 1.5986 (Table 11
listed in section VI. of the Addendum of this proposed rule and
available via the Internet).
To calculate the LTCH's proposed total adjusted Federal
prospective payment for this Medicare patient in FY 2013, we
computed the wage-adjusted Federal prospective payment amount by
multiplying the unadjusted proposed FY 2013 standard Federal rate
($40,507.48) by the proposed labor-related share (63.217 percent)
and the proposed wage index value (1.0623). This wage-adjusted
amount is then added to the nonlabor-related portion of the
unadjusted proposed standard Federal rate (36.783 percent; adjusted
for cost of living, if applicable) to determine the adjusted Federal
rate, which is then multiplied by the proposed MS-LTC-DRG relative
weight (1.5886) to calculate the total adjusted proposed Federal
LTCH PPS prospective payment for FY 2013 ($67,305.58). The table
below illustrates the components of the calculations in this
example.

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

------------------------------------------------------------------------
Proposed Unadjusted Standard Federal $40,507.48
Prospective Payment Rate.
Proposed Labor-Related Share............. x 0.63217
Proposed Labor-Related Portion of the = $25,607.61
Federal Rate.
Proposed Wage Index (CBSA 16974)......... x 1.0623
Proposed Wage-Adjusted Labor Share of = $27,202.96
Federal Rate.
Proposed Nonlabor-Related Portion of the + $14,899.87
Federal Rate ($40,507.48 x 0.36783).
Proposed Adjusted Federal Rate Amount.... = $42,102.83
Proposed MS-LTC-DRG 28 Relative Weight... x 1.5986
------------------------------
Total Proposed Adjusted Federal = $67,305.58
Prospective Payment.
------------------------------------------------------------------------

VI. Tables Referenced in This Proposed Rule and Available Only Through
the Internet on the CMS Web Site

This section lists the tables referred to throughout the
preamble of this proposed rule and in this Addendum. In the past, a
majority of these tables were published in the Federal Register as
part of the annual proposed and final rules. However, similar to FY
2012, for the FY 2013 rulemaking cycle, the IPPS and LTCH tables
will not be published as part of the annual IPPS/LTCH PPS proposed
and final rulemakings and will be available only through the
Internet. Specifically, IPPS tables 2, 3A, 3B, 4A, 4B, 4C, 4D, 4E,
4F, 4J, 5, 6A, 6B, 6C, 6D, 6E, 6F, 6G, 6I, 6I.1, 6.I.2, 6J, 6J.1,
6K, 7A, 7B, 8A, 8B, 9A, 9C, 10 and new tables 15 and 16 and LTCH PPS
tables 8C, 11, 12A, 12B, 13A, and 13B will be available only through
the Internet. IPPS tables 1A, 1B, 1C, and 1D, and LTCH PPS table 1E,
displayed at the end of this section, will continue to be published
in the Federal Register as part of the annual proposed and final
rules. As discussed in section II.G.9. of the preamble of this
proposed rule, for FY 2013, there were no changes to the ICD-9-CM
coding system, effective October 1, 2012, due to the partial code
freeze in anticipation of the transition to the ICD-10 coding system
or for new technology. Therefore, there will be no new, revised, or
deleted diagnosis and procedure codes effective October 1, 2012,
that are usually announced in Tables 6A (New Diagnosis Codes), 6B
(New Procedure Codes), 6C (Invalid Diagnosis Codes), 6D (Invalid
Procedure Codes), 6E (Revised Diagnosis Code Titles), and 6F
(Revised Procedure Codes). Therefore, these tables will not be
published as part of this FY 2013 rulemaking cycle. As discussed in
section IV.E. of this proposed rule, effective FY 2013 and forward,
the low-volume hospital definition and payment adjustment
methodology under section 1886(d)(12) of the Act will return to the
pre-Affordable Care Act definition and payment adjustment
methodology (we refer readers to section IV.E. for complete details
on the low-volume hospital payment adjustment). Therefore, we are no
longer including a table (previously Table 14) in this proposed rule
that lists the low volume payment adjustments.
Readers who experience any problems accessing any of the tables
that are posted on the CMS Web sites identified below should contact
Ing Jye Cheng at (410) 786-4548.
The following IPPS tables for this FY 2013 proposed 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 2013 IPPS Proposed
Rule Home Page'' or ``Acute Inpatient--Files for Download''.

Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges
Occurring in Federal Fiscal Year 2011; Proposed Hospital Wage
Indexes for Federal Fiscal Year 2013; Hospital Average Hourly Wages
for Federal Fiscal Years 2011 (2007 Wage Data), 2012(2008 Wage
Data), and 2013 (2009 Wage Data); and 3-Year Average of Hospital
Average Hourly Wages
Table 3A.--Proposed FY 2013 and 3-Year Average Hourly Wage for Acute
Care Hospitals in Urban Areas by CBSA
Table 3B.--Proposed FY 2013 and 3-Year Average Hourly Wage for Acute
Care Hospitals in Rural Areas by CBSA
Table 4A.--Proposed Wage Index and Capital Geographic Adjustment
Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by
State--FY 2013
Table 4B.--Proposed Wage Index and Capital Geographic Adjustment
Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by
State--FY 2013
Table 4C.--Proposed Wage Index and Capital Geographic Adjustment
Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA
and by State--FY 2013
Table 4D.--States Designated as Frontier, with Acute Care Hospitals
Receiving at a Minimum the Proposed Frontier State Floor Wage
Index\1\; Urban Areas With Acute Care Hospitals Receiving the
Proposed Statewide Rural Floor Wage Index--FY 2013
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care
Hospitals--FY 2013
Table 4F.--Proposed Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2013
Table 4J.--Proposed Out-Migration Adjustment for Acute Care
Hospitals--FY 2013
Table 5.--List of Proposed Medicare Severity Diagnosis-Related
Groups (MS-DRGs), Relative Weighting Factors, and Geometric and
Arithmetic Mean Length of Stay--FY 2013
Table 6G--Additions to the CC Exclusions List--FY 2013
Table 6I.--Proposed Complete MCC List--FY 2013
Table 6I.2.--Proposed Deletions to the MCC List--FY 2013
Table 6J.--Proposed Complete CC List--FY 2013
Table 6J.1.--Proposed Additions to the CC List--FY 2013
Table 6K.--Proposed Complete List of CC Exclusions--FY 2013
Table 7A.--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2011 MedPAR Update--December 2011 GROUPER V29.0
MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2011 MedPAR Update--December 2011 GROUPER V30.0
MS-DRGs
Table 8A.--Proposed FY 2013 Statewide Average Operating Cost to
Charge Ratios (CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B.--Proposed FY 2013 Statewide Average Capital Cost-to-Charge
Ratios (CCRs) for Acute Care Hospitals
Table 9A.--Hospital Reclassifications and Redesignations--FY 2013
Table 9C.--Hospitals Redesignated as Rural Under Section
1886(d)(8)(E) of the Act--FY 2013
Table 10.--Proposed New Technology Add-On Payment Thresholds for
Applications for FY 2014
Table 15.--FY 2013 Proposed Readmissions Adjustment Factors
Table 16.--Proposed Hospital Inpatient Value-Based Purchasing
Program (VBP) Program Adjustment Factors for FY 2013

The following LTCH PPS tables for this FY 2013 proposed 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-1588-P.

Table 8C.--Proposed FY 2013 Statewide Average Total Cost-to-Charge
Ratios (CCRs) for LTCHs (Urban and Rural)
Table 11.--Proposed MS-LTC-DRGs, Relative Weights, Geometric Average
Length of Stay, and Short-Stay Outlier (SSO) Threshold for
Discharges Occurring from October 1, 2012 through September 30, 2013
under the LTCH PPS
Table 12A.--Proposed LTCH PPS Wage Index for Urban Areas for
Discharges Occurring from October 1, 2012 through September 30, 2013
Table 12B.--Proposed LTCH PPS Wage Index for Rural Areas for
Discharges Occurring From October 1, 2012 through September 20, 2013

[[Page 28159]]

Table 13A.--Composition of Proposed Low-Volume Quintiles for MS-LTC-
DRGs--FY 2013
Table 13B.--Proposed No-Volume MS-LTC-DRG Crosswalk for FY 2013

Table 1A--Proposed National Adjusted Operating Standardized Amounts, Labor/Nonlabor (68.8 Percent Labor Share/
31.2 Percent Nonlabor Share if Wage Index Is Greater Than 1)--FY 2013
----------------------------------------------------------------------------------------------------------------
Full update (2.1 percent) Reduced update (0.1 percent)
----------------------------------------------------------------------------------------------------------------
Nonlabor- Nonlabor-
Labor-related related Labor-related related
----------------------------------------------------------------------------------------------------------------
$3,664.03....................................................... $1,661.59 $3,592.26 $1,629.04
----------------------------------------------------------------------------------------------------------------

Table 1B--Proposed National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38
Percent Nonlabor Share if Wage Index Is Less Than or Equal to 1)--FY 2013
----------------------------------------------------------------------------------------------------------------
Full update (2.1 percent) Reduced update (0.1 Percent)
----------------------------------------------------------------------------------------------------------------
Nonlabor- Nonlabor-
Labor-related related Labor-related related
----------------------------------------------------------------------------------------------------------------
$3,301.88....................................................... $2,023.74 $3,237.21 $1,984.09
----------------------------------------------------------------------------------------------------------------

Table 1C--Proposed Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor-- FY 2013
----------------------------------------------------------------------------------------------------------------
Rates if wage index is greater Rates if wage index is less
than 1 than or equal to 1
---------------------------------------------------------------
Labor Nonlabor Labor Nonlabor
----------------------------------------------------------------------------------------------------------------
National........................................ $3,664.03 $1,661.59 $3,301.88 $2,023.74
Puerto Rico..................................... 1,583.10 966.17 1,580.55 968.72
----------------------------------------------------------------------------------------------------------------

Table 1D--Proposed Capital Standard Federal Payment Rate--FY 2013
------------------------------------------------------------------------
Rate
------------------------------------------------------------------------
National................................................ $424.42
Puerto Rico............................................. 206.82
------------------------------------------------------------------------

Table 1E--Proposed LTCH Standard Federal Prospective Payment Rate--FY
2013
------------------------------------------------------------------------
Rate
------------------------------------------------------------------------
Standard Federal Rate*.................................. $40,507.48
------------------------------------------------------------------------
* Consistent with section 114(c)(4) of the MMSEA as amended by sections
3106(a) and 10312 of the Affordable Care Act, the proposed one-time
prospective adjustment to the standard Federal rate for FY 2013 of
0.98734 would not apply to payments for discharges occurring before
December 29, 2012. Therefore, payment for discharges occurring on or
after October 1, 2012, and on or before December 28, 2012, would not
reflect that proposed adjustment and instead would be paid based on a
standard Federal rate of $41,026.88 (calculated as $40,507.48 divided
by 0.98734).

Appendix A: Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this proposed rule as required
by Executive Order 12866 on Regulatory Planning and Review
(September 30, 1993), Executive Order 13563 on Improving Regulation
and Regulatory Review (February 2, 2011) the Regulatory Flexibility
Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of
the Social Security Act, section 202 of the Unfunded Mandates Reform
Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132
on Federalism (August 4, 1999), and the Congressional Review Act (5
U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, of reducing costs, of harmonizing rules, and of
promoting flexibility. A regulatory impact analysis (RIA) must be
prepared for major rules with economically significant effects ($100
million or more in any 1 year).
We have determined that this proposed rule is a major rule as
defined in 5 U.S.C. 804(2). We estimate that the proposed changes
for FY 2013 acute care hospital operating and capital payments will
redistribute amounts in excess of $100 million to acute care
hospitals. The applicable percentage increase to the IPPS rates
required by the statute, in conjunction with other payment changes
in this proposed rule, will result in an estimated $904 million
increase in proposed FY 2013 operating payments (or 0.9 percent
change) and an estimated $8 million decrease in proposed FY 2013
capital payments (or -0.1 percent change). The proposed impact
analysis of the capital payments can be found in section I.I. of
this Appendix. In addition, as described in section I.J. of this
Appendix, LTCHs are expected to experience an increase in payments
by $100 million in FY 2013 relative to FY 2012.
Our operating impact estimate includes the proposed 0.2 percent
documentation and coding adjustment applied to the IPPS standardized
amounts (which accounts for the proposed -2.7 percent documentation
and coding adjustment and 2.9 percent adjustment to restore the one-
time recoupment adjustment made to the national standardized amount
for FY 2012). In addition, our operating impact estimate includes
the proposed 2.1 percent hospital update to the standardized amount
(which includes the 3.0 percent proposed market basket update less
0.8 percentage point for the proposed multifactor productivity
adjustment and less 0.1 percentage point required under the
Affordable Care Act). The proposed estimates of IPPS operating
payments to acute care hospitals do not reflect any changes in
hospital admissions or real case-mix intensity, which would also
affect overall payment changes.
The analysis in this Appendix, in conjunction with the remainder
of this document, demonstrates that this proposed rule is consistent
with the regulatory philosophy and principles identified in
Executive Orders 12866 and 13563, the RFA, and section 1102(b) of
the Act. The proposed

[[Page 28160]]

rule would affect payments to a substantial number of small rural
hospitals, as well as other classes of hospitals, and the effects on
some hospitals may be significant.

B. Need

This proposed rule is necessary in order to make payment and
policy changes under the Medicare IPPS for Medicare acute care
hospital inpatient services for operating and capital-related costs
as well as for certain hospitals and hospital units excluded from
the IPPS. This proposed rule also is necessary to make payment and
policy changes for Medicare hospitals under the LTCH PPS payment
system.

C. Objectives of the IPPS

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

D. Limitations of Our Analysis

The following quantitative analysis presents the projected
effects of our proposed policy changes, as well as statutory changes
effective for FY 2013, on various hospital groups. We estimate the
effects of individual policy changes by estimating payments per case
while holding all other payment policies constant. We use the best
data available, but, generally, we do not attempt to make
adjustments for future changes in such variables as admissions,
lengths of stay, or case-mix.

E. Hospitals Included in and Excluded From the IPPS

The prospective payment systems for hospital inpatient operating
and capital-related costs of acute care hospitals encompass most
general short-term, acute care hospitals that participate in the
Medicare program. There were 32 Indian Health Service hospitals in
our database, which we excluded from the analysis due to the special
characteristics of the prospective payment methodology for these
hospitals. Among other short-term, acute care hospitals, only the 45
such hospitals in Maryland remain excluded from the IPPS pursuant to
the waiver under section 1814(b)(3) of the Act.
As of March 2012, there are 3,405 IPPS acute care hospitals to
be included in our analysis. This represents about 67 percent of all
Medicare-participating hospitals. The majority of this impact
analysis focuses on this set of hospitals. There also are
approximately 1,349 CAHs. These small, limited service hospitals are
paid on the basis of reasonable costs rather than under the IPPS.
There are also 1,232 IPPS-excluded hospitals and 2,090 IPPS-excluded
hospital units. These IPPS-excluded hospitals and units include
IPFs, IRFs, LTCHs, RNHCIs, children's hospitals, and cancer
hospitals, which are paid under separate payment systems. Changes in
the prospective payment systems for IPFs and IRFs are made through
separate rulemaking. Payment impacts for these IPPS-excluded
hospitals and units are not included in this proposed rule. The
proposed impact of the update and policy changes to the LTCH PPS for
FY 2013 is discussed in section I.J. of this Appendix.

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

As of March 2012, there were 3,337 hospitals and hospital units
excluded from the IPPS. Of these, 78 children's hospitals, 11 cancer
hospitals, and 17 RNHCIs are being paid on a reasonable cost basis
subject to the rate-of-increase ceiling under Sec. 413.40. The
remaining providers, 230 rehabilitation hospitals and 906
rehabilitation units, and 442 LTCHs, are paid the Federal
prospective per discharge rate under the IRF PPS and the LTCH PPS,
respectively, and 469 psychiatric hospitals and 1,148 psychiatric
units are paid the Federal per diem amount under the IPF PPS. As
stated above, IRFs and IPFs are not affected by the rate updates
discussed in this proposed rule. The impacts of the proposed changes
on LTCHs are discussed in section I.J. of this Appendix.
In the past, certain hospitals and units excluded from the IPPS
have been paid based on their reasonable costs subject to limits as
established by the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA). Cancer and children's hospitals continue to be paid on a
reasonable cost basis subject to TEFRA limits for FY 2013. For these
hospitals (cancer and children's hospitals), consistent with the
authority provided in section 1886(b)(3)(B)(ii) of the Act, the
proposed update is the FY 2013 percentage increase in the IPPS
operating market basket. In compliance with section 404 of the MMA,
in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43930), we
replaced the FY 2002-based IPPS operating and capital market baskets
with the revised and rebased FY 2006-based IPPS operating and
capital market baskets. Therefore, consistent with current law,
based on IHS Global Insight, Inc.'s 2012 first quarter forecast,
with historical data through the 2011 fourth quarter, we are
estimating that the proposed FY 2013 update based on the IPPS
operating market basket is 3.0 percent (that is, the current
estimate of the market basket rate-of-increase). However, the
Affordable Care Act requires an adjustment for multifactor
productivity (currently proposed to be 0.8 percentage point) and a
0.1 percentage point reduction to the market basket update resulting
in a proposed 2.1 percent applicable percentage increase for IPPS
hospitals. RNCHIs, children's hospitals and cancer hospitals are not
subject to the reductions in the applicable percentage increase
required under the Affordable Care Act. In accordance with Sec.
403.752(a) of the regulations, RNHCIs are paid under Sec. 413.40.
Therefore, for RNHCIs, the proposed update is the same as for
children's and cancer hospitals, which is the percentage increase in
the FY 2013 IPPS operating market basket, estimated at 3.0 percent,
without the reductions required under the Affordable Care Act.
The impact of the update in the rate-of-increase limit on those
excluded hospitals depends on the cumulative cost increases
experienced by each excluded hospital since its applicable base
period. For excluded hospitals that have maintained their cost
increases at a level below the rate-of-increase limits since their
base period, the major effect is on the level of incentive payments
these excluded hospitals receive. Conversely, for excluded hospitals
with per-case cost increases above the cumulative update in their
rate-of-increase limits, the major effect is the amount of excess
costs that will not be reimbursed.
We note that, under Sec. 413.40(d)(3), an excluded hospital
that continues to be paid under the TEFRA system and whose costs
exceed 110 percent of its rate-of-increase limit receives its rate-
of-increase limit plus 50 percent of the difference between its
reasonable costs and 110 percent of the limit, not to exceed 110
percent of its limit. In addition, under the various provisions set
forth in Sec. 413.40, cancer and children's hospitals can obtain
payment adjustments for justifiable increases in operating costs
that exceed the limit.

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

1. Basis and Methodology of Estimates

In this proposed rule, we are announcing proposed policy changes
and payment rate updates for the IPPS for FY 2013 for operating
costs of acute care hospitals. The proposed FY 2013 updates to the
capital payments to acute care hospitals are discussed in section
I.I. of this Appendix.
Based on the overall percentage change in payments per case
estimated using our payment simulation model, we estimate that total
FY 2013 operating payments will increase by 0.9 percent compared to
FY 2012. In addition to the applicable percentage increase, this
amount reflects the proposed FY 2013 adjustments for documentation
and coding described in section II.D. of the preamble of this
proposed rule: 0.2 percent for the IPPS national standardized
amounts and -1.3 percent for the IPPS hospital-specific rates. The
impacts do not reflect changes in the number of hospital admissions
or real case-mix intensity, which will also affect overall payment
changes.
We have prepared separate impact analyses of the proposed
changes to each system. This section deals with the proposed changes
to the operating inpatient prospective payment system for acute care
hospitals. Our payment simulation model relies on the most recent
available data to enable us to estimate the impacts on payments per
case of certain proposed changes in this proposed rule. However,
there are other proposed changes for which we do not have data
available that would allow us to estimate the payment impacts using
this model. For those proposed

[[Page 28161]]

changes, we have attempted to predict the payment impacts based upon
our experience and other more limited data.
The data used in developing the quantitative analyses of
proposed changes in payments per case presented below are taken from
the FY 2011 MedPAR file and the most current Provider-Specific File
(PSF) that is used for payment purposes. Although the analyses of
the proposed changes to the operating PPS do not incorporate cost
data, data from the most recently available hospital cost reports
were used to categorize hospitals. Our analysis has several
qualifications. First, in this analysis, we do not make adjustments
for future changes in such variables as admissions, lengths of stay,
or underlying growth in real case-mix. Second, due to the
interdependent nature of the IPPS payment components, it is very
difficult to precisely quantify the impact associated with each
proposed change. Third, we use various data sources to categorize
hospitals in the tables. In some cases, particularly the number of
beds, there is a fair degree of variation in the data from the
different sources. We have attempted to construct these variables
with the best available source overall. However, for individual
hospitals, some miscategorizations are possible.
Using cases from the FY 2011 MedPAR file, we simulated proposed
payments under the operating IPPS given various combinations of
payment parameters. As described above, Indian Health Service
hospitals and hospitals in Maryland were excluded from the
simulations. The proposed impact of payments under the capital IPPS,
or the impact of payments for costs other than inpatient operating
costs, are not analyzed in this section. Proposed estimated payment
impacts of the capital IPPS for FY 2013 are discussed in section
I.I. of this Appendix.
We discuss the following changes below:
The effects of the proposed application of the
documentation and coding adjustment and applicable percentage
increase (including the market basket update, the multifactor
productivity adjustment and the applicable percentage reduction in
accordance with the Affordable Care Act) to the standardized amount
and hospital-specific rates.
The effects of the proposed annual reclassification of
diagnoses and procedures, full implementation of the MS-DRG system
and 100 percent cost-based MS-DRG relative weights.
The effects of the proposed changes in hospitals' wage
index values reflecting updated wage data from hospitals' cost
reporting periods beginning during FY 2009, compared to the FY 2008
wage data.
The effects of the proposed recalibration of the MS-DRG
relative weights as required by section 1886(d)(4)(C) of the Act,
including the wage and recalibration budget neutrality factors.
The effects of the proposed geographic
reclassifications by the MGCRB that will be effective in FY 2013.
The effects of the proposed rural floor and imputed
floor with the application of the national budget neutrality factor
applied to the wage index, as required by the Affordable Care Act.
The effects of the proposed frontier State wage index
provision that requires that hospitals located in States that
qualify as frontier States cannot have a wage index less than 1.0.
This provision is not budget neutral.
The effects of the proposed implementation of section
505 of Public Law 108-173, which provides for an increase in a
hospital's wage index if the hospital qualifies by meeting a
threshold percentage of residents of the county where the hospital
is located who commute to work at hospitals in counties with higher
wage indexes.
The effects of the proposed policies for implementation
of the Hospital Readmissions Reduction Program under section 3025 of
the Affordable Care Act, that adjusts hospital's base operating DRG
amount by an adjustment factor to account for a hospital's excess
readmissions.
The effects of the expiration of the special payment
status for MDHs under section 3124 of the Affordable Care Act under
which MDHs that currently receive the higher of payments made under
the Federal standardized amount or the payments made under the
Federal standardized amount plus 75 percent of the difference
between the Federal standardized amount and the hospital-specific
rate will be paid based on the Federal standardized amount starting
in FY 2013.
The proposed total estimated change in payments based
on the FY 2013 proposed policies relative to payments based on FY
2012 policies that include the applicable percentage increase of 2.1
percent (or proposed 3.0 percent market basket update with a
proposed reduction of 0.8 percentage point for the multifactor
productivity adjustment, and a 0.1 percentage point reduction, as
required under the Affordable Care Act).
To illustrate the impact of the proposed FY 2013 changes, our
analysis begins with a FY 2012 baseline simulation model using: The
proposed FY 2013 applicable percentage increase of 2.1 percent and
the documentation and coding adjustment of 0.2 to the Federal
standardized amount and the 1.3 percent documentation and coding
adjustment to the hospital-specific rate; the FY 2012 MS-DRG GROUPER
(Version 29.0); the most current CBSA designations for hospitals
based on OMB's MSA definitions; the FY 2012 wage index; and no MGCRB
reclassifications. Outlier payments are set at 5.1 percent of total
operating MS-DRG and outlier payments for modeling purposes.
Section 1886(b)(3)(B)(viii) of the Act, as added by section
5001(a) of Public Law 109-171, as amended by section 4102(b)(1)(A)
of the ARRA (Pub. L. 111-5) and by section 3401(a)(2) of the
Affordable Care Act (Pub. L. 111-148), provides that, for FY 2007
through FY 2014, the update factor will include a reduction of 2.0
percentage points for any hospital that does not submit quality data
in a form and manner and at a time specified by the Secretary.
(Beginning in FY 2015, the reduction is one-quarter of such
applicable percentage increase determined without regard to section
1886(b)(3)(B)(ix), (xi), or (xii) of the Act.) At the time that this
impact was prepared, 48 hospitals did not receive the full market
basket rate-of-increase for FY 2012 because they failed the quality
data submission process or did not choose to participate. For
purposes of the simulations shown below, we modeled the proposed
payment changes for FY 2013 using a reduced update for these 48
hospitals. However, we do not have enough information at this time
to determine which hospitals will not receive the full update factor
for FY 2013.
Each proposed policy change, statutory or otherwise, is then
added incrementally to this baseline, finally arriving at an FY 2013
model incorporating all of the proposed changes. This simulation
allows us to isolate the effects of each proposed change.
Our final comparison illustrates the proposed percent change in
payments per case from FY 2012 to FY 2013. Three factors not
discussed separately have significant impacts here. The first factor
is the update to the standardized amount. In accordance with section
1886(b)(3)(B)(i) of the Act, we are proposing to update the
standardized amounts for FY 2013 using an applicable percentage
increase of 2.1 percent. This includes our forecasted IPPS operating
hospital market basket increase of 3.0 percent with a reduction of
0.8 percentage point for the proposed multifactor productivity
adjustment and a 0.1 percentage point reduction as required under
the Affordable Care Act. (Hospitals that fail to comply with the
quality data submission requirements will receive an update of 0.1
percent (this update includes the 2.0 percentage point reduction for
failure to submit these data)). Under section 1886(b)(3)(B)(iv) of
the Act, the proposed updates to the hospital-specific amounts for
SCHs are also equal to the applicable percentage increase, or 2.1
percent. In addition, we are proposing to update the Puerto Rico-
specific amount by an applicable percentage increase of 2.1 percent.
A second significant factor that affects the changes in
hospitals' payments per case from FY 2012 to FY 2013 is the change
in hospitals' geographic reclassification status from one year to
the next. That is, payments may be reduced for hospitals
reclassified in FY 2012 that are no longer reclassified in FY 2013.
Conversely, payments may increase for hospitals not reclassified in
FY 2012 that are reclassified in FY 2013.
A third significant factor is that we currently estimate that
actual outlier payments during FY 2012 will be 6.0 percent of total
MS-DRG payments. Our updated FY 2012 outlier estimate accounts for
changes to the FY 2012 IPPS payments required under the Affordable
Care Act. When the FY 2012 final rule was published, we projected FY
2012 outlier payments would be 5.1 percent of total MS-DRG plus
outlier payments; the average standardized amounts were offset
correspondingly. The effects of the higher than expected outlier
payments during FY 2012 (as discussed in the Addendum to this
proposed rule) are reflected in the analyses below comparing our
current proposed estimates of FY 2012 payments per case to estimated
proposed FY 2013 payments per case (with outlier payments projected
to

[[Page 28162]]

equal 5.1 percent of total MS-DRG payments).

2. Analysis of Table I

Table I displays the results of our analysis of the proposed
changes for FY 2013. The table categorizes hospitals by various
geographic and special payment consideration groups to illustrate
the varying impacts on different types of hospitals. The top row of
the table shows the overall impact on the 3,405 acute care hospitals
included in the analysis.
The next four rows of Table I contain hospitals categorized
according to their geographic location: All urban, which is further
divided into large urban and other urban; and rural. There are 2,485
hospitals located in urban areas included in our analysis. Among
these, there are 1,365 hospitals located in large urban areas
(populations over 1 million), and 1,120 hospitals in other urban
areas (populations of 1 million or fewer). In addition, there are
920 hospitals in rural areas. The next two groupings are by bed-size
categories, shown separately for urban and rural hospitals. The
final groupings by geographic location are by census divisions, also
shown separately for urban and rural hospitals.
The second part of Table I shows hospital groups based on
hospitals' proposed FY 2012 payment classifications, including any
reclassifications under section 1886(d)(10) of the Act. For example,
the rows labeled urban, large urban, other urban, and rural show
that the numbers of hospitals paid based on these categorizations
after consideration of geographic reclassifications (including
reclassifications under sections 1886(d)(8)(B) and 1886(d)(8)(E) of
the Act that have implications for capital payments) are 2,500;
1,375; 1,125; and 905, respectively.
The next three groupings examine the impacts of the changes on
hospitals grouped by whether or not they have GME residency programs
(teaching hospitals that receive an IME adjustment) or receive DSH
payments, or some combination of these two adjustments. There are
2,376 nonteaching hospitals in our analysis, 789 teaching hospitals
with fewer than 100 residents, and 240 teaching hospitals with 100
or more residents.
In the DSH categories, hospitals are grouped according to their
DSH payment status, and whether they are considered urban or rural
for DSH purposes. The next category groups together hospitals
considered urban or rural, in terms of whether they receive the IME
adjustment, the DSH adjustment, both, or neither.
The next five rows examine the impacts of the proposed changes
on rural hospitals by special payment groups (SCHs, RRCs, and MDHs).
There were 199 RRCs, 340 SCHs, 195 former MDHs, and 101 hospitals
that are both SCHs and RRCs, and 17 hospitals that were former MDHs
and RRCs.
The next series of groupings are based on the type of ownership
and the hospital's Medicare utilization expressed as a percent of
total patient days. These data were taken from the FY 2009 or FY
2008 Medicare cost reports.
The next two groupings concern the proposed geographic
reclassification status of hospitals. The first grouping displays
all proposed urban hospitals that were reclassified by the MGCRB for
FY 2013. The second grouping shows the proposed MGCRB rural
reclassifications. The final category shows the impact of the
proposed policy changes on the 18 cardiac hospitals.
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a. Effects of the Proposed Hospital Update and Proposed Documentation
and Coding Adjustment (Column 2)

As discussed in section II.D. of the preamble of this proposed
rule, this column includes the proposed hospital update, including
the 3.0 percent proposed market basket update, the reduction of 0.8
percentage point for the proposed multifactor productivity
adjustment, and the 0.1 percentage point reduction in accordance
with the Affordable Care Act. In addition, this column includes the
proposed FY 2013 documentation and coding adjustment of 0.2 percent
on the national standardized amount, which includes the -2.7 percent
prospective adjustment for documentation and coding and a 2.9
percent adjustment to restore the one-time recoupment adjustment
made to the national standardized amount for FY 2012. As a result,
we a proposing a 2.3 percent update to the national standardized
amount.
This column also includes the proposed 0.8 percent update to the
hospital-specific rates, which includes the proposed 2.1 percent for
the proposed hospital update and proposed -1.3 documentation and
coding adjustment.
Overall, hospitals will experience a 2.2 percent increase in
payments primarily due to the effects of the proposed hospital
update and proposed documentation and coding adjustment on the
national standardized amount. Hospitals that are paid under the
hospital-specific rate, namely SCHs, will see a 0.8 percent increase
in payments; therefore, hospital categories with SCHs paid under the
hospital-specific rate will see increases in payments less than 2.2
percent.

b. Effects of the Proposed Changes to the MS-DRG Reclassifications and
Relative Cost-Based Weights With Recalibration Budget Neutrality
(Column 3)

Column 3 shows the effects of the proposed changes to the MS-
DRGs and relative weights with the application of the recalibration
budget neutrality factor to the standardized amounts. Section
1886(d)(4)(C)(i) of the Act requires us annually to make appropriate
classification changes in order to reflect changes in treatment
patterns, technology, and any other factors that may change the
relative use of hospital resources. Consistent with section
1886(d)(4)(C)(iii) of the Act, we are calculating a recalibration
budget neutrality factor to account for the changes in MS-DRGs and
relative weights to ensure that the overall payment impact is budget
neutral.
As discussed in section II.E. of the preamble of this proposed
rule, the proposed FY 2013 MS-DRG relative weights will be 100
percent cost-based and 100 percent MS-DRGs. For FY 2013, the MS-DRGs
are calculated using the FY 2011 MedPAR data grouped to the Version
30.0 (FY 2013) MS-DRGs. The methods of calculating the relative
weights and the reclassification changes to the GROUPER are
described in more detail in section II.H. of the preamble of this
proposed rule.
The ``All Hospitals'' line in Column 3 indicates that changes
due to the proposed MS-DRGs and relative weights will result in a
0.0 percent change in payments with the application of the proposed
recalibration budget neutrality factor of 0.998546 on to the
standardized amount. Due to the proposed changes to the MS-DRG
GROUPER in this proposed rule, there were some shifts in payments
due to changes in the relative weights with rural hospitals
experiencing a 0.1 percent decrease in payments.

c. Effects of the Proposed Wage Index Changes (Column 4)

Column 4 shows the impact of proposed updated wage data with the
application of the wage budget neutrality factor. Section
1886(d)(3)(E) of the Act requires that, beginning October 1, 1993,
we annually update the wage data used to calculate the wage index.
In accordance with this requirement, the wage index for acute care
hospitals for FY 2013 is based on data submitted for hospital cost
reporting periods beginning on or after October 1, 2008 and before
October 1, 2009. The estimated impact of the updated wage data and
labor share on hospital payments is isolated in Column 4 by holding
the other payment parameters constant in this simulation. That is,
Column 4 shows the percentage change in payments when going from a
model using the FY 2012 wage index, based on FY 2008 wage data, the
current labor-related share and having a 100-percent occupational
mix adjustment applied, to a model using the FY 2013 pre-
reclassification wage index with the labor-related share, also
having a 100-percent occupational mix adjustment applied, based on
FY 2009 wage data (while holding other payment parameters such as
use of the Version 30.0 MS-DRG GROUPER constant). The occupational
mix adjustment is based on the 2010 occupational mix survey.
In addition, the column shows the proposed impact of the
application of wage budget neutrality to the national standardized
amount. In FY 2010, we began calculating separate wage budget
neutrality and recalibration budget neutrality factors, in
accordance with section 1886(d)(3)(E) of the Act, which specifies
that budget neutrality to account for wage changes or updates made
under that subparagraph must be made without regard to the 62
percent labor-related share guaranteed under section
1886(d)(3)(E)(ii) of the Act. Therefore, for FY 2013, we are
calculating the wage budget neutrality factor to ensure that
payments under updated wage data and the labor-related share are
budget neutral without regard to the lower labor-related share of 62
percent applied to hospitals with a wage index less than or equal to
1. In other words, the wage budget neutrality is calculated under
the assumption that all hospitals receive the higher labor-related
share of the standardized amount. The proposed wage budget
neutrality factor is 1.000563, and the overall payment change is 0
percent.
Column 4 shows the impacts of updating the wage data using FY
2009 cost reports. Overall, the new wage data will lead to a 0.0
percent change for all hospitals before being combined with the wage
budget neutrality adjustment shown in Column 4. Among the regions,
the largest increase is in the urban New England region, which
experiences a 1.0 percent increase. The largest decline from
updating the wage data is seen in the rural East South Central
region (-0.8 percent decrease).
In looking at the wage data itself, the national average hourly
wage increased 3.1 percent compared to FY 2012. Therefore, the only
manner in which to maintain or exceed the previous year's wage index
was to match or exceed the national 3.1 percent increase in average
hourly wage. Of the 3,405 hospitals with wage data for both FYs 2012
and 2013, 1,537, or 45.1 percent, experienced an average hourly wage
increase of 3.1 percent or more.
The following chart compares the shifts in wage index values for
hospitals for FY 2013 relative to FY 2012. Among urban hospitals,
none will experience an increase of more than 5 percent and less
than 10 percent and none will experience an increase of more than 10
percent. Among rural hospitals, none will experience an increase of
more than 5 percent and less than 10 percent, and none will
experience an increase of more than 10 percent. However, 924 rural
hospitals will experience increases or decreases of less than 5
percent, while 2,481 urban hospitals will experience increases or
decreases of less than 5 percent. No urban hospitals will experience
decreases in their wage index values of more than 5 percent and less
than 10 percent. No urban hospitals will experience decreases in
their wage index values of greater than 10 percent. No rural
hospitals will experience a decrease of more than 10 percent. No
rural hospitals will experience decreases in their wage index values
of greater than 5 percent but less than 10 percent. These figures
reflect changes in the wage index which is an adjustment to either
68.8 percent or 62 percent of the labor-related share of a
hospital's standardized amount, depending upon whether its wage
index is greater than 1.0 or less than or equal to 1.0. Therefore,
these figures illustrate a somewhat larger change in the wage index
than will occur to the hospital's total payment.
The following chart shows the projected impact for urban and
rural hospitals.

------------------------------------------------------------------------
Number of
hospitals
Percentage change in area wage index values -----------------
Urban Rural
------------------------------------------------------------------------
Increase more than 10 percent......................... 0 0
Increase more than 5 percent and less than 10 percent. 0 0
Increase or decrease less than 5 percent.............. 2,481 924

[[Page 28170]]

Decrease more than 5 percent and less than 10 percent. 0 0
Decrease more than 10 percent......................... 0 0
------------------------------------------------------------------------

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

Section 1886(d)(4)(C)(iii) of the Act requires that changes to
MS-DRG reclassifications and the relative weights cannot increase or
decrease aggregate payments. In addition, section 1886(d)(3)(E) of
the Act specifies that any updates or adjustments to the wage index
are to be budget neutral. We computed a proposed wage budget
neutrality factor of 1.000563, and a proposed recalibration budget
neutrality factor of 0.998546 (which is applied to the Puerto Rico-
specific standardized amount and the hospital-specific rates). The
product of the two proposed budget neutrality factors is the
cumulative wage and recalibration budget neutrality factor. The
proposed cumulative wage and recalibration budget neutrality
adjustment is 0.999108, or approximately -0.9 percent, which is
applied to the national standardized amounts. Because the wage
budget neutrality and the recalibration budget neutrality are
calculated under different methodologies according to the statute,
when the two budget neutralities are combined and applied to the
standardized amount, the overall payment impact is not necessarily
budget neutral. However, in this proposed rule, we are estimating
that the proposed changes in the MS-DRG relative weights and updated
wage data with wage and budget neutrality applied will result in a
0.0 change in payments.
We estimate that the combined impact of the proposed changes to
the relative weights and MS-DRGs and the updated wage data with
budget neutrality applied will result in 0.1 percent increase in
payments for urban hospitals and 0.3 percent decrease in payments
for rural hospitals. Urban Pacific hospitals will experience a 0.6
percent increase in payments due to increases in their wages
compared to the national average, while the urban East South Central
area and rural South Atlantic will experience a -70.7 decrease in
payments because of below average increases in wages.

e. Effects of Proposed MGCRB Reclassifications (Column 6)

Our impact analysis to this point has assumed acute care
hospitals are paid on the basis of their actual geographic location
(with the exception of ongoing policies that provide that certain
hospitals receive payments on other bases than where they are
geographically located). The proposed changes in Column 6 reflect
the per case payment impact of moving from this baseline to a
simulation incorporating the proposed MGCRB decisions for FY 2013
which affect hospitals' wage index area assignments.
By spring of each year, the MGCRB makes reclassification
determinations that will be effective for the next fiscal year,
which begins on October 1. The MGCRB may approve a hospital's
reclassification request for the purpose of using another area's
wage index value. Hospitals may appeal denials of MGCRB decisions to
the CMS Administrator. Further, hospitals have 45 days from
publication of the IPPS rule in the Federal Register to decide
whether to withdraw or terminate an approved geographic
reclassification for the following year.
The overall effect of geographic reclassification is required by
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore,
for the purposes of this impact analysis, we are proposing to apply
an adjustment of 0.991436 to ensure that the effects of the section
1886(d)(10) reclassifications are budget neutral (section II.A. of
the Addendum to this proposed rule). Geographic reclassification
generally benefits hospitals in rural areas. We estimate that the
proposed geographic reclassification will increase payments to rural
hospitals by an average of 2.1 percent. By region, all the rural
hospital categories, with the exception of the one rural Puerto Rico
hospital, will experience increases in payments due to MGCRB
reclassification. Rural hospitals in the East South Central region
will experience a 2.9 percent increase in payments and rural
hospitals in the Mountain region will experience a 0.5 percent
increase in payments. Urban hospitals in New England and the Middle
Atlantic will experience an increase in payments of 0.7 percent and
0.1 percent, respectively, largely due to reclassifications of
hospitals in Connecticut and New Jersey.
Table 9A listed in section VI. of the Addendum to this proposed
rule and available via the Internet reflects the proposed
reclassifications for FY 2013.

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

As discussed in section III.B. of the preamble of the FY 2009
IPPS final rule, the FY 2010 IPPS/RY 2010 LTCH PPS final rule, the
FY 2011 IPPS/LTCH PPS final rule and this proposed rule, section
4410 of Public Law 105-33 established the rural floor by requiring
that the wage index for a hospital in any urban area cannot be less
than the wage index received by rural hospitals in the same State.
We apply a uniform budget neutrality adjustment to the wage index.
In addition, the imputed floor, which is budget neutral, was
extended in FY 2012 for 2 additional years. The current imputed
floor only benefits hospitals located in New Jersey. We note that we
have proposed an alternative temporary methodology for the imputed
floor that will have a negligible impact on budget neutrality. The
impact of this proposal is discussed separately. While it is not
included in the determination of budget neutrality for this proposed
rule, if finalized, we intend to include it in the determination of
budget neutrality in the final rule. The Affordable Care Act
requires that we apply one rural floor budget neutrality factor to
the wage index nationally, and the imputed floor is part of the
rural floor budget neutrality factor applied to the wage index
nationally. The proposed FY 2013 rural floor budget neutrality
factor applied to the wage index is 0.992243, which will reduce wage
indexes by -0.77 percent.
Column 7 shows the projected impact of the rural floor and
imputed floor with the national rural floor budget neutrality factor
applied to the wage index. The column compares the proposed post-
reclassification FY 2013 wage index of providers before the rural
floor and imputed floor adjustment and the proposed post-
reclassification FY 2013 wage index of providers with the rural
floor and imputed floor adjustment. Only urban hospitals can benefit
from the rural floor provision. Because the provision is budget
neutral, all other hospitals (that is, all rural hospitals and those
urban hospitals to which the adjustment is not made) experience a
decrease in payments due to the budget neutrality adjustment applied
nationally to their wage index.
We project that, in aggregate, rural hospitals will experience a
-0.3 percent decrease in payments as a result of the proposed
application of rural floor budget neutrality because the rural
hospitals do not benefit from the rural floor, but have their wage
indexes downwardly adjusted to ensure that the application of the
rural floor is budget neutral overall. We project hospitals located
in other urban areas (populations of 1 million or fewer) will
experience a 0.1 percent increase in payments because those
providers benefit from the rural floor. Urban hospitals in the New
England region can expect a 3.1 percent increase in payments
primarily due to the application of the rural floor in Massachusetts
and the application of national rural floor budget neutrality as
required by the Affordable Care Act. All 60 urban providers in
Massachusetts are expected to receive the rural floor wage index
value, including rural floor budget neutrality, of 1.3047. During
most past years, there have been no IPPS hospitals located in rural
areas in Massachusetts. There was one urban IPPS hospital that was
reclassified to rural Massachusetts (under section 1886(d)(8)(E) of
the Act) which established the Massachusetts rural floor, but the
wage index resulting from that hospital's data was not high enough
for any urban hospital to benefit from the rural floor policy.
However, beginning with the FY 2012 wage index, the rural floor for
the State is established by the conversion of a CAH to an IPPS
hospital that is geographically located in rural Massachusetts. We
estimate that Massachusetts hospitals will receive

[[Page 28171]]

approximately a 5.5 percent increase in IPPS payments due to the
application of rural floor.
Urban Puerto Rico hospitals are expected to experience a 0.2
percent increase in payments as a result of the application of a
Puerto Rico rural floor. Urban Puerto Rico hospitals will receive a
rural floor as a result of a one IPPS hospital located in rural
Puerto Rico setting a rural floor. We are applying a proposed rural
floor budget neutrality factor to the Puerto Rico-specific wage
index of 0.987885 or -1.2 percent. The Puerto Rico-specific wage
index adjusts the Puerto Rico-specific standardized amount, which
represents 25 percent of payments to Puerto Rico hospitals.
There are 29 hospitals in New Jersey that benefit from the
extension of the imputed floor and will receive the imputed floor
wage index value, including rural floor budget neutrality of 1.1010,
which we estimate will increase their payments by approximately $18
million. Urban Middle Atlantic hospitals will experience a -0.2
percent decrease in payments which reflects the increase in payments
for New Jersey hospitals receiving the imputed floor and a decrease
for all other urban hospitals in the in the Middle Atlantic region.
We note that the impact of the proposal under section III.G.2.b.
of the preamble of this proposed rule to establish an alternative
temporary methodology for the imputed floor is not included in the
table. Based on FY 2012 wage data, we estimate that four Rhode
Island hospitals will benefit from this alternative temporary
methodology for the imputed floor and receive an additional $4.8
million in payments.
In response to a public comment addressed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51593), we are providing the proposed
payment impact of the rural floor and imputed floor with budget
neutrality at the State level. Column 1 of the table below displays
the number of IPPS hospitals located in each State. Column 2
displays the number of hospitals in each State that would receive
the rural floor or imputed floor wage index for FY 2013. Column 3
displays the percentage of total payments each State would receive
or contribute to fund the proposed rural floor and imputed floor
with national budget neutrality. The column compares the proposed
post-reclassification FY 2013 wage index of providers before the
rural floor and imputed floor adjustment and the proposed post-
reclassification FY 2013 wage index of providers with the rural
floor and imputed floor adjustment. Column 4 displays the proposed
estimated payment amount that each State would gain or lose due to
the proposed application of the rural floor and imputed floor with
national budget neutrality. Again, we note that the proposal under
section III.G.2.b. to establish an alternative temporary methodology
for the imputed floor that would benefit four hospitals located in
Rhode Island is not included in this table.

FY 2013 IPPS Proposed Estimated Payments Due to Rural Floor and Imputed Floor With National Budget Neutrality
----------------------------------------------------------------------------------------------------------------
Proposed
percent
change in
Proposed payments
number of due to Proposed
Number of hospitals application difference
State hospitals receiving of rural (in
(1) rural floor floor and millions)
or imputed imputed (4)
floor (2) floor with
budget
neutrality
(3)
----------------------------------------------------------------------------------------------------------------
Alabama..................................................... 95 4 -0.4 -$7.1
Alaska...................................................... 6 4 1.6 2.1
Arizona..................................................... 56 8 -0.4 -6.1
Arkansas.................................................... 45 0 -0.4 -4.5
California.................................................. 308 178 1.3 113.9
Colorado.................................................... 46 7 0.7 6.3
Connecticut................................................. 32 9 -0 -0.3
Delaware.................................................... 5 0 -0.4 -1.8
Florida..................................................... 166 8 -0.3 -23.3
Georgia..................................................... 108 0 -0.4 -11.0
Hawaii...................................................... 14 0 -0.3 -0.8
Idaho....................................................... 14 0 -0.3 -0.7
Illinois.................................................... 129 1 -0.4 -22.8
Indiana..................................................... 89 0 -0.4 -10.0
Iowa........................................................ 34 0 -0.4 -3.8
Kansas...................................................... 55 0 -0.3 -2.6
Kentucky.................................................... 65 0 -0.4 -7.4
Louisiana................................................... 97 6 -0.4 -6.2
Maine....................................................... 20 0 -0.4 -2.1
Massachusetts............................................... 61 60 5.6 182.7
Michigan.................................................... 96 0 -0.4 -18.6
Minnesota................................................... 51 0 -0.4 -7.3
Mississippi................................................. 64 0 -0.4 -4.7
Missouri.................................................... 76 2 -0.4 -8.5
Montana..................................................... 12 1 -0.2 -0.5
Nebraska.................................................... 23 0 -0.3 -1.8
Nevada...................................................... 24 0 -0.4 -2.9
New Hampshire............................................... 13 9 0.8 3.6
New Jersey.................................................. 65 29 0.5 17.7
New Mexico.................................................. 27 0 -0.3 -1.2
New York.................................................... 168 0 -0.5 -41.0
North Carolina.............................................. 87 0 -0.4 -13.9
North Dakota................................................ 6 0 -0.3 -0.6
Ohio........................................................ 137 11 -0.3 -13.1
Oklahoma.................................................... 85 0 -0.4 -4.8
Oregon...................................................... 33 0 -0.4 -3.0

[[Page 28172]]

Pennsylvania................................................ 154 14 -0.3 -13.8
Puerto Rico................................................. 52 13 0.2 0.2
Rhode Island................................................ 11 0 -0.5 -1.9
South Carolina.............................................. 56 7 -0.3 -5.0
South Dakota................................................ 18 0 -0.2 -0.6
Tennessee................................................... 97 10 -0.3 -6.5
Texas....................................................... 324 2 -0.4 -28.3
Utah........................................................ 32 0 -0.3 -1.2
Vermont..................................................... 6 0 -0.3 -0.6
Virginia.................................................... 79 1 -0.4 -9.5
Washington.................................................. 48 6 -0.4 -5.8
Washington, DC.............................................. 7 0 -0.4 -1.9
West Virginia............................................... 33 2 -0.3 -2.6
Wisconsin................................................... 65 5 -0.3 -4.6
Wyoming..................................................... 11 0 -0.1 -0.1
----------------------------------------------------------------------------------------------------------------

g. Effects of the Proposed Application of the Frontier State Wage Index
(Column 8)

Section 10324(a) of Affordable Care Act requires that we
establish a minimum post-reclassified wage-index of 1.00 for all
hospitals located in ``frontier States.'' The term ``frontier
States'' is defined in the statute as States in which at least 50
percent of counties have a population density less than 6 persons
per square mile. Based on these criteria, four States (Montana,
North Dakota, South Dakota, and Wyoming) are considered frontier
States and 51 hospitals located in those States will receive a
frontier wage index of 1.0. Although Nevada is also, by definition,
a frontier State and was assigned a frontier floor value of 1.0000
for FY 2012, its FY 2013 proposed rural floor value of 1.0293 is
greater and, therefore, is the State's proposed minimum wage index
for FY 2013. As a result, hospitals located in Nevada will not
experience a change in payment as a result of this provision.
Overall, this provision is not budget neutral and is estimated to
increase IPPS operating payments by approximately $53 million.
Urban hospitals located in the West North Central region and
urban hospitals located in the Mountain region will receive an
increase in payments by 0.7 percent and 0.2 percent, respectively
because many of the hospitals located in this region are frontier
hospitals. Similarly, rural hospitals located in the Mountain region
and rural hospitals in the West North Central region will experience
an increase in payments by 0.8 percent and 0.2 percent,
respectively.

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

Section 1886(d)(13) of the Act, as added by section 505 of
Public Law 108-173, provides for an increase in the wage index for
hospitals located in certain counties that have a relatively high
percentage of hospital employees who reside in the county, but work
in a different area with a higher wage index. Hospitals located in
counties that qualify for the payment adjustment are to receive an
increase in the wage index that is equal to a weighted average of
the difference between the wage index of the resident county, post-
reclassification and the higher wage index work area(s), weighted by
the overall percentage of workers who are employed in an area with a
higher wage index. Overall, rural hospitals will experience a 0.1
percent increase in payments as a result of the proposed
outmigration adjustment. Rural DSH providers with less than 100 beds
will experience a 0.4 percent increase in payments. There are 213
providers that will receive the out-migration adjustment in FY 2013.
This out-migration wage adjustment is not budget neutral, and we
estimate the impact of these providers receiving the out-migration
increase to be approximately $18 million.

i. Effects of the Expiration of MDH Special Payment Status (Column 10)

Column 10 shows our estimate of the changes in payments due to
the expiration of MDH status, a nonbudget neutral payment provision,
under section 3124 of the Affordable Care Act. Hospitals that
qualified to be MDHs receive the higher of payments made under the
Federal standardized amount or the payments made under the Federal
standardized amount plus 75 percent of the difference between the
Federal standardized amount and the hospital specific rate (a
hospital-specific cost-based rate). Because this provision was not
budget neutral, the expiration of this payment provision results in
a -0.1 percent decrease in payments overall. There are currenty 212
MDHs, of which 104 were estimated to be paid under the blended
payment of the federal standardized amount and hospital specific
rate. Because those 104 MDHs will no longer receive the blended
payment and will be paid only under the Federal standardized amount
in FY 2013, it is estimated that those hospitals will experience an
overall decrease in payments of approximately $114 million.
MDHs were generally rural hospitals, so the expiration of th MHD
program will result in an overall decrease in payments to rural
hospitals of 0.9 percent. Rural New England hospitals can expect a
decrease in payments of 3.5 percent because 8 out of the 23 rural
New England hospitals are MDHs that will lose their special payment
status under the expiration at the end of FY 2012. MDHs can expect a
decrease in payments of -6.1 percent.

j. Proposed Effects of the Hospital Readmissions Reduction Program
(Column 11)

Column 11 shows our estimates of proposed effects of the
proposed policies for implementation of the Hospital Readmissions
Reduction Program, which was established under section 3025 of the
Affordable Care Act. The Hospital Readmissions Reduction Program
requires a reduction to a hospital's base operating DRG payments to
account for excess readmissions, which is based on a hospital's
risk-adjusted readmission rate during a 3-year period for three
applicable conditions: Acute Myocardial Infarction, Heart Failure,
and Pneumonia. This provision is not budget neutral. A hospital's
readmission adjustment is the higher of a ratio of the hospital's
aggregate payments for excess readmissions to their aggregate
payments for all discharges, or a floor, which has been defined in
statute as 0.99 (or a 1-

[[Page 28173]]

percent reduction) for FY 2013. A hospital's base operating DRG
payment (that is, wage-adjusted DRG payment amount, as proposed in
section IV.A. of the preamble of this proposed rule) is the portion
of the IPPS payment subject to the readmissions payment adjustment
(DSH, IME, outliers and low-volume add-on payments are not subject
to the readmissions adjustment). In this proposed rule, we estimate
that 2,210 hospitals will have their base operating DRG payments
reduced by the readmissions adjustment, resulting in a 0.3 percent
decrease in payments to hospitals overall.
Urban hospitals in the Middle Atlantic, rural hospitals in the
West South Central region, rural DSH hospitals with more than 100
beds, and hospitals with Medicare utilization of over 65 percent are
estimated to experience the highest decreases of 0.5 percent among
the different hospital categories. Urban and rural hospitals in the
Mountain Region and Rural Pacific hospitals are expected to
experience the smallest decreases of 0.1 percent in payments. Puerto
Rico hospitals are estimated to show a 0 percent change in payments
because they are exempt from the provision.

k. Effects of All FY 2013 Proposed Changes (Column 12)

Column 12 shows our estimate of the changes in payments per
discharge from FY 2012 and FY 2013, resulting from all proposed
changes reflected in this proposed rule for FY 2013. It includes
combined effects of the previous columns in the table.
The average increase in payments under the IPPS for all
hospitals is approximately 0.9 percent for FY 2013 relative to FY
2012. As discussed in section II.D. of the preamble of this proposed
rule, this column includes the proposed FY 2013 documentation and
coding adjustment of 0.2 percent on the national standardized amount
(the proposed -2.7 documentation and coding adjustment and 2.9
percent adjustment to restore the one-time recoupment adjustment
made to national standardized amount) and the proposed -1.3 percent
documentation and coding adjustment on the hospital-specific rates.
In addition, this column includes the proposed annual hospital
update of 2.1 percent to the national standardized amount. This
proposed annual hospital update includes the 3.0 percent proposed
market basket update, the proposed reduction of 0.8 percentage point
for the proposed multifactor productivity adjustment, and the 0.1
percentage point reduction under section 3401 of the Affordable Care
Act. As described in Column 2, the proposed annual hospital update,
combined with the documentation and coding adjustment, results in a
2.2 percent increase in payments in FY 2013 relative to FY 2012. In
addition, Column 8 describes an estimated 0.1 percent increase in
payments due to the proposed frontier State wage index. Column 10
describes the estimated 0.1 percent decrease in payments due to the
expiration of the MDH status under section 3124 of the Affordable
Care Act. Column 11 shows the estimated 0.3 percent decrease in
payments due to the establishment of the Hospital Readmissions
Reduction Program, which reduces a hospital's base operating DRG
payments by a readmission adjustment factor based on a hospital's
performance on readmissions for specified conditions. In addition,
although not shown in the impacts table, payments are estimated to
decrease by 0.1 due to the expiration of section 508
reclassifications that had been extended for 6 months of FY 2012
under section 302 of the Temporary Payroll Tax Cut Continuation Act
of 2011 (Pub. L. 112-78), as amended by section 3001 of the Middle
Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96).
Section 508 was not a budget-neutral provision. The impact of moving
from our proposed estimate of FY 2012 outlier payments, 6.0 percent,
to the estimate of FY 2013 outlier payments, 5.1 percent, results in
a decrease of 0.9 percent in FY 2013 payments relative to FY 2012.
There might also be interactive effects among the various factors
comprising the payment system that we are not able to isolate. For
these reasons, the values in Column 12 may not equal the sum of the
percentage changes described above.
The overall change in payments per discharge for hospitals paid
under the IPPS in FY 2013 is estimated to increase by 0.9 percent.
The payment increase among the hospital categories are largely
attributed to the proposed updates to the rate including the
hospital update. Hospitals in urban areas will experience an
estimated 1.1 percent increase in payments per discharge in FY 2013
compared to FY 2012. Hospital payments per discharge in rural areas
are estimated to increase by 0.5 percent in FY 2013 as compared to
FY 2012 due to the expiration of MDH status.
Among urban census divisions, the Urban New England hospitals
will experience a -0.4 percent change in payments because many of
the urban providers in this region had benefited from section 508
reclassifications in FY 2012 that will expire for FY 2013. Urban
hospitals in the Pacific will see the largest payment increases (2.4
percent) because the hospitals are benefitting from the rural floors
in their States.
Among the rural regions, the providers in the New England Region
will experience the decreases in payments of -2.1 percent, due to
the expiration of MDH status. Rural hospitals in the Pacific Region
are estimated to experience a 0.0 percent change because the rural
providers in this region benefit from higher than average wage data
and MGCRB reclassification, which offsets decreases due to the rural
floor and the expiration of MDH status.
Among special categories of hospitals, former MDHs will receive
an estimated payment decrease of -7 percent due to the expiration of
the MDH status. SCHs are paid the higher of their Federal rate and
the hospital-specific rate. Overall, SCHs are estimated to
experience a decrease in payments by 0.4 percent due to decreases in
their wage data and the implementation of the Hospital Readmissions
Reduction Program.
Proposed rural hospitals reclassified for FY 2013 are
anticipated to receive a 0.5 percent payment increase. Rural
hospitals that are not reclassifying are estimated to receive a
payment decrease of -1.8 percent due to lower wage data, the
proposed application of rural floor budget neutrality and expiration
of MDH status. Urban reclassified hospitals will experience the
average payment increase at 1.1 percent due to the benefits under
MGCRB reclassification and the proposed rural floor. Urban
nonreclassified hospitals will experience a payment increase of 1.0
percent.
Cardiac hospitals are expected to experience a payment increase
2.7 percent in FY 2013 relative to FY 2012 primarily due to benefits
to the changes in the relative weights.

3. Impact Analysis of Table II

Table II presents the projected impact of the proposed changes
for FY 2013 for urban and rural hospitals and for the different
categories of hospitals shown in Table I. It compares the proposed
estimated average payments per discharge for FY 2012 with the
proposed average payments per discharge for FY 2013, as calculated
under our models. Thus, this table presents, in terms of the average
dollar amounts paid per discharge, the combined effects of the
changes presented in Table I. The estimated percentage changes shown
in the last column of Table II equal the estimated percentage
changes in average payments per discharge from Column 12 of Table I.

Table II--Impact Analysis oF Proposed Changes for FY 2013 Acute Care Hospital Operating Prospective Payment
System (Payments per Discharge)
----------------------------------------------------------------------------------------------------------------
Proposed Proposed
average FY average FY All
Number of 2012 2013 proposed FY
hospitals payment per payment per 2013
(1) discharge discharge changes (4)
(2) (3)
----------------------------------------------------------------------------------------------------------------
All hospitals............................................... 3,405 10,447 10,539 0.9
By Geographic Location:
Urban hospitals......................................... 2,485 10,859 10,971 1
Large urban areas (populations over 1 million).......... 1,365 11,469 11,602 1.2

[[Page 28174]]

Other urban areas (populations of 1 million or fewer)... 1,120 10,110 10,198 0.9
Rural hospitals......................................... 920 7,790 7,752 -0.5
Bed Size (Urban):
0-99 beds........................................... 627 8,277 8,361 1
100-199 beds........................................ 773 9,126 9,227 1.1
200-299 beds........................................ 448 9,882 9,996 1.2
300-499 beds........................................ 432 11,091 11,219 1.2
500 or more beds.................................... 205 13,475 13,581 0.8
Bed Size (Rural):
0-49 beds........................................... 317 6,222 6,106 -1.9
50-99 beds.......................................... 346 7,270 7,093 -2.4
100-149 beds........................................ 152 7,529 7,551 0.3
150-199 beds........................................ 58 8,487 8,537 0.6
200 or more beds.................................... 47 9,615 9,725 1.1
Urban by Region:
New England......................................... 120 11,860 11,818 -0.4
Middle Atlantic..................................... 318 11,946 12,009 0.5
South Atlantic...................................... 377 9,984 10,060 0.8
East North Central.................................. 396 10,147 10,266 1.2
East South Central.................................. 151 9,601 9,651 0.5
West North Central.................................. 165 10,544 10,736 1.8
West South Central.................................. 370 10,216 10,333 1.1
Mountain............................................ 157 11,013 11,145 1.2
Pacific............................................. 380 13,609 13,942 2.4
Puerto Rico......................................... 51 5,369 5,458 1.7
Rural by Region:
New England......................................... 23 10,441 10,219 -2.1
Middle Atlantic..................................... 69 8,291 8,246 -0.5
South Atlantic...................................... 164 7,526 7,503 -0.3
East North Central.................................. 120 8,014 7,942 -0.9
East South Central.................................. 170 7,167 7,161 -0.1
West North Central.................................. 98 8,248 8,193 -0.7
West South Central.................................. 181 6,868 6,830 -0.5
Mountain............................................ 65 8,603 8,658 0.6
Pacific............................................. 29 10,599 10,594 0
Puerto Rico......................................... ........... 2,104 2,182 3.7
By Payment Classification:
Urban hospitals......................................... 2,500 10,838 10,952 1
Large urban areas (populations over 1 million).......... 1,375 11,449 11,577 1.1
Other urban areas (populations of 1 million or fewer)... 1,125 10,082 10,178 1
Rural areas............................................. 905 7,991 7,947 -0.5
Teaching Status:
Non-teaching........................................ 2,376 8,721 8,784 0.7
Fewer than 100 Residents............................ 789 10,259 10,374 1.1
100 or more Residents............................... 240 15,474 15,600 0.8
Urban DSH:
Non-DSH............................................. 758 9,075 9,121 0.5
100 or more beds.................................... 1,523 11,370 11,494 1.1
Less than 100 beds.................................. 327 7,582 7,671 1.2
Rural DSH:
SCH................................................. 269 7,827 7,764 -0.8
RRC................................................. 210 8,855 8,912 0.6
100 or more beds.................................... 32 6,913 6,889 -0.3
Less than 100 beds.................................. 286 6,158 5,995 -2.6
Urban teaching and DSH:
Both teaching and DSH............................... 815 12,443 12,570 1
Teaching and no DSH................................. 147 10,014 10,087 0.7
No teaching and DSH................................. 1,035 9,259 9,375 1.3
No teaching and no DSH.............................. 503 8,643 8,717 0.9
Rural Hospital Types:
RRC................................................. 199 8,848 8,924 0.9
SCH................................................. 340 8,281 8,251 -0.4
Former MDH.......................................... 195 6,423 5,975 -7
SCH and RRC......................................... 101 9,678 9,717 0.4
Former MDH and RRC.................................. 17 8,678 7,396 -14.8
Type of Ownership:
Voluntary........................................... 1,970 10,592 10,680 0.8

[[Page 28175]]

Proprietary......................................... 866 9,262 9,365 1.1
Government.......................................... 560 11,108 11,210 0.9
Medicare Utilization as a Percent of Inpatient Days:
0-25................................................ 377 14,766 15,027 1.8
25-50............................................... 1,834 10,949 11,056 1
50-65............................................... 968 8,543 8,573 0.4
Over 65............................................. 168 7,926 7,889 -0.5
Hospitals Reclassified by the Medicare Geographic
Classification Review Board:
Proposed FY 2013 Reclassifications:
All Reclassified Hospitals FY 2013...................... 755 10,018 10,106 0.9
All Non-Reclassified Hospitals FY 2013.................. 2,650 10,585 10,678 0.9
Urban Reclassified Hospitals FY 2013:................... 420 10,811 10,931 1.1
Urban Non-reclassified Hospitals FY 2013................ 2,025 10,882 10,996 1
Rural Reclassified Hospitals FY 2013.................... 335 8,349 8,370 0.2
Rural Nonreclassified Hospitals FY 2013:................ 524 6,950 6,825 -1.8
All Section 401 Reclassified Hospitals:................. 46 9,905 9,760 -1.5
Other Reclassified Hospitals (Section 1886(d)(8)(B)).... 62 7,383 7,202 -2.4
Specialty Hospitals
Cardiac Hospitals....................................... 18 10,898 11,194 2.7
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Policy Changes

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

1. Effects of Proposed Policy on HACs, Including Infections

In section II.F. of the preamble of this proposed rule, we
discuss our implementation of section 1886(d)(4)(D) of the Act,
which requires the Secretary to identify conditions that are: (1)
High cost, high volume, or both; (2) result in the assignment of a
case to an MS-DRG that has a higher payment when present as a
secondary diagnosis; and (3) could reasonably have been prevented
through application of evidence-based guidelines. For discharges
occurring on or after October 1, 2008, hospitals will not receive
additional payment for cases in which one of the selected conditions
was not present on admission, unless, based on data and clinical
judgment, it cannot be determined at the time of admission whether a
condition is present. That is, the case will be paid as though the
secondary diagnosis were not present. However, the statute also
requires the Secretary to continue counting the condition as a
secondary diagnosis that results in a higher IPPS payment when doing
the budget neutrality calculations for MS-DRG reclassifications and
recalibration. Therefore, we will perform our budget neutrality
calculations as though the payment provision did not apply, but
Medicare will make a lower payment to the hospital for the specific
case that includes the secondary diagnosis. Thus, the provision
results in cost savings to the Medicare program.
We note that the provision will only apply when one or more of
the selected conditions are the only secondary diagnosis or
diagnoses present on the claim that will lead to higher payment.
Medicare beneficiaries will generally have multiple secondary
diagnoses during a hospital stay, such that beneficiaries having one
MCC or CC will frequently have additional conditions that also will
generate higher payment. Only a small percentage of the cases will
have only one secondary diagnosis that would lead to a higher
payment. Therefore, if at least one nonselected secondary diagnosis
that leads to higher payment is on the claim, the case will continue
to be assigned to the higher paying MS-DRG and there will be no
Medicare savings from that case. In addition, as discussed in
section II.F.3. of the preamble of this proposed rule, it is
possible to have two severity levels where the HAC does not affect
the MS-DRG assignment or for an MS-DRG not to have severity levels.
In either of these circumstances, the case will continue to be
assigned to the higher paying MS-DRG and there will be no Medicare
savings from that case.
In section II.F. of the preamble of this proposed rule, we are
proposing to add two additional HACs for FY 2013: Surgical Site
Infection (SSI) Following Cardiac Implantable Electronic Device
(CIED) Procedures and Iatrogenic Pneumothorax with Venous
Catheterization. Similar to the current HACs, only a very small
number of discharges would have only one secondary diagnosis that
would lead to a higher payment. Therefore, there will likely be very
few discharges where the MS-DRG is reassigned for these proposed
conditions and this would result in a minimal payment impact.
The HAC payment provision went into effect on October 1, 2008.
Our savings estimates for the next 5 fiscal years are shown below:

------------------------------------------------------------------------
Savings (in
Year millions)
------------------------------------------------------------------------
FY 2013................................................. $24
FY 2014................................................. 26
FY 2015................................................. 28
FY 2016................................................. 30
FY 2017................................................. 33
------------------------------------------------------------------------

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

In section II.I. of the preamble to this proposed rule, we
discuss the five applications for add-on payments for new medical
services and technologies for FY 2013, as well as the status of the
new technology that was approved to receive new technology add-on
payments in FY 2012. As explained in that section, add-on payments
for new technology under section 1886(d)(5)(K) of the Act are not
required to be budget neutral. As discussed in section II.I.4. of
the preamble of this proposed rule, we have yet to determine whether
any of the five applications we received for consideration for new
technology add-on payments for FY 2013 will meet the specified
criteria. Consequently, it is premature to estimate the potential
payment impact of these five applications for any potential new
technology add-on payments for FY 2013. We note that if any of the
five applications are found to be eligible for new technology add-on
payments for FY 2013 in the FY 2013 IPPS/LTCH PPS final rule, we
would discuss the estimated payment impact for FY 2013 in that final
rule. In the preamble to this proposed rule, we are proposing not to

[[Page 28176]]

continue making new technology add-on payments for the
AutoLITT^TM in FY 2013. Therefore, we are not providing an
impact analysis for the AutoLITT^TM in this proposed rule.

3. Effects of Proposed Policy Changes Relating to SCHs

In section IV.B.2. of the preamble of this proposed rule, we
discuss our proposal to clarify the regulations related to the
termination of a hospital's status as an SCH. We are proposing to
add a provision to the regulations to clarify that if CMS determines
that the hospital was incorrectly classified as an SCH, SCH status
would be cancelled retroactively, consistent with the provisions at
42 CFR 405.1885. We also are proposing that if a hospital that was
incorrectly designated as an SCH notifies CMS of that error, the SCH
classification status will be terminated effective with the date of
the notice to CMS. We believe it would be difficult to quantify the
payment impact of these proposed clarifications because we cannot
estimate the number of SCHs that would be affected by these
proposals. However, we believe any impact would be insignificant
because the proposal only affects hospitals that were incorrectly
classified as SCHs. We are soliciting public comments on these
issues.
In section IV.B.3. of the preamble of this proposed rule, we
discuss our proposal to add a provision to the regulations to allow
hospitals that are currently classified as MDHs to apply for
classification as SCHs upon the expiration of the MDH program on
September 30, 2012. We are proposing that, for any MDH that applies
for SCH classification at least 30 days prior to the expiration of
the MDH program and requests that SCH classification status be
effective with the expiration of the MDH program, and the hospital
is approved for SCH status, the effective for SCH status would be
the day following the expiration of the MDH program. We believe it
would be difficult to quantify the payment impact of this proposal
because we cannot estimate the number of MDHs that would be applying
for SCH status.

4. Effects of the Proposed Payment Adjustment for Low-Volume Hospitals
for FY 2013

In section IV.D. of the preamble to this proposed rule, we
discuss the provisions of the Affordable Care Act that expanded the
definition of low-volume hospital and modified the methodology for
determining the payment adjustment for hospitals meeting that
definition for FYs 2011 and 2012. In accordance with section
1886(d)(12) of the Act, beginning with FY 2013, the low-volume
hospital definition and payment adjustment methodology will revert
back to the statutory requirements that were in effect prior to the
amendments made by the Affordable Care Act. Therefore, effective for
FY 2013 and subsequent years, in order to qualify as a low-volume
hospital, a subsection (d) hospital must be more than 25 road miles
from another subsection (d) hospitals and have less than 200
discharges (that is, less than 200 discharges total, including both
Medicare and non-Medicare discharges) during the fiscal year.
Based on FY 2011 claims data (December 2011 update of the MedPAR
file), we estimate that approximately 600 hospitals in our database
qualified as a low-volume hospital for FY 2012, but will no longer
meet the mileage and discharges criteria to qualify as a low-volume
hospital under section 1886(d)(12) of the Act for FY 2013. Because
we estimate that these hospitals will no longer qualify for the low-
volume hospital adjustment in FY 2013 (due to the statutory change
in the qualifying criteria), we project that these hospitals will
experience a decrease in payments of approximately $300 million in
FY 2013 as compared to the payments that they would have otherwise
received in FY 2013 in absence of the statutory change in the low-
volume hospital qualifying criteria.

5. Effects of Proposed Policy Changes Relating to Payment Adjustments
for Medicare Disproportionate Share Hospitals (DSHs) and Indirect
Medical Education (IME)

In section IV.F. of the preamble of this proposed rule, we
discuss our proposal to include ancillary labor and delivery beds in
the available bed count used to determine the DSH payment adjustment
and the IME payment adjustment. The impact of the proposed changes
to the DSH payment adjustment should be negligible, as the DSH
payment adjustment is determined mainly by the demographic
composition of an individual hospital's patient population, and not
its overall bed count. However, we note that some hospitals' bed
counts do not meet the minimum threshold required to qualify for the
DSH payment adjustment. For these hospitals that do not meet the
minimum bed count required to qualify for the DSH payment
adjustment, an increase in the number of available beds could now
allow them to qualify for the DSH payment adjustment. For purposes
of the IME payment adjustment, an increase in a hospital's number of
available beds would result in a decrease in the resident-to-bed
ratio. The inclusion of bed days associated with labor and delivery
patients in the available bed count for IME would increase the
available beds, decrease the resident-to-bed ratio, and,
consequently, decrease IME payments to teaching hospitals, depending
on the number of these hospitals' labor and delivery beds. Based on
labor and delivery patient days currently reported in the Medicare
hospital cost report database, we estimate that the inclusion of
labor and delivery beds in the available bed day count would
decrease IME payments by $170 million in FY 2013.

6. Effects of the Proposed Policy Changes Relating to GME and IME

a. Effects of Clarification and Proposal Regarding Timely Filing
Requirements Under Fee-for-Service Medicare

In section IV.E.2. of the preamble of this proposed rule, we
discuss a clarification related to the time limits for filing claims
for Medicare Advantage patients under fee-for-service Medicare for
IME, direct GME, and nursing and allied health education payment
purposes. This clarification is intended to make clear to hospitals
that they must follow the regulations governing the time limits for
filing claims at Sec. 424.44 in order to receive IME, and/or direct
GME, and/or nursing or allied health education program payments
associated with Medicare Advantage enrollees. Because we are not
proposing to make any policy changes (but rather clarifying the
timely filing requirements), there is no financial impact for this
clarification.
In section IV.E.2. of the preamble of this proposed rule, we
also are proposing to adopt a policy under which hospitals that are
required to submit no pay bills for the purpose of calculating the
DPP that is used in determining the DSH payment adjustment must do
so within the time limits for filing claims at Sec. 424.44. We do
not anticipate that this proposal would have any impact, as
providers are already submitting no pay bills for purposes of the
DPP.

b. Effects of Proposed Policy Changes Relating to New Teaching
Hospitals: New Program Growth From 3 Years to 5 Years

In section IV.I.2. of the preamble of this proposed rule, we
discuss our proposal to extend the period a new teaching hospital
has to establish its caps for direct GME and IME payment purposes
from 3 years to 5 years. We are proposing to revise the regulations
to state that if a new teaching hospital participates in training
residents in a new program for the first time on or after October 1,
2012, that new teaching hospital's caps will be based on the product
of the highest number of FTE residents training in any program year
during the fifth academic year of the first program's existence for
all new residency training programs and the number of years in which
residents are expected to complete the program based on the minimum
accredited length for the type of program. The cap would be applied
beginning with the sixth academic year of the first new program. We
believe this expansion of the cap-building period from 3 years to 5
years would make our policies for the establishment of a hospital's
cap more compatible with current accreditation requirements that
hospitals must meet to establish new residency training programs. We
estimate that this proposal would cost approximately $175 million
over the next 10 years. However, because this proposal to change the
cap growth period from 3 years to 5 years would only affect new
programs begun on or after October 1, 2012, we estimate that no cost
would be incurred until FY 2016. This estimate assumes that there
could be 20 new teaching hospitals each year.

c. Effects of Proposed Changes Relating to 5-Year Period Following
Implementation of Reductions and Increases to Hospitals' FTE Resident
Caps for GME Payment Purposes Under Section 5503 of the Affordable Care
Act

In section IV.I.3. of the preamble of this proposed rule, we
discuss our proposals related to the 5-year period following
implementation of reductions and increases to hospitals' FTE
resident caps for GME payment purposes under section 5503 of the
Affordable Care Act. Section 5503 of the Affordable Care Act amended
the Medicare statute by adding a new section 1886(h)(8) of

[[Page 28177]]

the Act, which provides for reductions in the statutory FTE resident
caps for direct GME and IME under Medicare for certain hospitals,
and authorizes a ``redistribution'' to certain hospitals of the
estimated number of FTE resident slots resulting from the
reductions. The amendments made by section 5503 also specifies that
a hospital that receives an increase in its cap shall ensure, during
the 5-year period beginning on the date of such increase (July 1,
2011), that certain requirements, referred to as the primary care
average and 75-percent threshold, are met in order to retain those
slots. Otherwise, the Medicare statute authorizes the Secretary to
reduce the FTE caps of the hospital by the same number of FTE
residents by which the hospital's FTE caps were increased if the
hospital fails to meet either of those requirements.
Because a statutorily directed criteria for consideration in
awarding slots under section 5503 included the requirement that
hospitals applying for slots demonstrate the likelihood of filling
the slots within the first three cost reporting periods beginning on
or after July 1, 2011, and we relied on that information in awarding
slots, we believe it is reasonable and authorized under section
1886(h)(8)(B)(ii) of the Act to expect that hospitals that received
slots under section 5503 begin to use their slots by Year 3 of the
5-year period in order to give full effect to the requirements under
section 1886(h)(8)(B)(ii) of the Act. Therefore, we are proposing
that a hospital that received section 5503 slots must fill at least
half of its section 5503 slots, IME and direct GME respectively, in
at least one of the following timeframes: The first 12-month cost
reporting period of the 5-year period, and/or in its second 12-month
cost reporting period and/or in its third 12-month cost reporting
period of the 5-year period, or lose its section 5503 slots. We also
are proposing that the hospital must fill all of the slots it
received by its final cost reporting period beginning during the
timeframe of July 1, 2011 through June 30, 2016, or lose all of its
section 5503 slots after June 30, 2016.
We believe the impact of these proposals regarding the timing of
the use of these section 5503 slots is budget neutral. We believe
that hospitals will take the steps necessary to comply with the
section 5503 requirements to ensure, to the best of their ability,
that they will not lose their section 5503 slots. We believe that
section 5503 slots are valuable enough to a hospital that it is
worthwhile for the hospital to comply with the proposed regulations
(that is, to fill at least half of its section 5503 slots in its
first 12-month cost reporting period of the 5-year period, and/or in
its second 12-month cost reporting period and/or in its third 12-
month cost reporting period of the 5-year period, and also fill all
of the slots it received by its final cost reporting period
beginning during the timeframe of July 1, 2011 through June 30,
2016), because not doing so would mean the loss of all of its
section 5503 slots after Year 5 ends. Therefore, we anticipate that,
as a result of these proposals, the hospitals that previously might
not have made an effort to fill their section 5503 slots in a timely
manner will now do so, and, assuming they continue to meet the
primary care average and 75-percent threshold requirements, those
hospitals would be allowed to keep their section 5503 slots. Thus,
there would be neither an additional cost due to these proposals nor
savings related to these proposals.

d. Preservation of Resident Cap Positions From Closed Hospitals
(Section 5506 of the Affordable Care Act)

In section IV.I.4. of the preamble of this proposed rule, we
discuss our proposals and clarifications of existing policy related
to section 5506 of the Affordable Care Act. Section 5506 amended the
Medicare statute to add a provision that instructs the Secretary to
establish a process by regulation under which, in the event a
teaching hospital closes, the Secretary will permanently increase
the FTE resident caps for hospitals that meet certain criteria up to
the number of the closed hospital's FTE resident caps. The Secretary
is directed to ensure that the total number of FTE resident cap
slots distributed is not to exceed the amount of slots in the closed
hospital's direct GME and IME FTE resident caps, respectively. The
regulations and application process regarding section 5506 were
implemented in the November 24, 2010 Federal Register (75 FR 72212).
The provisions included in the preamble of this proposed rule are
generally administrative in nature, related to the rules regarding
the application of section 5506, minor proposed changes or
clarifications to the ranking criteria on the applications, and
minor proposed changes or clarifications regarding the effective
dates of slots awarded under section 5506. Therefore, there is no
financial impact for these section 5506 provisions.

7. Effects of Proposed Changes Relating to the Reporting Requirements
for Pension Costs for Medicare Cost-Finding Purposes

In section IV.J. of the preamble of this proposed rule, we
discuss our proposal to amend two existing regulations to conform
these regulations to the final policy we adopted in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51693 through 51597) with regard to
pension costs for Medicare cost-finding purposes. Because we are
proposing to make only conforming changes to the regulations and not
further modifying the policy we finalized, there is no impact on
hospitals for these proposed changes for FY 2013.

8. Effects of Implementation of Rural Community Hospital Demonstration
Program

In section IV.K. of the preamble of this proposed rule, we
discuss our implementation of section 410A of Public Law 108-173, as
amended, which requires the Secretary to conduct a demonstration
that would modify reimbursement for inpatient services for up to 30
rural community hospitals. Section 410A(c)(2) requires that ``[i]n
conducting the demonstration program under this section, the
Secretary shall ensure that the aggregate payments made by the
Secretary do not exceed the amount which the Secretary would have
paid if the demonstration program under this section was not
implemented.'' As discussed in section IV.K. of the preamble of this
proposed rule, in the IPPS final rules for each of the previous 8
fiscal years, we have estimated the additional payments made by the
program for each of the participating hospitals as a result of the
demonstration. In order to achieve budget neutrality, we are
proposing to adjust the national IPPS rates by an amount sufficient
to account for the added costs of this demonstration. In other
words, we are proposing to apply budget neutrality across the
payment system as a whole rather than merely across the participants
of this demonstration. We believe that the language of the statutory
budget neutrality requirement permits the agency to implement the
budget neutrality provision in this manner. The statutory language
requires that ``aggregate payments made by the Secretary do not
exceed the amount which the Secretary would have paid if the
demonstration * * * was not implemented'' but does not identify the
range across which aggregate payments must be held equal.
We are proposing to adjust the national IPPS rates according to
the methodology set forth elsewhere in this proposed rule. In this
proposed rule, the proposed adjustment to the national IPPS rates to
account for estimated demonstration cost for FY 2013 for the 7
``pre-expansion'' participating hospitals that are currently
participating in the demonstration and the 16 additional hospitals
participating as a result of the expansion of the demonstration
under the Affordable Care Act is $35,077,708. In addition, in this
FY 2013 proposed rule, we are proposing that if settled cost reports
for all of the demonstration hospitals that participated in the
applicable budget year (FY 2007, 2008, 2009, or 2010) are available
prior to the FY 2013 IPPS/LTCH PPS final rule, we would include in
the budget neutrality offset amount any additional amount by which
the final settled costs of the demonstration for the year (FY 2007,
2008, 2009, or 2010) exceeded the budget neutrality offset amount
applicable to such year as finalized in the respective year's IPPS
final rule. The estimated amount of $35,077,708 that we are
proposing in this FY 2013 proposed rule does not account for any
differences between the cost of the demonstration program for
hospitals participating in the demonstration for FYs 2007 through
2010 and the amounts that were offset by the budget neutrality
adjustment for these years because the specific numeric value
associated with this component of the adjustment to the national
IPPS rates cannot be known at this time. This is because the large
majority of settled cost reports beginning in FYs 2007 through 2010
for the hospitals participating during in the demonstration during
those years also are not available at this time.

9. Effects of Proposed Change in Effective Date for Policies Relating
to Hospital Services Furnished Under Arrangements

In section IV.L. of the preamble of this proposed rule, we
discuss that, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51711
through 51714), we limited the circumstances under which a hospital
may furnish services to Medicare beneficiaries ``under
arrangements.'' Under the revised policy, ``routine services'' (that
is, bed, board,

[[Page 28178]]

and nursing and other related services) must be provided in the
hospital in which the patient is a registered inpatient in order for
the services to be considered as being provided by the hospital.
Routine services furnished to Medicare beneficiaries as inpatients
of the hospital are considered services furnished by the hospital.
Only diagnostic and therapeutic services (that is, ancillary
services) may be provided under arrangements outside the hospital.
We have become aware that a number of affected hospitals need
additional time to restructure existing arrangements and establish
necessary operational protocols to comply with this requirement.
Therefore, in this proposed rule, we are proposing to postpone the
effective date of the revised policy change from services provided
on or after October 1, 2011, to cost reporting periods beginning in
FY 2014. We have determined that the impact of this proposed
effective date change would be negligible.

I. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

For the impact analysis presented below, we used data from the
December 2011 update of the FY 2011 MedPAR file and the December
2011 update of the Provider-Specific File (PSF) that is used for
payment purposes. Although the analyses of the proposed changes to
the capital prospective payment system do not incorporate cost data,
we used the December 2011 update of the most recently available
hospital cost report data (FYs 2009 and 2010) to categorize
hospitals. Our analysis has several qualifications. We use the best
data available and make assumptions about case-mix and beneficiary
enrollment as described below. In addition, as discussed in section
V.C.2. of the preamble to this proposed rule, we are proposing to
make a -0.8 percent documentation and coding adjustment to the
national capital rate for FY 2013 in addition to the -0.6 percent
adjustment established for FY 2008, the -0.9 percent adjustment for
FY 2009, the -2.9 percent adjustment for FY 2011, and the -1.0
percent adjustment for FY 2012. This results in a proposed
cumulative adjustment factor of 0.9404 that we applied in
determining the proposed FY 2013 national capital rate to account
for improvements in documentation and coding that do not reflect
real changes in case mix under the MS-DRGs. We note that we applied
a -2.6 percent documentation and coding adjustment to the Puerto
Rico-specific capital rate in FY 2011, which reflects the entire
amount of our current estimate of the effects of documentation and
coding for FYs 2008 and 2009 that do not reflect real changes in
case-mix under the MS-DRGs. (We currently estimate that there was no
additional effect of documentation and coding from the adoption of
the Ms-DRGs in FY 2010 for hospitals located in Puerto Rico.)
Therefore, as we did for FY 2012, we are not proposing to adjust the
Puerto Rico-specific capital rate in FY 2013 to account for changes
in documentation and coding.
Due to the interdependent nature of the IPPS, it is very
difficult to precisely quantify the impact associated with each
change. In addition, we draw upon various sources for the data used
to categorize hospitals in the tables. In some cases (for instance,
the number of beds), there is a fair degree of variation in the data
from different sources. We have attempted to construct these
variables with the best available sources overall. However, it is
possible that some individual hospitals are placed in the wrong
category.
Using cases from the December 2011 update of the FY 2011 MedPAR
file, we simulated payments under the capital IPPS for FY 2012 and
FY 2013 for a comparison of total payments per case. Any short-term,
acute care hospitals not paid under the general IPPS (Indian Health
Service hospitals and hospitals in Maryland) are excluded from the
simulations.
The methodology for determining a capital IPPS payment is set
forth at Sec. 412.312. The basic methodology for calculating
capital IPPS payments in FY 2013 is as follows:

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

In addition to the other adjustments, hospitals may also receive
outlier payments for those cases that qualify under the threshold
established for each fiscal year. We modeled payments for each
hospital by multiplying the capital Federal rate by the GAF and the
hospital's case-mix. We then added estimated payments for indirect
medical education, disproportionate share, and outliers, if
applicable. For purposes of this impact analysis, the model includes
the following assumptions:
We estimate that the Medicare case-mix index would
increase by 0.5 percent in both FYs 2012 and 2013.
We estimate that the Medicare discharges would be
approximately 12.8 million in FY 2012 and 13.3 million in FY 2013.
The capital Federal rate was updated beginning in FY
1996 by an analytical framework that considers changes in the prices
associated with capital-related costs and adjustments to account for
forecast error, changes in the case-mix index, allowable changes in
intensity, and other factors. As discussed in section III.A.1.a. of
the Addendum to this proposed rule, the proposed update is 1.3
percent for FY 2013.
In addition to the proposed FY 2013 update factor, the
proposed FY 2013 capital Federal rate was calculated based on a
proposed GAF/DRG budget neutrality factor of 1.0002, and a proposed
outlier adjustment factor of 0.9400.
For FY 2013, as discussed above and in section V.C.2.
of the preamble to this proposed rule, we are proposing to apply a
cumulative adjustment of 0.9404 in determining the proposed FY 2013
national capital rate for changes in documentation and coding that
are expected to increase case-mix under the MS-DRGs but do not
reflect real case-mix change. This proposed cumulative adjustment of
0.9404 reflects the additional -0.8 percent adjustment in FY 2013
for the effects of documentation and coding in FY 2010 (and is in
addition to the adjustments previously made for the effects in FYs
2008 and 2009).

2. Results

We used the actuarial model described above to estimate the
potential impact of our proposed changes for FY 2013 on total
capital payments per case, using a universe of 3,405 hospitals. As
described above, the individual hospital payment parameters are
taken from the best available data, including the December 2011
update of the FY 2011 MedPAR file, the December 2011 update to the
PSF, and the most recent cost report data from the December 2011
update of HCRIS. In Table III, we present a comparison of estimated
total payments per case for FY 2012 and estimated total payments per
case for FY 2013 based on the proposed FY 2013 payment policies.
Column 2 shows estimates of payments per case under our model for FY
2012. Column 3 shows estimates of payments per case under our model
for FY 2013. Column 4 shows the proposed total percentage change in
payments from FY 2012 to FY 2013. The proposed change represented in
Column 4 includes the 1.3 percent update to the proposed capital
Federal rate and other proposed changes in the adjustments to the
capital Federal rate. The comparisons are provided by: (1)
Geographic location; (2) region; and (3) payment classification.
The simulation results show that, on average, capital payments
per case in FY 2013 are expected to decrease as compared to capital
payments per case in FY 2012. However, the proposed capital rate for
FY 2013 would increase approximately 0.7 percent as compared to the
FY 2012 capital Federal rate. The proposed changes to the GAFs are
expected to result, on average, in a slight decrease in capital
payments for most regions with the certain exceptions. The regional
variations in the proposed estimated change in capital payments are
consistent with the proposed changes in payments due to changes in
the wage index (and policies affecting the wage index) shown in
Table I in section I of this Appendix.
We also are estimating a slight decrease in outlier payments in
FY 2013 as compared to FY 2012. This is primarily because of the
proposed increase to the outlier fixed-loss amount (discussed in
section II.A.4.f. of the Addendum to this proposed rule). In
addition, this estimated decrease in outlier payments is based on
the FY 2011 claims from the December 2011 update of the MedPAR file,
we are currently estimating that FY 2012 capital outlier payments
are more than the projected 6.18 percent that we used to determine
the outlier offset that we applied in determining the FY 2012
capital Federal rate.
The net impact of these proposed changes, as discussed above, is
an estimated -0.2 percent change in capital payments per discharge
from FY 2012 to FY 2013 for all hospitals (as shown below in Table
III).
The geographic comparison shows that, on average, all hospitals
are expected to experience a decrease in capital IPPS payments per
case in FY 2013 as compared to FY 2012. These decreases are
primarily due to proposed changes in the GAFs (primarily resulting
from policies affecting

[[Page 28179]]

the wage index)), and the estimated decrease in capital outlier
payments. Capital IPPS payments per case for large urban hospitals
are estimated to decrease 0.1 percent, while other urban hospitals
are expected to experience a 0.4 percent decrease. Rural hospitals,
on average, are not expected to experience any change in capital
payments per discharge from FY 2012 to FY 2013.
The comparisons by region show that most urban regions, except
for the Pacific region and Puerto Rico, will experience, on average,
decreases in capital IPPS payments. The estimated decrease in
capital payments per discharge from FY 2012 to FY 2013 in urban
areas ranges from a 0.1 percent decrease for the East North Central
urban region to a 1.0 percent decrease for the New England urban
region. The two exceptions to decreases in capital payments per case
are the Pacific urban region and the Puerto Rico urban region, which
are expected to experience a 1.1 percent and 0.5 percent increase,
respectively. As we indicated in the FY 2012 IPPS/LTCH PPS final
rule, the GAFs for Puerto Rico result in a positive effect in
estimated capital IPPS payment because of the application of a
Puerto Rico rural floor. FY 2012 was the first year an IPPS hospital
was located in rural Puerto Rico, therefore, setting a rural floor.
The GAFs are also having a positive effect on capital IPPS payments
per discharge in the Pacific urban region, primarily due to proposed
changes in the wage index for hospitals located in that area as
discussed in section I of this Appendix.
For rural regions, the estimated change in capital payments per
discharge from FY 2012 to FY 2013 ranges from a 1.6 percent decrease
for the Pacific rural region to a 0.7 percent increase for the
Middle Atlantic rural region. The East South Central and Mountain
rural regions are not expected to experience any change in their
capital payments per discharge from FY 2012 to FY 2013. The Puerto
Rico rural region is estimated to experience a 3.3 percent increase
in capital payments per discharge in FY 2013 compared to FY 2012.
Hospitals of all type of ownership (that is, voluntary
hospitals, government hospitals, and proprietary hospitals) are
estimated to experience a 0.2 percent decrease in capital payments
per case from FY 2012 to FY 2013.
Section 1886(d)(10) of the Act established the MGCRB. Hospitals
may apply for reclassification for purposes of the wage index for FY
2013. Reclassification for wage index purposes also affects the GAFs
because that factor is constructed from the hospital wage index. To
present the effects of the hospitals being reclassified for FY 2013,
we show the average capital payments per case for reclassified
hospitals for FY 2013. Only urban reclassified hospitals are
expected to experience an increase in capital payments, 0.1 percent,
in FY 2013 as compared to FY 2012. Urban non-reclassified hospitals
are estimated to experience a decrease of 0.3 percent. Rural
reclassified hospitals are estimated to experience no change in
capital payments per discharge from FY 2012 to FY 2013, while rural
nonreclassified hospitals are estimated to have a 0.1 percent
decrease in capital payments per case. Similarly, other reclassified
hospitals (that is, hospitals reclassified under section
1886(d)(8)(B) of the Act) are expected to experience a decrease of
0.1 percent in capital payments from FY 2012 to FY 2013.

Table III--Comparison of Total Payments per Case
[FY 2012 payments compared to proposed FY 2013 payments]
----------------------------------------------------------------------------------------------------------------
Proposed
Average FY average FY
Number of 2012 2013 Change
hospitals payments/ payments/
case case
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
All hospitals........................................... 3,405 799 797 -0.2
Large urban areas (populations over 1 million).......... 1,365 880 880 -0.1
Other urban areas (populations of 1 million of fewer)... 1,120 784 781 -0.4
Rural areas............................................. 920 552 552 0.0
Urban hospitals......................................... 2,485 837 835 -0.2
0-99 beds........................................... 627 670 667 -0.4
100-199 beds........................................ 773 722 720 -0.2
200-299 beds........................................ 448 769 770 0.1
300-499 beds........................................ 432 848 848 0.0
500 or more beds.................................... 205 1,016 1,010 -0.6
Rural hospitals......................................... 920 552 552 0.0
0-49 beds........................................... 317 438 438 0.1
50-99 beds.......................................... 346 505 506 0.0
100-149 beds........................................ 152 545 544 -0.1
150-199 beds........................................ 58 619 617 -0.3
200 or more beds.................................... 47 672 673 0.2
By Region:
Urban by Region......................................... 2,485 837 835 -0.2
New England......................................... 120 907 898 -1.0
Middle Atlantic..................................... 318 886 884 -0.2
South Atlantic...................................... 377 781 776 -0.6
East North Central.................................. 396 804 804 -0.1
East South Central.................................. 151 730 725 -0.7
West North Central.................................. 165 836 841 0.7
West South Central.................................. 370 796 791 -0.6
Mountain............................................ 157 868 864 -0.4
Pacific............................................. 380 1,016 1,026 1.1
Puerto Rico......................................... 51 384 386 0.5
Rural by Region......................................... 920 552 552 0.0
New England......................................... 23 744 743 -0.1
Middle Atlantic..................................... 69 569 573 0.7
South Atlantic...................................... 164 541 540 -0.2
East North Central.................................. 120 576 577 0.1
East South Central.................................. 170 507 507 0.0
West North Central.................................. 98 585 582 -0.4
West South Central.................................. 181 491 491 0.1
Mountain............................................ 65 580 580 0.0
Pacific............................................. 29 723 712 -1.6
Puerto Rico......................................... 1 150 155 3.3

[[Page 28180]]

By Payment Classification:
All hospitals........................................... 3,405 799 797 -0.2
Large urban areas (populations over 1 million).......... 1,375 879 879 -0.1
Other urban areas (populations of 1 million of fewer)... 1,125 783 780 -0.3
Rural areas............................................. 905 563 561 -0.2
Teaching Status:
Non-teaching........................................ 2,376 680 679 -0.2
Fewer than 100 Residents............................ 789 790 790 0.0
100 or more Residents............................... 240 1,137 1,133 -0.4
Urban DSH:
100 or more beds.................................... 1,523 863 861 -0.1
Less than 100 beds.................................. 327 583 585 0.2
Rural DSH:
Sole Community (SCH/EACH)........................... 269 519 517 -0.4
Referral Center (RRC/EACH).......................... 210 624 623 -0.3
Other Rural:
100 or more beds.................................... 32 506 504 -0.5
Less than 100 beds.................................. 286 446 447 0.2
Urban teaching and DSH:
Both teaching and DSH............................... 815 933 932 -0.2
Teaching and no DSH................................. 147 812 810 -0.3
No teaching and DSH................................. 1,035 720 720 0.0
No teaching and no DSH.............................. 503 741 736 -0.7
Rural Hospital Types:
Non special status hospitals........................ 2,391 841 839 -0.2
RRC/EACH............................................ 61 733 736 0.4
SCH/EACH............................................ 34 722 724 0.2
SCH, RRC and EACH................................... 16 769 764 -0.6
Hospitals Reclassified by the Medicare Geographic
Classification Review Board:
FY 2013 Reclassifications:
All Urban Reclassified.............................. 420 833 834 0.1
All Urban Non-Reclassified.......................... 2,025 840 838 -0.3
All Rural Reclassified.............................. 335 596 596 0.0
All Rural Non-Reclassified.......................... 524 482 481 -0.1
Other Reclassified Hospitals (Section 1886(d)(8)(B)) 55 550 550 -0.1
Type of Ownership:
Voluntary........................................... 1,970 813 812 -0.2
Proprietary......................................... 866 718 717 -0.2
Government.......................................... 560 817 816 -0.2
Medicare Utilization as a Percent of Inpatient Days:
0-25................................................ 377 1,044 1,047 0.3
25-50............................................... 1,834 839 837 -0.3
50-65............................................... 968 666 665 -0.1
Over 65............................................. 168 611 611 0.1
----------------------------------------------------------------------------------------------------------------

J. Effects of Proposed Payment Rate Changes and Policy Changes
Under the LTCH PPS

1. Introduction and General Considerations

In section VII. of the preamble and section V. of the Addendum
to this proposed rule, we set forth the proposed annual update to
the payment rates for the LTCH PPS for FY 2013. In the preamble, we
specify the statutory authority for the proposed provisions that are
presented, identify those proposed policies, and present rationales
for our proposed decisions as well as alternatives that were
considered. In this section of Appendix A to this proposed rule, we
discuss the impact of the proposed changes to the payment rate,
factors, and other payment rate policies related to the LTCH PPS
that are presented in the preamble of this proposed rule in terms of
their estimated fiscal impact on the Medicare budget and on LTCHs.
Currently, our database of 427 LTCHs includes the data for 82
nonprofit (voluntary ownership control) LTCHs and 322 proprietary
LTCHs. Of the remaining 23 LTCHs, 14 LTCHs are government-owned and
operated and the ownership type of the other 9 LTCHs is unknown. In
the impact analysis, we used the proposed rate, factors, and
policies presented in this proposed rule, including the proposed 2.1
percent annual update, which is based on the full increase of the
proposed LTCH PPS market basket and the reductions required by
sections 1886(m)(3) and (m)(4) of the Act, the proposed one-time
prospective adjustment of 0.98734 (approximately -1.3 percent),
which would not apply to payments for discharges occurring on or
before December 28, 2012 (consistent with the statute), the proposed
update to the MS-LTC-DRG classifications and relative weights, the
proposed update to the wage index values and labor-related share,
the expiration of the statutory delay in the application of very
short-stay outlier policy at Sec. 412.529(c)(3), effective for
discharges occurring on or after December 29, 2012 (that is, the
option for certain short-stay outlier cases to be paid under the
``blended payment'' will be replaced with the ``IPPS comparable per
diem amount'' as discussed in section VII.E.3. of the preamble of
this proposed rule), and the best available claims and CCR data to
estimate the proposed change in payments for FY 2013.
The standard Federal rate for FY 2012 was $40,222.05. For FY
2013, we are proposing to establish a standard Federal rate of
$40,507.48 that reflects the proposed 2.1 percent annual update to
the standard

[[Page 28181]]

Federal rate, and the proposed area wage budget neutrality factor of
0.99903, which ensures that the proposed changes in the wage indexes
and labor-related share do not influence aggregate payments.
Furthermore, consistent with section 114(c)(4) of the MMSEA, as
amended by sections 3106(a) and 10312 of the Affordable Care Act,
the proposed one-time prospective adjustment to the standard Federal
rate for FY 2013 of 0.98734 (approximately -1.3 percent) would not
apply to payments for discharges occurring before December 29, 2012.
Therefore, payment for discharges occurring on or after October 1,
2012, and on or before December 28, 2012, would not reflect that
proposed adjustment and, instead, would be paid based on a standard
Federal rate of $41,026.88.
Based on the best available data for the 427 LTCHs in our
database, we estimate that the proposed update to the standard
Federal rate for FY 2013 (discussed in section V.A.2. of the
Addendum to this proposed rule) and the proposed changes to the area
wage adjustment for FY 2013 (discussed in section V.B. of the
Addendum to this proposed rule), in addition to an estimated
increase in HCO payments and an estimated decrease in SSO payments,
would result in an increase in estimated payments from FY 2012 of
approximately $100 million. Based on the 427 LTCHs in our database,
we estimate that the FY 2013 LTCH PPS payments would be
approximately $5.282 billion, as compared to estimated FY 2012 LTCH
PPS payments of approximately $5.181 billion. Because the combined
distributional effects and estimated changes to the Medicare program
payments are over approximately $100 million, this proposed rule is
considered a major economic rule, as defined in this section. We
note that the approximately $100 million for the projected increase
in estimated aggregate proposed LTCH PPS payments from FY 2012 to FY
2013 does not reflect changes in LTCH admissions or case-mix
intensity in estimated LTCH PPS payments, which also will affect
overall payment changes. It also does not include the estimated
effect of the proposed 1-year extension of the moratorium on the
application of the ``25-percent threshold'' payment adjustment
policy on LTCH PPS payments, which is discussed below in section
I.J.b.3. of this Appendix.
The projected 1.9 percent increase in estimated proposed
payments per discharge from FY 2012 to FY 2013 is attributable to
several factors, including the proposed 2.1 percent annual update to
the standard Federal rate, the proposed one-time prospective
adjustment of -0.98734 (approximately -1.3 percent) to the standard
Federal rate, which is not applicable to payments for discharges
occurring on or before December 28, 2012, consistent with the
statute, and projected increases in estimated HCO and decreases in
SSO payments due to a change in the SSO payment methodology
effective for discharges occurring on or after December 29, 2012 (as
described in section VII.E.3. of the preamble of this proposed
rule). As Table IV shows, the change attributable solely to the
proposed annual update to the standard Federal rate (2.1 percent),
including the proposed one-time prospective adjustment
(approximately -1.3 percent) which is not applicable to payments for
discharges occurring before December 29, 2012, is projected to
result in an increase of 0.9 percent in payments per discharge from
FY 2012 to FY 2013, on average, for all LTCHs. This estimated
increase of 0.9 percent reflects the proposed 2.1 percent annual
update for payments to FY 2013 discharges occurring from October 1,
2012 through December 28, 2012, and the proposed -1.3 percent one-
time prospective adjustment factor, which would not apply in
determining payments for discharges occurring on or before December
28, 2012, and also includes estimated payments to SSO cases that are
paid using special methodologies that are not affected by the annual
update to the standard Federal rate. Therefore, the projected
increase in payments to the Federal rate is less than the proposed
2.1 percent annual update for FY 2013. Because we are proposing to
apply an area wage level budget neutrality factor to the standard
Federal rate, the proposed update to the wage data and labor-related
share does not impact the proposed increase in payments.
As discussed in section V.B. of the Addendum to this proposed
rule, we are proposing to update the wage index values for FY 2013
based on the most recent available data. In addition, we are
proposing to decrease the labor-related share from 70.199 percent to
63.217 percent under the LTCH PPS for FY 2013, based on the most
recent available data on the relative importance of the proposed
labor-related share of operating and capital costs of the proposed
FY 2009-based LTCH-specific market basket. We also are proposing an
area wage level budget neutrality factor of 0.99903, which reduces
the proposed standard Federal rate by approximately 0.1 percent.
Therefore, the proposed changes to the wage data and labor-related
share do not result in a change in estimated aggregate LTCH PPS
payments.
We are projecting that LTCHs would experience a decrease in
aggregate payments of 0.4 percent in FY 2013 as a result of the
expiration of the statutory delay in the application of the very
short-stay outlier policy at Sec. 412.529(c)(3), effective for
discharges occurring on or after December 29, 2012. Generally, very
short-stay outliers are cases that have a length of stay that is
less than or equal to one standard deviation from the geometric mean
average length of stay of the same DRG under the IPPS. Under the
moratorium, very short stay outliers are paid the lowest of: (1) The
LTC-DRG payment; (2) 100 percent of cost; (3) 120 percent of the
LTCH per diem payment; or (4) a blend of 120 percent of the LTCH per
diem amount and the ``IPPS comparable per diem amount'' (the
``blended payment''). With the expiration of the moratorium, in the
case of very short-stay outliers, effective for discharges on or
after December 29, 2012, the ``blended payment'' will be replaced
with only the ``IPPS comparable per diem amount,'' which results in
a decrease in payments for these cases.
Table IV below shows the impact of the proposed payment rate and
the proposed policy changes on LTCH PPS payments for FY 2013
presented in this proposed rule by comparing estimated FY 2012
payments to estimated FY 2013 payments. The projected increase in
payments per discharge from FY 2012 to FY 2013 is 1.9 percent (shown
in Column 9). This projected increase in payments is attributable to
the impacts of the proposed change to the standard Federal rate (0.9
percent in Column 6), the end of the moratorium on delaying the
implementation of the very short-stay outlier policy (-0.4 percent
in Column 8), as well as the effect of the estimated increase in
proposed payments for HCO cases and SSO cases (1.1 percent, 0.2
percent, respectively). That is, estimated total HCO payments are
projected to increase from FY 2012 to FY 2013 in order to ensure
that the estimated HCO payments would be 8 percent of the total
estimated LTCH PPS payments in FY 2013. An analysis of the most
recent available LTCH PPS claims data (that is, FY 2011 claims data
from the December 2011 update of the MedPAR file) indicates that the
FY 2012 HCO threshold of $17,931 (as established in the FY 2012
IPPS/LTCH PPS final rule) may-result in HCO payments in FY 2012 that
fall below the estimated 8 percent. Specifically, we currently
estimate that HCO payments would be approximately 6.9 percent of the
estimated total LTCH PPS payments in FY 2012. We estimate that the
impact of the increase in HCO payments would result in approximately
a 1.1 percent increase in estimated payments from FY 2012 to FY
2013, on average, for all LTCHs. Furthermore, in calculating the
estimated increase in payments from FY 2012 to FY 2013 for HCOs, we
increased estimated costs by the applicable market basket percentage
increase as projected by our actuaries. This increase in estimated
costs also results in a projected increase in SSO payments of 0.2
percent relative to last year. However, the expiration of the
statutory moratorium on the application of the very short-stay
outlier policy, effective December 29, 2012, which replaces the
``blended payment'' option with the ``IPPS comparable per diem
amount'' option for certain SSO cases (as described in section
VII.E.3. of the preamble of this proposed rule) is expected to
result in a -0.4 percent change in aggregate payments. The net
result of these projected changes in SSO payments in FY 2013 is an
estimated change in aggregate payments of -0.2 percent. We note that
estimated payments for all SSO cases comprise approximately 13
percent of the estimated total LTCH PPS payments, and estimated
payments for HCO cases comprise approximately 8 percent of the
estimated total LTCH FY 2013 PPS payments. Payments for HCO cases
are based on 80 percent of the estimated cost of the case above the
HCO threshold, while the majority of the payments for SSO cases
(approximately 59 percent) are based on the estimated cost of the
case.
As we discuss in detail throughout this proposed rule, based on
the most recent available data, we believe that the provisions of
this proposed rule relating to the LTCH PPS would result in an
increase in estimated aggregate LTCH PPS payments and that the
resulting LTCH PPS payment amounts would result in appropriate
Medicare payments.

[[Page 28182]]

2. Impact on Rural Hospitals

For purposes of section 1102(b) of the Act, we define a small
rural hospital as a hospital that is located outside of an urban
area and has fewer than 100 beds. As shown in Table IV, we are
projecting a 3.6 percent increase in estimated payments per
discharge for FY 2013 as compared to FY 2012 for rural LTCHs that
would result from the proposed changes presented in this proposed
rule, as well as the effect of estimated changes to HCO and SSO
payments. This estimated impact is based on the data for the 27
rural LTCHs in our database (out of 427 LTCHs) for which complete
data were available.
The estimated increase in LTCH PPS payments from FY 2012 to FY
2013 for rural LTCHs is primarily due to the higher than average
impacts from the proposed changes to the area wage level adjustment,
specifically, the proposed decrease in the labor-related share from
70.199 to 63.217. Although we are proposing to apply an area wage
level budget neutrality factor for proposed changes to the wage
indexes and labor-related share to ensure that there is no change in
aggregate LTCH PPS payments due to those changes, we estimate rural
hospitals would experience a 1.1 percent increase in payments due to
the proposed changes to the area wage level adjustment, as shown in
Column 7 below. Rural hospitals generally have a wage index of less
than 1; therefore, a proposed decrease to the labor-related share
results in their proposed wage index reducing a smaller portion of
the standard Federal rate, resulting in an estimated increase in
payments in FY 2013 as compared to FY 2012.

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

a. Budgetary Impact

Section 123(a)(1) of the BBRA requires that the PPS developed
for LTCHs ``maintain budget neutrality.'' We believe that the
statute's mandate for budget neutrality applies only to the first
year of the implementation of the LTCH PPS (that is, FY 2003).
Therefore, in calculating the FY 2003 standard Federal rate under
Sec. 412.523(d)(2), we set total estimated payments for FY 2003
under the LTCH PPS so that estimated aggregate payments under the
LTCH PPS were estimated to equal the amount that would have been
paid if the LTCH PPS had not been implemented.
As discussed above in section I.J.1. of this Appendix, we
project an increase in aggregate LTCH PPS payments in FY 2013
relative to FY 2012 of approximately $100 million based on the 427
LTCHs in our database.

b. Expiration of Statutory Delay on Full Implementation of the ``25
Percent Threshold'' Payment Adjustment and Proposed 1-Year Extension

As discussed in section VII.E.2. of the preamble of this
proposed rule, the statutory delay in the full application of the
``25 percent threshold'' payment adjustment for LTCHs at Sec.
412.534 and Sec. 412.536 will expire for cost reporting periods
beginning on or after July 1, 2012, or October 1, 2012, as
applicable. We are proposing a 1-year extension of the moratorium on
the application of the ``25 percent threshold'' payment adjustment
policy as provided by section 114(c) of the MMSEA, as amended by
section 4302(a) of the ARRA and sections 3106(a) and 10312(a) of the
Affordable Care Act, for cost reporting periods beginning on or
after October 1, 2012, and before October 1, 2013. We estimate that
this proposal will result in a payment impact of approximately $170
million to LTCHs.

c. Impact on Providers

The basic methodology for determining a per discharge LTCH PPS
payment is set forth in Sec. 412.515 through Sec. 412.536. In
addition to the basic MS-LTC-DRG payment (the standard Federal rate
multiplied by the MS-LTC-DRG relative weight), we make adjustments
for differences in area wage levels, the COLA for Alaska and Hawaii,
and SSOs. Furthermore, LTCHs may also receive HCO payments for those
cases that qualify based on the threshold established each year.
To understand the impact of the proposed changes to the LTCH PPS
payments presented in this proposed rule on different categories of
LTCHs for FY 2013, it is necessary to estimate payments per
discharge for FY 2012 using the rates, factors (including the FY
2012 GROUPER (Version 29.0), and relative weights and the policies
established in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51733
through 51781 and 51838 through 51844). It is also necessary to
estimate the payments per discharge that would be made under the
proposed LTCH PPS rates, factors, policies, and GROUPER (proposed
Version 30.0) for FY 2013 (as discussed in section VII. of the
preamble and section V. of the Addendum to this proposed rule).
These estimates of FY 2012 and FY 2013 LTCH PPS payments are based
on the best available LTCH claims data and other factors, such as
the application of inflation factors to estimate costs for SSO and
HCO cases in each year. We also evaluated the proposed change in
estimated FY 2012 payments to estimated FY 2013 payments (on a per
discharge basis) for each category of LTCHs. We are proposing a
standard Federal rate for FY 2013 of $40,507.48 that includes the
proposed 2.1 percent annual update, the proposed area wage budget
neutrality factor, and the proposed one-time prospective adjustment
to the standard Federal rate for FY 2013 of 0.98734 (approximately -
1.3 percent) that would not apply to payments for discharges
occurring on or before December 29, 2012, consistent with statute.
Payment for discharges occurring on or after October 1, 2012, and on
or before December 28, 2012, would not reflect that proposed one-
time prospective adjustment and instead would be paid based on a
standard Federal rate of $41,026.88.
Therefore, we modeled payments so that claims with discharge
dates prior to January would be paid on the basis of a rate that
does not reflect the proposed one-time prospective adjustment, and
claims with discharges in January or after would reflect our
proposed standard Federal rate for FY 2013 that reflects the
proposed one-time prospective adjustment. Furthermore, because the
statutory moratorium on application of the very short-stay outlier
policy will expire effective for discharges occurring on or after
December 29, 2012, we modeled payments so that claims that would
qualify for a payment under the very short-stay outlier policy with
discharge dates in October, November, and December are paid based on
the ``blended payment'' option, if applicable, and claims that would
qualify for a payment under the very short-stay outlier policy with
discharges in January through September are paid based on the ``IPPS
comparable per diem amount,'' if applicable (as described in section
VII.E.3. of the preamble of this proposed rule).
Hospital groups were based on characteristics provided in the
OSCAR data, FY 2008 through FY 2009 cost report data in HCRIS, and
PSF data. Hospitals with incomplete characteristics were grouped
into the ``unknown'' category. Hospital groups included the
following:
Location: Large urban/other urban/rural.
Participation date.
Ownership control.
Census region.
Bed size.
To estimate the impacts of the proposed payment rates and policy
changes among the various categories of existing providers, we used
LTCH cases from the FY 2011 MedPAR file to estimate payments for FY
2012 and to estimate payments for FY 2013 for 427 LTCHs. We believe
that the discharges based on the FY 2011 MedPAR data for the 427
LTCHs in our database, which includes 322 proprietary LTCHs, provide
sufficient representation in the MS-LTC-DRGs containing discharges
for patients who received LTCH care for the most commonly treated
LTCH patients' diagnoses.

d. Calculation of Prospective Payments

For purposes of this impact analysis, to estimate per discharge
payments under the LTCH PPS, we simulated payments on a case-by-case
basis using LTCH claims from the FY 2011 MedPAR files. For modeling
estimated LTCH PPS payments for FY 2012, we used the FY 2012
standard Federal rate (that is, $40,222.05 effective for LTCH
discharges occurring on or after October 1, 2011, through September
30, 2012).
For modeling estimated LTCH PPS payments for FY 2013, we used
the proposed FY 2013 standard Federal rate of $40,507.48, which
includes the proposed one-time prospective adjustment of 0.98734 for
payments for discharges occurring on or after December 29, 2012 and
through September 30, 2013. As noted above, consistent with section
114(c)(4) of the MMSEA, as amended by sections 3106(a) and 10312 of
the Affordable Care Act, the proposed one-time prospective
adjustment to the standard Federal rate for FY 2013 of 0.98734
(approximately -1.3 percent) would not apply to payments for
discharges occurring before December 29, 2012. Therefore, payment
for discharges occurring on or after October 1, 2012 and on or
before December 28, 2012 would not reflect that proposed adjustment
and instead would be paid based on a standard Federal rate of
$41,026.88; therefore, for the purpose of payment modeling, claims
with discharges occurring October through December were modeled
using this proposed payment rate.

[[Page 28183]]

The proposed FY 2013 standard Federal rate of $40,507.48
includes the proposed application of an area wage level budget
neutrality factor of 0.99903 (as discussed in section V.B.5. of the
Addendum to this proposed rule). As noted above, consistent with
section 114(c)(4) of the MMSEA, as amended by sections 3106(a) and
10312 of the Affordable Care Act, this proposed rate would not apply
to payments for discharges occurring before December 29, 2012.
Therefore, payment for discharges occurring on or after October 1,
2012 and on or before December 28, 2012 would be paid based on a
standard Federal rate of $41,026.88, which also includes the
proposed area wage level budget neutrality factor of 0.99903.
Furthermore, in modeling estimated LTCH PPS payments for both FY
2012 and FY 2013 in this impact analysis, we applied the FY 2012 and
the proposed FY 2013 adjustments for area wage levels and the
proposed COLA for Alaska and Hawaii. Specifically, we adjusted for
differences in area wage levels in determining estimated FY 2012
payments using the current LTCH PPS labor-related share of 70.199
percent (76 FR 51766) and the wage index values established in the
Tables 12A and 12B listed in the Addendum to the FY 2012 IPPS/LTCH
PPS final rule (and available via the Internet (76 FR 51813)). We
also applied the FY 2012 COLA factors shown in the table in section
V.C. of the Addendum to that final rule (76 FR 51810) to the FY 2012
nonlabor-related share (29.801 percent) for LTCHs located in Alaska
and Hawaii. Similarly, we adjusted for differences in area wage
levels in determining the estimated FY 2013 payments using the
proposed LTCH PPS FY 2013 labor-related share of 63.217 percent and
the proposed FY 2013 wage index values presented in Tables 12A and
12B listed in section VI. of the Addendum to this proposed rule (and
available via the Internet). We also applied the proposed FY 2013
COLA factors shown in the table in section V.C. of the Addendum of
this proposed rule to the proposed FY 2013 nonlabor-related share
(36.783 percent) for LTCHs located in Alaska and Hawaii.
As discussed above, our impact analysis reflects an estimated
change in payments for SSO cases, as well as an estimated increase
in payments for HCO cases (as described in section V.D. of the
Addendum to this proposed rule). In modeling proposed payments for
SSO and HCO cases in FY 2013, we applied an inflation factor of
1.055 (determined by OACT) to estimate the costs of each case using
the charges reported on the claims in the FY 2011 MedPAR files and
the best available CCRs from the December 2011 update of the PSF.
Furthermore, in modeling estimated LTCH PPS payments for FY 2013 in
this impact analysis, we used the proposed FY 2013 fixed-loss amount
of $15,728 (as discussed in section V.D. of the Addendum to this
proposed rule). Finally, in modeling payments for SSO cases, we
included the expiration of the statutory moratorium on application
of the very short-stay outlier, effective for discharges occurring
on or after December 29, 2012, under which the ``blended payment''
option of the SSO payment formula will be replaced with the ``IPPS
comparable per diem amount'' for very short-stay outlier cases as
discussed in section VII.E.3. of the preamble of this proposed rule.
These impacts reflect the estimated ``losses'' or ``gains''
among the various classifications of LTCHs from the FY 2012 to FY
2013 based on the proposed payment rates and policy changes
presented in this proposed rule. Table IV illustrates the estimated
aggregate impact of the LTCH PPS among various classifications of
LTCHs.
The first column, LTCH Classification, identifies the
type of LTCH.
The second column lists the number of LTCHs of each
classification type.
The third column identifies the number of LTCH cases.
The fourth column shows the estimated payment per
discharge for FY 2012 (as described above).
The fifth column shows the estimated payment per
discharge for FY 2013 (as described above).
The sixth column shows the percentage change in
estimated payments per discharge from FY 2012 to FY 2013 due to the
proposed update to the standard Federal rate (as discussed in
section V.A.2. of the Addendum to this proposed rule) and proposed
one-time prospective adjustment (which is not applicable to payments
for discharges occurring before December 29, 2012, consistent with
the statute).
The seventh column shows the percentage change in
estimated payments per discharge from FY 2012 to FY 2013 for
proposed changes to the area wage level adjustment (that is, the
proposed wage indexes and proposed labor-related share), including
the proposed application of an area wage level budget neutrality
factor (as discussed in section V.B.5. of the Addendum to this
proposed rule).
The eighth column shows the percentage change in
estimated payments per discharge from FY 2012 to FY 2013 due to the
expiration of the SSO policy that allowed for qualifying SSO cases
to be paid under a blended payment amount based on the LTCH per diem
rate and IPPS comparable per diem rate.
The ninth column shows the percentage change in
estimated payments per discharge from FY 2012 (Column 4) to FY 2013
(Column 5) for all proposed changes (and includes the effect of
estimated proposed changes to HCO and SSO payments).

[[Page 28184]]

Table IV--Impact of Proposed Payment Rate and Policy Changes to LTCH PPS Payments for FY 2013
(Estimated FY 2012 payments compared to estimated proposed FY 2013 payments*)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Percent change
in estimated Percent change
Percent change payments per in estimated
in estimated discharge from payments per
payments per FY 2012 to FY discharges due Percent change
Average FY Average FY discharge from 2013 for to expiration in payments
Number of Number of LTCH 2012 LTCH PPS 2013 LTCH PPS FY 2012 to proposed of statutory per discharge
LTCH Classification LTCHs PPS cases payment per proposed proposed FY changes to the moratorium on from FY 2012
case payment per 2013 for the area wage application of to FY 2013 for
case \1\ proposed level the `very' all proposed
annual update adjustment short-stay SSO changes \5\
to the federal with proposed payment
rate \2\ budget methodology
neutrality \3\ \4\
(1) (2) (3) (4) (5) (6) (7) (8) (9)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS................................................... 427 134,114 38,633 39,381 0.9 0.0 -0.4 1.9
BY LOCATION:
RURAL....................................................... 27 6,259 34,325 35,571 1.0 1.1 -0.3 3.6
URBAN....................................................... 400 127,855 38,844 39,568 0.9 0.0 -0.4 1.9
LARGE....................................................... 202 73,668 40,827 41,519 0.9 -0.2 -0.4 1.7
OTHER....................................................... 198 54,187 36,147 36,916 1.0 0.2 -0.5 2.1
BY PARTICIPATION DATE:
BEFORE OCT. 1983............................................ 17 5,848 34,189 35,120 0.9 -0.2 -0.2 2.7
OCT. 1983-SEPT. 1993........................................ 44 15,786 41,530 42,286 0.9 -0.1 -0.5 1.8
OCT. 1993-SEPT. 2002........................................ 185 62,594 37,886 38,616 1.0 0.0 -0.4 1.9
AFTER OCTOBER 2002.......................................... 173 48,737 39,142 39,895 1.0 0.0 -0.5 1.9
UNKNOWN PARTICIPATION DATE.................................. 8 1,149 40,546 41,096 0.9 -0.3 -0.7 1.4
BY OWNERSHIP TYPE:
VOLUNTARY................................................... 82 19,532 38,899 39,900 0.9 0.2 -0.5 2.6
PROPRIETARY................................................. 322 111,475 38,451 39,148 1.0 0.0 -0.4 1.8
GOVERNMENT.................................................. 14 1,718 44,353 45,172 0.9 -0.4 -0.6 1.8
UNKNOWN OWNERSHIP TYPE...................................... 9 1,389 42,411 43,693 0.9 0.9 -0.6 3.0
BY REGION:
NEW ENGLAND................................................. 15 7,333 33,793 34,643 0.9 -0.2 -0.2 2.5
MIDDLE ATLANTIC............................................. 31 7,970 41,678 42,233 1.0 -0.1 -0.4 1.3
SOUTH ATLANTIC.............................................. 60 16,367 41,373 41,951 0.9 -0.1 -0.5 1.4
EAST NORTH CENTRAL.......................................... 69 20,669 40,014 40,782 1.0 0.2 -0.5 1.9
EAST SOUTH CENTRAL.......................................... 30 8,411 38,938 39,929 0.9 0.7 -0.4 2.5
WEST NORTH CENTRAL.......................................... 26 5,374 40,845 41,733 0.9 0.6 -0.5 2.2
WEST SOUTH CENTRAL.......................................... 139 50,543 34,502 35,415 1.0 0.3 -0.4 2.6
MOUNTAIN.................................................... 32 5,956 41,996 42,450 0.9 -0.7 -0.4 1.1
PACIFIC..................................................... 25 11,491 48,388 48,603 0.8 -1.3 -0.4 0.4
BY BED SIZE:
BEDS: 0-24.................................................. 31 3,478 34,245 35,055 1.0 0.6 -0.4 2.4
BEDS: 25-49................................................. 198 44,578 38,194 38,992 1.0 0.3 -0.5 2.1
BEDS: 50-74................................................. 115 36,438 38,667 39,421 1.0 0.0 -0.4 2.0
BEDS: 75-124................................................ 46 20,178 41,700 42,290 0.9 -0.3 -0.4 1.4
BEDS: 125-199............................................... 23 16,055 37,051 37,804 0.9 -0.1 -0.4 2.0
BEDS: 200+.................................................. 14 13,387 38,416 39,201 0.9 -0.4 -0.4 2.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated FY 2013 LTCH PPS payments based on the proposed payment rate and policy changes presented in the preamble and the Addendum to this proposed rule.

[[Page 28185]]

\2\ Percent change in estimated payments per discharge from FY 2012 to FY 2013 for the proposed annual update to the standard Federal rate and the proposed one-time prospective adjustment to
the standard Federal rate (which would not apply to payments for discharges occurring before December 29, 2012, consistent with the statute), as discussed in section V.A.2. of the Addendum
to this proposed rule.
\3\ Percent change in estimated payments per discharge from FY 2012 to FY 2013 for proposed changes to the area wage level adjustment at Sec. 412.525(c) (as discussed in section V.B. of the
Addendum to this proposed rule).
\4\ Percent change in estimated payments per discharges due to the expiration of the statutory moratorium on application of the very short-stay outlier, effective for discharges occurring on
or after December 29, 2012, under which the ``blended payment'' option of the SSO payment formula will be replaced with the ``IPPS comparable per diem amount'' for very short-stay outlier
cases as discussed in section VII.E.3. of the preamble of this proposed rule.
\5\ Percent change in estimated payments per discharge from FY 2012 LTCH PPS (shown in Column 4) to FY 2013 LTCH PPS (shown in Column 5), including all of the proposed changes presented in the
preamble and the Addendum to this proposed rule. Note, this column, which shows the percent change in estimated payments per discharge for all proposed changes, does not equal the sum of the
percent changes in estimated payments per discharge for the proposed annual update to the standard Federal rate (column 6) and the proposed changes to the area wage level adjustment with
budget neutrality (Column 7) due to the effect of estimated changes in both estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO payments (as discussed in
this impact analysis), as well as other interactive effects that cannot be isolated.

[[Page 28186]]

e. Results

Based on the most recent available data for 427 LTCHs, we have
prepared the following summary of the impact (as shown above in
Table IV) of the proposed LTCH PPS payment rate and policy changes
presented in this proposed rule. The impact analysis in Table IV
shows that estimated payments per discharge are expected to increase
approximately 1.9 percent, on average, for all LTCHs from FY 2012 to
FY 2013 as a result of the proposed payment rate and policy changes
presented in this proposed rule, including the expiration of the
statutory moratorium on application of the very short-stay outlier
policy which utilizes the ``IPPS comparable per diem amount''
payment option, effective for discharges occurring on or after
December 29, 2012 (discussed in section VII.E.3. of the preamble of
this proposed rule) and an estimated increase in HCO payments. This
estimated 1.9 percent increase in LTCH PPS payments per discharge
from the FY 2012 to FY 2013 for all LTCHs (as shown in Table IV) was
determined by comparing estimated FY 2013 LTCH PPS payments (using
the proposed rate and policies discussed in this proposed rule) to
estimated FY 2012 LTCH PPS payments (as described above in section
I.J.1. of this Appendix).
We are proposing to establish a standard Federal rate of
$40,507.48 for FY 2013. Specifically, we are proposing to update the
standard Federal rate for FY 2013 by 2.1 percent, which is based on
the latest estimate of the proposed LTCH PPS market basket increase
(3.0 percent), the proposed reduction of 0.8 percentage point for
the multifactor productivity adjustment, and the 0.1 percentage
point reduction consistent with sections 1886(m)(3) and (m)(4) of
the Act. In addition, we are proposing to apply a one-time
prospective adjustment of 0.98734 (approximately -1.3 percent) to
the standard Federal rate. However, this proposed reduction would
not apply to payments for discharges occurring before December 29,
2012, consistent with section 114(c)(4) of the MMSEA, as amended by
sections 3106(a) and 10312 of the Affordable Care Act. Therefore,
payments for discharges occurring on or after October 1, 2012, and
on or before December 28, 2012, would not reflect that proposed
adjustment and instead would be paid based on a standard Federal
rate of $41,026.88. We noted earlier in this section that, for most
categories of LTCHs, as shown in Table IV (Column 6), the impact of
the increase of 2.1 percent for the proposed annual update to the
standard Federal rate and the proposed 0.8 percent update to the
standard Federal rate that includes the proposed one-time
prospective adjustment of approximately -1.3 percent which would not
apply to payments for discharges occurring before December 29, 2012,
consistent with the statute, is projected to result in approximately
a 0.9 percent increase in estimated payments per discharge for all
LTCHs from FY 2012 to FY 2013. That is, for approximately the first
3 months of FY 2013, payments would not reflect the proposed one-
time prospective adjustment such that payments would be based on the
proposed annual update to the standard Federal rate of 2.1 percent,
and for the remaining 9 months of FY 2013, payments would be based
on a standard Federal rate that reflects the proposed FY 2013 annual
update of 2.1 percent and the proposed one-time prospective
adjustment of approximately -1.3 percent. In addition, our estimate
of the proposed changes in payments due to the proposed updates to
the standard Federal rate also reflects estimated payments for SSO
cases that are paid using special methodologies that are not
affected by the update to the standard Federal rate. For these
reasons, we estimate that payments would increase by 0.9 percent due
to the proposed update to the Federal rate.

(1) Location

Based on the most recent available data, the vast majority of
LTCHs are located in urban areas. Only approximately 6 percent of
the LTCHs are identified as being located in a rural area, and
approximately 5 percent of all LTCH cases are treated in these rural
hospitals. The impact analysis presented in Table IV shows that the
average percent increase in estimated payments per discharge from FY
2012 to FY 2013 for all hospitals is 1.9 percent for all proposed
changes. For rural LTCHs, the percent change for all proposed
changes is estimated to be 3.6 percent, while for urban LTCHs, we
estimate the increase would be 1.9 percent. Large urban LTCHs are
projected to experience an increase of 1.7 percent in estimated
payments per discharge from FY 2012 to FY 2013, while other urban
LTCHs are projected to experience an increase of 2.1 percent in
estimated payments per discharge from FY 2012 to FY 2013, as shown
in Table IV.

(2) Participation Date

LTCHs are grouped by participation date into four categories:
(1) Before October 1983; (2) between October 1983 and September
1993; (3) between October 1993 and September 2002; and (4) after
October 2002. Based on the most recent available data, the majority
(approximately 47 percent) of the LTCH cases are in hospitals that
began participating in the Medicare program between October 1993 and
September 2002, and are projected to experience nearly the average
increase (1.9 percent) in estimated payments per discharge from FY
2012 to FY 2013, as shown in Table IV.
In the participation category where LTCHs began participating in
the Medicare program before October 1983, LTCHs are projected to
experience a higher than average percent increase (2.7 percent) in
estimated payments per discharge from FY 2012 to FY 2013, as shown
in Table IV. Approximately 4 percent of LTCHs began participating in
Medicare before October 1983. The LTCHs in this category are
projected to experience a lower than average increase in estimated
payments because of decreases in payments due to the proposed
changes to the area wage adjustment. Approximately 10 percent of
LTCHs began participating in Medicare between October 1983 and
September 1993. These LTCHs are projected to experience a 1.8
percent increase in estimated payments from FY 2012 to FY 2013.
LTCHs that began participating in Medicare after October 2002
currently represent approximately 41 percent of all LTCHs, and are
projected to experience an average increase (1.9 percent) in
estimated payments from FY 2012 to FY 2013.

(3) Ownership Control

Other than LTCHs whose ownership control type is unknown, LTCHs
are grouped into three categories based on ownership control type:
Voluntary, proprietary, and government. Based on the most recent
available data, approximately 19 percent of LTCHs are identified as
voluntary (Table IV). We expect that, for these LTCHs in the
voluntary category, estimated FY 2013 LTCH payments per discharge
would experience a higher than the average increase (2.6 percent) in
comparison to estimated payments in FY 2012 primarily because we
project the estimated increase in HCO payments to be higher than the
average increase for these LTCHs. The majority (75 percent) of LTCHs
are identified as proprietary and these LTCHs are projected to
experience a nearly average increase (1.8 percent) in estimated
payments per discharge from FY 2012 to FY 2013. Finally, government-
owned and operated LTCHs are also expected to experience a nearly
average increase in payments of 1.8 percent in estimated payments
per discharge from FY 2012 to FY 2013.

(4) Census Region

Estimated payments per discharge for FY 2013 are projected to
increase for LTCHs located in all regions in comparison to FY 2012.
Of the 9 census regions, we project that the increase in estimated
payments per discharge would have the largest positive impact on
LTCHs in the West South Central, East South Central and New England
regions (2.6 percent, 2.5 percent and 2.5 percent respectively as
shown in Table IV). The estimated percent increase in payments per
discharge from FY 2012 to FY 2013 for those regions is largely
attributable to the proposed changes in the area wage level
adjustment or proposed updates to the MS-LTC-DRGs classifications
and relative weights.
In contrast, LTCHs located in the Pacific region are projected
to experience the smallest increase in estimated payments per
discharge from FY 2012 to FY 2013. The average estimated increase in
payments of 0.4 percent for LTCHs in the Pacific region is primarily
due to estimated decreases in payments associated with the proposed
changes to the area wage level adjustment.

(5) Bed Size

LTCHs are grouped into six categories based on bed size: 0-24
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater
than 200 beds.
We project that small LTCHs (0-24 beds) would experience a 2.4
percent increase in payments due to increases in the area wage
adjustment while large LTCHs (200+ beds) would experience a 2.0
percent increase in payments. LTCHs with between 75 and 124 beds are
expected to experience a slightly below average increase in payments
per discharge from FY 2012 to FY 2013 (1.4 percent) primarily due to
an estimated decreases in their payments from FY 2012 to FY 2013 due
to the proposed area wage level adjustment.

[[Page 28187]]

4. Effect on the Medicare Program

As noted previously, we project that the provisions of this
proposed rule would result in an increase in estimated aggregate
LTCH PPS payments in FY 2013 relative to FY 2012 of approximately
$100 million (or approximately 1.9 percent) for the 427 LTCHs in our
database. In addition, the effects of the proposed extension of the
moratorium on the application of the ``25 percent threshold''
payment adjustment policy, as provided by section 114(c) of the
MMSEA, as amended by section 4302(a) of the ARRA and sections
3106(a) and 10312(a) of the Affordable Care Act, for cost reporting
periods beginning or after October 1, 2012, and before October 1,
2012, will result in a payment impact of approximately $170 million
to LTCHs.

5. Effect on Medicare Beneficiaries

Under the LTCH PPS, hospitals receive payment based on the
average resources consumed by patients for each diagnosis. We do not
expect any changes in the quality of care or access to services for
Medicare beneficiaries under the LTCH PPS, but we continue to expect
that paying prospectively for LTCH services will enhance the
efficiency of the Medicare program.

K. Effects of Proposed Requirements for Hospital Inpatient Quality
Reporting (IQR) Program

In section VIII.A. of this proposed rule, we discuss our
requirements for hospitals to report quality data under the Hospital
IQR Program in order to receive the full annual percentage increase
for FY 2015. We now estimate that approximately 95 hospitals may not
receive the full annual percentage increase in any fiscal year. At
the time that analysis was prepared, 70 hospitals did not receive
the full annual percentage increase in FY 2012.
We are proposing that, for the FY 2015 payment determination, we
would remove one chart-abstracted measure and 16 claims-based
measures, beginning with January 1, 2012 discharges. We believe that
these proposed changes would not have a significant effect on our
estimate. We believe that most of these estimated 95 hospitals will
be either small rural or small urban hospitals. However, at this
time, information is not available to determine the precise number
of hospitals that will not meet the requirements to receive the full
annual percentage increase for FY 2015.
In section VIII.A.6. of this preamble, we are proposing, for the
FY 2015 payment determination, supplements to the chart validation
process for the Hospital IQR Program. As a part of these
supplements, we are proposing, for FY 2015 payment determinations
and subsequent years, to separate validation for chart-abstracted
and HAI measures and to also validate two additional HAI measures,
CAUTI and SSI.
Starting with the FY 2015 payment determination, we are
proposing a modest increase to the current Hospital IQR Program
validation sample of 18 cases per quarter (currently three each for
SCIP, AMI, HF, PN, ED/IMM, and candidate CLABSI) to 27 cases per
quarter (3 each for SCIP, AMI, HF, PN, ED/IMM, and up to 4 each for
CLABSI, CAUTI, and SSI). However, in order not to increase the
Hospital IQR validation program's overall burden to hospitals, while
expanding some of the requirements, and targeting hospitals with
higher levels of concern for data quality, we are proposing to
reduce the total sample size of hospitals included in the annual
validation random sample from 800 eligible hospitals to 600 eligible
hospitals. This includes 400 hospitals in the base sample and up to
200 hospitals in the target sample.
The requirement of an additional 9 charts per hospital submitted
for validation, combined with the decreased sample size, will result
in approximately 1,800 additional charts per quarter being submitted
to CMS by all selected hospitals. We provide payment to hospitals
for the cost of sending charts to the CDAC contractor at the rate of
12 cents per page for copying and approximately $4.00 per chart for
postage. Our experience shows that the average chart received by the
CDAC contractor is approximately 275 pages. Thus, we estimate that
we would expend approximately $66,600 per quarter to collect the
additional charts we need to validate all measures.
The total requirement of 27 charts per hospital would result in
approximately 16,200 charts per quarter being submitted to CMS.
Using the assumptions discussed above, for the FY 2015 Hospital IQR
Program, we estimate that we would have expenditures of
approximately $599,400 per quarter related to the validation
requirement. Given that we pay for the data collection effort, we
believe that a requirement for 27 charts per hospital per quarter
represents a minimal burden to participating hospitals selected for
validation.

L. Effects of Proposed PPS-Exempt Cancer Hospital Quality Reporting
(PCHQR) Program

In section VIII.B. of the preamble of this proposed rule, we
discuss our proposal to implement the quality data reporting program
for PPS-exempt hospitals (PCHs), which we refer to as the PCHQR
program, as required under section 1866(k) of the Act, as added by
section 3005 of the Affordable Care Act. These quality reporting
requirements would affect all PCHs participating in Medicare. PCHs
would be required to register with the CDC, the CMS contractor, and
QualityNet Web sites and take the proper training in order to be
adequately prepared to use the respective systems to submit the
data. The anticipated burden to these PCHs consists of the
following: (1) The initial registration of the facility with CDC,
the CMS contractor, and CMS; (2) training of the appropriate staff
members on how to use the CDC agency-based data collection mechanism
(CDC/NHSN), the CMS contractor-based collection mechanism for the
cancer-specific quality measure data, and CMS (QualityNet) program;
(3) the time required for collection and aggregation of data; (4)
the time required for entry of the data into the CDC's NHSN data
warehouse, CMS contractor's quality measure data warehouse, and
QualityNet databases by the PCH's representative.
All PCHs that currently do not already report data to the NHSN
would be required to register with the CDC, the CMS contractor, and
the CMS/QualityNet and take the proper training in order to be
adequately prepared to use the CDC's NHSN data warehouse, the CMS
contractor's collection mechanism for data submission, and the CMS
QualityNet Web site.
Those PCHs that already report the proposed HAI measures to the
NHSN would not be significantly affected because we intend to align
our reporting infrastructure with that used by the NHSN. However,
for PCHs that do not currently report the two proposed HAI measures
to the NHSN, at this time, we have no way to estimate how many PCHs
will participate in the PCHQR program. Therefore, we are unable to
estimate the burden for these PCHs.
Aside from the statutory requirements, it is important to note
that one of our priorities is to help achieve better health and
better health care for individuals through collection of valid,
reliable, and relevant measures of quality health care data. Such
data can be shared with appropriate health care related
organizations and used to the further the development of health care
quality, which, in turn, helps to further our objectives and goals.
Health care organizations can use their health care quality data for
many purposes such as in their risk management programs, health care
acquired infection prevention programs and research and development
of medical programs, among others.
Even more importantly, we intend to share the information
obtained from the PCHQR Program with the public as is required under
the statute. These data will be displayed on the Hospital Compare
Web site. The goals of making these data available to the public in
a public user-friendly and relevant format, include, but are not
limited to: (1) Keeping the public informed of the quality of care
that is being provided in PCHs as a whole; (2) keeping the public
informed of the quality of care being provided in specific PCHs; (3)
allowing the public to compare and contrast the data about specific
PCHs, thus enabling the public to make informed health care
decisions regarding PCHs; and (4) providing information about
current trends in health care. There are many other public uses for
these quality data concerning PCHs. Further, keeping the public
informed of quality of care provided in health care has always been
of high priority to CMS.
We also seek to align the new PCHQR Program reporting
requirements with current HHS high priority conditions and topics
and to ultimately provide a comprehensive assessment of the quality
of health care delivered in a variety of settings.

M. Effects of Proposed Hospital Value-Based Purchasing (VBP)
Program Requirements

Section 1886(o)(1)(B) of the Act directs the Secretary to begin
making value-based incentive payments under the Hospital VBP Program
to hospitals for discharges occurring on or after October 1, 2012.
These incentive payments will be funded for FY 2013 through a
reduction to the FY 2013 base operating MS-DRG payment for each
discharge of 1 percent, as required by section 1886(o)(7)(B) of the
Act. The applicable percentage for FY 2014 is 1.25 percent, for FY
2015 is 1.5

[[Page 28188]]

percent, for FY 2016 is 1.75 percent, and for FY 2017 and subsequent
years is 2 percent.
We previously published a detailed analysis of the FY 2013
Hospital VBP Program's impact, based on scoring for two quality
domains, in the Hospital Inpatient VBP Program final rule (76 FR
26542 through 26545). Because we are not proposing in this proposed
rule to make any changes to the FY 2013 Hospital VBP Program, we do
not believe we must provide an additional regulatory impact analysis
for the FY 2013 Hospital VBP Program. We are proposing the
operational details of the payment adjustment in the preamble of
this proposed rule. We believe that these proposals do not have a
regulatory impact or financial impact beyond policies already
finalized. They are proposals regarding how CMS intends to ensure
that the value-based incentive payments made to all hospitals in a
fiscal year are equal, in total, to the reduced base operating DRG
payment amounts.
In section VIII.C. of the preamble of this proposed rule, we
discuss our proposal to add requirements for the Hospital VBP
Program. In addition to certain operational and payment details for
the FY 2013 Hospital VBP Program, we are making a number of
additional proposals related to the FY 2015 and the FY 2016 Hospital
VBP Program, including proposed measures, performance periods,
performance standards, domain weighting, and other topics.
Specifically, with respect to the FY 2015 Hospital VBP Program,
we are proposing to add one additional clinical process of care
measure, AMI-10: Statin Prescribed at Discharge, and two additional
outcome measures, an AHRQ Patient Safety Patient Safety Indicators
composite measure and CLABSI: Central Line-Associated Blood Stream
Infection. We also are proposing to add a measure of Medicare
Spending per Beneficiary in the Efficiency domain.
With respect to the FY 2016 Hospital VBP Program, we are
proposing to adopt four measures: three 30-day mortality measures
adopted for FY 2014 and proposed for FY 2015--MORT-30-AMI, MORT-30-
HF, and MORT-30-PN--and the AHRQ PSI composite measure. All of these
measures are required for the Hospital IQR Program; therefore, their
inclusion in the Hospital VBP Program does not result in any
additional burden because the Hospital VBP Program uses data that
are required for the Hospital IQR Program.
For future program years, we intend to consider the impacts of
Hospital VBP Program policies in the applicable IPPS/LTCH PPS
rulemaking vehicle. Because we are not proposing to alter the
underlying scoring methodology finalized for the FY 2013 Hospital
VBP Program in this proposed rule, we do not believe it appropriate
to revise the regulatory impact analysis published in the Hospital
Inpatient VBP final rule referenced above. We intend to provide an
updated analysis of the Hospital VBP Program's impacts for the FY
2014 program year in the FY 2014 IPPS/LTCH PPS rulemaking.

N. Effects of Proposed New Measures To Be Added to the LTCH Quality
Reporting (LTCHQR) Program

In section VIII.D. of the preamble of this proposed rule, we
discuss the implementation of section 3004(a) of the Affordable Care
Act, which added section 1886(m)(5) to the Act. Section 1886(m)(5)
of the Act, further provides that in the case of an LTCH that does
not submit data to the Secretary in accordance with section
1886(m)(5)(C) of the Act with respect to such a rate year, any
annual update to the standard Federal rate for discharges for the
hospital during the rate year, and after application of section
1886(m)(3) of the Act, shall be reduced by 2 percentage points. The
initial requirements for this LTCH Quality Reporting (LTCHQR)
Program were finalized in the section VII.C. of the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51743 through 51756).
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51839 through
51840), we estimated that only a few LTCHs would not receive the
full payment update in any fiscal year as a result of not submitting
data under the LTCH quality reporting program. At this time, the
LTCHQR Program has not been fully implemented, as data collection
will not begin until October 1, 2012. However, we believe that
statements we made in the FY 2012 IPPS/LTCH PPS final rule regarding
the number and types of LTCHs that may not receive the full payment
update as a result of failing to submit data to the Secretary under
the LTCHQR Program remain valid. We believe that a majority of LTCHs
will submit data because they will view the new quality reporting
program as an important step in improving the quality of care
patients receive in these facilities. We believe that most LTCHs
will quickly and easily adapt to this new quality reporting program
and find that the benefits of this program outweigh the burdens.
In section VIII.D.3.d. of the preamble of this proposed rule,
for FY 2015, we have proposed to retain the three quality measures
that were finalized for use in the LTCHQR Program in the FY 2012
IPPS/LTCH PPS final rule. These measures are: (1) Catheter-
Associated Urinary Tract Infections (CAUTI); (2) Central Line
Catheter-Associated Blood Stream Infection Event (CLABSI); and (3)
Pressure Ulcers that are New or Have Worsened. In the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51780 through 51781), we estimated that
the total yearly cost to all LTCH that are paid under the LTCH PPS
to report these data (including: NHSN registration and training for
the CAUTI and CLABSI quality measures; data submission for all three
measures, and monitoring data submission) would be approximately
$756,326. In section XI.B.9. of the preamble of this proposed rule,
we use this same estimate.
It is important to note that, as part of its endorsement
maintenance process under NQF's Patient Safety Measures Project
(http://www.qualityforum.org/projects/patient safety_
measures.aspx), the NQF reviewed the CAUTI and CLABSI measures that
we adopted in the FY 2012 IPPS/LTCH final rule. As a result of this
review, the NQF expanded the scope of endorsement of these measures
to include additional care settings, including LTCHs. We are
proposing, in this proposed rule, that the CAUTI and CLABSI measures
be adopted in their expanded form for the FY 2014 payment
determination. and all subsequent fiscal year payment
determinations. We do not anticipate that the expansion of the CAUTI
and CLABSI measures will cause any increase in the burden to
providers because there will be no change in the way that these data
are collected or reported.
In the FY 2012 IPPS/LTCH PPS final rule and in the preamble of
this proposed rule, we estimate that the total cost to all LTCHs to
report these data, including NHSN registration and training for the
CAUTI and CLABSI quality measures; data submission for all three
measures, and monitoring data submission would be $756,326. We
believe that this remains a valid estimation of the total financial
burden that all LTCHs will incur as a result of the LTCHQR Program,
even considering that the CAUTI and CLABSI measures were reviewed
and expanded by the NQF.
We do not believe that that the burden estimate that we made in
the FY 2012 IPPS/LTCH PPS final rule is affected by the expansion of
the CAUTI and CLABSI measures because these expanded measures are
essentially the same measures that were adopted in the FY 2012 IPPS/
LTCH PPS final rule, except that the measure names have been changed
and the measures have been expanded so as to be applicable to the
LTCH setting. The expanded CAUTI and CLABSI measures make no changes
to the way that this data is to be collected and reported by LTCHs.
Thus, use of the expanded CAUTI and CLABSI measures will place no
additional financial burden on LTCHs. In addition, we believe that
this financial burden should remain relatively stable over the first
several years of this quality reporting program, subject to normal
inflationary increases, such as increased labor wage rates.
In section VIII.D.3.d. of the preamble of this proposed rule,
for the FY 2016 LTCHQR Program, we are proposing to add five
additional quality measures. These proposed quality measures are:
(1) Percent of Nursing Home Residents Who Were Assessed and
Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF
0680); (2) Percent of Residents Assessed and Appropriately
Given the Pneumococcal Vaccine (Short-Stay) (NQF 0682); (3)
Influenza Vaccination Coverage Among Healthcare Personnel (NQF
0431); (4) Ventilator Bundle (NQF 0302); and (5)
Restraint Rate per 1,000 Patient Days (not NQF-endorsed).
As we noted previously, the LTCHQR Program has not been fully
implemented, as data collection will not begin until October 1,
2012. At this time, we provide estimates of the costs associated
with the collection and submission of data in section XI.B.9 of the
preamble of this proposed rule.
We invite public comment on the impact that the proposed
measures would have on LTCHs.

[[Page 28189]]

O. Effects of Proposed Quality Reporting Requirements for
Ambulatory Surgical Centers (ASCs)

In section XIV.K. of the CY 2012 OPPS/ASC final rule with
comment period (76 FR 74492 through 74517), we finalized quality
reporting measures for the CYs 2014, 2015, and 2016 payment
determinations under the ASC Quality Reporting Program. In section
VIII.E. of the preamble of this proposed rule, we discuss our
proposals to adopt requirements for ASCs to report quality data
under the ASC Quality Reporting Program in order to be eligible to
receive the full ASC annual payment update. We are unable at this
time to estimate the number of ASCs that may not receive the full
ASC annual payment update in CYs 2014, 2015, and 2016 because we do
not have data that would allow us to make a reasonable estimate.
ASCs have not yet submitted quality data to CMS; therefore, there
are no data from previous program operations on which to base an
estimate. Further, data from other quality programs would not allow
us to make a reasonable estimate. Although we might be able to make
a reasonable estimate based on data from other programs with respect
to the structural and process of care measures, we are unable to
estimate the number of ASCs that would not be eligible to receive
the full ASC annual payment update with respect to the submission of
QDCs for the claims-based measures. There are two other quality data
reporting programs that utilize QDCs reported on claims similar to
what we finalized in the ASC Quality Reporting Program: the
Physician Quality Reporting System (PQRS) and the E-Prescribing
Incentive Program. However, these programs do not have comparable
reporting incentives. PQRS currently has no penalty for not meeting
reporting requirements, and the E-Prescribing Incentive Program
until CY 2012 was solely incentive-based, rather than penalty-based.

P. Effects of Proposed Requirements for the Inpatient Psychiatric
Facilities Quality Reporting (IPFQR) Program

In section VIII.F. of the preamble of this proposed rule, we
discuss our proposals to implement the IPFQR Program.

1. General Background and Intent for Implementation of the Proposed
IPFQR Program

We intend to achieve several goals as we develop and implement
the proposed IPFQR Program. One goal of the proposed IPFQR Program
is to implement the statutory requirements of section 1886(s)(4) of
the Act as added by sections 3401(f)(4) and 10322(a) of the
Affordable Care Act. However, in addition, it is important to note
that one of our priorities is to help achieve better health and
better health care for individuals through collection of valid,
reliable, and relevant measures of quality health care data. Such
data can be shared with appropriate health care related
organizations and used to further the development of health care
quality, which, in turn, helps to further CMS' objectives and goals.
Health care organizations can use such health care quality data for
many purposes such as in their risk management programs, health care
acquired infection prevention programs and research and development
of medical programs, among others.
More importantly, as required by the Act, we intend to share the
information obtained from the IPFQR Program with the public. These
data will be displayed on the CMS Web site. The goals of making
these data available to the public in a properly risk-adjusted,
public user-friendly and relevant format, include, but are not
limited to: (1) Keeping the public informed of the quality of care
that is being provided in IPFs as a whole; (2) keeping the public
informed of the quality of care being provided in specific IPFs; (3)
allowing the public to compare and contrast the data about specific
IPFs, thus enabling the public to make informed health care
decisions regarding IPFs; and (4) providing information about
current trends in health care. There are certainly many other public
uses for these quality data concerning IPFs. However, giving the
public access to information about the quality of care in specific
facilities and keeping the public informed of trends in health care
has always been of high priority to CMS.
CMS also seeks to align the new IPFQR Program reporting
requirements with current HHS high priority conditions and topics
and to ultimately provide a comprehensive assessment of the quality
of health care delivered in a variety of settings.

2. Anticipated Effects

This proposed rule would affect all IPFs participating in
Medicare. The facilities will have to register with QualityNet and
take the proper training in order to be adequately prepared to use
the QualityNet system to submit the data. The anticipated burden to
these providers consists of the following: (1) The initial
registration of the facility with QualityNet; (2) training of the
appropriate staff members on how to use the QualityNet reporting
program; (3) the time required for collection and aggregation of
data; and (4) the time required for entry of the data into the
QualityNet database by the IPF's representative.
We have estimated the burdens associated with IPFs reporting
aggregated-level data on QualityNet. In our burden calculation, we
have included the time used for chart abstraction and for training
personnel on collection of chart-abstracted data, aggregation of the
data, as well as training for submitting the aggregate-level data
through QualityNet. We estimate that the annual hourly burden to
each IPF for the collection, submission, and training of personnel
for submitting all quality measures is approximately 821 hours in a
year for each IPF. Thus, the average hourly burden to each IPF is
approximately 68 hours per month. At this time we have no way to
estimate how many IPFs will participate in the program. Therefore,
we cannot estimate the financial impact.
We are proposing to adopt the quality measures, abstraction
methods, population, sampling, and reporting approaches used by TJC.
One reason we selected this proposed approach was to minimize the
burden on IPFs. There were 1,741 existing IPFs, of which 450
(approximately 26 percent) are currently reporting the proposed
measures to TJC. For these IPFs, we estimate that the burden will be
minimal.

Q. Effects of Proposed Requirements for Provider and Practitioner
Medical Record Deadlines and Claims Denials

In section X. of the preamble of this proposed rule, we discuss
changes for practitioners to follow in responding to requests for
medical records from Quality Improvement Organizations (QIOs). The
proposed changes would require practitioners to adhere to the 21-day
and 30-day timeframes in the regulations, which are currently only
applicable to providers. In addition, the proposed changes would
give QIOs the authority to effectuate claim denials for
practitioners who fail to submit the medical records within these
timeframes. QIOs have authority to carry out claim denials for
providers who fail to submit medical records, but similar provisions
do not exist for practitioners. In fact, to this point, the QIOs'
only option for practitioners who fail to submit medical records has
been to refer the matter to the HHS Inspector General, and it would
seem appropriate to identify a step, short of recommending
sanctions, for the QIOs to pursue.
On average, QIOs request approximately 2,000 medical records
from practitioners each year. In general, requests for medical
records from both practitioners and providers are ultimately
fulfilled, but the average response time is considerably longer for
practitioners than for providers. Because we are working to improve
the QIOs' response time in completing various review activities, the
proposed application of the timeframes to practitioners is an
important step in our efforts. In addition, given that the QIOs have
the need for and the statutory authority to request medical records
within a reasonable period of time, they have relied on the same 21-
day and 30-day timeframes for practitioners. We believe that having
the regulatory timeframe and authority to carry out technical
denials for providers have generally resulted in providers complying
with medical record requests within the required timeframes. In line
with this, we believe that having this same regulatory authority for
practitioners will result in practitioners complying with medical
record requests within their required timeframes, which should, in
turn, greatly will reduce the potential for any technical denials.
Moreover, because vendors are increasingly being used by providers
and practitioners to respond to requests for medical records, the
increasing effectiveness of this process could well further diminish
any impact of the proposed regulatory changes. While we believe the
impact would be insignificant, at this time, we cannot determine the
precise number of claim denials that could occur for practitioners
as a result of these proposed changes.

R. Alternatives Considered

This proposed rule contains a range of proposed policies. It
also provides descriptions of the statutory provisions that are
addressed, identifies proposed policies, and presents rationales for
our decisions and,

[[Page 28190]]

where relevant, alternatives that were considered.

S. Overall Conclusion

1. Acute Care Hospitals

Table I of section I.G. of this Appendix demonstrates the
estimated distributional impact of the IPPS budget neutrality
requirements for the proposed MS-DRG and wage index changes, and for
the wage index reclassifications under the MGCRB. Table I also shows
an overall increase of 0.9 percent in operating payments. We
estimate that operating payments would increase by approximately
$904 million in FY 2013 relative to FY 2012. In addition, we
estimate a savings of $24 million associated with the HACs policies
in FY 2013, which is an additional $2 million in savings than in FY
2012. In FY 2012, pursuant to section 1109 of the Affordable Care
Act, we distributed an additional $250 million to qualifying
hospitals resulting in a decrease of $250 million in payments to
hospitals in FY 2013 relative to FY 2012. Furthermore, we estimate
that the expiration of the expansion of low-volume payments under
sections 3125 and 10314 of the Affordable Care Act in FY 2013 will
result in a decrease in payments of $300 million compared to low-
volume payments made in FY 2012. Finally, we estimate that our
proposal to count labor and delivery bed days in the available bed
day count for IME and DSH payments will reduce IME payments by
approximately $170 million for FY 2013. These estimates, added to
our FY 2013 operating estimate of $904 million, would result in an
increase of $182 million for FY 2013. We estimate that capital
payments will experience a -0.1 percent decrease in payments per
case, as shown in Table III of section I.I. of this Appendix. We
project that there would be an $8 million decrease in capital
payments in FY 2013 compared to FY 2012. The proposed cumulative
operating and capital payments should result in a net increase of
$174 million to IPPS providers. The discussions presented in the
previous pages, in combination with the rest of this proposed rule,
constitute a regulatory impact analysis.

2. LTCHs

Overall, LTCHs are projected to experience an increase in
estimated payments per discharge in FY 2013. In the impact analysis,
we are proposing to use the rates, factors, and policies presented
in this proposed rule, including updated wage index values and
relative weights, and the best available claims and CCR data to
estimate the change in payments under the LTCH PPS for FY 2013.
Accordingly, based on the best available data for the 427 LTCHs in
our database, we estimate that FY 2013 LTCH PPS payments would
increase approximately $100 million relative to FY 2012. In
addition, we estimate that extension of the moratorium on the
application of the ``25 percent threshold'' payment adjustment
policy, as provided by section 114(c) of the MMSEA, as amended by
section 4302(a) of the ARRA and sections 3106(a) and 10312(a) of the
Affordable Care Act, for cost reporting periods beginning on or
after October 1, 2012, and before October 1, 2013, will result in a
payment impact of approximately $170 million to LTCHs.

II. Accounting Statements and Tables

A. Acute Care Hospitals

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), in Table V below, we have prepared an
accounting statement showing the classification of the expenditures
associated with the provisions of this proposed rule as they relate
to acute care hospitals. This table provides our best estimate of
the proposed change in Medicare payments to providers as a result of
the changes to the IPPS presented in this proposed rule. All
expenditures are classified as transfers to Medicare providers.

Table V--Accounting Statement: Classification of Estimated Expenditures
under the IPPS From FY 2012 to FY 2013
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............ $174 million.
From Whom to Whom......................... Federal Government to IPPS
Medicare Providers.
-----------------------------
Total................................. $174 million.
------------------------------------------------------------------------

B. LTCHs

As discussed in section I.J. of this Appendix, the impact
analysis for the proposed changes under the LTCH PPS for this
proposed rule projects an increase in estimated aggregate payments
in FY 2013 relative to FY 2012 of approximately $100 million for the
427 LTCHs in our database that are subject to payment under the LTCH
PPS. Therefore, as required by OMB Circular A-4 (available at http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), in Table VI below, we have prepared an
accounting statement showing the classification of the expenditures
associated with the provisions of this proposed rule as they relate
to proposed changes to the LTCH PPS. Table VI provides our best
estimate of the estimated increase in Medicare payments under the
LTCH PPS as a result of the proposed provisions presented in this
proposed rule based on the data for the 427 LTCHs in our database.
All expenditures are classified as transfers to Medicare providers
(that is, LTCHs).

Table VI--Accounting Statement: Classification of Estimated Expenditures
From the FY 2012 LTCH PPS to the FY 2013 LTCH PPS
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............ Positive transfer--Estimated
increase in expenditures:
$100 million.
------------------------------------------------------------------------

III. Regulatory Flexibility Act (RFA) Analysis

The RFA requires agencies to analyze options for regulatory
relief of small entities. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
government jurisdictions. We estimate that most hospitals and most
other providers and suppliers are small entities as that term is
used in the RFA. The great majority of hospitals and most other
health care providers and suppliers are small entities, either by
being nonprofit organizations or by meeting the SBA definition of a
small business (having revenues of less than $7.5 million to $34.5
million in any 1 year). (For details on the latest standards for
health care providers, we refer readers to page 33 of the Table of
Small Business Size Standards for NAIC 622 found on the SBA Web site
at: http://www.sba.gov/contractingopportunities/sizestandardtopics/tableofsize/index.html.)
For purposes of the RFA, all hospitals and other providers and
suppliers are considered to be small entities. Individuals and
States are not included in the definition of a small entity. We
believe that the provisions of this proposed rule relating to acute
care hospitals would have a significant impact on small entities as
explained in this Appendix. Because we lack data on individual
hospital receipts, we cannot determine the number of small
proprietary LTCHs. Therefore, we are assuming that all LTCHs are
considered small entities for the purpose of the analysis in section
I.J. of this Appendix. Medicare fiscal intermediaries and MACs are
not considered to be small entities. Because we acknowledge that
many of the affected entities are small entities, the analysis
discussed throughout the preamble of this proposed rule constitutes
our regulatory flexibility analysis. In this proposed rule, we are
soliciting public comments on our estimates and analysis of the
impact of our proposals on those small entities.

IV. Impact on Small Rural Hospitals

Section 1102(b) of the Social Security Act requires us to
prepare a regulatory impact analysis for any proposed or final rule
that may have a significant impact on the operations of a
substantial number of small rural hospitals. This analysis must
conform to the provisions of section 603 of the RFA. With the
exception of hospitals located in certain New England counties, for
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of an urban area and
has fewer than 100 beds. Section 601(g) of the

[[Page 28191]]

Social Security Amendments of 1983 (Pub. L. 98-21) designated
hospitals in certain New England counties as belonging to the
adjacent urban area. Thus, for purposes of the IPPS and the LTCH
PPS, we continue to classify these hospitals as urban hospitals. (We
refer readers to Table I in section I.G. of this Appendix for the
quantitative effects of the proposed policy changes under the IPPS
for operating costs.)

V. Unfunded Mandates Reform Act Analysis

Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4) also requires that agencies assess anticipated costs and
benefits before issuing any rule whose mandates require spending in
any 1 year of $100 million in 1995 dollars, updated annually for
inflation. In 2012, that threshold level is approximately $136
million. This proposed rule will not mandate any requirements for
State, local, or tribal governments, nor will it affect private
sector costs.

VI. Executive Order 12866

In accordance with the provisions of Executive Order 12866, the
Executive Office of Management and Budget reviewed this proposed
rule.

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

I. Background

Section 1886(e)(4)(A) of the Act requires that the Secretary,
taking into consideration the recommendations of MedPAC, recommend
update factors for inpatient hospital services for each fiscal year
that take into account the amounts necessary for the efficient and
effective delivery of medically appropriate and necessary care of
high quality. Under section 1886(e)(5) of the Act, we are required
to publish update factors recommended by the Secretary in the
proposed and final IPPS rules, respectively. Accordingly, this
Appendix provides the recommendations for the update factors for the
IPPS national standardized amount, the Puerto Rico-specific
standardized amount, the hospital-specific rate for SCHs, and the
rate-of-increase limits for certain hospitals excluded from the
IPPS, as well as LTCHs. In prior years, we have made a
recommendation in the IPPS proposed rule and final rule for the
update factors for the payment rates for IRFs and IPFs. However, for
FY 2013, we plan to include the Secretary's recommendation for the
update factors for IRFs and IPFs in separate Federal Register
documents at the time that we announce the annual updates for IRFs
and IPFs. We also discuss our response to MedPAC's recommended
update factors for inpatient hospital services.

II. Inpatient Hospital Update for FY 2013

A. Proposed FY 2013 Inpatient Hospital Update

Section 1886(b)(3)(B) of the Act, as amended by sections 3401(a)
and 10319(a) of the Affordable Care Act, sets the applicable
percentage increase under the IPPS for FY 2013 as equal to the rate-
of-increase in the hospital market basket for IPPS hospitals in all
areas (which is based on IHS Global Insight Inc.'s (IGI's) first
quarter 2012 forecast of the FY 2006-based IPPS market basket),
subject to a reduction of 2.0 percentage points if the hospital
fails to submit quality data under rules established by the
Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act,
and then subject to an adjustment based on changes in economy-wide
productivity and an additional reduction of 0.1 percentage point.
Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Affordable Care
Act, as added by section 3401(a) of the Affordable Care Act, state
that the application of the multifactor productivity adjustment and
the additional FY 2012 adjustment of 0.1 percentage point may result
in the applicable percentage increase being less than zero.
In accordance with section 1886(b)(3)(B) of the Act, as amended
by section 3401(a) of the Affordable Care Act, in section IV.H.1. of
the preamble of this proposed rule, we are proposing a multifactor
productivity (MFP) adjustment (the 10-year moving average of MFP for
the period ending FY 2012) of 0.8 percent.
Therefore, based on IGI's first quarter 2012 forecast of the FY
2013 market basket increase, we are proposing an applicable
percentage increase to the FY 2012 operating standardized amount of
2.1 percent (that is, the FY 2013 estimate of the market basket
rate-of-increase of 3.0 percent less an adjustment of 0.8 percentage
point for economy-wide productivity and less 0.1 percentage point)
for hospitals in all areas, provided the hospital submits quality
data in accordance with section 1886(b)(3)(B)(vii) of the Act and
our rules. For hospitals that fail to submit quality data, we are
proposing an applicable percentage increase to the operating
standardized amount of 0.1 percent (that is, the FY 2013 estimate of
the market basket rate-of increase of 3.0 percent less 2.0
percentage points for failure to submit quality data, less an
adjustment of 0.8 percentage point for economy-wide productivity,
and less an additional adjustment of 0.1 percentage point).

B. Proposed Update for SCHs for FY 2013

Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2013
applicable percentage increase in the hospital-specific rate for
SCHs equals the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for
all other hospitals subject to the IPPS). Therefore, the update to
the hospital specific rate for SCHs is subject to section
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and
10319(a) of the Affordable Care Act. Accordingly, we are proposing
an applicable percentage increase to the hospital-specific rate
applicable to SCHs of 2.1 percent for hospitals that submit quality
data or 0.1 percent for hospitals that fail to submit quality data.

C. Proposed FY 2013 Puerto Rico Hospital Update

Section 401(c) of Public Law 108-173 amended section
1886(d)(9)(C)(i) of the Act and states that, for discharges
occurring in a fiscal year (beginning with FY 2004), the Secretary
shall compute an average standardized amount for hospitals located
in any area of Puerto Rico that is equal to the average standardized
amount computed under subclause (I) for FY 2003 for hospitals in a
large urban area (or, beginning with FY 2005, for all hospitals in
the previous fiscal year) increased by the applicable percentage
increase under subsection (b)(3)(B) for the fiscal year involved.
Therefore, the update to the Puerto Rico-specific operating
standardized amount is subject to the applicable percentage increase
set forth in section 1886(b)(3)(B)(i) of the Act as amended by
sections 3401(a) and 10319(a) of the Affordable Care Act (that is,
the same update factor as for all other hospitals subject to the
IPPS). Accordingly, we are proposing an applicable percentage
increase to the Puerto Rico-specific standardized amount of 2.1
percent.

D. Proposed Update for Hospitals Excluded From the IPPS

Section 1886(b)(3)(B)(ii) of the Act is used for purposes of
determining the percentage increase in the rate-of-increase limits
for children's and cancer hospitals. Section 1886(b)(3)(B)(ii) of
the Act sets the percentage increase in the rate-of-increase limits
equal to the market basket percentage increase. In accordance with
Sec. 403.752(a) of the regulations, RNHCIs are paid under Sec.
413.40, which also uses section 1886(b)(3)(B)(ii) of the Act to
update the percentage increase in the rate-of-increase limits.
Currently, children's hospitals, cancer hospitals, and RNHCIs
are the remaining three types of hospitals still reimbursed under
the reasonable cost methodology. We are proposing that the FY 2013
rate-of-increase percentage to be applied to the target amount for
children's hospitals, cancer hospitals, and RNHCIs would be the
percentage increase in the IPPS operating market basket. For this
proposed rule, the current estimate of the FY 2013 IPPS operating
market basket percentage increase is 3.0 percent.

E. Proposed Update for LTCHs

Section 123 of Public Law 106-113, as amended by section 307(b)
of Public Law 106-554 (and codified at section 1886(m)(1) of the
Act), provides the statutory authority for updating payment rates
under the LTCH PPS.
As discussed in section VII. of the preamble of this proposed
rule, we are proposing to establish an update to the LTCH PPS
standard Federal rate for FY 2013 based on the full LTCH PPS market
basket increase estimate (for this proposed rule, estimated to be
3.0 percent), subject to an adjustment based on changes in economy-
wide productivity and an additional reduction of 0.1 percentage
point. The productivity adjustment described in section
1886(b)(3)(B)(xi)(ii) of the Act is currently estimated to be 0.8
percent for FY 2013. In addition, section 1886(m)(3)(A)(ii) of the
Act requires that any annual update for FY 2013 be reduced by the
``other adjustment'' at section 1886(m)(4)(C) of the Act, which is
0.1 percentage point. Therefore, based on IGI's

[[Page 28192]]

first quarter 2012 forecast of the proposed FY 2013 market basket
increase, we are proposing an annual update to the LTCH PPS standard
Federal rate of 2.1 percent (that is, the current FY 2013 estimate
of the proposed market basket rate-of-increase of 3.0 percent less
an adjustment of 0.8 percentage point for economy-wide productivity
and less 0.1 percentage point). Accordingly, we are proposing to
apply an update factor of 1.021 in determining the proposed LTCH PPS
standard Federal rate for FY 2013. Furthermore, we are proposing to
phase in a one-time prospective adjustment to the standard Federal
rate under Sec. 412.523(d)(3) by applying a factor of 0.98734 (or
approximately -1.3 percent), which would not be applicable to
payments for LTCH PPS discharges occurring on or before December 28,
2012 (consistent with current law).

III. Secretary's Recommendations

MedPAC is recommending an inpatient hospital update equal to one
percent for FY 2013. MedPAC's rationale for this update
recommendation is described in more detail below. As mentioned
above, section 1886(e)(4)(A) of the Act requires that the Secretary,
taking into consideration the recommendations of MedPAC, recommend
update factors for inpatient hospital services for each fiscal year
that take into account the amounts necessary for the efficient and
effective delivery of medically appropriate and necessary care of
high quality. Consistent with current law, we are recommending an
applicable percentage increase to the standardized amount of 2.1
percent (that is, the FY 2013 estimate of the market basket rate-of-
increase of 3.0 percent less an adjustment of 0.8 percentage point
for MFP and less 0.1 percentage point). We are recommending that the
same applicable percentage increase apply to SCHs and the Puerto
Rico-specific standardized amount.
In addition to making a recommendation for IPPS hospitals, in
accordance with section 1886(e)(4)(A) of the Act, we are
recommending update factors for certain other types of hospitals
excluded from the IPPS. Consistent with our proposal for these
facilities, we are recommending an update for children's hospitals,
cancer hospitals, and RNHCIs of 3.0 percent.
For FY 2013, consistent with policy proposal set forth in
section VII. of the preamble of this proposed rule, we are
recommending an update of 2.1 percent to the LTCH PPS standard
Federal rate.

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating
Payments in Traditional Medicare

In its March 2012 Report to Congress, MedPAC assessed the
adequacy of current payments and costs, and the relationship between
payments and an appropriate cost base. MedPAC recommended an update
to the hospital inpatient rates equal to one percent. MedPAC expects
Medicare margins to remain low in 2012. At the same time, MedPAC's
analysis finds that efficient hospitals have been able to maintain
positive Medicare margins while maintaining a relatively high
quality of care. MedPAC also recommended that Congress should
require the Secretary to use the difference between the increase of
the applicable percentage increase under the IPPS for FY 2013 and
MedPAC's recommendation of a 1.0 percent update to gradually recover
past overpayments due to documentation and coding changes.
Response: With regard to MedPAC's recommendation of an update to
the hospital inpatient rates equal to one percent, for FY 2013, as
discussed above, sections 3401(a) and 10319(a) of the Affordable
Care Act amended section 1886(b)(3)(B) of the Act. Section
1886(b)(3)(B) of the Act, as amended by these sections, sets the
requirements for the FY 2013 applicable percentage increase.
Therefore, we have proposed an applicable percentage increase for FY
2013 of 2.1 percent, provided the hospital submits quality data,
consistent with these statutory requirements.
With regard to MedPAC's recommendation that Congress should
require the Secretary to use the difference between the increase of
the applicable percentage increase under the IPPS for FY 2013 and
MedPAC's recommendation of a 1.0 percent update to gradually recover
post overpayments due to documentation and coding changes, we refer
readers to section II.D. of the preamble of this proposed rule for a
complete discussion of the proposed FY 2013 documentation and coding
adjustments. In section II.D. of the preamble of this proposed rule,
we are proposing a prospective adjustment of 2.7 percent to the FY
2013 standardized amount to remove the remaining effect of
documentation and coding that occurred in FY 2008, FY 2009, and FY
2010. We note that section 7(b)(1)(B) of Pub. L. 110-90 authorized
recoupments of overpayments due to documentation and coding
improvements for FY 2008 and FY 2009, and under this authority, such
recoupments had to be made no later than FY 2012. Accordingly, any
recoupments of overpayments due to documentation and coding
improvements beyond the authority of section 7(b)(1)(B) of Public
Law 110-90 would require changes to current law by Congress.
We also note that, because the operating and capital prospective
payment systems remain separate, we are continuing to use separate
updates for operating and capital payments. The update to the
capital rate is discussed in section III. of the Addendum to this
proposed rule.
[FR Doc. 2012-9985 Filed 4-24-12; 4:15 pm]
BILLING CODE 4120-01-P