[Federal Register Volume 77, Number 170 (Friday, August 31, 2012)]
[Rules and Regulations]
[Pages 53257-53750]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19079]



[[Page 53257]]

Vol. 77

Friday,

No. 170

August 31, 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; Final Rule

Federal Register / Vol. 77 , No. 170 / Friday, August 31, 2012 / 
Rules and Regulations

[[Page 53258]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 424, and 476

[CMS-1588-F]
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: Final rule.

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SUMMARY: We are revising the Medicare hospital inpatient prospective 
payment systems (IPPS) for operating and capital-related costs of acute 
care hospitals to implement changes arising from our continuing 
experience with these systems. Some of the changes 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 will be applicable to discharges occurring on or after 
October 1, 2012, unless otherwise specified in this final rule. We also 
are updating 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 will be effective for cost 
reporting periods beginning on or after October 1, 2012.
    We are updating the payment policies 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. 
Generally, these changes will be applicable to discharges occurring on 
or after October 1, 2012, unless otherwise specified in this final 
rule.
    In addition, we are implementing 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 establishing 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 establishing 
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 establishing requirements for the Hospital Value-Based 
Purchasing (VBP) Program and the Hospital Readmissions Reduction 
Program.

DATES: Effective date: This final rule is effective on October 1, 2012.

FOR FURTHER INFORMATION CONTACT: 
Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548, 
Operating Prospective Payment, MS-DRGs, Hospital Acquired Conditions 
(HAC), Wage Index, New Medical Service and Technology Add-On Payments, 
Hospital Geographic Reclassifications, Graduate Medical Education, 
Capital Prospective Payment, Excluded Hospitals, Medicare 
Disproportionate Share Hospital (DSH), and Postacute Care Transfer 
Issues.
Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, 
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG 
Relative Weights Issues.
Bridget Dickensheets, (410) 786-8670, Market Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting and 
Hospital Value-Based Purchasing--Program Administration, Validation, 
and Reconsideration Issues.
Shaheen Halim, (410) 786-0641, Hospital 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, Hospital Inpatient Quality 
Reporting--Hospital Consumer Assessment of Healthcare Providers and 
Systems Measures Issues.
Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.
Kim Spalding 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.
Anita Bhatia, (410) 786-7236, Ambulatory Surgical Center Quality 
Reporting (ASCQR) Program Issues.

SUPPLEMENTARY INFORMATION: 

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 final rule were published in the 
Federal Register as part of the annual proposed and final rules. 
However, beginning in FY 2012, some of the IPPS tables and LTCH PPS 
tables are no longer published in the Federal Register. Instead, these 
tables will be available only through the Internet. The IPPS tables for 
this final rule are available only through the Internet on the CMS Web 
site at: http://www.cms.hhs.gov/Medicare/medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. 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 final rule are available only through the Internet on the CMS 
Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for 
Regulation Number CMS-1588-F. For complete details on the availability 
of the tables referenced in this final rule, we refer readers to 
section VI. of the Addendum to this final rule.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified above should contact 
Nisha Bhat at (410) 786-4487.

[[Page 53259]]

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 Health Insurance Portability and Accountability Act of 1996, 
Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, 
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision, 
Procedure Coding System
ICR Information collection requirement
IGI IHS Global Insight, Inc.
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
IQR Inpatient Quality Reporting
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
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 1986, 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
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual

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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
    3. Summary of Costs and Benefits
    B. Summary
    1. Acute Care Hospital Inpatient Prospective Payment System 
(IPPS)
    2. Hospitals and Hospital Units Excluded From the IPPS
    3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    4. Critical Access Hospitals (CAHs)
    5. Payments for Graduate Medical Education (GME)
    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. Issuance of a Notice of Proposed Rulemaking
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 
Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    C. Adoption of the MS-DRGs in FY 2008
    D. 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 Public Law 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. 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
    3. Present on Admission (POA) Indicator Reporting
    4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS
    5. Changes to the HAC Policy for FY 2013
    a. Additional Diagnosis Codes to Existing HACs
    b. New Candidate HAC Condition: Surgical Site Infection (SSI) 
Following Cardiac Implantable Electronic Device (CIED) Procedures
    c. New Candidate HAC Condition: Iatrogenic Pneumothorax With 
Venous Catheterization
    6. RTI Program Evaluation Summary
    a. RTI Analysis of FY 2011 POA Indicator Reporting Across 
Medicare Discharges
    b. RTI Analysis of FY 2011 POA Indicator Reporting of Current 
HACs
    c. RTI Analysis of FY 2011 Frequency of Discharges and POA 
Indicator Reporting for Current HACs
    d. RTI Analysis of Circumstances When Application of HAC 
Provisions Would Not Result in MS-DRG Reassignment for Current HACs
    e. RTI Analysis of Coding Changes for HAC-Associated Secondary 
Diagnoses for Current HACs
    f. RTI Analysis of Estimated Net Savings for Current HACs
    g. Previously Considered Candidate HACs--RTI Analysis of 
Frequency of Discharges and POA Indicator Reporting
    h. Current and Previously Considered Candidate HACs--RTI Report 
on Evidence-Based Guidelines
    i. Proposals Regarding Current HACs and Previously Considered 
Candidate HACs
    G. 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. Percutaneous Mitral Valve Repair With Implant
    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. Medicare Code Editor (MCE) Changes
    a. MCE New Length of Stay Edit for Continuous Invasive 
Mechanical Ventilation for 96 Consecutive Hours or More
    b. Sleeve Gastrectomy Procedure for Morbid Obesity
    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. 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
    10. Public Comments on Issues Not Addressed in the Proposed Rule

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    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
    a. Background
    b. Treatment of Data from Hospitals Participating in the BPCI 
Initiative
    I. Add-On Payments for New Services and Technologies
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. FY 2013 Status of Technology Approved for FY 2012 Add-On 
Payments: AutoLaser Interstitial Thermal Therapy 
(AutoLITTTM)
    4. FY 2013 Applications for New Technology Add-On Payments
    a. Glucarpidase (Trade Brand Voraxaze[supreg])
    b. DIFICIDTM (Fidaxomicin) Tablets
    c. Zilver[supreg] PTX[supreg] Drug-Eluting Stent
    d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
III. 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 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 FY 2013 Unadjusted Wage Index
    F. Occupational Mix Adjustment to the FY 2013 Wage Index
    1. Development of Data for the FY 2013 Occupational Mix 
Adjustment Based on the 2010 Occupational Mix Survey
    2. Calculation of the Occupational Mix Adjustment for FY 2013
    G. Analysis and Implementation of the Occupational Mix 
Adjustment and the 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. FY 2013 Wage Index Tables
    H. Revisions to the Wage Index Based on Hospital Redesignations 
and Reclassifications
    1. General Policies and Effects of Reclassification/
Redesignation
    2. FY 2013 MGCRB Reclassifications
    a. FY 2013 Reclassification Requirements and Approvals
    b. Applications for Reclassifications for FY 2014
    3. Redesignations of Hospitals Under Section 1886(d)(8)(B) of 
the Act
    4. Reclassifications Under Section 1886(d)(8)(B) of the Act
    5. Reclassifications Under Section 508 of Public Law 108-173
    6. Waiving Lugar Redesignation for the Out-Migration Adjustment
    7. Cancellation of Acquired Rural Status Due to MDH Expiration
    I. 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 Decisions and Changes to the IPPS for Operating Costs and 
Graduate Medical Education (GME) Costs
    A. Hospital Readmission Reduction Program
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Overview
    3. FY 2013 Proposed and Final Policies for the Hospital 
Readmissions Reduction Program
    a. Overview
    b. Base Operating DRG Payment Amount, Including Special Rules 
for SCHs and MDHs and Hospitals Paid Under Section 1814 of the Act
    c. Adjustment Factor (Both the Ratio and Floor Adjustment 
Factor)
    d. Aggregate Payments for Excess Readmissions and Aggregate 
Payment for All Discharges
    e. Applicable Hospital
    4. Limitations on Review
    5. Reporting Hospital-Specific Information, Including 
Opportunity To Review and Submit Corrections
    B. Sole Community Hospitals (SCHs) (Sec.  412.92)
    1. Background
    2. Reporting Requirement and Clarification of Duration of 
Classification for Hospitals Incorrectly Classified as Sole 
Community Hospitals
    3. Change to Effective Date of Classification for MDHs Applying 
for SCH Status Upon the Expiration of the MDH Program
    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. 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. Payment Adjustment for FY 2013 and Subsequent Years
    E. Indirect Medical Education (IME) Adjustment (Sec.  412.105)
    1. IME Adjustment Factor for FY 2013
    2. Timely Filing Requirements under Fee-for-Service Medicare
    a. IME and Direct GME
    b. Nursing and Allied Health Education
    c. Disproportionate Share Hospital (DSH) Payments
    d. Summary of Public Comments, Our Responses, and Final Policies
    3. Other Related Policy Changes
    F. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs) and Indirect Medical Education (IME) (Sec. Sec.  
412.105 and 412.106)
    1. Background
    2. Policy Change Relating to Treatment of Labor and Delivery 
Beds in the Calculation of the Medicare DSH Payment Adjustment and 
the IME Payment Adjustment
    G. Expiration of the Medicare-Dependent, Small Rural Hospital 
(MDH) Program (Sec.  412.108)
    H. 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 (GME) and Indirect 
Medical Education (IME) Costs (Sec. Sec.  412.105, 413.75 through 
413.83)
    1. Background
    2. Teaching Hospitals: Change in New Program Growth from 3 Years 
to 5 Years
    3. Policies and Clarifications 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. Change in Amount of Time Provided for Submitting Applications 
Under Section 5506 of the Affordable Care Act
    c. 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. Modifications to the Section 5506 CMS Evaluation Form
    5. Notice of Closure of Teaching Hospitals and Opportunity to 
Apply for Available Slots
    a. Background
    b. Notice of Closure of Teaching Hospitals
    c. Application Process for Available Resident Slots
    J. Changes to the Reporting Requirements for Pension Costs for 
Medicare Cost-Finding Purposes
    K. Rural Community Hospital Demonstration Program
    1. Background
    2. Budget Neutrality Offset Amount for FY 2013
    L. Hospital Routine Services Furnished Under Arrangements
    M. Technical Change
V. 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. Prospective Adjustment for the FY 2010 Documentation and 
Coding Effect
    1. Background

[[Page 53262]]

    2. Prospective Adjustment for the Effect of Documentation and 
Coding in FY 2010
    3. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
    D. Changes for Annual Update for FY 2013
VI. Changes for Hospitals Excluded From the IPPS
    A. Excluded Hospitals
    B. Report of Adjustment (Exceptions) Payments
VII. 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. 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. Changes to the MS-LTC-DRGs for FY 2013
    3. Development of the FY 2013 MS-LTC-DRG Relative Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Development of the MS-LTC-DRG Relative Weights for FY 2013
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the MS-LTC-DRG 
Relative Weights
    f. Low-Volume MS-LTC-DRGs
    g. Steps for Determining the FY 2013 MS-LTC-DRG Relative Weights
    C. Use of a LTCH-Specific Market Basket Under the LTCH PPS
    1. Background
    2. Overview of the FY 2009-Based LTCH-Specific Market Basket
    3. Development of a LTCH-Specific Market Basket
    a. Development of Cost Categories
    b. Cost Category Computation
    c. Selection of Price Proxies
    d. Methodology for the Capital Portion of the FY 2009-Based 
LTCH-Specific Market Basket
    e. FY 2013 Market Basket for LTCHs
    f. FY 2013 Labor-Related Share
    D. Changes to the LTCH Payment Rates for FY 2013 and Other 
Changes to the LTCH PPS for FY 2013
    1. Overview of Development of the LTCH Payment Rates
    2. 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. Market Basket Under the LTCH PPS for FY 2013
    d. Annual Market Basket Update for LTCHs for FY 2013
    3. 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 Facilities 
and the Increase in Number of Beds 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 Short-Stay Outlier (SSO) Policy
    4. One-Time Prospective Adjustment to the Standard Federal Rate 
Under Sec.  412.523(d)(3)
    a. Overview
    b. Data Used to Estimate Aggregate FY 2003 TEFRA Payments
    c. Data Used to Estimate Aggregate FY 2003 LTCH PPS Payments
    d. Methodology to Evaluate Whether a One-Time Prospective 
Adjustment Under Sec.  412.523(d)(3) is Warranted
    e. Methodology to Estimate FY 2003 LTCH Payments Under the TEFRA 
Payment System
    f. Methodology to Estimate FY 2003 LTCH PPS Payments
    g. Methodology for Calculating the One-Time Prospective 
Adjustment Under Sec.  412.523(d)(3)
    h. Public Comments and CMS' Responses
    i. Final Policy Regarding the One-Time Prospective Adjustment 
Under Sec.  412.523(d)(3)
VIII. 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. Removal of Hospital IQR Program Measures for the FY 2015 
Payment Determination and Subsequent Years
    (1) Removal of One Chart-Abstracted Measure
    (2) Removal of 16 Claims-Based Measures
    d. Suspension of Data Collection for the FY 2014 Payment 
Determination and Subsequent Years
    3. 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. 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) Additional Hospital IQR Program Measures for FY 2015 Payment 
Determination and Subsequent Years
    c. 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. Procedural Requirements for the FY 2015 Payment Determination 
and Subsequent Years
    c. Data Submission Requirements for Chart-Abstracted Measures
    d. Sampling and Case Thresholds Beginning With the FY 2015 
Payment Determination
    e. HCAHPS Requirements for the FY 2014, FY 2015, and FY 2016 
Payment Determinations
    f. Data Submission Requirements for Structural Measures
    g. Data Submission and Reporting Requirements for Healthcare-
Associated Infection (HAI) Measures Reported via NHSN
    6. Supplements to the Chart Validation Process for the Hospital 
IQR Program for the FY 2015 Payment Determination and Subsequent 
Years
    a. Separate Processes for Sampling and Scoring 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. 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. Quality Measures for PCHs for FY 2014 Program and Subsequent 
Program Years
    a. Considerations in the Selection of the Quality Measures

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    b. PCHQR Program Quality Measures for FY 2014 Program and 
Subsequent Program Years
    (1) CDC/NHSN-Based Healthcare-Associated Infection (HAI) 
Measures
    (2) Cancer-Specific Measures
    4. Possible New Quality Measure Topics for Future Years
    5. Maintenance of Technical Specifications for Quality Measures
    6. Public Display Requirements for the FY 2014 Program and 
Subsequent Program Years
    7. Form, Manner, and Timing of Data Submission for FY 2014 
Program and Subsequent Program Years
    a. Background
    b. Procedural Requirements for FY 2014 Program and Subsequent 
Program Years
    c. Reporting Mechanisms for FY 2014 Program and Subsequent 
Program Years
    (1) Reporting Mechanism for the HAI Measures
    (2) Reporting Mechanism for the Cancer-Specific Measures
    d. Data Submission Timelines for FY 2014 Program and Subsequent 
Program Years
    e. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements for the 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. Hospital VBP Payment Adjustment Calculation Methodology
    a. Definitions of the Term ``Base Operating DRG Payment Amount'' 
for Purposes of the Hospital VBP Program
    b. Calculating the Funding Amount for Value-Based Incentive 
Payments Each Year
    c. Methodology To Calculate the Value-Based Incentive Payment 
Adjustment Factor
    d. 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. Process for Reducing the Base Operating DRG Payment Amount 
and Applying the Value-Based Incentive Payment Adjustment for FY 
2013
    6. Review and Corrections Processes
    a. Background
    b. Review and Corrections Process for Claims-Based Measure Rates
    c. Review and Corrections Process for Condition-Specific Scores, 
Domain-Specific Scores, and Total Performance Scores
    7. Appeal Process Under the Hospital VBP Program
    a. Background
    b. Appeal Process
    8. Measures for the FY 2015 Hospital VBP Program
    a. Relationship Between the National Strategy and the Hospital 
VBP Program
    b. FY 2015 Measures
    c. General Process for Hospital VBP Program Measure Adoption for 
Future Program Years
    9. Measures and Domains for the FY 2016 Hospital VBP Program
    a. FY 2016 Measures
    b. Quality Measure Domains for the FY 2016 Hospital VBP Program
    10. Performance Periods and Baseline Periods for the FY 2015 
Hospital VBP Program
    a. Clinical Process of Care Domain Performance Period and 
Baseline Periods for FY 2015
    b. Patient Experience of Care Domain Performance Period and 
Baseline Period for FY 2015
    c. Efficiency Domain Measure Performance Period and Baseline 
Period for FY 2015
    d. Outcome Domain Performance Periods for FY 2015
    (1) Mortality Measures
    (2) AHRQ PSI Composite Measure
    (3) CLABSI Measure
    e. Performance Periods for FY 2016 Measures
    11. Performance Standards for the Hospital VBP Program for FY 
2015 and FY 2016
    a. Background
    b. Performance Standards for the FY 2015 Hospital VBP Program 
Measures
    c. Performance Standards for FY 2016 Hospital VBP Program 
Measures
    d. Adopting Performance Periods and Standards for Future Program 
Years
    12. FY 2015 Hospital VBP Program Scoring Methodology
    a. General Hospital VBP Program Scoring Methodology
    b. Domain Weighting for the FY 2015 Hospital VBP Program for 
Hospitals That Receive a Score on all Four Proposed Domains
    c. Domain Weighting for Hospitals Receiving Scores on Fewer Than 
Four Domains
    13. Applicability of the Hospital VBP Program to Hospitals
    a. Background
    b. Exemption Request Process for Maryland Hospitals
    14. Minimum Numbers of Cases and Measures for the FY 2015 
Program
    a. Background
    b. Minimum Numbers of Cases and Measures for the FY 2015 Outcome 
Domain
    c. 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. Process for Retention of LTCHQR Program Measures Adopted in 
Previous Payment Determinations
    b. Process for Adopting Changes to LTCHQR Program Measures
    3. CLABSI, CAUTI, AND Pressure Ulcer Measures
    4. 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. New LTCHQR Program Quality Measures Beginning With the FY 
2016 Payment Determination
    (1) 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) 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) 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) LTCH Quality Measure 4 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Ventilator Bundle (Application of NQF 0302)
    (5) LTCH Quality Measure 5 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Restraint Rate per 1,000 Patient Days
    5. Timeline for Data Submission Under the LTCHQR Program for the 
FY 2015 Payment Determination
    6. Timeline for Data Submission Under the LTCHQR Program for the 
FY 2016 Payment Determination
    7. Public Display of Data Quality Measures
    E. Quality Reporting Requirements Under the Ambulatory Surgical 
Centers Quality Reporting (ASCQR) Program
    1. Background
    2. Requirements for Reporting Under the ASCQR Program
    a. Administrative Requirements
    (1) Requirements Regarding QualityNet Account and Administrator 
for the CYs 2014 and 2015 Payment Determinations
    (2) Requirements Regarding Participation Status for the CY 2014 
Payment Determination and Subsequent Payment Determination Years
    b. Requirements Regarding Form, Manner, and Timing for Claims-
Based Measures for CYs 2014 and 2015 Payment Determinations
    (1) Background
    (2) Minimum Threshold for Claims-Based Measures Using QDCs
    c. ASCQR Program Validation of Claims-Based and Structural 
Measures
    3. Extraordinary Circumstances Extension or Waiver for the CY 
2014 Payment Determination and Subsequent Payment Determination 
Years
    4. ASCQR Program Reconsideration Procedures for the CY 2014 
Payment

[[Page 53264]]

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. Quality Measures
    a. Considerations in Selecting Quality Measures
    b. 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. Procedural Requirements for the FY 2014 Payment Determination 
and Subsequent Years
    c. Reporting and Submission Requirements for the FY 2014 Payment 
Determination
    d. Reporting and Submission Requirements for the FY 2015 and FY 
2016 Payment Determinations
    e. Population, Sampling, and Minimum Case Threshold for FY 2014 
and Subsequent Years
    f. 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. 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. 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 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 Long-Term Care Hospital Quality Reporting 
(LTCHQR) Program
    10. ICRs for the Ambulatory Surgical Center (ASC) Quality 
Reporting Program
    11. ICRs for the Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program
Regulation Text
Addendum--Schedule of Standardized Amounts, Update Factors, and 
Rate-of-Increase Percentages Effective With Cost Reporting Periods 
Beginning on or After October 1, 2012 and Payment Rates for LTCHs 
Effective With Discharges Occurring on or After October 1, 2012
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2013
    A. Calculation of the Adjusted Standardized Amount
    B. Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Prospective Payment Rates
III. 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 Inpatient Capital-Related Prospective 
Payments for FY 2013
    C. Capital Input Price Index
IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-
Increase Percentages for FY 2013
V. Changes to the Payment Rates for the LTCH PPS for FY 2013
    A. LTCH PPS Standard Federal Rate for FY 2013
    B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 
2013
    1. Background
    2. Geographic Classifications/Labor Market Area Definitions
    3. LTCH PPS Labor-Related Share
    4. LTCH PPS Wage Index for FY 2013
    5. Budget Neutrality Adjustment for Changes to the Area Wage 
Level Adjustment
    C. LTCH PPS Cost-of-Living Adjustment for LTCHs Located in 
Alaska and Hawaii
    D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
    E. Computing the Adjusted LTCH PPS Federal Prospective Payments 
for FY 2013
VI. Tables Referenced in this Final Rulemaking and Available Through 
the Internet on the CMS Web Site
Appendix A--Economic Analyses
I. Regulatory Impact Analysis
    A. Introduction
    B. Need
    C. Objectives of the IPPS
    D. Limitations of Our Analysis
    E. Hospitals Included in and Excluded From the IPPS
    F. Effects on Hospitals and Hospital Units Excluded From the 
IPPS
    G. Quantitative Effects of the Policy Changes Under the IPPS for 
Operating Costs
    1. Basis and Methodology of Estimates
    2. Analysis of Table I
    3. Impact Analysis of Table II
    H. Effects of Other Policy Changes
    1. Effects of Policy on HACs, Including Infections
    2. Effects of Policy Relating to New Medical Service and 
Technology Add-On Payments
    3. Effects of Policy Changes Relating to SCHs
    4. Effects of Payment Adjustment for Low-Volume Hospitals for FY 
2013
    5. Effects of Policy Changes Relating to Payment Adjustments for 
Medicare Disproportionate Share Hospitals (DSHs) and Indirect 
Medical Education (IME)
    6. Effects of the Policy Changes Relating to Direct GME and IME
    a. Effects of Clarification and Policy Regarding Timely Filing 
Requirements for Claims for Medicare Advantage Enrollees Under Fee-
for-Service Medicare
    b. Effects of Policy Changes Relating to New Teaching Hospitals: 
New Program Growth From 3 Years to 5 Years
    c. Effects of 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 Changes Relating to the Reporting Requirements for 
Pension Costs for Medicare Cost-Finding Purposes
    8. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    9. Effects of Change in Effective Date for Policies Relating to 
Hospital Services Furnished Under Arrangements
    I. Effects of Changes in the Capital IPPS
    1. General Considerations
    2. Results
    J. Effects of Payment Rate Changes and Policy Changes Under the 
LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals

[[Page 53265]]

    3. Anticipated Effects of LTCH PPS Payment Rate Change and 
Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    K. Effects of Requirements for Hospital Inpatient Quality 
Reporting (IQR) Program
    L. Effects of PPS-Exempt Cancer Hospital Quality Reporting 
(PCHQR) Program
    M. Effects of Hospital Value-Based Purchasing (VBP) Program 
Requirements
    N. Effects of New Measures Added to the LTCH Quality Reporting 
(LTCHQR) Program
    O. Effects of Quality Reporting Requirements for Ambulatory 
Surgical Centers
    P. Effects of Requirements for the Inpatient Psychiatric 
Facilities Quality Reporting (IPFQR) Program
    Q. Effects of Requirements for Provider and Practitioner Medical 
Record Deadlines and Claims Denials
    R. Alternatives Considered
    S. 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. FY 2013 Inpatient Hospital Update
    B. Update for SCHs for FY 2013
    C. FY 2013 Puerto Rico Hospital Update
    D. Update for Hospitals Excluded From the IPPS
    E. 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 final rule makes 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 makes 
payment and policy changes for inpatient hospital services provided by 
long-term care hospitals (LTCHs) 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 making 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 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 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.

[[Page 53266]]

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 completing 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. For FY 2013, we are making 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 the FY 2013 IPPS/LTCH PPS proposed rule, we proposed to make 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 estimated that 
there was a 0.8 percentage point effect due to documentation and coding 
that did not reflect an actual increase in patient severity. However, 
in light of public comments we received on the proposed rule, we are 
not making an adjustment to account for this effect at this time. 
Therefore, the total documentation and coding adjustment for FY 2013 is 
a + 1.0 percent adjustment (-1.9 plus + 2.9) to the standardized amount 
and a -0.5 percent 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 final rule, we are adding 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 note that the SSI Following CEID Procedures condition will be a new 
subcategory of the SSI HAC category. We also are adding 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 finalizing 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 finalizing provisions related to 
the applicable hospitals that are 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 updating 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 implementing 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

[[Page 53267]]

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 final rule, we are extending 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 
are providing a 1-year moratorium on 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. 
However, the moratorium will expire for several types of LTCHs with 
cost reporting periods beginning before July 1, 2012 and September 30, 
2012, prior to the effective date of the moratorium finalized in this 
rule. 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. In 
order to address this situation for this group of LTCHs, we are 
finalizing a policy that applies a supplemental moratorium on a per 
discharge basis beginning with discharges occurring on or after October 
1, 2012, and continuing through the LTCH's cost reporting period.
    We are providing for an additional 1-year extension in the delay of 
the full application of the 25-percent payment adjustment threshold 
policy because we believe that, based on a recent research initiative, 
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 making 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 per diem amount'' option at Sec.  412.529(c)(3)(i)(D) will 
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 making a one-time prospective adjustment under Sec.  
412.523(d)(3) of the regulations (which will 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)(viii) 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 final rule, we are making programmatic changes to the 
Hospital IQR Program for the FY 2015 payment determination and 
subsequent years. These changes will streamline and simplify the 
process for hospitals and reduce burden. We are reducing the number of 
measures in the Hospital IQR Program from 72 to 59 for the FY 2015 
payment determination. We are removing 1 chart-abstracted measure and 
16 claims-based measures from the program for the FY 2015 payment 
determination and subsequent years. We are removing 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 adopting 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 are adopting a 
structural measure for the FY 2016 payment determination and subsequent 
years.
    In an effort to streamline the rulemaking process, we are retaining 
measures for all subsequent payment determinations, unless specifically 
stated otherwise, through rulemaking. We are adopting a policy under 
which we will use a subregulatory process to make nonsubstantive 
updates to the Hospital IQR Program measures. To ensure that hospitals 
that participate in the Hospital IQR Program are submitting data for a 
full year, we are providing 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 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 will have until May 15 prior to the start of the payment 
year affected to do so. In order to reduce the burden associated with 
validation, we are reducing the base annual validation sample from 800 
to 400, with an

[[Page 53268]]

additional targeted sample of up to 200 hospitals. All hospitals 
failing validation in a previous year will be included in the 200 
hospital supplement, with a random sample drawn from hospitals meeting 
one or more additional targeting criteria. We are calculating scores 
for both the chart-abstracted clinical process of care and HAC measure 
sets and then calculating a total score reflecting a weighted average 
of each of the two individual scores. Hospitals must achieve a total 
score of 75 percent to pass validation.
g. Hospital Value-Based Purchasing (VBP) 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), in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through 51660), and 
in the CY 2012 OPPS/ASC final rule (76 FR 74527 through 74547). In this 
final rule, we are adding requirements for the Hospital VBP Program. 
Specifically, we are adding for the FY 2015 program two additional 
outcome measures--an AHRQ Patient Safety Indicators composite measure 
and CLABSI: Central Line-Associated Blood Stream Infection. We are 
adding a measure of Medicare Spending per Beneficiary in the Efficiency 
domain. We are also finalizing a number of other requirements for the 
program, including an appeals process, case minimums, a review and 
corrections process for claims-based measures, and the scoring 
methodology for FY 2015.
3. Summary of Costs and Benefits
     FY 2013 Documentation and Coding Adjustment: Section 
7(b)(1)(A) of Public Law 110-90 requires that, if the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different than the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, the Secretary shall 
make an appropriate 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 in prior rules, an additional cumulative adjustment of -
3.9 percent will 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 will 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 completing 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 making 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, in the FY 2013 IPPS/LTCH PPS proposed rule, we 
proposed to make 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 
estimated that there was a 0.8 percentage point effect due to 
documentation and coding that did not reflect an actual increase in 
patient severity. However, in light of the public comments that we 
received on the proposed rule, we are not making an adjustment to 
account for this effect at this time. Therefore, the total IPPS 
documentation and coding adjustment of +1.0 percent (-1.9 plus +2.9) 
will increase total payments by approximately $1.069 billion. The total 
adjustment to the hospital-specific rate will be -0.5, and will 
decrease total payment by $22.7 million. The combined impact of the 
final FY 2013 documentation and coding adjustments will increase total 
payments by approximately $1.042 billion.
     Hospital-Acquired Conditions (HACs). For FY 2013, we are 
continuing to implement section 1886(d)(4)(D) of the Act that addresses 
certain hospital-acquired conditions (HACs), including infections. We 
are adding 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 making 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 payment amount 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 final rule, we estimate that the Hospital 
Readmissions Reduction Program will result in a 0.3 percent decrease, 
or approximately $280 million, in payments to hospitals.

[[Page 53269]]

     Long-Term Care Hospital-Specific Market Basket. 
The FY 2009-based LTCH-specific market basket update (as measured by 
percentage increase) for FY 2013 is currently estimated to be 2.6 
percent, which is slightly lower than the market basket update based on 
the FY 2008-based RPL market basket at 2.7 percent (currently used 
under the LTCH PPS). Therefore, we project that there will be no 
significant fiscal impact on the LTCH PPS payment rates in FY 2013 as a 
result of this policy. In addition, we are updating the labor-related 
share under the LTCH PPS for FY 2013 based on the relative importance 
of each labor-related cost category in the FY 2009-based LTCH-specific 
market basket. Although this policy will result in a decrease in the 
LTCH PPS labor-related share for FY 2013, we are projecting that there 
will 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 428 
LTCHs in our database, we estimate that the changes we are presenting 
in the preamble and Addendum of this final rule, including the update 
to the standard Federal rate for FY 2013, the changes to the area wage 
adjustment for FY 2013, and changes to short-stay outliers and high-
cost outliers will result in an increase in estimated payments from FY 
2012 of approximately $92 million (or approximately 1.7 percent). 
Although we generally project 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 (3.3 percent) primarily due to 
the changes to the area wage level adjustment. Rural hospitals 
generally have a wage index of less than 1; therefore, the decrease to 
the labor-related share results in their 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 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, that is 
generally effective for cost reporting periods beginning on or after 
October 1, 2012, and before October 1, 2013, is estimated to result in 
a payment impact of approximately $170 million to LTCHs. (We note that, 
for certain LTCHs and LTCH satellite facilities with cost reporting 
periods beginning or after July 1, 2012, and before October 1, 2012, we 
are providing a supplemental moratorium for discharges beginning on or 
after October 1, 2012, and through the end of the cost reporting 
period. Overall, we estimate that the increase in aggregate LTCH PPS 
payments in FY 2013 will be $262 million.
     Hospital Inpatient Quality Reporting (IQR) Program. In 
this final 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 determine the precise number of hospitals that will not 
meet the requirements to receive the full annual percentage increase 
for FY 2015.
    We are adding supplements to the chart validation process for the 
Hospital IQR Program. Starting with the FY 2015 payment determination, 
we are finalizing 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 reducing the total sample size of hospitals 
included in the annual validation sample from 800 eligible hospitals to 
up 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 VBP Program. The Hospital VBP Program 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 
dollars and improved quality of care because the payment adjustments 
based on hospital performance will not begin to be made until FY 2013.

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.

[[Page 53270]]

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 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

[[Page 53271]]

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 final rule, we are implementing, 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 for the performance 
period for that fiscal year.
     Section 3004 of Public Law 111-148, which provides for the 
submission of quality data for LTCHs in order to receive the full 
annual update to the payment rates beginning with the FY 2014 rate 
year.
     Section 3005 of Public Law 111-148, which provides for the 
establishment of a quality reporting program for PPS-exempt cancer 
hospitals with respect to FY 2014, 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 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. Issuance of a Notice of Proposed Rulemaking

    On May 11, 2012, we published in the Federal Register (77 FR 
27870), a proposed rule that set forth proposed changes to the Medicare 
IPPS for operating costs and for capital-related costs of acute care 
hospitals in FY 2013. We also set forth proposed changes relating to 
payments for IME costs and payments to certain hospitals that continue 
to be excluded from the IPPS and paid on a reasonable cost basis. In 
addition, in the proposed rule, we set 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 proposed to make:
1. Changes to MS-DRG Classifications and Recalibrations of Relative 
Weights
    In section II. of the preamble of the proposed rule, we include--
     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 Pub. L. 108-173, obtained in a town hall 
meeting).
2. Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to the 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

[[Page 53272]]

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 the 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; proposals 
and clarifications 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 policies relating 
to hospital routine services furnished under arrangements.
4. FY 2013 Policy Governing the IPPS for Capital-Related Costs
    In section V. of the preamble to the proposed rule, we discussed 
the proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2013 and the proposed MS-DRG 
documentation and coding adjustment for FY 2013.
5. Changes to the Payment Rates for Certain Excluded Hospitals: Rate-
of-Increase Percentages
    In section VI. of the preamble of the proposed rule, we discuss 
proposed changes to payments to certain excluded hospitals.
6. Changes to the LTCH PPS
    In section VII. of the preamble of the proposed rule, we set forth 
proposed changes to the payment rates, factors, and other payment rate 
policies under the LTCH PPS for FY 2013. Specifically, we proposed 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. Changes Relating to Quality Data Reporting for Specific Providers 
and Suppliers
    In section VIII. of the preamble of the 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 requirements for the quality reporting measures 
under the LTCH Quality Reporting (LTCHQR) Program.
     Proposed quality data reporting and other requirements for 
the Ambulatory Surgical Center Quality Reporting (ASCQR) Program.
     The establishment of the Inpatient Psychiatric Facility 
Quality Reporting Program (IPFQRP).
8. Determining Prospective Payment Operating and Capital Rates and 
Rate-of-Increase Limits for Acute Care Hospitals
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed FY 2013 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We proposed to establish the threshold 
amounts for outlier cases. In addition, we addressed the proposed 
update factors for determining the rate-of-increase limits for cost 
reporting periods beginning in FY 2013 for certain hospitals excluded 
from the IPPS.
9. Determining Prospective Payment Rates for LTCHs
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed FY 2013 
prospective standard Federal rate. We proposed to establish the 
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 the 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 the proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of 
the appropriate percentage changes for FY 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.

[[Page 53273]]

     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 15 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 the 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.
    We received approximately 436 timely pieces of correspondence from 
the public in response to the FY 2013 IPPS/LTCH PPS proposed rule. We 
summarize these public comments and present our responses under the 
specific subject areas of this final rule.

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

A. Background

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

B. MS-DRG Reclassifications

    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).

D. 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. By increasing the number of MS-DRGs and more fully taking 
into account patient severity of illness in Medicare payment rates for 
acute care hospitals, MS-DRGs encourage hospitals to improve their 
documentation and coding of patient diagnoses.
    In the FY 2008 IPPS final rule with comment period (72 FR 47175 
through 47186), we indicated that the adoption of the MS-DRGs had the 
potential to lead to increases in aggregate payments without a 
corresponding increase in actual patient severity of illness due to the 
incentives for additional documentation and coding. In that final rule 
with comment period, we exercised our authority under section 
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget 
neutrality by adjusting the national standardized amount, to eliminate 
the estimated effect of changes in coding or classification that do not 
reflect real changes in case-mix. Our actuaries estimated that 
maintaining budget neutrality required an adjustment of -4.8 percent to 
the national standardized amount. We provided for phasing in this -4.8 
percent adjustment over 3 years. Specifically, we established 
prospective documentation and coding adjustments of -1.2 percent for FY 
2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010.
    On September 29, 2007, Congress enacted the TMA [Transitional 
Medical Assistance], Abstinence Education, and QI [Qualifying 
Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 
7(a) of Public Law 110-90 reduced the documentation and coding 
adjustment made as a result of the MS-DRG system that we adopted in the 
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 
and -0.9 percent for FY 2009, and we finalized the FY 2008 adjustment 
through rulemaking, effective 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

[[Page 53274]]

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 IPPS/RY 2010 LTCH PPS 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 was 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)(A)(vi) 
of the Act
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 
through 43777), we opted to delay the implementation of any 
documentation and coding adjustment until a full analysis of case-mix 
changes based on FY 2009 claims data could be completed. We refer 
readers to the FY 2010 IPPS/RY 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 discussed 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 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.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27887), for FY 
2013, we proposed to complete the prospective portion of the adjustment 
required under section 7(b)(1)(B) of Public Law 110-90. We proposed a -
1.9 percent adjustment to the standardized amount for FY 2013. We 
stated that 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.

[[Page 53275]]

We indicated 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 the 
proposed rule (77 FR 27887 through 27888) and the preamble of this 
final rule) will mitigate any negative financial impacts of this 
prospective adjustment.
    Comment: MedPAC submitted a comment fully supporting the proposed 
documentation and coding adjustments, citing its 2011 comment letter 
regarding the FY 2012 IPPS/LTCH PPS proposed rule for its support of 
the CMS methodology and the calculation of documentation and coding 
effect estimates. MedPAC reiterated its recommendation that Congress 
grant the Secretary the authority to recapture overpayments due to 
documentation and coding effects that occurred after FY 2009.
    Response: We appreciate MedPAC's analysis and continued support of 
the methodology to calculate the impact of documentation and coding on 
hospital payments. As stated in the proposed rule, at this point, we 
only have the authority to prospectively adjust the standardized amount 
to prevent future overpayments due to the effects of documentation and 
coding. We believe that any overpayments made in FY 2008 and FY 2009 
have already been recaptured, and any additional past overpayments 
cannot be recovered without additional statutory authority.
    Comment: Many commenters, including national hospital associations, 
continue to argue that the methodology employed by CMS significantly 
overstated the impact of documentation and coding changes. Commenters 
believed that the CMS methodology assumes that case-mix index has held 
constant over several fiscal years, and they view this as a flawed 
assumption. Commenters submitted a case-mix trend analysis, noting that 
this analysis was updated for new claims data and revised relative to 
similar analyses submitted as public comment on documentation and 
coding in prior IPPS rulemaking. According to the commenters, their 
case-mix trend analysis indicated only a 3.5 percent documentation and 
coding increase, which equals the total adjustment already implemented 
by CMS. These commenters argued that no further cuts are necessary to 
the standardized amount, and that the proposed adjustments are 
excessive.
    Response: We disagree that the presented trend analysis provides a 
more accurate estimate of the documentation and coding effect. We 
continue to believe that the proposed methodology, which removes real-
case mix growth from the calculation, yields a more straightforward and 
direct estimate. We also believe that the estimates obtained using our 
methodology are consistent with real case-mix growth as demonstrated by 
MedPAC in its 2011 public comment submitted on the FY 2012 IPPS/LTCH 
PPS proposed rule. We refer readers to our response in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51494-51496) for a more detailed 
response.
    Comment: One commenter, a national hospital association, disagreed 
with CMS' response from prior year rulemaking that ``changes in case-
mix do not necessarily follow a consistent pattern over time.'' The 
commenter indicated that the simple linear regression of case-mix 
growth it submitted was the most conservative estimate of potential 
documentation and coding effect, and that more advanced, nonlinear 
statistical methods were better statistical fits, and suggested an even 
smaller impact due to documentation and coding.
    Response: We are not convinced that further statistical testing of 
a case-mix trend based analysis would yield more accurate results, nor 
did we intend to suggest that nonlinear regression of case-mix growth 
would be a more appropriate measure of documentation and coding 
effects. The estimates submitted by the commenter presented a 
theoretical documentation and coding effect ranging from +3.5 percent 
to -1.9 percent. As discussed in prior year rulemaking, the inclusion 
of additional years in the suggested CMI trend based analysis caused 
documentation and coding effect estimates to vary significantly, and 
now the commenter argues that different statistical interpretations 
also may cause large fluctuations. With respect to the trend analysis, 
we continue to believe that the determination of an appropriate 
historical trend is less straightforward than our proposed methodology, 
which removes real case-mix growth from the calculation. Again, we 
refer readers to our more detailed response to public comments in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51494 through 51496).
    Comment: One commenter stated that coding offsets exceeding total 
case-mix growth duplicate the productivity adjustment mandated by the 
Affordable Care Act and should not be implemented. The commenter stated 
that decreases in real case-mix represent an improvement in 
productivity already adjusted for in the productivity adjustment.
    Response: Section 3401(a) of the Affordable Care Act requires that 
the IPPS operating market basket update be adjusted by changes in 
economy-wide productivity for FY 2012 (and each subsequent fiscal 
year). The statute defines the productivity adjustment to be 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, cost reporting period, or other annual period). We disagree with 
the commenter that this statutory provision somehow interacts with our 
documentation and coding adjustment authority. This statutory provision 
does not in any way reference our statutory documentation and coding 
adjustment authority, nor does our documentation and coding authority 
in any way reference the market basket adjustment for economy-wide 
productivity. The methodology used for determining the IPPS rates, and 
specifically our methodology for estimating documentation and coding 
effects was made available to the general public (through notice and 
comment rulemaking) prior to the enactment of the Affordable Care Act. 
However the law did not reference nor change our authority in light of 
the productivity adjustment.
    In addition, as we have previously indicated, our methodology for 
estimating documentation and coding removes changes in real case-mix 
from the calculation. Although we disagree that decreases in real case-
mix represent an improvement in productivity in the context of section 
3401(a), even if for purposes of discussion one were to accept this 
assertion, this is not a documentation and coding adjustment issue. The 
proper place for any offset would be to the productivity adjustment. 
Section 3401(a) of the Affordable Care Act provides no authority for 
such an adjustment for decreases in real case-mix.
    After consideration of the public comments we received, we do not 
believe that any alternative methodologies would produce more accurate 
estimates of documentation and coding effects. We are finalizing, as 
proposed, a -1.9 percent documentation and coding adjustment to the 
standardized amount. This adjustment will complete our statutory 
obligation to account for remainder of documentation and coding that 
did not reflect real changes in case-mix for

[[Page 53276]]

discharges occurring during FY 2008 or FY 2009.
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 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 two previous fiscal 
years completed the required recoupment for overpayments due to 
documentation and coding effects on discharges occurring in FYs 2008 
and 2009. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27888), we 
proposed to make a final +2.9 percent adjustment to the standardized 
amount. This adjustment would remove the effect of the one-time -2.9 
percent adjustment implemented in FY 2012. As stated in the proposed 
rule, 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.
    We did not receive any specific public comments regarding this 
adjustment. We did receive public comments requesting an additional 
+0.72 percent adjustment to account for cumulative overestimates of 
documentation and coding effects. We will address these comments in a 
later section. We are finalizing a +2.9 percent adjustment, as 
proposed, completing the recoupment portion of section 7(b)(1)(B) of 
Public Law 110-90. We note that with this positive adjustment, 
according to our estimates, all overpayments made in FY 2008 and FY 
2009 have been fully recaptured with appropriate interest, and the 
standardized amount has been returned to the appropriate baseline.
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, under current law, the MDH program 
expires at the end of FY 2012, as discussed in section IV.G. of this 
final 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 changes in case-mix.
    However, in the final rule that appeared in the Federal Register on 
November 27, 2007 (72 FR 66887 through 67888), we rescinded the 
application of the documentation and coding adjustment to the hospital-
specific rates effective 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 have their Medicare claims grouped 
using the same MS-DRG system as 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. In section 1886(d)(3)(A)(vi) of the Act, Congress 
stipulated that hospitals paid based on the standardized amount should 
not

[[Page 53277]]

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, 
we discussed our retrospective evaluation of the FY 2008 claims data 
for SCHs and MDHs using the same methodology described earlier for 
other IPPS hospitals. We found that, independently for both SCHs and 
MDHs, the change due to documentation and coding that did not reflect 
real changes in case-mix for discharges occurring during FY 2008 
slightly exceeded the proposed 2.5 percent result discussed earlier for 
other IPPS hospitals, but did not significantly differ from that 
result. We refer readers to those FY 2010 proposed and final rules for 
a more complete discussion (74 FR 24098 through 24100 and 74 FR 43775 
through 43776, respectively).
    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 to 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 allowed 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 required adjustment amount of -
2.5 percent, an additional -0.5 percent adjustment to the hospital-
specific payment rates would be required in future rulemaking.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27889), we 
proposed 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. For FY 2013, we proposed a 
prospective adjustment of -1.9 percent to the standardized amount. 
Therefore, we stated in the proposed rule (77 FR 27889) that we 
believed it was also appropriate to propose a -0.5 percent adjustment 
to the hospital-specific rate for FY 2013.
    Comment: Commenters questioned CMS' statutory authority to apply 
documentation and coding adjustments to hospitals receiving the 
hospital-specific rate. The commenters stated that section 
1886(d)(3)(A)(vi) of the Act specifically required the Secretary to 
determine if overpayments were made, and make appropriate adjustments 
to the standardized amount. The commenters contended that the broad 
authority granted under section 1886(d)(5)(I)(i) of the Act is not so 
broad as to permit CMS to extend the scope of a legislative directive 
that was specifically limited to hospitals paid under a prospective 
payment system.
    Response: We continue to disagree that we do not have the authority 
to make prospective documentation and coding adjustments to the 
hospital-specific rate. We refer readers to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51499) for further discussion on our authority 
granted under section 1886(d)(5)(I)(i) of the Act. We do not believe 
that specific discretionary authority under section 1886(d)(3)(A)(iv) 
of the Act creates a limit on the broad authority granted under section 
1886(d)(5)(I) of the Act. In this final rule, we are finalizing a

[[Page 53278]]

prospective -0.5 percent adjustment to the hospital-specific rate to 
account for documentation and coding effects for discharges occurring 
in FY 2008 and FY 2009.
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 is 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, in the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 27889), we also did not propose 
any adjustment to the Puerto Rico-specific rate.
10. 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 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, in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 27890), we proposed 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.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we stated 
that 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 was -2.7 percent (-1.9 percent plus -0.8 
percent). We indicated that 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, and 2010. 
While we did not make proposals regarding future fiscal years in the 
proposed rule, we plan to continue to monitor and analyze additional 
claims data and make adjustments, when necessary, as authorized under 
section 1886(d)(3)(A)(vi) of the Act. We noted 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

[[Page 53279]]

adjustment under section 7(b)(1)(B) of Public Law 110-90, as discussed 
below.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we noted 
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.
    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, in the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 27890), we also proposed 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 indicated that we believed 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 proposed 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.
    Comment: Numerous comments objected to the CMS proposal to make an 
adjustment under section 1886(d)(3)(A)(vi) of the Act to account for 
payment increases due to documentation and coding that did not reflect 
real changes in case-mix for discharges occurring during FY 2010. 
Commenters pointed to MedPAC's analysis in its public comment letter in 
response to the FY 2011 IPPS/LTCH PPS proposed rule that suggested that 
``negative documentation and coding'' may have occurred under the CMS-
DRGs, creating an overestimation of documentation and coding due to the 
introduction of MS-DRGs. MedPAC estimated that the magnitude of this 
effect could reach 0.36 percent in FY 2008, 0.36 percent in FY 2009, 
and 0.25 percent in FY 2010. CMS responded to these findings in the FY 
2011 IPPS/LTCH PPS final rule by stating that MedPAC characterized this 
impact of any potential overestimate as ``small'' and could not be 
corroborated with any specific examples or analysis. Commenters 
indicated that they did not consider the potential impacts to be 
``small'' and pointed out that if such estimates are true, hospitals 
would be due an additional +0.72 percent adjustment to account for 
overestimated recoupments (as well as similar positive adjustments to 
the hospital-specific and Puerto Rico-specific rate). Some commenters 
asserted that there are numerous examples of changes in documentation 
and coding that may have decreased the CMI under the CMS-DRGs, and 
provided five specific examples.
    One commenter, compared the FY 2007 CC list to the FY 2008 CC list, 
identifying examples of chronic conditions that were CCs under the CMS-
DRGs, but are no longer considered CCs or MCCs under the MS-DRGs, and 
that would also necessarily result in a lower MS-DRG assignment because 
more specific codes related to that condition were not developed. The 
commenter expressed surprise that CMS' medical coding experts were 
unable to do the same. The commenter identified the following common, 
chronic conditions which were CCs under the CMS-DRGs, but are not a CC 
or MCC under the MS-DRGs: atrial fibrillation; chronic blood loss 
anemia; mitral valve disorder; and aortic valve disorder. The commenter 
stated that removing these chronic conditions from the CC list under 
the MS-DRGs led to a substantial decrease in the reporting of these 
conditions as a secondary diagnosis when the MS-DRGs were implemented 
in FY 2008.
    Specifically, after 10 years in which the proportion of IPPS cases 
that included atrial fibrillation as a secondary diagnosis increased 
each year, the proportion decreased by 20 percent immediately upon 
implementation of the MS-DRGs in FY 2008. This decrease in coding of 
atrial fibrillation would cause the CMI as measured by the FY 2007 DRG 
GROUPER to go down, while having no effect on the CMI as measured by 
the MS-DRG GROUPER. The commenter stated that if this negative 
documentation and coding effect is not taken into account in CMS' 
analysis, it will inappropriately increase CMS' estimate of 
documentation and coding change. The commenter also found that the 
secondary diagnoses of chronic blood loss anemia, mitral valve disorder 
and aortic valve disorder decreased in proportion immediately upon 
implementation of the MS-DRGs in FY 2008.
    In addition, the commenter stated that hyperpotassemia was a CC 
under the CMS-DRGs, but is not a CC or MCC under the MS-DRGs. Because 
of this, there was a substantial decrease in the reporting of 
hyperpotassemia as a secondary diagnosis when the MS-DRGs were 
implemented in FY 2008. Specifically, after 9 consecutive years in 
which the proportion of IPPS cases that included hyperpotassemia as a 
secondary diagnosis increased, the proportion decreased by 37 percent 
immediately upon implementation of the MS-DRGs in FY 2008.
    In responding to MedPAC's analysis, the commenter stated that CMS 
concluded that it did not believe it would be appropriate to revise its 
estimates based solely on MedPAC's analysis without knowing of any 
specific examples. Given that the commenter is now providing such 
specific examples, the commenter urged the agency to revise its 
analysis to account for what the commenter believed to be 
overestimation of documentation and coding as identified by MedPAC and 
the AHA. Specifically, the commenter recommended that CMS subtract 0.25 
percentage points from its estimate of a 6.2 percent cumulative 
documentation and coding effect; which yields a revised cumulative 
effect of 5.95 percent. Under this methodology, because CMS has already 
implemented documentation and coding cuts of 3.5 percent, the commenter 
stated that the cut remaining is actually only 2.45 percent, instead of 
the 2.7 percent the agency proposed.
    Response: We disagree with the commenter's suggestion that the 
removal of the codes for the chronic conditions of atrial fibrillation, 
chronic blood loss anemia, mitral valve disorder and aortic valve 
disorder from the CC list upon the implementation of MS-DRGs and the 
subsequent decrease in hospital reporting are examples of a 
``negative'' documentation and coding effect. We note that what the 
commenter provided are examples of an immediate change in coding and 
reporting practices based on incentives under the MS-DRGs. It did not 
suggest that patients had fewer occurrences of the chronic conditions 
identified. They do suggest that hospitals were immediately aware of 
the incentives provided by the CC and MCC lists under MS-DRGs and began 
focusing on identifying and

[[Page 53280]]

reporting codes on the MS-DRG CC and MCC lists.
    We believe the commenters' suggestions of immediate changes in 
coding and reporting based on incentives provided by the MS-DRGs CC and 
MCC lists support our view that coding practices have changed in 
response to incentives, which we have shown lead to increases in the 
case-mix index that were not based on actual changes in patient 
severity.
    We further believe that while the MedPAC analysis suggested that a 
potential overestimate could have, in theory, occurred in the 
methodology, the estimates are theoretical maximums. It is not clear at 
this time, based on the information submitted, to what extent the five 
examples provided by commenters substantiate these theoretical maximums 
or any change in adjustments.
    Nonetheless, we recognize that the methodological issues that 
surround this question are complex, and may merit further 
consideration. Therefore, we are not finalizing the proposed -0.8 
percent adjustment to the standardized amount and the hospital-specific 
rate at this time until more analysis can be completed.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Removal of          Combined
                                                               Remaining         Prospective        Prospective          onetime        documentation  &
                                                              prospective       adjustment for     adjustment for       recoupment           coding
                                                             adjustment for        FY 2010            FY 2013       adjustment in  FY   adjustment  for
                                                             FYs 2008-2009                                                 2013             FY 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Level of Adjustments.....................................             -1.9%              -0.0%              -1.9%              +2.9%              +1.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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.gov/Research-Statistics-Data-and-Systems/Files-for-Order/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 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) 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 
cost 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

[[Page 53281]]

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 
Devices Charged to Patients'' for use in calculating the MS-DRG 
relative weights for FY 2012. We indicated that we would reassess the 
availability of data for the ``Implantable Devices Charged to 
Patients'' cost center 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 
the time of development of the FY 2013 IPPS/LTCH PPS proposed rule, 
there was a sizeable number of hospitals in the FY 2010 HCRIS that had 
reported data for ``Implantable Devices Charged to Patients'' on their 
cost reports beginning during FY 2010. However, during the development 
of the proposed rule, we were 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, through September 30, 2010, were filed 
on the new cost report Form 2552-10, and cost reports filed on the Form 
2552-10 were not 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 were not available, to ensure that the relative weights 
are calculated with a data set that is as comprehensive and accurate as 
possible, in the proposed rule, we proposed 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 was that, due 
to additional unforeseen technical difficulties, the corresponding 
information regarding charges for implantable devices on hospital 
claims was 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 believed that we had 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. We stated in 
the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892) that 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 hoped that we would have data for 
an analysis of creating distinct CCRs for MRI, CT scans, and cardiac 
catheterization. Prior to proposing to create these CCRs, we would 
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.
    Comment: Commenters expressed concern that CMS had proposed not to 
use the data available from the new ``Implantable Devices Charged to 
Patients'' cost center for FY 2013. The commenters were concerned about 
the continued delays in the utilization of the new cost center data, 
and stated that such delays only prolong the payment inaccuracies 
associated with charge compression. Two commenters suggested a short-
term fix to account for the lack of data and to create a CCR for 
implantable devices. The commenters suggested that CMS calculate a DRG-
by-DRG estimate of the split of standardized supplies charges into 
implantable devices and routine supplies. They stated that once 
supplies charges are apportioned in each DRG, separate national average 
CCRs for implantable devices and other supplies could be applied, based 
on the existing cost reports. The commenters recommended using the CY 
2010 Inpatient Standard Analytic File (SAF) to calculate the DRG-level 
factors for apportioning the supplies charges, as the file has 
information on charges by revenue center, allowing implantable devices 
to be split from routine supplies. They further suggested that CMS 
could calculate the CY 2010 ratios of routine supply charges to 
implantable device charges by DRG, apply those ratios to the FY 2011 
MedPAR supplies charges, and then utilize the separate CCRs for 
supplies and implantable devices to estimate costs within each DRG. The 
commenters added that the remainder of the DRG weight

[[Page 53282]]

calculation would proceed at this point, now with 16 CCRs, including 
the implantable devices CCR. The commenters stated that CMS has 
information required for DRG assignment, and could run the data through 
the latest MS-DRG GROUPER if MS-DRG definition changes are an issue.
    Several commenters requested that CMS adopt a regression-based CCR 
for implantable devices due to the delay in using the cost report and 
claims data to calculate an implantable device CCR. The commenters 
suggested that CMS implement this approach, which was a recommendation 
made by RTI and MedPAC, to the statistical disaggregation of CCRs in 
the ``Medical Supplies Charged to Patients'' cost center, as it would 
immediately address charge compression until data from the new cost 
centers become available.
    One commenter requested that CMS use the data from the hospitals 
that are compliant in using the ``Implantable Devices Charged to 
Patients'' cost center data to establish an implantable device CCR for 
establishing FY 2013 relative weights. The commenter suggested that, 
despite data limitations of the current data, CMS continue to revise 
this CCR in subsequent years, as the agency does for all cost centers 
as more robust data are available, without further delaying needed 
improvements in the interim period.
    Response: We acknowledge the commenters' concern that we did not 
propose a distinct CCR for implantable devices charged to patients for 
FY 2013. Nevertheless, we believe it would be inappropriate to finalize 
a specific CCR for implantable devices charged to patients for FY 2013 
(using SAF data, a regression-based methodology, or the limited 
implantable devices cost report data that we do have), without an 
opportunity for the public to review and comment on our analysis. 
Rather, we believe that it is appropriate to wait until FY 2014, when 
we hope to be able to provide a proper impact analysis of the addition 
of a CCR for implantable devices charged to patients in the relative 
weights calculation. Accordingly, we are not implementing a regression-
based CCR for implantable devices at this time, nor are we implementing 
any new CCRs for use in the relative weights calculation for FY 2013.
    Comment: Several commenters expressed concern that CMS may not have 
sufficient data to establish an implantable device cost center to use 
in the calculation of the relative weights for FY 2014. Two commenters 
requested that CMS develop and discuss in this FY 2013 IPPS final rule 
an action plan for ensuring that FY 2011 HCRIS and MedPAR data will be 
available for allowing the ``Implantable Devices Charged to Patients'' 
cost center to be used for calculating MS-DRG relative weights for FY 
2014. Another commenter requested that, rather than waiting for the 
next rulemaking cycle, CMS should determine if it will have the 
necessary data available prior to the FY 2014 proposed rule and inform 
stakeholders if there continues to be administrative issues with the 
data. The commenter believed that this will allow stakeholders to weigh 
in on potential solutions to avoid another year of delay in 
establishing the implantable device CCR.
    Response: We understand the commenters' desire for reassurance that 
the FY 2014 rulemaking cycle will not present further unanticipated 
delays in the availability of both HCRIS and MedPAR data required to 
create distinct CCRs for implantable devices charged to patients and 
supplies charged to patients, respectively. We expect to have the 
necessary data available to begin modeling the additional CCRs before 
the end of calendar year 2012. Therefore, we are optimistic that, for 
the FY 2014 proposed rule, we will be able to provide a detailed impact 
analysis of the relative weights using distinct CCRs for implantable 
devices, MRIs, CT scans, and cardiac catheterization. If, for some 
reason, additional delays are encountered toward the end of calendar 
year 2012, we will consider informing stakeholders of this delay, if 
appropriate, and hosting a national conference call, so that 
alternative solutions to establishing additional CCRs can be considered 
in a timely fashion.
    Comment: Some commenters supported our proposal of not making major 
refinements in the MS-DRG relative weight methodology.
    Response: We appreciate the commenters' support for our proposal of 
not making major refinements to the MS-DRG relative weights.
    Comment: One commenter recommended that, despite the delay in the 
implementation of the ``Implantable Devices Charged to Patients'' cost 
center for the IPPS relative weights, CMS should proceed with the 
implementation of the implantable devices cost center in the 
calculation of OPPS rates for CY 2013. The commenter requested that CMS 
work toward a solution to combine data from the two different cost 
reporting forms in the HCRIS data so that OPPS rates can be calculated 
using the cost difference reported in the ``Implantable Devices Charged 
to Patients'' cost center.
    Response: We note that the CY 2013 OPPS/ASC proposed rule, which 
went on public display at the Office of the Federal Register on July 6, 
2012 (available at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS-1589-P.html), in fact, includes a proposal to use 
data from the ``Implantable Devices Charged to Patients'' cost center 
to create a distinct CCR for use in calculating the OPPS relative 
weights for CY 2013.
    Comment: Two commenters expressed continued concern about the 
accuracy of establishing new CT and MRI cost centers using cost report 
and claims data. The commenters were concerned that the data reported 
in the CT and MRI cost centers will not represent hospitals' full cost 
of providing CT and MRI for some time. The commenters stated that a 
large portion of the capital costs for CT and MRI equipment may have 
been allocated across the entire hospital, rather than to the radiology 
cost center, which would result in the understatement of costs of CT 
and MRI reported in the radiology cost center.
    Response: We received similar comments regarding the allocation of 
capital costs for radiology equipment on the FY 2011 IPPS/LTCH PPS 
proposed rule. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50078), 
we provided a detailed response for CMS' longstanding policy on the 
proper reporting of such capital costs. Specifically, we stated that 
``section 104 of the PRM-I contains definitions of buildings (section 
104.2), building equipment (section 104.3), major moveable equipment 
(section 104.4), and minor equipment (section 104.5) that apply for 
purposes of cost report completion. We believe that it is clear that CT 
and MRI equipment are `major moveable equipment' and are neither a 
building cost nor a building equipment cost. Specifically, section 
104.4 of the PRM-I defines `major moveable equipment' as follows: `The 
general characteristics of this equipment are: (a) a relatively fixed 
location in the building; (b) capable of being moved, as distinguished 
from building equipment; (c) a unit cost sufficient to justify ledger 
control; (d) sufficient size and identity to make control feasible by 
means of identification tags; and (e) a minimum life of approximately 
three years. Major moveable equipment includes such items as accounting 
machines, beds, wheelchairs, desks, vehicles, x-ray machines, etc.' In 
addition to this longstanding instruction, we believe

[[Page 53283]]

that our view that CT scanning and MRI equipment are major moveable 
equipment is supported by the 2008 edition of `Estimated Useful Lives 
of Depreciable Hospital Assets,' which states that the estimated useful 
life of a CT scanner is 5 years, an MRI is 5 years, and an X-ray unit 
is 7 years. Therefore, we believe that our longstanding policy makes it 
clear that CT scanning and MRI equipment [are] major moveable equipment 
and should be reported as such on the cost report. As major moveable 
equipment, the costs should be reported together with the rest of the 
hospital's major moveable equipment cost in the `Capital Related Costs-
Moveable Equipment' cost center(s) on Worksheet A (lines 2 and 4 [on 
the CMS Form 2552-96 and line 2 on the CMS Form 2552-10]). The costs in 
this cost center are allocated to all the hospital's cost centers that 
use major moveable equipment (including CT and MRI) using `dollar 
value' or `square feet' if the provider obtained the contractor's 
approval under Provider Reimbursement Manual Part II (PRM-II), Section 
3617, to use the simplified cost allocation methodology. However, a 
hospital that is concerned that this method of allocation may result in 
inaccurate CCRs (on Worksheet C, Part I) for the CT scan, MRI, and 
other ancillary cost centers may request contractor approval under 
Section 2307 of the PRM-I to directly assign the cost of moveable 
equipment to all of the hospital's cost centers that use moveable 
equipment, including CT scans and MRIs. If the hospital meets all of 
the criteria in Section 2307 of the PRM-I, the contractor may approve 
the direct assignment method. This would ensure that the high cost of 
the CT scanning and MRI equipment would be reflected in the CCR that 
would be calculated for those departments and that would be used to 
estimate the cost of CT scanning and MRI services. In any case, 
hospitals with accounting systems that include the cost of CT scanning 
and MRI equipment in the `Capital Related Costs--Building and Fixtures' 
cost center should correct their cost reporting practices to come into 
compliance with CMS' longstanding policy in this regard. Reporting of 
costs and charges on the Medicare cost report must be compliant with 
Medicare cost reporting principles, regardless of differing payment 
structures and incentives of other payers or State reporting 
requirements'' (75 FR 50078). Hospitals that still need to correct 
their cost reporting practices in this regard should do so soon, so 
that when we propose distinct CCRs for MRI and CT scans, hopefully for 
FY 2014, these CCRs will represent fairly accurately the costs of these 
radiology services.
    In summary, in this final rule, we are finalizing our proposal to 
continue to use the existing 15 CCRs to calculate the MS-DRG relative 
weights for FY 2013. For this final rule, as we did for the proposed 
rule, because data from the CMS Form 2552-10 continue to be 
unavailable, we are using 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 we are backfilling 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. Depending on the availability of 
necessary data, we hope to be able to propose, if appropriate, for FY 
2014 to use distinct CCRs for implantable devices charged to patients 
and supplies charged to patients, and possibly distinct CCRs for MRI, 
CT scans, and cardiac catheterization as well.

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 53284]]

[GRAPHIC] [TIFF OMITTED] TR31AU12.000

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 53285]]

    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/Regulations-and-Guidance/Guidance/Transmittals/downloads/R756OTN.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 in section II.G.9. of the preamble of 
this final 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) and in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27894), 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. The translation list 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/Medicare/Coding/ICD10/index.html. 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.html.
    Comment: Commenters expressed appreciation for CMS' decision to 
make this crosswalk available. Commenters noted that they would 
continue to review the crosswalk and provide additional comments, as 
warranted.
    Response: We appreciate the commenters' support and continued 
feedback.
5. Changes to the HAC Policy for FY 2013
a. Additional Diagnosis Codes to Existing HACs
    As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27894), 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 were 
not any new diagnosis codes 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, in the proposed rule (77 FR 27894), we proposed to add two 
of these codes to an existing HAC category. We proposed 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 
versus 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 the two diagnosis codes that we 
proposed 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 invited 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.
    Comment: Several commenters supported the addition of these two 
codes. One commenter, a State program, indicated that it uses these 
codes in a statewide HAC payment incentive program.
    Response: We appreciate the commenters' support.
    Comment: Some commenters opposed the addition of these two 
diagnosis codes. Commenters also urged CMS to remove the one existing 
HAC code (999.31) in the Vascular Catheter-Associated Infection HAC 
category. They stated that CMS is proposing to add a quality measure on 
central line associated bloodstream infection (CLABSI), which would 
capture vascular catheter-associated infections

[[Page 53286]]

and asserted that ``this could penalize hospitals twice for the same 
event.'' (We note that the commenters may be referring to two different 
CMS programs, the Hospital IQR Program and the Hospital VBP Program.) 
Commenters stated that their opposition to the proposed inclusion of 
the two codes is not specific to the particular codes that were 
proposed, but that their opposition is predicated on the ``expansion of 
this HAC [Vascular Catheter-Associated Infection].'' Commenters also 
stated that they supported reducing the incidence of CLABSI as a 
patient safety goal and urged CMS to ``select only one program in which 
to measure hospital performance for vascular catheter-associated 
infection.''
    Response: The HAC-POA Program is part of an array of tools used by 
the Medicare program to promote increased quality and efficiency of 
care. These tools include quality measurement as well as payment 
adjustments. Because of their importance, HACs have been included in 
multiple tools used by the Medicare program to measure quality of 
services provided and performance, and to determine payment 
adjustments. 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, such as when any nonselected CC/MCC appears on the claim, 
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 and would not generally ``penalize hospitals twice.''
    Because of their importance, measures of HACs have historically 
been included in the Hospital IQR Program and are simultaneously 
monitored by different CMS programs. The HAC/POA policy authorized 
under section 1886(D)(4)(d) of the Act is a claims-based payment 
policy, and in many cases, even if a HAC manifests during a hospital 
stay, if any nonselected CC/MCC appears on the claim, the claim will be 
paid at the higher MS-DRG rate.
    Comment: One commenter supported the addition of diagnosis code 
999.32, Bloodstream infection due to central venous catheter, to the 
Vascular Catheter-Associated Infection HAC category, however, the 
commenter expressed concern with the inclusion of diagnosis code 
999.33, Local infection due to central venous catheter, as a condition 
under this same HAC category to be subject to the HAC payment policy. 
According to the commenter, diagnosis code 999.33 identifies and 
describes local infections related to the soft tissues versus 
infections in the central bloodstream. As such, the commenter asserted 
that the Vascular Catheter-Associated Infection HAC category should 
only include central bloodstream infections. Therefore, the commenter 
did not support the addition of code 999.33 to the Vascular Catheter-
Associated Infection HAC category.
    In addition, this same commenter recommended that CMS publish data 
analyses for the Vascular Catheter-Associated Infection HAC category. 
Specifically, the commenter requested that volume and cost data be made 
publicly available for diagnosis codes 999.31, Other and unspecified 
infection due to central venous catheter; 999.32, Bloodstream infection 
due to central venous catheter; and 999.33, Local infection due to 
central venous catheter. The commenter reiterated that they do not 
support the inclusion of code 999.33 as a condition under the Vascular 
Catheter-Associated Infection HAC category, however, the commenter 
stated the additional information would assist in identifying potential 
shifts in volume among the newer, more specific codes of 999.32 and 
999.33.
    Response: We appreciate the commenter's support for the addition of 
diagnosis code 999.32, Bloodstream infection due to central venous 
catheter, to the Vascular Catheter-Associated Infection HAC category. 
With respect to the concern expressed regarding diagnosis code 999.33, 
Local infection due to central venous catheter, we believe the 
commenter may be confused. The title of the HAC category is Vascular 
Catheter-Associated Infection; therefore, the emphasis is on the fact 
that the patient had a central venous catheter placed and subsequently 
developed an infection due to the presence of that catheter. We 
acknowledge there is widespread interest particularly in bloodstream 
infections due to central venous catheters, as several initiatives have 
been undertaken focusing on surveillance and prevention. However, for 
this HAC payment provision, it is our belief that local infections 
resulting from a central venous catheter are also of importance and 
deserve similar efforts among the provider community and healthcare 
industry with regard to surveillance and prevention, as do the other 
selected HAC conditions. While the condition being described by 
diagnosis code 999.33, Local infection due to central venous catheter 
is a local infection, it identifies the fact that a patient acquired 
the infection as a result of a central venous catheter. Therefore, we 
continue to believe it is appropriate to finalize this code for 
inclusion in this HAC category.
    In response to the recommendation that CMS conduct and publish data 
analyses to provide further detailed information related to volume and 
cost for codes 999.31, 999.32 and 999.33, we note that we have provided 
the results for each selected condition within each HAC category 
beginning with FY 2009 data analysis presented in FY 2011. We refer the 
commenter and readers to the RTI evaluation of the HAC-POA program for 
years FY 2009 through FY 2011 on the following Web site: http://www.rti.org/reports/cms/. As codes 999.32 and 999.33 became effective 
October 1, 2011 (FY 2012), results of the FY 2012 data analysis are not 
currently available.
    After consideration of the public comments we received, we are 
finalizing our proposal 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 discharges occurring on or after October 1, 
2012.
b. New Candidate HAC Condition: Surgical Site Infection (SSI) Following 
Cardiac Implantable Electronic Device (CIED) Procedures
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27894 through 
27896), we discussed 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 
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

[[Page 53287]]

admission, making it difficult to determine whether the condition was 
reasonably preventable. In the proposed rule, we invited 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 SSI Following 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).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27894 through 
27896), we proposed to identify SSI 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 SSI 
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 SSI 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 SSI 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 the proposal, we 
considered CIED procedures in the 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

[[Page 53288]]

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 ranges from $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 SSI Following CIED Procedures, as 
specified in our proposal, is a CC under the MS-DRG system. We did not 
identify 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 SSI Following CIED Procedures, we believe the condition 
is reasonably preventable through application of evidence-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.
---------------------------------------------------------------------------

    In the proposed rule, we invited public comment on whether SSI 
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 indicated 
that we were particularly interested in receiving comments on the 
degree to which SSI Following CIED Procedures is reasonably preventable 
through the application of evidence-based guidelines.
    Comment: The majority of commenters supported SSI Following CIED 
Procedures as a new addition to the HAC/POA condition list, citing its 
clinical relevance to the Medicare beneficiary population and concerns 
about the increasing incidence of these infections in conjunction with 
increased morbidity and mortality, and the associated costs with these 
infections. One commenter, a State program, indicated that it uses 
these codes in a statewide HAC payment incentive program.
    Response: We appreciate the commenters' support.
    Comment: Some commenters raised concerns that the inclusion of SSI 
Following CIED Procedures as a HAC candidate does not meet the 
statutory conditions of section 1886(d)(4)(D) of the Act because ``CMS 
points out that there were only 859 cases of SSI Following CIED 
Procedures during FY 2011. This constitutes only 0.25 percent of all 
CIED cases.'' These commenters asserted that the HAC candidate 
condition does not meet the high-volume criterion and, therefore, 
should not be included as a HAC.
    Response: We appreciate the commenters' concern regarding whether 
this candidate condition meets the standards of the statutory criteria. 
We note that we consider all cases where HAC codes are on the claim as 
a secondary diagnosis, regardless of their POA indicator, in evaluating 
conditions based on cost and volume and also use external data sources 
when available. With regard to cost, the proposed rule included data 
analyses that showed that the average cost per case of SSI Following 
CIED Procedures is $51,795 and also included literature that describes 
the increase in the mean cost of admissions with CIED infection to 
those CIED placements without infection. Therefore, we reiterate our 
belief that this condition meets the high-cost criterion. As discussed 
previously, section 1886(d)(4)(D) of the Act specifies that a condition 
on the HAC list may be high-volume or high-cost or both. It does not 
require the condition to be both, and a condition that is only high-
cost would meet this statutory criterion. Therefore, we believe that 
the statutory criterion has been met.
    In the proposed rule, we characterized this condition as ``high-
cost and high-volume'' and described an analysis that showed 859 cases. 
While 859 cases may seem like a small number of cases as the commenters 
pointed out, we note that, in past rules, we have had similar numbers 
for HACs, such as in FY 2008, where we stated that there were ``764 
cases reported of Medicare patients who had an object left in during 
surgery reported as a secondary diagnosis'' (72 FR 24720). Therefore, a 
volume of 859 cases is not as high as the volume for some other HACs 
and is higher than the volume for some HACs.
    Comment: Some commenters were opposed to the SSI Following CIED 
Procedures becoming a HAC because they believed that this HAC selection 
``will result in hospitals dedicating time and effort to avoiding this 
extremely low-incidence adverse event (when resources could have been 
devoted to more highly prevalent safety concerns).''
    Response: We appreciate and understand the concern of the 
commenters. We note that SSIs are an established HAC category and that 
a similar condition has been identified by public commenters in prior 
rulemaking. In the FY 2008 IPPS final rule with comment period (72 FR 
47213), SSIs were identified as a broad category for consideration. 
However, at the time, we determined that coding of SSI with only ICD-9-
CM code 998.59 (Other postoperative infection) did not meet the 
statutory criteria for being subject to the provision because it does 
not uniquely identify SSIs. We stated that we would explore ways to 
identify SSIs and would reevaluate the condition in FY 2009. In 
response to public comment in the FY 2008 final rule with comment 
period, we finalized one SSI, mediastinitis after coronary artery 
bypass graft (CABG) surgery, and continued to ask for public input so 
that further specific SSIs could be identified.
    In FY 2009, we expanded our selection of the SSI for elective 
procedures as HACs. In the FY 2009 IPPS final rule (73 FR 48477 through 
48479), we discussed how, in response to commenters' suggestions, we 
selected certain orthopedic procedures in the HAC SSI category using 
ICD-9-CM diagnosis code 996.67 (Infection and inflammatory reaction due 
to other orthopedic device and implant graft) or 998.59 (Other 
postoperative infection) and selected 81.XX orthopedic ICD-9-CM 
procedure codes. Another SSI condition that was proposed and finalized 
during FY 2009 based on public comment was ``Surgical Site Infection 
Following Bariatric Surgery for Obesity.'' The ICD-9-CM codes that are 
used to describe ``Surgical Site Infection Following Bariatric Surgery 
for Obesity'' are: 278.01 (Morbid Obesity) and 998.59 (Other 
postoperative infection), and procedure code 44.38 (Laparoscopic 
gastroenterostomy) or 44.39 (Other gastroenterostomy), or 44.95 
(Laparoscopic gastri restrictive procedure).
    As discussed in that same final rule for FY 2009 (73 FR 48478 
through 48479), a commenter recommended adding Surgical Site Infection 
following Implantation of Cardiac Devices as a HAC. The commenter 
provided the

[[Page 53289]]

following information regarding this recommended HAC:
     A recent estimate that approximately 300,000 pacemaker 
implants had been performed in 2007.
     A reference stating that the estimated rate of infection 
following cardiac device implantation is 4 percent and that the cost to 
treat each pacemaker infection is approximately $25,000.
     Evidence-based guidelines for preventing these infections.
    Our response in that FY 2009 final rule was that ``surgical site 
infection following certain cardiac device procedures is a strong 
candidate HAC.'' We stated the condition is high-cost, high-volume, 
triggers a higher-paying MS-DRG, and may be considered reasonably 
preventable through the application of evidence-based guidelines. We 
further explained that we did not propose this specific condition in 
the FY 2009 IPPS proposed rule; however, we expect to propose surgical 
site infection following certain cardiac device procedures, as well as 
surgical site infection following other types of device procedures, as 
future candidates. We also stated that we looked forward to working 
with stakeholders to identify additional procedures, such as device 
procedures, in which SSIs could be considered reasonably preventable 
through the application of evidence-based guidelines. We continue to 
agree with public commenters from FY 2009 that SSI Following 
Implantation of Cardiac Device Procedures is a strong candidate and 
made this specific proposal for FY 2013 for that reason.
    In light of the public comments we received, and given our prior 
establishment of a broad HAC category for SSIs in relation to HACs and 
historical discussion of SSI following certain cardiac device 
procedures as a strong candidate, in this final rule, we are modifying 
our proposal so that, rather than this procedure being a new HAC 
category, we are finalizing SSI Following CIED Procedures as a new 
subcategory under SSIs (for example, HAC 9D Surgical Site Infection 
Following Cardiac Implantation).
    Comment: Some commenters opposed the use of administrative/claims 
data to identify HAIs in the HAC/POA Program and noted that the 
proposed rule stated that there is no unique code that identifies SSI 
Following CIED procedures, and thus CMS proposed to use a combination 
of codes to capture these data. The commenters believed the use of 
claims data for the determination of HAIs/HACs has limited value in 
improving patient care because claims data do not provide precise 
identification of HAIs, nor do they provide information in a timely 
manner to provide effective treatment.
    Response: We appreciate the commenters' concern that administrative 
data may not provide the most precise identification of HAIs and their 
comments about the codes used to identify the conditions proposed for 
addition to the HAC list. However, we point out that the statute 
establishes this policy as a payment policy, which is implemented on a 
per claim basis by adjusting the MS-DRG assignment. The statute further 
requires that the conditions on the HAC list must be identifiable 
through ICD-9-CM codes. The conditions identified on the HAC list and 
the corresponding codes or combinations of codes used to make a payment 
adjustment are not intended to provide information in a timely manner 
to provide treatment to any particular individual. The statute 
establishes a payment adjustment that can encourage hospitals to make 
improvements with regard to a limited number of conditions that, if 
they did not occur, could have otherwise resulted in an increased 
payment for a reasonably avoidable complication.
    Comment: One commenter did not believe that punitive payment 
mechanisms coupled with the lack of risk adjustment for the conditions 
on the HACs list is the most appropriate or effective method to reduce 
complications. Commenters also asserted that CMS is expanding the HAC 
program ``without fully understanding the impact of appropriate risk 
adjustment.''
    Response: We appreciate the commenters' response, but disagree with 
their assumptions. We received similar comments regarding the addition 
of two new codes to another existing HAC category. We note that our 
response is similar. The HAC/POA Program is part of an array of tools 
used by the Medicare program to promote increased quality and 
efficiency of care. These tools include quality measurement, as well as 
payment adjustments. Because of their importance, HACs have been 
included in multiple tools used by Medicare to measure quality of 
services provided and performance, and to determine payment 
adjustments. 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, such as when a nonselected CC/MCC appears on a claim, 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.
    With regard to risk adjustment, risk adjustment is not a 
requirement under section 1886(d)(4)(D) of the Act for inclusion of a 
condition on the HAC list for payment adjustment. We believe the 
commenters may be confusing the HAC payment adjustment policy with 
quality measurement policies, where risk adjustment is sometimes used. 
We believe meeting the statutory criteria as specified encourages 
hospitals to promote measures to protect all patients from reasonably 
preventable HACs.
    Comment: One commenter stated: ``It is inappropriate for CMS to 
deny payment for HAC related complications without taking into 
consideration whether a patient did, in fact, receive optimal evidence-
based care given that the rates of many of the HACs cannot reach 
zero.''
    Response: We appreciate the commenter's response. We believe that, 
although it may be difficult to reduce the incidence of conditions on 
the HAC list to zero, the incidence of conditions can be significantly 
reduced in cases where evidence-based guidelines for the prevention of 
the condition exist and are used. Additionally, we point out that 
payment is not denied, but could be made at a lower paying MS-DRG rate. 
If any nonselected CC/MCC appears on the claim when a HAC is not 
present on admission, the claim will be paid at the higher MS-DRG rate, 
so the hospital would not receive a lower payment. Finally, in 
accordance with 42 CFR 412.60(d), hospitals may appeal the DRG 
assignment on a claim within 60 days of the initial notice of the DRG 
assignment. This may be of interest to the public, as the commenter 
expressed concern about those cases where a HAC occurs and a lower 
paying MS-DRG assignment is made.
    After consideration of the public comments we received, in this 
final rule, we are modifying our proposal to add SSI Following CIED 
Procedures as a HAC condition. Our final policy makes SSI following 
CIED Procedures a sub-HAC condition within the SSI HAC category subject 
to the HAC payment provision for discharges occurring on or after 
October 1, 2012.
c. New Candidate HAC Condition: Iatrogenic Pneumothorax With Venous 
Catheterization
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27896 through

[[Page 53290]]

27897), we discussed 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 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 warranted 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. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27896 through 27897), we proposed 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 did not propose exclusion criteria, we welcomed 
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 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 
evidence-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

[[Page 53291]]

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. In the proposed rule, we 
invited 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 stated that we were 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.
    Comment: Some commenters supported CMS' proposal to include 
Iatrogenic Pneumothorax with Venous Catheterization as a candidate 
condition for the HAC list. Some commenters noted that this proposal 
aligns with and encourages use of ``widely recognized'' guidelines 
based in research evidence, including AHRQ's 2001 published report, 
``Making Healthcare Safer: A Critical Analysis of Patient Safety 
Practices'' (AHRQ Publication No. 01-E058), that shows iatrogenic 
pneumothorax can be a reasonably preventable complication when 
performing the venous catheterization using an ultrasound. One 
commenter stated, ``Recent studies have highlighted the cost savings 
and increased quality of care that ultrasound guided catheterization 
can provide * * * [and that] fewer complications from needle placement 
result in improved patient outcomes and greater clinician 
efficiency.''Another commenter listed additional guidelines, such as 
the 2002 guidance from CDC regarding the use of ultrasound and the 
prevention of intravascular catheter-related complications, the 2002 
guidance from the National Institute for Health and Clinical Excellence 
(NICE) on the use of ultrasound for placing central venous catheters, 
the 2001 (revised in 2008) guidance from the American College of 
Emergency Physicians which represents the first specialty specific 
comprehensive guidelines for the use of ultrasound in emergency 
medicine, and the 2012 practice guideline from the American Society of 
Anesthesiologists (ASA) Taskforce on Central Venous Access for central 
venous access defined as placement of a catheter such that the catheter 
is inserted into a venous great vessel.
    Another commenter noted that ``Since 2001, controlled trials have 
been published evaluating ultrasound guided central venous 
catheterization in various types of patient populations * * * and found 
significantly higher success rates and reduced complication rates in 
all studies.''
    Response: We agree with commenters' input and appreciate the 
commenters' support.
    Comment: One commenter encouraged CMS to add exclusion criteria 
``to prevent reporting errors'' of the Iatrogenic Pneumothorax with 
Venous Catheterization HAC. Another commenter recommended that CMS add 
the following exclusion codes to distinguish iatrogenic and spontaneous 
pneumothorax; pneumothorax and air leaks: ICD-9-CM codes 512.2 
(Postoperative air leak), 512.81 (Primary Spontaneous Pneumothorax), 
512.82 (Secondary spontaneous pneumothorax), 512.83 Chronic 
pneumothorax), 512.84 (Other air leak), and 512.89 (Other 
Pneumothorax). One of the commenters noted that Iatrogenic Pneumothorax 
does not have an ICD-9-CM code.
    Response: We thank the commenters for their response. At this time, 
we continue to 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 and that no further exclusion criteria are needed. We 
believe that the commenter may have misunderstood our proposed policy 
in offering the specific suggestions for exclusion codes. First, the 
commenter is mistaken about there not being a code for Iatrogenic 
Pneumothorax in ICD-9-CM. The condition is indexed clearly to diagnosis 
code 512.1 (Iatrogenic pneumothorax). Also, as specified, this HAC 
would not include the codes for spontaneous pneumothorax because it is 
not a complication as a result of a medical intervention and, 
therefore, is not iatrogenic. ICD-9-CM diagnosis code 512.1 is specific 
enough to capture those complications that have been caused through 
medical intervention in the context of venous catheterization.
    Comment: Some commenters opposed the addition of the Iatrogenic 
Pneumothorax with Venous Catheterization condition ``because it puts 
hospitals at risk of being penalized twice for the same event.'' 
Commenters pointed out that CMS proposed to add a patient safety 
composite measure that includes Iatrogenic Pneumothorax with Venous 
Catheterization to the Hospital VBP Program. In the commenters' view, 
this penalizes hospitals twice for the same event. The commenters noted 
that they supported reducing iatrogenic pneumothorax as a patient 
safety goal for CMS, and urged CMS to ``select only one program in 
which to measure hospitals' performance on IPs with venous 
catheterization.'' In addition, the commenters stated that ``CMS has 
continued to add additional components to the HAC list without fully 
understanding the impact of appropriate risk adjustment.''
    Response: We received similar public comments regarding our 
proposal to include SSI Following CIED Procedures in the existing HAC 
category, and, similarly, we appreciate the commenters' response but 
disagree with their assumptions. As we responded above with regard to 
the SSI Following CIED Procedures condition, the HAC/POA program is 
part of an array of tools used by the Medicare program to promote 
increased quality and efficiency of care. These tools include quality 
measurement, as well as payment adjustments. Because of their 
importance, HACs have been included in multiple tools used by the 
Medicare program to measure quality of services

[[Page 53292]]

provided and performance, and to determine payment adjustments. 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, such as 
when a nonselected CC/MCC appears on a claim, 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 and would not 
generally ``penalize hospitals twice.''
    With regard to risk adjustment, risk adjustment is not a 
requirement under section 1886(d)(4)(D) of the Act for inclusion of a 
condition on the HAC list for payment adjustment. We believe the 
commenters may be confusing the HAC payment adjustment policy with 
quality measurement policies, where risk adjustment is sometimes used. 
We believe meeting the statutory criteria as specified encourages 
hospitals to promote measures to protect all patients from reasonably 
preventable hospital-acquired conditions.
    Comment: Some commenters opposed the inclusion of Iatrogenic 
Pneumothorax with Venous Catheterization as a HAC candidate condition 
because they did not believe that this proposed HAC condition is high-
volume.
    Response: We received similar comments with regard to our proposal 
to include SSI Following CIED Procedures as a HAC candidate condition. 
We similarly point out that our proposal characterized this condition 
as ``high-cost and high-volume'' and described analysis that showed 
4,467 cases and an average cost of $39,128. Furthermore, as discussed 
previously, section 1886(d)(4)(D) of the Act specifies that a condition 
on the HAC list may be high-volume or high-cost or both. It does not 
require the condition to be both and a condition that was only high-
cost would still meet this statutory criterion.
    Comment: Other commenters ``recommended that CMS work with CDC and 
other quality organizations to identify more robust measures for HAC[s] 
prior to implementing these two proposed conditions, as their inclusion 
is not currently endorsed by national quality organizations.''
    Response: In establishing the HAC payment policy under section 
1886(d)(4)(D) of the Act, our experts have worked closely with the 
public health and infectious disease professionals from across the 
Department of Health and Human Services to identify the candidate 
preventable HACs. New HAC proposals are made in consultation with the 
CDC to ensure the clinical soundness of the proposal.
    Comment: A few commenters stated that ``For many conditions on the 
HAC list, occurrence rates cannot be reduced to zero or near zero even 
when the evidence-based guidelines are followed.'' In addition, one 
commenter stated ``We believe that effective preventive measures make 
Iatrogenic Pneumothorax reducible but not 100 percent preventable. 
However, the same report states that these prevention strategies may 
reduce the incidence but not necessarily eliminate it. CMS should 
recognize the reality that a target rate of zero (``never event'') is 
perhaps not attainable with this condition at this time.''
    Response: We appreciate the commenters' response. We believe that, 
although it may be difficult to reduce the incidence of conditions on 
the HAC list to zero, the incidence of conditions can be significantly 
reduced in cases where evidence-based guidelines for the prevention of 
the condition exist and are used. For Iatrogenic Pneumothorax with 
Venous Catheterization, the use of the improved newly published 
evidence-based guidelines has shown the complication rate can be 
markedly reduced in the placement of the venous catheter into the 
internal jugular vein.
    Comment: A few commenters expressed that the inclusion of the 
Iatrogenic Pneumothorax with Venous Catheterization condition may have 
unintended and deleterious consequences, which may lead providers 
toward using alternative sites for central line placement that are less 
prone to pneumothorax, but carry increased risk of mechanical and 
infectious complications. They indicated that alternative sites could 
be the internal jugular or femoral veins. Because of these 
consequences, these commenters did not support the addition of 
Iatrogenic Pneumothorax with Venous Catheterization to the HAC list.
    Response: We believe the commenters may have misunderstood our 
proposal. The new HAC condition will apply to a population of patients 
who have iatrogenic pneumothorax as a complication of central venous 
placement of a catheter in the internal jugular vein. We do not believe 
hospitals will be led to consider alternative, suboptimal sites for 
central venous access because of this new addition to the HAC list.
    Comment: Some commenters expressed concerns regarding the use of 
ultrasound in academic medical centers and Level 1 Trauma Centers for 
venous catheter placement versus the use of ultrasound for venous 
catheter placement in small community hospitals. They stated that 
``there is little to no data on how often ultrasound guidance is used 
in small community medical centers.'' Furthermore, they stated that 
``ultrasound guidance is less commonly used in procedures involving 
central venous access via the subclavian vein, and is often impossible 
to use in trauma cases.''
    Response: We believe that, in applying evidence-based guidelines, 
hospitals will have appropriately trained hospital personnel. Also, we 
point out that the lesser paying MS-DRG is not assigned when additional 
nonselected CC/MCCs appear on a claim, and that trauma cases may likely 
involve additional nonselected CC/MCCs.
    As we indicated in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27897), 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.
    After consideration of the public comments we received, we are 
finalizing our proposal to add Iatrogenic Pneumothorax with Venous 
Catheterization with the codes specified above as a condition subject 
to the HAC payment provision for discharges occurring on or after 
October 1, 2012.
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

[[Page 53293]]

rates. This is an intra-agency project with funding and technical 
support coming from CMS, the Office of Public Health and Science 
(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 (75 FR 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 included as follows in this FY 2013 IPPS/LTCH PPS 
final rule. These summary and detailed data are available on the CMS 
Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html and the RTI 
Web site at: http://www.rti.org/reports/cms/.
a. RTI Analysis of FY 2011 POA Indicator Reporting Across Medicare 
Discharges
    To better understand the impact of HACs on the Medicare program, it 
is necessary to first examine the incidence of POA indicator reporting 
across all eligible Medicare discharges. As mentioned previously, only 
IPPS hospitals are required to submit POA indicator data for all 
diagnosis codes on Medicare claims. Therefore, all non-IPPS hospitals 
were excluded, as well as providers in waiver States (Maryland) and 
territories other than Puerto Rico.
    Using MedPAR claims data from October 2010 through September 2011, 
RTI found a total of approximately 89.3 million secondary diagnoses 
across approximately 8.94 million discharges. As shown in Chart A 
below, the majority of all secondary diagnoses (77.57 percent) were 
reported with a POA indicator of ``Y,'' meaning the condition was POA.

      Chart A--POA Code Distribution Across All Secondary Diagnoses
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                                  Number      Percentage
------------------------------------------------------------------------
Total Discharges in Final File                 8,941,507  ..............
------------------------------------------------------------------------
Total Number of Secondary Diagnoses           89,252,194          100.00
 Across Total Discharges
------------------------------------------------------------------------
       POA         Indicator Description  ..............  ..............
Y................  Condition present on       69,231,189           77.57
                    admission.
W................  Status cannot be               21,796            0.02
                    clinically
                    determined.
N................  Condition not present       5,748,769            6.44
                    on admission.
U................  Documentation not             207,258            0.23
                    adequate to
                    determine if
                    condition was
                    present on admission.
1................  Exempted ICD-9-CM          14,043,182           15.73
                    code.
------------------------------------------------------------------------
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through
  September 2011.

b. RTI Analysis of FY 2011 POA Indicator Reporting of Current HACs
    Following the initial analysis of POA indicator reporting for all 
secondary diagnoses, RTI evaluated POA indicator reporting for specific 
HAC-associated secondary diagnoses. The term ``HAC-associated secondary 
diagnosis'' refers to those diagnoses that are on the selected HAC list 
and were reported as a secondary diagnosis. Chart B below shows a 
summary of the HAC categories with the frequency in which each HAC was 
reported as a secondary diagnosis and the corresponding POA indicators 
assigned on the claims. It is important to note that, because more than 
one HAC-associated diagnosis code can be reported per discharge (that 
is, on a single claim), the frequency of HAC-associated diagnosis codes 
may be more than the actual number of discharges that have a HAC-
associated diagnosis code reported as a secondary diagnosis. Below we 
discuss the frequency of each HAC-associated diagnosis code and the POA 
indicators assigned to those claims.
    RTI analyzed the frequency of each reported HAC-associated 
secondary diagnosis (across all 8.94 million discharges) and the POA 
indicator assigned to the claim. Chart B below shows that the most 
frequently reported conditions were in the Falls and Trauma HAC 
category, with a total of 181,157 HAC-associated diagnosis codes being 
reported for that HAC category. Of these 181,157 diagnoses, 4,738 
reported a POA indicator of ``N'' for not POA and 175,831 diagnoses 
reported a POA indicator of ``Y'' for POA. The lowest frequency appears 
in the Blood Incompatibility HAC category with only 22 HAC-associated 
secondary diagnosis codes reported.

                                        Chart B--POA Status of Current HACS: October 2010 Through September 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Not present on admission                      Present on admission
                                                      Frequency  ---------------------------------------------------------------------------------------
                    Selected HAC                         as a            POA = N               POA = U               POA = Y               POA = W
                                                      secondary  ---------------------------------------------------------------------------------------
                                                      diagnosis     Number    Percent     Number    Percent     Number    Percent     Number    Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After Surgery (CC)......          606        283       46.7          1        0.2        321       53.0          1        0.2
2. Air Embolism (MCC)..............................           45         34       75.6          0        0.0         11       24.4          0        0.0
3. Blood Incompatibility (CC)......................           22         10       45.5          1        4.5         11       50.0          0        0.0
4. Pressure Ulcer Stages III & IV (MCC)............      102,172      1,742        1.7         75        0.1    100,328       98.2         27        0.0

[[Page 53294]]

 
5. Falls and Trauma (MCC & CC).....................      181,157      4,738        2.6        510        0.3    175,831       97.1         78        0.0
6. Catheter-Associated UTI (CC)....................       16,807      3,906       23.2         32        0.2     12,835       76.4         34        0.2
7. Vascular Catheter-Associated Infection (CC).....       11,324      5,910       52.2         25        0.2      5,366       47.4         23        0.2
8. Poor Glycemic Control (MCC).....................       15,360        612        4.0          7        0.0     14,734       95.9          7        0.0
9A. Surgical Site Infection Mediastinitis CABG (CC)           58         50       86.2          0        0.0          8       13.8          0        0.0
9B. Surgical Site Infection Following Certain                356        247       69.4          0        0.0        109       30.6          0        0.0
 Orthopedic Procedures (CC)........................
9C. Surgical Site Infection Following Bariatric               25         24       96.0          0        0.0          1        4.0          0        0.0
 Surgery for Obesity (CC)..........................
10. Pulmonary Embolism & DVT Orthopedic (MCC)......        3,368      2,715       80.6         20        0.6        611       18.1         22        0.7
                                                    ----------------------------------------------------------------------------------------------------
    Total *........................................      331,300     20,271        6.1        671        0.2    310,166       93.6        192        0.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* More than one HAC-associated diagnosis code can be reported per discharge; therefore, frequency of HAC-associated diagnosis codes may be more than the
  actual number of discharges that have a HAC-associated diagnosis code reported as a secondary diagnosis.

    In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we 
adopted as final our proposal to: (1) pay the CC/MCC MS-DRGs for those 
HACs coded with ``Y'' and ``W'' indicators; and (2) not pay the CC/MCC 
MS-DRGs for those HACs coded with ``N'' and ``U'' indicators. We also 
discussed the comments we received urging CMS to strongly consider 
changing the policy and to pay for those HACs assigned a POA indicator 
of ``U'' (documentation is insufficient to determine if the condition 
was present at the time of admission). We stated we would monitor the 
extent to which and under what circumstances the ``U'' POA reporting 
option is used. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we 
also discussed and responded to comments regarding HACs coded with the 
``U'' indicator (74 FR 43784 and 43785). As shown in Chart B above, 
RTI's analysis provides data on a total of 671 HAC-associated secondary 
diagnoses reported with a POA indicator of ``U.'' Of those diagnoses, 
510 (0.3 percent) were assigned to the Falls and Trauma HAC category.
    We continue to believe that better documentation will result in 
more accurate public health data. We did not propose to change our 
policy under which CMS does not pay at the higher CC/MCC amount when a 
selected HAC diagnosis code is reported with a POA indicator of ``U.''
    We encourage readers to further review the RTI detailed report 
which demonstrates the frequency of each individual HAC-associated 
diagnosis code within the HAC categories. For example, in the Foreign 
Object Retained After Surgery HAC category, there are two unique ICD-9-
CM diagnosis codes to identify that condition: Code 998.4 (Foreign body 
accidentally left during a procedure) and code 998.7 (Acute reaction to 
foreign substance accidentally left during a procedure). In the 
detailed RTI report, readers can view that code 998.4 was reported 591 
times and code 998.7 was reported 15 times, across all MS-DRGs, for a 
total of 606 times. The RTI detailed report is available at the 
following Web site: http://www.rti.org/reports/cms/.
c. RTI Analysis of FY 2011 Frequency of Discharges and POA Indicator 
Reporting for Current HACs
    RTI further analyzed the effect of the HAC provision by studying 
the frequency in which a HAC-associated diagnosis was reported as a 
secondary diagnosis with a POA indicator of ``N'' or ``U'' and, of that 
number, how many resulted in MS-DRG reassignment. In Chart C below, 
Column A shows the number of discharges for each HAC category where the 
HAC-associated diagnosis was reported as a secondary diagnosis. For 
example, there were 45 discharges that reported Air Embolism as a 
secondary diagnosis. Column C shows the number of discharges for each 
HAC reported with a POA indicator of ``N'' or ``U.'' Continuing with 
the example of Air Embolism, the chart shows that, of the 45 reported 
discharges, 34 discharges (75.56 percent) had a POA indicator of ``N'' 
or ``U'' and were identified as a HAC discharge. There were a total of 
34 discharges to which the HAC policy applied and that could, 
therefore, have had an MS-DRG reassignment. Column E shows the number 
of discharges where an actual MS-DRG reassignment occurred. As shown in 
Column E, the number of discharges with an Air Embolism that resulted 
in actual MS-DRG reassignments was 14 (41.18 percent of the 34 
discharges with a POA indicator of ``N'' or ``U''). Thus, while there 
were 34 discharges (75.56 percent of the original 45) with an Air 
Embolism reported with a POA indicator of ``N'' or ``U'' identified as 
a HAC discharge that could have caused MS-DRG reassignment, the end 
result was 14 (41.18 percent) actual MS-DRG reassignments. There are a 
number of reasons why a selected HAC reported with a POA indicator of 
``N'' or ``U'' will not result in MS-DRG reassignment. These reasons 
were illustrated with the diagram in section II.F.1. of the preamble of 
this final rule and will be discussed in further detail in section 
II.F.3.e. of this preamble.
    Chart C below also shows that, of the 287,993 discharges with a 
HAC-associated diagnosis as a secondary diagnosis, 3,006 discharges 
ultimately resulted in MS-DRG reassignment. As will be discussed below, 
there were 15

[[Page 53295]]

claims that resulted in MS-DRG reassignment where 2 HACs were reported 
on the same admission. The four HAC categories that had the most 
discharges resulting in MS-DRG reassignment were: (1) Falls and Trauma; 
(2) Pulmonary Embolism and DVT Orthopedic (Orthopedic PE/DVT); (3) 
Pressure Ulcer Stages III & IV; and (4) Catheter-Associated Urinary 
Tract Infection (CAUTI). Codes falling under the Falls and Trauma HAC 
category were the most frequently reported secondary diagnoses with 
143,920 discharges. Of these 143,920 discharges, 4,555 (3.16 percent) 
were coded as not POA and identified as HAC discharges. This category 
also contained the greatest number of discharges that resulted in an 
MS-DRG reassignment. Of the 4,555 discharges within this HAC category 
that were not POA, 1,241 (27.24 percent) resulted in an MS-DRG 
reassignment.
    Of the 287,993 total discharges reporting HAC-associated diagnoses 
as a secondary diagnosis, 3,044 discharges were coded with a secondary 
diagnosis of Orthopedic PE/DVT. Of these 3,044 discharges, 2,473 (81.24 
percent) were coded as not POA and identified as HAC discharges. This 
category contained the second greatest number of discharges resulting 
in an MS-DRG reassignment. Of the 2,473 discharges in this HAC category 
that were not POA, 1,082 discharges (43.75 percent) resulted in an MS-
DRG reassignment.
    The Pressure Ulcer Stages III & IV category had the second most 
frequently coded secondary diagnoses, with 96,646 discharges. Of these 
discharges, 1,770 (1.83 percent) were coded as not POA and identified 
as HAC discharges. This category contained the third greatest number of 
discharges resulting in an MS-DRG reassignment. Of the 1,770 discharges 
in this HAC category that were not POA, 286 discharges (16.16 percent) 
resulted in an MS-DRG reassignment.
    The Catheter-Associated UTI category had the third most frequently 
coded secondary diagnoses, with 16,807 discharges. Of these discharges, 
3,918 (23.31 percent) were coded as not POA and identified as HAC 
discharges. This category contained the fourth greatest number of 
discharges resulting in an MS-DRG reassignment. Of the 3,918 discharges 
in this HAC category that were not POA, 160 discharges (4.08 percent) 
resulted in an MS-DRG reassignment.
    The remaining 6 HAC categories only had 237 discharges that 
ultimately resulted in MS-DRG reassignment. We note that, even in cases 
where a large number of HAC-associated secondary diagnoses were coded 
as not POA, this finding did not necessarily translate into a large 
number of discharges that resulted in MS-DRG reassignment. For example, 
only 20 of the 5,921 Vascular Catheter-Associated Infection secondary 
diagnoses that were coded as not POA and identified as HAC discharges 
resulted in an MS-DRG reassignment.
    There were a total of 431 discharges with a HAC-associated 
secondary diagnosis reporting a POA indicator of ``N'' or ``U'' that 
were excluded from acting as a HAC discharge (subject to MS-DRG 
reassignment) due to the CC Exclusion List logic within the GROUPER. 
The CC Exclusion List identifies secondary diagnosis codes designated 
as a CC or an MCC that are disregarded by the GROUPER logic when 
reported with certain principal diagnoses. For example, a claim with a 
principal diagnosis code of 250.83 (Diabetes with other specified 
manifestations, type 1 [juvenile type], uncontrolled) and a secondary 
diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile 
type], uncontrolled) with a POA indicator of ``N'' would result in the 
HAC-associated secondary diagnosis code 250.13 being ignored as a CC. 
According to the CC Exclusion List, code 250.13 is excluded from acting 
as a CC when code 250.83 is the principal diagnosis. As a result, the 
HAC logic would not be applicable to that case. For a detailed 
discussion on the CC Exclusion List, we refer readers to section 
II.G.9. of this preamble.
    Discharges where the HAC logic was not applicable due to the CC 
Exclusion List occurred among the following 5 HAC categories: Pressure 
Ulcer Stages III and IV (30 cases), Falls and Trauma (303 cases), 
Catheter-Associated UTI (20 cases), Vascular Catheter-Associated 
Infection (14 cases), and Manifestations of Poor Glycemic Control (64 
cases). Further information regarding the specific number of cases that 
were excluded for each HAC-associated secondary diagnosis code within 
each of the above mentioned HAC categories is also available. We refer 
readers to the RTI detailed report at the following Web site: http://www.rti.org/reports/cms/.
    In summary, Chart C below demonstrates that there were a total of 
287,993 discharges with a reported HAC-associated secondary diagnosis. 
Of the total 287,993 discharges, 19,839 (6.54 percent) discharges were 
HACs reported with a POA indicator of ``N'' or ``U'' that were 
identified as a HAC discharge. Of these 19,839 discharges, the number 
of discharges resulting in MS-DRG reassignments was 3,006 (15.96 
percent).

             Chart C--Discharge Frequencies of Current CMS HACS October 2010 Through September 2011
----------------------------------------------------------------------------------------------------------------
                                      Discharges with this    Discharges Identified as   Discharges that change
                                     condition as secondary             a HAC               MS-DRG due to HAC
                                            diagnosis        ---------------------------------------------------
       Selected HAC category       --------------------------
                                       Number    Percent \2\     Number    Percent \3\     Number    Percent \4\
                                     (column A)   (column B)   (column C)   (column D)   (column E)   (column F)
----------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After            606         0.01          284        46.86           37        13.03
 Surgery..........................
2. Air Embolism...................           45         0.00           34        75.56           14        41.18
3. Blood Incompatibility..........           22         0.00           11        50.00            1         9.09
4. Pressure Ulcer Stages III & IV.       96,646         1.08        1,770         1.83          286        16.16
5. Falls and Trauma...............      147,684         1.65        4,596         3.11        1,259        27.39
    a. Fracture...................      128,065         1.43        3,829         2.99          996        26.01
    b. Dislocation................        1,014         0.01           22         2.17            2         9.09
    c. Intracranial Injury........       15,478         0.17          694         4.48          258        37.18
    d. Crushing Injury............           55         0.00            1         1.82            0         0.00
    e. Burn.......................        2,147         0.02           42         1.96            3         7.14
    f. Electric Shock.............          925         0.01            8         0.86            0         0.00
Less: Discharges with multiple            3,764         0.04           41         1.09           18        43.90
 Falls & Trauma...................
5. Falls & Trauma: Unduplicated         143,920         1.61        4,555         3.16        1,241        27.24
 Total............................
6. Catheter-Associated UTI........       16,807         0.19        3,918        23.31          160         4.08
7. Vascular Catheter-Associated          11,324         0.13        5,921        52.29           20         0.34
 Infection........................

[[Page 53296]]

 
8. Poor Glycemic Control..........       15,145         0.17          555         3.66          152        27.39
9a. SSI Mediastinitis CABG........           58         0.07           50        86.21            5        10.00
9b. SSI Orthopedic................          351         0.31          244        69.52            6         2.44
9c. SSI Bariatric.................           25         0.19           24        96.00            2         8.33
10. Pulmonary Embolism & DVT              3,044         0.76        2,473        81.24        1,082        43.75
 Orthopedic.......................
                                   -----------------------------------------------------------------------------
        Total \1\.................      287,993         3.22       19,839         6.54        3,006        15.96
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row. The total figure is not adjusted for the 207 discharges with
  more than one HAC that appear as secondary diagnoses (15 of these resulted in MS-DRG reassignment).
\2\ Percent computed relative to total discharges ``at risk'' for this HAC. For HACs 1-8, this is 8,941,507. For
  HAC 9a, this is 77,744. For HAC 9b, this is 112,951. For HAC 9c, this is 13,404. For HAC 10, this is 401,246.
\3\ Percent computed relative to discharges with condition as a secondary diagnosis.
\4\ Percent computed relative to discharges with this HAC (Column C).
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

    A small number of discharges had multiple HAC categories reported 
during the same stay. In reviewing the 8.94 million claims, RTI found 
207 cases in which at least two different HAC categories were reported 
on the same discharge. Chart D below summarizes these cases. The 
Vascular Catheter-Associated Infection HAC category had the highest 
number of discharges involving another HAC category with 126 total 
discharges. Of these 126 discharges, 47 involved a code from the 
Pressure Ulcer Stages III & IV HAC category and 62 discharges involved 
a code from the Catheter-Associated UTI HAC category.
    Some of these cases with multiple HACs reported had both HAC codes 
ignored in the MS-DRG assignment. Of these 207 claims, 15 did not 
receive higher payments based on the presence of these reported HACs 
and we describe these claims below in section II.F.3.f.(2) of this 
preamble. Depending on the MS-DRG to which the cases were originally 
assigned, ignoring the HAC codes would have led to a MS-DRG 
reassignment if there were no other MCCs or CCs reported, if the MS-DRG 
was subdivided into severity levels, and if the case were not already 
in the lowest severity level prior to ignoring the HAC codes.

                             Chart D--Claims With More Than One HAC Secondary Diagnosis October 2010 Through September 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                1. Foreign
                                                                  object    4. Pressure                            7. Vascular    8. Poor
                                                                 retained      ulcer       5. Falls   6. Catheter-  catheter-     glycemic
                             HAC                                  after      Stages III   and trauma   associated   associated    control       Total
                                                                 surgery    & IV  (MCC)   (MCC & CC)   UTI  (CC)    infection      (MCC)
                                                                   (CC)                                                (CC)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3. Blood Incompatibility (CC)................................  ...........            1  ...........  ...........  ...........  ...........            1
5. Falls and Trauma (MCC & CC)...............................  ...........            8  ...........  ...........  ...........  ...........            8
6. Catheter-Associated UTI (CC)..............................            1           17            8  ...........  ...........  ...........           26
7. Vascular Catheter-Associated Infection (CC)...............            2           47           15           62  ...........  ...........          126
8. Poor Glycemic Control (MCC)...............................            1            2            1            4            5  ...........           13
9A. Surgical Site Infection Mediastinities CABG (CC).........  ...........            1            1  ...........            3  ...........            5
9B. Surgical Site Infection Following Certain Orthopedic       ...........            1  ...........            3            2  ...........            6
 Procedures (CC).............................................
10. Pulmonary Embolism & DVT Orthopedic (MCC)................  ...........  ...........           10            7  ...........            1           18
                                                              ------------------------------------------------------------------------------------------
Total Discharges with 2 HACs *...............................            4           77           35           76           10            1          203
--------------------------------------------------------------------------------------------------------------------------------------------------------
*In total, there were 207 discharges with more than one HAC secondary diagnosis. However, there were 4 discharges involving 3 HAC secondary diagnoses.
  These discharges included the following HAC secondary diagnoses:
Discharge 1: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter-Associated Infection (CC);
Discharge 2: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter Associated Infection (CC);
Discharge 3: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter Associated Infection (CC);
Discharge 4: Catheter-Associated Infection (CC), Vascular Catheter Associated Infection (CC), and Poor Glycemic Control (MCC).


[[Page 53297]]

d. RTI Analysis of Circumstances When Application of HAC Provisions 
Would Not Result in MS-DRG Reassignment for Current HACs
    As discussed in section II.F.1. and illustrated in the diagram in 
section II.F.1. of this preamble, there are instances when the MS-DRG 
assignment does not change even when a HAC-associated secondary 
diagnosis has a POA indicator of either ``N'' or ``U.'' In analyzing 
our claims data, RTI identified four main reasons why an MS-DRG 
assignment would not change despite the presence of a HAC. Those four 
reasons are described below and are shown in Chart E below. Column A 
shows the frequency of discharges that included a HAC-associated 
secondary diagnosis. Column B shows the frequency of discharges where 
the HAC-associated secondary diagnosis was coded as not POA and 
identified as a HAC discharge. Column C shows the frequency of 
discharges in which the HAC-associated secondary diagnosis coded as not 
POA resulted in a change in MS-DRG. Columns D, E, F, and G show the 
frequency of discharges in which the HAC-associated secondary diagnosis 
coded as not POA did not result in a change in MS-DRG assignment. 
Columns D, E, F, and G are explained in more detail below.
(1) Other MCCs/CCs Prevent Reassignment
    Column D (Other MCC/CCs that Prevent Reassignment) in Chart E below 
indicates the number of cases reporting a HAC-associated secondary 
diagnosis code that did not have an MS-DRG reassignment because of the 
presence of other secondary diagnoses on the MCC or CC list. A claim 
that is coded with a HAC-associated secondary diagnosis and a POA 
status of either ``N'' or ``U'' may have other secondary diagnoses that 
are classified as an MCC or a CC. In such cases, the presence of these 
other MCC and CC diagnoses will still lead to the assignment of a 
higher severity level, despite the fact that the GROUPER software is 
disregarding the ICD-9-CM code that identifies the selected HAC in 
making the MS-DRG assignment for that claim. For example, there were 
175 cases in which the ICD-9-CM codes for the Foreign Object Retained 
After Surgery HAC category were present, but the presence of other 
secondary diagnoses that were MCCs or CCs resulted in no change to the 
MS-DRG assignment. Chart E shows that a total of 12,335 cases did not 
have a change in the MS-DRG assignment because of the presence of other 
reported MCCs and CCs.
(2) Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment
    Column E (Number of MS-DRGs with Two Severity Levels Where HAC Does 
Not Impact MS-DRG Assignment) shows the frequency with which discharges 
with a HAC as a secondary diagnosis coded as not POA did not result in 
an MS-DRG change because the MS-DRG is subdivided solely by the 
presence or absence of an MCC. A claim with a HAC and a POA indicator 
of either ``N'' or ``U'' may be assigned to an MS-DRG that is 
subdivided solely by the presence or absence of an MCC. In such cases, 
removing a HAC ICD-9-CM CC code will not lead to further changes in the 
MS-DRG assignment. Examples of these MS-DRG subdivisions are shown in 
the footnotes to the chart and include the following examples:
     MS-DRGs 100 and 101 (Seizures with or without MCC, 
respectively); and
     MS-DRGs 102 and 103 (Headaches with or without MCC, 
respectively).
    The codes that fall under the HAC category of Foreign Object 
Retained After Surgery are CCs. If this case were assigned to an MS-DRG 
with an MCC subdivision such as MS-DRGs 100 and 101, the presence of 
the HAC code would not affect the MS-DRG severity level assignment. In 
other words, if the Foreign Object Retained After Surgery code was the 
only secondary diagnosis reported, the case would be assigned to MS-DRG 
101. If the POA indicator was ``N,'' the HAC Foreign Object Retained 
After Surgery code would be ignored in the MS-DRG assignment logic. 
Despite the fact that the code was ignored, the case would still be 
assigned to the same lower severity level MS-DRG. Therefore, there 
would be no impact on the MS-DRG assignment.
    Column E in Chart E below shows that there were 1,922 cases where 
the HAC code was ``N'' or ``U'' and the MS-DRG assignment did not 
change because the case was already assigned to the lowest severity 
level.
(3) No Severity Levels
    Column F (Number of MS-DRGs with No Severity Levels) shows the 
frequency with which discharges with a HAC as a secondary diagnosis 
coded as not POA did not result in an MS-DRG change because the MS-DRG 
is not subdivided by severity levels. A claim with a HAC and a POA of 
``N'' or ``U'' may be assigned to an MS-DRG with no severity levels. 
For instance, MS-DRG 311 (Angina Pectoris) has no severity level 
subdivisions; this MS-DRG is not split based on the presence of an MCC 
or a CC. If a patient assigned to this MS-DRG develops a secondary 
diagnosis such as a Stage III pressure ulcer after admission, the 
condition would be considered to be a HAC. The code for the Stage III 
pressure ulcer would be ignored in the MS-DRG assignment because the 
condition developed after the admission (the POA indicator was ``N''). 
Despite the fact that the ICD-9-CM code for the HAC Stage III pressure 
ulcer was ignored, the MS-DRG assignment would not change. The case 
would still be assigned to MS-DRG 311. Chart E below shows that 2,570 
cases reporting a HAC-associated secondary diagnosis did not undergo a 
change in the MS-DRG assignment based on the fact that the case was 
assigned to an MS-DRG that had no severity subdivisions (that is, the 
MS-DRG is not subdivided based on the presence or absence of an MCC or 
a CC, rendering the presence of the HAC irrelevant for payment 
purposes).
(4) MS-DRG Logic
    Column G (MS-DRG Logic Issues) shows the frequency with which a HAC 
as a secondary diagnosis coded as not POA did not result in an MS-DRG 
change because of MS-DRG assignment logic. There were six discharges 
where the HAC criteria were met and the HAC logic was applied, however, 
due to the structure of the MS-DRG logic, these cases did not result in 
MS-DRG reassignment. These cases may appear similar to those discharges 
where the MS-DRG is subdivided into two severity levels by the presence 
or absence of an MCC and did not result in MS-DRG reassignment; 
however, these discharges differ slightly in that the MS-DRG logic also 
considers specific procedures that were reported on the claim. In other 
words, for certain MS-DRGs, a procedure may be considered the 
equivalent of an MCC or CC. The presence of the procedure code dictates 
the MS-DRG assignment despite the presence of the HAC-associated 
secondary diagnosis code with a POA indicator of ``N'' or ``U.''
    For example, a claim with a principal diagnosis code of 724.02 
(Spinal stenosis, lumbar region, without neurogenic claudication) with 
a HAC-associated secondary diagnosis code of 996.64 (Infection and 
inflammatory reaction due to indwelling urinary catheter) and diagnosis 
code 599.0 (Urinary tract infection, site not specified), having POA 
indicators of ``Y,'' ``N,'' and ``N,'' respectively, and procedure code 
84.80 (Insertion or replacement of interspinous process device(s)) 
results in an assignment to MS-DRG 490 (Back and Neck Procedures Except 
Spinal Fusion with CC/MCC or Disc Device/

[[Page 53298]]

Neurostimulator). In this case, the disc device (code 84.80) is what 
dictated the MS-DRG assignment and the presence of the HAC-associated 
secondary diagnosis code, 996.64, did not affect the MS-DRG assigned. 
Other examples of MS-DRGs that are subdivided in this same manner are 
as follows:
     MS-DRG 029 (Spinal procedures with CC or Spinal 
Neurostimulators);
     MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or 
Major Device); and
     MS-DRG 246 (Percutaneous Cardiovascular Procedure with 
Drug-Eluting Stent with MCC or 4+ Vessels/Stents).
    Column G in the chart below shows that three of the six cases that 
did not result in MS-DRG reassignment due to the MS-DRG logic were in 
the Catheter-Associated UTI HAC category, two cases were in the Falls 
and Trauma HAC Category, and one case was in the Vascular Catheter-
Associated Infection HAC Category.
    In conclusion, a total of 16,833 cases (12,335 + 1,922 +2,570 + 6) 
did not have a change in MS-DRG assignment, regardless of the presence 
of a HAC. The reasons described above explain why only 3,006 cases had 
a change in MS-DRG assignment despite the fact that there were 19,839 
HAC cases with a POA of ``N'' or ``U.''

                                                  Chart E--Reasons HAC Did Not Change MS-DRG Assignment
                                                          [October 2010 through September 2011]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     HAC discharges that do not change MS-DRG
                                                                                         ---------------------------------------------------------------
                                             Number of                     Number of HAC                   Number of MS-
                                            discharges       Number of      discharges                     DRGs with two
          Selected HAC category              with this      discharges    that change MS-    Number of       severity      Number of MS-   Other MS-DRG
                                           condition as    identified as  DRG due to HAC  other MCCs/CCs   levels where    DRGs with No    logic issues
                                             secondary         a HAC                       that prevent    HAC does not      Severity           **
                                             diagnosis                                     reassignment   impact  MS-DRG      Levels
                                                                                                            Assignment*
                                              (Column A)      (Column B)      (Column C)      (Column D)      (Column E)      (Column F)      (Column G)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After                     606             284              37             175              56              16               0
 Surgery--CC............................
2. Air Embolism--MCC....................              45              34              14              17               0               3               0
3. Blood Incompatibility--CC............              22              11               1               7               1               2               0
4. Pressure Ulcer Stages III & IV--MCC..          96,646           1,770             286             991               0             493               0
5. Falls and Trauma--MCC & CC...........         143,920           4,555           1,241           2,449             488             375               2
6. Catheter-Associated UTI-CC...........          16,807           3,918             160           2,952             424             379               3
7. Vascular Catheter-Associated                   11,324           5,921              20           4,551             158           1,191               1
 Infection--CC..........................
8. Poor Glycemic Control--MCC & CC......          15,145             555             152             358               0              45               0
9A. Surgical Site Infection,                          58              50               5              28               0              17               0
 Mediastinitis, Following Coronary
 Artery Bypass Graft (CABG)--MCC........
9B. Surgical Site Infection Following                351             244               6             155              67              16               0
 Certain Orthopedic Procedures--CC......
9C. Surgical Site Infection Following                 25              24               2              19               0               3               0
 Bariatric Surgery for Obesity--CC......
10. Pulmonary Embolism & DVT Orthopedic--          3,044           2,473           1,082             633             728              30               0
 MCC & CC...............................
                                         ---------------------------------------------------------------------------------------------------------------
    Total\1\............................         287,993          19,839           3,006          12,335           1,922           2,570               6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row. The total figure is not adjusted for the 207 discharges with more than one HAC that appear as secondary
  diagnoses (15 of these resulted in MS-DRG reassignment).
*Examples where an HAC classified as a CC would not impact the DRG assignment if it were removed. The MS-DRG is subdivided by the presence or absence of
  an MCC. A CC would not impact this DRG assignment.
MS-DRGs 100 and 101 (Seizures with or without MCC, respectively).
MS-DRGs 102 and 103 (Headaches with or without MCC, respectively).
**Cases where HAC did not change MS-DRG assignment because of the MS-DRG logic.
MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators).
MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or Major Device).

[[Page 53299]]

 
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

e. RTI Analysis of Coding Changes for HAC-Associated Secondary 
Diagnoses for Current HACs
    In addition to studying claims from October 2010 through September 
2011 (FY 2011), RTI evaluated claims data from 4 years prior to 
determine if there were significant changes in the number of discharges 
with a HAC being reported as a secondary diagnosis. RTI examined claims 
from FY 2007 through FY 2010 and compared these data to the FY 2011 
data.
    We refer readers to the RTI detailed report for all the conditions 
in each fiscal year (FY 2007 through FY 2011) as described above at the 
following Web site: http://www.rti.org/reports/cms/.
f. RTI Analysis of Estimated Net Savings for Current HACs
    RTI determined estimates of the net savings generated by the HAC 
payment policy based on MedPAR claims from October 2010 through 
September 2011.
(1) Net Savings Estimation Methodology
    The payment impact of a HAC is the difference between the IPPS 
payment amount under the initially assigned MS-DRG and the amount under 
the reassigned MS-DRG. The amount for the reassigned MS-DRG appears on 
the MedPAR files. To construct this, RTI modeled the IPPS payments for 
each MS-DRG following the same approach that we use to model the impact 
of IPPS annual rule changes. Specifically, RTI replicated the payment 
computations carried out in the IPPS PRICER program using payment 
factors for IPPS providers as identified in various CMS downloaded 
files. The files used are as follows:
     Version 28 of the Medicare Severity GROUPER software 
(applicable to discharges between October 1, 2010 and September 30, 
2011). IPPS MedPAR claims were run through this file to obtain needed 
HAC-POA output variables.
     The FY 2011 MS-DRG payment weight file. This file includes 
the weights, geometric mean length of stay (GLOS), and the postacute 
transfer payment indicators.
     CMS standardized operating and capital rates. Tables 1A 
through 1C, as downloaded from the Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/CMS1255464.html, include the full 
update and reduced update amounts, as well as the information needed to 
compute the blended amount for providers located in Puerto Rico.
     The IPPS impact files for FY 2011, also as downloaded from 
the Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/CMS1255464.html. This file includes the wage index and geographic 
adjustment factors in effect at the start of FY 2011, plus the provider 
type variable to identify providers qualifying for alternative 
hospital-specific amounts and their respective hospital-specific rates.
     The IPPS impact files for FY 2012, as downloaded from the 
Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/CMS1255464.html. This file is created for a subsequent payment year, 
but the file includes IME and DSH percent adjustments that were in 
effect as of March 2011. For providers that did not appear in the FY 
2012 file, we defaulted to the IME and DSH rates from the FY 2011 file.
     CMS historical provider-specific files (PSF). This 
includes the indicator to identify providers subject to the full or 
reduced standardized rates and the applicable operating and capital 
CCRs. A SAS version was downloaded from the Web site at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/04_psf_SAS.asp.
    There were three providers with discharges in the final HAC 
analysis file that did not appear in either of the impact files. For 
these providers, we identified the geographic CBSA from the historical 
PSF and assigned the wage index using values from Tables 4A and 4C as 
downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/List.asp. These three providers were not 
eligible for IME or DSH adjustments.
    The steps for estimating the HAC payment impact are as follows:
    Step 1: Re-run the Medicare Severity GROUPER on all records in the 
analysis file. This is needed to obtain information on actual HAC-
related MS-DRG reassignments in the file, and to identify the CCs and 
MCCs that contribute to each MS-DRG assignment.
    Step 2: Model the base payment and outlier amounts associated with 
the initial MS-DRG (including all secondary diagnoses in the file) 
using the computations laid out in the CMS file ``Outlier Example FY 
2007 new.xls,'' as downloaded from the Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/04_outlier/ASP#TopOfPage, and 
modified to accommodate FY 2011 factors. RTI's first round of 
computations treated all claims as though paid under standard IPPS 
rules without adjusting for short-stay transfers or HSP amounts.
    Step 3: Model the base payment and outlier amounts associated with 
the final MS-DRG (excluding the HAC-related secondary diagnoses) using 
the computations laid out in the CMS file ``Outlier Example FY 2007 
new.xls,'' as downloaded from the Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Payment/AcuteInpatientPPS/index.html?redirect=/04_outlier.asp#TopOfPage and modified to 
accommodate FY 2011 factors. RTI's first round of computations treated 
all claims as though paid under standard IPPS rules without adjusting 
for short-stay transfers or hospital-specific amounts.
    Step 4: Compute MS-DRG base savings as the difference between the 
nonoutlier payments for the initial and final MS-DRGs. Compute outlier 
amounts as the difference in outlier amounts due under the initial and 
final reassigned MS-DRG. Compute net savings due to HAC reassignment as 
the sum of base savings plus outlier amounts.
    Step 5: Adjust the model to incorporate short-stay transfer payment 
adjustments.
    Step 6: Adjust the model to incorporate hospital-specific payments 
for qualifying rural providers receiving the hospital-specific payment 
rates.
    It is important to mention that using the methods described above, 
the MS-DRG and outlier payment amounts that are modeled for the final 
assigned MS-DRG do not always match the DRG price and outlier amounts 
that appear in the MedPAR record. There are several reasons for this. 
Some discrepancies are caused by using single wage index, IME and DSH 
factors for the full period covered by the discharges, when in practice 
these payment factors can be adjusted for individual providers during 
the course of the fiscal year. In addition, RTI's approach disregards 
any Part A coinsurance amounts owed by individual beneficiaries with 
greater than sixty covered days in a spell of illness. Ten percent of 
all FY 2011 HAC

[[Page 53300]]

discharges showed at least some Part A coinsurance amount due from the 
beneficiary, although less than 2 percent of reassigned discharges (43 
cases in the analysis file) showed Part A coinsurance amounts due. Any 
Part A coinsurance payments would reduce the actual savings incurred by 
the Medicare program.
    There are also a number of less common special IPPS payment 
situations that are not factored into RTI's modeling. These could 
include new technology add-on payments, payments for blood clotting 
factors, reductions for replacement medical devices, adjustments to the 
capital rate for new providers, and adjustments to the capital rate for 
certain classes of providers who are subject to a minimum payment level 
relative to capital cost.
(2) Net Savings Estimate
    Chart F below summarizes the estimated net savings of current HACs 
based on MedPAR claims from October 2010 through September 2011, based 
on the methodology described above. Column A shows the number of 
discharges where an MS-DRG reassignment for each HAC category occurred. 
For example, there were 14 discharges with an Air Embolism that 
resulted in an actual MS-DRG reassignment. Column B shows the total net 
savings caused by MS-DRG reassignments for each HAC category. 
Continuing with the example of Air Embolism, the chart shows that the 
14 discharges with an MS-DRG reassignment resulted in a total net 
savings of $124,620. Column C shows the net savings per discharge for 
each HAC category. For the Air Embolism HAC category, the net savings 
per discharge is $8,901.

                                 Chart F--Estimated Net Savings of Current HACs
                                      [October 2010 Through September 2011]
----------------------------------------------------------------------------------------------------------------
                                                                Number of
                                                             discharges that  Net savings  (in  Net savings  per
                       Selected HAC                          change  MS-DRG       dollars)       discharge  (in
                                                               due to  HAC                          dollars)
                                                                  (Column A)        (Column B)        (Column C)
----------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After Surgery..................                37          $167,818            $4,536
2. Air Embolism...........................................                14           124,620             8,901
3. Blood Incompatibility..................................                 1             7,115                 0
4. Pressure Ulcer Stages III & IV.........................               286         1,846,449             6,456
5. Falls and Trauma:
    a. Fracture...........................................               996         6,232,020             6,257
    b. Dislocation........................................                 2             9,075             4,538
    c. Intracranial Injury................................               258         1,222,290             4,738
    d. Crushing Injury....................................                 0                 0                 0
    e. Burn...............................................                 3             4,583             1,528
    f. Other injuries.....................................                 0                 0                 0
    Less: Discharges with multiple Falls & Trauma.........               -18          -105,430            -5,857
5. Falls & Trauma: Unduplicated Total.....................             1,241         7,362,538             5,933
6. Catheter-Associated UTI................................               160           491,053             3,069
7. Vascular Catheter-Associated Infection.................                20            92,100             4,605
8. Poor Glycemic Control..................................               152         1,002,378             6,595
9a. SSI Mediastinitis CABG................................                 5            60,438            12,088
9b. SSI Orthopedic........................................                 6            41,503             6,917
9c. SSI Bariatric.........................................                 2             3,312                 0
10. Pulmonary Embolism & DVT Orthopedic...................             1,082         8,313,098             7,683
                                                           -----------------------------------------------------
    Total \1\.............................................             3,006        19,512,422             6,491
        Less: Discharges with Multiple HACs \2\...........               -15          -136,645            -9,110
                                                           -----------------------------------------------------
            Unduplicated Total............................             2,991        19,375,777             6,478
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can have more than one Falls and Trauma subcategory HAC and therefore appear in more than one
  row.
\2\ Total net savings is adjusted by $136,645 for 15 claims that have multiple HACs.
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

    As shown in Chart F above, the total net savings calculated for 
October 2010 through September 2011 was roughly $19.4 million. The 
three HACs with the largest number of discharges resulting in MS-DRG 
reassignment, Falls and Trauma, Orthopedic PE/DVT, and Pressure Ulcer 
Stages III & IV, generated $17.5 million of net savings for the fiscal 
year. Estimated net savings for FY 2011 associated with the Falls and 
Trauma category were $7.4 million. Estimated net savings associated 
with Orthopedic PE/DVT for the fiscal year were $8.3 million and for 
Pressure Ulcer Stages III & IV were $1.85 million.
    The mean net savings per discharge calculated for October 2010 
through September 2011 was roughly $6,478. The HAC category of SSI, 
Mediastinitis, Following Coronary Artery Bypass Graft (CABG) had the 
highest net savings per discharge, but represented a small proportion 
of total net savings because the number of discharges that resulted in 
MS-DRG reassignment for this HAC was low. The HAC categories of Blood 
Incompatibility, where only one discharge resulted in MS-DRG 
reassignment, and SSI Following Bariatric Surgery for Obesity, where 
only two discharges resulted in MS-DRG reassignment had the lowest net 
savings per discharge. We refer readers to the RTI detailed report 
available at the following Web site: http://www.rti.org/reports/cms/.
    As we discuss in section II.F.1. of this preamble, implementation 
of this policy is part of an array of Medicare VBP tools that we are 
using to promote increased quality and efficiency of care. We point

[[Page 53301]]

out that a decrease over time in the number of discharges where these 
conditions are not POA is a desired consequence. We recognize that 
estimated net savings would likely decline as the number of such 
discharges decline. However, we believe that the sentinel effect 
resulting from CMS identifying these conditions is critical. It is our 
intention to continue to monitor trends associated with the frequency 
of these HACs and the estimated net payment impact through RTI's 
program evaluation and possibly beyond.
    As mentioned previously, a small number of cases analyzed by RTI 
for FY 2011 had multiple HACs during the same stay. In reviewing our 
8.94 million claims, RTI found 207 cases where at least two HACs were 
reported on the same admission as noted in section II.F.3.g.(2) of this 
preamble. Of these 207 claims, 15 resulted in MS-DRG reassignment. 
Chart G below summarizes these cases. There were 15 cases that had two 
HACs not POA that resulted in an MS-DRG reassignment. Of these, seven 
discharges involved Orthopedic PE/DVT, while four discharges involved 
the Pressure Ulcer Stages III & IV and Falls and Trauma HAC categories.

          Chart G--Claims With More Than One HAC Secondary Diagnosis Where MS-DRG Reassignment Occurred
                                      [October 2010 Through September 2011]
----------------------------------------------------------------------------------------------------------------
                                                                                   10. Pulmonary
                                                    4. Pressure    5. Falls and   embolism & DVT
                  Selected HAC                     ulcer stages    trauma--MCC &    orthopedic         Total
                                                   III & IV--MCC        CC             (MCC)
----------------------------------------------------------------------------------------------------------------
5. Falls and Trauma--MCC & CC...................               1  ..............               3               4
6. Catheter-Associated Urinary Tract Infection                 2               3               3               8
 (UTI)--CC......................................
7. Vascular Catheter-Associated Infection--CC...               1               1  ..............               2
8. Poor Glycemic Control (MCC)..................  ..............  ..............               1               1
                                                 ---------------------------------------------------------------
    Total.......................................               4               4               7              15
----------------------------------------------------------------------------------------------------------------

g. Previously Considered Candidate HACs--RTI Analysis of Frequency of 
Discharges and POA Indicator Reporting
    RTI evaluated the frequency of conditions previously considered, 
but not adopted as HACs in prior rulemaking, that were reported as 
secondary diagnoses (across all 8.94 million discharges) as well as the 
POA indicator assignments for these conditions. Chart H below indicates 
that the three previously considered candidate conditions most 
frequently reported as a secondary diagnosis were: (1) Clostridium 
Difficile-Associated Disease (CDAD), which demonstrated the highest 
frequency, with a total of 90,347 secondary diagnoses codes being 
reported for that condition, of which 30,176 reported a POA indicator 
of ``N''; (2) Methicillin Resistant Staphylococcus aureus, with a total 
of 83,976 secondary diagnosis codes being reported for that condition, 
with 3,498 of those reporting a POA indicator of ``N''; and (3) 
Iatrogenic Pneumothorax, with a total of 20,309 secondary diagnoses 
codes being reported for that condition, with 17,828 of those reporting 
a POA indicator of ``N.'' As these three conditions had the most 
significant impact for reporting a POA indicator of ``N,'' it is 
reasonable to believe that these same three conditions would have the 
greatest number of potential MS-DRG reassignments. The frequency of 
discharges for the previously considered HACs that could lead to 
potential changes in MS-DRG assignment is discussed in the next 
section. We take this opportunity to remind readers that, because more 
than one previously considered HAC diagnosis code can be reported per 
discharge (on a single claim), the frequency of these diagnosis codes 
may be more than the actual number of discharges with a previously 
considered candidate condition reported as a secondary diagnosis.

                     Chart H--POA Status of Previously Considered ``Candidate'' HAC Conditions--October 2010 Through September 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Not present on admission                      Present on admission
                                                      Frequency  ---------------------------------------------------------------------------------------
        Previously considered HAC condition              as a            POA = N               POA = U               POA = Y               POA = W
                                                      secondary  ---------------------------------------------------------------------------------------
                                                      diagnosis     Number    Percent     Number    Percent     Number    Percent     Number    Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Clostridium Difficile-Associated Disease (CDAD).       90,347     30,176      33.40        354       0.39     59,700      66.08        117       0.13
2. Delirium........................................          752        246      32.71          2       0.27        504      67.02          0       0.00
3. Legionnaire's Disease...........................          520         29       5.58          3       0.58        488      93.85          0       0.00
4. Staphylococcus aureus Septicemia................       18,844      4,043      21.46         37       0.20     14,736      78.20         28       0.15
5. Methicillin-Resistant Staphylococcus aureus.....       83,976      3,498       4.17        173       0.21     80,280      95.60         25       0.03
6. Iatrogenic Pneumothorax.........................       20,309     17,828      87.78          5       0.02      1,476       7.27          0       0.00
7. Ventilator-Associated Pneumonia.................        4,715      3,634      77.07          4       0.08      1,074      22.78          3       0.06
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In Chart I below, Column A shows the number of discharges for each 
previously considered candidate HAC category when the condition was 
reported as a secondary diagnosis. For example, there were 90,347 
discharges

[[Page 53302]]

that reported CDAD as a secondary diagnosis. Previously considered 
candidate HACs reported with a POA indicator of ``N'' or ``U'' may 
cause MS-DRG reassignment (which would result in reduced payment to the 
facility). Column C shows the discharges for each previously considered 
candidate HAC reported with a POA indicator of ``N'' or ``U.'' 
Continuing with the example of CDAD, Chart I shows that, of the 90,347 
discharges, 30,530 discharges (33.79 percent) had a POA indicator of 
``N'' or ``U.'' Therefore, there were a total of 30,530 discharges that 
could potentially have had an MS-DRG reassignment. Column E shows the 
number of discharges where an actual MS-DRG reassignment could have 
occurred; the number of discharges with CDAD that could have resulted 
in actual MS-DRG reassignments is 784 (2.57 percent). Thus, while there 
were 30,530 discharges with CDAD reported with a POA indicator of ``N'' 
or ``U'' that could potentially have had an MS-DRG reassignment, the 
result was 784 (2.57 percent) potential MS-DRG reassignments. As 
discussed above, there are a number of reasons why a condition reported 
with a POA indicator of ``N'' or ``U'' would not result in an MS-DRG 
reassignment.
    In summary, Chart I below demonstrates there were a total of 
219,397 discharges with a previously considered candidate HAC reported 
as a secondary diagnosis. Of those, 60,025 discharges were reported 
with a POA indicator of ``N'' or ``U.'' The total number of discharges 
that could have resulted in MS-DRG reassignments is 3,544.

   Chart I--Previously Considered ``Candidate'' HAC Discharge Frequencies--October 2010 Through September 2011
----------------------------------------------------------------------------------------------------------------
                                      Discharges with this      Discharges with this     Cases that could change
                                     condition as secondary   condition not present on  MS-DRG due to previously
                                          diagnosis \2\        admission (POA = ``N''   considered candidate HAC
     Previously considered HAC     --------------------------       or ``U'') \3\                  \4\
             condition                                       ---------------------------------------------------
                                       Number      Percent       Number      Percent       Number      Percent
                                     (Column A)   (Column B)   (Column C)   (Column D)   (Column E)   (Column F)
----------------------------------------------------------------------------------------------------------------
1. Clostridium Difficile-                90,347         1.01       30,530        33.79          784         2.57
 Associated Disease (CDAD)........
2. Delirium.......................          752         0.01          248        32.98           18         7.26
3. Legionnaire's Disease..........          520         0.01           32         6.15            3         9.38
4. Staphylococcus aureus                 18,806         0.21        4,073        21.66           84         2.06
 Septicemia.......................
5. Methicillin-Resistant                 83,948         0.94        3,671         4.37            1         0.03
 Staphylococcus aureus (MRSA).....
6. Iatrogenic Pneumothorax........       20,309         0.23       17,833        87.81        2,652        14.87
7. Ventilator-Associated Pneumonia        4,715         0.05        3,638        77.16            2         0.05
                                   -----------------------------------------------------------------------------
    Total \1\.....................      219,397         2.45       60,025        27.36        3,544         5.90
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row.
\2\ Percent computed relative to total cases ``at risk,'' which is 8,941,507 for all candidate conditions.
\3\ Percent computed relative to discharges with condition as a secondary diagnosis.
\4\ Percent computed relative to discharges with condition as a secondary diagnosis and identified as a
  previously considered HAC (that is, coded as not present on admission).
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

h. Current and Previously Considered Candidate HACs--RTI Report on 
Evidence-Based Guidelines
    The RTI program evaluation includes a report that provides 
references for all evidence-based guidelines available for each of the 
selected and previously considered candidate HACs that provide 
recommendations for the prevention of the corresponding conditions. 
Guidelines were primarily identified using the AHRQ National Guidelines 
Clearing House (NGCH) and the CDC, along with relevant professional 
societies. Guidelines published in the United States were used, if 
available. In the absence of U.S. guidelines for a specific condition, 
international guidelines were included.
    Evidence-based guidelines that included specific recommendations 
for the prevention of the condition were identified for each of the 10 
selected conditions. In addition, evidence-based guidelines were also 
found for the previously considered candidate conditions.
    RTI prepared a final report to summarize its findings regarding 
evidence-based guidelines, which can be found on the Web site at: 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.
i. Proposals Regarding Current HACs and Previously Considered Candidate 
HACs
    We believe that the RTI analysis summarized above does not provide 
additional information that would require us to change our previous 
determinations regarding current HACs. We refer readers to section 
II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 
through 47218) and to section II.F.7. of the FY 2009 IPPS final rule 
(73 FR 48474 through 48491) for detailed discussion supporting our 
determination regarding each of these conditions.
    In the FY 2013 IPPS/LTCH PPS proposed rule, we discussed our 
rationale for proposing two new conditions, Surgical Site Infection 
(SSI) Following Cardiac Implantable Electronic Device (CIED) procedures 
(77 FR 27894 through 27896), and Iatrogenic Pneumothorax with Venous 
Catheterization (77 FR 27896 through 27897) for selection as HACs under 
section 1886(d)(4)(D) of the Act. (We previously proposed Iatrogenic 
Pneumothorax more generally as a HAC in the FY 2009 IPPS rulemaking (73 
FR 48485).) We also discussed a proposal to revise the Vascular 
Catheter-Associated Infection HAC category with the addition of two new 
diagnosis codes 999.32 (Bloodstream infection due to central venous 
catheter), and 999.33 (Local infection due to central venous catheter) 
(77 FR 27894). Accordingly, we are finalizing those proposals as 
discussed in section II.F.5. of this preamble.
    In addition to the evaluation of HAC and POA MedPAR claims data, 
RTI has conducted analyses on readmissions due to HACs and the 
incremental costs of HACs to the health care system, a study of 
spillover effects and

[[Page 53303]]

unintended consequences, as well as an analysis on the accuracy of 
coding of HACs and POA indicators. Reports on these analyses are 
publicly available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.
    Comment: Commenters encouraged CMS to more carefully evaluate this 
program and its potential for unintended consequences, and to explore 
how information learned from POA coding could be used to better 
understand and prevent HACs before it considers the inclusion of any 
additional categories of HACs.
    Response: We appreciate the commenters' response. We routinely, 
either internally or through our contractors, review the significant 
aspects of the HAC/POA Program.

G. Changes to Specific MS-DRG Classifications

    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27898), we 
invited public comment on each of the MS-DRG classification proposed 
changes described below, as well as our proposals to maintain certain 
existing MS-DRG classifications, which are also discussed below. In 
some cases, we proposed changes to the MS-DRG classifications based on 
our analysis of claims data. In other cases, we proposed to maintain 
the existing MS-DRG classification based on our analysis of claims 
data.
    CMS encourages input from our stakeholders concerning the annual 
IPPS updates when that input is made available to us by December of the 
year prior to the next annual proposed rule update. For example, to be 
considered for any updates or changes in FY 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.
    Below we summarize the public comments we received on the FY 2013 
proposed rule, if any, present our responses, and state our final 
policies.
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.''
    CMS has 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+Hear
ts&bc=ACAAAAAAIAAA&. We refer readers to this Web page 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 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.''
    In the FY 2013 IPPS/LTCH PPS proposed rule, we indicated that we 
had 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.

----------------------------------------------------------------------------------------------------------------
                                                                  Number of      Average length
                            MS-DRG                                  cases           of stay        Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 001--All Cases........................................           1,235              36.97        $164,846

[[Page 53304]]

 
MS-DRG 001--Cases with Heart Transplant without VAD..........             384              35.1          123,472
MS-DRG 001--Cases with VAD Insertion Alone...................             811              36.85         181,915
MS-DRG 002--All Cases........................................             313              19.66          89,818
MS-DRG 002--Cases with Heart Transplant without VAD..........             172              15.1           58,890
MS-DRG 002--Cases with VAD Insertion Alone...................             140              25.31         128,069
----------------------------------------------------------------------------------------------------------------

    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 pointed 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-                384
                                       lung
                                       transplantation
                                       or Heart
                                       transplantation.
33.6 or 37.51 with 37.66............  Combined heart-                 11
                                       lung
                                       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                      22
                                       external 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 without
                                  MCC)
------------------------------------------------------------------------
All codes...........................  ..................             313
33.6 or 37.51.......................  Combined heart-                172
                                       lung
                                       transplantation
                                       or Heart
                                       transplantation.
33.6 or 37.51 with 37.66............  Combined heart-                  0
                                       lung
                                       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                       1
                                       external heart
                                       assist system(s)
                                       or device(s) +
                                       plant of single
                                       ventricular
                                       (extracorporeal)
                                       external heart
                                       assist system.
                                      Multiple VADs                    4
                                       without heart
                                       transplant.
------------------------------------------------------------------------

    In the proposed rule, we stated that we believe that the IPPS 
should accurately recognize differences in utilization for clinically 
distinct procedures. However, we also reiterated the language in the FY 
2009 IPPS final rule that the payments under a prospective payment 
system are predicated on averages (73 FR 48443). We believe that 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. We indicated that 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

[[Page 53305]]

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 pointed 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.
     There is a $2,000 difference in average cost between 
subgroups.
    As procedure code 37.66 predominates in our claims data for VAD 
implantations, as we did in the proposed rule, we are including the 
following table to demonstrate 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 did not propose to make any 
changes to the structure of MS-DRGs 001 and 002. We invited public 
comment on our proposal.
    Comment: Several commenters stated that they had no objections to 
CMS' proposal to maintain the current structure of MS-DRG 001 and MS-
DRG 002 and not create separate MS-DRGs for VAD and heart transplants. 
The commenters stated that this proposal seems reasonable given the 
data and information provided.
    One commenter stated that MS-DRG weights should reflect the overall 
costs of all of the services involved in an admission and that it would 
be inappropriate to bifurcate these MS-DRGs solely due to the cost of a 
single device, especially when that device is currently distributed by 
a single manufacturer. The commenter agreed with our proposal to 
maintain the existing structure of MS-DRGs 001 and 002, but urged CMS 
to continue to monitor the composition and costs of these MS-DRGs 
moving forward, especially as new VAD devices are approved for 
implantation.
    Response: We appreciate the commenters' support for our proposal to 
maintain the existing structure of MS-DRG 001 and MS-DRG 002 for FY 
2013. We will continue to monitor the composition and costs of these 
MS-DRGs as new VAD devices are approved for implantation.
    Comment: One commenter stated that keeping the existing MS-DRG 001 
and MS-DRG 002 structure may ultimately be a deterrent for appropriate 
provision of care to Medicare beneficiaries because of the discrepancy 
of cost between cardiac transplantation and implantation of VADs. The 
commenter stated that the cost of the VAD implantation is commonly more 
than $50,000 greater than the cost of a cardiac transplantation. The 
commenter stated that providing two MS-DRGs for heart transplants and 
two for VAD implantations will assure access to the best available 
technology.
    Response: We acknowledge the commenter's concern about the 
potential for problems with future beneficiary access to VAD 
implantations and heart transplants. There are currently a limited 
number of FDA-approved VADs on the market. We will continue to monitor 
these MS-DRGs as additional VADs come onto the market and technologies 
change. We believe that creating separate MS-DRGs for VAD implantations 
and heart transplants could lead to significant reductions in the 
payment for heart transplants. Considering the limited number of FDA-
approved VADs and the negative impact that creating separate MS-DRGs 
for VAD implantations and heart transplants would have on heart 
transplant cases, we do not believe the creation of separate MS-DRGs 
for VAD implantations and heart transplants is appropriate at this 
time.
    After consideration of the public comments we received, we are 
finalizing our proposal to make no changes to MS-DRG 001 and MS-DRG 002 
for FY 2013.
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

[[Page 53306]]

the comment to be out of the scope of provisions of the proposed rule. 
However, we addressed this issue in the 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 blood stem 
cells in bone marrow, umbilical cord blood, or peripheral blood from a 
donor that is either biologically related (sibling or other 
biologically close family member) or biologically unrelated (not a 
biologically 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:

----------------------------------------------------------------------------------------------------------------
                                                                    Number of     Average length
                             MS-DRG                                   cases          of stay       Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 014--All cases..........................................             467             24.8         $64,403
MS-DRG 014--Live related donor (code 00.91)....................             125             24.1          55,969
MS-DRG 014--Live nonrelated donor (code 00.92) or cadaver (code             213             23            64,837
 00.93)........................................................
MS-DRG 014--No donor source....................................             129             28.5          71,859
----------------------------------------------------------------------------------------------------------------

    As we noted in the proposed rule, 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 (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 stated that 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 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 did not propose that MS-DRG 
014 be subdivided in the proposed rule. We invited public comment on 
our proposal not to subdivide MS-DRG 014 into two MS-DRGs based on 
related and unrelated donor source.
    Comment: Several commenters stated that they had no objections to 
CMS' proposal to maintain the current structure of MS-DRG 014. The 
commenters stated that the proposal seems reasonable based on the data 
and information provided. One commenter supported the subdivision to 
distinguish between related and unrelated allogeneic bone marrow 
transplants. However, the commenter stated that if CMS continues to 
believe that there is not sufficient data to support a split, CMS 
should require data collection of search and procurement costs. The 
commenter suggested that CMS establish a specific revenue code or line 
item on the hospital cost report to require hospitals to document the 
search and procurement costs in order to receive payment.
    Response: We agree with the commenters that stated that, based on 
data and our analysis, we should not subdivide MS-DRG 014 without more 
complete information on the donor source. As stated previously, one 
quarter of the cases (129 out of 467 cases) did not report a transplant 
donor source code. We believe that we have sufficient methods of 
reporting donor source on the claim by reporting ICD-9-CM code 00.91, 
00.92, or 00.93 and associated costs.
    After consideration of the public comments we received, we are not 
making any changes to MS-DRG 014 for FY 2013.
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

[[Page 53307]]

Inflammations with MCC), 178 (Respiratory Infections and Inflammations 
with CC), and 179 (Respiratory Infections and Inflammations without 
MCC/CC).
    For the FY 2013 proposed rule, 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 of
                            MS-DRG                                  cases             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                  57               9.3           15,867
 with 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 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                  59               6.9            9,752
 with 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--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......................................................
----------------------------------------------------------------------------------------------------------------

    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 proposed 
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 invited public comment on our proposal for FY 2013.
    Comment: Commenters supported our proposal to reassign cases with a 
principal diagnosis code of 487.0 with an additional secondary 
diagnosis code for the specified types of pneumonia from MS-DRGs 193 
and 195 to MS-DRGs 177, 178, and 179. The commenters stated that these 
proposed reassignments better capture the more severe type of pneumonia 
that results in significantly higher average costs. Other commenters 
stated the proposed reassignments were reasonable, given the data and 
information provided.

[[Page 53308]]

    Response: We appreciate the commenters' support of our proposals.
    After consideration of the public comments we received, we are 
finalizing our proposal of reassigning cases with a principal diagnosis 
code of 487.0 and an additional secondary diagnosis code of one of the 
following pneumonia codes as a secondary diagnosis code 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.
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 MitraClipTM 
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 MitraClipTM, 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 the FY 2013 proposed rule, we analyzed claims data from the FY 
2011 MedPAR file on the procedure that describes mitral valve repair 
with implant and found the following:

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 216--All Cases...........................................           9,624           16.44         $61,015
MS-DRG 217--All Cases...........................................           5,655           10.24          41,324
MS-DRG 218--All Cases...........................................             995            7.43          34,587
MS-DRG 219--All Cases...........................................          15,336           12.53          50,176
MS-DRG 220--All Cases...........................................          18,455            7.53          34,150
MS-DRG 221--All Cases...........................................           4,719            5.59          29,082
MS-DRG 231--All Cases...........................................           1,170           12.17          49,728
MS-DRG 231--Cases with Procedure Code 35.97.....................               4           13.75          35,409
MS-DRG 232--All Cases...........................................           1,010            9.16          37,820
MS-DRG 232--Cases with Procedure Code 35.97.....................               9           13.56          46,008
MS-DRG 246--All Cases...........................................          29,299            5.20          20,725
MS-DRG 247--All Cases...........................................         109,661            2.39          13,014
MS-DRG 248--All Cases...........................................          13,562            6.35          19,785
MS-DRG 248--Cases with Procedure Code 35.97.....................               1           32.00         110,262
MS-DRG 249--All Cases...........................................          35,100            2.86          11,806
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 MitraClipTM. 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

[[Page 53309]]

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 did not propose to reassign procedure code 35.97 
from MS-DRGs 250 and 251 to MS-DRGs 216 through 221.
    We invited 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.
    Comment: Several commenters supported our proposal not to make any 
MS-DRG modifications for procedure code 35.97 cases, which are 
currently assigned to MS-DRGs 250 and 251. The commenters stated that 
the proposal was reasonable, given the data and information provided.
    Response: We appreciate the commenters' support for our proposal 
for FY 2013.
    Comment: A number of commenters recommended that CMS reassign code 
35.97 to MS-DRGs 216, 217, and 218. The commenters stated that 
percutaneous mitral valve repair offers an alternative to open surgery 
and is used in high risk patients. The commenters believed that the 
current payment is too low and that their hospitals may decide not to 
perform these procedures if the payment is not increased. The 
commenters stated that MS-DRGs 216, 217, and 218 more accurately 
reflect the associated comorbidities and the intensity of resources 
required to perform percutaneous mitral valve repairs with implant. 
Commenters also stated that the procedure is complex and requires a 
complex team of surgeon, imaging specialist, anesthesiologist, and 
interventionalist. Given this team approach, complexity, and lengthy 
procedure time, the commenters stated that MS-DRGs 216, 217, and 218 
were more appropriate MS-DRG assignments.
    One commenter, a manufacturer of a mitral valve repair device, 
echoed the comments above. The manufacturer also expressed concern that 
CMS' claims data may not fully reflect the costs of the mitral valve 
repair devices. The manufacturer stated that the data analyzed may have 
included some mitral valve repair cases that were performed in clinical 
trials and reflected trial-only device prices that were much lower than 
the planned commercial device prices.
    Response: We note that MS-DRGs 216, 217, 218 currently include the 
requirement that a cardiac catheterization be performed during the 
hospital stay. We assume that the commenters meant to include the 
complete range of MS-DRGs for cardiac valve and other major 
cardiothoracic procedures (that is, 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 addition to MS-DRGs 216, 
217, and 218). MS-DRGs 216, 217, and 218 include the provision of 
cardiac catheterizations, while MS-DRGs 219, 220, and 221 do not 
include the use of a cardiac catheterization.
    The claims data do not support adding percutaneous mitral valve 
repairs with implant to MS-DRGs 216, 217, and 218 (those with cardiac 
catheterizations) or to the complete range of DRGs that includes both 
those with and without cardiac catheterization (MS-DRGs 216 through 
221). As stated earlier, there were 39 cases in MS-DRG 250 with average 
costs of $29,753 (which includes an MCC). These average costs are 
significantly lower than the $61,015 average costs for cases in MS-DRG 
216 and the $50,176 average costs for cases in MS-DRG 219, which 
includes an MCC. There were 98 cases in MS-DRG 251 (without MCC) with 
average costs of $18,651. These average costs are also lower than the 
average costs of comparable cases in MS-DRG 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 for these cases are higher than for others in 
MS-DRGs 250 and 251, they are significantly less than those cardiac 
replacement valve cases assigned to MS-DRGs 216 through 221. Our data 
indicate that the average cost for this procedure, including the 
significant cost of the devices, is much closer to the average cost of 
the percutaneous procedures that comprise the remaining 99 percent of 
the claims in the MS-DRGs 250 and 251 than it is to the proposed MS-
DRGs, where payments are twice the reported cost of this procedure.
    In this case it is true that costs of the percutaneous mitral valve 
implantations are more than the average for MS-DRGs 250 and 251. 
However it is a fundamental principle of an averaged payment system 
that half of the procedures in a group will have above average costs. 
It is expected that there will be higher cost and lower cost subsets, 
especially when a subset has low numbers. In this case the other 
ninety-nine percent of the claims that make up the assigned DRG will be 
expected to continue to include cases with similar costs but also 
include many cases with below average costs. In an average payment 
system, the ``profit'' of low-cost cases balances the ``loss'' of the 
high-cost cases, and hospitals and manufacturers cannot expect to see 
``profit'' on every possible subset of cases in a DRG.
    Our clinical advisors state that the current MS-DRG assignment is 
reasonable because the operating room resource utilizations of 
percutaneous procedures, such as those found in MS-DRGs 250 and 251, 
tend to group together, and are generally less costly than open 
procedures, such as those found in MS-DRGs 216 through 221. 
Percutaneous procedures by organ system represent groupings that are 
reasonably clinically coherent. More significantly, our clinical 
advisors state that postoperative resource utilization is significantly 
higher for open procedures with the much greater morbidity and 
consequent recovery needs. Because the equipment, technique, staff, 
patient populations and physician specialty all tend to group by type 
of procedure (percutaneous versus open), separately grouping 
percutaneous and open procedures is more clinically consistent. 
Therefore, our clinical advisors recommend that we not move 
percutaneous mitral valve repairs with implants into MS-DRGs 216 
through 221. Based on the claims data and the advice of our clinical 
advisors, we do not believe the findings warrant moving code 35.97 from 
MS-DRGs 250 and 251 to MS-DRGs 216 though 221.

[[Page 53310]]

    After consideration of the public comments we received, we are 
finalizing our proposal to not make any MS-DRG modifications for 
procedure code 35.97 cases, which currently are assigned to MS-DRGs 250 
and 251, for FY 2013.
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. Effective April 4, 2012, the Zenith[supreg] Fenestrated 
AAA Endovascular Graft (Cook[supreg] Medical) received FDA approval. 
Another manufacturer of fenestrated grafts expects to receive FDA 
approval for its device within 3 years.
    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 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 noted 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 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, the 
MS-DRG system 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.
    Because there is no data history for procedure code 39.78 that 
would justify a reassignment based on either clinical coherence or 
resource consumption, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27903 and 27904), we did not propose to make a change to the MS-DRG 
assignment of procedure code 39.78 for FY 2013. We stated our belief 
that procedure code 39.78 has been appropriately placed within the MS-
DRG structure. We also stated that we would continue to evaluate the 
clinical coherence and resource consumption costs that impact this code 
and the current MS-DRG assignment. We invited public comment on our 
proposal.
    Comment: Many commenters agreed or did not have any specific 
objections regarding our proposal to not reassign procedure code 39.78 
from MS-DRGs 252, 253, and 254 to MS-DRGs 237 and 238 for FY 2013 based 
on the information we provided.

[[Page 53311]]

    Response: We appreciate the commenters' support for our proposal 
for FY 2013.
    Comment: Numerous commenters representing various professional 
organizations and device manufacturers disagreed with our proposal to 
maintain the current MS-DRG structure for procedure code 39.78. The 
commenters urged CMS to reevaluate the proposal and reassign procedure 
code 39.78 to MS-DRGs 237 and 238 for FY 2013.
    The commenters stated that the proposed MS-DRG assignment for 
procedure code 39.78 is not clinically correct. Specifically, the 
commenters stated that the association of a fenestrated graft procedure 
to peripheral arterial endovascular interventions is not representative 
of the complexities involved in performing the fenestrated graft 
surgery, nor does it adequately depict a hospital's utilization of 
resources. The commenters further noted that the implantation of 
fenestrated grafts is more similar, from a clinical and resource 
consumption perspective, to the other endovascular graft procedures 
within MS-DRGs 237 and 238 than it is to the vascular procedures 
assigned to MS-DRGs 252, 253, and 254.
    One commenter provided detailed information outlining the specific 
FDA-approved indications for both the standard and fenestrated 
endovascular graft procedures for treatment of aneurysms to further 
demonstrate how clinically similar the procedures actually are. Other 
commenters clarified that fenestrated grafts require all the resources 
of a standard endovascular graft procedure in addition to all the 
resources required for placement of stents in the renal and visceral 
arteries to maintain perfusion. Another commenter reported that the 
devices required to perform a fenestrated graft procedure are ``(1) 
more complicated, more numerous, and, in aggregate, significantly more 
expensive than those required for the predecessor [standard] 
procedures; and (2) the fenestrated/branch procedure itself is more 
complex and time consuming, requiring significantly greater hospital 
operating room time and resources.'' Therefore, according to the 
commenters, the resources required to perform implantation of a 
fenestrated graft are far more extensive in comparison to the resources 
utilized to perform procedures assigned to MS-DRGs 252, 253, and 254.
    Some commenters also believed that CMS may have misunderstood some 
of the aspects of the fenestrated graft procedure. The commenters 
indicated that if the standard endovascular graft procedure (for 
example, procedure code 39.71 (Endovascular implantation of other graft 
in abdominal aorta) is currently assigned to MS-DRGs 237-238 and the 
fenestrated endovascular graft procedure requires greater utilization 
of resources, logically procedure code 39.78 should be assigned to MS-
DRGs 237 and 238.
    Other commenters reiterated the benefits of fenestrated graft 
procedures to those patients who are not candidates for standard 
endovascular grafts or open surgical repair. These commenters indicated 
that the patients necessitating fenestrated grafts are a complex 
patient population. Some commenters also stated that, despite the lack 
of sufficient MedPAR claims data for procedure code 39.78, CMS should 
consider the clinical similarities between fenestrated graft procedures 
and the other procedures that currently group to MS-DRGs 237 and 238.
    The commenters stated that, by reassigning procedure code 39.78 to 
MS-DRGs 237 and 238, patients would no longer be restricted access to 
this technology for treatment of juxtarenal/pararenal (next to or at 
renal arteries) aneurysms and hospitals would be more appropriately 
paid for the services they are providing.
    Response: Although we did not propose to reassign procedure code 
39.78 from MS-DRGs 252, 253, and 254 to MS-DRGs 237 and 238 for FY 
2013, upon further review and consideration of the comments received, 
we agree with the commenters that the fenestrated grafts are more 
similar from a clinical and resource consumption perspective to the 
other endovascular graft procedures within MS-DRGs 237 and 238.
    Therefore, as final policy for FY 2013, we are reassigning 
procedure code 39.78 from MS-DRG 252, 253, and 254 to MS-DRGs 237 and 
238.
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). In 1984, this pharmaceutical agent became the 
first approved drug for a rare disease to be designated under the 
Orphan Drug Act. It is the only FDA-approved prescription treatment for 
acute intermittent porphyria, being approved for manifestations 
temporarily related to the menstrual cycle in susceptible women.
    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.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 642--All cases...........................................           1,447            4.63          $7,400
MS-DRG 642- Cases with principal diagnosis code 277.1...........             330            6.12          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

[[Page 53312]]

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 
costs 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, in the FY 2013 proposed rule, we 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, we found that the average costs of these cases 
were $10,835, $6,816, and $4,762, respectively, as shown in the table 
below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 643--Cases with principal diagnosis code 277.1...........           6,562            7.11         $10,835
MS-DRG 644--Cases with principal diagnosis code 277.1...........          12,769            4.89           6,816
MS-DRG 645--Cases with principal diagnosis code 277.1...........           5,979            3.40           4,762
----------------------------------------------------------------------------------------------------------------

    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.
    In the proposed rule, we acknowledged and recognized the severity 
of symptoms that patients diagnosed with disorders of porphyrin 
metabolism may experience. We also stated that we are sensitive to 
concerns about access to care and treatment for these patients. We 
further indicated that we would 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 did not propose 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 invited public comment on our 
proposal.
    Comment: Several commenters agreed with our proposal to not create 
a new MS-DRG or to reassign cases reporting a principal diagnosis code 
of 277.1 from MS-DRG 642 to MS-DRGs 643, 644, and 645 for FY 2013.
    Response: We appreciate the commenters' support for our proposal.
    Comment: Two commenters, representing organizations dedicated to 
the treatment, education, and study of patients diagnosed with 
disorders of porphyrin metabolism, appreciated the attention that CMS 
devoted to this issue. However, these commenters expressed concern that 
CMS' proposal to not create a new MS-DRG for these cases would 
negatively impact beneficiary access to necessary treatments. For 
example, according to one of the commenters, certain facilities are 
unable to provide the needed Panhematin[supreg] therapy as a result of 
the costs incurred and the present MS-DRG assignment. The commenters 
believed that for beneficiaries who experience an acute porphyric 
attack, there are not any alternative therapies compared to the 
effectiveness of Panhematin[supreg].
    One of the commenters also submitted data from its own analysis 
indicating that not only are the average costs of porphyria cases 
greater than the average costs of all cases in MS-DRG 642, but also 
that the average costs of porphyria cases are greater than the average 
costs of other cases that contain the top 10 principal diagnoses (by 
volume of discharges) assigned to MS-DRG 642. The commenter asserted 
that, based on its analysis, as well as the analysis conducted and 
presented by CMS in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27904 through 27905), porphyria cases undoubtedly satisfy the criteria 
to create a new MS-DRG.
    Additionally, the commenters opposed CMS' position regarding the 
inadequate number of cases in which to establish a new MS-DRG for 
porphyria cases. One of the commenters reported that, based on its own 
analysis, the number of porphyria cases demonstrated a significant 
subset of the total cases that grouped to MS-DRG 642. The other 
commenter acknowledged that the number of porphyria cases is small; 
however this commenter maintained that CMS may inadvertently be sending 
the message that rare diseases affecting smaller populations are not as 
significant as those diseases affecting larger populations by not 
creating a new MS-DRG for porphyria cases. The commenters urged CMS to 
reconsider

[[Page 53313]]

the proposal and create a new MS-DRG for cases with a principal 
diagnosis of porphyria to ensure these beneficiaries have access to 
treatment for this potentially life-threatening disease.
    Response: We acknowledge the commenters' concerns. CMS is committed 
to improving the lives and quality of care for Medicare beneficiaries. 
We take this opportunity to note that it is not appropriate for 
facilities to deny treatment to beneficiaries needing a specific type 
of therapy or treatment that involves increased costs. The MS-DRG 
system is a system of averages and it is expected that across the 571 
diagnostic related groups that within certain groups, some cases may 
demonstrate higher than average costs, while other cases may 
demonstrate lower than average costs.
    As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27904 through 27905), we recognize the average costs of the small 
number of porphyria cases are greater than all the cases in MS-DRG 642. 
While the commenter's analysis found that approximately 50 percent of 
porphyria cases were more expensive than the average cost of the other 
cases in this MS-DRG, it is not alarming and, in fact, is what we would 
expect (as the remaining percent of cases are less expensive than the 
average). The data provided by the commenter demonstrates that it is a 
subset of the porphyria cases that has the significantly higher cost 
exactly as it is a subset of the MS-DRG that has significantly higher 
costs. An averaged payment system depends on aggregation of similar 
cases with a range of costs, and these data are not unusual. In fact, 
it is usually possible to define subsets with higher values and subsets 
with lower values. We continue to follow our usual practice of 
identifying sufficiently large sets of claims data with a resource/cost 
similarity and clinical similarity and do not wish to abandon our use 
of diagnostic related groups in favor of smaller ``single diagnosis 
payments'' or even, as suggested by the commenter's data, subsets 
within a single diagnosis.
    We disagree with the commenter that our proposal to not create a 
new MS-DRG for porphyria cases sends the message that rare diseases and 
patient access to treatment are not a significant cause for concern to 
the Agency in comparison to other well known and publicly recognized 
conditions. Although it was not included as part of the commenter's 
initial request for a new MS-DRG, we also explored an alternative 
option to reassign cases with a principal diagnosis of porphyria as was 
discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27904 
through 27905). Furthermore, we indicated our intent to continue to 
monitor this issue.
    As mentioned previously, we are sensitive to the commenters' 
concerns and access to treatment for beneficiaries who have been 
diagnosed with this condition. However, for the reasons summarized 
above, we are finalizing our proposal for FY 2013 to not create a new 
MS-DRG or to reassign cases with a principal diagnosis of porphyria 
(code 277.1) from MS-DRG 642 to MS-DRGs 643, 644, and 645.
5. 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.
a. MCE New Length of Stay Edit for Continuous Invasive Mechanical 
Ventilation for 96 Consecutive Hours or More
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27905 and 27906), 
we proposed to make a change to the MCE edits which included 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.
    For the proposed rule, 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 demonstrated 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)

[[Page 53314]]

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, there is an even larger dollar amount that is being 
overpaid to hospitals. These overpayments justify corrective actions.
    However, we also noted 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 proposed 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. We 
indicated in the proposed rule that we would issue instructions in the 
form of a Change Request (CR) prior to the implementation date. We 
invited the public to comment on our proposal to create this edit, 
effective for FY 2013.
    Comment: Commenters urged CMS to reconsider the proposed new edit 
for claims reporting procedure code 96.72 with a length of stay less 
than 4 days that would result in these claims being returned to the 
provider for validation and resubmission. Although several commenters 
agreed with the concept of the edit, the commenters expressed concern 
that the proposed process would be administratively burdensome to 
hospitals that may be accurately reporting the code according to 
established coding rules. For example, the commenters noted that coding 
rules allow the counting of hours a patient is on mechanical 
ventilation to begin from the time ventilation is initiated in the 
emergency room department or upon admission. The commenters also stated 
that for those instances where patients may require observation 
services, as CMS noted in the proposed rule, it is possible that 
procedure code 96.72 can be reported on a claim with a length of stay 
less than 4 days. These commenters recommended that CMS work with the 
Medicare administrative contractors (MACs) to develop a less burdensome 
process for providers to implement this edit.
    Response: We appreciate and acknowledge the commenters' concerns. 
In developing systems requirements, we will continue to work with MACs. 
Recent programming enhancements now allow the use of data fields that 
were not previously available for claims processing. We believe that 
these enhancements will eliminate the concern regarding additional 
administrative burden to hospitals.
    After consideration of the public comments received, for FY 2013, 
we are finalizing our proposal to make a change to the MCE edits to 
include the creation of a new length of stay edit for procedure code 
96.72 when reported on a claim with a length of stay less than 4 days. 
Detailed instructions will be issued in a future Change Request (CR) 
prior to the implementation date.
b. Sleeve Gastrectomy Procedure for Morbid Obesity
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51539 through 
51541), we discussed the issue of sleeve gastrectomy procedures for 
morbid obesity under the section of the rule titled ``MDC 10 
(Endocrine, Nutritional, and Metabolic Diseases and Disorders)'' as 
well as under the section for ``Medicare Code Editor (MCE) Changes.'' 
We refer the reader to these sections for additional details and 
background information.
    Effective October 1, 2011, procedure code 43.82 (Laparoscopic 
vertical (sleeve) gastrectomy) was created and designated as a 
noncoverage procedure in the Medicare Code Editor. A Decision Memo 
related to Bariatric Surgery for the Treatment of Morbid Obesity was 
issued effective June 27, 2012, which describes a change in coverage to 
Medicare beneficiaries for this procedure. Information related to this 
decision memo can be located at the following CMS Web page: http://www.cms.gov/medicare-coverage-database/details/nca-decision-memo.aspx?NCAId=258&fromdb=true.
    As this noncovered procedure edit for procedure code 43.82 is no 
longer valid, we are removing it from the MCE for FY 2013. Instructions 
in the form of a Change Request will be issued prior to October 1, 
2012. In addition, updates to the Medicare National Coverage 
Determinations Manual, Section 100.1, Nationally Noncovered Indications 
for Bariatric Surgery for Treatment of Morbid Obesity, will be revised 
to reflect this change in coverage.
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, for 
FY 2013, 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 001 and 002 and surgical class B includes MS-
DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 
001 are higher than that of MS-DRG 003, but the average costs of MS-
DRGs 004 and 005 are higher than the average costs of MS-DRG 002. 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

[[Page 53315]]

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.
    In the FY 2013 IPPS/LTCH PPS proposed rule, we proposed 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, in the proposed rule (77 FR 27906), we 
did not propose any changes to the surgical hierarchy for Pre-MDCs and 
MDCs for FY 2013.
    Comment: Several commenters stated that our proposal to make no 
changes to the surgical hierarchy seems reasonable, given the data and 
information provided.
    Response: Based on these public comments and our review of the 
proposal to make no revisions to the surgical hierarchy using the March 
2012 update of the FY 2011 MedPAR file and the revised GROUPER 
software, we found that the proposal to make no revisions is still 
supported by the data. Therefore, in this final rule, we are making no 
changes to the surgical hierarchy 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. 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 (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 did not propose 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

[[Page 53316]]

II.G.9. of the preamble of this final rule for a discussion of the 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 addressed 
this issue in the FY 2013 proposed rule (77 FR 27907 through 27908) and 
are finalizing our policy in this final rule.
    For the 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:

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

    Count (Cnt) is the number of patients in each subset. C1, C2, and 
C3 are a measure of the impact on resource use of patients in each of 
the subsets. The C1, C2, and C3 values are a measure of the ratio of 
average costs for patients with these conditions to the expected 
average cost across all cases. The C1 value reflects a patient with no 
other secondary diagnosis or with all other secondary diagnoses that 
are non-CCs. The C2 value reflects a patient with at least one other 
secondary diagnosis that is a CC but none that is an MCC. The C3 value 
reflects a patient with at least one other secondary diagnosis that is 
an 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:

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

    We ran the following data as described in the 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 an 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 an 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 
an 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 proposed for FY 
2013 to change diagnosis codes 263.0 and 263.1 from a non-CC to a CC. 
We did not propose any change to the severity level for diagnosis code 
263.9. We invited public comment on our proposals.
    Comment: Several commenters supported our proposal to change the 
severity level for codes 263.0 and 263.1

[[Page 53317]]

from a non-CC to a CC and to maintain the severity level of code 263.9 
as a CC. Several commenters stated that the proposal seems reasonable, 
given the data and information provided. Some commenters expressed 
appreciation for CMS' recognition of the increased costs of care 
associated with these conditions and support efforts to more accurately 
reflect its impact.
    Response: We appreciate the support of the commenters.
    After consideration of the public comments we received, we are 
finalizing our proposal to change diagnosis codes 263.0 and 263.1 from 
a non-CC to a CC and to maintain the severity level of a CC for 
diagnosis code 263.9 for FY 2013.
(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 
addressed this issue in the FY 2013 proposed rule and are finalizing 
our policy in this final rule. For the 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:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
              Code                       Diagnosis description         CC Level      Cnt 1      Impact       Cnt 2      Impact       Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
285.3...........................  Antineoplastic chemotherapy              Non-CC     1,937        1.36      11,858        2.21       6,036        3.11
                                   induced anemia.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 did not propose any change to the severity level for 
diagnosis code 285.3 for FY 2013. We invited public comment on our 
proposal.

    Comment: Several commenters stated that our proposal to maintain 
the severity level of a non-CC for code 285.3 seems reasonable, given 
the data and information provided.
    Response: We appreciate the support of the commenters for our 
proposal.
    After consideration of the public comments we received, we are 
finalizing our proposal to not change the severity level for diagnosis 
code 285.3 for FY 2013.
(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 recommended 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 addressed this issue in the FY 2013 proposed rule and are 
finalizing our policy in this final 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:

 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                CC        940       1.19      5,967       2.15      5,171       3.14
                                              diseases classified elsewhere.

[[Page 53318]]

 
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 did not propose any changes to the severity level for the 
cardiomyopathy and congestive heart failure, unspecified codes for FY 
2013. We invited public comment on our proposal.
    Comment: Several commenters stated that our proposal to make no 
changes to the severity level for cardiomyopathy and congestive heart 
failure, unspecified codes seems reasonable, given the data and 
information provided.
    Response: We appreciate the support of the commenters for our 
proposal.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the current severity level for 
cardiomyopathy and congestive heart failure, unspecified codes for FY 
2013.
(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:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
                  Code                       Diagnosis description     CC Level      Cnt 1      Impact       Cnt 2      Impact       Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
440.4...................................  Chronic total occlusion of       Non-CC     8,439        1.38       8,057        2.70       5,366        3.23
                                           artery of the extremities.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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, in the FY 2013 IPPS/LTCH PPS proposed rule, we 
proposed to change the severity level for diagnosis code 440.4 from a 
non-CC to a CC for FY 2013. We invited public comment on our proposal.
    Comment: Several commenters supported our proposed change to the 
severity level from a non-CC to a CC for code 440.4. Several commenters 
stated that the proposal seems reasonable, given the data and 
information provided.
    One commenter stated that crossing a stenotic occlusive lesion 
typically requires manipulation of the guidewire with a single catheter 
that remains in the vessel lumen. In contrast, crossing a chronic total 
occlusion typically requires multiple wires and catheters whereby the 
wire leaves the vessel lumen, dissects through the subintimal plane 
around the occlusive lesion, and then must be manipulated back into the 
true outflow lumen. According to the commenter, the additional time, 
intensity of work, and resources necessary to perform an endovascular 
revascularization of a chronic total occlusion justify the proposed 
increase in severity level.
    Response: We appreciate the support of the commenters for our 
proposal.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the severity level for diagnosis code 
440.4 from a non-CC to a CC for FY 2013.
(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 53319]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Severity                  Cnt 1                   Cnt 2                   Cnt 3
                  Code                       Diagnosis description       level       Cnt 1      Impact       Cnt 2      Impact       Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
584.8...................................  Acute kidney failure with           MCC        12        0.98          13        1.89       1,350        3.17
                                           other specified
                                           pathological lesion in
                                           kidney.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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, in the FY 2013 IPPS/LTCH PPS 
proposed rule, we proposed to change the severity level of diagnosis 
code 584.8 from an MCC to a CC for FY 2013. We invited public comment 
on our proposal.
    Comment: Commenters stated CMS' proposed change to the severity 
level of diagnosis code 584.8 from an MCC to a CC was reasonable, given 
the data and information provided.
    Response: We appreciate the support of the commenters for our 
proposal.
    Comment: One commenter opposed the proposal to change the severity 
level of diagnosis code 584.8 from an MCC to a CC. The commenter stated 
that this downgrade penalizes hospitals willing to take on sicker 
patients because additional care is required to treat patients with 
this condition. The commenter stated that this change would also hurt 
hospitals whose clinical documentation staff, in conjunction with 
providers, perform the additional work of identifying the underlying 
cause of the kidney failure.
    Response: Information from our claims data does not support the 
commenter's statement that these are sicker patients who should be 
classified at the MCC severity level. As discussed above, our claims 
data suggests that code 584.8 is more appropriately classified as a CC. 
The C1 finding of 0.98 suggests that this code is more like a non-CC 
than an MCC. The C2 finding of 1.89 supports classifying this code as 
either a non-CC or CC. Therefore, the C1 and C2 findings support 
changing code 584.8 from an MCC to a lower severity level. Our clinical 
advisors reviewed this issue and support changing the severity level of 
this code to a CC. Our clinical analysis and consistent claims data 
support changing code 584.8 from an MCC to CC.
    We disagree with the commenter's statement that this severity level 
change would hurt hospitals whose clinical documentation staff, in 
conjunction with providers, perform the additional work of identifying 
the underlying cause of the kidney failure. CMS supports improved 
documentation practices by providers, which leads to better patient 
care. Providers should consistently work on improved clinical 
documentation for all patients, not just those who have a secondary 
diagnosis on the MCC list. We do not agree that changing the severity 
level of procedure code 584.8 hurts hospitals who attempt to improve 
the clinical document in their medical records.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the severity level of diagnosis code 
584.8 from an MCC to a CC.
(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 the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27910), 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:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
                 Code                      Diagnosis description       CC level      Cnt 1      Impact       Cnt 2      Impact       Cnt 3      Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
707.25...............................  Pressure ulcer, unstageable..       Non-CC     1,839        1.87       7,161        2.46      13,285        3.08
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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

[[Page 53320]]

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 
proposed that diagnosis code 707.25 remain a non-CC for FY 2013.
    We invited public comment on our proposal not to change the 
severity level for diagnosis code 707.25 for FY 2013.
    Comment: Several commenters supported our proposal not to change 
the severity level for diagnosis code 707.25. The commenters stated the 
proposal seems reasonable, given the data and information provided.
    Response: We appreciate the support of the commenters.
    Comment: One commenter questioned whether a ``not examined ulcer'' 
would be classified the same as unstageable. The commenter stated that 
an ulcer should not be classified as unstageable simply because it was 
not examined.
    Response: If a pressure ulcer is documented in the medical record 
and the stage is unspecified, code 707.20 (Pressure ulcer, unspecified 
stage) would be assigned.
    Comment: Some commenters did not support our proposal. The 
commenters pointed out that the National Pressure Ulcer Advisory Panel 
defines unstageable pressure ulcers as at least a stage III pressure 
ulcer and suggested that the resource expenditures associated with 
treating this condition would meet the definition of an MCC. Another 
commenter recommended that the severity level for code 707.25 be 
changed to a CC.
    Response: Based on the data and our analysis presented above, we 
concluded that diagnosis code 707.25 did not warrant a change to the 
severity level. 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. Without 
knowing the stage of the ulcer, an assumption should not be made.
    After consideration of the public comments we received, we are 
finalizing our proposal to not change the severity level for code 
707.25 for FY 2013.
    For FY 2013, we proposed changes to Table 6G (Additions to the CC 
Exclusion List). As we discussed earlier, we are finalizing our 
proposed changes to the severity level for diagnosis codes 263.0, 
263.1, and 440.4 from a non-CC to a CC. There are no proposed and 
finalized 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 final rule because of the length of the two tables. 
Instead, we are making them available through the Internet on the CMS 
Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-
Payment/AcuteInpatientPPS/index.html. Each of these principal diagnoses 
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/
Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. 
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 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 MCC and CC changes for FY 2013. There are no new, 
revised, or deleted diagnosis codes for FY 2013. Therefore, there are 
no Tables 6A, 6C, and 6E published for FY 2013.

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

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

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

    There are no 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

[[Page 53321]]

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. Therefore, for FY 2013, we did not propose to change the 
procedures assigned among these MS-DRGs.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not making any changes to the procedures 
assigned to MS-DRGs 981 through 983, MS-DRGs 984 through 986, and MS-
DRGs 987 through 989 for FY 2013.
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 did not propose to remove any procedures from MS-DRGs 981 
through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs 
for the MDC into which the principal diagnosis is assigned.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not making any changes to the procedures 
assigned to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 for FY 
2013.
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 costs 
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 did not 
propose to move any procedure codes among these MS-DRGs.
    We did not receive any public comments on our proposal. Therefore, 
as we proposed, we are not moving any procedures assigned to MS-DRGs 
981 through 983, MS-DRGs 984 through 986, and MS-DRGs 987 through 989 
for FY 2013.

[[Page 53322]]

c. Adding Diagnosis or Procedure Codes to MDCs
    Based on the review of cases in the MDCs as described above in 
sections II.G.1. through 4. of this preamble, we did not propose to add 
any diagnosis or procedure codes to MDCs for FY 2013. We did not 
receive any public comments on our proposal. Therefore, as we proposed, 
we are not adding any diagnosis or procedure codes to MDCs for FY 2013.
9. 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/05CDROM.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.
    The Committee held its 2012 meeting on March 5, 2012. New codes for 
which there was consensus of public support and for which complete 
tabular and indexing changes were made by May 2012 are included in the 
October 1, 2012 update to ICD-9-CM. Code revisions that were discussed 
at the March 5, 2012 Committee meeting but that could not be finalized 
in time to include them in the tables listed in section VI. of the 
Addendum to the proposed rule are included in Table 6B which is listed 
in section VI. of the Addendum to this final rule and available via the 
Internet on the CMS Web site, and are marked with an asterisk (*).
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27912), we stated 
that, for FY 2013, there were no changes to the ICD-9-CM coding system 
due to the partial code freeze or for new technology. However, at the 
March 5, 2012 meeting there was a request for a code for a new 
technology. As discussed below, only codes for new technologies or new 
diagnoses are being considered during the partial code freeze. After 
discussions at the meeting and public comment received after the 
meeting, it was decided that there will be one new procedure code 
effective October 1, 2012: new code 00.95 (Injection or infusion of 
glucarpidase).
    Therefore, there are no new, revised, or deleted diagnosis codes 
and no revised or deleted procedure codes that are usually announced in 
Tables 6A (New Diagnosis Codes), 6C (Invalid Diagnosis Codes), 6D 
(Invalid Procedure Codes), 6E (Revised Diagnosis Code Titles), and 6F 
(Revised Procedure Codes). The new procedure code is listed in Table 6B 
(New Procedure Codes) for this final rule, which is available via the 
Internet on the CMS Web site.
    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/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/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 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 Email to: 
dfp4@cdc.gov.
    Questions and comments concerning the procedure codes should be 
addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination 
and Maintenance Committee, CMS, Center for Medicare Management, 
Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 
7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent 
by Email to: patricia.brooks2@cms.hhs.gov.
    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

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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 1, 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/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/icd9ProviderDiagnosticCodes/01overview.asp#TopofPage. Information on 
ICD-9-CM diagnosis codes, along with the Official ICD-9-CM Coding 
Guidelines, can be found on the Web site at: http://www.cdc.gov/nchs/icd9.htm. Information on new, revised, and deleted ICD-9-CM codes is 
also provided to the AHA for publication in the Coding Clinic for ICD-
9-CM. AHA also distributes information to publishers and software 
vendors.
    CMS also sends copies of all ICD-9-CM coding changes to its 
Medicare contractors for use in updating their systems and providing 
education to providers.
    These same means of disseminating information on new, revised, and 
deleted ICD-9-CM codes will be used to notify providers, publishers, 
software vendors, contractors, and others of any changes to the ICD-9-
CM codes that are implemented in April. The code titles are adopted as 
part of the ICD-9-CM Coordination and Maintenance Committee process. 
Thus, although we publish the code titles in the IPPS proposed and 
final rules, they are not subject to comment in the proposed or final 
rules. We will continue to publish the October code updates in this 
manner within the IPPS proposed and final rules. For codes that are 
implemented in April, we will assign the new procedure code to the same 
MS-DRG in which its predecessor code was assigned so there will be no 
MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates 
will be available through the Web sites indicated above and through the 
Coding Clinic for ICD-9-CM. Publishers and software vendors currently 
obtain code changes through these sources in order to update their code 
books and software systems. We will strive to have the April 1 updates 
available through these Web sites 5 months prior to implementation 
(that is, early November of the previous year), as is the case for the 
October 1 updates.
b. Code Freeze
    The International Classification of Diseases, 10th Revision (ICD-
10) coding system applicable to hospital inpatient services is to be 
implemented on October 1, 2013, as described in the Health Insurance 
Portability and Accountability Act of 1996 (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 
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.

[[Page 53324]]

    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.
    HHS 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, HHS 
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 Public Law 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 as proposed, there would be only 
limited ICD-10 code updates for new technologies and new diseases on 
October 1, 2014. There would be no updates to ICD-9-CM on October 1, 
2014, as the system would no longer be a HIPAA standard and, therefore, 
no longer be used for reporting. Full ICD-10 updates would begin on 
October 1, 2015, one 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/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/
icd9ProviderDiagnosticCodes/03.asp#TopOfPage. 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.
    Comment: Several commenters expressed concern about the delay in 
the implementation of ICD-10. Some commenters supported a delay, while 
others opposed any delay.
    Response: Proposals on ICD-10 implementation are being addressed 
through a separate rulemaking as we have indicated above. These 
comments will be addressed as part of that separate rulemaking.
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 diagnoses 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 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

[[Page 53325]]

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/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.
    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/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.
    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. 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/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. 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.
10. Public Comments on Issues Not Addressed in the Proposed Rule
    We received a number of public comments regarding MS-DRG issues 
that were outside of the scope of the proposals included in the FY 2013 
IPPS/LTCH PPS proposed rule. We have summarized these public comments 
below. However, because these public comments were outside of the scope 
of the proposed rule, we are not addressing them in this final rule. As 
stated in section II.G. of this preamble, we encourage individuals with 
comments about MS-DRG classifications to submit these comments no later 
than December of each year so they can be considered for possible 
inclusion in the annual proposed rule and, if included, may be 
subjected to public review and comment. We will consider these comments 
for possible proposals in future rulemaking as part of our annual 
review process.
    Some commenters requested that CMS create a new MS-DRG for total 
ankle replacement procedures. One commenter requested that CMS 
eliminate the severity levels for heart and liver transplants and 
implement one MS-DRG for heart transplants and one MS-DRG for liver 
transplants.
    One commenter requested that CMS conduct an analysis of diagnosis 
code V45.88 (Status post administration of tPA (rt-PA) in a different 
facility within the last 24 hours prior to admission to current 
facility) to determine whether new data warrant any change in the MS-
DRG structure for these cases.
    One commenter recommended that bronchial valve procedures reported 
with ICD-9-CM procedure codes 33.71 (Endoscopic insertion or 
replacement of bronchial valve(s), single lobe) and 33.73 (Endoscopic 
insertion or replacement of bronchial valve(s), multiple lobes), that 
are assigned to medical MS-DRGs 190 and 192 (Chronic Obstructive 
Pulmonary Disease with MCC, with CC, or without MCC/CC, respectively) 
be assigned instead to

[[Page 53326]]

surgical MS-DRGs 163 and 165 (Major Chest Procedures with MCC, with CC, 
or without MCC/CC, respectively).

H. Recalibration of MS-DRG Weights

1. Data Sources for Developing the Weights
    In developing the 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 final rule include 
discharges occurring on October 1, 2010, through September 30, 2011, 
based on bills received by CMS through March 31, 2012, 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 
relative weights includes data for approximately 10,804,695 Medicare 
discharges from IPPS providers. Discharges for Medicare beneficiaries 
enrolled in a Medicare Advantage managed care plan are excluded from 
this analysis. These discharges are excluded when the MedPAR ``GHO 
Paid'' indicator field on the claim record is equal to ``1'' or when 
the MedPAR DRG payment field, which represents the total payment for 
the claim, is equal to the MedPAR ``Indirect Medical Education (IME)'' 
payment field, indicating that the claim was an ``IME only'' claim 
submitted by a teaching hospital on behalf of a beneficiary enrolled in 
a Medicare Advantage managed care plan. In addition, the March 31, 2012 
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 
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 final rule, 
as was the case with the 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 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, as we proposed, we 
are calculating the final 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 backfilling 
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 from the March 31, 2012 update of the 
HCRIS for FY 2009 and FY 2010 in calculating the FY 2013 cost-based 
relative weights.
2. Methodology for Calculation of the Relative Weights
    The methodology we used to calculate the 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 final rule.
     The transplant cases that were used to establish the 
relative weights for heart and heart-lung, liver and/or intestinal, and 
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) 
were limited to those Medicare-approved transplant centers that have 
cases in the FY 2010 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those 
facilities that have received approval from CMS as transplant centers.)
     Organ acquisition costs for kidney, heart, heart-lung, 
liver, lung, pancreas, and intestinal (or multivisceral organs) 
transplants continue to be paid on a reasonable cost basis. Because 
these acquisition costs are paid separately from the prospective 
payment rate, it is necessary to subtract the acquisition charges from 
the total charges on each transplant bill that showed acquisition 
charges before computing the average cost for each MS-DRG and before 
eliminating statistical outliers.
     Claims with total charges or total lengths of stay less 
than or equal to zero were deleted. Claims that had an amount in the 
total charge field that differed by more than $10.00 from the sum of 
the routine day charges, intensive care charges, pharmacy charges, 
special equipment charges, therapy services charges, operating room 
charges, cardiology charges, laboratory charges, radiology charges, 
other service charges, labor and delivery charges, inhalation therapy 
charges, emergency room charges, blood charges, and anesthesia charges 
were also deleted.
     At least 96.2 percent of the providers in the MedPAR file 
had charges for 10 of the 15 cost centers. Claims for providers that 
did not have charges greater than zero for at least 10 of the 15 cost 
centers were deleted.
     Statistical outliers were eliminated by removing all cases 
that were beyond 3.0 standard deviations from the geometric 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

[[Page 53327]]

encouraging quality care and generates program savings, it presents an 
issue for the relative weight-setting process. Because cases identified 
as HACs are likely to be more complex than similar cases that are not 
identified as HACs, the charges associated with HAC cases are likely to 
be higher as well. Thus, if the higher charges of these HAC claims are 
grouped into lower severity MS-DRGs prior to the relative weight-
setting process, the relative weights of these particular MS-DRGs would 
become artificially inflated, potentially skewing the relative weights. 
In addition, we want to protect the integrity of the budget neutrality 
process by ensuring that, in estimating payments, no increase to the 
standardized amount occurs as a result of lower overall payments in a 
previous year that stem from using weights and case-mix that are based 
on lower severity MS-DRG assignments. If this would occur, the 
anticipated cost savings from the HAC policy would be lost.
    To avoid these problems, we reset the POA indicator field to ``Y'' 
only for relative weight-setting purposes for all claims that otherwise 
have 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 relative weight calculation 
are shown in the following table. The table shows the lines on the cost 
report and the corresponding revenue codes that we used to create the 
15 national cost center CCRs.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

[[Page 53340]]

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 FY 2013 cost-based relative weights were then normalized by an 
adjustment factor of 1.5916044904 so that the average case weight after 
recalibration was equal to the average case weight before 
recalibration. The normalization adjustment is intended to ensure that 
recalibration by itself neither increases nor decreases total payments 
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
    The 15 national average CCRs for FY 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..............................................           0.143
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........................................           0.450
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 the FY 2013 IPPS/LTCH PPS proposed rule 
(77 FR 27930), we proposed 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 
proposed 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   FY 2012 FR weight
                                 with O.R.          (adjusted by percent
                                 Procedure Except   change in average
                                 Sterilization      weight of the cases
                                 and/or D&C.        in other MS-DRGs).
789...........................  Neonates, Died or  FY 2012 FR weight
                                 Transferred to     (adjusted by percent
                                 Another Acute      change in average
                                 Care Facility.     weight of the cases
                                                    in other MS-DRGs).
790...........................  Extreme            FY 2012 FR weight
                                 Immaturity or      (adjusted by percent
                                 Respiratory        change in average
                                 Distress           weight of the cases
                                 Syndrome,          in other MS-DRGs).
                                 Neonate.
791...........................  Prematurity with   FY 2012 FR weight
                                 Major Problems.    (adjusted by percent
                                                    change in average
                                                    weight of the cases
                                                    in other MS-DRGs).
792...........................  Prematurity        FY 2012 FR weight
                                 without Major      (adjusted by percent
                                 Problems.          change in average
                                                    weight of the cases
                                                    in other MS-DRGs).
793...........................  Full-Term Neonate  FY 2012 FR weight
                                 with Major         (adjusted by percent
                                 Problems.          change in average
                                                    weight of the cases
                                                    in other MS-DRGs).
794...........................  Neonate with       FY 2012 FR weight
                                 Other              (adjusted by percent
                                 Significant        change in average
                                 Problems.          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 53341]]

    We did not receive any public comments on this section. In this 
final rule, we are adopting the national average CCRs as proposed 
without modification, with the MS-DRG weights recalibrated based on 
these CCRs.
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 final rule, as we did in the 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://www.innovations.cms.gov/initiatives/Bundled-Payments/index.html/ provide more details of this 
initiative.
    As described below and also in the Addendum to the proposed rule 
and this final rule, we generally proposed to include, and for this 
final rule are including, 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.
    We did not receive any public comments about our proposals. 
Therefore, as discussed in greater detail below, we are finalizing the 
treatment of hospitals participating in the BPCI initiative as 
proposed. For hospitals participating in Models 1, 2, and 4, we are 
finalizing treating 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 bundled payment models (that is, as if they are not 
participating in those models under the BPCI initiative).
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, were asked to propose specific MS-DRG(s) for the 
clinical condition(s) to be tested in Model 2. Furthermore, the 
applicants were 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 were 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 were 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 were asked to specify the clinical condition(s) to be tested 
in Model 3 by proposing relevant MS-

[[Page 53342]]

DRG(s). Therefore, applicable to all Model 3 beneficiaries discharged 
from any inpatient acute care hospital stay with the specified MS-
DRG(s), applicants were 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 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 were 
asked to propose specific MS-DRG(s) for the clinical condition(s) to be 
tested in Model 4. Applicants for this model were 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. Treatment of Data From Hospitals Participating in the BPCI 
Initiative
    As discussed above, acute care hospitals had the opportunity to 
apply and participate in the BPCI payment models described above. As we 
discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27932), 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, in the 
FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27932), we proposed 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 
proposed to 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). We did not receive any public 
comments on our proposal. Therefore, we are finalizing treating 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), as 
we proposed.
    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-

[[Page 53343]]

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 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 proposed to do 
so in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27932 through 
27933). In essence, we proposed to 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 did not receive 
any public comments on our proposal. Therefore, we are finalizing 
treating 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 4 under the BPCI 
initiative), as we proposed.
    We note that Model 3 only addresses payments for related 
readmissions and postacute care services (rather than IPPS payments). 
Therefore, we believed it was not necessary to propose to address the 
treatment of any data for participating hospitals in Model 3. We 
continue to believe it is not necessary to address the treatment of any 
data for participating hospitals in Model 3. We did not receive any 
public comments on our decision not to propose to address the treatment 
of any data for participating hospitals in Model 3.
    Because we did not receive any public comments, we are finalizing 
the treatment of hospitals participating in the BPCI initiative as 
proposed. For hospitals participating in Models 1, 2, and 4, we are 
finalizing treating 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 bundled payment models (that is, as if they are not 
participating in those models under the BPCI initiative).

I. Add-On Payments for New Services and Technologies

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies that a medical service or technology will be considered 
new if it meets criteria established by the Secretary after notice and 
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act 
specifies that a new medical service or technology may be considered 
for new technology add-on payment if, ``based on the estimated costs 
incurred with respect to discharges involving such service or 
technology, the DRG prospective payment rate otherwise applicable to 
such discharges under this subsection is inadequate.'' We note that 
beginning with discharges occurring in FY 2008, CMS transitioned from 
CMS-DRGs to MS-DRGs.
    The regulations 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. The regulations at 
42 CFR 412.88 also implement these provisions and describe the 
additional payment for the new medical service or technology. 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

[[Page 53344]]

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 we used to evaluate applications for new technology 
add-on payments for FY 2013 in this final rule. We refer readers to the 
Web site http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/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, the additional Medicare 
payment for new medical services and technologies 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 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 
criterion, 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 Center of Clinical Standards and 
Quality (CCSQ) 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, CCSQ, 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 potential applicants, such as 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 and/or payment decisions 
for Medicare.
    The CTI aims to provide useful information on its activities and 
initiatives to stakeholders, including Medicare beneficiaries, 
advocates, medical product manufacturers, providers, and health policy 
experts. Stakeholders with further questions about Medicare's coverage, 
coding, and payment processes, or who want further guidance about how 
they can navigate these processes, can contact the CTI at 
CTI@cms.hhs.gov.
    We note that applicants for add-on payments for new medical 
services or technologies for FY 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

[[Page 53345]]

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.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html. 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 the 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 the 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 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 payment applications for FY 
2013 in the proposed rule.
    In response to the published notice and the new technology town 
hall meeting, commenters submitted and presented public comments that 
were unrelated to the substantial clinical improvement criterion in 
regard to the new technology applications for FY 2013. We also received 
public comments on the proposed rule relating to topics such as 
marginal cost factors for new technology add-on payments, and the use 
of external data in determining the cost threshold and mapping new 
technologies to the appropriate MS-DRG. Because we did not request 
public comments nor propose to make any changes to any of the issues 
above, we are not summarizing these public comments nor responding to 
them in this final 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

[[Page 53346]]

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 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). In the proposed rule, 
with regard to the newness criterion for the AutoLITT\TM\, we stated 
that 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 
applicant 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 publication of the proposed rule 
and anticipated receiving further information on the delayed market 
release date from the applicant and welcomed public comment as well.
    Comment: The applicant submitted a public comment to demonstrate 
that the AutoLITT\TM\ was first available on May 11, 2010, which would 
make the AutoLITT\TM\ eligible for new technology add-on payments in FY 
2013 (because the 3-year anniversary date of AutoLITT\TM\ would take 
place in the latter half of the fiscal year). The manufacturer 
explained that some of the sterile disposable products were not 
released from quarantine until May 11, 2010, which prevented the 
AutoLITT\TM\ from being used prior to May 11, 2010. Therefore, the 
manufacturer asserted that the first time the AutoLITT\TM\ was 
available on the market was May 11, 2010.
    Response: We appreciate the manufacturer providing this information 
and we agree that the AutoLITT\TM\ is considered new as of May 11, 
2010, instead of December 2009. As stated above, in general, we extend 
new technology 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). Because the 3-year 
anniversary date of the AutoLITT\TM\ entry on the market occurs in the 
latter half of the fiscal year, we still consider the AutoLITT\TM\ to 
be new for FY 2013. Therefore, we are continuing to make new technology 
add-on payments for the AutoLITT\TM\ in FY 2013. We discuss the coding 
and payment policies for the AutoLITT\TM\ earlier in this section.
    Comment: Several public commenters recommended extending new 
technology add-on payments for the AutoLITT\TM\ in FY 2013.
    Response: As stated above, we still consider the AutoLITT\TM\ to be 
new for FY 2013, and will continue to make new technology add-on 
payments for the AutoLITT\TM\ in FY 2013.
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 the proposed rule.
a. Glucarpidase (Trade Brand Voraxaze[supreg])
    BTG International, Inc. (BTG) submitted an application for new 
technology add-on payments for Glucarpidase (trade brand 
Voraxaze[supreg]) for FY 2013. In the proposed rule, we summarized this 
application, and stated that 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

[[Page 53347]]

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.
---------------------------------------------------------------------------

    Voraxaze[supreg] 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. Voraxaze[supreg] was available on the market in the 
United States as a commercial product to the larger population as of 
April 30, 2012.
    With regard to newness, in the proposed rule we expressed concern 
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], as we stated 
in the proposed rule, 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 for the purpose of evaluating 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 Institutional 
Review Board (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 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 Humanitarian Use Device (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 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 
as we stated in the proposed rule. 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

[[Page 53348]]

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 invited 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 requested comment on these considerations in the context 
of Voraxaze[supreg]. We also invited 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 
invited 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.
    Comment: Several public commenters responded with opinions 
regarding whether Voraxaze[supreg] should be considered new for the 
purposes of new technology add-on payments. One commenter stated that 
Voraxaze[supreg] was available on a ``very limited basis'' since 1993, 
and recommended that it be considered ``new'' for the purpose of new 
technology add-on payments. The commenter also stated that because the 
manufacturer was only covering its costs under the expanded access 
program, existing charge data do not adequately reflect the ``true 
price'' of the technology. The commenter further noted that the 
frequency with which the technology is used is low, and that the 
associated relative weights are ``likely artificially low.''
    The applicant submitted information through the submittal of a 
public comment documenting that Voraxaze[supreg] was approved by the 
FDA in January 2012 and that marketing of Voraxaze did not begin until 
April 2012. The applicant added that the FDA's Office of Prescription 
Drug Promotion (OPDP) considers a product new from the point of initial 
marketing and promotion, stating that, ``OPDP generally considers that 
`new' is an accurate description of the marketing phase for six months 
from the time a product is initially marketed and this should be 
distinguished from the time a product is cleared by FDA for 
marketing.'' The applicant concluded that the FDA recognizes a time 
delay between approval and commercial availability as standard in the 
pharmaceutical industry.
    In addition, the applicant provided supplemental information that 
demonstrated that Voraxaze was not available on the market until April 
30, 2012. This documentation included specific information regarding 
training, manufacturing/packaging and trade/distribution activities 
that needed to take place prior to April 30, 2012. Once these 
activities were completed, the applicant stated that it discontinued 
the treatment of IND/cost recovery program for Voraxaze[supreg] on 
April 29, 2012, and that market availability of Voraxaze[supreg] began 
on April 30, 2012.
    The applicant also noted that one of the reasons it did not 
initiate commercialization activities prior to the FDA approval date of 
January 30, 2012 was because the company was awaiting final FDA 
labeling approval (that is, prescribing information) for 
Voraxaze[supreg], which was delivered to BTG on the day of approval, 
which was January 17, 2012. The applicant believed it would not have 
been prudent for BTG to initiate commercialization activities before 
receiving the final labeling approval because it would have required 
expensive and time-consuming rework.
    One commenter stated that Voraxaze[supreg] meets the newness 
criteria. The commenter explained that the FDA approval date is 
reasonable to use for determination of newness. The commenter stated 
that prior to FDA approval, Voraxaze[supreg] was only available through 
a laborious expanded access process that many oncology centers did not 
have in place. Thus, it was truly only available at many centers for 
the first time as of April 30, 2012.
    Another commenter stated that it believed that Voraxaze[supreg] 
does not meet the newness criterion but did not provide additional 
information.
    Response: Generally, our policy is to begin the newness period on 
the date of FDA approval/clearance or, if later, the date of market 
availability for the technology. Availability under the expanded access 
program neither represents the date of FDA approval (in this case, 
January 2012) nor the date of market availability (April 30, 2012). 
Therefore, we consider Voraxaze[supreg] to be ``new'' as of April 30, 
2012, its date of market availability.
    We note, as discussed in section II.G.7. of the preamble to this 
final rule, we are creating a new ICD-9-CM procedure code 00.95 
(Injection or

[[Page 53349]]

infusion of glucarpidase) to identify this new technology. This new 
code is effective October 1, 2012.
    With respect to the cost criterion, as we described in the proposed 
rule, 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 11,534 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 invited public comment on whether or not Voraxaze[supreg] meets 
the cost criterion. Specifically, we welcomed 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.
    Comment: The applicant submitted a public comment stating that it 
believed that Voraxaze[supreg] meets the cost criterion because the 
commercial costs of Voraxaze[supreg] are not reflected in the MS-DRG 
relative weights. The applicant added that Voraxaze[supreg] was 
available via expanded access since 2007 and hospitals were not allowed 
to submit for reimbursement of Voraxaze[supreg] because it was an 
investigational drug. Even if hospitals attempted to submit for 
reimbursement, the applicant noted that the Voraxaze[supreg] cost 
recovery price is substantially lower than its commercial price of 
$22,500 (effective April 30, 2012) and any existing data prior to April 
30, 2012 used to determine MS-DRG relative weights would not capture 
such a price difference and would largely underestimate the cost of 
Voraxaze[supreg]. Other commenters stated that Voraxaze[supreg] clearly 
meets the cost criterion. The commenters explained that they believed 
the situations where Voraxaze[supreg] is indicated for use were rare, 
and in those situations they believed that the cost of care for the 
affected patient rises substantially.
    Response: We appreciate the commenters' input. We agree that 
Voraxaze[supreg] meets the cost criterion.
    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 Leucovorin, a drug used to enhance the 
treatment for patients with high levels of MTX. The applicant noted 
that the combination of Voraxaze[supreg] and Leucovorin 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 with 18 of the 23 patients being 50 
years or older.\18\ The applicant asserted 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

[[Page 53350]]

lymphoma.'' \19\ 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 asserted 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].\20\ The applicant also provided additional published 
peer-reviewed articles\21,22,23,24,25,26\ relevant to their application 
to support their assertion that they meet the substantial clinical 
improvement criteria.
---------------------------------------------------------------------------

    \18\ Green and Chamberlan, Cancer Chemotherapy and Pharmacology 
Volume 63, November 4, 2009.
    \19\ Schwartz, Borner et al., The Oncologist, December 2007.
    \20\ Schwartz, Borner et al,. The Oncologist, December 2007.
    \21\ Levy CC, Goldman P. The enzymatic hydrolysis of 
methotrexate and folic acid. J Biol Chem. 1967; 242:2993-2998.
    \22\ 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\.\
    \23\ 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.
    \24\ Patterson DM, Lee SM. Glucarpidase following high-dose 
methotrexate: update on development. Expert Opin Biol Ther. 
2010;10(1):105-111.
    \25\ 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.
    \26\ Bleyer WA. Methotrexate: clinical pharmacology, current 
status and therapeutic guidelines. Cancer Treat Rev. 1977;4:87-101.
---------------------------------------------------------------------------

    We invited public comment on whether or not Voraxaze[supreg] meets 
the criterion of representing a substantial clinical improvement for 
Medicare beneficiaries.
    Comment: The applicant submitted public comments that stated, 
``Voraxaze[supreg] meets the substantial clinical benefit criterion 
because the FDA accepted, reviewed, and approved the biologic licenses 
application (BLA) for Voraxaze[supreg] on an accelerated timeline. The 
FDA initiates an expedited review when a high unmet need exists and 
when an applicant has a product that may qualify as a substantial 
clinical improvement.''
    Several other public comments also stated that Voraxaze[supreg] 
meets the substantial clinical improvement criteria. One of the 
commenters, a pediatric oncologist, asserted that prior to 
Glucarpidase, there were no reliably effective interventions for 
patients suffering from high dose MTX induced renal dysfunction, a life 
threatening medical emergency. The commenter further noted that 
numerous interventions historically employed were generally invasive 
(that is, charcoal hemoperfusion), had variable but limited impact, and 
were not readily available at most treatment centers. The commenter 
concluded that Glucarpidase is a highly effective pharmacologic rescue 
that can be readily delivered to patients at high risk of or 
experiencing a life threatening complication of cancer therapy, that 
there is no other comparable pharmacologic intervention available, and 
that Glucarpidase is superior to less reliable, invasive measures. 
Another commenter stated that when Voraxaze[supreg] is used in a timely 
fashion, it can improve severe MTX-induced toxicity, prevent the need 
for dialysis and other invasive procedures, and can be lifesaving. The 
commenter believed that Voraxaze[supreg] is a unique medication, which 
can treat a rare and life-threatening complication of methotrexate 
therapy which has no alternative mediation. The commenter believed that 
alternative supportive care to Voraxaze[supreg], including 
hospitalization and dialysis, is exceptionally expensive.
    Another commenter who also supported new technology add-on payments 
for the Voraxaze[supreg] believed that Voraxaze[supreg] is a drug that 
can provide life-saving reversal of toxic levels of methotrexate. The 
commenter further stated that patients with toxic levels of 
methotrexate are hospitalized and receive the drug during an inpatient 
admission. However, due to its high cost, the commenter explained that 
many hospitals are reluctant to stock Voraxaze[supreg] in the pharmacy 
or use it at all due to the lack of reimbursement available when used 
as an inpatient medication. The commenter continued by stating that the 
alternative is to provide Leucovorin rescue and vigorous hydration, 
which often is effective and significantly cheaper. However, the 
commenter noted that this approach results in prolonged hospital stays, 
which have their own costs (to the system at large) and expose the 
patient to potential iatrogenic complications. If a new technology add-
on payment is available, the commenter believed that Voraxaze[supreg] 
would become the standard of care for methotrexate toxicity and enable 
a more rapid discharge of the patient from the inpatient setting. 
Another commenter stated that it believed ``certain new biologic agents 
that prevent toxicity but have high drug acquisition costs are 
underused because of financial disincentives,'' and cited this 
technology as an example. The commenter noted that this technology 
``can reduce the need for dialysis, reduce morbidity and decrease the 
length of hospital stay,'' and cited this background as an oncologist 
for support.
    Response: After reviewing the totality of the evidence and the 
public comments we received, we agree that Voraxaze[supreg] represents 
a substantial clinical improvement for Medicare beneficiaries. It 
appears that Voraxaze[supreg] is less time intensive and allows select 
patient populations to avoid risks associated with current treatment 
options. Also, Voraxaze[supreg] is able to treat patients who have 
toxic MTX concentrations in a more effective and rapid way than 
existing treatment options in certain situations, and provides 
protection to eligible patient populations against potential harm 
associated with current treatment options. Specifically, the applicant 
provided the results from a study of 23 patients diagnosed with MTX-
induced renal dysfunction treated with Voraxaze[supreg]. Based on the 
clinical trial data, the administration of Voraxaze[supreg] lowered 
toxic MTX concentrations in patients within 15 minutes after the 
administration by more than 98 percent. Therefore, we believe that 
Voraxaze[supreg] represents a substantial clinical improvement for 
Medicare beneficiaries. However, we remain interested in seeing 
clinical endpoints that show that reduction in methotrexate levels 
leads to improved renal function.
    Voraxaze[supreg] has met all three criteria for new technology add-
on payments and is eligible for new technology add-on payments in FY 
2013. Cases of Voraxaze[supreg] will be identified with ICD-9-CM 
procedure code 00.95 (Injection or infusion of glucarpidase). The cost 
of Voraxaze[supreg] is $22,500 per vial. The applicant stated that an 
average of four vials is used per Medicare beneficiary. Therefore, the 
average cost per case for Voraxaze[supreg] is $90,000 ($22,500 x 4). 
Under Sec.  412.88(a)(2), new technology add-on payments are limited to 
the lesser of 50 percent of the average cost of the technology or 50 
percent of the costs in excess of the MS-DRG payment for the case. As a 
result, the maximum new technology add-on payment for Voraxaze[supreg] 
is $45,000 per case.
b. DIFICIDTM (Fidaxomicin) Tablets
    Optimer Pharmaceuticals, Inc. submitted an application for new 
technology add-on payments for FY 2013 for the use of 
DIFICIDTM (Fidaxomicin) tablets. In the proposed rule, we 
summarized this application and stated that the applicant asserts that 
Fidaxomicin is a major clinical advancement in the options available to

[[Page 53351]]

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.\27\
---------------------------------------------------------------------------

    \27\ 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 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.
    In the proposed rule, we stated that 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 established 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).
    As we stated in the proposed rule, 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 invited 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 invited public comment on 
whether or not Fidaxomicin meets the newness criterion.
    Comment: A number of public commenters, including the applicant, 
stated that the technology meets the newness criterion. Specifically, 
commenters discussed: (1) The ICD-9-CM coding for this technology, (2) 
the statutory authority for the policy in relation to the coding of 
oral therapies, (3) CMS' current policy and practices regarding coding, 
(4) CMS' practices with regard to establishing new codes to implement 
payment policies, (5) the use of V-codes in the ICD-9-CM system for 
oral drugs, and (6) the non-ICD-9-CM options for coding this technology 
for the new technology add-on payments. We summarize each issue, in 
turn, in the following comments and responses below.
    Response: We appreciate the commenters' supporting rationale for 
how this technology meets the newness criterion under the new 
technology add-on payment policy. We respond to each of the six points, 
in turn, below. We note that, as a result of our analysis of the public 
comments we received, in our responses below, we, in this final rule, 
revised our policy to allow the use of National Drug Codes (NDCs) to 
identify oral medications that have no inpatient procedure for the 
purposes of new technology add-on payments. This change will be 
effective for payments for discharges occurring on or after October 1, 
2012. We note that this does not preclude CMS from using additional 
ICD-9-CM procedure or diagnosis codes to identify cases for this new 
technology in conjunction with NDCs. In particular, for this 
technology, we established a methodology to identify cases for new 
technology add-on payments by using the NDC for the drug (52015-0080-
01) and ICD-9-CM diagnosis code 008.45, Intestinal infection due to 
Clostridium difficile. Furthermore, we establish that the beginning of 
the newness period for this technology is its FDA approval date of May 
27, 2011.
    Comment: The applicant submitted a public comment asserting that it 
believed that an ICD-9-CM procedure

[[Page 53352]]

code would be the ``best option'' and noted that this should be limited 
to the ``sole purpose of tracking use of the product'' for new 
technology add-on payments. The applicant indicated that it did not 
believe this created a precedent for inpatient procedure coding.
    Response: With regard to use of an ICD-9-CM procedure code for this 
technology, subsequent to and as recommended by CMS at the March 12, 
2012 ICD-9-CM Coordination and Maintenance (C&M) Committee meeting, no 
new ICD-9-CM procedure code for the administration of this technology 
was created. Public comments received during and subsequent to the 
public meetings opposed the establishment and addition of codes for 
self-administered drugs. The commenters stated that this type of 
service has never been included in ICD-9-CM procedure codes. Other 
commenters believed that such an addition to the ICD-9-CM system would 
be setting a major new precedent. Hospitals currently code and report 
procedures and more invasive services such as surgeries, infusion of 
drugs, and specialized procedures such as cardiac catheterizations. 
Hospitals do not code nor report self-administered drugs. While we 
appreciate the commenters' belief that a new ICD-9-CM procedure code 
should be created and that this code could be limited to new 
technological procedures and would thus not create a precedent for 
inpatient procedure codes, we disagree for the reasons stated above and 
described in more detail below. While the ICD-9-CM procedure coding 
system has been used to create codes for categories of service not 
previously coded for the purpose of new technology add-on payments, 
these new codes have been limited to inpatient procedures associated 
with their respective technologies. The commenters cited, as an 
example, the creation of procedure code 00.11, Infusion of drotrecogin 
alfa (activated) [Xigris], as an example of where CMS has ``created 
unique new ICD-9-CM codes in categories of service that did not 
previously exist.'' We note that infusions of drugs have been part of 
the ICD-9-CM inpatient procedure coding system since it was created in 
1979. Infusion of drugs requires specialized health care personnel to 
administer the infusion procedure. Patients taking self-administered 
drugs do not require the use of hospital or health care personnel to 
perform a procedure. Since the inception of the ICD-9-CM coding system, 
drugs given to a patient through use of an infusion have been 
considered procedures described by ICD-9-CM codes. The identification 
of a patient taking a self-administered drug has never been described 
by ICD-9-CM codes because it was not deemed to be a hospital procedure. 
This technology is an orally administered drug and, as noted by the 
applicant in its public comment, ``must be administered orally to 
effectively treat CDAD''. Orally-administered drugs require no 
inpatient procedure to administer. Therefore, we believe it would be 
inappropriate to establish an ICD-9-CM procedure code for their 
administration, even for the purpose of new technology add-on payments.
    Comment: One commenter asserted that the statutory authority exists 
for new technology add-on payments for oral therapies with no inpatient 
procedure (that is, infusion). The commenter reiterated our statement 
in the proposed rule that, ``we believe that under our current new 
technology add-on payment policy, eligibility * * * is limited to new 
technologies associated with procedure codes described by ICD-9-CM 
codes'' (77 FR 27939). Similarly, another commenter stated that, ``CMS 
asked whether DIFICID\TM\ could qualify under the statute and 
regulations for new technology because it is an oral therapy.'' Both 
commenters stated that the proposed rule ``does not assert that there 
is any corresponding statutory or regulatory bar to granting a [new 
technology add-on payment] to an oral therapy, and indeed there is 
none.'' Another commenter stated that, while self-administered drugs 
are not covered by Part B, they are covered by Part A. Another 
commenter stated that, ``the fact that DIFICID\TM\ must be administered 
orally to effectively treat [clostridium dificile associated disease] 
should not preclude it from being considered under the [new technology 
add-on] policy.'' Commenters pointed out that the statute ``require[s] 
that the agency `shall' establish a mechanism to recognize costs of new 
medical services or technologies * * * which `shall' provide for 
additional payment when such services are used.'' Another commenter 
further stated that it believed that ``the Congressional intent was 
explicit'' and stated that the statute ``allow[s] `any code such as 
ICD-9-CM and its subsequent revision' (emphasis added [in the public 
comment]).'' Another commenter stated that, ``the FY2002 [final rule on 
the new technology add-on payment] exemplifies CMS' authority and 
flexibility to use codes broadly for [the new technology add-on 
payment], if needed.'' Another commenter recognized that the statute 
explicitly points out the use of ICD-9-CM codes, but reminded the 
agency that they believed that ``the regulation permits administrative 
flexibility.'' Additionally, the commenter described the application 
form, and noted that, ``this policy document includes 5 specific 
questions not necessarily reflected directly in statute or 
regulation.'' Of the five items pointed out by the commenter, four 
refer to FDA approval, and one to ICD-9-CM procedure coding.
    Response: With regard to the question of whether or not statutory 
authority exists to allow new technology add-on payments for oral 
medications without inpatient procedures (that is, infusion), we note 
that, as the commenters pointed out, in the proposed rule, we did not 
assert that such statutory authority did not exist. We believe that 
under our current new technology add-on payment policy, eligibility for 
new technology add-on payments is limited to new technologies 
associated with procedure codes described by ICD-9-CM codes (77 FR 
27939). We believe that the statute could be interpreted in a manner 
that does not preclude new technology add-on payments for oral 
medications that have no inpatient procedure (that is, infusion) 
insofar as such an oral medication meets the other aspects of the 
newness criterion in addition to meeting the cost and substantial 
clinical improvement criteria. We interpret our current policy as 
limiting new technology add-on payments to technologies associated with 
inpatient procedures, as described in the FY 2002 final rule on CMS' 
new technology add-on payment policy (66 FR 46915). We note that this 
technology is the first application we have received for a technology 
that is an oral medication where no inpatient procedure is associated. 
In light of public comments we received, we are revising our policy to 
allow for the use of an alternative code set to identify oral 
medications where no inpatient procedure is associated for the purposes 
of new technology add-on payments. We are establishing the use of NDCs 
as the alternative code set for this purpose and describe our rationale 
for this particular code set in response to comments below. This change 
will be effective for payments for discharges occurring on or after 
October 1, 2012. We note that this does not preclude CMS from using 
additional ICD-9-CM procedure or diagnosis codes to identify cases for 
this new technology in conjunction with this alternative code set. We 
also agree with the comment that these oral medications for which no 
inpatient procedure is

[[Page 53353]]

associated may be considered self-administered drugs under Part B and 
are not payable under the outpatient prospective payment system (OPPS). 
We remind hospitals that, although hospitals are required to bundle 
related therapeutic services within the 3 days prior to and on the day 
of inpatient admission on the inpatient claim, hospitals may not 
include services that are not payable under the OPPS within the 3 days 
prior to and on the day of inpatient admission as part of the inpatient 
claim (42 CFR 412.2(c)(5)).
    Comment: Commenters reviewed our current policy and practice with 
regard to identification of new technologies for new technology add-on 
payments. They reiterated statements from the FY 2002 final rule on 
CMS' new technology add-on payment policy, while one commenter pointed 
out that, ``CMS considered several coding options to track new 
procedures and technologies * * * and discussed use of ICD-9-CM V-
codes, HCPCS Level II codes, and G codes to classify new 
technologies.'' Another commenter stated that CMS has in the past 
created ICD-9-CM codes for new technology add-on payments, and cited as 
an example the creation of procedure code 00.11, Infusion of 
drotrecogin alfa (activated) [Xigris], as an example of where CMS has 
``created unique new ICD-9 codes in categories of service that did not 
previously exist.''
    Response: With regard to our current policy and practice on the use 
of code sets to identify new technologies for new technology add-on 
payments, we appreciate the commenters' input. As we stated in response 
to other public comments, we interpret our current policy as limiting 
new technology add-on payments to technologies associated with 
inpatient procedures, as described in the FY 2002 final rule on the new 
technology add-on payment policy. We note that this technology is the 
first application we have received for a technology that is an oral 
medication with no inpatient procedure. Also, as we stated in response 
to other comments, we point out that the example the commenters cite, 
procedure code 00.11, Infusion of drotrecogin alfa (activated) 
[Xigris], is for an infusion and that infusion can be an inpatient 
procedure.
    Comment: Commenters reviewed our practice with regard to 
establishing new codes to implement Medicare policies. Specifically, 
they mentioned the creation of a claim modifier to reflect the use of 
surgical devices that CMS created to ``implement claims processing of a 
new policy'' and also the creation of policy claim codes MX (wrong 
surgery on patient), MY (wrong surgery on body part), and MZ (surgery 
on wrong patient) to identify claims to implement a national coverage 
decision regarding certain never events. They asserted that CMS is able 
to establish new codes to implement policies.
    Response: With regard to the examples of CMS' practices of 
establishing new codes to implement Medicare policies, we appreciate 
the commenters' responses. We agree that from time to time CMS will 
implement, as needed, new codes and processes to implement Medicare 
policies, including payment and coverage policies. The examples 
provided by the commenters do not specifically address the new 
technology add-on payment policy, instead, they address other Medicare 
payment policies and national coverage decisions.
    Comment: One commenter pointed out that V-codes currently exist for 
oral drugs. Specifically, the commenter cited code V58.66 for long term 
(current) use of aspirin and code V58.68 for long-term (current) use of 
bisphosphonates. The commenter also pointed out that three codes in 
subcategory V07.5 for the use of agents affecting estrogen receptors 
and estrogen levels have inclusion notes for multiple medications, some 
of which are oral.
    Response: With regard to the existence of V-codes for oral drugs, 
we agree with the commenters that V-codes exist that capture the long 
term use of certain drugs, including those that may be orally 
administered. V-codes are used to capture additional information about 
factors influencing health status and contact with health services. The 
codes for long-term (current) drug use were created to assist in 
following patients who use certain drugs over a long period of time. 
The codes do not necessarily indicate that a patient received the 
specific drug during the current health care encounter. The patient may 
be taking the drug based on a prescription received during a prior 
health care encounter and did not receive it during the current 
encounter.
    However, we have not adopted the use of V-codes for use in the new 
technology add-on payment policy. Currently, the new technology add-on 
payment policy is based on the use of ICD-9-CM procedure codes, which 
indicate that a procedure or service is provided during the hospital 
stay. The long-term (current) drug use V-codes described do not provide 
this information. As indicated earlier, the V-codes indicate the 
patient has been on certain drugs on a long-term basis, and do not 
necessarily indicate that the patient received the drug during the 
current health care encounter. We continue to believe that V-codes are 
not appropriate for new technology add-on payments because we do not 
believe the nature of these codes appropriately identifies new 
technologies; they indicate that some circumstance or problem is 
present which influences the person's health status, but is not in 
itself a current illness or injury. Common V-codes are status codes, 
history codes, aftercare codes, and follow-up codes. In addition, V-
codes do not identify items related to current resource use for an 
inpatient stay. For the most part, V-codes do not impact the DRG, and 
they are not taken into consideration when forming DRG assignment and, 
thus, are not used in setting relative weights for the IPPS. However, 
we note that we continue to explore the usefulness of these and other 
alternatives, such as those available in ICD-10, for coding and 
identifying technologies for the purposes of new technology add-on 
payments.
    Comment: One commenter described non-ICD-9-CM alternatives for 
coding this technology for the purposes of the new technology add-on 
payment policy. One option described by the commenter was the use of a 
value code and condition code to identify this technology. The 
commenter pointed out that a value code, value code 77, currently 
exists to identify when a new technology add-on payment is being 
claimed. The commenter noted that value codes are used with condition 
codes, and suggested that an option could be for CMS to submit a 
request to the National Uniform Billing Committee (NUBC) for a ``unique 
Condition Code to describe DIFICIDTM administration.'' A 
second option described by the commenters was to use a national drug 
code (NDC) on the claim to identify the technology for the purposes of 
new technology add-on payments. The commenter described two ways to 
implement such an option, one where the NDC would be used in isolation 
(as product information in Box 80 of the UB-04 claims form) and one 
where it would be used in combination with ICD-9 diagnosis code 008.45, 
Intestinal infection due to Clostridium difficile (where the NDC would 
be reported on the UB-04 in Box 43 and the diagnosis code reported on 
the UB-04 in Box 65). The commenter pointed out that using the NDC in 
isolation may require hospitals to ``make changes to their billing 
systems'' and that using the NDC in combination with a diagnosis code 
may require hospitals to ``make substantial reprogramming to their 
systems.'' Because of the possibility that hospitals may need to make 
changes,

[[Page 53354]]

the commenter stated that they believed that other options would be 
preferable and that an ICD-9-CM code is the ``best option.''
    Response: With regard to the non-ICD-9-CM options for identifying 
this technology and new technologies for new technology add-on 
payments, we appreciate the commenters' suggestions. The commenters 
first discussed a value code or condition code option for identifying 
new technologies. We agree that currently value code 77 is used to 
identify claims for new technology add-on payments. Commenters 
suggested that CMS could request a condition code from the NUBC to be 
used in conjunction with this value code to identify this new 
technology. While we appreciate the commenters' suggestion, we believe 
that this unnecessarily subjects eligibility for new technology add-on 
payments to a non-CMS claims identifier field. Furthermore, we note 
that even on an expedited basis, it is not likely that the NUBC process 
would necessarily result in the timely creation of a condition code to 
identify this technology. Therefore, we disagree with the commenters 
that this is a feasible option for coding and identifying technologies 
for the purposes of new technology add-on payments. Commenters then 
discussed two ways to use the NDC to identify this technology. We agree 
that NDCs can be used to identify drugs and that, in the instance where 
no inpatient procedures are associated with a drug, the NDC could be 
used to identify an oral drug for new technology add-on payments. While 
commenters stated that they believed this may require hospitals to 
change their ``billing practices'' or ``make substantial reprogramming 
to their systems,'' we believe that these changes, insofar as they 
might be needed, would not represent a large burden for hospitals. We 
note that currently the NDC code is used on outpatient claims for the 
ESRD-PPS to identify oral equivalent ESRD drugs. We further note that 
the hospital would be required to report the NDC code for the purposes 
of new technology add-on payments so that it could receive a new 
technology add-on payment which, by definition, is an increase relative 
to the payment they would have received in the absence of such an add-
on payment. Specifically, the commenter discussed using the NDC in Box 
43 in conjunction with the diagnosis code 008.45 (Intestinal infection 
due to Clostridium difficile) or using the NDC as product information 
in Box 80. We agree with the applicant and the other commenters that it 
is important to identify cases for new technology add-on payments using 
the diagnosis code 008.45. Because the NDC can specifically identify 
this technology, and other technologies that are oral drugs where no 
inpatient procedure is associated, we believe it can be used to 
identify these technologies for purposes of new technology add-on 
payments. We continue to believe our current policy to recognize new 
technologies associated with inpatient procedures through ICD-9-CM 
coding is appropriate and, in response to public comments we received, 
are expanding our policy prospectively for discharges occurring on or 
after October 1, 2012, to recognize oral medications where no inpatient 
procedure can be associated through the coding of NDCs. In the case of 
this application, we agree with the commenter that the NDC code of 
52015-0080-01 can be used in conjunction with diagnosis code 008.45 to 
identify the use of this technology, and establish that the use of both 
codes will identify this technology for the purposes of new technology 
add-on payments. We discuss our broader policy change to allow NDCs as 
an alternative code set to identify oral drugs where no inpatient 
procedure is associated in response to other comments.
    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 if it 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. Finally, the applicant 
determined a final case-weighted average standardized charge per case 
of $58,994, which exceeds the 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-

[[Page 53355]]

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.
    In the proposed rule, we expressed concern 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, and we do not 
believe that charges associated with it can be included on the 
inpatient claim submitted to Medicare because of the 3-day payment 
window policy. Therefore, in the proposed rule, we noted that 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, in the proposed rule, we 
stated that we believed 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 invited public comment on whether or not Fidaxomicin meets the 
cost criterion. In addition, we invited 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 
were also 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 
represented the Medicare population that may benefit from the 
technology's use.
    Comment: The applicant submitted public comments responding to our 
concerns from the proposed rule. Our first concern was that these 
analyses did 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. The applicant responded by providing a 
sample of claims of patients that received DIFICID \TM\ during their 
inpatient stay to determine the amount of days that DIFICID \TM\ is 
used within the inpatient setting. The applicant collected 116 
inpatient stays across 26 unique MS-DRGs for patients who received 
DIFICID \TM\ during their stay of which, 71 of the claims were Medicare 
fee-for-services (FFS) cases which mapped to 22 unique MS-DRGs. 
Regarding these data (from all 116 cases) the applicant noted the 
following: the average length of stay for all DIFICID \TM\ 
(Fidaxomicin) cases is 13.9 days; on average, patients started DIFICID 
\TM\ (Fidaxomicin) on day 6.7 of their stay; and on average, patients 
received DIFICID \TM\ for 6.2 days of their stay. Using the subset of 
71 Medicare claims also demonstrated that patients received DIFICID 
\TM\ on average of 6.2 days of their stay.
    Using the 116 cases from the sample, the applicant computed a case-
weighted average standardized charge per case of $92,684, which exceeds 
the case-weighted threshold of $45,388. The applicant also conducted a 
similar analysis using the Medicare subset of 71 Medicare cases. The 
applicant computed a case-weighted average standardized charge per case 
of $100,146, which exceeds the case-weighted threshold of $44,980. 
Because the case-weighted average standardized charge per case for both 
scenarios exceeds the case-weighted threshold amount (in both 
scenarios), the applicant maintains that Fidaxomicin meets the cost 
criterion for new technology add-on payments.
    Our second concern was with regard to the 3-day payment window. If 
Fidaxomicin is prescribed and self-administered during the 3-day period 
prior to admission to an IPPS hospital for a related encounter, as we 
noted in the proposed rule, we do not believe that this service is 
payable under the OPPS, and we do not believe that charges associated 
with 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. The applicant noted that all cases from the sample 
data show that treatment was initiated well after admission to the 
inpatient setting. Even for those patients who presented at admission 
with a clostridium difficile infection (CDI) diagnosis, DIFICID \TM\ 
(Fidaxomicin) began an average of 4.6 days after the patient was 
admitted. The applicant believed that these data address CMS' concern 
over the potential for outpatient administration of DIFICID \TM\ 
(Fidaxomicin) prior to inpatient admission. The applicant asserted that 
to date, utilization patterns of DIFICID \TM\ (Fidaxomicin) show that 
the drug is used primarily in the inpatient setting and that outpatient 
use prior to admission is very limited.
    Our third concern was that the applicant's analyses 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. The 
applicant reiterated that it submitted three different types of MedPAR 
analysis, one of which captured all cases where C. Difficile infection 
(CDI) occurred. The applicant added that the first MedPAR analysis 
contained no restrictions on its search for cases of CDI and as such 
should represent the complete universe of patients who may be eligible 
for DIFICID \TM\. The applicant further stated that its data sample of 
116 inpatient claims contains the actual MS-DRGs and standardized 
charges of patients who received DIFICID \TM\ which meets the cost 
criteria.
    The applicant noted that the sample data (of 116 claims) does not 
represent the full universe of eligible DIFICID \TM\ (Fidaxomicin) 
patients for the following reasons: First, because DIFICID \TM\ was 
new, the applicant asserted that hospitals may not have been aware of 
the full benefit of the drug. Second, the applicant asserted that 
hospitals may have believed they were not adequately compensated for 
the cost of DIFICID \TM\ within the existing MS-DRG payment and, 
therefore, may not have considered DIFICID \TM\ for treatment except in 
cases where the patient's costs were

[[Page 53356]]

significantly higher than average and additional outlier payments were 
anticipated. The applicant concluded that it believed that its original 
analysis of the FY 2010 MedPAR data with all patients diagnosed with 
CDI during their inpatient stay represents the full universe of 
potential DIFICID \TM\ cases, and is the most appropriate case scenario 
for purposes of calculating DIFICID \TM\'s (Fidaxomicin's) 
qualifications for the new technology add-on payment cost criterion.
    We were also concerned that it is necessary for the applicant to 
adjust its estimates to remove from the MedPAR file's claims the 
charges that describe other types of treatment options such as 
Vancomycin because use of these treatments would preclude use of 
Fidaxomicin. The applicant replied in its comment that it performed a 
cost criterion estimate with DIFICID \TM\ removed from the inflation-
adjusted weighted average standardized charge. The applicant explored 
additional data analyses to separate Vancomycin charges from the total 
MedPAR charges. However, the applicant asserted that no approach was 
viable due to (1) Lack of distinct coding to identify inpatient cases 
in which Vancomycin was administered, (2) lack of data on Vancomycin 
dosing per case, and (3) lack of data on the appropriate hospital mark-
up applied to Vancomycin costs. Therefore, the applicant stated that it 
believed, in the absence of data to estimate Vancomycin charges 
included in the MedPAR CDI cases, one methodology to approximate this 
was by, removing the inflated adjusted charges for DIFICID \TM\ from 
the case-weighted average standardized charge per case of the first 
scenario. The applicant also noted that, although it determined an 
average use of DIFICID \TM\ for 6.2 days within the inpatient setting 
based on the sample of 116 claims, it recommended that CMS consider 6.5 
days of inpatient administration of DIFICID \TM\. The applicant 
justified this increase based on its belief that hospitals and 
physicians will use it more. In particular, the applicant believed that 
the increased adoption of DIFICID \TM\ would lead to earlier 
prescription of DIFICID \TM\ by physicians for primary CDAD treatment 
in the inpatient setting as opposed to a secondary treatment. Using 
this methodology (of removing inflated adjusted charges for DIFICID 
\TM\ and assuming utilization of DIFICID \TM\ for 6.5 days within the 
inpatient setting), the applicant revised its calculation for the first 
analysis (which included all cases of C. Diff) and determined a case-
weighted average standardized charge per case of $55,214, which exceeds 
the case-weighted threshold of $43,673. Because the case-weighted 
average standardized charge per case exceeds the case-weighted 
threshold amount, the applicant maintains that Fidaxomicin meets the 
cost criterion for new technology add-on payments.
    Response: We appreciate the applicant's response to our concerns 
and believe that the sample of claims the applicant submitted 
substantiates the average use of DIFICID \TM\ within the inpatient 
setting. We agree with the applicant that the appropriate universe of 
cases is the first MedPAR analysis which contained no restrictions on 
its search for cases of CDI and as such should represent the complete 
universe of patients who may be eligible for DIFICID \TM\. However, at 
this time we believe it is appropriate to use an estimate of 6.2 days 
of inpatient administration of DIFICID \TM\ from the sample of claims 
rather than the 6.5 days that the applicant recommended. The estimate 
of 6.2 days is based on actual data while the extra 0.3 days (for a 
total of 6.5 days) is based on projected assumptions by the applicant. 
Therefore, we are revising the applicant's analysis described above of 
the first MedPAR analysis by substituting 6.2 days instead of 6.5 days 
for the administration of DIFICID \TM\ within the inpatient setting. We 
also appreciate the applicant's discussion of the difficulties 
associated in the removing of charges associated with Vancomycin, which 
represents one potential treatment option this technology could 
replace. We do not disagree with the applicant's suggestion to remove 
inflated adjusted charges for DIFICID \TM\ as an alternative. Using 
this methodology (of removing inflated adjusted charges for DIFICID 
\TM\ and assuming utilization of DIFICID \TM\ for 6.2 days within the 
inpatient setting), we determined a case weighted average standardized 
charge per case of $55,130, which still exceeds the case-weighted 
threshold of $43,673. Because the case-weighted average standardized 
charge per case exceeds the case-weighted threshold amount, we believe 
the applicant has met the cost criterion.
    With regard to the substantial clinical improvement criterion, in 
the proposed rule, we stated that the applicant maintained 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 noted 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 asserted that Fidaxomicin has 
longer acting antimicrobial activity and inhibits spore formation 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.28 29 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).
---------------------------------------------------------------------------

    \28\ 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; 364:422-431February 3, 2011. Attached 
reference: 12--LouieNEJM2011.pdf
    \29\ 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 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 a 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

[[Page 53357]]

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 expressed concern in the proposed rule 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, in the proposed rule, 
we expressed concern about the long-term possibility that patients may 
develop resistance to this drug since the applicant provided no data to 
substantiate its claim. We invited public comment on whether or not 
Fidaxomicin meets the substantial clinical improvement criterion based 
on the analysis and results presented by the applicant.
    Comment: Regarding our concern that the technology may not offer a 
substantial clinical improvement, the applicant noted that ``DIFICID 
\TM\ is the only agent proven to provide a superior sustained clinical 
response versus Vancomycin--meaning a higher proportion of patients 
achieve clinical response and remain free of potentially devastating 
recurrences through 25 days after the end of treatment * * * 
Recurrences are a unique challenge in the management of CDAD in large 
part due to the ability of C. difficile to form spores.'' The applicant 
also noted that its technology prevents sporulation while other 
existing medications do not. In addition, the applicant discussed oral 
administration as being ``advantageous in treating CDAD''.
    Regarding our concern about the long-term possibility that patients 
may develop resistance to this drug, the applicant responded with 
several pieces of information. First, the applicant cited advice from 
``antimicrobial stewardship programs, such as those recommended by the 
CDC `Get Smart' program (http://www.cdc.gov/getsmart/) and SHEA/IDSA 
policy (http://www.idsociety.org/StewardshipPolicy/),'' which the 
applicant noted, ``advise utilizing the most narrow spectrum agent to 
treat an infection to help decrease the likelihood of resistant 
development.'' The applicant believed Fidaxomicin ``uniquely fits in 
this profile as, unlike broad spectrum antibacterial drugs, it is 
targeted specifically against C. difficile with minimal impact on other 
bacteria, including the normal flora found in the gastrointestinal 
tract.'' Second, the applicant further stated that, ``The potential for 
resistance to antibacterial agents increases when bacteria are exposed 
to suboptimal drug concentrations at the site of infection. However, 
DIFICID \TM\ has minimal absorption from the intestines and fecal 
concentrations that are >1000 times that required to kill C. 
difficile.'' Third, the applicant also noted that, ``In laboratory 
testing, DIFICID \TM\ exhibited no crossresistance with other classes 
of antibacterial drugs.'' and ``The low potential for patients to 
develop resistance to DIFICID \TM\ was also demonstrated in two pivotal 
phase 3 clinical trials.'' Fourth, the applicant noted that, 
``resistance to treating agents is not an issue with this disease, as 
it has not been reported with the other two commonly used agents, 
Metronidazole and Vancomycin.'' Further, the applicant stated that, 
``Despite Metronidazole and Vancomycin being utilized to treat C. 
difficile infection (CDI) and C. difficile-associated diarrhea (CDAD) 
for over 25 years, resistance has not been reported for either agent.'' 
Fifth, the applicant refers to the SHEA/IDSA guidelines noting that 
these ``specifically state that considering the high fecal 
concentrations achieved with oral Vancomycin, emergence of resistance 
is likely not a concern.'' The applicant then concluded that, 
``Fidaxomicin is similar in this regard given its extremely high fecal 
concentrations.'' and that, ``This indicates that the potential for 
resistance is extremely low when treating CDAD.''
    Response: We appreciate the applicant's response to our concerns 
from the proposed rule. We considered this information in our decision 
below on whether DIFICIDTM meets the substantial clinical 
improvement criterion.
    Comment: Several public commenters stated that Fidaxomicin meets 
the substantial clinical improvement criterion. One commenter noted, 
``In the past year, DIFICIDTM clinically has been invaluable 
in treating some of these more difficult cases. The drug has been well 
tolerated, and we have seen fewer patients with recurrence after 
therapy with DIFICIDTM * * * DIFICIDTM is 
revolutionary because it offers a significant advancement that we have 
not seen in previous CDI therapies: targeted therapy and reduced

[[Page 53358]]

recurrences.'' Another commenter expressed support for the literature, 
research, and data pertaining to the use of DIFICIDTM on its 
patients with C. difficile infections. The commenter added that it has 
had the opportunity to use DIFICIDTM on a few occasions thus 
far and has had very good outcomes, especially regarding the rapid 
improvement in symptoms.
    Response: We appreciate the commenters' input. After reviewing the 
totality of the evidence and the public comments we received, we agree 
with the commenters that DIFICIDTM (Fidaxomicin) represents 
a substantial clinical improvement over existing technologies. We 
believe that DIFICIDTM represents a treatment option with 
the potential to decrease hospitalizations and physician office visits, 
and reduce the recurrence of CDAD, as well as to improve the quality of 
life for patients who have been diagnosed with CDAD.
    Therefore, DIFICIDTM (Fidaxomicin) has met all three 
criteria for the new technology add-on payment policy and is eligible 
for new technology add-on payments in FY 2013. Cases of 
DIFICIDTM (Fidaxomicin) will be identified with ICD-9-CM 
diagnosis code 008.45 in combination with NDC code 52015-0080-01. 
Providers must code the NDC on the 837i Health Care Claim Institutional 
form (in combination with ICD-9-CM diagnosis code 008.45) in order to 
receive the new technology add-on payment. Further guidance will be 
issued after this final rule with how to code the NDC code on the 837i 
form. According to the applicant, the cost of DIFICIDTM 
(Fidaxomicin) is $2,800 for a 10-day dosage. The average cost per day 
for DIFICIDTM is $280 ($2,800/10). As discussed above, cases 
of DIFICIDTM (Fidaxomicin) within the inpatient setting 
typically incur an average dosage of 6.2 days, which results in an 
average cost per case for DIFICIDTM of $1,736 ($280 x 6.2). 
We note, as stated above in our discussion of the cost criteria, we are 
not using an average dosage of 6.5 days for DIFICIDTM 
because we prefer to rely on statistical data from the sample of 116 
claims that received DIFICIDTM rather than information based 
on multiple assumptions. However, the applicant is welcome to submit 
additional data for FY 2014 that demonstrate changes to the average 
dosage of 6.2 days (within the inpatient setting). Under Sec.  
412.88(a)(2), new technology add-on payments are limited to the lesser 
of 50 percent of the average cost of the technology or 50 percent of 
the costs in excess of the MS-DRG payment for the case. As a result, 
the maximum new technology add-on payment for FY 2013 for 
DIFICIDTM (Fidaxomicin) is $868.
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. In the proposed rule, we 
summarized this application. 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 applicant maintains that there are currently no FDA approved 
drug-eluting stents used for superficial femoral arteries. At the time 
of the proposed rule, the applicant expected to receive FDA approval 
for the stent in the second quarter of 2012. However, at the time of 
this final rule, the technology has still not received FDA approval. 
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 invited public comment regarding how the Zilver[supreg] PTX[supreg] 
meets the newness criterion.
    Comment: The applicant stated that it received a letter from the 
FDA indicating that the FDA's Center for Devices and Radiological 
Health considers the device to be ``approvable.'' The applicant added 
that it expects formal FDA approval before September 2012. With FDA 
approval imminent and expected before the implementation date of 
October 1, 2012, the applicant requested that the ``approvable'' letter 
from the FDA's Center for Devices and Radiological Health be allowed to 
serve as a proxy for FDA approval.
    Response: In accordance with Sec.  412.87(c) of the regulations, we 
require 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. Because the 
Zilver[supreg] PTX[supreg] is not approved by the FDA as of such date, 
we cannot consider this application for new technology add-on payments 
for FY 2013. Therefore, the Zilver[supreg] PTX[supreg] does not meet 
the newness criteria.
    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 
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

[[Page 53359]]

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.\30\ 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 80 mm 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.
---------------------------------------------------------------------------

    \30\ 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 invited public comment on whether or not the Zilver[supreg] 
PTX[supreg] meets the cost criterion. Additionally, we invited 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.
    Comment: We received several public comments regarding whether the 
Zilver[supreg] PTX[supreg] meets the cost criterion.
    Response: Because the Zilver[supreg] PTX[supreg] has not yet 
received FDA approval, and therefore, does not meet the newness 
criterion, as discussed above, it is not eligible for the IPPS new 
technology add-on payments for FY 2013. Therefore, we are not 
summarizing the details of these comments nor responding to them in 
this final rule.
    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 re-narrowing).
    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-

[[Page 53360]]

percent reduction compared to bare metal stents. The 12-month patency 
rate 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 \1\). 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.\31\
---------------------------------------------------------------------------

    \31\ 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 invited public comment regarding whether the Zilver[supreg] 
PTX[supreg] meets the substantial clinical improvement criterion.
    Comment: Several commenters commented on whether the Zilver[supreg] 
PTX[supreg] meets the substantial clinical improvement criterion.
    Response: Because the Zilver[supreg] PTX[supreg] has not yet 
received FDA approval, and therefore, does not meet the newness 
criterion, as discussed above, it is not eligible for IPPS new 
technology add-on payments for FY 2013. Therefore, we are not 
summarizing the details of these public comments or responding to them 
in this final rule 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. In the proposed rule, we summarized this application. 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 final policy which reassigns procedure code 
39.78 from MS-DRG 252, 253, and 254 to MS-DRGs 237 and 238. We invited 
public comment regarding whether the Zenith[supreg] F. Graft meets the 
newness criterion for new technology add-on payment.
    We did not receive any public comments regarding whether the 
Zenith[supreg] F. Graft meets the newness criterion. However, because 
the Zenith[supreg] F. Graft was approved by the FDA on April 4, 2012, 
we believe the Zenith[supreg] F. Graft meets the newness criterion as 
of that date.
    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. 
We note that in the proposed rule the applicant believed that it met 
the cost criteria since it demonstrated that the case weighted average 
charge per case exceeded the threshold for MS-DRGs 252-254 since at 
that time procedure code 39.78 was assigned to MS-DRG 252-254. However, 
as mentioned above, in this final rule we have reassigned procedure 
code 39.78 from MS-DRG 252-254 to MS-DRGs 237-238. Therefore, for this 
final rule, in order for the applicant to meet the cost criteria, it 
must demonstrate that the case weighted average standardized charge per 
case exceeds the thresholds for MS-DRGs 237-238.
    The applicant submitted clinical trial data \32\ which 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.
---------------------------------------------------------------------------

    \32\ 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

[[Page 53361]]

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. In the proposed rule, the applicant used the FY 2013 Table 
10 thresholds for MS-DRGs 252, 253, and 254 and determined a case-
weighted threshold of $53,869 (all calculations above were performed 
using unrounded numbers). Because the final case-weighted average 
standardized charge per case for MS-DRGs 252, 253, and 254 exceeds the 
case-weighted threshold amount, the applicant maintained that the 
Zenith[supreg] F. Graft met the cost criterion for new technology add-
on payments. As noted above, for this final rule the applicant must 
demonstrate that it meets the cost criteria for MS-DRGs 237 and 238. 
The thresholds for MS-DRGs 237 and 238 are $101,728 and $69,591, 
respectively. If the applicant compared the final case-weighted average 
standardized charge per case of $122,821 (under MS-DRGs 252, 253, and 
254) to the highest threshold for MS-DRGs 237 and 238 ($101,728), it 
would still exceed the threshold in excess of $20,000. Therefore, under 
this analysis the applicant would meet the cost criterion since the 
final case-weighted average standardized charge per case would exceed 
the threshold under MS-DRGs 237 and 238.
    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. 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). 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 237 and 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.
    For its 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 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

[[Page 53362]]

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. In the proposed rule, we noted that while the 
applicant removed charges for the vascular graft for open procedures, 
we were 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.
    Comment: In response to our concerns, the applicant took the 
following steps to demonstrate that the Zenith[supreg] F. Graft meets 
the cost criterion under the second analysis. The applicant first 
determined the average hospital length of stay (LOS), ICU time and OR 
time for open AAA repairs versus fenestrated AAA repairs. The applicant 
researched several peer reviewed studies that contain data for OR time, 
LOS and ICU time for open procedures. Based on these studies, the 
applicant calculated a weighted average for each of these measures. The 
weighted average was a LOS of 9.53 days, 4.07 ICU days, and 261 minutes 
of OR time.
    The applicant used clinical trial data to determine the average OR 
time, LOS, and ICU time for AAA fenestrated procedures. Based on Cook's 
clinical trial data,\33\ the applicant determined an average LOS of 3.5 
days and ICU time of 0.5 days for AAA fenestrated procedures. To 
determine the amount of OR minutes, the applicant used literature from 
eight studies including the Cook clinical trial data and determined a 
weighted average of 235 OR minutes. The applicant noted that the 
reported hospital LOS and ICU length of stay for fenestrated procedures 
from outside the United States is significantly longer than those 
experienced in the study in the United States. Because the applicant 
believed that the standard of care related to length of hospital stay 
and ICU stay from European experience are dissimilar to practices 
within the United States, it only used data from the Cook clinical 
trial rather than other clinical trial data (which included data from 
Europe) to determine the average for ICU days and LOS.
---------------------------------------------------------------------------

    \33\ 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.
---------------------------------------------------------------------------

    The applicant then calculated the percentage savings or rate of 
savings for the OR time, LOS and ICU time with the following formula: 
(open procedure minutes or days--fenestrated minutes or days)/open 
procedure minutes or days. This resulted in savings of 9.96 percent for 
OR minutes, 87.71 percent for ICU days, and 63.27 percent for LOS days. 
The applicant then applied the savings at a claim level by applying the 
rate of savings to the service charge categories from the MedPAR data 
(rate of savings * open device service charge category). Savings of 
9.96 percent for OR time was applied to Service Category 12 (which 
contains OR charges for revenue centers 36X, 71X and 72X), savings of 
87.71 percent for ICU days was applied to Accommodation Charge Category 
4 (which includes total ICU charges), and savings of 63.27 percent for 
LOS was applied to Accommodation Charge Category 1 (which includes 
standard room charges). To determine the case-weighted average 
standardized charge per case, the applicant deducted the reduced 
charges (savings) from the case-weighted average charge per case 
($81,769), which resulted in a revised case-weighted average charge per 
case of $66,206. The applicant then inflated the revised case-weighted 
average charge per case by 4 percent (based on data from the BLS' 
Consumer Price Index), which resulted in an inflated case weighted 
average charge per case of $68,854. Next, the applicant 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 $106,731. 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 revised second analysis, the applicant maintains that 
the Zenith[supreg]F. Graft Meets the Cost Criterion for New Technology 
Add-On Payments.
    Response: We appreciate the applicant's response and submittal of 
this supplemental analysis, which addresses our concerns from the 
proposed rule.
    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 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.

[[Page 53363]]

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.
    In the proposed rule, similar to our concerns with the second 
analysis, we were 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.
    Comment: The applicant applied the same analysis above and deducted 
the reduced charges (savings) for OR time, LOS, and ICU days from the 
case-weighted average charge per case ($80,948), which resulted in a 
revised case-weighted average charge per case of $39,756. The applicant 
then inflated the revised case-weighted average charge per case by 4 
percent (based on data from the BLS' Consumer Price Index), which 
resulted in an inflated case-weighted average charge per case of 
$41,346. 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 $82,497. 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 in this 
revised second analysis, the applicant maintains that the 
Zenith[supreg] F. Graft meets the cost criterion for new technology 
add-on payments.
    Response: We thank the commenter for submitting this supplemental 
analysis which addresses our concerns from the proposed rule.
    We appreciate the multiple analyses of the FY 2010 MedPAR data 
provided by the applicant and as stated above we believe the commenter 
has addressed our concerns from the proposed rule. Therefore, we 
believe that the Zenith[supreg] F. Graft meets the cost criterion for 
new technology add-on payments.
    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 \34\ 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.\35\ 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).\36\ 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.\37\
---------------------------------------------------------------------------

    \34\ 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.
    \35\ Jongkind V, Yeung K, et al. Juxtarenal aortic aneurysm 
repair. Journal of Vascular Surgery 2010 Sept; 29(3) 760-767.
    \36\ 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.
    \37\ 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)) 38,39,40,41,42,43,44,45,46 reported for 
fenestrated EVAR repairs versus 2.9 percent (range 0 to 7.4 percent) 
47,48 reported for open repair of juxtarenal AAA); 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

[[Page 53364]]

of 537 ml, compared to 2586 ml for open repair of juxtarenal AAA.
---------------------------------------------------------------------------

    \38\ 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.
    \39\ 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.
    \40\ 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.
    \41\ Amiot, S., et al., Fenestrated endovascular grafting: the 
French multicentre experience. Eur J Vasc Endovasc Surg, 2010. 
39(5): p. 537-44.
    \42\ Kristmundsson T, Sonesson B, Malina M, et al. Fenestrated 
endovascular repair for juxtarenal aortic pathology. J Vasc Surg 
2009;49:568-574.
    \43\ 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.
    \44\ 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.
    \45\ 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.
    \46\ Unpublished results, British Society of Endovascular 
Therapy-sponsored GlobalStar Collaborative Study.
    \47\ Jongkind V, Yeung K, et al. Juxtarenal aortic aneurysm 
repair. J. Vasc. Surg. 2010 Sept; 29(3) 760-767.
    \48\ 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.
---------------------------------------------------------------------------

    In the proposed rule, we noted that the information provided by the 
applicant to evaluate substantial clinical improvement compares this 
technology to open surgical repair. We expressed concern that the 
applicant did 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 
were 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 were 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 invited public 
comment on whether or not the Zenith[supreg] F. Graft meets the 
substantial clinical improvement criterion.
    Comment: The applicant responded to our concerns from the proposed 
rule by submitting a public comment with supplemental information. With 
respect to the concern that the applicant did not compare the 
technology to medical management which the applicant listed as a 
treatment option (in addition to an open procedure), the applicant 
cited the FDA indications of the device and noted that while the 
application referred to medical management it was not intended to 
suggest that medical management was a reasonable alternative treatment 
option for AAAs at heightened risk of rupture. Therefore, the applicant 
assumed that medical management had already been maximized in the 
patients' treatment regimen and that some type of surgical intervention 
was necessary to treat the aneurysm and prevent rupture. Additionally, 
the applicant further explained that in its application, prior to the 
Zenith[supreg] F. Graft, surgery was considered the most appropriate 
option for patients who have a suitably large aneurysm. However, 
certain patient factors may prevent surgical intervention including 
anatomical limitations that prevent the use of current endovascular 
stents or the patient's attendant comorbidities may alter the risk/
benefit equation so that surgery is not a viable option. As a result, 
the applicant stated that medical management represented the default 
treatment and at risk of aneurysm rupture but is still considered 
inferior to a definitive surgical intervention. The applicant concluded 
that it is for these patients that the Zenith[supreg] F. Graft was 
developed.
    The applicant also cited clinical data that demonstrated little 
improvement has been achieved in the survival rates of patients who do 
not undergo a surgical intervention for their aneurysm (because the 
aneurysm may rupture) in contrast to the published series on 
fenestrated repair, which has indicated low 30-day mortality rates. 
Therefore, the applicant believed that surgical intervention with the 
Zenith[supreg] F. Graft is considered a suitable treatment for a 
patient population (where a surgical intervention was not an option 
prior to the Zenith[supreg] F. Graft) when considering the potential 
risk and benefit of the procedure.
    The applicant also responded to the concern that there is a lack of 
data on long term complications and secondary interventions or re-
interventions. The commenter noted that Mastracci et al presented at 
the 2012 Society of Vascular Surgery annual meeting on the durability 
of branched and fenestrated endografts reported that 650 patients 
underwent endovascular aortic repair with branched or fenestrated 
devices at the Cleveland Clinic. Approximately one-third of these 
patients underwent a fenestrated AAA repair; the balance were branched 
thoracoabdominal and thoracic aortic aneurysm repairs. Through 9 years 
of follow-up (with a mean of 3 years), secondary procedures were 
performed for 0.6 percent of celiac, 4 percent of SMA, 6 percent of 
right renal, and 5 percent of left renal arteries. The average time to 
reintervention was 237 days and the 30 days, 1 year and 5 year freedom 
from any intervention was 98 percent, 94 percent, and 84 percent, 
respectively. Death resulted from branch stent complications in only 
two patients (related to SMA thrombosis). Mastracci et al concluded 
that branches, following branched or fenestrated aortic repair, appear 
to be durable, and are rarely the cause of patient death; the absence 
of long-term data on the branch patency in open repair precludes 
comparison, yet the lower morbidity and mortality risk coupled with 
longer-term durability data will further alter the balance of repair 
options. The applicant noted that this conclusion is consistent with 
the applicant's conclusion.
    Finally, in response to the concern that the studies conducted were 
non randomized, did not differentiate between patients by infrarenal 
neck length and/or suitability for other endovascular grafts and were 
of non inferiority, the commenter responded that a randomized test was 
not conducted because it was anticipated that the clinical trial 
conducted for FDA registration would primarily enroll high risk 
patients in whom open surgical repair would present an unacceptably 
high risk of operative mortality. The applicant stated that this 
precluded a randomized study design. With regard to the concern about 
not considering other endovascular graft options, the applicant 
explained that the shortest FDA-approved neck length indication of an 
available standard AAA graft is >10 mm (IFU--Medtronic Endurant 
Endovascular Graft). The Zenith[supreg] F. Graft is designed to treat 
neck lengths of >=4 mm, and there is no other endovascular graft 
available in the USA indicated to treat such short neck lengths. The 
applicant also clarified that the study of non-inferiority was for the 
IDE clinical study performed for FDA approval. One of the study's goals 
was to show non-inferiority in 6-month treatment success, comparing 
matched patients treated with a standard Zenith AAA Endovascular Graft 
(used to treat AAAs anatomically suited for treatment) with patients 
treated with a standard endovascular device. The purpose was to 
demonstrate that the Zenith[supreg] F. Graft could offer a treatment 
option to patients with a juxtarenal AAA that was not worse than the 
well-established treatment success experienced with a standard AAA 
endovascular graft when used to treat patients anatomically suited for 
a standard device (not when using a standard AAA graft to treat a 
short-necked, juxtarenal aneurysm). The applicant concluded that for 
this device, this intended patient population, and this comparator a 
non-inferiority design is a valid study design demonstrating non-
inferiority to the high standard of success experienced in standard AAA 
endovascular repair and provides compelling evidence of Zenith[supreg] 
F. Graft's effectiveness.
    Response: We appreciate the applicant's response in regard to our 
concerns presented in the proposed rule. We agree that the 
Zenith[supreg] F. Graft represents a substantial clinical improvement 
over existing technologies because it offers a treatment option to a 
patient population that would otherwise require an open procedure or a 
treatment option to those patients who are ineligible for an open 
procedure. The Zenith[supreg] F. Graft offers a less invasive treatment 
option compared to an open procedure which results in reduced 
mortality, reduced morbidity, shorter hospital stays and less operative 
blood loss.
    Comment: Other commenters were concerned that the Zenith[supreg] F. 
Graft may

[[Page 53365]]

not meet the substantial clinical criterion because of the concerns 
expressed by CMS in the proposed rule.
    Response: As discussed above, the applicant has responded to our 
concerns and we agree that the Zenith[supreg] F. Graft meets the 
substantial clinical improvement criterion.
    Based on the discussion above, the Zenith[supreg] F. Graft meets 
all of the new technology add-on payment policy criteria. Therefore, we 
are approving the Zenith[supreg] F. Graft for new technology add-on 
payments in FY 2013. Cases involving the Zenith[supreg] F. Graft that 
are eligible for new technology add-on payments will be identified by 
ICD-9-CM procedure code 39.78. In the application, the applicant 
provided a breakdown of the costs of the Zenith[supreg] F. Graft. The 
total cost of the Zenith[supreg] F. Graft utilizing bare metal (renal) 
alignment stents was $17,264. Of the $17,264 in costs for the 
Zenith[supreg] F. Graft, $921 are for components that are used in a 
standard Zenith AAA Endovascular Graft procedure. Because the costs for 
these components are already reflected within the MS-DRGs (and are no 
longer ``new''), we do not believe it is appropriate to include these 
costs in our determination of the maximum cost to determine the add-on 
payment for the Zenith[supreg] F. Graft. Therefore, the total maximum 
cost for the Zenith[supreg] F. Graft is $16,343 ($17,264 - $921). Under 
Sec.  412.88(a)(2), 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 Zenith[supreg] F. 
Graft is $8,171.50.

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

A. Background

    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary must adjust the standardized amounts ``for area differences 
in hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level.'' In 
accordance with the broad discretion conferred under the Act, we 
currently define hospital labor market areas based on the delineations 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the FY 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 adjustment for FY 2013 is 
discussed in section II.B. of the Addendum to this final rule.
    As discussed below in section III.H. of this preamble, we also take 
into account the geographic reclassification of hospitals in accordance 
with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating 
IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the 
Secretary is required to adjust the standardized amounts so as to 
ensure that aggregate payments under the IPPS after implementation of 
the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the 
Act are equal to the aggregate prospective payments that would have 
been made absent these provisions. The budget neutrality adjustment for 
FY 2013 is discussed in section II.A.4.b. of the Addendum to this final 
rule.
    Section 1886(d)(3)(E) of the Act also provides for the collection 
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index. A 
discussion of the occupational mix adjustment that we are applying 
beginning October 1, 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 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 proposed to use the same labor market 
areas that we used for the FY 2012 wage index (76 FR 51581).
    We did not receive any public comments on the use of labor market 
areas for the FY 2013 wage index. Therefore, we are finalizing, for FY 
2013, the use of the same labor market areas that we used for the FY 
2012 wage index.

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

    The FY 2013 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).

[[Page 53366]]

1. Included Categories of Costs
    The FY 2013 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 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 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 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 June 27, 
2012. As in past years, we performed an extensive 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 were too aberrant to include in the proposed wage index, although 
we stated that if data elements for some of these providers are 
corrected, we intended to include some of these providers in the FY 
2013 final wage index. We have received corrected data for 8 providers, 
and therefore, we are including the data for these 8 providers in the 
FY 2013 final wage index. However, we also have determined that the 
data for 14 additional providers are too aberrant to include in the FY 
2013 final wage index. Thus, in total we are excluding the data of 38 
providers from the FY 2013 final wage index.
    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 the 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. However, after the issuance of the proposed rule, we 
have learned that one provider which we believed was a CAH actually is 
an IPPS hospital with valid wage data for FY 2013. Therefore, we have 
added that provider's wage data for purposes of the FY 2013 final wage 
index. Accordingly, for this final rule, we removed the data of only 6 
(not 7) hospitals that have converted to CAH status between February 
15, 2011 and February 14, 2012. After removing hospitals with aberrant 
data and hospitals that converted to CAH status, the FY 2013 final wage 
index is calculated based on 3,447 hospitals.
    For the FY 2013 final 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 wage index associated with this final rule 
(available on the CMS Web site) includes separate wage data for the 
campuses of four multicampus hospitals.

E. Method for Computing the FY 2013 Unadjusted Wage Index

    The method used to compute the FY 2013 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 as we 
proposed, we are not making 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 53367]]



                    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 national average hourly wage (unadjusted for 
occupational mix) is $37.4855. The Puerto Rico overall average hourly 
wage (unadjusted for occupational mix) is $15.8643.

F. 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 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 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.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/AcuteInpatientPPS/WIFN/list.asp 
and through the fiscal intermediaries/MACs. Hospitals were required to 
submit their completed 2010 surveys to their fiscal intermediaries/MACs 
by July 1, 2011. The preliminary, unaudited 2010 survey data will be 
released in early October 2012, along with the FY 2010 Worksheet S-3 
wage data, for the FY 2014 wage index review and correction process.
2. Calculation of the Occupational Mix Adjustment for FY 2013
    For FY 2013, we calculated 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 occupational mix adjusted national average hourly wage is 
$37.4608. The FY 2013 occupational mix adjusted Puerto Rico-specific 
average hourly wage is $15.9019.
    Because the occupational mix adjustment is required by statute, all 
hospitals that are subject to payments under the IPPS, or any hospital 
that would be subject to the IPPS if not granted a waiver, must 
complete the occupational mix survey, unless the hospital has no 
associated cost report wage data that are included in the FY 2013 wage 
index. For the FY 2010 survey, the response rate was 91.7 percent. In 
the FY 2013 wage index established in this final 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 rule and final rule (75 FR 
23943 and 75 FR 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.

G. Analysis and Implementation of the Occupational Mix Adjustment and 
the 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 
apply the occupational mix adjustment to 100 percent of the FY 2013 
wage index. We calculated the final 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 national average hourly wage of $37.4608 and a Puerto-Rico 
specific average hourly wage of $15.9019. 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 FY 2013 wage index, we 
calculated the FY 2013 wage index using the occupational mix survey 
data from 3,192 hospitals. Using the Worksheet S-3, Parts II and III, 
cost report data of 3,447 hospitals and occupational mix survey data 
from 3,192 hospitals represents a 92.6 percent survey response rate. 
The 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............................................     37.435806262
National LPN and Surgical Technician...................     21.779745192
National Nurse Aide, Orderly, and Attendant............     15.334363984
National Medical Assistant.............................     17.232523608

[[Page 53368]]

 
National Nurse Category................................     31.852574284
------------------------------------------------------------------------

    The national average hourly wage for the entire nurse category as 
computed in Step 5 of the occupational mix calculation is 
$31.852574284. 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 43.47 
percent, and the national percentage of hospital employees in the all 
other occupations category is 56.53 percent. At the CBSA level, the 
percentage of hospital employees in the nurse category ranged from a 
low of 21.9 percent in one CBSA, to a high of 62.0 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 189 (48.3 percent) urban areas and 14 (29.2 
percent) rural areas will increase. Fifty three (13.6 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 199 (50.9 percent) 
urban areas and 34 (70.8 percent) rural areas will decrease using the 
2010 data. Sixty-three (16.1 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 4.34 
percent for an urban area and 3.20 percent for a rural area. The 
largest negative impacts are 4.91 percent for an urban area and 2.26 
percent for a rural area. Three urban areas and no rural areas will be 
unaffected. These results indicate that the wage indices of more CBSAs 
overall (53.1 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 
(48.3 percent) will benefit from the 2010 occupational mix survey as 
compared to the 2007-2008 survey than will rural areas (29.2 percent).
    We compared the FY 2013 occupational mix adjusted wage indices for 
each CBSA to the unadjusted wage indices for each CBSA. As a result of 
applying the occupational mix adjustment to the wage data, the wage 
index values for 206 (52.7 percent) urban areas and 34 (70.8 percent) 
rural areas will increase. One hundred fifteen (29.4 percent) urban 
areas will increase by 1 percent or more, and 3 (0.77 percent) urban 
areas will increase by 5 percent or more. Fourteen (29.2 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 185 
(47.3 percent) urban areas and 14 (29.2 percent) rural areas will 
decrease. Eighty-one (20.7 percent) urban areas will decrease by 1 
percent or more, and one urban area will decrease by 5 percent or more 
(0.26 percent). Seven (14.6 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 are 6.68 percent for an urban area and 
2.62 percent for a rural area. The largest negative impacts are 5.26 
percent for an urban area and 3.14 percent for a rural area. No urban 
or rural areas are unaffected. These results indicate that a larger 
percentage of rural areas (70.8 percent) will benefit from the 
occupational mix adjustment than do urban areas (52.7 percent). While 
these results are more positive overall for rural areas than under the 
previous occupational mix adjustment that used survey data from 2007-
2008, almost one-third (29.2 percent) of rural CBSAs will 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, we estimated that 393 hospitals would 
receive an increase in their FY 2013 proposed wage index due to the 
application of the rural floor. In the FY 2013 final wage index 
associated with this final rule and available on the CMS Web site, 454 
hospitals are receiving an increase in their FY 2013 wage index due to 
the application of the rural floor.
    Comment: We did not make any proposals in the FY 2013 proposed rule 
pertaining to the rural floor. However, several commenters opposed the 
application of the national budget neutrality adjustment for the rural 
floor. The commenters noted our discussion of the impacts of the policy 
in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28170 through 28172) 
and, in particular, the table in the Addendum at 77 FR 28171 shows 
Massachusetts would receive significant extra IPPS payments alone for 
FY 2013, due, in part, to this policy. The commenters opined that the 
national rural floor budget neutrality policy ``unfairly skews Medicare 
payments, reducing payments to thousands of hospitals across the nation 
while benefitting a few dozen hospitals in one State.'' The commenters 
requested that CMS reassess the national rural floor budget neutrality 
provision and recommended that CMS reverse the provision.
    Response: As discussed above, the national rural floor budget 
neutrality adjustment for the IPPS is required by section 3141 of 
Public Law 111-148.
b. Imputed Floor and 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, the last of which 
was adopted in the FY 2012 IPPS/LTCH PPS final rule and is 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

[[Page 53369]]

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 
specified in our regulations at 42 CFR 412.64(h)(4). In computing the 
imputed floor for an all-urban State, 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 for all-urban States 
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. Because 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, but not for 
Rhode Island.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27950), for the 
FY 2013 wage index, the final year of the extension of the imputed 
floor policy under Sec.  412.64(h)(4), we proposed 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. We proposed that this proposed 
alternative methodology for calculating the imputed floor would be 
established using data from the application of the rural floor policy 
for FY 2013. We proposed that 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 the proposed rule and available 
on the CMS Web site included 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 proposed 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 did not propose any 
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 proposed 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 stated 
that we intended 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.
    Comment: A few commenters addressed our proposal for an 
alternative, temporary methodology for calculating the imputed floor. 
Some of the commenters supported the proposal. One commenter also urged 
CMS to adopt the alternative methodology for 3 consecutive fiscal years 
rather than the proposed 1-year period. Another commenter, a State 
hospital association, urged CMS to make the imputed floor a permanent 
policy in the FY 2013 final rule. Two State hospital associations 
opposed the proposal. One association agreed with the rationale that 
CMS had previously provided in the FY 2012 IPPS/LTCH PPS proposed rule 
(76 FR 25878 through 25879) for not proposing to extend the imputed 
floor policy. The association urged CMS to allow the imputed floor 
policy to expire and not to finalize the proposed alternative 
methodology that would allow additional hospitals to benefit from the 
imputed floor. Another association suggested that CMS should provide 
additional information and consider the effects on all States, not just 
the benefits that may apply to one or two specific States. 
Additionally, the national hospital association stated that it would be 
premature for it to comment on the proposal at this time due to its 
ongoing analysis of wage index reform.
    Response: As discussed above and in the FY 2013 IPPS/LTCH PPS 
proposed rule, we proposed the alternative methodology for only the one 
remaining year of the imputed floor policy, which expires on September 
30, 2013. We made no proposal for extending the general imputed floor 
policy beyond FY 2013; therefore, we do not agree with the suggestion 
to adopt a final policy that would extend the alternative, temporary 
policy for 3 years, beyond FY 2013. As proposed, we are adopting as 
final for the FY 2013 wage index the alternative, temporary methodology 
for computing the imputed floor wage index, as well as the proposal to 
amend Sec.  412.64(h)(4) to add new paragraphs (v)(A) and (B) to 
incorporate the alternative methodology. In addition, as we stated 
above, we plan to further evaluate the need, applicability, and 
methodology for the imputed floor policy and will address these issues 
in the FY 2014 proposed rule.
    The wage index and impact tables associated with this FY 2013 final 
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 will receive an increase in their FY 2013 wage index 
due to the imputed floor policy. The wage index and impact tables for 
this final rule also reflect the application of the second alternative 
methodology for computing the imputed floor, which will 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 wage index are receiving the frontier State wage index: 
Montana, North Dakota, South Dakota, and Wyoming; 45 providers in these 
States are receiving the frontier floor value of 1.0000 in the FY 2013 
wage index associated with this final 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 rural floor value of 1.0256 is greater 
than the frontier floor value (that is, 1.0000) and, therefore, is the 
State's minimum wage index for FY 2013.
    We did not receive any public comments on the frontier floor 
policy.
    The areas affected by the rural, imputed, and frontier floor 
policies for the FY 2013 wage index are identified in Table 4D 
associated with this final rule and available on the CMS Web site.
3. FY 2013 Wage Index Tables
    The wage index values for FY 2013 (except those for hospitals 
receiving wage index adjustments under section 1886(d)(13) of the Act), 
included in

[[Page 53370]]

Tables 4A, 4B, 4C, and 4F, available on the CMS Web site, include the 
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 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 average hourly wages in Tables 2, 3A, 
and 3B, which are available on the CMS Web site, include the 
occupational mix adjustment. The wage index values in Tables 4A, 4B, 
4C, and 4D also include the national rural and imputed floor budget 
neutrality adjustment. The wage index values in Table 2 also include 
the out-migration 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 
proposed, and are adopting, 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 final rule was constructed, the MGCRB had 
completed its review of FY 2013 reclassification requests. Based on 
such reviews, there were 193 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 265 hospitals approved for wage index 
reclassifications in FY 2011, and 205 hospitals approved for wage index 
reclassifications in FY 2012. Of all the hospitals approved for 
reclassification for FY 2011, FY 2012, and FY 2013, based upon the 
review at the time of this final rule, 663 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 are incorporated 
into the wage index values published in this 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://www.cms.gov/Regulations-and-Guidance/Review-Boards/MGCRB/index.html?redirect=/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

[[Page 53371]]

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 were permitted to compare the 
reclassified wage index for the labor market area in Table 4C 
associated with the proposed rule (which was 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 could have withdrawn from an MGCRB 
reclassification within 45 days of the publication of the 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 FR 47337) for a discussion of this policy.)
5. Reclassifications Under Section 508 of Pub. L. 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 
(77 FR 23722). 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 
extended 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. Section 508 reclassifications and certain 
special exceptions have not been extended for FY 2013. Therefore, the 
FY 2013 wage index associated with this final rule does not reflect any 
section 508 reclassifications or special exception wage indices.
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 \49\) 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.
---------------------------------------------------------------------------

    \49\ 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.
7. Cancellation of Acquired Rural Status Due to MDH Expiration
    As we discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50286 and 50287) and in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51683 through 51684), section 3124 of the Affordable Care Act extended 
the MDH program from the end of FY 2011 (for discharges occurring 
before October 1, 2011) to the end of FY 2012 (for discharges occurring 
before October 1, 2012). Accordingly, beginning with FY 2013, there 
will no longer be an MDH designation, and those hospitals that were 
formerly MDHs will be paid based solely on the Federal rate.
    Comment: Several commenters requested CMS to permit hospitals to 
revisit any geographic reclassification decisions that would impact 
their ability to qualify for MDH status in the event that the Congress 
extends the MDH program. In particular, in anticipation of the 
September 30, 2012 expiration of the MDH program, the commenters stated 
that some urban hospitals that became rural under section 1886(d)(8)(E) 
of the Act in order to qualify for MDH status had canceled their rural 
status so that they could instead receive their urban area wage index 
or reclassify for a higher wage index under section 1886(d)(10) of the 
Act for FY 2013. The commenters further stated that if the MDH program 
is extended, such hospital would no longer be qualified for MDH status 
because the hospital is no longer a rural provider.
    Response: Although we understand the commenters' concerns, we 
believe it would be imprudent for CMS in this FY 2013 final rule to 
revise existing Medicare regulations and procedural rules around 
actions that the Congress may take in the future. If legislation is 
passed to continue the MDH program, CMS will develop policies and 
procedures to implement the specific provisions of such legislation.

I. 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

[[Page 53372]]

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 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 wage index.
    We did not receive any public comments on our proposals for the 
out-migration adjustment for FY 2013.

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.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/AcuteInpatientPPS/WIFN/list.asp.
    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.gov/Outreach-and-Education/Outreach/OpenDoorForums/index.html.
    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 
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 disagreed with the fiscal intermediary's (or, if 
applicable, the MAC's) policy interpretations was April 18, 2012.
    Hospitals were given the opportunity to examine Table 2, which was 
listed in section VI. of the Addendum to the proposed rule and 
available on the CMS Web site at: http://www.cms.gov. Table 2 contained 
each hospital's adjusted average hourly wage used to construct the wage 
index values for the past 3 years, including the FY 2009 data used to 
construct the proposed FY 2013 wage index. We noted that the hospital 
average hourly wages shown in Table 2 only reflected changes made to a 
hospital's data that were transmitted to CMS by March 2, 2012.
    We released the final wage index data public use files in early May 
2012 on the Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/
AcuteInpatientPPS/WIFN/list.asp. The May 2012 public use files were 
made available solely for the limited purpose of identifying any 
potential errors made by CMS or the fiscal intermediary/MAC in the 
entry of the final wage index data that resulted from the correction 
process described above (revisions submitted to CMS by the fiscal 
intermediaries/MACs by April 11, 2012). If, after reviewing the May 
2012 final public use files, a hospital believed that its wage or 
occupational mix data were incorrect due to a fiscal intermediary/MAC 
or CMS error in the entry or tabulation of the final data, the hospital 
had to send a letter to both its fiscal intermediary/MAC and CMS that 
outlined why the hospital believed an error existed and provided all 
supporting information, including relevant dates (for example, when it 
first became aware of the error). CMS and the fiscal intermediaries 
(or, if applicable, the MACs) had to receive these requests no later 
than June 4, 2012.
    Each request also had to be sent to the fiscal intermediary/MAC. 
The fiscal intermediary/MAC reviewed requests upon receipt and 
contacted CMS immediately to discuss any findings.
    After the release of the May 2012 wage index data files, changes to 
the wage and occupational mix data were only made in those very limited 
situations involving an error by the fiscal intermediary/MAC or CMS 
that the hospital could not have known about before its review of the 
final wage index data files. Specifically, neither the fiscal 
intermediary/MAC nor CMS approved the following types of requests:
     Requests for wage index data corrections that were 
submitted too late to be included in the data transmitted to

[[Page 53373]]

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) 
were incorporated into the final wage index in this 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 did not meet the procedural deadlines set forth above 
will not be afforded a later opportunity to submit wage index data 
corrections or to dispute the fiscal intermediary's (or, if applicable, 
the MAC's) decision with respect to requested changes. Specifically, 
our policy is that hospitals that do not meet the procedural deadlines 
set forth above will not be permitted to challenge later, before the 
Provider Reimbursement Review Board, the failure of CMS to make a 
requested data revision. (See W. A. Foote Memorial Hospital v. Shalala, 
No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v. 
Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY 
2000 IPPS final rule (64 FR 41513) for a discussion of the parameters 
for appeals to the PRRB for wage index data corrections.
    Again, we believe the wage index data correction process described 
above provides hospitals with sufficient opportunity to bring errors in 
their wage and occupational mix data to the fiscal intermediary's (or, 
if applicable, the MAC's) attention. Moreover, because hospitals 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 availed themselves of the opportunities afforded to provide 
and make corrections to the wage and occupational mix data, the wage 
index implemented on October 1 should be accurate. Nevertheless, in the 
event that errors are identified by hospitals and brought to our 
attention after June 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 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 situations where our policies 
would allow midyear corrections other than those specified in 42 CFR 
412.64(k)(2)(ii), we continue to believe that it is appropriate to make 
prospective-only corrections to the wage index.
    We note that, as with prospective changes to the wage index, the 
final retroactive correction will be made irrespective of whether the 
change increases or decreases a hospital's payment rate. In addition, 
we note that the policy of retroactive adjustment will still apply in 
those instances where a judicial decision reverses a CMS denial of a 
hospital's wage index data revision request.

K. Labor-Related Share for the FY 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

[[Page 53374]]

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 final rule, as we proposed, we are not making 
any further changes to the national average proportion of operating 
costs that are attributable to wages and salaries, fringe benefits, 
contract labor, the labor-related portion of professional fees, 
administrative and business support services, and all other labor-
related services (previously referred to in the FY 2002-based IPPS 
market basket as labor-intensive).
    We did not receive any public comments on the application of the 
labor-related share to the wage index for FY 2013. Therefore, for FY 
2013, we are continuing 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 final rule 
and available via the Internet, reflect this labor-related share. We 
note that section 403 of Public Law 108-173 amended sections 
1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the 
Secretary must employ 62 percent as the labor-related share unless this 
employment ``would result in lower payments to a hospital than would 
otherwise be made.'' Therefore, for all IPPS hospitals whose wage 
indices are less than 1.0000, we are applying the wage index to a 
labor-related share of 62 percent of the national standardized amount. 
For all IPPS hospitals whose wage indices are greater than 1.0000, we 
are applying the wage index to a labor-related share of 68.8 percent of 
the national standardized amount.
    For Puerto Rico hospitals, the national labor-related share is 62 
percent because the national wage index for all Puerto Rico hospitals 
is less than 1.0. As we proposed in the FY 2013 proposed rule, we are 
continuing to use a labor-related share for the Puerto Rico-specific 
standardized amounts of 62.1 percent for discharges occurring on or 
after October 1, 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 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 final rule and available via the Internet.

IV. Other Decisions and 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 applicable hospitals may 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)(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 finalizing policies to implement the statutory

[[Page 53375]]

provisions related to the definition of ``base operating DRG payment 
amount'' in this FY 2013 IPPS/LTCH PPS final 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,'' this 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 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 the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27956), we 
proposed to codify this definition of ``applicable conditions'' in the 
regulations we proposed at 42 CFR 412.152.
    Comment: One commenter stated that the Hospital Readmissions 
Reduction Program measures were not reviewed by the Measure Application 
Partnership (MAP) in 2011. The commenter urged CMS to coordinate MAP 
review of the Hospital Readmissions Reduction Program and related 
measures.
    Response: We thank the commenter for the suggestion. The three 
measures

[[Page 53376]]

to be used in the Hospital Readmissions Reduction Program were 
finalized in the FY 2012 IPPS/LTCH Final Rule posted at the Office of 
the Federal Register on August 1, 2011, which pre-dated the requirement 
and establishment of the pre-rulemaking process as described under 
section 3014(b) of the Affordable Care Act, which amended section 1890A 
of the Act. This provision of the Affordable Care Act requires the 
Secretary to submit measures to a multi-stakeholder group, currently 
the Measure Application Partnership (MAP) for pre-rulemaking review. 
CMS established this pre-rulemaking process in December 2011. Because 
the statutory language at section 1886(q)(1) of the Act, as amended by 
section 3025 of the Affordable Care Act, refers to FY 2013 ``and 
subsequent Fiscal Years'' but authorizes expansion of the conditions 
(and hence measures) to be used in the program beginning with FY 2015, 
we believe the statute implies that the measures adopted for use in FY 
2013 would also be used in FY 2014. In the future, if we consider 
proposing any new measures for future expansion of the Hospital 
Readmissions Reduction Program beyond these three measures, which we 
have the authority to do beginning with in FY 2015, we plan to submit 
them to the MAP for pre-rulemaking review.
    Comment: Several commenters expressed concerns that the Hospital 
Readmissions Reduction Program may induce unintended consequences of 
overcrowding hospital emergency departments, as hospitals may believe 
they are compelled to avoid readmitting patients.
    Response: We recognize that performance-based payment penalty or 
incentive programs may have the potential for unintended consequences. 
We are committed to monitoring the measures and assessing unintended 
consequences over time, such as the inappropriate shifting of care, 
increased patient morbidity and mortality, and other negative 
unintended consequences for patients.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the definition of ``applicable 
condition'' at 42 CFR 412.152 without modification.
    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.
    Comment: Several commenters addressed the expansion of conditions 
to be included in the program. Some commenters urged that CMS not 
include the hospital-wide readmission measure, currently proposed for 
the Hospital IQR program, in future HRRP program expansion. Commenters 
believed it would result in double counting of AMI, HF, and PN 
patients, and that condition-specific measures were more actionable and 
understandable for hospitals subject to this provision. Other 
commenters encouraged CMS to include the following conditions in future 
program expansions: Atrial fibrillation (as one of other vascular 
conditions); chronic obstructive pulmonary disease; coronary artery 
bypass grafting; and percutaneous transluminal angioplasty. One 
commenter suggested that CMS delay the expansion of the program until 
such time as hospitals gain familiarity with the first three conditions 
used in the program.
    Response: We thank the commenters for these suggestions and will 
take them into consideration when we address the expansion of the 
applicable conditions in future rulemaking.
    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 the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27956), we proposed to codify this 
definition of ``readmission'' under the regulations we proposed at 42 
CFR 412.152. As we 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).
    Comment: Several commenters did not believe that the readmissions 
measures adequately measures quality. Commenters noted that it is 
difficult to determine which readmissions are preventable, and 
questioned whether reducing readmissions is a desirable outcome because 
increased mortality could lead to decreased readmission rates. One 
commenter cited research that higher readmission rates occur in 
communities with more physicians and hospital beds and in areas with 
high poverty and large minority or older populations to demonstrate 
that it is unclear whether readmissions always reflect poor quality.
    Response: We believe that risk-standardized readmission rates 
provide an important quality indicator to hospitals, CMS, patients, 
policymakers, and insurers. Readmission of patients who were recently 
discharged after hospitalization with AMI, HF, or pneumonia represents 
an important, expensive, and often avoidable adverse outcome. The risk 
of readmission can be avoided by improving the quality and type of care 
provided to these patients. There is ample evidence \50,51,52\ that 
hospitals can reduce their readmission rates through such efforts as 
ensuring patients are clinically ready at discharge, reducing risk of 
infection, reconciling medications, improving communication with 
community providers participating in transitions of care, educating 
patients adequately upon discharge, and assuring patients understand 
follow-up care upon discharge. These interventions are aligned with 
efforts to improve mortality and are not at odds with the goal of 
survival. Moreover, the results of public reporting of the measures 
indicate that hospitals can do well on both mortality and readmission 
rates.
---------------------------------------------------------------------------

    \50\ Jack BW, Chetty VK, Anthony D et al. A reengineered 
hospital discharge program to decrease rehospitalization: a 
randomized trial. Ann Intern Med. Feb 3, 2009;150(3):178-187.
    \51\ Coleman EA, Perry C, Chalmers S, Min SJ. The care 
transitions intervention: results of a randomized controlled trial. 
Arch Intern Med. Sep 25 2006;166(17):1822-1828.
    \52\ Hernandez AF, Greiner MA, Fonarow GC, et al. Relationship 
between early physician follow-up and 30-day readmission among 
Medicare beneficiaries hospitalized for heart failure. JAMA, May 5 
2010:303(17):1716-1722.
---------------------------------------------------------------------------

    Comment: One commenter recommended a 7-day to 15-day readmission 
timeframe instead of 30 days, stating that a 30-day measure may be 
appropriate for assessing a community's ability to work together to 
provide the best care and services for patients, but may attribute more 
responsibility to the hospital than might otherwise be warranted.
    Response: In the FY 2012 IPPS/LTCH PPS final rule, we finalized 30 
days as the time period specified from the date of discharge for the 
purpose of defining readmission for the Hospital Readmissions Reduction 
Program. The 30-day time period meets the requirement set forth in 
section 1886(q)(5)(E) of the Act that the time period specified by the 
Secretary for

[[Page 53377]]

defining a readmission be consistent with the time period specified for 
the endorsed measures. Furthermore, the timeframe of 30 days is a 
clinically meaningful period for hospitals to collaborate with their 
communities in an effort to reduce readmissions.
    Comment: One commenter expressed specific concerns that the list of 
planned readmissions in the AMI measure does not account for all 
planned readmissions. Specifically, the commenter recommended the 
inclusion of AMI codes with ``0'' in the fifth digit, indicating 
``episode of care unspecified.'' The commenter noted that if the 
episode of care is unspecified, it could be outside the 30-day 
readmission timeframe. The commenter added that under the ICD-9-CM 
guidelines, the ICD-9-CM codes 410.XX for AMI are used for ``acute'' 
condition for up to 8 weeks duration.
    Response: We thank the commenter for the suggestion. However, the 
AMI ICD-9-CM codes described by the commenter are used to identify 
index hospitalizations, not readmissions. The measures only identify 
the index admissions based on the use of the principal discharge 
diagnosis, which should represent the reason the patient was admitted 
to the hospital. Therefore, despite the use of the word 
``unspecified,'' in most cases the AMI will have been the primary 
reason for admission and appropriately included as an index case.
    Comment: One commenter stated the 30-day timeframe may be 
appropriate for assessing a community's ability to collaborate and 
provide the best care and services for discharged patients, but 30 days 
is too long a timeframe to fairly assess the attribution of the 
hospital's direct care of a patient.
    Response: The 30-day time period that we finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51666) meets the requirement set forth 
in section 1886(q)(5)(E) of the Act that the time period specified by 
the Secretary for defining a readmission be consistent with the time 
period specified for the endorsed measures. We disagree with the 
commenter that a much shorter timeframe is fairer, and believe that the 
timeframe of 30 days is a clinically meaningful period for hospitals to 
collaborate with their communities in an effort to reduce readmissions. 
This approach would ensure patients are clinically ready at discharge, 
reducing risk of infection, reconciling medications, improving 
communication with community providers participating in transitions of 
care, educating patients adequately upon discharge, and assuring 
patients understand follow-up care upon discharge.
    Comment: One commenter requested clarification whether transfers 
from short-term acute care hospitals to LTCHs are excluded from the 
definition of readmissions.
    Response: As defined in section 1886(q)(5)(E) of the Act, and 
finalized in the FY 2012 IPPS/LTCH PPS final rule, only readmissions to 
a subsection (d) hospital or a hospital that is paid under section 
1814(b)(3) [of the Act] will be counted as readmissions. Readmissions 
to LTCHs will not be counted as readmissions.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the definition of ``readmission'' at 
42 CFR 412.152 without modification.
    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 hospitalization'' 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 patients who died during the first 
admission, patients who have not spent at least 30 days post-discharge 
enrolled in Medicare fee-for-service (FFS), patients who are discharged 
against medical advice, and patients who are under the age of 65.
    Comment: Several commenters suggested exclusions from the index 
hospitalizations included in the measures, which included exclusions 
for patients under ``extreme circumstances'' such as transplants, end-
stage renal disease, burn, trauma, psychosis and substance abuse.
    Response: We appreciate the concern expressed by the commenters 
that patients of these ``extreme circumstances'' clinically could be 
sicker and more likely to be readmitted. The measures address clinical 
differences in hospitals' case-mix through risk adjustment rather than 
through excluding patients from the measure as suggested by the 
commenter. The goal in developing outcomes measures is to create a 
clinically cohesive cohort that includes as many patients as possible 
admitted with the given condition. Greatly expanding our list of 
exclusions would result in a measure that was less useful and 
meaningful, because it would reflect the care of fewer patients. In 
addition, we believe that by excluding patients with significant 
comorbidities, the measure would not assess of the quality of care for 
those patients. To fairly profile hospitals' performance, it is 
critical to place hospitals on a level playing field and account for 
their differences in the patients that present for care. This is 
accomplished through adequate risk-adjustment for patients' clinical 
presentation rather than exclusion of patients.
    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 variables used for risk adjustment and the clinical and 
statistical process for selecting the variables for each NQF-endorsed 
measure, as proposed, is

[[Page 53378]]

available at the Web site: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
    Comment: Several commenters suggested that the readmission measures 
include adjustments for socioeconomic status and other factors that are 
either outside the hospitals' immediate control or that may adversely 
affect certain types of hospitals more than others. Suggestions for 
variables to include in either the patient level or the hospital-level 
model included: patient race, ethnicity, language, income, lifestyle, 
health literacy, dual-eligible status (that is, eligibility for both 
Medicare and Medicaid), insurance status, functional status, cognitive 
impairment, post-discharge care support structure, and access to 
primary care. Two commenters suggested stratification of the hospital 
calculations by the percentage of dual-eligible patients. Other 
commenters suggested accounting for societal factors such as housing 
stability, food scarcity, and chronic unemployment.
    Response: We have continued to consider and evaluate stakeholder 
concerns regarding the influence of patient socioeconomic status on 
readmission rates. In our analyses (http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/HospitalChartBook2011.pdf), we consistently find that 
hospitals that care for large proportions of patients of low 
socioeconomic status are capable of performing well on readmission 
measures. Many safety-net providers and teaching hospitals do as well 
or better on the measures than hospitals without substantial numbers of 
patients of low socioeconomic status. The measures include rigorous 
risk-adjustment for differences in patient illness, and this likely 
incorporates some of the patient differences due to socioeconomic 
status (to the extent that patients of low socioeconomic status present 
to the hospital with greater level of disease). The risk adjustment for 
clinical factors likely captures much of the variation due to 
socioeconomic status, thus leading to more modest impact of 
socioeconomic status on hospital readmissions than stakeholders expect. 
We note that the goal of risk adjustment is to account for factors that 
are inherent to the patient at the time of admission, such as severity 
of disease, so as to put hospitals on a level playing field. The 
measures should not be risk-adjusted to account for differences in 
practice patterns that lead to lower or higher risk for patients to be 
readmitted. The measures aim to reveal differences related to the 
patterns of care. Furthermore, the statutory language in section 
1886(q)(5)(A)(ii)(I) of the Act requires that the measures included in 
the Hospital Readmissions Reduction Program be consistent with measures 
that are NQF-endorsed. A change in the risk-adjustment methodology of 
the measures as they are currently endorsed by the NQF would take time 
and necessitate additional rulemaking to adopt such measures. The 
measures also do not adjust for socioeconomic status because the 
association between socioeconomic status and health outcomes can be 
due, in part, to differences in the quality of health care received by 
groups of patients with varying socioeconomic status. The measures do 
not adjust for socioeconomic status, or other patient factors such as 
race, both because we do not want to hold hospitals to different 
standards for the outcomes of their patients of low socioeconomic 
status (which would definitely occur if calculations were stratified by 
percent dual-eligible patients as suggested by two of the commenters), 
and because our analyses demonstrate that patient socioeconomic status 
does not determine hospital performance on the readmission measures. 
Finally, we do not want to mask potential disparities or minimize 
incentives to improve the outcomes of disadvantaged populations. This 
approach is also consistent with the guidance from the NQF, which 
states that risk models should not obscure disparities by adjusting for 
factors associated with inequality in case (such as race or 
socioeconomic status) as well as with the methodology finalized in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51660 through 51676). However, 
we are committed to tracking this issue and will continue to evaluate 
disparities in care and the impact of the Hospital Readmissions 
Reduction Program on providers of vulnerable populations, including 
teaching and safety-net hospitals.
    Comment: Two commenters supported CMS' decisions not to risk-adjust 
for socioeconomic status and urged CMS to resist making any changes to 
the Hospital Readmissions Reduction Program based on socioeconomic 
status, because the same care protocols that work with a different 
population may also work with patients of lower socioeconomic 
circumstances. One commenter appreciated the justification for the 
continued exclusion of patient-level socioeconomic status covariates--
that doing so would impose different performance expectations based on 
the income distribution of patients and would also result in 
overfitting the risk adjustment models, in that it would result in an 
overly complex and possibly multicollinear model that yields inaccurate 
predictions.
    Response: We thank the commenters for their support of our approach 
to risk-adjustment.
    Comment: One commenter believed that the risk adjustment variables 
used to calculate readmission rates are not transparent to hospitals 
and urged CMS to ensure they are publicly and easily accessible.
    Response: The risk adjustment variables that will be used to 
calculate readmission rates can be found in the readmission measure 
methodology reports found on the Web site at: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841. Some of the patient risk factors are grouped using the CMS 
Condition Categories (CC) classification. A crosswalk of CCs to ICD-9-
CM codes is available at: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069856694.
    Comment: One commenter stated that the comorbidities included in 
the risk-adjustment variables may not all be consistently coded at the 
present time.
    Response: We have validated the 30-day readmission measures with 
models that use medical record-abstracted data for risk adjustment. 
This validation supported the use of the administrative claims data on 
comorbidities and demonstrated that the estimates of hospitals' risk-
standardized readmission rates (RSRRs) based on administrative data are 
very similar to the rates estimated by models based on medical record 
data. This high level of agreement in the results based on the two 
different approaches supports the use of the administrative claims-
based models for public reporting. Our approach to gathering risk 
factors for patients also mitigates the potential limitations of claims 
data. Because not every diagnosis is coded at every visit, we use 
inpatient, outpatient, and physician claims data for the 12 months 
prior to admission, and secondary diagnosis codes during the index 
admission, for risk adjustment.
    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.

[[Page 53379]]

    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.
    Comment: Some commenters urged CMS to identify and exclude planned 
readmissions for the AMI, HF, and PN readmission measures. The 
commenters stated that failure to do so may encourage providers to 
delay necessary follow-up procedures. Two commenters urged CMS to 
explore common reasons for planned readmissions, bring them to the NQF 
for review for continued endorsement for the AMI, HF, and PN measures, 
and use these planned readmissions for the measures in subsequent 
rulemaking. A few commenters recommended that CMS also consider 
implementing codes that hospitals can use to designate when a 
readmission is planned so that these cases can be excluded from the 
readmission measure, and recommended using the NUBC Committee's 
proposed discharge status codes to identify planned readmissions.
    Response: Our contractor engaged multiple clinical experts to 
develop a list of planned readmissions which was made part of a 
hospital-wide readmission measure that recently obtained NQF 
endorsement. During the development of this hospital-wide readmission 
measure, there was a 2-week informal public comment period in order to 
receive feedback on the measure and its planned readmission algorithm. 
The list of planned readmissions also underwent a 2-week informal 
public comment period when the hospital-wide readmission measure was 
evaluated at the NQF.
    We maintain the measures annually and submit the updates to NQF for 
review. In response to stakeholder input, we intend to update the 
condition-specific measures to permit more planned readmissions for the 
condition-specific measures, which would not be counted as 
readmissions. Any NQF-approved changes to the measures will then be 
proposed for the Hospital Readmissions Reduction Program through future 
rulemaking. We are aware of the NUBC's intention to propose discharge 
status code on claims to identify planned readmissions. We would 
analyze its reliability, validity, and usability for identifying 
planned readmissions prior to considering the adoption of such a code 
for use in the readmission measures in the future.
    Comment: Some commenters suggested that CMS exclude readmissions 
that occur for reasons such as transplants and device implantation, 
trauma, psychoses, substance use, end-stage renal disease, maternity 
and neonatal readmissions, rehabilitation, sepsis, natural disease or 
treatment progression, acute decompensated heart failure, the result of 
nonhospital community factors, and disaster relief.
    Response: We thank the commenters for these suggestions. Many of 
these suggestions are among the planned readmission updates we intend 
to submit for the AMI, HF and PN measures as part of annual maintenance 
review by NQF. We perform measure maintenance reviews which include 
consideration of public comments, exploration and identification of any 
other exclusions for the measures; in this case, other types of 
readmissions, that would be excluded from the measures as planned 
readmissions would be considered during the maintenance review. If we 
determine certain readmissions should be excluded from the measures, we 
will revise the measures, present them to NQF for endorsement, and 
update the Hospital Readmissions Reduction Program in future 
rulemaking.
    Comment: Several commenters urged CMS to differentiate between 
related and unrelated readmissions. One suggestion to define ``related 
readmissions'' as any readmission for which the patient's primary 
diagnosis falls within the same MS-DRG or as the diagnosis for the 
initial admission, or to use the AHRQ CCs as a way to group diagnoses 
and procedure codes into clinically meaningful groups.
    Response: We do not seek to differentiate between related and 
unrelated readmissions, or to identify preventable readmissions or 
``necessary'' readmissions for several reasons. First, from the patient 
perspective, an unplanned readmission for any reason is likely to be an 
undesirable outcome of care after an acute hospitalization. Second, 
readmissions not directly related to the index condition may still be a 
result of the care received during the index hospitalization. For 
example, a patient hospitalized for heart failure who develops a 
hospital-acquired infection may ultimately be readmitted for sepsis. It 
would be inappropriate to treat this readmission as unrelated to the 
care the patient received during the index hospitalization. 
Furthermore, the range of potentially avoidable readmissions also 
includes those not directly related to the initial hospitalization, 
such as those resulting from poor communication at discharge or 
inadequate follow-up. As such, creating a comprehensive list of 
potential complications related to the index hospitalization would be 
arbitrary, incomplete, and, ultimately, impossible to implement. The 
measures are not meant to suggest that the appropriate readmission rate 
is zero, but rather to identify hospitals that have a higher rate of 
readmissions than would be expected given their case mix.
    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.
    Comment: Several commenters urged CMS to raise the minimum case 
threshold to qualify for the Hospital Readmissions Reduction Program to 
improve the reliability of the measures.
    Response: We determined the 25-case threshold for public reporting 
based on a reliability statistic that is calculated from the 
intercluster correlation, a parameter of the model. We are maintaining 
the minimum 25-case threshold that we adopted through rulemaking last 
year.
    Applicable period: Under section 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 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 we discussed in 
section IV.A.3.d. of the preamble of the FY 2013 IPPS/LTCH PPS proposed 
rule (77 FR 27957), the excess readmission ratios used to model our 
proposed methodology to calculate the Hospital Readmissions Reduction 
Program payment adjustment were based on the 3-year time period of July 
1, 2007 to June 30, 2010. However, we indicated that, for the final 
rule, we intended 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 the FY 2013 IPPS/LTCH PPS proposed 
rule, we proposed to codify the definition of ``applicable period'' at 
42 CFR 412.152

[[Page 53380]]

as the 3-year period from which data are collected in order to 
calculate excess readmission ratios and adjustments for the fiscal 
year.
    Comment: Several commenters urged CMS to consider a shorter 
timeframe for measuring performance for readmissions such as a 1-year 
or 2-year period. The commenters believed that hospitals should not be 
assessed on readmissions that occurred during 2008, long before the 
policy addressing this provision was passed in the Affordable Care Act.
    Response: In the FY 2012 IPPS/LTCH PPS final rule, we finalized 3 
years as the applicable period for the FY 2013 payment adjustment. We 
use a 3-year period of index admissions to increase the number of cases 
per hospital used for measure calculation, which improves the precision 
of each hospital's readmission estimate. Although this approach 
utilizes older data, it also identifies more variation in hospital 
performance and still allows for improvement from one year of reporting 
to the next. We are maintaining the 3-year period as previously 
adopted.
    Comment: One commenter stated that, although data from across a 3-
year period helps to identify significant improvements over time, there 
is a huge lag in the end of the 3-year period and the commencements of 
penalties (approximately 15 months).
    Response: We decided to use the current timeframe because it 
balances the needs for the most recent claims and for sufficient time 
to process the claims data and calculate the measures to meet the 
program implementation timeline. We will continue to explore the 
feasibility of using more up-to-date data sources.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify our definition of ``applicable 
period'' under the regulations at 42 CFR 412.152 without modification.
    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-adjusted 
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] TR31AU12.013

    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 53381]]

[GRAPHIC] [TIFF OMITTED] TR31AU12.014

    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 the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27958), we 
proposed to codify the definition of ``excess readmission ratio'' under 
the regulations we proposed 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.
    Comment: Two commenters indicated that almost no hospitals are 
statistically significantly different from the U.S. average because the 
hierarchical logistic regression model shrinks the coefficients of 
small hospitals towards the mean. One commenter expressed concern that 
the methodology relies excessively on the ability of the model to 
correct for hospital-specific characteristics and may be at odds with 
the observed rate. Another commenter suggested that alternatives to the 
current method could include looking at more conditions over several 
years which would increase the sample size, reduce random variation, 
and reduce the need to shrink estimates toward the national mean.
    Response: The modeling of the readmission rates takes into account 
hospitals' case-mix as well as the sample size of the hospital. For 
both of these reasons, the risk-standardized rate may appropriately 
differ from the observed rates. These differences are important in 
leveling the playing field for hospitals and accounting for uncertainty 
in small volume estimates. The hierarchical logistic regression model 
that we use to calculate the 30-day measures allows the inclusion of 
hospitals with relatively few observations but takes into account the 
uncertainty associated with sample size.
    Comment: One commenter believed that the statute requires that CMS 
calculate an Observed-to-Expected (O/E) ratio for each readmission 
condition by hospital and to use that ratio to determine the payment 
penalty. The commenter requested that CMS revise its methodology so 
that it calculates hospital-specific observed and expected readmission 
rates and reports them on Hospital Compare.
    Response: We disagree with the commenter's assessment that the 
statute requires that we use an observed to expected ratio. Rather, the 
statute at section 1886(q)(4)(C) of the Act defines the excess 
readmission ratio as the ratio of ``the risk adjusted readmissions 
based on actual readmissions,'' and ``the risk adjusted expected 
readmissions'' as ``determined consistent with a readmission 
methodology that has been endorsed'' by an entity with a contract under 
section 1890(a) of the Act (currently the NQF). The readmission 
measures that we are using for the Hospital Readmissions Reduction 
Program have numerators and denominators consistent with these 
definitions. The measures have been endorsed by the NQF, and we 
finalized use of these NQF-endorsed readmission measures in the FY 2012 
IPPS LTCH PPS final rule.
    Comment: One commenter asked for clarification on the calculation 
of the readmission rates for multiple readmissions, particularly where 
one or more readmissions might be unrelated to the index admission.
    Response: As finalized in the FY 2012 IPPS/LTCH PPS final rule, the 
readmissions measures are designed to measure whether a patient 
experienced at least one readmission within 30 days of an initial (or 
``index'') discharge as a single binary (yes/no) event, rather than 
counting the number of readmissions experienced within 30 days of 
discharge as a separate readmissions. For any given patient, 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) 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 within the same measure (that is, an admission evaluated in 
the measure for a subsequent readmission). Any eligible admission after 
the 30-day time period will be considered a new index admission. For

[[Page 53382]]

example, if a patient's index admission was for heart failure and the 
patient was readmitted with a primary diagnosis of pneumonia, that 
hospitalization could count as both a readmission for the health 
failure measure and an index admission for the pneumonia measure.
    We do not seek to differentiate between related and unrelated 
readmissions, or to identify preventable readmissions or ``necessary'' 
readmissions for several reasons. First, from the patient perspective, 
a readmission for any reason is likely to be an undesirable outcome of 
care after an acute hospitalization. Second, readmissions not directly 
related to the index condition may still be a result of the care 
received during the index hospitalization.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the definition of ``excess 
readmission ratio'' under the regulations at 42 CFR 412.152 without 
modification.
3. FY 2013 Proposed and Final Policies for the Hospital Readmissions 
Reduction Program
a. Overview
    In this final 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 final rule (as we did 
in the FY 2013 IPPS/LTCH PPS 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.
b. Base Operating DRG Payment Amount, Including Special Rules for SCHs 
and MDHs and Hospitals Paid Under Section 1814 of the Act
(1) Definition of Base Operating DRG Payment Amount (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 base payments 
for a discharge on 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 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, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27959), under the regulations we proposed 
at 42 CFR 412.152, we proposed to 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, we stated that 
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 in the definition of ``base 
operating DRG payment amount''; therefore, any payments made under 
section 1886(d)(5)(K) of the Act are included in the definition of 
``base operating DRG payment amount.'' In addition, under the 
regulations we proposed at 42 CFR 412.152, we proposed 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 proposed that, under Sec.  
412.154(b)(1), to account for excess readmissions, an applicable 
hospital's base operating DRG payment amount would be 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 and the hospital's 
readmission 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 
proposed 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 noted that, 
under the Hospital Readmissions Reduction Program at section 1886(q) of 
the Act, the proposed definition of ``base

[[Page 53383]]

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 the 
preamble of the proposed rule and this final rule), 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 
the preamble of the proposed rule and this final rule, 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 did not include MDHs in the discussion of 
our proposals regarding the base operating DRG payment amount in the 
proposed rule.)
    Comment: Commenters supported the proposed definition of the base 
operating DRG payment amount. Commenters also supported our proposal to 
exclude IME, DSH, outliers, low-volume adjustment, and additional 
payments made due to status as an SCH from the definition of the base 
operating DRG payment amount.
    Commenters both supported and opposed our proposed inclusion of new 
technology payments in the definition of the base operating DRG payment 
amount. Commenters recommended that CMS exclude the new technology 
payment from the definition of ``base operating DRG payment amount'' 
because, like payment adjustments for IME and DSH, it is extrinsic to 
the base rate. In addition, without any known association between the 
use of new technology and the quality and efficiency of care provided 
by a hospital, one commenter did not believe there was justification to 
incorporate the use of new technology into the structure of a quality 
program. Some commenters asserted that the inclusion of the new 
technology payments in the base DRG operating payment definition for 
the determination of payment reduction adjustments conflicts with the 
primary principle of identifying and ensuring adequate payment for new 
medical services and technologies for a brief 2- to 3-year period and 
should not be altered by our other required initiatives.
    Response: We believe the statute is specific with regards to the 
definition of base operating DRG payment amount at section 1886(q)(2) 
of the Act, which explicitly specifies that any additional 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, are to be excluded. Section 1886(q)(2) of the Act does 
not specify an exclusion for new technology payments made under section 
1886(d)(5)(K) of the Act, and therefore, we do not believe we have the 
flexibility to exclude new technology payments in the definition of 
base operating DRG payment amount under the Hospital Readmissions 
Reduction Program. We are finalizing our definition of ``base operating 
DRG payment,'' as proposed, without modification.
    Comment: One commenter stated that cases that receive transfer 
adjustments when determining their payment should be accounted for in 
the proposed definition of base operating DRG payment amount. The 
commenter specified that the base operating DRG payment amount should 
also include any payment reductions for patients covered under the 
transfer policy as it applies to both post-acute and short-stay acute 
hospitals.
    Response: We are clarifying that the base operating DRG payment 
amount accounts for any applicable transfer adjustment for cases that 
are paid under as either an acute care transfer or post-acute care 
transfer. In other words, if a case is paid as a transfer in accordance 
with our transfer payment policy at 42 CFR 412.4(f), resulting in a 
reduced IPPS payment, the reduced transfer-adjusted payment amount is 
also reflected in the base operating DRG payment amount. For the FY 
2013 IPPS/LTCH PPS proposed rule, the data used to model the proposed 
readmission payment adjustment factors actually reflected transfer 
adjusted base operating DRG payment amounts, where applicable. As 
discussed earlier, the ``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 (q)(4)(B) of the Act, which would then be 
used to determine the readmissions payment adjustment, and would also 
be used to determine which payment amounts will be adjusted to account 
for excess readmissions. We are finalizing that the definition of 
``base operating DRG payment amount'' includes any applicable payment 
adjustments for transfer cases under 42 CFR 412.4(f). In addition, in 
this final rule, we are revising the definition of ``wage-adjusted DRG 
operating payment'' in the regulations we proposed at 42 CFR 412.152 to 
specify that any applicable payment adjustment for transfers under 
Sec.  412.4(f) is included. Accordingly, we are finalizing the 
definition of ``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). This 
amount includes an applicable payment adjustment for transfers under 
Sec.  412.4(f).
    Comment: Commenters recommended that the proposed definition of 
base operating DRG payment should be refined to account for the special 
payment status of MDHs that are paid under the hospital-specific rate 
should the MDH payment status be extended under legislation. In 
addition, commenters suggested that CMS make a proposal to exclude the 
difference between the hospital's applicable hospital-specific payment 
rate and the Federal payment rate from its definition of ``base 
operating DRG amount'' for MDHs, similar to our proposal made for SCHs, 
which can also be paid under the hospital-specific payment rate.
    Response: As stated earlier, 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). 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. As discussed later in this section, we had proposed to 
exclude hospital-specific payments from the definition of base 
operating DRG payments in the calculation of a hospital's readmission 
payment adjustment factor. Specifically, we stated that because we are 
using historical data to determine the base operating DRG payments to 
calculate the adjustment factor, we proposed 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.''
    For MDHs, 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 payment amount to determine the

[[Page 53384]]

readmissions 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.
    Furthermore, we are clarifying that the difference between the 
applicable hospital-specific payment rate and the Federal payment rate 
for both SCHs and for MDHs, should the MDH provision be extended beyond 
FY 2012, is excluded from base operating DRG payment amount for these 
hospitals. This means that, for an SCH or an MDH, the readmissions 
payment adjustment under Hospital Readmissions Reduction Program for 
each discharge will be calculated by multiplying the SCH's or MDH's 
readmission payment adjustment factor by the base-operating DRG payment 
amount that is exclusive of the amount by which the hospital-specific 
rate payment exceeds the Federal payment rate, where applicable. The 
resulting payment adjustment will then be subtracted from the 
hospital's payment for the discharge, regardless of whether the 
hospital is paid based on the Federal rate or its hospital-specific 
rate.
    After consideration of the public comments we received, we are 
finalizing the proposed definition of ``base operating DRG payment 
amount'' at 42 CFR 412.152, noting that it includes any applicable 
payment adjustments for transfer cases under 42 CFR 412.4(f). In 
addition, we are revising the definition of ``wage-adjusted DRG 
operating payment'' in the regulations we proposed at 42 CFR 412.152 to 
specify that any applicable payment adjustment for transfers under 
Sec.  412.4(f) is included.
(2) Special Rules for Certain Hospitals: Hospitals Paid Under Section 
1814(b)(3) of the Act (Sec.  412.154(d))
    Although the definition of ``applicable hospital'' under section 
1886(q)(5)(C) of the Act also 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 the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27960), we 
proposed 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 proposed to evaluate a report submitted by 
the State of Maryland documenting how its program (described below) 
meets those criteria. Based on the information in the report, we 
proposed to determine whether or not Maryland's readmission program met 
our criteria to be exempt from the Hospital Readmissions Reduction 
Program for FY 2013. We noted 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 
proposed 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 hospital system) from which the patient was originally 
discharged. The State had 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.
    In the FY 2013 IPPS/LTCH PPS proposed rule, we proposed to evaluate 
Maryland's ARR program based on whether the State could demonstrate 
that cost savings under its program achieved or exceeded the savings to 
the Medicare program due to the Hospital Readmissions Reduction Program 
under section 1886(q) of the Act. We also proposed to evaluate whether 
Maryland's program could 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 proposed to evaluate whether Maryland's ARR program 
could demonstrate savings to the Medicare program that are at least 
similar to those expected under the Hospital Readmissions Reduction 
Program. As discussed in this proposed rule, we estimated that, under 
the Hospital Readmissions Reduction Program, for FY 2013, Medicare IPPS 
operating payments would 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 indicated in the proposed rule that 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 indicated that 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

[[Page 53385]]

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, in the FY 2013 IPPS/LTCH PPS proposed rule, we 
proposed 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 indicated in the 
proposed rule that we are reviewing whether the Maryland's ARR program, 
which currently cannot monitor readmissions to other hospitals and 
provide a financial reward for hospitals that reduce within-hospital 
readmissions, but provides for an across-the-board 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 welcomed 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.
    Comment: Commenters requested that Maryland hospitals be exempt 
from the Hospital Readmissions Reduction Program. Commenters contended 
that Maryland's readmissions program meets the criteria for Maryland 
hospitals to be waived from the Hospital Readmissions Reduction 
Program. One commenter stated that Maryland has already demonstrated 
successful reductions in readmissions as a result of the Admission-
Readmission Revenue (ARR) and Total Patient Revenue (TPR) programs. The 
commenter described the TPR program as a global budget payment program, 
designed to reduce overall volumes and, thus, reduce readmissions. ARR 
hospitals have seen a 7.1 percent reduction in Medicare readmissions 
since the inception of the program; TPR hospitals have experienced a 
6.4 percent decline in readmissions from FY 2009 to FY 2011. The 
commenter sought more information on how CMS plans to measure 
Maryland's performance relative to the nation prior to implementation 
in order to ensure that Maryland's hospitals are prepared to meet our 
expectations, and can make the appropriate adjustments in advance of 
submitting an exemption request.
    Commenters acknowledged that the ARR program provides a financial 
incentive for hospitals to reduce readmissions and improve the quality 
of care and that the ARR program established a 30-day episode of care 
payment instead of a payment per admission, so a hospital that reduces 
readmissions keeps the same revenue and increases profits by reducing 
costs. However, one commenter suggested that savings are generated by 
reducing inter-hospital readmissions and outpatient visits. The 
commenter stated that the TPR program generates savings by restricting 
revenues and, therefore, providing an incentive for hospitals to reduce 
volumes. The commenter stated that this mechanism allows participating 
hospitals to focus on patient care and improved outcomes, rather than 
generating volume. Furthermore, the commenter pointed out that 
Maryland's Health Services Cost Review Commission reduced hospitals' FY 
2013 rate update by 0.58 percentage points to guarantee readmissions 
savings.
    Finally, the State of Maryland also commented that, in future 
years, it will work with us to demonstrate cost savings and improved 
outcomes, over a multiyear period.
    Response: We appreciate the commenters' requests to exempt Maryland 
from the Hospital Readmissions Reduction Program for FY 2013. In the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 27959), we proposed to 
establish an annual process by which to evaluate Maryland's readmission 
program to determine whether the State's program meets or exceeds 
measured results in terms of health outcomes and cost savings as 
compared to the Hospital Readmissions Reduction Program. For FY 2013, 
we indicated that the Hospital Readmissions Reduction Program would 
result in an estimated savings of $300 million (-0.3 percent), and we 
proposed to evaluate whether Maryland's program could have comparable 
savings. As commenters acknowledged, Maryland's readmissions program 
provides a financial incentive, not penalty, to hospitals that reduce 
their readmissions. Furthermore, commenters acknowledged that the State 
has guaranteed savings by reducing the FY 2013 rate by 0.58 percent. We 
understand that this is a uniform rate reduction for all hospitals, 
regardless of an individual hospital's performance on readmissions. We 
understand that the acute care hospitals in Maryland are included 
either in the ARR program or the TPR program, which provides incentives 
for hospitals to reduce readmissions.
    With respect to health outcomes, we proposed that since this is the 
first year of the Hospital Readmissions Reduction Program, we do not 
have a measured health outcomes by which to evaluate Maryland against. 
Thus, for the first year, we would not evaluate Maryland's program with 
respect to health outcomes. In the future, we intend to have national 
outcomes data to evaluate Maryland's program, and we will work with the 
State to measure those outcomes. Similarly, after considering the 
commenters' comments, we believe it would be premature to evaluate 
Maryland's readmissions program on cost savings, as it is the first 
year of the Hospital Readmissions Reduction Program, and Maryland's ARR 
Program just completed its first year. As such, we are finalizing to 
not evaluate Maryland's ARR Program on measureable health outcomes and 
cost savings for the first year. For FY 2013, we are exempting 
hospitals paid under section 1814(b)(3) of the Act from the Hospital 
Readmissions Reduction Program under our authority under section 
1886(q)(2)(B)(ii) of the Act. We are finalizing, as proposed, our plan 
to evaluate whether Maryland's readmissions program can demonstrate 
similar decreases in potential preventable readmissions and similar 
cost savings on an annual basis. However, that evaluation will not 
begin until FY 2014. We intend to work with Maryland next year as the 
State develops its readmissions programs to be able to measure health 
outcomes and to have demonstrable savings. We are finalizing, as 
proposed, our requirement that the State's annual report and request 
for exemption from the Hospital Readmissions Reduction Program be 
resubmitted and reconsidered annually in accordance with the statute, 
as finalized at Sec.  412.154(d)(2).
    Comment: Commenters sought clarification as to whether an exemption 
for Maryland hospitals from the payment requirements under the Hospital 
Readmissions Reduction Program would apply to all section 1814(b) 
hospitals in Maryland or all of Maryland's acute care hospitals. The 
commenters requested that the waiver be applied to all Maryland acute 
care hospitals.
    Response: Section 1886(q)(2)(B)(ii) of the Act allows the Secretary 
to exempt hospitals paid under the ``waiver'' provided by section 
1814(b)(3) of the

[[Page 53386]]

Act, that is, those hospitals that would otherwise have been paid by 
Medicare under the IPPS, absent the provision. Accordingly, we are 
finalizing that, for FY 2013, all acute care hospitals in Maryland, 
which are the hospitals that are paid under the waiver at section 
1814(b)(3) of the Act, that otherwise would have been paid under the 
IPPS, are exempt from the Hospital Readmissions Reduction Program.
    Comment: One commenter asked for a definition of base operating DRG 
payment for Maryland hospitals, considering that Maryland hospitals 
paid under section 1814(b)(3) of the Act are paid at 94 percent of 
their charges.
    Response: In the FY 2013 IPPS/LTCH PPS proposed rule, we did not 
make a proposal regarding the definition of base operating DRG payment 
amount with regard to Maryland hospitals. Because we are finalizing our 
proposal to exempt Maryland hospitals from the Hospital Readmissions 
Reduction Program for FY 2013, we intend to revisit the definition of 
base operating DRG payment amount for Maryland hospitals in future 
rulemaking.
    Comment: Commenters asked that there be a combined exemption 
request for Maryland hospitals for the Hospital Readmissions Reduction 
Program, the HAC program, and the Hospital VBP Programs in order to be 
more efficient and to reduce the administrative burden at the State and 
Federal level.
    Response: The Hospital Readmissions Reduction Program and the 
Hospital VBP Program, effective in FY 2013, are separate hospital 
payment programs with different purposes and policy goals. For example, 
the Hospital Readmissions Reduction Program reduces payments to 
hospitals for excess readmissions, while the Hospital VBP Program 
redistributes reductions made to the base operating DRG payment amount, 
based on certain performance measures. Because of the varying nature of 
these two programs, at this time, we do not believe it is appropriate 
for the State to submit one exemption request to determine whether 
certain Maryland hospitals should be waived from the requirements under 
both the Hospital Readmissions Reduction Program and the Hospital VBP 
Program. Because the HAC Program, established under section 1886(p) of 
the Act, is not effective until FY 2015, we believe it is premature to 
consider the process by which the State can request an exemption from 
the requirements of this Program.
    For the purposes of modeling the impacts of our proposal, we 
modeled under the assumption that Maryland hospitals will not have 
Hospital Readmissions 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 to include 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).
    Although we are exempting Maryland hospitals from the Hospital 
Readmissions Reduction Program, Maryland hospitals are still considered 
an ``applicable hospital.'' As such, we are finalizing, as proposed, 
that we are calculating excess readmission ratios for Maryland 
hospitals, consistent with the definition of excess readmission ratio. 
In addition, 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, and we are 
finalizing, as proposed, to include data from Maryland hospitals in the 
calculation of the excess readmission ratios for all applicable 
hospitals.
c. Adjustment Factor (Both the Ratio and Floor Adjustment Factor) 
(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 * * *.'' In the FY 2013 IPPS/LTCH PPS proposed rule 
(77 FR 27960), we proposed 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 proposed 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 proposed 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 the preamble 
of the proposed rule or a floor adjustment factor of 0.99. We proposed 
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 proposed 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 
proposed at 42 CFR 412.152, we proposed 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.
    Comment: Commenters supported our proposed calculation of the 
adjustment factor as 1 minus the ratio of the hospital's aggregate 
payments for excess readmissions for applicable conditions to the 
hospital's aggregate payments for all discharges for applicable 
conditions. Commenters also supported our proposal to determine a 
hospital's actual payment adjustment factor as the higher of its 
calculated factor or 0.99, resulting in a maximum reduction of 1 
percent of base operating DRG payments for FY 2013.
    Response: We thank the commenters for their support of these 
proposals.
    In this final rule, we are finalizing our proposal to establish an 
applicable hospital's adjustment factor as the higher of a ratio or the 
floor adjustment factor of 0.99 for FY 2013. We are finalizing, as 
proposed, that the ratio will be rounded to the fourth decimal place. 
We also are finalizing our proposal to codify these policies in 
regulation at Sec.  412.154(c) without modification.

[[Page 53387]]

d. Aggregate Payments for Excess Readmissions and Aggregate Payments 
for All Discharges (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 the FY 2013 IPPS LTCH PPS proposed rule (77 FR 27961), we 
set forth 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 
proposed to include this definition of ``aggregate payments for excess 
readmissions'' under the regulations we proposed at 42 CFR 412.152.
    We did not receive any public comments on the proposed definition 
of ``aggregate payments for excess readmissions'' and are finalizing 
our definition as proposed under the regulations at 42 CFR 412.152 
without modification.
    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. In the proposed rule, we proposed to 
include this definition of ``aggregate payments for all discharges'' 
under the regulations we proposed at Sec.  412.152.
    We did not receive any public comments on the proposed definition 
of ``aggregate payments for all discharges'' and are finalizing our 
definition as proposed under the regulations at 42 CFR 412.152 without 
modification.
    As discussed above, when calculating the numerator (aggregate 
payments for excess readmissions), we determined the base operating DRG 
payments 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 proposed 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 proposed 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 to determine IPPS rates. For FY 2013, we 
proposed 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 
proposed 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.
    In the FY 2013 IPPS/LTCH PPS proposed rule, for FY 2013, we 
proposed 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. For the FY 2013 IPPS/
LTCH PPS final rule, we proposed 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. 
Use of these files will 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.

[[Page 53388]]

    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.
    In the proposed rule, we proposed 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, we 
noted in the proposed rule, that for the purposes of modeling, we used 
excess readmission ratios based on an older performance period of July 
1, 2007 to June 30, 2010. As we stated in the proposed rule, for this 
final rule, we are using 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).
    Comment: Commenters supported the use of MedPAR claims data to 
determine base operating DRG payment amounts. However, several 
commenters opposed CMS' proposal to use 3 years of data from the period 
July 1, 2008 through June 30, 2011, for calculating hospital 
readmissions adjustment factors for FY 2013. The commenters stated that 
using older data did not reflect current practices of a hospital, and 
recommended that CMS use a 1-year period from July 1, 2010 to June 30, 
2011, to accurately reflect a hospital's performance on readmissions.
    Response: We appreciate the commenters' support for using the 
MedPAR data to determine base operating DRG payment amounts to 
calculate the readmission payment adjustment factors.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27961), we 
proposed to calculate the readmission payment adjustment factor using 
the same applicable period that is used to calculate the excess 
readmission ratios, as finalized in the FY 2012 IPPS/LTCH PPS final 
rule. The statute references ``applicable period'' in both the 
calculation of the readmissions measures and the readmission payment 
adjustment factor, such that it requires that the same time period be 
used for both the calculation of the measures and the adjustment 
factor. As finalized in the FY 2012 IPPS/LTCH PPS final rule, we use 3 
years of data to calculate the readmissions measures (that is, for FY 
2013, we are using discharge data from July 1, 2008 through June 30, 
2011), and therefore, we are using data from the same time period to 
calculate the aggregate payments for excess readmissions and aggregate 
payments for all discharges. Using 3 years of claims data increases 
precision for the calculation of excess readmission ratios and the 
calculation of the readmissions payment adjustment factors.
    In this final rule, we are finalizing our proposal to use MedPAR 
data from July 1, 2008 through June 30, 2011, and we are finalizing our 
proposal 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 March 2012 
update of the FY 2011 MedPAR file to identify claims within FY 2011 
with discharge dates no later than June 30, 2011.
    Comment: One commenter asked CMS to ensure that outlier payments 
are correctly excluded from the base operating DRG amount using the 
MedPAR data source.
    Response: We have ensured that we are correctly excluding outlier 
payments in the calculation of the base operating DRG amount using our 
MedPAR data source.
    In order to identify the admissions for each condition for an 
individual hospital for calculating the aggregate payments for excess 
readmissions, we proposed 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 proposed 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 proposed 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 proposed 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.

[[Page 53389]]

 
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.
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.
------------------------------------------------------------------------

    Comment: Several commenters requested that, in the calculation of 
aggregate payments for excess readmissions, CMS remove admissions for 
the applicable conditions that were not considered admissions for the 
purposes of the calculation of the excess readmission ratio. 
Specifically, commenters requested that CMS remove admissions for (1) 
Index admissions for beneficiaries who die in the hospital; (2) 
admissions for beneficiaries who were transferred to another acute care 
hospital; (3) admissions for beneficiaries who were discharged against 
medical advice; (4) admissions for beneficiaries without at least 30 
days post-discharge enrollment in Medicare Part A fee-for-service; and 
(5) multiple admissions within 30 days of a prior index admission. 
Commenters argued that these trims are made for the readmissions 
measures, and accordingly, they should also be made when determining 
which admissions are included in the calculation of aggregate payments 
for excess readmissions. One commenter recognized that not all of these 
trims can be identified in our proposed data source, MedPAR, so the 
commenter requested that CMS estimate an ``additional exclusions 
factor'' for the exclusions that we cannot account for based on data 
from the Measures Maintenance Technical Report, which lists the 
percentage of admissions that are removed by exclusion. The commenter 
suggested that the ``additional exclusions factor'' for each exclusion 
that cannot be accounted for in our proposed data source be removed for 
every hospital. By not excluding these admissions, the commenters 
believed that CMS is erroneously inflating the calculation of aggregate 
payments for excess readmissions.
    Response: In our proposal to calculate the excess payments for 
readmissions, we proposed to identify admissions for each condition for 
an individual hospital for calculating the aggregate payments for 
readmissions by using the same ICD-9-CM codes used to identify the 
applicable conditions to calculate the excess readmissions ratios. We 
proposed 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 calculation of the excess readmission 
ratios. Similarly, we proposed to limit our admissions to Medicare FFS 
claims, consistent with the methodology to calculate the excess 
readmission ratios.
    As finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51669), 
the readmissions conditions of AMI, HF, and PN account for certain 
exclusions of admissions from being considered as an index admission. 
The NQF-endorsed readmission measures exclude from the group of index 
admission: (1) Hospitalizations for patients with an in-hospital death; 
(2) hospitalizations for patients without at least 30 days post 
discharge enrollment in Medicare FFS; (3) hospitalizations for patients 
discharged against medical advice; (4) transfers; and (5) multiple 
admissions within 30 days of a prior index admission. In addition, for 
AMI, same day discharges are excluded as an index

[[Page 53390]]

admission. Furthermore, we limit admissions to include Medicare Part A 
FFS enrollees who are 65 years or older.
    We agree with the commenters that the index admissions that are not 
considered admissions for the purpose of the readmissions measures, 
thus excluded from the calculation of the excess readmission ratio, 
should also not be considered admissions for the purposes of 
determining a hospital's aggregate payments for excess readmissions. 
Accordingly, we are modifying our methodology to identify the 
admissions included in the calculation of ``aggregate payments for 
excess readmissions.'' For this final rule, using our MedPAR data 
source, we will identify admissions for the purposes of calculating 
aggregate payments for excess readmissions as follows:
     We will exclude admissions that are identified as an 
applicable condition based on the ICD-9-CM code listed as the primary 
diagnosis, but where the patient had died, as identified by the 
discharge status code on the MedPAR claim.
     We will exclude admissions identified as an applicable 
condition based on the ICD-9-CM code listed as the primary diagnosis, 
but where the patient was transferred to another applicable hospital, 
as identified by the discharge status code on the MedPAR claim.
     We will eliminate admissions identified as an applicable 
condition based on the ICD-9-CM code listed as the primary diagnosis, 
but where the patient was discharged against medical advice as 
identified by the discharge status code on the MedPAR claim.
     We will exclude admissions identified as an applicable 
condition based on the ICD-9-CM code listed as the primary diagnosis 
for patients who are under the age of 65, as identified on the MedPAR 
claim.
     For conditions identified as AMI, we will exclude claims 
that are same day discharges, as identified by the admission date and 
discharge date on the MedPAR claim.
    As the commenters acknowledged, the MedPAR proposed data set that 
we are using to calculate the aggregate payments for excess 
readmissions cannot identify all of the exclusions included in the 
readmissions measures. Specifically, at this time, we cannot identify 
directly multiple admissions within 30 days of a prior index admission 
and patients without at least 30 days post discharge enrollment in 
Medicare FFS in the MedPAR data. However, the suggestion that we 
develop an ``additional exclusions factor'' to apply to the calculation 
of the readmissions payment adjustment factor is not within the 
statutory authority under section 1886(q) of the Act. We do not believe 
we have the authority to calculate an ``additional exclusions factor,'' 
which would be in lieu of the exclusion of admissions from the 
calculation of the aggregate payments for excess readmissions, and then 
uniformly applied that amount to all applicable hospitals. We believe 
that with the exclusions to the data for the scenarios discussed 
earlier, we will have accounted for nearly all of the admissions 
excluded in the calculation of the excess readmission ratios. We intend 
to work towards modifying our systems to identify these claims for the 
two additional scenarios, and we will propose in future rulemaking to 
what extent we can include those exclusions from the calculation of the 
aggregate payments for excess readmissions.
    For FY 2013, we are finalizing a methodology to calculate aggregate 
payments for excess readmissions, using MedPAR claims from July 1, 2008 
to June 30, 2011, to identify applicable conditions based on same ICD-
9CM codes used to identify the conditions for the readmissions measures 
and to apply the exclusions for the types of admissions discussed 
above, which are currently identifiable on the claim in MedPAR.
    Comment: One commenter stated that a claim that the Recovery Audit 
Contractor (RAC) determines should have been provided in the outpatient 
setting and subsequently is denied as an inpatient should not be 
included in the calculation of a hospital's readmissions adjustment. 
The commenter sought clarification on whether the Common Working File 
(CWF) has been updated for RAC denials. The commenter stated that if a 
claim was subsequently denied for inpatient status, it should be 
removed from inpatient claims data set used for calculation of a 
hospital's readmission adjustment.
    Response: In the FY 2013 IPPS/LTCH PPS proposed rule, we proposed 
to use the MedPAR claims data as our data source to calculate the 
excess payments for readmissions and payments for all discharges. 
Specifically, we proposed to use MedPAR data for discharges from July 
1, 2008 through June 30, 2011, and we proposed 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 March 2012 update of the FY 2011 MedPAR file to 
identify claims within FY 2011. We proposed to use these MedPAR 
updates, as it is consistent with the inpatient claims data set used in 
IPPS ratesetting.
    The RACs have up to 3 years to review claims to determine whether a 
claim was inappropriately billed as inpatient when it should have been 
an outpatient claim. If a claim is denied as an inpatient stay, the 
claim is adjusted through the standard Medicare claims processing 
systems, going through the CWF and MedPAR. However, given the timing of 
the RAC audits and the updates of the MedPAR used to calculate the 
readmissions payment adjustments, it is not certain that all denied 
claims will be reflected in MedPAR at the time of our analysis. To the 
extent that those RAC determinations are made within the timeframe of 
the updates of MedPAR, those denied inpatient claims will not be 
included in the MedPAR or in the calculation of the readmissions 
payment adjustment. We believe that using the updates of the MedPAR 
used in annual IPPS rate setting allows for us to use a complete 
inpatient claims data set and allows for transparency for the public to 
obtain this dataset to replicate our calculations.
    In this final rule, we are finalizing our proposal to use MedPAR to 
calculate the readmissions payment adjustment factors without 
modification.
    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 the preamble of the 
proposed rule, we proposed 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 proposed to identify the base 
operating DRG payment amount for such conditions based on the payment

[[Page 53391]]

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 the preamble of the proposed 
rule, 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 set to expire at the end 
of FY 2012, 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 proposed 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.
    We did not receive public comments on our proposal for current MDHs 
and SCHs to model the ``base operating DRG payments'' as they would 
have been paid under the Federal standardized amount, rather than using 
the information on the claim in MedPAR (which may represent a payment 
either made under the hospital-specific rate or the Federal rate) to 
calculate their ``aggregate payments for excess readmissions, so that 
their payments are consistent with our definition of base operating DRG 
payment.
    As discussed earlier, we proposed 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 proposed to calculate 
the base operating DRG payment amounts for all the claims in the 3-year 
applicable period that list each applicable 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 proposed to sum 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 proposed 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 proposed that the 
excess readmission ratios for each condition used to calculate the 
numerator of this ratio are excess readmission ratios that had gone 
through the proposed review and correction process described in the FY 
2013 IPPS/LTCH PPS proposed rule. Each product in this computation 
represents the payment for excess readmissions for that condition. We 
proposed 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 equal to or 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.'' In the FY 2013 IPPS/LTCH PPS proposed rule, we 
proposed to use the same MedPAR files to calculate the denominator as 
we proposed to use to calculate the numerator, for the 3-year 
applicable period of July 1, 2008 to June 30, 2011, for FY 2013. We 
proposed to calculate base operating DRG payments in the same manner as 
we calculate base operating DRG payments for the numerator. We proposed 
to sum the base operating DRG payment amounts for all Medicare FFS 
claims for such hospital during the 3-year applicable period. We also 
proposed 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 did not receive any public comments regarding our proposed 
calculation of ``aggregate payments for all discharges'' and we are 
finalizing it as proposed without modification.
    We proposed 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 proposed 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 proposed at 42 CFR 
412.152, we proposed 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 the proposed rule, for the purpose of modeling the proposed 
aggregate payments for excess readmissions and the proposed 
readmissions adjustment

[[Page 53392]]

factors, we used 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 had 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, had not been through the review and correct process required 
by section 1886(q)(6) of the Act (as discussed below). As we stated in 
the proposed rule, for this final rule, we are using 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 had the opportunity to review 
and correct these data before they were 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.
[GRAPHIC] [TIFF OMITTED] TR31AU12.015

    Comment: Several commenters supported our methodology to calculate 
the readmissions payment adjustment factor. Commenters supported 
calculating the adjustment factor as 1 minus the ratio of the 
hospital's aggregate payments for excess readmissions for applicable 
conditions to the hospital's aggregate payments for all discharges for 
applicable conditions. Commenters supported determining the hospital's 
aggregate payments for all discharges for applicable conditions based 
on our proposed definition of the base operating DRG payment amount, 
and commenters supported our proposal to determine the hospital's 
aggregate payments for excess readmissions by multiplying the 
hospital's aggregate payments for all discharges for an applicable 
condition by 1, minus the hospital's excess readmissions ratio.
    Some commenters stated that it is unclear why the proposed 
numerator of the readmission payment adjustment factor, or the 
calculation of the excess payments for readmissions, is based on total 
admissions for each condition, when the purpose of the Hospital 
Readmissions Reduction Program is to reduce only preventable 
readmissions. Commenters stated that our proposed methodology to 
calculate the readmission payment adjustment factor should amend the 
legislative language in the formula for calculating the readmissions 
adjustment factor. The formula as proposed stipulated that the amount 
of aggregate payments due to excess readmission is calculated by 
multiplying the number of admissions for the condition times the 
average base DRG payment for the condition and the ``excess readmission 
ratio.'' The excess readmissions ratio is defined as the ratio of the 
number of actual readmissions as compared to the number of expected 
readmissions for the clinical condition. However, commenters contended 
that the formula should specify that the calculation should be based on 
the number of expected readmissions in each condition, not the total 
number of admissions. They urged that we replace the words ``number of 
admissions'' with ``number of expected readmissions'' so that the 
formula for the aggregate payments for excess readmissions calculates 
the number of expected readmissions for each condition and not the 
total number of admissions.
    One commenter believed that the proposed formula produces penalties 
that are higher than Medicare payments for excess readmissions, 
although the full impact is mitigated because of the proposed maximum 
penalty for FY 2013 of 1 percent of base operating DRG payments. The 
commenter believed that our proposed methodology to calculate the 
readmissions payment adjustment factors conforms to the statute. 
However, the commenter suggested long-term changes to the formula to be 
more proportionate to the cost of readmissions, such as examining the 
issue of shrinking excess readmission computations towards the national 
mean and appropriate changes to account for excess payments for 
readmissions.
    Commenters believe that our proposed methodology to calculate the 
readmissions payment adjustment overestimates the excess payments for 
readmissions resulting in an excessive readmission payment adjustment 
and is not consistent with Congressional intent. Commenters believed 
our proposed readmissions payment adjustments are excessive as evident 
by the Congressional Budget Office (CBO) score for the provision at 
$100 million while our estimates of the Hospital Readmissions Reduction 
Program published in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
28172) was approximately $300 million.
    Response: We believe that the statute is prescriptive with respect 
to the calculation of ``aggregate payments for excess readmissions'' 
where the statute

[[Page 53393]]

specifies that the ``aggregate payments for excess readmissions'' is 
the sum for each condition of the product of ``the operating DRG 
payment amount for such hospital for such applicable period for such 
condition'' and ``the number of admissions for such condition'' and 
``the excess readmission ratio'' minus one. We believe that section 
1886(q)(4)(A) of the Act requires us to include all admissions for a 
condition in the calculation of ``aggregate payments for excess 
readmissions.''
    Our estimate of $300 million in savings associated with the 
Hospital Readmissions Reduction Program published in the FY 2013 IPPS/
LTCH PPS proposed rule was based on different data that were not 
available to the CBO at the time of the CBO estimate. Furthermore, we 
potentially used different assumptions in our methodology to estimate 
the savings of this Hospital Readmissions Reduction Program as compared 
to CBO. Our proposed readmission payment adjustment factors were 
calculated using excess readmission ratios based on hospitals' 
readmissions performance from July 1, 2007 to June 30, 2010, which was 
not available at the time of the CBO estimate. In addition, our 
calculation for ``aggregate payments for excess readmissions'' and 
``aggregate payments for all discharges'' were based on MedPAR claims 
data from July 1, 2007 to June 30, 2010, which was also not available 
at the time of the CBO estimate. Finally, we applied the proposed 
readmission payment adjustment factor to our estimated FY 2013 IPPS 
base operating DRG payments to determine the savings associated with 
the Hospital Readmissions Reduction Program and our FY 2013 IPPS base 
operating DRG payments were likely based on different assumptions than 
the CBO's estimate published in 2010. Therefore, it is difficult to 
assess the precise differences between our estimate of this provision 
and the CBO's estimate. Nonetheless, we believe that we are 
implementing the provision as required by law.
    Comment: Several commenters requested that CMS make additional 
adjustments to the calculation of the readmissions payment adjustment 
factor to account for differences in the readmissions payment 
adjustment factors for hospitals that treat a high proportion of 
patients of low socioeconomic status. Commenters made a number of 
suggestions as to how to modify the readmissions payment adjustment 
factors. One commenter suggested that CMS and Congress could apply a 
uniform percentage reduction to all hospitals' expected readmission 
rates, which the commenter believed would be a budget neutral change. 
The commenter urged CMS and Congress to intervene somehow to correct an 
inequity affecting the nation's most vulnerable hospitals and Medicare 
beneficiaries.
    Another commenter suggested that CMS offer a one-time opportunity 
to waive the payment reduction for safety net and other hospitals that 
serve a higher-than-average proportion of patients of low socioeconomic 
status and are found to be at risk of experiencing a payment reduction. 
In return, the commenter suggested that these hospitals would be 
required to submit a comprehensive and aggressive preventable 
readmission rate improvement plan that centers on collaboratively 
engaging with the patients, their families, consumer organizations and 
community supports, to address the various factors that are causing 
preventable readmissions in their local community. The commenter stated 
that this approach should have a time limit (for example, 6 months) on 
how long the hospital would have for submitting and implementing the 
plan and another well-defined (for example 6 months) timeframe for 
monitoring and reporting results to CMS.
    Some commenters requested that CMS postpone implementation of the 
Hospital Readmissions Reduction Program until it has made adjustments 
to the measures to account for socioeconomic status. One commenter 
requested postponing the application of the readmissions payment 
reduction to safety net hospitals that serve a vulnerable population 
while these hospitals develop programs to reduce readmissions.
    Commenters suggested that CMS make an adjustment to the readmission 
payment adjustment factors to account for a hospital's proportion of 
dual-eligible patients. Commenters contended that dual-eligible status 
is a better predictor of readmission rates because it reflects Medicare 
beneficiaries, which is what the readmissions measures are based on.
    In addition, commenters suggested that CMS make a hospital-level 
adjustment based on DSH. Commenters asserted that because the number of 
hospitals that will receive the maximum penalty in the first year jumps 
sharply between the sixth and seventh deciles for hospital's DSH 
Patient Percentage, the commenters suggested that any hospital-level 
adjustment based on DSH be applied to the top four deciles.
    Response: We thank the commenters for their suggestions on 
modifying the readmission payment adjustment to account for differences 
in the socioeconomic status of patients treated by hospitals. As stated 
earlier, we continue to believe that we need to examine the 
relationship of patient socioeconomic status and readmissions as it 
applies to the readmissions measures. As we have stated earlier, the 
readmissions measures, as endorsed by the NQF, do not include risk 
adjustments for socioeconomic status. Currently, the NQF does not 
support risk adjustments based on socioeconomic status, as the NQF 
believes it can create different standards of quality for hospitals 
that treat a higher proportion of patients with low socioeconomic 
status. Risk adjusting the readmissions measures for socioeconomic 
status can obscure differences in the quality of health care. 
Similarly, applying an adjustment to the readmissions payment 
adjustment factors can also create different standards of quality for 
hospitals based on the socioeconomic status of the patients treated. 
Applying an adjustment to the readmissions payment adjustment factors 
at this point to account for socioeconomic status rather than 
determining whether a risk adjustment for socioeconomic status would be 
appropriate for the readmissions measures could appear as circumventing 
the NQF's position on the application of a risk adjustment for 
socioeconomic status on the readmissions measures. We note that, to the 
extent that dual eligible patients or patients of low socioeconomic 
status have higher readmission rates because they are sicker or have 
more comorbidities, we already account for comorbidities in the risk 
adjustment for the excess readmission ratios. Since, we believe that 
all hospitals should be working towards the goal of reducing 
readmissions, on an ongoing basis, regardless of their patient 
population, we believe that we do not need to postpone the 
implementation of the readmission payment adjustments in order to 
provide additional time to hospitals to implement readmission reduction 
programs. While we are not incorporating any special adjustments for 
SES in the readmissions reduction program at this time, we remain 
concerned about the impact of this provision on hospitals that serve a 
high proportion of low income patients. We will continue to monitor the 
issue of the relationship of a patient's socioeconomic status and a 
hospital's readmission performance, and how it affects payments to 
hospitals.
    Comment: One commenter recommended that CMS apply the

[[Page 53394]]

readmissions adjustment in a manner that norms the calculation of the 
adjustment factor on the risk-adjusted readmission rate that is 
achieved by at least 25 percent of hospitals rather than on the average 
readmission rate.
    Response: The excess readmission ratio, finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51673), measures a hospital's 
performance on readmissions for a specified condition relative to the 
national average. The methodology to calculate the excess readmission 
ratio is endorsed by the NQF, as required at section 1886(q)(5)(C) of 
the Act. We did not propose any changes to the methodology to calculate 
the excess readmission ratio. Accordingly, we are not modifying the 
methodology to calculate the excess readmission ratio to compare a 
hospital's performance on readmissions relative to the 25th percentile 
of national performance, as opposed to the average.
    Comment: One commenter questioned the statistical difference in the 
excess readmission ratio for a hospital that has an excess readmission 
ratio slightly above 1 and thus, subject to the payment penalty, versus 
a hospital that has an excess readmission ratio slightly below 1, and 
not subject to the penalty. The commenter asked that CMS consider the 
equitability of this policy approach and recommended the remunerative 
framework account for the confidence intervals surrounding the 
estimated Risk Standardized Readmission Rates and Ratios in determining 
future penalties for excess readmissions. The commenters believed that 
omitting a control for statistical significance exposes a large number 
of hospitals to financial penalties based on random variation. They 
recommended that CMS account for the confidence intervals surrounding 
the estimated Risk Standardized Readmission Rates and Ratios in 
determining future penalties for excess readmissions.
    Response: We thank the commenter for raising the issue of 
statistical reliability of the excess readmission ratio and for 
recommending the use of confidence intervals in determining whether or 
not to use a hospital's excess readmission ratio in the calculation of 
a hospital's readmission payment adjustment factor. We finalized our 
methodology of the calculation of the excess readmission ratio in the 
FY 2012 IPPS/LTCH PPS final rule, which results in the use of the point 
estimate as a hospital's excess readmission ratio.
    We will consider the role, if any, of confidence intervals in 
determining a hospital's excess readmission ratio. We recognize that 
because the excess readmission ratio is a statistical measure, there 
may be some degree of variation. However, there are other Medicare 
programs, not limited to the Hospital Readmissions Reduction Program, 
that use statistical measures as part of their program, so any 
consideration to confidence intervals made with respect to the Hospital 
Readmissions Reduction Program may have implications for other 
programs. We will evaluate this concern and address it in a future 
rulemaking, if needed.
    Comment: Several commenters suggested that CMS take into 
consideration a hospital's improvement on readmissions in the 
calculation of the readmissions payment adjustment factor. One 
commenter noted that because measurement is based on 3 years' worth of 
data, it will be difficult for low performing hospitals to move out of 
being penalized, and the Hospital Readmissions Reduction Program does 
not reward for improvement as the Hospital VBP Program does, but only 
measures achievement. The commenter noted that this could result in low 
performing hospitals being unable to ever get out of the penalty phase.
    Response: We appreciate the concerns raised by the commenters. The 
Hospital Readmissions Reduction Program is structured to apply a 
payment reduction to hospitals with excess readmissions, as measured by 
having worse performance on readmissions for certain conditions 
compared to the average hospital. The readmission payment adjustment 
under section 1886(q)(1) of the Act does not allow for us to provide a 
reward for quality improvement, which is allowed under section 1886(p) 
of the Act for the Hospital VBP Program. We believe that hospitals do 
have the opportunity to not be subject to a reduction to payments due 
to excess readmissions if they can perform better than the average 
hospital in the future. We update the data annually with the most 
recently available 3 years of data, and we use 3 years of data in order 
to have sufficient data to reliably measure a hospital's performance.
    Comment: Commenters sought clarification on how the readmissions 
payment adjustment factors would be applied to a hospital's base 
operating DRG payment amount. Commenters asked whether the readmissions 
payment adjustment factors would be applied on a per claim basis or at 
cost report settlement. Commenters asked how the IME, DSH, and outlier 
payments would not be affected by the readmissions payment adjustment 
factor when the IME, DSH and outlier payments are adjustments currently 
determined from the base operating DRG payment amount, and the 
readmissions payment adjustment factor reduces the base operating DRG 
payment amount. Commenters asked if there would be changes to the cost 
report and to the PS&R to account for the implementation of the payment 
adjustment for excess readmissions. In addition, commenters noted that 
the effective date of the Hospital Readmissions Reduction Program is 
October 1, 2012, which straddles the cost reporting period for many 
hospitals, and asked for clarification on how that would be accounted 
for with respect to the Medicare hospital cost report.
    Commenters also stated that the statutory intent of the 
readmissions payment adjustment factor is that the factor should not be 
applied to payments for all admissions, but rather to payments for 
initial admissions with at least one readmission. Commenters requested 
clarification whether the readmissions payment adjustment factors will 
apply to only Medicare discharges for AMI, PN or HF; or whether the 
readmissions payment adjustment factor will apply to all discharges. 
The commenters believed that the readmissions payment adjustment factor 
should only be applicable to the specific populations included in the 
program rather than the entire Medicare population.
    Response: We are clarifying that, for FY 2013, a hospital's 
payments will be reduced by the amount of the product of the 
readmissions payment adjustment factor and the base operating DRG 
payment amount (as defined as the wage-adjusted DRG payment amount), on 
a per-claim basis for all Medicare FFS discharges occurring on or after 
October 1, 2012. In other words, the payment amount the hospital would 
otherwise receive in FY 2013 in absence of the Hospital Readmission 
Reduction Program will be reduced by the an amount for excess 
readmissions (determined as the product of the readmissions payment 
adjustment factor and the base operating DRG payment amount). Section 
1886(q)(1) of the Act specifies that ``the Secretary shall make 
payments * * * in an amount equal to the product of (A) the base 
operating DRG payment amount for the discharge; and (B) the adjustment 
factor * * *.'' Therefore, it requires us to apply the readmissions 
payment adjustment factor to all discharges, not just discharges for 
initial admissions with a readmission or admissions for the applicable 
conditions. We note that the readmissions payment adjustment factor is 
inversely proportional to the

[[Page 53395]]

aggregate payments for all discharges (in the formula determining the 
excess readmissions ratio) so the adjustment factor appropriately 
reflects the relation between payments for excess readmissions and 
aggregate payments for all discharges.
    In addition, we intend to modify the Medicare hospital cost report 
and the corresponding cost reporting instructions, effective for FY 
2013, to account for the reductions to payments under the Hospital 
Readmission Reduction Program required by section 1886(q) of the Act 
(that is, the payment adjustment for excess readmissions). The current 
calculation of the additional payments for IME, DSH, outliers, and low-
volume hospitals will remain unchanged consistent with the statutory 
requirement that payments for outliers, IME, DSH, and low-volume 
adjustments are not affected by the adjustments made under the Hospital 
Readmissions Reduction Program.
    Currently, the cost report includes the base operating DRG payment 
for the cost reporting period and we use that line to determine add-on 
payments including payments for indirect medical education and 
disproportionate share hospital payments. This line will remain 
unchanged and will continue to be used to determine IPPS add-on 
payments, consistent with our policy that add-on payments for outliers, 
IME, DSH, and low-volume adjustments are not affected by the 
adjustments made under the Hospital Readmissions Reduction Program. We 
intend to modify the Medicare hospital cost report to include lines for 
base operating DRG payments by Federal fiscal year. For example, we 
will have a line that represents base operating DRG payments prior to 
October 1, 2012 and a line that represents base operating DRG payments 
after October 1, 2012. In addition, we intend to modify the Medicare 
hospital cost report with lines for the readmissions payment adjustment 
factor by Federal fiscal year and lines with the readmissions payment 
amount by Federal fiscal year that would be deducted from a hospital's 
Medicare payments. The readmissions payment amounts would be determined 
by applying the readmission payment adjustment factor to the base 
operating DRG payment amount by Federal fiscal year. We intend to 
modify the cost reporting instructions to account for these new 
calculations. In addition, for FY 2013, we will ensure that the cost 
reporting instructions account for the readmissions adjustment to only 
be made to base operating DRG payments for discharges on or after 
October 1, 2012. We intend to modify the PS&R to account for these 
changes as well.
    Comment: One commenter sought clarification as to whether the 
Hospital Readmissions Reduction Program is intended to replace the 
existing readmission review at Internet Only Manual (IOM) 100-04, 
Chapter 3, Section 40.2.5, or if both policies will exist together.
    Response: The Hospital Readmissions Reduction Program is not 
intended to replace the existing readmission review under IOM 100-04, 
Chapter 3, Section 40.2.5. IOM 100-04, Chapter 3, Section 40.2.5 of the 
Inpatient Claims Processing Manual provides guidance on appropriate 
billing practices for repeat admissions. In accordance with the manual, 
``a patient who requires follow-up care or elective surgery may be 
discharged and readmitted or may be placed on a leave of absence. 
Hospitals may place a patient on a leave of absence when readmission is 
expected * * * and providers may not use the leave of absence billing 
procedure when the second admission is unexpected.'' If a hospital uses 
the leave of absence billing code, two inpatient stay claims for the 
original admission and the repeat admissions are bundled as one 
inpatient claim with one DRG payment. These claims can be reviewed by a 
fiscal intermediary or MAC and referred to the QIOs. This is a separate 
billing procedure from the Hospital Readmissions Reduction Program and 
will continue to exist.
    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 the 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 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 invited 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

[[Page 53396]]

 
Highest DPP.............................               342               185                61                96
                                         -----------------------------------------------------------------------
    Total...............................             3,393             1,744               478             1,171
----------------------------------------------------------------------------------------------------------------

    In addition, we examined the estimated distribution of the proposed 
readmissions 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
------------------------------------------------------------------------

    Comment: Several commenters addressed the Medicare DSH analysis 
that was presented in the proposed rule. Several commenters could not 
replicate the DSH analysis and produce the same results presented in 
the proposed rule. Some commenters presented different results where 
they found that high DSH hospitals are, in fact, subject to higher 
readmission penalties. In addition, several commenters contended that 
DSH was not a good proxy to determine socioeconomic status. Commenters 
indicated that it is not uncommon for hospitals in areas with 
relatively affluent Medicare beneficiaries to qualify for DSH 
reimbursement due to the high volume of labor and delivery services 
provided to non-resident aliens. One commenter asked why CMS did not 
present a comparison table of the impacts to the DSH hospitals 
(approximately 1,882 hospitals) instead of the entire hospital 
population.
    Commenters indicated that hospitals with high disproportionate 
share patient percentages have higher excess readmission ratios. 
Commenters presented other analyses showing that hospitals with high 
DSH have higher readmission penalties. Commenters provided analyses 
where the results indicate that high DSH hospitals (defined as 
hospitals in the top 25th percentile for the DSH percentage) and 
hospitals located in large urban areas (defined as those Metropolitan 
Statistical Areas with more than one million population) are much more 
likely to receive a readmission penalty under the CMS proposal. The 
commenter found that high DSH hospitals located in large urban areas 
are 1.9954 times more likely to be penalized for heart attack than 
other hospitals, 2.5849 times more likely for heart failure, and 2.1915 
times more likely for pneumonia.
    Response: In the proposed rule, we used the proposed readmissions 
payment adjustment factors and the DSH disproportionate patient 
percentage (DPP) reported in the FY 2012 IPPS/LTCH PPS final rule 
Impact file, as it was the most recently available data at the time of 
our analysis. We note that, for hospitals that have a missing DPP, we 
assigned them a DPP of zero. We believe that may have been one 
potential source for differences in the results.
    We understand that there are several ways to measure socioeconomic 
status of a hospital's patient population and as we continue to monitor 
the issue of the relationship of a patient's socioeconomic status and a 
hospital's readmission performance, and how it affects payments to 
hospitals, we also can explore different measures of socioeconomic 
status, such as dual-eligible status. To the extent differences in 
readmission rates among hospitals treating a significant number of 
patients with low socioeconomic status are determined to 
inappropriately affect their readmission payment adjustment, we can 
work with NQF to explore options for improving the readmissions 
measures to promote high quality care, as appropriate.
    We understand that there have been different conclusions drawn from 
review of these data, and we will continue to work with MedPAC and 
other stakeholders to complete a more sophisticated analysis.
    Comment: One commenter suggested that CMS provide a level of 
statistical significance for our DSH analysis, as well as correlation 
factors between hospitals' actual DSH patient percentage

[[Page 53397]]

(as opposed their national decile) and the likeliness of receiving a 
readmissions adjustment, the magnitude of a readmissions adjustment, 
and the likeliness of reaching the maximum readmissions penalty.
    Response: At this time, we are unable to produce a rigorous 
analysis showing the relationship of a hospital's actual DSH patient 
percentage and their likeliness of receiving a readmissions adjustment, 
the magnitude of a readmissions adjustment, and the likeliness of 
receiving the maximum adjustment of -1.0 percent. However, we will 
research these issues in the upcoming year and, if significant, we will 
present our findings in future rulemaking.
e. 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. An Indian Health Services hospital 
enrolled as a Medicare provider meets the definition of a subsection 
(d) hospital and, therefore, is considered an applicable hospital under 
the Hospital Readmissions Reduction Program, even if it is 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 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. 
Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27966), 
consistent with the statute, we proposed 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 proposed 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 the proposed rule used a subset of 
the claims used to calculate the readmission rates reported on Hospital 
Compare for the purpose of the Hospital IQR Program and are limited to 
admissions and readmissions to ``applicable hospitals'' and are based 
on the period of June 30, 2007 to July 1, 2010. In the proposed rule, 
we used these excess readmission ratios, as they were based on the most 
recent data available and would 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 it was 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. As we stated in the proposed 
rule, for this final rule, we are using 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 have had the 
opportunity to review and correct their data related to their excess 
readmission ratios prior to the publication of those excess readmission 
ratios.
    We specifically invited 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.
    Comment: Commenters urged CMS to align the Hospital Readmissions 
Reduction Program with the clinical quality measure requirements of the 
Hospital IQR Program.

[[Page 53398]]

    Response: As discussed above, 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, the excess 
readmission ratios used in the final rule 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.'' We have 
aligned the methodology for readmission measures in the Hospital IQR 
Program and the Hospital Readmissions Reduction Program as much as is 
allowed by statutory requirements.
    Comment: Some commenters supported our proposal to include 
subsection (d) hospitals and Maryland hospitals in our definition of 
``applicable hospital'' for the Hospital Readmissions Reduction 
Program. One commenter asked CMS to waive the requirements of the 
Hospital Readmissions Reduction Program for hospitals that participate 
in an accountable care organization (ACO) under the Medicare Shared 
Savings Program or the Pioneer ACO Model. The commenter argued that 
hospitals that participate in ACOs are already subject to incentives to 
reduce hospital readmissions, are already measured for their 
performance on all conditions for readmissions; therefore, to include 
these hospitals in the Hospital Readmissions Reduction Program is 
redundant. The commenter argued that CMS has the authority to waive 
Title XVIII requirements, including the requirements of the Hospital 
Readmission Reduction Program, for these hospitals under the waivers 
provided under sections 1115A(d)(1) and 1899(f) of the Act.
    Response: We appreciate the suggestion submitted by the commenters 
to exempt hospitals from the Hospital Readmissions Reduction Program if 
they already participate in an ACO under the Medicare Shared Savings 
Program or the Pioneer ACO Model. We agree that ACOs are encouraged to 
improve quality of care and reduce the rate of growth in expenditures. 
We also agree that avoidable readmissions is an area in which we 
believe an ACO's coordination of care and accountability can have a 
significant impact in improving patient care. To that end, we finalized 
an all-condition readmission quality measure in the Medicare Shared 
Savings Program Final Rule. This measure is also used to assess quality 
of care furnished by ACOs participating in the Pioneer ACO Model. 
However, the waivers under sections 3021 and 3022 of the Affordable 
Care Act permit us to waive provisions of Title XVIII only to the 
extent that such a waiver may be ``necessary'' in order to carry out 
those sections. In this case, because the incentives of the Hospital 
Readmissions Reduction Program and the Medicare ACO initiatives are 
aligned, we see no need to waive the requirements of the Hospital 
Readmissions Reduction Program in order to carry out either the 
Medicare Shared Savings Program or to test the Pioneer ACO Model.
    Indeed, because the incentives of the two programs are aligned, we 
believe that hospitals successful in reducing avoidable readmissions 
could be important allies for ACOs who share similar goals. Because it 
is unlikely that the beneficiaries assigned to ACO will use only a 
single inpatient facility, ACOs will need to work effectively with all 
local hospitals that their Medicare FFS beneficiaries choose to use.
    Finally, as we gain experience with the Shared Savings Program and 
other new payment incentives in the Medicare FFS program, we will 
monitor their interactions with the Hospital Readmissions Reduction 
Program and continue our efforts to align measures and incentives to 
achieve the best outcomes for our patients and the program.
    Comment: One commenter requested clarification regarding how 
hospitals participating in the Rural Hospital Community Demonstration 
Program will be impacted by the Hospital Readmissions Reduction 
Program.
    Response: As described, the applicable hospital is defined as a 
subsection (d) hospital or certain Maryland hospitals. Hospitals 
participating in the Rural Hospital Community Demonstration Program are 
subsection (d) hospitals and, thus, will be included in the Hospital 
Readmissions Reduction Program. Accordingly, we have calculated excess 
readmission ratios and readmissions payment adjustment factor for 
hospitals in the Rural Hospital Community Demonstration Program. If 
hospitals in the Rural Hospital Community Demonstration Program are 
subject to a readmissions payment reduction, the reduction will be 
applied to their base operating DRG amount as if they were paid under 
the IPPS. At cost report settlement, the readmissions payment amount 
subtracted from the hospital's base operating DRG amount will be 
reduced from the payments received under the demonstration.
    We are finalizing as proposed our definition of applicable 
hospitals 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. Furthermore, we note that 
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.
4. Limitations on Review (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.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR27966), we 
proposed 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.
    We did not receive any public comments on our proposals regarding 
the Limitations for Review; therefore, we are finalizing our proposals 
without modification, including the regulatory text at Sec.  
412.154(e).

[[Page 53399]]

5. Reporting Hospital-Specific Information, Including Opportunity To 
Review and Submit Corrections (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.
    As we stated in the proposed rule, 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 PPS final rule for each 
applicable hospital (76 FR 51671 through 51672). We stated that we 
intended 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, as we stated 
in the proposed rule, 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. In the proposed 
rule, we set forth the following 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 proposed 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 proposed 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. 
In order to meet the timelines for this program, we delivered these 
confidential reports and discharge-level data files to hospitals for 
the review and correction period on June 20, 2012.
    The review and correction process we proposed 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 1 year from the date of discharge 
to submit a claim to CMS. However, in using claims data to calculate 
measures for this program, we proposed 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 (90 days later), 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

[[Page 53400]]

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 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 proposed 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 proposed 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 welcomed public 
comments on the proposed review and corrections process for the 
Hospital Readmissions Reduction Program.
    Comment: One commenter disagreed with the use of the Common Working 
File (CWF) to calculate the readmission measures, stating that it does 
not contain final-action claims for all of the discharges eligible to 
be used to calculate excess readmission ratios.
    Response: The excess readmission ratios are calculated using only 
the final action claims (that is, we do not include canceled/edited 
claims) from the CWF available as of September 30, which are published 
in the Inpatient Standard Analytic File (SAF). Calculations include 
claims processed by CMS as of the following dates: June 26, 2009 for 
July 1, 2007 through June 30, 2008 claims; June 25, 2010 for July 1, 
2008 through June 30, 2009 claims; June 24, 2011 for July 1, 2009 
through June 30, 2010 claims; and September 30, 2011 for July l, 2010 
through June 30, 2011 claims. Claims and corrections processed after 
these dates are not reflected in the calculations. Thus data between 
2008 and 2010 include more than 6 months of run-out period, and 2011 
data contain a 3-month run-out period to allow as many corrected and 
final-action claims to be incorporated. These are the most recent final 
action data that can be used to meet the timeline of the program need. 
We encourage hospitals to submit claim corrections as early as possible 
and to ensure the quality of the data they submitted for 
reimbursements. If CMS waits for final-action claims for all eligible 
discharges to be included in the data, then the excess readmission 
ratios will be based on old data, which will limit its usefulness for 
hospitals to review and improve their care delivery processes. 
Therefore, we have encouraged hospitals to submit claim corrections as 
early as possible and to ensure the quality of the data they submitted 
for reimbursements. We will continue to research and seek public 
comments on alternative data sources that might provide measure results 
that are as accurate and are more timely than the CWF. The CWF will be 
used for the calculation of excess readmission ratios for the Hospital 
Readmissions Reduction Program as finalized in the FY 2012 IPPS/LTCH 
final rule (76 FR 51671 through 51672).
    Comment: One commenter appreciated the release of additional 
hospital specific data and ``excess readmission rates'' data prior to 
the implementation of the program, as well as the readmission 
information and patient's risk factors.
    Response: We thank the commenter for the recognition and we are 
committed to foster transparency, provide accurate data to hospitals 
for quality improvement, and, ultimately, timely calculate readmission 
adjustment factors for base operating DRG payments.
    Comment: One commenter thanked CMS for the 30-day review and 
correction period while one commenter

[[Page 53401]]

requested the review and correction period be extended to 60 days.
    Response: We appreciate the commenter's support of the 30-day 
review period. We note that, in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51672 through 51673), we adopt the same preview and correction 
process and timeframe used for subsection (d) hospitals for the rates 
calculated for the Hospital Readmissions Reduction Program. That is, we 
provide hospitals with an opportunity to preview their readmission 
rates for 30 days prior to posting on the Hospital Compare webs site. 
This process meets the statutory requirement in section 1886(q)(6)(B) 
of the Act which requires the Secretary to ensure that a subsection (d) 
hospital has the opportunity to review and submit corrections before 
the information to be made public with respect to the hospital * * * 
prior to such information being made public.
    Aside from the statutory requirements, we also considered hospital 
experience with the measure and data production timeline in proposing 
the 30-day preview period. In terms of hospital experience with the 
measures, while the Hospital Readmissions Reduction Program is new, 
subsection (d) hospitals are already familiar with the three 30-day 
risk-standardized readmission measures that the Program uses to 
determine payment adjustment. In particular, these three measures were 
first publicly reported by the former Reporting of Hospital Quality 
Data for Annual Payment Update (RHQDAPU) program (currently known as 
the Hospital IQR Program), back in 2009. The measure results have been 
reported annually since then and have recently been updated in July 
2012. To help hospitals understand the methodology for these measures 
and the calculation and interpretation of measure results, we have made 
publicly available the latest version of the methodology reports, a 
Frequently-Asked-Question list, a mock hospital-specific report, and a 
mock discharge-level data file for these measures on the QualityNet Web 
site. The measures methodology for the Hospital Readmissions Reduction 
Program is the same as that for the Hospital IQR Program. Because 
hospitals are working with measures in which they have prior experience 
from the Hospital IQR Program, we believe that a 30-day preview period 
is sufficient for hospitals to review and correct their excess 
readmission ratios.
    In terms of data production timeline, due to the complexity of 
these measures and the need for bootstrapping in measure calculations, 
a significant amount of programming resources is needed. It took 
several months to complete the production and extensive quality 
assurance procedures for the results for more than 3,500 hospitals. As 
a result, we will not be able to begin the preview period earlier than 
late June. Also, we will not be able to extend the preview period to 
more than 30 days. This is because if hospitals find data problems that 
we determine to be attributable to our calculation or programming 
errors, we will need adequate time between mid-July and the end of 
September to: (1) Recalculate the excess readmission ratios; (2) 
regenerate and redisseminate corrected results to hospitals in time for 
payment adjustment in early October (the beginning of the subsequent 
fiscal year); and (3) publicly report the excess readmission ratios on 
the Hospital Compare Web site in mid-October to meet the statutory 
reporting requirements under section 1886(q)(6) of the Act. Based on 
the above reasons, we cannot change the review and correction timeframe 
to 60 days.
    Comment: One commenter requested that, for self-validation 
purposes, CMS provide each hospital with a downloadable database 
containing all of the claims data used to calculate the hospital's 
readmission rates. One commenter recommended that CMS provide hospitals 
with additional claim information documenting the first physician/
licensed independent practitioner visit post index discharge and prior 
to readmit (days from discharge to first visit). The commenter stated 
that the first follow-up provider information is critical to decreasing 
readmissions. Another commenter was concerned that limited access to 
the claims data will impair hospitals' ability to self-validate our 
results.
    Response: We considered several factors in deciding the amount of 
information that CMS provides to hospitals for the review and 
correction process. These factors are: Confidentiality of information, 
our resources, and feasibility for hospital providers to process the 
data.
    For the purposes of the Hospital Readmissions Reduction Program 
data, we have decided to provide as much of the claims-based 
information that is pertinent to the calculation of the excess 
readmission ratio so that hospitals can verify the accuracy of these 
calculations and engage in outreach and coordination with readmitting 
hospitals. Providing the entire raw claims history for index admissions 
and for subsequent services after discharge would provide more 
information than would be necessary in hospitals' effort to review 
their excess readmission ratios. To protect sensitive patient 
information, and to avoid burden and confusion to hospitals, we are 
careful not to include data elements that are not relevant for the 
review and correction process.
    Furthermore, providing all subsection (d) and Maryland hospitals 
with all the claims data will require a large amount of resources, 
infrastructure changes and exert significant financial burden on these 
hospitals and on taxpayers. We have already provided supplemental 
discharge-level data to hospital providers to review qualified 
individual readmissions, including primary diagnosis at index and 
readmission stays, where the patient was readmitted, dates of index and 
readmission stays, and individual risk factors, and instructions for 
replicating their excess readmission ratios.
    Additionally, we have also set up a Help Desk for hospitals to 
inquire about their results. This Help Desk has access to all the 
claims data used for the calculation of the hospitals' excess 
readmission ratios, and is highly experienced in assisting hospitals 
with the results of the 30-day risk-standardized readmission measures. 
Therefore, we believe that the proposed review correction policies are 
adequate. We are working to identify new methods to provide hospitals 
with accurate and timely data to improve their care delivery processes 
to reduce readmission rates. We encourage hospitals and other 
healthcare providers to provide us with recommendations for this 
effort.
    After consideration of the public comments received, for the review 
and correction process, we are finalizing the policies of providing 
applicable hospitals with: (1) a period of 30 days to review and submit 
corrections for their excess readmission ratios for the Hospital 
Readmissions Reduction Program; and (2) confidential reports and 
accompanying confidential discharge-level information (this includes 
the excess readmission ratios, 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).

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) generally as a hospital that is located more than 35 
road miles from another hospital or that, by reason of factors such as 
isolated location,

[[Page 53402]]

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. Reporting Requirement and Clarification for Duration of 
Classification for Hospitals Incorrectly Classified as Sole Community 
Hospitals (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 Medicare administrative contractor (MAC) within 30 days 
of a change 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. Sec.  412.92(b)(3)(ii)(A) through (b)(3)(ii)(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 of the 
classification changed, CMS determined that an SCH's classification 
status would generally 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(b)(3)(i)).
    For any change that is not listed under Sec.  Sec.  
412.92(b)(3)(ii)(A) through (b)(3)(ii)(E) that affects an SCH's 
classification status, CMS requires a hospital to report that change to 
the fiscal intermediary or MAC if it ``becomes aware'' of the change. 
If a hospital does not report a change, other than those listed under 
Sec. Sec.  412.92(b)(3)(ii)(A) through (b)(3)(ii)(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.)
    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 appropriately classified as an 
SCH because it had previously met the requirements to become an SCH. We 
believe that this requirement was not intended to preclude situations 
where a hospital was incorrectly classified as an SCH. However, the 
regulations did 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. Therefore, we believe it would be 
prudent to explicitly address this situation in the regulations.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27968 and 27969), 
we proposed to add 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. We 
proposed that any factor or information, not only a change or an event 
that could have affected a hospital's initial SCH classification must 
be reported by the SCH to its fiscal intermediary or MAC.
    Our proposed regulation stated 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 payments associated with the incorrect SCH 
classification for the entire time period, consistent with the 
reopening rules at Sec.  405.1885.
    Comment: Many commenters contended that a hospital should not be 
accountable for any errors it made inadvertently and is unaware of or 
for any errors made by CMS or the Medicare contractor. Commenters 
requested confirmation and clarification regarding a number of issues, 
such as: (1) The circumstances under which the reporting obligation is 
triggered; (2) the timeframe involved in making a report to CMS; and 
(3) what factor or information must be reported.
    Response: We realize that a hospital could have been incorrectly 
classified as an SCH based on an inadvertent error by the hospital, 
CMS, or the contractor. However, an error is not adequate justification 
to maintain a hospital's SCH status and to provide higher payments 
under the Medicare program. However, in light of the public comments, 
we are modifying our proposed change in this final rule so that, 
effective October 1, 2012, if a hospital reports any factor or 
information that could have affected its initial classification as an 
SCH, and CMS determines that, based on the additional information, the 
hospital should not have qualified for SCH status, we will only revoke 
SCH status prospectively, effective 30 days from CMS' date of 
determination. We note that this reopening limitation does not apply to 
situations where there was fraud involved. If a hospital knowingly 
misled CMS or deliberately submitted incorrect information in its 
initial classification, different procedures would apply. These 
procedures would include recouping incorrect payments associated with 
the fraudulently awarded SCH classification.
    This policy, as revised in this final rule, will allow a hospital 
that reports to CMS any factor or information that could have affected 
its initial classification as an SCH to have its SCH classification 
removed prospectively only. A hospital is only required to report to 
CMS any available information that would have affected its initial 
classification as an SCH under the regulations that were effective at 
that time. We are not requiring hospitals to

[[Page 53403]]

continuously monitor subsequent year data from other hospitals such as 
changes in patient origin data. However, information that could have 
affected its classification as an SCH at the time of its initial SCH 
determination is required to be reported to CMS.
    For example, if hospital A is classified as an SCH and the distance 
between itself and hospital B is such that it may have been classified 
as an SCH in error, hospital A would be required to report this to CMS. 
If the hospital reports this issue to CMS, and CMS determines in fact 
that the distance between hospital A and hospital B would have 
precluded hospital A from being classified as an SCH using the 
qualification criteria that were in place at the time of its initial 
classification, we would remove the hospital's SCH status effective 30 
days from the date that CMS determines that Hospital A should not have 
qualified for SCH status. However, if hospital A does not report to CMS 
that hospital B's proximity to hospital A may have been overlooked in 
its initial classification as an SCH, and CMS finds that hospital A 
should never have qualified as an SCH, CMS has the discretion to recoup 
the overpayments associated with erroneous SCH status, in accordance 
with cost reporting reopening rules at Sec.  405.1885, that is, for 
cost reporting periods that are within the 3-year reopening period. We 
believe this distinction between the effective date for hospitals that 
do and do not notify CMS of the possible error will encourage self-
reporting of possible errors. In cases where hospitals fail to report, 
CMS would have the discretion to reopen back to the earliest date 
possible in accordance with Sec.  405.1885. Such discretion would be 
available to rectify situations where hospitals were paid as SCHs even 
though they never initially met the classification standards for such 
status, and never reported the error to CMS.
    Accordingly, if a hospital suspects that it should not have 
qualified as an SCH at the time of its initial classification and the 
hospitals comes to CMS and requests that CMS determine whether it meets 
all of the requirements for SCH status, if CMS confirms that suspicion 
and the hospital in fact should never have been approved as an SCH, CMS 
will remove SCH status effective 30 days from CMS' date of 
determination.
    We note that this policy, as revised, is in addition to the 
requirements already in place in the regulations at Sec. Sec.  
412.92(b)(3)(i) through (b)(3)(iii) that require a hospital to notify 
CMS (that is, the fiscal intermediary or MAC servicing the hospital) of 
any changes that would affect its SCH status.
    Comment: Several commenters were concerned that our proposal could 
potentially revoke SCH status from a hospital's initial classification 
as an SCH, which could potentially span a few decades. One commenter 
suggested that CMS establish a ``look back'' period on which hospitals 
can rely and that CMS not reopen a prior SCH classification more than 3 
years after the initial determination simply because there is an open 
cost report due to an appeal or delayed payment. Many commenters 
objected to the retroactive cancellation of SCH classification claiming 
that this would be punitive.
    Response: We understand and appreciate the need to establish a 
limit to how far back CMS may rescind SCH status. Our proposal clearly 
stated that the withdrawal of SCH status could be made retroactively, 
consistent with the provisions at Sec.  405.1885, meaning that we may 
withdraw SCH status for cost reporting periods that are within the 3-
year reopening period only. Therefore, if a hospital was incorrectly 
approved as an SCH and the effective date of the original 
classification is still within the 3-year cost report reopening period, 
we could withdraw SCH status for all those periods in which it was paid 
incorrectly as an SCH starting with its initial date of classification. 
However, if the effective date of the original classification as an SCH 
was not within the 3-year cost report reopening period, we could only 
withdraw SCH status and any payments associated with that SCH status 
for those cost reporting periods subject to the reopening period. This 
is consistent with our reopening rules, and applies to any open cost 
report, regardless of the reason the report is still in an open cost 
reporting period. We note that our ordinary reopening rules do not 
distinguish the period available for reopening based on why a cost 
report may still be open. Finally, as stated above, CMS would have the 
discretion to reopen to the earliest date possible, consistent with 
Sec.  405.1885.
    Comment: Some commenters contended that the proposal undermines 
CMS' longstanding principle favoring prospective policy and that a 
hospital would never have total certainty that it qualifies as an SCH.
    Response: While we appreciate the commenters' concerns, we also 
believe that overpaying hospitals based on an erroneous classification 
that should never have been awarded undermines a payment system, and 
could even encourage attempts at misclassification. Our reopening rules 
have always provided authority to revoke overpayments associated with 
an erroneous SCH classification retroactively and in accordance with 
the cost report reopening rules. Our clarification in the regulation is 
merely codifying this already existing authority. We are simply making 
explicit what is already implicit in our authority and is not 
introducing a change in policy.
    Comment: Several commenters asserted that CMS' proposed regulation 
is unfair in that it would impose an unfair and burdensome obligation 
to continuously monitor data that may not be within a hospital's 
control. Other commenters suggested that CMS modify the proposed 
regulation to make it more consistent with the regulations at 
Sec. Sec.  412.92(b)(3)(ii) and (b)(3)(iii) which describe the way CMS 
handles the cancellation of SCH for a hospital where there was a change 
in circumstances under which the classification was approved.
    Response: We are not requiring hospitals to continuously monitor 
data nor are we requiring hospitals to report data that may not be 
within their control. A hospital would only be required to report any 
factor or information that would have affected its initial 
classification. We note that this policy is in addition to the 
requirements already in place in the regulations at Sec. Sec.  
412.92(b)(3)(i) through (b)(3)(iii) that require a hospital to notify 
CMS (that is, the hospital's fiscal intermediary or MAC) of any changes 
that would affect its SCH status. The information in question is data 
that are germane to the information on which the SCH classification was 
based. The factors and information that a hospital must report are a 
limited universe of data that was used during the hospital's initial 
classification.
    The modifications that we have made to the proposed regulation in 
this final rule would make the final regulation consistent with our 
existing regulations at Sec. Sec.  412.92(b)(3)(i) and (b)(3)(ii) where 
CMS cancels SCH classification in accordance with our reopening rules 
when the SCH fails to disclose a change in circumstance.
    Comment: Several commenters requested classification as to (1) 
whether the proposed regulation would apply to hospitals that were 
classified as SCHs before the implementation of IPPS; and (2) which 
standards and criteria would be used by CMS to determine whether or not 
the hospital qualified as an SCH in its initial classification.
    Response: We note that there are a few types of SCHs that have been 
classified as such under different sets of requirements:
    (1) A hospital that was granted SCH status and was granted an 
exemption

[[Page 53404]]

from cost limits pre-IPPS. Our regulations at Sec.  412.92(b)(5) state 
that a hospital that has been granted an exemption from the hospital 
cost limits before October 1, 1983, or whose request for the exemption 
was received by the appropriate intermediary before October 1, 1983, 
and was subsequently approved, is automatically classified as an SCH. 
In the September 1, 1983 final rule (48 FR 39780), we stated that a 
hospital would be classified as an SCH for purposes of the IPPS if the 
hospital has an approved exemption from hospital cost limits as an SCH 
prior to October 1, 1983, and that the hospital would retain SCH status 
unless there was a change in the circumstances affecting this 
classification under the cost limits.
    (2) A hospital that was classified as an SCH before the change in 
the law under section 6003(e)(3) of the Omnibus Budget Reconciliation 
Act of 1989 (Pub. L. 101-239). In the August 18, 2006 final rule (71 FR 
48061), we discussed that changes in criteria for being eligible for 
SCH status that were made by section 6003(e)(3) of Public Law 101-239. 
The law changed SCH criteria by reducing the number of miles between 
providers from 50 to 35 and by requiring the Secretary to establish a 
criterion that takes into consideration the travel time between two 
providers. Section 6003(e)(3) of Public Law 101-239 exempted hospitals 
that already had SCH status from meeting either of these requirements. 
In other words, any hospital that was correctly an SCH in 1989 is 
protected under this grandfathering provision from the new mileage 
criterion and whether or not it meets the new criterion for 
classification concerning travel time at Sec.  412.92(a)(3). However, 
we noted that this grandfathering provision is limited to these two 
circumstances. Hospitals with SCH designations in effect prior to 1989 
can lose SCH status if they fail to meet any of the other eligibility 
criteria.
    (3) A hospital that was designated as an EACH prior to October 1, 
1997. Under the regulations at Sec.  412.109, a hospital designated as 
an EACH is paid as an SCH as long as the hospital continues to comply 
with the terms, conditions, and limitations that were applicable at the 
time of designation.
    These hospitals are grandfathered in and are protected against 
later changes to SCH criteria or new interpretations of those criteria. 
Accordingly, these grandfathered SCHs would maintain their SCH status 
as long as they continue to meet the criteria under which they 
classified for payments as SCHs.
    In this final rule, we also are clarifying that we would apply the 
standards and regulations that were in effect at the time the hospital 
was initially classified as an SCH. That is, when CMS determines that a 
hospital never met the requirements to be classified as an SCH, we are 
referring to the requirements that were in place during the hospital's 
initial classification as an SCH. However, we note that the criteria 
for SCH classification have not been modified since we made changes to 
implement section 6003(e)(3) of the Omnibus Budget Reconciliation Act 
of 1989 (Pub. L. 101-239). Since that time, we have issued minimal 
reinterpretations in the actual criteria for classification. Therefore, 
we are confirming that we would not apply SCH criteria, standards, or 
interpretations that were not effective at the time of initial SCH 
classification to any hospital.
    Comment: Some commenters argued that the proposed regulation change 
is irreconcilable with our existing regulation which states that a 
hospital retains SCH status unless there is a change in the 
circumstances under which the classification was approved.
    Response: The commenters' argument is based on an incorrect 
assumption about the applicability of the existing regulations. That 
is, the existing regulations only address situations where a hospital 
was correctly classified as an SCH. The regulations were silent on 
hospitals that were initially classified incorrectly. If a hospital was 
classified as an SCH in error, clearly it would not take a ``change in 
circumstances'' to revoke SCH status.
    After consideration of the public comments we received, we are 
finalizing our proposed codification of our current authority to recoup 
any overpayments associated with incorrect SCH classification, 
consistent with cost report reopening rules at Sec.  405.1885. We also 
are making one modification to specify that, effective October 1, 2012, 
if a hospital subsequently reports any factors or information to CMS 
that could have affected its initial classification as an SCH and CMS 
determines that, based on the additional information, the hospital 
should not have qualified for SCH status, CMS will cancel SCH status 
effective 30 days from CMS' date of determination.
    As stated above, we also note that reopening limitation does not 
apply to situations where there was fraud involved. If a hospital 
knowingly misled CMS or deliberately submitted incorrect information in 
its initial classification, CMS will recoup incorrectly paid amounts 
from the date of the hospital's initial SCH classification.
3. Change to Effective Date of Classification for MDHs Applying for SCH 
Status Upon the Expiration of the MDH Program (Sec.  412.92(b)(2)(v))
    Under existing regulations at Sec.  412.92(b)(2), an 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, under 
Sec.  412.92 of the regulations, 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, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27969), we proposed to add an exception 
to the effective dates of SCH classification by adding a new paragraph 
(v) under Sec.  412.92(b)(2). We proposed 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 by August 31, 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.
    Comment: Commenters supported the proposal to provide for a 
seamless transition for MDHs than can qualify as SCHs, in anticipation 
of the expiration

[[Page 53405]]

of the MDH program. Commenters also requested that CMS provide 
hospitals with the ability to, in turn, rescind their new SCH status 
retroactively and reinstate their MDH status in a seamless manner if a 
retroactive extension to the MDH program is made.
    Response: We appreciate the commenters' support. The commenters' 
request that CMS make provisions for hospitals to transition from SCH 
status back to MDH status depends on legislation being passed for the 
MDH program. We typically do not create policy around actions that 
Congress may take in the future. However, if legislation is passed to 
continue the MDH program, we will develop policy to implement the 
specific provisions of such legislation.
    After consideration of the public comments received, we are 
finalizing our proposed change to the effective date of SCH status for 
MDHs losing their MDH status with the expiration of the MDH program. In 
order for an MDH to receive SCH status effective October 1, 2012, it 
must apply for SCH status at least 30 days before the end of the MDH 
program; that is, the MDH must apply for SCH status by August 31, 2012. 
The MDH also must request that, if approved as an SCH, the SCH status 
be effective with the expiration of the MDH program provision; that is, 
MDH must request that the SCH status, if approved, be effective October 
1, 2012, immediately after its MDH status expires with the expiration 
of the MDH program at the end of FY 2012, on September 30, 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 national median CMI 
value for FY 2013 includes data from all urban hospitals nationwide, 
and the 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 values are based on discharges occurring during FY 2011 (October 
1, 2010 through September 30, 2011), and include bills posted to CMS' 
records through March 2012.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27969), we 
proposed that, in addition to meeting other criteria, if rural 
hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
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. (We refer readers to the table set forth 
in the FY 2013 IPPS/LTCH PPS proposed rule at 77 FR 27970.)
    The final CMI criteria for FY 2013 are based on the latest 
available data (FY 2011 bills received through March 2012). 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 final median CMI values by region are set forth in the 
following table:

[[Page 53406]]



------------------------------------------------------------------------
                                                         Case-mix index
                        Region                                value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)...............            1.3146
2. Middle Atlantic (PA, NJ, NY).......................            1.3744
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)            1.4640
4. East North Central (IL, IN, MI, OH, WI)............            1.4533
5. East South Central (AL, KY, MS, TN)................            1.4045
6. West North Central (IA, KS, MN, MO, NE, ND, SD)....            1.4899
7. West South Central (AR, LA, OK, TX)................            1.5855
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)..........            1.6461
9. Pacific (AK, CA, HI, OR, WA).......................            1.5298
------------------------------------------------------------------------

    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 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 final 
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 final 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.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27970), we 
proposed that, in addition to meeting other criteria, a hospital, if it 
is to qualify for initial RRC status for cost reporting periods 
beginning on or after October 1, 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. (We refer readers to 
the table set forth in the FY 2013 IPPS/LTCH PPS proposed rule at 77 FR 
27970.)
    Based on the latest discharge data available at this time (that is, 
based on a combination of FY 2009 and FY 2010 cost report data as 
explained earlier in this section), the final median number of 
discharges for urban hospitals by census region are set forth in the 
following table:

------------------------------------------------------------------------
                                                            Number of
                        Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)...............             8,159
2. Middle Atlantic (PA, NJ, NY).......................            11,448
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)            11,755
4. East North Central (IL, IN, MI, OH, WI)............             8,749
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)................             6,232
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)..........             9,336
9. Pacific (AK, CA, HI, OR, WA).......................             8,745
------------------------------------------------------------------------

    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 final 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).

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

1. Expiration of the Affordable Care Act Provisions 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 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

[[Page 53407]]

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 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 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 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. Payment Adjustment for FY 2013 and Subsequent Fiscal Years
    As we discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27971 through 27973), 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, as specified under the existing 
regulations at Sec.  412.101, 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, but also requires that the applicable percentage increase 
for qualifying low-volume hospitals be 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.'' 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 
requirements set forth in section 1886(d)(12)(B) of the Act 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

[[Page 53408]]

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 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 50238 through 50275 
and 50414).
    As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 
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 criteria 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 50274 
through 50275), 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 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.
    Comment: A few commenters expressed concern about the financial 
impact of the expiration of the temporary expansion of the low-volume 
hospital payment adjustment provided for by the Affordable Care Act. 
Some commenters encouraged CMS to promote legislative action that would 
continue the Affordable Care Act's modification of the low-volume 
hospital payment adjustment. Other commenters urged CMS to mitigate the 
impact of the expiration of the 2-year enhancement of the low-volume 
hospital payment

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adjustment provided for by the Affordable Care Act by using the 
existing statutory authority to make the low-volume adjustment to 
qualifying hospitals that have up to less than 800 total discharges 
rather than only to qualifying hospitals that have less than 200 total 
discharges. The commenters provided no data analysis in support of 
their comments to expand the low-volume hospital adjustment to 
qualifying hospitals that have up to less than 800 total discharges.
    Response: To implement the original low-volume hospital provision, 
and as mandated by statute, we developed an empirically justified 
adjustment based on the relationship between costs and total discharges 
of hospitals with less than 800 total (Medicare and non-Medicare) 
discharges. Specifically, we performed several regression analyses to 
evaluate the relationship between hospitals' costs per case and 
discharges, and found that an adjustment for hospitals with less than 
200 total discharges is most consistent with the statutory requirement 
to provide for additional payments to low-volume hospitals where there 
is empirical evidence that higher incremental costs are associated with 
lower numbers of discharges (69 FR 49101 through 49102). Based on these 
analyses, we established a low-volume hospital policy where quali