[Federal Register: August 18, 2006 (Volume 71, Number 160)]
[Rules and Regulations]
[Page 47869-48351]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18au06-21]
[[Page 47869]]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 409, 410, 412, et al.
Revision to Hospital Inpatient Prospective Payment Systems--2007 FY
Occupational Mix Adjustment to Wage Index; Implementation; Final Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 409, 410, 412, 413, 414, 424, 485, 489, and 505
[CMS-1488-F; CMS-1287-F; CMS-1320-F; and CMS-1325-IFC4]
RINs 0938-AO12; 0938-AO03; 0938-AN93; and 0938-AN58
Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2007 Rates; Fiscal Year 2007
Occupational Mix Adjustment to Wage Index; Health Care Infrastructure
Improvement Program; Selection Criteria of Loan Program for Qualifying
Hospitals Engaged in Cancer-Related Health Care and Forgiveness of
Indebtedness; and Exclusion of Vendor Purchases Made Under the
Competitive Acquisition Program (CAP) for Outpatient Drugs and
Biologicals Under Part B for the Purpose of Calculating the Average
Sales Price (ASP)
AGENCY: Centers for Medicare and Medicaid Services (CMS), HHS.
ACTION: Final rules and interim final rule with comment period.
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SUMMARY: We are revising the Medicare hospital inpatient prospective
payment systems (IPPS) for operating and capital-related costs to
implement changes arising from our continuing experience with these
systems, and to implement a number of changes made by the Deficit
Reduction Act of 2005 (Pub. L. 109-171). In addition, in the Addendum
to this final rule, we describe the changes to the amounts and factors
used to determine the rates for Medicare hospital inpatient services
for operating costs and capital-related costs. We also are setting
forth rate-of-increase limits as well as policy changes for hospitals
and hospital units excluded from the IPPS that are paid in full or in
part on a reasonable cost basis subject to these limits. These changes
are applicable to discharges occurring on or after October 1, 2006.
In this final rule, we discuss public comments we received on our
proposals to refine the diagnosis-related group (DRG) system under the
IPPS to better recognize severity of illness among patients--to use a
hospital-specific relative value (HSRV) cost center weighting
methodology to adjust DRG relative weights; and to implement
consolidated severity-adjusted DRGs or alternative severity adjustment
methods.
Among the other policy changes that we are making are those changes
related to: limited revisions of the reclassification of cases to DRGs;
the long-term care (LTC)-DRGs and relative weights; the wage data,
including the occupational mix data, used to compute the wage index;
applications for new technologies and medical services add-on payments;
payments to hospitals for the direct and indirect costs of graduate
medical education; submission of hospital quality data; payments to
sole community hospitals and Medicare-dependent, small rural hospitals;
and provisions governing emergency services under the Emergency Medical
Treatment and Labor Act of 1986 (EMTALA).
We are responding to requested public comments on a number of other
issues that include performance-based hospital payments for services
and health information technology, as well as how to improve health
data transparency for consumers.
In addition, we are responding to public comments received on a
proposed rule issued in the Federal Register on May 17, 2006 that
proposed to revise the methodology for calculating the occupational mix
adjustment to the wage index for the FY 2007 hospital inpatient
prospective payment system by applying an adjustment to 100 percent of
the wage index using new 2006 occupational mix survey data collected
from hospitals.
We are finalizing two policy documents published in the Federal
Register relating to the implementation of the Health Care
Infrastructure Improvement Program, a hospital loan program for cancer
research, established under the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003.
This final rule also revises the definition of the term ``unit'' to
specify the exclusion of units of drugs sold to approved Medicare
Competitive Acquisition Program (CAP) vendors for use under the CAP
from average sales price (ASP) calculations for a period of up to 3
years, at which time we will reevaluate our policy.
DATES: Effective Dates: The provisions of these final rules are
effective on October 1, 2006, with the exception of the provisions in
Sec. 412.8, Sec. 414.802, and the procedures for withdrawing or
terminating reclassifications established in section III.H.4. of the
preamble. The provisions of Sec. 412.8, Sec. 414.802, and the
procedures for withdrawing or terminating reclassifications established
in section II.H.4. of the preamble are effective August 18, 2006. This
rule is a major rule as defined in 5 U.S.C. 804(2). Pursuant to 5
U.S.C. 801(a)(1)(A), we are submitting a report to the Congress on this
rule on August 1, 2006.
Comment Date: We will consider comments on the exclusion of CAP
drugs from the ASP calculation (Sec. 414.802) as discussed in section
XII. of the preamble of this final rule, if we receive them at one of
the addresses provided below, no later than 5 p.m. on October 2, 2006.
ADDRESSES: In commenting, on section XII. of this rule, please refer to
file code CMS-1325-IFC4.
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 submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click
on the link ``Submit electronic comments on CMS regulations with an
open comment period.'' (Attachments should be in Microsoft Word,
WordPerfect, or Excel; however, we prefer Microsoft Word.)
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-1325-IFC4, P.O. Box 8011, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1325-IFC4, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7195 in advance to schedule your arrival
with one of our staff members. Room 445-G, Hubert H. Humphrey Building,
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security
Boulevard, Baltimore, MD 21244-1850.
(Because access to the interior of the HHH Building is not readily
available to
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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.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
Marc Hartstein, (410) 786-4548, Operating Prospective Payment,
Diagnosis-Related Groups (DRGs), Wage Index, Occupational Mix
Adjustment, New Medical Services and Technology Add-On Payments,
Hospital Geographic Reclassifications, Sole Community Hospital,
Disproportionate Share Hospital, and Medicare-Dependent, Small Rural
Hospital Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, Graduate Medical Education, Critical Access Hospitals, Long-
Term Care (LTC)-DRGs, and Terms of Hospital Loans under Health Care
Infrastructure Improvement Program Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Issues.
Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment
Update Issues.
Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing Issues.
Frederick Grabau, (410) 786-0206, Services in Foreign Hospitals Issues.
Brian Reitz, (410) 786-5001, Obsolete Paper Claims Forms Issues.
Melinda Jones, (410) 786-7069, Loan Forgiveness Criteria for Health
Care Infrastructure Improvement Program.
Corinne Axelrod, (410) 786-5620, Competitive Acquisition Program (CAP)
for Part B Drugs Issues.
Angela Mason, (410) 786-7452, Payment for Covered Outpatient Drugs and
Biologicals Issues.
Submitting Comments: We welcome comments from the public on all
issues set forth in this rule to assist us in fully considering issues
and developing policies. You can assist us by referencing the file code
CMS-1325-IFC4 and the specific ``issue identifier'' that precedes the
section on which you choose to comment.
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 a public Web site as
soon as possible after they are received: http://www.cms.hhs.gov/eRulemaking.
Clink on the link ``Electronic Comments on CMS
Regulations'' on that Web site to view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.
Electronic Access
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
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required).
Acronyms
AHA American Hospital Association
AHIMA American Health Information Management Association
AHRO Agency for Health Care Research and Quality
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis-Related Group System
ASC Ambulatory surgical center
ASP Average sales price
AWP Average wholesale price
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance
Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance
Program] Benefits Improvement and Protection Act of 2000, Pub. L. 106-
554
BLS Bureau of Labor Statistics
AH Critical access hospital
AP Competitive Acquisition Program
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CDAC Clinical Data Abstraction Center
CIPI Capital input price index
CPI Consumer price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-272
CPI Consumer price index
CRNA Certified registered nurse anesthetist
CY Calendar year
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Pub. L. 99-
272
FDA Food and Drug Administration
FFY Federal fiscal year
FIPS Federal information processing standards
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems
HCFA Health Care Financing Administration
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HIC Health insurance card
HIPAA Health Insurance Portability and Accountability Act of 1996, Pub.
L. 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HSA Health savings account
HSCRC Maryland Health Services Cost Review Commission
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HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HwH Hospital-within-a-hospital
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Edition,
Procedure Coding System
ICU Intensive care unit
IHS Indian Health Service
IME Indirect medical education
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS Acute care hospital inpatient prospective payment system
IRF Inpatient rehabilitation facility
IRP Initial residency period
JCAHO Joint Commission on Accreditation of Healthcare Organizations
LAMCs Large area metropolitan counties
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MMA Medicare Prescription Drug, Improvement, and Modernization Act of
2003, Pub. L. 108-173
MRHFP Medicare Rural Hospital Flexibility Program
MSA Metropolitan Statistical Area
NAICS North American Industrial Classification System
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
NICU Neonatal intensive care unit
NQF National Quality Forum
NTIS National Technical Information Service
NVHRI National Voluntary Hospital Reporting Initiative
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
O.R. Operating room
OSCAR Online Survey Certification and Reporting (System)
PRM Provider Reimbursement Manual
PPI Producer price index
PMSAs Primary metropolitan statistical areas
PPS Prospective payment system
PRA Per resident amount
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious Nonmedical Health Care Institution
RRC Rural referral center
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSA Social Security Administration
SSI Supplemental Security Income
TAG Technical Advisory Group
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248
UHDDS Uniform hospital discharge data set
Table of Contents
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System
(IPPS)
2. Hospitals and Hospital Units Excluded from the IPPS
a. Inpatient Rehabilitation Facilities (IRFs)
b. Long-Term Care Hospitals (LTCHs)
c. Inpatient Psychiatric Facilities (IPFs)
3. Critical Access Hospitals (CAHs)
4. Payments for Graduate Medical Education (GME)
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
C. Summary of the Provisions of the FY 2007 IPPS and FY 2007
Occupational Mix Adjustment to the Wage Index Proposed Rules
1. DRG Reclassifications and Recalibrations of Relative Weights
2. Changes to the Hospital Wage Index
3. Other Decisions and Changes to the IPPS for Operating Costs,
GME Costs, and Promoting Hospitals' Effective Use of Health
Information Technology
4. Changes to the PPS for Capital-Related Costs
5. Changes for Hospitals and Hospital Units Excluded from the
IPPS
6. Payments for Services Furnished Outside the United States
7. Payment for Blood Clotting Factor Administered to Inpatients
with Hemophilia
8. Limitation on Payments to Skilled Nursing Facilities for Bad
Debt
9. Determining Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits
10. Impact Analysis
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
12. Discussion of Medicare Payment Advisory Commission
Recommendations
13. Appendix C and Appendix D
D. Public Comments Received in Response to the FY 2007 IPPS and
FY 2007 Occupational Mix Adjustment to the Wage Index Proposed Rules
E. Interim Final Rule on Selection Criteria of Loan Program for
Qualifying Hospitals Engaged in Cancer-Related Health Care
F. Proposed Rule on Forgiveness of Indebtedness under the Health
Care Infrastructure Improvement Program
G. Interim Final Rule on the Exclusion of Vendor Purchases Made
Under the Competitive Acquisition Program for Part B Outpatient
Drugs and Biologicals for the Purpose of Calculating the Average
Sales Price
II. Changes to DRG Classifications and Relative Weights
A. Background
B. DRG Reclassifications
1. General
2. Yearly Review for Making DRG Changes
C. Revisions to the DRG System Used Under the IPPS
1. MedPAC Recommendations
2. Refinement of the Relative Weight Calculation
3. Refinement of DRGs Based on Severity of Illness
a. Comparison of the CMS DRG System and the APR DRG System
b. CS DRGs for Use in the IPPS
c. Changes to CMI from a New DRG System
4. Effect of CS DRGs on the Outlier Threshold
5. Impact of Refinement of DRG System on Payments
6. Conclusions
7. Severity Refinement to CMS DRGs
a. MDC 1 (Diseases and Disorders of the Nervous System)
b. MDC 4 (Diseases and Disorders of the Respiratory System):
Respiratory System Diagnosis with Ventilator Support
c. MDC 6 (Diseases and Disorders of the Digestive System)
d. MDC 11 (Diseases and Disorders of the Kidney and Urinary
Tract): Major Bladder Procedures
e. MDC 16 (Diseases and Disorders of the Blood and Blood Forming
Organs and Immunological Disorders): Major Hematological and
Immunological Diagnoses
f. MDC 18 (Infectious and Parasitic Diseases (Systemic or
Unspecified Sites)): O.R. Procedure for Patients with Infectious and
Parasitic Diseases
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g. Severe Sepsis
D. Changes to Specific DRG Classifications
1. Pre-MDCs
a. Heart Transplant or Implant of Heart Assist System: Addition
of Procedure to DRG 103
b. Pancreas Transplants
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Implantation of Intracranial Neurostimulator System for Deep
Brain Stimulation (DBS)
b. Carotid Artery Stents
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Insertion of Epicardial Leads for Defibrillator Devices
b. Application of Major Cardiovascular Diagnoses (MCVs) List to
Defibrillator DRGs
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue)
a. Hip and Knee Replacements
b. Spinal Fusion
c. CHARITETM Spinal Disc Replacement Device
5. MDC 18 (Infectious and Parasitic Diseases (Systemic or
Unspecified Sites)): Severe Sepsis
6. Medicare Code Editor (MCE) Changes
a. Edit: Newborn Diagnoses
b. Edit: Diagnoses for Pediatric--Age 0-17 Years Old
c. Edit: Maternity Diagnoses--Age 12 through 55
d. Edit: Diagnoses Allowed for Females Only
e. Edit: Diagnoses Allowed for Males Only
f. Edit: Procedures Allowed for Females Only
g. Edit: Manifestations Not Allowed as Principal Diagnosis
h. Edit: Nonspecific Principal Diagnosis
i. Edit: Unacceptable Principal Diagnosis
j. Edit: Nonspecific O.R. Procedures
k. Edit: Noncovered Procedures
l. Edit: Bilateral Procedure
7. Surgical Hierarchies
8. Refinement of Complications and Comorbidities (CC) List
a. Background
b. Comprehensive Review of the CC List
c. CC Exclusions List for FY 2007
9. Review of Procedure Codes in DRGs 468, 476, and 477
a. Moving Procedure Codes from DRG 468 or DRG 477 to MDCs
b. Reassignment of Procedures among DRGs 468, 476, and 477
c. Adding Diagnosis or Procedure Codes to MDCs
10. Changes to the ICD-9-CM Coding System
11. Other Issues
a. Chronic Kidney Disease
b. Bronchial Valve
c. Female Reproductive System Reconstruction Procedures
d. Devices That are Replaced Without Cost or Where Credit for a
Replaced Device is Furnished to the Hospital
E. Recalibration of DRG Weights
F. LTC-DRG Reclassifications and Relative Weights for LTCHs for
FY 2007
1. Background
2. Changes in the LTC-DRG Classifications
a. Background
b. Patient Classifications into DRGs
3. Development of the FY 2007 LTC-DRG Relative Weights
a. General Overview of Development of the LTC-DRG Relative
Weights
b. Data
c. Hospital-Specific Relative Value Methodology
d. Low-Volume LTC-DRGs
4. Steps for Determining the FY 2007 LTC-DRG Relative Weights
5. Summary of Public Comments and Departmental Responses
G. Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed
Rulemaking on Add-On Payments
3. FY 2007 Status of Technologies Approved for FY 2006 Add-On
Payments
a. Kinetra[supreg] Implantable Neurostimulator (Kinetra[supreg])
for Deep Brain Stimulation
b. Endovascular Graft Repair of the Thoracic Aorta
c. Restore[supreg] Rechargeable Implantable Neurostimulator
4. FY 2007 Applications for New Technology Add-On Payments
a. C-Port[supreg] Distal Anastomosis System
b. NovoSeven[supreg] for Intracerebral Hemorrhage
c. X STOP Interspinous Process Decompression System
5. Interim and Final Cost Threshold Tables Due to Changes to
Wage Index and Budget Neutrality Factors
III. Changes to the Hospital Wage Index
A. Background
B. Core-Based Statistical Areas for the Hospital Wage Index
C. Occupational Mix Adjustment to the FY 2007 Wage Index
1. Development of Data for the FY 2007 Occupational Mix
Adjustment
2. Timeline for the Collection, Review, and Correction of the
Occupational Mix Data
3. Calculation of the Occupational Mix Adjustment
D. Worksheet S-3 Wage Data for the FY 2007 Wage Index Update
E. Verification of Worksheet S-3 Wage Data
F. Computation of the FY 2007 Unadjusted Wage Index
G. Implementation of the FY 2007 Occupational Mix Adjustment to
the Wage Index
H. Revisions to the Wage Index Based on Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2007 MGCRB Reclassifications
4. Procedures for Hospitals Applying for Reclassification
Effective in FY 2008 and Reinstating Reclassifications in FY 2008
5. FY 2007 Redesignations Under Section 1886(d)(8)(B) of the Act
6. Reclassifications Under Section 508 of Pub. L. 108-173
7. Wage Indices for Reclassified Hospitals and Reclassification
Budget Neutrality Factor
I. FY 2007 Wage Index Adjustment Based on Commuting Patterns of
Hospital Employees
J. Process for Requests for Wage Index Data Corrections
K. Labor-Related Share for the Wage Index for FY 2007
L. Proxy for the Hospital Market Basket
IV. Other Decisions and Changes to the IPPS for Operating Costs and
GME Costs
A. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
2. New Procedures for Hospital Reporting of Quality Data
a. Two Percentage Point Reduction
b. New Procedures
c. Expanded Quality Measures
d. HCAHPS[supreg] Survey
e. Data Submission
f. RHQDAPU Program Withdrawal and Chart Validation Requirements
g. Data Validation and Attestation
h. Public Display and Reconsideration Procedures
i. Conclusion
3. Electronic Medical Records
B. Value-Based Purchasing
1. Introduction
2. Premier Hospital Quality Incentive Demonstration
3. RHQDAPU Program
a. Section 501(b) of Pub. L. 108-173 (MMA)
b. Section 5001(a) of Pub. L. 109-171 (DRA)
4. Plan for Implementing Hospital Value-Based Purchasing
Beginning with FY 2009
a. Measure Development and Refinement
b. Data Infrastructure
c. Incentive Methodology
d. Public Reporting
5. Considerations Related to Certain Conditions, Including
Hospital-Acquired Infections
6. Promoting Effective Use of Health Information Technology
C. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small
Rural Hospitals (MDHs)
1. Background
2. Volume Decrease Adjustment for SCHs and MDHs
a. HAS/Monitrend Data
b. HAS/Monitrend Data Book Replacement Alternative
3. Mandatory Reporting Requirements for Any Changes in the
Circumstances Under Which a Hospital Was Designated as an SCH or MDH
4. Payment Changes for MDHs under the DRA of 2005
a. Background
b. Regulation Changes
5. Technical Change
D. Rural Referral Centers
1. Case-Mix Index
2. Discharges
E. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2007
3. Technical Change to Revise Cross-Reference
F. Payment Adjustment for Disproportionate Share Hospitals
(DSHs)
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1. Background
2. Technical Corrections
3. Reinstatement of Inadvertently Deleted Provisions on DSH
Payment Adjustment Factors
4. Enhanced DSH Adjustment for MDHs
G. Geographic Reclassifications
1. Background
2. Reclassifications under Section 508 of Pub. L. 108-173
3. Multicampus Hospitals
4. Urban Group Hospital Reclassifications
5. Effect of Change of Ownership on Urban County Group
Reclassifications
6. Requested Reclassification for Hospitals Located in a Single
Hospital MSA Surrounded by Rural Counties
7. Special Adjustment for the Hospital Group Reclassification
Denied on the Basis of Incomplete CSA Listing
H. Payment for Direct Graduate Medical Education
1. Background
2. Determination of Weighted Average Per Resident Amounts (PRAs)
for Merged Teaching Hospitals
3. Determination of Per Resident Amounts (PRAs) for New Teaching
Hospitals
4. Requirements for Counting and Appropriate Documentation of
FTE Residents: Clarification
5. Resident Time Spent in Nonpatient Care Activities as Part of
Approved Residency Programs
6. Medicare GME Affiliated Groups: Technical Changes to
Regulations
I. Payment for the Costs of Nursing and Allied Health Education
Activities: Clarification
J. Hospital Emergency Services under EMTALA
1. Background
2. Role of the EMTALA Technical Advisory Group (TAG)
3. Definition of ``Labor''
4. Application of EMTALA Requirements to Hospitals Without
Dedicated Emergency Departments
5. Clarification of Reference to ``Referral Centers''
K. Other Technical Changes
1. Cross-Reference Correction in Regulations on Limitations on
Beneficiary Charges
2. Cross-Reference Corrections in Regulations on Payment Denials
Based on Admissions and Quality Reviews
3. Cross-Reference Correction in Regulations on Outlier Payments
4. Removing References to Two Paper Claims Forms
L. Rural Community Hospital Demonstration Program
M. Health Care Information Transparency Initiative
V. Changes to the PPS for Capital-Related Costs
A. Background
B. Treatment of Certain Urban Hospitals Reclassified as Rural
Hospitals Under Sec. 412.103
C. Other Technical Corrections Relating to the Capital PPS
Geographic Adjustment Factors
VI. Changes for Hospitals and Hospital Units Excluded from the IPPS
A. Payments to Excluded Hospitals and Hospital Units
1. Payments to Existing Excluded and New Hospitals and Hospital
Units
2. Separate PPS for IRFs
3. Separate PPS for LTCHs
4. Separate PPS for IPFs
5. Grandfathering of Hospitals-Within-Hospitals (HwHs) and
Satellite Facilities
6. Changes to the Methodology for Determining LTCH Cost-to-
Charge Ratios (CCRs) and the Reconciliation of High-Cost and Short-
Stay Outlier Payments under the LTCH PPS
a. Background
b. High-Cost Outliers
c. Short-Stay Outliers
d. CCR Ceiling
e. Statewide Average CCRs
f. Data Used to Determine a CCR
g. Reconciliation of Outlier Payments Upon Cost report
Settlement
7. Technical Corrections Relating to LTCHs
8. Cross-Reference Correction in Authority Citations for 42 CFR
412 and 413
9. Report of Adjustment (Exceptions) Payments
B. Critical Access Hospitals (CAHs)
1. Background
2. Sunset of Designation of CAHs as Necessary Providers:
Technical Correction
VII. Payment for Services Furnished Outside the United States
A. Background
B. Proposed Clarification of Regulations
VIII. Payment for Blood Clotting Factor Administered to Inpatients
with Hemophilia
IX. Limitation on Payments to Skilled Nursing Facilities for Bad
Debt
A. Background
B. Changes Made by Section 5004 of Pub. L. 109-171
C. Proposed Regulation Changes
X. MedPAC Recommendations
XI. Health Care Infrastructure Improvement Program: Selection
Criteria for Loan Program for Qualifying Hospitals Engaged in
Cancer-Related Health Care and Forgiveness of Indebtedness
A. Background
B. Issuance of an Interim Final Rule with Comment Period and a
Proposed Regulation
C. Provisions of the Interim Final Rule With Comment Period
1. Loan Qualifying Criteria
2. Selection Criteria
3. Terms of the Loan
4. Public Comments Received on the Interim Final Rule With
Comment Period
5. Provisions of this Final Rule
D. Proposed Rule on Forgiveness of Indebtedness
1. Conditions for Loan Forgiveness
2. Plan Criteria for Meeting the Conditions for Loan Forgiveness
3. Public Comments Received on the Proposed Rule and Our
Responses
4. Provisions of the Final Rule
E. Statutory Requirements for Issuance of Regulations
XII. Exclusion of Vendor Purchases Made Under the Competitive
Acquisition Program (CAP) for Outpatient Drugs and Biologicals Under
Part B for the Purpose of Calculating the Average Sales Price (ASP)
A. Background
1. Average Sales Price (ASP)
2. Competitive Acquisition Program (CAP)
3. Regulatory History
B. Regulation Change
XIII. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
C. Waiver of Proposed Rulemaking and Delay in the Effective Date
D. Response to Comments
Regulation Text
Addendum--Schedule of Tentative Standardized Amounts, Tentative
Update Factors and Rate-of-Increase Percentages Effective With Cost
Reporting Periods Beginning On or After October 1, 2006
I. Summary and Background
II. Changes to Prospective Payment Rates for Hospital Inpatient
Operating Costs
A. Calculation of the Tentative Adjusted Standardized Amount
1. Standardization of Base-Year Costs or Target Amounts
2. Computing the Tentative Average Standardized Amount
3. Updating the Tentative Average Standardized Amount
4. Other Adjustments to the Average Standardized Amount
a. Recalibration of DRG Weights and Updated Wage Index--Budget
Neutrality Adjustment
b. Reclassified Hospitals--Tentative Budget Neutrality
Adjustment
c. Outliers
d. Tentative Rural Community Hospital Demonstration Program
Adjustment (Section 410A of Pub. L. 108-173)
5. Tentative FY 2007 Standardized Amount
B. Tentative Adjustments for Area Wage Levels and Cost-of-Living
1. Tentative Adjustment for Area Wage Levels
2. Final Adjustment for Cost-of-Living in Alaska and Hawaii
C. DRG Relative Weights
D. Calculation of the Prospective Payment Rates
1. Federal Rate
2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
b. Updating the FY 1982, FY 1987, FY 1996, and FY 2002 Hospital-
Specific Rates for FY 2007
3. General Formula for Calculation of Prospective Payment Rates
for Hospitals Located in Puerto Rico Beginning On or After October
1, 2006, and Before October 1, 2007
a. Puerto Rico Rate
b. National Rate
III. Changes to Payment Rates for Acute Care Hospital Inpatient
Capital-Related Costs for FY 2007
A. Determination of Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update
1. Projected Capital Standard Federal Rate Update
[[Page 47875]]
a. Description of the Update Framework
b. Comparison of CMS and MedPAC Update Recommendation
2. Outlier Payment Adjustment Factor
3. Budget Neutrality Adjustment Factor for Changes in DRG
Classifications and Weights and the GAF
4. Exceptions Payment Adjustment Factor
5. Capital Standard Federal Rate for FY 2007
6. Special Capital Rate for Puerto Rico Hospitals
B. Calculation of the Inpatient Capital-Related Prospective
Payments for FY 2007
C. Capital Input Price Index
1. Background
2. Forecast of the CIPI for FY 2007
IV. Payment Rates for Excluded Hospitals and Hospital Units: Rate-
of-Increase Percentages
A. Payments to Existing Excluded Hospitals and Units
B. New Excluded Hospitals and Units
V. Payment for Blood Clotting Factor Administered to Inpatients with
Hemophilia
Tables
The following tables are included as part of this final rule:
Table 1A--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If
Wage Index Is Greater Than 1) (Tentative)
Table 1B--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage
Index Is Less Than or Equal to 1) (Tentative)
Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico,
Labor/Nonlabor (Tentative)
Table 1D--Capital Standard Federal Payment Rate (Tentative)
Table 4J--Out-Migration Wage Adjustment--FY 2007 (Tentative)
Table 5--List of Diagnosis-Related Groups (DRGs), Relative Weighting
Factors, and Geometric and Arithmetic Mean Length of Stay (LOS)
(Tentative)
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
Table 6F--Revised Procedure Code Titles
Table 6G--Additions to the CC Exclusions List
Table 6H--Deletions from the CC Exclusions List
Table 7A--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2005 MedPAR Update March 2006 GROUPER V23.0
Table 7B--Medicare Prospective Payment System Selected Percentile
Lengths of Stay: FY 2005 MedPAR Update March 2006 GROUPER V24.0
Table 8A--Statewide Average Operating Cost-to-Charge Ratios--July
2006
Table 8B--Statewide Average Capital Cost-to-Charge Ratios--July 2006
Table 8C-- Statewide Average Total Cost-to-Charge Ratios for LTCHs--
July 2006
Table 9A--Hospital Reclassifications and Redesignations by
Individual Hospital and CBSA for FY 2007 (Tentative)
Table 9B--Hospital Reclassifications and Redesignation by Individual
Hospital Under Section 508 of Pub. L. 108-173 for FY 2007
(Tentative)
Table 9C--Hospitals Redesignated as Rural under Section
1886(d)(8)(E) of the Act for FY 2007 (Tentative)
Table 10--Geometric Mean Plus the Lesser of .75 of the National
Adjusted Operating Standardized Payment Amount (Increased to Reflect
the Difference Between Costs and Charges) or .75 of One Standard
Deviation of Mean Charges by Diagnosis-Related Group (DRG)--July
2006 (Tentative)
Table 11--FY 2007 LTC-DRGs, Relative Weights, Geometric Average
Length of Stay, and \5/6\ths of the Geometric Average Length of Stay
Appendix A--Regulatory Impact Analysis
I. Overall Impact
II. Objectives
III. Limitations on Our Analysis
IV. Hospitals Included In and Excluded From the IPPS
V. Effects on Excluded Hospitals and Hospital Units
VI. Quantitative Effects of the Policy Changes Under the IPPS for
Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects on the Hospitals that Failed the Quality Data
Submission Process (Column 2)
D. Effects of the DRA Provision Related to MDHs (Column 3)
E. Effects of the Changes to the DRG Reclassifications and
Relative Cost-Based Weights (Column 4)
F. Effects of Wage Index Changes (Column 5)
G. Combined Effects of DRG and Wage Index Changes, Including
Budget Neutrality Adjustment (Column 6)
H. Effects of the 3-Year Provision Allowing Urban Hospitals that
Were Converted to Rural as a Result of the FY 2005 Labor Market Area
Changes to Maintain the Wage Index of the Urban Labor Market Area in
Which They Were Formerly Located (Column 7)
I. Effects of MGCRB Reclassifications (Column 8)
J. Effects of the Wage Index Adjustment for Out-Migration
(Column 9)
K. Effects of All Changes (Column 10)
L. Effects of Policy on Payment Adjustments for Low-Volume
Hospitals
M. Impact Analysis of Table II
VII. Effects of Other Policy Changes
A. Effects of LTC-DRG Reclassifications and Relative Weights for
LTCHs
B. Effects of New Technology Add-On Payments
C. Effects of Requirements for Hospital Reporting of Quality
Data for Annual Hospital Payment Update
D. Effects of Other Policy Changes Affecting Sole Community
Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals
(MDHs)
E. Effects of Policy on Payment for Direct Costs of Graduate
Medical Education
1. Determination of Weighted Average GME PRAs for Merged
Teaching Hospitals
2. Determination of PRAs for New Teaching Hospitals
3. Requirements for Counting and Appropriate Documentation of
FTE Residents
4. Resident Time Spent in Nonpatient Care Activities as Part of
an Approved Residency Program
F. Effects of Policy Changes Relating to Emergency Services
under EMTALA
G. Effects of Policy on Rural Community Hospital Demonstration
Program
H. Effects of Policy on Hospitals-within-Hospitals and Satellite
Facilities
I. Effects of Policy Changes to the Methodology for Determining
LTCH CCRs and the Reconciliation of LTCH PPS Outlier Payments
J. Effects of Policy on Payment for Services Furnished Outside
the United States
K. Effects of Final Policy on Limitation on Payments to SNFs
L. Effects of Policy on CAP for Outpatient Drugs and Biologicals
under Part B for the Purpose of Calculating the ASP
VIII. Impact of Changes in the Capital PPS
A. General Considerations
B. Results
IX. Impact of Changes Relating to the Loan Program for Capital Cost
under the Health Care Infrastructure Improvement Program
A. Effects on Hospitals
B. Effects on the Medicare and Medicaid Programs
X. Alternatives Considered
XI. Overall Conclusion
XII. Accounting Statement
XIII. Executive Order 12866
Appendix B--Recommendation of Update Factors for Operating Cost
Rates of Payment for Inpatient Hospital Services
I. Background
II. Secretary's Final Recommendation for Updating the Prospective
Payment System Standardized Amounts
III. Secretary's Final Recommendation for Updating the Rate-of-
Increase Limits for Excluded Hospitals and Hospital Units
IV. Secretary's Recommendation for Updating the Capital Prospective
Payment Amounts
I. Background
A. 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 pay for the capital-related costs of hospital inpatient
stays under a prospective payment system (PPS). Under these PPSs,
Medicare payment for hospital inpatient operating and capital-related
costs is made at
[[Page 47876]]
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; and 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 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 may vary based on the outcome
of the statutory calculations.
If the hospital is an approved teaching hospital, it receives a
percentage add-on payment for each case paid under the IPPS, known as
the indirect medical education (IME) adjustment. This percentage
varies, depending on the ratio of residents to beds.
Additional payments may be made for cases that involve new
technologies or medical services that have been approved for special
add-on payments. To qualify, a new technology or medical service must
demonstrate that it is a substantial clinical improvement over
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG
payment.
The costs incurred by the hospital for a case are evaluated to
determine whether the hospital is eligible for an additional payment as
an outlier case. This additional payment is designed to protect the
hospital from large financial losses due to unusually expensive cases.
Any outlier payment due 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 the higher of a hospital-specific rate based on their costs in a
base year (the higher of FY 1982, FY 1987, FY 1996, or FY 2002) or the
IPPS rate based on the standardized amount. For example, sole community
hospitals (SCHs) are the sole source of care in their areas, and
Medicare-dependent, small rural hospitals (MDHs) are a major source of
care for Medicare beneficiaries in their areas. Both of these
categories of hospitals are afforded special payment protection in
order to maintain access to services for beneficiaries. (Through FY
2007, an MDH receives the IPPS rate plus 50 percent of the difference
between the IPPS rate and its hospital-specific rate if the hospital-
specific rate is higher than the IPPS rate. In addition, an MDH may not
use FY 1996 as its base year for the hospital-specific rate. As
discussed below, for discharges occurring on or after October 1, 2007,
but before October 1, 2011, an MDH will receive the IPPS rate plus 75
percent of the difference between the IPPS rate and its hospital-
specific rate, if the hospital-specific rate is higher than the IPPS
rate.)
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 PPS, payments are adjusted by the same DRG for the case as they
are under the operating IPPS. Capital PPS 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
specialty hospitals and hospital units are excluded from the IPPS.
These hospitals and units are: inpatient rehabilitation hospitals and
units (commonly referred to as inpatient rehabilitation facilities
(IRFs); long-term care hospitals (LTCHs); inpatient psychiatric
hospitals and units (commonly referred to as inpatient psychiatric
facilities (IPFs); children's hospitals; and cancer hospitals.
Religious nonmedical health care institutions (RNHCIs) are also
excluded from the IPPS. Various sections of the Balanced Budget Act of
1997 (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State
Children's Health Insurance Program] Balanced Budget Refinement Act of
1999 (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (Pub. L. 106-554) provide for
the implementation of PPSs for IRFs, LTCHs, and IPFs, as discussed
below. Children's hospitals, cancer hospitals, and RNHCIs continue to
be paid solely under a reasonable cost-based system.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR Parts 412 and 413.
a. Inpatient Rehabilitation Facilities (IRFs)
Under section 1886(j) of the Act, IRFs have been transitioned from
payment based on a blend of reasonable cost reimbursement and the
adjusted IRF Federal prospective payment rate for cost reporting
periods beginning on or after January 1, 2002, through September 30,
2002, to payment at 100 percent of the Federal rate effective for cost
reporting periods beginning on or after October 1, 2002. IRFs subject
to the blend were also permitted to elect payment based on 100 percent
of the Federal rate. The existing regulations governing payments under
the IRF PPS are located in 42 CFR Part 412, Subpart P.
b. Long-Term Care Hospitals (LTCHs)
Under the authority of sections 123(a) and (c) of Pub. L. 106-113
and section 307(b)(1) of Pub. L. 106-554, LTCHs that do not meet the
definition of ``new'' under Sec. 412.23(e)(4) are being transitioned
from being paid for inpatient hospital services based on a blend of
reasonable cost-based reimbursement under section 1886(b) of the Act to
100 percent of the Federal rate during a 5-year period with cost
reporting periods beginning on or after October 1, 2002. Those LTCHs
that do not meet the definition of ``new'' may elect to be paid based
on 100 percent of the Federal prospective payment rate instead of a
blended payment in any year during the 5-year transition. For cost
reporting periods beginning on or after October 1, 2006, LTCHs will be
paid 100 percent of the Federal rate. The existing regulations
governing payment under the LTCH PPS are located in 42 CFR Part 412,
Subpart O.
c. Inpatient Psychiatric Facilities (IPFs)
Under the authority of sections 124(a) and (c) of Pub. L. 106-113,
IPFs are paid under the IPF PPS. Under the IPF PPS, some IPFs are
transitioning from being paid for inpatient hospital services based on
a blend of reasonable cost-based payment to a Federal per diem
[[Page 47877]]
payment rate, effective for cost reporting periods beginning on or
after January 1, 2005 (November 15, 2004 IPF PPS final rule (69 FR
66922) and May 9, 2006 IPF PPS final rule (71 FR 27040)). For cost
reporting periods beginning on or after January 1, 2008, all IPFs will
be paid 100 percent of the Federal per diem payment amount. The
existing regulations governing payment under the IPF PPS are located in
42 CFR 412, Subpart N.
3. Critical Access Hospitals (CAHs)
Under sections 1814, 1820, and 1834(g) of the Act, payments are
made to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services based on 101 percent of reasonable cost. Reasonable
cost is determined under the provisions of section 1861(v)(1)(A) of the
Act and existing regulations under 42 CFR Parts 413 and 415.
4. 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.
B. Provisions of the Deficit Reduction Act of 2005 (DRA)
On February 8, 2006, the Deficit Reduction Act of 2005 (DRA), Pub.
L. 109-171, was enacted. Pub. L. 109-171 made a number of changes to
the Act relating to prospective payments to hospitals and other
providers for inpatient services. This final rule implements amendments
made by the following sections of Pub. L. 109-171:
Section 5001(a), which, effective for FY 2007 and
subsequent years, allows for expansion of the requirements for hospital
quality data reporting.
Section 5003, which makes several changes to the MDH
program. It extends special payment provisions, requires MDHs to use FY
2002 as their base year for determining whether use of their hospital-
specific rate enhances payment (but permits them to continue to use
either their 1982 or 1987 hospital-specific rate if using either of
those rates results in higher payments), and removes the application of
the 12-percent cap on the DSH payment adjustment factor for MDHs.
Section 5004, which reduces certain allowable SNF bad debt
payments by 30 percent. Payments for the bad debts of full-benefit,
dual eligible individuals are not reduced.
In this final rule, we also discuss the provisions of section
5001(b) of Pub. L. 109-171, which require us to develop a plan to
implement, beginning with FY 2009, a value-based purchasing plan for
section 1886(d) hospitals and summarize the public comments received in
response to our invitation for public comments. This discussion also
includes the provisions of section 5001(c) of Pub. L. 109-171, which
requires a quality adjustment in DRG payments for certain hospital-
acquired conditions, effective for FY 2008.
C. Summary of the Provisions of the FY 2007 IPPS and FY 2007
Occupational Mix Adjustment to the Wage Index Proposed Rules
In the FY 2007 IPPS proposed rule, we set forth proposed changes to
the Medicare IPPS for operating costs and for capital-related costs in
FY 2007. We also set forth proposed changes relating to payments for
GME costs, payments to certain hospitals and units that continue to be
excluded from the IPPS and paid on a reasonable cost basis, and
payments for SCHs and MDHs. The changes were proposed to be effective
for discharges occurring on or after October 1, 2006, unless otherwise
noted.
After publication of the FY 2007 IPPS proposed rule, the United
States Court of Appeals for the Second Circuit issued a decision in the
Bellevue case that caused us to modify our proposals on the
implementation of the occupational mix adjustment. As a result, we
published a second proposed rule in the May 17, 2006 Federal Register
that superseded the occupational mix proposals that had been made in
the FY 2007 IPPS proposed rule (published April 25, 2006). The
following is a summary of the major changes that we proposed to make
and the issues that we addressed in the FY 2007 IPPS and FY 2007
Occupational Mix Adjustment to the Wage Index proposed rules:
1. DRG Reclassifications and Recalibrations of Relative Weights
As required by section 1886(d)(4)(C) of the Act, we proposed
limited annual revisions to the DRG classifications structure. In this
section, we responded to several recommendations made by MedPAC
intended to improve the DRG system. We also proposed to use, for FY
2007, hospital-specific relative values (HSRVs) for 10 cost centers to
compute DRG relative weights. In addition, we proposed to use
consolidated severity-adjusted DRGs or alternative severity adjustment
methods in FY 2008 (if not earlier).
We presented our reevaluation of certain FY 2006 applicants for
add-on payments for high-cost new medical services and technologies,
and our analysis of FY 2007 applicants (including public input, as
directed by Pub. L. 108-173, obtained in a town hall meeting).
We proposed the annual update of the long-term care diagnosis-
related group (LTC-DRG) classifications and relative weights for use
under the LTCH PPS for FY 2007.
2. Changes to the Hospital Wage Index
We proposed revisions to the wage index and the annual update of
the wage data. Specific issues addressed include the following:
The FY 2007 wage index update, using wage data from cost
reporting periods that began during FY 2003.
The FY 2007 occupational mix adjustment to the wage index
(discussed inthe May 17, 2006 proposed rule).
The revisions to the wage index based on hospital
redesignations and reclassifications.
The adjustment to the wage index for FY 2007 based on
commuting patterns of hospital employees who reside in a county and
work in a different area with a higher wage index.
The timetable for reviewing and verifying the wage data
that will be in effect for the proposed FY 2007 wage index.
The special timetable that will apply in FY 2007 in order
to allow us to make presumptive reclassification withdrawal or
termination decisions on behalf of affected hospitals which will then
become final unless reversed or modified by the affected hospitals in
accordance with CMS procedural rules.
The labor-related share for the FY 2007 wage index,
including the labor-related share for Puerto Rico.
3. Other Decisions and Changes to the IPPS for Operating Costs, GME
Costs, and Promoting Hospitals' Effective Use of Health Information
Technology
In the proposed rule, we discussed a number of provisions of the
regulations in 42 CFR Parts 412 and 413 and related proposed changes,
including the following:
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Changes in payments to SCHs and MDHs.
[[Page 47878]]
Updated national and regional case-mix values and
discharges for purposes of determining rural referral center status.
The statutorily-required IME adjustment factor for FY
2007.
Changes relating to hospitals' geographic classifications,
including reclassifications under section 508 of Pub. L. 108-173,
multicampus hospitals, urban group hospital reclassification and the
effect of change in ownership on urban county group reclassifications.
Changes and clarifications relating to GME that address
determining the per resident amounts (PRAs) for merged hospitals and
new teaching hospitals, counting and appropriate documentation of FTE
residents, and counting of resident time spent in nonpatient care
activities as part of approved residency programs.
Changes relating to payment for costs of nursing and
allied health education programs.
Changes relating to requirements for emergency services
for hospitals under EMTALA.
Discussion of the third year of implementation of the
Rural Community Hospital Demonstration Program.
We also invited comments on promoting hospitals' effective use of
health information technology.
4. Changes to the PPS for Capital-Related Costs
In the proposed rule, we discussed the payment policy requirements
for capital-related costs and capital payments to hospitals and
proposed several technical corrections to the regulations.
5. Changes for Hospitals and Hospital Units Excluded From the IPPS
In the proposed rule, we discussed payments made to excluded
hospitals and hospital units, proposed policy changes regarding
decreases in square footage or decreases in the number of beds of the
``grandfathering'' HwHs and satellite facilities, and proposed changes
to the methodology for determining LTCH CCRs and the reconciliation of
high-cost and short-stay outlier payments under the LTCH PPS. In
addition, we proposed a technical change relating to the designation of
CAHs as necessary providers.
6. Payments for Services Furnished Outside the United States
In the proposed rule, we set forth proposed changes to clarify what
is considered ``outside the United States'' for Medicare payment
purposes.
7. Payment for Blood Clotting Factor Administered to Inpatients With
Hemophilia
In the proposed rule, we discussed the proposed changes in payment
for blood clotting factor administered to Medicare beneficiaries with
hemophilia for FY 2007.
8. Limitation on Payments to Skilled Nursing Facilities for Bad
Debt
In the proposed rule, we proposed to implement section 5004 of Pub.
L. 109-171 relating to reduction in payments to SNFs for bad debt.
9. Determining Prospective Payment Operating and Capital Rates and
Rate-of-Increase Limits
In the Addendum to the proposed rule, we set forth proposed changes
to the amounts and factors for determining the FY 2007 prospective
payment rates for operating costs and capital-related costs. We also
proposed to establish the threshold amounts for outlier cases. In
addition, we addressed the proposed update factors for determining the
rate-of-increase limits for cost reporting periods beginning in FY 2007
for hospitals and hospital units excluded from the PPS.
10. Impact Analysis
In Appendix A of the proposed rule, we set forth an analysis of the
impact that the proposed changes would have on affected hospitals.
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
In Appendix B of the proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 2007 for the following:
A single average standardized amount for all areas for
hospital inpatient services paid under the IPPS for operating costs
(and hospital-specific rates applicable to SCHs and MDHs).
Target rate-of-increase limits to the allowable operating
costs of hospital inpatient services furnished by hospitals and
hospital units excluded from the IPPS.
12. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a
report to the Congress, no later than March 1 of each year, in which
MedPAC reviews and makes recommendations on Medicare payment policies.
MedPAC's March 2006 recommendation concerning hospital inpatient
payment policies addressed the update factor for inpatient hospital
operating costs and capital-related costs under the IPPS and for
hospitals and distinct part hospital units excluded from the IPPS. This
recommendation was addressed in Appendix B of the proposed rule. For
further information relating specifically to the MedPAC reports or to
obtain a copy of the reports, contact MedPAC at (202) 220-3700 or visit
MedPAC's Web site at: http://www.medpac.gov.
13. Appendix C and Appendix D
In Appendix C of the proposed rule, we listed the combinations of
the consolidated severity-adjusted DRGs that we proposed to implement
on FY 2008 (if not earlier), as discussed in section II.C. of the
preamble of the proposed rule. In Appendix D of the proposed rule, we
provided a crosswalk of the proposed consolidated severity-adjusted DRG
system to the respective All Patient Related Diagnosis-Related Group
(APR DRG) system.
D. Public Comments Received in Response to the FY 2007 IPPS and FY 2007
Occupational Mix Adjustment to the Wage Index Proposed Rules
We received over 2,300 timely items of correspondence containing
multiple comments on the FY 2007 IPPS proposed rule. We also received
over 100 timely items of correspondence on the FY 2007 Occupational Mix
Adjustment to the Wage Index proposed rule. Summaries of the public
comments and our responses to those comments are set forth under the
appropriate heading.
E. Interim Final Rule on Selection Criteria of Loan Program for
Qualifying Hospitals Engaged in Cancer-Related Health Care
On September 30, 2005, we published in the Federal Register (70 FR
57368) an interim final rule with comment period (CMS-1287-IFC) that
set forth the criteria for implementing a loan program for qualifying
hospitals engaged in research in the causes, prevention, and treatment
of cancer, as specified in section 1016 of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173).
Specifically, this interim final rule established a loan application
process by which qualifying hospitals, including specified entities,
may apply for a loan for the capital costs of health care
infrastructure improvement projects. The interim final rule was
effective on November 29, 2005.
We received seven timely items of correspondence on the interim
final
[[Page 47879]]
rule. In section XI. of the preamble to this final rule, we are
finalizing this interim final rule with comment period. In that
section, we discuss the provisions of the program, the public comments
received, our responses to those comments, and the final policy.
F. Proposed Rule on Forgiveness of Indebtedness under the Health Care
Infrastructure Improvement Program
On September 30, 2005, we published in the Federal Register (70 FR
57376) a proposed rule (CMS-1320-P) to establish the loan forgiveness
criteria for qualifying hospitals who receive loans under the Health
Care Infrastructure Improvement Program that was established under
section 1016 of Pub. L. 108-173.
We received one timely item of correspondence on this proposed
rule. We address the provisions of the proposed rule, a summary of the
public comments received and our responses, and the provisions of the
final rule in section XI. of the preamble of this final rule.
G. Interim Final Rule on the Exclusion of Vendor Purchases Made Under
the Competitive Acquisition Program for Part B Outpatient Drugs and
Biologicals for the Purpose of Calculating the Average Sales Price
In November 21, 2005 Federal Register (70 FR 70748), we published
an interim final rule with comment period (CMS-1325-IFC3) to clarify
and solicit comments on the relationship between drugs supplied under
the CAP for Part B Drugs and Biologicals and the calculation of the
ASP.
We did not receive any timely items of correspondence on this
interim final rule with comment period. We summarize the provisions of
the July 6, 2005 and the November 21, 2005 interim final rules and the
current interim final provisions in section XII. of the preamble of
this final rule.
II. Changes to DRG Classifications and Relative Weights
A. Background
Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as DRGs) for inpatient
discharges and adjust payments under the IPPS based on appropriate
weighting factors assigned to each DRG. Therefore, under the IPPS, we
pay for inpatient hospital services on a rate per discharge basis that
varies according to the DRG to which a beneficiary's stay is assigned.
The formula used to calculate payment for a specific case multiplies an
individual hospital's payment rate per case by the weight of the DRG to
which the case is assigned. Each DRG weight represents the average
resources required to care for cases in that particular DRG, relative
to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires
that the Secretary adjust the DRG classifications and relative weights
at least annually. These adjustments are made to reflect changes in
treatment patterns, technology, and any other factors that may change
the relative use of hospital resources.
B. DRG Reclassifications
1. General
As discussed in section II.D. of the preamble to the FY 2007 IPPS
proposed rule (71 FR 24030), for FY 2007, we are making only limited
changes to the current DRG classifications that will be applicable to
discharges occurring on or after October 1, 2006. We are limiting our
changes because, as discussed in detail in section II.C. of the
preamble to the proposed rule and to this final rule, we are focusing
our efforts on addressing the recommendations made last year by MedPAC
to refine the entire CMS DRG system by taking into account severity of
illness and applying hospital-specific relative value (HSRV) weights to
DRGs.
Currently, cases are classified into CMS DRGs for payment under the
IPPS based on the principal diagnosis, up to eight additional
diagnoses, and up to six procedures performed during the stay. In a
small number of DRGs, classification is also based on the age, sex, and
discharge status of the patient. The diagnosis and procedure
information is reported by the hospital using codes from the
International Classification of Diseases, Ninth Revision, Clinical
Modification (ICD-9-CM).
The process of forming the DRGs was begun by dividing all possible
principal diagnoses into mutually exclusive principal diagnosis areas,
referred to as Major Diagnostic Categories (MDCs). The MDCs were formed
by physician panels as the first step toward ensuring that the DRGs
would be clinically coherent. The diagnoses in each MDC correspond to a
single organ system or etiology and, in general, are associated with a
particular medical specialty. Thus, in order to maintain the
requirement of clinical coherence, no final DRG could contain patients
in different MDCs. Most MDCs are based on a particular organ system of
the body. For example, MDC 6 is Diseases and Disorders of the Digestive
System. This approach is used because clinical care is generally
organized in accordance with the organ system affected. However, some
MDCs are not constructed on this basis because they involve multiple
organ systems (for example, MDC 22 (Burns)). For FY 2006, cases are
assigned to one of 526 DRGs in 25 MDCs. The table below lists the 25
MDCs.
Major Diagnostic Categories (MDCs)
------------------------------------------------------------------------
------------------------------------------------------------------------
1....................... Diseases and Disorders of the Nervous System.
2....................... Diseases and Disorders of the Eye.
3....................... Diseases and Disorders of the Ear, Nose,
Mouth, and Throat.
4....................... Diseases and Disorders of the Respiratory
System.
5....................... Diseases and Disorders of the Circulatory
System.
6....................... Diseases and Disorders of the Digestive
System.
7....................... Diseases and Disorders of the Hepatobiliary
System and Pancreas.
8....................... Diseases and Disorders of the Musculoskeletal
System and Connective Tissue.
9....................... Diseases and Disorders of the Skin,
Subcutaneous Tissue and Breast.
10...................... Endocrine, Nutritional and Metabolic Diseases
and Disorders.
11...................... Diseases and Disorders of the Kidney and
Urinary Tract.
12...................... Diseases and Disorders of the Male
Reproductive System.
13...................... Diseases and Disorders of the Female
Reproductive System.
14...................... Pregnancy, Childbirth, and the Puerperium.
15...................... Newborns and Other Neonates with Conditions
Originating in the Perinatal Period.
16...................... Diseases and Disorders of the Blood and Blood
Forming Organs and Immunological Disorders.
[[Page 47880]]
17...................... Myeloproliferative Diseases and Disorders and
Poorly Differentiated Neoplasms.
18...................... Infectious and Parasitic Diseases (Systemic or
Unspecified Sites).
19...................... Mental Diseases and Disorders.
20...................... Alcohol/Drug Use and Alcohol/Drug Induced
Organic Mental Disorders.
21...................... Injuries, Poisonings, and Toxic Effects of
Drugs.
22...................... Burns.
23...................... Factors Influencing Health Status and Other
Contacts with Health Services.
24...................... Multiple Significant Trauma.
25...................... Human Immunodeficiency Virus Infections.
------------------------------------------------------------------------
In general, cases are assigned to an MDC based on the patient's
principal diagnosis before assignment to a DRG. However, for FY 2006,
there are nine DRGs to which cases are directly assigned on the basis
of ICD-9-CM procedure codes. These DRGs are for heart transplant or
implant of heart assist systems, liver and/or intestinal transplants,
bone marrow transplants, lung transplants, simultaneous pancreas/kidney
transplants, pancreas transplants, and for tracheostomies. Cases are
assigned to these DRGs before they are classified to an MDC. The table
below lists the nine current pre-MDCs.
Pre-Major Diagnostic Categories (Pre-MDCs)
------------------------------------------------------------------------
------------------------------------------------------------------------
DRG 103..................... Heart Transplant or Implant of Heart
Assist System.
DRG 480..................... Liver Transplant and/or Intestinal
Transplant.
DRG 481..................... Bone Marrow Transplant.
DRG 482..................... Tracheostomy for Face, Mouth, and Neck
Diagnoses.
DRG 495..................... Lung Transplant.
DRG 512..................... Simultaneous Pancreas/Kidney Transplant.
DRG 513..................... Pancreas Transplant.
DRG 541..................... ECMO or Tracheostomy with Mechanical
Ventilation 96+ Hours or Principal
Diagnosis Except for Face, Mouth, and
Neck Diagnosis with Major O.R.
DRG 542..................... Tracheostomy with Mechanical Ventilation
96+ Hours or Principal Diagnosis Except
for Face, Mouth, and Neck Diagnosis
without Major O.R.
------------------------------------------------------------------------
Once the MDCs were defined, each MDC was evaluated to identify
those additional patient characteristics that would have a consistent
effect on the consumption of hospital resources. Because the presence
of a surgical procedure that required the use of the operating room
would have a significant effect on the type of hospital resources used
by a patient, most MDCs were initially divided into surgical DRGs and
medical DRGs. Surgical DRGs are based on a hierarchy that orders
operating room (O.R.) procedures or groups of O.R. procedures by
resource intensity. Medical DRGs generally are differentiated on the
basis of diagnosis and age (0 to 17 years of age or greater than 17
years of age). Some surgical and medical DRGs are further
differentiated based on the presence or absence of a complication or a
comorbidity (CC).
Generally, nonsurgical procedures and minor surgical procedures
that are not usually performed in an operating room are not treated as
O.R. procedures. However, there are a few non-O.R. procedures that do
affect DRG assignment for certain principal diagnoses. An example is
extracorporeal shock wave lithotripsy for patients with a principal
diagnosis of urinary stones.
Once the medical and surgical classes for an MDC were formed, each
class of diagnoses was evaluated to determine if complications,
comorbidities, or the patient's age would consistently affect the
consumption of hospital resources. Physician panels classified each
diagnosis code based on whether the diagnosis, when present as a
secondary condition, would be considered a substantial CC. A
substantial CC was defined as a condition which, because of its
presence with a specific principal diagnosis, would cause an increase
in the length of stay by at least one day in at least 75 percent of the
patients. Each medical and surgical class within an MDC was tested to
determine if the presence of any substantial CC would consistently
affect the consumption of hospital resources.
A patient's diagnosis, procedure, discharge status, and demographic
information is fed into the Medicare claims processing systems and
subjected to a series of automated screens called the Medicare Code
Editor (MCE). The MCE screens are designed to identify cases that
require further review before classification into a DRG.
After patient information is screened through the MCE and any
further development of the claim is conducted, the cases are classified
into the appropriate DRG by the Medicare GROUPER software program. The
GROUPER program was developed as a means of classifying each case into
a DRG on the basis of the diagnosis and procedure codes and, for a
limited number of DRGs, demographic information (that is, sex, age, and
discharge status).
After cases are screened through the MCE and assigned to a DRG by
the GROUPER, the PRICER software calculates a base DRG payment. The
PRICER calculates the payment for each case covered by the IPPS based
on the DRG relative weight and additional factors associated with each
hospital, such as IME and DSH adjustments. These additional factors
increase the payment amount to hospitals above the base DRG payment.
The records for all Medicare hospital inpatient discharges are
maintained in the Medicare Provider Analysis and Review (MedPAR) file.
The data in this file are used to evaluate possible DRG classification
changes and to recalibrate the DRG weights. However, in the July 30,
1999 IPPS final rule (64 FR 41500), we discussed a process for
considering non-MedPAR data in the recalibration process. In order for
us to consider using particular non-MedPAR data, we must have
sufficient time to evaluate and test the data. The time necessary to do
so depends upon the nature and quality of the non-MedPAR data
submitted. Generally, however, a significant sample of the non-MedPAR
[[Page 47881]]
data should be submitted by mid-October for consideration in
conjunction with the next year's proposed rule. This allows us time to
test the data and make a preliminary assessment as to the feasibility
of using the data. Subsequently, a complete database should be
submitted by early December for consideration in conjunction with the
next year's proposed rule.
In the FY 2007 IPPS proposed rule, we proposed limited changes to
the DRG classification system for FY 2007 for the FY 2007 GROUPER,
Version 24.0 and to the methodology used to recalibrate the DRG
weights. The changes we proposed, the public comments we received
concerning the proposed changes, the final DRG changes, and the
methodology used to calculate the DRG weights are set forth below. The
changes we are implementing in this final rule will be reflected in the
FY 2007 GROUPER, Version 24.0, and are effective for discharges
occurring on or after October 1, 2006. Unless otherwise noted in this
final rule, our DRG analysis is based on data from the March 2006
update of the FY 2005 MedPAR file, which contains hospital bills
received through March 31, 2006, for discharges occurring in FY 2005.
2. Yearly Review for Making DRG Changes
Many of the changes to the DRG classifications are the result of
specific issues brought to our attention by interested parties. We
encourage individuals with concerns about DRG classifications to bring
those concerns to our attention in a timely manner so they can be
carefully considered for possible inclusion in the annual proposed rule
Therefore, similar to the timetable for interested parties to submit
non-MedPAR data for consideration in the DRG recalibration process,
concerns about DRG classification issues should be brought to our
attention no later than early December in order to be considered and
possibly included in the next annual proposed rule updating the IPPS.
The actual process of forming the DRGs was, and continues to be,
highly iterative, involving a combination of statistical results from
test data combined with clinical judgment. For purposes of this final
rule, in deciding whether to create a separate DRG, 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 in the existing DRG. We evaluate patient care costs
using average charges and lengths of stay as proxies for costs and rely
on the judgment of our medical officers to decide whether patients are
clinically distinct or similar to other patients in the DRG. In
evaluating resource costs, we consider both the absolute and percentage
differences in average charges between the cases we are selecting for
review and the remainder of cases in the DRG. We also consider
variation in charges within these groups; that is, whether observed
average differences are consistent across patients or attributable to
cases that are extreme in terms of charges or length of stay, or both.
Further, we also consider the number of patients who will have a given
set of characteristics and generally prefer not to create a new DRG
unless it will include a substantial number of cases.
C. Revisions to the DRG System Used Under the IPPS
1. MedPAC Recommendations
In the FY 2006 IPPS final rule, we discussed a number of
recommendations made by MedPAC regarding revisions to the DRG system
used under the IPPS (70 FR 47473 through 47482).
In Recommendation 1-3 in the 2005 Report to Congress on Physician-
Owned Specialty Hospitals, MedPAC recommended that CMS refine the
current DRGs to more fully capture differences in severity of illness
among patients, including:
Base the DRG relative weights on the estimated cost of
providing care.
Base the weights on the national average of the hospital-
specific relative values (HSRVs) for each DRG (using hospital-specific
costs to derive the HSRVs).
Adjust the DRG relative weights to account for differences
in the prevalence of high-cost outlier cases.
Implement the case-mix measurement and outlier policies
over a transitional period.
As we noted in the FY 2006 IPPS final rule, we had insufficient
time to complete a thorough evaluation of these recommendations for
full implementation in FY 2006. However, we did adopt severity-weighted
cardiac DRGs in FY 2006 to address public comments on this issue and
the specific concerns of MedPAC regarding cardiac surgery DRGs. We also
indicated that we planned to further consider all of MedPAC's
recommendations and thoroughly analyze options and their impacts on the
various types of hospitals in the FY 2007 IPPS proposed rule. Following
the publication of the FY 2006 IPPS final rule, we contracted with 3M
Health Information Systems to assist us in performing this analysis.
Beginning with MedPAC's relative weight recommendations, we
analyzed MedPAC's recommendations to move to a cost-based HSRV
weighting methodology. In performing this portion of the analysis, we
studied hospital cost report data, departmental cost-to-charge ratios
(CCRs), MedPAR claims data, and HSRV weighting methodology. Our
intention in undertaking this portion of the analysis was to find an
administratively feasible approach to improving the accuracy of the DRG
weights. As we described in the proposed rule, we believe some changes
can be made to MedPAC's methodology for determining the relative
weights that will make it more feasible to replicate on an annual basis
but will result in similar impacts.
In conjunction with analyzing MedPAC's relative weight
recommendations, we looked at refining the current DRG system to better
recognize severity of illness. Starting with the APR DRG GROUPER used
by MedPAC in its analysis, we studied Medicare claims data. Based on
this analysis, we developed a CS DRG GROUPER that we believe could be a
better alternative for recognizing severity of illness among the
Medicare population. We note that MedPAC's recommendations with regard
to revising the DRGs to better recognize severity of illness may have
implications for the outlier threshold, the measurement of real case-
mix versus apparent case-mix, and the IME and the DSH adjustments. We
discuss these implications in more detail in the following sections.
As we present below, we believe that the recommendations made by
MedPAC, or some variants of them, have significant promise to improve
the accuracy of the payment rates in the IPPS. We agree with MedPAC
about exploring possible refinements to our payment methodology even in
the absence of concerns about the proliferation of specialty hospitals.
In the FY 2006 final rule, we indicated that until we had completed
further analysis of the options and their effects, we could not predict
the extent to which changing to APR DRGs would provide payment equity
between specialty and general hospitals. In fact, we cautioned that any
system that groups cases will always present some opportunities for
providers to specialize in cases they believe to have higher margins.
We believe that improving payment accuracy should reduce these
opportunities and potentially reduce the
[[Page 47882]]
incentives that Medicare payments may provide for the further
development of specialty hospitals.
We considered MedPAC's recommendation to adjust the relative
weights to account for differences in the prevalence of outlier cases.
However, we placed most of our attention and resources on the
recommendations related to refinement of the current DRGs to more fully
capture differences in severity of illness among patients, as we do not
have the statutory authority to make the specific changes to our
outlier policy that MedPAC recommended. While we have not made MedPAC's
recommendation regarding outliers a central focus of our analysis, we
do intend to examine this issue in more detail in the future. In
sections II.C.2. through C.6. of the FY 2007 proposed rule, we
discussed a number of issues related to the MedPAC recommendations. We
also presented our analysis and specific proposals for FY 2007 and FY
2008 including their estimated impacts. In this final rule, we present
the public comments received on the proposed rule, our responses to
those comments, our final decisions for FY 2007 and our intended
actions for FY 2008.
2. Refinement of the Relative Weight Calculation
MedPAC made two recommendations with respect to the DRG relative
weight calculation. First, MedPAC recommended that CMS base the DRG
relative weights on the estimated cost of providing care. Second,
MedPAC recommended that CMS base the weights on the national average of
hospitals' relative values in each DRG. Because both of these
recommendations address the relative weight calculation, we are
addressing them together. The work we have done to address these
recommendations was discussed in detail in the proposed rule (71 FR
24006-24011).
MedPAC recommended that CMS replace its charge-based relative
weight methodology with cost-based weights, as it believed that the
charge-based relative weight methodology that CMS has utilized since
1985 has introduced bias into the weights due to differential markups
for ancillary services among the DRGs. In analyzing claims data, it is
evident to us that some hospital types (for example, teaching
hospitals) are systematically more expensive overall than the average
hospital and certain case types are more commonly treated at these more
expensive facilities. Higher average charges for cases that are treated
at more expensive hospitals may result in higher weights for these
types of cases. MedPAC suggested a hospital-specific relative value
(HSRV) methodology which MedPAC believed would reduce the effect of
cost differences among hospitals that may be present in the national
relative weights due to differences in case-mix adjusted costs.
Under the HSRV methodology recommended by MedPAC, charges are
standardized for each provider by converting its charges for each case
to hospital-specific relative charge values and then adjusting those
values for the hospital's case-mix. The first step in this process
involves dividing the charge for each case at the hospital by the
average charge for all cases at the hospital in which the case was
treated. The hospital-specific relative charge value, by definition,
averages 1.0 for each hospital. The resulting ratio is then multiplied
by the hospital's case-mix index (CMI). In this way, each hospital's
relative charge value is adjusted by its case-mix to an average that
reflects the complexity of the cases it treats relative to the
complexity of the cases treated by all other hospitals. We discuss this
issue in further detail below.
Our analysis of departmental-level CCRs from the Medicare cost
report data has shown that charges for routine days, intensive care
days, and various ancillary services are not marked up by a consistent
amount. For example, the markup amounts for cardiology services are
higher than average. Because charges are the current basis for the DRG
relative weights, the practice of differential markups can lead to bias
in the DRG weights because various DRGs use, on average, more or less
of particular ancillary services. MedPAC believes that the bias in the
national DRG relative weights that may arise as a result of
differential markups across various cost centers can be removed by
moving from charge-based to cost-based weights. Based on the analysis
we have conducted, we agree that it is appropriate to adjust the DRG
relative weights to account for the differences in charge markups
across cost centers.
In the proposed rule, we indicated several concerns about the
methodology used by MedPAC. MedPAC's methodology to reduce hospital
charges to cost is administratively burdensome, not only to develop,
but also to maintain. First, MedPAC developed CCRs for individual
hospitals at the most detailed department level. Specifically, in
calculating costs as the basis for the relative weights, MedPAC applied
hospital-specific CCRs from each provider's cost report to the line
item charges on the claims that the hospital submitted during the same
time period. This methodology required matching cost report data to
claims data, and because cost report data take longer to compile and
file, the method necessitates using older claims data to set relative
weights. The most recent complete set of Medicare cost reports
available to us is from FY 2003. Thus, if we were to model the exact
approach used by MedPAC and use claims data for a matching year, we
would be using claims data from FY 2003 instead of using FY 2005 claims
data, as we would if we were to continue with our current methodology.
In addition, MedPAC's hospital-specific approach required detailed cost
center distinctions for each hospital that are difficult to define,
map, and apply. This approach also required the use of the Standard
Analytic File (SAF) because MedPAR data that we currently use to set
DRG weights did not have the necessary level of detail. Using the SAF
increases processing time and adds further complexity to the process of
setting the relative weights.
Second, because MedPAC applied these CCRs at the individual claim
level, missing or invalid data resulted in MedPAC deleting a large
number of claims (approximately 10 percent) from the relative weight
calculation. Lastly, MedPAC acknowledged that its method was too
difficult to replicate on an annual basis and suggested that the
weights be recalculated once every 5 years with other adjustments based
on charges during the intervening years.
As we explained in the FY 2007 IPPS proposed rule, we developed an
alternative to MedPAC's approach that we believe achieves similar
results in a more administratively feasible manner. This method
involves developing hospital-specific charge relative weights at the
cost center level and then scaling the weights to costs using the
national cost center charge ratios developed from the cost report data.
After studying Medicare cost report data, we established 10 cost center
categories based upon broad hospital accounting definitions. In our
cost center categories, there are 8 ancillary cost groups in addition
to routine day costs and intensive care day costs, and each category
represents at least 5 percent of the charges in the claims data. The
specific cost report lines that contribute to each category and the
corresponding charge lines from the MedPAR claims data are itemized in
Table A below.
In the proposed rule, we stated that this alternative approach,
which we labeled as the HSRV cost center (HSRVcc) methodology, has
several advantages. First, the use of national average rather than
hospital-specific CCRs avoids the complexity
[[Page 47883]]
encountered with cost center CCRs at the hospital level and allows us
to retain more data for use in the relative weight calculation. In
addition, the methodology eliminates the need to match claims to the
time period of the CCRs, resulting in the ability to use more timely
claims data. Furthermore, the alternative approach makes it more
feasible to update the relative weights annually using a single
methodology. We do not have to replicate the methodology once every 5
years and make adjustments based on changes in charges in the
intervening years. The HSRVcc methodology is described in detail in the
proposed rule (71 FR 24008 through 24011).
Comment: Several commenters supported CMS' effort to restructure
the DRG relative weights based on cost. They stated that using charges
as a proxy for hospital costs in determining resource utilization under
the current system is inappropriate and encouraged CMS to implement a
cost-based system consistent with the agency's original intent without
delay.
Response: We appreciate the commenters' support of our proposal to
implement a cost-based weighting methodology. We believe that adopting
cost-based weights will result in significant improvements to
Medicare's IPPS payments. MedPAC concluded after an extensive analysis
of Medicare hospital inpatient claims and cost data that the IPPS
payment rates are badly distorted, resulting in Medicare paying too
much for some types of patients and too little for others. As indicated
below, we are making some modifications to our proposals in response to
the public comments. However, we are adopting a system of cost-based
weights for FY 2007 to address the concerns raised by MedPAC. As a
result, all hospitals, including specialty hospitals, will be paid more
appropriately. In addition, based on our analysis, we concur with
MedPAC that the current DRG system needs to be changed to better
account for severity of illness among patients. This issue is discussed
in more detail in the next section of this final rule.
Comment: A majority of commenters supported CMS' efforts to improve
the accuracy of the DRG weights, and better reflect variations in
patients' severity of illness. However, many commenters viewed the
HSRVcc proposal as flawed from both a methodological and policy
perspective, and believed the proposal to implement cost-based weights
should be delayed for at least a year. They believed that CMS needs to
further consider a number of issues raised in the public comments
before such sweeping changes are implemented. In addition, the
commenters indicated that CMS needs to provide hospitals with more
lead-time before implementing changes so they can budget accurately.
They urged CMS to use the current standardized charge-based approach in
FY 2007 until these issues can be addressed. At a minimum, they
believed CMS should address what were characterized as methodological
flaws and publish revised relative weights along with hospital impacts
for public comment prior to implementation.
Response: We appreciate the commenters' concerns with regard to a
rapid and full implementation of the changes we proposed to the
relative weight methodology. However, based on our analysis and study
of the MedPAC recommendations that we presented in our proposed rule,
it has come to our attention that differential markups between routine
and ancillary cost centers have introduced significant bias into the
relative weights. In order to reduce the bias in weights and make more
appropriate payments under the IPPS, we believe it is necessary to
initiate the transition to a cost-based relative weight methodology in
FY 2007. However, we have considered the commenters' requests to
further review the HSRV methodology. Therefore, in this final rule, we
are not adopting our proposal to standardize charges using the HSRV
methodology. However, we are adopting our proposal to reduce charges to
estimated costs prior to setting DRG weights. We will undertake further
analysis of the HSRV methodology during the next year. Based on this
analysis, we will consider proposing further changes to adopt the HSRV
methodology for FY 2008.
Comment: Many commenters disagreed with CMS' assertion that the
more administratively feasible HSRVcc approach achieves similar results
to the MedPAC methodology. While they supported CMS' efforts to ensure
the DRG weights are updated annually to reflect the most recent trends
in inpatient care, they expressed concern with the specifics of the
HSRVcc methodology.
First, they noted that CMS stated in the proposed rule that organ
acquisition costs were eliminated from hospital charges before the
HSRVcc weights were calculated. However, it had come to their attention
that organ acquisition charges were actually included in the
calculation of DRG weights under the proposed methodology. They stated
that organ acquisition is reimbursed by Medicare on a cost basis and
should not be included in the weight calculation. Furthermore, the
commenters asserted that the inclusion of organ acquisition charges
improperly overstated the transplant DRG HSRVcc weights. Commenters
recommended that CMS remove the organ acquisition charges from the
computation of the DRG weights if the HSRVcc methodology is to be
adopted.
Second, commenters believe CMS made questionable methodological
decisions when calculating the national CCRs. Under the proposed
methodology, CMS calculated hospital-weighted rather than charge-
weighted CCRs for each of the 10 cost centers used to scale the charge-
based weights. Because the averages are unweighted, the commenters
stated that the CCRs do not account for the differential contribution
of each hospital to total charges. The commenters asserted that,
mathematically, the only correct way to get from total hospital charges
to total hospital costs is to use a charge-weighted average of hospital
CCRs. Failure to use charge-weighted averages overestimates routine and
ICU costs and underestimates ancillary costs, which ultimately
exaggerates the shift in payments, according to the commenters.
Therefore, commenters believed CMS should recalculate the mean national
CCRs using a charge-weighted method.
Third, commenters believed CMS applied questionable trimming
criteria in computing the cost center CCRs. They stated that trimming
the cost center CCRs at 1.96 standard deviations (rather than 3
standard deviations) from the geometric mean inappropriately excluded
over 200 large hospitals that account for 25 percent of routine
accommodation charges. They noted that the CCRs for these hospitals
appear to be predominantly correct. In addition, the commenters noted
that CMS applied the CCRs to the charge data for hospitals that were
excluded from the national average CCR calculation. Thus, the
commenters argued there is a significant mismatch between the hospital
data that was included in the CCR and HSRVcc calculations. These
commenters recommended that CMS exclude hospital data from the CCRs if
it is more than 3 standard deviations (rather than 1.96) from the mean
CCR. Many commenters characterized these methodological decisions as
errors and indicated that their combined impact is significant. If CMS
is to use the HSRVcc methodology, the commenters indicated that these
issues should be addressed.
A few commenters stated that we made incorrect assumptions that may
have resulted in new distortions to the relative weights. Specifically,
the commenters stated that we were incorrect in applying the same CCR
[[Page 47884]]
across all hospitals for a given cost center and applying the same
percent mix of services by cost center to all DRGs. The commenters
recommended that we first convert charges to costs for each hospital
and DRG, and then compute hospital-specific relative values. They
stated that the reversal of the calculations in the HSRVcc methodology
accommodates cost center mix and charge markup differences across
hospitals and across DRGs.
Many commenters argued that the hospital-specific relative value
methodology is unnecessary and compresses the DRG weights. Commenters
cited past research indicating that HSRV has a disproportionate impact
on certain types of hospitals and types of care, and reduces the range
of DRG weights between the lowest and highest weight DRGs.\1\
Commenters noted that the HSRV methodology ``produces more compressed
DRG weights'' than the existing standardization methodology and that
``the greater compression of the HSRV weights is counter balanced by
the fact that more high-weighted cases qualify as [high cost] outlier
cases.'' A few commenters expressed concern that adopting MedPAC's
recommendation to exclude high-cost outliers in addition to statistical
outliers from the computation of the DRG weights so that the weights
reflect the average cost only of inlier cases would compound the DRG
weight compression caused by the HSRV methodology because high-cost
outlier cases occur most frequently in high-weighted DRGs. The
commenters indicated that the finding raises the concern of patient
access to care for services in higher cost DRGs.
---------------------------------------------------------------------------
\1\ Carter, Grace ``How recalibration method, pricing, and
coding affect DRG weights,'' Health Care Financing Review, Winter
1992.
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Commenters also believed that the HSRV methodology fails to take
into account legitimate variation in costs that occur between
hospitals. Therefore, any hospital-level variation in cost that is not
explained by the IPPS case mix index is simply ignored, according to
the commenters. To the extent that certain services are provided most
frequently in hospitals with higher than average cost, the commenters
believed that the HSRV methodology will result in inappropriately lower
DRG weights for these services.
Therefore, commenters strongly recommended that the HSRV
methodology be eliminated in favor of the cost-based weighting
methodology adopted under the OPPS. They stated that the main
difference between these two approaches is the treatment of cost
variation that is not otherwise explained with IPPS payment factors. In
the standardization approach employed by OPPS, any variation in
hospital costs that is not explained by CMS payment factors affects the
calibration of DRG weights. They stated that the HSRV approach proposed
by CMS, by contrast, ignores any hospital level variation in charges
that is not explained by the case mix index. Many commenters added that
CMS could propose to remove other sources of cost variation beyond its
current practice of standardizing for wage index, DSH, and IME. They
believed a factor-specific approach to standardization would lead to
more precise and valid adjustments than those recognized under the HSRV
methodology, which eliminates all sources of charge variation
irrespective of whether there are legitimate differences among
hospitals in costs that are not taken into account in the payment
system.
Response: In preparing the FY 2007 relative weights, the costs of
organ acquisition were inadvertently included in the relative weight
for the calculation of ``other services.'' The costs of organ
acquisition are paid by Medicare on a cost basis and should not be
included in setting the IPPS relative weights. These costs have been
excluded from the IPPS relative weights calculated for this final rule.
In response to the concerns expressed regarding the CCR
calculation, we proposed to establish the geometric mean CCRs using a
hospital-weighted methodology because we believed that it served as an
acceptable measure of central tendency. In addition, we proposed to
trim the CCRs on the basis of 1.96 standard deviations since we were
using national averages and thought a more stringent statistical trim
would be appropriate. In response to comments, however, we have
reconsidered our approach and have implemented the 3 standard deviation
statistical trim supported by commenters. Further, we are also adopting
the charge-weighted method of calculating CCRs, as we now believe it
may be more appropriate to apply CCRs based on aggregate costs and
charges among hospitals to the charges that are aggregated by DRG and
used to set the relative weights.
Although commenters asserted that the HSRV methodology exacerbates
the effect of charge compression on the relative weights, we have not
had sufficient time between the close of the comment period and the
publication of this final rule to analyze this assertion. Therefore, in
response to comments (and as stated above), we are postponing the
implementation of the HSRV methodology until we can study this comment
further. Instead, as suggested by many commenters, we are using an
approach to calculating the IPPS relative weights that is more similar
to the approach used in the OPPS. That is, rather than using a
hospital-specific relative weighting methodology, we are standardizing
charges to remove relevant payment factor adjustments and then
adjusting those charges to costs using national cost center CCRs. As we
stated in the proposed rule, it is not administratively feasible to
adjust charges to cost using hospital-specific cost to charge ratios.
Therefore, while we are standardizing charges for the IPPS cost-based
weights using a similar process to the OPPS, we are still utilizing
national average CCRs to determine cost. Specifically, we are
standardizing the charges for each DRG by cost center to remove
differences in wage index, indirect medical education and
disproportionate share adjustments and are then reducing the
standardized charges to cost using the national average CCRs. The
relative weights we are adopting in this final rule are calculated
based on the average total cost for a DRG in relation to the national
average total cost.
Comment: Many commenters expressed concern that CMS collapsed the
full set of at least 37 cost centers into only 10. They believed this
approach eliminates detail that is available on the cost report. The
commenters requested that CMS elaborate on the process it went through
to derive the 10 cost centers used to calculate the HSRVcc weights.
Some commenters stated CMS should use all 37 cost centers that are used
in calculating the OPPS relative weights for the IPPS. Other commenters
suggested that CMS expand the number of cost centers used in the
calculation. MedPAC found that the CCRs within the proposed 10 cost
centers varied significantly in some areas and recommended that CMS
expand the number to 13 by distinguishing anesthesia and labor and
delivery from the operating room cost center and distinguishing
inhalation therapy from the therapy services cost center. Several
commenters supported MedPAC's recommendation. Further, MedPAC
recommended that the CCRs be based on Medicare-specific costs and
charges rather than on the costs and charges for the entire facility.
Some commenters advocated that a separate cost center be added for
implantable devices. They believed this additional cost center would
better identify the mark-up for high cost technological devices than
[[Page 47885]]
using the average for all supplies and equipment.
Several commenters encouraged CMS to specifically incorporate
nursing costs into the weighting methodology. They stated that nursing
care represents approximately 30 percent of all hospital expenditures
and nearly half of all direct care costs and have been essentially
ignored in the payment formula. Specifically, these commenters urged
CMS to create a unique Nursing Cost Center that identifies the
inpatient direct and indirect costs for registered nurses, licensed
practical nurses, and unlicensed assistive personnel. They defined
direct nursing costs as those associated with licensed and assistive
nursing personnel assigned to care for an individual patient. Indirect
nursing costs are all other salary and benefits related to licensed and
assistive nursing personnel not directly assigned to care for
individual patients. They suggested that the routine and intensive care
cost centers in the proposed HSRVcc methodology be replaced with a
nursing cost center and a separate facility cost center to identify the
non-nursing cost component of care. They urged CMS to set aside funds
to study and implement the above recommendation using methodologically
sound research and demonstration projects.
Response: As we stated in the proposed rule, we established 10 cost
center categories based upon broad hospital accounting definitions.
These 10 cost center categories consist of 8 ancillary cost groups, a
routine days cost group, and an intensive care days cost group. These
cost centers were selected because each category represents at least 5
percent of the charges in the claims data.
We thoroughly reviewed the comments advocating that we expand the
number of cost centers used in the calculation. We currently use the
MedPAR data set for charge detail. The MedPAR file does not provide
enough granularity in the charge detail to support 37 different cost
centers. In addition, in the proposed methodology, we eliminated claims
for providers that did not have costs greater than zero for at least 8
of the 10 cost centers. At least 96 percent of the providers in the
MedPAR file had charges for at least 8 of the 10 cost centers. We
believe that if we were to expand to the full set of 37 cost centers
outlined in the cost report, we would eliminate a greater number of
claims in the calculation of the DRG relative weights.
While we do not believe expanding to 37 cost centers is feasible,
we agree with MedPAC that we may have consolidated a few revenue
centers that have significantly different CCRs. Upon further
examination of the data, in this final rule, we are expanding the
number of cost centers from 10 to 13 by creating separate cost centers
for anesthesia, labor and delivery, and inhalation therapy. We also
agree with MedPAC that it would be more appropriate to set the CCRs
based on Medicare-specific charges and costs rather than on the costs
and charges for the entire facility. Therefore, in this final rule, we
are modifying our CCR calculations to incorporate Medicare-specific
charge data from Worksheet D Part 4 in addition to the cost and charge
data from Worksheet C Part I that we used in the proposed rule.
Other commenters suggested that we also create separate cost
centers for implantable devices and nursing. As noted in the comments,
the MedPAR file does not contain the necessary detail to identify a
separate cost center for implantable devices or nursing. In addition,
we did not have enough time to evaluate whether it would be reasonable
to utilize a nursing cost center in the methodology in the future.
However, we anticipate undertaking further analysis of the relative
weight methodology over the next year in conjunction with the research
we are doing on charge compression to determine if additional cost
centers are necessary.
Comment: Commenters, referring to Table A, ``Charge Line Items from
MedPAR Included in Cost Center Charge Group,'' noted that MedPAR charge
descriptions do not match the Form CMS-2552-96 Cost Center
description(s) for several cost centers. For example:
(a) MedPAR lists (18) Lithotripsy Charges where the cost reporting
form lists Radioisotopes;
(b) MedPAR lists (6) Other Services where the cost reporting form
lists Whole Blood and Packed Red Blood Cells;
(c) MedPAR lists (19) Cardiology Charges as including line 54 of
the cost report, which is Electroencephalography;
(d) MedPAR lists (16) Blood Administration Charges where the cost
reporting form lists ASC (Non-Distinct Part);
(e) MedPAR lists (24) Outpatient Services Charges where the cost
reporting form lists Emergency;
(f) MedPAR lists (25) Emergency Room Charges where the cost
reporting form lists Ambulance Services;
(g) MedPAR lists (26) Ambulance Charges where the cost reporting
form lists Renal Dialysis;
(h) MedPAR lists (29) ESRD Revenue Setting Charges where the cost
reporting form lists Clinic;
(i) MedPAR lists (30) Clinic Visit Charges where the cost reporting
form lists Other Outpatient Services, Other Ancillary, Home Program
Dialysis and Ambulance Services;
(j) Ambulance Services appear to be included twice, once in (30)
Clinic Visit Charges and once in (25) Emergency Room Charges;
(k) Lithotripsy is included in Radiology Services;
(l) Line 62 ``Observation Beds'' is not reflected separately in
Table A; and
(m) Line 68 ``Other reimbursement'' of the cost report is not
listed in Table A.
In addition, commenters were unclear as to whether CMS accounted
for subscripted lines in the cost report when calculating CCRs. The
commenters noted that subscripted lines did not appear in Table A.
Commenters believed this inconsistency in reporting may lead to
distorted DRG weights. Therefore, commenters recommended that CMS
examine this issue thoroughly before implementing cost-based weights.
Several commenters requested that CMS publish a crosswalk of the
revenue codes that are used for each MedPAR charge data group and
require intermediaries to review cost report data to ensure that
providers have reported data consistent with the mapping to the MedPAR
data.
Response: We wish to clarify to the commenters that the charge
description titles shown in the MedPAR charge description column in
Table A were not meant to also be interpreted as the title for each of
the cost report line items. That is, we were simply using Table A to
illustrate the MedPAR charge groups and the cost report line numbers
that were used to create the 10 proposed cost centers. To alleviate
this confusion, we are revising Table A to show both the MedPAR charge
titles and the titles of the cost report line items. In response to
comments (j) and (l), we note that the cost report line item number 65
for ambulance was inadvertently listed twice in the proposed rule; line
item 62, observation beds, was used in establishing the CCR for the
other services category. Line 65 for ambulance was only used once in
the actual other services CCR calculation. Line item 62 should have
appeared in the ``other services'' cost center grouping printed in
Table A in the proposed rule. We have corrected this error in the final
version of Table A. In addition, in regards to comment (k) above, we
have moved the lithotripsy charges from MedPAR to the ``other
services'' cost center grouping and we have also
[[Page 47886]]
revised the CCR for ``other services'' to include the cost report line
item 43 for radioisotopes, which was formerly included in the radiology
CCR.
In response to the commenters' question regarding the inclusion of
subscripted lines, when we calculated the CCRs for the proposed rule
and subsequently for this final rule, we relied on a HCRIS data set
that contains rolled-up cost report fields such that line items which
are subscripted contain the total value for the line item and any
subscripted lines below. Therefore, most subscripted lines were
included in the proposed rule CCRs and continue to be included in the
final rule CCR calculations. However, some subscripted line items are
not rolled up and continue to have their own field on the HCRIS data
set that we used to calculate the CCRs. Therefore, we are now including
the cost report line item 6201 for observation beds, the cost report
line item 6350 for Rural Health clinics and the cost report line item
6360 for Federally Qualified Health clinics in the other services CCR.
Cost report line items 6350 and 6360 are only reported by provider-
based Rural Health clinics and Federally Qualified Health clinics and
are necessary in order to identify all incurred costs applicable to
furnishing an observation bed prior to a decision to admit a patient to
the hospital. Further, we are now including the cost report line item
68 for other reimbursement in the other services CCR, and we are
including professional services charges from MedPAR in the other
services charge grouping. In response to the commenters' requests that
we show the revenue codes that comprise the MedPAR charges, we have
also inserted an additional column in Table A that lists the revenue
codes MedPAR groups into each charge field that we are using in the
final 13 cost centers. The final version of Table A appears below:
BILLING CODE 4120-01-P
[[Page 47887]]
[GRAPHIC] [TIFF OMITTED] TR18AU06.000
[[Page 47888]]
[GRAPHIC] [TIFF OMITTED] TR18AU06.001
[[Page 47889]]
[GRAPHIC] [TIFF OMITTED] TR18AU06.002
[[Page 47890]]
[GRAPHIC] [TIFF OMITTED] TR18AU06.003
[[Page 47891]]
[GRAPHIC] [TIFF OMITTED] TR18AU06.004
[[Page 47892]]
[GRAPHIC] [TIFF OMITTED] TR18AU06.005
Comment: Many commenters warned that the redistribution of payments
from the surgical to the medical DRGs under the proposed methodology
may create unintended consequences. Several of these commenters stated
that this redistribution poses a threat to patients' access to the
latest medical advances and highest quality care. They feared that
hospitals will invest less in new medical technologies because Medicare
would not pay sufficiently for the DRGs that use them. Another
commenter stated that the increased reimbursement for psychiatric DRGs
may create an incentive for IPFs to decertify and become inpatient
units.
Response: We appreciate the commenters' concern that payment
redistribution may create the potential for unintended consequences.
However, we wish to emphasize that the redistribution of payments among
DRGs is necessary to improve payment accuracy and eliminate the
distortions in the current IPPS payment rates. Under the methodology in
this final rule, we will increase payment for relatively underpaid
cases and reduce payment for relatively overpaid cases.
We are adopting a methodology that will realign payments with costs
to pay more appropriately for services rendered by hospitals.
Therefore, we do not believe altering the DRG relative weighting
methodology will affect patients' access to quality medical care.
Patients should have continued and uninterrupted access to new,
innovative technologies.
We have analyzed the impact of the increased reimbursement for
psychiatric DRGs in response to the commenter's concern that increased
reimbursement may provide incentives for IPFs to decertify their units
and be paid under the IPPS. Because of the differences in payment
between the IPPS and the IPF PPS, we do not believe that the DRG
relative weights we are adopting in this final rule will provide
increased incentive for IPFs to decertify units. Whereas under the IPF
PPS, hospitals receive a daily base rate and adjustments to account for
certain patient and facility characteristics, hospitals paid under the
IPPS are paid a specified amount based on the DRG for the same cases,
regardless of the length of the hospital stay. Our analysis suggests
that even though the average payment per day (total payment divided by
average length of stay) for the psychiatric DRGs in the IPPS proposed
rule may be higher than under the IPF PPS, the total average payment
per episode of care remains lower (product of the average IPF payment
per day and the average length of stay). Thus, because payments per
episode of care remain lower under the IPPS than under the IPF PPS, we
are not concerned that IPFs will decertify to get paid using the IPPS.
In addition, as indicated above, we are making some modifications to
our methodology in response to the public comments. Based on these
changes, the increase in the relative weights for the psychiatric DRGs
presented in this final rule will not be as significant as those
contained in the proposed rule.
Comment: Commenters expressed concern that because hospitals often
allocate charges on the cost reports differently than charges on the
claims, the cost-center level CCRs are calculated based on a different
set of charges than the charges on the claims to which the CCRs are
later applied. Commenters expressed concern that Medicare cost report
data are not detailed enough or consistently reported accurately to
determine costs accurately at a DRG level since such data lack specific
cost data on individual items and services. They reiterated that the
Medicare cost reports, which serve as the primary source of data under
the proposed system, were not designed to be used in a prospective
payment system and have not been used to establish hospital rates for
inpatient services for some time. They noted several limitations in
using the cost reports to derive estimated costs utilized in the DRG
relative weight calculations that should be carefully examined and
addressed before moving forward with the proposed system of hospital-
specific cost weights.
First, the commenters believed that CMS should address cost report
accuracy. The commenters stated that because the cost reports have only
been used for payment in limited circumstances (DSH, IME, outlier
policy), hospitals have had little incentive to report accurately and
completely for the services provided to Medicare beneficiaries. In
addition, they claimed the cost reports do not contain the level of
detail necessary to accurately determine costs at the DRG level.
Instead, the cost report provides payments, costs, and some
reimbursement totals by department or cost center. The commenters also
advised that CMS perform additional auditing of the cost reports to
ensure accuracy. The commenters were concerned that if CMS implements a
cost-based weighting methodology, the DRG weights will be based on
largely un-audited cost reports since approximately 15 percent of
hospital cost reports are audited each year. They noted that MedPAC
estimated that a full-scale audit could require 1,000 to 2,000 hours
from a fiscal intermediary,
[[Page 47893]]
as well as additional time and resources from the hospital. In
addition, a few commenters stated that CMS should only use final
settled cost report data, not as-submitted data, in calculating DRG
weights.
Second, some commenters contended that CMS should evaluate the
overall timeliness of cost report data. They stated that cost report
data used to recalibrate the DRG weights are outdated and significantly
older than the charge-based data currently used to determine DRG
weights under the IPPS. Under the proposed methodology, CMS used
hospital claims data from FY 2005 and hospital cost reports from FY
2003. The commenters were concerned that because a lag between the cost
report year and the payment year exists, the proposed methodology would
rely on older data that does not reflect the costs of many newer
technologies. The commenters supported an approach that uses more
recent claims and cost report data and also urge CMS to explore options
for using alternative data sources that include current information on
the costs of inpatient care.
Third, the commenters stated that CMS should examine the
comparability of cost reports due to variability in how hospitals
allocate costs. Commenters explained that a cost allocation methodology
must be used to estimate the cost of individual items and services from
the aggregate costs reported for each cost-center on the cost-report.
They stated that the proposed methodology assumes that all hospitals
consistently allocate costs to the same cost centers. However,
hospitals may have inconsistent cost accounting practices or use
different cost allocation methods (for example, utilization or square-
footage) according to the commenters. The commenters suggested these
factors and the compression of charges both within and across cost-
centers, limits the usefulness of cost report data to accurately
estimate costs. According to the commenters, each hospital uses its own
method to allocate costs among cost centers, often resulting in cost
assignments that do not reflect the departments to which charges are
assigned in the MedPAR data. For example, some commenters indicated
that they included cardiac catheterization in lines other than 53 and
54 that group to the cardiac cost center. In addition, several
commenters noted that hospitals report medical supply costs
inconsistently. While some report them in the supply cost center,
others report the medical supply cost in the cost center for the
procedure in which the device was used (that is, medical supplies
specific to the Emergency Room are included in line 61 of the cost
report). The commenters suggested that more specific cost report
instructions may be necessary to ensure that hospitals report the
information correctly and consistently. Some commenters believed that
cost report data were not intended or designed to be used to develop
accurate payment rates and suggested developing a proxy to more
accurately allocate costs at the DRG level, such as collecting data
from hospitals that utilize ``sophisticated cost accounting tools that
provide more accurate allocation of costs.''
Some commenters also recommended that CMS convene an expert panel
to explore ways to address the current limitations of the cost report.
They stated that this effort should identify methods to better use or
improve hospital cost reports for use in setting the inpatient and
outpatient relative weights. The expert panel should aim to identify
changes to the cost report that reduce the net information burden on
hospitals, while improving overall payment accuracy. The panel should
report its recommendations by April 2007 to enable CMS enough time to
consider the recommendations in setting the relative weights for FY
2008. Other commenters advocated that CMS initiate a national project
to correct any misalignments between cost and charges in cost reports
and on the MedPAR claims. Other commenters suggested that CMS postpone
the adoption of the proposed HSRVcc methodology until such time that
providers improve the accuracy of the source data used in the
determination of the DRG weights.
Response: With respect to the commenters' recommendation regarding
the reporting of c