[Federal Register Volume 78, Number 91 (Friday, May 10, 2013)]
[Proposed Rules]
[Pages 27485-27823]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10234]



[[Page 27485]]

Vol. 78

Friday,

No. 91

May 10, 2013

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, 418, 482, et al.





Medicare Program; Hospital Inpatient Prospective Payment Systems for 
Acute Care Hospitals and the Long Term Care Hospital Prospective 
Payment System and Proposed Fiscal Year 2014 Rates; Quality Reporting 
Requirements for Specific Providers; Hospital Conditions of 
Participation; Medicare Program; FY 2014 Hospice Wage Index and Payment 
Rate Update; Hospice Quality Reporting Requirements; and Updates on 
Payment Reform; Proposed Rules

Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed 
Rules

[[Page 27486]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 482, 485, and 489

[CMS-1599-P]
RIN 0938-AR53


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Proposed Fiscal Year 2014 Rates; Quality Reporting 
Requirements for Specific Providers; Hospital Conditions of 
Participation

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

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the Medicare hospital inpatient 
prospective payment systems (IPPS) for operating and capital-related 
costs of acute care hospitals to implement changes arising from our 
continuing experience with these systems. Some of the proposed 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 proposed changes would be applicable 
to discharges occurring on or after October 1, 2013, unless otherwise 
specified in this proposed rule. We also are proposing to update the 
rate-of-increase limits for certain hospitals excluded from the IPPS 
that are paid on a reasonable cost basis subject to these limits. The 
proposed updated rate-of-increase limits would be effective for cost 
reporting periods beginning on or after October 1, 2013.
    We are proposing to update 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 implement certain statutory changes made by the Affordable 
Care Act. Generally, these proposed changes would be applicable to 
discharges occurring on or after October 1, 2013, unless otherwise 
specified in this proposed rule.
    In addition, we are proposing a number of changes relating to 
direct graduate medical education (GME) and indirect medical education 
(IME) payments. We are proposing to establish 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 are proposing to update policies relating to the Hospital Value-
Based Purchasing (VBP) Program and the Hospital Readmissions Reduction 
Program. In addition, we are proposing to revise the conditions of 
participation (CoPs) for hospitals relating to the administration of 
vaccines by nursing staff as well as the CoPs for critical access 
hospitals relating to the provision of acute care inpatient services.

DATES: Comment Period: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
EDT on June 25, 2013.
    Application Deadline for GME FTE Resident Slots from Closed 
Hospital. Applications from hospitals to receive GME FTE resident slots 
from a hospital's closure as described in section V.J.3.c. of the 
preamble of this proposed rule must be received, not postmarked, by 5 
p.m. EST on July 25, 2013.

ADDRESSES: When commenting, please refer to file code CMS-1599-P. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation at http://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the file code CMS-1599-P to submit 
comments on this proposed rule.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1599-P, P.O. Box 8011, Baltimore, MD 
21244-1850.

    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1599-P, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.

    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue 
SW., Washington, DC 20201.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487, and Ing-
Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, 
Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and 
Technology Add-On Payments, Hospital Geographic Reclassifications, 
Graduate Medical Education, Capital Prospective Payment, Excluded 
Hospitals, Medicare Disproportionate Share Hospital (DSH), and 
Postacute Care Transfer Issues.
    Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, 
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG 
Relative Weights Issues.
    Mollie Knight, (410) 786-7948 and Bridget Dickensheets, (410) 786-
8670, Market Basket for IPPS Hospitals and 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

[[Page 27487]]

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, PPS-Exempt Cancer Hospital Quality 
Reporting Issues.
    Allison Lee, (410) 786-8691 and Jeffrey Buck, (410) 786-0407, 
Inpatient Psychiatric Facility Quality Reporting Issues.
    Sarah Fahrendorf, (410) 786-3112, Conditions of Participation 
(CoPs) for CAHs Issues.
    Commander Scott Cooper, USPHS, (410) 786-9465, Hospital Conditions 
of Participation (CoPs)--Pneumococcal Vaccine Issues.
    Jennifer Dupee, (410) 786-6537, and Jennifer Phillips, (410) 786-
1023, Medical Review Criteria for Hospital Inpatient Services under 
Medicare Part A.
    Ann Marshall, (410) 786-3059, Requirement for Physician Order for 
Payment of Hospital Inpatient Services under Medicare Part A.

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

Electronic Access

    This Federal Register document is also available from the Federal 
Register online database through Federal Digital System (FDsys), a 
service of the U.S. Government Printing Office. This database can be 
accessed via the Internet at: http://www.gpo.gov/fdsys.

Tables Available Only Through the Internet on the CMS Web Site

    In the past, a majority of the tables referred to throughout this 
preamble and in the Addendum to this proposed rule and the 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 proposed 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 2014 IPPS Proposed 
Rule Home Page'' or ``Acute Inpatient--Files for Download''. The LTCH 
PPS tables for this FY 2014 proposed 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-1599-P. For complete 
details on the availability of the tables referenced in this proposed 
rule, we refer readers to section VI. of the Addendum to this proposed 
rule.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified above should contact 
Michael Treitel at (410) 786-4552.

Acronyms

3M 3M Health Information System
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
ACoS American College of Surgeons
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
APRN Advanced practice registered nurse
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASCA Administrative Simplification Compliance Act of 2002, Public 
Law 107-105
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
ATRA American Taxpayer Relief Act of 2012, Public Law 112-240
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
CAUTI Catheter-associated urinary tract infection
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCN CMS Certification Number
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CDC Center for Disease Control and Prevention
CERT Comprehensive error rate testing
CDI Clostridium difficile
CFR Code of Federal Regulations
CLABSI Central line-associated bloodstream infection
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
DACA Data Accuracy and Completeness Acknowledgement
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 American Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FPL Federal poverty line
FQHC Federally qualified health center
FR Federal Register
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education

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HAC Hospital-acquired condition
HAI Healthcare-associated infection
HBIPS Hospital-based inpatient psychiatric services
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
IPFQR Inpatient Psychiatric Facility Quality Reporting [Program]
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
IQR Inpatient Quality Reporting
IVR Interactive voice response
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
MAP Measure Application Partnership
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
NOP Notice of Participation
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
OQR [Hospital] Outpatient Quality Reporting
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
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]
PQRS Physician Quality Reporting 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
SCIP Surgical Care Improvement Project
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSI Surgical site infection
SSI Supplemental Security Income
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
VBP [Hospital] Value Based Purchasing [Program]
VTE Venous thromboembolism

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), the Health Care and Education Reconciliation Act 
of 2010
(Pub. L. 111-152), and the American Taxpayer Relief Act of 2012 
(Pub. L. 112-240)

    D. Summary of Provisions of This Proposed Rule
II. Proposed Changes to Medicare Severity Diagnosis-Related Group 
(MS-DRG) Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    C. Adoption of the MS-DRGs in FY 2008

[[Page 27489]]

    D. Proposed FY 2014 MS-DRG Documentation and Coding Adjustment
    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    2. Adjustment to the Average Standardized Amounts Required by 
Public Law 110-90
    a. Prospective Adjustment Required by Section 7(b)(1)(A) of 
Public Law 110-90
    b. Recoupment or Repayment Adjustments in FYs 2010 through 2012 
Required by Section 7(b)(1)(B) Public Law 110-90
    3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
    4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90
    5. Recoupment or Repayment Adjustment Authorized by Section 
7(b)(1)(B) of Public Law 110-90
    6. Recoupment or Repayment Adjustment Authorized by Section 631 
of the American Taxpayer Relief Act of 2012 (ATRA).
    7. Additional Prospective Adjustments for the MS-DRG 
Documentation and Coding Effect through FY 2010 Authorized under 
Section 1886(d)(3)(A)(vi) of the Act
    E. Proposed Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Discussion and Proposal for FY 2014
    F. Adjustment to MS-DRGs for 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. Proposal Regarding Current HACs and Previously Considered 
Candidate HACs
    6. RTI Program Evaluation
    7. Current and Previously Considered Candidate HACs--RTI Report 
on Evidence-Based Guidelines
    G. Proposed Changes to Specific MS-DRG Classifications
    1. Pre-Major Diagnostic Categories (Pre-MDCs): Heart Transplants 
and Liver Transplants
    2. MDC 1 (Diseases and Disorders of the Nervous System): Tissue 
Plasminogen Activator (tPA) (rtPA) Administration within 24 Hours 
Prior to Admission
    3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and 
Throat)
    a. Endoscopic Placement of a Bronchial Valve
    b. Pulmonary Thromboendarterectomy (PTE) with Full Circulatory 
Arrest
    4. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Discharge/Transfer to Designated Disaster Alternative Care 
Site
    b. Discharges/Transfers with a Planned Acute Care Hospital 
Inpatient Readmission
    5. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue)
    a. Reverse Shoulder Procedures
    b. Total Ankle Replacement Procedures
    6. MDC 15 (Newborns and Other Neonates with Conditions 
Originating in the Perinatal Period)
    a. Persons Encountering Health Services for Specific Procedures, 
Not Carried Out
    b. Discharges/Transfers of Neonates with a Planned Acute Care 
Hospital Inpatient Readmission
    7. Proposed Medicare Code Editor (MCE) Changes
    a. Age Conflict Edit
    b. Discharge Status Code Updates
    8. Surgical Hierarchies
    9. Complications or Comorbidity (CC) Exclusions List
    a. Background of the CC List and the CC Exclusion List
    b. Proposed CC Exclusions List for FY 2014
    10. Review of Procedure Codes in MS-DRGs 981 through 983, 984 
through 986, and 987 through 989
    a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-
DRGs 987 through 989 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
    11. Proposed Changes to the ICD-9-CM Coding System, Including 
Discussion of the Replacement of the ICD-9-CM System with the ICD-
10-CM and ICD-10-PCS Systems in FY 2014
    a. ICD-9-CM Coding System
    b. Code Freeze
    c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on 
Hospital Inpatient Claims
    d. ICD-10 MS-DRGs
    H. Recalibration of Proposed FY 2014 MS-DRG Relative Weights
    1. Data Sources for Developing the Proposed Relative Weights
    2. Methodology for Calculation of the Proposed Relative Weights
    3. Development of National Average CCRs
    4. Bundled Payments for Care Improvement (BPCI) Initiative
    I. Proposed Add-On Payments for New Services and Technologies
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. FY 2014 Status of Technology Approved for FY 2013 Add-On 
Payments
    a. AutoLaser Interstitial Therapy (Auto LITTTM) 
System
    b. Glucarpidase (Trade Brand Voraxaze[supreg])
    c. DIFICIDTM (Fidaxomicin) Tablets
    d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    4. FY 2014 Applications for New Technology Add-On Payments
    a. KcentraTM
    b. Argus[supreg] II Retinal Prosthesis System
    c. Responsive Neurostimulator (RNS) System
    d. Zilver[supreg] PTX[supreg] Drug Eluting Stent
    e. MitraClip[supreg] System
III. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    A. Background
    B. Core-Based Statistical Areas for the Hospital Wage Index
    C. Worksheet S-3 Wage Data for the Proposed FY 2014 Wage Index
    1. Included Categories of Costs
    2. Excluded Categories of Costs
    3. Use of Wage Index Data by Providers Other Than Acute Care 
Hospitals under the IPPS
    D. Verification of Worksheet S-3 Wage Data
    E. Method for Computing the Proposed FY 2014 Unadjusted Wage 
Index
    F. Proposed Occupational Mix Adjustment to the Proposed FY 2014 
Wage Index
    1. Development of Data for the Proposed FY 2014 Occupational Mix 
Adjustment Based on the 2010 Occupational Mix Survey
    2. New 2013 Occupational Mix Survey for the FY 2016 Wage Index
    3. Calculation of the Proposed Occupational Mix Adjustment for 
FY 2014
    G. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2014 Occupational Mix Adjusted Wage 
Index
    1. Analysis of the Proposed Occupational Mix Adjustment and the 
Proposed Occupational Mix Adjusted Wage Index
    2. Proposed Application of the Rural, Imputed, and Frontier 
Floors
    a. Proposed Rural Floor
    b. Proposed Imputed Floor
    c. Proposed Frontier Floor
    3. Proposed FY 2014 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 2014 MGCRB Reclassifications
    a. FY 2014 Reclassification Requirements and Approvals
    b. Applications for Reclassifications for FY 2015
    3. Redesignations of Hospitals under Section 1886(d)(8)(B) of 
the Act
    4. Reclassifications under Section 1886(d)(8)(B) of the Act 
seeking Reclassification by the MGCRB
    5. Waiving Lugar Redesignation for the Out-Migration Adjustment
    I. Proposed FY 2014 Wage Index Adjustment Based on Commuting 
Patterns of Hospital Employees
    J. Process for Requests for Wage Index Data Corrections
    K. Proposed Labor-Related Share for the Proposed FY 2014 Wage 
Index
IV. Proposed Rebasing and Revision of the Hospital Market Baskets 
for Acute Care Hospitals
    A. Background
    B. Rebasing and Revising the IPPS Market Basket
    1. Development of Cost Categories and Weights
    2. Cost Category Computation
    3. Selection of Price Proxies
    4. Labor-Related Share
    C. Market Basket for Certain Hospitals Presently Excluded from 
the IPPS
    D. Rebasing and Revising the Capital Input Price Index (CIPI)
V. Other Decisions and Proposed Changes to the IPPS for Operating 
Costs and

[[Page 27490]]

Graduate Medical Education (GME) Costs
    A. Proposed Inpatient Hospital Updates for FY 2014 (Sec. Sec.  
412.64(d) and 412.211(c))
    1. Proposed FY 2014 Inpatient Hospital Update
    2. Proposed FY 2014 Puerto Rico Hospital Update
    B. Rural Referral Centers (RRCs): Annual Update to Case-Mix 
Index (CMI) and Discharge Criteria (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    C. Proposed Payment Adjustment for Low-Volume Hospitals (Sec.  
412.101)
    1. Background
    a. Original Implementation of the Low-Volume Hospital Payment 
Adjustment
    b. Affordable Care Act Provisions for FYs 2011 and 2012
    2. Provisions of the ATRA for FY 2013
    a. Background
    b. Proposed Conforming Regulatory Changes
    3. Proposed Low-Volume Hospital Definition and Payment 
Adjustment for FY 2014 and Subsequent Years
    D. Indirect Medical Education (IME) Adjustment (Sec.  412.105)
    1. IME Adjustment Factor for FY 2014
    2. Other Proposed Policy Changes Affecting GME
    E. Proposed Payment Adjustment for Medicare Disproportionate 
Share Hospitals (DSHs) Sec.  412.106)
    1. Background
    2. Counting of Patient Days Associated with Patients Enrolled in 
Medicare Advantage Plans in the Medicare and Medicaid Fractions of 
the Disproportionate Share Patient Percentage (DPP) Calculation
    3. New Payment Adjustment Methodology for Medicare DSH under 
Section 3133 of the Affordable Care Act
    F. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108)
    1. Background
    2. Provisions of the ATRA for FY 2013
    a. Background
    b. Proposed Conforming Regulatory Changes
    c. Expiration of the MDH Program
    G. Hospital Readmissions Reduction Program: Proposed Changes 
(Sec. Sec.  412.150 through 412.154)
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Overview
    3. FY 2014 Proposals for the Hospital Readmissions Reduction 
Program
    a. Overview
    b. Proposed Refinement of the Readmission Measures and Related 
Methodology for FY 2014 and Subsequent Years Payment Determinations
    c. Proposed Expansion of the Applicable Conditions for FY 2015
    d. Proposals for Hospitals Paid under Section 1814(b)(3) of the 
Act, Including the Process to be Exempt from the Hospital 
Readmissions Reduction Program and Definition of ``Base Operating 
DRG Payment Amount'' for Such Hospitals (Sec.  412.152 and Sec.  
412.154(d))
    e. Proposed Floor Adjustment Factor for FY 2014 (Sec.  
412.154(c)(2))
    f. Proposed Applicable Period for FY 2014
    g. Proposed Refinements of the Methodology to Calculate the 
Aggregate Payments for Excess Readmissions
    h. Clarification of Reporting Hospital-Specific Information, 
Including Opportunity to Review and Submit Corrections
    H. Hospital Value-Based Purchasing Program (Sec. Sec.  412.160 
through 412.165)
    1. Statutory Background
    2. Overview of the FY 2013 Hospital VBP Program
    3. FY 2014 Payment Details
    4. FY 2014 Hospital VBP Program Measures
    5. FY 2015 Hospital VBP Program Measures
    6. FY 2016 Hospital VBP Program Measures
    a. Measures Previously Adopted and Proposal to Remove AMI-8a, 
PN-3b, and HF-1
    b. Proposed New Measures for the FY 2016 Hospital VBP Program
    c. Future Measures for the Efficiency Domain
    7. Proposed Performance Periods and Baseline Periods
    a. Background
    b. Proposed Clinical Process of Care Domain Performance Period 
and Baseline Periods for the FY 2016 Hospital VBP Program
    c. Proposed Experience of Care Domain Performance Period and 
Baseline Period for the FY 2016 Hospital VBP Program
    d. Proposed Efficiency Domain Measure Performance Period and 
Baseline Period for the FY 2016 Hospital VBP Program
    e. Proposed Outcome Domain Performance Periods and Baseline 
Periods for the FY 2017 through FY 2019 Hospital VBP Programs
    8. Proposed Performance Standards for the Hospital VBP Program
    a. Background
    b. Performance Standards for the FY 2016 Hospital VBP Program 
Measures
    c. Certain Performance Standards for the FY 2017, FY 2018, and 
FY 2019 Hospital VBP Programs
    9. Proposed FY 2016 Hospital VBP Program Scoring Methodology
    a. Proposed General Hospital VBP Program Scoring Methodology
    b. Proposed Domain Weighting for the FY 2016 Hospital VBP 
Program for Hospitals That Receive a Score on All Domains
    c. Proposed Domain Weighting for the FY 2016 Hospital VBP 
Program for Hospitals Receiving Scores on Fewer than Four Domains
    d. Proposed Domain Reclassification and Domain Weighting for the 
FY 2017 Hospital VBP Program
    e. Proposed Disaster/Extraordinary Circumstance Waivers under 
the Hospital VBP Program
    10. Applicability of the Hospital VBP Program to Hospitals
    a. Background
    b. Proposed Minimum Numbers of Cases and Measures for the FY 
2016 Hospital VBP Program Outcome Domain
    c. Hospitals Paid under Section 1814(b)(3) of the Act
    I. Hospital-Acquired Condition (HAC) Reduction Program
    1. Background
    2. Statutory Basis for the HAC Reduction Program
    3. Proposals to Implement the HAC Reduction Program
    a. Proposed Definitions
    b. Proposed Payment Adjustment under the HAC Reduction Program, 
Including Exemptions
    c. Proposed Measure Selection and Conditions, Including a 
Proposed Risk-Adjustment and Scoring Methodology
    d. Criteria for Applicable Hospitals and Performance Scoring
    e. Reporting Hospital-Specific Information, Including the Review 
and Correction of Information
    f. Limitation on Administrative and Judicial Review
    J. Payment for Graduate Medical Education (GME) and Indirect 
Medical Education (IME) Costs (Sec. Sec.  412.105, 413.75 through 
413.83)
    1. Background
    2. Proposed Inclusion of Labor and Delivery Days in the 
Calculation of Medicare Utilization for Direct GME Payment Purposes 
and for Other Medicare Inpatient Days Policy
    3. Notice of Closure of Teaching Hospital and Opportunity to 
Apply for Available Slots
    4. Payments for Residents Training in Approved Residency 
Programs at CAHs
    a. Background
    b. Residents in Approved Medical Residency Training Programs 
That Train at CAHs
    5. Expiration of Inflation Update Freeze for High Per Resident 
Amounts (PRAs)
    K. Rural Community Hospital Demonstration Program
    1. Background
    2. Proposed FY 2014 Budget Neutrality Offset Amount
    L. Hospital Emergency Services under EMTALA: Technical Change 
(Sec. Sec.  4189.24(f))
    M. Hospital Services Furnished under Arrangements
    N. Policy Proposal on Admission and Medical Review Criteria for 
Hospital Inpatient Services under Medicare Part A
    1. Background
    2. Requirements for Physician Orders
    3. Proposed Inpatient Admission Guidelines
    a. Background
    b. Correct Coding Reviews
    c. Complete and Accurate Documentation
    d. Medical Necessity Reviews
    4. Proposed Payment Adjustment
VI. Proposed Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Additional Provisions
    1. Exception Payments
    2. New Hospitals
    3. Hospitals Located in Puerto Rico
    C. Other Proposed Changes for FY 2014--Proposed Adjustment to 
Offset the Cost of the Policy Proposal on Admission and

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Medical Review Criteria for Hospital Inpatient Services under 
Medicare Part A
    D. Proposed Annual Update for FY 2014
VII. Proposed Changes for Hospitals Excluded from the IPPS
    A. Proposed Rate-of-Increase in Payments to Excluded Hospitals 
for FY 2014
    B. Critical Access Hospitals (CAHs): Proposed Changes to 
Conditions of Participation (CoPs) Relating to Furnishing of Acute 
Care Inpatient Services
    1. Background
    2. Proposed Policy Changes
VIII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2014
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as a LTCH
    a. Classification as a LTCH
    b. Hospitals Excluded from the LTCH PPS
    3. Limitation on Charges to Beneficiaries
    4. Administrative Simplification Compliance Act (ASCA) and 
Health Insurance Portability and Accountability Act (HIPAA) 
Compliance
    B. Proposed Medicare Severity Long-Term Care Diagnosis-Related 
Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2014
    1. Background
    2. Patient Classifications into MS-LTC-DRGs
    a. Background
    b. Proposed Changes to the MS-LTC-DRGs for FY 2014
    3. Development of the Proposed FY 2014 MS-LTC-DRG Relative 
Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Development of the Proposed MS-LTC-DRG Relative Weights for 
FY 2014
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Proposed Treatment of Severity Levels in Developing the MS-
LTC-DRG Relative Weights
    f. Proposed Low-Volume MS-LTC-DRGs
    g. Steps for Determining the Proposed FY 2014 MS-LTC-DRG 
Relative Weights
    C. Proposed LTCH PPS Payment Rates for FY 2014
    1. Overview of Development of the Proposed LTCH Payment Rates
    2. Proposed FY 2014 LTCH PPS Annual Market Basket Increase
    a. Overview
    b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    c. Adjustment to the Annual Update to the LTCH PPS Standard 
Federal Rate under the Long-Term Care Hospital Quality Reporting 
(LTCHQR) Program
    1. Background
    2. Proposed Reduction to the Annual Update to the LTCH PPS 
Standard Federal Rate under the LTCHQR Program
    d. Proposed Market Basket Under the LTCH PPS for FY 2014
    e. Proposed Annual Market Basket Update for LTCHs for FY 2014
    3. Proposed Adjustment for the Second Year of the Phase-In of 
the One-Time Prospective Adjustment to the Standard Federal Rate 
under Sec.  412.523(d)(3)
    D. Expiration of Certain Payment Rules for LTCH Services--The 
25-Percent Threshold Payment Adjustment
    E. Research on the Development of a Patient Criteria-Based 
Payment Adjustment under the LTCH PPS
    1. Overview
    2. MedPAC's 2004 Report to Congress
    3. LTCHs in the Medicare Program
    4. CMS' Research: The RTI Report
    5. CMS' Report to Congress: Determining Medical Necessity and 
Appropriateness of Care for Medicare Long-Term Care Hospitals
    6. Current Practices in LTCHs
    7. Identification of Chronically Critically Ill/Medically 
Complex (CCI/MC) Patients
    8. LTCH PPS Payments for CCI/MC Patients
IX. Proposed Quality Data Reporting Requirements for Specific 
Providers and Suppliers
    A. Hospital Inpatient Quality Reporting (IQR) Program
    1. Background
    a. History of Measures Adopted for the Hospital IQR Program
    b. Maintenance of Technical Specifications for Quality Measures
    c. Proposed 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 Rulemaking
    c. Proposed Removal of Hospital IQR Program Measures for the FY 
2016 Payment Determination and Subsequent Years
    d. Suspension of Data Collection for the FY 2014 Payment 
Determination and Subsequent Years
    3. Process for Retaining Previously Adopted Hospital IQR Program 
Measures for Subsequent Payment Determinations
    4. Additional Considerations in Expanding and Updating Quality 
Measures under the Hospital IQR Program
    5. Proposed Changes to Hospital IQR Program Measures Previously 
Adopted for the FY 2015 and FY 2016 Payment Determinations and 
Subsequent Years
    a. Previously Adopted Hospital IQR Program Measures for the FY 
2015 Payment Determination and Subsequent Years
    b. Proposed Refinements to Existing Measures in the Hospital IQR 
Program
    6. Proposed Additional Hospital IQR Program Measures for the FY 
2016 Payment Determination and Subsequent Years
    a. Proposed Hospital 30-Day, All-Cause, Risk-Standardized 
Readmission Rate (RSRR) Following Chronic Obstructive Pulmonary 
Disease (COPD) Hospitalization Measure (NQF 1891)
    b. Proposed Hospital 30-Day, All-Cause, Risk-Standardized 
Mortality Rate (RSMR) Following Chronic Obstructive Pulmonary 
Disease (COPD) Hospitalization Measure (NQF 1893)
    c. Proposed Hospital 30-day, All-Cause Risk-Standardized Rate of 
Readmission Following Acute Ischemic Stroke (Stroke Readmission) 
Measure
    d. Proposed Hospital 30-Day, All-Cause Risk-Standardized Rate of 
Mortality Following an Admission for Acute Ischemic Stroke (Stroke 
Mortality) Measure
    e. Proposed Hospital Risk-Standardized Payment Associated with a 
30-day Episode of Care for Acute Myocardial Infarction (AMI) Measure
    7. Electronic Clinical Quality Measures
    8. Possible New Quality Measures and Measure Topics for Future 
Years
    9. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Procedural Requirements for the FY 2016 Payment Determination 
and Subsequent Years
    c. Proposed Data Submission Requirements for Chart-Abstracted 
Measures
    d. Proposed Data Submission Requirements for Quality Measures 
That May be Voluntarily Electronically Reported for the FY 2016 
Payment Determination
    e. Sampling and Case Thresholds for the FY 2016 Payment 
Determination and Subsequent Years
    f. Proposed HCAHPS Requirements for the FY 2017 Payment 
Determination and Subsequent Years
    g. Proposed Data Submission Requirements for Structural Measures 
for the FY 2015 and FY 2016 Payment Determinations
    h. Proposed Data Submission and Reporting Requirements for 
Healthcare-Associated Infection (HAI) Measures Reported via NHSN
    10. Proposed Modifications to the Validation Process for Chart-
Abstracted Measures under the Hospital IQR Program
    a. Proposed Timing and Number of Quarters Included in Validation
    b. Proposed Selection of Measures and Sampling of Charts to be 
Included in Validation
    c. Proposed Procedures for Scoring Records for Validation
    d. Proposed Procedures to Select Hospitals for Validation
    e. Proposed Procedures for Submitting Records for Validation
    11. Proposed Data Accuracy and Completeness Acknowledgement 
Requirements for the FY 2015 Payment Determination and Subsequent 
Years
    12. Public Display Requirements for the FY 2016 Payment 
Determination and Subsequent Years
    13. Proposed Reconsideration and Appeal Procedures for the FY 
2015 Payment Determination and Subsequent Years
    14. Hospital IQR Program Extraordinary Circumstances Extensions 
or Waivers
    B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
    1. Statutory Authority
    2. Covered Entities
    3. Previously Finalized Quality Measures for PCHs Beginning with 
the FY 2014 Program

[[Page 27492]]

    4. Considerations in the Selection of the Quality Measures
    5 Proposed New Quality Measures
    a. Proposed New Measure Beginning with FY 2015--NHSN Healthcare-
Associated Infection (HAI) Measure: Surgical Site Infection (SSI) 
(NQF 0753)
    b. Proposed New Measures Beginning with the FY 2016 PQHQR 
Program
    6. Possible New Quality Measure Topics for Future Years
    7. Maintenance of Technical Specifications for Quality Measures
    8. Public Display Requirements Beginning with FY 2015 Program 
Year
    9. Form, Manner, and Timing of Data Submission Beginning with FY 
2015 Program Year
    a. Background
    b. Proposed Waivers from Program Requirements
    c. Proposed Reporting Periods and Submission Timelines for the 
Proposed SSI Measure
    d. Proposed Exceptions to Reporting and Data Submission for HAI 
Measures (CAUTI, CLABSI, and Proposed SSI)
    e. Proposed Reporting and Data Submission Requirements for the 
Proposed Clincial Process/Oncology Care Measures
    f. Proposed Reporting and Data Submission Requirements for the 
Proposed SCIP Measures
    g. Proposed HCAHPS Requirements
    C. Long-Term Care Hospital Quality Reporting (LTCHQR) Program
    1. Statutory History
    2. General Consideratons Used for Selection of Quality Measures 
for the LTCHQR Program
    3. Process for Retention of LTCHQR Program Measures Adopted in 
Previous Payment Determinations
    4. Process for Adopting Changes to LTCHQR Program Measures
    5. Previously Adopted Quality Measures for the FY 2014 and FY 
2015 Payment Determinations and Subsequent Payment Determinations
    6. Previously Adopted Quality Measures for the FY 2016 Payment 
Determination and Subsequent Payment Determinations
    7. Proposed Revisions to Previously Adopted Quality Measures
    a. Proposed Revisions for Influenza Vaccination Coverage among 
Health Care Personnel (NQF 0431)
    b. Proposed Revisions for Percent of Residents or Patients Who 
Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 
(Short-Stay) (NQF 0680)
    c. Proposed Revisions for Percent of Residents or Patients with 
Pressure Ulcers That Are New or Worsened (Short-Stay) (NQF 
0678)
    8. Proposed New LTCHQR Program Quality Measures Affecting the FY 
2017 and FY 2018 Payment Determinations and Subsequent Payment 
Determinations
    a. Considerations in Updating and Expanding Quality Measures 
under the LTCHQR Program for the FY 2017 Payment Determination and 
Subsequent Payment Determinations
    b. Proposed New LTCHQR Program Quality Measures for the FY 2017 
Payment Determination and Subsequent Payment Determinations
    c. Proposed New LTCHQR Program Quality Measure for the FY 2018 
Payment Determination and Subsequent Payment Determinations
    d. LTCHQR Program Quality Measures and Concepts under 
Consideration for Future Years Payment Determinations
    9. Form, Manner, and Timing of Quality Data Submission for the 
FY 2016 Payment Determination and Subsequent Payment Determinations
    a. Background
    b. Finalized Timeline for Data Submission under the LTCHQR 
Program for the FY 2016 Payment Determination
    c. Proposed Timeline for Data Submission for the NQF 
0431 Influenza Vaccination Coverage Among Healthcare 
Personnel Measure for the FY 2016 Payment Determination and 
Subsequent Payment Determinations
    d. Proposed Timeline for Data Submission for the NQF 
0680 Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short Stay) 
Measure for the FY 2016 Payment Determination and Subsequent Payment 
Determinations
    e. Proposed Timeline for Data Submission under the LTCHQR 
Program for the FY 2017 Payment Determination and Subsequent Program 
Determinations
    f. Proposed Timeline for Data Submission under the LTCHQR 
Program for the FY 2018 Payment Determination and Subsequent Payment 
Determinations
    10. Public Display of Data Quality Measures for the LTCHQR 
Program
    11. Proposed LTCHQR Program Submission Waiver Requirements for 
the FY 2015 Payment Determination and Subsequent Payment 
Determinations
    12. Proposed LTCHQR Program Reconsideration and Appeals for the 
FY 2015 Payment Determination and Subsequent Payment Determinations
    D. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) 
Program
    1. Statutory Authority
    2. Application of the Payment Update Reduction for Failure to 
Report for the FY 2014 Payment Determination and Subsequent Years
    3. Covered Entities
    4. Considerations in Selecting Quality Measures
    5. Proposed Quality Measures for the FY 2015 Payment 
Determination and Subsequent Years
    a. Background
    b. Proposed New Quality Measures Beginning with the FY 2016 
Payment Determination and Subsequent Years
    c. Maintenance of Technical Specifications for Quality Measures
    6. Proposed Request for Voluntary Information--Facility 
Assessment of Patient Experience of Care
    7. Request for Recommendations for New Quality Measures for 
Future Years
    8. Proposed Public Display Requirements for the FY 2014 Payment 
Determination and Subsequent Years
    9. Form, Manner, and Timing of Quality Data Submission for the 
FY 2014 Payment Determination and Subsequent Years
    a. Background
    b. Procedural Requirements
    c. Proposed Submission Requirements for the FY 2016 Payment 
Determination and Subsequent Years
    d. Reporting Requirements for the FY 2016 Payment Determination 
and Subsequent Years
    e. Proposed Population, Sampling, and Minimum Case Threshold for 
the FY 2016 Payment Determination and Subsequent Years
    f. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements
    10. Reconsideration and Appeals Procedures for the FY 2014 
Payment Determination and Subsequent Years
    11. Waivers from Quality Reporting Requirements for the FY 2014 
Payment Determination and Subsequent Years
    12. Electronic Health Records (EHRs)
    E. Electronic Health Records (EHRs) Incentive Program and 
Meaningful Use (MU)
    1. Background
    2. Proposed Expanded Electronic Submission Period for CQMs
    3. Quality Reporting Data Architecture Category III (QRDA-III) 
Option in 2014
    4. Case Number Threshold Exemption--Proposed Requirements 
Regarding Data Submission
X. Proposed Change to the Medicare Hospital Conditions of 
Participation (CoPs) Relating to the Administration of Pneumococcal 
Vaccines
XI. MedPAC Recommendations
XII. 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 Proposed Occupational Mix Adjustment to the 
Proposed FY 2014 Wage 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 Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program
    C. Response to Public Comments
Regulation Text
Addendum--Proposed Schedule of Standardized Amounts, Update Factors, 
and Rate-of-Increase Percentages Effective With Cost Reporting Periods 
Beginning on or After October 1, 2013 and Payment

[[Page 27493]]

Rates for LTCHs Effective With Discharges Occurring on or After October 
1, 2013

I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2014
    A. Calculation of the Proposed Adjusted Standardized Amount
    B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Proposed Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs for FY 2014
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Proposed Inpatient Capital-Related 
Prospective Payments for FY 2014
    C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-
of-Increase Percentages for FY 2014
V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 
2014
    A. Proposed LTCH PPS Standard Federal Rate for FY 2014
    B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS 
for FY 2014
    1. Background
    2. Proposed Geographic Classifications/Labor Market Area 
Definitions
    3. Proposed LTCH PPS Labor-Related Share
    4. Proposed LTCH PPS Wage Index for FY 2014
    5. Proposed Budget Neutrality Adjustment for Changes to the Area 
Wage Level Adjustment
    C. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs 
Located in Alaska and Hawaii
    D. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) 
Cases
    E. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2014
VI. Tables Referenced in this Proposed Rulemaking and Available 
Through the Internet on the CMS Web Site
Appendix A--Economic Analyses
I. Regulatory Impact Analysis
    A. Introduction
    B. Need
    C. Objectives of the IPPS
    D. Limitations of Our Analysis
    E. Hospitals Included in and Excluded From the IPPS
    F. Effects on Hospitals and Hospital Units Excluded From the 
IPPS
    G. Quantitative Effects of the Proposed Policy Changes Under the 
IPPS for Operating Costs
    1. Basis and Methodology of Estimates
    2. Analysis of Table I
    3. Impact Analysis of Table II
    H. Effects of Other Proposed Policy Changes
    1. Effects of Proposed Policy on MS-DRGs for Preventable HACs, 
Including Infections
    2. Effects of Proposed Policy Relating to New Medical Service 
and Technology Add-On Payments
    3. Effects of Proposed Payment Adjustment for Low-Volume 
Hospitals for FY 2014
    4. Effects of Extension of the MDH Program
    5. Effects of Changes Under the FY 2014 Hospital Value-Based 
Purchasing (VBP) Program
    6. Effects of the Implementation of the HAC Reduction Program
    7. Effects of Proposed Policy Changes Relating to Payments for 
Direct GME and IME Costs
    8. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    9. Effects of the Extended Effective Date for Policy on Hospital 
Services Furnished Under Arrangements
    I. Effects of Proposal Relating to the Furnishing of Acute Care 
Inpatient Services by CAHs
    J. Effects of Proposed Changes to the COPs for Hospitals 
Relating to the Administration of Pneumococcal Vaccines
    K. Effects of Proposed Changes in the Capital IPPS
    1. General Considerations
    2. Results
    L. Effects of Proposed Payment Rate Changes and Policy Changes 
Under the LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals
    3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes 
and Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    M. Effects of Proposed Requirements for Hospital Inpatient 
Quality Reporting (IQR) Program
    N. Effects of Proposed Changes in the PPS-Exempt Cancer Hospital 
Quality Reporting (PCHQR) Program
    O. Effects of Proposed Changes in the LTCH Quality Reporting 
(LTCHQR) Program
    P. Effects of Proposed Changes in the Requirements for the 
Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program
II. Alternatives Considered
III. Overall Conclusion
    1. Acute Care Hospitals
    2. LTCHs
IV. Accounting Statements and Tables
    A. Acute Care Hospitals
    B. LTCHs
V. Regulatory Flexibility Act (RFA) Analysis
VI. Impact on Small Rural Hospitals
VII. Unfunded Mandate Reform Act (UMRA) Analysis
VIII. 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 2014
    A. Proposed FY 2014 Inpatient Hospital Update
    B. Proposed Update for SCHs for FY 2014
    C. Proposed FY 2014 Puerto Rico Hospital Update
    D. Proposed Update for Hospitals Excluded From the IPPS
    E. Proposed Update for LTCHs for FY 2014
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and 
Updating Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
    This proposed rule would make payment and policy changes under the 
Medicare inpatient prospective payment systems (IPPS) for operating and 
capital-related costs of acute care hospitals as well as for certain 
hospitals and hospital units excluded from the IPPS. In addition, it 
would make payment and policy changes for inpatient hospital services 
provided by long-term care hospitals (LTCHs) under the long-term care 
hospital prospective payment system (LTCH PPS). It also would make 
policy changes to programs associated with Medicare IPPS hospitals, 
IPPS-excluded hospitals, and LTCHs.
    Under various statutory authorities, we are proposing to make 
changes to the Medicare IPPS, to the LTCH PPS, and to other related 
payment methodologies and programs for FY 2014 and subsequent fiscal 
years. 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

[[Page 27494]]

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 1866(k) of the Act, as added by section 3005 of 
the Affordable Care Act, which establishes a quality reporting program 
for hospitals described in section 1886(d)(1)(B)(v) of the Act, 
referred to as ``PPS-Exempt Cancer Hospitals.''
     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.
     Section 1886(p) of the Act, as added by section 3008 of 
the Affordable Care Act, which establishes an adjustment to hospital 
payments for hospital-acquired conditions (HACs), or a Hospital-
Acquired Condition (HAC) Reduction Program, under which payments to 
applicable hospitals are adjusted to provide an incentive to reduce 
hospital-acquired conditions, effective for discharges beginning on 
October 1, 2014.
     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.
     Section 1886(r) of the Act), as added by section 3313 of 
the Affordable Care Act, which provides for a reduction to 
disproportionate share payments under section 1886(d)(5)(f) of the Act 
and for a new uncompensated care payment to eligible hospitals. 
Specifically, section 1886(r) of the Act now requires that, for 
``fiscal year 2014 and each subsequent fiscal year,'' ``subsection (d) 
hospitals'' that would otherwise receive a ``disproportionate share 
payment . . . made under subsection (d)(5)(F)'' will receive two 
separate payments: (1) 25 percent of the amount they previously would 
have received under subsection (d)(5)(F) for DSH (``the empirically 
justified amount''), and (2) an additional payment for the DSH 
hospital's proportion of uncompensated care, determined as the product 
of three factors. These three factors are: (1) 75 percent of the 
payments that would otherwise be made under subsection (d)(5)(F); (2) 1 
minus the percent change in the percent of individuals under the age of 
65 who are uninsured (minus 0.1 percentage points for FY 2014, and 
minus 0.2 percentage points for FY 2015 through FY 2017); and (3) a 
hospital's uncompensated care amount relative to the uncompensated care 
amount of all DSH hospitals expressed as a percentage.
     Section 1886(s)(4) of the Act, as added and amended by 
section 3401(f) and 10322(a) of the Affordable Care Act, respectively, 
which requires the Secretary to implement a quality reporting program 
for inpatient psychiatric hospitals and psychiatric units. Under this 
program, known as the Inpatient Psychiatric Facility Quality Reporting 
(IPFQR) Program, beginning with FY 2014, the Secretary must reduce any 
annual update to a standard Federal rate for discharges occurring 
during a fiscal year by 2.0 percentage points for any inpatient 
psychiatric hospital or psychiatric unit that does not comply with 
quality data submission requirements with respect to an applicable 
fiscal year.
2. Summary of the Major Provisions
a. MS-DRG Documentation and Coding Adjustment
    Section 631 of the American Taxpayer Relief Act (ATRA, Pub. L. 112-
240) amended section 7(b)(1)(B) of Public Law 110-90 to require the 
Secretary to make a recoupment adjustment to the standardized amount of 
Medicare payments to acute care hospitals to account for changes in MS-
DRG documentation and coding that do not reflect real changes in case-
mix, totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, 
and 2017. This adjustment represents the amount of the increase in 
aggregate payments as a result of not completing the prospective 
adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 
until FY 2013. Prior to the ATRA, this amount could not have been 
recovered under Public Law 110-90.
    While our actuaries estimate that a -9.3 percent adjustment to the 
standardized amount would be necessary if CMS were to fully recover the 
$11 billion recoupment required by section 631 of the ATRA in FY 2014, 
it is often our practice to delay or phase in rate adjustments over 
more than one year, in order to moderate the effects on rates in any 
one year. Therefore, consistent with the policies that we have adopted 
in many similar cases, we are proposing a -0.8 percent recoupment 
adjustment to the standardized amount in FY 2014. Although we are not 
proposing an additional prospective adjustment in FY 2014 for the 
cumulative MS-DRG documentation and coding effects through FY 2010, we 
are soliciting public comments as to whether any portion of the 
proposed -0.8 percent recoupment adjustment to the operating

[[Page 27495]]

IPPS standardized amount should be reduced and instead applied as a 
prospective adjustment to the operating IPPS standardized amount (and 
hospital-specific rates) for the cumulative MS-DRG documentation and 
coding effect through FY 2010.
b. Proposed Refinement of the MS-DRG Relative Weight Calculation
    Beginning in FY 2007, we implemented relative weights for DRGs 
based on cost report data instead of charge information. To address the 
issue of charge compression (the hospital practice of applying higher 
charges to lower cost items and applying lesser charges to higher cost 
items) when using cost report data to set the MS-DRG relative weights, 
in FYs 2009 and 2010, we created additional cost centers on the 
Medicare cost report to distinguish implantable devices from other 
medical supplies, MRIs and CT scans, respectively, from other radiology 
services, and cardiac catheterization from other cardiology services. 
As compared to previous years, we currently have a significant volume 
of hospitals completing all, or some, of these new cost centers on the 
Medicare cost report. In section II.E. of the preamble of this proposed 
rule, we provide various data analyses based on comparison of the FY 
2014 relative weights computed using 15 cost-to-charge ratios (CCRs), 
as we have done in the past, and the FY 2014 relative weights computed 
using 19 CCRs, with distinct CCRs for implantable devices, MRIs, CT 
scans, and cardiac catheterization.
    We believe that the analytic findings described in section II.E. of 
the preamble of this proposed rule support our original decision to 
break out and create new cost centers for implantable devices, MRIs, CT 
scans, and cardiac catheterization. Therefore, beginning in FY 2014, we 
are proposing to calculate the MS-DRG relative weights using 19 CCRs, 
creating distinct CCRs from cost report data for implantable devices, 
MRIs, CT scans, and cardiac catheterization.
c. Proposed Rebasing and Revision of the Hospital Market Baskets for 
Acute Care Hospitals
    In section IV. of the preamble of this proposed rule, we are 
proposing to rebase and revise the acute care hospital operating and 
capital market baskets used to update IPPS payment rates. For both 
market baskets, we are proposing to update the base year cost weights 
from a FY 2006 base year to a FY 2010 base year. We also are proposing 
to recalculate the labor-related share using the proposed FY 2010-based 
hospital market basket, for discharges occurring on or after October 1, 
2013. We would use the FY 2010-based market basket in developing the FY 
2014 update factor for the operating and capital prospective payment 
rates and the FY 2014 update factor for the excluded hospital rate-of-
increase limits. We also are setting forth the data sources used to 
determine the proposed revised market basket relative weights.
d. Reduction of Hospital Payments for Excess Readmissions
    We are proposing a number of changes in 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 to account for 
excess readmissions of selected applicable conditions. These conditions 
are acute myocardial infarction, heart failure, and pneumonia. For FY 
2014, we are proposing additional exclusions to the three existing 
readmission measures (that is, the excess readmission ratio) that 
account for planned readmissions. We also are proposing additional 
readmission measures to be used in the payment determination for FY 
2015. In addition, we are proposing that the readmissions payment 
adjustment factors for FY 2014 can be no more than a 2-percent 
reduction (there is a 1-percent cap in FY 2013), consistent with the 
statute. We are proposing a change in the methodology we use to 
calculate the readmissions payment adjustment factors to make it more 
consistent with the calculation of the excess readmission ratio.
e. Hospital Value-Based Purchasing (VBP) Program
    Section 1886(o) of the Act 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.
    In this proposed rule, we are outlining payment details for the FY 
2014 Hospital VBP Program. In addition, we are proposing numerous 
policies for the FY 2016 Hospital VBP Program, including measures, 
performance standards, and performance and baseline periods. We also 
are proposing a disaster/extraordinary circumstances waiver process, 
domain reclassification and weighting based on CMS' National Quality 
Strategy for the FY 2017 Hospital VBP Program, and certain measures, 
performance and baseline periods, and performance standards for the FY 
2017 through FY 2019 Programs.
f. Hospital-Acquired Condition (HAC) Reduction Program
    In this proposed rule, we are proposing measures, scoring, and risk 
adjustment methodology to implement the FY 2015 payment adjustment 
under the HAC Reduction Program. Section 1886(p) of the Act, as added 
under section 3008(a) of the Affordable Care Act, establishes an 
adjustment to hospital payments for HACs, or a HAC Reduction program, 
under which payments to applicable hospitals are adjusted to provide an 
incentive to reduce HACs, effective for discharges beginning on October 
1, 2014 and for subsequent program years. The amount of payment shall 
be equal to 99 percent of the amount of payment that would otherwise 
apply to such discharges under section 1886(d) or 1814(b)(3) of the 
Act, as applicable.
g. Counting of Inpatient Days for Medicare Payment or Eligibility 
Purposes
    In response to a comment we received on the FY 2013 IPPS/LTCH PPS 
final rule and consistent with the inpatient day counting rules for DSH 
as clarified in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we are 
proposing that patient days associated with maternity patients who were 
admitted as inpatients and were receiving ancillary labor and delivery 
services at the time the inpatient routine census is taken, regardless 
of whether the patient actually occupied a routine bed prior to 
occupying an ancillary labor and delivery bed and regardless of whether 
the patient occupies a ``maternity suite'' in which labor, delivery 
recovery, and postpartum care all take place in the same room, would be 
included in the Medicare utilization calculation. We understand that 
including labor and delivery inpatient days in the Medicare utilization 
calculation invariably would reduce direct GME payments because direct 
GME payments are based, in part, on a hospital's Medicare utilization 
ratio and the denominator of that ratio, which includes the hospital's 
total inpatient days, would increase at a higher rate than the 
numerator of the ratio, which includes the hospital's Medicare 
inpatient days. However, because the Medicare utilization ratio is a 
comparison of a hospital's total

[[Page 27496]]

Medicare inpatient days to its total inpatient days, we believe that 
revising the ratio to include labor and delivery days is appropriate 
because they are inpatient days and therefore should be counted as 
such. We are proposing to include labor and delivery days as inpatient 
days in the Medicare utilization calculation effective for cost 
reporting periods beginning on or after October 1, 2013.
h. Proposed Changes to the DSH Payment Adjustment and the Provision of 
Additional Payment for Uncompensated Care
    Section 3133 of the Affordable Care Act modified the Medicare 
disproportionate share hospital (DSH) payment methodology beginning in 
FY 2014. Currently, Medicare DSHs qualify for a DSH payment adjustment 
under a statutory formula that considers their Medicare utilization due 
to beneficiaries who also receive Supplemental Security Income benefits 
and their Medicaid utilization. Under section 1886(r) of the Act, which 
was added by section 3133 of the Affordable Care Act, starting in FY 
2014, DSHs will receive 25 percent of the amount they previously would 
have received under the current statutory formula for Medicare DSH 
payments. The remaining amount, equal to 75 percent of what otherwise 
would have been paid as Medicare DSH payments, will be paid as 
additional payments after the amount is reduced for changes in the 
percentage of individuals that are uninsured. Each Medicare DSH will 
receive its additional amount based on its share of the total amount of 
uncompensated care for all Medicare DSH hospitals for a given time 
period. In this proposed rule, we are proposing to implement these 
statutory changes.
i. Proposal Relating to Admission and Medical Review Criteria for 
Hospital Inpatient Services Under Medicare Part A
    To reduce uncertainty regarding the requirements for payments to 
hospitals and CAHs under Medicare Part A related to when a Medicare 
beneficiary should be admitted as a hospital inpatient, in this 
proposed rule, we are proposing to clarify the rules governing 
physician orders of hospital inpatient admissions for payment under 
Medicare Part A. We are proposing to clarify and specify in the 
regulations that an individual becomes an inpatient of a hospital, 
including a critical access hospital, pursuant to an order for 
inpatient admission by a physician or other qualified practitioner and, 
therefore, the order is required for payment of hospital inpatient 
services under Medicare Part A. We are proposing that hospital 
inpatient admissions spanning 2 midnights in the hospital would 
generally qualify as appropriate for payment under Medicare Part A. 
This would revise our guidance to hospitals and physicians relating to 
when hospital inpatient admissions are determined reasonable and 
necessary for payment under Part A. We also are proposing to use our 
exceptions and adjustments authority under section 1886(d)(5)(I)(i) of 
the Act to offset the additional IPPS expenditures under this proposal 
by reducing the standardized amount, the hospital-specific amount, and 
the Puerto Rico-specific standardized amount by 0.2 percent.
j. Proposed LTCH PPS Standard Federal Rate
    In section VIII.A. of the preamble of this proposed rule, we 
present the proposed LTCH PPS standard Federal rate for FY 2014, which 
includes a proposed adjustment factor of 0.98734 for the second year of 
the 3-year phase-in of the permanent one-time adjustment to the 
standard Federal rate. In addition, under the LTCH Quality Reporting 
(LTCHQR) Program, the proposed annual update to the standard Federal 
rate will be reduced by 2 percentage points for LTCHs that fail to 
submit data for FY 2014 on specific measures under section 3004 of the 
Affordable Care Act.
k. Expiration of Certain Payment Rules for LTCH Services and Research 
on the Development of a Patient Criteria-Based Payment Adjustment Under 
the LTCH PPS
    In section VIII.D. of the preamble of this proposed rule, we note 
the expiration of the moratorium on the full implementation of the ``25 
percent threshold'' payment adjustment to LTCHs under the LTCH PPS for 
cost reporting periods beginning on or after October 1, 2013.
    In section VIII.E. of the preamble of this proposed rule, we 
describe the results of research being done by a CMS contractor, 
Kennell and Associates (Kennell) and its subcontractor, Research 
Triangle Institute, International (RTI), on the development of a 
payment adjustment under the LTCH PPS based on the establishment of 
LTCH patient criteria.
l. 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 proposed rule, we are proposing to make several changes to: 
(1) The measure set, including the removal of some measures, the 
refinement of some measures, and the adoption of several new measures; 
(2) the administrative processes; and (3) the validation methodologies. 
We also are proposing to allow hospitals the option of reporting the 
measures in four measure sets electronically for the FY 2016 payment 
determination. These proposed changes would improve the timeliness and 
efficiency of the Hospital IQR Program and begin the process of 
incorporating electronic reporting into the Hospital IQR Program.
3. Summary of Costs and Benefits
     Proposed Adjustment for MS-DRG Documentation and Coding 
Changes. We are proposing a -0.8 percent recoupment adjustment to the 
standardized amount for FY 2014 to implement, in part, the requirement 
of section 631 of the ATRA that the Secretary make an adjustment 
totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 
2017. This recoupment adjustment represents the amount of the increase 
in aggregate payments as a result of not completing the prospective 
adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 
until FY 2013. Prior to the ATRA, this amount could not have been 
recovered under Public Law110-90.
    While our actuaries estimate that a -9.3 percent recoupment 
adjustment to the standardized amount would be necessary if CMS were to 
fully recover the $11 billion recoupment required by section 631 of the 
ATRA in FY 2014, it is often our practice to delay or phase in rate 
adjustments over more than one year, in order to moderate the effects 
on rates in any one year. Therefore, consistent with the policies that 
we have adopted in many similar cases, we are proposing a -0.8 percent 
recoupment adjustment to the standardized amount in FY 2014. We 
estimate that this level of adjustment would recover $0.96 billion in 
FY 2014, with approximately $10.4 billion remaining to be addressed. We 
are not proposing any future adjustments at this time but note that if 
recoupment adjustments of approximately -0.8 percent are implemented in 
FYs 2014, 2015, 2016, and 2017, we estimate that the entire $11 billion 
will be recovered

[[Page 27497]]

by the end of the statutory 4-year timeline.
     Proposed Refinement of the MS-DRG Relative Weight 
Calculation. We refer readers to section VI.C. of Appendix A of this 
proposed rule for the overall IPPS operating impact, which includes the 
impact for the proposed refinement of the MS-DRG relative weight 
calculation. This proposed impact models payments to various hospital 
types using relative weights developed from 19 CCRs as compared to 15 
CCRs. As with other proposed changes to the MS-DRGs, these proposed 
changes are to be implemented in a budget neutral manner.
     Proposed Rebasing and Revision of the Hospital Market 
Baskets for Acute Care Hospitals. The proposed FY 2010-based IPPS 
market basket update (as measured by percentage increase) for FY 2014 
is currently forecasted to be the same as the market basket update 
based on the FY 2006-based IPPS market basket at 2.5 percent (currently 
used under the IPPS). Therefore, we are projecting that there would be 
no fiscal impact on the IPPS operating payment rates in FY 2014 as a 
result of the proposed rebasing and revision of the IPPS market basket.
    The proposed FY 2010-based IPPS capital input price index update 
(as measured by percentage increase) for FY 2014 is currently 
forecasted to be 1.2 percent, 0.2 percentage points lower than the 
update based on the FY 2006-based capital input price index. Therefore, 
we are projecting that there would be a fiscal impact of -$16 million 
to the IPPS capital payments in FY 2014 as a result of this proposal 
(0.2 percentage points * annual capital IPPS payments of approximately 
$8 billion).
    In addition, we are proposing to update the labor-related share 
under the IPPS for FY 2014 based on the proposed FY 2010-based IPPS 
market basket, which would result in a labor-related share of 69.6 
percent (compared to the FY 2013 labor-related share of 68.8) or 62 
percent, depending on which results in higher payments to the hospital. 
For FY 2014, the proposed labor-related share for the Puerto Rico-
specific standardized amount would be either 63.2 percent or 62 
percent, depending on which results in higher payments to the hospital. 
We are projecting that there would be no impact on aggregate IPPS 
payments as a result of this proposal due to the statutory requirement 
that any changes to the IPPS area wage adjustment (including the labor-
related share) are adopted in a budget neutral manner.
     Reduction to Hospital Payments for Excess Readmissions. 
The provisions of section 1886(q) of the Act which establishes the 
Hospital Readmissions Reduction Program are not budget neutral. For FY 
2014, a hospital's readmissions payment adjustment factor is the higher 
of a ratio of a hospital's aggregate payments for excess readmissions 
to its aggregate payments for all discharges, or 0.98 (that is, or a 2-
percent reduction). In this proposed rule, we estimate that the 
reduction to a hospital's base operating DRG payment amount to account 
for excess readmissions of selected applicable conditions under the 
Hospital Readmissions Reduction Program will result in a 0.2 percent 
decrease, or approximately -$175 million, in payments to hospitals for 
FY 2014.
     Value-Based Incentive Payments Under the Hospital Value-
Based Purchasing (VBP) Program. We estimate that there will be no net 
financial impact to the Hospital VBP Program for FY 2014 in the 
aggregate because, by law, the amount available for value-based 
incentive payments under the program in a given fiscal year must be 
equal to the total amount of base operating DRG payment amount 
reductions for that year, as estimated by the Secretary. The estimated 
amount of base operating DRG payment amount reductions for FY 2014, and 
therefore the estimated amount available for value-based incentive 
payments for FY 2014 discharges, is approximately $1.1 billion. We 
believe that the program's benefits will be seen in improved patient 
outcomes, safety, and in the patient's experience of care. We intend to 
provide an updated analysis of the program's estimated dollar impact 
for the FY 2014 program year in the FY 2014 IPPS/LTCH PPS final rule. 
However, we cannot estimate these benefits in actual dollar and patient 
terms.
     Implementation of the HAC Reduction Program for FY 2014. 
We note that there is no payment impact for FY 2014 for implementing 
the HAC Reduction Program. For FY 2015, we are presenting the overall 
impact of the HAC Reduction Program provision along with other IPPS 
payment provision impacts in section I.G. of Appendix A of this 
proposed rule.
     Counting of Inpatient Days in the Medicare Utilization 
Calculation. We believe our proposal to include labor and delivery days 
as inpatient days in the Medicare utilization calculation would result 
in a savings of approximately $15 million for FY 2014.
     Changes to the Medicare DSH Payment Adjustment and 
Provision of Additional Payment for Uncompensated Care. Under section 
1886(r) of the Act (as added by section 3313 of the Affordable Care 
Act), disproportionate share payments to hospitals under section 
1886(d)(5)(F) of the Act are reduced and an additional payment to 
eligible hospitals will be made beginning in FY 2014. Hospitals that 
receive Medicare DSH payments will receive 25 percent of the amount 
they previously would have received under the current statutory formula 
for Medicare DSH payments. The remainder, equal to 75 percent of what 
otherwise would have been paid as Medicare DSH payments, will be the 
basis for additional payments after the amount is reduced for changes 
in the percentage of individuals that are uninsured and additional 
statutory adjustments. Each hospital that receives Medicare DSH 
payments will receive an additonal payment based on its share of the 
total uncompensated care amount reported by Medicare DSHs. The 
reduction to Medicare DSH payments is not budget neutral.
    We are proposing that 75 percent of what otherwise would have been 
paid for Medicare DSH payments is adjusted to 88.8 percent of that 
amount for changes in the percentage of individuals that are uninsured 
and additional statutory adjustments. In other words, Medicare DSH 
payments prior to the application of section 3133 are adjusted to 66.6 
percent (the product of 75 percent and 88.8 percent) and that resulting 
payment amount is used to create an additional payment for a hospital's 
relative uncompensated care. As a result, we project that the reduction 
of Medicare DSH payments and the inclusion of the additional payments 
will reduce payments overall by 0.9 percent as compared to Medicare DSH 
payments prior to the implementation of section 3133. The proposed 
additional payment costs have redistributive effects based on a 
hospital's uncompensated care amount relative to the uncompensated care 
amount for all hospitals that are estimated to receive Medicare DSH 
payments, and the payment amount is not tied to a hospital's 
discharges.
     Proposal Relating to Admission and Medical Review Criteria 
for Hospital Inpatient Services Under Medicare Part A. In this proposed 
rule, we are making a proposal relating to admission and medical review 
criteria for hospital inpatient admissions under Medicare Part A. One 
aspect of this proposal is that hospital inpatient admissions spanning 
2 midnights in the hospital would generally qualify as appropriate for 
payment under

[[Page 27498]]

Medicare Part A. Our actuaries estimate that the proposal would 
increase IPPS expenditures by approximately $220 million due to an 
expected net increase in inpatient encounters. We are proposing to use 
our exceptions and adjustments authority under section 1886(d)(5)(I)(i) 
of the Act to make a reduction of 0.2 percent to the standardized 
amount, the Puerto Rico standardized amount, and the hospital-specific 
payment rate to offset this estimated $220 million in additional IPPS 
expenditures. We also are proposing to apply that 0.2 percent reduction 
to the capital Federal rates using our authority under section 1886(g) 
of the Act.
     Hospital Inpatient Quality Reporting (IQR) Program. We are 
proposing that hospitals participating in the Hospital IQR Program will 
have the option to report a subset of measures electronically in CY 
2014 for the FY 2016 payment determination. Under this proposal, 
hospitals may choose to report the measures in four measure sets 
electronically or as chart-abstracted measures in CY 2014. For the FY 
2016 payment determination, we also are proposing to remove seven 
chart-abstracted measures and one structural measure. We also are 
proposing to adopt five new claims-based measures for the FY 2016 
payment determination and subsequent years. We are proposing, for the 
FY 2016 payment determination and subsequent years, to validate two 
additional chart-abstracted HAI measures: MRSA bacteremia, and C. 
difficile. We also are proposing to reduce the number of records used 
for HAI validation from 48 records per year to 36 records per year 
beginning with the FY 2015 payment determination. Finally, we are 
proposing to allow hospitals to submit patient charts for purposes of 
validation either in paper form or by means of electronic transmission. 
We believe the proposed changes to the measure set, processes, and 
validation methodologies, the proposal for electronic submission of 
records for validation, as well as the proposal to allow hospitals to 
report certain measures electronically for the FY 2016 payment 
determination will result in improved program efficiency and begin the 
process of incorporating electronic reporting into the program. We 
estimate that the combination of these proposed changes and the 
reduction in measures mentioned above will reduce burden hours by 
700,000 hours annually.
     Proposed Update to the LTCH PPS Standard Federal Rate and 
Other Payment Factors. Based on the best available data for the 423 
LTCHs in our database, we estimate that the proposed changes we are 
presenting in the preamble and Addendum of this proposed rule, 
including the proposed update to the standard Federal rate for FY 2014, 
the proposed changes to the area wage adjustment for FY 2014, and the 
proposed changes to short-stay outliers and high-cost outliers, would 
result in an increase in estimated payments from FY 2013 of 
approximately $62 million (or 1.1 percent). Although we generally 
project an increase in proposed payments for all LTCHs in FY 2014 as 
compared to FY 2013, we expect rural LTCHs to experience slightly lower 
increases than the national average due to decreases in their wage 
index for FY 2014 compared to FY 2013. In addition, under current law, 
our moratoria on the full implementation of the ``25-percent 
threshold'' payment adjustment policy will expire for certain LTCHs for 
cost reporting periods beginning on or after October 1, 2013. These 
regulatory moratoria extended, for an additional year, the 5-year 
statutory 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, which expired for cost reporting 
periods beginning on or after October 1, 2012 (``October LTCHs''), and 
for other LTCHs and LTCH satellite facilities for cost reporting 
periods beginning on or after July 1, 2012 (``July LTCHs'') (77 FR 
53483 through 53484, as amended by the FY 2013 IPPS/LTCH PPS correcting 
amendment (77 FR 63751 through 63753)), as explained in section VIII.D. 
of the preamble of this proposed rule. We estimate that the expiration 
of the regulatory moratoria will result in a reduction in payments of 
$190 million to LTCHs. Overall, we estimate that the effect of the 
changes we are proposing for FY 2014 in conjunction with the expiration 
of the regulatory moratoria would result in a decrease in aggregate 
LTCH PPS payments in FY 2014 relative to FY 2013 of approximately -$128 
million (that is, the estimated increase of $62 million plus the 
estimated reduction of $190 million, as described above).

B. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
    Section 1886(d) of the Social Security Act (the Act) sets forth a 
system of payment for the operating costs of acute care hospital 
inpatient stays under Medicare Part A (Hospital Insurance) based on 
prospectively set rates. Section 1886(g) of the Act requires the 
Secretary to use a prospective payment system (PPS) to pay for the 
capital-related costs of inpatient hospital services for these 
``subsection (d) hospitals.'' Under these PPSs, Medicare payment for 
hospital inpatient operating and capital-related costs is made at 
predetermined, specific rates for each hospital discharge. Discharges 
are classified according to a list of diagnosis-related groups (DRGs).
    The base payment rate is comprised of a standardized amount that is 
divided into a labor-related share and a nonlabor-related share. The 
labor-related share is adjusted by the wage index applicable to the 
area where the hospital is located. If the hospital is located in 
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the 
DRG relative weight.
    If the hospital treats a high percentage of certain low-income 
patients, it receives a percentage add-on payment applied to the DRG-
adjusted base payment rate. This add-on payment, known as the 
disproportionate share hospital (DSH) adjustment, provides for a 
percentage increase in Medicare payments to hospitals that qualify 
under either of two statutory formulas designed to identify hospitals 
that serve a disproportionate share of low-income patients. For 
qualifying hospitals, the amount of this adjustment varies based on the 
outcome of the statutory calculations.
    If the hospital is an approved teaching hospital, it receives a 
percentage add-on payment for each case paid under the IPPS, known as 
the indirect medical education (IME) adjustment. This percentage 
varies, depending on the ratio of residents to beds.
    Additional payments may be made for cases that involve new 
technologies or medical services that have been approved for special 
add-on payments. To qualify, a new technology or medical service must 
demonstrate that it is a substantial clinical improvement over 
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG 
payment.
    The costs incurred by the hospital for a case are evaluated to 
determine whether the hospital is eligible for an additional payment as 
an outlier case. This additional payment is designed to protect the 
hospital from large financial losses due to unusually expensive cases. 
Any eligible outlier payment is added to the DRG-adjusted base payment 
rate, plus any DSH, IME, and new technology or medical service add-on 
adjustments.

[[Page 27499]]

    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, 2013, 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 2013, that is, on September 30, 2013.) 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 of the 
BBRA and section 307(b) of the BIPA (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 made 
to critical access hospitals (CAHs) (that is, rural hospitals or 
facilities that meet certain statutory requirements) for inpatient and 
outpatient services are generally based on 101 percent of reasonable 
cost. Reasonable cost is determined under the provisions of section 
1861(v)(1)(A) of the Act and existing regulations under 42 CFR Parts 
413 and 415.
5. Payments for Graduate Medical Education (GME)
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities are excluded from the operating costs of inpatient hospital 
services. Hospitals with approved graduate medical education (GME) 
programs are paid for the direct costs of GME in accordance with 
section 1886(h) of the Act. The amount of payment for direct GME costs 
for a cost reporting period is based on the hospital's number of 
residents in that period and the hospital's costs per resident in a 
base year. The existing regulations governing payments to the various 
types of hospitals are located in 42 CFR Part 413.

C. Provisions of the Patient Protection and Affordable Care Act (Pub. 
L. 111-148), the Health Care and Education Reconciliation Act of 2010 
(Pub. L. 111-152), and the American Taxpayer Relief Act of 2012 (ATRA) 
(Pub. L. 112-240)

    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

[[Page 27500]]

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).
    The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), 
enacted on January 2, 2013, also made a number of changes that affect 
the IPPS. We announced changes related to certain IPPS provisions for 
FY 2013 pursuant to sections 605 and 606 of Public Law 112-240 in a 
notice issued in the Federal Register on March 7, 2013 (78 FR 14689).
1. 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)
    In this proposed rule, we are proposing to implement, or continue 
in FY 2014 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(a) of Public Law 111-148, which requires the 
establishment of a hospital inpatient value-based purchasing program 
under which value-based incentive payments are 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 by LTCHs in order for them 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 beginning with FY 2014, and for subsequent program years.
     Section 3008 of Public Law 111-148, which establishes the 
Hospital-Acquired Condition (HAC) Reduction Program and requires the 
Secretary to make an adjustment to hospital payments for applicable 
hospitals, effective for discharges beginning on October 1, 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 3133 of Public Law 111-148, which modifies the 
methodologies for determining Medicare DSH payments and creates a new 
additional payment for uncompensated care.
     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 2014.
     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.
2. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)
    In this proposed rule, we are proposing to implement or to make 
conforming changes to regulation text in accordance with the following 
provisions (or portions of the following provisions) of the American 
Taxpayer Relief Act of 2012 that are applicable to the IPPS:
     Section 605, which amended sections 1886(d)(12)(B), 
(C)(i), and (D) of the Act to extend changes to the payment methodology 
for the Medicare inpatient hospital payment adjustment for low-volume 
hospitals through September 30, 2013 (FY 2013). Beginning with FY 2014, 
the preexisting low-volume hospital qualifying criteria and payment 
adjustment, as implemented in FY 2005, will resume.
     Section 606(a), which amended sections 1886(d)(5)(G)(i) 
and (ii)(II) of the Act to extend the MDH program through September 30, 
2013 (FY 2013), and section 606(b), which made conforming amendments to 
sections 1886(b)(3)(D)(i) and (iv) of the Act and amended section 
13501(e)(2) of the Omnibus Budget Reconciliation Act of 1993 to permit 
hospitals to decline reclassification through FY 2013.
     Section 631, which amended section 7(b)(1)(B) of Public 
Law 110-90 and requires a recoupment adjustment to the standardized 
amounts under section 1886(d) of the Act based upon the Secretary's 
estimates for discharges occurring in FY 2014 through FY 2017 to fully 
offset $11 billion (which represents the amount of the increase in 
aggregate payments from FYs 2008 through 2013 for which an adjustment 
was not previously applied).

D. Summary of the Provisions of This Proposed Rule

    In this proposed rule, we are setting forth proposed changes to the 
Medicare IPPS for operating costs and for capital-related costs of 
acute care hospitals in FY 2014. We also are setting forth proposed 
changes relating to payments for IME costs and payments to certain 
hospitals that continue to be excluded from the IPPS and paid on a 
reasonable cost basis. In addition, in this proposed rule, we are 
setting forth proposed changes to the payment rates, factors, and other 
payment rate policies under the LTCH PPS for FY 2014.
    Below is a summary of the major changes that we are proposing to 
make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of 
Relative Weights
    In section II. of the preamble of this proposed rule, we include--
     Proposed changes to MS-DRG classifications based on our 
yearly review.
     Proposed application of the documentation and coding 
adjustment for FY 2014 resulting from implementation of the MS-DRG 
system.
     A discussion of the Research Triangle Institute, 
International (RTI) reports and recommendations relating to charge 
compression, including the proposal to calculate the MS-DRG relative 
weights using 19 CCRs.
     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 2014.
     A discussion of the FY 2014 status of new technologies 
approved for add-on payments for FY 2013 and a presentation of our 
evaluation and analysis of the FY 2014 applicants for add-on payments 
for high-cost new medical services and technologies

[[Page 27501]]

(including public input, as directed by Pub. L. 108-173, obtained in a 
town hall meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to this proposed rule, we are 
proposing revisions to the wage index for acute care hospitals and the 
annual update of the wage data. Specific issues addressed include the 
following:
     The proposed FY 2014 wage index update using wage data 
from cost reporting periods beginning in FY 2010.
     Analysis and implementation of the proposed FY 2014 
occupational mix adjustment to the wage index for acute care hospitals, 
including the proposed application of the rural floor, the imputed 
rural floor calculated under the original and alternative 
methodologies, and the frontier State floor.
     Proposed revisions to the wage index for acute care 
hospitals based on hospital redesignations and reclassifications.
     The proposed adjustment to the wage index for acute care 
hospitals for FY 2014 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 2014 hospital wage index.
     Determination of the labor-related share for the proposed 
FY 2014 wage index.
3. Proposed Rebasing and Revision of the Hospital Market Baskets for 
Acute Care Hospitals
    In section IV. of the preamble of this proposed rule, we are 
proposing to rebase and revise the acute care hospital operating and 
capital market baskets to be used in developing the FY 2014 update 
factor for the operating and capital prospective payment rates and the 
FY 2014 update factor for the excluded hospital rate-of-increase 
limits. We also are setting forth the data sources used to determine 
the proposed revised market basket relative weights.
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section V. of the preamble of this proposed rule, we discuss 
proposed changes or clarifications of a number of the provisions of the 
regulations in 42 CFR Parts 412 and 413, including the following:
     Proposed changes to the inpatient hospital update for FY 
2014, including incorporation of a productivity adjustment.
     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 2014.
     The statutorily required IME adjustment factor for FY 
2014.
     Proposed changes to the methodologies for determining 
Medicare DSH payments and proposals to implement the new additional 
payments for uncompensated care.
     Discussion of the extension of the MDH program through FY 
2013.
     Proposed changes to the 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 changes to the requirements and provision of 
value-based incentive payments under the Hospital Value-Based 
Purchasing Program.
     Proposed requirements for payment adjustments to hospitals 
under the HAC Reduction Program.
     Proposal for counting labor and delivery inpatient days in 
the calculation of Medicare utilization for direct GME purposes and for 
other inpatient days policy for payments and eligibility.
     Announcement of an additional closed hospital and 
redistribution of resident cap slots relating to direct GME and IME 
payments.
     Proposed clarifications of policies on payments for 
residents training in approved residency programs at CAHs.
     Announcement of the expiration of the inflation update 
freeze for high per resident amounts (PRAs).
     Discussion of the Rural Community Hospital Demonstration 
Program and a proposal for making a budget neutrality adjustment for 
the demonstration program.
     Extending the effective date of policies relating to 
hospital services furnished under arrangements.
     Proposed policy that medical review of inpatient 
admissions will include a presumption that hospital inpatient 
admissions are reasonable and necessary for beneficiaries who require 
more than 1 Medicare utilization day (defined by encounters crossing 2 
midnights) in the hospital receiving medically necessary services.
5. Proposed FY 2014 Policy Governing the IPPS for Capital-Related Costs
    In section VI. of the preamble to this proposed rule, we discuss 
the proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2014 and other related proposed 
policy changes.
6. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VII. of the preamble of this proposed rule, we discuss--
     Proposed changes to payments to certain excluded hospitals 
for FY 2014.
     Proposed changes to the conditions of participation (CoPs) 
relating to administration of pneumococcal vaccine and CAH payment for 
acute care inpatient services.
7. Proposed Changes to the LTCH PPS
    In section VIII. of the preamble of this proposed rule, we set 
forth proposed changes to the payment rates, factors, and other payment 
rate policies under the LTCH PPS for FY 2014. We also note that the 
moratorium on the full implementation of the ``25-percent threshold'' 
payment adjustment will expire for certain cost reporting periods 
beginning on or after October 1, 2013. In addition, in this section, we 
describe the results of research being done by Kennell and Associates 
(Kennell) and its subcontractor, Research Triangle Institute, 
International (RTI), under a contract with CMS on the development of a 
payment adjustment under the LTCH PPS based on the establishment of 
LTCH patient criteria.
8. Proposed Changes Relating to Quality Data Reporting for Specific 
Providers and Suppliers
    In section IX. of the preamble of this proposed rule, we address--
     Proposed requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program as a condition for receiving the full 
applicable percentage increase.
     Proposed changes to the requirements for the quality 
reporting program for PPS-exempt cancer hospitals (PCHQR Program).
     Proposed changes to the requirements under the LTCH 
Quality Reporting (LTCHQR) Program.
     Proposed changes to the requirements under the Inpatient 
Psychiatric Facility Quality Reporting (IPFQR) Program.
9. Determining Proposed Prospective Payment Operating and Capital Rates 
and Rate-of-Increase Limits for Acute Care Hospitals
    In the Addendum to this proposed rule, we set forth proposed 
changes to the amounts and factors for determining the proposed FY 2014 
prospective payment rates for operating costs and

[[Page 27502]]

capital-related costs for acute care hospitals. We are proposing to 
establish the threshold amounts for outlier cases. In addition, we 
address the proposed update factors for determining the rate-of-
increase limits for cost reporting periods beginning in FY 2014 for 
certain hospitals excluded from the IPPS.
10. Determining Proposed Prospective Payment Rates for LTCHs
    In the Addendum to this proposed rule, we set forth proposed 
changes to the amounts and factors for determining the proposed FY 2014 
prospective standard Federal rate. We are proposing 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.
11. Impact Analysis
    In Appendix A of this proposed rule, we set forth an analysis of 
the impact that the proposed changes would have on affected acute care 
hospitals, LTCHs, PCHs, and IPFs.
12. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    In Appendix B of this proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the 
appropriate percentage changes for FY 2014 for the following:
     A single average standardized amount for all areas for 
hospital inpatient services paid under the IPPS for operating costs of 
acute care hospitals (and hospital-specific rates applicable to SCHs).
     Target rate-of-increase limits to the allowable operating 
costs of hospital inpatient services furnished by certain hospitals 
excluded from the IPPS.
     The standard Federal rate for hospital inpatient services 
furnished by LTCHs.
13. Discussion of Medicare Payment Advisory Commission Recommendations
    Under section 1805(b) of the Act, MedPAC is required to submit a 
report to Congress, no later than March 15 of each year, in which 
MedPAC reviews and makes recommendations on Medicare payment policies. 
MedPAC's March 2013 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 address 
these recommendations in Appendix B of this proposed rule. For further 
information relating specifically to the MedPAC March 2013 report or to 
obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit 
MedPAC's Web site at: http://www.medpac.gov.

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

A. Background

    Section 1886(d) of the Act specifies that the Secretary shall 
establish a classification system (referred to as diagnosis-related 
groups (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), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485 
through 51487), and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53273).

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. Proposed FY 2014 MS-DRG Documentation and Coding Adjustment

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).

[[Page 27503]]

    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. Adjustment to the Average Standardized Amounts Required by Public 
Law 110-90
a. Prospective Adjustment Required by Section 7(b)(1)(A) of Public Law 
110-90
    Section 7(b)(1)(A) of Public Law 110-90 requires that, if the 
Secretary determines that implementation of the MS-DRG system resulted 
in changes in documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2008 or FY 2009 
that are different than the prospective documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90, the 
Secretary shall make an appropriate adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act 
authorizes adjustments to the average standardized amounts for 
subsequent fiscal years in order to eliminate the effect of such coding 
or classification changes. These adjustments are intended to ensure 
that future annual aggregate IPPS payments are the same as the payments 
that otherwise would have been made had the prospective adjustments for 
documentation and coding applied in FY 2008 and FY 2009 reflected the 
change that occurred in those years.
b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Section 7(b)(1)(B) 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.
3. 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.
    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.
4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90
    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 the law provided some discretion as to the manner in which we 
applied the

[[Page 27504]]

prospective adjustment of -3.9 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 implemented the requisite adjustment) would be 
higher than they would have been if we had implemented an adjustment 
under section 7(b)(1)(A) of Public Law 110-90.
    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 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 final rule (77 FR 53274 through 
53276), we completed the prospective portion of the adjustment required 
under section 7(b)(1)(A) of Public Law 110-90 by finalizing 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. We believe it was 
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 note again that delaying full implementation of the prospective 
portion of the adjustment required under section 7(b)(1)(A) of Public 
Law 110-90 until FY 2013 resulted in payments in FY 2010 through FY 
2012 being overstated. These overpayments could not be recovered by CMS 
as section 7(b)(1)(B) of Public Law 110-90 limited recoupments to 
overpayments made in FY 2008 and FY 2009.
5. 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). 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. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53276), we made a 
final +2.9 percent adjustment to the standardized amount, 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.
6. Recoupment or Repayment Adjustment Authorized by Section 631 of the 
American Taxpayer Relief Act of 2012 (ATRA)
    Section 631 of the ATRA amended section 7(b)(1)(B) of Public Law 
110-90 to require the Secretary to make a recoupment adjustment or 
adjustments totaling $11 billion by FY 2017. This adjustment represents 
the amount of the increase in aggregate payments as a result of not 
completing the prospective adjustment authorized under section 
7(b)(1)(A) of Public Law 110-90 until FY 2013. As discussed earlier, 
this delay in implementation resulted in overstated payment rates in 
FYs 2010, 2011, and 2012. The resulting overpayments could not have 
been recovered under Public Law 110-90.
    Similar to the adjustments authorized under section 7(b)(1)(B) of 
Public Law 110-90, the adjustment required under section 631 of the 
ATRA is a one-time recoupment of a prior overpayment, not a permanent 
reduction to payment rates. Therefore, any adjustment made to reduce 
rates in one year would eventually be offset by a positive adjustment, 
once the necessary amount of overpayment is recovered.
    Our actuaries estimate that a -9.3 percent adjustment to the 
standardized amount would be necessary if CMS were to fully recover the 
$11 billion recoupment required by section 631 of the ATRA in FY 2014. 
In its March 2013 ``Report to Congress: Medicare Payment Policy,'' 
MedPAC estimates that a -2.4 percent adjustment made in FY 2014, and 
not removed until FY 2018, also would recover the required recoupment 
amount. It is often our practice to delay or 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, we are proposing a -0.8 percent 
recoupment adjustment to the

[[Page 27505]]

standardized amount in FY 2014. We estimate that this level of 
adjustment will recover up to $0.96 billion in FY 2014, with at least 
$10.04 billion remaining to be recovered by FY 2017. If adjustments of 
approximately -0.8 percent are implemented in FYs 2014, 2015, 2016, and 
2017, using standard inflation factors, we estimate that the entire $11 
billion will be accounted for by the end of the statutory 4-year 
timeline. As estimates of any future adjustments are subject to slight 
variations in total savings, we are not proposing specific adjustments 
for FYs 2015, 2016, or 2017 at this time. We believe that this level of 
adjustment for FY 2014 is a reasonable and fair approach that satisfies 
the requirements of the statute while mitigating extreme annual 
fluctuations in payment rates. We again note that this -0.8 percent 
recoupment adjustment, and future adjustments under this authority, 
will be eventually offset by an equivalent positive adjustment once the 
full $11 billion recoupment requirement has been realized.
7. Additional Prospective Adjustments for the MS-DRG Documentation and 
Coding Effect Through FY 2010 Authorized 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 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 public 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 
appropriate to ensure that the introduction of MS-DRGs was implemented 
in a budget neutral manner. 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 additional prospective documentation and coding effect of 0.8 
percent through FY 2010 and found that this effect was present for both 
IPPS hospitals paid with the standardized amount and IPPS hospitals 
paid using their hospital-specific payment rates.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we 
proposed an additional -0.8 percent prospective adjustment to the 
standardized amount to account for this effect. We indicated that this 
additional prospective adjustment of -0.8 percent, when combined with 
the other prospective MS-DRG documentation and coding adjustments 
already made or proposed would eliminate the future effect of MS-DRG 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring through FY 2010. As discussed in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53278 through 53280), numerous 
commenters objected to the CMS proposal to make an adjustment to 
account for payment increases due to MS-DRG documentation and coding 
that did not reflect real changes in case-mix for discharges occurring 
through FY 2010. Many commenters continued to assert that our estimates 
of documentation and coding were overstated, and could be explained by 
other factors. These commenters also focused on part of the analysis 
provided by MedPAC in its FY 2012 public comment letter indicating that 
a slightly smaller additional prospective adjusment of -0.55 percent 
rather than -0.8 percent might be required to offset the cumulative MS-
DRG documentation and coding effect through FY 2010. Specifically, 
while MedPAC supported the overall methodology, it suggested that it 
was possible that changes in documentation and coding to optimize 
payments under the MS-DRG GROUPERs and weights may have resulted in 
slightly less than optimal payments under the FY 2007 GROUPER and 
weights (the denominator of the documentation and coding change 
estimate). Many commenters requested that, given the MedPAC analysis, 
if CMS were to apply an additional prospective adjustment to the MS-DRG 
documentation and coding effect through FY 2010, it should subtract 
0.25 percentage points from its estimate, for an adjustment of -0.55 
percent.
    After considering the public comments, we recognized that the issue 
of the estimate to use for the cumulative MS-DRG documentation and 
coding effect through FY 2010 may merit further consideration. 
Therefore, as discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53278 through 53280), we decided not to finalize the proposed -0.8 
percent adjustment to the standardized amount and the hospital-specific 
rate until more analysis could be completed.
    CMS is continuing to consider whether MedPAC's recommendation that 
an adjustment to offset the cumulative documentation and coding effects 
through FY 2010 under section 1886(d)(3)(A)(vi) of the Act is 
appropriate and supported by a review of the claims data. After further 
consideration of the MedPAC analysis and the request by many public 
commenters, if we were to apply an additional prospective adjustment 
for the cumulative MS-DRG documentation and coding effect through FY 
2010, we believe the most appropriate additional adjustment is -0.55 
percent.
    It is often our practice to delay or phase-in adjustments to 
mitigate negative financial impacts. Because we are proposing a -0.8 
percent recoupment adjustment, as discussed in section II.D.6. of the 
preamble of this proposed rule, we are not proposing a prospective 
adjustment in FY 2014 for the cumulative MS-DRG documentation and 
coding effect through FY 2010. However, we are soliciting public 
comments as to whether any portion of the proposed -0.8 percent 
recoupment adjustment should be reduced and instead applied to a 
prospective adjustment for the cumulative MS-DRG documentation and 
coding effect through FY 2010. For example, we could apply a -0.25 
percent recoupment adjustment, and a -0.55 prospective adjustment, for 
a total FY 2014 adjustment of -0.8 percent. Reducing the recoupment 
adjustment in FY 2014 would require relatively larger adjustments for 
FYs 2015, 2016, and/or 2017, but making a prospective adjustment of -
0.55 percent would eliminate future payment increases due to MS-DRG 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring through FY 2010. As we discuss above, because 
the documentation and coding effect through FY 2010 was found for both 
IPPS hospitals paid with the standardized amount and IPPS hospitals 
paid under their hospital-specific payment rate, if we were to apply a 
prospective adjustment to remove this effect, we also would apply such 
an adjustment to the hospital-specific payment rate, using the 
Secretary's broad authority under section 1886(d)(5)(I)(i) of the Act 
(77 FR 53276 through 53277). Therefore, if we attribute a portion of 
the -0.8 percent adjustment for FY 2014 to the prospective adjustment, 
we also would make appropriate adjustments to the hospital-specific 
payment rates. Puerto Rico-specific rates would not be affected, as we 
previously found no significant additional MS-DRG documentation and 
coding effect for FY 2010 that would warrant any additional

[[Page 27506]]

adjustment to the Puerto Rico-specific rate (77 FR 53279).

E. Proposed 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 addition, we refer readers to RTI's July 2008 final 
report titled ``Refining Cost to Charge Ratios for Calculating APC and 
MS-DRG Relative Payment Weights'' (http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf).
    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 
for ``Implantable Devices Charged to Patients'' was created in July 
2009. 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, MRIs, and cardiac catheterization in order 
for hospitals to report separately the costs and charges for those 
services and in order for CMS to calculate unique CCRs to estimate the 
costs from charges on claims data. In the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50075 through 50080), we finalized our proposal to create 
standard cost centers for CT scans, MRIs, 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, MRIs, 
and cardiac catheterization.) The new standard cost centers for CT 
scans, MRIs, 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.
    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 
Form 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, MRIs, 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). In preparation for the FY 2012 IPPS 
rulemaking, 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.
    During the development of the FY 2013 IPPS/LTCH PPS proposed and 
final rules, hospitals were still in the process of transitioning from 
the previous cost report Form CMS-2552-96 to the new cost report Form 
CMS-2552-10. Therefore, 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; that is, those cost reports on Form 
CMS-2552-96. Data from the Form CMS-2552-10 cost reports were not 
available because cost reports filed on the Form CMS-2552-10 were not 
accessible in the HCRIS. Further complicating matters was that, due to 
additional unforeseen technical difficulties, the corresponding

[[Page 27507]]

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 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 final rule (77 FR 53281 through 53283) that when we do 
have the necessary data for supplies and implantable devices on the 
claims in the MedPAR file to create distinct CCRs for the respective 
cost centers for supplies and implantable devices, we hoped that we 
would also have data for an analysis of creating distinct CCRs for CT 
scans, MRIs, and cardiac catheterization, which could then be finalized 
through rulemaking.
2. Discussion and Proposal for FY 2014
    To calculate the proposed FY 2014 MS-DRG relative weights, we are 
proposing to continue our current methodology of using the two most 
recent data sources: the December 2012 update of the FY 2012 MedPAR 
file as the claims data source and the December 2012 update of FY 2011 
HCRIS as the cost data source. We currently have a substantial number 
of hospitals completing all, or some, of these new cost centers on the 
FY 2011 Medicare cost reports, compared to prior years. Specifically, 
using the December 2012 update of FY 2011 HCRIS, we were able to 
calculate a valid implantable device CCR for 2,285 IPPS hospitals, a 
valid MRI CCR for 1,402 IPPS hospitals, a valid CT scan CCR for 1,470 
IPPS hospitals, and a valid cardiac catheterization CCR for 1,022 IPPS 
hospitals. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281), we 
stated that prior to proposing to create these CCRs, we would first 
thoroughly analyze and determine the impacts of the data, and that 
distinct CCRs for these new cost centers would be used in the 
calculation of the relative weights only if they were first finalized 
through rulemaking.
    We believe that there is a sufficient amount of data in the FY 2011 
cost reports from which to generate a meaningful analysis of using 
distinct CCRs for implantable devices, MRIs, CT scans, and cardiac 
catheterization. In addition, the corresponding charge data on hospital 
claims for implantable devices, MRIs, CT scans, and cardiac 
catheterization are available in the FY 2012 MedPAR file. Therefore, we 
are providing various data analyses below based on comparison of the FY 
2014 relative weights computed using 15 CCRs, as we have done in the 
past, and the FY 2014 relative weights computed using 19 CCRs, with 
distinct CCRs for implantable devices, MRIs, CT scans, and cardiac 
catheterization. Specifically, rather than having a single CCR for 
``Supplies and Equipment'' which includes low-cost supplies and high-
cost implantable devices, a distinct CCR would be carved out of the 
``Supplies and Equipment'' CCR, leaving one CCR for ``Supplies'' and 
one CCR for ``Implantable Devices.'' Regarding the Radiology CCR, which 
currently is comprised of general radiology ancillary services and MRIs 
and CT scans, the costs for MRIs and CT scans would be separated from 
general radiology, creating two distinct CCRs, one for MRIs and one for 
CT scans, respectively. Finally, by separating the costs of cardiac 
catheterization out of the CCR for general cardiology, a distinct CCR 
would be created for cardiac catheterization. Thus, by breaking out 
these 4 additional CCRs, the number of CCRs used to calculate the 
relative weights would increase from 15 to 19.
    For comparison purposes, the following table shows the final FY 
2013 CCRs, the potential FY 2014 CCRs computed with the existing 15 
cost centers, and the potential FY 2014 CCRs computed with 19 cost 
centers, with 4 new CCRs for implantable devices, MRIs, CT scans, and 
cardiac catheterization.

 
------------------------------------------------------------------------
                                    Final  FY    Potential    Potential
              Group                  2013  15   FY 2014  15  FY 2014  19
                                       CCRs         CCRs         CCRs
------------------------------------------------------------------------
Routine days.....................        0.514        0.502        0.502
Intensive days...................        0.442        0.423        0.423
Drugs............................        0.199        0.193        0.193
Supplies & Equipment.............        0.335        0.327        0.293
Implantable Devices..............          n/a          n/a        0.361
Therapy Services.................        0.370        0.355        0.355
Laboratory.......................        0.143        0.133        0.133
Operating Room...................        0.238        0.225        0.225
Cardiology.......................        0.145        0.134        0.132
Cardiac Catheterization..........          n/a          n/a        0.135
Radiology........................        0.136        0.128        0.170
MRI..............................          n/a          n/a        0.091
CT Scans.........................          n/a          n/a        0.045
Emergency Room...................        0.226        0.207        0.207
Blood............................        0.389        0.371        0.371
Other Services...................        0.397        0.399        0.399
Labor & Delivery.................        0.450        0.445        0.445
Inhalation Therapy...............        0.189        0.187        0.187
Anesthesia.......................        0.109        0.120        0.120
------------------------------------------------------------------------

    In order to model the effects on the relative weights in medical 
MS-DRGs versus surgical MS-DRGs, we compared a set of relative weights 
calculated with 15 CCRs and 19 CCRs. Overall, if 19 CCRs are used to 
calculate the relative weights for FY 2014, relative weights for 
medical MS-DRGs would be expected to decrease by approximately 1.1 
percent, and those for surgical MS-DRGs would be expected to increase 
by approximately 1.2 percent. In addition, as shown in the table below, 
at the MDC level, payments would increase by approximately 0.64 percent 
(0.39 + 0.25) within orthopedic and cardiac MDCs, with most of the 
reductions in payment resulting to the medical MS-DRGs in

[[Page 27508]]

the nervous system, digestive system, and respiratory system MDCs.

----------------------------------------------------------------------------------------------------------------
                                                                                                      Estimated
                                                                                                      percentage
                    MDC                                            Description                          change
                                                                                                      within MDC
                                                                                                      (percent)
----------------------------------------------------------------------------------------------------------------
08.........................................  Musculoskeletal System and Connective Tissue..........         0.39
05.........................................  Circulatory System....................................         0.25
01.........................................  Nervous System........................................        -0.16
06.........................................  Digestive System......................................        -0.10
04.........................................  Respiratory System....................................        -0.08
----------------------------------------------------------------------------------------------------------------

    The largest estimated increase in MS-DRG relative weights would 
likely occur for MS-DRGs associated with cardiac catheterization and 
implantable cardiac devices. The largest estimated reductions in MS-DRG 
relative weights would likely occur for MS-DRGs associated with 
traumatic head injury and concussion, which are high users of CT 
scanning and MRI services. We are including in the table below the top 
10 (nonlabor and delivery) MS-DRGs that we predict would experience the 
largest increases and decreases in relative weights if 19 CCRs would be 
used as compared to 15 CCRs.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 Potential
                                                                                                                    Potential     relative
                MS-DRG                           Type                                  Title                         relative     weights     Percentage
                                                                                                                   weight with    with 19       change
                                                                                                                     15 CCRs        CCRs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          MS-DRGs that would experience the largest decrease in relative weight
--------------------------------------------------------------------------------------------------------------------------------------------------------
090..................................  MED.....................  Concussion without CC/MCC.......................       0.7614       0.7013         -7.9
084..................................  MED.....................  Traumatic Stupor & Coma, Coma >1 Hour without CC/      0.9137       0.8516         -6.8
                                                                  MCC.
087..................................  MED.....................  Traumatic Stupor & Coma, Coma <1 Hour without CC/      0.7899       0.7369         -6.7
                                                                  MCC.
965..................................  MED.....................  Other Multiple Significant Trauma without CC/MCC       1.0450        0.980         -6.1
185..................................  MED.....................  Major Chest Trauma without CC/MCC...............       0.7281       0.6845         -6.0
089..................................  MED.....................  Concussion with CC..............................       0.9959       0.9366         -6.0
123..................................  MED.....................  Neurological Eye Disorder.......................       0.7355       0.6920         -5.9
343..................................  SURG....................  Appendectomy without Complicated Principal             0.9880       0.9517         -5.7
                                                                  Diagnosis without CC/MCC.
053..................................  MED.....................  Spinal Disorders & Injuries without CC/MCC......       0.9355       0.8825         -5.7
066..................................  MED.....................  Intracranial Hemorrhage or Cerebral Infarction         0.8034       0.7579         -5.7
                                                                  without CC/MCC.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          MS-DRGs that would experience the largest increase in relative weight
--------------------------------------------------------------------------------------------------------------------------------------------------------
454..................................  SURG....................  Combined Anterior/Posterior Spinal Fusion with         7.6399       8.0563          5.5
                                                                  CC.
455..................................  SURG....................  Combined Anterior/Posterior Spinal Fusion              5.9862       6.3133          5.5
                                                                  Without CC/MCC.
484..................................  SURG....................  Major Joint & Limb Reattachment Procedure of           2.1211       2.2380          5.5
                                                                  Upper Extremity without CC/MCC.
225..................................  SURG....................  Cardiac Defibrillator Implant with Cardiac             5.6298       5.9530          5.7
                                                                  Catheterization without AMI/HF/Shock without
                                                                  MCC.
223..................................  SURG....................  Cardiac Defibrillator Implant with Cardiac             6.0956       6.4482          5.8
                                                                  Catheterization with AMI/HF/Shock without MCC.
458..................................  SURG....................  Spinal Fusion Except Cervical with Spinal Curve/       4.8794       5.1630          5.8
                                                                  Malignant/Infection OR 9+ Fusion without CC/MCC.
245..................................  SURG....................  AICD Generator Procedures.......................       4.4627       4.7320          6.0
849..................................  MED.....................  Radiotherapy....................................       1.3423       1.4258          6.2
946..................................  MED.....................  Rehabilitation without CC/MCC...................       1.1295       1.2024          6.5
227..................................  SURG....................  Cardiac Defibrillator Implant without Cardiac          5.2193       5.5714          6.7
                                                                  Catheterization without MCC.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    After computing the analyses described above by comparing both sets 
of MS-DRG relative weights computed with FY 2011 cost report data, we 
revisited RTI's July 2008 final report. We note that the impacts on 
relative weight and at the MDC level are generally consistent with 
those estimated by RTI in its modeling. RTI found that disaggregating 
the CCRs for medical supplies and devices would have the most impact on 
reducing charge compression, and that the largest impact was for MS-DRG 
227. Similarly, as shown in the chart above, we estimate that the 
potential relative weight for MS-DRG 227 would experience the largest 
increase, 6.7 percent. Cardiac implants and spinal fusion procedures 
accounted for most of the 10 MS-DRGs with the largest incremental 
increases. In addition, RTI's July 2008 final report (pages 103 through 
107) indicates that among the largest expected reductions are the MS-
DRG relative weights for MS-DRGs associated with traumatic head injury 
and concussion, which are high users of CT scanning and MRI services. 
RTI's analyses were highly predictive for many of the MS-DRGs most 
sensitive to the effects of charge compression.
    As we have stated in prior rulemaking (77 FR 53281 through 53283), 
once we determined that cost report data were available for analysis, 
we would propose, if appropriate, to use the distinct CCRs described 
above in the calculation of the MS-DRG relative weights. We believe 
that the analytic findings described above using the FY 2011 cost 
report data and FY 2012

[[Page 27509]]

claims data support our original decision to break out and create new 
cost centers for implantable devices, MRIs, CT scans, and cardiac 
catheterization, and we see no reason to further delay proposing to 
implement the CCRs of each of these cost centers. Therefore, beginning 
in FY 2014, we are proposing to calculate the MS-DRG relative weights 
using 19 CCRs, creating distinct CCRs from cost report data for 
implantable devices, MRIs, CT scans, and cardiac catheterization. We 
welcome public comments on this proposal and the impacts that it may 
have. We refer readers to section VI.C. of Appendix A of this proposed 
rule for the overall IPPS operating impact of this proposal, which 
models payments to various hospital types using relative weights 
developed from 19 CCRs as compared to 15 CCRs. In addition, each year, 
as part of the IPPS proposed rule and final rule, we issue Table 5, 
which lists all of the MS-DRGs and their relative weights. As part of 
this FY 2014 IPPS/LTCH PPS proposed rule, in addition to providing 
Table 5, which lists the proposed MS-DRGs and their relative weights 
using 19 CCRs (available on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp; click on the link 
on the left side of the screen titled ``FY 2014 IPPS Proposed Rule Home 
Page'' or ``Acute Inpatient--Files for Download''), we are providing a 
separate table that lists all MS-DRGs and their relative weights if 
computed using 15 CCRs (available at the same CMS Web site cited 
above). These two formats will allow readers to compare our proposal to 
calculate the MS-DRG relative weights using 19 CCRs with the relative 
weights of MS-DRGs if computed using 15 CCRs.

F. Adjustment to MS-DRGs for 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 
affected in a manner shown in the diagram below.

[[Page 27510]]

[GRAPHIC] [TIFF OMITTED] TP10MY13.000

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); 
the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25810 through 25816) and 
final rule (76 FR 51504 through 51522); and the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 27892 through 27898) and final rule (77 FR 53283 
through 53303). A complete list of the 11 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.
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).
    Currently, as we discussed in the prior rulemaking cited above, the 
POA indicator reporting requirement only applies to IPPS hospitals 
because they are subject to this HAC provision. Non-IPPS hospitals, 
including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's 
hospitals, hospitals in Maryland operating under waivers, RNHCIs, and 
the Department of Veterans Affairs/Department of Defense hospitals, are 
exempt from POA reporting. We note that hospitals in Maryland operating 
under their waiver are not paid under the IPPS but rather are paid 
under the provisions of section 1814(b)(3) of the Act. This waiver 
applies to the amount paid to providers of services, and does not 
extend to billing requirements and other reporting requirements. In 
fact, hospitals in Maryland are required to submit Medicare claims for 
Medicare payment and also to submit the same information on their 
Medicare claims as hospitals in other parts of the country paid under 
the IPPS. Therefore, we believe it is inappropriate to continue to 
exempt hospitals in Maryland from the POA indicator reporting 
requirement. Under current policy, hospitals in Maryland will continue 
to be exempt from the application of this HAC provision so long as they 
are not paid under the IPPS. However, we believe it is appropriate to 
require them to use POA indicator reporting on their claims so that we 
can include their data and have as complete a dataset as possible when 
we analyze trends and make further payment policy determinations, such 
as those authorized under section 1886(p) of the Act. (We refer readers 
to section V.I. of the preamble to this proposed rule for a discussion 
of our proposals to implement section 1886(p) of the Act.) Therefore, 
we are proposing that hospitals in Maryland operating under their 
waiver under section 1814(b)(3) of the Act will no longer be exempted 
from the POA indicator reporting requirement beginning with claims 
submitted on or after October 1, 2013, including all claims for 
discharges on or after October 1, 2013. We are inviting public comment 
regarding this proposal.
    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

[[Page 27511]]

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); the FY 2012 IPPS/LTCH PPS proposed rule 
(76 FR 25812 through 25813) and final rule (76 FR 51506 through 51507); 
and the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27893 through 27894) 
and final rule (77 FR 53284 through 53285).

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

    Beginning on or after January 1, 2011, hospitals were required to 
begin reporting POA indicators using the 5010 electronic transmittal 
standards format. The 5010 format removes the need to report a POA 
indicator of ``1'' for codes that are exempt from POA reporting. We 
have issued CMS instructions on this reporting change as a One-Time 
Notification, Pub. No. 100-20, Transmittal No. 756, Change Request 
7024, effective on August 13, 2010, which can be located at the 
following link on the CMS Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf.
    In addition, as discussed elsewhere in section III.G.10. of the 
preamble of this proposed rule, the 5010 format allows the reporting 
and effective January 1, 2011, the processing of up to 25 diagnoses and 
25 procedure codes. As such, it is necessary to report a valid POA 
indicator for each diagnosis code, including the principal and all 
secondary diagnoses up to 25.
4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS
    As we stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 
and 51507), in preparation for the transition to the ICD-10-CM and ICD-
10-PCS code sets, further information regarding the use of the POA 
indicator with the ICD-10-CM/ICD-10-PCS classifications as they pertain 
to the HAC policy will be discussed in future rulemaking.
    At the March 5, 2012 and the September 19, 2012 meetings of the 
ICD-9-CM Coordination and Maintenance Committee, an announcement was 
made with regard to the availability of the ICD-9-CM HAC list 
translation to ICD-10-CM and ICD-10-PCS code sets. Participants were 
informed that the list of the current ICD-9-CM selected HACs has been 
translated into codes using the ICD-10-CM and ICD-10-PCS classification 
system. It was recommended that the public review this list of ICD-10-
CM/ICD-10-PCS code translations of the current selected HACs available 
on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. The translations can be found under 
the link titled ``ICD-10-CM/PCS MS-DRG v30 Definitions Manual Table of 
Contents--Full Titles--HTML Version in Appendix I--Hospital Acquired 
Conditions (HACs).'' The above CMS Web site regarding the ICD-10-MS-DRG 
Conversion Project is also available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/icd10_hacs.html. We encourage the public to submit comments on these 
translations through the HACs Web page using the CMS ICD-10-CM/PCS HAC 
Translation Feedback Mailbox that has been set up for this purpose 
under the Related Links section titled ``CMS HAC Feedback.'' The final 
HAC list translation from ICD-9-CM to ICD-10-CM/ICD-10-PCS will be 
subject to formal rulemaking.
    In the meantime, we continue to encourage readers to review the 
educational materials and draft code sets currently available for ICD-
10-CM/ICD-10-PCS on the CMS Web site at: http://www.cms.gov/ICD10/. In 
addition, the draft ICD-10-CM/ICD-10-PCS coding guidelines can be 
viewed on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm.
5. Proposals Regarding Current HACs and Previously Considered Candidate 
HACs
    We are not proposing to add or remove categories of HACs at this 
time. However, we continue to encourage public dialogue about 
refinements to the HAC list by written stakeholder comments about both 
previously selected and potential candidate 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 48774 through 48491) for detailed discussion 
supporting our determination regarding each of these conditions. We 
also refer readers to section III.F.5. of the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 27892 through 27898) and the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53285 through 53292) for the HAC policy for FY 2013. 
In addition, readers may find updated information on evidence-based 
guidelines on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.
6. RTI Program Evaluation
    On September 30, 2009, a contract was awarded to RTI to evaluate 
the impact of the Hospital-Acquired Condition-Present on Admission 
(HAC-POA) provisions on the changes in the incidence of selected 
conditions, effects on Medicare payments, impacts on coding accuracy, 
unintended consequences, and infection and event rates. This was an 
intra-agency project with funding and technical support from CMS, OPHS, 
AHRQ, and CDC. The evaluation also examined the implementation of the 
program and evaluated additional conditions for future selection. The 
contract with RTI ended on November 30, 2012. Summary reports of RTI's 
analysis of the FYs 2009, 2010, and 2011 MedPAR data files for the HAC-
POA program evaluation were included in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50085 through 50101), the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51512 through 51522), and the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53292 through 53302). Summary and detailed data also were made 
publicly available on the CMS Web site at: http://www.cms.gov/HospitalAcqCond/01_Overview.asp and

[[Page 27512]]

the RTI Web site at: http://www.rti.org/reports/cms/.
    In addition to the evaluation of HAC and POA MedPAR claims data, 
RTI also conducted analyses on readmissions due to HACs, the 
incremental costs of HACs to the healthcare system, a study of 
spillover effects and unintended consequences, as well as an updated 
analysis of the evidence-based guidelines for selected and previously 
considered HACs. Reports on these analyses have been made publicly 
available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/index.html.
7. 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 
selected conditions. In addition, evidence-based guidelines also were 
found for the previously considered candidate conditions. RTI prepared 
a final report to summarize its findings regarding evidence-based 
guidelines. This report can be found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html. Subsequent to this final report, 
RTI has been awarded an FY 2014 Evidence-Based Guidelines Monitoring 
contract. Under the contract, RTI will provide a summary report of 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. Updates to the 
guidelines will be made available to the public.

G. Proposed Changes to Specific MS-DRG Classifications

    In this FY 2014 IPPS/LTCH PPS proposed rule, we are inviting public 
comment on each of the MS-DRG classification proposed changes described 
below, as well as our proposals to maintain certain existing MS-DRG 
classifications, which also are discussed below. In some cases, we are 
proposing changes to the MS-DRG classifications based on our analysis 
of claims data. In other cases, we are proposing to maintain the 
existing MS-DRG classification based on our analysis of claims data.
    CMS encourages input from our stakeholders concerning the annual 
IPPS updates when that input is made available to us by early December 
of the year prior to the next annual proposed rule update. For example, 
to be considered for any updates or changes in FY 2014, comments and 
suggestions should have been submitted by early December 2012. The 
comments that were submitted in a timely manner are discussed below in 
this section.
1. Pre-Major Diagnostic Categories (Pre-MDCs): Heart Transplants and 
Liver Transplants
    We received a request from an organization that represents 
transplant surgeons to eliminate the severity levels for the heart and 
liver transplants MS-DRGs. The MS-DRGs for heart transplants are: 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). The MS-DRGs for liver transplants are: MS-DRG 005 (Liver 
Transplant with MCC or Intestinal Transplant) and MS-DRG 006 (Liver 
Transplant without MCC). We received this comment during the comment 
period for the FY 2013 IPPS/LTCH PPS proposed rule. We referred to this 
comment briefly in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53325), 
but we did not address the issue because we considered this comment 
outside of the scope of the proposed rule. However, we are addressing 
this issue in this FY 2014 proposed rule.
    The commenter stated that there are no ``uncomplicated'' heart 
transplants or liver transplants, and indicated that all of these 
transplant procedures are highly complex, involving numerous 
complicating conditions, only some of which may be recognized by the 
MS-DRGs. The commenter expressed concern that the continued bifurcation 
of the MS-DRGs for heart and liver transplants will result in 
unsustainable payment for these cases that are assigned to the 
``without MCC'' MS-DRGs 002 and 006. According to the commenter, in 
light of the relatively small number of Medicare patients involved and 
the significant cost variation involved, it would be preferable to 
eliminate the bifurcation of these procedures, thereby increasing the 
stability of the DRG weights for these procedures.
    We examined claims data from the FY 2012 MedPAR file for heart and 
liver transplant cases assigned to MS-DRGs 001, 002, 005, and 006. The 
following table illustrates our findings:

------------------------------------------------------------------------
                                                  Average
             MS-DRGs                Number of    length of     Average
                                      cases         stay        costs
------------------------------------------------------------------------
MS-DRG 001.......................        1,247        33.27     $158,556
MS-DRG 002.......................          284           18       97,932
MS-DRGs 001 and 002--All cases...        1,531         30.4      147,310
MS-DRG 005.......................          828           19       66,746
MS-DRG 006.......................          282         8.75       30,873
MS-DRGs 005 and 006--All cases...        1,110         16.3       57,632
------------------------------------------------------------------------

    The data showed that the majority of the heart transplant cases, a 
total of 1,247, are assigned to MS-DRG 001, with average costs of 
approximately $158,556 and an average length of stay of approximately 
33.27 days. There were 284 cases assigned to MS-DRG 002, with average 
costs of approximately $97,932 and an average length of stay of 
approximately 18 days.
    This table shows that there are significant differences in average 
lengths of stay and average costs for the severity level for the heart 
transplant MS-DRGs that justify the existing split in MS-DRGs 001 and 
002. If we were to combine the heart transplant cases in MS-DRGs 001 
and 002 as suggested by the commenter, the payment for the majority of 
cases with an MCC would be lower.

[[Page 27513]]

    The majority of the liver transplant cases, 828 cases, were 
assigned to MS-DRG 005, with average costs of approximately $66,746 and 
an average length of stay of approximately 19 days. There were 282 
cases assigned to MS-DRG 006, with average costs of approximately 
$30,873 and an average length of stay of approximately 8.75 days. The 
data showed that there are significant differences in average costs and 
average lengths of stay in the severity levels for the liver transplant 
MS-DRGs. Again, if we were to combine all the liver transplant cases 
into one MS-DRG as requested by the commenter, the majority of the 
cases would receive lower payment.
    Based on these findings, we believe that it would not be prudent to 
eliminate the severity levels for the heart and liver transplant MS-
DRGs. Our clinical advisors concur with this analysis that two severity 
levels are justified for the heart and liver transplant MS-DRGs. 
Therefore, for FY 2014, we are not proposing to make any changes to the 
severity levels for heart and liver transplant MS-DRGs 001, 002, 005, 
and 006.
    We are inviting public comments on this issue.
2. MDC 1 (Diseases and Disorders of the Nervous System): Tissue 
Plasminogen Activator (tPA) (rtPA) Administration Within 24 Hours Prior 
to Admission
    During the comment period for the FY 2013 IPPS/LTCH PPS proposed 
rule, we received a public comment that we considered to be outside the 
scope of that proposed rule. We stated in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53325) that we would consider this issue in future 
rulemaking as part of our annual review process. The commenter 
requested that CMS conduct an analysis of diagnosis code V45.88 (Status 
post administration of tPA (rtPA) in a different facility within the 
last 24 hours prior to admission to current facility). Diagnosis code 
V45.88 was created for use beginning October 1, 2008, to identify 
patients who are given tissue plasminogen activator (tPA) at one 
institution and then transferred and admitted to a comprehensive stroke 
center for further care. This situation has been referred to as the 
``drip-and-ship'' issue and was discussed at length in the FY 2009 IPPS 
proposed rule (73 FR 23563 through 23564) and final rule (73 FR 48493 
through 48495), as well as the FY 2011 IPPS/LTCH PPS proposed rule (75 
FR 23899 through 23900) and final rule (75 FR 50102 through 50106). We 
refer readers to these previous discussions for detailed background 
information regarding this topic.
    Similar to previous requests, according to the commenter, the 
concern at the receiving facilities is that the costs associated with 
[caring for] more complex stroke patients that receive tPA are much 
higher than the cost of the drug, presumably because stroke patients 
initially needing tPA have more complicated strokes and outcomes. 
However, because these patients do not receive the tPA at the second or 
transfer hospital, the receiving hospital will not be able to assign 
the case to one of the higher-weighted tPA stroke MS-DRGs when it 
admits these patients whose care requires the use of intensive 
resources. The MS-DRGs that currently include the diagnosis code for 
the use of tPA are: MS-DRG 061 (Acute Ischemic Stroke with Use of 
Thrombolytic Agent with MCC); MS-DRG 062 (Acute Ischemic Stroke with 
Use of Thrombolytic Agent with CC); and MS-DRG 063 (Acute Ischemic 
Stroke with Use of Thrombolytic Agent without CC/MCC). These MS-DRGs 
have higher relative weights than the other MS-DRGs relating to stroke 
or cerebral infarction. The commenter requested an analysis of 
diagnosis code V45.88 to determine whether new claims data warrant any 
change in the MS-DRG structure.
    For this proposed rule, we analyzed MedPAR claims data from FY 
2012. We included claims for patient cases assigned to the following 
MS-DRGs:
     061 (Acute Ischemic Stroke with Use of Thrombolytic Agent 
with MCC)
     062 (Acute Ischemic Stroke with Use of Thrombolytic Agent 
with CC)
     063 (Acute Ischemic Stroke with Use of Thrombolytic Agent 
without CC/MCC)
     064 (Intracranial Hemorrhage or Cerebral Infarction with 
MCC)
     065 (Intracranial Hemorrhage or Cerebral Infarction with 
CC)
     066 (Intracranial Hemorrhage or Cerebral Infarction 
without CC/MCC).
    Our data analysis included MS-DRGs 064, 065, and 066 because claims 
involving diagnosis code V45.88 also would be properly reported in the 
data for these MS-DRGs. The following table reflects the results of our 
analysis of the MedPAR data in which diagnosis code V45.88 was reported 
as a secondary diagnosis for FY 2012.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                  MS-DRG                                    Number of    length of     Average
                                                                              cases         stay        costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 061--All cases....................................................        3,369         7.48      $18,556
MS-DRG 061--Cases with secondary diagnosis code V45.88...................          140         7.51       19,008
MS-DRG 062--All cases....................................................        5,277         4.92       12,935
MS-DRG 062--Cases with secondary diagnosis code V45.88...................          179         5.03       13,317
MS-DRG 063--All cases....................................................        1,709         3.45       10,363
MS-DRG 063--Cases with secondary diagnosis code V45.88...................           48         3.15        9,372
MS-DRG 064--All cases....................................................       64,095         6.30       11,654
MS-DRG 064--Cases with secondary diagnosis code V45.88...................          955         7.06       14,432
MS-DRG 065--All cases....................................................      101,011         4.29        7,414
MS-DRG 065--Cases with secondary diagnosis code V45.88...................        1,259         4.91        9,471
MS-DRG 066--All cases....................................................       56,620         2.92        5,414
MS-DRG 066--Cases with secondary diagnosis code V45.88...................          493         3.28        6,682
----------------------------------------------------------------------------------------------------------------

    Based on our review of the data for all of the cases in MS-DRGs 
064, 065, and 066, compared to the subset of cases containing diagnosis 
code V45.88 as the secondary diagnosis, we again concluded that the 
movement of cases with diagnosis code V45.88 as a secondary diagnosis 
from MS-DRGs 064, 065, and 066 to MS-DRGs 061, 062, and 063 is not 
warranted. We determined that the differences in the average lengths of 
stay and the average costs are too small to warrant an assignment to 
the higher-weighted MS-DRGs.
    However, the data does reflect that the average costs for cases 
reporting diagnosis code V45.88 as a secondary diagnosis in MS-DRG 066 
are more similar to the average costs of higher

[[Page 27514]]

severity level cases in MS-DRG 065. Therefore, for FY 2014, we are 
proposing to move cases with diagnosis code V45.88 from MS-DRG 066 to 
MS-DRG 065, and to revise the title of MS-DRG 065 to reflect the 
patients status post tPA administration within 24 hours. The proposed 
revised MS-DRG title would be: MS-DRG 065 (Intracranial Hemorrhage or 
Cerebral Infarction with CC or tPA in 24 Hours).
    We are inviting public comments on our proposal.
3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat)
a. Endoscopic Placement of a Bronchial Value
    In response to the FY 2013 IPPS/LTCH PPS proposed rule, we received 
a request to modify the MS-DRG assignment for bronchial valve(s) 
insertion, which we considered to be outside of the scope of that 
proposed rule (77 FR 53325 through 53326). The requestor asked that 
cases in MS-DRGs 190, 191, and 192 (Chronic Obstructive Pulmonary 
Disease with MCC, with CC, and without MCC/CC, respectively) that 
involve insertion of a bronchial valve be assigned instead to MS-DRGs 
163, 164, and 165 (Major Chest Procedures with MCC, with CC, and 
without MCC/CC, respectively). The procedures are captured by 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), which are considered nonoperating 
procedures and do not affect the MS-DRG assignment. When reported 
without any other operating room (OR) procedure code, the admission 
would be assigned to a medical MS-DRG.
    The Spiration[supreg] IBV Valve System device, a bronchial valve, 
was approved for new technology add-on payments in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43819 through 43823) with a maximum 
payment rate of $3,437.50. In the FY 2012 IPPS/LTCH PPS final rule, the 
new technology add-on payments were discontinued for FY 2012 (76 FR 
51575 through 51576). The bronchial valve device is used to place, via 
bronchoscopy, small, one-way valves into selected small airways in the 
lung in order to limit airflow into selected portions of lung tissue 
that have prolonged air leaks following surgery while still allowing 
mucus, fluids, and air to exit, and thereby reducing the amount of air 
that enters the pleural space. The device is intended to control 
prolonged air leaks following three specific surgical procedures: 
lobectomy, segmentectomy, or lung volume reduction surgery (LVRS). 
According to Spiration[supreg], an air leak that is present on 
postoperative day 7 is considered ``prolonged'' unless present only 
during forced exhalation or cough. In order to help prevent valve 
migration, there are five anchors with tips that secure the valve to 
the airway. The implanted valves are intended to be removed no later 
than 6 weeks after implantation.
    New technology add-on payments were limited to cases involving 
prolonged air leaks following lobectomy, segmentectomy, and LVRS in MS-
DRGs 163, 164, and 165 in the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 43823). This limitation was based on the indications for use 
approved by the FDA in the FDA Humanitarian Device Exemption (HDE) 
approval process set forth in section 520(m) of the Federal Food, Drug 
& Cosmetic Act. A humanitarian use device (HUD) is a device that is 
intended to benefit patients by treating or diagnosing a disease or 
condition that affects or is manifested in fewer than 4,000 individuals 
in the United States per year. Devices that receive HUD designation may 
be eligible for marketing approval, subject to certain restrictions, 
under an HDE application. To obtain marketing approval for an HUD, an 
HDE application must be submitted to the FDA. An HDE application is a 
premarket approval (PMA) application submitted to the FDA under 21 CFR 
814.104 that seeks exemption from the PMA requirement under 21 CFR 
814.20 demonstrating a reasonable assurance of effectiveness. A device 
that has received HUD designation may receive HDE approval if, among 
other things, the FDA determines that the device will not expose 
patients to an unreasonable or significant risk of illness or injury 
and the probable benefit to health from use of the device 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. In addition, the applicant must 
demonstrate that no comparable devices are available to treat or 
diagnose the disease or condition (other than another device approved 
under an HDE application or a device under an approved Investigational 
Device Exemption), and that the device would not otherwise be available 
unless an HDE is granted. An approved HDE authorizes marketing of the 
HUD. However, an HUD generally may be used in facilities only after 
prior approval by an Institutional Review Board (IRB).
    FDA's approval of the HDE application limited the use of the 
Spiration[supreg] IBV Valve System device to cases involving prolonged 
air leaks following lobectomy, segmentectomy, or LVRS.
    The requested MS-DRG change would initiate the same payment for 
chronic obstructive pulmonary disease (COPD) cases with a bronchial 
valve inserted without a major chest procedure as for cases where both 
a major chest procedure and a bronchial valve insertion were performed. 
The following table shows the COPD cases that involved the insertion of 
a bronchial valve as well as data on cases assigned to MS-DRGs 163, 
164, and 165.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                 MS-DRGs                                   Number of     length of     Average
                                                                             cases         stay         costs
----------------------------------------------------------------------------------------------------------------
                                                   COPD Cases
----------------------------------------------------------------------------------------------------------------
MS-DRG 190--All cases...................................................      133,566          5.07       $7,815
MS-DRG 190--Cases with procedure code 33.71.............................            0          0               0
MS-DRG 190--Cases with procedure code 33.73.............................            2         14.0        47,034
MS-DRG 191--All cases...................................................      129,231          4.18        6,245
MS-DRG 191--Cases with procedure code 33.71.............................            0          0               0
MS-DRG 191--Cases with procedure code 33.73.............................            0          0               0
MS-DRG 192--All cases...................................................       93,507          3.32        4,776
MS-DRG 192--Cases with procedure code 33.71.............................            0          0               0
MS-DRG 192--Cases with procedure code 33.73.............................            0          0               0

[[Page 27515]]

 
                                             Major Chest Procedures
----------------------------------------------------------------------------------------------------------------
MS-DRG 163--All cases...................................................       11,287         13.33       32,728
MS-DRG 164--All cases...................................................       16,113          6.69       17,494
MS-DRG 165--All cases...................................................        9,280          3.94       12,209
----------------------------------------------------------------------------------------------------------------

    There were only two COPD cases that had bronchial valves inserted 
in MS-DRGs 190, 191, and 192. While the charges were high, these cases 
were assigned to the highest severity level MS-DRG (MS-DRG 190 with 
MCC). Given the small number of cases, it is not possible to determine 
if the high average costs were due to the bronchial valve insertion or 
to other factors such as other secondary diagnoses. The average length 
of stay for these two cases was approximately 14 days compared to 
approximately 5.07 days for all other cases within MS-DRG 190. Because 
the additional 10 days cannot be clinically attributed to the bronchial 
valve insertion, our clinical advisors have determined that other 
factors must have impacted these two cases.
    Cases in MS-DRGs 163, 164, and 165 include those cases with a major 
chest procedure and those cases with both a major chest procedure as 
well as a bronchial valve insertion as discussed above. Our clinical 
advisors do not support moving COPD cases that have only a bronchial 
valve insertion and no other major chest procedure from MS-DRGs 190, 
191, and 192 to MS-DRGs 163, 164, and 165. They do not believe the 
bronchial valve procedures are clinically similar to other major chest 
procedures that require significantly more resources to perform. Our 
clinical advisors point out that the limited circumstances where this 
procedure would be used led the sponsor to seek HDE approval from the 
FDA rather than a standard PMA. The indications for use approved by the 
FDA are still limited to post-surgery. Our clinical advisors 
recommended that we not modify the MS-DRG logic so that COPD cases with 
bronchial valve insertions would be assigned to MS-DRGs 163, 164, and 
165.
    Given the limited number of cases for this procedure and the advice 
from our clinical advisors, we are not proposing any MS-DRG changes for 
bronchial valve(s) insertion for FY 2014. We also are not proposing to 
change the MS-DRG assignment for procedures involving bronchial 
valve(s) insertion (procedure codes 33.71 and 33.73) within MS-DRGs 
190, 191, and 192.
    We are inviting public comment on this issue.
b. Pulmonary Thromboendarterectomy (PTE) with Full Circulatory Arrest
    We received a request from a university medical center to create a 
new MS-DRG or to reassign cases reporting a unique approach to 
pulmonary thromboendarterectomy (PTE) surgery performed with full 
cardiac arrest and hypothermia. The requestor asked that we move cases 
from MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with 
CC, and without CC/MCC, respectively) to MS-DRGs 228, 229, and 230 
(Other Cardiothoracic Procedures with MCC, with CC, and without CC/MCC, 
respectively). Currently, MS-DRGs 163, 164, and 165 are grouped within 
MDC 4 (Diseases and Disorders of the Respiratory System) while MS-DRGs 
228, 229, and 230 are grouped within MDC 5 (Diseases and Disorders of 
the Circulatory System).
    The requestor identified two conditions for which a pulmonary 
endarterectomy procedure is typically performed. These conditions are 
identified by ICD-9-CM diagnosis codes 415.19 (Other pulmonary embolism 
and infarction) and 416.2 (Chronic pulmonary embolism). However, the 
requestor noted that diagnosis code 415.19 is usually associated with 
traditional PTE for acute pulmonary embolism while diagnosis code 416.2 
is associated with the medical center's unique approach to PTE 
performed with full cardiac arrest and hypothermia.
    Currently, there is not a specific ICD-9-CM procedure code to 
accurately describe PTE surgery performed with full cardiac arrest and 
hypothermia. Rather, a subset of existing ICD-9-CM procedure codes may 
be used to identify the various components involved in this unique 
approach to PTE surgery; for example, ICD-9-CM procedure codes 38.15 
(Endarterectomy, other thoracic vessels); 39.61 (Extracorporeal 
circulation auxiliary to open heart surgery); 39.62 (Hypothermia 
(systemic) incidental to open heart surgery); and 39.63 (Cardioplegia). 
However, it is not clear if the requestor reports any of these codes or 
a combination of these codes to identify its unique approach to the 
procedure.
    According to the requestor, its approach to PTE surgery is 
significantly different from traditional pulmonary endarterectomy 
procedures in terms of complexity, resource use, and the population for 
which the procedure is performed. The requestor noted that the surgery 
is ``conducted under profound hypothermia and circulatory arrest which 
involves placing the patient on cardiopulmonary bypass and cooling the 
body to 20 degrees centigrade or lower.'' In addition, the requestor 
explained that ``during this period of cooling and cardiac arrest, the 
heart is arrested and all of the patient's blood is removed from the 
body.'' Following this, circulation is stopped completely allowing for 
``optimal and extensive dissection of the pulmonary arteries and 
identification of an endarterectomy plane which can be delicately 
incised into the deepest pulmonary vasculature.'' The requestor further 
noted that ``due to the complexity of the surgical technique, a very 
high degree of skill is required and the procedure is currently only 
performed by a handful of surgeons world-wide.'' Lastly, the requestor 
stated the average operating time for a traditional PTE is 
approximately 3 to 4 hours compared to the university medical center's 
approach to PTE, which averages approximately 10 to 12 hours.
    We analyzed claims data from the FY 2012 MedPAR file for cases 
reporting a principal diagnosis code of 415.19 or a principal diagnosis 
code of 416.2 along with procedure codes 38.15, 39.61, 39.62, and 
39.63. As displayed in the table below, there were a total of 11,287 
cases in MS-DRG 163 with an average length of stay of approximately 
13.33 days and average costs of approximately $32,728. Using the 
combination of diagnosis and procedure codes as described above, the 
total number of cases found in MS-DRG 163 was 12, with average costs 
ranging from approximately $46, 959 to $53,048 and an average length of 
stay ranging from approximately 13.50 days to 16.20 days. We 
acknowledge that the average length of stay and average costs for these 
cases are somewhat higher in comparison to

[[Page 27516]]

the average lengths of stay and average costs of all the other cases in 
MS-DRG 163. However, the volume of cases was very low. The data reflect 
similar results for MS-DRG 164. Only 4 cases were identified in the 
analysis, with average costs ranging from approximately $21,669 to 
$37,447 and average lengths of stay ranging from approximately 7 days 
to 10 days.
    In total, there were only 16 cases reflected in the data using the 
combination of diagnosis codes and proxy procedure codes. We believe 
there may be other factors contributing to the increased lengths of 
stay and costs. (We note that, there were no cases found for a 
principal diagnosis code of 415.19 with procedure code 38.15 only. 
There also were no cases found in MS-DRG 165 using the combination of 
diagnosis and procedure codes.)

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                  MS-DRG                                    Number of    length  of    Average
                                                                              cases         stay        costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 163--All cases....................................................       11,287        13.33      $32,728
MS-DRG 163--Cases with principal diagnosis code 415.19 with procedure                4        13.50       46,959
 code 38.15 and 39.61 or 39.62 or 39.63..................................
MS-DRG 163--Cases with principal diagnosis code 416.2 with procedure code            3        14.33       53,048
 38.15 only..............................................................
MS-DRG 163--Cases with principal diagnosis code 416.2 with procedure code            5        16.20       50,393
 38.15 and 39.61 or 39.62 or 39.63.......................................
MS-DRG 164--All cases....................................................       16,113         6.69       17,494
MS-DRG 164--Cases with principal diagnosis code 415.19 with procedure                2        10.00       37,447
 code 38.15 with 39.61 or 39.62 or 39.63.................................
MS-DRG 164--Cases with principal diagnosis code 416.2 with procedure code            0            0            0
 38.15 only..............................................................
MS-DRG 164--Cases with principal diagnosis code 416.2 with procedure code            2         7.00       21,669
 38.15 and 39.61 or 39.62 or 39.63.......................................
----------------------------------------------------------------------------------------------------------------

    As stated in previous rulemaking discussion, 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, 
our clinical advisors agree that the current MS-DRG assignment for this 
unique procedure is appropriate.
    We also analyzed claims data from the FY 2012 MedPAR file for MS-
DRGs 228, 229, and 230 as illustrated below.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                  MS-DRG                                    Number of    length of     Average
                                                                              cases         stay        costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 228--Other cardiothoracic procedures with MCC.....................        1,643        13.26      $46,758
MS-DRG 229--Other cardiothoracic procedures with CC......................        1,841         7.77       30,432
MS-DRG 230--Other cardiothoracic procedures without CC/MCC...............          506         5.08       25,068
----------------------------------------------------------------------------------------------------------------

    ICD-9-CM procedure code 38.15 is designated as an operating room 
(OR) procedure code and currently groups to MS-DRGs 163, 164, and 165 
in MDC 4 when either diagnosis code 415.19 or 416.2 are reported as the 
principal diagnosis. As diagnosis codes can only be assigned to one MDC 
within the GROUPER logic, it is not possible for a patient to have 
diagnosis code 415.19 or diagnosis code 416.2 reported along with 
procedure code 38.15 and grouped to MDC 5, which is where MS-DRGs 228, 
229, and 230 are assigned.
    Therefore, another aspect of this MS-DRG request involved the 
evaluation of moving ICD-9-CM diagnosis code 416.2 from MDC 4 to MDC 5. 
Our clinical advisors do not support moving diagnosis code 416.2 from 
MDC 4 to MDC 5 in order to accommodate this rare procedure performed by 
only a small number of physicians worldwide. They pointed out that a 
basic change such as moving diagnosis code 416.2 from MDC 4 to MDC 5 
would impact a large number of patients who do not undergo this 
procedure. It also would disrupt trend data from over 30 years of DRG 
and MS-DRG reporting. Given the very small number of potential cases, 
and the advice of our clinical advisors, we do not believe a MS-DRG 
modification is warranted at this time.
    Therefore, we are not proposing to create a new MS-DRG or to 
reassign cases reporting this university medical center's approach to 
pulmonary thromboendarterectomy. We are inviting public comments on 
this issue.
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Discharge/Transfer to Designated Disaster Alternative Care Site
    We are proposing to add new patient discharge status code 69 
(Discharged/transferred to a designated disaster alternative care site) 
to the MS-DRG GROUPER logic for MS-DRGs 280 (Acute Myocardial 
Infarction Discharged Alive with MCC), 281 (Acute Myocardial Infarction 
Discharged Alive with CC), and 282 (Acute Myocardial Infarction 
Discharged Alive without CC/MCC) to identify patients who are 
discharged or transferred to an alternative site that will provide 
basic patient care during a disaster response. As discussed in section 
II.G.7. of the preamble of this proposed rule, this new discharge 
status code is also being added to the Medicare Code Editor (MCE) 
software. We are inviting public comments on this proposal.
    b. Discharges/Transfers With a Planned Acute Care Hospital 
Inpatient Readmission
    We also are proposing to add 15 new discharge status codes to the 
MS-DRG GROUPER logic for MS-DRGs 280, 281, and 282 that will identify 
patients who are discharged with a planned acute care hospital 
inpatient readmission. As discussed in section II.G.7. of the preamble 
of this proposed rule, these new discharge status codes are being 
proposed for addition to the MCE as well.
    Shown in the table below are the current discharge status codes 
that are

[[Page 27517]]

assigned to the GROUPER logic for MS-DRGs 280, 281, and 282, along with 
the proposed new discharge status codes and their titles.

----------------------------------------------------------------------------------------------------------------
                                             New
               Current code                 code                               Title
----------------------------------------------------------------------------------------------------------------
01.......................................      81  Discharged to home or self care with a planned acute care
                                                    hospital inpatient readmission.
02.......................................      82  Discharged/transferred to a short term general hospital for
                                                    inpatient care with a planned acute care hospital inpatient
                                                    readmission.
03.......................................      83  Discharged/transferred to a skilled nursing facility (SNF)
                                                    with Medicare certification with a planned acute care
                                                    hospital inpatient readmission.
04.......................................      84  Discharged/transferred to a facility that provides custodial
                                                    or supportive care with a planned acute care hospital
                                                    inpatient readmission.
05.......................................      85  Discharged/transferred to a designated cancer center or
                                                    children's hospital with a planned acute care hospital
                                                    inpatient readmission.
06.......................................      86  Discharged/transferred to home under care of organized home
                                                    health service organization with a planned acute care
                                                    hospital inpatient readmission.
21.......................................      87  Discharged/transferred to court/law enforcement with a
                                                    planned acute care hospital inpatient readmission.
43.......................................      88  Discharged/transferred to a federal health care facility with
                                                    a planned acute care hospital inpatient readmission.
61.......................................      89  Discharged/transferred to a hospital-based Medicare approved
                                                    swing bed with a planned acute care hospital inpatient
                                                    readmission.
62.......................................      90  Discharged/transferred to an inpatient rehabilitation
                                                    facility (IRF) including rehabilitation distinct part units
                                                    of a hospital with a planned acute care hospital inpatient
                                                    readmission.
63.......................................      91  Discharged/transferred to a Medicare certified long term care
                                                    hospital (LTCH) with a planned acute care hospital inpatient
                                                    readmission.
64.......................................      92  Discharged/transferred to a nursing facility certified under
                                                    Medicaid but not certified under Medicare with a planned
                                                    acute care hospital inpatient readmission.
65.......................................      93  Discharged/transferred to a psychiatric distinct part unit of
                                                    a hospital with a planned acute care hospital inpatient
                                                    readmission.
66.......................................      94  Discharged/transferred to a critical access hospital (CAH)
                                                    with a planned acute care hospital inpatient readmission.
70.......................................      95  Discharged/transferred to another type of health care
                                                    institution not defined elsewhere in this code list with a
                                                    planned acute care hospital inpatient readmission.
----------------------------------------------------------------------------------------------------------------

    We are inviting public comments on our proposal to add the above 
listed new discharge status codes to the GROUPER logic for MS-DRGs 280, 
281, and 282.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue)
a. Reverse Shoulder Procedures
    We received a request to change the MS-DRG assignment for reverse 
shoulder replacement procedures which is captured with procedure code 
81.88 (Reverse total shoulder replacement). The requestor did not 
suggest a specific new MS-DRG assignment, but requested that reverse 
shoulder replacement procedures be reassigned from MS-DRGs 483 and 484 
(Major Joint/Limb Reattachment Procedure of, Upper Extremities with CC/
MCC and without CC/MCC, respectively) or that we create a new MS-DRG 
for reverse shoulder replacement procedures.
    Biomechanically, the reverse shoulder devices move the center of 
rotation of the arm laterally and change the direction of the pull of 
the deltoid muscle, allowing the deltoid muscle to elevate the arm 
without functioning rotator cuff tendons. The requestor stated that the 
use of traditional total shoulder devices in patients with a 
nonfunctioning rotator cuff frequently leads to long-term complications 
and unsatisfactory functional results. Patients with damaged rotator 
cuffs or rotator cuff syndrome have poor outcomes with traditional 
shoulder replacement devices. The reverse shoulder replacement 
procedure was created to address the clinical needs for patients who 
would have poor outcomes with a traditional shoulder replacement. The 
requestor stated that reverse shoulder replacement devices were 
designed to provide a superior functionality and outcomes for patients 
with damaged rotator cuffs.
    The requestor stated that the reverse shoulder replacement 
procedure is technically more complex and requires a higher level of 
expertise than traditional shoulder procedures and involves several 
issues that make the surgery more complex. Patients who have had prior 
rotator cuff surgery have anchors and scar tissue that must be 
surgically addressed. Often, there also are severe deformities that 
must be addressed in order to establish stability.
    The requestor acknowledged that the reverse shoulder replacement 
procedure is an upper extremity procedure like other procedures 
assigned to MS-DRGs 483 and 484. These MS-DRGs include the longstanding 
total shoulder replacement procedures as well as partial shoulder 
replacements. While the procedure is similar to other procedures in MS-
DRGs 483 and 484, the requestor stated there are significant 
differences between the technical complexity and indications for usage 
from the other procedures. The requestor stated there are significant 
differences in resource usage and clinical coherence between 
longstanding approaches to shoulder replacement and other procedures 
assigned to MS-DRGs 483 and 484 and the reverse shoulder replacement 
procedure. The requestor stated not only was the resource consumption 
significantly higher, the individual supply costs for reserve shoulder 
replacement procedures were higher than the costs of other procedures 
assigned to MS-DRGs 483 and 484.
    MS-DRGs 483 and 484 contain the following procedures:
     81.73 (Total wrist replacement)
     81.80 (Other total shoulder replacement)
     81.81 (Partial shoulder replacement)
     81.84 (Total elbow replacement)
     81.88 (Reverse total shoulder replacement)
     84.23 (Forearm, wrist, or hand reattachment)
     84.24 (Upper arm reattachment).
    As can be seen from this list, MS-DRGs 483 and 484 contain total 
and partial shoulder replacements, as well as replacement and 
attachment procedures on the wrist and upper arm. Both the newer 
shoulder replacement techniques as well as the longstanding

[[Page 27518]]

shoulder replacement techniques are included in these MS-DRGs.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                  MS-DRG                                    Number of    length of     Average
                                                                              cases         stay        costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 483--All cases....................................................       13,113         3.33      $17,039
MS-DRG 483--Cases with procedure code 81.88..............................        5,690         3.30       19,023
MS-DRG 484--All cases....................................................       21,073         2.01       14,448
MS-DRG 484--Cases with procedure code 81.88..............................        7,505         2.08       16,890
----------------------------------------------------------------------------------------------------------------

    As the above table illustrates, the average costs for reverse total 
shoulder replacement are approximately $2,000 higher than the average 
costs for all other procedures within MS-DRGs 483 and 484 and have 
similar average lengths of stays. While the average costs were higher, 
each MS-DRG has some cases that are higher and some cases that are 
lower than the average costs for the entire MS-DRG. We believe the 
average costs for the reverse shoulder replacement procedures are not 
inappropriately high compared to other procedures grouped within MS-
DRGs 483 and 484. Therefore, the claims data do not support reassigning 
these cases or creating a new MS-DRG.
    Our clinical advisors reviewed this issue and determined that the 
cases are appropriately assigned to MS-DRGs 483 and 484. As stated 
earlier, MS-DRGs 483 and 484 contain other types of shoulder 
replacements. Our clinical advisors believe it is appropriate to have 
all total shoulder replacement procedures within the same set of MS-
DRGs. They do not believe it is appropriate to reassign those that use 
a different technique to accomplish the same goal, a total shoulder 
replacement. Therefore, our clinical advisors determined that this is 
an appropriate assignment for reverse shoulder replacement procedures 
from a clinical perspective. They also do not believe it is appropriate 
to move these cases to any other surgical, orthopedic MS-DRGs because 
of differences in the clinical makeup of the other surgical orthopedic 
MS-DRGs. Our clinical advisors recommended not creating a new MS-DRG 
for reverse shoulder replacement procedures because they believe the 
procedures are appropriately assigned to MS-DRGs 483 and 484. 
Therefore, based on claims data and clinical analysis, we are not 
proposing to reassign these cases to any other MS-DRGs or to create a 
new MS-DRG.
    Based on the claims data and our clinical analysis, we are not 
proposing to reassign cases reporting procedure code 81.88 from their 
current assignment to MS-DRGs 483 and 484 or to create a new MS-DRG. We 
are inviting public comments on this issue.
b. Total Ankle Replacement Procedures
    In response to the FY 2013 IPPS/LTCH PPS proposed rule, we received 
a request to develop a new MS-DRG for total ankle replacements, which 
we considered to be outside the scope of that proposed rule (77 FR 
53325). We are addressing this request as part of this FY 2014 IPPS/
LTCH PPS proposed rule. The cases are captured by procedure code 81.56 
(Total ankle replacement) and are assigned to MS-DRGs 469 and 470 
(Major Joint Replacement or Reattachment of Lower Extremity with MCC 
and without MCC, respectively).
    The commenter stated that total ankle procedures are much more 
clinically complex than total hip or total knee replacement procedures, 
which have their own distinct MS-DRGs. The commenter also stated that 
total ankle replacement is surgery that involves the replacement of the 
damaged parts of the three bones that make up the ankle joint, as 
compared to two bones in most other total joint procedures such as hip 
or knee replacement. The commenter stated that average costs of total 
ankle replacements are higher than those for total knee and hip 
replacements. Therefore, a new MS-DRG should be created for total ankle 
replacements. As an alternative, the commenter suggested that these 
cases be reassigned to MS-DRG 469 even if the cases do not have an MCC 
as a secondary diagnosis.
    MS-DRGs 469 and 470 include a variety of procedures of the lower 
extremities including the procedures listed below. This group of lower 
extremity joint replacement and reattachment procedures was developed 
because they were considered to be clinically cohesive and to have 
similar resource consumptions.
     00.85 (Resurfacing hip, total, acetabulum and femoral 
head)
     00.86 (Resurfacing hip, partial, femoral head)
     00.87 (Resurfacing hip, partial, acetabulum)
     81.51 (Total hip replacement)
     81.52 (Partial hip replacement)
     81.54 (Total knee replacement)
     81.56 (Total ankle replacement)
     84.26 (Foot reattachment)
     84.27 (Lower leg or ankle reattachment)
     84.28 (Thigh reattachment)
    As the table below shows, there were 1,275 cases reporting total 
ankle replacements with 21 cases in MS-DRG 469 and 1,254 cases in MS-
DRG 470. The 1,254 cases in MS-DRG 470 have higher costs than other 
cases in MS-DRG 470 (approximately $17,242 compared to approximately 
$13,984). The 21 cases in MS-DRG 469 had average costs of approximately 
$23,360 compared to approximately $21,186 in average costs for all 
cases within MS-DRG 469. While these procedures are higher in average 
costs than other procedures within the MS-DRGs, we point out that cases 
are grouped together based on similar clinical and resource criteria. 
Some cases will have average costs higher than the overall average 
costs for the MS-DRG, while other cases will have lower average costs. 
Total ankle replacements represent 0.3 percent of the total number of 
cases within MS-DRGs 469 and 470.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                 MS-DRGs                                    Number of    length of     Average
                                                                              cases         stay        costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases....................................................       25,618         7.33      $21,186
MS-DRG 469--Cases with procedure code 81.56..............................           21         6.81       23,360
MS-DRG 470--All cases....................................................      390,518         3.37       13,984
MS-DRG 470--Cases with procedure code 81.56..............................        1,254         2.19       17,242

[[Page 27519]]

 
Total--All cases.........................................................  ...........  ...........      416,136
Total--Cases with procedure code 81.56...................................  ...........  ...........        1,275
----------------------------------------------------------------------------------------------------------------

    Our clinical advisors reviewed this issue and determined that the 
total ankle replacements are appropriately classified within MS-DRGs 
469 and 470. They do not support the commenter's contention that these 
cases are significantly more complex than knee and hip replacements. 
They believe that total ankle replacements are clinically consistent 
with other types of lower extremity joint replacements within MS-DRGs 
469 and 470. Our clinical advisors do not support creating a new MS-DRG 
for total ankle replacements. After considering the results of 
examination of the claims data, the recommendations from our clinical 
advisors, and the small number of total ankle replacements, we are not 
proposing to create a new MS-DRG at this time.
    We also examined the request to move all total ankle replacements 
to the highest severity level, MS-DRG 469, even when no secondary 
diagnosis on the MCC list was reported. Moving all total ankle 
replacements to MS-DRG 469 would lead to overpayments of approximately 
$3,944 per case because the average costs of total ankle replacements 
in MS-DRG 470 was approximately $17,242, while the average costs of all 
cases in MS-DRG 469 was approximately $21,186. After considering the 
claims data as well as the input from our clinical advisors, we are not 
proposing that all total ankle procedures be assigned to MS-DRG 469 
even when the case does not have an MCC reported as a secondary 
diagnosis. We believe the current MS-DRGs are appropriate for total 
ankle replacements.
    We are not proposing to create a new total ankle replacement MS-DRG 
or to reassign all total ankle replacements to MS-DRG 469. We are 
proposing to maintain the current MS-DRG assignments for total ankle 
replacements. We are inviting public comment on our proposal.
6. MDC 15 (Newborns and Neonates With Conditions Originating in the 
Neonatal Period)
a. Persons Encountering Health Services for Specific Procedures, Not 
Carried Out
    We received a request to evaluate the MS-DRG assignment of ICD-9-CM 
diagnosis codes V64.00 through V64.04, and V64.06 through V64.43 in MS-
DRG 794 (Neonate with Other Significant Problems) under MDC 15. The 
requestor noted that the assignment of diagnosis code V64.05 
(Vaccination not carried out because of caregiver refusal) was 
addressed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50111 through 
50112). We removed diagnosis code V64.05 from MS-DRG 794 and added it 
to the ``only secondary diagnosis'' list for MS-DRG 795 (Normal 
Newborn). The requestor asked that we consider the reassignment of 
these diagnosis codes from MS-DRG 794 to MS-DRG 795. The codes under 
existing MS-DRG 794 include:
     V64.00 (Vaccination not carried out, unspecified reason)
     V64.01 (Vaccination not carried out because of acute 
illness)
     V64.02 (Vaccination not carried out because of chronic 
illness or condition)
     V64.03 (Vaccination not carried out because of immune 
compromised state)
     V64.04 (Vaccination not carried out because of allergy to 
vaccine or component)
     V64.06 (Vaccination not carried out because of patient 
refusal)
     V64.07 (Vaccination not carried out for religious reasons)
     V64.08 (Vaccination not carried out because patient had 
disease being vaccinated against)
     V64.09 (Vaccination not carried out for other reason)
     V64.1 (Surgical or other procedure not carried out because 
of contraindication)
     V64.2 (Surgical or other procedure not carried out because 
of patient's decision)
     V64.3 (Procedure not carried out for other reasons)
     V64.41 (Laparoscopic surgical procedure converted to open 
procedure)
     V64.42 (Thoracoscopic surgical procedure converted to open 
procedure)
     V64.43 (Arthroscopic surgical procedure converted to open 
procedure).
    In a newborn case with one of these diagnosis codes reported as a 
secondary diagnosis, the case would be assigned to MS-DRG 794. The 
commenter believed that these diagnosis codes, when reported as a 
secondary diagnosis for a newborn case, should be assigned to MS-DRG 
795 instead of MS-DRG 794.
    Our clinical advisors reviewed this request and concur with the 
commenter that diagnosis codes V64.00 through V64.04, and V64.06 
through V64.3 should not continue to be assigned to MS-DRG 794, as 
there is no clinically usable information reported in those codes 
identifying significant problems. However, our clinical advisors 
recommend that diagnosis codes V64.41, V64.42, and V64.43, which 
identify that a surgical procedure converted to an open procedure, 
continue to be assigned to MS-DRG 794. These diagnosis codes may 
indicate a more significant encounter that required a surgical 
intervention.
    Therefore, for FY 2014, we are proposing to reassign diagnosis 
codes V64.00 through V64.04, and V64.06 through V64.3 from MS-DRG 794 
to MS-DRG 795. Diagnosis codes V64.00 through V64.04, and V64.06 
through V64.3 would be added to the ``only secondary diagnosis'' list 
for MS-DRG 795. Diagnosis codes V64.41, V64.42, and V64.43 would 
continue to be assigned to MS-DRG 794. We are inviting public comments 
on this proposal.
b. Discharges/Transfers of Neonates With a Planned Acute Care Hospital 
Inpatient Readmission
    We are proposing to add the patient discharge status codes shown in 
the table below to the MS-DRG GROUPER logic for MS-DRG 789 (Neonates, 
Died or Transferred to Another Acute Care Facility) to identify 
neonates that are transferred to a designated facility with a planned 
acute care hospital inpatient readmission.

----------------------------------------------------------------------------------------------------------------
                      New code                                                   Title
----------------------------------------------------------------------------------------------------------------
82..................................................  Discharged/transferred to a short term general hospital
                                                       for inpatient care with a planned acute care hospital
                                                       inpatient readmission.

[[Page 27520]]

 
85..................................................  Discharged/transferred to a designated cancer center or
                                                       children's hospital with a planned acute care hospital
                                                       inpatient readmission.
94..................................................  Discharged/transferred to a critical access hospital (CAH)
                                                       with a planned acute care hospital inpatient readmission.
----------------------------------------------------------------------------------------------------------------

    Currently, the GROUPER logic for MS-DRG 789 contains discharge 
status codes 02 (Discharged/transferred to a short term general 
hospital for inpatient care), 05 (Discharged/transferred to a 
designated cancer center or children's hospital), and 66 (Discharged/
transferred to a critical access hospital (CAH)).
    As discussed in section II.G.7. of the preamble of this proposed 
rule, these new discharge status codes are also being proposed for 
addition to the Medicare Code Editor (MCE). We are inviting public 
comments on our proposal.
7. Proposed Medicare Code Editor (MCE) Changes
    The Medicare Code Editor (MCE) is a software program that detects 
and reports errors in the coding of Medicare claims data. Patient 
diagnoses, procedure(s), and demographic information are entered into 
the Medicare claims processing systems and are subjected to a series of 
automated screens. The MCE screens are designed to identify cases that 
require further review before classification into an MS-DRG.
a. Age Conflict Edit
    We received a request to review three ICD-9-CM diagnosis codes 
currently listed under the age conflict edit within the MCE. The age 
conflict edit detects inconsistencies between a patient's age and any 
diagnosis on the patient's record. Specifically, the requestor 
recommended that CMS consider the removal of diagnosis codes 751.1 
(Atresia and stenosis of small intestine), 751.2 (Atresia and stenosis 
of large intestine, rectum, and anal canal), and 751.61 (Biliary 
atresia) from the pediatric age conflict edit. Generally, diagnoses 
included in the list for the pediatric age conflict edit are applicable 
for ages 0 through 17.
    The requestor noted that diagnosis code 751.1 was removed from the 
Integrated Outpatient Code Editor (IOCE) effective January 1, 2006. Our 
clinical advisors agree that patients described with any one of the 
above listed codes, although congenital anomalies, may require a 
revision procedure in adulthood. Therefore, we believe that the removal 
of these codes appears appropriate and also would be consistent with 
the IOCE.
    We are inviting public comments on our proposal to remove diagnosis 
codes 751.1, 751.2, and 751.61 from the pediatric age conflict edit 
effective October 1, 2013.
b. Discharge Status Code Updates
    To reflect changes in the UB-04 code set maintained by the National 
Uniform Billing Committee (NUBC), we are proposing to add the following 
new discharge status codes to the CMS GROUPER and the MCE logic 
effective October 1, 2013.
    One of the new discharge status codes corresponds to an alternative 
care site. This alternative care site discharge status code is intended 
to identify patients being discharged or transferred to an alternative 
site that will provide basic patient care during a disaster response. 
The new discharge status code is 69 (Discharged/transferred to a 
designated disaster alternative care site).
    In addition, 15 new discharge status codes correspond with 
identifying planned acute care hospital inpatient readmissions. Shown 
below are the existing ``base'' discharge status codes and the new 
codes that will better identify patients who are discharged with a 
planned readmission.

----------------------------------------------------------------------------------------------------------------
              Base code                        New code                               Title
----------------------------------------------------------------------------------------------------------------
01...................................  81.....................  Discharged to home or self care with a planned
                                                                 acute care hospital inpatient readmission.
02...................................  82.....................  Discharged/transferred to a short term general
                                                                 hospital for inpatient care.
03...................................  83.....................  Discharged/transferred to a skilled nursing
                                                                 facility (SNF) with Medicare certification with
                                                                 a planned acute care hospital inpatient
                                                                 readmission.
04...................................  84.....................  Discharged/transferred to a facility that
                                                                 provides custodial or supportive care with a
                                                                 planned acute care hospital inpatient
                                                                 readmission.
05...................................  85.....................  Discharged/transferred to a designated cancer
                                                                 center or children's hospital with a planned
                                                                 acute care hospital inpatient readmission.
06...................................  86.....................  Discharged/transferred to home under care of
                                                                 organized home health service organization with
                                                                 planned acute care hospital inpatient
                                                                 readmission.
21...................................  87.....................  Discharged/transferred to court/law enforcement
                                                                 with a planned acute care hospital inpatient
                                                                 readmission.
43...................................  88.....................  Discharged/transferred to federal health care
                                                                 facility with a planned acute care hospital
                                                                 inpatient readmission.
61...................................  89.....................  Discharged/transferred to a hospital-based
                                                                 Medicare approved swing bed with a planned
                                                                 acute care hospital inpatient readmission.
62...................................  90.....................  Discharged/transferred to an inpatient
                                                                 rehabilitation facility (IRF) including
                                                                 rehabilitation distinct part units of a
                                                                 hospital with a planned acute care hospital
                                                                 inpatient readmission.
63...................................  91.....................  Discharged/transferred to a Medicare certified
                                                                 long term care hospital (LTCH) with a planned
                                                                 acute care hospital inpatient readmission.
64...................................  92.....................  Discharged/transferred to a nursing facility
                                                                 certified under Medicaid but not certified
                                                                 under Medicare with a planned acute care
                                                                 hospital inpatient readmission.
65...................................  93.....................  Discharged/transferred to a psychiatric distinct
                                                                 part unit of a hospital with a planned acute
                                                                 care hospital inpatient readmission.
66...................................  94.....................  Discharged/transferred to a critical access
                                                                 hospital (CAH) with a planned acute care
                                                                 hospital inpatient readmission.
70...................................  95.....................  Discharged/transferred to another type of health
                                                                 care institution not defined elsewhere in this
                                                                 code list with a planned acute care hospital
                                                                 inpatient readmission.
----------------------------------------------------------------------------------------------------------------


[[Page 27521]]

    We are inviting public comments on our proposal to add the above 
listed new discharge status codes to the GROUPER and the MCE logic 
effective October 1, 2013 (FY 2014).
8. Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different MS-DRG within the MDC to which the principal diagnosis 
is assigned. Therefore, it is necessary to have a decision rule within 
the GROUPER by which these cases are assigned to a single MS-DRG. The 
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function. 
Application of this hierarchy ensures that cases involving multiple 
surgical procedures are assigned to the MS-DRG associated with the most 
resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of MS-DRG reclassification and recalibrations, for 
FY 2014, 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 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 with cases assigned to 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 this proposed rule, we are proposing limited changes to the MS-
DRG classifications for FY 2014, as discussed in sections II.G.2. and 
5. of this preamble. In our review of these proposed changes, we did 
not identify any needed changes to the surgical hierarchy. Therefore, 
in this proposed rule, we are not proposing any changes to the surgical 
hierarchy for Pre-MDCs and MDCs for FY 2014.
9. Complications or Comorbidity (CC) Exclusions List
a. Background of the CC List and the CC Exclusions List
    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. However, depending on the 
principal diagnosis of the patient, some diagnoses on the basic list of 
complications and comorbidities may be excluded if they are closely 
related to the principal diagnosis. In FY 2008, we evaluated each 
diagnosis code to determine its impact on resource use and to determine 
the most appropriate CC subclassification (non-CC, CC, or MCC) 
assignment. We refer readers to sections 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 47152 through 47171).
b. Proposed CC Exclusions List for FY 2014
    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))

[[Page 27522]]

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; and
     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.\1\
---------------------------------------------------------------------------

    \1\ We refer readers to 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); the FY 2012 final rule (76 FR 
51542); and the FY 2013 final rule (77 FR 53315). 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 Proposed Revisions Based on Changes to the ICD-9-CM Diagnosis 
Codes for FY 2014
    For FY 2014, there were no changes made to the ICD-9-CM coding 
system effective October 1, 2013, due to the partial code freeze. (We 
refer readers to section II.G.10. of the preamble of this proposed rule 
for a discussion of the ICD-9-CM coding system.)
(2) Suggested Changes to the MS-DRG Diagnosis Codes for FY 2014
(A) Coronary Atherosclerosis Due to Calcified Coronary Lesion
    We received a request that we consider changing the severity levels 
for the following ICD-9-CM diagnosis code: 414.4 (Coronary 
atherosclerosis due to calcified coronary lesion). The requestor 
suggested that we change the severity level for diagnosis code 414.4 
from a non-CC to an MCC.
    The following chart shows the analysis of the MedPAR claims data 
for FY 2012 for ICD-9-CM diagnosis code 414.4.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
                 Code                      Diagnosis description       CC level      Cnt 1      impact       Cnt 2      impact       Cnt 3      impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
414.4................................  Coronary atherosclerosis due        Non-CC     1,390        1.58       2,174        2.31       2,001        3.11
                                        to calcified lesion.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We ran the above 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 an 
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 finding is 1.58. A value close to 
1.0 in the C1 field suggests that the diagnosis 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 a 
non-CC.
    The C2 finding was 2.31. A C2 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 when there is at least one other secondary 
diagnosis that is a CC but none that is an MCC.
    While the C1 value of 1.58 is above the 1.0 value for a non-CC, it 
does not support reclassification to an MCC. As stated earlier, a value 
close to 3.0 suggests the condition is expected to consume resources 
more similar to an MCC than a CC or a non-CC. The C2 finding of 2.31 
also does not support reclassifying this diagnosis code to an MCC. We 
also considered reclassifying the severity level of diagnosis code 
414.4 to a CC; however, the C1 finding of 1.58 also does not support 
reclassifying the severity level to a CC. Our clinical advisors 
reviewed the data and evaluated this condition. They recommended that 
we not change the severity level of diagnosis code 414.4 from a non-CC 
to an MCC or a CC. They do not believe that this diagnosis would 
increase the severity level of patients. They pointed out that a 
similar code, diagnosis code 414.2 (Chronic total occlusion of coronary 
artery), is a non-CC. Our clinical advisors believe that diagnosis code 
414.4 represents patients who are less severe than diagnosis code 
414.2. Considering the C1 and C2 ratings and the input from our 
clinical advisors, we are not proposing to reclassify diagnosis code 
414.4 to an MCC; the diagnosis code would continue to be considered a 
non-CC.
    Therefore, based on the data and clinical analysis, we are 
proposing to maintain diagnosis code 414.4 as a non-CC. We are inviting 
public comment on our proposal.
(B) Acute Cholecystitis Diagnosis Code
    We received a comment recommending that we add diagnosis code 575.0 
(Acute cholecystitis) to the CC Exclusion List when reported as a 
secondary diagnosis code with a principal diagnosis code 574.00 
(Calculus of gallbladder with acute cholecystitis without mention of 
obstruction). We note that, there is an ``excludes note'' under 
diagnosis code 575.0 which excludes ``that with cholelithiasis 
(574.00)''. Therefore, diagnosis codes 575.0 and 574.00 should not be 
reported on the same claim. However, the commenter stated that there 
may be double reporting.
    Our clinical advisors agree with the commenter that diagnosis codes 
575.0 and 574.00 capture the same clinical context. Therefore, we are 
proposing to add diagnosis code 575.0 to the CC Exclusion List when 
reported as a secondary diagnosis code with a principal diagnosis code 
574.00. We are

[[Page 27523]]

inviting public comments on our proposal.
(C) Chronic Total Occlusion (CTO) of Artery of the Extremities 
Diagnosis Code
    We received a request to consider removing atherosclerosis and 
aneurysm codes from the CC Exclusion List for diagnosis code 440.4 
(Chronic total occlusion of artery of the extremities). For FY 2013, we 
changed the designation of diagnosis code 440.4 from a non-CC level to 
a CC level. The CC Exclusion List for diagnosis code 440.4 includes the 
following diagnosis codes:

----------------------------------------------------------------------------------------------------------------
                 Diagnosis code                                          Code description
----------------------------------------------------------------------------------------------------------------
440.20.........................................  Atherosclerosis of native arteries of the extremities,
                                                  unspecified.
440.21.........................................  Atherosclerosis of native arteries of the extremities with
                                                  intermittent claudication.
440.22.........................................  Atherosclerosis of native arteries of the extremities with rest
                                                  pain.
440.23.........................................  Atherosclerosis of native arteries of the extremities with
                                                  ulceration.
440.24.........................................  Atherosclerosis of native arteries of the extremities with
                                                  gangrene.
440.29.........................................  Other atherosclerosis of native arteries of the extremities.
440.30.........................................  Atherosclerosis of unspecified bypass graft of the extremities.
440.31.........................................  Atherosclerosis of autologous vein bypass graft of the
                                                  extremities.
440.32.........................................  Atherosclerosis of nonautologous biological bypass graft of the
                                                  extremities.
440.4..........................................  Chronic total occlusion of artery of the extremities.
441.00.........................................  Dissection of aorta, unspecified site.
441.01.........................................  Dissection of aorta, thoracic.
441.02.........................................  Dissection of aorta, abdominal.
441.03.........................................  Dissection of aorta, thoracoabdominal.
441.1..........................................  Thoracic aneurysm, ruptured.
441.2..........................................  Thoracic aneurysm without mention of rupture.
441.3..........................................  Abdominal aneurysm, ruptured.
441.4..........................................  Abdominal aneurysm without mention of rupture.
441.5..........................................  Aortic aneurysm of unspecified site, ruptured.
441.6..........................................  Thoracoabdominal aneurysm, ruptured.
441.7..........................................  Thoracoabdominal aneurysm, without mention of rupture.
441.9..........................................  Aortic aneurysm of unspecified site without mention of rupture.
442.0..........................................  Aneurysm of artery of upper extremity.
442.2..........................................  Aneurysm of iliac artery.
442.3..........................................  Aneurysm of artery of lower extremity.
442.9..........................................  Aneurysm of unspecified site.
443.22.........................................  Dissection of iliac artery.
443.29.........................................  Dissection of other artery.
443.81.........................................  Peripheral angiopathy in diseases classified elsewhere.
443.82.........................................  Erythromelalgia.
443.89.........................................  Other specified peripheral vascular diseases.
443.9..........................................  Peripheral vascular disease, unspecified.
444.01.........................................  Saddle embolus of abdominal aorta.
444.09.........................................  Other arterial embolism and thrombosis of abdominal aorta.
444.1..........................................  Embolism and thrombosis of thoracic aorta.
444.21.........................................  Arterial embolism and thrombosis of upper extremity.
444.22.........................................  Arterial embolism and thrombosis of lower extremity.
444.81.........................................  Embolism and thrombosis of iliac artery.
444.89.........................................  Embolism and thrombosis of other specified artery.
444.9..........................................  Embolism and thrombosis of unspecified artery.
445.01.........................................  Atheroembolism of upper extremity.
445.02.........................................  Atheroembolism of lower extremity.
445.81.........................................  Atheroembolism of kidney.
445.89.........................................  Atheroembolism of other site.
447.0..........................................  Arteriovenous fistula, acquired.
447.1..........................................  Stricture of artery.
447.2..........................................  Rupture of artery.
447.5..........................................  Necrosis of artery.
447.6..........................................  Arteritis, unspecified.
447.70.........................................  Aortic ectasia, unspecified site.
447.71.........................................  Thoracic aortic ectasia.
447.72.........................................  Abdominal aortic ectasia.
447.73.........................................  Thoracoabdominal aortic ectasia.
449............................................  Septic arterial embolism.
----------------------------------------------------------------------------------------------------------------

    Diagnosis code 440.4 is a CC except if one of the diagnosis codes 
listed above is reported as a principal diagnosis. If one of the 
diagnosis codes listed above is reported on a claim as a principal 
diagnosis and code 440.4 is reported as a secondary diagnosis, code 
440.4 would not be counted as a CC. The commenter requested that we 
remove atherosclerosis codes 440.20 through 440.32, 443.22, 443.29, 
443.81 through 443.9, and aneurysm codes 441.00 through 441.03, 441.1 
through 441.7, 441.9, 442.0, 442.2, 442.3, and 442.9 from the CC 
Exclusion List for diagnosis code 440.4.
    According to the commenter, aneurysm diagnoses are not closely 
related clinically to peripheral CTOs. Aneurysm physiology, clinical 
symptomology, and patient risk profile

[[Page 27524]]

are fundamentally different than CTOs. Aneurysms result from the 
weakening of an artery wall and manifest in an out-pouched pocket of 
the lumen. Conversely, patients with CTOs present with extended 
segments of diseased and narrowed vessels and in most cases, complex 
lesions containing fibro-calcified plaques. The commenter stated that 
CTOs represent a high severity complication, which is not closely 
related to basic atherosclerosis.
    Our clinical advisors agree with the commenter that the aneurysm 
and most of the atherosclerosis codes should be removed from the CC 
Exclusion List for diagnosis code 440.4. A case with a principal 
diagnosis of aneurysm with CTO adds substantial complexity and does not 
necessarily have the same immediate cause. A case with a principal 
diagnosis of atherosclerosis with CTO reported represents a more severe 
form of the disease and, therefore, is more complex. Our clinical 
advisors do not agree with the commenter that diagnosis codes 443.81 
through 443.9 (Other and unspecified peripheral vascular diseases) 
should be removed from the CC Exclusion List. These cases are more 
likely related to CTO and meet one of the principles for exclusion that 
we previously outlined above.
    Therefore, for FY 2014, we are proposing to remove the following 
diagnosis codes from the CC Exclusion List for diagnosis code 440.4: 
atherosclerosis codes 440.20 through 440.32, 443.22, and 443.29, and 
aneurysm codes 441.00 through 441.03, 441.1 through 441.7, 441.9, 
442.0, 442.2, 442.3, and 442.9. Diagnosis codes 443.81 through 443.9 
would remain on the CC Exclusion List for diagnosis code 440.4. We are 
inviting public comments on this proposal.
    For FY 2014, we are proposing changes to Table 6G (Additions to the 
CC Exclusion List) and Table 6H (Deletions from the CC Exclusion List). 
As we discussed earlier, we are not proposing changes to the severity 
level for diagnosis code 414.4. These tables, which contain codes that 
are effective for discharges occurring on or after October 1, 2013, are 
not being published in the Addendum to this proposed rule because of 
the length of the two tables. Instead, we are making them available 
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/
Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. 
Each of these principal diagnosis codes 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 of each fiscal year, 
the indented diagnoses are not recognized by the GROUPER as valid CCs 
for the asterisked principal diagnosis.
    There are no new, revised, or deleted diagnosis codes for FY 2014. 
Therefore, there are no Tables 6A, 6C, and 6E published for FY 2014.
    There are no proposed additions or deletions to the MS-DRG MCC List 
for FY 2014. There also are no proposed additions or deletions to the 
MS-DRG CC List for FY 2014. Therefore, there are no Tables 6I.1 through 
6I.2 and 6J.1 through 6J.2 published for FY 2014.
    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 30.0, is available on a CD 
for $225.00. Version 31.0 of this manual, which will include the final 
FY 2014 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.
10. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 
986; and 987 Through 989
    Each year, we review cases assigned to former CMS DRG 468 
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and 
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal 
Diagnosis) to determine whether it would be appropriate to change the 
procedures assigned among these CMS DRGs. Under the MS-DRGs that we 
adopted for FY 2008, CMS DRG 468 was split three ways and became MS-
DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal 
Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 
476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 
(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively).
    MS-DRGs 981 through 983, 984 through 986, and 987 through 989 
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for 
those cases in which none of the O.R. procedures performed are related 
to the principal diagnosis. These MS-DRGs are intended to capture 
atypical cases, that is, those cases not occurring with sufficient 
frequency to represent a distinct, recognizable clinical group. MS-DRGs 
984 through 986 (previously CMS DRG 476) are assigned to those 
discharges in which one or more of the following prostatic procedures 
are performed and are unrelated to the principal diagnosis:
     60.0 (Incision of prostate)
     60.12 (Open biopsy of prostate)
     60.15 (Biopsy of periprostatic tissue)
     60.18 (Other diagnostic procedures on prostate and 
periprostatic tissue)
     60.21 (Transurethral prostatectomy)
     60.29 (Other transurethral prostatectomy)
     60.61 (Local excision of lesion of prostate)
     60.69 (Prostatectomy, not elsewhere classified)
     60.81 (Incision of periprostatic tissue)
     60.82 (Excision of periprostatic tissue)
     60.93 (Repair of prostate)
     60.94 (Control of (postoperative) hemorrhage of prostate)
     60.95 (Transurethral balloon dilation of the prostatic 
urethra)
     60.96 (Transurethral destruction of prostate tissue by 
microwave thermotherapy)
     60.97 (Other transurethral destruction of prostate tissue 
by other thermotherapy)
     60.99 (Other operations on prostate)
    All remaining O.R. procedures are assigned to MS-DRGs 981 through 
983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those 
discharges in which the only procedures performed are nonextensive 
procedures that are unrelated to the principal diagnosis.\2\
---------------------------------------------------------------------------

    \2\ 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 the FY 2000 (64 FR 41496), in the FY 
2001 (65 FR 47064), or in the 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 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, 
2010, 2011, 2012, and 2013, no procedures were moved, as noted in 
the FY 2008 final rule with comment period (72 FR 46241), in the FY 
2009 final rule (73 FR 48513), in the FY 2010 final rule (74 FR 
43796), in the FY 2011 final rule (75 FR 50122), in the FY 2012 
final rule (76 FR 51549), and in the FY 2013 final rule (77 FR 
53321).

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

[[Page 27525]]

    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 2014, we are not proposing to change the 
procedures assigned among these MS-DRGs.
a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-DRGs 987 
through 989 into MDCs
    We annually conduct a review of procedures producing assignment to 
MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to 
principal diagnosis with MCC, with CC, and without CC/MCC, 
respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure 
unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, 
respectively) on the basis of volume, by procedure, to see if it would 
be appropriate to move procedure codes out of these MS-DRGs into one of 
the surgical MS-DRGs for the MDC into which the principal diagnosis 
falls. The data are arrayed in two ways for comparison purposes. We 
look at a frequency count of each major operative procedure code. We 
also compare procedures across MDCs by volume of procedure codes within 
each MDC.
    We identify those procedures occurring in conjunction with certain 
principal diagnoses with sufficient frequency to justify adding them to 
one of the surgical MS-DRGs for the MDC in which the diagnosis falls. 
As noted above, there were no cases that merited movement or that 
should logically be assigned to any of the other MDCs. Therefore, for 
FY 2014, we are not proposing to remove any procedures from MS-DRGs 981 
through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs 
for the MDC into which the principal diagnosis is assigned.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    We also annually review the list of ICD-9-CM procedures that, when 
in combination with their principal diagnosis code, result in 
assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R. 
procedure unrelated to principal diagnosis with MCC, with CC, or 
without CC/MCC, respectively), and 987 through 989, to ascertain 
whether any of those procedures should be reassigned from one of these 
three MS-DRGs to another of the three MS-DRGs based on average 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 2014, we are not 
proposing to move any procedure codes among these MS-DRGs.
c. Adding Diagnosis or Procedure Codes to MDCs
    Based on the review of cases in the MDCs as described above in 
sections II.G.1. through 6. of this preamble, we are not proposing to 
add any diagnosis or procedure codes to MDCs for FY 2014.
11. Proposed Changes to the ICD-9-CM Coding System, Including 
Discussion of the Replacement of the ICD-9-CM Coding System With the 
ICD-10-CM and ICD-10-PCS Systems in FY 2014
a. ICD-9-CM Coding System
    The ICD-9-CM is a coding system currently used for the reporting of 
diagnoses and procedures performed on a patient. In September 1985, the 
ICD-9-CM Coordination and Maintenance Committee was formed. This is a 
Federal interdepartmental committee, cochaired 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 list of valid ICD-9-CM diagnosis and procedure codes 
can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html. 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 2014 at a public meeting held on September 19, 
2012, and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 16, 2012. There 
were no changes to the ICD-9-CM coding system for FY 2014. There were 
no new, revised or deleted diagnosis or procedure codes for FY 2014.
    The Committee held its 2013 meeting on March 5, 2013. Any new codes 
for which there was consensus of public support and for which complete 
tabular and indexing changes will be made by May 2013 will be included 
in the

[[Page 27526]]

October 1, 2013 update to ICD-9-CM. Any code revisions that were 
discussed at the March 5, 2013 Committee meeting but that could not be 
finalized in time to include them in the tables listed in section VI. 
of the Addendum to this proposed rule will be included in Table 6B, 
which is listed in section VI. of the Addendum to the final rule and 
available via the Internet on the CMS Web site, and will be marked with 
an asterisk (*).
    For FY 2014, there were no changes to the ICD-9-CM coding system 
due to the partial code freeze or for new technology. Therefore, there 
are no new, revised, or deleted diagnosis codes and no new, revised, or 
deleted procedure codes that are usually announced in Tables 6A (New 
Diagnosis Codes), 6B (New Procedure Codes), 6C (Invalid Diagnosis 
Codes), 6D (Invalid Procedure Codes), 6E (Revised Diagnosis Code 
Titles), and 6F (Revised Procedure Codes). Therefore, there are no 
Tables 6A through 6F published as part of this proposed rule for FY 
2014. We note that, there may be ICD-9-CM coding changes finalized 
after this proposed rule based on public comments that we receive after 
the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee 
meeting. If there are changes, we will include these changes in the 
final rule.
    Copies of the minutes of the procedure codes discussions at the 
Committee's September 19, 2012 meeting and March 5, 2013 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 19, 2012 meeting and March 
5, 2013 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 
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 Meeting 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

[[Page 27527]]

requests approved for an expedited April l, 2013 implementation of an 
ICD-9-CM code at the September 19, 2012 Committee meeting. Therefore, 
there were no new ICD-9-CM codes implemented on April 1, 2013.
    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. 
Therefore, 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 was 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 final rule that delays, 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 
final rule, CMS-0040-F, was published in the Federal Register on 
September 5, 2012 (77 FR 54664) and is available for viewing on the 
Internet at: http://www.gpo.gov/fdsys/pkg/FR-2012-09-05/pdf/2012-21238.pdf.
    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. The Committee also considered the delay in implementation of 
ICD-10 until October 1, 2014. There was an announcement at the 
September 19, 2012 ICD-9-CM Coordination and Maintenance Committee 
meeting 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 and October 1, 2013, 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, 2014, 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, 2014, as the system would no longer 
be a HIPAA standard and, therefore, no longer be used for reporting.
     On October 1, 2015, one year after the implementation of 
ICD-10, regular updates to ICD-10 will begin.
    The ICD-9-CM Coordination and Maintenance Committee announced that 
it would continue to meet twice a year during the freeze. At these 
meetings, the public will be encouraged to comment on whether or not 
requests for new diagnosis and procedure codes should be created based 
on the need to capture new technology and new diseases. Any code 
requests that do not meet the criteria will be evaluated for 
implementation within ICD-10 on or after October 1, 2015, 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.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/meetings.html. A summary of the September 19, 2012 Committee meeting, 
along with both written and audio transcripts of this meeting, are 
posted on the Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2012-09-19-MeetingMaterials.html.
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,

[[Page 27528]]

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 
delayed the compliance date of ICD-10 from October 1, 2013 to October 
1, 2014 (77 FR 54664). While we did not propose an ICD-10 version of 
the MS DRGs in the FY 2011 IPPS/LTCH PPS proposed rule, we noted that 
we have been actively involved in converting our current MS-DRGs from 
ICD-9-CM codes to ICD-10 codes and sharing this information through the 
ICD-9-CM Coordination and Maintenance Committee. We undertook this 
early conversion project to assist other payers and providers in 
understanding how to go about their own conversion projects. We posted 
ICD-10 MS-DRGs based on Version 26.0 (FY 2009) of the MS-DRGs. We also 
posted a paper that describes how CMS went about completing this 
project and suggestions for others to follow. All of this information 
can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. 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 on the CMS Web site at: http://www.cms.hhs.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.hhs.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://cms.hhs.gov/Medicare/Coding/ICD10/ICD10-MS-DRG-Conversion-Project.html. 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-DRG Conversion Project 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.
    CMS prepared the ICD-10 MS-DRGs Version 30.0 based on the FY 2013 
MS-DRGs (Version 30.0) that we finalized in the FY 2013 IPPS/LTCH PPS 
final rule. We posted a Definitions Manual of the ICD-10 MS-DRGs 
Version 30.0 on our ICD-10 MS-DRG Conversion Project Web site at: 
http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We also prepared a document that describes changes made 
from Version 29.0 to Version 30.0 to facilitate a review. We produced 
mainframe and computer software for Version 30.0, which was made 
available to the public in February 2013. Information on ordering the 
mainframe and computer software through NTIS can be found on the CMS 
Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the ``Related Links'' section. This ICD-
10 MS-DRGs Version 30.0 computer software should facilitate additional 
review of the ICD-10 MS-DRGs conversion.
    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 was posted on the CMS ICD-10 
MS-DRGs Conversion Project Web site and was distributed and discussed 
at the September 15, 2010 ICD-9-CM Coordination and Maintenance 
Committee meeting. The paper described 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 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.
    CMS provided an overview of this hospital payment impact study at 
the March 5, 2012 ICD-9-CM Coordination

[[Page 27529]]

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.hhs.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 of the impact study was presented at the March 5, 
2013 ICD-9-CM Coordination and Maintenance Committee meeting. The 
updated paper is posted on CMS' Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the 
``Downloads'' section. Information on the March 5, 2013 ICD-9-CM 
Coordination and Maintenance Committee meeting can be found on the CMS 
Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html. 
This update of the impact paper and the ICD-10 MS-DRG Version 30.0 
software will provide additional information to the public who are 
evaluating the conversion of the MS-DRGs to ICD-10 MS-DRG.
    We will continue to work with the public to explain how we are 
approaching the conversion of MS-DRGs to ICD-10 and will post drafts of 
updates as they are developed for public review. The final version of 
the ICD-10 MS-DRGs will be implemented at the same time as ICD-10 and 
will be subject to notice and comment rulemaking. In the meantime, we 
will provide extensive and detailed information on this activity 
through the ICD-9-CM Coordination and Maintenance Committee.

H. Recalibration of the Proposed FY 2014 MS-DRG Relative Weights

1. Data Sources for Developing the Proposed Relative Weights
    In developing the proposed FY 2014 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 2012 MedPAR data used in this proposed rule include 
discharges occurring on October 1, 2011, through September 30, 2012, 
based on bills received by CMS through December 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 2012 MedPAR file used in calculating the 
proposed relative weights includes data for approximately 10,364,125 
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 December 31, 2012 update of the FY 2012 MedPAR file 
complies with version 5010 of the X12 HIPAA Transaction and Code Set 
Standards, and includes a variable called ``claim type.'' Claim type 
``60'' indicates that the claim was an inpatient claim paid as fee-for-
service. Claim types ``61,'' ``62,'' ``63,'' and ``64'' relate to 
encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. 
Therefore, the calculation of the proposed relative weights for FY 2014 
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. Specifically, we 
used cost report data from the December 31, 2012 update of the FY 2011 
HCRIS for calculating the proposed FY 2014 cost-based relative weights.
2. Methodology for Calculation of the Proposed Relative Weights
    As we explain in section II.E.2. of the preamble of this proposed 
rule, we are proposing to calculate the relative weights based on 19 
CCRs, instead of the 15 CCRs previously used. The methodology we used 
to calculate the proposed FY 2014 MS-DRG cost-based relative weights 
based on claims data in the FY 2012 MedPAR file and data from the FY 
2011 Medicare cost reports is as follows:
     To the extent possible, all the claims were regrouped 
using the proposed FY 2014 MS-DRG classifications discussed in sections 
II.B. and II.G. of the preamble of this proposed rule.
     The transplant cases that were used to establish the 
relative weights for heart and heart-lung, liver and/or intestinal, and 
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) 
were limited to those Medicare-approved transplant centers that have 
cases in the FY 2011 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 92.7 percent of the providers in the MedPAR file 
had charges for 14 of the 19 cost centers. All claims of providers that 
did not have charges greater than zero for at least 14 of the 19 cost 
centers were deleted. In other words, a provider must have no more than 
five blank cost centers. If a provider did not have charges greater 
than zero in more than five cost centers, the claims for the provider 
were deleted. For FY 2014, as explained in section II.E.2. of the 
preamble of this proposed rule, we are proposing to calculate the 
relative weights using 19 cost centers instead of the 15 cost centers 
previously used in calculating the FY 2013 relative weights. In 
calculating the FY 2014 relative weights, we also are proposing to 
continue to remove claims of providers with more than five blank cost 
centers from the dataset used to calculate the relative weights. (We 
refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53326) for 
the edit threshold related to FY 2013 and prior fiscal years). In 
recent years, this trim

[[Page 27530]]

kept approximately 96 percent of IPPS providers in the MedPAR file upon 
which we base our relative weight calculations. (For examples of our 
FYs 2012 and 2013 relative weight calculations, we refer readers to the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51558) and the FY 2013 IPPS/
LTCH PPS final rule 77 FR 53326).) However, under the proposal 
presented in this proposed rule to add 4 cost centers to the relative 
weight calculations, this trim kept approximately 92.7 percent of the 
IPPS providers in the MedPAR file upon which we base our proposed FY 
2014 relative weight calculations.
    Although this trim is now removing a greater percentage of 
providers' claims from the relative weight calculations than were 
previously removed, we believe that it is appropriate to propose to 
continue to remove providers' claims that do not have charges greater 
than zero in more than five cost centers. We believe that this proposal 
is appropriate because we are not introducing new costs into the 
relative weight calculation; we are only proposing to make use of more 
refined, granular costs by breaking out implantable devices from the 
Supplies and Equipment CCR, MRIs and CT scans from the Radiology CCR, 
and cardiac catheterization from the Cardiology CCR. Furthermore, 
because we are proposing to make use of more refined cost report data 
for these cost centers, we believe that it is also appropriate to edit 
the claims with a more refined threshold. We are inviting public 
comments on the proposal to trim the data used in our relative weight 
calculations.
     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 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. 
Therefore, 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 19 cost groups for each claim were 
standardized to remove the effects of differences in area wage levels, 
IME and DSH payments, and for hospitals located 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 19 cost groups so that each MS-DRG had 19 standardized charge 
totals. These charges were then adjusted to cost by applying the 
national average CCRs developed from the FY 2011 cost report data.
    The 19 cost centers that we used in the proposed relative weight 
calculation are shown in the following table. The table shows the lines 
on the cost report and the corresponding revenue codes that we used to 
create the 19 national cost center CCRs. (We note that we have made 
several changes to the table, most importantly, to remove the columns 
listing the cost centers from the CMS Form 2552-96 cost reports. 
Because we are proposing to use data from FY 2011 cost reports, which 
were filed on the CMS Form 2552-10, the columns referencing the CMS 
Form 2552-96 cost report are no longer relevant. We also have updated 
and refined the table to reflect the proposed 19 CCRs, instead of the 
current 15, and we have made some minor corrections to revenue codes 
and cost report cost centers that are grouped with each CCR.)

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Charges from
                                                                                          Cost from HCRIS         HCRIS
                                                     Revenue codes                         (worksheet  C,    (worksheet  C,     Medicare charges  from
  Cost center group  name (19     MedPAR  charge      contained in     Cost report line  part 1,  column 5   part 1,  column    HCRIS  (worksheet D-3,
            total)                    field          MedPAR  charge      description      and line number)   6 & 7  and line   column and line  number)
                                                         field                             form  CMS-2552-    number)  form        form CMS-2552-10
                                                                                                 10            CMS-2552-10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Routine Days..................  Private Room       011X and 014X....  Adults &           C--1--C5--30.....  C--1--C6--30....  D3--HOS--C2--30
                                 Charges.                              Pediatrics
                                                                       (General Routine
                                                                       Care).
                                Semi[dash]Private  012X, 013X and
                                 Room Charges.      016X[dash]019X.
                                Ward Charges.....  015X.............

[[Page 27531]]

 
Intensive Days................  Intensive Care     020X.............  Intensive Care     C--1--C5--31.....  C--1--C6--31....  D3--HOS--C2--31
                                 Charges.                              Unit.
                                Coronary Care      021X.............  Coronary Care      C--1--C5--32.....  C--1--C6--32....  D3--HOS--C2--32
                                 Charges.                              Unit.
                                                                      Burn Intensive     C--1--C5--33.....  C--1--C6--33....  D3--HOS--C2--33
                                                                       Care Unit.
                                                                      Surgical           C--1--C5--34.....  C--1--C6--34....  D3--HOS--C2--34
                                                                       Intensive Care
                                                                       Unit.
                                                                      Other Special      C--1--C5--35.....  C--1--C6--35....  D3--HOS--C2--35
                                                                       Care Unit.
Drugs.........................  Pharmacy Charges.  025X, 026X and     Intravenous        C--1--C5--64.....  C--1--C6--64....  D3--HOS--C2--64
                                                    063X.              Therapy.
                                                                                                            C--1--C7--64....
                                                                      Drugs Charged To   C--1--C5--73.....  C--1--C6--73....  D3--HOS--C2--73
                                                                       Patient.
                                                                                                            C--1--C7--73....
Supplies and Equipment........  Medical/Surgical   0270, 0271, 0272,  Medical Supplies   C--1--C5--71.....  C--1--C6--71....  D3--HOS--C2--71
                                 Supply Charges.    0273, 0274,        Charged to
                                                    0277, and 0621,    Patients.
                                                    0622, 0623.
                                                                                                            C--1--C7--71....
                                Durable Medical    0290, 0291, 0292   DME[dash]Rented..  C--1--C5--96.....  C--1--C6--96....  D3--HOS--C2--96
                                 Equipment          and
                                 Charges.           0294[dash]0299.
                                                                                                            C--1--C7--96....
                                Used Durable       0293.............  DME[dash]Sold....  C--1--C5--67.....  C--1--C6--97....  D3--HOS--C2--97
                                 Medical Charges.
                                                                                                            C--1--C7--97....
Implantable Devices...........                     0275, 0276, 0278,  Implantable        C--1--C5--72.....  C--1--C6--72....  D3--HOS--C2--72
                                                    0624.              Devices Charged
                                                                       to Patients.
                                                                                                            C--1--C7--72....
Therapy Services..............  Physical Therapy   042X.............  Physical Therapy.  C--1--C5--66.....  C--1--C6--66....  D3--HOS--C2--66
                                 Charges.
                                                                                                            C--1--C7--66....
                                Occupational       043X.............  Occupational       C--1--C5--67.....  C--1--C6--67....  D3--HOS--C2--67
                                 Therapy Charges.                      Therapy.
                                                                                                            C--1--C7--67....
                                Speech Pathology   044X and 047X....  Speech Pathology.  C--1--C5--68.....  C--1--C6--68....  D3--HOS--C2--68
                                 Charges.
                                                                                                            C--1--C7--68....
Inhalation Therapy............  Inhalation         041X and 046X....  Respiratory        C--1--C5--65.....  C--1--C6--65....  D3--HOS--C2--65
                                 Therapy Charges.                      Therapy.
                                                                                                            C--1--C7--65....
Operating Room................  Operating Room     036X.............  Operating Room...  C--1--C5--50.....  C--1--C6--50....  D3--HOS--C2--50
                                 Charges.
                                                                                                            C--1--C7--50....
                                                    071X............  Recovery Room....  C--1--C5--51.....  C--1--C6--51....  D3--HOS--C2--51
                                                                                                            C--1--C7--51....
Labor & Delivery..............  Operating Room     072X.............  Delivery Room and  C--1--C5--52.....  C--1--C6--52....  D3--HOS--C2--52
                                 Charges.                              Labor Room.
                                                                                                            C--1--C7--52....
Anesthesia....................  Anesthesia         037X.............  Anesthesiology...  C--1--C5--53.....  C--1--C6--53....  D3--HOS--C2--53
                                 Charges.
                                                                                                            C--1--C7--53....
Cardiology....................  Cardiology         048X and 073X....  Electrocardiology  C--1--C5--69.....  C--1--C6--69....  D3--HOS--C2--69
                                 Charges.
                                                                                                            C--1--C7--69....
Cardiac Catheterization.......                     0481.............  Cardiac            C--1--C5--59.....  C--1--C6--59....  D3--HOS--C2--59
                                                                       Catheterization.
                                                                                                            C--1--C7--59....
Laboratory....................  Laboratory         030X, 031X, and    Laboratory.......  C--1--C5--60.....  C--1--C6--60....  D3--HOS--C2--60
                                 Charges.           075X.
                                                                                                            C--1--C7--60....
                                                                      PBP Clinic         C--1--C5--61.....  C--1--C6--61....  D3--HOS--C2--61
                                                                       Laboratory
                                                                       Services.
                                                                                                            C--1--C7--61....
                                                   074X, 086X         Electro-           C--1--C5--70.....  C--1--C6--70....  D3--HOS--C2--70
                                                                       encephalography.
                                                                                                            C--1--C7--70....
Radiology.....................  Radiology Charges  032X, 040X.......  Radiology--Diagno  C--1--C5--54.....  C--1--C6--54....  D3--HOS--C2--54
                                                                       stic.
                                                                                                            C--1--C7--54....
                                                   028x, 0331, 0332,  Radiology--Therap  C--1--C5--55.....  C--1--C6--55....  D3--HOS--C2--55
                                                    0333, 0335,        eutic.
                                                    0339, 0342.
                                                   0343 and 344.....  Radioisotope.....  C--1--C5--56.....  C--1--C6--56....  D3--HOS--C2--56
                                                                                                            C--1--C7--56....
Computed Tomography (CT) Scan.  CT Scan Charges..  035X.............  Computed           C--1--C5--57.....  C--1--C6--57....  D3--HOS--C2--57
                                                                       Tomography (CT)
                                                                       Scan.

[[Page 27532]]

 
                                                                                                            C--1--C7--57....
Magnetic Resonance Imaging      MRI Charges......  061X.............  Magnetic           C--1--C5--58.....  C--1--C6--58....  D3--HOS--C2--58
 (MRI).                                                                Resonance
                                                                       Imaging (MRI).
                                                                                                            C--1--C7--58....
Emergency Room................  Emergency Room     045x.............  Emergency........  C--1--C5--91.....  C--1--C6--91....  D3--HOS--C2--91
                                 Charges.
                                                                                                            C--1--C7--91....
Blood and Blood Products......  Blood Charges....  038x.............  Whole Blood &      C--1--C5--62.....  C--1--C6--62....  D3--HOS--C2--62
                                                                       Packed Red Blood
                                                                       Cells.
                                                                                         C--1--C7--62.....
                                Blood Storage/     039x.............  Blood Storing,     C--1--C5--63.....  C--1--C6--63....  D3--HOS--C2--63
                                 Processing.                           Processing, &                        C--1--C7--63....
                                                                       Transfusing.
 Other Services...............  Other Service      0002-0099, 022X,
                                 Charge.            023X, 024X,
                                                    052X, 053X.
                                                   055X-060X, 064X-
                                                    070X, 076X-078X,
                                                    090X-095X and
                                                    099X.
                                Renal Dialysis...  0800X............  Renal Dialysis...  C--1--C5--74.....  C--1--C6--74....  D3--HOS--C2--74
                                ESRD Revenue       080X and 082X-                                           C--1--C7--74....
                                 Setting Charges.   088X.
                                                                      Home Program       C--1--C5--94.....  C--1--C6--94....  D3--HOS--C2--94
                                                                       Dialysis.                            C--1--C7--94....
                                Outpatient         049X.............  ASC (Non Distinct  C--1--C5--75.....  C--1--C6--75....  D3--HOS--C2--75
                                 Service Charges.                      Part).                               C--1--C7--75....
                                Lithotripsy        079X.                                                    ................
                                 Charge.
                                                                      Other Ancillary..  C--1--C5--76.....  C--1--C6--76....  D3--HOS--C2--76
                                                                                                            C--1--C7--76....
                                Clinic Visit       051X.............  Clinic...........  C--1--C5--90.....  C--1--C6--90....  D3--HOS--C2--90
                                 Charges.                                                                   C--1--C7--90....
                                                                                                            ................
                                                                      Observation beds.  C--1--C5--92.01..  C--1--C6--92.01.  D3--HOS--C2--92.01
                                                                                                            C--1--C7--92.01.
                                Professional Fees  096X, 097X, and    Other Outpatient   C--1--C5--93.....  C--1--C6--93....  D3--HOS--C2--93
                                 Charges.           098X.              Services.                            C--1--C7--93....
                                                                                                            ................
                                Ambulance Charges  054X.............  Ambulance........  C--1--C5--95.....  C--1--C6--95....  D3--HOS--C2--95
                                                                                                            C--1--C7--95....
                                                                                                            ................
                                                                      Rural Health       C--1--C5--88.....  C--1--C6--88....  D3--HOS--C2--88
                                                                       Clinic.
                                                                                                            C--1--C7--88....
                                                                      FQHC.............  C--1--C5--89.....  C--1--C6--89....  D3--HOS--C2--89
                                                                                                            C--1--C7--89....
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Development of National Average CCRs
    We developed the national average CCRs as follows:
    Using the FY 2011 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-3 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-3. 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 19 cost centers by the corresponding national average CCR, we 
summed the 19 ``costs'' across each MS-DRG to produce a total 
standardized cost for the MS-DRG. The average standardized cost for 
each MS-DRG was then computed as the total standardized cost for the 
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The 
average cost for each MS-DRG was then divided by the national average 
standardized cost per case to determine the relative weight.
    The proposed FY 2014 cost-based relative weights were then 
normalized by an adjustment factor of 1.6122128377 so that the average 
case weight after recalibration was equal to the average case weight 
before recalibration. The normalization adjustment is intended to

[[Page 27533]]

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 proposed 19 national average CCRs for FY 2014 are as follows:

------------------------------------------------------------------------
                             Group                                 CCR
------------------------------------------------------------------------
Routine Days...................................................    0.502
Intensive Days.................................................    0.423
Drugs..........................................................    0.193
Supplies & Equipment...........................................    0.293
Implantable Devices............................................    0.361
Therapy Services...............................................    0.355
Laboratory.....................................................    0.133
Operating Room.................................................    0.225
Cardiology.....................................................    0.132
Cardiac Catheterization........................................    0.135
Radiology......................................................    0.170
MRIs...........................................................    0.091
CT Scans.......................................................    0.045
Emergency Room.................................................    0.207
Blood and Blood Products.......................................    0.371
Other Services.................................................    0.399
Labor & Delivery...............................................    0.445
Inhalation Therapy.............................................    0.187
Anesthesia.....................................................    0.120
------------------------------------------------------------------------

    Since FY 2009, the relative weights have been based on 100 percent 
cost weights based on our MS-DRG grouping system.
    When we recalibrated the DRG weights for previous years, we set a 
threshold of 10 cases as the minimum number of cases required to 
compute a reasonable weight. In this FY 2014 proposed rule, we are 
proposing to use that same case threshold in recalibrating the proposed 
MS-DRG weights for FY 2014. Using data from the FY 2012 MedPAR file, 
there were 7 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 2014, because we do not have sufficient MedPAR data to set 
accurate and stable cost weights for these low-volume MS-DRGs, we are 
proposing to compute weights for the low-volume MS-DRGs by adjusting 
their FY 2013 weights by the percentage change in the average weight of 
the cases in other MS-DRGs. The crosswalk table is shown below:

------------------------------------------------------------------------
      Low-volume MS-DRG           MS-DRG title       Crosswalk to MS-DRG
------------------------------------------------------------------------
789.........................  Neonates, Died or     FY 2013 FR weight
                               Transferred to        (adjusted by
                               Another Acute Care    percent change in
                               Facility.             average weight of
                                                     the cases in other
                                                     MS-DRGs).
790.........................  Extreme Immaturity    FY 2013 FR weight
                               or Respiratory        (adjusted by
                               Distress Syndrome,    percent change in
                               Neonate.              average weight of
                                                     the cases in other
                                                     MS-DRGs).
791.........................  Prematurity with      FY 2013 FR weight
                               Major Problems.       (adjusted by
                                                     percent change in
                                                     average weight of
                                                     the cases in other
                                                     MS-DRGs).
792.........................  Prematurity without   FY 2013 FR weight
                               Major Problems.       (adjusted by
                                                     percent change in
                                                     average weight of
                                                     the cases in other
                                                     MS-DRGs).
793.........................  Full-Term Neonate     FY 2013 FR weight
                               with Major Problems.  (adjusted by
                                                     percent change in
                                                     average weight of
                                                     the cases in other
                                                     MS-DRGs).
794.........................  Neonate with Other    FY 2013 FR weight
                               Significant           (adjusted by
                               Problems.             percent change in
                                                     average weight of
                                                     the cases in other
                                                     MS-DRGs).
795.........................  Normal Newborn......  FY 2013 FR weight
                                                     (adjusted by
                                                     percent change in
                                                     average weight of
                                                     the cases in other
                                                     MS-DRGs).
------------------------------------------------------------------------

4. Bundled Payments for Care Improvement (BPCI) Initiative
    The Bundled Payments for Care Improvement (BPCI) initiative, 
developed under the authority of section 3021 of the Affordable Care 
Act (codified at section 1115A of the Act), is comprised of four 
broadly defined models of care, which link payments for multiple 
services beneficiaries receive during an episode of care. Under the 
BPCI initiative, organizations enter into payment arrangements that 
include financial and performance accountability for episodes of care. 
On January 31, 2013, CMS announced the health care organizations 
selected to participate in the BPCI initiative. For additional 
information on the BPCI initiative, we refer readers to the CMS' Center 
for Medicare and Medicaid Innovation's Web site at http://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to 
section IV.H.4. of the preamble of the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53341 through 53343) for a discussion on the BPCI initiative.
    In the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent 
fiscal years, we finalized a policy to treat hospitals that participate 
in the BPCI initiative the same as prior fiscal years for the IPPS 
payment modeling and ratesetting process without regard to a hospital's 
participation within these bundled payment models (that is, as if a 
hospital were not participating in those models under the BPCI 
initiative). Therefore, for FY 2014, we are proposing to continue to 
include all applicable data from subsection (d) hospitals participating 
in BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 
calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
for a complete discussion on our final policy for the treatment of 
hospitals participating in the BPCI initiative in our ratesetting 
process.

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

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies

[[Page 27534]]

that a medical service or technology will be considered new if it meets 
criteria established by the Secretary after notice and opportunity for 
public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that 
a new medical service or technology may be considered for new 
technology add-on payment if, ``based on the estimated costs incurred 
with respect to discharges involving such service or technology, the 
DRG prospective payment rate otherwise applicable to such discharges 
under this subsection is inadequate.'' We note that beginning with 
discharges occurring in FY 2008, CMS transitioned from CMS-DRGs to MS-
DRGs.
    The regulations at 42 CFR 412.87 implement these provisions and 
specify three criteria for a new medical service or technology to 
receive the additional payment: (1) The medical service or technology 
must be new; (2) the medical service or technology must be costly such 
that the DRG rate otherwise applicable to discharges involving the 
medical service or technology is determined to be inadequate; and (3) 
the service or technology must demonstrate a substantial clinical 
improvement over existing services or technologies. Below we highlight 
some of the major statutory and regulatory provisions relevant to the 
new technology add-on payment criteria as well as other information. 
For a complete discussion on the new technology add-on payment 
criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51572 through 51574).
    Under the first criterion, as reflected in Sec.  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 the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43813 and 43814), we explained our 
policy regarding substantial similarity in detail.
    Under the second criterion, Sec.  412.87(b)(3) further provides 
that, to be eligible for the add-on payment for new medical services or 
technologies, the MS-DRG prospective payment rate otherwise applicable 
to the discharge involving the new medical services or technologies 
must be assessed for adequacy. Under the cost criterion, to assess the 
adequacy of payment for a new technology paid under the applicable MS-
DRG prospective payment rate, we evaluate whether the charges for cases 
involving the new technology exceed certain threshold amounts. Table 10 
that was released with the FY 2013 IPPS/LTCH PPS final rule contains 
the final thresholds that will be used to evaluate applications for new 
technology add-on payments for FY 2014. We refer readers to the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY-2013-IPPS-Final-Rule-Home-Page.html for a complete 
viewing of Table 10 from the FY 2013 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 more detailed 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 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 
criteria, and only if so, do we then make a determination as to whether 
the technology meets the cost threshold and represents a substantial 
clinical improvement over existing medical services or technologies. We 
also amended Sec.  412.87(c) to specify that all applicants for new 
technology add-on payments must have FDA approval or clearance for 
their new medical service or technology by July 1 of each year prior to 
the beginning of the fiscal year that the application is being 
considered.
    The Council on Technology and Innovation (CTI) at CMS oversees the 
agency's cross-cutting priority on coordinating coverage, coding and 
payment processes for Medicare with respect to new technologies and 
procedures, including new drug therapies, as well as promoting the 
exchange of information on new technologies between CMS and other 
entities. The CTI, composed of senior CMS staff and clinicians, was 
established under section 942(a) of Public Law 108-173. The Council is 
co-chaired by the Director of the Center for Clinical Standards and 
Quality (CCSQ) and the Director of the Center for

[[Page 27535]]

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 product developers or manufacturers of new medical 
technologies to contact the agency early in the process of product 
development if they have questions or concerns about the evidence that 
would be needed later in the development process for the agency's 
coverage decisions for Medicare.
    The CTI aims to provide useful information on its activities and 
initiatives to stakeholders, including Medicare beneficiaries, 
advocates, medical product manufacturers, providers, and health policy 
experts. Stakeholders with further questions about Medicare's coverage, 
coding, and payment processes, or who want further guidance about how 
they can navigate these processes, can contact the CTI at 
CTI@cms.hhs.gov.
    We note that applicants for add-on payments for new medical 
services or technologies for FY 2015 must submit a formal request, 
including a full description of the clinical applications of the 
medical service or technology and the results of any clinical 
evaluations demonstrating that the new medical service or technology 
represents a substantial clinical improvement, along with a significant 
sample of data to demonstrate that the medical service or technology 
meets the high-cost threshold. Complete application information, along 
with final deadlines for submitting a full application, will be posted 
as it becomes available on the CMS Web site at: http://www.cms.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 2015, 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 2014 prior 
to publication of this FY 2014 IPPS/LTCH PPS proposed rule, we 
published a notice in the Federal Register on November 23, 2012 (77 FR 
70163 through 70165), and held a town hall meeting at the CMS 
Headquarters Office in Baltimore, MD, on February 5, 2013. 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 2014 new 
medical service and technology add-on payment applications before the 
publication of this FY 2014 proposed rule.
    Approximately 60 individuals registered to attend the town hall 
meeting in person, while additional individuals listened over an open 
telephone line. We also live-streamed the town hall meeting over the 
Internet and received very positive feedback from the public on use of 
this option. We are considering no longer holding an in-person town 
hall meeting in Baltimore, MD, and instead holding a virtual town hall 
meeting that would be live-streamed on the Internet. We are inviting 
public comments on the possibility of holding a virtual town hall 
meeting instead of an in-person town hall meeting in Baltimore, MD. 
Four of the five FY 2014 applicants presented information on their 
technologies, 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 February 26, 2013, in our evaluation of the new 
technology add-on payment applications for FY 2014 in this proposed 
rule.
    In response to the published notice and the new technology town 
hall meeting, we received written comments regarding applications for 
FY 2014 new technology add-on payments. We summarize these comments 
below or, if applicable, indicate that there were no comments received, 
at the end of each discussion of the individual applications in this 
proposed rule.
    A number of attendees at the new technology town hall meeting 
provided comments that were unrelated to ``substantial clinical 
improvement.'' As explained above and in the Federal Register notice 
announcing the new technology town hall meeting (77 FR 70163 through 
70165), the purpose of the new technology town hall meeting was 
specifically to discuss the

[[Page 27536]]

substantial clinical improvement criterion in regard to pending new 
technology applications for FY 2014. Therefore, we are not summarizing 
those comments in this proposed rule. Commenters are welcome to 
resubmit these comments in response to proposals presented in this 
proposed rule.
3. FY 2014 Status of Technologies Approved for FY 2013 Add-On Payments
a. Auto Laser Interstitial Thermal Therapy (AutoLITTTM) 
System
    Monteris Medical submitted an application for new technology add-on 
payments for FY 2011 for the AutoLITTTM. 
AutoLITTTM 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 AutoLITTTM received a 510(k) FDA clearance in May 
2009. The AutoLITTTM 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 AutoLITTTM 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. After evaluation of the newness, costs, and substantial 
clinical improvement criteria for new technology add-on payments for 
the AutoLITTTM and consideration of the public comments we 
received in response to the FY 2011 IPPS/LTCH PPS proposed rule, 
including the additional analysis of clinical data and supporting 
information submitted by the applicant, we approved the 
AutoLITTTM for new technology add-on payments for FY 2011. 
In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27935 through 27936), 
based on the original information provided by the applicant, we 
believed that the newness date for the AutoLITTTM began in 
December 2009. However, as summarized in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53345 through 53346), the applicant submitted a 
public comment (in response to the FY 2013 proposed rule) demonstrating 
that the AutoLITTTM was first available on May 11, 2010. The 
manufacturer explained that some of the sterile disposable products 
were not released from quarantine until May 11, 2010, which prevented 
the AutoLITTTM from being used prior to May 11, 2010. 
Therefore, the manufacturer asserted that the first time the 
AutoLITTTM was available on the market was May 11, 2010. As 
a result of this information, we continued to make new technology add-
on payments for the AutoLITTTM in FY 2013. (We refer readers 
to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on 
this issue).
    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 AutoLITTTM in MS-DRGs 025 (Craniotomy 
and Endovascular Intracranial Procedures with Major Complications or 
Comorbidities (MCC)), 026 (Craniotomy and Endovascular Intracranial 
Procedures with Complications or Comorbidities (CC)), and 027 
(Craniotomy and Endovascular Intracranial Procedures without CC or 
MCC). Cases involving the AutoLITTTM that are eligible for 
the new technology add-on payment are identified by assignment to MS-
DRGs 025, 026, and 027 with a procedure code of 17.61 (Laser 
interstitial thermotherapy of lesion or tissue of brain under guidance) 
in combination with a principal diagnosis code that begins with a 
prefix of 191 (Malignant neoplasm of brain). We note that using the 
procedure and diagnosis codes above and restricting the add-on payment 
to cases that map to MS-DRGs 025, 026, and 027 is consistent with 
information provided by the applicant, which demonstrated that cases of 
the AutoLITTTM 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 AutoLITTTM 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 AutoLITTTM 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'' (Sec.  
412.87(b)(2)). Our practice has been to begin and end new technology 
add-on payments on the basis of a fiscal year, and we have generally 
followed a guideline that uses a 6-month window before and after the 
start of the fiscal year to determine whether to extend the new 
technology add-on payment for an additional fiscal year. In general, we 
extend add-on payments for an additional year only if the 3-year 
anniversary date of the product's entry on the market occurs in the 
latter half of the fiscal year (70 FR 47362). With regard to the 
newness criterion for the AutoLITTTM, as stated above, we 
consider the beginning of the newness period for the device to commence 
when the AutoLITTTM was first available on May 11, 2010. 
Because the 3-year anniversary date of the AutoLITTTM entry 
onto the market will expire May 11, 2013, which is prior to the 
beginning of FY 2014, we are proposing to discontinue new technology 
add-on payments for the AutoLITTTM for FY 2014. We are 
inviting public comments on this proposal.
b. Glucarpidase (Trade Brand Voraxaze[supreg])
    BTG International, Inc. submitted an application for new technology 
add-on payments for Glucarpidase (trade brand Voraxaze[supreg]) for FY 
2013. Glucarpidase is used in the treatment of patients who have been 
diagnosed with toxic methotrexate (MTX) concentrations as of result of 
renal impairment. The administration of Glucarpidase causes a rapid and 
sustained reduction of toxic MTX concentrations.
    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 the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53346 through 53350). 
Voraxaze[supreg] was available on the market in the United States as a 
commercial product to the larger population as of April 30, 2012.

[[Page 27537]]

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27936 through 27939), 
we expressed concerns about whether Voraxaze[supreg] could be 
considered new for FY 2013. After consideration of all of the public 
comments received, in the FY 2013 IPPS/LTCH PPS final rule, we stated 
that we considered Voraxaze[supreg] to be ``new'' as of April 30, 2012, 
which is the date of market availability.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for Voraxaze[supreg] 
and consideration of the public comments we received in response to the 
FY 2013 IPPS/LTCH PPS proposed rule, we approved Voraxaze[supreg] for 
new technology add-on payments for FY 2013. Cases of Voraxaze[supreg] 
are 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.
    As stated above, 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'' (Sec.  412.87(b)(2)). With regard to the newness criterion 
for Voraxaze[supreg], as stated above, we consider the beginning of the 
newness period to commence when Voraxaze[supreg] was first available on 
the market on April 30, 2012. Because Voraxaze[supreg] is still within 
the 3-year newness period, we are proposing to continue new technology 
add-on payments for this technology for FY 2014. We are inviting public 
comments on this proposal.
c. DIFICIDTM (Fidaxomicin) Tablets
    Optimer Pharmaceuticals, Inc. submitted an application for new 
technology add-on payments for FY 2013 for the use of 
DIFICIDTM tablets. 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 asserted 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 asserted 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 asserted that Fidaxomicin 
does not alter this native intestinal microflora.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27939 through 
27941), we expressed concern that DIFICIDTM may not be 
eligible for new technology add-on payments because eligibility is 
limited to new technologies associated with procedures described by 
ICD-9-CM codes. We further stated that drugs that are only taken orally 
(such as DIFICIDTM) may not 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). In the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53350 through 53358), after 
consideration of the public comments received, we 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. The revised policy is effective for 
payments for discharges occurring on or after October 1, 2012. We refer 
readers to the FY 2013 IPPS/LTCH PPS final rule for a complete 
discussion on this issue.
    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. In the FY 2013 IPPS/LTCH PPS final rule, we 
established that the beginning of the newness period for this 
technology is its FDA approval date of May 27, 2011.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for 
DIFICIDTM and consideration of the public comments we 
received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we 
approved DIFICIDTM for new technology add-on payments for FY 
2013. Cases of DIFICIDTM are identified with ICD-9-CM 
diagnosis code 008.45 (Intestinal infection due to Clostridium 
difficile) in combination with NDC code 52015-0080-01. Providers must 
report 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. According to the applicant, the cost 
of DIFICIDTM is $2,800 for a 10-day dosage. The average cost 
per day for DIFICIDTM is $280 ($2,800/10). Cases of 
DIFICIDTM 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). 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 is $868.
    As stated above, 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'' (Sec.  412.87(b)(2)). Our practice has been to begin and 
end new technology add-on payments on the basis of a fiscal year, and 
we have generally followed a guideline that uses a 6-month window 
before and after the start of the fiscal year to determine whether to 
extend the new technology add-on payment for an additional fiscal year. 
In general, we extend add-on payments for an additional year only if 
the 3-year anniversary date of the product's entry on the market occurs 
in the latter half of the fiscal year (70 FR 47362). With regard to the 
newness criterion for DIFICIDTM, as stated above, we 
consider the beginning of the newness period to commence when 
DIFICIDTM was first approved by the FDA on May 27, 2011. 
Because the 3-year anniversary date of DIFICIDTM will occur 
in the second half of the fiscal year (after April 1, 2014), we are 
proposing to continue new technology add-on payments for 
DIFICIDTM for FY 2014. We are inviting public comments on 
this proposal.
d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zenith[supreg] Fenestrated Abdominal Aortic 
Aneurysm (AAA) Endovascular Graft (Zenith[supreg] F. Graft) for FY 
2013. The applicant stated that the current treatment for patients who 
have had an AAA is an endovascular graft. The applicant explained that 
the Zenith[supreg] F. Graft is an implantable device designed to treat 
patients who

[[Page 27538]]

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.
    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. In 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53360 through 53365), we 
stated that because the Zenith[supreg] F. Graft was approved by the FDA 
on April 4, 2012, we believed that the Zenith[supreg] F. Graft met the 
newness criterion as of that date.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for the 
Zenith[supreg] F. Graft and consideration of the public comments we 
received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we 
approved the Zenith[supreg] F. Graft for new technology add-on payments 
for FY 2013. Cases involving the Zenith[supreg] F. Graft that are 
eligible for new technology add-on payments are identified by ICD-9-CM 
procedure code 39.78 (Endovascular implantation of branching or 
fenestrated graft(s) in aorta). 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''), in the FY 2013 IPPS/LTCH PPS final rule, we stated 
that we do not believe it is appropriate to include these costs in our 
calculation of the maximum cost to determine the maximum 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.
    As stated above, 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'' (Sec.  412.87(b)(2)). With regard to the newness criterion 
for the Zenith[supreg] F. Graft, as stated above, we consider the 
beginning of the newness period to commence when the Zenith[supreg] F. 
Graft was approved by the FDA on April 4, 2012. Because the 
Zenith[supreg] F. Graft is still within the 3-year newness period, we 
are proposing to continue new technology add-on payments for this 
technology for FY 2014. We are inviting public comments on this 
proposal.
4. FY 2014 Applications for New Technology Add-On Payments
    We received five applications for new technology add-on payments 
for FY 2014.
a. KcentraTM
    CSL Behring submitted an application for new technology add-on 
payments for KcentraTM for FY 2014. KcentraTM is 
a replacement therapy for fresh frozen plasma (FFP) for patients with 
an acquired coagulation factor deficiency due to warfarin and who are 
experiencing a severe bleed. KcentraTM contains the Vitamin 
K dependent coagulation factors II, VII, IX and X, together known as 
the prothrombin complex, and antithrombotic proteins C and S. Factor IX 
is the lead factor for the potency of the preparation. The product is a 
heat-treated, non-activated, virus filtered and lyophilized plasma 
protein concentrate made from pooled human plasma. KcentraTM 
is available as a lyophilized powder that needs to be reconstituted 
with sterile water prior to administration via intravenous infusion. 
The product is dosed based on Factor IX units. Concurrent Vitamin K 
treatment is recommended to maintain blood clotting factor levels once 
the effects of KcentraTM have diminished.
    The applicant expects to receive FDA approval for 
KcentraTM in the second quarter of 2013. The technology is 
not described by any current ICD-9-CM procedure codes. The applicant 
applied for a new ICD-9-CM procedure code for consideration at the 
March 5, 2013 ICD-9-CM Coordination and Maintenance Committee Meeting. 
More information on this request can be found on the CMS Web site at: 
http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2013-03-05-MeetingMaterials.html. We note 
that any final decisions on new codes approved at the March 5, 2013 
ICD-9-CM Coordination and Maintenance Committee meeting will be 
included in the ICD-9-CM code addendum posted on the CMS Web site in 
June 2013 at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum.html. In addition, code revisions 
that were discussed at the March 5, 2013 ICD-9-CM Coordination and 
Maintenance Committee meeting but that could not be finalized in time 
to include them in the tables for this proposed rule will be included 
in the appropriate table for the final rule (the tables for both the 
proposed rule and the final rule are available via the Internet on the 
CMS Web site).
    We note that we are concerned that KcentraTM may be 
substantially similar to FFP and/or Vitamin K therapy. If so, 
KcentraTM would not meet the newness criterion because costs 
associated with FFP and/or Vitamin K therapy are already reflected 
within the MS-DRGs. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 
FR 43813 through 43814), we established criteria for evaluating whether 
a new technology is substantial similar to an existing technology, 
specifically: (1) whether a product uses the same or a similar 
mechanism of action to achieve a therapeutic outcome; (2) whether a 
product is assigned to the same or a different MS-DRG; and (3) whether 
the new use of the technology involves the treatment of the same or 
similar type of disease and the same or similar patient population. If 
a technology meets all three of the criteria above, it would be 
considered substantially similar to an existing technology and would 
not be considered ``new'' for purposes of new technology add-on 
payments.
    In evaluating the first criterion, we believe that both FFP and 
KcentraTM use the same mechanism of action of Vitamin K 
dependent coagulation to reverse the anti-coagulation effects of 
warfarin. With respect to the second criterion, we believe that cases 
involving both FFP and KcentraTM would be assigned to the 
same MS-DRGs. Finally, with respect to the third criterion, we believe 
that both technologies treat the same disease and patient population. 
Specifically, the patient population for both KcentraTM and 
FFP are patients with an acquired coagulation factor deficiency due to 
warfarin and who are experiencing a severe bleed. Delay of treatment of 
these patients can lead to an increase in complications as well as an 
increase of the severity of the bleed. Although FFP needs to thaw for a 
couple of hours before it can be administered (thus delaying treatment) 
compared to KcentraTM, which can be used instantly, we 
believe that both KcentraTM and FFP treat the same patient 
population. Based on evaluation of the similarity criteria, it appears 
that KcentraTM is

[[Page 27539]]

substantially similar to FFP. Therefore, KcentraTM may not 
be considered ``new'' for purposes of new technology add-on payments. 
We are inviting public comments regarding whether KcentraTM 
is substantially similar to existing technologies and whether 
KcentraTM meets the newness criterion.
    According to the applicant, the technology is eligible to be used 
across all MS-DRGs. To demonstrate that it meets the cost criterion, 
the applicant searched the FY 2011 MedPAR file (across all MS DRGs) for 
cases reporting a primary or secondary diagnosis of E934.2 (Adverse 
events due to anticoagulants), V58.61 (Long term (current) use of 
anticoagulants), or 964.2 (Poisoning by anticoagulants) in combination 
with procedure code 99.07 (Transfusion of the serum). The applicant 
believed that this combination identified cases that suggest the use of 
a Vitamin K antagonist therapy as well as a major bleed.
    The applicant found 66,749 cases across all MS-DRGs and noted that 
18 percent of all cases would map to MS-DRGs 377 (Gastrointestinal 
Hemorrhage with MCC), 378 (Gastrointestinal Hemorrhage with CC), and 
379 (Gastrointestinal Hemorrhage without CC/MCC), while the top 20 MS-
DRGs would account for 41 percent of all cases. The applicant 
standardized charges (for all 66,749 cases) and removed charges for FFP 
therapy, which equated to a case-weighted average standardized charge 
per case of $49,748. The applicant calculated a case-weighted threshold 
of $46,068 across all MS-DRGs. The applicant asserted that the average 
case-weighted standardized charge per case without including charges 
for KcentraTM exceeded the case-weighted threshold of 
$46,068. Therefore, the applicant maintained that it meets the cost 
criterion. We are inviting public comments regarding whether 
KcentraTM meets the cost criterion, particularly with regard 
to the assumptions and methodology used in the applicant's analysis.
    With regard to substantial clinical improvement, according to the 
applicant, KcentraTM is the first prothrombin complex 
concentrate (PCC) that will be FDA-approved for rapid warfarin reversal 
in patients experiencing an acute major bleed. The manufacturer 
maintained that KcentraTM represents a substantial clinical 
improvement in the treatment of patients with acute severe bleeding who 
require immediate reversal of their Vitamin K antagonist (VKA) therapy 
by (1) providing a rapid, beneficial resolution of the patient's blood 
clotting factor deficiency, (2) decreasing the risk of exposure to 
blood borne pathogens, and (3) reducing the rate of transfusion-
associated complications.
    The applicant cited its pivotal study (a noninferior, randomized 
clinical trial) \3\ and noted that KcentraTM was able to 
reverse the effects of warfarin to a target International Normalized 
Ratio (INR) of less than or equal to 1.3 within 30 minutes in 62 
percent of patients compared to less than 10 percent success for 
plasma. Also, serum levels of the key coagulant and anti-thrombotic 
proteins were normalized in less than an hour with 
KcentraTM, but remained depressed with plasma for hours.
---------------------------------------------------------------------------

    \3\ Sarode R, et al., Efficacy and Safety of a Four Factor 
Prothrombin Complex Concentrate in Patients on Vitamin K Antagonists 
Presenting with Major Bleeding: A Randomized, Plasma Controlled, 
Phase IIIb Study. Circulation. Submitted October 31, 2012. Copy to 
be provided upon acceptance.
---------------------------------------------------------------------------

    The applicant also explained that KcentraTM undergoes a 
dedicated pathogen removal process and plasma does not. The applicant 
asserted that this drastically reduces the risk of transmitting both 
known and unknown blood borne pathogens. The applicant cited a 
retrospective analysis of scientific publications \4\ on the use of 
KcentraTM in the European Union (EU), including the 
pharmacovigilance database from 1996 through 2008. The applicant noted 
that an estimated 350,000 patients have been treated with 
KcentraTM (known as Beriplex in the EU) with no cases of 
viral transmission.
---------------------------------------------------------------------------

    \4\ Hanke A, et al., Efficacy and Long-Term Safety of a 
Pasteurized Nanofiltrated Prothrombin Complex Concentrate 
(BERIPLEX[supreg] P/N), 2009, J Thromb Haemost, Vol. 7 (Suppl.2) PP-
WE-697.
---------------------------------------------------------------------------

    The applicant also stated that, in the United States, blood 
suppliers follow a strict set of regulations for screening and testing 
the blood supply, but these tests and donor questionnaires do not 
account for emerging pathogens that could contaminate the blood supply. 
The applicant explained that parasitic infections and diseases (such as 
babesiosis and Chaga's disease) have already been documented in U.S. 
patients as a result of transfusion. However, there is no screening 
test to date for some of these parasitic infections and diseases. The 
applicant believed that the multi-step manufacturing process for 
KcentraTM, including heat treatment and nanofiltration, 
reduces the risk of transmitting such infections and diseases.
    The applicant also noted that another benefit of 
KcentraTM is the ability to rapidly prepare and administer 
the product in an emergency situation. In addition to the benefit of 
room temperature storage, KcentraTM can be rapidly 
reconstituted. In the clinical study, the applicant found that the 
average administration time for KcentraTM was less than 30 
minutes. However, the applicant stated, other treatments such as FFP 
and intravenous Vitamin K therapies act slowly, and FFP can be 
difficult to use. The applicant explained that FFP therapy requires 
blood-type matching, usually requires thawing, and is often located 
away from the point of care. The applicant also cited a study \5\ that 
demonstrated the median time from time of diagnosis to plasma infusion 
was 90 minutes, which did not include time to infuse the plasma which 
can take hours.
---------------------------------------------------------------------------

    \5\ Goldstein, Joshua N., et al., Timing of Fresh Frozen Plasma 
Administration and Rapid Correction of Coagulopathy in Warfarin-
Related Intracerebral Hemorrhage, Stroke 37.1 (2006):151-155.
---------------------------------------------------------------------------

    The applicant further noted that essential blood coagulation 
factors in one vial of KcentraTM are approximately 25 times 
more concentrated than the equivalent plasma dose. According to the 
applicant, this translated to an infusion volume that was 87 percent 
greater in the plasma group of patients as seen in the pivotal study. 
The applicant explained that high transfusion volumes of treatments 
such as FFP therapy can lead to transfusion-associated circulator 
overload (TACO). According to the applicant, when TACO occurs, acute 
left ventricular failure may occur resulting in shortness of breath, 
tachypnea (rapid breathing), and other harmful effects.
    Finally, the applicant noted that KcentraTM is the 
standard of care in the new guidelines issued by the American College 
of Chest Physicians (ACCP). In addition, the applicant noted that the 
American Association of Blood Banks (AABB) stated that plasma should no 
longer be used to reverse warfarin in bleeding patients when specific 
factor concentrates are available.
    In conclusion, the applicant maintained that KcentraTM 
represents a substantial clinical improvement over existing 
technologies. We are inviting public comments regarding whether 
KcentraTM meets the substantial clinical improvement 
criterion.
    We note, if KcentraTM were to be approved for new 
technology add-on payments, we do not believe such payments would be 
available with respect to discharges for which the hospital receives an 
add-on payment for blood clotting factor administered to a Medicare 
beneficiary with hemophilia who is a hospital inpatient. Under section 
1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective 
payment rate is ``the amount of the

[[Page 27540]]

payment with respect to the operating costs of inpatient hospital 
services (as defined in subsection (a)(4) of this section)'' for 
discharges on or after April 1, 1988. Section 1886(a)(4) of the Act 
excludes from the term ``operating costs of inpatient hospital 
services'' the costs with respect to administering blood clotting 
factors to individuals with hemophilia. The costs of administering 
blood clotting factor to Medicare beneficiaries who have hemophilia and 
are hospital inpatients are paid separately from the IPPS. (For 
information on how the clotting factor add-on payment is made, we refer 
readers to section 20.7.3 of Chapter Three of the Medicare Claims 
Processing Manual, which can be downloaded from the CMS Web site at: 
http://cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.) If KcentraTM is approved by FDA as a blood 
clotting factor, we believe that it may be eligible for clotting factor 
add-on payments when administered to Medicare beneficiaries with 
hemophilia. CMS would make an add-on payment for KcentraTM 
for such discharges in accordance with our policy for payment of blood 
clotting factor, and it would be excluded from the operating costs of 
inpatient hospital services as set forth in section 1886(a)(4) of the 
Act.
    Section 1886(d)(5)(K)(i) of the Act requires the Secretary to 
``establish a mechanism to recognize the costs of new medical services 
and technologies under the payment system established under this 
subsection'' beginning with discharges on or after October 1, 2001. We 
believe it is reasonable to interpret this requirement to mean that the 
payment mechanism established by the Secretary recognizes only costs 
for those items that would otherwise be paid based on the prospective 
payment system (that is, ``the payment system established under this 
subsection''). As noted above, under section 1886(d)(1)(A)(iii) of the 
Act, the national adjusted DRG prospective payment rate is the amount 
of payment for the operating costs of inpatient hospital services, as 
defined in section 1886(a)(4) of the Act, for discharges on or after 
April 1, 1988. We understand this to mean that a new medical service or 
technology must be an operating cost of inpatient hospital services 
paid based on the prospective payment system, and not excluded from 
such costs, in order to be eligible for the new technology add-on 
payment. We point out that new technology add-on payments are based on 
the operating costs per case relative to the prospective payment rate 
as described in 42 CFR 412.88. Therefore, we believe that new 
technology add-on payments are appropriate only when the new technology 
is an operating cost of inpatient hospital services and are not 
appropriate when the new technology is excluded from such costs.
    If KcentraTM were to be approved for new technology add-
on payments, we believe that hospitals may only receive that add-on 
payment for discharges where KcentraTM is an operating cost 
of inpatient hospital services. In other words, we do not believe a 
hospital could be eligible to receive the new technology add-on payment 
when it is administering KcentraTM in treating a Medicare 
beneficiary who has hemophilia. In those instances, 
KcentraTM is specifically excluded from the operating costs 
of inpatient hospital services in accordance with section 1886(a)(4) of 
the Act and paid separately from the IPPS. However, when a hospital 
administers KcentraTM to a Medicare beneficiary who does not 
have hemophilia, the hospital could be eligible for a new technology 
add-on payment because KcentraTM would not be excluded from 
the operating costs of inpatient hospital services. Therefore, we do 
not believe that discharges where the hospital receives a clotting 
factor add-on payment are eligible for a new technology add-on payment 
for the blood clotting factor.
    To summarize, we believe it would be inappropriate to make an add-
on payment for new technology for a blood clotting factor when a blood 
clotting factor add-on payment has been made. We welcome public comment 
on our proposal to only make new technology add-on payments for 
KcentraTM in cases when it is included in the operating 
costs of inpatient hospital services (that is, when no add-on payment 
is made for clotting factor).
b. Argus[supreg] II Retinal Prosthesis System
    Second Sight Medical Products, Inc. submitted an application for 
new technology add-on payments for the Argus[supreg] II Retinal 
Prosthesis System (Argus[supreg] II System) for FY 2014. The 
Argus[supreg] II System is an active implantable medical device that is 
intended to provide electrical stimulation of the retina to induce 
visual perception in patients who are profoundly blind due to retinitis 
pigmentosa (RP). These patients have bare or no light perception in 
both eyes. The system employs electrical signals to bypass dead photo-
receptor cells and stimulate the overlying neurons according to a real-
time video signal that is wirelessly transmitted from an externally 
worn video camera. The Argus[supreg] II implant is intended to be 
implanted in a single eye, typically the worse-seeing eye. Currently, 
bilateral implants are not intended for this technology. According to 
the applicant, the surgical implant procedure takes approximately 4 
hours and is performed under general anesthesia.
    The Argus[supreg] II System consists of three primary components: 
(1) An implant which is an epiretinal prosthesis that is fully 
implanted on and in the eye (that is, there are no percutaneous leads); 
(2) external components worn by the user; and (3) a ``fitting'' system 
for the clinician that is periodically used to perform diagnostic tests 
with the system and to custom-program the external unit for use by the 
patient. We describe these components more fully below.
     Implant: The retinal prosthesis implant is responsible for 
receiving information from the external components of the system and 
electrically stimulating the retina to induce visual perception. The 
retinal implant consists of: (a) a receiving coil for receiving 
information and power from the external components of the Argus[supreg] 
II System; (b) electronics to drive stimulation of the electrodes; and 
(c) an electrode array. The receiving coil and electronics are secured 
to the outside of the eye using a standard scleral band and sutures, 
while the electrode array is secured to the surface of the retina 
inside the eye by a retinal tack. A cable, which passes through the eye 
wall, connects the electronics to the electrode array. A pericardial 
graft is placed over the extra-ocular portion on the outside of the 
eye.
     External Components: The implant receives power and data 
commands wirelessly from an external unit of components, which include 
the Argus II Glasses and Video Processing Unit (VPU). A small 
lightweight video camera and transmitting coil are mounted on the 
glasses. The telemetry coils and radio-frequency system are mounted on 
the temple arm of the glasses for transmitting data from the VPU to the 
implant. The glasses are connected to the VPU by a cable. This VPU is 
worn by the patient, typically on a belt or a strap, and is used to 
process the images from the video camera and convert the images into 
electrical stimulation commands, which are transmitted wirelessly to 
the implant.
     ``Fitting System'': To be able to use the Argus[supreg] II 
System, a patient's VPU needs to be custom-programmed. This process, 
which the applicant called ``fitting'', occurs in the hospital/clinic 
shortly after the implant surgery and then periodically thereafter as 
needed. The clinician/physician also uses the

[[Page 27541]]

``Fitting System'' to run diagnostic tests (for example, to obtain 
electrode and impedance waveform measurements or to check the radio-
frequency link between the implant and external unit). This ``Fitting 
System'' can also be connected to a ``Psychophysical Test System'' to 
evaluate patients' performance with the Argus[supreg] II System on an 
ongoing basis.
    These three components work together to stimulate the retina and 
allow a patient to perceive phosphenes (spots of light), which they 
then need to learn to interpret. While using the Argus[supreg] II 
System, the video camera on the patient-worn glasses captures a video 
image. The video camera signal is sent to the VPU, which processes the 
video camera image and transforms it into electrical stimulation 
patterns. The electrical stimulation data are then sent to a 
transmitter coil mounted on the glasses. The transmitter coil sends 
both data and power via radio-frequency (RF) telemetry to the implanted 
retinal prosthesis. The implant receives the RF commands and delivers 
stimulation to the retina via an array of electrodes that is secured to 
the retina with a retinal tack.
    In patients with RP, the photoreceptor cells in the retina, which 
normally transduce incoming light into an electro-chemical signal, have 
lost most of their function. The stimulation pulses delivered to the 
retina via the electrode array of the Argus[supreg] II Retinal 
Prosthesis System are intended to mimic the function of these 
degenerated photoreceptors cells. These pulses induce cellular 
responses in the remaining, viable retinal nerve cells that travel 
through the optic nerve to the visual cortex where they are perceived 
as phosphenes (spots of light). Patients learn to interpret the visual 
patterns produced by these phosphenes.
    With respect to the newness criterion, according to the applicant, 
the FDA designated the Argus[supreg] II System a Humanitarian Use 
Device in May 2009 (HUD designation 09-0216). The applicant 
submitted a Humanitarian Device Exemption (HDE) application 
(H110002) to the FDA in May 2011 to obtain market approval for 
the Argus[supreg] II System. The HDE was referred to the Ophthalmic 
Devices Panel of the FDA's Medical Devices Advisory Committee for 
review and recommendation. At the Panel's meeting held on September 28, 
2012, the Panel voted 19 to 0 that the probable benefits of the 
Argus[supreg] II System outweigh the risks of the system for the 
proposed indication for use. The applicant received the HDE approval 
from the FDA on February 14, 2013. Currently there are no other 
approved treatments for patients with severe to profound RP. The 
Argus[supreg] II System has an IDE number of G050001 and is a Class III 
device. There are no existing ICD-9-CM or ICD-10-CMS/PCS codes for the 
implantation of a retina prosthesis. The applicant applied for three 
new ICD-9-CM procedure codes for consideration at the March 5, 2013 
ICD-9-CM Coordination and Maintenance Committee meeting. More 
information on this request can be found on the CMS Web site at: http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2013-03-05-MeetingMaterials.html. We note that 
any final decisions on new codes approved at the March 5, 2013 
Coordination and Maintenance Committee meeting will be included in the 
ICD-9-CM code addendum posted on the CMS Web site in June 2013 at: 
http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum.html. In addition, code revisions that were discussed at the 
March 5, 2013 Committee meeting but that could not be finalized in time 
to include them in the tables for this proposed rule will be included 
in the appropriate table in the final rule (the tables for both the 
proposed rule and the final rule are made available via the Internet on 
the CMS Web site). We are inviting public comments on whether the 
Argus[supreg] II System meets the newness criterion.
    With regard to the cost criterion, the applicant identified all 
discharges from claims in the FY 2011 MedPAR file for MS-DRGs 116 
(Intraocular Procedures with CC/MCC) and 117 (Intraocular Procedures 
without CC/MCC) with the presence of ICD-9-CM procedure code 14.73 
(Anterior vitrectomy), or 14.74 (Posterior vitrectomy). (We note that 
because no procedure code exists for this technology, these cases would 
include patients that are not eligible for or would not otherwise 
receive this technology.) The applicant found 199 cases (47.6 percent 
of all cases) in MS-DRG 116 and 219 cases (52.3 percent of all cases) 
in MS-DRG 117. This resulted in an average charge per case of $40,957 
for MS-DRG 116 and $20,621 for MS-DRG 117, equating to a case-weighted 
average charge per case of $24,011.
    The applicant then standardized the charges using the FY 2011 final 
rule impact file and converted the cost of the device to a charge by 
dividing the operating costs by a CCR of 0.50 (which equates to a 100 
percent markup). Although the applicant submitted data related to the 
estimated cost of the Argus[supreg] II System, the applicant noted that 
the cost of the technology was proprietary information. The applicant 
then added the charges related to the device to the case-weighted 
average standardized charge per case and determined a final case-
weighted average standardized charge per case of $311,180. Using the FY 
2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 116 
and 117 was $30,328 (all calculations above were performed using 
unrounded numbers). Because the final case-weighted average 
standardized charge per case for the applicable MS-DRGs exceed the 
case-weighted threshold amount, the applicant maintained that the 
Argus[supreg] II System would meet the cost criterion.
    We note that, although we cannot disclose the cost of the 
technology, the device is very costly. Because of its high costs, the 
technology would easily exceed the case-weighted threshold. In 
addition, because of the high cost of the device it is likely that 
claims with the device would receive an outlier payment. The applicant 
anticipates that approximately 65 Argus[supreg] II Systems will be sold 
in FY 2014, of which approximately 50 systems would be provided to 
Medicare patients. The target disease population is extremely limited 
as required and supported by the HDE application. Most patients for 
whom this technology is indicated may be eligible for Medicare based on 
their age or a disability that is associated with profound blindness.
    We also note that these types of procedures are often performed in 
the outpatient setting. We are concerned that if new technology add-on 
payments were to be approved, this would serve as a financial incentive 
to inappropriately shift utilization from an outpatient to an inpatient 
setting, although medical review may result in very few of these cases 
being paid as inpatient hospital services if the patient can be 
appropriately treated as an outpatient. We continue to emphasize that 
it is critical that physicians use their clinical judgment in 
determining the medical necessity of an inpatient admission and stress 
that care should be provided in the appropriate setting. We are 
inviting public comments on whether the Argus[supreg] II System meets 
the cost criterion, particularly based on the assumptions and 
methodology used in the applicant's analysis. We also have general 
concerns relating to the descriptions of the medical necessity of 
performing this procedure on an inpatient basis. Therefore, we are 
inviting public comments to further our understanding regarding whether 
approving new technology add-on payments for the Argus[supreg] II 
System would create a financial incentive that

[[Page 27542]]

would shift utilization inappropriately from an outpatient to an 
inpatient setting.
    With regard to the substantial clinical improvement criterion, the 
Argus[supreg] II System is intended to provide electrical stimulation 
of the retina to induce visual perception in blind patients with the 
indication of severe to profound RP with bare or no light perception in 
both eyes. According to the applicant, an estimated 1 in 3,037 
Americans suffers from RP, and the incidence of people with severe to 
profound RP is significantly lower. According to the applicant, the 
need for treatments for RP is high, given the impact of loss of vision.
    According to the applicant, numerous experimental research programs 
are currently underway to slow, stop, or reverse the progress of RP, 
including gene therapy, tissue and cell transplants, and some 
pharmacologic neuroprotection therapies. However, these approaches so 
far have had fairly limited success in treating RP patients, and some 
approaches are intended for an extremely small segment of the RP 
population. Currently there are no other approved treatments for 
patients with severe to profound RP. Therefore, the Argus[supreg] II 
device treats a patient population that has no other treatment options.
    The applicant submitted the results of a clinical trial to 
demonstrate substantial clinical improvement. This clinical trial 
enrolled 30 patients. The median age of patients was 57.9 years at the 
time of implantation and the range was 28 to 77 years of age. Thirty 
percent of the patients were female, and 70 percent were male. All of 
the patients had bare or no light perception in both eyes. Fourteen of 
the patients were Medicare eligible. As part of the methods for the 
study, the applicant stated that while working within the framework of 
clinical trials for other ophthalmic devices, the manufacturer and its 
team of scientific advisors selected or designed several tests that 
would address the main elements of the system that should be assessed 
for these types of devices--visual function (that is, how the eye as an 
organ works [for example, visual acuity]), functional vision (that is, 
how the patient performs in vision-related activities of daily living), 
and quality of life. The endpoints that were selected provided a 
mixture of objective and subjective data. The study design was 
strengthened by the fact that controlled observations could be obtained 
by performing assessments with the Argus[supreg] II System ``on'' and 
``off'' (that is, control was available at each time point).
    According to the applicant, there were no unexpected adverse 
events. Non-serious adverse events represented the majority of events. 
The safety review concluded that the Argus[supreg] II System has a 
reasonable safety profile for an ophthalmic device that requires 
vitreoretinal surgery to implant. In addition, the applicant noted that 
the device can be extracted and is reversible. The Argus[supreg] II 
System provided all 30 patients with benefit as measured by high-
contrast visual function tests. The applicant stated that the degree of 
benefit varied from patient to patient and provided the following 
results:
     All subjects were able to see visual percepts when the 
Argus[supreg] II System was electrically activated.
     On the Square Localization Test (that is, object 
localization), patients (on average) performed better with the system 
``on'' rather than ``off'' at all follow-up time points. At 24 months, 
on average, patients missed the target by approximately 50 pixels with 
the system ``on'' versus approximately 250 pixels with the system 
``off''.
     On the Direction of Motion Test, which tested the 
patients' ability to determine the direction of a moving bar, patients 
had higher mean accuracy with the system ``on'' than they did with the 
system ``off'' at all follow-up time points, indicating that the 
Argus[supreg] II System improved their performance on a spatial vision 
task. At 24 months, the mean response error was approximately 60[deg] 
with the system ``on'' versus more than 80[deg] with the system 
``off''. According to the applicant, this is nearly the error expected 
by chance.
     On the Grating Visual Acuity Test, which assessed the 
patients' visual acuity using the principles of acuity charts designed 
for extremely low vision patients, 27 percent of the patients were able 
to score on the scale (between 1.6 and 2.9 log MAR) at least once with 
the system ``on'', while none of the Argus[supreg] II patients were 
able to score on the scale with the system ``off.''
     A large number of patients were able to recognize large 
letters and numbers with the system ``on'' (but not with the system 
``off''), and some of the patients were able to read short words. The 
median percent correct with the system ``on'' was approximately 50 
percent higher than with the system ``off.''
     The trial also measured objectively-scored functional 
vision tests. The patients performed better with the Argus[supreg] II 
System ``on'' versus ``off'' on orientation and mobility tests (finding 
a door and following a line) and on functional vision tasks (sorting 
white, black, and grey socks, following an outdoor sidewalk, and 
determining the direction of a person walking by).
     Analysis of the Functional Low-vision Observer Rated 
Assessment (FLORA) results showed that three-quarters of the patients 
received a positive benefit in terms of well-being and/or functional 
vision, while none of the patients experienced a negative effect.
    We note that we are concerned that the study did not have pre-
specified endpoints and changed measurements mid trial. In addition, we 
are concerned about the reliability of the measures used for the tests 
and the inconsistency of the results across different patients, which 
lead us to question the long-term benefits associated with this device. 
We are inviting public comments on whether the Argus[supreg] II System 
meets the substantial clinical improvement criterion, specifically in 
regard to the measures used in the study and the lack of pre-specified 
endpoints.
    We received two comments on the Argus[supreg]II System during the 
town hall meeting's public comment period. These comments are 
summarized below.
    Comment: Several commenters supported approving the Argus[supreg] 
II System for new technology add-on payments. One commenter, a society 
of retina specialists, stated that the Argus[supreg] II System is the 
first and only approved treatment in the United States for patients 
suffering from severe to profound cases of retinitis pigmentosa with 
bare or no light perception in both eyes. The commenter explained that 
while the Argus[supreg] II System does not restore vision, it provides 
visual information that can range, depending on the patient, from light 
detection to form detection. The commenter asserted that, for patients 
with bare or no light perception, even limited restoration of vision 
can make a substantial difference, restoring a patient's ability to 
visually connect and interact with others and providing greater 
independence.
    Another commenter, a foundation for supporting blindness, stated 
that it is essential that CMS is progressive in making therapies like 
the Argus[supreg] II System accessible for these patients who have no 
other treatment alternatives. The commenter recommended approving the 
Argus[supreg] II System for new technology add-on payments. The 
commenter noted that for patients with rare retinal diseases like 
retinitis pigmentosa, the Argus[supreg] II System represents the first 
approved breakthrough to help restore sight and improve quality of 
life.
    Response: We appreciate the commenters' support. We considered

[[Page 27543]]

these comments presented during the town hall meeting's public comment 
period in the development of this proposed rule. As stated above, we 
are inviting additional public comments on whether the Argus[supreg] II 
System meets the substantial clinical improvement criterion, 
specifically in regard to the measures used in the study and the lack 
of pre-specified endpoints.
c. Responsive Neurostimulator (RNS[supreg]) System
    NeuroPace, Inc. submitted an application for new technology add-on 
payments for FY 2014 for the use of the RNS[supreg] System. Seizures 
occur when brain function is disrupted by abnormal electrical activity. 
Epilepsy is a brain disorder characterized by recurrent, unprovoked 
seizures. According to the applicant, the RNS[supreg] System is the 
first implantable medical device (developed by NeuroPace, Inc.) for 
treating persons with epilepsy whose partial onset seizures have not 
been adequately controlled with antiepileptic medications. The 
applicant further stated that the RNS[supreg] System is the first 
closed loop, responsive system to treat partial onset seizures. 
Responsive electrical stimulation is delivered directly to the seizure 
focus in the brain when abnormal brain activity is detected. A 
cranially implanted programmable neurostimulator senses and records 
brain activity through one or two electrode-containing leads that are 
placed at the patient's seizure focus/foci. The neurostimulator detects 
electrographic patterns previously identified by the physician as 
abnormal, and then provides brief pulses of electrical stimulation 
through the leads to interrupt those patterns. Stimulation is delivered 
only when abnormal electrocorticographic activity is detected. The 
typical patient is treated with a total of 5 minutes of stimulation a 
day. The RNS[supreg] incorporates remote monitoring, which allows 
patients to share information with their physicians remotely.
    With respect to the newness criterion, the applicant stated that 
some patients with partial onset seizures that cannot be controlled 
with antiepileptic medications may be candidates for the vagus nerve 
stimulator (VNS) or for surgical removal of the seizure focus. 
According to the applicant, these treatments are not appropriate or 
helpful for all patients. Therefore, the applicant believed that there 
is an unmet clinical need for additional therapies for partial onset 
seizures. The applicant further stated that the RNS[supreg] System 
addresses this unmet clinical need by providing a novel treatment 
option for treating persons with medically intractable partial onset 
seizures. The applicant anticipates FDA premarket approval of the 
RNS[supreg] System in the second quarter of 2013.
    The following ICD[hyphen]9[hyphen]CM procedure codes are used to 
identify this technology: 01.20 (Cranial implantation or replacement of 
neurostimulator pulse generator); 01.29 (Removal of cranial 
neurostimulator pulse generator); and 02.93 (Implantation or 
replacement of intracranial neurostimulator lead(s)). We are inviting 
public comments on whether the technology meets the newness criterion.
    With regard to the cost criterion, the applicant stated that cases 
eligible for the RNS[supreg] System would map to MS-DRG 024 (Craniotomy 
with Major Device Implant/Acute Complex Central Nervous System 
Principal Diagnosis without MCC). The applicant further stated that 
while it was possible for cases to occur in MS-DRG 023 (Craniotomy with 
Major Device Implant/Acute Complex Central Nervous System Principal 
Diagnosis with MCC or Chemotherapy Implant), it would be extremely rare 
because the applicant believed that these major complications and/or 
comorbidities would probably preclude a patient from receiving the 
technology because the technology is an elective procedure.
    The applicant submitted two analyses to demonstrate that it meets 
the cost criterion. For the first analysis, the applicant used clinical 
trial claims data collected in the RNS[supreg] System Pivotal Clinical 
Investigation to calculate the anticipated average standardized charge. 
The applicant maintained that this analysis best represents the 
anticipated charges for the technology because it is based on actual 
cases treated with this technology. The applicant analyzed 163 claims 
from 28 hospitals participating in the clinical trial. Five claims from 
one site were excluded because no hospital-specific information 
regarding standardization was available. The resulting 158 claims 
included dates of service ranging from May 2006 through May 2009. The 
average charge per case for these 158 claims was $54,961.
    The applicant then standardized the charges for each claim. The 
applicant noted that it was not necessary to remove any charges from 
these claims because the technology was provided at no charge in the 
trial. After standardizing the charges, the applicant inflated each 
claim using the Consumer Price Index for Inpatient Hospital Services 
(CPI-IP) to inflate the data to the same period. Specifically, because 
the publicly available FY 2011 MedPAR data do not identify the month of 
the discharge on inpatient claims but identify the calendar quarter, 
the applicant used a mid-month convention to determine the relevant 
monthly CPI-IP for each calendar quarter. The applicant then calculated 
the percentage change from the relevant quarter to the quarter of the 
most recently available CPI-IP, which was the August 2012 CPI-IP. 
Specifically, the applicant used the following assumptions:

----------------------------------------------------------------------------------------------------------------
                                                                                                  Percent change
           FY 2011 Calendar quarter                    Midpoint of quarter            CPI IP        to  August
                                                                                                       2012
----------------------------------------------------------------------------------------------------------------
Q4 2010.......................................  Nov-10..........................         227.186            9.54
Q1 2011.......................................  Feb-11..........................         232.933            6.84
Q2 2011.......................................  May-11..........................         235.567            5.64
Q3 2011.......................................  Aug-11..........................         237.219            4.91
Most recent as of application.................  Aug-12..........................         248.856  ..............
----------------------------------------------------------------------------------------------------------------
Source as cited by applicant: Bureau of Labor Statistics' Web site, accessed October 15, 2012; Base Period:
  December 1996 = 100.

    After inflating the charges, the applicant estimated charges for 
the RNS[supreg] System by multiplying the device cost to the hospital 
by an anticipated hospital markup of 100 percent, or conversely by 
dividing the device cost by a CCR of 0.50. The applicant based its 
estimated CCR on four analyses. First, the applicant reviewed the 2007 
and 2008 reports prepared by RTI for CMS on charge compression, which 
found that the national aggregate CCR for devices and implants was 0.43 
and 0.467 in the respective reports. Second, the applicant queried 
hospitals participating in the RNS[supreg] System Pivotal trial, and 
these queries yielded a mean and median CCR for implantable

[[Page 27544]]

devices of 0.37 and 0.36, respectively. Third, the applicant reviewed 
data from the (all payor) Premier database for cases performed in 2000 
through 2010 that reported ICD-9 CM procedure codes 02.93 and/or 86.95 
on a claim and calculated a mean and median CCR for implanted leads and 
neurostimulators of 0.50 and 0.44, respectively. The applicant then 
reviewed other discussions of past new technology add-on payment 
applications published in the Federal Register and noted that other 
applicants used lower CCRs (higher markups) for implanted devices than 
the 0.50 CCR used in the applicant's analyses.
    Using this approach, the applicant added the anticipated hospital 
charge for the implantable RNS[supreg] System to the inflated average 
standardized charge per case and determined a final inflated average 
standardized charge per case of $121,990. Although the applicant 
submitted data related to the estimated cost of the RNS[supreg] System, 
the applicant noted that the cost of the technology was proprietary 
information. Using the FY 2014 Table 10 thresholds, the threshold for 
MS-DRG 024 is $78,039. Because the final inflated average standardized 
charge per case of $121,990 for MS-DRG 024 exceeds the threshold 
amount, the applicant maintained that the RNS[supreg] System would meet 
the cost criterion.
    In the second analysis, which the applicant characterizes as 
supplementary, the applicant searched the FY 2011 MedPAR file for cases 
reporting the combination of ICD-9-CM procedures codes 02.93 
(Implantation or replacement of intracranial neurostimulator lead(s)) 
and 86.95 (Insertion or replacement of multiple array neurostimulator 
pulse generator, not specified as rechargeable), or the combination of 
ICD-9-CM procedures codes 02.93 (Implantation or replacement of 
intracranial neurostimulator lead(s)) and 01.20 (Cranial implantation 
or replacement of neurostimulator pulse generator) that mapped to MS-
DRG 024.
    The applicant found 565 claims reporting the combination of ICD-9-
CM procedures codes 02.93 and 01.20, and pointed out that these cases 
were coded with procedure code 01.20 in error because no new 
RNS[supreg] System implantations occurred after May 2009. The applicant 
analyzed these 565 claims and found that more than 90 percent of these 
cases had a primary or secondary diagnosis of Parkinson's disease, 
essential tremor, or dystonia. These diagnoses are FDA-approved 
indications for deep brain stimulation (DBS). In addition, the 
applicant noted that the total covered charges for these cases were 
less than the estimated charges for a full DBS system and hypothesized 
that these cases did not represent implantation of a full DBS system 
but implementation of leads only. The applicant contacted two hospitals 
that reported claims where total covered charges were less than the 
charges for a full DBS system, and the hospitals confirmed that their 
claims represented lead implantation alone. Therefore, for this second 
analysis, the applicant included all of the cases in MS-DRG 024 
reported with a combination of ICD-9-CM procedures codes 02.93 and 
86.95 and all of the cases in MS-DRG 024 reported with ICD-9-CM 
procedures codes 02.93 and 01.20 where the covered charges were greater 
than or equal to the estimated charges of a full DBS system. The 
applicant maintained that 485 claims from 130 providers met these 
criteria and that these data represented claims from the fourth 
calendar quarter of 2010 through the third calendar quarter of 2011, or 
FY 2011. Based on this assumption, the applicant calculated an average 
charge per case of $60,955. The applicant then removed DBS charges from 
the average charge per case. The applicant estimated charges for DBS 
and maintained that the average cost for a DBS system was $25,979. 
Similar to its first analysis, the applicant assumed a CCR of 0.50, or 
100 percent markup, which resulted in estimated charges for DBS of 
$51,958. After removing DBS charges, the applicant standardized charges 
and then inflated the charges to the current period using the same 
methodology in the first analysis. The applicant then added charges for 
the RNS[supreg] System and determined a final inflated average 
standardized charge per case of $118,408. As noted above, although the 
applicant submitted data that related to the estimated cost of the 
RNS[supreg] System, the applicant noted that the cost of the technology 
was proprietary information. Using the FY 2014 Table 10 thresholds, the 
threshold for MS-DRG 024 is $78,039. Because the final inflated average 
standardized charge per case of $118,408 for MS-DRG 024 exceeds the 
threshold amount, the applicant maintained that the RNS[supreg] System 
would meet the cost criterion.
    Under either analysis, the applicant maintained that the final 
inflated average standardized charge per case would exceed the case-
weighted threshold. We are inviting public comments on whether the 
RNS[supreg] System meets the cost criterion, particularly based on the 
assumptions and methodology used in the applicant's analyses.
    With regard to substantial clinical improvement, as previously 
stated, some patients with partial onset seizures may not be able to 
control their seizures with antiepileptic medications, VNS, or with 
surgical removal of the seizure focus. The applicant stated that the 
RNS[supreg] System provides treatment for those patients who fail 
treatment with antiepileptic medications, or fail VNS therapy and are 
ineligible for respective surgery due to the extent and/or location of 
the seizure, or patients who do not elect surgery. According to the 
applicant, the RNS[supreg] System clinical trials provide Class I 
evidence that treatment with the RNS[supreg] System substantially 
reduces disabling seizures in patients with severe epilepsy who have 
tried and failed treatment with antiepileptic medications, and in many 
cases VNS or epilepsy surgery. The applicant maintained that the 
results from their clinical trials demonstrate significant and 
sustained improvements in health outcomes over the controlled period 
and over the long term.
    The applicant stated that their pivotal trial met its primary 
effectiveness endpoint by proving that there was a statistically 
significant greater reduction in seizures in the treatment group 
compared to the control group (p = 0.012). Significant improvements at 
1 and 2 years post[hyphen]implant included:
     A significant reduction in disabling seizures of 44 
percent and 53 percent at 1 and 2 years, respectively; and
     Significant improvements in overall quality of life as 
well as individual quality of life measures including memory, language, 
attention, concentration and medication effects.
    The applicant asserted that there was no negative effect of 
treatment with the RNS[supreg] System on neuropsychological function 
(including verbal functioning, visual-spatial processing, and memory) 
or mood. The applicant concluded that the RNS[supreg] System Pivotal 
trial provides Class I evidence that responsive cortical stimulation is 
effective in significantly reducing seizure frequency in adults with 1 
or 2 seizure foci who have failed 2 or more antiepileptic medication 
trials. The applicant stated that experience across all of the 
RNS[supreg] System trials demonstrates the reduction in seizure 
frequency of disabling partial seizures improves over time. In 
addition, the applicant noted that sustained improvements were also 
seen in quality of life. Finally, the applicant noted that safety and 
tolerability compares favorably to alternative treatments such as

[[Page 27545]]

antiepileptic medications, VNS, and epilepsy surgery.
    With regard to the substantial clinical improvement criterion, we 
are concerned that the average age of patients in the applicant's study 
was 35 years. Although the applicant maintained that 31 percent of the 
patients enrolled in the pivotal trial were Medicare beneficiaries, we 
are unsure of the extent to which this technology would be used by 
Medicare beneficiaries due to the relatively young age of the majority 
of patients enrolled in the pivotal trial. We also are concerned that 
further clarification on how the RNS[supreg] System compares to other 
neurostimulation treatments was not provided by the applicant. The 
applicant did provide the following comparison of VNS to the 
RNS[supreg] System:

                     Key Differences Between the RNS[supreg] System and DBS and VNS Systems
----------------------------------------------------------------------------------------------------------------
                                                                 Deep brain stimulator    Vagus nerve stimulator
                                          RNS[supreg] System             (DBS)                    (VNS)
----------------------------------------------------------------------------------------------------------------
Type of stimulation..................  Closed loop: responsive                Open loop: scheduled.
                                                               -------------------------------------------------
Stimulation time/day.................  About 5 minutes........
Stimulation target...................  Cortical; varies         Deep brain nuclei......  Ascending vagus nerve.
                                        according to seizure
                                        focus.
                                                               -------------------------------------------------
Neurostimulator......................  Cranially implanted....       Subcutaneously (pectorally) implanted.
                                                               -------------------------------------------------
Programming changes..................  According to clinical             According to clinical response.
                                        and electrographic
                                        response.
                                                               -------------------------------------------------
Information from device..............  Device data,                               Device data.
                                        detections,
                                        stimulations and
                                        electrocorticograms.
                                                               -------------------------------------------------
Physician data review................  At time of programming   At time of programming.
                                        as well as online
                                        access to stored data.
----------------------------------------------------------------------------------------------------------------

    Because the applicant included claims with DBS in one of its cost 
analyses, we believe that the similarities and differences between DBS 
and the RNS[supreg] System may also be relevant under the substantial 
clinical improvement criterion. In addition, we are concerned that the 
time period in the clinical trial may not be sufficient to confirm 
durability. In the RNS[supreg] System Pivotal Clinical Investigation, 
the primary effectiveness endpoint considered seizure frequency over 
the last 3 months of the blinded period of the trial. We note that the 
applicant is currently conducting a 5-year study. We are inviting 
public comments on whether the RNS[supreg] System meets the substantial 
clinical improvement criterion, particularly in regard to the degree in 
which the technology would be used by Medicare beneficiaries, the 
comparison to other neurostimulation treatments, and its durability.
    We received two comments on the RNS[supreg] System during the town 
hall meeting's public comment period. These comments are summarized 
below.
    Comment: One commenter stated that it looked forward to the 
RNS[supreg] System's commercial availability and encouraged CMS to 
approve the RNS[supreg] System for new technology add-on payments. The 
commenter noted that the benefits of the RNS[supreg] System therapy 
include a significant reduction in seizure frequency and severity, and 
for some patients, extended periods of seizure freedom. The commenter 
asserted that this reduction in seizure frequency improves over time 
and is sustained over several years of follow-up, and can result in 
improved cognition and a better quality of life. The commenter added 
that, most impressively, these positive results were achieved with no 
chronic side effects from stimulation. The commenter also noted that a 
significant number of these individuals are eligible for Medicare due 
to their disability.
    Another commenter stated that the pivotal trial findings, in both 
the blinded period and the open-label period, have provided compelling 
support for what had previously been an only theoretical concept for 
non-ablative intervention. The commenter explained that those patients 
with seizure foci in eloquent areas or with hi-hippocampal seizure 
onset, the most difficult patient cohort to address, have been well-
suited to RNS and often substantially benefited from this intervention. 
The commenter noted that in the functional and stereotactic 
neurosurgical community, the most exciting and compelling advances have 
arisen from those non-resective strategies by which maladaptive 
pathophysiology and its symptoms have been ameliorated by targeted 
electrical stimulation and neural function preserved with the NeuroPace 
experience--the most compelling in epilepsy.
    The commenter concluded with the following: the RNS[supreg] System 
has had a remarkable and reassuring safety track record; the surgery 
for its implementation is comparable to that of deep brain stimulation 
system placement; the permanent and serious morbidity have been 
extremely low and the serious and life-threatening risks associated 
with medically intractable epilepsy, in comparison, are generally 
underappreciated and substantially higher.
    Response: We appreciate the commenters' support. We considered 
these comments presented during the town hall meeting's public comment 
period in the development of this proposed rule. As stated above, we 
are inviting additional public comments on whether the RNS[supreg] 
System meets the substantial clinical improvement criterion, 
particularly in regard to the degree in which the technology would be 
used by Medicare beneficiaries, the comparison to other 
neurostimulation treatments, and its durability.
d. Zilver[supreg] PTX[supreg] Drug Eluting Peripheral Stent
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zilver[supreg] PTX[supreg] Drug Eluting 
Peripheral Stent (Zilver[supreg] PTX[supreg]) for FY 2014. 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 stated 
that an introducer catheter is inserted over the wire guide

[[Page 27546]]

and into the target vessel where the lesion will first be treated with 
an angioplasty balloon to prepare the vessel for stenting. The 
applicant indicated 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 received FDA approval on November 15, 2012, for the 
Zilver[supreg] PTX[supreg]. The applicant maintains that the 
Zilver[supreg] PTX[supreg] is the first drug-eluting stent used for 
superficial femoral arteries. The technology is currently described by 
ICD-9-CM procedure code 00.60 (Insertion of drug-eluting stent(s) of 
the superficial femoral artery). We are inviting public comments 
regarding how the Zilver[supreg] PTX[supreg] meets the newness 
criterion.
    With regard to the cost criterion, the applicant believed 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 2010 MedPAR file for cases reporting 
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), or 440.24 
(Atherosclerosis of the extremities with gangrene). The applicant noted 
that the Zilver[supreg] PTX[supreg] is available in an 80 mm size and 
is approved for lesions in native vascular disease of the above-the-
knee femoropopliteal arteries having reference vessel diameter from 4 
mm to 9 mm and total lesion lengths up to 140 mm per limb. The 
applicant further noted that bare metal stents typically are available 
up to lengths of 200 mm. Therefore, in order to target cases eligible 
for the Zilver[supreg] PTX[supreg], the applicant believed it was only 
appropriate to target those cases with one or two bare metal stents. 
The applicant was able to identify the amount of stents used per claim 
by searching for ICD-9-CM procedure codes 00.45 (Insertion of one 
vascular stent) and 00.46 (Insertion of two vascular stents). The 
applicant submitted two methodologies: one with cases that received one 
bare metal stent and the other with cases that received one or two bare 
metal stents.
    Under the first methodology (one bare metal stent), the applicant 
found 2,062 cases (or 19.7 percent of all cases) in MS-DRG 252, 3,385 
cases (or 32.3 percent of all cases) in MS-DRG 253, and 5,019 cases (or 
48 percent of all cases) in MS-DRG 254. The average charge per case was 
$89,194 for MS-DRG 252, $67,965 for MS-DRG 253, and $46,539 for MS-DRG 
254, equating to a case-weighted average charge per case of $60,855.
    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 non-
drug-eluting peripheral vessel stent and replace them with charges 
related to the Zilver[supreg] PTX[supreg]. The applicant multiplied the 
use of the single stent used per case by the average market price for 
non-drug-eluting peripheral vessel stents and then converted the cost 
of the stents used per case to a charge by dividing the results by the 
hospital-specific CCR (from the FY 2010 IPPS impact file). The 
applicant removed the appropriate amount of charges per case and then 
standardized the charges per case.
    Because the applicant used FY 2010 MedPAR data, it was necessary to 
inflate the charges from FY 2010 to FY 2013. 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 7 
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 \6\. 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 non-drug-eluting peripheral vessel stent 
typically ranges from 80mm to 120 mm, while the length of the 
Zilver[supreg] PTX[supreg] is 80 mm (which could cause a variance in 
the actual amount of stents used per case when using the Zilver[supreg] 
PTX[supreg]). 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 2010 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 inflated 
case-weighted average standardized charge per case of $58,419. Although 
the applicant submitted data that related to the estimated cost of the 
Zilver[supreg] PTX[supreg], the applicant noted that the cost of the 
technology was proprietary information. Using the FY 2014 Table 10 
thresholds, the case-weighted threshold for MS-DRGs 252, 253, and 254 
was $54,547 (all calculations above were performed using unrounded 
numbers). Because the final inflated case-weighted average standardized 
charge per case for the applicable MS-DRGs exceeded the case-weighted 
threshold amount, the applicant maintained that the Zilver[supreg] 
PTX[supreg] would meet the cost criterion.
---------------------------------------------------------------------------

    \6\ 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 applicant used the same methodology above to demonstrate that 
it meets the cost criterion with the only difference being that it 
included cases that used one or two bare metal stents instead of just 
one bare metal stent. Using this methodology, the applicant determined 
a final inflated case-weighted average standardized charge per case of 
$62,455. Using the FY 2014 Table 10 thresholds, the case-weighted 
threshold for MS-DRGs 252, 253, and 254 was $54,474 (all calculations 
above were performed using unrounded numbers). Because the final 
inflated case-weighted average standardized charge per case for the 
applicable MS-DRGs exceeded the case-weighted threshold amount, the 
applicant maintained that the Zilver[supreg] PTX[supreg] would meet the 
cost criterion.
    We are inviting public comments on whether or not the 
Zilver[supreg] PTX[supreg] meets the cost criterion. In addition, we 
are inviting public comments 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 and the number of 
stents required for each case.
    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 asserted that the Zilver[supreg] 
PTX[supreg] meets the substantial clinical improvement criterion 
because it decreases the

[[Page 27547]]

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 479-patient, multicenter, multinational 
randomized controlled trial that compared the Zilver[supreg] 
PTX[supreg] to balloon angioplasty \7\; an additional component of the 
study allowed a direct comparison of the Zilver[supreg] PTX[supreg] to 
a bare (uncoated) metal Zilver[supreg] stent. Patients were randomized 
to treatment with the Zilver[supreg] PTX[supreg] stent (treatment 
group) or with PTA (control group). Recognizing that balloon 
angioplasty may not be successful acutely, the trial design mandated 
provisional stent placement immediately after failure of balloon 
angioplasty in instances of acute PTA failure. Therefore, patients with 
suboptimal (failed) PTA underwent a secondary randomization to stenting 
with either Zilver[supreg] PTX[supreg] or bare Zilver stents. This 
secondary randomization allows evaluation of the Zilver[supreg] 
PTX[supreg] stent compared to a bare metal 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). We note that we are concerned that other 
endpoints such as walking, walking speed, and climbing were not 
considered as primary endpoints to demonstrate the effectiveness of the 
Zilver[supreg] PTX[supreg].
---------------------------------------------------------------------------

    \7\ 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), 
Paclitaxeleluting 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.
---------------------------------------------------------------------------

    According to the applicant, the Zilver[supreg] PTX[supreg] had an 
EFS of 90.4 percent compared to balloon angioplasty, which had an EFS 
of 83.9 percent, at 12 months demonstrating that the Zilver[supreg] 
PTX[supreg] is as safe or safer than balloon angioplasty. The applicant 
further stated that this benefit was maintained at 24 months. In 
addition, the applicant noted that the Zilver[supreg] PTX[supreg] 
demonstrated a 50-percent reduction in restenosis rates compared to 
angioplasty and a 20-percent reduction compared to bare metal stents. 
The 12-month patency rate for the Zilver[supreg] PTX[supreg] was 82.7 
percent, which compared favorably to the balloon angioplasty patency 
rate of 32.7 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 (87.3 
percent versus 72.3 percent at 12 months). 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 submitted 3 years of follow-up data, which 
the applicant maintained support that the Zilver[supreg] PTX[supreg] is 
more effective in maintaining primary patency.\8\
---------------------------------------------------------------------------

    \8\ Dake, MD., VIVA 2012, October 10, 2012; Las Vegas, Nevada.
---------------------------------------------------------------------------

    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. According to the applicant, 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 further stated 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.\9\
---------------------------------------------------------------------------

    \9\ 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 also are concerned that on April 24, 2013, the FDA announced 
that, based on its investigation into a small number of complaints that 
the delivery system of the device had separated at the tip of the inner 
catheter, Cook Medical has initiated a nationwide/global voluntary 
recall of its Zilver[supreg] PTX[supreg] Drug Eluting Peripheral Stent. 
We refer readers to http://www.fda.gov/Safety/Recalls/ucm349421.htm?source=govdelivery for more information regarding this 
announcement.
    We are inviting public comments regarding whether the 
Zilver[supreg] PTX[supreg] meets the substantial clinical improvement 
criterion. We note that we did not receive any public comments on the 
Zilver[supreg] PTX[supreg] during the new technology town hall 
meeting's public comment period.
e. MitraClip[supreg] System
    Abbott Vascular submitted an application for new technology add-on 
payments for the MitraClip[supreg] System for FY 2014. The 
MitraClip[supreg] System is a transcatheter mitral valve system that 
includes a MitraClip[supreg] device implant, a Steerable Guide 
Catheter, and a Clip Delivery System. It is designed to perform 
reconstruction of the insufficient mitral valve for high risk patients 
who are not candidates for conventional open mitral valve surgery.
    Mitral regurgitation (MR), also referred to as mitral insufficiency 
or mitral incompetence, occurs when the mitral valve fails to close 
completely causing the blood to leak or flow backwards (regurgitate) 
into the mitral valve as the heart contracts. If the amount of blood 
that leaks back into the mitral valve is minimal then intervention is 
usually not necessary. However, if the amount of blood becomes 
significant this can cause the left ventricle to work harder to meet 
the body's need for oxygenated blood. Severity levels of MR can range 
from grade 1+ through grade 4+. If left untreated, severe mitral 
regurgitation can lead to heart failure and death. The American College 
of Cardiology (ACC) and the American Heart Association (AHA) issued 
practice guidelines in 2006 recommending intervention for moderate-
severe or severe MR (3+ to 4+). The applicant stated that the 
MitraClip[supreg] System is intended ``for patients with symptomatic, 
significant mitral regurgitation who have been determined by a cardiac 
surgeon to be too high risk for open mitral valve surgery and in whom 
existing co-morbidities would not preclude the expected benefit from 
correction of the mitral regurgitation.''
    The MitraClip[supreg] System performs percutaneous mitral valve 
repair. The applicant noted that the MitraClip[supreg] mitral valve 
repair procedure is based on the double-orifice surgical repair 
technique that has been used as a surgical technique in open chest, 
arrested-heart surgery for the treatment

[[Page 27548]]

of MR since the early 1990s.10 11 12 
13 14 According to the applicant, in utilizing 
the double-orifice technique, a portion of the anterior leaflet is 
sutured to the corresponding portion of the posterior leaflet using 
standard techniques and forceps and suture, creating a point of 
permanent coaptation (``approximation'') of the two leaflets. As a 
result, when the suture is placed in the middle of the valve, the valve 
will have a functional double orifice during diastole, thus the 
alternate name for the procedure ``Double Orifice Repair.''
---------------------------------------------------------------------------

    \10\ Maisano, F., et al., The double-orifice technique as a 
standardized approach to treat mitral regurgitation due to severe 
myxomatous disease: surgical technique, Eur J Cardiothorac Surg, 
2000, 17(3): p. 201-5.
    \11\ Maisano, F., et al., The edge-to-edge technique: a 
simplified method to correct mitral insufficiency, Eur J 
Cardiothorac Surg, 1998, 13(3): p. 240-5; discussion 245-6.
    \12\ Totaro, P., et al., Mitral valve repair for isolated 
prolapse of the anterior leaflet: an 11-year follow-up, Eur J 
Cardiothorac Surg, 1999, 15(2): p. 119-26.
    \13\ Umana, J.P., et al., ``Bow-tie'' mitral valve repair: an 
adjuvant technique for ischemic mitral regurgitation, Ann Thorac 
Surg, 1998, 66(5): p. 1640-6.
    \14\ Alfieri, O. and F. Maisano, An effective technique to 
correct anterior mitral leaflet prolapse, J Card Surg, 1999, 14(6): 
p. 468-70.
---------------------------------------------------------------------------

    With regard to the newness criterion, the manufacturer submitted a 
Premarket Approval (PMA) application in support of obtaining FDA 
approval for the MitraClip[supreg] System. Effective October 1, 2010, 
ICD-9-CM procedure code 35.97 (Percutaneous mitral valve repair with 
implant) was created to identify and describe the MitraClip[supreg] 
technology. On March 20, 2013, a meeting was held by the Circulatory 
System Devices Panel of the Medical Devices Advisory Committee of the 
FDA to discuss, make recommendations, and vote on information related 
to the PMA application for the MitraClip[supreg] System. Specifically, 
the Committee was charged with determining if the data presented by the 
applicant demonstrated a reasonable assurance of safety and 
effectiveness. We refer readers to the following FDA Web site for 
additional detailed information and meeting materials regarding the 
MitraClip[supreg] System http://www.fda.gov/AdvisoryCommittees/Calendar/ucm339809.htm. In addition, a summary of the March 20, 2013 
meeting can be located on the following FDA Web site http://www.fda.gov/downloads/AdvisoryCommittees/CommitteesMeetingMaterials/MedicalDevices/MedicalDevicesAdvisoryCommittee/CirculatorySystemDevicesPanel/UCM345235.pdf. We are inviting public 
comments regarding how the MitraClip[supreg] System meets the newness 
criterion.
    With regard to the cost criterion, the applicant conducted four 
separate analyses. The applicant noted that while ICD-9-CM procedure 
code 35.97 groups to MS-DRGs 246 (Percutaneous Cardiovascular Procedure 
with Drug- Eluting Stent with Major Complication or Comorbidity (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), clinical experience with the MitraClip[supreg] has demonstrated 
that it is extremely rare for a patient to receive stents concurrently 
with the MitraClip[supreg] procedure. The applicant further cited the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 55308) which stated, 
``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 a result, the applicant 
stated that it conducted its analyses solely for MS-DRGs 250 and 251 to 
demonstrate that the cases involving MitraClip[supreg] meet the 
incremental cost thresholds provided in Table 10 for those MS-DRGs.
    The applicant included two analyses that utilize the FY 2011 MedPAR 
file and two analyses of hospital UB-04 claims data from the EVEREST II 
Continued Access Study that were collected during FY 2012. Below is a 
summary of the applicant's four data analyses, including the 
methodology and the findings for each.
     Analysis 1: The applicant searched the FY 2011 MedPAR file 
for cases reporting procedure code 35.97 that mapped to MS-DRGs 250 and 
251. According to the applicant, this search yielded actual 
MitraClip[supreg] procedures that were performed in an IDE study 
setting where hospitals obtained the MitraClip[supreg] System at a 
reduced investigational price; the applicant stated that it is likely 
that hospitals did not bill at all for the investigational device or 
submitted billed charges that were significantly less than the actual 
device acquisition costs (we refer readers to the explanation below). 
The applicant found 39 cases in MS-DRG 250 (29 percent of all cases), 
and 94 cases in MS-DRG 251 (71 percent of all cases), which resulted in 
a case-weighted average charge per case of $97,918. The applicant then 
standardized the charges using the FY 2011 final rule impact file and 
inflated the standardized charges using two different inflation 
factors. The first approach used a factor of 4.6 percent, which was 
based on data from the U.S. Department of Labor's Bureau of Labor 
Statistics non-seasonally adjusted Consumer Price Index for All Urban 
Consumers between January 2011 and January 2013. This resulted in an 
inflated case-weighted average standardized charge per case of $79,346. 
The second approach used a factor of 18.6 percent based on the growth 
in charges between 2009 and 2011 in MS-DRGs 250 and 251 and adjusting 
for case-mix year over year. This resulted in an inflated case-weighted 
average standardized charge per case of $89,986. The applicant noted 
that both approaches used to determine the inflated case-weighted 
average standardized charge per case were calculated without any 
adjustments to reflect the reduced investigational price or inadequate 
hospital billing.
    In order to determine if hospitals adequately billed for the 
device, the applicant analyzed the cost of the device on each claim by 
summing the charges that map to the 15 CMS IPPS cost centers (77 FR 
53340). The applicant then calculated the standardized cost for this 
subset of charges by multiplying the standardized charges in each cost 
center by the CMS national CCR for each cost center in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53340). The applicant asserted that, 
whereas all hospitals in the study were charged a uniform 
investigational price for the MitraClip[supreg] System, this analysis 
confirmed that some hospitals did not bill at all for the device or 
charged substantially less than the actual hospital acquisition cost, 
which is likely due to the investigational status of the technology. 
The applicant explained that the mean total standardized costs in the 
``Supplies and Equipment'' cost center in the FY 2011 MedPAR file for 
MitraClip[supreg] cases were remarkably low for MS-DRGs 250 and 251, 
respectively. According to the applicant, the mean total standardized 
costs in the ``Supplies and Equipment'' cost center reflect only 50 
percent of the actual MitraClip[supreg] System costs not inclusive of 
other supply and equipment costs associated with the MitraClip[supreg] 
procedure and hospital stay. Therefore, the applicant

[[Page 27549]]

believed that Analysis 1 severely underestimated the actual hospital 
costs.
    Using the FY 2014 Table 10 thresholds, the case-weighted threshold 
for MS-DRGs 250 and 251 was $63,097 (all calculations above were 
performed using unrounded numbers). Because the inflated case-weighted 
average standardized charge per case for the applicable MS-DRGs for 
both approaches discussed above exceeds the case-weighted threshold 
amount, the applicant maintained that the MitraClip[supreg] System 
would meet the cost criterion.
     Analysis 2: The second analysis is identical to the first 
analysis (the applicant searched the FY 2011 MedPAR file for cases 
reporting procedure code 35.97 that mapped to MS-DRGs 250 and 251) 
except that the applicant excluded hospital claims that either did not 
include any charge for the device-dependent procedure or included a 
charge that was significantly less than the actual device acquisition 
cost. The applicant believed that these exclusions would provide more 
accurate data on the costs associated with the MitraClip[supreg] 
procedure in the IDE study when hospitals obtained the 
MitraClip[supreg] System at a reduced investigational price. The 
applicant explained that it included only those cases where the 
standardized charge for the ``Supplies and Equipment'' cost center, 
reduced by each hospital's average hospital-wide CCR (rather than using 
CMS national CCRs for each cost center), was greater than $10,000, 
which is lower than the acquisition cost for the MitraClip[supreg] 
System. The applicant stated that this analysis reflects a conservative 
but more appropriate estimate of the actual costs incurred by the 
hospitals during the clinical trial than the first analysis.
    Using the methodology above, the applicant found 12 cases in MS-DRG 
250 (22 percent of all cases) and 43 cases in MS-DRG 251 (78 percent of 
all cases), which resulted in a case-weighted average charge per case 
of $112,434. The applicant then standardized the charges using the FY 
2011 final rule impact file and inflated the standardized charges using 
two different inflation factors. The first approach used a factor of 
4.6 percent, which was based on data from the U.S. Department of 
Labor's Bureau of Labor Statistics non-seasonally adjusted Consumer 
Price Index for All Urban Consumers between January 2011 and January 
2013. This resulted in an inflated case-weighted average standardized 
charge per case of $97,289. The second approach used a factor of 18.6 
percent based on the growth in charges between 2009 and 2011 in MS-DRGs 
250 and 251 and adjusting for case-mix year over year. This resulted in 
an inflated case-weighted average standardized charge per case of 
$110,335.
    Using the FY 2014 Table 10 thresholds, the case-weighted threshold 
for MS-DRGs 250 and 251 was $61,896 (all calculations above were 
performed using unrounded numbers). Because the inflated case-weighted 
average standardized charge per case for the applicable MS-DRGs for 
both charge inflation approaches discussed above exceeds the case-
weighted threshold amount, the applicant maintained that the 
MitraClip[supreg] System would meet the cost criterion.
     Analysis 3: Because the first two analyses sought only to 
estimate standardized charges for the MitraClip[supreg] procedure in an 
investigational setting with a reduced price for the device, the 
applicant submitted two additional analyses using hospital charges in a 
commercial setting and a commercial device price. Rather than using 
MedPAR data, the applicant utilized hospital UB-04 claims collected 
from the ongoing EVEREST II Continued Access Study in addition to 
claims from compassionate-use cases. The applicant stated that patient 
characteristics and charges for both of these cases were not 
significantly different.
    The applicant analyzed 98 claims from 21 sites (for discharges on 
or after October 1, 2011 through discharges on or before September 30, 
2012 (FY 2012 claims data)) and excluded 18 cases because the cases 
either did not map to MS-DRGs 250 or 251, or the patient was below the 
age of 65 years. Of these remaining 80 cases, 17 mapped to MS-DRG 250 
(21.3 percent of all cases) and 63 mapped to MS-DRG 251 (78.8 percent 
of all cases), which resulted in a case-weighted average charge per 
case of $112,509. The case-weighted average charge per case above 
includes clinical trial charges related to the MitraClip[supreg] 
System, which does not reflect the full commercial charge for the 
MitraClip[supreg] System. Therefore, the applicant removed the amount 
of clinical trial charges related to the MitraClip[supreg] System. The 
applicant then standardized the charges using the FY 2012 final rule 
impact file and inflated the standardized charges using the two 
different approaches described in the first and second analyses (an 
inflation factor of 4.6 percent and 18.6 percent, respectively).
    The applicant then added commercial charges for the device to the 
inflated standardized charges (for both charge inflation approaches). 
Although the applicant submitted data that related to the estimated 
cost of the MitraClip[supreg] System, the applicant noted that the cost 
of the technology was proprietary information. To compute the 
commercial charges for the MitraClip[supreg] System, the applicant took 
the European commercial price of the MitraClip[supreg] System, 
converted the cost to U.S. dollars by multiplying the amount by an 
exchange rate of 1.38, and then divided the result by the ``Supplies 
and Equipment'' cost center CCR (in the FY 2013 IPPS/LTCH PPS final 
rule) of 0.335. This resulted in an inflated case-weighted average 
standardized charge per case of $129,019 and $132,372 under the first 
and second charge inflation approaches, respectively.
    Using the FY 2014 Table 10 thresholds, the case-weighted threshold 
for MS-DRGs 250 and 251 was $61,805 (all calculations above were 
performed using unrounded numbers). Because the inflated case-weighted 
average standardized charge per case for the applicable MS-DRGs for 
both charge inflation approaches exceeds the case-weighted threshold 
amount, the applicant maintained that the MitraClip[supreg] System 
would meet the cost criterion.
     Analysis 4: The fourth analysis was similar to the third 
analysis. However, instead of basing commercial charges on the European 
commercial price, the applicant used the anticipated U.S. commercial 
price to determine the commercial charges for the device. Similar to 
above, the applicant determined a case-weighted average charge per case 
of $112,509. The applicant then removed the clinical trial charges 
related to the MitraClip[supreg] System (for each claim), standardized 
the charges using the FY 2012 final rule impact file, and inflated the 
standardized charges using both charge inflation approaches discussed 
above.
    The applicant then added commercial charges for the device to the 
inflated standardized charges (for both charge inflation approaches). 
As mentioned above, although the applicant submitted data that related 
to the estimated cost of the MitraClip[supreg] System, the applicant 
noted that the cost of the technology was proprietary information. To 
compute the commercial charges for the MitraClip[supreg] System, the 
applicant used the anticipated U.S. commercial price of the 
MitraClip[supreg] System and divided the amount by the ``Supplies and 
Equipment'' cost center CCR (in the FY 2013 IPPS/LTCH PPS final rule) 
of 0.335. This resulted in an inflated case-weighted average 
standardized charge per case of $136,183 and $139,535

[[Page 27550]]

under the first and second charge inflation approaches, respectively.
    Using the FY 2014 Table 10 thresholds, the case-weighted threshold 
for MS-DRGs 250 and 251 was $61,805 (all calculations above were 
performed using unrounded numbers). Because the inflated case-weighted 
average standardized charge per case for the applicable MS-DRGs for 
both charge inflation approaches exceeds the case-weighted threshold 
amount, the applicant maintained that the MitraClip[supreg] System 
would meet the cost criterion.
    We are inviting public comments on whether or not the 
MitraClip[supreg] System meets the cost criterion. In addition, we are 
inviting public comments on the methodologies used by the applicant in 
its four analyses.
    The applicant asserted that the MitraClip[supreg] System meets the 
substantial clinical improvement criterion. The applicant explained 
that studies have indicated that a significant proportion of patients 
are not eligible for mitral valve repair and/or replacement surgery 
because of risk factors including reduced left ventricular function, 
significant comorbidities, and advanced age. As a result, the applicant 
stated that there is a significant unmet clinical need for patients 
with severe MR who are too high risk for surgery and receiving 
palliative medical management.
    The applicant further stated that although many of the patients who 
are refused surgery die in the intervening months to years, the 
economic burden to the healthcare system of mitral regurgitation in 
elderly patients not deemed suitable for conventional open chest 
surgery is considerable. The applicant noted that the vast majority of 
such patients are repeatedly hospitalized, often with prolonged lengths 
of in-hospital stays, and, even when returned to the community, they 
consume additional resources from the primary care and social services. 
The applicant asserted that the quality of life enjoyed by these 
patients is also poor and their mortality rates are high. The applicant 
cited the 2012 European Society of Cardiology (ESC) and European 
Association for Cardio-Thoracic Surgery (EACTS) clinical practice 
guideline for valvular heart disease, which recommended that the 
MitraClip[supreg] procedure be considered in high surgical risk 
patients with symptomatic severe secondary MR.
    The applicant also stated that it would meet the substantial 
clinical improvement criterion based on clinical studies that have 
consistently shown that the MitraClip[supreg] procedure leads to a 
significant reduction of MR, improvements in left ventricular (LV) 
function including LV volumes and dimensions, improved patient outcomes 
as measured by improvements in New York Heart Association (NYHA) 
functional class, health-related quality of life and reductions in 
heart-failure related hospitalizations, and significantly lower 
mortality than predicted surgical mortality.
    The applicant cited clinical data from the EVEREST II High Risk 
Study \15\ and from the EVEREST II Continued Access Study/Registry 
(REALISIM) \16\. The applicant also cited clinical data from a high 
risk cohort of patients (EVEREST II High Risk Cohort), which is an 
integrated analysis of the following: (1) Patients within the EVEREST 
II High Risk Study who met eligibility criteria for being too high risk 
to undergo mitral valve surgery; and (2) patients within the EVEREST II 
Continued Access Study/Registry who were too high risk for surgery 
using identical eligibility inclusion criteria.
---------------------------------------------------------------------------

    \15\ Whitlow et al., Acute and 12-Month Results With Catheter-
Based Mitral Valve Leaflet Repair: The EVEREST II (Endovascular 
Valve Edge-to-Edge Repair) High Risk Study. JACC 2012;59:130-139.
    \16\ Feldman et al., Percutaneous Repair or Surgery for Mitral 
Regurgitation. NEJM 2011;364:1395-1406.
---------------------------------------------------------------------------

    In addition to the published clinical experience from the EVEREST 
studies, the applicant cited data on the use of the MitraClip[supreg] 
device in a ``real-world'' setting published recently by a select 
number of European centers as part of their individual and/or multi-
center commercial experience or enrollment in the MitraClip[supreg] 
device group of the ACCESS-EU post-approval clinical trial in Europe. 
The European use of the MitraClip[supreg] device is focused on patients 
who are too high risk for surgery and patients are selected for therapy 
using a multi-disciplinary ``heart team'' approach.
    The applicant stated that published reports of the 
MitraClip[supreg] procedure have consistently demonstrated a 
significant reduction in MR that is durable out to 1, 2, and 3 years. 
The applicant cited the EVEREST II High Risk Study, which demonstrated 
that the MitraClip[supreg] procedure successfully reduced MR for high-
risk patients with results durable out to 2 years. The applicant also 
noted that the proportion of patients with significant MR (MR grade 
>=3+) was reduced from 99 percent at baseline to 22 percent at 1 year 
follow-up (p<0.0001). The applicant further noted that reduction of MR 
was also associated with significant improvements in left ventricular 
dimensions including LV end diastolic and systolic volumes (p<0.0001) 
consistent with positive ventricular remodeling.
    According to the applicant, the most recent available data from the 
EVEREST II High Risk Cohort submitted to the FDA for high-risk patients 
demonstrated a significant reduction in severe MR from 86 percent at 
baseline to 13 percent at 2 years (p<0.0001), improvements in LV 
dimensions and volumes sustained at 2 years, and a 48-percent reduction 
in rates of heart failure-related hospitalizations between the baseline 
and the 12-month follow-up period after the MitraClip[supreg] procedure 
(p<0.0001).
    The applicant noted that patients treated with MitraClip[supreg] 
reported substantial clinical improvements in NYHA functional class 
from baseline at both 1 and 2 year followup. The applicant explained 
that the NYHA classification system assigns patients into one of four 
categories representing the extent of heart failure based on how much 
they are limited during physical activity. In the EVEREST II High-Risk 
Cohort, the applicant stated that the proportion of patients with NYHA 
class III/IV representing marked or severe limitations in activity was 
significantly reduced from 82 percent at baseline to 17 percent at 1 
year (p<0.0001). The applicant noted that these results also have been 
consistently shown in multiple other published studies.
    Based on data from the EVEREST II High Risk Cohort, the applicant 
cited additional data demonstrating that the MitraClip[supreg] 
treatment is associated with clinically and statistically significant 
improvements in general health-related quality of life. The applicant 
explained that the RAND SF-36 health survey, a quality of life 
instrument, demonstrated similar physical and mental component scores 
after 30 days and 1 year. In addition, the applicant stated that the 
MitraClip[supreg] is associated with lower than predicted mortality 
rates at 30 days as measured by the Society for Thoracic Surgery (STS) 
Mortality Risk Score. Also, mortality at 1 year is favorable when (1) 
comparing the MitraClip[supreg] to published literature 
17 18 19 20 21 22 23 and

[[Page 27551]]

(2) comparing MitraClip[supreg] mortality to a high-risk concurrent 
control group of patients treated with medical management.
---------------------------------------------------------------------------

    \17\ Mirabel M, Iung B, Baron G, et al. What are the 
characteristics of patients with severe, symptomatic, mitral 
regurgitation who are denied surgery? Eur Heart J. 2007 
Jun;28(11):1358-65.
    \18\ Patel JB, Borgeson DD, Barnes ME, Rihal CS, Daly RC, 
Redfield MM.: Mitral regurgitation in patients with advanced 
systolic heart failure. J Card Fail. 2004 Aug;10(4):285-91.
    \19\ Trichon BH, Felker GM, Shaw LK, Cabell CH, O'Connor CM: 
Relation of frequency and severity of mitral regurgitation to 
survival among patients with left ventricular systolic dysfunction 
and heart failure, Am J Cardiol. 2003 Mar 1. 91(5):538-43.
    \20\ Bursi F, Enriquez-Sarano M, Nkomo VT, Jacobsen SJ, Weston 
SA, Meverden RA, Roger VL: Heart failure and death after myocardial 
infarction in the community: the emerging role of mitral 
regurgitation. Circulation. 2005 Jan 25;111(3):295-301.34.
    \21\ Grigioni F, Enriquez-Sarano M, Zehr KJ, Bailey KR, Tajik 
AJ: Ischemic mitral regurgitation: long-term outcome and prognostic 
implications with quantitative Doppler assessment. Circulation. 2001 
Apr 3;103(13):1759-64.
    \22\ Koelling TM, Aaronson KD, Cody RJ, Bach DS, Armstrong WF: 
Prognostic significance of mitral regurgitation and tricuspid 
regurgitation in patients with left ventricular systolic 
dysfunction, Am Heart J. 2002 Sep;144(3):524-9.
    \23\ Cioffi G, Tarantini L, De Feo S, Pulignano G, Del Sindaco 
D, Stefenelli C, Di Lenarda A, Opasich C.: Functional mitral 
regurgitation predicts 1-year mortality in elderly patients with 
systolic chronic heart failure. Eur J Heart Fail. 2005 
Dec;7(7):1112-7.
---------------------------------------------------------------------------

    In conclusion, the applicant cited data from the ACCESS-EU study as 
presented at the European Society of Cardiology Congress in August 
2012, which demonstrated improvement in disease-specific quality of 
life measures including the Minnesota Living with Heart Failure 
Questionnaire and Six Minute Walk Test.
    We note that, similar to the FDA, as referenced above, we are 
concerned that the applicant performed post hoc analyses on a different 
patient population and revised the initial indication for use for the 
MitraClip[supreg] after learning that the FDA expressed concern 
regarding the PMA based on insufficient data resulting from the initial 
indication for use and patient population in the EVEREST II RCT. As we 
discuss below, data results from 2 years of the EVEREST II RCT also 
demonstrated that surgery reduced mitral regurgitation more than the 
percutaneous MitraClip[supreg] System. However, both the surgical 
patients and the MitraClip[supreg] patients showed comparable results 
for improved left ventricular function, NYHA functional class, and 
quality of life. Subsequent to this trial, the applicant conducted a 
retrospective review of registry data to support the revised indication 
for use. This retrospective analysis involved pooling two registry data 
sets (the EVEREST II High Risk Registry (HRR) and the REALISM HRR 
Continued Access Protocol (CAP)) in a post hoc manner, which resulted 
in major design flaws and data interpretation limitations. The pooled 
registry data sets were referred to as the Integrated High Surgical 
Risk Cohort.
    We note that, the EVEREST II HRR and the REALISM HRR CAP were not 
intended to be used as pivotal data sets. The applicant was previously 
informed by the FDA that without positive pivotal trial results, the 
PMA application could not be approved based on the data results of the 
EVEREST II RCT by itself. Therefore, the FDA suggested the additional 
studies (the EVEREST II HRR and the REALISM HRR CAP) to complement the 
randomized study and, therefore, could be considered adjunctive to the 
EVEREST II RCT.
    In our review of the clinical trials' data, we agree with the FDA 
regarding the following key points:
     Post hoc analyses of pooled data sets retain all of the 
individual shortcomings of the individual data sets;
     Pooling does not enhance the utility and scientific value 
of uncontrolled single arm registries with no comparators; and
     Inappropriate pooling introduces additional confounders.
    It is also unclear what the appropriate target population for the 
MitraClip[supreg] System is because clinical trials conducted by the 
applicant included patients with both functional and degenerative 
mitral regurgitation, which makes it difficult to determine which group 
of patients may benefit more or less from the technology. For example, 
in a subgroup analysis of the EVEREST II RCT, authors concluded that 
older patients and those patients with functional mitral regurgitation 
or abnormal left ventricular function had results more comparable to 
surgical repair. Data results from 2 years of the EVEREST II RCT also 
demonstrated that surgery reduced mitral regurgitation more than the 
percutaneous MitraClip[supreg] System. However, both the surgical 
patients and the MitraClip[supreg] System's patients showed comparable 
results for improved left ventricular function, NYHA functional class, 
and quality of life.
    We are inviting public comments on whether this technology meets 
the substantial clinical improvement criterion, particularly in 
comparison to other surgical therapies such as mitral valve repair or 
replacement, and also with regard to the appropriate target population 
for this technology.
    We received nine comments on the MitraClip[supreg] System during 
the town hall meeting's public comment period. These comments are 
summarized below.
    Comment: Several commenters expressed support for new technology 
add-on payments for the MitraClip[supreg] System and recommended that 
the technology be reassigned from MS-DRGs 250 and 251 (Percutaneous 
Cardiovascular Procedure without Coronary Artery Stent or AMI with and 
without MCC, respectively) to MS-DRGs 216, 217, 218, 219, 220, and 221 
(Cardiac Valve and Other Major Cardiothoracic Procedure with and 
without Cardiac Catheterization with MCC, CC, and without CC/MCC, 
respectively).
    Response: We appreciate the commenters' support. However, we note 
that we did not request public comments nor propose to make any changes 
to the MS-DRG classification for the MitraClip[supreg] System. Because 
these comments are outside the scope of the new technology add-on 
payment application included in this proposed rule, we are not 
providing a complete summary of and response to these comments. We 
encourage the commenters to review the process for submitting comments 
regarding MS-DRG classifications as outlined in section II.G. of the 
preamble of this proposed rule.
    Comment: Several commenters stated that they supported the 
application for new technology add-on payments for the 
MitraClip[supreg] System because it is a novel technology utilizing the 
transcatheter approach to repair the mitral valve and has demonstrated 
substantial clinical improvement. According to the commenters, the 
technology is intended to be used for high-risk patients who do not 
have other treatment options available due to the severity of their 
mitral regurgitation and other comorbidities, such as heart failure. 
The commenters noted that the percutaneous MitraClip[supreg] System 
results in significant improvement in quality of life for this group of 
patients for whom conventional surgery is contraindicated.
    One commenter stated that another benefit of the MitraClip[supreg] 
System is that it offers patients with all forms of mitral 
regurgitation the opportunity to receive treatment much earlier, 
thereby resulting in improved cardiac function, reduced heart failure, 
and increased savings to the healthcare system.
    Another commenter expressed support for the MitraClip[supreg] 
System and noted that surgery for this high-risk patient population is 
not a viable alternative and neither are the currently available 
medical therapy options, as evidenced by the readmission rates for 
congestive heart failure exacerbations in this group of patients. This 
commenter also noted that the MitraClip[supreg] device has proven to 
reduce the degree of mitral regurgitation as shown in a number of high-
risk patient registries and clinical trials. The commenter further 
noted that savings could be realized with the reductions in 
readmissions for heart failure exacerbations for this group of 
patients.

[[Page 27552]]

    One commenter indicated that the MitraClip[supreg] System meets the 
substantial clinical improvement criterion because it offers 
nonoperative patients a device that could ``potentially revolutionize 
management of nonsurgical patients with severe mitral regurgitation.'' 
Another commenter stated that the MitraClip[supreg] System ``represents 
a landmark in our ability to perform mitral valve surgeries with less 
risk.'' This commenter further stated that the ``MitraClip[supreg] 
joins TAVR (Transcatheter aortic valve replacement) and TPVI 
(Transcatheter pulmonary valve implantation) as new percutaneous 
surgical therapies for patients with valvular heart disease who are not 
candidates for traditional valve replacement or repair.''
    Another commenter noted that the MitraClip[supreg] System has shown 
substantial clinical improvement in patients considered too high risk 
for surgery as demonstrated by the EVEREST II cohort, including 
improvement in patients NYHA functional class, reduced 
hospitalizations, and improved left ventricular function.
    Response: We appreciate the commenters' support. We have considered 
these comments received during the town hall meeting's public comment 
period in this proposed rule. As stated above, we are inviting 
additional public comments on whether the MitraClip[supreg] System 
meets the substantial clinical improvement criterion, particularly in 
comparison to other surgical therapies such as mitral valve repair or 
replacement, and also with regard to the appropriate target population 
for this technology.

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

A. Background

    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary must adjust the standardized amounts ``for area differences 
in hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level.'' We 
currently define hospital labor market areas based on the delineations 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the proposed FY 2014 hospital wage index based 
on the statistical areas appears under section III.B. of the preamble 
of this proposed rule.
    Section 1886(d)(3)(E) of the Act requires the Secretary to update 
the wage index annually and to base the update on a survey of wages and 
wage-related costs of short-term, acute care hospitals. This provision 
also requires that any updates or adjustments to the wage index be made 
in a manner that ensures that aggregate payments to hospitals are not 
affected by the change in the wage index. The proposed adjustment for 
FY 2014 is discussed in section II.B. of the Addendum to this proposed 
rule.
    As discussed below in section III.H. of this preamble, we also take 
into account the geographic reclassification of hospitals in accordance 
with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating 
IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the 
Secretary is required to adjust the standardized amounts so as to 
ensure that aggregate payments under the IPPS after implementation of 
the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the 
Act are equal to the aggregate prospective payments that would have 
been made absent these provisions. The proposed budget neutrality 
adjustment for FY 2014 is discussed in section II.A.4.b. of the 
Addendum to this proposed rule.
    Section 1886(d)(3)(E) of the Act also provides for the collection 
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index. A 
discussion of the occupational mix adjustment that we are proposing to 
apply beginning October 1, 2013 (the FY 2014 wage index) appears under 
section III.F. of the preamble of this proposed rule.

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. 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. The current statistical areas are based on 
OMB standards published on December 27, 2000 (65 FR 82228) and Census 
2000 data and Census Bureau population estimates for 2007 and 2008 (OMB 
Bulletin No. 10-02). 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) 
and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53365) 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. On February 28, 2013, OMB issued OMB Bulletin No. 13-01, 
which established revised delineations for Metropolitan Statistical 
Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, 
and provides guidance on the use of the delineations of these 
statistical areas. A copy of this bulletin may be obtained at http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. 
According to OMB, ``[t]his bulletin provides the delineations of all 
Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan 
Statistical Areas, Combined Statistical Areas, and New England City and 
Town Areas in the United States and Puerto Rico based on the standards 
published on June 28, 2010, in the Federal Register (75 FR 37246-37252) 
and Census Bureau data.''
    In order to implement these changes for the IPPS, it is necessary 
to identify the new area designation for each county and hospital in 
the country. While the revisions OMB published on February 28, 2013 are 
not as sweeping as the changes OMB announced in 2003, the February 28, 
2013 bulletin does contain a number of significant changes. For 
example, there are new CBSAs, urban counties that become rural, rural 
counties that become urban, and existing CBSAs that have been split 
apart. In addition, the effect of the new designations on various 
hospital reclassifications, the outmigration adjustment (established by 
section 505 of Pub. L. 108-173), and treatment of hospitals located in 
certain rural counties (that is, ``Lugar'' hospitals) provided for 
under section 1886(d)(8)(B) of the Act must be considered. These are 
just a few of the many issues that need to be considereed regarding the 
effects of the new designations prior to proposing and establishing 
policies.
    However, because the bulletin was not issued until February 28, 
2013, with supporting data not available until later, and because the 
changes made by the bulletin and their ramifications must be 
extensively reviewed and verified, we were unable to undertake such a 
lengthy process before publication of this FY 2014 proposed rule. By 
the time the bulletin was issued, the FY 2014 IPPS proposed rule was in 
the advanced stages of development. We had already developed the FY 
2014 proposed wage index based on the previous OMB definitions. We note 
that, in June 2003,

[[Page 27553]]

OMB announced changes resulting from the 2000 Census, and at that time, 
CMS proposed and implemented the changes during the following year's 
rulemaking cycle for FY 2005. Although OMB published the data earlier 
than June this year, we still are in essentially the same situation as 
we were in 2003 because the data are not available in time to be 
incorporated into this year's rulemaking cycle. To allow for sufficient 
time to assess the new changes and their ramifications, we intend to 
propose changes to the wage index based on the newest CBSA changes in 
the FY 2015 proposed rule. We refer readers to the FY 2005 IPPS final 
rule (69 FR 49026 through 49034) for those interested in learning about 
the issues we may need to address next year in proposing to implement 
the latest OMB update for FY 2015, and some of the policy decisions 
that we may consider making.

C. Worksheet S-3 Wage Data for the Proposed FY 2014 Wage Index

    The proposed FY 2014 wage index values are based on the data 
collected from the Medicare cost reports submitted by hospitals for 
cost reporting periods beginning in FY 2010 (the FY 2013 wage indices 
were based on data from cost reporting periods beginning during FY 
2009).
1. Included Categories of Costs
    The proposed FY 2014 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 through 47318)); and
     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 2013, the 
proposed wage index for FY 2014 also excludes the direct and overhead 
salaries and hours for services not subject to IPPS payment, such as 
SNF services, home health services, costs related to GME (teaching 
physicians and residents) and certified registered nurse anesthetists 
(CRNAs), and other subprovider components that are not paid under the 
IPPS. The proposed FY 2014 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 through 45398).
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 proposed FY 2014 wage index were obtained 
from Worksheet S-3 of the Medicare cost report for cost reporting 
periods beginning on or after October 1, 2009, and before October 1, 
2010. For wage index purposes, we refer to cost reports during this 
period as the ``FY 2010 cost report,'' the ``FY 2010 wage data,'' or 
the ``FY 2010 data.'' Instructions for completing the wage index 
sections of Worksheet S-3 are included in the Provider Reimbursement 
Manual (PRM), Part 2 (Pub. No. 15-2), Chapter 36, Sections 3605.2 and 
3605.3 for Form CMS-2552-96 and Chapter 40, Sections 4005.2 through 
4005.4 for Form CMS-2552-10. Hospitals with cost reporting periods 
beginning on or after October 1, 2009 and before May 1, 2010 reported 
FY 2010 data on Form CMS-2552-96. Hospitals with cost reporting periods 
beginning on or after May 1, 2010 and before October 1, 2010 reported 
FY 2010 data on the new Form CMS-2552-10. The data file used to 
construct the wage index includes FY 2010 data submitted to us as of 
March 1, 2013. 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 proposed FY 
2014 wage index, we identified and excluded 44 providers with data that 
were too aberrant to include in the proposed wage index, although if 
data elements for some of these providers are corrected, we intend to 
include some of these providers in the final FY 2014 wage index. We 
instructed fiscal intermediaries/MACs to complete their data 
verification of questionable data elements and to transmit any changes 
to the wage data no later than April 10, 2013. We intend that all 
unresolved data elements will be resolved by the date the FY 2014 final 
rule is issued. The revised data will be reflected in the FY 2014 IPPS 
final rule.
    In constructing the proposed FY 2014 wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2010, 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 through 45398). For this proposed 
rule, we removed 4 hospitals that converted to CAH status on or after 
February 14, 2012, the cut-off date for CAH exclusion from the FY 2013 
wage index, and through and including February 14, 2013, the cut-off 
date for CAH exclusion from the FY 2014 wage index. After removing 
hospitals with aberrant data and hospitals that converted to CAH 
status, the proposed FY 2014 wage index is calculated based on 3,427 
hospitals.
    For the proposed FY 2014 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 that we 
allotted such hospitals' data in the FY 2013 wage index (77 FR 53366). 
Table 2 containing the proposed FY 2014 wage index associated with this 
proposed rule (available on the CMS Web site) includes separate wage 
data for the campuses of six multicampus hospitals (two additional 
multicampus hospitals have been added to the wage index calculation for 
FY 2014).

[[Page 27554]]

E. Method for Computing the Proposed FY 2014 Unadjusted Wage Index

    The method used to compute the proposed FY 2014 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) and which we discussed and 
used for the FY 2013 final wage index without an occupational mix 
adjustment (77 FR 53366 through 53367).
    As discussed in the FY 2012 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, 2009, through April 15, 2011, for private 
industry hospital workers from the BLS' Compensation and Working 
Conditions. We have consistently used the ECI as the data source for 
our wages and salaries and other price proxies in the IPPS market 
basket, and we are not proposing any changes to the usage for FY 2014. 
The factors used to adjust the hospital's data were based on the 
midpoint of the cost reporting period, as indicated below.

                    Midpoint of Cost Reporting Period
------------------------------------------------------------------------
                                                            Adjustment
                  After                       Before          factor
------------------------------------------------------------------------
10/14/2009..............................      11/15/2009         1.02682
11/14/2009..............................      12/15/2009         1.02490
12/14/2009..............................      01/15/2010         1.02299
01/14/2010..............................      02/15/2010         1.02116
02/14/2010..............................      03/15/2010         1.01941
03/14/2010..............................      04/15/2010         1.01768
04/14/2010..............................      05/15/2010         1.01591
05/14/2010..............................      06/15/2010         1.01412
06/14/2010..............................      07/15/2010         1.01235
07/14/2010..............................      08/15/2010         1.01064
08/14/2010..............................      09/15/2010         1.00898
09/14/2010..............................      10/15/2010         1.00738
10/14/2010..............................      11/15/2010         1.00584
11/14/2010..............................      12/15/2010         1.00434
12/14/2010..............................      01/15/2011         1.00288
01/14/2011..............................      02/15/2011         1.00143
02/14/2011..............................      03/15/2011         1.00000
03/14/2011..............................      04/15/2011         0.99860
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2010, and ending December 31, 2010, is June 30, 2010. An 
adjustment factor of 1.01235 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 2013 IPPS/LTCH PPS 
final rule, the proposed FY 2014 national average hourly wage 
(unadjusted for occupational mix) is $38.2384. The proposed FY 2014 
Puerto Rico overall average hourly wage (unadjusted for occupational 
mix) is $16.4873.

F. Proposed Occupational Mix Adjustment to the Proposed FY 2014 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 Proposed FY 2014 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 2013 IPPS/LTCH PPS final rule (77 FR 53367 
through 53368), the occupational mix adjustment to the FY 2013 wage 
index was based on data collected on the 2010 Medicare Wage Index 
Occupational Mix Survey (Form CMS-10079 (2010)). For the FY 2014 wage 
index, we are proposing to again use occupational mix data collected on 
the 2010 survey to compute the occupational mix adjustment for FY 2014. 
We are including data for 3,188 hospitals that also have wage data 
included in the proposed FY 2014 wage index.
2. New 2013 Occupational Mix Survey for the FY 2016 Wage Index
    As stated earlier, section 304(c) of Public Law 106-554 amended 
section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 
years on the occupational mix of employees for each short-term, acute 
care hospital participating in the Medicare program. We used 
occupational mix data collected on the 2010 survey to compute the 
occupational mix adjustment for FY 2013 and the proposed FY 2014 wage 
index associated with this proposed rule. We also plan to use the 2010 
survey data for the FY 2015 wage index. Therefore, a new measurement of 
occupational mix will be required for FY 2016.
    On December 7, 2012, we published in the Federal Register a notice 
soliciting comments on the proposed 2013 Medicare Wage Index 
Occupational Mix Survey (77 FR 73032 through 73033). The new 2013 
survey includes the same data elements and definitions as the 2010 
survey and

[[Page 27555]]

provides for the collection of hospital-specific wages and hours data 
for nursing employees for calendar year 2013 (that is, payroll periods 
ending between January 1, 2013 and December 31, 2013). The comment 
period for the notice ended on February 5, 2013. After considering the 
public comments that we received on the December 2012 notice, we made a 
few minor editorial changes and published the 2013 survey in the 
Federal Register on February 28, 2013 (78 FR 13679). This survey is 
pending OMB review, and is available on the CMS Web site at: http://www.cms.hhs.gov/PaperworkReductionActof1995 by clicking on ``PRA 
Listings.'' (The OMB control number for this collection of information 
is 0938-0907.) Hospitals are required to submit their completed 2013 
surveys to their fiscal intermediaries/MACs by July 1, 2014. The 
preliminary, unaudited 2013 survey data will be released afterward, 
along with the FY 2012 Worksheet S-3 wage data, for the FY 2016 wage 
index review and correction process.
3. Calculation of the Proposed Occupational Mix Adjustment for FY 2014
    For FY 2014, we are proposing to calculate the occupational mix 
adjustment factor using the same methodology that we used for the FY 
2012 and FY 2013 wage indices (76 FR 51582 through 51586, and 77 FR 
53367 through 53368, respectively). As a result of applying this 
methodology, the proposed FY 2014 occupational mix adjusted national 
average hourly wage is $38.2094. The proposed FY 2014 occupational mix 
adjusted Puerto Rico-specific average hourly wage is $16.5300.
    Because the occupational mix adjustment is required by statute, all 
hospitals that are subject to payments under the IPPS, or any hospital 
that would be subject to the IPPS if not granted a waiver, must 
complete the occupational mix survey, unless the hospital has no 
associated cost report wage data that are included in the proposed FY 
2014 wage index. For the FY 2010 survey, the response rate was 91.7 
percent. In the proposed FY 2014 wage index established in this 
proposed rule, we applied proxy data for noncompliant hospitals, new 
hospitals, or hospitals that submitted erroneous or aberrant data in 
the same manner that we applied proxy data for such hospitals in the FY 
2012 wage index occupational mix adjustment (76 FR 51586).
    In the FY 2011 IPPS/LTCH PPS proposed 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 2010 occupational mix 
survey. We instructed fiscal intermediaries/MACs to continue gathering 
this information as part of the FY 2014 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 Proposed Occupational Mix 
Adjustment and the Proposed FY 2014 Occupational Mix Adjusted Wage 
Index

1. Analysis of the Proposed Occupational Mix Adjustment and the 
Proposed Occupational Mix Adjusted Wage Index
    As discussed in section III.F. of this preamble, for FY 2014, we 
are proposing to apply the proposed occupational mix adjustment to 100 
percent of the proposed FY 2014 wage index. We calculated the proposed 
occupational mix adjustment using data from the 2010 occupational mix 
survey data, using the methodology described in the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51582 through 51586).
    Using the occupational mix survey data and applying the 
occupational mix adjustment to 100 percent of the proposed FY 2014 wage 
index results in a proposed national average hourly wage of $38.2094 
and a proposed Puerto-Rico specific average hourly wage of $16.5300. 
After excluding data of hospitals that either submitted aberrant data 
that failed critical edits, or that do not have FY 2010 Worksheet S-3, 
Parts II and III, cost report data for use in calculating the proposed 
FY 2014 wage index, we calculated the proposed FY 2014 wage index using 
the occupational mix survey data from 3,188 hospitals. Using the 
Worksheet S-3, Parts II and III, cost report data of 3,427 hospitals 
and occupational mix survey data from 3,188 hospitals represents a 93.0 
percent survey response rate. The proposed FY 2014 national average 
hourly wages for each occupational mix nursing subcategory as 
calculated in Step 2 of the occupational mix calculation are as 
follows:

------------------------------------------------------------------------
                                                             Proposed
          Occupational mix nursing subcategory           average  hourly
                                                               wage
------------------------------------------------------------------------
National RN............................................     37.432120148
National LPN and Surgical Technician...................     21.773706724
National Nurse Aide, Orderly, and Attendant............     15.327583858
National Medical Assistant.............................     17.213605923
National Nurse Category................................     31.811167234
------------------------------------------------------------------------

    The proposed national average hourly wage for the entire nurse 
category as computed in Step 5 of the occupational mix calculation is 
$31.811167234. 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 43.44 
percent, and the national percentage of hospital employees in the all 
other occupations category is 56.56 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 compared the proposed FY 2014 occupational mix adjusted wage 
indices for each CBSA to the proposed unadjusted wage indices for each 
CBSA. As a result of applying the proposed occupational mix adjustment 
to the wage data, the proposed wage index values for 204 (52.2 percent) 
urban areas and 32 (66.7 percent) rural areas would increase. One 
hundred and eighteen (30.2 percent) urban areas would increase by 1 
percent or more, and 4 (1.02 percent) urban areas would increase by 5 
percent or more. Thirteen (27.1 percent) rural areas would increase by 
1 percent or more, and no rural areas would increase by 5 percent or 
more. However, the proposed wage index values for 186 (47.6 percent) 
urban areas and 16 (33.3 percent) rural areas would decrease. Seventy-
nine (20.2 percent) urban areas would decrease by 1 percent or more, 
and 1 urban area would decrease by 5 percent or more (0.26 percent). 
Seven (14.6 percent) rural areas would decrease by 1 percent or more, 
and no rural areas would decrease by 5 percent or more. The largest 
positive impacts are 6.61 percent for an urban area and 2.66

[[Page 27556]]

percent for a rural area. The largest negative impacts are 5.28 percent 
for an urban area and 3.17 percent for a rural area. One urban area's 
wage index, but no rural area wage indices, would remain unchanged by 
application of the proposed occupational mix adjustment. These results 
indicate that a larger percentage of rural areas (66.7 percent) would 
benefit from the proposed occupational mix adjustment than would urban 
areas (52.2 percent). However, approximately one-third (33.3 percent) 
of rural CBSAs would still experience a decrease in their proposed wage 
indices as a result of the proposed occupational mix adjustment.
2. Proposed Application of the Rural, Imputed, and Frontier Floors
a. Proposed Rural Floor
    Section 4410(a) 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 proposed FY 2014 wage index associated with this proposed rule and 
available on the CMS Web site, we estimated that 434 hospitals would 
receive an increase in their FY 2014 proposed wage index due to the 
application of the rural floor.
b. Proposed Imputed Floor
    In the FY 2005 IPPS final rule (69 FR 49109 through 49111), 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 2013 IPPS/LTCH PPS final rule 
and is set to expire on September 30, 2014 (we refer readers to the 
discussion in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 
53369) and to our regulations at 42 CFR 412.64(h)(4)). There are 
currently two all-urban States, New Jersey and Rhode Island, that have 
a range of wage indices assigned to hospitals in the State, including 
through reclassification or redesignation (we refer readers to 
discussions of geographic reclassifications and redesignations in 
section III.H. of this preamble). However, as we explain below, the 
method as of FY 2012 for computing the imputed floor, which we will 
refer to as the original methodology, benefitted only New Jersey, and 
not Rhode Island.
    In computing the imputed floor for an all-urban State under the 
original methodology, we calculated 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 compared the State's own 
ratio to the average ratio for all-urban States and whichever is higher 
was multiplied by the highest CBSA wage index value in the State--the 
product of which established 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 
was equal to its original CBSA wage index value. Conversely, New Jersey 
has 10 CBSAs. Because the average ratio of New Jersey and Rhode Island 
was higher than New Jersey's own ratio, the original methodology 
provided a benefit for New Jersey, but not for Rhode Island.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 
53369), for the FY 2013 wage index, the final year of the extension of 
the imputed floor policy under Sec.  412.64(h)(4), we did not make any 
changes to the original methodology and we finalized a proposed 
alternative, temporary methodology for computing the imputed floor wage 
index to address the concern that the then-current imputed floor 
methodology guaranteed a benefit for one all-urban State with multiple 
wage indices but could not benefit the other. The alternative 
methodology for calculating the imputed floor was established using 
data from the application of the rural floor policy for FY 2013. We 
first determined 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 
FY 2013 rule, which is 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 established the State's alternative imputed floor. 
We refer to this methodology as the alternative methodology. We also 
adopted a policy that, for discharges on or after October 1, 2012, and 
before October 1, 2013, the minimum wage index value for the State is 
the higher of the value determined under the original methodology or 
the value computed using the alternative methodology. We amended Sec.  
412.64(h)(4) of the regulations to add new paragraph (vi) to 
incorporate the finalized alternative methodology policies, and to make 
conforming references in paragraph (v).
    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. For FY 2014, we are 
proposing to extend the imputed floor policy (both the original 
methodology and the alternative methodology) for one additional year, 
through September 30, 2014, while we continue to explore potential wage 
index reforms. We are proposing to revise the regulations at Sec.  
412.64(h)(4) to reflect the proposed 1-year extension. We are inviting 
public comments regarding the 1-year extension of the imputed floor.
    The wage index and impact tables associated with this FY 2014 
proposed rule that are available on the CMS Web site include the 
application of the proposed imputed floor policy at Sec.  412.64(h)(4) 
and a proposed national budget neutrality adjustment for the proposed 
rural floor (which includes the proposed imputed floor). There are 35 
hospitals in New Jersey that would receive an increase in their FY 2014 
wage index due to the imputed floor policy. The proposed wage index and 
impact tables for this proposed rule also reflect the application of 
the alternative methodology for computing the imputed floor, which will 
benefit four hospitals in Rhode Island.
c. Proposed 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 regulations at 42 CFR 412.64(m) and to a discussion of 
the implementation of this provision in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50160 through 50161). Forty-six hospitals would receive the 
frontier floor value of 1.0000 for their proposed FY 2014 wage index in 
this proposed rule. These hospitals are located in Montana, North 
Dakota, South Dakota, and Wyoming. Although Nevada is also defined as a 
frontier State, its proposed FY 2014 rural floor value of 1.1503 is 
greater than 1.0000, and therefore no Nevada hospitals would receive a 
frontier floor

[[Page 27557]]

value for their proposed FY 2014 wage index.
    The areas affected by the proposed rural, imputed, and frontier 
floor policies for the proposed FY 2014 wage index are identified in 
Table 4D associated with this proposed rule and available on the CMS 
Web site.
3. Proposed FY 2014 Wage Index Tables
    The proposed wage index values for FY 2014 (except those for 
hospitals receiving wage index adjustments under section 1886(d)(13) of 
the Act), included in Tables 4A, 4B, 4C, and 4F, available on the CMS 
Web site, include the proposed occupational mix adjustment, geographic 
reclassification or redesignation as discussed in section III.H. of the 
preamble of this proposed rule, and the application of the rural, 
imputed, and frontier State floors as discussed in section III.G.2. of 
the preamble of this proposed rule.
    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 2008, 2009, and 2010 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 2008 and FY 2009 cost reporting 
periods, as well as the FY 2010 period used to calculate the proposed 
FY 2014 wage index. The 3-year averages are calculated by dividing the 
sum of the dollars (adjusted to a common reporting period using the 
method described previously) across all 3 years, by the sum of the 
hours. If a hospital is missing data for any of the previous years, its 
average hourly wage for the 3-year period is calculated based on the 
data available during that period. The proposed average hourly wages in 
Tables 2, 3A, and 3B, which are available on the CMS Web site, include 
the proposed occupational mix adjustment. The proposed wage index 
values in Tables 4A, 4B, 4C, and 4D also include the proposed national 
rural floor budget neutrality adjustment (which includes the proposed 
imputed floor). The proposed wage index values in Table 2 also include 
the proposed 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 not later than 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 in the FY 2002 IPPS final rule (66 FR 39874 and 39875) 
regarding how the MGCRB defines mileage for purposes of the proximity 
requirements.) The general policies for reclassifications and 
redesignations that we are proposing for FY 2014, 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 2014 MGCRB Reclassifications
a. FY 2014 Reclassification Requirements and Approvals
    Under section 1886(d)(10) of the Act, the MGCRB considers 
applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. The specific procedures and rules that apply 
to the geographic reclassification process are outlined in regulations 
under 42 CFR 412.230 through 412.280.
    At the time this proposed rule was developed, the MGCRB had 
completed its review of FY 2014 reclassification requests. Based on 
such reviews, there were 332 hospitals approved for wage index 
reclassifications by the MGCRB for FY 2014. Because MGCRB wage index 
reclassifications are effective for 3 years, for FY 2014, hospitals 
reclassified during FY 2012 or FY 2013 are eligible to continue to be 
reclassified to a particular labor market area based on such prior 
reclassifications. There were 249 hospitals approved for wage index 
reclassifications in FY 2012, and 192 hospitals approved for wage index 
reclassifications in FY 2013. Of all the hospitals approved for 
reclassification for FY 2012, FY 2013, and FY 2014, based upon the 
review at the time of this proposed rule, 773 hospitals are in a 
reclassification status for FY 2014.
    Under the regulations at 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 through 39888) and the FY 2003 IPPS final rule (67 FR 
50065 through 50066). 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 2014 will be incorporated 
into the wage index values published in the FY 2014 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 2015
    Applications for FY 2015 reclassifications are due to the MGCRB by 
September 3, 2013 (the first working day of September 2013). We note 
that this is also the deadline for canceling a previous wage index 
reclassification withdrawal or termination under 42 CFR 412.273(d). As 
mentioned in section III.B. of the preamble of this proposed rule, 
although OMB has

[[Page 27558]]

issued revisions on February 28, 2013 to its area delineations, we are 
not proposing to adopt those revisions for the FY 2014 wage index, and 
we will not be adopting the revisions before the September 3, 2013 
deadline for applications for the FY 2015 wage index. Therefore, 
hospitals must apply for reclassifications based on the delineations we 
are using for FY 2014. Applications and other information about MGCRB 
reclassifications may be obtained, beginning in mid-July 2013, 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. 
(We note that, as mentioned in section III.B. of the preamble of this 
proposed rule, although OMB has issued revisions on February 28, 2013, 
to its area delineations based on 2010 census data, we are not 
proposing to adopt these revisions for the FY 2014 wage index.) 
Hospitals located in these counties have been known as ``Lugar'' 
hospitals and the counties themselves are often referred to as 
``Lugar'' counties. The FY 2014 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. Hospitals Redesignated Under Section 1886(d)(8)(B) of the Act 
Seeking Reclassification by the MGCRB
    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. Using Table 4C associated with this proposed rule (which is 
available via the Internet on the CMS Web site), affected hospitals may 
compare the reclassified wage index for the labor market area into 
which they would be reclassified by the MGCRB to the reclassified wage 
index for the area to which they are redesignated under section 
1886(d)(8)(B) of the Act. Hospitals may withdraw from an MGCRB 
reclassification within 45 days of the publication of this FY 2014 
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 the FY 2008 IPPS final rule with 
comment period (72 FR 47337 through 47338) for a discussion of this 
policy.)
5. 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 V.E. of the preamble of this proposed rule.)
    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 \24\) 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.
---------------------------------------------------------------------------

    \24\ Hospitals generally have 45 days from publication of the 
proposed rule to request an out-migration adjustment in lieu of the 
section 1886(d)(8) deemed urban status.
---------------------------------------------------------------------------

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

I. Proposed FY 2014 Wage Index Adjustment Based on Commuting Patterns 
of Hospital Employees

    In accordance with the broad discretion granted to the Secretary 
under section 1886(d)(13) of the Act, as added by section 505 of Public 
Law 108-173, beginning with FY 2005, we established a process to make 
adjustments to the hospital wage index based on commuting patterns of 
hospital employees (the ``out-migration'' adjustment). The process, 
outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an 
increase in the wage index for hospitals located in certain counties 
that have a relatively high percentage of hospital employees who reside 
in the county but work in a different county (or counties) with a 
higher wage index. The proposed FY 2014 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) of the Act 
to have waived the out-migration adjustment, in the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51601 through 51602).) Table 4J, which is 
available via the Internet on the CMS Web site, lists the proposed out-
migration adjustments for the proposed FY 2014 wage index.

J. Process for Requests for Wage Index Data Corrections

    The preliminary, unaudited Worksheet S-3 wage data and occupational 
mix survey data files for the proposed FY 2014 wage index were made 
available on October 3, 2012, through the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html.
    In the interest of meeting the data needs of the public, beginning 
with the proposed FY 2009 wage index, we post

[[Page 27559]]

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 October 19, 2012, 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 3, 2012 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 10, 2012. (We 
note that this date was originally December 3, 2012. However, in a 
memorandum dated October 25, 2012, we instructed all fiscal 
intermediaries/MACs to inform the IPPS hospitals they service that we 
extended the deadline to December 10, 2012.) Hospitals were notified of 
this deadline and of all other deadlines and requirements, including 
the requirement to review and verify their data as posted in the 
preliminary wage index data files on the Internet, through the October 
19, 2012 memorandum referenced above.
    In the October 19, 2012 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 10, 
2012.
    The fiscal intermediaries/MACs notified the hospitals by mid-
February 2013 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 2013. CMS published the proposed 
wage index public use files that included hospitals' revised wage index 
data on February 21, 2013. Hospitals had until March 4, 2013, 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 10, 
2013. 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 17, 2013.
    Hospitals should examine Table 2, which is listed in section VI. of 
the Addendum to this proposed rule and available via the Internet on 
the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html. Table 2 contains each hospital's adjusted 
average hourly wage used to construct the wage index values for the 
past 3 years, including the FY 2010 data used to construct the proposed 
FY 2014 wage index. We note that the hospital average hourly wages 
shown in Table 2 only reflect changes made to a hospital's data that 
were transmitted to CMS by March 4, 2013.
    We will release the final wage index data public use files in early 
May 2013 on the Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html. The May 2013 public use files are made 
available solely for the limited purpose of identifying any potential 
errors made by CMS or the fiscal intermediary/MAC in the entry of the 
final wage index data that resulted from the correction process 
described above (revisions submitted to CMS by the fiscal 
intermediaries/MACs by April 10, 2013). If, after reviewing the May 
2013 final public use files, a hospital believes that its wage or 
occupational mix data are incorrect due to a fiscal intermediary/MAC or 
CMS error in the entry or tabulation of the final data, the hospital 
should send a letter to both its fiscal intermediary/MAC and CMS that 
outlines why the hospital believes an error exists and provide all 
supporting information, including relevant dates (for example, when it 
first became aware of the error). CMS and the fiscal intermediaries 
(or, if applicable, the MACs) must receive these requests no later than 
June 3, 2013.
    Each request also must be sent to the fiscal intermediary/MAC. The 
fiscal intermediary/MAC will review requests upon receipt and contact 
CMS immediately to discuss any findings.
    After the release of the May 2013 wage index data files, changes to 
the wage and occupational mix data will only be made in those very 
limited situations involving an error by the fiscal intermediary/MAC or 
CMS that the hospital could not have known about before its review of 
the final wage index data files. Specifically, neither the fiscal 
intermediary/MAC nor CMS will approve the following types of requests:
     Requests for wage index data corrections that were 
submitted too late to be included in the data transmitted to CMS by 
fiscal intermediaries or the MACs on or before April 10, 2013.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 21, 
2013 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 3, 2013) 
will be incorporated into the final wage index in the FY 2014 IPPS/LTCH 
PPS final rule, which will be effective October 1, 2013.
    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 2014 payment rates. Accordingly, 
hospitals that do not meet the procedural deadlines set forth above 
will not be afforded a later opportunity to submit wage index data 
corrections or to dispute the fiscal intermediary's (or, if applicable, 
the MAC's) decision with respect to requested changes. Specifically, 
our policy is that hospitals that do not meet the procedural deadlines 
set forth above will not be permitted to challenge later, before the 
Provider Reimbursement Review Board, the failure of CMS to make a 
requested

[[Page 27560]]

data revision. 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 2013, 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 2014 wage index by August 2013, and the 
implementation of the FY 2014 wage index on October 1, 2013. If 
hospitals avail themselves of the opportunities afforded to provide and 
make corrections to the wage and occupational mix data, the wage index 
implemented on October 1 should be accurate. Nevertheless, in the event 
that errors are identified by hospitals and brought to our attention 
after June 3, 2013, 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 3 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 through 47387 and 
47485), 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 CMS determines all of the following: 
(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 3, 
2013 deadline for the FY 2014 wage index); and (3) CMS agreed before 
October 1 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 3, 2013 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 Proposed FY 2014 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[hellip].'' We refer 
to the portion of hospital costs attributable to wages and wage-related 
costs as the labor-related share. The labor-related share of the 
prospective payment rate is adjusted by an index of relative labor 
costs, which is referred to as the wage index.
    Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of 
the Act to provide that the Secretary must employ 62 percent as the 
labor-related share unless this ``would result in lower payments to a 
hospital than would otherwise be made.'' However, this provision of 
Public Law 108-173 did not change the legal requirement that the 
Secretary estimate ``from time to time'' the proportion of hospitals' 
costs that are ``attributable to wages and wage-related costs.'' Thus, 
hospitals receive payment based on either a 62-percent labor-related 
share, or the labor-related share estimated from time to time by the 
Secretary, depending on which labor-related share results in a higher 
payment.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 
through 43857), we rebased and revised the IPPS market basket and the 
labor-related share, using FY 2006 as the base year. The labor-related 
share for FY 2010 through FY 2013 is 68.8 percent.
    For FY 2014, as described in section IV. of the preamble of this 
proposed rule, we are proposing to rebase and revise the IPPS market 
basket using FY 2010 as the base year. Using the proposed FY 2010-based 
IPPS market basket, we also are proposing to recalculate the labor-
related share for discharges occurring on or after October 1, 2013. As 
discussed in Appendix A of this proposed rule, we are proposing this 
revised and rebased labor-related share in a budget neutral manner. 
However, consistent with section 1886(d)(3)(E) of the Act, we are not 
taking into account the additional payments that would be made as a

[[Page 27561]]

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. As described in section IV. of the preamble of this proposed 
rule, we are proposing to include in the labor-related share the 
national average proportion of operating costs that are attributable to 
wages and salaries, employee benefits, contract labor, the labor-
related portion of professional fees, administrative and facilities 
support services, and all other labor-related services as measured in 
the proposed IPPS market basket, as based on FY 2010. Therefore, for FY 
2014, we are proposing to use a labor-related share of 69.6 percent for 
discharges occurring on or after October 1, 2013. Tables 1A and 1B, 
which are published in section VI. of the Addendum to this proposed 
rule and are available via the Internet, reflect this proposed 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 FY 2014, for all IPPS 
hospitals whose wage indices are less than 1.0000, we are proposing to 
apply the wage index to a labor-related share of 62 percent of the 
national standardized amount. For all IPPS hospitals whose wage indices 
are greater than 1.0000, for FY 2014, we are proposing to apply the 
wage index to a labor-related share of 69.6 percent of the national 
standardized amount. We note that, 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.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 
through 43856), we also rebased and revised the labor-related share for 
the Puerto Rico-specific standardized amounts using FY 2006 as a base 
year. We finalized a labor-related share for the Puerto Rico-specific 
standardized amounts for FY 2010 through FY 2013 of 62.1 percent. As 
described in section IV. of the preamble of this proposed rule, for FY 
2014, we also are proposing to rebase and revise the labor-related 
share for the Puerto Rico-specific standardized amounts using FY 2010 
as a base year. For FY 2014, we are proposing a labor-related share for 
the Puerto Rico-specific standardized amounts of 63.2 percent for 
discharges occurring on or after October 1, 2013. Consistent with our 
methodology for determining the national labor-related share, we added 
the Puerto Rico-specific relative weights for wages and salaries, 
employee benefits, contract labor, with the national proportion of 
costs for the labor-related portion of professional fees, 
administrative and facilities support services, and all other labor-
related services 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. For FY 2014, we are proposing that the labor-related share of 
a hospital's Puerto Rico-specific rate will be either the Puerto Rico-
specific labor-related share of 63.2 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 for FY 2014, 
we will set the hospital's rates using a labor-related share of 63.2 
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 for FY 2014 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 proposed Puerto Rico labor-related share of 63.2 
percent for FY 2014 is reflected in Table 1C, which is published in 
section VI. of the Addendum to this proposed rule and available via the 
Internet.

IV. Proposed Rebasing and Revision of the Hospital Market Baskets for 
Acute Care Hospitals

A. Background

    Effective for cost reporting periods beginning on or after July 1, 
1979, we developed and adopted a hospital input price index (that is, 
the hospital market basket for operating costs). Although ``market 
basket'' technically describes the mix of goods and services used in 
providing hospital care, this term is also commonly used to denote the 
input price index (that is, cost category weights and price proxies 
combined) derived from that market basket. Accordingly, the term 
``market basket'' as used in this document refers to the hospital input 
price index.
    The percentage change in the market basket reflects the average 
change in the price of goods and services hospitals purchase in order 
to provide inpatient care. We first used the market basket to adjust 
hospital cost limits by an amount that reflected the average increase 
in the prices of the goods and services used to provide hospital 
inpatient care. This approach linked the increase in the cost limits to 
the efficient utilization of resources.
    Since the inception of the IPPS, the projected change in the 
hospital market basket has been the integral component of the update 
factor by which the prospective payment rates are updated every year. 
An explanation of the hospital market basket used to develop the 
prospective payment rates was published in the Federal Register on 
September 1, 1983 (48 FR 39764). We also refer readers to the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43843) in which we discussed 
the most recent previous rebasing of the hospital input price index.
    The hospital market basket is a fixed-weight, Laspeyres-type price 
index. A Laspeyres-type price index measures the change in price, over 
time, of the same mix of goods and services purchased in the base 
period. Any changes in the quantity or mix of goods and services (that 
is, intensity) purchased over time are not measured.
    The index itself is constructed in three steps. First, a base 
period is selected (in this proposed rule, we are proposing to use FY 
2010 as the base period) and total base period expenditures are 
estimated for a set of mutually exclusive and exhaustive spending 
categories, with the proportion of total costs that each category 
represents being calculated. These proportions are called ``cost 
weights'' or ``expenditure weights.'' Second, each expenditure category 
is matched to an appropriate price or wage variable, referred to as a 
``price proxy.'' In almost every instance, these price proxies are 
derived from publicly available statistical series that are published 
on a consistent schedule (preferably at least on a quarterly basis). 
Finally, the expenditure weight for each cost category is multiplied by 
the level of its respective price proxy. The sum of these products 
(that is, the expenditure weights multiplied by their price index 
levels) for all cost categories yields the composite index level of the 
market basket in a given period. Repeating this step for other periods 
produces a series of market basket levels over time. Dividing an index 
level for a given period by an index level for an earlier period 
produces a rate of growth in the input price index over that timeframe.
    As noted above, the market basket is described as a fixed-weight 
index

[[Page 27562]]

because it represents the change in price over time of a constant mix 
(quantity and intensity) of goods and services needed to provide 
hospital services. The effects on total expenditures resulting from 
changes in the mix of goods and services purchased subsequent to the 
base period are not measured. For example, a hospital hiring more 
nurses to accommodate the needs of patients would increase the volume 
of goods and services purchased by the hospital, but would not be 
factored into the price change measured by a fixed-weight hospital 
market basket. Only when the index is rebased would changes in the 
quantity and intensity be captured, with those changes being reflected 
in the cost weights. Therefore, we rebase the market basket 
periodically so that the cost weights reflect recent changes in the mix 
of goods and services that hospitals purchase (hospital inputs) to 
furnish inpatient care between base periods. We last rebased the 
hospital market basket cost weights effective for FY 2010 (74 FR 
43843), with FY 2006 data used as the base period for the construction 
of the market basket cost weights.

B. Rebasing and Revising the IPPS Market Basket

    The terms ``rebasing'' and ``revising,'' while often used 
interchangeably, actually denote different activities. ``Rebasing'' 
means moving the base year for the structure of costs of an input price 
index (for example, in this proposed rule, we are proposing to shift 
the base year cost structure for the IPPS hospital index from FY 2006 
to FY 2010). ``Revising'' means changing data sources, or price 
proxies, used in the input price index. As published in the FY 2006 
IPPS final rule (70 FR 47387), in accordance with section 404 of Public 
Law 108-173, CMS determined a new frequency for rebasing the hospital 
market basket. We established a rebasing frequency of every 4 years 
and, therefore, for the FY 2014 IPPS update, we are proposing to rebase 
and revise the IPPS market basket. We are inviting public comments on 
our proposed methodology discussed below.
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
    The major source of expenditure data for developing the rebased and 
revised hospital market basket cost weights is the FY 2010 Medicare 
cost reports. These FY 2010 Medicare cost reports are for cost 
reporting periods beginning on and after October 1, 2009 and before 
October 1, 2010. We are proposing to use FY 2010 as the base year 
because we believe that the FY 2010 Medicare cost reports represent the 
most recent, complete set of Medicare cost report data available for 
IPPS hospitals. As was done in previous rebasings, these cost reports 
are from IPPS hospitals only (hospitals excluded from the IPPS and CAHs 
are not included) and are based on IPPS Medicare-allowable operating 
costs. IPPS Medicare-allowable operating costs are costs that are 
eligible to be paid for under the IPPS. For example, the IPPS market 
basket excludes home health agency (HHA) costs as these costs would be 
paid under the HHA PPS and, therefore, these costs are not IPPS 
Medicare-allowable costs.
    We are proposing to obtain seven major expenditures or cost 
categories for the FY 2010 IPPS market basket from the Medicare cost 
reports--the same as in the FY 2006-based hospital market basket: wages 
and salaries, employee benefits, contract labor, pharmaceuticals, 
professional liability insurance (malpractice), blood and blood 
products, and a residual ``all other.'' The proposed cost weights that 
were obtained directly from the Medicare cost reports are reported in 
Table IV01. We are proposing to then supplement these Medicare cost 
report cost weights with information obtained from other data sources 
to derive the proposed IPPS market basket cost weights.

 Table IV01--Major Cost Categories and Their Respective Cost Weights as
           Calculated Directly From the Medicare Cost Reports
------------------------------------------------------------------------
                                                            Proposed FY
          Major cost categories            FY 2006-based    2010-based
                                           market basket   market basket
------------------------------------------------------------------------
Wages and salaries......................          45.156          45.819
Employee benefits.......................          11.873          12.713
Contract labor..........................           2.598           1.806
Professional Liability Insurance                   1.661           1.330
 (Malpractice)..........................
Pharmaceuticals.........................           5.380           5.402
Blood and blood products................           1.078           1.069
All other...............................          32.254          31.861
------------------------------------------------------------------------

    From FY 2006 to FY 2010, the wages and salaries and employee 
benefits cost weights as calculated directly from the Medicare cost 
reports increased by approximately 0.7 and 0.8 percentage point, 
respectively, while the contract labor cost weight decreased by 0.8 
percentage point. As we did for the FY 2006-based IPPS market basket 
(74 FR 43847), we are proposing to allocate contract labor costs to the 
wages and salaries and employee benefits cost weights based on their 
relative proportions for employed labor under the assumption that 
contract labor costs are comprised of both wages and salaries and 
employee benefits. The contract labor allocation proportion for wages 
and salaries is equal to the wages and salaries cost weight as a 
percent of the sum of the wages and salaries cost weight and the 
employee benefits cost weight. Using the FY 2010 Medicare cost report 
data, this percentage is 78.3 percent; therefore, we are proposing to 
allocate approximately 78.3 percent of the contract labor cost weight 
to the wages and salaries cost weight. Table IV02 shows the wages and 
salaries and employee benefit cost weights after contract labor 
allocation for both the FY 2006-based IPPS market basket and the 
proposed FY 2010-based IPPS market basket.

[[Page 27563]]



 Table IV02--Wages and Salaries and Employee Benefits Cost Weights After
                        Contract Labor Allocation
------------------------------------------------------------------------
                                                            Proposed FY
          Major cost categories            FY 2006-based    2010-based
                                           market basket   market basket
------------------------------------------------------------------------
Wages and salaries......................          47.213          47.233
Employee benefits.......................          12.414          13.105
------------------------------------------------------------------------

    After the allocation of contract labor, the proposed FY 2010-based 
wages and salaries cost weight is relatively similar to the FY 2006-
based wages and salaries cost weight while the proposed FY 2010-based 
employee benefits cost weight increased 0.7 percentage point. This is 
primarily a result of an increase in benefits costs relative to wages 
and salaries costs from the Medicare cost report data for employed 
workers; in 2006, the ratio of the employee benefits cost weight to the 
wages and salaries cost weight was 26.3 percent while in 2010, this 
ratio increased to 27.8 percent.
b. Other Data Sources
    In addition to the data from the Medicare cost reports, the other 
data source we are proposing to use to develop the FY 2010-based IPPS 
market basket cost weights is the 2002 Benchmark Input-Output (I-O) 
Tables created by the Bureau of Economic Analysis (BEA), U.S. 
Department of Commerce. We are proposing to use the 2002 BEA Benchmark 
I-O data to disaggregate the ``all other'' (residual) cost category 
(31.861 percent) into more detailed hospital expenditure category 
shares. The BEA Benchmark I-O accounts provide the most detailed 
information on the goods and services purchased by an industry, which 
allows for a more detailed disaggregation of expenses in the market 
basket for which we can then proxy the appropriate price inflation.
    The BEA Benchmark I-O data are generally scheduled for publication 
every 5 years. The most recent data available are for 2002. BEA also 
produces Annual I-O estimates; however, the 2002 Benchmark I-O data 
represent a much more comprehensive and detailed set of data that are 
derived from the 2002 Economic Census. In the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43845), we used the 2002 Benchmark I-O data (aged 
to FY 2006) for the FY 2006-based IPPS market basket, to be effective 
for FY 2010. Because BEA has not yet released new Benchmark I-O data, 
and we believe the data to be comprehensive and complete as indicated 
above, we are currently proposing to use the 2002 Benchmark I-O data in 
the FY 2010-based IPPS market basket.
    Therefore, instead of using the less detailed, less accurate Annual 
I-O data, we are proposing to age the 2002 Benchmark I-O data forward 
to FY 2010. The methodology we are proposing to use to age the data 
forward involves applying the annual price changes from the respective 
price proxies to the appropriate cost categories. We repeat this 
practice for each year. We also are proposing that, if more recent BEA 
benchmark I-O data for 2007 is released between the proposed and final 
rule with sufficient time to incorporate such data into the final rule, 
we would incorporate these data into the FY 2010-based IPPS market 
basket for the final rule. The 2007 BEA I-O data is expected to be 
released in the summer of 2013.
    The ``all other'' cost category expenditure shares are determined 
as being equal to each category's proportion to total ``all other'' 
expenditures based on the aged 2002 Benchmark I-O data. For instance, 
if the cost for telephone services represented 10 percent of the sum of 
the ``all other'' Benchmark I-O hospital expenditures, telephone 
services would represent 10 percent of the ``all other'' cost category 
of the proposed IPPS market basket.
    Following publication of the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule, and in an effort to provide greater transparency, we posted on 
the CMS market basket Web page at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html an illustrative 
spreadsheet that shows how the detailed cost weights in the proposed 
rule (that is, those not calculated using Medicare cost reports) were 
determined using the 2002 Benchmark I-O data. As stated above, we are 
proposing to use the 2007 Benchmark BEA I-O data if available before 
the final rule with sufficient time to incorporate such data into the 
final rule. We would use the same methodology as described above in 
determining the detailed weights in the ``all other'' cost weight.
2. Cost Category Computation
    As stated previously, for the proposed FY 2010-based market basket 
we are proposing to use data from the Medicare cost reports to derive 
seven major cost categories. We are proposing the same detailed cost 
categories as the FY 2006-based IPPS market basket. Also, we are not 
proposing to change our definition of the labor-related share. As 
discussed in more detail below and similar to the previous rebasing, we 
classify a cost category as labor-related and include it in the labor-
related share if the cost category is defined as being labor-intensive 
and its cost varies with the local labor market.
3. Selection of Price Proxies
    After computing the FY 2010 cost weights for the proposed IPPS 
market basket, it was necessary to select appropriate wage and price 
proxies to reflect the rate of price change for each expenditure 
category. We are proposing to use the same price proxies that were used 
in the FY 2006-based IPPS market basket. A discussion of our rationale 
for selecting these price proxies can be found in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43845).
    With the exception of the proxy for professional liability 
insurance (PLI), all the proxies we are proposing are based on Bureau 
of Labor Statistics (BLS) data and are grouped into one of the 
following BLS categories:
     Producer Price Indexes--Producer Price Indexes (PPIs) 
measure price changes for goods sold in markets other than the retail 
market. PPIs are preferable price proxies for goods and services that 
hospitals purchase as inputs because PPIs better reflect the actual 
price changes encountered by hospitals. For example, we are proposing 
to use a PPI for prescription drugs, rather than the Consumer Price 
Index (CPI) for prescription drugs, because hospitals generally 
purchase drugs directly from a wholesaler. The PPIs that we are 
proposing to use measure price changes at the final stage of 
production.
     Consumer Price Indexes--Consumer Price Indexes (CPIs) 
measure change in the prices of final goods and services bought by the 
typical consumer. Because they may not

[[Page 27564]]

represent the price faced by a producer, we are proposing to use CPIs 
only if an appropriate PPI is not available, or if the expenditures are 
more like those faced by retail consumers in general rather than by 
purchasers of goods at the wholesale level. For example, the CPI for 
food purchased away from home is proposed to be used as a proxy for 
contracted food services.
     Employment Cost Indexes--Employment Cost Indexes (ECIs) 
measure the rate of change in employee wage rates and employer costs 
for employee benefits per hour worked. These indexes are fixed-weight 
indexes and strictly measure the change in wage rates and employee 
benefits per hour. Appropriately, they are not affected by shifts in 
employment mix.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance. Reliability indicates that the 
index is based on valid statistical methods and has low sampling 
variability. Timeliness implies that the proxy is published regularly, 
preferably at least once a quarter. Availability means that the proxy 
is publicly available. Finally, relevance means that the proxy is 
applicable and representative of the cost category weight to which it 
is applied. We believe the proposed PPIs, CPIs, and ECIs selected meet 
these criteria.
    Table IV03 below sets forth the proposed FY 2010-based IPPS market 
basket, including the cost categories and their respective weights and 
price proxies. For comparison purposes, the corresponding FY 2006-based 
IPPS market basket cost weights also are listed. A summary outlining 
the choice of the various proxies follows the table.

 Table IV03--Proposed FY 2010-Based IPPS Hospital Market Basket Cost Categories, Cost Weights, and Price Proxies
                            Compared to FY 2006-Based IPPS Market Basket Cost Weights
----------------------------------------------------------------------------------------------------------------
                                                   FY          Proposed FY
                                            2006[dash]based  2010[dash]based
              Cost categories                   hospital         hospital       Proposed FY 2010-based hospital
                                             market basket    market basket       market basket price proxies
                                              cost weights     cost weights
----------------------------------------------------------------------------------------------------------------
1. Compensation...........................           59.627           60.338  ..................................
    A. Wages and Salaries \1\.............           47.213           47.233  ECI for Wages and Salaries,
                                                                               Civilian Hospital Workers.
    B. Employee Benefits \1\..............           12.414           13.105  ECI for Benefits, Civilian
                                                                               Hospital Workers.
2. Utilities..............................            2.180            2.246  ..................................
    A. Fuel, Oil, and Gasoline............            0.418            0.447  PPI for Petroleum Refineries.
    B. Electricity........................            1.645            1.666  PPI for Commercial Electric Power.
    C. Water and Sewage...................            0.117            0.133  CPI-U for Water & Sewerage
                                                                               Maintenance.
3. Professional Liability Insurance.......            1.661            1.330  CMS Professional Liability
                                                                               Insurance Premium Index.
4. All Other..............................           36.533           36.086  ..................................
    A. All Other Products.................           19.473           19.458  ..................................
     (1.) Pharmaceuticals.................            5.380            5.402  PPI for Pharmaceuticals for Human
                                                                               Use, Prescription.
     (2.) Food: Direct Purchases..........            3.982            4.206  PPI for Processed Foods & Feeds.
     (3.) Food: Contract Services.........            0.575            0.578  CPI-U for Food Away From Home.
     (4.) Chemicals \2\...................            1.538            1.529  Blend of Chemical PPIs.
     (5.) Blood and Blood Products........            1.078            1.069  PPI for Blood and Organ Banks.
     (6.) Medical Instruments.............            2.762            2.577  PPI for Medical, Surgical, and
                                                                               Personal Aid Devices.
     (7.) Rubber and Plastics.............            1.659            1.637  PPI for Rubber & Plastic Products.
     (8.) Paper and Printing Products.....            1.492            1.507  PPI for Converted Paper &
                                                                               Paperboard Products.
     (9.) Apparel.........................            0.325            0.299  PPI for Apparel.
     (10.) Machinery and Equipment........            0.163            0.151  PPI for Machinery & Equipment.
     (11.) Miscellaneous Products.........            0.519            0.503  PPI for Finished Goods less Food
                                                                               and Energy.
    B. Labor-related Services.............            9.175            9.249  ..................................
     (1.) Professional Fees: Labor-related            5.356            5.500  ECI for Compensation for
                                                                               Professional and Related
                                                                               Occupations.
     (2.) Administrative and Facilities               0.626            0.619  ECI for Compensation for Office
     Support Services \3\.                                                     and Administrative Services.
     (3.) All Other: Labor-Related                    3.193            3.130  ECI for Compensation for Private
     Services.                                                                 Service Occupations.
    C. Nonlabor-Related Services..........            7.885            7.379  ..................................
     (1.) Professional Fees: Nonlabor-                4.074            3.687  ECI for Compensation for
     Related.                                                                  Professional and Related
                                                                               Occupations.
     (2.) Financial Services..............            1.281            1.239  ECI for Compensation for Financial
                                                                               Activities.
     (3.) Telephone Services..............            0.627            0.597  CPI-U for Telephone Services.
     (4.) Postage.........................            0.963            0.956  CPI-U for Postage.
     (5.) All Other: Nonlabor-Related                 0.940            0.900  CPI-U for All Items less Food and
     Services.                                                                 Energy.
                                           ----------------------------------
        Total.............................          100.000          100.000
----------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Contract labor is distributed to wages and salaries and employee benefits based on the share of total
  compensation that each category represents.
\2\ To proxy the ``chemicals'' cost category, we used a blended PPI composed of the PPI for industrial gas
  manufacturing, the PPI for other basic inorganic chemical manufacturing, the PPI for other basic organic
  chemical manufacturing, and the PPI for soap and cleaning compound manufacturing. For more detail about this
  proxy, see the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43845).
\3\ We note that this cost category in the FY 2006-based IPPS market basket was ``Administrative and Business
  Support Services.'' We changed the name slightly to be more clear what type of costs are included in this cost
  category, but we did not change the classification of which costs are included in the category.


[[Page 27565]]

    As stated above, we are proposing to use the same price proxies 
used in the FY 2006-based IPPS market basket. A rationale for selecting 
these price proxies can be found in the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43845). The price proxies we are proposing were 
selected to most closely match the costs included in each of the cost 
categories of the proposed FY 2010-based IPPS market basket. As 
discussed above, we are proposing that, if the 2007 Benchmark I-O data 
become available between the proposed and final rule with sufficient 
time to incorporate such data into the final rule, we would incorporate 
this data into the FY 2010-based IPPS market basket for the final rule. 
As a result, to the extent the incorporation of the 2007 Benchmark I-O 
data results in a different composition of costs included in a 
particular cost category, we are proposing that we may choose to revise 
that specific price proxy to ensure that the costs included in each 
detailed cost category are best aligned with the associated price 
proxy. Below is a list of the price proxies we are proposing for the FY 
2010-based IPPS market basket.
a. Wages and Salaries
    We are proposing to use the ECI for Wages and Salaries for Hospital 
Workers (All Civilian) (BLS series code CIU1026220000000I) to measure 
the price growth of this cost category.
b. Employee Benefits
    We are proposing to use the ECI for Employee Benefits for Hospital 
Workers (All Civilian) to measure the price growth of this cost 
category.
c. Fuel, Oil, and Gasoline
    We are proposing to use the PPI for Petroleum Refineries (BLS 
series code PCU324110324110) to measure the price growth of this cost 
category.
d. Electricity
    We are proposing to use the PPI for Commercial Electric Power (BLS 
series code WPU0542) to measure the price growth of this cost category.
e. Water and Sewage
    We are proposing to use the CPI for Water and Sewerage Maintenance 
(All Urban Consumers) (BLS series code CUUR0000SEHG01) to measure the 
price growth of this cost category.
f. Professional Liability Insurance
    We are proposing to proxy price changes in hospital professional 
liability insurance premiums (PLI) using percentage changes as 
estimated by the CMS Hospital Professional Liability Insurance Premium 
Index. To generate these estimates, we collect commercial insurance 
premiums for a fixed level of coverage while holding nonprice factors 
constant (such as a change in the level of coverage). This method is 
also used to proxy PLI price changes in the Medicare Economic Index (75 
FR 73268).
g. Pharmaceuticals
    We are proposing to use the PPI for Pharmaceuticals for Human Use, 
Prescription (BLS series code WPUSI07003) to measure the price growth 
of this cost category. This is the same proxy that was used in the FY 
2006-based IPPS market basket, although BLS since changed the naming 
convention for this series.
h. Food: Direct Purchases
    We are proposing to use the PPI for Processed Foods and Feeds (BLS 
series code WPU02) to measure the price growth of this cost category.
i. Food: Contract Services
    We are proposing to use the CPI for Food Away From Home (All Urban 
Consumers) (BLS series code CUUR0000SEFV) to measure the price growth 
of this cost category.
j. Chemicals
    We are proposing to use a blended PPI composed of the PPI for 
Industrial Gas Manufacturing (NAICS 325120) (BLS series code 
PCU325120325120P), the PPI for Other Basic Inorganic Chemical 
Manufacturing (NAICS 325180) (BLS series code PCU32518-32518-), the PPI 
for Other Basic Organic Chemical Manufacturing (NAICS 325190) (BLS 
series code PCU32519-32519), and the PPI for Soap and Cleaning Compound 
Manufacturing (NAICS 325610) (BLS series code PCU32561-32561-).
k. Blood and Blood Products
    We are proposing to use the PPI for Blood and Organ Banks (BLS 
series code PCU621991621991) to measure the price growth of this cost 
category.
l. Medical Instruments
    We are proposing to use the PPI for Medical, Surgical, and Personal 
Aid Devices (BLS series code WPU156) to measure the price growth of 
this cost category.
m. Rubber and Plastics
    We are proposing to use the PPI for Rubber and Plastic Products 
(BLS series code WPU07) to measure price growth of this cost category.
n. Paper and Printing Products
    We are proposing to use the PPI for Converted Paper and Paperboard 
Products (BLS series code WPU0915) to measure the price growth of this 
cost category.
o. Apparel
    We are proposing to use the PPI for Apparel (BLS series code 
WPU0381) to measure the price growth of this cost category.
p. Machinery and Equipment
    We are proposing to use the PPI for Machinery and Equipment (BLS 
series code WPU11) to measure the price growth of this cost category.
q. Miscellaneous Products
    We are proposing to use the PPI for Finished Goods Less Food and 
Energy (BLS series code WPUSOP3500) to measure the price growth of this 
cost category.
r. Professional Fees: Labor-Related and Professional Fees: Nonlabor-
Related
    We are proposing to use the ECI for Compensation for Professional 
and Related Occupations (Private Industry) (BLS series code 
CIU2010000120000I) to measure the price growth of these cost 
categories.
s. Administrative and Facilities Support Services
    We are proposing to use the ECI for Compensation for Office and 
Administrative Support Services (Private Industry) (BLS series code 
CIU2010000220000I) to measure the price growth of this category.
t. All Other: Labor-Related Services
    We are proposing to use the ECI for Compensation for Service 
Occupations (Private Industry) (BLS series code CIU2010000300000I) to 
measure the price growth of this cost category.
u. Financial Services
    We are proposing to use the ECI for Compensation for Financial 
Activities (Private Industry) (BLS series code CIU201520A000000I) to 
measure the price growth of this cost category.
v. Telephone Services
    We are proposing to use the CPI for Telephone Services (BLS series 
code CUUR0000SEED) to measure the price growth of this cost category.
w. Postage
    We are proposing to use the CPI for Postage (BLS series code 
CUUR0000SEEC01) to measure the price growth of this cost category.

[[Page 27566]]

x. All Other: Nonlabor-Related Services
    We are proposing to use the CPI for All Items Less Food and Energy 
(BLS series code CUUR0000SA0L1E) to measure the price growth of this 
cost category.
    Table IV04 compares both the historical and forecasted percent 
changes in the FY 2006-based IPPS market basket and the proposed FY 
2010-based IPPS market basket.

Table IV04--FY 2006-Based and Proposed FY 2010-Based Prospective Payment
    Hospital Operating Index Percent Change, FY 2008 through FY 2016
------------------------------------------------------------------------
                                                            Proposed FY
                                           FY 2006-based    2010-based
                                            IPPS market     IPPS market
            Fiscal year (FY)                  basket          basket
                                             operating       operating
                                           index percent   index percent
                                              change          change
------------------------------------------------------------------------
Historical data:
    FY 2008.............................             4.0             4.0
    FY 2009.............................             2.6             2.6
    FY 2010.............................             2.1             2.1
    FY 2011.............................             2.7             2.7
    FY 2012.............................             2.2             2.2
    Average FYs 2008-2012...............             2.7             2.7
Forecast:
    FY 2013.............................             2.2             2.2
    FY 2014.............................             2.5             2.5
    FY 2015.............................             2.7             2.7
    FY 2016.............................             3.0             3.0
    Average FYs 2013-2016...............             2.6             2.6
------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 1st Quarter 2013.

    The differences between the FY 2006-based and the proposed FY 2010-
based IPPS market basket increases are minimal. While the percent 
changes differ slightly, when rounded to the nearest tenth, the updates 
based on the FY 2006-based and the proposed FY 2010-based IPPS market 
baskets are the same.
4. Labor-Related Share
    Under section 1886(d)(3)(E) of the Act, the Secretary estimates 
from time to time the proportion of payments 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 proportion of hospitals' costs that are 
attributable to wages and wage-related costs as the ``labor-related 
share.''
    The labor-related share is used to determine the proportion of the 
national PPS base payment rate to which the area wage index is applied. 
We include a cost category in the labor-related share if the costs are 
labor intensive and vary with the local labor market. Because of this 
approach, we are proposing to include in the labor-related share the 
national average proportion of operating costs that are attributable to 
wages and salaries, employee benefits, contract labor, the labor-
related portion of professional fees, administrative and facilities 
support services, and all other: labor-related services, as we did in 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850). Consistent 
with previous rebasings, the ``all other: labor-related services'' cost 
category is mostly comprised of building maintenance and security 
services (including, but not limited to, commercial and industrial 
machinery and equipment repair, nonresidential maintenance and repair, 
and investigation and security services). Because these services tend 
to be labor-intensive and are mostly performed at the hospital facility 
(and, therefore, unlikely to be purchased in the national market), we 
believe that they meet our definition of labor-related services.
    Similar to the FY 2006-based IPPS market basket, we are proposing 
that the professional fees: labor-related cost category includes 
expenses associated with advertising and a proportion of legal 
services, accounting and auditing, engineering, management consulting, 
and management of companies and enterprises expenses. As was done in 
the FY 2006-based IPPS market basket rebasing, we are proposing to 
determine the proportion of legal, accounting and auditing, 
engineering, and management consulting services that meet our 
definition of labor-related services based on a survey of hospitals 
conducted by CMS in 2008. We notified the public of our intent to 
conduct this survey on December 9, 2005 (70 FR 73250) and received no 
comments (71 FR 8588).
    With approval from the OMB, we contacted the industry and received 
responses to our survey from 108 hospitals. Using data on FTEs to 
allocate responding hospitals across strata (region of the country and 
urban/rural status), we calculated poststratification weights. A more 
thorough discussion of the composition of the survey and 
poststratification can be found in the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43850 through 43856). Based on the weighted results 
of the survey, we determined that hospitals purchase, on average, the 
following portions of contracted professional services outside of their 
local labor market:
     34 percent of accounting and auditing services;
     30 percent of engineering services;
     33 percent of legal services; and
     42 percent of management consulting services.
    We are proposing to apply each of these percentages to its 
respective Benchmark I-O cost category underlying the professional fees 
cost category. This is the methodology that we used to separate the FY 
2006-based IPPS market basket professional fees category into 
professional fees: labor-related and professional fees: nonlabor-
related cost categories. We are proposing to use the same methodology 
and survey results to separate the FY 2010-based IPPS market basket 
professional fees category into professional fees: labor-related and 
professional fees: nonlabor-related cost categories. We believe these 
survey results are appropriate to use for the FY

[[Page 27567]]

2010-based IPPS market basket rebasing as they empirically determine 
the proportion of contracted professional services purchased by the 
industry that is attributable to local firms and the proportion that is 
purchased from national firms.
    In the proposed FY 2010-based IPPS market basket, nonmedical 
professional fees that were subject to allocation based on the survey 
results represent 2.059 percent of total costs (and are limited to 
those fees related to Accounting & Auditing, Legal, Engineering, and 
Management Consulting services). Based on our survey results, we are 
apportioning 1.301 percentage points of the 2.059 percentage point 
figure into the labor-related share and designating the remaining 0.758 
percentage point as nonlabor-related.
    In addition to the professional services listed above, we also 
classify a proportion of the expenses under NAICS 55, Management of 
Companies and Enterprises, into the professional fees: labor-related 
cost category as was done in the previous rebasing. The NAICS 55 data 
are mostly comprised of corporate, subsidiary, and regional managing 
offices, or otherwise referred to as home offices. As was done for the 
FY 2006-based IPPS market basket we are proposing to include only a 
portion of the home office costs in the labor related share as not all 
hospitals are located in the same geographic area as their home office.
    Our proposed methodology is based on data from the Medicare cost 
reports, as well as a CMS database of Home Office Medicare Records 
(HOMER) (a database that provides city and State information 
(addresses) for home offices). The Medicare cost report requires 
hospitals to report their home office provider numbers and locations. 
Using the data reported on the Medicare Cost Report as well as the 
HOMER database to determine the home office location for each home 
office provider number, we compared the location of the hospital with 
the location of the hospital's home office. We determined the 
proportion of costs that should be allocated to the labor-related share 
based on the percent of total hospital home office compensation costs 
for those hospitals that had home offices located in their respective 
local labor markets--defined as being in the same Metropolitan 
Statistical Area (MSA). We primarily determined a hospital's and home 
office's MSAs using their zip code information from the Medicare cost 
report. For any home offices for which we could not identify a MSA from 
the Medicare cost report, we used the Medicare HOMER database to 
identify the home office's city and State.
    We are proposing to determine the proportion of costs that should 
be allocated to the labor-related share based on the percent of 
hospital home office compensation as reported in Worksheet S-3, part 
II. Using this proposed methodology, we determined that 62 percent of 
hospitals' home office compensation costs were for home offices located 
in their respective local labor markets, and therefore, we are 
proposing to allocate 62 percent of NAICS 55 expenses to the labor-
related share.
    In the proposed FY 2010-based IPPS market basket, NAICS 55 expenses 
that were subject to allocation based on the home office allocation 
methodology represent 5.650 percent of the total operating costs. Based 
on the home office results, we are apportioning 3.503 percentage points 
of the 5.650 percentage points figure into the labor-related share and 
designating the remaining 2.147 percentage points as nonlabor-related. 
In sum, based on the two proposed allocations mentioned above, we are 
proposing to apportion 4.804 percentage points into the labor-related 
share. This amount is added to the 0.696 percentage point of 
professional fees that we already identified as labor-related, 
resulting in a proposed professional fees: labor-related cost weight of 
5.500 percent.
    Below is a table comparing the proposed FY 2010-based labor-related 
share and the FY 2006-based labor-related share. As discussed in 
section IV.B.3. of the preamble of this proposed rule, the wages and 
salaries and employee benefits cost weight reflect contract labor 
costs.

Table IV05--Comparison of the Proposed FY 2010-Based Labor-Related Share
                and the FY 2006-Based Labor-Related Share
------------------------------------------------------------------------
                                                            Proposed FY
                                           FY 2006-based    2010-based
                                           market basket   market basket
                                           cost weights    cost weights
------------------------------------------------------------------------
Wages and Salaries......................          47.213          47.233
Employee Benefits.......................          12.414          13.105
Professional Fees: Labor-Related........           5.356           5.500
Administrative and Facilities...........           0.626           0.619
Support Services........................
All Other: Labor-Related Services.......           3.193           3.130
                                         -------------------------------
    Total Labor-Related Share...........          68.802          69.587
------------------------------------------------------------------------

    Using the cost category weights from the proposed FY 2010-based 
IPPS market basket, we calculated a labor-related share of 69.587 
percent, approximately 0.8 percentage point higher than the current 
labor-related share of 68.802.
    We continue to believe, as we have stated in the past, that these 
operating cost categories are related to, influenced by, or vary with 
the local markets. Therefore, our definition of the labor-related share 
continues to be consistent with section 1886(d)(3) of the Act.
    Using the proposed cost category weights that we determined in 
section IV.B.1. of the preamble of this proposed rule, we calculated a 
proposed labor-related share of 69.587 percent, using the proposed FY 
2010-based IPPS market basket. Accordingly, we are proposing to 
implement a labor-related share of 69.6 percent for discharges 
occurring on or after October 1, 2013. 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 62 percent ``would result in lower payments 
to a hospital than would otherwise be made.''
    We also are proposing to update the labor-related share for Puerto 
Rico. Consistent with our methodology for determining the national 
labor-related

[[Page 27568]]

share, we calculate the Puerto Rico-specific relative weights for wages 
and salaries, employee benefits, and contract labor using FY 2010 
Medicare cost report data for IPPS hospitals located in Puerto-Rico. 
Because there are no Puerto Rico-specific relative weights for 
professional fees and labor intensive services, we use the national 
weights as shown in Table IV05. This is the same methodology we used to 
determine the FY 2006-based Puerto Rico-specific labor-related share 
derived during the FY 2006-based IPPS market basket rebasing (74 FR 
43856).
    Below is a table comparing the proposed FY 2010-based Puerto Rico-
specific labor-related share and the FY 2006-based Puerto Rico-specific 
labor-related share.

    Table IV06--Comparison of the Proposed FY 2010-Based Puerto Rico-
   Specific Labor-Related Share and FY 2006-Based Puerto Rico-Specific
                           Labor-Related Share
------------------------------------------------------------------------
                                                            Proposed FY
                                           FY 2006-based    2010-based
                                           market basket   market basket
                                           cost weights    cost weights
------------------------------------------------------------------------
Wages and Salaries......................          44.221          44.918
Benefits................................           8.691           8.990
Professional Fees: Labor-Related........           5.356           5.500
Administrative and Facilities Support              0.626           0.619
 Services...............................
All Other: Labor-Related Services.......           3.193           3.130
                                         -------------------------------
    Total Labor-Related Share...........          62.087          63.157
------------------------------------------------------------------------

    Using the proposed FY 2010-based Puerto Rico cost category weights, 
we calculated a labor-related share of 63.157 percent, approximately 
1.1 percentage points higher than the current Puerto-Rico specific 
labor-related share of 62.087. Accordingly, we are proposing to adopt 
an updated Puerto Rico labor-related share of 63.2 percent.

C. Market Basket for Certain Hospitals Presently Excluded From the IPPS

    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857), we 
adopted the use of the FY 2006-based IPPS operating market basket 
percentage increase to update the target amounts for children's 
hospitals, PPS-excluded cancer hospitals and religious nonmedical 
health care institutions (RNHCIs). Children's hospitals and PPS-
excluded cancer hospitals and RNHCIs are still reimbursed solely under 
the reasonable cost-based system, subject to the rate-of-increase 
limits. Under these limits, an annual target amount (expressed in terms 
of the inpatient operating cost per discharge) is set for each hospital 
based on the hospital's own historical cost experience trended forward 
by the applicable rate-of-increase percentages.
    Under the broad authority in sections 1886(b)(3)(A) and (B), 
1886(b)(3)(E), and 1871 of the Act and section 4454 of the BBA, 
consistent with our use of the IPPS operating market basket percentage 
increase to update target amounts, we are proposing to use the FY 2010-
based IPPS operating market basket percentage increase to update the 
target amounts for children's hospitals, 11 PPS-excluded cancer 
hospitals, and RNHCIs that are paid on the basis of reasonable cost 
subject to the rate-of-increase limits under Sec.  413.40.
    Due to the small number of children's and cancer hospitals and 
RNHCIs that receive, in total, less than 1 percent of all Medicare 
payments to hospitals and because these hospitals provide limited 
Medicare cost report data, we are unable to create a separate market 
basket specifically for these hospitals. Due to the limited cost report 
data available, we believe that the proposed FY 2010-based IPPS 
operating market basket most closely represents the cost structure of 
children's hospitals, PPS-excluded cancer hospitals, and RNHCIs. We 
believe this is appropriate as the IPPS operating market basket would 
reflect the input price growth for providing inpatient hospital 
services (similar to the services provided by the above excluded 
hospitals) based on the specific mix of goods and services required. 
Therefore, we believe that the percentage change in the proposed FY 
2010-based IPPS operating market basket is the best available measure 
of the average increase in the prices of the goods and services 
purchased by the 11 cancer hospitals, children's hospitals, and RNHCIs 
in order to provide care.

D. Rebasing and Revising the Capital Input Price Index (CIPI)

    The CIPI was originally described in the FY 1993 IPPS final rule 
(57 FR 40016). There have been subsequent discussions of the CIPI 
presented in the IPPS proposed and final payment rules. The FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43857) discussed the most 
recent rebasing and revision of the CIPI to a FY 2006 base year, which 
reflected the capital cost structure of the hospital industry in that 
year.
    For the FY 2014 IPPS update, we are proposing to rebase and revise 
the CIPI to a FY 2010 base year to reflect the more current structure 
of capital costs in hospitals. As with the FY 2006-based index, we 
developed two sets of weights in order to calculate the proposed FY 
2010-based CIPI. The first set of weights identifies the proportion of 
hospital capital expenditures attributable to each expenditure 
category, while the second set of weights is a set of relative vintage 
weights for depreciation and interest. The set of vintage weights is 
used to identify the proportion of capital expenditures within a cost 
category that is attributable to each year over the useful life of the 
capital assets in that category. A more thorough discussion of vintage 
weights is provided later in this section.
    Both sets of weights are developed using the best data sources 
available. In reviewing source data, we determined that the Medicare 
cost reports provided accurate data for all capital expenditure cost 
categories. We used the FY 2010 Medicare cost reports for IPPS 
hospitals to determine weights for all three cost categories: 
depreciation, interest, and other capital expenses.
    Lease expenses are unique in that they are not broken out as a 
separate cost category in the CIPI, but rather are proportionally 
distributed among the cost categories of Depreciation, Interest, and 
Other, reflecting the assumption that the underlying cost structure and 
price movement of leases is similar to that of capital costs in 
general. As was done in previous rebasings of the CIPI, we first 
assumed 10 percent of lease expenses represents overhead and assigned 
those costs to the Other category accordingly. The remaining

[[Page 27569]]

lease expenses were distributed across the three cost categories based 
on the respective weights of Depreciation, Interest, and Other not 
including lease expenses.
    Depreciation contains two subcategories: (1) Building and Fixed 
equipment; and (2) Movable Equipment. The proposed apportionment 
between building and fixed equipment and movable equipment was 
determined using the Medicare cost reports. This methodology was also 
used to compute the apportionment used in the FY 2006-based index.
    The total Interest cost category is split between government/
nonprofit interest and for-profit interest. The FY 2006-based CIPI 
allocated 85 percent of the total interest cost weight to government/
nonprofit interest and proxied that category by the average yield on 
domestic municipal bonds. The remaining 15 percent of the interest cost 
weight was allocated to for-profit interest and was proxied by the 
average yield on Moody's Aaa bonds (74 FR 43857).
    For the FY 2010-based CIPI, we are proposing to derive the split 
using the relative FY 2010 Medicare cost report data on interest 
expenses for government/nonprofit and for-profit hospitals. Based on 
these data, we calculated an 89/11 split between government/nonprofit 
and for-profit interest. We believe it is important that this split 
reflects the latest relative cost structure of interest expenses.
    Table IV07 presents a comparison of the proposed FY 2010-based CIPI 
cost weights and the FY 2006-based CIPI cost weights.

   Table IV07--Proposed FY 2010-Based CIPI Cost Categories, Weights, and Price Proxies with FY 2006-Based CIPI
                                             Included for Comparison
----------------------------------------------------------------------------------------------------------------
                                                 FY 2006       Proposed FY
              Cost categories                    weights      2010 weights               Price proxy
----------------------------------------------------------------------------------------------------------------
Total......................................          100.00          100.00  ...................................
Total depreciation.........................          75.154          74.011  ...................................
Building and fixed equipment depreciation..          35.789          36.153  BEA chained price index for
                                                                              nonresidential construction for
                                                                              hospitals and special care
                                                                              facilities--vintage-weighted (26
                                                                              years).
Movable equipment depreciation.............          39.365          37.858  PPI for machinery and equipment--
                                                                              vintage-weighted (12 years).
Total interest.............................          17.651          19.157  ...................................
Government/nonprofit interest..............          15.076          17.051  Average yield on domestic municipal
                                                                              bonds (Bond Buyer 20 bonds)--
                                                                              vintage-weighted (26 years).
For-profit interest........................           2.575           2.106  Average yield on Moody's Aaa bonds--
                                                                              vintage-weighted (26 years).
Other......................................           7.195           6.832  CPI-U for residential rent.
----------------------------------------------------------------------------------------------------------------

    Because capital is acquired and paid for over time, capital 
expenses in any given year are determined by both past and present 
purchases of physical and financial capital. The vintage-weighted CIPI 
is intended to capture the long-term consumption of capital, using 
vintage weights for depreciation (physical capital) and interest 
(financial capital). These vintage weights reflect the proportion of 
capital purchases attributable to each year of the expected life of 
building and fixed equipment, movable equipment, and interest. We used 
the vintage weights to compute vintage-weighted price changes 
associated with depreciation and interest expense. Following 
publication of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, and in 
order to provide greater transparency, we posted on the CMS market 
basket Web page at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html an illustrative spreadsheet that contains an 
example of how the vintage-weighted price indexes are calculated.
    Vintage weights are an integral part of the CIPI. Capital costs are 
inherently complicated and are determined by complex capital purchasing 
decisions, over time, based on such factors as interest rates and debt 
financing. In addition, capital is depreciated over time instead of 
being consumed in the same period it is purchased. The CIPI accurately 
reflects the annual price changes associated with capital costs, and is 
a useful simplification of the actual capital investment process. By 
accounting for the vintage nature of capital, we are able to provide an 
accurate, stable annual measure of price changes. Annual nonvintage 
price changes for capital are unstable due to the volatility of 
interest rate changes and, therefore, do not reflect the actual annual 
price changes for Medicare capital-related costs. The CIPI reflects the 
underlying stability of the capital acquisition process and provides 
hospitals with the ability to plan for changes in capital payments.
    To calculate the vintage weights for depreciation and interest 
expenses, we needed a time series of capital purchases for building and 
fixed equipment and movable equipment. We found no single source that 
provides a uniquely best time series of capital purchases by hospitals 
for all of the above components of capital purchases. The early 
Medicare cost reports did not have sufficient capital data to meet this 
need. Data we obtained from the American Hospital Association (AHA) do 
not include annual capital purchases. However, AHA does provide a 
consistent database back to 1963. We used data from the AHA Panel 
Survey and the AHA Annual Survey to obtain a time series of total 
expenses for hospitals. We then used data from the AHA Panel Survey 
supplemented with the ratio of depreciation to total hospital expenses 
obtained from the Medicare cost reports to derive a trend of annual 
depreciation expenses for 1963 through 2010.
    In order to estimate capital purchases using data on depreciation 
expenses, the expected life for each cost category (building and fixed 
equipment, movable equipment, and interest) is needed to calculate 
vintage weights. We used FY 2010 Medicare cost reports to determine the 
expected life of building and fixed equipment and of movable equipment. 
The expected life of any piece of equipment can be determined by 
dividing the value of the asset (excluding fully depreciated assets) by 
its current year depreciation amount. This calculation yields the 
estimated useful life of an asset if depreciation were to continue at 
current year levels, assuming straight-line depreciation. From the FY 
2010 Medicare cost reports, the proposed expected life of building and 
fixed equipment was determined to be 26 years, and the proposed 
expected life of movable equipment was determined to be 12

[[Page 27570]]

years. The FY 2006-based CIPI was based on an expected life of building 
and fixed equipment of 25 years and 12 years as the expected life for 
movable equipment.
    We are proposing to use the building and fixed equipment and 
movable equipment weights derived from FY 2010 Medicare cost reports to 
separate the depreciation expenses into annual amounts of building and 
fixed equipment depreciation and movable equipment depreciation. Year-
end asset costs for building and fixed equipment and movable equipment 
were determined by multiplying the annual depreciation amounts by the 
expected life calculations from the FY 2010 Medicare cost reports. We 
then calculated a time series back to 1963 of annual capital purchases 
by subtracting the previous year asset costs from the current year 
asset costs. From this capital purchase time series, we were able to 
calculate the vintage weights for building and fixed equipment and for 
movable equipment. Each of these sets of vintage weights is explained 
in more detail below.
    For building and fixed equipment vintage weights, we used the real 
annual capital purchase amounts for building and fixed equipment to 
capture the actual amount of the physical acquisition, net of the 
effect of price inflation. This real annual purchase amount for 
building and fixed equipment was produced by deflating the nominal 
annual purchase amount by the building and fixed equipment price proxy, 
BEA's chained price index for nonresidential construction for hospitals 
and special care facilities. Because building and fixed equipment have 
an expected life of 26 years, the vintage weights for building and 
fixed equipment are deemed to represent the average purchase pattern of 
building and fixed equipment over 26-year periods. With real building 
and fixed equipment purchase estimates available back to 1963, we 
averaged twenty-two 26-year periods to determine the average vintage 
weights for building and fixed equipment that are representative of 
average building and fixed equipment purchase patterns over time. 
Vintage weights for each 26-year period are calculated by dividing the 
real building and fixed capital purchase amount in any given year by 
the total amount of purchases in the 26-year period. This calculation 
is done for each year in the 26-year period, and for each of the 
twenty-two 26-year periods. We used the average of each year across the 
twenty-two 26-year periods to determine the average building and fixed 
equipment vintage weights for the proposed FY 2010-based CIPI.
    For movable equipment vintage weights, the real annual capital 
purchase amounts for movable equipment were used to capture the actual 
amount of the physical acquisition, net of price inflation. This real 
annual purchase amount for movable equipment was calculated by 
deflating the nominal annual purchase amounts by the movable equipment 
price proxy, the PPI for machinery and equipment. Based on our 
determination that movable equipment has an expected life of 12 years, 
the vintage weights for movable equipment represent the average 
expenditure for movable equipment over a 12-year period. With real 
movable equipment purchase estimates available back to 1963, thirty-six 
12-year periods were averaged to determine the average vintage weights 
for movable equipment that are representative of average movable 
equipment purchase patterns over time. Vintage weights for each 12-year 
period are calculated by dividing the real movable capital purchase 
amount for any given year by the total amount of purchases in the 12-
year period. This calculation was done for each year in the 12-year 
period and for each of the thirty-six 12-year periods. We used the 
average of each year across the thirty-six 12-year periods to determine 
the average movable equipment vintage weights for the proposed FY 2010-
based CIPI.
    For interest vintage weights, the nominal annual capital purchase 
amounts for total equipment (building and fixed, and movable) were used 
to capture the value of the debt instrument. Because we have determined 
that hospital debt instruments have an expected life of 26 years, the 
vintage weights for interest are deemed to represent the average 
purchase pattern of total equipment over 26-year periods. With nominal 
total equipment purchase estimates available back to 1963, twenty-two 
26-year periods were averaged to determine the average vintage weights 
for interest that are representative of average capital purchase 
patterns over time. Vintage weights for each 26-year period are 
calculated by dividing the nominal total capital purchase amount for 
any given year by the total amount of purchases in the 26-year period. 
This calculation is done for each year in the 26-year period and for 
each of the twenty-two 26-year periods. We used the average of each 
year across the twenty-two 26-year periods to determine the average 
interest vintage weights for the proposed FY 2010-based CIPI.
    The vintage weights for the FY 2006-based CIPI and the proposed FY 
2010-based CIPI are presented in Table IV08.

                       Table IV08--FY 2006 Vintage Weights and Proposed FY 2010 Vintage Weights for Capital-Related Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Building and fixed equipment          Movable equipment                   Interest
                                                         -----------------------------------------------------------------------------------------------
                        Year \1\                            FY 2006 25      FY 2010 26      FY 2006 12      FY 2010 12      FY 2006 25      FY 2010 26
                                                               years           years           years           years           years           years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           0.021           0.023           0.063           0.064           0.010           0.012
2.......................................................           0.023           0.024           0.067           0.068           0.012           0.013
3.......................................................           0.025           0.026           0.071           0.071           0.014           0.015
4.......................................................           0.027           0.028           0.075           0.073           0.016           0.017
5.......................................................           0.029           0.029           0.079           0.076           0.018           0.018
6.......................................................           0.031           0.031           0.082           0.078           0.020           0.021
7.......................................................           0.032           0.032           0.085           0.084           0.023           0.023
8.......................................................           0.033           0.034           0.086           0.088           0.025           0.025
9.......................................................           0.036           0.036           0.090           0.092           0.028           0.028
10......................................................           0.038           0.038           0.093           0.098           0.031           0.030
11......................................................           0.040           0.040           0.102           0.103           0.034           0.033
12......................................................           0.042           0.041           0.106           0.106           0.038           0.036
13......................................................           0.044           0.042  ..............  ..............           0.041           0.038
14......................................................           0.045           0.042  ..............  ..............           0.044           0.040
15......................................................           0.046           0.043  ..............  ..............           0.047           0.043

[[Page 27571]]

 
16......................................................           0.047           0.044  ..............  ..............           0.050           0.045
17......................................................           0.048           0.044  ..............  ..............           0.053           0.047
18......................................................           0.050           0.044  ..............  ..............           0.057           0.048
19......................................................           0.050           0.044  ..............  ..............           0.059           0.051
20......................................................           0.050           0.044  ..............  ..............           0.060           0.052
21......................................................           0.048           0.045  ..............  ..............           0.060           0.056
22......................................................           0.048           0.045  ..............  ..............           0.062           0.057
23......................................................           0.047           0.045  ..............  ..............           0.063           0.060
24......................................................           0.049           0.046  ..............  ..............           0.068           0.062
25......................................................           0.048           0.045  ..............  ..............           0.069           0.064
26......................................................  ..............           0.045  ..............  ..............  ..............           0.066
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................           1.000           1.000           1.000           1.000           1.000           1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Year 1 represents the vintage weight applied to the farthest year while the vintage weight for year 26, for example, would apply to the most recent
  year.

    After the capital cost category weights were computed, it was 
necessary to select appropriate price proxies to reflect the rate-of-
increase for each expenditure category. We are proposing to use the 
same price proxies for the FY 2010-based CIPI that were used in the FY 
2006-based CIPI. The rationale for selecting the price proxies was 
explained more fully in the FY 1997 IPPS final rule (61 FR 46196) and 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857). These 
proposed price proxies are presented in Table IV07.
    Table IV09 below compares both the historical and forecasted 
percent changes in the FY 2006-based CIPI and the proposed FY 2010-
based CIPI.

   Table IV09--Comparison of FY 2006-Based and Proposed FY 2010-Based
   Capital Input Price Index, Percent Change, FY 2008 Through FY 2016
------------------------------------------------------------------------
                                          CIPI, FY 2006-  Proposed CIPI,
               Fiscal year                     based       FY 2010-based
------------------------------------------------------------------------
FY 2008.................................             1.5             1.1
FY 2009.................................             1.5             1.2
FY 2010.................................             1.0             0.7
FY 2011.................................             1.2             0.9
FY 2012.................................             1.2             1.0
Forecast:
    FY 2013.............................             1.2             1.0
    FY 2014.............................             1.4             1.2
    FY 2015.............................             1.5             1.3
    FY 2016.............................             1.7             1.5
Average:
    FYs 2008-2012.......................             1.3             1.0
    FYs 2013-2016.......................             1.5             1.3
------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 1st Quarter 2013 forecast.

    IHS Global Insight, Inc. forecasts a 1.2 percent increase in the FY 
2010-based CIPI for FY 2014, as shown in Table IV09. The underlying 
vintage-weighted price increases for depreciation (including building 
and fixed equipment and movable equipment) and interest (including 
government/nonprofit and for-profit) are included in Table IV10.

 Table IV10--CMS Capital Input Price Index Percent Changes, Total and Depreciation and Interest Components--FYs
                                                2008 Through 2016
----------------------------------------------------------------------------------------------------------------
                           Fiscal year                                 Total       Depreciation      Interest
----------------------------------------------------------------------------------------------------------------
FY 2008.........................................................             1.1             2.0            -3.1
FY 2009.........................................................             1.2             2.0            -2.0
FY 2010.........................................................             0.7             1.7            -2.8
FY 2011.........................................................             0.9             1.7            -2.3
FY 2012.........................................................             1.0             1.7            -2.7
Forecast:
    FY 2013.....................................................             1.0             1.7            -2.8

[[Page 27572]]

 
    FY 2014.....................................................             1.2             1.8            -2.3
    FY 2015.....................................................             1.3             1.9            -1.7
    FY 2016.....................................................             1.5             1.9            -0.7
----------------------------------------------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 1st Quarter 2013 forecast

    Rebasing the CIPI from FY 2006 to FY 2010 decreased the percent 
change in the forecasted update for FY 2014 by 0.2 percentage point, 
from 1.4 percent to 1.2 percent, as shown in Table IV09. The difference 
in the forecasted market basket update for FY 2014 is primarily due to 
the rebasing of the index to FY 2010 and revising the base year cost 
weights to incorporate the FY 2010 Medicare cost report data.

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

A. Proposed Changes in the Inpatient Hospital Update for FY 2014 
(Sec. Sec.  412.64(d) and 412.211(c))

1. Proposed FY 2014 Inpatient Hospital Update
    In accordance with section 1886(b)(3)(B)(i) of the Act, each year 
we update the national standardized amount for inpatient operating 
costs by a factor called the ``applicable percentage increase.'' 
Section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 
10319(a) of the Affordable Care Act, sets the applicable percentage 
increase under the IPPS for FY 2014 as equal to the rate-of-increase in 
the hospital market basket for IPPS hospitals in all areas, subject to 
a reduction of 2.0 percentage points if the hospital fails to submit 
quality information under rules established by the Secretary in 
accordance with section 1886(b)(3)(B)(viii) of the Act, and then 
subject to an adjustment based on changes in economy-wide productivity 
(the multifactor productivity (MFP) adjustment), and an additional 
reduction of 0.3 percentage point. Sections 1886(b)(3)(B)(xi) and 
(b)(3)(B)(xii) of the Act, as added by section 3401(a) of the 
Affordable Care Act, state that application of the MFP adjustment and 
the additional FY 2014 adjustment of 0.3 percentage point may result in 
the applicable percentage increase being less than zero.
    We note, in compliance with section 404 of the MMA, in this 
proposed rule, we are proposing to replace the FY 2006-based IPPS 
operating and capital market baskets with the revised and rebased FY 
2010-based IPPS operating and capital market baskets for FY 2014.
    We also are proposing to rebase the labor-related share to reflect 
the more recent base year. The current labor-related share, which is 
based on the FY 2006-based IPPS market basket, is 68.8 percent. We are 
proposing a labor-related share of 69.6 percent, which is based on the 
proposed rebased and revised FY 2010-based IPPS market basket. For a 
complete discussion on the rebasing of the market basket and labor-
related share, we refer readers to section IV. of the preamble of this 
proposed rule.
    Based on the most recent data available for this proposed rule, in 
accordance with section 1886(b)(3)(B) of the Act, we are proposing to 
base the proposed FY 2014 market basket update used to determine the 
applicable percentage increase for the IPPS on the IHS Global Insight, 
Inc. (IGI's) first quarter 2013 forecast of the FY 2010-based IPPS 
market basket rate-of-increase, which is estimated to be 2.5 percent. 
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we 
finalized our methodology for calculating and applying the MFP 
adjustment. For FY 2014, we are not proposing any change in our 
methodology for calculating and applying the MFP adjustment. However, 
for this proposed rule, we are using the most recent data available to 
compute the MFP adjustment. Using the methodology that we finalized in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51690), the proposed FY 
2014 market basket update, subject to the hospital submitting quality 
data under rules established by the Secretary in accordance with 
section 1886(b)(3)(B)(viii) of the Act, is then reduced by the most 
recent estimate of the MFP adjustment (the 10-year moving average of 
MFP for the period ending FY 2014) of 0.4 percent. Following 
application of the MFP adjustment, the applicable percentage increase 
is then reduced by 0.3 percentage point, as required by section 
1886(b)(3)(B)(xii) of the Act (as discussed in section I. of the 
Addendum to this proposed rule).
    Consistent with current law, and based on IGI's first quarter 2013 
forecast of the FY 2014 market basket increase, we are proposing an 
applicable percentage increase to the FY 2014 operating standardized 
amount of 1.8 percent (that is, the FY 2014 estimate of the market 
basket rate-of-increase of 2.5 percent less an adjustment of 0.4 
percentage point for economy-wide productivity (that is, the MFP 
adjustment) and less 0.3 percentage point) for hospitals in all areas, 
provided the hospital submits quality data under rules established in 
accordance with section 1886(b)(3)(B)(viii) of the Act. For hospitals 
that do not submit these quality data, we are proposing an applicable 
percentage increase to the operating standardized amount of -0.2 
percent (that is, the FY 2014 estimate of the market basket rate-of-
increase of 2.5 percent, less 2.0 percentage points for failure to 
submit quality data, less an adjustment of 0.4 percentage point for the 
MFP adjustment, and less an additional adjustment of 0.3 percentage 
point). Lastly, we also are proposing that if more recent data become 
subsequently available (for example, a more recent estimate of the 
market basket and MFP adjustment), we would use such data, if 
appropriate, to determine the FY 2014 market basket update and MFP 
adjustment in the final rule.
    We are proposing to revise the existing regulations at 42 CFR 
412.64(d) to reflect the current law for the FY 2014 update. 
Specifically, in accordance with section 1886(b)(3)(B) of the Act, we 
are proposing to add a new paragraph (v) to Sec.  412.64(d)(1) to 
reflect the applicable percentage increase to the FY 2014 operating 
standardized amount as the percentage increase in the market basket 
index less an MFP adjustment and less an additional reduction of 0.3 
percentage point.
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase to the hospital-specific rates for SCHs equals the 
applicable percentage increase set forth in section 1886(b)(3)(B)(i) of 
the Act (that is, the same update factor as for all other hospitals 
subject to the IPPS). Therefore,

[[Page 27573]]

the update to the hospital-specific rates for SCHs is also subject to 
section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 
10319(a) of the Affordable Care Act. Accordingly, we are proposing an 
update to the hospital-specific rates applicable to SCHs of 1.8 percent 
for hospitals that submit quality data or -0.2 percent for hospitals 
that fail to submit quality data. For FY 2014, the existing regulations 
in Sec. Sec.  412.73(c)(16), 412.75(d), 412.77(e) and 412.78(e) contain 
provisions that set the update factor for SCHs equal to the update 
factor applied to the national standardized amount for all IPPS 
hospitals. Therefore, we are not proposing to make any further changes 
to these four regulatory provisions to reflect the FY 2014 update 
factor for the hospital-specific rates of SCHs.
    We note that, as discussed in section V.F. of this preamble, 
section 606 of the American Taxpayer Relief Act of 2012 extended the 
MDH program from the end of FY 2012 (that is, for discharges occurring 
before October 1, 2012) to the end of FY 2013 (that is, for discharges 
occurring before October 1, 2013). Under prior law, the MDH program was 
to be in effect through the end of FY 2012 only. Absent additional 
legislation further extending the MDH program, the MDH program will 
expire for discharges beginning in FY 2014. Accordingly, we are not 
including MDHs in our proposal to update the hospital-specific rates 
for FY 2014.
2. Proposed FY 2014 Puerto Rico Hospital Update
    Puerto Rico hospitals are paid a blended rate for their inpatient 
operating costs based on 75 percent of the national standardized amount 
and 25 percent of the Puerto Rico-specific standardized amount. Section 
1886(d)(9)(C)(i) of the Act is the basis for determining the applicable 
percentage increase applied to the Puerto Rico-specific standardized 
amount. Section 401(c) of Public Law 108-173 amended section 
1886(d)(9)(C)(i) of the Act, which states that, for discharges 
occurring in a fiscal year (beginning with FY 2004), the Secretary 
shall compute an average standardized amount for hospitals located in 
any area of Puerto Rico that is equal to the average standardized 
amount computed under subclause (I) for fiscal year 2003 for hospitals 
in a large urban area (or, beginning with FY 2005, for all hospitals in 
the previous fiscal year) increased by the applicable percentage 
increase under subsection (b)(3)(B) for the fiscal year involved. 
Therefore, the update to the Puerto Rico-specific operating 
standardized amount equals the applicable percentage increase set forth 
in section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) 
and 10319(a) of the Affordable Care Act (that is, the same update 
factor as for all other hospitals subject to the IPPS). Accordingly, we 
are proposing an applicable percentage increase to the Puerto Rico-
specific operating standardized amount of 1.8 percent for FY 2014. The 
regulations at Sec.  412.211(c) currently set the update factor for the 
Puerto Rico-specific operating standardized amount equal to the update 
factor applied to the national standardized amount for all IPPS 
hospitals. Therefore, it is not necessary to propose any changes to the 
existing regulatory text.

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

    Under the authority of section 1886(d)(5)(C)(i) of the Act, the 
regulations at Sec.  412.96 set forth the criteria that a hospital must 
meet in order to qualify under the IPPS as a rural referral center 
(RRC). RRCs receive some special treatment under both the DSH payment 
adjustment and the criteria for geographic reclassification.
    Section 402 of Public Law 108-173 raised the DSH payment adjustment 
for RRCs such that they are not subject to the 12-percent cap on DSH 
payments that is applicable to other rural hospitals. RRCs are also not 
subject to the proximity criteria when applying for geographic 
reclassification. In addition, they do not have to meet the requirement 
that a hospital's average hourly wage must exceed, by a certain 
percentage, the average hourly wage of the labor market area where the 
hospital is located.
    Section 4202(b) of Public Law 105-33 states, in part, ``[a]ny 
hospital classified as an RRC by the Secretary . . . for fiscal year 
1991 shall be classified as such an RRC for fiscal year 1998 and each 
subsequent year.'' In the August 29, 1997 IPPS final rule with comment 
period (62 FR 45999), CMS reinstated RRC status for all hospitals that 
lost the status due to triennial review or MGCRB reclassification. 
However, CMS did not reinstate the status of hospitals that lost RRC 
status because they were now urban for all purposes because of the OMB 
designation of their geographic area as urban. Subsequently, in the 
August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were 
revisiting that decision. Specifically, we stated that we would permit 
hospitals that previously qualified as an RRC and lost their status due 
to OMB redesignation of the county in which they are located from rural 
to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC 
status must satisfy all of the other applicable criteria. We use the 
definitions of ``urban'' and ``rural'' specified in Subpart D of 42 CFR 
Part 412. One of the criteria under which a hospital may qualify as an 
RRC is to have 275 or more beds available for use (Sec.  
412.96(b)(1)(ii)). A rural hospital that does not meet the bed size 
requirement can qualify as an RRC if the hospital meets two mandatory 
prerequisites (a minimum CMI and a minimum number of discharges), and 
at least one of three optional criteria (relating to specialty 
composition of medical staff, source of inpatients, or referral 
volume). (We refer readers to Sec.  412.96(c)(1) through (c)(5) and the 
September 30, 1988 Federal Register (53 FR 38513).) With respect to the 
two mandatory prerequisites, a hospital may be classified as an RRC 
if--
     The hospital's CMI is at least equal to the lower of the 
median CMI for urban hospitals in its census region, excluding 
hospitals with approved teaching programs, or the median CMI for all 
urban hospitals nationally; and
     The hospital's number of discharges is at least 5,000 per 
year, or, if fewer, the median number of discharges for urban hospitals 
in the census region in which the hospital is located. (The number of 
discharges criterion for an osteopathic hospital is at least 3,000 
discharges per year, as specified in section 1886(d)(5)(C)(i) of the 
Act.)
1. Case-Mix Index (CMI)
    Section 412.96(c)(1) provides that CMS establish updated national 
and regional CMI values in each year's annual notice of prospective 
payment rates for purposes of determining RRC status. The methodology 
we used to determine the national and regional CMI values is set forth 
in the regulations at Sec.  412.96(c)(1)(ii). The proposed national 
median CMI value for FY 2014 includes data from all urban hospitals 
nationwide, and the proposed regional values for FY 2014 are the median 
CMI values of urban hospitals within each census region, excluding 
those hospitals with approved teaching programs (that is, those 
hospitals that train residents in an approved GME program as provided 
in Sec.  413.75). These proposed values are based on discharges 
occurring during FY 2012 (October 1, 2011 through September 30, 2012), 
and include bills posted to CMS' records through December 2012.
    We are proposing that, in addition to meeting other criteria, if 
rural hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting

[[Page 27574]]

periods beginning on or after October 1, 2013, they must have a CMI 
value for FY 2012 that is at least--
     1.5526; or
     The median CMI value (not transfer-adjusted) for urban 
hospitals (excluding hospitals with approved teaching programs as 
identified in Sec.  413.75) calculated by CMS for the census region in 
which the hospital is located.
    The proposed CMI values by region are set forth in the following 
table:

------------------------------------------------------------------------
                                                          Case-mix index
                         Region                                value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................          1.3319
2. Middle Atlantic (PA, NJ, NY).........................          1.4025
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          1.4799
4. East North Central (IL, IN, MI, OH, WI)..............          1.4542
5. East South Central (AL, KY, MS, TN)..................          1.4266
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......          1.5311
7. West South Central (AR, LA, OK, TX)..................          1.5811
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............          1.6393
9. Pacific (AK, CA, HI, OR, WA).........................          1.5568
------------------------------------------------------------------------

    We intend to update the preceding numbers in the FY 2014 final rule 
to reflect the updated FY 2012 MedPAR file, which would contain data 
from additional bills received through March 2013.
    A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its fiscal intermediary 
or MAC. Data are available on the Provider Statistical and 
Reimbursement (PS&R) System. In keeping with our policy on discharges, 
the CMI values are computed based on all Medicare patient discharges 
subject to the IPPS MS-DRG-based payment.
2. Discharges
    Section 412.96(c)(2)(i) provides that CMS set forth the national 
and regional numbers of discharges in each year's annual notice of 
prospective payment rates for purposes of determining RRC status. As 
specified in section 1886(d)(5)(C)(ii) of the Act, the national 
standard is set at 5,000 discharges. We would normally propose to 
update the regional standards based on discharges for urban hospitals' 
cost reporting periods that began during FY 2011 (that is, October 1, 
2010 through September 30, 2011), which would normally be the latest 
cost report data available at the time of the development of this 
proposed rule. However, due to a transition in our data system, in lieu 
of a full year of FY 2011 cost report data, we are proposing to use a 
combination of FY 2010 and FY 2011 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, some FY 2011 cost reports 
were not yet in our system for analysis at the time of the development 
of this proposed rule. Therefore, in order to have a complete fiscal 
year of cost report data, we utilized FY 2011 cost report data if 
available, and for those providers whose FY 2011 cost report data was 
not yet in our system, we utilized their FY 2010 cost report data. This 
is similar to the process we used to establish the median number of 
discharges for urban hospitals in the census region for FY 2013, where 
we utilized FY 2009 and 2010 cost report data (77 FR 53406).
    We are proposing that, in addition to meeting other criteria, a 
hospital, if it is to qualify for initial RRC status for cost reporting 
periods beginning on or after October 1, 2013, must have, as the number 
of discharges for its cost reporting period that began during FY 2011 
(based on a combination of FY 2010 and FY 2011 cost report data as 
explained in the preceding paragraph), at least--
     5,000 (3,000 for an osteopathic hospital); or
     The median number of discharges for urban hospitals in the 
census region in which the hospital is located, as indicated in the 
following table:

------------------------------------------------------------------------
                                                             Number of
                         Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................           7,825
2. Middle Atlantic (PA, NJ, NY).........................          10,891
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          11,566
4. East North Central (IL, IN, MI, OH, WI)..............           8,360
5. East South Central (AL, KY, MS, TN)..................           7,378
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......           7,747
7. West South Central (AR, LA, OK, TX)..................           5,147
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............           9,125
9. Pacific (AK, CA, HI, OR, WA).........................           8,525
------------------------------------------------------------------------

    We intend to update these numbers in the FY 2014 final rule based 
on the latest available cost report data.
    We note that the median number of discharges for hospitals in each 
census region is greater than the national standard of 5,000 
discharges. Therefore, 5,000 discharges would be the minimum criterion 
for all hospitals under this proposed rule.
    We reiterate that, if an osteopathic hospital is to qualify for RRC 
status for cost reporting periods beginning on or after October 1, 
2013, the hospital would be required to have at least 3,000 discharges 
for its cost reporting period that began during FY 2011 (based on a 
combination of FY 2010 and FY 2011 cost report data as explained 
earlier in this section).

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

1. Background
    Section 1886(d)(12) of the Act provides for an additional payment 
to each qualifying low-volume hospital under the IPPS beginning in FY 
2005. Section 1886(d)(12) of the Act sets forth the qualifying criteria 
for a qualifying low-volume hospital and the methodology for 
determining the low-volume hospital payment adjustment.
    Sections 3125 and 10314 of the Affordable Care Act provided for a 
temporary change in the low-volume hospital payment policy for FYs 2011 
and 2012 by expanding the definition of a low-volume hospital and 
modifying the methodology for determining the payment adjustment for 
hospitals meeting the definition. Therefore, prior to the enactment of 
the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240) on 
January 2, 2013, beginning with FY 2013, the low-volume hospital 
qualifying criteria and payment adjustment requirements would have 
reverted to the statutory requirements under section 1886(d)(12) of the 
Act that were in effect prior to FY 2011. Section 605 of the ATRA 
extended for an additional year, through FY 2013, the temporary changes 
in the low-volume hospital definition and methodology for determining 
the payment adjustment made by the Affordable Care Act for FYs 2011 and 
2012. Beginning with FY 2014, 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 and the ATRA. In section V.D.3. of this preamble, 
we discuss the proposed low-volume hospital payment adjustment policies 
for FY 2014.
a. Original Implementation of the Low-Volume Hospital Payment 
Adjustment
    Section 1886(d)(12) of the Act, as added by section 406(a) of 
Public Law

[[Page 27575]]

108-173, provides for a payment adjustment to account for the higher 
costs per discharge for low-volume hospitals under the IPPS, effective 
beginning FY 2005. The additional payment adjustment to a low-volume 
hospital provided for under section 1886(d)(12) of the Act is ``[i]n 
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 hospital payment adjustment is based on total per 
discharge payments made under section 1886 of the Act, including 
capital, DSH, IME, and outlier payments. For SCHs and MDHs, the low-
volume hospital payment adjustment is based in part 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 hospital payment 
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 hospital payment adjustment implemented in FY 2005. 
Therefore, the low-volume hospital payment adjustment of an additional 
25 percent continued to be provided for qualifying hospitals with less 
than 200 discharges.
b. Affordable Care Act Provisions for FYs 2011 and 2012
    For FYs 2011 and 2012, sections 3125 and 10314 of 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. Specifically, those provisions of the 
Affordable Care Act amended the qualifying criteria for low-volume 
hospitals under section 1886(d)(12)(C)(i) of the Act to specify that, 
for FYs 2011 and 2012, a subsection (d) 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 the Affordable Care Act, provides that the low-volume hospital 
payment adjustment (that is, the 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 zero 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 the regulations at 42 CFR 412.101 to reflect the 
changes to the qualifying criteria and the payment adjustment for low-
volume hospitals made by sections 3125 and 10314 of the Affordable Care 
Act. In addition, we defined, at Sec.  412.101(a), the term ``road 
miles'' to mean ``miles'' as defined at Sec.  412.92(c)(1), and 
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 for FY 2011 (75 FR 50240). For the second year of the 
changes to the low-volume hospital payment adjustment provided for by 
section 3125 and 10314 of the Affordable Care Act (that is, FY 2012), 
consistent with the regulations at Sec.  412.101(b)(2)(ii), in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51677 through 51680), we updated 
the discharge data source used to identify qualifying low-volume 
hospitals and calculate the payment adjustment (percentage increase). 
Under Sec.  412.101(b)(2)(ii), for FYs 2011 and 2012, a hospital's 
Medicare discharges from the most recently available MedPAR data, as 
determined by CMS, are used to determine if the hospital meets the 
discharge criteria to receive the low-volume hospital payment 
adjustment in the current year. In that same final rule, we established 
that, for FY 2012, qualifying low-volume hospitals and their payment 
adjustment are determined using Medicare discharge data from the March 
2011 update of the FY 2010 MedPAR file, as these data were the most 
recent data available at that time. In addition, we noted that 
eligibility for the low-volume hospital payment adjustment for FY 2012 
was also dependent upon meeting (if the hospital was qualifying for the 
low-volume hospital payment adjustment for the first time in FY 2012), 
or continuing to meet (if the hospital qualified in FY 2011), the 
mileage criterion specified at Sec.  412.101(b)(2)(ii). Furthermore, we 
established a procedure for a hospital to request low-volume hospital 
status for FY 2012 (which was consistent with the process we employed 
for the low-volume hospital payment adjustment for FY 2011).
2. Provisions of the ATRA for FY 2013
a. Background
    Section 605 of the ATRA amended sections 1886(d)(12)(B), (C)(i), 
and (D) of the Act to extend, for FY 2013, the temporary changes in the 
low-volume hospital payment adjustment policy provided for in FYs 2011 
and 2012 by the Affordable Care Act. As we have noted previously, prior 
to the enactment of section 605 of the ATRA, beginning with FY 2013, 
the low-volume hospital definition and payment adjustment methodology 
would have reverted to the policy established under statutory 
requirements that were in effect prior to the amendments made by the 
Affordable Care Act.
    Prior to the enactment of the ATRA, in the FY 2013 IPPS/LTCH PPS 
final

[[Page 27576]]

rule (77 FR 53406 through 53409), we discussed the low-volume hospital 
payment adjustment for FY 2013 and subsequent fiscal years. 
Specifically, we discussed that in accordance with section 1886(d)(12) 
of the Act, beginning with FY 2013, the low-volume hospital definition 
and payment adjustment methodology would revert back to the statutory 
requirements that were in effect prior to the amendments made by the 
Affordable Care Act. Therefore, we explained, as specified under the 
existing regulations at Sec.  412.101, effective for FY 2013 and 
subsequent years, that 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 total discharges, including both Medicare and non-
Medicare discharges) during the fiscal year. We also established a 
procedure for hospitals to request low-volume hospital status for FY 
2013 (which was consistent with our previously established procedures 
for FYs 2011 and 2012).
    In a Federal Register notice published on March 7, 2013 (78 FR 
14689) (hereinafter referred to as the FY 2013 IPPS notice), we 
announced the extension of the Affordable Care Act amendments to the 
low-volume hospital payment adjustment requirements under section 
1886(d)(12) of the Act for FY 2013 pursuant to section 605 of the ATRA. 
The applicable low-volume hospital percentage increase provided for by 
the provisions of the Affordable Care Act and the ATRA is determined 
using a continuous linear sliding scale equation that results in a low-
volume hospital payment adjustment ranging from an additional 25 
percent for hospitals with 200 or fewer Medicare discharges to a zero 
percent additional payment adjustment for hospitals with 1,600 or more 
Medicare discharges.
    In the FY 2013 IPPS notice (78 FR 14689 through 14694), to 
implement the extension of the temporary change in the low-volume 
hospital payment adjustment policy for FY 2013 provided for by the 
ATRA, we updated the discharge data source used to identify qualifying 
low-volume hospitals and calculate the payment adjustment (percentage 
increase). Consistent with our implementation of the low-volume 
hospital payment adjustment policy for FYs 2011 and 2012 as set forth 
at existing Sec.  412.101(b)(2)(ii), we established that, for FY 2013, 
qualifying low-volume hospitals and their payment adjustments are 
determined using Medicare discharge data from the March 2012 update of 
the FY 2011 MedPAR file, as these data were the most recent data 
available at the time of the development of the FY 2013 payment rates 
and factors established in the FY 2013 IPPS/LTCH PPS final rule. In 
addition, we noted that eligibility for the low-volume hospital payment 
adjustment for FY 2013 is also dependent upon meeting (in the case of a 
hospital that did not qualify for the low-volume hospital payment 
adjustment in FY 2012), or continuing to meet (in the case of a 
hospital that did qualify for the low-volume hospital payment 
adjustment in FY 2012), the mileage criterion specified at existing 
Sec.  412.101(b)(2)(ii). We also established a procedure for a hospital 
to request low-volume hospital status for FY 2013 (which is consistent 
with the process for the low-volume hospital payment adjustment for FYs 
2011 and 2012). Furthermore, we noted our intent to make conforming 
changes to the regulations text at Sec.  412.101 to reflect the changes 
to the qualifying criteria and the payment adjustment for low-volume 
hospitals in accordance with the amendments made by section 605 of the 
ATRA in future rulemaking. (We refer readers to the FY 2013 IPPS notice 
(78 FR 14689 through 14694) for additional information on the extension 
of the Affordable Care Act amendments to the low-volume hospital 
payment adjustment requirements under section 1886(d)(12) of the Act 
through FY 2013 in accordance with section 605 of the ATRA.)
b. Proposed Conforming Regulatory Changes
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 
and 50414), we amended the regulations at Sec.  412.101 to specify 
that, beginning with FY 2013, the low-volume hospital definition and 
payment adjustment methodology reverted to the policy established under 
statutory requirements that were in effect prior to the amendments made 
by the Affordable Care Act. In this proposed rule, we are proposing to 
make conforming changes to the existing regulations text at Sec.  
412.101 to reflect the extension of the changes to the qualifying 
criteria and the payment adjustment methodology for low-volume 
hospitals through FY 2013 in accordance with section 605 of the ATRA, 
as announced in the FY 2013 IPPS notice (as discussed above). 
Specifically, we are proposing to revise paragraphs (b)(2)(i), 
(b)(2)(ii), (c)(1), (c)(2), and (d). Under these proposed changes to 
Sec.  412.101, beginning with FY 2014, consistent with section 
1886(d)(12) of the Act, as amended, the low-volume hospital qualifying 
criteria and payment adjustment methodology would revert to that which 
was in effect prior to the amendments made by the Affordable Care Act 
and the ATRA (that is, the low-volume hospital payment adjustment 
policy in effect for FYs 2005 through 2010).
3. Proposed Low-Volume Hospital Definition and Payment Adjustment for 
FY 2014 and Subsequent Fiscal Years
    In accordance with section 1886(d)(12) of the Act, as amended, 
beginning with FY 2014, 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 and the ATRA. Therefore, consistent with section 1886(d)(12) of the 
Act, as amended, under the proposed conforming changes to Sec.  
412.101(b)(2), effective for FY 2014 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. Under our existing policy, effective for FY 2014 and subsequent 
years, qualifying hospitals would receive the low-volume hospital 
payment adjustment of an additional 25 percent for discharges occurring 
during the fiscal year.
    As described above, for FYs 2005 through 2010 and FY 2014 and 
subsequent fiscal years, the discharge determination would be 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 hospital payment adjustment in the 
current year (proposed 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, 2012, 
and 2013, we 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. In addition to a discharge criterion, the eligibility for 
the low-volume hospital payment adjustment also would be dependent upon 
the hospital meeting the mileage criterion

[[Page 27577]]

specified at proposed Sec.  412.101(b)(2)(i). Specifically, to meet the 
mileage criterion to qualify for the low-volume hospital payment 
adjustment for FY 2014 and subsequent fiscal years, a hospital must be 
located more than 25 road miles from the nearest subsection (d) 
hospital.
    For FY 2014, we would continue to use the established process for 
requesting and obtaining the low-volume hospital payment adjustment. 
That is, 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 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. (For additional details on our established process for the 
low-volume hospital payment adjustment, we refer readers to the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53408).)
    Consistent with our previously established procedure, for FY 2014, 
a hospital must make its request for low-volume hospital status in 
writing to its fiscal intermediary or MAC by September 1, 2013, in 
order for the 25-percent low-volume hospital payment adjustment to be 
applied to payments for its discharges beginning on or after October 1, 
2013 (through September 30, 2014). If a hospital's request for low-
volume hospital status for FY 2014 is received after September 1, 2013, 
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 hospital payment adjustment 
to determine the payment for the hospital's FY 2014 discharges, 
effective prospectively within 30 days of the date of the fiscal 
intermediary's or MAC's low-volume hospital status determination.
    As we discussed in section V.C.2.b. of the preamble of this 
proposed rule, we are proposing to make conforming changes to the 
regulatory text at Sec.  412.101 to reflect the extension of the 
changes to the qualifying criteria and the payment adjustment 
methodology for low-volume hospitals through FY 2013 made by section 
605 of the ATRA. We are proposing changes to Sec.  412.101 to conform 
the regulations to the statutory requirements that, beginning with FY 
2014, the low-volume hospital qualifying criteria and payment 
adjustment methodology revert to that which was in effect prior to the 
amendments made by the Affordable Care Act and the ATRA (that is, the 
low-volume hospital payment adjustment policy in effect for FYs 2005 
through 2010). Therefore, the low-volume hospital payment adjustment 
policy in effect prior for FYs 2005 through 2010 would apply for FY 
2014 and subsequent years.

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

1. IME Adjustment Factor for FY 2014
    Under the IPPS, an additional payment amount is made to hospitals 
that have residents in an approved graduate medical education (GME) 
program in order to reflect the higher indirect patient care costs of 
teaching hospitals relative to nonteaching hospitals. The payment 
amount is determined by use of a statutorily specified adjustment 
factor. The regulations regarding the calculation of this additional 
payment, known as the IME adjustment, are located at Sec.  412.105. We 
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680) for 
a full discussion of the IME adjustment and IME adjustment factor. 
Section 1886(d)(5)(B) of the Act states that, for discharges occurring 
during FY 2008 and fiscal years thereafter, the IME formula multiplier 
is 1.35. Accordingly, for discharges occurring during FY 2014, the 
formula multiplier is 1.35. We estimate that application of this 
formula multiplier for the FY 2014 IME adjustment will result in an 
increase in IPPS payment of 5.5 percent for every approximately 10 
percent increase in the hospital's resident to bed ratio.
2. Other Proposed Policy Changes Affecting GME
    In sections IV.J. of the preamble of this proposed rule, we present 
other proposed policy changes relating to GME payment. We refer readers 
to that section of the preamble of this proposed rule where we present 
the proposed policies.

E. Payment Adjustment for Medicare Disproportionate Share Hospitals 
(DSHs) (Sec.  412.106)

1. Background
    Section 1886(d)(5)(F) of the Act provides for additional Medicare 
payments to subsection (d) hospitals that serve a significantly 
disproportionate number of low-income patients. The Act specifies two 
methods by which a hospital may qualify for the Medicare 
disproportionate share hospital (DSH) adjustment. Under the first 
method, hospitals that are located in an urban area and have 100 or 
more beds may receive a Medicare DSH payment adjustment if the hospital 
can demonstrate that, during its cost reporting period, more than 30 
percent of its net inpatient care revenues are derived from State and 
local government payments for care furnished to needy patients with low 
incomes. This method is commonly referred to as the ``Pickle method.'' 
The second method for qualifying for the DSH payment adjustment, which 
is the most common, is based on a complex statutory formula under which 
the DSH payment adjustment is based on the hospital's geographic 
designation, the number of beds in the hospital, and the level of the 
hospital's disproportionate patient percentage (DPP). A hospital's DPP 
is the sum of two fractions: The ``Medicare fraction'' and the 
``Medicaid fraction.'' The Medicare fraction (also known as the ``SSI 
fraction'' or ``SSI ratio'') is computed by dividing the number of the 
hospital's inpatient days that are furnished to patients who were 
entitled to both Medicare Part A 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 in the same period.
    Because the DSH payment adjustment is part of the IPPS, the DSH 
statutory references (under section 1886(d)(5)(F) of the Act) to 
``days'' apply only to hospital acute care inpatient days. Regulations 
located at Sec.  412.106 govern the Medicare DSH payment adjustment and 
specify how the DPP is calculated as well as how beds and patient days 
are counted in determining the Medicare DSH payment adjustment. Under 
Sec.  412.106(a)(1)(i), the number of beds for the Medicare DSH payment 
adjustment is determined in accordance with bed counting rules for the 
IME adjustment under Sec.  412.105(b).

[[Page 27578]]

2. Counting of Patient Days Associated With Patients Enrolled in 
Medicare Advantage Plans in the Medicare and Medicaid Fractions of the 
Disproportionate Patient Percentage (DPP) Calculation
    The regulation at 42 CFR 422.2 defines Medicare Advantage (MA) plan 
to mean ``health benefits coverage offered under a policy or contract 
by an MA organization that includes a specific set of health benefits 
offered at a uniform premium and uniform level of cost-sharing to all 
Medicare beneficiaries residing in the service area of the MA plan . . 
. .'' Generally, each MA plan must at least provide coverage of all 
services that are covered by Medicare Part A and Part B, but also may 
provide for Medicare Part D benefits and/or additional supplemental 
benefits. However, certain items and services, such as hospice 
benefits, continue to be covered under Medicare fee-for-service (FFS). 
We note that, under Sec.  422.50 of the regulations, an individual is 
eligible to elect an MA plan if he or she is entitled to Medicare Part 
A and enrolled in Medicare Part B. Dual eligible beneficiaries 
(individuals entitled to Medicare and eligible for Medicaid) also may 
choose to enroll in a MA plan, and, as an additional supplemental 
benefit, the MA plan may pay for Medicare cost-sharing not covered by 
Medicaid.
    In the FY 2004 IPPS proposed rule (68 FR 27208) in response to 
questions about whether the patient days associated with patients 
enrolled in a Medicare + Choice (M+C) plan [now Medicare Advantage (MA) 
plan under Medicare Part C] should be counted in the Medicare fraction 
or the Medicaid fraction of the disproportionate patient percentage 
(DPP) calculation, we proposed that once a beneficiary enrolls in an 
M+C plan, those patient days attributable to the beneficiary would not 
be included in the Medicare fraction of the DPP. Instead, those patient 
days would be included in the numerator of the Medicaid fraction, if 
the patient also were eligible for Medicaid. In the FY 2004 IPPS final 
rule (68 FR 45422), we did not respond to public comments on this 
proposal, due to the volume and nature of the public comments we 
received, and we indicated that we would address those comments later 
in a separate document. In the FY 2005 IPPS proposed rule (69 FR 
28286), we stated that we planned to address the FY 2004 comments 
regarding M+C days in the IPPS final rule for FY 2005. In the FY 2005 
IPPS final rule (69 FR 49099), we determined that, under Sec.  
412.106(b)(2)(i) of the regulations, MA patient days should be counted 
in the Medicare fraction of the DPP calculation. We explained that, 
even where Medicare beneficiaries elect Medicare Part C coverage, they 
are still entitled to benefits under Medicare Part A. Therefore, we 
noted that if a Medicare M+C beneficiary is also an SSI recipient, the 
patient days for that beneficiary will be included in the numerator of 
the Medicare fraction (as well as in the denominator) and not in the 
numerator of the Medicaid fraction. We note that, despite our explicit 
statement in the final rule that the regulations also would be revised, 
due to a clerical error, the corresponding regulation at Sec.  
412.106(b)(2)(i) was not amended to explicitly reflect this policy 
until 2007 (72 FR 47384).
    On November 15, 2012, in a ruling in the case of Allina Health 
Services, et al., v. Sebelius (Allina), the Federal District Court for 
the District of Columbia (the court) held that the final policy of 
putting MA patient days in the Medicare fraction adopted in the FY 2005 
IPPS final rule was not a logical outgrowth of the FY 2004 IPPS 
proposed rule. The court held that interested parties had not been put 
on notice that the Secretary might adopt a final policy of counting the 
days in the Medicare fraction and were not provided an adequate further 
opportunity for public comment.
    We continue to believe that individuals enrolled in MA plans are 
``entitled to benefits under part A'' as the phrase is used in the DSH 
provisions at section 1886(d)(5)(F)(vi)(I) of the Act. Section 226(a) 
of the Act provides that an individual is automatically ``entitled'' to 
Medicare Part A when the person reaches age 65 or becomes disabled, 
provided that the individual is entitled to Social Security benefits 
under section 202 of the Act. Beneficiaries who are enrolled in MA 
plans provided under Medicare Part C continue to meet all of the 
statutory criteria for entitlement to Medicare Part A benefits under 
section 226 of the Act. First, in order to enroll in Medicare Part C, a 
beneficiary must be ``entitled to benefits under Part A and enrolled 
under Part B'' (section 1852(a)(1)(B)(i) of the Act). There is nothing 
in the Act that suggests that beneficiaries who enroll in a Medicare 
Part C plan forfeit their entitlement to Medicare Part A benefits. 
Second, once a beneficiary enrolls in Medicare Part C, the MA plan must 
provide the beneficiary with the benefits to which he or she is 
entitled under Medicare Part A, even though it may also provide for 
additional supplemental benefits (section 1852(a)(1)(A) of the Act). 
Third, under certain circumstances, Medicare Part A pays for care 
furnished to patients enrolled in Medicare Part C plans. For example, 
if, during the course of the year, the scope of benefits provided under 
Medicare Part A expands beyond a certain cost threshold due to 
Congressional action or a national coverage determination, Medicare 
Part A will pay the provider for the cost of those services directly 
(section 1852(a)(5) of the Act). Similarly, Medicare Part A also pays 
for federally qualified health center services and hospice care 
furnished to MA patients (section 1853(a)(4) and (h)(2) of the Act, 
respectively). Thus, we continue to believe that a patient enrolled in 
an MA plan remains entitled to benefits under Medicare Part A, and 
should be counted in the Medicare fraction of the DPP, and not the 
Medicaid fraction.
    We also believe that our policy of counting patients enrolled in MA 
plans in the Medicare fraction was a logical outgrowth of the FY 2004 
IPPS proposed rule, and, accordingly, have filed an appeal in the 
Allina case. However, in an abundance of caution and for the reasons 
discussed above, in this proposed rule, we are proposing to readopt the 
policy of counting the days of patients enrolled in MA plans in the 
Medicare fraction of the DPP. We are seeking public comments from 
interested parties that may support or oppose the proposal to include 
the MA patient days in the Medicare fraction of the DPP calculation for 
FY 2014 and subsequent years. We will evaluate these public comments 
and consider whether a further change in policy is warranted, and will 
include our final determination in the FY 2014 IPPS final rule. We are 
not proposing any change to the regulation text at this time, because 
the current text reflects the policy being proposed.
3. New Payment Adjustment Methodology for Medicare Disproportionate 
Share Hospitals (DSHs) Under Section 3133 of the Affordable Care Act 
(Sec.  412.106)
a. General Discussion and Legislative Change
    Section 3133 of the Patient Protection and Affordable Care Act 
(PPACA), as amended by section 10316 of PPACA and section 1104 of the 
Health Care and Education Reconciliation Act (Pub. L. 111-152), added a 
new section 1886(r) to the Act that modifies the methodology for 
computing the Medicare DSH payment adjustment beginning in FY 2014. For 
purposes of this proposed rule, we will refer to these

[[Page 27579]]

provisions collectively as Section 3133 of the Affordable Care Act.
    Currently, Medicare DSH adjustment payments are calculated under a 
statutory formula that considers the hospital's Medicare utilization 
attributable to beneficiaries who also receive Supplemental Security 
Income (SSI) benefits and the hospital's Medicaid utilization. 
Beginning for discharges in FY 2014, hospitals that qualify for 
Medicare DSH payments under section 1886(d)(5)(F) will receive 25 
percent of the amount they previously would have received under the 
current statutory formula for Medicare DSH payments. This provision 
applies equally to hospitals that qualify for DSH payments under 
section 1886(d)(5)(F)(i)(II) of the Act, the so-called Pickle 
hospitals. Pursuant to new section 1886(r), Pickle hospitals would 
receive 25 percent of the 35 percent add-on adjustment for which they 
would otherwise qualify under section 1886(d)(5)(F)(i)(II). The 
remaining amount, equal to an estimate of 75 percent of what otherwise 
would have been paid as Medicare DSH payments, reduced to reflect 
changes in the percentage of individuals under age 65 who are 
uninsured, will become available to make additional payments to each 
hospital that qualifies for Medicare DSH payments and that has 
uncompensated care. The payments to each hospital for a fiscal year 
will be based on the hospital's amount of uncompensated care for a 
given time period relative to the total amount of uncompensated care 
for that same time period reported by all hospitals that receive 
Medicare DSH payments for that fiscal year.
    Specifically, as provided by section 3133 of the Affordable Care 
Act, section 1886(r) of the Act requires that, for ``fiscal year 2014 
and each subsequent fiscal year,'' a ``subsection (d) hospital'' that 
would otherwise receive a ``disproportionate share hospital payment . . 
. made under subsection (d)(5)(F)'' will receive two separately 
calculated payments. Specifically, section 1886(r)(1) of the Act 
provides that the Secretary shall pay to such a subsection (d) hospital 
(including a Pickle hospital) 25 percent of the amount the hospital 
would have received under section 1886(d)(5)(F) of the Act for 
disproportionate share payments, which represents ``the empirically 
justified amount for such payment, as determined by the Medicare 
Payment Advisory Commission in its March 2007 Report to the Congress.'' 
We refer to this payment as the ``empirically justified Medicare DSH 
payment.''
    In addition to this payment, section 1886(r)(2) of the Act provides 
that, for fiscal year 2014 and each subsequent fiscal year, the 
Secretary shall pay to ``such subsection (d) hospital an additional 
amount equal to the product of'' three factors. The first factor is the 
difference between ``the aggregate amount of payments that would be 
made to subsection (d) hospitals under subsection (d)(5)(F) if this 
subsection did not apply'' and ``the aggregate amount of payments that 
are made to subsection (d) hospitals under paragraph (1)'' for each 
fiscal year. Therefore, this factor amounts to 75 percent of the 
payments that would otherwise be made under section 1886(d)(5)(F) of 
the Act.
    The second factor is, for FYs 2014 through 2017, 1 minus the 
percent change in the percent of individuals under the age of 65 who 
are uninsured, determined by comparing the percent of such individuals 
who are uninsured in 2013, the last year before coverage expansion 
under the Affordable Care Act (as calculated by the Secretary based on 
the most recent estimates available from the Director of the 
Congressional Budget Office before a vote in either House on the Health 
Care and Education Reconciliation Act of 2010 that, if determined in 
the affirmative, would clear such Act for enrollment), minus 0.1 
percentage point for FY 2014, and minus 0.2 percentage point for FYs 
2015 through 2017. For FYs 2014 through 2017, the baseline for the 
estimate of the change in uninsurance is fixed by the most recent 
estimate of the Congressional Budget Office before the final vote on 
the Health Care and Education Reconciliation Act of 2010, which is 
contained in a March 20, 2010 letter from the then Director of the 
Congressional Budget Office to the Speaker of the House. A link to this 
letter is included in section V.E.3.d.2. of the preamble of this 
proposed rule.
    For FY 2018 and subsequent years, the second factor is 1 minus the 
percent change in the percent of individuals who are uninsured, as 
determined by comparing the percent of individuals ``who are uninsured 
in 2013 (as estimated by the Secretary, based on data from the Census 
Bureau or other sources the Secretary determines appropriate, and 
certified by the Chief Actuary'' of CMS, and ``who are uninsured in the 
most recent period for which data is available (as so estimated and 
certified) minus 0.2 percentage points for FYs 2018 and 2019.'' Thus, 
for FY 2018 and subsequent years, the statute provides some greater 
flexibility in the choice of the data sources to be used in the 
estimate of the change in the percent of the uninsured.
    The third factor is a percent that, for each subsection (d) 
hospital, ``represents the quotient of . . . the amount of 
uncompensated care for such hospital for a period selected by the 
Secretary (as estimated by the Secretary, based on appropriate data . . 
.),'' including the use of alternative data ``where the Secretary 
determines that alternative data is available which is a better proxy 
for the costs of subsection (d) hospitals for . . . treating the 
uninsured,'' and ``the aggregate amount of uncompensated care for all 
subsection (d) hospitals that receive a payment under this 
subsection.'' Therefore, this third factor represents a hospital's 
uncompensated care amount for a given time period relative to the 
uncompensated care amount for that same time period for all hospitals 
that receive Medicare DSH payments in that fiscal year, expressed as a 
percent. For each hospital, the product of these three factors 
represents its additional payment for uncompensated care for the 
applicable fiscal year. We refer to the additional payment determined 
by these factors as the ``uncompensated care payment.''
    Section 1886(r) of the Act states that this provision is effective 
for ``fiscal year 2014 and each subsequent fiscal year.'' In this 
proposed rule, we set forth our proposals for implementing the required 
changes to the DSH payment methodology. We note that, because section 
1886 (r) modifies the payment required under section 1886(d)(5)(F) of 
the Act, it affects only the DSH payment under the operating IPPS. It 
does not revise or replace the capital IPPS DSH payment provided under 
the regulations at 42 CFR Part 412, Subpart M, which were established 
through the exercise of the Secretary's discretion in implementing the 
capital IPPS under section 1886(g)(1)(A) of the Act.
    Finally, section 1886(r)(3) of the Act provides that there shall be 
``no administrative or judicial review under section 1869, section 
1878, or otherwise'' of ``any estimate of the Secretary for purposes of 
determining the factors described in paragraph (2),'' or of ``any 
period selected by the Secretary'' for the purpose of determining those 
factors. Therefore, there can be no administrative or judicial review 
of the estimates developed for purposes of applying the three factors 
used to determine uncompensated care payments, or the periods selected 
in order to develop such estimates.

[[Page 27580]]

b. Eligibility
    As indicated above, the new payment methodology applies to 
``subsection (d) hospitals'' that would otherwise receive a 
``disproportionate share payment . . . made under subsection 
(d)(5)(F).'' Therefore, eligibility for empirically justified Medicare 
DSH payments is unchanged under this new provision. Consistent with the 
law, hospitals must receive empirically justified Medicare DSH payments 
in FY 2014 or a subsequent year to receive an additional Medicare 
uncompensated care payment for that year. Specifically, section 
1886(r)(2) of the Act states that, ``[i]n addition to the payment made 
to a subsection (d) hospital under paragraph (1), . . . the Secretary 
shall pay to such subsection (d) hospital an additional amount . . .'' 
(Emphasis supplied.) Because paragraph (1) refers to empirically 
justified Medicare DSH payments, the additional payment under section 
1886(r)(2) is, therefore, limited to hospitals that receive empirically 
justified Medicare DSH payments pursuant to section 1886(r)(1) of the 
Act for FY 2014 and subsequent years.
    In this proposed rule, we are proposing that hospitals that are not 
eligible to receive empirically justified Medicare DSH payments in FY 
2014 and subsequent years would not receive uncompensated care payments 
for those respective years. We also are proposing to make a 
determination concerning eligibility for interim uncompensated care 
payments based on each hospital's estimated DSH status for FY 2014 or 
the applicable year (using the most recent data that are available). 
Our final determination on the hospital's eligibility for uncompensated 
care payments would be based on the hospital's actual DSH status on the 
cost report for that payment year. (We discuss these proposals in more 
detail below.)
    In the course of developing these proposed policies for 
implementing the provision of section 1886(r) of the Act, we considered 
whether several specific classes of hospitals are included within the 
scope of the statutory provision. In particular, we considered whether 
the provision applies to (1) hospitals in the Commonwealth of Puerto 
Rico, (2) hospitals in the State of Maryland paid under a waiver as 
provided in section 1814(b) of the Act, (3) sole community hospitals 
(SCHs), (4) hospitals participating in the Bundled Payments for Care 
Improvement Initiative developed by the Center for Medicare and 
Medicaid Innovation (Innovation Center), and (5) hospitals 
participating in the Rural Community Hospital demonstration. We discuss 
each of these specific classes of hospitals below.
(1) Puerto Rico Hospitals
    Under section 1886(d)(9)(A) of the Act, Puerto Rico hospitals 
subject to the IPPS are not ``subsection (d) hospitals,'' but rather 
constitute a distinct class of ``subsection (d) Puerto Rico 
hospitals.'' However, section 1886(d)(9)(D)(iii) of the Act specifies 
that subparagraph (d)(5)(F) (the provision governing the current DSH 
payment methodology) ``shall apply to subsection (d) Puerto Rico 
hospitals . . . in the same manner and to the extent as [it applies] to 
subsection (d) hospitals.'' While the new section 1886(r) of the Act 
does not specifically address whether the methodology established there 
applies to ``subsection (d) Puerto Rico hospitals,'' section 3133 of 
the Affordable Care Act does make a revision to section 
1886(d)(5)(F)(i) of the Act that is crucial for determining the 
eligibility of Puerto Rico hospitals for empirically justified Medicare 
DSH payments and uncompensated care payments under the new provision. 
Specifically, section 3133 of the Affordable Care Act amended section 
1886(d)(5)(F)(i) of the Act to provide that this section is ``[s]ubject 
to subsection (r).'' One effect of this amendment is to provide that 
all hospitals subject to section 1886(d)(5)(F)(i) of the Act, including 
``subsection (d) Puerto Rico hospitals,'' also are subject to the new 
payment methodology established in section 1886(r) of the Act.
    In this proposed rule, we are proposing that subsection (d) Puerto 
Rico hospitals that are eligible for DSH payments also would be 
eligible to receive empirically justified Medicare DSH payments and 
uncompensated care payments under the new payment methodology.
    We are inviting public comments on this proposal.
(2) Hospitals Paid Under a Waiver Under Section 1814(b) of the Act
    Under section 1814(b) of the Act, hospitals in the State of 
Maryland are subject to a waiver from the Medicare payment 
methodologies under which they would otherwise be paid. We have taken 
the position in other contexts, for example, for purposes of EHR 
incentive payments (75 FR 44448), that Maryland acute care hospitals 
remain subsection (d) hospitals. This is because these hospitals are 
``located in one of the fifty States or the District of Columbia'' (as 
provided in the definition of subsection (d) hospitals) and do not meet 
the definitions of the hospitals that are specifically excluded from 
that category, such as cancer hospitals and psychiatric hospitals. 
However, section 1886(r) of the Act applies to hospitals that are both 
subsection (d) hospitals and hospitals that would otherwise receive a 
disproportionate share payment made under the previous DSH payment 
methodology. Because Maryland waiver hospitals are paid under section 
1814(b)(3) of the Act and not under section 1886(d)(5)(F) of the Act, 
they are not eligible to receive empirically justified Medicare DSH 
payments and uncompensated care payments under the new payment 
methodology of section 1886(r) of the Act.
(3) Sole Community Hospitals (SCHs)
    SCHs are paid based on their hospital-specific rate from certain 
specified base years or the IPPS Federal rate, whichever yields the 
greatest aggregate payment for the hospital's cost reporting period. 
Payments based on the Federal rate are based on the IPPS standardized 
amount and include all applicable IPPS add-on payments, such as 
outliers, DSH, and IME, while payments based on the hospital-specific 
rate have no add-on payments. For each cost reporting period, the 
fiscal intermediary/MAC determines which of the payment options will 
yield the highest aggregate payment. Interim payments are automatically 
made on a claim-by-claim basis at the highest rate using the best data 
available at the time the fiscal intermediary/MAC makes the payment 
determination for each discharge. However, it may not be possible for 
the fiscal intermediary/MAC to determine in advance precisely which of 
the rates will yield the highest aggregate payment by year's end. In 
many instances, it is not possible to forecast outlier payments or the 
final amount of the DSH payment adjustment or the IME adjustment until 
cost report settlement. As noted above, these adjustment amounts are 
applicable only to payments based on the Federal rate and not to 
payments based on the hospital-specific rate. The fiscal intermediary/
MAC makes a final adjustment at cost report settlement after it 
determines precisely which of the payment rates would yield the highest 
aggregate payment to the hospital for its cost reporting period. This 
payment methodology makes SCHs unique as they can change on a yearly 
basis from receiving hospital-specific rate payments to receiving 
Federal rate payments, or vice versa.
    In order to implement the provisions of section 1886(r) of the Act, 
we are proposing to continue to determine interim payments for SCHs 
based on

[[Page 27581]]

what we estimate and project their DSH status to be prior to the 
beginning of the Federal fiscal year (based on the best available data 
at that time), subject to settlement through the cost report. We also 
are proposing that SCHs that receive interim empirically justified DSH 
payments in a fiscal year would receive interim uncompensated care 
payments that fiscal year, subject as well to settlement through the 
cost report. Final eligibility determinations would be made at the end 
of the cost reporting period at settlement, and both interim 
empirically justified Medicare DSH payments and uncompensated care 
payments would be adjusted accordingly. We are thus proposing to follow 
the same processes of interim and final payments for SCHs that we are 
proposing to follow for eligible IPPS DSH hospitals generally. (We 
discuss these processes in more detail below.)
    As previously noted, under the SCH payment methodology, SCHs are 
paid the higher of the Federal rate or a hospital-specific payment 
rate. This payment methodology is defined under sections 
1886(d)(5)(D)(i) and 1886(d)(1)(A)(iii) of the Act. Section 1886(d)(3) 
specifically provides that SCH payments are to be made on a per-
discharge basis. Accordingly, as we also note below, we are proposing 
that the uncompensated care payments would not be accounted for in 
determining whether an SCH is paid the higher of the Federal rate or 
the hospital-specific rate. This is because the uncompensated care 
payments are not discharge-driven payments, but rather are payments 
made on the basis of a hospital's overall share of uncompensated care 
during a payment year. The amount of a hospital's uncompensated care 
payments for a year is not directly affected by the number of the 
hospital's discharges for the year. Therefore, we do not believe that 
uncompensated care payments should be taken into account in a 
comparison based on discharge driven hospital-specific and Federal rate 
payments. Furthermore, as we propose later in this rule, we intend to 
make interim uncompensated care payments on a periodic basis rather 
than a per discharge basis in order to create more predictability for 
hospitals and to increase administrative efficiency. To the extent the 
payments are intended to reflect the relative amount of uncompensated 
care furnished by the hospital, it is both reasonable and appropriate 
to view this payment as an amount for the year, which in the interests 
of predictability and consistency is made periodically through interim 
payments.
    We are inviting public comments on all of these proposals affecting 
SCHs.
(4) Hospitals Participating in the Bundled Payments for Care 
Improvement Initiative
    IPPS hospitals that have elected to participate in the Bundled 
Payments for Care Improvement initiative receive a payment that links 
multiple services furnished to a patient during an episode of care. We 
have stated in previous rulemaking that those hospitals continue to be 
paid under the IPPS (77 FR 53342). Hospitals that elect to participate 
in the initiative can still receive DSH payments while participating in 
the initiative, if they otherwise meet the requirements for receiving 
such payments.
    In this proposed rule, we are proposing to apply the new DSH 
payment methodology to the hospitals in this initiative, so that 
eligible hospitals would receive empirically justified DSH payments and 
uncompensated care payments.
    We are inviting public comments on this proposal.
(5) Hospitals Participating in the Rural Community Hospital 
Demonstration
    Section 410A of the Medicare Modernization Act established the 
Rural Community Hospital Demonstration Program. After the initial 5-
year period, the demonstration was extended for an additional 5-year 
period by sections 3123 and 10313 of the Affordable Care Act. There are 
23 hospitals currently participating in the demonstration. Under the 
payment methodology provided in section 410A, participating hospitals 
receive payment for Medicare inpatient services on the basis of a cost 
methodology. Specifically, for discharges occurring in the hospitals' 
first cost reporting period of the initial 5-year demonstration or the 
first cost reporting period of the 5-year extension, they receive 
payments for the reasonable cost of providing such services. For 
discharges occurring in subsequent cost reporting periods during the 
applicable 5-year demonstration period, hospitals receive the lesser of 
the current year's reasonable cost amount, or the previous year's 
amount updated by the percentage increase in the IPPS market basket 
(the target amount). (We refer readers to section V.K. of the preamble 
of this proposed rule for further information on the demonstration.) 
The instructions (CR 5020 (April 14, 2006) and CR 7505 (July 22, 2011)) 
for the demonstration require that the fiscal intermediary/MAC not pay 
Medicare DSH payments in addition to the amount received under the 
cost-based payment methodology. Although the amounts that would 
otherwise be paid for Medicare DSH payments (absent the demonstration) 
are calculated and identified on the hospital cost report for 
statistical and research purposes, as in the case of Maryland waiver 
hospitals, hospitals in this demonstration do not receive a separate or 
identifiable DSH payment.
    Because hospitals participating in the Rural Community Hospital 
Demonstration do not receive DSH payments, these hospitals are also 
excluded from receiving empirically justified Medicare DSH payments and 
uncompensated care payments under the new payment methodology.
c. Empirically Justified Medicare DSH Payments
    As we have discussed above, the statute requires CMS to pay 25 
percent of the ``amount of disproportionate share hospital payment that 
would otherwise be made under subsection (d)(5)(F) to a subsection (d) 
hospital.'' Currently, we have a system for interim payment and final 
settlement of DSH payments made under section 1886(d)(5)(F). 
Specifically, interim payments are made for each claim based on the 
best available data concerning each hospital's eligibility for DSH 
payments and the appropriate level of such payments. Final eligibility 
for Medicare DSH payments and the final amount of such payments for 
eligible hospitals are determined at the time of cost report 
settlement. Because section 1886(r)(1) of the Act merely requires the 
program to pay a designated percentage of these payments, without 
revising the criteria governing eligibility for DSH payments or the 
underlying payment methodology, we do not believe that it is necessary 
to develop and propose any new operational mechanisms for making such 
payments.
    Therefore, we are proposing to implement this provision simply by 
revising the claims payment methodologies to adjust the interim claim 
payments to the requisite 25 percent of what would have otherwise been 
paid. We will also make corresponding changes to the hospital cost 
report so that these empirically justified Medicare DSH payments can be 
settled at the appropriate level at the time of cost report settlement. 
We will provide more detailed operational instructions and cost report 
instructions following issuance of the final rule.
    We are proposing to implement this provision by adding a new 
paragraph (f) under the regulations at 42 CFR 412.106. This proposed 
new paragraph

[[Page 27582]]

provides for reducing Medicare DSH payments by 75 percent beginning in 
FY 2014.
    We are inviting public comments on this proposal.
d. Uncompensated Care Payments
    As we have discussed above, section 1886(r)(2) of the Act provides 
that, for each eligible hospital in FY 2014 and subsequent years, the 
new uncompensated care payment is the product of three factors. These 
three factors represent our estimate of 75 percent of the amount of 
Medicare DSH payments that would otherwise have been paid, an 
adjustment to this amount for the percent change in the national rate 
of uninsurance compared to a base of 2013, and each eligible hospital's 
estimated uncompensated care amount relative to the estimated 
uncompensated care amount for all eligible hospitals. Below we discuss 
the proposed data sources and methodologies for computing each of these 
factors.
    Before we begin to discuss these data sources and methodologies, it 
is necessary to discuss the timing and manner for determining the 
eligibility of hospitals for uncompensated care payments. The statute 
provides that subsection (d) hospitals that receive a payment under 
section 1886(d)(5)(F) of the Act are eligible to receive a payment 
under section 1886(r)(2) of the Act. Specifically, section 1886(r)(2) 
of the Act states that, ``[i]n addition to the payment made to a 
subsection (d) hospital under paragraph (1) . . . the Secretary shall 
pay to such subsection (d) hospitals an additional amount. . . .'' 
Therefore, because paragraph (1) refers to empirically justified 
Medicare DSH payments, the additional payment for FY 2014 and 
subsequent years is limited to hospitals that receive empirically 
justified Medicare DSH payments for the respective year. However, as we 
have discussed above, we currently have a system for interim payment 
and final settlement of DSH payments. Specifically, interim payments 
are made for each claim based on the best available data concerning 
each hospital's eligibility for DSH payments and the appropriate level 
of such payments. Final determination of eligibility for Medicare DSH 
payments and the final amount of such payments for eligible hospitals 
are determined at the time of cost report settlement.
    As we describe above, because section 1886(r)(1) of the Act does 
not revise the criteria governing eligibility for DSH payments or the 
underlying payment methodology, we do not believe that it is necessary 
to develop and propose any new operational mechanisms for making such 
payments and would thus continue using the existing system of interim 
eligibility and payment determination with final cost report settlement 
for the empirically justified Medicare DSH payments. We are proposing 
to adopt a similar system of interim eligibility and payment 
determination with final cost report settlement for purposes of 
uncompensated care payments. We discuss the specific operational 
details of this system in section V.E.3.f. of this preamble.
    We are inviting public comments on these proposals.
(1) Proposed Methodology To Calculate Factor 1
    Section 1886(r)(2)(A) of the Act establishes Factor 1 in the 
calculation of the uncompensated care payment. Section 1886(r)(2)(A) of 
the Act states that it is a factor ``equal to the difference between 
(i) the aggregate amount of payments that would be made to subsection 
(d) hospitals under subsection (d)(5)(F) if this subsection did not 
apply for such fiscal year (as estimated by the Secretary); and (ii) 
the aggregate amount of payments that are made to subsection (d) 
hospitals under paragraph (1) for such a fiscal year (as so 
estimated).'' Therefore, section 1886(r)(2)(A)(i) of the Act represents 
the estimated Medicare DSH payment that would have been made if the 
reduction to the Medicare DSH payment by 75 percent under section 
1886(r)(1) of the Act did not apply for such fiscal year. In other 
words, section 1886(r)(2)(A)(i) of the Act represents an estimate of 
the full Medicare DSH payment amount under section 1886(d)(5)(F) prior 
to the 75-percent reduction, for FY 2014 and subsequent years. This 
subparagraph specifies that, for each fiscal year to which the 
provision applies, such amount is to be ``estimated by the Secretary.'' 
Under a prospective payment system, we would not know the precise 
aggregate Medicare DSH payment amount that would be paid for a Federal 
fiscal year until cost report settlement for all IPPS hospitals is 
completed, which occurs several years after the end of the Federal 
fiscal year. Therefore, the statute gives CMS authority to estimate 
this amount, by specifying that, for each fiscal year to which the 
provision applies, such amount is to be ``estimated by the Secretary.'' 
Similarly, section 1886(r)(2)(A)(ii) of the Act represents the 
estimated empirically justified Medicare DSH payments to be made in FY 
2014 and subsequent years, taking into account the application of the 
75 percent reduction to the DSH payment amounts prescribed under 
section 1886(r)(1) of the Act. Again, section 1886(r)(2)(A)(ii) of the 
Act gives CMS authority to estimate this amount.
    Therefore, Factor 1 is the difference between our estimates of: (1) 
The amount that would have been paid in Medicare DSH payments for FY 
2014 and subsequent years, in the absence of the new payment provision; 
and (2) the amount of empirically justified Medicare DSH payments that 
are made for FY 2014 and subsequent years, which takes into account the 
requirement to reduce Medicare DSH payments by 75 percent. In other 
words, this factor represents our estimate of 75 percent (100 percent 
minus 25 percent) of our estimate of Medicare DSH payments that would 
otherwise be made, in the absence of section 1886(r) of the Act, for FY 
2014 and subsequent years.
    In order to determine Factor 1 in the uncompensated care payment 
formula, we are proposing to develop final estimates of both the 
aggregate amount of Medicare DSH payments that would be made in the 
absence of section 1886(r)(1) and the aggregate amount of empirically 
justified Medicare DSH payments to hospitals under section 1886(r)(1) 
prior to each fiscal year to which the new provision applies. We 
believe this will create some level of predictability and finality for 
hospitals eligible for these payments, in addition to being 
administratively efficient. Specifically, in order to determine the two 
elements of Factor 1 (Medicare DSH payments prior to the application of 
the 75 percent reduction, and empirically justified Medicare DSH 
payments after application of the 75 percent reduction), we are 
proposing to use the most recently available projections of Medicare 
DSH payments for FY 2014 and each subsequent year, as calculated by 
CMS' Office of the Actuary. The Office of the Actuary projects Medicare 
DSH payments on a biannual basis, typically in February of each year 
(based on data from December of the previous year) as part of the 
President's Budget, and in July (based on data from June) as part of 
the Midsession Review. The estimates are based on the most recently 
filed Medicare hospital cost report with Medicare DSH payment 
information and the most recent Medicare DSH patient percentages and 
Medicare DSH payment adjustments provided in the IPPS Impact File.
    Therefore, for the Office of the Actuary's February 2013 estimate, 
the data are based on the December 2012 update of the Medicare Hospital 
Cost Report Information System (HCRIS) and

[[Page 27583]]

the FY 2013 IPPS/LTCH PPS final rule IPPS Impact file, published in 
conjunction with the publication of the FY 2013 IPPS/LTCH PPS final 
rule. For the July 2013 estimate, we anticipate that the data will be 
based on the March 2013 update of the Medicare Hospital Cost Report 
data and this proposed rule's IPPS Impact file, published in 
conjunction with this proposed rule. For purposes of this proposed 
rule, we are using the February 2013 Medicare DSH estimates to 
calculate Factor 1 and to model the proposed impact of this provision. 
If our proposal to use the Office of the Actuary's projections for 
Factor 1 is finalized, we would use the July 2013 Medicare DSH 
estimates to determine Factor 1 for the FY 2014 IPPS/LTCH PPS final 
rule.
    In addition, because we are proposing to exclude sole community 
hospitals paid under their hospital specific payment rate from the 
application of section 1886(r) of the Act, we are also proposing to 
exclude these hospitals from our Medicare DSH estimate. Similarly, 
because Maryland hospitals and hospitals participating in the Rural 
Community Hospital Demonstration do not receive DSH payments, we also 
exclude these hospitals from our Medicare DSH estimate.
    Using the data sources discussed above, the Office of the Actuary 
uses the most recently submitted Medicare cost report data to identify 
current Medicare DSH payments and the most recent DSH payment 
adjustments provided in the IPPS Impact File, and applies inflation 
updates and assumptions for future changes in utilization and case mix 
to estimate Medicare DSH payments for the upcoming fiscal year. The 
February 2013 Office of the Actuary estimate for Medicare DSH payments 
for FY 2014, without regard to the application of section 1886(r)(1) of 
the Act, is 12.338 billion. This estimate excludes Maryland hospitals, 
sole community hospitals paid under their hospital specific payment 
rate and hospitals participating in the Rural Community Hospital 
Demonstration as discussed above. Therefore, based on this estimate, 
the estimate for empirically justified Medicare DSH payments for FY 
2014, with the application of section 1886(r)(1) of the Act, is $3.084 
billion (25 percent of the total amount estimated). Under our proposal, 
Factor 1 is the difference of these two estimates of the Office of the 
Actuary. Therefore, for the purpose of modeling Factor 1, we calculate 
Factor 1 to be $9.2535 billion.
    We also are proposing to develop and use the estimates necessary 
for Factor 1 on a purely prospective basis. We are proposing to use the 
Actuary's most recent February Medicare DSH estimates each year to 
calculate Factor 1 and to model the impact of this provision for the 
IPPS/LTCH PPS proposed rule. Similarly, we are proposing to use the 
Actuary's most recent July Medicare DSH estimates to determine Factor 1 
for the IPPS/LTCH PPS final rule each year. In other words, we would 
not revise or update our estimates after we know the final Medicare DSH 
payments for FY 2014 and subsequent years. As we discussed earlier, we 
do not know the aggregate Medicare DSH payment amount that would be 
paid for each federal fiscal year until the time of cost report 
settlements, which occur several years after the end of the fiscal 
year. Because the statute provides that CMS use estimates in order to 
determine Factor 1 each year, we believe that applying our best 
estimates prospectively would be most conducive to administrative 
efficiency, finality, and predictability in payments.
    We are inviting public comments on all the elements of this 
proposed methodology to calculate Factor 1.
    We are proposing to add a new paragraph (g)(1)(i) under Sec.  
412.106 of our regulations to define the methodology for calculating 
Factor 1.
(2) Proposed Methodology To Calculate Factor 2
    Section 1886(r)(2)(B) of the Act establishes Factor 2 in the 
calculation of the uncompensated care payment. Specifically, section 
1886(r)(2)(B)(i) of the Act provides: ``For each of fiscal years 2014, 
2015, 2016, and 2017, a factor equal to 1 minus the percent change in 
the percent of individuals under the age of 65 who are uninsured, as 
determined by comparing the percent of such individuals (I) who are 
uninsured in 2013, the last year before coverage expansion under the 
Patient Protection and Affordable Care Act (as calculated by the 
Secretary based on the most recent estimates available from the 
Director of the Congressional Budget Office before a vote in either 
House on the Health Care and Education Reconciliation Act of 2010 that, 
if determined in the affirmative, would clear such Act for enrollment); 
and (II) who are uninsured in the most recent period for which data is 
available (as so calculated), minus 0.1 percentage points for fiscal 
year 2014 and minus 0.2 percentage points for each of fiscal years 
2015, 2016, and 2017.''
    Section 1886(r)(2)(B) of the Act establishes, as Factor 2 in the 
uncompensated care payment formula, the percent change in uninsurance, 
based on a comparison of the percent of individuals under 65 without 
insurance in 2013 to the percent of such individuals without insurance 
in the most recent period for which we have data, minus 0.1 percentage 
points for FY 2014 and 0.2 percentage points for each of FYs 2015, 
2016, and 2017.
    Section 1886(r)(2)(B)(i)(I) of the Act further indicates that the 
percent of individuals under 65 without insurance in 2013 must be the 
percent of such individuals ``who are uninsured in 2013, the last year 
before coverage expansion under the Patient Protection and Affordable 
Care Act (as calculated by the Secretary based on the most recent 
estimates available from the Director of the Congressional Budget 
Office before a vote in either House on the Health Care and Education 
Reconciliation Act of 2010 that, if determined in the affirmative, 
would clear such Act for enrollment).'' The Health Care and Education 
Reconciliation Act (Pub. L. 111-152) was enacted on March 30, 2010. It 
was passed in the House of Representatives on March 21, 2010 and by the 
Senate on March 25, 2010. Because the House of Representatives was the 
first House to vote on the Health Care and Education Reconciliation Act 
of 2010 on March 21, 2010, we have determined that the most recent 
estimate available from the Director of the Congressional Budget Office 
``before a vote in either House on the Health Care and Education 
Reconciliation Act of 2010 . . .'' appeared in a March 20, 2010 letter 
from the director of the CBO to the Speaker of the House. (Emphasis 
supplied.) Therefore, we believe that only the estimates in this March 
20, 2010 letter meet the statutory requirement under section 
1886(r)(2)(B)(i)(I). (To view the March 20, 2010 letter, we refer 
readers to the Web site at: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf.
    In its March 20, 2010 CBO letter to the Speaker of the House, the 
CBO provides two estimates of the ``post-policy uninsured population.'' 
The first estimate is of the ``Insured Share of the Nonelderly 
Population Including All Residents'' (which is 82 percent) and the 
second estimate is of the ``Insured Share of the Nonelderly Population 
Excluding Unauthorized Immigrants'' (83 percent). We are proposing to 
use the first estimate that includes all residents, including 
unauthorized immigrants. We believe this estimate is most consistent 
with the statute which requires us to measure ``the percent of 
individuals under the age of 65 who are uninsured,'' and provides no 
exclusions except for individuals over the age 65.

[[Page 27584]]

In addition, we believe that this estimate would more fully reflect the 
levels of uninsurance in the United States that influence uncompensated 
care for hospitals. Therefore, using this estimate would seem more 
consistent with the statutory requirement of establishing a payment for 
uncompensated care. For these reasons, we are proposing to use the 
estimate of the ``Insured Share of the Nonelderly Population Including 
All Residents'' for 2013 to calculate the baseline percentage of 
individuals under age 65 without insurance.
    We are inviting public comments on this proposal.
    The March 20, 2010 CBO letter reports these figures as the 
estimated percentage of individuals with insurance. However, because 
section 1886(r)(2)(B)(i) of the Act requires that we compare the 
percent of individuals ``who are uninsured in 2013,'' we are proposing 
to use the CBO insurance rate figure and subtract that amount from 100 
percent (i.e., the total population, without regard to insurance 
status) to estimate the 2013 baseline percentage of individuals without 
insurance. In its March 20, 2010 letter, the CBO reported its estimate 
of the ``Insured Share of the Nonelderly Population Including All 
Residents'' as 82 percent. Therefore, we are proposing that, for FYs 
2014-2017, our estimate of the uninsurance percentage for 2013 would be 
18 percent. As provided for in the CBO March 20, 2010 letter, the CBO 
estimate for insurance for the nonelderly (under age of 65) population 
only includes residents of the 50 States and the District of Columbia, 
and the count of uninsured people includes unauthorized immigrants, as 
well as people who are eligible for, but not enrolled in, Medicaid. We 
note that, although we are proposing that acute care hospitals located 
in Puerto Rico that receive DSH payments will be eligible to receive 
payments under section 1886(r) of the Act, this estimate for insurance 
does not account for residents in Puerto Rico. We believe that the 
impact of the exclusion of Puerto Rico from the insurance estimate is 
negligible.
    We are inviting public comments on this proposal.
    Section 1886(r)(2)(B)(i) of the Act requires that we compare the 
baseline uninsurance rate to the percent of such individuals ``who are 
uninsured in the most recent period for which data is available (as so 
calculated).'' We are proposing to use the same data source, CBO 
estimates, to calculate this percent of individuals without insurance. 
Section 1886(r)(2)(B)(i)(I) of the Act refers to the percent of 
uninsured in 2013 ``as calculated by the Secretary based on'' the CBO 
data. Similarly, section 1886(r)(2)(B)(i)(II) of the Act immediately 
afterwards refers to the percent of uninsured for 2014 ``as so 
calculated.'' (Emphasis supplied.) The phrase ``as so calculated'' in 
the latter section can be reasonably interpreted to require the 
calculation to similarly be based on CBO estimates. In addition, we 
believe that it is preferable from a statistical point of view to 
calculate a percent change in insurance over time using a consistent 
data source. Furthermore, rather than using the estimates included in 
the March 20, 2010 CBO letter, we believe it is appropriate to use more 
recent CBO estimates of the percent of individuals with insurance. The 
more recent CBO projections take into account changes in the 
environment that can impact insurance rates, such as more recent 
economic conditions and the Supreme Court's decision in National 
Federation of Independent Business. v. Sebelius, ------ U.S. ------, 
132 S. Ct. 2566 (2012), regarding Medicaid expansions authorized by the 
Affordable Care Act. Because the statute requires that we use ``the 
most recent period for which data is available'' to calculate the 
comparison percentage of individuals without insurance, we are 
proposing to use the most recent update (that is, the most recent 
update available at the time of rulemaking with respect to a particular 
fiscal year) to the percent of individuals with insurance provided by 
the CBO to calculate this comparison figure.
    In addition, for FY 2014, we are proposing to use CBO's most recent 
estimate for the percent of individuals with insurance in 2014 for 
purposes of section 1886(r)(2)(B)(i)(II) because this is the year in 
which this provision is effective. This figure is used for Factor 2 and 
later applied to Factor 1, which is also based on an estimate for FY 
2014. On February 5, 2013, the CBO released its annual Budget and 
Economic Outlook. The report included updated economic and budget 
projections that incorporated the effects of the legislation enacted 
prior to the start of the year, a revised economic forecast consistent 
with the budget projections, and other changes to CBO's estimates. (To 
view the report, we refer readers to the Web site at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/43900_ACAInsuranceCoverageEffects.pdf.)
    In this proposed rule, we are using the February 5, 2013, CBO 
health insurance estimates in order to calculate the percentage of 
individuals without insurance for 2014. As we did for the uninsurance 
percentage estimate for 2013 (based on the March 20, 2010 CBO letter 
discussed above), we are proposing to use the ``Insured Share of the 
Nonelderly Population Including All Residents'' to calculate the 
comparison of percentage of people without insurance for 2014. 
Consistent with the CBO estimate used to calculate the baseline 
uninsurance estimate, this estimate for insurance only includes 
residents of the 50 States and the District of Columbia, and the count 
of uninsured people includes unauthorized immigrants, as well as people 
who are eligible for, but not enrolled in, Medicaid. The CBO report 
projects that the ``Insured Share of the Nonelderly Population 
Including All Residents'' for 2014 will be 84 percent. Therefore, in 
the same manner that we calculated the uninsurance percentage for the 
baseline, we are proposing that the uninsurance percentage for 2014 
would be 16 percent (i.e., 100 percent minus 84 percent) for the 
purpose of this proposed rule. If our proposal is finalized, and there 
is a more recent estimate of the percentage of individuals with 
insurance in 2014 by the CBO available for the FY 2014 IPPS/LTCH PPS 
final rule, we would use that estimate to calculate Factor 2. However, 
we would not adjust Factor 2 retroactively to account for estimates 
that become available after publication of the final rule.
    Section 1886(r)(2)(B)(i) of the Act states that Factor 2 for FY 
2014 is equal to 1 minus the percent change in the percent of 
individuals under the age of 65 who are uninsured, as determined by 
comparing the percent of such individuals without insurance in the 
baseline and in the most recent period for which we have data (minus 
0.1 percentage points for FY 2014). Therefore, we are proposing that 
Factor 2 is 1 minus the percent change of the baseline percentage of 
individuals without insurance in 2013 (which is, for this proposed 
rule, 18 percent) and the most recent percentage of individuals without 
insurance for 2014 (which is, for this proposed rule, 16 percent) minus 
0.1 percentage points.
    Using the March 20, 2010 CBO projection for 2013 and the February 
5, 2013 CBO projection of uninsurance for all residents for 2014, we 
are proposing to use the following computation for Factor 2 for FY 
2014:

Percent of individuals without insurance for 2013: 18 percent
Percent of individuals without insurance for 2014: 16 percent
1 - [verbar][(0.16 - 0.18)/0.18][verbar] = 1 - 0.111 = 0.889 (88.9 
percent)

[[Page 27585]]

0.889 (88.9 percent) - 0.001 (0.1 percentage points) = 0.888 (88.8 
percent)
0.888 = Factor 2

    Accordingly, we are proposing Factor 2 to be 88.8 percent for FY 
2014. In conjunction with this proposal, we are therefore proposing 
that the amount available for uncompensated care payments for FY 2014 
will be $8.217 billion (0.888 times our proposed Factor 1 estimate of 
$9.2535 billion). As we noted previously, our proposal for Factor 2 may 
be subject to change if more recent CBO estimates of the insurance rate 
for 2014 become available prior to the preparation of the final rule.
    We are inviting public comment on our proposed methodology to 
calculate Factor 2.
    In this proposed rule, we are proposing to add a new paragraph 
(g)(1)(ii) under Sec.  412.106 of our regulations to define the 
methodology for calculating Factor 2.
(3) Proposed Methodology To Calculate Factor 3
    Section 1886(r)(2)(C) of the Act defines Factor 3 in the 
calculation of the uncompensated care payment. As we have discussed 
above, section 1886(r)(2)(C) of the Act states that Factor 3 is ``equal 
to the percent, for each subsection (d) hospital, that represents the 
quotient of (i) the amount of uncompensated care for such hospital for 
a period selected by the Secretary (as estimated by the Secretary, 
based on appropriate data (including, in the case where the Secretary 
determines alternative data is available which is a better proxy for 
the costs of subsection (d) hospitals for treating the uninsured, the 
use of such alternative data)); and (ii) the aggregate amount of 
uncompensated care for all subsection (d) hospitals that receive a 
payment under this subsection for such period (as so estimated, based 
on such data).''
    Therefore, Factor 3 is a hospital-specific value that expresses the 
proportion of the estimated uncompensated care amount for each 
subsection (d) hospital and subsection (d) Puerto Rico hospital with 
the potential to receive DSH payments relative to the estimated 
uncompensated care amount for all hospitals estimated to receive DSH 
payments in the fiscal year for which the uncompensated care payment is 
to be made. Factor 3 is applied to the product of Factor 1 and Factor 2 
to determine the amount of the uncompensated care payment that each 
eligible hospital will receive for FY 2014 and subsequent years. In 
order to implement the statutory requirements for this factor of the 
uncompensated care payment formula, we must determine the following: 
(1) The definition of uncompensated care, or in other words, the 
specific items that are to be included in the numerator (that is, the 
estimated uncompensated care amount for an individual hospital) and 
denominator (that is, the estimated uncompensated care amount for all 
hospitals estimated to receive DSH payments in the applicable FY); (2) 
the data source(s) for the estimated uncompensated care amount; and (3) 
the timing and manner of computing the quotient for each hospital 
estimated to receive DSH payments. The statute instructs the Secretary 
to estimate the amounts of uncompensated care for a period ``based on 
appropriate data.'' In addition, we note that the statute permits the 
Secretary to use alternative data ``in the case where the Secretary 
determines that alternative data is available, which is a better proxy 
for the costs of subsection (d) hospitals for treating the uninsured.
    In the course of considering how to determine Factor 3, we 
considered proposing to define the amount uncompensated care for a 
hospital as the uncompensated care costs of that hospital and 
considered potential data sources for those costs. In doing so, we 
first considered which costs should be included in the definition of 
``uncompensated care costs.'' We examined the broad literature on 
uncompensated care and the concepts of uncompensated care used in 
various public and private programs. We also considered input from 
stakeholders and public comments in various forums, including the 
national provider call that we held in January 2013. Our review of the 
information from these sources indicated that there is some variation 
in how different States, provider organizations, and Federal programs 
define ``uncompensated care.'' However, a common theme of almost all 
these definitions is that they include both ``charity care'' and ``bad 
debt'' as constituents of ``uncompensated care.'' After considering the 
various factors that are included in different definitions of 
``uncompensated care,'' we considered proposing to adopt a definition 
which incorporated those factors that are most commonly included within 
the term. Thus we considered proposing to define ``uncompensated care'' 
as the cost of charity care plus bad debt which includes the cost of 
non-Medicare bad debt and non-reimbursed Medicare bad debt. In turn, we 
also considered proposing to define ``charity care costs'' as the cost 
of care for patients that meet hospitals' individual criteria for 
charity care net of any partial payment received by the hospital from 
patients for that care, and to define ``non-Medicare bad debt costs'' 
as the cost of hospital care for non-Medicare patients that have the 
financial capacity to pay, but are unwilling to settle the claim. In 
addition, we considered proposing to define ``non-reimbursed Medicare 
bad debt costs'' as the amount of allowable coinsurance and deductible 
for Medicare patients from whom the hospital has sought to collect 
payment through reasonable collection efforts as described in Sec.  
413.89(e) of the Medicare regulations and not reimbursed by Medicare.
    Charity care is most commonly defined as hospital care provided to 
individuals that meet certain financial eligibility criteria, for which 
the hospital does not expect to receive payment because of the 
individual's inability to pay. Definitions of charity care also 
regularly state that a patient must meet several guidelines for their 
care to qualify as charity care. These guidelines usually state that 
the patient must be uninsured, unqualified for a Federal program such 
as Medicaid, and/or fall under a certain Federal poverty line (FPL) 
standard. Some charity care is directed at insured individuals when 
insurance does not cover all the costs of their hospital care or when 
there are annual or lifetime limits. This definition also varies by 
hospital. Some hospitals may also seek payment from individuals who 
qualify for charity care as part of their financial assistance policies 
or to help offset the cost of that patient's hospital care. To the 
extent that hospitals receive payment from a patient that qualifies for 
charity care for hospital care provided, we believe that those payments 
should be subtracted from the costs of that care. In this way, the cost 
of charity care reflects the financial burden on the hospital, or, 
stated another way, the cost of charity care reflects only the 
uncompensated portion of the charity care.
    The literature suggests that bad debt has been consistently defined 
as unreimbursed care for persons for which the hospital did not receive 
payment. The regulations at 42 CFR 413.89(b)(1) define Medicare bad 
debt as ``amounts considered to be uncollectible from accounts and 
notes receivable that were created or acquired in providing services.'' 
The regulations also specify that: ```accounts receivable' and `notes 
receivable' are designations for claims arising from the furnishing of 
services, and are collectible in money in the relatively near future.'' 
Section 413.89(e) further specifies that under

[[Page 27586]]

Medicare ``bad debt must meet the following criteria to be allowable: 
(1) The debt must be related to covered services and derived from 
deductible and coinsurance amounts. (2) The provider must be able to 
establish that reasonable collection efforts were made. (3) The debt 
was actually uncollectible when claimed as worthless. (4) Sound 
business judgment established that there was no likelihood of recovery 
at any time in the future. We considered proposing to use the cost of 
non-Medicare and non-reimbursed Medicare bad debt (as reported on line 
29 of the Worksheet S-10) as part of the proposed definition of 
``uncompensated care.''
    Some definitions of uncompensated care, including that used for 
calculating the Medicaid DSH hospital payment limit at 42 CFR 
447.299(c)(16), also include the difference between the costs incurred 
by a hospital for services to Medicaid individuals and applicable 
revenues for these services. While we recognize in some cases, a 
hospital may receive revenues that do not fully cover those costs, we 
note that this is true for any patient population treated by a hospital 
regardless of insurance status. Hospitals negotiate contractual 
allowances with commercial payers, and it is possible that payment for 
some of these patients would be less than the costs of their care.
    We emphasize, however, that we plan to monitor the potential 
effects of different definitions of uncompensated care on various 
measures designed to expand health insurance coverage under the 
Affordable Care Act, including Medicaid expansion.
    Specifically, we wish to avoid creating a policy that would serve 
as a disincentive for States wishing to expand Medicaid. Using some of 
the data discussed in this proposed rule, we recognize it would be 
possible for hospitals in States that choose to expand Medicaid to 
receive lower uncompensated care payments because they are less likely 
to have uninsured patients than hospitals in a State that does not 
choose to expand Medicaid. In practice, because the available data 
sources (such as the Medicare cost report) for a given federal fiscal 
year are not available until some time after the end of that federal 
fiscal year, we believe that data to understand these effects will not 
be available until 2016 or later. However, we also note that hospitals 
in expansion States would receive full Medicaid reimbursement for many 
previously uninsured patients. So on balance, we believe both hospitals 
and States stand to benefit greatly from Medicaid expansion, regardless 
of the data used to determine Factor 3. However, if warranted, we may 
in the future reconsider how to define uncompensated care, such as to 
include differences between applicable Medicaid costs and revenues, or 
consider other definitions that would account for differences in State 
Medicaid coverage.
    For purposes of selecting an appropriate data source for this 
possible definition of uncompensated care costs, we reviewed the 
literature and available data sources and determined that the Medicare 
cost report Worksheet S-10 could potentially provide the most complete 
data for Medicare hospitals. (We refer readers to the report 
``Improvements to Medicare Disproportionate Share (DSH) Payments'' for 
a full discussion and evaluation of the available data sources. The 
report can be found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.) 
However, Worksheet S-10 is a relatively new data source that has been 
used for specific payment purposes only in relatively restricted ways 
(e.g., to provide a source of charity care charges in the computation 
of EHR incentive payments; 75 FR 44456.). Some stakeholders have 
expressed concern that hospitals have not had enough time to learn how 
to submit accurate and consistent data through this reporting 
mechanism. Other stakeholders have maintained that some instructions 
for Worksheet S-10 still require clarification in order to ensure 
standardized and consistent reporting by hospitals. We understand and 
appreciate the concerns of these stakeholders. At the same time, 
Worksheet S-10 is the only national data source that includes data for 
all Medicare hospitals and is designed to elicit data that are both 
accurate and consistent with the definition of uncompensated care costs 
that we considered proposing to use.
    Charity care information is reported on Worksheet S-10, lines 20 
through 23. On line 20, Column 3, hospitals report ``Total initial 
obligation of patients approved for charity care (at full charges 
excluding non-reimbursable cost centers) for the entire facility'' for 
both the insured and uninsured population. On Worksheet S-10, line 21, 
the charity care charges reported on line 20 are converted to charity 
care costs by multiplying the charity care charges by the cost-to-
charge ratio (CCR) reported on line 1 of Worksheet S-10. Partial 
payment by patients for charity care is reported on line 22 of 
Worksheet S-10. Charity care costs are reported on line 23 of Worksheet 
S-10 as the difference between line 21 and 22. We could use ``Cost of 
Charity Care,'' line 23, Column 3 of Worksheet S-10 to identify a 
hospital's charity care costs, as part of a definition of 
``uncompensated care.''
    Bad debt information is reported on Worksheet S-10, lines 26 
through 29. On Worksheet S-10, line 26 and line 27, a hospital reports 
its total bad debt expense and its Medicare reimbursed bad debt 
expense, respectively. On Worksheet S-10, line 28 represents the non-
Medicare bad debt expense and non-reimbursed Medicare bad debt expense, 
the difference between lines 27 and 26. The cost of non-Medicare bad 
debt and non-reimbursed Medicare is reported on line 29 of the 
Worksheet S-10 as the product of the CCR and the non-Medicare and non-
reimbursed Medicare bad debt expense reported on line 28. We could use 
the cost of non-Medicare bad debt and non-reimbursed Medicare that is 
reported on line 29 of the Worksheet S-10 to identify a hospital's bad 
debt costs, as part of a definition of ``uncompensated care.''
    To summarize, we could use the sum of line 23, Column 3 of 
Worksheet S-10 and line 29 of Worksheet S-10 to estimate a hospital's 
uncompensated care cost. A hospital's individual uncompensated care 
cost based on this estimate would represent that hospital's numerator 
for Factor 3. The sum of the estimated uncompensated care costs for all 
the hospitals that we estimate would receive DSH payments (and thus the 
uncompensated care payment) for the fiscal year would represent the 
denominator of Factor 3.
    In order to apply a definition of uncompensated care costs based 
upon information reported on the Worksheet S-10, it would be necessary 
to use the 2010/2011 cost reports, which were submitted on or after May 
1, 2010, when the new Worksheet S-10 went into effect. These are the 
most recently available full year of cost reports and the first cost 
reports with detailed uncompensated care data on the Worksheet S-10 
that would be available for use in implementing the new methodology for 
uncompensated care payments for FY 2014. Concerns about the 
standardization and completeness of the Worksheet S-10 data could be 
more acute for data collected in the first year of the Worksheet's use. 
Because of these concerns, we are not proposing to define of 
uncompensated care in a way that would require use of the Worksheet S-
10 data.
    We believe, however, that Worksheet S-10 of the Medicare Cost 
Report would otherwise be an appropriate data source to determine 
uncompensated care costs. In particular, we note that Worksheet S-

[[Page 27587]]

10 was developed specifically to collect information on uncompensated 
care costs in response to interest by MedPAC and other stakeholders 
regarding the topic (for example, MedPAC's March 2007 Report to 
Congress) and that it is not unreasonable to expect information on the 
cost report to be used for payment purposes. Furthermore, hospitals 
attest to the accuracy and completeness of the information reported in 
the cost report at the time of submission. While we realize that 
hospitals may wish to have a more specific understanding of how this 
data will be used, we believe that the discussion in this proposed rule 
will help to increase their understanding and also inform our efforts 
to refine the cost report and cost report instructions so that 
hospitals may continue to gain experience in reporting accurate 
information. We also expect reporting on Worksheet S-10 to improve over 
time, particularly in the area of charity care which is already being 
used and audited for payment determinations related to the electronic 
health record incentive program, and will continue to monitor these 
data. Accordingly, we may proceed with a proposal to use data on the 
Worksheet S-10 to determine uncompensated care costs in the future, 
once hospitals are submitting accurate and consistent data through this 
reporting mechanism.
    As we describe above, we are concerned about stakeholder input that 
the variations in the data reported on Worksheet S-10 of the Medicare 
cost report regarding uncompensated care may be due to hospitals' 
relative lack of experience reporting all of the data elements on that 
worksheet. A large number of stakeholders noted that there is 
considerable variation and numerous inconsistencies in how 
uncompensated care is calculated and reported in Worksheet S-10 and 
they point out that these inconsistencies can produce divergent 
results. Some went as far as noting that data from Worksheet S-10 is 
``flawed'' and many suggested more precision in reporting instructions 
to help hospitals report data in a more consistent manner. We note that 
most of the data elements reported on Worksheet S-10 have been 
previously unused for payment purposes, with only some data elements 
recently being used for determining a hospital's electronic health 
record incentive payments, and these data elements have not been 
subject to audit prior to this time. We believe it is important that 
data used to determine Factor 3 are data that have been historically 
publicly available, subject to audit, and used for payment purposes (or 
that the public understands will be used for payment purposes). It is 
our belief that hospitals expend more resources to ensure data accuracy 
when data are publicly available and used for payments. For example, 
the National Quality Forum (NQF) first endorsed quality measures for 
readmissions for heart failure (HF) in May 2008 and acute myocardial 
infarction (AMI) and pneumonia (PN) in October 2008. HF was 
subsequently adopted in the Hospital Inpatient Quality Reporting 
Program in the FY 2009 IPPS rule and AMI and PN in the CY2009 OPPS 
rule. All three were adopted for the FY 2010 HIQR program and publicly 
reported in Hospital Compare in 2009. More recently, starting in FY 
2013, all three were used to determine a payment adjustment under 
1886(q). As the measures became linked with payment, CMS has received 
an increasing number of questions regarding and requests to refine 
these measures, leading us to believe that hospitals are increasingly 
focused on ensuring that their data are correct. Furthermore, it is 
also our belief that auditing plays an important role in ensuring data 
accuracy by identifying and remediating problem areas and/or hospitals 
as well as by having a sentinel effect in others. For example, each 
year, CMS and its intermediaries work with hospitals to review salary 
and wage data reported on Worksheet S-3 of the Medicare cost report for 
use in determining the wage index. This extensive process identifies 
errors and ensures that anomalous data are reviewed, corrected as 
needed, and documented. Due to stakeholder concerns and our belief in 
the importance of using data that have been historically publicly 
available, subject to audit, and used for payment purposes (or that the 
public understands will be used for payment purposes), for FY 2014, we 
have serious concerns about proposing using Worksheet S-10 to determine 
the amount of uncompensated care.
    While the statute instructs the Secretary to estimate the amounts 
of uncompensated care for a period ``based on appropriate data,'' 
section 1886(r)(2)(C)(i) permits the Secretary to use alternative data 
``in the case where the Secretary determines that alternative data is 
available which is a better proxy for the costs of subsection (d) 
hospitals for treating the uninsured'' for the numerator of Factor 3. 
For the denominator of that quotient, section 1886(r)(2)(C)(ii) 
requires the Secretary to use ``the aggregate amount of uncompensated 
care for all subsection (d) hospitals that receive a payment under this 
subsection for such period (as so estimated, based on such data). 
(Emphasis added.) The phrase ``as so estimated, based on such data'' in 
the latter section can be reasonably interpreted to require the 
calculation to similarly be based on the same data as is used to 
estimate the numerator of the quotient in Factor 3, including any 
alternative data which is determined to be a better proxy for the costs 
of treating the uninsured. As a result of our concerns regarding 
variations in the data reported on the Worksheet S-10, we believe that 
it is appropriate to consider the use of alternative data, at least in 
FY 2014, the first year that this provision is effective, and possibly 
additional years until hospitals have adequate experience reporting all 
of the data elements on Worksheet S-10. We note that this is consistent 
with input we received from some stakeholders in response to the CMS 
National Provider Call in January 2013, who stated their belief that 
existing FY 2010 and FY 2011 data from the Worksheet S-10 cannot be 
used for implementation of 1886(r) and who requested the opportunity to 
re-submit the data once more specific instructions were issued by CMS. 
Accordingly, we examined alternative data sources that could be used to 
allow time for hospitals to gain experience with and to improve the 
accuracy of their S-10 reporting. For the reasons described above, we 
believe it would be appropriate to use data elements that have been 
historically publicly available, subject to audit, and used for payment 
purposes (or that the public understands will be used for payment 
purposes) as alternative data for the first year or years of 
implementation.
    In order to implement the statutory requirements for Factor 3 using 
alternative data, we must: (1) Determine whether alternative data would 
be a better proxy for the treatment costs of the uninsured than the 
information available on the Worksheet S-10; (2) identify a source for 
this alternative data; and (3) determine the timing and manner of 
computing the quotient for each hospital.
    We believe that data on utilization for insured low-income patients 
can be a reasonable proxy for the treatment costs of uninsured 
patients. Moreover, due to the concerns regarding the accuracy and 
consistency of the data reported on the Worksheet S-10, we believe that 
this alternative data, which is currently reported on the Medicare cost 
report, would be a better proxy for the amount of uncompensated care 
provided by hospitals. Accordingly, we propose to use the utilization 
of insured low-

[[Page 27588]]

income patients defined as inpatient days of Medicaid patients plus 
inpatient days of Medicare SSI patients as defined in 42 CFR 
412.106(b)(4) and 412.106(b)(2)(i), respectively to determine Factor 3. 
We describe our proposal and rationale more fully below and seek public 
comment.
    As a preliminary matter, we note that precise data on health care 
costs are difficult to obtain. We note that for Medicare payment 
purposes, we estimate those costs using reported charges and cost-to-
charge ratios. This approach to estimating costs is what is used on 
Worksheet S-10 to determine costs for charity care and bad debt. Even 
though we do not believe it is appropriate to look beyond the Medicare 
cost report for alternative data because all hospitals are required to 
report data on that cost report, we think that it is important to point 
out that data on uninsured patients is difficult to find in a 
comprehensive manner on a hospital-specific basis. In a September 2002 
report, Analysis of the Joint Distribution of Disproportionate Share 
Hospital Payments, RAND and Urban Institute researchers describe this 
difficulty, citing as an example how detailed inpatient utilization 
data on self-pay patients were available only for the sample of 
hospitals (20 percent sample) from the 24 states included in AHRQ's 
HCUP database.\25\
---------------------------------------------------------------------------

    \25\ Wynn, B. et al. Analysis of the Joint Distribution of 
Disproportionate Share Hospital Payments. PM-1387-ASPE. September 
20, 2002 http://www.urban.org/UploadedPDF/410975_ASPEDSH_final.pdf.
---------------------------------------------------------------------------

    While Worksheet S-10 does contain some information regarding the 
treatment costs of the uninsured, most notably of those uninsured 
patients who qualify for charity care at an individual hospital, for 
the reasons described above, we are concerned about the use of 
information reported on the Worksheet S-10 as appropriate data for FY 
2014 and possibly additional years. As a result of these concerns, in 
identifying alternative data that could serve as a proxy for the 
treatment costs of the uninsured, we must consider methods other than 
costs to approximate the resources expended by hospitals to treat 
uninsured patients. One such method is utilization. A hospital's costs 
for treating uninsured patients are a function of its input costs and 
utilization of services. In accordance with the statute, in order to 
determine Factor 3, a hospital-level estimate of uncompensated care is 
required. Such an estimate can be constructed using detailed data 
regarding specific items or services. However, such data are not 
available to us. In contrast, hospital level data measuring utilization 
as inpatient days or discharges are available. While we note that 
inpatient days or discharges would be more precise if they took into 
account the relative resource utilization of individual patients, such 
as case mix, no such data are available to us. In the September 2002 
report discussed above, RAND and Urban Institute researchers asserted 
that without specific case mix data for low income populations, 
inpatient days are preferable to discharges as a way to measure 
utilization. Therefore, we believe that utilization based upon 
inpatient days is an appropriate method to approximate costs for the 
treatment costs of the uninsured.
    We further believe that utilization by insured low-income patients, 
such as Medicaid patients or Medicare patients that receive SSI 
benefits (Medicare SSI), can be a reasonable proxy for utilization by 
uninsured patients. In its 2000 report on American's Health Care Safety 
Net, the Institute of Medicine considers uninsured individuals, low-
income underinsured individuals, Medicaid beneficiaries, and patients 
with special health care needs all as vulnerable populations.\26\ We 
note that when studying access to care, researchers may study Medicaid 
and/or low-income populations (e.g., health outcomes, utilization, 
etc.) in order to understand more broadly the impact of similar policy 
interventions for other vulnerable populations.\27\ For example, 
recently, researchers have studied the effects of Medicaid expansions 
to gauge the effects of these expansions on health status and other 
indicators to inform policymakers as these expansion efforts 
continue.\28\ Researchers have also studied the ability of Medicaid 
patients to gain access to outpatient care in an effort to highlight 
the ramifications of various policy interventions, such as mandatory 
co-payments and utilization restrictions.\29\ We believe that this type 
research is often used by state and other policy makers to evaluate how 
Medicaid and other public health insurance can expand access to care to 
uninsured populations.
---------------------------------------------------------------------------

    \26\ Marion Ein Lewin and Stuart Altman, Editors; Committee on 
the Changing Market, Managed Care, and the Future Viability of 
Safety Net Providers, Institute of Medicine. America's Health Care 
Safety Net: Intact but Endangered. 2000. http://www.nap.edu/catalog/9612.html.
    \27\ John K. Iglehart. Medicaid. N Engl J Med 1993; 328:896-900. 
March 25, 1993.
    \28\ Benjamin D. Sommers, M.D., Ph.D., Katherine Baicker, Ph.D., 
and Arnold M. Epstein, M.D. Mortality and Access to Care among 
Adults after State Medicaid Expansions. N Engl J Med 2012; 367:1025-
1034. September 13, 2012.
    \29\ The Medicaid Access Study Group. Access of Medicaid 
Recipients to Outpatient Care. N Engl J Med 1994; 330:1426-1430. May 
19, 1994.
---------------------------------------------------------------------------

    While the report by RAND and the Urban Institute cited above found 
shortcomings in how well both Medicaid and Medicare DSH target funds 
towards safety net hospitals, another key finding of the report was 
that the allocation methods used by these programs target funds to 
safety net hospitals at least as well as the alternative allocation 
methods they examined. The allocation method used by Medicare for 
Medicare DSH is the sum of two computations. The first computation, 
defined at 42 CFR 412.106(b)(2), known as the SSI ratio or Medicare 
fraction, is the proportion of a hospital's Medicare SSI days relative 
to Medicare days. The second computation, defined at 42 CFR 
412.106(b)(4), known as the Medicaid fraction, is the proportion of a 
hospital's Medicaid days relative to total days. The by RAND and the 
Urban Institute study also found that the choice of patient populations 
used to evaluate how well Medicare and Medicaid DSH funds are allocated 
is important. The study notes that including Medicare SSI beneficiaries 
along with all other low-income patients generally performed better, 
resulting in a better targeting of these payments towards safety net 
hospitals. Therefore, we believe the utilization of insured low income 
patients defined as insured low-income days, or inpatient days of 
Medicaid patients plus inpatient days of Medicare-SSI patients could be 
a proxy for the treatment costs of uninsured patients. Currently, for 
the Medicare DSH adjustment, hospitals report utilization for Medicaid 
and Medicare SSI patients in accordance with the regulations at 42 CFR 
412.106(b)(4) and 412.106(b)(2)(i), respectively. Specifically, we 
would define inpatient days for Medicaid patients as they are defined 
in 42 CFR 412.106(b)(4) and inpatient days for Medicare-SSI patients as 
they are defined at Sec.  412.106(b)(2)(i). A hospital's individual 
insured low-income insured days based on this calculation would 
represent that hospital's numerator for Factor 3. The sum of the low-
income insured days under this calculation for all the hospitals that 
we estimate would receive DSH payments (and thus the uncompensated care 
payment) for FY 2014 would represent the denominator of Factor 3.
    It is important to point out that when these insured low-income 
utilization data are used to determine Medicare DSH payments, they are 
subject to additional computations as described in 42 CFR 412.106(b) 
and 412.106(d).

[[Page 27589]]

Therefore, using these data to determine Factor 3 will lead to a 
different set of results than using these data to determine hospitals' 
Medicare DSH payments.
    We believe that the data in the Medicare cost report (and data that 
are used to update the SSI ratios in the cost report) are acceptable 
for use as a source for this alternative data because they include data 
for all Medicare hospitals. For the reasons described above, we 
considered data elements from the Medicare cost report that have been 
historically publicly available, subject to audit, and used for payment 
purposes, as alternative data for the costs of subsection (d) hospitals 
for treating the uninsured. Worksheet S-3, Part I of the CMS-2552-96 
version of the Medicare cost report and Worksheet S-2, Part I of the 
CMS 2552-10 version of the Medicare cost report contain information on 
the utilization of Medicaid patients. Specifically, it contains 
information regarding Medicaid days (i.e., the numerator of the 
Medicaid fraction). The SSI ratios can be found in Worksheet E, Part A 
and hospitals' SSI ratios are reported by CMS on the Medicare DSH Web 
site, by Federal fiscal year, and include a hospital's Medicare SSI 
days. We point out that CMS calculates the SSI ratios using the MedPAR 
claims data and updates them annually in accordance with the process 
and timing set forth in the FY 2011 IPPS rule (75 FR 50282), generally 
issuing them in the Spring of each year for the federal fiscal year two 
years prior. For instance, we would expect that the SSI ratios for FY 
2011 would be made available in the Spring of 2013. SSI ratios can be 
downloaded from http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html. The SSI ratios for a Federal fiscal 
year are the data that would ultimately be used in Worksheet E, Part A 
to determine a hospital's Medicare DSH adjustment for that fiscal year. 
While a hospital may choose to have its DSH payments settled using an 
SSI ratio based on the hospital's cost reporting period, this choice 
will vary by hospital and the timing of this choice will vary. As a 
result, a hospital's decision whether to have its SSI ratio calculated 
on the basis of its cost reporting period may not be available at the 
time we determine Factor 3 for a specific federal fiscal year. 
Therefore, in an effort to balance consistency and administrative 
efficiency with precision, we believe it is appropriate to use the SSI 
ratios based on the federal fiscal year.
    Except for the data on Worksheet S-10, the Medicare cost report 
does not currently include information that would allow calculation of 
the treatment costs of uninsured patients. For the reasons described 
previously, for FY 2014 and possibly additional years, we have concerns 
with using these data. Accordingly, we propose to use Worksheet S-3 
Part I of the CMS-2552-96 version of the Medicare cost report and 
Worksheet S-2, Part I of the CMS 2552-10 version of the Medicare cost 
report and data that are used to update the SSI ratios on that 
Worksheet E, Part A as the source of the alternative data to determine 
Factor 3 for FY 2014. We may propose to use data from Worksheet S-10 to 
determine uncompensated care costs in the future, once hospitals are 
submitting accurate and consistent data through this reporting 
mechanism.
    The statute also allows the Secretary the discretion to determine 
the time periods from which we will derive the data to estimate the 
numerator and the denominator of the Factor 3 quotient. Specifically, 
the statute defines the numerator of the quotient as ``the amount of 
uncompensated care for such hospital for a period selected by the 
Secretary...'' The statute defines the denominator as ``the aggregate 
amount of uncompensated care for all subsection (d) hospitals that 
receive a payment under this subsection for such period.'' (Emphasis 
added.) As we have discussed above, we are proposing a process of 
making interim payments with final cost report settlement for both the 
empirically justified Medicare DSH payments and the uncompensated care 
payments required by section 3133 of the Affordable Care Act. 
Consistent with that proposed process, we also are proposing to 
determine the time period from which to estimate the numerator and 
denominator of the Factor 3 quotient in a way that will be consistent 
with making interim and final payments. Specifically, we must have 
Factor 3 values available for hospitals that we estimate will qualify 
for Medicare DSH payments using most recently available historical data 
and for those hospitals that we do not estimate will qualify for 
Medicare DSH payments but that may ultimately qualify for Medicare DSH 
payments at the time of cost report settlement.
    We are proposing to estimate the numerator and the denominator of 
Factor 3 for hospitals based on the most recently available full year 
of Medicare cost report data (including the most recently available 
data that may be used to update the SSI ratios) with respect to a 
Federal fiscal year. In other words, we are proposing to use data from 
the most recently available cost report for the Medicaid days and the 
most recently available SSI ratios (that is, latest available SSI 
ratios before the beginning of the Federal fiscal year) for the 
Medicare-SSI days. We note that these data are publicly available, 
subject to audit, and used for payment purposes. While we recognize 
that older data also meet these criteria, we often use the most 
recently available data for payment determinations. Therefore, for FY 
2014, we are proposing to use data from the 2010/2011 cost reports for 
the Medicaid days and the FY 2011 SSI ratios for the Medicare-SSI days 
(or, if the FY 2011 SSIs are unavailable, the FY 2010 SSI ratios) to 
estimate Factor 3 for FY 2014.
    To summarize, for FY 2014, in response to stakeholder concerns 
regarding data variability and lack of reporting experience with 
Worksheet S-10, we propose to determine Factor 3 using insured low-
income patient days from the 2010/2011 cost reports (including the 
FY2011 or FY 2010 SSI ratios, whichever represents the most recently 
available inputs prior to October 1, 2013) as alternative data which 
are a better proxy for the treatment costs of uninsured patients. We 
further propose to define insured low-income patient days as inpatient 
days of Medicaid patients plus inpatient days of Medicare SSI patients 
as defined in 42 CFR 412.106(b)(4) and 412.106(b)(2)(i), respectively.
    We are proposing to add a new paragraph (g)(1)(iii) under Sec.  
412.106 of our regulations to define the methodology for calculating 
Factor 3.
    We are inviting public comments on this proposal. Notwithstanding 
our concerns regarding Worksheet S-10, we are interested to hear 
commenters' views on the quality of the data reported on the Worksheet 
S-10, and whether it would be sufficient for use in determining 
uncompensated care amounts for fiscal year 2014, either by itself or in 
combination with other data. We also seek comment on how fast we could 
transition to the use of Worksheet S-10 data based upon increased 
reliability over time, including whether the data could be used to 
determine uncompensated care in FY 2014 either alone or in combination 
with other data.
    In addition, we are proposing to estimate which hospitals would 
receive an empirically justified DSH payment in a given Federal fiscal 
year using the most recent data available. As we described previously, 
only hospitals that receive Medicare DSH payments in a fiscal year may 
receive an uncompensated care payment. However, because whether or not 
a hospital will actually receive Medicare DSH payment is not known 
until cost report

[[Page 27590]]

settlement and cost report settlement occurs several years after end of 
the federal fiscal year, we believe it is necessary to estimate which 
hospitals will receive Medicare DSH for a given fiscal year. Because 
the uncompensated care amounts for these hospitals are used to 
determine the denominator of Factor 3, this allows for the calculation 
of Factor 3 in advance of or during the federal fiscal year so that 
interim payments can begin during the fiscal year. We believe that this 
will create some level of predictability and finality for hospitals 
eligible for these payments, in addition to being administratively 
efficient.
    Thus for FY 2014, the denominator for Factor 3 would reflect the 
estimated Medicaid and Medicare SSI patient days based on data from the 
2010/2011 Medicare cost report (including the most recently available 
data that may be used to update the SSI ratios) for all hospitals that 
we estimate would receive an empirically justified DSH payment in FY 
2014. The numerator of Factor 3 would be the estimated Medicaid and 
Medicare SSI patient days for the individual hospital based on its most 
recent 2010/2011 Medicare cost report data (including the most recently 
available data that may be used to update the SSI ratios). We propose 
to calculate a numerator for all subsection (d) hospitals and 
subsection (d) Puerto Rico hospitals that have the potential of 
receiving a DSH payment regardless of whether we estimate that the 
hospital would receive DSH payments in the respective Federal fiscal 
year. In that way, if a hospital becomes eligible to receive the 
empirically justified DSH payment and also an uncompensated care 
payment, we will be able to finalize its uncompensated care payment 
efficiently and without affecting the uncompensated care payments of 
other hospitals.
    We believe that this proposed approach strikes an appropriate 
balance between administrative efficiency, finality, and predictability 
in payments. Therefore, we also are proposing to publish a table or 
tables listing Factor 3 for all hospitals that we estimate would 
receive empirically justified DSH payments in a fiscal year (that is, 
hospitals that would receive interim uncompensated care payments during 
the fiscal year), and for the remaining subsection (d) and subsection 
(d) Puerto Rico hospitals that have the potential of receiving a DSH 
payment in the event that they receive an empirically justified DSH 
payment for the fiscal year as determined at cost report settlement. We 
are also proposing that hospitals have 60 days from the date of display 
of the IPPS/LTCH PPS proposed rule to review these tables and notify 
CMS in writing of a change in a hospital's subsection (d) hospital 
status, such as if a hospital has closed or converted to a CAH. We will 
notify hospitals concerning the specifics of this process in program 
instructions after the final rule. For FY 2014, we will allow hospitals 
60 days from the date of display of the IPPS/LTCH PPS proposed rule to 
review these tables and notify CMS in writing of a change in a 
hospital's subsection (d) hospital status, and we may allow an 
additional (perhaps shorter) such period after the publication of the 
final rule. For hospitals that were not estimated to receive an 
empirically justified DSH payment for a fiscal year, but ultimately 
qualify for such a payment at cost report settlement, we would make the 
full uncompensated care payment at that time. In the case of hospitals 
that we estimated would receive an empirically justified Medicare DSH 
payment for a fiscal year and that received interim empirically 
justified Medicare DSH payments and uncompensated care payments, but 
are found to be ineligible for DSH payments at cost report settlement, 
we would recover the overpayment. However, we are proposing only to 
calculate the denominator once, at the time of the IPPS/LTCH PPS final 
rule each year. We are not proposing to recalculate the denominator at 
the time when cost reports are settled and final eligibility 
determinations for uncompensated care (and empirically justified 
Medicare DSH) payments are made. We discuss our proposals for interim 
payments and reconciliation processes later in this preamble.
    For the purpose of this proposed rule, we are posting proposed 
tables listing Factor 3 for the hospitals that we have estimated would 
receive Medicare DSH payments for FY 2014 on the CMS Web site at: 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html. We request that hospitals review these 
tables. In order to ensure that we have sufficient time to incorporate 
any updated information in the tables for the final rule, hospitals 
should notify CMS in writing within 60 days from the date of display of 
this proposed rule of any change in a hospital's subsection (d) 
hospital status. As we state above, for FY 2014, we may allow an 
additional (perhaps shorter) such period after the publication of the 
final rule.
    Our estimates of eligibility to receive FY 2014 Medicare DSH 
payments are based on the December 2012 update of the Provider Specific 
File that lists the most recently available DSH patient percentage 
(DPP) and DSH payment adjustments for hospitals that qualify to receive 
DSH payments. We estimate that 2,349 hospitals, or 68 percent of all 
applicable hospitals, would be eligible for DSH payments in FY 2014. 
The proposed Factor 3 is based on the December 2012 update of the 
Medicare Hospital Cost Report and FY 2010 SSI ratios. The data from 
these 2,349 hospitals is used to determine the denominator for Factor 
3. However, we will estimate a Factor 3 numerator for each subsection 
(d) and subsection (d) Puerto Rico hospital that has the potential of 
receiving DSH payments for FY 2014 and therefore of qualifying for the 
uncompensated care payment in FY 2014. We intend to update in the final 
rule the list of hospitals that we estimate will be eligible for DSH 
payments for FY 2014 and our estimate of Factor 3 using more recent 
data and verified hospital notifications regarding hospital status (for 
example, closures).
e. Limitations on Review
    Section 1886(r)(3) of the Act provides that there will be no 
administrative or judicial review under section 1869 of the Act, 1878 
of the Act, or otherwise for any of the following:
     Any estimate of the Secretary for purposes of determining 
the factors described in paragraph (2) of section 1886(r) of the Act.
     Any period selected by the Secretary for such purposes.
    We are proposing to codify this policy in new Sec.  412.106(g)(2) 
of our regulations.
    We invite public comment on this proposal.
f. Proposed Operational Considerations
    As discussed earlier in section V.F.3.d. of the preamble of this 
proposed rule, and in accordance with section 1886(r)(2) of the Act, 
only subsection (d) hospitals that receive empirically justified 
Medicare DSH payments in a given Federal fiscal year will also receive 
the uncompensated care payment (that is, Factor 1 times Factor 2 times 
Factor 3) for that given Federal fiscal year. In addition, as discussed 
above in this section, we are proposing that subsection (d) Puerto Rico 
hospitals that receive empirically justified Medicare DSH payments in a 
given Federal fiscal year would also receive the uncompensated care 
payment (that is, Factor 1 times Factor 2 times Factor 3) for that 
given Federal fiscal year. As we discussed above, we intend to estimate 
Factor 3 for each subsection (d) and subsection (d) Puerto Rico 
hospital with the potential to receive a DSH payment prior to the

[[Page 27591]]

beginning of the Federal fiscal year and intend to make that 
information available via our Web site. http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.
    Specifically, we are proposing to make interim uncompensated care 
payments on the basis of our best available estimates concerning the 
eligibility of each hospital for empirically justified Medicare DSH 
payments and our best available calculations concerning the amount of 
the uncompensated care payments that the hospital is eligible to 
receive. We intend to make these interim uncompensated care payments on 
a periodic basis and not on a per discharge basis. As discussed above, 
we believe that this approach is more consistent with the plain 
language of the statute describing the additional payment, which 
includes no information from which it would be possible to infer that 
the payment should be made on a per discharge basis. We believe that 
this is the most administratively efficient means to distribute a set 
dollar amount to individual hospitals and also creates an appropriate 
level of predictability for hospitals. If we were to make these interim 
uncompensated care payments on a per discharge basis, unless a 
hospital's Medicare utilization is identical to the period used to 
determine the per discharge payment level, it is certain that Medicare 
would overpay or underpay. By making interim payments periodically, we 
can virtually eliminate the possibility that Medicare pays a higher or 
lower amount than intended and limit the need for reconciliation to 
whether a hospital is eligible for Medicare DSH and thus the entire 
uncompensated care payment at cost report settlement.
    We also are proposing to make a final determination concerning 
eligibility for uncompensated care payments at the time of cost report 
settlement. As a result of this proposal, our operational system must 
be able to handle the various situations that may arise between interim 
and final eligibility determinations. For example, a hospital may 
receive empirically justified DSH payments and uncompensated care 
payments based on an initial determination that the hospital is 
eligible for such payments, but the hospital may then be determined to 
be ineligible for such payments at cost report settlement. In such 
situations, we must be prepared and able to recoup the interim 
empirically justified DSH payments and uncompensated care payments that 
the hospital received.
    For each Federal fiscal year, as we proposed earlier in this 
section, we intend to estimate which hospitals will receive an 
empirically justified DSH payment (that is, eligible hospitals). We are 
proposing to provide periodic payments to these hospitals during the 
relevant Federal fiscal year so that they can receive their 
uncompensated care payments on an interim basis. For a fiscal year, 
each eligible hospital's interim uncompensated care payments will be 
determined by multiplying the final values for Factor 1, Factor 2, and 
Factor 3 for that year and dividing the amount by the number of periods 
over which the interim payments will be made.
    Because we are using historical data to estimate each hospital's 
eligibility for empirically justified DSH payments in FY 2014 and 
subsequent years, a reconciliation process will be necessary to account 
for cases in which a hospital's eligibility for such payments changes 
after we have published our estimates during the rulemaking process. 
For example, a hospital that had not been estimated to be eligible for 
these payments may become eligible during the course of a given payment 
period. In such cases, our estimates would have indicated that the 
hospital was ineligible for empirically justified DSH payments and 
therefore ineligible for uncompensated care payments. That hospital 
would not receive interim payments. However, if the data available at 
cost report settlement were to indicate that the hospital is eligible 
for an empirically justified DSH payment, the hospital would become 
eligible for an uncompensated care payment based on that hospital's 
Factor 3 value.
    Therefore, we are proposing that at cost report settlement, the 
fiscal intermediary/MAC will make a final determination concerning 
whether each hospital is eligible for empirically justified Medicare 
DSH payments and, therefore, uncompensated care payments in FY 2014 and 
each subsequent year. In the case where a hospital received interim 
payments for its empirically justified Medicare DSH payments and 
uncompensated care payments for FY 2014 or a subsequent year on the 
basis of estimates prior to the payment year, but is determined to be 
ineligible for the empirically justified Medicare DSH payment at cost 
report settlement, the hospital would no longer be eligible for either 
payment and CMS would recoup those monies. For a hospital that did not 
receive interim payments for its empirically justified DSH payments and 
uncompensated care payments for FY 2014 or a subsequent year, but at 
cost report settlement is determined to be eligible for DSH payments, 
the fiscal intermediary/MAC would calculate the uncompensated care 
payment for such a hospital based on the Factor 3 value determined 
prospectively for that fiscal year.
    We are proposing to codify this policy regarding the manner and 
timing of payments in new Sec.  412.106(h) of our regulations.
    We invite public comment on this proposal.
    The reconciliations at cost report settlement would be based on the 
values for Factor 1, Factor 2, and Factor 3 that we have finalized 
prospectively for a Federal fiscal year. For example, a hospital that 
was estimated by CMS to receive empirically justified DSH payments for 
FY 2014 and received interim uncompensated care payments would not 
receive a different uncompensated care payment amount if the fiscal 
intermediary/MAC determined that the hospital remained eligible for 
empirically justified DSH payments at cost report settlement. In other 
words, we are not proposing to include a reestimation of Factor 1, 
Factor 2, or Factor 3 in the reconciliation process we are describing. 
Rather, Factor 1, Factor 2, and Factor 3 are estimates determined 
prospectively using methodologies we establish through rulemaking. We 
recognize that, under this proposal, we may pay a total amount that 
could either be more or less than the product of Factor 1 and Factor 2. 
However, we believe this is inherent in the use of estimates to 
determine the Factors, similar to the manner in which we estimate the 
amount of total outlier payments under section 1886(d)(5)(A)(iv) 
although, as in this case, the amount of actual total outlier payments 
might vary from that estimate. We do not know of any reason to believe 
that there will be a bias toward systematic overpayment or underpayment 
from year to year.
    We are proposing to codify this policy at Sec.  412.106(g)(1)(iv) 
of our regulations.
    We are inviting public comments on this proposal, especially in 
regard to whether we should include Factor 3 within the reconciliation 
process. Depending on the comments, we may revise our proposed policy 
in the final rule so that at the time of cost report settlement and 
reconciliation a hospital's final uncompensated care payments could be 
based on Factor 3 numerators and denominators estimated using more 
recent cost report data (and associated inputs). In addition, we may 
revise our proposed reconciliation process, as appropriate, to account 
for any policy changes that we make in the

[[Page 27592]]

final rule to the proposals in this proposed rule.
    We also note that the uncompensated care payment will be reported 
on the Medicare Hospital Cost Report. We recognize that hospitals have 
their own cost reporting periods that may differ from the Federal 
fiscal year and that may span more than one Federal fiscal year. We are 
proposing that hospitals receive their uncompensated care payments with 
respect to the fiscal year in which their cost report begins. For 
example, if a hospital is estimated to be eligible for the empirically 
justified DSH payment and also an uncompensated care payment in FY 2014 
and has a cost report period of January 1, 2014 through December 31, 
2014, this hospital would begin to receive interim payments for its 
uncompensated care on October 1, 2013. If, at cost report settlement, 
this hospital remained eligible for an empirically justified DSH 
payment, then the hospital would receive its FY 2014 uncompensated care 
payment on its cost report for the cost reporting period beginning on 
January 1, 2014 (that is, the hospital would neither owe nor be owed 
monies for its uncompensated care payment). As another example, if that 
same hospital is no longer eligible for an empirically justified 
Medicare DSH payment at the time of settlement of its cost report for 
the cost reporting period beginning January 1, 2014, the hospital would 
be required to pay back the interim payments it received for its 
uncompensated care payments. We note that this methodology would not 
delay the full payment of FY 2014 payments to hospitals with cost 
reporting periods that begin after October 1, 2013. While it is 
possible to align interim and final payments for the uncompensated care 
payment with individual hospital's cost reporting periods, we believe 
it administratively efficient and practical to pay the uncompensated 
care payment on the basis of the Federal fiscal year because that is 
how it is determined, and to reconcile that amount in the cost 
reporting period that begins in the respective Federal fiscal year. If 
this proposal is finalized, we will revise the cost report accordingly. 
We are inviting public comments on our proposal.
g. National Provider Call
    On January 8, 2013, CMS hosted a National Provider Call regarding 
the implementation of section 3133 of the Affordable Care Act. During 
this call, CMS asked Dobson DaVanzo and Associates, LLC. with its 
subcontractor, KNG Health Consulting, LLC, to present information 
regarding alternative definitions, measures, and data sources for the 
various estimates required by section 1886(r) of the Act, including the 
rate of uninsured individuals under the age of 65 years and hospital-
specific uncompensated care. Approximately 1,304 participants 
participated in this call. The presentation materials from the call are 
available on the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Outreach/NPC/National-Provider-Calls-and-Events-Items/2013-01-08-ACA to submit public comments to CMS for consideration through 
January 15, 2013, when we undertook rulemaking and other activities 
related to implementation of section 1886(r) of the Act. Approximately 
64 organizations submitted comments either on the National Provider 
Call or subsequent to the National Provider Call. We appreciate this 
input and have considered the issues raised by the commenters in 
developing the proposals discussed above. The report ``Improvements to 
Medicare Disproportionate Share (DSH) Payments'' discusses the issues 
raised in this National Provider Call. A summary of the comments on the 
National Provider Call has also been prepared. The report and summary 
can be found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.

F. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108)

1. Backgound
    Section 1885(d)(5)(G) of the Act provides special payment 
protections, under the IPPS, to a Medicare-dependent, small rural 
hospital (MDH). (For additional information on the MDH program and the 
payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51683 through 51684.) As we discussed in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 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 expiration of the MDH program from the end of FY 
2011 (that is, for discharges occurring before October 1, 2011) to the 
end of FY 2012 (that is, for discharges occurring before October 1, 
2012). Under prior law, as specified in section 5003(a) of Public Law 
109-171 (DRA 2005), the MDH program was to be in effect through the end 
of FY 2011 only. Section 3124(a) of the Affordable Care Act amended 
sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to 
extend the MDH program and payment methodology by striking out 
``October 1, 2011'' and inserting ``October 1, 2012''. Section 3124(b) 
of the Affordable Care Act made conforming amendments to sections 
1886(b)(3)(D) and 1886(b)(3)(D)(iv) of the Act.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50287 and 50414), we 
amended the regulations at Sec.  412.108(a)(1) and (c)(2)(iii) to 
reflect the statutory extension of the MDH program through FY 2012. In 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51683 through 51684), we 
did not make any additional changes to the MDH regulatory text for FY 
2012. As discussed below, the ATRA (Pub. L. 112-240) amended the Act to 
extend the MDH program through the end of FY 2013.
2. Provisions of the ATRA for FY 2013
a. Background
    Prior to the enactment of the ATRA, under section 3124 of the 
Affordable Care Act, the MDH program authorized by section 
1886(d)(5)(G) of the Act was set to expire at the end of FY 2012. 
Section 606 of the ATRA amended sections 1886(d)(5)(G)(i) and 
1886(d)(5)(G)(ii)(II) of the Act to provide for an additional 1-year 
extension of the MDH program, effective from October 1, 2012 to 
September 30, 2013 (FY 2013). Section 606 of the ATRA also made 
conforming amendments to sections 1886(b)(3)(D)(i) and 
1886(b)(3)(D)(iv) of the Act. Prior to the enactment of the ATRA, in 
the FY 2013 IPPS/LTCH PPS final rule, we discussed the expiration of 
the MDH program at the end of FY 2012 (77 FR 53413 through 53414) and 
revised the SCH regulation at Sec.  412.92(b) to change the effective 
date of SCH status for MDHs that apply for SCH status with the 
expiration of the MDH program (77 FR 53404 through 53405).
    In a FY 2013 IPPS notice issued in the Federal Register on March 7, 
2013 (78 FR 14689), we announced the extension of the MDH program for 
FY 2013 in accordance with the provisions of section 606 of the ATRA. 
In that notice, we explained that, as a result of section 606 of the 
ATRA, the MDH program is now extended for 1 additional year, through 
the end of FY 2013 (that is, effective October 1, 2012 through 
September 30, 2013). The FY 2013 IPPS notice explained how providers 
may be affected by the ATRA extension of the MDH program and described 
the steps to reapply for MDH status for FY 2013, as applicable. 
Generally, a provider that was classified as an MDH at the end of FY 
2012 (that is, as of September 30, 2012) will be reinstated as an MDH 
effective October 1, 2012, with no need to reapply for MDH 
classification. However, if the MDH had classified as

[[Page 27593]]

a sole community hospital (SCH) or cancelled its rural classification 
under Sec.  412.103(g) effective on or after October 1, 2012, the 
effective date of MDH status may not be retroactive to October 1, 2012. 
In the FY 2013 IPPS notice, we also stated that we intended to make 
conforming changes to the regulations at Sec. Sec.  412.108(a)(1) and 
(c)(2)(iii) in future rulemaking to reflect the statutory changes made 
by section 606 of the ATRA. We refer readers to the FY 2013 IPPS notice 
(78 FR 14689 through 14694) for additional information on the extension 
of the MDH program through FY 2013 pursuant to section 606 of the ATRA 
and for additional information on how and when MDH status will be 
determined for hospitals classified as MDHs prior to the September 30, 
2012 expiration of the program.
b. Proposed Conforming Regulatory Changes
    In this proposed rule, we are proposing to make conforming changes 
to the regulations at Sec. Sec.  412.108(a)(1) and (c)(2)(iii) to 
reflect the statutory extension of the MDH program through FY 2013 made 
by section 606 of the ATRA.
c. Expiration of the MDH Program
    Because section 606 of the ATRA extends the MDH program through FY 
2013 only, effective FY 2014, the MDH program will no longer be in 
effect. Because the MDH program is not authorized by statute beyond FY 
2013, beginning in FY 2014, all hospitals that previously qualified for 
MDH status will no longer have MDH status and will be paid based on the 
Federal rate.
    As noted earlier, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53404 through 53405), we revised our SCH policies to allow MDHs to 
apply for SCH status and be paid as such under certain conditions, 
following expiration of the MDH program at the end of FY 2012. We 
codified these changes in the regulations at Sec.  412.92(b)(2)(i) and 
Sec.  412.92(b)(2)(v). For additional information, we refer readers to 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 
53674). We note that those same conditions apply to MDHs that intend to 
apply for SCH status with the expiration of the MDH program at the end 
of FY 2013. Specifically, the existing regulations at Sec.  
412.92(b)(2)(i) and (b)(2)(v) allow for an effective date of approval 
of SCH status that is the day following the expiration date of the MDH 
program. In accordance with these regulations, in order for an MDH to 
receive SCH status effective October 1, 2013, 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, 2013. 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, the MDH must 
request that the SCH status, if approved, be effective October 1, 2013, 
immediately after its MDH status expires with the expiration of the MDH 
program at the end of FY 2013, on September 30, 2013.
    We note that an MDH that applies for SCH status in anticipation of 
the expiration of the MDH program would not qualify for the October 1, 
2013 effective date upon approval if it does not apply by the August 
31, 2013 deadline. The provider would instead be subject to the usual 
effective date for SCH classification, that is, 30 days after the date 
of CMS' written notification of approval as specified at Sec.  
412.92(b)(2)(i).

G. Hospital Readmissions Reduction Program: Proposed Changes 
(Sec. Sec.  412.150 Through 412.154)

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 a 
hospital-specific adjustment factor that accounts for the hospital's 
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 adjustment payments, and add-on 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).'' 
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374), we finalized 
policies to implement the statutory provisions related to the 
definition of ``base operating DRG payment amount''.
    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 the 
terms ``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

[[Page 27594]]

1886(q)(4)(C) of the Act defines the excess readmission ratio as the 
ratio of ``risk-adjusted readmissions based on actual readmissions'' 
for an applicable hospital for each applicable condition, to the 
``risk-adjusted expected readmissions'' for the applicable hospital for 
the applicable condition.
    Section 1886(q)(5) of the Act provides definitions of ``applicable 
condition,'' ``expansion of applicable conditions,'' ``applicable 
hospital,'' ``applicable period,'' and ``readmission.'' The term 
``applicable condition'' (which is addressed in detail in section 
IV.C.3.a. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51665 through 
51666)) is defined as a ``condition or procedure selected by the 
Secretary among conditions and procedures for which: (i) readmissions . 
. . represent conditions or procedures that are high volume or high 
expenditures . . . and (ii) measures of such readmissions . . . have 
been endorsed by the entity with a contract under section 1890(a) . . . 
and such endorsed measures have exclusions for readmissions that are 
unrelated to the prior discharge (such as a planned readmission or 
transfer to another applicable hospital).'' Section 1886(q)(5)(B) of 
the Act also requires the Secretary, beginning in FY 2015, ``to the 
extent practicable, [to] expand the applicable conditions beyond the 3 
conditions for which measures have been endorsed . . . to the 
additional 4 conditions that have been identified by the Medicare 
Payment Advisory Commission in its report to Congress in June 2007 and 
to other conditions and procedures as determined appropriate by the 
Secretary.''
    Section 1886(q)(5)(C) of the Act defines ``applicable hospital,'' 
that is, a hospital subject to the Hospital Readmissions Reduction 
Program, as a ``subsection (d) hospital or a hospital that is paid 
under section 1814(b)(3) [of the Act], as the case may be.'' The term 
``applicable period,'' as defined under 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
    We have been implementing the requirements of the Hospital 
Readmissions Reduction Program in rulemakings, and will continue to do 
so. The payment adjustment factor set forth in section 1886(q) of the 
Act did not apply to discharges until FY 2013. 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 the 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.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 
53401), we finalized our policies that relate to the calculation of the 
hospital readmission payment adjustment factor and the process by which 
hospitals can review and correct their data. Specifically, in the final 
rule, we addressed the portions of 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 readmission information and submit 
corrections.
    In the FY 2013 IPPS/LTCH PPS final rule, we established a new 
Subpart I under 42 CFR Part 412 (Sec. Sec.  412.150 through 412.154) to 
codify rules for implementing the Hospital Readmissions Reduction 
Program.
3. FY 2014 Proposals for the Hospital Readmissions Reduction Program
a. Overview
    In this proposed rule, for FY 2014 and beyond, we are proposing 
to--
     Refine the readmissions measures and related methodology 
for the current applicable conditions (section V.G.3.b. of this 
preamble);
     Expand the ``applicable conditions'' for FY 2015 (section 
V.G.3.c. of this preamble);
     Specify additional policies for hospitals paid under 
section 1814(b)(3) of the Act (Sec.  412.154(d)), including the process 
to be exempted from the Hospital Readmissions Reduction Program and the 
definition of ``base operating DRG payment amount'' (section V.G.3.d. 
of this preamble);
     Specify the proposed adjustment factor floor for FY 2014 
(section V.G.3.e. of this preamble);
     Specify the proposed applicable period for FY 2014 
(section V.G.3.f. of this preamble);
     Refine the methodology to calculate the aggregate payments 
for excess readmissions (section V.G.3.g. of this preamble); and
     Clarify the process for reporting hospital-specific 
information, including the opportunity to review and submit corrections 
(section V.G.3.h. of this preamble).
b. Proposed Refinement of the Readmission Measures and Related 
Methodology for FY 2014 and Subsequent Years Payment Determinations
    (1) Overview of the Inclusion of Planned Readmissions for the 
Calculation of the FY 2014 Readmissions Adjustment Factors
    In the FY 2012 IPPS/LTCH PPS final rule, we adopted acute 
myocardial infarction (AMI), heart failure (HF), and pneumonia (PN) 
readmission measures for the Hospital Readmissions Reduction Program 
payment determinations beginning with FY 2013. During development of 
the three readmission measures for AMI, HF, and PN, we consulted with 
medical experts to identify readmissions that are typically scheduled 
as followup care for each specific condition within 30 days of 
discharge. We categorized these readmissions as planned followup care 
and excluded them from being counted

[[Page 27595]]

as a readmission. The AMI measure finalized for the Hospital 
Readmissions Reduction Program included two revascularization 
procedures (coronary artery bypass graft surgery (CABG) and 
percutaneous coronary intervention (PCI) (76 FR 51667)). We considered 
these procedures planned readmissions and excluded them from the 
readmission calculation as long as the readmissions were not for one of 
five acute conditions (HF, AMI, other acute/subacute forms of ischemic 
heart disease, arrhythmia, and cardiac arrest).
    During development of the HF and PN readmission measures, we did 
not identify any readmissions that were typically planned as followup 
care at the time of the patient's discharge. Therefore, the readmission 
measures finalized for the Hospital Readmissions Reduction Program for 
these two conditions did not exclude any planned readmissions from the 
readmission calculation.
    (2) Proposed Refinement of the Readmission Measures and Related 
Methodology for the FY 2014 and Subsequent Years Payment Determinations
    Since the development and implementation of the initial three 
readmission measures adopted under the Hospital Readmissions Reduction 
Program, we have received comments from the medical community, other 
stakeholders, and the general public encouraging us to identify and not 
count as readmissions a broader range of planned readmissions. 
Stakeholders also made recommendations for expanding the number and 
types of planned readmissions during the public comment period for FY 
2013 IPPS/LTCH PPS proposed rule (as discussed in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53382 through 53398)).
    Stakeholders commented that readmission measures are intended to 
capture unplanned readmissions that arise from acute clinical events 
requiring urgent rehospitalization within 30 days of discharge. In 
addition, stakeholders commented that planned readmissions do not 
generally signal poor quality of care. In response to stakeholders' 
concerns, we have worked with experts in the medical community, other 
stakeholders, and the public to broadly identify planned readmissions 
for procedures and treatments for exclusion from the readmission 
measures. Specifically, we developed an expanded ``planned readmission 
algorithm'' in the CMS Planned Readmission Algorithm Version 2.1 Report 
to identify planned readmissions across our readmission measures, and 
are proposing to apply the algorithm to the AMI, HF, and PN measures 
for FY 2014. The CMS Planned Readmission Algorithm Version 2.1 Report 
is available on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Hospital_QualityInits/Measure-Methodology.html.
    We developed the algorithm based on a hospital-wide (not condition-
specific) cohort of patients. We began the development by using the 
Agency for Healthcare Research and Quality's (AHRQ's) Clinical 
Classification Software (CCS) codes to group thousands of individual 
procedures and diagnoses codes into clinically coherent, mutually 
exclusive procedure and diagnosis categories (PROC-CCS categories and 
Diagnosis-CCS categories, respectively). A panel of independent, non-
CMS clinicians then reviewed the procedure categories and identified 
those that are commonly planned and require admission. Clinicians also 
reviewed the diagnosis categories and identified those that were acute 
diagnoses likely requiring hospitalization. Using these procedure and 
diagnosis categories and some individual ICD-9-CM procedure and 
diagnoses codes in the categories, we developed an initial algorithm 
for identifying planned readmissions for a hospital-wide cohort of 
patients.
    The algorithm underwent several reviews by stakeholders. We 
initially posted the detailed algorithm for informal public comment 
during the measurement development process in August 2011. The National 
Quality Forum (NQF) reviewed and made the algorithm available for 
public comment during its endorsement review of the Hospital-Wide All-
Cause Unplanned Readmission Measure (NQF 1789). We also 
recruited 27 surgical subspecialists nominated by their specialty 
societies to review the algorithm and suggest refinements, which 
resulted in Version 2.1 of the Planned Readmission Algorithm. We are 
proposing to use this algorithm in the readmission measures under the 
Hospital Readmissions Reduction Program beginning with FY 2014. A 
detailed description of this algorithm is included later in this 
section.
    As required by section 1886(q)(5)(A)(ii) of the Act, the first 
three applicable conditions of AMI, HF and PN, must use readmission 
measures that have been endorsed by the entity with a contract under 
section 1890(a) of the Act; and such endorsed measures must have 
exclusions for readmissions that are unrelated to the prior discharge 
(such as planned readmission or transfer to another applicable 
hospital). Because the statute requires that the readmission measures 
for the three current applicable conditions (AMI, HF and PN) be NQF-
endorsed, we sought NQF's endorsement of the measures that were revised 
to include the CMS Planned Readmission Algorithm Version 2.1. NQF 
reviewed these revised measures through its ad hoc review process, 
which reviews previously endorsed measures that undergo material 
changes. Following ad hoc review, NQF endorsed the revised AMI (NQF 
0505) and HF (NQF 0330) measures in January 2013 and 
the PN measure (NQF 0506) in (March 2013)).
(a) Description of CMS Planned Readmission Algorithm Version 2.1
    This algorithm is a set of criteria for classifying readmissions as 
``planned'' using Medicare claims. The algorithm identifies typical 
planned admissions that may occur within 30 days of discharge from the 
hospital.
    We based the CMS Planned Readmission Algorithm on three principles:
     A few specific, limited types of care are always 
considered planned (obstetrical delivery, transplant surgery, 
maintenance chemotherapy, rehabilitation);
     Otherwise, a planned readmission is defined as a nonacute 
readmission for a scheduled procedure; and
     Admissions for acute illness or for complications of care 
are never planned.
    The Planned Readmission Algorithm uses a flow chart and four tables 
of procedures and conditions to implement these principles and to 
classify readmissions as planned or unplanned. The flow chart and 
tables are available in a report, CMS Planned Readmission Algorithm 
Version 2.1, which is available on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Hospital_QualityInits/Measure-Methodology.html.
    We incorporated the algorithm into each condition-specific and 
procedure-specific readmission measure. For most readmission measures, 
including the AMI, HF, and PN measures, we used one standard version of 
the algorithm--the CMS Planned Readmission Algorithm Version 2.1. 
However, for a subset of readmission measures, we revised the list of 
potentially planned procedures or acute primary diagnosis after 
applying the standard algorithm version because it was clinically 
indicated. For example, for the Total Hip Arthroplasty (THA) and Total 
Knee Arthroplasty (TKA) readmission measure that we are proposing for 
FY 2015, we removed diagnostic cardiac

[[Page 27596]]

catheterization from the potentially planned procedure list because 
patients in the hip/knee measure are typically well enough to undergo 
elective surgery and would not be expected to need a catheterization 
within 30 days of discharge. The details of these adaptations are 
available in the CMS Planned Readmission Algorithm Version 2.1 report 
(http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Hospital_QualityInits/Measure-Methodology.html).
(b) Proposed Counting of Readmissions that Occur After a Planned 
Readmission
    In this proposed rule, we are proposing a related change to the 
AMI, HF, and PN measures to address unplanned readmissions that occur 
after a planned readmission but within 30 days of the patient's initial 
index discharge. The AMI measure finalized in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51666) counted unplanned readmissions for the index 
admission if they occurred within 30 days of discharge from the index 
admission, even if they occurred following planned readmissions 
(because the two other measures did not have any planned readmissions, 
this method of counting only applied to the AMI measure).
    For the proposed revised AMI, HF, and PN measures, all of which now 
account for planned readmissions by incorporating the CMS Planned 
Readmission Algorithm Version 2.1, we are proposing the following 
additional change: If the first readmission is planned, it will not 
count as a readmission, nor will any subsequent unplanned readmission 
within 30 days of the index readmission. In other words, unplanned 
readmissions that occur after a planned readmission and fall within the 
30-day post discharge timeframe would no longer be counted as outcomes 
for the index admission. The rationale for this proposed change is 
that, in this case, either the index or the planned readmission could 
have contributed to the patient's unplanned readmission. Therefore, it 
is unclear whether the unplanned readmission should be attributed back 
to the index admission. This proposed change in counting practice would 
affect a very small percentage of readmissions (approximately 0.3 
percent of index admissions nationally for AMI, 0.2 percent for HF, and 
less than 0.1 percent for PN).). However, we intend to monitor trends 
in the proportion of planned readmissions for evidence of misuse or 
misapplication, and other unintended consequences.
(c) Anticipated Effect of the Proposed Changes of CMS Planned 
Readmission Algorithm Version 2.1 and Counting of Readmissions on the 
Readmission Measures
    The proposed changes to the measures in this proposed rule would 
have had the following effects on the measures based on our analyses of 
discharges between July 2008 and June 2011, if these changes had been 
applied for FY 2013. We note that these statistics are for illustrative 
purposes only, and we are not proposing to revise the measure 
calculations for the FY 2013 payment determination. Rather, we are 
proposing to apply these changes to the readmissions measures for the 
FY 2014 payment determination and subsequent years.
    Among hospitals that were subject to the Hospital Readmissions 
Reduction Program in FY 2013 (Table V.G.1), the number of eligible 
discharges based on the July 2008 through June 2011 data were 501,765 
discharges for AMI; 1,195,967 discharges for HF; and 957,854 discharges 
for PN):
     The proposed 30-day readmission rate (excluding the 
planned readmissions) would decrease by 1 percentage point for AMI; 1.5 
percentage points for HF; and 0.7 percentage point for PN.
     The new national measure (unplanned) rate for each 
condition would have been 18.2 percent for AMI; 23.1 percent for HF; 
and 17.8 percent for PN.
     The number of readmissions considered planned (and, 
therefore, not counted as a readmission) would increase by 4,942 for 
AMI; 17,512 for HF; and 7,084 for PN.

Table V.G.1--Comparison of Original AMI/HF/PN Measures Finalized in FY 2013 Relative to Proposed Revised AMI/HF/
                                             PN Measures for FY 2014
                     [Based on July 2008 through June 2011 discharges from 3,025 hospitals]
----------------------------------------------------------------------------------------------------------------
                                               AMI                       PN                        HF
                                   -----------------------------------------------------------------------------
                                      Proposed                  Proposed                  Proposed
                                      revised      Original     revised      Original     revised      Original
                                      measure      measure      measure      measure      measure      measure
----------------------------------------------------------------------------------------------------------------
Number of Admissions..............      501,765      501,765      957,854      957,854    1,195,967    1,195,967
Number of Unplanned Readmissions..       91,360       96,302      170,396      177,480      276,748      294,260
Readmission Rate..................        18.2%        19.2%        17.8%        18.5%        23.1%        24.6%
Number of Planned Readmissions....       12,811        7,869        7,084            0       17,512            0
Planned Readmission Rate..........         2.6%         1.6%         0.7%         0.0%         1.5%         0.0%
Percent of Readmissions that are          12.3%         7.6%         4.0%         0.0%         6.0%         0.0%
 Planned..........................
----------------------------------------------------------------------------------------------------------------

    In summary, we are proposing to use the proposed revised versions 
of the AMI, HF, and PN measures to calculate the payment adjustments 
for the Hospital Readmissions Reduction Program in FY 2014. We believe 
that the proposed revised measures will address stakeholder suggestions 
to broaden the number of planned readmissions and will result in a more 
accurate readmission calculation for purposes of the payment 
adjustment. We are proposing to update the measures to: (1) Incorporate 
the CMS Planned Readmission Algorithm Version 2.1 to identify planned 
readmissions; and (2) not count unplanned readmissions that follow 
planned readmissions. We are inviting public comments on this proposal.
c. Proposed Expansion of the Applicable Conditions for FY 2015
(1) Background
    Under section 1886(q)(5)(B) of the Act, beginning with FY 2015, the 
Secretary shall, to the extent practicable, expand the applicable 
conditions beyond the three conditions for which measures have been 
endorsed as described in subparagraph (A)(ii)(I) . . . to the 
additional 4 conditions that have been identified by the Medicare

[[Page 27597]]

Payment Commission in its report to Congress in June 2007, and to other 
conditions and procedures as determined appropriate by the Secretary.'' 
The four conditions and procedures recommended by MedPAC are: (1) 
Coronary artery bypass graft (CABG) surgery; (2) chronic obstructive 
pulmonary disease (COPD); (3) percutaneous coronary intervention (PCI); 
and (4) other vascular conditions. Section 1886(q)(5)(A)(i) of the Act 
directs the Secretary, in selecting an ``applicable condition,'' to 
choose from among conditions and procedures ``that represent conditions 
or procedures that are high volume or high expenditures under this 
title (or other criteria specified by the Secretary).''
    In accordance with section 1886(q)(5)(A) of the Act, effective for 
the calculation of the readmissions payment adjustment factors in FY 
2015, we are proposing to expand the applicable conditions and 
procedures to include: (1) Patients admitted for an acute exacerbation 
of COPD; and (2) patients admitted for elective total hip arthroplasty 
(THA) and total knee arthroplasty (TKA). At this point, it is not 
feasible for CMS to add readmission measures for three of the 
conditions identified by MedPAC in its 2007 Report to Congress (CABG, 
PCI, and other vascular conditions). We note that inpatient admissions 
for PCI and other vascular conditions seem to be decreasing, and these 
procedures are being performed more in hospital outpatient departments. 
This shift in setting for these procedures may make their future 
inclusion in the Hospital Readmssion Reduction Program more difficult 
and impracticable.
    We are also exploring how we may address CABG in this program at a 
future time.
    We are proposing inclusion of patients admitted for an acute 
exacerbation of COPD based on MedPAC's recommendations and may consider 
other recommendations in future rulemaking. While MedPAC did not 
recommend inclusion of patients admitted for elective THA and TKA, we 
consider this category appropriate for the Hospital Readmissions 
Reduction Program because it is a high-volume and high-expenditure 
procedure.
    For example, in 2003, 202,500 primary hip arthroplasties and 
402,100 primary total knee arthroplasties were performed.\30\ The 
number of procedures performed has increased steadily over the past 
decade.\31\ Although these procedures can dramatically improve patient 
health-related quality-of-life, they are costly. In 2005, annual 
hospital charges totaled $3.95 billion and $7.42 billion for primary 
THA and TKA, respectively.\32\ The aggregate costs for THA are 
projected to increase by 340 percent over a 10-year period, to $17.4 
billion per fiscal year by FY 2015, and for TKA, by 450 percent to 
$40.8 billion per fiscal year by 2015.\33\ Medicare is the single 
largest payer for these procedures, covering approximately two-thirds 
of all THAs and TKAs performed in the United States.\34\ THA and TKA 
procedures combined account for the largest procedural cost in the 
Medicare budget.\35\ Therefore, as explained in detail below, we 
believe that it is appropriate to include THA/TKA as an applicable 
condition.
---------------------------------------------------------------------------

    \30\ Kurtz S, Ong K, Lau E, Mowat F, Halpern M.: Projections of 
primary and revision hip and knee arthroplasty in the United States 
from 2005 to 2030. J Bone Joint Surg Am. Apr 2007;89(4):780-785.
    \31\ Ong KL, Mowat FS, Chan N, Lau E, Halpern MT, Kurtz SM. 
Economic burden of revision hip and knee arthroplasty in Medicare 
enrollees. Clin Orthop Relat Res. May 2006;446:22-28.
    \32\ Kurtz SM, Ong KL, Schmier J, et al.: Future clinical and 
economic impact of revision total hip and knee arthroplasty. J Bone 
Joint Surg Am. Oct 2007;89 Suppl 3:144-151.
    \33\ Ibid.
    \34\ Ong KL, Mowat FS, Chan N, Lau E, Halpern MT, Kurtz SM. 
Economic burden of revision hip and knee arthroplasty in Medicare 
enrollees. Clin Orthop Relat Res. May 2006;446:22-28.
    \35\ Bozic KJ, Rubash HE, Sculco TP, Berry DJ. An analysis of 
medicare payment policy for total joint arthroplasty. Journal of 
Arthroplasty. 2008;23(6 Suppl 1):133-138.
---------------------------------------------------------------------------

    We developed a hospital-level, 30-day, all-cause, risk-standardized 
readmission measure for THA/TKA. NQF endorsed the measure (NQF 
1551) in January of 2012. The measure incorporated the Planned 
Readmission Version 2.1 algorithm and excludes transfers. Accordingly, 
we believe that the THA/TKA measure met the criteria of applicable 
condition and are proposing it for the Hospital Readmissions Reduction 
Program.
    The rationale for expanding the applicable conditions and the 
measures used to estimate the Excess Readmission Ratios are described 
in detail below.
(2) Proposed COPD Readmission Measure
    COPD is a leading cause of readmissions to hospitals.\36\ In 2007, 
the MedPAC published a report to Congress in which it identified the 
seven conditions associated with the most costly potentially 
preventable readmissions. Among these seven conditions, COPD ranked 
fourth.\37\ Evidence also shows variation in readmissions for patients 
with COPD, supporting the finding that opportunities exist for 
improving care. The median, 30-day, risk-standardized readmission rate 
among Medicare fee-for-service patients aged 65 or older hospitalized 
for COPD in 2008 was 22.0 percent, and ranged from 18.33 percent to 
25.03 percent across 4,546 hospitals.\38\ Clinical trials and 
observational studies suggest that several aspects of care provided to 
patients hospitalized for exacerbations of COPD can have significant 
effects on readmission.39 40 41 42 In addition, inclusion of 
this measure in the Hospital Readmissions Reduction Program aligns with 
CMS' priority objectives to promote successful transitions of care for 
patients from the acute care setting to the outpatient setting, and 
reduces short-term readmission rates. Therefore, we believe the COPD 
measure warrants inclusion in the Hospital Readmissions Reduction 
Program for FY 2015. We are inviting public comments on this proposal.
---------------------------------------------------------------------------

    \36\ Jencks SF, Williams MV, Coleman EA. Rehospitalizations 
among patients in the Medicare fee-for-service program. N Engl J 
Med. April 2 2009;360(14):1478-1428.
    \37\ Committee MPA. Report to the Congress: Promoting Greater 
Efficiency in Medicare. 2007.
    \38\ Grosso L.M., Lindenauer P., Wang C., et al.: Hospital-level 
30-day Readmission Following Admission for an Acute Exacerbation of 
Chronic Obstructive Pulmonary Disease: Report prepared for the 
Centers for Medicare & Medicaid Services. 2011; Available at: http://www.qualitynet.org/.
    \39\ Global Strategy for Diagnosis M, and Prevention of COPD. 
2009; Available at: http://www.goldcopd.org/.
    \40\ National Institute for Health and Clinical Excellence. 
Chronic Obstructive Pulmonary Disease: Management of Chronic 
Obstructive Pulmonary Disease in Adults in Primary and Secondary 
Care (Partial Update):. National Collaborating Centre for Acute and 
Chronic Conditions. Available at: http://www.nice.org.uk/nicemedia/live/13029/49397/49397.pdf.
    \41\ Walters JA, PG Gibson, R Wood-Baker, M Hannay, EH Walters. 
Systemic corticosteroids for acute exacerbations of chronic 
obstructive pulmonary disease. Cochrane Database Syst Rev. 
2009;CD001288(1).
    \42\ Lightowler JV, Wedzicha JA, Elliott MW, Ram FS. Non-
invasive positive pressure ventilation to treat respiratory Failure 
resulting from exacerbations of chronic obstructive pulmonary 
disease: Cochrane systematic review and meta-analysis. Bmj. 
2003;326(7382).
---------------------------------------------------------------------------

(3) Overview of COPD Measure: Hospital-Level, 30-Day, All-Cause, Risk-
Standardized Readmission Rate (RSRR) Following Chronic Obstructive 
Pulmonary Disease (COPD) Hospitalization (NQF 1891)
    The COPD readmission measure assesses hospitals' 30-day, all-cause 
risk-standardized rate of readmission for an acute exacerbation of COPD 
(AECOPD). In general, the measure uses the same approach to risk-
adjustment and hierarchical logistic modeling (HLM) methodology that is 
specified for CMS' AMI, HF, and PN readmission measures previously 
adopted for this

[[Page 27598]]

program. Information on how the measure employs HLM can be found in the 
2011 COPD Readmission Measure Methodology Report (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. This 
approach appropriately accounts for the types of patients a hospital 
treats (that is, hospital case-mix), the number of patients it treats, 
and the quality of care it provides. The HLM methodology is an 
appropriate statistical approach to measuring quality based on patient 
outcomes when the patients are clustered within hospitals (and, 
therefore, the patients' outcomes are not statistically independent) 
and sample sizes vary across hospitals. The measure methodology defines 
hospital case-mix based on the clinical diagnoses provided in the 
hospitals' claims for the hospitals' patient inpatient and outpatient 
visits for the 12 months prior to the hospitalization for COPD, as well 
as those present in the claims for care at admission. However, the 
methodology specifically does not account for diagnoses present in the 
index admission that may indicate complications rather than patient 
comorbidities.
    We are providing a summary of the measure methodology below. For 
further details on the risk-adjustment statistical model, we refer 
readers to the 2011 COPD Readmission Measure Methodology Report that we 
have posted on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. NQF endorsed the measure 
(NQF 1891) in March 2013 (http://www.qualityforum.org/QPS/1891).
     Data Sources. The proposed COPD measure is claims-based. 
It uses Medicare administrative data from hospitalizations for fee-for-
service Medicare beneficiaries hospitalized with an acute exacerbation 
of COPD (AECOPD).
     Outcome. The outcome for the COPD measure is 30-day, all-
cause readmission, defined as an unplanned subsequent inpatient 
admission to any applicable acute care facility from any cause within 
30 days of the date of discharge from the index hospitalization. A 
number of studies demonstrate that improvements in care at the time of 
discharge can reduce 30[hyphen]day readmission rates.43 44 
It is a timeframe that a readmission may reasonably be attributed to 
the hospital care and transitional period to a nonacute care setting.
---------------------------------------------------------------------------

    \43\ Gulshan Sharma, Kou Yong-Fang, Freeman Jean L, Zhang Dong 
D, Goodwin James S.: Outpatient Follow-up Visit and 30-Day Emergency 
Department Visit and Readmission in Patients Hospitalized for 
Chronic Obstructive Pulmonary Disease. Arch Intern Med. Oct. 
2010;170:1664-1670.
    \44\ Nelson EA, Maruish ME, Axler JL.: Effects of Discharge 
Planning and Compliance with Outpatient Appointments on Readmission 
Rates. Psychiatr Serv. July 1 2000;51(7):885-889.
---------------------------------------------------------------------------

    The COPD readmissions measure assesses all-cause unplanned 
readmissions (excluding planned readmissions) rather than readmissions 
for acute exacerbations of COPD only. We are proposing this measure for 
several reasons. First, from the patient perspective, a readmission for 
any reason is likely to be an undesirable outcome of care, even though 
not all readmissions are preventable. Second, limiting the measure to 
COPD[hyphen]related readmissions may limit the effort focus too 
narrowly rather than encouraging broader initiatives aimed at improving 
the overall care within the hospital and transitions from the hospital 
setting. Moreover, it is often hard to exclude quality issues and 
accountability based on the documented cause of readmission. For 
example, a patient with COPD who develops a hospital-acquired infection 
may ultimately be readmitted for sepsis. It would be inappropriate to 
consider such a readmission to be unrelated to the care the patient 
received for COPD. Finally, while the measure does not presume that 
each readmission is preventable, interventions generally have shown 
reductions in all types of readmissions.
    The measure does not count planned readmissions as readmissions. 
Planned readmissions are identified in claims data using the CMS 
Planned Readmission Algorithm Version 2.1 that detects planned 
readmissions that may occur within 30 days of discharge from the 
hospital. This algorithm is described briefly in section V.G.3.b.(2)(a) 
of the preamble of this proposed rule and more detailed information can 
be found on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. For the COPD measures, unplanned readmissions 
that fall within the 30-day post discharge timeframe from the index 
admission would not be counted as readmissions for the index admission 
if they were preceded by a planned readmission (we refer readers to 
section V.G.3.b.(2)(b) of the preamble of this proposed rule on the 
proposed counting of readmissions that occur after a planned 
readmission).
     Cohort of Patients. COPD is a group of lung diseases 
characterized by airway obstruction. Patients hospitalized for an acute 
exacerbation of COPD (AECOPD) present with varying degrees of severity 
ranging from a worsening of baseline symptoms (dyspnea, cough, and/or 
sputum) to respiratory failure. To capture the full spectrum of 
severity of patients hospitalized for an AECOPD, the measure includes 
patients with a principal diagnosis of COPD, as well as those with a 
principal diagnosis of respiratory failure with a secondary diagnosis 
of an AECOPD. Requiring AECOPD as a secondary diagnosis helps to 
identify respiratory failure due to COPD exacerbation versus another 
condition (for example, heart failure). For detailed information on the 
cohort definition, we refer readers to the 2013 COPD Readmission 
Measure Updates and Specifications Report on the CMS Web site at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
     Inclusion and Exclusion Criteria. The COPD measure 
includes hospitalizations for patients who are 65 years of age or older 
at the time of index admission and for whom there was a complete 12 
months of Medicare fee-for-service (FFS) enrollment to allow for 
adequate risk-adjustment. The measure excludes the following admissions 
from the measure cohort: (1) Admissions for patients who die during the 
initial hospitalization (these patients are not eligible for 
readmission); (2) admissions for patients having a principal diagnosis 
of COPD during the index hospitalization and subsequently transferred 
to another acute care facility (these are excluded because the measure 
focuses on discharges to a nonacute care setting such as the home or a 
SNF); (3) admissions for patients that are discharged against medical 
advice (AMA) (excluded because providers do not have the opportunity to 
deliver full care and prepare the patient for discharge); (4) 
admissions for patients without at least a 30-day post-discharge 
enrollment in Medicare FFS (excluded because the 30-day readmission 
outcome cannot be assessed in this group); and (5) additional COPD 
admissions for patients within 30 days of discharge from an index COPD 
admission will be considered readmissions and not additional index 
admissions.
     Risk-Adjustment. The COPD measure adjusts for differences 
across hospitals in how at risk their patients

[[Page 27599]]

are for readmission relative to patients cared for by other hospitals. 
The measure uses claims data to identify patient clinical conditions 
and comorbidites to adjust patient risk for readmission across 
hospitals, but does not adjust for potential complications of care. 
Consistent with NQF guidelines, the model does not adjust for 
socioeconomic status or race because risk-adjusting for these 
characteristics would hold hospitals with a large proportion of 
patients of minority race or low socioeconomic status to a different 
standard of care than other hospitals. Rather, this measure seeks to 
illuminate quality differences, and risk-adjustment for socioeconomic 
status or race would obscure such quality differences.
     Calculating the Excess Readmission Ratio. The COPD 
readmission measure uses the same methodology and statistical modeling 
approach as the AMI, HF, and PN measures. We published a detailed 
description of how the readmission measures estimate the Excess 
Readmission Ratio used in the Hospital Readmissions Reduction Program 
in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 through 53381).
(4) Proposed Adoption of the COPD Measure for the Hospital Readmissions 
Reduction Program
    We are proposing to adopt the COPD measure in the Hospital 
Readmissions Reduction Program beginning in FY 2015. We also are 
proposing the COPD measure for use in the Hospital IQR Program for FY 
2014 (discussed in section IX.A. of this preamble). We note that the 
set of hospitals for which this measure is calculated for the Hospital 
Readmissions Reduction Program differs from those used in calculations 
for the Hospital IQR Program. The Hospital Readmissions Reduction 
Program includes only subsection (d) hospitals as defined in 
1886(d)(1)(B) of the Act and hospitals paid under section 1814(b)(3) of 
the Act (that is, Maryland hospitals), while the Hospital IQR Program 
calculations include non-IPPS hospitals such as CAHs, cancer hospitals, 
and hospitals located in the Territories of the United States. However, 
we believe that the COPD measure is appropriate for use in both 
programs. We are inviting public comments on this proposal.
(5) Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) 
Measure
    THA and TKA are commonly performed procedures that improve quality 
of life. Between 2008 and 2010, over 1.4 million THA and TKA procedures 
were performed on Medicare FFS patients aged 65 years and older.\45\ 
However, the costs of these procedures, especially to Medicare, are 
very high. Combined, THA and TKA procedures account for the largest 
procedural cost in the Medicare budget.\46\ Evidence also shows 
variation in readmissions of patients with THA/TKA procedures, 
supporting the finding that opportunities exist for improving care. The 
median 30-day risk-standardized readmission rate among Medicare FFS 
patients aged 65 or older undergoing THA/TKA procedures between 2008 
and 2010 was 5.7 percent, and ranged from 3.2 percent to 9.9 percent 
across 3,497 hospitals.\47\ In addition, inclusion of a THA/TKA measure 
in the Hospital Readmissions Reduction Program aligns with CMS' 
priority objectives to promote successful transitions of care for 
patients from the acute care inpatient setting to the outpatient 
setting, and reduces short-term readmission rates. Therefore, we 
believe the THA/TKA measure warrants inclusion in the Hospital 
Readmissions Reduction Program for FY 2015.
---------------------------------------------------------------------------

    \45\ Gross, L.M., Curtis, J.P., Lin, Z., et al.: Hospital-level 
30-Day All-Cause Risk-Standardized Readmission Rate Following 
Elective Primary total Hip Arthroplasty (THA) and/or Total Knee 
Arthroplasty (TKA): Report prepared for the Centers for Medicare & 
Medicaid Services, 2012. Available on the Web site at: http://www.qualitynet.org/.
    \46\ Bozic KJ, Rubash HE, Sculco TP.: Berry DJ. An analysis of 
medicare payment policy for total joint arthroplasty. J 
Arthroplasty. Sep 2008;23(6 Suppl 1):133-138.
    \47\ Grosso L.M., Curtis J.P., Lin Z., et al.: Hospital-level 
30-Day All-Cause Risk-Standardized Readmission Rate Following 
Elective Primary Total Hip Arthroplasty (THA) And/Or Total Knee 
Arthroplasty (TKA): Report prepared for the Centers for Medicare & 
Medicaid Services, 2012. Available on the Web site at: http://www.qualitynet.org/.
---------------------------------------------------------------------------

(6) Overview of the THA/TKA Measure: Hospital-Level 30-Day All-Cause 
Risk-Standardized Readmission Rate (RSRR) Following Elective Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) (NQF 
1551)
    To better assess hospital care and care transitions for patients 
with elective THA/TKA procedures, we developed a hospital-level 
readmission measure for patients undergoing elective primary THA and/or 
TKA procedures. We finalized this measure for use in the Hospital IQR 
Program in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53519 through 
53521). We are proposing to include this measure, updated with the CMS 
Planned Readmission Algorithm Version 2.1 adapted for THA/TKA 
(discussed in section V.G.3.b.(2) of this preamble) to: (1) expand the 
applicable conditions for the Hospital Readmissions Reduction Program; 
(2) derive the Excess Readmission Ratio for patients with THA/TKA 
procedures; and (3) calculate the readmission payment adjustments in FY 
2015. We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53519 through 53521) for details of the measure specifications as well 
as the 2013 Hip/Knee Readmission Measures Updates and Specifications 
Report which is available on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. NQF endorsed the measure 
in January 2012 (http://www/qualityforum.org/QPS/1551).
(7) Calculating the Excess Readmission Ratio
    The THA/TKA readmission measure uses the same methodology and 
statistical modeling approach as the AMI, HF, and PN measures. We 
published a detailed description of how the readmission measures 
estimate the Excess Readmission Rate used in the Hospital Readmissions 
Reduction Program in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 
through 53381).
(8) THA/TKA Measure for the Hospital Readmissions Reduction Program
    We are proposing to adopt the THA/TKA measure in the Hospital 
Readmissions Reduction Program beginning in FY 2015. We also finalized 
this measure for use in the Hospital IQR Program in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53519 through 53521). We note that the set 
of hospitals for which this measure is calculated for the Hospital 
Readmissions Reduction Program differs from the set of hospitals used 
in calculations for the Hospital IQR Program. The Hospital Readmissions 
Reduction Program includes only subsection (d) hospitals as defined in 
1886(d)(1)(B) of the Act and hospitals paid under section 1814(b)(3) of 
the Act (that is, Maryland hospitals), while the Hospital IQR Program 
calculations include non-IPPS hospitals such as CAHs, cancer hospitals, 
and hospitals in the Territories. However, we believe that the THA/TKA 
measure is appropriate for use in both programs. We are inviting public 
comments on this proposal.

[[Page 27600]]

d. Proposals for Hospitals Paid Under Section 1814(b)(3) of the Act, 
Including the Process To Be Exempt From the Hospital Readmissions 
Reduction Program and Definition of ``Base Operating DRG Payment 
Amount'' for Such Hospitals (Sec.  412.152 and Sec.  412.154(d))
    As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53397), 
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, acute care Maryland hospitals that would have otherwise 
been paid under the IPPS, but for the waiver under section 1814(b)(3) 
of the Act). 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 this provision.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53384), we 
established criteria for evaluation of an annual report to CMS to 
determine whether Maryland should be exempted from the program each 
year. We codified this requirement at Sec.  412.154(d) of the 
regulations. In addition, we specified that we will evaluate a report 
submitted by the State of Maryland documenting how its program meets 
those criteria. However, because the Hospital Readmissions Reduction 
Program was in its first year and Maryland's program was completing its 
first year, we specified that the evaluation of Maryland's program for 
measurable health outcomes and cost savings would not begin until FY 
2014. In that same final rule, we explained that it would be premature 
to evaluate Maryland's readmission program on health outcomes and cost 
savings at that time, as we did not have sufficient information on 
which to evaluate Maryland's program because FY 2013 was first year of 
the Hospital Readmissions Reduction Program.
    We noted that our finalized 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.
    In this proposed rule, we are proposing to establish a deadline by 
which the State must submit its annual report to the Secretary under 
proposed revised Sec.  412.154(d)(2) of the regulations. We also are 
proposing the criteria that we would use to evaluate the State in order 
to determine whether or not the State would be exempted from the 
Hospital Readmissions Reduction Program beginning with FY 2014. In 
addition, we are proposing to define the ``base operating DRG payment 
amount'' for Maryland hospitals under Sec.  412.152 of the regulations 
in the event that the State is not exempted from the Hospital 
Readmissions Reduction Program.
    We are proposing that the State of Maryland must submit this 
preliminary report to CMS no later than January 15 of each year for CMS 
to consider, through the IPPS/LTCH PPS proposed rule for a Federal 
fiscal year, its exemption from the Hospital Readmissions Reduction 
Program for the upcoming Federal fiscal year. For example, the State of 
Maryland would have to submit the report by January 15, 2014 for 
consideration for the FY 2015 (beginning October 1, 2014) program year. 
This deadline would provide CMS sufficient time to evaluate the report, 
have any discussions with the State regarding its program, and prepare 
a presentation of that report for the IPPS/LTCH PPS proposed rule. 
Under this proposal, we also would require that the State submit a 
final report, with updated information on the State's readmissions 
program and updated cost savings and health outcomes information, to 
CMS no later than June 1 of each year in order for CMS to determine, 
through the IPPS/LTCH PPS final rule for a Federal fiscal year, whether 
the State meets the requirements for exemption from the Hospital 
Readmissions Reduction Program in that upcoming Federal fiscal year. As 
such, for FY 2015, under proposed Sec.  412.154(d)(2)(ii), the State of 
Maryland would submit its preliminary report to the Secretary no later 
than January 15, 2014, and its final report to the Secretary no later 
than June 1, 2014, for consideration of exemption from the Hospital 
Readmissions Reduction Program.
    For FY 2014, we have received a preliminary report from Maryland 
describing its readmissions program. Similar to its report submitted 
for FY 2013, Maryland described its current readmissions program, the 
Admissions-Readmission Revenue (ARR) Program. Under the voluntary 
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). In the report, 
Maryland indicated that the reduction in intra-hospital readmission 
rates (that is, readmissions to the same hospital as the initial 
admission) resulted in approximately $25 million, or 0.27 percent, in 
savings to the participating hospitals for 2011 and 2012. In addition, 
Maryland reported that its readmission rate per 1,000 Medicare 
beneficiaries declined from 17.14 percent (CY 2011, Quarter 2) to 15.21 
percent (CY 2012, Quarter 2). The State also acknowledged in that 
report that it has begun to track inter-hospital readmissions, where a 
patient is admitted to one hospital and readmitted to another hospital, 
which is comparable to how readmissions are measured under the Hospital 
Readmissions Reduction Program. In the FY 2013 IPPS/LTCH PPS final 
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 indicated that, for FY 2013, it would 
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.
    Furthermore, in its FY 2014 preliminary report to the Secretary, 
the State of Maryland indicated that, for FY 2014, subject to approval 
by the Commission, it is proposing a shared savings approach, which 
would be applied to all hospitals in the State. Under that shared 
savings approach, hospitals in the State would be ranked based on their 
performance on readmissions, under which hospitals with high 
readmissions above an established standard would experience a reduction 
in their revenue and the hospitals below the established standard

[[Page 27601]]

would not experience a reduction in their revenue. For Maryland 
hospitals that are in the voluntary ARR program paid under the case-mix 
adjusted bundled payment per episode of care that are performing worse 
than the established standard for readmissions, their payment per 
episode of care would be reduced. In addition, the State proposes that 
hospitals that improve in readmissions above a certain standard would 
experience no reduction in their payments and those hospitals below the 
standard would experience a reduction. Based on this preliminary 
information, we believe that the State can achieve savings on 
readmissions that are tied to hospitals' performance on readmissions, 
which is comparable to the Hospital Readmissions Reduction Program 
applied throughout the rest of the country.
    For FY 2014, we are proposing to evaluate Maryland based on 
whether, under the shared savings approach, it can achieve comparable 
health outcomes and cost savings to the Hospital Readmissions Reduction 
Program. We note that, for FY 2014, we project that the Hospital 
Readmissions Reduction Program will result in a 0.2 percent decrease, 
or approximately $175 million, in payments to hospitals. We are 
inviting public comments on this proposal.
    In this proposed rule, we also are proposing to define ``base 
operating DRG payment amount'' for hospitals paid under section 
1814(b)(3) of the Act in the event that we do not exempt Maryland 
hospitals from the Hospital Readmissions Reduction Program in a given 
year. Consistent with section 1886(q)(2) of the Act, in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53382), under the regulations at Sec.  
412.152, we defined the ``base operating DRG payment amount'' under the 
Hospital Readmissions Reduction Program as the wage-adjusted DRG 
operating payment plus any applicable new technology add-on payments. 
As required by the statute, the 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)(A), (d)(5)(B), (d)(5)(F), 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 at Sec.  412.152, we 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).
    Acute care hospitals located in the State of Maryland currently are 
not paid under the IPPS but are, instead, paid under a special waiver 
as provided by section 1814(b)(3) of the Act. For these applicable 
hospitals, we are proposing that the term ``base operating DRG payment 
amount'' means the base operating DRG payment amount defined at Sec.  
412.152. In other words, we are proposing to revise existing Sec.  
412.152, to specify that, for Maryland hospitals, the ``base operating 
DRG payment amount'' is an amount equal to the IPPS wage adjusted DRG 
payment amount or the 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 plus 
new technology payments that would be paid to Maryland hospitals absent 
section 1814(b)(3) of the Act. Although Maryland hospitals are 
currently paid under this waiver and not under the IPPS, if Maryland is 
not exempt from the Hospital Readmissions Reduction Program in a given 
year, we are proposing that, to determine the amount by which the 
hospitals' payments under section 1814(b)(3) of the Act would be 
reduced under the Hospital Readmissions Reduction Program, the 
readmission payment adjustment under Sec.  412.154(b) would be 
determined using the estimated base operating DRG payment amount that 
would have applied had the hospital been paid under the IPPS. To 
implement this policy, we are proposing that claims submitted by 
Maryland hospitals would be ``priced'' under the IPPS payment 
methodology, and if a Maryland hospital has a readmissions payment 
adjustment factor, that factor would be applied to that base operating 
DRG payment amount to determine the payment adjustment under Sec.  
412.154(b) (that is, the amount of the payment reduction). We are 
proposing that the amount of the payment reduction, if any, would be 
applied to (that is, subtracted from) the payments made to Maryland 
hospitals under the waiver. This proposed methodology would result in 
Maryland hospitals having the readmissions adjustment factor applied in 
a manner similar to that which is applied to hospitals that are paid 
under the IPPS.
    Furthermore, we are proposing that if Maryland is not exempt from 
the Hospital Readmissions Reduction Program in a given year, the 
proposed definition of ``base operating DRG payment amount'' for 
Maryland hospitals discussed above (that is, the base operating DRG 
payment amount calculated as if the hospital were paid under the IPPS), 
and not any payment amount made under the waiver under by section 
1814(b)(3) of the Act, would be used to calculate both the ``aggregate 
payments for excess readmissions'' and ``aggregate payments for all 
discharges'' (defined at Sec.  412.152) for purposes of determining the 
hospital's readmission adjustment factor that accounts for excess 
readmissions under Sec.  412.154(c). We are inviting public comments on 
this proposal.
e. Proposed Floor Adjustment Factor for FY 2014 (Sec.  412.154(c)(2))
    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 final rule (77 
FR 53386), we codified 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 codified the floor adjustment factor at Sec.  412.154(c)(2) 
of the regulations.
    For FY 2013, under Sec.  412.154(c), we specified that an 
applicable hospital will receive an adjustment factor that is either 
the greater of the ratio or a floor adjustment factor of 0.99. For FY 
2014, we are proposing that the floor adjustment factor be 0.98, 
consistent with section 1886(q)(3) of the Act, as codified at Sec.  
412.154(c)(2). As finalized in the FY 2013 IPPS/LTCH PPS final rule, 
the ratio is rounded to the fourth decimal place. In other words, for 
FY 2014, a hospital subject to the Hospital Readmissions Reduction 
Program would have an adjustment factor that is

[[Page 27602]]

between 1.0 and 0.9800. We are inviting public comments on this 
proposal.
f. Proposed Applicable Period for FY 2014
    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 under the Hospital Readmissions Reduction Program. We finalized 
our policy to use 3 years of claims data to calculate the readmission 
measures in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51671). In the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53390), we codified the 
definition of ``applicable period'' in the regulations at 42 CFR 
412.152 as the 3-year period from which data are collected in order to 
calculate excess readmission ratios and adjustments for the fiscal 
year, which includes aggregate payments for excess readmissions and 
aggregate payments for all discharges used in the calculation of the 
payment adjustment.
    For the Hospital Readmissions Reduction Program for FY 2013, we 
established an applicable period under Sec.  412.152 as July 1, 2008, 
to June 30, 2011. Specifically, to calculate the excess readmission 
ratios and to calculate the payment adjustments for FY 2013 (including 
aggregate payments for excess readmissions and aggregate payments for 
all discharges used in the calculation of the payment adjustment), we 
used Medicare claims data from the 3-year time period of July 1, 2008 
to June 30, 2011 (76 FR 51671 and 77 FR 53388).
    In this proposed rule, consistent with the definition at Sec.  
412.152 of the existing regulations, we are proposing that the 
applicable period for FY 2014 under the Hospital Readmissions Reduction 
Program would be the 3-year period from July 1, 2009, to June 30, 2012. 
That is, we would determine the excess readmission ratios and calculate 
the payment adjustment (including aggregate payments for excess 
readmissions and aggregate payments for all discharges) for FY 2014 
using data from the 3-year time period of July 1, 2009 to June 30, 
2012, as this is the most recent available 3-year period of data upon 
which to base these calculations. As discussed later in this section, 
although we are proposing an applicable period of July 1, 2009 through 
June 30, 2012 for FY 2014, for purposes of determining the proposed 
readmissions payment adjustment factors for this FY 2014 proposed rule, 
we are using excess readmission ratios based on older data, that is, 
from the FY 2013 applicable period of July 1, 2008 to June 30, 2011 
(that includes the application of the proposed planned readmission 
algorithm discussed earlier in this section). However, for the FY 2014 
final rule, we intend to use excess readmission ratios based on data 
from the applicable period of July 1, 2009 to June 30, 2012, if that 
period is finalized.
g. Proposed Refinements of the Methodology To Calculate the Aggregate 
Payments for Excess Readmissions
    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 final rule (77 FR 53387), we defined ``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.'' In 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53387), we included this 
definition of ``aggregate payments for excess readmissions'' under the 
regulations at Sec.  412.152.
    The ``Excess Readmission Ratio'' is a hospital-specific ratio 
calculated for each applicable condition. Specifically, section 
1886(q)(4)(C) of the Act defines the excess readmission ratio as the 
ratio of ``risk-adjusted readmissions based on actual readmissions'' 
for an applicable hospital for each applicable condition, to the 
``risk-adjusted expected readmissions'' for the applicable hospital for 
the applicable condition. The methodology for the calculation of the 
excess readmission ratio was finalized in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51673). ``Aggregate payments for excess 
readmissions'' is the numerator of the ratio used to calculate the 
adjustment factor under the Hospital Readmissions Reduction Program.
    The term ``aggregate payments for all discharges'' is defined at 
section 1886(q)(4)(B) of the Act as ``for a hospital for an applicable 
period, the sum of the base operating DRG payment amounts for all 
discharges for all conditions from such hospital for such applicable 
period.'' ``Aggregate payments for all discharges'' is the denominator 
of the ratio used to calculate the adjustment factor under the Hospital 
Readmissions Reduction Program. In the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53387), we included this definition of ``aggregate payments for 
all discharges'' under the regulations at Sec.  412.152.
    We note that we are taking this opportunity to propose to make a 
technical change to the definition of ``basing operating DRG payment 
amount'' in the existing regulations at Sec.  412.152 to reflect our 
policy that the difference between the applicable hospital-specific 
payment rate and the Federal payment rate for SCHs and MDHs is excluded 
from the base operating DRG amount for these hospitals. We note that 
section 1886(q)(2)(B)(i) of the Act provides ``special rules'' for MDHs 
with respect to discharges occurring during FYs 2012 and 2013, and not 
for subsequent years. Under current law, as discussed in section V.F. 
of the preamble of this proposed rule, the MDH program expires at the 
end of FY 2013 (that is, the MDH program is in effect through September 
30, 2013); therefore, the technical change would reflect that our 
policy applies to MDHs for FY 2013 only.
    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.''
    When determining the base operating DRG payment amount for an 
individual hospital for such applicable period for such condition, we 
use Medicare inpatient claims from the MedPAR file

[[Page 27603]]

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 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 2014, we are proposing to use MedPAR claims with discharge 
dates that are on or after July 1, 2009, and no later than June 30, 
2012. As specified in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53387), we 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. The FY 2009 through FY 2012 MedPAR data files can be 
purchased from CMS. Use of these files allows 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:
     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.
     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.
    For this FY 2014 proposed rule, we are proposing to determine 
aggregate payments for excess readmissions and aggregate payments for 
all discharges using data from MedPAR claims with discharge dates that 
are on or after July 1, 2009, and no later than June 30, 2012. However, 
we note that, for the purposes of modeling the proposed readmissions 
payment adjustment factors in this proposed rule, we used excess 
readmission ratios based on an older performance period of July 1, 2008 
to June 30, 2011 with the application of the proposed planned 
readmission algorithm.
    Consistent with the approach taken in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 27964), for the purpose of modeling the proposed 
FY 2014 readmissions payment adjustment factors, we are using excess 
readmission ratios for applicable hospitals from the FY 2013 Hospital 
Readmission Reduction Program applicable period. For FY 2014, 
applicable hospitals will have had the opportunity to review and 
correct data from the proposed FY 2014 applicable period of July 1, 
2009 to June 30, 2012 before they are made public under our policy 
regarding the reporting of hospital-specific information, which is 
discussed later in this section.
    In this proposed rule, we are proposing for FY 2014 to use MedPAR 
data from July 1, 2009 through June 30, 2012, and we are using the 
March 2010 update of the FY 2009 MedPAR file to identify claims within 
FY 2009 with discharges dates that are on or after July 1, 2009, the 
March 2011 update of the FY 2010 MedPAR file to identify claims within 
FY 2010, the March 2012 update of the FY 2011 MedPAR file to identify 
claims within FY 2010, and the December 2012 update of the FY 2012 
MedPAR file to identify claims within FY 2012 with discharge dates no 
later than June 30, 2012. For the FY 2014 IPPS/LTCH PPS final rule, we 
intend to use the same MedPAR files as listed above, with the exception 
of using the March 2013 update of the FY 2012 MedPAR file.
    In order to identify the admissions for each condition for an 
individual hospital for calculating the aggregate payments for excess 
readmissions, as we did for FY 2013, we are proposing, for FY 2014, 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 posted 
on the Web site at: http://www.QualityNet.org > Hospital-Inpatient > 
Claims-Based Measures > Readmission Measures > Measure Methodology.
    In order to identify the applicable conditions to calculate the 
aggregate payments for excess readmissions, as we did for FY 2013, we 
are proposing, for FY 2014, 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. Based on 
public comments that we received on the FY 2013 IPPS/LTCH PPS proposed 
rule, which stated that the index admissions that are not considered 
readmissions for the purpose of the readmissions measures, and are 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, we are proposing 
to further modify our methodology to identify the admissions included 
in the calculation of ``aggregate payments for excess readmissions.'' 
As we did for FY 2013 in response to public comments (77 FR 53390), 
using our MedPAR data source, we identified admissions for the purposes 
of calculating aggregate payments for excess readmissions making the 
following exclusions: (1) Hospitalizations for patients discharged with 
an in hospital death; (2) hospitalization for patients discharged 
against medical advice; (3) transfers; (4) hospitalizations for 
patients under 65; (5) hospitalizations for patients enrolled in 
Medicare Part C; and (6) same day discharges for AMI cases. These 
admissions were excluded based on how they were identified in the 
MedPAR file.
    For FY 2014, we are proposing to make the same exclusions as we did 
in FY 2013, but, for some of the exclusions, to identify them using a 
different methodology which is more consistent with the manner in which 
exclusions are made to the admissions used to calculate the excess 
readmission ratio. For FY 2014, in order to have the same types of 
admissions to calculate aggregate payments for excess readmissions, as 
is used to calculate the excess readmission ratio, we are proposing to 
identify admissions for the purposes of calculating aggregate payments 
for excess readmissions as follows; we note where our proposed 
methodology for exclusions for FY 2014 differs from our methodology in 
FY 2013:
     We would exclude admissions that are identified as an 
applicable condition based on the ICD-9-CM code listed as the primary 
diagnosis if the patient died in the hospital, as identified by the 
discharge status code on the MedPAR claim. This is consistent with how 
we identified patients who died in the

[[Page 27604]]

hospital in the FY 2013 IPPS/LTCH PPS final rule.
     We would exclude admissions identified as an applicable 
condition based on the ICD-9-CM code listed as the primary diagnosis 
for which the patient was transferred to another acute care hospital 
(that is, a CAH or an IPPS hospital), as identified through examination 
of contiguous stays in MedPAR at other hospitals. (We note that this 
proposed step differs from the methodology we used in the FY 2013 IPPS/
LTCH PPS final rule to identify transfers based on discharge 
destination codes in the MedPAR file.)
     We would 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 by linking the 
claim information to the information provided in the Medicare 
Enrollment Database. (We note that this proposed step differs from the 
methodology we used in the FY 2013 IPPS/LTCH PPS Rule in that we 
previously used claims in the MedPAR file to identify a patient's age.)
     For conditions identified as AMI, we would exclude claims 
that are same day discharges, as identified by the admission date and 
discharge date on the MedPAR claim. (This is consistent with how we 
identified patients with same day discharges for AMI in the FY 2013 
IPPS/LTCH PPS final rule. In addition, it is consistent with the 
calculation of the excess readmission ratio for AMI where same day 
discharges for AMI are not included as an index admission.)
    Furthermore, we are proposing to only identify Medicare FFS claims 
that meet the criteria (that is, claims paid for under Medicare Part C 
(Medicare Advantage) would not be included in this calculation), 
consistent with the methodology to calculate excess readmission ratios 
based solely on admissions and readmissions for Medicare FFS patients. 
For FY 2013, we had excluded admissions for Medicare Advantage patients 
based on whether the claim was identified as a Medicare Advantage claim 
in the MedPAR file or whether the FFS payment amount on the claim was 
for an IME payment only, also indicative of an admission for a Medicare 
Advantage patient. For FY 2014, we would exclude admissions for 
patients enrolled in Medicare Advantage as identified in the Enrollment 
Database, which is consistent with how admissions for Medicare 
Advantage patients are identified in the calculation of the excess 
readmission ratios.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53390), we noted 
that there were additional exclusions to the admissions used to 
calculate the excess readmission ratio that we could not apply to the 
calculation of aggregate payments for excess readmissions at the time 
of rulemaking. However, we stated our intention to modify our systems 
to identify the additional exclusions in order to calculate the 
aggregate payments for excess readmissions in a manner that would be 
more consistent with the calculation of the excess readmission ratio. 
Thus, in addition to the exclusions to the admissions we finalized in 
the FY 2013, we are proposing additional exclusions so that the 
criteria used to identify admissions for the purposes of calculating 
aggregate payments for excess readmissions would be the same as the 
criteria used to identify admissions for the purposes of calculating 
the excess readmission ratios. We are proposing to link our MedPAR 
claims data with the Medicare Enrollment Database to make additional 
exclusions to the admissions used to calculate aggregate payments for 
excess readmissions, which is consistent with our established 
methodology for calculating of the excess readmission ratios. The 
Medicare Enrollment Database contains information on all individuals 
entitled to Medicare, including demographic information, enrollment 
dates, third party buy-in information, and Medicare managed care 
enrollment. For FY 2014, we are proposing to include the following 
additional steps to identify admissions for the purposes of calculating 
aggregate payments for excess readmissions:
     We are proposing to exclude admissions for patients who 
did not have Medicare Parts A and B FFS enrollment in the 12 months 
prior to the index admission, based on the information provided in the 
Medicare Enrollment Database.
     We are proposing to exclude admissions for patients 
without at least 30 days post-discharge enrollment in Medicare Parts A 
and B FFS, based on the information provided in the Medicare Enrollment 
Database.
     We are proposing to exclude all multiple admissions within 
30 days of a prior index admission, as identified in the MedPAR file, 
consistent with how multiple admissions within 30 days of an index 
admission are excluded from the calculation of the excess readmission 
ratio.
    We are inviting public comments on these proposals.
    The tables below list the ICD-9-CM codes we are proposing to use to 
identify each applicable condition to calculate the aggregate payments 
for excess readmissions under this proposal for FY 2014. These ICD-9-CM 
codes also will 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. The list of ICD-9-CM 
codes for each condition has not changed from the list provided in the 
FY 2013 IPPS/LTCH PPS final rule.

             ICD-9-CM Codes To Identify Pneumonia (PN) 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.

[[Page 27605]]

 
482.42........................  Methicillin Resistant Pneumonia due to
                                 Staphylococcus Aureus.
482.49........................  Other staphylococcus pneumonia.
482.81........................  Pneumonia due to anaerobes.
482.82........................  Pneumonia due to escherichia coli
                                 [e.coli].
482.83........................  Pneumonia due to other gram-negative
                                 bacteria.
482.84........................  Pneumonia due to legionnaires' disease.
482.89........................  Pneumonia due to other specified
                                 bacteria.
482.9.........................  Bacterial pneumonia unspecified.
483.0.........................  Pneumonia due to mycoplasma pneumoniae.
483.1.........................  Pneumonia due to chlamydia.
483.8.........................  Pneumonia due to other specified
                                 organism.
485...........................  Bronchopneumonia organism unspecified.
486...........................  Pneumonia organism unspecified.
487.0.........................  Influenza with pneumonia.
488.11........................  Influenza due to identified novel H1N1
                                 influenza virus with pneumonia.
------------------------------------------------------------------------


           ICD-9-CM Codes to Identify Heart Failure (HF) 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 (AMI) 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.
------------------------------------------------------------------------

    For FY 2014, we are proposing to calculate aggregate payments for 
excess readmissions, using MedPAR claims from July 1, 2009 to June 30, 
2012, to identify applicable conditions based on the same ICD-9-CM 
codes used to identify the conditions for the readmissions measures and 
to apply the exclusions for the types of admissions discussed above.

[[Page 27606]]



         Formulas To Calculate the Readmission Adjustment Factor
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Aggregate payments for excess readmissions = [sum of base operating DRG
 payments for AMI x (Excess Readmission Ratio for AMI-1)] + [sum of base
 operating DRG payments for HF x (Excess Readmission Ratio for HF-1)] +
 [sum of base operating DRG payments for PN x (Excess Readmission Ratio
 for PN-1)].
 
Aggregate payments for all discharges = sum of base operating DRG
 payments for all discharges.
 
Ratio = 1-(Aggregate payments for excess readmissions/Aggregate payments
 for all discharges).
 
Readmissions Adjustment Factor for FY 2014 is the higher of the ratio or
 0.9800.
 
* Based on claims data from July 1, 2009 to June 30, 2012 for FY 2014.
------------------------------------------------------------------------

h. Clarification of Reporting Hospital-Specific Information, Including 
Opportunity To Review and Submit Corrections
    In the FY 2013 IPPS/LTCH PPS final rule, we finalized our policy 
for the public reporting of the information for this program as well as 
providing hospitals with an opportunity to review and submit 
corrections to the information prior to public reporting. We are not 
proposing changes to the reporting, review, and submittal of 
corrections policy and the regulatory text that we finalized in the FY 
2013 IPPS/LTCH final rule (77 FR 53399 through 53401). However, we wish 
to clarify that requests to incorporate claims previously billed under 
a different CMS Certification Number (CCN) by recently acquired 
entities into calculations for a particular CCN will not be considered. 
This is because the particular CCN was not responsible for the patients 
under the other CCN prior to the hospital merger at the time of 
service.
    In addition to public comments on the proposed refinements to the 
readmissions measures, the proposed expansion of the applicable 
conditions for FY 2015, and the proposed changes to the readmission 
payment adjustment factors, we welcome public comment on the impact of 
the Hospital Readmissions Reduction Program on hospitals, including 
``safety net'' hospitals.

H. Hospital Value-Based Purchasing (VBP) Program

1. Statutory Background
    Section 1886(o) of the Act, as added by section 3001(a)(1) of the 
Affordable Care Act, requires the Secretary to establish a hospital 
value-based purchasing program (the Hospital Value-Based Purchasing 
(VBP) Program) under which value-based incentive payments are made in a 
fiscal year to hospitals that meet performance standards established 
for a performance period for such fiscal year. Both the performance 
standards and the performance period for a fiscal year are to be 
established by the Secretary.
    Section 1886(o)(1)(B) of the Act states that the Hospital VBP 
Program applies to payments for hospital discharges occurring on or 
after October 1, 2012. In accordance with section 1886(o)(6)(A) of the 
Act, we are required to make value-based incentive payments under the 
Hospital VBP Program to hospitals that meet or exceed performance 
standards for a performance period for a fiscal year. As further 
required by section 1886(o)(6)(C)(ii)(I) of the Act, we base each 
hospital's value-based payment percentage on the hospital's Total 
Performance Score (TPS) for a specified performance period. In 
accordance with section 1886(o)(7) of the Act, the total amount 
available for value-based incentive payments for a fiscal year will be 
equal to the total amount of the payment reductions for all 
participating hospitals for such fiscal year, as estimated by the 
Secretary. For FY 2013, the available funding pool was equal to 1.00 
percent of the base-operating DRG payments to all participating 
hospitals, as estimated by the Secretary, and the size of the 
applicable percentage will increase to 1.25 percent for FY 2014, 1.50 
percent for FY 2015, 1.75 percent for FY 2016, and 2.0 percent for FY 
2017 and successive fiscal years.
    Section 1886(o)(1)(C) of the Act generally defines the term 
``hospital'' for purposes of the Hospital VBP Program as a subsection 
(d) hospital (as that term is defined in section 1886(d)(1)(B) of the 
Act), but excludes from the definition of the term ``hospital,'' with 
respect to a fiscal year: (1) A hospital that is subject to the payment 
reduction under section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital 
IQR Program) for such fiscal year; (2) a hospital for which, during the 
performance period for the fiscal year, the Secretary has cited 
deficiencies that pose immediate jeopardy to the health or safety of 
patients; and (3) a hospital for which there are not a minimum number 
(as determined by the Secretary) of measures that apply to the hospital 
for the performance period for the fiscal year involved, or for which 
there are not a minimum number (as determined by the Secretary) of 
cases for the measures that apply to the hospital for the performance 
period for such fiscal year.
2. Overview of the FY 2013 Hospital VBP Program
    In April 2011, we issued the Hospital Inpatient VBP Program final 
rule to implement section 1886(o) of the Act (76 FR 26490 through 
26547). As described more fully in that final rule, for the FY 2013 
Hospital VBP Program, we adopted 13 measures, including 12 clinical 
process of care measures and 8 dimensions from the Hospital Consumer 
Assessment of Healthcare Providers and Systems Survey (HCAHPS) measure 
that we categorized into two domains (76 FR 26495 through 26511). We 
grouped the 12 clinical process-of-care measures into a clinical 
process of care domain, and placed the HCAHPS survey measure into a 
patient experience of care domain. We adopted a 3-quarter performance 
period from July 1, 2011 through March 31, 2012 for these measures (76 
FR 26494 through 26495), and performance standards on which hospital 
performance will be evaluated. To determine whether a hospital meets or 
exceeds the performance standards for these measures, we assessed each 
hospital's achievement during this specified performance period, as 
well as its improvement during this period as compared with its 
performance during a 3-quarter baseline period from July 1, 2009 
through March 31, 2010 (76 FR 26493 through 26495).
    We then calculated a TPS for each hospital by combining the greater 
of the hospital's achievement or improvement points for each measure to 
determine a score for each domain, weighting each domain score (for the 
FY 2013 Hospital VBP Program, the weights were clinical process of care 
= 70 percent, patient experience of care = 30 percent), and adding 
together the weighted domain scores. We converted each hospital's TPS 
into a value-based incentive payment percentage using a linear exchange 
function and then converted the value-based incentive payment 
percentage into a per discharge value-based incentive payment amount. 
We incorporated the reduction to each hospital's base operating DRG 
payment

[[Page 27607]]

amount for each discharge, as well as the value-based incentive payment 
amounts that the hospital earned as a result of its performance (if 
applicable) into our claims processing systems in January 2013, and 
these adjustments applied to FY 2013 discharges.
    We finalized the Hospital VBP Program's payment adjustment 
calculation methodology, including codifying certain definitions 
related to the Program, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53569 through 53571). We also finalized our methodology for estimating 
the total amount available for value-based incentive payments in a 
fiscal year under the Hospital VBP Program (77 FR 53571 through 53573), 
our methodology to calculate the value-based incentive payment 
adjustment factor (77 FR 53573 through 53576), the delayed application 
of the base-operating DRG payment amount reduction for FY 2013 
discharges until incorporation of the value-based incentive payment 
adjustments into our claims processing system (77 FR 53577), and our 
process for reducing the base-operating DRG payment amount and applying 
the value-based incentive payment adjustment for FY 2013 (77 FR 53577 
through 53578).
    We refer readers to the Hospital Inpatient VBP Program final rule 
(76 FR 26490 through 26547), the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74527 through 74547) and the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53567 through 53614) for further explanation of 
the details of the FY 2013 Hospital VBP Program and our other finalized 
policies related to future fiscal years.
3. FY 2014 Payment Details
    Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce 
the base operating DRG payment amount for a hospital for each discharge 
in a fiscal year by an applicable percent. Under section 1886(o)(7)(A) 
of the Act, the sum total of these reductions in a fiscal year must 
equal the total amount available for value-based incentive payments for 
all eligible hospitals for the fiscal year, as estimated by the 
Secretary. We finalized details on how we would implement these 
provisions in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 
53573), and refer readers to that final rule for more details.
    Under section 1886(o)(7)(c)(ii) of the Act, the applicable percent 
for the FY 2014 Hospital VBP Program is 1.25 percent. Based on the 
December 2012 update of the FY 2012 MedPAR file, we estimate that the 
total amount available for value-based incentive payments for FY 2014 
is $1.1 billion. We intend to update this estimate for the final rule, 
using the March 2013 update of the FY 2012 MedPAR file.
    As finalized in the FY 2013 IPPS/LTCH PPS final rule, as referenced 
above, we will utilize a linear exchange function to translate this 
estimated amount available into a value-based incentive payment 
percentage for each hospital, based on its Total Performance Score 
(TPS). We will then calculate a value-based incentive payment 
adjustment factor which will be applied to the base operating DRG 
payment amount for each discharge occurring in FY 2014, on a per-claim 
basis. Proxy value-based incentive payment adjustment factors may be 
found in Table 16 for this proposed rule (which is available on the CMS 
Web site). The proxy factors are based on the TPSs from the FY 2013 
Hospital VBP Program. These FY 2013 performance scores are the most 
recently available performance scores that hospitals have been given 
the opportunity to review and correct. The slope of the linear exchange 
function used to calculate the proxy value-based incentive payment 
adjustment factors is 1.8362446088. This slope, along with the 
estimated amount available for value-based incentive payments, may also 
be found in Table 16. We intend to include an update to this table, as 
Table 16A, in the final rule (which will be available on the CMS Web 
site), to reflect changes based on the December update to the FY 2012 
MedPAR file. The updated proxy value-based incentive payment adjustment 
factors for FY 2014 will continue to be based on historic FY 2013 
Program TPSs because hospitals will not have been given the opportunity 
to review and correct their actual FY 2014 value-based incentive 
payment adjustment factors for the FY 2014 VBP program until after the 
final rule is published. After hospitals have been given an opportunity 
to review and correct their actual value-based incentive payment 
adjustment factors for FY 2014, we will add a new table, Table 16B 
(which will be available on the CMS Web site) to display the actual 
value-based incentive payment adjustment factors, exchange function 
slope, and estimated amount available for the FY 2014 Hospital VBP 
Program. We expect that Table 16B will be posted on the CMS Web site in 
October 2013.
4. FY 2014 Hospital VBP Program Measures
    For FY 2014, we adopted 17 measures for the Hospital VBP Program, 
including the 12 clinical process of care measures and the HCAHPS 
measure that we adopted for the FY 2013 Hospital VBP Program, 1 new 
clinical process of care measure (SCIP-Inf-9: Postoperative Urinary 
Catheter Removal on Postoperative Day 1 or 2), and 3 mortality outcome 
measures (Acute Myocardial Infarction (AMI) 30-Day Mortality Rate, 
Heart Failure (HF) 30-Day Mortality Rate, Pneumonia (PN) 30-Day 
Mortality Rate). The clinical process of care, HCAHPS, and mortality 
measures are discussed in more detail in the Hospital Inpatient VBP 
Program final rule (76 FR 26510 through 26511) and SCIP-Inf-9 is 
discussed in more detail in the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74530).
    Although we also previously adopted 8 HAC measures, 2 AHRQ 
composite measures, and a Medicare Spending per Beneficiary Measure for 
the FY 2014 Hospital VBP Program, we have suspended the effective dates 
of these measures, with the result that these measures will not be 
included in the FY 2014 Hospital VBP Program (76 FR 74528 through 
74530). However, as discussed further below, we finalized adoption of a 
Medicare Spending per Beneficiary Measure and an AHRQ composite measure 
for the FY 2015 Hospital VBP Program in the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53582 through 53592).
    Set out below is a complete list of the measures we adopted for the 
FY 2014 Hospital VBP Program:

     Finalized Quality Measures for the FY 2014 Hospital VBP Program
------------------------------------------------------------------------
               Measure ID                      Measure description
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
Acute myocardial infarction:
    AMI-7a.............................  Fibrinolytic Therapy Received
                                          Within 30 Minutes of Hospital
                                          Arrival.
    AMI-8a.............................  Primary PCI Received Within 90
                                          Minutes of Hospital Arrival.

[[Page 27608]]

 
Heart Failure:
    HF-1...............................  Discharge Instructions.
Pneumonia:
    PN-3b..............................  Blood Cultures Performed in the
                                          Emergency Department Prior to
                                          Initial Antibiotic Received in
                                          Hospital.
    PN-6...............................  Initial Antibiotic Selection
                                          for CAP in Immunocompetent
                                          Patient.
Healthcare-associated infections:
    SCIP-Inf-1.........................  Prophylactic Antibiotic
                                          Received Within One Hour Prior
                                          to Surgical Incision.
    SCIP-Inf-2.........................  Prophylactic Antibiotic
                                          Selection for Surgical
                                          Patients.
    SCIP-Inf-3.........................  Prophylactic Antibiotics
                                          Discontinued Within 24 Hours
                                          After Surgery End Time.
    SCIP-Inf-4.........................  Cardiac Surgery Patients with
                                          Controlled 6AM Postoperative
                                          Serum Glucose.
    SCIP-Inf-9.........................  Postoperative Urinary Catheter
                                          Removal on Post Operative Day
                                          1 or 2.
Surgeries:
    SCIP-Card-2........................  Surgery Patients on a Beta
                                          Blocker Prior to Arrival That
                                          Received a Beta Blocker During
                                          the Perioperative Period.
    SCIP-VTE-1.........................  Surgery Patients with
                                          Recommended Venous
                                          Thromboembolism Prophylaxis
                                          Ordered.
    SCIP-VTE-2.........................  Surgery Patients Who Received
                                          Appropriate Venous
                                          Thromboembolism Prophylaxis
                                          Within 24 Hours Prior to
                                          Surgery to 24 Hours After
                                          Surgery.
------------------------------------------------------------------------
                   Patient Experience of Care Measures
------------------------------------------------------------------------
HCAHPS.................................  Hospital Consumer Assessment of
                                          Healthcare Providers and
                                          Systems Survey *.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI............................  Acute Myocardial Infarction
                                          (AMI) 30-Day Mortality Rate.
MORT-30-HF.............................  Heart Failure (HF) 30-Day
                                          Mortality Rate.
MORT-30 PN.............................  Pneumonia (PN) 30-Day Mortality
                                          Rate.
------------------------------------------------------------------------
* The finalized dimensions of the HCAHPS survey for use in the FY 2014
  Hospital VBP Program are: Communication with Nurses, Communication
  with Doctors, Responsiveness of Hospital Staff, Pain Management,
  Communication about Medicines, Cleanliness and Quietness of Hospital
  Environment, Discharge Information and Overall Rating of Hospital.
  These are the same dimensions that we adopted for the FY 2013 Hospital
  VBP Program.

5. FY 2015 Hospital VBP Program Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53582 through 
53592), we adopted 12 Clinical Process of Care measures, one Patient 
Experience of Care measure in the form of the HCAHPS survey, 5 Outcome 
measures, including three 30-day mortality measures, the AHRQ PSI 
composite measure, and the CLABSI measure, and one Efficiency measure 
for the FY 2015 Hospital VBP Program.
    We did not adopt two clinical process measures (SCIP-Inf-10 and 
AMI-10) that we determined were ``topped-out'' according to our 
criteria finalized in the Hospital Inpatient VBP Program final rule (76 
FR 26496 through 26497). We also did not adopt SCIP-VTE-1 for the FY 
2015 Hospital VBP Program because we believed that the measure is very 
similar to another measure we have adopted for the Program (SCIP-VTE-2) 
and, in our view, is not as closely linked to better surgical outcomes 
because it assesses the ordering of VTE prophylaxis, rather than the 
patient's actual receipt of such prophylaxis within 24 hours of 
surgery. We also noted that, during a recent maintenance review of 
SCIP-VTE-1, the National Quality Forum (NQF) concluded that it would no 
longer endorse this measure.
    Set out below is a complete list of the measures we adopted for the 
FY 2015 Hospital VBP Program:

       Finalized Quality Measures for FY 2015 Hospital VBP Program
------------------------------------------------------------------------
               Measure ID                      Measure description
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
AMI-7a.................................  Fibrinolytic Therapy Received
                                          Within 30 Minutes of Hospital
                                          Arrival.
AMI-8a.................................  Primary PCI Received Within 90
                                          Minutes of Hospital Arrival.
HF-1...................................  Discharge Instructions.
PN-3b..................................  Blood Cultures Performed in the
                                          Emergency Department Prior to
                                          Initial Antibiotic Received in
                                          Hospital.
PN-6...................................  Initial Antibiotic Selection
                                          for CAP in Immunocompetent
                                          Patient.
SCIP-Inf-1.............................  Prophylactic Antibiotic
                                          Received Within One Hour Prior
                                          to Surgical Incision.
SCIP-Inf-2.............................  Prophylactic Antibiotic
                                          Selection for Surgical
                                          Patients.
SCIP-Inf-3.............................  Prophylactic Antibiotics
                                          Discontinued Within 24 Hours
                                          After Surgery End Time.
SCIP-Inf-4.............................  Cardiac Surgery Patients with
                                          Controlled 6AM Postoperative
                                          Serum Glucose.
SCIP-Inf-9.............................  Urinary Catheter Removed on
                                          Postoperative Day 1 or
                                          Postoperative Day 2.
SCIP-Card-2............................  Surgery Patients on Beta-
                                          Blocker Therapy Prior to
                                          Arrival Who Received a Beta-
                                          Blocker During the
                                          Perioperative Period.
SCIP-VTE-2.............................  Surgery Patients Who Received
                                          Appropriate Venous
                                          Thromboembolism Prophylaxes
                                          Within 24 Hours Prior to
                                          Surgery to 24 Hours After
                                          Surgery.
------------------------------------------------------------------------

[[Page 27609]]

 
                       Patient Experience Measures
------------------------------------------------------------------------
HCAHPS *...............................  Hospital Consumer Assessment of
                                          Healthcare Providers and
                                          Systems Survey.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
AHRQ PSI composite.....................  Complication/patient safety for
                                          selected indicators
                                          (composite).
CLABSI.................................  Central Line-Associated Blood
                                          Stream Infection.
MORT-30-AMI............................  Acute Myocardial Infarction
                                          (AMI) 30-day mortality rate.
MORT-30-HF.............................  Heart Failure (HF) 30-day
                                          mortality rate.
MORT-30-PN.............................  Pneumonia (PN) 30-day mortality
                                          rate.
------------------------------------------------------------------------
                           Efficiency Measures
------------------------------------------------------------------------
MSPB-1.................................  Medicare Spending per
                                          Beneficiary.
------------------------------------------------------------------------
* Dimensions of the HCAHPS survey for use in the FY 2015 Hospital VBP
  Program are: Communication with Nurses, Communication with Doctors,
  Responsiveness of Hospital Staff, Pain Management, Communication about
  Medicines, Cleanliness and Quietness of Hospital Environment,
  Discharge Information and Overall Rating of Hospital. These are the
  same dimensions of the HCAHPS survey that have been finalized for
  prior Hospital VBP Program years.

6. FY 2016 Hospital VBP Program Measures
a. Measures Previously Adopted and Proposal To Remove AMI-8a, PN-3b, 
and HF-1
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53592 through 
53593), we adopted for the FY 2016 Hospital VBP Program the three 30-
day mortality measures that we had finalized for the Hospital VBP 
Program for FYs 2014 and 2015. We also adopted the AHRQ patient safety 
composite (PSI-90) for the Hospital VBP Program for FY 2016. We adopted 
those measures at that time in order to adopt a longer performance 
period and collect more data for performance scoring than would be 
possible if we waited to make those proposals until this proposed rule. 
We also adopted those measures at that time because we recognized that 
under section 1886(o)(3)(C) of the Act, we must establish and announce 
performance standards not later than 60 days prior to the beginning of 
the performance period for the fiscal year involved. We also 
automatically readopted the remaining FY 2015 measures (with the 
exception of the CLABSI measure), in accordance with our policy of 
automatic readoption of measures (77 FR 53592).
    In this proposed rule, we are proposing to remove three measures 
from the measure set previously adopted that we have discussed above. 
First, we analyzed the clinical process of care measures for ``topped 
out'' status and concluded that AMI-8a: Primary PCI Received within 90 
Minutes of Hospital Arrival is ``topped-out.'' Our methodology for 
evaluating whether a measure is topped-out focuses on two criteria: (1) 
National measure data show statistically indistinguishable performance 
levels at the 75th and 90th percentiles; and (2) national measure data 
show a truncated coefficient of variation (TCV) less than 0.10. We 
believe that topped-out measures should not be included in the Hospital 
VBP Program because measuring hospital performance on those measures 
has no meaningful effect on a hospital's TPS. Therefore, we are 
proposing to remove AMI-8a from the FY 2016 Hospital VBP Program 
measure set.
    We welcome public comments on our proposal to remove AMI-8a from 
the FY 2016 Hospital VBP Program measure set and on whether any other 
existing Hospital VBP Program measures are topped-out and, therefore, 
should be removed from the previously adopted FY 2016 measure set. We 
intend to update our topped-out analysis using the most recently 
available data and will announce in the FY 2014 IPPS/LTCH PPS final 
rule whether any of the other FY 2016 measures will be removed due to 
topped-out status.
    Second, we are proposing to remove PN-3b, Blood Cultures Performed 
in the Emergency Department Prior to Initial Antibiotic Received in 
Hospital, and HF-1, Discharge Instructions, from the FY 2016 Hospital 
VBP Program. Both PN-3b and HF-1 are no longer endorsed by the NQF, and 
we note that in its 2013 Pre-Rulemaking Report, the Measure 
Applications Partnership (MAP) did not recommend those measures for use 
in the Hospital VBP Program.
    As of February 28, 2012, the NQF Pneumonia Thoracic CT Work Group 
of the Pulmonary and Critical Care Endorsement Maintenance Project 
believed there was insufficient evidence that performing blood cultures 
prior to initiation of antibiotics led to better outcomes. The 
workgroup also cited significant issues with documentation of the 
timing of the blood cultures with respect to the initiation of the 
antibiotics. Documentation is often done retrospectively providing 
opportunities for data entry errors. The issue is compounded with EHRs 
as data entry is electronically time-stamped and may not accurately 
indicate when blood cultures were drawn or antibiotics given. Although 
the measure is currently ``chart-abstracted,'' the data might be 
abstracted from an EHR, instead of from a paper record.
    We note further that NQF reviewed HF-1 during the summer of 2012. 
The NQF Steering Committee determined that there was insufficient 
evidence to link the HF-1 measure of discharge instructions with better 
outcomes. The committee noted that discharge instructions, as measured 
by HF-1, did not cover several important issues, including patient 
understanding of the instructions and their appropriateness for 
patients' education and literacy levels.
    Therefore, we do not believe that these measures appropriately 
capture relevant inpatient quality information for purposes of the 
Hospital VBP Program, and, as indicated above, we are proposing to 
remove them from the FY 2016 program.
b. Proposed New Measures for the FY 2016 Hospital VBP Program
    We considered if we should adopt additional measures for the FY 
2016 Hospital VBP Program. We considered what measures are eligible for 
adoption based on the statutory requirements, including specification 
under the Hospital IQR Program and posting dates on the Hospital 
Compare Web site, as

[[Page 27610]]

well as our priorities for quality improvement as outlined in the 
National Quality Strategy, which is available for download at http://www.healthcare.gov/news/reports/nationalqualitystrategy032011.pdf.
    We believe the following measures meet the statutory requirements 
for inclusion in the Hospital VBP Program. We also believe that these 
measures represent important components of quality improvement in the 
acute inpatient hospital setting.
    Influenza Immunization (IMM-2, NQF 1659) is a chart-
abstracted prevention measure that addresses acute care hospitalized 
inpatients age 6 months or older that were screened for seasonal 
influenza immunization status and were vaccinated prior to discharge, 
if indicated. We believe this measure is important to quality 
improvement efforts because about 36,000 adults die and over 200,000 
are hospitalized annually for flu-related causes. Older adults are more 
vulnerable to influenza, and adults over age 65 comprise about 90 
percent of deaths related to flu. Vaccinations can significantly reduce 
the number of flu-related illnesses and deaths.
    This measure was incorporated into the Hospital IQR Program for FY 
2014 in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50211), and data 
collection began with January 1, 2012 discharges. Measure data were 
posted on Hospital Compare on December 13, 2012, and MAP supported its 
inclusion in the Hospital VBP Program in its February 2013 report 
(available at http://www.qualityforum.org/Publications/2013/02/MAP_
Pre-Rulemaking_Report__-February_2013.aspx), noting that it 
addresses a high-impact condition not adequately addressed in the 
program's current measure set. Therefore, we are proposing to adopt 
IMM-2 into the Clinical Process of Care domain for the FY 2016 Hospital 
VBP Program.
    Catheter-Associated Urinary Tract Infection (CAUTI, NQF 
0138) is an HAI measure reported via CDC's National Healthcare 
Safety Network (NHSN). This measure is important to quality improvement 
efforts because the urinary tract is the most common site of HAIs, 
accounting for more than 30 percent of infections reported by acute 
care hospitals. Complications associated with CAUTI cause discomfort to 
patients, prolonged hospitals stays, and increased costs and mortality. 
More than 13,000 deaths each year are associated with UTIs.
    This measure was finalized for the Hospital IQR Program in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51617 through 51618), and data 
collection began with January 1, 2012 discharges. Measure data were 
posted on Hospital Compare on December 13, 2012, and MAP supported its 
inclusion in the Hospital VBP Program in its February 2013 report, 
noting that it addresses the National Quality Strategy (NQS) priorities 
not adequately addressed in the program's current measure set. 
Therefore, we are proposing to adopt the NHSN CAUTI measure into the 
Outcome domain for the FY 2016 Hospital VBP Program.
    Surgical Site Infection (SSI, NQF 0753) is an HAI measure 
reported via CDC's NHSN. As currently specified under the Hospital IQR 
Program, the measure is restricted to colon procedures, including 
incision, resection, or anastomosis of the large intestine, and large-
to-small and small-to-large bowel anastomosis, and abdominal 
hysterectomy procedures, including those done by laparoscope. The 
measure is reported separately on Hospital Compare for those two 
surgery sites, and does not include rectal operations.
    This measure was incorporated into the Hospital IQR Program in the 
FY 2011 IPPS/LTCH PPS final rule (75 FR 50211), and data collection 
began with January 1, 2012 discharges. Measure data were posted on 
Hospital Compare on December 13, 2012, and MAP supported its inclusion 
in the Hospital VBP Program in its February 2013 report, noting that it 
addresses NQS priorities not adequately addressed in the program's 
current measure set. The SSI measure was stratified by surgery site 
when it was adopted for the Hospital IQR Program, and is both collected 
and publicly reported as a stratified measure. However, because we 
adopted SSI as one measure under the Hospital IQR Program, we are 
proposing to score the measure for purposes of the Hospital VBP Program 
as a weighted average of the measure's strata by applicable cases per 
stratum. Under this proposed scoring methodology, if a hospital meets 
the Hospital IQR Program's threshold for public display of its SSI 
measure strata scores during a Hospital VBP performance period--that 
is, at least one predicted infection during the applicable time 
period--we will calculate a weighted average of the measure's strata to 
score under the Hospital VBP Program.
    We believe this proposal enables us to score participating 
hospitals on the underlying components of the SSI measure fairly. We 
note further that, for purposes of calculating performance standards 
displayed subsequently, we will equally weight the SSI measure's 
strata. We seek public comments on our proposed adoption of this 
measure and its proposed scoring methodology under the Hospital VBP 
Program.
    We adopted the NHSN-based CLABSI measure in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53583), and refer readers to that regulation for 
further discussion of the measure. We continue to believe that the 
CLABSI measure is consistent with the Hospital VBP Program's statutory 
requirement that we consider measures of HAIs for the FY 2013 Hospital 
VBP Program's measure set. We also note that the measure was included 
in the HHS Action Plan to Prevent HAIs, which is referenced in section 
1886(o)(2)(B)(i)(I)(ee) of the Act.
    In the FY 2013 IPPS/LTCH PPS final rule, we stated that we would 
not automatically readopt CLABSI for the FY 2016 Program (77 FR 53592), 
although we stated our intent to adopt the measure in the future. We 
did not automatically readopt CLABSI because we understood that CDC was 
planning to submit a revised version of this measure to NQF for 
endorsement, and that there may have been substantive changes to the 
measure associated with reliability adjustment to the standardized 
infection ratio.
    The reliability-adjusted standardized infection ratio (SIR) is an 
outcome measure that summarizes the healthcare-associated infection 
experience by type of infection (for example, central-line associated 
bloodstream infection, surgical site infection) for individual 
hospitals. The reliability-adjusted measure enables more meaningful 
statistical differentiation between hospitals by accounting for 
differences in patient case-mix, exposures to medical devices or 
procedures (for example, central line-days, surgical procedure volume), 
and unmeasured factors that are not reflected in the unadjusted SIR and 
that cause variation in outcomes between hospitals. Accounting for 
these sources of variability enables better measure discrimination 
between hospitals and leads to more reliable quality measurements.
    We are aware that the CDC has submitted the reliability-adjusted 
version of the CLABSI measure to the NQF for endorsement. We note 
further that, in its February 2013 report, MAP recommended adoption of 
the reliability-adjusted CLABSI measure ``contingent on NQF 
endorsement,'' and noted that the ``most recent NQF-endorsed version 
should be applied.'' We believe that our proposal to adopt the current 
CLABSI measure is consistent with this recommendation, and we intend to 
consider adopting the

[[Page 27611]]

reliability-adjusted CLABSI measure in future rulemaking.
    We intend to monitor CDC's activity on this measure, particularly 
as it moves toward reliability adjustment, and intend to adopt the 
revised measure in future program years. However, in the absence of NQF 
endorsement of the reliability-adjusted measure, unless and until the 
Hospital IQR Program adopts the reliability adjustments, we are 
proposing to adopt the CLABSI measure as it currently exists into the 
Outcome domain for the FY 2016 Hospital VBP Program.
    Below is a table that describes the measures for the FY 2016 
Hospital VBP Program that we previously adopted, as well as the new 
measures that we are proposing to adopt.

  Proposed and Readopted Measures for the FY 2016 Hospital VBP Program
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
AMI-7a............................  Fibrinolytic Therapy Received Within
                                     30 Minutes of Hospital Arrival.
IMM-2 **..........................  Influenza Immunization.
PN-6..............................  Initial Antibiotic Selection for CAP
                                     in Immunocompetent Patient.
SCIP-Inf-1........................  Prophylactic Antibiotic Received
                                     Within One Hour Prior to Surgical
                                     Incision.
SCIP-Inf-2........................  Prophylactic Antibiotic Selection
                                     for Surgical Patients.
SCIP-Inf-3........................  Prophylactic Antibiotics
                                     Discontinued Within 24 Hours After
                                     Surgery End Time.
SCIP-Inf-4........................  Cardiac Surgery Patients with
                                     Controlled 6 a.m. Postoperative
                                     Serum Glucose.
SCIP-Inf-9........................  Urinary Catheter Removed on
                                     Postoperative Day 1 or
                                     Postoperative Day 2.
SCIP-Card-2.......................  Surgery Patients on Beta-Blocker
                                     Therapy Prior to Arrival Who
                                     Received a Beta-Blocker During the
                                     Perioperative Period.
SCIP-VTE-2........................  Surgery Patients Who Received
                                     Appropriate Venous Thromboembolism
                                     Prophylaxes Within 24 Hours Prior
                                     to Surgery to 24 Hours After
                                     Surgery.
------------------------------------------------------------------------
                       Patient Experience Measures
------------------------------------------------------------------------
HCAHPS............................  Hospital Consumer Assessment of
                                     Healthcare Providers and Systems
                                     Survey.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
CAUTI**...........................  Catheter-Associated Urinary Tract
                                     Infection.
CLABSI ***........................  Central Line-Associated Blood Stream
                                     Infection.
MORT-30-AMI *.....................  Acute Myocardial Infarction (AMI) 30-
                                     day mortality rate.
MORT-30-HF *......................  Heart Failure (HF) 30-day mortality
                                     rate.
MORT-30-PN *......................  Pneumonia (PN) 30-day mortality
                                     rate.
PSI-90 *..........................  Complication/patient safety for
                                     selected indicators (composite).
SSI **............................  Surgical Site Infection.
                                        Colon.
                                        Abdominal Hysterectomy.
------------------------------------------------------------------------
                           Efficiency Measures
------------------------------------------------------------------------
MSPB-1............................  Medicare Spending per Beneficiary.
------------------------------------------------------------------------
* Measures previously finalized for the FY 2016 Hospital VBP Program.
** Proposed new measures.
*** Measures finalized for FY 2015 but not subject to immediate
  readoption.

    We are inviting public comments on this measure set.
    We also seek public comment on our intent to adopt the Methicillin-
resistant Staphylococcus aureus (MRSA) Bacteremia and the Clostridium 
difficile (C. difficile) standardized infection ratio measures for the 
FY 2017 Hospital VBP Program. Both of these measures are high-priority 
HAI measures listed in the HHS Action Plan to Prevent HAIs. We 
anticipate posting performance data for these measures on Hospital 
Compare later this year, and anticipate proposing to adopt these 
measures for the Hospital VBP Program in the FY 2015 IPPS/LTCH PPS 
proposed rule.
c. Future Measures for the Efficiency Domain
    We are considering including additional measures in the Efficiency 
Domain for future years of both the Hospital IQR Program and the 
Hospital VBP Program. If we were to expand the Efficiency Domain in the 
future, we would do so through future rulemaking and in accordance with 
the requirements of section 1886(o) of the Act.
    We are considering adding a measure of hospitals' performance on 
treating Medicare beneficiaries appropriately as a hospital inpatient 
or a hospital outpatient. Specifically, we are considering constructing 
a measure to assess the rate and/or dollar amount of billing hospital 
inpatient services to Medicare Part B, subsequent to the denial of a 
Part A hospital inpatient claim. We are considering such a measure in 
light of our recent proposal that when a Medicare Part A claim for 
inpatient hospital services is denied because the inpatient admission 
was determined not to be reasonable and necessary, or when a hospital 
determines under Sec.  482.30(d) or Sec.  485.641 after a beneficiary 
is discharged that his or her inpatient admission was not reasonable 
and necessary, the hospital may be paid for all of the Part B services 
that would have been reasonable and necessary had the beneficiary been 
treated as a hospital outpatient rather than admitted as an inpatient, 
if the beneficiary is enrolled in Medicare Part B (78 FR 16632 through 
16646). We are inviting public comments on this or other approaches to 
include a measure of appropriateness of hospital inpatient services in 
future years of the Hospital IQR Program and the Efficiency Domain for 
the Hospital VBP Program.
    We also are considering the addition of Medicare spending measures 
specific to physician services such as Radiology, Anesthesiology, and 
Pathology that

[[Page 27612]]

occur during a hospital stay. We are inviting public comment on how to 
best to construct measures of Medicare spending for these or other 
physician services provided during a hospital stay, for future 
inclusion in the Hospital IQR Program and the Efficiency Domain in the 
Hospital VBP Program.
7. Proposed Performance Periods and Baseline Periods
a. Background
    Section 1886(o)(4) of the Act requires the Secretary to establish a 
performance period for the Hospital VBP Program for a fiscal year that 
begins and ends prior to the beginning of such fiscal year.
b. Proposed Clinical Process of Care Domain Performance Period and 
Baseline Period for the FY 2016 Hospital VBP Program
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53594 through 
53595), we finalized a 12-month performance period for FY 2015 Clinical 
Process of Care measures of CY 2013, or January 1, 2013 through 
December 31, 2013, with a corresponding baseline period of CY 2011, or 
January 1, 2011 through December 31, 2011, for purposes of calculating 
improvement points and performance standards. As we stated in that 
rule, a 12-month performance period provides us more data on which to 
score hospital performance, which is an important goal both for CMS and 
for stakeholders. We also noted that a 12-month performance period is 
consistent with the reporting periods used for these measures under the 
Hospital IQR Program.
    We are proposing to adopt a 12-month performance period for FY 2016 
Clinical Process of Care measures of CY 2014, or January 1, 2014 
through December 31, 2014, for the FY 2016 Hospital VBP Program. We 
also are proposing to adopt a corresponding 12-month baseline period of 
CY 2012, or January 1, 2012 through December 31, 2012, for purposes of 
calculating improvement points and calculating performance standards.
    We are inviting public comment on these proposals.
c. Proposed Experience of Care Domain Performance Period and Baseline 
Period for the FY 2016 Hospital VBP Program
    Consistent with our goal of adopting a full 12-month period for 
this domain in order to collect a larger amount of HCAHPS survey data 
compared to a 9-month period, in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53595), we finalized a 12-month performance period for FY 2015 
Patient Experience of Care measures of CY 2013, or January 1, 2013 
through December 31, 2013, with a corresponding baseline period of CY 
2011, or January 1, 2011 through December 31, 2011, for purposes of 
calculating improvement points and performance standards. As we stated 
in that rule, a 12-month performance period provides us more data on 
which to score hospital performance, which is an important goal both 
for CMS and for stakeholders.
    We are proposing to adopt a 12-month performance period for FY 2016 
Patient Experience of Care measures of CY 2014, or January 1, 2014 
through December 31, 2014, for the FY 2016 Hospital VBP Program. We 
also are proposing to adopt a corresponding 12-month baseline period of 
CY 2012, or January 1, 2012 through December 31, 2012, for purposes of 
calculating improvement points and calculating performance standards.
    We are inviting public comment on these proposals.
d. Proposed Efficiency Domain Measure Performance Period and Baseline 
Period for the FY 2016 Hospital VBP Program
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53595 through 
53596), we finalized a performance period for the Medicare Spending per 
Beneficiary measure for the FY 2015 Hospital VBP Program of May 1, 2013 
through December 31, 2013, with a corresponding baseline period of May 
1, 2011 through December 31, 2011. We finalized that performance period 
based on the measure's posting date on Hospital Compare, our desire to 
ensure consistency across domains where possible, and in order to 
ensure that data have been posted for at least 1 year prior to the 
beginning of the measure performance period.
    In order to expand the dataset available for performance scoring on 
this measure, we are proposing to adopt a 12-month performance period 
for the Medicare Spending per Beneficiary measure for the FY 2016 
Hospital VBP Program of CY 2014, or January 1, 2014 through December 
31, 2014, with a corresponding baseline period of CY 2012, or January 
1, 2012 through December 31, 2012. These proposed performance and 
baseline periods align with the performance and baseline periods for 
Clinical Process of Care Domain measures. These proposed performance 
and baseline periods also enable us to collect sufficient measure data, 
while allowing time to calculate and incorporate Medicare spending per 
Beneficiary measure data into the Hospital VBP Program scores in a 
timely manner.
    We are inviting public comments on the proposed performance and 
baseline periods for the Medicare Spending per Beneficiary measure.
    Proposed baseline and performance periods for FY 2016 (with the 
exception of the Outcome domain, discussed further below) are 
summarized in the following table.

 Proposed Performance and Baseline Periods for the FY 2016 Hospital VBP
   Program--Clinical Process of Care, Patient Experience of Care, and
                           Efficiency Domains
------------------------------------------------------------------------
           Domain                Baseline period     Performance period
------------------------------------------------------------------------
Clinical Process of Care....  January 1, 2012-      January 1, 2014-
                               December 31, 2012.    December 31, 2014.
Patient Experience of Care..  January 1, 2012-      January 1, 2014-
                               December 31, 2012.    December 31, 2014.
Efficiency..................  January 1, 2012-      January 1, 2014-
                               December 31, 2012.    December 31, 2014.
------------------------------------------------------------------------

e. Proposed Outcome Domain Performance Periods and Baseline Periods for 
the FY 2017 through FY 2019 Hospital VBP Programs
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53598 through 53599) 
we finalized performance periods and baseline periods for the FY 2016 
mortality and AHRQ PSI composite measures. These periods are summarized 
in the table below.

[[Page 27613]]



  Finalized FY 2016 Performance Periods and Baseline Periods for 30-Day
                     Mortality and AHRQ PSI Measures
------------------------------------------------------------------------
           Measure               Baseline period     Performance period
------------------------------------------------------------------------
Mortality...................  October 1, 2010-June  October 1, 2012-June
                               30, 2011.             30, 2014.
AHRQ PSI composite..........  October 15, 2010-     October 15, 2012-
                               June 30, 2011.        June 30, 2014.
------------------------------------------------------------------------

    In light of the time needed to process measure data for the three 
30-day mortality and AHRQ PSI composite measures and our policy goal to 
collect enough data to generate the most reliable scores possible, we 
are proposing in this proposed rule to adopt performance periods for 
the three 30-day mortality and AHRQ PSI composite measures for the FY 
2017 through FY 2019 program years. We also seek to increase 
transparency about performance of the Hospital VBP Program measures 
through use of Hospital Compare as a monitoring tool for hospitals to 
assess their performance on the Hospital VBP Program measures. We 
believe that aligning the Hospital VBP Program performance periods with 
the Hospital IQR Program reporting period duration would allow 
hospitals to review Hospital Compare measure rates when they are 
updated and incorporate this information into their quality improvement 
efforts, rather than having to wait until the Hospital VBP Program 
provides its scoring reports to hospitals. Further, we believe that 
aligning the Hospital IQR Program and the Hospital VBP Program in this 
manner will minimize the burden on participating hospitals by aligning 
the time periods during which they must monitor their performance on 
these measures.
    Therefore, we are proposing to adopt the following performance and 
baseline periods for the three 30-day mortality and AHRQ PSI composite 
measures for the FY 2017 through FY 2019 Hospital VBP Programs. We note 
that the performance periods proposed below for the AHRQ PSI composite 
measure reach 24 months at their maximum, compared to the 36 months 
proposed for the 30-day mortality measures. We are proposing those 
durations for the AHRQ PSI measure in order to adopt performance 
periods that align with AHRQ's recommended data period for public 
reporting.

 Proposed Performance and Baseline Periods for 30-day Mortality and AHRQ
                         PSI Composite Measures
------------------------------------------------------------------------
           Domain                Baseline period     Performance period
------------------------------------------------------------------------
                      FY 2017 Hospital VBP Program
------------------------------------------------------------------------
Outcome
     Mortality......   October 1,    October 1,
                               2010-June 30, 2012.   2013-June 30, 2015.
     AHRQ PSI.......   October 1,    October 1,
                               2010-June 30, 2012.   2013-June 30, 2015.
------------------------------------------------------------------------
                      FY 2018 Hospital VBP Program
------------------------------------------------------------------------
Outcome
     Mortality......   October 1,    October 1,
                               2009-June 30, 2012.   2013-June 30, 2016.
     AHRQ PSI.......   July 1,       July 1,
                               2010-June 30, 2012.   2014-June 30, 2016.
------------------------------------------------------------------------
                      FY 2019 Hospital VBP Program
------------------------------------------------------------------------
Outcome
     Mortality......   July 1,       July 1,
                               2009-June 30, 2012.   2014-June 30, 2017.
     AHRQ PSI.......   July 1,       July 1,
                               2010-June 30, 2012.   2015-June 30, 2017.
------------------------------------------------------------------------

    We are inviting public comments on our proposal to adopt 
performance periods and corresponding baseline periods for these 
measures for the FY 2017 through FY 2019 Hospital VBP Programs.
8. Proposed Performance Standards for the Hospital VBP Program
a. Background
    Section 1886(o)(3)(A) of the Act requires the Secretary to 
establish performance standards for the measures selected under the 
Hospital VBP Program for a performance period for the applicable fiscal 
year. The performance standards must include levels of achievement and 
improvement, as required by section 1886(o)(3)(B) of the Act, and must 
be established and announced not later than 60 days before the 
beginning of the performance period for the fiscal year involved, as 
required by section 1886(o)(3)(C) of the Act. Achievement and 
improvement standards are discussed more fully in the Hospital 
Inpatient VBP Program final rule (76 FR 26511 through 26513).
    In addition, when establishing the performance standards, section 
1886(o)(3)(D) of the Act requires the Secretary to consider appropriate 
factors, such as: (1) Practical experience with the measures, including 
whether a significant proportion of hospitals failed to meet the 
performance standard during previous performance periods; (2) 
historical performance standards; (3) improvement rates; and (4) the 
opportunity for continued improvement. In the FY 2013 IPPS/LTCH PPS 
final rule, (77 FR 53599 through 53604), we codified our interpretation 
of the Hospital VBP statute with respect to performance standards in 
our regulations at Sec.  412.165.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53599 through 
53604), we adopted performance standards for FY 2015 and FY 2016 
Hospital VBP Program measures. We also finalized our policy to update 
performance periods and performance standards for future Hospital VBP 
Program years via notice on our Web site or another publicly available 
Web site.

[[Page 27614]]

b. Performance Standards for the FY 2016 Hospital VBP Program Measures
    We refer readers to the Hospital Inpatient VBP Program final rule 
(76 FR 26511 through 26513) for a detailed discussion of the 
methodology we adopted for calculating performance standards with 
respect to the clinical process of care, patient experience of care, 
and outcome measures, and the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51654 through 51656) for a discussion of the methodology we adopted for 
the Medicare Spending per Beneficiary measure. We have defined the 
``achievement threshold'' as the median, or 50th percentile, of all 
hospitals' performance on a measure during a baseline period (or during 
the performance period in the case of the Medicare Spending per 
Beneficiary measure) with respect to a fiscal year (42 CFR 412.160). We 
are proposing to revise this definition, in order to clarify that while 
this is true for the majority of Hospital VBP Program measures, it does 
not apply to the Medicare Spending per Beneficiary measure. The 
performance standards for the Medicare Spending per Beneficiary measure 
are based on performance period data, as finalized in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51655). Accordingly, we are proposing to 
revise the definition of ``achievement threshold'' at Sec.  412.160 to 
read: ``Achievement threshold (or achievement performance standard) 
means the median (50th percentile) of hospital performance on a measure 
during a baseline period with respect to a fiscal year, for Hospital 
VBP Program measures other than the Medicare Spending per Beneficiary 
measure, and the median (50th percentile) of hospital performance on a 
measure during the performance period with respect to a fiscal year, 
for the Medicare Spending per Beneficiary measure.'' We welcome public 
comments on this proposed regulation text change.
    We have defined the ``benchmark'' as the arithmetic mean of the top 
decile of all hospitals' performance on a measure during the baseline 
period (Sec.  412.160). Similar to the codified definition of 
``achievement threshold'' above, this definition of ``benchmark'' does 
not apply to the Medicare Spending per Beneficiary measure. We are 
proposing to revise the definition of ``benchmark'' at Sec.  412.160 to 
read: ``Benchmark means the arithmetic mean of the top decile of 
hospital performance on a measure during the baseline period with 
respect to a fiscal year, for Hospital VBP Program measures other than 
the Medicare Spending per Beneficiary measure, and the arithmetic mean 
of the top decile of hospital performance on a measure during the 
performance period with respect to a fiscal year, for the Medicare 
Spending per Beneficiary measure.'' The ``improvement threshold'' is an 
individual hospital's performance level on a measure during the 
baseline period with respect to a fiscal year,'' and that definition 
applies to all measures.
    We continue to believe that the finalized methodology for 
calculating performance standards is appropriate for the Hospital VBP 
Program, and we recognize that we have an obligation to calculate the 
numerical values for each of these standards accurately. However, we 
also are concerned that if we display the numerical values of the 
performance standards in a particular rulemaking document, but then 
discover that we made a data or calculation error, the result might be 
that hospitals are held to inaccurate performance standards. Examples 
of the types of errors that could occur are inaccurate variables on 
Medicare claims, programming errors excluding hospitals that should 
have been included from performance standards calculations, or other 
errors that result in inaccuracies. For example, if our quality 
measurement software incorrectly excluded a number of hospitals from a 
given measure's performance standards calcluation, the resulting 
achievement thresholds and benchmarks could force participating 
hospitals to meet inaccurate performance standards, which could have 
unpredictable effects on hospitals' scores.
    We also are aware that hospitals rely on the performance standards 
that we publicly display in order to target quality improvement 
efforts, and do not believe that it would be fair to participating 
hospitals to update repeatedly our finalized performance standards if 
we were to identify multiple errors.
    We believe that the best method to balance our obligation to 
publicly display accurate performance standards with the need to 
correct such performance standards if we subsequently discover data 
errors is to make a single correction to a given measure's performance 
standards for a fiscal year. Under this proposed policy, if we 
identified data problems, calculation issues, or other errors with a 
significant impact on performance standards, we would have the ability 
to update the measure's performance standards once for a fiscal year.
    Therefore, we are proposing to interpret the finalized definitions 
of ``achievement threshold'' and ``benchmark'' found under Sec.  
412.160 to not include the numerical values that result when the 
performance standards are calculated. Further, we are proposing to 
update a measure's performance standards for a fiscal year once if we 
identify data issues, calculation errors, or other problems that would 
significantly change the displayed performance standards. However, as 
has been our practice, and to remain fully transparent with 
participating hospitals, we intend to continue to display the 
performance standards' numerical values in rulemaking.
    We finalized FY 2016 performance standards for the three 30-day 
mortality measures and the AHRQ PSI composite measure in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53603) and are displaying them again in 
the first table below. The numerical values for the proposed FY 2016 
performance standards for the clinical process, outcome, and efficiency 
measures appear in the second table below, while numerical values for 
the proposed FY 2016 performance standards for the patient experience 
of care (HCAHPS survey) measure appear in the third table below. We 
note that the numerical values for the performance standards displayed 
below represent estimates based on the most recently-available data. We 
intend to update the numerical values in the FY 2014 IPPS/LTCH PPS 
final rule. Because the Medicare Spending per Beneficiary measure's 
performance standards are based on performance period data, we are 
unable to provide numeric equivalents for the standards at this time. 
For information purposes, during the period of May 1, 2011 through 
December 31, 2011, the achievement threshold would have been a Medicare 
Spending per Beneficiary ratio of 0.99, which corresponds to a 
standardized, risk-adjusted Medicare Spending per Beneficiary amount of 
$18,079, and the benchmark would have been 0.82, which corresponds to a 
Medicare Spending per Beneficiary amount of $14,985. We also note that 
the performance standards for the NHSN-based CLABSI, CAUTI, and SSI 
measures, the AHRQ PSI composite measure, and the Medicare Spending per 
Beneficiary measure are calculated with lower values representing 
better performance, in contrast to other measures, on which higher 
values indicate better performance. As discussed above, the performance 
standards displayed below for SSI are an equally weighted average of 
the measure's strata.

[[Page 27615]]



        Finalized Performance Standards for Certain FY 2016 Hospital VBP Program Outcome Domain Measures
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                 Measure ID                              Description                 threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................  Acute Myocardial Infarction (AMI)          0.847472        0.862371
                                              30-day mortality rate.
MORT-30-HF.................................  Heart Failure (HF) 30-day mortality        0.881510        0.900315
                                              rate.
MORT-30-PN.................................  Pneumonia (PN) 30-day mortality            0.882651        0.904181
                                              rate.
PSI-90.....................................  Complication/patient safety for            0.622879        0.451792
                                              selected indicators (composite).
----------------------------------------------------------------------------------------------------------------



   Proposed Performance Standards for the FY 2016 Hospital VBP Program Clinical Process of Care, Outcome, and
                                           Efficiency Domain Measures
----------------------------------------------------------------------------------------------------------------
             Measure ID                      Description          Achievement  threshold         Benchmark
----------------------------------------------------------------------------------------------------------------
                                        Clinical Process of Care Measures
----------------------------------------------------------------------------------------------------------------
AMI-7a.............................  Fibrinolytic Therapy         0.88625...............  1.00000
                                      Received Within 30 Minutes
                                      of Hospital Arrival.
IMM-2..............................  Influenza Immunization.....  0.89947...............  0.99036
PN-6...............................  Initial Antibiotic           0.96429...............  1.00000
                                      Selection for CAP in
                                      Immunocompetent Patient.
SCIP-Inf-1.........................  Prophylactic Antibiotic      0.98942...............  1.00000
                                      Received Within One Hour
                                      Prior to Surgical Incision.
SCIP-Inf-2.........................  Prophylactic Antibiotic      0.98951...............  1.00000
                                      Selection for Surgical
                                      Patients.
SCIP-Inf-3.........................  Prophylactic Antibiotics     0.97971...............  1.00000
                                      Discontinued Within 24
                                      Hours After Surgery End
                                      Time.
SCIP-Inf-4.........................  Cardiac Surgery Patients     0.96797...............  0.99977
                                      with Controlled 6AM
                                      Postoperative Serum
                                      Glucose.
SCIP-Inf-9.........................  Urinary Catheter Removed on  0.96743...............  1.00000
                                      Postoperative Day 1 or
                                      Postoperative Day 2.
SCIP-Card-2........................  Surgery Patients on Beta-    0.97561...............  1.00000
                                      Blocker Therapy Prior to
                                      Arrival Who Received a
                                      Beta-Blocker During the
                                      Perioperative Period.
SCIP-VTE-2.........................  Surgery Patients Who         0.98086...............  1.00000
                                      Received Appropriate
                                      Venous Thromboembolism
                                      Prophylaxes Within 24
                                      Hours Prior to Surgery to
                                      24 Hours After Surgery.
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
CAUTI..............................  Catheter-Associated Urinary  0.826.................  0.000
                                      Tract Infection.
CLABSI.............................  Central Line-Associated      0.473.................  0.000
                                      Blood Stream Infection.
SSI................................  Surgical Site Infection....  0.737.................  0.000
----------------------------------------------------------------------------------------------------------------
                                               Efficiency Measures
----------------------------------------------------------------------------------------------------------------
MSPB-1.............................  Medicare Spending per        Median Medicare         Mean of the lowest
                                      Beneficiary.                 Spending per            decile Medicare
                                                                   Beneficiary ratio       Spending per
                                                                   across all hospitals    Beneficiary ratios
                                                                   during the              across all hospitals
                                                                   performance period.     during the
                                                                                           performance period.
----------------------------------------------------------------------------------------------------------------



      Proposed Performance Standards for the FY 2016 Hospital VBP Program Patient Experience of Care Domain
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                     HCAHPS survey dimension                           Floor         threshold       Benchmark
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses.......................................           53.33           77.59           85.98
Communication with Doctors......................................           61.22           80.33           88.59
Responsiveness of Hospital Staff................................           36.44           64.65           79.72
Pain Management.................................................           47.93           70.16           78.24
Communication about Medicines...................................           42.23           62.28           72.67
Hospital Cleanliness & Quietness................................           42.16           64.93           79.12

[[Page 27616]]

 
Discharge Information...........................................           62.85           84.45           90.26
Overall Rating of Hospital......................................           36.45           69.05           83.89
----------------------------------------------------------------------------------------------------------------

    We are inviting public comments on these proposed performance 
standards.
c. Certain Performance Standards for the FY 2017, FY 2018, and FY 2019 
Hospital VBP Programs
    We are proposing to adopt the following performance standards for 
the three 30-day mortality and AHRQ PSI composite measures for the FY 
2017, FY 2018, and FY 2019 Hospital VBP Program years:

    Proposed Performance Standards for the Three 30-Day Mortality and AHRQ Composite Measures for the FY 2017
                                              Hospital VBP Program
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                 Measure ID                              Description                 threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................  Acute Myocardial Infarction (AMI)          0.851458        0.871669
                                              30-day mortality rate.
MORT-30-HF.................................  Heart Failure (HF) 30-day mortality        0.881794        0.903985
                                              rate.
MORT-30-PN.................................  Pneumonia (PN) 30-day mortality            0.882986        0.908124
                                              rate.
PSI-90.....................................  Complication/patient safety for            0.580808        0.399880
                                              selected indicators (composite).
----------------------------------------------------------------------------------------------------------------



    Proposed Performance Standards for the Three 30-Day Mortality and AHRQ Composite Measures for the FY 2018
                                              Hospital VBP Program
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                 Measure ID                              Description                 threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................  Acute Myocardial Infarction (AMI)          0.850916        0.873053
                                              30-day mortality rate.
MORT-30-HF.................................  Heart Failure (HF) 30-day mortality        0.883421        0.907656
                                              rate.
MORT-30-PN.................................  Pneumonia (PN) 30-day mortality            0.882860        0.907900
                                              rate.
PSI-90.....................................  Complication/patient safety for            0.585397        0.400502
                                              selected indicators (composite).
----------------------------------------------------------------------------------------------------------------



    Proposed Performance Standards for the Three 30-Day Mortality and AHRQ Composite Measures for the FY 2019
                                              Hospital VBP Program
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                 Measure ID                              Description                 threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................  Acute Myocardial Infarction (AMI)          0.850671        0.873263
                                              30-day mortality rate.
MORT-30-HF.................................  Heart Failure (HF) 30-day mortality        0.883472        0.908094
                                              rate.
MORT-30-PN.................................  Pneumonia (PN) 30-day mortality            0.882334        0.907906
                                              rate.
PSI-90.....................................  Complication/patient safety for            0.585397        0.400502
                                              selected indicators (composite).
----------------------------------------------------------------------------------------------------------------

    We are inviting public comments on these proposed performance 
standards.
9. Proposed FY 2016 Hospital VBP Program Scoring Methodology
a. Proposed General Hospital VBP Program Scoring Methodology
    In the Hospital Inpatient VBP Program final rule, we adopted a 
methodology for scoring clinical process of care, patient experience of 
care, and outcome measures. As noted in that rule, this methodology 
outlines an approach that we believe is well understood by patient 
advocates, hospitals, and other stakeholders because it was developed 
during a lengthy process that involved

[[Page 27617]]

extensive stakeholder input, and was based on a scoring methodology we 
presented in a report to Congress. We also noted in that final rule 
that we had conducted extensive additional research on a number of 
other important methodology issues to ensure a high level of confidence 
in the scoring methodology (76 FR 26514). In addition, we believe that, 
for reasons of simplicity, transparency, and consistency, it is 
important to score hospitals using the same general methodology each 
year, with appropriate modifications to accommodate new domains and 
measures. We finalized a scoring methodology for the Medicare Spending 
per Beneficiary measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51654 through 51656).
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 28087), for the FY 
2015 Hospital VBP Program, we finalized our proposal to use these same 
scoring methodologies to score hospital performance for the FY 2015 
Hospital VBP Program. In that rule, we stated that we believe these 
scoring methodologies continue to appropriately capture hospital 
quality as reflected by the finalized quality measure sets. We also 
noted that readopting the finalized scoring methodology from prior 
program years represents the simplest and most consistent policy for 
providers and the public.
    We continue to believe that the finalized scoring methodology for 
the Hospital VBP Program is well understood by patient advocates, 
hospitals, and other stakeholders because it was developed during a 
lengthy process that involved extensive stakeholder input, and was 
based on a scoring methodology we presented in a report to Congress. As 
we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53604), we 
believe that, for reasons of simplicity, transparency, and consistency, 
it is important to score hospitals using the same general methodology 
each year, with appropriate modifications to accommodate new domains 
and measures.
    Therefore, we are proposing to readopt the finalized scoring 
methodology adopted for the FY 2015 Hospital VBP Program for the FY 
2016 Hospital VBP Program. We welcome public comments on this proposal.
b. Proposed Domain Weighting for the FY 2016 Hospital VBP Program for 
Hospitals That Receive a Score on All Domains
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53582 through 
53592), we added the Efficiency domain to the Hospital VBP Program 
beginning with the FY 2015 Hospital VBP Program. We also finalized our 
proposal for the following domain weights for the FY 2015 Hospital VBP 
Program for hospitals that receive a score on all four proposed domains 
(77 FR 53605 through 53606):

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

    We stated that we believed this domain weighting appropriately 
reflects our priorities for quality improvement in the inpatient 
hospital setting and begins aligning with the National Quality 
Strategy's priorities. We believe that the domain weighting will 
continue to improve the link between Medicare payments to hospitals and 
patient outcomes, efficiency and cost, and the patient experience. We 
note that the weighting places the strongest relative emphasis on 
outcomes and the patient experience, which we view as two critical 
components of quality improvement in the inpatient hospital setting. We 
further note that the domain weighting, for the first time, 
incorporates a measure of efficiency and continues to provide 
substantial weight to clinical processes.
    As we stated in the Hospital Inpatient VBP Program final rule (76 
FR 26491), we believe that domains need not be given equal weight, and 
that over time, scoring methodologies should be weighted more towards 
outcomes, patient experience of care, and functional status measures 
(for example, measures assessing physical and mental capacity, 
capability, well-being and improvement). We took these considerations 
into account when developing the domain weighting proposal outlined 
below.
    We believe that the proposed domain weighting specified below will 
continue to improve the link between Medicare payments to hospitals and 
patient outcomes, efficiency and cost, and the patient experience. We 
note that the proposed domain weighting places the highest relative 
weight on measures of outcomes and continues to place significant 
weight on the patient experience and on efficiency, while maintaining 
clinical processes as an important component of the program's quality 
measurement.
    Therefore, we are proposing the following domain weighting for the 
FY 2016 Hospital VBP Program:

    Proposed Domain Weights for the FY 2016 Hospital VBP Program for
           Hospitals Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
                                                                Weight
                           Domain                             (percent)
------------------------------------------------------------------------
Clinical Process of Care...................................           10
Patient Experience of Care.................................           25
Outcome....................................................           40
Efficiency.................................................           25
------------------------------------------------------------------------

    We welcome public comments on this proposed domain weighting.
c. Proposed Domain Weighting for the FY 2016 Hospital VBP Program for 
Hospitals Receiving Scores on Fewer Than Four Domains
    In prior program years, we finalized a policy that hospitals must 
have received domain scores on all finalized domains in order to 
receive a TPS. However, since the Hospital VBP Program has evolved from 
its initial two domains to an expanded measure set with additional 
domains, we considered whether it was appropriate to continue this 
policy.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 through 
53609), we finalized our proposal for a higher minimum number of cases 
for the three 30-day mortality measures for the FY 2015 Hospital VBP 
Program than was finalized for the FY 2014 Hospital VBP Program. We 
made this change in our policy in order to improve these measures' 
reliability given the relatively short performance period for these 
measures. However, we were concerned that the relatively higher minimum 
number of cases could result in a substantially larger number of 
hospitals being excluded from the Hospital VBP Program. We believe that 
we should make a concerted effort to include as many hospitals as 
possible in the program in order to offer quality incentives and 
encourage quality improvement.
    Therefore, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53606 
through 53607), we finalized our proposal that, for the FY 2015 
Hospital VBP Program

[[Page 27618]]

and subsequent years, hospitals with sufficient data to receive at 
least two domain scores (that is, sufficient cases and measures to 
receive a domain score on at least two domains) will receive a TPS. We 
also finalized our proposal that, for hospitals with at least two 
domain scores, TPSs would be reweighted proportionately to the scored 
domains to ensure that the TPS is still scored out of a possible 100 
points and that the relative weights for the scored domains remain 
equivalent to the weighting which occurs when there are scores in all 
four domains. We believe that this approach allows us to include 
relatively more hospitals in the Hospital VBP Program while continuing 
to focus on reliably scoring hospitals on their quality measure 
performance. We are proposing to continue this approach for the FY 2016 
Hospital VBP Program and subsequent fiscal years for purposes of 
eligibility for the program. However, as detailed further below, we are 
proposing to reclassify the Hospital VBP Program's quality measurement 
domains beginning with the FY 2017 program to align more closely with 
CMS' National Quality Strategy, and we are seeking public comments on 
how we should determine minimum numbers of cases and measures under 
that proposed policy.
d. Proposed Domain Reclassification and Domain Weighting for the FY 
2017 Hospital VBP Program
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53593 through 
53594), we outlined one possible set of measure classifications based 
on the National Quality Strategy. However, we did not finalize our 
proposal to adopt quality measurement domains based on the National 
Quality Strategy for the FY 2016 Hospital VBP Program, because we 
understood stakeholders to be concerned about our proposal to reshape 
the Program's scoring methodology before hospitals had actual 
experience with the program and its value-based incentive payments.
    However, we now believe that hospitals have accumulated practical 
experience with all components of the Hospital VBP Program, including 
performance periods and payment periods. As a result of our extensive 
outreach efforts to hospitals and stakeholders, as well as the 
practical experience with the first year of the program, we also 
believe that hospitals and other stakeholders generally understand the 
program's operations and scoring methodology. Therefore, we believe 
that we have addressed commenters' concerns, summarized in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53594), that we should wait until 
hospitals have experienced the program fully before fundamentally 
reshaping its structure.
    We are attempting to align all of our quality improvement efforts 
with the NQS, particularly because it is a patient-centered approach 
that aligns public and private efforts. We are aware that NQF uses NQS-
based domains, and we also use those domains in development of other 
agency-specific efforts. We note further that stakeholders frequently 
request that HHS align its quality improvement efforts so that 
providers are not subjected to different measurement approaches, and we 
believe that adapting the Hospital VBP Program domain structure is one 
approach to achieving that goal. We believe that the longer we wait to 
adapt the Hospital VBP Program to the NQS domains, the more difficult 
it will be, and we believe we need a common framework as we begin 
alignment efforts between the Hospital IQR Program, the Hospital VBP 
Program, and the EHR Incentive Program. CMS's quality measurement 
strategic plan also centers on the NQS, and we believe that using these 
domains rewards hospitals for providing more efficient and more 
patient-centered care. The most recent Annual Progress Report to 
Congress addressing the NQS can be found on the Web site at: http://www.ahrq.gov/workingforquality/nqs/nqs2012annlrpt.pdf.
    Therefore, we are proposing to align the Hospital VBP Program's 
quality measurement domains with the NQS' quality priorities, with 
certain modifications discussed further below. We are proposing to 
adopt this realignment beginning with the FY 2017 Hospital VBP Program.
    We are proposing to combine the priorities of Care Coordination and 
Patient and Caregiver Centered Experience of Care into one domain for 
purposes of aligning the Hospital VBP Program domains with the NQS 
priorities. Care Coordination aligns with the NQS priority stated as 
promoting effective communication and coordination of care. Patient and 
Caregiver Centered Experience of Care aligns with the NQS priority 
stated as ensuring that each person and family are engaged as partners 
in their care. We believe that, in order to be engaged as partners, 
effective communication and coordination of care must coexist. This 
notion is further exemplified by one of the 10 principles of the NQS, 
found at http://www.ahrq.gov/workingforquality/nqs/principles.html, 
which notes that ``Person-centeredness and family engagement, including 
understanding and valuing patient preferences, will guide all 
strategies, goals, and health care improvement efforts. The most 
successful health care experiences are often those in which clinicians, 
patients, and their families work together to make decisions.'' We 
believe that care coordination includes this shared decision-making 
among clinicians, patients, and their families, and further believe 
that a component of these important concepts can be captured with the 
HCAHPS measure.
    Therefore, we believe that placing the HCAHPS measure into the 
proposed combined domain below will continue to encourage hospitals to 
focus on improving the patient's experience during acute care 
hospitalizations and will enable us to continue providing incentives 
that focus on patient and caregiver experience and coordination of 
care. However, with the exception of the HCAHPS measure described 
above, we do not believe that any of the other proposed measures for 
the FY 2016 Hospital VBP Program, which would form the basis for the FY 
2017 program's measure set, should be placed into the proposed combined 
Patient and Caregiver Experience of Care/Care Coordination domain. We 
intend to consider proposing to adopt measures of care coordination in 
the future as they become available.
    We may propose further refinements to the Hospital VBP Program 
domain structure in future years to accommodate the NQS' population 
health priority or other quality improvement priorities as appropriate, 
but will not propose to adopt a Population Health domain at this time.
    We note that the proposed NQS-based domain structure combines 
measures of clinical processes and outcomes under the ``Clinical Care'' 
priority. In order to ensure that outcomes remain a principal focus of 
hospitals' quality improvement efforts, as well as to continue our 
effort to shift the program over time to include more measures of 
outcomes and efficiency, we are proposing to stratify the NQS-based 
Clinical Care domain into ``Clinical Care--Outcomes'' and ``Clinical 
Care--Process,'' which enables us to provide significant weight to 
measures of outcomes and avoid diluting hospitals' focus on measures of 
outcomes.
    We note further that the proposed NQS-based domains include 
``Efficiency and Cost Reduction,'' a domain priority that we believe is 
analogous to the current ``Efficiency'' domain finalized for the 
Hospital VBP Program, and a ``Safety'' domain. We have placed measures 
of outcomes into both the Clinical Care--Outcome and Safety

[[Page 27619]]

domains below and have generally distinguished between the two by 
focusing on the measures' direct impact on patients. The measures we 
are proposing to place into the Safety domain include measures of 
healthcare-associated infections and the AHRQ patient safety composite. 
We believe that hospitals must continue to focus quality improvement 
efforts on these outcome safety measures, which track infection and 
safety events that pose direct harm to patients.
    Finally, as we stated in the Hospital Inpatient VBP Program final 
rule (76 FR 26491), we believe that domains need not be given equal 
weight, and that over time, scoring methodologies should be weighted 
more towards outcomes, patient experience of care, and functional 
status measures (for example, measures assessing physical and mental 
capacity, capability, well-being and improvement). We took these 
considerations into account when developing the domain weighting 
proposal outlined below. We believe that the proposed domain weighting 
will continue to improve the link between Medicare payments to 
hospitals and patient outcomes, efficiency and cost, and the patient 
and care giver experience.
    We note further that the proposed domain weighting below places 
significant weight on measures of clinical outcomes, efficiency, and 
the patient experience, while also prioritizing safety and clinical 
processes. We believe that the proposed domain weighting appropriately 
balances the clinical quality priorities described by the NQS.
    Therefore, we are proposing to adopt the following domains and 
domain weights for the FY 2017 Hospital VBP Program:

Proposed Domains and Domain Weights for the FY 2017 Hospital VBP Program
         for Hospitals Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
                  Domain                               Weight
------------------------------------------------------------------------
Safety....................................  15 percent.
Clinical Care.............................  35 percent.
   Clinical Care--Outcomes........   25 percent.
   Clinical Care--Process.........   10 percent.
Efficiency and Cost Reduction.............  25 percent.
Patient and Caregiver Centered Experience   25 percent.
 of Care/Care Coordination.
------------------------------------------------------------------------

    While we believe there are advantages to aligning the Hospital VBP 
Program domains with the NQS domains, we also recognize that there may 
be advantages associated with maintaining consistency with previous 
years' domains. Accordingly, as an alternative to realigning the 
Hospital VBP Program's domain structure more closely with the NQS 
beginning with FY 2017, we also are inviting public comments on whether 
we should adopt the following domains and domain weighting, which would 
be consistent with the proposals outlined for FY 2016 above:

   Alternative Domain Weights for the FY 2017 Hospital VBP Program for
           Hospitals Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
                         Domain                               Weight
------------------------------------------------------------------------
Clinical Process of Care................................     10 percent.
Patient Experience of Care..............................     25 percent.
Outcome.................................................     40 percent.
Efficiency..............................................     25 percent.
------------------------------------------------------------------------

    We also seek public comments on how we should assign proposed 
measures to the new NQS-aligned domains, if finalized for FY 2017, and 
are seeking public comments on the following domain assignments for 
proposed FY 2016 measures, which would form the initial basis for the 
FY 2017 program's measure set:

------------------------------------------------------------------------
           Measure ID               Current domain     NQS-based domain
------------------------------------------------------------------------
AMI-7a..........................  Clinical Process    Clinical Care--
                                   of Care.            Process.
IMM-2...........................  Clinical Process    Clinical Care--
                                   of Care.            Process.
PN-6............................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-1......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-2......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-3......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-4......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-9......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Card-2.....................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-VTE-2......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
HCAHPS..........................  Patient Experience  Patient and
                                   of Care.            Caregiver
                                                       Centered
                                                       Experience of
                                                       Care/Care
                                                       Coordination.
CAUTI...........................  Outcome...........  Safety.
CLABSI..........................  Outcome...........  Safety.
MORT-30-AMI.....................  Outcome...........  Clinical Care--
                                                       Outcomes.
MORT-30-HF......................  Outcome...........  Clinical Care--
                                                       Outcomes.
MORT-30-PN......................  Outcome...........  Clinical Care--
                                                       Outcomes.
PSI-90..........................  Outcome...........  Safety.
SSI.............................  Outcome...........  Safety.
MSPB-1..........................  Efficiency........  Efficiency and
                                                       Cost Reduction.
------------------------------------------------------------------------

    We also seek comment on how we should address minimum numbers of 
cases and measures under sections 1886(o)(1)(C)(ii)(III) and (IV) of 
the Act if we finalize this domain structure for the FY 2017 program. 
If we adopted the NQS-based domains solely for purposes of constructing 
the TPS, we could retain the general case and measure minimums 
structure adopted for prior program years. However, given the 
requirement in section 1886(o)(1)(C)(iii) of the Act that the Secretary 
conduct an independent analysis of what numbers are appropriate, we are 
also considering if we should commission such an analysis for the NQS 
domains, as modified. We are seeking public comments on this issue.
e. Proposed Disaster/Extraordinary Circumstance Waivers Under the 
Hospital VBP Program
    We are concerned that hospital performance under the Hospital VBP 
Program might be adversely impacted as a direct result of a significant 
natural disaster or other extraordinary circumstance. We are aware, for 
example, that Hurricane Sandy forced

[[Page 27620]]

some hospitals in the New York-New Jersey-Connecticut area to close 
during the autumn of 2012, which impacted their ability to report 
quality measure data that will be used for both the FY 2014 and FY 2015 
Hospital VBP Programs. We also recognize that hospitals that are closed 
during a portion of a performance period may still be eligible to 
receive a TPS and value-based incentive payments based on their 
measured quality performance during the remaining portion of the 
performance period for a fiscal year.
    However, we also are aware that many hospitals that were affected 
by Hurricane Sandy nevertheless remained open both during and after the 
storm, and we are concerned more generally that these hospitals, as 
well as other hospitals that are able to remain open despite being 
impacted by a local disaster or other extraordinary circumstance, might 
experience a decline in performance as a direct result of remaining 
open. For example, a hospital might be able to demonstrate that its 
performance on the HCAHPS survey was adversely impacted as a direct 
result of remaining open during or after a natural disaster if the 
hospital became overcrowded due to a neighboring hospital's closure, or 
understaffed due to the inability of staff to get to work. We believe 
that these types of unforeseen extraordinary circumstances could 
substantially affect the ability of the hospital to perform at the same 
level at which it might otherwise have performed if the natural 
disaster or extraordinary circumstance had not occurred, and we are 
concerned that using cases and claims from this period to generate the 
TPS might negatively, and unfairly, impact the value-based incentive 
payment amount that the hospital would otherwise receive.
    Currently, hospitals participating in the Hospital IQR Program may 
request that we grant an extension or waiver of one or more data 
submission deadlines in the event of extraordinary circumstances beyond 
the control of the hospital. However, we do not believe this process is 
entirely sufficient for the Hospital VBP Program. The Hospital IQR 
Program's extraordinary circumstances extensions/waiver process allows 
hospitals that have been granted an extension/waiver to receive the 
full annual percentage increase under the IPPS for the applicable 
fiscal year even though they did not submit data on measures in the 
same time, form, and manner required of other hospitals. To the extent 
that a hospital, as a result of receiving an extension or waiver under 
the Hospital IQR Program, does not report the minimum number of cases 
or measures under the Hospital VBP Program (as determined appropriate 
by the Secretary under sections 1886(o)(1)(C)(ii)(III) and (IV) of the 
Act), that hospital will be excluded from the Hospital VBP Program for 
the applicable fiscal year.
    However, the Hospital IQR Program extraordinary circumstance 
extension/waiver process does not address the situation we are 
concerned with here; namely, where a hospital is able to continue to 
report data on measures that are included in both the Hospital IQR 
Program and the Hospital VBP Program, but can demonstrate that its 
Hospital VBP measure rates are negatively impacted as a result of a 
natural disaster or other extraordinary circumstance and, as a result, 
the hospital receives a lower value-based incentive payment. Therefore, 
we are proposing to adopt a Hospital VBP Program extraordinary 
circumstance waiver process.
    In developing our proposed approach, we considered the feasibility 
of adopting a waiver that would allow a hospital to not have the 
measure data submitted during the affected time period included in its 
measure scores. This type of waiver policy would enable affected 
hospitals to continue to participate in the Hospital VBP Program for a 
given fiscal year if they continued to meet applicable measure and case 
minimums despite the fact that their TPS would not include data that is 
the subject of the waiver. Therefore, this policy could prevent the 
possibility that a hospital's TPS is significantly, and negatively, 
affected by a natural disaster or other extraordinary circumstance, 
which we believe would alleviate our concerns.
    However, implementing this type of data waiver presents certain 
operational difficulties. While chart-abstracted measures generally are 
reported using a date of service that would enable us to correctly 
identify which data should be excluded, the same is not necessarily 
true of patient experience of care measure data because HCAHPS survey 
dates do not align with service dates; instead, they are dependent on 
the timing of the survey's completion after discharge.
    A further complication arises with certain claims-based measures. 
For example, the risk adjustment methodology currently in use for the 
30-day mortality measures requires a fixed dataset for computation of 
all hospitals' risk-adjusted measure rates. Adding or removing data 
from the national claims set used to calculate a mortality measure's 
rates for a given time period therefore requires recalculation of all 
hospitals' measure rates, as the risk profile used to adjust hospitals' 
measured performance for the time period would have changed. In 
addition, in light of our policy to generate a TPS for hospitals that 
receive scores on fewer than all domains, we are concerned that 
proposing to adopt an extraordinary circumstances ``waiver'' process 
that would apply only to the clinical process of care domain data that 
we may relatively easily remove from scoring would be ineffective. We 
do not believe that waiving only clinical process of care domain data 
would mitigate the effects of a disaster or other extraordinary 
circumstances on hospitals' TPSs under the program, particularly if 
hospitals' performance on all measures is affected significantly by 
those circumstances. An increase in measured mortality rates, for 
example, would not be mitigated by a clinical process of care-centered 
waiver, and could penalize the hospital.
    Given the operational constraints discussed above, we believe that 
the best way to implement an extraordinary circumstances waiver under 
the Hospital VBP Program is to interpret the minimum numbers of cases 
and measures requirement in section 1886(o)(1)(C)(ii)(III) and (IV) of 
the Act to enable us to ``waive'' all applicable quality measure data 
from a performance period and, thus, exclude the hospital from the 
Hospital VBP Program for a fiscal year during which the hospital has 
experienced a disaster or other extraordinary circumstance.
    Under this policy, a hospital struck by a natural disaster or other 
extraordinary circumstance would be able to request a Hospital VBP 
Program disaster/extraordinary circumstance waiver at the same time 
that it requests an extraordinary circumstance waiver under the 
Hospital IQR Program. The hospital would submit the Hospital IQR 
Program extension/waiver request form, including any available evidence 
of the impact of the extraordinary circumstances on the hospital's 
quality measure performance, and would note that it also seeks a waiver 
from the Hospital VBP Program for the program year in which the same 
data could be used as performance period data to generate a TPS based 
on the measures included in the Hospital VBP Program. In the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51652), we finalized a requirement that 
affected hospitals submit their requests within 30 days of the date 
that the extraordinary circumstance occurred. We believe that this 
timeframe is appropriate for our proposed waiver process for the 
Hospital VBP Program as it aligns with

[[Page 27621]]

the current requirements under the Hospital IQR Program and forestalls 
the possibility of hospitals attempting to ``game'' their Hospital VBP 
Program scores by requesting a waiver after they receive their 
Percentage Payment Summary Reports for a given fiscal year.
    We will review waiver requests and, at our discretion based on our 
evaluation of the impact of the disaster/extraordinary circumstances on 
the hospital's quality measure performance, provide a response to the 
hospital. We intend to notify hospitals about our Hospital VBP Program 
waiver decisions concurrent with decisions made under the Hospital IQR 
Program's waiver process.
    For these reasons, we are proposing that the phrases ``minimum 
number of measures that apply to the hospital'' in section 
1886(o)(1)(C)(iii) of the Act and ``minimum number of cases for the 
measures that apply to the hospital'' in section 1886(o)(1)(C)(iv) of 
the Act do not include any measures or cases that a hospital has 
submitted during a performance period for which it is granted a 
Hospital VBP Program disaster/extraordinary circumstance waiver.
    We intend to implement this policy in a limited fashion, and based 
on prior experience with the Hospital IQR Program, anticipate providing 
such waivers only to a small number of hospitals. We do not intend to 
allow hospitals to use this proposed process to seek exclusion from the 
Hospital VBP Program solely because of comparatively poor performance 
under the Program's scoring methodology; rather, we intend only to 
provide relief to hospitals whose performance suffered as a result of a 
disaster or other extraordinary circumstances.
    We are inviting public comments on this proposal. We are 
specifically interested in public comments on the structure of the 
proposed process, and if we should consider implementing the process 
differently.
10. Applicability of the Hospital VBP Program to Hospitals
a. Background
    Section 1886(o)(1)(C) of the Act specifies how the Hospital VBP 
Program applies to hospitals. Specifically, the term ``hospital'' is 
defined under section 1886(o)(1)(C)(i) of the Act as a ``subsection (d) 
hospital (as defined in section 1886(d)(1)(B [of the Act])).'' Section 
1886(o)(1)(C)(ii) of the Act sets forth a list of exclusions to the 
definition of the term ``hospital'' with respect to a fiscal year, 
including a hospital that is subject to the payment reduction under 
section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital IQR Program), a 
hospital for which, during the performance period for the fiscal year, 
the Secretary has cited deficiencies that pose immediate jeopardy to 
the health or safety of patients, a hospital for which there are not a 
minimum number of measures that apply to the hospital for the 
applicable performance period for the fiscal year, and a hospital for 
which there are not a minimum number of cases for the measures that 
apply to the hospital for the performance period for the fiscal year.
    In addition, section 1886(o)(1)(C)(iv) of the Act states that in 
the case of a hospital that is paid under section 1814(b)(3) of the 
Act, the Secretary may exempt the hospital from the Hospital VBP 
Program if the State submits an annual report to the Secretary 
describing how a similar program in the State for a participating 
hospital or hospitals achieves or surpasses the measured results in 
terms of patient health outcomes and cost savings established under the 
Hospital VBP Program. We interpret the reference to section 1814(b)(3) 
of the Act to mean those Maryland hospitals that are paid under section 
1814(b)(3) of the Act and that, absent the ``waiver'' specified by 
section 1814(b)(3) of the Act, would have been paid under the IPPS.
b. Proposed Minimum Numbers of Cases and Measures for the FY 2016 
Hospital VBP Program Outcome Domain
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 through 
53609), we finalized minimum numbers of cases and measures for the FY 
2015 Hospital VBP Program's Outcome domain. For the finalized 30-day 
mortality measures, we finalized a 25-case minimum for FY 2015. For the 
AHRQ PSI composite measure, we adopted AHRQ's methodology, which 
provides a score on the measure to any hospital with at least three 
cases on any underlying indicator. For the CLABSI measure, we adopted 
CDC's minimum case criteria, which calculates a standardized infection 
ratio for a hospital on the CLABSI measure if the hospital has 1 
predicted infection during the applicable period. We also finalized our 
policy to provide a TPS to hospitals with sufficient cases in at least 
two of the four finalized quality measure domains (77 FR 53607).
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74532 
through 74534) we concluded, based on an independent analysis, that the 
minimum number of measures that a hospital must report in order to 
receive a score on the Outcome domain is two measures. We continue to 
believe that this minimum number is appropriate for the expanded 
Outcome domain because adding measure scores beyond the minimum number 
of measures has the effect of enhancing the domain score's reliability. 
We therefore are proposing to retain the finalized minimum number of 
measures for the Outcome domain for the FY 2016 Hospital VBP Program.
    We are inviting public comment on these proposals.
c. Hospitals Paid Under Section 1814(b)(3) of the Act
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53607 through 
53608), beginning with the FY 2014 Hospital VBP Program, we adopted a 
new procedure for submission of the report in order for a Maryland 
hospital to be exempt from the Hospital VBP Program for a fiscal year. 
Under this finalized procedure, if the State seeks an exemption with 
respect to a particular program year, it would need to submit a report 
that meets the requirements of section 1886(o)(1)(C)(iv) of the Act in 
a timeframe that allows it to be received by the Secretary on or before 
November 15 prior to the effective fiscal year (for example, the report 
seeking an exemption from the FY 2014 Hospital VBP Program would have 
to be received by the Secretary no later than November 15, 2012). We 
stated that we anticipate notifying the State, as well as each hospital 
for which the State has requested an exemption, of our decision whether 
to grant the request no later than 90 days following the exemption 
request deadline.
    We received an FY 2014 exemption request from the Maryland Health 
Services Cost Review Commission and the State of Maryland Department of 
Health and Mental Hygiene in November 2012, and the Secretary approved 
the exemption request on December 19, 2012.
    We determined that Maryland meets or exceeds the patient health 
outcomes and cost savings requirements for exemption from the FY 2014 
Hospital VBP Program. In terms of patient health outcomes, the Maryland 
Quality Based Reimbursement (MQBR) program focuses rewarding high 
quality care on hospital performance in similar clinical areas as the 
Hospital VBP Program (heart attack, heart failure, pneumonia, surgical 
processes of care and infection control). In general, the relevant 
health outcomes for the State's hospitals cited in its request achieve 
or surpass the current national results for comparable quality process 
and closely related clinical outcomes. In terms of cost savings, both 
the Hospital VBP Program

[[Page 27622]]

and the MQBR reward high performers in a revenue-neutral manner. In 
this way, Maryland has achieved cost savings under its quality programs 
that meet any documented savings under the Hospital VBP Program, 
thereby meeting the standard specified in section 1886(o)(1)(C)(iv) of 
the Act for hospitals paid under section 1814(b)(3) of the Act.

I. Proposed Implementation of Hospital-Acquired Condition (HAC) 
Reduction Program for FY 2015

1. Background
a. Overview
    CMS is committed to promoting higher quality of care and improving 
outcomes for Medicare beneficiaries. Accordingly, as part of that 
effort, we have, in recent years, undertaken a number of initiatives to 
reduce the number of hospital-acquired conditions (HACs) among Medicare 
beneficiaries. HACs are conditions that patients acquire while 
receiving treatment for another condition in an acute care health 
setting. HACs include hospital-acquired infections (HAIs), such as 
surgical site infections, as well as conditions such as foreign objects 
retained after surgery. HACs constitute an adverse event for the 
patient and a financial burden on the health care system. Most HACs, 
especially those stemming from medical errors, represent a leading 
cause of mortality in the United States.\48\ Deaths from HAIs alone are 
twice as high as those from HIV/AIDS and breast cancer combined.\49\ 
Many common HACs can be prevented through the proper application of 
evidence-based guidelines. Yet, surveys reveal that 87 percent of 
hospitals do not follow such guidelines.\50\ Further, HACs constitute a 
significant economic burden on the health care system. For example, in 
2009, the CDC estimated that preventable HAIs alone added nearly $6 
billion to U.S. health care costs each year.\51\ Accordingly, we 
believe that our continued efforts to reduce HACs are vital to 
improving patients' quality of care, and reducing complications and 
mortality, while simultaneously decreasing costs.
---------------------------------------------------------------------------

    \48\ Kohn L T, Corrigan J M., Donaldson MS (Institute of 
Medicine) To Err is Human: Building a Safer Health System. 
Washington, DC: National Academy Press, 2000.
    \49\ Binder, Leah F. The Leapfrog Group Testimony before the 
House of Representatives Committee of Oversight and Government 
Reform, April 16, 2008. Available at: http://www.leapfroggroup.org/policy_leadership/leapfrog_news/4732651.
    \50\ Id.
    \51\ Centers for Disease Control, The Direct Medical Costs of 
Healthcare Associated Infections in US Hospitals and the Benefits of 
Prevention March, 2009. Available at: http://www.cdc.gov/hai/pdfs/hai/scott_costpaper.pdf.
---------------------------------------------------------------------------

    In section II.F. of the preamble of this proposed rule, we discuss 
prior and ongoing rulemakings to implement the provisions of section 
5001(c) of the Deficit Reduction Act (DRA) of 2005. Section 5001(c) of 
the DRA requires the Secretary to identify conditions by October 1, 
2007 that: (a) Are high cost or high volume or both; (b) result in the 
assignment of a case to a DRG that has a higher payment when present as 
a secondary diagnosis; and (c) could reasonably have been prevented 
through the application of evidence based guidelines. An adjustment to 
the MS-DRG payment under the IPPS is made for identified HACs. This 
regulatory action has supported our efforts to encourage hospitals to 
reduce HACs.
    Our initiatives to reduce HACs continued in 2009, when we developed 
National Coverage Determinations (NCDs) for the Medicare Program to 
eliminate ``never events.'' These ``never events'' stemmed from a 2002 
report conducted by the NQF that listed 27 adverse events, defined as 
serious reportable events, that were both serious and largely 
preventable.\52\ Under these NCDs, we have specified that Medicare does 
not cover a particular surgical or other invasive procedure to treat a 
particular medical condition when a practitioner erroneously performs: 
(1) A different procedure altogether; (2) the correct procedure but on 
the wrong body part; or (3) the correct procedure but on the wrong 
patient.\53\
---------------------------------------------------------------------------

    \52\ National Quality Forum (NQF), Serious Reportable Events in 
Healthcare--2011 Update: A Consensus Report, Washington DC: NQF 
(2011).
    \53\ Center for Medicare and Medicaid Services (CMS), National 
Coverage Determination (NCD) for, Surgical or Other Invasive 
Procedure Performed on the Wrong Body Part (140.7), Pub-100-3 
(2009); Surgical or Other Invasive Procedure Performed on the Wrong 
Patient (140.8), Pub 100-3 (2009); Wrong Surgery Performed on a 
Patient (140.9), Pub 100-3 (2009).
---------------------------------------------------------------------------

    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50196), we adopted 8 
HAC measures into the Hospital IQR Program for the FY 2012 payment 
determination. These quality measures comprise additional efforts to 
promote quality of care by reducing the number of HACs in an acute care 
setting. We have been publicly reporting on these eight HAC measures 
successfully on the Hospital Compare Web site since September 2010.
    As described above, the reduction of HACs is an important marker of 
quality of care and has a positive impact on both patient outcomes and 
costs of care. In accordance with section 1886(p) of the Act, the HAC 
Reduction Program aligns with our national strategy to improve health 
care quality by promoting the prevention of HACs, such as ``serious 
reportable events'' and HAIs. Our goal for the HAC Reduction Program is 
to heighten the awareness of HACs and reduce the number of incidences 
that occur through implementing the adjustments required by section 
1886(p) of the Act. We believe our efforts in using payment adjustments 
and our measurement authority will encourage hospitals to eliminate the 
incidence of HACs that could be reasonably prevented by applying 
evidence-based guidelines.
2. Statutory Basis for the HAC Reduction Program
    Section 3008 of the Affordable Care Act added section 1886(p) to 
the Act to provide an incentive for applicable hospitals to reduce 
HACs. Section 1886(p) of the Act requires the Secretary to make an 
adjustment to payments to ``applicable hospitals'' effective beginning 
on October 1, 2014 and for subsequent programs years. Section 
1886(p)(1) of the Act sets forth the requirements by which payments to 
``applicable hospitals'' will be adjusted to account for HACs with 
respect to discharges occurring during FY 2015 or later. The amount of 
payment shall be equal to 99 percent of the amount of payment that 
would otherwise apply to such discharges under section 1886(d) or 
1814(b)(3) of the Act, as applicable. Section 1886(p)(2)(A) of the Act 
defines ``applicable hospitals'' as subsection (d) hospitals that meet 
certain criteria. Section 1886(p)(2)(B)(i) of the Act defines these 
criteria and specifies that the payment adjustment would apply to an 
applicable hospital that ranks in the top quartile (25 percent) of all 
subsection (d) hospitals, relative to the national average, of 
conditions acquired during the applicable period, as determined by the 
Secretary. Section 1886(p)(2)(B)(ii) of the Act requires the Secretary 
to establish and apply a risk-adjustment methodology.
    Sections 1886(p)(3) and (p)(4) of the Act define ``hospital-
acquired conditions'' and ``applicable period'', respectively. The term 
``hospital-acquired condition'' means ``a condition identified in 
subsection 1886(d)(4)(D)(iv) of the Act and any other condition 
determined appropriate by the Secretary that an individual acquires 
during a stay in an applicable hospital, as determined by the 
Secretary.'' The term ``applicable period'' means, with respect to a 
fiscal year, a period specified by the Secretary.
    Section 1886(p)(5) of the Act requires that, prior to FY 2015 and 
each subsequent fiscal year, the Secretary

[[Page 27623]]

provides the delivery of confidential reports to applicable hospitals 
with respect to HACs of the applicable hospital during the applicable 
period. Section 1886(p)(6)(A) of the Act sets forth the reporting 
requirements by which the Secretary would make information available to 
the public regarding HACs for each applicable hospital. Section 
1886(p)(6)(B) of the Act requires the Secretary to ensure that an 
applicable hospital has the opportunity to review, and submit 
corrections for, the information to be made public with respect to the 
HACs of the applicable hospital prior to such information being made 
public. Section 1886(p)(6)(C) of the Act requires that, once corrected, 
the HAC information be posted on the Hospital Compare Web site on the 
Internet in an easily understandable format.
    Section 1886(p)(7) of the Act limits administrative and judicial 
review of certain determinations made pursuant to section 1886(p) of 
the Act. These determinations include what qualifies as an applicable 
hospital, the specifications of a HAC, the Secretary's determination of 
an applicable period, the provision of confidential reports submitted 
to the applicable hospital, and the information publically reported on 
the Hospital Compare Web site.
3. Proposals To Implement the HAC Reduction Program
    In this proposed rule, we are proposing the general framework for 
implementation of the HAC Reduction Program for the FY 2015 
implementation. We are including the following proposals for the 
program: (a) The relevant definitions applicable to the program; (b) 
the payment adjustment under the program; (c) the measure selection and 
conditions for the program, including a risk-adjustment and scoring 
methodology; (d) performance scoring; (e) the process for making 
hospital-specific performance information available to the public, 
including the opportunity for a hospital to review the information and 
submit corrections; and (f) limitation of administrative and judicial 
review.
    In this proposed rule, we are proposing to establish the rules 
governing the payment adjustment under the HAC Reduction Program at 
Subpart I of 42 CFR part 412 (proposed Sec. Sec.  412.170 and 412.172). 
We also are proposing to amend existing Sec.  412.150 (the section that 
describes the basis and scope of Subpart I of Part 412, which contains 
the regulations governing adjustments to the base operating DRG payment 
amounts under the IPPS for inpatient operating costs) to incorporate 
the basis and scope of proposed Sec. Sec.  412.170 and 412.172 for the 
HAC Reduction Program. We discuss each of the proposed regulatory 
provisions under the appropriate subject area below.
a. Proposed Definitions
    In accordance with the provisions of section 1886(p) of the Act, we 
are proposing to include, under proposed Sec.  412.170, definitions for 
the terms ``hospital-acquired condition,'' ``applicable hospital,'' and 
``applicable time period.''
     Hospital-acquired condition. In accordance with the 
definition of ``hospital-acquired condition'' in section 1886(p)(3) of 
the act, we would include a definition of the term in the regulations 
to read: ``Hospital-acquired condition is a condition as described in 
section 1886(d)(4)(D)(iv) of the Act and any other condition determined 
appropriate by the Secretary that an individual acquires during a stay 
in an applicable hospital, as determined by the Secretary.''
    We also refer readers to section II.F. of the preamble of this 
proposed rule where we discuss the HACs that have been identified and 
selected by the Secretary through FY 2013 in accordance with the 
provisions of section 1886(d)(4)(D)(iv) of the Act as established by 
section 5001(c) of the DRA of 2005.
     Applicable Hospital. Section 1886(p)(2)(A) of the Act 
specifies that, for the purpose of the HAC Reduction program, an 
``applicable hospital'' is a subsection (d) hospital that meets certain 
criteria. 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'', subject to certain exceptions. We also 
note that, for purposes of determining applicable hospitals under the 
HAC Reduction Program, subsection (d) hospitals include hospitals paid 
under a waiver under section 1814(b)(3) of the Act (that is, Maryland 
hospitals). Section 1886(p)(2)(B) of the Act specifies that ``with 
respect to a subsection (d) hospital, [a hospital is considered to be 
an applicable hospital if] . . . the subsection (d) hospital is in the 
top quartile of all subsection (d) hospitals, relative to the national 
average, of hospital acquired conditions during the applicable period, 
as determined by the Secretary.'' Therefore, we are proposing to define 
an ``applicable hospital'' as ``a hospital described in section 
1886(d)(1)(B) of the Act (including a hospital in Maryland that is paid 
under section 1814(b)(3) of the Act and that, absent the waiver 
specified by section 1814(b)(3) of the Act, would have been paid under 
the hospital inpatient prospective payment system) so long as the 
hospital meets the criteria specified under Sec.  412.172(e).''
    We note that while all subsection (d) hospitals, including 
hospitals paid under section 1814(b)(3) of the Act, would be used to 
determine which hospitals are ``applicable hospitals,'' as required by 
section 1886(p)(2)(B) of the Act, we have identified several types of 
hospitals where subsection (d) status may not be clear for purposes of 
determining which hospitals are or are not subject to the provisions of 
the HAC 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, IPFs. Therefore, hospitals and hospital 
units that are excluded from the IPPS would not be considered when 
determining ``applicable hospitals'' nor would they be determined to be 
``applicable hospitals'' subject to the payment adjustment under the 
HAC Reduction Program. Similarly, CAHs would not be considered when 
determining ``applicable hospitals,'' nor would they be determined to 
be ``applicable hospitals'' subject to the payment adjustment under the 
HAC Reduction Program, because they do not meet the definition of a 
``subsection (d) hospital.'' CAHs 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. An Indian Health Services hospital 
enrolled as a Medicare provider meets the definition of a subsection 
(d) hospital and, therefore, would be considered in determining 
``applicable hospitals'' and would be considered to be an ``applicable 
hospital'' under the HAC Reduction Program. In addition, hospitals that 
are SCHs, although they may be paid under a hospital-specific rate 
instead of the Federal rate under the IPPS, are subsection (d) 
hospitals and, therefore, would be included in determining ``applicable 
hospitals'' and would be considered to be an applicable hospital under 
the HAC Reduction Program. Hospitals located in the Territories, 
including Puerto Rico, are not subsection (d) hospitals. 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.'' However, because they are not located

[[Page 27624]]

in ``one of the fifty States,'' Puerto Rico hospitals are not 
subsection (d) hospitals and, therefore, would not be included in 
determining ``applicable hospitals,'' nor would they be considered to 
be an ``applicable hospital'' under the HAC Reduction Program. Finally, 
hospitals paid under the authority of section 1814(b)(3) of the Act are 
located in Maryland, which is ``one of the fifty States'' as described 
under section 1886(d)(1)(B) of the Act. Therefore, these Maryland 
hospitals are subsection (d) hospitals and would be included in 
determining ``applicable hospitals'' and, unless the Secretary exempts 
them from the application of the payment adjustment under the HAC 
Reduction Program under the authority of section 1886(p)(2)(C) of the 
Act, would be considered to be ``applicable hospitals'' under the HAC 
Reduction Program.
    We are inviting public comments on whether clarification is 
required for additional types of hospitals.
     Applicable Time Period. In accordance with the proposal 
and discussion in section V.I.3.d. of this preamble regarding the 
proposed performance scoring methodology for proposed measures for 
selected conditions and a risk-adjustment methodology under the HAC 
Reduction Program, we are proposing to define the ``applicable period'' 
as, with respect to a fiscal year, the 2-year period (specified by the 
Secretary) from which data are collected in order to calculate the 
Total HAC Score for the Hospital-Acquired Reduction Program
    We are inviting public comments on these proposed definitions.
b. Proposed Payment Adjustment Under the HAC Reduction Program, 
Including Exemptions
(1) Basic Payment Adjustment
    Section 1886(p)(1) of the Act sets forth the requirements by which 
payments to ``applicable hospitals'' will be adjusted to account for 
HACs with discharges beginning on October 1, 2014. Section 1886(p)(1) 
of the Act specifies that the amount of payment shall be equal to 99 
percent of the amount of payment that would otherwise apply to such 
discharges under section 1886(d) or 1814(b)(3) of