[Federal Register Volume 82, Number 81 (Friday, April 28, 2017)]
[Proposed Rules]
[Pages 19796-20231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07800]



[[Page 19795]]

Vol. 82

Friday,

No. 81

April 28, 2017

Part II





Department of Health and Human Services





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





Centers for Medicare & Medicaid Services





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





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 Policy Changes and Fiscal Year 2018 Rates; 
Quality Reporting Requirements for Specific Providers; Medicare and 
Medicaid Electronic Health Record (EHR) Incentive Program Requirements 
for Eligible Hospitals, Critical Access Hospitals, and Eligible 
Professionals; Provider-Based Status of Indian Health Service and 
Tribal Facilities and Organizations; Costs Reporting and Provider 
Requirements; Agreement Termination Notices; Proposed Rule

Federal Register / Vol. 82 , No. 81 / Friday, April 28, 2017 / 
Proposed Rules

[[Page 19796]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 412, 413, 414, 416, 486, 488, 489, and 495

[CMS-1677-P]
RIN 0938-AS98


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Proposed Policy Changes and Fiscal Year 2018 Rates; 
Quality Reporting Requirements for Specific Providers; Medicare and 
Medicaid Electronic Health Record (EHR) Incentive Program Requirements 
for Eligible Hospitals, Critical Access Hospitals, and Eligible 
Professionals; Provider-Based Status of Indian Health Service and 
Tribal Facilities and Organizations; Costs Reporting and Provider 
Requirements; Agreement Termination Notices

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

ACTION: Proposed rule.

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

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 for FY 2018. Some of these 
proposed changes would implement certain statutory provisions contained 
in the Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013, 
the Improving Medicare Post-Acute Care Transformation Act of 2014, the 
Medicare Access and CHIP Reauthorization Act of 2015, the 21st Century 
Cures Act, and other legislation. We also are making proposals relating 
to the provider-based status of Indian Health Service (IHS) and Tribal 
facilities and organizations and to the low-volume hospital payment 
adjustment for hospitals operated by the IHS or a Tribe. In addition, 
we are providing the proposed estimated market basket update that would 
apply to the rate-of-increase limits for certain hospitals excluded 
from the IPPS that are paid on a reasonable cost basis subject to these 
limits for FY 2018. We are proposing to update the payment policies and 
the annual payment rates for the Medicare prospective payment system 
(PPS) for inpatient hospital services provided by long-term care 
hospitals (LTCHs) for FY 2018.
    In addition, we are proposing to establish new requirements or 
revise existing requirements for quality reporting by specific Medicare 
providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, 
and inpatient psychiatric facilities). We also are proposing to 
establish new requirements or revise existing requirements for eligible 
professionals (EPs), eligible hospitals, and critical access hospitals 
(CAHs) participating in the Medicare and Medicaid Electronic Health 
Record (EHR) Incentive Programs. 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.
    We also are proposing changes relating to transparency of 
accrediting organization survey reports and plans of correction of 
providers and suppliers; electronic signature and electronic submission 
of the Certification and Settlement Summary page of the Medicare cost 
reports; and clarification of provider disposal of assets.

DATES: Comment Period: To be assured consideration, comments must be 
received at one of the addresses provided in the ADDRESSES section, no 
later than 5 p.m. EDT on June 13, 2017.

ADDRESSES: In commenting, please refer to file code CMS-1677-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-1677-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-1677-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 
beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
    Donald Thompson, (410) 786-4487, and Michele Hudson, (410) 786-
4487, Operating Prospective Payment, MS-DRGs, Wage Index, New Medical 
Service and Technology Add-On Payments, Hospital Geographic 
Reclassifications, Graduate Medical Education, Capital Prospective 
Payment, Excluded Hospitals, Sole Community Hospitals, Medicare 
Disproportionate Share Hospital (DSH) Payment Adjustment, Medicare-
Dependent Small Rural Hospital (MDH) Program, and Low-Volume Hospital 
Payment Adjustment Issues.
    Michele Hudson, (410) 786-4487, Mark Luxton, (410) 786-4530, and 
Emily Lipkin, (410) 786-3633, Long-Term Care Hospital Prospective 
Payment System and MS-LTC-DRG Relative Weights Issues.
    Mollie Knight, (410) 786-7948, and Bridget Dickensheets, (410) 786-
8670, Rebasing and Revising the Hospital Market Basket Issues.
    Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.

[[Page 19797]]

    Jeris Smith, (410) 786-0110, Frontier Community Health Integration 
Project Demonstration Issues.
    Lein Han, (617) 879-0129, Hospital Readmissions Reduction Program--
Readmission Measures for Hospitals Issues.
    Delia Houseal, (410) 786-2724, Hospital Readmissions Reduction 
Program--Administration Issues.
    Elizabeth Bainger, (410) 786-0529, Hospital-Acquired Condition 
Reduction Program Issues.
    Joseph Clift, (410) 786-4165, Hospital-Acquired Condition Reduction 
Program--Measures Issues.
    Grace Im, (410) 786-0700 and James Poyer, (410) 786-2261, Hospital 
Inpatient Quality Reporting and Hospital Value-Based Purchasing--
Program Administration, Validation, and Reconsideration Issues.
    Reena Duseja, (410) 786-1999 and Cindy Tourison, (410) 786-1093, 
Hospital Inpatient Quality Reporting--Measures Issues Except Hospital 
Consumer Assessment of Healthcare Providers and Systems Issues; and 
Readmission Measures for Hospitals Issues.
    Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing 
Efficiency Measures Issues.
    Elizabeth Goldstein, (410) 786-6665, Hospital Inpatient Quality 
Reporting--Hospital Consumer Assessment of Healthcare Providers and 
Systems Measures Issues.
    James Poyer, (410) 786-2261, PPS-Exempt Cancer Hospital Quality 
Reporting Issues.
    Mary Pratt, (410) 786-6867, Long-Term Care Hospital Quality Data 
Reporting Issues.
    Jeffrey Buck, (410) 786-0407 and Cindy Tourison (410) 786-1093, 
Inpatient Psychiatric Facilities Quality Data Reporting Issues.
    Lisa Marie Gomez, (410) 786-1175, EHR Incentive Program Clinical 
Quality Measure Related Issues.
    Kathleen Johnson, (410) 786-3295 and Steven Johnson (410) 786-3332, 
EHR Incentive Program Nonclinical Quality Measure Related Issues.
    Caecilia Blondiaux, (410), 786-2190, and Ariadne Saklas, (410) 786-
3322, Changes in Notice of Termination of Medicare Providers and 
Suppliers Issues.
    Monda Shaver, (410) 786-3410, and Patricia Chmielewski, (410) 786-
6899, Accrediting Organizations Survey Reporting Transparency Issues.
    Kellie Shannon, (410) 786-0416, Medicare Cost Reporting and 
Valuation of Assets Issues.

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

Electronic Access

    This Federal Register document is 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 generally will be available only through the 
Internet. The IPPS tables for this proposed rule are available 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 2018 IPPS Proposed 
Rule Home Page'' or ``Acute Inpatient--Files for Download''. The LTCH 
PPS tables for this FY 2018 proposed rule are available 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-1677-P. For further details on the 
contents 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
AO Accrediting Organizations
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
ASPE Assistant Secretary for Planning and Evaluation (DHHS)
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 Centers for Disease Control and Prevention

[[Page 19798]]

CERT Comprehensive error rate testing
CDI Clostridium difficile [C. difficile] infection
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 Chronic obstructive pulmonary disease
CPI Consumer price index
CQL Clinical quality language
CQM Clinical quality measure
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 beam radiotherapy
ECE Extraordinary circumstances exemption
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
HCP Healthcare personnel
HCRIS Hospital Cost Report Information System
HF Heart failure
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
HwH Hospital-within-hospital
HWR Hospital-wide readmission
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
ICU Intensive care unit
IGI IHS Global Insight, Inc.
IHS Indian Health Service
IME Indirect medical education
IMPACT Act Improving Medicare Post-Acute Care Transformation Act of 
2014, Public Law 113-185
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 [Hospital] Inpatient Quality Reporting
LAMCs Large area metropolitan counties
LDS Limited Data Set
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
LTCH QRP Long-Term Care Hospital Quality Reporting Program
MA Medicare Advantage
MAC Medicare Administrative Contractor
MACRA Medicare Access and CHIP Reauthorization Act of 2015, Public 
Law 114-10
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
MOON Medicare Outpatient Observation Notice
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]
MUC Measure under consideration
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
NOTICE Act Notice of Observation Treatment and Implication for Care 
Eligibility Act, Public Law 114-42
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
NUBC National Uniform Billing Code
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
ONC Office of the National Coordinator for Health Information 
Technology
OPM [U.S.] Office of Personnel Management
OQR [Hospital] Outpatient Quality Reporting
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PAC Post-acute care
PAMA Protecting Access to Medicare Act of 2014, Public Law 113-93
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
PPR Potentially Preventable Readmissions
PPS Prospective payment system
PRA Paperwork Reduction Act
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities

[[Page 19799]]

PSF Provider-Specific File
PSI Patient safety indicator
PS&R Provider Statistical and Reimbursement [System]
PQRS Physician Quality Reporting System
PUF Public use file
QDM Quality data model
QIES ASAP Quality Improvement Evaluation System Assessment 
Submission and Processing
QIG Quality Improvement Group [CMS]
QIO Quality Improvement Organization
QM Quality measure
QPP Quality Payment Program
QRDA Quality Reporting Document Architecture
RFA Regulatory Flexibility Act, Public Law 96-354
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RIM Reference information model
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RSMR Risk-standard mortality rate
RSP Risk-standardized payment
RSSR 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
SCHIP State Child Health Insurance Program
SCIP Surgical Care Improvement Project
SFY State fiscal year
SGR Sustainable Growth Rate
SIC Standard Industrial Classification
SIR Standardized infection ratio
SNF Skilled nursing facility
SNF QRP Skilled Nursing Facility Quality Reporting Program
SNF VBP Skilled Nursing Facility Value-Based Purchasing
SOCs Standard occupational classifications
SOM State Operations Manual
SRR Standardized risk ratio
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 [Qualifying Individuals] Programs Extension Act of 2007, Public 
Law 110-90
TPS Total Performance Score
UHDDS Uniform hospital discharge data set
UR Utilization review
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 Proposed To Be 
Implemented in This Proposed Rule
    1. The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-
240), the Medicare Access and CHIP Reauthorization Act (MACRA) of 
2015 (Pub. L. 114-10), and the 21st Century Cures Act (Pub. L. 114-
255)
    2. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)
    3. Improving Medicare Post-Acute Care Transformation Act of 2014 
(IMPACT Act) (Pub. L. 113-185)
    4. The Medicare Access and CHIP Reauthorization Act (MACRA) of 
2015 (Pub. L. 114-10)
    5. The 21st Century Cures Act (Pub. L. 114-255)
    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 2018 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. Recoupment or Repayment Adjustment Authorized by Section 631 
of the American Taxpayer Relief Act of 2012 (ATRA)
    3. Proposed Adjustment for FY 2018 Required Under Section 414 of 
Public Law 114-10 (MACRA) and Section 15005 of Public Law 114-255
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Discussion of Policy for FY 2018
    F. Proposed Changes to Specific MS-DRG Classifications
    1. Discussion of Changes to Coding System and Basis for Proposed 
FY 2018 MS-DRG Updates
    a. Conversion of MS-DRGs to the International Classification of 
Diseases, 10th Revision (ICD-10)
    b. Basis for FY 2018 Proposed MS-DRG Updates
    2. MDC 1 (Diseases and Disorders of the Nervous System)
    a. Functional Quadriplegia
    b. Responsive Neurostimulator (RNS(copyright)) System
    c. Precerebral Occlusion or Transient Ischemic Attack With 
Thrombolytic
    3. MDC 2 (Diseases and Disorders of the Eye: Swallowing Eye 
Drops (Tetrahydrozoline)
    4. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Percutaneous Cardiovascular Procedures and Insertion of a 
Radioactive Element
    b. Proposed Modification of the Titles for MS-DRG 246 
(Percutaneous Cardiovascular Procedures With Drug-eluting Stent With 
MCC or 4+ Vessels or Stents) and MS-DRG 248 (Percutaneous 
Cardiovascular Procedures With Non-Drug-Eluting Stent With MCC or 4+ 
Vessels or Stents)
    c. Transcatheter Aortic Valve Replacement (TAVR) and Left Atrial 
Appendage Closure (LAAC)
    d. Percutaneous Mitral Valve Replacement Procedures
    e. Percutaneous Tricuspid Valve Repair
    5. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue)
    a. Total Ankle Replacement (TAR) Procedures
    b. Revision of Total Ankle Replacement (TAR) Procedures
    c. Magnetic Controlled Growth Rods (MAGEC[supreg] System)
    d. Combined Anterior/Posterior Spinal Fusion
    6. MDC 14 (Pregnancy, Childbirth and the Puerperium)
    a. Vaginal Delivery and Complicating Diagnoses
    b. MS-DRG 998 (Principal Diagnosis Invalid as Discharge 
Diagnosis)
    c. MS-DRG 782 (Other Antepartum Diagnoses Without Medical 
Complications)
    d. Shock During or Following Labor and Delivery
    7. MDC 15 (Newborns and Other Neonates With Conditions 
Originating in Perinatal Period): Observation and Evaluation of 
Newborn
    8. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): 
Complication Codes
    9. MDC 23 (Factors Influencing Health Status and Other Contacts 
With Health Services): Updates to MS-DRGs 945 and 946 
(Rehabilitation With CC/MCC and Without CC/MCC, Respectively)
    10. Proposed Changes to the Medicare Code Editor (MCE)
    a. Age Conflict Edit
    b. Sex Conflict Edit
    c. Non-Covered Procedure Edit
    d. Unacceptable Principal Diagnosis Edit
    e. Future Enhancement
    11. Proposed Changes to Surgical Hierarchies
    12. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2018
    a. Background of the CC List and the CC Exclusions List
    b. Proposed Additions and Deletions to the Diagnosis Code 
Severity Levels for FY 2018
    c. Principal Diagnosis Is Its Own CC or MCC
    d. Proposed CC Exclusions List for FY 2018
    13. Comprehensive Review of CC List for FY 2019
    14. Review of Procedure Codes in MS DRGs 981 Through 983; 984 
Through 986; and 987 Through 989

[[Page 19800]]

    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
    15. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding 
Systems
    16. Proposed Replaced Devices Offered Without Cost or With a 
Credit
    a. Background
    b. Proposed Changes for FY 2018
    17. Other Proposed Policy Changes: Other Operating Room (O.R.) 
and Non-O.R. Issues
    a. O.R. Procedures to Non-O.R. Procedures
    b. Revision of Neurostimulator Generator
    c. External Repair of Hymen
    d. Non-O.R. Procedures in MDC 17 (Myeloproliferative Diseases 
and Disorders Poorly Differentiated Neoplasms)
    G. Recalibration of the Proposed FY 2018 MS-DRG Relative Weights
    1. Data Sources for Developing the Relative Weights
    2. Methodology for Calculation of the Relative Weights
    3. Development of National Average CCRs
    H. Proposed Add-On Payments for New Services and Technologies 
for FY 2018
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. ICD-10-PCS Section ``X'' Codes for Certain New Medical 
Services and Technologies
    4. Proposal To Revise Reference to an ICD-9-CM Code in Sec.  
412.87(b)(2) of the Regulations
    5. Proposed FY 2018 Status of Technologies Approved for FY 2017 
Add-On Payments
    a. CardioMEMSTM HF (Heart Failure) Monitoring System
    b. Defitelio[supreg] (Defibrotide)
    c. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis 
(IBE)
    d. Idarucizumab
    e. Lutonix[supreg] Drug Coated Balloon PTA Catheter and 
In.PACTTM AdmiralTM Paclitaxel Coated 
Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter
    f. MAGEC[supreg] Spinal Bracing and Distraction System 
(MAGEC[supreg] Spine)
    g. VistogardTM (Uridine Triacetate)
    h. Blinatumomab (BLINCYTOTM Trade Brand)
    6. FY 2018 Applications for New Technology Add-On Payments
    a. Bezlotoxumab (ZINPLAVATM)
    b. EDWARDS INTUITY EliteTM Valve System (INTUITY) and 
Liva Nova Perceval Valve (Perceval)
    c. Ustekinumab (Stelara[supreg])
    d. KTE-C19 (Axicabtagene Ciloleucel)
    e. VYXEOSTM (Cytarabine and Daunorubicin Liposome for 
Injection)
    f. GammaTileTM
III. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    A. Background
    1. Legislative Authority
    2. Core-Based Statistical Areas (CBSAs) for the Proposed FY 2018 
Hospital Wage Index
    3. Codes for Constituent Counties in CBSAs
    B. Worksheet S-3 Wage Data for the Proposed FY 2018 Wage Index
    1. Included Categories of Costs
    2. Excluded Categories of Costs
    3. Use of Wage Index Data by Suppliers and Providers Other Than 
Acute Care Hospitals Under the IPPS
    C. Verification of Worksheet S-3 Wage Data
    D. Method for Computing the Proposed FY 2018 Unadjusted Wage 
Index
    1. Proposed Methodology for FY 2018
    2. Clarification of Other Wage Related Costs in the Wage Index
    E. Proposed Occupational Mix Adjustment to the FY 2018 Wage 
Index
    1. Use of 2013 Occupational Mix Survey for the FY 2018 Wage 
Index
    2. Use of the 2016 Medicare Wage Index Occupational Mix Survey 
for the FY 2019 Wage Index
    3. Calculation of the Proposed Occupational Mix Adjustment for 
FY 2018
    F. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2018 Occupational Mix Adjusted Wage 
Index
    G. Proposed Application of the Rural, Imputed, and Frontier 
Floors
    1. Proposed Rural Floor
    2. Proposed Expiration of the Imputed Floor Policy
    3. Proposed State Frontier Floor for FY 2018
    H. Proposed FY 2018 Wage Index Tables
    I. Revisions to the Wage Index Based on Hospital Redesignations 
and Reclassifications
    1. General Policies and Effects of Reclassification and 
Redesignation
    2. MGCRB Reclassification and Redesignation Issues for FY 2018
    a. FY 2018 Reclassification Requirements and Approvals
    b. Extension of PRA Information Collection Requirement Approval 
for MGCRB Applications
    c. Proposed Deadline for Submittal of Documentation of Sole 
Community Hospital (SCH) and Rural Referral Center (RRC) 
Classification Status to the MGCRB
    d. Clarification of Special Rules for SCHs and RRCs 
Reclassifying to Geographic Home Area
    3. Redesignations Under Section 1886(d)(8)(B) of the Act
    4. Proposed Changes to the 45-Day Notification Rules
    J. Proposed Out-Migration Adjustment Based on Commuting Patterns 
of Hospital Employees
    K. Reclassification From Urban to Rural Under Section 
1886(d)(8)(E) of the Act Implemented at 42 CFR 412.103
    L. Clarification of Application Deadline for Rural Referral 
Center (RRC) Classification
    M. Proposed Process for Requests for Wage Index Data Corrections
    1. Process for Hospitals To Accept Wage Index Data Corrections
    2. Process for Wage Index Data Corrections by CMS After the 
January Public Use File (PUF)
    N. Proposed Labor Market Share for the Proposed FY 2018 Wage 
Index
IV. Proposed Rebasing and Revising of the Hospital Market Baskets 
for Acute Care Hospitals
    A. Background
    B. Rebasing and Revising the IPPS Market Basket
    1. Development of Cost Categories and Weights
    a. Use of Medicare Cost Report Data
    b. Final Major Cost Category Computation
    c. Derivation of the Detailed Cost Weights
    2. Selection of Proposed Price Proxies
    3. Labor-Related Share
    C. Market Basket for Certain Hospitals Presently Excluded From 
the IPPS
    D. Rebasing and Revising the Capital Input Price Index (CIPI)
V. Other Decisions and Proposed Changes to the IPPS for Operating 
System
    A. Proposed Changes to MS-DRGs Subject to Postacute Care 
Transfer and MS-DRG Special Payment Policies
    B. Proposed Changes in the Inpatient Hospital Updates for FY 
2018 (Sec.  412.64(d))
    1. Proposed FY 2018 Inpatient Hospital Update
    2. Proposed FY 2018 Puerto Rico Hospital Update
    C. Proposed Change to Volume Decrease Adjustment for Sole 
Community Hospitals (SCHs) and Medicare-Dependent, Small Rural 
Hospitals (MDHs) (Sec.  412.92)
    1. Background
    2. Proposed Changes to the Volume Decrease Adjustment 
Calculation Methodology for SCHs
    D. 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
    E. Proposed Payment Adjustment for Low-Volume Hospitals (Sec.  
412.101)
    1. Expiration of Temporary Changes to Low-Volume Hospital 
Payment Policy
    2. Background
    3. Proposed Payment Adjustment for FY 2018 and Subsequent Fiscal 
Years
    4. Proposed Parallel Low-Volume Hospital Payment Adjustment 
Regarding Hospitals Operated by the Indian Health Service (IHS) or a 
Tribe
    F. Indirect Medical Education (IME) Payment Adjustment (Sec.  
412.105)
    G. Proposed Payment Adjustment for Medicare Disproportionate 
Share Hospitals (DSHs) for FY 2018 (Sec.  412.106)
    1. General Discussion
    2. Eligibility for Empirically Justified Medicare DSH Payments 
and Uncompensated Care Payments
    3. Empirically Justified Medicare DSH Payments
    4. Uncompensated Care Payments
    a. Proposed Calculation of Factor 1 for FY 2018
    b. Proposed Calculation of Factor 2 for FY 2018
    (1) Background

[[Page 19801]]

    (2) Proposed Methodology for Calculation of Factor 2 for FY 2018
    c. Calculation of Proposed Factor 3 for FY 2018
    (1) Background
    (2) Proposed Data Source for FY 2018
    (3) Proposed Time Period for Calculating Factor 3 for FY 2018, 
Including Methodology for Incorporating Worksheet S-10 Data
    (4) Methodological Considerations for Calculating Factor 3
    (5) Methodological Considerations for Incorporating Worksheet S-
10 Data
    H. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108)
    1. Background for the MDH Program
    a. Expiration of the MDH Program
    I. Hospital Readmissions Reduction Program: Proposed Updates and 
Changes (Sec. Sec.  412.150 Through 412.154)
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Regulatory Background
    3. Maintenance of Technical Specifications for Quality Measures
    4. Proposed Policies for the Hospital Readmissions Reduction 
Program
    5. Proposed Applicable Period for FY 2018
    6. Proposed Calculation of Aggregate Payments for Excess 
Readmissions for FY 2018
    7. Background and Current Payment Adjustment Methodology
    a. Background
    b. Current Payment Adjustment Methodology
    8. Provisions for the Proposed Payment Adjustment Methodology 
for FY 2019: Proposed Methodology for Calculating the Proportion of 
Dual Eligible Patients
    a. Background
    b. Proposed Data Sources Used To Determine Dual Eligibility
    c. Proposed Data Period Used To Define Dual Eligibility
    9. Provision for the Proposed Payment Adjustment Methodology for 
FY 2019: Proposed Methodology for Assigning Hospitals to Peer Groups
    10. Provisions for the Proposed Payment Adjustment Methodology 
for FY 2019: Proposed Payment Adjustment Formula Calculation 
Methodology
    a. Background
    b. Proposals
    c. Analysis
    11. Accounting for Social Risk Factors in the Hospital 
Readmissions Reduction Program
    12. Extraordinary Circumstance Exception (ECE) Policy
    13. Timeline for Public Reporting of Excess Readmission Ratios 
on Hospital Compare for the FY 2018 Payment Determination
    J. Hospital Value-Based Purchasing (VBP) Program: Proposed 
Policy Changes
    1. Background
    a. Statutory Background and Overview of Past Program Years
    b. FY 2018 Program Year Payment Details
    2. Accounting for Social Risk Factors in the Hospital VBP 
Program
    3. Retention and Removal of Quality Measures for the FY 2019 
Program Year
    a. Retention of Previously Adopted Hospital VBP Program Measures
    b. Proposed Removal of the PSI 90 Measure
    c. Summary of Previously Adopted Measures and Proposed Measure 
for Removal for the FY 2019 and FY 2020 Program Years
    4. Proposed New Measures for the FY 2022 Program Year, FY 2023 
Program Year, and Subsequent Years
    a. Proposed New Measure for the FY 2022 Program Year and 
Subsequent Years: Hospital-Level, Risk-Standardized Payment 
Associated With a 30-Day Episode-of-Care for Pneumonia (PN Payment)
    b. Proposed New Measure for the FY 2023 Program Year and 
Subsequent Years: Patient Safety and Adverse Events (Composite) (NQF 
#0531)
    5. Previously Adopted and Proposed Baseline and Performance 
Periods
    a. Background
    b. Person and Community Engagement Domain
    c. Efficiency and Cost Reduction Domain
    d. Safety Domain
    e. Clinical Care Domain
    f. Summary of Previously Adopted and Proposed Baseline and 
Performance Periods for the FY 2019 Through FY 2023 Program Years
    6. Proposed Performance Standards for the Hospital VBP Program
    a. Background
    b. Previously Adopted and Proposed Performance Standards for the 
FY 2020 Program Year
    c. Previously Adopted Performance Standards for Certain Measures 
for the FY 2021 Program Year
    d. Previously Adopted and Proposed Performance Standards for 
Certain Measures for the FY 2022 Program Year
    e. Proposed Performance Standards for Certain Measures for the 
FY 2023 Program Year
    7. Scoring Methodology and Data Requirements for the FY 2019 
Program Year and Subsequent Years
    a. Proposed Domain Weighting for the FY 2020 Program Year and 
Subsequent Years for Hospitals That Receive a Score on All Domains
    b. Proposed Domain Weighting for the FY 2019 Program Year and 
Subsequent Years for Hospitals Receiving Scores on Fewer Than Four 
Domains
    c. Minimum Numbers of Cases for Hospital VBP Program Measures 
for the FY 2019 Program Year and Subsequent Years
    d. Weighting Measures Within the Efficiency and Cost Reduction 
Domain
    K. Proposed Changes to the Hospital-Acquired Condition (HAC) 
Reduction Program
    1. Background
    2. Implementation of the HAC Reduction Program for FY 2018
    3. Proposed Data Collection Time Periods for the FY 2020 HAC 
Reduction Program
    4. Request for Comments on Additional Measures for Potential 
Future Adoption
    5. Accounting for Social Risk Factors in the HAC Reduction 
Program
    6. Request for Comments on Inclusion on Disability and Medical 
Complexity for CDC NHSN Measures
    7. Maintenance of Technical Specifications for Quality Measures
    8. Extraordinary Circumstances Exception (ECE) Policy for the 
HAC Reduction Program
    L. Rural Community Hospital Demonstration Program
    1. Introduction
    2. Background
    3. Provisions of the 21st Century Cures Act (Pub. L. 114-255) 
and Proposals for Implementation
    a. Statutory Provisions
    b. Proposed Terms of Continuation for Previously Participating 
Hospitals
    c. Solicitation for Additional Participants
    4. Budget Neutrality
    a. Statutory Budget Neutrality Requirement
    b. Methodology Used in Previous Final Rules
    c. Proposed Budget Neutrality Methodology for Extension Period 
Authorized by the 21st Century Cures Act (Pub. L. 114-255)
    d. Alternative Budget Neutrality Approach
    e. Reconciling Actual and Estimated Costs of the Demonstration 
for Previous Years (2011, 2012, and 2013)
    M. Payments for Services in Inpatient and Outpatient Settings
    1. Adjustment to IPPS Rates Resulting From the 2-Midnight Policy 
for FY 2018
    2. Eliminating Inappropriate Medicare Payment Differentials for 
Similar Services in the Inpatient and Outpatient Settings
    N. Provider-Based Status of Indian Health Service and Tribal 
Facilities and Organizations
    O. Request for Information Regarding Physician-Owned Hospitals
VI. Proposed Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Additional Provisions
    1. Exception Payments
    2. New Hospitals
    3. Payments for Hospitals Located in Puerto Rico
    C. Proposed Annual Update for FY 2018
VII. Proposed Changes for Hospitals Excluded From the IPPS
    A. Proposed Rate-of-Increase in Payments To Excluded Hospitals 
for FY 2018
    B. Proposed Revisions to Hospital-Within-Hospital Regulations
    C. Critical Access Hospitals (CAHs)
    1. Background
    2. Frontier Community Health Integration Project (FCHIP) 
Demonstration
    3. Physician Certification Requirement for Payment of Inpatient 
CAH Services Under Medicare Part A
    a. Background
    b. Notice Regarding Changes to Instructions for the Review of 
the CAH 96-Hour Certification Requirement
VIII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2018
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as an LTCH

[[Page 19802]]

    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 2018
    1. Background
    2. Patient Classifications Into MS-LTC-DRGs
    a. Background
    b. Proposed Changes to the MS-LTC-DRGs for FY 2018
    3. Development of the Proposed FY 2018 MS-LTC-DRG Relative 
Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Development of the Proposed MS-LTC-DRG Relative Weights for 
FY 2018
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the MS-LTC-DRG 
Relative Weights
    f. Proposed Low-Volume MS-LTC-DRGs
    g. Steps for Determining the Proposed FY 2018 MS-LTC-DRG 
Relative Weights
    C. Proposed Changes to the LTCH PPS Payment Rates and Other 
Proposed Changes to the LTCH PPS for FY 2018
    1. Overview of Development of the LTCH PPS Standard Federal 
Payment Rates
    2. Proposed FY 2018 LTCH PPS Standard Federal Payment Rate 
Annual Market Basket Update
    a. Overview
    b. Proposed Annual Update to the LTCH PPS Standard Federal 
Payment Rate for FY 2018
    c. Proposed Adjustment to the LTCH PPS Standard Federal Payment 
Rate Under the Long-Term Care Hospital Quality Reporting Program 
(LTCH QRP)
    d. Proposed Annual Update Under the LTCH PPS for FY 2018
    D. Proposed Changes to the Short-Stay Outlier Adjustment Policy 
(Sec.  412.529)
    E. Temporary Exception to the Site Neutral Payment Rate for 
Certain Spinal Cord Specialty Hospitals
    F. Temporary Exception to the Site Neutral Payment Rate for 
Certain Discharges With Severe Wounds Form Certain LTCHs
    G. Moratorium and Proposed Regulatory Delay of the Full 
Implementation of the ``25-Percent'' Threshold Policy'' Adjustment 
(Sec.  412.538)
    H. Revision to Moratorium on Increasing Beds in Existing LTCH or 
LTCH Satellite Locations Under the 21st Century Cures Act (Pub. L. 
114-255) (Sec.  412.23)
    I. Proposed Changes to the Average Length of Stay Criterion 
Under the 21st Century Cures Act (Pub. L. 114-255)
    J. Change in Medicare Classification for Certain Hospitals 
(Sec.  412.23)
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
    d. Accounting for Social Risk Factors in the Hospital IQR 
Program
    2. Retention of Previously Adopted Hospital IQR Program Measures 
for Subsequent Payment Determinations
    3. Removal and Suspension of Previously Adopted Hospital IQR 
Program Measures
    4. Previously Adopted Hospital IQR Program Measures for the FY 
2019 Payment Determination and Subsequent Years
    5. Considerations in Expanding and Updating of Quality Measures
    6. Refinements to Existing Measures in the Hospital IQR Program 
for the FY 2020 Payment Determination and Subsequent Years
    a. Refining Hospital Consumer Assessment of Healthcare Providers 
and Systems (HCAHPS) Survey (NQF #0166) for the FY 2020 Payment 
Determination and Subsequent Years
    b. Refinement of the Hospital 30-Day, All-Cause, Risk-
Standardized Mortality Rate (RSMR) Following Acute Ischemic Stroke 
Hospitalization Measure for the FY 2023 Payment Determination and 
Subsequent Years
    c. Summary of Previously Adopted Hospital IQR Program Measures 
for the FY 2020 Payment Determination and Subsequent Years
    7. Proposed Voluntary Hybrid Hospital-Wide Readmission Measure 
With Claims and Electronic Health Record Data (NQF #2879)
    a. Background
    b. Proposal for Voluntary Reporting of Electronic Health Record 
Data for the Hybrid HWR Measure (NQF #2879)
    c. Data Sources
    d. Outcome
    e. Cohort
    f. Inclusion and Exclusion Criteria
    g. Risk-Adjustment
    h. Calculating the Risk-Standardized Readmission Rate (RSRR)
    i. Data Submission and Reporting Requirements
    j. Confidential Hospital-Specific Reports
    8. Proposed Changes to Policies on Reporting of eCQMs
    a. Background
    b. Proposed Modifications to the eCQM Reporting Requirements for 
the Hospital IQR Program for the CY 2017 Reporting Period/FY 2019 
Payment Determination
    c. Proposed Modifications to the eCQM Reporting Requirements for 
the Hospital IQR Program for the CY 2018 Reporting Period/FY 2020 
Payment Determination
    9. Possible New Quality Measures and Measure Topics for Future 
Years
    a. Potential Inclusion of the Quality of Informed Consent 
Documents for Hospital-Performed, Elective Procedures Measure
    b. Potential Inclusion of Four End-of-Life (EOL) Measures for 
Cancer Patients
    c. Potential Inclusion of Two Nurse Staffing Measures
    d. Potential Inclusion of Additional Electronic Clinical Quality 
Measures (eCQMs) in the Hospital IQR and Medicare and Medicaid EHR 
Incentive Programs
    10. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Procedural Requirements for the FY 2020 Payment Determination 
and Subsequent Years
    c. Data Submission Requirements for Chart-Abstracted Measures
    d. Proposed Changes to the Reporting and Submission Requirements 
for eCQMs
    e. Proposed Submission Form and Method for the Proposed 
Voluntary Hybrid Hospital-Wide Readmission Measure With Claims and 
Electronic Health Record Data (NQF #2879)
    f. Sampling and Case Thresholds for the FY 2020 Payment 
Determination and Subsequent Years
    g. HCAHPS Administration and Submission Requirements for the FY 
2020 Payment Determination and Subsequent Years
    h. Data Submission Requirements for Structural Measures for the 
FY 2020 Payment Determination and Subsequent Years
    i. Data Submission and Reporting Requirements for HAI Measures 
Reported via NHSN
    11. Proposed Modifications to the Validation of Hospital IQR 
Program Data
    a. Background
    b. Proposed Changes to the Existing Processes for Validation of 
Hospital IQR Program eCQM Data for the FY 2020 Payment Determination 
and Subsequent Years
    c. Proposed Modifications to the Educational Review Process for 
Chart-Abstracted Measures Validation
    12. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements for the FY 2020 Payment Determination and Subsequent 
Years
    13. Public Display Requirements for the FY 2020 Payment 
Determination and Subsequent Years
    a. Background
    b. Potential Options for Confidential and Public Reporting of 
Hospital IQR Measures Stratified by Patient Dual Eligibility Status
    14. Reconsideration and Appeal Procedures for the FY 2020 
Payment Determination and Subsequent Years
    15. Proposed Change to the Hospital IQR Program Extraordinary 
Circumstances Exceptions (ECE) Policy
    a. Background
    b. Proposals To Align the Hospital IQR Program ECE Policy With 
Other CMS Quality Programs
    B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
    1. Background
    2. Criteria for Removal and Retention of PCHQR Program Measures
    3. Retention and Proposed Removal of Previously Finalized 
Quality Measures for PCHs Beginning With the FY 2020 Program Year

[[Page 19803]]

    a. Background
    b. Proposed Removal of Measures From the PCHQR Program Beginning 
With the FY 2020 Program Year
    4. Proposed New Quality Measures Beginning With the FY 2020 
Program Year
    a. Considerations in the Selection of Quality Measures
    b. Proposed New Quality Measures Beginning With the FY 2020 
Program Year
    c. Summary of Previously Finalized and Newly Proposed PCHQR 
Program Measures for the FY 2020 Program Year and Subsequent Years
    5. Accounting for Social Risk Factors in the PCHQR Program
    6. Possible New Quality Measure Topics for Future Years
    a. Background
    b. Localized Prostate Cancer: Vitality; Localized Prostate 
Cancer: Urinary Incontinence; Localized Prostate Cancer: Urinary 
Frequency; Obstruction, and/or Irritation; Localized Prostate 
Cancer: Sexual Function; and Localized Prostate Cancer: Bowel 
Function
    c. 30-Day Unplanned Readmission for Cancer Patients
    7. Maintenance of Technical Specifications for Quality Measures
    8. Public Display Requirements
    a. Background
    b. Deferment of Public Display of Two Measures
    9. Form, Manner, and Timing of Data Submission
    a. Background
    b. Proposed Reporting Requirements for the Proposed New Measures
    10. Extraordinary Circumstances Exceptions (ECE) Policy Under 
the PCHQR Program
    a. Background
    b. Proposed Modification to the Exception Policy
    C. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
    1. Background and Statutory Authority
    2. General Considerations Used for Selection of Quality Measures 
for the LTCH QRP
    a. Background
    b. Accounting for Social Risk Factors in the LTCH QRP
    3. Proposed Collection of Standardized Patient Assessment Data 
Under the LTCH QRP
    a. Proposed Definition of Standardized Patient Assessment Data
    b. General Considerations Used for the Selection of Proposed 
Standardized Patient Assessment Data
    4. Policy for Retaining LTCH QRP Measures and Proposal to Apply 
That Policy to Standardized Patient Assessment Data
    5. Policy for Adopting Changes to LTCH QRP Measures and Proposal 
To Apply That Policy to Standardized Patient Assessment Data
    6. Quality Measures Previously Finalized for the LTCH QRP
    7. LTCH QRP Quality Measures Proposed Beginning With the FY 2020 
LTCH QRP
    a. Proposal To Replace the Current Pressure Ulcer Quality 
Measure, Entitled Percent of Residents or Patients With Pressure 
Ulcers That Are New or Worsened (Short Stay) (NQF #0678), With a 
Modified Pressure Ulcer Measure, Entitled Changes in Skin Integrity 
Post-Acute Care: Pressure Ulcer/Injury
    b. Proposed Mechanical Ventilation Process Quality Measure: 
Compliance With Spontaneous Breathing Trial (SBT) by Day 2 of the 
LTCH Stay
    c. Proposed Mechanical Ventilation Outcome Quality Measure: 
Ventilator Liberation Rate
    8. Proposed Removal of the All-Cause Unplanned Readmission 
Measure for 30 Days Post-Discharge From LTCHs From the LTCH QRP
    9. LTCH QRP Quality Measures Under Consideration for Future 
Years
    a. LTCH QRP Quality Measures Under Consideration for Future 
Years
    b. IMPACT Act Measure--Possible Future Update to Measure 
Specifications
    c. IMPACT Act Implementation Update
    10. Proposed Standardized Patient Assessment Data Reporting for 
the LTCH QRP
    a. Proposed Standardized Patient Assessment Data Reporting for 
the FY 2019 LTCH QRP
    b. Proposed Standardized Patient Assessment Data Reporting 
Beginning With the FY 2020 LTCH QRP
    11. Proposals Relating to the Form, Manner, and Timing of Data 
Submission Under the LTCH QRP
    a. Proposed Start Date for Standardized Patient Assessment Data 
Reporting by New LTCHs
    b. Proposed Mechanism for Reporting Standardized Patient 
Assessment Data Beginning With the FY 2019 LTCH QRP
    c. Proposed Schedule for Reporting Standardized Patient 
Assessment Data Beginning With the FY 2019 LTCH QRP
    d. Proposed Schedule for Reporting the Proposed Quality Measures 
Beginning With the FY 2020 LTCH QRP
    e. Proposed Removal of Interrupted Stay Items From the LTCH CARE 
Data Set
    12. Proposed Changes to Previously Codified Participation 
Requirements Under the LTCH QRP
    13. Proposed Changes to Previously Codified Data Submission 
Requirements Under the LTCH QRP
    14. Proposed Changes to Previously Codified Exception and 
Extension Requirements Under the LTCH QRP
    15. Proposed Changes to Previously Codified Reconsiderations 
Requirements Under the LTCH QRP
    16. Proposal To Apply the LTCH QRP Data Completion Thresholds to 
the Submission of Standardized Patient Assessment Data Beginning 
With the FY 2019 LTCH QRP
    17. Proposals and Policies Regarding Public Display of Measure 
Data for the LTCH QRP
    18. Mechanism for Providing Feedback Reports to LTCHs
    D. Inpatient Psychiatric Facility Quality Reporting (IPFQR) 
Program
    1. Background
    a. Statutory Authority
    b. Covered Entities
    c. Considerations in Selecting Quality Measures
    2. Factors for Removal or Retention of IPFQR Program Measures
    a. Background
    b. Proposed Considerations in Removing or Retaining Measures
    3. Proposed New Quality Measure for the FY 2020 Payment 
Determination and Subsequent Years--Medication Continuation 
Following Inpatient Psychiatric Discharge
    a. Background
    b. Appropriateness for the IPFQR Program
    c. Measure Calculation
    d. Data Sources
    e. Public Comment
    4. Summary of Proposed and Previously Finalized Measures for the 
FY 2020 Payment Determinations and Subsequent Years
    5. Possible IPFQR Program Measures and Topics for Future 
Consideration
    6. Public Display and Review Requirements
    7. Form, Manner, and Timing of Quality Data Submission for the 
FY 2019 Payment Determination and Subsequent Years
    a. Procedural Requirements for FY 2019 Payment Determination and 
Subsequent Years
    b. Data Submission Requirements for the FY 2019 Payment 
Determination and Subsequent Years
    c. Reporting Requirements for the FY 2019 Payment Determination 
and Subsequent Years
    d. Population and Sampling
    e. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements
    8. Reconsideration and Appeals Procedures
    9. Extraordinary Circumstances Exceptions (ECE) for the IPFQR 
Program
    a. Background
    b. Proposed ECE Policy Modifications
    E. Clinical Quality Measurement for Eligible Hospitals and 
Critical Access Hospitals (CAHs) Participating in the EHR Incentive 
Programs
    1. Background
    2. Proposed Modifications to the CQM Reporting Requirements for 
the Medicare and Medicaid EHR Incentive Programs for CY 2017
    a. Background
    b. Proposed Changes to Policies Regarding Electronic Reporting 
of CQMs for CY 2017
    3. CQM Reporting for the Medicare and Medicaid EHR Incentive 
Programs in 2018
    a. Background
    b. CQM Reporting Period for the Medicare and Medicaid EHR 
Incentive Programs in CY 2018
    c. CQM Reporting Form and Method for the Medicare EHR Incentive 
Program in 2018
    F. Clinical Quality Measurement for Eligible Professionals (EPs) 
Participating in the Medicaid EHR Incentive Program in 2017

[[Page 19804]]

    1. Proposed Modifications to the CQM Reporting Period for EPs in 
2017
    2. Proposed Modifications to CQM Reporting Requirements for 
Medicaid EPs Under the Medicaid EHR Incentive Program
    G. Changes to the Medicare and Medicaid EHR Incentive Programs
    1. Proposed Revisions to the EHR Reporting Period in 2018
    2. Significant Hardship Exception for Decertified Certified EHR 
Technology (CEHRT) for EPs, Eligible Hospitals, and CAHs Seeking To 
Avoid the Medicare Payment Adjustment
    3. Ambulatory Surgical Center (ASC)-Based Eligible Professionals 
(EPs)
    4. Certification Requirements for 2018 X. Proposed Revisions of 
Medicare Cost Reporting and Provider Requirements
    A. Electronic Signature and Submission of the Certification and 
Settlement Summary Page of the Medicare Cost Report
    1. Background
    2. Proposed Changes Relating to Electronic Signature on the 
Certification and Settlement Summary Page of the Medicare Cost 
Report
    3. Proposed Changes Relating to Electronic Submission of the 
Certification and Settlement Summary Page of the Medicare Cost 
Report
    4. Clarifications Relating to the Items Required To Be Submitted 
by Providers With the Medicare Cost Report
    a. Settlement Summary and Certification Statement
    b. Removal of the Transition Period Language
    5. Proposed Revisions to 42 CFR 413.24(f)(4)(iv)
    B. Clarification of Limitations on the Valuation of Depreciable 
Assets Disposed of On or After December 1, 1997
XI. Proposed Changes Relating to Survey and Certification 
Requirements
    A. Proposed Revisions to the Application and Re-Application 
Procedures for National Accrediting Organizations (AOs), Provider 
and Supplier Conditions, and Posting of Survey Reports and 
Acceptable Plans of Corrections (PoCs)
    1. Background
    2. Proposed Regulation Changes
    B. Proposed Changes to Termination Public Notice Requirements 
for Certain Providers and Suppliers
    1. Background
    2. Basis for Proposed Changes
    3. Proposed Changes to Regulations
XII. MedPAC Recommendations
XIII. Other Required Information
    A. Publicly Available Data
    1. CMS Wage Data Public Use File
    2. CMS Occupational Mix Data Public Use File
    3. Provider Occupational Mix Adjustment Factors for Each 
Occupational Category Public Use File
    4. Other Wage Index Files
    5. FY 2018 IPPS SSA/FIPS CBSA State and County Crosswalk
    6. HCRIS Cost Report Data
    7. Provider-Specific File
    8. CMS Medicare Case-Mix Index File
    9. MS-DRG Relative Weights (Also Table 5--MS-DRGs)
    10. IPPS Payment Impact File
    11. AOR/BOR Table
    12. Prospective Payment System (PPS) Standardized File
    13. Hospital Readmissions Reductions Program Supplemental File
    14. Medicare Disproportionate Share Hospital (DSH) Supplemental 
File
    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 
2018 Wage Index (Hospital Wage Index Occupational Mix Survey)
    4. Hospital Applications for Geographic Reclassifications by the 
MGCRB
    5. ICRs for Temporary Exception to the LTCH PPS Site Neutral 
Payment Rate for Certain Spinal Cord Specialty Hospitals
    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 
Program (LTCH QRP)
    10. ICRs for the Inpatient Psychiatric Facility Quality 
Reporting (IPFQR) Program
    11. ICRs for the Electronic Health Record (EHR) Incentive 
Programs and Meaningful Use
    12. ICRs Relating to Proposed Electronic Signature and 
Electronic Submission of the Certification and Settlement Summary 
Page of Medicare Cost Reports
    13. ICRs Relating to Survey and Certification Requirements
    C. Request for Information on CMS Flexibilities and Efficiencies
    D. Response to Public Comments
Regulation Text
Addendum--Proposed Schedule of Standardized Amounts, Update Factors, 
and Rate-of-Increase Percentages Effective With Cost Reporting 
Periods Beginning on or After October 1, 2017 and Payment Rates for 
LTCHs Effective With Discharges Occurring on or After October 1, 
2017
I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2018
    A. Calculation of the Adjusted Standardized Amount
    B. Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs for FY 2018
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2018
    C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Excluded Hospitals: 
Proposed Rate-of-Increase Percentages for FY 2018
V. Proposed Changes to the Payment Rates for the LTCH PPS for FY 
2018
    A. Proposed LTCH PPS Standard Federal Payment Rate for FY 2018
    B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS 
for FY 2018
    1. Background
    2. Geographic Classifications (Labor Market Areas) for the LTCH 
PPS Standard Federal Payment Rate
    3. Proposed Labor-Related Share for the LTCH PPS Standard 
Federal Payment Rate
    4. Proposed Wage Index for FY 2018 for the LTCH PPS Standard 
Federal Payment Rate
    5. Proposed Budget Neutrality Adjustment for Changes to the LTCH 
PPS Standard Federal Payment Rate Area Wage Level Adjustment
    C. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs 
Located in Alaska and Hawaii
    D. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) 
Cases
    E. 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 2018
VI. Tables Referenced in This Proposed Rule and Available Only 
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 Relating to New Medical Service 
and Technology Add-On Payments
    2. Effects of Proposed Changes to MS-DRGs Subject to the 
Postacute Care Transfer Policy and the MS-DRG Special Payment Policy
    3. Effects of the Proposed Changes to the Volume Decrease 
Adjustment for Sole Community Hospitals (SCHs)
    4. Effects of Proposed Changes to Low-Volume Hospital Payment 
Adjustment Policy
    5. Effects of the Proposed Changes to Medicare DSH and 
Uncompensated Care Payments for FY 2018

[[Page 19805]]

    6. Effects of Proposed Reduction Under the Hospital Readmissions 
Reduction Program
    7. Effects of Proposed Changes Under the FY 2018 Hospital Value-
Based Purchasing (VBP) Program
    8. Effects of Proposed Changes to the HAC Reduction Program for 
FY 2018
    9. Effects of Implementation of the Additional 5-Year Expansion 
of the Rural Community Hospital Demonstration Program
    10. Effects of the Proposed Changes Relating to Provider-Based 
Status of Indian Health Service and Tribal Facilities and 
Organizations
    11. Effects of the Proposed Changes Relating to Hospital-Within-
Hospital Policy
    12. Effects of Continued Implementation of the Frontier 
Community Health Integration Project (FCHIP) Demonstration
    I. Effects of Proposed Changes in the Capital IPPS
    1. General Considerations
    2. Results
    J. Effects of Proposed Payment Rate Changes and Policy Changes 
Under the LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals
    3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes 
and Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    K. Effects of Proposed Requirements for Hospital Inpatient 
Quality Reporting (IQR) Program
    L. Effects of Proposed Requirements for the PPS-Exempt Cancer 
Hospital Quality Reporting (PCHQR) Program
    M. Effects of Proposed Requirements for the Long-Term Care 
Hospital Quality Reporting Program (LTCH QRP)
    N. Effects of Proposed Updates to the Inpatient Psychiatric 
Facility Quality Reporting (IPFQR) Program
    O. Effects of Proposed Requirements Regarding the Electronic 
Health Record (EHR) Incentive Programs and Meaningful Use
    P. Effects of Proposed Electronic Signature and Electronic 
Submission of the Certification and Settlement Summary Page of 
Medicare Cost Reports
    Q. Effects of Proposed Changes Relating to Survey and 
Certification Requirements
    R. Effects of Clarification of Limitations on the Valuation of 
Depreciable Assets Disposed of on or After December 1, 1997
    S. Alternatives Considered
    T. Reducing Regulation and Controlling Regulatory Costs
    U. Overall Conclusion
    1. Acute Care Hospitals
    2. LTCHs
    V. Regulatory Review Costs
II. Accounting Statements and Tables
    A. Acute Care Hospitals
    B. LTCHs
III. Regulatory Flexibility Act (RFA) Analysis
IV. Impact on Small Rural Hospitals
V. Unfunded Mandate Reform Act (UMRA) Analysis
VI. Executive Order 13175
VII. 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 2018
    A. Proposed FY 2018 Inpatient Hospital Update
    B. Proposed Update for SCHs for FY 2018
    C. Proposed FY 2018 Puerto Rico Hospital Update
    D. Proposed Update for Hospitals Excluded From the IPPS
    E. Proposed Update for LTCHs for FY 2018
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. We also are making 
proposals relating to the provider-based status of Indian Health 
Service (IHS) and Tribal facilities and organizations and to the IPPS 
low-volume hospital payment adjustment for hospitals operated by the 
IHS or a Tribe. 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.
    We are proposing to establish new requirements or revising 
requirements for quality reporting by specific providers (acute care 
hospitals, PPS-exempt hospitals, LTCHs, and inpatient psychiatric 
facilities) that are participating in Medicare. We also are proposing 
to establish new requirements or revise existing requirements for 
eligible professionals (EPs), eligible hospitals, and CAHs 
participating in the Medicare and Medicaid EHR Incentive Programs. 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. We also 
are proposing changes related to the transparency of accrediting 
organization survey reports and plans of correction; to allow 
electronic signature and electronic submission of the Certification and 
Settlement Summary page of the Medicare cost reports; and to clarify 
provider reimbursement regulations relative to the sale or scrapping of 
depreciable assets on or after December 1, 1997.
    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 2018 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; long-term care neoplastic disease hospitals, and hospitals 
located outside the 50 States, the District of Columbia, and Puerto 
Rico (that is, hospitals located in the U.S. 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 the BBRA (Pub. L. 106-113) and 
section 307(b)(1) of the BIPA (Pub. L. 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(a)(4) of the Act, which specifies that costs 
of approved

[[Page 19806]]

educational activities are excluded from the operating costs of 
inpatient hospital services. Hospitals with approved graduate medical 
education (GME) programs are paid for the direct costs of GME in 
accordance with section 1886(h) of the Act.
     Section 1886(b)(3)(B)(viii) of the Act, which requires the 
Secretary to reduce the applicable percentage increase that would 
otherwise apply to the standardized amount applicable to a subsection 
(d) hospital for discharges occurring in 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 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 and section 15002 of the 21st Century Cures Act, which 
establishes the ``Hospital Readmissions Reduction Program.'' Under the 
program, payments for discharges from an ``applicable hospital'' under 
section 1886(d) of the Act will be reduced to account for certain 
excess readmissions. Section 15002 of the 21st Century Cures Act 
requires the Secretary to compare cohorts of hospitals to each other in 
determining the extent of 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 hospital (DSH) 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 requires 
that, for fiscal year 2014 and each subsequent fiscal year, subsection 
(d) hospitals that would otherwise receive a DSH payment made under 
section 1886(d)(5)(F) of the Act will receive two separate payments: 
(1) 25 percent of the amount they previously would have received under 
section 1886(d)(5)(F) of the Act for DSH (``the empirically justified 
amount''), and (2) an additional payment for the DSH hospital's 
proportion of uncompensated care, determined as the product of three 
factors. These three factors are: (1) 75 percent of the payments that 
would otherwise be made under section 1886(d)(5)(F) of the Act; (2) 1 
minus the percent change in the percent of individuals who are 
uninsured (minus 0.2 percentage points for FY 2018 through FY 2019); 
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 Sustainable Growth Rate (SGR) Reform Act 
of 2013 (Pub. L. 113-67), which provided for the establishment of site 
neutral payment rate criteria under the LTCH PPS with implementation 
beginning in FY 2016.
     Section 1886(m)(6) of the Act, as amended by section 15009 
of the 21st Century Cures Act (Pub. L. 114-255), which provides for a 
temporary exception to the application of the site neutral payment rate 
under the LTCH PPS for certain spinal cord specialty hospitals for 
discharges in cost reporting periods beginning during FYs 2018 and 
2019.
     Section 1886(m)(6) of the Act, as amended by section 15010 
of the 21st Century Cures Act (Pub. L. 114-255), which provides for a 
temporary exception to the application of the site neutral payment rate 
under the LTCH PPS for certain LTCHs with certain discharges with 
severe wounds occurring in cost reporting periods beginning during FY 
2018.
     Section 1886(m)(5)(D)(iv) of the Act, as added by section 
1206 (c) of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 
2013 (Pub. L. 113-67), which provides for the establishment of a 
functional status quality measure under the LTCH QRP for change in 
mobility among inpatients requiring ventilator support.
     Section 1899B of the Act, as added by the Improving 
Medicare Post-Acute Care Transformation Act of 2014 (the IMPACT Act, 
Pub. L. 113-185), which imposes data reporting requirements for certain 
post-acute care providers, including LTCHs.
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. The FY 2014 through FY 2017 adjustments represented 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. Section 
414 of the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 
(Pub. L. 114-10) replaced the single positive adjustment we intended to 
make in FY 2018 with a 0.5 percent positive adjustment to the 
standardized amount of Medicare payments to acute care hospitals for 
FYs 2018 through 2023. The FY 2018 adjustment was subsequently adjusted 
to 0.4588 percent by section 15005 of the 21st Century Cures Act.
    For FY 2018, we are proposing to make the 0.4588 percent positive 
adjustment to the standardized amount as required by section 414 of 
Public Law 114-10, as amended by section 15005 of the 21st Century 
Cures Act.
b. Adjustment to IPPS Rates Resulting From 2-Midnight Policy
    In FY 2017, we made a permanent adjustment to the standardized 
amount, the hospital-specific payment rates, and the national capital 
Federal rate to prospectively remove the 0.2 percent reduction to the 
rates put in place in FY 2014 to offset the estimated increase in IPPS 
expenditures as a result of the 2-midnight policy. In addition, we made 
a temporary one-time prospective increase to the FY 2017 standardized 
amount, the hospital-specific payment rates, and the national capital 
Federal rate of 0.6 percent by including a temporary one-time factor of 
1.006 in the calculation of the standardized amount, the hospital-
specific payment rates, and the national capital Federal rate to 
address the effects of the 0.2 percent reduction to the rate for the 2-
midnight policy in effect for FYs 2014, 2015, and 2016.
    For FY 2018, we are including a factor of (1/1.006) in the 
calculation of the FY 2018 standardized amount, the hospital-specific 
payment rates, and the national capital Federal rate to remove the 
temporary one-time factor of 1.006, as established in the FY 2017 IPPS/
LTCH PPS final rule.

[[Page 19807]]

c. Reduction of Hospital Payments for Excess Readmissions
    We are proposing to make changes to policies for 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, as amended by section 10309 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 FY 2018 and 
subsequent years, the reduction is based on a hospital's risk-adjusted 
readmission rate during a 3-year period for acute myocardial infarction 
(AMI), heart failure (HF), pneumonia, chronic obstructive pulmonary 
disease (COPD), total hip arthroplasty/total knee arthroplasty (THA/
TKA), and coronary artery bypass graft (CABG). In this proposed rule, 
we are proposing the following policies: (1) Specify applicable time 
period for FY 2018; (2) specify the calculation of aggregate payments 
for excess readmissions for FY 2018; (3) propose changes to the payment 
adjustment factor in accordance with the 21st Century Cures Act for FY 
2019; and (4) update the Extraordinary Circumstances Exception policy.
d. Hospital Value-Based Purchasing (VBP) Program
    Section 1886(o) of the Act requires the Secretary to establish a 
Hospital VBP Program under which value-based incentive payments are 
made in a fiscal year to hospitals based on their performance on 
measures established for a performance period for such fiscal year. In 
this proposed rule, we are proposing to remove one previously adopted 
measure, the PSI 90: Patient Safety for Selected Indicators measure, 
from the Hospital VBP Program beginning with the FY 2019 program year. 
We also are proposing to adopt one new measure, Hospital-Level, Risk-
Standardized Payment Associated with a 30-Day Episode of Care for 
Pneumonia, beginning with the FY 2022 program year, and to adopt a 
modified version of a previously adopted measure, Patient Safety and 
Adverse Events Composite (NQF #0531), beginning with the FY 2023 
program year. In addition, we are proposing two modifications to our 
domain scoring policies beginning with the FY 2019 program year, and 
further proposing a new weighting methodology for the Efficiency and 
Cost Reduction domain. We also are inviting public comment on the 
appropriateness of accounting for social risk factors in the Hospital 
VBP Program, including which social risk factors should be included; 
and how to account for these social risk factors in the Hospital VBP 
Program.
e. Hospital-Acquired Condition (HAC) Reduction Program
    Section 1886(p) of the Act, as added under section 3008(a) of the 
Affordable Care Act, establishes an incentive to hospitals to reduce 
the incidence of hospital-acquired conditions by requiring the 
Secretary to make an adjustment to payments to applicable hospitals 
effective for discharges beginning on October 1, 2014. 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. 
In this proposed rule, we are proposing the following policies: (1) 
Specifying the dates of the time period used to calculate hospital 
performance for the FY 2020 HAC Reduction Program; (2) requesting 
comments on additional measures for potential future adoption; (3) 
requesting comments on social risk factors; (4) requesting comments on 
accounting for disability and medical complexity in the CDC NHSN 
measures in Domain 2; and (5) updating the HAC Reduction Program's 
Extraordinary Circumstances Exception policy.
f. DSH Payment Adjustment and 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 receive 25 
percent of the amount they previously would have received under the 
statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of 
the Act. The remaining amount, equal to 75 percent of the amount that 
otherwise would have been paid as Medicare DSH payments, is paid as 
additional payments after the amount is reduced for changes in the 
percentage of individuals that are uninsured. Each Medicare DSH will 
receive an additional payment based on its share of the total amount of 
uncompensated care for all Medicare DSHs for a given time period.
    In this proposed rule, we are proposing to update our estimates of 
the three factors used to determine uncompensated care payments for FY 
2018. The statute permits the use of a data source other than the CBO 
estimates to determine the percent change in the rate of uninsurance as 
part of the calculation of Factor 2 beginning in FY 2018. We are 
proposing to use uninsured estimates produced by CMS' Office of the 
Actuary (OACT) as part of the development of the National Health 
Expenditure Accounts (NHEA) in the calculation of Factor 2. We also are 
proposing to begin incorporating data from Worksheet S-10 in the 
calculation of hospitals' share of uncompensated care by combining data 
on uncompensated care costs from the Worksheet S-10 for FY 2014 with 
proxy data regarding a hospital's share of low-income insured days for 
FYs 2012 and 2013 to determine Factor 3 for FY 2018. The proposal to 
continue to use data from three cost reporting periods to calculate 
Factor 3 would have the effect of transitioning from the use of the 
proxy data on low-income insured days toward use of uncompensated care 
data from Worksheet S-10. As part of this proposal, we are proposing a 
definition of uncompensated care costs consisting of the sum of charity 
care and bad debt and a trim methodology to address anomalous charges. 
We also are proposing that, for Puerto Rico hospitals and Indian Health 
Service and Tribal hospitals, we would substitute data regarding low-
income insured days for FY 2013 for the Worksheet S-10 data from FY 
2014 cost reports.
    We are proposing to continue the policies that were finalized in FY 
2015 to address several specific issues concerning the process and data 
to be employed in determining hospitals' share of uncompensated care in 
the case of hospital mergers. We also are proposing to continue the 
policies finalized in FY 2017 concerning the methodology for 
calculating each hospital's relative share of uncompensated care, such 
as combining data from multiple cost reports beginning in the same 
fiscal year and averaging the sum of three individual Factor 3s by the 
number of cost reporting periods with data. In addition, we are 
proposing to annualize hospital cost reports that do not span 12 
months. We also are proposing to apply a scaling factor to each 
hospital's uncompensated care amount so that total uncompensated care 
payments will be consistent with the estimated amount available to make 
uncompensated care payments for FY 2018.

[[Page 19808]]

g. Proposed Changes to the LTCH PPS
    In this proposed rule, we set forth proposed changes to the LTCH 
PPS Federal payment rates, factors, and other payment rate policies 
under the LTCH PPS for FY 2018; proposed changes to the payment 
methodology under the short-stay outlier (SSO) policy; proposals to 
implement several provisions of the 21st Century Cures Act; and a 
proposal to adopt a 1-year regulatory delay on the full implementation 
of the 25-percent threshold policy for discharges occurring in FY 2018 
(that is, for the fiscal year after expiration of the current statutory 
moratoria under the 21st Century Cures Act, which is set to expire 
September 30, 2017).
h. Hospital Inpatient Quality Reporting (IQR) Program
    Under section 1886(b)(3)(B)(viii) of the Act, subsection (d) 
hospitals are required to report data on measures selected by the 
Secretary for a fiscal year in order to receive the full annual 
percentage increase that would otherwise apply to the standardized 
amount applicable to discharges occurring in that fiscal year. In past 
years, we have established measures on which hospitals must report data 
and the process for submittal and validation of the data.
    In this proposed rule, we are proposing to make several changes. 
First, we are proposing to refine two previously adopted measures. 
Specifically, we are proposing to update the Hospital Consumer 
Assessment of Healthcare Providers and Systems (HCAHPS) Survey measure 
by replacing the three existing questions about Pain Management with 
three new questions that address Communication About Pain During the 
Hospital Stay, beginning with the FY 2020 payment determination. In 
addition, we are proposing to update the stroke mortality measure to 
include the use of NIH Stroke Scale claims data for risk adjustment, 
beginning with the FY 2023 payment determination.
    Second, we are proposing to adopt the Hospital-Wide All-Cause 
Unplanned Readmission Hybrid Measure as a voluntary measure for the CY 
2018 reporting period and note that we are considering proposing this 
measure as a required measure as early as the CY 2021 reporting period/
FY 2023 payment determination and requiring hospitals to submit the 
core clinical data elements and linking variables used in the measure 
as early as CY 2020 to support a dry run of the measure during which 
hospitals would receive a confidential preview of their results in 
2021.
    Third, we are proposing modifications of our previously finalized 
eCQM reporting requirements. For the CY 2017 reporting period/FY 2019 
payment determination, we are proposing that hospitals would be 
required to select and submit six of the available eCQMs included in 
the Hospital IQR Program measure set and provide two, self-selected, 
calendar year quarters of data. For the CY 2018 reporting period/FY 
2020 payment determination, we are proposing that hospitals would be 
required to select and submit six of the available eCQMs, and provide 
data for the first three calendar quarters (Q1-Q3). These modifications 
are being proposed in alignment with proposals for the Medicare and 
Medicaid EHR Incentive Programs, and would decrease the required number 
of eCQMs and quarters of reporting as compared with the previously 
finalized requirements in the FY 2017 IPPS/LTCH PPS final rule.
    Fourth, we are proposing modifications to the eCQM validation 
process if our proposals to modify the eCQM reporting requirements for 
the CY 2017 reporting period/FY 2019 payment determination and CY 2018 
reporting period/FY 2020 payment determination are finalized as 
proposed, whereby hospitals would be required to submit a reduced 
number of cases for eCQM data validation for the FY 2020 and FY 2021 
payment determinations. In addition, we are proposing policies related 
to the exclusion criteria for hospital selection and the data 
submission requirements for participating hospitals.
    Fifth, we are proposing to modify our educational review process 
for chart-abstracted measures for the FY 2020 payment determination and 
subsequent years, such that educational reviews would be offered 
quarterly for the first three quarters of validation. Hospitals would 
be allowed 30 calendar days following the date the results of 
validation are posted to request an educational review. Also, we are 
proposing that if an educational review demonstrates that the 
abstraction score calculated by CMS is incorrect, we would use the 
corrected quarterly score to compute the final confidence interval.
    Sixth, we are making proposals related to our Hospital IQR Program 
Extraordinary Circumstances Extension or Exemptions (ECE) policy, 
including a change to the name of the policy to Extraordinary 
Circumstances Exceptions policy.
    Finally, we are inviting public comment on accounting for social 
risk factors in the Hospital IQR Program, the confidential and 
potential future public reporting of clinical quality measure data 
stratified by patients' dual-eligible status, and the following 
clinical quality measures that we are considering for future inclusion 
in the Hospital IQR Program: (1) Quality of Informed Consent Documents 
for Hospital-Performed, Elective Procedures measure; (2) four End-of-
Life process and outcome measures for cancer patients; (3) two nurse 
staffing measures; and (4) eleven newly specified electronic clinical 
quality measures (eCQMs).
i. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
    Section 1886(m)(5) of the Act requires LTCHs to report certain 
quality data to CMS in order to receive their full annual update under 
the LTCH PPS. In this proposed rule, we are proposing to adopt one new 
outcome measure related to pressure ulcers and two new measures (one 
process and one outcome) related to ventilator weaning. We also are 
proposing to define the standardized patient assessment data that LTCHs 
must report to comply with section 1886(m)(5)(F)(ii) of the Act, as 
well as the requirements for the reporting of these data. Finally, we 
are proposing to publicly report data on four assessment-based measures 
and three claims-based measures.
j. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program
    For the Inpatient Psychiatric Facility Quality Reporting (IPFQR) 
Program, we are making several proposals. First, beginning with the FY 
2020 payment determination, we are proposing the Medication 
Continuation following Inpatient Psychiatric Discharge measure. Second, 
beginning with the FY 2019 payment determination (that is, for 
extraordinary circumstances occurring during CY 2018), we are proposing 
to update the IPFQR Program's extraordinary circumstances exception 
(ECE) policy by: (1) Allowing designated personnel to provide their 
contact information and sign the ECE request in lieu of the Chief 
Executive Officer (CEO); (2) allowing up to 90 days after the 
extraordinary circumstance to submit the request; and (3) stating that 
we will strive to respond to requests for ECEs within 90 days of 
receiving these requests. Third, we are proposing to change the annual 
data submission period from a specific date range to a 45-day period 
that begins at least 30 days following the end of the collection 
period. Fourth, we are proposing to align our deadline for submission 
of a Notice of Participation (NOP) or

[[Page 19809]]

program withdrawal with this proposed data submission timeframe. 
Finally, we are proposing factors by which we will evaluate measures 
for removal from the IPFQR Program. These factors align with those in 
use in other quality reporting programs.
3. Summary of Costs and Benefits
     Adjustment for MS-DRG Documentation and Coding Changes. 
Section 414 of the MACRA replaced the single positive adjustment we 
intended to make in FY 2018 once the recoupment required by section 631 
of the ATRA was complete with a 0.5 percent positive adjustment to the 
standardized amount of Medicare payments to acute care hospitals for 
FYs 2018 through 2023. The FY 2018 adjustment was subsequently adjusted 
to 0.4588 percent by section 15005 of the 21st Century Cures Act (Pub. 
L. 114-255). For FY 2018, we are proposing to make the 0.4588 percent 
positive adjustment to the standardized amount as required by these 
provisions.
     Adjustment to IPPS Payment Rates as a Result of the 2-
Midnight Policy. The removal of the adjustment to IPPS rates resulting 
from the 2-midnight policy will decrease IPPS payment rates by (1/
1.006) for FY 2018. The (1/1.006) is a one-time factor that will be 
applied to the standardized amount, the hospital-specific rates, and 
the national capital Federal rate for FY 2018 only.
     Medicare DSH Payment Adjustment and Additional Payment for 
Uncompensated Care. Under section 1886(r) of the Act (as added by 
section 3133 of the Affordable Care Act), DSH payments to hospitals 
under section 1886(d)(5)(F) of the Act are reduced and an additional 
payment for uncompensated care is made to eligible hospitals beginning 
in FY 2014. Hospitals that receive Medicare DSH payments receive 25 
percent of the amount they previously would have received under the 
statutory formula for Medicare DSH payments in section 1886(d)(5)(F) of 
the Act. The remainder, equal to an estimate of 75 percent of what 
otherwise would have been paid as Medicare DSH payments, is the basis 
for determining the additional payments for uncompensated care 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 for 
uncompensated care 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 2018, we are proposing that the 75 percent of what otherwise 
would have been paid for Medicare DSH will be adjusted to approximately 
58.01 percent of the amount to reflect changes in the percentage of 
individuals that are uninsured and additional statutory adjustments. In 
other words, approximately 43.51 percent (the product of 75 percent and 
58.01 percent) of our estimate of Medicare DSH payments, prior to the 
application of section 3133 of the Affordable Care Act, would be 
available to make additional payments to hospitals for their relative 
share of the total amount of uncompensated care.
    We project that estimated Medicare DSH payments, and additional 
payments for uncompensated care made for FY 2018, will increase 
payments overall by approximately 0.8 percent as compared to the 
estimate of overall payments, including Medicare DSH payments and 
uncompensated care payments, that will be distributed in FY 2017. The 
additional payments have redistributive effects based on a hospital's 
uncompensated care amount relative to the uncompensated care amount for 
all hospitals that are estimated to receive Medicare DSH payments, and 
the calculated payment amount is not directly tied to a hospital's 
number of discharges.
     Proposed Changes to the Hospital Readmissions Reduction 
Program. For FY 2018 and subsequent years, the reduction is based on a 
hospital's risk-adjusted readmission rate during a 3-year period for 
acute myocardial infarction (AMI), heart failure (HF), pneumonia, 
chronic obstructive pulmonary disease (COPD), total hip arthroplasty/
total knee arthroplasty (THA/TKA), and coronary artery bypass graft 
(CABG). Overall, in this proposed rule, we estimate that 2,591 
hospitals would have their base operating DRG payments reduced by their 
determined proxy FY 2018 hospital-specific readmission adjustment. As a 
result, we estimate that the Hospital Readmissions Reduction Program 
would save approximately $564 million in FY 2018, an increase of 
approximately $27 million over the estimated FY 2017 savings.
     Value-Based Incentive Payments Under the Hospital VBP 
Program. We estimate that there would be no net financial impact to the 
Hospital VBP Program for the FY 2018 program year in the aggregate 
because, by law, the amount available for value-based incentive 
payments under the program in a given year must be equal to the total 
amount of base operating MS-DRG payment amount reductions for that 
year, as estimated by the Secretary. The estimated amount of base 
operating MS-DRG payment amount reductions for the FY 2018 program year 
and, therefore, the estimated amount available for value-based 
incentive payments for FY 2018 discharges is approximately $1.9 
billion.
     Proposed Changes to the HAC Reduction Program. A 
hospital's Total HAC score and its ranking in comparison to other 
hospitals in any given year depends on several different factors. Any 
significant impact due to the proposed HAC Reduction Program changes 
for FY 2018, including which hospitals will receive the adjustment, 
will depend on actual experience.
     Update to the LTCH PPS Payment Rates and Other Payment 
Factors. Based on the best available data for the 415 LTCHs in our 
database, we estimate that the proposed changes to the payment rates 
and factors that we are presenting in the preamble and Addendum of this 
proposed rule, which reflects the rolling end to the transition of the 
statutory application of the site neutral payment rate required by 
section 1886(m)(6)(A) of the Act, the proposed update to the LTCH PPS 
standard Federal payment rate for FY 2018, and estimated changes to the 
site neutral payment rate and high-cost outlier (HCO) payments would 
result in an estimated decrease in payments from FY 2017 of 
approximately $238 million.
     Proposed Changes to the 25-Percent Threshold Policy. In 
this proposed rule, we estimate our proposal to adopt a 1-year 
regulatory delay of the full implementation of the 25-percent threshold 
policy for discharges occurring in FY 2018 would increase payments to 
LTCHs in FY 2018 by $50 million.
     Proposed Changes to the Hospital Inpatient Quality 
Reporting (IQR) Program. Across 3,300 IPPS hospitals, we estimate that 
our policy proposals would result in the following changes to costs and 
benefits in the Hospital IQR Program compared to previously finalized 
requirements: (1) A cost reduction of $361,240 for the FY 2019 payment 
determination due to the proposed updates to the eCQM reporting 
requirements; (2) a total net cost reduction of $392,963 for the FY 
2020 payment determination due to the proposed updates to the eCQM 
reporting requirements, the proposed updates to the eCQM validation 
procedures, and the proposed voluntary reporting of the new Hybrid 
Hospital-Wide Readmission measure; and (3) a total cost reduction of 
$70,048 for the FY 2021 payment determination due to

[[Page 19810]]

the proposed updates to the eCQM validation procedures.
     Proposed Changes Related to the LTCH QRP. In this proposed 
rule, we are proposing one outcome measure related to pressure ulcers 
and two new measures (one process and one outcome) related to 
ventilator weaning. We also are proposing to specify the use of the 
standardized patient assessment data as required under section 
1899B(b)(1)(B) of the Act and policies regarding public display of 
measure data. Overall, the cost associated with the proposed changes to 
the LTCH QRP is estimated at an additional $3,187.15 per LTCH annually, 
or $1,357,726 for all LTCHs annually.
     Proposed Changes to the IPFQR Program. In this proposed 
rule, we are proposing to adopt one claims based measure, update our 
ECE process, change the specification of the data submission period, 
align the timeframe for submission of the NOP or program withdrawal 
with the data submission period, and establish criteria to evaluate 
measures for retention or removal. We do not believe that these 
policies will have any impact on the IPFQR program burden.

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 training residents in an approved residency 
program(s), 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. SCHs are the sole source of care 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.
    Under current law, the Medicare-dependent, small rural hospital 
(MDH) program is effective through FY 2017. Through and including FY 
2006, an MDH received the higher of the Federal rate or the Federal 
rate plus 50 percent of the amount by which the Federal rate was 
exceeded by the higher of its FY 1982 or FY 1987 hospital-specific 
rate. For discharges occurring on or after October 1, 2007, but before 
October 1, 2017, an MDH receives 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. MDHs are a major source of care for Medicare 
beneficiaries in their areas. 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).
    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: Inpatient rehabilitation facility (IRF) 
hospitals and units; long-term care hospitals (LTCHs); psychiatric 
hospitals and units; children's hospitals; cancer hospitals; long-term 
care neoplastic

[[Page 19811]]

disease hospitals (formerly LTCHs classified under section 
1886(d)(1)(B)(iv)(II) of the Act and redesignated by section 15008 of 
Pub. L. 114-255) and hospitals located outside the 50 States, the 
District of Columbia, and Puerto Rico (that is, hospitals located in 
the U.S. Virgin Islands, Guam, 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 IRF 
hospitals and units, LTCHs, and psychiatric hospitals and units 
(referred to as inpatient psychiatric facilities (IPFs)). (We note that 
the annual updates to the LTCH PPS are now included as part of the IPPS 
annual update document. Updates to the IRF PPS and IPF PPS are issued 
as separate documents.) Children's hospitals, cancer hospitals, 
hospitals located outside the 50 States, the District of Columbia, and 
Puerto Rico (that is, hospitals located in the U.S. Virgin Islands, 
Guam, 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.
    The existing regulations governing payments to excluded hospitals 
and hospital units are located in 42 CFR parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    The Medicare prospective payment system (PPS) for LTCHs applies to 
hospitals described in section 1886(d)(1)(B)(iv) of the Act effective 
for cost reporting periods beginning on or after October 1, 2002. The 
LTCH PPS was established under the authority of sections 123 of the 
BBRA and section 307(b) of the BIPA (as codified under section 
1886(m)(1) of the Act). During the 5-year (optional) transition period, 
a LTCH's payment under the PPS was based on an increasing proportion of 
the LTCH Federal rate with a corresponding decreasing proportion based 
on reasonable cost principles. Effective for cost reporting periods 
beginning on or after October 1, 2006, all LTCHs are paid 100 percent 
of the Federal rate. Section 1206(a) of the Pathway for SGR Reform Act 
of 2013 (Pub. L. 113-67) established the site neutral payment rate 
under the LTCH PPS, which made the LTCH PPS a dual rate payment system 
beginning in FY 2016. Under this statute, based on a rolling effective 
date that is linked to the date on which a given LTCH's Federal FY 2016 
cost reporting period begins, LTCHs are paid for LTCH discharges at the 
site neutral payment rate unless the discharge meets the patient 
criteria for payment at the LTCH PPS standard Federal payment rate. The 
existing regulations governing payment under the LTCH PPS are located 
in 42 CFR part 412, subpart O. Beginning October 1, 2009, we issue the 
annual updates to the LTCH PPS in the same documents that update the 
IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
    Under sections 1814(l), 1820, and 1834(g) of the Act, payments made 
to critical access hospitals (CAHs) (that is, rural hospitals or 
facilities that meet certain statutory requirements) for inpatient and 
outpatient services are generally based on 101 percent of reasonable 
cost. Reasonable cost is determined under the provisions of section 
1861(v) of the Act and existing regulations under 42 CFR part 413.
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 Proposed To Be 
Implemented in This Proposed Rule

1. The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), 
the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 (Pub. 
L. 114-10), and the 21st Century Cures Act (Pub. L. 114-255)
    Section 631 of the American Taxpayer Relief Act of 2012 (ATRA) 
(Pub. L. 112-240) amended section 7(b)(1)(B) of Public Law 110-90 to 
require CMS to make a recoupment adjustment to the standardized amounts 
under section 1886(d) of the Act based upon the Secretary's estimates 
for discharges occurring from FYs 2014 through FY 2017 to fully offset 
$11 billion. Once the recoupment required under section 631 of the ATRA 
was completed, CMS had anticipated making a single positive adjustment 
in FY 2018 to offset the reductions required to recoup the $11 billion 
under section 631 of the ATRA. However, section 414 of the MACRA 
(enacted on April 16, 2015) replaced the single positive adjustment CMS 
intended to make in FY 2018 with a 0.5 percent positive adjustment for 
each of FYs 2018 through 2023. Section 15005 of the 21st Century Cures 
Act (Pub. L. 114-255, enacted December 13, 2016) further amended Public 
Law 110-90 to reduce the adjustment for FY 2018 from 0.5 percent point 
to 0.4588 percentage point.
2. Pathway for SGR Reform Act of 2013 (Pub. L. 113-67)
    The Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) introduced 
new payment rules in the LTCH PPS. Under section 1206 of this law, 
discharges in cost reporting periods beginning on or after October 1, 
2015 under the LTCH PPS will receive payment under a site neutral rate 
unless the discharge meets certain patient-specific criteria. In this 
proposed rule, we are continuing to provide clarifications to prior 
policy changes that implemented provisions under section 1206 of the 
Pathway for SGR Reform Act.
3. Improving Medicare Post-Acute Care Transformation Act of 2014 
(IMPACT Act) (Pub. L. 113-185)
    The Improving Medicare Post-Acute Care Transformation Act of 2014 
(IMPACT Act (Pub. L. 113-185), enacted on October 6, 2014, made a 
number of changes that affect the Long-Term Care Quality Reporting 
Program (LTCH QRP). In this proposed rule, we are proposing to continue 
to implement portions of section 1899B of the Act, as added by section 
2 of the IMPACT Act, which, in part, requires LTCHs, among other 
postacute care providers, to report standardized patient assessment 
data, data on quality measures, and data on resource use and other 
measures.
4. The Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 
114-10)
    Section 411(g) of the Medicare Access and CHIP Reauthorization Act 
of 2015 (MACRA, Pub. L. 114-10) sets the annual update under the LTCH 
PPS to 1.0 percent for FY 2018. In this proposed rule, consistent with 
this requirement, we are proposing to update

[[Page 19812]]

the LTCH standard Federal payment rate by 1.0 percent for FY 2018.
    The MACRA also extended the MDH program and changes to the payment 
adjustment for low-volume hospitals through FY 2017. In this proposed 
rule, we discuss the expiration of the MDH program and the expiration 
of the temporary changes to the low-volume hospital payment adjustment 
under current law.
5. The 21st Century Cures Act (Pub. L. 114-255)
    The 21st Century Cures Act (Pub. L. 114-255), enacted on December 
13, 2016, contains a number of provisions affecting payments under the 
LTCH PPS and the Hospital Readmissions Reduction Program and the 
Medicare EHR Incentive Program, which we are proposing to implement in 
this proposed rule:
     Section 4002(b)(1)(A) amended section 1848(a)(7)(B) of the 
Act to provide that the Secretary shall exempt an eligible professional 
from the application of the payment adjustment under section 
1848(a)(7)(A) of the Act with respect to a year, subject to annual 
renewal, if the Secretary determines that compliance with the 
requirement for being a meaningful EHR user is not possible because the 
certified EHR technology used by such eligible professional has been 
decertified under the Office of the National Coordinator for Health 
Information Technology's (ONC) Health IT Certification Program.
     Section 4002(b)(2) amended section 1886(b)(3)(B)(ix)(II) 
of the Act to provide that the Secretary shall exempt a hospital from 
the application of the payment adjustment under section 
1886(b)(3)(B)(ix)(I) with respect to a fiscal year, subject to annual 
renewal, if the Secretary determines that compliance with the 
requirement for being a meaningful EHR user is not possible because the 
certified EHR technology used by the hospital is decertified under 
ONC's Health IT Certification Program.
     Section 15002, which amended section 1886(q)(3) of the Act 
by adding subparagraphs (D) and (E), which requires the Secretary to 
develop a methodology for the calculating the excess readmissions 
adjustment factor for the Hospital Readmissions Reduction Program based 
on cohorts defined by the percentage of dual eligible patients (that 
is, patients who are eligible for both Medicare and full-benefit 
Medicaid coverage) cared for by a hospital. In this proposed rule, we 
are proposing to implement changes to the payment adjustment factor to 
assess penalties based on a hospital's performance relative to other 
hospitals treating a similar proportion of dual eligible patients.
     Section 15004(a), which further amended section 114(d)(7) 
of the MMSEA (as amended) by striking ``The moratorium under paragraph 
(1)(A)'' and inserting ``[a]ny moratorium under paragraph (1)'' and 
specified that such amendment shall take effect as if included in the 
enactment of section 112 of the PAMA. We are proposing to implement the 
exceptions to the current statutory moratorium, which is in effect 
through September 30, 2017, on increasing beds in an existing LTCH or 
an existing LTCH satellite as provided by Section 15004(a).
     Section 15004(b), which modifies high cost outlier 
payments to LTCH standard Federal rate cases beginning in FY 2018.
     Section 15006, which further amended section 114(c)(1)(A) 
of the MMSEA (as amended) by extending the moratorium on the full 
implementation of the 25-percent threshold policy through June 30, 
2016, and for discharges occurring on or after October 1, 2016 and 
before October 1, 2017. In this proposed rule, we are implementing the 
moratorium on the full implementation of the 25-percent threshold 
policy for discharges occurring on or after October 1, 2016, through 
September 30, 2017, as provided by section 15006.
     Section 15007, which amended section 1206(a)(3) of the 
Pathway for SGR Reform Act by extending the exclusion of Medicare 
Advantage plans' and site neutral payment rate discharges from the 
calculation of the average length-of-stay to all LTCHs, for discharges 
occurring in cost reporting periods beginning on or after October 1, 
2015.
     Section 15008, which provided for a change in Medicare 
classification for ``subclause (II)'' LTCHs by redesignating such 
hospitals from section 1886(d)(1)(B)(iv)(II) to section 
1886(d)(1)(B)(vi) of the Act. In this proposed rule, we are proposing 
to implement the reclassification of hospitals which had previously 
been classified as ``subclause (II)'' LTCHs as their own category of 
IPPS-excluded hospitals as provided by the provisions of section 15008.
     Section 15009 of Public Law 114-255, which added new 
subparagraph (F) to section 1886(m)(6) of the Act, providing for a 
temporary exception to the site neutral payment rate for certain spinal 
cord specialty hospitals for all discharges occurring during FYs 2018 
and 2019.
     Section 15010, which added a new subparagraph (G) to 
section 1886(m)(6) of the Act, to create a temporary exception to the 
site neutral payment rate for certain severe wound discharges from 
certain LTCHs during such LTCH's cost reporting period beginning during 
FY 2018.
    Public Law 114-255 also amended section 1886(q)(3) of the Act by 
adding subparagraphs (D) and (E), which requires the Secretary to 
develop a methodology for the Hospital Readmissions Reduction Program 
that accounts for the percentage of dual-eligible patients (that is, 
patients who are eligible for both Medicare and full-benefit Medicaid 
coverage) cared for by a hospital. In this proposed rule, we are 
proposing to implement changes to the payment adjustment factor to 
assess penalties based on a hospital's performance relative to other 
hospitals treating a similar proportion of dual-eligible patients.
     Section 16003 amended section 1848(a)(7)(D) of the Act to 
provide that no payment adjustment may be made under section 
1848(a)(7)(A) of the Act for 2017 and 2018 in the case of an eligible 
professional who furnishes substantially all of his or her covered 
professional services in an ambulatory surgical center (ASC). Section 
1848(a)(7)(D)(iii) of the Act provides that determinations of whether 
an eligible professional is ASC-based may be made based on the site of 
service as defined by the Secretary or an attestation, but shall be 
made without regard to any employment or billing arrangement between 
the eligible professional and any other supplier or provider of 
services. Section 1848(a)(7)(D)(iv) of the Act provides that the ASC-
based exception shall no longer apply as of the first year that begins 
more than 3 years after the date on which the Secretary determines, 
through notice-and-comment rulemaking, that certified EHR technology 
applicable to the ASC setting is available.

D. Summary of Provisions of This Proposed Rule

    In this proposed rule, we are setting forth proposed payment and 
policy changes to the Medicare IPPS for FY 2018 operating costs and for 
capital-related costs of acute care hospitals and certain hospitals and 
hospital units that are excluded from IPPS. In addition, we are setting 
forth proposed changes to the payment rates, factors, and other payment 
and policy-related changes to programs associated with payment rate 
policies under the LTCH PPS for FY 2018.

[[Page 19813]]

    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 for FY 2018.
     Proposed adjustment to the standardized amounts under 
section 1886(d) of the Act for FY 2018 in accordance with the 
amendments made to section 7(b)(1)(B) of Public Law 110-90 by section 
414 of the MACRA and section 15005 of the 21st Century Cures Act.
     Proposed recalibrations of the MS-DRG relative weights.
     A discussion of the FY 2018 status of new technologies 
approved for add-on payments for FY 2017 and a presentation of our 
evaluation and analysis of the FY 2018 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 to make revisions to the wage index for acute care hospitals 
and the annual update of the wage data. Specific issues addressed 
include, but are not limited to, the following:
     The proposed FY 2018 wage index update using wage data 
from cost reporting periods beginning in FY 2014.
     Clarification of other wage-related costs in the wage 
index.
     Calculation of the proposed occupational mix adjustment 
for FY 2018 based on the 2013 Occupational Mix Survey.
     Analysis and implementation of the proposed FY 2018 
occupational mix adjustment to the wage index for acute care hospitals.
     Proposed application of the rural floor and the frontier 
State floor and the proposed expiration of the imputed floor.
     Proposed revisions to the wage index for acute care 
hospitals based on hospital redesignations and reclassifications under 
sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act.
     Proposal to require documentation of SCH and RRC 
classification status approvals to be submitted to the MGCRB by the 
first business day after January 1.
     Clarification of special rules for SCHs and RRCs 
reclassifying to geographic home areas.
     Proposed changes to the 45-day notification rule.
     The proposed adjustment to the wage index for acute care 
hospitals for FY 2018 based on commuting patterns of hospital employees 
who reside in a county and work in a different area with a higher wage 
index.
     Determination of the labor-related share for the proposed 
FY 2018 wage index.
3. Proposed Revising and Rebasing of Hospital Market Basket
    In section IV. of this proposed rule, we are proposing to revise 
and rebase the hospital market baskets for acute care hospitals and 
update the labor-related share.
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs
    In section V. of the preamble of this proposed rule, we discuss 
proposed changes or clarifications of a number of the provisions of the 
regulations in 42 CFR parts 412 and 413, including the following:
     Proposed changes to MS-DRGs subject to the postacute care 
transfer policy.
     Proposed changes to the inpatient hospital update for FY 
2018.
     Proposed changes to the volume decrease adjustment for 
SCHs.
     Proposed updated national and regional case-mix values and 
discharges for purposes of determining RRC status.
     Expiration of the MDH program and the temporary changes to 
the payment adjustment for low-volume hospitals at the end of FY 2017.
     Proposed parallel low-volume hospital payment adjustment 
concerning hospitals operated by the Indian Health Service (IHS) or a 
Tribe.
     The statutorily required IME adjustment factor for FY 
2018.
     Proposed changes to the methodologies for determining 
Medicare DSH payments and the additional payments for uncompensated 
care.
     Discussion of expiration of the MDH program at the end of 
FY 2017 and our policy to allow MDHs to apply for SCH status in advance 
of the expiration of the MDH program and be paid as such under certain 
conditions.
     Proposed changes to the rules for payment adjustments 
under the Hospital Readmissions Reduction Program based on hospital 
readmission measures and the process for hospital review and correction 
of those rates for FY 2018.
     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 2018.
     Discussion of and proposals relating to the additional 5-
year extension of the Rural Community Hospital Demonstration Program.
     Proposals related to the provider-based status of IHS and 
Tribal facilities and organizations that would remove the regulatory 
date limitation that restricted the grandfathering provision to IHS or 
Tribal facilities and organizations furnishing services on or before 
April 7, 2000. We also are proposing to make a technical change to make 
the regulation text more consistent with our current rules that require 
these facilities to comply with all applicable Medicare conditions of 
participation that apply to the main provider.
5. Proposed FY 2018 Policy Governing the IPPS for Capital-Related Costs
    In section VI. of the preamble to this proposed rule, we discuss 
the proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2018.
6. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VII. of the preamble of this proposed rule, we discuss--
     Proposed changes to payments to certain excluded hospitals 
for FY 2018.
     Proposed policy changes relating to payments to hospitals-
within-hospitals.
     Proposed continued implementation of the Frontier 
Community Health Integration Project (FCHIP) Demonstration.
7. Proposed Changes to the LTCH PPS
    In section VIII. of the preamble of this proposed rule, we set 
forth--
     Proposed changes to the LTCH PPS Federal payment rates, 
factors, and other payment rate policies under the LTCH PPS for FY 
2018.
     Proposed changes to the short-stay outlier (SSO) policy.
     Proposed 1-year regulatory delay of the full 
implementation of the 25-percent threshold policy for discharges 
occurring in FY 2018.
     Proposed changes to implement the temporary exception to 
the site neutral payment rate for certain spinal cord specialty 
hospitals and for certain discharges with severe wounds from certain 
LTCHs, as provided under sections 15009 and 15010 of Public Law 114-
255, respectively.

[[Page 19814]]

     Proposed change to the average length of stay criterion to 
implement section 15007 of Public Law 114-255.
     Proposed change in Medicare classification for certain 
hospitals to implement section 15008 of Public Law 114-255.
8. Proposed Changes Relating to Quality Data Reporting for Specific 
Providers and Suppliers
    In section IX. of the preamble of the proposed rule, we address--
     Proposed requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program.
     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 Program (LTCH QRP).
     Proposed changes to the requirements under the Inpatient 
Psychiatric Facility Quality Reporting (IPFQR) Program.
     Proposed changes to requirements pertaining to the 
clinical quality measurement of eligible hospitals and CAHs as well as 
EPs participating in the Medicare and Medicaid Electronic Health Record 
(EHR) Incentive Programs.
9. Proposed Changes Relating to Medicare Cost Reporting and Provider 
Requirements
    In section X. of the preamble of this proposed rule, we present our 
proposals to revise the regulations to allow providers to use an 
electronic signature to sign the Certification and Settlement Summary 
page of the Medicare cost report and submit this page electronically, 
and clarify the rules relating to the sale or scrapping of depreciable 
assets disposed of on or after December 1, 1997.
10. Proposed Changes Relating to Survey and Certification Requirements
    In section XI. of the preamble of this proposed rule, we present 
our proposals for allowing transparency in accrediting organization 
survey reports and plans of correction and for changing the requirement 
for providers to publish self-termination notices in newspapers.
11. Determining Prospective Payment Operating and Capital Rates and 
Rate-of-Increase Limits for Acute Care Hospitals
    In section V. of the Addendum to this proposed rule, we set forth 
proposed changes to the amounts and factors for determining the 
proposed FY 2018 prospective payment rates for operating costs and 
capital-related costs for acute care hospitals. We are proposing to 
establish the threshold amounts for outlier cases. In addition, we are 
addressing the update factors for determining the rate-of-increase 
limits for cost reporting periods beginning in FY 2018 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 2018 
LTCH PPS standard Federal payment rate and other factors used to 
determine LTCH PPS payments under both the LTCH PPS standard Federal 
payment rate and the site neutral payment rate in FY 2018. We are 
proposing to establish the adjustments for wage levels, the labor-
related share, the cost-of-living adjustment, and high-cost outliers, 
including the applicable fixed-loss amounts and the LTCH cost-to-charge 
ratios (CCRs) for both payment rates.
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, CAHs, LTCHs, PCHs, and IPFs.
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 are providing our recommendations 
of the appropriate percentage changes for FY 2018 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 LTCH PPS standard Federal payment rate and the site 
neutral payment rate for hospital inpatient services provided for LTCH 
PPS discharges.
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 2017 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 2017 
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.
    Section 1886(d)(4)(C) of the Act requires that the Secretary adjust 
the DRG classifications and relative weights at least annually to 
account for changes in resource consumption. 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) and the FYs 2011 through 2017 IPPS/LTCH PPS final 
rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR 
53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; and 81 FR 56787 through 
56872, respectively).

[[Page 19815]]

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 2018 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. By increasing the number 
of MS-DRGs and more fully taking into account patient severity of 
illness in Medicare payment rates for acute care hospitals, MS-DRGs 
encourage hospitals to improve their documentation and coding of 
patient diagnoses.
    In the FY 2008 IPPS final rule with comment period (72 FR 47175 
through 47186), we indicated that the adoption of the MS-DRGs had the 
potential to lead to increases in aggregate payments without a 
corresponding increase in actual patient severity of illness due to the 
incentives for additional documentation and coding. In that final rule 
with comment period, we exercised our authority under section 
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget 
neutrality by adjusting the national standardized amount, to eliminate 
the estimated effect of changes in coding or classification that do not 
reflect real changes in case-mix. Our actuaries estimated that 
maintaining budget neutrality required an adjustment of -4.8 percentage 
points to the national standardized amount. We provided for phasing in 
this -4.8 percentage point adjustment over 3 years. Specifically, we 
established prospective documentation and coding adjustments of -1.2 
percentage points for FY 2008, -1.8 percentage points for FY 2009, and 
-1.8 percentage points 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 percentage point 
for FY 2008 and -0.9 percentage point for FY 2009.
    As discussed in prior year rulemaking, and most recently in the FY 
2017 IPPS/LTCH PPS final rule (81 FR 56780 through 56782), we 
implemented a series of adjustments required under sections 7(b)(1)(A) 
and 7(b)(1)(B) of Public Law 110-90, based on a retrospective review of 
FY 2008 and FY 2009 claims data. We completed these adjustments in FY 
2013, but indicated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53274 through 53275) that delaying full implementation 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, and that these overpayments could not be recovered.
2. 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 
represented 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 was a one-time recoupment of a prior overpayment, not a permanent 
reduction to payment rates. Therefore, we anticipated that any 
adjustment made to reduce payment rates in one year would eventually be 
offset by a positive adjustment in 2018, once the necessary amount of 
overpayment was recovered. However, section 414 of the Medicare Access 
and CHIP Reauthorization Act (MACRA) of 2015, Public Law 114-10, 
enacted on April 16, 2015, replaced the single positive adjustment we 
intended to make in FY 2018 with a 0.5 percentage point positive 
adjustment for each of FYs 2018 through 2023. We stated in the FY 2016 
IPPS/LTCH PPS final rule (80 FR 49345) that we would address this MACRA 
provision in future rulemaking. However, section 15005 of the 21st 
Century Cures Act (Pub. L. 114-255), enacted on December 13, 2016, 
reduced the adjustment for FY 2018 from 0.5 percentage points to 0.4588 
percentage points. We are addressing these provisions of MACRA and the 
21st Century Cures Act in section II.D.3. of the preamble of this 
proposed rule.
    As we stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 
through 50517), our actuaries estimated that a -9.3 percentage point 
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 percentage 
point recoupment adjustment to the standardized amount in FY 2014. We 
estimated that if adjustments of approximately -0.8 percentage point 
were implemented in FYs 2014, 2015, 2016, and 2017, using standard 
inflation factors, the entire $11 billion would be accounted for by the 
end of the statutory 4-year timeline. As estimates of any future 
adjustments are subject to variations in total savings, we did not 
provide for specific adjustments for FYs 2015, 2016, or 2017 at that 
time.
    Consistent with the approach discussed in the FY 2014 rulemaking 
for recouping the $11 billion required by section 631 of the ATRA, in 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 49874) and the FY 2016 
IPPS/LTCH PPS final rule (80 FR 49345), we implemented additional -0.8 
percentage point recoupment adjustments to the standardized amount in 
FY 2015 and FY 2016, respectively. We estimated that these adjustments, 
combined with leaving the prior -0.8 percentage point adjustments in 
place, would recover up to $2 billion in FY 2015 and another $3 billion 
in FY 2016. When combined with the approximately $1 billion adjustment 
made in FY 2014, we estimated that approximately $5 to $6 billion would 
be left to recover under section 631 of the ATRA by the end of FY 2016.
    As indicated in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 
24966), due to lower than previously estimated inpatient spending, we 
determined that an adjustment of -0.8 percentage point in FY 2017 would 
not recoup the $11 billion under section 631 of the ATRA.

[[Page 19816]]

For the FY 2017 IPPS/LTCH PPS final rule (81 FR 56785), based on the 
Midsession Review of the President's FY 2017 Budget, our actuaries 
estimated that, to the nearest tenth of a percentage point, the FY 2017 
documentation and coding adjustment factor that will recoup as closely 
as possible $11 billion from FY 2014 through FY 2017 without exceeding 
this amount is -1.5 percentage points. Based on those updated estimates 
by the Office of the Actuary using the Midsession Review of the 
President's FY 2017 Budget, we made a -1.5 percentage point adjustment 
for FY 2017 as the final adjustment required under section 631 of the 
ATRA. The estimates by our actuaries related to this finalized 
adjustment were included in a memorandum that we made publicly 
available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-OACT.html.
3. Proposed Adjustment for FY 2018 Required Under Section 414 of Public 
Law 114-10 (MACRA) and Section 15005 of Public Law 114-255
    As stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56785), 
once the recoupment required under section 631 of the ATRA was 
complete, we had anticipated making a single positive adjustment in FY 
2018 to offset the reductions required to recoup the $11 billion under 
section 631 of the ATRA. However, section 414 of the MACRA (which was 
enacted on April 16, 2015) replaced the single positive adjustment we 
intended to make in FY 2018 with a 0.5 percentage point positive 
adjustment for each of FYs 2018 through 2023. In the FY 2017 
rulemaking, we indicated that we would address the adjustments for FY 
2018 and later fiscal years in future rulemaking. As noted previously, 
section 15005 of the 21st Century Cures Act (Pub. L. 114-255), which 
was enacted on December 13, 2016, amended section 7(b)(1)(B) of the 
TMA, as amended by section 631 of the ATRA and section 414 of the 
MACRA, to reduce the adjustment for FY 2018 from a 0.5 percentage point 
to a 0.4588 percentage point. We believe the directive under section 
15005 of Public Law 114-255 is clear. Therefore, for FY 2018, we are 
proposing to implement the required +0.4588 percentage point adjustment 
to the standardized amount. This is a permanent adjustment to payment 
rates. While we are not proposing future adjustments required under 
section 414 of the MACRA and section 15005 of Public Law 114-255 at 
this time, we expect to propose positive 0.5 percentage point 
adjustments to the standardized amounts for FYs 2019 through 2023.

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. We also refer readers to the FY 2017 IPPS/
LTCH PPS final rule (81 FR 56785 through 56787) for a detailed 
discussion of the history of changes to the number of cost centers used 
in calculating the DRG relative weights. Since FY 2014, we calculate 
the IPPS MS-DRG relative weights using 19 CCRs, which now include 
distinct CCRs for implantable devices, MRIs, CT scans, and cardiac 
catheterization.
2. Discussion of Policy for FY 2018
    Consistent with our established policy, we calculated the proposed 
MS-DRG relative weights for FY 2018 using two data sources: The MedPAR 
file as the claims data source and the HCRIS as the cost report data 
source. We adjusted 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 2018 is included in section II.G. of the 
preamble to this FY 2018 IPPS/LTCH PPS proposed rule. As we did with 
the FY 2017 IPPS/LTCH PPS final rule, for this proposed rule, we are 
providing the version of the HCRIS from which we calculated these 
proposed 19 CCRs on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on 
the link on the left side of the screen titled, ``FY 2018 IPPS Proposed 
Rule Home Page'' or ``Acute Inpatient Files for Download.''

F. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for Proposed FY 
2018 MS-DRG Updates
a. Conversion of MS-DRGs to the International Classification of 
Diseases, 10th Revision (ICD-10)
    As of October 1, 2015, providers use the International 
Classification of Diseases, 10th Revision (ICD-10) coding system to 
report diagnoses and procedures for Medicare hospital inpatient 
services under the MS-DRG system instead of the ICD-9-CM coding system, 
which was used through September 30, 2015. 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. For a detailed discussion of the conversion of the MS-DRGs 
to ICD-10, we refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 
FR 56787 through 56789).
b. Basis for FY 2018 Proposed MS-DRG Updates
    CMS has previously encouraged 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 
2018, comments and suggestions should have been submitted by December 
7, 2016. The comments that were submitted in a timely manner for FY 
2018 are discussed in this section of the preamble of this proposed 
rule. As CMS works with the public to examine the ICD-10 claims data 
used for updates to the ICD-10 MS-DRGs, we would like to examine areas 
where the MS-DRGs can be improved. This will require additional time 
for us to review requests from the public to make specific updates, 
analyze claims data, and consider any proposed updates. Given the need 
for more time to carefully evaluate requests and propose updates, we 
are changing the deadline to request updates to MS-DRGs to November 1 
of each year. This will provide an additional 5 weeks for the data 
analysis and review process. Interested parties should submit any 
comments and suggestions for FY 2019 by November 1, 2017, via the CMS 
MS-

[[Page 19817]]

DRG Classification Change Requests Mailbox located at: 
[email protected].
    Following are the changes that we are proposing to the MS-DRGs for 
FY 2018 in this FY 2018 IPPS/LTCH PPS proposed rule. We are inviting 
public comments on each of the MS-DRG classification proposed changes 
as well as our proposals to maintain certain existing MS-DRG 
classifications discussed in this proposed rule. 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 2018 proposed rule, our MS-DRG analysis was based on ICD-10 
claims data from the December 2016 update of the FY 2016 MedPAR file, 
which contains hospital bills received through September 30, 2016, for 
discharges occurring through September 30, 2016. In our discussion of 
the proposed MS-DRG reclassification changes, we referred to our 
analysis of claims data from the ``December 2016 update of the FY 2016 
MedPAR file''.
    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 consider whether 
the resource consumption and clinical characteristics of the patients 
with a given set of conditions are significantly different than the 
remaining patients represented in the MS-DRG. We evaluate patient care 
costs using average costs and lengths-of-stay and rely on the judgment 
of our clinical advisors to determine whether patients are clinically 
distinct or similar to other patients represented in the MS-DRG. In 
evaluating resource costs, we consider both the absolute and percentage 
differences in average costs between the cases we select for review and 
the remainder of cases in the MS-DRG. We also consider variation in 
costs within these groups; that is, whether observed average 
differences are consistent across patients or attributable to cases 
that are extreme in terms of costs or length of stay, or both. Further, 
we consider the number of patients who will have a given set of 
characteristics and generally prefer not to create a new MS-DRG unless 
it would include a substantial number of cases.
    In our examination of the claims data, we apply the following 
criteria established in FY 2008 (72 FR 47169) to determine if the 
creation of a new complication or comorbidity (CC) or major 
complication or comorbidity (MCC) subgroup within a base MS-DRG is 
warranted:
     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.
    In order to warrant creation of a CC or MCC subgroup within a base 
MS-DRG, the subgroup must meet all five of the criteria.
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Functional Quadriplegia
    We received a request to reassign cases identified by diagnosis 
code R53.2 (Functional quadriplegia) from MS-DRGs 052 and 053 (Spinal 
Disorders and Injuries with and without CC/MCC, respectively). The 
requestor stated that because functional quadriplegia does not involve 
any spinal injury or pathology, cases identified by the diagnosis code 
should not be assigned to MS-DRGs 052 and 053. However, the requestor 
did not suggest an alternative MS-DRG assignment.
    Section I.C.18.f. of the FY 2017 ICD-10-CM Official Coding 
Guidelines addresses the coding for the diagnosis of functional 
quadriplegia. Section I.C.18.f. states that functional quadriplegia 
(described by diagnosis code R53.2) is the lack of ability to use one's 
limbs or to ambulate due to extreme debility. The condition is not 
associated with neurologic deficit or injury, and diagnosis code R53.2 
should not be used to identify cases of neurologic quadriplegia. In 
addition, the Guidelines state that the diagnosis code should only be 
assigned if functional quadriplegia is specifically documented by a 
physician in the medical record, and the diagnosis of functional 
quadriplegia is not associated with a neurologic deficit or injury. A 
physician may document the diagnosis of functional quadriplegia as 
occurring with a variety of conditions.
    We examined claims data from the December 2016 update of the FY 
2016 MedPAR file on cases reporting diagnosis code R53.2 in MS-DRGs 052 
and 053. Our findings are shown in the table below.

                         Cases Reporting Functional Quadriplegia in MS-DRGs 052 and 053
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 052--All cases...........................................             865             5.4         $10,247
MS-DRG 052--Cases reporting diagnosis code R53.2................              63             4.9           6,420
MS-DRG 053--All cases...........................................             239             3.3           6,326
MS-DRG 053--Cases reporting diagnosis code R53.2................              16             3.3           2,318
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, for MS-DRG 052, there were a total of 
865 cases with an average length of stay of 5.4 days and average costs 
of $10,247. Of the 865 cases in MS-DRG 052, there were 63 cases that 
reported a principal diagnosis of functional quadriplegia, with an 
average length of stay of 4.9 days and average costs of $6,420. For MS-
DRG 053, there were a total of 239 cases, with an average length of 
stay of 3.3 days and average costs of $6,326. Of the 239 cases in MS-
DRG 053, there were 16 cases that reported a principal diagnosis of 
functional quadriplegia, with an average length of stay of 3.3 days and 
average costs of $2,318.
    To address the request to reassign cases reporting a diagnosis of 
functional quadriplegia to a different MS-DRG, we reviewed the data for 
a total of 79 cases (63 cases in MS-DRG 052 and 16 cases in MS-DRG 053) 
that reported a principal diagnosis of functional quadriplegia in MS-
DRGs 052 and 053. As shown in the table above, our data analysis 
demonstrates that the average costs for these 79 cases are lower than 
the average costs of all cases in MS-DRGs 052 and 053 ($6,420 compared 
to $10,247 for all cases in MS-DRG 052, and $2,318 compared to $6,326 
for all cases in MS-DRG 053), and the average

[[Page 19818]]

lengths of stay are shorter for cases reporting a diagnosis of 
functional quadriplegia in MS-DRG 052 (4.9 days compared to 5.4 days 
for all cases in MS-DRG 052), but equal for cases in MS-DRG 053 (3.3 
days for cases reporting a diagnosis of functional quadriplegia and for 
all cases).
    Our clinical advisors reviewed this issue and agreed that a 
diagnosis of functional quadriplegia does not involve a spinal disorder 
or injury, and may be associated with, or the result of, a variety of 
underlying conditions. Our clinical advisors also agreed that it is not 
clinically appropriate to include cases reporting a diagnosis of 
functional quadriplegia within MS-DRGs 052 and 053 because these cases 
do not involve a spinal disorder or injury. Therefore, given the fact 
that functional quadriplegia can be the result of a variety of other 
conditions, we reviewed the MS-DRGs in order to identify a more 
appropriate placement for cases reporting this diagnosis. Our clinical 
advisors recommended assigning cases representing a diagnosis of 
functional quadriplegia from MS-DRGs 052 and 053 to MS-DRGs 091, 092, 
and 093 (Other Disorders of Nervous System with MCC, with CC, and 
without CC/MCC, respectively). Within each MDC, there are MS-DRGs that 
describe a variety of other conditions that do not have the clinical 
characteristics of the more specific MS-DRGs. In this case, MS-DRGs 
091, 092, and 093 describe a variety of other disorders of the nervous 
system that are not clinically similar in characteristics to the 
disorders described by MS-DRGs 052 and 053. Our clinical advisors 
believe that MS-DRGs 091, 092, and 093 are more appropriate MS-DRG 
assignments for cases representing a diagnosis of functional 
quadriplegia.
    We examined claims data from the December 2016 update of the FY 
2016 MedPAR file on cases in MS-DRGs 091, 092, and 093. Our findings 
are shown in the table below.

                                       Cases in MS-DRGs 091, 092, and 093
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 091--All cases...........................................          12,607             5.6         $10,815
MS-DRG 092--All cases...........................................          19,392             3.9           6,706
MS-DRG 093--All cases...........................................           8,120             2.7           5,253
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, for MS-DRG 091, there were a total of 
12,607 cases, with an average length of stay of 5.6 days and average 
costs of $10,815. For MS-DRG 092, there were a total of 19,392 cases, 
with an average length of stay of 3.9 days and average costs of $6,706. 
For MS-DRG 093, there were a total of 8,120 cases, with an average 
length of stay of 2.7 days and average costs of $5,253. As stated 
earlier, of the 865 total cases in MS-DRG 052, there were 63 cases that 
reported a principal diagnosis of functional quadriplegia, with an 
average length of stay of 4.9 days and average costs of $6,420. Of the 
239 total cases in MS-DRG 053, there were 16 cases that reported a 
principal diagnosis of functional quadriplegia, with an average length 
of stay of 3.3 days and average costs of $2,318. The average lengths-
of-stay for cases reporting a diagnosis of functional quadriplegia in 
MS-DRGs 052 and 053 are similar to the average lengths of stay for 
cases found in MS-DRGs 091, 092 and 093 (4.9 days and 3.3 days for 
cases in MS-DRGs 052 and 053, respectively, compared to 5.6 days, 3.9 
days, and 2.7 days, respectively, for cases in MS-DRGs 091, 092, and 
093). The average costs for cases reporting a diagnosis of functional 
quadriplegia in MS-DRGs 052 and 053 are $6,420 and $2,318, 
respectively, compared to $10,815, $6,706, and $5,253 for all cases in 
MS-DRGs 091, 092, and 093. The average costs for cases reporting a 
diagnosis of functional quadriplegia in MS-DRG 053 are lower than the 
average costs for all cases in MS-DRG 093 without a CC or MCC ($2,318 
compared to $5,253, respectively). The average costs for cases 
reporting a diagnosis of functional quadriplegia in MS-DRG 052 are 
$6,420, which is lower than the average costs of $10,815 for all cases 
in MS-DRG 091, but close to the average costs of $6,706 for all cases 
in MS-DRG 092. While we acknowledge that the average costs for cases 
reporting a diagnosis of functional quadriplegia are lower than those 
cases within MS-DRGs 091, 092, and 093, as stated earlier, the average 
costs of cases reporting a diagnosis of functional quadriplegia also 
are lower than the average costs of all cases in MS-DRGs 052 and 053 
where these cases are currently assigned.
    Our clinical advisors reviewed the clinical issues as well as the 
claims data for MS-DRGs 052, 053, 091, 092, and 093. As a result of 
this review, they recommended that cases reporting a diagnosis of 
functional quadriplegia be reassigned from MS-DRGs 052 and 053 to MS-
DRGs 091, 092, and 093 because the current MS-DRG assignment is not 
clinically appropriate. Our clinical advisors stated that reassigning 
these cases to MS-DRGs 091, 092, and 093 is more appropriate because 
this set of MS-DRGs includes a variety of nervous system disorders that 
are not appropriately classified to more specific MS-DRGs within MDC 1. 
Therefore, we are proposing to reassign cases identified by diagnosis 
code R53.2 from MS-DRGs 052 and 053 to MS-DRGs 091, 092, and 093 for FY 
2018.
    We are inviting public comments on our proposal.
b. Responsive Neurostimulator (RNS(copyright)) System
    We received a request to modify the MS-DRG assignment for cases 
involving the use of the RNS(copyright) neurostimulator, a 
cranially implanted neurostimulator that is a treatment option for 
persons diagnosed with medically intractable epilepsy. Cases involving 
the use of the RNS(copyright) neurostimulator are assigned 
to MS-DRG 023 (Craniotomy with Major Device Implant or Acute Complex 
Central Nervous System (CNS) Principal Diagnosis (PDX) with MCC or 
Chemo Implant) and MS-DRG 024 (Craniotomy with Major Device Implant or 
Acute Complex Central Nervous System (CNS) Principal Diagnosis (PDX) 
without MCC).
    Cases involving the use of the RNS(copyright) 
neurostimulator generator and leads are captured within the 
descriptions of four ICD-10-PCS codes. ICD-10-PCS code 0NH00NZ 
(Insertion of neurostimulator generator into skull, open approach) 
captures the use of the neurostimulator generator, and the other three 
ICD-10-PCS codes, 00H00MZ (Insertion of neurostimulator lead into 
brain, open approach), 00H03MZ (Insertion of neurostimulator lead into 
brain, percutaneous approach), and 00H04MZ (Insertion of 
neurostimulator lead into brain, percutaneous endoscopic approach) 
describe the insertions of the leads, depending on the approach used. 
The combination of an ICD-10-PCS

[[Page 19819]]

code capturing the use of the generator and another ICD-10-PCS code 
describing the specific approach used to insert the leads would capture 
the performance of the entire procedure.
    The requestor stated that the RNS(copyright) 
neurostimulator received FDA pre-market approval on November 14, 2013, 
and is the first and only FDA-approved device used to provide 
responsive stimulation directly to the seizure onset zone in the brain. 
The RNS(copyright) neurostimulator includes a cranially 
implanted programmable neurostimulator connected to one or two depth 
and/or subdural cortical strip leads that are surgically placed in or 
on the brain at the seizure focus. The neurostimulator and leads are 
typically implanted during a single acute inpatient hospital procedure 
at a Comprehensive Epilepsy Center (CEC). The implanted neurostimulator 
continuously monitors brain electrical activity and is programmed by a 
physician to detect abnormal patterns of electrical activity that the 
physician believes may lead to seizures (epileptiform activity). In 
response to the detection of epileptiform activity, the device delivers 
brief, mild electrical pulses (responsive stimulation) to one or two 
epileptic foci. Detection and stimulation parameters are adjusted 
noninvasively by the physician to optimize control of epileptic 
seizures for each patient.
    As the neurostimulator monitors brain activity, electrocorticograms 
(ECoGs) recorded immediately before and after certain events are stored 
for later review by the physician. The physician reviews the stored 
recordings to see the detections and the effects of stimulation. The 
physician can reprogram the neurostimulator at an in-person office 
appointment to change detection and stimulation settings based on this 
information, as well as review the patient's seizures.
    The RNS(copyright) neurostimulator was approved for new 
technology add-on payments for FY 2015 and FY 2016, and new technology 
add-on payments were discontinued for FY 2017. The new technology add-
on payment application was discussed in the FY 2015 IPPS/LTCH PPS 
proposed and final rules (79 FR 28051 through 28054 and 79 FR 49946 
through 49950, respectively), the FY 2016 IPPS/LTCH PPS proposed and 
final rules (80 FR 24427 through 24448 and 80 FR 49442 through 49443, 
respectively), and the FY 2017 IPPS/LTCH PPS proposed and final rules 
(81 FR 25036 through 25037 and 81 FR 56882 through 56884, 
respectively).
    The requestor suggested the following three options for MS-DRG 
assignment updates for cases involving the RNS(copyright) 
neurostimulator:
     Create new MS-DRGs for cases involving the use of the 
RNS(copyright) neurostimulator. The requestor suggested MS-
DRG XXX (Cranially Implanted Neurostimulators with MCC) and MS-DRG XXX 
(Cranially Implanted Neurostimulators without MCC) as possible MS-DRG 
titles. The requestor acknowledged that the number of cases assigned to 
this MS-DRG would be low, but anticipated that the number of cases 
would increase in the future.
     Reassign cases involving the use of the 
RNS(copyright) neurostimulator to MS-DRGs 020 and 021 
(Intracranial Vascular Procedures with Principal Diagnosis of 
Hemorrhage with MCC, with CC, respectively) and update the MS-DRG logic 
and titles. The requestor asked CMS to reassign all cases involving the 
use of the RNS(copyright) neurostimulator that currently map 
to MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex CNS 
Principal Diagnosis with MCC or Chemo Implant) to MS-DRG 20, and change 
the title of MS-DRG 20 to ``Intracranial Vascular Procedures with 
Principal Diagnosis of Hemorrhage or Cranially Implanted 
Neurostimulator with MCC.'' In addition, the requestor asked CMS to 
reassign all cases involving the use of the RNS(copyright) 
neurostimulator that currently map to MS-DRG 024 (Craniotomy with Major 
Device Implant/Acute Complex CNS Principal Diagnosis without MCC) to 
MS-DRG 021, and change the title of MS-DRG 021 to ``Intracranial 
Vascular Procedures with Principal Diagnosis of Hemorrhage with CC or 
Cranially Implanted Neurostimulator without MCC''. The requestor 
believed that the majority of cases involving the use of the 
RNS(copyright) neurostimulator that map to MS-DRG 024 do not 
include a secondary diagnosis that is classified as a CC, and the 
average cost of cases involving the use of the 
RNS(copyright) neurostimulator without a CC is significantly 
higher than the average cost of all cases in MS-DRG 022 (Intracranial 
Vascular Procedures with Principal Diagnosis of Hemorrhage without CC/
MCC). Therefore, the requestor stated that it would not be adequate to 
assign cases involving the use of the RNS(copyright) 
neurostimulator without a CC to MS-DRG 022.
     Reassign cases involving the use of the 
RNS(copyright) neurostimulator to other higher paying MS-
DRGs that would provide adequate payment.
    The requestor stated that it had analyzed data from two sources, 
which demonstrated that the average cost of cases involving the use of 
the RNS(copyright) neurostimulator was higher than the 
average cost of all cases in MS-DRGs 023 and 024 (the current MS-DRGs 
for cases involving the use of the RNS(copyright) 
neurostimulator). The requestor indicated that the data used for its 
analysis was obtained from hospitals performing the procedure, as well 
as from the FY 2015 MedPAR file.
    The requestor also asked that CMS examine the cases representing 
cranially implanted neurostimulators and leads that were inserted for 
the treatment of epilepsy. The requestor pointed out that 
neurostimulators also are used in the treatment of movement disorders 
such as Parkinson's disease, essential tremor, or dystonia. The 
requestor asked that CMS identify those cases with a principal 
diagnosis of epilepsy, and identified the following ICD-10-CM codes 
that it believed were representative of potential epilepsy cases.

------------------------------------------------------------------------
      ICD-10-CM code                    ICD-10-CM code title
------------------------------------------------------------------------
G40.001...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset, not
                             intractable, with status epilepticus.
G40.009...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset, not
                             intractable, without status epilepticus.
G40.011...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset,
                             intractable, with status epilepticus.
G40.019...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset,
                             intractable, without status epilepticus.
G40.101...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with simple partial seizures, not
                             intractable, with status epilepticus.
G40.119...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with simple partial seizures,
                             intractable, without status epilepticus.

[[Page 19820]]

 
G40.201...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             not intractable, with status epilepticus.
G40.209...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             not intractable, without status
                             epilepticus.
G40.211...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             intractable, with status epilepticus.
G40.219...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             intractable, without status epilepticus.
G40.301...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, not intractable, with
                             status epilepticus.
G40.309...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, not intractable,
                             without status epilepticus.
G40.311...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, intractable, with
                             status epilepticus.
G40.319...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, intractable, without
                             status epilepticus.
G40.401...................  Other generalized epilepsy and epileptic
                             syndromes, not intractable, with status
                             epilepticus.
G40.409...................  Other generalized epilepsy and epileptic
                             syndromes, not intractable, without status
                             epilepticus.
G40.411...................  Other generalized epilepsy and epileptic
                             syndromes, intractable, with status
                             epilepticus.
G40.419...................  Other generalized epilepsy and epileptic
                             syndromes, intractable, without status
                             epilepticus.
G40.501...................  Epileptic seizures related to external
                             causes, not intractable, with status
                             epilepticus.
G40.509...................  Epileptic seizures related to external
                             causes, not intractable, without status
                             epilepticus.
G40.801...................  Other epilepsy, not intractable, with status
                             epilepticus.
G40.802...................  Other epilepsy, not intractable, without
                             status epilepticus.
G40.803...................  Other epilepsy, intractable, with status
                             epilepticus.
G40.804...................  Other epilepsy, intractable, without status
                             epilepticus.
G40.811...................  Lennox-Gastaut syndrome, not intractable,
                             with status epilepticus.
G40.812...................  Lennox-Gastaut syndrome, not intractable,
                             without status epilepticus.
G40.813...................  Lennox-Gastaut syndrome, intractable, with
                             status epilepticus.
G40.814...................  Lennox-Gastaut syndrome, intractable,
                             without status epilepticus.
G40.821...................  Epileptic spasms, not intractable, with
                             status epilepticus.
G40.822...................  Epileptic spasms, not intractable, without
                             status epilepticus.
G40.823...................  Epileptic spasms, intractable, with status
                             epilepticus.
G40.824...................  Epileptic spasms, intractable, without
                             status epilepticus.
G40.89....................  Other seizures.
G40.901...................  Epilepsy, unspecified, not intractable, with
                             status epilepticus.
G40.909...................  Epilepsy, unspecified, not intractable,
                             without status epilepticus.
G40.911...................  Epilepsy, unspecified, intractable, with
                             status epilepticus.
G40.919...................  Epilepsy, unspecified, intractable, without
                             status epilepticus.
------------------------------------------------------------------------

    MS-DRGs 023 and 024 contain a number of cases representing 
neurostimulator generator and lead code combinations that are captured 
under a list referred to as ``Major Device Implant.'' The 
neurostimulator generators on this list are inserted into the skull, as 
well as into the subcutaneous areas of the chest, back, or abdomen. The 
leads are all inserted into the brain. The RNS(copyright) 
neurostimulator generators are inserted into the skull and the leads 
are inserted into the brain. The following three ICD-10-PCS code 
combinations capture the use of the RNS(copyright) 
neurostimulator and leads that would determine an assignment of a case 
to MS-DRGs 023 and 024, as shown in the ``Major Device Implant'' list:
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H00MZ (Insertion of 
neurostimulator lead into brain, open approach);
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H03MZ (Insertion of 
neurostimulator lead into brain, percutaneous approach); and
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H04MZ (Insertion of 
neurostimulator lead into brain, percutaneous endoscopic approach).
    We examined claims data from the December 2016 update of the FY 
2016 MedPAR file for all cases representing the use of a 
neurostimulator in MS-DRGs 023 and 024 listed under the ``Major Device 
Implant'' list. As requested, we also examined the cases represented by 
the three neurostimulator code combinations, which capture the use of 
the RNS(copyright) neurostimulator that are a subset of the 
cases listed on the ``Major Device Implant'' list using the code 
combinations listed above, and that had a principal diagnosis of 
epilepsy from the list supplied by the requestor. The following tables 
show our findings for those cases in MS-DRGs 023 and 024 as well as 
findings for cases in MS-DRGs 020 and 021.

                                               MS-DRGs 023 and 024
                                             [Neurostimulator Cases]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 023--All cases...........................................           6,723            10.9         $39,014
MS-DRG 023--Cases with neurostimulators (Major Device Implant                 21             6.7          48,821
 list cases)....................................................
MS-DRG 023--Cases with neurostimulator generators inserted into                7             8.0          63,365
 skull (includes cases involving the use of the RNS(copyright)
 neurostimulator) and cases with a principal diagnosis of
 epilepsy.......................................................
MS-DRG 024--All cases...........................................           2,275             5.5          27,574

[[Page 19821]]

 
MS-DRG 024--Cases with neurostimulators (Major Device Implant                394             2.1          31,669
 list cases)....................................................
MS-DRG 024--Cases with neurostimulator generators inserted into               54             4.3          51,041
 skull (includes cases involving the use of the RNS(copyright)
 neurostimulator) and cases with a principal diagnosis of
 epilepsy.......................................................
----------------------------------------------------------------------------------------------------------------


                                          Cases in MS-DRGs 020 and 021
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 020--All cases...........................................           1,372            16.7         $72,926
MS-DRG 021--All cases...........................................             336            13.5          54,385
----------------------------------------------------------------------------------------------------------------

    As shown by the table above, for MS-DRG 023, we identified a total 
of 6,723 cases, with an average length of stay of 10.9 days and average 
costs of $39,014. Of the 6,723 cases in MS-DRG 023, there were 21 cases 
representing the implantation of any type of neurostimulator generator 
with an average length of stay of 6.7 days, and average costs of 
$48,821. Of the 21 neurostimulator generator cases, there were 7 cases 
with the neurostimulator generators inserted into skull (including 
cases involving the use of the RNS(copyright) 
neurostimulator) and a principal diagnosis of epilepsy with an average 
length of stay of 8.0 days and average costs of $63,365. For MS-DRG 
024, we identified a total of 2,275 cases, with an average length of 
stay of 5.5 days and average costs of $27,574. Of the 2,275 cases in 
MS-DRG 024, there were 394 cases representing the implantation of any 
type of neurostimulator generator with an average length of stay of 2.1 
days and average costs of $31,669. Of the 394 neurostimulator generator 
cases, there were 54 cases with the neurostimulator generators inserted 
into skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal diagnosis of 
epilepsy with an average length of stay of 4.3 days and average costs 
of $51,041.
    There were only 61 cases involving the use of the 
RNS(copyright) neurostimulator with a principal diagnosis of 
epilepsy in MS-DRGs 023 and 024 (7 and 54, respectively). Our clinical 
advisors reviewed this issue, and agreed that this number of cases is 
too small on which to base a rationale for creating a new MS-DRG. 
Basing a new MS-DRG on such a small number of cases (61) could lead to 
distortion 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 also examined the possibility of reassigning cases involving the 
use of the RNS(copyright) neurostimulator to MS-DRGs 020 and 
021. As the table above shows, for MS-DRG 020, there were a total of 
1,372 cases with an average length of stay of 16.7 days and average 
costs of $72,926. For MS-DRG 021, there were a total of 336 cases with 
an average length of stay of 13.5 days and average costs of $54,385. 
The cases in MS-DRG 023 with neurostimulator generators inserted into 
skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal diagnosis of 
epilepsy have average costs that are $9,561 lower than that for all 
cases in MS-DRG 020 ($63,365 compared to $72,926), and the average 
length of stay is 8.7 days shorter (8.0 days compared to 16.7 days). We 
do not believe these data support reassigning the cases in MS-DRG 023 
with neurostimulator generators inserted into the skull (including 
cases involving the use of the RNS(copyright) 
neurostimulator) and a principal diagnosis of epilepsy to MS-DRG 020. 
While the cases in MS-DRG 024 with neurostimulator generators inserted 
into the skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal diagnosis of 
epilepsy have average costs that are similar to the average costs of 
cases in MS-DRG 021 ($51,041 compared to $54,385), they have an average 
length of stay that is 9.2 days shorter (4.3 days compared to 13.5 
days). Our clinical advisors reviewed the clinical issues and the 
claims data, and did not support reassigning the cases with 
neurostimulator generators inserted into skull (including cases 
involving the use of the RNS(copyright) neurostimulator) and 
a principal diagnosis of epilepsy from MS-DRGs 023 and 024 to MS-DRGs 
020 and 021. Our clinical advisors pointed out that the cases in MS-
DRGs 020 and 021 have a principal diagnosis of a hemorrhage. The 
RNS(copyright) neurostimulator generators are not used to 
treat patients with diagnosis of a hemorrhage. Therefore, our clinical 
advisors stated that it was inappropriate to reassign cases 
representing a principal diagnosis of epilepsy to an MS-DRG that 
contains cases that represent the treatment of intracranial hemorrhage. 
They also stated that the differences in average length of stay and 
average costs support this recommendation.
    We then explored alternative MS-DRG assignments, as was requested. 
We noted that the 7 cases with the neurostimulator generators inserted 
into the skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal diagnosis of 
epilepsy had an average length of stay of 8.0 days and average costs of 
$63,365, as compared to the 6,723 cases in MS-DRG 023 that had an 
average length of stay of 10.9 days and average costs of $39,014. While 
these neurostimulator cases had average costs that were $24,351 higher 
than the average costs of all cases in MS-DRG 023, there were only a 
total of 7 cases. There may have been other factors contributing to the 
higher costs. We noted that the 54 cases with the neurostimulator 
generators inserted into skull (including cases involving the use of 
the RNS(copyright) neurostimulator) and a principal 
diagnosis of epilepsy in MS-DRG 024 had average costs of $51,041 and an 
average length of stay of 4.3 days, compared to average costs of 
$27,574 and average length of stay of 5.5 days for all cases in MS-DRG 
024. By reassigning all cases with the neurostimulator generators 
inserted into the skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal diagnosis of 
epilepsy to MS DRG 023, even if there is not a MCC

[[Page 19822]]

present, the cases would receive higher payment. The average costs of 
MS-DRG 023 were $39,014, compared to the average costs of $51,041 for 
the cases with the neurostimulator generators inserted into skull 
(including cases involving the use of the RNS(copyright) 
neurostimulator) and a principal diagnosis of epilepsy in MS-DRG 024. 
Our clinical advisors reviewed the clinical issues and the claims data, 
and supported the recommendation to reassign the cases with the 
neurostimulator generators inserted into skull (including cases 
involving the use of the RNS(copyright) neurostimulator) and 
a principal diagnosis of epilepsy to MS-DRG 023, even if there is not a 
MCC reported. Therefore, we are proposing to reassign all cases with a 
principal diagnosis of epilepsy from the epilepsy diagnosis list 
provided earlier, and one of the following ICD-10-PCS code combinations 
capturing cases with the neurostimulator generators inserted into the 
skull (including cases involving the use of the 
RNS(copyright) neurostimulator), to MS-DRG 023, even if 
there is no MCC reported:
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H00MZ (Insertion of 
neurostimulator lead into brain, open approach);
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H03MZ (Insertion of 
neurostimulator lead into brain, percutaneous approach); and
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H04MZ (Insertion of 
neurostimulator lead into brain, percutaneous endoscopic approach).
    We also are proposing to change the title of MS-DRG 023 from 
``Craniotomy with Major Device Implant or Acute Complex Central Nervous 
System (CNS) Principal Diagnosis (PDX) with MCC or Chemo Implant'' to 
``Craniotomy with Major Device Implant or Acute Complex Central Nervous 
System (CNS) Principal Diagnosis (PDX) with MCC or Chemotherapy Implant 
or Epilepsy with Neurostimulator'' to reflect the proposed 
modifications to MS-DRG assignments.
    We are inviting public comments on our proposals.
c. Precerebral Occlusion or Transient Ischemic Attack With Thrombolytic
    We received a request to add the ICD-10-CM diagnosis codes 
currently assigned to MS-DRGs 067 and 068 (Nonspecific CVA and 
Precerebral Occlusion without Infarction with MCC and without MCC, 
respectively) and the ICD-10-CM diagnosis codes currently assigned to 
MS-DRG 069 (Transient Ischemia) to the GROUPER logic for MS-DRGs 061, 
062, and 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent with 
MCC, with CC, and without CC/MCC, respectively) when those conditions 
are sequenced as the principal diagnosis and reported with an ICD-10-
PCS procedure code describing use of a thrombolytic agent (for example, 
tPA).
    The ICD-10-CM diagnosis codes displayed in the table below identify 
the conditions that are assigned to MS-DRGs 067 and 068 when reported 
as a principal diagnosis.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
I65.01....................  Occlusion and stenosis of right vertebral
                             artery.
I65.02....................  Occlusion and stenosis of left vertebral
                             artery.
I65.03....................  Occlusion and stenosis of bilateral
                             vertebral arteries.
I65.09....................  Occlusion and stenosis of unspecified
                             vertebral artery.
I65.1.....................  Occlusion and stenosis of basilar artery.
I65.21....................  Occlusion and stenosis of right carotid
                             artery.
I65.22....................  Occlusion and stenosis of left carotid
                             artery.
I65.23....................  Occlusion and stenosis of bilateral carotid
                             arteries.
I65.29....................  Occlusion and stenosis of unspecified
                             carotid artery.
I65.8.....................  Occlusion and stenosis of other precerebral
                             arteries.
I65.9.....................  Occlusion and stenosis of unspecified
                             precerebral artery.
I66.01....................  Occlusion and stenosis of right middle
                             cerebral artery.
I66.02....................  Occlusion and stenosis of left middle
                             cerebral artery.
I66.03....................  Occlusion and stenosis of bilateral middle
                             cerebral arteries.
I66.09....................  Occlusion and stenosis of unspecified middle
                             cerebral artery.
I66.11....................  Occlusion and stenosis of right anterior
                             cerebral artery.
I66.12....................  Occlusion and stenosis of left anterior
                             cerebral artery.
I66.13....................  Occlusion and stenosis of bilateral anterior
                             cerebral arteries.
I66.19....................  Occlusion and stenosis of unspecified
                             anterior cerebral artery.
I66.21....................  Occlusion and stenosis of right posterior
                             cerebral artery.
I66.22....................  Occlusion and stenosis of left posterior
                             cerebral artery.
I66.23....................  Occlusion and stenosis of bilateral
                             posterior cerebral arteries.
I66.29....................  Occlusion and stenosis of unspecified
                             posterior cerebral artery.
I66.3.....................  Occlusion and stenosis of cerebellar
                             arteries.
I66.8.....................  Occlusion and stenosis of other cerebral
                             arteries.
I66.9.....................  Occlusion and stenosis of unspecified
                             cerebral artery.
------------------------------------------------------------------------

    The ICD-10-CM diagnosis codes displayed in the table below identify 
the conditions that are assigned to MS-DRG 069 when reported as a 
principal diagnosis.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
G45.0.....................  Vertebro-basilar artery syndrome.
G45.1.....................  Carotid artery syndrome (hemispheric).
G45.2.....................  Multiple and bilateral precerebral artery
                             syndromes.
G45.8.....................  Other transient cerebral ischemic attacks
                             and related syndromes.
G45.9.....................  Transient cerebral ischemic attack,
                             unspecified.

[[Page 19823]]

 
G46.0.....................  Middle cerebral artery syndrome.
G46.1.....................  Anterior cerebral artery syndrome.
G46.2.....................  Posterior cerebral artery syndrome.
I67.81....................  Acute cerebrovascular insufficiency.
I67.82....................  Cerebral ischemia.
I67.841...................  Reversible cerebrovascular vasoconstriction
                             syndrome.
I67.848...................  Other cerebrovascular vasospasm and
                             vasoconstriction.
I67.89....................  Other cerebrovascular disease.
------------------------------------------------------------------------

    The ICD-10-PCS procedure codes displayed in the table below 
describe use of a thrombolytic agent. These procedure codes are 
designated as non-O.R. procedure codes affecting the MS-DRG assignment 
for MS-DRGs 061, 062, and 063.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
3E03017...................  Introduction of other thrombolytic into
                             peripheral vein, open approach.
3E03317...................  Introduction of other thrombolytic into
                             peripheral vein, percutaneous approach.
3E04017...................  Introduction of other thrombolytic into
                             central vein, open approach.
3E04317...................  Introduction of other thrombolytic into
                             central vein, percutaneous approach.
3E05017...................  Introduction of other thrombolytic into
                             peripheral artery, open approach.
3E05317...................  Introduction of other thrombolytic into
                             peripheral artery, percutaneous approach.
3E06017...................  Introduction of other thrombolytic into
                             central artery, open approach.
3E06317...................  Introduction of other thrombolytic into
                             central artery, percutaneous approach.
3E08017...................  Introduction of other thrombolytic into
                             heart, open approach.
3E08317...................  Introduction of other thrombolytic into
                             heart, percutaneous approach.
------------------------------------------------------------------------

    At the onset of stroke symptoms, tPA must be given within 3 hours 
(or up to 4.5 hours for certain eligible patients) in an attempt to 
dissolve a clot and improve blood flow to the specific area affected in 
the brain. If, upon receiving the tPA, the stroke symptoms completely 
resolve within 24 hours and imaging studies (if performed) are 
negative, the patient has suffered what is clinically defined as a 
transient ischemic attack, not a stroke. According to the requestor, 
the current MS-DRG assignments do not account for this subset of 
patients who were successfully treated with tPA to prevent a stroke.
    In addition, the requestor expressed concerns regarding 
documentation and quality of the data. For example, the requestor noted 
that the terms ``stroke-in-evolution'' and ``aborted stroke'' may be 
documented as a ``workaround'' for a patient exhibiting symptoms of a 
stroke who receives tPA and, regardless of the outcome, would result in 
assignment to MS-DRG 061, 062, or 063. Therefore, in cases where the 
patient's stroke symptoms completely resolved upon receiving tPA and 
the patient clinically suffered a precerebral occlusion or transient 
ischemia, this documentation practice is incorrectly labeling these 
patients as having had a stroke and ultimately leading to inaccurate 
data.
    We analyzed claims data from the December 2016 update of the FY 
2016 MedPAR file for MS-DRGs 061, 062, and 063. Our findings are shown 
in the tables below.

                        MS-DRGs for Acute Ischemic Stroke With Use of Thrombolytic Agent
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 061--All cases...........................................           4,528             6.4         $20,270
MS-DRG 062--All cases...........................................           8,600             4.2          14,124
MS-DRG 063--All cases...........................................           1,859             3.0          11,898
----------------------------------------------------------------------------------------------------------------

    Our analysis also consisted of claims data for MS-DRGs 067 and 068 
when reported with a procedure code describing the use of tPA. As shown 
in the table below, the total number of cases reported in MS-DRG 067 
was 811, with an average length of stay of 4.8 days and average costs 
of $10,248. There were 9 cases in MS-DRG 067 with a precerebral 
occlusion receiving tPA, with an average length of stay of 5.2 days and 
average costs of $20,156. The total number of cases reported in MS-DRG 
068 was 3,809, with an average length of stay of 2.8 days and average 
costs of $6,555. There were 33 cases in MS-DRG 068 with a precerebral 
occlusion receiving tPA, with an average length of stay of 4.3 days and 
average costs of $13,814.

                        MS-DRGs for Precerebral Occlusion With Use of Thrombolytic Agent
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 067--All cases...........................................             811             4.8         $10,248
MS-DRG 067--Cases with tPA......................................               9             5.2          20,156
MS-DRG 068--All cases...........................................           3,809             2.8           6,555

[[Page 19824]]

 
MS-DRG 068--Cases with tPA......................................              33             4.3          13,814
----------------------------------------------------------------------------------------------------------------

    We recognize that while the volume of cases for patients with a 
diagnosis of precerebral occlusion receiving tPA in MS-DRGs 067 and 068 
is relatively low, the average length of stay is longer, and the 
average costs for this subset of patients is approximately twice the 
amount of the average costs in comparison to all cases in MS-DRGs 067 
and 068.
    We then analyzed claims data for cases in MS-DRG 069 when reported 
with a procedure code describing the use of tPA. As shown in the table 
below, the total number of cases reported in MS-DRG 069 was 50,633, 
with an average length of stay of 2.5 days and average costs of $5,518. 
There were 554 cases of transient ischemia receiving tPA, with an 
average length of stay of 3.2 days and average costs of $12,481.

                          MS-DRG for Transient Ischemia With Use of Thrombolytic Agent
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 069--All cases...........................................          50,633             2.5          $5,518
MS-DRG 069--Cases with tPA......................................             554             3.2          12,481
----------------------------------------------------------------------------------------------------------------

    Similar to the findings for MS-DRGs 067 and 068, the number of 
cases for transient ischemia receiving tPA in MS-DRG 069 was relatively 
low in comparison to all the cases in the MS-DRG, with a longer average 
length of stay and approximately twice the amount of average costs in 
comparison to all cases in MS-DRG 069.
    The results of analysis of the data and the advice of our clinical 
advisors support adding the ICD-10-CM diagnosis codes in MS-DRGs 067, 
068, and 069 to the list of principal diagnoses in MS-DRGs 061, 062, 
and 063 to better account for this subset of patients who were 
successfully treated with tPA to prevent a stroke, to identify the 
increasing use of thrombolytics at the onset of symptoms of a stroke, 
to further encourage appropriate physician documentation for a 
precerebral occlusion or transient ischemic attack when patients are 
treated with tPA, and to reflect more appropriate payment for the 
resources involved in evaluating and treating these patients. We 
believe this approach will improve accuracy of the data and assist in 
addressing the concern that facilities may be reporting incorrect 
diagnoses for this subset of patients.
    Therefore, for FY 2018, we are proposing to add the ICD-10-CM 
diagnosis codes listed earlier in this section that are currently 
assigned to MS-DRGs 067 and 068 and the ICD-10-CM diagnosis codes 
currently assigned to MS-DRG 069 to the GROUPER logic for MS-DRGs 061, 
062, and 063 when those conditions are sequenced as the principal 
diagnosis and reported with an ICD-10-PCS procedure code describing use 
of a thrombolytic agent (for example, tPA). We are inviting public 
comments on our proposal.
    We also are proposing to retitle MS-DRGs 061, 062, and 063 as 
``Ischemic Stroke, Precerebral Occlusion or Transient Ischemia with 
Thrombolytic Agent with MCC, with CC and without CC/MCC'', 
respectively, and to retitle MS-DRG 069 as ``Transient Ischemia without 
Thrombolytic''. We are inviting public comments on our proposals.
3. MDC 2 (Diseases and Disorders of the Eye: Swallowing Eye Drops 
(Tetrahydrozoline)
    We received a request to reassign the following ICD-10-CM diagnosis 
codes that capture swallowing eye drops from MS-DRGs 124 and 125 (Other 
Disorders of the Eye with and without MCC, respectively) to MS-DRGs 917 
and 918 (Poisoning and Toxic Effects of Drugs with and without MCC, 
respectively). The requestor described a case where a patient was 
treated following swallowing eye drops, specifically Tetrahydrozoline, 
which the provider considers to be a poisoning, not a disorder of the 
eye.
     T49.5X1A (Poisoning by ophthalmological drugs and 
preparations, accidental (unintentional), initial encounter);
     T49.5X2A (Poisoning by ophthalmological drugs and 
preparations, intentional self-harm, initial encounter);
     T49.5X3A (Poisoning by ophthalmological drugs and 
preparations, assault, initial encounter); and
     T49.5X4A (Poisoning by ophthalmological drugs and 
preparations, undetermined, initial encounter).
    We agree with the requestor that the four diagnosis codes describe 
a poisoning, not a disorder of the eye. We examined claims data for 
cases in MS-DRGs 124 and 125 from the December 2016 update of the FY 
2016 MedPAR file. Our findings are shown in the table below.

                                            MS-DRG 124 and 125 Cases
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 124--All cases...........................................             874             4.8          $8,826
MS-DRG 124--Cases reporting poisoning by ophthalmological drugs                1             2.0           3,007
 and preparations code..........................................
MS-DRG 125--All cases...........................................           3,205             3.3           5,565
MS-DRG 125--Cases reporting poisoning by ophthalmological drugs                1             2.0           1,446
 and preparations code..........................................
----------------------------------------------------------------------------------------------------------------


[[Page 19825]]

    As shown in the table above, there were only 2 cases of poisoning 
by ophthalmological drugs and preparations--1 case in MS-DRG 124 with 
an average length of stay of 2 days and average costs of $3,007 and 1 
case in MS-DRG 125 with an average length of stay of 2 days and average 
costs of $1,446. The case of poisoning by ophthalmological drugs and 
preparations in MS-DRG 124 had a shorter average length of stay than 
the average length of stay for all cases in MS-DRG 124 (2.0 days 
compared to 4.8 days) and lower average costs than the average costs 
for all cases in MS-DRG 124 ($3,007 compared to $8,826). The case of 
poisoning by ophthalmological drugs and preparations in MS-DRG 125 also 
had a shorter average length of stay than the average length of stay 
for all cases in MS-DRG 125 (2.0 days compared to 3.3 days) and lower 
average costs than the average costs for all cases in MS-DRG 125 
($1,446 compared to $5,565).
    We also examined claims data on cases reported in MS-DRGs 917 and 
918 from the December 2016 update of the FY 2016 MedPAR file. Our 
findings are shown in the table below.

                                            MS-DRGs 917 and 918 Cases
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 917--All cases...........................................          32,381             4.8          $9,882
MS-DRG 918--All cases...........................................          24,061             3.0           5,326
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, the 2 cases of poisoning by 
ophthalmological drugs and preparations also had shorter average 
lengths of stay than the average length of stay for all cases in MS-
DRGs 917 and 918 (2.0 days compared to 4.8 days in MS-DRG 917 and 2.0 
days compared to 3.0 days in MS-DRG 918). The average costs also were 
lower for the 2 cases of poisoning by ophthalmological drugs and 
preparations than the average costs for all cases in MS-DRGs 917 and 
918 ($3,007 compared to $9,882 for all cases in MS-DRG 917 and $1,446 
compared to $5,326 for all cases in MS-DRG 918). Therefore, cases with 
this type of poisoning had lower average lengths of stay and lower 
average costs than all other cases assigned to MS-DRGs 124 and 125 and 
cases in MS-DRGs 917 and 918 where poisonings are assigned.
    Because the codes clearly capture a poisoning and not an eye 
disorder, we believe that these codes are more appropriately assigned 
to MS-DRGs 917 and 918 where other poisonings are assigned. Our 
clinical advisors also reviewed this issue and agreed that the codes 
should be moved from MS-DRGs 124 and 125 to MS-DRGs 917 and 918 because 
they clearly capture a poisoning and not a disorder of the eye. Because 
MS-DRGs 917 and 918 contain cases with multiple types of poisonings, it 
is expected that some types of poisoning cases will have longer lengths 
of stay and greater average costs than other types of poisoning cases. 
Therefore, we are proposing to reassign the following ICD-10-CM 
diagnosis codes from MS-DRGs 124 and 125 to MS-DRGs 917 and 918 for FY 
2018: T49.5X1A; T49.5X2A; T49.5X3A; and T49.5X4A.
    We are inviting public comments on our proposal.
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Cardiovascular Procedures and Insertion of a 
Radioactive Element
    Currently, under ICD-10-PCS, the logic for MS-DRG 246 (Percutaneous 
Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ 
Vessels or Stents), MS-DRG 247 (Percutaneous Cardiovascular Procedures 
with Drug-Eluting Stent without MCC), MS-DRG 248 (Percutaneous 
Cardiovascular Procedures with Non-Drug-Eluting Stent with MCC or 4+ 
Vessels or Stents), and MS-DRG 249 (Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent without MCC) includes six 
procedure codes that describe the insertion of a radioactive element. 
When any of these six procedure codes are reported without the 
reporting of a percutaneous cardiovascular procedure code, they are 
assigned to MS-DRG 264 (Other Circulatory System O.R. Procedures). The 
six specific procedure codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0WHC01Z...................  Insertion of radioactive element into
                             mediastinum, open approach.
0WHC31Z...................  Insertion of radioactive element into
                             mediastinum, percutaneous approach.
0WHC41Z...................  Insertion of radioactive element into
                             mediastinum, percutaneous endoscopic
                             approach.
0WHD01Z...................  Insertion of radioactive element into
                             pericardial cavity, open approach.
0WHD31Z...................  Insertion of radioactive element into
                             pericardial cavity, percutaneous approach.
0WHD41Z...................  Insertion of radioactive element into
                             pericardial cavity, percutaneous endoscopic
                             approach.
------------------------------------------------------------------------

    Unlike procedures involving the insertion of stents, none of the 
procedures described by the procedure codes listed above are performed 
in conjunction with a percutaneous cardiovascular procedure, and two of 
the six procedures described by these procedure codes (ICD-10-PCS codes 
0WHC01Z and 0WHD01Z) are not performed using a percutaneous approach, 
but rather describe an open approach to performing the specific 
procedure. Our clinical advisors agreed that these procedures should 
not be used to classify cases within MS-DRGs 246 through 249 because 
they are not performed in conjunction with a percutaneous 
cardiovascular procedure. Furthermore, the indications for the 
insertion of a radioactive element typically involve a diagnosis of 
cancer, whereas the indications for the insertion of a coronary artery 
stent typically involve a diagnosis of coronary artery disease.
    We conducted an analysis for the six procedures described by these 
procedure codes by reviewing the claims data for MS-DRGs 246 through 
249 from the December 2016 update of

[[Page 19826]]

the FY 2016 MedPAR file. We did not find any cases where any one of the 
six procedure codes listed above was reported. As noted earlier, when 
any of these six procedure codes are reported without the reporting of 
a percutaneous cardiovascular procedure code, the case is assigned to 
MS-DRG 264. Therefore, our clinical advisors also agreed that it would 
be more appropriate to remove these six procedure codes from MS-DRGs 
246 through 249, but maintain their current assignment in MS-DRG 264. 
Based on our analysis and the advice from our clinical advisors, for FY 
2018, we are proposing to remove ICD-10-PCS procedure codes 0WHC01Z, 
0WHC31Z, 0WHC41Z, 0WHD01Z, 0WHD31Z, and 0WHD41Z from MS-DRGs 246 
through 249, but maintain their current assignment in MS-DRG 264.
    We are inviting public comments on our proposal to remove the six 
procedure codes listed above from MS-DRGs 246 through 249. We also are 
inviting public comments on our proposal to maintain their current 
assignment in MS-DRG 264.
b. Proposed Modification of the Titles for MS-DRG 246 (Percutaneous 
Cardiovascular Procedures With Drug-Eluting Stent With MCC or 4+ 
Vessels or Stents) and MS-DRG 248 (Percutaneous Cardiovascular 
Procedures With Non-Drug-Eluting Stent with MCC or 4+ Vessels or 
Stents)
    We are proposing to revise the titles for MS-DRGs 246 (Percutaneous 
Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ 
Vessels or Stents) and MS-DRG 248 (Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent with MCC or 4+ Vessels or 
Stents) to better reflect the ICD-10-PCS terminology of ``arteries'' 
versus ``vessels'' as used in the procedure code titles within the 
classification. Specifically, we are proposing to revise the title of 
MS-DRG 246 to ``Percutaneous Cardiovascular Procedures with Drug-
Eluting Stent with MCC or 4+ Arteries or Stents''. We are proposing to 
revise the title of MS-DRG 248 to ``Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent with MCC or 4+ Arteries or 
Stents''. We are inviting public comments on our proposals.
c. Transcatheter Aortic Valve Replacement (TAVR) and Left Atrial 
Appendage Closure (LAAC)
    We received a request to create new MS-DRGs for cases involving 
transcatheter aortic valve replacement (TAVR) and left atrial appendage 
closure (LAAC) procedures when performed in combination in the same 
operative episode. The requestor stated that there are both clinical 
and financial advantages for the patient when performing concomitant 
procedures. For example, the requestor indicated that the clinical 
advantages for the patient may include single exposure to anesthesia 
and a reduction in overall procedure time, while the financial 
advantages may include lower cost-sharing. The requestor further 
believed that a single hospitalization for these concomitant procedures 
could be cost-effective for various providers and payers.
    TAVR is indicated and approved as a treatment option for patients 
diagnosed with symptomatic aortic stenosis who are not surgical 
candidates for traditional open surgical techniques. Cases involving 
TAVR procedures are assigned to MS-DRGs 266 and 267 (Endovascular 
Cardiac Valve Replacement with MCC and without MCC, respectively), and 
are identified by the following ICD-10-PCS procedure codes shown in the 
table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
02RF37Z...................  Replacement of aortic valve with autologous
                             tissue substitute, percutaneous approach.
02RF38Z...................  Replacement of aortic valve with zooplastic
                             tissue, percutaneous approach.
02RF3JZ...................  Replacement of aortic valve with synthetic
                             substitute, percutaneous approach.
02RF3KZ...................  Replacement of aortic valve with
                             nonautologous tissue substitute,
                             percutaneous approach.
02RF37H...................  Replacement of aortic valve with autologous
                             tissue substitute, transapical,
                             percutaneous approach.
02RF38H...................  Replacement of aortic valve with zooplastic
                             tissue, transapical, percutaneous approach.
02RF3JH...................  Replacement of aortic valve with synthetic
                             substitute, transapical, percutaneous
                             approach.
02RF3KH...................  Replacement of aortic valve with
                             nonautologous tissue substitute,
                             transapical, percutaneous approach.
------------------------------------------------------------------------

    LAAC is indicated and approved as a treatment option for patients 
diagnosed with atrial fibrillation. Cases involving LAAC procedures are 
assigned to MS-DRGs 273 and 274 (Percutaneous Intracardiac Procedures 
with MCC and without MCC, respectively), and are identified by ICD-10-
PCS procedure code 02L73DK (Occlusion of left atrial appendage with 
intraluminal device, percutaneous approach).
    The requestor suggested that the structure of the possible new MS-
DRGs for TAVR procedures performed in combination with LAAC procedures 
could be modeled similar to the structure of MS-DRGs 266 and 267. While 
contemplating creation of the new MS-DRGs, the requestor asked CMS to 
also consider subdividing the possible new MS-DRGs into two severity 
levels and title them as follows:
     Suggested MS-DRG 26x (Endovascular Cardiac Valve 
Replacement with LAAC with MCC); and
     Suggested MS-DRG 26x (Endovascular Cardiac Valve 
Replacement with LAAC without MCC).
    We analyzed claims data from the December 2016 update of the FY 
2016 MedPAR file for MS-DRGs 266 and 267 and identified the cases 
reporting TAVR procedures with and without an LAAC procedure. As shown 
in the table below, the data findings show that the total number of 
cases reported in MS-DRG 266 was 9,949, with an average length of stay 
of 7.2 days and average costs of $56,762. There were 9,872 cases 
involving a TAVR procedure, with an average length of stay of 7.2 days 
and average costs of $56,628. There was only one case identified in MS-
DRG 266 where both a TAVR and an LAAC procedure were reported. This 
case had an average length of stay of 21.0 days and average costs of 
$60,226. For MS-DRG 267, the total number of cases found was 13,290, 
with an average length of stay of 3.5 days and average costs of 
$45,297. There were 13,245 cases involving a TAVR procedure, with an 
average length of stay of 3.5 days and average costs of $45,302. There 
were no cases identified in MS-DRG 267 where both a TAVR and an LAAC 
procedure were reported.

[[Page 19827]]



                                           MS-DRGs for TAVR Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 266--All cases...........................................           9,949             7.2         $56,762
MS-DRG 266--Cases with TAVR.....................................           9,872             7.2          56,628
MS-DRG 266--Cases TAVR and LAAC.................................               1            21.0          60,226
MS-DRG 267--All cases...........................................          13,290             3.5          45,297
MS-DRG 267--Cases with TAVR.....................................          13,245             3.5          45,302
MS-DRG 267--Cases TAVR and LAAC.................................               0               0               0
----------------------------------------------------------------------------------------------------------------

    We then analyzed claims data in MS-DRGs 273 and 274 for cases 
reporting an LAAC procedure. As shown in the table below, the data 
findings show that the total number of cases reported in MS-DRG 273 was 
6,541, with an average length of stay of 7.7 days and average costs of 
$26,042. There were 179 cases involving an LAAC procedure, with an 
average length of stay of 3.6 days and average costs of $30,131. For 
MS-DRG 274, the total number of cases found was 14,441, with an average 
length of stay of 3.0 days and average costs of $20,267. There were 
2,428 cases involving an LAAC procedure, with an average length of stay 
of 1.2 days and average costs of $26,213.

                                           MS-DRGs for LAAC Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 273--All cases...........................................           6,541             7.7         $26,042
MS-DRG 273--Cases with LAAC.....................................             179             3.6          30,131
MS-DRG 274--All cases...........................................          14,441             3.0          20,267
MS-DRG 274--Cases with LAAC.....................................           2,428             1.2          26,213
----------------------------------------------------------------------------------------------------------------

    The analysis of claims data for MS-DRGs 266, 267, 273, and 274 and 
input from our clinical advisors do not support creating new MS-DRGs 
for TAVR and LAAC procedures when performed in combination in the same 
operative episode. We found only one case in MS-DRG 266 where both a 
TAVR and an LAAC procedure were reported and the claims data for cases 
reporting an LAAC procedure in MS-DRGs 273 and 274 support their 
current assignment. Our clinical advisors agreed the current MS-DRG 
assignments are appropriate for each respective procedure.
    Therefore, we are not proposing to create new MS-DRGs for cases 
involving TAVR and LAAC procedures when performed in combination in the 
same operative episode. We are inviting public comments on our proposal 
to maintain the current MS-DRG structure for TAVR procedures in MS-DRGs 
266 and 267, as well as the current MS-DRG structure for LAAC 
procedures in MS-DRGs 273 and 274.
d. Percutaneous Mitral Valve Replacement Procedures
    We received a request to reassign four ICD-10-PCS procedure codes 
that describe percutaneous mitral valve replacement procedures from MS-
DRGs 216 through 221 (Cardiac Valve and Other Major Cardiothoracic 
Procedures with and without Cardiac Catheterization with MCC, with CC 
and without CC/MCC, respectively) to MS-DRGs 266 and 267 (Endovascular 
Cardiac Valve Replacement with MCC and without MCC, respectively). The 
requestor indicated that there are inconsistencies in the current 
GROUPER logic for endovascular cardiac valve replacement procedures. 
Specifically, the requestor stated that the procedure codes that 
describe both the percutaneous approach and the transapical, 
percutaneous approach for the aortic and pulmonary valves are included 
in MS-DRGs 266 and 267. However, for the mitral valve, the GROUPER 
logic only includes the procedure codes that describe the transapical, 
percutaneous approach.
    The requestor also stated that when MS-DRGs 266 and 267 were 
created, the intent was to include percutaneous replacement procedures 
for all cardiac valves. Therefore, the requestor recommended that CMS 
reassign the four ICD-10-PCS procedure codes shown in the table below 
that describe mitral valve replacement procedures, performed with the 
percutaneous approach from MS-DRGs 216 through 221 to MS-DRGs 266 and 
267 to more appropriately group these procedures within the MS-DRG 
structure.

 
------------------------------------------------------------------------
 ICD-10-PCS procedure code                Code description
------------------------------------------------------------------------
02RG37Z...................  Replacement of mitral valve with autologous
                             tissue substitute, percutaneous approach.
02RG38Z...................  Replacement of mitral valve with zooplastic
                             tissue, percutaneous approach.
02RG3JZ...................  Replacement of mitral valve with synthetic
                             substitute, percutaneous approach.
02RG3KZ...................  Replacement of mitral valve with
                             nonautologous tissue substitute,
                             percutaneous approach.
------------------------------------------------------------------------

    We agree with the requestor regarding the intent of the creation of 
MS-DRGs 266 and 267. As discussed in the FY 2015 IPPS/LTCH PPS final 
rule (79 FR 49890 through 49893), MS-DRGs 266 and 267 were created to 
uniquely classify the subset of high-risk cases representing patients 
who undergo a cardiac valve replacement procedure

[[Page 19828]]

performed by a percutaneous (endovascular) approach. As such, we agree 
that all cardiac valve replacement procedures should be grouped within 
the same MS-DRG. In FY 2015, under the ICD-9-CM classification, there 
was not a specific procedure code for a percutaneous mitral valve 
replacement procedure. Therefore, when we converted from the ICD-9 
based MS-DRGs to the ICD-10 MS-DRGs, there was not a code available 
from which to replicate. We refer the reader to the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 49890 through 49893) for a detailed discussion on 
the initial request to create new MS-DRGs for endovascular cardiac 
valve replacement procedures, as well as the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49354 through 49358) and the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56787 through 56790) for a detailed discussion of the 
conversion to ICD-10 MS-DRGs, including our analysis of claims data and 
the need to accurately replicate the ICD-9-CM based MS-DRGs.
    The requestor also noted that a proposal was discussed at the 
September 13-14, 2016 ICD-10 Coordination and Maintenance Committee 
meeting involving the creation of procedure codes that describe 
percutaneous tricuspid valve replacement procedures and, if finalized, 
these new procedure codes would also be assigned to MS-DRGs 266 and 
267.
    As shown in the table below and in Table 6B.--New Procedure Codes, 
which is associated with this proposed rule and available via the 
Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html, there are eight 
new procedure codes that describe tricuspid valve replacement 
procedures performed with percutaneous and transapical types of 
percutaneous approaches that will be effective October 1, 2017.

------------------------------------------------------------------------
 ICD-10-PCS procedure code                Code description
------------------------------------------------------------------------
02RJ37H...................  Replacement of tricuspid valve with
                             autologous tissue substitute, transapical,
                             percutaneous approach.
02RJ37Z...................  Replacement of tricuspid valve with
                             autologous tissue substitute, percutaneous
                             approach.
02RJ38H...................  Replacement of tricuspid valve with
                             zooplastic tissue, transapical,
                             percutaneous approach.
02RJ38Z...................  Replacement of tricuspid valve with
                             zooplastic tissue, percutaneous approach.
02RJ3JH...................  Replacement of tricuspid valve with
                             synthetic substitute, transapical,
                             percutaneous approach.
02RJ3JZ...................  Replacement of tricuspid valve with
                             synthetic substitute, percutaneous
                             approach.
02RJ3KH...................  Replacement of tricuspid valve with
                             nonautologous tissue substitute,
                             transapical, percutaneous approach.
02RJ3KZ...................  Replacement of tricuspid valve with
                             nonautologous tissue substitute,
                             percutaneous approach.
------------------------------------------------------------------------

    We agree with the requestor and believe that, in addition to the 
four procedure codes that describe the percutaneous mitral valve 
replacement procedures listed earlier in this section, the eight codes 
that describe percutaneous and transapical types of percutaneous 
tricuspid valve replacement procedures also should be grouped with the 
other endovascular cardiac valve replacement procedures. Therefore, we 
are proposing to reassign the four percutaneous mitral valve 
replacement procedures described by the procedure codes listed in the 
table above from MS-DRGs 216 through 221 to MS-DRGs 266 and 267. In 
addition, we are proposing to assign the eight new procedure codes 
(also listed in a separate table above) that describe percutaneous and 
transapical, percutaneous tricuspid valve replacement procedures to MS-
DRGs 266 and 267.
    We are inviting public comments on our proposals.
e. Percutaneous Tricuspid Valve Repair
    We received a request to reassign cases reporting ICD-10-PCS 
procedure code 02UJ3JZ (Supplement tricuspid valve with synthetic 
substitute, percutaneous approach) from MS-DRGs 216 through 221 
(Cardiac Valve and Other Major Cardiothoracic Procedures with and 
without Cardiac Catheterization with MCC, with CC and without CC/MCC, 
respectively) to MS-DRGs 228 and 229 (Other Cardiothoracic Procedures 
with MCC and without MCC, respectively). According to the requestor, 
reassigning cases involving these procedures would more appropriately 
align the cohesiveness with other clinically similar procedures, such 
as percutaneous mitral valve repair (for example, procedures involving 
the Mitraclip) described by procedure code 02UG3JZ (Supplement mitral 
valve with synthetic substitute, percutaneous approach), which are 
assigned to MS-DRGs 228 and 229.
    The requestor noted that the FORMA Tricuspid Transcatheter Repair 
System (herein after referred to as the FORMA system) is currently in 
clinical trials in the United States, Europe, and Canada, but has not 
received FDA approval. However, the FORMA system is presently available 
for compassionate use purposes. The FORMA system technology is 
indicated for use in the treatment of patients diagnosed with tricuspid 
regurgitation and occupies the regurgitant area of the affected valve, 
providing a surface for native leaflet coaptation. The requestor stated 
that the technology offers a viable alternative treatment using 
traditional tricuspid valve surgery. According to the requestor, the 
technology consists of a rail and a spacer, and the procedure to insert 
the device involves fluoroscopic imaging guidance.
    We analyzed claims data from the December 2016 update of the FY 
2016 MedPAR file for MS-DRGs 216 through 221 for cases reporting 
procedure code 02UJ3JZ (Supplement tricuspid valve with synthetic 
substitute, percutaneous approach). Our findings are shown in the 
following table.

                       MS-DRGs for Cardiac Valve and Other Major Cardiothoracic Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 216--All cases...........................................           9,139            14.4         $68,304
MS-DRG 216--Cases with percutaneous tricuspid valve repair......               1             5.0          14,954
MS-DRG 217--All cases...........................................           3,536             8.9          45,857
MS-DRG 217--Cases with percutaneous tricuspid valve repair......               1             3.0          16,234

[[Page 19829]]

 
MS-DRG 218--All cases...........................................             498             5.9          41,274
MS-DRG 218--Cases with percutaneous tricuspid valve repair......               0               0               0
MS-DRG 219--All cases...........................................          16,011            11.1          54,519
MS-DRG 219--Cases with percutaneous tricuspid valve repair......               6             9.0          58,075
MS-DRG 220--All cases...........................................          18,476             6.8          37,506
MS-DRG 220--Cases with percutaneous tricuspid valve repair......               1             5.0          90,155
MS-DRG 221--All cases...........................................           3,547             5.0          33,606
MS-DRG 221--Cases with percutaneous tricuspid valve repair......               0               0               0
----------------------------------------------------------------------------------------------------------------

    We also analyzed claims data for MS-DRGs 228 and 229. Our findings 
are shown in the following table below.

                                   MS-DRGs for Other Cardiothoracic Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 228--All cases...........................................           3,466             9.8         $47,435
MS-DRG 229--All cases...........................................           4,553             4.9          33,347
----------------------------------------------------------------------------------------------------------------

    The claims data show that there were very few cases reported for 
performing a percutaneous tricuspid valve repair procedure in MS-DRGs 
216 through 221. Of the 6 cases found in MS-DRG 219, with average costs 
of $58,075, the average cost of these cases aligned with the average 
cost of all cases in the MS-DRG assignment ($54,519). The data analysis 
and our clinical advisors do not support reassigning cases reporting 
procedure code 02UJ3JZ to MS-DRGs 228 and 229. The current MS-DRG 
assignment for percutaneous tricuspid valve repair procedures to MS-
DRGs 216 through 221 is clinically coherent with the other percutaneous 
procedures performed on the heart valves that are currently assigned to 
these MS-DRGs. Percutaneous repair of the aortic, pulmonary and 
tricuspid valves utilizing various tissue substitutes (autologous, 
nonautologous, zooplastic, and synthetic) are assigned to MS-DRGs 216 
through 221. The exception is the percutaneous mitral valve repair, 
which, as the requestor pointed out, is assigned to MS-DRGs 228 and 229 
as discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56809 
through 56813). Our clinical advisors also agreed that the limited 
number of cases reported in MS-DRGs 216 through 221 does not warrant 
reassignment.
    As a result of our review and the input from our clinical advisors, 
we are not proposing to reassign cases reporting procedure code 02UJ3JZ 
from MS-DRGs 216 through 221 to MS-DRGs 228 and 229.
    We are inviting public comments on our proposal to maintain the 
current MS-DRG assignment for cases reporting procedure code 02UJ3JZ.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue)
a. Total Ankle Replacement (TAR) Procedures
    For FY 2018, we again received two requests for the reassignment of 
total ankle replacement (TAR) procedures to a different MS-DRG. TAR 
procedures are currently assigned to MS-DRGs 469 and 470 (Major Joint 
Replacement or Reattachment of Lower Extremity with and without MCC, 
respectively). This topic was discussed previously in the FY 2015 IPPS/
LTCH PPS proposed and final rules (79 FR 28013 through 28015 and 79 FR 
49896 through 49899, respectively) and in the FY 2017 IPPS/LTCH PPS 
proposed and final rules (81 FR 24989 through 24990 and 81 FR 56814 
through 56816, respectively). For FY 2015 and FY 2017, we did not 
change the MS-DRG assignment for TAR procedures. The requestors 
indicated that TAR procedures are currently assigned to MS-DRGs 469 and 
470, to which total hip replacement and total knee replacement 
procedures also are assigned. The requestors stated that there are 
significant clinical and cost differences among these procedures, which 
results in underpayment for TAR procedures. The requestors asked CMS to 
examine claims data for the following six ICD-10-PCS codes within MS-
DRGs 469 and 470:
     0SRF0J9 (Replacement of right ankle joint with synthetic 
substitute, cemented, open approach);
     0SRF0JA (Replacement of right ankle joint with synthetic 
substitute, uncemented, open approach);
     0SRF0JZ (Replacement of right ankle joint with synthetic 
substitute, open approach);
     0SRG0J9 (Replacement of left ankle joint with synthetic 
substitute, cemented, open approach);
     0SRG0JA (Replacement of left ankle joint with synthetic 
substitute, uncemented, open approach); and
     0SRG0JZ (Replacement of left ankle joint with synthetic 
substitute, open approach).
    The requestors recommended that, if the claims data show a 
disparity in costs between TAR procedures and total hip and knee 
replacement procedures, the TAR procedures be reassigned to a more 
appropriate MS-DRG.
    The requestors also stated that total ankle replacement is a 
complicated surgery that involves the replacement of the damaged parts 
of the three bones that comprise the ankle joint, as compared to the 
two bones in hip and knee replacement procedures. Furthermore, as the 
smallest weight-bearing large joint in the body, the requestors stated 
that TAR procedures demand a complexity of implant device design, 
engineering, and manufacture to exacting functional specifications that 
is vastly different from that of total hip and knee replacement 
devices. One of the requestors stated that the ankle region typically 
has poorer circulation and thinner soft tissue coverage than the

[[Page 19830]]

hip and knee, leading to a higher risk of wound complications and 
infection that may be more challenging and expensive to treat. In 
addition, this requestor stated that the unique anatomical 
characteristics and function of the ankle joint require a specialized 
surgical skill set, operative technique, and level of operating room 
resource utilization that is vastly dissimilar from that of total hip 
and knee replacement procedures.
    We examined claims data from the December 2016 update of the FY 
2016 MedPAR file on reported cases of TAR procedures in MS-DRGs 469 and 
470. Our findings are shown in the table below.

                                       Total Ankle Replacements Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases...........................................          25,778             6.7         $22,139
MS-DRG 469--Cases reporting TAR procedure codes.................              31             4.6          23,828
MS-DRG 470--All cases...........................................         461,553             2.7          14,751
MS-DRG 470--Cases reporting TAR procedure codes.................           2,114             1.9          20,862
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, for MS-DRG 469, there were a total of 
25,778 cases, with an average length of stay of 6.7 days and average 
costs of $22,139. Of the 25,778 cases in MS-DRG 469, there were 31 
cases reporting a TAR procedure, with an average length of stay of 4.6 
days and average costs of $23,828. For MS-DRG 470, there were a total 
of 461,553 cases, with an average length of stay of 2.7 days and 
average costs of $14,751. Of the 461,553 cases in MS-DRG 470, there 
were 2,114 cases reporting a TAR procedure, with an average length of 
stay of 1.9 days and average costs of $20,862. As mentioned earlier, 
there were only 31 TAR procedure cases in MS-DRG 469, and these cases 
had average costs of $1,689 higher than the average costs of all cases 
within MS-DRG 469. The relatively small number of cases may have been 
impacted by other factors. Several expensive cases could impact the 
average costs for a very small number of patients. We also note that 
the average length of stay for the TAR procedure cases was 4.6 days, as 
compared to 6.7 days for all cases within MS-DRG 469. The 2,114 TAR 
procedure cases in MS-DRG 470 had average costs that were $6,111 higher 
than the average costs of all cases in MS-DRG 470 ($20,862 compared to 
$14,751 for all cases). The data support reassigning all of the TAR 
procedures to MS-DRG 469, even when there is no MCC reported. While the 
average costs of the TAR procedures in MS-DRG 470 are lower than the 
average costs for all cases in MS-DRG 469 ($20,862 compared to 
$22,139), the average costs are much closer to the average costs of TAR 
procedure cases in MS-DRG 470.
    Our clinical advisors reviewed this clinical issue and the claims 
data, and agreed that it is clinically appropriate to reassign all of 
the TAR procedure cases from MS-DRG 470 to MS-DRG 469, even when there 
is no MCC reported. The claims data support the fact that these cases 
require more resources than other cases assigned to MS-DRG 470. 
Therefore, we are proposing to reassign the following TAR procedure 
codes from MS-DRG 470 to MS-DRG 469, even if there is no MCC reported: 
0SRF0J9; 0SRF0JA; 0SRF0JZ; 0SRG0J9; 0SRG0JA; and 0SRG0JZ for FY 2018.
    We are proposing to change the titles of MS-DRGs 469 and 470 to the 
following to reflect these proposed MS-DRG reassignments:
     Proposed retitle of MS-DRG 469: ``Major Hip and Knee Joint 
Replacement or Reattachment of Lower Extremity with MCC or Total Ankle 
Replacement''; and
     Proposed retitle of MS-DRG 470: ``Major Hip and Knee Joint 
Replacement or Reattachment of Lower Extremity without MCC.''
    We are inviting public comments on our proposals.
b. Revision of Total Ankle Replacement (TAR) Procedures
    We received two requests to modify the MS-DRG assignment for 
revision of total ankle replacement (TAR) procedures, which are 
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). This topic was discussed in the FY 2015 IPPS/LTCH 
PPS proposed and final rules (79 FR 28013 through 28015 and 79 FR 49896 
through 49899, respectively) and in the FY 2017 IPPS/LTCH PPS proposed 
and final rules (81 FR 24992 through 24993 and 81 FR 56819 through 
56820, respectively). For FY 2015 and FY 2017, we did not change the 
MS-DRG assignment for revision of TAR procedures.
    The requestors asked that CMS examine the following eight ICD-10-
PCS codes for revision of TAR procedures, which are assigned to MS-DRGs 
515, 516, and 517:
     0SWF0JZ (Revision of synthetic substitute in right ankle 
joint, open approach);
     0SWF3JZ (Revision of synthetic substitute in right ankle 
joint, percutaneous approach);
     0SWF4JZ (Revision of synthetic substitute in right ankle 
joint, percutaneous endoscopic approach);
     0SWFXJZ (Revision of synthetic substitute in right ankle 
joint, external approach);
     0SWG0JZ (Revision of synthetic substitute in left ankle 
joint, open approach);
     0SWG3JZ (Revision of synthetic substitute in left ankle 
joint, percutaneous approach);
     0SWG4JZ (Revision of synthetic substitute in left ankle 
joint, percutaneous endoscopic approach); and
     0SWGXJZ (Revision of synthetic substitute in left ankle 
joint, external approach).
    One requestor stated that these ICD-10-PCS codes more specifically 
identify the revision of TAR procedures than the prior ICD-9-CM codes. 
Specifically, ICD-9-CM code 81.59 (Revision of joint replacement of 
lower extremity, not elsewhere classified) was an unspecified code, 
which included toe and foot joint revision procedures in addition to 
revision of TAR procedures. The requestor stated that claims data 
reporting these ICD-10-PCS codes would allow CMS to better identify 
revisions of TAR procedures, and determine if the procedures are 
assigned to the appropriate MS-DRGs.
    One requestor suggested the following three options for MS-DRG 
assignments:
     Assign the ICD-10-PCS ankle revision procedure codes to 
MS-DRGs 466, 467, and 468 (Revision of Hip or Knee Replacement with 
MCC, with CC, and without CC/MCC, respectively), and rename MS-DRGs 
466, 467, and 468 as ``Revision of Hip, Knee or Ankle with MCC, with 
CC, and without CC/MCC'', respectively);

[[Page 19831]]

     Assign the ICD-10-PCS ankle revision procedure codes to 
MS-DRG 469 (Major Joint Replacement or Reattachment of Lower Extremity 
with MCC) to more appropriately recognize higher hospital procedure 
costs associated with revision of TAR procedures; or
     Establish a new MS-DRG for the assignment of revision of 
TAR procedures.
    The other requestor asked that CMS consider reassigning revision of 
TAR procedures to MS-DRGs that better address the cost-to-payment 
differential, such as MS-DRGs 466, 467, and 468.
    We examined claims data from the December 2016 update of the FY 
2016 MedPAR file on reported cases of revision of TAR procedures, as 
well as cases assigned to MS-DRGs 466, 467, 468, and MS-DRG 469. Our 
findings are shown in the tables below.

                                   Revisions of Joint Replacements Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 515--All cases...........................................           5,038             8.0         $20,562
MS-DRG 515--Cases reporting revision of total ankle replacement                0               0               0
 procedure codes................................................
MS-DRG 516--All cases...........................................          13,276             4.8          13,524
MS-DRG 516--Cases reporting revision of total ankle replacement                2             2.5          11,400
 procedure codes................................................
MS-DRG 517--All cases...........................................          13,330             2.8          10,003
MS-DRG 517--Cases reporting revision of total ankle replacement                4             1.5           7,423
 procedure codes................................................
----------------------------------------------------------------------------------------------------------------


                                     Cases in MS-DRGs 466, 467, 468, and 469
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 466--All cases...........................................           3,886             8.4         $33,720
MS-DRG 467--All cases...........................................          19,145             4.2          24,609
MS-DRG 468--All cases...........................................          16,529             2.7          20,208
MS-DRG 469--All cases...........................................          25,778             6.7          22,139
----------------------------------------------------------------------------------------------------------------

    As shown in the tables above, there were only 6 cases representing 
revisions of TAR procedures with no cases in MS-DRG 515, two cases in 
MS-DRG 516, and four cases in MS-DRG 517. The limited number of six 
cases does not justify the creation of a new MS-DRG for the assignment 
of revision of TAR procedures. Our data analysis demonstrates that the 
average length of stay for the revision of TAR procedures was lower 
than that for all cases in MS-DRG 516 (2.5 days compared to 4.8 days), 
and the average costs were lower ($11,400 compared to $13,524). The 
average length of stay for the revision of TAR procedures also was 
lower than that for all cases in MS-DRG 517 (1.5 days compared to 2.8 
days), and the average costs were lower ($7,423 compared to $10,003). 
The data do not support reassigning the cases from MS-DRGs 515, 516, 
and 517.
    Furthermore, the average length of stay and average costs of cases 
in MS-DRGs 466, 467, 468, and 469 are significantly higher than those 
for the revision of TAR procedures in MS-DRG 516 and 517. The average 
length of stay for all cases in MS-DRGs 466, 467, 468, and 469 is 8.4, 
4.2, 2.7, and 6.7 days, respectively, compared to the average length of 
stay of 2.5 and 1.5 days for cases representing revision of TAR 
procedures in MS-DRGs 516 and 517, respectively. The average costs for 
all cases in MS-DRGs 466, 467, 468, and 469 are $33,720, $24,609, 
$20,208, and $22,139, respectively, compared to the average costs of 
$11,400 and $7,423 for cases representing revision of TAR procedures in 
MS-DRGs 516 and 517, respectively. Therefore, the data do not support 
reassigning the cases to MS-DRGs 466, 467, 468, or 469.
    Our clinical advisors reviewed the clinical issue and the claims 
data and agreed that the revision of TAR procedures are appropriately 
assigned to MS-DRGs 515, 516, and 517, along with other procedures that 
describe revisions of joint replacements of the lower extremities, 
including the foot and toe. Our clinical advisors did not support 
reassigning these cases to MS-DRGs 466, 467, 468, or 469, or creating a 
new MS-DRG. Therefore, based on the findings of our analysis of claims 
data and the advice of our clinical advisors, we are proposing to 
maintain the current MS-DRG assignment for revision of TAR procedures 
within MS-DRGs 515, 516, and 517 for FY 2018.
    We are inviting public comments on our proposal.
c. Magnetic Controlled Growth Rods (MAGEC[supreg] System)
    We received a request to add six ICD-10-PCS procedure codes that 
describe the use of magnetically controlled growth rods for the 
treatment of early onset scoliosis (MAGEC[supreg] System) to MS-DRGs 
456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature 
or Malignancy or Infection or Extensive Fusions with MCC, with CC or 
without CC/MCC, respectively). The MAGEC[supreg] System was discussed 
in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25040 through 25042) 
and final rule (81 FR 56888 through 56891) as a new technology add-on 
payment application. The application was approved for FY 2017 new 
technology add-on payments, effective with discharges occurring on and 
after October 1, 2016. The request for new procedure codes to identify 
the MAGEC[supreg] System technology was discussed at the March 9-10, 
2016 ICD-10 Coordination and Maintenance Committee meeting. Six new 
procedure codes were approved, effective October 1, 2016, and were 
displayed in Table 6B.--New Procedure Codes associated with the FY 2017 
IPPS/LTCH PPS final rule (which is available via the Internet on the 
CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page.html. These 
six procedure codes are currently assigned to MS-DRGs 518, 519, and 520 
(Back and Neck Procedure Except Spinal Fusion with MCC or Disc Device/
Neurostimulator, with CC, or without CC/MCC, respectively) and are 
shown in the table below.

[[Page 19832]]



------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
XNS0032...................  Reposition of lumbar vertebra using
                             magnetically controlled growth rod(s), open
                             approach, new technology group 2.
XNS0432...................  Reposition of lumbar vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous endoscopic approach, new
                             technology group 2.
XNS3032...................  Reposition of cervical vertebra using
                             magnetically controlled growth rod(s), open
                             approach, new technology group 2.
XNS3432...................  Reposition of cervical vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous endoscopic approach, new
                             technology group 2.
XNS4032...................  Reposition of thoracic vertebra using
                             magnetically controlled growth rod(s), open
                             approach, new technology group 2.
XNS4432...................  Reposition of thoracic vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous endoscopic approach, new
                             technology group 2.
------------------------------------------------------------------------

    According to the requestor, adding these six procedure codes will 
allow these cases to group to MS-DRGs that more accurately reflect the 
diagnosis of early onset scoliosis for which the MAGEC[supreg] System 
is indicated. In addition, the requestor stated that because this 
technology is utilized on a small subset of patients with approximately 
2,500 cases per year, adding these procedure codes to MS-DRGs 456, 457, 
and 458 would have little impact.
    Because these six procedure codes shown in the table above were 
effective as of October 1, 2016, there are no MedPAR claims data 
available to analyze. More importantly, we note that cases are assigned 
to MS-DRGs 456, 457, and 458 when an actual spinal fusion procedure is 
performed. Our clinical advisors agree that use of the MAGEC[supreg] 
System's magnetically controlled growth rods technology alone does not 
constitute a spinal fusion. Therefore, because there are no claims data 
available at this time and based on the advice of our clinical 
advisors, we are not proposing to add the six procedure codes to MS-
DRGs 456, 457, or 458. If a spinal fusion procedure is performed along 
with the procedure to insert the MAGEC[supreg] System's magnetically 
controlled growth rods, it would be appropriate to report that a spinal 
fusion was performed and the case would be assigned to one of the 
spinal fusion MS-DRGs.
    We are inviting public comments on our proposal to maintain the 
current GROUPER logic for cases assigned to MS-DRGs 456, 457, and 458 
and not add the six procedure codes describing the use of the 
MAGEC[supreg] System magnetically controlled growth rods. We also are 
inviting public comments on our proposal to maintain the assignment of 
the six procedure codes in MS-DRGs 518, 519, and 520.
d. Combined Anterior/Posterior Spinal Fusion
    It was brought to our attention that 7 of the 10 new ICD-10-PCS 
procedure codes describing fusion using a nanotextured surface 
interbody fusion device were not added to the appropriate GROUPER logic 
list for MS-DRGs 453, 454, and 455 (Combined Anterior/Posterior Spinal 
Fusion with MCC, with CC and without CC/MCC, respectively), effective 
October 1, 2016. The logic for MS-DRGs 453, 454, and 455 is comprised 
of two lists: An anterior spinal fusion list and a posterior spinal 
fusion list. Assignment to one of the combined spinal fusion MS-DRGs 
requires that a code from each list be reported.
    The seven new ICD-10-PCS procedure codes currently included in the 
posterior spinal fusion list for MS-DRGs 453, 454, and 455 are shown in 
the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
XRG6092...................  Fusion of thoracic vertebral joint using
                             nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRG7092...................  Fusion of 2 to 7 thoracic vertebral joints
                             using nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRG8092...................  Fusion of 8 or more thoracic vertebral
                             joints using nanotextured surface interbody
                             fusion device, open approach, new
                             technology group 2.
XRGA092...................  Fusion of thoracolumbar vertebral joint
                             using nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRGB092...................  Fusion of lumbar vertebral joint using
                             nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRGC092...................  Fusion of 2 or more lumbar vertebral joints
                             using nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRGD092...................  Fusion of lumbosacral joint using
                             nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
------------------------------------------------------------------------

    We note that the remaining three new procedure codes are accurately 
reflected in the anterior spinal fusion list; that is, ICD-10-PCS code 
XRG1092 (Fusion of cervical vertebral joint using nanotextured surface 
interbody fusion device, open approach, new technology group 2); ICD-
10-PCS code XRG2092 (Fusion of 2 or more cervical vertebral joints 
using nanotextured surface interbody fusion device, open approach, new 
technology group 2); and ICD-10-PCS code XRG4092 (Fusion of 
cervicothoracic vertebral joint using nanotextured surface interbody 
fusion device, open approach, new technology group 2).
    The seven procedure codes currently included in the posterior 
spinal fusion list describe an anterior spinal fusion by use of the 
interbody fusion device. In an interbody fusion, the anterior column of 
the spine is being fused. The results of our review of these procedure 
codes discussed below and the advice of our clinical advisors support 
moving the seven procedure codes from the posterior spinal fusion list 
to the anterior spinal fusion list in the GROUPER logic for MS-DRGs 
453, 454, and 455. This will improve clinical accuracy and allow 
appropriate assignment to these MS-DRGs when both an anterior and 
posterior spinal fusion is performed.
    During our review of the spinal fusion codes using a nanotextured 
surface interbody fusion device in MS-DRGs 453, 454, and 455, we 
identified 149 additional procedure codes that should be moved from the 
posterior spinal fusion list to the anterior spinal fusion

[[Page 19833]]

list. These codes describe spinal fusion of the anterior column with a 
posterior approach. As mentioned earlier, the logic for MS-DRGs 453, 
454, and 455 is dependent upon a code from the anterior spinal fusion 
list and a code from the posterior spinal fusion list. Spinal fusion 
codes involving the anterior column should be included on the anterior 
spinal fusion list only. We are proposing to move the 149 ICD-10-PCS 
procedure codes listed in Table 6P.3a. associated with this proposed 
rule (which is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) from the posterior spinal fusion list to 
the anterior spinal fusion list in MS-DRGs 453, 454, and 455.
    In addition, we also identified 33 ICD-10-PCS procedure codes in 
the posterior spinal fusion list in MS-DRGs 453, 454, and 455 that 
describe an interbody fusion device in the posterior column and, 
therefore, are not considered clinically valid spinal fusion 
procedures. These procedure codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0RG00A1...................  Fusion of occipital-cervical joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG03A1...................  Fusion of occipital-cervical joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RG04A1...................  Fusion of occipital-cervical joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG10A1...................  Fusion of cervical vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG13A1...................  Fusion of cervical vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RG14A1...................  Fusion of cervical vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG20A1...................  Fusion of 2 or more cervical vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column, open
                             approach.
0RG23A1...................  Fusion of 2 or more cervical vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column,
                             percutaneous approach.
0RG24A1...................  Fusion of 2 or more cervical vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column,
                             percutaneous endoscopic approach.
0RG40A1...................  Fusion of cervicothoracic vertebral joint
                             with interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG43A1...................  Fusion of cervicothoracic vertebral joint
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RG44A1...................  Fusion of cervicothoracic vertebral joint
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG60A1...................  Fusion of thoracic vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG63A1...................  Fusion of thoracic vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RG64A1...................  Fusion of thoracic vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG70A1...................  Fusion of 2 to 7 thoracic vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG73A1...................  Fusion of 2 to 7 thoracic vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RG74A1...................  Fusion of 2 to 7 thoracic vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG80A1...................  Fusion of 8 or more thoracic vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column, open
                             approach.
0RG83A1...................  Fusion of 8 or more thoracic vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column,
                             percutaneous approach.
0RG84A1...................  Fusion of 8 or more thoracic vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column,
                             percutaneous endoscopic approach.
0RGA0A1...................  Fusion of thoracolumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0RGA3A1...................  Fusion of thoracolumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RGA4A1...................  Fusion of thoracolumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0SG00A1...................  Fusion of lumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0SG03A1...................  Fusion of lumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0SG04A1...................  Fusion of lumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0SG10A1...................  Fusion of 2 or more lumbar vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, open approach.
0SG13A1...................  Fusion of 2 or more lumbar vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0SG14A1...................  Fusion of 2 or more lumbar vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0SG30A1...................  Fusion of lumbosacral joint with interbody
                             fusion device, posterior approach,
                             posterior column, open approach.
0SG33A1...................  Fusion of lumbosacral joint with interbody
                             fusion device, posterior approach,
                             posterior column, percutaneous approach.
0SG34A1...................  Fusion of lumbosacral joint with interbody
                             fusion device, posterior approach,
                             posterior column, percutaneous endoscopic
                             approach.
------------------------------------------------------------------------

    We are proposing to delete these 33 procedure codes from MS-DRGs 
453, 454, and 455 for FY 2018. We also note that some of the above 
listed codes also may be included in the logic for MS-DRGs 456, 457, 
and 458 (Spinal Fusion Except Cervical with Spinal Curvature or 
Malignancy or Infection or Extensive Fusions with MCC, with CC or 
without

[[Page 19834]]

CC/MCC, respectively), MS-DRGs 459 and 460 (Spinal Fusion Except 
Cervical with MCC and without MCC, respectively), and MS-DRGs 471, 472, 
and 473 (Cervical Spinal Fusion with MCC, with CC and without CC/MCC, 
respectively). Therefore, we are proposing to delete the 33 procedure 
codes from the logic for those spinal fusion MS-DRGs as well. In 
addition, we are proposing to delete the 33 procedure codes from the 
ICD-10-PCS classification as shown in Table 6D.--Invalid Procedure 
Codes associated with this proposed rule (which is available via the 
Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html).
    In summary, we are inviting public comments on our proposal to move 
the seven procedure codes describing spinal fusion using a nanotextured 
surface interbody fusion device from the posterior spinal fusion list 
to the anterior spinal fusion list in the GROUPER logic for MS-DRGs 
453, 454, and 455. We also are inviting public comments on our proposal 
to move the 149 procedure codes describing spinal fusion of the 
anterior column with a posterior approach from the posterior spinal 
fusion list to the anterior spinal fusion list in the GROUPER logic for 
MS-DRGs 453, 454, and 455. In addition, we are inviting public comments 
on our proposal to delete the 33 procedure codes describing spinal 
fusion of the posterior column with an interbody fusion device from MS-
DRGs 453, 454, 455, 456, 457, 458, 459, 460, 471, 472, and 473, as well 
as from the ICD-10-PCS classification.
6. MDC 14 (Pregnancy, Childbirth and the Puerperium)
a. Vaginal Delivery and Complicating Diagnoses
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56854), we noted 
that the code list as displayed in the ICD-10 MS-DRG Version 33 
Definitions Manual for MS-DRG 774 (Vaginal Delivery with Complicating 
Diagnoses) required further analysis to clarify what constitutes a 
vaginal delivery to satisfy the ICD-10 MS-DRG logic. We stated our 
plans to conduct further analysis of the diagnosis code lists in MS-DRG 
774 for FY 2018.
    We believe that the Version 34 Definitions Manual and GROUPER logic 
for MS-DRG 774 continue to require additional analysis to determine how 
best to classify a vaginal delivery. For example, under MS-DRG 774, the 
Definitions Manual currently states that three conditions must be met, 
the first of which is a vaginal delivery. To satisfy this first 
condition, codes that describe conditions or circumstances from among 
three lists of codes must be reported. The first list is comprised of 
ICD-10-CM diagnosis codes that may be reported as a principal diagnosis 
or a secondary diagnosis. These diagnosis codes describe conditions in 
which it is assumed that a vaginal delivery has occurred. The second 
list of codes is a list of ICD-10-PCS procedure codes that also 
describe circumstances in which it is assumed that a vaginal delivery 
occurred. The third list of codes identifies diagnoses describing the 
outcome of the delivery. Therefore, if any code from one of those three 
lists is reported, the first condition (vaginal delivery) is considered 
to be met for assignment to MS-DRG 774.
    Our continued concern with the first list of ICD-10-CM diagnosis 
codes as currently displayed in the Definitions Manual under the first 
condition is that not all of the conditions necessarily reflect that a 
vaginal delivery occurred. Several of the diagnosis codes listed could 
also reflect that a cesarean delivery occurred. For example, ICD-10-CM 
diagnosis code O10.02 (Pre-existing essential hypertension complicating 
childbirth) does not specify that a vaginal delivery took place; yet it 
is included in the list of conditions that may be reported as a 
principal diagnosis or a secondary diagnosis in the GROUPER logic for a 
vaginal delivery. The reporting of this code also could be appropriate 
for a delivery that occurred by cesarean section.
    As noted earlier, the second list of codes for the first condition 
are comprised of ICD-10-PCS procedure codes. While we agree that the 
current list of procedure codes in MS-DRG 774 may appropriately 
describe that a vaginal delivery occurred, we also believe this list 
could be improved and warrants closer review.
    The third list of codes for the first condition in MS-DRG 774 
includes conditions describing the outcome of the delivery that would 
be reported as secondary diagnoses. Similar to concerns with the first 
list of codes, we believe the conditions do not necessarily reflect 
that a vaginal delivery occurred because they also can be reported on 
claims where a cesarean delivery occurred.
    For the second condition in MS-DRG 774 to be met, diagnosis codes 
that are identified as a complicating diagnosis from among two lists 
may be reported. The first list is comprised of ICD-10-CM diagnosis 
codes that may be reported as a principal or secondary diagnosis. The 
second list is comprised of ICD-10-CM diagnosis codes that may be 
reported as a secondary diagnosis. Currently, there is only one code 
listed under the secondary diagnosis list. We have concerns with these 
lists and what is classified as a complicating diagnosis when reviewing 
the code lists for this and other MS-DRGs that use that logic in MDC 
14.
    For the third condition in MS-DRG 774 to be met, a limited set of 
O.R. procedures, including both extensive and nonextensive procedures, 
are listed. We have concerns with this third condition as being needed 
to satisfy the logic for a vaginal delivery MS-DRG.
    In summary, the MS-DRG logic involving a vaginal delivery under MDC 
14 is technically complex as a result of the requirements that must be 
met to satisfy assignment to the affected MS-DRGs. Upon review and 
discussion, our clinical advisors recommended, and we agree, that we 
should solicit public comments on further refinement to the following 
four MS-DRGs related to vaginal delivery: MS-DRG 767 (Vaginal Delivery 
with Sterilization and/or D&C); MS-DRG 768 (Vaginal Delivery with O.R. 
Procedure Except Sterilization and/or D&C); MS-DRG 774 (Vaginal 
Delivery with Complicating Diagnosis); and MS-DRG 775 (Vaginal Delivery 
without Complicating Diagnosis).
    In addition, our clinical advisors agreed that we should solicit 
public comments on further refinement to the conditions defined as a 
complicating diagnosis in MS-DRG 774 and MS-DRG 781 (Other Antepartum 
Diagnoses with Medical Complications).
    Therefore, we are soliciting public comments on which diagnosis or 
procedure codes, or both, should be considered in the logic to identify 
a vaginal delivery and which diagnosis codes should be considered in 
the logic to identify a complicating diagnosis. As MS-DRGs 767, 768, 
774, 775, and 781 incorporate one or both aspects (vaginal delivery or 
complicating diagnosis), public comments that we receive from this 
solicitation will be helpful in determining what proposed revisions to 
the current logic should be made. We will review public comments 
received in response to this solicitation as we continue to evaluate 
these areas under MDC 14 and, if warranted, we would propose 
refinements for FY 2019. We are requesting that all comments be 
directed to the CMS MS-DRG Classification Change Request Mailbox 
located at: [email protected] by November 1, 2017.

[[Page 19835]]

b. MS-DRG 998 (Principal Diagnosis Invalid as Discharge Diagnosis)
    The logic for MS-DRG 998 (Principal Diagnosis Invalid as Discharge 
Diagnosis) currently includes a list of diagnoses that are considered 
inappropriate for reporting as a principal diagnosis on an inpatient 
hospital claim. In other words, these conditions would reasonably be 
expected not to necessitate an inpatient admission. Examples of these 
diagnosis codes include what are referred to as the ``Supervision of 
pregnancy'' codes, as well as pregnancy, maternal care and fetal 
related codes with an ``unspecified trimester''. We refer the reader to 
the ICD-10 Version 34 Definitions Manual which is available via the 
Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending for the 
complete list of diagnosis codes in MS-DRG 998 under MDC 14.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56840 through 
56841), there was discussion regarding the supervision of ``high-risk'' 
pregnancy codes, including elderly primigravida and multigravida 
specifically, with regard to removing them from the Unacceptable 
principal diagnosis edit code list in the Medicare Code Editor (MCE). 
After consultation with the staff at the CDC's NCHS, we learned that 
the FY 2017 ICD-10-CM Official Guidelines for Coding and Reporting were 
updated to explain appropriate coding for this set of codes. As a 
result, the codes describing supervision of high-risk pregnancy (and 
other supervision of pregnancy codes) remained on the Unacceptable 
principal diagnosis edit code list in the MCE. Therefore, the MCE code 
edit is consistent with the logic of MS-DRG 998 (Principal Diagnosis 
Invalid as Discharge Diagnosis) for these supervision of pregnancy 
codes.
    However, as a result of our review and consultation with our 
clinical advisors regarding the ``unspecified trimester'' codes in MS-
DRG 998, we have determined that there are more appropriate MS-DRG 
assignments for this set of codes. Although it may seem unlikely that a 
patient would be admitted and ultimately discharged or transferred 
without the caregiver or medical personnel having any further knowledge 
of the exact trimester, it is conceivable that a situation may present 
itself. For example, the pregnant patient may be from out of town or 
unable to communicate effectively. The fact that the specific trimester 
is not known or documented does not preclude the resources required to 
care for the patient with the particular diagnosis.
    Therefore, as shown in Table 6P.3b. associated with this proposed 
rule (which is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html), we are proposing to remove the 314 ICD-
10-CM diagnosis codes identified with ``unspecified trimester'' from 
MS-DRG 998 and reassign them to the MS-DRGs in which their counterparts 
(first trimester, second trimester, or third trimester) are currently 
assigned as specified in Column C. This would enable more appropriate 
MS-DRG assignments and payment for these cases. We are inviting public 
comments on our proposal.
c. MS-DRG 782 (Other Antepartum Diagnoses Without Medical 
Complications)
    The following three ICD-10-CM diagnosis codes are currently on the 
principal diagnosis list for the MS-DRG 782 (Other Antepartum Diagnoses 
without Medical Complications) logic.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
O09.41....................  Supervision of pregnancy with grand
                             multiparity, first trimester.
O09.42....................  Supervision of pregnancy with grand
                             multiparity, second trimester.
O09.43....................  Supervision of pregnancy with grand
                             multiparity, third trimester.
------------------------------------------------------------------------

    It was brought to our attention that these codes also are included 
in the MCE Unacceptable principal diagnosis code edit list. As 
discussed earlier in section II.F.6.b. of the preamble of this proposed 
rule, the supervision of pregnancy codes are accurately reflected in 
the MCE code edit list for Unacceptable principal diagnosis. Therefore, 
it is not appropriate to include the three above listed codes in MS-DRG 
782.
    We are proposing to remove the three codes describing supervision 
of pregnancy from MS-DRG 782 and reassign them to MS-DRG 998 (Principal 
Diagnosis Invalid as Discharge Diagnosis) to reflect a more appropriate 
MS-DRG assignment. We are inviting public comments on our proposal.
d. Shock During or Following Labor and Delivery
    We received a request to review ICD-10-CM diagnosis code O75.1 
(Shock during or following labor and delivery), which is currently 
assigned to MS-DRG 774 (Vaginal Delivery with Complicating Diagnosis), 
MS-DRG 767 (Vaginal Delivery with Sterilization and/or D&C), and MS-DRG 
768 (Vaginal Delivery with O.R. Procedure Except Sterilization and/or 
D&C).
    The requestor provided an example of a patient that delivered at 
Hospital A and was transferred to Hospital B for specialized care 
related to the diagnosis of shock. The claim for Hospital B resulted in 
assignment to a delivery MS-DRG, despite the fact that a delivery did 
not occur during that hospitalization. The requestor noted that, by not 
reporting the diagnosis code for shock, the claim grouped to a 
postpartum MS-DRG and recommended that we evaluate the issue further.
    Our analysis initially involved reviewing the GROUPER logic for MS-
DRGs 774, 767 and 768. As discussed earlier in section II.F.14.a. of 
the preamble of this proposed rule, the GROUPER logic for 
classification and assignment to MS-DRG 774 requires that three 
conditions must be met, the first of which is a vaginal delivery. 
Similar GROUPER logic applies for assignment to MS-DRGs 767 and 768, 
except that only two conditions must be met, with the first condition 
being a vaginal delivery. For each of these three MS-DRGs, to satisfy 
the first condition, one code that describes a condition or 
circumstance from among the three separate lists of codes must be 
reported. The first list is comprised of ICD-10-CM diagnosis codes that 
may be reported as a principal or secondary diagnosis. These diagnosis 
codes describe conditions in which it is assumed that a vaginal 
delivery has occurred. Among this first list is ICD-10-CM diagnosis 
code O75.1, which is included in the GROUPER logic for MS-DRGs 774, 767 
and 768 (under the first condition--vaginal delivery). We refer readers 
to the ICD-10 MS-DRG Version 34 Definitions Manual located via the 
Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-
Fee-for-Service-Payment/AcuteInpatient

[[Page 19836]]

PPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Data-
Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending for 
documentation of the GROUPER logic associated with these MS-DRGs.
    In addition, in MS-DRG 774, to satisfy the second condition, 
diagnosis codes that are identified as a complicating diagnosis from 
among two lists may be reported. The first list is comprised of ICD-10-
CM diagnosis codes that may be reported as a principal or secondary 
diagnosis. The second list is comprised of ICD-10-CM diagnosis codes 
that may be reported as a secondary diagnosis. Currently, there is only 
one code listed under the secondary diagnosis list.
    Next, our analysis involved reviewing the GROUPER logic for 
assignment to post-partum MS-DRG 769 (Postpartum and Post Abortion 
Diagnoses with Major Procedure) and MS-DRG 776 (Postpartum and Post 
Abortion Diagnoses without O.R. Procedure). The GROUPER logic for these 
postpartum MS-DRGs requires that a principal diagnosis be reported from 
a list of several conditions, such as those following pregnancy, those 
complicating the puerperium, conditions that occurred during or 
following delivery and conditions associated with lactation disorders. 
For assignment to MS-DRG 769, the GROUPER logic also requires that a 
major procedure be reported in addition to a principal diagnosis from 
the list of conditions.
    As a result of our analysis, we agree with the requestor that ICD-
10-CM diagnosis code O75.1 should be added to the GROUPER logic for 
assignment to the postpartum MS-DRGs. This diagnosis code is consistent 
with other diagnosis codes structured within the GROUPER logic for 
assignment to MS-DRGs 769 and 776, and clearly represents a post-partum 
diagnosis with the terminology ``during or following labor and 
delivery'' in the title. We believe that adding this diagnosis code to 
the postpartum MS-DRGs will enable more appropriate MS-DRG assignment 
for cases where a delivery did not occur.
    Therefore, we are proposing the following:
     Removing ICD-10-CM diagnosis code O75.1 from the list of 
principal or secondary diagnosis under the first condition--vaginal 
delivery GROUPER logic in MS-DRGs 774, 767, and 768;
     Moving ICD-10-CM diagnosis code O75.1 from the list of 
principal or secondary diagnosis under the second condition--
complicating diagnosis for MS-DRG 774 to the secondary diagnosis list 
only; and
     Adding ICD-10-CM diagnosis code O75.1 to the principal 
diagnosis list GROUPER logic in MS-DRGs 769 and 776.
    We are inviting public comments on our proposals.
7. MDC 15 (Newborns and Other Neonates With Conditions Originating in 
Perinatal Period): Observation and Evaluation of Newborn
    We received a request to add the ICD-10-CM diagnosis codes 
describing observation and evaluation of newborns for suspected 
conditions that are ruled out to MS-DRG 795 (Normal Newborn). The 14 
diagnosis codes describing observation and evaluation of newborn for 
suspected conditions ruled out are displayed in the table below.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
Z05.0.....................  Observation and evaluation of newborn for
                             suspected cardiac condition ruled out.
Z05.1.....................  Observation and evaluation of newborn for
                             suspected infectious condition ruled out.
Z05.2.....................  Observation and evaluation of newborn for
                             suspected neurological condition ruled out.
Z05.3.....................  Observation and evaluation of newborn for
                             suspected respiratory condition ruled out.
Z05.41....................  Observation and evaluation of newborn for
                             suspected genetic condition ruled out.
Z05.42....................  Observation and evaluation of newborn for
                             suspected metabolic condition ruled out.
Z05.43....................  Observation and evaluation of newborn for
                             suspected immunologic condition ruled out.
Z05.5.....................  Observation and evaluation of newborn for
                             suspected gastrointestinal condition ruled
                             out.
Z05.6.....................  Observation and evaluation of newborn for
                             suspected genitourinary condition ruled
                             out.
Z05.71....................  Observation and evaluation of newborn for
                             suspected skin and subcutaneous tissue
                             condition ruled out.
Z05.72....................  Observation and evaluation of newborn for
                             suspected musculoskeletal condition ruled
                             out.
Z05.73....................  Observation and evaluation of newborn for
                             suspected connective tissue condition ruled
                             out.
Z05.8.....................  Observation and evaluation of newborn for
                             other specified suspected condition ruled
                             out.
Z05.9.....................  Observation and evaluation of newborn for
                             unspecified suspected condition ruled out.
------------------------------------------------------------------------

    The requestor expressed concern that currently when one of these 
ruled out codes is added to a newborn encounter with a principal 
diagnosis described by ICD-10-CM code Z38.00 (Single liveborn infant, 
delivered vaginally), the case is assigned to MS-DRG 794 (Neonate with 
Other Significant Problems). The requestor stated that this assignment 
appears to be in error and that the assignment should instead be to MS-
DRG 795 (Normal Newborn).
    We reviewed Section I.C.16.b. of the 2017 ICD-10-CM Official 
Guidelines for Coding and Reporting which includes the following 
instructions for the diagnosis codes listed in the table above:
     Assign a code from category Z05 (Observation and 
evaluation of newborns and infants for suspected conditions ruled out) 
to identify those instances when a healthy newborn is evaluated for a 
suspected condition that is determined after study not to be present. 
Do not use a code from category Z05 when the patient has identified 
signs or symptoms of a suspected problem; in such cases code the sign 
or symptom.
     A code from category Z05 may also be assigned as a 
principal or first-listed code for readmissions or encounters when the 
code from category Z38 code no longer applies. Codes from category Z05 
are for use only for healthy newborns and infants for which no 
condition after study is found to be present.
     A code from category Z05 is to be used as a secondary code 
after the code from category Z38, Liveborn infants according to place 
of birth and type of delivery.
    After review of the guidelines and discussion with our clinical 
advisors, we agree with the requestor that the assignment of these 
codes to MS-DRG 794 is not accurate because the assignment incorrectly 
labels the newborns as having a significant problem when the condition 
does not truly exist. We and our clinical advisors also agree that the 
above list of diagnosis codes should be added to MS-DRG 795. Therefore, 
we are proposing to add the 14 diagnosis codes describing observation 
and evaluation of newborns for suspected conditions that are ruled out 
listed in the table above to the GROUPER logic for MS-DRG 795. We are 
inviting public comments on our proposals.

[[Page 19837]]

8. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): 
Complication Codes
    We received a request to examine the ICD-10-CM diagnosis codes in 
the T85.8-series of codes that describe other specified complications 
of internal prosthetic devices, implants and grafts, not elsewhere 
classified and their respective MS-DRG assignments. According to the 
requestor, the 7th character values in this series of codes impact the 
MS-DRG assignment under MDC 21 (Injuries, Poisonings and Toxic Effects 
of Drugs) and MDC 23 (Factors Influencing Health Status & Other 
Contacts with Health Services) that have resulted in inconsistencies 
(that is, shifts) between the MS-DRG assignments under Version 33 and 
Version 34 of the ICD-10 MS-DRGs.
    Under ICD-10-CM, diagnosis codes in the range of S00 through T88 
require a 7th character value of ``A-'' initial encounter, ``D-'' 
subsequent encounter, or ``S-'' sequela to identify if the patient is 
undergoing active treatment for a condition. For complication codes, 
active treatment refers to treatment for the condition described by the 
code, even though it may be related to an earlier precipitating 
problem.
    The requestor suggested that the following list of diagnosis codes 
with the 7th character ``A'' (initial encounter) may have been 
inadvertently assigned to the GROUPER logic in the list of diagnoses 
(Assignment of Diagnosis Codes) under MDC 23 because when one of these 
diagnosis codes was reported with an O.R. procedure, the requestor 
found claims grouping to MS-DRG 939, 940, or 941 (O.R. Procedures with 
Diagnoses of Other Contact with Health Services with MCC, with CC and 
without CC/MCC, respectively) that had previously grouped to MDC 21 
under Version 33 of the ICD-10 MS-DRGs. The requestor also suggested 
these codes may have been inadvertently assigned to the GROUPER logic 
list of principal diagnoses for MS-DRGs 949 and 950 (Aftercare with CC/
MCC and without CC/MCC, respectively) under MDC 23 because it found 
claims that grouped to these MS-DRGs (949 and 950) when one of the 
following diagnosis codes was reported as a principal diagnosis that 
had previously grouped to MDC 21 under Version 33 of the ICD-10 MS-
DRGs.

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                 Code description
------------------------------------------------------------------------
T85.818A..................  Embolism due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.828A..................  Fibrosis due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.838A..................  Hemorrhage due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.848A..................  Pain due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.858A..................  Stenosis due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.868A..................  Thrombosis due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.898A..................  Other specified complication of other
                             internal prosthetic devices, implants and
                             grafts, initial encounter.
------------------------------------------------------------------------

    The requestor believed that the above list of diagnosis codes with 
the 7th character ``A'' (initial encounter) would be more appropriately 
assigned under MDC 21 to MS-DRGs 919, 920, and 921 (Complications of 
Treatment with MCC, with CC and without CC/MCC, respectively), 
according to its review of the 2017 Official Coding Guidelines for use 
of the 7th character and assignment of other diagnoses of associated 
complications of care. The requestor also noted that these codes were 
new, effective October 1, 2016 (FY 2017), and the predecessor codes 
grouped to MS-DRGs 919, 920, and 921 in MDC 21 under Version 33 of the 
ICD-10 MS-DRGs in FY 2016.
    In addition, the requestor suggested that the following list of 
diagnosis codes with the 7th character ``D'' (subsequent encounter) may 
have been inadvertently assigned to the GROUPER logic list of principal 
diagnoses for MS-DRG 919, 920, or 921 in MDC 21. The requestor noted 
that these codes were new, effective October 1, 2016 (FY 2017), and the 
predecessor codes grouped to MS-DRGs 949 and 950 (Aftercare with CC/MCC 
and without CC/MCC, respectively) in MDC 23 under Version 33 of the 
ICD-10 MS-DRGs in FY 2016.

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                 Code description
------------------------------------------------------------------------
T85.810D..................  Embolism due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.820D..................  Fibrosis due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.830D..................  Hemorrhage due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.840D..................  Pain due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.850D..................  Stenosis due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.860D..................  Thrombosis due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.890D..................  Other specified complication of nervous
                             system prosthetic devices, implants and
                             grafts, subsequent encounter.
------------------------------------------------------------------------

    The requestor also suggested that the following list of additional 
diagnosis codes with the 7th character ``D'' (subsequent encounter) may 
have been inadvertently assigned to the GROUPER logic list of principal 
diagnoses for MS-DRGs 922 and 923 (Other Injury, Poisoning and Toxic 
Effect with MCC and without MCC, respectively) also under MDC 21. The 
requestor noted these codes were also new, effective October 1, 2016 
(FY 2017) and that the predecessor codes grouped to MS-DRGs 949 and 950 
in MDC 23 under Version 33 of the ICD-10 MS-DRGs in FY 2016.

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                 Code description
------------------------------------------------------------------------
T85.818D..................  Embolism due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.828D..................  Fibrosis due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.838D..................  Hemorrhage due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.

[[Page 19838]]

 
T85.848D..................  Pain due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.858D..................  Stenosis due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.868D..................  Thrombosis due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.898D..................  Other specified complication of other
                             internal prosthetic devices, implants and
                             grafts, subsequent encounter.
------------------------------------------------------------------------

    The requestor believed that the lists of diagnosis codes above with 
7th character ``D'' (subsequent encounter) would be more appropriately 
assigned to MS-DRGs 949 and 950 under MDC 23, according to its review 
of the 2017 Official Coding Guidelines for use of the 7th character and 
assignment of other diagnoses of associated complications of care.
    We ran test cases to determine if we could duplicate the 
requestor's findings with regard to the shifts in MS-DRG assignment 
between Version 33 and Version 34 of the ICD-10 MS-DRGs. Results of our 
review were consistent with the requestor's findings. We found that the 
T85.8-series of diagnosis codes with the 7th character of ``A'' 
(initial encounter) and 7th character of ``D'' (subsequent encounter) 
were inadvertently assigned to the incorrect MDC for Version 34 of the 
ICD-10 MS-DRGs, which led to inconsistencies (MS-DRG shifts) when 
compared to Version 33 of the ICD-10 MS-DRGs. Our analysis also 
included review of all of the diagnosis codes in the T85.8- series and 
their current MDC and MS-DRG assignments, as well as review of the 2017 
Official Coding Guidelines for use of the 7th character and assignment 
of other diagnoses of associated complications of care. Based on the 
results of our review, we agree with the requestor's findings.
    In addition, we identified the following list of diagnosis codes 
with the 7th character ``S'' (sequela) that appear to have been 
inadvertently assigned to MS-DRGs 949 and 950 in MDC 23 rather than MDC 
21 in MS-DRGs 922 and 923 (Other Injury, Poisoning and Toxic Effect 
with MCC and without MCC, respectively).

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                 Code description
------------------------------------------------------------------------
T85.810S..................  Embolism due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.820S..................  Fibrosis due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.830S..................  Hemorrhage due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.840S..................  Pain due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.850S..................  Stenosis due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.860S..................  Thrombosis due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.890S..................  Other specified complication of nervous
                             system prosthetic devices, implants and
                             grafts, sequela.
------------------------------------------------------------------------

    We are inviting public comment on our proposals to (1) reassign the 
ICD-10-CM diagnosis codes with the 7th character ``A'' (initial 
encounter) from MS-DRGs 949 and 950 in MDC 23 to MS-DRGs 919, 920 and 
921 in MDC 21; (2) reassign the ICD-10-CM diagnosis codes with the 7th 
character ``D'' (subsequent encounter) from MS-DRGs 919, 920, 921, 922, 
and 923 in MDC 21 to MS-DRGs 949 and 950 in MDC 23; and (3) reassign 
the ICD-10-CM diagnosis codes with the 7th character ``S'' (sequela) 
from MS-DRGs 949 and 950 in MDC 23 to MS-DRGs 922 and 923 in MDC 21 for 
FY 2018. The table below displays the current Version 34 MDC and MS-DRG 
assignments and the proposed Version 35 MDC and MS-DRG assignments that 
we are seeking public comment on for the respective ICD-10-CM diagnosis 
codes.

----------------------------------------------------------------------------------------------------------------
                                                    Current V34   Current V34 MS-  Proposed V35    Proposed V35
       ICD-10-CM code          Code description         MDC             DRG             MDC           MS-DRG
----------------------------------------------------------------------------------------------------------------
T85.810D...................  Embolism due to                  21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.810S...................  Embolism due to                  23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.818A...................  Embolism due to                  23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.818D...................  Embolism due to                  21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.820D...................  Fibrosis due to                  21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.820S...................  Fibrosis due to                  23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.828A...................  Fibrosis due to                  23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.828D...................  Fibrosis due to                  21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.830D...................  Hemorrhage due to                21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.830S...................  Hemorrhage due to                23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.838A...................  Hemorrhage due to                23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.

[[Page 19839]]

 
T85.838D...................  Hemorrhage due to                21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.840D...................  Pain due to nervous              21   919, 920, 921              23        949, 950
                              system prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.840S...................  Pain due to nervous              23        949, 950              21        922, 923
                              system prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.848A...................  Pain due to other                23        949, 950              21   919, 920, 921
                              internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.848D...................  Pain due to other                21        922, 923              23        949, 950
                              internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.850D...................  Stenosis due to                  21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.850S...................  Stenosis due to                  23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.858A...................  Stenosis due to                  23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.858D...................  Stenosis due to                  21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.860D...................  Thrombosis due to                21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.860S...................  Thrombosis due to                23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.868A...................  Thrombosis due to                23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.868D...................  Thrombosis due to                21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.890D...................  Other specified                  21   919, 920, 921              23        949, 950
                              complication of
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.890S...................  Other specified                  23        949, 950              21        922, 923
                              complication of
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.898A...................  Other specified                  23        949, 950              21   919, 920, 921
                              complication of
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.898D...................  Other specified                  21        922, 923              23        949, 950
                              complication of
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
----------------------------------------------------------------------------------------------------------------

9. MDC 23 (Factors Influencing Health Status and Other Contacts With 
Health Services): Updates to MS-DRGs 945 and 946 (Rehabilitation With 
CC/MCC and Without CC/MCC, Respectively)
    In FY 2016, we received requests to modify the MS-DRG assignment 
for MS-DRGs 945 and 946 (Rehabilitation with CC/MCC and without CC/MCC, 
respectively). This issue was addressed in the FY 2017 IPPS/LTCH PPS 
proposed and final rules (81 FR 24998 through 25000 and 81 FR 56826 
through 56831). For FY 2017, we did not change the MS-DRG assignments 
for MS-DRGs 945 and 946.
    We did not receive a request to address this issue as part of this 
FY 2018 IPPS/LTCH PPS proposed rule or suggestions on how to update the 
MS-DRGs 945 and 946 logic. However, we did refer the FY 2016 requests 
for a new ICD-10-CM diagnosis code to the Centers for Disease Control 
and Prevention (CDC) for consideration at a future meeting of the ICD-
10 Coordination and Maintenance Committee. CDC has the lead on updating 
and maintaining ICD-10-CM codes. CDC did not address the issue at the 
September 13-14, 2016 ICD-10 Coordination and Maintenance Committee 
meeting. When the topic was not addressed at the September 13-14, 2016 
ICD-10 Coordination and Maintenance Committee meeting, we asked CDC to 
address the code request at the March 7-8, 2017 meeting of the ICD-10 
Coordination and Maintenance Committee. The topic was on the agenda for 
the March 7-8, 2017 ICD-10 Coordination and Maintenance Committee 
meeting. The deadline for providing comments on proposals considered at 
this meeting was April 7, 2017. Any new codes approved after this 
meeting which will be implemented on October 1, 2017 will be posted on 
the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/index.html and on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10.html in June 2017. New codes also will be included in the FY 2018 
IPPS/LTCH PPS final rule.
    As addressed in the FY 2017 IPPS/LTCH PPS final rule, the ICD-9-CM 
MS-DRGs used ICD-9-CM codes reported as the principal diagnosis that 
clearly identified an encounter for rehabilitation services, such as 
diagnosis codes V57.89 (Care involving other specified rehabilitation 
procedure) and V57.9 (Care involving unspecified rehabilitation 
procedure), and these codes were not included in ICD-10-CM. Given this 
lack of ICD-10-CM codes to indicate that the reason for the encounter 
was for rehabilitation, the ICD-10 MS-DRG logic could not reflect the 
logic of the ICD-9-CM MS-DRGs. Commenters on the final rule recommended 
that CDC create new diagnosis codes for these concepts in ICD-10-CM so 
that the MS-DRG logic could be updated to more closely reflect that of 
the ICD-9-CM MS-DRGs.
    If new ICD-10-CM codes are created for encounter for rehabilitation 
services, we would address any updates to MS-DRGs 945 and 946 utilizing 
these new codes in future rulemaking. In the meantime, we welcome other 
specific recommendations on how to update MS-DRGs 945 and 946. We are 
sharing the following data on these MS-DRGs from the MedPAR file.

[[Page 19840]]



----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
               FY 2015 MS-DRGs with ICD-9-CM codes                     cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 945......................................................           3,991            10.3          $8,242
MS-DRG 946......................................................           1,184             8.0           7,322
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
              FY 2016 MS-DRGs with ICD-10-CM codes                     cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 945......................................................             671            10.8          $7,814
MS-DRG 946......................................................             157             7.3           7,672
----------------------------------------------------------------------------------------------------------------

    As shown by the tables above, there was a decrease of 3,320 MS-DRG 
945 cases (from 3,991 to 671) from FY 2015, when claims were submitted 
with ICD-9-CM codes, to FY 2016 when ICD-10 codes were submitted. There 
was a decrease of 1,027 MS-DRG 946 cases (from 1,184 to 157) from FY 
2015 to FY 2016. The average length of stay increased 0.5 days (from 
10.3 to 10.8 days) for MS-DRG 945 and decreased 0.7 days (from 8.0 to 
7.3 days) for MS-DRG 946. The average costs decreased by $428 (from 
$8,242 to $7,814) for MS-DRG 945 cases and increased by $350 (from 
$7,322 to $7,672) for MS-DRG 946 cases. The number of cases was 
significantly lower in FY 2016 compared to FY 2015. However, the 
difference in average length of stay and average costs did not show 
large changes.
    We also examined possible MS-DRGs where these cases may have been 
assigned in FY 2016 based on increases in the number of claims. Because 
there is not a diagnosis code that could be reported as a principal 
diagnosis, which would indicate if the admissions were for 
rehabilitation services, we are unable to determine if these were cases 
admitted for rehabilitation that moved from MS-DRGs 945 and 946 because 
of the lack of a code for encounter for rehabilitation, or if there was 
simply a change in the number of cases. The following tables show our 
findings for MS-DRG 056 (Degenerative Nervous System Disorders with 
MCC); MS-DRG 057 (Degenerative Nervous System Disorders without MCC); 
MS-DRG 079 (Hypertensive Encephalopathy without CC/MCC); MS DRG 083 
(Traumatic Stupor & Coma, Coma >1 Hour with CC); MS-DRG 084 (Traumatic 
Stupor & Coma, Coma >1 Hour without CC/MCC); MS-DRG 092 (Other 
Disorders of Nervous System with MCC); and MS-DRG 093 (Other Disorders 
of Nervous System without CC/MCC).

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
               FY 2015 MS-DRGs with ICD-9-CM codes                     cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 056......................................................           9,548             7.3         $12,606
MS-DRG 057......................................................          25,652             5.1           7,918
MS-DRG 079......................................................             618             2.7           5,212
MS-DRG 083......................................................           2,516             4.3           9,446
MS-DRG 084......................................................           1,955             2.8           6,824
MS-DRG 092......................................................          12,643             5.7          11,158
MS-DRG 093......................................................           7,928             2.8           5,182
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
              FY 2016 MS-DRGs with ICD-10-CM codes                     cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 056......................................................          10,817             7.6         $12,930
MS-DRG 057......................................................          28,336             5.3           7,902
MS-DRG 079......................................................           1,233             2.7           5,579
MS-DRG 083......................................................           4,058             6.2           9,134
MS-DRG 084......................................................           3,016             2.7           6,508
MS-DRG 092......................................................          19,392             3.9           6,706
MS-DRG 093......................................................           8,120             2.7           5,253
----------------------------------------------------------------------------------------------------------------

    As shown by the tables above, some of the MS-DRGs that show the 
largest increase in number of cases do not show significant changes in 
the average length of stay or average costs. For instance, MS-DRG 079 
cases doubled from FY 2015 to FY 2016 (from 618 to 1,233). However, the 
average length of stay did not change from 2.7 days and the average 
costs increased only $367 (from $5,212 to $5,579). MS-DRG 083 cases 
increased by 1,542 (from 2,516 to 4,058) with a 1.9 day increase in the 
average length of stay (from 4.3 to 6.2 days); however, the average 
costs decreased only $312 (from $9,446 to $9,134). There were large 
changes for MS-DRG 092 with cases increasing by 6,749 (from 12,643 to 
19,392), the average length of stay decreasing by 1.8 days (from 5.7 to 
3.9) and the average costs decreasing by $4,452 (from $11,158 to 
$6,706). Once again, it is not possible to determine if any changes are 
a result of the impact of not having a code for the encounter for 
rehabilitation services to report as a principal diagnosis, or if other 
factors such as changes in types of patient admissions were involved.
    Given the lack of a diagnosis code to capture the principal 
diagnosis of encounter for rehabilitation, we are unable to update MS-
DRG 945 or MS-DRG 946 to better identify those cases in which patients 
are admitted for rehabilitation services. If the CDC creates a new 
code, we will consider proposing updates to MS-DRGs 945 and 946 in the 
future.
    We are inviting public comments on our proposal not to update MS-
DRGs 945 and 946 for FY 2018.
10. Proposed Changes to the Medicare Code Editor (MCE)
    The Medicare Code Editor (MCE) is a software program that detects 
and reports errors in the coding of Medicare

[[Page 19841]]

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 the FY 2017 IPPS/LTCH PPS final rule (81 FR 56831 
through 56844), we made available the FY 2017 ICD-10 MCE Version 34 
manual file and an ICD-9-CM MCE Version 34.0A manual file (for analysis 
purposes only). The links to these MCE manual files, along with the 
links to purchase the mainframe and computer software for the MCE 
Version 34 (and ICD-10 MS-DRGs) are posted on the CMS Web site at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html through the FY 2017 IPPS Final Rule Home 
Page.
    For this FY 2018 IPPS/LTCH PPS proposed rule, below we address the 
MCE requests we received by the December 7, 2016 deadline. We also 
discuss the proposals we are making based on our internal review and 
analysis.
a. Age Conflict Edit
    In the MCE, the Age Conflict edit exists to detect inconsistencies 
between a patient's age and any diagnosis on the patient's record; for 
example, a 5-year-old patient with benign prostatic hypertrophy or a 
78-year-old patient coded with a delivery. In these cases, the 
diagnosis is clinically and virtually impossible for a patient of the 
stated age. Therefore, either the diagnosis or the age is presumed to 
be incorrect. Currently, in the MCE, the following four age diagnosis 
categories appear under the Age Conflict edit and are listed in the 
manual and written in the software program:
     Perinatal/Newborn--Age of 0 years only; a subset of 
diagnoses which will only occur during the perinatal or newborn period 
of age 0 (for example, tetanus neonatorum, health examination for 
newborn under 8 days old).
     Pediatric--Age is 0 to 17 years inclusive (for example, 
Reye's syndrome, routine child health examination).
     Maternity--Age range is 12 to 55 years inclusive (for 
example, diabetes in pregnancy, antepartum pulmonary complication).
     Adult--Age range is 15 to 124 years inclusive (for 
example, senile delirium, mature cataract).
    We received a request to provide clarification regarding the 
overlapping age ranges (0 to 17 years and 15 to 124 years) in the 
Pediatric and Adult categories under the Age Conflict edit. The 
requestor questioned which diagnosis code would be most appropriate to 
identify when a general or routine health examination is performed on 
patients who are within the age range of 15 to 17 years. The specific 
ICD-10-CM diagnosis codes that the requestor inquired about related to 
a child or to an adult encounter for a health examination are displayed 
in the table below.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
Z00.00....................  Encounter for general adult medical
                             examination without abnormal findings.
Z00.01....................  Encounter for general adult medical
                             examination with abnormal findings.
Z00.121...................  Encounter for routine child health
                             examination with abnormal findings.
Z00.129...................  Encounter for routine child health
                             examination without abnormal findings.
------------------------------------------------------------------------

    The age ranges defined within the Age Conflict edits were 
established with the implementation of the IPPS. The adult age range 
includes the minimum age of 15 years for those patients who are 
declared emancipated minors. We note that, historically, we have not 
provided coding advice in rulemaking with respect to policy. We 
collaborate with the American Hospital Association (AHA) through the 
Coding Clinic for ICD-10-CM and ICD-10-PCS to promote proper coding. We 
recommend that the requestor and other interested parties submit any 
questions pertaining to correct coding practices for this specific 
issue to the AHA.
(1) Perinatal/Newborn Diagnosis Category
    Under the ICD-10 MCE, the Perinatal/Newborn Diagnosis category 
under the Age Conflict edit considers the age of 0 years only; a subset 
of diagnoses which will only occur during the perinatal or newborn 
period of age 0 to be inclusive. This includes conditions that have 
their origin in the fetal or perinatal period (before birth through the 
first 28 days after birth) even if morbidity occurs later. For that 
reason, the diagnosis codes on this Age Conflict edit list would be 
expected to apply to conditions or disorders specific to that age group 
only.
    In the ICD-10-CM classification, there are two diagnosis codes that 
describe conditions as occurring during infancy and the neonatal period 
that are currently not on the Perinatal/Newborn Diagnosis category edit 
code list. We consulted with staff at the Centers for Disease Control's 
(CDC's) National Center for Health Statistics (NCHS) because NCHS has 
the lead responsibility for the ICD-10-CM diagnosis codes. The NCHS' 
staff confirmed that, although diagnosis codes D80.7 (Transient 
hypogammaglobulinemia of infancy) and diagnosis code E71.511 (Neonatal 
adrenoleukodystrophy) do occur during infancy and the neonatal period, 
both conditions can last beyond the 28-day timeframe which is used to 
define the perinatal/newborn period. These diagnosis codes are not 
intended to be restricted for assignment to newborn patients. 
Therefore, we are proposing to not add these two diagnosis codes to the 
Perinatal/Newborn Diagnosis category under the Age Conflict edit. We 
are inviting public comments on our proposal.
(2) Pediatric Diagnosis Category
    Under the ICD-10 MCE, the Pediatric diagnosis category under the 
Age Conflict edit considers the age range of 0 to 17 years inclusive. 
For that reason, the diagnosis codes on this Age Conflict edit list 
would be expected to apply to conditions or disorders specific to that 
age group only.
    The ICD-10-CM diagnosis code list for the Pediatric diagnosis 
category under the Age Conflict edit currently includes a diagnosis 
code pertaining to dandruff that is not intended to apply to pediatric 
patients only. We consulted with staff at the Centers for Disease 
Control's (CDC's) National Center for Health Statistics (NCHS) because 
NCHS has the lead responsibility for the ICD-10-CM diagnosis codes. The 
NCHS' staff confirmed that, although diagnosis code L21.0 (Seborrhea 
capitis) has an inclusion term of ``Cradle cap,'' the description of 
the diagnosis code is not intended to be restricted for assignment of 
pediatric patients. Therefore, we are proposing to remove diagnosis 
code L21.0 from the list of diagnosis codes for the Pediatric diagnosis 
category under the Age Conflict edit. We are inviting public comments 
on our proposal.

[[Page 19842]]

(3) Maternity Diagnoses
    Under the ICD-10 MCE, the Maternity diagnosis category under the 
Age Conflict edit considers the age range of 12 to 55 years inclusive. 
For that reason, the ICD-10-CM diagnosis codes on this Age Conflict 
edit list would be expected to apply to conditions or disorders 
specific to that age group only.
    As discussed in section II.F.12. of the preamble of this proposed 
rule, Table 6A.--New Diagnosis Codes lists the new ICD-10-CM diagnosis 
codes that have been approved to date, which will become effective with 
discharges occurring on and after October 1, 2017. Included on this 
list are a number of diagnosis codes associated with pregnancy and 
maternal care that we believe are appropriate to add to the list of 
diagnosis codes for the Maternity diagnoses category under the Age 
Conflict edit. We refer readers to Table 6P.1a. associated with this 
proposed rule (which is available via the Internet on the CMS Web site 
at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) for a review of the ICD-10-CM diagnosis 
codes that we are proposing to add to the Age Conflict edit list. We 
are inviting public comments on our proposal.
b. Sex Conflict Edit
    In the MCE, the Sex Conflict edit detects inconsistencies between a 
patient's sex and any diagnosis or procedure on the patient's record; 
for example, a male patient with cervical cancer (diagnosis) or a 
female patient with a prostatectomy (procedure). In both instances, the 
indicated diagnosis or the procedure conflicts with the stated sex of 
the patient. Therefore, the patient's diagnosis, procedure, or sex is 
presumed to be incorrect.
(1) Diagnoses for Males Only Edit
    We received a request to review the following ICD-10-CM diagnosis 
codes pertaining to conditions associated with males for possible 
inclusion on the list of diagnosis codes for the Diagnoses for Males 
Only edit.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
B37.42....................  Candidal balanitis.
N35.011...................  Post-traumatic bulbous urethral stricture.
N35.012...................  Post-traumatic membranous urethral
                             stricture.
N35.013...................  Post-traumatic anterior urethral stricture.
N35.112...................  Postinfective bulbous urethral stricture,
                             not elsewhere classified.
N35.113...................  Postinfective membranous urethral stricture,
                             not elsewhere classified.
N35.114...................  Postinfective anterior urethral stricture,
                             not elsewhere classified.
N99.115...................  Postprocedural fossa navicularis urethral
                             stricture.
------------------------------------------------------------------------

    We agree with the requestor that diagnosis code B37.42 describes a 
condition that is applicable only to males. Balanitis is the 
inflammation of the glans (rounded head) of the penis. We also agree 
that the diagnosis codes listed above that align under subcategory 
N35.01 (Post-traumatic urethral stricture, male) and subcategory N35.11 
(Postinfection urethral stricture, not elsewhere classified, male) are 
appropriate to add to the list of diagnosis codes for the Diagnoses for 
Males Only edit because these diagnosis codes include specific 
terminology that is applicable only to males. Further, we agree that 
diagnosis code N99.115 is appropriate to add to the list of diagnosis 
codes for the Diagnoses for Males Only edit because subcategory N99.11 
(Postprocedural urethral stricture, male) includes specific terminology 
that is applicable to males only as well. Therefore, we are proposing 
to add the ICD-10-CM diagnosis codes listed in the table above to the 
list of diagnosis codes for the Diagnoses for Males Only edit.
    We also are proposing to remove ICD-10-CM diagnosis code Q64.0 
(Epispadias) from the list of diagnosis codes for the Diagnoses for 
Males Only edit because this rare, congenital condition involving the 
opening of the urethra can occur in both males and females.
    In addition, as discussed in section II.F.12. of the preamble of 
this proposed rule, Table 6A.--New Diagnosis Codes lists the new ICD-
10-CM diagnosis codes that have been approved to date, which will 
become effective with discharges occurring on and after October 1, 
2017. Included on this list are a number of diagnosis codes associated 
with male body parts that we believe are appropriate to add to the list 
of diagnosis codes for the Diagnoses for Males Only category under the 
Sex Conflict edit. We refer readers to Table 6P.1b. associated with 
this proposed rule (which is available via the Internet on the CMS Web 
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) for a review of the ICD-10-CM diagnosis 
codes that we are proposing to add to the list of diagnosis codes for 
the Diagnoses for Males Only category.
    We are inviting public comments on our proposals.
(2) Diagnoses for Females Only
    We received a request to review the following ICD-10-CM diagnosis 
codes for possible removal from the list of diagnosis codes for the 
Diagnoses for Females Only edit.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
F52.6.....................  Dyspareunia not due to a substance or known
                             physiological condition.
J84.81....................  Lymphangioleiomyomatosis.
R97.1.....................  Elevated cancer antigen 125 [CA 125].
------------------------------------------------------------------------

    The requestor noted that, in the ICD-10-CM classification, the term 
``Dyspareunia'' (painful sexual intercourse) has specified codes for 
males and females located in the Alphabetic Index to Diseases for 
Reporting Physiological Dyspareunia. However, the indexing for 
diagnosis code F52.6 (Dyspareunia not due to a substance or known 
physiological condition) specifies that it is not due to a 
physiological condition and the entry is not gender specific. According 
to the requestor, while the condition is most often associated with 
female sexual dysfunction, there is a subset of males who also suffer 
from this condition.

[[Page 19843]]

    In addition, the requestor stated that diagnosis code J84.81 
(Lymphangioleiomyomatosis) describes a rare form of lung disease 
believed to occur more often in patients with tuberous sclerosis 
complex (TSC), a disorder due to genetic mutation. Although the 
condition is described as being exclusive to women, unique cases for 
men with TSC have also been reported.
    Lastly, the requestor indicated that diagnosis code R97.1 (Elevated 
cancer antigen 125 [CA 125]) describes the tumor marker that commonly 
identifies ovarian cancer cells in women. However, the requestor stated 
that high levels have also been demonstrated in men (and women) with 
lung cancer as well.
    We reviewed ICD-10-CM diagnosis codes F52.6, J84.81, and R97.1, and 
we agree with the requestor that Dyspareunia, not due to a 
physiological condition, can also occur in males. We also agree that 
the condition of Lymphangioleiomyomatosis and Elevated CA 125 levels 
can be found in males. Therefore, we are proposing to remove these 
three diagnosis codes from the list of diagnosis codes for the 
Diagnoses for Females Only edit. We are inviting public comments on our 
proposals.
    In addition, we are proposing to add new diagnosis code Z40.03 
(Encounter for prophylactic removal of fallopian tube(s)) to the list 
of diagnosis codes for the Diagnoses for Females Only edit. Currently, 
diagnosis code Z40.02 (Encounter for prophylactic removal of ovary) is 
on the edit's code list; therefore, inclusion of new diagnosis code 
Z40.03 would be consistent. We refer readers to Table 6A.--New 
Diagnosis Codes associated with this proposed rule (which is available 
via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) for the 
list of new ICD-10-CM diagnosis codes finalized to date. We are 
inviting public comments on our proposal.
c. Non-Covered Procedure Edit: Gender Reassignment Surgery
    In the MCE, the Non-Covered Procedure edit identifies procedures 
for which Medicare does not provide payment. Payment is not provided 
due to specific criteria that are established in the National Coverage 
Determination (NCD) process. We refer readers to the Web site at: 
https://www.cms.gov/Medicare/Coverage/DeterminationProcess/howtorequestanNCD.html for additional information on this process. In 
addition, there are procedures that would normally not be paid by 
Medicare but, due to the presence of certain diagnoses, are paid.
    We issued instructions on June 27, 2014, as a one-time 
notification, Pub. 100-03, Transmittal 169, Change Request 8825, 
effective May 30, 2014, announcing to MACs the invalidation of National 
Coverage Determination (NCD) 140.3 for Transsexual Surgery. As a 
result, MACs determined coverage on a case-by-case basis. The 
transmittal is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-Transmittals-Items/R169NCD.html?DLPage=1&DLEntries=10&DLFilter=Transsexual&DLSort=1&DLSortDir=ascending.
    It was brought to our attention that the ICD-10-PCS procedure codes 
shown in the table below are currently included on the list of 
procedure codes for the Non-Covered Procedure edit. As a result, when 
one of these procedure codes is reported on a claim, the edit for Non-
Covered Procedure is triggered and claims are not able to process 
correctly.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
0W4M070...................  Creation of vagina in male perineum with
                             autologous tissue substitute, open
                             approach.
0W4M0J0...................  Creation of vagina in male perineum with
                             synthetic substitute, open approach.
0W4M0K0...................  Creation of vagina in male perineum with
                             nonautologous tissue substitute, open
                             approach.
0W4M0Z0...................  Creation of vagina in male perineum, open
                             approach.
0W4N071...................  Creation of penis in female perineum with
                             autologous tissue substitute, open
                             approach.
0W4N0J1...................  Creation of penis in female perineum with
                             synthetic substitute, open approach.
0W4N0K1...................  Creation of penis in female perineum with
                             nonautologous tissue substitute, open
                             approach.
0W4N0Z1...................  Creation of penis in female perineum, open
                             approach.
------------------------------------------------------------------------

    Therefore, we are proposing to remove the ICD-10-PCS procedure 
codes included in the table above from the list of procedure codes for 
the Non-Covered Procedure edit to help resolve claims processing issues 
associated with the reporting of these procedure codes. We are inviting 
public comments on our proposal.
d. Unacceptable Principal Diagnosis Edit
    In the MCE, there are select codes that describe a circumstance 
that influences an individual's health status, but does not actually 
describe a current illness or injury. There also are codes that are not 
specific manifestations but may be due to an underlying cause. These 
codes are considered unacceptable as a principal diagnosis. In limited 
situations, there are a few codes on the MCE Unacceptable Principal 
Diagnosis edit code list that are considered ``acceptable'' when a 
specified secondary diagnosis is also coded and reported on the claim.
(1) Bacterial and Viral Infectious Agents (B95 Through B97)
    We examined ICD-10-CM diagnosis codes in Chapter 1 (Certain 
Infectious and Parasitic Diseases) of the Classification Manual that 
fall within the range of three code categories for ``Bacterial and 
Viral Infectious Agents'' (B95 through B97). The instructional note 
provided at this section states that these categories are provided for 
use as supplementary or additional codes to identify the infectious 
agent(s) in diseases classified elsewhere.
    We identified 45 ICD-10-CM diagnosis codes within the range of 
these code categories for ``Bacterial and Viral Infectious Agents'' 
(B95 through B97) that, as a result of the instructional note, are not 
appropriate to report as a principal diagnosis. We are proposing to add 
the 45 ICD-10-CM diagnosis codes shown in Table 6P.1c. associated with 
this proposed rule (which is available via the Internet on the CMS Web 
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) to the list of codes for the Unacceptable 
Principal Diagnosis edit. We are inviting public comments on our 
proposal.
(2) Mental Disorders Due to Known Physiological Conditions (F01 Through 
F09)
    We examined ICD-10-CM diagnosis codes in Chapter 5 (Mental and 
Behavioral Disorders) of the Classification Manual that fall within the 
range of nine code categories for ``Mental Disorders Due to Known

[[Page 19844]]

Physiological Conditions'' (F01 through F09). The instructional note 
provided at this section states that this block comprises a range of 
mental disorders grouped together on the basis of their having in 
common a demonstrable etiology in cerebral disease, brain injury, or 
other insult leading to cerebral dysfunction. The dysfunction may be 
primary, as in diseases, injuries, and insults that affect the brain 
directly and selectively; or secondary, as in systemic diseases and 
disorders that attack the brain only as one of the multiple organs or 
systems of the body that are involved.
    We identified 21 ICD-10-CM diagnosis codes that fall within the 
range of these code categories for ``Mental Disorders Due to Known 
Physiological Conditions'' (F01 through F09). Of these nine code 
categories, seven have a ``Code first the underlying physiological 
condition'' note. For example, at code category F01-Vascular dementia, 
the note reads, ``Code first the underlying physiological condition or 
sequelae of cerebrovascular disease.'' There are a total of 19 
diagnosis codes that fall under these 7 code categories with a ``Code 
first'' note and, therefore, are not appropriate to report as a 
principal diagnosis. Therefore, we are proposing to add the 19 ICD-10-
CM diagnosis codes shown in Table 6P.1d. associated with this proposed 
rule (which is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) to the list of codes for the Unacceptable 
Principal Diagnosis edit. We are inviting public comments on our 
proposal.
(3) Other Obstetric Conditions, Not Elsewhere Classified (O94 Through 
O9A)
    We examined ICD-10-CM diagnosis codes in Chapter 15 (Pregnancy, 
Childbirth and the Puerperium) of the Classification Manual that fall 
within the range of four code categories for ``Other Obstetric 
Conditions, Not Elsewhere Classified'' (O94 through O9A). The 
instructional note provided at this section under category O94 states 
that ``this category is to be used to indicate conditions in O00 
through O77, O85 through O94 and O98 through O9A as the cause of late 
effects. The sequelae include conditions specified as such, or as late 
effects, which may occur at any time after the puerperium. Code first 
condition resulting from (sequela) of complication of pregnancy, 
childbirth, and the puerperium.''
    We identified one ICD-10-CM diagnosis code within the range of 
these code categories for ``Other Obstetric Conditions, Not Elsewhere 
Classified'' (O94 through O9A) that, as a result of the instructional 
note, is not appropriate to report as a principal diagnosis because 
that code identifies the cause of the late effect. This ICD-10-CM 
diagnosis code is O94 (Sequelae of complication of pregnancy, 
childbirth, and the puerperium). We are proposing to add ICD-10-CM 
diagnosis code O94 to the list of codes for the Unacceptable Principal 
Diagnosis edit. We are inviting public comments on our proposal.
(4) Symptoms and Signs Involving Cognition, Perception, Emotional State 
and Behavior (R40 Through R46)
    We examined ICD-10-CM diagnosis codes in Chapter 18 (Symptoms, 
Signs and Abnormal Findings) of the Classification Manual that fall 
within the range of code categories for ``Symptoms and Signs Involving 
Cognition, Perception, Emotional State and Behavior'' (R40 through 
R46), specifically under code category R40--Somnolence, stupor and 
coma. At subcategory R40.2--Coma, there is an instructional note, which 
states ``Code first any associated: Fracture of skull (S02.-); 
Intracranial injury (S06.-).''
    We identified 96 ICD-10-CM diagnosis codes under this subcategory 
that, as a result of the instructional note, are not appropriate to 
report as a principal diagnosis. We are proposing to add the 96 ICD-10-
CM diagnosis codes shown in Table 6P.1e. associated with this proposed 
rule (which is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) to the list of codes for the Unacceptable 
Principal Diagnosis edit. We are inviting public comments on our 
proposal.
(5) General Symptoms and Signs (R50 Through R69)
    We examined ICD-10-CM diagnosis codes in Chapter 18 (Symptoms, 
Signs and Abnormal Findings) of the Classification Manual that fall 
within the range of code categories for ``General Symptoms and Signs'' 
(R50 through R69), specifically, at code category R65--Symptoms and 
signs associated with systemic inflammation and infection. There is an 
instructional note at subcategory R65.1--Systemic inflammatory response 
syndrome (SIRS) of non-infectious origin, which states ``Code first 
underlying condition, such as: Heatstroke (T67.0); Injury and trauma 
(S00-T88).'' There is also an instructional note at subcategory R65.2--
Severe sepsis, which states ``Code first underlying infection, such 
as:'' and provides a list of examples.
    We identified four ICD-10-CM diagnosis codes in these subcategories 
that, as a result of the instructional notes described above, are not 
appropriate to report as a principal diagnosis. These four ICD-10-CM 
codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
R65.10....................  Systemic inflammatory response syndrome
                             (SIRS) of non-infectious origin without
                             acute organ dysfunction.
R65.11....................  Systemic inflammatory response syndrome
                             (SIRS) of non-infectious origin with acute
                             organ dysfunction.
R65.20....................  Severe sepsis without septic shock.
R65.21....................  Severe sepsis with septic shock.
------------------------------------------------------------------------

    We are proposing to add the four ICD-10-CM diagnosis codes shown in 
the table above to the list of codes for the Unacceptable Principal 
Diagnosis edit. We are inviting public comments on our proposal.
(6) Poisoning by, Adverse Effects of, and Underdosing of Drugs, 
Medicaments and Biological Substances (T36 Through T50)
    We examined ICD-10-CM diagnosis codes in Chapter 19 (Injury and 
Poisoning) of the Classification Manual that fall within the range of 
code categories for ``Poisoning by, Adverse Effects of and Underdosing 
of Drugs, Medicaments and Biological Substances'' (T36 through T50). 
The instructional note provided at this section states ``Code first, 
for adverse effects, the nature of the adverse effect, such as:'' and 
provides a list of examples. In addition, the FY 2017 ICD-10-CM 
Official Guidelines for Coding and Reporting at Section I.C.19.e.5.c., 
state that ``Codes for underdosing should never be assigned as 
principal or first-listed codes.''

[[Page 19845]]

    We identified 996 ICD-10-CM diagnosis codes that, as a result of 
the instructional note for adverse effects and the guideline for 
reporting diagnosis codes for underdosing, are not appropriate to 
report as a principal diagnosis. We are proposing to add the 996 ICD-
10-CM diagnosis codes shown in Table 6P.1f. associated with this 
proposed rule (which is available via the Internet on the CMS Web site 
at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) to the list of codes for the Unacceptable 
Principal Diagnosis edit. We are inviting public comments on our 
proposal.
(7) Complications of Surgical and Medical Care, Not Elsewhere 
Classified (T80 Through T88)
    We examined ICD-10-CM diagnosis codes in Chapter 19 (Injury and 
Poisoning) of the Classification Manual that fall within the range of 
code categories for ``Complications of Surgical and Medical Care, Not 
Elsewhere Classified'' (T80 through T88), specifically, at code 
category T81--Complications of procedures, not elsewhere classified. 
There is an instructional note at subcategory T81.12x--Postprocedural 
septic shock, which states, ``Code first underlying infection.''
    We identified two ICD-10-CM diagnosis codes in this subcategory 
that, as a result of the instructional note, are not appropriate to 
report as a principal diagnosis. These two ICD-10-CM codes are shown in 
the table below.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
T81.12XD..................  Postprocedural septic shock, subsequent
                             encounter.
T81.12XS..................  Postprocedural septic shock, sequela.
------------------------------------------------------------------------

    We are proposing to add the two ICD-10-CM diagnosis codes shown in 
the table above to the list of codes for the Unacceptable Principal 
Diagnosis edit. We are inviting public comments on our proposal.
(8) Persons Encountering Health Services for Examinations (Z00 Through 
Z13)
    We examined ICD-10-CM diagnosis codes in Chapter 21 (Factors 
Influencing Health Status) of the Classification Manual that fall 
within the range of code categories for ``Persons Encountering Health 
Services for Examinations'' (Z00 through Z13), specifically, at code 
category Z00--Encounter for general examination without complaint, 
suspected or reported diagnosis. The FY 2017 ICD-10-CM Official 
Guidelines for Coding and Reporting at Section I.C.21.c.16., state that 
the following ICD-10-CM Z-codes/categories may only be reported as the 
principal/first-listed diagnosis, except when there are multiple 
encounters on the same day and the medical records for the encounters 
are combined:
     Z00 (Encounter for general examination without complaint, 
suspected or reported diagnosis); except Z00.6 (Encounter for 
examination for normal comparison and control in clinical research 
program).
    Therefore, diagnosis code Z00.6 should not be reported as a 
principal/first-listed diagnosis. We are proposing to add ICD-10-CM 
diagnosis code Z00.6 to the list of codes for the Unacceptable 
Principal Diagnosis edit. We are inviting public comments on our 
proposal.
    To address a separate issue, we are proposing to remove the 
diagnosis codes under category Z05 (Encounter for observation and 
examination of newborn for suspected diseases and conditions ruled out) 
from the list of codes for the Unacceptable Principal Diagnosis edit. 
The FY 2017 ICD-10-CM Official Guidelines for Coding and Reporting at 
Section I.C.16.b. state the following:
     Assign a code from category Z05, Observation and 
evaluation of newborns and infants for suspected conditions ruled out, 
to identify those instances when a healthy newborn is evaluated for a 
suspected condition that is determined after study not to be present. 
Do not use a code from category Z05 when the patient has identified 
signs or symptoms of a suspected problem; in such cases code the sign 
or symptom.
     A code from category Z05 may also be assigned as a 
principal or first-listed code for readmissions or encounters when the 
code from category Z38 no longer applies. Codes from category Z05 are 
for use only for healthy newborns and infants for which no condition 
after study is found to be present.
     A code from category Z05 is to be used as a secondary code 
after the code from category Z38, Liveborn infants according to place 
of birth and type of delivery.
    Therefore, the ICD-10-CM diagnosis codes under category Z05 are 
allowed to be reported as a principal diagnosis. We are proposing to 
remove the 14 ICD-10-CM diagnosis codes shown in the table below from 
the list of codes for the Unacceptable Principal Diagnosis edit.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
Z05.0.....................  Observation and evaluation of newborn for
                             suspected cardiac condition ruled out.
Z05.1.....................  Observation and evaluation of newborn for
                             suspected infectious condition ruled out.
Z05.2.....................  Observation and evaluation of newborn for
                             suspected neurological condition ruled out.
Z05.3.....................  Observation and evaluation of newborn for
                             suspected respiratory condition ruled out.
Z05.41....................  Observation and evaluation of newborn for
                             suspected genetic condition ruled out.
Z05.42....................  Observation and evaluation of newborn for
                             suspected metabolic condition ruled out.
Z05.43....................  Observation and evaluation of newborn for
                             suspected immunologic condition ruled out.
Z05.5.....................  Observation and evaluation of newborn for
                             suspected gastrointestinal condition ruled
                             out.
Z05.6.....................  Observation and evaluation of newborn for
                             suspected genitourinary condition ruled
                             out.
Z05.71....................  Observation and evaluation of newborn for
                             suspected skin and subcutaneous tissue
                             condition ruled out.
Z05.72....................  Observation and evaluation of newborn for
                             suspected musculoskeletal condition ruled
                             out.
Z05.73....................  Observation and evaluation of newborn for
                             suspected connective tissue condition ruled
                             out.
Z05.8.....................  Observation and evaluation of newborn for
                             other specified suspected condition ruled
                             out.
Z05.9.....................  Observation and evaluation of newborn for
                             unspecified suspected condition ruled out.
------------------------------------------------------------------------


[[Page 19846]]

    We are inviting public comments on our proposal.
(9) Encounters for Other Specific Health Care (Z40 Through Z53)
    We examined ICD-10-CM diagnosis codes in Chapter 21 (Factors 
Influencing Health Status) of the Classification Manual that fall 
within the range of code categories for ``Encounters for Other Specific 
Health Care'' (Z40 through Z53), specifically, at code category Z52--
Donors of organs and tissues. The FY 2017 ICD-10-CM Official Guidelines 
for Coding and Reporting at Section I.C.21.c.16. state that the 
following Z-codes/categories may only be reported as the principal/
first-listed diagnosis, except when there are multiple encounters on 
the same day and the medical records for the encounters are combined:
     Z52 (Donors of organs and tissues); except Z52.9 (Donor of 
unspecified organ or tissue).
    Therefore, ICD-10-CM diagnosis code Z52.9 should not be reported as 
a principal/first-listed diagnosis. We are proposing to add ICD-10-CM 
diagnosis code Z52.9 to the list of codes for the Unacceptable 
Principal Diagnosis edit. We are inviting public comments on our 
proposal.
(10) Persons Encountering Health Services in Other Circumstances (Z69 
Through Z76)
    We examined ICD-10-CM diagnosis codes in Chapter 21 (Factors 
Influencing Health Status) of the Classification Manual that fall 
within the range of code categories for ``Persons Encountering Health 
Services in Other Circumstances'' (Z69 through Z76), specifically, at 
subcategory Z71.8--Other specified counseling. Consistent with ICD-10-
CM diagnosis codes Z71.81 (Spiritual or religious counseling) and 
Z71.89 (Other specified counseling), we are proposing to add new 
diagnosis code Z71.82 (Exercise counseling) to the list of codes for 
the Unacceptable Principal Diagnosis edit. We refer readers to Table 
6A.--New Diagnosis Codes associated with this proposed rule (which is 
available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) 
for the list of new ICD-10-CM diagnosis codes finalized to date. We are 
inviting public comments on our proposal.
(11) Persons With Potential Health Hazards Related to Family and 
Personal History and Certain Conditions Influencing Health Status (Z77 
Through Z99)
    We examined ICD-10-CM diagnosis codes in Chapter 21 (Factors 
Influencing Health Status) of the Classification Manual that fall 
within the range of code categories for ``Persons with Potential Health 
Hazards Related to Family and Personal History and Certain Conditions 
Influencing Health Status'' (Z77 through Z99), specifically, at code 
category Z91.8--Other specified personal risk factors, not elsewhere 
classified. Consistent with ICD-10-CM diagnosis codes Z91.81 (History 
of falling), Z91.82 (Personal history of military deployment), and 
Z91.89 (Other specified personal risk factors, not elsewhere 
classified), we are proposing to add new ICD-10-CM diagnosis codes 
Z91.841 (Risk for dental caries, low), Z91.842 (Risk for dental caries, 
moderate), Z91.843 (Risk for dental caries, high), and Z91.849 
(Unspecified risk for dental caries) to the list of codes for the 
Unacceptable Principal Diagnosis edit. We refer readers to Table 6A.--
New Diagnosis Codes associated with this proposed rule (which is 
available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) 
for the list of new ICD-10-CM diagnosis codes finalized to date. We are 
inviting public comments on our proposal.
e. Future Enhancement
    Similar to our discussion in the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 56843 through 56844), with the implementation of ICD-10, it is 
clear that there are several new concepts in the classification. 
Looking ahead to the needs and uses of coded data as the data continue 
to evolve from the reporting, collection, processing, coverage, payment 
and analysis aspects, we believe the need to ensure the accuracy of the 
coded data becomes increasingly significant.
    The purpose of the MCE is to ensure that errors and inconsistencies 
in the coded data are recognized during Medicare claims processing. As 
we continue to evaluate the purpose and function of the MCE with 
respect to ICD-10, we encourage public input for future discussion. As 
we discussed in the FY 2017 IPPS/LTCH PPS final rule, we recognize a 
need to further examine the current list of edits and the definitions 
of those edits. We encourage public comments on whether there are 
additional concerns with the current edits, including specific edits or 
language that should be removed or revised, edits that should be 
combined, or new edits that should be added to assist in detecting 
errors or inaccuracies in the coded data.
11. 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 2018, 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

[[Page 19847]]

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 in this rule.
    This methodology may occasionally result in assignment of a case 
involving multiple procedures to the lower-weighted MS-DRG (in the 
highest, most resource-intensive surgical class) of the available 
alternatives. However, given that the logic underlying the surgical 
hierarchy provides that the GROUPER search for the procedure in the 
most resource-intensive surgical class, in cases involving multiple 
procedures, this result is sometimes unavoidable.
    We note that, notwithstanding the foregoing discussion, there are a 
few instances when a surgical class with a lower average cost is 
ordered above a surgical class with a higher average cost. For example, 
the ``other O.R. procedures'' surgical class is uniformly ordered last 
in the surgical hierarchy of each MDC in which it occurs, regardless of 
the fact that the average costs for the MS-DRG or MS-DRGs in that 
surgical class may be higher than those for other surgical classes in 
the MDC. The ``other O.R. procedures'' class is a group of procedures 
that are only infrequently related to the diagnoses in the MDC, but are 
still occasionally performed on patients with cases assigned to the MDC 
with these diagnoses. Therefore, assignment to these surgical classes 
should only occur if no other surgical class more closely related to 
the diagnoses in the MDC is appropriate.
    A second example occurs when the difference between the average 
costs for two surgical classes is very small. We have found that small 
differences generally do not warrant reordering of the hierarchy 
because, as a result of reassigning cases on the basis of the hierarchy 
change, the average costs are likely to shift such that the higher-
ordered surgical class has lower average costs than the class ordered 
below it.
    We received a request to examine a case involving the principal 
procedure for excision of pituitary gland (ICD-10-PCS code 0GB00ZZ 
Excision of pituitary gland, open approach) with a secondary procedure 
for harvesting of a fat graft (ICD-10-PCS code 0JB80ZZ Excision of 
abdomen subcutaneous tissue and fascia, open approach) to treat a 
condition of pituitary adenoma (ICD-10-CM diagnosis code D35.2 (Benign 
neoplasm of pituitary gland)) and the resulting sella turcica defect. 
The requestor noted that when the procedure code for harvesting of the 
fat graft is reported on the claim, the case currently groups to MS-
DRGs 622, 623, and 624 (Skin Grafts and Wound Debridement for 
Endocrine, Nutritional, and Metabolic Disorders with MCC, with CC and 
without CC/MCC, respectively). However, when the procedure code for 
harvesting of the fat graft is not reported on the claim, the case 
groups to MS-DRGs 614 and 615 (Adrenal and Pituitary Procedures with 
CC/MCC and without CC/MCC, respectively), which appears to be a more 
appropriate assignment. The requester expressed concern regarding the 
procedure code for harvesting of the fat graft in the secondary 
position driving the MS-DRG assignment versus the principal procedure 
of the excision of pituitary gland.
    We analyzed the codes provided by the requestor in the GROUPER to 
determine if we could duplicate the requestor's findings. The findings 
from our analysis were consistent with the requestor's findings. Our 
clinical advisors reviewed this issue and agreed that it should be the 
procedure code for excision of the pituitary gland that is used to 
determine the MS-DRG assignment in this scenario and not the harvesting 
of the fat graft procedure code.
    Therefore, in this FY 2018 IPPS/LTCH PPS proposed rule, we are 
proposing to move MS-DRGs 614 and 615 above MS-DRGs 622, 623, and 624 
in the surgical hierarchy to enable more appropriate MS-DRG assignment 
for these types of cases.
    We are inviting public comments on our proposal.
12. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2018
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 Additions and Deletions to the Diagnosis Code Severity 
Levels for FY 2018
    The following tables identifying the proposed additions and 
deletions to the MCC severity levels list and the proposed additions 
and deletions to the CC severity levels list for FY 2018 are available 
via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.

Table 6I.1--Proposed Additions to the MCC List--FY 2018;
Table 6I.2--Proposed Deletions to the MCC List--FY 2018;
Table 6J.1--Proposed Additions to the CC List--FY 2018; and
Table 6J.2--Proposed Deletions to the CC List--FY 2018.

    We are inviting public comments on our proposed severity level 
designations for the diagnosis codes listed in Table 6I.1. and Table 
6J.1. We note that, for Table 6I.2. and Table 6J.2., the proposed 
deletions are a result of code expansions. Therefore, the diagnosis 
codes on these lists are no longer valid codes, effective FY 2018. For 
example, diagnosis code O00.10 (Tubal pregnancy without intrauterine 
pregnancy) is a current CC for FY 2017 under Version 34 of the ICD-10 
MS-DRGs. Effective FY 2018, under Version 35 of the ICD-10 MS-DRGs, 
this single code has been expanded into three diagnosis codes to 
include laterality (left/right) and an unspecified option with the 
addition of a sixth character. Therefore, diagnosis code O00.10 is 
included in Table 6J.2. for deletion from the CC list because it is no 
longer a valid code in FY 2018.
c. Principal Diagnosis Is Its Own CC or MCC
    CMS' initial goal in developing the ICD-10 MS-DRGs was to ensure 
that a patient case was assigned to the same MS-DRG, regardless of 
whether the patient record was to be coded in ICD-9-CM or ICD-10. When 
certain ICD-10-CM combination codes are reported as a principal 
diagnosis, it implies that a CC or MCC is present. This occurs as a 
result of evaluating the cluster of ICD-

[[Page 19848]]

9-CM codes that would have been coded on an ICD-9-CM record. If one of 
the ICD-9-CM codes in the cluster was a CC or an MCC, the single ICD-
10-CM combination code used as a principal diagnosis also must imply 
that the CC or MCC is present.
    The ICD-10-CM diagnosis codes to which this logic applies are 
included in Appendix J of the ICD-10 MS-DRG Version 34 Definitions 
Manual (which is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLfxsp0;Entries=10&DLSort=0&DLSortDir=ascending). 
Appendix J includes two lists: Part 1 is the list of principal 
diagnosis codes where the ICD-10-CM code is its own MCC. Part 2 is the 
list of principal diagnosis codes where the ICD-10-CM code is its own 
CC. Part 1 of Appendix J corresponds to Table 6L.--Principal Diagnosis 
Is Its Own MCC List, and Part 2 of Appendix J corresponds to Table 
6M.--Principal Diagnosis Is Its Own CC List.
    We received a request to add the ICD-10-CM diagnosis codes for 
acute myocardial infarction, decompensated heart failure and specified 
forms of shock, which are currently designated as a CC or an MCC when 
reported as a secondary diagnosis, to Table 6L.--Principal Diagnosis Is 
Its Own MCC List. According to the requestor, the addition of these 
codes to the list is necessary for bundled payment initiatives and so 
that facilities that accept these patients in transfer have resources 
to care for them.
    The purpose of the Principal Diagnosis Is Its Own CC or MCC Lists 
was to ensure consistent MS-DRG assignment between the ICD-9-CM and 
ICD-10 MS-DRGs due to the clusters and combination codes. There are a 
number of other ICD-10-CM combination codes that, due to their prior 
designation as a CC or an MCC when reported as a secondary diagnosis, 
are not on either of these lists. Having multiple lists for CC and MCC 
diagnoses when reported as a principal and/or secondary diagnosis may 
not provide an accurate representation of resource utilization for the 
MS-DRGs. As discussed in further detail below, we have plans to conduct 
a comprehensive review of the CC and MCC lists for FY 2019. We believe 
the results of that review will help to inform the future of these 
lists.
    Therefore, we are not proposing to add the ICD-10-CM diagnosis 
codes for acute myocardial infarction, decompensated heart failure and 
specified forms of shock to Table 6L.--Principal Diagnosis Is Its Own 
MCC List. In addition, we are not proposing any changes to Table 6L.--
Principal Diagnosis Is Its Own MCC List and Table 6M.--Principal 
Diagnosis Is Its Own CC List. We are inviting public comments on our 
proposal to maintain the existing lists of principal diagnosis codes in 
Tables 6L. and 6M for FY 2018.
d. Proposed CC Exclusions List for FY 2018
    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 previously indicated, 
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 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. We 
refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541 
through 50544) for detailed information regarding revisions that were 
made to the CC and CC Exclusion Lists under the ICD-9-CM MS-DRGs.
    For FY 2018, we are proposing changes to the ICD-10 MS-DRGs Version 
35 CC Exclusion List. Therefore, we have developed Table 6G.1.--
Proposed Secondary Diagnosis Order Additions to the CC Exclusions 
List--FY 2018; Table 6G.2.--Proposed Principal Diagnosis Order 
Additions to the CC Exclusions List--FY 2018; Table 6H.1.--Proposed 
Secondary Diagnosis Order Deletions to the CC Exclusions List--FY 2018; 
and Table 6H.2.--Proposed Principal Diagnosis Order Deletions to the CC 
Exclusions List--FY 2018. Each of these principal diagnosis codes for 
which there is a CC exclusion is shown in Table 6G.2. 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. Tables 6G. and 6H. associated with 
this proposed rule are available via the Internet on the CMS Web site 
at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
    To identify new, revised and deleted diagnosis and procedure codes, 
for FY 2018, we have developed 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 Code Titles for this proposed rule.
    These tables are not published in the Addendum to this proposed 
rule but are available via the Internet on the CMS Web site at: 
(https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the 
Addendum to this proposed rule. As discussed in section II.F.15. of the 
preamble of this proposed rule, 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. We are inviting public comments on the MDC and 
MS-DRG assignments for the new

[[Page 19849]]

diagnosis and procedure codes as set forth in Table 6A.--New Diagnosis 
Codes and Table 6B.--New Procedure Codes. In addition, we are inviting 
public comments on the proposed severity level designations for the new 
diagnosis codes as set forth in Table 6A. and the proposed O.R. status 
for the new procedure codes as set forth in Table 6B.
13. Comprehensive Review of CC List for FY 2019
    In the FY 2008 IPPS final rule (72 FR 47153 through 47175), we 
discussed our efforts to better recognize severity of illness which 
began with a comprehensive review of the CC list and, ultimately, the 
implementation of the MS-DRGs. Similar to the analysis that was 
performed at that time, we are providing the public with notice of our 
plans to conduct a comprehensive review of the CC and MCC lists for FY 
2019.
    As a result of the time that has elapsed since that review and 
changes to how inpatient care is currently delivered, we plan to 
analyze if further refinements to these lists are warranted. For 
example, over the past several years, there has been a steady increase 
in the proportion of cases grouping to the MS-DRGs with an MCC severity 
level than had previously occurred. Our evaluation will assist in 
determining if the conditions designated as an MCC continue to 
represent significant increases in resource utilization that support 
the MCC designation.
    We currently utilize a statistical algorithm to determine the 
impact on resource use of each secondary diagnosis. Each diagnosis for 
which Medicare data are available is evaluated to determine its impact 
on resource use and to determine the most appropriate CC subclass (non-
CC, CC, or MCC) assignment. In order to make this determination, the 
average costs for each subset of cases is compared to the expected 
costs for cases in that subset. The following format is used to 
evaluate each diagnosis:

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

    Count (Cnt) is the number of patients in each subset and C1, C2, 
and C3 are a measure of the impact on resource use of patients in each 
of the subsets. The C1, C2, and C3 values are a measure of the ratio of 
average costs for patients with these conditions to the expected 
average costs across all cases. The C1 value reflects a patient with no 
other secondary diagnosis or with all other secondary diagnoses that 
are non-CCs. The C2 value reflects a patient with at least one other 
secondary diagnosis that is a CC but none that is an MCC. The C3 value 
reflects a patient with at least one other secondary diagnosis that is 
an MCC. A value close to 1.0 in the C1 field would suggest that the 
code produces the same expected value as a non-CC diagnosis. That is, 
average costs for the case are similar to the expected average costs 
for that subset and the diagnosis is not expected to increase resource 
usage. A higher value in the C1 (or C2 and C3) field suggests more 
resource usage is associated with the diagnosis and an increased 
likelihood that it is more like a CC or major CC than a non-CC. Thus, a 
value close to 2.0 suggests the condition is more like a CC than a non-
CC but not as significant in resource usage as an MCC. A value close to 
3.0 suggests the condition is expected to consume resources more 
similar to an MCC than a CC or non-CC. For example, a C1 value of 1.8 
for a secondary diagnosis means that for the subset of patients who 
have the secondary diagnosis and have either no other secondary 
diagnosis present, or all the other secondary diagnoses present are 
non-CCs, the impact on resource use of the secondary diagnoses is 
greater than the expected value for a non-CC by an amount equal to 80 
percent of the difference between the expected value of a CC and a non-
CC (that is, the impact on resource use of the secondary diagnosis is 
closer to a CC than a non-CC).
    We are inviting public comments regarding other possible ways we 
can incorporate meaningful indicators of clinical severity.
14. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 
986; and 987 Through 989
    Each year, we review cases assigned to MS-DRGs 981, 982, and 983 
(Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively); MS-DRGs 984, 985, and 986 
(Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively); and MS-DRGs 987, 988, and 
989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with 
MCC, with CC, and without CC/MCC, respectively) to determine whether it 
would be appropriate to change the procedures assigned among these MS-
DRGs. MS-DRGs 981 through 983, 984 through 986, and 987 through 989 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.
    Under the ICD-10 MS-DRGs Version 34, MS-DRGs 984 through 986 are 
assigned when one or more of the procedures described by ICD-10-PCS 
codes in Table 6P.2. that is associated with this FY 2018 proposed rule 
(which is available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) are performed and are unrelated to the 
principal diagnosis. 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.
    We refer the reader to the FY 2017 IPPS/LTCH PPS final rule (81 FR 
56847 through 56848) for a discussion of the movement and redesignation 
of procedure codes from MS-DRGs 984 through 986 related to the 
transition of the ICD-10 MS-DRGs.
    Our review of MedPAR claims data showed that there are no cases 
that merited movement or should logically be reassigned from ICD-10 MS-
DRGs 984 through 986 to any of the other MDCs for FY 2018. Therefore, 
for FY 2018, we are not proposing to change the procedures assigned 
among these MS-DRGs. We are inviting public comments on our proposal to 
maintain the current structure of 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

[[Page 19850]]

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. 
Upon review of the claims data from the December 2016 update of the FY 
2016 MedPAR file, we did not find any cases that merited movement or 
that should logically be assigned to any of the other MDCs. Therefore, 
for FY 2018, 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. We are 
inviting public comments on our proposal to maintain the current 
structure of these MS-DRGs.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    We also review the list of ICD-10-PCS procedures that, when in 
combination with their principal diagnosis code, result in assignment 
to MS-DRGs 981 through 983, 984 through 986, or 987 through 989, to 
ascertain whether any of those procedures should be reassigned from one 
of those three groups of MS-DRGs to another of the three groups of MS-
DRGs based on average costs and the length of stay. We look at the data 
for trends such as shifts in treatment practice or reporting practice 
that would make the resulting MS-DRG assignment illogical. If we find 
these shifts, we would propose to move cases to keep the MS-DRGs 
clinically similar or to provide payment for the cases in a similar 
manner. Generally, we move only those procedures for which we have an 
adequate number of discharges to analyze the data.
    Based on the results of our review of the December 2016 update of 
the FY 2016 MedPAR file, we are proposing to reassign the procedure 
codes currently assigned to MS-DRGs 984 through 986 (Prostatic O.R. 
Procedure Unrelated to Principal Diagnosis with MCC, with CC and 
without CC/MCC, respectively) to MS-DRGs 987 through 989 (Non-extensive 
O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC and 
without CC/MCC, respectively). As shown in the table below, we found a 
total of 1,001 cases in MS-DRGs 984 through 986 with an average length-
of-stay of 7.5 days and average costs of $16,539. In MS-DRGs 987 
through 989, we found a total of 17,772 cases, with an average length 
of stay of 7.5 days and average costs of $16,193.

                                O.R. Procedures Unrelated to Principal Diagnosis
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRGs 984, 985 and 986 (Prostatic O.R. Procedure Unrelated to            1,001             7.5         $16,539
 Principal Diagnosis with MCC, with CC, and without CC/MCC,
 respectively)..................................................
MS-DRGs 987, 988 and 989 (Non[dash]extensive O.R. Procedure               17,772             7.5          16,193
 Unrelated to Principal Diagnosis with MCC, with CC, and without
 CC/MCC, respectively)..........................................
----------------------------------------------------------------------------------------------------------------

    The claims data demonstrate that it is no longer necessary to 
maintain a separate set of MS-DRGs specifically for the prostatic O.R. 
procedures. The average length of stay of 7.5 days is identical in both 
sets of MS-DRGs and the average costs are very similar with a 
difference of only $346. Our clinical advisors reviewed the data and 
support movement of these 1,001 cases into the nonextensive O.R. 
procedures MS-DRGs. They noted that treatment practices have shifted 
since the inception of the prostatic O.R. procedures grouping and the 
average costs are in alignment.
    Therefore, for FY 2018, we are proposing to reassign the prostatic 
O.R. procedure codes from MS-DRGs 984 through 986 to MS-DRGs 987 
through 989 and to delete MS-DRGs 984, 985 and 986 because they would 
no longer be needed as a result of this proposed movement. We are 
inviting public comments on our proposals.
15. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding Systems
    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 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 addresses updates to the ICD-10-
CM and ICD-10-PCS 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 previously mentioned 
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

[[Page 19851]]

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 2018 at a public meeting held on September 13-14, 
2016, and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 13, 2016.
    The Committee held its 2017 meeting on March 7-8, 2017. The 
deadline for submitting comments on these code proposals was April 7, 
2017. It was announced at this meeting that any new ICD-10-CM/PCS codes 
for which there was consensus of public support and for which complete 
tabular and indexing changes would be made by May 2017 would be 
included in the October 1, 2017 update to ICD-10-CM/ICD-10-PCS. As 
discussed in earlier sections of the preamble of this proposed rule, 
there are new, revised, and deleted ICD-10-CM diagnosis codes and ICD-
10-PCS procedure codes that are captured in 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 Code Titles for this 
proposed rule, which are available 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 these tables, 
they are not published in the Addendum to this proposed rule. Rather, 
they are available via the Internet as discussed in section VI. of the 
Addendum to this proposed rule.
    Live Webcast recordings of the discussions of procedure codes at 
the Committee's September 13-14, 2016 meeting and March 7-8, 2017 
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 
discussions of diagnosis codes at the September 13-14, 2016 meeting and 
March 7-8, 2017 meeting can be found at: http://www.cdc.gov/nchs/icd/icd10cm_maintenance.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: 
[email protected].
    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: [email protected].
    In the September 7, 2001 final rule implementing the IPPS new 
technology add-on payments (66 FR 46906), we indicated we would attempt 
to include proposals for procedure codes that would describe new 
technology discussed and approved at the Spring meeting as part of the 
code revisions effective the following October.
    Section 503(a) of Public Law 108-173 included a requirement for 
updating diagnosis and procedure codes twice a year instead of a single 
update on October 1 of each year. This requirement was included as part 
of the amendments to the Act relating to recognition of new technology 
under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act 
by adding a clause (vii) which states that the Secretary shall provide 
for the addition of new diagnosis and procedure codes on April 1 of 
each year, but the addition of such codes shall not require the 
Secretary to adjust the payment (or diagnosis-related group 
classification) until the fiscal year that begins after such date. This 
requirement improves the recognition of new technologies under the IPPS 
system by providing information on these new technologies at an earlier 
date. Data will be available 6 months earlier than would be possible 
with updates occurring only once a year on October 1.
    While section 1886(d)(5)(K)(vii) of the Act states that the 
addition of new diagnosis and procedure codes on April 1 of each year 
shall not require the Secretary to adjust the payment, or DRG 
classification, under section 1886(d) of the Act until the fiscal year 
that begins after such date, we have to update the DRG software and 
other systems in order to recognize and accept the new codes. We also 
publicize the code changes and the need for a mid-year systems update 
by providers to identify the new codes. Hospitals also have to obtain 
the new code books and encoder updates, and make other system changes 
in order to identify and report the new codes.
    The ICD-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. 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 June 
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

[[Page 19852]]

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, 2017 implementation of a code at the 
September 13-14, 2016 Committee meeting. Therefore, there were no new 
codes implemented on April 1, 2017.
    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/icd10.htm. 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-10-CM and ICD-10-PCS 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.
    The following chart shows the number of ICD-10-CM and ICD-10-PCS 
codes and code changes since FY 2016 when ICD-10 was implemented.

  Total Number of Codes and Changes in Total Number of Codes per Fiscal
                   Year ICD-10-CM and ICD-10-PCS Codes
------------------------------------------------------------------------
                     Fiscal year                       Number    Change
------------------------------------------------------------------------
FY 2016:
  ICD-10-CM.........................................    69,823  ........
  ICD-10-PCS........................................    71,974  ........
FY 2017:
  ICD-10-CM.........................................    71,486    +1,663
  ICD-10-PCS........................................    75,789    +3,815
FY 2018:
  ICD-10-CM.........................................    71,772      +286
  ICD-10-PCS........................................    78,299    +2,510
------------------------------------------------------------------------

    As mentioned previously, 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.
    At the September 12-13, 2016 and March 7-8, 2017 Committee 
meetings, we discussed any requests we had received for new ICD-10-CM 
diagnosis codes and ICD-10-PCS procedure codes that were to be 
implemented on October 1, 2017. We invited public comments on any code 
requests discussed at the September 12-13, 2016 and March 7-8, 2017 
Committee meetings for implementation as part of the October 1, 2017 
update. The deadline for commenting on code proposals discussed at the 
September 12-13, 2016 Committee meeting was November 13, 2016. The 
deadline for commenting on code proposals discussed at the March 7-8, 
2017 Committee meeting was April 7, 2017.
16. Proposed Replaced Devices Offered Without Cost or With a Credit
a. Background
    In the FY 2008 IPPS final rule with comment period (72 FR 47246 
through 47251), we discussed the topic of Medicare payment for devices 
that are replaced without cost or where credit for a replaced device is 
furnished to the hospital. We implemented a policy to reduce a 
hospital's IPPS payment for certain MS-DRGs where the implantation of a 
device that has been recalled determined the base MS-DRG assignment. At 
that time, we specified that we will reduce a hospital's IPPS payment 
for those MS-DRGs where the hospital received a credit for a replaced 
device equal to 50 percent or more of the cost of the device.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51556 through 
51557), we clarified this policy to state that the policy applies if 
the hospital received a credit equal to 50 percent or more of the cost 
of the replacement device and issued instructions to hospitals 
accordingly.
b. Proposed Changes for FY 2018
    For FY 2018, we are not proposing to add any MS-DRGs to the policy 
for replaced devices offered without cost or with a credit. We are 
proposing to continue to include the existing MS-DRGs currently subject 
to the policy as displayed in the table below.

----------------------------------------------------------------------------------------------------------------
                    MDC                           MS-DRG                          MS-DRG title
----------------------------------------------------------------------------------------------------------------
Pre-MDC...................................                001  Heart Transplant or Implant of Heart Assist
                                                                System with MCC.
Pre-MDC...................................                002  Heart Transplant or Implant of Heart Assist
                                                                System without MCC.
1.........................................                023  Craniotomy with Major Device Implant/Acute
                                                                Complex CNS Principal Diagnosis with MCC or
                                                                Chemo Implant.
1.........................................                024  Craniotomy with Major Device Implant/Acute
                                                                Complex CNS Principal Diagnosis without MCC.
1.........................................                025  Craniotomy & Endovascular Intracranial Procedures
                                                                with MCC.
1.........................................                026  Craniotomy & Endovascular Intracranial Procedures
                                                                with CC.
1.........................................                027  Craniotomy & Endovascular Intracranial Procedures
                                                                without CC/MCC.
1.........................................                040  Peripheral, Cranial Nerve & Other Nervous System
                                                                Procedures with MCC.
1.........................................                041  Peripheral, Cranial Nerve & Other Nervous System
                                                                Procedures with CC or Peripheral
                                                                Neurostimulator.
1.........................................                042  Peripheral, Cranial Nerve & Other Nervous System
                                                                Procedures without CC/MCC.
3.........................................                129  Major Head & Neck Procedures with CC/MCC or Major
                                                                Device.
3.........................................                130  Major Head & Neck Procedures without CC/MCC.
5.........................................                215  Other Heart Assist System Implant.
5.........................................                216  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure with Cardiac Catheterization with MCC.
5.........................................                217  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure with Cardiac Catheterization with CC.
5.........................................                218  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure with Cardiac Catheterization without
                                                                CC/MCC.
5.........................................                219  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure without Cardiac Catheterization with
                                                                MCC.

[[Page 19853]]

 
5.........................................                220  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure without Cardiac Catheterization with
                                                                CC.
5.........................................                221  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure without Cardiac Catheterization
                                                                without CC/MCC.
5.........................................                222  Cardiac Defibrillator Implant with Cardiac
                                                                Catheterization with AMI/Heart Failure/Shock
                                                                with MCC.
5.........................................                223  Cardiac Defibrillator Implant with Cardiac
                                                                Catheterization with AMI/Heart Failure/Shock
                                                                without MCC.
5.........................................                224  Cardiac Defibrillator Implant with Cardiac
                                                                Catheterization without AMI/Heart Failure/Shock
                                                                with MCC.
5.........................................                225  Cardiac Defibrillator Implant with Cardiac
                                                                Catheterization without AMI/Heart Failure/Shock
                                                                without MCC.
5.........................................                226  Cardiac Defibrillator Implant without Cardiac
                                                                Catheterization with MCC.
5.........................................                227  Cardiac Defibrillator Implant without Cardiac
                                                                Catheterization without MCC.
5.........................................                242  Permanent Cardiac Pacemaker Implant with MCC.
5.........................................                243  Permanent Cardiac Pacemaker Implant with CC.
5.........................................                244  Permanent Cardiac Pacemaker Implant without CC/
                                                                MCC.
5.........................................                245  AICD Generator Procedures.
5.........................................                258  Cardiac Pacemaker Device Replacement with MCC.
5.........................................                259  Cardiac Pacemaker Device Replacement without MCC.
5.........................................                260  Cardiac Pacemaker Revision Except Device
                                                                Replacement with MCC.
5.........................................                261  Cardiac Pacemaker Revision Except Device
                                                                Replacement with CC.
5.........................................                262  Cardiac Pacemaker Revision Except Device
                                                                Replacement without CC/MCC.
5.........................................                265  AICD Lead Procedures.
5.........................................                266  Endovascular Cardiac Valve Replacement with MCC.
5.........................................                267  Endovascular Cardiac Valve Replacement without
                                                                MCC.
5.........................................                268  Aortic and Heart Assist Procedures Except
                                                                Pulsation Balloon with MCC.
5.........................................                269  Aortic and Heart Assist Procedures Except
                                                                Pulsation Balloon without MCC.
5.........................................                270  Other Major Cardiovascular Procedures with MCC.
5.........................................                271  Other Major Cardiovascular Procedures with CC.
5.........................................                272  Other Major Cardiovascular Procedures without CC/
                                                                MCC.
8.........................................                461  Bilateral or Multiple Major Joint Procedures Of
                                                                Lower Extremity with MCC.
8.........................................                462  Bilateral or Multiple Major Joint Procedures of
                                                                Lower Extremity without MCC.
8.........................................                466  Revision of Hip or Knee Replacement with MCC.
8.........................................                467  Revision of Hip or Knee Replacement with CC.
8.........................................                468  Revision of Hip or Knee Replacement without CC/
                                                                MCC.
8.........................................                469  Major Joint Replacement or Reattachment of Lower
                                                                Extremity with MCC.
8.........................................                470  Major Joint Replacement or Reattachment of Lower
                                                                Extremity without MCC.
----------------------------------------------------------------------------------------------------------------

    We are soliciting public comments on our proposal to continue to 
include the existing MS-DRGs currently subject to the policy for 
replaced devices offered without cost or with credit and to not add any 
additional MS-DRGs to the policy. We note that, as discussed in section 
II.F.2.b. and in section II.F.5.a. of the preamble of this proposed 
rule, we are proposing to revise the titles for MS-DRG 023 and MS-DRGs 
469 and 470. We refer readers to those discussions of the specific 
proposed MS-DRG titles. The final list of MS-DRGs subject to the 
payment policy for devices provided at no cost or with a credit for FY 
2018 will be listed in the FY 2018 IPPS/LTCH PPS final rule, as well as 
issued to providers through guidance and instructions in the form of a 
Change Request (CR).
17. Other Policy Changes: Other Operating Room (O.R.) and Non-O.R. 
Issues
a. O.R. Procedures to Non-O.R. Procedures
    For this FY 2018 IPPS/LTCH PPS proposed rule, we continued our 
efforts to address the recommendations for consideration that we 
received in response to some of the proposals set forth in the FY 2017 
IPPS/LTCH PPS proposed rule pertaining to changing the designation of 
ICD-10-PCS procedure codes from O.R. procedures to non-O.R. procedures. 
As we stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56871), we 
received requests and recommendations for over 800 procedure codes that 
we were not able to fully evaluate and finalize for FY 2017. We discuss 
these requests and recommendations below.
    We also are addressing separate requests that we received regarding 
changing the designation of specific ICD-10-PCS procedure codes. For 
each group summarized below, the detailed lists of procedure are shown 
in Tables 6P.4a. through 6P.4p. (Proposed ICD-10-CM and ICD-10-PCS Code 
Designations, MCE and MS-DRG Changes--FY 2018) associated with this 
proposed rule (which are available via the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html).
(1) Percutaneous/Diagnostic Drainage
    One commenter identified 135 ICD-10-PCS procedure codes describing 
procedures involving percutaneous diagnostic and therapeutic drainage 
of central nervous system, vascular and other body sites that generally 
would not require the resources of an operating room and can be 
performed at the bedside. The list includes procedure codes that 
describe procedures involving drainage with or without placement of a 
drainage device. We agree with the commenter. Therefore, we are 
proposing that the 135 ICD-10-PCS procedure codes listed in Table 
6P.4a. associated with this proposed rule (which is available via the 
Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as 
non-O.R. procedures. We are inviting public comments on our proposal.
(2) Percutaneous Insertion of Intraluminal or Monitoring Device
    One commenter identified 28 ICD-10-PCS procedure codes describing 
procedures involving the percutaneous insertion of intraluminal and 
monitoring devices into central nervous system and other cardiovascular 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. We agree with the 
commenter. Therefore, we are proposing that the 28 ICD-10-

[[Page 19854]]

PCS procedure codes listed in Table 6P.4b. associated with this 
proposed rule (which is available via the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as non-O.R. procedures. We 
are inviting public comments on our proposal.
(3) Percutaneous Removal of Drainage, Infusion, Intraluminal or 
Monitoring Device
    One commenter identified 22 ICD-10-PCS procedure codes that 
describe procedures involving the percutaneous removal of drainage, 
infusion, intraluminal and monitoring devices from central nervous 
system and other vascular body parts that generally would not require 
the resources of an operating room and can be performed at the bedside. 
We agree with the commenter. Therefore, we are proposing that the 22 
ICD-10-PCS procedure codes listed in Table 6P.4c. associated with this 
proposed rule (which is available via the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as non-O.R. procedures. We 
are inviting public comments on our proposal.
(4) External Removal of Cardiac or Neurostimulator Lead
    One commenter identified four ICD-10-PCS procedure codes that 
describe procedures involving the external removal of cardiac leads 
from the heart and neurostimulator leads from central nervous system 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These four ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
00P6XMZ...................  Removal of neurostimulator lead from
                             cerebral ventricle, external approach.
00PEXMZ...................  Removal of neurostimulator lead from cranial
                             nerve, external approach.
01PYXMZ...................  Removal of neurostimulator lead from
                             peripheral nerve, external approach.
02PAXMZ...................  Removal of cardiac lead from heart, external
                             approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
four ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(5) Percutaneous Revision of Drainage, Infusion, Intraluminal or 
Monitoring Device
    One commenter identified 28 ICD-10-PCS procedure codes that 
describe procedures involving the percutaneous revision of drainage, 
infusion, intraluminal and monitoring devices for vascular and heart 
and great vessel body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. We 
agree with the commenter. Therefore, we are proposing that the 28 ICD-
10-PCS procedure codes listed in Table 6P.4d. associated with this 
proposed rule (which is available via the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as non-O.R. procedures. We 
are inviting public comments on our proposal.
(6) Percutaneous Destruction
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving the percutaneous destruction of retina 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These two ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
085E3ZZ...................  Destruction of right retina, percutaneous
                             approach.
085F3ZZ...................  Destruction of left retina, percutaneous
                             approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
two ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(7) External/Diagnostic Drainage
    One commenter identified 20 ICD-10-PCS procedure codes that 
describe procedures involving external drainage for structures of the 
eye that generally would not require the resources of an operating room 
and can be performed at the bedside. We agree with the commenter. 
Therefore, we are proposing that the 20 ICD-10-PCS procedure codes 
listed in Table 6P.4e. associated with this proposed rule (which is 
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) 
be designated as non-O.R. procedures. We are inviting public comments 
on our proposal.
(8) External Extirpation
    One commenter identified four ICD-10-PCS procedure codes that 
describe procedures involving external extirpation of matter from eye 
structures that generally would not require the resources of an 
operating room and can be performed at the bedside. These four ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
08C0XZZ...................  Extirpation of matter from right eye,
                             external approach.
08C1XZZ...................  Extirpation of matter from left eye,
                             external approach.
08CSXZZ...................  Extirpation of matter from right
                             conjunctiva, external approach.
08CTXZZ...................  Extirpation of matter from left conjunctiva,
                             external approach.
------------------------------------------------------------------------


[[Page 19855]]

    We agree with the commenter. Therefore, we are proposing that the 
four ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(9) External Removal of Radioactive Element or Synthetic Substitute
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving the external removal of radioactive or 
synthetic substitutes from the eye that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These three ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
08P0X1Z...................  Removal of radioactive element from right
                             eye, external approach.
08P0XJZ...................  Removal of synthetic substitute from right
                             eye, external approach.
08P1XJZ...................  Removal of synthetic substitute from left
                             eye, external approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
three ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(10) Endoscopic/Transorifice Diagnostic Drainage
    One commenter identified eight ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) drainage of ear structures that generally would not 
require the resources of an operating room and can be performed at the 
bedside. These eight ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
09977ZX...................  Drainage of right tympanic membrane, via
                             natural or artificial opening, diagnostic.
09978ZX...................  Drainage of right tympanic membrane, via
                             natural or artificial opening endoscopic,
                             diagnostic.
09987ZX...................  Drainage of left tympanic membrane, via
                             natural or artificial opening, diagnostic.
09988ZX...................  Drainage of left tympanic membrane, via
                             natural or artificial opening endoscopic,
                             diagnostic.
099F7ZX...................  Drainage of right eustachian tube, via
                             natural or artificial opening, diagnostic.
099F8ZX...................  Drainage of right eustachian tube, via
                             natural or artificial opening endoscopic,
                             diagnostic.
099G7ZX...................  Drainage of left eustachian tube, via
                             natural or artificial opening, diagnostic.
099G8ZX...................  Drainage of left eustachian tube, via
                             natural or artificial opening endoscopic,
                             diagnostic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
eight ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(11) External Release
    One commenter identified four ICD-10-PCS procedure codes that 
describe procedures involving the external release of ear structures 
that generally would not require the resources of an operating room and 
can be performed at the bedside. These four ICD-10-PCS codes are shown 
in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
09N0XZZ...................  Release right external ear, external
                             approach.
09N1XZZ...................  Release left external ear, external
                             approach.
09N3XZZ...................  Release right external auditory canal,
                             external approach.
09N4XZZ...................  Release left external auditory canal,
                             external approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
four ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(12) External Repair
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving the external repair of body parts that 
generally would not require the resources of an operating room and can 
be performed at the bedside. These three ICD-10-PCS codes are shown in 
the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
09QKXZZ...................  Repair nose, external approach.
0CQ4XZZ...................  Repair buccal mucosa, external approach.
0CQ7XZZ...................  Repair tongue, external approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
three ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(13) Endoscopic/Transorifice Destruction
    One commenter identified eight ICD-10-PCS procedure codes that 
describe procedures involving the endoscopic/transorifice destruction 
of respiratory system body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These eight ICD-10-PCS codes are shown in the table below.

[[Page 19856]]



------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0B538ZZ...................  Destruction of right main bronchus, via
                             natural or artificial opening endoscopic.
0B548ZZ...................  Destruction of right upper lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0B558ZZ...................  Destruction of right middle lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0B568ZZ...................  Destruction of right lower lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0B578ZZ...................  Destruction of left main bronchus, via
                             natural or artificial opening endoscopic.
0B588ZZ...................  Destruction of left upper lobe bronchus, via
                             natural or artificial opening endoscopic.
0B598ZZ...................  Destruction of lingula bronchus, via natural
                             or artificial opening endoscopic.
0B5B8ZZ...................  Destruction of left lower lobe bronchus, via
                             natural or artificial opening endoscopic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
eight ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(14) Endoscopic/Transorifice Drainage
    One commenter identified 40 ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) drainage of respiratory system body parts that 
generally would not require the resources of an operating room and can 
be performed at the bedside. We agree with the commenter. Therefore, we 
are proposing that the 40 ICD-10-PCS procedure codes listed in Table 
6P.4f. associated with this proposed rule (which is available via the 
Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as 
non-O.R. procedures. We are inviting public comments on our proposal.
(15) Endoscopic/Transorifice Extirpation
    One commenter identified nine ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice extirpation of 
matter from respiratory system body parts that generally would not 
require the resources of an operating room and can be performed at the 
bedside. These nine ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0BCC8ZZ...................  Extirpation of matter from right upper lung
                             lobe, via natural or artificial opening
                             endoscopic.
0BCD8ZZ...................  Extirpation of matter from right middle lung
                             lobe, via natural or artificial opening
                             endoscopic.
0BCF8ZZ...................  Extirpation of matter from right lower lung
                             lobe, via natural or artificial opening
                             endoscopic.
0BCG8ZZ...................  Extirpation of matter from left upper lung
                             lobe, via natural or artificial opening
                             endoscopic.
0BCH8ZZ...................  Extirpation of matter from lung lingula, via
                             natural or artificial opening endoscopic.
0BCJ8ZZ...................  Extirpation of matter from left lower lung
                             lobe, via natural or artificial opening
                             endoscopic.
0BCK8ZZ...................  Extirpation of matter from right lung, via
                             natural or artificial opening endoscopic.
0BCL8ZZ...................  Extirpation of matter from left lung, via
                             natural or artificial opening endoscopic.
0BCM8ZZ...................  Extirpation of matter from bilateral lungs,
                             via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
nine ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(16) Endoscopic/Transorifice Fragmentation
    One commenter identified 16 ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice fragmentation of 
respiratory system body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These 16 ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0BF37ZZ...................  Fragmentation in right main bronchus, via
                             natural or artificial opening.
0BF38ZZ...................  Fragmentation in right main bronchus, via
                             natural or artificial opening endoscopic.
0BF47ZZ...................  Fragmentation in right upper lobe bronchus,
                             via natural or artificial opening.
0BF48ZZ...................  Fragmentation in right upper lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0BF57ZZ...................  Fragmentation in right middle lobe bronchus,
                             via natural or artificial opening.
0BF58ZZ...................  Fragmentation in right middle lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0BF67ZZ...................  Fragmentation in right lower lobe bronchus,
                             via natural or artificial opening.
0BF68ZZ...................  Fragmentation in right lower lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0BF77ZZ...................  Fragmentation in left main bronchus, via
                             natural or artificial opening.
0BF78ZZ...................  Fragmentation in left main bronchus, via
                             natural or artificial opening endoscopic.
0BF87ZZ...................  Fragmentation in left upper lobe bronchus,
                             via natural or artificial opening.
0BF88ZZ...................  Fragmentation in left upper lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0BF97ZZ...................  Fragmentation in lingula bronchus, via
                             natural or artificial opening.
0BF98ZZ...................  Fragmentation in lingula bronchus, via
                             natural or artificial opening endoscopic.
0BFB7ZZ...................  Fragmentation in left lower lobe bronchus,
                             via natural or artificial opening.
0BFB8ZZ...................  Fragmentation in left lower lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------


[[Page 19857]]

    We agree with the commenter. Therefore, we are proposing that the 
16 ICD-10-PCS procedure codes shown in the table above be designated as 
non-O.R. procedures. We are inviting public comments on our proposal.
(17) Endoscopic/Transorifice Insertion of Intraluminal Device
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving an endoscopic/transorifice (via natural 
or artificial opening) insertion of intraluminal devices into 
respiratory system body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These two ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0BH17DZ...................  Insertion of intraluminal device into
                             trachea, via natural or artificial opening.
0BH18DZ...................  Insertion of intraluminal device into
                             trachea, via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
two ICD-10-PCS procedure codes shown in the table above be designated 
non-O.R. procedures. We are inviting public comments on our proposal.
(18) Endoscopic/Transorifice Removal of Radioactive Element
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving the endoscopic/transorifice removal of 
radioactive elements from respiratory system body parts that generally 
would not require the resources of an operating room and can be 
performed at the bedside. These two ICD-10-PCS codes are shown in the 
table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0BPK71Z...................  Removal of radioactive element from right
                             lung, via natural or artificial opening.
0BPK81Z...................  Removal of radioactive element from right
                             lung, via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
two ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(19) Endoscopic/Transorifice Revision of Drainage, Infusion, 
Intraluminal or Monitoring Device
    One commenter identified 18 ICD-10-PCS procedure codes that 
describe procedures involving the revision of drainage, infusion, 
intraluminal, or monitoring devices from respiratory system body parts 
that generally would not require the resources of an operating room and 
can be performed at the bedside. We agree with the commenter. 
Therefore, we are proposing that the 18 ICD-10-PCS procedure codes 
listed in Table 6P.4g. associated with this proposed rule (which is 
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) 
be designated as non-O.R. procedures. We are inviting public comments 
on our proposal.
(20) Endoscopic/Transorifice Excision
    One commenter identified one ICD-10-PCS procedure code that 
describes the procedure involving endoscopic/transorifice (via natural 
or artificial opening) excision of the digestive system body parts that 
generally would not require the resources of an operating room and can 
be performed at the bedside. This code is 0DBQ8ZZ (Excision of anus, 
via natural or artificial opening endoscopic. We agree with the 
commenter. Therefore, we are proposing that ICD-10-PCS procedure code 
0DBQ8ZZ be designated as a non-O.R. procedure. We are inviting public 
comments on our proposal.
(21) Endoscopic/Transorifice Insertion
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving the endoscopic/transorifice (via natural 
or artificial opening) insertion of intraluminal device into the 
stomach that generally would not require the resources of an operating 
room and can be performed at the bedside. These two ICD-10-PCS codes 
are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0DH67DZ...................  Insertion of intraluminal device into
                             stomach, via natural or artificial opening.
0DH68DZ...................  Insertion of intraluminal device into
                             stomach, via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
two ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(22) Endoscopic/Transorifice Removal
    One commenter identified six ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) removal of feeding devices that generally would not 
require the resources of an operating room and can be performed at the 
bedside. These six ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0DP07UZ...................  Removal of feeding device from upper
                             intestinal tract, via natural or artificial
                             opening.
0DP08UZ...................  Removal of feeding device from upper
                             intestinal tract, via natural or artificial
                             opening endoscopic.
0DP67UZ...................  Removal of feeding device from stomach, via
                             natural or artificial opening.
0DP68UZ...................  Removal of feeding device from stomach, via
                             natural or artificial opening endoscopic.
0DPD7UZ...................  Removal of feeding device from lower
                             intestinal tract, via natural or artificial
                             opening

[[Page 19858]]

 
0DPD8UZ...................  Removal of feeding device from lower
                             intestinal tract, via natural or artificial
                             opening endoscopic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
six ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(23) External Reposition
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving external reposition of gastrointestinal 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These two ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0DS5XZZ...................  Reposition esophagus, external approach.
0DSQXZZ...................  Reposition anus, external approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
two ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(24) Endoscopic/Transorifice Drainage
    One commenter identified eight ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) drainage of hepatobiliary system and pancreatic 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These eight ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0F9580Z...................  Drainage of right hepatic duct with drainage
                             device, via natural or artificial opening
                             endoscopic.
0F958ZZ...................  Drainage of right hepatic duct, via natural
                             or artificial opening endoscopic.
0F9680Z...................  Drainage of left hepatic duct with drainage
                             device, via natural or artificial opening
                             endoscopic.
0F968ZZ...................  Drainage of left hepatic duct, via natural
                             or artificial opening endoscopic.
0F9880Z...................  Drainage of cystic duct with drainage
                             device, via natural or artificial opening
                             endoscopic.
0F988ZZ...................  Drainage of cystic duct, via natural or
                             artificial opening endoscopic.
0F9D8ZZ...................  Drainage of pancreatic duct, via natural or
                             artificial opening endoscopic.
0F9F8ZZ...................  Drainage of accessory pancreatic duct, via
                             natural or artificial opening endoscopic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
eight ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(25) Endoscopic/Transorifice Fragmentation
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) fragmentation of hepatobiliary system and 
pancreatic body parts that generally would not require the resources of 
an operating room and can be performed at the bedside. These two ICD-
10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0FFD8ZZ...................  Fragmentation in pancreatic duct, via
                             natural or artificial opening endoscopic.
0FFF8ZZ...................  Fragmentation in accessory pancreatic duct,
                             via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
two ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(26) Percutaneous Alteration
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving percutaneous alteration of the breast 
that generally would not require the resources of an operating room and 
can be performed at the bedside. These three ICD-10-PCS codes are shown 
in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0H0T3JZ...................  Alteration of right breast with synthetic
                             substitute, percutaneous approach.
0H0U3JZ...................  Alteration of left breast with synthetic
                             substitute, percutaneous approach.
0H0V3JZ...................  Alteration of bilateral breast with
                             synthetic substitute, percutaneous
                             approach.
------------------------------------------------------------------------


[[Page 19859]]

    We agree with the commenter. Therefore, we are proposing that the 
three ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(27) External Division and Excision of Skin
    One commenter identified 41 ICD-10-PCS procedure codes that 
describe procedures involving external division and excision of the 
skin for body parts that generally would not require the resources of 
an operating room and can be performed at the bedside. We agree with 
the commenter. Therefore, we are proposing that the 41 ICD-10-PCS 
procedure codes listed in Table 6P.4h. associated with this proposed 
rule (which is available via the Internet on the CMS Web site at: 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as non-O.R. procedures. We 
are inviting public comments on our proposal.
(28) External Excision of Breast
    One commenter identified six ICD-10-PCS procedure codes that 
describe procedures involving external excision of the breast that they 
believed would generally not require the resources of an operating room 
and can be performed at the bedside. These six ICD-10-PCS codes are 
shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0HBTXZZ...................  Excision of right breast, external approach.
0HBUXZZ...................  Excision of left breast, external approach.
0HBVXZZ...................  Excision of bilateral breast, external
                             approach.
0HBWXZZ...................  Excision of right nipple, external approach.
0HBXXZZ...................  Excision of left nipple, external approach.
0HBYXZZ...................  Excision of supernumerary breast, external
                             approach.
------------------------------------------------------------------------

    We disagree with the commenter because these procedure codes 
describe various types of surgery performed on the breast or nipple 
(for example, partial mastectomy) that would typically involve the use 
of general anesthesia. Therefore, we are proposing that the six ICD-10-
PCS procedure codes shown in the table above remain designated as O.R. 
procedures. We are inviting public comments on our proposal.
(29) Percutaneous Supplement
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving percutaneous supplement of the breast 
with synthetic substitute that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These three ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0HUT3JZ...................  Supplement right breast with synthetic
                             substitute, percutaneous approach.
0HUU3JZ...................  Supplement left breast with synthetic
                             substitute, percutaneous approach.
0HUV3JZ...................  Supplement bilateral breast with synthetic
                             substitute, percutaneous approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
three ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(30) Open Drainage
    One commenter identified 25 ICD-10-PCS procedure codes that 
describe procedures involving open drainage of subcutaneous tissue and 
fascia body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. The list includes 
procedure codes for drainage with or without placement of a drainage 
device. We agree with the commenter. Therefore, we are proposing that 
the 25 ICD-10-PCS procedure codes listed in Table 6P.4i. associated 
with this proposed rule (which is available via the Internet on the CMS 
Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as non-O.R. 
procedures. We are inviting public comments on our proposal.
(31) Percutaneous Drainage
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving percutaneous drainage of subcutaneous 
tissue and fascia body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These two ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0J9J3ZZ...................  Drainage of right hand subcutaneous tissue
                             and fascia, percutaneous approach.
0J9K3ZZ...................  Drainage of left hand subcutaneous tissue
                             and fascia, percutaneous approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
two ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(32) Percutaneous Extraction
    One commenter identified 22 ICD-10-PCS procedure codes that 
describe procedures involving percutaneous extraction of subcutaneous 
tissue and fascia body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. We 
agree with the commenter. Therefore, we are proposing that the 22 ICD-
10-PCS procedure codes listed in Table 6P.4j. associated with this 
proposed rule (which is available via the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be

[[Page 19860]]

designated as non-O.R. procedures. We are inviting public comments on 
our proposal.
(33) Open Extraction
    One commenter identified 22 ICD-10-PCS procedure codes that 
describe procedures involving open extraction of subcutaneous tissue 
and fascia body parts that the commenter believed would generally not 
require the resources of an operating room and can be performed at the 
bedside. We disagree with the commenter because these codes describe 
procedures that utilize an open approach and are being performed on the 
skin and subcutaneous tissue. Depending on the medical reason for the 
open extraction, the procedures may require an O.R. setting. Therefore, 
we are proposing that the 22 ICD-10-PCS procedure codes listed in Table 
6P.4k. associated with this proposed rule (which is available via the 
Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) remain designated 
as O.R. procedures. We are inviting public comments on our proposal.
(34) Percutaneous and Open Repair
    One commenter identified 44 ICD-10-PCS procedure codes that 
describe procedures involving percutaneous and open repair of 
subcutaneous tissue and fascia body parts that generally would not 
require the resources of an operating room and can be performed at the 
bedside. We agree with the commenter. Therefore, we are proposing that 
the 44 ICD-10-PCS procedure codes listed in Table 6P.4l. associated 
with this proposed rule (which is available via the Internet on the CMS 
Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as non-O.R. 
procedures. We are inviting public comments on our proposal.
(35) External Release
    One commenter identified 28 ICD-10-PCS procedure codes that 
describe procedures involving external release of bursa and ligament 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. We agree with the 
commenter. Therefore, we are proposing that the 28 ICD-10-PCS procedure 
codes listed in Table 6P.4m. associated with this proposed rule (which 
is available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as non-O.R. procedures. We 
are inviting public comments on our proposal.
(36) External Repair
    One commenter identified 135 ICD-10-PCS procedure codes that 
describe procedures involving external repair of various bones and 
joints. We believe that these procedures generally would not be 
performed in the operating room. We are proposing that the 135 ICD-10-
PCS procedure codes listed in Table 6P.4n. associated with this 
proposed rule (which is available via the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as non-O.R. procedures. We 
are inviting public comments on our proposal.
(37) External Reposition
    One commenter identified 14 ICD-10-PCS procedure codes that 
describe procedures involving external reposition of various bones. 
These 14 ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0NS0XZZ...................  Reposition skull, external approach.
0NS1XZZ...................  Reposition right frontal bone, external
                             approach.
0NS2XZZ...................  Reposition left frontal bone, external
                             approach.
0NS3XZZ...................  Reposition right parietal bone, external
                             approach.
0NS4XZZ...................  Reposition left parietal bone, external
                             approach.
0NS5XZZ...................  Reposition right temporal bone, external
                             approach.
0NS6XZZ...................  Reposition left temporal bone, external
                             approach.
0NS7XZZ...................  Reposition right occipital bone, external
                             approach.
0NS8XZZ...................  Reposition left occipital bone, external
                             approach.
0PS3XZZ...................  Reposition cervical vertebra, external
                             approach.
0PS4XZZ...................  Reposition thoracic vertebra, external
                             approach.
0QS0XZZ...................  Reposition lumbar vertebra, external
                             approach.
0QS1XZZ...................  Reposition sacrum, external approach.
0QSSXZZ...................  Reposition coccyx, external approach.
------------------------------------------------------------------------

    We believe that these procedures generally would not be performed 
in the operating room. Therefore, we are proposing that the 14 ICD-10-
PCS procedure codes shown in the table above be designated as non-O.R. 
procedures. We are inviting public comments on our proposal.
(38) Endoscopic/Transorifice Dilation
    One commenter identified eight ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) dilation of urinary system body parts that 
generally would not require the resources of an operating room and can 
be performed at the bedside. These eight ICD-10-PCS codes are shown in 
the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0T767ZZ...................  Dilation of right ureter, via natural or
                             artificial opening.
0T768ZZ...................  Dilation of right ureter, via natural or
                             artificial opening endoscopic.
0T777ZZ...................  Dilation of left ureter, via natural or
                             artificial opening.
0T778ZZ...................  Dilation of left ureter, via natural or
                             artificial opening endoscopic.
0T7B7DZ...................  Dilation of bladder with intraluminal
                             device, via natural or artificial opening.
0T7B7ZZ...................  Dilation of bladder, via natural or
                             artificial opening.
0T7B8DZ...................  Dilation of bladder with intraluminal
                             device, via natural or artificial opening
                             endoscopic.

[[Page 19861]]

 
0T7B8ZZ...................  Dilation of bladder, via natural or
                             artificial opening endoscopic.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
eight ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(39) Endoscopic/Transorifice Excision
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) excision of urinary system body parts that the 
commenter believed would generally not require the resources of an 
operating room and can be performed at the bedside. These three ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0TBD7ZZ...................  Excision of urethra, via natural or
                             artificial opening.
0TBD8ZZ...................  Excision of urethra, via natural or
                             artificial opening endoscopic.
0TBDXZZ...................  Excision of urethra, external approach.
------------------------------------------------------------------------

    We disagree with the commenter because, depending on the medical 
reason for the excision, the procedures may require an O.R. setting. 
Therefore, we are proposing that the three ICD-10-PCS procedure codes 
shown in the table above remain designated as O.R. procedures. We are 
inviting public comments on our proposal.
(40) External/Transorifice Repair
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving external and transorifice (via natural or 
artificial opening) repair of the vagina body part that generally would 
not require the resources of an operating room and can be performed at 
the bedside. These three ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0UQG7ZZ...................  Repair vagina, via natural or artificial
                             opening.
0UQGXZZ...................  Repair vagina, external approach.
0UQMXZZ...................  Repair vulva, external approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that these 
three ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(41) Percutaneous Transfusion
    One commenter identified 20 ICD-10-PCS procedure codes that 
describe procedures involving percutaneous transfusion of bone marrow 
and stem cells that generally would not require the resources of an 
operating room and can be performed at the bedside. We agree with the 
commenter. Therefore, we are proposing that the 20 ICD-10-PCS procedure 
codes listed in Table 6P.4o. associated with this proposed rule (which 
is available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as non-O.R. procedures. We 
are inviting public comments on our proposal.
(42) External/Percutaneous/Transorifice Introduction
    One commenter identified 51 ICD-10-PCS procedure codes that 
describe procedures involving external, percutaneous and transorifice 
(via natural or artificial opening) introduction of substances that 
generally would not require the resources of an operating room and can 
be performed at the bedside. We agree with the commenter. Therefore, we 
are proposing that the 51 ICD-10-PCS procedure codes listed in Table 
6P.4p. associated with this proposed rule (which is available via the 
Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be designated as 
non-O.R. procedures. We are inviting public comments on our proposal.
(43) Percutaneous/Diagnostic and Endoscopic/Transorifice Irrigation, 
Measurement and Monitoring
    One commenter identified 15 ICD-10-PCS procedure codes that 
describe procedures involving percutaneous/diagnostic and endoscopic/
transorifice (via natural or artificial opening) irrigation, 
measurement and monitoring of structures, pressures and flow that 
generally would not require the resources of an operating room and can 
be performed at the bedside. These 15 ICD-10-PCS codes are shown in the 
table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
3E1N38X...................  Irrigation of male reproductive using
                             irrigating substance, percutaneous
                             approach, diagnostic.
3E1N38Z...................  Irrigation of male reproductive using
                             irrigating substance, percutaneous
                             approach.
3E1N78X...................  Irrigation of male reproductive using
                             irrigating substance, via natural or
                             artificial opening, diagnostic.
3E1N78Z...................  Irrigation of male reproductive using
                             irrigating substance, via natural or
                             artificial opening.
3E1N88X...................  Irrigation of male reproductive using
                             irrigating substance, via natural or
                             artificial opening endoscopic, diagnostic.
3E1N88Z...................  Irrigation of male reproductive using
                             irrigating substance, via natural or
                             artificial opening endoscopic.
4A0635Z...................  Measurement of lymphatic flow, percutaneous
                             approach.
4A063BZ...................  Measurement of lymphatic pressure,
                             percutaneous approach.
4A0C35Z...................  Measurement of biliary flow, percutaneous
                             approach.

[[Page 19862]]

 
4A0C3BZ...................  Measurement of biliary pressure,
                             percutaneous approach.
4A0C75Z...................  Measurement of biliary flow, via natural or
                             artificial opening.
4A0C7BZ...................  Measurement of biliary pressure, via natural
                             or artificial opening.
4A0C85Z...................  Measurement of biliary flow, via natural or
                             artificial opening endoscopic.
4A1635Z...................  Monitoring of lymphatic flow, percutaneous
                             approach.
4A163BZ...................  Monitoring of lymphatic pressure,
                             percutaneous approach.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
15 ICD-10-PCS procedure codes shown in the table above be designated as 
non-O.R. procedures. We are inviting public comments on our proposal.
(44) Imaging
    One commenter identified six ICD-10-PCS procedure codes that 
describe procedures involving imaging with contrast of hepatobiliary 
system body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These six ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
BF030ZZ...................  Plain radiography of gallbladder and bile
                             ducts using high osmolar contrast.
BF031ZZ...................  Plain radiography of gallbladder and bile
                             ducts using low osmolar contrast.
BF03YZZ...................  Plain radiography of gallbladder and bile
                             ducts using other contrast.
BF0C0ZZ...................  Plain radiography of hepatobiliary system,
                             all using high osmolar contrast.
BF0C1ZZ...................  Plain radiography of hepatobiliary system,
                             all using low osmolar contrast.
BF0CYZZ...................  Plain radiography of hepatobiliary system,
                             all using other contrast.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
six ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
(45) Prosthetics
    One commenter identified five ICD-10-PCS procedure codes that 
describe procedures involving the fitting and use of prosthetics and 
assistive devices that would not require the resources of an operating 
room. These five ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
F0DZ8ZZ...................  Prosthesis device fitting.
F0DZ9EZ...................  Assistive, adaptive, supportive or
                             protective devices device fitting using
                             orthosis.
F0DZ9FZ...................  Assistive, adaptive, supportive or
                             protective devices device fitting using
                             assistive, adaptive, supportive or
                             protective equipment.
F0DZ9UZ...................  Assistive, adaptive, supportive or
                             protective devices device fitting using
                             prosthesis.
F0DZ9ZZ...................  Assistive, adaptive, supportive or
                             protective devices device fitting.
------------------------------------------------------------------------

    We agree with the commenter. Therefore, we are proposing that the 
five ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We are inviting public comments on our 
proposal.
b. Revision of Neurostimulator Generator
    We received a request to review three ICD-10-PCS procedure codes 
that describe procedures for revision of a neurostimulator generator 
that are currently designated as O.R. procedures and assigned to MS-
DRGs 252, 253 and 254 (Other Vascular Procedures with MCC, with CC and 
without CC/MCC, respectively). The three codes are 0JWT0MZ (Revision of 
stimulator generator in trunk subcutaneous tissue and fascia, open 
approach), 0JWT3MZ (Revision of stimulator generator in trunk 
subcutaneous tissue and fascia, percutaneous approach), and 0JWTXMZ 
(Revision of stimulator generator in trunk subcutaneous tissue and 
fascia, external approach).
    The requester expressed concern with the MS-DRG assignments and 
noted that although these codes are used to report revision of a 
carotid sinus stimulator pulse generator and appropriately assigned to 
MS-DRGs 252, 253 and 254 in MDC 5 (Diseases and Disorders of the 
Circulatory System), they also are very frequently used for the 
revision of the more common (for example, gastric, intracranial, sacral 
and spinal) neurostimulator generators that would generally not require 
the resources of an operating room.
    The requestor also stated that the indication for revision of a 
neurostimulator generator is typically due to a complication, which 
would be reflected in a complication code such as ICD-10-CM diagnosis 
code T85.734A (Infection and inflammatory reaction due to implanted 
electronic neurostimulator, generator, initial encounter) or T85.890A 
(Other specified complication of nervous system prosthetic devices, 
implants and grafts, initial encounter). Because both of these 
diagnosis codes are assigned to MDC 1 (Diseases and Disorders of the 
Nervous System), when either code is reported in combination with one 
of the three procedure codes that describe revision of neurostimulator 
generator codes (currently assigned to MDC 5), the resulting MS-DRG 
assignment is to MS-DRGs 981, 982 and 983 (Extensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC and without CC/MCC, 
respectively).
    The requestor presented the following three options for 
consideration.
     Reclassify the ICD-10-PCS procedure codes from O.R. 
Procedures to non-O.R. procedures that affect MS-DRG assignment only in 
MDC 5. The requestor stated that, under this option, the procedure 
codes would continue to appropriately group to MDC 5 when representing 
cases involving carotid

[[Page 19863]]

sinus stimulators and the other types of neurostimulator cases would 
appropriately group to medical MS-DRGs.
     Add the ICD-10-PCS procedure codes to MDC 1, such as to 
MS-DRGs 040, 041 and 042 (Peripheral, Cranial Nerve and Other Nervous 
System Procedures with MCC, with CC or Peripheral Neurostimulator and 
without CC/MCC, respectively) under MDC 1. The requestor stated that 
this option would resolve the inconsistency between a revision of a 
carotid sinus stimulator generator being classified as an O.R. 
procedure, while the other comparable procedures involving a revision 
of a regular neurostimulator generator are not. The requestor also 
stated that this option would preclude cases being assigned to MS-DRGs 
981 through 983.
     Stop classifying the ICD-10-PCS procedure codes as O.R. 
procedures entirely. The requestor stated that, under this option, all 
cases would then group to medical MS-DRGs, regardless of the type of 
neurostimulator generator.
    We analyzed claims data for the three revision of neurostimulator 
generator procedure codes from the December 2016 update of the FY 2016 
MedPAR file and identified cases under MDC 1 (Diseases and Disorders of 
the Nervous System) in MS-DRGs 025, 026, and 027 (Craniotomy and 
Endovascular Intracranial Procedures with MCC, with CC and without CC/
MCC, respectively); MS-DRGs 029 and 030 (Spinal Procedures with CC or 
Neurostimulators and Spinal Procedures without CC/MCC), respectively); 
and MS-DRGs 041 and 042 (Peripheral, Cranial Nerve and Other Nervous 
System Procedures with CC or Peripheral Neurostimulator and without CC/
MCC, respectively). We also identified cases in MS-DRGs 982 and 983 
(Extensive O.R. Procedure Unrelated to Principal Diagnosis with CC and 
without CC/MCC, respectively). Lastly, we identified cases under MDC 5 
(Diseases and Disorders of the Circulatory System) in MS-DRGs 252, 253 
and 254 (Other Vascular Procedures with MCC, with CC and without CC/
MCC, respectively). Our findings are shown in the table below.

                                MS-DRGs for Revision of Neurostimulator Generator
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 025--All cases...........................................          18,442             9.1         $29,984
MS-DRG 025--Cases with revision of neurostimulator generator....               1            12.0          73,716
MS-DRG 026--All cases...........................................           8,415             5.6          21,557
MS-DRG 026--Cases with revision of neurostimulator generator....               1             6.0           4,537
MS-DRG 027--All cases...........................................          10,089             2.9          17,320
MS-DRG 027--Cases with revision of neurostimulator generator....               4             1.8          13,906
MS-DRG 029--All cases...........................................           3,192             5.9          23,145
MS-DRG 029--Cases with revision of neurostimulator generator....               6             3.5          32,799
MS-DRG 030--All cases...........................................           1,933             2.9          14,901
MS-DRG 030--Cases with revision of neurostimulator generator....              11             2.2          18,294
MS-DRG 041--All cases...........................................           5,154             5.5          16,633
MS-DRG 041--Cases with revision of neurostimulator generator....               1             1.0          14,145
MS-DRG 042--All cases...........................................           2,099             3.2          13,725
MS-DRG 042--Cases with revision of neurostimulator generator....               2             2.0          28,587
MS-DRG 982--All cases...........................................          15,216             6.6          17,341
MS-DRG 982--Cases with revision of neurostimulator generator....              11             3.0          15,336
MS-DRG 983--All cases...........................................           3,508             3.2          11,627
MS-DRG 983--Cases with revision of neurostimulator generator....               9             4.2          19,951
MS-DRG 252--All cases...........................................          33,817             7.6          23,384
MS-DRG 252--Cases with revision of neurostimulator generator....               1             7.0          18,740
MS-DRG 253--All cases...........................................          27,456             5.5          18,519
MS-DRG 253--Cases with revision of neurostimulator generator....               7             2.4          19,078
MS-DRG 254--All cases...........................................          13,036             2.9          13,253
MS-DRG 254--Cases with revision of neurostimulator generator....               3             3.0          11,981
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, the overall volume of cases reporting 
revision of neurostimulator generator is low, with a total of only 57 
cases found across all of the MS-DRGs reviewed. The average length of 
stay for these cases reporting revision of neurostimulator generators 
is, in most cases, consistent with the average length of stay for all 
cases in the respective MS-DRG, with the majority having an average 
length of stay below the average length of stay of all cases in the 
respective MS-DRG. Finally, the average costs for cases reporting 
revision of neurostimulator generator reflect a wide range, with a low 
of $4,537 in MS-DRG 026 to a high of $73,716 in MS-DRG 025. It is clear 
that, for MS-DRG 025 where the average costs of all cases were $29,984 
and the average costs of the one case reporting revision of a 
neurostimulator generator was $73,716, this is an atypical case. It is 
also clear from the data that there were other procedures reported on 
the claims where a procedure code for a revision of a neurostimulator 
generator was assigned due to the various MS-DRG assignments.
    After review of the claims data and discussion with our clinical 
advisors, we agree with and support the requestor's first option--to 
reclassify the three ICD-10-PCS procedure codes for revision of 
neurostimulator generators from O.R. procedures to non-O.R. procedures 
that affect the assignment for MS-DRGs 252, 253 and 254 to account for 
the subset of patients undergoing revision of a carotid sinus 
neurostimulator generator specifically. In cases where one of the more 
common (for example, gastric, intracranial, sacral and spinal) 
neurostimulator generators are undergoing revision, in the absence of 
another O.R. procedure, these cases would group to a medical MS-DRG. We 
are inviting public comments on our proposal.
c. External Repair of Hymen
    We received a request to examine ICD-10-PCS procedure code 0UQKXZZ 
(Repair Hymen, External Approach). This procedure code is currently 
designated as an O.R. procedure in MS-DRGs 746 and 747 (Vagina, Cervix 
and Vulva Procedures with CC/MCC and without CC/MCC, respectively) 
under

[[Page 19864]]

MDC 13. The requestor provided examples and expressed concern that 
procedure code 0UQKXZZ was assigned to MS-DRG 987 (Non-Extensive O.R. 
Procedures Unrelated to Principal Diagnosis with MCC) when reported on 
a maternal delivery claim. The requestor noted that when a similar code 
was reported with an external approach (for example, procedure code 
0UQMXZZ (Repair vulva, external approach)), the case was appropriately 
assigned to MS-DRG 774 (Vaginal Delivery with Complicating Diagnosis). 
The requestor stated that the physician documentation was simply more 
specific to the location of the repair and this should not affect 
assignment to one of the MS-DRGs for vaginal delivery.
    We reviewed claims data involving the examples provided by the 
requestor involving ICD-10-PCS procedure code 0UQKXZZ (Repair hymen, 
external approach). Our clinical advisors agree with the requestor that 
reporting of this procedure code should not affect assignment to one of 
the MS-DRGs for vaginal delivery. As discussed earlier in section 
II.F.15.a. of the preamble of this proposed rule, we are proposing to 
change the designation for a number of procedure codes from O.R. 
procedures to non-O.R. procedures. Included in that proposal are ICD-
10-PCS procedure codes 0UQGXZZ (Repair vagina, external approach) and 
0UQMXZZ (Repair vulva, external approach). Consistent with the change 
in designation for these procedure codes, we also are proposing to 
designate ICD-10-PCS procedure code 0UQKXZZ (Repair hymen, external 
approach) as a non-O.R. procedure. The procedure by itself would 
generally not require the resources of an operating room. If the 
procedure is performed following a vaginal delivery, it is the vaginal 
delivery procedure code 10E0XZZ (Delivery of products of conception) 
that determines the MS-DRG assignment because this code is designated 
as a non-O.R. procedure affecting the MS-DRG.
    Therefore, we are proposing to change the designation of ICD-10-PCS 
procedure code 0UQKXZZ (Repair hymen, external approach) to a non-O.R. 
procedure. This redesignation will enable more appropriate MS-DRG 
assignment for these cases by eliminating erroneous assignment to MS-
DRGs 987 through 989. We are inviting public comments on our proposal.
d. Non-O.R. Procedures in MDC 17 (Myeloproliferative Diseases and 
Disorders, Poorly Differentiated Neoplasms)
    Under MDC 17 (Myeloproliferative Diseases and Disorders, Poorly 
Differentiated Neoplasms), there are 11 surgical MS-DRGs. Of these 11 
surgical MS-DRGs, there are 5 MS-DRGs containing GROUPER logic that 
includes ICD-10-PCS procedure codes designated as O.R. procedures as 
well as non-O.R. procedures that affect the MS-DRG. These five MS-DRGs 
are MS-DRGs 823, 824, and 825 (Lymphoma and Non-Acute Leukemia with 
Other O.R. Procedure with MCC, with CC and without CC/MCC, 
respectively) and MS-DRGs 829 and 830 (Myeloproliferative Disorders or 
Poorly Differentiated Neoplasms with Other O.R. Procedure with CC/MCC 
and without CC/MCC, respectively). We refer the reader to the ICD-10 
Version 34 MS-DRG Definitions Manual which is available via the 
Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending for the 
complete list of ICD-10-PCS procedure codes assigned to these five MS-
DRGs under MDC 17.
    We reviewed the list of 244 ICD-10-PCS non-O.R. procedure codes 
currently assigned to these 5 MS-DRGs. Of these 244 procedure codes, we 
determined that 55 of the procedure codes do not warrant being 
designated as non-O.R. procedures that affect these MS-DRGs because 
they describe procedures that would generally not require a greater 
intensity of resources for facilities to manage the cases included in 
the definition (logic) of these MS-DRGs. Therefore, we are proposing 
that the 55 ICD-10-PCS procedure codes listed in Table 6P.3c. 
associated with this proposed rule (which is available via the Internet 
on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) be removed from the logic 
for MS-DRGs 823, 824, 825, 829 and 830 as non-O.R. procedures affecting 
the MS-DRG. We also are proposing to revise the titles for these five 
MS-DRGs by deleting the reference to ``O.R.'' in the title. 
Specifically, we are proposing to revise the titles for MS-DRGs 823, 
824, and 825 to ``Lymphoma and Non-Acute Leukemia with Other Procedure 
with MCC, with CC and without CC/MCC'', respectively and we are 
proposing to revise the titles for MS-DRGs 829 and 830 to 
``Myeloproliferative Disorders or Poorly Differentiated Neoplasms with 
Other Procedure with CC/MCC and without CC/MCC'', respectively. We are 
inviting public comments on our proposals.
G. Recalibration of the Proposed FY 2018 MS-DRG Relative Weights
1. Data Sources for Developing the Proposed Relative Weights
    In developing the proposed FY 2018 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 2016 MedPAR data used in this proposed rule include 
discharges occurring on October 1, 2015, through September 30, 2016, 
based on bills received by CMS through December 31, 2016, 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). The FY 
2016 MedPAR file used in calculating the proposed relative weights 
includes data for approximately 9,607,103 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, 2016 update 
of the FY 2016 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 2018 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 proposed FY 2018 relative weights are 
based on the ICD-

[[Page 19865]]

10-CM diagnoses and ICD-10-PCS procedure codes from the FY 2016 MedPAR 
claims data, grouped through the ICD-10 version of the proposed FY 2018 
GROUPER (Version 35).
    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, 2016 update of the FY 2015 HCRIS for calculating the proposed FY 
2018 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 calculated the proposed FY 2018 relative weights based on 19 
CCRs, as we did for FY 2017. The methodology we are proposing to use to 
calculate the FY 2018 MS-DRG cost-based relative weights based on 
claims data in the FY 2016 MedPAR file and data from the FY 2015 
Medicare cost reports is as follows. We note that we have provided 
additional precision in our description of the methodology for FY 2018.
     To the extent possible, all the claims were regrouped 
using the proposed FY 2018 MS-DRG classifications discussed in sections 
II.B. and II.F. 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 2016 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 $30.00 from the sum of 
the routine day charges, intensive care charges, pharmacy charges, 
implantable devices charges, supplies and 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 and blood products charges, anesthesia charges, cardiac 
catheterization charges, CT scan charges, and MRI 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.
     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.
    In addition, 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 Bundled Payments for Care Improvement (BPCI) 
initiative the same as prior fiscal years for the IPPS payment modeling 
and ratesetting process without regard to hospitals' participation 
within these bundled payment models (that is, as if hospitals were not 
participating in those models under the BPCI initiative). The 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. For FY 2018, we are are proposing to continue to 
include all applicable data from subsection (d) hospitals participating 
in BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 
calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
for a complete discussion on our final policy for the treatment of 
hospitals participating in the BPCI initiative in our ratesetting 
process. For additional information on

[[Page 19866]]

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).
    The charges for each of the 19 cost groups for each claim were 
standardized to remove the effects of differences in proposed area wage 
levels, IME and DSH payments, and for hospitals located in Alaska and 
Hawaii, the applicable proposed 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 
proposed 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. Statistical outliers were then removed. 
These charges were then adjusted to cost by applying the proposed 
national average CCRs developed from the FY 2015 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 proposed 19 national cost center CCRs. If stakeholders have 
comments about the groupings in this table, we may consider those 
comments as we finalize our policy.

 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        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-0''CCRs>>X.
                               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
                                                  0274, 0277,       Patients.
                                                  0279, and 0621,
                                                  0622, 0623.
                                                                                                            C_1_C7_71
                               Durable Medical   0290, 0291, 0292  DME-Rented......  C_1_C5_96              C_1_C6_96              D3_HOS_C2_96
                                Equipment         and 0294-0299.
                                Charges.
                                                                                                            C_1_C7_96
                               Used Durable      0293............  DME-Sold........  C_1_C5_97              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
                                                                    to Patients.
                                                                                                            C_1_C7_72
Therapy Services.............  Physical Therapy  042X............  Physical Therapy  C_1_C5_66              C_1_C6_66              D3_HOS_C2_66
                                Charges.
                                                                                                            C_1_C7_66
                               Occupational      043X............  Occupational      C_1_C5_67              C_1_C6_67              D3_HOS_C2_67
                                Therapy Charges.                    Therapy.
                                                                                                            C_1_C7_67
                               Speech Pathology  044X and 047X...  Speech Pathology  C_1_C5_68              C_1_C6_68              D3_HOS_C2_68
                                Charges.
                                                                                                            C_1_C7_68
Inhalation Therapy...........  Inhalation        041X and 046X...  Respiratory       C_1_C5_65              C_1_C6_65              D3_HOS_C2_65
                                Therapy Charges.                    Therapy.
                                                                                                            C_1_C7_65
Operating Room...............  Operating Room    036X............  Operating Room..  C_1_C5_50              C_1_C6_50              D3_HOS_C2_50
                                Charges.
                                                                                                            C_1_C7_50
                                                 071X              Recovery Room     C_1_C5_51              C_1_C6_51              D3_HOS_C2_51
                                                                                                            C_1_C7_51
Labor & Delivery.............  Operating Room    072X              Delivery Room     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

[[Page 19867]]

 
Cardiac Catheterization......                    0481              Cardiac           C_1_C5_59              C_1_C6_59              D3_HOS_C2_59
                                                                    Catheterization
                                                                                                            C_1_C7_59
Laboratory...................  Laboratory        030X, 031X, and   Laboratory        C_1_C5_60              C_1_C6_60              D3_HOS_C2_60
                                Charges           075X
                                                                                                            C_1_C7_60
                                                                   PBP Clinic        C_1_C5_61              C_1_C6_61              D3_HOS_C2_61
                                                                    Laboratory
                                                                    Services
                                                                                                            C_1_C7_61
                                                 074X, 086X        Electroencephalo  C_1_C5_70              C_1_C6_70              D3_HOS_C2_70
                                                                    graphy
                                                                                                            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)
                                                                    Scan
                                                                                                            C_1_C7_57
Magnetic Resonance Imaging     MRI Charges       061X              Magnetic          C_1_C5_58              C_1_C6_58              D3_HOS_C2_58
 (MRI).                                                             Resonance
                                                                    Imaging (MRI)
                                                                                                            C_1_C7_58
Emergency Room...............  Emergency Room    045x              Emergency         C_1_C5_91              C_1_C6_91              D3_HOS_C2_91
                                Charges
                                                                                                            C_1_C7_91
Blood and Blood Products.....  Blood Charges     038x              Whole Blood &     C_1_C5_62              C_1_C6_62              D3_HOS_C2_62
                                                                    Packed Red
                                                                    Blood Cells
                                                                                                            C_1_C7_62
                               Blood Storage/    039x              Blood Storing,    C_1_C5_63              C_1_C6_63              D3_HOS_C2_63
                                Processing                          Processing, &
                                                                    Transfusing
                                                                                                            C_1_C7_63
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
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Development of Proposed National Average CCRs
    We developed the proposed national average CCRs as follows:
    Using the FY 2015 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

[[Page 19868]]

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 proposed relative weight.
    The proposed FY 2018 cost-based relative weights were then 
normalized by a proposed adjustment factor of 1.736047 so that the 
average case weight after recalibration was equal to the average case 
weight before recalibration. The proposed 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 2018 are as follows:

------------------------------------------------------------------------
                          Group                                 CCR
------------------------------------------------------------------------
Routine Days............................................           0.449
Intensive Days..........................................           0.375
Drugs...................................................           0.197
Supplies & Equipment....................................           0.300
Implantable Devices.....................................           0.327
Therapy Services........................................           0.314
Laboratory..............................................           0.116
Operating Room..........................................           0.186
Cardiology..............................................           0.108
Cardiac Catheterization.................................           0.115
Radiology...............................................           0.149
MRIs....................................................           0.077
CT Scans................................................           0.037
Emergency Room..........................................           0.166
Blood and Blood Products................................           0.309
Other Services..........................................           0.352
Labor & Delivery........................................           0.363
Inhalation Therapy......................................           0.163
Anesthesia..............................................           0.080
------------------------------------------------------------------------

    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. We are proposing to use that same case 
threshold in recalibrating the MS-DRG relative weights for FY 2018. 
Using data from the FY 2016 MedPAR file, there were 10 MS-DRGs that 
contain fewer than 10 cases. For FY 2018, 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 proposed 
relative weights for the low-volume MS-DRGs by adjusting their final FY 
2017 relative weights by the percentage change in the average weight of 
the cases in other MS-DRGs. The crosswalk table is shown:

------------------------------------------------------------------------
Low[dash]volume MS-DRG       MS-DRG title         Crosswalk to MS-DRG
------------------------------------------------------------------------
016...................  Autologous bone        Final FY 2017 relative
                         marrow transplant w    weight (adjusted by
                         CC/MCC.                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
017...................  Autologous bone        Final FY 2017 relative
                         marrow transplant w/   weight (adjusted by
                         o CC/MCC.              percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
789...................  Neonates, Died or      Final FY 2017 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 2017 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 2017 relative
                         Major Problems.        weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
792...................  Prematurity without    Final FY 2017 relative
                         Major Problems.        weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
793...................  Full-Term Neonate      Final FY 2017 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 2017 relative
                         Significant Problems.  weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
795...................  Normal Newborn.......  Final FY 2017 relative
                                                weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
------------------------------------------------------------------------

    We are inviting public comments on our proposals.

H. Proposed Add-On Payments for New Services and Technologies for FY 
2018

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

[[Page 19869]]

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 or clearance, 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 or cleared by FDA and has been on the market for more than 
2 to 3 years. 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 these criteria, it would be considered 
substantially similar to an existing technology and would not be 
considered ``new'' for purposes of new technology add-on payments. For 
a detailed discussion of the criteria for substantial similarity, we 
refer readers to the FY 2006 IPPS final rule (70 FR 47351 through 
47352), and the FY 2010 IPPS/LTCH PPS final rule (74 FR 43813 through 
43814).
    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 discharges involving the new medical service or technology must be 
assessed for adequacy. Under the cost criterion, consistent with the 
formula specified in section 1886(d)(5)(K)(ii)(I) of the Act, 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 2017 IPPS/LTCH PPS final rule 
contains the final thresholds that we used to evaluate applications for 
new medical service and new technology add-on payments for FY 2018. We 
refer readers to the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Tables.html to download and 
view Table 10.
    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 medical 
service and 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 or medical 
service (if the estimated costs for the case including the new 
technology or medical service 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 or new medical service.
    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 amended Sec.  412.87(c) to specify that all applicants 
for new technology add-on payments must have FDA approval or clearance 
for their new medical service or technology by July 1 of each year 
prior to the beginning of the fiscal year that the application is being 
considered.
    The Council on Technology and Innovation (CTI) at CMS oversees the 
agency's cross-cutting priority on coordinating coverage, coding and 
payment processes for Medicare with respect to new technologies and 
procedures, including new drug therapies, as well as promoting the 
exchange of information on new technologies and medical services 
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

[[Page 19870]]

(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 Medicare Administrative 
Contractors (MACs) (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 2010 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 services 
or technologies to contact the agency early in the process of product 
development if they have questions or concerns about the evidence that 
would be needed later in the development process for the agency's 
coverage decisions for Medicare.
    The CTI aims to provide useful information on its activities and 
initiatives to stakeholders, including Medicare beneficiaries, 
advocates, medical product manufacturers, providers, and health policy 
experts. Stakeholders with further questions about Medicare's coverage, 
coding, and payment processes, or who want further guidance about how 
they can navigate these processes, can contact the CTI at 
[email protected].
    We note that applicants for add-on payments for new medical 
services or technologies for FY 2019 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 2019, 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 2018 prior 
to publication of the FY 2018 IPPS/LTCH PPS proposed rule, we published 
a notice in the Federal Register on November 9, 2016 (81 FR 78814), and 
held a town hall meeting at the CMS Headquarters Office in Baltimore, 
MD, on February 14, 2017. In the announcement notice for the meeting, 
we stated that the opinions and presentations 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 2018 new medical service and technology add-on payment 
applications before the publication of the FY 2018 IPPS/LTCH PPS 
proposed rule.
    Approximately 66 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: https://www.youtube.com/watch?v=9niqfxXe4oA&t=217s. We considered each applicant's presentation 
made at the town hall meeting, as well as written comments submitted on 
the applications that were received by the due date of February 24, 
2017, in our evaluation of the new technology add-on payment 
applications for FY 2018 in this proposed rule.
    In response to the published notice and the February 14, 2017 New 
Technology Town Hall meeting, we received written comments regarding 
the applications for FY 2018 new technology add-on payments. We note 
that we do not summarize comments that are unrelated to the 
``substantial clinical improvement'' criterion. As explained above and 
in the Federal Register notice announcing the New Technology Town Hall 
meeting (81 FR78814 through 78816), 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 
2018. Therefore, we are not summarizing these comments in this proposed 
rule. We summarize below a general comment that does not relate to a 
specific application for FY 2018 new technology add-on payments. We 
also summarize comments regarding individual applications, or, if 
applicable, indicate that there were no comments received in section 
II.H.5. of the preamble of this proposed rule at the end of each 
discussion of the individual applications.

[[Page 19871]]

    Comment: One commenter recommended that CMS: (1) Prohibit local 
MACs from denying coverage and add-on payments for new medical services 
or technologies approved by the Secretary; and (2) broaden the criteria 
applied in making substantial clinical improvement determinations to 
require, in addition to existing criteria, that the Secretary consider 
whether the new technology or medical service meets one or more of the 
following criteria: (a) Results in a reduction of the length of a 
hospital stay; (b) improves patient quality of life; (c) creates long-
term clinical efficiencies in treatment; (d) addresses patient-centered 
objectives as defined by the Secretary; or (e) meets such other 
criteria as the Secretary may specify.
    Response: We appreciate the commenter's comments and will consider 
them in future rulemaking.
3. ICD-10-PCS Section ``X'' Codes for Certain New Medical Services and 
Technologies
    As discussed in the FY 2016 IPPS/LTCH final rule (80 FR 49434), the 
ICD-10-PCS includes a new section containing the new Section ``X'' 
codes, which began being used with discharges occurring on or after 
October 1, 2015. Decisions regarding changes to ICD-10-PCS Section 
``X'' codes will be handled in the same manner as the decisions for all 
of the other ICD-10-PCS code changes. That is, proposals to create, 
delete, or revise Section ``X'' codes under the ICD-10-PCS structure 
will be referred to the ICD-10 Coordination and Maintenance Committee. 
In addition, several of the new medical services and technologies that 
have been, or may be, approved for new technology add-on payments may 
now, and in the future, be assigned a Section ``X'' code within the 
structure of the ICD-10-PCS. We posted ICD-10-PCS Guidelines on the CMS 
Web site at: http://www.cms.gov/Medicare/Coding/ICD10/2016-ICD-10-PCS-and-GEMs.html, including guidelines for ICD-10-PCS Section ``X'' codes. 
We encourage providers to view the material provided on ICD-10-PCS 
Section ``X'' codes.
4. Proposal To Revise the Reference to an ICD-9-CM Code in Sec.  
412.87(b)(2) of the Regulations
    The existing regulations under Sec.  412.87(b)(2) state that a 
medical service or technology may be considered new within 2 or 3 years 
after the point at which data begin to become available reflecting the 
ICD-9-CM code assigned to the new service or technology (depending on 
when a new code is assigned and data on the new service or technology 
become available for DRG recalibration). After CMS has recalibrated the 
DRGs, based on available data, to reflect the costs of an otherwise new 
medical service or technology, the medical service or technology will 
no longer be considered ``new'' under the criterion of this section.
    As discussed in the FY 2016 IPPS/LTCH final rule (80 FR 49454), 
HIPAA covered entities are required, as of October 1, 2015, to use the 
ICD-10 coding system (ICD-10-PCS codes for procedures and ICD-10-CM 
codes for diagnoses), instead of the ICD-9-CM coding system, to report 
diagnoses and procedures for Medicare hospital inpatient services 
provided to Medicare beneficiaries as classified under the MS-DRG 
system and paid for under the IPPS. The language in Sec.  412.87(b)(2) 
only references an ``ICD-9-CM code.'' Therefore, we are proposing to 
revise the regulations at Sec.  412.87(b)(2) to replace the term ``ICD-
9-CM code'' with the term ``inpatient hospital code,'' as defined in 
section 1886(d)(5)(K)(iii) of the Act. Section 1886(d)(5)(K)(iii) of 
the Act defines an ``inpatient hospital code'' as any code that is used 
with respect to inpatient hospital services for which payment may be 
made under this subsection of the Act and includes an alphanumeric code 
issued under the International Classification of Diseases, 9th 
Revision, Clinical Modification (``ICD-9-CM'') and its subsequent 
revisions. We are inviting public comments on our proposal.
5. Proposed FY 2018 Status of Technologies Approved for FY 2017 Add-On 
Payments
a. CardioMEMSTM HF (Heart Failure) Monitoring System
    CardioMEMS, Inc. submitted an application for new technology add-on 
payments for FY 2015 for the CardioMEMSTM HF (Heart Failure) 
Monitoring 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 
Monitoring 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 Monitoring 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 received FDA approval on May 28, 2014. After 
evaluation of the newness, costs, and substantial clinical improvement 
criteria for new technology add-on payments for the 
CardioMEMSTM HF Monitoring System and consideration of the 
public comments we received in response to the FY 2015 IPPS/LTCH PPS 
proposed rule, we approved the CardioMEMSTM HF Monitoring 
System for new technology add-on payments for FY 2015 (79 FR 49940). 
Cases involving the CardioMEMSTM HF Monitoring System that 
are eligible for new technology add-on payments are identified by 
either ICD-10-PCS procedure code 02HQ30Z (Insertion of pressure sensor 
monitoring device into right pulmonary artery, percutaneous approach) 
or ICD-10-PCS procedure code 02HR30Z (Insertion of pressure sensor 
monitoring device into left pulmonary artery, percutaneous approach). 
With the new technology add-on payment application, the applicant 
stated that the total operating cost of the CardioMEMSTM HF 
Monitoring System is $17,750. Under Sec.  412.88(a)(2), we limit new 
technology add-on payments 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 new technology add-on 
payment for a case involving the CardioMEMSTM HF Monitoring 
System is $8,875. We refer the reader to the FY 2015 IPPS/LTCH PPS 
final rule (79 FR 49937) for complete details on the 
CardioMEMSTM HF Monitoring System.

[[Page 19872]]

    Our policy is 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 inpatient hospital code assigned to 
the new service or technology. 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 onto the U.S. market 
occurs in the latter half of the fiscal year (70 FR 47362).
    With regard to the newness criterion for the 
CardioMEMSTM HF Monitoring System, we considered the 
beginning of the newness period to commence when the 
CardioMEMSTM HF Monitoring System was approved by the FDA on 
May 28, 2014. The 3-year anniversary date of the entry of the 
CardioMEMSTM HF Monitoring System onto the U.S. market (May 
28, 2017) will occur prior to the beginning of FY 2018. Therefore, we 
are proposing to discontinue new technology add-on payments for this 
technology for FY 2018. We are inviting public comments on this 
proposal.
b. Defitelio[supreg] (Defibrotide)
    Jazz Pharmaceuticals submitted an application for new technology 
add-on payments for FY 2017 for defibrotide (Defitelio[supreg]), a 
treatment for patients diagnosed with hepatic veno-occlusive disease 
(VOD) with evidence of multiorgan dysfunction. VOD, also known as 
sinusoidal obstruction syndrome (SOS), is a potentially life-
threatening complication of hematopoietic stem cell transplantation 
(HSCT), with an incidence rate of 8 percent to 15 percent. Diagnoses of 
VOD range in severity from what has been classically defined as a 
disease limited to the liver (mild) and reversible, to a severe 
syndrome associated with multi-organ dysfunction or failure and death. 
Patients treated with HSCT who develop VOD with multi-organ failure 
face an immediate risk of death, with a mortality rate of more than 80 
percent when only supportive care is used. The applicant asserted that 
Defitelio[supreg] improves the survival rate of patients diagnosed with 
VOD with multi-organ failure by 23 percent.
    Defitelio[supreg] was granted Orphan Drug Designation for the 
treatment of VOD in 2003 and for the prevention of VOD in 2007. It has 
been available to patients as an investigational drug through an 
expanded access program since 2007. The applicant's New Drug 
Application (NDA) for Defitelio[supreg] received FDA approval on March 
30, 2016. The applicant confirmed that Defitelio[supreg] was not 
available on the U.S. market as of the FDA NDA approval date of March 
30, 2016. According to the applicant, commercial packaging could not be 
completed until the label for Defitelio[supreg] was finalized with FDA 
approval, and that commercial shipments of Defitelio[supreg] to 
hospitals and treatment centers began on April 4, 2016. Therefore, we 
agreed that, based on this information, the newness period for 
Defitelio[supreg] begins on April 4, 2016, the date of its first 
commercial availability.
    The applicant received unique ICD-10-PCS procedure codes to 
describe the use of Defitelio[supreg] that became effective October 1, 
2016. The approved procedure codes are XW03392 (Introduction of 
defibrotide sodium anticoagulant into peripheral vein, percutaneous 
approach) and XW04392 (Introduction of defibrotide sodium anticoagulant 
into central vein, percutaneous approach).
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for 
Defitelio[supreg] and consideration of the public comments we received 
in response to the FY 2017 IPPS/LTCH PPS proposed rule, we approved 
Defitelio[supreg] for new technology add-on payments for FY 2017 (81 FR 
56906). With the new technology add-on payment application, the 
applicant estimated that the average Medicare beneficiary would require 
a dosage of 25 mg/kg/day for a minimum of 21 days of treatment. The 
recommended dose is 6.25 mg/kg given as a 2-hour intravenous infusion 
every 6 hours. Dosing should be based on a patient's baseline body 
weight, which is assumed to be 70 kg for an average adult patient. All 
vials contain 200 mg at a cost of $825 per vial. Therefore, we 
determined that cases involving the use of the Defitelio[supreg] 
technology would incur an average cost per case of $151,800 (70 kg 
adult x 25 mg/kg/day x 21 days = 36,750 mg per patient/200 mg vial = 
184 vials per patient x $825 per vial = $151,800). Under Sec.  
412.88(a)(2), we limit new technology add-on payments 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 amount for a case involving the 
use of Defitelio[supreg] is $75,900.
    Because the 3-year anniversary date of the entry of 
Defitelio[supreg] onto the U.S. market will occur after FY 2018 (April 
4, 2019), we are proposing to continue new technology add-on payments 
for this technology for FY 2018. The maximum payment for a case 
involving Defitelio[supreg] would remain at $75,900 for FY 2018. We are 
inviting public comments on our proposal to continue new technology 
add-on payments for Defitelio[supreg].
c. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis (Gore IBE 
Device)
    W. L. Gore and Associates, Inc. submitted an application for new 
technology add-on payments for the GORE[supreg] EXCLUDER[supreg] Iliac 
Branch Endoprosthesis (GORE IBE device) for FY 2017. The device 
consists of two components: The Iliac Branch Component (IBC) and the 
Internal Iliac Component (IIC). The applicant indicated that each 
endoprosthesis is pre-mounted on a customized delivery and deployment 
system allowing for controlled endovascular delivery via bilateral 
femoral access. According to the applicant, the device is designed to 
be used in conjunction with the GORE[supreg] EXCLUDER[supreg] AAA 
Endoprosthesis for the treatment of patients requiring repair of common 
iliac or aortoiliac aneurysms. When deployed, the GORE IBE device 
excludes the common iliac aneurysm from systemic blood flow, while 
preserving blood flow in the external and internal iliac arteries.
    With regard to the newness criterion, the applicant received pre-
market FDA approval of the GORE IBE device on February 29, 2016. The 
applicant submitted a request for an unique ICD-10-PCS procedure code 
and was granted approval for the following procedure codes to describe 
to use of this technology: 04VC0EZ (Restriction of right common iliac 
artery with branched or fenestrated intraluminal device, one or two 
arteries, open approach); 04VC0FZ (Restriction of right common iliac 
artery with branched or fenestrated intraluminal device, three or more 
arteries, open approach); 04VC3EZ (Restriction of right common iliac 
artery with branched or fenestrated intraluminal device, one or two 
arteries, percutaneous approach); 04VC3FZ (Restriction of right common 
iliac artery with branched or fenestrated intraluminal device, three or 
more arteries, percutaneous approach); 04VC4EZ (Restriction of right 
common iliac artery with branched or fenestrated intraluminal device, 
one or two arteries, percutaneous approach); 04VC4FZ (Restriction of 
right common iliac artery with branched or fenestrated intraluminal 
device, three or more, arteries, percutaneous endoscopic, approach); 
04VD0EZ (Restriction of left

[[Page 19873]]

common iliac artery with branched or fenestrated intraluminal device, 
one or two arteries, open approach); 04VD0FZ (Restriction of left 
common iliac artery with branched or fenestrated, intraluminal device, 
three or more arteries, open approach); 04VD3EZ (Restriction of left 
common iliac artery with branched or fenestrated intraluminal device, 
one or two arteries, percutaneous approach); 04VD3FZ (Restriction of 
left common iliac artery with branched or fenestrated intraluminal 
device, three or more arteries, percutaneous approach); 04VD4EZ 
(Restriction of left common iliac artery with branched or fenestrated 
intraluminal device, one or two arteries, percutaneous endoscopic 
approach); and 04VD4FZ (Restriction of left common iliac artery with 
branched or fenestrated intraluminal device, three or more arteries, 
percutaneous endoscopic approach). These new ICD-10-PCS procedure codes 
became effective on October 1, 2016.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for the GORE 
IBE device and consideration of the public comments we received in 
response to the FY 2017 IPPS/LTCH PPS proposed rule, we approved the 
GORE IBE device for new technology add-on payments for FY 2017 (81 FR 
56909). With the new technology add-on payment application, the 
applicant indicated that the total operating cost of the GORE IBE 
device is $10,500. Under Sec.  412.88(a)(2), we limit new technology 
add-on payments 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 new technology add-on payment for a 
case involving the GORE IBE device is $5,250.
    With regard to the newness criterion for the GORE IBE device, we 
considered the beginning of the newness period to commence when the 
GORE IBE device received FDA approval on February 29, 2016. Because the 
3-year anniversary date of the entry of the GORE IBE device onto the 
U.S. market will occur after FY 2018 (February 28, 2019), we are 
proposing to continue new technology add-on payments for this 
technology for FY 2018. The maximum payment for a case involving the 
GORE IBE device would remain at $5,250 for FY 2018. We are inviting 
public comments on our proposal to continue new technology add-on 
payments for the GORE IBE device.
d. Praxbind[supreg] Idarucizumab
    Boehringer Ingelheim Pharmaceuticals, Inc. submitted an application 
for new technology add-on payments for FY 2017 for Praxbind[supreg] 
Idarucizumab (Idarucizumab), a product developed as an antidote to 
reverse the effects of PRADAXAR (Dabigatran), which is also 
manufactured by Boehringer Ingelheim Pharmaceuticals, Inc.
    Dabigatran is an oral direct thrombin inhibitor currently indicated 
to: (1) Reduce the risk of stroke and systemic embolism in patients who 
have been diagnosed with nonvalvular atrial fibrillation (NVAF); (2) 
treat deep venous thrombosis (DVT) and pulmonary embolism (PE) in 
patients who have been administered a parenteral anticoagulant for 5 to 
10 days; and (3) reduce the risk of recurrence of DVT and PE in 
patients who have been previously diagnosed with NVAF. Currently, 
unlike the anticoagulant Warfarin, there is no specific way to reverse 
the anticoagulant effect of Dabigatran in the event of a major bleeding 
episode. Idarucizumab is a humanized fragment antigen binding (Fab) 
molecule, which specifically binds to Dabigatran to deactivate the 
anticoagulant effect, thereby allowing thrombin to act in blood clot 
formation. The applicant stated that Idarucizumab represents a new 
pharmacologic approach to neutralizing the specific anticoagulant 
effect of Dabigatran in emergency situations.
    Idarucizumab was approved by the FDA on October 16, 2015. Based on 
the FDA indication for Idarucizumab, the product can be used in the 
treatment of patients who have been diagnosed with NVAF and 
administered Dabigatran to reverse life-threatening bleeding events, or 
who require emergency surgery or medical procedures and rapid reversal 
of the anticoagulant effects of Dabigatran is necessary and desired.
    The applicant received unique ICD-10-PCS procedure codes that 
became effective October 1, 2016, to describe the use of this 
technology. The approved procedure codes are XW03331 (Introduction of 
Idarucizumab, Dabigatran reversal agent into peripheral vein, 
percutaneous approach, New Technology Group 1) and XW04331 
(Introduction of Idarucizumab, Dabigatran reversal agent into central 
vein, percutaneous approach, New Technology Group 1).
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for 
Idarucizumab and consideration of the public comments we received in 
response to the FY 2017 IPPS/LTCH PPS proposed rule, we approved 
Idarucizumab for new technology add-on payments for FY 2017 (81 FR 
56897). With the new technology add-on payment application, the 
applicant indicated that the total operating cost of Idarucizumab is 
$3,500. Under Sec.  412.88(a)(2), we limit new technology add-on 
payments 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 a case involving Idarucizumab is $1,750.
    With regard to the newness criterion for Idarucizumab, we 
considered the beginning of the newness period to commence when 
Idarucizumab was approved by the FDA on October 16, 2015. Because the 
3-year anniversary date of the entry of Idarucizumab onto the U.S. 
market will occur after FY 2018 (October 15, 2018), we are proposing to 
continue new technology add-on payments for this technology for FY 
2018. The maximum payment for a case involving Idarucizumab would 
remain at $1,750 for FY 2018. We are inviting public comments on our 
proposal to continue new technology add-on payments for Idarucizumab.
e. Lutonix[supreg] Drug Coated Balloon PTA Catheter and 
In.PACTTM AdmiralTM Paclitaxel Coated 
Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter
    Two manufacturers, CR Bard Inc. and Medtronic, submitted 
applications for new technology add-on payments for FY 2016 for 
LUTONIX[supreg] Drug-Coated Balloon (DCB) Percutaneous Transluminal 
Angioplasty (PTA) Catheter (LUTONIX[supreg]) and IN.PACTTM 
AdmiralTM Paclitaxel Coated Percutaneous Transluminal 
Angioplasty (PTA) Balloon Catheter (IN.PACTTM 
AdmiralTM), respectively. Both of these technologies are 
drug-coated balloon angioplasty treatments for patients diagnosed with 
peripheral artery disease (PAD). Typical treatments for patients with 
PAD include angioplasty, stenting, atherectomy and vascular bypass 
surgery. PAD most commonly occurs in the femoropopliteal segment of the 
peripheral arteries, is associated with significant levels of morbidity 
and impairment in quality of life, and requires treatment to reduce 
symptoms and prevent or treat ischemic events.\1\

[[Page 19874]]

Treatment options for symptomatic PAD include noninvasive treatment 
such as medication and life-style modification (for example, exercise 
programs, diet, and smoking cessation) and invasive options, which 
include endovascular treatment and surgical bypass. The 2013 American 
College of Cardiology and American Heart Association (ACC/AHA) 
guidelines for the management of PAD recommend endovascular therapy as 
the first-line treatment for femoropopliteal artery lesions in patients 
suffering from claudication (Class I, Level A recommendation).\2\
---------------------------------------------------------------------------

    \1\ Tepe G, Zeller T, Albrecht T, Heller S, Schwarzwalder U, 
Beregi JP, Claussen CD, Oldenburg A, Scheller B, Speck U., Local 
delivery of paclitaxel to inhibit restenosis during angioplasty of 
the leg, N Engl J Med 2008, 358: 689-99.
    \2\ Anderson JL, Halperin JL, Albert NM, Bozkurt B, Brindis RG, 
Curtis LH, DeMets D, Guyton RA, Hochman JS, Kovacs RJ, Ohman EM, 
Pressler SJ, Sellke FW, Shen WK., Management of patients with 
peripheral artery disease (compilation of 2005 and 2011 ACCF/AHA 
guideline recommendations): A report of the American College of 
Cardiology Foundation/American Heart Association Task Force on 
Practice Guidelines, J Am Coll Cardiol 2013, 61:1555-70. Available 
at: http://dx.doi.org/10.1016/j.jacc.2013.01.004.
---------------------------------------------------------------------------

    According to both applicants, LUTONIX[supreg] and 
IN.PACTTM AdmiralTM are the first drug coated 
balloons that can be used for treatment of patients who are diagnosed 
with PAD. In the FY 2016 IPPS/LTCH PPS final rule, we stated that 
because cases eligible for the two devices would group to the same MS-
DRGs and we believe that these devices are substantially similar to 
each other (that is, they are intended to treat the same or similar 
disease in the same or similar patient population and are purposed to 
achieve the same therapeutic outcome using the same or similar 
mechanism of action), we evaluated both technologies as one application 
for new technology add-on payments under the IPPS. The applicants 
submitted separate cost and clinical data, and we reviewed and 
discussed each set of data separately. However, we made one 
determination regarding new technology add-on payments that applied to 
both devices. We believe that this is consistent with our policy 
statements in the past regarding substantial similarity. Specifically, 
we have noted that approval of new technology add-on payments would 
extend to all technologies that are substantially similar (66 FR 
46915), and we believe that continuing our current practice of 
extending a new technology add-on payment without a further application 
from the manufacturer of the competing product or a specific finding on 
cost and clinical improvement if we make a finding of substantial 
similarity among two products is the better policy because we avoid--
     Creating manufacturer-specific codes for substantially 
similar products;
     Requiring different manufacturers of substantially similar 
products from having to submit separate new technology add-on payment 
applications;
     Having to compare the merits of competing technologies on 
the basis of substantial clinical improvement; and
     Bestowing an advantage to the first applicant representing 
a particular new technology to receive approval (70 FR 47351).
    CR Bard, Inc. received FDA approval for LUTONIX[supreg] on October 
9, 2014. Commercial sales in the U.S. market began on October 10, 2014. 
Medtronic received FDA approval for IN.PACTTM 
AdmiralTM on December 30, 2014. Commercial sales in the U.S. 
market began on January 29, 2015.
    In accordance with our policy, we stated in the FY 2016 IPPS\LTCH 
final rule (80 FR 49463) that we believe it is appropriate to use the 
earliest market availability date submitted as the beginning of the 
newness period. Accordingly, for both devices, we stated that the 
beginning of the newness period will be October 10, 2014.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for the 
LUTONIX[supreg] and IN.PACTTM AdmiralTM 
technologies and consideration of the public comments we received in 
response to the FY 2016 IPPS/LTCH PPS proposed rule, we approved the 
LUTONIX[supreg] and IN.PACTTM AdmiralTM 
technologies for new technology add-on payments for FY 2016 (80 FR 
49469). Cases involving the LUTONIX[supreg] and IN.PACTTM 
AdmiralTM technologies that are eligible for new technology 
add-on payments are identified using one of the ICD-10-PCS procedure 
codes in the following table:

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
047K041...................  Dilation of right femoral artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, open approach.
047K0D1...................  Dilation of right femoral artery with
                             intraluminal device using drug-coated
                             balloon, open approach.
047K0Z1...................  Dilation of right femoral artery using drug-
                             coated balloon, open approach.
047K341...................  Dilation of right femoral artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, percutaneous approach.
047K3D1...................  Dilation of right femoral artery with
                             intraluminal device using drug-coated
                             balloon, percutaneous approach.
047K3Z1...................  Dilation of right femoral artery using drug-
                             coated balloon, percutaneous approach.
047K441...................  Dilation of right femoral artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, percutaneous endoscopic
                             approach.
047K4D1...................  Dilation of right femoral artery with
                             intraluminal device using drug-coated
                             balloon, percutaneous endoscopic approach.
047K4Z1...................  Dilation of right femoral artery using drug-
                             coated balloon, percutaneous endoscopic
                             approach.
047L041...................  Dilation of left femoral artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, open approach.
047L0D1...................  Dilation of left femoral artery with
                             intraluminal device using drug-coated
                             balloon, open approach.
047L0Z1...................  Dilation of left femoral artery using drug-
                             coated balloon, open approach.
047L341...................  Dilation of left femoral artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, percutaneous approach.
047L3D1...................  Dilation of left femoral artery with
                             intraluminal device using drug-coated
                             balloon, percutaneous approach.
047L3Z1...................  Dilation of left femoral artery using drug-
                             coated balloon, percutaneous approach.
047L441...................  Dilation of left femoral artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, percutaneous endoscopic
                             approach.
047L4D1...................  Dilation of left femoral artery with
                             intraluminal device using drug-coated
                             balloon, percutaneous endoscopic approach.
047L4Z1...................  Dilation of left femoral artery using drug-
                             coated balloon, percutaneous endoscopic
                             approach.
047M041...................  Dilation of right popliteal artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, open approach.
047M0D1...................  Dilation of right popliteal artery with
                             intraluminal device using drug-coated
                             balloon, open approach.
047M0Z1...................  Dilation of right popliteal artery using
                             drug-coated balloon, open approach.
047M341...................  Dilation of right popliteal artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, percutaneous approach.
047M3D1...................  Dilation of right popliteal artery with
                             intraluminal device using drug-coated
                             balloon, percutaneous approach.
047M3Z1...................  Dilation of right popliteal artery using
                             drug-coated balloon, percutaneous approach.
047M441...................  Dilation of right popliteal artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, percutaneous endoscopic
                             approach.
047M4D1...................  Dilation of right popliteal artery with
                             intraluminal device using drug-coated
                             balloon, percutaneous endoscopic approach.

[[Page 19875]]

 
047M4Z1...................  Dilation of right popliteal artery using
                             drug-coated balloon, percutaneous
                             endoscopic approach.
047N041...................  Dilation of left popliteal artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, open approach.
047N0D1...................  Dilation of left popliteal artery with
                             intraluminal device using drug-coated
                             balloon, open approach.
047N0Z1...................  Dilation of left popliteal artery using drug-
                             coated balloon, open approach.
047N341...................  Dilation of left popliteal artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, percutaneous approach.
047N3D1...................  Dilation of left popliteal artery with
                             intraluminal device using drug-coated
                             balloon, percutaneous approach.
047N3Z1...................  Dilation of left popliteal artery using drug-
                             coated balloon, percutaneous approach.
047N441...................  Dilation of left popliteal artery with drug-
                             eluting intraluminal device using drug-
                             coated balloon, percutaneous endoscopic
                             approach.
047N4D1...................  Dilation of left popliteal artery with
                             intraluminal device using drug-coated
                             balloon, percutaneous endoscopic approach.
047N4Z1...................  Dilation of left popliteal artery using drug-
                             coated balloon, percutaneous endoscopic
                             approach.
------------------------------------------------------------------------

    As discussed in the FY 2016 IPPS/LTCH final rule (80 FR 49469), 
each of the applicants submitted operating costs for its DCB. The 
manufacturer of the LUTONIX[supreg] stated that a mean of 1.37 drug-
coated balloons was used during the LEVANT 2 clinical trial. The 
acquisition price for the hospital will be $1,900 per drug-coated 
balloon, or $2,603 per case (1.37 x $1,900). The applicant projected 
that approximately 8,875 cases will involve use of the LUTONIX[supreg] 
for FY 2016. The manufacturer for the IN.PACTTM 
AdmiralTM stated that a mean of 1.4 drug-coated balloons was 
used during the IN.PACTTM AdmiralTM DCB arm. The 
acquisition price for the hospital will be $1,350 per drug-coated 
balloon, or $1,890 per case (1.4 x $1,350). The applicant projected 
that approximately 26,000 cases will involve use of the 
IN.PACTTM AdmiralTM for FY 2016.
    For FY 2016, we based the new technology add-on payment for cases 
involving these technologies on the weighted average cost of the two 
DCBs described by the ICD-10-PCS procedure codes listed above (which 
are not manufacturer specific). Because ICD-10 codes are not 
manufacturer specific, we cannot set one new technology add-on payment 
amount for IN.PACTTM AdmiralTM and a different 
new technology add-on payment amount for LUTONIX[supreg]; both 
technologies will be captured by using the same ICD-10-PCS procedure 
code. As such, we stated that we believe that the use of a weighted 
average of the cost of the standard DCBs based on the projected number 
of cases involving each technology to determine the maximum new 
technology add-on payment would be most appropriate. To compute the 
weighted cost average, we summed the total number of projected cases 
for each of the applicants, which equaled 34,875 cases (26,000 plus 
8,875). We then divided the number of projected cases for each of the 
applicants by the total number of cases, which resulted in the 
following case-weighted percentages: 25 percent for the LUTONIX[supreg] 
and 75 percent for the IN.PACTTM AdmiralTM. We 
then multiplied the cost per case for the manufacturer specific DCB by 
the case-weighted percentage (0.25 * $2,603 = $662.41 for 
LUTONIX[supreg] and 0.75 * $1,890 = $1,409.03 for the 
IN.PACTTM AdmiralTM). This resulted in a case-
weighted average cost of $2,071.45 for DCBs. Under Sec.  412.88(a)(2), 
we limit new technology add-on payments 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 payment for a 
case involving the LUTONIX[supreg] or IN.PACTTM 
AdmiralTM DCBs is $1,035.72.
    With regard to the newness criterion for the LUTONIX[supreg] and 
IN.PACTTM AdmiralTM technologies, we considered 
the beginning of the newness period to commence when LUTONIX[supreg] 
gained entry onto the U.S. market on October 10, 2014. As discussed 
previously in this section, in general, we extend new technology add-on 
payments for an additional year only if the 3-year anniversary date of 
the product's entry onto the U.S. market occurs in the latter half of 
the upcoming fiscal year. Because the 3-year anniversary date of the 
entry of LUTONIX[supreg] onto the U.S. market (October 10, 2017) will 
occur in the first half of FY 2018, we are proposing to discontinue new 
technology add-on payments for both the LUTONIX[supreg] and 
IN.PACTTM AdmiralTM technologies for FY 2018. We 
are inviting public comments on this proposal.
f. MAGEC[supreg] Spinal Bracing and Distraction System (MAGEC[supreg] 
Spine)
    Ellipse Technologies, Inc. submitted an application for new 
technology add-on payments for FY 2017 for the MAGEC[supreg] Spine. 
According to the applicant, the MAGEC[supreg] Spine has been developed 
for use in the treatment of children diagnosed with severe spinal 
deformities, such as scoliosis. The system can be used in the treatment 
of skeletally immature patients less than 10 years of age who have been 
diagnosed with severe progressive spinal deformities associated with or 
at risk of Thoracic Insufficiency Syndrome (TIS).
    The MAGEC[supreg] Spine consists of a (spinal growth) rod that can 
be lengthened through the use of magnets that are controlled by an 
external remote controller (ERC). The rod(s) can be implanted into 
children as young as 2 years of age. According to the applicant, use of 
the MAGEC[supreg] Spine has proven to be successfully used in the 
treatment of patients diagnosed with scoliosis who have not been 
responsive to other treatments.
    The MAGEC[supreg] Spine initially received FDA clearance for use of 
the predicate device, which used a Harrington Rod on February 27, 2014. 
The applicant verified that, due to manufacturing delays, the 
MAGEC[supreg] Spine was not available for implant until April 1, 2014. 
Specifically, the complete MAGEC[supreg] Spine system was produced and 
available for shipment for the first implant on April 1, 2014. 
Therefore, the newness period for the MAGEC[supreg] Spine began on 
April 1, 2014. Subsequent FDA clearance was granted for use of the 
modified device, which uses a shorter 70 mm rod on September 18, 2014. 
After minor modification of the product, the MAGEC[supreg] Spine 
received FDA clearances on March 24, 2015, and May 29, 2015, 
respectively.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for the 
MAGEC[supreg] Spine and consideration of the public comments we 
received in response to the FY 2017 IPPS/LTCH PPS proposed rule, we 
approved the MAGEC[supreg] Spine for new technology add-on payments for 
FY 2017 (81 FR 56891). Cases involving the MAGEC[supreg] Spine that are 
eligible for new technology add-on payments are identified by ICD-10-
PCS procedure codes XNS0032 (Reposition of lumbar vertebra using 
magnetically controlled growth rod(s), open approach); XNS0432 
(Reposition of lumbar vertebra using magnetically controlled growth

[[Page 19876]]

rod(s), percutaneous endoscopic approach); XNS3032 (Reposition of 
cervical vertebra using magnetically controlled growth rod(s), open 
approach); XNS3432 (Reposition of cervical vertebra using magnetically 
controlled growth rod(s), percutaneous endoscopic approach); XNS4032 
(Reposition of thoracic vertebra using magnetically controlled growth 
rod(s), open approach); and XNS4432 (Reposition of thoracic vertebra 
using magnetically controlled growth rod(s).
    With the new technology add-on payment application, the applicant 
stated that the total operating cost of the MAGEC[supreg] Spine was 
$17,500 for a single rod and $35,000 for a dual rod. It is historical 
practice for CMS to make the new technology add-on payment based on the 
average cost of the technology and not the maximum. For example, in the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53358), we approved new 
technology add-on payments for DIFICIDTM based on the 
average dosage of 6.2 days, rather than the maximum 10-day dosage. The 
applicant noted that 20 percent of cases use a single rod, while 80 
percent of cases use a dual rod. As a result, the weighted average cost 
for a single and dual MAGEC[supreg] Spine is $31,500 (((0.2 * $17,500) 
+ (0.8 * $35,000))). Under Sec.  412.88(a)(2), we limit new technology 
add-on payments 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 new technology add-on payment for a 
case involving the MAGEC[supreg] Spine is $15,750. We refer the reader 
to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56888) for complete 
details on the MAGEC[supreg] Spine.
    With regard to the newness criterion for the MAGEC[supreg] Spine, 
we considered the beginning of the newness period to commence when the 
MAGEC[supreg] Spine was produced and available for shipment for the 
first implant on April 1, 2014. As discussed previously in this 
section, in general, we extend new technology add-on payments for an 
additional year only if the 3-year anniversary date of the product's 
entry onto the U.S. market occurs in the latter half of the upcoming 
fiscal year. Because the 3-year anniversary date of the entry of the 
MAGEC[supreg] Spine onto the U.S. market (April 1, 2017) will occur 
prior to the beginning of FY 2018, we are proposing to discontinue new 
technology add-on payments for this technology for FY 2018. We are 
inviting public comments on this proposal.
g. Vistogard\TM\ (Uridine Triacetate)
    BTG International Inc., submitted an application for new technology 
add-on payments for the VistogardTM for FY 2017. 
VistogardTM was developed as an antidote to Fluorouracil 
toxicity.
    Chemotherapeutic agent 5-fluorouracil (5-FU) is used to treat 
specific solid tumors. It acts upon deoxyribonucleic acid (DNA) and 
ribonucleic acid (RNA) in the body, as uracil is a naturally occurring 
building block for genetic material. Fluorouracil is a fluorinated 
pyrimidine. As a chemotherapy agent, Fluorouracil is absorbed by cells 
and causes the cell to metabolize into byproducts that are toxic and 
used to destroy cancerous cells. According to the applicant, the 
byproducts fluorodoxyuridine monophosphate (F-dUMP) and floxuridine 
triphosphate (FUTP) are believed to do the following: (1) Reduce DNA 
synthesis; (2) lead to DNA fragmentation; and (3) disrupt RNA 
synthesis. Fluorouracil is used to treat a variety of solid tumors such 
as colorectal, head and neck, breast, and ovarian cancer. With 
different tumor treatments, different dosages, and different dosing 
schedules, there is a risk for toxicity in these patients. Patients may 
suffer from fluorouracil toxicity/death if 5-FU is delivered in slight 
excess or at faster infusion rates than prescribed. The cause of 
overdose can happen for a variety of reasons including: Pump 
malfunction, incorrect pump programming or miscalculated doses, and 
accidental or intentional ingestion.
    VistogardTM is an antidote to Fluorouracil toxicity and 
is a prodrug of uridine. Once the drug is metabolized into uridine, it 
competes with the toxic byproduct FUTP in binding to RNA, thereby 
reducing the impact FUTP has on cell death.
    The VistogardTM received FDA approval on December 11, 
2015. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56910), we stated 
that we agreed with the manufacturer that, due to the delay in 
availability, the date the newness period begins for 
VistogardTM is March 2, 2016, instead of December 11, 2015.
    The applicant noted that the VistogardTM is the first 
FDA-approved antidote used to reverse fluorouracil toxicity. The 
applicant received a unique ICD-10-PCS procedure code that became 
effective October 1, 2016, to describe the use of this technology. The 
approved procedure code is XW0DX82 (Introduction of Uridine Triacetate 
into Mouth and Pharynx, External Approach, New Technology Group 2).
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for 
VistogardTM and consideration of the public comments we 
received in response to the FY 2017 IPPS/LTCH PPS proposed rule, we 
approved VistogardTM for new technology add-on payments for 
FY 2017 (81 FR 56912). With the new technology add-on payment 
application, the applicant stated that the total operating cost of 
VistogardTM is $75,000. Under Sec.  412.88(a)(2), we limit 
new technology add-on payments 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 a case involving VistogardTM 
is $37,500.
    As noted previously, with regard to the newness criterion for the 
VistogardTM, we considered the beginning of the newness 
period to commence on March 2, 2016. Because the 3-year anniversary 
date of the entry of the VistogardTM onto the U.S. market 
(March 2, 2019) will occur after FY 2018, we are proposing to continue 
new technology add-on payments for this technology for FY 2018. The 
maximum payment for a case involving the VistogardTM would 
remain at $37,500 for FY 2018. We are inviting public comments on our 
proposal to continue new technology add-on payments for the 
VistogardTM.
h. Blinatumomab (BLINCYTO[supreg])
    Amgen, Inc. submitted an application for new technology add-on 
payments for FY 2016 for Blinatumomab (BLINCYTO[supreg]), a bi-specific 
T-cell engager (BiTE) used for the treatment of Philadelphia 
chromosome-negative (Ph-) relapsed or refractory (R/R) B-cell precursor 
acute-lymphoblastic leukemia (ALL), which is a rare aggressive cancer 
of the blood and bone marrow. Approximately 6,050 individuals are 
diagnosed with Ph- R/R B-cell precursor ALL in the United States each 
year, and approximately 2,400 individuals, representing 30 percent of 
all new cases, are adults. Ph- R/R B-cell precursor ALL occurs when 
there are malignant transformations of B-cell or T-cell progenitor 
cells, causing an accumulation of lymphoblasts in the blood, bone 
marrow, and occasionally throughout the body. As a bi-specific T-cell 
engager, the BLINCYTO[supreg] technology attaches to a molecule on the 
surface of the tumorous cell, as well as to a molecule on the surface 
of normal T-cells, bringing the two into closer proximity and allowing 
the normal T-cell to destroy the tumorous cell.

[[Page 19877]]

Specifically, the BLINCYTO[supreg] technology attaches to a cell 
identified as CD19, which is present on all of the cells of the 
malignant transformations that cause Ph- R/R B-cell precursor ALL and 
helps attract the cell into close proximity of the T-cell CD3 with the 
intent of getting close enough to allow the T-cell to inject toxins 
that destroy the cancerous cell. According to the applicant, the 
BLINCYTO[supreg] technology is the first, and the only, bi-specific 
CD19-directed CD3 T-cell engager single-agent immunotherapy approved by 
the FDA.
    BLINCYTO[supreg] is administered as a continuous IV infusion 
delivered at a constant flow rate using an infusion pump. A single 
cycle of treatment consists of 28 days of continuous infusion, and each 
treatment cycle is followed by 2 weeks without treatment prior to 
administering any further treatments. A course of treatment would 
consist of two phases. Phase 1 consists of initial inductions or 
treatments intended to achieve remission followed by additional 
inductions and treatments to maintain consolidation; or treatments 
given after remission has been achieved to prolong the duration. During 
Phase 1 of a single treatment course, up to two cycles of 
BLINCYTO[supreg] are administered, and up to three additional cycles 
are administered during consolidation. The recommended dosage of 
BLINCYTO[supreg] administered during the first cycle of treatment is 9 
mcg per day for the first 7 days of treatment. The dosage is then 
increased to 28 mcg per day for 3 weeks until completion. During Phase 
2 of the treatment course, all subsequent doses are administered as 28 
mcg per day throughout the entire duration of the 28-day treatment 
period.
    With regard to the newness criterion, the BLINCYTO[supreg] 
technology received FDA approval on December 3, 2014, for the treatment 
of patients diagnosed with Ph- R/R B-cell precursor ALL, and the 
product gained entry onto the U.S. market on December 17, 2014.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for 
BLINCYTO[supreg] and consideration of the public comments we received 
in response to the FY 2016 IPPS/LTCH PPS proposed rule, we approved 
BLINCYTO[supreg] for new technology add-on payments for FY 2016 (80 FR 
49449). Cases involving BLINCYTO[supreg] that are eligible for new 
technology add-on payments are identified using one of the following 
ICD-10-PCS procedure codes: XW03351 (Introduction of Blinatumomab 
antineoplastic immunotherapy into peripheral vein, percutaneous 
approach, New Technology Group 1), or XW04351 (Introduction of 
Blinatumomab antineoplastic immunotherapy into central vein, 
percutaneous approach, New Technology Group 1).
    As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49449), 
the applicant recommended that CMS consider and use the cost of the 
full 28-day inpatient treatment cycle as the expected length of 
treatment when determining the maximum new technology add-on payment 
for cases involving the BLINCYTO[supreg], rather than the average cost 
of lesser number of days used as other variables. For the reasons 
discussed, we disagreed with the applicant and established the maximum 
new technology add-on payment amount for a case involving the 
BLINCYTO[supreg] technology for FY 2016 using the weighted average of 
the cycle 1 and cycle 2 observed treatment length. Specifically, in the 
Phase II trial, the most recent data available, 92 patients received 
cycle 1 treatment for an average length of 21.2 days, and 52 patients 
received cycle 2 treatment for an average length of 10.2 days. The 
weighted average of cycle 1 and cycle 2 treatment length is 17 days. We 
noted that a small number of patients also received 3 to 5 treatment 
cycles. However, based on the data provided, these cases do not appear 
to be typical at this point and we excluded them from this calculation. 
We noted that, if we included all treatment cycles in this calculation, 
the weighted average number of days of treatment is much lower, 10 
days. Using the clinical data provided by the applicant, we stated that 
we believe setting the maximum new technology add-on payment amount for 
a case involving the BLINCYTO[supreg] technology for FY 2016 based on a 
17-day length of treatment cycle is representative of historical and 
current practice. We also stated that, for FY 2017, if new data on 
length of treatment are available, we would consider any such data in 
evaluating the maximum new technology add-on payment amount. However, 
we did not receive any new data from the applicant to evaluate for FY 
2017.
    In the application, the applicant estimated that the average 
Medicare beneficiary would require a dosage of 9mcg/day for the first 7 
days under the first treatment cycle, followed by a dosage of 28mcg/day 
for the duration of the treatment cycle, as well as all days included 
in subsequent cycles. All vials contain 35mcg at a cost of $3,178.57 
per vial. The applicant noted that all vials are single-use. Therefore, 
we determined that cases involving the use of the BLINCYTO[supreg] 
technology would incur an average cost per case of $54,035.69 (1 vial/
day x 17 days x $3,178.57/vial). Under Sec.  412.88(a)(2), we limit new 
technology add-on payments 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 amount for a case involving the use of the BLINCYTO[supreg] 
is $27,017.85.
    With regard to the newness criterion for BLINCYTO[supreg], we 
consider the beginning of the newness period to commence when the 
product gained entry onto the U.S. market on December 17, 2014. As 
discussed previously in this section, in general, we extend new 
technology add-on payments for an additional year only if the 3-year 
anniversary date of the product's entry onto the U.S. market occurs in 
the latter half of the upcoming fiscal year. Because the 3-year 
anniversary date of the entry of the BLINCYTO[supreg] onto the U.S. 
market will occur in the first half of FY 2018 (December 17, 2017), we 
are proposing to discontinue new technology add-on payments for this 
technology for FY 2018. We are inviting public comments on this 
proposal.
6. FY 2018 Applications for New Technology Add-On Payments
    We received nine applications for new technology add-on payments 
for FY 2018. In accordance with the regulations under Sec.  412.87(c), 
applicants for new technology add-on payments must have received FDA 
approval or clearance by July 1 of the year prior to the beginning of 
the fiscal year that the application is being considered. Three 
applicants withdrew their applications prior to the issuance of this 
proposed rule. We are addressing the remaining six applications below.
a. Bezlotoxumab (ZINPLAVATM)
    Merck & Co., Inc. submitted an application for new technology add-
on payments for ZINPLAVATM for FY 2018. 
ZINPLAVATM is indicated for use in adult patients who are 
receiving antibacterial drug treatment for a diagnosis of Clostridium 
difficile infection (CDI) who are at high risk for CDI recurrence. 
ZINPLAVATM is not indicated for the treatment of the 
presenting episode of CDI and is not an antibacterial drug.
    Clostridium difficile (C-diff) is a disease-causing anaerobic, 
spore forming bacteria that can affect the gastrointestinal (GI) tract. 
Some people carry the C-diff bacterium in their intestines, but never 
develop symptoms

[[Page 19878]]

of an infection. The difference between asymptomatic colonization and 
pathogenicity is caused primarily by the production of an enterotoxin 
(Toxin A) and/or a cytotoxin (Toxin B). The presence of either or both 
toxins can lead to symptomatic CDI, which is defined as the acute onset 
of diarrhea with a documented infection with toxigenic C-diff, or the 
presence of either toxin A or B. The GI tract contains millions of 
bacteria, commonly referred to as ``normal flora'' or ``good 
bacteria,'' which play a role in protecting the body from infection. 
Antibiotics can kill these good bacteria and allow the C-diff bacteria 
to multiply and release toxins that damage the cells lining the 
intestinal wall, resulting in a CDI. CDI is a leading cause of 
hospital-associated gastrointestinal illnesses. Persons at increased 
risk for CDI include people who are treated with current or recent 
antibiotic use, people who have encountered current or recent 
hospitalization, people who are older than 65 years, immunocompromised 
patients, and people who have recently had a diagnosis of CDI. CDI 
symptoms include, but are not limited to, diarrhea, abdominal pain, and 
fever. CDI symptoms range in severity from mild (abdominal discomfort, 
loose stools) to severe (profuse, watery diarrhea, severe pain, and 
high fevers). Severe CDI can be life-threatening and, in rare cases, 
can cause bowel rupture, sepsis and organ failure. CDI is responsible 
for 14,000 deaths per year in the United States.
    C-diff produces two virulent, pro-inflammatory toxins, Toxin A and 
Toxin B, which target host colonocytes (that is, large intestine 
endothelial cells) by binding to endothelial cell surface receptors via 
combined repetitive oligopeptide (CROP) domains. These toxins cause the 
release of inflammatory cytokines leading to intestinal fluid secretion 
and intestinal inflammation. The applicant asserted that 
ZINPLAVATM targets Toxin B sites within the CROP domain 
rather than the C-diff organism itself. According to the applicant, by 
targeting C-diff Toxin B, ZINPLAVATM neutralizes Toxin B, 
prevents large intestine endothelial cell inflammation, symptoms 
associated with CDI, and reduces the recurrence of CDI. 
ZINPLAVATM binds to sites within the CROP domain, which 
prevents Toxin B from binding to the host cell, thereby preventing the 
inflammation and symptoms associated with CDI. ZINPLAVATM is 
used concomitantly with standard of care (SOC) antibiotics. Typical 
treatment of CDI includes antibiotic therapy using vancomycin, 
metronidazole, fidaxomicin, or other antibiotics. Alternative therapies 
include fecal microbiota transplant (FMT) and the use of probiotics.
    The primary goal of CDI treatment is resolving the infection. 
Antibacterial drug treatment remains the cornerstone of treatment of 
CDI. However, this treatment option alone may not be adequate for 
patients diagnosed with recurrent CDI. A major concern with respect to 
a CDI is that even when treatment with an antibacterial drug of a 
primary infection is successful, generally, 25 percent to 30 percent of 
patients experience a recurrence of the infection within days or weeks 
of the presenting episode's symptom resolution. The risk of recurrence 
increases to 65 percent with subsequent CDI episodes. Disease 
recurrence results from continued disruption of the intestinal 
microbiota by SOC CDI antibiotics (or use of other antibiotics used to 
treat non-gastrointestinal conditions), combined with persistence of 
resistant C-diff spores (relapse) or acquisition of new spores from the 
environment (reinfection).
    Antibacterial drug use may inhibit the intestinal microbiota from 
reestablishing itself, allowing C-diff spores potentially to germinate 
and colonize the intestines when the antibacterial drug is 
discontinued. If regrowth of C-diff overtakes the reestablishment of 
the intestinal microbiota, then spore germination and toxin production 
from vegetative C-diff may restart the cycle of CDI and the need for 
subsequent treatment. These challenges highlight the need for 
nonantibiotic therapies. ZINPLAVATM targets Toxin B rather 
than the C-diff bacteria itself. According to the applicant, unlike 
antibacterial drugs, ZINPLAVATM is a human monoclonal 
antibody and does not affect the microbiota. According to the 
applicant, ZINPLAVATM neutralizes C-diff Toxin B and reduces 
recurrence of CDI. ZINPLAVATM is given concomitantly during 
the course of SOC antibacterial treatment of a CDI.
    With respect to the newness criterion, ZINPLAVATM 
received FDA approval on October 21, 2016, for reduction of recurrence 
of CDI in patients receiving antibacterial drug treatment for CDI and 
who are at high risk of CDI recurrence. ZINPLAVATM is 
anticipated to be commercially available as of February 2017. We note 
that the applicant anticipates submitting a request for a unique ICD-
10-PCS code for the administration of ZINPLAVATM. Currently, 
there is a pending ICD-10-CM request to differentiate CDI recurrence. 
If approved, the codes will become effective on October 1, 2017 (FY 
2018).
    As discussed above, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    With regard to the first criterion, whether a product uses the same 
or a similar mechanism of action to achieve a therapeutic outcome, 
according to the applicant, ZINPLAVATM is a human monoclonal 
antibody with an innovative mechanism of action. The applicant asserted 
that ZINPLAVATM is a novel treatment, with a unique 
mechanism of action relative to SOC CDI antibiotics that target C-diff. 
The applicant explained that ZINPLAVATM is the first human 
monoclonal antibody that targets and neutralizes C. diff Toxin B 
because the technology specifically binds to and neutralizes C-diff 
Toxin B (which is an exotoxin that contributes to intestinal tissue 
damage and immune system effects that underlie the symptoms of CDI) and 
inhibits binding of the toxin to mammalian cells. The applicant further 
asserted that the administration of ZINPLAVATM, in addition 
to standard of care antibacterial drug treatment, reduces CDI 
recurrence by providing passive immunity against Toxin B resulting from 
persistent or newly acquired C-diff spores. According to the applicant, 
ZINPLAVATM is the only FDA-approved treatment indicated for 
reducing CDI recurrence as adjunctive therapy in adult patients who are 
receiving antibacterial drug treatment for CDI and who are at high risk 
for CDI recurrence.
    With respect to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, the applicant maintained that 
patients who may be eligible to receive treatment using 
ZINPLAVATM could be in an acute-care hospital setting for a 
wide variety of reasons and may develop a secondary CDI as a hospital-
acquired infection and, therefore, cases representing patients that may 
be eligible for treatment using the technology can map to a wide range 
of MS-DRGs. ZINPLAVATM is indicated for patients receiving 
SOC treatment for CDI and who are at a high risk for CDI recurrence. In 
order to identify the range of MS-DRGs for which cases representing 
patients that may be eligible for treatment using ZINPLAVATM 
may map to, the applicant identified all MS-DRGs containing cases that 
represent patients presenting with CDI as a primary or secondary 
diagnosis. The applicant used

[[Page 19879]]

FY 2015 MedPAR data to map the identified cases to 543 MS-DRGs, with 12 
MS-DRGs accounting for approximately 40 percent of all cases. The 
applicant segmented these cases based on age because patients 65 years 
and older are at higher risk for CDI recurrence. Based on the FY 2015 
MedPAR data, MS-DRG distribution was found to be similar, irrespective 
of CDI status (primary or secondary), for patients over 65 years of age 
and those under 65 years of age. The top 7 MS-DRGs across both age 
groups account for nearly 54 percent (over 65 years of age) and 49 
percent (under 65 years of age). The applicant further segmented these 
cases to determine if status of CDI as a primary or secondary diagnosis 
influenced MS-DRG mapping. Regardless of age, when CDI is the primary 
diagnosis, approximately 98 percent of patient cases map to the same 3 
MS-DRGs: MS-DRG 371 (Major Gastrointestinal Disorders and Peritoneal 
Infections with MCC); MS-DRG 372 (Major Gastrointestinal Disorders and 
Peritoneal Infections with CC); and MS-DRG 373 (Major Gastrointestinal 
Disorders and Peritoneal Infections without CC/MCC), respectively. 
Potential cases representing patients who may be eligible for treatment 
with ZINPLAVATM would be assigned to the same MS-DRGs as 
cases representing patients who receive SOC treatment for a diagnosis 
of CDI.
    With respect to the third criterion, 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, according to the 
applicant, ZINPLAVATM is administered concomitantly or as 
adjunctive therapy with SOC antibacterial treatment for recurrent CDI. 
The applicant stated that ZINPLAVATM is indicated to reduce 
recurrence of CDI in adult patients at high risk of CDI recurrence who 
are receiving antibacterial drug treatment for CDI. According to the 
applicant, the addition of ZINPLAVATM to SOC antibacterial 
drug treatment reduces CDI recurrence by providing passive immunity 
against Toxin B resulting from persistent or newly acquired C-diff 
spores. ZINPLAVATM is used to treat the same or similar type 
of disease (recurrent CDI) and a similar patient population receiving 
SOC therapy for the treatment of recurrent CDI.
    Based on the applicant's statements presented above, because 
ZINPLAVATM has a unique mechanism of action, we do not 
believe that the technology is substantially similar to existing 
technologies and, therefore, meets the newness criterion. We are 
inviting public comments on whether ZINPLAVATM meets the 
newness criterion.
    With regard to the cost criterion, the applicant conducted the 
following analysis to demonstrate that the technology meets the cost 
criterion. In order to identify the range of MS-DRGs that cases 
representing potential patients who may be eligible for treatment using 
ZINPLAVATM may map to, the applicant identified all MS-DRGs 
for patients diagnosed with CDI as a primary or secondary diagnosis. 
Specifically, the applicant searched the FY 2015 MedPAR file for claims 
that included target patients over 65 years of age and identified cases 
reporting diagnoses of CDI by ICD-9-CM diagnosis code 008.45 
(Intestinal infection due to Clostridium difficile) as a primary or 
secondary diagnosis. This resulted in 139,135 cases across 543 MS-DRGs, 
with approximately 40 percent of all cases mapping to the following 12 
MS-DRGs: MS-DRG 177 (Respiratory Infections and Inflammations with 
MCC); MS-DRG 193 (Simple Pneumonia and Pleurisy with MCC); MS-DRG 
291(Heart Failure and Shock with MCC); MS-DRGs 371, 372, and 373 (Major 
Gastrointestinal Disorders and Peritoneal Infections with MCC, with CC, 
and without CC/MCC, respectively); MS-DRGs 682 and 683 (Renal Failure 
with MCC and with CC, respectively); MS-DRG 853 (Infectious and 
Parasitic Diseases with O.R. Procedure with MCC); MS-DRGs 870, 871, and 
872 (Septicemia or Severe Sepsis with Mechanical Ventilation >96 Hours, 
with MCC, and without MCC, respectively).
    Using the 139,135 identified cases, the average unstandardized 
case-weighted charge per case was $80,677. The applicant then 
standardized the charges. The applicant did not remove charges for the 
current treatment because, as discussed above, ZINPLAVATM 
will be used concomitantly with SOC antibacterial treatments for the 
treatment of CDI as an additive, or adjunctive treatment option, to 
reduce the recurrence of CDI infection. The applicant then applied the 
2-year inflation factor of 1.098446 from the FY 2017 IPPS/LTCH final 
rule (81 FR 57286) to inflate the charges from FY 2015 to FY 2017. The 
applicant noted that the anticipated price for ZINPLAVATM 
has yet to be determined; therefore, no charges for 
ZINPLAVATM were added in the analysis. Based on the FY 2017 
IPPS/LTCH PPS Table 10 thresholds, the average case-weighted threshold 
amount was $56,871. The inflated average case-weighted standardized 
charge per case was $78,929. Because the inflated average case-weighted 
standardized charge per case exceeds the average case-weighted 
threshold amount, the applicant maintained that the technology meets 
the cost criterion. The applicant noted that the inflated average case-
weighted standardized charge per case exceeds the average case-weighted 
threshold amount without the average per patient cost of the 
technology. As such, the applicant anticipated that the inclusion of 
the cost of ZINPLAVATM, at any price point, will further 
increase charges above the average case-weighted threshold amount. We 
are inviting public comments on whether ZINPLAVATM meets the 
cost criterion.
    With respect to the substantial clinical improvement criterion, the 
applicant asserted that the addition of ZINPLAVATM to SOC 
antibacterial drug treatment reduces CDI recurrence because it provides 
passive immunity against Toxin B resulting from persistent or newly 
acquired C-diff spores.
    The applicant conducted two Phase III studies, MODIFY I and MODIFY 
II. The primary endpoint of the studies was recurrent CDI within 12 
weeks after completion of treatment with ZINPLAVATM. The 
first study design initially included actoxumab, an antitoxin A 
monoclonal antibody treatment arm that was later discontinued due to a 
high failure rate and increase in mortality compared to other treatment 
arms.\3\ Clinical data on ZINPLAVATM is provided exclusively 
from the FDA briefing document available on the FDA Web site at: http://www.fda.gov/AdvisoryCommittees/CommitteesMeetingMaterials/Drugs/Anti-InfectiveDrugsAdvisoryCommittee. Information is also provided in the 
package insert by the manufacturer, Merck & Company, Inc. The FDA 
briefing provided data on the safety and efficacy of 
ZINPLAVATM. The FDA considered sustained clinical responses 
defined as clinical cure of the initial CDI episode and the absence of 
CDI recurrence as an appropriate endpoint to assess the efficacy of 
ZINPLAVATM in the prevention of CDI recurrences.
---------------------------------------------------------------------------

    \3\ Wilcox MH et al. Bezlotoxumab for Prevention of Recurrent 
Clostridium difficile Infection. N Engl J Med. 2017 Jan 
26;376(4):305-317.
---------------------------------------------------------------------------

    In MODIFY I trial, the clinical cure rate of the presenting CDI 
episode was lower in the ZINPLAVATM arm as compared to the 
placebo arm, whereas in MODIFY II trial the clinical cure rate was 
lower in the placebo arm as compared to the ZINPLAVATM arm. 
Additional analyses showed that, by 3

[[Page 19880]]

weeks post study drug infusion, the clinical cure rates of the 
presenting CDI episode were similar between treatment arms.
    In MODIFY I, the rate of sustained clinical response was 
numerically in favor of ZINPLAVATM (60.1 percent) in 
comparison to placebo (55.2 percent) with an adjusted difference and 95 
percent CI of 4.8 percent (-2.1 percent; 11.7 percent). In MODIFY II, 
the proportion of subjects with sustained clinical response in the 
ZINPLAVATM arm (66.8 percent) was also higher than in the 
placebo arm (52.1 percent) with an adjusted difference of 14.6 percent 
and 95 percent CI (7.8 percent; 21.4 percent). The treatment did not 
significantly decrease mortality. Recurrence rates, including CDI-
related hospital readmission rates, reportedly were between 10 and 25 
percent. No clinically meaningful differences in the exposure of 
bezlotoxumab were found between patients 65 years of age and older and 
patients under 65 years of age.
    In the Phase III trials, the safety profile of 
ZINPLAVATM was similar overall to that of placebo. However, 
heart failure was reported more commonly in the two Phase III clinical 
trials of ZINPLAVATM-treated patients compared to placebo-
treated patients. These adverse reactions occurred primarily in 
patients with underlying congestive heart failure (CHF). In patients 
with a history of CHF, 12.7 percent (15/118) of ZINPLAVATM-
treated patients and 4.8 percent (5/104) of placebo-treated patients 
had the serious adverse reaction of heart failure during the 12-week 
study period. In addition, in patients with a history of CHF, there 
were more deaths in ZINPLAVATM-treated patients (19.5 
percent (23/118)) than in placebo-treated patients (12.5 percent (13/
104)) during the 12-week study period. We are concerned regarding the 
safety of ZINPLAVATM in patients diagnosed with CHF. In 
regard to safety, data from the MODIFY I and MODIFY II studies suggest 
few adverse events associated with ZINPLAVATM, with no 
significant differences in the number of serious adverse events, deaths 
or discontinuations of study drug that occurred between the 
ZINPLAVATM and the placebo groups. However, both the 
ZINPLAVATM and the ZINPLAVATM plus actoxumab 
treatment groups experienced more episodes of cardiac failure (defined 
as acute or chronic cardiac failure) then compared to the placebo group 
(2.2 percent versus 1 percent). We are unsure if the cardiac failure 
reported in the studies may be the result of a higher number of 
baseline patients with heart failure in the treatment arms or the 
result of an adverse effect to ZINPLAVATM. Therefore, we are 
concerned with regard to the adverse event of cardiac failure of 
ZINPLAVATM.
    We are inviting public comments on whether ZINPLAVATM 
meets the substantial clinical improvement criterion.
    We did not receive any written public comments in response to the 
New Technology Town Hall meeting notice regarding the application of 
ZINPLAVATM for new technology add-on payments.
    b. EDWARDS INTUITY EliteTM Valve System (INTUITY) and 
LivaNova Perceval Valve (Perceval)
    Two manufacturers, Edwards Lifesciences and LivaNova, submitted 
applications for new technology add-on payments for FY 2018 for the 
INTUITY EliteTM Valve System (INTUITY) and the Perceval 
Valve (Perceval), respectively. Both of these technologies are 
prosthetic aortic valves inserted using surgical aortic valve 
replacement (AVR). We note that, while Edwards Lifesciences submitted 
an application for new technology add-on payments for FY 2017 for the 
INTUITY valve, FDA approval was not received by July 1, 2016, and, 
therefore, the device was not eligible for consideration for new 
technology add-on payments for FY 2017.
    Aortic valvular disease is relatively common, primarily manifested 
by aortic stenosis. Most aortic stenosis is due to calcification of the 
valve, either on a normal tri-leaflet valve or on a congenitally 
bicuspid valve. The resistance to outflow of blood is progressive over 
time, and as the size of the aortic orifice narrows, the heart must 
generate increasingly elevated pressures to maintain blood flow. 
Symptoms such as angina, heart failure, and syncope eventually develop, 
and portend a very serious prognosis. There is no effective medical 
therapy for aortic stenosis, so the diseased valve must be replaced or, 
less commonly, repaired.
    The INTUITY valve incorporates the expansion feature of a catheter 
implanted valve, but is designed to be placed during cardiac surgery. 
The manufacturer explained that the INTUITY valve requires fewer 
stitches to hold the device in place because of the balloon expanded 
design and, therefore, can be inserted more quickly than a standard 
valve, and also facilitates minimally invasive cardiac surgery; that 
is, use of a smaller incision to allow faster recovery. The 
manufacturer of the INTUITY valve indicated that the device is 
comprised of: (1) A bovine pericardial aortic bioprosthetic valve; (2) 
a balloon expandable stainless steel frame; and (3) a textured sealing 
cloth. The manufacturer of the Perceval valve indicated that the 
Perceval valve device is comprised of: (1) Sizers used to determine the 
correct size of the prosthesis; (2) a dual holder used for positioning 
and deployment (available in two models, one for sternal approaches and 
one for MIS); (3) a ``smart clip'' to assist during assembly of the 
valve on the dual holder to prevent release during positioning; (4) a 
dual collapser used to evenly reduce the diameter of the prosthesis 
allowing it to mount onto the holder prior to implantation; (5) a dual 
collapser base used to allow proper positioning; and (6) a postdilation 
catheter used for in situ dilation of the prosthesis after implantation 
(available in two models, one for sternal approaches and one for MIS). 
According to both applicants, the INTUITY valve and the Perceval valve 
are the first sutureless, rapid deployment aortic valves that can be 
used for the treatment of patients who are candidates for surgical AVR. 
The applicants indicated that the two new device innovations facilitate 
MIS approaches through: (1) The device rapid deployment mechanisms; and 
(2) the design of the prosthetic valve that allows for markedly fewer 
to no sutures to securely fasten the prosthetic valve to the aortic 
orifice. The applicants explained that both of these aspects of their 
devices are credited with the reduction of operating time.
    As noted, according to both applicants, the INTUITY valve and the 
Perceval valve are the first sutureless, rapid deployment aortic valves 
that can be used for the treatment of patients who are candidates for 
surgical AVR. Because potential cases representing patients who are 
eligible for treatment using the INTUITY and the Perceval aortic valve 
devices would group to the same MS-DRGs, and we believe that these 
devices are intended to treat the same or similar disease in the same 
or similar patient population, and are purposed to achieve the same 
therapeutic outcome using the same or similar mechanism of action, we 
believe these two devices are substantially similar to each other and 
that it is appropriate to evaluate both technologies as one application 
for new technology add-on payments under the IPPS.
    With respect to the newness criterion, the INTUITY valve received 
FDA approval on August 12, 2016, and was commercially available on the 
U.S. market on August 19, 2016. The Perceval valve received FDA 
approval

[[Page 19881]]

on January 8, 2016, and was commercially available on the U.S. market 
on February 29, 2016. We believe that, in accordance with our policy, 
it is appropriate to use the earliest market availability date 
submitted as the beginning of the newness period. Therefore, based on 
our policy, with regard to both devices, if the technologies are 
approved for new technology add-on payments, we believe that the 
beginning of the newness period would be February 29, 2016. In 
addition, both applicants indicated that ICD-10-PCS code X2RF032 
(Replacement of Aortic Valve using Zooplastic Tissue, Rapid Deployment 
Technique, Open Approach, New Technology Group 2) would identify 
procedures involving the use of the devices when surgically implanted.
    We previously stated that, because we believe these two devices are 
substantially similar to each other, we believe it is appropriate to 
evaluate both technologies as one application for new technology add-on 
payment under the IPPS. The applicants submitted separate cost and 
clinical data, and we reviewed and discuss each set of data separately. 
However, we intend to make one determination regarding new technology 
add-on payments that will apply to both devices. We believe that this 
is consistent with our policy statements in the past regarding 
substantial similarity. Specifically, we have noted that approval of 
new technology add-on payments would extend to all technologies that 
are substantially similar (66 FR 46915), and we believe that continuing 
our current practice of extending new technology add-on payments 
without a further application from the manufacturer of the competing 
product, or a specific finding on cost and clinical improvement if we 
make a finding of substantial similarity among two products is the 
better policy because we avoid--
     Creating manufacturer-specific codes for substantially 
similar products;
     Requiring different manufacturers of substantially similar 
products to submit separate new technology applications;
     Having to compare the merits of competing technologies on 
the basis of substantial clinical improvement; and
     Bestowing an advantage to the first applicant representing 
a particular new technology to receive approval (70 FR 47351).
    If these substantially similar technologies were submitted for 
review in different (and subsequent) years, rather than the same year, 
we would evaluate and make a determination on the first application and 
apply that same determination to the second application. However, 
because the technologies have been submitted for review in the same 
year, we believe that it is appropriate to consider both sets of cost 
data and clinical data in making a determination and we do not believe 
that it is possible to choose one set of data over another set of data 
in an objective manner.
    As stated above, we believe that the INTUITY valve and the Perceval 
valve are substantially similar to each other for purposes of analyzing 
these two applications as one application. We also need to determine 
whether the INTUITY valve and the Perceval valve are substantially 
similar to existing technologies prior to their approval by the FDA and 
their release on the market. As discussed earlier, if a technology 
meets all three of the substantial similarity criteria, it would be 
considered substantially similar to an existing technology and would 
not be considered ``new'' for purposes of new technology add-on 
payments.
    With respect to the first criterion, whether a product uses the 
same or a similar mechanism of action to achieve a therapeutic outcome, 
the applicant for the INTUITY valve asserted that its unique design, 
which utilizes features that were not previously included in 
conventional aortic valves, constitutes a new mechanism of action. The 
deployment mechanism allows for rapid deployment. The expandable frame 
can reshape the native valve's orifice, creating a larger and more 
efficiently shaped effective orifice area. In addition, the expandable 
skirt allows for structural differentiation upon fixation of the valve 
requiring 3 permanent, guiding sutures rather than the 12 to 18 
permanent sutures used to fasten standard prosthetic aortic valves. The 
applicant for the Perceval valve described the Perceval valve's 
mechanism of action as including: (a) No permanent sutures; (b) a 
dedicated delivery system that increases the surgeon's visibility; (c) 
an enabler of minimally invasive approach; (d) a complexity reduction 
and reproducibility of the procedure; and (e) a unique device assembly 
and delivery systems.
    With respect to the second and third criteria, whether a product is 
assigned to the same or a different MS-DRG and 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, the applicant for 
the INTUITY valve indicated that the technology is used in the 
treatment of the same patient population and potential cases 
representing patients that may be eligible for treatment using the 
INTUITY valve would be assigned to the same MS-DRGs as cases involving 
the use of other prosthetic aortic valves (that is, 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 applicant for the Perceval valve also indicated that the 
Perceval valve device is used in the treatment of the same patient 
population and potential cases representing patients that may be 
eligible for treatment using the technology would be assigned to the 
same MS-DRGs (MS-DRGs 216 through 221) as cases involving the use of 
other prosthetic aortic valves.
    After considering the materials included with both applications, we 
remain concerned as to whether the mechanism of action described by the 
applicants represents an improvement to an existing surgical technique 
and technology or a new technology. While the INTUITY and Perceval 
valves address some of the challenges posed by implantation of existing 
valves, including improving the visibility of the orifice and the 
physiological function of the valves, we do not believe that their 
mechanisms of action are fundamentally different from that of other 
aortic valves. As one of the applicants stated in its application, the 
goal of the prosthetic aortic valve is to mimic the native valve that 
it has replaced via the incorporation of three leaflets that open and 
close in response to pressure gradients developed during the cardiac 
cycle. We believe that the INTUITY and Perceval valves are the same or 
similar to other prosthetic aortic valves used to treat the same or 
similar diagnoses.
    We are inviting public comments on whether the mechanisms of action 
of the sutureless, rapid deployment of the INTUITY and Perceval valves 
differs from the mechanism of action of standard AVR valves and whether 
the technologies meet the newness criterion.
    As we stated above, each applicant submitted separate analyses 
regarding the cost criterion for each of their devices, and both 
applicants maintained

[[Page 19882]]

that their device meets the cost criterion. We summarize each analysis 
below.
    With regard to the cost criterion, the INTUITY valve's applicant 
researched the FY 2015 MedPAR claims data file to identify cases 
representing patients who may be potential recipients of treatment 
using the INTUITY valve. The applicant identified claims that reported 
an ICD-9-CM diagnosis code of 424.1 (Aortic valve disorder), in 
combination with an ICD-9-CM procedure code of 35.21 (Replacement of 
aortic valve with tissue) or 35.22 (Open and other replacement of 
aortic valve). The applicant also identified cases with or without a 
coronary artery bypass graft (CABG) using the ICD-9-CM procedure codes 
in the table below.

------------------------------------------------------------------------
       ICD-9-CM code                      Code description
------------------------------------------------------------------------
36.10.....................  Aortocoronary bypass for heart
                             revascularization, not otherwise specified.
36.11.....................  (Aorto)coronary bypass of one coronary
                             artery.
36.12.....................  (Aorto)coronary bypass of two coronary
                             arteries.
36.13.....................  (Aorto)coronary bypass of three coronary
                             arteries.
36.14.....................  (Aorto)coronary bypass of four or more
                             coronary arteries.
36.15.....................  Single internal mammary-coronary artery
                             bypass.
36.16.....................  Double internal mammary-coronary artery
                             bypass.
36.17.....................  Abdominal-coronary artery bypass.
------------------------------------------------------------------------

    The applicant identified a total of 25,173 cases that mapped to MS-
DRGs 216 through 221. Of these cases, the applicant identified 10,251 
CABG cases and 14,922 non-CABG cases. According to the applicant, 
patients that undergo a procedure without need of a concomitant CABG 
are more likely to receive treatment with the INTUITY valve than 
patients in need of a concomitant CABG. Therefore, the applicant 
weighted the non-CABG cases at 90 percent of total cases and the CABG 
cases at 10 percent of total cases under each of the six MS-DRGs. The 
final case count is a weighted average of 14,455 cases.
    The applicant calculated an average unstandardized charge per case 
of $192,506 for all cases. The applicant then removed 100 percent of 
the charges for pacemakers, investigational devices, and other implants 
that would not be required for patients receiving treatment using the 
INTUITY valve. The applicant standardized the charges and then applied 
an inflation factor of 1.098446, which is the 2-year inflation factor 
in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57286), to update the 
charges from FY 2015 to FY 2017. The applicant calculated the average 
expected charge for the INTUITY valve based on the current list price 
of the device. Although the applicant submitted data related to the 
cost of the INTUITY valve, the applicant noted that the cost of the 
device is proprietary information. To add charges for the device, the 
applicant assumed a hospital mark-up of approximately 3.00 percent, 
based on the current average CCR for implantable devices (0.331) as 
reported in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56876). Based 
on the FY 2017 IPPS/LTCH PPS Table 10 thresholds, the average case-
weighted threshold amount was $170,321. The applicant computed an 
inflated average case-weighted standardized charge per case of 
$194,291, which is $23,970 above the average case-weighted threshold 
amount. Because the inflated average case-weighted standardized charge 
per case exceeds the average case-weighted threshold amount, the 
applicant maintained that the technology meets the cost criterion.
    We thank the applicant for the analysis above. However, we would 
like more information from the applicant regarding how it decided upon 
which cases to include in the sensitivity analysis, as well as further 
details about how and on what basis the applicant weighted CABG and 
non-CABG cases. We are inviting public comments on whether the INTUITY 
valve meets the cost criterion.
    With regard to the cost criterion in reference to the Perceval 
valve, the applicant conducted the following analysis. The applicant 
examined FY 2015 MedPAR claims data that included cases reporting an 
ICD-9 procedure code of 35.21 or 35.22, in combination with diagnosis 
code: 424.1. Noting that MS-DRGs 216 through 221 contained 97 percent 
of these cases, the applicant limited its analysis to these 6 MS-DRGs. 
The applicant identified 25,193 cases across these MS-DRGs, resulting 
in an average case-weighted unstandardized charge per case of $173,477. 
The applicant then standardized charges using FY 2015 standardization 
factors and applied an inflation factor of 1.089846 from the FY 2017 
IPPS/LTCH proposed rule (81 FR 25271). The applicant indicated that the 
technology meets the cost criterion by applying the inflation factor 
from the proposed rule and, therefore, would meet the cost criterion by 
applying the higher inflation factor from the final rule.
    Included in the average case-weighted standardized charge per case 
were charges for the current valve prosthesis. Therefore, the applicant 
removed all charges associated with revenue center 0278, and calculated 
the adjusted average case-weighted standardized charge per case by 
subtracting these charges from the standardized charge per case. The 
applicant then added the charge for the new technology by taking the 
anticipated hospital cost of the new technology and dividing it by the 
national average implantable devices CCR of 0.331. The applicant then 
added the charge for the new technology to the inflated average case-
weighted standardized charges per case to arrive at the final inflated 
average case-weighted standardized charge per case, which was then 
case-weighted based on the distribution of cases within the six MS-
DRGs. This resulted in an inflated average case-weighted standardized 
charge per case of $206,109. Using the FY 2017 IPPS Table 10 
thresholds, the average case-weighted threshold amount was $173,477. 
Because the inflated average case-weighted standardized charge per case 
exceeds the average case-weighted threshold amount, the applicant 
maintained that the technology meets the cost criterion. We are 
inviting public comments on whether the Perceval technology meets the 
cost criterion.
    With regard to substantial clinical improvement for the INTUITY 
valve, the applicant asserted that several aspects of the valve system 
represent a substantial clinical improvement over existing 
technologies. The applicant believed that the flexible deployment arm 
allows improved surgical access and visualization, making the surgery 
less challenging for the surgeon, improving the likelihood that the 
surgeon can use a minimally invasive approach. According to the 
applicant, the assembly of the device only allows the correct valve 
size to be fitted, which ensures that the valve does not slip or

[[Page 19883]]

migrate, which prevents paravalvular leaks and patient prosthetic 
mismatch. The applicant indicated that the device improves clinical 
outcomes for patients undergoing minimally invasive AVR and full-
sternotomy AVR. The applicant stated that the rapid deployment 
technology enables reduced operative time, specifically cross-clamp 
time, thereby reducing the period of myocardial ischemia. In addition, 
the applicant indicated that the device offers a reduction in operative 
time for full-sternotomy AVR. The applicant noted that clinical results 
document significant patient outcome and utilization improvements, 
including improved patient satisfaction, faster return to normal 
activity, decreased post-operative pain, reduced mortality and 
decreased complications, including need for reoperation due to 
bleeding, reduced recovery time, reduced length of stay (both ICU and 
overall), more access to minimally invasive surgery, and improved 
hemodynamics.
    The INTUITY valve has been tested clinically in several trials. In 
the TRITON trial (Kocher et al., 2013 \4\), 287 patients diagnosed with 
aortic stenosis underwent surgery in 1 of 6 European centers. The first 
149 patients received the first generation Model 8300A valve, and the 
next 138 patients received the second generation Model 8300AB. The 
average age of the patients was 75.7 years. Early, 30-day mortality was 
1.7 percent (5/287), the post-op valve gradient was low, and 75 percent 
of the patients improved functionally. A total of 4 valves were 
explanted in the final 30 days due to bleeding, and 3 were explanted 
later for paravalvular leak, endocarditis, and aortic root aneurysms. 
Follow-up extended to 3 years (mean 1.8 years).
---------------------------------------------------------------------------

    \4\ Kocher AA, Laufer G, Haverich A, et al. One-year outcomes of 
the surgical treatment of aortic stenosis with a next generation 
surgical aortic valve (TRITON) trial: A prospective multicenter 
study of rapid-deployment aortic valve replacement with the EDWARDS 
INTUITY valve system. J Thorac Cardiovasc Surg 2013;145:110-116.
---------------------------------------------------------------------------

    Implantation of the INTUITY valve using minimally invasive surgery 
was compared with conventional aortic valve replacement via full 
sternotomy in the CADENCE-MIS randomized trial (Borger et al., 2015 
\5\) of 100 patients treated in 1 of 5 centers in Germany. The authors 
found no significant difference in 30-day mortality, the need for 
pacemaker implantation, significant paravalvular regurgitation, and 
quality of life scores at 3 months. Aortic cross-clamp time was 
significantly reduced from 54.0 to 41.3 minutes (p < 0.0001), and 
cardiopulmonary bypass time was reduced from 74.4 to 68.8 minutes (p = 
0.21). Early clinical outcomes were similar: No significant differences 
in mortality, reoperation, or other clinical outcomes. The aortic valve 
gradient was significantly lower in the MIS group: 8.5 versus 10.3 
mmHg.
---------------------------------------------------------------------------

    \5\ Borger MA, Moustafine V, Conradi L, et al. A randomized 
multicenter trial of minimally invasive rapid deployment versus 
conventional full sternotomy aortic valve replacement. Ann Thorac 
Surg 2015; 99:17-25.
---------------------------------------------------------------------------

    The TRANSFORM trial (Barnhart et al. 2017 \6\) was a single-arm, 
non-randomized, multicenter trial, in which 839 patients underwent 
rapid deployment AVR surgery. The average age of the patients was 73.5 
years. The mean cross-clamp time and cardiopulmonary bypass times for 
full sternotomy were 49.3  26.9 min and 69.2  
34.7 min, respectively, and for MIS, 63.1  25.4 min and 
84.6  33.5 min, respectively. The authors compared these 
times to STS database comparators: For full sternotomy, 76.3 minutes 
and 104.2 minutes, respectively, and for MIS, 82.9 minutes and 111.4 
minutes, respectively. All cause early mortality was 0.8 percent, mean 
EOA at 1 year was 1.7 cm\2\; mean gradient, 10.3 mmHg; and moderate and 
severe PVL, 1.2 percent and 0.4 percent, respectively. The authors 
indicated that the INTUITY valve ``. . . may lead to a relative 
reduction in aortic cross-clamp time and cardiopulmonary bypass time'' 
and ``may confer benefits to patients, such as decreased mortality and 
morbidity.'' The authors noted the possibility of potential bias 
resulting from the level of experience of the study surgeons relative 
to typical cardiac surgeons. In addition, long-term follow-up is not 
available, and study comparators from the Society of Thoracic Surgeons 
(STS) database were not matched.
---------------------------------------------------------------------------

    \6\ Barnhart, G. A. et al. (2017). TRANSFORM (Multicenter 
Experience with Rapid Deployment Edwards INTUITY Valve System for 
Aortic Valve Replacement) US clinical trial: Performance of a rapid 
deployment aortic valve. The Journal of Thoracic and Cardiovascular 
Surgery, 153, 241-251.
---------------------------------------------------------------------------

    In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25057), after 
reviewing the studies provided by the applicant with its application 
for FY 2017, we expressed some specific concerns. We indicated that we 
were concerned that the INTUITY valve does not have sufficient 
advantages over alternative surgically implanted valves to constitute a 
substantial clinical improvement. We noted that, while some of the 
studies included with the application demonstrate reduced aortic cross-
clamp time, conventional aortic valve replacement was used in the 
comparison group. Therefore, it is unclear whether the reduced aortic 
cross-clamp time is associated with the use of the INTUITY valve or as 
a result of the MIS surgery in general.
    In response to these concerns, the INTUITY valve's applicant stated 
that the INTUITY valve is associated with significant clinical benefits 
outside of the benefits achieved by use of an MIS approach. The 
applicant referenced the sub-study of the TRANSFORM trial, which 
compared the MISAVR with the INTUITY valve to MISAVR with a 
conventional valve, stating that the results indicated reduced cross-
clamp time and other benefits that are not simply a function of the MIS 
approach. The applicant also referenced trials that indicated that the 
INTUITY valve had excellent hemodynamic performance (Haverich et 
al.,\7\ Borger et al.,\8\ Barnhart et al.\9\), one of which found a 
significant improvement in functional status (Haverich et al.).
---------------------------------------------------------------------------

    \7\ Haverich, A, et al. (2014), Three-year hemodynamic 
performance, left ventricular mass regression, and prosthetic-
patient mismatch after rapid deployment aortic valve replacement in 
287 patients. J Thorac Cardiovasc Surg, 148(6), 2854-60.
    \8\ Borger MA, Moustafine V, Concadi L, et al. A randomized 
multicenter trial of minimally invasive rapid deployment versus 
conventional full sternotomy aortic valve replacement. Ann Thorac 
Surg 2015; 99:17-25.
    \9\ Barnhart, G.A. et al. (2017). TRANSFORM (Multicenter 
Experience with Rapid Deployment Edwards INTUITY Valve System for 
Aortic Valve Replacement) US clinical trial: Performance of a rapid 
deployment aortic valve. The Journal of Thoracic and Cardiovascular 
Surgery, 153, 241-251.
---------------------------------------------------------------------------

    After considering the studies provided by the INTUITY valve 
applicant, we are concerned about the possibility of potential bias 
resulting from the level of experience of the study surgeons relative 
to typical cardiac surgeons, as well as the lack of long-term follow-up 
in these studies.
    With regard to substantial clinical improvement for the Perceval 
valve, the applicant submitted several studies examining the Perceval 
valve. The following discussion summarizes some of these studies.
    Pollari and colleagues \10\ (2014) utilized a propensity score 
analysis to examine 82 matched pairs as part of a larger trial that 
included 566 patients treated with bioprosthetic aortic valve 
replacement, 166 of which received treatment using the Perceval 
sutureless valve and 400 of which received treatment using a stented 
valve. Aortic cross-clamp, cardiopulmonary bypass, and operation times 
were significantly shorter in the group that received treatment using 
the Perceval sutureless

[[Page 19884]]

valve. The Perceval sutureless group also had shorter ICU stays, 
hospital stays, and intubation times, and lower incidence of 
postoperative atrial fibrillation and respiratory insufficiency. The 
authors noted that, despite the promising preliminary results, longer 
follow-up is warranted before drawing definite conclusions.
---------------------------------------------------------------------------

    \10\ Pollari, F. (2014), Better short-term outcome by using 
sutureless valves: a propensity-matched score analysis, Ann Thorac 
Surg, 98; 611-6.
---------------------------------------------------------------------------

    In a nonrandomized trial of 100 patients in a German hospital, 
Santarpino and colleagues \11\ (2013) found that procedures completed 
using the Perceval valve were associated with significantly shorter 
cross-clamp and cardiopulmonary bypass times (40  13.8 and 
69  19.1 versus 66  20.4 and 105  
34.8) relative to conventional stented bioprosthetic valves, as well as 
less frequent use of blood transfusions, shorter ICU stays and shorter 
use of intubation. In contrast, Gilmanov and colleagues \12\ (2013) 
found that a MIS approach resulted in improved outcomes, albeit longer 
aortic cross-clamp times. A meta-analysis by Hurley and colleagues \13\ 
(2015) found reduced cross-clamp and cardiopulmonary bypass times, but 
found a significantly higher permanent pacemaker rate with the use of 
Perceval sutureless valves.
---------------------------------------------------------------------------

    \11\ Santarpino, G. et al. (2013), The Perceval S aortic valve 
has the potential of shortening surgical time: Does it also result 
in improved outcome?, Ann Thorac Surg, 96, 77-81.
    \12\ Gilmanov, D. (2013), Minimally invasive and conventional 
aortic valve replacement: a propensity score analysis, Ann Thorac 
Surg, 96, 837-843.
    \13\ Hurley et al, ``A Meta[hyphen]Analysis Examining 
Differences in Short[hyphen]Term Outcomes Between Sutureless and 
Conventional Aortic Valve Prostheses,'' Innovations 2015; 10:375-
382.
---------------------------------------------------------------------------

    A study conducted by Dalen and colleagues \14\ (2015) used 
propensity score matching to examine early post-operative outcomes and 
2-year survival between 171 pairs of patients who underwent 
ministernotomy using the Perceval device or a full sternotomy with 
stented prosthesis. There were no differences in 30-day mortality or 2-
year survival between the groups. The aortic cross-clamp time and 
cardiopulmonary bypass time were shorter, and there were fewer blood 
transfusions in the group that received treatment using the Perceval 
device. However, this group was also at higher risk for post-operative 
permanent pacemaker implantation.
---------------------------------------------------------------------------

    \14\ Dal[eacute]n, M. (2015), Aortic valve replacement through 
full sternotomy with a stented bioprosthesis versus minimally 
invasive sternotomy with a sutureless bioprosthesis, Eur J 
Cardiothorac Surg 2015; doi:10.1093/ejcts/ezv014.
---------------------------------------------------------------------------

    After reviewing the publications submitted by the applicant, we are 
concerned that the lack of randomization and blinded investigators may 
have influenced the outcomes in many of the studies provided. For 
example, in the discussion following Santarpino et al.'s 2013 study, 
one of the participants suggested that medical decision-making 
regarding ventilation times, ICU times, and blood transfusions may be 
affected by the knowledge of investigators as to which valve the 
patient received treatment using. Also, as indicated above with respect 
to the INTUITY valve, the experience of the surgeons in these studies 
may be confounding factors that may have influenced the length of 
surgical procedures and/or surgical outcomes.
    We are inviting public comments on whether rapid deployment valves, 
specifically the INTUITY and Perceval valves, meet the substantial 
clinical improvement criterion.
    We did not receive any written public comments regarding the 
INTUITY and Perceval valves in response to the New Technology Town Hall 
meeting notice.
c. Ustekinumab (Stelara[supreg])
    Janssen Biotech submitted an application for new technology add-on 
payments for the Stelara[supreg] induction therapy for FY 2018. 
Stelara[supreg] received FDA approval as an intravenous (IV) infusion 
treatment of Crohn's disease (CD) on September 23, 2016, which added a 
new indication for the use of Stelara[supreg] and route of 
administration for this monoclonal antibody. IV infusion of 
Stelara[supreg] is indicated for the treatment of adult patients (18 
years and older) diagnosed with moderately to severely active CD who 
have: (1) Failed or were intolerant to treatment using immunomodulators 
or corticosteroids, but never failed a tumor necrosis factor (TNF) 
blocker; or (2) failed or were intolerant to treatment using one or 
more TNF blockers. Stelara[supreg] for IV infusion has only one 
purpose, induction therapy. Stelara[supreg] must be administered 
intravenously by a health care professional in either an inpatient 
hospital setting or an outpatient hospital setting.
    Stelara[supreg] for IV infusion is packaged in single 130mg vials. 
Induction therapy consists of a single IV infusion dose using the 
following weight-based dosing regimen: Patients weighing less than (<) 
55kg are administered 260mg of Stelara[supreg] (2 vials); patients 
weighing more than (>) 55kg, but less than (<) 85kg are administered 
390mg of Stelara[supreg] (3 vials); and patients weighing more than (>) 
85kg are administered 520mg of Stelara[supreg] (4 vials). An average 
dose of Stelara[supreg] administered through IV infusion is 390mg (3 
vials). Maintenance doses of Stelara[supreg] are administered at 90mg, 
subcutaneously, at 8-week intervals and may occur in the outpatient 
hospital setting.
    CD is an inflammatory bowel disease of unknown etiology, 
characterized by transmural inflammation of the gastrointestinal (GI) 
tract. Symptoms of CD may include fatigue, prolonged diarrhea with or 
without bleeding, abdominal pain, weight loss and fever. CD can affect 
any part of the GI tract including the mouth, esophagus, stomach, small 
intestine, and large intestine.
    Conventional pharmacologic treatments of CD include antibiotics, 
mesalamines, corticosteroids, immunomodulators, tumor necrosis alpha 
(TNF[alpha]) inhibitors, and anti-integrin agents. Surgery may be 
necessary for some patients diagnosed with CD in which conventional 
therapies have failed. The applicant asserted that use of 
Stelara[supreg] offers an alternative to conventional pharmacologic 
treatments, and has been shown to be successful in the treatment of 
patients who have failed treatment using the conventional agents 
currently being used for a diagnosis of CD, including TNF[alpha] 
inhibitors.
    Although the precise cause of CD is unknown, the environment, 
genetics, and the patient's immune system are thought to play a role in 
this form of inflammatory bowel disease (IBD). Conventional 
pharmacologic therapy is directed against many different inflammatory 
mediators that produce inflammation and ultimately lead to 
gastrointestinal damage. The applicant asserted that it is of paramount 
importance to have a variety of pharmacologic agents that can address 
the proper inflammatory mediator for a particular patient. The 
applicant also asserted that, while the currently available anti-
inflammatory agents used in the treatment of a diagnosis of CD are 
excellent medications, these agents do not successfully treat all 
patients diagnosed with CD, nor do they reliably sustain disease 
remission once a response has been achieved. The applicant believed 
that the use of Stelara[supreg] offers an alternative to currently 
available treatment options.
    With regard to the newness criterion, Stelara[supreg] is not a 
newly formulated drug. Stelara[supreg], administered subcutaneously, 
received FDA approval in 2009 (September 25, 2009) for the treatment of 
moderate to severe plaque psoriasis and psoriatic arthritis in adults. 
Its IV use for the treatment of patients diagnosed with CD was approved 
by the FDA in 2016 (September 23, 2016). With regard to the new use of 
an existing technology, in the September 1, 2001 final rule (66 FR 
46915), we stated that if the new use of an existing technology was for 
treating patients not expected to

[[Page 19885]]

be assigned to the same MS-DRG as the patients receiving the existing 
technology, it may be considered for approval, but it must also meet 
the cost and substantial clinical improvement criteria in order to 
qualify for the new technology add-on payment. We do not believe that 
potential cases representing patients that may be eligible for 
treatment with the new use of the Stelara[supreg] for IV treatment of a 
diagnosis of CD would be assigned to the same MS-DRGs as cases treated 
using the prior indications.
    As discussed above, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    With regard to the first criterion, whether a product uses the same 
or a similar mechanism of action to achieve a therapeutic outcome, we 
are concerned that Stelara[supreg]'s mechanism of action does not 
appear to differ from the mechanism of action of other monoclonal 
antibodies, which also target unique gastrointestinal-selective 
cytokines. The applicant believed that the Stelara[supreg] uses a 
different mechanism of action than other medications currently 
available for the treatment of patients diagnosed with CD. However, we 
believe that the mechanism of action for the new use of the 
Stelara[supreg] may be similar to the mechanism of action of other 
cytokine-selective monoclonal antibodies that disrupt cytokine mediated 
signals crucial to the inflammatory process in patients diagnosed with 
CD.
    The applicant stated that the Stelara[supreg] is a human 
IgG1[kappa] monoclonal antibody that binds with specificity to the p40 
protein subunit, which is common to both the interleukin-12 (IL-12) and 
interleukin (IL-23) cytokines. IL-12 and IL-23 are naturally occurring 
cytokines that are involved in inflammatory and immune responses, such 
as natural killer cell activation and CD4+ T-cell differentiation and 
activation. In in vitro models, the Stelara[supreg] was shown to 
disrupt IL-12 and IL-23 mediated signaling and cytokine cascades by 
blocking the interaction of these cytokines with a shared cell-surface 
receptor chain, IL-12R[beta]1. The cytokines IL-12 and IL-23 have been 
implicated as important contributors to chronic inflammation. According 
to the applicant, IV induction therapy quickly achieves optimal blood 
levels of Stelara[supreg] so that blockade of IL-12 and IL-23 is most 
effective. This level of blockade is not achieved with subcutaneous 
administration.
    The applicant further stated that other available CD anti-
inflammatory or immune modulator therapies do not target the IL-12/IL-
23p40 substrate. Rather, these therapies may target other integrin 
pairs such as the alpha4- beta7 integrins. Therefore, the applicant 
believed that the Stelara[supreg] drug is not substantially similar to 
any other approved drug for the treatment of moderately to severely 
active CD. As previously noted, the applicant asserted that, while the 
currently available agents are excellent medications, these agents do 
not successfully treat all patients diagnosed with CD, nor do these 
agents reliably sustain remission once a clinical response has been 
achieved. According to the applicant, the new use of the 
Stelara[supreg] offers an alternative to currently available treatment 
options, and has been shown to be successful in the treatment of 
patients who have failed treatment with the conventional agents 
currently being used for a diagnosis of CD, including TNF blockers. We 
are concerned that the Stelara[supreg]'s mechanism of action is similar 
to that of other immune system suppressors used in the treatment of 
patients diagnosed with moderately to severely active CD because other 
cytokine-selective monoclonal antibodies also disrupt cytokine mediated 
signals crucial to the inflammatory process in patients diagnosed with 
CD.
    With respect to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, the applicant maintained that MS-
DRGs 386, 387, and 385 (Inflammatory Bowel Disease with CC, without CC/
MCC, and with MCC, respectively) and MS-DRGs 330, 329 and 331 (Major 
Small and Large Bowel Procedures with CC, without CC/MCC, and with MCC, 
respectively) are used to identify cases representing patients who may 
potentially be eligible for treatment using the Stelara[supreg]. The 
applicant researched claims data from the FY 2015 MedPAR file and found 
10,344 cases. About 85 percent of potentially eligible cases mapped to 
MS-DRGs for inflammatory bowel disease and most of the remainder of 
cases mapped to MS-DRGs for bowel surgery. We believe that potential 
cases involving Stelara[supreg] induction therapy may be assigned to 
the same MS-DRGs as cases representing patients who have been treated 
using currently available treatment options.
    With respect to the third criterion, 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, according to the 
applicant, currently available pharmacologic treatments include 
antibiotics, mesalamines, corticosteroids, immunomodulators, tumor 
necrosis alfa (TNF[alpha]) inhibitors and anti-integrins. The applicant 
stated that the new use of the Stelara[supreg] for IV infusion is 
indicated for the treatment of adults (18 years and older) diagnosed 
with moderately to severely active CD who have: (1) Failed or were 
intolerant to treatment with immunomodulators or corticosteroids, but 
never failed treatment using a TNF blocker; or (2) failed or were 
intolerant to treatment with one or more TNF blockers. The applicant 
asserted that Stelara[supreg] for induction therapy is not 
substantially similar to other treatment options because it does not 
involve the treatment of the same or similar type of patient 
population. Patients who are eligible for treatment using the 
Stelara[supreg] induction therapy have failed other CD treatment 
modalities. The applicant believed that the subset of primary and 
secondary nonresponder patients to TNF inhibitor treatments is a 
patient population unresponsive to, or ineligible for, currently 
available treatments for diagnoses of moderate to severe CD. Based on 
the indications for the use of Stelara[supreg], there is a class of 
patients who failed, or were intolerant to, treatment using 
immunomodulators or corticosteroids, but never failed treatment using a 
TNF blocker. The applicant indicated that, for those patients who never 
failed treatment with a TNF blocker, this class of patients can be 
recognized as two separate patient populations: One population of 
patients who have never received treatment using a TNF blocker, or the 
other population of patients who have received and responded to 
treatment using a TNF blocker. We believe that, if the new use of the 
Stelara[supreg] has the same mechanism of action as other immune system 
suppressors such as TNF blockers, the patient population that did not 
receive treatment using a TNF blocker may not be a new patient 
population because those patients may be able to receive treatment 
using, and would successfully respond to treatment using, a TNF 
blocker. Moreover, if the mechanism of action is the same as other 
immune system suppressors, we believe that the new use of the 
Stelara[supreg] may be targeted at a new patient population in some 
circumstances and instances, but we are concerned that it may not be 
targeted at a new patient population in all circumstances and 
instances.

[[Page 19886]]

    We are inviting public comments on whether the Stelara[supreg] 
meets the newness criterion.
    With regard to the cost criterion, the applicant conducted the 
following analysis to demonstrate that Stelara[supreg] meets the cost 
criterion. The applicant searched claims from the FY 2015 MedPAR file 
for cases with a principal ICD-9-CM diagnosis of 555.x (Regional 
Enteritis), which are cases of a diagnosis of Crohn's Disease that may 
be eligible for treatment using Stelara[supreg].
    The applicant identified 10,344 cases that mapped to 35 MS-DRGs. 
Approximately 85 percent of cases mapped to the following Inflammatory 
Bowel MS-DRGs: MS-DRGs 385 (Inflammatory Bowel Disease with MCC), 386 
(Inflammatory Bowel Disease with CC), and 387 (Inflammatory Bowel 
Disease without CC/MCC). Similarly, 11 percent of the cases mapped to 
the following MS-DRGs for bowel surgery: MS-DRGs 329 (Major Small and 
Large Bowel Procedures with MCC), 330 (Major Small and Large Bowel 
Procedures with CC), and 331 (Major Small and Large Bowel Procedures 
without CC/MCC). The remaining cases (4 percent) represented all other 
digestive system disorders.
    Using the 10,344 identified cases, the average unstandardized case-
weighted charge per case was $39,935. The applicant then standardized 
the charges. The applicant did not remove charges for the current 
treatment because as discussed above Stelara[supreg] is indicated for 
use in patients who fail other treatments. The applicant then applied 
the 2-year inflation factor of 1.098446 from the FY 2017 IPPS/LTCH 
final rule (81 FR 57286) to inflate the charges from FY 2015 to FY 
2017. The applicant then added charges for the Stelara[supreg] 
technology. Specifically, the applicant assumed that hospitals would 
mark up Stelara[supreg] IV to the same extent that they currently mark-
up Stelara[supreg] SC (J3357, ustekinumab, 1 mg). The applicant used 
the actual hospital mark-up based on charges in the 2017 OPPS proposed 
rule file (OPPS claims incurred and paid in CY 2015). Based on the FY 
2017 IPPS/LTCH PPS Table 10 thresholds, the average case-weighted 
threshold amount was $55,023. The inflated average case-weighted 
standardized charge per case was $69,826. Because the inflated average 
case-weighted standardized charge per case exceeds the average case-
weighted threshold amount, the applicant maintained that the technology 
meets the cost criterion. We are inviting public comments whether 
Stelara[supreg] meets the cost criterion.
    With regard to the third criterion, whether a technology represents 
a substantial clinical improvement over existing technologies, 
according to the applicant, the new use of the Stelara[supreg] has been 
shown to produce clinical response and remission in patients diagnosed 
with moderate to severe CD who have failed treatment using conventional 
therapies, including antibiotics, mesalamine, corticosteroids, 
immunomodulators, and TNF[alpha] inhibitors. Stelara[supreg] has been 
commercially available on the U.S. market for the treatment of patients 
diagnosed with psoriasis (PsO) since 2009 and the treatment of patients 
diagnosed with psoriatic arthritis (PsA) since 2013, and the applicant 
has maintained a safety registry, which enrolled over 12,000 patients 
since 2007. According to the applicant, the drug has been extremely 
well-tolerated, and the safety profile in patients diagnosed with CD 
has been consistent with that experienced in cases representing 
patients diagnosed with PsO and PsA.
    The applicant presented the results of three pivotal trials 
involving over 1,300 patients diagnosed with moderate to severe CD. All 
three trials utilized a multicenter, double-blind, placebo controlled 
study design. There were two single-dose IV induction trials, which 
included patients who had failed treatment using one or more TNF[alpha] 
inhibitors (UNITI-1) (N= 741), and patients who had failed treatment 
using corticosteroids and/or immunomodulators (UNITI-2) (N =628). 
Responders to the single IV induction dose were then eligible to be 
enrolled in a maintenance trial (IM-UNITI) (N= 397), which began 8 
weeks after administration of the single IV induction dose. IM-UNITI 
patients were given subcutaneous Stelara[supreg] and were treated for 
44 weeks. Over half of the patients treated with 90mg of 
Stelara[supreg] every 12 weeks were able to achieve remission; a highly 
significant response compared to placebo, according to the applicant. 
The results of these trials have been published by the New England 
Journal of Medicine and the applicant provided the published 
studies.\15\ The published study supported the applicant's assertion 
that Stelara[supreg] single IV dose induces response and remission in 
patients diagnosed with moderately to severely active CD that is 
refractory to either TNF antagonists or conventional therapy. Of the 
patients in the IM-UNITI trial receiving subcutaneous Stelara[supreg] 
at 8 weeks or 12 weeks, 53.1 percent and 48 percent, respectively, were 
in remission at week 44 as compared with 35.9 percent of those patients 
receiving treatment using placebo.
---------------------------------------------------------------------------

    \15\ Feagan, W.J., et al. (2016) Ustekinumab as Induction and 
Maintenance Therapy for Crohn' Disease. The New England Journal of 
Medicine. 2016 Nov 17; 3745(20):1946-60.
---------------------------------------------------------------------------

    The applicant submitted published results of a multicenter, double-
blind, placebo controlled Phase III study of Stelara[supreg].\16\ We 
are concerned that the study did not effectively establish the need for 
Stelara[supreg] induction therapy. Also, the median age of patients in 
the study was 37 years, and we are concerned that the study did not 
include a significant amount of older patients.
---------------------------------------------------------------------------

    \16\ Ibid.
---------------------------------------------------------------------------

    We also are concerned that we do not have enough information to 
determine that the new use of the Stelara[supreg] is a substantial 
clinical improvement over existing technologies for the treatment of 
moderate to severe CD. We note that the UNITI-1, UNITI-2, and IMUNITI 
trials were completed to evaluate efficacy and safety of 
Stelara[supreg], not superiority of Stelara[supreg] to current 
conventional therapy. Our concerns are based on a lack of head-to-head 
trials comparing IV induction and maintenance Stelara[supreg] therapy 
with conventional therapy in patients diagnosed with moderate to severe 
CD that are also primary and secondary nonresponders to treatment using 
TNF alpha inhibitor \17\ therapy. We recognize the subset of primary 
and secondary nonresponder patients to
---------------------------------------------------------------------------

    \17\ Ibid.
---------------------------------------------------------------------------

    TNF inhibitor treatments as a patient population unresponsive to, 
or ineligible for, currently available treatments for diagnoses of 
moderate to severe CD. However, we believe that this primary and 
secondary TNF alpha inhibitor non-responder patient population 
represents patients that experience a gap in treatment for diagnoses of 
moderate to severe CD. Specifically, we recognize the nonresponder 
patient population as described by Simon et al.\18\ as those patients 
who are TNF inhibitor immunogenicity failures, pharmacokinetic 
failures, and/or pharmacodynamics failures. We also note the supplement 
data in Feagan et al.'s publication \19\ summarized the primary and 
secondary nonresponders in UNITI-1. However, we are not clear how the 
inclusion of the TNF alpha

[[Page 19887]]

inhibitor intolerant patients with primary and secondary TNF alpha 
inhibitor failure patients impacts the final comparison of the placebo 
and treatment arms. In addition, we note that in the UNITI-1, UNITI-2, 
and IMUNITI studies all treatment arms were allowed to continue 
conventional treatments for diagnoses of CD throughout the study. We 
are concerned that it is difficult to determine whether the new use of 
the Stelara[supreg] represents a substantial clinical improvement over 
existing technologies with the concomitant use of other conventional CD 
medications throughout the duration of the UNITI-1, UNITI-2, and 
IMUNITI studies.
---------------------------------------------------------------------------

    \18\ Simon E.G., et al., (2016) Ustekinumab for the treatment of 
Crohn's disease: can it find its niche? Therapeutic Advances in 
Gastroenterology. 2016 Jan; 9(1):26-36.
    \19\ Feagan, W.J., et al. (2016) Ustekinumab as Induction and 
Maintenance Therapy for Crohn' Disease. The New England Journal of 
Medicine. 2016 Nov 17; 3745(20):1946-60.
---------------------------------------------------------------------------

    Also, as mentioned earlier, based on the indications for the use of 
the Stelara[supreg], there is a class of patients who failed, or were 
intolerant to, treatment with immunomodulators or corticosteroids, but 
never failed treatment using a TNF blocker. According to the applicant, 
for those patients who never failed treatment using a TNF blocker, this 
patient population can be recognized as two separate patient 
populations: one patient population representing patients who never 
received treatment using a TNF blocker, or the other patient population 
representing patients who received and responded to treatment using a 
TNF blocker. In the patient population that did not receive treatment 
using a TNF blocker, we are unsure if the new use of the 
Stelara[supreg] represents a substantial clinical improvement because 
it is possible that some patients will have a positive response to 
treatment using a TNF blocker and will not respond successfully to 
treatment using Stelara[supreg], or some patients may have a positive 
response to both treatment using a TNF blocker and using 
Stelara[supreg], or some patients may not respond to treatment using a 
TNF blocker, but will have a positive response to treatment using 
Stelara[supreg].
    We are inviting public comments on whether the Stelara[supreg] 
meets the substantial clinical improvement criterion.
    We did not receive any written public comments in response to the 
New Technology Town Hall meeting notice regarding the application of 
Stelara[supreg] for new technology add-on payments.
d. KTE-C19 (Axicabtagene Ciloleucel)
    Kite Pharma, Inc. submitted an application for new technology add-
on payments for KTE-C19 (axicabtagene ciloleucel) for FY 2018. The KTE-
C19 technology has not received FDA approval as of the time of the 
development of this proposed rule. KTE-C19 is an engineered autologous 
T-cell immunotherapy used for the treatment of adult patients with 
relapsed/refractory aggressive B-cell non-Hodgkin lymphoma (NHL) who 
are ineligible for autologous stem cell transplant (ASCT). KTE-C19 is a 
single intravenous infusion of T-cell immunotherapy.
    The applicant noted that KTE-C19 was granted Breakthrough Therapy 
Designation by the FDA on December 3, 2015, for the treatment of 
patients with refractory DLBCL, PMBCL, and TFL forms of aggressive B-
cell NHL. The applicant submitted a request for priority review by the 
FDA in December 2016. The applicant stated that, when approved by the 
FDA, KTE-C19 would represent the only FDA-approved treatment for adult 
patients with relapsed refractory aggressive B-cell NHL who are 
ineligible for ASCT. Currently, there are no ICD-10-CM/PCS codes that 
describe the administration and use of KTE-C19. The applicant has 
submitted an application for a unique ICD-10-PCS procedure code to 
uniquely identify KTE-C19. If approved, the code will be effective 
October 1, 2017 (FY 2018).
    According to the applicant, adult NHL represents by a heterogeneous 
group of B-cell malignancies with varying patterns of behavior and 
response to treatment. B-cell NHL can be classified as either 
aggressive, or indolent disease, with aggressive variants including 
diffuse large B-cell lymphoma (DLBCL); primary mediastinal large B cell 
lymphoma (PMBCL) and transformed follicular lymphoma (TFL). Within NHL, 
DLBCL is the most common subtype of NHL, accounting for approximately 
30 percent of patients with NHL, and survival without treatment is 
measured in months.20 21
---------------------------------------------------------------------------

    \20\ Food and Drug Administration. Available at: http://www.accessdata.fda.gov/scripts/opdlisting/oopd/.
    \21\ SEER Stat Fact Sheets--NHL. (2016). Available at: http://seer.cancer.gov/statfacts/html/nhl.html.
---------------------------------------------------------------------------

    The applicant stated that, since the 1970s, cyclophosphamide, 
doxorubicin, vincristine, and prednisone (CHOP) has been the mainstay 
of therapy with more intensive regimens failing to show improved 
overall survival. The applicant further stated that the approval in 
2006 of the anti-CD20 monoclonal antibody rituximab and its addition to 
the traditional CHOP regimen, R-CHOP, for patients with newly diagnosed 
aggressive NHL resulted in a dramatic improvement in NHL therapy. The 
combination of CHOP and R-CHOP is now first-line therapy for treatment 
of patients diagnosed with DLBCL with complete response rates upwards 
of 76 percent.\22\ Data from the Surveillance, Epidemiology and End 
Results (SEER) registries have reflected an observed increase of the 
median overall survival from 20 to 47 months over the last two decades. 
Despite the improved therapies, only 50 to 70 percent of newly 
diagnosed patients are cured by standard first-line therapy alone.\23\ 
Furthermore, relapsed or refractory (r/r) disease continues to carry a 
poor prognosis because only 50 percent of patients are eligible for 
more intensive second-line regimens, followed by high dose chemotherapy 
(HDT) and ASCT. Second-line chemotherapy regimens studied to date 
include rituximab, ifosfamide, carboplatin and etoposide (R-ICE) and 
rituximab, dexamethasone, cytarabine, and cisplatin (R-DHAP), followed 
by consolidative HDT/ASCT. Both regimens offer similar overall response 
rates (ORR) of 51 percent with 1 in 4 patients achieving long-term 
complete response (CR) at the expense of increased toxicity.\24\ Given 
the modest response to second line therapy and/or HDT/ASCT, the 
population of patients with the highest unmet need is those with 
chemorefractory disease, which include DLBCL, PMBCL and TFL. These 
patients are defined as either progressive disease (PD) as best 
response to chemotherapy, stable disease as best response following 4 
cycles of first-line or 2 cycles of later-line therapy, or relapse 
within 12 months of ASCT.25 26 Based on these definitions 
and available data from a multicenter retrospective study (SCHOLAR-1), 
chemorefractory disease treated with current and historical standards 
of care has consistently poor

[[Page 19888]]

outcomes with an ORR of 26 percent and median OS of 6.6 months.
---------------------------------------------------------------------------

    \22\ Coiffier B et al. (2002). CHOP chemotherapy plus rituximab 
compared with CHOP alone in elderly patients with diffuse large B-
cell lymphoma. N Eng. J Med 2002; 346(4): 235-242.
    \23\ Crump M, et al. (2016). Outcomes in refractory aggressive 
diffuse large B-cell lymphoma (DLBCL): results from the 
international SCHOLAR-1 study. Abstract 7516, poster and oral 
presentation at American Society of Clinical Oncology (ASCO) 
conference, June 2016
    \24\ Matasar M, et al. (2013). Ofatumumab in combination with 
ICE or DHAP chemotherapy in relapsed or refractory intermediate 
grade B-cell lymphoma. Blood. 25 July 2013. Vol 122, No 4.
    \25\ Crump M, et al. (2016). Outcomes in patients with 
refractory aggressive diffuse large B-cell lymphoma (DLBCL): results 
from the international scholar-1 study. Abstract and poster 
presented at Pan Pacific Lymphoma Conference (PPLC), July 2016
    \26\ Gisselbrecht C, et al. (2016). Results from SCHOLAR-1: 
Outcomes in patients with refractory aggressive diffuse large B-cell 
lymphoma (DLBCL). Oral presentation at European Hematology 
Association conference, July 2016
---------------------------------------------------------------------------

    According to the applicant, KTE-C19 is a different pathway to treat 
patients diagnosed with relapsed or refractory disease. KTE-C19 is 
supplied as a T-cell suspension for infusion. With KTE-C19 treatment, a 
patient's own T-cells are harvested and engineered ex vivo by 
retroviral transduction of a chimeric antigen receptor (CAR) construct 
encoding an anti-CD19 CD28/CD3-zeta. The anti-CD19 CAR T-cells are 
expanded and infused back into the patient. The new anti-CD19 CAR T-
cells can recognize and eliminate CD19 antigen expressing target cells, 
an antigen also expressed on the cell surface of B-cell lymphomas and 
leukemias. According to the applicant, prior to KTE-C19 immunotherapy, 
the patient would have received outpatient administration of a non-
myeloablative conditioning chemotherapy regimen consisting of 
cyclophosphamide 500 mg/m2 IV and fludarabine 30 mg/m2 IV for 3 days at 
days -5, -4, and -3 before the infusion of KTE-C19 at Day 0. The 
applicant noted that, if KTE-C19 infusion is delayed more than 2 weeks, 
readministration of the conditioning chemotherapy regimen may be 
required. Hospitalization is recommended for the infusion of KTE-C19.
    As discussed earlier, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    With regard to the first criterion, the applicant stated that KTE-
C19 does not use the same or similar mechanism of action to achieve a 
therapeutic outcome as any other drug or therapy assigned to the same 
or a different MS-DRG. The applicant further stated that KTE-C19 is the 
first engineered autologous cellular immunotherapy comprised of CAR T-
cells that recognizes CD19 express cancer cells and normal B-cells; 
therefore, the applicant believed that KTE-C19's mechanism of action is 
distinct and unique from any other cancer drug or biologic that is 
currently approved for use in the treatment of aggressive B-cell NHL, 
namely single-agent or combination chemotherapy regimens.
    With regard to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, the applicant noted that based on 
the 2014 and 2015 100 Percent Inpatient Standard Analytic files, cases 
potentially eligible for treatment using the KTE-C19 and representing 
the target patient population span 50 unique MS-DRGs and 73 percent of 
all of the cases within these 50 unique MS-DRGs that represent 
potentially eligible cases for treatment using KTE-C19 map to the 
following 4 MS-DRGs: MS-DRG 840 (Lymphoma & Non-Acute Leukemia with 
MCC); MS-DRG 841 (Lymphoma & Non-Acute Leukemia with CC); MS-DRG 846 
(Chemotherapy without Acute Leukemia as Secondary Diagnosis with MCC); 
and MS-DRG 847 (Chemotherapy without Acute Leukemia as Secondary 
Diagnosis with CC). The applicant stated that, with the assignment of 
the unique KTE-C19-specific ICD-10-PCS code, patient cases where KTE-
C19 is used will be distinguishable. However, patient cases where KTE-
C19 is used and patient cases that are treated for DLBCL map to the 
same MS-DRGs.
    With regard to the third criterion, 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, the applicant 
asserted that when approved by the FDA, KTE-C19 would represent the 
only FDA-approved treatment for adult patients diagnosed with relapsed 
or refractory aggressive B-cell NHL who are ineligible for ASCT. As a 
result, the applicant stated that KTE-C19 is not substantially similar 
to any existing technology and meets the newness criterion. CMS is 
concerned the CAR technology used in KTE-C19 may have a mechanism of 
action similar to that seen with the use of bispecific T cell engager 
(BiTE) technology.
    We are inviting public comments on whether KTE-C19 meets the 
substantial similarity criteria and the newness criterion.
    With respect to the cost criterion, the applicant provided an 
analysis to demonstrate that KTE-C19 meets the cost criterion. The 
applicant used the 2014 and 2015 100 Percent Inpatient Standard 
Analytic File (SAF) to assess the MS-DRGs that are most relevant to 
patients that may be potentially eligible for treatment using KTE-C19. 
The sample was restricted to patients discharged in FY 2015. The 
applicant searched for cases with an ICD-9-CM diagnosis code from the 
series of 200.7x (large cell lymphoma).
    The applicant sought to ensure that claims included in the cost 
criterion analysis reflected charges for treating patients diagnosed 
with DLBCL and, therefore, minimized the chance that charges were 
related to other conditions. Therefore, the applicant searched for 
cases with the following criteria:
     A primary diagnosis with a ICD-9-CM diagnosis code from 
the series of 200.7x (large cell lymphoma) to identify cases of DLBCL 
with or without chemotherapy; or
     A secondary diagnosis with a ICD-9-CM diagnosis code from 
the series of 200.7x (large cell lymphoma) combined with an ICD-9-CM 
diagnosis code of V58.11, or V58.12, or ICD-9-CM procedure code 99.25, 
99.28, 00.15 or 00.10 to identify cases of DLBCL that received 
chemotherapy during their hospitalization.
    The applicant excluded claims where the MS-DRG was missing, 
Medicare was not the primary payer, there were zero covered charges or 
zero covered days, or the provider was not in the FY 2017 IPPS/LTCH PPS 
Final Rule Impact File. Additionally, patients under age 18 were 
excluded to align with the proposed label that is being prepared for 
submission with the KTE-C19 Biologics License Application (BLA). After 
applying the trims above, the results showed 762 cases that mapped to 
50 MS-DRGs with 11 MS-DRGs containing more than 10 cases. The 11 MS-
DRGs contained a total of 702 cases.
    The applicant noted that MS-DRGs 840, 841, 846, and 847 accounted 
for 554 (73 percent) of the 762 cases in the cohort.
    Using the 702 identified cases, the average unstandardized case-
weighted charge per case was $71,725. The applicant then standardized 
the charges. The applicant noted that adult patients with relapsed/
refractory aggressive B-cell NHL who are ineligible for ASCT would 
generally not be receiving treatment with both chemotherapy and KTE-
C19. Therefore, all charges listed in the chemotherapy revenue centers 
(331, 332, and 335) were removed. The applicant then applied the 2-year 
inflation factor of 1.098446 from the FY 2017 IPPS/LTCH final rule (81 
FR 57286) to inflate the charges from FY 2015 to FY 2017. Based on the 
FY 2017 IPPS/LTCH PPS Table 10 thresholds, the average case-weighted 
threshold amount was $55,023. The inflated average case-weighted 
standardized charge per case was $69,826. Because the inflated average 
case-weighted standardized charge per case exceeds the average case-
weighted threshold amount, the applicant maintained that the technology 
meets the cost criterion. The applicant noted that it was not necessary 
to take into account the average per patient cost of the technology 
because the inflated average case-weighted standardized charge per case 
exceeds the average case-weighted threshold amount without the average 
per patient cost of the technology.
    The applicant provided the following three sensitivity analyses to 
further demonstrate that the technology meets

[[Page 19889]]

the cost criterion. The three sensitivity analyses consisted of: (1) 
cases representing patients identified with an ICD-9-CM diagnosis code 
200.7x (large cell lymphoma) and cases representing patients identified 
with a secondary DLBCL diagnosis who did not receive chemotherapy; (2) 
cases representing patients identified with a primary or secondary ICD-
9-CM diagnosis code from the series of 200.7x (large cell lymphoma) who 
received chemotherapy; and (3) cases representing patients under a 
broader ICD-9-CM diagnosis code range to capture other types of 
lymphoma. In all three of the sensitivity analyses, the inflated 
average case-weighted standardized charge per case exceeded the average 
case-weighted threshold amount. We are inviting public comments on 
whether KTE-C19 meets the cost criterion.
    According to the applicant, KTE-C19 represents a substantial 
clinical improvement over existing technologies used in the treatment 
of patients with aggressive B-cell NHL. The applicant asserted that 
KTE-C19 can benefit the patient population with the highest unmet need, 
patients with refractory or relapsed disease after failure of first-
line or second-line therapy, and patients who have failed or are 
ineligible for ASCT. These patients otherwise have adverse outcomes as 
demonstrated by historical control data.
    Regarding clinical data for KTE-C19, the applicant stated that 
historical control data was the only ethical and feasible comparison 
information for these chemorefractory, aggressive NHL patients who have 
no other available treatment options and have a very short lifespan 
without therapy. According to the applicant, based on meta-analysis of 
outcomes in chemorefractory DLBCL, there are no curative options for 
aggressive B-cell NHL patients regardless of refractory subgroup, line 
of therapy, and disease stage with their median overall survival being 
6.6 months.
    The applicant provided clinical data from the pivotal Study 1 
(ZUMA-1, KTE-C19-101), Phase I and II. The applicant also provided 
supportive evidence from Study 2 (NCI 009-C-0082). Study 1 is a Phase 
I-II multicenter, open label study evaluating the safety and efficacy 
of the use of KTE-C19 in patients diagnosed with aggressive refractory 
NHL. The trial consists of two distinct phases designed as Phase I 
(n=7) and Phase II (n=92). Phase II is a multi-cohort open label study 
evaluating the efficacy of KTE-C19. Study 1 subjects were treated with 
cyclophosphamide and fludarabine conditioning chemotherapy, followed by 
a target dose of 2 x 10 anti-CD19 CAR T-cells per kg body weight. Study 
2 subjects were treated with cryopreserved autologous anti-CD19 CAR T 
cells, which were manufactured by a similar, but different process than 
that used for KTE-C19. The applicant noted that, as of the analysis 
cutoff date for the interim analysis, the results of Study 1 
demonstrated rapid and substantial improvement in objective, or overall 
response rate. The overall response rate was 79 percent (49 responders 
among 62 subjects), with 76 percent overall response rate in Cohort 1 
(39 responders among 51 subjects) and 91 percent in Cohort 2 (10 
responders among 11 subjects) versus historical control of 26 percent. 
According to the applicant, Study 1 overall response rates were 
consistent across all age groups, with those patients greater than 65 
years of age responding at the rates consistent with those under age 65 
years and consistent with earlier, positive results from Study 2. The 
applicant further stated that pre-specified criteria for demonstration 
of early efficacy were met and an independent safety monitoring board 
(DSMB) confirmed the efficacy results and found no additional safety 
signals.
    The applicant further stated that evidence of substantial 
improvement regarding the efficacy of KTE-C19 for the treatment of 
chemorefractory, aggressive B-cell NHL is supported by the complete 
response rates of KTE-C19 in Study 1 (52 percent) versus the historical 
control (8 percent). Additionally, the applicant noted that the results 
of Study 1 have demonstrated that treated patients experienced a rapid 
response to KTE-C19 with 52 percent showing complete response at 3 
months, and 41 percent at 1 month.
    As noted above, the applicant cited data results from Study 2, 
which is an ongoing Phase 1 safety and efficacy study in which anti-
CD19 CAR T-cells were manufactured using a process similar to, but 
different from, KTE-C19 to yield cryopreserved autologous anti-CD19 CAR 
T cells. From Study 2, a subset of 13 patients with a diagnosis of 
DLBCL/PMBCL was noted to be comparable to those treated in Study 1. The 
applicant noted that all patients were diagnosed with refractory DLBCL, 
received similar doses of conditioning chemotherapy, and were infused 
with the cryopreserved autologous anti-CD19 CAR T-cells (which have 
been shown to result in an immunotherapy comparable to KTE-C19). The 
applicant noted that the results from Study 2 demonstrated the 
following: (a) an overall response rate of 69 percent (9 responders 
among 13 patients) (95 percent CI 38.6, 90.9); (b) 47 percent of 
patients had complete response at month 3 (ongoing 6+ to 20+ months); 
and (c) complete response was observed as early as 1 month in 57 
percent of patients in Study 2. According to the applicant, further 
results will be reported in February 2017.
    The applicant also cited safety results from the pivotal Study 1, 
Phase II. According to the applicant, almost all patients in Study 1 
(95 percent) experienced Grade 3 or higher adverse events with onset on 
or after commencement of conditioning chemotherapy, including 
cytopenias (Grade 3 and 4 anemia, neutropenia, thrombocytopenia, and 
lymphopenia were 40 percent, 40 percent, 29 percent, and 5 percent 
respectively), and infection (Grade 3 or worse urinary tract infection, 
clostridium difficile colitis and lung infection were 5 percent, 5 
percent, and 6 percent respectively). All patients were treated 
according to standard of care. The clinical trial protocol stipulated 
that patients were infused with KTE-C19 in the hospital inpatient 
setting and were monitored in the inpatient setting for at least 7 days 
for early identification and treatment of KTE-C19 related toxicities, 
which primarily include cytokine release syndrome and neurotoxicities. 
The applicant stated that KTE-C19 is expected to be administered in the 
hospital inpatient setting to assure appropriate monitoring of patient 
adverse events. The applicant noted that the interim analysis of Study 
1 showed the following: length of stay following KTE-C19 infusion was a 
median of 15 days; cytokine release syndrome (Grade 3 or higher, 18 
percent) and neurotoxicity (Grade 3 or higher, 34 percent) were self-
limiting and generally reversible; two patients died from KTE-C19 
related adverse events (hemophagocytic lymphohistiocytosis and cardiac 
arrest in the setting of cytokine release syndrome). The medications 
most often used to treat KTE-C19 clinical trial complications included 
growth factors, blood products, anti-infectives, steroids, tocilizumab, 
and vasopressors. In the majority of patients (92 percent), the 
applicant noted that predominant toxicities associated with the use of 
KTE-C19, cytokine release syndrome and neurologic events, resolved by 
data cutoff. Median days to resolution of cytokine release syndrome 
complications post-KTE-C19 infusion was 9 days, with median days to 
resolution of KTE-C19-related

[[Page 19890]]

neurologic events post-KTE-C19 infusion of 18 days. According to the 
applicant, there were no clinically important differences in adverse 
event rates across age groups (younger than 65; 65 or older), including 
cytokine release syndrome and neurotoxicity, and KTE-C19-related 
adverse events in Study 1 were consistent with the earlier Study 2 
experience.
    The applicant further noted that by the cutoff date for the interim 
analysis of Study 1, among all KTE-C19 treated patients, 12 patients in 
Study 1, Phase II, including 10 from Cohort 1 and 2 from Cohort 2, 
died. Eight of these deaths were due to disease progression. One 
subject had disease progression after KTE-C19 treatment and 
subsequently had ASCT. After ASCT, the subject died due to sepsis. Two 
subjects (3 percent) died due to KTE-C19 related AEs (Grade 5 
hemophagocytic lymphohistiocytosis event and Grade 5 anoxic brain 
injury), and one died due to an AE deemed unrelated to KTE-C19 (Grade 5 
pulmonary embolism), without disease progression.
    We are concerned that there are no published results showing any 
survival benefit from the treatment. We also are concerned with the 
limited number of subjects (n=82) that were studied after infusion of 
KTE-C19 T-cell immunotherapy. Although the applicant references Study 
2, we are concerned that the applicant has included data on DLBCL/PMBCL 
patients that did not specifically receive KTE-C19. Additionally, we 
are concerned that Study 2 was based on 13 patients which can result in 
skewed outcomes due to a small patient population. Finally, we note 
that, for Study 1 and Study 2, the data on overall survival are not 
reported.
    We are inviting public comments on whether KTE-C19 meets the 
substantial clinical improvement criterion.
    Comment: The applicant stated that it has been notified by the 
United States Adopted Names Council (USAN Council) that the 
technology's name for KTE-C19 has been revised from ``axicabtagene 
ciloretroleucel'' to ``axicabtagene ciloleucel.'' In addition, the 
applicant requested that all references by CMS to the technology's name 
of KTE-C19 use this final naming convention of ``axicabtagene 
ciloleucel.''
    Response: We appreciate the applicant's updated information and 
have correlated the name of the technology throughout the discussion 
above.
e. VYXEOSTM (Cytarabine and Daunorubicin Liposome for 
Injection)
    Celator Pharmaceuticals, Inc. submitted an application for new 
technology add-on payments for VYXEOSTM for FY 2018. The 
proposed indication for the use of VYXEOSTM, which has not 
received FDA approval as of the time of the development of this 
proposed rule, is the treatment of adult patients diagnosed with acute 
myeloid leukemia (AML).
    AML is a type of cancer in which the bone marrow makes abnormal 
myeloblasts (immature bone marrow white blood cells), red blood cells, 
and platelets. If left untreated, AML progresses rapidly. Normally, the 
bone marrow makes blood stem cells that develop into mature blood cells 
over time. Stem cells have the potential to develop into many different 
cell types in the body. Stem cells can act as an internal repair 
system, dividing, essentially without limit, to replenish other cells. 
When a stem cell divides, each new cell has the potential to either 
remain a stem cell or become a specialized cell, such as a muscle cell, 
a red blood cell or a brain cell, etc. A blood stem cell may become a 
myeloid stem cell or a lymphoid stem cell. Lymphoid stem cells become 
white blood cells. A myeloid stem cell becomes one of three types of 
mature blood cells: (1) red blood cells that carry oxygen and other 
substances to body tissues; (2) white blood cells that fight infection; 
or (3) platelets that form blood clots and help to control bleeding. In 
patients diagnosed with AML, the myeloid stem cells usually become a 
type of myeloblast. The myeloblasts in patients diagnosed with AML are 
abnormal and do not become healthy white blood cells. Sometimes in 
patients diagnosed with AML, too many stem cells become abnormal red 
blood cells or platelets. These abnormal cells are called leukemia 
cells or blasts.
    AML is defined by the World Health Organization (WHO) as >20 
percent blasts in the bone marrow or blood. AML can also be diagnosed 
if the blasts are found to have a chromosome change that occurs only in 
a specific type of AML, even if the blast percentage does not reach 20 
percent. Leukemia cells can build up in the bone marrow and blood, 
resulting in less room for healthy white blood cells, red blood cells, 
and platelets. When this occurs, infection, anemia, or increased risk 
for bleeding may result. Leukemia cells can spread outside the blood to 
other parts of the body, including the central nervous system (CNS), 
skin, and gums.
    Treatment of AML diagnoses usually consists of two phases; 
remission induction and post-remission therapy. Phase one, remission 
induction, is aimed at eliminating as many myeloblasts as possible. The 
most common used remission induction regimens for AML diagnoses are the 
``7+3'' regimens using an antineoplastic and an anthracycline. 
Cytarabine and daunorubicin are two commonly used drugs for ``7+3'' 
remission induction therapy. Cytarabine is continuously administered 
intravenously over the course of 7 days, while daunorubicin is 
intermittently administered intravenously for the first 3 days. The 
``7+3'' regimen typically achieves a 70 to 80 percent complete 
remission (CR) rate in most patients under 60 years of age.
    High rates of CR are not generally seen in older patients for a 
number of reasons, such as different leukemia biology, much higher 
incidence of adverse cytogenetic abnormalities, higher rate of 
multidrug resistant leukemic cells, and comparatively lower patient 
performance status (the standard criteria for measuring how the disease 
impacts a patient's daily living abilities). Intensive induction 
therapy has worse outcomes in this patient population.\27\ The 
applicant asserted that many older adults diagnosed with AML have a 
poor performance status \28\ at presentation and multiple medical 
comorbidities that make the use of intensive induction therapy quite 
difficult or contraindicated altogether. Moreover, the CR rates of 
poor-risk patients diagnosed with AML are substantially higher in 
patients >60 years old; owing to a higher proportion of secondary AML, 
disease developing in the setting of a prior myeloid disorder, or prior 
cytotoxic chemotherapy. Therefore, less than half of older adults 
diagnosed with AML achieve CR with combination induction regimens.\29\
---------------------------------------------------------------------------

    \27\ Juliusson G, Lazarevic V, Horstedt AS, Hagberg O, Hoglund 
M. Acute myeloid leukemia in the real world: why population-based 
registries are needed. Blood. 2012 Apr 26; 119(17):3890-9.
    \28\ Stone RM, et al. (2004). Acute myeloid leukemia. Hematology 
Am Soc Hematol Educ Program. 2004:98-117.
    \29\ Appelbaum FR, Gundacker H, Head DR. ``Age and acute myeloid 
leukemia.'' Blood 2006; 107:3481-3485.
---------------------------------------------------------------------------

    The combination of cytarabine and an anthracycline, either as 
``7+3'' regimens or as part of a different regimen incorporating other 
cytotoxic agents, may be used as so-called ``salvage'' induction 
therapy in the treatment of adults diagnosed with AML who experience 
relapse in an attempt to

[[Page 19891]]

achieve CR. According to the applicant, while CR rates of success vary 
widely depending on underlying disease biology and host factors, there 
is a lower success rate overall in achievement of CR with ``7+3'' 
regimens compared to VYXEOSTM therapy. In addition, ``7+3'' 
regimens produce a CR rate of approximately 50 percent in younger adult 
patients who have relapsed, but were in CR for at least 1 year.\30\
---------------------------------------------------------------------------

    \30\ Kantarjian H, Rayandi F, O'Brien S et al. ``Intensive 
chemotherapy does not benefit most older patients (age 70 years and 
older) with acute myeloid leukemia.'' Blood 2010; 116(22):4422.
---------------------------------------------------------------------------

    VYXEOSTM is a nano-scale liposomal formulation 
containing a fixed combination of cytarabine and daunorubicin in a 5:1 
molar ratio. This formulation was developed by the applicant using a 
proprietary system known as CombiPlex. According to the applicant, 
CombiPlex addresses several fundamental shortcomings of conventional 
combination regimens, specifically the conventional ``7+3'' free drug 
dosing, as well as the challenges inherent in combination drug 
development, by identifying the most effective synergistic molar ratio 
of the drugs being combined in vitro, and fixing this ratio in a nano-
scale drug delivery complex to maintain the optimized combination after 
administration and ensuring exposure of this ratio to the tumor.
    Cytarabine and daunorubicin are co-encapsulated inside the 
VYXEOSTM liposome at a fixed ratiometrically, optimized 5:1 
cytarabine:daunorubicin molar ratio. According to the applicant, 
encapsulation maintains the synergistic ratios, reduces degradation, 
and minimizes the impact of drug transporters and the effect of known 
resistant mechanisms. The applicant stated that the 5:1 molar ratio has 
been shown, in vitro, to maximize synergistic antitumor activity across 
multiple leukemic and solid tumor cell lines, including AML, and in 
animal model studies to be optimally efficacious compared to other 
cytarabine:daunorubicin ratios. In addition, the applicant stated that 
in clinical studies, the use of VYXEOSTM has demonstrated 
consistently more efficacious results than the conventional ``7+3'' 
free drug dosing. VYXEOSTM is intended for intravenous 
administration after reconstitution with 19 mL sterile water for 
injection. VYXEOSTM is administered as a 90-minute 
intravenous infusion on days 1, 3, and 5 (induction therapy), as 
compared to the ``7+3'' free drug dosing, which consists of two 
individual drugs administered on different days, including 7 days of 
continuous infusion.
    With regard to the ``newness'' criterion, the applicant indicated 
that the rolling New Drug Application (NDA) submission to the FDA for 
VYXEOSTM began on September 30, 2016. The applicant stated 
that it intends to request Priority Review from the FDA. 
VYXEOSTM is currently available in the United States only on 
an investigational basis, under an Investigational New Drug (IND) 
designation. Breakthrough Therapy designation was granted on May 19, 
2016, for the treatment of adults diagnosed with therapy-related AML 
(t-AML) or AML with myelodysplasia-related changes (AML-MRC). Fast 
Track designation was granted by the FDA in January 2015 for the 
treatment of elderly patients diagnosed with secondary AML. Orphan Drug 
designation was granted by the FDA on August 22, 2008, for the 
treatment of acute AML. VYXEOSTM had not received pre-market 
(PMA) approval from the FDA at the time of development of this proposed 
rule. However, the applicant anticipates receiving approval from the 
FDA by July 1, 2017. The applicant also has submitted a request for a 
unique ICD-10-PCS code, beginning with FY 2018.
    As discussed earlier, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    With regard to the first criterion, whether a product uses the same 
or a similar mechanism of action to achieve a therapeutic outcome, the 
applicant asserted that VYXEOSTM does not use the same or 
similar mechanism of action to achieve a therapeutic outcome as any 
other drug assigned to the same or a different DRG. The applicant 
stated that no other AML treatment is designed, nor is able, to deliver 
a fixed, ratiometrically optimized and synergistic drug:drug ratio of 
5:1 cytarabine to daunorubicin, and selectively target and accumulate 
at the site of malignancy, while minimizing unwanted exposure, which 
the applicant based on the data results of preclinical and clinical 
studies of the use of VYXEOSTM. The applicant indicated that 
VYXEOSTM is a nano-scale liposomal formulation of a fixed 
combination of cytarabine and daunorubicin. Further, the applicant 
stated that the rationale for the development of VYXEOSTM is 
based on prolonged delivery of synergistic drug ratios utilizing the 
applicant's proprietary, ratiometric CombiPlex technology. According to 
the applicant, conventional ``7+3'' free drug dosing has no delivery 
complex, and these individual drugs are administered without regard to 
their ratio dependent interaction. According to the applicant, 
enzymatic inactivation and imbalanced drug efflux and transporter 
expression reduce drug levels in the cell. Decreased cytotoxicity leads 
to cell survival, emergence of drug resistant cells, and decreased 
overall survival.
    The applicant provided the results of clinical studies to 
demonstrate that the CombiPlex technology and the ratiometric dosing of 
VYXEOSTM represent a shift in anticancer agent delivery, 
whereby the fixed, optimized dosing provides less drug to achieve 
improved efficacy, while maintaining a favorable risk-benefit profile. 
The results of this ratiometric dosing approach are in contrast to the 
typical combination chemotherapy development that establishes the 
recommended dose of one agent and then adds subsequent drugs to the 
combination at increasing concentrations until the aggregate effects of 
toxicity are considered to be limiting (the ``7+3'' drug regimen). 
According to the applicant, this current approach to combination 
chemotherapy development assumes that maximum therapeutic activity will 
be achieved with maximum dose intensity for all drugs in the 
combination, and ignores the possibility that more subtle 
concentration-dependent drug interactions could result in frankly 
synergistic outcomes.
    The applicant maintained that, while VYXEOSTM contains 
no novel active agents, its innovative drug delivery mechanism appears 
to be a superior way to deliver the two active compounds in an effort 
to optimize their efficacy in killing leukemic blasts. However, we are 
concerned it is possible that VYXEOSTM may use a similar 
mechanism of action compared to current treatment because both the 
current treatment regimen and VYXEOSTM are used in the 
treatment of AML by intravenous administration of cytarabin and 
daunorubicin.
    With respect to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, the applicant maintained that based 
on the 2014 and 2015 100 Percent Inpatient Standard Analytic files, 
cases representing patients potentially eligible for treatment using 
VYXEOSTM and the target patient population span 134 unique 
MS-DRGs, and 78 percent of all of the cases within these 134 unique MS-
DRGs map to the following 4 MS-DRGs: 834 (Acute Leukemia Without Major 
O.R. Procedure With MCC), 837 (Chemotherapy With Acute Leukemia as SDX 
or With High Dose Chemotherapy

[[Page 19892]]

Agent with MCC), 838 (Chemotherapy With Acute Leukemia as SDX With CC 
or High Dose Chemotherapy Agent), and 839 (Chemotherapy With Acute 
Leukemia as SDX Without CC/MCC). We believe that these are the same MS-
DRGs that identify cases representing patients who are treated for AML.
    With respect to the third criterion, 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, the applicant 
asserted that VYXEOSTM is indicated for the use in patients 
diagnosed with high-risk AML. However, we believe that 
VYXEOSTM involves the treatment of the same patient 
population as other AML treatment therapies.
    We are inviting public comments on whether VYXEOSTM is 
substantially similar to existing technology, including whether the 
mechanism of action of VYXEOSTM differs from the mechanism 
of action of the current treatment regimen. We also are inviting public 
comments on whether VYXEOSTM meets the newness criterion.
    With regard to the cost criterion, the applicant conducted the 
following analysis. The applicant used the 2014 and 2015 100 Percent 
Inpatient Standard Analytic Files (SAFs) to assess the MS-DRGs assigned 
for hospitalizations most likely to represent patients that may be 
eligible for treatment with VYXEOSTM. The sample of claims 
was limited to discharges occurring in FY 2015 (that is, from October 
1, 2014 to September 30, 2015).
    The applicant identified patients as potential VYXEOSTM 
candidates by searching for cases indicating a diagnosis of AML. 
Specifically, the applicant searched for cases that met the following 
criteria:
     Had an ICD-9-CM diagnosis code of 205.00 (Acute myeloid 
leukemia, without mention of having achieved remission), or 205.02 
(Acute myeloid leukemia, in relapse); or
     The patient received chemotherapy during their hospital 
stay as indicated by the following principal/secondary ICD-9-CM 
diagnosis codes or ICD-9-CM procedure codes: V58.11 (Encounter for 
antineoplastic chemotherapy); V58.12 (Encounter for antineoplastic 
immunotherapy; 00.10 (Implantation of chemotherapeutic agent); 00.15 
(High-Dose infusion interleukin-2); 99.25 (Injection or Infusion of 
cancer chemotherapeutic substance); or 99.28 (Injection or infusion of 
biological response modifier as an antineoplastic agent); and
     Excluded cases that had a bone marrow transplant based on 
the following ICD-9-CM procedure codes: 41.00 (Bone marrow transplant, 
not otherwise specified); 41.01 (Autologous bone marrow transplant 
without purging); 41.02 (Allogeneic bone marrow transplant with 
purging); 41.03 (Allogeneic bone marrow transplant without purging); 
41.04 (Autologous hematopoietic stem cell transplant without purging); 
41.05 (Allogeneic hematopoietic stem cell transplant without purging); 
41.06 (Cord blood stem cell transplant); 41.07 (Autologous 
hematopoietic stem cell transplant with purging); 41.08 (Allogeneic 
hematopoietic stem cell transplant); and 41.09 (Autologous bone marrow 
transplant with purging).
    According to the applicant, the eligible cases span 134 unique MS-
DRGs, 14 of which contain more than 10 cases. The most common MS-DRGs 
are MS-DRGs 834, 837, 838, and 839. These 4 MS-DRGs account for 3,601 
(78 percent) of the 4,613 potential eligible cases.
    Using the 4,613 identified cases, the average unstandardized case-
weighted charge per case was $203,234. The applicant then standardized 
the charges. The applicant removed charges for the current treatment. 
The applicant then applied the 2-year inflation factor of 1.098446 from 
the FY 2017 IPPS/LTCH final rule (81 FR 57286) to inflate the charges 
from FY 2015 to FY 2017. Based on the FY 2017 IPPS/LTCH PPS Table 10 
thresholds, the average case-weighted threshold amount was $84,639. The 
inflated average case-weighted standardized charge per case was 
$178,392. Because the inflated average case-weighted standardized 
charge per case exceeds the average case-weighted threshold amount, the 
applicant maintained that the technology meets the cost criterion.
    The applicant noted that the average case-weighted standardized 
charge per case for the applicable MS-DRGs exceeds the average case-
weighted threshold amount without taking into account the average per 
patient cost of the technology to the hospital. Therefore, the analysis 
above did not include the cost of VYXEOSTM.
    As previously stated, according to the applicant, the potentially 
eligible cases used for the cost criterion analysis included patients 
diagnosed with AML who received chemotherapy during their hospital 
stay, but did not receive a bone marrow transplant. The applicant 
asserted that this patient cohort is inclusive of all likely potential 
patients that may be eligible for treatment using VYXEOSTM. 
The applicant conducted the same analysis, but excluded all pharmacy 
and IV therapy charges. Additionally, to test the sensitivity of cohort 
specification, the applicant conducted the following four additional 
sensitivity analyses that used alternative cohort definitions: (1) 
Included AML cases with ICD-9-CM diagnosis code 205.00 and 
chemotherapy; (2) included AML cases with ICD-9-CM diagnosis code 
205.02 and chemotherapy; (3) included cases with AML principal 
diagnosis and chemotherapy; and (4) included AML cases without 
requiring chemotherapy. In all of these analyses, the inflated average 
case-weighted standardized charge per case exceeded the average case-
weighted threshold amount. We are inviting public comments whether 
VYXEOSTM meets the cost criterion.
    With regard to substantial clinical improvement, according to the 
applicant, clinical data results have shown that the use of 
VYXEOSTM represents a substantial clinical improvement for 
the treatment of AML in newly diagnosed high-risk, older (60 years and 
older) patients, marked by statistically significant improvements in 
overall survival, event free survival and response rates, and in 
relapsed patients age 18 to 65 years of age, where a statistically 
significant improvement in overall survival was documented for the 
poor-risk subset of patients as defined by the European Prognostic 
Index. In both groups of patients, the applicant stated that there was 
significant improvement in survival for the high-risk patient group. 
The applicant provided the following specific clinical data results.
     The applicant stated the clinical data results show that 
treatment with VYXEOSTM in older patients (60 years of age 
and older) diagnosed with untreated, high-risk AML will result in 
superior survival rates, as compared to patients treated with 
conventional ``7+3'' free drug dosing. The applicant provided a summary 
of the pivotal Phase III Study 301 in which 309 patients were enrolled, 
with 153 patients randomized to the VYXEOSTM arm and 156 to 
the ``7+3'' free drug dosing arm. Among patients aged 60 to 69 years, 
there were 96 patients in the VYXEOSTM arm and 102 in the 
``7+3'' free drug dosing arm; for patients aged 70 to 75 years, there 
were 57 and 54 patients in each arm, respectively. The applicant noted 
that the data results from the Phase III Study 301 demonstrated that 
first-line treatment of patients diagnosed with high-risk AML in the 
VYXEOSTM arm resulted in substantially greater median 
overall survival of 9.56 months versus 5.95 months in the ``7+3'' free 
drug dosing arm (hazard ratio of 0.69; p =0.005).

[[Page 19893]]

     The applicant further asserted that high-risk, older 
patients (60 years of age and older) previously untreated for diagnoses 
of AML will have a lower risk of early death when treated with 
VYXEOSTM than those treated with the conventional ``7+3'' 
free drug dosing. The applicant cited Medeiros, et al. 2015,\31\ which 
reported a large observational study of Medicare beneficiaries and 
noted the following: The data result of the study showed that 50 to 60 
percent of elderly patients diagnosed with AML remain untreated 
following diagnosis; treated patients were more likely younger, male, 
and married, and less likely to have secondary diagnoses of AML, poor 
performance indicators, and poor comorbidity scores compared to 
untreated patients; and in multivariate survival analyses, treated 
patients exhibited a significant 33 percent lower risk of death 
compared to untreated patients.
---------------------------------------------------------------------------

    \31\ Medeiros B, et al. (2015). Big data analysis of treatment 
patterns and outcomes among elderly acute myeloid leukemia patients 
in the United States. Ann Hematol. 2015; 94(7): 1127-1138.
---------------------------------------------------------------------------

    Based on data from the Phase III Study 301,\32\ the applicant cited 
the following results: The rate of 60-day mortality was less in the 
VYXEOSTM arm (13.7 percent) versus the ``7+3'' free drug 
dosing arm (21.2 percent); the reduction in early mortality was due to 
fewer deaths from refractory AML (3.3 percent versus 11.3 percent), 
with very similar rates of 60-day mortality due to adverse events (10.4 
percent versus 9.9 percent); there were fewer deaths in the 
VYXEOSTM arm versus the ``7+3'' free drug dosing arm during 
the treatment phase (7.8 percent versus 11.3 percent); and there were 
fewer deaths in the VYXEOSTM arm during the follow-up phase 
than in the ``7+3'' free drug dosing arm (59.5 percent versus 71.5 
percent).
---------------------------------------------------------------------------

    \32\ Lancet J, et al. (2016). Final results of a Phase III 
randomized trial of VYXEOS (CPX-351) versus 7+3 in older patients 
with newly diagnosed, high-risk (secondary) AML. Abstract and oral 
presentation at American Society of Clinical Oncology (ASCO), June 
2016.
---------------------------------------------------------------------------

     The applicant asserted that high-risk, older patients (60 
years of age and older) previously untreated for a diagnosis of AML 
exhibited statistically significant improvements in response rates 
after treatment with VYXEOSTM versus treatment with the 
conventional ``7+3'' free drug chemotherapy dosing, suggesting that the 
use of VYXEOSTM is a superior pre-transplant induction 
treatment versus ``7+3'' free drug dosing. Restoration of normal 
hematopoiesis is the ultimate goal of any therapy for AML diagnoses. 
The first phase of treatment consists of induction chemotherapy, in 
which the goal is to ``empty'' the bone marrow of all hematopoietic 
elements (both benign and malignant), and to allow repopulation of the 
marrow with normal cells, thereby yielding remission. According to the 
applicant, post-induction response rates were significantly higher 
following the use of VYXEOSTM, which elicited a 47.7 percent 
total response rate and a 37.3 percent rate for CR, whereas the total 
response and CR rates for the ``7+3'' free drug dosing arm were 33.3 
percent and 25.6 percent, respectively. The CR + CRi rates for patients 
aged 60 to 69 years were 50.0 percent in the VYXEOSTM arm 
and 36.3 percent in the ``7+3'' free drug dosing arm, with an odds 
ratio of 1.76 (95 percent CI, 1.00-3.10). For patients aged 70 to 75, 
the rates of CR + CRi were 43.9 percent in the VYXEOSTM arm 
and 27.8 percent in the ``7+3'' free drug dosing arm.
     The applicant asserted that VYXEOSTM treatment 
will enable high-risk, older patients (60 years of age and older) to 
bridge to allogeneic transplant, and VYXEOSTM responding 
patients will have markedly better outcomes following transplant. The 
applicant stated that diagnoses of secondary AML are considered 
incurable with standard chemotherapy approaches and, as with other 
high-risk hematological malignancies, transplantation is a useful 
treatment alternative. The applicant further stated that autologous 
HSCT has limited effectiveness and at this time, only allogeneic HSCT 
with full intensity conditioning has been reported to produce long-term 
remissions. However, the applicant stated that the clinical study by 
Medeiros et al., 2015, reported that, while the use of allogeneic HSCT 
is considered a potential cure for AML, its use is limited in older 
patients because of significant baseline comorbidities and increased 
transplant-related morbidity and mortality. Patients in either arm of 
the Phase III Study 301 responding to induction with a CR or CR+CRi 
(n=125) were considered for allogeneic hematopoietic cell transplant 
(HCT) when possible. In total, 91 patients were transplanted: 52 (34 
percent) from the VYXEOSTM arm and 39 (25 percent) from the 
``7+3'' free drug dosing arm. Patient and AML characteristics were 
similar according to randomized arm, including percentage of patients 
in each arm that underwent transplant in CR+CRi status. However, the 
applicant noted that the VYXEOSTM arm contained a higher 
percentage of older patients (aged 70 or greater) who were transplanted 
(VYXEOSTM, 31 percent; ``7+3'' free drug dosing, 15 
percent).\33\
---------------------------------------------------------------------------

    \33\ Stone Hematology 2004; Gordon AACR 2016; NCI, cancer.gov.
---------------------------------------------------------------------------

    According to the applicant, patient outcome following transplant 
strongly favored patients in the VYXEOSTM arm. The Kaplan-
Meier analysis of the 91 transplanted patients landmarked at the time 
of HCT showed that patients in the VYXEOSTM arm had markedly 
better overall survival (hazard ratio 0.46; p=0.0046). The time-
dependent Adjustment Model (Cox proportional hazard ratio) was used to 
evaluate the contribution of VYXEOSTM to overall survival 
rate after adjustment for transplant and showed that 
VYXEOSTM remained a significant contributor, even after 
adjusting for transplant. The time-dependent Cox hazard ratio for 
overall survival rates in the VYXEOSTM arm versus the 
``7+3'' free drug dosing arm was 0.51 (95 percent CI, 0.35-0.75; 
P=.0007).
     The applicant asserted that VYXEOSTM treatment 
of previously untreated older patients (60 years of age and older) 
diagnosed with high-risk AML increases the response rate and improves 
survival compared to conventional ``7+3'' free drug dosing in patients 
diagnosed with FLT3 mutation. The applicant noted the following: 
approximately 20 to 30 percent of AML patients harbor some form of FLT3 
mutation, AML patients with a FLT3 mutation have a higher relapse rate 
and poorer prognosis than the overall population diagnosed with AML, 
and the most common type of mutation is internal tandem duplication 
(ITD) mutation localized to a membrane region of the receptor.
    The applicant cited Gordon et al., 2016,\34\ which reported on the 
significant anti-leukemic activity of VYXEOSTM in AML blasts 
exhibiting high-risk characteristics, including FLT3-ITD, that are 
typically associated with poor outcomes when treated with conventional 
``7+3'' free drug dosing. To determine whether the improved complete 
remission and overall survival rates of VYXEOSTM as compared 
to conventional ``7+3'' free drug dosing are attributable to liposome-
mediated altered drug PK or direct cellular interactions with specific 
AML blast samples, the authors evaluated cytotoxicity in 53 AML patient 
specimens. Cytotoxicity results were correlated with patient 
characteristics,

[[Page 19894]]

as well as VYXEOSTM cellular uptake and molecular phenotype 
status including FLT3-ITD, which is a predictor of poor patient 
outcomes to conventional ``7+3'' free drug dosing. The applicant stated 
that a notable result from this research was the observation that AML 
blasts exhibiting the FLT3-ITD phenotype exhibited some of the lowest 
IC50 (the 50 percent inhibitory concentration) values and, 
as a group, were five-fold more sensitive to VYXEOSTM than 
those with wild type FLT3. In addition, there was evidence that 
increased sensitivity to VYXEOSTM was associated with 
increased uptake of the drug-laden liposomes by the patient-derived AML 
blasts. The applicant noted that Gordon, et al. 2016, concluded taken 
together, the data are consistent with clinical observations where 
VYXEOSTM retains significant anti-leukemic activity in AML 
patients exhibiting high-risk characteristics. The applicant also noted 
that a sub analysis of Phase III Study 301 identified 22 patients 
diagnosed with FLT3 mutation in the VYXEOSTM arm and 20 in 
the ``7+3'' free drug dosing arm, which resulted in the following 
response rates of FLT3 mutated patients, which were higher with 
VYXEOSTM (15 of 22, 68.2 percent) versus ``7+3'' free drug 
dosing (5 of 20, 25.0 percent); and the Kaplan-Meier analysis of the 42 
FLT3 mutated patients showed that patients in the VYXEOSTM 
arm had a trend towards better overall survival rates (hazard ratio 
0.57; p=0.093).
---------------------------------------------------------------------------

    \34\ Gordon M, Tardi P, Lawrence MD et al. ``CPX-351 
cytotoxicity against fresh AML blasts increased for FLT3-ITD+ cells 
and correlates with drug uptake and clinical outcomes.'' Abstract 
287 and poster presented at AACR (American Association for Cancer 
Research). April 2016.
---------------------------------------------------------------------------

     The applicant asserted that younger patients (18 to 65 
years of age) with poor risk first relapse AML have shown higher 
response rates with VYXEOSTM versus conventional ``salvage'' 
chemotherapy. Overall, the applicant stated that the use of 
VYXEOSTM had an acceptable safety profile in this patient 
population based on 60-day mortality data. Study 205 \35\ was a 
randomized study comparing VYXEOSTM against the 
investigator's choice of first ``salvage'' chemotherapy in patients 
diagnosed with relapsed AML after a first remission lasting greater 
than 1 month (VYXEOSTM arm, n=81 and ``7+3'' free drug 
dosing arm, n=44; ages 18 to 65 year of age). Investigator's choice was 
almost always based on cytarabine + anthracycline, usually with the 
addition of one or two new agents. According to the applicant, 
VYXEOSTM demonstrated a higher rate of morphological 
leukemia clearance among all patients, 43.2 percent versus 40.0 
percent, and the advantage was most apparent in poor-risk patients, 
78.7 percent versus 44.4 percent, as defined by the European Prognostic 
Index (EPI). In the subset analysis of this EPI poor-risk patient 
subset, the applicant stated there was a significant improvement in 
survival rate (6.6 versus 4.2 months median, hazard ratio=0.55, p=0.02) 
and improved response rate (39.3 percent versus 27 percent). The 
applicant also noted the following: the safety profile for the use of 
VYXEOSTM was qualitatively similar to that of control 
``salvage'' therapy, with nearly identical 60-day mortality rates (14.8 
percent versus 15.9 percent); among VYXEOSTM treated 
patients, those with no history of prior HSCT (n=59) had higher 
response rates (54.2 percent versus 37.8 percent) and lower 60-day 
mortality (10.2 percent versus 16.2 percent); overall, the use of 
VYXEOSTM had acceptable safety based on 60-day mortality 
data, with somewhat higher frequency of neutropenia and 
thrombocytopenia-related grade 3-4 adverse events. Even though these 
patients are younger (18 to 65 years of age) than the population 
studied in Phase III Study 301 (60 years and older), Study 205 patients 
were at a later stage of disease and almost all had responded to first-
line therapy (cytarabine + anthracycline) and had relapsed. The 
applicant also cited Cortes, et al. 2015,\36\ which reported that 
patients diagnosed with first relapse AML have limited likelihood of 
response and short expected survival following ``salvage'' treatment 
with the results from literature showing that:
---------------------------------------------------------------------------

    \35\ Cortes J, et al. (2011). Significance of prior HSCT on the 
outcome of salvage therapy with CPX-351 or conventional chemotherapy 
among first relapse AML patients. Abstract and poster presented at 
ASH 2011.
    \36\ Cortes J, et al. (2015). Phase II, multicenter, randomized 
trial of CPX-351 (cytarabine:daunorubicin) liposome injection versus 
intensive salvage therapy in adults with first relapse AML. Cancer. 
January 2015, 234-42.
---------------------------------------------------------------------------

     Mitoxantrone, etoposide, and cytarabine induced response 
in 23 percent of patients, with median overall survival of only 2 
months.
     Modulation of deoxycitidine kinase by fludarabine led to 
the combination of fludarabine and cytarabine, resulting in a 36 
percent CR rate with median remission duration of 39 weeks.
     First salvage gemtuzumab ozogamicin induced CR+CRp (or 
CR+CRi) response in 30 percent of patients with CD33+ AML and, for 
patients with short first CR durations, appeared to be superior to 
cytarabine-based therapy.
    The applicant noted that Study 205 results showed the use of 
VYXEOSTM retained greater anti-leukemic efficacy in patients 
diagnosed with poor-risk first relapse AML, and produced higher 
morphological leukemia clearance rates (78.7 percent) compared to 
conventional ``salvage'' therapy (44 percent). The applicant further 
noted that, overall, the use of VYXEOSTM had acceptable 
safety profile in this patient population based on 60-day mortality 
data.
    Based on all of the data presented above, the applicant concluded 
that VYXEOSTM represents a substantial clinical improvement 
over existing technologies. However, we are concerned that, although 
there was an improvement in a number of outcomes in Phase III Study 
301, specifically overall survival rate, lower risk of early death, 
improved response rates, better outcomes following transplant, 
increased response rate and overall survival in patients diagnosed with 
FLT3 mutation, and higher response rates versus conventional 
``salvage'' chemotherapy in younger patients diagnosed with poor-risk 
first relapse, the improved outcomes may not be statistically 
significant. Furthermore, we are concerned that the overall improvement 
in survival from 5.95 months to 9.56 months may not represent a 
substantial clinical improvement. In addition, the rate of adverse 
events in both arms of Study 205, given the theoretical benefit of 
reduced toxicity with the liposomal formulation, was similar for both 
the VYXEOSTM and ``7+3'' free drug treatment groups. 
Therefore, we also are concerned that there is a similar rate of 
adverse events, such as febrile neutropenia (68 percent versus 71 
percent), pneumonia (20 percent versus 15 percent), and hypoxia (13 
percent versus 15 percent), with the use of VYXEOSTM as 
compared with the conventional ``7+3'' free drug regimen.
    We are inviting public comments on whether the VYXEOSTM 
meets the substantial clinical improvement criterion.
    Below we summarize and respond to comments submitted on 
VYXEOSTM during the open comment period in response to the 
New Technology Town Hall meeting notice.
    Comment: The applicant provided a written response regarding the 
definition of ``free drug'' as ``Unbound drug pharmacology;'' an active 
drug or other compound that is not bound to a carrier protein-for 
example, albumin or alpha[hyphen]1[hyphen]acid glycoprotein. The 
applicant explained that the term ``free[hyphen]drug dosing'' is used 
to describe the two different non[hyphen]encapsulated, separately 
administered drugs in the ``7+3'' free drug regimen (cytarabine and 
daunorubicin), each an unrestricted uniform aqueous solution of the 
drug in water for continuous administration of cytarabine and separate 
intravenous

[[Page 19895]]

administration of daunorubicin according to the ``7+3'' dosing 
schedule. The applicant then stated that the fixed molar drug ratio 
delivered by VYXEOSTM is not relevant to the conventional 
dosing of the two free drugs, cytarabine and daunorubicin. The 
applicant explained that the doses of cytarabine and daunorubicin used 
in the conventional ``7+3'' free drug dosing regimen were based on the 
maximum tolerated dose of the two agents, not on any concept related to 
a drug ratio that provides optimal synergy. Finally, the ratio of 
cytarabine and daunorubicin administered in free (non[hyphen]liposomal) 
form is irrelevant because the administered ratio cannot be maintained 
when these drugs are infused separately. This is because the drugs will 
be distributed and eliminated differentially and independently of one 
another and the ratio will change rapidly and continuously. 
Consequently, according to the applicant, the inability to control drug 
ratios following administration in conventional dosage forms likely 
results in exposure of tumor cells to antagonistic drug ratios with a 
corresponding loss of therapeutic activity.
    Response: We appreciate the applicant's comments. We will take 
these comments into consideration when deciding whether to approve new 
technology add-on payments for VYXEOSTM.
f. GammaTileTM
    Isoray Medical, Inc. & GammaTile, LLC submitted an application for 
new technology add-on payments for FY 2018 for the 
GammaTileTM. The GammaTileTM is a brachytherapy 
technology for use in the treatment of patients diagnosed with brain 
tumors using cesium-131 radioactive sources embedded in a collagen 
matrix. GammaTileTM is designed to provide adjuvant 
radiation therapy to eliminate remaining tumor cells in patients who 
required surgical resection of brain tumors. According to the 
applicant, the GammaTileTM is a new vehicle of delivery for 
and inclusive of cesium-131 brachytherapy sources embedded within the 
product. The applicant stated that the technology has been manufactured 
for use in the setting of a craniotomy resection site where there is a 
high chance of local recurrence of a CNS or dual-based tumor. The 
applicant asserted that the use of GammaTileTM provides a 
new, unique modality for treating patients who require radiation 
therapy to augment surgical resection of malignancies of the brain. By 
offsetting the radiation sources with a 3mm gap of a collagen matrix, 
the applicant asserted that the use of GammaTileTM resolves 
issues with ``hot'' and ``cold'' spots associated with brachytherapy, 
improves safety, and potentially offers a treatment option for patients 
with limited, or no other, available options. The 
GammaTileTM is biocompatible and bioabsorbable, and is left 
in the body permanently without need for future surgical removal. The 
applicant asserted that the commercial manufacturing of the product 
will significantly improve on the process of constructing customized 
implants with greater speed, efficiency, and accuracy than is currently 
available, and require less surgical expertise in placement of the 
radioactive sources, allowing a greater number of surgeons to utilize 
brachytherapy techniques in a wider variety of hospital settings.
    The applicant for GammaTileTM has applied for FDA 
approval and anticipated FDA approval by the spring of 2017. In its 
application, the applicant indicated that it anticipated that the 
product would be approved by the FDA for use in both the primary and 
salvage treatment of radiosensitive malignances of the brain. However, 
the applicant had not received FDA approval at the time of development 
of this proposed rule. In subsequent discussions with the applicant, 
the applicant indicated that it is only seeking FDA approval for use in 
the salvage treatment of recurrent radiosensitive malignances of the 
brain. The applicant submitted a request for a unique ICD-10-PCS code 
for the administration of GammaTileTM. If approved, the 
procedure codes will be effective October 1, 2017 (FY 2018).
    As discussed earlier, if a technology meets all three of the 
substantial similarity criteria, it would be considered substantially 
similar to an existing technology and would not be considered ``new'' 
for purposes of new technology add-on payments.
    With regard to the first criterion, whether a product uses the same 
or a similar mechanism of action to achieve a therapeutic outcome, the 
applicant stated that when compared to treatment using external beam 
radiation therapy, GammaTileTM uses a new and unique 
mechanism of action to achieve a therapeutic outcome. The applicant 
explained that the GammaTileTM is fundamentally different in 
structure, function, and safety from all external beam radiation 
therapies, and delivers treatment through a different mechanism of 
action. In contrast to external beam radiation modalities, the 
applicant further explained that the GammaTileTM is a form 
of internal radiation termed brachytherapy. Brachytherapy treatments 
are performed using radiation sources positioned very close to the area 
requiring radiation treatment and only deliver radiation to the tissues 
that are immediately adjacent to the margin of the surgical resection. 
For this reason, brachytherapy is a current standard of care treatment 
for many non-central nervous system tumors, including breast, cervical, 
and prostate cancers.
    Due to the custom positioning of the radiological sources and the 
use of the cesium-131 isotope, the applicant noted that the 
GammaTileTM focuses therapeutic levels of radiation on an 
extremely small area of the brain. Unlike all external beam techniques, 
the applicant stated that this radiation does not pass externally 
inward through the skull and healthy areas of the brain to reach the 
targeted tissue and, therefore, may limit neurocognitive deficits seen 
with the use of external beam techniques. Because of the rapid 
reduction in radiation intensity that is characteristic of cesium-131, 
the applicant asserted that the GammaTileTM can target the 
margin of the excision with greater precision than any alternative 
treatment option, while sparing healthy brain tissue from unnecessary 
and potentially damaging radiation exposure.
    The applicant also stated that, when compared to other types of 
brain brachytherapy, GammaTileTM uses a new and unique 
mechanism of action to achieve a therapeutic outcome. The applicant 
explained that cancerous cells at the margins of a tumor resection 
cavity can also be irradiated with the placement of brachytherapy 
sources in the tumor cavity. However, the applicant asserted that the 
GammaTileTM is a pioneering form of brachytherapy for the 
treatment of brain tumors that uses the isotope cesium-131 embedded in 
a collagen implant that is customized to the geometry of the brain 
cavity. According to the applicant, use of cesium-131 and the custom 
distribution of seeds in a three-dimensional collagen device result in 
a unique and highly effective delivery of radiation therapy to brain 
tissue.
    With regard to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, GammaTileTM is a 
treatment option for patients diagnosed with brain tumors that progress 
locally after initial treatment with external beam radiation therapy, 
and cases representing patients that may be eligible for treatment 
involving this technology are assigned to the same MS-DRGs (MS-DRGs 25, 
26, and 27 (Craniotomy & Endovascular Intracranial Procedure with MCC, 
with CC, and without CC/MCC), respectively)

[[Page 19896]]

as other current treatment forms of brachytherapy and external beam 
radiation therapy.
    With regard to third criterion, 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, the applicant 
stated that the GammaTileTM offers a treatment option for a 
patient population with limited, or no other, available treatment 
options. The applicant explained that treatment options for patients 
diagnosed with brain tumors that progress locally after initial 
treatment with external beam radiation therapy are limited, and there 
is no current standard of care in this setting. According to the 
applicant, surgery alone for recurrent tumors may provide symptom 
relief, but does not remove all of the cancer cells. The applicant 
further stated that repeating external beam radiation therapy for 
adjuvant treatment is hampered by an increasing risk of brain injury 
because additional external beam radiation therapy will increase the 
total dose of radiation to brain tissue, as well as increase the total 
volume of irradiated brain tissue. Secondary treatment with external 
beam radiation therapy is often performed with a reduced and, 
therefore, less effective dose. The applicant asserted that 
brachytherapy with GammaTileTM may be the only effective 
treatment option for these patients.
    Based on the above, the applicant concluded that the 
GammaTileTM is not substantially similar to other existing 
technologies and meets the newness criterion. However, we are concerned 
that the mechanism of action for this device may be the same or similar 
to current forms of radiation or brachytherapy. Specifically, while the 
placement of the cesium-131 source (or any radioactive source) in a 
collagen matrix offset may constitute a new delivery vehicle, we are 
concerned that this sort of improvement in brachytherapy for use in the 
salvage treatment of radiosensitive malignances of the brain may not 
represent a new mechanism of action. We also have concerns as to 
whether GammaTileTM would represent the first approved use 
of offset radioactive material in brachytherapy for recurrent brain 
malignancies. The applicant cited studies that used a similar predicate 
device, but did not indicate whether these researchers or institutions 
are seeking separate FDA approval.
    We are inviting public comments on whether GammaTileTM 
meets the substantial similarity criteria and the newness criterion.
    With regard to the cost criterion, the applicant conducted the 
following analysis. The applicant worked with the Barrow Neurological 
Institute at St. Joseph's Hospital and Medical Center (St. Joseph's) to 
obtain actual claims for craniotomies using a prototype brain 
brachytherapy device of stranded cesium-131 seeds held in place with a 
collagen tile. The application found a total of 23 claims from FY 2001 
through FY 2016 data that used a cesium-131 brachytherapy predicate 
device. All 23 claims were assigned to MS-DRGs 25 through 27. Of the 23 
cases, 13 cases were assigned to MS-DRG 25, 4 cases were assigned to 
MS-DRG 26, and 6 cases were assigned to MS-DRG 27. Using hospital data, 
the applicant estimated and then subtracted all charges for the 
predicate device and all charges for ancillary services associated with 
the device delivery for each case. The applicant standardized the 
remaining charges for each case and inflated each case's charges by 
applying the FY 2017 IPPS/LTCH PPS final rule outlier charge inflation 
factor of 1.043957 by the age of each case (that is, the factor was 
applied to FY 2011 claims six times, to FY 2012 claims five times, 
etc.). The applicant then calculated the average inflated standardized 
charges for the cases assigned to MS-DRG 25 ($124,064), MS-DRG 26 
($131,677) and MS-DRG 27 ($90,615). The applicant then calculated an 
estimate for ancillary charges associated with placement of the 
GammaTileTM device, as well as standardized charges for the 
GammaTileTM device itself. The applicant determined it meets 
the cost criterion because the final average case-weighted standardized 
charge per case (including the charges associated with the 
GammaTileTM device) of $226,741 exceeds the average case-
weighted threshold amount of $95,783.
    We are concerned that the applicant submitted a small sample of 
cases to determine it meets the cost criterion. A small sample size may 
not be statistically significant to determine if the 
GammaTileTM meets the cost criterion. We also note that, 
while the applicant has attributed reduced operating room times as a 
significant benefit to the GammaTileTM, a reduction in the 
associated costs does not appear to be reflected in its calculations. 
We are inviting public comments on whether the GammaTileTM 
meets the cost criterion.
    With regard to substantial clinical improvement, the applicant 
stated that the GammaTileTM offers a treatment option for a 
patient population unresponsive to, or ineligible for, currently 
available treatments and significantly improves clinical outcomes when 
compared to currently available treatment options. The applicant 
explained that therapeutic options for patients diagnosed with large or 
recurrent brain metastases are limited. However, according to the 
applicant, the GammaTileTM provides a treatment option for 
patients diagnosed with radiosensitive recurrent brain tumors that are 
not eligible for treatment with any other currently available treatment 
option. Specifically, the applicant stated that GammaTileTM 
may provide the only radiation treatment option for patients diagnosed 
with tumors located close to sensitive vital brain sites (for example, 
brain stem); patients diagnosed with recurrent brain tumors may not be 
eligible for additional treatment involving the use of external beam 
radiation therapy. There is a lifetime limit for the amount of 
radiation therapy a specific area of the body can receive. Patients 
whose previous treatment includes external beam radiation therapy may 
be precluded from receiving high doses of radiation associated with 
subsequent external beam radiation therapy, and the 
GammaTileTM can also be used to treat tumors that are too 
large for treatment with external beam radiation therapy. These large 
tumors are not eligible for treatment with external beam radiation 
therapy because the radiation dose to healthy brain tissue would be too 
high.
    The applicant described how the GammaTileTM improves 
clinical outcomes compared to existing treatment options, including 
external beam radiation therapy and other forms of brain brachytherapy. 
To demonstrate that the GammaTileTM represents a substantial 
clinical improvement over existing technologies, the applicant 
submitted data from three abstracts, with one associated paper 
demonstrating feasibility or superior progression-free survival 
compared to the patient's own historical control rate.
    In a presentation at the Society for Neuro-Oncology in November 
2014 (Dardis, Christopher; Surgery and permanent intraoperative 
brachytherapy improves time to progression of recurrent intracranial 
neoplasms), the outcomes of 20 patients diagnosed with 27 tumors 
covering a variety of histological types treated with the 
GammaTileTM prototype were presented. The applicant noted 
the following with regard to the patients: (1) All tumors were 
intracranial, supratentorial masses and included low and high-grade 
meningiomas, metastases from various primary cancers, high-grade 
gliomas, and others;

[[Page 19897]]

(2) all treated masses were recurrent following treatment with surgery 
and/or radiation and the group averaged two prior craniotomies and two 
prior courses of external beam radiation treatment; and (3) following 
surgical excision, prototype GammaTilesTM were placed in the 
resection cavity to deliver a dose of 60 Gray to a depth of 5 mm of 
tissue; and all patients had previously experienced re-growth of their 
tumors at the site of treatment and the local control rate of patients 
entering the study was 0 percent.
    With regard to outcomes, the applicant stated that, after their 
initial treatment, patients had a median progression-free survival time 
of 5.8 months; post treatment with prototype GammaTilesTM, 
at the time of this analysis, only one patient had progressed at the 
treatment site, for a local control rate of 96 percent; and median 
progression-free survival time, a measure of how long a patient lives 
without recurrence of the treated tumor, has not been reached (as this 
value can only be calculated when more than 50 percent of treated 
patients have failed the prescribed treatment).
    A second set of outcomes on prototype GammaTilesTM was 
presented at the Society for Neuro-Oncology Conference on Meningioma in 
June 2016 (Brachman, David; Surgery and permanent intraoperative 
brachytherapy improves time to progress of recurrent intracranial 
neoplasms). This study enrolled 16 patients with 20 recurrent grade 2 
or 3 meningiomas, who had undergone prior surgical excision external 
beam radiation therapy. These patients underwent surgical excision of 
the tumor, followed by adjuvant radiation therapy with prototype 
GammaTilesTM. The applicant noted the following outcomes: 
(1) Of the 20 treated tumors, 19 showed no evidence of radiographic 
progression at last follow-up, yielding a local control rate of 95 
percent; two of the 20 patients exhibited radiation necrosis (one 
symptomatic, one asymptomatic); and (2) the median time to failure from 
the prior treatment with external beam radiation therapy was 10.3 
months and after treatment with prototype GammaTilesTM only 
one patient failed at 18.2 months. Therefore, the median time to same 
site failure after prototype GammaTileTM treatment has not 
yet been reached (average follow up of 16.7 months, range 1-37 months).
    A third prospective study was accepted for presentation at the 
November 2016 Society for Neuro-Oncology annual meeting (Youssef, Emad; 
Cs131 implants for salvage therapy of recurrent high grade gliomas). In 
this study, 13 patients diagnosed with recurrent high-grade gliomas (9 
with glioblastoma and 4 with grade 3 astrocytoma) were treated in an 
identical manner to the cases described above. Previously, all patients 
had failed the international standard treatment for high-grade glioma, 
a combination of surgery, radiation therapy, and chemotherapy referred 
to as the ``Stupp regimen.'' For the prior therapy, the median time to 
failure was 9.2 months (range 1-40 months). After therapy with a 
prototype GammaTileTM, the applicant noted the following: 
(1) The median time to same site local failure has not been reached and 
one failure was seen at 18 months (local control 92 percent); and (2) 
with a median follow-up time of 8.1 months (range 1-23 months) one 
symptomatic patient (8 percent) and two asymptomatic patients (15 
percent) had radiation-related MRI changes. However, no patients 
required re-operation for radiation necrosis or wound breakdown.
    The applicant asserted that, when considered in total, the data 
reported in these three studies support the conclusion that a 
significant therapeutic effect results from the addition of 
GammaTileTM radiation therapy to the site of surgical 
removal. According to the applicant, the fact that these patients had 
failed prior best available treatments (aggressive surgical and 
adjuvant radiation management) presents the unusual scenario of a 
salvage therapy outperforming the current standard-of-care. The 
applicant noted that follow-up data continues to accrue on these 
patients. The applicant further noted that, although these reported 
experiences with the GammaTileTM are as a salvage therapy in 
patients who currently have no standard treatment options, it is 
anticipated GammaTileTM will also be used as first-line 
therapy due to these promising results.
    The applicant stated that the use of GammaTileTM reduces 
rates of mortality compared to alternative treatment options. The 
applicant explained that clinical studies on GammaTileTM 
have shown improved local control of tumor recurrence. According to the 
applicant, the results of these studies showed local control rates of 
92 percent to 96 percent for tumor sites that had local control rates 
of 0 percent from previous treatment. The applicant noted that these 
studies also have not reached median progression-free survival time 
with follow-up times ranging from 1 to 37 months. Previous treatment at 
these same sites resulted in median progression-free survival times of 
5.8 to 10.3 months.
    The applicant further stated that the use of GammaTileTM 
reduces rates of radiation necrosis compared to alternative treatment 
options. The applicant explained that the rate of symptomatic radiation 
necrosis in the GammaTileTM clinical studies of 5 to 8 
percent is substantially lower than the 26 percent to 57 percent rate 
of symptomatic radiation necrosis requiring re-operation historically 
associated with brain brachytherapy, and lower than the rates reported 
for initial treatment of similar tumors with modern external beam and 
stereotactic radiation techniques. The applicant indicated that this is 
consistent with the customized and ideal distribution of radiation 
therapy provided by GammaTileTM.
    The applicant also asserted that the use of GammaTileTM 
reduces the need for re-operation compared to alternative treatment 
options. The applicant explained that patients receiving a craniotomy, 
followed by external beam radiation therapy or brachytherapy, could 
require re-operation in the following three scenarios:
     Tumor recurrence at the excision site could require 
additional surgical removal;
     Symptomatic radiation necrosis could require excision of 
the affected tissue; and
     Certain forms of brain brachytherapy require the removal 
of brachytherapy sources after a given period of time.
    However, according to the applicant, because of the high local 
control rates, low rates of symptomatic radiation necrosis, and short 
half-life of cesium-131, GammaTileTM will reduce the need 
for re-operation compared to external beam radiation therapy and other 
forms of brain brachytherapy.
    Additionally, the applicant stated that the use of 
GammaTileTM reduces the need for additional hospital visits 
and procedures compared to alternative treatment options. The applicant 
noted that the GammaTileTM is placed during surgery, and 
does not require any additional visits or procedures. The applicant 
contrasted this improvement with external beam radiation therapy, which 
is often delivered in multiple fractions that must be administered over 
multiple days. The applicant provided an example where WBRT is 
delivered over 2 to 3 weeks, while the placement of 
GammaTileTM occurs during the craniotomy and does not add 
any time to a patient's recovery.
    The applicant further stated that the GammaTileTM's high 
local control rates and low rates of symptomatic radiation necrosis 
will reduce the need for

[[Page 19898]]

additional hospital visits and procedures, and provides a more rapid 
initiation and complement of the treatment compared to alternative 
treatment options.
    Based on consideration of all of the data presented above, the 
applicant believed that the use of GammaTileTM represents a 
substantial clinical improvement over existing technologies. The 
studies were limited to patients diagnosed with recurrent tumors after 
previous surgical rescission. As previously discussed, the applicant 
explained that it is seeking FDA approval for the use of the 
GammaTileTM in the treatment of recurrent malignancies.
    We are inviting public comments on whether GammaTileTM 
meets the substantial clinical improvement criterion.
    We did not receive any written public comments in response to the 
New Technology Town Hall meeting notice regarding the application of 
GammaTileTM for new technology add-on payments.

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

A. Background

1. Legislative Authority
    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 2018 hospital wage index based 
on the statistical areas appears under sections III.A.2. and G. 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. (CMS collects 
these data on the Medicare cost report, CMS Form 2552-10, Worksheet S-
3, Parts II, III, and IV. The OMB control number for approved 
collection of this information is 0938-0050.) 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 2018 is discussed in section II.B. of the Addendum to this proposed 
rule.
    As discussed in section III.J. 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 2018 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 2018 wage index, appears under sections III.E.3. and F. 
of the preamble of this proposed rule.
2. Core-Based Statistical Areas (CBSAs) for the Proposed FY 2018 
Hospital Wage Index
    The wage index is calculated and assigned to hospitals on the basis 
of the labor market area in which the hospital is located. Under 
section 1886(d)(3)(E) of the Act, beginning with FY 2005, we delineate 
hospital labor market areas based on OMB-established Core-Based 
Statistical Areas (CBSAs). The current statistical areas (which were 
implemented beginning with FY 2015) are based on revised OMB 
delineations issued on February 28, 2013, in OMB Bulletin No. 13-01. 
OMB Bulletin No. 13-01 established revised delineations for 
Metropolitan Statistical Areas, Micropolitan Statistical Areas, and 
Combined Statistical Areas in the United States and Puerto Rico based 
on the 2010 Census, and provided guidance on the use of the 
delineations of these statistical areas using standards published on 
June 28, 2010 in the Federal Register (75 FR 37246 through 37252). We 
refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951 
through 49963) for a full discussion of our implementation of the OMB 
labor market area delineations beginning with the FY 2015 wage index.
    Generally, OMB issues major revisions to statistical areas every 10 
years, based on the results of the decennial census. However, OMB 
occasionally issues minor updates and revisions to statistical areas in 
the years between the decennial censuses through OMB Bulletins. On July 
15, 2015, OMB issued OMB Bulletin No. 15-01, which provides updates to 
and supersedes OMB Bulletin No. 13-01 that was issued on February 28, 
2013. The attachment to OMB Bulletin No. 15-01 provides detailed 
information on the update to statistical areas since February 28, 2013. 
The updates provided in OMB Bulletin No. 15-01 are based on the 
application of the 2010 Standards for Delineating Metropolitan and 
Micropolitan Statistical Areas to Census Bureau population estimates 
for July 1, 2012 and July 1, 2013. In the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 56913), we adopted the updates set forth in OMB Bulletin 
No. 15-01 effective October 1, 2016, beginning with the FY 2017 wage 
index. For a complete discussion of the adoption of the updates set 
forth in OMB Bulletin No. 15-01, we refer readers to the FY 2017 IPPS/
LTCH PPS final rule.
    For FY 2018, we are continuing to use the OMB delineations that we 
adopted beginning with FY 2015 to calculate the area wage indexes, with 
updates as reflected in OMB Bulletin No. 15-01 specified in the FY 2017 
IPPS/LTCH PPS final rule.
3. Codes for Constituent Counties in CBSAs
    CBSAs are made up of one or more constituent counties. Each CBSA 
and constituent county has its own unique identifying codes. There are 
two different lists of codes associated with counties: Social Security 
Administration (SSA) codes and Federal Information Processing Standard 
(FIPS) codes. Historically, CMS has listed and used SSA and FIPS county 
codes to identify and crosswalk counties to CBSA codes for purposes of 
the hospital wage index. We have learned that SSA county codes are no 
longer being maintained and updated. However, the FIPS codes continue 
to be maintained by the U.S. Census Bureau. The Census Bureau's most 
current statistical area information is derived from ongoing census 
data received since 2010; the most recent data are from 2015. For the 
purposes of crosswalking counties to CBSAs, we are proposing to 
discontinue the use of SSA county codes and begin using only the FIPS 
county codes.

[[Page 19899]]

    The Census Bureau maintains a complete list of changes to counties 
or county equivalent entities on the Web site at: https://www.census.gov/geo/reference/county-changes.html. In our proposed 
transition to using only FIPS codes for counties for the hospital wage 
index, we are proposing to update the FIPS codes used for crosswalking 
counties to CBSAs for the hospital wage index to incorporate changes to 
the counties or county equivalent entities included in the Census 
Bureau's most recent list. Based on information included in the Census 
Bureau's Web site, since 2010, the Census Bureau has made the following 
updates to the FIPS codes for counties or county equivalent entities:
     Petersburg Borough, AK (FIPS State County Code 02-195), 
CBSA 02, was created from part of former Petersburg Census Area (02-
195) and part of Hoonah-Angoon Census Area (02-105). The CBSA code 
remains 02.
     The name of La Salle Parish, LA (FIPS State County Code 
22-059), CBSA 14, is now LaSalle Parish, LA (FIPS State County Code 22-
059). The CBSA code remains as 14.
     The name of Shannon County, SD (FIPS State County Code 46-
113), CBSA 43, is now Oglala Lakota County, SD (FIPS State County Code 
46-102). The CBSA code remains as 43.
    We believe that it is important to use the latest counties or 
county equivalent entities in order to properly crosswalk hospitals 
from a county to a CBSA for purposes of the hospital wage index used 
under the IPPS. In addition, we believe that using the latest FIPS 
codes will allow us to maintain a more accurate and up-to-date payment 
system that reflects the reality of population shifts and labor market 
conditions. Therefore, we are proposing to implement these FIPS code 
updates, effective October 1, 2017, beginning with the FY 2018 wage 
indexes. We are proposing to use these update changes 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 the FY 
2015 IPPS/LTCH PPS final rule. We note that while the county update 
changes listed earlier changed the county names, the CBSAs to which 
these counties map did not change from the prior counties. Therefore, 
there is no impact or change to hospitals in these counties; they 
continue to be considered rural for the hospital wage index under these 
changes. For FY 2018, Tables 2 and 3 associated with this proposed rule 
and the County to CBSA Crosswalk File and Urban CBSAs and Constituent 
Counties for Acute Care Hospitals File posted on the CMS Web site 
reflect these county changes. We are inviting public comments on our 
proposals.

B. Worksheet S-3 Wage Data for the Proposed FY 2018 Wage Index

    The proposed FY 2018 wage index values are based on the data 
collected from the Medicare cost reports submitted by hospitals for 
cost reporting periods beginning in FY 2014 (the FY 2017 wage indexes 
were based on data from cost reporting periods beginning during FY 
2013).
1. Included Categories of Costs
    The proposed FY 2018 wage index includes all of 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 include 
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 47317)); 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 2017, the 
proposed wage index for FY 2018 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 2018 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 Suppliers and Providers Other Than Acute 
Care Hospitals Under the IPPS
    Data collected for the IPPS wage index also are currently used to 
calculate wage indexes applicable to suppliers and other providers, 
such as SNFs, home health agencies (HHAs), ambulatory surgical centers 
(ASCs), 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 of any supplier or provider except IPPS 
providers and LTCHs. Such comments should be made in response to 
separate proposed rules for those suppliers and providers.
C. Verification of Worksheet S-3 Wage Data
    The wage data for the proposed FY 2018 wage index were obtained 
from Worksheet S-3, Parts II and III of the Medicare cost report (Form 
CMS-2552-10) for cost reporting periods beginning on or after October 
1, 2013, and before October 1, 2014. For wage index purposes, we refer 
to cost reports during this period as the ``FY 2014 cost report,'' the 
``FY 2014 wage data,'' or the ``FY 2014 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. The data file used to construct the 
proposed FY 2018 wage index includes FY 2014 data submitted to us as of 
February 10, 2017. 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 2018 wage index, we 
identified and excluded 51 providers with aberrant data that should not 
be included in the wage index, although if data elements for some of 
these providers are corrected, we intend to include data from those 
providers in the final FY 2018 wage index. We also adjusted certain 
aberrant data and included these data in the proposed wage index. For 
example, in situations where a hospital did not have documentable 
salaries, wages, and hours for housekeeping and dietary services, we 
imputed estimates, in accordance with policies established in the FY 
2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). We 
instructed MACs to complete their data verification of questionable 
data elements and to transmit any changes to

[[Page 19900]]

the wage data no later than March 24, 2017. The revised data will be 
reflected in the FY 2018 IPPS/LTCH PPS final rule.
    In constructing the proposed FY 2018 wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2014, 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 believed 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 the this 
proposed rule, we removed 7 hospitals that converted to CAH status on 
or after January 22, 2016, the cut-off date for CAH exclusion from the 
FY 2017 wage index, and through and including January 23, 2017, the 
cut-off date for CAH exclusion from the FY 2018 wage index. After 
excluding CAHs and hospitals with aberrant data, we calculated the 
proposed wage index using the Worksheet S-3, Part II and III wage data 
of 3,325 hospitals.
    For the proposed FY 2018 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 2017 wage index (81 FR 56915). 
Table 2, which contains the proposed FY 2018 wage index associated with 
proposed rule (available via the Internet on the CMS Web site), 
includes separate wage data for the campuses of 9 multicampus 
hospitals.
D. Method for Computing the Proposed FY 2018 Unadjusted Wage Index
1. Proposed Methodology for FY 2018
    The method used to compute the proposed FY 2018 wage index without 
an occupational mix adjustment follows the same methodology that we 
used to compute the proposed wage indexes without an occupational mix 
adjustment since FY 2012 (76 FR 51591 through 51593).
    As discussed in the FY 2012 IPPS/LTCH PPS 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, 2013, through April 15, 
2015, 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 of the 
ECI for FY 2018. 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
------------------------------------------------------------------------
                                                              Adjustment
               After                         Before             factor
------------------------------------------------------------------------
10/14/2013.........................  11/15/2013............      1.02310
11/14/2013.........................  12/15/2013............      1.02155
12/14/2013.........................  01/15/2014............      1.02004
01/14/2014.........................  02/15/2014............      1.01866
02/14/2014.........................  03/15/2014............      1.01740
03/14/2014.........................  04/15/2014............      1.01615
04/14/2014.........................  05/15/2014............      1.01482
05/14/2014.........................  06/15/2014............      1.01339
06/14/2014.........................  07/15/2014............      1.01193
07/14/2014.........................  08/15/2014............      1.01048
08/14/2014.........................  09/15/2014............      1.00905
09/14/2014.........................  10/15/2014............      1.00761
10/14/2014.........................  11/15/2014............      1.00614
11/14/2014.........................  12/15/2014............      1.00463
12/14/2014.........................  01/15/2015............      1.00309
01/14/2015.........................  02/15/2015............      1.00155
02/14/2015.........................  03/15/2015............      1.00000
03/14/2015.........................  04/15/2015............      0.99845
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2014, and ending December 31, 2014, is June 30, 2014. An 
adjustment factor of 1.01193 would be applied to the wages of a 
hospital with such a cost reporting period.
    Using the data as previously described, the proposed FY 2018 
national average hourly wage (unadjusted for occupational mix) is 
$42.0043.
    Previously, we also would provide a Puerto Rico overall average 
hourly wage. As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 
FR 56915), prior to January 1, 2016, Puerto Rico hospitals were paid 
based on 75 percent of the national standardized amount and 25 percent 
of the Puerto Rico-specific standardized amount. As a result, we 
calculated a Puerto Rico-specific wage index that was applied to the 
labor share of the Puerto Rico-specific standardized amount. Section 
601 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113) 
amended section 1886(d)(9)(E) of the Act to specify that the payment 
calculation with respect to operating costs of inpatient hospital 
services of a subsection (d) Puerto Rico hospital for inpatient 
hospital discharges on or after January 1, 2016, shall use 100 percent 
of the national standardized amount. As we stated in the FY 2017 IPPS/
LTCH PPS final rule (81 FR 56915 through 56916), because Puerto Rico 
hospitals are no longer paid with a Puerto Rico-specific standardized 
amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act, 
as amended by section 601 of the Consolidated Appropriations Act, 2016, 
there is no longer a need to calculate a Puerto Rico-specific average 
hourly wage and wage index. Hospitals in Puerto Rico are now paid 100 
percent of the national standardized amount and, therefore, are subject 
to the national average hourly wage (unadjusted for occupational mix) 
(which is $42.0043 for this FY 2018 proposed rule) and the national 
wage index, which is applied to the national labor share of the 
national standardized amount. For FY 2018, we are not proposing a 
Puerto Rico-specific overall average hourly wage or wage index.
2. Clarification of Other Wage Related Costs in the Wage Index
    Section 1886(d)(3)(E) of the Act requires the Secretary to update 
the wage index based on a survey of hospitals' costs that are 
attributable to wages and wage-related costs. In the September 1, 1994 
IPPS final rule (59 FR 45356), we developed a list of ``core'' wage-
related costs that hospitals may report on Worksheet S-3, Part II of 
the Medicare hospital cost report in order to include those costs in 
the wage index. Core wage-related costs include categories of 
retirement cost, plan administrative costs, health and insurance costs, 
taxes, and other specified costs such as tuition reimbursement. In 
addition to these categories of core wage-related costs, we allow 
hospitals to report wage-related costs other than those on the core 
list if the other wage-related costs meet certain criteria. The 
criteria for including other wage-related costs in the wage index are 
discussed in the September 1, 1994 IPPS final rule (59 FR 45357) and 
also are listed in the Provider Reimbursement Manual (PRM), Part II, 
Chapter 40, Sections 4005.2 through 4005.4), Line 18 of the Medicare 
cost report (Form CMS-2552-10, OMB control number 0938-0050). 
Specifically, ``other'' wage-related costs are allowable for the wage 
index if the cost for employees whose services are paid under the IPPS 
exceeds 1 percent of the total adjusted salaries net of

[[Page 19901]]

excluded area salaries, is a fringe benefit as defined by the IRS and 
has been reported to the IRS (as income to the employees or 
contractors), is not being furnished for the convenience of the 
provider, and is not listed on Worksheet S-3, Part IV.
    We note that other wage-related costs are not to include benefits 
already included in Line 1 salaries on Worksheet S-3, Part II (refer to 
the cost report instructions for Worksheet S-3, Part II, Line 18, which 
state, `` `Other' wage-related costs do not include wage-related costs 
reported on line 1 of this worksheet.''). We also note that the 1-
percent test is conducted by dividing each individual category of the 
other wage-related cost (that is, the numerator) by the sum of the 
following lines on the Medicare hospital cost report (Form CMS-2552-
10): Worksheet S-3, Part II, Lines 11, 12, 13, and 14, Column 4, and 
Worksheet S-3, Part III, Line 3, Column 4 (that is, the denominator). 
The other wage-related costs associated with contract labor and home 
office/related organization personnel are included in the numerator 
because these other wage-related costs are allowed in the wage index 
(in addition to other wage related costs for direct employees), 
assuming the requirements for inclusion in the wage index are met. For 
example, if a hospital is trying to include a parking garage as an 
other-wage related cost that is reported on the W-2 or 1099 form, when 
running the 1-percent test, include in the numerator all the parking 
garage other wage-related cost for direct salary employees, contracted 
employees, and home office employees and divide by the sum of Worksheet 
S-3, Part II, Lines 11, 12, 13, and 14, Column 4, and Worksheet S-3, 
Part III, Line 3, Column 4. For the category of parking other wage-
related costs, the 1-percent test would be run only one time, inclusive 
of other wage related costs for employee salaries, contracted 
employees, and home office employees. We intend to clarify the hospital 
cost report instructions to reflect that contract labor and home 
office/related organization salaries should be added to the subtotal of 
salaries on Worksheet S-3, Part III, Line 3, Column 4 (Line 3 is the 
difference of net salaries minus excluded area salaries) for purposes 
of performing the 1-percent test. If a hospital has more than one other 
wage-related cost, the 1-percent must be conducted separately for each 
other wage-related cost (for example, parking and cafeteria separately; 
do not sum all the different types of other wage-related costs together 
and then run the 1-percent test). If the 1-percent test is met for a 
particular type of other wage-related costs, and the other criteria 
listed earlier are met as well, the other wage-related cost may be 
reported on Worksheet S-3, Part II, Line 18 of the hospital cost 
report.
    We originally allowed for the inclusion of wage-related costs other 
than those on the core list because we were concerned that individual 
hospitals might incur unusually large wage-related costs that are not 
reflected on the core list but that may represent a significant wage-
related cost. However, we are reconsidering allowing other wage-related 
costs to be included in the wage index because recent internal reviews 
of the FY 2018 wage data show that only a small minority of hospitals 
are reporting other wage-related costs that meet the 1-percent test 
described earlier. In the calculation of the proposed FY 2018 wage 
index, for each hospital reporting other wage-related costs on Line 18 
of Worksheet S-3, we performed the 1-percent test. We then made 
internal edits removing other wage-related costs on Line 18 where 
hospitals reported data that failed to meet the mathematical 
requirement that other wage-related costs must exceed 1 percent of 
total adjusted salaries net of excluded area salaries. After this 
review, only approximately 80 hospitals of approximately 3,320 
hospitals had other wage-related costs on Line 18 meeting the 1-percent 
test. We believe that such a limited number of hospitals nationally 
reporting and meeting the 1-percent test may indicate that other wage-
related costs might not constitute an appropriate part of a relative 
measure of wage costs in a particular labor market area, a longstanding 
tenet of the wage index. In other words, while other wage-related costs 
may represent costs that may have an impact on an individual hospital's 
average hourly wage, we do not believe that costs reported by only a 
very small minority of hospitals accurately reflect the economic 
conditions of the labor market areas in which those hospitals are 
located. Therefore, it is possible that inclusion of other wage-related 
costs in the wage index in such a limited manner may distort the 
average hourly wage of a particular labor market area so that its wage 
index does not accurately represent that labor market area's current 
wages relative to national wages.
    Furthermore, the open-ended nature of the types of other wage-
related costs that may be included on Line 18 of Worksheet S-3, in 
contrast to the concrete list of core wage-related costs, may hinder 
consistent and proper reporting of fringe benefits. Our internal review 
indicates widely divergent types of costs that hospitals are reporting 
as other wage-related costs on Line 18. We are concerned that 
inconsistent reporting of other wage-related costs on Line 18 further 
compromises the accuracy of the wage index as a representation of the 
relative average hourly wage for each labor market area. Our intent in 
creating a core list of wage-related costs in the September 1, 1994 
IPPS final rule was to promote consistent reporting of fringe benefits, 
and we are increasingly concerned that inconsistent reporting of wage-
related costs on Line 18 of Worksheet S-3 undermines this effort. 
Specifically, we expressed in the September 1, 1994 IPPS final rule 
that since we began including fringe benefits in the wage index, we 
have been concerned with the inconsistent reporting of fringe benefits, 
whether because of a lack of provider proficiency in identifying fringe 
benefit costs or varying interpretations across fiscal intermediaries 
of the definition for fringe benefits in PRM-I, Section 2144.1 (59 FR 
45356).
    We believe that the limited and inconsistent use of Line 18 of 
Worksheet S-3 for reporting wage-related costs other than the core list 
might indicate that including other wage-related costs in the wage 
index compromises the accuracy of the wage index as a relative measure 
of wages in a given labor market area. Therefore, we are seeking public 
comments on whether we should, in future rulemaking, propose to only 
include the wage-related costs on the core list in the calculation of 
the wage index and not to include any other wage-related costs in the 
calculation of the wage index.
    Meanwhile, in this FY 2018 IPPS/LTCH PPS proposed rule, we are 
clarifying that, under our current policy, an other wage-related cost 
(which we define as the value of a benefit) must be a fringe benefit as 
described by the IRS (refer to IRS Publication 15-B) and must be 
reported to the IRS on employees' or contractors' W-2 or 1099 forms as 
taxable income in order to be considered an other wage-related cost on 
Line 18 of Worksheet S-3 and for the wage index. That is, other wage-
related costs that are not reported to the IRS on employees' or 
contractors' W-2 or 1099 forms as taxable income, even if not required 
to be reported to the IRS according to IRS requirements, will not be 
included in the wage index. This is consistent with current cost report 
instructions for Line 18 of Worksheet S-3, Part II of the Medicare cost 
report, Form 2552-10, which state that, to be considered an allowable 
other wage-related costs, the cost ``has been

[[Page 19902]]

reported to the IRS.'' We will apply this policy to the process for 
calculating the wage index for FY 2019, including the FY 2019 desk 
reviews beginning in September 2017.
    We believe this clarification is necessary because some hospitals 
have incorrectly interpreted prior manual and existing preamble 
language to mean that a cost could be considered an other wage-related 
cost if the provider's reporting (or not reporting) of the cost was in 
accordance with IRS requirements, rather than if the cost was actually 
reported on an employee's or contractor's W-2 or 1099 form as taxable 
income. We believe that such an interpretation of our policy would 
require an analysis of whether the reporting or not reporting of the 
cost to the IRS was done properly in accordance with IRS regulations 
and guidance in order to allow the cost as an other wage-related cost. 
We believe that the determinations regarding the proper or improper 
reporting of certain other wage-related costs to the IRS for the 
purpose of inclusion in the Medicare wage index are impractical for CMS 
and the MACs because we do not have the expertise and fluency in IRS 
regulations and tax law sufficient to perform such technical reviews of 
hospital wage-related costs. In contrast, our current policy of 
including an amount as an other wage-related cost for wage index 
purposes only if the amount was actually reported to the IRS on 
employees' or contractors' W-2 or 1099 forms as taxable income is a 
straightforward policy that we believe provides clarity to all involved 
parties. The brightline test of allowing an other wage-related cost to 
be included in the wage index only if it has been reported on an 
employee's or contractor's W-2 or 1099 form as taxable income helps 
ensure consistent treatment of other wage-related costs for all 
hospitals. Considering the variety of types of costs that may be 
included on Line 18 of Worksheet S-3 of the cost report for other wage-
related costs (assuming the 1-percent test is met and other criteria 
are met), we believe that a straightforward policy that is simple for 
hospitals and CMS to apply is particularly important.
    In addition, we believe the policy we are clarifying in this 
proposed rule, that an other wage-related cost can be included in the 
wage index only if it was reported to the IRS as taxable income on the 
employee's or contractor's W-2 or 1099, is consistent with CMS' 
longstanding position that a fringe benefit is not furnished for the 
convenience of the employer or otherwise excludable from income as a 
fringe benefit (such as a working condition fringe) and that 
inappropriate types of costs may not be included in the wage index. In 
response to a comment when we finalized the criteria for other wage-
related costs in the September 1, 1994 IPPS final rule (59 FR 45359), 
we stated that ``items such as the unrecovered cost of employee meals, 
tuition reimbursement, and auto allowances will only be allowed as a 
wage-related cost for purposes of the wage index if properly reported 
to the IRS on an employee's W-2 form as a fringe benefit.'' (We note 
that the September, 1 1994 IPPS final rule does not mention the 1099 
form for contractors, as contract labor was not allowed at that time in 
the wage index. Consistent with our treatment of costs for contract 
labor similar to that of employees for the wage index, we are 
clarifying that the requirement that a cost be reported to the IRS to 
be allowed as a wage-related cost for the wage index also applies to 
contract labor, which must be reported on the contractor's 1099 to be 
allowed as a wage-related cost for the wage index.) We believe that 
requiring other wage-related costs to be reported on employees' or 
contractors' W-2 or 1099 forms to be allowable for Line 18 of Worksheet 
S-3 of the Medicare cost report is consistent with the requirement that 
the cost is not being furnished for the convenience of the employer. A 
cost reported on an employee's or contractor's W-2 or 1099 form as 
taxable income is clearly a wage-related cost that is provided solely 
for the benefit of the employee. We believe that the requirement that 
other wage-related costs be a benefit to the employee also guarantees 
that administrative costs such as overhead and capitalized costs are 
excluded from other wage-related costs in the wage index.
    Therefore, for the reasons discussed above, we are clarifying that 
a cost must be a fringe benefit as described by the IRS and must be 
reported to the IRS on employees' or contractors' W-2 or 1099 forms as 
taxable income in order to be considered an other wage-related cost on 
Line 18 of Worksheet S-3 and for the wage index. In addition, as 
discussed earlier, we are seeking public comments on whether we should 
consider in future rulemaking removing other wage-related costs from 
the wage index.
    Because some hospitals have incorrectly interpreted prior manual 
and existing preamble language, as stated earlier, we are restating the 
criteria from the September 1, 1994 IPPS final rule (59 FR 45357) for 
allowing other wage-related costs for the wage index, with 
clarifications. The criteria follow below, and we intend to update the 
manual with these clarifications:
    Other Wage-Related Costs. A hospital may be able to report a wage-
related cost (defined as the value of the benefit) that does not appear 
on the core list if it meets all of the following criteria:
     The wage-related cost is provided at a significant 
financial cost to the employer. To meet this test, the individual wage-
related cost must be greater than 1 percent of total salaries after the 
direct excluded salaries are removed (the sum of Worksheet S-3, Part 
II, Lines 11, 12, 13, 14, column 4, and Worksheet S-3, Part III, Line 
3, Column 4).
     The wage-related cost is a fringe benefit as described by 
the IRS and is reported to the IRS on an employee's or contractor's W-2 
or 1099 form as taxable income.
     The wage-related cost is not furnished for the convenience 
of the provider or otherwise excludable from income as a fringe benefit 
(such as a working condition fringe).
    We note that those wage-related costs reported as salaries on Line 
1 (for example, loan forgiveness and sick pay accruals) should not be 
included as other wage-related costs on Line 18.

E. Proposed Occupational Mix Adjustment to the FY 2018 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. Use of 2013 Occupational Mix Survey for the FY 2018 Wage Index
    Section 304(c) of the Consolidated Appropriations Act, 2001 (Pub. 
L. 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

[[Page 19903]]

Medicare program. We collected data in 2013 to compute the occupational 
mix adjustment for the FY 2016, FY 2017, and FY 2018 wage indexes. A 
new measurement of occupational mix is required for FY 2019.
    The 2013 survey included the same data elements and definitions as 
the previous 2010 survey and provided 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). We published the 2013 survey in the Federal 
Register on February 28, 2013 (78 FR 13679 through 13680). This survey 
was approved by OMB on May 14, 2013, and is available on the CMS Web 
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/Medicare-Wage-Index-Occupational-Mix-Survey2013.html. 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: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/Medicare-Wage-Index-Occupational-Mix-Survey2013.html. Hospitals were required to submit 
their completed 2013 surveys to their MACs by July 1, 2014. The 
preliminary, unaudited 2013 survey data were posted on the CMS Web site 
on July 11, 2014. As with the Worksheet S-3, Parts II and III cost 
report wage data, we asked our MACs to revise or verify data elements 
in hospitals' occupational mix surveys that result in certain edit 
failures.
2. Use of the 2016 Medicare Wage Index Occupational Mix Survey for the 
FY 2019 Wage Index
    As stated earlier, a new measurement of occupational mix is 
required for FY 2019. The FY 2019 occupational mix adjustment will be 
based on a new calendar year (CY) 2016 survey. The CY 2016 survey (CMS 
Form CMS-10079) received OMB approval on September 27, 2016. The final 
CY 2016 Occupational Mix Survey Hospital Reporting Form is available on 
the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/2016-Occupational-Mix-Survey-Hospital-Reporting-Form-CMS-10079-for-the-Wage-Index-Beginning-FY-2019.html. Hospitals are required to submit their 
completed 2016 surveys to their MACs by July 3, 2017. The preliminary, 
unaudited CY 2016 survey data will be posted on the CMS Web site in 
mid-July 2017. As with the Worksheet S-3, Parts II and III cost report 
wage data, as part of the FY 2019 desk review process, the MACs will 
revise or verify data elements in hospitals' occupational mix surveys 
that result in certain edit failures.
3. Calculation of the Proposed Occupational Mix Adjustment for FY 2018
    For FY 2018, we are proposing to calculate the occupational mix 
adjustment factor using the same methodology that we have used since 
the FY 2012 wage index (76 FR 51582 through 51586) and to apply the 
occupational mix adjustment to 100 percent of the FY 2018 wage index. 
Because the statute requires that the Secretary measure the earnings 
and paid hours of employment by occupational category not less than 
once every 3 years, all hospitals that are subject to payments under 
the IPPS, or any hospital that would be subject to the IPPS if not 
granted a waiver, must complete the occupational mix survey, unless the 
hospital has no associated cost report wage data that are included in 
the FY 2018 wage index. For the proposed FY 2018 wage index, we are 
using the Worksheet S-3, Parts II and III wage data of 3,325 hospitals, 
and we are using the occupational mix surveys of 3,128 hospitals for 
which we also have Worksheet S-3 wage data, which represented a 
``response'' rate of 94 percent (3,128/3,325). For the proposed FY 2018 
wage index, we are applying 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). As a result 
of applying this methodology, the proposed FY 2018 occupational mix 
adjusted national average hourly wage is $41.9599.

F. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2018 Occupational Mix Adjusted Wage 
Index

    As discussed in section III.E. of the preamble of this proposed 
rule, for FY 2018, we are proposing to apply the occupational mix 
adjustment to 100 percent of the FY 2018 wage index. We calculated the 
proposed occupational mix adjustment using data from the 2013 
occupational mix survey data, using the methodology described in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51582 through 51586). Using the 
occupational mix survey data and applying the occupational mix 
adjustment to 100 percent of the FY 2017 wage index results in a 
proposed national average hourly wage of $41.9599.
    The proposed FY 2018 national average hourly wages for each 
occupational mix nursing subcategory as calculated in Step 2 of the 
occupational mix calculation are as follows:

------------------------------------------------------------------------
                                                              Average
          Occupational mix  nursing subcategory             hourly wage
------------------------------------------------------------------------
National RN.............................................    $38.84760578
National LPN and Surgical Technician....................     22.72715122
National Nurse Aide, Orderly, and Attendant.............     15.94890269
National Medical Assistant..............................     17.97139786
National Nurse Category.................................     32.84544016
------------------------------------------------------------------------

    The proposed national average hourly wage for the entire nurse 
category as computed in Step 5 of the occupational mix calculation is 
$32.84544016. 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 2013 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 42.6 percent, 
and the national percentage of hospital employees in the all other 
occupations category is 57.4 percent. At the CBSA level, the percentage 
of hospital employees in the nurse category ranged from a low of 25.7 
percent in one CBSA to a high of 73.5 percent in another CBSA.
    We compared the FY 2018 proposed occupational mix adjusted wage 
indexes for each CBSA to the unadjusted wage indexes for each CBSA. As 
a result of applying the proposed occupational mix adjustment to the 
wage data, the proposed wage index values for 223 (54.7 percent) urban 
areas and 23 (48.9 percent) rural areas would increase. The proposed 
wage index values for 108 (26.5 percent) urban areas would increase by 
greater than or equal to 1 percent but less than 5 percent, and the 
proposed wage index values for 6 (1.5 percent) urban areas would 
increase by 5 percent or more. The proposed wage index values for 10 
(21.3 percent) rural areas would increase by greater than or equal to 1 
percent but less than 5

[[Page 19904]]

percent, and no rural areas' proposed wage index values would increase 
by 5 percent or more. However, the proposed wage index values for 184 
(45.1 percent) urban areas and 24 (51.1 percent) rural areas would 
decrease. The proposed wage index values for 85 (20.8 percent) urban 
areas would decrease by greater than or equal to 1 percent but less 
than 5 percent, and no urban areas' final wage index value would 
decrease by 5 percent or more. The proposed wage index values of 8 
(17.0 percent) rural areas would decrease by greater than or equal to 1 
percent and less than 5 percent, and no rural areas' final wage index 
values would decrease by 5 percent or more. The largest proposed 
positive impacts would be 17.4 percent for an urban area and 2.9 
percent for a rural area. The largest proposed negative impacts would 
be 4.9 percent for an urban area and 2.3 percent for a rural area. One 
urban area's proposed wage index, but no rural area wage indexes, would 
remain unchanged by application of the occupational mix adjustment. 
These results indicate that a larger percentage of urban areas (54.7 
percent) would benefit from the occupational mix adjustment than would 
rural areas (48.9 percent).

G. Proposed Application of the Rural, Imputed, and Frontier Floors

1. 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. Based 
on the proposed FY 2018 wage index associated with this proposed rule 
(which is available via the Internet on the CMS Web site), we estimated 
that 366 hospitals would receive an increase in their FY 2018 proposed 
wage index due to the application of the rural floor.
2. Proposed Expiration of the Imputed Floor Policy
    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 seven times, 
the last of which was adopted in the FY 2017 IPPS/LTCH PPS final rule 
and is set to expire on September 30, 2017. (We refer readers to 
further discussions of the imputed floor in the FY 2014, FY 2015, FY 
2016, and FY 2017 IPPS/LTCH PPS final rules (78 FR 50589 through 50590, 
79 FR 49969 through 49970, 80 FR 49497 through 49498, and 81 FR 56921 
through 56922, respectively) and to the regulations at 42 CFR 
412.64(h)(4).) Currently, there are three all-urban States--Delaware, 
New Jersey, and Rhode Island--with a range of wage indexes assigned to 
hospitals in these States, including through reclassification or 
redesignation. (We refer readers to discussions of geographic 
reclassifications and redesignations in section III.J. of the preamble 
of this proposed rule.)
    In computing the imputed floor for an all-urban State under the 
original methodology, which was established beginning in FY 2005, 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. As of FY 2012, there were only two all-urban States--New 
Jersey and Rhode Island-- and only New Jersey benefitted under this 
methodology. Under the previous OMB labor market area delineations, 
Rhode Island had only one CBSA (Providence-New Bedford-Fall River, RI-
MA) and New Jersey had 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 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 via the Internet on the CMS Web site) 
included the CBSAs receiving a State's rural floor wage index.) The 
lowest postreclassified 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 under the original methodology.
    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.
    In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49969 through 
49970), for FY 2015, we adopted a policy to extend the imputed floor 
policy (both the original methodology and alternative methodology) for 
another year, through September 30, 2015, as we continued to explore 
potential wage index reforms. In that final rule, we revised the 
regulations at Sec.  412.64(h)(4) and (h)(4)(vi) to reflect the 1-year 
extension of the imputed floor.
    As discussed in section III.B. of the preamble of that FY 2015 
final rule, we adopted the new OMB labor market area delineations 
beginning in FY 2015. Under the new OMB delineations, Delaware became 
an all-urban State, along with New Jersey and Rhode Island. Under the 
new OMB delineations, Delaware has three CBSAs, New Jersey has seven 
CBSAs, and Rhode Island continues to have only one CBSA (Providence-
Warwick, RI-MA). We refer readers to a detailed discussion of our 
adoption of the new

[[Page 19905]]

OMB labor market area delineations in section III.B. of the preamble of 
the FY 2015 IPPS/LTCH PPS final rule. Therefore, under the adopted new 
OMB delineations discussed in section III.B. of the preamble of the FY 
2015 IPPS/LTCH PPS final rule, Delaware became an all-urban State and 
was subject to an imputed floor as well for FY 2015.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49497 through 
49498), for FY 2016, we extended the imputed floor policy (under both 
the original methodology and the alternative methodology) for 1 
additional year, through September 30, 2016. In that final rule, we 
revised the regulations at Sec.  412.64(h)(4) and (h)(4)(vi) to reflect 
this additional 1-year extension.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56921 through 
56922), for FY 2017, we extended the imputed floor policy (under both 
the original methodology and the alternative methodology) for 1 
additional year, through September 30, 2017. In that final rule, we 
revised the regulations at Sec.  412.64(h)(4) and (h)(4)(vi) to reflect 
this additional 1-year extension.
    The imputed floor is set to expire effective October 1, 2017, and 
we are not proposing to extend the imputed floor policy. In the FY 2005 
IPPS final rule (69 FR 49110), we adopted the imputed floor policy for 
all-urban States under the authority of section 1886(d)(3)(E) of the 
Act, which gives the Secretary broad authority to 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 for area differences in hospital wage levels 
by a factor (established by the Secretary). However, we have expressed 
reservations about establishment of an imputed floor, considering that 
the imputed rural floor methodology creates a disadvantage in the 
application of the wage index to hospitals in States with rural 
hospitals but no urban hospitals receiving the rural floor (72 FR 24786 
and 72 FR 47322). As we discussed in the FY 2008 IPPS final rule (72 FR 
47322), the application of the rural and imputed floors requires 
transfer of payments from hospitals in States with rural hospitals but 
where the rural floor is not applied to hospitals in States where the 
rural or imputed floor is applied. For this reason, in this proposed 
rule, we are proposing not to apply an imputed floor to wage index 
calculations and payments for hospitals in all-urban States for FY 2018 
and subsequent years. That is, hospitals in New Jersey, Delaware, and 
Rhode Island (and in any other all-urban State) would receive a wage 
index that is calculated without applying an imputed floor for FY 2018 
and subsequent years. Therefore, only States containing both rural 
areas and hospitals located in such areas (including any hospital 
reclassified as rural under the provisions of Sec.  412.103 of the 
regulations) would benefit from the rural floor, in accordance with 
section 4410 of Public Law 105-33. In addition, we would no longer 
include the imputed floor as a factor in the national budget neutrality 
adjustment. Therefore, the proposed wage index and impact tables 
associated with this FY 2018 IPPS/LTCH PPS proposed rule (which are 
available via the Internet on the CMS Web site) do not reflect the 
imputed floor policy, and there is no proposed national budget 
neutrality adjustment for the imputed floor for FY 2018. We are 
inviting public comments on our proposal not to extend the imputed 
floor for FY 2018 and subsequent years.
3. Proposed State Frontier Floor for FY 2018
    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 the 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).) Fifty-two hospitals 
would receive the frontier floor value of 1.0000 for their FY 2018 wage 
index in this proposed rule. These hospitals are located in Montana, 
Nevada, North Dakota, South Dakota, and Wyoming. We are not proposing 
any changes to the frontier floor policy for FY 2018. The areas 
affected by the proposed rural and frontier floor policies for the 
proposed FY 2018 wage index are identified in Table 2 associated with 
this proposed rule, which is available via the Internet on the CMS Web 
site.

H. Proposed FY 2018 Wage Index Tables

    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49498 and 49807 
through 49808), we finalized a proposal to streamline and consolidate 
the wage index tables associated with the IPPS proposed and final rules 
for FY 2016 and subsequent fiscal years. Prior to FY 2016, the wage 
index tables had consisted of 12 tables (Tables 2, 3A, 3B, 4A, 4B, 4C, 
4D, 4E, 4F, 4J, 9A, and 9C) that were made available via the Internet 
on the CMS Web site. Effective beginning FY 2016, with the exception of 
Table 4E, we streamlined and consolidated 11 tables (Tables 2, 3A, 3B, 
4A, 4B, 4C, 4D, 4F, 4J, 9A, and 9C) into 2 tables (Tables 2 and 3). We 
refer readers to section VI. of the Addendum to this proposed rule for 
a discussion of the proposed wage index tables for FY 2018.

I. 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 Medicare Geographic 
Classification Review Board (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 (usually 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 and the policies for the effects 
of hospitals' reclassifications and redesignations on the wage index 
are discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 
final wage index (76 FR 51595 and 51596). In addition, 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.
    On April 21, 2016, we published an interim final rule with comment 
period (IFC) in the Federal Register (81 FR 23428 through 23438) that 
included provisions amending our regulations to allow hospitals 
nationwide to have simultaneous Sec.  412.103 and MGCRB 
reclassifications. For reclassifications effective beginning FY 2018, a 
hospital may acquire rural status under Sec.  412.103 and subsequently 
apply for a reclassification under the MGCRB using distance and average 
hourly wage criteria designated for rural hospitals. In

[[Page 19906]]

addition, we provided that a hospital that has an active MGCRB 
reclassification and is then approved for redesignation under Sec.  
412.103 will not lose its MGCRB reclassification; such a hospital 
receives a reclassified urban wage index during the years of its active 
MGCRB reclassification and is still considered rural under section 
1886(d) of the Act and for other purposes.
    We discussed that when there is both a Sec.  412.103 redesignation 
and an MGCRB reclassification, the MGCRB reclassification controls for 
wage index calculation and payment purposes. We exclude hospitals with 
Sec.  412.103 redesignations from the calculation of the reclassified 
rural wage index if they also have an active MGCRB reclassification to 
another area. That is, if an application for urban reclassification 
through the MGCRB is approved, and is not withdrawn or terminated by 
the hospital within the established timelines, we consider the 
hospital's geographic CBSA and the urban CBSA to which the hospital is 
reclassified under the MGCRB for the wage index calculation. We refer 
readers to the April 21, 2016 IFC (81 FR 23428 through 23438) and the 
FY 2017 IPPS/LTCH PPS final rule (81 FR 56922 through 56930) for a full 
discussion of the effect of simultaneous reclassifications under both 
the Sec.  412.103 and the MGCRB processes on wage index calculations.
2. MGCRB Reclassification and Redesignation Issues for FY 2018
a. FY 2018 Reclassification Requirements and Approvals
    As previously stated, under section 1886(d)(10) of the Act, the 
MGCRB considers applications by hospitals for geographic 
reclassification for purposes of payment under the IPPS. The specific 
procedures and rules that apply to the geographic reclassification 
process are outlined in regulations under 42 CFR 412.230 through 
412.280.
    At the time this proposed rule was constructed, the MGCRB had 
completed its review of FY 2018 reclassification requests. Based on 
such reviews, there are 375 hospitals approved for wage index 
reclassifications by the MGCRB starting in FY 2018. Because MGCRB wage 
index reclassifications are effective for 3 years, for FY 2018, 
hospitals reclassified beginning in FY 2016 or FY 2017 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 257 hospitals approved for wage index reclassifications in 
FY 2016 that will continue for FY 2018, and 274 hospitals approved for 
wage index reclassifications in FY 2017 that will continue for FY 2018. 
Of all the hospitals approved for reclassification for FY 2016, FY 
2017, and FY 2018, based upon the review at the time of this proposed 
rule, 906 hospitals are in a MGCRB reclassification status for FY 2018.
    Under the regulations at 42 CFR 412.273, hospitals that have been 
reclassified by the MGCRB are permitted to withdraw their applications 
if the request for withdrawal is received by the MGCRB within 45 days 
of the publication of CMS' annual notice of proposed rulemaking 
concerning changes to the inpatient hospital prospective payment system 
and proposed payment rates for the fiscal year for which the 
application has been filed. (We note that in section III.I.4. of the 
preamble of this proposed rule, we are proposing to revise the above 
described regulation text to specify that written notice to the MGCRB 
must be provided within 45 days from the date of public display of the 
proposed rule at the Office of the Federal Register. If finalized, that 
proposal would be effective beginning with the FY 2019 IPPS/LTCH PPS 
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 Sec.  
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 2018 will be incorporated 
into the wage index values published in the FY 2018 IPPS/LTCH PPS final 
rule. These changes affect not only the wage index value for specific 
geographic areas, but also the wage index value that 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.
    Applications for FY 2019 reclassifications are due to the MGCRB by 
September 1, 2017 (the first working day of September 2017). We note 
that this is also the deadline for canceling a previous wage index 
reclassification, withdrawal, or termination under 42 CFR 412.273(d). 
Applications and other information about MGCRB reclassifications may be 
obtained, beginning in mid-July 2017, via the Internet on the CMS Web 
site at: https://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.
    Under previous regulations at 42 CFR 412.256(a)(1), applications 
for reclassification were required to be mailed or delivered to the 
MGCRB, with a copy to CMS, and were not allowed to be submitted through 
the facsimile (FAX) process or by other electronic means. Because we 
believed this previous policy was outdated and overly restrictive and 
to promote ease of application for FY 2018 and subsequent years, in the 
FY 2017 IPPS/LTCH PPS final rule (81 FR 56928), we revised this policy 
to require applications and supporting documentation to be submitted 
via the method prescribed in instructions by the MGCRB, with an 
electronic copy to CMS. We revised Sec.  412.256(a)(1) to specify that 
an application must be submitted to the MGCRB according to the method 
prescribed by the MGCRB, with an electronic copy of the application 
sent to CMS. We specified that CMS copies should be sent via email to 
[email protected].
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56928), we 
reiterated that MGCRB application requirements will be published 
separately from the rulemaking process, and paper applications will 
likely still be required. The MGCRB makes all initial determinations 
for geographic reclassification requests, but CMS requests copies of 
all applications to assist in verifying a reclassification status 
during the wage index development process. We stated that we believed 
that requiring electronic versions would better aid CMS in this 
process, and would reduce the overall burden upon hospitals.
b. Extension of PRA Information Collection Requirement Approval for 
MGCRB Applications
    As stated earlier, 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

[[Page 19907]]

procedures and rules that apply to the geographic reclassification 
process are outlined in the regulations under 42 CFR 412.230 through 
412.280. The current information collection requirements for the MGCRB 
procedures and criteria and supporting regulations in 42 CFR 412.256 
subject to the Paperwork Reduction Act provisions are currently 
approved under OMB Control Number 0938-0573 and expired on February 28, 
2017. An extension of the currently approved collection is required in 
time for applications due to the MGCRB September 1, 2017 for FY 2019 
reclassifications. As discussed in section XIII.B. of the preamble of 
this proposed rule, a request for an extension of the current 
information collection requirements for the MGCRB procedures and 
criteria and supporting regulations is currently awaiting approval by 
OMB and can be accessed at: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201612-0938-023.
c. Proposed Deadline for Submittal of Documentation of Sole Community 
Hospital (SCH) and Rural Referral Center (RRC) Classification Status to 
the MGCRB
    The regulations at 42 CFR 412.230(a)(3), consistent with section 
1886(d)(10)(D)(i)(III) of the Act, set special rules for sole community 
hospitals (SCHs) and rural referral centers (RRCs) that are 
reclassifying under the MGCRB. Specifically, a hospital that is an RRC 
or an SCH, or both, does not have to demonstrate a close proximity to 
the area to which it seeks redesignation. If a hospital that is an RRC 
or an SCH, or both, qualifies for urban redesignation, it is 
redesignated to the urban area that is closest to the hospital. If the 
hospital is closer to another rural area than to any urban area, it may 
seek redesignation to either the closest rural or the closest urban 
area.
    In addition, section 1886(d)(10)(D)(iii) of the Act, as implemented 
in the regulations at Sec.  412.230(d)(3)(i), provides an exception to 
certain wage comparison criteria for RRCs and former RRCs reclassifying 
under the MGCRB. Under Sec.  412.230(d)(3)(i), if a hospital was ever 
an RRC, it does not have to demonstrate that it meets the average 
hourly wage criterion at Sec.  412.230(d)(1)(iii), which would require 
that the hospital's average hourly wage be at least 106 percent for 
rural hospitals and at least 108 percent for urban hospitals of the 
average hourly wage of all other hospitals in the area in which the 
hospital is located. Rather, as codified at Sec.  412.230(d)(3)(ii), 
consistent with our authority under section 1886(d)(10)(D)(i) of the 
Act, if a hospital was ever an RRC, it is required to meet only the 
criterion for rural hospitals at Sec.  412.230(d)(1)(iv), which 
requires that the hospital's average hourly wage is equal to at least 
82 percent of the average hourly wage of hospitals in the area to which 
it seeks redesignation. The regulations at Sec.  412.96 set forth the 
criteria that a hospital must meet in order to qualify as an RRC.
    For a hospital to use the special rules at Sec.  412.230(a)(3) for 
SCHs and RRCs, the existing regulation at Sec.  412.230(a)(3) requires 
that the hospital be an active SCH or an RRC as of the date of the 
MGCRB's review. In addition, for a hospital to use the RRC exceptions 
at Sec.  412.230(d)(3), a hospital must either be an RRC at the time of 
the MGCRB's review or have previously been classified as an RRC in the 
past. In other words, under the existing regulations, if a hospital is 
approved by CMS as an SCH or an RRC but the approval is not yet 
effective at the time of the MGCRB's review, the hospital's status as 
an SCH or an RRC would not be considered in the MGCRB's decision, 
unless the hospital was a former RRC, in which case it would be able to 
use the RRC exceptions at Sec.  412.230(d)(3).
    The MGCRB currently accepts supporting documentation of SCH and RRC 
classification (the CMS approval letter) up until the date of MGCRB's 
review, which varies annually. A hospital may apply at any time for 
classification as an SCH, and the classification is effective 30 days 
after the date of CMS' written notification of approval, in accordance 
with Sec.  412.92. Considering that the MGCRB usually meets in early 
February, hospitals typically seek to obtain SCH approval letters no 
later than early January (30 days prior to the date of MGCRB review) 
for the SCH status to be effective as of the date of the MGCRB's 
review. However, consistent with section 1886(d)(5)(C)(i) of the Act, a 
hospital must submit its application for RRC status during the quarter 
before the first quarter of the hospital's cost reporting period, to be 
effective at the beginning of the next cost reporting period. The 
existing regulation at Sec.  412.230(a)(3), combined with the statutory 
timeframe for RRC classification, require that a hospital's cost 
reporting period as an RRC begin on or before the date of the MGCRB's 
review in order to be considered an RRC by the MGCRB for purposes of 
the special rules under Sec.  412.230(a)(3). Similarly, in order to use 
the RRC exceptions under Sec.  412.230(d)(3), a hospital's RRC status 
must be effective on the date of the MGCRB's review, or (unlike Sec.  
412.230(a)(3)) the hospital must have had RRC status in the past. For 
example, a hospital with a cost reporting period beginning in March 
would obtain RRC approval, in accordance with the statutory timeframe, 
during the December through February quarter (potentially before the 
MGCRB's decision), but would not be considered an RRC by the MGCRB 
because the approval would not be effective until the next cost 
reporting period begins in March, after the MGCRB's decision (unless, 
for purposes of Sec.  412.230(d)(3), the hospital had previously been 
classified as an RRC in the past).
    The current practice of accepting SCH and RRC approvals up until 
the date of MGCRB review does not ensure adequate time for the MGCRB to 
include SCH and RRC approvals in its review. We note that many 
hospitals now obtain SCH or RRC status based on a Sec.  412.103 
reclassification in order to reclassify using the special rules and 
exceptions under the MGCRB following the April 21, 2016 IFC (81 FR 
23428), which revised the regulations to allow hospitals nationwide to 
reclassify based on acquired rural status. We believe that the 
additional volume of SCH and RRC approvals submitted to the MGCRB 
increases the need for an earlier deadline for documentation of SCH and 
RRC classifications to be submitted to the MGCRB for purposes of the 
special rules at Sec.  412.230(a)(3) and the exception for RRCs at 
Sec.  412.230(d)(3). In addition, because the date of the MGCRB's 
review varies annually, we believe hospitals would benefit from the 
certainty of a set date by which documentation of RRC or SCH status 
must be submitted in order to have that status considered by the MGCRB 
under 412.230(a)(3) and Sec.  412.230(d)(3).
    Therefore, to ensure sufficient time for the MGCRB to include SCH 
and RRC status approvals in its review and increase clarity for 
hospitals, while allowing as much time and flexibility as possible for 
hospitals applying for RRC status to be considered RRCs by the MGCRB, 
we are proposing to revise the regulations at Sec.  412.230(a)(3) and 
Sec.  412.230(d)(3). We are proposing to revise the regulations at 
Sec.  412.230(a)(3) in two ways. First, we are proposing to establish a 
deadline of the first business day after January 1 for hospitals to 
submit to the MGCRB documentation of SCH or RRC status approval (the 
CMS approval letter) in order to take advantage of the special rules 
under Sec.  412.230(a)(3) when reclassifying under the MGCRB. We 
believe that this date of the first business day after January 1 would 
provide sufficient time for the MGCRB to consider documentation of

[[Page 19908]]

SCH or RRC status approval in its review, without negatively affecting 
hospitals seeking to obtain SCH or RRC status, as explained below. 
Second, we are proposing to revise Sec.  412.230(a)(3) to require 
hospitals to submit documentation of SCH or RRC status approval (the 
CMS approval letter) by the deadline above, rather than to have SCH or 
RRC classification that is effective as of the date of MGCRB review, in 
order to use the special rules for SCHs and RRCs under Sec.  
412.230(a)(3). Likewise, we are proposing to revise the regulations at 
Sec.  412.230(d)(3) so that a hospital qualifies for these RRC 
exceptions if it was ever approved as a RRC. In other words, the 
exceptions at Sec.  412.230(d)(3) would continue to apply to hospitals 
that were ever classified as RRCs, but consistent with our authority 
under section 1886(d)(10)(D)(i) of the Act to publish guidelines to be 
utilized by the MGCRB, we would also extend these exceptions to 
hospitals that were ever approved as RRCs. Similar to Sec.  
412.230(a)(3), we also are proposing to establish a deadline of the 
first business day after January 1 for hospitals to submit 
documentation of RRC status approval (the CMS approval letter) in order 
to take advantage of the exception under Sec.  412.230(d)(3) when 
reclassifying under the MGCRB. These proposed revisions would more 
appropriately allow the MGCRB to prepare for its review and would allow 
hospitals obtaining SCH or RRC status approval as late as the first 
business day after January 1 to have these classifications considered 
by the MGCRB under Sec.  412.230(a)(3) and (d)(3), irrespective of the 
effective date of these classifications. These proposals would not 
substantially affect hospitals seeking SCH classification for purposes 
of reclassifying under the MGCRB because a hospital must obtain SCH 
status approval by early January under the existing regulation in order 
to have that classification effective 30 days later by the time the 
Board usually meets in early February. For hospitals seeking RRC 
classification for purposes of reclassifying under the MGCRB, however, 
the proposed deadline of no later than the first business day after 
January 1, in concert with our proposal to accept documentation of 
approval (the CMS approval letter) instead of requiring the hospital to 
be an active RRC at the time of the MGCRB review in order to take 
advantage of the special rules and exceptions under Sec.  412.230(a)(3) 
and (d)(3), is beneficial. The proposed revisions to the regulations at 
Sec.  412.230(a)(3) and (d)(3) accommodate more hospitals with various 
cost reporting year ends by allowing hospitals with cost reporting 
periods beginning soon after the MGCRB's decision to have RRC status 
approvals included in the MGCRB's review. Under the proposals, the 
MGCRB would consider an RRC status approval obtained as late as the 
first business day after January 1 instead of requiring the RRC 
classification to be effective by the time the Board meets, which has 
been in February in past years. For example, a hospital with a cost 
reporting period beginning as late as March, which could apply for RRC 
status approval in accordance with the statutory timeframe starting in 
December, would be considered an RRC by the MGCRB if it submits 
documentation of approval of RRC status no later than the first 
business day after January 1, even though the approval would not be 
effective until after the MGCRB's decision.
    For the reasons discussed above, consistent with our authority 
under section 1886(d)(10)(D)(i) of the Act to publish guidelines to be 
utilized by the MGCRB, we are proposing to revise the regulations at 
Sec.  412.230(a)(3) to specify that, to be redesignated under the 
special rules in that paragraph, the hospital must submit documentation 
of the approval of SCH or RRC status to the MGCRB no later than the 
first business day after January 1. In addition, we are proposing 
conforming revisions to paragraphs (a)(3)(i) and (ii) of Sec.  412.230 
to reflect that these paragraphs apply to hospitals with SCH and RRC 
approval as specified above (and not only effective status). 
Specifically, we are proposing to revise Sec.  412.230(a)(3)(i) to 
specify that a hospital that is approved as an RRC or SCH, or both, 
does not have to demonstrate a close proximity to the area to which it 
seeks redesignation; and to revise Sec.  412.230(a)(3)(ii) to specify 
that this paragraph applies if a hospital that is approved as an RRC or 
SCH, or both, qualifies for urban redesignation. We note that we are 
proposing additional revisions to Sec.  412.230(a)(3)(ii) as discussed 
in section III.I.2.d. of the preamble of this proposed rule.
    In addition, for the reasons discussed above, consistent with our 
authority under section 1886(d)(10)(D)(i) of the Act to publish 
guidelines to be utilized by the MGCRB, we are proposing to revise the 
regulations at Sec.  412.230(d)(3). Specifically, we are proposing to 
add introductory language to Sec.  412.230(d)(3) to specify that for 
the exceptions in this paragraph to apply, the hospital must submit 
documentation of the approval of RRC status (current or past) to the 
MGCRB no later than the first business day after January 1. In 
addition, we are proposing to revise Sec.  412.230(d)(3)(i) to specify 
that if a hospital was ever approved as an RRC, it does not have to 
demonstrate that it meets the average hourly wage criterion set forth 
in Sec.  412.230(d)(1)(iii); and to revise Sec.  412.230(d)(3)(ii) to 
specify that if a hospital was ever approved as an RRC, it is required 
to meet only the criterion that applies to rural hospitals under Sec.  
412.230(d)(1)(iv), regardless of its actual location in an urban or 
rural area.
    We are inviting public comments on these proposals.
d. Clarification of Special Rules for SCHs and RRCs Reclassifying to 
Geographic Home Area
    Following issuance of the April 21, 2016 IFC (81 FR 23428), 
hospitals may simultaneously be redesignated as rural under Sec.  
412.103 and reclassified under the MGCRB. An urban hospital seeking 
benefits of rural status, such as rural payments for disproportionate 
share hospitals (DSH) and eligibility for the 340B Drug Pricing Program 
administered by HRSA, without the associated rural wage index may be 
redesignated as rural under Sec.  412.103 (if it meets the applicable 
requirements) and also reclassify under the MGCRB to an urban area 
(again, if it meets the applicable requirements). As discussed earlier 
and in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56922 through 
56927), a hospital with simultaneous Sec.  412.103 redesignation and 
MGCRB reclassification receives the wage index of the CBSA to which it 
is reclassified under the MGCRB while still maintaining Sec.  412.103 
reclassified rural status for other purposes.
    Hospitals that are redesignated under Sec.  412.103 may seek MGCRB 
reclassification to their geographic home area. Such hospitals 
automatically meet the criteria for proximity, but must still 
demonstrate that they meet the wage comparison requirements using the 
criteria for rural hospitals at Sec.  412.230(d). Specifically, a 
hospital with a Sec.  412.103 redesignation seeking reclassification 
under the MGCRB must demonstrate that its average hourly wage is at 
least 106 percent of the average hourly wage of all other hospitals in 
the area in which the hospital is located in accordance with Sec.  
412.230(d)(1)(iii), and the hospital's average hourly wage is equal to 
at least 82 percent of the average hourly wage of hospitals in the area 
to which it seeks redesignation, in accordance with Sec.  
412.230(d)(1)(iv). In this case, both the area in which the hospital is 
located and

[[Page 19909]]

the area to which it seeks redesignation are the geographic home area.
    If a hospital with a Sec.  412.103 rural redesignation also has SCH 
or RRC status based on its acquired rural status, the hospital may use 
the exception at Sec.  412.230(d)(3) for RRCs seeking reclassification 
under the MGCRB and the special reclassification rules at Sec.  
412.230(a)(3) for SCHs and RRCs. Specifically, under Sec.  
412.230(d)(3)(ii), an RRC or former RRC must only demonstrate that its 
average hourly wage is equal to at least 82 percent of the average 
hourly wage of hospitals in the area to which it seeks redesignation. 
In other words, a hospital with RRC status based on a Sec.  412.103 
rural redesignation that is seeking additional reclassification under 
the MGCRB to its geographic home area must only demonstrate that its 
average hourly wage is equal to at least 82 percent of the average 
hourly wage of hospitals in its geographic home area. The proximity 
requirement is waived under Sec.  412.230(a)(3) for SCHs and RRCs, and 
SCHs and RRCs are redesignated to the urban area that is closest to the 
hospital (or if the hospital is closer to another rural area than to 
any urban area, it may seek redesignation to either the closest rural 
area or the closest urban area).
    The existing regulation at Sec.  412.230(a)(3)(ii) states that if 
an SCH or RRC qualifies for urban redesignation, it is redesignated to 
the urban area that is closest to the hospital. As currently worded, we 
believe it is unclear how this provision would apply to a hospital with 
a Sec.  412.103 rural redesignation and SCH or RRC status. If the urban 
area that is closest to the hospital is interpreted to mean the 
hospital's geographic home area, a hospital with a Sec.  412.103 rural 
redesignation and SCH or RRC status would not be able to reclassify to 
any closest area outside of the hospital's geographic home area, but 
would only be allowed to reclassify to the geographic home area. 
Alternatively, if the urban area that is closest to the hospital is 
interpreted to mean the closest urban area to the hospital's geographic 
home area, the hospital would seem to be precluded from reclassifying 
under the MGCRB to its geographic home area. In other words, under the 
existing language of this regulation, the urban area that is closest to 
the hospital can either be interpreted to mean the hospital's 
geographic home area, or the closest area outside of the hospital's 
geographic home area.
    We believe it would be appropriate to revise Sec.  
412.230(a)(3)(ii) to clarify that it allows for redesignation to either 
the hospital's geographic home area or to the closest area outside of 
the hospital's geographic home area. Prior to the April 21, 2016 
interim final rule with comment period (IFC) (81 FR 23428), it was not 
possible for a hospital with Sec.  412.103 rural redesignation to seek 
reclassification to its geographic home area or to the closest area 
outside its geographic home area under the MGCRB because dual 
reclassification under Sec.  412.103 and under the MGCRB was not 
permitted. However, the IFC allowed dual Sec.  412.103 and MGCRB 
reclassifications, so a hospital may now reclassify to a rural area 
under Sec.  412.103 and then reclassify back to its geographic home 
area or another area under the MGCRB for wage index purposes (if it 
meets all criteria). Thus, depending on the circumstances, a hospital 
may seek to reclassify to either its geographic home area or the 
closest area outside of its geographic home area.
    Therefore, we are proposing to revise the regulations at Sec.  
412.230(a)(3)(ii) to clarify that a hospital with a Sec.  412.103 rural 
redesignation and SCH or RRC approval may reclassify under the MGCRB to 
its geographic home area or to the closest area outside of its 
geographic home area. Specifically, we are proposing to revise Sec.  
412.230(a)(3)(ii) to state that if a hospital that is approved as an 
RRC or an SCH, or both, qualifies for urban redesignation, it is 
redesignated to the urban area that is closest to the hospital or to 
the hospital's geographic home area. If the hospital is closer to 
another rural area than to any urban area, it may seek redesignation to 
either the closest rural or the closest urban area.
3. Redesignations Under Section 1886(d)(8)(B) of the Act
    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 effective for the 
fiscal year in which the hospital receives the out-migration 
adjustment. 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. (We note that, in section III.I.4. of the 
preamble of this proposed rule, we are proposing to revise this policy 
to require a Lugar hospital that qualifies for and accepts the out-
migration adjustment, or that no longer wishes to accept the out-
migration adjustment and instead elects to return to its deemed urban 
status, to notify CMS within 45 days from the date of public display of 
the proposed rule at the Office of the Federal Register.) 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. In the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56930), we again clarified that such a request to 
waive Lugar status, received within 45 days of the publication of the 
proposed rule, is valid for the full 3-year period for which the 
hospital's out-migration adjustment is effective. We further clarified 
that if a hospital wishes to reinstate its urban status for any fiscal 
year within this 3-year period, it must send a request to CMS within 45 
days of publication of the proposed rule for that particular fiscal 
year. We indicated that such reinstatement requests may be sent 
electronically to [email protected]. We wish to further clarify 
that both requests to waive and to reinstate ``Lugar'' status may be 
sent to this mailbox. To ensure proper accounting, we request hospitals 
to include their CCN, and either ``waive Lugar'' or ``reinstate 
Lugar'', in the subject line of these requests.
4. Proposed Changes to the 45-Day Notification Rules
    Certain Medicare regulations specify that hospitals have 45 days 
from the publication of the annual proposed rule for the hospital 
inpatient prospective payment system to inform CMS or the MGCRB of 
certain requested reclassification/redesignation and out-migration 
adjustment changes relating to the development of the hospital wage 
index. Specifically, 42 CFR 412.64(i)(3)(iii), which provides for 
adjusting the wage index to account for commuting patterns of hospital 
workers, and 42 CFR 412.211(f)(3)(iii), which provides for the same 
adjustment for hospitals in Puerto Rico, state that a hospital may 
waive the application of this wage index adjustment by notifying CMS in 
writing within 45 days after the publication of the annual notice of 
proposed rulemaking for the hospital inpatient prospective payment 
system. The regulations at Sec.  412.273(c) concerning withdrawing an 
MGCRB application, terminating an approved 3-year reclassification, or 
canceling a previous withdrawal or termination, also state 
(specifically Sec.  412.273(c)(1)(ii)

[[Page 19910]]

and (2)) that a request for withdrawal or termination must be received 
by the MGCRB within 45 days of publication of CMS' annual notice of 
proposed rulemaking concerning changes to the inpatient hospital 
prospective payment system and proposed payment rates. Similarly, the 
policy outlined in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 
through 51600) allows a Lugar hospital that qualifies for and accepts 
the out-migration adjustment, or that no longer wishes to accept the 
out-migration adjustment and instead elects to return to its deemed 
urban status to notify CMS within 45 days from the publication of the 
proposed rule.
    We are proposing to revise the above described regulation text and 
policies as follows to specify that written notification to CMS or the 
MGCRB (as applicable) must be provided within 45 days from the date of 
public display of the annual proposed rule for the hospital inpatient 
prospective payment system at the Office of the Federal Register. We 
believe that the public has access to the necessary information from 
the date of public display of the proposed rule at the Office of the 
Federal Register and on its Web site in order to make the decisions at 
issue. Specifically, we are proposing to revise the regulations at 
Sec.  412.64(i)(3)(iii) and Sec.  412.211(f)(3)(iii) to provide that a 
hospital may waive the application of the wage index adjustment by 
notifying CMS within 45 days of the date of public display of the 
annual notice of proposed rulemaking for the hospital inpatient 
prospective payment system at the Office of the Federal Register. In 
addition, we are proposing to revise the regulations at Sec.  
412.273(c)(1)(ii) and (c)(2) to provide that a request for withdrawal 
or termination of an MGCRB reclassification must be received by the 
MGCRB within 45 days of the date of public display at the Office of the 
Federal Register of the annual notice of proposed rulemaking concerning 
changes to the inpatient hospital prospective payment system and 
proposed payment rates for the fiscal year for which the application 
has been filed (in the case of a withdrawal under Sec.  
412.273(c)(1)(ii)), or for the fiscal year for which the termination is 
to apply (under Sec.  412.273(c)(2)). We also are proposing to revise 
our policy outlined in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51599 through 51600) (as described above) to require a Lugar hospital 
that qualifies for and accepts the out-migration adjustment, or that no 
longer wishes to accept the out-migration adjustment and instead elects 
to return to its deemed urban status to notify CMS within 45 days from 
the date of public display of the proposed rule at the Office of the 
Federal Register. We are inviting public comments on these proposals.

J. Proposed Out-Migration Adjustment Based on Commuting Patterns of 
Hospital Employees

    In accordance with section 1886(d)(13) of the Act, as added by 
section 505 of Pub. L. 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.
    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. When the provision of section 1886(d)(13) of the 
Act was implemented for the FY 2005 wage index, we analyzed commuting 
data compiled by the U.S. Census Bureau that were 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 which contained questions on where 
residents in each county worked (69 FR 49062). However, the 2010 Census 
was ``short form'' only; information on where residents in each county 
worked was not collected as part of the 2010 Census. The Census Bureau 
worked with CMS to provide an alternative dataset based on the latest 
available data on where residents in each county worked in 2010, for 
use in developing a new out-migration adjustment based on new commuting 
patterns developed from the 2010 Census data beginning with FY 2016.
    To determine the out-migration adjustments and applicable counties 
for FY 2016, we analyzed commuting data compiled by the Census Bureau 
that were derived from a custom tabulation of the American Community 
Survey (ACS), an official Census Bureau survey, utilizing 2008 through 
2012 (5-Year) Microdata. The data were compiled from responses to the 
ACS questions regarding the county where workers reside and the county 
to which workers commute. As we discussed in the FY 2016 and FY 2017 
IPPS/LTCH PPS final rules (80 FR 49501 and 81 FR 56930, respectively), 
the same policies, procedures, and computation that were used for the 
FY 2012 out-migration adjustment were applicable for FY 2016 and FY 
2017, and we are proposing to use them again for FY 2018. We have 
applied the same policies, procedures, and computations since FY 2012, 
and we believe they continue to be appropriate for FY 2018. We refer 
readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49500 through 
49502) for a full explanation of the revised data source.
    For FY 2018, until such time that CMS finalizes out-migration 
adjustments based on the next Census, the out-migration adjustment 
continues to be based on the data derived from the custom tabulation of 
the ACS utilizing 2008 through 2012 (5-Year) Microdata. For FY 2018, we 
are not proposing any changes to the methodology or data source that we 
used for FY 2016 (81 FR 25071). (We refer readers to a full discussion 
of the out-migration 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 2 associated with 
this proposed rule (which is available via the Internet on the CMS Web 
site) includes the proposed out-migration adjustments for the FY 2018 
wage index.

K. Reclassification From Urban to Rural Under Section 1886(d)(8)(E) of 
the Act, Implemented at 42 CFR 412.103

    Under section 1886(d)(8)(E) of the Act, a qualifying prospective 
payment hospital located in an urban area may apply for rural status 
for payment purposes separate from reclassification through the MGCRB. 
Specifically, section 1886(d)(8)(E) of the Act provides that, not later 
than 60 days after the receipt of an application (in a form and manner 
determined by the Secretary) from a subsection (d) hospital that 
satisfies certain criteria, the Secretary shall treat the hospital as 
being located in the rural area (as defined in paragraph (2)(D)) of the 
State in which the hospital is located. We refer readers to the 
regulations at 42 CFR 412.103 for the general criteria and application 
requirements for a subsection (d) hospital to reclassify from urban to 
rural status in accordance with section 1886(d)(8)(E) of the Act. The 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51595 through 51596) includes 
our policies

[[Page 19911]]

regarding the effect of wage data from reclassified or redesignated 
hospitals.
    Hospitals must meet the criteria to be reclassified from urban to 
rural status under Sec.  412.103, as well as fulfill the requirements 
for the application process. There may be one or more reasons that a 
hospital applies for the urban to rural reclassification, and the 
timeframe that a hospital submits an application is often dependent on 
those reason(s). Because the wage index is part of the methodology for 
determining the prospective payments to hospitals for each fiscal year, 
we believe there should be a definitive timeframe within which a 
hospital should apply for rural status in order for the 
reclassification to be reflected in the next Federal fiscal year's wage 
data used for setting payment rates.
    Therefore, after notice of proposed rulemaking and consideration of 
public comments, in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56931 
through 56932), we revised Sec.  412.103(b) by adding paragraph (6) to 
specify that, in order for a hospital to be treated as rural in the 
wage index and budget neutrality calculations under Sec.  
412.64(e)(1)(ii), (e)(2), (e)(4), and (h) for payment rates for the 
next Federal fiscal year, the hospital's filing date must be no later 
than 70 days prior to the second Monday in June of the current Federal 
fiscal year and the application must be approved by the CMS Regional 
Office in accordance with the requirements of Sec.  412.103. We refer 
readers to the FY 2017 IPPS/LTCH PPS final rule for a full discussion 
of this policy. We clarified that the lock-in date does not affect the 
timing of payment changes occurring at the hospital-specific level as a 
result of reclassification from urban to rural under Sec.  412.103. 
This lock-in date also does not change the current regulation that 
allows hospitals that qualify under Sec.  412.103(a) to request, at any 
time during a cost reporting period, to reclassify from urban to rural. 
A hospital's rural status and claims payment reflecting its rural 
status continue to be effective on the filing date of its 
reclassification application, which is the date the CMS Regional Office 
receives the application, in accordance with Sec.  412.103(d). The 
hospital's IPPS claims will be paid reflecting its rural status on the 
filing date (the effective date) of the reclassification, regardless of 
when the hospital applies.

L. Clarification of Application Deadline for Rural Referral Center 
(RRC) Classification

    Section 1886(d)(5)(C)(i) of the Act, implemented at 42 CFR 412.96, 
provides for the classification and special treatment of rural referral 
centers (RRCs). The regulations at Sec.  412.96 set forth the criteria 
that a hospital must meet in order to qualify as an RRC. Under Sec.  
412.96(b)(1)(ii), a hospital may qualify as an RRC if it is located in 
a rural area and has 275 or more beds during its most recently 
completed cost reporting period. The hospital also can obtain RRC 
status by showing that at least 50 percent of its Medicare patients are 
referred from other hospitals or from physicians not on the staff of 
the hospital, and at least 60 percent of the hospital's Medicare 
patients live more than 25 miles from the hospital, and at least 60 
percent of all the services that the hospital furnishes to Medicare 
beneficiaries are furnished to beneficiaries who live more than 25 
miles from the hospital (Sec.  412.96(b)(2)), or by showing that the 
hospital meets the alternative criteria at Sec.  412.96(c). We refer 
readers to 42 CFR 412.96 for a full description of the criteria for 
classification as an RRC.
    Consistent with section 1886(d)(5)(C)(i) of the Act, the hospital 
must submit its application for RRC status during the last quarter of 
the hospital's cost reporting period, to be effective with the 
beginning of the next cost reporting period. Specifically, section 
1886(d)(5)(C)(i) of the Act provides that an appeal allowed under this 
paragraph must be submitted to the Secretary (in such form and manner 
as the Secretary may prescribe) during the quarter before the first 
quarter of the hospital's cost reporting period (or, in the case of a 
cost reporting period beginning during October 1984, during the first 
quarter of that period), and the Secretary must make a final 
determination with respect to such appeal within 60 days after the date 
the appeal was submitted. Any payment adjustments necessitated by a 
reclassification based upon the appeal will be effective at the 
beginning of such cost reporting period. Therefore, in this proposed 
rule, we are clarifying that applications for RRC status must be 
submitted during this timeframe. That is, applications for RRC status 
must be submitted during the last quarter of the cost reporting period 
before the first quarter of a hospital's cost reporting year. If 
approved, the RRC status is effective with the beginning of the 
hospital's cost reporting period occurring after the last quarter of 
the cost reporting period in which the hospital submits an application.
    We also are clarifying in this proposed rule that, while RRC 
applications must be submitted only within the timeframe described 
above, applications for urban-to-rural reclassification under Sec.  
412.103 may be submitted at any time for the hospital to be approved 
for rural reclassification. This includes hospitals seeking rural 
reclassification under Sec.  412.103(a)(3), which states that a 
hospital meets criteria for urban-to-rural reclassification if the 
hospital would qualify as a RRC as set forth in Sec.  412.96, or as an 
SCH as set forth in Sec.  412.92, if the hospital were located in a 
rural area. A hospital seeking RRC status based on a rural 
reclassification under Sec.  412.103, including Sec.  412.103(a)(3), 
must still submit an application for RRC status during the last quarter 
of its cost reporting year before the next cost reporting period in 
accordance with section 1886(d)(5)(C)(i) of the Act. While the Sec.  
412.103 rural redesignation would be effective as of the date of filing 
the application, in accordance with Sec.  412.103(d), the RRC status 
would be effective beginning with the hospital's cost reporting period 
occurring after the last quarter of the cost reporting period in which 
the hospital submits an application.
    Because a hospital may only apply for RRC status during the last 
quarter of its cost reporting year in accordance with section 
1886(d)(5)(C)(i) of the Act, hospitals seeking RRC status, in order to 
reclassify through the MGCRB using the special rules for SCHs and RRCs 
at Sec.  412.230(a)(3) and the exceptions at Sec.  412.230(d)(3) for 
RRCs, may be disadvantaged due to their cost reporting year end. As 
discussed in section III.I.2. of the preamble of this proposed rule, we 
are proposing to revise the regulations at Sec.  412.230(a)(3) and 
(d)(3) to allow hospitals to submit documentation of the approval of 
SCH or RRC status (as applicable) to the MGCRB no later than the first 
business day after January 1. We believe our proposal to accept 
documentation of approval of RRC classification, instead of requiring 
that the hospital be classified as a RRC at the time of Board review, 
would accommodate more hospitals with various cost reporting period 
endings. We refer readers to section III.I.2. of the preamble of this 
proposed rule for further discussion of this proposal.

M. Process for Wage Index Data Corrections

1. Process for Hospitals To Request Wage Index Data Corrections
    The preliminary, unaudited Worksheet S-3 wage data files for the 
proposed FY 2018 wage index were made available on May 16, 2016, and 
the preliminary CY 2013 occupational

[[Page 19912]]

mix data files on May 16, 2016, through the Internet on the CMS Web 
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-Wage-Index-Home-Page.html.
    On January 30, 2017, we posted a public use file (PUF) at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-Wage-Index-Home-Page.html containing FY 2018 wage index data available as of January 
29, 2017. This PUF contains a tab with the Worksheet S-3 wage data 
(which includes Worksheet S-3, Parts II and III wage data from cost 
reporting periods beginning on or after October l, 2013 through 
September 30, 2014; that is, FY 2014 wage data), a tab with the 
occupational mix data (which includes data from the CY 2013 
occupational mix survey, Form CMS-10079), a tab containing the 
Worksheet S-3 wage data of hospitals deleted from the January 30, 2017 
wage data PUF, and a tab containing the CY 2013 occupational mix data 
(if any) of the hospitals deleted from the January 30, 2017 wage data 
PUF. In a memorandum dated January 27, 2017, we instructed all MACs to 
inform the IPPS hospitals that they service of the availability of the 
January 30, 2017 wage index data PUFs, and the process and timeframe 
for requesting revisions in accordance with the FY 2018 Wage Index 
Timetable.
    In the interest of meeting the data needs of the public, beginning 
with the proposed FY 2009 wage index, we post an additional PUF 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 about the dates 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 May 16, 2016, we instructed all MACs to 
inform the IPPS hospitals that they service of the availability of the 
wage index data files and the process and timeframe for requesting 
revisions. 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 May 16, 2016 wage data files and May 16, 2016 occupational mix data 
files, the hospital had to submit corrections along with complete, 
detailed supporting documentation to its MAC by September 2, 2016. 
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 letters sent to them by their MACs.
    November 4, 2016 was the date by when MACs notified State hospital 
associations regarding hospitals that failed to respond to issues 
raised during the desk reviews. The MACs notified the hospitals by mid-
January 2017 of any changes to the wage index data as a result of the 
desk reviews and the resolution of the hospitals' revision requests. 
The MACs also submitted the revised data to CMS by January 20, 2017. 
CMS published the wage index PUFs that included hospitals' revised wage 
index data on January 30, 2017. Hospitals had until February 17, 2017, 
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 March 24, 2017. Under our 
current policy, the deadline for a hospital to request CMS intervention 
in cases where a hospital disagreed with a MAC's policy interpretation 
was April 5, 2017. Beginning next year (that is, April 2018 for wage 
data revisions for the FY 2019 wage index), we are proposing to require 
that a hospital that seeks to challenge the MAC's handling of wage data 
on any basis (including a policy, factual, or any other dispute) must 
request CMS to intervene by the date in April that is specified as the 
deadline for hospitals to appeal MAC determinations and request CMS' 
intervention in cases where the hospital disagrees with the MAC's 
determination (the wage index timetable would be updated to reflect the 
specified date). We note that, as we did for the FY 2017 wage index, 
for the FY 2018 wage index, in accordance with the FY 2018 wage index 
timeline posted on the CMS Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-Wage-Index-Home-Page.html, the April appeals have to be 
sent via mail and email. We refer readers to the wage index timeline 
for complete details.
    Hospitals are given the opportunity to 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: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-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 2014 data used 
to construct the proposed FY 2018 wage index. We note that the proposed 
hospital average hourly wages shown in Table 2 only reflect changes 
made to a hospital's data that were transmitted to CMS by early 
February 2017.
    We plan to post the final wage index data PUFs in late April 2017 
on the Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-Wage-Index-Home-Page.html. The April 2017 PUFs 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 previously described (revisions submitted to CMS 
by the MACs by March 24, 2017).
    After the release of the April 2017 wage index data PUFs, changes 
to the wage and occupational mix data can 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 March 24, 2017.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the January 30, 
2017 wage index PUFs.
     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 April 2017 final wage index data PUFs, a 
hospital believes that its wage or occupational

[[Page 19913]]

mix data were incorrect due to a MAC or CMS error in the entry or 
tabulation of the final data, the hospital is given the opportunity to 
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 May 30, 2017. Similar to the April appeals, beginning with the FY 
2015 wage index, in accordance with the FY 2018 wage index timeline 
posted on the CMS Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-Wage-Index-Home-Page.html, the May appeals must be sent via mail 
and email to CMS and the MACs. We refer readers to the wage index 
timeline for complete details.
    Verified corrections to the wage index data received timely by CMS 
and the MACs (that is, by May 30, 2017) will be incorporated into the 
final FY 2018 wage index, which will be effective October 1, 2017.
    We created the processes previously described to resolve all 
substantive wage index data correction disputes before we finalize the 
wage and occupational mix data for the FY 2018 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 (requiring requests 
to MACs by the specified date in February and, where such requests are 
unsuccessful, requests for intervention by CMS by the specified date in 
April) 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 
earlier 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 
PUFs by late April 2017, 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 2018 wage index by August 
2017, and the implementation of the FY 2018 wage index on October 1, 
2017. Given these processes, 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 May 30, 
2017, 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 
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 May 
deadline for making corrections to the wage data for the following 
fiscal year's wage index (for example, May 30, 2017 for the FY 2018 
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 May 30, 2017 deadline for the 
FY 2018 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 May 30, 2017 deadline for the FY 2018 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 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.
2. Process for Data Corrections by CMS After the January Public Use 
File (PUF)
    The process set forth with the wage index timeline discussed in 
section III.M.1. of the preamble of this proposed rule allows hospitals 
to request corrections to their wage index data within prescribed 
timeframes. In addition to hospitals' opportunity to request 
corrections of wage index data errors or MACs' mishandling of data, CMS 
has the authority under section 1886(d)(3)(E) of the Act to make 
corrections to hospital wage index and occupational mix data in order 
to ensure the accuracy of the wage index. As we explained in the FY 
2016 IPPS/LTCH PPS final rule (80 FR 49490 through 49491) and the FY 
2017 IPPS/LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of 
the Act requires the Secretary to adjust the proportion of hospitals' 
costs attributable to wages and wage-related costs for area differences 
reflecting the relative hospital wage level in the geographic areas of 
the hospital compared to the national average hospital wage level. We 
believe that, under section 1886(d)(3)(E) of the Act, we have 
discretion to make

[[Page 19914]]

corrections to hospitals' data to help ensure that the costs 
attributable to wages and wage-related costs in fact accurately reflect 
the relative hospital wage level in the hospitals' geographic areas.
    We have an established multistep, 15-month process for the review 
and correction of the hospital wage data that is used to create the 
IPPS wage index for the upcoming fiscal year. Since the origin of the 
IPPS, the wage index has been subject to its own annual review process, 
first by the MACs, and then by CMS. As a standard practice, after each 
annual desk review, CMS reviews the results of the MACs' desk reviews 
and focuses on items flagged during the desk review, requiring that, if 
necessary, hospitals provide additional documentation, adjustments, or 
corrections to the data. This ongoing communication with hospitals 
about their wage data may result in the discovery by CMS of additional 
items that were reported incorrectly or other data errors, even after 
the posting of the January PUF, and throughout the remainder of the 
wage index development process. In addition, the fact that CMS analyzes 
the data from a regional and even national level, unlike the review 
performed by the MACs that review a limited subset of hospitals, can 
facilitate additional editing of the data that may not be readily 
apparent to the MACs. In these occasional instances, an error may be of 
sufficient magnitude that the wage index of an entire CBSA is affected. 
Accordingly, CMS uses its authority to ensure that the wage index 
accurately reflects the relative hospital wage level in the geographic 
area of the hospital compared to the national average hospital wage 
level, by continuing to make corrections to hospital wage data upon 
discovering incorrect wage data, distinct from instances in which 
hospitals request data revisions.
    We note that CMS corrects errors to hospital wage data as 
appropriate, regardless of whether that correction will raise or lower 
a hospital's average hourly wage. For example, as discussed in section 
III.D.2. of the preamble of this proposed rule, in the calculation of 
the proposed FY 2018 wage index, upon discovering that hospitals 
reported other wage-related costs on Line 18 of Worksheet S-3, despite 
those other wage-related costs failing to meet the requirement that 
other wage related costs must exceed 1 percent of total adjusted 
salaries net of excluded area salaries, CMS made internal edits to 
remove those other wage-related costs from Line 18. Conversely, if CMS 
discovers after conclusion of the desk review, for example, that a MAC 
inadvertently failed to incorporate positive adjustments resulting from 
a prior year's wage index appeal to a hospital's wage related costs 
such as pension, CMS would correct that data error and the hospital's 
average hourly wage would likely increase as a result.
    While we maintain CMS' authority to conduct additional review and 
make resulting corrections at any time during the wage index 
development process, we are proposing a process for hospitals to 
request further review of a correction made by CMS starting with the FY 
2019 wage index. In order to allow opportunity for input from hospitals 
concerning corrections made by CMS after the posting of the January 
PUF, we are proposing a process similar to the existing process in 
which hospitals may request corrections to wage index data displayed in 
the January PUF. Instances where CMS makes a correction to a hospital's 
data after the January PUF based on a different understanding than the 
hospital about certain reported costs, for example, could potentially 
be resolved using this proposed process before the final wage index is 
calculated. We believe this proposed process and timeline (as descrbed 
above) would bring additional transparency to instances where CMS makes 
data corrections after the January PUF, and would provide opportunities 
for hospitals to request further review of CMS changes in time for the 
most accurate data to be reflected in the final wage index 
calculations.
    Effective beginning with the FY 2019 wage index development cycle, 
we are proposing to use existing appeal deadlines (in place for 
hospitals to appeal determinations made by the MAC during the desk 
review process) for hospitals to dispute corrections made by CMS after 
posting of the January PUF that do not arise from a hospital request 
for a wage data revision. Starting with the April appeal deadline, 
hospitals would use the soonest approaching appeal deadline to dispute 
any adjustments made by CMS. However, if a hospital was notified of an 
adjustment within 14 days of an appeal deadline, the hospital would 
have until the next appeal deadline to dispute any adjustments. We 
believe this would give hospitals sufficient time to prepare an appeal 
of adjustments made by CMS after the January PUF. Specifically, for any 
adjustments made by CMS between the date the January PUF is posted and 
at least 14 calendar days before the April appeals deadline, we are 
proposing that hospitals would have until the April appeals deadline 
(which, for example, is April 5 in the FY 2018 Wage Index Timetable) to 
dispute the adjustments. For any adjustments made by CMS between 13 
calendar days before the April appeals deadline and 14 calendar days 
before the May appeals deadline, we are proposing that hospitals would 
have until the May appeals deadline (which, for example, is May 30 in 
the FY 2018 Wage Index Timetable) to dispute the adjustments. In cases 
where hospitals disagree with CMS adjustments of which they were 
notified 13 calendar days before the May appeals deadline or later, the 
hospitals could appeal to the PRRB with no need for further review by 
CMS before such appeal.
    We are using dates from the FY 2018 Wage Index Timetable in the 
following example (we reiterate that this appeals process would be 
effective beginning with the FY 2019 wage index cycle, but for 
illustrative purposes, we are using dates from the FY 2018 Wage Index 
Timetable, the most recently published wage index timetable): A 
hospital that is notified by the MAC or CMS of an adjustment to its 
wage data after the release of the January 30, 2017 PUF could use the 
April 5, 2017 appeals deadline to dispute the adjustment. If the 
hospital is notified of an adjustment by CMS or the MAC to its wage 
data after March 22, 2017 (that is, less than 14 days prior to the 
April 5 appeals deadline), it could use the May 30, 2017 appeals 
deadline to dispute the adjustment. If the hospital is first notified 
about the adjustment after May 16, 2017 (that is, less than 14 days 
prior to the May 30 deadline), and disagrees with the adjustment, the 
hospital could appeal directly to the PRRB.
    As with the existing process for requesting wage data corrections, 
we are proposing that a hospital disputing an adjustment made by CMS 
after the posting of the January PUF would be required to request a 
correction by the first applicable deadline. For example, if a hospital 
was notified on March 20 of an adjustment to its data by CMS and does 
not appeal by April 5, the hospital would not be able to appeal by May 
30 or bring the case before the PRRB. That is, hospitals that did not 
meet the procedural deadlines set forth above would not be afforded a 
later opportunity to submit wage index data corrections or to dispute 
CMS' decision with respect to requested changes. As with the existing 
process for hospitals to request wage data corrections, our policy is 
that hospitals that do not meet the procedural deadlines set forth 
earlier would not be permitted to challenge later, before the PRRB, the 
failure of CMS to make a requested data revision.

[[Page 19915]]

    In summary, under the statute, CMS has discretion to make 
corrections and revisions to hospitals' wage data throughout the 
multistep wage index development process, and we are proposing a 
pathway for hospitals to request additional review of corrections to 
their wage data made by CMS. Beginning with the development of the FY 
2019 wage index, we are proposing a process whereby CMS could continue 
to correct data after the posting of the January PUF, while allowing 
hospitals to appeal changes made by CMS using existing deadlines from 
the process for hospitals to request wage data corrections. As with the 
existing process, a hospital would be required to appeal by the first 
applicable deadline, if relevant, to maintain the right to appeal to 
the PRRB to dispute a correction to its wage data made by CMS.
    We are inviting public comments on our proposals.

N. Proposed Labor Market Share for the Proposed FY 2018 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 and to 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, FY 2015, FY 2016, and FY 2017 of 69.6 
percent. In addition, in FY 2014, we implemented this revised and 
rebased labor-related share in a budget neutral manner (78 FR 51016). 
However, 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 1.0000 
being paid using a labor-related share lower than the labor-related 
share of hospitals with a wage index greater than 1.0000.
    For FY 2018, as described in section IV. of the preamble of this 
proposed rule, we are proposing to rebase and revise the IPPS market 
basket reflecting 2014 data. We also are proposing to recalculate the 
labor-related share for discharges occurring on or after October 1, 
2017 using the proposed 2014-based IPPS market basket. As discussed in 
Appendix A of this proposed rule, we are proposing this revised and 
rebased labor-related share in a budget neutral manner. However, 
consistent with section 1886(d)(3)(E) of the Act, we 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 1.0000 being paid 
using a labor-related share lower than the labor-related share of 
hospitals with a wage index greater than 1.0000.
    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. We include a cost category in the labor-related share if the 
costs are labor intensive and vary with the local labor market. As 
described in section IV. of the preamble of this proposed rule, we are 
proposing to include in the labor-related share the national average 
proportion of operating costs that are attributable to Wages and 
Salaries, Employee Benefits, Professional Fees: Labor-Related, 
Administrative and Facilities Support Services, Installation, 
Maintenance, and Repair Services, and All Other: Labor-Related Services 
as measured in the proposed 2014-based IPPS market basket. Therefore, 
for FY 2018, we are proposing to use a labor-related share of 68.3 
percent for discharges occurring on or after October 1, 2017.
    Prior to January 1, 2016, Puerto Rico hospitals were paid based on 
75 percent of the national standardized amount and 25 percent of the 
Puerto Rico-specific standardized amount. As a result, we applied the 
Puerto Rico-specific labor-related share percentage and nonlabor-
related share percentage to the Puerto Rico-specific standardized 
amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub. 
L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that 
the payment calculation with respect to operating costs of inpatient 
hospital services of a subsection (d) Puerto Rico hospital for 
inpatient hospital discharges on or after January 1, 2016, shall use 
100 percent of the national standardized amount. Because Puerto Rico 
hospitals are no longer paid with a Puerto Rico-specific standardized 
amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as 
amended by section 601 of the Consolidated Appropriations Act, 2016, 
there is no longer a need for us to calculate a Puerto Rico-specific 
labor-related share percentage and nonlabor-related share percentage 
for application to the Puerto Rico-specific standardized amount. 
Hospitals in Puerto Rico are now paid 100 percent of the national 
standardized amount and, therefore, are subject to the national labor-
related share and nonlabor-related share percentages that are applied 
to the national standardized amount. Accordingly, for FY 2018, we are 
not proposing a Puerto Rico-specific labor-related share percentage or 
a nonlabor-related share percentage.
    Tables 1A and 1B, which are published in section VI. of the 
Addendum to this FY 2018 IPPS/LTCH PPS proposed rule and available via 
the Internet on the CMS Web site, reflect the proposed national labor-
related share, which is also applicable to Puerto Rico hospitals. For 
FY 2018, for all IPPS hospitals (including Puerto Rico 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 hospitals (including Puerto Rico 
hospitals) whose wage indexes are greater than 1.0000, for FY 2018, we 
are proposing to apply the wage index to a proposed labor-related share 
of 68.3 percent of the national standardized amount.

[[Page 19916]]

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

A. Background

    Effective for cost reporting periods beginning on or after July 1, 
1979, we developed and adopted a hospital input price index (that is, 
the hospital market basket for operating costs). Although ``market 
basket'' technically describes the mix of goods and services used in 
providing hospital care, this term is also commonly used to denote the 
input price index (that is, cost category weights and price proxies 
combined) derived from that market basket. Accordingly, the term 
``market basket'' as used in this document refers to the hospital input 
price index.
    The percentage change in the market basket reflects the average 
change in the price of goods and services hospitals purchase in order 
to provide inpatient care. We first used the market basket to adjust 
hospital cost limits by an amount that reflected the average increase 
in the prices of the goods and services used to provide hospital 
inpatient care. This approach linked the increase in the cost limits to 
the efficient utilization of resources.
    Since the inception of the IPPS, the projected change in the 
hospital market basket has been the integral component of the update 
factor by which the prospective payment rates are updated every year. 
An explanation of the hospital market basket used to develop the 
prospective payment rates was published in the Federal Register on 
September 1, 1983 (48 FR 39764). We also refer readers to the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50596) in which we discussed the most 
recent previous rebasing of the hospital input price index.
    The hospital market basket is a fixed-weight, Laspeyres-type price 
index. A Laspeyres-type price index measures the change in price, over 
time, of the same mix of goods and services purchased in the base 
period. Any changes in the quantity or mix of goods and services (that 
is, intensity) purchased over time are not measured.
    The index itself is constructed in three steps. First, a base 
period is selected (in this proposed rule, we are proposing to use 2014 
as the base period) and total base period expenditures are estimated 
for a set of mutually exclusive and exhaustive spending categories, 
with the proportion of total costs that each category represents being 
calculated. These proportions are called ``cost weights'' or 
``expenditure weights.'' Second, each expenditure category is matched 
to an appropriate price or wage variable, referred to as a ``price 
proxy.'' In almost every instance, these price proxies are derived from 
publicly available statistical series that are published on a 
consistent schedule (preferably at least on a quarterly basis). 
Finally, the expenditure weight for each cost category is multiplied by 
the level of its respective price proxy. The sum of these products 
(that is, the expenditure weights multiplied by their price index 
levels) for all cost categories yields the composite index level of the 
market basket in a given period. Repeating this step for other periods 
produces a series of market basket levels over time. Dividing an index 
level for a given period by an index level for an earlier period 
produces a rate of growth in the input price index over that timeframe.
    As noted above, the market basket is described as a fixed-weight 
index because it represents the change in price over time of a constant 
mix (quantity and intensity) of goods and services needed to provide 
hospital services. The effects on total expenditures resulting from 
changes in the mix of goods and services purchased subsequent to the 
base period are not measured. For example, a hospital hiring more 
nurses to accommodate the needs of patients would increase the volume 
of goods and services purchased by the hospital, but would not be 
factored into the price change measured by a fixed-weight hospital 
market basket. Only when the index is rebased would changes in the 
quantity and intensity be captured, with those changes being reflected 
in the cost weights. Therefore, we rebase the market basket 
periodically so that the cost weights reflect recent changes in the mix 
of goods and services that hospitals purchase (hospital inputs) to 
furnish inpatient care between base periods.
    We last rebased the hospital market basket cost weights effective 
for FY 2014 (78 FR 50596), with FY 2010 data used as the base period 
for the construction of the market basket cost weights. For this FY 
2018 IPPS/LTCH PPS proposed rule, we are proposing to rebase the cost 
structure for the IPPS hospital index from FY 2010 to 2014, as 
discussed below.

B. Rebasing and Revising the IPPS Market Basket

    The terms ``rebasing'' and ``revising,'' while often used 
interchangeably, actually denote different activities. ``Rebasing'' 
means moving the base year for the structure of costs of an input price 
index (for example, in this proposed rule, we are proposing to shift 
the base year cost structure for the IPPS hospital index from FY 2010 
to 2014). We note that we are no longer referring to the market basket 
as a ``FY 2014-based'' market basket and instead refer to the proposed 
market basket as simply ``2014-based''. We are proposing this change in 
naming convention for the market basket because the base year cost 
weight data for the proposed market basket does not reflect only fiscal 
year data. For example, the proposed 2014-based IPPS market basket uses 
Medicare cost report data and other government data that reflect 2014 
fiscal year, 2014 calendar year, and 2014 State fiscal year expenses to 
determine the base year cost weights. Given that it is based on a mix 
of classifications of 2014 data, we are proposing to refer to the 
market basket as ``2014-based'' instead of ``FY 2014-based'' or ``CY 
2014-based''.
    ``Revising'' means changing data sources or price proxies used in 
the input price index. As published in the FY 2006 IPPS final rule (70 
FR 47387), in accordance with section 404 of Public Law 108-173, CMS 
determined a new frequency for rebasing the hospital market basket. We 
established a rebasing frequency of every 4 years and, therefore, for 
the FY 2018 IPPS update, we are proposing to rebase and revise the IPPS 
market basket from FY 2010 to 2014. We are inviting public comments on 
our proposed methodology.
1. Development of Cost Categories and Weights
a. Use of Medicare Cost Report Data
    The major source of expenditure data for developing the proposed 
rebased and revised hospital market basket cost weights is the 2014 
Medicare cost reports. These 2014 Medicare cost reports are for cost 
reporting periods beginning on and after October 1, 2013 and before 
October 1, 2014. We note that while these dates appear to reflect 
fiscal year data, in order to be classified as a ``2014 cost report,'' 
a hospital's cost reporting period must begin between these dates. For 
example, we found that of the 2014 Medicare cost reports for IPPS 
hospitals, approximately 40 percent of the reports had a begin date on 
January 1, 2014, approximately 30 percent had a begin date on July 1, 
2014, and approximately 18 percent had a begin date on October 1, 2013. 
For this reason, we are defining the base year of the market basket as 
``2014-based'' instead of ``FY 2014-based''. We are proposing to use 
2014 as the base year because we believe that the 2014 Medicare cost 
reports represent the most recent, complete set of Medicare cost report 
data available to develop cost weights for IPPS hospitals. As was done

[[Page 19917]]

in previous rebasings, these cost reports are from IPPS hospitals only 
(hospitals excluded from the IPPS and CAHs are not included) and are 
based on IPPS Medicare-allowable operating costs. IPPS Medicare-
allowable operating costs are costs that are eligible to be paid under 
the IPPS. For example, the IPPS market basket excludes home health 
agency (HHA) costs as these costs would be paid under the HHA PPS and, 
therefore, these costs are not IPPS Medicare-allowable costs.
    We are proposing to derive costs for eight major expenditures or 
cost categories for the 2014-based IPPS market basket from the CMS 
Medicare cost reports (Form 2552-10, OMB Control Number 0938-0050): 
Wages and Salaries, Employee Benefits, Contract Labor, Pharmaceuticals, 
Professional Liability Insurance (Malpractice), Blood and Blood 
Products, Home Office Contract Labor, and a residual ``All Other'' 
category. The residual ``All Other'' category reflects all remaining 
costs that are not captured in the other seven cost categories. We are 
proposing that, for the 2014-based IPPS market basket, we obtain costs 
for one additional major cost category from the Medicare cost reports 
compared to the FY 2010-based IPPS market basket--Home Office Contract 
Labor Costs. We describe below the detailed methodology for obtaining 
costs for each of the seven cost categories directly determined from 
the Medicare cost reports.
(1) Wages and Salaries Costs
    To derive wages and salaries costs for the Medicare allowable cost 
centers, we are proposing to first calculate total unadjusted wages and 
salaries costs as reported on Worksheet S-3, part II. We are then 
proposing to remove the wages and salaries attributable to non-Medicare 
allowable cost centers (that is, excluded areas) as well as a portion 
of overhead wages and salaries attributable to these excluded areas. 
Specifically, wages and salaries costs are equal to total wages and 
salaries as reported on Worksheet S-3, Part II, Column 4, Line 1, less 
excluded area wages and salaries (reported on Worksheet S-3, Part II, 
Column 4, Lines 3 and 5 through 10) and less overhead wages and 
salaries attributable to the excluded areas.
    Overhead wages and salaries are attributable to the entire IPPS 
facility. Therefore, we are proposing to only include the proportion 
attributable to the Medicare allowable cost centers. We are proposing 
to estimate the proportion of overhead wages and salaries that are not 
attributable to Medicare allowable costs centers (that is, excluded 
areas) by multiplying the ratio of excluded area wages and salaries (as 
defined earlier) to total wages and salaries (Worksheet S-3, part II, 
Column 4, Line 1) by total overhead wages and salaries (Worksheet A, 
Column 1, Lines 4 through 18). A similar methodology was used to derive 
wages and salaries costs in the FY 2010-based IPPS market basket.
(2) Employee Benefits Costs
    We are proposing to derive employee benefits costs using a similar 
methodology as the wages and salaries costs; that is, reflecting 
employee benefits costs attributable to the Medicare allowable cost 
centers. First, we calculate total unadjusted employee benefits costs 
as the sum of Worksheet S-3, Part II, Column 4, Lines 17, 18, 20, and 
22. We then exclude those employee benefits attributable to the 
overhead wages and salaries for the non-Medicare allowable cost centers 
(that is, excluded areas). Employee benefits attributable to the non-
Medicare allowable cost centers are derived by multiplying the ratio of 
total employee benefits (equal to the sum of Worksheet S-3, Part II, 
Column 4, Lines 17 through 25) to total wages and salaries (Worksheet 
S-3, Part II, Column 4, Line 1) by excluded overhead wages and salaries 
(as derived above for wages and salaries costs). A similar methodology 
was used in the FY 2010-based IPPS market basket.
(3) Contract Labor Costs
    Contract labor costs are primarily associated with direct patient 
care services. Contract labor costs for services such as accounting, 
billing, and legal are estimated using other government data sources as 
described below. We are proposing to derive contract labor costs for 
the 2014-based IPPS market basket as the sum of Worksheet S-3, Part II, 
Column 4, Lines 11, 13 and 15. A similar methodology was used in the FY 
2010-based IPPS market basket.
(4) Professional Liability Insurance Costs
    We are proposing that professional liability insurance (PLI) costs 
(often referred to as malpractice costs) be equal to premiums, paid 
losses, and self-insurance costs reported on Worksheet S-2, Part I, 
Columns 1 through 3, Line 118.01. A similar methodology was used for 
the FY 2010-based IPPS market basket.
(5) Pharmaceuticals Costs
    We are proposing to calculate pharmaceuticals costs using nonsalary 
costs reported for the Pharmacy cost center (Worksheet A, Column 2, 
Line 15) and Drugs Charged to Patients cost center (Worksheet A, Column 
2, Line 73) less estimated employee benefits attributable to these two 
cost centers. We are proposing to estimate these employee benefits 
costs by multiplying the ratio of total employee benefits (equal to the 
sum of Worksheet S-3, Part II, Column 4, Lines 17 through 25) to total 
wages and salaries (Worksheet S-3, Part II, Column 4, Line 1) by total 
wages and salaries costs for the Pharmacy and Drugs Charged to Patients 
cost centers (equal to the sum of Worksheet A, Column 1, Lines 15 and 
73). A similar methodology was used for the FY 2010-based IPPS market 
basket.
(6) Blood and Blood Products Costs
    We are proposing to calculate blood and blood products costs using 
nonsalary costs reported for the Whole Blood & Packed Red Blood Cells 
cost center (Worksheet A, Column 2, Line 62) and the Blood Storing, 
Processing, & Transfusing cost center (Worksheet A, Column 2, Line 63) 
less estimated employee benefits attributable to these two cost 
centers. We estimate these employee benefits costs by multiplying the 
ratio of total employee benefits (equal to the sum of Worksheet S-3, 
Part II, Column 4, Lines 17 through 25) to total wages and salaries 
(Worksheet S-3, Part II, Column 4, Line 1) by total wages and salaries 
for the Whole Blood & Packed Red Blood Cells and Blood Storing, 
Processing, & Transfusing cost centers (equal to the sum of Worksheet 
A, Column 1, Lines 62 and 63). A similar methodology was used for the 
FY 2010-based IPPS market basket.
(7) Home Office Contract Labor Costs
    We are proposing to determine home office contract labor costs 
using data reported on Worksheet S-3, Part II, Column 4, line 14. 
Specifically, we are proposing to determine the Medicare allowable 
portion of these costs by multiplying them by the ratio of total 
Medicare allowable operating costs (as defined below in section 
IV.B.1.b. of the preamble to this proposed rule) to total operating 
costs (calculated as Worksheet B, Part I, Column 26, Line 202, less 
Worksheet B, Part I, Column 0, Lines 1 through 3). Home office contract 
labor costs in the FY 2010-based IPPS market basket were calculated 
using the U.S. Census Bureau's Bureau of Economic Analysis (BEA) 
Benchmark Input-Output (I-O) data, as described below in section 
IV.B.1.c. of the preamble to this proposed rule.

[[Page 19918]]

b. Final Major Cost Category Computation
    After we derived costs for the seven major cost categories for each 
provider using the Medicare cost report data as previously described, 
we address data outliers using the following steps. First, we divide 
the costs for each of the seven categories by total Medicare allowable 
operating costs calculated for the provider to obtain cost weights for 
each PPS hospital. We are proposing that total Medicare allowable 
operating costs are equal to noncapital costs (Worksheet B, part I, 
Column 26 less Worksheet B, part II, Column 26) that are attributable 
to the Medicare allowable cost centers of the hospital. Medicare 
allowable cost centers are Lines 30 through 35, 50, 51, 53 through 60, 
62 through 76, 90, 91, 92.01 and 93.
    We then remove those providers whose derived cost weights fall in 
the top and bottom five percent of provider-specific cost weights to 
ensure the removal of outliers. After the outliers have been removed, 
we sum the costs for each category across all remaining providers. We 
then divide this by the sum of total Medicare allowable operating costs 
across all remaining providers to obtain a cost weight for the proposed 
2014-based IPPS market basket for the given category. Finally, we 
calculate the residual ``All Other'' cost weight that reflects all 
remaining costs that are not captured in the seven cost categories 
listed.
    Table IV-01 below shows the major cost categories and their 
respective cost weights as derived from the Medicare cost reports for 
this proposed rule.

  Table IV-01--Major Cost Categories as Derived From the Medicare Cost
                                 Reports
------------------------------------------------------------------------
          Major cost categories               FY 2010      Proposed 2014
------------------------------------------------------------------------
Wages and Salaries......................            45.8            42.1
Employee Benefits.......................            12.7            12.0
Contract Labor..........................             1.8             1.8
Professional Liability Insurance                     1.3             1.2
 (Malpractice)..........................
Pharmaceuticals.........................             5.4             5.9
Blood and Blood Products................             1.1             0.8
Home Office Contract Labor *............  ..............             4.2
``All Other'' Residual..................            31.9            32.0
------------------------------------------------------------------------
* Home office contract labor costs were included in the ``All Other''
  residual cost weight of the FY 2010-based IPPS market basket.

    From FY 2010 to 2014, the Wages and Salaries and Employee Benefits 
cost weights as calculated directly from the Medicare cost reports 
decreased by approximately 3.7 and 0.7 percentage points, respectively, 
while the Contract Labor cost weight was unchanged. The decrease in the 
Wages and Salaries cost weight occurred among most cost centers and in 
aggregate for the General Service (overhead), Inpatient Routine 
Service, Ancillary Service, and Outpatient Service cost centers.
    As we did for the FY 2010-based IPPS market basket (78 FR 50597), 
we are proposing to allocate contract labor costs to the Wages and 
Salaries and Employee Benefits cost weights based on their relative 
proportions for employed labor under the assumption that contract labor 
costs are comprised of both wages and salaries and employee benefits. 
The contract labor allocation proportion for wages and salaries is 
equal to the Wages and Salaries cost weight as a percent of the sum of 
the Wages and Salaries cost weight and the Employee Benefits cost 
weight. Using the 2014 Medicare cost report data, this percentage is 78 
percent. Therefore, we are proposing to allocate approximately 78 
percent of the Contract Labor cost weight to the Wages and Salaries 
cost weight and 22 percent to the Employee Benefits cost weight. The FY 
2010-based IPPS market basket also allocated 78 percent of the Contract 
Labor cost weight to the Wages and Salaries cost weight.
    Table IV-02 below shows the Wages and Salaries and Employee 
Benefits cost weights after contract labor allocation for the FY 2010-
based IPPS market basket and the proposed 2014-based IPPS market 
basket.

Table IV-02--Wages and Salaries and Employee Benefits Cost Weights After
                        Contract Labor Allocation
------------------------------------------------------------------------
                                           FY 2010-based  Proposed 2014-
          Major cost categories             IPPS market     based IPPS
                                              basket       market basket
------------------------------------------------------------------------
Wages and Salaries......................            47.2            43.4
Employee Benefits.......................            13.1            12.4
------------------------------------------------------------------------

c. Derivation of the Detailed Cost Weights
    To further divide the ``All Other'' residual cost weight estimated 
from the 2014 Medicare cost report data into more detailed cost 
categories, we are proposing to use the 2007 Benchmark I-O ``Use 
Tables/Before Redefinitions/Purchaser Value'' for NAICS 622000, 
Hospitals, published by the BEA. These data are publicly available at 
the following Web site: http://www.bea.gov/industry/io_annual.htm. The 
BEA Benchmark I-O data are generally scheduled for publication every 5 
years on a lagged basis, with the most recent data available for 2007. 
The 2007 Benchmark I-O data are derived from the 2007 Economic Census 
and are the building blocks for BEA's economic accounts. Therefore, 
they represent the most comprehensive and complete set of data on the 
economic processes or mechanisms by which output is produced and 
distributed.\37\ BEA also produces Annual I-O estimates. However, while 
based on a similar methodology, these estimates reflect less 
comprehensive and less detailed data sources and are subject to 
revision when benchmark data become available. Instead of using the 
less detailed Annual I-O data, we are proposing to

[[Page 19919]]

inflate the detailed 2007 Benchmark I-O data forward to 2014 by 
applying the annual price changes from the respective price proxies to 
the appropriate market basket cost categories that are obtained from 
the 2007 Benchmark I-O data. In our calculations for this proposed 
rule, we repeated this practice for each year. We then calculated the 
cost shares that each cost category represents of the 2007 data 
inflated to 2014. These resulting 2014 cost shares were applied to the 
``All Other'' residual cost weight to obtain the detailed cost weights 
for the proposed 2014-based IPPS market basket. For example, the cost 
for Food: Direct Purchases represents 7.3 percent of the sum of the 
``All Other'' 2007 Benchmark I-O Hospital Expenditures inflated to 
2014. Therefore, the Food: Direct Purchases cost weight represents 7.3 
percent of the proposed 2014-based IPPS market basket's ``All Other'' 
cost category (32.0 percent), yielding a Food: Direct Purchases 
proposed cost weight of 2.3 percent in the proposed 2014-based IPPS 
market basket (0.073 x 32.0 percent = 2.3 percent). For the FY 2010-
based IPPS market basket (78 FR 50597), we used the same methodology 
utilizing the 2002 Benchmark I-O data (aged to FY 2010).
---------------------------------------------------------------------------

    \37\ http://www.bea.gov/papers/pdf/IOmanual_092906.pdf.
---------------------------------------------------------------------------

    Using this methodology, we are proposing to derive 18 detailed cost 
categories from the proposed 2014-based IPPS market basket residual 
cost weight (32.0 percent). These categories are: (1) Fuel: Oil and 
Gas; (2) Electricity; (3) Water and Sewerage; (4) Food: Direct 
Purchases; (5) Food: Contract Services; (6) Chemicals; (7) Medical 
Instruments; (8) Rubber and Plastics; (9) Paper and Printing Products; 
(10) Miscellaneous Products; (11) Professional Fees: Labor-Related; 
(12) Administrative and Facilities Support Services; (13) Installation, 
Maintenance, and Repair Services; (14) All Other: Labor-Related 
Services; (15) Professional Fees: Nonlabor-Related; (16) Financial 
Services; (17) Telephone Services; and (18) All Other: Nonlabor-Related 
Services.
    Similar to the 2013-based LTCH market basket, the proposed 2014-
based IPPS market basket does not include separate cost categories for 
Apparel, Machinery and Equipment, and Postage. Due to the small weights 
associated with these detailed categories and relatively stable price 
growth in the applicable price proxy, we believe that consolidating 
these smaller cost category weights with other cost categories in the 
proposed market basket that experience similar price increases 
eliminates unnecessary complexity to the market basket without having a 
material impact on the total market basket increase. Therefore, we are 
proposing to include Apparel and Machinery and Equipment in the 
Miscellaneous Products cost category and Postage in the All-Other: 
Nonlabor-Related Services cost category. We note that the machinery and 
equipment expenses are for equipment that is paid for in a given year 
and not depreciated over the asset's useful life. Depreciation expenses 
for movable equipment are reflected in the proposed 2014-based Capital 
Input Price Index (described in section IV.D. of the preamble of this 
proposed rule). For the proposed 2014-based IPPS market basket, we also 
are proposing to include a separate cost category for Installation, 
Maintenance, and Repair Services in order to proxy these costs by a 
price index that better reflects the price changes of labor associated 
with maintenance-related services.
2. Selection of Proposed Price Proxies
    After computing the proposed 2014 cost weights for the IPPS market 
basket, it was necessary to select appropriate wage and price proxies 
to reflect the rate of price change for each expenditure category. With 
the exception of the proxy for professional liability insurance (PLI), 
all the proxies we are proposing are based on Bureau of Labor 
Statistics (BLS) data and are grouped into one of the following BLS 
categories:
     Producer Price Indexes--Producer Price Indexes (PPIs) 
measure price changes for goods sold in markets other than the retail 
market. PPIs are preferable price proxies for goods and services that 
hospitals purchase as inputs because PPIs better reflect the actual 
price changes encountered by hospitals. For example, we are proposing 
to use a PPI for prescription drugs, rather than the Consumer Price 
Index (CPI) for prescription drugs, because hospitals generally 
purchase drugs directly from a wholesaler. The PPIs that we are 
proposing to use measure price changes at the final stage of 
production.
     Consumer Price Indexes--Consumer Price Indexes (CPIs) 
measure change in the prices of final goods and services bought by the 
typical consumer. Because they may not represent the price faced by a 
producer, we are proposing to use CPIs only if an appropriate PPI is 
not available, or if the expenditures are more like those faced by 
retail consumers in general rather than by purchasers of goods at the 
wholesale level. For example, the CPI for food purchased away from home 
is proposed to be used as a proxy for contracted food services.
     Employment Cost Indexes--Employment Cost Indexes (ECIs) 
measure the rate of change in employee wage rates and employer costs 
for employee benefits per hour worked. These indexes are fixed-weight 
indexes and strictly measure the change in wage rates and employee 
benefits per hour. Appropriately, they are not affected by shifts in 
employment mix.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance. Reliability indicates that the 
index is based on valid statistical methods and has low sampling 
variability. Timeliness implies that the proxy is published regularly, 
preferably at least once a quarter. Availability means that the proxy 
is publicly available. Finally, relevance means that the proxy is 
applicable and representative of the cost category weight to which it 
is applied. We believe the proposed PPIs, CPIs, and ECIs selected meet 
these criteria.
    Below we present a detailed explanation of the price proxies that 
we are proposing for each cost category weight. We note that many of 
the proxies that we are proposing to use for the 2014-based IPPS market 
basket are the same as those used for the FY 2010-based IPPS market 
basket.
(1) Wages and Salaries
    We are proposing to use the ECI for Wages and Salaries for All 
Civilian Workers in Hospitals (BLS series code CIU1026220000000I) to 
measure the price growth of this cost category. This is the same price 
proxy used in the FY 2010-based IPPS market basket.
(2) Employee Benefits
    We are proposing to use the ECI for Total Benefits for All Civilian 
Workers in Hospitals to measure the price growth of this cost category. 
This ECI is calculated using the ECI for Total Compensation for All 
Civilian Workers in Hospitals (BLS series code CIU1016220000000I) and 
the relative importance of wages and salaries within total 
compensation. This is the same price proxy used in the FY 2010-based 
IPPS market basket.
(3) Fuel: Oil and Gas
    We are proposing to change the proxy used for the Fuel: Oil and Gas 
cost category. The FY 2010-based IPPS market basket uses the PPI 
Industry for Petroleum Refineries (BLS series code PCU32411-32411-) to 
proxy these expenses.
    For the proposed 2014-based IPPS market basket, we are proposing to 
use a blend of the PPI Industry for Petroleum Refineries (BLS series 
code

[[Page 19920]]

PCU32411-32411-) and the PPI Commodity for Natural Gas (BLS series code 
WPU0531). Our analysis of the BEA 2007 Benchmark I-O data (use table 
before redefinitions, purchaser's value for NAICS 622000 [Hospitals]) 
shows that petroleum refineries expenses account for approximately 70 
percent and Natural Gas expenses account for approximately 30 percent 
of the Fuel: Oil and Gas expenses. Therefore, we are proposing a 
blended proxy of 70 percent of the PPI Industry for Petroleum 
Refineries (BLS series code PCU32411-32411-) and 30 percent of the PPI 
Commodity for Natural Gas (BLS series code WPU0531). We believe that 
these two price proxies are the most technically appropriate indices 
available to measure the price growth of the Fuel: Oil and Gas cost 
category in the proposed 2014-based IPPS market basket.
(4) Electricity
    We are proposing to use the PPI Commodity for Commercial Electric 
Power (BLS series code WPU0542) to measure the price growth of this 
cost category. This is the same price proxy used in the FY 2010-based 
IPPS market basket.
(5) Water and Sewerage
    We are proposing to use the CPI for Water and Sewerage Maintenance 
(All Urban Consumers) (BLS series code CUUR0000SEHG01) to measure the 
price growth of this cost category. This is the same price proxy used 
in the FY 2010-based IPPS market basket.
(6) Professional Liability Insurance
    We are proposing to proxy price changes in hospital professional 
liability insurance premiums (PLI) using percentage changes as 
estimated by the CMS Hospital Professional Liability Index. To generate 
these estimates, we collected commercial insurance premiums for a fixed 
level of coverage while holding nonprice factors constant (such as a 
change in the level of coverage). This is the same price proxy used in 
the FY 2010-based IPPS market basket.
(7) Pharmaceuticals
    We are proposing to use the PPI Commodity for Pharmaceuticals for 
Human Use, Prescription (BLS series code WPUSI07003) to measure the 
price growth of this cost category. This is the same price proxy used 
in the FY 2010-based IPPS market basket.
(8) Food: Direct Purchases
    We are proposing to use the PPI Commodity for Processed Foods and 
Feeds (BLS series code WPU02) to measure the price growth of this cost 
category. This is the same price proxy used in the FY 2010-based IPPS 
market basket.
(9) Food: Contract Services
    We are proposing to use the CPI for Food Away From Home (All Urban 
Consumers) (BLS series code CUUR0000SEFV) to measure the price growth 
of this cost category. This is the same price proxy used in the FY 
2010-based IPPS market basket.
(10) Chemicals
    We are proposing to continue to use a four-part blended index 
composed of the PPI Industry for Industrial Gas Manufacturing (BLS 
series code PCU325120325120P), the PPI Industry for Other Basic 
Inorganic Chemical Manufacturing (BLS series code PCU32518-32518-), the 
PPI Industry for Other Basic Organic Chemical Manufacturing (BLS series 
code PCU32519-32519-), and the PPI Industry for Soap and Cleaning 
Compound Manufacturing (BLS series code PCU32561-32561-). We are 
proposing to update the blended weights using 2007 Benchmark I-O data, 
which we also are proposing to use for the proposed 2014-based IPPS 
market basket. The FY 2010-based IPPS market basket included the same 
blended chemical price proxy, but used the 2002 Benchmark I-O data to 
determine the weights of the blended chemical price index. The 2007 
Benchmark I-O data has a higher weight for organic chemical products 
and a lower weight for the other chemical products compared to the 2002 
Benchmark I-O data.
    Table IV-03 below shows the proposed weights for each of the four 
PPIs used to create the blended index compared to those used for the FY 
2010-based IPPS market basket.

                                      Table IV-03--Blended Chemical Weights
----------------------------------------------------------------------------------------------------------------
                                                                   FY 2010-based  Proposed 2014-
                              Name                                 IPPS weights     based IPPS         NAICS
                                                                        (%)         weights (%)
----------------------------------------------------------------------------------------------------------------
PPI for Industrial Gas Manufacturing............................              35              32          325120
PPI for Other Basic Inorganic Chemical Manufacturing............              25              17          325180
PPI for Other Basic Organic Chemical Manufacturing..............              30              45          325190
PPI for Soap and Cleaning Compound Manufacturing................              10               6          325610
----------------------------------------------------------------------------------------------------------------

(11) Blood and Blood Products
    We are proposing to use the PPI Industry for Blood and Organ Banks 
(BLS series code PCU621991621991) to measure the price growth of this 
cost category. This is the same price proxy used in the FY 2010-based 
IPPS market basket.
(12) Medical Instruments
    We are proposing to use a blended price proxy for the Medical 
Instruments cost category. The 2007 Benchmark Input-Output data shows 
an approximate 50/50 split between Surgical and Medical Instruments and 
Medical and Surgical Appliances and Supplies for this cost category. 
Therefore, we are proposing a blend composed of 50 percent of the PPI 
Commodity for Surgical and Medical Instruments (BLS series code 
WPU1562) and 50 percent of the PPI Commodity for Medical and Surgical 
Appliances and Supplies (BLS series code WPU1563). The FY 2010-based 
IPPS market basket used the single, higher level PPI Commodity for 
Medical, Surgical, and Personal Aid Devices (BLS series code WPU156). 
We believe that the proposed price proxy better reflects the mix of 
expenses for this cost category as obtained from the 2007 Benchmark I-O 
data.
(13) Rubber and Plastics
    We are proposing to use the PPI Commodity for Rubber and Plastic 
Products (BLS series code WPU07) to measure the price growth of this 
cost category. This is the same price proxy used in the FY 2010-based 
IPPS market basket.

[[Page 19921]]

(14) Paper and Printing Products
    We are proposing to use the PPI Commodity for Converted Paper and 
Paperboard Products (BLS series code WPU0915) to measure the price 
growth of this cost category. This is the same price proxy used in the 
FY 2010-based IPPS market basket.
(15) Miscellaneous Products
    We are proposing to use the PPI Commodity for Finished Goods Less 
Food and Energy (BLS series code WPUFD4131) to measure the price growth 
of this cost category. This is the same price proxy used in the FY 
2010-based IPPS market basket.
(16) Professional Fees: Labor-Related
    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Professional and Related (BLS series code 
CIU2010000120000I) to measure the price growth of this category. It 
includes occupations such as legal, accounting, and engineering 
services. This is the same price proxy used in the FY 2010-based IPPS 
market basket.
(17) Administrative and Facilities Support Services
    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Office and Administrative Support (BLS series code 
CIU2010000220000I) to measure the price growth of this category. This 
is the same price proxy used in the FY 2010-based IPPS market basket.
(18) Installation, Maintenance, and Repair Services
    We are proposing to use the ECI for Total Compensation for All 
Civilian Workers in Installation, Maintenance, and Repair (BLS series 
code CIU1010000430000I) to measure the price growth of this new cost 
category. Previously these costs were included in the All Other: Labor-
Related Services category and were proxied by the ECI for Total 
Compensation for Private Industry Workers in Service Occupations (BLS 
series code CIU2010000300000I). We believe that this index better 
reflects the price changes of labor associated with maintenance-related 
services and its incorporation represents a technical improvement to 
the market basket.
(19) All Other: Labor-Related Services
    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Service Occupations (BLS series code 
CIU2010000300000I) to measure the price growth of this cost category. 
This is the same price proxy used in the FY 2010-based IPPS market 
basket.
(20) Professional Fees: Nonlabor-Related
    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Professional and Related (BLS series code 
CIU2010000120000I) to measure the price growth of this category. This 
is the same price proxy that we are proposing to use for the 
Professional Fees: Labor-Related cost category and the same price proxy 
used in the FY 2010-based IPPS market basket.
(21) Financial Services
    We are proposing to use the ECI for Total Compensation for Private 
Industry Workers in Financial Activities (BLS series code 
CIU201520A000000I) to measure the price growth of this cost category. 
This is the same price proxy used in the FY 2010-based IPPS market 
basket.
(22) Telephone Services
    We are proposing to use the CPI for Telephone Services (BLS series 
code CUUR0000SEED) to measure the price growth of this cost category. 
This is the same price proxy used in the FY 2010-based IPPS market 
basket.
(23) All Other: Nonlabor-Related Services
    We are proposing to use the CPI for All Items Less Food and Energy 
(BLS series code CUUR0000SA0L1E) to measure the price growth of this 
cost category. We believe that using the CPI for All Items Less Food 
and Energy avoids double counting of changes in food and energy prices 
as they are already captured elsewhere in the market basket. This is 
the same price proxy used in the FY 2010-based IPPS market basket.
    Table IV-04 below sets forth the proposed 2014-based IPPS market 
basket, including the cost categories and their respective weights and 
price proxies. For comparison purposes, the corresponding FY 2010-based 
IPPS market basket cost weights also are listed.

Table IV-04--Proposed 2014-Based IPPS Market Basket Cost Categories, Cost Weights, and Price Proxies Compared to
                                  FY 2010-Based IPPS Market Basket Cost Weights
----------------------------------------------------------------------------------------------------------------
                                                      FY            Proposed
                                               2010[dash]based  2014[dash]based
               Cost categories                   IPPS market      IPPS market    Proposed 2014-based IPPS market
                                                 basket cost      basket cost          basket price proxies
                                                   weights          weights
----------------------------------------------------------------------------------------------------------------
1. Compensation..............................             60.3             55.8  ...............................
    A. Wages and Salaries \1\................             47.2             43.4  ECI for Wages and Salaries for
                                                                                  All Civilian Workers in
                                                                                  Hospitals.
    B. Employee Benefits \1\.................             13.1             12.4  ECI for Total Benefits for All
                                                                                  Civilian Workers in Hospitals.
2. Utilities.................................              2.2              2.5  ...............................
    A. Fuel: Oil and Gas.....................              0.4              1.3  Blend of PPIs for Petroleum
                                                                                  Refineries and Natural Gas.
    B. Electricity...........................              1.7              1.0  PPI Commodity for Commercial
                                                                                  Electric Power.
    C. Water and Sewerage....................              0.1              0.1  CPI for Water and Sewerage
                                                                                  Maintenance (All Urban
                                                                                  Consumers).
3. Professional Liability Insurance..........              1.3              1.2  CMS Hospital Professional
                                                                                  Liability Insurance Premium
                                                                                  Index.
4. All Other.................................             36.1             40.5  ...............................
    A. All Other Products....................             19.5             17.4  ...............................
        (1.) Pharmaceuticals.................              5.4              5.9  PPI Commodity for
                                                                                  Pharmaceuticals for Human Use,
                                                                                  Prescription.
        (2.) Food: Direct Purchases..........              4.2              2.3  PPI Commodity for Processed
                                                                                  Foods and Feeds.

[[Page 19922]]

 
        (3.) Food: Contract Services.........              0.6              1.3  CPI for Food Away From Home
                                                                                  (All Urban Consumers).
        (4.) Chemicals.......................              1.5              0.9  Blend of Chemical PPIs.
        (5.) Blood and Blood Products........              1.1              0.8  PPI Industry for Blood and
                                                                                  Organ Banks.
        (6.) Medical Instruments.............              2.6              2.9  Blend of PPI for Surgical and
                                                                                  Medical Instruments and PPI
                                                                                  for Medical and Surgical
                                                                                  Appliances and Supplies.
        (7.) Rubber and Plastics.............              1.6              0.8  PPI Commodity for Rubber and
                                                                                  Plastic Products.
        (8.) Paper and Printing Products.....              1.5              1.5  PPI Commodity for Converted
                                                                                  Paper and Paperboard Products.
        (9.) Miscellaneous Products \2\......              1.0              1.1  PPI Commodity for Finished
                                                                                  Goods less Food and Energy.
    B. Labor-Related Services................              9.2             12.5  ...............................
        (1.) Professional Fees: Labor-Related              5.5              6.8  ECI for Total Compensation for
                                                                                  Private Industry Workers in
                                                                                  Professional and Related.
        (2.) Administrative and Facilities                 0.6              1.0  ECI for Total Compensation for
         Support Services.                                                        Private Industry Workers in
                                                                                  Office and Administrative
                                                                                  Support.
        (3.) Installation, Maintenance and     ...............              2.4  ECI for Total Compensation for
         Repair Services.                                                         Civilian Workers in
                                                                                  Installation, Maintenance, and
                                                                                  Repair.
        (4.) All Other: Labor-Related                      3.1              2.3  ECI for Total Compensation for
         Services.                                                                Private Industry Workers in
                                                                                  Service Occupations.
    C. Nonlabor-Related Services.............              7.4             10.7  ...............................
        (1.) Professional Fees: Nonlabor-                  3.7              5.1  ECI for Total Compensation for
         Related.                                                                 Private Industry Workers in
                                                                                  Professional and Related.
        (2.) Financial Services..............              1.2              3.0  ECI for Total Compensation for
                                                                                  Private Industry Workers in
                                                                                  Financial Activities.
        (3.) Telephone Services..............              0.6              0.8  CPI for Telephone Services.
        (4.) All Other: Nonlabor-Related                   1.9              1.7  CPI for All Items less Food and
         Services \3\.                                                            Energy.
                                              ------------------
            Total............................            100.0            100.0
----------------------------------------------------------------------------------------------------------------
Note: The cost weights are calculated using three decimal places. For presentational purposes, we are displaying
  one decimal and therefore, the detail may not add to the total due to rounding.
\1\ Contract labor is distributed to wages and salaries and employee benefits based on the share of total
  compensation that each category represents.
\2\ The FY 2010-based IPPS market basket Miscellaneous Products cost category also includes Apparel and
  Machinery and Equipment cost categories. These costs were not broken out separately in the 2014-based IPPS
  market basket.
\3\ The FY 2010-based IPPS market basket All Other: Nonlabor-Related Services cost category also includes the
  Postage cost category. These costs were not broken-out separately in the 2014-based IPPS market basket.

    Table IV-05 below compares both the historical and forecasted 
percent changes in the FY 2010-based IPPS market basket and the 
proposed 2014-based IPPS market basket. The forecasted growth rates in 
Table IV-05 are based on IHS Global Insight, Inc.'s (IGI) fourth 
quarter 2016 forecast with historical data through third quarter 2016.

    Table IV-05.--FY 2010-Based and Proposed 2014-Based IPPS Hospital
         Operating Index Percent Change, FY 2013 Through FY 2020
------------------------------------------------------------------------
                                           FY 2010-based  Proposed 2014-
                                            IPPS market     based IPPS
            Fiscal Year (FY)              basket percent   market basket
                                              change      percent change
------------------------------------------------------------------------
Historical data:
    FY 2013.............................             2.0             2.0
    FY 2014.............................             1.8             1.8
    FY 2015.............................             1.8             1.6
    FY 2016.............................             1.7             1.7
    Average FYs 2013-2016...............             1.8             1.8
Forecast:
    FY 2017.............................             2.6             2.7
    FY 2018.............................             2.9             2.9
    FY 2019.............................             3.0             3.0
    FY 2020.............................             3.0             3.0

[[Page 19923]]

 
    Average FYs 2017-2020...............             2.9             2.9
------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 4th Quarter 2016 forecast.

    There is no difference between the average percent change in the FY 
2010-based and the proposed 2014-based IPPS market basket over the FY 
2013 through FY 2016 time period. For FY 2018, the increase is 2.9 
percent for both the FY 2010-based and proposed 2014-based IPPS market 
baskets.
3. Labor-Related Share
    Under section 1886(d)(3)(E) of the Act, the Secretary estimates 
from time to time the proportion of payments that are labor-related. 
Section 1886(d)(3)(E) of the Act states that the Secretary shall adjust 
the proportion, (as estimated by the Secretary from time to time) of 
hospitals' costs which are attributable to wages and wage-related 
costs, of the DRG prospective payment rates. We refer to the proportion 
of hospitals' costs that are attributable to wages and wage-related 
costs as the ``labor-related share.''
    The labor-related share is used to determine the proportion of the 
national PPS base payment rate to which the area wage index is applied. 
We include a cost category in the labor-related share if the costs are 
labor intensive and vary with the local labor market. For the FY 2018 
IPPS/LTCH PPS proposed rule, we are proposing to include in the labor-
related share the national average proportion of operating costs that 
are attributable to the following cost categories in the proposed 2014-
based IPPS market basket: Wages and Salaries, Employee Benefits, 
Professional Fees: Labor-Related, Administrative and Facilities Support 
Services, Installation, Maintenance, and Repair Services, and All 
Other: Labor-Related Services, as we did in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50594). As noted in section IV.B.1.c. of the preamble 
of this proposed rule, for the proposed 2014-based IPPS market basket, 
we are proposing the creation of a separate cost category for 
Installation, Maintenance, and Repair Services. These expenses were 
previously included in the All Other: Labor-Related Services cost 
category in the FY 2010-based IPPS market basket, along with other 
services, including, but not limited to, janitorial, waste management, 
security, and dry cleaning/laundry services. Because these services 
tend to be labor-intensive and are mostly performed at the facility 
(and, therefore, unlikely to be purchased in the national market), we 
continue to believe that they meet our definition of labor-related 
services.
    Similar to the FY 2010-based IPPS market basket, we are proposing 
that the Professional Fees: Labor-Related cost category includes 
expenses associated with advertising and a proportion of legal 
services, accounting and auditing, engineering, management consulting, 
and management of companies and enterprises expenses. As was done in 
the FY 2010-based IPPS market basket rebasing, we are proposing to 
determine the proportion of legal, accounting and auditing, 
engineering, and management consulting services that meet our 
definition of labor-related services based on a survey of hospitals 
conducted by CMS in 2008. We notified the public of our intent to 
conduct this survey on December 9, 2005 (70 FR 73250) and received no 
comments (71 FR 8588).
    A discussion of the composition of the survey and 
poststratification can be found in the FY 2010 IPPS/LTCH PPS final rule 
(74 FR 43850 through 43856). Based on the weighted results of the 
survey, we determined that hospitals purchase, on average, the 
following portions of contracted professional services outside of their 
local labor market:
     34 percent of accounting and auditing services;
     30 percent of engineering services;
     33 percent of legal services; and
     42 percent of management consulting services.
    We are proposing to apply each of these percentages to its 
respective Benchmark I-O cost category underlying the professional fees 
cost category. This is the methodology that we used to separate the FY 
2010-based IPPS market basket professional fees cost category into 
Professional Fees: Labor-Related and Professional Fees: Nonlabor-
Related cost categories. We are proposing to use the same methodology 
and survey results to separate the professional fees costs for the 
2014-based IPPS market basket into Professional Fees: Labor-Related and 
Professional Fees: Nonlabor-Related cost categories. We believe these 
survey results are appropriate to use for the 2014-based IPPS market 
basket as they empirically determine the proportion of contracted 
professional services purchased by the industry that is attributable to 
local firms and the proportion that is purchased from national firms.
    In the proposed 2014-based IPPS market basket, nonmedical 
professional fees that were subject to allocation based on these survey 
results represent 4.9 percent of total operating costs (and are limited 
to those fees related to Accounting & Auditing, Legal, Engineering, and 
Management Consulting services). Based on our survey results, we are 
proposing to apportion 3.1 percentage points of the 4.9 percentage 
point figure into the Professional Fees: Labor-Related share cost 
category and designating the remaining 1.8 percentage point into the 
Professional Fees: Nonlabor-Related cost category.
    In addition to the professional services listed earlier, we also 
classify a proportion of the home office expenses into the Professional 
Fees: Labor-Related cost category as was done in the previous rebasing. 
For the FY 2010-based IPPS market basket, we obtained home office 
expenses from the Benchmark I-O data for the NAICS 55 industry 
(Management of Companies and Enterprises). As stated in section 
IV.B.1.a. of the preamble to this proposed rule, for the 2014-based 
IPPS market basket, we are proposing to obtain these data from the 
Medicare cost reports. We believe that many of the home office costs 
are labor-intensive and vary with the local labor market. However, data 
indicate that not all IPPS hospitals with home offices have home 
offices located in their local labor market. Therefore, we are 
proposing to include in the labor-related share only a proportion of 
the home office expenses based on the methodology described below.

[[Page 19924]]

    For the FY 2010-based IPPS market basket, we used data primarily 
from the Medicare cost reports and a CMS database of Home Office 
Medicare Records (HOMER) (a database that provides city and state 
information (addresses) for home offices). We determined the proportion 
of costs that should be allocated to the labor-related share based on 
the percent of hospital home office compensation as reported in 
Worksheet S-3, Part II. Using this methodology, we determined that 62 
percent of hospitals' home office compensation costs were for home 
offices located in their respective local labor markets (defined as the 
same Metropolitan Statistical Area (MSA)). Therefore, we classified 62 
percent of these costs into the Professional Fees: Labor-Related 
Services cost category and the remaining 38 percent into the 
Professional Fees: Nonlabor-Related Services cost category for the FY 
2010-based IPPS market basket. For a detailed discussion of this 
analysis, we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50601).
    For the proposed 2014-based IPPS market basket, we conducted a 
similar analysis of home office data. For consistency, we believe that 
it is important for our analysis on home office data to be conducted on 
the same IPPS hospitals used to derive the proposed 2014-based IPPS 
market basket cost weights. The Medicare cost report requires a 
hospital to report information regarding their home office provider. 
Approximately 64 percent of IPPS hospitals reported some type of home 
office information on their Medicare cost report for 2014 (for example, 
city, State, and zip code). Using the data reported on the Medicare 
cost report, we compared the location of the hospital with the location 
of the hospital's home office. We then determined the proportion of 
costs that should be allocated to the labor-related share based on the 
percent of total hospital home office compensation costs for those 
hospitals that had home offices located in their respective local labor 
markets--defined as being in the same MSA. We determined a hospital's 
and home office's MSAs using their zip code information from the 
Medicare cost report.
    Similar to the FY 2010-based IPPS market basket, we determined the 
proportion of costs that should be allocated to the labor-related share 
based on the percent of hospital home office compensation as reported 
in Worksheet S-3, Part II. Using this methodology, we determined that 
60 percent of hospitals' home office compensation costs were for home 
offices located in their respective local labor markets. Therefore, we 
are proposing to allocate 60 percent of home office expenses to the 
labor-related share.
    In the proposed 2014-based IPPS market basket, home office expenses 
that were subject to allocation based on the home office allocation 
methodology represent 4.2 percent of total operating costs. Based on 
the results of the home office analysis discussed above, we are 
apportioning 2.5 percentage points of the 4.2 percentage points figure 
into the Professional Fees: Labor-Related cost category and designating 
the remaining 1.7 percentage points into the Professional Fees: 
Nonlabor-Related cost category. In summary, based on the two 
allocations mentioned above, we apportioned 5.6 percentage points of 
the professional fees and home office cost weights into the 
Professional Fees: Labor-Related cost category. This amount is added to 
the portion of professional fees that we already identified as labor-
related using the I-O data such as contracted advertising and marketing 
costs (approximately 1.2 percentage point of total operating costs) 
resulting in a Professional Fees: Labor-Related cost weight of 6.8 
percent.
    Below is a table comparing the proposed 2014-based labor-related 
share and the FY 2010-based labor-related share. As discussed in 
section IV.B.1.b. of the preamble of this proposed rule, the Wages and 
Salaries and Employee Benefits cost weights reflect contract labor 
costs.

  Table IV-06--Comparision of the FY 2010-Based Labor-Related Share and
               the Proposed 2014-Based Labor-Related Share
------------------------------------------------------------------------
                                           FY 2010-based  Proposed 2014-
                                            IPPS market     based IPPS
                                            basket cost    market basket
                                              weights      cost weights
------------------------------------------------------------------------
Wages and Salaries......................            47.2            43.4
Employee Benefits.......................            13.1            12.4
Professional Fees: Labor-Related........             5.5             6.8
Administrative and Facilities Support                0.6             1.0
 Services...............................
Installation, Maintenance, and Repair     ..............             2.4
 Services\1\............................
All Other: Labor-Related Services.......             3.1             2.3
                                         -------------------------------
    Total Labor-Related Share...........            69.6            68.3
------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Installation, Maintenance, and Repair Services costs were previously
  included in the All Other: Labor-Related Services cost category of the
  FY 2010-based IPPS market basket.

    Using the cost category weights from the proposed 2014-based IPPS 
market basket, we calculated a labor-related share of 68.3 percent, 
approximately 1.3 percentage points lower than the current labor-
related share of 69.6 percent. Therefore, we are proposing to use a 
labor-related share of 68.3 percent for discharges occurring on or 
after October 1, 2017. We continue to believe, as we have stated in the 
past, that these operating cost categories are related to, influenced 
by, or vary with the local markets. Therefore, our definition of the 
labor-related share continues to be consistent with section 1886(d)(3) 
of the Act. We note that section 403 of Pub. L. 108-173 amended 
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that 
the Secretary must employ 62 percent as the labor-related share unless 
62 percent would result in lower payments to a hospital than would 
otherwise be made.

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

    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857), we 
adopted the use of the FY 2006-based IPPS operating market basket 
percentage

[[Page 19925]]

increase to update the target amounts for children's hospitals, PPS-
excluded cancer hospitals and religious nonmedical health care 
institutions (RNHCIs). Children's hospitals and PPS-excluded cancer 
hospitals and RNHCIs are still reimbursed solely under the reasonable 
cost-based system, subject to the rate-of-increase limits. Under these 
limits, an annual target amount (expressed in terms of the inpatient 
operating cost per discharge) is set for each hospital based on the 
hospital's own historical cost experience trended forward by the 
applicable rate-of-increase percentages.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50603), under the 
broad authority in sections 1886(b)(3)(A) and (B), 1886(b)(3)(E), and 
1871 of the Act and section 4454 of the BBA, consistent with our use of 
the IPPS operating market basket percentage increase to update target 
amounts, we adopted the use of the FY 2010-based IPPS operating market 
basket percentage increase to update the target amounts for children's 
hospitals, PPS-excluded cancer hospitals, and RNHCIs that are paid on 
the basis of reasonable cost subject to the rate-of-increase limits 
under Sec.  413.40. In addition, as discussed in the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 50156 through 50157), consistent with Sec. Sec.  
412.23(g), 413.40(a)(2)(ii)(A), and 413.40(c)(3)(viii), we also have 
used the percentage increase in the FY 2010-based IPPS operating market 
basket to update the target amounts for short-term acute care hospitals 
located outside the 50 States, the District of Columbia, and Puerto 
Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa). These hospitals also are 
paid on the basis of reasonable cost, subject to the rate-of-increase 
limits under Sec.  413.40.
    Due to the small number of children's and cancer hospitals and 
RNHCIs and hospitals located outside the 50 States, the District of 
Columbia, and Puerto Rico and because these facilities provide limited 
Medicare cost report data, we are unable to create a separate market 
basket specifically for these facilities. Due to the limited cost 
report data available, we believe that the proposed 2014-based IPPS 
operating market basket most closely represents the cost structure of 
children's hospitals, PPS-excluded cancer hospitals, RNHCIs, and 
hospitals located outside the 50 States, the District of Columbia, and 
Puerto Rico. We believe this is appropriate as the IPPS operating 
market basket would reflect the input price growth for providing 
inpatient hospital services (similar to the services provided by the 
above excluded facilities) based on the specific mix of goods and 
services required. Therefore, we are proposing to use the 2014-based 
IPPS market basket percentage increase to update the target amounts for 
children's hospitals, PPS-excluded cancer hospitals, RNHCIs, and 
hospitals located outside the 50 States, the District of Columbia, and 
Puerto Rico that are paid on the basis of reasonable cost subject to 
the rate-of-increase limits under Sec.  413.40. We believe it is the 
best available measure of the average increase in the prices of the 
goods and services purchased by children's hospitals, the cancer 
hospitals, RNHCIs, and hospitals located outside the 50 States, the 
District of Columbia, and Puerto Rico in order to provide care.

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

    The CIPI was originally described in the FY 1993 IPPS final rule 
(57 FR 40016). There have been subsequent discussions of the CIPI 
presented in the IPPS proposed and final rules. The FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50603 through 50607) described the most recent 
rebasing and revision of the CIPI to a FY 2010 base year, which 
reflected the capital cost structure of IPPS hospitals available at 
that time.
    For the FY 2018 IPPS update, we are proposing to rebase and revise 
the CIPI to a 2014 base year to reflect a more current structure of 
capital costs for IPPS hospitals. This proposed 2014-based CIPI was 
derived using 2014 cost reports for IPPS hospitals, which includes 
providers whose cost reporting period began on or after October 1, 
2013, and prior to September 30, 2014. While we proposed and finalized 
the title of the current CIPI in the FY 2014 IPPS/LTCH proposed and 
final rules as ``FY 2010-based CIPI'', for the proposed CIPI, we are 
now proposing to simply refer to the proposed CIPI as ``2014-based 
CIPI'' (dropping the reference to FY). As discussed in section IV.B. of 
the preamble of this proposed rule, for the 2014-based IPPS operating 
market basket, we are proposing this change in naming convention for 
the market basket because the base year cost weight data for the 
proposed market basket do not reflect only fiscal year data. Similarly, 
the proposed 2014-based CIPI uses Medicare cost report data and other 
government data that reflect 2014 fiscal year, 2014 calendar year, and 
2014 State fiscal year expenses to determine the base year cost weights 
and vintage weights. Given that it is based on a mix of classifications 
of 2014 data, we are proposing to refer to the CIPI as ``2014-based'' 
instead of ``FY 2014-based'' or ``CY 2014-based''. However, the methods 
and data used to derive each of these CIPI are similar. As with the FY 
2010-based index, we are proposing to develop two sets of weights to 
derive the proposed 2014-based CIPI. The first set of weights 
identifies the proportion of hospital capital expenditures attributable 
to each expenditure category, while the second set of weights is a set 
of relative vintage weights for depreciation and interest. The set of 
vintage weights is used to identify the proportion of capital 
expenditures within a cost category that is attributable to each year 
over the useful life of the capital assets in that category. A more 
thorough discussion of vintage weights is provided later in this 
section.
    Using 2014 Medicare cost reports, we are able to group capital 
costs into the following categories: Depreciation, Interest, Lease, and 
Other. For each of these categories, we are proposing to determine what 
proportion of total capital costs the category represents using the 
data reported by IPPS hospitals on Worksheet A-7, which is the same 
methodology used for the FY 2010-based CIPI. As shown in the left 
column of Table IV-07, in 2014 depreciation expenses accounted for 66.4 
percent of total capital costs, interest expenses accounted for 16.3 
percent, leasing expenses accounted for 11.8 percent, and other capital 
expenses accounted for 5.5 percent.
    We also are proposing to allocate lease costs across each of the 
remaining capital cost categories as was done in the FY 2010-based 
CIPI. This would result in three primary capital cost categories in the 
proposed 2014-based CIPI: Depreciation, Interest, and Other. Lease 
costs are unique in that they are not broken out as a separate cost 
category in the proposed 2014-based CIPI. Rather, we are proposing to 
proportionally distribute leasing costs among the cost categories of 
Depreciation, Interest, and Other, reflecting the assumption that the 
underlying cost structure of leases is similar to that of capital costs 
in general. As was done for the FY 2010-based CIPI, we are proposing to 
assume that 10 percent of the lease costs as a proportion of total 
capital costs represents overhead and to assign those costs to the 
Other capital cost category accordingly. Therefore, we are assuming 
that approximately 1.2 percent (11.8 percent x 0.1) of total capital 
costs represent lease costs attributable to overhead, and we are 
proposing to add this 1.2 percent to the 5.5 percent Other cost 
category weight. We are then proposing to distribute the remaining 
lease costs

[[Page 19926]]

(10.6 percent, or 11.8 percent-1.2 percent) proportionally across the 
three cost categories (Depreciation, Interest, and Other) based on the 
proportion that these categories comprise of the sum of the 
Depreciation, Interest, and Other cost categories (excluding lease 
expenses). For example, the Other cost category represented 6.3 percent 
of all three cost categories (Depreciation, Interest, and Other) prior 
to any lease expenses being allocated. This 6.3 percent is applied to 
the 10.6 percent of remaining lease expenses so that another 0.7 
percent of lease expenses as a percent of total capital costs is 
allocated to the Other cost category. Therefore, the resulting proposed 
Other cost weight is 7.4 percent (5.5 percent + 1.2 percent + 0.7 
percent). This is the same methodology used for the FY 2010-based CIPI. 
The resulting cost weights of the proposed allocation of lease expenses 
are shown in the right column of Table IV-07.

               Table IV-07--Proposed Allocation of Lease Expenses for the Proposed 2014-Based CIPI
----------------------------------------------------------------------------------------------------------------
                                                                  Proposed cost shares     Proposed cost shares
                                                                 obtained from medicare    after allocation of
                        Cost categories                          cost reports (percent   lease expenses (percent
                                                                of total capital costs)  of total capital costs)
----------------------------------------------------------------------------------------------------------------
Depreciation..................................................                     66.4                     74.4
Interest......................................................                     16.3                     18.2
Lease.........................................................                     11.8  .......................
Other.........................................................                      5.5                      7.4
----------------------------------------------------------------------------------------------------------------

    Finally, we are proposing to further divide the Depreciation and 
Interest cost categories. We are proposing to separate the Depreciation 
cost category into the following two categories: (1) Building and Fixed 
Equipment and (2) Movable Equipment. We also are proposing to separate 
the Interest cost category into the following two categories: (1) 
Government/Nonprofit; and (2) For-profit.
    To disaggregate the depreciation cost weight, we needed to 
determine the percent of total depreciation costs for IPPS hospitals 
(after the allocation of lease costs) that are attributable to building 
and fixed equipment, which we hereafter refer to as the ``fixed 
percentage.'' Based on Worksheet A-7 data from the 2014 IPPS Medicare 
cost reports, we have determined that depreciation costs for building 
and fixed equipment account for approximately 49 percent of total 
depreciation costs, while depreciation costs for movable equipment 
account for approximately 51 percent of total depreciation costs. As 
was done for the FY 2010-based CIPI, we are proposing to apply this 
fixed percentage to the depreciation cost weight (after leasing costs 
are included) to derive a Depreciation cost weight attributable to 
Building and Fixed Equipment and a Depreciation cost weight 
attributable to Movable Equipment.
    To disaggregate the interest cost weight, we needed to determine 
the percent of total interest costs for IPPS hospitals that are 
attributable to government and nonprofit facilities, which we hereafter 
refer to as the ``nonprofit percentage,'' because interest price 
pressures tend to differ between nonprofit and for-profit facilities. 
We are proposing to use interest costs data from Worksheet A-7 of the 
2014 Medicare cost reports for IPPS hospitals, which is the same 
methodology used for the FY 2010-based CIPI. The nonprofit percentage 
determined using this method is 86 percent. Table IV-08 provides a 
comparison of the FY 2010-based CIPI cost weights and the proposed 
2014-based CIPI cost weights.
    After the capital cost category weights were computed, it was 
necessary to select appropriate price proxies to reflect the rate-of-
increase for each expenditure category. We are proposing to apply the 
same price proxies as were used in the FY 2010-based CIPI, which are 
listed below and provided in Table IV-08. We also are proposing to 
continue to vintage weight the capital price proxies for Depreciation 
and Interest to capture the long-term consumption of capital. This 
vintage weighting method is the same method that was used for the FY 
2010-based CIPI and is described below.
    We are proposing to continue to proxy the: Depreciation--Building 
and Fixed Equipment cost category by the BEA Chained Price Index for 
Private Fixed Investment in Structures, Nonresidential, Hospitals and 
Special Care (BEA Table 5.4.4. Price Indexes for Private Fixed 
Investment in Structures by Type). As stated in the FY 2010 IPPS/LTCH 
final rule (74 FR 43860), for the FY 2006-based CIPI we finalized the 
use of this index to measure the price growth of this cost category. 
This BEA index is intended to capture prices for construction of 
facilities such as hospitals, nursing homes, hospices, and 
rehabilitation centers. For the Depreciation--Movable Equipment cost 
category, we are proposing to continue to measure the price growth 
using the PPI Commodity for Machinery and Equipment (BLS series code 
WPU11). This price index reflects price inflation associated with a 
variety of machinery and equipment that would be utilized by hospitals 
including but not limited to communication equipment, computers, and 
medical equipment. For the Nonprofit Interest and For-profit Interest 
cost categories, we are proposing to continue to measure the price 
growth using the average yield on domestic municipal bonds (Bond Buyer 
20-bond index) and the average yield on Moody's Aaa bonds (Federal 
Reserve), respectively. As stated above, we are proposing two proxies 
because interest price pressures tend to differ between nonprofit and 
for-profit facilities. For the Other capital cost category (including 
insurances, taxes, and other capital-related costs), we are proposing 
to continue to measure the price growth using the CPI for Rent of 
Primary Residence (All Urban Consumers) (BLS series code CUUS0000SEHA), 
which would reflect the price growth of these costs. We believe that 
these price proxies continue to be the most appropriate proxies for 
IPPS capital costs that meet our selection criteria of relevance, 
timeliness, availability, and reliability.

[[Page 19927]]



    Table IV-08--Proposed 2014-Based CIPI Cost Weights and Price Proxies With FY 2010-Based CIPI Cost Weights
                                            Included for Comparision
----------------------------------------------------------------------------------------------------------------
                                              FY 2010 cost    Proposed 2014
              Cost categories                   weights        cost weights          Proposed price proxy
----------------------------------------------------------------------------------------------------------------
Total.....................................            100.0            100.0  ..................................
    Depreciation..........................             74.0             74.4  ..................................
        Building and Fixed Equipment......             36.2             36.7  BEA's Chained Price Index for
                                                                               Private Fixed Investment in
                                                                               Structures, Nonresidential,
                                                                               Hospitals and Special Care.
        Movable Equipment.................             37.9             37.7  PPI Commodity for Machinery and
                                                                               Equipment.
    Interest..............................             19.2             18.2  ..................................
        Government/Nonprofit..............             17.1             15.7  Average Yield on Domestic
                                                                               Municipal Bonds (Bond Buyer 20-
                                                                               Bond Index).
        For-Profit........................              2.1              2.5  Average Yield on Moody's Aaa
                                                                               Bonds.
Other.....................................              6.8              7.4  CPI for Rent of Primary Residence.
----------------------------------------------------------------------------------------------------------------
Note: The cost weights are calculated using three decimal places. For presentational purposes, we are displaying
  one decimal and therefore, the detail may not add to the total due to rounding.

    Because capital is acquired and paid for over time, capital 
expenses in any given year are determined by both past and present 
purchases of physical and financial capital. The proposed vintage-
weighted 2014-based CIPI is intended to capture the long-term 
consumption of capital, using vintage weights for depreciation 
(physical capital) and interest (financial capital). These vintage 
weights reflect the proportion of capital purchases attributable to 
each year of the expected life of building and fixed equipment, movable 
equipment, and interest. We are proposing to use vintage weights to 
compute vintage-weighted price changes associated with depreciation and 
interest expenses.
    Vintage weights are an integral part of the CIPI. Capital costs are 
inherently complicated and are determined by complex capital purchasing 
decisions, over time, based on such factors as interest rates and debt 
financing. In addition, capital is depreciated over time instead of 
being consumed in the same period it is purchased. By accounting for 
the vintage nature of capital, we are able to provide an accurate and 
stable annual measure of price changes. Annual nonvintage price changes 
for capital are unstable due to the volatility of interest rate changes 
and, therefore, do not reflect the actual annual price changes for IPPS 
capital costs. The CIPI reflects the underlying stability of the 
capital acquisition process.
    To calculate the vintage weights for depreciation and interest 
expenses, we first needed a time series of capital purchases for 
building and fixed equipment and movable equipment. We found no single 
source that provides an appropriate time series of capital purchases by 
hospitals for all of the above components of capital purchases. The 
early Medicare cost reports did not have sufficient capital data to 
meet this need. Data we obtained from the American Hospital Association 
(AHA) did not include annual capital purchases. However, we were able 
to obtain data on total expenses back to 1963 from the AHA. 
Consequently, we are proposing to use data from the AHA Panel Survey 
and the AHA Annual Survey to obtain a time series of total expenses for 
hospitals. We then are proposing to use data from the AHA Panel Survey 
supplemented with the ratio of depreciation to total hospital expenses 
obtained from the Medicare cost reports to derive a trend of annual 
depreciation expenses for 1963 through 2014. We are proposing to 
separate these depreciation expenses into annual amounts of building 
and fixed equipment depreciation and movable equipment depreciation as 
determined earlier. From these annual depreciation amounts, we derived 
annual end-of-year book values for building and fixed equipment and 
movable equipment using the expected life for each type of asset 
category. We used the AHA data and similar methodology to derive the FY 
2010-based IPPS capital market basket (78 FR 50604).
    To continue to calculate the vintage weights for depreciation and 
interest expenses, we also needed to account for the expected lives for 
building and fixed equipment, movable equipment, and interest for the 
proposed 2014-based CIPI. We are proposing to calculate the expected 
lives using Medicare cost report data. The expected life of any asset 
can be determined by dividing the value of the asset (excluding fully 
depreciated assets) by its current year depreciation amount. This 
calculation yields the estimated expected life of an asset if the rates 
of depreciation were to continue at current year levels, assuming 
straight-line depreciation. Using this proposed method, we determined 
the average expected life of building and fixed equipment to be equal 
to 27 years, and the average expected life of movable equipment to be 
equal to 12 years. For the expected life of interest, we believe that 
vintage weights for interest should represent the average expected life 
of building and fixed equipment because, based on previous research 
described in the FY 1997 IPPS final rule (61 FR 46198), the expected 
life of hospital debt instruments and the expected life of buildings 
and fixed equipment are similar. We note that the FY 2010-based CIPI 
was based on an expected average life of building and fixed equipment 
of 26 years and an expected average life of movable equipment of 12 
years.
    Multiplying these expected lives by the annual depreciation amounts 
results in annual year-end asset costs for building and fixed equipment 
and movable equipment. We then calculated a time series, beginning in 
1964, of annual capital purchases by subtracting the previous year's 
asset costs from the current year's asset costs.
    For the building and fixed equipment and movable equipment vintage 
weights, we are proposing to use the real annual capital-related 
purchase amounts for each asset type to capture the actual amount of 
the physical acquisition, net of the effect of price inflation. These 
real annual capital-related purchase amounts are produced by deflating 
the nominal annual purchase amount by the associated price proxy as 
provided earlier in this proposed rule. For the interest vintage 
weights, we are proposing to use the total nominal annual capital-
related purchase amounts to capture the value of the debt instrument 
(including, but not limited to, mortgages and bonds). Using these 
capital purchases time series specific to each asset type, we are 
proposing to calculate the vintage weights for building and fixed

[[Page 19928]]

equipment, for movable equipment, and for interest.
    The vintage weights for each asset type are deemed to represent the 
average purchase pattern of the asset over its expected life (in the 
case of building and fixed equipment and interest, 27 years, and in the 
case of movable equipment, 12 years). For each asset type, we are 
proposing to use the time series of annual capital purchases amounts 
available from 2014 back to 1964. These data allow us to derive twenty-
five 27-year periods of capital purchases for building and fixed 
equipment and interest, and forty 12-year periods of capital purchases 
for movable equipment. For each 27-year period for building and fixed 
equipment and interest, or 12-year period for movable equipment, we are 
proposing to calculate annual vintage weights by dividing the capital-
related purchase amount in any given year by the total amount of 
purchases over the entire 27-year or 12-year period. This calculation 
was done for each year in the 27-year or 12-year period and for each of 
the periods for which we have data. We then calculated the average 
vintage weight for a given year of the expected life by taking the 
average of these vintage weights across the multiple periods of data.
    The vintage weights for the proposed 2014-based CIPI and the FY 
2010-based CIPI are presented in Table IV-09 below.

                                      Table IV-09--Proposed 2014-Based CIPI and FY 2010-Based CIPI Vintage Weights
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Building and fixed equipment          Movable equipment                   Interest
                                                         -----------------------------------------------------------------------------------------------
                        Year \1\                          Proposed 2014-   FY 2010-based  Proposed 2014-   FY 2010-based  Proposed 2014-   FY 2010-based
                                                          based 27 years     26 years     based 12 years     12 years     based 27 years     26 years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           0.024           0.023           0.062           0.064           0.012           0.012
2.......................................................           0.025           0.024           0.064           0.068           0.014           0.013
3.......................................................           0.027           0.026           0.070           0.071           0.015           0.015
4.......................................................           0.028           0.028           0.074           0.073           0.017           0.017
5.......................................................           0.030           0.029           0.078           0.076           0.019           0.018
6.......................................................           0.031           0.031           0.082           0.078           0.021           0.021
7.......................................................           0.033           0.032           0.086           0.084           0.023           0.023
8.......................................................           0.034           0.034           0.088           0.088           0.025           0.025
9.......................................................           0.035           0.036           0.092           0.092           0.027           0.028
10......................................................           0.036           0.038           0.097           0.098           0.029           0.030
11......................................................           0.037           0.040           0.102           0.103           0.030           0.033
12......................................................           0.039           0.041           0.105           0.106           0.033           0.036
13......................................................           0.040           0.042  ..............  ..............           0.035           0.038
14......................................................           0.040           0.042  ..............  ..............           0.037           0.040
15......................................................           0.039           0.043  ..............  ..............           0.037           0.043
16......................................................           0.039           0.044  ..............  ..............           0.040           0.045
17......................................................           0.040           0.044  ..............  ..............           0.041           0.047
18......................................................           0.042           0.044  ..............  ..............           0.045           0.048
19......................................................           0.042           0.044  ..............  ..............           0.048           0.051
20......................................................           0.042           0.044  ..............  ..............           0.050           0.052
21......................................................           0.043           0.045  ..............  ..............           0.052           0.056
22......................................................           0.043           0.045  ..............  ..............           0.054           0.057
23......................................................           0.042           0.045  ..............  ..............           0.055           0.060
24......................................................           0.042           0.046  ..............  ..............           0.057           0.062
25......................................................           0.043           0.045  ..............  ..............           0.059           0.064
26......................................................           0.043           0.045  ..............  ..............           0.061           0.066
27......................................................           0.043  ..............  ..............  ..............           0.062  ..............
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................           1.000           1.000           1.000           1.000           1.000           1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers may not add to total due to rounding.
\1\ Vintage weight in the last year (for example, year 27 for the proposed 2014-based CIPI) is applied to the most recent data point and prior vintage
  weights are applied going back in time. For example, year 27 vintage weight would be applied to the 2018q3 fixed price proxy level, year 26 vintage
  weight would be applied to the 2017q3 fixed price proxy level, etc.

    The process of creating vintage-weighted price proxies requires 
applying the vintage weights to the price proxy index where the last 
applied vintage weight in Table IV-09 is applied to the most recent 
data point. We have provided on the CMS Web site an example of how the 
vintage weighting price proxies are calculated, using example vintage 
weights and example price indices. The example can be found under the 
following CMS Web site link: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html in the zip file 
titled ``Weight Calculations as described in the IPPS FY 2010 Proposed 
Rule.''
    Table IV-10 below compares both the historical and forecasted 
percent changes in the FY 2010-based CIPI and the proposed 2014-based 
CIPI.

[[Page 19929]]



Table IV-10--Comparison of FY 2010-Based and Proposed 2014-Based Capital
       Input Price Index, Percent Change, FY 2013 Through FY 2020
------------------------------------------------------------------------
                                          CIPI, FY 2010-  Proposed CIPI,
               Fiscal year                     based        2014-based
------------------------------------------------------------------------
Historical Data:
    FY 2013.............................             1.1             1.0
    FY 2014.............................             1.2             1.2
    FY 2015.............................             1.2             1.1
    FY 2016.............................             1.1             1.0
    Average FYs 2013-2016...............             1.2             1.1
Forecast:
    FY 2017.............................             1.1             1.0
    FY 2018.............................             1.3             1.2
    FY 2019.............................             1.5             1.4
    FY 2020.............................             1.5             1.5
    Average FYs 2017-2020...............             1.4             1.3
------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 4th quarter 2016 forecast.

    IHS Global Insight, Inc. forecasts a 1.2 percent increase in the 
proposed 2014-based CIPI for FY 2018, as shown in Table IV-10. The 
underlying vintage-weighted price increases for depreciation (including 
building and fixed equipment and movable equipment) and interest 
(including government/nonprofit and for-profit) based on the proposed 
2014-based CIPI are included in Table IV-11.

 Table IV-11--Proposed 2014-Based Capital Input Price Index Percent Changes, Total and Depreciation and Interest
                                        Components--FYs 2013 Through 2020
----------------------------------------------------------------------------------------------------------------
                           Fiscal year                                 Total       Depreciation      Interest
----------------------------------------------------------------------------------------------------------------
Historical Data:                                                  ..............  ..............  ..............
    FY 2013.....................................................             1.0             1.7            -2.5
    FY 2014.....................................................             1.2             1.8            -1.8
    FY 2015.....................................................             1.1             1.8            -2.7
    FY 2016.....................................................             1.0             1.7            -3.0
Forecast:                                                         ..............  ..............  ..............
    FY 2017.....................................................             1.0             1.6            -2.7
    FY 2018.....................................................             1.2             1.6            -1.6
    FY 2019.....................................................             1.4             1.6            -0.6
    FY 2020.....................................................             1.5             1.6             0.1
----------------------------------------------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 4th quarter 2016 forecast.

    Rebasing the CIPI from FY 2010 to 2014 decreased the percent change 
in the forecasted update for FY 2018 by 0.1 percentage point, from 1.3 
percent to 1.2 percent, as shown in Table IV-10. The lower FY 2018 
update is primarily due to a change in the vintage weights for the 
proposed 2014-based CIPI, which includes updating the asset purchase 
data through 2014 and changing the building and fixed equipment and 
interest asset lives from 26 years to 27 years. This lower update is 
only partially offset by the change in the base year weights, which 
produce a faster increase due to more weight being given to the 
Depreciation cost category and less weight being given to the Interest 
cost category. As shown in Table IV-11, for FY 2018, vintage-weighted 
price growth is projected to be positive for the Depreciation cost 
category and negative for Interest cost category.

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

A. Proposed Changes to MS-DRGs Subject to the Postacute Care Transfer 
and MS-DRG Special Payment Policies (Sec.  412.4)

1. Background
    Existing regulations at 42 CFR 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.  412.4(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 MS-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 also are 
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 1 
day.

[[Page 19930]]

    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. The statute directs us to identify MS-DRGs based on a 
high volume of discharges to postacute care facilities and a 
disproportionate use of postacute care services. As discussed in the FY 
2006 IPPS final rule (70 FR 47416), we determined that the 55th 
percentile is an appropriate level at which to establish these 
thresholds. In that same 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 MS-DRG.
    To account for MS-DRGs subject to the postacute care 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 severity level 
group will qualify under the MS-DRG special payment methodology policy 
if any one of the MS-DRGs that share that same base MS-DRG qualifies 
(Sec.  412.4(f)(6)).
2. Proposed Changes for FY 2018
    Based on our annual review of MS-DRGs, we have identified three MS-
DRGs that we are proposing to be included on the list of MS-DRGs 
subject to the special payment transfer policy. As we discuss in 
section II.F. of the preamble of this proposed rule, in response to 
public comments and based on our analysis of FY 2016 MedPAR claims 
data, we are proposing to make changes to MS-DRGs, effective for FY 
2018.
    As discussed in section II.F.14.b. of the preamble of this proposed 
rule, we are proposing to delete MS-DRGs 984, 985, and 986 (Prostatic 
O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC and 
without CC/MCC, respectively) and reassign the procedure codes 
currently assigned to these three MS-DRGs to MS-DRGs 987, 988, and 989 
(Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis with 
MCC, with CC and without CC/MCC, respectively).
    In light of these proposed changes to the MS-DRGs for FY 2018, 
according to the regulations under Sec.  412.4(d), we evaluated 
proposed revised MS-DRGs 987, 988, and 989 (which would contain the 
proposed reassigned procedures from MS-DRGs 984, 985, and 986) against 
the general postacute care transfer policy criteria using the FY 2016 
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 to believe it is appropriate to reassess MS-DRGs when 
proposing reassignment of procedure or diagnosis codes that would 
result in material changes to an MS-DRG. MS-DRGs 987, 988, and 989 are 
currently subject to the postacute care transfer policy. As a result of 
our review, the proposed revised MS-DRGs 987, 988, and 989 continue to 
qualify to be included on the list of MS-DRGs that are subject to the 
postacute care transfer policy. We are not proposing to change the 
postacute care transfer policy status for MS-DRGs 987, 988, and 989.

                         List of Proposed Revised MS-DRGs Subject To Review of Postacute Care Transfer Policy Status for FY 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Percent of
                                                                                                              short-stay
                                                                            Postacute care                  postacute care
                                                                               transfers      Short-stay     transfers to      Postacute care transfer
  Proposed revised MS-DRG             MS-DRG title            Total cases        (55th      postacute care     all cases            policy status
                                                                              percentile:      transfers         (55th
                                                                                1,419)                        percentile:
                                                                                                               8.01068%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
987........................  Non-Extensive O.R. Procedure            8,131           4,210           1,355        16.66462  YES.
                              Unrelated to Principal
                              Diagnosis with MCC.
988........................  Non-Extensive O.R. Procedure            8,239           3,416             706         8.56900  YES.
                              Unrelated to Principal
                              Diagnosis with CC.
989........................  Non-Extensive O.R. Procedure            2,216           * 499              47       * 2.12094  ** YES.
                              Unrelated to Principal
                              Diagnosis without MCC/CC.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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.

    We also have determined that proposed revised MS-DRGs 987, 988, and 
989 would meet the criteria for the MS-DRG special payment methodology. 
MS-DRGs 987, 988, and 989 are not currently listed as being subject to 
the special payment policy. Therefore, we are proposing that these 
three proposed revised MS-DRGs would be subject to

[[Page 19931]]

the MS-DRG special payment methodology, effective FY 2018.

         List of Proposed Revised MS-DRGs Subject To Review of Special Payment Policy Status for FY 2018
----------------------------------------------------------------------------------------------------------------
                                                                             50 Percent of
                                                                Average         average
 Proposed  revised        MS-DRG title      Geometric mean  charges of  1-    charges for      Special payment
       MS-DRG                               length of stay        day          all cases        policy status
                                                              discharges     within MS-DRG
----------------------------------------------------------------------------------------------------------------
987................  Non-Extensive O.R.                8.1         $36,526         $53,449  * YES.
                      Procedure Unrelated
                      to Principal
                      Diagnosis with MCC.
988................  Non-Extensive O.R.                8.6          35,629          29,119  YES.
                      Procedure Unrelated
                      to Principal
                      Diagnosis with CC.
989................  Non-Extensive O.R.                2.2               0               0  * YES.
                      Procedure Unrelated
                      to Principal
                      Diagnosis without
                      MCC/CC.
----------------------------------------------------------------------------------------------------------------
* 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 MS-DRG special payment policy if any one of the MS-DRGs that share that same base MS-DRG qualifies.

    The proposed postacute care transfer policy status and special 
payment policy status of these MS-DRGs are reflected in Table 5 
associated with this proposed rule, which is listed in section VI. of 
the Addendum to this proposed rule and available via the Internet on 
the CMS Web site.

B. Proposed Changes in the Inpatient Hospital Update for FY 2018 (Sec.  
412.64(d))

1. Proposed FY 2018 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 hospital 
operating costs by a factor called the ``applicable percentage 
increase.'' For FY 2018, we are setting the applicable percentage 
increase by applying the adjustments listed in this section in the same 
sequence as we did for FY 2017. Specifically, 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. 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) 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;
    (b) A reduction of three-quarters 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;
    (c) An adjustment based on changes in economy-wide productivity 
(the multifactor productivity (MFP) adjustment); and
    (d) An additional reduction of 0.75 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 2018 adjustment of 0.75 
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 this 
proposed rule, we are proposing to replace the FY 2010-based IPPS 
operating and capital market baskets with the revised and rebased 2014-
based IPPS operating and capital market baskets for FY 2018.
    We are proposing to base the proposed FY 2018 market basket update 
used to determine the applicable percentage increase for the IPPS on 
IHS Global Insight, Inc.'s (IGI's) fourth quarter 2016 forecast of the 
proposed 2014-based IPPS market basket rate-of-increase with historical 
data through third quarter 2016, which is estimated to be 2.9 percent. 
We are proposing that if more recent data subsequently become available 
(for example, a more recent estimate of the market basket and the MFP 
adjustment), we would use such data, if appropriate, to determine the 
FY 2018 market basket update and the MFP adjustment in the final rule.
    For FY 2018, 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 as 
specified in the table that appears later in this section.
    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. As we explained in that rule, section 
1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the 
Affordable Care Act, defines this productivity adjustment as equal to 
the 10-year moving average of changes in annual economy-wide, private 
nonfarm business MFP (as projected by the Secretary for the 10-year 
period ending with the applicable fiscal year, calendar year, cost 
reporting period, or other annual period). The Bureau of Labor 
Statistics (BLS) publishes the official measure of private nonfarm 
business MFP. We refer readers to the BLS Web site at http://www.bls.gov/mfp for the BLS historical published MFP data.
    MFP is derived by subtracting the contribution of labor and capital 
input growth from output growth. The projections of the components of 
MFP are currently produced by IGI, a nationally recognized economic 
forecasting firm with which CMS contracts to forecast the components of 
the market baskets and MFP. As we discussed in the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49509), beginning with the FY 2016 rulemaking 
cycle, the MFP adjustment is calculated using the revised series 
developed by IGI to proxy the aggregate capital inputs. Specifically, 
in order to generate a forecast of MFP, IGI forecasts BLS aggregate 
capital inputs using a

[[Page 19932]]

regression model. A complete description of the MFP projection 
methodology is available on the CMS Web site at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html. As discussed in 
the FY 2016 IPPS/LTCH PPS final rule, if IGI makes changes to the MFP 
methodology, we will announce them on our Web site rather than in the 
annual rulemaking.
    For FY 2018, we are proposing an MFP adjustment of 0.4 percentage 
point. Similar to the market basket update, for the proposed rule, we 
used IGI's fourth quarter 2016 forecast of the MFP adjustment with 
historical data through third quarter 2016 to compute the proposed MFP 
adjustment. We are proposing that if more recent data subsequently 
become available, we would use such data, if appropriate, to determine 
the FY 2018 market basket update and MFP adjustment for the final rule.
    Based on these data, for this proposed rule, we have determined 
four proposed applicable percentage increases to the standardized 
amount for FY 2018, as specified in the following table:

                          Proposed FY 2018 Applicable Percentage Increases for the IPPS
----------------------------------------------------------------------------------------------------------------
                                                     Hospital        Hospital      Hospital did    Hospital did
                                                     submitted       submitted      NOT submit      NOT submit
                                                   quality data    quality data    quality data    quality data
                     FY 2018                         and is a      and is NOT a      and is a      and is NOT a
                                                  meaningful EHR  meaningful EHR  meaningful EHR  meaningful EHR
                                                       user            user            user            user
----------------------------------------------------------------------------------------------------------------
Proposed Market Basket Rate-of-Increase.........             2.9             2.9             2.9             2.9
Proposed Adjustment for Failure to Submit                    0.0             0.0          -0.725          -0.725
 Quality Data under Section 1886(b)(3)(B)(viii)
 of the Act.....................................
Proposed Adjustment for Failure to be a                      0.0          -2.175             0.0          -2.175
 Meaningful EHR User under Section
 1886(b)(3)(B)(ix) of the Act...................
Proposed MFP Adjustment under Section                       -0.4            -0.4            -0.4            -0.4
 1886(b)(3)(B)(xi) of the Act...................
Statutory Adjustment under Section                         -0.75           -0.75           -0.75           -0.75
 1886(b)(3)(B)(xii) of the Act..................
Proposed Applicable Percentage Increase Applied             1.75          -0.425           1.025           -1.15
 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 2018 update. 
Specifically, in accordance with section 1886(b)(3)(B) of the Act, we 
are proposing to revise paragraph (vii) of Sec.  412.64(d)(1) to 
include the applicable percentage increase to the FY 2018 operating 
standardized amount as the percentage increase in the market basket 
index, subject to the reductions specified under Sec.  412.64(d)(2) for 
a hospital that does not submit quality data and Sec.  412.64(d)(3) for 
a hospital that is not a meaningful EHR user, less an MFP adjustment 
and less an additional reduction of 0.75 percentage point.
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase to the hospital-specific rates for SCHs equals the 
applicable percentage increase set forth in section 1886(b)(3)(B)(i) of 
the Act (that is, the same update factor as for all other hospitals 
subject to the IPPS). Therefore, the update to the hospital-specific 
rates for SCHs also is subject to section 1886(b)(3)(B)(i) of the Act, 
as amended by sections 3401(a) and 10319(a) of the Affordable Care Act.
    As discussed in section V.H. of the preamble of this proposed rule, 
section 205 of the Medicare Access and CHIP Reauthorization Act of 2015 
(MACRA) (Pub. L. 114-10, enacted on April 16, 2015) extended the MDH 
program (which, under previous law, was to be in effect for discharges 
on or before March 31, 2015 only) for discharges occurring on or after 
April 1, 2015, through FY 2017 (that is, for discharges occurring on or 
before September 30, 2017). Therefore, under current law, the MDH 
program will expire at the end of FY 2017.
    For FY 2018, we are proposing the following updates to the 
hospital-specific rates applicable to SCHs: A proposed update of 1.75 
percent for a hospital that submits quality data and is a meaningful 
EHR user; a proposed update of 1.025 percent for a hospital that fails 
to submit quality data and is a meaningful EHR user; a proposed update 
of -0.425 percent for a hospital that submits quality data and is not a 
meaningful EHR user; and a proposed update of -1.15 percent for a 
hospital that fails to submit quality data and is not a meaningful EHR 
user. As mentioned previously, for this FY 2018 proposed rule, we are 
using IGI's fourth quarter 2016 forecast of the proposed 2014-based 
IPPS market basket update with historical data through third quarter 
2016. Similarly, we are using IGI's fourth quarter 2016 forecast of the 
MFP adjustment. We are proposing that if more recent data subsequently 
become available (for example, a more recent estimate of the market 
basket increase and the MFP adjustment), we would use such data, if 
appropriate, to determine the update in the final rule.
2. Proposed FY 2018 Puerto Rico Hospital Update
    As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56937 
through 56938), prior to January 1, 2016, Puerto Rico hospitals were 
paid based on 75 percent of the national standardized amount and 25 
percent of the Puerto Rico-specific standardized amount. Section 601 of 
Public Law 114-113 amended section 1886(d)(9)(E) of the Act to specify 
that the payment calculation with respect to operating costs of 
inpatient hospital services of a subsection (d) Puerto Rico hospital 
for inpatient hospital discharges on or after January 1, 2016, shall 
use 100 percent of the national standardized amount. Because Puerto 
Rico hospitals are no longer paid with a Puerto Rico-specific 
standardized amount under the amendments to section 1886(d)(9)(E) of 
the Act, there is no longer a need for us to propose an update to the 
Puerto Rico standardized amount. Hospitals in Puerto Rico are now paid 
100 percent of the national standardized amount and, therefore, are 
subject to the same update to the national standardized amount 
discussed under section V.B.1. of the preamble of this proposed rule. 
Accordingly, for FY 2018, we are proposing an applicable percentage 
increase of 1.75 to the standardized amount for hospitals located in 
Puerto Rico.
    We note that section 1886(b)(3)(B)(viii) of the Act, which 
specifies the adjustment to the

[[Page 19933]]

applicable percentage increase for ``subsection (d)'' hospitals that do 
not submit quality data under the rules established by the Secretary, 
is not applicable to hospitals located in Puerto Rico.
    In addition, section 602 of Public Law 114-113 amended section 
1886(n)(6)(B) of the Act to specify that Puerto Rico hospitals are 
eligible for incentive payments for the meaningful use of certified EHR 
technology, effective beginning FY 2016, and also to apply the 
adjustments to the applicable percentage increase under section 
1886(b)(3)(B)(ix) of the Act to Puerto Rico hospitals that are not 
meaningful EHR users, effective FY 2022. Accordingly, because the 
provisions of section 1886(b)(3)(B)(ix) of the Act are not applicable 
to hospitals located in Puerto Rico until FY 2022, the adjustments 
under this provision are not applicable for FY 2018.

C. Proposed Change to Volume Decrease Adjustment for Sole Community 
Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals (MDHs) 
(Sec.  412.92)

1. Background
    Sections 1886(d)(5)(D) and (d)(5)(G) of the Act provide special 
payment protections under the IPPS to sole community hospitals (SCHs) 
and Medicare-dependent, small rural hospitals (MDHs), respectively. 
Section 1886(d)(5)(D)(iii) of the Act defines an SCH in part as a 
hospital that the Secretary determines is located more than 35 road 
miles from another hospital or that, by reason of factors such as 
isolated location, weather conditions, travel conditions, or absence of 
other like hospitals (as determined by the Secretary), is the sole 
source of inpatient hospital services reasonably available to Medicare 
beneficiaries. The regulations at 42 CFR 412.92 set forth the criteria 
that a hospital must meet to be classified as a SCH. For more 
information on SCHs, we refer readers to the FY 2009 IPPS/LTCH PPS 
final rule (74 FR 43894 through 43897).
    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 (that is, not 
less than 60 percent of its inpatient days or discharges during the 
cost reporting period beginning in FY 1987 or two of the three most 
recently audited cost reporting periods for which the Secretary has a 
settled cost report were attributable to inpatients entitled to 
benefits under Part A). The regulations at 42 CFR 412.108 set forth the 
criteria that a hospital must meet to be classified as an MDH. The MDH 
program is not authorized by statute beyond September 30, 2017. 
Therefore, beginning October 1, 2017, all hospitals that previously 
qualified for MDH status under section 1886(d)(5)(G) of the Act will no 
longer have MDH status and will be paid based on the IPPS Federal rate. 
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).
2. Proposed Changes to the Volume Decrease Adjustment Calculation 
Methodology for SCHs
    Section 1886(d)(5)(D)(ii) and section 1886(d)(5)(G)(iii) of the Act 
require that the Secretary adjust the payments made to an SCH and MDH, 
respectively, as may be necessary to fully compensate the hospital for 
the fixed costs it incurs in providing inpatient hospital services, 
including the reasonable cost of maintaining necessary core staff and 
services, when it experiences a decrease of more than 5 percent in its 
total number of inpatient discharges due to circumstances beyond its 
control. These adjustments are known as ``volume decrease 
adjustments.''
    The regulations governing volume decrease adjustments are found at 
Sec.  412.92(e) for SCHs and Sec.  412.108(d) for MDHs. As noted 
earlier, the MDH program is set to expire as of October 1, 2017. As 
such, we are not proposing specific amendments to the regulations at 
Sec.  412.108(d) for MDHs. However, we are proposing that if the MDH 
program ends up being extended by law, similar to how it was extended 
by section 205 of the MACRA (Pub. L. 114-10) and prior legislation, the 
following proposed changes to the volume decrease adjustment 
methodology and the proposed amendment to Sec.  412.92(e)(3) for SCHs 
would also be made to the parallel requirements for MDHs under Sec.  
412.108(d)(3).
    To qualify for a volume decrease adjustment, the SCH must: (a) 
Submit documentation demonstrating the size of the decrease in 
discharges and the resulting effect on per discharge costs; and (b) 
show that the decrease is due to circumstances beyond the hospital's 
control. If an SCH demonstrates to the MAC's satisfaction that it has 
suffered a qualifying decrease in total inpatient discharges, the MAC 
determines the appropriate amount, if any, due to the SCH as an 
adjustment.
    As we have noted in the PRM and in adjudications rendered by the 
PRRB and the CMS Administrator, under the current methodology, the MAC 
determines a volume decrease adjustment amount no