[Federal Register Volume 79, Number 94 (Thursday, May 15, 2014)]
[Proposed Rules]
[Pages 27977-28384]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-10067]



[[Page 27977]]

Vol. 79

Thursday,

No. 94

May 15, 2014

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 405, 412, 413, 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 2015 Rates; Quality Reporting 
Requirements for Specific Providers; Reasonable Compensation 
Equivalents for Physician Services in Excluded Teaching Hospitals; 
Provider Administrative Appeals and Judicial Review; Enforcement 
Provisions for Organ Transplant Centers; and Electronic Health Record 
(EHR) Incentive Program; Proposed Rule

Federal Register / Vol. 79 , No. 94 / Thursday, May 15, 2014 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 412, 413, 415, 422, 424, 485, and 488

[CMS-1607-P] RIN 0938-AS11


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Proposed Fiscal Year 2015 Rates; Quality Reporting 
Requirements for Specific Providers; Reasonable Compensation 
Equivalents for Physician Services in Excluded Teaching Hospitals; 
Provider Administrative Appeals and Judicial Review; Enforcement 
Provisions for Organ Transplant Centers; and Electronic Health Record 
(EHR) Incentive Program

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), the Protecting Access to Medicare Act of 2014, and other 
legislation. These proposed changes would be applicable to discharges 
occurring on or after October 1, 2014, 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, 2014.
    We also 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 to implement certain statutory changes to the LTCH PPS 
under the Affordable Care Act and the Pathway for Sustainable Growth 
Rate (SGR) Reform Act of 2013 and the Protecting Access to Medicare Act 
of 2014. In addition we are proposing to revise the interruption of 
stay policy for LTCHs and to retire the ``5 percent'' payment 
adjustment for co-located LTCHs. While many of the statutory mandates 
of the Pathway for SGR Reform Act will apply to discharges occurring on 
or after October 1, 2014, others will not begin to apply until 2016 and 
beyond. However, in light of the degree of forthcoming change, we 
discuss changes infra and request public feedback to inform our 
proposals for FY 2016 in this proposed rule as well.
    In addition, we are proposing to make 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 revise requirements for quality reporting by specific 
providers (acute care hospitals, PPS-exempt cancer hospitals, and 
LTCHs) that are participating in Medicare.
    We are proposing to update policies relating to the Hospital Value-
Based Purchasing (VBP) Program, the Hospital Readmissions Reduction 
Program, and the Hospital-Acquired Condition (HAC) Reduction Program. 
In addition, we are proposing changes to the regulations governing 
provider administrative appeals and judicial review relating to 
appropriate claims in provider cost reports; updates to the reasonable 
compensation equivalent (RCE) limits for services furnished by 
physicians to teaching hospitals excluded from the IPPS; regulatory 
revisions to broaden the specified uses of risk adjustment data and to 
specify the conditions for release of risk adjustment data to entities 
outside of CMS; and changes to the enforcement procedures for organ 
transplant centers.
    We are proposing to align the reporting and submission timelines 
for clinical quality measures for the Medicare EHR Incentive Program 
for eligible hospitals and critical access hospitals (CAHs) with the 
reporting and submission timelines for the Hospital IQR Program. In 
addition, we provide guidance and clarification of certain policies for 
eligible hospitals and CAHs such as our policy for reporting zero 
denominators on clinical quality measures and our policy for case 
threshold exemptions.

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 30, 2014.

ADDRESSES: In commenting, please refer to file code CMS-1607-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may (and we encourage you to) submit 
electronic comments on this regulation to http://www.regulations.gov. 
Follow the instructions under the ``submit a comment'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1607-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 via 
express or overnight mail to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1607-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 before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey 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. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call the 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, we refer readers to the

[[Page 27979]]

beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
    Donald Thompson, (410) 786-4487, and Tiffany Swygert, (410) 786-
4465, 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, and 
Medicare Disproportionate Share Hospital (DSH) Issues.
    Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, 
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG 
Relative Weights Issues.
    Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
    James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting 
and Hospital Value-Based Purchasing--Program Administration, 
Validation, and Reconsideration Issues.
    Karen Nakano, (410) 786-6889, Hospital Inpatient Quality 
Reporting--Measures Issues Except Hospital Consumer Assessment of 
Healthcare Providers and Systems Issues; and Readmission Measures for 
Hospitals Issues.
    Elizabeth Goldstein, (410) 786-6665, Hospital Inpatient Quality 
Reporting--Hospital Consumer Assessment of Healthcare Providers and 
Systems Measures Issues.
    Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.
    Kim Spalding Bush, (410) 786-3232, Hospital Value-Based Purchasing 
Efficiency Measures Issues.
    James Poyer, (410) 786-2261, PPS-Exempt Cancer Hospital Quality 
Reporting Issues.
    Kellie Shannon, (410) 786-0416, Appropriate Claims in Provider Cost 
Reports; Administrative Appeals by Providers and Judicial Review 
Issues.
    Amelia Citerone, (410) 786-3901, and Robert Kuhl (410) 786-4597, 
Reasonable Compensation Equivalent (RCE) Limits for Physician Services 
Provided in Providers.
    Ann Hornsby, (410) 786-1181, and Jennifer Harlow, (410) 786-4549, 
Medicare Advantage Encounter Data Issues.
    Thomas Hamilton, (410) 786-6763, Organ Transplant Center Issues.
    Jennifer Phillips, (410) 786-1023, 2-Midnight Rule Benchmark 
Issues.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All public 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 public 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.

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 the 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 are 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 2015 IPPS Proposed Rule Home 
Page'' or ``Acute Inpatient--Files for Download''. The LTCH PPS tables 
for this FY 2015 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-1607-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
AJCC American Joint Committee on Cancer
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AMI Acute myocardial infarction
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
CABG Coronary artery bypass graft [surgery]
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 (C. 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
COPD Chronis obstructive pulmonary disease

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CPI Consumer price index
CQM Clinical quality measure
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
EBRT External Bean Radiotherapy
ECI Employment cost index
eCQM Electronic clinical quality measure
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law 
99-272
EP Eligible professional
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
GAF Geographic Adjustment Factor
GME Graduate medical education
HAC Hospital-acquired condition
HAI Healthcare-associated infection
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
IBR Intern- and Resident-to-Bed Ratio
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
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
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
MU Meaningful Use [EHR Incentive Program]
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
NQS National Quality Strategy
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991, 
Public Law 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
PSI Patient safety indicator
PS&R Provider Statistical and Reimbursement [System]
PQRS Physician Quality Reporting System
QIG Quality Improvement Group [CMS]
QIO Quality Improvement Organization
QRDA Quality Reporting Data Architecture
RCE Reasonable compensation equivalent
RFA Regulatory Flexibility Act, Public Law 96-354
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
RSMR Risk-standardized mortality rate
RSRR Risk-standard readmission rate
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
SUD Substance use disorder
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 
97-248
TEP Technical expert panel
THA/TKA Total hip arthroplasty/Total knee arthroplasty
TMA TMA [Transitional Medical Assistance], Abstinence Education, and 
QI

[[Page 27981]]

[Qualifying Individuals] Programs Extension Act of 2007, Public Law 
110-90
TPS Total Performance Score
UHDDS Uniform hospital discharge data set
UMRA Unfunded Mandate Reform Act, Public Law 104-4
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. Summary of Provisions of Recent Legislation Discussed in This 
Proposed Rule
    1. Patient Protection and Affordable Care Act (Pub. L. 111-148) 
and the Health Care and Education Reconciliation Act of 2010 (Pub. 
L. 111-152)
    2. American Taxpayer Relief Act of 2012 (Pub. L. 112-240)
    3. Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 
(Pub. L. 113-67)
    4. Protecting Access to Medicare Act of 2014 (Pub. L. 113-93)
    D. Summary of the 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
    D. Proposed FY 2015 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. Prospective Adjustment for the MS-DRG Documentation and 
Coding Effect Through FY 2010
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Discussion for FY 2015
    F. Proposed 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 Preparation for Transition to 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. Discussion of Changes to Coding System and Basis for Proposed 
MS-DRG Updates
    a. Conversion of MS-DRGs to the International Classification of 
Diseases, 10th Edition (ICD-10)
    b. Basis for FY 2015 MS-DRG Updates
    2. MDC 1 (Diseases and Disorders of the Nervous System)
    a. Intracerebral Therapies: Gliadel[supreg] Wafer
    b. Endovascular Embolization or Occlusion of Head and Neck
    3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and 
Throat): Avery Breathing Pacemaker System
    4. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Exclusion of Left Atrial Appendage
    b. Transcatheter Mitral Valve Repair: MitraClip[supreg]
    c. Endovascular Cardiac Valve Replacement Procedures
    d. Abdominal Aorta Graft
    5. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue)
    a. Shoulder Replacement Procedures
    b. Ankle Replacement Procedures
    c. Back and Neck Procedures
    6. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and 
Disorders): Disorders of Porphyria Metabolism
    7. MDC 15 (Newborns and Other Neonates With Conditions 
Originating in the Perinatal Period)
    8. Proposed Medicare Code Editor (MCE) Changes
    9. Proposed Changes to Surgical Hierarchies
    10. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2015
    a. Major Complications or Comorbidities (MCCs) and Complications 
or Comorbidities (CCs) Severity Levels for FY 2015
    b. Coronary Atherosclerosis Due to Calcified Coronary Lesion
    11. Complications or Comorbidity (CC) Exclusions List
    a. Background of the CC List and the CC Exclusions List
    b. Proposed CC Exclusions List for FY 2015
    12. Review of Procedure Codes in MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-
DRGs 987 Through 989 Into MDCs
    b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    c. Adding Diagnosis or Procedure Codes to MDCs
    13. Proposed Changes to the ICD-9-CM Coding System
    a. ICD-10 Coordination and Maintenance Committee
    b. Code Freeze
    H. Recalibration of the Proposed FY 2015 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 2015 Status of Technologies Approved for FY 2014 Add-On 
Payments
    a. Glucarpidase (Trade Brand Voraxaze[supreg])
    b. DIFICIDTM (Fidaxomicin) Tablets
    c. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    d. KcentraTM
    e. Argus[supreg] II Retinal Prosthesis System
    f. Zilver[supreg] PTX[supreg] Drug Eluting Stent
    4. FY 2015 Applications for New Technology Add-On Payments
    a. Dalbavancin (Durata Therapeutics, Inc.)
    b. Heli-FXTM EndoAnchor System (Aptus Endosystems, 
Inc.)
    c. WATCHMAN[supreg] Left Atrial Appendage Closure Technology
    d. CardioMEMSTM HF (Heart Failure) System
    e. MitraClip[supreg] System
    f. Responsive Neurostimulator (RNS[supreg]) System
III. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    A. Background
    B. Proposed Core-Based Statistical Areas for the Hospital Wage 
Index
    1. Background
    2. Proposed Implementation of New Labor Market Area Delineations
    a. Micropolitan Statistical Areas
    b. Urban Counties That Would Become Rural Under the New OMB 
Delineations
    c. Rural Counties That Would Become Urban Under the New OMB 
Delineations
    d. Urban Counties That Would Move to a Different Urban CBSA 
Under the New OMB Delineations
    e. Proposed Transition Period
    C. Worksheet S-3 Wage Data for the Proposed FY 2015 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 2015 Unadjusted Wage 
Index

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    F. Proposed Occupational Mix Adjustment to the Proposed FY 2015 
Wage Index
    1. Development of Data for the Proposed FY 2015 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 2015
    G. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2015 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 and Alternative, Temporary Methodology 
for Computing the Rural Floor for FY 2015
    c. Proposed Frontier Floor
    3. Proposed FY 2015 Wage Index Tables
    H. Revisions to the Wage Index Based on Hospital Redesignations 
and Reclassifications
    1. General Policies and Effects of Reclassification and 
Redesignation
    2. FY 2015 MGCRB Reclassifications
    a. FY 2015 Reclassification Requirements and Approvals
    b. Effects of Implementation of New OMB Labor Market Area 
Delineations on Reclassified Hospitals
    c. Applications for Reclassifications for FY 2016
    3. Hospitals Redesignated Under Section 1886(d)(8)(B) of the Act
    a. Proposed New Lugar Areas for FY 2015
    b. Hospitals Redesignated Under Section 1886(d)(8)(B) of the Act 
Seeking Reclassification by the MGCRB
    c. Rural Counties No Longer Meeting the Criteria To Be 
Redesignated as Lugar
    4. Waiving Lugar Redesignation for the Out-Migration Adjustment
    5. Update of Application of Urban to Rural Reclassification 
Criteria
    I. Proposed FY 2015 Wage Index Adjustment Based on Commuting 
Patterns of Hospital Employees
    J. Process for Requests for Wage Index Data Corrections
    K. Notice of Change to Wage Index Development Timetable
    L. Labor-Related Share for the Proposed FY 2015 Wage Index
IV. Other Decisions and Proposed Changes to the IPPS for Operating 
Costs and Graduate Medical Education (GME) Costs
    A. Proposed Changes to MS-DRGs Subject to the Postacute Care 
Transfer Policy (Sec.  412.4)
    B. Proposed Changes in the Inpatient Hospital Updates for FY 
2015 (Sec. Sec.  412.64(d) and 412.211(c))
    1. Proposed FY 2015 Inpatient Hospital Update
    2. Proposed FY 2015 Puerto Rico Hospital Update
    C. Rural Referral Centers (RRCs): Proposed Annual Updates to 
Case-Mix Index (CMI) and Discharge Criteria (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    D. Proposed Payment Adjustment for Low-Volume Hospitals (Sec.  
412.101)
    1. Background
    2. Provisions of the Protecting Access to Medicare Act of 2014
    3. Low-Volume Hospital Definition and Payment Adjustment for FY 
2015
    E. Indirect Medical Education (IME) Payment Adjustment (Sec.  
412.105)
    1. IME Adjustment Factor for FY 2015
    2. Proposed IME Medicare Part C Add-On Payments to Sole 
Community Hospitals (SCHs) That Are Paid According to Their 
Hospital-Specific Rates and Proposed Change in Methodology in 
Determining Payment to SCHs
    3. Other Proposed Policy Changes Affecting IME
    F. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs) (Sec.  412.106)
    1. Background
    2. Impact on Medicare DSH Payment Adjustment of Proposed 
Implementation of New OMB Labor Market Area Delineations
    3. Payment Adjustment Methodology for Medicare Disproportionate 
Share Hospitals (DSHs) Under Section 3133 of the Affordable Care Act 
(Sec.  412.106)
    a. General Discussion
    b. Eligibility for Empirically Justified Medicare DSH Payments 
and Uncompensated Care Payments
    c. Empirically Justified Medicare DSH Payments
    d. Uncompensated Care Payments
    e. Limitations on Review
    G. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108)
    1. Background
    2. Provisions of Public Law 113-93 for FY 2015
    3. Expiration of the MDH Program
    H. Hospital Readmissions Reduction Program: Proposed Changes for 
FY 2015 Through FY 2017 (Sec. Sec.  412.150 Through 412.154)
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Regulatory Background
    3. Overview of Proposals and Policies for the FY 2015 Hospital 
Readmissions Reduction Program
    4. Proposed Refinement of the Readmissions Measures and Related 
Methodology for FY 2015 and Subsequent Years Payment Determinations
    a. Proposed Refinement of Planned Readmission Algorithm for 
Acute Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia 
(PN), Chronic Obstructive Pulmonary Disease (COPD), and Total Hip 
Arthroplasty and Total Knee Arthroplasty (THA/TKA) 30-Day 
Readmission Measures
    b. Proposed Refinement of Total Hip Arthroplasty and Total Knee 
Arthroplasty (THA/TKA) 30-Day Readmission Measure Cohort
    c. Anticipated Effect of Proposed Refinements on Measures
    5. No Proposed Expansion of the Applicable Conditions for FY 
2016
    6. Proposed Expansion of the Applicable Conditions for FY 2017 
To Include Patients Readmitted Following Coronary Artery Bypass 
Graft (CABG) Surgery Measure
    a. Background
    b. Overview of the Proposed CABG Readmissions Measure: Hospital-
Level, 30-Day, All-Cause, Unplanned Readmission Following Coronary 
Artery Bypass Graft (CABG) Surgery
    c. Proposed Methodology for the CABG Measure: Hospital-Level, 
30-Day, All-Cause, Unplanned Readmission Following Coronary Artery 
Bypass Graft (CABG) Surgery
    7. Maintenance of Technical Specifications for Quality Measures
    8. Waiver From the Hospital Readmissions Reduction Program for 
Hospitals Formerly Paid Under Section 1814(b)(3) of the Act (Sec.  
412.152 and Sec.  412.154(d))
    9. Floor Adjustment Factor for FY 2015 (Sec.  412.154(c)(2))
    10. Applicable Period for FY 2015
    11. Proposed Inclusion of THA/TKA and COPD Readmissions Measures 
To Calculate Aggregate Payments for Excess Readmissions Beginning in 
FY 2015
    12. Hospital Readmissions Reduction Program Extraordinary 
Circumstances Exceptions
    I. Hospital Value-Based Purchasing (VBP) Program
    1. Statutory Background
    2. Overview of Previous Hospital VBP Program Rulemaking
    3. FY 2015 Payment Details
    a. Payment Adjustments
    b. Base Operating DRG Payment Amount Definition for Medicare-
Dependent Small Rural Hospitals (MDHs)
    4. Measures for the FY 2017 Hospital VBP Program
    a. Measures Previously Adopted
    b. Proposed Changes Affecting Topped-Out Measures
    c. Proposed New Measures for the FY 2017 Hospital VBP Program
    d. Proposed Adoption of the Current CLABSI Measure (NQF 
0139) for the FY 2017 Hospital VBP Program
    e. Summary of Previously Adopted and Proposed New Measures for 
the FY 2017 Hospital VBP Program
    5. Proposed Additional Measures for the FY 2019 Hospital VBP 
Program
    a. Hospital-Level Risk-Standardized Complication Rate (RSCR) 
Following Elective Primary Total Hip Arthroplasty (THA) and Total 
Knee Arthroplasty (TKA)
    b. PSI-90 Measure
    6. Possible Measure Topics for Future Program Years
    a. Care Transition Measure (CTM-3) Items for HCAHPS Survey
    b. Possible Future Efficiency and Cost Reduction Domain Measure 
Topics
    7. Previously Adopted and Proposed Performance Periods and 
Baseline Periods for the FY 2017 Hospital VBP Program
    a. Background
    b. Previously Adopted Baseline and Performance Periods for the 
FY 2017 Hospital VBP Program

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    c. Proposed Clinical Care--Process Domain Performance Period and 
Baseline Period for the FY 2017 Hospital VBP Program
    d. Proposed Patient and Caregiver-Centered Experience of Care/
Care Coordination Domain Performance Period and Baseline Period for 
the FY 2017 Hospital VBP Program
    e. Proposed Safety Domain Performance Period and Baseline Period 
for NHSN Measures for the FY 2017 Hospital VBP Program
    f. Proposed Efficiency and Cost Reduction Domain Performance 
Period and Baseline Period for the FY 2017 Hospital VBP Program
    g. Summary of Previously Adopted and Proposed Performance 
Periods and Baseline Periods for the FY 2017 Hospital VBP Program
    8. Previously Adopted and Proposed Performance Periods and 
Baseline Periods for Certain Measures for the FY 2019 Hospital VBP 
Program
    a. Previously Adopted and Proposed Performance Period and 
Baseline Period for the FY 2019 Hospital VBP Program for Clinical 
Care--Outcomes Domain Measures
    b. Proposed Performance Period and Baseline Period for the PSI-
90 Safety Domain Measure for the FY 2019 Hospital VBP Program
    c. Summary of Previously Adopted and Proposed Performance 
Periods and Baseline Periods for Certain Measures for the FY 2019 
Hospital VBP Program
    9. Proposed Performance Period and Baseline Period for the 
Clinical Care--Outcomes Domain for the FY 2020 Hospital VBP Program
    10. Proposed Performance Standards for the Hospital VBP Program
    a. Background
    b. Performance Standards for the FY 2016 Hospital VBP Program
    c. Previously Adopted Performance Standards for the FY 2017, FY 
2018, and FY 2019 Hospital VBP Programs
    d. Proposed Additional Performance Standards for the FY 2017 
Hospital VBP Program
    e. Proposed Performance Standards for the FY 2019 and FY 2020 
Hospital VBP Programs
    f. Proposed Technical Updates Policy for Performance Standards
    g. Request for Public Comments on ICD-10-CM/PCS Transition
    11. Proposed FY 2017 Hospital VBP Program Scoring Methodology
    a. Proposed General Hospital VBP Program Scoring Methodology
    b. Proposed Domain Weighting for the FY 2017 Hospital VBP 
Program for Hospitals That Receive a Score on All Domains
    c. Proposed Domain Weighting for the FY 2017 Hospital VBP 
Program for Hospitals Receiving Scores on Fewer than Four Domains
    12. Proposed Minimum Numbers of Cases and Measures for the FY 
2016 and FY 2017 Hospital VBP Program's Quality Domains
    a. Previously Adopted Minimum Numbers of Cases and FY 2016 
Proposed Minimum Numbers of Cases
    b. Proposed Minimum Number of Measures--Safety Domain
    c. Proposed Minimum Number of Measures--Clinical Care Domain
    d. Proposed Minimum Number of Measures--Efficiency and Cost 
Reduction Domain
    e. Proposed Minimum Number of Measures--Patient and Caregiver 
Centered Experience of Care/Care Coordination (PEC/CC) Domain
    13. Applicability of the Hospital VBP Program to Maryland 
Hospitals
    14. Disaster/Extraordinary Circumstance Exception Under the 
Hospital VBP Program
    J. Hospital-Acquired Condition (HAC) Reduction Program
    1. Background
    2. Statutory Basis for the HAC Reduction Program
    3. Implementation of the HAC Reduction Program for FY 2015
    a. Overview
    b. Payment Adjustment Under the HAC Reduction Program, Including 
Exemptions
    c. Measure Selection and Conditions, Including Risk Adjustment 
Scoring Methodology
    d. Criteria for Applicable Hospitals and Performance Scoring 
Policy
    e. Reporting Hospital-Specific Information, Including the Review 
and Correction of Information
    f. Limitation on Administrative and Judicial Review
    4. Proposed Maintenance of Technical Specifications for Quality 
Measures
    5. Extraordinary Circumstances Exceptions/Exemptions
    6. Implementation of the HAC Reduction Program for FY 2016
    a. Measure Selection and Conditions, Including a Risk-Adjustment 
Scoring Methodology
    b. Criteria for Applicable Hospitals and Performance Scoring
    7. Future Consideration for the Use of Electronically Specified 
Measures
    K. Payments for Indirect and Direct Graduate Medical Education 
(GME) Costs (Sec. Sec.  412.105 and 413.75 Through 413.83)
    1. Background
    2. Proposed Changes in the Effective Date of the FTE Resident 
Cap, 3-Year Rolling Average, and Interim- and Resident-to-Bed (IRB) 
Ratio Cap for New Programs in Teaching Hospitals
    3. Proposed Changes to IME and Direct GME Policies as a Result 
of New OMB Labor Market Area Delineations
    a. New Program FTE Cap Adjustment for Rural Hospitals 
Redesignated as Urban
    b. Participation of Redesignated Hospitals in Rural Training 
Track
    4. Proposed Clarification of Policies on Counting Resident Time 
in Nonprovider Settings Under Section 5504 of the Affordable Care 
Act
    5. Proposed Changes to the Review and Award Process for Resident 
Slots Under Section 5506 of the Affordable Care Act
    a. Effective Date of Slots Awarded Under Section 5506 of the 
Affordable Care Act
    b. Proposal To Remove Seamless Requirement
    c. Proposed Revisions to Ranking Criteria One, Seven, and Eight 
for Applications Under Section 5506
    d. Clarification to Ranking Criterion Two Regarding Emergency 
Medicare GME Affiliation Agreements
    6. Proposed Regulatory Clarification Applicable To Direct GME 
Payments to Federally Qualified Health Centers (FQHCs) and Rural 
Health Clinics (RHCs) for Training Residents in Approved Programs
    L. Rural Community Hospital Demonstration Program
    1. Background
    2. Proposed FY 2015 Budget Neutrality Offset Amount
    M. Requirement for Transparency of Hospital Charges Under the 
Affordable Care Act
    1. Overview
    2. Transparency Requirement Under the Affordable Care Act
    N. Medicare Payment for Short Inpatient Hospital Stays
    O. Suggested Exceptions to the 2-Midnight Benchmark
V. Proposed Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Additional Provisions
    1. Exception Payments
    2. New Hospitals
    3. Hospitals Located in Puerto Rico
    C. Proposed Annual Update for FY 2015
VI. Proposed Changes for Hospitals Excluded From the IPPS
    A. Proposed Rate-of-Increase in Payments to Excluded Hospitals 
for FY 2015
    B. Proposed Updates to the Reasonable Compensation Equivalent 
(RCE) Limits on Compensation for Physician Services Provided in 
Providers (Sec.  415.70)
    1. Background
    2. Overview of the Current RCE Limits
    a. Application of the RCE Limits
    b. Exceptions to the RCE Limits
    c. Methodology for Establishing the RCE Limits
    3. Proposed Changes to the RCE Limits
    C. Critical Access Hospitals (CAHs
    1. Background
    2. Proposed Changes Related to Reclassifications as Rural for 
CAHs
    3. Proposed Revision of the Requirements for Physician 
Certification of CAH Inpatient Services
VII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2015
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as an LTCH
    a. Classification as an 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 2015

[[Page 27984]]

    1. Background
    2. Patient Classifications Into MS-LTC-DRGs
    a. Background
    b. Proposed Changes to the MS-LTC-DRGs for FY 2015
    3. Development of the Proposed FY 2015 MS-LTC-DRG Relative 
Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Proposed Development of the MS-LTC-DRG Relative Weights for 
FY 2015
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the Proposed MS-
LTC-DRG Relative Weights
    f. Proposed Low-Volume MS-LTC-DRGs
    g. Steps for Determining the Proposed FY 2015 MS-LTC-DRG 
Relative Weights
    C. Proposed LTCH PPS Payment Rates for FY 2015
    1. Overview of Development of the LTCH Payment Rates
    2. Proposed FY 2015 LTCH PPS Annual Market Basket Update
    a. Overview
    b. Proposed Revision of Certain Market Basket Updates as 
Required by the Affordable Care Act
    c. Proposed 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 2015
    e. Proposed Annual Market Basket Update for LTCHs for FY 2015
    3. Proposed Adjustment for the Final Year of the Phase-In of the 
One-Time Prospective Adjustment to the Standard Federal Rate Under 
Sec.  412.523(d)(3)
    D. Proposed Revision of LTCH PPS Geographic Classifications
    1. Background
    2. Proposed Use of New OMB Labor Market Area Delineations (``New 
OMB Delineations'')
    a. Micropolitan Statistical Areas
    b. Urban Counties That Became Rural Under the New OMB Labor 
Market Area Delineations
    c. Rural Counties That Became Urban Under the New OMB Labor 
Market Area Delineations
    d. Urban Counties Moved to a Different Urban CBSA Under the New 
OMB Labor Market Area Delineations
    e. Proposed Transition Period
    E. Reinstatement and Extension of Certain Payment Rules for LTCH 
Services--The 25-Percent Threshold Payment Adjustment
    1. Background
    2. Proposed Implementation of Section 1206(b)(1) of Public Law 
113-67
    F. Proposed Changes to the Fixed-Day Thresholds Under the 
Greater Than 3-Day Interruption of Stay Policy Under the LTCH PPS
    1. Background
    2. Thresholds Used in Recent Statutory Programs
    3. Proposed Changes to the Greater Than 3-Day Interruption of 
Stay Policy
    G. Moratoria on the Establishment of LTCHs and LTCH Satellite 
Facilities and on the Increase in the Number of Beds in Existing 
LTCHs or LTCH Satellite Facilities
    H. Evaluation and Proposed Treatment of LTCHs Classified Under 
Section 1886(d)(1)(B)(iv)(II) of the Act
    I. Description of Statutory Framework for Patient-Level 
Criteria-Based Payment Adjustment Under the LTCH PPS Under Public 
Law 113-67
    1. Overview
    2. Provisions of Section 1206(a) of Public Law 113-67
    3. Additional LTCH PPS Issues
    J. Proposed Technical Change
VIII. Appropriate Claims in Provider Cost Reports; Administrative 
Appeals by Providers and Judicial Review
    A. Background
    1. Payment and Cost Reporting Requirements
    2. Administrative Appeals by Providers and Judicial Review
    3. Appropriate Claims in Provider Cost Reports
    B. Proposed Changes Regarding the Claims Required in Provider 
Cost Reports and for Provider Administrative Appeals
    1. Proposed Addition to the Cost Reporting Regulations of the 
Substantive Reimbursement Requirement of an Appropriate Cost Report 
Claim
    2. Proposed Revisions to the Provider Reimbursement Appeal 
Regulations
    C. Proposed Conforming Changes to the Board Appeal Regulations 
and Corresponding Revisions to the Contractor Hearing Regulations
    1. Technical Corrections and Conforming Changes to Sec. Sec.  
405.1801 and 405.1803
    2. Technical Corrections and Conforming Changes to Sec. Sec.  
405.1811, 405.1813, and 405.1814
    3. Proposed New Sec.  405.1832
    4. Proposed Revisions to Sec.  405.1834
    5. Technical Corrections and Conforming Changes to Sec. Sec.  
405.1836, 405.1837, and 405.1839
    6. Technical Corrections to 42 CFR Part 405, Subpart R and All 
Subparts of 42 CFR Part 413
IX. Quality Data Reporting Requirements for Specific Providers and 
Suppliers
    A. Hospital Inpatient Quality Reporting (IQR) Program
    1. Background
    a. History of the Hospital IQR Program
    b. Maintenance of Technical Specifications for Quality Measures
    c. Public Display of Quality Measures
    2. Removal and Suspension of Hospital IQR Program Measures
    a. Considerations in Removing Quality Measures From the Hospital 
IQR Program
    b. Proposed Removal of Hospital IQR Program Measures for the FY 
2017 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. Previously Adopted Hospital IQR Program Measures for the FY 
2016 Payment Determination and Subsequent Years
    6. Proposed Refinements to Existing Measures in the Hospital IQR 
Program
    a. Proposed Refinement of Planned Readmission Algorithm for 30-
Day Readmission Measures
    b. Proposed Refinement of Total Hip Arthroplasty and Total Knee 
Arthroplasty (THA/TKA) 30-Day Complication and Readmission Measures
    c. Anticipated Effect of Proposed Refinements to Existing 
Measures
    7. Proposed Additional Hospital IQR Program Measures for the FY 
2017 Payment Determination and Subsequent Years
    a. Proposed Hospital 30-Day, All-Cause, Unplanned, Risk-
Standardized Readmission Rate (RSRR) Following Coronary Artery 
Bypass Graft (CABG) Surgery
    b. Proposed Hospital 30-Day, All-Cause, Risk-Standardized 
Mortality Rate (RSMR) Following Coronary Artery Bypass Graft (CABG) 
Surgery
    c. Proposed Hospital-level, Risk-Standardized 30-Day Episode-of-
Care Payment Measure for Pneumonia
    d. Proposed Hospital-Level, Risk-Standardized 30-Day Episode-of-
Care Payment Measure for Heart Failure
    e. Proposed Severe Sepsis and Septic Shock: Management Bundle 
Measure (NQF 0500)
    f. Electronic Health Record-Based Voluntary Measures
    g. Proposed Readoption of Measures as Voluntarily Reported 
Electronic Clinical Quality Measures
    h. Electronic Clinical Quality Measures
    8. Possible New Quality Measures and Measure Topics for Future 
Years
    a. Mandatory Electronic Clinical Quality Measure Reporting for 
FY 2018 Payment Determination
    b. Possible Future Electronic Clinical Quality Measures
    9. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Procedural Requirements for the FY 2017 Payment Determination 
and Subsequent Years
    c. Data Submission Requirements for Chart-Abstracted Measures
    d. Alignment of the EHR Incentive Program Reporting and 
Submission Timelines for Clinical Quality Measures with Hospital IQR 
Program Reporting and Submission Timelines
    e. Sampling and Case Thresholds for the FY 2017 Payment 
Determination and Subsequent Years
    f. HCAHPS Requirements for the FY 2017 Payment Determination and 
Subsequent Years
    g. Data Submission Requirements for Structural Measures for the 
FY 2017

[[Page 27985]]

Payment Determination and Subsequent Years
    h. Data Submission and Reporting Requirements for Healthcare-
Associated Infection (HAI) Measures Reported via NHSN
    10. Submission and Access of HAI Measures Data Through the CDC's 
NHSN Web site
    11. Proposed Modifications to the Existing Processes for 
Validation of Chart-abstracted Hospital IQR Program Data
    a. Eligibility Criteria for Hospitals Selected for Validation
    b. Number of Charts to be Submitted per Hospital for Validation
    c. Combining Scores for HAI and Clinical Process of Care Topic 
Areas
    d. Processes To Submit Patient Medical Records for Chart-
abstracted Measures
    e. Plans To Validate Electronic Clinical Quality Measure Data
    12. Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2017 Payment Determination and Subsequent Years
    13. Public Display Requirements for the FY 2017 Payment 
Determination and Subsequent Years
    14. Reconsideration and Appeal Procedures for the FY 2017 
Payment Determination and Subsequent Years
    15. Hospital IQR Program Extraordinary Circumstances Extensions 
or Exemptions
    B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
    1. Statutory Authority
    2. Covered Entities
    3. Previously Finalized PCHQR Program Quality Measures
    4. Proposed Update to the Clinical Process/Oncology Care 
Measures Beginning With the 2016 Program
    5. Proposed New Quality Measures Beginning With the FY 2017 
Program
    a. Considerations in the Selection of Quality Measures
    b. Proposed New Quality Measure Beginning With the FY 2017 
Program
    6. Possible New Quality Measure Topics for Future Years
    7. Maintenance of Technical Specifications for Quality Measures
    8. Public Display Requirements Beginning With the FY 2014 
Program
    9. Form, Manner, and Timing of Data Submission Beginning With 
the FY 2017 Program
    a. Background
    b. Proposed Reporting Requirements for the Proposed New Measure: 
External Beam Radiotherapy for Bone Metastases (NQF 1822) 
Beginning With the FY 2017 Program
    c. Proposed Reporting Options for the Clinical Process/Cancer 
Specific Treatment Measures Beginning With the FY 2015 Program and 
the SCIP and Clinical Process/Oncology Care Measures Beginning With 
the FY 2016 Program
    d. Proposed New Sampling Methodology for the Clinical Process/
Oncology Care Measures Beginning With the FY 2016 Program
    10. Exceptions From Program Requirements
    C. Long-Term Care Hospital Quality Reporting (LTCHQR) Program
    1. Background
    2. General Considerations Used for Selection of Quality Measures 
for the LTCHQR Program
    3. Policy for Retention of LTCHQR Program Measures Adopted for 
Previous Payment Determinations
    4. Policy for Adopting Changes to LTCHQR Program Measures
    5. Previously Adopted Quality Measures
    a. Previously Adopted Quality Measures for the FY 2015 and FY 
2016 Payment Determinations and Subsequent Years
    b. Previously Adopted Quality Measures for the FY 2017 and FY 
2018 Payment Determinations and Subsequent Years
    6. Proposed Revision to Data Collection Timelines and Submission 
Deadlines for Previously Adopted Quality Measures
    a. Proposed Revisions to Data Collection Timelines and 
Submission Deadlines for Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine 
(Short Stay) (NQF 0680)
    b. Proposed Revisions to Data Collection Timelines and 
Submission Deadlines for the Application of Percent of Residents 
Experiencing One or More Falls With Major Injury (Long Stay) (NQF 
0674)
    7. Proposed New LTCHQR Program Quality Measures for the FY 2018 
Payment Determination and Subsequent Years
    a. Proposed New LTCHQR Program Functional Status Quality 
Measures for the FY 2018 Payment Determination and Subsequent Years
    b. Proposed Quality Measure: National Healthcare Safety Network 
(NHSN) Ventilator-Associated Event (VAE) Outcome Measure
    8. LTCHQR Program Quality Measures and Concepts Under 
Consideration for Future Years
    9. Form, Manner, and Timing of Quality Data Submission for the 
FY 2016 Payment Determinations and Subsequent Years
    a. Background
    b. Finalized Timeline for Data Submission Under the LTCHQR 
Program for the FY 2016 and FY 2017 Payment Determinations (Except 
NQF 0680 and NQF 0431)
    c. Proposed Revision to the Previously Adopted Data Collection 
Timelines and Submission Deadlines for Percent of Residents or 
Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short-Stay) (NQF -680) for the FY 2016 
Payment Determination and Subsequent Years
    d. Proposed Data Submission Mechanisms for the FY 2018 Payment 
Determination and Subsequent Years for Proposed New LTCHQR Program 
Quality Measures and for Proposed Revision to Previously Adopted 
Quality Measure
    e. Proposed Data Collection Timelines and Submission Deadlines 
Under the LTCHQR Program for the FY 2018 Payment Determination
    f. Proposed Data Collection Timelines and Submission Deadlines 
for the Application of Percent of Residents Experiencing One or More 
Falls With Major Injury (Long Stay) (NQF 0674) Measure for 
the FY 2018 Payment Determination and Subsequent Years
    g. Proposed Data Collection Timelines and Submission Deadlines 
Under the LTCHQR Program for the FY 2019 Payment Determination
    10. Proposed LTCHQR Program Data Completion Threshold for the FY 
2016 Payment Adjustment and Subsequent Years
    a. Overview
    b. Proposed LTCHQR Program Data Completion Threshold for the 
Required LTCH CARE Data Set (LCDS) Data Items
    c. LTCHQR Program Data Completion Threshold for Measures 
Submitted Using the Centers for Disease Control and Prevention (CDC) 
National Healthcare Safety Network (NHSN)
    d. Application of the 2 Percentage Point Reduction for LTCHs 
That Fail To Meet the Proposed Data Completion Thresholds
    11. Proposed Data Validation Process for the FY 2016 Payment 
Determination and Subsequent Years
    a. Proposed Data Validation Process
    b. Application of the 2 Percentage Point Reduction for LTCHs 
That Fail To Meet the Proposed Data Accuracy Threshold
    12. Public Display of Quality Measure Data for the LTCHQR 
Program
    13. Proposed LTCHQR Program Submission Exception and Extension 
Requirements for the FY 2017 Payment Determination and Subsequent 
Years
    14. Proposed LTCHQR Program Reconsideration and Appeals 
Procedures for the FY 2016 Payment Determination and Subsequent 
Years
    a. Previously Finalized LTCHQR Program Reconsideration and 
Appeals Procedures for the FY 2014 and FY 2015 Payment 
Determinations
    b. Proposed LTCHQR Program Reconsideration and Appeals 
Procedures for the FY 2016 Payment Determination and Subsequent 
Years
    15. Electronic Health Records (EHR) and Health Information 
Exchange (HIE)
    D. Electronic Health Record (EHR) Incentive Program and 
Meaningful Use (MU)
    1. Background
    2. Alignment of the Medicare EHR Incentive Program Reporting and 
Submission Timelines for Clinical Quality Measures With Hospital IQR 
Program Reporting and Submission Timelines
    3. Quality Reporting Data Architecture Category III (QRDA-III) 
Option in 2015
    4. Electronically Specified Clinical Quality Measures (CQMs) 
Reporting for 2015
    5. Clarification Regarding Reporting Zero Denominators
    6. Case Threshold Exemption Policy; Clarification for 2014 and 
Proposed Change for 2015
X. Proposed Revision of Regulations Governing Use and Release of 
Medicare Advantage Risk Adjustment Data
    A. Background

[[Page 27986]]

    B. Proposed Regulatory Changes
    1. Proposed Expansion of Uses and Reasons for Disclosure of Risk 
Adjustment Data
    2. Proposed Conditions for CMS Release of Data
    3. Proposed Technical Change
XI. Proposed Changes to Enforcement Provisions for Organ Transplant 
Centers
    A. Background
    B. Basis for Proposals in This Proposed Rule
    1. Proposed Expansion of Mitigating Factors Based on CMS' 
Experience
    2. Coordination With Efforts of the Organ Procurement and 
Transplantation Network (OPTN) and Health Resources and Services 
Administration
    C. Provisions of the Proposed Changes
    1. Proposed Expansion of Mitigating Factors List
    2. Content and Timeframe for Mitigating Factors Requests
    3. System Improvement Agreements (SIAs)
    a. Purpose and Intent of an SIA
    b. Description and Contents of an SIA
    c. Effective Period for an SIA
XII. MedPAC Recommendations
XIII. Other Required Information
    A. Requests for Data From the Public
    B. Collection of Information Requirements
    1. Statutory Requirement for Solicitation of Comments
    2. ICRs for Add-On Payments for New Services and Technologies
    3. ICRs for the Occupational Mix Adjustment to the Proposed FY 
2015 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. ICR Regarding Electronic Health Record (EHR) Incentive 
Program and Meaningful Use (MU)
    11. ICR Regarding Proposed Revision of Regulations Governing Use 
and Release of Medicare Advantage (MA) Risk Adjustment Data (Sec.  
422.310(f))
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, 2014 and Payment Rates for 
LTCHs Effective With Discharges Occurring on or After October 1, 
2014
I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2015
    A. Calculation of the Adjusted Standardized Amount
    B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs for FY 2015
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Proposed Inpatient Capital-Related 
Prospective Payments for FY 2015
    C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-
of-Increase Percentages for FY 2015
V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 
2015
    A. Proposed LTCH PPS Standard Federal Rate for FY 2015
    1. Background
    2. Development of the Proposed FY 2015 LTCH PPS Standard Federal 
Rate
    B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS 
for FY 2015
    1. Background
    2. Proposed Geographic Classifications Based on the New OMB 
Delineations
    3. Proposed LTCH PPS Labor-Related Share
    4. Proposed LTCH PPS Wage Index for FY 2015
    5. Proposed Budget Neutrality Adjustment for Proposed 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
    1. Background
    2. Determining LTCH CCRs Under the LTCH PPS
    3. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for 
FY 2015
    4. Application of the Outlier Policy to SSO Cases
    E. Proposed Update to the IPPS Comparable/Equivalent Amounts To 
Reflect the Statutory Changes to the IPPS DSH Payment Adjustment 
Methodology
    F. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2015
VI. Tables Referenced in This Proposed Rule 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 Changes to List of MS-DRGs Subject to 
Postacute Care Transfer and DRG Special Pay Policy
    4. Effects of Proposed Payment Adjustment for Low-Volume 
Hospitals for FY 2015
    5. Effects of Proposal Related to IME Medicare Part C Add-On 
Payments to SCHs Paid According to Their Hospital-Specific Rates
    6. Effects of the Extension of the MDH Program for the First 
Half of FY 2015
    7. Effects of Proposed Changes Under the FY 2015 Hospital Value-
Based Purchasing (VBP) Program
    8. Effects of the Proposed Changes to the HAC Reduction Program 
for FY 2015
    9. Effects of Proposed Policy Changes Relating to Payments for 
Direct GME and IME
    10. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    11. Effects of Proposed Changes Related to Reclassifications as 
Rural for CAHs
    12. Effects of Proposed Revision of the Requirements for 
Physician Certification of CAH Inpatient Services
    13. Effects of Proposed Changes Relating to Administrative 
Appeals by Providers and Judicial Review for Appropriate Claims in 
Provider Cost Reports
    I. Effects of Proposed Changes to Updates to the Reasonable 
Compensation Equivalent (RCE) Limits for Physician Services Provided 
to Providers
    J. Effects of Proposed Changes in the Capital IPPS
    1. General Considerations
    2. Results
    K. 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
    L. Effects of Proposed Requirements for Hospital Inpatient 
Quality Reporting (IQR) Program
    M. Effects of Proposed Requirements for the PPS-Exempt Cancer 
Hospital Quality Reporting (PCHQR) Program for FY 2015
    N. Effects of Proposed Requirements for the LTCH Quality 
Reporting (LTCHQR) Program for FY 2015 Through FY 2019
    O. Effects of Proposals Regarding Electronic Health Record (EHR) 
Incentive Program and Hospital IQR Program
    P. Effects of Proposed Revision of Regulations Governing Use and 
Release of Medicare Advantage Risk Adjustment Data
    Q. Effects of Proposed Changes to Enforcement Provisions for 
Organ Transplant Centers
    II. Alternatives Considered
III. Overall Conclusion
    A. Acute Care Hospitals
    B. LTCHs

[[Page 27987]]

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 2015
    A. Proposed FY 2015 Inpatient Hospital Update
    B. Proposed Update for SCHs for FY 2015
    C. Proposed FY 2015 Puerto Rico Hospital Update
    D. Proposed Update for Hospitals Excluded From the IPPS for FY 
2015
    E. Proposed Update for LTCHs for FY 2015
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 2015 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; cancer 
hospitals; and short-term acute care hospitals located in the Virgin 
Islands, Guam, the Northern Mariana Islands, and American Samoa. 
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 
specify that payments are made to critical access hospitals (CAHs) 
(that is, rural hospitals or facilities that meet certain statutory 
requirements) for inpatient and outpatient services and that these 
payments are generally based on 101 percent of reasonable cost.
     Section 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)(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. A payment for indirect 
medical education (IME) is made under section 1886(d)(5)(B) 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.
     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 3133 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

[[Page 27988]]

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(m)(6) of the Act, as added by section 
1206(a)(1) of the Pathway for SGR Reform Act of 2013, which provided 
for the establishment of patient criteria for payment under the LTCH 
PPS for implementation beginning in FY 2016.
     Section 1206(b)(1) of the Pathway for SGR Reform Act of 
2013, which further amended section 114(c) of the MMSEA, as amended by 
section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the 
Affordable Care Act, by retroactively reestablishing and extending the 
statutory moratorium on the full implementation of the 25-percent 
threshold payment adjustment policy under the LTCH PPS so that the 
policy will be in effect for 9 years (except for ``grandfathered'' 
hospital-within-hospitals (HwHs), which are permanently exempt from 
this policy); and section 1206(b)(2) (as amended by section 112(b) of 
the Protecting Access to Medicare Act of 2014 (Pub. L. 113-93)), which 
together further amended section 114(d) of the MMSEA, as amended by 
section 4302(a) of the ARRA and sections 3106(c) and 10312(a) of the 
Affordable Care Act to establish a new moratoria (subject to certain 
defined exceptions) on the development of new LTCHs and LTCH satellite 
facilities and a new moratorium on increases in the number of beds in 
existing LTCHs and LTCH satellite facilities beginning January 1, 2015 
and ending on September 30, 2017; and section 1206(d), which instructs 
the Secretary to evaluate payments to LTCHs classified under section 
1886(b)(1)(C)(iv)(II) of the Act and to adjust payment rates in FY 2015 
or FY 2016 under the LTCH PPS, as appropriate, based upon the 
evaluation findings.
     Section 1886(m)(5)(D)(iv) of the Act, as added by section 
1206(c) of the Pathway for SGR Reform Act of 2013, which provides for 
the establishment, no later than October 1, 2015, of a functional 
status quality measure under the LTCHQR Program for change in mobility 
among inpatients requiring ventilator support.
    To conform regulations to the statutory requirements of the 
Provider Reimbursement Review Board (Board) appeals based on untimely 
determinations of the Medicare Administrative Contractor (MAC), in this 
proposed rule, we are proposing to amend the regulations to eliminate 
the provider dissatisfaction requirement as a condition for Board 
jurisdiction over such appeals. We are proposing a similar amendment to 
the regulations for appeals to MAC hearing officers, to maintain 
consistency between the regulations for MAC and Board appeals. We also 
are proposing to codify in the cost reporting regulations our existing 
policy, implemented in section 115 of the Provider Reimbursement 
Manual, requiring providers to include an appropriate claim for an item 
in its cost report. In addition, we are proposing that providers' 
failure to include an appropriate claim for an item in its cost report 
will result in foreclosure of payment in the notice of program 
reimbursement and in any decision or order issued by a reviewing entity 
in an administrative appeal filed by the provider.
    We are proposing to align the reporting and submission timelines 
for clinical quality measures for the Medicare EHR Incentive Program 
for eligible hospitals and critical access hospitals (CAHs) with the 
reporting and submission timelines for the Hospital IQR Program. In 
addition, we provide guidance and clarification of certain policies for 
eligible hospitals and CAHs such as our policy for reporting zero 
denominators on clinical quality measures and our policy for case 
threshold exemptions.
    In addition, this proposed rule contains several proposals that are 
not directly related to these Medicare payment systems, such as 
regulatory revisions to broaden the specified uses and reasons for 
disclosure of risk adjustment data and to specify the conditions for 
release of risk adjustment data to entities outside of CMS and changes 
to the enforcement procedures for organ transplant centers. The 
specific statutory authority for these other proposals is discussed in 
the relevant sections below.
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 estimated 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 made a -0.8 percent recoupment adjustment to 
the standardized amount in FY 2014. We are proposing to make an 
additional -0.8 percent recoupment adjustment to the standardized 
amount in FY 2015.
b. Reduction of Hospital Payments for Excess Readmissions
    We are proposing changes in policies to the Hospital Readmissions 
Reduction Program, which is established under section 1886(q) of the 
Act, as added by section 3025 of the Affordable Care Act. 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. For FYs 2013 and 2014, these conditions 
are acute myocardial infarction, heart failure, and pneumonia. For FY 
2014, we established additional exclusions to the three existing 
readmission measures (that is, the excess readmission ratio) to account 
for additional planned readmissions. We also established additional 
readmissions measures, Chronic Obstructive Pulmonary Disease (COPD), 
and Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA), to be 
used in the Hospital Readmissions Reduction Program for FY 2015 and 
future years. We are proposing to expand the readmissions measures for 
FY 2017 and future years by adding a measure of patients readmitted 
following coronary artery bypass graft (CABG) surgery. We also are 
proposing to refine the readmission measures and related methodology 
for FY 2015 and subsequent years payment determinations. In addition, 
we are proposing that the readmissions payment adjustment factors for 
FY 2015

[[Page 27989]]

can be no more than a 3-percent reduction in accordance with the 
statute. We also are proposing to revise the calculation of aggregate 
payments for excess readmissions to include THA/TKA and COPD 
readmissions measures beginning in FY 2015.
c. 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 proposing to adopt quality measures 
for the FY 2017, FY 2019, and FY 2020 Hospital VBP Program years and to 
establish performance periods and performance standards for measures to 
be adopted for those fiscal years. We also are proposing to adopt 
additional policies related to performance standards and to revise the 
domain weighting previously adopted for the FY 2017 Hospital VBP 
Program.
d. Hospital-Acquired Condition (HAC) Reduction Program
    In this proposed rule, we are proposing a change in the scoring 
methodology with the addition of a previously finalized measure for the 
FY 2016 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. This 1-percent payment reduction applies to a hospital whose 
ranking is in the top quartile (25 percent) of all applicable 
hospitals, relative to the national average, of conditions acquired 
during the applicable period and on all of the hospital's discharges 
for the specified fiscal year. 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.
e. 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. 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 hospital 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 updates to the uncompensated care amount to be 
distributed for FY 2015, and we are proposing changes to the 
methodology to calculate the uncompensated care payment amounts to be 
distributed such that we combine uncompensated care data for hospitals 
that have underwent a merger in order to calculate their relative share 
of uncompensated care.
f. Hospital Inpatient Quality Reporting (IQR) Program
    Under section 1886(b)(3)(B)(viii) of the Act, hospitals are 
required to report data on measures selected by the Secretary for the 
Hospital IQR Program in order to receive the full annual percentage 
increase. In past rules, we have established measures for reporting and 
the process for submittal and validation of the data.
    In this proposed rule, we are proposing to add nine new measures 
for the Hospital IQR Program for the FY 2017 payment determination and 
subsequent years. We are proposing to remove five measures for the FY 
2016 payment determination and subsequent years. We also are proposing 
to remove 15 chart-abstracted measures from the FY 2016 payment 
determination's measure set. However, we are proposing to retain an 
electronic clinical quality measure version of 10 of those chart-
abstracted measures for the program.
g. Proposed Changes to the LTCH PPS
    Section 1206(b) of the Pathway for SGR Reform Act provides for the 
retroactive reinstatement and extension, for an additional 4 years, of 
the moratorium on the full implementation of the 25-percent threshold 
payment adjustment under the LTCH PPS established under section 114(c) 
of the MMSEA, as further amended by subsequent legislation. In keeping 
with this mandate, we are proposing to reinstate this payment 
adjustment retroactively for LTCH cost reporting periods beginning on 
or after July 1, 2013 or October 1, 2013.
    Section 1206(b)(2) of the Pathway for SGR Reform Act, as amended by 
section 112(b) of the Protecting Access to Medicare Act of 2014, 
provides for new statutory moratoria on the establishment of new LTCHs 
and LTCH satellite facilities (subject to certain defined exceptions) 
and a new statutory moratorium on bed increases in existing LTCHs 
effective for the period beginning April 1, 2014 and ending September 
30, 2017.
    In accordance with section 1206(d) of the Pathway for SGR Reform 
Act of 2013, we are proposing to apply a payment adjustment under the 
LTCH PPS to subclause (II) LTCHs beginning in FY 2015 that would result 
in payments to this type of LTCH resembling reasonable cost payments 
under the TEFRA payment system model.
    We also are proposing to make changes to the LTCH interruption of 
stay policy, which is a payment adjustment that is applied when, during 
the course of an LTCH hospitalization, a patient is discharged to an 
inpatient acute care hospital, an IRF, or a SNF for treatment or 
services not available at the LTCH for a specified period followed by 
readmittance to the same LTCH.
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 2015 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 represent 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 estimated 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

[[Page 27990]]

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 and the 
adjustment we made for FY 2014, we are proposing to make a -0.8 percent 
recoupment adjustment to the standardized amount in FY 2015. We 
estimated that this level of adjustment, combined with leaving the -0.8 
percent adjustment made for FY 2014 in place, will recover up to $2 
billion in FY 2015. Taking into account the approximately $1 billion 
recovered in FY 2014, this will leave approximately $8 billion 
remaining to be recovered by FY 2017.
     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 
2015, 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 0.97 (that is, or a 3-
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 in payments to hospitals for FY 2015 relative to 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 2015 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 2015, and 
therefore the estimated amount available for value-based incentive 
payments for FY 2015 discharges, is approximately $1.4 billion. We 
believe that the program's benefits will be seen in improved patient 
outcomes, safety, and in the patient's experience of care. However, we 
cannot estimate these benefits in actual dollar and patient terms.
     Proposed Payment Adjustment Under the HAC Reduction 
Program for FY 2015. Under section 1886(p) of the Act, (as added by 
section 3008 of the Affordable Care Act), the incentive to reduce 
hospital-acquired conditions with a payment adjustment to applicable 
hospitals under the HAC Reduction Program is made beginning FY 2015. We 
estimate that, under this proposal, 753 hospitals would be subject to 
the 1-percent reduction, and that overall payments will decrease 
approximately 0.3 percent or $330 million.
     Proposed Changes Relating 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 is 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 additional 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.
    For FY 2015, we are proposing that the 75 percent of what otherwise 
would have been paid for Medicare DSH is adjusted to approximately 80.4 
percent of the 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 of the 
Affordable Care Act are adjusted to approximately 60.3 percent (the 
product of 75 percent and 80.4 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 proposed 
reduction of Medicare DSH payments and the inclusion of the additional 
payments for uncompensated care will reduced payments overall by 1.1 
percent as compared to the Medicare DSH payments and uncompensated care 
payments distributed in FY 2014. The proposed additional payments have 
redistributive effects based on a hospital's uncompensated care amount 
relative to the uncompensated care amount to all hospitals that are 
estimated to receive Medicare DSH payments, and the payment amount is 
not tied to a hospital's discharges.
     Hospital Inpatient Quality Reporting (IQR) Program. In 
this proposed rule, we are proposing to add nine new measures for the 
FY 2017 payment determination and subsequent years. We are proposing to 
remove five measures from the hospital IQR Program for the FY 2016 
payment determination and subsequent years. We also are proposing to 
remove 15 chart-abstracted from the FY 2016 payment determination's 
measure set, but we are proposing to retain an electronic clinical 
quality measure version of 10 of those measures for the program. We 
estimate that our proposals for the adoption and removal of measures 
will decrease hospital costs by $39.8 million.
     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 to the 
payment rates and factors we are presenting in the preamble and 
Addendum of this proposed rule, including the proposed update to the 
standard Federal rate for FY 2015, the proposed changes to the area 
wage adjustment for FY 2015, and the expected changes to short-stay 
outliers and high-cost outliers, would result in an increase in 
estimated payments from FY 2014 of approximately $44 million (or 0.8 
percent). In addition, we estimate that net effect of the projected 
impact of certain other proposed LTCH PPS policy changes (that is, the 
reinstatement of the moratorium on the full implementation of the ``25 
percent threshold'' payment adjustment; the reinstatement of the 
moratorium on the development of new LTCHs and LTCH satellite 
facilities and additional LTCH beds; the proposed revision of the 
``greater than 3-day interruption of stay'' policy; the proposed 
revocation of onsite discharges and readmissions policy; and the 
proposed payment adjustment for ``subclause (II)'' LTCHs) is estimated 
to result in a reduction in LTCH PPS payments of approximately $14 
million.
    The impact analysis of the proposed payment rates and factors 
presented in this proposed rule under the LTCH PPS, in conjunction with 
the estimated payment impacts of certain other proposed LTCH PPS policy 
changes would result in a net increase of $30 million to LTCH 
providers. Additionally, we estimate that the costs to LTCHs associated 
with the completion of the proposed data for the LTCHQR Program at 
$3.96 million or approximately $1 million more than FY 2014.

[[Page 27991]]

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. The Affordable Care Act revised 
the Medicare DSH payment methodology and provides for a new additional 
Medicare payment that considers the amount of uncompensated care 
beginning on October 1, 2013.
    If the hospital is an approved teaching hospital, it receives a 
percentage add-on payment for each case paid under the IPPS, known as 
the indirect medical education (IME) adjustment. This percentage 
varies, depending on the ratio of residents to beds.
    Additional payments may be made for cases that involve new 
technologies or medical services that have been approved for special 
add-on payments. To qualify, a new technology or medical service must 
demonstrate that it is a substantial clinical improvement over 
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG 
payment.
    The costs incurred by the hospital for a case are evaluated to 
determine whether the hospital is eligible for an additional payment as 
an outlier case. This additional payment is designed to protect the 
hospital from large financial losses due to unusually expensive cases. 
Any eligible outlier payment is added to the DRG-adjusted base payment 
rate, plus any DSH, IME, and new technology or medical service add-on 
adjustments.
    Although payments to most hospitals under the IPPS are made on the 
basis of the standardized amounts, some categories of hospitals are 
paid in whole or in part based on their hospital-specific rate, which 
is determined from their costs in a base year. For example, sole 
community hospitals (SCHs) receive the higher of a hospital-specific 
rate based on their costs in a base year (the highest of FY 1982, FY 
1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the 
standardized amount. Through and including FY 2006, a Medicare-
dependent, small rural hospital (MDH) received the higher of the 
Federal rate or the Federal rate plus 50 percent of the amount by which 
the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 
hospital-specific rate. As discussed below, for discharges occurring on 
or after October 1, 2007, but before April 1, 2015, 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 on March 31, 2015, 
under current law.) 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; certain cancer hospitals; and short-tern acute care 
hospitals located in Guam, the U.S. Virgin Islands, the Northern 
Mariana Islands, and American Samoa. 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, certain cancer 
hospitals, short-tern acute care hospitals

[[Page 27992]]

located in Guam, the U.S. Virgin Islands, the Northern Mariana Islands, 
and American Samoa, and RNHCIs continue to be paid solely under a 
reasonable cost-based system subject to a rate-of-increase ceiling on 
inpatient operating costs, as updated annually by the percentage 
increase in the IPPS operating market basket.
    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 section 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 with 
FY 2009, annual updates to the LTCH PPS are published 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. Summary of Provisions of Recent Legislation Discussed in This 
Proposed Rule

    The Patient Protection and Affordable Care Act (Pub. L. 111-148), 
enacted on March 23, 2010, the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010, made a number 
of changes that affect the IPPS and the LTCH PPS. (Pub. L. 111-148 and 
Pub. L. 111-152 are collectively referred to as the ``Affordable Care 
Act.'') A number of the provisions of the Affordable Care Act affect 
the updates to the IPPS and the LTCH PPS and providers and suppliers. 
The provisions of the Affordable Care Act that were applicable to the 
IPPS and the LTCH PPS for FYs 2010, 2011, and 2012 were implemented in 
the June 2, 2010 Federal Register notice (75 FR 31118), the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50042) and the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51476).
    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 in accordance with sections 605 and 606 of Public Law 112-240 
in a notice issued in the Federal Register on March 7, 2013 (78 FR 
14689).
    The Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), enacted on 
December 26, 2013, also made a number of changes that affect the IPPS 
and the LTCH PPS. We implemented changes related to the low-volume 
hospital payment adjustment and MDH provisions for FY 2014 in 
accordance with sections 1105 and 1106 of Public Law 113-67 in an 
interim final rule with comment period that appeared in the Federal 
Register on March 18, 2014 (79 FR 15022).
    The Protecting Access to Medicare Act of 2014 (Pub. L. 113-93), 
enacted on April 1, 2014, also made a number of changes that affect the 
IPPS and LTCH PPS.
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 policy changes to implement 
(or, as applicable, continuing to implement in FY 2015) 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 for FY 2015:
     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, as amended by section 
10316 of Public Law 111-148 and section 1104 of Public Law 111-152, 
which modifies the methodologies for determining Medicare DSH payments 
and creates a new additional payment for uncompensated care effective 
for discharges beginning on or after October 1, 2013.
     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 2015.

[[Page 27993]]

     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.
2. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)
    In this proposed rule, we are proposing policy changes to implement 
section 631 of the American Taxpayer Relief Act of 2012 that are 
applicable to the IPPS for FY 2015, 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).
3. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)
    In this proposed rule, we are proposing policy changes to 
implement, or the need for future policy changes, to carry out 
provisions under section 1206 of the Pathway for SGR Reform Act of 
2013. These include:
     Section 1206(a), which provides the establishment of 
patient criteria for ``site neutral'' payment rates under the LTCH PPS, 
portions of which will begin to be implemented in FY 2016.
     Section 1206(b)(1), which further amended section 114(c) 
of the MMSEA, as amended by section 4302(a) of the ARRA and sections 
3106(c) and 10312(a) of the Affordable Care Act by retroactively 
reestablishing, and extending, the statutory moratorium on the full 
implementation of the 25-percent threshold payment adjustment policy 
under the LTCH PPS so that the policy will be in effect for 9 years 
(except for grandfathered HwHs, which are permanently exempt from this 
policy).
     Section 1206(b)(2), which amended section 114(d) of the 
MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(c) 
and 10312(a) of the Affordable Care Act to establish new moratoria 
(subject to certain defined exceptions) on the development of new LTCHs 
and LTCH satellite facilities and a new moratorium on increases in the 
number of beds in existing LTCHs and LTCH satellite facilities.
     Section 1206(d), which instructs the Secretary to evaluate 
payments to LTCHs classified under section 1886(d)(1)(B)(iv)(II) of the 
Act and to adjust payment rates in FY 2015 or 2016 under the LTCH PPS, 
as appropriate, based upon the evaluation findings.
4. Protecting Access to Medicare Act of 2014 (Pub. L. 113-93)
    In this proposed rule, we are proposing policy changes to 
implement, or make conforming changes to regulations in accordance 
with, the following provisions (or portions of the following 
provisions) of the Protecting Access to Medicare Act of 2014 that are 
applicable to the IPPS and the LTCH PPS for FY 2015:
     Section 105, which extends the temporary changes to the 
Medicare inpatient hospital payment adjustment for low-volume 
subsection (d) hospitals through March 31, 2015.
     Section 106, which extends the MDH program through March 
31, 2015.
     Section 112, which makes certain changes to Medicare LTCH 
provisions, including modifications to the statutory moratoria on the 
establishment of new LTCHs and LTCH satellite facilities and on 
increases in bed size in LTCH and LTCH satellite facilities.
     Section 212, which prohibits the Secretary from requiring 
implementation of ICD-10 code sets before October 1, 2015.

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 for FY 2015. We also are setting forth proposed 
changes relating to payments for IME and GME 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 2015.
    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, including a discussion of the conversion of MS-DRGs to 
ICD-10 and the status of the implementation of the ICD-10-CM and ICD-
10-PCS systems.
     Proposed application of the documentation and coding 
adjustment for FY 2015 resulting from implementation of the MS-DRG 
system.
     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 2015.
     A discussion of the FY 2015 status of new technologies 
approved for add-on payments for FY 2014 and a presentation of our 
evaluation and analysis of the FY 2015 applicants for add-on payments 
for high-cost new medical services and technologies (including public 
input, as directed by Pub. L. 108-173, obtained in a town hall 
meeting).
2. 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:
     Proposed changes in CBSAs as a result of new OMB labor 
market area delineations and proposed policies related to the proposed 
changes in CBSAs.
     The proposed FY 2015 wage index update using wage data 
from cost reporting periods beginning in FY 2011.
     Analysis and implementation of the proposed FY 2015 
occupational mix adjustment to the wage index for acute care hospitals, 
including the proposed application of the rural floor, the proposed 
imputed rural floor, and the proposed 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 2015 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 2015 hospital wage index and proposed 
revisions to that timetable.
     Determination of the labor-related share for the proposed 
FY 2015 wage index.

[[Page 27994]]

3. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section IV. of the preamble of this proposed rule, we 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 in postacute care transfer policies as a 
result of proposed new MS-DRGs.
     Proposed changes to the inpatient hospital updates for FY 
2015, including incorporation of the adjustment for hospitals that are 
not meaningful EHR users under section 1886(b)(3)(B)(ix) of the Act.
     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 2015.
     The statutorily required IME adjustment factor for FY 2015 
and proposed IME Medicare Part C payments to SCHs that are paid 
according to their hospital-specific rates.
     Effect of expiration of the MDH program on April 1, 2015.
     Proposed changes to the methodologies for determining 
Medicare DSH payments and the additional payments for uncompensated 
care.
     Proposed changes to the measures and payment adjustments 
under the Hospital Readmissions Reduction Program.
     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 for FY 2015.
     Proposed IME and direct GME policy changes regarding the 
effective date of the FTE resident cap, 3-year rolling average, and IRB 
ratio cap in new programs in teaching hospitals; effect of new OMB 
labor market area delineations on certain teaching hospitals training 
residents in rural areas; clarification of effective date of provisions 
on counting resident time in nonprovider settings; proposed changes to 
the process for reviewing applications for and awarding slots made 
available under section 5506 of the Affordable Care Act by teaching 
hospitals that close; and clarification regarding direct GME payment to 
FQHCs and RHCs that train residents in approved programs.
     Discussion of the Rural Community Hospital Demonstration 
Program and a proposal for making a budget neutrality adjustment for 
the demonstration program.
     Discussion of the requirements for transparency of 
hospital charges under the Affordable Care Act.
     Discussion of and solicitation of comments on an 
alternative payment methodology under the Medicare program for short 
inpatient hospital stays.
     Discussion of the process for submitting suggested 
exceptions to the 2-midnight benchmark.
4. Proposed FY 2015 Policy Governing the IPPS for Capital-Related Costs
    In section V. of the preamble to this proposed rule, we discuss the 
proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2015 and other related proposed 
policy changes.
5. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VI. of the preamble of this proposed rule, we discuss--
     Proposed changes to payments to certain excluded hospitals 
for FY 2015.
     Proposed updates to the RCE limits for services furnished 
by physicians to excluded hospitals.
     Proposed CAH related changes regarding reclassifications 
as rural.
     Proposed changes to the physician certification 
requirements for services furnished in CAHs.
6. Proposed Changes to the LTCH PPS
    In section VII. of the preamble of this proposed rule, we set 
forth--
     Proposed changes to the payment rates, factors, and other 
payment rate policies under the LTCH PPS for FY 2015.
     Proposed revisions to the LTCH PPS geographic 
classifications based on the new OMB delineations.
     Proposals to implement section 1206(b)(1) of the Pathway 
for SGR Reform Act, which provides for the retroactive reinstatement 
and extension, for an additional 4 years, of the statutory moratorium 
on the full implementation of the 25-percent threshold payment 
adjustment established under section 114(c) of the MMSEA, as further 
amended by subsequent legislation.
     Proposals to implement section 1206(b)(2) of the Pathway 
for SGR Reform Act, as amended by section 112(b) of the Protecting 
Access to Medicare Act of 2014, which provides for moratoria (subject 
to certain defined exceptions) on the establishment of new LTCHs and 
LTCH satellite facilities and a moratorium on bed increases in LTCHs 
effective for the period beginning April 1, 2014, and ending September 
30, 2017.
     Proposed changes to the LTCH interruption of stay policy 
by revising the fixed-day thresholds under the ``greater than 3-day 
interruption of stay policy'' to apply a uniform 30-day threshold as an 
``acceptable standard'' for determining a linkage between an index 
discharge and a readmission.
     Proposal to remove the discharge and readmission 
requirement, ``Special Payment Provisions for Patients Who Are 
Transferred to Onsite Providers and Readmitted to an LTCH'' (the ``5 
percent payment threshold'') beginning in FY 2015.
     Proposal to apply a payment adjustment under the LTCH PPS 
to subclause (II) LTCHs beginning in FY 2015 that would result in 
payments to this type of LTCH resembling reasonable cost payment under 
the TEFRA payment system model, consistent with the provisions of 
section 1206(d) of the Pathway for SGR Reform Act of 2013.
7. Proposed Changes to Regulations Governing Administrative Appeals by 
Providers and Judicial Review of Provider Claims
    In section VIII. of the preamble of this proposed rule, we set 
forth proposals to revise the regulations governing administrative 
appeals and judicial review of provider claims in Medicare cost 
reports.
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.
9. Proposed Uses and Release of Medicare Advantage Risk Adjustment Data
    In section X. of the preamble of this proposed rule, we set forth 
proposed regulatory revisions to broaden the specified uses of risk 
adjustment data and to specify the conditions for release of risk 
adjustment data to entities outside of CMS.

[[Page 27995]]

10. Proposed Changes to Enforcement Provisions for Organ Transplant 
Centers
    In section XI. of the preamble of this proposed rule, we are 
proposing to revise the regulations governing organ transplant centers 
that request approval, based on mitigating factors for initial approval 
and re-approval, for participation in Medicare when the centers have 
not met one or more of the conditions of participation.
11. Determining 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 2015 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We also are proposing to establish the 
threshold amounts for outlier cases. In addition, we addressed the 
proposed update factors for determining the rate-of-increase limits for 
cost reporting periods beginning in FY 2015 for certain hospitals 
excluded from the IPPS.
12. Determining 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 2015 
LTCH PPS standard Federal rate. We are proposing to establish the 
adjustments for wage levels (including proposed changes to the LTCH PPS 
labor market area delineations based on the new OMB delineations), 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.
13. 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, and PCHs.
14. 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 provided our recommendations of 
the appropriate percentage changes for FY 2015 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.
15. 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 2014 recommendations concerning hospital inpatient 
payment policies address the update factor for hospital inpatient 
operating costs and capital-related costs for hospitals under the IPPS. 
We address these recommendations in Appendix B of this proposed rule. 
For further information relating specifically to the MedPAC March 2014 
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), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53273), and 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50512).

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 2015 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. (In FY 2014, 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

[[Page 27996]]

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 (Pub. L. 110-90). Section 
7(a) of Public Law 110-90 reduced the documentation and coding 
adjustment made as a result of the MS-DRG system that we adopted in the 
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 
and -0.9 percent for FY 2009, and we finalized the FY 2008 adjustment 
through rulemaking, effective October 1, 2007 (72 FR 66886).
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent, and we finalized 
that adjustment through rulemaking effective October 1, 2008 (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 section 7(a) of 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 
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 IPPS/
LTCH PPS 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 CMS 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 CMS 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 (refer to 
the Web site for the required payment amount) 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

[[Page 27997]]

50073), we found a total prospective documentation and coding effect of 
5.4 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 believed the law provided some discretion as to 
the manner in which we applied the 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 fiscal 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 noted that, as a result, 
payments in FY 2011 (and in each future fiscal 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 
would 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 instead of the full -3.9 percent.
    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 believed that 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 fiscal years until a full adjustment was made.
    We noted 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
    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 
there was a 5.8 percentage point difference resulting 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 payment rate adjustments over 
more than one year in order to moderate the effect on payment 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

[[Page 27998]]

a permanent reduction to payment rates. Therefore, any adjustment made 
to reduce payment rates in one year would eventually be offset by a 
positive adjustment, once the necessary amount of overpayment is 
recovered.
    As we stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 
through 50517), 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 phase in payment rate 
adjustments over more than one year, in order to moderate the effect on 
payment rates in any one year. Therefore, consistent with the policies 
that we have adopted in many similar cases, and after consideration of 
the public comments we received, in the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50515 through 50517), we implemented a -0.8 percent 
recoupment adjustment to the standardized amount in FY 2014. We stated 
that 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 did 
not provide for specific adjustments for FYs 2015, 2016, or 2017 at 
that time. We stated that we believed that this level of adjustment for 
FY 2014 was a reasonable and fair approach that satisfies the 
requirements of the statute while mitigating extreme annual 
fluctuations in payment rates. In addition, we again noted 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.
    Consistent with the approach discussed in the FY 2014 rulemaking 
for recouping the $11 billion required by section 631 of the ATRA, we 
are proposing an additional -0.8 percent recoupment adjustment to the 
standardized amount for FY 2015. We estimated that this level of 
adjustment, combined with leaving the -0.8 percent adjustment made for 
FY 2014 in place, will recover up to $2 billion in FY 2015. Taking into 
account the approximately $1 billion recovered in FY 2014, this will 
leave approximately $8 billion remaining to be recovered by FY 2017. We 
continue to believe that if adjustments of approximately -0.8 percent 
are implemented in FYs 2014, 2015, 2016, and 2017, using standard 
inflation factors, the entire $11 billion will be accounted for by the 
end of the statutory 4-year timeline. As we explained in the FY 2014 
rulemaking, estimates of any future adjustments are subject to slight 
variations in total savings; therefore, we are not proposing specific 
adjustments for FY 2016 and FY 2017 at this time. We continue to 
believe that our proposed -0.8 percent adjustment for FY 2015 is a 
reasonable and fair approach that will help satisfy the requirements of 
the statute while mitigating extreme annual fluctuations in payment 
rates. In addition, 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. Prospective Adjustment for the MS-DRG Documentation and Coding 
Effect Through FY 2010
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 through 
50517), we discussed the possibility of applying an additional 
prospective adjustment to account for the cumulative MS-DRG 
documentation and coding effect through FY 2010. In that final rule, we 
stated that if we were to apply such an adjustment, we believe the most 
appropriate additional adjustment is -0.55 percent. However, we decided 
not to apply such an adjustment in FY 2014, in light of the need to 
make the retrospective adjustments required by the ATRA. We continue to 
believe that if we were to apply an additional prospective adjustment 
for the cumulative MS-DRG documentation and coding effect through FY 
2010, the most appropriate additional adjustment is -0.55 percent. 
However, we are not proposing such an adjustment in FY 2015, in light 
of the ongoing recoupment required by the ATRA. We will consider 
whether such an additional adjustment is appropriate in future years' 
rulemaking.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
    Beginning in FY 2007, we implemented relative weights for DRGs 
based on cost report data instead of charge information. We refer 
readers to the FY 2007 IPPS final rule (71 FR 47882) for a detailed 
discussion of our final policy for calculating the cost-based DRG 
relative weights and to the FY 2008 IPPS final rule with comment period 
(72 FR 47199) for information on how we blended relative weights based 
on the CMS DRGs and MS-DRGs.
    As we implemented cost-based relative weights, some public 
commenters raised concerns about potential bias in the weights due to 
``charge compression,'' which is the practice of applying a higher 
percentage charge markup over costs to lower cost items and services, 
and a lower percentage charge markup over costs to higher cost items 
and services. As a result, the cost-based weights would undervalue 
high-cost items and overvalue low-cost items if a single CCR is applied 
to items of widely varying costs in the same cost center. To address 
this concern, in August 2006, we awarded a contract to the Research 
Triangle Institute, International (RTI) to study the effects of charge 
compression in calculating the relative weights and to consider methods 
to reduce the variation in the cost-to-charge ratios (CCRs) across 
services within cost centers. For a detailed summary of RTI's findings, 
recommendations, and public comments that we received on the report, we 
refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48452 
through 48453). In 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 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 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

[[Page 27999]]

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 
reporting 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/LTCH 
PPS 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 
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. 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.
    At the time of the development of the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27506 through 27507), we had 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. We stated that 
we believed that the analytic findings described using the FY 2011 cost 
report data and FY 2012 claims data supported our original decision to 
break out and create new cost centers for implantable devices, MRIs, CT 
scans, and cardiac catheterization, and we saw no reason to further 
delay proposing to implement the CCRs of each of these cost centers. 
Therefore, beginning in FY 2014, we proposed 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 (78 FR 27509).
    We refer readers to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27507 through 27509) and final rule (78 FR 50518 through 50523) in 
which we presented data analyses using distinct CCRs for implantable 
devices, MRIs, CT scans, and cardiac catheterization. The FY 2014 IPPS/
LTCH PPS final rule also set forth our responses to public comments we 
received on our proposal to implement these CCRs. As explained in more 
detail in the FY 2014 IPPS/LTCH PPS final rule, we finalized our 
proposal to use 19 CCRs to calculate MS-DRG relative weights beginning 
in FY 2014--the then existing 15 cost centers and the 4 new CCRs for 
implantable devices, MRIs, CT scans, and cardiac catheterization. 
Therefore, beginning in FY 2014, we calculated the IPPS MS-DRG relative 
weights using 19 CCRs, creating distinct CCRs for implantable devices, 
MRIs, CT scans, and cardiac catheterization.
2. Discussion for FY 2015
    To calculate the proposed MS-DRG relative weights for FY 2015, we 
use two data sources: the MedPAR file as the

[[Page 28000]]

claims data source and the HCRIS as the cost report data source. We 
adjust the charges from the claims to costs by applying the 19 national 
average CCRs developed from the cost reports. The description of the 
calculation of the proposed 19 CCRs and the proposed MS-DRG relative 
weights for FY 2015 is included in section II.H. of the preamble of 
this proposed rule.

F. Proposed Adjustment to MS-DRGs for Preventable Hospital-Acquired 
Conditions (HACs), Including Infections for FY 2015

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 complication or comorbidity (CC) 
or a major complication or comorbidity (MCC). The presence of a CC or 
an MCC generally results in a higher payment.
    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 the 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, 
under 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 or 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.
[GRAPHIC] [TIFF OMITTED] TP15MY14.000

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/

[[Page 28001]]

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); the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898) and final 
rule (77 FR 53283 through 53303); and the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27509 through 27512) and final rule (78 FR 50523 
through 50527). 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 have discussed in the prior rulemaking cited under 
section II.I.2. of the preamble of this proposed rule, 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, 
RNHCIs, and the Department of Veterans Affairs/Department of Defense 
hospitals, are exempt from POA reporting.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50525), we noted 
that hospitals in Maryland operating under a statutory waiver are not 
paid under the IPPS, but rather were paid under the provisions of 
section 1814(b)(3) of the Act and therefore exempt from reporting POA 
indicators. However, we believed it was 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. Therefore, in the FY 2014 
IPPS/LTCH PPS final rule, we finalized our policy that hospitals in 
Maryland that formerly operated under section 1814(b)(3) of the Act 
were no longer 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 note that, 
while this requirement was not effective until October 1, 2013, 
hospitals in Maryland could submit data with POA indicators before that 
date with the expectation that these data will be accepted by 
Medicare's claims processing systems. (We refer readers to the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50707 through 50712) for a discussion 
of our FY 2014 final policies to implement section 1886(p) of the Act 
that are applicable to Maryland hospitals.)
    Subsequent to our FY 2014 rulemaking, the State of Maryland entered 
into an agreement with CMS, effective January 1, 2014, to participate 
in CMS' new Maryland All-Payer Model, a 5-year hospital payment model. 
This model is being implemented under section 1115A of the Act, as 
added by section 3021 of the Affordable Care Act, which authorizes the 
testing of innovative payment and service delivery models, including 
models that allow States to ``test and evaluate systems of all-payer 
payment reform for the medical care of residents of the State, 
including dual eligible individuals.'' Section 1115A of the Act 
authorizes the Secretary to waive such requirements of titles XI and 
XVIII of the Act as may be necessary solely for purposes of carrying 
out section 1115A of the Act with respect to testing models.
    Under the agreement with CMS, Maryland will limit per capita total 
hospital cost growth for all payers, including Medicare. In order to 
implement the new model, effective January 1, 2014, Maryland elected to 
no longer have Medicare make payments to Maryland hospitals in 
accordance with section 1814(b)(3) of the Act. Maryland also 
represented that it is no longer in continuous operation of a 
demonstration project reimbursement system since July 1, 1977, as 
specified under section 1814(b)(3) of the Act. Because Maryland 
hospitals are no longer paid under section 1814(b)(3) of the Act, they 
are no longer subject to those provisions of the Act and related 
implementing regulations that are specific to section 1814(b)(3) 
hospitals. Although CMS has waived certain provisions of the Act for 
Maryland hospitals, as set forth in the agreement between CMS and 
Maryland and subject to Maryland's compliance with the terms of the 
agreement, CMS has not waived the POA indicator reporting requirement. 
In other words, the changes to the status of Maryland hospitals under 
section 1814(b)(3) of the Act as described above do not in any way 
change the POA indicator reporting requirement for Maryland hospitals.
    There are currently four POA indicator reporting options, ``Y'', 
``W'', ``N'', and ``U'', as defined by the ICD-9-CM Official Guidelines 
for Coding and Reporting. We note that prior to January 1, 2011, we 
also used a POA indicator reporting option ``1''. However, 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 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.) The POA indicator 
reporting process will not change when ICD-10-CM and ICD-10-PCS are 
implemented on October 1, 2014. The current POA indicators and their 
descriptors are shown in the chart below:

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


[[Page 28002]]

    Under the HAC payment 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 and 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 and MCC level. We refer readers to the following rules for a 
detailed discussion of POA indicator reporting: The FY 2009 IPPS 
proposed rule (73 FR 23559) and final rule (73 FR 48486 through 48487); 
the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final 
rule (74 FR 43784 through 43785); the FY 2011 IPPS/LTCH PPS proposed 
rule (75 FR 23881 through 23882) and final rule (75 FR 50081 through 
50082); the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25812 through 
25813) and final rule (76 FR 51506 through 51507); the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27893 through 27894) and final rule (77 
FR 53284 through 53285); and the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27510 through 27511) and final rule (78 FR 50524 through 50525).
    In addition, as discussed previously in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53324), 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 diagnosis 
and all secondary diagnoses up to 25.
4. HACs and POA Reporting in Preparation for Transition to ICD-10-CM 
and ICD-10-PCS
    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, we indicated that 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 would 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 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 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).'' This 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 encouraged 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 was set up for this purpose under the 
Related Links section titled ``CMS HAC Feedback.''
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50525), we stated 
that the final HAC list translation from ICD-9-CM to ICD-10-CM/ICD-10-
PCS would be subject to formal rulemaking. We encouraged readers to 
review the educational materials and draft code sets available for ICD-
10-CM/ICD-10-PCS on the CMS Web site at: http://www.cms.gov/ICD10/. In 
addition, we stated that the draft ICD-10-CM/ICD-10-PCS Coding 
Guidelines could be viewed on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm.
    The HACs code translation list from ICM-9-CM to ICD-10-CM/ICD-10-
PCS is available to the public on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We note that Appendix I of the ICD-10 MS-DRGs Version 
31.0-R file posted on the Web site contains the DRA HACs translated to 
ICD-10.
    We note that section 212 of the Protecting Access to Medicare Act 
of 2014 (Pub. L. 113-93), enacted on April 1, 2014, delayed the 
transition from the ICD-9-CM to the ICD-10 code set.
5. Proposals Regarding Current HACs and Previously Considered Candidate 
HACs
    In this FY 2015 IPPS/LTCH PPS proposed rule, we are not proposing 
to add or remove categories of the HACs. 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 II.F.5. of 
the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898), 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53285 through 53292) for 
the HAC policy for FY 2013, and the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27509 through 27512) and the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50523 through 50527) for the HAC policy for FY 2014.
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 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 health care 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

[[Page 28003]]

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/Downloads/Evidence-Based-Guidelines.pdf. Subsequent to this final 
report, RTI was 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. This report is usually 
delivered to CMS annually in a May/June timeframe. Updates to the 
guidelines will be made available to the public.

G. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for Proposed MS-DRG 
Updates
a. Conversion of MS-DRGs to the International Classification of 
Diseases, 10th Revision (ICD-10)
    Providers use the code sets under the ICD-9-CM coding system to 
report diagnoses and procedures for Medicare hospital inpatient 
services under the MS-DRG system. 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 ICD-10-PCS Guidelines for Coding and Reporting. 
The ICD-10 coding system was initially adopted for transactions 
conducted on or after 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 published in the 
Federal Register on January 16, 2009 (74 FR 3328 through 3362) 
(hereinafter referred to as the ``ICD-10-CM and ICD-10-PCS final 
rule''). However, the Secretary of Health and Human Services issued a 
final rule that delays the compliance date for ICD-10 from October 1, 
2013, to October 1, 2014. That final rule, entitled ``Administrative 
Simplification: Adoption of a Standard for a Unique Health Plan 
Identifier; Addition to the National Provider Identifier Requirements; 
and a Change to the Compliance Date for ICD-10-CM and ICD-10-PCS 
Medical Data Code Sets,'' 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. On April 1, 2014, the Protecting Access to Medicare 
Act of 2014 (Pub. L. 113-93) was enacted. Section 212 of Public Law 
113-93, titled ``Delay in Transition from ICD-9 to ICD-10 Code Sets,'' 
provides that ``[t]he Secretary of Health and Human Services may not, 
prior to October 1, 2015, adopt ICD-10 code sets as the standard for 
code sets under section 1173(c) of the Social Security Act (42 U.S.C. 
1320d-2(c)) and section 162.1002 of title 45, Code of Federal 
Regulations.'' As of now, the Secretary has not implemented this 
provision under HIPPA.
    The anticipated move to ICD-10 necessitated the development of an 
ICD-10-CM/ICD-10-PCS version of the MS-DRGs. CMS began a project to 
convert the ICD-9-CM-based MS-DRGs to ICD-10 MS-DRGs. In response to 
the FY 2011 IPPS/LTCH PPS proposed rule, we received public 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). 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 current MS-DRGs from ICD-9-CM codes to ICD-10 
codes and sharing this information through the ICD-10 (previously ICD-
9-CM) Coordination and Maintenance Committee. We undertook this early 
conversion project to assist other payers and providers in 
understanding how to implement 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 other payers and providers to follow. 
Information on the ICD-10 MS-DRG conversion project can be found on the 
ICD-10 MS-DRG Conversion Project 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-10 
(previously 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. 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-DRGs 
Web page. We stated that we believed that, by providing the ICD-10 MS-
DRGs 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

[[Page 28004]]

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. 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 was posted on the ICD-10 MS-DRG Conversion 
Project Web site. The ICD-10 MS-DRGs Version 30.0 computer software 
facilitated additional review of the ICD-10 MS-DRGs conversion.
    We provided information on a study conducted on the impact of 
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) which was 
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 FY 
2009 Medicare claims 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 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 study found that moving from an ICD-
9-CM-based system to an ICD-10 MS-DRG replicated system would lead to 
DRG reassignments on only 1 percent of the 10 million MedPAR sample 
records used in the study. Ninety-nine percent of the records did not 
shift to another MS-DRG when using an ICD-10 MS-DRG system. For the 1 
percent of the records that shifted, 45 percent of the shifts were to a 
higher weighted MS-DRG, while 55 percent of the shifts were to lower 
weighted MS-DRGs. The net impact across all MS-DRGs was a reduction by 
4/10000 or minus 4 pennies per $100. The updated paper is posted on the 
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 provided additional information to the 
public who were evaluating the conversion of the MS-DRGs to ICD-10 MS-
DRGs.
    CMS prepared the ICD-10 MS-DRGs Version 31.0 based on the FY 2014 
MS-DRGs (Version 31.0) that we finalized in the FY 2014 IPPS/LTCH PPS 
final rule. In November 2013, we posted a Definitions Manual of the 
ICD-10 MS-DRGs Version 31.0 on the 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 described 
changes made from Version 30.0 to Version 31.0 to facilitate a review. 
We produced mainframe and computer software for Version 31.0, which was 
made available to the public in December 2013. Information on ordering 
the mainframe and computer software through NTIS was posted 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 31.0 computer software facilitated additional review 
of the ICD-10 MS-DRGs conversion. We encouraged the public to submit to 
CMS any comments on areas where they believed the ICD-10 MS-DRGs did 
not accurately reflect grouping logic found in the ICD-9-CM MS-DRGs 
Version 31.0.
    We reviewed comments received and developed an update of ICD-10 MS-
DRGs Version 31.0, which we called ICD-10 MS-DRGs Version 31.0-R. We 
have posted a Definitions Manual of the ICD-10 MS-DRGs Version 31.0-R 
on the 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 31.0 to Version 31.0-R to facilitate a review. We will 
continue to share ICD-10-MS-DRG conversion activities with the public 
through this Web site.
b. Basis for FY 2015 MS-DRG Updates
    CMS encourages input from our stakeholders concerning the annual 
IPPS updates when that input is made available to us by December 7 of 
the year prior to the next annual proposed rule update. For example, to 
be considered for any updates or changes in FY 2016, comments and 
suggestions should be submitted by December 7, 2014. The comments that 
were submitted in a timely manner for FY 2015 are discussed below in 
this section.
    Following are the changes we are proposing to the MS-DRGs. 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. For this FY 2015 proposed rule, our MS-DRG analysis is 
based on claims data from the December

[[Page 28005]]

2013 update of the FY 2013 MedPAR file, which contains hospital bills 
received through September 30, 2013, for discharges occurring through 
September 30, 2013. In our discussion of the proposed MS-DRG 
reclassification changes that follows, we refer to our analysis of 
claims data from the ``December 2013 update of the FY 2013 MedPAR 
file.'' For the FY 2015 final rule, we intend to calculate the final 
relative weights on claims data from the March 2014 update of the FY 
2013 MedPAR file, which will contain hospital bills received through 
December 31, 2013, for discharges occurring through December 31, 2013.
    As explained in previous rulemaking (76 FR 51487), in deciding 
whether to propose to make further modification to the MS-DRGs for 
particular circumstances brought to our attention, we considered 
whether the resource consumption and clinical characteristics of the 
patients with a given set of conditions are significantly different 
than the remaining patients in the MS-DRG. We evaluated patient care 
costs using average costs and lengths of stay and relied on the 
judgment of our clinical advisors to decide whether patients are 
clinically distinct or similar to other patients in the MS-DRG. In 
evaluating resource costs, we considered both the absolute and 
percentage differences in average costs between the cases we selected 
for review and the remainder of cases in the MS-DRG. We also considered 
variation in costs within these groups; that is, whether observed 
average differences were consistent across patients or attributable to 
cases that were extreme in terms of costs or length of stay, or both. 
Further, we considered the number of patients who will have a given set 
of characteristics and generally preferred not to create a new MS-DRG 
unless it would include a substantial number of cases.
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Intracerebral Therapies: Gliadel[supreg] Wafer
    During the comment period for the FY 2014 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 2014 IPPS/LTCH PPS 
final rule (78 FR 50550) that we would consider this issue in future 
rulemaking as part of our annual review process. The commenter 
requested that a new MS-DRG be created for intracerebral therapies, 
including implantation of chemotherapeutic agents. Specifically, the 
commenter referred to the Gliadel[supreg] Wafer for the treatment of 
High-Grade Malignant Gliomas (HGGs) defined as aggressive tumors 
originating in the brain.
    The Gliadel[supreg] Wafer has been discussed in prior rulemaking, 
including the FY 2004 IPPS proposed rule (68 FR 27187) and final rule 
(68 FR 45354 through 45355 and 68 FR 45391 through 45392); the FY 2005 
IPPS proposed rule (69 FR 28221 through 28222) and final rule (69 FR 
48957 through 48971); and the FY 2008 IPPS/LTCH PPS final rule (72 FR 
47252 through 47253). We refer readers to these prior discussions for 
further background information regarding the Gliadel[supreg] Wafer.
    Effective October 1, 2002, ICD-9-CM procedure code 00.10 
(Implantation of chemotherapeutic agent) was created to identify and 
describe insertion of the Gliadel[supreg] Wafer. This procedure code is 
assigned to MS-DRG 023 (Craniotomy with Major Device Implant/Acute 
Complex Central Nervous System (CNS) PDX with MCC or Chemo Implant) in 
MDC 1. According to the commenter, this current MS-DRG assignment does 
not compensate providers adequately for the expenses incurred to 
perform the surgery and implantation of the wafer device. The commenter 
noted that MS-DRG 023 has a national average payment rate of 
approximately $28,016. However, the commenter stated, ``the acquisition 
cost for 1 box of the Gliadel[supreg] Wafer alone (typical utilization 
per procedure is 8 wafers or 1 box) is $29,035.''
    We conducted an analysis using claims data from the December 2013 
update of the FY 2013 MedPAR file. Our findings are shown in the table 
below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 023--All cases...........................................           5,383           10.98         $36,982
MS-DRG 023--Cases with procedure code 00.10.....................             158             7.0          34,027
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, there were a total of 5,383 cases in 
MS-DRG 023 with an average length of stay of 10.98 days and average 
costs of $36,982. The number of cases reporting procedure code 00.10 in 
MS-DRG 023 totaled 158, with an average length of stay of 7.0 days and 
average costs of $34,027.
    The data clearly demonstrate that the volume of cases reporting 
procedure code 00.10 within MS-DRG 023 have a shorter average length of 
stay and are lower in average costs in comparison to all the cases in 
the MS-DRG. Given the low volume of cases, shorter average length of 
stay, and lower average costs, the data do not support the creation of 
a new MS-DRG for cases utilizing the Gliadel[supreg] Wafer. In 
addition, our clinical advisors determined that cases reporting 
procedure code 00.10 are appropriately assigned within MS-DRG 023. As 
discussed in the FY 2005 IPPS final rule (69 FR 48959), Gliadel[supreg] 
Wafer cases were assigned to a new DRG that was clinically coherent and 
reflected the resources used to treat those cases, which appropriately 
addressed the concerns of commenters who raised questions regarding DRG 
assignment for those cases at that time. Subsequently, with the 
adoption of the MS-DRGs, in the FY 2008 IPPS/LTCH PPS final rule (72 FR 
47252 through 47253), we assigned all cases utilizing the 
Gliadel[supreg] Wafer technology to MS-DRG 023, the higher severity 
level, and revised the title of this MS-DRG in recognition of the 
complexity and costs associated with the implantation. Our clinical 
advisors continue to support this assignment for these same reasons. 
Therefore, we are not proposing to create a new MS-DRG for FY 2015 for 
cases where ICD-9-CM procedure code 00.10 is reported. We are inviting 
public comments on our proposal to maintain the current MS-DRG 
structure.
b. Endovascular Embolization or Occlusion of Head and Neck
    We received a request to change the MS-DRG assignment for the 
following three ICD-9-CM procedure codes representing endovascular 
embolization or occlusion procedures of the head and neck:
     39.72 (Endovascular (total) embolization or occlusion of 
head and neck vessels);
     39.75 (Endovascular embolization or occlusion of vessel(s) 
of head or neck using bare coils); and
     39.76 (Endovascular embolization or occlusion of vessel(s) 
of head or neck using bioactive coils).
    These three procedure codes are currently assigned to the following 
eight

[[Page 28006]]

MS-DRGs under MDC 1. Cases assigned to MS-DRGs 020, 021, and 022 
require a principal diagnosis of hemorrhage. Cases assigned to MS-DRGs 
023 and 024 require the insertion of a major implant or an acute 
complex central nervous system (CNS) principal diagnosis. Cases 
assigned to MS-DRGs 025, 026, and 027 do not have a principal diagnosis 
of hemorrhage, an acute complex CNS principal diagnosis, or a major 
device implant.
     MS-DRG 020 (Intracranial Vascular Procedures with 
Principal Diagnosis of Hemorrhage with MCC)
     MS-DRG 021 (Intracranial Vascular Procedures with 
Principal Diagnosis of Hemorrhage with CC)
     MS-DRG 022 (Intracranial Vascular Procedures with 
Principal Diagnosis of Hemorrhage without CC/MCC)
     MS-DRG 023 (Craniotomy with Major Device Implant/Acute 
Complex CNS Principal Diagnosis with MCC or Chemo Implant)
     MS-DRG 024 (Craniotomy with Major Device Implant/Acute 
Complex CNS Principal Diagnosis without MCC)
     MS-DRG 025 (Craniotomy & Endovascular Intracranial 
Procedures with MCC)
     MS-DRG 026 (Craniotomy & Endovascular Intracranial 
Procedures with CC)
     MS-DRG 027 (Craniotomy & Endovascular Intracranial 
Procedures without CC/MCC)
    The requestor recommended that cases with procedure codes 39.72, 
39.75, and 39.76 be moved from MS-DRGs 025, 026, and 027 to MS-DRGs 023 
and 024, even when there is no reported acute complex CNS principal 
diagnosis or a major device implant. The requestor stated that 
unruptured aneurysms can be treated by a minimally invasive technique 
utilizing endovascular coiling. The requester noted that a 
microcatheter is inserted into a groin artery and navigated through the 
vascular system to the location of the aneurysm. The coils are inserted 
through the microcatheter into the aneurysm in order to occlude (fill) 
the aneurysm from inside the blood vessel. Once the coils are 
implanted, the blood flow pattern within the aneurysm is altered. The 
requestor stated that these cases do not have a principal diagnosis of 
hemorrhage because the treatment is for an unruptured aneurysm which 
has not hemorrhaged. Furthermore, the requestor stated that only a few 
of these cases without hemorrhage have a complex CNS principal 
diagnosis. Therefore, the requester believed that most of the cases 
should be assigned to MS-DRGs 025, 026, and 027.
    The requestor stated that the average costs of coil cases captured 
by procedure codes 39.72, 39.75, and 39.76 are significantly higher 
than other cases within MS-DRGs 025, 026, and 027 where most of the 
coil cases are assigned. As stated earlier, the requester recommended 
that cases with procedure codes 39.72, 39.75, and 39.76 be moved to MS-
DRGs 023 and 024, even when there is not an acute complex CNS principal 
diagnosis or a major device implant reported.
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for cases of endovascular embolization or occlusion of 
head and neck. The table below shows our findings. For MS-DRGs 025, 
026, and 027, the cases identified by procedure code 39.72, 39.75, or 
39.76 (endovascular embolization or occlusion of head and neck) have 
higher average costs and shorter lengths of stay in comparison to all 
the cases within each of those respective MS-DRGs. The average costs of 
cases in MS-DRG 024 are $4,049 higher than the average costs of the 
1,731 endovascular embolization or occlusion of head and neck 
procedures cases in MS-DRG 027 ($26,250 versus $22,201). The findings 
also show that the 524 cases with procedure code 39.72, 39.75, or 39.76 
with average costs of $41,030 in MS-DRG 025 are closer to the average 
costs of $36,982 for cases in MS-DRG 023. Lastly, we found that the 721 
endovascular embolization or occlusion of head and neck procedure cases 
in MS-DRG 026 have average costs of $27,998 compared to average costs 
of $26,250 for cases in MS-DRG 024.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 23--All cases............................................           5,383           10.98         $36,982
MS-DRG 24--All cases............................................           1,745            6.30          26,250
MS-DRG 25--All cases............................................          15,937            9.68          29,722
MS-DRG 25--Cases with procedure code 39.72, 39.75, or 39.76.....             524            7.97          41,030
MS-DRG 26--All cases............................................           8,520            6.16          21,194
MS-DRG 26--Cases with procedure code 39.72, 39.75, or 39.76.....             721            3.14          27,998
MS-DRG 27--All cases............................................          10,326            3.30          16,389
MS-DRG 27--Cases with procedure code 39.72, 39.75, or 39.76.....           1,731            1.66          22,201
----------------------------------------------------------------------------------------------------------------

    Our clinical advisors reviewed the results of our examination and 
determined that the endovascular embolization or occlusion of head and 
neck procedures are appropriately classified within MS-DRGs 025, 026, 
and 027 because they do not have an acute complex CNS principal 
diagnosis or a major device implant which would add to their clinical 
complexity. Cases in MS-DRG 024 have average costs that are $4,049 
higher than cases in MS-DRG 027 with procedure code 39.72, 39.75, or 
39.76. We acknowledge that the 1,245 cases with procedure code 39.72, 
39.75, or 39.76 in MS-DRGs 025 and 026 have average costs that are 
closer to those in MS-DRGs 024 and 025. However, these cases are 1,245 
of the total 2,976 cases that would be involved if we moved all MS-DRGs 
025, 026, and 027 cases with procedure code 39.72, 39.75, or 39.76 to 
MS-DRGs 024 and 025, even if they did not have an acute complex CNS 
principal diagnosis or a major device implant. Based on these findings 
and the recommendations from our clinical advisors, we have determined 
that proposing to move endovascular embolization or occlusion of head 
and neck procedures from MS-DRGs 025, 026, and 027 to MS-DRGs 023 and 
024 is not warranted. Therefore, we are proposing to maintain the 
current MS-DRG assignments for endovascular embolization or occlusion 
of head and neck procedures. We are inviting public comments on our 
proposal.
3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): 
Avery Breathing Pacemaker System
    We received a request to create a new MS-DRG for the Avery 
Breathing Pacemaker System. This system is also called a diaphragmatic 
pacemaker and is captured by ICD-9-CM procedure code 34.85 
(Implantation of diaphragmatic pacemaker). The requestor stated that 
the diaphragmatic pacemaker is indicated for adult and

[[Page 28007]]

pediatric patients with chronic respiratory insufficiency that would 
otherwise be dependent on ventilator support. The procedure consists of 
surgically implanted receivers and electrodes mated to an external 
transmitter by antennas worn over the implanted receivers. The external 
transmitter and antennas send radiofrequency energy to the implanted 
receivers under the skin. The receivers then convert the radio waves 
into stimulating pulses sent down the electrodes to the phrenic nerves, 
causing the diaphragm to contract. The requestor stated that this 
normal pattern is superior to mechanical ventilators that force air 
into the chest. The requestor also stated that the system is expensive; 
the device cost is approximately $57,000. According to the requestor, 
given the cost of the device, hospitals are reluctant to use it. The 
requestor did not make a specific MS-DRG reassignment request.
    When used for a respiratory failure patient, procedure code 34.85 
is assigned to MS-DRGs 163, 164, and 165 (Major Chest Procedures with 
MCC, with CC, and without CC/MCC, respectively).
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for diaphragmatic pacemaker cases. The following table 
shows our findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 163--All cases...........................................          11,766           13.13         $34,308
MS-DRG 163--Cases with procedure code 34.85.....................              13            2.23          29,406
MS-DRG 164--All cases...........................................          16,087            6.58          18,352
MS-DRG 164--Cases with procedure code 34.85.....................              34            1.71          23,406
MS-DRG 165--All cases...........................................           9,207            3.91          13,081
MS-DRG 165--Cases with procedure code 34.85.....................               1            1.00          22,977
----------------------------------------------------------------------------------------------------------------

    There were only 48 cases of diaphragmatic pacemakers within MS-DRGs 
163, 164, and 165. The average costs of these diaphragmatic pacemaker 
cases ranged from $22,977 for the single case in MS-DRG 165 to $29,406 
for the cases in MS-DRG 163, compared to the average costs for all 
cases in MS-DRGs 163, 164, and 165, which range from $13,081 to 
$34,308. The average cost for diaphragmatic pacemaker cases in MS-DRG 
163 was lower than that for all cases in MS-DRG 163, $29,406 compared 
to $34,308 for all cases. The average cost for diaphragmatic pacemaker 
cases was higher for MS-DRG 164, $23,406 compared to $18,352 for all 
cases. While the average cost for the single diaphragmatic pacemaker 
case was significantly higher for MS-DRG 165, $22,977 compared to 
$13,081, we were unable to determine if additional factors might have 
impacted the higher cost for this single case.
    Given the small number of diaphragmatic pacemaker cases that we 
found, we do not believe that there is justification for creating a new 
MS-DRG. Basing a new MS-DRG on such a small number of cases could lead 
to distortions in the relative payment weights for the MS-DRG because 
several expensive cases could impact the overall relative payment 
weight. Having larger clinical cohesive groups within an MS-DRG 
provides greater stability for annual updates to the relative payment 
weights. We note that, as discussed in section II.G.4.c. of the 
preamble of this proposed rule, one of the criteria we apply in 
evaluating whether to create new severity subgroups within an MS-DRG is 
whether there are at least 500 cases in the CC or MCC subgroup. While 
this criterion is used to evaluate whether to create a severity 
subgroup within an MS-DRG, applying it here suggests that creating a 
new MS-DRG for only 48 cases would not be appropriate. Although the 
average costs of these diaphragmatic pacemaker cases are higher than 
the average costs of all cases in MS-DRGs 163 and 164, we believe the 
current MS-DRG assignment is appropriate and that the data do not 
support creating an MS-DRG because there are so few cases.
    Our clinical advisors reviewed this issue and determined that the 
diaphragmatic pacemaker cases are appropriately classified within MS-
DRGs 163, 164, and 165 because they are clinically similar to other 
cases of patients with major chest procedures within MS-DRGs 163, 164, 
and 165. Our clinical advisors did not support creating a new MS-DRG 
for such a small number of cases.
    Based on the results of the examination of the claims data, the 
recommendations from our clinical advisors, and the small number of 
diaphragmatic pacemaker cases, we are not proposing to create a new MS-
DRG for diaphragmatic pacemaker cases at this time. We are proposing to 
maintain the current MS-DRG assignments for diaphragmatic pacemaker 
cases. We are inviting public comments on our proposal.
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Exclusion of Left Atrial Appendage
    We received a request to move the exclusion of the left atrial 
appendage procedure, which is a non-O.R. procedure and captured by ICD-
9-CM procedure code 37.36 (Excision, destruction or exclusion of left 
atrial appendage (LAA)), from MS-DRGs 250 (Percutaneous Cardiovascular 
without Coronary Artery Stent with MCC) and 251 (Percutaneous 
Cardiovascular without Coronary Artery Stent without MCC) to MS-DRGs 
237 (Major Cardiovascular Procedures with MCC) and 238 (Major 
Cardiovascular Procedures without MCC). The requestor stated that the 
exclusion of the left atrial appendage procedure code 37.36 is not 
clinically coherent with the other procedures in MS-DRGs 250 and 251 
and that this current assignment to MS-DRGs 250 and 251 does not 
compensate providers adequately for the expenses incurred to perform 
this procedure and placement of the device.
    The exclusion of the left atrial appendage procedure involves a 
percutaneous placement of a snare/suture around the left atrial 
appendage to close it off. The exclusion of the left atrial appendage 
procedure takes place in the cardiac catheterization laboratory under 
general anesthesia and is a catheter based closed-chest procedure 
instead of an open heart surgical technique to treat the same clinical 
condition, with the same intended results. The procedure can be 
performed by either an interventional cardiologist or an 
electrophysiologist.
    We analyzed claims data from the December 2013 update of the FY 
2013 MedPAR file for cases assigned to MS-DRGs 250 and 251 and MS-DRGs 
237 and 238. Our findings are shown in the table below.

[[Page 28008]]



----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 250--All cases...........................................           9,174            6.90         $21,319
MS-DRG 250--Cases with procedure code 37.36.....................              61            7.21          29,637
MS-DRG 251--All cases...........................................          26,331            3.01          14,614
MS-DRG 251--Cases with procedure code 37.36.....................             341            3.01          18,298
MS-DRG 237--All cases...........................................          17,813            9.66          35,642
MS-DRG 238--All cases...........................................          33,644            3.73          24,511
----------------------------------------------------------------------------------------------------------------

    The data in the table above show that, while the average costs of 
the atrial appendage exclusion procedures are higher ($29,637) than 
those for all cases ($21,319) within MS-DRG 250 and are higher 
($18,298) than for all cases ($14,614) within MS-DRG 251, they are 
lower than those in MS-DRGs 237 ($35,642) and 238 ($24,511). Our 
clinical advisors reviewed this issue and recommended not moving these 
stand-alone percutaneous cases to MS-DRGs 237 and 238 because they do 
not consider them to be major cardiovascular procedures. Our clinical 
advisors stated that cases reporting ICD-9-CM procedure code 37.36 are 
appropriately assigned within MS-DRG 250 and 251 because they are 
percutaneous cardiovascular procedures and are clinically similar to 
other procedures within the MS-DRG. Therefore, we are not proposing to 
reassign exclusion of atrial appendage procedure cases from MS-DRGs 250 
and 251 to MS-DRGs 237 and 238 for FY 2015. We are inviting public 
comments on our proposal to maintain the current MS-DRG structure for 
the exclusion of the left atrial appendage.
b. Transcatheter Mitral Valve Repair: MitraClip[supreg]
    The MitraClip[supreg] System (hereafter referred to as 
MitraClip[supreg]) for transcatheter mitral valve repair has been 
discussed in extensive detail in previous rulemaking, including the FY 
2012 IPPS/LTCH PPS proposed rule (76 FR 25822) and final rule (76 FR 
51528 through 51529) and the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 
27902 through 27903) and final rule (77 FR 53308 through 53310), in 
response to requests for MS-DRG reclassification, as well as, in the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27547 through 27552) under the 
new technology add-on payment policy. In the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50575), the application for a new technology add-on 
payment for MitraClip[supreg] was unable to be considered further due 
to lack of FDA approval by the July 1, 2013 deadline.
    Subsequently, on October 24, 2013, MitraClip[supreg] received FDA 
approval. As a result, the manufacturer has submitted new requests for 
both an MS-DRG reclassification and new technology add-on payment for 
FY 2015. We refer readers to section II.I. of the preamble of this 
proposed rule for discussion regarding the application for 
MitraClip[supreg] under the new technology add-on payment policy. Below 
we discuss the MS-DRG reclassification request.
    The manufacturer's request for MS-DRG reclassification involves two 
components. The first component consists of reassigning cases reporting 
a transcatheter mitral valve repair using the MitraClip[supreg] from 
MS-DRGs 250 and 251(Percutaneous Cardiovascular Procedure without 
Coronary Artery Stent with MCC and without MCC, respectively) to MS-
DRGs 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with 
Cardiac Catheterization with MCC), 217 (Cardiac Valve & Other Major 
Cardiothoracic Procedures with Cardiac Catheterization with CC), 218 
(Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac 
Catheterization without CC/MCC), 219 (Cardiac Valve & Other Major 
Cardiothoracic Procedures without Cardiac Catheterization with MCC), 
220 (Cardiac Valve & Other Major Cardiothoracic Procedures without 
Cardiac Catheterization with CC), and 221 (Cardiac Valve & Other Major 
Cardiothoracic Procedures without Cardiac Catheterization without CC/
MCC). The second component of the manufacturer's request was for CMS to 
examine the creation of a new base MS-DRG for transcatheter valve 
therapies.
    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.
    To address the first component of the manufacturer's request, we 
conducted an analysis of claims data from the December 2013 update of 
the FY 2013 MedPAR file for cases reporting procedure code 35.97 in MS-
DRGs 250 and 251. The table below shows our findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 250--All cases...........................................           9,174            6.90         $21,319
MS-DRG 250--Cases with procedure code 35.97.....................              67            8.48          39,103
MS-DRG 251--All cases...........................................          26,331            3.01          14,614
MS-DRG 251--Cases with procedure code 35.97.....................             127            3.94          25,635
----------------------------------------------------------------------------------------------------------------

    As displayed in the table above, the data demonstrate that, for MS-
DRG 250, there were a total of 9,174 cases with an average length of 
stay of 6.90 days and average costs of $21,319. The number of cases 
reporting the ICD-9-CM procedure code 35.97 in MS-DRG 250 totaled 67 
with an average length of stay of 8.48 days and average costs of 
$39,103. For MS-DRG 251, there were a total of 26,331 cases with an 
average length of stay of 3.01 days and average costs of $14,614. There 
were 127 cases found in MS-DRG 251 reporting the procedure code 35.97 
with an average length of stay of 3.94 days and average costs of 
$25,635. We recognize that the cases reporting procedure code 35.97 
have a longer length of stay and higher average costs in comparison to 
all the cases within MS-DRGs 250 and 251. However, as stated in prior 
rulemaking (77 FR 53309), it is a fundamental principle of an averaged 
payment system that half of the procedures in a group will have above 
average costs. It is expected that there will be higher cost and lower 
cost subsets, especially when a subset has low numbers.
    We also evaluated the claims data from the December 2013 update of 
the FY 2013 MedPAR file for MS-DRGs 216

[[Page 28009]]

through 221. Our findings are shown in the table below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 216--All cases...........................................          10,131           15.41         $65,478
MS-DRG 217--All cases...........................................           5,374            9.51          44,695
MS-DRG 218--All cases...........................................             882            6.88          39,470
MS-DRG 219--All cases...........................................          17,856           11.63          54,590
MS-DRG 220--All cases...........................................          21,059            7.13          38,137
MS-DRG 221--All cases...........................................           4,586            5.32          34,310
----------------------------------------------------------------------------------------------------------------

    The data in our findings do not warrant reassignment of cases 
reporting use of the MitraClip[supreg]. If we were to propose 
reassignment of cases reporting procedure code 35.97 to MS-DRGs 216 
through 221, they would be significantly overpaid, as the average costs 
range from $34,310 to $65,478 for those MS-DRGs. In addition, our 
clinical advisors do not support reassigning these cases. They noted 
that the current MS-DRG assignment is appropriate for the reasons 
stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53309). To 
reiterate, our clinical advisors note that the current MS-DRG 
assignment is reasonable because the operating room resource 
utilizations of percutaneous procedures, such as those found in MS-DRGs 
250 and 251, tend to group together, and are generally less costly than 
open procedures, such as those found in MS-DRGs 216 through 221. 
Percutaneous procedures by organ system represent groups that are 
reasonably clinically coherent. More significantly, our clinical 
advisors state that postoperative resource utilization is significantly 
higher for open procedures with much greater morbidity and consequent 
recovery needs. Because the equipment, technique, staff, patient 
populations, and physician specialty all tend to group by type of 
procedure (percutaneous or open), separately grouping percutaneous 
procedures and open procedures is more clinically consistent. 
Therefore, we are not proposing to modify the current MS-DRG assignment 
for cases reporting procedure code 35.97 from MS-DRGs 250 and 251 to 
MS-DRGs 216 through 221 for FY 2015. We are inviting public comments on 
our proposal to not make any modifications to the current MS-DRG logic 
for these cases.
    As indicated above, the second component of the manufacturer's 
request involved the creation of a new base MS-DRG for transcatheter 
valve therapies. We also received a similar request from another 
manufacturer recommending that we create a new MS-DRG for procedures 
referred to as endovascular cardiac valve replacement procedures. We 
reviewed each of these requests using the same data analysis, as set 
forth below. The discussion for endovascular cardiac valve replacement 
procedures is included in section II.G.4.c. of the preamble of this 
proposed rule and includes findings from the analysis and our proposals 
for each of these similar, but distinct requests.
c. Endovascular Cardiac Valve Replacement Procedures
    As noted in the previous section related to the MitraClip[supreg] 
technology, we received two requests to create a new base MS-DRG for 
what was referred to as ``transcatheter valve therapies'' by one 
manufacturer and ``endovascular cardiac valve replacement'' procedures 
by another manufacturer. Below we summarize the details of each request 
and review results of the data analysis that was performed.
Transcatheter Valve Therapies
    The request related to transcatheter valve therapies consisted of 
creating a new MS-DRG that would include the MitraClip[supreg] 
technology (ICD-9-CM procedure code 35.97 (Percutaneous mitral valve 
repair with implant)), along with the following list of ICD-9-CM 
procedure codes that identify the various types of valve replacements 
performed by an endovascular or transcatheter technique:
     35.05 (Endovascular replacement of aortic valve);
     35.06 (Transapical replacement of aortic valve);
     35.07 (Endovascular replacement of pulmonary valve);
     35.08 (Transapical replacement of pulmonary valve); and
     35.09 (Endovascular replacement of unspecified valve).
    We performed analysis of claims data from the December 2013 update 
of the FY 2013 MedPAR file for both the percutaneous mitral valve 
repair and the transcatheter/endovascular cardiac valve replacement 
codes in their respective MS-DRGs. The percutaneous mitral valve repair 
with implant (MitraClip[supreg]) procedure code is currently assigned 
to MS-DRGs 250 and 251, while the transcatheter/endovascular cardiac 
valve replacement procedure codes are currently assigned to MS-DRGs 
216, 217, 218, 219, 220, and 221. As illustrated in the table below, 
the data demonstrate that, for MS-DRGs 250 and 251, there were a total 
of 194 cases reporting procedure code 35.97, with an average length of 
stay of 5.5 days and average costs of $30,286.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 250 through 251--Cases with procedure code 35.97.........             194             5.5         $30,286
----------------------------------------------------------------------------------------------------------------

    Upon analysis of cases in MS-DRGs 216 through 221 reporting the 
cardiac valve replacement procedure codes, we found a total of 7,287 
cases with an average length of stay of 8.1 days and average costs of 
$53,802, as shown in the table below.

[[Page 28010]]



----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRGs 216 through 221--Cases with procedure codes 35.05,                 7,287             8.1         $53,802
 35.06, 35.07, 35.08 and 35.09..................................
MS-DRGs 216 through 221--Cases without procedure codes 35.05,             52,601            10.1          47,177
 35.06, 35.07, 35.08 and 35.09..................................
----------------------------------------------------------------------------------------------------------------

    The data clearly demonstrate that the volume of cases for the 
transcatheter/endovascular cardiac valve replacement procedures are 
much higher in comparison to the volume of cases for the percutaneous 
mitral valve repair (MitraClip[supreg]) procedure (7,287 compared to 
194). In addition, the average costs of the transcatheter/endovascular 
cardiac valve replacement procedures are significantly higher than the 
average costs of the percutaneous mitral valve repair with implant 
($53,802 compared to $30,286).
    Our clinical advisors do not support grouping a percutaneous valve 
repair procedure with transcatheter/endovascular valve replacement 
procedures. They do not believe that these procedures are clinically 
coherent or similar in terms of resource consumption because the 
MitraClip[supreg] technology identified by procedure code 35.97 is 
utilized for a percutaneous mitral valve repair, while the other 
technologies, identified by procedure codes 35.05 through 35.09, are 
utilized for transcatheter/endovascular cardiac valve replacements. 
Consequently, the data analysis and our clinical advisors do not 
support the creation of a new MS-DRG. Therefore, for FY 2015, we are 
not proposing to create a new MS-DRG to group cases reporting the 
percutaneous mitral valve repair (MitraClip[supreg]) procedure with 
transcatheter/endovascular cardiac valve replacement procedures. We are 
inviting public comments on our proposal.
Endovascular Cardiac Valve Replacement
    The similar but separate request relating to endovascular cardiac 
valve replacement procedures consisted of creating a new MS-DRG that 
would only include the various types of cardiac valve replacements 
performed by an endovascular or transcatheter technique. In other 
words, this request specifically did not include the MitraClip[supreg] 
technology (ICD-9-CM procedure code 35.97 (Percutaneous mitral valve 
repair with implant)) and only included the list of ICD-9-CM procedure 
codes that identify the various types of valve replacements performed 
by an endovascular or transcatheter technique (ICD-9-CM procedure codes 
35.05 through 35.09) as described earlier in this section.
    The human heart contains four major valves--the aortic, mitral, 
pulmonary, and tricuspid valves. These valves function to keep blood 
flowing through the heart. When conditions such as stenosis or 
insufficiency/regurgitation occur in one or more of these valves, 
valvular heart disease may result. Cardiac valve replacement surgery is 
performed in an effort to correct these diseased or damaged heart 
valves. The endovascular or transcatheter technique presents a viable 
option for high-risk patients who are not candidates for the 
traditional open surgical approach.
    We reviewed the claims data from the December 2013 update of the FY 
2013 MedPAR file for cases in MS-DRGs 216 through 221. Our findings are 
shown in the chart below. The data analysis shows that cardiac valve 
replacements performed by an endovascular or transcatheter technique 
represent a total of 7,287 of the cases in MS-DRGs 216 through 221, 
with an average length of stay of 8.1 days and higher average costs 
($53,802 compared to $47,177) in comparison to all of the cases in MS-
DRGs 216 through 221.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRGs 216 through 221--Cases with procedure codes 35.05,                 7,287             8.1         $53,802
 35.06, 35.07, 35.08 and 35.09..................................
MS-DRGs 216 through 221--Cases without procedure codes 35.05,             52,601            10.1          47,177
 35.06, 35.07, 35.08 and 35.09..................................
----------------------------------------------------------------------------------------------------------------

    As the data appear to indicate support for the creation of a new 
base MS-DRG, based on our evaluation of resource consumption, patient 
characteristics, volume, and costs between the cardiac valve 
replacements performed by an endovascular or transcatheter technique 
and the open surgical technique, we then applied our established 
criteria to determine if these cases would meet the requirements to 
create subgroups. We use five criteria established in the FY 2008 IPPS 
final rule (72 FR 47169) to review requests involving the creation of a 
new CC or an MCC subgroup within a base MS-DRG. As outlined in the FY 
2012 IPPS proposed rule (76 FR 25819), the original criteria were based 
on average charges but were later converted to average costs. In order 
to warrant creation of a CC or an MCC subgroup within a base MS-DRG, 
this subgroup must meet all of the following five criteria:
     A reduction in variance of costs of at least 3 percent.
     At least 5 percent of the patients in the MS-DRG fall 
within the CC or the MCC subgroup.
     At least 500 cases are in the CC or the MCC subgroup.
     There is at least a 20-percent difference in average costs 
between subgroups.
     There is a $2,000 difference in average costs between 
subgroups.
    In applying the five criteria, we found that the data support the 
creation of a new MS-DRG subdivided into two severity levels. We also 
consulted with our clinical advisors. Our clinical advisors stated that 
patients receiving endovascular cardiac valve replacements are 
significantly different from those patients who undergo an open chest 
cardiac valve replacement. They noted that patients receiving 
endovascular cardiac valve replacements are not eligible for open chest 
cardiac valve procedures because of a variety of health constraints. 
This highlights the fact that peri-operative complications and post-
operative morbidity have significantly different profiles for open 
chest procedures compared with endovascular interventions. This is also 
substantiated by the different average lengths of stay

[[Page 28011]]

demonstrated by the two cohorts. Our clinical advisors further noted 
that separately grouping these endovascular valve replacement 
procedures provides greater clinical cohesion for this subset of high-
risk patients.
    We are proposing to create the following MS-DRGs for endovascular 
cardiac valve replacements:
     Proposed new MS-DRG 266 (Endovascular Cardiac Valve 
Replacement with MCC); and
     Proposed new MS-DRG 267 (Endovascular Cardiac Valve 
Replacement without MCC).

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
 Proposed new MS-DRGs for endovascular cardiac valve replacement       cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
Proposed New MS-DRG 266 with MCC................................           3,516            10.6         $61,891
Proposed New MS-DRG 267 without MCC.............................           3,771             5.7          46,259
----------------------------------------------------------------------------------------------------------------

    We are inviting public comments on our proposal to create these new 
MS-DRGs for FY 2015.
d. Abdominal Aorta Graft
    We received a request that we change the MS-DRG assignment for 
procedure code 39.71 (Endovascular implantation of other graft in 
abdominal aorta), which is assigned to MS-DRGs 237 and 238 (Major 
Cardiovascular Procedures with MCC and without MCC, respectively). The 
requestor asked that we reassign procedure code 39.71 to MS-DRGs 228, 
229, and 230 (Other Cardiothoracic Procedures with MCC, with CC, and 
without CC/MCC, respectively). The requestor stated that the average 
cost of endovascular abdominal aorta graft implantation cases is 
significantly higher than other cases in MS-DRGs 237 and 238. The 
requestor stated that the average cost of endovascular abdominal aorta 
graft implantation cases is closer to those in MS-DRGs 228, 229, and 
230.
    The requestor stated that the goal of endovascular repair for 
abdominal aneurysm is to isolate the diseased, aneurismal portion of 
the aorta and common iliac arteries from continued exposure to systemic 
blood pressure. The procedure involves the delivery and deployment of 
endovascular prostheses, also referred to as a graft, as required to 
isolate the aneurysm above and below the extent of the disease. The 
requestor stated that this significantly reduces patient morbidity and 
death caused by leakage and/or sudden rupture of an untreated aneurysm.
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for cases of endovascular abdominal aorta graft 
implantations. The following table shows our findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 237--All cases...........................................          17,813            9.66         $35,642
MS-DRG 237--Cases with procedure code 39.71.....................           2,093            8.30          44,898
MS-DRG 238--All cases...........................................          33,644            3.73          24,511
MS-DRG 238--Cases with procedure code 39.71.....................          15,483            2.30          28,484
MS-DRG 228--All cases...........................................           1,543           13.48          52,315
MS-DRG 229--All cases...........................................           2,003            7.47          32,070
MS-DRG 230--All cases...........................................             493            4.95          29,281
----------------------------------------------------------------------------------------------------------------

    As this table shows, endovascular abdominal aorta graft 
implantation cases have higher average costs and shorter lengths of 
stay than all cases within MS-DRGs 237 and 238. The average cost for 
endovascular abdominal aorta graft implantation cases in MS-DRG 237 is 
$9,256 greater than that for all cases in MS-DRG 237 ($44,898 compared 
to $35,642). The average cost for endovascular abdominal aorta graft 
implantation cases in MS-DRG 238 is $3,973 higher than that for all 
cases in MS-DRG 238 ($28,484 compared to $24,511). Cases in MS-DRG 228 
have average costs that are $7,417 higher than the endovascular 
abdominal aorta graft implantation cases in MS-DRG 237 ($52,315 
compared to $44,898). MS-DRG 228 and MS-DRG 237 both contain cases with 
MCCs. Cases in MS-DRG 229, which contain a CC, have average costs that 
are $3,586 higher than average costs of the endovascular abdominal 
aorta graft implantation cases in MS-DRG 238, which do not contain an 
MCC ($32,070 compared to $28,484). Cases in MS-DRG 230, which have 
neither an MCC nor a CC, have average costs that are $797 higher than 
the endovascular abdominal aorta graft implantation cases in MS-DRG 238 
($29,281 compared to $28,484). While the average costs were higher for 
endovascular abdominal aorta graft implantation cases compared to all 
cases within MS-DRGs 237 and 238, each MS-DRG has some cases that are 
higher and some cases that are lower than the average costs for the 
entire MS-DRG. MS-DRGs were developed to capture cases that are 
clinically consistent with similar overall average resource 
requirements. This results in some cases within an MS-DRG having costs 
that are higher than the overall average and other cases having costs 
that are lower than the overall average. This may be due to specific 
types of cases included within the MS-DRGs or to the fact that some 
cases will simply require additional resources on a specific admission. 
However, taken as a whole, the hospital will be paid an appropriate 
amount for the group of cases that are assigned to the MS-DRG. We 
believe the endovascular abdominal aorta graft implantation cases are 
appropriately grouped with other procedures within MS-DRGs 237 and 238.
    Our clinical advisors reviewed this issue and determined that the 
endovascular abdominal aorta graft implantation cases are appropriately 
classified within MS-DRGs 237 and 238 because they are clinically 
similar to the other procedures in MS-DRGs 237 and 238, which include 
other procedures on the aorta. While the endovascular abdominal aorta 
graft implantation cases have higher average costs than the average for 
all cases within MS-DRGs 237 and 238, our clinical advisors do not 
believe this justifies moving the cases to MS-DRGs 228, 229 and 230, 
which involve a different set of cardiothoracic surgeries.
    Based on the results of examination of the claims data and the 
recommendations of our clinical advisors, we do not believe that

[[Page 28012]]

proposing to reclassify endovascular abdominal aorta graft implantation 
cases from MS-DRGs 237 and 238 is warranted. We are proposing to 
maintain the current MS-DRG assignments for endovascular abdominal 
aorta graft implantation cases. We are inviting public comments on our 
proposal.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue)
a. Shoulder Replacement Procedures
    We received a request to change the MS-DRG assignment for shoulder 
replacement procedures. This request involved the following two 
procedure codes:
     81.88 (Reverse total shoulder replacement); and
     81.97 (Revision of joint replacement of upper extremity).
    With respect to procedure code 81.88, the requestor asked that 
reverse total shoulder replacements be reassigned from MS-DRGs 483 and 
484 (Major Joint/Limb Reattachment Procedure of Upper Extremities with 
CC/MCC and without CC/MCC, respectively) to MS-DRG 483 only. The 
reassignment of procedure code 81.88 from MS-DRGs 483 and 484 was 
discussed previously in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50534 through 50536). The result of reassigning reverse shoulder 
replacements from MS-DRGs 483 and 484 to MS-DRG 483 only would be that 
this procedure would be assigned to MS-DRG 483 whether or not the case 
had a CC or an MCC. The requestor stated that reverse shoulder 
replacement procedures are more clinically cohesive with higher 
severity MS-DRGs due to the complexity and resource consumption of 
these procedures. We refer readers to the FY 2014 IPPS/LTCH PPS final 
rule (78 FR 50534 through 50536) for a discussion of the reverse total 
shoulder replacement.
    The requestor also recommended that we reassign what it described 
as another shoulder procedure involving procedure code 81.97, which is 
assigned to MS-DRGs 515, 516, and 517 (Other Musculoskeletal System and 
Connective Tissue O.R. Procedures with MCC, with CC, and without CC/
MCC, respectively), to MS-DRG 483. We point out that MS-DRG 483 
contains upper joint replacements, including shoulder replacements. MS-
DRG 483 does not contain any joint revision procedures. Similar to the 
request for reassignment of procedure code 81.88, this would mean that 
procedure code 81.97 would be assigned to MS-DRG 483 whether or not the 
case had a CC or an MCC. If CMS did not support this recommendation for 
moving procedure code 81.97 to MS-DRG 483, the requestor recommended an 
alternative reassignment to MS-DRG 515 (Other Musculoskeletal System 
and Connective Tissue O.R. procedures with MCC) even if the case had no 
MCC.
    We point out that, while the requestor refers to procedure code 
81.97 as a shoulder procedure, the code description actually includes 
revisions of joint replacements of a variety of upper extremity joints, 
including those in the elbow, hand, shoulder, and wrist.
    As stated earlier, reverse shoulder replacements are assigned to 
MS-DRGs 483 and 484. Revisions of upper joint replacements are assigned 
to MS-DRGs 515, 516, and 517. We examined claims data from the December 
2013 update of the FY 2013 MedPAR file for MS-DRGs 483 and 484. The 
following table shows our findings of cases of reverse shoulder 
replacement.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 483--All cases...........................................          14,220            3.20         $18,807
MS-DRG 483--Cases with procedure code 81.88.....................           7,086            3.19          20,699
MS-DRG 484--All cases...........................................          23,183            1.95          16,354
MS-DRG 484--Cases with procedure code 81.88.....................           9,633            2.03          18,719
Proposed Revised MS-DRG 483 with all severity levels included...          37,403             2.4          17,287
----------------------------------------------------------------------------------------------------------------

    As the above table shows, MS-DRG 484 reverse shoulder replacement 
cases have similar average costs to those in MS-DRG 483 ($18,719 for 
reverse shoulder replacements in MS-DRG 484 compared to $18,807 for all 
cases in MS-DRG 483). However, in reviewing the data, we observed that 
the claims data no longer support two severity levels for MS-DRGs 483 
and 484.
    We use the five criteria established in FY 2008 (72 FR 47169) to 
review requests involving the creation of a new CC or MCC subgroup 
within a base MS-DRG. As outlined in the FY 2012 IPPS/LTCH PPS proposed 
rule (76 FR 25819), the original criteria were based on average charges 
but were later converted to average costs. In order to warrant creation 
of a CC or an MCC subgroup within a base MS-DRG, the subgroup must meet 
all of the following five criteria:
     A reduction in variance of costs of at least 3 percent.
     At least 5 percent of the patients in the MS-DRG fall 
within the CC or MCC subgroup.
     At least 500 cases are in the CC or MCC subgroup.
     There is at least a 20-percent difference in average costs 
between subgroups.
     There is a $2,000 difference in average costs between 
subgroups.
    We found through our examination of the claims data from the 
December 2013 update of the FY 2013 MedPAR file that the two severity 
subgroups of MS-DRG 483 and 484 no longer meet the fourth criterion of 
at least a 20-percent difference in average costs between subgroups. We 
found that there is a $2,453 difference in average costs between MS-DRG 
483 and MS-DRG 484. The difference in average costs would need to be 
$3,761 to meet the fourth criterion. Therefore, our claims data support 
collapsing MS-DRGs 483 and 484 into a single MS-DRG. Our clinical 
advisors reviewed this issue and agree that there is no longer enough 
difference between the two severity levels to justify separate severity 
subgroups for MS-DRGs 483 and 484, which include a variety of upper 
joint replacements. Therefore, our clinical advisors support our 
recommendation to collapse MS-DRGs 483 and 484 into a single MS-DRG.
    Based on the results of examination of the claims data and the 
advice of our clinical advisors, we are proposing to collapse MS-DRGs 
483 and 484 into a single MS-DRG by deleting MS-DRG 484 and revising 
the title of MS-DRG 483 to read ``Major Joint/Limb Reattachment 
Procedure of Upper Extremities''.
    The following table shows our findings of cases of revisions of 
upper joint replacement from the December 2013 update of the FY 2013 
MedPAR file.

[[Page 28013]]



----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 515--All cases...........................................           3,407            9.22         $22,191
MS-DRG 515--Cases with procedure code 81.97.....................              88            5.66          22,085
MS-DRG 516--All cases...........................................           8,502            5.34          14,356
MS-DRG 516--Cases with procedure code 81.97.....................             799            2.84          18,214
MS-DRG 517--All cases...........................................           5,794            3.28          12,172
MS-DRG 517--Cases with procedure code 81.97.....................           1,256            2.07          15,920
MS-DRG 483--All cases...........................................          14,220            3.20          18,807
----------------------------------------------------------------------------------------------------------------

    Cases identified by code 81.97 in MS-DRGs 515, 516, and 517 have 
lower average costs and shorter lengths of stay than all cases in MS-
DRG 515. The average costs of cases in MS-DRG 515 are $3,977 higher 
than the average costs of the cases with procedure code 81.97 in MS-DRG 
516 ($22,191 compared to $18,214). The average costs of cases in MS-DRG 
515 are $6,271 higher than cases with procedure code 81.97 in MS-DRG 
517 ($22,191 compared to $15,920).
    The table above shows that the average costs of cases in MS-DRG 483 
are $3,278 lower than the average costs of cases with procedure code 
81.97 in MS-DRG 515 ($18,807 compared to $22,085). The average costs of 
cases in MS-DRG 483 are $593 higher than the average costs of cases 
with procedure code 81.97 in MS-DRG 516 ($18,807 compared to $18,214). 
The average costs of cases in MS-DRG 483 are $2,887 higher than the 
average costs of cases with procedure code 81.97 in MS-DRG 517 ($18,807 
compared to $15,920).
    The claims data do not support moving all procedure code 81.97 
cases to MS-DRG 515 or MS-DRG 483, whether or not there is a CC or an 
MCC. We also point out once again that procedure code 81.97 is a 
nonspecific code that captures revisions to not only the shoulder, but 
also a variety of upper extremity joints including those in the elbow, 
hand, shoulder, and wrist. Therefore, we have no way of determining how 
many cases reporting procedure code 81.97 were actually shoulder 
procedures as opposed to procedures on the elbow, hand, or wrist.
    Our clinical advisors reviewed this issue and determined that the 
revisions of upper joint replacement procedures are appropriately 
classified within MS-DRGs 515, 516, and 517, which include other joint 
revision procedures. They do not support moving revisions of upper 
joint replacement procedures to MS-DRG 515, whether or not there is an 
MCC. They support the current classification, which bases the severity 
level on the presence of a CC or an MCC. They also do not support 
moving revisions of upper joint replacement procedures to MS-DRG 483, 
whether or not there is a CC or an MCC, because these revisions are not 
joint replacements. Based on the results of our examination and the 
advice of our clinical advisors, we are not proposing moving revisions 
of upper joint replacement procedures to MS-DRG 515 or MS-DRG 483, 
whether or not there is a CC or an MCC.
    In summation, we are proposing to collapse MS-DRGs 483 and 484 into 
a single MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 
483 to read ``Major Joint/Limb Reattachment Procedure of Upper 
Extremities''. We are proposing to maintain the current MS-DRG 
assignments for revisions of upper joint replacement procedures in MS-
DRGs 515, 516, and 517. We are inviting public comments on our 
proposals.
b. Ankle Replacement Procedures
    We received a request to change the MS-DRG assignment for two ankle 
replacement procedures. The request involved the following two 
procedure codes:
     81.56 (Total ankle replacement); and
     81.59 (Revision of joint replacement of lower extremity, 
not elsewhere classified).
    The reassignment of procedure code 81.56 from MS-DRGs 469 and 470 
(Major Joint Replacement or Reattachment of Lower Extremity with CC and 
without MCC, respectively) to a new MS-DRG or, alternatively, to MS-DRG 
469 was discussed in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50536 
through 50537). We refer readers to this final rule for a discussion of 
ankle replacement procedures. The requestor asked that we again 
evaluate reassigning total ankle replacement procedures. The requestor 
also asked that we reassign what it referred to as another ankle 
replacement revision procedure captured by procedure code 81.59 
(Revision of joint replacement of lower extremity, not elsewhere 
classified), which is assigned to MS-DRGs 515, 516, and 517 (Other 
Musculoskeletal System and Connective Tissue O.R. Procedures with MCC, 
with CC, and without CC/MCC, respectively).
    The requestor asked that we reassign procedure code 81.56 from MS-
DRGs 469 and 470 to MS-DRG 483 (Major Joint/Limb Reattachment Procedure 
of Upper Extremities with CC/MCC) and rename the MS-DRG to better 
capture the additional lower extremity cases. The requestor stated that 
the result would be assignment of lower joint procedures to an MS-DRG 
that currently captures only upper extremity cases and assignment to 
the highest severity level even if the case did not have a CC or an 
MCC. If CMS did not find this acceptable, the requestor made an 
alternative recommendation of assigning procedure code 81.56 to MS-DRG 
469 and renaming the MS-DRG to better capture the additional cases. 
Cases would be assigned to the highest severity level whether or not 
the case had an MCC.
    The requestor also recommended that procedure code 81.59, which is 
assigned to MS-DRGs 515, 516, and 517 be reassigned to MS-DRG 483 and 
that the MS-DRG be given a new title to better capture the additional 
lower extremity cases. The requestor stated that the result would be 
assignment of lower joint procedures to an MS-DRG that currently 
captures only upper extremity cases and assignment to the highest 
severity level even if the patient did not have a CC or an MCC. If CMS 
did not support this recommendation, the requestor suggested two 
additional recommendations. One involves moving procedure code 81.59 to 
MS-DRG 515 even when the case had no MCC. The other recommendation was 
to move procedure code 81.59 to MS-DRG 469, whether or not the case had 
a MCC.
    We point out that while the requestor refers to procedure code 
81.59 as a revision of an ankle replacement, the code actually includes 
revisions of joint replacements of a variety of lower extremity joints 
including the ankle, foot, and toe.
    The following table shows the number of total ankle replacement 
cases, average length of stay, and average costs for procedure code 
81.56 in MS-DRGs 469 and 470 found in claims data from the December 
2013 update of the FY 2013

[[Page 28014]]

MedPAR file compared to all cases within MS-DRGs 469, 470, and 483.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases...........................................          25,916          722            $22,548
MS-DRG 469--Cases with procedure code 81.56.....................              32            6.19          27,419
MS-DRG 470--All cases...........................................         406,344            3.25          15,119
MS-DRG 470--Cases with procedure code 81.56.....................           1,379            2.13          19,332
MS-DRG 483......................................................          14,220            3.20          18,807
----------------------------------------------------------------------------------------------------------------

    In summary, the requestor asked us to reassign procedure code 81.56 
in MS-DRGs 469 and 470 to one of the following two options: MS-DRG 483 
(highest severity level); or MS-DRG 469 (highest severity level).
    As the table for total ankle replacement above shows, the average 
cost of cases with procedure code 81.56 in MS-DRG 469 is $27,419 and 
$19,332 in MS-DRG 470. This compares with the average costs of all 
cases in MS-DRGs 469 and 470 of $22,548 and $15,119, respectively. 
While the average cost of cases reporting procedure code 81.56 in MS-
DRG 469 is $4,871 higher than the average cost for all cases in MS-DRG 
469, we point out that there were only 32 cases. The relatively small 
number of cases may have been impacted by other factors such as 
complications or comorbidities. Several expensive cases could impact 
the average costs for a very small number of patients. The average cost 
of cases reporting procedure code 81.56 in MS-DRG 470 is $4,213 higher 
than the average cost for all cases in MS-DRG 470. While the average 
costs are higher, within all MS-DRGs, some cases have higher and some 
cases have lower average costs. MS-DRGs are groups of clinically 
similar cases that have similar overall costs. Within a group of cases, 
one would expect that some cases have costs that are higher than the 
overall average and some cases have costs that are lower than the 
overall average.
    MS-DRG 469 ankle replacement cases have average costs that are 
$8,612 higher than the average costs of all cases in MS-DRG 483 
($27,419 compared to $18,807). Moving these cases (procedure code 
81.56) to MS-DRG 483 would result in payment below average costs 
compared to the current MS-DRG assignment in MS-DRG 469. Furthermore, 
as noted earlier, moving total ankle replacement cases to MS-DRG 483 
would result in a lower extremity procedure being added to what is now 
an upper extremity MS-DRG. This would significantly disrupt the 
clinical cohesion of MS-DRG 483.
    The average costs of all cases in MS-DRG 469 are $3,216 higher than 
the average costs of those cases with procedure code 81.56 in MS-DRG 
470 ($22,548 compared to $19,332) The data do not support moving 
procedure code 81.56 cases to MS-DRG 483 or 469 because it would not 
result in payments that more accurately reflect their current average 
costs. Our clinical advisors reviewed this issue and determined that 
the ankle replacement cases are appropriately classified within MS-DRGs 
469 and 470 with the severity level leading to the MS-DRG assignment. 
They do not support moving these cases to MS-DRG 483 because ankle 
replacements, which are lower joint procedures, are not clinically 
similar to upper joint replacement procedures. Based on the results of 
examination of the claims data, the issue of clinical cohesion, and the 
recommendations from our clinical advisors, we are not proposing to 
move total ankle procedures to MS-DRG 483 or MS-DRG 469 when there is 
no MCC. We are proposing to maintain the current MS-DRG assignments for 
ankle replacement cases. We are inviting public comments on our 
proposal.
    The following table shows our findings from examination of the 
claims data from the December 2013 update of the FY 2013 MedPAR file 
for the number of cases reporting procedure code 81.59 in MS-DRGs 515, 
516, and 517 (revision of joint replacement of lower extremity) and 
their average length of stay and average costs as compared to all cases 
within MS-DRGs 515, 516, and 517 (where procedure code 81.59 is 
currently assigned), as well as data for MS-DRGs 469 and 483.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 515--All cases...........................................           3,407            9.22         $22,191
MS-DRG 515--Cases with procedure code 81.59.....................               5            6.00          16,988
MS-DRG 516--All cases...........................................           8,502            5.34          14,356
MS-DRG 516--Cases with procedure code 81.59.....................              16            3.00          16,998
MS-DRG 517--All cases...........................................           5,794            3.28          12,172
MS-DRG 517--Cases with procedure code 81.59.....................              40            1.80          13,704
MS-DRG 483--All cases...........................................          25,916          722             22,548
MS- DRG 469--All cases..........................................          14,220            3.20          18,807
----------------------------------------------------------------------------------------------------------------

    The requestor asked that all cases with procedure code 81.59 in MS-
DRGs 515, 516, and 517 be assigned to one of the following three 
choices:
     MS-DRG 483 (highest severity level);
     MS-DRG 515 (highest severity level) whether or not there 
is an MCC; or
     MS-DRG 469 (highest severity level).
    Our review of data from the above revision of joint replacement of 
lower extremity table shows that cases in MS-DRG 483 have average costs 
that are $5,560 higher than the average costs of cases with procedure 
code 81.59 in MS-DRG 515; $5,550 greater than those in MS-DRG 516; and 
$8,844 greater than those in MS-DRG 517 ($22,548 compared to $16,988; 
$22,548 compared to $16,998, and $22,548 compared to $13,704, 
respectively). As mentioned earlier, MS-DRG 483 is currently composed 
of only upper extremity procedures. Moving lower extremity procedures 
into this MS-DRG would disrupt the clinical cohesiveness of MS-DRG 483.

[[Page 28015]]

    The average costs of all cases in MS-DRG 469 are $18,807, compared 
to average costs of $16,988, $16,998, and $13,703 for procedure code 
81.59 cases in MS-DRGs 515, 516, and 517, respectively. The data do not 
support moving all procedure code 81.59 cases to MS-DRG 469 even when 
there is no MCC. We also point out that moving cases with procedure 
code 81.59 to MS-DRG 469 would disrupt the clinical cohesiveness of MS-
DRG 469, which currently captures major joint replacement or 
reattachment procedures of the lower extremity. Procedure code 81.59 
includes revisions of joint replacements of a variety of lower 
extremity joints including the ankle, foot, and toe. This nonspecific 
code would not be considered a major joint procedure. The code captures 
revisions of an ankle replacement as well as a more minor revision of 
the toe.
    Our clinical advisors reviewed this issue and determined that the 
revision of joint replacement of lower extremity cases are 
appropriately classified within MS-DRGs 515, 516, and 517 where 
revisions of other joint replacements are captured. They support the 
current severity levels in MS-DRGs 515, 516, and 517, which allow the 
presence of a CC or an MCC to determine the severity level assignment. 
They do not support moving these cases to MS-DRG 483, which is applied 
to upper extremity procedures because these procedures are not 
clinically consistent with revisions of lower joint procedures. They 
also do not support moving these cases to MS-DRG 469 when there is no 
MCC because these procedures are not joint replacement procedures. 
Based on the findings of our examination of the claims data, the issue 
of clinical cohesion, and the recommendations from our clinical 
advisors, we are not proposing to move the revision of joint 
replacement of lower extremity cases to MS-DRGs 483 or 469, whether or 
not there is an MCC. We are proposing to maintain the current MS-DRG 
assignments for revision of joint replacement of lower extremity cases.
    In summary, we are proposing to maintain the current MS-DRG 
assignment for total ankle replacements in MS-DRGs 469 and 470 and 
revision of joint replacement of lower extremity procedures in MS-DRGs 
515, 516, and 517. We are inviting public comments on our proposals.
c. Back and Neck Procedures
    We received a request to reassign cases identified with a 
complication or comorbidity (CC) in MS-DRG 490 (Back & Neck Procedures 
Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) to MS-
DRG 491 (Back & Neck Procedures Except Spinal Fusion without CC/MCC or 
Disc Device/Neurostimulator). The requester suggested that we create a 
new MS-DRG that would be subdivided based solely on the ``with MCC or 
Disc Device/Neurostimulator'' and the ``without MCC'' (and no device) 
criteria.
    For the FY 2008 rulemaking cycle, we performed a comprehensive 
analysis of all the spinal DRGs as we proposed (72 FR 24731 through 
24735) and finalized (72 FR 47226 through 47232) adoption of the MS-
DRGs. With the revised spinal MS-DRGs, we were better able to identify 
a patient's level of severity, complexity of service, and utilization 
of resources. This was primarily attributed to the new structure for 
the severity level designations of ``with MCC,'' ``with CC,'' and 
``non-CC'' (or without CC/MCC). Another contributing factor was that we 
incorporated specific procedures and technologies into the GROUPER 
logic for some of those spinal MS-DRGs. Specifically, as noted above, 
in the title of MS-DRG 490, we accounted for disc devices and 
neurostimulators because the data demonstrated that the procedures 
utilizing those technologies were more complex and required greater 
utilization of resources.
    According to the requester, since that time, concerns have been 
expressed in the provider community regarding inadequate payment for 
MS-DRG 490 when these technologies are utilized. An analysis conducted 
by the requester alleged that the subset of patients identified in the 
``with MCC or disc device/neurostimulator'' group are different with 
regard to resource use from the ``without CC/MCC'' (and no device) 
patient group.
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for MS-DRGs 490 and 491. The table below shows our 
findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 490--All cases...........................................          16,930            4.53         $13,727
MS-DRG 491--All cases...........................................          25,778            2.20           8,151
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, there were a total of 16,930 cases in 
MS-DRG 490 with an average length of stay of 4.53 days and average 
costs of $13,727. For MS-DRG 491, there were a total of 25,778 cases 
with an average length of stay of 2.20 days and average costs of 
$8,151.
    We then analyzed the data for MS-DRGs 490 and 491 by subdividing 
cases based on the ``with MCC or Disc Device/Neurostimulator'' and the 
``without MCC'' (and no device) criteria. We found a total of 3,379 
cases with an average length of stay of 6.6 days and average costs of 
$21,493 in the ``with MCC or Disc Device/Neurostimulator'' group and a 
total of 39,329 cases with an average length of stay of 2.8 days and 
average costs of $9,405 in the ``without MCC'' and no device group. Due 
to the wide range in the volume of cases, length of stay, and average 
costs between these two subgroups, we concluded that further analysis 
of the data using a separate ``with CC'' (and no device) subset of 
patients was warranted.
    Therefore, we evaluated the data using a three-way severity level 
split that consisted of the three subgroups shown in the table below.

        Additional Analysis for Back & Neck Procedures Except Spinal Fusion: Disc Device/Neurostimulator
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                      Severity level split                             cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
--With MCC or disc device/neurostimulator.......................           3,379             6.6         $21,493
--With CC.......................................................          13,551             3.9          11,791
--Without CC/MCC................................................          25,778             2.2           8,151
----------------------------------------------------------------------------------------------------------------


[[Page 28016]]

    For the first subgroup, ``with MCC or Disc Device/
Neurostimulator,'' we found a total of 3,379 cases with an average 
length of stay of 6.6 days and average costs of $21,493. In the second 
subgroup, ``with CC'' (no device), we found a total of 13,551 cases 
with an average length of stay of 3.9 days and average costs of 
$11,791. In the third subgroup, ``without CC/MCC'' (no device), we 
found a total of 25,778 cases with an average length of stay of 2.2 
days and average costs of $8,151.
    The results of this additional data analysis demonstrate a better 
distribution of cases with regard to length of stay and average costs. 
Our clinical advisors agree that a patient's severity of illness is 
captured more appropriately with this subdivision. The data also meet 
the established criteria for creating subgroups within a base MS-DRG as 
discussed earlier in this proposed rule.
    As the subdivision of the claims data based on these subgroups 
better captures a patient's severity level and utilization of resources 
and is supported by our clinical advisors, we are proposing to create 
three new MS-DRGs and to delete MS-DRGs 490 and 491. These proposed new 
MS-DRGs would be titled as follows and would be effective as of October 
1, 2014:
     Proposed new MS-DRG 518 (Back & Neck Procedures Except 
Spinal Fusion with MCC or Disc Device/Neurostimulator);
     Proposed new MS-DRG 519 (Back & Neck Procedures Except 
Spinal Fusion with CC); and
     Proposed new MS-DRG 520 (Back & Neck Procedures Except 
Spinal Fusion without CC/MCC).
    We are inviting public comments on our proposal to create these 
proposed new MS-DRGs for FY 2015.
6. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and 
Disorders): Disorders of Porphyrin Metabolism
    We received a comment on the FY 2014 IPPS/LTCH PPS proposed rule 
that we considered out of scope for the proposed rule. We stated in the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50550) that we would consider 
this issue in future rulemaking as part of our annual review process. 
The request was for the creation of a new MS-DRG to better identify 
cases where patients with disorders of porphyrin metabolism exist, to 
recognize the resource requirements in caring for these patients, to 
ensure appropriate payment for these cases, and to preserve patient 
access to necessary treatments. This issue has been discussed 
previously in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27904 and 
27905) and final rule (77 FR 53311 through 53313).
    Porphyria is defined as a group of rare disorders (``porphyrias'') 
that interfere with the production of hemoglobin that is needed for red 
blood cells. While some of these disorders are genetic (inborn) and 
others can be acquired, they all result in the abnormal accumulation of 
hemoglobin building blocks, called porphyrins, which can be deposited 
in the tissues where they particularly interfere with the functioning 
of the nervous system and the skin. Treatment for patients suffering 
from disorders of porphyrin metabolism consists of an intravenous 
injection of Panhematin[supreg] (hemin for injection). In 1984, this 
pharmaceutical agent became the first approved drug for a rare disease 
to be designated under the Orphan Drug Act. The requestor stated that 
it is the only FDA-approved prescription treatment for acute 
intermittent porphyria. ICD-9-CM diagnosis code 277.1 (Disorders of 
porphyrin metabolism) describes these cases, which are currently 
assigned to MS-DRG 642 (Inborn and Other Disorders of Metabolism).
    We analyzed claims data from the December 2013 update of the FY 
2013 MedPAR file for cases assigned to MS-DRG 642. Our findings are 
shown in the table below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 642--All cases...........................................           1,486            4.61          $8,151
MS-DRG 642--Cases with principal diagnosis code 277.1...........             299            5.98          13,303
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, we found a total of 1,486 cases in MS-
DRG 642, with an average length of stay of 4.61 days and average costs 
of $8,151. We then analyzed the data for cases reporting diagnosis code 
277.1 as the principal diagnosis in this same MS-DRG. We found a total 
of 299 cases, with an average length of stay of 5.98 days and average 
costs of $13,303.
    While the data show that the average costs for the 299 cases 
reporting a principal diagnosis code of 277.1 were higher than the 
average costs for all cases in MS-DRG 642 ($13,303 compared to $8,151), 
the number of cases is small. Given the small number of porphyria 
cases, we do not believe there is justification for creating a new MS-
DRG. Basing a new MS-DRG on such a small number of cases could lead to 
distortions in the relative payment weights for the MS-DRG because 
several expensive cases could impact the overall relative payment 
weight. Having larger clinical cohesive groups within an MS-DRG 
provides greater stability for annual updates to the relative payment 
weights. In addition, as discussed earlier, one of the criteria we 
apply in evaluating whether to create new severity subgroups within an 
MS-DRG is whether there are at least 500 cases in the CC or MCC 
subgroup. While this criterion is used to evaluate whether to create a 
severity subgroup within an MS-DRG, applying it here suggests that 
creating a new MS-DRG for cases reporting a principal diagnosis of code 
277.1 would not be appropriate. Our clinical advisors reviewed this 
issue and recommended no MS-DRG change for porphyria cases because they 
fit clinically within MS-DRG 642.
    In summary, we are not proposing to create a new MS-DRG for 
porphyria cases. We are inviting public comments on our proposal to 
maintain porphyria cases in MS-DRG 642.
7. MDC 15 (Newborns and Other Neonates With Conditions Originating in 
the Perinatal Period)
    We received a request to evaluate the MS-DRG assignment of seven 
ICD-9-CM diagnosis codes in MS-DRG 794 (Neonate With Other Significant 
Problems) under MDC 15. The requestor stated that these codes have no 
bearing on the infant, and are not representative of a neonate with a 
significant problem. The requestor recommended that we change the MS-
DRG logic so that the following seven ICD-9-CM codes would not lead to 
assignment of MS-DRG 794. The requestor recommended that the diagnoses 
be added to the ``only secondary diagnosis'' list under MS-DRG 795 
(Normal newborn) so that the case would be assigned to MS-DRG 795 
(Normal newborn).

 V17.0 (Family history of psychiatric condition)
 V17.2 (Family history of other neurological Diseases)

[[Page 28017]]

 V17.49 (Family history of other cardiovascular diseases)
 V18.0 (Family history of diabetes mellitus)
 V18.19 (Family history of other endocrine and metabolic 
diseases)
 V18.8 (Family history of infectious and parasitic diseases)
 V50.3 (Ear piercing)

    In the case of a newborn with one of these diagnosis codes reported 
as a secondary diagnosis, the case would be assigned to MS-DRG 794. The 
commenter believed that any of these seven diagnosis codes (noted 
above), 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 the seven ICD-9-CM diagnosis codes noted above should 
not continue to be assigned to MS-DRG 794, as there is no clinically 
usable information reported in those codes identifying significant 
problems. Therefore, for FY 2015, we are proposing to reassign these 
following seven diagnoses to the ``only secondary diagnosis list'' 
under MS-DRG 795 so that the case would be assigned to MS-DRG 795.

 V17.0 (Family history of psychiatric condition)
 V17.2 (Family history of other neurological diseases)
 V17.49 (Family history of other cardiovascular diseases)
 V18.0 (Family history of diabetes mellitus)
 V18.19 (Family history of other endocrine and metabolic 
diseases)
 V18.8 (Family history of infectious and parasitic diseases)
 V50.3 (Ear piercing)

    We are inviting public comments on this proposal.
8. 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.
    As discussed in section II.G.1.a. of the preamble of this proposed 
rule, we developed an ICD-10 version of the current MS-DRGs, which are 
based on ICD-9-CM codes. We refer to this version of the MS-DRGs as the 
ICD-10 MS-DRGs Version 31.0-R. In November 2013, we also posted a 
Definitions of Medicare Code Edits Manual of the ICD-10 MCE Version 
31.0 on the ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We produced mainframe and computer software for Version 
31.0 of the MS-DRG GROUPER with Medicare Code Editor, which was made 
available to the public in December 2013. Information on ordering the 
mainframe and computer software through NTIS was posted on the CMS Web 
site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the ``Related Links'' section. This ICD-
10 MS-DRG GROUPER with Medicare Code Editor Version 31.0 computer 
software facilitated additional review of the ICD-10 MS-DRGs 
conversion. We encouraged the public to submit to CMS any comments on 
areas where they believed the ICD-10 MS-DRG GROUPER and MCE did not 
accurately reflect the logic and edits found in the ICD-9-CM MS-DRG 
GROUPER and MCE Version 31.0.
    We also have posted an ICD-10 version of the current MCE, which is 
based on ICD-9-CM codes, and refer to that version of the MCE as the 
ICD-10 MCE Version 31.0-R. Both of these documents are posted 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 will 
continue to share ICD-10 MS-DRG and MCE conversion activities with the 
public through this Web site.
    For FY 2015, we are proposing to remove extracranial-intracranial 
(EC-IC) bypass surgery from the ``Noncovered Procedure'' edit code list 
for Version 32.0 of the MCE. This procedure is identified by ICD-9-CM 
procedure code 39.28 (Extracranial-intracranial (EC-IC) vascular 
bypass).
    Because of the complexity of appropriately classifying the 
circumstances under which the EC-IC bypass surgery may, or may not, be 
considered reasonable and necessary for certain conditions, we are 
proposing to remove the MCE ``Noncovered Procedure'' edit for EC-IC 
bypass surgery from the ``Noncovered Procedure'' edit code list for 
Version 32.0 of the MCE. We are inviting public comments on this 
proposal.
9. Proposed Changes to 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 2015, 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

[[Page 28018]]

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.
    Based on the changes that we are proposing to make for FY 2015, as 
discussed in sections II.G.4.c., II.G.5.a., and II.G.5.c. of the 
preamble of this FY 2015 IPPS/LTCH PPS proposed rule, we are proposing 
to revise the surgical hierarchy for MDC 5 (Diseases and Disorders of 
the Circulatory System) and MDC 8 (Diseases and Disorders of the 
Musculoskeletal System and Connective Tissue) as follows:
    In MDC 5, we are proposing to sequence proposed new MS-DRG 266 
(Endovascular Cardiac Valve Replacement with MCC) and proposed new MS-
DRG 267 (Endovascular Cardiac Valve Replacement without MCC) above MS-
DRG 222 (Cardiac Defibrillator Implant with Cardiac Catheterization 
with AMI/HF/Shock with MCC).
    In MDC 8, we are proposing to delete MS-DRGs 490 (Back & Neck 
Procedures Except Spinal Fusion with CC/MCC or Disc Device/
Neurostimulator) and MS-DRG 491 (Back & Neck Procedures Except Spinal 
Fusion without CC/MCC or Disc Device/Neurostimulator) from the surgical 
hierarchy. We are proposing to sequence proposed new MS-DRG 518 (Back & 
Neck Procedure Except Spinal Fusion with MCC or Disc Device/
Neurostimulator), proposed new MS-DRG 519 (Back & Neck Procedure Except 
Spinal Fusion with CC), and proposed new MS-DRG 520 (Back & Neck 
Procedure Except Spinal Fusion without CC/MCC) above MS-DRG 492 (Lower 
Extremity and Humerus Procedure Except Hip, Foot, Femur with MCC).
    We are inviting public comments on our proposals.
10. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2015
a. Major Complications or Comorbidities (MCCs) and Complications or 
Comorbidities (CC) Severity Levels for FY 2015
    A complete updated MCC, CC, and Non-CC Exclusion List is available 
via the Internet on the CMS Web site at: http://cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as 
follows:
     Table 6I (Complete MCC list);
     Table 6J (Complete CC list); and
     Table 6K (Complete list of CC Exclusions).
b. Coronary Atherosclerosis Due to Calcified Coronary Lesion
    We received a request that we change the severity level for ICD-9-
CM diagnosis code 414.4 (Coronary atherosclerosis due to calcified 
coronary lesion) from a non-CC to an MCC. This issue was previously 
discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27522) and 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541 through 50542).
    We examined claims data from the December 2013 update of the FY 
2013 MedPAR file for ICD-9-CM diagnosis code 414.4. The following chart 
shows our findings.

--------------------------------------------------------------------------------------------------------------------------------------------------------
          Code           Diagnosis description        CC Level            Cnt 1     Cnt 1 Impact      Cnt 2     Cnt 2 Impact      Cnt 3     Cnt 3 Impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
414.4..................  Coronary               Non-CC..............        1,796          1.16         3,056          2.18         2,835          3.01
                          atherosclerosis due
                          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 1.16. 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 2.18. 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 
1.16 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 2.18 also does not 
support reclassifying this diagnosis code to an MCC. 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. 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-

[[Page 28019]]

CC. We are inviting public comments on our proposal.
11. 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 2015
    In the September 1, 1987 final notice (52 FR 33143) concerning 
changes to the DRG classification system, we modified the GROUPER logic 
so that certain diagnoses included on the standard list of CCs would 
not be considered valid CCs in combination with a particular principal 
diagnosis. We created the CC Exclusions List for the following reasons: 
(1) To preclude coding of CCs for closely related conditions; (2) to 
preclude duplicative or inconsistent coding from being treated as CCs; 
and (3) to ensure that cases are appropriately classified between the 
complicated and uncomplicated DRGs in a pair. As we indicated above, we 
developed a list of diagnoses, using physician panels, to include those 
diagnoses that, when present as a secondary condition, would be 
considered a substantial complication or comorbidity. In previous 
years, we have made changes to the list of CCs, either by adding new 
CCs or deleting CCs already on the list.
    In the May 19, 1987 proposed notice (52 FR 18877) and the September 
1, 1987 final notice (52 FR 33154), we explained that the excluded 
secondary diagnoses were established using the following five 
principles:
     Chronic and acute manifestations of the same condition 
should not be considered CCs for one another;
     Specific and nonspecific (that is, not otherwise specified 
(NOS)) diagnosis codes for the same condition should not be considered 
CCs for one another;
     Codes for the same condition that cannot coexist, such as 
partial/total, unilateral/bilateral, obstructed/unobstructed, and 
benign/malignant, should not be considered CCs for one another;
     Codes for the same condition in anatomically proximal 
sites should not be considered CCs for one another; 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); the FY 2013 final rule (77 FR 53315); and the FY 2014 final 
rule (78 FR 50541). 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.
---------------------------------------------------------------------------

    For FY 2015, we are not proposing any changes to the CC Exclusion 
List. Therefore, we are not developing or publishing Tables 6G 
(Additions to the CC Exclusion List) or Table 6H (Deletions from the CC 
Exclusion List). We have developed Table 6K (Complete List of CC 
Exclusions), which is available only via the Internet on the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Because of the length of Table 6K, we are 
not publishing it in the Addendum to this proposed rule. Each of these 
principal diagnosis codes for which there is a CC exclusion is shown 
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. Beginning with discharges on or after October 1 of 
each year, the indented diagnoses are not recognized by the GROUPER as 
valid CCs for the asterisked principal diagnoses.
    A complete updated MCC, CC, and Non-CC Exclusions List is available 
via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
    Because there are no proposed new, revised, or deleted diagnosis or 
procedure codes for FY 2015, we are not developing Table 6A (New 
Diagnosis Codes), Table 6B (New Procedure Codes), Table 6C (Invalid 
Diagnosis Codes), Table 6D (Invalid Procedure Codes), Table 6E (Revised 
Diagnosis Code Titles), and Table 6F (Revised Procedure Codes) to this 
proposed rule and they are not published as part of this proposed rule.
    We are proposing no additions or deletions to the MS-DRG MCC List 
for FY 2015 and no additions or deletions to the MS-DRG CC List for FY 
2015. Therefore, we are not developing Tables 6I.1 (Additions to the 
MCC List), 6I.2 (Deletions to the MCC List), 6J.1 (Additions to the CC 
List), and 6J.2 (Deletions to the CC List), and they are not published 
as part of this proposed rule.
    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 31.0, is available on a CD 
for $225.00. This manual 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. Version

[[Page 28020]]

32.0 of this manual, which will include the final FY 2015 MS-DRG 
changes, will be available after publication of the FY 2015 final rule 
on a CD for $225.00. This manual may be obtained by writing 3M/HIS at 
the address provided above; or by calling (203) 949-0303; or by 
obtaining an order form at the Web site at: http://www/3MHIS.com. 
Please specify the revision or revisions requested.
12. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 
986; and 987 Through 989
    Each year, we review cases assigned to former CMS DRG 468 
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and 
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal 
Diagnosis) to determine whether it would be appropriate to change the 
procedures assigned among these CMS DRGs. Under the MS-DRGs that we 
adopted for FY 2008, CMS DRG 468 was split three ways and became MS-
DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal 
Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 
476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 
(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively).
    MS-DRGs 981 through 983, 984 through 986, and 987 through 989 
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for 
those cases in which none of the O.R. procedures performed are related 
to the principal diagnosis. These MS-DRGs are intended to capture 
atypical cases, that is, those cases not occurring with sufficient 
frequency to represent a distinct, recognizable clinical group. MS-DRGs 
984 through 986 (previously CMS DRG 476) are assigned to those 
discharges in which one or more of the following prostatic procedures 
are performed and are unrelated to the principal diagnosis:
     60.0 (Incision of prostate);
     60.12 (Open biopsy of prostate);
     60.15 (Biopsy of periprostatic tissue);
     60.18 (Other diagnostic procedures on prostate and 
periprostatic tissue);
     60.21 (Transurethral prostatectomy);
     60.29 (Other transurethral prostatectomy);
     60.61 (Local excision of lesion of prostate);
     60.69 (Prostatectomy, not elsewhere classified);
     60.81 (Incision of periprostatic tissue);
     60.82 (Excision of periprostatic tissue);
     60.93 (Repair of prostate);
     60.94 (Control of (postoperative) hemorrhage of prostate);
     60.95 (Transurethral balloon dilation of the prostatic 
urethra);
     60.96 (Transurethral destruction of prostate tissue by 
microwave thermotherapy);
     60.97 (Other transurethral destruction of prostate tissue 
by other thermotherapy); and
     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, 2013, and 2014, 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), in the FY 2013 final rule (77 FR 53321), 
and in the FY 2014 final rule (78 FR 50545).
---------------------------------------------------------------------------

    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 2015, 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 2015, 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

[[Page 28021]]

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 2015, 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.2. through 7. of the preamble of this proposed rule, we 
are not proposing to add any diagnosis or procedure codes to MDCs for 
FY 2015.
13. Proposed Changes to the ICD-9-CM System
a. ICD-10 Coordination and Maintenance Committee
    In September 1985, the ICD-9-CM Coordination and Maintenance 
Committee was formed. This is a Federal interdepartmental committee, 
co-chaired by the National Center for Health Statistics (NCHS), the 
Centers for Disease Control and Prevention, and CMS, charged with 
maintaining and updating the ICD-9-CM system. The final update to ICD-
9-CM codes was to be made on October 1, 2013. Thereafter, the name of 
the Committee was changed to the ICD-10 Coordination and Maintenance 
Committee, effective with the March 19-20, 2014 meeting. The ICD-10 
Coordination and Maintenance Committee will address updates to the ICD-
10-CM, ICD-10-PCS, and ICD-9-CM coding systems. The Committee is 
jointly responsible for approving coding changes, and developing 
errata, addenda, and other modifications to the coding systems 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 ICD-9-CM diagnosis and procedure codes by 
fiscal year can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html. The official 
list of ICD-10-CM and ICD-10-PCS codes can be found on the CMS Web site 
at: http://www.cms.gov/Medicare/Coding/ICD10/index.html.
    The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM 
diagnosis codes included in the Tabular List and Alphabetic Index for 
Diseases, while CMS has lead responsibility for the ICD-10-PCS and 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 2015 at a public meeting held on September 18-19, 
2013, and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 15, 2013.
    The Committee held its 2014 meeting on March 19-20, 2014. Any new 
ICD-10-CM/PCS codes for which there was consensus of public support and 
for which complete tabular and indexing changes will be made by May 
2014 will be included in the October 1, 2014 update to ICD-10-CM/ICD-
10-PCS. For FY 2015, there are no proposed new, revised, or deleted 
ICD-9-CM diagnosis or procedure codes.
    Copies of the minutes of the procedure codes discussions at the 
Committee's September 18-19, 2013 meeting and March 19-20, 2014 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 18-19, 2013 meeting and 
March 19-20, 2014 meeting are found at: http://www.cdc.gov/nchs/icd/icd9cm.html. 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-10 
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 Brooks, Co-Chairperson, ICD-10 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

[[Page 28022]]

in order to identify and report the new codes.
    The ICD-10 (previously 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 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 diagnosis and procedure 
coding changes, 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-10 
(previously ICD-9-CM) Coordination and Maintenance Committee meeting 
are considered for an April 1 update if a strong and convincing case is 
made by the requester at the Committee's public meeting. The request 
must identify the reason why a new code is needed in April for purposes 
of the new technology process. The participants at the meeting and 
those reviewing the Committee meeting summary report are provided the 
opportunity to comment on this expedited request. All other topics are 
considered for the October 1 update. Participants at the Committee 
meeting are encouraged to comment on all such requests. There were no 
requests approved for an expedited April l, 2014 implementation of a 
code at the September 18-19, 2013 Committee meeting. Therefore, there 
were no new codes implemented on April 1, 2014.
    ICD-9-CM 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. ICD-10-CM and 
ICD-10-PCS addendum and code title information is published on the CMS 
Web site at http://www.cms.gov/Medicare/Coding/ICD10/index.html. 
Information on ICD-10-CM diagnosis codes, along with the Official ICD-
10-CM Coding Guidelines, can also be found on the CDC Web site at: 
http://www.cdc.gov/nchs/icd/icd10cm.html. Information on new, revised, 
and deleted ICD-10-CM/ICD-10-PCS codes is also provided to the AHA for 
publication in the Coding Clinic for ICD-10. 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.
    The code titles are adopted as part of the ICD-10 (previously 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.
b. Code Freeze
    In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 
3340), 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.
     On October 1, 2015, one year after the originally 
scheduled implementation of ICD-10, regular updates to ICD-10 were to 
begin.
    The ICD-10 (previously 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 one year after the 
implementation of ICD-10, once the partial freeze is ended.

[[Page 28023]]

    Complete information on the partial code freeze and discussions of 
the issues at the Committee meetings can be found on the ICD-10 
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, is 
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.
    This partial code freeze has dramatically decreased the number of 
codes created each year as shown by the following information.

                   Total Number of Codes and Changes in Total Number of Codes per Fiscal Year
----------------------------------------------------------------------------------------------------------------
                        ICD-9-CM codes                                   ICD-10-CM and ICD-10-PCS codes
----------------------------------------------------------------------------------------------------------------
             Fiscal year                 Number       Change          Fiscal year          Number       Change
----------------------------------------------------------------------------------------------------------------
FY 2009 (October 1, 2008):            ...........  ...........  FY 2009:                ...........  ...........
    Diagnoses.......................       14,025          348     ICD-10-CM..........       68,069           +5
    Procedures......................        3,824           56     ICD-10-PCS.........       72,589      -14,327
FY 2010 (October 1, 2009):            ...........  ...........  FY 2010:                ...........  ...........
    Diagnoses.......................       14,315          290     ICD-10-CM..........       69,099       +1,030
    Procedures......................        3,838           14     ICD-10-PCS.........       71,957         -632
FY 2011 (October 1, 2010):            ...........  ...........  ......................  ...........  ...........
    Diagnoses.......................       14,432          117     ICD-10-CM..........       69,368         +269
    Procedures......................        3,859           21     ICD-10-PCS.........       72,081         +124
FY 2012 (October 1, 2011):            ...........  ...........  FY 2012:                ...........  ...........
    Diagnoses.......................       14,567          135     ICD-10-CM..........       69,833         +465
    Procedures......................        3,877           18     ICD-10-PCS.........       71,918         -163
FY 2013 (October 1, 2012):            ...........  ...........  FY 2013:                ...........  ...........
    Diagnoses.......................       14,567            0     ICD-10-CM..........       69,832           -1
    Procedures......................        3,878            1     ICD-10-PCS.........       71,920           +2
FY 2014 (October 1, 2013):            ...........  ...........  FY 2014:..............  ...........  ...........
    Diagnoses.......................       14,567            0     ICD-10-CM..........       69,823           -9
    Procedures......................        3,882            4     ICD-10-PCS.........       71,924           +4
----------------------------------------------------------------------------------------------------------------

    As mentioned earlier, the public is provided the opportunity to 
comment on any requests for new diagnosis or procedure codes discussed 
at the ICD-10 Coordination and Maintenance Committee meeting. The 
public has supported only a limited number of new codes during the 
partial code freeze, as can be seen by data shown above. We have gone 
from creating several hundred new codes each year to creating only a 
limited number of new ICD-9-CM and ICD-10 codes.
    At the September 18-19, 2013 and March 19-20, 2014 Committee 
meetings, we discussed any requests we had received for new ICD-10-CM 
diagnosis and ICD-10-PCS procedure codes that were to be implemented on 
October 1, 2014. We did not discuss ICD-9-CM codes. The public was 
given the opportunity to comment on whether or not new ICD-10-CM and 
ICD-10-PCS codes should be created, based on the partial code freeze 
criteria. The public was to use the criteria as to whether codes were 
needed to capture new diagnoses or new technologies. If the codes do 
not meet those criteria for implementation during the partial code 
freeze, consideration was to be given as to whether the codes should be 
created after the partial code freeze ends one year after the 
implementation of ICD-10-CM/PCS. We invited public comments on any code 
requests discussed at the September 18-19, 2013 and March 19-20, 2014 
Committee meetings for implementation as part of the October 1, 2014 
update. The deadline for commenting on code proposals discussed at the 
September 18-19, 2013 Committee meeting was November 15, 2013. The 
deadline for commenting on code proposals discussed at the March 19-20, 
2014 Committee meeting was April 18, 2014.

H. Recalibration of the Proposed FY 2015 MS-DRG Relative Weights

1. Data Sources for Developing the Proposed Relative Weights
    In developing the proposed FY 2015 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 2013 MedPAR data used in this proposed rule include 
discharges occurring on October 1, 2012, through September 30, 2013, 
based on bills received by CMS through December 31, 2013, from all 
hospitals subject to the IPPS and short-term, acute care hospitals in 
Maryland (which at that time were under a waiver from the IPPS under 
section 1814(b)(3) of the Act). The FY 2013 MedPAR file used in 
calculating the proposed relative weights includes data for 
approximately 10,050,984 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, 2013 update of the FY 2013 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 2015 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. We note 
that the FY 2015 proposed relative weights are based on the ICD-

[[Page 28024]]

9-CM diagnoses and procedures codes from the MedPAR claims data, 
grouped through the ICD-9-CM version of the FY 2015 GROUPER (Version 
32). 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, 2013 update of the FY 2012 HCRIS for calculating the proposed FY 
2015 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 calculating the proposed FY 2015 relative weights based on 
19 CCRs, as we did for FY 2014. The methodology we used to calculate 
the proposed FY 2015 MS-DRG cost-based relative weights based on claims 
data in the FY 2013 MedPAR file and data from the FY 2012 Medicare cost 
reports is as follows:
     To the extent possible, all the claims were regrouped 
using the proposed FY 2015 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 
proposed 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 2012 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 92.2 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. (We refer readers to the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50551) for the edit threshold related to FY 2014 and prior 
fiscal years).
     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 2012 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.

[[Page 28025]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        Cost from HCRIS       Charges from HCRIS   Medicare charges from
                                                   Revenue codes                     (Worksheet C, Part 1,  (Worksheet C, Part 1,   HCRIS  (Worksheet D-
 Cost center group name  (19     MedPAR charge     contained in    Cost report line    Column 5 and line    Column 6 & 7 and line     3, Column & line
            total)                   field         MedPAR charge      description    number) Form CMS-2552- number) Form CMS-2552- number) Form CMS-2552-
                                                       field                                   10                     10                     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-Private      012X, 013X and                                             .....................  .....................
                                Room Charges.     016X-019X
                               Ward Charges....  015X                                                       .....................  .....................
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,       Medical Supplies  C--1--C5--71           C--1--C6--71           D3--HOS--C2--71
                                Supply Charges.   0272, 0273,       Charged to                              C--1--C7--71
                                                  0274, 0277,       Patients.
                                                  0279, and 0621,
                                                  0622, 0623.
                               Durable Medical   0290, 0291, 0292  DME-Rented......  C--1--C5--96           C--1--C6--96           D3--HOS--C2--96
                                Equipment         and 0294-0299.                                            C--1--C7--96
                                Charges.
                               Used Durable      0293............  DME-Sold........  C--1--C5--67           C--1--C6--97           D3--HOS--C2--97
                                Medical Charges.                                                            C--1--C7--97
Implantable Devices..........  ................  0275, 0276,       Implantable       C--1--C5--72           C--1--C6--72           D3--HOS--C2--72
                                                  0278, 0624.       Devices Charged                         C--1--C7--72
                                                                    to Patients.
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     C--1--C5--52           C--1--C6--52           D3--HOS--C2--52
                                Charges.                            and 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...  Electrocardiolog  C--1--C5--69           C--1--C6--69           D3--HOS--C2--69
                                Charges.                            y.                                      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                              C--1--C7--61
                                                                    Services.
                                                 074X, 086X......  Electro-          C--1--C5--70           C--1--C6--70           D3--HOS--C2--70
                                                                    Encephalography.                        C--1--C7--70
Radiology....................  Radiology         032X, 040X......  Radiology--Diagn  C--1--C5--54           C--1--C6--54           D3--HOS--C2--54
                                Charges.                            ostic.                                  C--1--C7--54
                                                 028x, 0331,       Radiology--Thera  C--1--C5--55           C--1--C6--55           D3--HOS--C2--55
                                                  0332, 0333,       peutic.
                                                  0335, 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)                         C--1--C7--57
                                                                    Scan.

[[Page 28026]]

 
Magnetic Resonance Imaging     MRI Charges.....  061X............  Magnetic          C--1--C5--58           C--1--C6--58           D3--HOS--C2--58
 (MRI).                                                             Resonance                               C--1--C7--58
                                                                    Imaging (MRI).
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                              C--1--C7--62
                                                                    Blood Cells.
                               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          C--1--C5--75           C--1--C6--75           D3--HOS--C2--75
                                Service Charges.                    Distinct Part).
                               Lithotripsy       079X............  ................  .....................  C--1--C7--75           .....................
                                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      096X, 097X, and   Other Outpatient  C--1--C5--93           C--1--C6--93           D3--HOS--C2--93
                                Fees Charges.     098X.             Services.                               C--1--C7--93
                               Ambulance         054X............  Ambulance.......  C--1--C5--95           C--1--C6--95           D3--HOS--C2--95
                                Charges.                                                                    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
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 
48462) for a discussion on the revenue codes included in the Supplies 
and Equipment and Implantable Devices CCRs, respectively.
3. Development of National Average CCRs
    We developed the national average CCRs as follows:
    Using the FY 2012 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 2015 cost-based relative weights were then 
normalized by an adjustment factor of 1.642112 so that the average case 
weight after

[[Page 28027]]

recalibration was equal to the average case weight before 
recalibration. The normalization adjustment is intended to ensure that 
recalibration by itself neither increases nor decreases total payments 
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
    The proposed 19 national average CCRs for FY 2015 are as follows:

------------------------------------------------------------------------
                             Group                                 CCR
------------------------------------------------------------------------
Routine Days...................................................    0.483
Intensive Days.................................................    0.405
Drugs..........................................................    0.191
Supplies & Equipment...........................................    0.293
Implantable Devices............................................    0.355
Therapy Services...............................................    0.345
Laboratory.....................................................    0.128
Operating Room.................................................    0.212
Cardiology.....................................................    0.124
Cardiac Catheterization........................................    0.131
Radiology......................................................    0.164
MRIs...........................................................    0.086
CT Scans.......................................................    0.043
Emergency Room.................................................    0.197
Blood and Blood Products.......................................    0.360
Other Services.................................................    0.398
Labor & Delivery...............................................    0.393
Inhalation Therapy.............................................    0.182
Anesthesia.....................................................    0.115
------------------------------------------------------------------------

    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 2015 IPPS/LTCH PPS proposed 
rule, we are proposing to use that same case threshold in recalibrating 
the proposed MS-DRG relative weights for FY 2015. Using data from the 
FY 2013 MedPAR file, there were 8 MS-DRGs that contain fewer than 10 
cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the 
CMS DRGs because we no longer have separate DRGs for patients aged 0 to 
17 years. With the exception of newborns, we previously separated some 
DRGs based on whether the patient was age 0 to 17 years or age 17 years 
and older. Other than the age split, cases grouping to these DRGs are 
identical. The DRGs for patients aged 0 to 17 years generally have very 
low volumes because children are typically ineligible for Medicare. In 
the past, we have found that the low volume of cases for the pediatric 
DRGs could lead to significant year-to-year instability in their 
relative weights. Although we have always encouraged non-Medicare 
payers to develop weights applicable to their own patient populations, 
we have received frequent complaints from providers about the use of 
the Medicare relative weights in the pediatric population. We believe 
that eliminating this age split in the MS-DRGs will provide more stable 
payment for pediatric cases by determining their payment using adult 
cases that are much higher in total volume. Newborns are unique and 
require separate MS-DRGs that are not mirrored in the adult population. 
Therefore, it remains necessary to retain separate MS-DRGs for 
newborns. All of the low-volume MS-DRGs listed below are for newborns. 
In FY 2015, because we do not have sufficient MedPAR data to set 
accurate and stable cost relative weights for these low-volume MS-DRGs, 
we are proposing to compute relative weights for the low-volume MS-DRGs 
by adjusting their final FY 2014 relative weights by the percentage 
change in the average weight of the cases in other MS-DRGs. The 
crosswalk table is shown below:

------------------------------------------------------------------------
Low[dash]volume MS-DRG       MS-DRG title         Crosswalk to MS-DRG
------------------------------------------------------------------------
768...................  Vaginal Delivery with  Final FY 2014 relative
                         O.R. Procedure         weight (adjusted by
                         Except Sterilization   percent change in
                         and/or D&C.            average weight of the
                                                cases in other MS-DRGs).
789...................  Neonates, Died or      Final FY 2014 relative
                         Transferred to         weight (adjusted by
                         Another Acute Care     percent change in
                         Facility.              average weight of the
                                                cases in other MS-DRGs).
790...................  Extreme Immaturity or  Final FY 2014 relative
                         Respiratory Distress   weight (adjusted by
                         Syndrome, Neonate.     percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
791...................  Prematurity with       Final FY 2014 relative
                         Major Problems.        weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
792...................  Prematurity without    Final FY 2014 relative
                         Major Problems.        weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
793...................  Full-Term Neonate      Final FY 2014 relative
                         with Major Problems.   weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
794...................  Neonate with Other     Final FY 2014 relative
                         Significant Problems.  weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
795...................  Normal Newborn.......  Final FY 2014 relative
                                                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 2015, 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

[[Page 28028]]

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 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 2014 IPPS/LTCH PPS final rule contains 
the final thresholds that we use to evaluate applications for new 
technology add-on payments for FY 2015. We refer readers to the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2014-IPPS-Final-Rule-Home-Page.html for a complete 
viewing of Table 10 from the FY 2014 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 
criterion, and only if so, do we then make a determination as to 
whether the technology meets the cost threshold and represents a 
substantial clinical improvement over existing medical services or 
technologies. We also amended Sec.  412.87(c) to specify that all 
applicants for new technology add-on payments must have FDA approval or 
clearance for their new medical service or technology by July 1 of each 
year prior to the beginning of the fiscal year that the application is 
being considered.
    The Council on Technology and Innovation (CTI) at CMS oversees the

[[Page 28029]]

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 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 2016 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 2016, the CMS 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 2015 prior 
to publication of the FY 2015 IPPS/LTCH PPS proposed rule, we published 
a notice in the Federal Register on November 29, 2013 (78 FR 71555 
through 71557), and held a town hall meeting at the CMS Headquarters 
Office in Baltimore, MD, on February 12, 2014. 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 2015 new medical service and 
technology add-on payment applications before the publication of the FY 
2015 proposed rule.
    Approximately 91 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 and posted 
the town hall on the CMS YouTube Web page at: http://www.youtube.com/watch?v=WXyR_TILfKo&list=TLiu1B_AxXsinTW6EEn4BVUdR4iEM61eV4. 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 January 21, 2014, in our evaluation of the 
new technology add-on payment applications for FY 2015 in this proposed 
rule.
    In response to the published notice and the New Technology Town 
Hall meeting, we received written comments regarding the applications 
for FY 2015 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 the ``substantial clinical 
improvement'' criterion. As explained above and in the Federal Register 
notice

[[Page 28030]]

announcing the New Technology Town Hall meeting (78 FR 71555 through 
71557), the purpose of the meeting was specifically to discuss the 
substantial clinical improvement criterion in regard to pending new 
technology add-on payment applications for FY 2015. 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 2015 Status of Technologies Approved for FY 2014 Add-On Payments
a. Glucarpidase (Trade Brand Voraxaze[supreg])
    BTG International, Inc. submitted an application for new technology 
add-on payments for Glucarpidase (trade brand Voraxaze[supreg]) for FY 
2013. Glucarpidase is used in the treatment of patients who have been 
diagnosed with toxic methotrexate (MTX) concentrations as 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. 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)). 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 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 the 3-year anniversary date for 
Voraxaze[supreg] will occur in the latter half of FY 2015 (April 30, 
2015), we are proposing to continue new technology add-on payments for 
this technology for FY 2015. We are inviting public comments on this 
proposal.
b. 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

[[Page 28031]]

$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 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)).
    The manufacturer commented through a letter to CMS, prior to the 
publication of this proposed rule, requesting that CMS extend the 
eligibility for a third year of new technology add-on payments for 
DIFICIDTM in FY 2015. The manufacturer maintained that the 
technology still meets all three criteria for new technology add-on 
payments. Regarding the substantial clinical improvement criterion, the 
applicant stated that DIFICIDTM continues to remain the only 
FDA-approved treatment to demonstrate substantial clinical improvement 
over existing therapies. No new treatments for CDAD have been approved 
by the FDA since DIFICIDTM. The applicant further stated 
that a third year of new technology add-on payments for 
DIFICIDTM would continue to reduce access barriers in the 
acute care hospital inpatient setting, which would support the 
appropriate use of DIFICIDTM, a treatment that offers a 
substantial clinical improvement over existing therapies.
    With respect to the cost criterion, the applicant stated that 
DIFICIDTM continues to meet the cost criterion. Using claims 
data from the FY 2012 MedPAR file, the applicant provided updated data 
from the two analyses described in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53350 through 53358), and demonstrated that the average case-
weighted standardized charge per case exceeded the average case-
weighted thresholds under both analyses. The applicant stated that the 
new technology add-on payment is intended to offer additional payments 
to support patient access and appropriate use of new technologies for a 
period of time until the MS-DRGs are adjusted to reflect the cost of 
the new technology. The applicant believed that the analyses conducted 
with the most recent MedPAR claims data available demonstrate that the 
MS-DRG recalibrations are insufficient to accommodate the cost 
associated with CDAD and new technologies to treat CDAD under the IPPS 
within the allotted timeframe of 2 years. According to the applicant, 
these payment amounts remain an obstacle for the appropriate use of new 
technologies for CDAD that demonstrate substantial clinical improvement 
over existing treatments, such as DIFICIDTM. The applicant 
concluded that a third year of new technology add-on payments for 
DIFICIDTM is needed to allow sufficient data for future MS-
DRG recalibration analyses.
    With regard to newness criterion, the manufacturer commented that 
it believed that the technology still meets the newness criterion for 
the following reason: Sec.  412.87(b)(2) states 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 
International Classification of Diseases, Ninth Revision, Clinical 
Modification (ICD-9-CM) code assigned to the new service or technology 
(depending on when a new code is assigned and data on the new service 
or technology become available for DRG recalibration). After CMS has 
recalibrated the DRGs, based on available data, to reflect the costs of 
an otherwise new medical service or technology, the medical service or 
technology will no longer be considered `new' under the criterion of 
this section.'' The manufacturer noted that DIFICIDTM was 
not assigned an ICD-9-CM procedure code and DIFICIDTM is the 
first product for which no inpatient procedure is associated to receive 
a new technology add-on payment since the implementation of the new 
technology add-on payment policy.
    The manufacturer also cited the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53352), which indicated that ``Hospitals currently code and 
report procedures and more invasive services such as surgeries, 
infusion of drugs, and specialized procedures such as cardiac 
catheterizations. Hospitals neither code nor report self-administered 
drugs.'' Therefore, the manufacturer contended that, as an oral 
therapy, neither DIFICIDTM nor its administration was 
assigned an ICD-9-CM procedure code and, therefore, the technology 
should still be eligible for the new technology add-on payments.
    The manufacturer further noted that, in the FY 2013 IPPS/LTCH PPS 
final rule, because an ICD-9-CM procedure code for the administration 
of an oral medication did not exist and hospitals had no other 
mechanism to report the use of DIFICIDTM, for FY 2013, CMS 
instructed hospitals to report the DIFICIDTM NDC on hospital 
inpatient claims to receive the new technology add-on payment for 
DIFICIDTM. Prior to October 1, 2012, hospitals did not use 
NDCs on hospital inpatient claims, which prevented CMS from isolating 
DIFICIDTM cases and their associated costs. The manufacturer 
further stated that the NDC methodology was a bold change in policy and 
inpatient billing processes, and it stands to reason that, because of 
hospitals unfamiliarity with reporting NDCs on inpatient claims, 
hospitals' use of the DIFICIDTM NDC would greatly lag behind 
the traditional use of ICD-9-CM procedure codes. As such, the 
manufacturer reasoned that any lag in hospital reporting would directly 
impact CMS' ability to track and analyze the cost data associated with 
DIFICIDTM cases.
    The manufacturer also noted that on August 31, 2012, CMS issued 
Transmittal 2539, which is a change request for Medicare Administrative 
Contractors concerning updates for the upcoming fiscal year. The 
manufacturer stated that because the new technology add-on heading was 
omitted in the transmittal, this change request did not highlight the 
NDC billing approach to ensure that hospitals recognized the important 
change, which may have caused hospitals to overlook the claim reporting 
instructions for DIFICIDTM.
    The manufacturer added that Transmittal 2539 and a Medicare 
Learning Network[supreg] Matters (MLN) article were rescinded and 
replaced by Transmittal 2627 on January 4, 2013. The manufacturer noted 
that among CMS' reasons for replacing the transmittal was to insert the 
omitted new technology add-on section heading. The manufacturer stated 
that, although the original transmittal further supports that 
collection of DIFICIDTM-specific data did not begin until at 
least October 1, 2012, CMS' reissuance of the claims processing 
instructions, and the missing header in the initial instructions, 
effectively delayed implementation of the new technology add-on 
payments for 3 months past the October 2012 beginning date. The 
manufacturer also believed that the need to replace the transmittal 
underlies hospitals' difficulties instituting claims' reporting 
instructions to receive new technology add-on payments for 
DIFICIDTM at the hospital level.
    The manufacturer noted that anecdotal feedback from hospitals, 
which was shared with CMS during a

[[Page 28032]]

meeting in June 2013, suggests that some hospitals faced challenges 
implementing the appropriate billing and coding processes. The 
manufacturer was concerned that that these challenges were, in part, 
caused by the missing header, and that these challenges may have 
impacted whether eligible cases were properly billed and coded to 
receive the new technology add-on payment for DIFICIDTM. The 
manufacturer was further concerned that the effects of any lag or delay 
caused by unfamiliarity with reporting NDCs and the missing header 
would also impact the data available to CMS to recalibrate the MS-DRGs 
and, separately, to evaluate the impact of the new technology add-on 
payment for DIFICIDTM. The manufacturer further explained 
that, while DIFICIDTM was available to hospitals after its 
launch in July 2011, hospitals had no experience reporting NDCs until 
October 2012, and may not have recognized the opportunity to, or 
understood the mechanism for doing so, until after January 2013. For 
the purposes of inpatient data collection and ratesetting, the 
manufacturer believed that this meant that 2 complete years of 
DIFICIDTM costs would not be fully reflected in the Medicare 
claims data for the FY 2015 MS-DRG recalibrations.
    The manufacturer also analyzed the 100 percent sample of the 
Standard Analytical File (SAF) for calendar year 2012, which contained 
first quarter claims data for FY 2013, the first 3 months that 
DIFICIDTM was eligible for the new technology add-on 
payments. The manufacturer found a total of 43,608 cases with a 
diagnosis of CDI. Of these 43,608 cases, the manufacturer found 38 
cases across 26 hospitals that reported new technology add-on payments 
for DIFICIDTM on submitted claims. The manufacturer stated 
that this preliminary data suggests that the number of cases available 
for MS-DRG recalibrations for FY 2015 is limited. The manufacturer 
stated that it is currently attempting to secure FY 2013 MedPAR claims 
data and that it will likely provide further insights on these issues.
    In addition, the manufacturer noted that prior new technology add-
on payment application approvals have involved technologies with much 
narrower patient populations compared to DIFICIDTM, allowing 
the costs of those technologies to influence the MS-DRG relative 
payment weights for the small number of MS-DRGs with which they are 
associated. The manufacturer explained that, unlike other technologies 
approved for new technology add-on payments, the DIFICIDTM 
therapeutic value, while limited to patients with CDAD, is used in 
patients across a wide range of MS-DRGs due to it being reported as a 
secondary diagnosis in two-thirds of the cases compared to other 
technologies, which are assigned to a relatively small number of MS-
DRGs. For example, cases involving the Spiration IBV[supreg] Valve 
System, which was granted approval for new technology add-on payments 
in FY 2010, primarily mapped to three MS-DRGs: 163 (Major Chest 
Procedures with MCC), 164 (Major Chest Procedures with CC), and 165 
(Major Chest Procedures without CC/MCC). In its analysis of the FY 2012 
MedPAR data for the cost criterion, the manufacturer found cases using 
DIFICIDTM mapped to 544 unique MS-DRGs. Under the 100 
percent sample of the SAF for calendar year 2012, the 38 cases 
mentioned above mapped to 20 different MS-DRGs. The manufacturer 
maintained that because of the diffuse nature of the 
DIFICIDTM cases mapping to many MS-DRGs, it believed an 
extension of the newness period is required for the costs to be 
adequately reflected in the MS-DRG relative payment weights. In the 
unique case of DIFICIDTM for the treatment of CDAD, the 
manufacturer stated that 2 years of new technology add-on payments is 
insufficient to allow the 544 MS-DRGs to be recalibrated to 
sufficiently reflect the cost of the use of DIFICIDTM, a 
treatment that offers significant clinical improvement over existing 
therapies.
    With regard to the technology's newness, as discussed in the FY 
2005 IPPS final rule (69 FR 49003), the timeframe that a new technology 
can be eligible to receive new technology add-on payments begins when 
data become available. Section 412.87(b)(2) clearly states that, ``a 
medical service or technology may be considered new within 2 or 3 years 
after the point at which data begin to become available reflecting the 
ICD-9-CM code assigned to the new service or technology (depending on 
when a new code is assigned and data on the new service or technology 
become available for DRG recalibration).'' Section 412.87(b)(2) also 
states, ``[a]fter CMS has recalibrated the DRGs, based on available 
data, to reflect the costs of an otherwise new medical service or 
technology, the medical service or technology will no longer be 
considered `new' under the criterion of this section.'' Therefore, 
regardless of whether a technology can be individually identified by a 
separate ICD-9-CM code or whether it can only be identified using a NDC 
code, if the costs of the technology are included in the charge data, 
and the MS-DRGs have been recalibrated using that data, then the 
technology can no longer be considered ``new'' for the purposes of this 
provision. We further stated in that final rule that the period of 
newness does not necessarily start with the approval date for the 
medical service or technology, and does not necessarily start with the 
issuance of a distinct code. Instead, it begins with availability of 
the product on the U.S. market, which is when data become available. We 
have consistently applied this standard, and believe that it is most 
consistent with the purpose of new technology add-on payments.
    In addition, similar to our discussion in the FY 2006 IPPS final 
rule (70 FR 47349), we do not believe that case volume is a relevant 
consideration for making the determination as to whether a product is 
``new.'' Consistent with the statute, a technology no longer qualifies 
as ``new'' once it is more than 2 to 3 years old, irrespective of how 
frequently it has been used in the Medicare population. Similarly, this 
same determination is applicable no matter how many MS-DRGs the 
technology is spread across. Therefore, if a product is more than 2 to 
3 years old, we consider its costs to be included in the MS-DRG 
relative weights whether its use in the Medicare population has been 
frequent or infrequent. We recognize that using an NDC was a novel 
billing practice under the IPPS. Nevertheless, even though hospitals 
may not have coded all uses of DIFICIDTM with the NDC, 
hospital bills would still include charges for all items and services 
furnished to a Medicare patient, including use of DIFICIDTM. 
Therefore, even though we may be not be able to identify all uses of 
DIFICIDTM in the Medicare charge data, hospital charges for 
the MS-DRGs would continue to reflect use of this technology.
    With respect to the Transmittal 2539 omitting the header referenced 
above, as noted above, CMS corrected this issue as soon as possible by 
rescinding and reissuing this transmittal. Additionally, as noted by 
the manufacturer, this transmittal was meant for MACs and not 
hospitals. We believe the guidance issued in Transmittal 2539 clearly 
described to MACs how hospitals were to report the NDC on the inpatient 
claim in order to identify cases using DIFICIDTM for 
purposes of new technology add-on payments. Additionally, the MLN 
article that the manufacturer referred to above (MLN articles are 
typically a summary of transmittals for the general public) clearly 
indicated that DIFICIDTM was new for FY 2013 new technology 
add-

[[Page 28033]]

on payments and clearly described how to properly code 
DIFICIDTM on the inpatient bill in order to receive the new 
technology add-on payment for FY 2013. The MLN article can be 
downloaded from the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM8041.pdf.
    After considering the manufacturer's comments above, we still 
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 the product's entry on the U.S. 
market occurred in the second half of the fiscal year (after April 1, 
2014), we continued new technology add-on payments for 
DIFICIDTM for FY 2014. However, for FY 2015, the 3-year 
anniversary date of the product's entry on the U.S. market would occur 
on May 27, 2014, which is prior to the beginning of FY 2015. Therefore, 
we are proposing to discontinue new technology add-on payments for 
DIFICIDTM for FY 2015. We are inviting public comments on 
this proposal.
c. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zenith[supreg] Fenestrated Abdominal Aortic 
Aneurysm (AAA) Endovascular Graft (Zenith[supreg] F. Graft) for FY 
2013. The applicant stated that the current treatment for patients who 
have had an AAA is an endovascular graft. The applicant explained that 
the Zenith[supreg] F. Graft is an implantable device designed to treat 
patients who have an AAA and who are anatomically unsuitable for 
treatment with currently approved AAA endovascular grafts because of 
the length of the infrarenal aortic neck. The applicant noted that, 
currently, an AAA is treated through an open surgical repair or medical 
management for those patients not eligible for currently approved AAA 
endovascular grafts.
    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 3-year 
anniversary date of the entry of the Zenith[supreg] F. Graft on the 
U.S. market will occur in the second half of the fiscal year (April 4, 
2015), we are proposing to continue new technology add-on payments for 
this technology for FY 2015. We are inviting public comments on this 
proposal.
d. 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.
    KcentraTM was approved by the FDA on April 29, 2013. In 
the FY 2014 IPPS/LTCH PPS final rule, we approved new ICD-9-CM 
procedure code 00.96 (Infusion of 4-Factor Prothrombrin Complex 
Concentrate) which uniquely identifies KcentraTM.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27538), we noted 
that we were concerned that KcentraTM may be substantially 
similar to FFP and/or Vitamin K therapy. In the FY 2014 IPPS/LTCH PPS 
final rule, in response to comments submitted by the manufacturer, we 
stated that we agree that KcentraTM may be used in a patient 
population that is experiencing an acquired coagulation factor 
deficiency due to Warfarin and who are experiencing a severe bleed 
currently but are ineligible for FFP, particularly for use by IgA 
deficient patients and other patient populations that have no other 
treatment option to resolve severe bleeding in the context of an 
acquired Vitamin K deficiency. In addition, FFP is limited because it 
requires special storage conditions while KcentraTM is 
stable for up to 36 months at room temperature thus allowing hospitals 
that otherwise would not have access to FFP (for example, small rural 
hospitals as discussed by the applicant in its comments) to keep a 
supply of KcentraTM and treat patients who would possibly 
have no access to FFP. We noted that FFP is considered perishable and 
can be scarce by nature (due to production and other market 
limitations) thus making some hospitals unable to store FFP, which 
limits access to certain patient populations in certain locations. 
Therefore, we stated that we believe that KcentraTM provides 
a therapeutic option for a new patient population and is not 
substantially similar to FFP. Also, we gave credence to the information 
presented by the

[[Page 28034]]

manufacturer that KcentraTM provides a simple and rapid 
repletion relative to FFP and reduces the risk of a transfusion 
reaction relative to FFP because it does not contain ABO antibodies and 
does not require ABO typing. As a result, we concluded that 
KcentraTM is not substantially similar to FFP, and that it 
meets the newness criterion.
    After evaluation of the newness, cost, and substantial clinical 
improvement criteria for new technology add-on payments for 
KcentraTM and consideration of the public comments we 
received in response to the FY 2014 IPPS/LTCH PPS proposed rule, we 
approved KcentraTM for new technology add-on payments for FY 
2014 (78 FR 50575 through 50580). Cases involving KcentraTM 
that are eligible for new technology add-on payments are identified by 
ICD-9-CM procedure code 00.96. In the application, the applicant 
estimated that the average Medicare beneficiary would require an 
average dosage of 2500 International Units (IU). Vials contain 500 IU 
at a cost of $635 per vial. Therefore, cases of KcentraTM 
would incur an average cost per case of $3,175 ($635 x 5). 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 add-on payment for a case of KcentraTM is 
$1,587.50 for FY 2014.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50579), we stated 
that new technology add-on payments for KcentraTM would not 
be available with respect to discharges for which the hospital received 
an add-on payment for a 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 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 a blood clotting factor to a 
Medicare beneficiary who has hemophilia and is a hospital inpatient are 
paid separately from the IPPS. (For information on how the blood 
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.) In addition, we 
stated that if KcentraTM is approved by the FDA as a blood 
clotting factor, we believed that it may be eligible for blood clotting 
factor add-on payments when administered to Medicare beneficiaries with 
hemophilia. We make an add-on payment for KcentraTM for such 
discharges in accordance with our policy for payment of a blood 
clotting factor, and the costs 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 that 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 pointed out that new technology 
add-on payments are based on the operating costs per case relative to 
the prospective payment rate as described in Sec.  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.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50579), we stated 
that we believe that hospitals may only receive new technology add-on 
payments for discharges where KcentraTM is an operating cost 
of inpatient hospital services. In other words, a hospital would not 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 would be eligible for a new technology add-on 
payment because KcentraTM would not be excluded from the 
operating costs of inpatient hospital services. Therefore, discharges 
where the hospital receives a blood clotting factor add-on payment are 
not eligible for a new technology add-on payment for the blood clotting 
factor. We refer readers to Chapter Three, Section 20.7.3 of the 
Medicare Claims Processing Manual for a complete discussion on when a 
blood clotting factor add-on payment is made. The manual can be 
downloaded from the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.
    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 KcentraTM, as stated above, we consider the beginning of 
the newness period to commence when KcentraTM was approved 
by the FDA on April 29, 2013. Because KcentraTM is still 
within the 3-year newness period, we are proposing to continue new 
technology add-on payments for this technology for FY 2015. We are 
inviting public comments on this proposal.
e. 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

[[Page 28035]]

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 ``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. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50580 through 
50583), we approved new ICD-9-CM procedure code 14.81 (Implantation of 
Epiretinal Visual Prosthesis), which uniquely identifies the 
Argus[supreg] II System. The other two codes approved by CMS are for 
removal, revision, or replacement of the device. More information on 
these codes 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.
    After evaluation of the new technology add-on payment application 
and consideration of public comments received, we concluded that the 
Argus[supreg] II System met all of the new technology add-on payment 
policy criteria. Therefore, we approved the Argus[supreg] II System for 
new technology add-on payments in FY 2014 (78 FR 50580 through 50583). 
Cases involving the Argus[supreg] II System that are eligible for new 
technology add-on payments are identified by ICD-9-CM procedure code 
14.81. We note that section 1886(d)(5)(K)(i) of the Act requires that 
the Secretary establish a mechanism to recognize the costs of new 
medical services or technologies under the payment system established 
under that subsection, which establishes the system for paying for the 
operating costs of inpatient hospital services. The system of payment 
for capital costs is established under section 1886(g) of the Act, 
which makes no mention of any add-on payments for a new medical service 
or technology. Therefore, it is not appropriate to include capital 
costs in the add-on payments for a new medical service or technology. 
In the application, the applicant provided a breakdown of the costs of 
the Argus[supreg] II System. The total operating cost of the 
Argus[supreg] II System is $144,057.50. 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 Argus[supreg] II System for FY 2014 is 
$72,028.75.
    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 Argus[supreg] II System, as stated above, we consider the 
beginning of the newness period to commence when the Argus[supreg] II

[[Page 28036]]

System was approved by the FDA on February 14, 2013. Because the 
Argus[supreg] II System is still within the 3-year newness period, we 
are proposing to continue new technology add-on payments for this 
technology for FY 2015. We are inviting public comments on this 
proposal.
f. 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 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).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50583 through 
50585), after evaluation of the new technology add-on payment 
application and consideration of the public comments received, we 
approved the Zilver[supreg] PTX[supreg] for new technology add-on 
payments in FY 2014. Cases involving the Zilver[supreg] PTX[supreg] 
that are eligible for new technology add-on payments are identified by 
ICD-9-CM procedure code 00.60. As explained in the FY 2014 IPPS/LTCH 
PPS final rule, 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, the applicant used an average of 1.9 
stents per case based on the Zilver[supreg] PTX[supreg] Global Registry 
Clinical Study. The applicant stated in its application that the 
anticipated cost per stent is approximately $1,795. Therefore, cases of 
the Zilver[supreg] PTX[supreg] would incur an average cost per case of 
$3,410.50 ($1,795 x 1.9). 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 of the Zilver[supreg] PTX[supreg] is $1,705.25 for FY 2014.
    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 Zilver[supreg] PTX[supreg], as stated above, we consider the 
beginning of the newness period to commence when the Zilver[supreg] 
PTX[supreg] was approved by the FDA on November 15, 2012. Because the 
Zilver[supreg] PTX[supreg] is still within the 3-year newness period, 
we are proposing to continue new technology add-on payments for this 
technology for FY 2015. We are inviting public comments on this 
proposal.
4. FY 2015 Applications for New Technology Add-On Payments
    We received seven applications for new technology add-on payments 
for FY 2015, three of which were applications resubmitted from FY 2014. 
However, one applicant withdrew its application prior to the 
publication of this proposed rule. In accordance with the regulations 
under Sec.  412.87(c), applicants for new technology add-on payments 
must have FDA approval by July 1 of each year prior to the beginning of 
the fiscal year that the application is being considered. A discussion 
of the six remaining applications is presented below.
a. Dalbavancin (Durata Therapeutics, Inc.)
    Durata Therapeutics, Inc. submitted an application for new 
technology add-on payments for FY 2015 for the use of Dalbavancin. 
Dalbavancin is an intravenous (IV) lipoglycopeptide antibiotic 
administered as a once-weekly 30-minute infusion via a peripheral line 
for the treatment of patients with acute bacterial skin and skin 
structure infections, or ABSSSI. According to the applicant, 
Dalbavancin's unique pharmacokinetic profile demonstrates rapid 
bactericidal activity that is potent and sustained against serious 
gram-positive bacteria, including methicillin-resistant Staphylococcus 
aureus (MRSA).
    With respect to the newness criterion, the applicant stated that 
Dalbavancin's once-weekly dosing, a simpler regimen than the current 
standard of care (Vancomycin) of daily or multiple-times daily 
intravenous dosing, allows for the discontinuation of IV access with 
its attendant risks of line-related thrombosis and infection. The 
applicant submitted a New Drug Approval Application (NDA) on September 
26, 2013, and anticipates FDA approval of Dalbavancin sometime in May 
of 2014. To date, no ICD-10-PCS code specifically describes the 
administration of Dalbavancin. The applicant applied for a new ICD-10-
PCS code to describe the administration of Dalbavancin, which was 
presented at the March 19-20, 2014 ICD-10 Coordination and Maintenance 
Committee meeting. If approved, the code will be effective on October 
1, 2014. We are inviting public comments on whether the technology 
meets the newness criterion.
    We note that 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 substantially 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, the applicant stated that 
Dalbavancin's mechanism of action is unique compared to other 
antibiotics as it involves the interruption of cell wall synthesis 
resulting in bacterial cell death. Furthermore, the applicant cited 
Dalbavancin's long half-life as the factor that differentiates itself 
from existing antibacterial agents active against MRSA. With respect to 
the second criterion, we believe that cases of ABSSSI that use 
Dalbavancin or other antibiotics for treatment would be assigned to the 
same MS-DRGs. Finally, with respect to the third criterion, we believe 
that Dalbavancin and other antibiotics used to treat cases of ABSSSI 
treat the same disease and patient population. Based on evaluation of 
the substantially similarity criteria, it appears that Dalbavancin is 
not substantially similar to other antibiotics for the treatment of 
ABSSSI because it

[[Page 28037]]

does not use the same or a similar mechanism of action to achieve a 
therapeutic outcome. We are inviting public comments regarding whether 
Dalbavancin is substantially similar to existing antibiotics and 
whether Dalbavancin meets the newness criterion.
    According to the applicant, Dalbavancin is indicated to treat gram-
positive ABSSSIs, such as cellulitis or erysipelas, and MRSA. These 
conditions may be a primary diagnosis, but are often secondary to an 
underlying condition such as diabetes, heart failure, pressure ulcers, 
etc. Therefore, the technology is eligible to be used across all MS-
DRGs. To demonstrate that it meets the cost criterion, the applicant 
searched the FY 2012 MedPAR file (across all MS-DRGs) for cases where 
at least one ABSSSI ICD-9-CM code was present on the claim, including 
those where MRSA was present on a claim with an ABSSSI diagnosis. 
Specifically, the applicant searched for cases with one of the 
following diagnosis codes: 035 (Erysipelas); 681.00 (Cellulitis and 
abscess of finger, unspecified); 681.01 (Felon); 681.02 (Onychia and 
paronychia of finger); 681.10 (Cellulitis and abscess of toe, 
unspecified); 681.11 (Onychia and paronychia of toe); 681.9 (Cellulitis 
and abscess of unspecified digit); 682.0-682.9 (Other cellulitis and 
abscess of face, neck, trunk, upper arm and forearm, hand except 
fingers and thumb, buttock, leg except foot, foot except toes, 
specified sites, unspecified sites); 686.00 (Pyoderma, unspecified); 
686.01 (Pyoderma gangrenosum); 686.09 (Other pyoderma); 686.1 (Pyogenic 
granuloma of skin and subcutaneous tissue); 686.8 (Other specified 
local infections of skin and subcutaneous tissue); 686.9 (Unspecified 
local infection of skin and subcutaneous tissue); 958.3 (Posttraumatic 
wound infection not elsewhere classified); 998.51 (Infected 
postoperative seroma); and 998.59 (Other postoperative infection). The 
applicant believed that these cases represent potential cases eligible 
for the administration of Dalbavancin.
    The applicant found 570,698 cases across 682 MS-DRGs and noted that 
almost 25 percent of the total number of cases would map to MS-DRGs 603 
(Cellulitis without MCC), while the top 10 MS-DRGs accounted for almost 
half (or 49 percent) of the total number of cases. Of the 682 MS-DRGs, 
only 90 of these MS-DRGs accounted for 1,000 cases or more. The 
applicant standardized the charges for all 570,698 cases, which equated 
to an average case-weighted standardized charge per case of $46,138. We 
note that the applicant did not inflate the charges nor did it include 
charges for Dalbavancin in the average case-weighted standardized 
charge per case. The applicant calculated an average case-weighted 
threshold of $44,255 across all MS-DRGs. Therefore, the applicant 
asserted the average case-weighted standardized charge per case 
(without inflating and including charges for Dalbavancin) exceeds the 
average case-weighted threshold of $44,255 (as indicated in Table 10 of 
the FY 2014 IPPS/LTCH PPS final rule). Therefore, the applicant 
maintained that Dalbavancin meets the cost criterion. We are inviting 
public comments regarding whether Dalbavancin meets the cost criterion, 
particularly with regard to the assumptions and methodology used in the 
applicant's analysis.
    With regard to substantial clinical improvement, as previously 
stated by the applicant, Dalbavancin is a new intravenous (IV) 
lipoglycopeptide antibiotic administered as a once-weekly 30 minute 
infusion via a peripheral line for the treatment of patients with acute 
bacterial skin and skin structure infections, or ABSSSI. The applicant 
noted that, in the setting of continuing emergence of resistance among 
gram-positive pathogens worldwide, there is an increasing medical need 
for new antibacterial agents with enhanced gram-positive activity. The 
applicant cited the Infectious Diseases Society of America (IDSA),\3\ 
stating the need for a multi-pronged approach to address the impact of 
antibiotic resistance. In addition, the applicant stated the FDA has 
also designated MRSA as a pathogen of special interest which allows an 
antibiotic effective against this organism to be designated as a 
``Qualified Infectious Disease Product,'' recognizing the medical need 
for drugs to treat infections caused by this pathogen. The applicant 
believed that having a medicinal agent with clinical efficacy against 
gram-positive pathogens, including MRSA and CA-MRSA, a favorable 
benefit/risk ratio, and a favorable pharmacokinetics profile allowing 
convenient dosing in inpatients and outpatients with the potential for 
minimizing patient noncompliance would be a valuable addition to the 
antibacterial armamentarium for the treatment of ABSSSI. The applicant 
also noted that, when taking Dalbavancin, there is no need for oral 
step-down therapy.
---------------------------------------------------------------------------

    \3\ ``Bad Bugs, No Drugs,'' July 2004.
---------------------------------------------------------------------------

    The applicant suggested that Dalbavancin offers treatment 
advantages over other available options for therapy for skin infections 
as a result of the following:
     Improved potency against key bacterial pathogens with the 
concentration of Dalbavancin required to kill key target pathogens 
lower relative to other antibiotics commonly used to treat such 
pathogens;
     Retained activity against staphylococcus aureus resistant 
to other antibiotics;
     Improved safety profile as Dalbavancin exhibits more 
favorable tolerability and safety than alternative approved 
antibacterial drugs in areas such as no evidence of thrombocytopenia as 
seen with linezolid and tedezolid, superior infusion related 
tolerability relative to other antiobiotics, an absence or reduction of 
drug specific toxicities, and once a week dosing of IV Dalbavancin 
avoids pitfalls of patient noncompliance with an oral medication;
     Lack of drug interactions due to metabolic profile which 
minimizes risk of unexpected adverse events when co-administered with 
other compounds as seen with linezolid and quinupristin/dalfopristin;
     Decreased requirement for therapeutic interventions, 
specifically the need for an intravenous catheter as Dalbavancin is 
administered once a week, thus reducing catheter related infection as 
well;
     Reduced time to patient defined recovery;
     Reduced mortality rate as demonstrated in the combined 
phase of the Discover 1 and Discover 2 clinical trials;
     The potential for avoidance of admission to the hospital 
as Dalbavancin allows the utilization of a weekly treatment regimen, 
thus potentially increasing the convenience of outpatient therapy for 
patients.
    The applicant conducted three phase three randomized, controlled, 
double blinded clinical trials. The first was the pivotal VER001-9 
study with a total of 873 patients with cSSSIs, which compared the 
safety and efficacy of IV Dalbavancin with possible switch to oral 
placebo to IV Linezolid with possible switch to oral Linezolid. 
According to the applicant, the primary efficacy endpoint of clinical 
response at test of 14 days with a plus or minus of 2 days after 
completion of therapy demonstrated comparable clinical efficacy to 
linezolid and met the requirement of statistical demonstration of 
noninferiority. In the clinically evaluable population, 88.9 percent of 
patients who received Dalbavancin compared to 91.2 percent of patients 
who received vancomycin/linezolid

[[Page 28038]]

were clinical successes. The applicant also noted that Dalbavancin had 
an improved safety profile compared to Linezolid as the overall 
incidence and percentage of adverse events and deaths were lower in the 
Dalbavancin group, which was statistically significant.
    The second and third clinical trials were the Discover 1 and 
Discover 2 trials, which enrolled a total of 1,312 patients with ABSSSI 
and compared IV Dalbavancin with IV placebo every 12 hours to match 
Vancomycin with possible switch to oral Vancomycin to IV Vancomycin 
with IV placebo to match IV Dalbavancin with possible switch to oral 
Linezolid. The applicant reported that in both studies, the primary 
efficacy outcome measure was clinical response in 48 to 72 hours post-
study drug initiation and a secondary outcome measure was clinical 
status at the end of treatment visit (day 14) in the Intent to Treat 
(ITT) and clinically evaluable at End of Treatment populations. 
Clinical status was also determined at the short-term follow-up and 
long-term follow-up visits.
    According to the applicant, the Discover 1 trial demonstrated that 
83.3 percent of patients in the ITT population who received Dalbavancin 
were responders at 48 to 72 hours after the start of therapy compared 
to 81.8 percent of patients who received Vancomycin/Linezolid. The 
applicant also noted that Dalbavancin was noninferior to Vancomycin/
Linezolid (Absolute Difference in Success Rates (95 percent confidence 
interval): -4.6 percent; 7.9 percent).
    The applicant further noted that the Discover 2 trial showed 
similar results to the Discover 1 trial. Specifically, the trial 
demonstrated that 76.8 percent of patients in the ITT population who 
received Dalbavancin were responders at 48 to 72 hours after the start 
of therapy compared to 78.3 percent of patients who received 
Vancomycin/Linezolid. The applicant again noted that Dalbavancin was 
noninferior to Vancomycin/Linezolid (Absolute Difference in Success 
Rates (95 percent confidence interval): -7.4 percent; 4.6 percent).
    The applicant found Dalbavancin to be effective against MRSA and 
other gram-positive bacteria associated with ABSSSI. The applicant 
stated that 25 percent of patients in the study were treated without an 
inpatient admission.
    We are concerned with the details of the trial design and the 
primary efficacy endpoints used within those trials that were used to 
provide the clinical data supplied by the applicant. All of the trials 
were noninferiority studies, which prevent any determination as to 
substantial clinical improvement from the trial data. The primary 
efficacy endpoint was defined as having no increase in lesion size, and 
no fever 48 to 72 hours after drug initiation. The secondary endpoint 
was a >20 percent reduction in infection area at defined points in 
time. At neither endpoint is the patient oriented endpoint of 
resolution of infection increased. With these limitations in using 
efficacy data to establish substantial clinical improvement, the 
applicant suggested that the outpatient treatment, elimination of 
central lines and avoidance of hospitalization all may improve safety, 
avoid treatment-associated infections and improve patient satisfaction, 
and that these factors demonstrate substantial clinical improvement. 
While the factors mentioned may be true, the applicant did not present 
any evidence to support its assertions. We are inviting public comments 
on whether Dalbavancin meets the substantial clinical improvement 
criterion, including public comments in response to our concern that 
the applicant has only provided efficacy data of noninferiority, and no 
data for the other suggested benefits.
    We did not receive any public comments in response to the New 
Technology Town Hall meeting held on February 12, 2014 regarding this 
technology.
b. Heli-FXTM EndoAnchor System (Aptus Endosystems, Inc.)
    The Heli-FXTM EndoAnchor System is indicated for use in 
the treatment of patients whose endovascular grafts during treatment of 
aortic aneurysms have exhibited migrations or endoleaks, or in the 
treatment of patients who are at risk of such complications, and in 
whom augmented radial fixation and/or sealing is required to regain or 
maintain adequate aneurysm exclusion.
    The Heli-FXTM EndoAnchor System is comprised of the 
following three components: (1) The EndoAnchor Implant; (2) the Heli-
FXTM Applier; and (3) the Heli-FXTM Guide with 
Obturator. The Heli-FXTM EndoAnchor System is a mechanical 
fastening device that is designed to enhance the long-term durability 
and reduce the risk of repeat interventions in endovascular aneurysm 
repair (EVAR) and thoracic endovascular aneurysm repair (TEVAR). By 
deploying a small helical screw (the Heli-FXTM EndoAnchors) 
to connect the endograft to the aorta, the Heli-FXTM System 
seeks to provide a permanent seal and fixation, similar to the 
stability achieved with an open surgical anastomosis.
    The original Heli-FXTM EndoAnchor System, designed for 
treating abdominal aortic aneurysms (AAA), was cleared by the FDA 
through the ``de novo'' 510(k) process on November 21, 2011 (reference 
K102333). The Heli-FXTM Thoracic System, which allows the 
expanded use of the Heli-FXTM EndoAnchor System technology 
to the treatment of thoracic aortic aneurysms (TAA), was cleared by the 
FDA on August 14, 2012 (reference K121168).
    The applicant submitted two applications for approval for new 
technology add-on payment in FY 2015: one for the treatment of AAAs and 
the other for the treatment of TAA repair. We note that, as stated in 
the Inpatient New Technology Add-on Payment Final Rule (66 FR 46915), 
two applications are necessary in this instance, because patients that 
may be eligible for use of the technology under the first indication 
are not expected to be assigned to the same MS-DRGs as patients 
receiving treatment using the new technology under the second 
indication. Specifically, patients who have endovascular grafts 
implanted for the treatment of AAA map to MS-DRGs 237 (Major 
Cardiovascular Procedures with MCC) and 238 (Major Cardiovascular 
Procedures without MCC), while patients who have endovascular grafts 
implanted for the treatment of TAA map to MS-DRGs 219 (Cardiac Valve 
and Other Major Cardiothoracic Procedure without Cardiac Catheter with 
MCC), 220 (Cardiac Valve and Other Major Cardiothoracic Procedure 
without Cardiac Catheter with CC), and 221 (Cardiac Valve and Other 
Major Cardiothoracic Procedure without Cardiac Catheter without CC/
MCC). Each indication/application must also meet the cost criterion and 
the substantial clinical improvement criterion in order to be eligible 
for new technology add-on payments beginning in FY 2015. We discuss 
both of these applications below.
(1) Heli-FXTM EndoAnchor System for the Treatment of AAA
    As mentioned above, the original Heli-FXTM EndoAnchor 
System, designed for treating patients diagnosed with AAA, was cleared 
by the FDA through the ``de novo'' 510(k) process on November 21, 2011 
(reference K102333). According to the applicant, the device became 
available to Medicare beneficiaries following the product launch at the 
Society of Vascular Surgery (SVS) Annual Meeting held on June 7-9, 
2012. Therefore, the applicant maintained that the Heli-FXTM 
EndoAnchor System meets the ``newness'' criterion because the

[[Page 28039]]

technology was not available on the U.S. market until June 2012. The 
applicant explained that the delay in the general market availability 
of the original Heli-FXTM EndoAnchor System, following 
initial FDA clearance, was mainly because of the regulatory uncertainty 
inherent in the ``de novo'' 510(k) process. This uncertainty prevented 
the manufacturer from being able to secure the venture capital funding 
that was necessary to prepare for commercialization before obtaining 
market clearance. The ability to secure venture capital through the 
fundraising process was dependent upon the FDA clearance. According to 
the applicant, funding to commercially market the technology was not 
obtained until June 2012. In subsequent discussions with the applicant, 
the applicant confirmed that the Heli-FXTM EndoAnchor System 
was available on the U.S. market as of November 2011. Further, the 
applicant acknowledged that four implantations were performed on 
Medicare beneficiaries between November 2011 and June 2012. Therefore, 
the Heli-FXTM EndoAnchor System is considered ``new'' as of 
November 2011 when the technology was cleared by the FDA and became 
available on the U.S. market.
    Section 412.87(b)(2) of the regulations state that, ``a medical 
service or technology may be considered new within 2 or 3 years after 
the point at which data begin to become available reflecting the ICD-9-
CM code assigned to the new service or technology.'' Our past practice 
has been to begin and end the eligibility for new technology add-on 
payments on a fiscal year basis. We have generally followed a guideline 
that uses a 6-month window, before and after the beginning of the 
fiscal year, to determine whether to still consider a technology 
``new'' and extend approved new technology add-on payments for an 
additional fiscal year. In general, a technology is still considered 
``new'' (and eligible to receive new technology add-on payments) only 
if the 3-year anniversary date of the product's entry on the market 
occurs in the latter half of the fiscal year. (We refer readers to 70 
FR 47362.) With regard to the newness criterion for the Heli-
FXTM EndoAnchor System, as stated above, we consider the 
beginning of the newness period for the device to begin when the 
technology first became available on the U.S. market in November 2011. 
As previously stated, the applicant acknowledged that four 
implantations were performed on Medicare beneficiaries between November 
2011 and June 2012. Therefore, the costs of the Heli-FXTM 
EndoAnchor System are currently reflected in the MS-DRGs, and the 3-
year anniversary date under the newness criterion for the product's 
entry on the U.S. market will occur during November 2014 (the first 
half of FY 2015). As such, we do not believe that the Heli-
FXTM EndoAnchor System meets the newness criterion. We are 
inviting public comments on whether the Heli-FXTM EndoAnchor 
System meets the newness criterion.
    The applicant requested an ICD-10-PCS code, and presented comments 
at the March 2014 ICD-10 Coordination & Maintenance Committee meeting.
    To demonstrate that the technology meets the cost criterion, the 
applicant researched claims data from the 100 percent sample of the 
2012 Inpatient Hospital Standard Analytical File (SAF) for cases 
reporting either procedure code 39.71 (Endovascular implantation of 
other graft in abdominal aorta), or procedure code 39.79 (Other 
endovascular procedures on other vessels) in the first or second 
procedure position on the claim, in combination with one of the 
following primary diagnosis codes: 441.4 (Abdominal aneurysm without 
mention of rupture); 996.1 (Mechanical complication of other vascular 
device, implant, and graft); or 996.74 (Other complications due to 
other vascular device, implant, and graft). The applicant believed that 
this combination of ICD-9-CM codes identifies cases treated for AAA. We 
note that the 2012 SAF dataset includes all claims submitted from 
hospitals paid under the IPPS for calendar year 2012.
    The applicant focused its analysis on MS-DRGs 237 and 238 because 
these are the MS-DRGs that cases treated with the implantation of 
endovascular grafts for AAAs would most likely map to. The applicant 
found a total of 8,142 cases, and noted that 9.35 percent of the total 
number of cases would map to MS-DRG 237, and 90.65 percent of the total 
number of cases would map to MS-DRG 238. The applicant standardized the 
charges for all 8,142 cases. Using the inflation factor of 1.47329 
published in the FY 2014 IPPS/LTCH final rule (78 FR 50982), the 
applicant inflated the standardized charges by 14.88 percent (the 
applicant multiplied 1.47329 x 1.47329 x 1.47329 in order to inflate 
the charges from 2012 to 2015). The applicant then added the charges 
for the Heli-FXTM EndoAnchor System to the standardized 
charges by dividing the cost of the Heli-FXTM EndoAnchor 
System device by each individual hospital specific CCR from the FY 2012 
impact file. This equated to an average case-weighted inflated 
standardized charge per case of $111,613. The applicant noted that the 
average case-weighted inflated standardized charge per case did not 
contain additional operating room charges that relate to the Heli-
FXTM EndoAnchor System. Therefore, the applicant determined 
that it was necessary to add an additional $1,440 for operating room 
charges, which was based on an additional half hour of operating room 
time from one hospital, to the average case-weighted standardized 
charge per case. This resulted in an average case-weighted standardized 
charge per case of $113,053. The applicant calculated an average case-
weighted threshold of $86,278 across both MS-DRGs 237 and 238. The 
applicant noted that the average case-weighted standardized charge per 
case, computed without including the additional operating room charges 
that relate to the Heli-FXTM EndoAnchor System, exceeded the 
average case-weighted threshold of $86,278. Therefore, the applicant 
maintained that the technology meets the cost criterion.
    The applicant also submitted claims data from the ANCHOR (Aneurysm 
Treatment Using the Heli-FX Aortic Securement System Global Registry) 
study to demonstrate that the technology meets the cost criterion. A 
total of 51 cases were submitted with 11.76 percent of all the cases 
mapping to MS-DRG 237, and 88.24 percent of all the cases mapping to 
MS-DRG 238. The applicant standardized the charges for all 51 cases, 
and determined an average case-weighted standardized charge per case of 
$128,196. The applicant calculated an average case-weighted threshold 
of $87,118 across MS-DRGs 237 and 238. Therefore, because the average 
case-weighted standardized charge per case exceeds the average case-
weighted threshold, the applicant maintained that the technology meets 
the cost criterion. We are inviting public comments on whether the 
Heli-FXTM EndoAnchor System meets the cost criterion, 
particularly with regard to the assumptions and methodology used in the 
applicant's analyses. We discuss whether the Heli-FXTM 
EndoAnchor System represents a substantial clinical improvement over 
other treatments used for the repair of both abdominal and thoracic 
aortic aneurysms in one discussion below.
(2) Heli-FXTM EndoAnchor System for the Treatment of 
Thoracic Aortic Aneurysms
    The Heli-FXTM Thoracic System, which allows the expanded 
use of the Heli-FXTM EndoAnchor System technology to TAA 
repair, was cleared

[[Page 28040]]

by the FDA on August 14, 2012 (reference K121168). The new system 
consists of a longer delivery device with additional tip configurations 
to allow the helical EndoAnchor technology to treat TAA. A line 
extension to the original Heli-FXTM EndoAnchor System, 
allowing improved treatment of AAA patients with larger aortic neck 
diameters, was cleared by the FDA on April 12, 2013 (reference 
K130677).
    With regard to the newness criterion for the Heli-FXTM 
Thoracic System, we consider the beginning of the newness period for 
the device to begin when the technology was approved by the FDA on 
August 14, 2012. Because the 3-year anniversary date of the product's 
entry on the U.S. market would occur in the second half of FY 2015 
(August 14, 2015), we believe that the Heli-FXTM Thoracic 
System meets the newness criterion. We are inviting public comments on 
whether the Heli-FXTM Thoracic System meets the newness 
criterion. As stated above, the applicant requested an ICD-10-PCS code, 
and presented comments at the March 2014 ICD-10 Coordination & 
Maintenance Committee meeting.
    To demonstrate that the Heli-FXTM Thoracic System meets 
the cost criterion, similar to the analysis performed for the Heli-
FXTM EndoAnchor System for the treatment of AAA, the 
applicant researched claims data from the 100 percent sample of the 
2012 SAF for cases reporting procedure code 39.73 (Endovascular 
implantation of graft in thoracic aorta) in the first or second 
procedure position on the claim, in combination with one of the 
following primary diagnosis codes: 404.93 (Hypertensive heart and 
chronic kidney disease, unspecified, with heart failure and chronic 
kidney disease stage V or end-stage renal disease); 441.01 (Dissection 
of aorta, thoracic); 441.03 (Dissection of aorta, thoracoabdominal); 
441.2 (Thoracic aneurysm without mention of rupture); 441.4 (Abdominal 
aneurysm without mention of rupture); 441.7 (Thoracoabdominal aneurysm, 
without mention of rupture); 996.1 (Mechanical complication of other 
vascular device, implant, and graft); or 996.74 (Other complications 
due to other vascular device, implant, and graft). The applicant 
believed that this combination of ICD-9-CM codes identifies cases 
treated for TAA. We note that the 2012 SAF dataset includes all claims 
submitted from hospitals paid under the IPPS for CY 2012.
    The applicant focused its analysis on MS-DRGs 219, 220, and 221 
because these are the MS-DRGs to which cases treated with the 
implantation of endovascular grafts for TAA repair would most likely 
map. The applicant found a total of 642 cases, and noted that 27.88 
percent of the total number of cases would map to MS-DRG 219, 40.50 
percent of the total number of cases would map to MS-DRG 220, and 31.62 
percent of the total number of cases would map to MS-DRG 221. The 
applicant standardized the charges for all 642 cases. Using the 
inflation factor of 1.47329 published in the FY 2014 IPPS/LTCH final 
rule (78 FR 50982), the applicant inflated the standardized charges by 
14.88 percent (the applicant multiplied 1.47329 x 1.47329 x 1.47329 in 
order to inflate the charges from 2012 to 2015). The applicant then 
added the charges for the Heli-FXTM EndoAnchor System to the 
standardized charges by dividing the cost of the Heli-FXTM 
EndoAnchor System device by each individual hospital specific CCR from 
the FY 2012 impact file. This equated to an average case-weighted 
inflated standardized charge per case of $156,625. The applicant noted 
that the average case-weighted inflated standardized charge per case 
did not contain additional operating room charges related to the use of 
this technology. Therefore, the applicant determined that it was 
necessary to add an additional $2,160 for operating room charges, which 
was based on an additional 45 minutes of operating room time from one 
hospital, to the average case-weighted standardized charge per case. 
This resulted in an average case-weighted standardized charge per case 
of $158,785. The applicant calculated an average case-weighted 
threshold of $141,194 across MS-DRGs 219, 220, and 221. The applicant 
noted that the average case-weighted standardized charge per case, 
without including charges for additional operating room time, exceeded 
the average case-weighted threshold of $141,194. Therefore, the 
applicant maintained that the technology meets the cost criterion. We 
are inviting public comments on whether the Heli-FXTM 
Thoracic System meets the cost criterion, particularly with regard to 
the assumptions and methodology used in the applicant's analysis.
(3) Evaluation of the Substantial Clinical Improvement Criterion for 
the Heli-FXTM EndoAnchor System for the Treatment of 
Abdominal and Thoracic Aortic Aneurysms
    The applicant stated that the Heli-FXTM EndoAnchor 
System represents a substantial clinical improvement for the following 
reasons: The technology improves overall rates of aneurysm exclusion 
and long-term success after EVAR by increasing the integrity and long-
term durability of the proximal seal and fixation; the technology 
reduces the risk and rate of secondary interventions and readmissions 
due to aneurysm-related complications (for example, endoleaks, 
migration, aneurysm enlargement) caused by failure of the proximal 
seal; the technology improves the general applicability of EVAR to 
patients with a broader spectrum of aortoiliac anatomy, including those 
with hostile proximal neck anatomy; and the technology reduces the 
rigor of life-long imaging follow-up for EVAR patients by reducing the 
rate of late failure and increasing the post-EVAR rates of aneurysm sac 
regression due to complete, endoleak-free durable aneurysm exclusion.
    While current devices and capabilities are greatly improved over 
the first generation of devices, the applicant noted that EVAR 
treatments using the first generation of devices has not proven to be 
as durable, anatomically applicable, or complication-free as open 
surgery. 4 5 6 7 Several critical and life-threatening 
limitations continue to require improvement to these devices and 
procedures, including the need to reduce serious early and late device 
and procedure-related complications, such as loss of stability, and 
integrity and robustness of the clinical proximal aortic landing zone, 
and to offer an alternative method of EVAR to a broader segment of the 
patient population.
---------------------------------------------------------------------------

    \4\ Abbruzzese, T.A., Kwolek, C.J., Brewster, D.C., et al, 
``Outcomes following endovascular abdominal aortic aneurysm repair 
(EVAR): An anatomic and device-specific analysis,'' Journal of 
Vascular Surgery, 2008, Vol. 48, pp. 19-28.
    \5\ Dangas, G., O'Connor, D., Firwana, B., et al, ``Open Versus 
Endovascular Stent Graft Repair of Abdominal Aortic Aneurysms: A 
Meta-Analysis of Randomized Trials,'' JACC, 2012, Vol. 5 (10), pp. 
1072-1080.
    \6\ De Bruin, J.L., Baas, A.F., Buth, J., et al, ``Long-Term 
Outcome of Open or Endovascular Repair of Abdominal Aortic 
Aneurysm,'' New England Journal of Medicine, May 2010, Vol. 362(20), 
pp. 1881-1889.
    \7\ Greenhalgh, R.M., Brown, L.C., Powell, J.T., et al, 
``Endovascular versus open repair of abdominal aortic aneurysm,'' 
New England Journal of Medicine, May 2010, Vol. 362(20), pp. 1863-
1871.
---------------------------------------------------------------------------

    The applicant provided literature, analyses of data from the 
``STAPLE-2'' clinical trial and the ANCHOR Registry, and a meta-
analysis of EVAR trials to demonstrate that the Heli-FXTM 
EndoAnchor System represents a substantial clinical improvement above 
current treatments available. We summarize the information provided by 
the applicant that supports the clinically beneficial results of using 
the Heli-FXTM EndoAnchor System.
    The ``STAPLE-2'' clinical trial enrolled 155 patients at 25 U.S. 
centers between September 2007 and January

[[Page 28041]]

2009. Clinical (and imaging) data are available for 147, 139 and 125 
patients at 1-year, 2-year, and 3-year follow-up, respectively, 
representing the complete data sets at these time points. Patients 
enrolled in the clinical trial and observed under the study will 
continue to be followed per protocol for 5 years following aneurysm 
repair. According to the applicant, the results of the trial and study 
demonstrate that the Heli-FXTM EndoAnchor System is 
associated with an extremely low rate of proximal neck-related issues 
in long-term follow-up. The applicant maintained that this 
determination results in improved outcomes for aortic aneurysm 
patients, and reduced rate of re-interventions, which are associated 
with hospital admissions, procedural risks, and reversions to increased 
follow-up frequency requiring more physician visits and radiographic 
imaging studies.
    The data used for this analysis was extracted from the clinical 
database on February 1, 2013, and are identical to those used to 
generate the most recent Annual Progress Report (APR) submitted to the 
FDA, as required under the U.S. IDE regulations.
    While the ``STAPLE-2'' clinical trial was conducted exclusively 
with the Aptus AAA endograft (which remains investigational), the 
applicant believed that the use of the Heli-FXTM EndoAnchor 
System-related data is applicable to the use of the anchor with the 
compatible Cook, Gore, and Medtronic manufactured endografts in 
treatment anatomies for AAA and TAA cases.
    Through 3-year follow-up, the applicant noted that there have been 
no anchor fractures as observed by the core lab. Further, there have 
been no relative migrations of the Heli-FXTM EndoAnchor 
System as compared to other endografts reported by the core laboratory.
    In the analysis of the ``STAPLE-2'' clinical trial data at 1-year 
follow-up, the applicant noted that the core lab observed no proximal 
migrations, and a single case of Type I endoleak. A single secondary 
intervention was required to address the Type I endoleak in a patient 
with a circumferentially incomplete proximal neck within the 1-year 
follow-up period.
    The applicant further noted that no additional Type I endoleaks 
have been observed beyond the 1-year follow-up in any patient enrolled 
in the trial. In addition, there were no reported instances of aneurysm 
rupture, vessel perforation, vessel dissection, catheter embolization, 
enteric fistula, infection, Type III endoleak, conversion, allergic 
reactions, renal emboli, or patient death associated with the use of 
the Heli-FXTM EndoAnchor System. Further, there have been no 
reports of bleeding or hematoma at the EndoAnchor penetration locations 
in the aortic neck.
    Beyond the 1-year follow-up, three patients have demonstrated 
proximal migrations less than 1 cm. None of these cases were associated 
with Type I endoleaks or aneurysm sac expansions.
    The applicant then compared migrations and Type I endoleaks data 
from the ``STAPLE-2'' clinical trial to analogous data from five 
compatible AAA endografts that were not anchored (data taken from 
published SSE data obtained from the FDA's Web site). One year of data 
was compared because this timeframe is what is reported in a standard 
fashion from IDE trials of endografts. The applicant noted that the 
Heli-FXTM EndoAnchor System data compares favorably against 
the data obtained in U.S. pivotal trials of devices that did not employ 
discrete independent fixation means, particularly when viewed in light 
of the shorter average neck lengths treated in the ``STAPLE-2'' 
clinical trial versus those involving the Cook, Gore, and Medtronic 
manufactured endografts. According to the applicant, the number of 
proximal migrations were low across devices as reported in the SSE 
data, and an analysis using the Fisher's exact method demonstrated no 
statistically significant differences when compared to the anchored 
endografts used in the ``STAPLE-2'' clinical trial (all p = NS). The 
incidence of Type I endoleaks and the need for secondary interventions 
to address them was significantly lower for the Heli-FXTM 
EndoAnchor System endografts analyzed under the ``STAPLE-2'' clinical 
trial versus the Medtronic, AneuRx, and Talent manufactured endografts 
(p = 0.026 versus AneuRx and p = 0.015 versus Talent). The applicant 
stated that the applicability of post-hoc statistical analyses is 
limited. However, the applicant believed that because the data being 
compared under the analyses were collected through similar protocols 
and with the same endpoint definitions, post-hoc comparisons were 
deemed appropriate. The applicant further believed that the comparison 
of this data demonstrates that the Heli-FXTM EndoAnchor 
System is associated with very low rates of Type I endoleaks and 
migrations.
    The applicant also provided data from the ANCHOR Registry, which is 
a post-market, prospective, observational, multi-center, international, 
dual-arm study designed to capture real-world data on the usage 
patterns and clinical results associated with the use of the Heli-
FXTM EndoAnchor System as a method of treatment for patients 
in need of EVAR. The applicant explained that the ANCHOR Registry 
represents a growing body of data on the application of the Heli-
FXTM EndoAnchor System used as a method of endovascular 
aortic aneurysm repair. The applicant noted that to its knowledge, the 
anatomical challenges present in the registry are greater than those in 
any large scale published series. The applicant further noted that, 
although long-term results are limited, the acute results demonstrate a 
high level of device safety, technical feasibility and acute success in 
a patient population with few viable options.
    Primary safety for the ANCHOR Registry is being measured as a 
composite of freedom from device or procedure-related serious adverse 
events through 1-year follow-up following the Heli-FXTM 
EndoAnchor System implantation. Primary effectiveness is being measured 
as a composite of acute technical success and freedom from Type Ia 
endoleaks and endograft migrations through 1-year follow-up. Inclusion 
and exclusion criteria are minimal, essentially following the IFU 
requirements. Patients are being followed in the registry by their 
physician's standard of care for 5 years.
    Enrollment in the ANCHOR Registry began in March 2012. Through 
August 2013, a total of 258 patients were enrolled at 40 participating 
centers (29 located in the United States and 11 located in the European 
Union), and data are available in the registry's database. Of these, 
195 patients (76 percent) were enrolled in the primary arm, having the 
Heli-FXTM EndoAnchor System implanted at the time of their 
initial aneurysm treatment, either as a prophylactic measure, or to 
address an acute leak seen on completion arteriography. The remaining 
patients (63 or 24 percent) were enrolled in the revision arm, having 
the Heli-FXTM EndoAnchor Systems implanted at a secondary 
procedure to arrest migration, or address endoleaks discovered on 
follow-up in previously implanted endografts.
    The applicant noted that physicians are choosing to apply the Heli-
FXTM EndoAnchor System in a subset of patients that are at a 
higher risk for proximal neck-related complications during follow-up. 
The large average sac diameter in the revision arm suggested that these 
patients' initial treatments were unsuccessful and, as such, they have 
experienced continued sac expansion post-EVAR. These patients

[[Page 28042]]

also represent a high-risk subset of patients.
    Acute results are measured in terms of technical success. In the 
primary arm, 193 of 194 procedures were successful, and in the revision 
arm, 57 of 63 procedures were successful. All technical failures were 
persistence of Type Ia endoleaks. There has been a single re-
intervention at 69 days post-Endoanchor implantation for a persistent 
Type Ia endoleak in one patient in the revision arm, in which the Heli-
FXTM EndoAnchor System combined with a proximal cuff were 
unable to completely resolve the endoleak. There have been no device-
related serious adverse events.
    As mentioned above, because the ``STAPLE-1,'' \8\ and ``STAPLE-2'' 
clinical trials were single-arm studies, no data are available from 
them to assess the impact of the Heli-FXTM EndoAnchor System 
on endograft performance. To make this assessment, a meta-analysis was 
conducted. The meta-analysis combined long-term AAA endograft 
performance from endografts marketed in the United States, and compared 
these measures to those from long-term follow-up in the ``STAPLE-2'' 
trial.
---------------------------------------------------------------------------

    \8\ Deaton, D.H., Mehla, M., Kasirajan, K., et al., ``The Phase 
I Multi-center Trial (Staple-1) of the Aptus Endovascular Repair 
System: Results at 6 Months and 1 Year,'' Journal of Vascular 
Surgery, 2009, Vol. 49, pp. 851-857 (discussion on pp. 857-858.)
---------------------------------------------------------------------------

    According to the applicant, the key findings from the meta-analysis 
are as follows:
     Heli-FXTM EndoAnchors reduced the proportion of 
treated aneurysms with enlargement greater than 5 mm at 3 years from 
12.7 percent to 3.9 percent (p = .002).
     Heli-FX EndoAnchor System reduced the proportion of leaks 
requiring treatment at 3 years from 12 percent to 1.3 percent (p < 
.001).
     Heli-FXTM EndoAnchor System reduced (all-cause) 
mortality at 3 years from 18.8 percent to 8.4 percent (p = .002). 
However, this does not appear to have been totally mediated by AAA-
related mortality, which was reduced by the Heli-FXTM 
EndoAnchor System from 2.5 percent to 0.7 percent at 3 years (but was 
not statistically significant, p = .372).
    According to the applicant, in general, patients in the ANCHOR 
Registry were similar to the patients in the AAA endograft studies. The 
applicant noted that the results of the analysis using the Fisher's 
Exact Tests were consistent between the All-Studies' comparisons and 
the IDE-Studies' comparisons: All-Cause Mortality, Leaks requiring 
Treatment, and Enlargement were all significantly lower at 3 years in 
the endografts implanted with the Heli-FXTM EndoAnchor 
System than in standard endografts.
    The applicant asserted that the meta-analysis shows that there is 
objective evidence that the Heli-FXTM EndoAnchor System 
effectively reduces well-documented problems with endografts. By 
providing the endograft with better apposition to the native artery, 
the applicant noted that the Heli-FXTM EndoAnchor System 
reduces the rates of enlargement and endoleaks requiring treatment. The 
applicant further noted that these results were consistent in the All-
Studies' and IDE Studies' meta-analyses. The applicant believed that 
lower rates of leaks requiring intervention would save payers money 
over the long term.
    The applicant observed that, while there was no significant 
improvement in the rate of ruptures with the Heli-FXTM 
EndoAnchor System, this may be due to the fact that leaks were treated 
and, thereby, prevented any ruptures. The applicant believed that the 
higher rate of treated endoleaks in endografts implanted without the 
Heli-FXTM EndoAnchor System provides for this hypothesis. 
Also, migration did not appear to be significantly reduced by the Heli-
FXTM EndoAnchor System (3.5 percent at 3 years in both 
groups; p = 1.0).
    Finally, the applicant concluded that, overall, the lower 
complication rates seen with the Heli-FXTM EndoAnchor System 
in the meta-analysis provide evidence of the clinical benefits and 
likely economic benefits associated with the use of the Heli-
FXTM EndoAnchor System. The applicant believed that the 
technology may be especially helpful in patients with difficult 
anatomy, and that it may be reasonable to consider using the Heli-
FXTM EndoAnchor System prophylactically in the treatment of 
all such patients.
    In addition to the formal study data from the ``STAPLE-2'' trial, 
the Global ANCHOR Registry, and the meta-analysis based on these, the 
applicant provided published peer-reviewed literature that represent an 
early state of scientific data dissemination outside of non-company 
sponsored clinical studies, which is commensurate with the recent 
market approvals of the Heli-FXTM EndoAnchor System 
technology. The applicant believed that this data demonstrates strong 
initial physician enthusiasm and resulting favorable clinical results 
in their experience to date. The applicant noted that the general body 
of scientific literature is considered meaningful and growing for this 
early stage of market introduction. However, the applicant asserted 
that the literature supports the study and meta-analysis data above 
that documents that improved clinical outcomes were observed, including 
outcomes in a broader range of patients that are often ineligible for, 
or at greatest risk with, EVAR.
    We are concerned that the three sources of data, the ``STAPLE-2'' 
clinical trial, the Anchor registry, and the literature review that the 
applicant submitted to support their application are not high quality 
evidence. The ``STAPLE-2'' study was a single-arm study and only used 
one endograft, the registry is an observational study, and the 
literature review does not provide clinical data. Also, the meta-
analysis of all the submitted data is only as good as the data used. 
While the clinical data submitted suggests that some outcomes such as 
EVAR failure are improved, we are concerned that there is not enough 
clinical evidence to support the substantial clinical improvement 
criterion. We are inviting public comments on whether the submitted 
data demonstrate that the Heli-FXTM EndoAnchor System 
represents a substantial clinical improvement in the treatment of 
Medicare beneficiaries, particularly in regard to the concerns we have 
identified.
    We received public comments in response to the New Technology Town 
Hall meeting held on February 12, 2014. We summarize these comments 
below.
    Comment: Several commenters supporting new technology add-on 
payments for the Heli-FXTM EndoAnchor System. In addition, 
one commenter believed that EndoAnchors would broaden the applicability 
of endovascular aneurysm repair. The commenter noted that use of 
EndoAnchors increases the force needed to dislodge the proximal neck of 
the graft by several times, and in some cases even stronger than a 
hand-sewn anastomosis. This commenter further noted that this would 
allow patients with short, or otherwise difficult aortic necks to be 
treated more safely with endovascular aneurysm repair. The commenter 
stated that the technology is beneficial for patients who have medical 
problems or advanced age as contraindications to open surgery because 
endovascular repair can be made possible with the Heli-FXTM 
EndoAnchor System.
    The commenter further stated that patients with endoleaks 
identified during follow-up are frequently not candidates for extension 
prostheses and would otherwise require open explantation of the graft 
and aneurysm

[[Page 28043]]

repair. The commenter explained that these are far more challenging and 
risky operations than primary open aneurysm repairs, and are routinely 
associated with blood loss of several liters as well as prolonged lower 
extremity, renal, and visceral ischemia. The commenter noted that many 
of these often elderly patients can be successfully treated in a 
minimally invasive manner using the Heli-FXTM EndoAnchor 
System, reestablishing proximal fixation and seal while avoiding the 
morbidity and mortality associated with graft explantation and open 
repair. The commenter concluded that if new technology add-on payments 
are approved for the Heli-FXTM EndoAnchor System, many 
patients would realize the advantages of this unique and necessary 
device, improving their care and reducing overall cost.
    Another commenter stated that the Heli-FXTM EndoAnchor 
System provides an opportunity to extend a less mortal procedure (EVAR) 
to patients whose anatomy may predispose them to late failure, 
including patients with large proximal neck diameters, increased iliac 
diameters, or abnormal neck anatomy. In primary repair, the applicant 
stated that endoanchors have been demonstrated to mimic a surgical 
anastomosis. The commenter believed that this would lead to less 
reinterventions and less aneurysm related mortality. Given the cost of 
reintervention or treating a ruptured AAA, the commenter believed that 
this technology should have a real impact in the overall cost of EVAR 
in this patient population.
    Response: We appreciate the commenters' support. We considered 
these comments in our evaluation of the Heli-FXTM EndoAnchor 
System application for new technology add-on payments for FY 2015 and 
in the development of this proposed rule. As stated above, we are 
inviting additional public comments on whether the Heli-FXTM 
EndoAnchor System represents a substantial clinical improvement in the 
treatment of Medicare beneficiaries, particularly in regard to the 
concerns we have identified.
c. WATCHMAN[supreg] Left Atrial Appendage Closure Technology
    Boston Scientific Corporation submitted an application for new 
technology add-on payments for the WATCHMAN[supreg] Left Atrial 
Appendage Closure Technology (Watchman[supreg] System) for FY 2015. 
When a patient has an arrhythmia known as atrial fibrillation (AF), the 
left atrium does not expand and contract normally. As a result, the 
left atrium is not capable of completely emptying itself of blood. 
Blood may pool, particularly in the part of the left atrium called the 
left atrial appendage. This pooled blood is prone to clotting, causing 
formation of a thrombus (that is, a blood clot). When a thrombus breaks 
off, it is called an embolism (or thromboembolism). An embolism can 
cause a stroke or other peripheral arterial blockage.
    The WATCHMAN[supreg] Left Atrial Appendage (LAA) Closure Device is 
an implant that acts as a physical barrier, sealing the LAA to prevent 
thromboemboli from entering into the arterial circulation from the LAA, 
thereby reducing the risk of stroke and potentially eliminating the 
need for Warfarin therapy in those patients diagnosed with nonvalvular 
AF and who are eligible for Warfarin therapy.
    The applicant anticipates FDA premarket approval of the 
WATCHMAN[supreg] System in the first half of 2014. According to the 
applicant, the WATCHMAN[supreg] System is the first LAA closure device 
that would be approved by the FDA. Therefore, the applicant believes 
that the technology meets the newness criterion. The device is 
currently identified by ICD-9-CM procedure code 37.90 (Insertion of 
Left Atrial Appendage Device), which was issued on October 1, 2004. We 
are inviting public comments on if, and how, the WATCHMAN[supreg] 
System meets the newness criterion.
    With regard to the cost criterion, the applicant used the FY 2012 
MedPAR file and searched the claims data for cases reporting with ICD-
9-CM procedure code 37.90. The applicant provided two analyses. The 
first analysis includes all claims that contained ICD-9-CM procedure 
code 37.90 regardless of whether it was the principle procedure that 
determined the MS-DRG assignment of the case. This returned 243 cases 
spread across 21 MS-DRGs. The applicant noted that the MedPAR file 
contained claims that were returned to the provider reporting charges 
for actual cases from clinical trials that used the WATCHMAN[supreg] 
System that were well below post-FDA approval pricing. Therefore, the 
applicant removed the premarket device related charges. The applicant 
then standardized the charges, applied an inflation factor of 1.096898 
based on the 2-year charge inflation factor listed in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50982) and then added post-FDA approval 
charges for the WATCHMAN[supreg] System. This resulted in an average 
case-weighted standardized charge per case of $176,943. The applicant 
calculated an average case-weighted threshold of $107,345 across all 
MS-DRGs. Therefore, the applicant asserted that the average case-
weighted standardized charge per case exceeds the average case-weighted 
threshold and maintained that the technology meets the cost criterion.
    The second analysis focused on cases reporting ICD-9-CM procedure 
code 37.90, and assigned to MS-DRGs 250 (Percutaneous Cardiovascular 
Procedure without Coronary Artery Stent with MCC) and 251 (Percutaneous 
Cardiovascular Procedure without Coronary Artery Stent without MCC). 
According to the applicant, these are the MS-DRGs to which cases using 
the WATCHMAN[supreg] System in the delivery of treatment as the 
principal procedure performed during the inpatient stay are assigned. 
The applicant found a total of 122 cases, and noted that 9.02 percent 
of the total number of cases would map to MS-DRG 250, and 90.98 percent 
of the total number of cases would map to MS-DRG 252. Similar to above, 
the applicant noted that the MedPAR file contained claims that were 
returned to the provider reporting charges for actual cases from 
clinical trials that used the WATCHMAN[supreg] System that were well 
below post-FDA approval pricing. Therefore, the applicant removed the 
premarket device-related charges. The applicant then standardized the 
charges, applied an inflation factor of 1.096898 based on the 2-year 
charge inflation factor listed in the FY 2014 IPPS/LTCH final rule (78 
FR 50982), and then added post FDA-approval charges for the 
WATCHMAN[supreg] System. This resulted in an average case-weighted 
standardized charge per case of $113,210. The applicant calculated an 
average case-weighted threshold of $68,093. The applicant asserted that 
the average case-weighted standardized charge per case exceeds the 
average case-weighted threshold. Therefore, the applicant maintained 
that the technology meets the cost criterion. We are inviting public 
comments on whether the WATCHMAN[supreg] System meets the cost 
criterion, particularly with regard to the assumptions and methodology 
used in the applicant's analysis.
    The applicant asserted in its application that the WATCHMAN[supreg] 
System meets the substantial clinical improvement criterion. The 
applicant believed that the WATCHMAN[supreg] System provides a 
permanent solution proven to reduce the risk of thromboembolic stroke 
in patients diagnosed with high-risk, nonvalvular AF, and who are 
eligible for Warfarin therapy. Therefore, the applicant believed that 
the WATCHMAN[supreg] System fulfills a major unmet clinical need. 
According to the applicant, clinical trial data

[[Page 28044]]

demonstrated non-inferiority of the WATCHMAN[supreg] System compared to 
Warfarin therapy. Further, long-term follow-up data suggested 
superiority compared to Warfarin therapy by demonstrating 40 percent 
relative reduction of primary efficacy events, and 60 percent relative 
reduction for CV mortality. The applicant also stated that, procedure 
complication rate is low, with the majority of events occurring soon 
before, during, or soon after the procedure.
    The applicant submitted multiple clinical trial studies to 
demonstrate that the technology represents a substantial clinical 
improvement. Specifically, the WATCHMAN[supreg] System United States 
clinical program included five studies with approximately 2000 
patients. There were two prospective, randomized-controlled trials 
(PROTECT AF 9 10 11 12 and PREVAIL \13\ \14\), two continued 
access registries for patients who completed PROTECT AF and PREVAIL 
(CAP and CAP2, respectively), and the ASAP feasibility study.
---------------------------------------------------------------------------

    \9\ Wrigley, B., Lip, G., ``Can the WATCHMAN device truly 
PROTECT from stroke in atrial fibrillation?'', Lancet Neurology, 
2009.
    \10\ Reddy, V., Holmes, D., Doshi, S., et al. ``Safety of 
percutaneous left atrial appendage closure: Results from the 
WATCHMAN left atrial appendage system for embolic protection in 
patients With AF (PROTECT AF) clinical trial and the Continued 
Access Registry. Circulation.'' Vol. 123, 2011.
    \11\ Reddy, V., Doshi, S., Sievert, H., et. al., ``Percutaneous 
left atrial appendage closure for stroke prophylaxis in patients 
with atrial fibrillation: 2.3-year follow up of the PROTECT AF 
(Watchman Left Atrial Appendage System for embolic protection in 
patients with atrial fibrillation) trial,'' Circulation., 2013, Vol. 
127, pp. 720-729.
    \12\ Alli, O., Doshi, S., Kar, S., et al., ``Quality of Life 
Assessment in the Randomized PROTECT AF Trial of Patients at Risk 
for Stroke With Non-Valvular Atrial Fibrillation,'' Journal of 
American College of Cardiology, Vol. 61, No 17, 2013, pp. 1790-1798.
    \13\ Landmesser, U., Holmes, D., ``Left atrial appendage 
closure: A percutaneous transcatheter approach for stroke prevention 
in atrial fibrillation,'' European Heart Journal, Vol. 33, 2012.
    \14\ Homes, D.R. PREVAIL Results CIT, 2013.
---------------------------------------------------------------------------

    According to the applicant, PROTECT AF was a prospective, 
randomized-controlled trial comparing the outcomes of patients who 
received care for LAA closure using the WATCHMAN[supreg] System (463 
patients) with those of patients who were anticoagulated with Warfarin 
therapy (244 patients). The trial was designed to show that the 
WATCHMAN[supreg] System was noninferior to Warfarin therapy. The 
primary outcome was anticipated to occur at a rate of 6.15 per 100 
patient-years in the control group, and the sample size was chosen 
using a ``two-fold non-inferiority margin.'' Because patients could be 
randomized to Warfarin therapy, all patients were eligible to continue 
Warfarin, and did not have an excessive risk of bleeding. By design, 
all patients in PROTECT AF continued Warfarin therapy for 45 days after 
the device implantation procedure.
    Outcome data from PROTECT AF have been reported after mean follow-
ups of 1.5 years, 2.3 years, and 3.7 years. The primary efficacy 
endpoint was the composite of stroke, systemic embolism, cardiovascular 
death, or unexplained death. This primary endpoint occurred in the 
control group at a lower rate than was assumed in the sample size 
calculations: The observed rate was between 3.8 and 4.9 per 100 
patient-years compared with the design estimate of 6.15 per 100 
patient-years. According to the applicant, patients randomly assigned 
to receive the WATCHMAN[supreg] System device in the PROTECT AF trial 
had numerically lower rates of the primary endpoint than the patients 
randomly assigned to Warfarin (also known as Coumadin) at all time 
points. We note that, although the point estimates favor the device for 
the primary endpoint, the differences were not statistically 
significant because the upper 95 percent confidence intervals are all 
above 1.0. However, the secondary endpoint of cardiovascular death was 
reduced significantly, as was all-cause mortality with a rate ratio of 
0.66 (CL 0.45-0.98).
    The criteria for noninferiority of the primary endpoint were met 
over all follow-up intervals. According to the applicant, the 
probability is >99 percent that device-treated patients have no more 
than twice the rate of stroke, embolism, or death than Warfarin-treated 
patients.
    Also, the incidence of procedural-related complications in this 
trial was 8.7 percent. The applicant noted that complications early in 
the trial were related to procedures performed by new users. As a 
result, changes were made to the procedure and physician training, and 
the complication rate subsequently decreased.
    The applicant stated in its application that the Circulatory System 
Devices Advisory Panel to the Division of Cardiovascular Devices (DCD) 
within the Center for Devices and Radiological Health (CDRH) of the FDA 
reviewed the 1-year PROTECT AF data on April 23, 2009. The panel voted 
7:5 in favor of the device, resulting in a positive recommendation for 
``approval with conditions.'' However, noting the complication rate, 
the FDA required additional data collection on procedural safety to 
confirm the lower rates observed in the second half of the trial. As a 
result of this requirement, the PREVAIL trial study was designed in a 
similar fashion to PROTECT AF, but with modifications to trial entry 
criteria and a minimum number of new operators.
    According to the applicant, in the interim, FDA also recognized the 
effectiveness of the WATCHMAN[supreg] System and the need for a new 
therapeutic option for patients receiving Warfarin therapy, and a 
continued access program (CAP) was authorized. With 460 patients 
enrolled, according to the applicant, efficacy rates in the CAP trial 
study were similar to those seen in the PROTECT AF trial study, and 
procedural complications were reduced by over 50 percent compared to 
the PROTECT AF trial study, from 8.7 percent to 4.1 percent.
    From November 2010 to June 2012, the PREVAIL trial enrolled a total 
of 407 patients, 269 of whom received treatment for LAA closure with 
the WATCHMAN[supreg] System, and 138 who received Warfarin therapy. The 
applicant noted that the procedural complication rate was 4.4 percent, 
confirming the rate seen in the second half of the PROTECT AF trial 
study and the CAP trial study. After the PREVAIL trial closed, the FDA 
authorized a second CAP (specifically, CAP2), which has enrolled 336 
patients as of the date the applicant submitted its application.
    The applicant also submitted data concerning patients diagnosed 
with AF who are not on an oral anticoagulant. These patients are not 
protected from stroke by an oral anticoagulant. There may be increased 
periprocedural risk of device implantation because thrombus might form 
on the device surface more readily in patients with no anticoagulation 
(patients in the PROTECT AF trial were treated with Warfarin for 45 
days after the device implantation procedure). Specifically, the ASAP 
Registry (5) enrolled 150 patients, at one of four centers, that had a 
contraindication to even short-term anticoagulation, mostly a history 
of prior bleeding. There was no control group. Device implantation led 
to a serious adverse event in 13 patients (8.7 percent), including one 
case of device thrombus leading to ischemic stroke. Five other patients 
had a device-related thrombus that did not lead to stroke (four of 
these patients were treated with low molecular weight heparin), 
resulting in an overall 4.0 percent incidence (6 out of 150) of device-
associated thrombus. In the PROTECT AF trail study, 20 of the 473 
patients (4.2 percent) had device-associated thrombus, 3 of which led 
to an ischemic stroke. The rates of device-related thrombus are similar 
in the two studies

[[Page 28045]]

(4.0 percent versus 4.2 percent), but the number of patient studied is 
smaller in the ASAP Registry (5) study compared to the PROTECT AF 
clinical trial study.
    In the 14-month follow-up data for the ASAP Registry (5) study, the 
rate of stroke or systemic embolism was 2.3 percent per year, which was 
said to be ``lower than expected'' based on prior data for patients 
diagnosed with AF who were not treated with Warfarin (there was no 
concurrent control group). The data provided suggested efficacy in this 
patient population. However, we are concerned that there is not strong 
evidence that the device prevents stroke.
    All trials in the U.S. clinical program allowed for continued 
follow-up of patients out to 5 years post-randomization. According to 
the applicant, the patients enrolled in the PROTECT AF clinical trial 
now have an average of 3.8 years of follow-up. The applicant asserted 
that an analysis of this long-term data demonstrates superior primary 
efficacy outcomes of the WATCHMAN[supreg] System over Warfarin therapy.
    The applicant concluded that the WATCHMAN[supreg] System provides a 
permanent solution to reduce the risk of ischemic strokes caused by 
thromboemboli originating in the LAA in patients diagnosed with 
nonvalvular AF. The applicant further stated that, the data demonstrate 
that LAA closure using the WATCHMAN[supreg] System is a substantial 
improvement in care as compared to currently available pharmacologic 
therapy, such as Warfarin therapy.
    The WATCHMAN[supreg] System may be used in two populations: (1) 
Patients who could take Warfarin (or other oral anticoagulant), but 
would prefer to avoid the risk of bleeding from anticoagulant therapy; 
(2) patients who are not eligible for oral anticoagulation therapy 
because of an unacceptable risk of bleeding. Most of the clinical 
evidence presented by the applicant is from the former group, and the 
applicant has requested from the FDA that the label indication be for 
``high risk patients with nonvalvular atrial fibrillation who are 
eligible for warfarin therapy, but, for whom the risks posed by long-
term warfarin therapy outweigh the benefits.''
    We are concerned that the evidence presented by the applicant 
demonstrating the superiority of the WATCHMAN[supreg] System compared 
to Warfarin therapy is insufficient. The clinical study discussed above 
was designed to demonstrate that the WATCHMAN[supreg] is noninferior to 
Warfarin therapy. Specifically, in the PREVAIL AF trial study, the 
primary endpoint was not significantly improved in the conventional 
hypothesis testing statistical analysis at any time point. The longer 
term data has improved efficacy and safety data, but still remain 
sparse. Even for the secondary patient population ineligible for 
anticoagulation therapy, the evidence remains weak as the only data 
comes from the ASAP Registry (5) observational study of 150 patients 
without a concurrent control group.
    A recent article in the Journal of the American College of 
Cardiology echoes these concerns: ``Current issues compromising the 
implementation of procedural approaches for stroke prevention in AF are 
discussed herein and include: (1) Lack of multiple randomized clinical 
trials; (2) lack of consensus regarding the appropriate target 
population to study; and (3) ability to obtain approval of devices for 
outcome measures of unconfirmed clinical importance, such as, the use 
of complete closure of the LAA at the time of the index procedure as a 
surrogate for clinical efficacy.'' \15\
---------------------------------------------------------------------------

    \15\ Holmes, D.R., et. al., ``Left Atrial Occlusion,'' Journal 
of American College of Cardiology, 2014, Vol. 63, pp. 291-8.
---------------------------------------------------------------------------

    We are inviting public comments on whether this technology meets 
the substantial clinical improvement criterion, particularly regarding 
our concerns discussed above.
    We did not receive any public comments in response to the New 
Technology Town Hall meeting held on February 12, 2014 in regard to 
this technology.
d. CardioMEMSTM HF (Heart Failure) System
    CardioMEMS, Inc. submitted an application for new technology add-on 
payment for FY 2015 for the CardioMEMSTM HF (Heart Failure) 
System, which is an implantable hemodynamic monitoring system comprised 
of an implantable sensor/monitor placed in the distal pulmonary artery. 
Pulmonary artery hemodynamic monitoring is used in the management of 
heart failure. The CardioMEMSTM HF System measures multiple 
pulmonary artery pressure parameters for an ambulatory patient to 
measure and transmit data via a wireless sensor to a secure Web site.
    The CardioMEMSTM HF System utilizes radiofrequency (RF) 
energy to power the sensor and to measure pulmonary artery (PA) 
pressure and consists of three components: An Implantable Sensor with 
Delivery Catheter, an External Electronics Unit, and a Pulmonary Artery 
Pressure Database. The system provides the physician with the patient's 
PA pressure waveform (including systolic, diastolic, and mean 
pressures) as well as heart rate. The sensor is permanently implanted 
in the distal pulmonary artery using transcatheter techniques in the 
catheterization laboratory where it is calibrated using a Swan-Ganz 
catheter. PA pressures are transmitted by the patient at home in a 
supine position on a padded antenna, pushing one button which records 
an 18-second continuous waveform. The data also can be recorded from 
the hospital, physician's office or clinic.
    The hemodynamic data, including a detailed waveform, are 
transmitted to a secure Web site that serves as the Pulmonary Artery 
Pressure Database, so that information regarding PA pressure is 
available to the physician or nurse at any time via the Internet. 
Interpretation of trend data allows the clinician to make adjustments 
to therapy and can be used along with heart failure signs and symptoms 
to adjust medications.
    The applicant believed that a large majority of patients receiving 
the sensor would be admitted as an inpatient to a hospital with a 
diagnosis of acute or chronic heart failure, which is typically 
described by ICD-9-CM diagnosis code 428.43 (Acute or chronic combine 
systolic and diastolic heart failure) and the sensor would be implanted 
during the inpatient stay. The applicant stated that for safety 
considerations, a small portion of these patients may be discharged and 
the sensor would be implanted at a future date in the hospital 
outpatient setting. In addition, there would likely be a group of 
patients diagnosed with chronic heart failure who are not currently 
hospitalized, but who have been hospitalized in the past few months for 
whom the treating physician believes that regular pulmonary artery 
pressure readings are necessary to optimize patient management. 
Depending on the patient's status, the applicant stated that these 
patients may have the sensor implanted in the hospital inpatient or 
outpatient setting.
    The applicant anticipates FDA approval and commercial launch in the 
second quarter of 2014. The CardioMEMSTM HF System is 
currently described by ICD-9-CM procedure code 38.26 (Insertion of 
implantable pressure sensor without lead for intracardiac or great 
vessel hemodynamic monitoring). We are inviting public comments 
regarding how the CardioMEMSTM HF System meets the newness 
criterion.
    With respect to cost criterion, the applicant submitted actual 
claims from

[[Page 28046]]

the CHAMPION \16\ clinical trial. Of the 550 patients enrolled in the 
trial, the applicant received 310 hospital bills. The applicant 
excluded the following claims: Incomplete or missing procedure codes, 
incomplete charge information and bills that were statistical outliers 
(three standard deviations away from the geometric mean). This resulted 
in a final cohort of 138 claims. The applicant noted that cases treated 
with the CardioMEMSTM HF System would typically map to MS-
DRG 264 (Other Circulatory System Operating Room Procedures). Using the 
138 clinical trial claims, the applicant standardized the charges and 
added charges for the CardioMEMSTM HF System (because the 
clinical trial claims did not contain charges for the 
CardioMEMSTM HF System). This resulted in an average case-
weighted standardized charge per case of $79,218.
---------------------------------------------------------------------------

    \16\ Abraham WT, Adamson PB, Bourge RC, Aaron MF, Costanzo MR, 
Stevenson LW, Strickland W, Neelagaru S, Raval N, Krueger S, Weiner 
S, Shavelle D, Jeffries B, Yadav JS; for the CHAMPION Trial Study 
Group. Wireless pulmonary artery haemodynamic monitoring in chronic 
heart failure: a randomised controlled trial, Lancet, February 19, 
2011, Vol. 377(9766), pp:658-666.
---------------------------------------------------------------------------

    Using the FY 2014 Table 10 thresholds, the threshold for MS-DRG 264 
is $60,172. Because the average case-weighted standardized charge per 
case exceeded the threshold amount, the applicant maintained that the 
CardioMEMSTM HF System would meet the cost criterion. We are 
inviting public comments on whether or not the CardioMEMSTM 
HF System meets the cost criterion.
    With regard to substantial clinical improvement, the applicant 
asserted that elevated PA pressures occur prior to signs and symptoms 
of heart failure and changes in PA pressures provide a sound 
physiologic basis for its management. The applicant also contended 
that, until the creation of the CardioMEMS wireless PA implant, 
knowledge of PA pressure was only feasible in the hospital with the 
performance of a right heart catheterization. According to the 
applicant, the CardioMEMSTM HF System provides physicians 
knowledge of PA pressure while the patient is at home, allowing 
proactive management to prevent heart failure decompensation and 
hospitalization.
    The applicant cited clinical data from the CHAMPION trial. The 
trial is a prospective, multicenter, randomized, single-blinded 
clinical trial conducted in the United States, designed to evaluate the 
safety and efficacy of the CardioMEMSTM HF System in 
reducing heart failure-related hospitalizations in a subset of subjects 
suffering from heart failure. The applicant shared several major 
findings from the CHAMPION trial as described below.
    The primary efficacy endpoint of the CHAMPION trial was the rate of 
HF hospitalizations during the first 6 months of randomized access. 
There were 84 heart failure hospitalizations in the treatment group 
compared with 120 heart failure hospitalizations in the control group. 
This difference between the groups represented a 28-percent reduction 
in the rate of hospitalization for heart failure in the treatment group 
(0.32 hospitalizations per patient in the treatment group versus 0.44 
hospitalizations per patient in the control group, p = 0.0002). 
Although not a primary end point, the rate of HF hospitalizations after 
18 months was 33 percent lower in the treatment group than in the 
control group.
    According to the applicant, secondary endpoints of the CHAMPION 
trial are changes in pulmonary artery pressures, proportion of subjects 
hospitalized, days alive outside of the hospital, quality of life 
(QOL), and heart failure management which demonstrated the following 
results:
     Pulmonary Artery Pressures: At baseline, both treatment 
and control patients had similar PA mean pressures. The change in 
pressure over the first 6 months was evaluated by integrating the area 
under the pressure curve (AUC). At 6 months of follow-up, the treatment 
group had a significantly greater reduction in AUC of -155.7 mmHg days 
compared to the control group which had an increase in AUC of +33.1 
mmHg-days; p = 0.0077.
     Proportion of Subjects Hospitalized: During the 6-month 
follow-up period, the proportion of subjects hospitalized for 1 or more 
HF hospitalizations was significantly lower in the treatment group (55 
out of 270 patients) than in the control group (80 out of 280 patients) 
(20.4 percent versus 28.6 percent; p = 0.0292).
     Days Alive Outside of the Hospital: At 6 months, treatment 
patients had a nonsignificant and clinically not meaningful increase in 
days alive outside of the hospital (174.4 versus 172.1; p = 0.0280) and 
fewer average days in the hospital (2.2 versus 3.8; p = 0.0246) 
compared to control patients.
     Quality of Life: The heart failure specific quality of 
life was assessed with the MLHFQ total score at 6 months. The average 
total score in the treatment group was 45.2  26.4 which was 
significantly better than the average total score in the control group 
50.6  24.8 (p = 0.0236). The difference in total quality of 
life was primarily due to the physical domain. The average physical 
score for the treatment group (19.8  11.2) was 
significantly better than the control group (22.4  10.9) (p 
= 0.0096). There was also a significant difference in the emotional 
domain with an average score of 9.5  8.1 for the treatment 
group and 11.0  7.7 for the control group (p = 0.0398).
     Heart Failure Management: Physicians responded to 
treatment of patients' elevated PA pressures by making medication 
changes to lower PA pressures and reduce the risk for HF 
hospitalization. Physicians documented all medication changes for all 
patients and indicated whether the change was made in response to PA 
pressures or standard of care information. During the 6-month follow-up 
period, physicians made approximately one additional HF medication 
change per patient per month in the treatment group when compared to 
the control group. Specifically, treatment patients had 1.55 medication 
changes per month on average compared to control patients having 0.65 
medication changes per month (p < 0.0001). The difference in HF 
management between the treatment and control group was due to HF 
medication changes made in response to PA pressures.
    The study met the two primary safety endpoints: (1) Freedom from 
device/system related complications (DSRC); and (2) freedom from sensor 
failure. The protocol pre-specified objective performance criterion 
(OPC) were that at least 80 percent of patients were to be free from 
DSRC and at least 90 percent were to be free from pressure sensor 
failure. Of the 575 patients in the safety population, 567 (98.6 
percent) were free from DSRC at 6 months (lower confidence limit 97.3 
percent, p < 0.0001). This lower limit of 97.3 percent is greater than 
the pre-specified OPC of 80 percent. There were no sensor explants or 
repeat implants and all sensors were operational at 6 months for a 
freedom from sensor failure of 100 percent (lower confidence limit 99.3 
percent, p < 0.0001). This lower limit of 99.3 percent is greater than 
the pre-specified OPC of 90 percent.
    The applicant also noted that the CardioMEMSTM HF System 
reduces the occurrence of HF hospitalizations in NYHA Class III heart 
failure patients. According to the applicant, the device had very few 
device and system related complications occurring over the course of 
the clinical trial. All primary and secondary study endpoints were 
successfully achieved. In addition, the CHAMPION trial suggests the 
safety and effectiveness of the device was

[[Page 28047]]

maintained during longer term follow-up.
    After reviewing the information provided by the applicant, we have 
the following concerns. The applicant did not discuss long-term 
outcomes, specifically death. We believe additional long-term outcome 
information and how the technology changes long-term outcomes would 
further assist in our determination of whether the technology 
represents a substantial clinical improvement. With regard to the 
clinical trial, information from the randomized access period and the 
open access period did not include the total number of deaths in each 
group. While the data support a reduction in total hospitalizations, 
the rate of hospitalization in each group (0.32 versus 0.44) does not 
appear to be clinically meaningful. This is supported by total days 
alive out of the hospital being virtually identical in both groups. 
Finally, we are concerned about the cause of the significant dropouts 
in the Kaplan Meier curves which further demonstrates lack of impact on 
survival. We are inviting public comments on whether or not the 
CardioMEMSTM HF Monitoring System technology represents a 
substantial clinical improvement in the Medicare population.
    We received public comments via email in response to the February 
12, 2014 New Technology Town Hall meeting in regard to this technology. 
We summarize these comments below.
    Comment: Commenters supported the approval of new technology add-on 
payments for the CardioMEMSTM HF System. One commenter 
stated that it had personal experience with the CardioMEMSTM 
HF System. The commenter explained that having access to a patient's 
daily pressures provides trend data. The commenter further explained 
that if there is a variation or increase in a patient's pressure, the 
physician can contact the patient over the phone and conduct an 
evaluation to look for increased symptoms or to learn if the patient 
has skipped their diuretics. The device prompts the clinician to ask 
questions such as what is different today than yesterday and if the 
patient is feeling okay, especially if the patient has not taken a 
pressure rate in a few days. Based on the answer to these questions or 
if the clinician has concerns, the primary investigator or the 
patient's primary cardiologist can assess the pressures and symptoms 
and decide the next course of treatment for the patient. The commenter 
believed that this structured and consistent monitoring has kept many 
patients out of the hospital.
    The commenter noted that the monitoring of pressures to assess 
clinical status before the patient recognizes symptoms for chronic CHF 
patients with significant left ventricular dysfunction can be very 
useful. The commenter explained that these patients are accustomed to 
being sick and tend to ignore the first symptoms and do not seek 
treatment until they are unable to breathe. The commenter noted that 
often a clinician can increase the patient's home medications before 
pressures get too high.
    The commenter also noted that, for patients who go to a CHF clinic 
on a regular basis, typically patient information of pressure trends, 
along with symptoms and laboratory results, can help determine if 
medications should be given that day. The commenter stated that extra 
information from the CardioMEMSTM HF System can change the 
way physicians treat the patient and has, in many instances, at its 
site. The commenter concluded the CardioMEMSTM HF System 
provides a substantial clinical benefit versus current methods for 
managing heart failure.
    Another commenter stated that the implant procedure was very simple 
and straightforward for patients, especially compared to having a 
pacemaker or defibrillator implanted. The commenter further stated that 
the device is compatible with defibrillators and cardiac 
resynchronization therapy, which are present in many advanced heart 
failure patients. The commenter added that the CardioMEMSTM 
HF System is a wireless device and does not involve addition of another 
intracardiac lead. Aside from regular pressure readings, the commenter 
noted that it found unexpected intake issues for some patients who were 
unknowingly consuming certain high-sodium foods. The commenter noted 
that they were able to reduce sodium intake further to help reduce 
pressures. The commenter also noted that it presented a case report of 
increasing pressures in a patient in whom the primary investigator 
adjusted diuretic therapy and later the patient's ACE-Inhibitor and 
nitrates. The commenter stated that it successfully lowered pressures 
and avoided a probable heart failure hospitalization. The commenter 
added that the CardioMEMSTM HF System allows hospitals to 
easily obtain pressures at home for transmission and the ability to 
check pressures rather than perform right heart catheterization if a 
patient was admitted to the hospital.
    The commenter also stated that patients found transmission of their 
data easy and were surprised how quickly the data was sent to the 
clinic. The commenter added that it had patients that liked the 
portability of the home electronic equipment, which allowed them to 
take it with them on long weekends or vacations. The commenter added 
that this information was advantageous as it further allowed clinicians 
to implement changes in a timely manner.
    The commenter noted the following trial results in its clinic, 
which the commenter believed confirm the benefit of hemodynamic 
monitoring: A 28-percent reduction in heart failure hospitalization at 
6 months and a 15-percent reduction at 15 months. The commenter noted 
that there were no sensor failures and 98.6 percent of patients 
remained free from device or system complications. The commenter 
further noted that it did not experience any complications in patients 
who were implanted with the device. The commenter did explain that 
inevitably, due to the nature of heart failure, several patients 
eventually required advanced therapies with transplantation or 
ventricular assist device support without any issue from the sensor. 
The commenter also noted some additional key points such as: A 
reduction in hospitalization for patients with preserved ejection 
fraction; in addition to diuretic adjustment, the study found nitrates 
were also adjusted, which further supports use of the device to 
optimize vasodilator therapy for pulmonary hypertension and afterload 
reduction in this patient population. The commenter concluded that, for 
the reasons stated above, the CardioMEMSTM HF System 
provides a substantial clinical benefit versus current methods for 
managing heart failure.
    One commenter stated that the CardioMEMSTM HF System 
provides clinicians with daily remotely monitored pulmonary artery 
pressure and has been proven clinically and dramatically to reduce 
heart failure hospitalizations. The commenter cited the CHAMPION IDE 
trial, which was a prospective, multicenter, single-blind, clinical 
study that enrolled 550 patients randomized to treatment guided by the 
CardioMEMSTM HF System verses optimal medical therapy. The 
commenter stated that the trial met all of its primary safety and 
efficacy endpoints; reducing heart failure hospitalizations by 28 
percent 6 months after implant (p = 0.0002). The commenter further 
stated that the reduction in heart failure hospitalizations increased 
over time reaching 33 percent (p < 0.0001) at 17 months after implant. 
In addition, the

[[Page 28048]]

commenter asserted that the system was shown to be extremely safe, with 
almost 99 percent of patients free from device or system complications.
    The commenter also stated that one criterion CMS uses to evaluate 
substantial clinical improvement is that the device offers the ability 
to diagnose a medical condition earlier in a patient population than 
allowed by currently available methods. The commenter believed that 
there is evidence that use of the CardioMEMSTM HF System to 
make a diagnosis affects the management of the patient. The commenter 
added that the CHAMPION trial demonstrated that therapy guided by 
CardioMEMSTM HF System allows physicians to titrate 
medications earlier and more effectively reduce heart failure 
hospitalizations. The commenter noted that this information is not 
available with any other device or treatment alternative.
    The commenter further stated that another of CMS' criteria is that 
use of the device significantly improves clinical outcomes for a 
patient population as compared to currently available treatments, such 
as a decreased number of future hospitalizations. The commenter stated 
that evidence provided in the CHAMPION trial at 6 months showed a 28-
percent reduction in heart failure hospitalizations and even a larger 
reduction of 33 percent during long-term follow-up at 17 months. Based 
on the criteria outlined by CMS and the evidence supporting the 
CardioMEMSTM HF System, the commenter believed that the 
CardioMEMSTM HF System meets the criteria for substantial 
clinical improvement.
    Another commenter, the applicant, reiterated the statements set 
forth above in the substantial clinical improvement discussion.
    Response: We appreciate the commenters' support. We considered 
these comments in our evaluation of the CardioMEMSTM HF 
System for new technology add-on payments for FY 2015 and in the 
development of this proposed rule. As stated above, we are inviting 
additional public comments on whether or not the 
CardioMEMSTM HF System represents a substantial clinical 
improvement in the Medicare population.
e. MitraClip[supreg] System
    Abbott Vascular submitted an application for new technology add-on 
payments for the MitraClip[supreg] System for FY 2015. (We note that 
the applicant submitted an application for new technology add-on 
payments for FY 2014 but failed to receive FDA approval by the July 1 
deadline.) The MitraClip[supreg] System is a transcatheter mitral valve 
repair 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 
repair 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 left ventricle. If the amount of blood that leaks backwards 
into the left ventricle is minimal, then intervention is usually not 
necessary. However, if the amount of blood that is regurgitated 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 MR can lead 
to heart failure and death. The American College of Cardiology (ACC) 
and the American Heart Association (AHA) issued practice guidelines in 
2006 that recommended intervention for moderate/severe or severe MR 
(grade 3+ to 4+). The applicant stated that the MitraClip[supreg] 
System is ``indicated for percutaneous reduction of significant mitral 
regurgitation . . . in patients who have been determined to be at 
prohibitive risk for mitral value surgery by a heart team, which 
includes a cardiac surgeon experienced in mitral valve surgery and a 
cardiologist experienced in mitral valve disease and in whom existing 
comorbidities would not preclude the expected benefit from correction 
of the mitral regurgitation.''
    The MitraClip [supreg] System 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 of MR since the early 1990s. 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. 
When the suture is placed in the middle of the valve, the valve will 
have a functional double orifice during diastole.''
    With regard to the newness criterion, the MitraClip[supreg] System 
received a premarket approval from the FDA on October 24, 2013. The 
MitraClip[supreg] System is indicated ``for the percutaneous reduction 
of significant symptomatic mitral regurgitation (MR >= 3+) due to 
primary abnormality of the mitral apparatus (degenerative MR) in 
patients who have been determined to be at prohibitive risk for mitral 
valve surgery by a heart team, which includes a cardiac surgeon 
experienced in mitral valve surgery and a cardiologist experienced in 
mitral valve disease, and in whom existing comorbidities would not 
preclude the expected benefit from reduction of the mitral 
regurgitation.'' The MitraClip[supreg] System became immediately 
available on the U.S. market following FDA approval. The 
MitraClip[supreg] System is a Class III device, and has an 
investigational device exemption (IDE) for the EVEREST study 
(Endovascular Valve Edge-to-Edge Repair Study)--IDE G030061, and for 
the COAPT study (Cardiovascular Outcomes Assessment of the MitraClip 
Percutaneous Therapy for Health Failure Patients with Functional Mitral 
Regurgitation)--IDE G120024. 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] System 
technology.
    Abbott Vascular has also submitted an application for a National 
Coverage Decision (NCD) for the MitraClip[supreg] System device. We 
refer readers to the CMS Web site at: http://www.cms.gov/medicare-coverage-database/details/nca-tracking-sheet.aspx?NCAId=273&NcaName=Transcatheter+Mitral+Valve+(TMV)+Procedures
&TimeFrame=90&DocType=All&bc=AAAAIAAACAAAAA%3d%3d& for information 
related to this ongoing NCD. The tracking sheet for this National 
Coverage Analysis (NCA) indicates an expected NCA completion date of 
August 16, 2014, which is after the FY 2015 IPPS/LTCH PPS final rule is 
scheduled to be published. The processes for evaluation and 
determination of an NCD, and the processes for evaluation and approval 
of an application for new technology add-on payments are made 
independent of each other. However, any payment made under the Medicare 
program for services provided to a beneficiary would be contingent on 
CMS' coverage of the item, and any restrictions on the coverage would 
apply. We are inviting public comments on how the MitraClip[supreg] 
System meets the newness criterion for purposes of new technology add-
on payments and the issues that may arise from concurrent NCD requests 
and new technology add-on payment application review and approval 
processes.

[[Page 28049]]

    With regard to the cost criterion, the applicant conducted two 
analyses. The applicant noted that, while ICD-9-CM procedure code 35.97 
maps 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] System device has 
demonstrated that it is extremely rare for a patient to receive stents 
concurrently during procedures using the MitraClip[supreg] System 
device. The applicant further cited the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53308) which stated, ``According to the Food and Drug 
Administration's (FDA's) terms of the clinical trial for MitraClip\TM\, 
the device is to be implanted in patients without any additional 
surgeries performed. Therefore, based on these terms, we stated that 
while the procedure code is assigned to MS-DRGs 246 through 251, the 
most likely MS-DRG assignments would be MS-DRGs 250 and 251.'' As a 
result, the applicant stated that it conducted its analyses solely for 
MS-DRGs 250 and 251 to demonstrate that the cases involving the 
MitraClip[supreg] System device meet the incremental cost thresholds 
provided in Table 10 for those MS-DRGs.
    The applicant researched the FY 2012 MedPAR file for claims for 
cases reporting ICD-9-CM procedure code 35.97. Under the first analysis 
and methodology, the applicant noted that this search yielded actual 
claims for cases in which the MitraClip[supreg] System device was used 
in procedures performed in an IDE study type setting, and hospitals 
obtained the MitraClip[supreg] System device at a reduced 
investigational price. The applicant further stated that it is likely 
that hospitals did not report the charges for the investigational 
device, or submitted claims for charges that were significantly less 
than the actual device acquisition costs (we refer readers to the 
explanation below). The applicant found 57 cases in MS-DRG 250 (29.38 
percent of the total number of cases), and 137 cases in MS-DRG 251 
(70.61 percent of the total number of cases), which resulted in an 
average case-weighted standardized charge per case of $232,670.
    The applicant standardized the charges using the FY 2014 IPPS final 
rule impact file, and inflated the result using three different 
inflation factors. We note that, since the applicant used FY 2012 
MedPAR data, we believe it is appropriate to use comparable data for 
standardization. Therefore, we believe use of the FY 2012 final rule 
impact file is more appropriate rather than the FY 2014 final rule 
impact file. The first analysis and methodology used an inflation 
factor of 4.57 percent, which was based on data from the BLS' non-
seasonally adjusted CPI for all urban consumers between January 2011 
and January 2013. This resulted in an average case-weighted 
standardized charge per case of $94,517. The second methodology under 
the first analysis used an inflation factor of 9.92 percent, which was 
based on the 2-year charge inflation factor listed in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50982). This resulted in an average case-
weighted standardized charge per case of $96,199. The third methodology 
used under the first analysis used an inflation factor of 4.63 percent, 
which was based on the Medicare Economic Index (MEI) from the IPPS 
market basket update between the third quarter of 2012 projected 
through the third quarter of 2014. This resulted in an average case-
weighted standardized charge per case of $91,570. The applicant noted 
that all three methodologies used under the first analysis to determine 
each respective average case-weighted standardized charge per case were 
calculated without any adjustments to reflect the reduced 
investigational price, or inadequate hospital claim reporting and 
billing.
    Using the FY 2014 IPPS Table 10 thresholds, the average case-
weighted threshold for MS-DRGs 250 and 251 is $71,467 (all calculations 
above were performed using unrounded numbers). Because the average 
case-weighted standardized charge per case for the applicable MS-DRGs 
calculated under each methodology under the first analysis discussed 
above exceeds the average case-weighted threshold amount, the applicant 
maintained that the technology meets the cost criterion.
    Under the second analysis, which used the same premise as the first 
analysis, the applicant researched the FY 2012 MedPAR file for claims 
for cases reporting procedure code 35.97 that mapped to MS-DRGs 250 and 
251, except that the applicant excluded charges related to the 
MitraClip[supreg] System by removing all charges from the claim that 
would map to the implantable cost center on the cost report. The 
applicant then standardized the charges, inflated the result using the 
three inflation factors above, and added a fixed amount of commercial 
charges based on post-FDA approval pricing. This resulted in an average 
case weighted standardized charge per case of $139,536 under the first 
inflation factor (4.57 percent), $142,364 under the second inflation 
factor (9.2 percent), and $139,568 under the third inflation factor 
(4.63 percent).
    Using the FY 2014 IPPS Table 10 thresholds, the average case-
weighted threshold for MS-DRGs 250 and 251 is $71,467 (all calculations 
above were performed using unrounded numbers). Because the average 
case-weighted standardized charge per case for the applicable MS-DRGs 
calculated under all three methodologies discussed above exceeds the 
average case-weighted threshold amount, the applicant maintained that 
the MitraClip[supreg] System meets 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 two analyses.
    The applicant asserted that the MitraClip[supreg] System meets the 
substantial clinical improvement criterion. Severe MR is associated 
with significant morbidity and mortality rates, and is a progressive 
condition. For symptomatic patients diagnosed with significant MR, 
surgical repair or replacement is considered the gold standard--
offering improvements in symptoms and longer survival rates. However, 
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 diagnosed with severe MR who are too high-risk for 
surgery, who are receiving palliative medical management.
    The applicant also stated that the MitraClip[supreg] System meets 
the substantial clinical improvement criterion based on clinical 
studies \17,18,19,20,21,22,23,24,25\

[[Page 28050]]

that have consistently shown that procedures performed using the 
MitraClip [supreg] System device lead 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, improvement in 
health-related quality of life measures, and reductions in heart-
failure related hospitalizations; and significantly lower mortality 
rates than predicted surgical mortality rates.
---------------------------------------------------------------------------

    \17\ Feldman, et al., ``Percutaneous Repair or Surgery for 
Mitral Regurgitation,'' New England Journal of Medicine, 2011, Vol. 
364, pp. 1395-1406.
    \18\ Foster, et al., ``Percutaneous Mitral Valve Repair in the 
Initial EVEREST Cohort: Evidence of Reverse Left Ventricular 
Remodeling,'' Circulation in Cardivascular Imaging, July 2013, Vol. 
6(4), pp. 522-530.
    \19\ Grayburn, et al., ``The Relationship between the Magnitude 
of Reduction in Mitral Regurgitation Severity and Left Ventricular 
and Left Atrial Reverse Remodeling after MitraClip Therapy,'' 
Circulation in Cardiovascular Imaging, September 2013, epub, 
September 6, 2013.
    \20\ Lim, et al., ``Improved Functional Status and Quality of 
Life in Prohibitive Surgical Risk Patients With Degenerative Mitral 
Regurgitation Following Transcatheter Mitral Valve Repair With the 
MitraClip[supreg] System,'' Journal of American College of 
Cardiology, 2013, In Press, Accepted Manuscript, Available online, 
October 31, 2013.
    \21\ Maisano, F., et al., ``Percutaneous Mitral Valve 
Interventions in the Real World: Early and One Year Results From the 
ACCESS-EU, a Prospective, Multicenter, Non-Randomized Post-Approval 
Study of the MitraClip Therapy in Europ,'' Journal of American 
College of Cardiology, 2013, doi: 10.1016/j.jacc.2013.02.094.
    \22\ Mauri, et al., ``4-Year Results of a Randomized Controlled 
Trial of Percutaneous Repair Versus Surgery for Mitral 
Regurgitation,'' Journal of American College of Cardiology, Volume 
62, Issue 4, 2013, pp. 317-328.
    \23\ Munkholm, et al., ``Asystemic Review on the Safety and 
Efficacy of Percutaneousedge-to-edge Mitral Valve Repair with the 
MitraClip System for high surgical risk candidates,'' Heart, June 
27, 2013.
    \24\ Reichenspurner, H., et al., ``Clinical Outcomes Through 12 
Months in Patients With Degenerative Mitral Regurgitation Treated 
With the MitraClip Device in the ACCESS-EUrope Phase I Trial,'' 
European Journal of Cardiology-and Thoracic Surgy, 2013, Vol. 15, 
pp. 919-927.
    \25\ 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,'' Journal 
of American College of Cardiology, 2012, Vol. 59, pp. 130-139.
---------------------------------------------------------------------------

    The applicant cited clinical data from the EVEREST II High-Risk 
Study and the EVEREST II (REALISM) Continued Access Study/Registry. The 
applicant also cited clinical data from a high-risk cohort of patients 
(the 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 repair surgery; and (2) patients within the EVEREST II (REALISM) 
Continued Access Study/Registry who were too high-risk for surgery 
using identical eligibility inclusion criteria. The applicant also 
cited data from the Prohibitive Risk Degenerative Mitral Regurgitation 
(DMR) Cohort, which is an analysis of retrospectively evaluated high-
risk patients diagnosed with DMR enrolled in the EVEREST II studies 
that had 1-year follow-up available.
    In addition to the published clinical experience from the EVEREST 
studies, the applicant cited data on the use of the MitraClip[supreg] 
System 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] System device group of the ACCESS-EU post-approval 
clinical trial in Europe. The European use of the MitraClip[supreg] 
System device is focused on patients who are too high-risk for surgery, 
and patients who are selected for therapy using a multi-disciplinary 
``heart team'' approach.
    The applicant stated that published reports on the 
MitraClip[supreg] System device and the procedures in which the device 
was used have consistently demonstrated a significant reduction in MR 
incidents that have been durable out to 1, 2, 3, and 4 years. The 
applicant cited the EVEREST II High-Risk Study (an analysis of 78 
patients diagnosed with degenerative or functional MR enrolled in the 
trial), which stated that ``objective measures of MR grade improved in 
the MitraClipTM group, including MR grade of <=2+ in 78 
percent of surviving patients at 1 year. These patients also 
experienced clinically significant improvements in left ventricular 
volume measurements. The clinical significance of these improvements is 
reflected in the NYHA class improvements. At baseline, 89 percent of 
patients were NYHA III/IV, improving to Class I/II in 74 percent of 
surviving patients at 12 months. Quality of life scores also improved 
significantly. Finally, the number of admissions for heart failure was 
significantly reduced compared to the year prior to 
MitraClipTM therapy.''
    The applicant cited clinical outcomes from the Prohibitive Risk DMR 
cohort. These results are the basis of the FDA premarket approval. 
Major effectiveness endpoints evaluated at 12 months demonstrated 
clinically important improvements in MR severity, with MR severity 
grades of 3+/4+ decreasing from 90.4 percent at baseline to 16.7 
percent at 1 year; NYHA Class III/IV decreasing from 86.6 percent at 
baseline to 13.1 percent at 1 year; and the SF-36 Physical/Mental scale 
measuring 33.4/46.6 at baseline increasing to 39.4/52.2 at 1 year.
    The applicant stated in its new technology add-on payment 
application that, ``Heart failure hospitalizations were reduced by 73 
percent in the 12 months post MitraClipTM procedure from the 
12 month pre-MitraClipTM procedure . . .,'' and ``the 
primary safety analysis indicated low procedural (30-day) mortality 
(6.3 percent) after MitraClipTM in comparison with the STS 
predicted surgical mortality risk score for these patients (13.2 
percent).''
    The applicant discussed published results \26\ ``assessing the 
relationship between the magnitude of reduction in MR and left 
ventricular (LV) and left atrial (LA) remodeling after the 
MitraClipTM therapy.'' In this study of patients diagnosed 
with significant (grade 3+ or 4+) DMR or functional MR (FMR), the 
authors found that, ``even reduction of MR severity to moderate (2+) is 
associated with LV and LA reverse remodeling. In both DMR and FMR, 
reduction in left ventricular end-diastolic volume (LVEDV) and LA 
volumes were improved proportionally to the degree of MR reduction at 
one year.''
---------------------------------------------------------------------------

    \26\ Grayburn, et al., ``The Relationship between the Magnitude 
of Reduction in Mitral Regurgitation Severity and Left Ventricular 
and Left Atrial Reverse Remodeling after MitraClip Therapy,'' 
Circulation in Cardiovascular Imaging, September 2013, epub, 
September 6, 2013.
---------------------------------------------------------------------------

    In conclusion, the applicant cited data from the ACCESS-EU study, 
which noted improvement in disease-specific quality of life measures, 
including the Minnesota Living with Heart Failure Questionnaire and 
Six-Minute Walk Test. The applicant also provided data supporting the 
overall safety and effectiveness of the MitraClip[supreg] System device 
in European ``real-world'' outcome studies.
    As noted in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27547 
through 27552), we are concerned that the applicant revised its initial 
FDA request for the use of the MitraClip[supreg] System device in all 
patients diagnosed with significant MR, after learning that the FDA 
expressed concern that the initial study, EVEREST II, demonstrated 
that, while the MitraClip[supreg] System device had clinically 
meaningful improvements in LV volume and QOL, the surgical option had 
better outcomes than the MitraClip[supreg] System device in surgical 
candidates. The FDA then required a second trial focused on high 
surgical risk patients. We note that the data evaluated by the FDA and 
presented by the applicant in its application for new technology add-on 
payments included information from the following:
    [ssquf] EVEREST I feasibility trial; enrollment 2003-2006; 55 
patients.
    [ssquf] EVEREST II RCT; enrollment 2005-2008; 279 patients.

[[Page 28051]]

    [ssquf] EVEREST II High-Risk Study; enrollment 2007-2008; 78 
patients. (A comparator group of 36 patients was identified from 
patients who were screened for the study, but did not meet the mitral 
valve anatomic criteria for placement of the device.)
    [ssquf] EVEREST (REALISM) Continued Access Study and compassionate 
use; enrollment 2009-2013; 49 patients.
    The applicant provided comparisons of various outcomes prior to the 
procedure using the MitraClip[supreg] System device and outcomes 12 
months later. MR severity, LV end diastolic volume, NYHA Class, SF36 
Physical/Mental scale, and heart failure hospitalization rates all had 
clinically meaningful improvements. For the EVEREST II HRS, the 
applicant provided analysis demonstrating a significant survival 
benefit (76 percent versus 55 percent/p <0.047) over the comparator 
group.
    In our review of the clinical trials' data, we have the following 
key points of concern:
     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 if the appropriate target population for the 
MitraClip[supreg] System device has been identified because the 
clinical trials conducted by the applicant included patients diagnosed 
with both DMR and FMR. This makes it difficult to determine which group 
of patients may benefit more, or less, from the new technology. For 
example, in a subgroup analysis of the EVEREST II RCT, the authors 
concluded that, older patients and those patients diagnosed with FMR 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 incidents of MR more than the 
procedures performed using the percutaneous MitraClip[supreg] System 
device. However, both the surgical patients and the patients who were 
treated using the MitraClip[supreg] System device 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 the appropriate target population for this technology.
    We did not receive any public comments in response to the New 
Technology Town Hall meeting held on February 12, 2014 in regard to 
this technology.
f. Responsive Neurostimulator (RNS[supreg]) System
    NeuroPace, Inc. submitted an application for new technology add-on 
payments for FY 2015 for the use of the RNS[supreg] System. (We note 
that the applicant submitted an application for new technology add-on 
payments for FY 2014, but failed to receive FDA approval prior to the 
July 1 deadline.) 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 diagnosed 
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] 
System 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 diagnosed 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 
for, or helpful to, 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 diagnosed with medically 
intractable partial onset seizures. The applicant received FDA 
premarket approval in November 2013. The following ICD-9-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 
substantially all 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 is possible for some 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 treatment using the RNS[supreg] System because 
the technology is an elective procedure.
    The applicant submitted two analyses to demonstrate that the 
technology 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 case-weighted standardized charge per case. The applicant 
maintained that this analysis best represents the anticipated charges 
for the technology because it is based on actual cases treated using 
this technology. The applicant analyzed 163 claims from 28 hospitals 
participating in the clinical trial. Five claims from one hospital 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 case-
weighted standardized charge per case for these 158 claims was $54,691.
    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 for each

[[Page 28052]]

claim, the applicant inflated the charges reported on each claim using 
the BLS' CPI-IP data covering the same period. Specifically, because 
the publicly available FY 2012 MedPAR data do not identify the month of 
the discharge on inpatient claims, but do 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 
2013 CPI-IP. Specifically, the applicant used the following 
assumptions:

----------------------------------------------------------------------------------------------------------------
                                                                                                  Percent change
           FY 2012 calendar quarter                    Midpoint of quarter            CPI IP      to August 2013
----------------------------------------------------------------------------------------------------------------
Q4 2011.......................................  Nov-11..........................         242.672            7.93
Q1 2012.......................................  Feb-11..........................         245.721            6.59
Q2 2012.......................................  May-11..........................         247.646            5.76
Q3 2012.......................................  Aug-11..........................         248.856            5.25
Most recent as of application.................  Aug-13..........................         261.915  ..............
----------------------------------------------------------------------------------------------------------------
Source as cited by applicant: Bureau of Labor Statistics' Web site, accessed October 13, 2013; 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, as presented 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 devices of 0.37 and 0.36, respectively. Third, the 
applicant reviewed data from the (All Payor) Premier database for cases 
performed during 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 CCR of 0.50 used in the 
applicant's analyses.
    Using this approach, the applicant added the anticipated hospital 
charge for the implantable RNS[supreg] System to the average case-
weighted standardized charge per case, and determined a final average 
case-weighted standardized charge per case of $128,723. The anticipated 
hospital charge for the implantable RNS[supreg] System is $73,900. 
Using the FY 2014 IPPS Table 10 thresholds, the threshold for MS-DRG 
024 is $91,197. Because the final average case-weighted standardized 
charge per case of $128,723 for MS-DRG 024 exceeds the average case-
weighted threshold amount, the applicant maintained that the 
RNS[supreg] System meets the cost criterion.
    In the second analysis, which the applicant characterizes as 
supplementary, the applicant researched the FY 2012 MedPAR file for 
cases reporting the following combinations of ICD-9-CM procedures 
codes: 02.93 and 86.95, or procedures codes 02.93 and 01.20 that mapped 
to MS-DRG 024. The applicant found 383 claims for cases 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 383 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 did represent the implantation of leads only. The applicant 
contacted two hospitals that reported claims for cases where total 
covered charges were less than the charges for a full DBS system, and 
the hospitals confirmed that their claims represented lead 
implantations only. Therefore, for the second analysis, the applicant 
included all of the cases assigned to MS-DRG 024 reporting a 
combination of ICD-9-CM procedures codes 02.93 and 86.95, and all of 
the cases assigned to MS-DRG 024 reporting a combination of 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 374 claims from 106 providers met this 
criterion, and data represented claims from the fourth calendar quarter 
of 2011 through the third calendar quarter of 2012. Based on this 
assumption, the applicant calculated an average case-weighted 
standardized charge per case of $65,555.
    The applicant then removed DBS charges from the average case-
weighted standardized charge per case. The applicant estimated charges 
for a full DBS system, and maintained that the average cost for a full 
DBS system is $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 a full DBS system of $51,958. After removing the 
DBS system charges, the applicant inflated the charges to the current 
period using the same methodology in the first analysis, added charges 
for the RNS[supreg] System, and determined a final average case-
weighted standardized charge per case of $130,233. As noted above, the 
anticipated hospital charge for the implantable RNS[supreg] System is 
$73,900. Using the FY 2014 IPPS Table 10 thresholds, the average case-
weighted threshold for MS-DRG 024 is $91,197. Because the final average 
standardized charge per case of $130,233 for MS-DRG 024 exceeds the 
threshold amount, the applicant maintained that the RNS[supreg] System 
meets the cost criterion.
    Under either analysis, the applicant maintained that the final 
average case-weighted standardized charge per case would exceed the 
average 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 diagnosed with partial

[[Page 28053]]

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 diagnosed with partial onset seizures who 
fail treatment with antiepileptic medications, or VNS therapy, and who 
are ineligible for resective surgery because of the extent and/or 
location of the seizure focus, or patients who do not elect surgery. 
According to the applicant, the RNS[supreg] System clinical trials 
provide Class I evidence that treatment using the RNS[supreg] System 
substantially reduces disabling seizures in patients diagnosed 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 conducted a 
feasibility trial, which was designed to demonstrate adequate safety of 
its treatment, and provide evidence of effectiveness to support 
commencement of a randomized double-blinded pivotal trail. In addition, 
the applicant has an ongoing long-term treatment clinical investigation 
trial (LTT trial) to assess the long-term safety and effectiveness of 
the treatment on patients who have completed either the Feasibility 
trial, or the RNS[supreg] System Pivotal trial for an additional seven 
years. The LTT trial started in April 2006, and the final patient is 
expected to complete the trial in 2018. The applicant noted that 
patients enrolled in the LTT trial continued to experience a reduction 
in seizures over several years of follow-up, further demonstrating the 
positive effect of responsive stimulation from the RNS[supreg] System 
is durable.
    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&fnl; 
compared to the control group (p = 0.012). Significant improvements at 
1 and 2 years post-implant included:
     A significant reduction in disabling seizures of 44 
percent and 53 percent at 1 and 2 years, respectively;
     Fifty-five percent of patients who reached 2 years post-
implant experienced a 50 percent or greater reduction in seizures; 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 using 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 
one or two seizure foci who have failed two 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 onset 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 measures compare favorably to alternative treatments, such 
as antiepileptic medications, VNS, and epilepsy surgery.
    With regard to the substantial clinical improvement criterion, we 
are concerned that the average age of the patients enrolled in the 
applicant's trials 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 because of the relatively young 
age of the majority of the 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.
    Because the applicant included claims with DBS charges 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 public comments in response to the New Technology Town 
Hall meeting held on February 12, 2014, regarding this technology and 
the application for new technology add-on payments. We summarize these 
comments below.
    Comment: One commenter, a physician, stated that even with the 
release of multiple new antiepileptic medications in the past 20 years, 
over one-third of people diagnosed with epilepsy cannot obtain adequate 
seizure control. The commenter noted that seizures lead to loss of 
employment and driving licenses and are socially disabling. The 
commenter further noted that uncontrolled seizures can cause physical 
injury and even significantly increased risk of death. The commenter 
stated that only a fraction of these patients are candidates for 
potentially curative resective brain surgery and antiepileptic 
medications can have disabling or severe adverse effects, such as 
lethargy, ataxia, organ or blood cell damage, Stevens-Johnson syndrome, 
and psychiatric changes including suicidal ideation. For this reason, 
the commenter believed that new treatments are still needed.
    The commenter asserted that the RNS[supreg] System represents a 
much needed new therapy for patients who are desperate to get seizures 
under control and lead a productive life. The commenter stated that of 
its patients that participated in the clinical trials, these patients 
have demonstrated significant and sustained benefits from treatment 
with the RNS[supreg] System. The commenter noted that two patients had 
a significant reduction in the amount of seizures per month, and are 
now able to obtain driver licenses and both show improved quality of 
life.
    The commenter also noted that the RNS[supreg] System is a unique 
therapy for the following reasons: (1) While medications are chemicals 
that circulate to every organ, the RNS[supreg] System delivers therapy 
directly to the epileptic focus; (2) RNS[supreg] therapy is delivered 
automatically, avoiding compliance problems that occur with 
medications; and (3) the RNS[supreg] System constantly records data on 
seizure occurrences that is available to the clinician at any time 
which can track a patient's progress without depending on the patient's 
memory or willingness to report seizures. The commenter asserted that 
no other therapy offers this capability.
    The commenter urged CMS to approve the new technology add-on 
payment application for the RNS[supreg] System, which the commenter 
believed would help ensure access to this novel therapy for Medicare 
beneficiaries for whom there are otherwise no good treatment options 
available.

[[Page 28054]]

    Another commenter, also a physician, stated that some of the 
benefits of the RNS[supreg] System therapy include a significant 
reduction in the seizure frequency and severity, and for some patients, 
extended periods of seizure freedom. The commenter explained that this 
reduction in the seizure frequency improves over time, is sustained 
over several years of follow-up, and can result in improved cognition 
and a better quality of life. The commenter further stated that some 
patients have been able to live independently for the first time in 
their life, take care of children, resume driving, go back to school 
and/or obtain employment. The commenter concluded the following 
comparisons between the RNS[supreg] System and the vagus nerve 
stimulator (VNS):
     In clinical trials, the RNS[supreg] System subjects 
experienced a greater reduction in seizures than VNS subjects. The 
median percent reduction in seizures was: 1 year: RNS--44 percent and 
VNS--31 percent; 2 years: RNS--53 percent and VNS--41 percent.
     VNS therapy results in stimulation-related side effects, 
including coughing, difficulties with speech and throat pain. 
RNS[supreg] therapy does not result in chronic side effects.
     About one-third of patients in RNS[supreg] System pivotal 
trial had previously failed therapy with a VNS. These subjects achieved 
the same positive improvements in health outcomes from the RNS[supreg] 
System as patients that had not previously tried a VNS.
     In the commenter's experience, not only is the frequency 
of the seizure activity improved but also the severity of the seizures 
can improve with the RNS[supreg] System.
    The commenter further noted the ``positive long-term results of RNS 
therapy.'' The commenter stated that therapy is being evaluated in the 
ongoing LTT trial, in which patients are enrolled for an additional 7 
years after completing the initial 2-year clinical trial with some 
patients having the implant for over 9 years. The commenter asserted 
that the long-term data clearly show that the therapy is durable. 
Specifically, the commenter noted that seizure reductions are 
maintained at 50 percent or greater through 7 years (that is, the 
median percent reduction in seizures is about 60 percent at 7 years). 
The commenter added that the vast majority of its patients have elected 
to continue treatment with the device given their response to the 
RNS[supreg] therapy. The commenter encouraged CMS to approve new 
technology add-on payments for the RNS[supreg] System.
    Response: We appreciate the commenters' support. We considered 
these comments in our evaluation of the RNS[supreg] System new 
technology add-on payment application for FY 2015 and 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.

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 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 2015 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 2015 is discussed in section II.B. of the Addendum to this proposed 
rule.
    As discussed in section III.H. of the preamble of this proposed 
rule, 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), 
1886(d)(8)(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 2015 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 to the FY 2015 wage index appears under section III.F. of the 
preamble of this proposed rule.

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

1. Background
    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 delineate 
hospital labor market areas based on the Core-Based Statistical Areas 
(CBSAs) established by the Office of Management and Budget (OMB). The 
current statistical areas used in FY 2014 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 planned to announce new labor market area delineations based on new 
standards adopted in 2010 (75 FR 37246) and the 2010 Census of 
Population and Housing data. As stated in the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27552) and final rule (78 FR 50586), 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 provided 
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

[[Page 28055]]

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 this 
FY 2015 IPPS/LTCH PPS proposed rule, when referencing the new OMB 
geographic boundaries of statistical areas, we are using the term 
``delineations'' rather than the term '' definitions'' that we have 
used in the past, consistent with OMB's use of the terms (75 FR 37249).
    In order to implement these changes for the IPPS, it is necessary 
to identify the new labor market area delineation 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, under the new OMB delineations, there would be 
new CBSAs, urban counties that would become rural, rural counties that 
would become urban, and existing CBSAs would be split apart. In 
addition, the effect of the new OMB delineations on various hospital 
reclassifications, the out-migration 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 reviewed regarding the effects 
of the new OMB labor market area delineations 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 needed to be 
extensively reviewed and verified, we were unable to undertake such a 
lengthy process before publication of the FY 2014 IPPS/LTCH PPS 
proposed rule and, thus, did not implement changes to the wage index 
for FY 2014 based on these new OMB delineations. In the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50586), we stated that we intended to 
propose changes to the wage index based on the new OMB delineations in 
this FY 2015 proposed rule. As discussed below, in this proposed rule, 
we are proposing to implement the new OMB delineations as described in 
the February 28, 2013 OMB Bulletin No. 13-01, effective for the FY 2015 
IPPS wage index.
2. Proposed Implementation of New Labor Market Area Delineations
    As discussed previously, CMS delayed implementing the new OMB labor 
market area delineations to allow for sufficient time to assess the new 
changes. We believe it is important for the IPPS to use the latest 
labor market area delineations available as soon as is reasonably 
possible in order to maintain a more accurate and up-to-date payment 
system that reflects the reality of population shifts and labor market 
conditions. While CMS and other stakeholders have explored potential 
alternatives to the current CBSA-based labor market system (we refer 
readers to the CMS Web site at: www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html), no consensus 
has been achieved regarding how best to implement a replacement system. 
As discussed in the FY 2005 IPPS final rule (69 FR 49027), ``While we 
recognize that MSAs are not designed specifically to define labor 
market areas, we believe they do represent a useful proxy for this 
purpose.'' We further believe that using the most current delineations 
will increase the integrity of the IPPS wage index system by creating a 
more accurate representation of geographic variations in wage levels. 
We have reviewed our findings and impacts relating to the new OMB 
delineations, and find no compelling reason to further delay 
implementation. Therefore, we are proposing to implement the new OMB 
delineations as described in the February 28, 2013 OMB Bulletin No. 13-
01, effective for the FY 2015 IPPS wage index. We are proposing to use 
these new delineations to calculate area wage indexes in a manner that 
is generally consistent with the CBSA-based methodologies finalized in 
the FY 2005 IPPS final rule, and refined in subsequent rulemaking. We 
also are proposing a wage index transition period applicable to all 
hospitals that experience negative impacts due to the proposed 
implementation of the new OMB delineations. This transition is 
discussed in more detail below.
a. Micropolitan Statistical Areas
    As discussed in the FY 2005 IPPS final rule (69 FR 49029 through 
49032), CMS considered whether to use Micropolitan Statistical Areas to 
define the labor market areas for the purpose of the IPPS wage index. 
OMB defines a ``Micropolitan Statistical Area'' as a CBSA ``associated 
with at least one urban cluster that has a population of at least 
10,000, but less than 50,000'' (75 FR 37252). We refer to these areas 
as Micropolitan Areas. After extensive impact analysis, CMS determined 
the best course of action would be to treat all hospitals located in 
Micropolitan Areas as ``rural'' and include them in the calculation of 
each State's rural wage index. Because Micropolitan areas tend to 
encompass smaller population centers and contain fewer hospitals than 
MSAs, we determined that if Micropolitan Areas were to be treated as 
separate labor market areas, the IPPS wage index would have included 
drastically more single-provider labor market areas. This larger number 
of labor market areas with fewer hospitals could create instability in 
year-to-year wage index values for a large number of hospitals; could 
reduce the averaging effect of the wage index, thus lessening some of 
the efficiency incentive inherent in a system based on the average 
hourly wages for a large number of hospitals; and could arguably create 
an inequitable system when so many hospitals have wage indexes based 
solely on their own wage data while other hospitals' wage indexes are 
based on an average hourly wage across many hospitals. For these 
reasons, we adopted a policy to include Micropolitan Areas in the 
State's rural wage area, and have continued this policy through the 
present.
    Based upon the new 2010 Decennial Census data, a number of urban 
counties have switched status and have joined or became Micropolitan 
Areas, and some counties that once were part of a Micropolitan Area, 
under current OMB delineations, have become urban. Overall, there are 
fewer Micropolitan Areas (541) under the new OMB delineations based on 
the 2010 Census than existed under the latest data from the 2000 Census 
(581). We believe that the best course of action would be to continue 
the policy established in the FY 2005 IPPS final rule and include 
hospitals located in Micropolitan Areas in each State's rural wage 
index. These areas continue to be defined as having relatively small 
urban cores (populations of 10,000-49,999). We do not believe it would 
be appropriate to calculate a separate wage index for areas that 
typically may include only a few hospitals for the reasons set forth in 
the FY 2005 IPPS/LTCH PPS final rule, as discussed above. Therefore, in 
conjunction with our proposal to implement the new OMB labor market 
area delineations beginning in FY 2015, we are proposing to continue to 
treat Micropolitan Areas as ``rural'' and to include the Micropolitan 
Areas in the calculation of each State's rural wage index.
b. Urban Counties That Would Become Rural Under the New OMB 
Delineations
    As previously discussed, we are proposing to implement the new OMB 
labor market area delineations (based

[[Page 28056]]

upon the 2010 Decennial Census data) beginning in FY 2015. Our analysis 
shows that a total of 37 counties (and county equivalents) and 12 
hospitals that were once considered part of an urban CBSA would be 
considered to be located in a rural area, beginning in FY 2015, under 
these new OMB delineations. The following chart lists the 37 urban 
counties that would be rural if we finalize our proposal to implement 
the new OMB delineations.

                                      Counties That Would Lose Urban Status
----------------------------------------------------------------------------------------------------------------
                                                                    Previous
                  County                           State              CBSA                    CBSA
                                                                     number
----------------------------------------------------------------------------------------------------------------
Greene County............................  IN                           14020  Bloomington, IN.
Anson County.............................  NC                           16740  Charlotte-Gastonia-Rock Hill, NC-
                                                                                SC.
Franklin County..........................  IN                           17140  Cincinnati-Middletown, OH-KY-IN.
Stewart County...........................  TN                           17300  Clarksville, TN-KY.
Howard County............................  MO                           17860  Columbia, MO.
Delta County.............................  TX                           19124  Dallas-Fort Worth-Arlington, TX.
Pittsylvania County......................  VA                           19260  Danville, VA.
Danville City............................  VA                           19260  Danville, VA.
Preble County............................  OH                           19380  Dayton, OH.
Gibson County............................  IN                           21780  Evansville, IN-KY.
Webster County...........................  KY                           21780  Evansville, IN-KY.
Franklin County..........................  AR                           22900  Fort Smith, AR-OK.
Ionia County.............................  MI                           24340  Grand Rapids-Wyoming, MI.
Newaygo County...........................  MI                           24340  Grand Rapids-Wyoming, MI.
Greene County............................  NC                           24780  Greenville, NC.
Stone County.............................  MS                           25060  Gulfport-Biloxi, MS.
Morgan County............................  WV                           25180  Hagerstown-Martinsburg, MD-WV.
San Jacinto County.......................  TX                           26420  Houston-Sugar Land-Baytown, TX.
Franklin County..........................  KS                           28140  Kansas City, MO-KS.
Tipton County............................  IN                           29020  Kokomo, IN.
Nelson County............................  KY                           31140  Louisville/Jefferson County, KY-
                                                                                IN.
Geary County.............................  KS                           31740  Manhattan, KS.
Washington County........................  OH                           37620  Parkersburg-Marietta-Vienna, WV-
                                                                                OH.
Pleasants County.........................  WV                           37620  Parkersburg-Marietta-Vienna, WV-
                                                                                OH.
George County............................  MS                           37700  Pascagoula, MS.
Power County.............................  ID                           38540  Pocatello, ID.
Cumberland County........................  VA                           40060  Richmond, VA.
King and Queen County....................  VA                           40060  Richmond, VA.
Louisa County............................  VA                           40060  Richmond, VA.
Washington County........................  MO                           41180  St. Louis, MO-IL.
Summit County............................  UT                           41620  Salt Lake City, UT.
Erie County..............................  OH                           41780  Sandusky, OH.
Franklin County..........................  MA                           44140  Springfield, MA.
Ottawa County............................  OH                           45780  Toledo, OH.
Greene County............................  AL                           46220  Tuscaloosa, AL.
Calhoun County...........................  TX                           47020  Victoria, TX.
Surry County.............................  VA                           47260  Virginia Beach-Norfolk-Newport
                                                                                News, VA-NC.
----------------------------------------------------------------------------------------------------------------

    We are proposing that the wage data for all hospitals located in 
the counties listed above would now be considered rural when 
calculating their respective State's rural wage index. We recognize 
that rural areas typically have lower area wage index values than urban 
areas, and hospitals located in these counties may experience a 
negative impact in their IPPS payment due to the proposed adoption of 
the new OMB delineations. We refer readers to section III.B.2.e. of the 
preamble of this proposed rule for a discussion of the proposed wage 
index transition period, in particular, the discussion regarding the 3-
year transition for hospitals located in these specific counties.
c. Rural Counties That Would Become Urban Under the New OMB 
Delineations
    As previously discussed, we are proposing to implement the new OMB 
labor market area delineations (based upon the 2010 Decennial Census 
data) beginning in FY 2015. Analysis of these OMB labor market area 
delineations shows that a total of 105 counties (and county 
equivalents) and 81 hospitals that were located in rural areas would be 
located in urban areas under the new OMB delineations. The following 
chart lists the 105 rural counties that would be urban if we finalize 
our proposal to implement the new OMB delineations.

                  Counties That Would Gain Urban Status
------------------------------------------------------------------------
                                         New CBSA
            County              State     number            CBSA.
------------------------------------------------------------------------
Utuado Municipio.............  PR            10380  Aguadilla-Isabela,
                                                     PR.
Linn County..................  OR            10540  Albany, OR.
Oldham County................  TX            11100  Amarillo, TX.
Morgan County................  GA            12060  Atlanta-Sandy
                                                     Springs-Roswell,
                                                     GA.
Lincoln County...............  GA            12260  Augusta-Richmond
                                                     County, GA-SC.

[[Page 28057]]

 
Newton County................  TX            13140  Beaumont-Port
                                                     Arthur, TX.
Fayette County...............  WV            13220  Beckley, WV.
Raleigh County...............  WV            13220  Beckley, WV.
Golden Valley County.........  MT            13740  Billings, MT.
Oliver County................  ND            13900  Bismarck, ND.
Sioux County.................  ND            13900  Bismarck, ND.
Floyd County.................  VI            13980  Blacksburg-
                                                     Christiansburg-
                                                     Radford, VA.
De Witt County...............  IL            14010  Bloomington, IL.
Columbia County..............  PA            14100  Bloomsburg-Berwick,
                                                     PA.
Montour County...............  PA            14100  Bloomsburg-Berwick,
                                                     PA.
Allen County.................  KY            14540  Bowling Green, KY.
Butler County................  KY            14540  Bowling Green, KY.
St. Mary's County............  MD            15680  California-Lexington
                                                     Park, MD.
Jackson County...............  IL            16060  Carbondale-Marion,
                                                     IL.
Williamson County............  IL            16060  Carbondale-Marion,
                                                     IL.
Franklin County..............  PA            16540  Chambersburg-
                                                     Waynesboro, PA.
Iredell County...............  NC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Lincoln County...............  NC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Rowan County.................  NC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Chester County...............  SC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Lancaster County.............  SC            16740  Charlotte-Concord-
                                                     Gastonia, NC-SC.
Buckingham County............  VA            16820  Charlottesville, VA.
Union County.................  IN            17140  Cincinnati, OH-KY-
                                                     IN.
Hocking County...............  OH            18140  Columbus, OH.
Perry County.................  OH            18140  Columbus, OH.
Walton County................  FL            18880  Crestview-Fort
                                                     Walton Beach-
                                                     Destin, FL.
Hood County..................  TX            23104  Dallas-Fort Worth-
                                                     Arlington, TX.
Somervell County.............  TX            23104  Dallas-Fort Worth-
                                                     Arlington, TX.
Baldwin County...............  AL            19300  Daphne-Fairhope-
                                                     Foley, AL.
Monroe County................  PA            20700  East Stroudsburg,
                                                     PA.
Hudspeth County..............  TX            21340  El Paso, TX.
Adams County.................  PA            23900  Gettysburg, PA.
Hall County..................  NE            24260  Grand Island, NE.
Hamilton County..............  NE            24260  Grand Island, NE.
Howard County................  NE            24260  Grand Island, NE.
Merrick County...............  NE            24260  Grand Island, NE.
Montcalm County..............  MI            24340  Grand Rapids-
                                                     Wyoming, MI.
Josephine County.............  OR            24420  Grants Pass, OR.
Tangipahoa Parish............  LA            25220  Hammond, LA.
Beaufort County..............  SC            25940  Hilton Head Island-
                                                     Bluffton-Beaufort,
                                                     SC.
Jasper County................  SC            25940  Hilton Head Island-
                                                     Bluffton-Beaufort,
                                                     SC.
Citrus County................  FL            26140  Homosassa Springs,
                                                     FL.
Butte County.................  ID            26820  Idaho Falls, ID.
Yazoo County.................  MS            27140  Jackson, MS.
Crockett County..............  TN            27180  Jackson, TN.
Kalawao County...............  HI            27980  Kahului-Wailuku-
                                                     Lahaina, HI.
Maui County..................  HI            27980  Kahului-Wailuku-
                                                     Lahaina, HI.
Campbell County..............  TN            28940  Knoxville, TN.
Morgan County................  TN            28940  Knoxville, TN.
Roane County.................  TN            28940  Knoxville, TN.
Acadia Parish................  LA            29180  Lafayette, LA.
Iberia Parish................  LA            29180  Lafayette, LA.
Vermilion Parish.............  LA            29180  Lafayette, LA.
Cotton County................  OK            30020  Lawton, OK.
Scott County.................  IN            31140  Louisville/Jefferson
                                                     County, KY-IN.
Lynn County..................  TX            31180  Lubbock, TX.
Green County.................  WI            31540  Madison, WI.
Benton County................  MS            32820  Memphis, TN-MS-AR.
Midland County...............  MI            33220  Midland, MI.
Martin County................  TX            33260  Midland, TX.
Le Sueur County..............  MN            33460  Minneapolis-St. Paul-
                                                     Bloomington, MN-WI.
Mille Lacs County............  MN            33460  Minneapolis-St. Paul-
                                                     Bloomington, MN-WI.
Sibley County................  MN            33460  Minneapolis-St. Paul-
                                                     Bloomington, MN-WI.
Maury County.................  TN            34980  Nashville-Davidson-
                                                     Murfreesboro-
                                                     Franklin, TN.
Craven County................  NC            35100  New Bern, NC.
Jones County.................  NC            35100  New Bern, NC.
Pamlico County...............  NC            35100  New Bern, NC.
St. James Parish.............  LA            35380  New Orleans-
                                                     Metairie, LA.
Box Elder County.............  UT            36260  Ogden-Clearfield,
                                                     UT.
Gulf County..................  FL            37460  Panama City, FL.
Custer County................  SD            39660  Rapid City, SD.

[[Page 28058]]

 
Fillmore County..............  MN            40340  Rochester, MN.
Yates County.................  NY            40380  Rochester, NY.
Sussex County................  DE            41540  Salisbury, MD-DE.
Worcester County.............  MA            41540  Salisbury, MD-DE.
Highlands County.............  FL            42700  Sebring, FL.
Webster Parish...............  LA            43340  Shreveport-Bossier
                                                     City, LA.
Cochise County...............  AZ            43420  Sierra Vista-
                                                     Douglas, AZ.
Plymouth County..............  IA            43580  Sioux City, IA-NE-
                                                     SD.
Union County.................  SC            43900  Spartanburg, SC.
Pend Oreille County..........  WA            44060  Spokane-Spokane
                                                     Valley, WA.
Stevens County...............  WA            44060  Spokane-Spokane
                                                     Valley, WA.
Augusta County...............  VA            44420  Staunton-Waynesboro,
                                                     VA.
Staunton City................  VA            44420  Staunton-Waynesboro,
                                                     VA.
Waynesboro City..............  VA            44420  Staunton-Waynesboro,
                                                     VA.
Little River County..........  AR            45500  Texarkana, TX-AR.
Sumter County................  FL            45540  The Villages, FL.
Pickens County...............  AL            46220  Tuscaloosa, AL.
Gates County.................  NC            47260  Virginia Beach-
                                                     Norfolk-Newport
                                                     News, VA-NC.
Falls County.................  TX            47380  Waco, TX.
Columbia County..............  WA            47460  Walla Walla, WA.
Walla Walla County...........  WA            47460  Walla Walla, WA.
Peach County.................  GA            47580  Warner Robins, GA.
Pulaski County...............  GA            47580  Warner Robins, GA.
Culpeper County..............  VA            47894  Washington-Arlington-
                                                     Alexandria, DC-VA-
                                                     MD-WV.
Rappahannock County..........  VA            47894  Washington-Arlington-
                                                     Alexandria, DC-VA-
                                                     MD-WV.
Jefferson County.............  NY            48060  Watertown-Fort Drum,
                                                     NY.
Kingman County...............  KS            48620  Wichita, KS.
Davidson County..............  NC            49180  Winston-Salem, NC.
Windham County...............  CT            49340  Worcester, MA-CT.
------------------------------------------------------------------------

    We are proposing that when calculating the area wage index, the 
wage data for hospitals located in these counties would be included in 
their new respective urban CBSAs. Typically, hospitals located in an 
urban area would receive a higher wage index value than hospitals 
located in their State's rural area. However, with regard to the wage 
index applicable to individual hospitals, we are proposing to implement 
a transitional wage index adjustment for any hospital that would 
receive a lower wage index under the new OMB delineations than it would 
have received under the current CBSA definitions. We refer readers to 
section III.B.2.e. of the preamble of this proposed rule for further 
discussion of this proposed transition.
d. Urban Counties That Would Move to a Different Urban CBSA Under the 
New OMB Delineations
    In addition to rural counties becoming urban and urban counties 
becoming rural, several urban counties would shift from one urban CBSA 
to another urban CBSA under our proposal to adopt the new OMB 
delineations. In certain cases, adopting the new OMB delineations would 
involve a change only in CBSA name or number, while the CBSA continues 
to encompass the same constituent counties. For example, CBSA 29140 
(Lafayette, IN) would experience both a change to its number and its 
name, and become CBSA 29200 (Lafayette-West Lafayette, IN), while all 
of its three constituent counties would remain the same. We have 
identified 19 counties that would remain in a CBSA that experienced a 
change in name or number under the new delineations, but would retain 
the same constituent counties, as shown in the following table.

         Counties That Would Remain in CBSA That Changed Number
------------------------------------------------------------------------
    Prior CBSA No.         New CBSA No.          County          State
------------------------------------------------------------------------
14484.................              14454  Norfolk County...  MA.
14484.................              14454  Plymouth County..  MA.
14484.................              14454  Suffolk County...  MA.
47644.................              47664  Lapeer County....  MI.
47644.................              47664  Livingston County  MI.
47644.................              47664  Macomb County....  MI.
47644.................              47664  Oakland County...  MI.
47644.................              47664  St. Clair County.  MI.
26180.................              46520  Honolulu County..  HI.
29140.................              29200  Benton County....  IN.
29140.................              29200  Carroll County...  IN.
29140.................              29200  Tippecanoe County  IN.
42044.................              11244  Orange County....  CA.
42060.................              42200  Santa Barbara      CA.
                                            County.
44600.................              48260  Jefferson County.  OH.
44600.................              48260  Brooke County....  WV.

[[Page 28059]]

 
44600.................              48260  Hancock County...  WV.
13644.................              43524  Frederick County.  MD.
13644.................              43524  Montgomery County  MD.
------------------------------------------------------------------------

    We are not discussing further in this section these proposed 
changes because they are inconsequential changes with respect to the 
IPPS wage index. However, in other cases, if we adopt the new OMB 
delineations, counties would shift between existing and new CBSAs, 
changing the constituent makeup of the CBSAs.
    In one type of change, an entire CBSA would be subsumed by another 
CBSA. For example, CBSA 37380 (Palm Coast, FL) currently is a single 
county (Flagler, FL) CBSA. Flagler County would become a part of CBSA 
19660 (Deltona-Daytona Beach-Ormond Beach, FL) under the new OMB 
delineations.
    In another type of change, some CBSAs have counties that would 
split off to become part of or to form entirely new labor market areas. 
For example, CBSA 37964 (Philadelphia Metropolitan Division) currently 
is comprised of five Pennsylvania counties (Bucks, Chester, Delaware, 
Montgomery, and Philadelphia). If we adopt the new OMB delineations, 
Montgomery, Bucks, and Chester counties would split off and form the 
new CBSA 33874 (Montgomery County-Bucks County-Chester County, PA 
Metropolitan Division), while Delaware and Philadelphia counties would 
remain in CBSA 37964.
    Finally, in some cases, a CBSA would lose counties to another 
existing CBSA if we adopt the new OMB delineations. For example, 
Lincoln County and Putnam County, WV would move from CBSA 16620 
(Charleston, WV) to CBSA 26580 (Huntington-Ashland, WV-KY-OH). CBSA 
16620 still would exist in the new labor market delineations with fewer 
constituent counties.
    The following chart lists the urban counties that would move from 
one urban CBSA to another urban CBSA if we adopted the new OMB 
delineations.

               Counties That Would Change to Another CBSA
------------------------------------------------------------------------
      Prior CBSA             New CBSA            County          State
------------------------------------------------------------------------
11300.................              26900  Madison County...  IN.
11340.................              24860  Anderson County..  SC.
14060.................              14010  McLean County....  IL.
37764.................              15764  Essex County.....  MA.
16620.................              26580  Lincoln County...  WV.
16620.................              26580  Putnam County....  WV.
16974.................              20994  DeKalb County....  IL.
16974.................              20994  Kane County......  IL.
21940.................              41980  Ceiba Municipio..  PR.
21940.................              41980  Fajardo Municipio  PR.
21940.................              41980  Luquillo           PR.
                                            Municipio.
26100.................              24340  Ottawa County....  MI.
31140.................              21060  Meade County.....  KY.
34100.................              28940  Grainger County..  TN.
35644.................              35614  Bergen County....  NJ.
35644.................              35614  Hudson County....  NJ.
20764.................              35614  Middlesex County.  NJ.
20764.................              35614  Monmouth County..  NJ.
20764.................              35614  Ocean County.....  NJ.
35644.................              35614  Passaic County...  NJ.
20764.................              35084  Somerset County..  NJ.
35644.................              35614  Bronx County.....  NY.
35644.................              35614  Kings County.....  NY.
35644.................              35614  New York County..  NY.
35644.................              20524  Putnam County....  NY.
35644.................              35614  Queens County....  NY.
35644.................              35614  Richmond County..  NY.
35644.................              35614  Rockland County..  NY.
35644.................              35614  Westchester        NY.
                                            County.
37380.................              19660  Flagler County...  FL.
37700.................              25060  Jackson County...  MS.
37964.................              33874  Bucks County.....  PA.
37964.................              33874  Chester County...  PA.
37964.................              33874  Montgomery County  PA.
39100.................              20524  Dutchess County..  NY.
39100.................              35614  Orange County....  NY.
41884.................              42034  Marin County.....  CA.
41980.................              11640  Arecibo Municipio  PR.
41980.................              11640  Camuy Municipio..  PR.
41980.................              11640  Hatillo Municipio  PR.
41980.................              11640  Quebradillas       PR.
                                            Municipio.
48900.................              34820  Brunswick County.  NC.
49500.................              38660  Gu[aacute]nica     PR.
                                            Municipio.
49500.................              38660  Guayanilla         PR.
                                            Municipio.

[[Page 28060]]

 
49500.................              38660  Pe[ntilde]uelas    PR.
                                            Municipio.
49500.................              38660  Yauco Municipio..  PR.
------------------------------------------------------------------------

    If hospitals located in these counties move from one CBSA to 
another under the new OMB delineations, there may be impacts, both 
negative and positive, upon their specific wage index values. We refer 
readers to section III.B.2.e. of the preamble of this proposed rule for 
a discussion of our proposals to moderate the impact of our proposed 
adoption of the new OMB delineations.
e. Proposed Transition Period
(1) Background
    Overall, we believe implementing the new OMB labor market area 
delineations would result in wage index values being more 
representative of the actual costs of labor in a given area. However, 
we recognize that some hospitals would experience decreases in wage 
index values as a result of our proposed implementation of the new 
labor market area delineations. We also realize that some hospitals 
would have higher wage index values due to our proposed implementation 
of the new labor market area delineations.
    In the past, we have provided for transition periods when adopting 
changes that have significant payment implications, particularly large 
negative impacts. As discussed in the FY 2005 IPPS final rule (69 FR 
49032 through 49034), we evaluated several options to ease the 
transition to the new CBSA system, which we implemented starting in FY 
2005 and which is the system currently in use.
    As discussed in that rule, we determined that the transition to the 
current wage index system would have the largest negative impacts upon 
hospitals that were originally considered urban, but would be 
considered rural under the new definitions. To alleviate the decreased 
payments associated with having a rural wage index, in calculating the 
area wage index, in the FY 2005 IPPS final rule, we allowed urban 
hospitals that became rural under new definitions to maintain their 
assignment to the labor market area where they were located for FY 
2004. This adjustment was granted for a period of 3 fiscal years.
    In the FY 2005 IPPS final rule, for all hospitals that experienced 
negative payment impacts due to new definitions (for example, they were 
moved to an urban CBSA with a lower wage index value than their 
previous rural or urban labor market area), we implemented a 1-year 
blended adjustment. We calculated wage indexes for all hospitals using 
both old and new labor market definitions. Hospitals received 50 
percent of their wage index based on the new OMB delineations, and 50 
percent of their wage index based on their current labor market area. 
This adjustment only applied to hospitals that would have experienced a 
drop in wage index values due to a change in labor market definitions. 
Hospitals that benefitted from the labor market area transition 
received their new wage index at the time the new labor market 
definitions became effective.
    We continue to have the same concerns expressed in the FY 2005 IPPS 
final rulemaking. Therefore, we are proposing a similar transition 
methodology to mitigate any negative financial impacts experienced by 
hospitals due to our proposal to implement the new OMB labor market 
area delineations for FY 2015.
(2) Proposed Transition for Hospitals in Urban Areas That Would Become 
Rural
    For hospitals that are currently located in an urban county that 
would become rural under the new OMB delineations, and would have no 
form of wage index reclassification or redesignation in place for FY 
2015 (that is, MGCRB reclassifications under section 1886(d)(10) of the 
Act, redesignations under section 1886(d)(8)(B) of the Act, or rural 
reclassifications under section 1886(d)(8)(E) of the Act), we are 
proposing a policy to assign them the urban wage index value of the 
CBSA in which they are physically located for FY 2014 for a period of 3 
fiscal years (with the rural and imputed floors applied and with the 
rural floor budget neutrality adjustment applied to the area wage 
index). As stated in the FY 2005 IPPS proposed rule (69 FR 28252), we 
have in the past provided transitions when adopting changes that have 
significant payment implications, particularly large negative impacts. 
We believe it is appropriate to apply a 3-year transition period for 
hospitals located in urban counties that would become rural under the 
new OMB delineations, given the potentially significant payment impacts 
for these hospitals. This is consistent with the transition policy 
adopted in FY 2005 (69 FR 49032 through 49034). We continue to believe, 
as we stated in the FY 2005 IPPS final rule (69 FR 49033), that the 
longer transition period is appropriate because, as a group, we expect 
these hospitals would experience a steeper and more abrupt reduction in 
their wage index due to the labor market revisions compared to other 
hospitals. Assigning these hospitals the urban wage index value of the 
CBSA in which they are physically located for FY 2014 for a period of 3 
fiscal years (with the rural and imputed floors applied and with the 
rural floor budget neutrality adjustment applied to the area wage 
index) would be the most similar to the actual payment wage index that 
these hospitals received in FY 2014, thereby minimizing the negative 
impact of adopting the new OMB delineations for these hospitals. 
Accordingly, for FYs 2015, 2016, and 2017, assuming no other form of 
wage index reclassification or redesignation is granted, we are 
proposing to assign these hospitals the area wage index value of the 
urban CBSA to which they geographically were located in FY 2014 (with 
the rural and imputed floors applied and with the rural floor budget 
neutrality adjustment applied to the area wage index). For example, if 
urban CBSA 12345 consisted of three counties in FY 2014, and, under the 
new OMB delineations, one of those counties, County X, would no longer 
be part of CBSA 12345 and would become rural for FY 2015, we are 
proposing that hospitals in County X would be assigned the FY 2015 wage 
index of CBSA 12345, computed using the remaining two counties, with 
the rural and imputed floors applied and with the rural floor budget 
neutrality adjustment applied to the area wage index. We believe that 
assigning the wage index of the hospitals' current area is the simplest 
and most effective method for mitigating negative payment impacts due 
to the proposed adoption of the new OMB delineations. We have 
identified relatively few hospitals that are located in urban counties 
that would become rural, and fewer yet that do not have a 
reclassification or redesignation in effect for FY 2015. Because we 
believe that these urban to rural transitions would

[[Page 28061]]

be the most likely to cause significant negative payment impacts, we 
believe that these hospitals should be granted a longer transition 
period than hospitals that may be switching between urban labor market 
areas, which as discussed later, we are proposing may receive 1-year 
blended wage index.
    We note that there are situations where a hospital cannot be 
assigned the wage index value of the CBSA to which it geographically 
belonged in FY 2014 because that CBSA would be split and no longer 
exist and some or all of the constituent counties would be added to 
another urban labor market area under the new OMB delineations. If the 
hospital cannot be assigned the wage index value of the CBSA to which 
it is geographically located in FY 2014 because that CBSA would be 
split apart and no longer exist, and some or all of its constituent 
counties would be added to another urban labor market area under the 
new OMB delineations, we are proposing that hospitals located in such 
counties that would become rural under the new OMB delineations would 
be assigned the wage index of the FY 2015 urban labor market area that 
contains the urban county in their FY 2014 CBSA to which they are 
closest (with the rural and imputed floors applied and with the rural 
floor budget neutrality adjustment applied) for a period of 3 fiscal 
years. We believe this approach of assigning the wage index of the FY 
2015 urban labor market area that contains the urban county in their FY 
2014 CBSA to which they are closest (with the rural and imputed floors 
applied and with the rural floor budget neutrality adjustment applied) 
would most closely approximate the hospitals' FY 2014 actual payment 
wage index, thereby minimizing the negative effects of the proposed 
change in the OMB delineations. For example, George County, MS and 
Jackson County, MS, together, in FY 2014, comprise the urban CBSA 37700 
(Pascagoula, MS). Under the new OMB delineations, George County would 
be considered rural and Jackson County, MS would become part of the 
urban labor market area of Gulfport-Biloxi-Pascagoula, MS (CBSA 25060). 
In this instance, we are proposing that hospitals in George County, MS 
would be assigned the FY 2015 wage index for CBSA 25060 (Gulfport-
Biloxi-Pascagoula, MS), with the rural and imputed floors applied and 
with the rural floor budget neutrality adjustment applied.
    Furthermore, we are proposing that any hospital that is currently 
located in an urban county that would become rural for FY 2015 under 
the new OMB delineations, but also has a reclassification or 
redesignation in effect for FY 2015 (from a pre-existing 
reclassification or redesignation granted prior to FY 2015), would not 
be eligible for the 3-year transition wage index. This is because if 
the hospital is reclassified or redesignated in some manner, it would 
instead receive a wage index that reflects its own choice to obtain its 
reclassified or redesignated status. Accordingly, if a hospital is 
currently located in an urban county that would become rural for FY 
2015 under the new OMB delineations and such hospital sought and was 
granted reclassification or redesignation for FY 2015 or such hospital 
seeks and is granted any reclassification or redesignation for FY 2016 
or FY 2017, we are proposing that the hospital would permanently lose 
its 3-year transitional assigned wage index status, and would not be 
eligible to reinstate it. For example, if a hospital that is currently 
urban but would become rural under the new OMB delineations received a 
3-year transition wage index in FY 2015 based on the wage index of the 
urban CBSA to which it was geographically located in FY 2014 and then 
by its own choice, reclassifies to obtain a different area wage index 
in FY 2016, the hospital would not be eligible to reinstate the 
transition wage index, even if it opts to cancel its reclassification 
for FY 2017. We are proposing the transition adjustment to assist 
hospitals if they experience a negative payment impact specifically due 
to the proposed adoption of the new OMB delineations in FY 2015. If a 
hospital chooses in a future fiscal year to forego this transition 
adjustment by obtaining some form of reclassification or redesignation, 
we do not believe reinstatement of this transition adjustment would be 
appropriate. The purpose of the adjustment is to assist hospitals that 
may be negatively impacted by the new OMB delineations in transitioning 
to a wage index based on these delineations. By obtaining a 
reclassification or redesignation, we believe that the hospital has 
made the determination that the transition adjustment is not necessary 
because it has other viable options for mitigating the impact of the 
transition to the new OMB delineations.
    With respect to the wage index computation, we are proposing to 
follow our existing policy regarding the inclusion of a hospital's wage 
index data in the CBSA in which it is geographically located (we refer 
readers to Step 6 of the method for computing the unadjusted wage index 
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51592)). Accordingly, 
beginning with FY 2015, we are proposing that the wage data of all 
hospitals receiving this type of 3-year transition adjustment would be 
included in the statewide rural area in which they are geographically 
located under the new OMB labor market area delineations of FY 2015. 
After the 3-year transition period, beginning in FY 2018, we are 
proposing that these formerly urban hospitals discussed above would 
receive their statewide rural wage index, absent any reclassification 
or redesignation.
    In addition, we are proposing that the hospitals receiving this 3-
year transition because they are in counties that were urban under the 
current CBSA definitions, but would be rural under the new OMB 
delineations, would not be considered urban hospitals. Rather, they 
would maintain their status as rural hospitals for other payment 
considerations. This is because our proposal to apply a 3-year 
transitional wage index for these newly rural hospitals only applies 
for the purpose of calculating the wage index under our proposal to 
adopt the new CBSA delineations. We are not proposing transitions for 
other IPPS payment policies that may be impacted by the proposed 
adoption of the new CBSA delineations. However, we will continue to 
apply the existing regulations at Sec.  412.102 with respect to 
determining DSH payments in the first year after a hospital loses urban 
status (we refer readers to section II.B.2.e.(7) of the preamble of 
this proposed rule).
(3) Proposed Transition for Hospitals Deemed Urban Under Section 
1886(d)(8)(B) of the Act Where the Urban Area Would Become Rural Under 
the New OMB Delineations
    As discussed in section II.H.3. of the preamble of this proposed 
rule, there are some hospitals that currently are geographically 
located in rural areas but are deemed to be urban under section 
1886(d)(8)(B) of the Act. For FY 2015, some of these hospitals 
currently redesignated under section 1886(d)(8)(B) of the Act would no 
longer be eligible for deemed urban status under the new OMB 
delineations, as discussed in detail in section III.H.3. of the 
preamble of this proposed rule. Similar to the policy implemented in 
the FY 2005 IPPS final rule (69 FR 49059), and consistent with the 
policy we are proposing for other hospitals in counties that were urban 
and would become rural under the new OMB delineations, we are proposing 
to apply the 3-year transition to these hospitals currently 
redesignated to urban areas under section 1886(d)(8)(B) of the Act

[[Page 28062]]

that would no longer be deemed urban under the new OMB delineations and 
would revert to being rural. That is, for FYs 2015, 2016, and 2017, 
assuming no other form of wage index reclassification or redesignation 
is granted, we are proposing to assign these hospitals the FY 2015 area 
wage index value of hospitals reclassified to the urban CBSA (that is, 
the attaching wage index) to which they were redesignated in FY 2014 
(with the rural and imputed floors applied and with the rural floor 
budget neutrality adjustment applied). If the hospital cannot be 
assigned the reclassified wage index value of the CBSA to which it was 
redesignated in FY 2014 because that CBSA would split apart and no 
longer exist, and some or all of its constituent counties would be 
added to another urban labor market area under the new OMB 
delineations, we are proposing that such hospitals would be assigned 
the wage index of the hospitals reclassified to the FY 2015 urban labor 
market area that contains the urban county in their FY 2014 
redesignated CBSA to which they are closest for a period of 3 fiscal 
years. We are proposing to assign these hospitals the area wage index 
of hospitals reclassified to a CBSA because hospitals deemed urban 
under section 1886(d)(8)(B) of the Act are treated as reclassified 
under current policy, under which such hospitals receive an area wage 
index that includes wage data of all hospitals reclassified to the 
area.
(4) Proposed Transition for Hospitals That Would Experience a Decrease 
in Wage Index Under the New OMB Delineations
    While we believe that instituting the latest OMB labor market area 
delineations would create a more accurate wage index system, we also 
recognize that implementing the new OMB delineations may cause some 
short-term instability in hospital payments. Therefore, in addition to 
the 3-year transition adjustment for hospitals being transitioned from 
urban to rural status as discussed above, we are proposing a 1-year 
blended wage index for all hospitals that would experience any decrease 
in their actual payment wage index (that is, a hospital's actual wage 
index used for payment, which accounts for all applicable effects of 
reclassification and redesignation) exclusively due to the proposed 
implementation of the new OMB delineations. Similar to the policy 
adopted in the FY 2005 IPPS final rule (69 FR 49033), we are proposing 
that a post-reclassified wage index with the rural and imputed floor 
applied would be computed based on the hospital's FY 2014 CBSA (that 
is, using all of its FY 2014 constituent county/ies), and another post-
reclassified wage index with the rural and imputed floor applied would 
be computed based on the hospital's new FY 2015 CBSA (that is, the FY 
2015 constituent county/ies). We are proposing to compare these two 
wage indexes. If the proposed FY 2015 wage index with FY 2015 CBSAs 
would be lower than the proposed FY 2015 wage index with FY 2014 CBSAs, 
we are proposing that a blended wage index would be computed, 
consisting of 50 percent of each of the two wage indexes added 
together. We are proposing that this blended wage index would be the 
hospital's wage index for FY 2015. We believe a 1-year, 50/50 blend 
would mitigate the short-term instability and negative payment impacts 
due to the proposed implementation of the new OMB delineations, 
providing hospitals with a transition period during which they may 
adjust to their new geographic CBSA or may assess any reclassification 
options that would be available to them starting in FY 2016. We are 
proposing a longer 3-year transition adjustment for hospitals losing 
urban status because there are significantly fewer affected urban-to-
rural hospitals, and we believe the negative impacts to a hospital 
shifting from urban to rural status would typically be greater than 
other types of transitions. We believe that a transition period longer 
than 1 year to address other impacts of the proposed adoption of new 
OMB delineations would reduce the accuracy of the overall labor market 
area wage index system because far more hospitals would be affected.
    In addition, for FY 2015, for hospitals that would receive the 
proposed 3-year transition, it is possible that receiving the FY 2015 
wage index (with the rural and imputed floors applied and with the 
rural floor budget neutrality adjustment applied) of the CBSA where the 
hospital is geographically located for FY 2014 might still be less than 
the FY 2015 wage index that the hospital would have received in the 
absence of the adoption of the new OMB delineations (particularly in 
States where the rural floor is historically very high). Therefore, 
such a hospital may additionally benefit from application of the 50/50 
blended wage indexes. Accordingly, we are proposing to include the 
assignment of the 3-year transitional wage index in our calculation of 
the FY 2015 portion of the 50/50 blended wage index for that hospital. 
After FY 2015, such a hospital may revert to the second year of the 3-
year transition. For example, if Hospital X (formerly part of CBSA 
12345, now rural) is assigned CBSA 12345's FY 2015 wage index value of 
1.0000 as part of the 3-year transition, but that FY 2015 wage index 
value would have been 1.1000 under the previous OMB delineations, that 
hospital would receive a 50/50 blended wage index of 1.0500 for FY 
2015. In FY 2016 and FY 2017, Hospital X would still be eligible to 
receive the remaining 2 years of the 3-year transition wage index of 
CBSA 12345 (that is, in FY 2016, Hospital X would receive the FY 2016 
wage index of CBSA 12345 (with the rural and imputed floors applied and 
with the rural floor budget neutrality adjustment applied)), and in FY 
2017, Hospital X would receive the FY 2017 wage index of CBSA 12345 
(with the rural and imputed floors applied and with the rural floor 
budget neutrality adjustment applied).
(5) Impact of Proposed Adoption of New OMB Labor Market Area 
Delineations
    To illustrate how the proposed adoption of the new OMB labor market 
area delineations would impact hospitals' proposed FY 2015 wage 
indexes, we compared the proposed FY 2015 occupational mix adjusted 
post-reclassified wage indexes with rural floor budget neutrality 
applied under the FY 2014 CBSAs and under the proposed FY 2015 CBSAs 
using the new OMB delineations. (This analysis does not include the 
effects of the out-migration adjustment, the frontier floor, the 
proposed 3-year hold harmless transition wage indexes, or the proposed 
1-year transition blended wage indexes). As a result of applying the 
proposed new OMB delineations to the wage data, the proposed wage index 
values for 2,362 urban hospitals (83.8 percent) and 396 (64.0 percent) 
rural hospitals would increase. The wage index values of 2,337 (82.9 
percent) urban hospitals would increase by less than 5 percent, and the 
wage index values of 13 (0.5 percent) urban hospitals would increase by 
at least 5 percent but less than 10 percent. The wage index values of 
12 (0.4 percent) urban hospitals would increase by greater than or 
equal to 10 percent. The wage index values of 369 (59.6 percent) rural 
hospitals would increase by less than 5 percent, 18 rural hospitals 
(2.9 percent) would increase by at least 5 percent but less than 10 
percent, and 9 rural hospitals (1.5 percent) would increase by greater 
than or equal to 10 percent. However, the wage index values for 451 
urban hospitals (16.0 percent) and 223 (36.0 percent) rural hospitals 
would decrease. The wage index values of 396 (14.0

[[Page 28063]]

percent) urban hospitals would decrease by less than 5 percent, 40 
urban hospitals (1.4 percent) would decrease by at least 5 percent but 
less than 10 percent, and 15 urban hospitals (0.5 percent) would 
decrease by greater than or equal to 10 percent. The wage index values 
of 198 (32.0 percent) rural hospitals would decrease by less than 5 
percent, 24 rural hospitals (3.9 percent) would decrease by 5 percent 
and less than 10 percent, and 1 rural hospital (0.2 percent) would 
decrease by greater than or equal to 10 percent. The wage index values 
of 6 (0.2 percent) urban hospitals and zero rural hospitals would 
remain unchanged by the adoption of the new OMB CBSA delineations. The 
largest positive impacts would be for 8 hospitals in 5 States (Texas, 
Minnesota, Louisiana, Alabama, and Michigan) that would be moving from 
a rural to an urban area (ranging from a 16.57 percent to a 22.91 
percent increase in wage index), and for 10 hospitals that would be 
moving from one urban CBSA (FY 2014 CBSA 20764, Edison-New Brunswick, 
NJ) to new urban CBSA 35614 (New York-Jersey City-White Plains, NY-NJ), 
representing a 15.12 percent increase in wage index. The largest 
negative impacts would be for 5 hospitals in 4 States (New York, 
Alabama, Idaho, and North Carolina) that would be moving from an urban 
to a rural area (ranging from a 13.08 percent to a 27.25 percent 
decrease in wage index), and for 8 hospitals that would be moving from 
one urban CBSA (FY 2014 CBSA 35644, New York-White Plains-Wayne, NY-NJ) 
to new urban CBSA 20524 (Dutchess County-Putnam County, NY), 
representing a 11.42 percent decrease in wage index. These results 
illustrate that hospitals that would move from rural CBSAs to urban 
CBSAs generally would benefit significantly, while hospitals that would 
move from urban to rural CBSAs generally would have larger negative 
impacts. For all hospitals combined, the wage index values of 2,758 
(80.2 percent) overall would be increasing, and 674 (19.6 percent) 
overall would be decreasing, indicating that most hospitals would be 
positively affected by the adoption of the new OMB delineations. 
Furthermore, the magnitude of the changes would be relatively small 
overall, with only 132 hospitals (3.8 percent) experiencing either an 
increase or decrease of at least 5 percent.
    The following table shows the impact of the proposed adoption of 
the new OMB delineations on hospitals' proposed FY 2015 wage indexes, 
comparing the proposed FY 2015 occupational mix adjusted post-
reclassified wage indexes with rural floor budget neutrality applied 
under the FY 2014 CBSAs and the proposed FY 2015 CBSAs using the new 
OMB delineations. (This analysis does not include the effects of the 
out-migration adjustment, the frontier floor, the proposed 3-year hold 
harmless transition wage indexes, or the proposed 1-year transition 
blended wage indexes).

----------------------------------------------------------------------------------------------------------------
                                                             Number of post-   Number of post-
                                                              reclassified      reclassified
           Percent change in FY 2015 wage index              rural hospitals   urban hospitals   Total number of
                                                            based on FY 2014  based on FY 2014      hospitals
                                                                  CBSA              CBSA
----------------------------------------------------------------------------------------------------------------
Decrease greater than or equal to 10.0....................                 1                15                16
Decrease greater than or equal to 5.0 but less than 10.0..                24                40                64
Decrease greater than or equal to 2.0 but less than 5.0...                36                94               130
Decrease greater than 0.0 but less than 2.0...............               162               302               464
No change.................................................                 0                 6                 6
Increase greater than 0.0 but less than 2.0...............               365             2,304             2,669
Increase greater than or equal to 2.0 but less than 5.0...                 4                33                37
Increase greater than or equal to 5.0 but less than 10.0..                18                13                31
Increase greater than or equal to 10.0....................                 9                12                21
                                                           -----------------------------------------------------
    Total.................................................               619             2,819             3,438
----------------------------------------------------------------------------------------------------------------

(6) Proposed Budget Neutrality
    For FY 2015, we are proposing to apply both the 3-year transition 
and 50/50 blended wage index adjustments in a budget neutral manner. We 
are proposing to make an adjustment to the standardized amount to 
ensure that the total payments, including the effect of the transition 
provisions, would equal what payments would have been if we would not 
be providing for any transitional wage indexes under the new OMB 
delineations. For a complete discussion on this proposed budget 
neutrality adjustment for FY 2015, we refer the reader to section 
II.A.4.b. of the Addendum to this proposed rule.
    We note that, consistent with past practice (69 FR 49034), we are 
not adopting the new OMB delineations themselves in a budget neutral 
manner. We do not believe that the revision to the labor market areas 
in and of itself constitutes an ``adjustment or update'' to the 
adjustment for area wage differences, as provided under section 
1886(d)(3)(E) of the Act.
(7) Proposals With Respect To Determining Disproportionate Share 
Hospital (DSH) Payments
    As noted in the FY 2005 IPPS final rule (69 FR 49033), the 
provisions of Sec.  412.102 of the regulations would continue to apply 
with respect to determining DSH payments. Specifically, in the first 
year after a hospital loses urban status, the hospital would receive an 
additional payment that equals two-thirds of the difference between the 
urban DSH payments applicable to the hospital before its redesignation 
from urban to rural and the rural DSH payments applicable to the 
hospital subsequent to its redesignation from urban to rural. In the 
second year after a hospital loses urban status, the hospital would 
receive an additional payment that equals one-third of the difference 
between the urban DSH payments applicable to the hospital before its 
redesignation from urban to rural and the rural DSH payments applicable 
to the hospital subsequent to its redesignation from urban to rural.
    We also are proposing to make changes to the regulations to delete 
Sec.  412.64(b)(1)(ii)(D). In this regulation section, we currently 
define a ``hospital reclassified as rural'' as a hospital located in a 
county that, in FY 2004, was urban but was redesignated as rural after 
September 30, 2004, as a result of the most recent census data and 
implementation of the new MSA definitions announced by OMB on June 6, 
2003. Because this term is not used in Sec.  412.64, but is used in 
Sec.  412.102, we

[[Page 28064]]

are proposing to delete Sec.  412.64(b)(1)(ii)(D) and revise the 
language at Sec.  412.102 to address the circumstances set forth in 
Sec.  412.64(b)(1)(ii)(D). The regulation at Sec.  412.102, which 
addresses special treatment of hospitals located in areas that are 
changing from urban to rural as a result of a geographic redesignation, 
is the only location that currently references a ``hospital 
reclassified as rural'', as defined at Sec.  412.64(b)(1)(ii)(D). To 
avoid confusion with urban hospitals that choose to reclassify as rural 
under Sec.  412.103, we are proposing to revise the regulation text at 
Sec.  412.102 so that it no longer refers to the defined term 
``hospital reclassified as rural,'' and instead specifically states the 
circumstances in which Sec.  412.102 applies. In addition, we are 
proposing to modify the regulation text so that it would apply to all 
transitions from urban to rural status that occur as a result of any 
future adoption of new or revised OMB standards for delineating 
statistical areas adopted by CMS. Specifically, we are proposing to 
revise the regulations at Sec.  412.102 to state that ``An urban 
hospital that was part of an MSA, but was redesignated as rural as a 
result of the most recent OMB standards for delineating statistical 
areas adopted by CMS, may receive an adjustment to its rural Federal 
payment amount for operating costs for 2 successive fiscal years as 
provided in paragraphs (a) and (b) of this section. . . .''

C. Worksheet S-3 Wage Data for the Proposed FY 2015 Wage Index

    The proposed FY 2015 wage index values are based on the data 
collected from the Medicare cost reports submitted by hospitals for 
cost reporting periods beginning in FY 2011 (the FY 2014 wage indexes 
were based on data from cost reporting periods beginning during FY 
2010).
1. Included Categories of Costs
    The proposed FY 2015 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 2014, the 
proposed wage index for FY 2015 also excludes the direct and overhead 
salaries and hours for services not subject to IPPS payment, such as 
skilled nursing facility (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 2015 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 indexes 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 indexes 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 2015 wage index were obtained 
from Worksheet S-3, Parts II and III of the Medicare cost report for 
cost reporting periods beginning on or after October 1, 2010, and 
before October 1, 2011. For wage index purposes, we refer to cost 
reports during this period as the ``FY 2011 cost report,'' the ``FY 
2011 wage data,'' or the ``FY 2011 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 40, 
Sections 4005.2 through 4005.4 for Form CMS-2552-10. The data file used 
to construct the proposed FY 2015 wage index includes FY 2011 data 
submitted to us as of February 27, 2014. 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 MACs to revise or verify data elements that result in 
specific edit failures. For the proposed FY 2015 wage index, we 
identified and excluded 50 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 2015 wage index. We instructed MACs to 
complete their data verification of questionable data elements and to 
transmit any changes to the wage data no later than April 9, 2014. We 
intend that all unresolved data elements will be resolved by the date 
the FY 2015 final rule is issued. The revised data will be reflected in 
the FY 2015 IPPS final rule.
    In constructing the proposed FY 2015 wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2011, 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 6 hospitals that converted to CAH status on or after 
February 14, 2013, the cut-off date for CAH exclusion from the FY 2014 
wage index, and through and including February 13, 2014, the cut-off 
date for CAH exclusion from the FY 2015 wage index. After removing 
hospitals with aberrant data and hospitals that converted to CAH 
status, the proposed FY 2015 wage index is calculated based on 3,400 
hospitals.
    For the proposed FY 2015 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 2014 wage index (78 FR 50587). 
Table 2 containing the proposed

[[Page 28065]]

FY 2015 wage index associated with this proposed rule (available via 
the Internet on the CMS Web site) includes separate wage data for the 
campuses of 6 multicampus hospitals.
    Questions have been raised recently regarding the reporting of 
contract housekeeping and dietary services on Worksheet S-3, Part II, 
lines 33 and 35 of the Medicare cost report. CMS finalized its proposal 
to begin collecting contract labor costs and hours for housekeeping, 
and dietary (along with management services and the overhead services 
of administrative and general) in the FY 2003 IPPS final rule (67 FR 
50022 through 50023). At that time, we stated, ``We continue to 
consider whether to expand our contract labor definition to include 
more types of contract services in the wage index. In particular, we 
have examined whether to include the costs for acquired dietary and 
housekeeping services, as many hospitals now provide these services 
through contracts. Costs for these services tend to be below the 
average wages for all hospital employees. Therefore, excluding the 
costs and hours for these services if they are provided under contract, 
while including them if the services are provided directly by the 
hospital, creates an incentive for hospitals to contract for these 
services in order to increase their average hourly wage for wage index 
purposes'' (67 FR 50022). In the FY 2003 IPPS proposed rule, we 
explained that we selected the three overhead services of 
administrative and general, housekeeping, and dietary because they are 
provided at all hospitals, either directly or through contracts, and 
together they comprise about 60 percent of a hospital's overhead hours 
(67 FR 31433). In the FY 2003 IPPS final rule, we stated that we ``will 
monitor the hospital industry for information regarding the hospitals' 
ability to provide the data. Further, we will work with hospitals and 
intermediaries [MACs] to develop acceptable methods for tracking the 
costs and hours. Finally, before including these additional costs in 
the wage index, we will provide a detailed analysis of the impact of 
including these additional costs in the wage index values in the 
Federal Register and provide for public comment. Our final decision on 
whether to include contract indirect patient care labor costs in our 
calculation of the wage index will depend on the outcome of our 
analyses and public comments'' (67 FR 50023).
    Subsequent to the issuance of the FY 2003 IPPS final rule, we 
revised Worksheet S-3, Part II of the Medicare cost report (CMS Form 
2552-96) to add four lines for the reporting of contract labor 
salaries, wages, and hours. The lines added for contract housekeeping 
and dietary services were lines 26.01 and 27.01, respectively. (Line 
9.03 for contract management and line 22.01 for contract administrative 
and general (A&G) services were also added at that time). These lines 
were effective with cost reporting periods beginning on or after 
October 1, 2003 (that is, FY 2004). Because the cost report data used 
for the wage index are on a 4-year lag, data from these new contract 
labor lines would first be available for the FY 2008 wage index.
    In the FY 2008 rulemaking process, we provided an analysis of the 
effect on the inclusion in the wage index of the wages and hours 
related to the new contract labor lines. At that time, 56 hospitals 
(1.6 percent) failed edits for contract housekeeping line 26.01; and 99 
hospitals (2.8 percent) failed edits for contract dietary line 27.01 
(72 FR 24680 and 24782). We also noted that ``many of these edit 
failures are for wage data that are not to be included in the wage 
index and will be excluded through the wage index calculation. . . . In 
addition, some of the aberrant data will be resolved by the final rule 
through the correction process'' (72 FR 24680 and 24782). The small 
percentage of hospitals that failed edits for these contract labor 
lines indicates that the vast majority of hospitals completing these 
contract labor lines were able to obtain and report reasonable 
salaries, wages, and hours associated with contract housekeeping and 
dietary services. In the FY 2008 IPPS final rule, we stated that we 
believe that ``the impact of this policy is generally very minor, and 
we do not believe the additional complexity of a transition wage index 
is warranted for an impact this small. Further, we continue to believe 
it is prudent policy to include in the wage index the costs for these 
contract indirect patient care services'' (72 FR 47316). Therefore, we 
adopted the policy to include the new contract labor lines in the wage 
index, beginning with the FY 2008 wage index.
    The questions that have recently come to our attention involve 
hospitals that consistently do not provide documentable salaries, 
wages, and hours for their contracted housekeeping and/or dietary 
services. (On the Medicare cost report (CMS Form 2552-10), contract 
housekeeping is on Worksheet S-3, Part II, line 33 and contract dietary 
is on line 35). When this situation occurs, CMS has instructed the 
Medicare contractors to use reasonable estimates, such as regional 
average hourly rates, as a substitute for actual wages and hours, and 
to report the estimates on the hospital's Worksheet S-3, Part II, line 
33 or line 35, respectively. Our policy has been to use reasonable 
estimates for these housekeeping and dietary lines, rather than report 
zeroes for wages and hours, because, as discussed above and as stated 
in the FY 2003 IPPS final rule, ``[c]osts for these services tend to be 
below the average wages for all hospital employees. Therefore, 
excluding the costs and hours for these services if they are provided 
under contract, while including them if the services are provided 
directly by the hospital, creates an incentive for hospitals to 
contract for these services in order to increase their average hourly 
wage for wage index purposes'' (57 FR 50022). We understand that the 
reason many hospitals provide for failing to report such contract wages 
and hours is that their contracts do not clearly specify this 
information, often because they use a single vendor to provide several 
different contract labor services. We believe that allowing hospitals 
to routinely use contracts that do not clearly break out the salaries, 
wages, and hours associated with these services as a reason for not 
being able to report proper salaries, wages, and hours for these cost 
report lines undermines the purpose of instituting these lines in the 
first place. Furthermore, because every hospital must provide 
housekeeping and dietary services, and because the wage index is a 
relative measure of the value of the labor provided to a hospital in a 
particular labor market area, to report zeroes for salaries, wages, and 
hours for housekeeping and dietary services is not only unrealistic (in 
that every hospital provides for these services), but also 
misrepresents the labor costs in that area and undermines our policy. 
Consequently, CMS has instructed the Medicare contractors not to zero 
out these line items when a hospital cannot document the housekeeping 
or dietary salaries, wages, and hours, but instead to use a reasonable 
estimation of these wages and hours.
    In this proposed rule, we are reiterating our requirement that all 
hospitals must document salaries, wages, and hours for the purpose of 
reporting this information on Worksheet S-3, Part II, lines 32, 33, 34, 
and/or 35 (for either directly employed housekeeping and dietary 
employees on lines 32 and 34, and contract labor on lines 33 and 35). 
It is not acceptable for a hospital to request that the Medicare 
contractor zero out these line items if the hospital's contract does 
not

[[Page 28066]]

specifically break out the actual wages and hours. As indicated above, 
and stated in the FY 2008 IPPS proposed rule (72 FR 24680 and 24782), a 
small percentage of hospitals failed edits associated with the contract 
housekeeping and dietary lines, showing that the vast majority of 
hospitals reporting data on these lines were able to obtain and report 
reasonable salaries, wages, and hours associated with contract 
housekeeping and dietary services. We encourage hospitals to ensure 
that their contracts clearly specify the salaries, wages, and hours 
related to all of their contract labor. Because these line items have 
been included in the cost report since FY 2004, we believe that 
hospitals have had adequate notice and time to structure their 
contracts so that the wages and hours of contract employees can be 
determined and included in the cost reports. We expect hospitals to 
provide accurate data on their cost reports.
    We understand that there may be rare situations where a hospital 
would not have documentable salaries, wages, and hours for contract 
housekeeping and dietary services. In these situations, we believe that 
it is appropriate and necessary to use reasonable estimates for these 
numbers in order to determinate the best, most realistic, wage index 
that we can. As discussed previously, housekeeping and dietary services 
are unique in that the costs for housekeeping and dietary services tend 
to be below the average wages for all hospital employees. Thus, an 
incentive is created for hospitals to avoid reporting these contract 
labor salaries, wages, and hours on the cost report in order to 
increase their average hourly wage for wage index purposes. To deter 
hospitals from not reporting this information and to ensure that the 
wage index more accurately reflects the labor costs in an area, we 
believe that it is both necessary and appropriate for the Medicare 
contractors to estimate such salaries, wages, and hours in the rare 
instance where a hospital cannot provide such information. Therefore, 
in the absence of documentable wages and hours for contract 
housekeeping and dietary services, Medicare contractors would continue 
to use reasonable estimates for these services. Examples of reasonable 
estimates are regional average hourly rates, including an average of 
the wages and hours for dietary and housekeeping services of other 
hospitals in the same CBSA as the hospital in question. Hospitals also 
may conduct time studies to determine hours worked. If, for whatever 
reason, regional averages or time studies cannot be used, Medicare 
contractors may use data from the Bureau of Labor Statistics to obtain 
average wages and hours for housekeeping and dietary services. 
Commenters may also suggest alternatives for imputing reasonable 
estimates for possible consideration by CMS. In all cases, Medicare 
contractors must determine that the data used are reasonable.

E. Method for Computing the Proposed FY 2015 Unadjusted Wage Index

    The method used to compute the proposed FY 2015 wage index without 
an occupational mix adjustment follows the same methodology that we 
used to compute the FY 2012, FY 2013, and FY 2014 final wage indexes 
without an occupational mix adjustment (76 FR 51591 through 51593, 77 
FR 53366 through 53367, and 78 FR 50587 through 50588, respectively).
    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, 2010, through April 15, 2012, 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 2015. 
The factors used to adjust the hospital's data were based on the 
midpoint of the cost reporting period, as indicated in the following 
table.

                    Midpoint of Cost Reporting Period
------------------------------------------------------------------------
         After                    Before             Adjustment factor
------------------------------------------------------------------------
      10/14/2010               11/15/2010                 1.02230
      11/14/2010               12/15/2010                 1.02078
      12/14/2010               01/15/2011                 1.01929
      01/14/2011               02/15/2011                 1.01782
      02/14/2011               03/15/2011                 1.01637
      03/14/2011               04/15/2011                 1.01494
      04/14/2011               05/15/2011                 1.01355
      05/14/2011               06/15/2011                 1.01219
      06/14/2011               07/15/2011                 1.01084
      07/14/2011               08/15/2011                 1.00948
      08/14/2011               09/15/2011                 1.00811
      09/14/2011               10/15/2011                 1.00674
      10/14/2011               11/15/2011                 1.00538
      11/14/2011               12/15/2011                 1.00403
      12/14/2011               01/15/2012                 1.00269
      01/14/2012               02/15/2012                 1.00134
      02/14/2012               03/15/2012                 1.00000
      03/14/2012               04/15/2012                 0.99866
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2011, and ending December 31, 2011, is June 30, 2011. An 
adjustment factor of 1.01084 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 2014 IPPS/LTCH PPS 
final rule (78 FR 50587 through 50588), the proposed FY 2015 national 
average hourly wage (unadjusted for occupational mix) is $39.1525. The 
proposed FY 2015 Puerto Rico overall average hourly wage (unadjusted 
for occupational mix) is $17.0010.

F. Proposed Occupational Mix Adjustment to the Proposed FY 2015 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 2015 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 2014 IPPS/LTCH PPS final rule (78 FR 50588), 
the occupational mix adjustment to the FY 2014 wage index was based on 
data collected on the 2010 Medicare Wage Index Occupational Mix Survey 
(Form CMS-10079 (2010)). For the FY 2015

[[Page 28067]]

wage index, we are proposing to again use occupational mix data 
collected on the 2010 survey to compute the occupational mix adjustment 
for FY 2015. We are including data for 3,165 hospitals that also have 
wage data included in the proposed FY 2015 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, FY 2014, and the proposed FY 
2015 wage index associated with this proposed rule. 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, which will be applied to the FY 2016 wage index, includes the 
same data elements and definitions as the 2010 survey and 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 was approved 
by OMB on May 14, 2013, and is available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/WAGE-INDEX-OCCUPATIONAL-MIX-SURVEY2013.pdf.
    The 2013 Occupational Mix Survey Hospital Reporting Form CMS-10079 
for the Wage Index Beginning FY 2016 (in excel format) is available on 
the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2016-Wage-Index-OccupationalMix.html. Hospitals are required to submit their 
completed 2013 surveys to their 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 2015
    For FY 2015, we are proposing to calculate the occupational mix 
adjustment factor using the same methodology that we used for the FY 
2012, FY 2013, and FY 2014 wage indexes (76 FR 51582 through 51586, 77 
FR 53367 through 53368, and 78 FR 50588 through 50589, respectively). 
As a result of applying this methodology, the proposed FY 2015 
occupational mix adjusted national average hourly wage (based on the 
proposed new OMB delineations) is $39.1177. The proposed FY 2015 
occupational mix adjusted Puerto Rico-specific average hourly wage 
(based on the proposed new OMB delineations) is $17.0526.
    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 
2015 wage index. For the FY 2015 proposed wage index, because we are 
using the Worksheet S-3, Parts II and III wage data of 3,400 hospitals, 
and we are using the occupational mix surveys of 3,165 hospitals for 
which we also have Worksheet S-3 wage data, that represents a 
``response'' rate of 93.1 percent (3,165/3,400). In the proposed FY 
2015 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 and FY 2015 wage index desk 
review process. We stated that we would 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 2015 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 the preamble of this proposed 
rule, for FY 2015, we are proposing to apply the proposed occupational 
mix adjustment to 100 percent of the proposed FY 2015 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 2015 wage 
index results in a proposed national average hourly wage (based on the 
new OMB delineations) of $39.1177 and a proposed Puerto-Rico specific 
average hourly wage of $17.0526. After excluding data of hospitals that 
either submitted aberrant data that failed critical edits, or that do 
not have FY 2011 Worksheet S-3, Parts II and III, cost report data for 
use in calculating the proposed FY 2015 wage index, we calculated the 
proposed FY 2015 wage index using the occupational mix survey data from 
3,165 hospitals. For the FY 2015 proposed wage index, because we are 
using the Worksheet S-3, Parts II and III wage data of 3,400 hospitals, 
and we are using the occupational mix survey data of 3,165 hospitals 
for which we also have Worksheet S-3 wage data, those data represent a 
``response'' rate of 93.1 percent (3,165/3,400). The proposed FY 2015 
national average hourly wages for each occupational mix nursing 
subcategory as calculated in Step 2 of the occupational mix calculation 
are as follows:

[[Page 28068]]



------------------------------------------------------------------------
                                                     Proposed average
      Occupational mix nursing subcategory             hourly wage
------------------------------------------------------------------------
National RN....................................             37.388291241
National LPN and Surgical Technician...........             21.767178303
National Nurse Aide, Orderly, and Attendant....              15.31155016
National Medical Assistant.....................             17.246724132
National Nurse Category........................             31.744397958
------------------------------------------------------------------------

    The proposed national average hourly wage for the entire nurse 
category as computed in Step 5 of the occupational mix calculation is 
$31.744397958. 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 43.43 
percent, and the national percentage of hospital employees in the all 
other occupations category is 56.57 percent. At the CBSA level, using 
the new OMB delineations proposed for FY 2015, the percentage of 
hospital employees in the nurse category ranged from a low of 21.88 
percent in one CBSA to a high of 73.27 percent in another CBSA.
    We compared the proposed FY 2015 occupational mix adjusted wage 
indexes for each CBSA to the proposed unadjusted wage indexes for each 
CBSA. We used the proposed FY 2015 new OMB delineations for this 
analysis. As a result of applying the proposed occupational mix 
adjustment to the wage data, the proposed wage index values for 215 
(52.8 percent) urban areas and 29 (61.7 percent) rural areas would 
increase. One hundred and sixteen (28.5 percent) urban areas would 
increase by 1 percent but less than 5 percent, and 4 (1.0 percent) 
urban areas would increase by 5 percent or more. Fourteen (29.8 
percent) rural areas would increase by 1 percent but less than 5 
percent, and no rural areas would increase by 5 percent or more. 
However, the wage index values for 190 (46.7 percent) urban areas and 
18 (38.3 percent) rural areas would decrease. Eighty (19.7 percent) 
urban areas would decrease by 1 percent but less than 5 percent, and 1 
(0.2 percent) urban area would decrease by 5 percent or more. Seven 
(14.9 percent) rural areas would decrease by 1 percent and less than 5 
percent, and no rural areas would decrease by 5 percent or more. The 
largest positive impacts would be 6.56 percent for an urban area and 
3.35 percent for a rural area. The largest negative impacts would be 
5.32 percent for an urban area and 1.71 percent for a rural area. Two 
urban areas' wage indexes, but no rural area wage indexes, would remain 
unchanged by application of the occupational mix adjustment. These 
results indicate that a larger percentage of rural areas (61.7 percent) 
would benefit from the occupational mix adjustment than would urban 
areas (52.8 percent). However, approximately one-third (38.3 percent) 
of rural CBSAs would still experience a decrease in their wage indexes 
as a result of the 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 2015 wage index associated with this proposed rule and 
available on the CMS Web site, based on the proposed implementation of 
the new OMB delineations discussed in section III.B. of the preamble of 
this proposed rule, we estimated that 441 hospitals would receive an 
increase in their FY 2015 proposed wage index due to the application of 
the rural floor.
b. Proposed Imputed Floor for FY 2015
    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 four times, 
the last of which was adopted in the FY 2014 IPPS/LTCH PPS final rule 
and is set to expire on September 30, 2014. (We refer readers to 
further discussion of the imputed floor in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50589 through 50590) and to our regulations at 42 CFR 
412.64(h)(4).) There were previously two all-urban States, New Jersey 
and Rhode Island, that have a range of wage indexes 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 the preamble 
of this proposed rule). However, as we explain below, the method as of 
FY 2012 for computing the imputed floor (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 as well as the average of the 
ratios of lowest-to-highest CBSA wage indexes of those all-urban 
States. We then compared the State's own ratio to the average ratio for 
all-urban States and whichever is higher is multiplied by the highest 
CBSA wage index value in the State--the product of which established 
the imputed floor for the State. Under the current OMB labor market 
area delineations that we used for the FY 2014 wage index, Rhode Island 
has only one CBSA (Providence-New Bedford-Fall River, RI-MA) and New 
Jersey has 10 CBSAs. Therefore, under the original methodology, Rhode 
Island's own ratio equaled 1.0, and its imputed floor was equal to its 
original CBSA wage index value. However, because the average ratio of 
New Jersey and Rhode Island was higher than New Jersey's own ratio, 
this 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), we retained the imputed floor calculated under the original 
methodology as discussed above, and established an alternative 
methodology for computing the imputed floor wage index to address the 
concern that the original imputed floor methodology guaranteed a 
benefit

[[Page 28069]]

for one all-urban State with multiple wage indexes (New Jersey) but 
could not benefit the other all-urban State (Rhode Island). The 
alternative methodology for calculating the imputed floor was 
established using data from the application of the rural floor policy 
for FY 2013. Under the alternative methodology, 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 IPPS/LTCH PPS 
final 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 then is increased by this factor, the 
result of which establishes the State's alternative imputed floor. We 
amended Sec.  412.64(h)(4) of the regulations to add new paragraphs to 
incorporate the finalized alternative methodology, and to make 
reference and date changes.
    In summary, for the FY 2013 wage index, we did not make any changes 
to the original imputed floor methodology at Sec.  412.64(h)(4) and, 
therefore, made no changes to the New Jersey imputed floor computation 
for FY 2013. Instead, for FY 2013, we adopted a second, alternative 
methodology for use in cases where an all-urban State has a range of 
wage indexes assigned to its hospitals, but the State cannot benefit 
from the methodology in existing Sec.  412.64(h)(4).
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50589 through 
50590), we extended the imputed floor policy (both the original 
methodology and the alternative methodology) for 1 additional year, 
through September 30, 2014, while we continued to explore potential 
wage index reforms.
    For FY 2015, we are proposing to continue the extension of the 
imputed floor policy (both the original methodology and alternative 
methodology) for another year, through September 30, 2015, as we 
continue to explore potential wage index reforms. As discussed in 
section III.B. of the preamble of this proposed rule, we are proposing 
to adopt the new OMB labor market area delineations beginning in FY 
2015. Under OMB's new labor market area delineations based on Census 
2010 data, Delaware would become an all-urban State, along with New 
Jersey and Rhode Island. Under the new OMB delineations, Delaware would 
have three CBSAs, New Jersey would have seven CBSAs, and Rhode Island 
would continue to have only one CBSA (Providence-Warwick, RI-MA). We 
refer readers to a detailed discussion of our proposal to adopt the new 
OMB labor market area delineations in section III.B. of the preamble of 
this proposed rule. We are proposing to revise the regulations at Sec.  
412.64(h)(4) and (h)(4)(vi) to reflect the proposed 1-year extension of 
the imputed floor. We are inviting public comments on our proposal 
regarding the 1-year extension of the imputed floor.
    The wage index and impact tables associated with this FY 2015 IPPS/
LTCH PPS proposed rule that are available on the CMS Web site reflect 
the proposed continued application of the imputed floor policy at Sec.  
412.64(h)(4) and a national budget neutrality adjustment for the 
imputed floor for FY 2015. There are 12 providers in New Jersey, and 1 
provider in Delaware that would receive an increase in their FY 2015 
wage index due to the proposed continued application of the imputed 
floor policy under the original methodology. The wage index and impact 
tables for this FY 2015 proposed rule also reflect the proposed 
application of the second alternative methodology for computing the 
imputed floor, which would benefit four hospitals in Rhode Island.
c. Proposed State 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)). Based on the proposed implementation 
of the new OMB delineations discussed in section III.B. of the preamble 
of this proposed rule, 46 hospitals would receive the frontier floor 
value of 1.0000 for their proposed FY 2015 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 2015 rural floor value of 1.1373 is greater than 
1.0000, and therefore, no Nevada hospitals would receive a frontier 
floor value for their proposed FY 2015 wage index.
    The areas affected by the proposed rural, imputed, and frontier 
floor policies for the proposed FY 2015 wage index are identified in 
Table 4D associated with this proposed rule, which is available on the 
CMS Web site.
3. Proposed FY 2015 Wage Index Tables
    The proposed wage index values for FY 2015 (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. We note that because we are 
proposing to adopt the new OMB labor market area delineations for FY 
2015, these tables have additional tabulations to account for wage 
index calculations computed under the previous and the new OMB 
delineations.
    Tables 3A and 3B, available on the CMS Web site, list the proposed 
3-year average hourly wage for each labor market area before the 
redesignation or reclassification of hospitals based on FYs 2009, 2010, 
and 2011 cost reporting periods. Table 3A lists these data for urban 
areas, and Table 3B lists these data for rural areas. In addition, 
Table 2, which is available on the CMS Web site, includes the proposed 
adjusted average hourly wage for each hospital from the FY 2009 and FY 
2010 cost reporting periods, as well as the FY 2011 period used to 
calculate the proposed FY 2015 wage index. The proposed 3-year averages 
are calculated by dividing the sum of the dollars (adjusted to a common 
reporting period using the method described in Step 5 in section III.G. 
of the preamble of this proposed rule) across all 3 years, by the sum 
of the hours. If a hospital is missing data for any of the previous 
years, its proposed 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. As stated above, because we are proposing to adopt the new 
OMB labor market area delineations for FY 2015, these tables have 
additional tabulations to account for wage index calculations computed 
under the current labor market definitions and the

[[Page 28070]]

new OMB labor market area delineations. In addition, for certain 
applicable hospitals, the proposed wage index values included in Table 
2 are computed to reflect the proposed transitional wage index or the 
50/50 blended wage index discussed in detail in section III.B.2.e. of 
the preamble of this proposed rule.

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 2015, 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 in accordance with the provisions of 42 CFR 412.103. 
While our general policies on geographic reclassification, 
redesignations under section 1886(d)(8)(B) of the Act, and urban 
hospitals reclassifying to rural under 42 CFR 412.103 will remain 
unchanged for FY 2015, we note that, due to our proposed adoption of 
the new OMB labor market area delineations for FY 2015, there are 
numerous unique classification considerations for FY 2015 that are 
discussed in more detail in section III.H. of the preamble of this 
proposed rule. For a discussion of the new CBSA changes based on the 
new OMB labor market area delineations and our proposed implementation 
of those changes, we refer readers to sections III.B. and VI.C. of the 
preamble of this proposed rule.
2. FY 2015 MGCRB Reclassifications
a. FY 2015 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.
    In February 2014, the MGCRB completed its review of FY 2015 
reclassification requests. Based on such reviews, there were 379 
hospitals approved for wage index reclassifications by the MGCRB 
starting in FY 2015. Because MGCRB wage index reclassifications are 
effective for 3 years, for FY 2015, hospitals reclassified beginning 
during FY 2013 or FY 2014 are eligible to continue to be reclassified 
to a particular labor market area based on such prior reclassifications 
for the remainder of their 3-year period. There were 172 hospitals 
approved for wage index reclassifications in FY 2013, and 287 hospitals 
approved for wage index reclassifications in FY 2014. Of all the 
hospitals approved for reclassification for FY 2013, FY 2014, and FY 
2015, as of February 2014, 838 hospitals are in a reclassification 
status for FY 2015.
    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 2015 will be incorporated 
into the wage index values published in the FY 2015 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. Effects of Implementation of New OMB Labor Market Area Delineations 
on Reclassified Hospitals
    Because hospitals that have been reclassified beginning in FY 2013, 
2014, or 2015 were reclassified based on the current labor market 
delineations, if we adopt the new OMB labor market area delineations 
beginning in FY 2015, the areas to which they have been reclassified, 
or the areas where they are located, may change. Under the new OMB 
delineations, many existing CBSAs would be reconfigured. Hospitals with 
current reclassifications are encouraged to verify area wage indexes on 
Tables 4A-2 and 4B-2 associated with this proposed rule (which are 
available via the Internet on the CMS Web site), and confirm that the 
areas to which they have been reclassified for FY 2015 would continue 
to provide a higher wage index than their geographic area wage index. 
Hospitals may withdraw their FY 2015 reclassifications by contacting 
the MGCRB within 45 days from the publication of this proposed rule.
    In some cases, adopting the new OMB delineations would result in 
counties splitting apart from CBSAs to form new CBSAs, or counties 
shifting from one CBSA designation to another CBSA. Reclassifications 
granted under section 1886(d)(10) of the Act are effective for 3 fiscal 
years so that a hospital or county group of hospitals would be assigned 
a wage index based upon the wage data of hospitals in a nearby labor 
market area for a 3-year period. If CBSAs are split apart, or if 
counties shift from one CBSA to another under the new OMB delineations, 
it raises the question of how to continue a hospital's reclassification 
for the remainder of its 3-year reclassification period, if that area 
to which the hospital reclassified no longer exists, in whole or in 
part. We dealt with this question in FY 2005 as well when CMS adopted 
the current OMB labor market area definitions.

[[Page 28071]]

Consistent with the policy CMS implemented in the FY 2005 IPPS final 
rule (69 FR 49054 through 49056), if a CBSA would be reconfigured due 
to the new OMB delineations and it would not be possible for the 
reclassification to continue seamlessly to the reconfigured CBSA, we 
believe it is appropriate for us to determine the best alternative 
location to reassign current reclassifications for the remaining 3 
years. Therefore, to maintain the integrity of a hospital's 3-year 
reclassification period, we are proposing a policy to assure that 
current geographic reclassifications (applications approved in FY 2013, 
FY 2014, or FY 2015) that would be affected by CBSAs that are split 
apart or counties that shift to another CBSA under the new OMB 
delineations, would ultimately be assigned to a CBSA under the new OMB 
delineations that contains at least one county from the reclassified 
CBSA under the current FY 2014 OMB definitions, and would be generally 
consistent with rules that govern geographic reclassification. That is, 
consistent with policy finalized in FY 2005 (69 FR 49054 and 49055), we 
are proposing a general policy that affected reclassified hospitals 
would be assigned to a CBSA that (1) would contain the most proximate 
county that is located outside of the hospital's proposed FY 2015 
geographic labor market area, and (2) is part of the original FY 2014 
CBSA to which the hospital is reclassified. We believe that by 
assigning reclassifications to the CBSA that contains the nearest 
eligible county (as described above) satisfies the statutory 
requirement at section 1886(d)(10)(v) of the Act by maintaining 
reclassification status for a period of 3 fiscal years, while generally 
respecting the longstanding principle of geographic proximity in the 
labor market reclassification process. The hospitals that we are 
proposing to reassign to a different CBSA based on our proposed policy 
above are listed in a special Table 9A-2 for this proposed rule, which 
is available via the Internet on the CMS Web site. In addition, we are 
proposing to allow a hospital, or county group of hospitals, to request 
reassignment to another CBSA that would contain a county that is part 
of the current FY 2014 CBSA to which they are reclassified, if the 
hospital or county group of hospitals can demonstrate compliance with 
applicable reclassification proximity rules, as described later in this 
section.
    We recognize that this proposed reclassification reassignment 
described for hospitals that are reclassified to CBSAs that would split 
apart or to counties that would shift to another CBSA under the new OMB 
delineations may result in the reassignment of the hospital for the 
remainder of its 3-year reclassification period to a CBSA having a 
lower wage index than the wage index that would have been assigned for 
the reclassified hospital in the absence of the proposed adoption of 
the new OMB delineations. Therefore, as discussed in section 
III.B.2.e.(4) of the preamble of this proposed rule, we are proposing 
that all hospitals that would experience a decrease in their FY 2015 
wage index value due to the proposed implementation of the new OMB 
delineations would receive a 50/50 blended wage index adjustment in FY 
2015. For FY 2015, using FY 2015 wage data, we are proposing to 
calculate a wage index value based on the current FY 2014 OMB 
definitions, and a wage index value based upon the proposed new OMB 
delineations (including reclassification assignments discussed in this 
section). If the wage index under the proposed new OMB delineations 
would be lower than the wage index calculated with the current (FY 
2014) OMB definitions, the hospital would be assigned a blended wage 
index (50 percent of the current; 50 percent of the proposed). We 
believe that this proposed transitional adjustment would mitigate 
negative payment impacts for FY 2015, and would afford hospitals 
additional time to fully assess any additional reclassification options 
available to them under the new OMB delineations.
    We are including the following descriptions of specific situations 
where we have determined that reassignment of reclassification areas 
would be appropriate.
(1) Reclassifications to CBSAs That Would Be Subsumed by Other CBSAs
    We identified 66 counties that are currently located in CBSAs that 
would be subsumed by another CBSA under the new OMB labor market area 
delineations. As a result, hospitals reclassifying to those CBSAs would 
now find that their reclassifications are to a CBSA that no longer 
exists. For these hospitals, we are proposing to reassign 
reclassifications to the newly configured CBSA to which all of the 
original constituent counties in the FY 2014 CBSA are transferred. For 
example, CBSA 11300 (Anderson, IN) would no longer exist under the 
proposed FY 2015 delineations. The only constituent county in CBSA 
11300, Madison County, IN, would be moving to CBSA 26900 (Indianapolis-
Carmel-Anderson, IN). Because the original Anderson, IN labor market 
area no longer exists, we are proposing to reassign reclassifications 
from the original Anderson, IN labor market area to a newly configured 
CBSA where the original constituent county or counties are transferred, 
which is Indianapolis-Carmel-Anderson, IN. For hospitals reclassified 
to a CBSA that would be subsumed by another CBSA, the following table 
reflects the hospitals' current reclassified CBSA, and the CBSA to 
which CMS is proposing to assign them for FY 2015.

     Proposed Hospital Reclassification Reassignments for Hospitals
      Reclassified to a CBSA That Would Be Subsumed by Another CBSA
------------------------------------------------------------------------
  CMS certification No.     Current reclassified
          (CCN)                     CBSA               Proposed CBSA
------------------------------------------------------------------------
          050022                     42044                   11244
          050054                     42044                   11244
          050102                     42044                   11244
          050243                     42044                   11244
          050292                     42044                   11244
          050329                     42044                   11244
          050390                     42044                   11244
          050423                     42044                   11244
          050534                     42044                   11244
          050573                     42044                   11244
          050684                     42044                   11244
          050686                     42044                   11244
          050701                     42044                   11244
          050765                     42044                   11244
          050770                     42044                   11244
          140067                     14060                   14010
          150089                     11300                   26900
          220001                     14484                   14454
          220002                     14484                   14454
          220008                     14484                   14454
          220011                     14484                   14454
          220019                     14484                   14454
          220020                     14484                   14454
          220049                     14484                   14454
          220058                     14484                   14454
          220062                     14484                   14454
          220063                     14484                   14454
          220070                     14484                   14454
          220073                     14484                   14454
          220074                     14484                   14454
          220082                     14484                   14454
          220084                     14484                   14454
          220090                     14484                   14454
          220095                     14484                   14454
          220098                     14484                   14454
          220101                     14484                   14454
          220105                     14484                   14454
          220163                     14484                   14454
          220171                     14484                   14454
          220175                     14484                   14454
          220176                     14484                   14454
          230002                     47644                   47664
          230020                     47644                   47664
          230024                     47644                   47664
          230053                     47644                   47664
          230089                     47644                   47664
          230104                     47644                   47664
          230142                     47644                   47664
          230146                     47644                   47664

[[Page 28072]]

 
          230165                     47644                   47664
          230176                     47644                   47664
          230244                     47644                   47664
          230270                     47644                   47664
          230273                     47644                   47664
          230297                     47644                   47664
          300017                     37764                   15764
          300023                     37764                   15764
          300029                     37764                   15764
          390151                     13644                   43524
          410001                     14484                   14454
          410004                     14484                   14454
          410005                     14484                   14454
          410007                     14484                   14454
          410010                     14484                   14454
          410011                     14484                   14454
          410012                     14484                   14454
------------------------------------------------------------------------

(2) Reclassification to CBSAs Where the CBSA Number or Name Has Changed 
or to CBSAs Containing Counties That Would Be Moving to Another CBSA
    We identified six CBSAs with current reclassifications that would 
maintain the same constituent counties, but the CBSA number or name 
would change if we adopted the new OMB delineations. For example, CBSA 
29140 (Lafayette, IN) currently contains three counties (Benton, 
Carroll, and Tippecanoe Counties). The CBSA name and number for these 
counties would change to CBSA 29200 (Lafayette-West Lafayette, IN) 
under the new OMB delineations. Because the constituent counties in 
these CBSAs would not change under the new delineations, we would 
consider these CBSAs to be unchanged, and we are not proposing any 
reassignment for hospitals reclassified to those labor market areas. 
Table 9A-2 for this proposed rule (which is available via the Internet 
on the CMS Web site) reflects the proposed revised CBSA number 
effective in FY 2015.
    We identified eight CBSAs with current reclassifications that have 
one or more counties that would split off and move to a new CBSA or to 
a different existing CBSA under the new OMB delineations. These CBSAs 
are shown in the following table.

------------------------------------------------------------------------
       Current FY 2014 CBSA              Current FY 2014 CBSA name
------------------------------------------------------------------------
16620............................  Charleston, WV.
16974............................  Chicago-Joliet-Naperville, IL.
20764............................  Edison-New Brunswick, NJ.
31140............................  Louisville/Jefferson County, KY-IN.
35644............................  New York-White Plains-Wayne, NY-NJ.
37964............................  Philadelphia, PA.
39100............................  Poughkeepsie-Newburgh-Middletown, NY.
48900............................  Wilmington, NC.
------------------------------------------------------------------------

    We have determined that 69 hospitals have current reclassifications 
to one of these CBSAs. Similar to the methodology finalized in the FY 
2005 IPPS final rule (69 FR 49054 through 49055), we are proposing to 
follow the general policy discussed in section III.H.2.b. of the 
preamble of this proposed rule. Specifically, we are proposing that 
affected reclassified hospitals would be assigned to a CBSA (under the 
new OMB delineations) that would contain the most proximate county that 
is (1) located outside of the hospital's proposed FY 2015 geographic 
labor market area; and (2) is included in the current CBSA to which 
they are reclassified. For each of the 69 hospitals, we conducted a 
mapping analysis and determined driving distances from their geographic 
location to the borders of each county (that is in the reclassified 
CBSA under the FY 2014 delineations) and is also included in a CBSA 
under the new OMB delineations, excluding any counties that would be 
located in the hospital's proposed FY 2015 geographic labor market 
area. Following the general reassignment principle that we are 
proposing, we are proposing to reassign those reclassified hospitals to 
the CBSA which contains the geographically closest county. For example, 
there are hospitals that currently are reclassified to CBSA 39100 
(Poughkeepsie-Newburgh-Middletown, NY) under the FY 2014 delineations, 
which is comprised of Dutchess County and Orange County, NY. Under the 
new OMB delineations, Dutchess County would become part of new CBSA 
20524 (Dutchess County-Putnam County, NY), while Orange County would 
join CBSA 35614 (New York-Jersey City-White Plains, NY-NJ Metropolitan 
Division). Therefore, we mapped the distances from one reclassified 
hospital to the border of Dutchess County and Orange County, NY (the 
two counties that were part of CBSA 39100 under the FY 2014 
delineations). Our analysis showed that the hospital is 2.2 miles from 
Dutchess County, and 25.9 miles from Orange County. Therefore, we are 
proposing to reassign this hospital's reclassification from the FY 2014 
CBSA 39100 to the new CBSA 20524.
    We also identified affected county group reclassifications. For 
these reclassifications, we would follow our proposed policy discussed 
above, except that, for county group reclassifications, we are 
proposing to reassign hospitals in a county group reclassification to 
the CBSA under the new OMB delineations to which the majority of 
hospitals in the group reclassification are geographically closest. 
Because hospitals in a county group applied as a group, we believe the 
reassignment should also be applied to the whole group. For example, 
the hospitals of Fairfield County, CT are reclassified as a group to 
CBSA 35644 under the FY 2014 delineations. Under the new OMB 
delineations, CBSA 35644 would no longer exist and would be split into 
the following two new CBSAs: 20524 (Dutchess County-Putnam County, NY) 
and 35614 (New York-Jersey City-White Plains, NY-NJ). Of the six 
hospitals in the group reclassification, all but one would be closer to 
an eligible county (Westchester, NY) in CBSA 35614 than to an eligible 
county (Putnam, NY) in CBSA 20524. Because these hospitals in 
Fairfield, CT applied as a group, we believe the reassignment should 
also be applied to the whole group. Therefore, we are proposing to 
assign the hospitals in this group reclassification to CBSA 35614, the 
reconfigured CBSA to which the majority of the hospitals in the group 
reclassification are geographically closest.
    To summarize, of the 69 hospitals reclassified to one of the 8 
CBSAs in the preceding table that have counties that would split off 
and move to a new CBSA or a different existing CBSA under the new OMB 
delineations, there are 27 hospitals that would maintain the same 
reclassified CBSA number under our proposals. Another 28 hospitals 
would be reassigned to a reconfigured CBSA that would contain a similar 
number of counties from their current reclassified CBSA. For example, 
the new CBSA 35614 (New York-Jersey City-White Plains, NY-NJ 
Metropolitan Division) would contain 10 out of 11 counties from current 
(FY 2014) CBSA 35644 (New York-White Plains-Wayne, NY-NJ Metropolitan 
Division).
    For the remaining 14 reclassified hospitals, we are proposing to 
assign them to a CBSA (under the new OMB delineations) that would have 
a different CBSA number from the labor market area to which they are 
currently reclassified (under the current FY 2014 delineations). This 
is because if the original CBSA to which the hospitals are reclassified 
is losing counties to another urban CBSA, it may be that the

[[Page 28073]]

original reclassification determination would not be reflective of the 
new delineations. In addition, because proximity to a CBSA is a 
requirement of reclassifications approved under section 1886(d)(10) of 
the Act, we believe it is appropriate to propose to reassign 
reclassification status to an urban CBSA that contains the county (from 
the hospital's current CBSA reclassification) that is closest to the 
hospital. We believe this would more accurately reflect the geographic 
labor market area of the reclassified hospital. For example, under the 
FY 2014 delineations, CBSA 37964 (Philadelphia, PA Metropolitan 
Division) is comprised of five counties (Bucks, Chester, Delaware, 
Montgomery, and Philadelphia Counties, PA). Under the new OMB 
delineations, CBSA 37964 would retain the same CBSA name and number, 
but three counties (Bucks, Chester, and Montgomery) would split off to 
form the new CBSA 33874 (Montgomery County-Bucks County-Chester County, 
PA Metropolitan Division). While CBSA 37964 exists under the FY 2014 
and proposed new labor market area delineations, the fact that three 
counties would be moved to another CBSA means that current 
reclassifications to CBSA 37964 (Philadelphia) may be more proximate to 
new CBSA 33874. Therefore, if reclassified hospitals, or the majority 
of hospitals in a county group, are geographically closer to a county 
in CBSA 33874 than to a county in CBSA 37964, we are proposing to 
reassign the reclassification to that area, new CBSA 33874 (Montgomery 
County-Bucks County-Chester County, PA Metropolitan Division).
    Consistent with refinements implemented in the FY 2005 IPPS final 
rule (69 FR 49055), we are proposing to allow hospitals that 
reclassified under section 1886(d)(10) of the Act to one of the eight 
CBSAs that split (that is, current FY 2014 CBSAs 16620, 16974, 20764, 
31140, 35644, 37964, 39100, 48900) to be reclassified to any CBSA 
containing a county from their original reclassification labor market 
area, provided that the hospital demonstrates that it meets the 
applicable proximity requirements under 42 CFR 412.230(b) and (c) (for 
individual hospitals), 42 CFR 412.232(a)(1) (for a rural group), and 42 
CFR 412.234(a)(2) and (a)(3) (for an urban group) to that CBSA. 
Hospitals that wish to be reassigned to an alternate CBSA (other than 
the CBSA to which their reclassification would be reassigned in this 
proposed rule) for which they meet the applicable proximity criteria 
may request reassignment within 45 days from the publication of this 
proposed rule. Hospitals must send a request to WageIndex@cms.hhs.gov 
and provide documentation certifying that they meet the requisite 
proximity criteria for reassignment to an alternate CBSA, as described 
above. We believe this option of allowing hospitals to submit a request 
to CMS would provide hospitals with greater flexibility with respect to 
their reclassification reassignment, while ensuring that the proximity 
requirements are met. We believe that where the proximity requirements 
are met, the reclassified wage index would be consistent with the labor 
market area to which the hospitals were originally approved for 
reclassification. Under this proposed policy, a hospital may request to 
be assigned a reclassification to any CBSA that contains any county 
from the CBSA to which it is currently reclassified. However, to be 
reassigned to an area that is not the most proximate to the hospital 
(or the majority of hospitals in a county group), we believe it is 
necessary that the hospital demonstrates that it complies with the 
applicable proximity criteria. If a hospital cannot demonstrate 
proximity to an alternate CBSA, the hospital would not be considered 
for reclassification to that labor market area, and reassignment would 
remain with the closest eligible (new) CBSA.
    As discussed previously in this section, under the new OMB 
delineations, we identified CBSA 35644 (New York-White Plains-Wayne, 
NY-NJ Metropolitan Division) as one of the examples of the eight CBSAs 
that would have at least one county that would split off and join 
another new CBSA (Putnam County joined Dutchess County, NY to form new 
CBSA 20524), while also having multiple counties assigned to a 
reconfigured CBSA 35614 (New York-Jersey City-White Plains, NY-NJ 
Metropolitan Division). CBSA 35614 would also add Orange County, NY 
under the new OMB delineations. The hospitals that are currently 
located in CBSA 39100 (Poughkeepsie-Newburgh-Middletown, NY) are 
currently part of a group reclassification of Orange County, NY to CBSA 
35644 (New York-White Plains-Wayne, NY-NJ Metropolitan Division). As 
discussed above, we are proposing to reassign current reclassifications 
to the CBSA that contains the most proximate county that is located 
outside of the reclassified hospital's proposed geographic labor market 
area, and is currently part of the original CBSA to which the hospital 
is reclassified. In the case of the Orange County, NY group 
reclassification, the closest (and only) county from the original 
reclassified area (CBSA 35644), that would not be located in Orange 
County's proposed home labor market area (CBSA 35614) is Putnam County, 
NY. Therefore, we are proposing to reassign the Orange County group 
reclassification to CBSA 20524 (Putnam County-Dutchess County, NY). If 
the hospitals from the Orange County, NY group reclassification do not 
wish to maintain this assignment, we encourage them to formally 
terminate the current group reclassification within 45 days from the 
publication of this proposed rule, as discussed earlier in this 
section.
    The following table shows proposed hospital reclassification 
assignments for hospitals reclassified to CBSAs from which counties 
would be split off and moved to a different CBSA under the new OMB 
delineations. The following table shows the current reclassified CBSA 
and the CBSA to which CMS is proposing reassignment.

 Proposed Hospital Reclassification Reassignments for Hospitals That Are
 Reclassified to CBSAs From Which Counties Would Be Split Off and Moved
                           to a Different CBSA
------------------------------------------------------------------------
CMS Certification number    Current reclassified    Proposed reassigned
          (CCN)                     CBSA                    CBSA
------------------------------------------------------------------------
          070006                     35644                   35614
          070010                     35644                   35614
          070018                     35644                   35614
          070028                     35644                   35614
          070033                     35644                   35614
          070034                     35644                   35614
          140B10                     16974                   16974
          140012                     16974                   20994
          140033                     16974                   16974
          140084                     16974                   16974
          140100                     16974                   16974
          140110                     16974                   16974
          140130                     16974                   16974
          140155                     16974                   16974
          140161                     16974                   16974
          140186                     16974                   16974
          140202                     16974                   16974
          140291                     16974                   16974
          150002                     16974                   16974
          150004                     16974                   16974
          150008                     16974                   16974
          150034                     16974                   16974
          150090                     16974                   16974
          150125                     16974                   16974
          150126                     16974                   16974
          150165                     16974                   16974
          150166                     16974                   16974
          180012                     31140                   31140
          180048                     31140                   31140
          310002                     35644                   35614
          310009                     35644                   35614
          310014                     37964                   37964
          310015                     35644                   35614
          310017                     35644                   35614
          310031                     20764                   35614
          310038                     35644                   20524

[[Page 28074]]

 
          310039                     35644                   20524
          310050                     35644                   35614
          310054                     35644                   35614
          310070                     35644                   20524
          310076                     35644                   35614
          310083                     35644                   35614
          310096                     35644                   35614
          310108                     35644                   20524
          310119                     35644                   35614
          330027                     35644                   35614
          330106                     35644                   35614
          330126                     35644                   20524
          330135                     35644                   20524
          330167                     35644                   35614
          330181                     35644                   35614
          330182                     35644                   35614
          330198                     35644                   35614
          330205                     35644                   20524
          330224                     39100                   20524
          330225                     35644                   35614
          330259                     35644                   35614
          330264                     35644                   20524
          330331                     35644                   35614
          330332                     35644                   35614
          330372                     35644                   35614
          340042                     48900                   48900
          340068                     48900                   34820
          390044                     37964                   33874
          390096                     37964                   33874
          390316                     37964                   33874
          420085                     48900                   48900
          510062                     16620                   16620
          510070                     16620                   16620
------------------------------------------------------------------------

    Table 9A-2 for this proposed rule (which is available via the 
Internet on the CMS Web site) reflects all proposed reassignments of 
hospital reclassifications. We are proposing that hospitals that 
disagree with our determination of the most proximate county must 
provide an alternative method for determining proximity to CMS within 
45 days from the publication of this proposed rule.
    The hospital's request for reassignment should contain the 
hospital's name, address, CCN, and point of contact information. All 
requests must be sent to WageIndex@cms.hhs.gov. Changes to a hospital's 
CBSA assignment on the basis of a hospital's disagreement with our 
determination of closest county, or on the basis of being granted a 
reassignment due to meeting applicable proximity criteria to an 
eligible CBSA will be announced in the FY 2015 IPPS final rule.
(3) Reclassifications to CBSAs That Would Contain Hospital's Geographic 
County
    We identified 14 reclassified hospitals that would be 
geographically located in their reclassified labor market area under 
the new OMB delineations. For example, hospital 34-0015 is located in 
Rowan County, NC. Rowan County is currently a Micropolitan Statistical 
Area in NC, and treated as rural. The hospital is reclassified to CBSA 
16740 (Charlotte-Concord-Rock Hill, NC-SC). Under the new OMB 
delineations, CBSA 16740 (Charlotte-Concord-Gastonia, NC-SC) would 
include Rowan County. Therefore, the current reclassification would 
become redundant. CBSA 16740 did not lose any counties to another labor 
market area; therefore, assignment to another alternate CBSA would not 
be an option under our proposed methodology. Because, by definition, a 
hospital would not be ``reclassified'' to its own geographic labor 
market area, and maintaining that ``reclassified'' status to its own 
geographic labor market area would serve no beneficial purpose for a 
hospital, we expect that all such affected hospitals would wish to 
terminate their reclassification status. Therefore, we are assuming for 
purposes of this proposed rule that the affected hospitals would be 
terminating their reclassification status for the remaining years of 
their 3-year reclassification period, and for FY 2015, we are proposing 
to assign them the wage index of the CBSA in which they are 
geographically located. Affected hospitals should inform CMS if they 
wish to retain their current reclassification by sending notice to 
WageIndex@cms.hhs.gov within 45 days from the publication of this 
proposed rule. If an affected hospital does not inform us that they 
wish to retain their current reclassification, we will assume that the 
hospital has elected to terminate the reclassification. For purposes of 
this proposed rule, we are presenting tables under the presumption that 
all 14 hospitals will opt to cancel their reclassification status. We 
are proposing to assign these hospitals the wage index value of their 
home area from Table 4A-2 for this proposed rule (which is available 
via the Internet on the CMS Web site), and not include them as 
reclassified hospitals in Table 9A-2 for this proposed rule (which is 
available via the Internet on the CMS Web site).

        Hospitals Reclassified to Proposed Home Labor Market Area
------------------------------------------------------------------------
  CMS certification No.      Current geographic     Proposed geographic
          (CCN)                     CBSA                    CBSA
------------------------------------------------------------------------
           340015                       34                   16740
           340129                       34                   16740
           340144                       34                   16740
           420036                       42                   16740
           450596                       45                   23104
           420027                    11340                   24860
           150088                    11300                   26900
           150113                    11300                   26900
           190003                       19                   29180
           440073                       44                   34980
           460017                       46                   36260
           460039                       46                   36260
           190144                       19                   43340
           490019                       49                   47894
------------------------------------------------------------------------

    We have included a footnote for Table 9A-2 for this proposed rule 
indicating that these hospitals have been removed from this table, 
pending notification by the hospitals.
c. Applications for Reclassifications for FY 2016
    Applications for FY 2016 reclassifications are due to the MGCRB by 
September 2, 2014 (the first working day of September 2014). 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 
discussed in section III.B. of the preamble of this proposed rule, we 
are proposing to adopt the new OMB labor market area delineations 
announced on February 28, 2013. Therefore, hospitals would apply for 
reclassifications based on the new OMB delineations we are proposing to 
use for FY 2015. Applications and other information about MGCRB 
reclassifications may be obtained via the Internet on the CMS Web site 
at: http://www.cms.gov/Regulations-and-Guidance/Review-Boards/MGCRB/index.html, 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.
    We also are proposing changes to the regulations at Sec.  
412.232(b)(2) and Sec.  412.234(a)(3)(iv) to include reference to the 
most recent OMB standards for delineating statistical areas (using the 
most recent Census Bureau data and estimates) that were adopted by CMS. 
For rural groups, the group of hospitals must demonstrate that the 
county in which the hospitals are located meets the standards for 
redesignation to an MSA as an ``outlying county.'' For urban groups, 
hospitals located in counties that are in the same combined statistical 
area or CBSA as the urban area to which

[[Page 28075]]

they seek redesignation qualify as meeting the proximity requirements 
for reclassification to the urban area to which they seek 
redesignation. We are not proposing any changes to the reclassification 
policy, but would include language to reflect use of the most recent 
OMB standards for delineating statistical areas (using the most recent 
Census Bureau data and estimates) that were adopted by CMS in 
consideration of group reclassification applications submitted for 
review in FY 2015 (that is submitted by September 30, 2014, reviewed by 
the MGCRB in FY 2015, to be effective in FY 2016) and future years.
3. Redesignation of Hospitals Under Section 1886(d)(8)(B) of the Act
    Section 1886(d)(8)(B)(i) of the Act requires the Secretary to 
``treat a hospital located in a rural county adjacent to one or more 
urban areas as being located in the urban metropolitan statistical area 
to which the greatest number of workers in the county commute'' if 
certain adjacency and commuting criteria are met. The criteria utilize 
standards for designating Metropolitan Statistical Areas published in 
the Federal Register by the Director of the Office of Management and 
Budget (OMB) based on the most recently available decennial population 
data. Effective beginning FY 2005, we used OMB's CBSA standards based 
on the 2000 Census and the 2000 Census data to identify counties in 
which hospitals qualify under section 1886(d)(8)(B) of the Act to 
receive the wage index of the urban area. Hospitals located in these 
counties have been known as ``Lugar'' hospitals and the counties 
themselves are often referred to as ``Lugar'' counties.
    As discussed in section III.B. of the preamble to this proposed 
rule, we are proposing to implement OMB's revised labor market area 
delineations based on the Census 2010 data for purposes of determining 
applicable wage indexes for acute care hospitals beginning in FY 2015. 
As we have done in the past, we also are proposing to use the new OMB 
delineations to identify rural counties that would qualify as ``Lugar'' 
under section 1886(d)(8)(B) of the Act and therefore would be 
redesignated to urban areas for FY 2015. We are proposing to revise the 
regulations at Sec.  412.64(b)(3)(i) to reflect the most recent OMB 
standards for delineating statistical areas adopted by CMS. By applying 
the new OMB delineations, the number of qualifying counties, shown in 
the following chart, would increase from 98 to 127. After evaluating 
and analyzing the 2010 Census commuting data, we are proposing that, 
effective for discharges on or after October 1, 2014, in accordance 
with section 1886(d)(8)(B) of the Act, hospitals located in the rural 
counties listed in the first column of the following table would be 
designated as part of the urban area listed in the second column based 
on the criteria discussed above. We note that rural counties that no 
longer meet the qualifying criteria to be Lugar are discussed below in 
section III.H.3.c. of the preamble of this proposed rule.

 Rural Counties Containing Hospitals Redesignated as Urban Under Section 1886(d)(8)(B) of the Act (Based on New
                                     OMB Delineations and Census 2010 Data)
----------------------------------------------------------------------------------------------------------------
                      Rural county                               Lugar designated CBSA
-----------------------------------------------------------------------------------------------        NEW
             County name                     State         CBSA             CBSA name
----------------------------------------------------------------------------------------------------------------
Chambers County......................  AL..............    12220  Auburn-Opelika, AL..........  New.
Cherokee County......................  AL..............    40660  Rome, GA....................  ................
Cleburne County......................  AL..............    11500  Anniston-Oxford-              New.
                                                                   Jacksonville, AL.
Macon County.........................  AL..............    12220  Auburn-Opelika, AL..........  ................
Talladega County.....................  AL..............    11500  Anniston-Oxford-              ................
                                                                   Jacksonville, AL.
Denali Borough.......................  AK..............    21820  Fairbanks, AK...............  New.
Hot Spring County....................  AR..............    26300  Hot Springs, AR.............  ................
Litchfield County....................  CT..............    35300  New Haven-Milford, CT.......  ................
Bradford County......................  FL..............    27260  Jacksonville, FL............  ................
Levy County..........................  FL..............    23540  Gainesville, FL.............  ................
Washington County....................  FL..............    37460  Panama City, FL.............  New.
Chattooga County.....................  GA..............    40660  Rome, GA....................  ................
Jackson County.......................  GA..............    12060  Atlanta-Sandy Springs-        ................
                                                                   Roswell, GA.
Lumpkin County.......................  GA..............    12060  Atlanta-Sandy Springs-        ................
                                                                   Roswell, GA.
Polk County..........................  GA..............    40660  Rome, GA....................  ................
Talbot County........................  GA..............    17980  Columbus, GA-AL.............  ................
Oneida County........................  ID..............    36260  Ogden-Clearfield, UT........  New.
Christian County.....................  IL..............    44100  Springfield, IL.............  ................
Iroquois County......................  IL..............    28100  Kankakee, IL................  ................
Logan County.........................  IL..............    44100  Springfield, IL.............  ................
Mason County.........................  IL..............    37900  Peoria, IL..................  ................
Ogle County..........................  IL..............    40420  Rockford, IL................  ................
Union County.........................  IL..............    16060  Carbondale-Marion, IL.......  ................
Clinton County.......................  IN..............    29200  Lafayette-West Lafayette, IN  ................
Greene County........................  IN..............    14020  Bloomington, IN.............  New.
Henry County.........................  IN..............    26900  Indianapolis-Carmel-          ................
                                                                   Anderson, IN.
Marshall County......................  IN..............    43780  South Bend-Mishawaka, IN-MI.  New.
Parke County.........................  IN..............    45460  Terre Haute, IN.............  New.
Spencer County.......................  IN..............    21780  Evansville, IN-KY...........  ................
Starke County........................  IN..............    16980  Chicago-Naperville-Elgin, IL- ................
                                                                   IN-WI.
Tipton County........................  IN..............    26900  Indianapolis-Carmel-          New.
                                                                   Anderson, IN.
Warren County........................  IN..............    29200  Lafayette-West Lafayette, IN  ................
Boone County.........................  IA..............    11180  Ames, IA....................  ................
Buchanan County......................  IA..............    47940  Waterloo-Cedar Falls, IA....  ................
Cedar County.........................  IA..............    26980  Iowa City, IA...............  ................
Delaware County......................  IA..............    20220  Dubuque, IA.................  New.
Iowa County..........................  IA..............    26980  Iowa City, IA...............  New.

[[Page 28076]]

 
Jasper County........................  IA..............    19780  Des Moines-West Des Moines,   New.
                                                                   IA.
Franklin County......................  KS..............    28140  Kansas City, MO-KS..........  New.
Nelson County........................  KY..............    31140  Louisville/Jefferson County,  New.
                                                                   KY-IN.
Assumption Parish....................  LA..............    12940  Baton Rouge, LA.............  ................
Jefferson Davis Parish...............  LA..............    29340  Lake Charles, LA............  New.
St. Landry Parish....................  LA..............    29180  Lafayette, LA...............  New.
Oxford County........................  ME..............    30340  Lewiston-Auburn, ME.........  New.
Caroline County......................  MD..............    12580  Baltimore-Columbia-Towson,    New.
                                                                   MD.
Franklin County......................  MA..............    44140  Springfield, MA.............  New.
Allegan County.......................  MI..............    24340  Grand Rapids-Wyoming, MI....  ................
Ionia County.........................  MI..............    24340  Grand Rapids-Wyoming, MI....  New.
Lenawee County.......................  MI..............    11460  Ann Arbor, MI...............  New.
Newaygo County.......................  MI..............    24340  Grand Rapids-Wyoming, MI....  New.
Shiawassee County....................  MI..............    29620  Lansing-East Lansing, MI....  ................
Tuscola County.......................  MI..............    40980  Saginaw, MI.................  ................
Goodhue County.......................  MN..............    33460  Minneapolis-St. Paul-         New.
                                                                   Bloomington, MN-WI.
Meeker County........................  MN..............    33460  Minneapolis-St. Paul-         New.
                                                                   Bloomington, MN-WI.
Rice County..........................  MN..............    33460  Minneapolis-St. Paul-         New.
                                                                   Bloomington, MN-WI.
Pearl River County...................  MS..............    25060  Gulfport-Biloxi-Pascagoula,   ................
                                                                   MS.
Stone County.........................  MS..............    25060  Gulfport-Biloxi-Pascagoula,   New.
                                                                   MS.
Dade County..........................  MO..............    44180  Springfield, MO.............  ................
Otoe County..........................  NE..............    30700  Lincoln, NE.................  New.
Douglas County.......................  NV..............    16180  Carson City, NV.............  New.
Lyon County..........................  NV..............    16180  Carson City, NV.............  ................
Los Alamos County....................  NM..............    42140  Santa Fe, NM................  ................
Cayuga County........................  NY..............    45060  Syracuse, NY................  ................
Cortland County......................  NY..............    27060  Ithaca, NY..................  New.
Genesee County.......................  NY..............    40380  Rochester, NY...............  ................
Greene County........................  NY..............    10580  Albany-Schenectady-Troy, NY.  ................
Lewis County.........................  NY..............    48060  Watertown-Fort Drum, NY.....  New.
Montgomery County....................  NY..............    10580  Albany-Schenectady-Troy, NY.  New.
Schuyler County......................  NY..............    27060  Ithaca, NY..................  ................
Seneca County........................  NY..............    40380  Rochester, NY...............  New.
Camden County........................  NC..............    47260  Virginia Beach-Norfolk-       New.
                                                                   Newport News, VA-NC.
Caswell County.......................  NC..............    15500  Burlington, NC..............  ................
Granville County.....................  NC..............    20500  Durham-Chapel Hill, NC......  ................
Greene County........................  NC..............    24780  Greenville, NC..............  New.
Harnett County.......................  NC..............    39580  Raleigh, NC.................  ................
Polk County..........................  NC..............    43900  Spartanburg, SC.............  ................
Wilson County........................  NC..............    40580  Rocky Mount, NC.............  New.
Traill County........................  ND..............    24220  Grand Forks, ND-MN..........  New.
Ashtabula County.....................  OH..............    17460  Cleveland-Elyria, OH........  ................
Champaign County.....................  OH..............    44220  Springfield, OH.............  ................
Columbiana County....................  OH..............    49660  Youngstown-Warren-Boardman,   ................
                                                                   OH-PA.
Harrison County......................  OH..............    48260  Weirton-Steubenville, WV-OH.  New.
Preble County........................  OH..............    19380  Dayton, OH..................  New.
Clinton County.......................  PA..............    48700  Williamsport, PA............  ................
Fulton County........................  PA..............    25180  Hagerstown-Martinsburg, MD-   New.
                                                                   WV.
Greene County........................  PA..............    38300  Pittsburgh, PA..............  ................
Lawrence County......................  PA..............    38300  Pittsburgh, PA..............  New.
Schuylkill County....................  PA..............    39740  Reading, PA.................  ................
Susquehanna County...................  PA..............    13780  Binghamton, NY..............  ................
Adjuntas Municipio...................  PR..............    38660  Ponce, PR...................  New.
Coamo Municipio......................  PR..............    41980  San Juan-Carolina-Caguas, PR  New.
Las Mar[iacute]as Municipio..........  PR..............    32420  Mayag[uuml]ez, PR...........  New.
Maricao Municipio....................  PR..............    32420  Mayag[uuml]ez, PR...........  New.
Salinas Municipio....................  PR..............    25020  Guayama, PR.................  New.
Clarendon County.....................  SC..............    44940  Sumter, SC..................  ................
Colleton County......................  SC..............    16700  Charleston-North Charleston,  New.
                                                                   SC.
Lee County...........................  SC..............    44940  Sumter, SC..................  ................
Marion County........................  SC..............    22500  Florence, SC................  New.
Newberry County......................  SC..............    17900  Columbia, SC................  New.
Meigs County.........................  TN..............    17420  Cleveland, TN...............  ................
Blanco County........................  TX..............    12420  Austin-Round Rock, TX.......  New.
Bosque County........................  TX..............    47380  Waco, TX....................  ................
Calhoun County.......................  TX..............    47020  Victoria, TX................  New.
Fannin County........................  TX..............    19100  Dallas-Fort Worth-Arlington,  ................
                                                                   TX.
Grimes County........................  TX..............    17780  College Station-Bryan, TX...  ................
Harrison County......................  TX..............    30980  Longview, TX................  ................

[[Page 28077]]

 
Henderson County.....................  TX..............    46340  Tyler, TX...................  ................
Hill County..........................  TX..............    19100  Dallas-Fort Worth-Arlington,  New.
                                                                   TX.
Milam County.........................  TX..............    12420  Austin-Round Rock, TX.......  ................
Van Zandt County.....................  TX..............    19100  Dallas-Fort Worth-Arlington,  ................
                                                                   TX.
Willacy County.......................  TX..............    15180  Brownsville-Harlingen, TX...  ................
King and Queen County................  VA..............    40060  Richmond, VA................  New.
Louisa County........................  VA..............    40060  Richmond, VA................  New.
Madison County.......................  VA..............    16820  Charlottesville, VA.........  New.
Orange County........................  VA..............    47900  Washington-Arlington-         New.
                                                                   Alexandria, DC-VA-MD-WV.
Page County..........................  VA..............    25500  Harrisonburg, VA............  ................
Shenandoah County....................  VA..............    49020  Winchester, VA-WV...........  ................
Southampton County...................  VA..............    47260  Virginia Beach-Norfolk-       New.
                                                                   Newport News, VA-NC.
Surry County.........................  VA..............    47260  Virginia Beach-Norfolk-       New.
                                                                   Newport News, VA-NC.
Island County........................  WA..............    42660  Seattle-Tacoma-Bellevue, WA.  ................
Mason County.........................  WA..............    36500  Olympia-Tumwater, WA........  ................
Jackson County.......................  WV..............    16620  Charleston, WV..............  ................
Morgan County........................  WV..............    25180  Hagerstown-Martinsburg, MD-   New.
                                                                   WV.
Roane County.........................  WV..............    16620  Charleston, WV..............  ................
Green Lake County....................  WI..............    22540  Fond du Lac, WI.............  ................
Jefferson County.....................  WI..............    33340  Milwaukee-Waukesha-West       ................
                                                                   Allis, WI.
Walworth County......................  WI..............    33340  Milwaukee-Waukesha-West       ................
                                                                   Allis, WI.
----------------------------------------------------------------------------------------------------------------

a. Proposed New Lugar Areas for FY 2015
    Of the 127 qualifying counties identified as Lugar counties based 
on the new OMB delineations, 58 counties would be newly designated as 
Lugar for FY 2015 if we finalize our proposed adoption of the new OMB 
delineations. Hospitals in these counties, with at least 25 percent of 
their workers commuting to a higher wage area, effective October 1, 
2014, will be deemed to be located in the CBSA to which the highest 
number of their workers commute (which is identified in the column 
titled ``Lugar Designated CBSA'' in the table above). Hospitals in 
these counties would receive the reclassified urban wage index of the 
corresponding Lugar Designated CBSA, unless they choose to waive their 
Lugar status, as discussed later in this section.
    Some areas that are currently urban counties would be 
geographically rural if we adopted the new OMB delineations and would 
meet the requirements for redesignation as Lugar areas. As described in 
section III.B.2.e.(2) of the preamble of this proposed rule, we are 
proposing a 3-year hold harmless transitional wage index adjustment for 
hospitals located in urban counties that become rural under the new OMB 
delineations. Because Lugar status is a form of redesignation, 
hospitals that currently are located in urban counties that would 
become rural under the new OMB delineations and are also considered 
Lugar areas under the new OMB delineations would not be eligible for 
the 3-year transition wage index adjustment unless they choose to waive 
Lugar status for FY 2015 (as discussed later in this section) and seek 
no other form of wage index reclassification.
b. 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 2015 
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.)
c. Rural Counties No Longer Meeting the Criteria To Be Redesignated as 
Lugar
    If we adopt the new OMB delineations, 29 rural counties would no 
longer meet the qualifying criteria to be redesignated as Lugar 
effective October 1, 2014, either because they would be geographically 
located in an urban area, or they would fail to meet the 25-percent 
cumulative out-migration threshold with application of the new 2010 
Census commuting data.
    Counties that were deemed urban under section 1886(d)(8)(B) of the 
Act in FY 2014, but would be geographically located in an urban area 
under the new OMB delineations for FY 2015 are:

Windham County, CT
Flagler County, FL
Walton County, FL
Morgan County, GA
Peach County, GA
De Witt County, IL
Allen County, KY
St. James Parrish, LA
Montcalm County, MI
Fillmore County, MN
Lincoln County, NC
Cotton County, OK
Linn County, OR
Adams County, PA
Monroe County, PA
Falls County, TX
Buckingham County, VA
Floyd County, VA
Green County, WI


[[Page 28078]]


    Counties that would fail to meet the 25-percent threshold in FY 
2015 are:

Banks County, GA
Hendry County, FL
Bingham County, ID
Oceana County, MI
Columbia County, NY
Sullivan County, NY
Wyoming County, NY
Oconee County, SC
Middlesex County, VA
Wahkiakum County, WA

    In section III.B.2.e.(2) of the preamble of this proposed rule, to 
help ease dramatic negative impacts in payment for hospitals designated 
as urban under the current FY 2014 OMB delineations, but would be 
classified as rural under the new OMB delineations, for FYs 2015, 2016, 
and 2017, assuming no other form of wage index reclassification or 
redesignation is granted, we are proposing to assign these hospitals 
the FY 2015 area wage index value of the urban CBSA to which they 
geographically belonged in FY 2014 (with the rural and imputed floors 
applied and with the rural floor budget neutrality adjustment applied 
to the area wage index). (For purposes of the wage index computation, 
the wage data of these hospitals would remain assigned to the statewide 
rural area in which they are located.) Similarly, we are proposing that 
the same 3-year transition apply to hospitals located in those counties 
that would lose their deemed urban designation under section 
1886(d)(8)(B) of the Act and would become rural if we adopt the new OMB 
delineations. Because these hospitals would, in fact, lose their 
designated urban status, we are proposing to extend the 3-year hold 
harmless transitional wage index adjustment to these hospitals located 
in counties formerly designated as urban under section 1886(d)(8)(B) of 
the Act. That is, for FYs 2015, 2016, and 2017, assuming no other form 
of wage index reclassification or redesignation is granted, we are 
proposing to assign these hospitals the FY 2015 area wage index value 
of the urban CBSA to which they were designated as urban in FY 2014 
(with the rural and imputed floors applied and with the rural floor 
budget neutrality adjustment applied). We are proposing to use the wage 
data from these hospitals as part of computing the rural wage index. In 
addition, during this 3-year transition period, these hospitals would 
be eligible to apply for reclassification by the MGCRB. As discussed in 
section III.B.2.e.(3) of the preamble of this proposed rule, we are 
proposing that if a hospital is currently located in an urban county 
that would become rural for FY 2015 under the new OMB delineations, and 
such hospital seeks and is granted any reclassification or 
redesignation during FYs 2015, 2016, or 2017, the hospital would 
permanently lose its 3-year transitional assigned wage index, and would 
not be able to reinstate it. Similarly, we are proposing that this 
policy also apply to hospitals located in those counties that would 
lose their deemed urban designation under section 1886(d)(8)(B) of the 
Act and would become rural if we adopt the new OMB delineations. In FY 
2018, we are proposing that these hospitals would receive their 
statewide rural wage index.
4. Waiving Lugar Redesignation for the Out-Migration Adjustment
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 
51600), we adopted the policy that, beginning with FY 2012, an eligible 
hospital that waives its Lugar status in order to receive the out-
migration adjustment has effectively waived its deemed urban status 
and, thus, is rural for all purposes under the IPPS, including being 
considered rural for the DSH payment adjustment, effective for the 
fiscal year in which the hospital receives the out-migration 
adjustment. (We refer readers to a discussion of DSH payment adjustment 
under section IV.F. 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 45 days from the 
publication of the proposed rule) to waive its urban status for the 
full 3-year period for which its out-migration adjustment is effective. 
By doing so, 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 out-migration adjustment. Therefore, 
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. If the hospital does notify CMS that it is 
electing to return to its deemed urban status, it would again be 
treated as urban for all IPPS payment purposes.
    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.
5. Update of Application of Urban to Rural Reclassification Criteria
    Section 401(a) of the Medicare, Medicaid, and SCHIP Balanced Budget 
Refinement Act of 1999 (Pub. L. 106-113), which amended section 
1886(d)(8) of the Act by adding a new paragraph (E), directed the 
Secretary to treat any subsection (d) hospital located in an urban area 
as being located in the rural area of the State in which the hospital 
is located, providing that the hospital applied for reclassification in 
a manner determined by the Secretary and met certain criteria. As 
discussed in the FY 2001 interim final rule (65 FR 47029 through 
47031), we codified in regulation at Sec.  412.103 the application 
process and the qualifying criteria for any hospital seeking rural 
reclassification.
    In order to be approved for a rural reclassification, a hospital 
must meet one of three criteria. The first criterion, located at Sec.  
412.103(a)(1), qualifies a hospital located in a rural census tract of 
an MSA area, as determined under the most recent version of the 
Goldsmith Modification, the Rural-Urban Commuting Area (RUCA) codes. 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 provided 
guidance on the use of the delineations of these statistical areas. 
These delineations are based on 2010 decennial Census data. Several 
modifications of RUCA codes were necessary to take into account updated 
commuting data and revised OMB delineations. We refer readers to the 
U.S. Department of Agriculture's Economic Research Service Web site for 
a detailed listing of updated RUCA codes found at: http://www.ers.usda.gov/data-products/rural-urban-commuting-area-codes.aspx. 
The updated RUCA code definitions were introduced in late 2013. As 
discussed at Sec.  412.103(f), the duration of an approved rural 
reclassification remains in effect without need for reapproval unless 
there is a change in the circumstances under which the

[[Page 28079]]

classification was approved. If a hospital located in an urban area was 
approved for a rural reclassification under Sec.  412.103(a)(1), that 
reclassification would no longer be valid if the hospital is no longer 
located within a rural census tract of an MSA defined as an RUCA. 
Therefore, we encourage all hospitals with active rural 
reclassifications under section 1886(d)(8)(E) of the Act to review 
their original reclassification application and determine whether the 
reclassification status would still apply. As discussed in section 
VI.C.2. of the preamble of this proposed rule, we are proposing a 2-
year grace period allowing affected CAHs additional time to seek a new 
rural reclassification without the threat of losing its CAH status. As 
discussed in section VI.C.2. of the preamble of this proposed rule, we 
are not proposing a grace period for other types of hospitals to seek a 
new rural reclassification. We note that rural reclassification status 
under Sec.  412.103 is effective as of the filing date of the 
application. Therefore, if the change in RUCA codes invalidates any 
hospital's rural reclassification status, we believe hospitals will 
have adequate time to apply for a new reclassification using an 
alternative qualification criterion specified at either Sec.  
412.103(a)(2) or Sec.  412.103(a)(3). A rural referral center (RRC) or 
a sole community hospital (SCH) that continues to meet the appropriate 
qualification criteria would, in itself, qualify for a rural 
reclassification. If a complete application is received before October 
1, 2014, and is approved by the CMS Regional Office, the hospital would 
experience no interruption in its rural status.

I. Proposed FY 2015 Wage Index Adjustment Based on Commuting Patterns 
of Hospital Employees

    In accordance with 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.
    When this provision was implemented for the FY 2005 wage index, we 
analyzed commuting data compiled by the U.S. Census Bureau which was 
derived from a special tabulation of the 2000 Census journey-to-work 
data for all industries (CMS extracted data applicable to hospitals). 
These data were compiled from responses to the ``long-form'' survey, 
which the Census Bureau used at the time, and it contained questions on 
where residents in each county worked (69 FR 49062). However, the 2010 
Census was ``short form'' only; therefore, this information was not 
collected as part of the 2010 Census. The Census Bureau is working with 
CMS to provide an alternative dataset based on the latest available 
data that is expected to meet our needs for developing a new out-
migration adjustment. We believe we will have the necessary time to 
obtain, review and analyze the data in order to propose new out-
migration adjustments based on new commuting patterns developed from 
the 2010 Census data beginning with FY 2016. Section 1886(d)(13)(B) of 
the Act requires the Secretary to use data the Secretary determines to 
be appropriate to establish the qualifying counties. The data used for 
the FY 2014 out-migration adjustment are the most recent data that have 
been analyzed, and we believe that these data are appropriate to 
establish the qualifying counties. Therefore, we are proposing that the 
FY 2015 out-migration adjustments continue to be based on the 2000 
Census data. We also are proposing that the FY 2015 out-migration 
adjustments continue to be based on the policies, procedures, and 
computation that were used for the FY 2014 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 2015 wage index.
    Section 1886(d)(13)(F) of the Act states that ``[a] wage index 
increase under this paragraph shall be effective for a period of 3 
fiscal years, except that the Secretary shall establish procedures 
under which a subsection (d) hospital may elect to waive the 
application of such wage index increase.'' Therefore, for FY 2015, 
because we are proposing to continue to use the out-migration 
adjustment data used for FY 2014, consistent with the statute, we also 
are proposing to allow hospitals that qualified in FY 2013 or FY 2014 
to receive the out-migration adjustment based on the commuting data and 
the CBSA delineations used for FY 2014 to continue to receive the same 
out-migration adjustment for the remainder of their 3-year 
qualification period. Similarly, if a hospital qualifies for and opts 
to receive the out-migration adjustment for the first time in FY 2015, 
we also are proposing to allow that hospital to receive the out-
migration adjustment based on the data used for FY 2014 for FYs 2015, 
2016, and 2017. Accordingly, even if we propose to adopt new out-
migration adjustment data for FY 2016, as we believe we will be able to 
do, hospitals that are already receiving an out-migration adjustment 
beginning with a fiscal year prior to FY 2016 would still receive their 
out-migration adjustment based on the data used for FY 2014 for the 
years that remain of their 3-year qualification period in FY 2016 and 
after.
    We intend to address application of the FY 2016 out-migration 
adjustment in greater detail in the FY 2016 proposed rule. However, in 
this FY 2015 proposed rule, we are soliciting comments on how to 
implement the new out-migration adjustment data for FY 2016, given the 
statutory requirement at section 1886(d)(13)(F) of the Act that an out-
migration adjustment be effective for 3 fiscal years.
    As discussed in section III.B. of the preamble of this proposed 
rule, we are proposing to use OMB's new labor market area delineations 
based on the 2010 Census data to identify counties qualifying as Lugar 
counties for FY 2015. In section III.H.3 of the preamble of this 
proposed rule, we discuss hospitals located in rural counties that are 
deemed to be urban under section 1886(d)(8)(B) of the Act. These rural 
counties are known as ``Lugar'' counties. Under the new OMB 
delineations, there would be counties newly qualifying as Lugar as well 
as counties that were previously Lugar counties that would no longer 
meet the criteria to be redesignated as Lugar. As discussed in section 
III.H.4. of the preamble of this proposed rule, if a Lugar hospital 
qualifies for and accepts the out-migration adjustment, it must waive 
its deemed urban status and can do so for the 3-year period for which 
the out-migration adjustment is effective. Therefore, hospitals located 
in counties newly designated as Lugar due to the new OMB delineations 
would have the choice to either maintain their Lugar status or waive it 
in order to receive the out-migration adjustment in FY 2015 based on 
the out-migration adjustment data used for FY 2014.
    On the other hand, there are hospitals in counties deemed to be 
Lugar under

[[Page 28080]]

the previous CBSA delineations that waived their Lugar status for the 
out-migration adjustment, but are not Lugar under the new OMB 
delineations. These hospitals would continue to receive the out-
migration adjustment for the 3-year eligibility period through FY 2015 
or FY 2016. However, these hospitals that are located in urban counties 
under the new OMB delineations, and wish to continue to maintain their 
rural status effective October 1, 2014, must do so by reclassifying 
from urban to rural under Sec.  412.103. Section 1886(d)(13)(G) of the 
Act states that a hospital cannot simultaneously receive the out-
migration adjustment and be subject to a reclassification under section 
1886(d)(8) or 1886(d)(10) of the Act. Therefore, if such hospital is 
not located in a geographically rural area under the new OMB 
delineations, and reclassifies under Sec.  412.103 of the regulations 
in order to be treated as rural for IPPS purposes, the hospital would 
be ineligible to receive an out-migration adjustment, even if the 3-
year eligibility period has not expired.
    As discussed in section III.B.5. of the preamble of this proposed 
rule, we are proposing a 1-year blended wage index for any provider 
that experiences a decrease in wage index value due to the proposed 
implementation of the new OMB labor market area delineations. This 
proposal would create a wage index that is 50 percent of the wage index 
derived using the current FY 2014 OMB delineations, and 50 percent of 
the wage index based on the proposed new OMB delineations. As discussed 
in section III.B.2.e.(4) of the preamble of this proposed rule, we are 
proposing to apply this blended wage index value to any affected 
hospital in a budget neutral manner. However, we are proposing that 
hospitals receiving the out-migration adjustment would have it added to 
the result of the 50/50 blended wage index, after budget neutrality is 
applied. We are proposing the blended wage index transition adjustment 
specifically to address any negative impact that may be caused by the 
proposed adoption of the new OMB delineations in FY 2015. To 
specifically identify and address any such negative payment impact, we 
are proposing to apply the out-migration adjustment independent of the 
blended wage index and other wage index adjustments (for example, the 
rural floor) and related budget neutrality adjustments. This is 
consistent with our current policy to apply the out-migration 
adjustment after all other wage index adjustments and related budget 
neutrality adjustments have been applied. Therefore, we believe the 
out-migration adjustment would be properly applied as a supplemental 
addition to a hospital's final wage index value, similar to our 
treatment of hospitals receiving the frontier State floor value of 
1.00, as described under 42 CFR 412.64(m), that also qualify for an 
out-migration adjustment and would receive that adjustment.

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 2015 wage index were made 
available on September 13, 2013, 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-2015-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 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 file does not 
alter the current wage index process or schedule. We notify the 
hospital community of the availability of these data as we do with the 
current public use wage data files through our Hospital Open Door 
forum. We encourage hospitals to sign up for automatic notifications of 
information about hospital issues and the scheduling of the Hospital 
Open Door forums at the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/index.html.
    In a memorandum dated September 16, 2013, we instructed all 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 
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 September 13, 2013 wage and occupational mix data files, the 
hospital was to submit corrections along with complete, detailed 
supporting documentation to its MAC by November 21, 2013. 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 September 16, 2013 memorandum referenced above.
    In the September 16, 2013 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 September, highlight the revised 
cells on its spreadsheet, and submit its spreadsheet(s) and complete 
documentation to its MAC no later than November 21, 2013.
    The MACs notified the hospitals by early-February 2014 of any 
changes to the wage index data as a result of the desk reviews and the 
resolution of the hospitals' late-November revision requests. The MACs 
also submitted the revised data to CMS by late January 2014. CMS 
published the proposed wage index public use files that included 
hospitals' revised wage index data on February 20, 2014. Hospitals had 
until March 3, 2014, to submit requests to the MACs for reconsideration 
of adjustments made by the MACs as a result of the desk review, and to 
correct errors due to CMS' or 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, MACs were 
required to transmit to CMS any additional revisions resulting from the 
hospitals' reconsideration requests by April 9, 2014. The deadline for 
a hospital to request CMS intervention in cases where the hospital 
disagreed with the MAC's policy interpretations was April 16, 2014. We 
note that, beginning with the FY 2015 wage index, per the FY 2015 wage 
index timeline posted on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf, the April appeals must be sent via mail and 
email. We refer readers to the wage index timeline for complete 
details.
    Upon release of this proposed rule, 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-2015-Wage-Index-Home-Page.html. Table 2 contains each hospital's proposed adjusted average 
hourly wage used to construct the wage index values for the past 3 
years, including the FY 2011 data used to construct the proposed FY 
2015 wage index. We note that the proposed hospital average hourly 
wages shown in

[[Page 28081]]

Table 2 only reflect changes made to a hospital's data that were 
transmitted to CMS by February 26, 2014.
    The final wage index data public use files are posted on May 2, 
2014 on the Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2015-Wage-Index-Home-Page.html. The May 2014 public use files are made available 
solely for the limited purpose of identifying any potential errors made 
by CMS or the MAC in the entry of the final wage index data that 
resulted from the correction process described above (revisions 
submitted to CMS by the MACs by April 9, 2014).
    After the release of the May 2014 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 MAC or CMS that the 
hospital could not have known about before its review of the final wage 
index data files. Specifically, neither the 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 the 
MACs on or before April 9, 2014.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 20, 
2014 wage index public use files.
     Requests to revisit factual determinations or policy 
interpretations made by the MAC or CMS during the wage index data 
correction process.
    If, after reviewing the May 2014 final public use files, a hospital 
believes that its wage or occupational mix data are incorrect due to a 
MAC or CMS error in the entry or tabulation of the final data, the 
hospital should notify both its MAC and CMS regarding 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). The hospital is required to send its request to CMS and to 
the MAC no later than June 2, 2014. Similar to the April appeals, 
beginning with the FY 2015 wage index, in accordance with the FY 2015 
wage index timeline posted on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf, the June appeals must be sent via mail and 
email to CMS and the MACs. We refer readers to the wage index timeline 
for complete details. (We refer readers to section II.K. of the 
preamble to this proposed rule where we are proposing revisions to the 
wage index timetable.)
    Verified corrections to the wage index data received timely by CMS 
and the MACs (that is, by June 2, 2014) will be incorporated into the 
final wage index in the FY 2015 IPPS/LTCH PPS final rule, which will be 
effective October 1, 2014.
    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 2015 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 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 PRRB, the failure of CMS to make a 
requested 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 MAC's attention. Moreover, 
because hospitals have access to the final wage index data by early May 
2014, they have the opportunity to detect any data entry or tabulation 
errors made by the MAC or CMS before the development and publication of 
the final FY 2015 wage index by August 2014, and the implementation of 
the FY 2015 wage index on October 1, 2014. 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 2, 2014, 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 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 deadline for making corrections to the wage data for the 
following fiscal year's wage index (for example, June 2, 2014 for the 
FY 2015 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 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 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 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 2, 2014 deadline for the 
FY 2015 wage index); and (3) CMS agreed before October 1 that 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 2, 2014 deadline for the FY 2015 wage index), and CMS 
acknowledges that the error in the hospital's wage index data was 
caused by CMS' or 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

[[Page 28082]]

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 final judicial decision reverses a CMS denial 
of a hospital's wage index data revision request.

K. Notice of Change to Wage Index Development Timetable

    As explained in section III.J. the preamble of this proposed rule, 
the preliminary, unaudited Worksheet S-3 wage data and occupational mix 
survey data files for the proposed FY 2015 wage index were made 
available on September 13, 2013, through the Internet on the CMS Web 
site. The posting of these preliminary files initiate what is virtually 
a year-long cycle for developing the wage index associated with the 
following IPPS fiscal year. This lengthy, almost year-long cycle is 
unique to the development of the IPPS wage index, and occurs 
independently from the development of the IPPS proposed and final 
rules, which typically are published in the spring and summer each 
year. In addition, the wage index, which is based on hospitals' wage 
data reported on Worksheets S-3, Parts II and III of the Form CMS-2552-
10 of the Medicare cost report and occupational mix data, is the only 
portion of the IPPS that historically has been subject to its own 
annual review process, first by the MACs, and then by CMS, followed by 
distinct opportunities for hospitals to appeal decisions made by the 
MACs or CMS. This process is separate and independent from the standard 
cost report settlement and appeals processes established under the 
regulations at 42 CFR 405.1800 through 405.1889.
    Although this unique wage index development timetable has been in 
place since the early days of the IPPS, the current timetable is rooted 
in changes adopted in the FY 1998 IPPS final rule with comment period 
(62 FR 45990 through 45993). However, with numerous legislative and 
regulatory changes made to the IPPS since FY 1998, the demands on 
hospitals, MACs, and CMS have increased substantially. As a result, it 
has become increasingly challenging for wage index stakeholders to 
manage the wage index timetable with competing priorities. For the FY 
2015 wage index, CMS made slight changes to the wage index development 
timetable, by posting the preliminary public use file (PUF) in 
September 2013 rather than in October 2013, which, in turn, moved back 
the deadline for hospitals to request revisions to the data displayed 
in that preliminary PUF to November 2013, instead of December 2013. In 
addition, the date for the MACs to complete desk reviews on that data 
was similarly moved to a slightly earlier deadline in early CY 2014. 
The FY 2015 Wage Index Development Timetable, which is posted on the 
CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2015-WI-Timeline.pdf, shows that 
hospitals have a little more than 2 months to request revisions to 
their data displayed in the September 13, 2013 preliminary PUF, until 
the commencement of the desk review process by the MACs on November 21, 
2013. The MACs also have a little more than 2 months to complete the 
desk reviews and submit revised cost report data to CMS by January 29, 
2014. Less than a month later, on February 20, 2014, the revised FY 
2015 wage index and occupational mix PUFs were posted on the CMS Web 
site. Ensuring the accuracy of the February PUF is extremely important 
and beneficial to hospitals because, as the timetable shows, it is the 
basis for hospitals to appeal data that are incorrect, with March 3, 
2014 being the last date that hospitals can request revisions to errors 
in the February 20, 2014 PUF.
    Therefore, we have concluded that steps should be taken to improve 
the accuracy of the February PUF, most importantly by proposing changes 
to the wage index timetables for future IPPS fiscal years that are much 
more significant and fundamental than the slight revisions to the 
timetable implemented for FY 2015. We believe that the changes we are 
proposing below would not only improve the accuracy of the February 
PUF, but also would reduce the number of hospital appeals based on the 
February PUF. For example, as specified below, instead of the current 
timetable which only provides CMS with less than a month to review the 
MACs' desk reviews and prepare the February PUF, we are proposing 
approximately 3 months between the date that the MACs' desk reviews 
would end and the date that CMS would post the subsequent PUF. To allow 
hospitals and MACs adequate time to prepare for the changes to the wage 
index development timetable, we are proposing to make the following 
significant changes beginning with the FY 2017 wage index cycle. We are 
listing the proposed changes for FY 2017 below in a table side by side 
with the existing timetable, so that commenters may read the proposed 
changes in the context of the existing timetable. Under the proposed 
changes for FY 2017, although we are not providing exact dates for the 
FY 2017 wage index timetable, we note that, with every change listed 
below, we intend to provide hospitals and MACs with the same or 
somewhat more time than under the current timetable to complete reviews 
and request revisions. The proposed revisions would not reduce the 
amount of time that either hospitals or MACs have to review wage data. 
Therefore, these proposed changes would not result in additional work 
on the part of the hospitals or MACs; in fact, in shifting the various 
dates, we expect that more time would be provided to hospitals, MACs, 
and CMS to ensure an even more accurate wage index.

----------------------------------------------------------------------------------------------------------------
                 Deadlines                      FY 2015 Timetable             Proposed FY 2017 timetable
----------------------------------------------------------------------------------------------------------------
Posting of Preliminary PUF on CMS Web site  September 13, 2013......  Mid May 2015.
Deadline for Hospitals to Request           November 21, 2013.......  Early August 2015.
 Revisions to Preliminary PUF.
Deadline for MACs to Complete Desk Reviews  January 29, 2014........  Mid-October 2015.
Posting of February PUF on CMS Web site...  February 20, 2014.......  Late January 2016.
Deadline Following Posting of February PUF  March 3, 2014...........  Mid-February 2016.
 for Hospitals to Request Revisions.
Completion of Appeals by MACs and           April 9, 2014...........  Mid- to Late March 2016.
 Transmission of Final Wage Data to CMS.
Deadline for Hospitals to Appeal in April.  April 16, 2014..........  Early April 2016.
Posting of Final Rule PUF.................  May 2, 2014.............  Late April 2016.
Deadline for Hospitals to Appeal in June..  June 2, 2014............  Late May 2016.
Expected Issuance of IPPS final rule......  August 1, 2014..........  August 1, 2016.
----------------------------------------------------------------------------------------------------------------


[[Page 28083]]

    With regard to the FY 2016 wage index cycle, we believe it can 
serve as a transition to the more significant changes we are proposing 
for the FY 2017 wage index cycle. We believe that there are steps we 
can take to improve the accuracy of the February 2016 PUF by building 
in more time to the FY 2016 wage index review process as well. 
Specifically, we are notifying hospitals of changes to the deadlines 
only in the beginning of the FY 2016 wage index timetable, as a 
transition to the more significant proposed changes for the entire FY 
2017 wage index timetable. That is, for FY 2016, we are only changing 
the following four dates: the posting of the preliminary wage index 
PUF; the posting of the CY 2013 occupational mix survey data 
preliminary PUF; the deadline for hospitals to request revisions to the 
wage data and occupational mix data preliminary PUFs; and the deadline 
for MACs to complete the desk reviews. We are not changing the 
remainder of the FY 2016 timetable at this time. We expect that making 
these changes for the FY 2016 timetable would improve the accuracy of 
the February 2016 PUF, and also mitigate the number of hospital appeals 
based on the February 2016 PUF. In addition, we believe these changes 
would help hospitals, MACs, and CMS adjust to the more significant 
timeline changes proposed for FY 2017. We are listing only the changes 
for FY 2016 in the following table side by side with the existing FY 
2015 timetable, so that commenters may read the FY 2016 changes in the 
context of the existing timetable. We are not listing dates that would 
remain unchanged for FY 2016.

----------------------------------------------------------------------------------------------------------------
                 Deadlines                      FY 2015 Timetable             Adjusted FY 2016 timetable
----------------------------------------------------------------------------------------------------------------
Posting of Preliminary Wage Data PUF on     September 13, 2013......  Late May 2014.
 CMS Web site.
Posting of Preliminary CY 2013              September 13, 2013......  Early to Mid-July 2014.
 Occupational Mix Data PUF on CMS Web site.
Deadline for Hospitals to Request           November 21, 2013.......  Early October 2014.
 Revisions to Preliminary PUF.
Deadline for MACs to Complete Desk Reviews  January 29, 2014........  Mid-December 2014.
----------------------------------------------------------------------------------------------------------------

    Typically, the preliminary PUF initiating the start of an IPPS wage 
index fiscal year contains one spreadsheet with the Worksheet S-3 wage 
data for the applicable fiscal year on one tab, and another tab with 
the preliminary occupational mix data for that fiscal year. For the FY 
2016 wage index, new occupational mix survey data will be available for 
use, based on the CY 2013 occupational mix survey. Hospitals are 
required to submit their CY 2013 occupational mix surveys to their MACs 
no later than July 1, 2014. Therefore, we will not have the preliminary 
CY 2013 occupational mix survey data in time to post it simultaneously 
in late May 2014 with the preliminary FY 2016 wage data. Accordingly, 
as the table above indicates, we would post the preliminary FY 2016 
wage data by itself first in late May 2014, to be followed by a 
separate posting of the preliminary CY 2013 occupational mix survey 
data when the data are available, in early to mid-July 2014.
    We are inviting public comments on our proposals set forth above to 
make revisions to the wage index timetables for FY 2017.

L. Labor-Related Share for the FY 2015 Wage Index

    Section 1886(d)(3)(E) of the Act directs the Secretary to adjust 
the proportion of the national prospective payment system base payment 
rates that are attributable to wages and wage-related costs by a factor 
that reflects the relative differences in labor costs among geographic 
areas. It also directs the Secretary to estimate from time to time the 
proportion of hospital costs that are labor-related: ``The Secretary 
shall adjust the proportion (as estimated by the Secretary from time to 
time) of hospitals' costs which are attributable to wages and wage-
related costs of the DRG prospective payment rates. . . .'' We refer to 
the portion of hospital costs attributable to wages and wage-related 
costs as the labor-related share. The labor-related share of the 
prospective payment rate is adjusted by an index of relative labor 
costs, which is referred to as the wage index.
    Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of 
the Act to provide that the Secretary must employ 62 percent as the 
labor-related share unless this ``would result in lower payments to a 
hospital than would otherwise be made.'' However, this provision of 
Public Law 108-173 did not change the legal requirement that the 
Secretary estimate ``from time to time'' the proportion of hospitals' 
costs that are ``attributable to wages and wage-related costs.'' Thus, 
hospitals receive payment based on either a 62-percent labor-related 
share, or the labor-related share estimated from time to time by the 
Secretary, depending on which labor-related share resulted in a higher 
payment.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50596 through 
50607), we rebased and revised the hospital market basket. We 
established a FY 2010-based IPPS hospital market basket to replace the 
FY 2006-based IPPS hospital market basket, effective October 1, 2013. 
In that final rule, we presented our analysis and conclusions regarding 
the frequency and methodology for updating the labor-related share for 
FY 2014. Using the FY 2010-based IPPS market basket, we finalized a 
labor-related share for FY 2014 of 69.6 percent. In addition, we 
implemented this revised and rebased labor-related share in a budget 
neutral manner, but consistent with section 1886(d)(3)(E) of the Act, 
we did not take into account the additional payments that would be made 
as a result of hospitals with a wage index less than or equal to 1.0 
being paid using a labor-related share lower than the labor-related 
share of hospitals with a wage index greater than 1.0.
    The labor-related share is used to determine the proportion of the 
national IPPS base payment rate to which the area wage index is 
applied. In this FY 2015 proposed rule, we are not proposing to make 
any further changes to the national average proportion of operating 
costs that are attributable to wages and salaries, employee benefits, 
contract labor, the labor-related portion of professional fees, 
administrative and facilities support services, and all other labor-
related services.
    Therefore, for FY 2015, we are proposing to continue to use a 
labor-related share of 69.6 percent for discharges occurring on or 
after October 1, 2014. Tables 1A and 1B, which are published in section 
VI. of the Addendum to this proposed rule and available via the 
Internet, reflect this proposed labor-related share. For FY 2015, for 
all IPPS hospitals whose wage indexes are less than or equal to 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 indexes are greater than 1.0000, for FY 2015, we are 
proposing to apply the wage index to a proposed labor-

[[Page 28084]]

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 2014 IPPS/LTCH PPS final rule (78 FR 50601 through 
50603), we also rebased and revised the labor-related share for the 
Puerto Rico-specific standardized amounts using FY 2010 as a base year. 
We finalized a labor-related share for the Puerto Rico-specific 
standardized amounts for FY 2014 of 63.2 percent. In this FY 2015 
proposed rule, we are not proposing to make any further changes to the 
Puerto Rico specific 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. 
Therefore, for FY 2015, we are proposing to continue to use a labor-
related share for the Puerto Rico-specific standardized amounts of 63.2 
percent for discharges occurring on or after October 1, 2014. 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 2015, we are proposing to adopt that the 
labor-related share of a hospital's Puerto Rico-specific rate would 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 2015, we are proposing to 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 would result in higher 
payments. Conversely, a hospital with a Puerto Rico-specific wage index 
of less than or equal to 1.0 for FY 2015 would 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 would result in 
higher payments. The proposed Puerto Rico labor-related share of 63.2 
percent for FY 2015 is reflected in Table 1C, which is published in 
section VI. of the Addendum to this proposed rule and available via the 
Internet.

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

A. Proposed Changes to MS-DRGs Subject to the Postacute Care Transfer 
Policy (Sec.  412.4)

1. Background
    Existing regulations at Sec.  412.4(a) define discharges under the 
IPPS as situations in which a patient is formally released from an 
acute care hospital or dies in the hospital. Section 412.4(b) defines 
acute care transfers, and Sec.  412.4(c) defines postacute care 
transfers. Our policy, set forth in Sec.  412(f), provides that when a 
patient is transferred and his or her length of stay is less than the 
geometric mean length of stay for the MS-DRG to which the case is 
assigned, the transferring hospital is generally paid based on a 
graduated per diem rate for each day of stay, not to exceed the full 
MS-DRG payment that would have been made if the patient had been 
discharged without being transferred.
    The per diem rate paid to a transferring hospital is calculated by 
dividing the full DRG payment by the geometric mean length of stay for 
the MS-DRG. Based on an analysis that showed that the first day of 
hospitalization is the most expensive (60 FR 45804), our policy 
generally provides for payment that is twice the per diem amount for 
the first day, with each subsequent day paid at the per diem amount up 
to the full MS-DRG payment (Sec.  412.4(f)(1)). Transfer cases are also 
eligible for outlier payments. In general, the outlier threshold for 
transfer cases, as described in Sec.  412.80(b), is equal to the fixed-
loss outlier threshold for nontransfer cases (adjusted for geographic 
variations in costs), divided by the geometric mean length of stay for 
the MS-DRG, and multiplied by the length of stay for the case, plus one 
day.
    We established the criteria set forth in Sec.  412.4(d) for 
determining which DRGs qualify for postacute care transfer payments in 
the FY 2006 IPPS final rule (70 FR 47419 through 47420). The 
determination of whether a DRG is subject to the postacute care 
transfer policy was initially based on the Medicare Version 23.0 
GROUPER (FY 2006) and data from the FY 2004 MedPAR file. However, if a 
DRG did not exist in Version 23.0 or a DRG included in Version 23.0 is 
revised, we use the current version of the Medicare GROUPER and the 
most recent complete year of MedPAR data to determine if the DRG is 
subject to the postacute care transfer policy. Specifically, if the MS-
DRG's total number of discharges to postacute care equals or exceeds 
the 55th percentile for all MS-DRGs and the proportion of short-stay 
discharges to postacute care to total discharges in the MS-DRG exceeds 
the 55th percentile for all MS-DRGs, CMS will apply the postacute care 
transfer policy to that MS-DRG and to any other MS-DRG that shares the 
same base MS-DRG. In the preamble to the FY 2006 IPPS final rule (70 FR 
47419), we stated that ``we will not revise the list of DRGs subject to 
the postacute care transfer policy annually unless we are making a 
change to a specific DRG.''
    To account for MS-DRGs subject to the postacute care transfer 
policy that exhibit exceptionally higher shares of costs very early in 
the hospital stay, Sec.  412.4(f) also includes a special payment 
methodology. For these MS-DRGs, hospitals receive 50 percent of the 
full MS-DRG payment, plus the single per diem payment, for the first 
day of the stay, as well as a per diem payment for subsequent days (up 
to the full MS-DRG payment (Sec.  412.4(f)(6)). For an MS-DRG to 
qualify for the special payment methodology, the geometric mean length 
of stay must be greater than 4 days, and the average charges of 1-day 
discharge cases in the MS-DRG must be at least 50 percent of the 
average charges for all cases within the MS-DRG. MS-DRGs that are part 
of an MS-DRG group will qualify under the DRG special payment policy if 
any one of the MS-DRGs that share that same base MS-DRG qualifies 
(Sec.  412.4(f)(6)).
2. Proposed Changes to the Postacute Care Transfer MS-DRGs
    Based on our annual review of MS-DRGs, we have identified a number 
of MS-DRGs that should be included on the list of MS-DRGs subject to 
the postacute care transfer policy. As we discuss in section II.G. of 
this proposed rule, in response to public comments and based on our 
analysis of FY 2013 MedPAR claims data, we are proposing to make 
several changes to MS-DRGs to better capture certain severity of 
illness levels, to be effective for FY 2015. Specifically, we are 
proposing to modify the assignment of endovascular cardiac valve 
replacements currently assigned to MS-DRGs 216 (Cardiac Valve & Other 
Major Cardiothoracic Procedures with Cardiac Catheterization with MCC), 
217 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac 
Catheterization with CC), 218 (Cardiac Valve & Other Major 
Cardiothoracic Procedures with Cardiac Catheterization without CC/MCC), 
219 (Cardiac Valve & Other Major Cardiothoracic Procedures

[[Page 28085]]

without Cardiac Catheterization with MCC), 220 (Cardiac Valve & Other 
Major Cardiothoracic Procedures without Cardiac Catheterization with 
CC), and 221 (Cardiac Valve & Other Major Cardiothoracic Procedures 
without Cardiac Catheterization without CC/MCC) to MS-DRGs 266 and 267 
(Endovascular Cardiac Valve Replacement with and without MCC, 
respectively) to better reflect the differences in patients receiving 
endovascular cardiac valve replacements from patients who undergo an 
open chest cardiac valve replacement. We also are proposing to further 
refine back and neck procedures currently assigned to MS-DRGs 490 and 
491 (Back & Neck Procedure Except Spinal Fusion with CC/MCC or Disc 
Device/Neurostimulator and without CC/MCC or Disc Device/
Neurostimulator, respectively) into additional severity levels, now 
identified as MS-DRGs 518, 519, and 520 (Back & Neck Procedure Except 
Spinal Fusion with MCC or Disc Device/Neurostimulator, with CC, and 
without MCC/CC, respectively). Finally, we are proposing to remove the 
severity levels for reverse shoulder replacements, merging MS-DRGs 483 
and 484 (Major Joint & Limb Reattachment Procedure of Upper Extremity 
with CC/MCC and without CC/MCC, respectively) into MS-DRG 483 (Major 
Joint/Limb Reattachment Procedure of Upper Extremities). A discussion 
of these proposed changes can be found in section II.G.4.c., II.G.5.c. 
and II.G.5.a., respectively, of the preamble of this proposed rule.
    In light of these proposed changes to the MS-DRGs, according to the 
regulations under Sec.  412.4(c), we evaluated these proposed FY 2015 
MS-DRGs against the general postacute care transfer policy criteria 
using the FY 2013 MedPAR data. If an MS-DRG qualified for the postacute 
care transfer policy, we also evaluated that MS-DRG under the special 
payment methodology criteria according to regulations at Sec.  
412.4(f)(6). We continue believe it is appropriate to reassess MS-DRGs 
when proposing reassignment of diagnostic codes that would result in 
material changes to an MS-DRG. As a result of our review, we found that 
MS-DRGs 216 through 221 would require no revisions in postacute care 
transfer or special payment policy status. However, we are proposing to 
update the list of MS-DRGs that are subject to the postacute care 
transfer policy to include the proposed new MS-DRGs 266, 267, 518, 519, 
and 520. (These MS-DRGs are reflected in Table 5, which is listed in 
section VI. of the Addendum to this proposed rule and available via the 
Internet on the CMS Web site, and also are listed in the charts at the 
end of this section.)
    In addition, based on our evaluation of the proposed FY 2015 MS-
DRGs using the FY 2013 Med PAR data, we have determined that proposed 
revised MS-DRG 483 would no longer meet the postacute care transfer 
criteria. Therefore, we are proposing that it be removed from the list 
of MS-DRGs subject to the postacute care transfer policy, effective FY 
2015. We refer readers to the asterisk (*) bolded text in the following 
table for which criterion was not met in our analysis for each MS-DRG 
removed from the postacute care transfer policy list.

                                   List of MS-DRGs That Would Change Postacute Care Transfer Policy Status in FY 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   Percent of short-
                                                                                                                    stay postacute
                                                                                Postacute care                      care transfers
                                                                                transfers (55th     Short-stay       to all cases     Postacute transfer
            MS-DRG                      MS-DRG Title            Total cases       percentile:     postacute care         (55th          policy status
                                                                                    1,471)           transfers        percentile:
                                                                                                                       7.9060%)
                                                                                                                       (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
266...........................  Endovascular Cardiac Valve.             4,086             2,851             1,030             25.21  YES.
                                Replacement with MCC.......
267...........................  Endovascular Cardiac Valve              4,476             2,800               835             18.66  YES.
                                 Replacement w/o MCC.
483...........................  Major Joint/Limb                       41,372            17,289             2,271            * 5.49  NO.
                                 Reattachment Procedure of
                                 Upper Extremities.
518...........................  Back & Neck Procedure                   3,844             2,136               412             10.72  YES.
                                 Except Spinal Fusion with
                                 MCC or Disc Device/
                                 Neurostimulator.
519...........................  Back & Neck Procedure                  15,238             7,405             1,126            * 7.39  YES.**
                                 Except Spinal Fusion with
                                 CC.
520...........................  Back & Neck Procedure                  31,792             7,859                 0            * 0.00  YES.**
                                 Except Spinal Fusion
                                 without CC/MCC).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Indicates a current postacute care transfer policy criterion that the MS-DRG did not meet.
** As described in the policy at 42 CFR 412.4(d)(3)(ii)(D), MS-DRGs that share the same base MS-DRG will all qualify under the postacute care transfer
  policy if any one of the MS-DRGs that share that same base MS-DRG qualifies.

    Finally, we have determined that MS-DRGs 266, 267, 518, 519, and 
520 also would meet the criteria for the special payment methodology. 
Therefore, we are proposing that they would be subject to the MS-DRG 
special payment methodology, effective FY 2015.

                                     List of MS-DRGs That Would Change DRG Special Payment Policy Status in FY 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               50% of average
                                                                       Geometric mean    Average charges of    charges for all      Special pay policy
              MS-DRG                          MS-DRG Title             length of stay     1-day discharges    cases within MS-            status
                                                                                                                     DRG
--------------------------------------------------------------------------------------------------------------------------------------------------------
266...............................  Endovascular Cardiac Valve                   8.3643             $42,081            $126,326  YES.*
                                     Replacement with MCC.

[[Page 28086]]

 
267...............................  Endovascular Cardiac Valve                   5.0271             128,013              95,141  YES.
                                     Replacement without MCC.
518...............................  Back & Neck Procedure Except                 4.2882              68,515              43,514  YES.
                                     Spinal Fusion with MCC or Disc
                                     Device/Neurostimulator.
519...............................  Back & Neck Procedure Except                 3.0507                   0                   0  YES.*
                                     Spinal Fusion with CC.
520...............................  Back & Neck Procedure Except                 1.7315                   0                   0  YES.*
                                     Spinal Fusion without CC/MCC.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* As described in the policy at 42 CFR 412.4(d)(6)(iv), MS-DRGs that share the same base MS-DRG will all qualify under the DRG special payment policy if
  any one of the MS-DRGs that share that same base MS-DRG qualifies.

B. Proposed Changes in the Inpatient Hospital Update for FY 2015 (Sec.  
412.64(d))

1. Proposed FY 2015 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.'' In FY 
2014, consistent with section 1886(b)(3)(B) of the Act, as amended by 
sections 3401(a) and 10319(a) of the Affordable Care Act, we set the 
applicable percentage increase under the IPPS by applying the following 
adjustments in the following sequence. Specifically, the applicable 
percentage increase under the IPPS is 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 as required by section 
1886(b)(3)(B)(xii) of the Act. 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.
    For FY 2015, there are three statutory changes to the applicable 
percentage increase compared to FY 2014. First, under section 
1886(b)(3)(B)(viii) of the Act, beginning with FY 2015, the reduction 
in the applicable percentage increase for hospitals that fail to submit 
quality information under rules established by the Secretary is one-
quarter of the applicable percentage increase (prior to the application 
of statutory adjustments under sections 1886(b)(3)(B)(ix), 
1886(b)(3)(B)(xi), and 1886(b)(3)(B)(xii) of the Act) or one-quarter of 
the applicable market basket update. For FY 2014, the reduction to the 
applicable percentage increase for hospitals that failed to submit 
quality information under rules established by the Secretary was 2.0 
percentage points. Second, beginning with FY 2015, section 
1886(b)(3)(B)(ix) requires that any hospital that is not a meaningful 
electronic health record (EHR) user (as defined in section1886(n)(3) of 
the Act and not subject to an exception under section1886(b)(3)(B)(ix) 
of the Act)) will have ``three-quarters'' of the applicable percentage 
increase (prior to the application of statutory adjustments under 
sections 1886(b)(3)(B)(viii), 1886(b)(3)(B)(xi), and 1886(b)(3)(B)(xii) 
of the Act), or three-quarters of the applicable market basket update, 
reduced by 33\1/3\ percent. The reduction to three-quarters of the 
applicable percentage increase for those hospitals that are not 
meaningful EHR users increases to 66\2/3\ percent for FY 2016, and, for 
FY 2017 and subsequent fiscal years, to 100 percent. Third, for FY 
2015, section 1886(b)(3)(B)(xii) of the Act applies an additional 
reduction of 0.2 percentage point compared to 0.3 percentage point for 
FY 2014.
    To summarize, for FY 2015, consistent with section 1886(b)(3)(B) of 
the Act, as amended by sections 3401(a) and 10319(a) of the Affordable 
Care Act, we are setting the applicable percentage increase by applying 
the following adjustments in the following sequence. Specifically, the 
applicable percentage increase under the IPPS is equal to the rate-of-
increase in the hospital market basket for IPPS hospitals in all areas, 
subject to a reduction of one-quarter of the applicable percentage 
increase (prior to the application of other statutory adjustments; also 
referred to as the market basket update or rate-of-increase (with no 
adjustments)) for hospitals that fail to submit quality information 
under rules established by the Secretary in accordance with section 
1886(b)(3)(B)(viii) of the Act and a 33\1/3\ percent reduction to 
three-fourths of the applicable percentage increase (prior to the 
application of other statutory adjustments; also referred to as the 
market basket update or rate-of-increase (with no adjustments)) for 
hospitals not considered to be meaningful EHR users in accordance with 
section 1886(b)(3)(B)(ix) 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 0.2 
percentage point as required by section 1886(b)(3)(B)(xii) of the Act. 
As noted previously, 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 2015 
adjustment of 0.2 percentage point may result in the applicable 
percentage increase being less than zero.
    We note that, in compliance with section 404 of the MMA, in the FY 
2014 IPPS/LTCH PPS final rule, we replaced 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 
are proposing to continue to use the FY 2010-based IPPS operating and 
capital market baskets for FY 2015. We also are proposing to continue 
to use a labor-related share that is reflective of the FY 2010 base 
year. For FY 2015, we are proposing to continue using the labor-related 
share of 69.6 percent, which is based on the FY 2010-based IPPS market 
basket.
    Based on the most recent data available for this FY 2015 proposed 
rule, in accordance with section 1886(b)(3)(B) of the Act, we are

[[Page 28087]]

proposing to base the proposed FY 2015 market basket update used to 
determine the applicable percentage increase for the IPPS on IHS Global 
Insight, Inc.'s (IGI's) first quarter 2014 forecast of the FY 2010-
based IPPS market basket rate-of-increase with historical data through 
fourth quarter 2013, which is estimated to be 2.7 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 2015, we are not proposing to make any change in 
our methodology for calculating and applying the MFP adjustment. For FY 
2015, we are proposing a MFP adjustment of -0.4 percentage point. 
Similar to the market basket adjustment, for this proposed rule, we 
used the most recent data available to compute the MFP adjustment.
    For FY 2015, depending on whether a hospital submits quality data 
under the rules established in accordance with section 
1886(b)(3)(B)(viii) of the Act (hereafter referred to as a hospital 
that submits quality data) and is a meaningful EHR user under section 
1886(b)(3)(B)(ix) of the Act (hereafter referred to as a hospital that 
is a meaningful EHR user), there are four possible applicable 
percentage increases that can be applied to the standardized amount. 
Below we discuss these four options.
     For a hospital that submits quality data and is a 
meaningful EHR user, we are proposing an applicable percentage increase 
to the FY 2015 operating standardized amount of 2.1 percent (that is, 
the FY 2015 estimate of the market basket rate-of-increase of 2.7 
percent less an adjustment of 0.4 percentage point for economy-wide 
productivity (that is, the MFP adjustment) and less 0.2 percentage 
point).
     For a hospitals that submits quality data and is not a 
meaningful EHR user, we are proposing an applicable percentage increase 
to the operating standardized amount of 1.425 percent (that is, the FY 
2015 estimate of the market basket rate-of-increase of 2.7 percent, 
less an adjustment of 0.675 percentage point (the market basket rate-
of-increase of 2.7 percent x 0.75)/3) for failure to be a meaningful 
EHR user, less an adjustment of 0.4 percentage point for the MFP 
adjustment, and less an additional adjustment of 0.2 percentage point).
     For a hospital that does not submit quality data and is a 
meaningful EHR user, we are proposing an applicable percentage increase 
to the operating standardized amount of 1.425 percent (that is, the FY 
2015 estimate of the market basket rate-of-increase of 2.7 percent, 
less an adjustment of 0.675 percentage point (the market basket rate-
of-increase of 2.7 percent/4) for failure to submit quality data, less 
an adjustment of 0.4 percentage point for the MFP adjustment, and less 
an additional adjustment of 0.2 percentage point).
     For a hospital that does not submit quality data and is 
not a meaningful EHR user, we are proposing an applicable percentage 
increase to the operating standardized amount of 0.75 percent (that is, 
the FY 2015 estimate of the market basket rate-of-increase of 2.7 
percent, less an adjustment of 0.675 percentage point (the market 
basket rate-of-increase of 2.7 percent/4) for failure to submit quality 
data, less an adjustment of 0.675 percentage point (the market basket 
rate-of-increase of 2.7 percent x 0.75)/3) for failure to be a 
meaningful EHR user, less an adjustment of 0.4 percentage point for the 
MFP adjustment, and less an additional adjustment of 0.2 percentage 
point).
    If more recent data become subsequently available (for example, a 
more recent estimate of the market basket and the MFP adjustment), we 
are proposing to use such data, if appropriate, to determine the FY 
2015 market basket update and MFP adjustment in the final rule. Below 
we provide a table summarizing the four proposed applicable percentage 
increases.

----------------------------------------------------------------------------------------------------------------
                                                      Hospital submitted   Hospital did NOT    Hospital did NOT
                                  Hospital submitted    quality data and    submit quality      submit quality
             FY 2015               quality data and        is NOT a          data and is a     data and is NOT a
                                    is a meaningful     meaningful EHR      meaningful EHR      meaningful EHR
                                       EHR user              user                user                user
----------------------------------------------------------------------------------------------------------------
Market Basket                                    2.7                 2.7                 2.7                 2.7
 Rate[dash]of[dash]Increase.....
Adjustment for Failure to Submit                 0.0                 0.0              -0.675              -0.675
 Quality Data under Section
 1886(b)(3)(B)(viii) of the Act.
Adjustment for Failure to be a                   0.0              -0.675                 0.0              -0.675
 Meaningful EHR User under
 Section 1886(b)(3)(B)(ix) of
 the Act........................
MFP Adjustment under Section                    -0.4                -0.4                -0.4                -0.4
 1886(b)(3)(B)(xi) of the Act...
Statutory Adjustment under                      -0.2                -0.2                -0.2                -0.2
 Section 1886(b)(3)(B)(xii) of
 the Act........................
                                 -------------------------------------------------------------------------------
    Proposed Applicable                          2.1               1.425               1.425                0.75
     Percentage Increase Applied
     to Standardized Amount.....
----------------------------------------------------------------------------------------------------------------

    We are proposing to revise the existing regulations at 42 CFR 
412.64(d) to reflect the current law for the FY 2015 update. 
Specifically, in accordance with section 1886(b)(3)(B) of the Act, we 
are proposing to add a new paragraph (vi) to Sec.  412.64(d)(1) to 
reflect the applicable percentage increase to the FY 2015 operating 
standardized amount as the percentage increase in the market basket 
index, subject to a reduction of one-fourth of the applicable 
percentage increase (prior to the application of other statutory 
adjustments) 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 a 33\1/3\ percent reduction to 
three-fourths of the applicable percentage increase (prior to the 
application of other statutory adjustments) for a hospital that is not 
a meaningful EHR user in accordance with section 1886(b)(3)(B)(ix) of 
the Act, less an MFP adjustment and less an additional reduction of 0.2 
percentage point.
    In addition, we are proposing to make technical changes to 
Sec. Sec.  412.64(d)(1), (d)(1)(i) through (d)(1)(v), (d)(2)(i), 
(d)(2)(ii), and (d)(3) introductory text to reflect the order in which 
CMS applies the statutory adjustments to the

[[Page 28088]]

applicable percentage increase under section 1886(b)(3)(B) of the Act. 
As mentioned above, consistent with section 1886(b)(3)(B) of the Act, 
CMS sets the applicable percentage increase under the IPPS by applying 
the following adjustments in the following sequence. Specifically, we 
set the applicable percentage increase under the IPPS equal to the 
rate-of-increase in the hospital market basket for IPPS hospitals in 
all areas subject to a reduction for hospitals that fail to submit 
quality information under rules established by the Secretary in 
accordance with section 1886(b)(3)(B)(viii) of the Act and, beginning 
in FY 2015, a reduction for hospitals not considered to be meaningful 
EHR users in accordance with section 1886(b)(3)(B)(ix) of the Act; and 
then subject to an adjustment based on changes in economy-wide 
productivity (the MFP adjustment), and an additional reduction as 
required by section 1886(b)(3)(B)(xii) of the Act.
    The existing regulation text at Sec.  412.64(d)(2) and (d)(3) 
describes the reductions for hospitals that fail to submit quality 
information under rules established by the Secretary in accordance with 
section 1886(b)(3)(B)(viii) of the Act and hospitals not considered to 
be meaningful EHR users in accordance with section 1886(b)(3)(B)(ix) of 
the Act as reductions to ``the applicable percentage change specified 
in paragraph (d)(1) of this section.'' Section 412.64(d)(1) describes 
the applicable percentage change for the applicable fiscal year as the 
percentage increase in the market basket index less the MFP adjustment 
and less the additional reduction required by section 
1886(b)(3)(B)(xii) of the Act. This text suggests that CMS applies the 
reduction for hospitals that fail to submit quality information and, 
beginning in FY 2015, the reduction for hospitals not considered to be 
meaningful EHR users, after it applies the MFP adjustment and the 
additional reduction under section 1886(b)(3)(B)(xii) of the Act. 
Therefore, we are proposing to revise the regulations in Sec.  
412.64(d) to reflect the order in which CMS applies the adjustments to 
the applicable percentage increase under section 1886(b)(3)(B) of the 
Act. We note that we also are proposing clarifying amendments to the 
regulatory text for prior fiscal years under Sec. Sec.  412.64(d)(1)(i) 
through (d)(1)(v) to reflect the determination of the applicable 
percentage change for those prior years as well as other technical 
changes for readability.
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase to the hospital-specific rates for SCHs and MDHs 
equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all 
other hospitals subject to the IPPS). Therefore, the update to the 
hospital-specific rates for SCHs and MDHs is also subject to section 
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 
10319(a) of the Affordable Care Act. Accordingly, for FY 2015, we are 
proposing the following updates to the hospital-specific rates 
applicable to SCHs and MDHs: An update of 2.1 percent for a hospital 
that submits quality data and is a meaningful EHR user; an update of 
1.425 percent for a hospital that fails to submit quality data and is a 
meaningful EHR user; an update of 1.425 percent for a hospital that 
submits quality data and is not a meaningful EHR user; an update of 
0.75 percent for a hospital that fails to submit quality data and is 
not a meaningful EHR user. (As noted below, under current law, the MDH 
program is effective for discharges occurring on or before March 31, 
2015.) For FY 2015, the existing regulations in Sec. Sec.  
412.73(c)(16), 412.75(d), 412.77(e), 412.78(e), and 412.79(d) contain 
provisions that set the update factor for SCHs and MDHs 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 five regulatory provisions to reflect the FY 2015 update 
factor for the hospital-specific rates of SCHs and MDHs. As mentioned 
above, for this proposed rule, we used IGI's first quarter 2014 
forecast of the FY 2010-based IPPS market basket update with historical 
data through fourth quarter 2013. Similarly, we used IGI's first 
quarter 2014 forecast of the MFP adjustment. For the final rule, we are 
proposing to use the most recent data available.
    We note that, as discussed in section IV.G. of the preamble of this 
proposed rule, section 1106 of the Pathway for SGR Reform Act of 2013 
(Pub. L. 113-67), enacted on December 26, 2013, extended the MDH 
program from the end of FY 2013 through the first half of FY 2014 (that 
is, for discharges occurring before April 1, 2014). Subsequently, 
section 106 of the Protecting Access to Medicare Act of 2014, Public 
Law 113-93, enacted on April 1, 2014, further extended the MDH program 
through the first half of FY 2015 (that is, for discharges occurring 
before April l, 2015). Prior to the enactment of Public Law 113-67, the 
MDH program was to be in effect through the end of FY 2013 only. The 
MDH program expires for discharges beginning on April 1, 2015 under 
current law. Accordingly, the proposed update of the hospital-specific 
rates for FY 2015 for MDHs will apply in determining payments for FY 
2015 discharges occurring before April 1, 2015.
2. FY 2015 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 2.1 percent for FY 2015. We 
note that the provisions of section 1886(b)(3)(B)(viii) of the Act, 
which specify the adjustments to the applicable percentage increase for 
``subsection (d)'' hospitals that do not submit quality data under the 
rules established by the Secretary, and the provisions of section 
1886(b)(3)(B)(ix) of the Act, which specify the adjustments to the 
applicable percentage increase for ``subsection (d)'' hospitals that 
are not meaningful EHR users, are not applicable to hospitals located 
in Puerto Rico.
    For FY 2015, the existing regulations in Sec.  412.211(c) set the 
update factor for

[[Page 28089]]

Puerto Rico-specific standardized amount 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 this 
regulatory provision to reflect the FY 2015 update factor for the 
Puerto Rico-specific standardized amount.
    As mentioned previously, for this proposed rule, we used IGI's 
first quarter 2014 forecast of the FY 2010-based IPPS market basket 
update with historical data through fourth quarter 2013. For the final 
rule, we are proposing to use the most recent data available. 
Similarly, we used IGI's first quarter 2014 forecast of the MFP 
adjustment. For the final rule, we are proposing to use the most recent 
data available.

C. Rural Referral Centers (RRCs): Proposed Annual Updates 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 2015 includes data from all urban hospitals 
nationwide, and the proposed regional values for FY 2015 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 2013 (October 1, 2012 through September 30, 2013), 
and include bills posted to CMS' records through December 2013.
    We are proposing that, in addition to meeting other criteria, if 
rural hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
2014, they must have a CMI value for FY 2013 that is at least--
     1.5730; 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:

------------------------------------------------------------------------
                                                          Proposed case-
                         Region                              mix index
                                                               value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................          1.3602
2. Middle Atlantic (PA, NJ, NY).........................          1.4334
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          1.4815
4. East North Central (IL, IN, MI, OH, WI)..............          1.4915
5. East South Central (AL, KY, MS, TN)..................          1.4099
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......          1.5498
7. West South Central (AR, LA, OK, TX)..................          1.6041
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............          1.6583
9. Pacific (AK, CA, HI, OR, WA).........................          1.5680
------------------------------------------------------------------------

    We intend to update the preceding numbers in the FY 2015 final rule 
to reflect the updated FY 2013 MedPAR file, which would contain data 
from additional bills received through March 2014.

[[Page 28090]]

    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 are proposing to update the 
regional standards based on discharges for urban hospitals' cost 
reporting periods that began during FY 2012 (that is October 1, 2011 
through September 30, 2012), which are the latest cost report data 
available at the time this proposed rule was developed.
    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, 2014, must have, as the number 
of discharges for its cost reporting period that began during FY 2012, 
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).................           7,679
2. Middle Atlantic (PA, NJ, NY).........................          10,661
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          10,591
4. East North Central (IL, IN, MI, OH, WI)..............           8,130
5. East South Central (AL, KY, MS, TN)..................           7,065
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......           7,925
7. West South Central (AR, LA, OK, TX)..................           4,524
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............           8,830
9. Pacific (AK, CA, HI, OR, WA).........................           8,261
------------------------------------------------------------------------

    We intend to update these numbers in the FY 2015 final rule based 
on the latest available cost report data.
    We reiterate that, if an osteopathic hospital is to qualify for RRC 
status for cost reporting periods beginning on or after October 1, 
2014, the hospital would be required to have at least 3,000 discharges 
for its cost reporting period that began during FY 2012.

D. 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 that is paid under IPPS 
beginning in FY 2005. 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. Section 605 of the American Taxpayer 
Relief Act of 2012 (ATRA) extended, for FY 2013, the temporary changes 
in the low-volume hospital payment policy provided for in FYs 2011 and 
2012 by the Affordable Care Act. Prior to the enactment of the Pathway 
for SGR Reform Act of 2013 (Pub. L. 113-67) on December 26, 2013 and 
section 106 of the Protecting Access to Medicare Act of 2014 (Pub. L. 
113-93) on April l, 2014, beginning with FY 2014, the low-volume 
hospital qualifying criteria and payment adjustment returned to the 
statutory requirements under section 1886(d)(12) of the Act that were 
in effect prior to the amendments made by the Affordable Care Act and 
the ATRA. (For additional information on the expiration of the 
temporary changes in the low-volume hospital payment policy for FYs 
2011 through 2013 provided for by the Affordable Care Act and the ATRA, 
we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50610 
through 50613).)
    Section 1105 of the Pathway for SGR Reform Act extended, for the 
first 6 months of FY 2014 (that is, through March 31, 2014), the 
temporary changes in the low-volume hospital payment policy provided 
for in FYs 2011 and 2012 by the Affordable Care Act and extended 
through FY 2013 by the ATRA. We addressed the extension of the 
temporary changes to the low-volume hospital payment policy through 
March 31, 2014 under the Pathway for SGR Reform Act in an interim final 
rule with comment period that appeared in the Federal Register on March 
18, 2014 (79 FR 15022 through 15025). In that March 18, 2014 interim 
final rule with comment period, we also amended the regulations at 42 
CFR 412.101 to reflect the extension of the temporary changes to the 
qualifying criteria and the payment adjustment for low-volume hospitals 
through March 31, 2014.
2. Provisions of the Protecting Access to Medicare Act of 2014
    Section 105 of the Protecting Access to Medicare Act of 2014 (Pub. 
L. 113-93) extends, for an additional year (that is, through March 31, 
2015), the temporary changes in the low-volume hospital payment policy 
provided for in FYs 2011 and 2012 by the Affordable Care Act and 
extended through FY 2013 by the ATRA and the first half of FY 2014 by 
the Pathway for SGR Reform Act. We intend to address the extension of 
the temporary changes to the low-volume hospital payment policy for the 
second half of FY 2014 (that is, from April 1, 2014 through September 
30, 2014) under Public Law 113-93 in a forthcoming Federal Register 
notice. However, 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 the 
first half of FY 2015 (that is, through March 31, 2015) in accordance 
with section 105 of Public Law 113-93. Specifically, we are proposing 
to revise paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), (c)(2), and (d) of 
Sec.  412.101. Under these proposed changes to Sec.  412.101, beginning 
with FY 2015 discharges occurring on or after April 1, 2015, 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 subsequent legislation (that is, the low-volume 
hospital payment adjustment policy in effect for FYs 2005 through 
2010).

[[Page 28091]]

3. Low-Volume Hospital Definition and Payment Adjustment for FY 2015
    As discussed above, under section 1886(d)(12) of the Act, as 
amended, the temporary changes in the low-volume hospital payment 
policy originally provided by the Affordable Care Act and extended 
through subsequent legislation, are effective for FY 2015 discharges 
occurring before April 1, 2015. To implement the extension of the 
temporary change in the low-volume hospital payment policy through the 
first half of FY 2015 (that is, for discharges occurring through March 
31, 2015) provided for by Public Law 113-93, in accordance with 
proposed Sec.  412.101(b)(2)(ii) and consistent with our historical 
approach, we are proposing to update the discharge data source used to 
identify qualifying low-volume hospitals and calculate the payment 
adjustment (percentage increase) for FY 2015 discharges occurring 
before April 1, 2015. Under existing Sec.  412.101(b)(2)(ii), for the 
applicable fiscal years, 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 payment adjustment in the current year. The applicable low-
volume percentage increase, as originally provided for by the 
Affordable Care Act, 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. For FY 2015 
discharges occurring before April 1, 2015, consistent with our 
historical policy, we are proposing that qualifying low-volume 
hospitals and their payment adjustment would be determined using the 
most recently available Medicare discharge data from the FY 2013 MedPAR 
file, as these data are the most recent data available. Table 14 listed 
in the Addendum of this proposed rule (which is available only through 
the Internet on the CMS Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp) lists the ``subsection (d)'' 
hospitals with fewer than 1,600 Medicare discharges based on the 
December 2013 update of the FY 2013 MedPAR file and their proposed low-
volume payment adjustment for FY 2015 discharges occurring before April 
1, 2015 (if eligible). Eligibility for the low-volume hospital payment 
adjustment for the first 6 months of FY 2015 would also be dependent 
upon meeting (in the case of a hospital that did not qualify for the 
low-volume hospital payment adjustment in FY 2014) or continuing to 
meet (in the case of a hospital that did qualify for the low-volume 
hospital payment adjustment in FY 2014) the mileage criterion specified 
at proposed Sec.  412.101(b)(2)(ii). A hospital also must be located 
more than 15 road miles from any other IPPS hospital in order to 
qualify for a low-volume hospital payment adjustment for FY 2015 
discharges occurring before April 1, 2015. We note that the list of 
hospitals with fewer than 1,600 Medicare discharges in Table 14 does 
not reflect whether or not the hospital meets the mileage criterion. If 
more recent Medicare discharge data become available, we intend to use 
updated data to determine the list of ``subsection (d)'' hospitals with 
fewer than 1,600 Medicare discharges based on the March 2014 update of 
the FY 2013 MedPAR file and their potential low-volume payment 
adjustment for FY 2015 discharges occurring before April 1, 2015 (if 
eligible) in Table 14 of the final rule.
    Furthermore, in accordance with section 1886(d)(12) of the Act, as 
amended, beginning with FY 2015 discharges occurring on or after April 
1, 2015, 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 
subsequent legislation (including the Protecting Access to Medicare 
Act). 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 2015 discharges occurring on or after April 1, 2015 
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 2015 discharges occurring on or after April 1, 2015 
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 (or portion of the fiscal year). 
Consistent with our existing policy for FYs 2005 through 2010, for FY 
2015 discharges occurring on or after April 1, 2015 (and subsequent 
years), the discharge determination for the low-volume hospital payment 
adjustment would be made based on the hospital's number of total 
discharges, that is, Medicare and non-Medicare discharges, as specified 
at proposed Sec.  412.101(b)(2)(i). 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 fiscal year. We use cost report data to 
determine if a hospital meets the discharge criterion because these 
data are the best available data source that includes information on 
both Medicare and non-Medicare discharges. In addition to a discharge 
criterion, eligibility for the low-volume hospital payment adjustment 
also depends on the hospital meeting a mileage criterion. As specified 
at proposed Sec.  412.101(b)(2)(i), to meet the mileage criterion to 
qualify for the low-volume hospital payment adjustment for FY 2015 
discharges occurring on or after April 1, 2015 (and subsequent years), 
a hospital must be located more than 25 road miles from the nearest 
subsection (d) hospital.
    Consistent with our previously established procedure, for FY 2015, 
we are proposing the following 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 MAC that it meets the 
discharge and distance requirements under proposed Sec.  
412.101(b)(2)(ii) for FY 2015 discharges occurring before April 1, 
2015, and under proposed Sec.  412.101(b)(2)(i) for FY 2015 discharges 
occurring on or after April 1, 2015, if also applicable. The MAC will 
determine, based on the most recent data available, if the hospital 
qualifies as a low-volume hospital, so that the hospital would know in 
advance whether or not it will receive a payment adjustment. The 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. 
Consistent with our previously established procedure, for FY 2015, we 
are proposing that a hospital must make a written request for low-
volume hospital status that is received by its MAC no later than 
September 1, 2014, in order for the applicable low-volume hospital 
payment adjustment to be applied to payments for its discharges

[[Page 28092]]

occurring on or after October 1, 2014, and through March 31, 2015, 
under proposed Sec.  412.101(b)(2)(ii) or through September 30, 2015, 
for hospitals that also qualify under proposed Sec.  412.101(b)(2)(i)). 
A hospital that qualified for the low-volume payment adjustment in FY 
2014 may continue to receive a low-volume payment adjustment for FY 
2015 discharges occurring before April 1, 2015, without reapplying if 
it continues to meet the Medicare discharge criterion established for 
FY 2015 (shown in Table 14, which is available via the Internet on the 
CMS Web site) and the distance criterion. However, the hospital must 
send written verification that is received by its MAC no later than 
September 1, 2014, that it continues to be more than 15 miles from any 
other ``subsection (d)'' hospital.
    If a hospital's written request for low-volume hospital status for 
FY 2015 is received after September 1, 2014, and if the MAC determines 
that the hospital meets the criteria to qualify as a low-volume 
hospital under proposed Sec.  412.101(b)(2)(ii), the MAC would apply 
the applicable low-volume hospital payment adjustment to determine the 
payment for the hospital's FY 2015 discharges, effective prospectively 
within 30 days of the date of its low-volume hospital status 
determination through discharges occurring on or before March 31, 2015. 
If the hospital also qualifies under proposed Sec.  412.101(b)(2)(i), 
the MAC would apply the 25-percent low-volume hospital payment 
adjustment to determine the payment for the hospital's FY 2015 
discharges occurring on or after April 1, 2015. If a hospital's written 
request for low-volume hospital status for FY 2015 is received on a 
later date such that the prospective effective date would be on or 
after April 1, 2015, and the hospital qualifies under proposed Sec.  
412.101(b)(2)(i), the MAC would apply the 25-percent low-volume 
hospital payment adjustment to determine the payment for the hospital's 
FY 2015 discharges occurring from the prospective effective date 
through September 30, 2015. (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).)

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

1. IME Adjustment Factor for FY 2015
    Under the IPPS, an additional payment amount is made to hospitals 
with 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 2015, the formula 
multiplier is 1.35. We estimate that application of this formula 
multiplier for the FY 2015 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. Proposed IME Medicare Part C Add-On Payments to Sole Community 
Hospitals (SCHs) That Are Paid According to Their Hospital-Specific 
Rates and Proposed Change in Methodology in Determining Payment to SCHs
    Section 1886(d)(11) of the Act provides for an additional payment 
amount to a subsection (d) teaching hospital that has an approved 
medical residency training program for each applicable discharge of any 
individual who is enrolled under Medicare Managed Care under Part C. 
The amount of such payment is specified in section 1886(d)(11)(C) of 
the Act and ``shall be equal to the applicable percentage (as defined 
in subsection (h)(3)(D)(ii)) of the estimated average per discharge 
amount that would otherwise have been paid under paragraph (5)(B) if 
the individuals had not been enrolled as described in subparagraph 
(B).''
    Under section 1886(d)(5)(D) of the Act, sole community hospitals 
(SCHs) are paid based on their hospital-specific rate from 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 include no add-
on payments. Under CMS' current payment system, both the IME add-on 
payment for Medicare Part A patient discharges under section 
1886(d)(5)(B) of the Act and the IME add-on payment for Medicare Part C 
patient discharges under section 1886(d)(11) of the Act are included as 
part of the Federal rate payment, whereas neither of these add-on 
payments are included as part of the hospital-specific rate payment. We 
note that SCHs that are paid based on their hospital-specific rate do 
not receive an IME add-on payment for Medicare Part A patient 
discharges because, generally, the hospital-specific rate already 
reflects the additional costs that a teaching hospital incurs for its 
Medicare Part A patients, but they also do not receive the IME add-on 
payment for Medicare Part C patient discharges under section 
1886(d)(11) of the Act. Therefore, in the case of Medicare Part C 
patients, there is no component of the hospital-specific rate that 
already accounts for the additional costs that SCHs incur for their 
Medicare Part C patients, and there is currently no payment mechanism 
for SCHs paid based on their hospital-specific rate to receive the IME 
add-on payment for Medicare Part C patients.
    For the reasons specified below, effective for discharges occurring 
in cost reporting periods beginning on or after October 1, 2014, we are 
proposing: (1) To provide all SCHs that are subsection (d) teaching 
hospitals IME add-on payments for applicable discharges of Medicare 
Part C patients in accordance with section 1886(d)(11) of the Act, 
regardless of whether the SCH is paid based on the Federal rate or its 
hospital-specific rate; and (2) that, for purposes of the comparison of 
payments based on the Federal rate and payments based on the hospital-
specific rate under section 1886(d)(5)(D) of the Act, IME payments 
under section 1886(d)(11) of the Act for Medicare Part C patients will 
no longer be included as part of the Federal rate payment. After the 
higher of the Federal rate payment amount or the hospital-specific rate 
payment amount is determined, any IME add-on payments under section 
1886(d)(11) of the Act would be added to that payment for purposes of 
determining the hospital's total payment amount.
    As noted above, under section 1886(d)(5)(D) of the Act, SCHs are 
paid based on their hospital-specific rate or the IPPS Federal rate, 
whichever yields the higher payment for the hospital's cost reporting 
period. For each cost reporting period, the MAC determines which of the 
payment options will yield the higher aggregate payment. Interim 
payments are automatically made on a claim-by-claim basis at the higher 
rate using the best data available at the time the MAC makes the 
payment determination for each discharge. However, it may not be 
possible for the MAC to determine in advance precisely

[[Page 28093]]

which of the rates will yield the higher aggregate payment by year's 
end. In many cases, 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 MAC makes a final 
adjustment at cost report settlement after it determines precisely 
which of the two payment rates would yield the higher aggregate payment 
to the hospital for its cost reporting period. This payment methodology 
makes SCHs unique because SCH payments can change on a yearly basis 
from payments based on the hospital-specific rate to payments based on 
the Federal rate, or vice versa.
    As we stated earlier, section 1886(d)(11) of the Act provides for 
an additional payment for each applicable discharge of any subsection 
(d) teaching hospital for treating Medicare Part C patients. Section 
1886(d)(11)(C) of the Act specifies that the amount of the payment 
``shall be equal to the applicable percentage (as defined in subsection 
(h)(3)(D)(ii)) of the estimated average per discharge amount that would 
otherwise have been paid under paragraph (5)(B) if the individuals had 
not been enrolled as described in subparagraph (B)'' (emphasis added). 
Because an SCH that is paid based on its hospital-specific rate does 
not receive any IME add-on payment for Medicare Part A patients as 
provided under section 1886(d)(5)(B) of the Act because, generally, the 
hospital-specific rate already reflects the additional costs that a 
teaching hospital incurs for its Medicare Part A patients, CMS has 
interpreted section 1886(d)(11)(C) of the Act to mean that an SCH that 
is paid based on its hospital-specific rate also is not entitled to 
receive an additional payment for discharges of Medicare Part C 
patients under section 1886(d)(11) of the Act.
    After further consideration of the language at section 1886(d)(11) 
of the Act, we believe that the statute would allow an SCH that is paid 
based on its hospital-specific rate to receive IME add-on payments for 
its Medicare Part C patient discharges. Section 1886(d)(11)(A) of the 
Act provides for an additional payment amount for each applicable 
discharge of a Medicare Part C patient of a subsection (d) hospital 
that has an approved medical residency training program. Section 
1886(d)(11)(C) of the Act sets forth the amount of this additional 
payment, by reference to the amount that would otherwise have been paid 
under section 1886(d)(5)(B) of the Act. Although an SCH that is paid 
based on its hospital-specific rate does not receive any amount under 
section 1886(d)(5)(B) of the Act for discharges of Medicare Part A 
patients, we believe that section 1886(d)(11)(C) of the Act can be 
interpreted as simply establishing the methodology for calculating the 
amount of the add-on payment, without limiting the applicability of the 
add-on payment to those SCHs that are paid based on the Federal rate.
    As noted earlier, in making the comparison of SCH payments under 
the Federal rate and the hospital-specific rate under section 
1886(d)(5)(D) of the Act, the aggregate Federal rate payments are based 
on the IPPS standardized amount and include IME add-on payments for 
both Medicare Part A and Medicare Part C patient discharges. Payments 
based on the hospital-specific rate do not include the Medicare Part A 
IME add-on payment under section 1886(d)(5)(B) of the Act, under the 
rationale that, generally, the hospital-specific rate already reflects 
the additional costs that a teaching hospital incurs for its Medicare 
Part A patients. Payments based on the hospital-specific rate also do 
not include the IME add-on payment for Medicare Part C patient 
discharges under section 1886(d)(11) of the Act. As a result, under the 
current methodology, if an SCH that is a teaching hospital is paid 
based on its hospital-specific rate, it receives no IPPS payment that 
accounts for the additional costs that a teaching hospital incurs for 
its Medicare Part C patients.
    In conjunction with our proposal to provide IME add-on payments 
under section 1886(d)(11) of the Act to SCHs, regardless of whether the 
SCH is paid based on the Federal rate or its hospital-specific rate, we 
also believe that, for purposes of the comparison of payments under the 
Federal rate and the hospital-specific rate for SCHs under section 
1886(d)(5)(D) of the Act, it is no longer appropriate for IME add-on 
payments under section 1886(d)(11) of the Act to be included as part of 
the Federal rate payment. Therefore, we are proposing to no longer 
include these payments in the comparison in order to more accurately 
reflect comparable payments for Medicare Part A patient discharges. In 
addition, because the IME add-on payment for Medicare Part C patient 
discharges for a given SCH would be the same, regardless of whether it 
is paid based on the Federal rate or its hospital-specific rate, there 
would be no need to include the IME add-on payment for Medicare Part C 
patient discharges in the comparison. This is because the Part C IME 
adjustment is always multiplied by the Federal rate that is used under 
section 1886(d)(5)(B) of the Act, regardless of whether the hospital-
specific rate is higher, in accordance with section 1886(d)(11) of the 
Act, which states that the IME Part C add-on amount ``shall be equal to 
the applicable percentage . . . of the estimated average per discharge 
amount that would otherwise have been paid under paragraph (5)(B).''
    In summary, effective with discharges occurring in cost reporting 
periods beginning on or after October 1, 2014, we are proposing: (1) To 
provide all SCHs that are subsection (d) teaching hospitals IME add-on 
payments for Medicare Part C patient discharges in accordance with 
section 1886(d)(11) of the Act; and (2) that, for purposes of the 
comparison of payments based on the Federal rate and the hospital-
specific rate for SCHs under section 1886(d)(5)(D) of the Act, IME add-
on payments under section 1886(d)(11) of the Act for Medicare Part C 
patient discharges will no longer be included in the aggregate payment 
under the Federal rate. That is, for purposes of determining payment to 
an SCH under section 1886(d)(5)(D) of the Act, we are proposing to 
compare aggregate payments based on the Federal rate, including the IME 
add-on payment for Medicare Part A patients (where applicable), but not 
the IME add-on payment for Medicare Part C patients, to aggregate 
payments based on the hospital-specific rate, which as explained 
earlier, do not include any IME add-on payments for either Medicare 
Part A or Part C patients. After the higher of the Federal rate payment 
amount or the hospital-specific rate payment amount under section 
1886(d)(5)(D) of the Act is determined, the Part C IME adjustment 
factor would be multiplied by the Federal rate payment amount to 
determine the add-on payment amount under section 1886(d)(11) of the 
Act, and then any IME add-on payments under section 1886(d)(11) of the 
Act would be added to the payment amount under section 1886(d)(5)(D) of 
the Act for purposes of determining the hospital's total payment 
amount. We are inviting public comments on both of these proposals and 
any alternatives that we should consider.
3. Other Proposed Policy Changes Affecting IME
    In section IV.K. of the preamble of this proposed rule, we present 
other proposed policy changes relating to GME payments, which may also 
apply to IME payments. We refer readers to

[[Page 28094]]

that section of the preamble of this proposed rule where we present the 
proposed policies.

F. 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).
2. Impact on Medicare DSH Payment Adjustment of Proposed Implementation 
of New OMB Labor Market Delineations
    As discussed in section III.B. of the preamble of this proposed 
rule, we are proposing to implement the new OMB labor market area 
delineations (which are based on 2010 Decennial Census data) for the FY 
2015 wage index. This proposal also would have an impact on the 
calculation of Medicare DSH payments to certain hospitals. Hospitals 
that are designated as rural with less than 500 beds and that are not 
rural referral centers (RRCs) are subject to a maximum DSH payment 
adjustment of 12 percent. Accordingly, hospitals with less than 500 
beds that are currently in urban counties that would become rural if we 
adopt the new OMB delineations, and that do not become RRCs, would be 
subject to a maximum DSH payment adjustment of 12 percent. (We note 
that urban hospitals are only subject to a maximum DSH payment 
adjustment of 12 percent if they have less than 100 beds.)
    Under existing regulations at 42 CFR 412.102, a hospital located in 
an area that is reclassified from urban to rural, as defined in the 
regulations, may receive an adjustment to its rural Federal payment 
amount for operating costs for two successive fiscal years. 
Specifically, the regulations state that, in the first year after a 
hospital loses urban status, the hospital will receive an additional 
payment that equals two-thirds of the difference between the urban 
standardized amount and disproportionate share payments as applicable 
to the hospital before its redesignation from urban to rural and the 
rural standardized amount and disproportionate share payments otherwise 
applicable to the hospital subsequent to its redesignation from urban 
to rural. In the second year after a hospital loses urban status, the 
hospital will receive an additional payment that equals one-third of 
the difference between the urban standardized amount and 
disproportionate share payments applicable to the hospital before its 
redesignation from urban to rural and the rural standardized amount and 
disproportionate share payments otherwise applicable to the hospital 
subsequent to its redesignation from urban to rural.
    We note that we no longer make a distinction between the urban 
standardized amount and the rural standardized amount. Rather, 
hospitals receive the same standardized amount regardless of their 
geographic designation. Accordingly, we are proposing to revise the 
regulation at Sec.  412.102 to remove references to the urban and rural 
standardized amounts.
    The provisions of Sec.  412.102 would continue to apply with 
respect to the calculation of the DSH payments to hospitals that are 
currently located in urban counties that would become rural if we adopt 
the new OMB delineations. Specifically, the regulations would state 
that in the first year after a hospital loses urban status, the 
hospital will receive an additional payment that equals two-thirds of 
the difference between disproportionate share payments as applicable to 
the hospital before its redesignation from urban to rural and the 
disproportionate share payments otherwise applicable to the hospital 
subsequent to its redesignation from urban to rural. In the second year 
after a hospital loses urban status, the hospital will receive an 
additional payment that equals one-third of the difference between the 
disproportionate share payments applicable to the hospital before its 
redesignation from urban to rural and the disproportionate share 
payments otherwise applicable to the hospital subsequent to its 
redesignation from urban to rural.
    For the purposes of ratesetting, calculating budget neutrality, and 
modeling payment impacts for this proposed rule, any hospital that was 
previously urban but would be changed to rural status in FY 2015 as a 
result of the proposed adoption of the new OMB labor market area 
delineations would have its DSH payments modeled such that the payment 
equals the amount of the rural disproportionate share payments plus 
two-thirds of the difference between the urban disproportionate share 
payments and the rural disproportionate share payments.
3. Payment Adjustment Methodology for Medicare Disproportionate Share 
Hospitals (DSHs) Under Section 3133 of the Affordable Care Act (Sec.  
412.106)
a. General Discussion
    Section 3133 of the Patient Protection and Affordable Care Act, as 
amended by section 10316 of the same act 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

[[Page 28095]]

Medicare DSH payment adjustment beginning in FY 2014. For purposes of 
this proposed rule, we refer to these provisions collectively as 
section 3133 of the Affordable Care Act.
    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 with 
discharges in FY 2014, hospitals that qualify for Medicare DSH payments 
under section 1886(d)(5)(F) of the Act receive 25 percent of the amount 
they previously would have received under the statutory formula for 
Medicare DSH payments. This provision applies equally to hospitals that 
qualify for DSH payments under section 1886(d)(5)(F)(i)(I) of the Act 
and those hospitals that qualify under the Pickle method under section 
1886(d)(5)(F)(i)(II) of the Act.
    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, is 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 are 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.
    As provided by section 3133 of the Affordable Care Act, section 
1886(r) of the Act requires that, for FY 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)'' receives 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 hospital 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 FY 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 points for FY 2014, and minus 0.2 percentage points 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 Director of the 
Congressional Budget Office to the Speaker of the House. (A link to 
this letter is included in section IV.F.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 the percent of individuals 
``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.'' Therefore, for FY 2018 and subsequent years, 
the statute provides some greater flexibility in the choice of the data 
sources to be used for the estimate of the change in the percent of 
uninsured individuals.
    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 applies to FY 2014 and each subsequent 
fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620 
through 50647) and the FY 2014 IPPS interim final rule with comment 
period (78 FR 61191 through 61197), we set forth our policies for 
implementing the required changes to the DSH payment methodology made 
by section 3133 of the Affordable Care Act for FY 2014. In those rules, 
we noted that, because section 1886(r) of the Act 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 is 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 28096]]

b. Eligibility for Empirically Justified Medicare DSH Payments and 
Uncompensated Care Payments
    As indicated earlier, the payment methodology under section 3133 of 
the Affordable Care Act 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 section 3133 of the 
Affordable Care Act. Consistent with the law, hospitals must receive 
empirically justified Medicare DSH payments in a fiscal 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) of the Act therefore, is limited to 
hospitals that receive empirically justified Medicare DSH payments in 
accordance with section 1886(r)(1) of the Act for the applicable fiscal 
year.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY 
2014 IPPS interim final rule with comment period (78 FR 61193), we 
provided that hospitals that are not eligible to receive empirically 
justified Medicare DSH payments in a fiscal year will not receive 
uncompensated care payments for that year. We also specified that we 
would make a determination concerning eligibility for interim 
uncompensated care payments based on each hospital's estimated DSH 
status for the applicable fiscal year (using the most recent data that 
are available). We indicated that 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.
    In the FY 2014 IPPS/LTCH PPS final rule, we also considered whether 
several specific classes of hospitals are included within the scope of 
section 1886(r) of the Act. As we specified in that final rule (78 FR 
50623), subsection (d) Puerto Rico hospitals that are eligible for DSH 
payments also are eligible to receive empirically justified Medicare 
DSH payments and uncompensated care payments under the new payment 
methodology.
    In addition, in the FY 2014 IPPS/LTCH PPS final rule, we considered 
whether Maryland hospitals that were paid under section 1814(b)(3) of 
the Act, would be eligible to receive uncompensated care payments. We 
explained that, under section 1814(b) of the Act, hospitals in the 
State of Maryland were subject to a waiver from the Medicare payment 
methodologies under which they would otherwise be paid. Because 
Maryland waiver hospitals were not paid under the IPPS (section 1886(d) 
of the Act), in the FY 2014 IPPS/LTCH PPS final rule, we determined 
that Maryland hospitals that operated under a waiver under section 
1814(b)(3) of the Act were not eligible to receive empirically 
justified Medicare DSH payments and uncompensated care payments under 
the payment methodology of section 1886(r) of the Act (78 FR 50623). As 
stated in section IV.H. of the preamble of this proposed rule, 
effective January 1, 2014, the State of Maryland elected to no longer 
have Medicare pay Maryland hospitals in accordance with section 
1814(b)(3) of the Act and entered into an agreement with CMS that 
Maryland hospitals would be paid under the Maryland All-Payor Model. 
However, under the Maryland All-Payor Model, Maryland hospitals still 
are not paid under the IPPS. Therefore, they remain ineligible to 
receive empirically justified Medicare DSH payments or the 
uncompensated care payments under section 1886(r) of the Act.
    SCHs are paid based on their hospital-specific rate from certain 
specified base years or the IPPS Federal rate, whichever yields the 
greater aggregate payment for the hospital's cost reporting period. If 
an SCH is paid under its hospital-specific rate, it is not eligible for 
Medicare DSH payments. In order to implement the provisions of section 
1886(r) of the Act, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50624), we specified that we will continue to determine interim 
payments for SCHs based on 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 specified that SCHs that receive interim 
empirically justified Medicare DSH payments in a fiscal year would 
receive interim uncompensated care payments for that fiscal year on a 
per discharge basis, subject as well to settlement through the cost 
report. Final eligibility determinations will be made at the end of the 
cost reporting period at settlement, and both interim empirically 
justified Medicare DSH payments and uncompensated care payments will be 
adjusted accordingly. Therefore, we follow the same processes of 
interim and final payments for SCHs that we follow for eligible IPPS 
DSH hospitals generally.
    MDHs are paid based on the IPPS Federal rate or, if higher, the 
IPPS Federal rate plus 75 percent of the amount by which the Federal 
rate is exceeded by the updated hospital-specific rate from certain 
specified base years (76 FR 51684). The IPPS Federal rate used in the 
MDH payment methodology is the same IPPS Federal rate that is used in 
the SCH payment methodology. Uncompensated care payments to MDHs were 
not explicitly addressed in the FY 2014 IPPS/LTCH PPS final rule 
because, at the time of the publication of the final rule, the MDH 
program was set to expire at the end of FY 2013. Since the publication 
of the FY 2014 IPPS/LTCH PPS final rule, the MDH program was extended 
from October 1, 2013, to March 31, 2014, under the Pathway for SGR 
Reform Act (Pub. L. 113-67) and was further extended an additional year 
from April 1, 2014, to March 31, 2015, by the Protecting Access to 
Medicare Act of 2014 (Pub. L. 113-93). Because MDHs are paid under the 
IPPS Federal rate and, therefore, are eligible to receive Medicare DSH 
payments if their disproportionate patient percentage is at least 15 
percent, we apply the same process to determine eligibility for 
Medicare DSH and the uncompensated care payment as we do for all other 
IPPS hospitals. That is, we make a determination concerning eligibility 
for interim uncompensated care payments based on each hospital's 
estimated DSH status for the applicable fiscal year (using the most 
recent data that are available) and 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. In addition, as we do for all IPPS hospitals, we would calculate 
a numerator for Factor 3 for all MDHs, regardless of whether they are 
projected to be eligible for DSH during the fiscal year, but the 
denominator for Factor 3 would be based on the uncompensated care data 
from the hospitals that we have projected to be eligible for DSH during 
the fiscal year.
    Furthermore, in the FY 2014 IPPS interim final rule with comment 
period (79 FR 15027), which addressed MDH payments for the first 6 
months of FY 2014, we established a policy of including a pro rata 
share of the uncompensated care payment amount for that period as part 
of the Federal rate payment in the comparison of payments under the 
hospital-specific rate and the

[[Page 28097]]

Federal rate. Consistent with that policy, for MDH payments for the 
first 6 months of FY 2015, a pro rata share of the uncompensated care 
payment amount for that period will be included as part of the Federal 
rate payment in the comparison of payments under the hospital-specific 
rate and the Federal rate. That is, in making this comparison at cost 
report settlement, we will include the pro rata share of the 
uncompensated care payment amount that reflects the period of time the 
hospital was paid under the MDH program for its discharges occurring on 
or after October 1, 2014, and before April 1, 2015. Consistent with the 
policy for hospitals with Medicare cost reporting periods that span 
more than 1 Federal fiscal year, this pro rata share will be determined 
based on the proportion of the applicable Federal fiscal year that is 
included in that cost reporting period (78 FR 61192 through 61194). As 
noted previously, section 106 of Public Law 113-93 provides for an 
extension of the MDH program through March 31, 2015, only. Therefore, 
beginning April 1, 2015, all hospitals that previously qualified for 
MDH status will no longer have MDH status under current law.
    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 the FY 2014 IPPS/LTCH PPS final rule (78 FR 50625), 
we specified that we will apply the new DSH payment methodology to the 
hospitals participating in this initiative, so that eligible hospitals 
will receive empirically justified Medicare DSH payments and 
uncompensated care payments.
    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, the hospitals 
participating in the demonstration receive payments for the reasonable 
cost of providing such services. For discharges occurring in subsequent 
cost reporting periods during the applicable 5-year period, hospitals 
receive the lesser of the current year's reasonable cost-based amount, 
or the previous year's amount updated by the percentage increase in the 
IPPS market basket (the target amount). The instructions (Change 
Request 5020 (April 14, 2006) and Change Request 7505 (July 22, 2011) 
for the demonstration require that the MAC not pay Medicare DSH 
payments in addition to the amount received under the reasonable cost-
based payment methodology. Because hospitals participating in the 
demonstration do not receive DSH payments, we determined in the FY 2014 
IPPS/LTCH PPS final rule that these hospitals also are excluded from 
receiving empirically justified Medicare DSH payments and uncompensated 
care payments under the new payment methodology (78 FR 50625).
c. Empirically Justified Medicare DSH Payments
    As we have discussed earlier, section 1886(r)(1) of the Act 
requires the Secretary to pay 25 percent of the amount of the DSH 
payment that would otherwise be made under subsection (d)(5)(F) to a 
subsection (d) hospital. 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 stated in the FY 2014 IPPS/LTCH 
PPS final rule that we did not believe that it is necessary to develop 
any new operational mechanisms for making such payments. Therefore, in 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50626), we implemented 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 also made 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 provided more detailed operational instructions 
and cost report instructions following issuance of the final rule that 
can be found on the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-Transmittals-Items/R5P240.html.
d. Uncompensated Care Payments
    As we have discussed earlier, 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 the rate of uninsurance in 
2013, and each eligible hospital's estimated uncompensated care amount 
relative to the estimated uncompensated care amount for all eligible 
hospitals. Below we review the data sources and methodologies for 
computing each of these factors, our final policies for FY 2014, and 
our proposed policies for FY 2015.
(1) Proposed Calculation of Factor 1 for FY 2015
    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 under 
section 1886(d)(5)(F) if section 1886(r) of the Act did not apply for 
such fiscal year. 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, section 1886(r)(2)(A)(i) of the Act 
provides 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 a fiscal year, as prescribed under section 
1886(r)(1) of the Act. Again, section

[[Page 28098]]

1886(r)(2)(A)(ii) of the Act provides 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 the 
fiscal year, in the absence of the new payment provision; and (2) the 
amount of empirically justified Medicare DSH payments that are made for 
the fiscal year, which takes into account the requirement to pay 25 
percent of what would have otherwise been paid under section 
1886(d)(5)(F) of the Act. 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 the fiscal year.
    In order to determine Factor 1 in the uncompensated care payment 
formula, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50628 through 
50630) and in the FY 2014 IPPS interim final rule with comment period 
(78 FR 61194), we adopted a policy under which we develop final 
estimates of both the aggregate amount of Medicare DSH payments that 
would be made in the absence of section 1886(r)(1) of the Act and the 
aggregate amount of empirically justified Medicare DSH payments to 
hospitals under section 1886(r)(1) of the Act prior to each fiscal year 
to which the new provision applies. These estimates are not revised or 
updated after we know the final Medicare DSH payments for the fiscal 
year. Specifically, in order to determine the two elements of Factor 1 
(Medicare DSH payments prior to the application of section 1886(r)(1) 
of the Act, and empirically justified Medicare DSH payments after 
application of section 1886(r)(1) of the Act), we use the most recently 
available projections of Medicare DSH payments for the fiscal 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, supplemental cost report data provided by Indian 
Health Service (IHS) hospitals to CMS, 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 2014 estimate, 
the data are based on the December 2013 update of the Medicare Hospital 
Cost Report Information System (HCRIS), supplemental cost report data 
provided by IHS hospitals to CMS as of December 2013 and the FY 2014 
IPPS/LTCH PPS final rule IPPS Impact file, published in conjunction 
with the publication of the FY 2014 IPPS/LTCH PPS final rule. For the 
July 2014 estimate, we anticipate that the data will be based on the 
March 2014 update of the HCRIS data, supplemental cost report data 
provided by IHS hospitals to CMS as of March 2014, and the FY 2015 
proposed rule's IPPS Impact file, published in conjunction with this 
proposed rule (and which is available via the Internet on the CMS Web 
site). For purposes of this proposed rule, we are using the February 
2014 Medicare DSH estimates to calculate Factor 1 and to model the 
proposed impact of this provision. For the final rule, we intend to use 
the July 2014 Medicare DSH estimates to determine Factor 1 and to model 
the impact of this provision. In addition, because SCHs paid under 
their hospital-specific payment rate are excluded from the application 
of section 1886(r) of the Act, we also exclude SCHs that are projected 
to be paid under their hospital-specific rate from our Medicare DSH 
estimates. Similarly, because Maryland hospitals participating in the 
Maryland All-Payer Model and hospitals participating in the Rural 
Community Hospital Demonstration do not receive DSH payments, we also 
exclude these hospitals from our Medicare DSH estimates.
    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, supplemental cost report data provided 
by IHS hospitals to CMS, 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 2014 
Office of the Actuary estimate for Medicare DSH payments for FY 2015, 
without regard to the application of section 1886(r)(1) of the Act, is 
$14.205 billion. This estimate excludes Maryland hospitals 
participating in the Maryland All-Payer Model, SCHs 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 2015, with the application of section 1886(r)(1) of 
the Act, is $3.551 billion (25 percent of the total amount estimated). 
Under Sec.  412.l06(g)(1)(i) of the regulations, Factor 1 is the 
difference between these two estimates of the Office of the Actuary. 
Therefore, for the purpose of modeling Factor 1, we are proposing that 
Factor 1 for FY 2015 would be $10.654 billion ($14.205 billion minus 
$3.551 billion). We are inviting public comment on our proposed 
calculation of Factor 1 for FY 2015.
(2) Proposed Calculation of Factor 2 for FY 2015
    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)(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

[[Page 28099]]

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 . . .'' (emphasis 
added) appeared in a March 20, 2010 letter from the director of the CBO 
to the Speaker of the House. 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) of the Act. (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 letter to the Speaker of the House of 
Representatives, the CBO provided two estimates of the ``post-policy 
uninsured population.'' The first estimate is of the ``Insured Share of 
the Nonelderly Population Including All Residents'' (82 percent) and 
the second estimate is of the ``Insured Share of the Nonelderly 
Population Excluding Unauthorized Immigrants'' (83 percent). In the FY 
2014 IPPS/LTCH PPS final rule (78 FR 50631), we used the first estimate 
that includes all residents, including unauthorized immigrants. We 
stated that 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 of 65. In addition, we stated that we 
believe that this estimate more fully reflects the levels of 
uninsurance in the United States that influence uncompensated care for 
hospitals than the estimate that reflects only legal residents. 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 the applicable year with the percent 
of individuals who were uninsured in 2013, in the FY 2014 IPPS/LTCH PPS 
final rule, we used the CBO insurance rate figure and subtracted that 
amount from 100 percent (that is the total population without regard to 
insurance status) to estimate the 2013 baseline percent of individuals 
without insurance. Therefore, for FYs 2014 through 2017, our estimate 
of the uninsurance percentage for 2013 is 18 percent.
    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).'' In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634), 
we used the same data source, CBO estimates, to calculate this percent 
of individuals without insurance. In response to public comments, we 
also agreed that we should normalize the CBO estimates, which are based 
on the calendar year, for the Federal fiscal years for which each 
calculation of Factor 2 is made (78 FR 50633). Therefore, in the FY 
2014 IPPS/LTCH PPS final rule, we employed the most recently available 
estimate, specifically CBO's May 2013 estimates of the effects of the 
Affordable Care Act on health insurance coverage (which are available 
at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/44190_EffectsAffordableCareActHealthInsuranceCoverage_2.pdf) as amended by 
CBO's July 2013 estimates of changes in estimates of the effects of 
insurance coverage provisions in the Affordable Care Act issued in 
conjunction with a memo regarding ``Analysis of the Administration's 
Announced Delay of Certain Requirements Under the Affordable Care 
Act,'' which are available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/44465-ACA.pdf. The CBO's May 2013 estimate of the 
rate of insurance for CY 2013 was 80 percent, and for CY 2014 was 84 
percent. Therefore, the calculation of Factor 2 for FY 2014, employing 
a weighted average of the CBO projections for CY 2013 and CY 2014, was 
as follows:
     CY 2013 rate of insurance coverage (May 2013 CBO 
estimate): 80 percent.
     CY 2014 rate of insurance coverage (May 2013 CBO estimate, 
updated with July 2013 CBO estimate): 84 percent.
     FY 2014 rate of insurance coverage: (80 percent * .25) + 
(84 percent * .75) = 83 percent.
     Percent of individuals without insurance for 2013 (March 
2010 CBO estimate): 18 percent.
     Percent of individuals without insurance for FY 2014 
(weighted average): 17 percent.

1-[verbar][(0.17-0.18)/0.18][verbar] = 1-0.056 = 0.944 (94.4 percent).
0.944 (94.4 percent)-0.001 (0.1 percentage points) = 0.943 (94.3 
percent).
0.943 = Factor 2

    Therefore, in the FY 2014 IPPS/LTCH PPS final rule, we adopted 
0.943 as the final determination of Factor 2 for FY 2014. In 
conjunction with this determination, we also determined in the FY 2014 
IPPS/LTCH PPS final rule and later revised in the FY 2014 IPPS interim 
final rule with comment period (78 FR 61195) that the amount available 
for uncompensated care payments for FY 2014 would be approximately 
$9.046 billion (0.943 times our Factor 1 estimate of $9.593 billion).
    For this FY 2015 proposed rule, we have used CBO's February 2014 
estimates of the effects of the Affordable Care Act on health insurance 
coverage (which are available at http://www.cbo.gov/publication/43900?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm_content=812526&utm_campaign=0). The CBO's February 2014 estimate of 
individuals under the age of 65 with insurance in CY 2014 is 84 
percent. Therefore, the CBO's most recent estimate of the rate of 
uninsurance in CY 2014 is 16 percent (that is, 100 percent minus 84 
percent.) Similarly, the CBO's February 2014 estimate of individuals 
under the age of 65 with insurance in CY 2015 is 86 percent. Therefore, 
the CBO's most recent estimate of the rate of uninsurance in CY 2015 
available during the development of this proposed rule is 14 percent 
(that is, 100 percent minus 86 percent.)
    The calculation of the proposed Factor 2 for FY 2015, employing a 
weighted average of the CBO projections for CY 2014 and CY 2015, is as 
follows:
     CY 2014 rate of insurance coverage (February 2014 CBO 
estimate): 84 percent.
     CY 2015 rate of insurance coverage (February 2014 CBO 
estimate): 86 percent.
     FY 2015 rate of insurance coverage: (84 percent * .25) + 
(86 percent * .75) = 85.5 percent.
     Percent of individuals without insurance for 2013 (March 
2010 CBO estimate): 18 percent
     Percent of individuals without insurance for FY 2015 
(weighted average): 14.5 percent

1-[verbar][(0.145--0.18)/0.18][verbar] = 1-0.19444 = 0.80556 (80.556 
percent)
0.80556 (80.556 percent)-0.002 (0.2 percentage points for FY 2015 under 
section 1886(r)(2)(B)(i) of the Act) = 0.8036 (80.36 percent)
0.8036 = Factor 2

    Therefore, we are proposing that Factor 2 for FY 2015 would be 
0.8036. Our proposal for Factor 2 is subject to change if more recent 
CBO estimates of the insurance rate become available at the time of the 
preparation of the final rule. We are inviting public comments on our 
proposed calculation of Factor 2 for FY 2015.

[[Page 28100]]

(3) Proposed Calculation of Factor 3 for FY 2015
    Section 1886(r)(2)(C) of the Act defines Factor 3 in the 
calculation of the uncompensated care payment. As we have discussed 
earlier, 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 each 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 fiscal years. 
In order to implement the statutory requirements for this factor of the 
uncompensated care payment formula, it was necessary to determine: (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 fiscal year); (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 uninsured 
individuals.
    In the course of considering how to determine Factor 3 during the 
rulemaking process for FY 2014, we considered defining the amount 
uncompensated care for a hospital as the uncompensated care costs of 
each hospital and considered potential data sources for those costs. 
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 Worksheet S-10 of the 
Medicare cost report 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 is 
available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.) However, we noted 
that Worksheet S-10 is a relatively new data source that has been used 
for specific payment purposes only in relatively restricted ways (for 
example, to provide a source of charity care charges in the computation 
of EHR incentive payments (75 FR 44456)). We also noted that 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. At the same 
time, we noted that Worksheet S-10 is the only national data source 
that includes data for all Medicare hospitals and is designed to elicit 
data on uncompensated care costs. We discussed the possible use of data 
reported on Worksheet S-10 to determine uncompensated care costs in 
more detail in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27586).
    Because of concerns regarding variations in the data reported on 
Worksheet S-10 of the Medicare cost report and the completeness of 
these data, we did not propose to use data from the Worksheet S-10 to 
determine the amount of uncompensated care. However, we stated our 
belief that Worksheet S-10 of the Medicare cost report would otherwise 
be an appropriate data source to determine uncompensated care costs. In 
particular, we noted that Worksheet S-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. We indicated that we 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 EHR Incentive Program, and that we will continue to monitor these 
data. Accordingly, we stated that 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 a result of our concerns regarding the data reported on 
Worksheet S-10 of the Medicare cost report, we believed it was 
appropriate to consider the use of alternative data, at least in FY 
2014, the first year that this provision is in effect, and possibly for 
additional years until hospitals have adequate experience reporting all 
of the data elements on Worksheet S-10. We noted that this approach 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 should 
not be used for implementation of section 1886(r) of the Act and who 
requested the opportunity to resubmit 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 reporting on 
Worksheet S-10 of the Medicare cost report. We stated in the FY 2014 
IPPS/LTCH PPS final rule that 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 also determined that these alternative data, which are currently 
reported on the Medicare cost report, would be a better proxy for the 
amount of uncompensated care provided by hospitals. Accordingly, in the 
FY 2014 IPPS/LTCH PPS final rule (78 FR 50639), we adopted the policy 
of employing the utilization of insured low-income patients defined as

[[Page 28101]]

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 also indicated that we remained 
convinced that the Worksheet S-10 could ultimately serve as an 
appropriate source of more direct data regarding uncompensated care 
costs for purposes of determining Factor 3 once hospitals are 
submitting more accurate and consistent data through this reporting 
mechanism. In the interim, we indicated that we would take steps such 
as revising and clarifying cost report instructions, as appropriate. We 
stated that it is our intention to propose introducing the use of the 
Worksheet S-10 data for purposes of determining Factor 3 within a 
reasonable amount of time.
    Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we 
have continued to evaluate and assess the comments we have received 
from stakeholders about Worksheet S-10 as well as evaluate what changes 
might need to be made to the instructions to make the data hospitals 
submit more accurate and consistent across hospitals. Although we have 
not yet developed revisions to the Worksheet S-10 instructions at this 
time, we remain committed to making improvements to Worksheet S-10. For 
that reason, we believe it would be premature to propose the use of 
Worksheet S-10 data for purposes of determining Factor 3 for FY 2015. 
Therefore, we are proposing to continue to employ the utilization of 
insured low-income patients defined as inpatient days of Medicaid 
patients plus inpatient days of Medicare SSI patients, as defined in 
Sec.  412.106(b)(4) and Sec.  412.106(b)(2)(i), respectively, to 
determine Factor 3 for FY 2015. Accordingly, we are proposing to revise 
the regulations at 42 CFR 412.106(g)(1)(iii)(C) to state that, for FY 
2015, CMS will base its estimates of the amount of hospital 
uncompensated care on the most recent available data on utilization for 
Medicaid and Medicare SSI patients, as determined by CMS in accordance 
with paragraphs (b)(2)(i) and (b)(4) of that section of the 
regulations. We are inviting public comments on this proposal, and we 
will continue to work with the hospital community and others to develop 
the appropriate clarifications and revisions to Worksheet S-10 of the 
Medicare cost report for reporting uncompensated care data. In 
particular, we are inviting public comments on what would be a 
reasonable timeline for adopting Worksheet S-10 of the Medicare cost 
report as the data source for determining Factor 3.
    As we did for the FY 2014 IPPS/LTCH PPS proposed rule, we are 
publishing on the CMS Web site a table listing Factor 3 for all 
hospitals that we estimate would receive empirically justified Medicare 
DSH payments in a fiscal year (that is, hospitals that we project 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 Medicare DSH payment 
for the fiscal year as determined at cost report settlement. Hospitals 
have 60 days from the date of public 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.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50639), we 
considered public comments which recommended that we use the wage index 
to adjust insured low-income days in determining Factor 3 in order to 
account for the differences in ``purchasing power'' in different 
regions of the country. With respect to these public comments, we 
agreed that there may be regional variation in uncompensated care costs 
due to regional variations in the costs of care generally. However, we 
stated that we did not believe that there was sufficient basis for 
believing that the wage index reflects the variations in uncompensated 
care costs well enough to adopt it as the basis for adjusting Factor 3. 
The wage index reflects the relative hospital wage level in the 
geographic area of the hospital compared to the national average 
hospital wage level. In computing the wage index, we derive an average 
hourly wage for each labor market area (total wage costs divided by 
total hours for all hospitals in the geographic area) and a national 
average hourly wage (total wage costs divided by total hours for all 
hospitals surveyed in the nation). A labor market area's wage index 
value is the ratio of the area's average hourly wage to the national 
average hourly wage. We note that, for FY 2014, 69.6 percent of the 
standardized amount is considered to be the labor-related share and, 
therefore, adjusted by the wage index. However, in addition to the 
labor-related share of the standardized amount being adjusted by the 
wage index, the entire standardized amount is also adjusted for the 
relative weight of the MS-DRG for each individual patient. In other 
words, the wage index only adjusts for a portion of the variation in 
costs, and does not address variations in resource use and patient 
severity. Therefore, we stated that we did not believe that there was 
sufficient basis for believing that adjusting low-income patient days 
by the wage index would better reflect variations in uncompensated care 
costs.
    Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we 
have continued to consider whether to propose employing the wage index 
to adjust insured low-income days in determining Factor 3. After this 
consideration, we continue to believe that a wage index adjustment to 
insured low-income days is not an appropriate measure to account for 
variations in the costs of uncompensated care among hospitals. The 
intensity of such care, and therefore the costs, may vary by hospital, 
but we still lack convincing evidence that the wage index data are an 
accurate measure of that intensity. Therefore, we are not proposing to 
adopt such an adjustment to low-income days for purposes of calculating 
Factor 3 in FY 2015.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50639), we also 
considered public comments that requested that we include insured low-
income days from exempt units (specifically, inpatient rehabilitation 
units paid under the IRF PPS and inpatient psychiatric units paid under 
the IPF PPS) of the hospital in the computation of Factor 3, in order 
to better capture the treatment costs of the uninsured by the hospital. 
In response to those public comments, we stated our belief that there 
may be some merit to including insured low-income days from exempt 
units of the hospital in order to better capture the full costs of the 
treatment of the uninsured by the hospital insofar as those data may be 
publicly available, subject to audit, and used for payment purposes. We 
also indicated that we believed it would be prudent to consider the 
degree to which these data meet these conditions before adopting this 
recommendation. Therefore, we stated that we would consider including 
this recommendation among our proposals in future rulemaking.
    Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we 
have conducted an analysis of the impact of adopting this 
recommendation. That analysis has indicated that the inclusion of 
Medicaid and Medicare-SSI days for exempt inpatient units does not 
significantly change the distribution of uncompensated care payments to 
hospitals, with the exception of a few hospitals with high utilization 
associated with those exempt units that

[[Page 28102]]

would see increases in their uncompensated care payments. Furthermore, 
Medicaid and SSI days for inpatient rehabilitation units have been 
audited and are used for payment purposes under the IRF PPS; 
specifically, these data are used to calculate the low-income payment 
(LIP) adjustment under the IRF PPS. However, the data for inpatient 
psychiatric units are not generally audited and have not been used 
previously for payment purposes. Therefore, we are not proposing at 
this time to include those days in the calculation of a hospital's 
share of uncompensated care payments. As we indicated earlier, we 
believe it would be appropriate to include such data in the calculation 
of uncompensated care payments only insofar as those data may be 
publicly available, subject to audit, and used for payment purposes. 
The use of data for inpatient psychiatric units would fail the second 
and third conditions. At the same time, we do not believe that 
including only inpatient rehabilitation unit days without inpatient 
psychiatric unit days would improve the accuracy of the uncompensated 
care payment calculation. We also observe, as we have previously noted, 
that the statutory references under section 1886(d)(5)(F) of the Act to 
``days'' apply only to hospital acute care inpatient days. Section 
412.106(a)(1)(ii) of the regulations therefore provides that, for 
purposes of DSH payments, ``the number of patient days in the hospital 
includes only those days attributable to units or wards of the hospital 
providing acute care services generally payable under the prospective 
payment system and excludes'' other days. In the absence of compelling 
reasons to do otherwise, we believe it is preferable to maintain 
consistency with this longstanding precedent in the context of this 
temporary method for determining uncompensated care payments. However, 
we are inviting public comments on this issue.
    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, 
section 1886(r)(2)(C)(i) of the Act defines the numerator of the 
quotient as ``the amount of uncompensated care for such hospital for a 
period selected by the Secretary. . . .'' (emphasis added). Section 
1886(r)(2)(C)(ii) of the Act 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). In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50638), we 
adopted 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 process, we also determined 
the time period from which to calculate the numerator and denominator 
of the Factor 3 quotient in a way that would 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 the 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.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50638), therefore, 
we adopted the policy to calculate 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 use data from the most recently 
available full year 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 noted that these data are publicly available, subject to 
audit, and used for payment purposes. While we recognized that older 
data also meet these criteria, we often use the most recently available 
data for payment determinations. Furthermore, in the FY 2014 IPPS 
interim final rule with comment period (78 FR 61195), we revised our 
policy to also include supplemental cost report data submitted to CMS 
only by IHS hospitals in order allow their Medicaid days to be used to 
calculate Factor 3.
    Therefore, for FY 2014, we used data from the most recently 
available full year cost report for the Medicaid days and the most 
recently available SSI ratios, which meant data from the 2010/2011 cost 
reports for the Medicaid days, supplemental 2011 cost report data 
submitted to CMS by IHS hospitals, and the FY 2011 SSI ratios for the 
Medicare SSI days to estimate Factor 3 for FY 2014. For FY 2015, we are 
again proposing to use data from the most recently available full year 
cost report for the Medicaid days (that is, we are proposing to use the 
2012 cost report, unless that cost report is unavailable or reflects 
less than a full 12-month year; in the event the 2012 cost report is 
for less than 12 months, we are proposing to use the cost report from 
2012 or 2011 that is closest to being a full 12-month cost report), 
supplemental cost report data submitted to CMS only by IHS hospitals 
and the most recently available SSI ratios. For purposes of this 
proposed rule, we are using data from the December 2013 update of the 
2011/2012 Medicare cost reports for the Medicaid days and the FY 2011 
SSI ratios for the Medicare SSI days. Consistent with our FY 2014 IPPS 
interim final rule with comment period (78 FR 61195), for FY 2015, we 
also are using supplemental cost report data provided by IHS hospitals 
to CMS as of December 2013 in order to calculate the proposed Factor 3. 
For the FY 2015 IPPS final rule, we intend to use the March 2014 update 
of the 2011/2012 Medicare cost reports, supplemental cost report data 
submitted to CMS by IHS hospitals as of March 2014, and the most 
recently available SSI ratios (FY 2012 SSI ratios and, if not 
available, the FY 2011 SSI ratios) to calculate Factor 3. We believe 
the March update to the Medicare cost reports will be the most recently 
available data to calculate Factor 3 at the time of publication of the 
FY 2015 IPPS final rule. We believe this is consistent with CMS' 
historical policy to use the best available data when setting the 
payment rates and factors in both the proposed and final rules. 
Furthermore, this is consistent with our approach in other areas of 
IPPS, where we historically use the March update of cost report data 
and MedPAR claims data to calculate IPPS relative weights, budget 
neutrality factors, the outlier threshold, and the standardized amount 
for the IPPS final rule. If we were to wait for a later update of the 
cost report data to become available, this could cause delay of the 
publication of the IPPS final rule.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50642), we discussed 
several specific issues concerning the use of cost report data to 
determine Factor 3. One issue concerned the process and data to be 
employed in determining Factor 3 in the case of hospital mergers. 
Specifically, two hospitals that merged in 2011 with one surviving 
provider number requested that we account for the merger by including 
data from both hospitals' cost reports immediately prior to the merger 
in the calculation of the Factor 3 amount. In that final rule, we had 
calculated Factor 3 using only the surviving hospital's cost report 
data and SSI ratio data. In the final rule (78 FR

[[Page 28103]]

50602), we responded to the public comment that Factor 3 would be 
calculated based on the low-income insured patient days (that is, 
Medicaid days and SSI days) under the surviving CCN, based on the most 
recent available data for that CCN (for FY 2014, from the cost report 
for 2011 or 2010). We noted that this was consistent with the treatment 
of other IPPS payment factors, where data used to calculate a 
hospital's Medicare DSH payment adjustment, CCRs for outlier payments, 
and wage index values are tied to a hospital's CCN. Data associated 
with a CCN that is no longer in use are not used to determine those 
IPPS hospital payments under the surviving CCN.
    Since the publication of the FY 2014 IPPS/LTCH PPS final rule, we 
have received additional input from hospitals that have undergone 
mergers that suggest using only the surviving CCN produces an estimate 
of the surviving hospital's uncompensated care burden that is lower 
than warranted. For FY 2015, for example, Factor 3 of the uncompensated 
care payment calculation would be determined using 2011/2012 cost 
reports. As a result, for any mergers occurring between FY 2011 and FY 
2015, Factor 3 of the uncompensated care payment for FY 2015 would 
reflect only the data of the hospital with the surviving CCN, not the 
combination of the data from the two hospitals that merged. We believe 
that revising our methodology to incorporate data from both of the 
hospitals that merged could improve our estimate of the uncompensated 
care burden of the merged hospital. Accordingly, we are proposing to 
revise our methodology for determining Factor 3 to incorporate data 
from both merged hospitals until data for the merged hospitals become 
available under the surviving CCN.
    In addition, because the data systems used to calculate Factor 3 do 
not identify hospitals that have merged, we also are proposing to 
establish a process to identify hospitals that have merged after the 
period of the historical data that are being used to calculate Factor 
3, up to a point in time during ratesetting for that Federal fiscal 
year. Under this approach, we would combine the data for the merged 
hospitals to calculate Factor 3 of the uncompensated care payment. 
Specifically, we are proposing that we would identify the hospitals 
that merged after the period from which data are being used to 
calculate Factor 3 (for FY 2015, 2012 and 2011) but before the 
publication of each year's final rule. For purposes of this proposal, 
we are defining a merger to be an acquisition where the Medicare 
provider agreement of one hospital is subsumed into the provider 
agreement of the surviving provider. We would not consider an 
acquisition where the new owner voluntarily terminates the Medicare 
provider agreement of the hospital it purchased by rejecting assignment 
of the previous owner's provider agreement to be a merger. We believe 
it is appropriate to combine data to calculate Factor 3 for a merged 
hospital where the Medicare provider agreement of one hospital is 
subsumed into the provider agreement of the surviving provider because, 
in this type of acquisition as described in the September 6, 2013 
Survey & Certification Memorandum S&C: 13-60-ALL (http://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/SurveyCertificationGenInfo/Downloads/Survey-and-Cert-Letter-13-60.pdf), 
the buyer is subject to all applicable statutes and regulations and to 
the terms and conditions under which the assigned agreement was 
originally issued. These include, but are not limited to, Medicare 
requirements to adjust payments to account for prior overpayments and 
underpayments, even if they relate to a pre-acquisition period 
(successor liability), and to adjust payments to collect civil monetary 
penalties. Therefore, we believe it is appropriate to also retain the 
data of the subsumed hospital to calculate the uncompensated care 
payment for the merged hospital. Conversely, by rejecting assignment of 
the Medicare provider agreement of the subsumed hospital, the surviving 
provider has voluntarily terminated the Medicare provider agreement and 
is precluded from having successor liability for Medicare overpayments 
or underpayments that would have otherwise been made to the subsumed 
provider. Furthermore, when the surviving hospital rejects automatic 
assignment of the existing provider agreement, but wishes to 
participate in the Medicare program, the merged hospital is considered 
an initial applicant to the Medicare program. In an instance in which 
the surviving provider has rejected assignment of the Medicare provider 
agreement of the subsumed provider, it would not seem appropriate to 
use data from the subsumed provider for purposes of Medicare payment, 
including for the calculation of a hospital's uncompensated care 
payment.
    For FY 2015, we are proposing to identify mergers by querying the 
Medicare contractors. We believe it is appropriate to obtain merger 
information from the Medicare contractors, as a copy of each final 
sales agreement/transaction indicating the effective date of the 
acquisition is generally submitted to the Medicare contractors once an 
acquisition is finalized. For the purpose of this proposed rule, we 
requested that the Medicare contractors provide us with a list of 
mergers that occurred between October 1, 2010 (the first day of FY 
2011, which is the earliest date that would be included in any 2011 
cost report data that are used to calculate a hospital's Factor 3) 
through January 2014 (when we started preparing for the FY 2015 IPPS 
proposed rule). On the basis of this information, we would then combine 
the data elements of any hospitals that had merged to calculate the 
uncompensated care payment for the merged hospital. Specifically, we 
would combine the Medicaid days from the most recently available full 
year cost reports and the SSI days from the most recently available SSI 
ratios tied to the two CCNs prior to the merger to calculate the merged 
hospital's Factor 3. For FY 2015, we would combine the Medicaid days 
from either the 2011 or 2012 cost reports and would use the most 
recently available SSI ratios available at the time the final rule is 
developed.
    In order to confirm these mergers and the accuracy of the data used 
to determine each merged hospital's uncompensated care payment, we are 
proposing to publish a table on the CMS Web site, in conjunction with 
the issuance of the proposed and final rules for a fiscal year, 
containing a list of the mergers that we are aware of and the computed 
uncompensated care payment for each merged hospital. A copy of this 
table is being published on the CMS Web site in conjunction with the 
issuance of this proposed rule. The affected hospitals would then have 
the opportunity to comment during the public comment period on the 
accuracy of this information.
    We are proposing to treat hospitals that merge after the 
development of the final rule similar to new hospitals. For these newly 
merged hospitals, we would not have data currently available to 
calculate a Factor 3 amount that accounts for the merged hospital's 
uncompensated care burden. In addition, we would not have data to 
determine if the newly merged hospital is eligible for Medicare DSH 
payment and, therefore, eligible for uncompensated care payments for 
the applicable fiscal year because the only data we would have to make 
this determination are those for the surviving CCN. Accordingly, we are 
proposing to treat newly merged hospitals in a similar manner as new

[[Page 28104]]

hospitals, such that the newly merged hospital's final uncompensated 
care payment would be determined at cost report settlement where the 
numerator of the newly merged hospital's Factor 3 would be based on the 
Medicaid days and SSI days reported on the cost report used for the 
applicable fiscal year. We are proposing that the interim uncompensated 
care payments for the newly merged hospitals would be based on only the 
data of the surviving hospital's CCN at the time of the preparation of 
the final rule for the applicable fiscal year. In other words, for 
newly merged hospitals, eligibility to receive interim uncompensated 
care payments and the amount of any interim uncompensated care payments 
would be based on the Medicaid days from either the 2011 or 2012 cost 
reports and the most recently available SSI ratios available at the 
time the final rule is developed for only the surviving CCN. However, 
at cost report settlement, we would determine the newly merged 
hospital's final uncompensated care payments based on the Medicaid days 
and SSI days reported on the cost report used for the applicable fiscal 
year. That is, we would revise the numerator of Factor 3 for the newly 
merged hospital to reflect the Medicaid and SSI days reported on the 
cost report for the applicable fiscal year. We are inviting public 
comment on our proposed change to the treatment of hospital mergers in 
the calculation of a hospital's uncompensated care payment.

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

1. Background
    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.
    Since the extension of the MDH program through FY 2012 provided by 
section 3124 of the Affordable Care Act, the MDH program has been 
further extended multiple times. First, section 606 of the ATRA of 2012 
(Pub. L. 112-240) extended the MDH program through FY 2013 (that is, 
for discharges occurring before October 1, 2013.) Second, section 1106 
of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) extended the 
MDH program through the first half of FY 2014 (that is, for discharges 
occurring before April 1, 2014.) In the FY 2014 interim final rule with 
comment period that appeared in the Federal Register on March 18, 2013 
(79 FR 15025 through 15027), we discussed the expiration of the MDH 
program on March 31, 2014, and explained how providers may be affected 
by the 6-month extension of the MDH program under Public Law 113-67 and 
described the steps to reapply for MDH status for FY 2014, as 
applicable. Generally, a provider that was classified as an MDH as of 
September 30, 2013, was reinstated as an MDH effective October 1, 2013, 
with no need to reapply for MDH classification. However, if the MDH had 
classified as an SCH or cancelled its rural classification under Sec.  
412.103(g) effective on or after October 1, 2013, the effective date of 
MDH status may not be retroactive to October 1, 2013. In the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50647 through 50649) and the FY 2014 
interim final rule with comment period (79 FR 15025 through 15027), we 
made conforming changes to the regulations at Sec.  412.108(a)(1) and 
(c)(2)(iii) to reflect the extensions of the MDH program provided for 
by the ATRA and Pathway for SGR Reform Act, respectively. Lastly, under 
current law, section 106 of the Protecting Access to Medicare Act of 
2014 (Pub. L. 113-93) provides for a 1-year extension of the MDH 
program effective from April 1, 2014 through March 31, 2015. 
Specifically, section 106 of Public Law 113-93 amended sections 
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act by striking 
``April 1, 2014'' and inserting ``April 1, 2015''. Section 106 of 
Public Law 113-93 also made conforming amendments to sections 
1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act.
    We intend to address the extension of the MDH program for the 
second half of FY 2014 (that is, from April 1, 2014 through September 
30, 2014) under Public Law 113-93 in a separate Federal Register 
notice. For additional information on the extensions of the MDH program 
after FY 2012, we refer readers to the following rules: The FY 2013 
IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53413 through 
53414); the FY 2013 IPPS notice that appeared in the Federal Register 
on March 7, 2013 (78 FR 14689); the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50647 through 50649); and the FY 2014 interim final rule with 
comment period (79 FR 15025 through 15027).
2. Provisions of Public Law 113-93 for FY 2015
    Prior to the enactment of Public Law 113-93, under section 1106 of 
Public Law 113-67, the MDH program authorized by section 1886(d)(5)(G) 
of the Act was set to expire midway through FY 2014. Section 106 of 
Public Law 113-93 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 April 1, 2014 through 
March 31, 2015. Section 106 of Public Law 113-93 also made conforming 
amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the 
Act.
    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 for the first 6 
months of FY 2015 made by section 106 of Public Law 113-93.
3. Expiration of the MDH Program
    Because section 106 of Public Law 113-93 extends the MDH program 
through the first half of FY 2015 only, effective April 1, 2015, the 
MDH program will no longer be in effect. Because the MDH program is not 
authorized by statute beyond March 31, 2015, beginning April 1, 2015, 
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 on March 31, 2015. 
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

[[Page 28105]]

effective April 1, 2015, 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 March 1, 2015. 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 April 1, 2015, immediately after its MDH 
status expires with the expiration of the MDH program on March 31, 
2015. We note that an MDH that applies for SCH status in anticipation 
of the expiration of the MDH program would not qualify for the April 1, 
2015 effective date upon approval if it does not apply by the March 1, 
2015 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).

H. Hospital Readmissions Reduction Program: Proposed Changes for FY 
2015 Through FY 2017 (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 section 1886(q) to 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. In accordance with 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, including policies for 
SCHs and for MDHs for FY 2013. 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'' with respect to those hospitals.
    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 establishes 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 defines 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 readmissions ratio. . . for such hospital for such 
applicable period minus 1.'' The ``excess readmissions ratio'' is a 
hospital-specific ratio based on each applicable condition. 
Specifically, section 1886(q)(4)(C) of the Act defines the excess 
readmissions ratio as the ratio of actual-over-expected readmissions; 
specifically, 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) [of 
the Act] . . . 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 (76 FR 51671), the ``applicable period'' is the period 
during which data are collected in order to calculate various ratios 
and payment 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

[[Page 28106]]

inpatients (not just Medicare patients) for a broad range of both 
subsection (d) and non-subsection(d) hospitals, in order to calculate 
the hospital-specific readmission rates for all such hospital 
inpatients and to publicly report these ``all-patient'' readmission 
rates.
2. Regulatory Background
    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 (76 FR 51660 through 51676), we addressed the issues of 
the selection of readmission measures and the calculation of the excess 
readmissions ratio, which will be used, in part, to calculate the 
readmissions adjustment factor. Specifically, in that final rule, we 
finalized policies that relate to the portions of section 1886(q) of 
the Act that address the selection of and measures for the applicable 
conditions, the definitions of ``readmission'' and ``applicable 
period,'' and the methodology for calculating the excess readmissions 
ratio. We also established policies with respect to measures for 
readmission for the applicable conditions and our methodology for 
calculating the excess readmissions ratio.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 
53401), we finalized policies that relate to the portions of section 
1886(q) of the Act that address the calculation of the hospital 
readmission payment adjustment factor and the process by which 
hospitals can review and correct their data. Specifically, in that 
final rule, we addressed the base operating DRG payment amount, 
aggregate payments for excess readmissions and aggregate payments for 
all discharges, the adjustment factor, applicable hospital, limitations 
on review, and reporting of hospital-specific information, including 
the process for hospitals to review readmission information and submit 
corrections. We also 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.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50649 through 
50676), we finalized our policies that relate to refinement of the 
readmissions measures and related methodology for the current 
applicable conditions, expansion of the ``applicable conditions'' 
beginning for FY 2015, and clarification of the process for reporting 
hospital-specific information, including the opportunity to review and 
submit corrections. We also established policies related to the 
calculation of the adjustment factor for FY 2014.
3. Overview of Proposals and Policies for the FY 2015 Hospital 
Readmissions Reduction Program
    In this proposed rule, we are--
     Proposing to make refinements to the readmissions measures 
and related methodology for FY 2015 and subsequent years (section 
IV.H.4. of the preamble of this proposed rule);
     Proposing to expand the scope of ``applicable conditions'' 
for FY 2017 to include coronary artery bypass graft (CABG) (section 
IV.H.6. of the preamble of this proposed rule);
     Discussing the maintenance of technical specifications for 
quality measures (section IV.H.7. of the preamble of this proposed 
rule);
     Describing a waiver from the Hospital Readmissions 
Reduction Program for hospitals formerly paid under section 1814(b)(3) 
of the Act (Sec.  412.154(d)) (section IV.H.8. of the preamble of this 
proposed rule);
     Proposing to specify the adjustment factor floor for FY 
2015 (section IV.H.9. of the preamble of this proposed rule);
     Proposing to specify the applicable period for FY 2015 
(section IV.H.10. of the preamble of this proposed rule);
     Proposing to make changes to the calculation of the 
aggregate payments for excess readmissions to include two additional 
readmissions measures (chronic obstructive pulmonary disease (COPD) and 
THA/TKA) (section IV.H.11. of the preamble of this proposed rule); and
     Discussing whether to establish an exceptions process to 
address hospitals with extraordinary circumstances (section IV.H.12. of 
the preamble of this proposed rule).
4. Proposed Refinement of the Readmission Measures and Related 
Methodology for FY 2015 and Subsequent Years Payment Determinations
a. Proposed Refinement of Planned Readmission Algorithm for Acute 
Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia (PN), 
Chronic Obstructive Pulmonary Disease (COPD), and Total Hip 
Arthroplasty and Total Knee Arthroplasty (THA/TKA) 30-Day Readmission 
Measures
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50651 through 
50655), we finalized for 2014 and subsequent years' payment 
determinations the use of the CMS Planned Readmission Algorithm Version 
2.1 in the AMI, HF, PN, COPD and THA/TKA readmission measures. The 
algorithm identifies readmissions that are planned and occur within 30 
days of discharge from the hospital. A complete description of the CMS 
Planned Readmission Algorithm Version 2.1, which includes lists of 
planned diagnoses and procedures, can be found on our Web site 
(available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). 
NQF has endorsed the use of the algorithm for these measures.
    Last year's stakeholder comments supported the incorporation of the 
CMS Planned Readmission Algorithm Version 2.1 and suggested that we 
update it on a regular basis. In the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50652), we agreed to continually review the CMS Planned 
Readmission Algorithm and make updates as needed. Subsequently we have 
identified and made improvements to the algorithm. We are proposing to 
use the revised version, the CMS Planned Readmission Algorithm Version 
3.0, for the AMI, HF, PN, COPD, and THA/TKA readmission measures for FY 
2015 and subsequent payment determinations. We are also proposing to 
use this algorithm for the CABG readmission measure proposed for 
inclusion in the Hospital Readmissions Reduction Program starting in FY 
2017.
    Version 3.0 incorporates improvements that were made based on a 
validation study of the algorithm. Researchers reviewed 634 patients' 
charts at 7 hospitals, classified readmission as planned or unplanned 
based on the chart review, and compared the results to the claims-based 
algorithm's classification of the readmissions. The findings suggested 
the algorithm was working well but could be improved.
    Specifically, the study suggested the need to make small changes to 
the tables of procedures and conditions used in the algorithm to 
classify readmission as planned or unplanned. The algorithm uses the 
Agency for Healthcare Research and Quality's (AHRQ's) Clinical 
Classification Software (CCS) to group thousands of procedure and 
diagnosis codes into fewer categories of related procedures or 
diagnoses. The algorithm then uses four tables of procedures and 
diagnoses categories and a flow diagram to classify tables as planned 
or unplanned. For all measures, the first table identifies procedures 
that, if present in a readmission, classify the readmission as planned. 
The second table identifies primary discharge diagnoses that always 
classify readmissions as planned. Because almost all planned admissions 
are for

[[Page 28107]]

procedures or surgeries, a third table identifies procedures for which 
patients are typically admitted; if any of these procedures are coded 
in the readmission, we classify a readmission as planned as long as 
that readmission does not have an acute (unplanned) primary discharge 
diagnosis. The fourth table lists the acute (unplanned) primary 
discharge diagnoses that disqualify readmissions that include one or 
more of the potentially planned procedure in the third table as 
planned. These tables are structured the same across all measures but 
the specific procedure and conditions they contain vary slightly for 
certain measures based on clinical considerations for each cohort. The 
final proposed tables for each measure can be found on our Web site 
under the Measure Methodology reports (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html).
    Version 3.0 modifies two of these tables by removing or adding 
procedures or conditions to improve the accuracy of the algorithm. 
First, validation study revealed that the algorithm could be improved 
by removing two procedure CCS categories from the third table, the 
potentially planned procedure table: CCS 211--Therapeutic Radiation and 
CCS 224--Cancer Chemotherapy. Typically, patients do not require 
admission for scheduled Therapeutic Radiation treatments (CCS 211). The 
study found that readmissions that were classified as planned because 
they included Therapeutic Radiation were largely unplanned.
    The algorithm was also more accurate when CCS 224--Cancer 
Chemotherapy was removed from the potentially planned procedure table. 
The second table of the algorithm classifies all readmissions with a 
principal diagnosis of Maintenance Chemotherapy as planned. Most 
patients who receive cancer chemotherapy have both a code for Cancer 
Chemotherapy (CCS 224) and a principal discharge diagnosis of 
Maintenance Chemotherapy (CCS 45). In the validation study, the 
readmissions for patients who received Cancer Chemotherapy (CCS 224) 
but who did not have a principal diagnosis of Maintenance Chemotherapy 
were largely unplanned, so removing CCS 224 from the potentially 
planned procedure table improved the algorithm's accuracy. Therefore, 
Version 3.0 removes CCS 211 and CCS 224 from the list of potentially 
planned procedures to improve the accuracy of the algorithm.
    As noted above, the algorithm uses a table of acute principal 
discharge diagnoses to help identify unplanned readmissions. 
Readmissions that have a principal diagnosis listed in the table are 
classified as unplanned, regardless of whether they include a procedure 
in the potentially planned procedure table. The validation study 
identified one diagnosis CCS that should be added to the table of acute 
diagnoses to more accurately identify truly unplanned admissions as 
unplanned: Hypertension with Complications (CCS 99). Hypertension with 
complications is a diagnosis that is rarely associated with planned 
readmissions.
    In addition, the validation study identified a subset of ICD-9-CM 
diagnosis codes within two CCS diagnosis categories that should be 
added to the acute diagnosis table to improve the algorithm. CCS 149, 
Pancreatic Disorders, includes the code for acute pancreatitis; 
clinically there is no situation in which a patient with this acute 
condition would be admitted for a planned procedure. Therefore, Version 
3.0 adds the ICD-9 code for acute pancreatitis, 577.0, to the acute 
primary diagnosis table to better identify unplanned readmissions. 
Finally, CCS 149, Biliary Tract Disease, is a mix of acute and nonacute 
diagnoses. Adding the subset of ICD-9-CM codes within this CCS group 
that are for acute diagnoses to the list of acute conditions improves 
the accuracy of the algorithm for these acute conditions while still 
ensuring that readmissions for planned procedures, like 
cholecystectomies, are counted accurately as planned. For more detailed 
information on how the algorithm is structured and the use of tables to 
identify planned procedures and diagnoses, we refer readers to 
discussion of the CMS Planned Readmission Algorithm Version 2.1 in our 
reports (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). As noted above, readers can find the specific 
Version 3.0 tables for each measure in the measure updates and 
specifications reports at the above link.
    We invite public comment on these proposals.
b. Proposed Refinement of Total Hip Arthroplasty and Total Knee 
Arthroplasty (THA/TKA) 30-Day Readmission Measure Cohort
    In this proposed rule, for FY 2015 and subsequent years, we are 
proposing to refine the measure cohort for the Elective Primary Total 
Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) All-Cause 
Unplanned 30-Day Risk-Standardized Readmission Measure.
    Currently, the THA/TKA Readmission Measure adopted for the Hospital 
Readmissions Reduction Program is intended to only include patients who 
have an elective THA or TKA. This measure therefore excludes patients 
who have a principal discharge diagnosis of femur, hip, or pelvic 
fracture on their index admission since hip replacement for hip 
fracture is not an elective procedure. However, after hospitals 
reviewed their hospital-specific THA/TKA Readmission Measure data 
during the national dry run conducted during September and October of 
2012, we learned that hospitals code hip fractures that occur during 
the same admission as a THA as either a principal or secondary 
diagnosis. According to feedback received from hospitals participating 
in the dry run, the measure methodology failed to identify and 
therefore appropriately exclude a small number of patients (that is, 
0.42 percent of patients in 2009-2010 data) with hip fracture who had 
non-elective total hip arthroplasty.
    To ensure that all such hip fracture patients are excluded from the 
measure, we are proposing to refine the measure to exclude patients 
with hip fracture coded as either principal or secondary diagnosis 
during the index admission. We believe this refinement is responsive to 
comments from hospitals and will allow us to accurately exclude 
patients who were initially admitted for a hip fracture and then 
underwent total hip arthroplasty, making their procedure nonelective.
    We invite public comments on this proposal.
c. Anticipated Effect of Proposed Refinements on Measures
    The proposed refinement of the CMS Planned Readmission Algorithm 
Version 2.1 to Version 3.0 would have had the following effects on the 
measures based on our analyses of discharges between July 2009 and June 
2012, if these changes had been applied for FY 2014. We note that these 
statistics are for illustrative purposes only, and we are not proposing 
to revise the measure calculations for the FY 2014 payment 
determination. Rather, we are proposing to apply these changes to the 
readmission measures for the FY 2015 payment determination and 
subsequent years.
    Among hospitals that were subject to the Hospital Readmissions 
Reduction Program in FY 2014 (Table IV.H.1), the number of eligible 
discharges based on

[[Page 28108]]

the July 2009 through June 2012 data were 494,121 discharges for AMI; 
1,165,606 discharges for HF; 954,033 discharges for PN; 926,433 
discharges for COPD; and 858,266 discharges for hip/knee.
    The proposed 30-day readmission rate (excluding the planned 
readmissions) would remain constant for AMI and COPD; increase by 0.1 
percentage points for HF and PN; and increase by 0.4 percentage points 
for hip/knee.
    The new national readmission (unplanned) rate for each condition 
would have been 17.9 percent for AMI; 23.0 percent for HF; 17.7 percent 
for PN; 21.1 percent for COPD; and 5.27 percent for hip/knee.
    The number of readmissions considered planned (and, therefore, not 
counted as a readmission) would decrease by 319 for AMI; 1,313 for HF; 
866 for PN, 547 for COPD; and 298 for hip/knee.
    The proposed modification of the hip/knee measure cohort would have 
had the following effects on the measure: the measure cohort would have 
been reduced by 0.37 percent; the crude readmission rate would have 
been reduced by 0.02 absolute percentage points; and the mean RSRR 
would have been reduced by 0.03 absolute percentage points.

                                      Table IV.H.1.--Comparison of Planned Readmission Algorithms V 2.1 and 3.0 for AMI/HF/PN/COPD/HK Readmission Measures
                                                                      [Based on 2009-2012 discharges from 3,025 hospitals]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           AMI                       HF                        PN                       COPD                    Hip/Knee
                                                               ---------------------------------------------------------------------------------------------------------------------------------
                                                                   V 3.0        V 2.1        V 3.0        V 2.1        V 3.0        V 2.1        V 3.0        V 2.1        V 3.0        V 2.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Discharges..........................................      494,121      494,121    1,165,606    1,165,606      954,033      954,033      926,433      926,433      858,266      858,266
Number of Unplanned Readmissions..............................       88,567       88,248      268,072      266,759      169,213      168,347      195,595      195,048       45,205       44,907
Readmission Rate..............................................        17.9%        17.9%        23.0%        22.9%        17.7%        17.6%        21.1%        21.1%        5.27%        5.23%
Number of Planned Readmissions................................       11,577       11,896       15,293       16,606        5,867        6,733        5,858        6,405        2,283        2,581
Planned Readmission Rate......................................         2.3%         2.4%         1.3%         1.4%         0.6%         0.7%         0.6%         0.7%         0.3%         0.3%
% of Readmissions that are Planned............................        11.6%        11.9%         5.4%         5.9%         3.4%         3.8%         2.9%         3.2%         4.8%         5.4%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5. No Proposed Expansion of the Applicable Conditions for FY 2016
    In FY 2014 IPPS/LTCH PPS final rule we finalized for FY 2015 two 
new condition specific readmission measures: (1) Hospital-level 30-day 
all-cause risk-standardized readmission rate following elective total 
hip arthroplasty (THA) and total knee arthroplasty (TKA) (NQF 
1551); (2) Hospital-level 30-day all-cause risk-standardized 
readmission rate following chronic obstructive pulmonary disease (COPD) 
(NQF 1891), bringing the total number of finalized applicable 
conditions to five over the past two years of implementation. We also 
noted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50657) that 
commenters requested that we delay adding other condition-specific 
measures. In view of these requests and our belief that it is 
reasonable to allow more time for hospitals to become familiar with 
these 5 applicable conditions, before adding other applicable 
conditions we are not proposing any new applicable conditions for FY 
2016.
6. Proposed Expansion of the Applicable Conditions for FY 2017 to 
Include the Patients Readmitted Following Coronary Artery Bypass Graft 
(CABG) Surgery Measure
a. Background
    Under section 1886(q)(5)(B) of the Act, ``[b]eginning with FY 2015, 
the Secretary shall, to the extent practicable, expand the applicable 
conditions beyond the 3 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 
Payment Advisory Commission [MedPAC] 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 readmissions ``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 
2017, we are proposing to expand the scope of applicable conditions and 
procedures to include patients readmitted following CABG surgery. This 
proposal is consistent with the prior FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50657) where we indicated our intent to explore quality measures 
that address CABG readmission rates. We describe this measure in detail 
below.
    We are proposing the inclusion of the condition of CABG 
readmissions to the Hospital Readmissions Reduction Program based on 
MedPAC's recommendations. For this condition, we developed a Hospital-
Level 30-Day All-Cause Unplanned Readmission Following Coronary Artery 
Bypass Graft (CABG) Surgery measure. The National Quality Forum (NQF) 
Measure Applications Partnership (MAP) Hospital workgroup conditionally 
supported this measure for use in the Hospital Readmissions Reduction 
Program. The condition for support is based on attainment of NQF 
endorsement. On February 5, 2014, we submitted the Hospital-Level 30-
Day All-Cause Unplanned Readmission Following Coronary Artery Bypass 
Graft

[[Page 28109]]

(CABG) Surgery measure to NQF for endorsement.
    The rationale for expanding the applicable conditions and the 
measures used to estimate the excess readmissions ratio is described in 
detail below.
b. Overview of the Proposed CABG Readmissions Measure: Hospital-Level, 
30-Day, All-Cause, Unplanned Readmission Following Coronary Artery 
Bypass Graft (CABG) Surgery
    Among the seven conditions MedPAC identified in its 2007 Report to 
Congress as having the highest potentially preventable readmission 
rate, CABG had the highest rate of readmissions within 15 days 
following discharge (13.5 percent) and second highest average Medicare 
payment per readmission ($8,136).\27\ The annual cost to Medicare for 
potentially preventable CABG readmissions was estimated at $151 
million.\28\
---------------------------------------------------------------------------

    \27\ Medicare Payment Advisory Committee. Report to the 
Congress: Promoting Greater Efficiency in Medicare, 2007.
    \28\ Ibid.
---------------------------------------------------------------------------

    Evidence also shows variation in readmissions rates for patients 
with CABG surgery, 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 CABG in 2009 was 17.2 percent, and ranged from 13.9 percent to 22.1 
percent across 1,160 hospitals.\29\ Although data documenting 
readmission reductions in CABG are limited, there are data that support 
CABG readmission as an important quality metric.\30\ Studying 
readmission rates after CABG surgery in New York, Hannan, et al. found: 
(1) Wide variation in readmission rates; (2) the most common cause of 
readmission after CABG is complication related to the surgery; and (3) 
that hospital-level variables such as use of cardiac rehabilitation and 
length of stay influenced readmission rates.\31\ The authors also noted 
that readmission rates were not closely correlated to mortality rates 
and thus measuring readmission rates likely offers a complementary 
metric intended to assess a different domain of quality. Mortality 
measures are more likely to encourage improvements in clinical quality, 
including rapid triage, effective safety practices, and early 
intervention and coordination in the hospital. Readmission measures 
place an increased emphasis on aspects of quality related to effective 
transitions to the outpatient setting, clear communication with 
patients and caregivers, and collaboration across communities and 
providers. Together, these data suggest that reducing readmission rates 
following CABG surgery is an important target for quality improvement. 
In addition, inclusion of this measure in the Hospital Readmissions 
Reduction Program aligns with CMS' Quality Strategy objectives to 
promote successful transitions of care for patients from the acute care 
setting to the outpatient setting, and to reduce short-term readmission 
rates. In its final recommendations for rulemaking, the MAP 
conditionally supported the inclusion of the proposed CABG measure 
pending NQF endorsement and implementation. In order to address this 
concern, we submitted the CABG readmission measure to NQF for 
endorsement on February 5, 2014.
---------------------------------------------------------------------------

    \29\ Suter L.G., Wang, C., Vellanky S., Potteiger J., Curtis J., 
Lin Z., Geary L.L., Krumholz H.M., Drye E.D. Hospital-level 30-day 
All-Cause Unplanned Readmission Following Coronary Artery Bypass 
Graft Surgery: Report prepared for the Centers for Medicare & 
Medicaid Services. 2012.
    \30\ Rumsfield J, Allen L. Reducing Readmission Rates: Does 
Coronary Artery Bypass Graft Surgery Provide Clarity? JACC 
Cardiovasc Interv. May 2011;4(5):2.
    \31\ Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions 
after coronary artery bypass graft surgery in New York State. JACC 
Cardiovasc Interv. 2011;4(5):569-576.
---------------------------------------------------------------------------

    We believe the proposed Hospital-Level, 30-Day, All-Cause, 
Unplanned Readmission Measure Following CABG Surgery warrants inclusion 
in the Hospital Readmissions Reduction Program for FY 2017, because it 
meets the criteria in section 1886(q)(5)(A) of the Act, as a high cost, 
high volume condition that was recognized by MedPAC Report to Congress 
in 2007 as a specific medical condition to focus on for improving 
readmission rates. As with other readmission measures, this measure 
also excludes such unrelated readmissions as planned readmissions and 
transfers to other hospitals. For these reasons we believe this measure 
is appropriate for the Hospital Readmissions Reduction Program.
    We invite public comments on this proposal.
c. Proposed Methodology for the CABG Measure: Hospital-Level, 30-Day, 
All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft 
(CABG) Surgery
    The proposed CABG readmission measure assesses hospitals' 30-day, 
all-cause risk-standardized rate of unplanned readmission following 
admission for a CABG procedure. In general, the measure uses the same 
approach to risk-adjustment and hierarchical logistic modeling (HLM) 
methodology that is specified for the AMI, HF, PN, COPD and THA/TKA 
readmission measures that we previously adopted for this program. 
Information on how the measure employs HLM can be found in the 2012 
CABG 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 CABG, 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 discuss the measure methodology below.
(1) Data Sources
    The proposed CABG readmission measure is based on data derived from 
administrative claims. It uses Medicare administrative data from 
hospitalizations for fee-for-service Medicare beneficiaries 
hospitalized for a CABG procedure.
(2) Definition of Outcome
    The proposed CABG readmission measure defines 30-day, all-cause 
readmission as an unplanned subsequent inpatient admission to any 
applicable acute care facility for 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-day readmission rates.32 33 Thirty days is

[[Page 28110]]

a meaningful timeframe for hospitals because readmissions are more 
likely attributable to care received within the index hospitalization 
and during the transition to the outpatient setting.
---------------------------------------------------------------------------

    \32\ 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.
    \33\ 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 proposed CABG readmission measure assesses all-cause unplanned 
readmissions (excluding planned readmissions) rather than readmissions 
for CABG only. We include all unplanned readmissions 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 CABG-
related readmissions may focus quality improvement efforts too narrowly 
rather than encouraging broader initiatives aimed at improving the 
overall care within the hospital and care transitions from the hospital 
setting. Moreover, it is often hard to exclude quality issues and 
accountability for a readmission based on the documented cause of 
readmission. For example, a patient who underwent a CABG surgery and 
developed a hospital-acquired infection might ultimately be readmitted 
for sepsis. It would be inappropriate to consider such a readmission to 
be unrelated to the care the patient received for their CABG surgery. 
Finally, while the measure does not presume that each readmission is 
preventable, quality improvement interventions generally have shown 
reductions in all types of readmissions.
    The proposed measure does not count planned readmissions as 
readmissions. Planned readmissions are identified in claims data using 
the CMS Planned Readmission Algorithm Version 3.0 that detects planned 
readmissions that may occur within 30 days of discharge from the 
hospital. Version 2.1 of the algorithm was finalized for use in the 
Hospital Readmissions Reduction Program in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50651 through 50655). We have since updated the 
algorithm to Version 3.0 as part of yearly measure maintenance. The 
proposed CABG readmission measure uses the planned readmission 
algorithm, tailored for CABG patients. We adapted the algorithm for 
this group of patients with input from Cardiothoracic surgeons and 
other experts, narrowing the types of readmissions considered planned 
since planned readmissions following CABG are less common and less 
varied than among patients discharged from the hospital following a 
medical admission. More detailed information on how the proposed CABG 
readmission measure incorporates the CMS Planned Readmission Algorithm 
Version 3.0 can be found in the 2012 CABG Readmission Measure 
Methodology Report on the CMS Web site (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). For the 
proposed CABG readmission measure, 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.
(3) Cohort of Patients
    In order to include a clinically coherent set of patients in the 
measure, we sought input from clinical experts regarding the inclusion 
of other concomitant cardiac and non-cardiac procedures, such as valve 
replacement and carotid endarterectomy. Adverse clinical outcomes 
following such procedures are higher than those following ``isolated'' 
CABG procedures; that is, CABG procedures performed without concomitant 
high-risk cardiac and noncardiac procedures.\34\ Limiting the measure 
cohort to ``isolated'' CABG patients is consistent with published 
reports of CABG outcomes; therefore, the proposed measure cohort 
considers only patients undergoing isolated CABG as eligible for 
inclusion in the measure. We defined isolated CABG patients as those 
undergoing CABG procedures without concomitant valve or other major 
cardiac, vascular or thoracic procedures. In addition, our clinical 
experts, consultants, and Technical Expert Panel (TEP) members agreed 
that an isolated CABG cohort is a clinically coherent cohort suitable 
for a risk-adjusted outcome measure. For detailed information on the 
cohort definition, we refer readers to the 2012 CABG Readmission 
Measure Methodology Report on the CMS Web site (available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html).
---------------------------------------------------------------------------

    \34\ Hannan EL, Zhong Y, Lahey SJ, et al. 30-day readmissions 
after coronary artery bypass graft surgery in New York State. JACC 
Cardiovasc Interv. 2011;4(5):569-576.
---------------------------------------------------------------------------

(4) Inclusion and Exclusion Criteria
    The proposed CABG readmission 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 enrollment to allow for adequate data for risk adjustment. 
The measure excludes the following admissions from the measure cohort: 
(1) Admissions for patients who are discharged against medical advice 
(excluded because providers do not have the opportunity to deliver full 
care and prepare the patient for discharge); (2) admissions for 
patients who die during the initial hospitalization (these patients are 
not eligible for readmission); (3) admissions for patients with 
subsequent qualifying CABG procedures during the measurement period (a 
repeat CABG procedure during the measurement period very likely 
represents a complication of the original CABG procedure and is a 
clinically more complex and higher risk surgery; therefore, we select 
the first CABG admission for inclusion in the measure and exclude 
subsequent CABG admissions from the cohort); and (4) admissions for 
patients without at least 30 days post-discharge enrollment in Medicare 
fee-for-service (excluded because the 30-day readmission outcome cannot 
be assessed in this group).
(5) Transferred Patients and Attribution of Readmission Outcome
    Among medical conditions, such as AMI, heart failure and pneumonia, 
transfers between acute care facilities can occur for a variety of 
different reasons and it is likely that the discharging hospital has 
the most influence over a patient's risk of readmission and therefore 
the readmission outcome is appropriately assigned to the hospital that 
discharges the patient. For that reason, the currently publicly 
reported AMI, heart failure and pneumonia readmission measures 
attribute the readmission outcome to the hospital discharging the 
patient, even if that is not the hospital that initially admitted the 
patient.
    In contrast, following CABG surgery, transfer to another acute care 
facility after CABG is most likely due to a complication of the CABG 
procedure or the peri-operative care the patient received. Therefore, 
the care provided by the hospital performing the CABG procedure likely 
dominates readmission risk, even among transferred patients. This 
viewpoint is supported by the high proportion of CABG readmissions for 
diagnoses such as heart failure, pleural effusion and pneumonia and 
endorsed by the clinical experts on both the Yale New Haven Hospital 
Health Services Corporation, Center for Outcomes Research and 
Evaluation (YNHHSC/CORE), and the Society of Thoracic Surgeons (STS) 
CABG readmission measure development working groups

[[Page 28111]]

and our TEP. Therefore, for this measure, the readmission outcome is 
attributed to the hospital performing the first (``index'') CABG, even 
if this is not the discharging hospital. For example, a patient may be 
admitted to hospital A for a CABG that qualifies them for inclusion in 
the measure and is then transferred to hospital B. The initial 
admission to hospital A and the admission to hospital B are considered 
one acute episode of care, made up of two inpatient admissions. The 
measure identifies transferred patients as those who are admitted to an 
acute care hospital on the same day or following day of discharge from 
an eligible admission.
(6) Risk-Adjustment
    The proposed CABG readmission measure adjusts for differences 
across hospitals in the level of risk their patients have for 
readmission relative to patients cared for by other hospitals. The 
measure uses administrative claims data to identify patient clinical 
conditions and comorbidities to adjust patient risk for readmission 
across hospitals, but does not adjust for potential complications of 
care. 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.
(7) Calculating the Excess Readmissions Ratio
    The proposed CABG readmission measure uses the same methodology and 
statistical modeling approach as the other Hospital Readmissions 
Reduction Program measures. We published a detailed description of how 
the readmission measures estimate the excess readmissions ratio in the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 through 53381).
    In summary, we are proposing to adopt the Hospital-Level, 30-Day, 
All-Cause, Unplanned Readmission Following Coronary Artery Bypass Graft 
(CABG) Surgery measure in the Hospital Readmissions Reduction Program 
beginning in FY 2017.
    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, if not waived from 
participating, hospitals paid under section 1814(b)(3) of the Act), 
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 CABG 
readmissions measure is appropriate for use in both programs.
    We invite public comment on this proposal.
7. Maintenance of Technical Specifications for Quality Measures
    Technical specification of the re admission measures are provided 
at our Web site in the Measure Methodology Reports (available at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). Additional 
resources about the Hospital Readmissions Reduction Program and measure 
technical specifications and methodology are on the QualityNet Web site 
on the Resources Web page (available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772412995).
    Many of the quality measures used in different Medicare and 
Medicaid reporting programs are NQF endorsed. As part of its regular 
maintenance process for NQF-endorsed performance measures, the NQF 
requires measure stewards to submit annual measure maintenance updates 
and undergo maintenance of endorsement review every 3 years. In the 
measure maintenance process, the measure steward (owner/developer) is 
responsible for updating and maintaining the currency and relevance of 
the measure and will confirm existing or minor specification changes 
with NQF on an annual basis. NQF solicits information from measure 
stewards for annual reviews, and it reviews measures for continued 
endorsement in a specific 3-year cycle.
    We note that NQF's annual or triennial maintenance processes for 
endorsed measures may result in the NQF requiring updates to the 
measures. We believe that it is important to have in place a 
subregulatory process to incorporate nonsubstantive updates required by 
the NQF into the measure specifications we have adopted for the 
Hospital Readmissions Program so that these measures remain up-to-date. 
The NQF regularly maintains its endorsed measures through annual and 
triennial reviews, which may result in the NQF requiring updates to the 
measures. We note for this calendar year the AMI readmission measure is 
undergoing the NQF maintenance endorsement process.
    For the Hospital Readmissions Reduction Program, we are proposing 
to follow the finalized processes outlined for addressing changes to 
adopted measures in the Hospital IQR Program ``Maintenance of Technical 
Specifications for Quality Measures'' section found in section 
IX.A.1.b. of the preamble of this proposed rule.
    We believe this proposal adequately balances our need to 
incorporate NQF updates to NQF-endorsed Hospital Readmissions Reduction 
Program measures in the most expeditious manner possible while 
preserving the public's ability to comment on updates that so 
fundamentally change an endorsed measure that it is no longer the same 
measure that we originally adopted. We invite public comment on this 
proposal.
8. Waiver From the Hospital Readmissions Reduction Program for 
Hospitals Formerly Paid Under Section 1814(b)(3) of the Act (Sec.  
412.152 and Sec.  412.154(d))
    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. Section 1886(q)(2)(B)(ii) of the Act, however, 
allows the Secretary to exempt such hospitals from the Hospital 
Readmissions Reduction Program, provided that the State submit 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.''
    The State of Maryland entered into an agreement with CMS, effective 
January 1, 2014, to participate in CMS' new Maryland All-Payer Model, a 
5-year hospital payment model. This model is being implemented under 
section 1115A of the Act, as added by section 3021 of the Affordable 
Care Act, which authorizes the testing of innovative payment and 
service delivery models, including models that allow States to ``test 
and evaluate systems of all-payer payment reform for the medical care 
of residents of the State, including dual-eligible individuals.'' 
Section 1115A of the Act authorizes the Secretary to waive such 
requirements of titles XI and XVIII of the Act as may be necessary 
solely for purposes of carrying out section 1115A of the Act with 
respect to testing models.

[[Page 28112]]

    As part of this agreement, the State of Maryland also elected to no 
longer have Medicare pay Maryland hospitals in accordance with section 
1814(b)(3) of the Act. Therefore, section 1886(q)(2)(B)(ii) of the Act 
is no longer applicable to Maryland hospitals. The effect of Maryland 
hospitals no longer being paid under 1814(b)(3) of the Act is that they 
are not entitled to be exempted from the Hospital Readmissions 
Reduction Program under section 1886(q)(2)(B)(ii) of the Act and, but 
for the model, would be included in the Hospital Readmissions Reduction 
Program. In other words, the exemption from the Hospital Readmissions 
Reduction Program under section 1814(b)(3) of the Act no longer 
applies. However Maryland hospitals will not be participating in the 
Hospital Readmissions Reduction Program because section 1886(q) and its 
implementing regulations have been waived for purposes of the model, 
subject to the terms of the agreement.
    We are proposing to make conforming changes to the implementing 
regulations to reflect this change. Under Sec.  412.152, we are 
proposing to delete from the definition of an ``applicable hospital'' 
the following language: ``or a hospital in Maryland that is paid under 
section 1814(b)(3) of the Act and that, absent the waiver specified by 
section 1814(b)(3) of the Act, would have been paid under the hospital 
inpatient prospective payment system.'' Under Sec.  412.154, we are 
proposing to delete Sec.  412.154(d) in its entirety. We invite public 
comment on these proposals.
9. Floor Adjustment Factor for FY 2015 (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 . . . .'' The calculation of this ratio is codified 
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 (77 FR 53386).
    Consistent with 1886(q)(3) of the Act, codified at Sec.  
412.154(c)(2), the adjustment factor is either the greater of the ratio 
or, for FY 2015 and subsequent fiscal years, a floor adjustment factor 
of 0.97. Under our established policy, the ratio is rounded to the 
fourth decimal place. In other words, for FY 2015 and subsequent fiscal 
years, a hospital subject to the Hospital Readmissions Reduction 
Program will have an adjustment factor that is between 1.0 and 0.9700.
10. Applicable Period for FY 2015
    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 53675), 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 readmissions 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.
    Consistent with the definition at Sec.  412.152, we established 
that the applicable period for FY 2014 under the Hospital Readmissions 
Reduction Program is the 3-year period from July 1, 2009, to June 30, 
2012. That is, we determined the excess readmissions 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 was the most recent available 3-year period of data upon 
which to base these calculations (78 FR 50669).
    In this proposed rule, for FY 2015, consistent with the definition 
at Sec.  412.152, we are proposing an ``applicable period'' for the 
Hospital Readmissions Reduction Program to be the 3-year period from 
July 1, 2010 to June 30, 2013. In other words, we are proposing that 
the excess readmissions ratios and the payment adjustment (including 
aggregate payments for excess readmissions and aggregate payments for 
all discharges) for FY 2015 would be calculated based on data from the 
3-year time period of July 1, 2010 to June 30, 2013. We note that for 
the purpose of modeling the readmissions payment adjustments for FY 
2015 in this proposed rule, the excess readmissions ratios will be 
based on the applicable period from FY 2014 (that is July 1, 2009 to 
June 30, 2012) and the MedPAR claims data to calculate the readmissions 
payment adjustments will be based on the proposed applicable period for 
FY 2015 (that is July 1, 2010 to June 30, 2013).
    We invite public comment on these proposals.
11. Proposed Inclusion of THA/TKA and COPD Readmissions Measures To 
Calculate Aggregate Payments for Excess Readmissions Beginning in FY 
2015
    Under the Hospital Readmissions Reduction Program the ``base 
operating DRG payment amount'' defined at Sec.  412.152 is used both to 
determine the readmission adjustment factor that accounts for excess 
readmissions under section 1886(q)(3) of the Act and to determine which 
payment amounts will be adjusted to account for excess readmissions 
under section 1886(q) of the Act. Consistent with section 1886(q)(2) of 
the Act, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 
53383), under the regulations at Sec.  412.152, we define the ``base 
operating DRG payment amount'' and specify that it does not include 
adjustments or add-on payments for IME, DSH, outliers and low-volume 
hospitals as required by section 1886(q)(2) of the Act. Furthermore, 
consistent with section 1886(q)(2)(B)(i) of the Act, for SCHs and for 
MDHs for FY 2013, the definition of ``base operating DRG payment 
amount'' at Sec.  412.152 excludes the difference between the 
hospital's applicable hospital-specific payment rate and the Federal 
payment rate.
    For FY 2015 and subsequent years, for purposes of calculating the 
payment adjustment factors and applying the payment methodology, we are 
proposing that the base operating DRG payment amount for MDHs includes 
the difference between the hospital-specific payment rate and the 
Federal payment rate (as applicable).
    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. . . .'' The definition 
of ``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

[[Page 28113]]

payments for all discharges) are codified at Sec.  412.154(c)(2) of the 
regulations (77 FR 53387).
    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 readmissions 
ratio . . . for such hospital for such applicable period minus 1.'' We 
codified this definition of ``aggregate payments for excess 
readmissions'' under the regulations at Sec.  412.152 as the product, 
for each applicable condition, of: (1) The base operating DRG payment 
amount for the hospital for the applicable period for such condition; 
(2) the number of admissions for such condition for the hospital for 
the applicable period; and (3) the excess readmissions ratio for the 
hospital for the applicable period minus 1 (77 FR 53675).
    The excess readmissions ratio is a hospital-specific ratio 
calculated for each applicable condition. Specifically, section 
1886(q)(4)(C) of the Act defines the excess readmissions 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 readmissions 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 (as 
described in further detail later in this section).
    The term ``aggregate payments for all discharges'' is defined at 
section 1886(q)(4)(B) of the Act as ``for a hospital for an applicable 
period, the sum of the base operating DRG payment amounts for all 
discharges for all conditions from such hospital for such applicable 
period.'' ``Aggregate payments for all discharges'' is the denominator 
of the ratio used to calculate the adjustment factor under the Hospital 
Readmissions Reduction Program. We codified this definition of 
``aggregate payments for all discharges'' under the regulations at 
Sec.  412.152 (77 FR 53387).
    We finalized the inclusion of two additional applicable conditions, 
COPD and THA/TKA, to the Hospital Readmissions Reduction Program 
beginning for FY 2015 in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50657 through 50664). In this section, we discuss the proposed 
methodology to include these two additional measures in the calculation 
of the readmissions payment adjustment for FY 2015. Specifically, we 
are proposing how the addition of COPD and THA/TKA applicable 
conditions would be included in the calculation of the aggregate 
payments for excess readmissions, which is the numerator of the 
readmissions payment adjustment. We note that this proposal does not 
alter our established methodology for calculating aggregate payments 
for all discharges, that is, the denominator of the ratio (77 FR 
53387).
    As discussed above, when calculating the numerator (aggregate 
payments for excess readmissions), we determine 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 readmissions 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 with discharge dates 
that are within the same applicable period to calculate the excess 
readmissions 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 2015, we are proposing to use MedPAR claims with discharge 
dates that are on or after July 1, 2010, and no later than June 30, 
2013. Under our established methodology that 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 2010 through FY 2013 MedPAR data files can be purchased from 
CMS. Use of these files allows the public to verify the readmissions 
adjustment factors. Interested individuals may order these files 
through the CMS Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by 
clicking on 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 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, 2010, and no later than June 30, 2013. However, we 
note that for the purpose of modeling the proposed FY 2015 readmissions 
payment adjustment factors for this proposed rule, we are using excess 
readmissions ratios for applicable hospitals from the FY 2014 Hospital 
Readmissions Reduction Program applicable period. For the final rule, 
applicable hospitals will have had the opportunity to review and 
correct data from the proposed FY 2015 applicable period of July 1, 
2010 to June 30, 2013 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, for FY 2015, we are proposing to use MedPAR 
data from July 1, 2010 through June 30, 2013. Specifically, in this 
proposed rule, we are using the March 2011 update of the FY 2010 MedPAR 
file to identify claims within FY 2010 with discharges dates that are 
on or after July 1, 2010, the March 2012 update of the FY 2011 MedPAR 
file to identify claims within FY 2011, the March 2013 update of the FY 
2012 MedPAR file to identify claims within FY 2012, and the December 
2013 update of the FY 2013 MedPAR file to identify claims within FY 
2013 with

[[Page 28114]]

discharge dates no later than June 30, 2013. For the final rule, we are 
proposing to use the same MedPAR files as listed above for claims 
within FY 2010, FY 2011 and FY 2012. For claims within FY 2013, we are 
proposing to use in the final rule the March 2014 update of the FY 2013 
MedPAR file.
    In order to identify the admissions for each condition, including 
the two additional conditions THA/TKA and COPD, to calculate the 
aggregate payments for excess readmissions for an individual hospital, 
for FY 2015, we are proposing to identify each applicable condition 
using the ICD-9-CM codes used to identify applicable conditions to 
calculate the excess readmissions ratios. Under our existing policy, 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 (76 FR 
51669). 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 QualityNet 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, for FY 2015, we are 
proposing to identify the claim as an applicable condition consistent 
with the methodology to identify conditions to calculate the excess 
readmissions ratio. In other words, the applicable conditions of AMI, 
HF and PN are identified for the calculation of aggregate payments for 
excess readmissions if the ICD-9-CM code for that condition is listed 
as the principal diagnosis on the claim.
    In order to identify claims with the applicable condition of THA/
TKA, we are proposing that any claim that has the procedure codes for 
THA/TKA listed in any diagnosis/procedure field of the claim would be 
included in the calculation of aggregate payments for readmissions, 
consistent with the methodology to calculate the excess readmissions 
ratio for THA/TKA. In order to identify claims with the applicable 
condition of COPD, we are proposing to identify claims that either have 
the ICD-9-CM code for that condition is listed as the principal 
diagnosis on the claim or has a principal diagnosis of some respiratory 
failure along with secondary diagnosis of COPD.
    Under our established methodology for calculating aggregate 
payments for readmissions, admissions that are not considered index 
admissions for the purpose of the readmissions measures are excluded 
from the calculation of the excess readmissions ratio, and therefore 
also are not considered admissions for the purposes of determining a 
hospital's aggregate payments for excess readmissions (78 FR 50670 
through 50876). With the addition of THA/TKA and COPD as applicable 
conditions beginning in FY 2015, we are proposing to modify our current 
methodology to identify the admissions included in the calculation of 
``aggregate payments for excess readmissions'' for THA/TKA and COPD in 
the same manner as the original applicable conditions (AMI, HF and PN). 
That is, THA/TKA and COPD admissions that would not considered index 
admissions in the readmissions measures also would not considered 
admissions for the purposes of calculation a hospital's aggregate 
payments for excess readmissions.
    In this proposed rule, for FY 2015, we are proposing to continue to 
apply the same exclusions to the claims in the MedPAR file as we 
applied for FY 2014 (78 FR 50670 through 50673), and we are proposing 
to apply those exclusions for the two additional applicable conditions, 
THA/TKA and COPD. For FY 2015, in order to have the same types of 
admissions to calculate aggregate payments for excess readmissions as 
is used to calculate the excess readmissions ratio, we are proposing to 
identify admissions for all five applicable conditions, AMI, HF, PN, 
THA/TKA and COPD, for the purposes of calculating aggregate payments 
for excess readmissions as follows:
     We would exclude admissions that are identified as an 
applicable condition if the patient died in the hospital, as identified 
by the discharge status code on the MedPAR claim.
     We would exclude admissions identified as an applicable 
condition for which the patient was transferred to another provider 
that provides acute care hospital services (that is, a CAH or an IPPS 
hospital), as identified through examination of contiguous stays in 
MedPAR at other hospitals.
     We would exclude admissions identified as an applicable 
condition 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.
     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.
     We would 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 would exclude admissions for patients without at least 
30 days post-discharge enrollment in Medicare Parts A and B fee-for-
service, based on the information provided in the Medicare Enrollment 
Database.
     We would exclude all multiple admissions within 30 days of 
a prior index admission's discharge date, 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 
readmissions ratio.
    These exclusions are consistent with our current methodology, which 
was established in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50671).
    In addition to the exclusions described above for all five 
applicable conditions, for FY 2015, we are proposing the following 
steps to identify admissions specifically for THA/TKA for the purposes 
of calculating aggregate payments for excess readmissions:
     We are proposing to exclude admissions for THA/TKA for all 
transfer cases regardless of whether the discharge was a transfer to 
another hospital or from another hospital, consistent with the 
calculation of the excess readmissions ratio for THA/TKA.
     We are proposing to exclude admissions for THA/TKA for 
cases where the discharge includes a femur, hip, or pelvic fracture 
coded in the principal or secondary diagnosis fields, consistent with 
the calculation of the excess readmissions ratio for THA/TKA.
     We are proposing to exclude admissions for THA/TKA for 
cases where the discharge includes a mechanical complication coded in 
the principal diagnosis field, consistent with the calculation of the 
excess readmissions ratio for THA/TKA.
     We are proposing to exclude admissions for THA/TKA for 
cases where the discharge includes a malignant neoplasm of the pelvis, 
sacrum, coccyx, lower limbs, or bone/bone marrow or a disseminated 
malignant neoplasm coded in the principal diagnosis field, consistent 
with the calculation of the excess readmissions ratio for THA/TKA.
     We are proposing to exclude admissions for THA/TKA for 
cases where the discharge includes more than two hip/knee procedures.
     We are proposing to exclude admissions for THA/TKA for 
cases that meet either any of the following conditions or following 
procedures

[[Page 28115]]

concurrent with THA/TKA: revision procedures; partial hip arthroplasty 
(PHA) procedures; resurfacing procedures; and removal of implanted 
devices/prostheses.
    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 readmissions ratios 
based solely on admissions and readmissions for Medicare FFS patients. 
Therefore, consistent with our established methodology, for FY 2015, we 
would exclude admissions for patients enrolled in Medicare Advantage as 
identified in the Medicare Enrollment Database. This proposal is 
consistent with how admissions for Medicare Advantage patients are 
identified in the calculation of the excess readmissions ratios under 
our established methodology. 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 2015. The tables include the ICD-9-CM codes we are 
proposing to use to identify the two conditions, THA/TKA and COPD, 
added to the Hospital Readmissions Reduction Program beginning for FY 
2015. These ICD-9-CM codes also would be used to identify the 
applicable conditions to calculate the excess readmissions ratios, 
consistent with our established policy (76 FR 51673 through 51676).

                                 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.
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..................................