FR Doc 08-1135

[Federal Register: April 30, 2008 (Volume 73, Number 84)]
[Proposed Rules]
[Page 23527-23938]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ap08-26]

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Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid

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42 CFR Parts 411, 412, 413 et al.

Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2009 Rates; Proposed
Changes to Disclosure of Physician Ownership in Hospitals and Physician
Self-Referral Rules; Proposed Collection of Information Regarding
Financial Relationships Between Hospitals and Physicians; Proposed Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 411, 412, 413, 422, and 489

[CMS-1390-P]
RIN 0938-AP15

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

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the Medicare hospital inpatient
prospective payment systems (IPPS) for operating and capital-related
costs to implement changes arising from our continuing experience with
these systems, and to implement certain provisions made by the Deficit
Reduction Act of 2005, the Medicare Improvements and Extension Act,
Division B, Title I of the Tax Relief and Health Care Act of 2006, and
the TMA, Abstinence Education, and QI Programs Extension Act of 2007.
In addition, in the Addendum to this proposed rule, we describe the
proposed changes to the amounts and factors used to determine the rates
for Medicare hospital inpatient services for operating costs and
capital-related costs. These proposed changes would be applicable to
discharges occurring on or after October 1, 2008. We also are setting
forth the proposed update to the rate-of-increase limits for certain
hospitals and hospital units excluded from the IPPS that are paid on a
reasonable cost basis subject to these limits. The proposed updated
rate-of-increase limits would be effective for cost reporting periods
beginning on or after October 1, 2008.
Among the other policy decisions and changes that we are proposing
to make are changes related to: Limited proposed revisions of the
classification of cases to Medicare severity diagnosis-related groups
(MS-DRGs), proposals to address charge compression issues in the
calculation of MS-DRG relative weights, the proposed revisions to the
classifications and relative weights for the Medicare severity long-
term care diagnosis-related groups (MS-LTC-DRGs); applications for new
medical services and technologies add-on payments; wage index reform
changes and the wage data, including the occupational mix data, used to
compute the proposed FY 2009 wage indices; submission of hospital
quality data; proposed changes to the postacute care transfer policy
relating to transfers to home for the furnishing of home health
services; and proposed policy changes relating to the requirements for
furnishing hospital emergency services under the Emergency Medical
Treatment and Labor Act of 1986 (EMTALA).
In addition, we are proposing policy changes relating to disclosure
to patients of physician ownership or investment interests in hospitals
and soliciting public comments on a proposed collection of information
regarding financial relationships between hospitals and physicians. We
are also proposing changes or soliciting comments on issues relating to
policies on physician self-referrals.

DATES: To be assured consideration, comments must be received at one of
the addresses provide below, no later than 5 p.m. E.S.T. on June 13,
2008.

ADDRESSES: When commenting on issues presented in this proposed rule,
please refer to filecode CMS-1390-P. Because of staff and resource
limitations, we cannot accept comments by facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the instructions for
``Comment or Submission'' and enter the file code CMS-1390-P to submit
comments on this proposed rule.
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-1390-P, P.O. Box 8011, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1390-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to either of the following addresses:
a. Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION, CONTACT:
Michele Hudson, (410) 786-4487, Operating Prospective Payment, MS-
DRGs, Wage Index, New Medical Service and Technology Add-On Payments,
Hospital Geographic Reclassifications, and Postacute Care Transfer
Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, Direct and Indirect Graduate Medical Education, MS-LTC-DRGs,
EMTALA, Hospital Emergency Services, and Hospital-within-Hospital
Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Program Issues.
Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment
Update Issues.
Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing and
Readmissions to Hospital Issues.
Anne Hornsby, (410) 786-1181, Collection of Managed Care Encounter
Data Issues.
Jacqueline Proctor, (410) 786-8852, Disclosure of Physician
Ownership in

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Hospitals and Financial Relationships between Hospitals and Physicians
Issues.
Lisa Ohrin, (410) 786-4565, and Don Romano, (410) 786-1404,
Physician Self-Referral Issues.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://
www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection, generally beginning approximately 3 weeks after publication
of 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

AARP American Association of Retired Persons
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AF Artrial fibrillation
AHA American Hospital Association
AICD Automatic implantable cardioverter defibrillator
AHIMA American Health Information Management Association
AHIC American Health Information Community
AHRQ Agency for Healthcare Research and Quality
AMA American Medical Association
AMGA American Medical Group Association
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ASC Ambulatory surgical center
ASITN American Society of Interventional and Therapeutic
Neuroradiology
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
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-
272
CoP [Hospital] condition of participation
CPI Consumer price index
CY Calendar year
DFRR Disclosure of financial relationship report
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
DVT Deep vein thrombosis
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Pub. L.
99-272
FAH Federation of Hospitals
FDA Food and Drug Administration
FHA Federal Health Architecture
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
HACs Hospital-acquired conditions
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
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HWH Hospital-within-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
ICR Information collection requirement
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
LAMCs Large area metropolitan counties
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of
the Tax Relief and Health Care Act of 2006, Pub. L. 109-432
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Pub. L. 108-173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
NAICS North American Industrial Classification System
NCD National coverage determination

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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
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]
PE Pulmonary embolism
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
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
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248
TMA TMA [Transitional Medical Assistance], Abstinence Education, and
QI [Qualifying Individuals] Programs Extension Act of 2007, Pub. L.
110-09
TJA Total joint arthroplasty
UHDDS Uniform hospital discharge data set
VAP Ventilator-associated pneumonia
VBP Value-based purchasing

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. Provisions of the Medicare Improvements and Extension Act
under Division B, Title I of the Tax Relief and Health Care Act of
2006 (MIEA-TRHCA)
D. Provision of the TMA, Abstinence Education, and QI Programs
Extension Act of 2007
E. Major Contents of this Proposed Rule
1. Proposed Changes to MS-DRG Classifications and Recalibrations
of Relative Weights
2. Proposed Changes to the Hospital Wage Index
3. Other Decisions and Proposed Changes to the IPPS for
Operating Costs and GME Costs
4. Proposed Changes to the IPPS for Capital-Related Costs
5. Proposed Changes to the Payment Rates for Excluded Hospitals
and Hospital Units: Rate-of-Increase Percentages
6. Proposed Changes Relating to Disclosure of Physician
Ownership in Hospitals
7. Proposed Changes and Solicitation of Comments on Physician
Self-Referral Provisions
8. Proposed Collection of Information Regarding Financial
Relationships between Hospitals and Physicians
9. Determining Proposed 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. Disclosure of Financial Relationships Report (DFRR) Form
13. Discussion of Medicare Payment Advisory Commission
Recommendations
F. Public Comments Received on Issues in Related Rules
1. Comments on Phase-Out of the Capital Teaching Adjustment
under the IPPS Included in the FY 2008 IPPS Final Rule with Comment
Period
2. Policy Revisions Related to Medicare GME Group Affiliations
for Hospitals in Certain Declared Emergency Areas
II. Proposed Changes to Medicare Severity DRG (MS-DRG)
Classifications and Relative Weights
A. Background
B. MS-DRG Reclassifications
1. General
2. Yearly Review for Making MS-DRG Changes
C. Adoption of the MS-DRGs in FY 2008
D. MS-DRG Documentation and Coding Adjustment, Including the
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount
1. MS-DRG Documentation and Coding Adjustment
2. Application of the Documentation and Coding Adjustment to the
Hospital-Specific Rates
3. Application of the Documentation and Coding Adjustment to
Puerto Rico-Specific Standardized Amount
4. Potential Additional Payment Adjustments in FYs 2010 through
2012
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
2. Refining the Medicare Cost Report
3. Timeline for Revising the Medicare Cost Report
4. Revenue Codes used in the MedPAR File
F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections
1. General
2. Statutory Authority
3. Public Input
4. Collaborative Process
5. Selection Criteria for HACs
6. HACs Selected in FY 2008 and Proposed Changes to Certain
Codes
a. Foreign Object Retained After Surgery: Proposed Inclusion of
ICD-9-CM Code 998.7 (CC)
b. Pressure Ulcers: Proposed Changes in Code Assignments
7. HACs Under Consideration as Additional Candidates
a. Surgical Site Infections Following Elective Surgeries
b. Legionnaires' Disease
c. Glycemic Control
d. Iatrogenic Pneumothorax
e. Delirium
f. Ventilator-Associated Pneumonia (VAP)
g. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)
h. Staphylococcus aureus Septicemia
i. Clostridium Difficile-Associated Disease (CDAD)
j. Methicillin-Resistant Staphylococcus aureus (MRSA)
8. Present on Admission (POA) Indicator Reporting
9. Enhancement and Future Issues
a. Risk Adjustment
b. Rates of HACs
c. Use of POA Information
d. Transition to ICD-10-PCS
e. Application of Nonpayment for HACs to Other Settings
f. Relationship to NQF's Serious Reportable Adverse Events
G. Proposed Changes to Specific MS-DRG Classifications
1. Pre-MDCs: Artificial Heart Devices
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Transferred Stroke Patients Receiving Tissue Plasminogen
Activator (tPA)
b. Intractable Epilepsy with Video Electroencephalogram (EEG)
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead
and Generator Procedures
b. Left Atrial Appendage Device
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue): Hip and Knee Replacements and Revisions
a. Brief History of Development of Hip and Knee Replacement
Codes
b. Prior Recommendations of the AAHKS
c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008
and AAHKS' Recommendations
d. AAHKS' Recommendations for FY 2009
e. CMS' Response to AAHKS' Recommendations
f. Conclusion
5. MDC 18 (Infections and Parasitic Diseases Systemic or
Unspecified Sites): Severe Sepsis

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6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs):
Traumatic Compartment Syndrome
7. Medicare Code Editor (MCE) Changes
a. List of Unacceptable Principal Diagnoses in MCE
b. Diagnoses Allowed for Male Only Edit c. Limited Coverage Edit
8. Surgical Hierarchies
9. CC Exclusions List
a. Background
b. CC Exclusions List for FY 2009
10. Review of Procedure Codes in MS-DRGs 981, 982, and 983; 984,
985, and 986; and 987, 988, and 989
a. Moving Procedure Codes from MS-DRG 981 through 983 or MS-DRG
987 through 989 to MDCs
b. Reassignment of Procedures among MS-DRGs 981 through 983, 984
through 986, and 987 through 989
c. Adding Diagnosis or Procedure Codes to MDCs
11. Changes to the ICD-9-CM Coding System
H. Recalibration of MS-DRG Weights
I. Proposed Medicare Severity Long-Term Care Diagnosis-Related
Group (MS-LTC-DRG) Reclassifications and Relative Weights for LTCHs
for FY 2009
1. Background
2. Proposed Changes in the MS-LTC-DRG Classifications
a. Background
b. Patient Classifications into MS-LTC-DRGs
3. Development of the Proposed FY 2009 MS-LTC-DRG Relative
Weights
a. General Overview of Development of the MS-LTC-DRG Relative
Weights
b. Data
c. Hospital-Specific Relative Value (HSRV) Methodology
d. Treatment of Severity Levels in Developing Proposed Relative
Weights
e. Proposed Low-Volume MS-LTC-DRGs
4. Steps for Determining the Proposed FY 2009 MS-LTC-DRG
Relative Weights
J. Proposed Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed
Rulemaking on Add-On Payments
3. FY 2009 Status of Technologies Approved for FY 2008 Add-On
Payments
4. FY 2009 Applications for New Technology Add-On Payments
a. CardioWest^TM Temporary Total Artificial Heart
System (CardioWest^TM TAH-t)
b. Emphasys Medical Zephyr[supreg] Endobronchial Valve
(Zephyr[supreg] EBV)
c. Oxiplex[supreg]
d. TherOx Downstream[supreg] System
5. Proposed Regulatory Change
III. Proposed Changes to the Hospital Wage Index
A. Background
B. Requirements of Section 106 of the MIEA-TRHCA
1. Wage Index Study Required Under the MIEA-TRHCA
2. CMS Proposals in Response to Requirements Under Section
106(b) of the MIEA-TRHCA
a. Proposed Revision of the Reclassification Average Hourly Wage
Comparison Criteria
b. Within-State Budget Neutrality Adjustment for the Rural and
Imputed Floors
c. Within-State Budget Neutrality Adjustment for Geographic
Reclassification
C. Core-Based Statistical Areas for the Hospital Wage Index
D. Proposed Occupational Mix Adjustment to the Proposed FY 2009
Wage Index
1. Development of Data for the Proposed FY 2009 Occupational Mix
Adjustment
2. Calculation of the Proposed Occupational Mix Adjustment for
FY 2009
3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index
E. Worksheet S-3 Wage Data for the Proposed FY 2009 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Providers Other Than Acute Care
Hospitals Under the IPPS
F. Verification of Worksheet S-3 Wage Data
1. Wage Data for Multicampus Hospitals
2. New Orleans' Post-Katrina Wage Index
G. Method for Computing the Proposed FY 2009 Unadjusted Wage
Index
H. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2009 Occupational Mix Adjustment Wage
Index
I. Proposed Revisions to the Wage Index Based on Hospital
Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2009 MGCRB Reclassifications
4. FY 2008 Policy Clarifications and Revisions
5. Redesignations of Hospitals under Section 1886(d)(8)(B) of
the Act
6. Reclassifications under Section 1886(d)(8)(B) of the Act
J. Proposed FY 2009 Wage Index Adjustment Based on Commuting
Patterns of Hospital Employees
K. Process for Requests for Wage Index Data Corrections
L. Labor-Related Share for the Proposed Wage Index for FY 2009
IV. Other Decisions and Proposed Changes to the IPPS for Operating
Costs and GME Costs
A. Proposed Changes to the Postacute Care Transfer Policy
1. Background
2. Proposed Policy Change Relating to Transfers to Home with a
Written Plan for the Provision of Home Health Services
3. Evaluation of MS-DRGs under Postacute Care Transfer Policy
for FY 2009
B. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
a. Overview
b. Voluntary Hospital Quality Data Reporting
c. Hospital Quality Data Reporting under Section 501(b) of Pub.
L. 108-173
d. Hospital Quality Data Reporting under Section 5001(a) of Pub.
L. 109-171
2. Proposed Quality Measures for FY 2010 and Subsequent Years
a. Proposed Quality Measures for FY 2010
b. Possible New Quality Measures, Measure Sets, and Program
Requirements for FY 2011 and Subsequent Years
c. Considerations in Expanding and Updating Quality Measures
Under the RHQDAPU Program
3. Form and Manner and Timing of Quality Data Submission
4. Current and Proposed RHQDAPU Program Procedures
a. RHQDAPU Program Procedures for FY 2009
b. Proposed RHQDAPU Program Procedures for FY 2010
5. Current and Proposed HCAHPS Requirements
a. FY 2009 HCAHPS Requirements
b. Proposed FY 2010 HCAHPS Requirements
6. Current and Proposed Chart Validation Requirements
a. Chart Validation Requirements for FY 2009
b. Proposed Chart Validation Requirements for FY 2010
c. Chart Validation Methods and Requirements Under Consideration
for FY 2011 and Subsequent Years
7. Data Attestation Requirements
a. Proposed Change to Requirements for FY 2009
b. Proposed Requirements for FY 2010
8. Public Display Requirements
9. Proposed Reconsideration and Appeal Procedures
10. Proposed RHQDAPU Program Withdrawal Deadline for FYs 2009
and 2010
11. Requirements for New Hospitals
12. Electronic Medical Records
C. Medicare Hospital Value-Based Purchasing (VBP)
1. Medicare Hospital VBP Plan Report to Congress
2. Testing and Further Development of the Medicare Hospital VBP
Plan
D. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small
Rural Hospitals (MDHs): Volume Decrease Adjustment
1. Background
2. Volume Decrease Adjustment for SCHs and MDHs: Data Sources
for Determining Core Staff Values
a. Occupational Mix Survey
b. AHA Annual Survey
E. Rural Referral Centers (RRCs)
1. Case-Mix Index
2. Discharges
F. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2009
G. Medicare GME Affiliation Provisions for Teaching Hospitals in
Certain Emergency Situations; Technical Correction
1. Background
2. Technical Correction
H. Payments to Medicare Advantage Organizations: Collection of
Risk Adjustment Data
I. Hospital Emergency Services under EMTALA

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1. Background
2. EMTALA Technical Advisory Group (TAG): Recommendations
3. Proposed Changes Relating to Applicability of EMTALA
Requirements to Hospital Inpatients
4. Proposed Changes to the EMTALA Physician On-Call Requirements
a. Relocation of Regulatory Provisions
b. Shared/Community Call
5. Proposed Technical Change to Regulations
J. Application of Incentives To Reduce Avoidable Readmissions to
Hospitals
1. Introduction
2. Measurement
3. Accountability
4. Interventions
5. Financial Incentive: Direct Payment Adjustment
6. Financial Incentive: Performance-Based Payment Adjustment
7. Nonfinancial Incentive: Public Reporting
8. Conclusion
K. Rural Community Hospital Demonstration Program
V. Proposed Changes to the IPPS for Capital-Related Costs
A. Background
1. Exception Payments
2. New Hospitals
3. Hospitals Located in Puerto Rico
B. Revisions to the Capital IPPS Based on Data on Hospitals
Medicare Capital Margins
1. Elimination of the Large Add-On Payment Adjustment
2. Changes to the Capital IME Adjustment
a. Background and Changes Made for FY 2008
b. Public Comments Received on Phase Out of Capital IPPS
Teaching Adjustment Provisions Included in the FY 2008 Final Rule
With Comment Period and Further Solicitation of Public Comments
VI. Proposed Changes for Hospitals and Hospital Units Excluded From
the IPPS
A. Proposed Payments to Excluded Hospitals and Hospital Units
B. IRF PPS
C. LTCH PPS
D. IPF PPS
E. Determining Proposed LTCH Cost-to-Charge Ratios (CCRs) under
the LTCH PPS
F. Proposed Change to the Regulations Governing Hospitals-
Within-Hospitals
VII. Disclosure Required of Certain Hospitals and Critical Access
Hospitals Regarding Physician Ownership
VIII. Physician Self-Referrals Provisions
A. Stand in the Shoes Provisions
1. Physician ``Stand in the Shoes'' Provisions
a. Background
b. Proposals
2. DHS Entity ``Stand in the Shoes'' Provisions
3. Application of the Physician ``Stand in the Shoes'' and the
Entity ``Stand in the Shoes'' Provisions
4. Definitions: ``Physician'' and ``Physician Organization''
B. Period of Disallowance
C. Gainsharing Arrangements
1. Background
2. Statutory Impediments to Gainsharing Arrangements
3. Office of Inspector General (OIG) Approach Towards
Gainsharing Arrangements
4. MedPAC Recommendation
5. Demonstration Programs
6. Solicitation of Comments
D. Physician-Owned Implant and Other Medical Device Companies
1. Background
2. Solicitation of Comments
IX. Financial Relationships between Hospitals and Physicians
A. Background
B. Section 5006 of the Deficit Reduction Act (DRA) of 2005
C. Disclosure of Financial Relationships Report (DFRR)
D. Civil Monetary Penalties
E. Uses of Information Captured by the DFRR
F. Solicitation of Comments
X. MedPAC Recommendations
XI. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
1. Legislative Requirement for Solicitation of Comments
2. Solicitation of Comments on Proposed Requirements in
Regulatory Text
a. ICRs Regarding Physician Reporting Requirements
b. ICRs Regarding Risk Adjustment Data
c. ICRs Regarding Basic Commitments of Providers
3. Associated Information Collections Not Specified in
Regulatory Text
a. Present on Admission (POA) Indicator Reporting
b. Proposed Add-On Payments for New Services and Technologies
c. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
d. Occupational Mix Adjustment to the FY 2009 Index (Hospital
Wage Index Occupational Mix Survey)
4. Addresses for Submittal of Comments on Information Collection
Requirements
C. Response to Public Comments

Regulation Text

Addendum--Proposed Schedule of Standardized Amounts, Update Factors,
and Rate-of-Increase Percentages Effective With Cost Reporting Periods
Beginning On or After October 1, 2008

I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital
Inpatient Operating Costs for FY 2009
A. Calculation of the Adjusted Standardized Amount
B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
C. Proposed MS-DRG Relative Weights
D. Calculation of the Proposed Prospective Payment Rates
III. Proposed Changes of Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2009
A. Determination of Proposed Federal Hospital Inpatient Capital-
Related Prospective Payment Rate Update
B. Calculation of the Proposed Inpatient Capital-Related
Prospective Payments for FY 2009
C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Excluded Hospitals and
Hospital Units: Rate-of-Increase Percentages
V. Tables
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)
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)
Table 1C.--Adjusted Operating Standardized Amounts for Puerto
Rico, Labor/Nonlabor
Table 1D.--Capital Standard Federal Payment Rate
Table 2.--Hospital Case-Mix Indexes for Discharges Occurring in
Federal Fiscal Year 2007; Hospital Wage Indexes for Federal Fiscal
Year 2009; Hospital Average Hourly Wages for Federal Fiscal Years
2007 (2003 Wage Data), 2008 (2004 Wage Data), and 2009 (2005 Wage
Data); and 3-Year Average of Hospital Average Hourly Wages
Table 3A.--FY 2009 and 3-Year Average Hourly Wage for Urban
Areas by CBSA
Table 3B.--FY 2009 and 3-Year Average Hourly Wage for Rural
Areas by CBSA
Table 4A.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Urban Areas by CBSA and by State--FY 2009
Table 4B.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Rural Areas by CBSA and by State--FY 2009
Table 4C.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Hospitals That Are Reclassified by CBSA and by State--FY
2009
Table 4D-1.--Rural Floor Budget Neutrality Factors--FY 2009
Table 4D-2.--Urban Areas with Hospitals Receiving the Statewide
Rural Floor or Imputed Floor Wage Index--FY 2009
Table 4E.--Urban CBSAs and Constituent Counties--FY 2009
Table 4F.--Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) by CBSA--FY 2009
Table 4J.--Out-Migration Wage Adjustment--FY 2009
Table 5.--List of Medicare Severity Diagnosis-Related Groups
(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic
Mean Length of Stay
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 (Available
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/
AcuteInpatientPPS/)
Table 6H.--Deletions From the CC Exclusions List (Available
Through the

[[Page 23533]]

Internet on the CMS Web site at: http://www.cms.hhs.gov/
AcuteInpatientPPS/)
Table 6I.--Complete List of Complication and Comorbidity (CC)
Exclusions (Available Only Through the Internet on the CMS Web site
at: http:/www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6J.--Major Complication and Comorbidity (MCC) List
(Available Through the Internet on the CMS Web Site at: http://
www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6K.--Complication and Comorbidity (CC) List (Available
Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/
AcuteInpatientPPS/)
Table 7A.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2007 MedPAR Update--December 2007
GROUPER V25.0 MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2007 MedPAR Update--December 2007
GROUPER V26.0 MS-DRGs
Table 8A.--Proposed Statewide Average Operating Cost-to-Charge
Ratios--March 2008
Table 8B.--Proposed Statewide Average Capital Cost-to-Charge
Ratios--March 2008
Table 8C.--Proposed Statewide Average Total Cost-to-Charge
Ratios for LTCHs--March 2008
Table 9A.--Hospital Reclassifications and Redesignations--FY
2009
Table 9B.--Hospitals Redesignated as Rural under Section
1886(d)(8)(E) of the Act--FY 2009
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 Medicare Severity Diagnosis-Related
Groups (MS-DRGs)--March 2008
Table 11.--Proposed FY 2009 MS-LTC-DRGs, Proposed Relative
Weights, Proposed Geometric Average Length of Stay, and Proposed
Short-Stay Outlier Threshold

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 Proposed Policy Changes Under the
IPPS for Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Proposed Changes to the MS-DRG
Reclassifications and Relative Cost-Based Weights (Column 2)
D. Effects of Proposed Wage Index Changes (Column 3)
E. Combined Effects of Proposed MS-DRG and Wage Index Changes
(Column 4)
F. Effects of MGCRB Reclassifications (Column 5)
G. Effects of the Proposed Rural Floor and Imputed Rural Floor,
Including the Proposed Application of Budget Neutrality at the State
Level (Column 6)
H. Effects of the Proposed Wage Index Adjustment for Out-
Migration (Column 7)
I. Effects of All Proposed Changes with CMI Adjustment Prior to
Estimated Growth (Column 8)
J. Effects of All Proposed Changes with CMI Adjustment and
Estimated Growth (Column 9)
K. Effects of Policy on Payment Adjustment for Low-Volume
Hospitals
L. Impact Analysis of Table II
VII. Effects of Other Proposed Policy Changes
A. Effects of Proposed Policy on HACs, Including Infections
B. Effects of Proposed MS-LTC-DRG Reclassifications and Relative
Weights for LTCHs
C. Effects of Proposed Policy Change Relating to New Medical
Service and Technology Add-On Payments
D. Effects of Proposed Policy Change Regarding Postacute Care
Transfers to Home Health Services
E. Effects of Proposed Requirements for Hospital Reporting of
Quality Data for Annual Hospital Payment Update
F. Effects of Proposed Policy Change to Methodology for
Computing Core Staffing Factors for Volume Decrease Adjustment for
SCHs and MDHs
G. Effects of Proposed Clarification of Policy for Collection of
Risk Adjustment Data From MA Organizations
H. Effects of Proposed Policy Changes Relating to Hospital
Emergency Services under EMTALA
I. Effects of Implementation of Rural Community Hospital
Demonstration Program
J. Effects of Proposed Policy Changes Relating to Payments to
Hospitals-Within-Hospitals
K. Effects of Proposed Policy Changes Relating to Requirements
for Disclosure of Physician Ownership in Hospitals
L. Effects of Proposed Changes Relating to Physician Self-
Referral Provisions
M. Effects of Proposed Changes Relating to Reporting of
Financial Relationships Between Hospitals and Physicians
VIII. Effects of Proposed Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Alternatives Considered
X. Overall Conclusion
XI. Accounting Statement
XII. Executive Order 12866

Appendix B--Recommendation of Update Factors for Operating Cost Rates
of Payment for Inpatient Hospital Services

I. Background
II. Inpatient Hospital Update for FY 2009
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare

Appendix C--Disclosure of Financial Relationships Report (DFRR) Form

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 predetermined, specific rates for each hospital
discharge. Discharges are classified according to a list of diagnosis-
related groups (DRGs).
The base payment rate is comprised of a standardized amount that is
divided into a labor-related share and a nonlabor-related share. The
labor-related share is adjusted by the wage index applicable to the
area where the hospital is located. If the hospital is located in
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the
DRG relative weight.
If the hospital treats a high percentage of 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

[[Page 23534]]

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 in whole or in part based on their hospital-specific rate based on
their costs in a base year. For example, sole community hospitals
(SCHs) receive the higher of a hospital-specific rate based on their
costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or
the IPPS rate based on the standardized amount. Until FY 2007, a
Medicare-dependent, small rural hospital (MDH) has received the IPPS
rate plus 50 percent of the difference between the IPPS rate and its
hospital-specific rate if the hospital-specific rate based on their
costs in a base year (the higher of FY 1982, FY 1987, or FY 2002) is
higher than the IPPS 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. SCHs are the sole source of care in their
areas, and MDHs are a major source of care for Medicare beneficiaries
in their areas. Both of these categories of hospitals are afforded this
special payment protection in order to maintain access to services for
beneficiaries.
Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient hospital services ``in accordance
with a prospective payment system established by the Secretary.'' The
basic methodology for determining capital prospective payments is set
forth in our regulations at 42 CFR 412.308 and 412.312. Under the
capital IPPS, payments are adjusted by the same DRG for the case as
they are under the operating IPPS. Capital IPPS payments are also
adjusted for IME and DSH, similar to the adjustments made under the
operating IPPS. However, as discussed in section V.B.2. of this
preamble, we are phasing out the IME adjustment beginning with FY 2008.
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: Rehabilitation hospitals and units;
long-term care hospitals (LTCHs); psychiatric hospitals and units;
children's hospitals; and cancer hospitals. Religious nonmedical health
care institutions (RNHCIs) are also excluded from the IPPS. Various
sections of the Balanced Budget Act of 1997 (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 rehabilitation hospitals and units (referred to as inpatient
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and
units (referred to as inpatient psychiatric facilities (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, as amended, rehabilitation
hospitals and units (IRFs) have been transitioned from payment based on
a blend of reasonable cost reimbursement subject to a hospital-specific
annual limit under section 1886(b) of the Act and the adjusted facility
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, the LTCH PPS was effective
for a LTCH's first cost reporting period beginning on or after October
1, 2002. LTCHs that do not meet the definition of ``new'' under Sec.
412.23(e)(4) are paid, during a 5-year transition period, a LTCH
prospective payment that is comprised of an increasing proportion of
the LTCH Federal rate and a decreasing proportion based on reasonable
cost principles. Those LTCHs that did not meet the definition of
``new'' under Sec. 412.23(e)(4) could 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, all LTCHs are paid 100
percent of the Federal rate. The existing regulations governing payment
under the LTCH PPS are located in 42 CFR Part 412, Subpart O.
c. Inpatient Psychiatric Facilities (IPFs)
Under the authority of sections 124(a) and (c) of Pub. L. 106-113,
inpatient psychiatric facilities (IPFs) (formerly psychiatric hospitals
and psychiatric units of acute care hospitals) are paid under the IPF
PPS. For cost reporting periods beginning on or after January 1, 2008,
all IPFs are paid 100 percent of the Federal per diem payment amount
established under the IPF PPS. (For cost reporting periods beginning on
or after January 1, 2005, and ending on or before December 31, 2007,
some IPFs received transitioned payments for inpatient hospital
services based on a blend of reasonable cost-based payment and a
Federal per diem payment rate.) The existing regulations governing
payment under the IPF PPS are located in 42 CFR part 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 are 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

[[Page 23535]]

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)

Section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Pub. L.
109-171, requires the Secretary to develop a plan to implement,
beginning with FY 2009, a value-based purchasing plan for section
1886(d) hospitals defined in the Act. In section IV.C. of the preamble
of this proposed rule, we discuss the report to Congress on the
Medicare value-based purchasing plan and the current testing of the
plan.

C. Provisions of the Medicare Improvements and Extension Act Under
Division B, Title I of the Tax Relief and Health Care Act of 2006
(MIEA-TRHCA)

Section 106(b)(2) of the MIEA-TRHCA instructs the Secretary of
Health and Human Services to include in the FY 2009 IPPS proposed rule
one or more proposals to revise the wage index adjustment applied under
section 1886(d)(3)(E) of the Act for purposes of the IPPS. The
Secretary was also instructed to consider MedPAC's recommendations on
the Medicare wage index classification system in developing these
proposals. In section III. of the preamble of this proposed rule, we
discuss MedPAC's recommendations in a report to Congress and present
our proposed changes to the FY 2009 wage index in response to those
recommendations.

D. Provision of the TMA, Abstinence Education, and QI Programs
Extension Act of 2007

Section 7 of the TMA [Transitional Medical Assistance], Abstinence
Education, and QI [Qualifying Individuals] Programs Extension Act of
2007 (Pub. L. 110-90) provides for a 0.9 percent prospective
documentation and coding adjustment in the determination of
standardized amounts under the IPPS (except for MDHs and SCHs) for
discharges occurring during FY 2009. The prospective documentation and
coding adjustment was established in FY 2008 in response to the
implementation of an MS-DRG system under the IPPS that resulted in
changes in coding and classification that did not reflect real changes
in case-mix under section 1886(d) of the Act. We discuss our proposed
implementation of this provision in section II.D. of the preamble of
this proposed rule and in the Addendum and in Appendix A to this
proposed rule.

E. Major Contents of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the
Medicare IPPS for operating costs and for capital-related costs in FY
2009. We also are setting forth proposed changes relating to payments
for IME costs and payments to certain hospitals and units that continue
to be excluded from the IPPS and paid on a reasonable cost basis. In
addition, we are presenting proposed changes relating to disclosure to
patients of physician ownership and investment interests in hospitals,
proposed changes to our physician self-referral regulations, and a
solicitation of public comments on a proposed collection of information
regarding financial relationships between hospitals and physicians.
The following is a summary of the major changes that we are
proposing to make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of
Relative Weights
In section II. of the preamble to this proposed rule, we are
including--
Proposed changes to MS-DRG reclassifications based on our
yearly review.
Proposed application of the documentation and coding
adjustment to hospital-specific rates resulting from implementation of
the MS-DRG system.
Proposed changes to address the RTI reporting
recommendations on charge compression.
Proposed recalibrations of the MS-DRG relative weights.
We also are proposing to refine the hospital cost reports so that
charges for relatively inexpensive medical supplies are reported
separately from the costs and charges for more expensive medical
devices. This proposal would be applied to the determination of both
the IPPS and the OPPS relative weights as well as the calculation of
the ambulatory surgical center payment rates.
We are presenting a listing and discussion of additional hospital-
acquired conditions (HACs), including infections, that are being
proposed to be subject to the statutorily required quality adjustment
in MS-DRG payments for FY 2009.
We are presenting our evaluation and analysis of the FY 2009
applicants for add-on payments for high-cost new medical services and
technologies (including public input, as directed by Pub. L. 108-173,
obtained in a town hall meeting).
We are proposing the annual update of the MS-LTC-DRG
classifications and relative weights for use under the LTCH PPS for FY
2009.
2. Proposed Changes to the Hospital Wage Index
In section III. of the preamble to this proposed rule, we are
proposing revisions to the wage index and the annual update of the wage
data. Specific issues addressed include the following:
Proposed wage index reform changes in response to
recommendations made to Congress as a result of the wage index study
required under Pub. L. 109-432. We discuss changes related to
reclassifications criteria, application of budget neutrality in
reclassifications, and the rural floor and imputed floor budget
neutrality at the State level.
Changes to the CBSA designations.
The methodology for computing the proposed FY 2009 wage
index.
The proposed FY 2009 wage index update, using wage data
from cost reporting periods that began during FY 2006.
Analysis and implementation of the proposed FY 2009
occupational mix adjustment to the wage index.
Proposed revisions to the wage index based on hospital
redesignations and reclassifications.
The proposed adjustment to the wage index for FY 2009
based on commuting patterns of hospital employees who reside in a
county and work in a different area with a higher wage index.
The timetable for reviewing and verifying the wage data
used to compute the proposed FY 2009 wage index.
The proposed labor-related share for the FY 2009 wage
index, including the labor-related share for Puerto Rico.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble to this proposed rule, we discuss a
number of the provisions of the regulations in 42 CFR Parts 412, 413,
and 489, including the following:
Proposed changes to the postacute care transfer policy as
it relates to transfers to home with the provision of home health
services.
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Proposed changes in the collection of Medicare Advantage
(MA) encounter data that are used for computing the risk payment
adjustment made to MA organizations.
Discussion of the report to Congress on the Medicare
value-based purchasing

[[Page 23536]]

plan and current testing and further development of the plan.
Proposed changes to the methodology for determining core
staff values for the volume decrease payment adjustment for SCHs and
MDHs.
The proposed updated national and regional case-mix values
and discharges for purposes of determining RRC status.
The statutorily-required IME adjustment factor for FY 2009
and technical changes to the GME payment policies.
Proposed changes to policies on hospital emergency
services under EMTALA to address EMTALA Technical Advisory Group (TAG)
recommendations.
Solicitation of public comments on Medicare policies
relating to incentives for avoidable readmissions to hospitals.
Discussion of the fifth year of implementation of the
Rural Community Hospital Demonstration Program.
4. Proposed Changes to the IPPS for Capital-Related Costs
In section V. of the preamble to this proposed rule, we discuss the
payment policy requirements for capital-related costs and capital
payments to hospitals. We acknowledge the public comments that we
received on the phase-out of the capital teaching adjustment included
in the FY 2008 IPPS final rule with comment period, and again are
soliciting public comments on this phase-out in this proposed rule.
5. Proposed Changes to the Payment Rates for Excluded Hospitals and
Hospital Units: Rate-of-Increase Percentages
In section VI. of the preamble to this proposed rule, we discuss
proposed changes to payments to excluded hospitals and hospital units,
proposed changes for determining LTCH CCRs under the LTCH PPS,
including a discussion regarding changing the annual payment rate
update schedule for the LTCH PPS, and proposed changes to the
regulations on hospitals-within-hospitals.
6. Proposed Changes Relating to Disclosure of Physician Ownership in
Hospitals
In section VII. of the preamble of this proposed rule, we present
proposed changes to the regulations relating to the disclosure to
patients of physician ownership or investment interests in hospitals.
7. Proposed Changes and Solicitation of Comments on Physician Self-
Referrals Provisions
In section VIII. of the preamble of this proposed rule, we present
proposed changes to the policies on physician self-referrals relating
to the ``Stand in Shoes'' provision, In addition, we solicit public
comments regarding physician-owned implant companies and gainsharing
arrangements.
8. Proposed Collection of Information Regarding Financial Relationships
Between Hospitals and Physicians
In section IX. of the preamble of this proposed rule, we solicit
public comments on our proposed collection of information regarding
financial relationships between hospitals and physicians.
9. Determining Proposed Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the FY 2009
prospective payment rates for operating costs and capital-related
costs. We also establish the proposed threshold amounts for outlier
cases. In addition, we address the proposed update factors for
determining the rate-of-increase limits for cost reporting periods
beginning in FY 2009 for hospitals and hospital units excluded from the
PPS.
10. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of
the impact that the proposed changes would have on affected hospitals.
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
In Appendix B of this proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 2009 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. Disclosure of Financial Relationships Report (DFRR) Form
In Appendix C of this proposed rule, we present the reporting form
that we are proposing to use for the proposed collection of information
on financial relationships between hospitals and physicians discussed
in section IX, of the preamble of this proposed rule.
13. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a
report to Congress, no later than March 1 of each year, in which MedPAC
reviews and makes recommendations on Medicare payment policies.
MedPAC's March 2008 recommendations concerning hospital inpatient
payment policies address 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. We
address these recommendations in Appendix B of this proposed rule. For
further information relating specifically to the MedPAC March 2008
reports or to obtain a copy of the reports, contact MedPAC at (202)
220-3700 or visit MedPAC's Web site at: www.medpac.gov.

F. Public Comments Received on Issues in Related Rules

1. Comments on Phase-Out of the Capital Teaching Adjustment Under the
IPPS Included in the FY 2008 IPPS Final Rule With Comment Period
In the FY 2008 IPPS final rule with comment period, we solicited
public comments on our policy changes related to phase-out of the
capital teaching adjustment to the capital payment update under the
IPPS (72 FR 47401). We received approximately 90 timely pieces of
correspondence in response to our solicitation. (These public comments
may be viewed on the following Web site: http://www.cms.hhs.gov/
eRulemaking/ECCMSR/list.asp under file code CMS-1533-FC.) In section V.
of the preamble of this proposed rule, we acknowledge receipt of these
public comments and again solicit public comments on the phase-out in
this proposed rule. We will respond to the public comments received in
response to both the FY 2008 IPPS final rule with comment period and
this proposed rule in the FY 2009 IPPS final rule, which is scheduled
to be published in August 2008.
2. Policy Revisions Related to Medicare GME Group Affiliations for
Hospitals in Certain Declared Emergency Areas
We have issued two interim final rules with comment periods in the
Federal Register that modified the GME

[[Page 23537]]

regulations as they apply to Medicare GME affiliated groups to provide
for greater flexibility in training residents in approved residency
programs during times of disasters: on April 12, 2006 (71 FR 18654) and
on November 27, 2007 (72 FR 66892). We received a number of timely
pieces of correspondence in response to these interim final rules with
comment period. (The public comments that we received may be viewed on
the Web site at: http://www.cms.hhs.gov/eRulemaking/ECCMSR/list.asp
under the file codes CMS-1531-IFC1 and CMS-1531-IFC2, respectively.) We
will summarize and address these public comments in the FY 2009 IPPS
final rule, which is scheduled to be published in August 2008.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as DRGs) for inpatient
discharges and adjust payments under the IPPS based on appropriate
weighting factors assigned to each DRG. Therefore, under the IPPS, 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. MS-DRG Reclassifications

1. General
As discussed in the preamble to the FY 2008 IPPS final rule with
comment period (72 FR 47138), we focused our efforts in FY 2008 on
making significant reforms to the IPPS consistent with the
recommendations made by MedPAC in its ``Report to the Congress,
Physician-Owned Specialty Hospitals'' in March 2005. MedPAC recommended
that the Secretary refine the entire DRG system by taking into account
severity of illness and applying hospital-specific relative value
(HSRV) weights to DRGs.\1\ We began this reform process by adopting
cost-based weights over a 3-year transition period beginning in FY 2007
and making interim changes to the DRG system for FY 2007 by creating 20
new CMS DRGs and modifying 32 others across 13 different clinical areas
involving nearly 1.7 million cases. As described below in more detail,
these refinements were intermediate steps towards comprehensive reform
of both the relative weights and the DRG system that is occurring as we
undertook further study. For FY 2008, we adopted 745 new Medicare
Severity DRGs (MS-DRGs) to replace the CMS DRGs. We refer readers to
section II.D. of the FY 2008 IPPS final rule with comment period for a
full detailed discussion of how the MS-DRG system was established based
on severity levels of illness (72 FR 47141).
---------------------------------------------------------------------------

\1\ Medicare Payment Advisory Commission: Report to the
Congress, Physician-Owned Specialty Hospitals, March 25, page viii.
---------------------------------------------------------------------------

Currently, cases are classified into MS-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 MS-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 MS-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 to ensure 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 MS-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
2008, cases are assigned to one of 745 MS-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.
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 an MS-DRG. However, under the
most recent version of the Medicare GROUPER (Version 26.0), there are 9
MS-DRGs to

[[Page 23538]]

which cases are directly assigned on the basis of ICD-9-CM procedure
codes. These MS-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 MS-DRGs before they are classified to an MDC. The
table below lists the nine current pre-MDCs.

Pre-Major Diagnostic Categories (Pre-MDCs)
------------------------------------------------------------------------

------------------------------------------------------------------------
MS-DRG 103............................. Heart Transplant or Implant of
Heart Assist System.
MS-DRG 480............................. Liver Transplant and/or
Intestinal Transplant.
MS-DRG 481............................. Bone Marrow Transplant.
MS-DRG 482............................. Tracheostomy for Face, Mouth,
and Neck Diagnoses.
MS-DRG 495............................. Lung Transplant.
MS-DRG 512............................. Simultaneous Pancreas/Kidney
Transplant.
MS-DRG 513............................. Pancreas Transplant.
MS-DRG 541............................. ECMO or Tracheostomy with
Mechanical Ventilation 96+
Hours or Principal Diagnosis
Except for Face, Mouth, and
Neck Diagnosis with Major O.R.
MS-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
comorbidity (CC) or a major complication or comorbidity (MCC).
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 MS-DRG assignment for certain principal diagnoses. An example is
extracorporeal shock wave lithotripsy for patients with a principal
diagnosis of urinary stones. Lithotripsy procedures are not routinely
performed in an operating room. Therefore, lithotripsy codes are not
classified as O.R. procedures. However, our clinical advisors believe
that patients with urinary stones who undergo extracorporeal shock wave
lithotripsy should be considered similar to other patients who undergo
O.R. procedures. Therefore, we treat this group of patients similar to
patients undergoing O.R. procedures.
Once the medical and surgical classes for an MDC were formed, each
diagnosis class was evaluated to determine if complications or
comorbidities would consistently affect the consumption of hospital
resources. Each diagnosis was categorized into one of three severity
levels. These three levels include a major complication or comorbidity
(MCC), a complication or comorbidity (CC), or a non-CC. Physician
panels classified each diagnosis code based on a highly iterative
process involving a combination of statistical results from test data
as well as clinical judgment. As stated earlier, we refer readers to
section II.D. of the FY 2008 IPPS final rule with comment period for a
full detailed discussion of how the MS-DRG system was established based
on severity levels of illness (72 FR 47141).
A patient's diagnosis, procedure, discharge status, and demographic
information is entered 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 an MS-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 MS-DRG by the Medicare GROUPER software program.
The GROUPER program was developed as a means of classifying each case
into an MS-DRG on the basis of the diagnosis and procedure codes and,
for a limited number of MS-DRGs, demographic information (that is, sex,
age, and discharge status).
After cases are screened through the MCE and assigned to an MS-DRG
by the GROUPER, the PRICER software calculates a base MS-DRG payment.
The PRICER calculates the payment for each case covered by the IPPS
based on the MS-DRG relative weight and additional factors associated
with each hospital, such as IME and DSH payment adjustments. These
additional factors increase the payment amount to hospitals above the
base MS-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 MS-DRG
classification changes and to recalibrate the MS-DRG weights. However,
in the FY 2000 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
data should be submitted by mid-October for consideration in
conjunction with the next year's proposed rule. This date 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.
As we indicated above, for FY 2008, we made significant improvement
in the DRG system to recognize severity of illness and resource usage
by adopting MS-DRGs. The changes we adopted were reflected in the FY
2008 GROUPER, Version 25.0, and were effective for discharges occurring
on or after October 1, 2007. Our DRG analysis for the FY 2008 final
rule with comment period was based on data from the March 2007 update
of the FY 2006 MedPAR file, which contained hospital bills received
through March 31, 2007, for discharges occurring through September 30,
2006. For this proposed rule, for FY 2009, our DRG analysis is based on
data from the September 2007 update of the FY 2007 MedPAR file, which
contains hospital bills received through September 30, 2007, for
discharges through September 30, 2007.
2. Yearly Review for Making MS-DRG Changes
Many of the changes to the MS-DRG classifications we make annually
are the result of specific issues brought to our attention by
interested parties. We encourage individuals with concerns about MS-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 and, if included, may be subjected to public
review and comment. Therefore, similar to the

[[Page 23539]]

timetable for interested parties to submit non-MedPAR data for
consideration in the MS-DRG recalibration process, concerns about MS-
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 MS-DRGs was, and will likely
continue to be, highly iterative, involving a combination of
statistical results from test data combined with clinical judgment. In
the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described
in detail the process we used to develop the MS-DRGs that we adopted
for FY 2008. In addition, in deciding whether to make further
modification to the MS-DRGs for particular circumstances brought to our
attention, we considered whether the resource consumption and clinical
characteristics of the patients with a given set of conditions are
significantly different than the remaining patients in the MS-DRG. We
evaluated patient care costs using average charges and lengths of stay
as proxies for costs and relied on the judgment of our medical advisors
to decide whether patients are clinically distinct or similar to other
patients in the MS-DRG. In evaluating resource costs, we considered
both the absolute and percentage differences in average charges between
the cases we selected for review and the remainder of cases in the MS-
DRG. We also considered variation in charges within these groups; that
is, whether observed average differences were consistent across
patients or attributable to cases that were extreme in terms of charges
or length of stay, or both. Further, we considered the number of
patients who will have a given set of characteristics and generally
preferred not to create a new MS-DRG unless it would include a
substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed
a number of recommendations made by MedPAC regarding revisions to the
DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881
through 47939; and 72 FR 47140 through 47189). 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.
For FY 2007, we began this process. In the FY 2007 IPPS proposed
rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY
2008 (if not earlier). However, based on public comments received on
the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs.
Rather, we decided to make interim changes to the existing DRGs for FY
2007 by creating 20 new DRGs involving 13 different clinical areas that
would significantly improve the CMS DRG system's recognition of
severity of illness. We also modified 32 DRGs to better capture
differences in severity. The new and revised DRGs were selected from 40
existing CMS DRGs that contained 1,666,476 cases and represent a number
of body systems. In creating these 20 new DRGs, we deleted 8 and
modified 32 existing DRGs. We indicated that these interim steps for FY
2007 were being taken as a prelude to more comprehensive changes to
better account for severity in the DRG system by FY 2008.
In the FY 2007 IPPS final rule, we indicated our intent to pursue
further DRG reform through two initiatives. First, we announced that we
were in the process of engaging a contractor to assist us with
evaluating alternative DRG systems that were raised as potential
alternatives to the CMS DRGs in the public comments. Second, we
indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as
part of making further refinements to the current CMS DRGs to better
recognize severity of illness based on the work that CMS (then HCFA)
did in the mid-1990's in connection with adopting severity DRGs. We
describe below the progress we have made on these two initiatives, our
actions for FY 2008, and our proposals for FY 2009 based on our
continued analysis of reform of the DRG system. We note that the
adoption of the MS-DRGs to better recognize severity of illness has
implications for the outlier threshold, the application of the
postacute care transfer policy, the measurement of real case-mix versus
apparent case-mix, and the IME and DSH payment adjustments. We discuss
these implications for FY 2009 in other sections of this preamble and
in the Addendum to this proposed rule.
In the FY 2007 IPPS proposed rule, we discussed MedPAC's
recommendations to move to a cost-based HSRV weighting methodology
using HSRVs beginning with the FY 2007 IPPS proposed rule for
determining the DRG relative weights. Although we proposed to adopt the
HSRV weighting methodology for FY 2007, we decided not to adopt the
proposed methodology in the final rule after considering the public
comments we received on the proposal. Instead, in the FY 2007 IPPS
final rule, we adopted a cost-based weighting methodology without the
HSRV portion of the proposed methodology. The cost-based weights are
being adopted over a 3-year transition period in \1/3\ increments
between FY 2007 and FY 2009. In addition, in the FY 2007 IPPS final
rule, we indicated our intent to further study the HSRV-based
methodology as well as other issues brought to our attention related to
the cost-based weighting methodology adopted in the FY 2007 final rule.
There was significant concern in the public comments that our cost-
based weighting methodology does not adequately account for charge
compression--the practice of applying a higher percentage charge markup
over costs to lower cost items and services and a lower percentage
charge markup over costs to higher cost items and services. Further,
public commenters expressed concern about potential inconsistencies
between how costs and charges are reported on the Medicare cost reports
and charges on the Medicare claims. In the FY 2007 IPPS final rule, we
used costs and charges from the cost report to determine departmental
level cost-to-charge ratios (CCRs) which we then applied to charges on
the Medicare claims to determine the cost-based weights. The commenters
were concerned about potential distortions to the cost-based weights
that would result from inconsistent reporting between the cost reports
and the Medicare claims. After publication of the FY 2007 IPPS final
rule, we entered into a contract with RTI International (RTI) to study
both charge compression and to what extent our methodology for
calculating DRG relative weights is affected by inconsistencies between
how hospitals report costs and charges on the cost reports and how
hospitals report charges on individual claims. Further, as part of its
study of alternative DRG systems, the RAND Corporation analyzed the
HSRV cost-weighting methodology. We refer readers to section II.E. of
the preamble of this proposed rule for our proposals for addressing the
issue of charge compression and the HSRV cost-weighting methodology for
FY 2009.
We believe that revisions to the DRG system to better recognize
severity of

[[Page 23540]]

illness and changes to the relative weights based on costs rather than
charges are improving the accuracy of the payment rates in the IPPS. We
agree with MedPAC that these refinements should be pursued. Although we
continue to caution that any prospective payment system based on
grouping cases will always present some opportunities for providers to
specialize in cases they believe have higher margins, we believe that
the changes we have adopted and the continuing reforms we are proposing
in this proposed rule for FY 2009 will improve payment accuracy and
reduce financial incentives to create specialty hospitals.
We refer readers to section II.D. of the FY 2008 IPPS final rule
with comment period for a full discussion of how the MS-DRG system was
established based on severity levels of illness (72 FR 47141).

D. MS-DRG Documentation and Coding Adjustment, Including the
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount

1. MS-DRG Documentation and Coding Adjustment
As stated above, we adopted the new MS-DRG patient classification
system for the IPPS, effective October 1, 2007, to better recognize
severity of illness in Medicare payment rates. Adoption of the MS-DRGs
resulted in the expansion of the number of DRGs from 538 in FY 2007 to
745 in FY 2008. By increasing the number of DRGs and more fully taking
into account severity of illness in Medicare payment rates, the MS-DRGs
encourage hospitals to improve their documentation and coding of
patient diagnoses. In the FY 2008 IPPS final rule with comment period
(72 FR 47175 through 47186), which appeared in the Federal Register on
August 22, 2007, we indicated that we believe the adoption of the MS-
DRGs had the potential to lead to increases in aggregate payments
without a corresponding increase in actual patient severity of illness
due to the incentives for improved documentation and coding. In that
final rule with comment period, using the Secretary's authority under
section 1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by
adjusting the standardized amount to eliminate the effect of changes in
coding or classification that do not reflect real change in case-mix,
we established prospective documentation and coding adjustments of -1.2
percent for FY 2008, -1.8 percent for FY 2009, and -1.8 percent for FY
2010.
On September 29, 2007, the TMA, Abstinence Education, and QI
Programs Extension Act of 2007, Pub. L. 110-90, was enacted. Section 7
of Pub. L. 110-90 included a provision that reduces the documentation
and coding adjustment for the MS-DRG system that we adopted in the FY
2008 IPPS final rule with comment period to -0.6 percent for FY 2008
and -0.9 percent for FY 2009. To comply with the provision of section 7
of Pub. L. 110-90, in a final rule that appeared in the Federal
Register on November 27, 2007 (72 FR 66886), we changed the IPPS
documentation and coding adjustment for FY 2008 to -0.6 percent, and
revised the FY 2008 payment rates, factors, and thresholds accordingly,
with these revisions effective October 1, 2007.
For FY 2009, Pub. L. 110-90 requires a documentation and coding
adjustment of -0.9 percent instead of the -1.8 percent adjustment
specified in the FY 2008 IPPS final rule with comment period. As
required by statute, we are applying a documentation and coding
adjustment of -0.9 percent to the FY 2009 IPPS national standardized
amounts. The documentation and coding adjustments established in the FY
2008 IPPS final rule with comment period are cumulative. As a result,
the -0.9 percent documentation and coding adjustment in FY 2009 is in
addition to the -0.6 percent adjustment in FY 2008, yielding a combined
effect of -1.5 percent.
2. Application of the Documentation and Coding Adjustment to the
Hospital-Specific Rates
Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on
whichever of the following rates yields the greatest aggregate payment:
The Federal national rate; the updated hospital-specific rate based on
FY 1982 costs per discharge; the updated hospital-specific rate based
on FY 1987 costs per discharge; or the updated hospital-specific rate
based on FY 1996 costs per discharge. Under section 1886(d)(5)(G) of
the Act, MDHs are paid based on the Federal national rate or, if
higher, the Federal national rate plus 75 percent of the difference
between the Federal national rate and the updated hospital-specific
rate based on the greater of either the FY 1982, 1987, or 2002 costs
per discharge. In the FY 2008 IPPS final rule with comment period, we
established a policy of applying the documentation and coding
adjustment to the hospital-specific rates. In that rule, we indicated
that because SCHs and MDHs use the same DRG system as all other
hospitals, we believe they should be equally subject to the budget
neutrality adjustment that we are applying for adoption of the MS-DRGs
to all other hospitals. In establishing this policy, we cited our
authority under section 1886(d)(3)(A)(vi) of the Act, which provides
the authority to adjust ``the standardized amount'' to eliminate the
effect of changes in coding or classification that do not reflect real
change in case-mix. However, in a final rule that appeared in the
Federal Register on November 27, 2007 (72 FR 66886), we rescinded the
application of the documentation and coding adjustment to the hospital-
specific rates retroactive to October 1, 2007. In that final rule, we
indicated that, while we still believe it would be appropriate to apply
the documentation and coding adjustment to the hospital-specific rates,
upon further review we decided that application of the documentation
and coding adjustment to the hospital-specific rates is not consistent
with the plain meaning of section 1886(d)(3)(A)(vi) of the Act, which
only mentions adjusting ``the standardized amount'' and does not
mention adjusting the hospital-specific rates.
We continue to have concerns about this issue. Because hospitals
paid based on the hospital-specific rate use the same MS-DRG system as
other hospitals, we believe they have the potential to realize
increased payments from coding improvements that do not reflect real
increases in patients' severity of illness. In section
1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid
based on the standardized amount should not receive additional payments
based on the effect of documentation and coding changes that do not
reflect real changes in case-mix. Similarly, we believe that hospitals
paid based on the hospital-specific rate should not have the potential
to realize increased payments due to documentation and coding
improvements that do not reflect real increases in patients' severity
of illness. While we continue to believe that section 1886(d)(3)(A)(vi)
of the Act does not provide explicit authority for application of the
documentation and coding adjustment to the hospital-specific rates, we
believe that we have the authority to apply the documentation and
coding adjustment to the hospital-specific rates using our special
exceptions and adjustment authority under section 1886(d)(5)(I)(i) of
the Act. The special exceptions and adjustment authority authorizes us
to provide ``for such other exceptions and adjustments to [IPPS]
payment amounts * * * as the Secretary deems appropriate.'' In light of
this authority, for the FY 2010 rulemaking, we plan to

[[Page 23541]]

examine our FY 2008 claims data for hospitals paid based on the
hospital-specific rate. If we find evidence of significant increases in
case-mix for patients treated in these hospitals, we would consider
proposing application of the documentation and coding adjustments to
the FY 2010 hospital-specific rates under our authority in section
1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and
coding adjustments established in the FY 2008 IPPS final rule with
comment period are cumulative. For example, the -0.9 percent
documentation and coding adjustment to the national standardized amount
in FY 2009 is in addition to the -0.6 percent adjustment made in FY
2008, yielding a combined effect of -1.5 percent in FY 2009. Given the
cumulative nature of the documentation and coding adjustments, if we
were to propose to apply the documentation and coding adjustment to the
FY 2010 hospital-specific rates, it may involve applying the FY 2008
and FY 2009 documentation and coding adjustments (-1.5 percent
combined) plus the FY 2010 documentation and coding adjustment,
discussed in the FY 2008 IPPS final rule with comment period, to the FY
2010 hospital-specific rates.
3. Application of the Documentation and Coding Adjustment to the Puerto
Rico-Specific Standardized Amount
Puerto Rico hospitals are paid based on 75 percent of the national
standardized amount and 25 percent of the Puerto Rico-specific
standardized amount. As noted previously, the documentation and coding
adjustment we adopted in the FY 2008 IPPS final rule with comment
period relied upon our authority under section 1886(d)(3)(A)(vi) of the
Act, which provides the authority to adjust ``the standardized amounts
computed under this paragraph'' to eliminate the effect of changes in
coding or classification that do not reflect real change in case-mix.
Section 1886(d)(3)(A)(vi) of the Act applies to the national
standardized amounts computed under section 1886(d)(3) of the Act, but
does not apply to the Puerto Rico-specific standardized amount computed
under section 1886(d)(9)(C) of the Act. In calculating the FY 2008
payment rates, we made an inadvertent error and applied the FY 2008 -
0.6 percent documentation and coding adjustment to the Puerto Rico-
specific standardized amount, relying on our authority under section
1886(d)(3)(A)(vi) of the Act. We are currently in the process of
developing a Federal Register notice to correct that error in the
Puerto Rico-specific standardized amount for FY 2008 retroactive to
October 1, 2007.
While section 1886(d)(3)(A)(vi) of the Act is not applicable to the
Puerto Rico-specific standardized amount, we believe that we have the
authority to apply the documentation and coding adjustment to the
Puerto Rico-specific standardized amount using our special exceptions
and adjustment authority under section 1886(d)(5)(I)(i) of the Act.
Similar to SCHs and MDHs that are paid based on the hospital-specific
rate, discussed in section II.D.2. of this preamble, we believe that
Puerto Rico hospitals that are paid based on the Puerto Rico-specific
standardized amount should not have the potential to realize increased
payments due to documentation and coding improvements that do not
reflect real increases in patients' severity of illness. Consistent
with the approach described for SCHs and MDHs in section II.D.2. of the
preamble of this proposed rule, for the FY 2010 rulemaking, we plan to
examine our FY 2008 claims data for hospitals in Puerto Rico. If we
find evidence of significant increases in case-mix for patients treated
in these hospitals, we would consider proposing application of the
documentation and coding adjustments to the FY 2010 Puerto Rico-
specific standardized amount under our authority in section
1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and
coding adjustments established in the FY 2008 IPPS final rule with
comment period are cumulative. Given the cumulative nature of the
documentation and coding adjustments, if we were to propose to apply
the documentation and coding adjustment to the FY 2010 Puerto Rico-
specific standardized amount, it may involve applying the FY 2008 and
FY 2009 documentation and coding adjustments (-1.5 percent combined)
plus the FY 2010 documentation and coding adjustment, discussed in the
FY 2008 IPPS final rule with comment period, to the FY 2010 Puerto
Rico-specific standardized amount.
4. Potential Additional Payment Adjustments in FYs 2010 Through 2012
Section 7 of Pub. L.110-90 also provides for payment adjustments in
FYs 2010 through 2012 based upon a retrospective evaluation of claims
data from the implementation of the MS-DRG system. If, based on this
retrospective evaluation, the Secretary finds that in FY 2008 and FY
2009, the actual amount of change in case-mix that does not reflect
real change in underlying patient severity differs from the statutorily
mandated documentation and coding adjustments implemented in those
years, the law requires the Secretary to adjust payments for discharges
occurring in FYs 2010 through 2012 to offset the estimated amount of
increase or decrease in aggregate payments that occurred in FY 2008 and
FY 2009 as a result of that difference, in addition to making an
appropriate adjustment to the standardized amount under section
1886(d)(3)(A)(vi) of the Act.
In order to implement these requirements of section 7 of Pub. L.
110-90, we are planning a thorough retrospective evaluation of our
claims data. Results of this evaluation would be used by our actuaries
to determine any necessary payment adjustments in FYs 2010 through 2012
to ensure the budget neutrality of the MS-DRG implementation for FY
2008 and FY 2009, as required by law. We are currently developing our
analysis plans for this effort.
We intend to measure and corroborate the extent of the overall
national average changes in case-mix for FY 2008 and FY 2009. We expect
part of this overall national average change would be attributable to
underlying changes in actual patient severity and part would be
attributable to documentation and coding improvements under the MS-DRG
system. In order to separate the two effects, we plan to isolate the
effect of shifts in cases among base DRGs from the effect of shifts in
the types of cases within base DRGs. The shifts among base DRGs are the
result of changes in principal diagnoses while the shifts within base
DRGs are the result of changes in secondary diagnoses. Because we
expect most of the documentation and coding improvements under the MS-
DRG system will occur in the secondary diagnoses, the shifts among base
DRGs are less likely to be the result of the MS-DRG system and the
shifts within base DRGs are more likely to be the result of the MS-DRG
system. We also anticipate evaluating data to identify the specific MS-
DRGs and diagnoses that contributed significantly to the improved
documentation and coding payment effect and to quantify their impact.
This step would entail analysis of the secondary diagnoses driving the
shifts in severity within specific base DRGs.
While we believe that the data analysis plan described previously
will produce an appropriate estimate of the extent of case-mix changes
resulting from documentation and coding improvements, we may also
decide, if feasible, to use historical data from our Hospital Payment
Monitoring Program

[[Page 23542]]

(HPMP) to corroborate the within base DRG shift analysis. The HPMP is
supported by the Medicare Clinical Data Abstraction Center (CDAC). From
1999 to 2007, the CDAC obtained medical records for a sample of
discharges as part of our hospital monitoring activities. These data
were collected on a random sample of between 30,000 to 50,000 hospital
discharges per year. The historical CDAC data could be used to develop
an upper bound estimate of the trend in real case-mix growth (that is,
real change in underlying patient severity) prior to implementation of
the MS-DRGs.
We welcome public comments on our analysis plans, as well as
suggestions on other possible approaches for conducting a retrospective
analysis to identify the amount of case-mix changes that occurred in FY
2008 and FY 2009 that did not reflect real increases in patients'
severity of illness. Our analysis, findings, and any resulting
proposals to adjust payments for discharges occurring in FYs 2010
through 2012 to offset the estimated amount of increase or decrease in
aggregate payments that occurred in FY 2008 and FY 2009 will be
discussed in future years' rulemakings.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
In the FY 2008 IPPS final rule with comment period (72 FR 47188),
we continued to implement significant revisions to Medicare's inpatient
hospital rates by basing relative weights on hospitals' estimated costs
rather than on charges. We continued our 3-year transition from charge-
based relative weights to cost-based relative weights. Beginning in FY
2007, we implemented relative weights based on cost report data instead
of based on charge information. We had initially proposed to develop
cost-based relative weights using the hospital-specific relative value
cost center (HSRVcc) methodology as recommended by MedPAC. However,
after considering concerns raised in the public comments, we modified
MedPAC's methodology to exclude the hospital-specific relative weight
feature. Instead, we developed national CCRs based on distinct hospital
departments and engaged a contractor to evaluate the HSRVcc methodology
for future consideration. To mitigate payment instability due to the
adoption of cost-based relative weights, we decided to transition cost-
based weights over 3 years by blending them with charge-based weights
beginning in FY 2007. In FY 2008, we continued our transition by
blending the relative weights with one-third charge-based weights and
two-thirds cost-based weights.
Also, in FY 2008, we adopted severity-based MS-DRGs, which
increased the number of DRGs from 538 to 745. Many commenters raised
concerns as to how the transition from charge-based weights to cost-
based weights would continue with the introduction of new MS-DRGs. We
decided to implement a 2-year transition for the MS-DRGs to coincide
with the remainder of the transition to cost-based relative weights. In
FY 2008, 50 percent of the relative weight for each DRG was based on
the CMS DRG relative weight and 50 percent was based on the MS-DRG
relative weight. We refer readers to the FY 2007 IPPS final rule (71 FR
47882) for more detail on our final policy for calculating the cost-
based DRG relative weights and to the FY 2008 IPPS final rule with
comment period (72 FR 47199) for information on how we blended relative
weights based on the CMS DRGs and MS-DRGs.
As we transitioned to cost-based relative weights, some commenters
raised concerns about potential bias in the weights due to ``charge
compression,'' which is the practice of applying a higher percentage
charge markup over costs to lower cost items and services, and a lower
percentage charge markup over costs to higher cost items and services.
As a result, the cost-based weights would undervalue high cost items
and overvalue low cost items if a single CCR is applied to items of
widely varying costs in the same cost center. To address this concern,
in August 2006, we awarded a contract to RTI to study the effects of
charge compression in calculating the relative weights and to consider
methods to reduce the variation in the CCRs across services within cost
centers. RTI issued an interim draft report in March 2007 which was
posted on the CMS Web site with its findings on charge compression. In
that report, RTI found that a number of factors contribute to charge
compression and affect the accuracy of the relative weights. RTI found
inconsistent matching of charges in the Medicare cost report and their
corresponding charges in the MedPAR claims for certain cost centers. In
addition, there was inconsistent reporting of costs and charges among
hospitals. For example, some hospitals would report costs and charges
for devices and medical supplies in the Medical Supplies Charged to
Patients cost center, while other hospitals would report those costs
and charges in their related ancillary departments such as Operating
Room or Radiology. RTI also found evidence that certain revenue codes
within the same cost center had significantly different markup rates.
For example, within the Medicare Supplies Charged to Patients cost
center, revenue codes for devices, implantables, and prosthetics had
different markup rates than the other medical supplies in that cost
center. RTI's findings demonstrated that charge compression exists in
several CCRs, most notably in the Medical Supplies and Equipment CCR.
RTI offered short-term, medium-term, and long-term recommendations
to mitigate the effects of charge compression. RTI's short-term
recommendations included expanding the distinct hospital CCRs to 19 by
disaggregating the ``Emergency Room'' and ``Blood and Blood Products''
from the Other Services cost center and by estimating regression-based
CCRs to disaggregate Medical Supplies, Drugs, and Radiology cost
centers. RTI recommended, for the medium-term, to expand the MedPAR
file to include separate fields that disaggregate several existing
charge departments. In addition, RTI recommended improving hospital
cost reporting instructions so that hospitals can properly report costs
in the appropriate cost centers. RTI's long-term recommendations
included adding new cost centers to the Medicare cost report, such as
adding a ``Devices, Implants and Prosthetics'' line under ``Medical
Supplies Charged to Patients'' and a ``CT Scanning and MRI''
subscripted line under ``Radiology-Diagnostics''.
Among RTI's short-term recommendations, for FY 2008, we expanded
the number of distinct hospital department CCRs from 13 to 15 by
disaggregating ``Emergency Room'' and ``Blood and Blood Products'' from
the Other Services cost center as these lines already exist on the
hospital cost report. Furthermore, in an effort to improve consistency
between costs and their corresponding charges in the MedPAR file, we
moved the costs for cases involving electroencephalography (EEG) from
the Cardiology cost center to the Laboratory cost center group which
corresponds with the EEG MedPAR claims categorized under the Laboratory
charges. We also agreed with RTI's recommendations to revise the
Medicare cost report and the MedPAR file as a long-term solution for
charge compression. We stated that, in the upcoming year, we would
consider additional lines to the cost report and additional revenue
codes for the MedPAR file.
We did not adopt RTI's short-term recommendation to create four

[[Page 23543]]

additional regression-based CCRs for several reasons, even though we
had received comments in support of the regression-based CCRs as a
means to immediately resolve the problem of charge compression,
particularly within the Medical Supplies and Equipment CCR. We were
concerned that RTI's analysis was limited to charges on hospital
inpatient claims while typically hospital cost report CCRs combine both
inpatient and outpatient services. Further, because both the IPPS and
OPPS rely on cost-based weights, we preferred to introduce any
methodological adjustments to both payment systems at the same time. We
have since expanded RTI's analysis of charge compression to incorporate
outpatient services. RTI has been evaluating the cost estimation
process for the OPPS cost-based weights, including a reassessment of
the regression-based CCR models using both outpatient and inpatient
charge data. The RTI report was finalized at the conclusion of our
proposed rule development process and is expected to be posted on the
CMS Web site in the near future. We welcome comments on this report.
A second reason that we did not implement regression-based CCRs at
the time of the FY 2008 IPPS final rule with comment period was our
inability to investigate how regression-based CCRs would interact with
the implementation of MS-DRGs. We stated that we would consider the
results of the second phase of the RAND study as we prepared for the FY
2009 IPPS rulemaking process. The purpose of the RAND study was to
analyze how the relative weights would change if we were to adopt
regression-based CCRs to address charge compression while
simultaneously adopting an HSRV methodology using fully phased-in MS-
DRGs. We had intended to include a detailed discussion of RAND's study
in this FY 2009 IPPS proposed rule. However, due to some delays in
releasing identifiable data to the contractor under revised data
security rules, the report on this second stage of RAND's analysis was
not completed in time for the development of this proposed rule.
Therefore, we continue to have the same concerns with respect to
uncertainty about how regression-based CCRs would interact with the MS-
DRGs or an HSRV methodology. Therefore, we are not proposing to adopt
the regression-based CCRs or an HSRV methodology in this FY 2009 IPPS
proposed rule. Nevertheless, we welcome public comments on our
proposals not to adopt regression-based CCRs or an HSRV methodology at
this time or in the future. The RAND report on regression-based CCRs
and the HSRV methodology was finalized at the conclusion of our
proposed rule development process and is expected to be posted on the
CMS Web site in the near future. Although we are unable to include a
discussion of the results of the RAND study in this proposed rule, we
welcome public comment on the report.
Finally, we received public comments on the FY 2008 IPPS proposed
rule raising concerns on the accuracy of using regression-based CCR
estimates to determine the relative weights rather than the Medicare
cost report. Commenters noted that regression-based CCRs would not fix
the underlying mismatch of hospital reporting of costs and charges.
Instead, the commenters suggested that the impact of charge compression
might be mitigated through an educational initiative that would
encourage hospitals to improve their cost reporting. Commenters
recommended that hospitals be educated to report costs and charges in a
way that is consistent with how charges are grouped in the MedPAR file.
In an effort to achieve this goal, hospital associations have launched
an educational campaign to encourage consistent reporting, which would
result in consistent groupings of the cost centers used to establish
the cost-based relative weights. The commenters requested that CMS
communicate to the fiscal intermediaries/MACs that such action is
appropriate. In the FY 2008 IPPS final rule with comment period, we
stated that we were supportive of the educational initiative of the
industry, and we encouraged hospitals to report costs and charges
consistently with how the data are used to determine relative weights
(72 FR 47196). We would also like to affirm that the longstanding
Medicare principles of cost apportionment at 42 CFR 413.53 convey that,
under the departmental method of apportionment, the cost of each
ancillary department is to be apportioned separately rather than being
combined with another ancillary department (for example, combining the
cost of Medical Supplies Charged to Patients with the costs of
Operating Room or any other ancillary cost center. (We note that,
effective for cost reporting periods starting on or after January 1,
1979, the departmental method of apportionment replaced the combination
method of apportionment where all the ancillary departments were
apportioned in the aggregate (Section 2200.3 of the Provider
Reimbursement Manual (PRM), Part I).)
Furthermore, longstanding Medicare cost reporting policy has been
that hospitals must include the cost and charges of separately
``chargeable medical supplies'' in the Medical Supplies Charged to
Patients cost center (line 55 of Worksheet A), rather than in the
Operating Room, Emergency Room, or other ancillary cost centers.
Routine services, which can include ``minor medical and surgical
supplies'' (Section 2202.6 of the PRM, Part 1), and items for which a
separate charge is not customarily made, may be directly assigned
through the hospital's accounting system to the department in which
they were used, or they may be included in the Central Services and
Supply cost center (line 15 of Worksheet A). Conversely, the separately
chargeable medical supplies should be assigned to the Medical Supplies
Charged to Patients cost center on line 55.
We note that not only is accurate cost reporting important for IPPS
hospitals to ensure that accurate relative weights are computed, but
hospitals that are still paid on the basis of cost, such as CAHs and
cancer hospitals, and SCHs and MDHs must adhere to Medicare cost
reporting principles as well.
The CY 2008 OPPS/ASC final rule with comment period (72 FR 66601)
also discussed the issue of charge compression and regression-based
CCRs, and noted that RTI is currently evaluating the cost estimation
process underpinning the OPPS cost-based weights, including a
reassessment of the regression models using both outpatient and
inpatient charges, rather than inpatient charges only. In responding to
comments in the CY 2008 OPPS/ASC final rule with comment period, we
emphasized that we ``fully support'' the educational initiatives of the
industry and that we would ``examine whether the educational activities
being undertaken by the hospital community to improve cost reporting
accuracy under the IPPS would help to mitigate charge compression under
the OPPS, either as an adjunct to the application of regression-based
CCRs or in lieu of such an adjustment'' (72 FR 66601). However, as we
stated in the FY 2008 IPPS final rule with comment period that we would
consider the results of the RAND study before considering whether to
adopt regression-based CCRs, in the CY 2008 OPPS/ASC final rule with
comment period, we stated that we would determine whether refinements
should be proposed, after reviewing the results of the RTI study.
On February 29, 2008, we issued Transmittal 321, Change Request
5928, to inform the fiscal intermediaries/

[[Page 23544]]

MACs of the hospital associations' initiative to encourage hospitals to
modify their cost reporting practices with respect to costs and charges
in a manner that is consistent with how charges are grouped in the
MedPAR file. We noted that the hospital cost reports submitted for FY
2008 may have costs and charges grouped differently than in prior
years, which is allowable as long as the costs and charges are properly
matched and the Medicare cost reporting instructions are followed.
Furthermore, we recommended that fiscal intermediaries/MACs remain
vigilant to ensure that the costs of items and services are not moved
from one cost center to another without moving their corresponding
charges. Due to a time lag in submittal of cost reporting data, the
impact of changes in providers' cost reporting practices occurring
during FY 2008 would be reflected in the FY 2011 IPPS relative weights.
2. Refining the Medicare Cost Report
In developing this FY 2009 proposed rule, we considered whether
there were concrete steps we could take to mitigate the bias introduced
by charge compression in both the IPPS and OPPS relative weights in a
way that balance hospitals' desire to focus on improving the cost
reporting process through educational initiatives with device industry
interest in adopting regression-adjusted CCRs. Although RTI recommended
adopting regression-based CCRs, particularly for medical supplies and
devices, as a short-term solution to address charge compression, RTI
also recommended refinements to the cost report as a long-term
solution. RTI's draft interim March 2007 report discussed a number of
options that could improve the accuracy and precision of the CCRs
currently being derived from the Medicare cost report and also reduce
the need for statistically-based adjustments. As mentioned in the FY
2008 IPPS final rule with comment period (72 FR 47193), we believe that
RTI and many of the public commenters on the FY 2008 IPPS proposed rule
concluded that, ultimately, improved and more precise cost reporting is
the best way to minimize charge compression and improve the accuracy of
cost weights. Therefore, in this proposed rule, we are proposing to
begin making cost report changes geared to improving the accuracy of
the IPPS and OPPS relative weights. However, we also received comments
last year asking that we proceed cautiously with changing the Medicare
cost report to avoid unintended consequences for hospitals that are
paid on a cost basis (such as CAHs and, to some extent, SCHs and MDHs),
and to consider the administrative burden associated with adapting to
new cost reporting forms and instructions. Accordingly, we are
proposing to focus at this time on the CCR for Medical Supplies and
Equipment because RTI found that the largest impact on the relative
weights could result from correcting charge compression for devices and
implants. When examining markup differences within the Medical Supplies
Charged to Patients cost center, RTI found that its ``regression
results provide solid evidence that if there were distinct cost centers
for items, cost ratios for devices and implants would average about 17
points higher than the ratios for other medical supplies'' (January
2007 RTI report, page 59). This suggests that much of the charge
compression within the Medical Supplies CCR results from inclusion of
medical devices that have significantly different markups than the
other supplies in that CCR. Furthermore, in the FY 2007 final rule and
FY 2008 IPPS final rule with comment period, the Medical Supplies and
Equipment CCR received significant attention by the public commenters.
Although we are proposing to make improvements to lessen the
effects of charge compression only on the Medical Supplies and
Equipment CCR as a first step, we are inviting public comments as to
whether to make other changes to the Medicare cost report to refine
other CCRs. In addition, we are open to making further refinements to
other CCRs in the future. Therefore, we are proposing at this time to
add only one cost center to the cost report, such that, in general, the
costs and charges for relatively inexpensive medical supplies would be
reported separately from the costs and charges of more expensive
devices (such as pacemakers and other implantable devices). We will
consider public comments submitted on this proposed rule for purposes
of both the IPPS and the OPPS relative weights and, by extension, the
calculation of the ambulatory surgical center (ASC) payment rates.
Under the IPPS for FY 2007 and FY 2008, the aggregate CCR for
supplies and equipment was computed based on line 55 for Medical
Supplies Charged to Patients and lines 66 and 67 for DME Rented and DME
Sold, respectively. To compute the 15 national CCRs used in developing
the cost-based weights under the IPPS (explained in more detail under
section II.H. of the preamble of this proposed rule), we take the costs
and charges for the 15 cost groups from Worksheet C, Part I of the
Medicare cost report for all hospital patients and multiply each of
these 15 CCRs by the Medicare charges on Worksheet D-4 for those same
cost centers to impute the Medicare cost for each of the 15 cost
groups. Under this proposal, the goal would be to split the current CCR
for Medical Supplies and Equipment into one CCR for medical supplies,
and another CCR for devices and DME Rented and DME Sold.
In considering how to instruct hospitals on what to report in the
cost center for supplies and the cost center for devices, we looked at
the existing criteria for what type of device qualifies for payment as
a transitional pass-through device category in the OPPS. (There are no
such existing criteria for devices under the IPPS.) The provisions of
the regulations under Sec. 419.66(b) state that for a medical device
to be eligible for pass-through payment under the OPPS, the medical
device must meet the following criteria:
a. If required by the FDA, the device must have received FDA
approval or clearance (except for a device that has received an FDA
investigational device exemption (IDE) and has been classified as a
Category B device by the FDA in accordance with Sec. Sec. 405.203
through 405.207 and 405.211 through 405.215 of the regulations) or
another appropriate FDA exemption.
b. The device is determined to be reasonable and necessary for the
diagnosis or treatment of an illness or injury or to improve the
functioning of a malformed body part (as required by section
1862(a)(1)(A) of the Act).
c. The device is an integral and subordinate part of the service
furnished, is used for one patient only, comes in contact with human
tissues, and is surgically implanted or inserted whether or not it
remains with the patient when the patient is released from the
hospital.
d. The device is not any of the following:
Equipment, an instrument, apparatus, implement, or item of
this type for which depreciation and financing expenses are recovered
as depreciable assets as defined in Chapter 1 of the Medicare Provider
Reimbursement Manual (CMS Pub. 15-1).
A material or supply furnished incident to a service (for
example, a suture, customized surgical kit, or clip, other than a
radiological site marker).
Material that may be used to replace human skin (for
example, a biological or synthetic material).
These requirements are the OPPS criteria used to define a device
for pass-through payment purposes and do not include additional
criteria that are used

[[Page 23545]]

under the OPPS to determine if a candidate device is new and represents
a substantial clinical improvement, two other requirements for
qualifying for pass-through payment.
For purposes of applying the eligibility criteria, we interpret
``surgical insertion or implantation'' to include devices that are
surgically inserted or implanted via a natural or surgically created
orifice as well as those devices that are inserted or implanted via a
surgically created incision (70 FR 68630).
In proposing to modify the cost report to have one cost center for
medical supplies and one cost center for devices, we are proposing that
hospitals would determine what should be reported in the Medical
Supplies cost center and what should be reported in the Medical Devices
cost center using criteria consistent with those listed above that are
included under Sec. 419.66(b), with some modification. Specifically,
for purposes of the cost reporting instructions, we are proposing that
an item would be reported in the device cost center if it meets the
following criteria:
a. If required by the FDA, the device must have received FDA
approval or clearance (except for a device that has received an FDA
investigational device exemption (IDE) and has been classified as a
Category B device by the FDA in accordance with Sec. Sec. 405.203
through 405.207 and 405.211 through 405.215 of the regulations) or
another appropriate FDA exemption.
b. The device is reasonable and necessary for the diagnosis or
treatment of an illness or injury or to improve the functioning of a
malformed body part (as required by section 1862(a)(1)(A) of the Act).
c. The device is an integral and subordinate part of the service
furnished, is used for one patient only, comes in contact with human
tissue, is surgically implanted or inserted through a natural or
surgically created orifice or surgical incision in the body, and
remains in the patient when the patient is discharged from the
hospital.
d. The device is not any of the following:
Equipment, an instrument, apparatus, implement, or item of
this type for which depreciation and financing expenses are recovered
as depreciable assets as defined in Chapter 1 of the Medicare Provider
Reimbursement Manual (CMS Pub. 15-1).
A material or supply furnished incident to a service (for
example, a surgical staple, a suture, customized surgical kit, or clip,
other than a radiological site marker).
Material that may be used to replace human skin (for
example, a biological or synthetic material).
A medical device that is used during a procedure or
service and does not remain in the patient when the patient is released
from the hospital.
We are proposing to select the existing criteria for what type of
device qualifies for payment as a transitional pass-through device
under the OPPS as a basis for instructing hospitals on what to report
in the cost center for Medical Supplies Charged to Patients or the cost
center for Medical Devices Charged to Patients because these criteria
are concrete and already familiar to the hospital community. However,
the key difference between the existing criteria for devices that are
eligible for pass-through payment under the OPPS at Sec. 419.66(b) and
our proposed criteria stated above to be used for cost reporting
purposes is that the device that is implanted remains in the patient
when the patient is discharged from the hospital. Essentially, we are
proposing to instruct hospitals to report only implantable devices that
remain in the patient at discharge in the cost center for devices. All
other devices and non-routine supplies which are separately chargeable
would be reported in the medical supplies cost center. We believe that
defining a device for cost reporting purposes based on criteria that
specify implantation and adding that the device must remain in the
patient upon discharge would have the benefit of capturing virtually
all costly implantable devices (for example, implantable cardioverter
defibrillators (ICDs), pacemakers, and cochlear implants) for which
charge compression is a significant concern.
However, we acknowledge that a definition of device based on
whether an item is implantable and remains in the patient could, in
some cases, include items that are relatively inexpensive (for example,
urinary catheters, fiducial markers, vascular catheters, and drainage
tubes), and which many would consider to be supplies. Thus, some modest
amount of charge compression could still be present in the cost center
for devices if the hospital does not have a uniform markup policy. In
addition, requiring as a cost reporting criterion that the device is to
remain in the patient at discharge could exclude certain technologies
that are moderately expensive (for example, cryoablation probes,
angioplasty catheters, and cardiac echocardiography catheters, which do
not remain in the patient upon discharge). Therefore, some charge
compression could continue for these technologies. We believe this
limited presence of charge compression is acceptable, given that the
proposed definition of device for cost reporting purposes would isolate
virtually all of the expensive items, allowing them to be separately
reported from most inexpensive supplies.
The criteria we are proposing above for instructing hospitals as to
what to report in the device cost center specify that a device is not a
material or supply furnished incident to a service (for example, a
surgical staple, a suture, customized surgical kit, or clip, other than
a radiological site marker) (emphasis added). We understand that
hospitals may sometimes receive surgical kits from device manufacturers
that consist of a high-cost primary implantable device, external
supplies required for operation of the device, and other disposable
surgical supplies required for successful device implantation. Often
the device and the attending supplies are included on a single invoice
from the manufacturer, making it difficult for the hospital to
determine the cost of each item in the kit. In addition, manufacturers
sometimes include with the primary device other free or ``bonus'' items
or supplies that are not an integral and necessary part of the device
(that is, not actually required for the safe surgical implantation and
subsequent operation of that device). (We note that arrangements
involving free or bonus items or supplies may implicate the Federal
anti-kickback statue, depending on the circumstances.) One option is
for the hospital to split the total combined charge on the invoice in a
manner that the hospital believes best identifies the cost of the
device alone. However, because it may be difficult for hospitals to
determine the respective costs of the actual device and the attending
supplies (whether they are required for the safe surgical implantation
and subsequent operation of that device or not), we are soliciting
comments with respect to how supplies, disposable or otherwise, that
are part of surgical kits should be reported. We are distinguishing
between such supplies that are an integral and necessary part of the
primary device (that is, required for the safe surgical implantation
and subsequent operation of that device) from other supplies that are
not directly related to the implantation of that device, but may be
included by the device manufacturer with or without charge as ``perks''
along with the kit. If it is difficult to break out the costs and
charges of these lower cost items that are an integral and necessary

[[Page 23546]]

part of the primary device, we would consider allowing hospitals to
report the costs and charges of these lower cost supplies along with
the costs and charges of the more expensive primary device in the cost
report cost center for implantable devices. However, to the extent that
device manufacturers could be encouraged to refine their invoicing
practices to break out the charges and costs for the lower cost
supplies and the higher cost primary device separately, so that
hospitals need not ``guesstimate'' the cost of the device, this would
facilitate more accurate cost reporting and, therefore, the calculation
of more accurate cost-based weights. Under either scenario, even for an
aggregated invoice that contains an expensive device, we believe that
RTI's findings of significant differences in supply CCRs for hospitals
with a greater percentage of charges in device revenue codes
demonstrate that breaking the Medical Supplies Charged to Patients cost
center into two cost centers and using appropriate revenue codes for
devices, and walking those costs to the new Implantable Devices Charged
to Patients cost center, will result in an increase in estimated device
costs.
In summary, we are proposing to modify the cost report to have one
cost center for Medical Supplies Charged to Patients and one cost
center for Implantable Devices Charged to Patients. We are proposing to
instruct hospitals to report only devices that meet the four criteria
listed above (specifically including that the device is implantable and
remains in the patient at discharge) in the cost center for Implantable
Devices Charged to Patients. All other devices and nonchargeable
supplies would be reported in the Medical Supplies cost center. This
would allow for two distinct CCRs, one for medical supplies and one for
implantable devices and DME rented and DME sold.
However, we are also soliciting comments on alternative approaches
that could be used in conjunction with or in lieu of the four proposed
criteria for distinguishing between what should be reported in the cost
center for Implantable Devices and Medical Supplies, respectively.
Another option we are considering would distinguish between high-cost
and low-cost items based on a cost threshold. Under this methodology,
we would also have one cost center for Medical Supplies and one cost
center for Devices, but we would instruct hospitals to report items
that are not movable equipment or a capital expense but are above a
certain cost threshold in the cost center for Devices. Items costing
below that threshold would be reported in the cost center for Medical
Supplies.
Establishing a cost threshold for cost reporting purposes would
directly address the problem of charge compression and would enable
hospitals to easily determine whether an item should be reported in the
supply or the device cost center. A cost threshold would also
potentially allow a broader variety of expensive, single use devices
that do not remain in the patient at discharge to be reported in the
device cost center (such as specialized catheters or ablation probes).
While we have a number of concerns with the cost threshold approach, we
are nevertheless soliciting public comments on whether such an approach
would be worthwhile to pursue. Specifically, we are concerned that
establishing a single cost threshold for pricing devices could possibly
be inaccurate across hospitals. Establishing a threshold would require
identifying a cost at which hospitals would begin applying reduced
markup policies. Currently, we do not have data from which to derive a
threshold. We have anecdotal reports that hospitals change their markup
thresholds between $15,000 and $20,000 in acquisition costs. Recent
research on this issue indicated that hospitals with average inpatient
discharges in DRGs with supply charges greater than $15,000, $20,000,
and $30,000 have higher supply CCRs (Advamed March 2006).
Furthermore, although a cost threshold directly addresses charge
compression, it may not eliminate all charge compression from the
device cost center because a fixed cost threshold may not accurately
capture differential markup policies for an individual hospital. At the
same time, we are also concerned that establishing a cost threshold may
interfere with the pricing practices of device manufacturers in that
the prices for certain devices or surgical kits could be inflated to
ensure that the devices met the cost threshold. We believe our proposed
approach of identifying a group of items that are relatively expensive
based on the existing criteria for OPPS device pass-through payment
status, rather than adopting a cost threshold, would not influence
pricing by the device industry. In addition, if a cost threshold were
adopted for distinguishing between high-cost devices and low-cost
supplies on the cost report, we would need to periodically reassess the
threshold for changes in markup policies and price inflation over time.
Another option for distinguishing between high-cost and low-cost
items for purposes of the cost report would be to divide the Medical
Supplies cost center based on markup policies by placing items with
lower than average markups in a separate cost center. This approach
would center on documentation requirements for differential charging
practices that would lead hospitals to distinguish between the
reporting of supplies and devices on different cost report lines. That
is, because charge compression results from the different markup
policies that hospitals apply to the supplies and devices they use
based on the estimated costs of those supplies and devices, isolating
supplies and devices with different markup policies mitigates
aggregation in markup policies that cause charge compression and is
specific to a hospital's internal accounting and pricing practices. If
requested by the fiscal intermediaries/MACs at audit, hospitals could
be required to submit documentation of their markup policies to justify
the way they have reported relatively inexpensive supplies on one line
and more expensive devices on the other line. We believe that it should
not be too difficult for hospitals to document their markup practices
because, as was pointed out by many commenters since the implementation
of cost-based weights, the source of charge compression is varying
markup practices. Greater knowledge of the specifics of hospital markup
practices may allow ultimately for development of standard cost
reporting instructions that instruct hospitals to report an item as a
device or a supply based on the type of markup applied to that item.
This option related to markup practices, the proposal to define devices
based on four specific criteria, and the third alternative that would
establish a cost threshold for purposes of distinguishing between high-
cost and low-cost items, could be utilized separately or in some
combination for purposes of cost report modification. Again, we are
soliciting comments on these alternative approaches. We are also
interested in other recommendations for appropriate cost reporting
improvements that address charge compression.
3. Timeline for Revising the Medicare Cost Report
As mentioned in the FY 2008 IPPS final rule with comment period (72
FR 47198), we have begun a comprehensive review of the Medicare
hospital cost report, and the proposed splitting of the current cost
center for Medical Supplies Charged to Patients into one line for
Medical Supplies Charged to Patients and another line for Implantable
Devices Charged to Patients, is part of

[[Page 23547]]

our initiative to update and revise the hospital cost report. Under an
effort initiated by CMS to update the Medicare hospital cost report to
eliminate outdated requirements in conjunction with the Paperwork
Reduction Act, we plan to propose the actual changes to the cost
reporting form, the attending cost reporting software, and the cost
report instructions in Chapter 36 of the Medicare Provider
Reimbursement Manual (PRM), Part II. We expect the proposed revision to
the Medicare hospital cost report to be issued after publication of
this IPPS proposed rule. If we were to adopt as final our proposal to
create one cost center for Medical Supplies Charged to Patients and one
cost center for Implantable Devices Charged to Patients in the FY 2009
IPPS final rule, the cost report forms and instructions would reflect
those changes. We expect the revised cost report would be available for
hospitals to use when submitting cost reports during FY 2009 (that is,
for cost reporting periods beginning on or after October 1, 2008).
Because there is approximately a 3-year lag between the availability of
cost report data for IPPS and OPPS ratesetting purposes and a given
fiscal year, we may be able to derive two distinct CCRs, one for
medical supplies and one for devices, for use in calculating the FY
2012 IPPS relative weights and the CY 2012 OPPS relative weights.
4. Revenue Codes Used in the MedPAR File
An important first step in RTI's study (as explained in its draft
interim March 2007 report) was determining how well the cost report
charges used to compute CCRs matched to the charges in the MedPAR file.
This match (or lack thereof) directly affects the accuracy of the DRG
cost estimates because MedPAR charges are multiplied by CCRs to
estimate cost. RTI found inconsistent reporting between the cost
reports and the claims data for charges in several ancillary
departments (Medical Supplies, Operating Room, Cardiology, and
Radiology). For example, the data suggested that some hospitals often
include costs and charges for devices and other medical supplies within
the Medicare cost report cost centers for Operating Room, Radiology, or
Cardiology, while other hospitals include them in the Medical Supplies
Charged to Patients cost center. While the educational initiative
undertaken by the national hospital associations is encouraging
hospitals to consistently report costs and charges for devices and
other medical supplies only in the Medical Supplies Charged to Patients
cost center, equal attention must be paid to the way in which charges
are grouped by hospitals in the MedPAR file. Several commenters on the
FY 2008 IPPS proposed rule supported RTI's recommendation of including
additional fields in the MedPAR file to disaggregate certain cost
centers. One commenter stated that the assignment of revenue codes and
charges to revenue centers in the MedPAR file should be reviewed and
changed to better reflect hospital accounting practices as reflected on
the cost report (72 FR 47198).
In an effort to improve the match between the costs and charges
included on the cost report and the charges in the MedPAR file, we are
recommending that certain revenue codes be used for items reported in
the proposed Medical Supplies Charged to Patients cost center and the
proposed Implantable Devices Charged to Patients cost center,
respectively. Specifically, under the proposal to create a cost center
for implantable devices that remain in the patient upon discharge,
revenue codes 0275 (Pacemaker), 0276 (Intraocular Lens), and 0278
(Other Implants) would correspond to implantable devices reported in
the proposed Implantable Devices Charged to Patients cost center. Items
for which a hospital may have previously used revenue code 0270
(General Classification), but actually meet the proposed definition of
an implantable device that remains in the patient upon discharge should
instead be billed with the 0278 revenue code. Conversely, relatively
inexpensive items and supplies that are not implantable and do not
remain in the patient at discharge would be reported in the proposed
Medical Supplies Charged to Patients cost center on the cost report,
and should be billed with revenue codes 0271 (nonsterile supply), 0272
(sterile supply), and 0273 (take-home supplies), as appropriate.
Revenue code 0274 (Prosthetic/Orthotic devices) and revenue code 0277
(Oxygen--Take Home) should be associated with the costs reported on
lines 66 and 67 for DME--Rented and DME--Sold on the cost report.
Charges associated with supplies used incident to radiology or to other
diagnostic services (revenue codes 0621 and 0622 respectively) should
match those items used incident to those services on the Medical
Supplies Charged to Patients cost center of the cost report, because,
under this proposal, supplies furnished incident to a service would be
reported in the Medical Supplies Charged to Patients cost center (see
item b. listed above, in the proposed definition of a device). A
revenue code of 0623 for surgical dressings would similarly be
associated with the costs and charges of items reported in the proposed
Medical Supplies Charged to Patients cost center, while a revenue code
of 0624 for FDA investigational device, if that device does not remain
in the patient upon discharge, could be associated with items reported
on the Medical Supplies Charged to Patients cost center as well.
In general, if an item is reported as an implantable device on the
cost report, the associated charges should be recorded in the MedPAR
file with either revenue codes 0275 (Pacemaker), 0276 (Intraocular
Lens), or 0278 (Other Implants). Likewise, items reported as Medical
Supplies should receive an appropriate revenue code indicative of
supplies. We understand that many of these revenue codes have been in
existence for many years and have been added for purposes unrelated to
the goal of refining the calculation of cost-based weights.
Accordingly, we acknowledge that additional instructions relating to
the appropriate use of these revenue codes may need to be issued. In
addition, CMS or the hospital associations may need to request new
revenue codes from the National Uniform Billing Committee (NUBC). In
either case, we do not believe either should delay use of the new
Medical Supplies and Implantable Devices CCRs in setting payment rates.
However, in light of our proposal to create two separate cost centers
for Medical Supplies Charged to Patients and Implantable Devices
Charged to Patients, respectively, we are soliciting comments on how
the existing revenue codes or additional revenue codes could best be
used in conjunction with the revised cost centers on the cost report.

F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections

1. General
In its landmark 1999 report ``To Err is Human: Building a Safer
Health System,'' the Institute of Medicine found that medical errors,
particularly hospital-acquired conditions (HACs) caused by medical
errors, are a leading cause of morbidity and mortality in the United
States. The report noted that the number of Americans who die each year
as a result of medical errors that occur in hospitals may be as high as
98,000. The cost burden of HACs is also high. Total national costs of
these errors due to lost productivity, disability, and health care
costs were estimated at $17

[[Page 23548]]

billion to $29 billion.\2\ In 2000, the CDC estimated that hospital-
acquired infections added nearly $5 billion to U.S. health care costs
every year.\3\ A 2007 study found that, in 2002, 1.7 million hospital-
acquired infections were associated with 99,000 deaths\4\ Research has
also shown that hospitals are not following recommended guidelines to
avoid preventable hospital-acquired infections. A 2007 Leapfrog Group
survey of 1,256 hospitals found that 87 percent of those hospitals do
not follow recommendations to prevent many of the most common hospital-
acquired infections.\5\
---------------------------------------------------------------------------

\2\ Institute of Medicine: To Err Is Human: Building a Safer
Health System, November 1999. Available at: http://www.iom.edu/
Object.File/Master/4/117/ToErr-8pager.pdf.
\3\ Centers for Disease Control and Prevention: Press Release,
March 2000. Available at: http://www.cdc.gov/od/oc/media/pressrel/
r2k0306b.htm.
\4\ Klevens et al. Estimating Health Care-Associated Infections
and Deaths in U.S. Hospitals, 2002. Public Health Reports. March-
April 2007. Volume 122.
\5\ 2007 Leapfrog Group Hospital Survey. The Leapfrog Group
2007. Available at: http://www.leapfroggroup.org/media/file/
Leapfrog_hospital_acquired_infections_release.pdf
---------------------------------------------------------------------------

As one approach to combating HACs, including infections, in 2005
Congress authorized CMS to adjust for Medicare IPPS hospital payments
to encourage the prevention of these conditions. The preventable HAC
provision at section 1886(d)(4)(D) of the Act is part of an array of
Medicare value-based purchasing (VBP) tools that CMS is using to
promote increased quality and efficiency of care. Those tools include
measuring performance, using payment incentives, publicly reporting
performance results, applying national and local coverage policy
decisions, enforcing conditions of participation, and providing direct
support for providers through Quality Improvement Organization (QIO)
activities. CMS' application of VBP tools through various initiatives,
such as this HAC provision, is transforming Medicare from a passive
payer to an active purchaser of higher value health care services. We
are applying these strategies for inpatient hospital care and across
the continuum of care for Medicare beneficiaries.
The President's FY 2009 Budget outlines another approach for
addressing serious preventable adverse events (``never events''),
including HACs. The President's Budget proposal would: (1) Prohibit
hospitals from billing the Medicare program for ``never events'' and
prohibit Medicare payment for these events; and (2) require hospitals
to report occurrence of these events or receive a reduced annual
payment update.
Medicare's IPPS encourages hospitals to treat patients efficiently.
Hospitals receive the same DRG payment for stays that vary in length
and in the services provided, which gives hospitals an incentive to
avoid unnecessary costs in the delivery of care. In many cases,
complications acquired in the hospital do not generate higher payments
than the hospital would otherwise receive for uncomplicated cases paid
under the same DRG. To this extent, the IPPS encourages hospitals to
avoid complications. However, complications, such as infections,
acquired in the hospital can generate higher Medicare payments in two
ways. First, the treatment of complications can increase the cost of a
hospital stay enough to generate an outlier payment. However, the
outlier payment methodology requires that a hospital experience a large
loss on an outlier case, which serves as an incentive for hospitals to
prevent outliers. Second, under the MS-DRGs that took effect in FY
2008, there are currently 258 sets of MS-DRGs that are split into 2 or
3 subgroups based on the presence or absence of a CC or an MCC. If a
condition acquired during a hospital stay is one of the conditions on
the CC or MCC list, the hospital currently receives a higher payment
under the MS-DRGs (prior to the October 1, 2008 effective date of the
HAC payment provision). (We refer readers to section II.D. of the FY
2008 IPPS final rule with comment period for a discussion of DRG
reforms (72 FR 47141).) The following is an example of how an MS-DRG
may be paid.

----------------------------------------------------------------------------------------------------------------
Present on
admission Average
Service: MS-DRG Assignment\*\ (Examples below with CC/MCC indicate a single (status of payment (based
secondary diagnosis only) secondary on 50th
diagnosis) percentile)
----------------------------------------------------------------------------------------------------------------
Principal Diagnosis............................................................ ............... $5,347.98
Intracranial hemorrhage or cerebral infarction (stroke) without CC/
MCC--MS-DRG 066...........................................................
Principal Diagnosis............................................................ Y 6,177.43
Intracranial hemorrhage or cerebral infarction (stroke) with CC--
MS-DRG 065................................................................
Example Secondary Diagnosis
Dislocation of patella-open due to a fall (code 836.4 (CC)).......
Principal Diagnosis............................................................ N 5,347.98
Intracranial hemorrhage or cerebral infarction (stroke) with CC--
MS-DRG 065................................................................
Example Secondary Diagnosis
Dislocation of patella-open due to a fall (code 836.4 (CC)).......
Principal Diagnosis............................................................ Y 8,030.28
Intracranial hemorrhage or cerebral infarction (stroke) with MCC--
MS-DRG 064................................................................
Example Secondary Diagnosis
Stage III pressure ulcer (code 707.23 (MCC))......................
Principal Diagnosis............................................................ N 5,347.98
Intracranial hemorrhage or cerebral infarction (stroke) with MCC--
MS-DRG 064................................................................
Example Secondary Diagnosis
Stage III pressure ulcer (code 707.23 (MCC))......................
----------------------------------------------------------------------------------------------------------------
\*\ Operating amounts for a hospital whose wage index is equal to the national average.

2. Statutory Authority
Section 1886(d)(4)(D) of the Act required the Secretary to select
at least two conditions by October 1, 2007, that are: (a) High cost,
high volume, or both; (b) assigned to a higher paying DRG when present
as a secondary diagnosis; and (c) could reasonably have been prevented
through the application of evidence-based guidelines. Beginning October
1, 2008, Medicare can no longer assign an inpatient hospital discharge
to

[[Page 23549]]

a higher paying MS-DRG if a selected HAC was not present on admission.
That is, the case will be paid as though the secondary diagnosis was
not present. (Medicare will continue to assign a discharge to a higher
paying MS-DRG if the selected condition was present on admission.)
Section 1886(d)(4)(D) of the Act provides that the list of conditions
can be revised from time to time, as long as the list contains at least
two conditions. Beginning October 1, 2007, we required hospitals to
begin submitting information on Medicare claims specifying whether
diagnoses were present on admission (POA).
The POA indicator reporting requirement and the HACs payment
provision apply to IPPS hospitals only. At this time, non-IPPS
hospitals such as CAHs, LTCHs, IRFs, and hospitals in Maryland
operating under waivers, among others, are exempt from POA reporting
and the HAC payment provision. Throughout this section, ``hospital''
refers to IPPS hospitals.
3. Public Input
In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public
input regarding conditions with evidence-based prevention guidelines
that should be selected in implementing section 1886(d)(4)(D) of the
Act. The public comments we received were summarized in the FY 2007
IPPS final rule (71 FR 48051 through 48053). In the FY 2008 IPPS
proposed rule (72 FR 24716), we again sought formal public comment on
conditions that we proposed to select. In the FY 2008 IPPS final rule
with comment period (72 FR 47200 through 47218), we summarized the
public comments we received on the FY 2008 IPPS proposed rule,
presented our responses, selected eight conditions to which the HAC
provision will initially apply, and noted that we would be seeking
comments on additional HAC candidates in this proposed rule.
4. Collaborative Process
CMS experts worked with public health and infectious disease
professionals from the CDC to identify the candidate preventable HACs.
CMS and CDC staff also collaborated on the process for hospitals to
submit a POA indicator for each diagnosis listed on IPPS hospital
Medicare claims.
On December 17, 2007, CMS and CDC hosted a jointly sponsored HAC
and POA Listening Session to receive input from interested
organizations and individuals. The agenda, presentations, audio file,
and written transcript of the listening session are available on the
Web site at: http://www.cms.hhs.gov/HospitalAcqCond/07_
EducationalResources.asp. CMS and CDC also received informal comments
during the listening session and subsequently received numerous written
comments.
5. Selection Criteria for HACs
CMS and CDC staff evaluated each candidate condition against the
criteria established by section 1886(d)(4)(D)(iv) of the Act.
Cost or Volume--Medicare data \6\ must support that the
selected conditions are high cost, high volume, or both. At this point,
there are no Medicare claims data indicating which secondary diagnoses
were POA because POA indicator reporting began only recently;
therefore, the currently available data for candidate conditions
includes all secondary diagnoses.
---------------------------------------------------------------------------

\6\ For this FY 2009 IPPS proposed rule, the DRG analysis is
based on data from the September 2007 update of the FY 2007 MedPAR
file, which contains hospital bills received through September 30,
2007, for discharges through September 30, 2007.
---------------------------------------------------------------------------

Complicating Condition (CC) or Major Complicating
Condition (MCC)--Selected conditions must be represented by ICD-9-CM
diagnosis codes that clearly identify the condition, are designated as
a CC or an MCC, and result in the assignment of the case to an MS-DRG
that has a higher payment when the code is reported as a secondary
diagnosis. That is, selected conditions must be a CC or an MCC that
would, in the absence of this provision, result in assignment to a
higher paying MS-DRG.
Evidence-Based Guidelines--Selected conditions must be
reasonably preventable through the application of evidence-based
guidelines. By reviewing guidelines from professional organizations,
academic institutions, and entities such as the Healthcare Infection
Control Practices Advisory Committee (HICPAC), we evaluated whether
guidelines are available that hospitals should follow to prevent the
condition from occurring in the hospital.
Reasonably Preventable--Selected conditions must be
reasonably preventable through the application of evidence-based
guidelines.
6. HACs Selected in FY 2008 and Proposed Changes to Certain Codes
The HACs that were selected for the HAC payment provision through
the FY 2008 IPPS final rule with comment period are listed below. The
payment provision for these selected HACs will take effect on October
1, 2008. We refer readers to section II.F.6. of the FY 2008 IPPS final
rule with comment period (72 FR 47202 through 47218) for a detailed
analysis supporting the selection of each of these HACs.
BILLING CODE 4120-01-P

[[Page 23550]]

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[[Page 23551]]

[GRAPHIC][TIFF OMITTED]TP30AP08.001

BILLING CODE 4120-01-C

[[Page 23552]]

We are seeking public comments on the following refinements to two
of the previously selected HACs:
a. Foreign Object Retained After Surgery: Proposed Inclusion of ICD-9-
CM Code 998.7 (CC)
In the FY 2008 IPPS final rule with comment period (72 FR 47206),
we indicated that a foreign body accidentally left in the patient
during a procedure (ICD-9-CM code 998.4) was one of the conditions
selected. It has come to our attention that ICD-9-CM diagnosis code
998.7 (Acute reaction to foreign substance accidentally left during a
procedure) should also be included. ICD-9-CM code 998.7 describes
instances in which a patient developed an acute reaction due to a
retained foreign substance. Therefore, we are proposing to make this
code subject to the HAC payment provision.
b. Pressure Ulcers: Proposed Changes in Code Assignments
As discussed in the FY 2008 IPPS final rule with comment period (72
FR 47205-47206), we referred the need for more detailed ICD-9-CM
pressure ulcer codes to the CDC. The topic of expanding pressure ulcer
codes to capture the stage of the ulcer was addressed at the September
27-28, 2007, meeting of the ICD-9-CM Coordination and Maintenance
Committee. A summary report of this meeting is available on the Web
site at: http://www.cdc.gov/nchs/about/otheract/icd9/maint/maint.htm.
Numerous wound care professionals supported modifying the pressure
ulcer codes to capture staging information. The stage of the pressure
ulcer is a powerful predictor of severity and resource utilization. At
its September 27-28, 2007 meeting, the ICD-9-CM Coordination and
Maintenance Committee discussed the creation of pressure ulcer codes to
capture this information. The new codes, along with their proposed CC/
MCC classifications, are shown in Table 6A of the Addendum to this
proposed rule. The new codes are as follows:
707.20 (Pressure ulcer, unspecified stage).
707.21 (Pressure ulcer stage I).
707.22 (Pressure ulcer stage II).
707.23 (Pressure ulcer stage III).
707.24 (Pressure ulcer stage IV).
While the code titles are final, we are soliciting comment on the
proposed MS-DRG classifications of these codes, as indicated in Table
6A of the Addendum to this proposed rule. We are proposing to remove
the CC/MCC classifications from the current pressure ulcer codes that
show the site of the ulcer (ICD-9-CM codes 707.00 through 707.09).
Therefore, the following codes would no longer be a CC:
707.00 (Decubitus ulcer, unspecified site).
707.01 (Decubitus ulcer, elbow).
707.09 (Decubitus ulcer, other site). The following codes
would no longer be an MCC:
707.02 (Decubitus ulcer, upper back).
707.03 (Decubitus ulcer, lower back).
707.04 (Decubitus ulcer, hip).
707.05 (Decubitus ulcer, buttock).
707.06 (Decubitus ulcer, ankle).
707.07 (Decubitus ulcer, heel).
We are proposing to instead assign the CC/MCC classifications to
the stage of the pressure ulcer as shown in Table 6A of the Addendum to
this proposed rule. We are proposing to classify ICD-9-CM codes 707.23
and 707.24 as MCCs. We are proposing to classify codes 707.20, 707.21,
and 707.22 as non-CCs.
Therefore, we are proposing that, beginning October 1, 2008, the
codes used to make MS-DRG adjustments for pressure ulcers under the HAC
provision would include the proposed MCC codes 707.23 and 707.24.
7. HACs Under Consideration as Additional Candidates
CMS and CDC have diligently worked together and with other
stakeholders to identify additional HACs that might appropriately be
subject to the HAC payment provision. If the additional candidate HACs
are selected in the FY 2009 IPPS final rule, the payment provision will
take effect for these candidate HACS on October 1, 2008. The statutory
criteria for each HAC candidate are presented in tabular format. Each
table contains the following:
HAC Candidate--We are seeking public comment on all HAC
candidates.
Medicare Data--We are seeking public comment on the
statutory criterion of high cost, high volume, or both as it applies to
the HAC candidate.
CC/MCC--We are seeking public comment on the statutory
criterion that an ICD-9-CM diagnosis code(s) clearly identifies the HAC
candidate.
Selected Evidence-Based Guidelines--We are seeking public
comment on the degree to which the HAC candidate is reasonably
preventable through the application of the identified evidence-based
guidelines.
a. Surgical Site Infections Following Elective Surgeries

[[Page 23553]]

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In the FY 2008 IPPS final rule with comment period (72 FR 47213),
surgical site infections were identified as a broad category for
consideration, and we selected mediastinitis after coronary artery
bypass graft (CABG) as one of the initial eight HACs for
implementation. We are now considering the addition of other surgical
site infections, particularly those following elective procedures. In
most cases, patients selected as candidates for elective surgeries
should have a relatively low-risk profile for surgical site infections.
The following elective surgical procedures are under consideration:
Total Knee Replacement (81.54): ICD-9-CM codes 996.66 (CC)
and 998.59 (CC)
Laparoscopic Gastric Bypass (44.38) and Laparoscopic
Gastroenterostomy (44.39): ICD-9-CM code 998.59 (CC)
Ligation and Stripping of Varicose Veins (38.50 through
38.53, 38.55, 38.57, and 38.59): ICD-9-CM code 998.59 (CC)
Evidence-based guidelines for preventing surgical site infections
emphasize the importance of appropriately using prophylactic
antibiotics, using clippers rather than razors for hair removal and
tightly controlling postoperative glucose.
While we are seeking public comments on the applicability of each
of the statutory criteria to surgical site infections following
elective procedures, we are particularly interested in receiving
comments on the degree of preventability of surgical site infections
following elective procedures generally, as well as specifically for
those listed above. We also are seeking public comments on additional
elective surgical procedures that would qualify for the HAC provision
by meeting all of the statutory criteria. Based on the public comments
we receive, we may select some combination of the four procedures
presented here along with additional conditions that qualify and are
supported by the comments.
b. Legionnaires' Disease
[GRAPHIC][TIFF OMITTED]TP30AP08.003

We discussed Legionnaires' Disease in the FY 2008 IPPS final rule
with comment period (72 FR 47216). Legionnaires' Disease is a type of
pneumonia caused by the bacterium Legionella pneumophila. It is
contracted

[[Page 23554]]

by inhaling contaminated water vapor or droplets. It is not spread
person to person. Individuals at risk include those who are elderly,
immunocompromised, smokers, or persons with underlying lung disease.
The bacterium thrives in warm aquatic environments and infections have
been linked to large industrial water systems, including hospital water
systems such as air conditioning cooling towers and potable water
plumbing systems. Prevention depends primarily on regular monitoring
and decontamination of these water systems. While we are seeking public
comments regarding the applicability of each of the statutory criteria
to Legionnaires' Disease, we are particularly interested in receiving
comments on the degree of preventability of Legionnaires' Disease
through the application of hospital water system maintenance
guidelines.
Legionnaires' Disease is typically acquired outside of the hospital
setting and may be difficult to diagnose as present on admission. We
are seeking comments on the degree to which hospital-acquired
Legionnaires' Disease can be distinguished from community-acquired
cases.
We also are seeking public comments on additional water-borne
pathogens that would qualify for the HAC provision by meeting the
statutory criteria. Based on the public comments we receive, we may
finalize some combination of Legionnaires' Disease and additional
conditions that qualify and are supported by the public comments.
c. Glycemic Control
[GRAPHIC][TIFF OMITTED]TP30AP08.004

During the December 17, 2007 HAC and POA Listening Session, one of
the commenters suggested that we explore hyperglycemia and hypoglycemia
as HACs for selection. NQF's list of Serious Reportable Adverse Events
includes death or serious disability associated with hypoglycemia that
occurs during hospitalization.
Hyperglycemia and hypoglycemia are extremely common laboratory
findings in hospitalized patients and can be complicating features of
underlying diseases and some therapies. However, we believe that
extreme forms of poor glycemic control should not occur while under
medical care in the hospital setting. Thus, we are considering whether
the following forms of extreme glucose derangement should be subject to
the HAC payment provision:
Diabetic Ketoacidosis: ICD-9-CM codes 250.10-250.13 (CC)
Nonketotic Hyperosmolar Coma: ICD-9-CM code 251.0 (CC)
Diabetic Coma: ICD-9-CM codes 250.30-250.33 (CC)
Hypoglycemic Coma: ICD-9-CM codes 250.30-251.0 (CC)
While we are seeking public comments regarding the applicability of
each of the statutory criteria to these extreme aberrations in glycemic
control, we are particularly interested in receiving comments on the
degree to which these extreme aberrations in glycemic control are
reasonably preventable, in the hospital setting, through the
application of evidence-based guidelines. Based on the public comments
we receive, we may select some combination of these glycemic control-
related conditions as HACs.
d. Iatrogenic Pneumothorax

[[Page 23555]]

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Iatrogenic pneumothorax refers to the accidental introduction of
air into the pleural space, which is the space between the lung and the
chest wall. When air is introduced into this space it partially or
completely collapses the lung. Iatrogenic pneumothorax can occur during
any procedure where there is the possibility of air entering pleural
space, including needle biopsy of the lung, thoracentesis, central
venous catheter placement, pleural biopsy, tracheostomy, and liver
biopsy. Iatrogenic pneumothorax can occur secondary to positive
pressure mechanical ventilation when an air sac in the lung ruptures
allowing air into the pleural space.
While we are seeking public comments on the applicability of each
of the statutory criteria to iatrogenic pneumothorax, we are
particularly interested in receiving comments on the degree to which
iatrogenic pneumothorax is reasonably preventable through the
application of evidence-based guidelines. Based on the public comments
we receive, we may select iatrogenic pneumothorax as an HAC.
e. Delirium
[GRAPHIC][TIFF OMITTED]TP30AP08.006

Delirium is a relatively abrupt deterioration in a patient's
ability to sustain attention, learn, or reason. Delirium is strongly
associated with aging and treatment of illnesses that are associated
with hospitalizations. Delirium affects nearly half of hospital patient
days for individuals age 65 and older, and approximately three-quarters
of elderly individuals in intensive care units have delirium. About 14
to 24 percent of hospitalized elderly individuals have delirium at the
time of admission. Having delirium is a very serious risk factor, with
1-year mortality of 35 to 40 percent, a rate as high as those
associated with heart attacks and sepsis. The adverse effects of
delirium routinely last for months. Delirium is a clinical diagnosis,
commonly assisted by screening tests such as the Confusion Assessment
Method.
Well-established practices, such as reducing certain medications,
reorienting the patient, assuring sensory input and sleep, and avoiding
malnutrition and dehydration, prevent 30 to 40 percent of the possible
cases. While we are seeking public comments on the applicability of
each of the statutory criteria to delirium, we are particularly
interested in receiving comments on the degree to which delirium is
reasonably preventable through the application of evidence-based
guidelines. Based upon the public comments we receive, we may select
delirium as an HAC.
f. Ventilator-Associated Pneumonia (VAP)

[[Page 23556]]

[GRAPHIC][TIFF OMITTED]TP30AP08.007

We discussed ventilator-associated pneumonia (VAP) in the FY 2008
IPPS final rule with comment period (72 FR 47209-47210). VAP is a
serious hospital-acquired infection associated with high mortality,
significantly increased hospital length of stay, and high cost. It is
typically caused by the aspiration of contaminated gastric and/or
oropharyngeal secretions. The presence of an endotracheal tube
facilitates both the contamination of secretions as well as aspiration.
During the past year, the ICD-9-CM Coordination and Maintenance
Committee discussed the creation of a new ICD-9-CM code 997.31 to
identify VAP. This new code is shown in Table 6A of the Addendum to
this proposed rule. The lack of a specific code was one of the barriers
to including VAP as an HAC that we discussed in the FY 2008 IPPS final
rule with comment period. We also discussed the degree to which VAP may
be reasonably preventable through the application of evidence-based
guidelines. Specifically, the FY 2008 IPPS final rule with comment
period referenced the American Association for Respiratory Care's
Clinical Practice Guidelines at the Web site: http://www.rcjournal.com/
cpgs/09.03.0869.html.
To further investigate the extent to which VAP is reasonably
preventable, we reviewed published clinical research. The literature,
including recommendations by CDC and the HICPAC, from 2003 shows
numerous prevention guidelines that can significantly reduce the
incidence of VAP in the hospital setting. These guidelines include
interventions such as educating staff, hand washing, using gowns and
gloves, properly positioning the patient, elevating the head of the
bed, changing ventilator tubing, sterilizing reusable equipment,
applying chlorhexadine solution for oral decontamination, monitoring
sedation daily, administering stress ulcer prophylaxis, and
administering pneumococcal vaccinations. Further review of the
literature, specifically regarding the proportion of VAP cases that
might be preventable, revealed two large-scale analyses that were
completed recently. One study concluded that an estimated 40 percent of
VAP cases are preventable. A second study concluded that at least 20
percent of nosocomial infections in general (not just VAP) are
preventable.\7\
---------------------------------------------------------------------------

\7\ American Association for Respiratory Care Clinical Practice:
Guideline: Care of the Ventilator Circuit and Its Relation to
Ventilator Associated Pneumonia. Available at the Web site: http://
www.rcjournal.com/cpgs/09.03.0869.html.
---------------------------------------------------------------------------

During the December 17, 2007 HAC and POA Listing Session, we also
received comments on evidence-based guidelines for preventing VAP.
Commenters referenced two articles \8\ \9\ that both state there is a
high degree of risk associated with endotracheal tube insertions,
suggesting that VAP may not always be preventable.
---------------------------------------------------------------------------

\8\ Ramirez et al.: Prevention Measures for Ventilator-
Associated Pneumonia: A New Focus on the Endotracheal Tube. Current
Opinion in Infectious Disease, April 2007, Vol.20 (2), pp. 190-197.
\9\ Safdar et al.: The Pathogenesis of Ventilator-Associated
Pneumonia: Its Relevance to Developing Effective Strategies for
Prevention. Respiratory Care, June 2005, Vol. 50, No. 6, pp.725-741.
---------------------------------------------------------------------------

While we are seeking public comments on the applicability of each
of the statutory criteria to VAP, we are particularly interested in
receiving comment on the degree to which VAP

[[Page 23557]]

is reasonably preventable through the application of evidence-based
guidelines. Based on the public comments we receive, we may select VAP
as an HAC.
g. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)
[GRAPHIC][TIFF OMITTED]TP30AP08.008

We discussed deep vein thrombosis (DVT) and pulmonary embolism (PE)
in the FY 2008 IPPS final rule with comment period (72 FR 47215). DVT
and PE are common events. DVT occurs when a blood clot forms in the
deep veins of the leg and causes local swelling and inflammation. PE
occurs when a clot or a piece of a clot migrates from its original site
into the lungs, causing the death of lung tissue, which can be fatal.
Risk factors for DVTs and PEs include inactivity, smoking, use of oral
contraceptives, prolonged bed rest, prolonged sitting with bent knees,
certain types of cancer and other disease states, certain blood
clotting disorders, and certain types of orthopedic and other surgical
procedures. DVT is not always clinically apparent because the
manifestations of pain, redness, and swelling may develop some time
after the venous clot forms.
As we discussed in the FY 2008 IPPS final rule with comment period,
DVTs and PEs may be preventable in certain circumstances, but it is
possible that a patient may have a DVT that is difficult to detect on
admission. We also received comments during the December 17, 2007 HAC
and POA Listening Session reiterating that not all cases of DVTs and
PEs are preventable. For example, common patient characteristics such
as immobility, obesity, severe vessel trauma, and venous stasis put
certain trauma and joint replacement surgery patients at high risk for
these conditions.
In our review of the literature, we found that there are definite
pharmacologic and nonpharmacologic interventions that may reduce the
likelihood of developing DVTs and PEs, including exercise, compression
stockings, intermittent pneumatic boots, aspirin, enoxaparin,
dalteparin, heparin, coumadin, clopidogrel, and fondaparinux. However,
the evidence[pi]based guidelines indicate that some patients may still
develop clots despite these therapies.
While we are seeking public comments on the applicability of each
of the statutory criteria to DVTs and PEs, we are particularly
interested in receiving comments on the degree of preventability of
DVTs and PEs. We are also interested in comments on determining the
presence of DVT and PE at admission. Based on the public comments we
receive, we may select DVTs and PEs as HACs.
h. Staphylococcus aureus Septicemia
[GRAPHIC][TIFF OMITTED]TP30AP08.009

[[Page 23558]]

We discuss Staphylococcus aureus Septicemia in the FY 2008 IPPS
final rule with comment period (72 FR 47208). Staphylococcus aureus is
a bacterium that lives in the nose and on the skin of a large
percentage of the population. It usually does not cause physical
illness, but it can cause infections ranging from superficial boils to
cellulitis to pneumonia to life threatening bloodstream infections
(septicemia). It usually enters the body through traumatized tissue,
such as cuts or abrasions, or at the time of invasive procedures.
Staphylococcus aureus Septicemia can also be a late effect of an injury
or a surgical procedure. Risk factors for developing Staphylococcus
aureus Septicemia include advanced age, debilitated state,
immunocompromised status, and a history of an invasive medical
procedure.
CDC has developed evidence-based guidelines for the prevention of
the Staphylococcus aureus Septicemia. Most preventable cases of
septicemia are primarily related to the presence of a central venous or
vascular catheter. During the December 17, 2007 HAC and POA Listening
Session, commenters noted that intravascular catheter-associated
infections are only one cause of septicemia. Therefore, catheter-
oriented evidence-based guidelines would not cover all cases of
Staphylococcus aureus Septicemia.\10\
---------------------------------------------------------------------------

\10\ Jensen, A.G. Importance of Focus Identification in the
Treatment of Staphylococcus aureus Bacteremia. 2002. Vol. 52, pp.
29-36.
---------------------------------------------------------------------------

We identified evidence-based guidelines that suggest Staphylococcus
aureus Septicemia is reasonably preventable. These guidelines emphasize
the importance of effective and fastidious hand washing by both staff
and visitors, using gloves and gowns where appropriate, applying proper
decontamination techniques, and exercising contact isolation where
clinically indicated.
While we are seeking public comments on the applicability of each
of the statutory criteria to Staphylococcus aureus infections
generally, we are particularly interested in receiving comments on the
degree of preventability of Staphylococcus aureus infections generally,
and specifically Staphylococcus aureus Septicemia. Based on the public
comments we receive, we may select Staphylococcus aureus Septicemia as
an HAC.
i. Clostridium Difficile-Associated Disease (CDAD)
[GRAPHIC][TIFF OMITTED]TP30AP08.010

We discussed Clostridium difficile-associated disease (CDAD) in the
FY 2008 IPPS final rule with comment period. Clostridium difficile is a
bacterium that colonizes the gastrointestinal (GI) tract of a certain
number of healthy people. Under conditions where the normal flora of
the gastrointestinal tract is altered, Clostridium difficile can
flourish and release large enough amounts of a toxin to cause severe
diarrhea or even life threatening colitis. Risk factors for CDAD
include prolonged use of broad spectrum antibiotics, gastrointestinal
surgery, prolonged nasogastric tube insertion, and repeated enemas.
CDAD can be acquired in the hospital or in the community. Its spores
can live outside of the body for months and thus can be spread to other
patients in the absence of meticulous hand washing by care providers
and others who contact the infected patient.
We continue to receive strong support in favor of selecting CDAD as
an HAC. During the December 17, 2007 HAC and POA Listening Session,
representatives of consumers and purchasers advocated to include CDAD
as an HAC.
The evidence-based guidelines for CDAD prevention emphasize that
hand washing by staff and visitors and effective decontamination of
environmental surfaces prevent the spread of Clostridium difficile.
While we are seeking public comments on the applicability of each of
the statutory criteria to CDADs, we are particularly interested in
receiving comments on the degree of preventability of CDAD. Based on
the public comments we receive, we may select CDAD as an HAC.
j. Methicillin-Resistant Staphylococcus aureus (MRSA)

[[Page 23559]]

[GRAPHIC][TIFF OMITTED]TP30AP08.011

We discussed the special case of methicillin-resistant
Staphylococcus aureus (MRSA) in the FY 2008 IPPS final rule with
comment period (72 FR 47212). In October 2007, the CDC published in the
Journal of the American Medical Association an article citing high
mortality rates from MRSA, an antibiotic-resistant ``superbug.'' The
article estimates 19,000 people died from MRSA infections in the United
States in 2005. The majority of invasive MRSA cases are health care-
related--contracted in hospitals or nursing homes--though community-
acquired MRSA also poses a significant public health concern. Hospitals
have been focused for years on controlling MRSA through the application
of CDC's evidence-based guidelines outlining best practices for
combating the bacterium in that setting.
MRSA is currently addressed by the HAC payment provision. For every
infectious condition selected, MRSA could be the etiology of that
infection. For example, if MRSA were the cause of a vascular catheter-
associated infection (one of the eight conditions selected in the FY
2008 IPPS final rule with comment period), the HAC payment provision
would apply to that MRSA infection.
As we noted in the FY 2008 IPPS final rule with comment period,
colonization by MRSA is not a reasonably preventable HAC according to
the current evidence-based guidelines; therefore, MRSA does not meet
the reasonably preventable statutory criterion for an HAC. An estimated
32.4 percent of Americans are colonized with MRSA, which may reside in
the nose or on the skin of asymptomatic carriers.\11\ In addition, in
last year's final rule with comment period, we noted that there is no
CC/MCC code available for MRSA, and therefore it also does not meet the
codeable CC/MCC statutory criterion for an HAC. Only when MRSA causes
an infection does a codeable condition occur. However, we referenced
the possibility that new codes for MRSA were being considered by the
ICD-9-CM Coordination and Maintenance Committee. The creation of unique
codes to capture MRSA was discussed during the March 19-20, 2008
Committee meeting. While these codes will enhance the data available
and our understanding of MRSA, the availability and use of these codes
will not change the fact that the mere presence of MRSA as a colonizing
bacterium does not constitute an HAC.
---------------------------------------------------------------------------

\11\ Kuehnert, M.J., et al.: Prevalence of Staphylococcusa
aureus Nasal Colonization in the United States, 2001-2002. The
Journal of Infectious Disease, January 15, 2006; Vol. 193.
---------------------------------------------------------------------------

Because MRSA as a bacterium does not meet two of our statutory
criteria, codeable CC/MCC and reasonably preventable through evidence-
based guidelines, we are not proposing MRSA as an HAC. However, we
recognize the significant public health concerns that were raised by
representatives of consumers and purchasers at the HAC and POA
Listening Session, and we are committed to reducing the spread of
multi-drug resistant organisms, such as MRSA.
In addition, we are pursuing collaborative efforts with other HHS
agencies to combat MRSA. The Agency for Healthcare Research and Quality
(AHRQ) has launched a new initiative in collaboration with CDC and CMS
to identify and suppress the spread of MRSA and related infections. In
support of this work, Congress has appropriated $5 million to fund
research, implementation, management, and evaluation practices that
mitigate such infections.
CDC has carried out extensive research on the epidemiology of MRSA
and effective techniques that could be used to treat the infection and
reduce its spread. The following Web sites contain information that
reflect CDC's commitment: (1) http://www.cdc.gov/ncidod/dhqp/ar_
mrsa.html (health care-associated MRSA); (2) http://www.cdc.gov/ncidod/
dhqp/ar_mrsa_ca_public.html (community-acquired MRSA); (3) http://
www.cdc.gov/mmwr/preview/mmwrhtml/mm4908a1.htm; and (4) http://
www.cdc.gov/handhygiene/.
AHRQ has made previous investments in systems research to help
monitor MRSA and related infections in hospital settings, as reflected
in material on the Web site at: http://www.guideline.gov/browse/
guideline_index.aspx and http://www.ahrq.gov/clinic/ptsafety/pdf/
ptsafety.pdf.
8. Present on Admission (POA) Indicator Reporting
POA indicator information is necessary to identify which conditions
were acquired during hospitalization for the HAC payment provision and
for broader public health uses of Medicare data. Through Change Request
No. 5679 (released June 20, 2007), CMS issued instructions requiring
IPPS hospitals to submit the POA indicator data for all diagnosis codes
on Medicare claims. Specific instructions on how to select the correct
POA indicator for each diagnosis code are included in the ICD-9-CM
Official Guidelines for Coding and Reporting, available at the Web
site: http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/icdguide07.pdf
(POA

[[Page 23560]]

reporting guidelines begin on page 92). Additional instructions,
including information regarding CMS's phased implementation of POA
indicator reporting and application of the POA reporting options, are
available at the Web site: http://www.cms.hhs.gov/HospitalAcqCond.
There are five POA indicator reporting options: ``Y,'' ``N,''
``W,'' ``U,'' and ``1.'' Under the HAC payment provision, we are
proposing to pay the CC/MCC MS-DRGs only for those HACs coded as ``Y''
and ``W'' indicators. The ``Y'' option indicates that the condition was
present on admission. The ``W'' indicator affirms that the provider has
determined, based on data and clinical judgment, that it is not
possible to document when the onset of the condition occurred. We
expect that this approach will encourage better documentation and
promote the public health goals of POA reporting by providing more
accurate data about the occurrence of HACs in the Medicare population.
We anticipate that true clinical uncertainty will occur in only a very
small number of cases. We plan to analyze how frequently the ``W''
indicator is used, and we leave open the possibility of proposing in
future IPPS rulemaking not paying the CC/MCC MS-DRGs for HACs coded
with the ``W'' indicator. In addition, we plan to analyze whether both
the ``Y'' and ``W'' indicators are being used appropriately. Medicare
program integrity initiatives closely monitor for inaccurate coding and
coding that is inconsistent with medical record documentation. We are
seeking public comments regarding the proposed treatment of the ``Y''
and ``W'' POA reporting options under the HAC payment provision.
We are proposing to not pay the CC/MMC MS-DRGs for HACs coded with
the ``N'' indicator. The ``N'' option indicates that the condition was
not present on admission. We are also proposing to not pay the CC/MCC
MS-DRGs for HACs coded with the ``U'' indicator. The ``U'' option
indicates that the medical record documentation is insufficient to
determine whether the condition was present at the time of admission.
Not paying for the CC/MCC MS-DRGs for HACs that are coded with the
``U'' indicator is expected to foster better medical record
documentation.
Although we are proposing not paying the CC/MCC MS-DRG for HACs
coded with the ``U'' indicator, we do recognize there may be some
exceptional circumstances under which payment might be made. Death,
elopement (leaving against medical advice), and transfers out of a
hospital may preclude making an informed determination of whether an
HAC was present on admission. We are seeking public comments on the
potential use of the following current patient discharge status codes
to identify the exceptional circumstances:

Patient Discharge Status Codes
------------------------------------------------------------------------
Form locator code Code descriptor
------------------------------------------------------------------------
Exception for Patient Death
------------------------------------------------------------------------
20.................................... Expired.
------------------------------------------------------------------------
Exception for Patient Elopement (Leaving Against Medical Device)
------------------------------------------------------------------------
7..................................... Left against medical advice or
discontinued care.
------------------------------------------------------------------------
Exception for Transfer
------------------------------------------------------------------------
02.................................... Discharged/transferred to a
short-term general hospital for
inpatient care.
03.................................... Discharged/transferred to a
skilled nursing facility (SNF)
with Medicare certification in
anticipation of skilled care.
04.................................... Discharged/transferred to an
intermediate care facility
(ICF).
05.................................... Discharged/transferred to a
designated cancer center or
children's hospital.
06.................................... Discharged/transferred to home
under care of organized home
health service organization.
43.................................... Discharged/transferred to a
Federal health care facility.
50.................................... Hospice-home.
51.................................... Hospice-medical facility
(certified) providing hospice
level of care.
61.................................... Discharged/transferred to a
hospital-based Medicare
approved swing bed.
62.................................... Discharged/transferred to an
inpatient rehabilitation
facility (IRF) including
rehabilitation distinct part
units of a hospital.
63.................................... Discharged/transferred to a
Medicare certified long term
care hospital (LTCH).
64.................................... Discharged/transferred to a
nursing facility certified
under Medicaid but not
certified under Medicare.
65.................................... Discharged/transferred to a
psychiatric hospital or
psychiatric distinct part unit
of a hospital.
66.................................... Discharged/transferred to a
critical access hospital (CAH).
70.................................... Discharged/transferred to
another type of health care
institution not otherwise
defined in this code list.
------------------------------------------------------------------------

We plan to analyze whether both the ``N'' and ``U'' POA reporting
options are being used appropriately. The American Health Information
Management Association (AHIMA) has promulgated Standards of Ethical
Coding that require accurate coding regardless of the payment
implications of the diagnoses. That is, diagnoses must be reported
accurately regardless of their effect on payment. Medicare program
integrity initiatives closely monitor for inaccurate coding and coding
inconsistent with medical record documentation. We are seeking public
comments regarding the proposal to not pay the CC/MCC MS-DRGs for HACs
coded with ``N'' and ``U'' indicators.
9. Enhancement and Future Issues
The preventable HAC payment provision is one of CMS' VBP
initiatives, as noted earlier in this section. VBP ties payment to
performance through the use of incentives based on quality measures and
cost of care. The implementation of VBP is rapidly transforming CMS
from being a passive payer of claims to an active purchaser of higher
quality, more efficient health care for Medicare beneficiaries. Other
VBP initiatives include hospital pay for reporting (the RHQDAPU program
discussed in section IV.B. of the preamble of this proposed rule),
physician pay for reporting (the Physician Quality Reporting
Initiative), home health pay for reporting, the Hospital VBP Plan
Report to Congress (discussed in section IV.C. of the preamble of this
proposed rule), and various VBP demonstration

[[Page 23561]]

programs across payment settings, including the Premier Hospital
Quality Incentive Demonstration and the Physician Group Practice
Demonstration.
The success of CMS' VBP initiatives depends in large part on the
validity of the performance measures and on the effectiveness of
incentives in driving desired changes in behavior that will result in
greater quality and efficiency. We are committed to enhancing the
Medicare VBP programs, in close collaboration with stakeholders, to
fulfill VBP's potential to promise of promoting higher value health
care for Medicare beneficiaries. It is in this spirit that we seek
public comment on enhancements to the preventable HACs payment policy
and to concomitant POA indicator reporting.
We welcome all public comments presenting ideas and models for
combating preventable HACs through the application of VBP principles.
To stimulate reflection and creativity, we present several options:
Risk adjustment could be applied to make the HAC payment
provision more precise.
Rates of HACs could be collected to obtain a more robust
longitudinal measure of a hospital's incidence of these conditions.
POA information could be used in various ways to decrease
the incidence of preventable HACs.
The adoption of ICD-10-PCS could facilitate more precise
identification of HACs.
The principle behind the HAC payment provision (Medicare
not paying more for preventable HACs) could be applied to Medicare
payments in settings of care other than the IPPS.
CMS is using authority other than the HAC payment
provision to address other events on the NQF's list of Serious
Reportable Adverse Events.
We note that we are not proposing new Medicare policy in this
Enhancements and Future Issues discussion, as some of these approaches
may require new statutory authority.
a. Risk Adjustment
To make the HAC payment provision more precise, the adjustments to
payment made when one of the selected HACs occurs during the
hospitalization could be further adjusted to account for patient-
specific risk factors. The expected occurrence of an HAC may be greater
or lesser depending on the health status of the patient, as reflected
by severity of illness, presence of comorbidities, or other factors.
Rather than not paying any additional amount for the complication, the
additional payment for the complication could range from zero for the
lowest risk patient to the full amount for the highest risk patient. An
option may be individualized adjustment for every hospitalization based
on the patient's unique characteristics, but state-of-the-art risk
adjustment currently precludes such individualized adjustment.
b. Rates of HACs
Given our limited capability at present for precise patient-level
risk adjustment, adding a consideration of risk to the criteria for
selecting HACs could be an alternative. If primarily high-risk patients
are acquiring a certain condition during hospitalization, that
condition could be considered a less-fit candidate for selection. Other
alternatives to precise individualized risk adjustment could be
adjustment for overall facility case mix or facility case-mix by
condition. At the highest level, national Medicare program data could
be used to make adjustments to the payment implications for the
selected HACs based on expected rates of complications. Another option
could be to designate certain patient risk factors as exemptions that
would prohibit or mitigate the application of the HAC payment policy to
the claims of patients with those risk factors.
The Medicare Hospital VBP Plan was submitted in a Report to
Congress on November 21, 2007. The plan includes a performance
assessment model that scores a hospital's attainment or improvement on
various measures. The scores for each measure would be summed within
each domain, such as the clinical process of care domain or the patient
experience domain, and then the domains would be weighted and summed to
yield a total performance score. The total performance score would then
be translated into an incentive payment, proposed to be a certain
percentage of each MS-DRG payment, using an exchange function. The plan
also calls for public reporting of hospitals' performance scores by
domain and in total. (Section IV.C. of this preamble included a related
discussion of the Hospital VBP Plan Report to Congress.)
In accordance with this hospital VBP model, a hospital's rates of
HACs could be included as a domain within each hospital's total
performance score. The measurement of rates over time could be a more
meaningful, actionable, and fair way to adjust a hospital's MS-DRG
payments for the incidence of HACs. The consequence of a higher
incidence of measured conditions would be a lower VBP incentive
payment. Public reporting of the measured rates of HACs would give
hospitals an additional, nonfinancial incentive to prevent occurrence
of the conditions to avoid lower public ratings.
c. Use of POA Information
Information obtained from hospitals' reporting of POA data could be
used in various ways to better understand and prevent the occurrence of
HACs. The POA information could be provided to health services
researchers to analyze factors that lead to HACs and disseminate the
best practices for prevention of HACs. At least two states, New York
and California, already collect POA data from their hospitals.
Comparison of the State POA data with the Medicare data could fill in
gaps in the databases and yield valuable insights about POA data
validity.
POA data could also be used to calculate the incidence of HACs by
hospital. This application of the POA data would be particularly
powerful if the Medicare POA data were combined with state or private
sector payer POA data. The Medicare-only or combined quality of care
information could be initially shared with hospitals and thereafter
publicly reported to support better healthcare decision making by
Medicare beneficiaries, other health care consumers, professionals, and
caregivers.
d. Transition to ICD-10-PCS
Accurate identification of HACs requires unambiguous and precise
diagnosis codes. The current ICD-9-CM diagnosis coding system is three
decades old. It is outdated and contains numerous instances of broad
and vague codes. Attempts to add necessary detail to the ICD-9-CM
system are inhibited by lack of expansion capacity. These factors
negatively affect CMS' attempts to identify HAC cases.
ICD-10-PCS codes are more precise and capture information using
more current medical terminology. For example, ICD-9-CM codes for
pressure ulcers do not provide information about the size, depth, or
exact location of the ulcer, while ICD-10-PCS has 60 codes to capture
this information. ICD-10-PCS would also provide codes, beyond the
current ICD-9-CM codes, that would enable the selection of additional
surgical complications and adverse drug events.
e. Application of Nonpayment for HACs to Other Settings
The broad principle of Medicare not paying for preventable health
care-associated conditions could potentially be applied to Medicare
payment settings other than IPPS hospitals. Other

[[Page 23562]]

possible settings of care might include hospital outpatient
departments, SNFs, HHAs, end-stage renal disease facilities, and
physician practices. The implications would be different for each
setting, as each payment system is different and the reasonable
preventability through the application of evidence-based guidelines
would vary for candidate conditions over the different settings.
However, alignment of incentives across settings of care is an
important goal for all of CMS' VBP initiatives, including the HAC
provision.
A related application of the broad principle behind the HAC payment
could be accomplished through modification to the Medicare secondary
payer policy which would allow us to directly recoup from the provider
that failed to prevent the occurrence of a preventable condition in one
setting to pay for all or part of the necessary followup care in a
second setting. This would help shield the Medicare program from
inappropriately paying for the downstream effects of a preventable
condition acquired in the first setting but treated in the second
setting.
f. Relationship to NQF's Serious Reportable Adverse Events
CMS is applying its authority to address the events on the NQF's
list of Serious Reportable Adverse Events (also known as ``never
events''). In May 2006 testimony before the Senate Finance Committee,
the CMS Administrator noted that paying hospitals for serious
preventable events is contrary to the promise that hospital payments
should support higher quality and efficiency. There is growing
consensus that health care purchasers should not be paying for these
events when they occur during a hospitalization. In January 2005,
HealthPartners, a Minnesota-based not-for-profit HMO, announced that it
would no longer reimburse hospitals for services associated with events
enumerated in the Minnesota Adverse Health Care Events Reporting Act
(essentially the NQF's list of Serious Reportable Adverse Events).
Further, HealthPartners' contracts preclude hospitals from seeking
reimbursement from the patient for these costs. During 2007, several
State hospital associations adopted policies stating that their members
will not bill payers or patients when these events occur in their
hospitals.
In the FY 2008 IPPS final rule with comment period, we adopted
several items from the NQF's list of events as HACs, including retained
foreign object after surgery, air embolism, blood incompatibility,
stage III and IV pressure ulcers, falls, electric shock, and burns. In
this proposed rule, we are seeking public comments regarding adding
hypoglycemic coma, which is closely related to NQF's listing of death
or serious disability associated with hypoglycemia. However, as we
discussed in the FY 2008 IPPS final rule with comment period, the HAC
payment provision is not ideally suited to address every condition on
the NQF's list of Serious Reportable Adverse Events. To address the
events on the NQF's list beyond the effect of the HAC policy, CMS is
exploring the application of Medicare authority, including other
payment provisions, coverage policy, conditions of participation, and
Quality Improvement Organization (QIO) retrospective review.
We note that we are not proposing new Medicare policy in this
discussion of the HAC payment provision for IPPS hospitals, as some of
these approaches may require new statutory authority. We are seeking
public comments on these and other options for enhancing the
preventable HACs payment provision and maximizing the use of POA
indicator reporting data. We look forward to working with stakeholders
in the fight against HACs.

G. Proposed Changes to Specific MS-DRG Classifications

1. Pre-MDCs: Artificial Heart Devices
Heart failure affects more than 5 million patients in the United
States with 550,000 new cases each year, and causes more than 55,000
deaths annually. It is a progressive disease that is medically managed
at all stages, but over time leads to continued deterioration of the
heart's ability to pump sufficient amounts of adequately oxygenated
blood throughout the body. When medical management becomes inadequate
to continue to support the patient, the patient's heart failure would
be considered to be the end stage of the disease. At this point, the
only remaining treatment options are a heart transplant or mechanical
circulatory support. A device termed an artificial heart has been used
only for severe failure of both the right and left ventricles, also
known as biventricular failure. Relatively small numbers of patients
suffer from biventricular failure, but the exact numbers are unknown.
There are about 4,000 patients approved and waiting to receive heart
transplants in the United States at any given time, but only about
2,000 hearts per year are transplanted due to a scarcity of donated
organs. There are a number of mechanical devices that may be used to
support the ventricles of a failing heart on either a temporary or
permanent basis. When it is apparent that a patient will require long-
term support, a ventricular support device is generally implanted and
may be considered either as a bridge to recovery or a bridge to
transplantation. Sometimes a patient's prognosis is uncertain, and with
device support the native heart may recover its function. However when
recovery is not likely, the patient may qualify as a transplant
candidate and require mechanical circulatory support until a donor
heart becomes available. This type of support is commonly supplied by
ventricular assist devices, (VADs), which are surgically attached to
the native ventricles but do not replace them.
Devices commonly called artificial hearts are biventricular heart
replacement systems that differ from VADs in that a substantial part of
the native heart, including both ventricles, is removed. When the heart
remains intact, it remains possible for the native heart to recover its
function after being assisted by a VAD. However, because the artificial
heart device requires the resection of the ventricles, the native heart
is no longer intact and such recovery is not possible. The designation
``artificial heart'' is somewhat of a misnomer because some portion of
the native heart remains and there is no current mechanical device that
fully replaces all four chambers of the heart. Over time, better
descriptive language for these devices may be adopted.
In 1986, CMS made a determination that the use of artificial hearts
was not covered under the Medicare program. To conform to that
decision, we placed ICD-9-CM procedure code 37.52 (Implantation of
total replacement heart system) on the GROUPER program's MCE in the
noncovered procedure list.
On August 1, 2007, CMS began a national coverage determination
process for artificial hearts. SynCardia Systems, Inc. submitted a
request for reconsideration of the longstanding noncoverage policy when
its device, the CardioWest Temporary Total Artificial Heart (TAH-t)
System, is used for ``bridge to transplantation'' in accordance with
the FDA-labeled indication for the device. ``Bridge to
transplantation'' is a phrase meaning that a patient in end-stage heart
failure may qualify as a heart transplant candidate, but will require
mechanical circulatory support until a donor heart becomes available.
The CardioWest TAH-t System is indicated for use as a bridge to
transplantation in cardiac transplant-eligible candidates at risk of
imminent death from biventricular

[[Page 23563]]

failure. The system is intended for use inside the hospital as the
patient awaits a donor heart. The ultimate desired outcome for
insertion of the TAH-t is a successful heart transplant, along with the
potential that offers for cure from heart failure.
CMS determined that a broader analysis of artificial heart coverage
was deemed appropriate, as another manufacturer, Abiomed, Inc. has
developed an artificial heart device, AbioCor[reg] Implantable
Replacement Heart Device, with different indications. SynCardia
Systems, Inc has received approval of its device from the FDA for
humanitarian use as destination therapy for patients in end-stage
biventricular failure who cannot qualify as transplant candidates. The
AbioCor[reg] Implantable Replacement Heart Device is indicated for use
in severe biventricular end-stage heart disease patients who are not
cardiac transplant candidates and who are less than 75 years old, who
require multiple inotropic support, who are not treatable by VAD
destination therapy, and who cannot be weaned from biventricular
support if they are on such support. The desired outcome for this
device is prolongation of life and discharge to home.
On February 1, 2008, CMS published a proposed coverage decision
memorandum for artificial hearts which stated, in part, that while the
evidence is inadequate to conclude that the use of an artificial heart
is reasonable and necessary for Medicare beneficiaries, the evidence is
promising for the uses of artificial heart devices as described above.
CMS supports additional research for these devices, and therefore
proposed that the artificial heart will be covered by Medicare when
performed under the auspices of a clinical study. The study must meet
all of the criteria listed in the proposed decision memorandum. This
proposed coverage decision memorandum may be found on the CMS Web site
at: http://www.cms.hhs.gov/mcd/viewdraftdecisionmemo.asp?id=211.
Following consideration of the public comments received, CMS expects to
make a final decision on or about May 1, 2008.
The topic of coding of artificial heart devices was discussed at
the September 27-28, 2007 ICD-9-CM Coordination and Maintenance
Committee meeting held at CMS in Baltimore, MD. We note that this topic
was placed on the Committee's agenda because any proposed changes to
the ICD-9-CM coding system must be discussed at a Committee meeting,
with opportunity for comment from the public. At the September 2007
Committee meeting, the Committee accepted oral comments from
participants and encouraged attendees or anyone with an interest in the
topic to comment on proposed changes to the code, inclusion terms, or
exclusion terms. We accepted written comments until October 12, 2007.
As a result of discussion and comment from the Committee meeting, the
Committee revised the title of procedure code 37.52 for artificial
hearts to read ``Implantation of internal biventricular heart
replacement system.'' In addition, the Committee created new code 37.55
(Removal of internal biventricular heart replacement system) to
identify explantation of the artificial heart prior to heart
transplantation.
To make conforming changes to the IPPS system with regard to the
proposed revision to the coverage decision for artificial hearts, in
this proposed rule, we are proposing to remove procedure code 37.52
from MS-DRG 215 (Other Heart Assist System Implant) and assign it to
MS-DRG 001 (Heart Transplant or Implant of Heart Assist System with
Major Comorbidity or Complication (MCC)) and MS-DRG 002 (Heart
Transplant or Implant of Heart Assist System without Major Comorbidity
or Complication (MCC)). In addition, we are proposing to remove
procedure code 37.52 from the MCE ``Non-Covered Procedure'' edit and
assign it to the ``Limited Coverage'' edit. We are proposing to include
in this proposed edit the requirement that ICD-9-CM diagnosis code
V70.7 (Examination of participant in clinical trial) also be present on
the claim. We are proposing that claims submitted without both
procedure code 37.52 and diagnosis code V70.7 would be denied because
they would not be in compliance with the proposed coverage policy.
During FY 2008, we are making mid-year changes to portions of the
GROUPER program that do not affect MS-DRG assignment or ICD-9-CM
coding. However, as the proposed coverage decision memorandum for
artificial hearts was published after the CMS contractor's testing and
release of the mid-year product, the above proposed changes to the MCE
will not be included in that revision of the GROUPER Version 25.0.
GROUPER Version 26.0, which will be in use for FY 2009, will contain
the proposed changes if they are approved. If the proposed revisions to
the MCE are accepted, the edits in the MCE Version 25.0 will be
effective retroactive to May 1, 2008. (To reduce confusion, we note
that the version number of the MCE is one digit lower than the current
GROUPER version number; that is, Version 26.0 of the GROUPER uses
Version 25.0 of the MCE.)
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator
(tPA)
In 1996, the FDA approved the use of tissue plasminogen activator
(tPA), one type of thrombolytic agent that dissolves blood clots. In
1998, the ICD-9-CM Coordination and Maintenance Committee created code
99.10 (Injection or infusion of thrombolytic agent) in order to be able
to uniquely identify the administration of these agents. Studies have
shown that tPA can be effective in reducing the amount of damage the
brain sustains during an ischemic stroke, which is caused by blood
clots that block blood flow to the brain. tPA is approved for patients
who have blood clots in the brain, but not for patients who have a
bleeding or hemorrhagic stroke. Thrombolytic therapy has been shown to
be most effective when used within the first 3 hours after the onset of
an embolic stroke, but it is contraindicated in hemorrhagic strokes.
For FY 2006, we modified the structure of CMS DRGs 14 (Intracranial
Hemorrhage or Cerebral Infarction) and 15 (Nonspecific CVA and
Precerebral Occlusion without Infarction) by removing the diagnostic
ischemic (embolic) stroke codes. We created a new CMS DRG 559 (Acute
Ischemic Stroke with Use of Thrombolytic Agent) which increased
reimbursement for patients who sustained an ischemic or embolic stroke
and who also had administration of tPA. The intent of this DRG was not
to award higher payment for a specific drug but to recognize the need
for better overall care for this group of patients. Even though tPA is
indicated only for a small proportion of stroke patients, that is,
those patients experiencing ischemic strokes treated within 3 hours of
the onset of symptoms, our data suggested that there was a sufficient
quantity of patients to support the DRG change. While our goal is to
make payment relate more closely to resource use, we also note that use
of tPA in a carefully selected patient population may lead to better
outcomes and overall care and may lessen the need for postacute care.
For FY 2008, with the adoption of MS-DRGs, CMS DRG 559 became MS-
DRGs 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with
MCC), 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with
CC), and 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent
without CC/MCC). Stroke cases in which no thrombolytic

[[Page 23564]]

agent was administered were grouped to MS-DRGs 064 (Intracranial
Hemorrhage or Cerebral Infarction with MCC), 065 (Intracranial
Hemorrhage or Cerebral Infarction with CC), or 066 (Intracranial
Hemorrhage or Cerebral Infarction without CC/MCC). The MS-DRGs that
reflect use of a thrombolytic agent, that is, MS-DRGs 061, 062, and
063, have higher relative weights than the hemorrhagic or cerebral
infarction MS-DRGs 064, 065, and 066.
The American Society of Interventional and Therapeutic
Neuroradiology (ASITN) has made us aware of a treatment issue that is
of concern to the stroke provider's community. In some instances,
patients suffering an embolytic or thrombolytic stroke are evaluated
and given tPA in a community hospital's emergency department, and then
are transferred to a larger facility's stroke center that is able to
provide the level of services required by the increased severity of
these cases. The facility providing the administration of tPA in its
emergency department does not realize increased reimbursement, as the
patient is often transferred as soon a possible to a stroke center. The
facility to which the patient is transferred does not realize increased
reimbursement, as the tPA was not administered there. The ASITN has
requested that CMS give permission to code the administration of tPA as
if it had been given in the receiving facility. This would result in
the receiving facility being paid the higher weighted MS-DRGs 061, 062,
or 063 instead of MS-DRGs 064, 065, or 066. The ASITN's rationale is
that the patients who received tPA in another facility (even though
administration of tPA may have alleviated some of the worst
consequences of their strokes) are still extremely compromised and
require increased health care services that are much more resource
consumptive than patients with less severe types of stroke. We have
advised the ASITN that hospitals may not report services that were not
performed in their facility.
We recognize that the ASITN's concerns potentially have merit but
the quantification of the increased resource consumption of these
patients is not currently possible in the existing ICD-9-CM coding
system. Without specific length of stay and average charges data, we
are unable to determine an appropriate MS-DRG for these cases.
Therefore, we have advised the ASITN to present a request at the
diagnostic portion of the ICD-9-CM Coordination and Maintenance
Committee meeting on March 20, 2008, for a code that would recognize
the fact that the patient had received a thrombolytic agent for
treatment of the current stroke. If this request is presented at the
March 20, 2008 meeting, it will not be approved in time to be published
as a final code in this proposed rule. However, if a diagnosis code is
created by the National Centers for Health Statistics as a result of
that meeting, it can be added to the list of codes published in the FY
2009 IPPS final rule that will go into effect on October 1, 2008. With
such information appearing on subsequent claims, we will have a better
idea of how to classify these cases within the MS-DRGs. Therefore,
because we lack the data to identify these patients, we are not
proposing an MS-DRG modification for the stroke patients receiving tPA
in one facility prior to being transferred to another facility.
b. Intractable Epilepsy With Video Electroencephalogram (EEG)
As we did for FY 2008, we received a request from an individual
representing the National Association of Epilepsy Centers to consider
further refinements to the MS-DRGs describing seizures. Specifically,
the representative recommended that a new MS-DRG be established for
patients with intractable epilepsy who receive an electroencephalogram
with video monitoring (vEEG) during their hospital stay. Similar to the
initial recommendation, the representative stated that patients who
suffer from uncontrolled seizures or intractable epilepsy are admitted
to an epilepsy center for a comprehensive evaluation to identify the
epilepsy seizure type, the cause of the seizure, and the location of
the seizure. These patients are admitted to the hospital for 4 to 6
days with 24-hour monitoring that includes the use of EEG video
monitoring along with cognitive testing and brain imaging procedures.
Effective October 1, 2007, MS-DRG 100 (Seizures with MCC) and MS-
DRG 101 (Seizures without MCC) were implemented as a result of
refinements to the DRG system to better recognize severity of illness
and resource utilization. Once again, the representative applauded CMS
for making changes in the DRG structure to better recognize differences
in patient severity. However, the representative stated that a subset
of patients in MS-DRG 101 who have a primary diagnosis of intractable
epilepsy and are treated with vEEG are substantially more costly to
treat than other patients in this MS-DRG and represent the majority of
patients being evaluated by specialized epilepsy centers.
Alternatively, the representative stated that he was not requesting any
change in the structure of MS-DRG 100. According to the representative,
the number of cases that would fall into this category is not
significant. The representative further noted that this is a change
from last year's request.
Epilepsy is currently identified by ICD-9-CM diagnosis codes 345.0x
through 345.9x. There are two fifth digits that may be assigned to a
subset of the epilepsy codes depending on the physician documentation:
``0'' for without mention of intractable epilepsy.
``1'' for with intractable epilepsy.
With the assistance of an outside reviewer, the representative
analyzed cost data for MS-DRGs 100 and 101, which focused on three
subsets of patients identified with a primary diagnosis of epilepsy or
convulsions who also received vEEG (procedure code 89.19):
Patients with a primary diagnosis of epilepsy with
intractability specified (codes 345.01 through 345.91).
Patients with a primary diagnosis of epilepsy without
intractability specified (codes 345.00 through 345.90).
Patients with a primary diagnosis of convulsions (codes
780.39).
The representative acknowledged that the association did not
include any secondary diagnoses in its analyses. Based on its results,
the representative recommended that CMS further refine MS-DRG 101 by
subdividing cases with a primary diagnosis of intractable epilepsy
(codes 345.01 through 345.91) when vEEG (code 89.19) is also performed
into a separate MS-DRG that would be defined as ``MS-DRG XXX''
(Epilepsy Evaluation without MCC).
According to the representative, these cases are substantially more
costly than the other cases within MS-DRG 101 and are consistent with
the criteria for dividing MS-DRGs on the basis of CCs and MCCs. In
addition, the representative stated that the request would have a
minimal impact on most hospitals but would substantially improve the
accuracy of payment to hospitals specializing in epilepsy care.
We performed an analysis using FY 2007 MedPAR data. As shown in the
table below, we found a total of 54,060 cases in MS-DRG 101 with
average charges of $14,508 and an average length of stay of 3.69 days.
There were 879 cases with intractable epilepsy and vEEG with average
charges of $19,227 and an average length of stay of 5 days.

[[Page 23565]]

In applying the criteria to establish subgroups, the data do not
support the creation of a new subdivision for MS-DRG 101 for cases with
intractable epilepsy and vEEG nor does the data support moving the 879
cases from MS-DRG 101 to MS-DRG 100. Moving the 879 cases to MS-DRG 100
would mean moving cases with average charges of approximately $19,000
into an MS-DRG with average charges of $28,000. Therefore, we are not
proposing to refine MS-DRG 101 by subdividing cases with a primary
diagnosis of intractable epilepsy (codes 345.01 through 345.91) when
vEEG (code 89.19) is also performed into a separate MS-DRG.
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and
Generator Procedures
In the FY 2008 IPPS final rule with comment period (72 FR 47257),
we created a separate, stand alone DRG for automatic implantable
cardioverter-defibrillator (AICD) generator replacements and
defibrillator lead replacements. The new MS-DRG 245 (AICD lead and
generator procedures) contains the following codes:
00.52, Implantation or replacement of transvenous lead
[electrode] into left ventricular coronary venous system.
00.54, Implantation or replacement of cardiac
resynchronization defibrillator pulse generator device only [CRT-D].
37.95, Implantation of automatic cardioverter/
defibrillator leads(s) only.
37.96, Implantation of automatic cardioverter/
defibrillator pulse generator only.
37.97, Replacement of automatic cardioverter/defibrillator
leads(s) only.
37.98, Replacement of automatic cardioverter/defibrillator
pulse generator only.
Commenters on the FY 2008 IPPS proposed rule supported this new MS-
DRG, which recognizes the distinct differences in resource utilization
between pacemaker and defibrillator generators and leads, but suggested
that CMS should consider additional refinements for the defibrillator
generator and leads. In reviewing the standardized charges for the AICD
leads, the commenter believed that the leads may be more appropriately
assigned to another DRG such as MS-DRG 243 (Permanent Cardiac Pacemaker
Implant with CC) or MS-DRG 258 (Cardiac Pacemaker Device Replacement
with MCC). The commenter recommended that CMS consider moving the
defibrillator leads back into a pacemaker DRG, either MS-DRG 243 or MS-
DRG 258.
In response to the commenters, we indicated that the data supported
separate DRGs for these very different devices (72 FR 47257). We
indicated that moving the defibrillator leads back into a pacemaker MS-
DRG defeated the purpose of creating separate MS-DRGs for
defibrillators and pacemakers. Therefore, we finalized MS-DRG 245 as
proposed with the leads and generator codes listed above.
After publication of the FY 2008 IPPS final rule with comment
period, we received a request from a manufacturer that recommended a
subdivision for MS-DRG 245 (AICD Lead and Generator Procedures). The
requestor suggested creating a new MS-DRG to separate the implantation
or replacement of the AICD leads from the implantation or replacement
of the AICD pulse generators to better recognize the differences in
resource utilization for these distinct procedures.
The requestor applauded CMS' decision to create separate MS-DRGs
for the pacemaker device procedures from the AICD procedures in the FY
2008 IPPS final rule (72 FR 47257). The requestor further acknowledged
its support of the clinically distinct MS-DRGs for pacemaker devices.
Currently, MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement
with MCC and without MCC, respectively) describe the implantation or
replacement of pacemaker generators while MS-DRGs 260, 261, and 262
(Cardiac Pacemaker Revision Except Device Replacement with MCC, with
CC, without CC/MCC, respectively) describe the insertion or replacement
of pacemaker leads.
The requestor believed that the IPPS ``needs to continue to evolve
to accurately reflect clinical differences and costs of services.'' As
such, the requestor recommended that CMS follow the same structure as
it did with the pacemaker MS-DRGs for MS-DRG 245 to separately identify
the implantation or replacement of the defibrillator leads (codes
37.95, 37.97, and 00.52) from the implantation or replacement of the
pulse generators (codes 37.96, 37.98, 00.54).
In our analysis of the FY 2007 MedPAR data, we found a total of
5,546 cases in MS-DRG 245 with average charges of $62,631 and an
average length of stay of 3.3 days. We found 1,894 cases with
implantation or replacement of the defibrillator leads (codes 37.95,
37.97, and 00.52) with average charges of $42, 896 and an average
length of stay of 3.4 days. We also found a total of 3,652 cases with
implantation or replacement of the pulse generator (codes 37.96, 37.98,
00.54) with average charges of $72, 866 and an average length of stay
of 3.2 days.
We agree with the requestor that the IPPS should accurately
recognize differences in resource utilization for clinically distinct
procedures. As the data demonstrate, average charges for the
implantation or replacement of the AICD pulse generators are
significantly higher than for the implantation or replacement of the
AICD leads. Therefore, we are proposing to create a new MS-DRG 265 to
separately identify these distinct procedures. The proposed new MS-DRG
265 would be titled ``AICD Lead Procedures'' and would include
procedure codes that identify the AICD leads (codes 37.95, 37.97 and
00.52). The title for MS-DRG 245 would be revised to ``AICD Generator
Procedures'' and include procedure codes 37.96, 37.98, 00.54. We
believe these changes would better reflect the clinical differences and
resources utilized for these distinct procedures.

[[Page 23566]]

b. Left Atrial Appendage Device
Atrial fibrillation (AF) is the primary cardiac abnormality
associated with ischemic or embolytic stroke. Most ischemic strokes
associated with AF are possibly due to an embolism or thrombus that has
formed in the left atrial appendage. Evidence from studies such as
transesophageal echocardiography shows left atrial thrombi to be more
frequent in AF patients with ischemic stroke as compared to AF patients
without stroke. While anticoagulation medication can be efficient in
ischemic stroke prevention, there can be problems of safety and
tolerability in many patients, especially those older than 75 years.
Chronic warfarin therapy has been proven to reduce the risk of embolism
but there can be difficulties concerning its administration. Frequent
blood tests to monitor warfarin INR are required at some cost and
patient inconvenience. In addition, because warfarin INR is affected by
a large number of drug and dietary interactions, it can be
unpredictable in some patients and difficult to manage. The efficacy of
aspirin for stroke prevention in AF patients is less clear and remains
controversial. With the known disutility of warfarin and the
questionable effectiveness of aspirin, a device-based solution may
provide added protection against thromboembolism in certain patients
with AF.
At the April 1, 2004 ICD-9-CM Coordination and Maintenance
Committee meeting, a proposal was presented for the creation of a
unique procedure code describing insertion of the left atrial appendage
filter system. Subsequently, ICD-9-CM code 37.90 (Insertion of left
atrial appendage device) was created for use beginning October 1, 2004.
This code was designated as a non-operating room (non-O.R.) procedure,
and had an effect only on cases in MDC 5, CMS DRG 518 (Percutaneous
Cardiovascular Procedure without Coronary Artery Stent or Acute
Myocardial Infarction). With the adoption of MS-DRGs in FY 2008, CMS
DRG 518 was divided into MS-DRGs 250 and 251 (Percutaneous
Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC,
and without MCC, respectively).
We have reviewed the data concerning this procedure code annually.
Using FY 2005 MedPAR data for the FY 2007 IPPS final rule, 24 cases
were reported, and the average charges ($27,620) closely mimicked the
average charges of the other 22,479 cases in CMS DRG 518 ($28,444). As
the charges were comparable, we made no recommendations to change the
CMS DRG assignment for FY 2007.
Using FY 2006 MedPAR data for the FY 2008 final rule with comment
period, we divided CMS DRG 518 into the cases that would be reflected
in the MS-DRG configuration; that is, we divided the cases based on the
presence or absence of an MCC. There were 35 cases without an MCC with
average charges of $24,436, again mimicking the 38,002 cases with
average charges of $32,546. There were 3 cases with MCC with average
charges of $62,337, compared to the 5,458 cases also with an MCC with
average charges of $53,864. Again it was deemed that cases with code
37.90 were comparable to the rest of the cases in CMS DRG 518, and the
decision was made not to make any changes in the DRG assignment for
this procedure code. As noted above, CMS DRG 518 became MS-DRGs 250 and
251 in FY 2008.
We have received a request regarding code 37.90, and its placement
within the MS-DRG system for FY 2009. The requestor asked for either
the reassignment of code 37.90 to an MS-DRG that would adequately cover
the costs associated with the complete procedure or the creation of a
new MS-DRG that would reimburse hospitals adequately for the cost of
the device. The requestor, a manufacturer's representative, reported
that the device's IDE clinical trial is nearing completion, with the
conclusion of study enrollment in May 2008. The requestor will continue
to enroll patients in a Continued Use Registry following completion of
the trial. The requestor reported that it did not charge hospitals for
the atrial appendage device, estimated to cost $6,000, during the trial
period, but it will begin to charge hospitals upon the completion of
the trial in May. The requestor provided us with its data showing what
it believed to be a differential of $107 more per case than the payment
average for MS-DRG 250, and a shortfall of $3,808 per case than the
payment average for MS-DRG 251.
The requestor pointed out that code 37.90 is assigned to both MS-
DRGs 250 and 251, but stated that the final MS-DRG assignment would be
MS-DRG 251 when the patient has a principal diagnosis of atrial
fibrillation (code 427.31) because AF is not presently listed as a CC
or an MCC. We would take this opportunity to note that the principal
diagnosis is used to determine assignment of a case to the correct MDC.
Secondary or additional diagnosis codes are the only codes that can be
used to determine the presence of a CC or an MCC.
With regard to the request to create a specific DRG for the
insertion of this device entitled ``Percutaneous Cardiovascular
Procedures with Implantation of a Left Atrial Appendage Device without
CC/MCC'', we would point out that the payments under a prospective
payment system are predicated on averages. The device is already
assigned to MS-DRGs containing other percutaneous cardiovascular
devices; to create a new MS-DRG specific to this device would be to
remove all other percutaneously inserted devices and base the MS-DRG
assignment solely on the presence of code 37.90. This approach negates
our longstanding method of grouping like procedures, and removes the
concept of averaging. Further, to ignore the structure of the MS-DRG
system solely for the purpose of increasing payment for one device
would set an unwelcome precedent for defining all of the other MS-DRGs
in the system. We would also point out that the final rule establishing
the MS-DRGs set forth five criteria, all five of which are required to
be met, in order to warrant creation of a CC or an MCC subgroup within
a base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule
with comment period (72 FR 47169). One of the criteria specifies that
there will be at least 500 cases in the CC or MCC subgroup. To date,
there are not enough cases of code 37.90 reported within the MedPAR
data.
Using FY 2007 MedPAR data, for this FY 2009 IPPS proposed rule, we
reviewed MS-DRGs 250 and 251 for the presence of the left atrial
appendage device. The following table displays our results:

[[Page 23567]]

251--Cases with code 37.90........................ 101 1.30 20,846.09
251--Cases without code 37.90..................... 39,335 2.85 35,757.98
----------------------------------------------------------------------------------------------------------------

There were a total of 105 cases with code 37.90 reported for
Medicare beneficiaries in the 2007 MedPAR data. There are 4 cases with
an atrial appendage device in MS-DRG 250 that have higher average
charges than the other 6,420 cases in the MS-DRG, and that have
slightly shorter lengths of stay by 1.25 days. However, the more
telling data are located in MS-DRG 251, which shows that the 101 cases
in which an atrial appendage device was implanted have much lower
average charges ($20,846.09) than the other 39,355 cases in the MS-DRG,
with average charges of $35,758.98. The difference in the average
charges is approximately $14,912, so even when the manufacturer begins
charging the hospitals the estimated $6,000 for the device, there is
still a difference of approximately $8,912 in average charges based on
the comparison within the total MS-DRG 251. Interestingly, the 101
cases also have an average length of stay of less than half of the
average length of stay compared to the other cases assigned to that MS-
DRG.
Because the data do not support either the creation of a unique MS-
DRG or the assignment of procedure code 37.90 to another higher-
weighted MS-DRG, we are not proposing any change to MS-DRGs 250 and
251, or to code 37.90 for FY 2009. We believe, based on the past 3
year's comparisons, that this code is appropriately located within the
MS-DRG structure.
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue): Hip and Knee Replacements and Revisions
For FY 2009, we again received a request from the American
Association of Hip and Knee Surgeons (AAHKS), a specialty group within
the American Academy of Orthopedic Surgeons (AAOS), concerning
modifications of the lower joint procedure MS-DRGs. The request is
similar, in some respects, to the AAHKS's request in FY 2008,
particularly as it relates to separating routine and complex
procedures. For the benefit of the reader, we are republishing a
history of the development of DRGs for hip and knee replacements and a
summary of the AAHKS FY 2008 request that were included in the FY 2008
IPPS final rule with comment period (72 FR 47222 through 47224) before
we discuss the AAHKS's more recent request.
a. Brief History of Development of Hip and Knee Replacement Codes
In the FY 2006 IPPS final rule (70 FR 47303), we deleted CMS DRG
209 (Major Joint and Limb Reattachment Procedures of Lower Extremity)
and created two new CMS DRGs: 544 (Major Joint Replacement or
Reattachment of Lower Extremity) and 545 (Revision of Hip or Knee
Replacement). The two new CMS DRGs were created because revisions of
joint replacement procedures are significantly more resource intensive
than original hip and knee replacements procedures. CMS DRG 544
included the following procedure code assignments:
81.51, Total hip replacement.
81.52, Partial hip replacement.
81.54, Total knee replacement.
81.56, Total ankle replacement.
84.26, Foot reattachment.
84.27, Lower leg or ankle reattachment.
84.28, Thigh reattachment.
CMS DRG 545 included the following procedure code assignments:
00.70, Revision of hip replacement, both acetabular and
femoral components.
00.71, Revision of hip replacement, acetabular component.
00.72, Revision of hip replacement, femoral component.
00.73, Revision of hip replacement, acetabular liner and/
or femoral head only.
00.80, Revision of knee replacement, total (all
components).
00.81, Revision of knee replacement, tibial component.
00.82, Revision of knee replacement, femoral component.
00.83, Revision of knee replacement, patellar component.
00.84, Revision of knee replacement, tibial insert
(liner).
81.53, Revision of hip replacement, not otherwise
specified
81.55, Revision of knee replacement, not otherwise
specified
Further, we created a number of new ICD-9-CM procedure codes
effective October 1, 2005, that better distinguish the many different
types of joint replacement procedures that are being performed. In the
FY 2006 IPPS final rule (70 FR 47305), we indicated a commenter had
requested that, once we receive claims data using the new procedure
codes, we closely examine data from the use of the codes under the two
new CMS DRGs to determine if future additional DRG modifications are
needed.
b. Prior Recommendations of the AAHKS
Prior to this year, the AAHKS had recommended that we make further
refinements to the CMS DRGs for knee and hip arthroplasty procedures.
The AAHKS previously presented data to CMS on the important differences
in clinical characteristics and resource utilization between primary
and revision total joint arthroplasty procedures. The AAHKS stated that
CMS's decision to create a separate DRG for revision of total joint
arthroplasty (TJA) in October 2005 resulted in more equitable
reimbursement for hospitals that perform a disproportionate share of
complex revision of TJA procedures, recognizing the higher resource
utilization associated with these cases. The AAHKS stated that this
important payment policy change led to increased access to care for
patients with failed total joint arthroplasties, and ensured that high
volume TJA centers could continue to provide a high standard of care
for these challenging patients.
The AAHKS further stated that the addition of new, more descriptive
ICD-9-CM diagnosis and procedure codes for TJA in October 2005 gave it
the opportunity to further analyze differences in clinical
characteristics and resource intensity among TJA patients and
procedures. Inclusive of the preparatory work to submit its
recommendations, the AAHKS compiled, analyzed, and reviewed detailed
clinical and resource utilization data from over 6,000 primary and
revision TJA procedure codes from 4 high volume joint arthroplasty
centers located within different geographic regions of the United
States: University of California, San Francisco, CA; Mayo Clinic,
Rochester, MN; Massachusetts General Hospital, Boston, MA; and the
Hospital for Special Surgery, New York, NY. Based on its analysis, the
AAHKS recommended that CMS examine Medicare claims data and consider
the creation of separate DRGs for total hip and total knee arthroplasty
procedures. The AAHKS stated that based on the differences between
patient

[[Page 23568]]

characteristics, procedure characteristics, resource utilization, and
procedure code payment rates between total hip and total knee
replacements, separate DRGs were warranted. Furthermore, the AAHKS
recommended that CMS create separate base DRGs for routine versus
complex joint revision or replacement procedures as shown below.
Routine Hip Replacements
00.73, Revision of hip replacement, acetabular liner and/
or femoral head only.
00.85, Resurfacing hip, total, acetabulum and femoral
head.
00.86, Resurfacing hip, partial, femoral head.
00.87, Resurfacing hip, partial, acetabulum.
81.51, Total hip replacement.
81.52, Partial hip replacement.
81.53, Revision of hip replacement, not otherwise
specified.
Complex Hip Replacements
00.70, Revision of hip replacement, both acetabular and
femoral components.
00.71, Revision of hip replacement, acetabular component.
00.72, Revision of hip replacement, femoral component.
Routine Knee Replacements and Ankle Procedures
00.83, Revision of knee replacement, patellar component.
00.84, Revision of knee replacement, tibial insert
(liner).
81.54, Revision of knee replacement, not otherwise
specified.
81.55, Revision of knee replacement, not otherwise
specified.
81.56, Total ankle replacement.
Complex Knee Replacements and Other Reattachments
00.80, Revision of knee replacement, total (all
components).
00.81, Revision of knee replacement, tibial component.
00.82, Revision of knee replacement, femoral component.
84.26, Foot reattachment.
84.27, Lower leg or ankle reattachment.
84.28, Thigh reattachment.
The AAHKS also recommended the continuation of CMS DRG 471
(Bilateral or Multiple Major Joint Procedures of Lower Extremity)
without modifications. CMS DRG 471 included any combination of two or
more of the following procedure codes:
00.70, Revision of hip replacement, both acetabular and
femoral components.
00.80, Revision of knee replacement, total (all
components).
00.85, Resurfacing hip, total, acetabulum and femoral
head.
00.86, Resurfacing hip, partial, femoral head.
00.87, Resurfacing hip, partial, acetabulum.
81.51, Total hip replacement.
81.52, Partial hip replacement.
81.54, Total knee replacement.
81.56, Total ankle replacement.
c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008 and
AAHKS's Recommendations
In the FY 2008 IPPS final rule with comment period (72 FR 47222
through 47226), we adopted MS-DRGs to better recognize severity of
illness for FY 2008. The MS-DRGs include two new severity of illness
levels under the then current base DRG 544. We also added three new
severity of illness levels to the base DRG for Revision of Hip or Knee
Replacement. The new MS-DRGs are as follows:
MS-DRG 466 (Revision of Hip or Knee Replacement with MCC)
MS-DRG 467 (Revision of Hip or Knee Replacement with CC)
MS-DRG 468 (Revision of Hip or Knee Replacement without
CC/MCC)
MS-DRG 469 (Major Joint Replacement or Reattachment of
Lower Extremity with MCC)
MS-DRG 470 (Major Joint Replacement or Reattachment of
Lower Extremity without MCC)
We found that the MS-DRGs greatly improved our ability to identify
joint procedures with higher resource costs. In the final rule, we
presented data indicating the average charges for each new MS-DRG for
the joint procedures.
In the FY 2008 IPPS final rule with comment period, we acknowledged
the valuable assistance the AAHKS had provided to CMS in creating the
new joint replacement procedure codes and modifying the joint
replacement DRGs beginning in FY 2006. These efforts greatly improved
our ability to categorize significantly different groups of patients
according to severity of illness. Commenters on the FY 2008 proposed
rule had encouraged CMS to continue working with the orthopedic
community, including the AAHKS, to monitor the need for additional new
DRGs. The commenters stated that MS-DRGs 466 through 470 are a good
first step. However, they stated that CMS should continue to evaluate
the data for these procedures and consider additional refinements to
the MS-DRGs, including the need for additional severity levels. AAHKS
stated that its data suggest that all three base DRGs (primary
replacement, revision of major joint replacement, and bilateral joint
replacement) should be separated into three severity levels (that is,
MCC, CC, and non-CC). (We had proposed three severity levels for
revision of hip and knee replacement (MS-DRGs 466, 467, and 468), and
AAHKS agreed with this 3-level subdivision.)
The AAHKS recommended that the base DRG for the proposed two
severity subdivision MS-DRGs for major joint replacement or
reattachment of lower extremity with and without CC/MCC (MS-DRGs 483
and 484) be subdivided into three severity levels, as was the case for
the revision of hip and knee replacement MS-DRGs. AAHKS also
recommended that the two severity subdivision MS-DRGs for bilateral or
multiple major joint procedures of lower extremity with and without MCC
(MS-DRGs 461 and 462) be subdivided three ways for this base DRG. AAHKS
acknowledged that the three way split would not meet all five of the
criteria for establishing a subgroup, and stated that these criteria
were too restrictive, lack face validity, and create perverse admission
selection incentives for hospitals by significantly overpaying for
cases without a CC and underpaying for cases with a CC. It recommended
that the existing five criteria be modified for low volume subgroups to
assure materiality. For higher volume MS-DRG subgroups, the AAHKS
recommended that two other criteria be considered, particularly for
nonemergency, elective admissions:
Is the per-case underpayment amount significant enough to
affect admission vs. referral decisions on a case-by-case basis?
Is the total level of underpayments sufficient to
encourage systematic admission vs. referral policies, procedures, and
marketing strategies?
The AAHKS also recommended refining the five existing criteria for
MCC/CC/without subgroups as follows:
Create subgroups if they meet the five existing criteria,
with cost difference between subgroups ($1,350) substituted for charge
difference between subgroups ($4,000);
If a proposed subgroup meets criteria number 2 and 3 (at
least 5 percent and at least 500 cases) but fails one of the others,
then create the subgroup if either of the following criteria are met:
[supsqu] At least $1,000 cost difference per case between
subgroups; or
[supsqu] At least $1 million overall cost should be shifted to
cases with a CC (or MCC) within the base DRG for payment weight
calculations.

[[Page 23569]]

In response, we indicated that we did not believe it was
appropriate to modify our five criteria for creating severity
subgroups. Our data did not support creating additional subdivisions
based on the criteria. At that time, we believed the criteria we
established to create subdivisions within a base DRG were reasonable
and establish the appropriate balance between better recognition of
severity of illness, sufficient differences between the groups, and a
reasonable number of cases in each subgroup. However, we indicated that
we may consider further modifications to the criteria at a later date
once we have had some experience with MS-DRGs created using the
proposed criteria.
The AAHKS indicated in its response to the FY 2008 proposed rule
that it continued to support the separation of routine and complex
joint procedures. It believed that certain joint replacement procedures
have significantly lower average charges than do other joint
replacements. The AAKHS's data suggest that more routine joint
replacements are associated with substantially less resource
utilization than other more complex revision procedures. The AAHKS
stated that leaving these procedures in the revision MS-DRGs results in
substantial overpayment for these relatively simple, less costly
revision procedures, which in turn results in a relative underpayment
for the more complex revision procedures.
In response, we examined data on this issue and identified two
procedure codes for partial knee revisions that had significantly lower
average charges than did other joint revisions. The two codes are as
follows:
00.83 Revision of knee replacement, patellar component
00.84 Revision of total knee replacement, tibial insert
(liner)
The data suggest that these less complex partial knee revisions are
less resource intensive than other cases assigned to MS-DRGs 466, 467,
or 468. We examined other orthopedic DRGs to which these two codes
could be assigned. We found that these cases have very similar average
charges to those in MS-DRG 485 (Knee Procedures with Principal
Diagnosis of Infection with MCC), MS-DRG 486 (Knee Procedures with
Principal Diagnosis of Infection with CC), MS-DRG 487 (Knee Procedures
with Principal Diagnosis of Infection without CC), MS-DRG 488 (Knee
Procedures without Principal Diagnosis of Infection with CC or MCC),
and MS-DRG 489 (Knee Procedures without Principal Diagnosis of
Infection without CC).
Given the very similar resource requirements of MS-DRG 485 and the
fact that these DRGs also contain knee procedures, we moved codes 00.83
and 00.84 out of MS-DRGs 466, 467, and 468 and into MS-DRGs 485, 486,
487, 488, and 489. We also indicated that we would continue to monitor
the revision DRGs to determine if additional modifications are needed.
d. AAHKS' Recommendations for FY 2009
The AAHKS' current request involves the following recommendations:
That CMS consolidate and reassign certain joint procedures
that have a diagnosis of an infection or malignancy into MS-DRGs that
are similar in terms of clinical characteristics and resource
utilization. The AAKHS further identifies groups called Stage 1 and 2
procedures that it believes require significant differences in resource
utilization.
That CMS reclassify certain specific joint procedures,
which AAHKS refers to as ``routine,'' out of their current MS-DRG
assignments. The three joint procedures that AAHKS classifies as
``routine'' are codes 00.73 (Revision of hip replacement, acetabular
liner and/or femoral head only), 00.83 (Revision of knee replacement,
patellar component), and 00.84 (Revision of total knee replacement,
tibial insert (liner)). The AAHKS advocated removing these three
``routine'' procedures from the following DRGs: MS-DRGs 466, 467, and
468, MS-DRGs 485, 486, and 487, and MS-DRGs 488 and 489. The AAHKS
refers to MS-DRGs 466, 467, and 468 as ``complex'' revision DRGs, and
recommended that the three ``routine'' procedures be moved out of MS-
DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 489 and into MS-DRGs
469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity
with and without MCC, respectively). The AAHKS contended that the three
``routine'' procedures have similar clinical characteristics and
resource utilization to those in MS-DRGs 469.
The recommendations suggested by AAHKS are quite complex and
involve a number of specific code lists and MS-DRG assignment changes.
We discuss each of these requests in detail below.
(1) AAHKS Recommendation 1: Consolidate and reassign patients with
hip and knee prosthesis related infections or malignancies.
The AAHKS pointed out that deep infection is one of the most
devastating complications associated with hip and knee replacements.
These infections have been reported to occur in approximately 0.5
percent to 3 percent of primary and 4 percent to 6 percent of revision
total joint replacement procedures. These infections often result in
the need for multiple reoperations, prolonged use of intravenous and
oral antibiotics, extended inpatient and outpatient rehabilitation, and
frequent followup visits. Furthermore, clinical outcomes following
single- and two-stage revision total joint arthroplasty procedures have
been less favorable than revision for other causes of failure not
associated with infection.
In addition to the clinical impact, the AAHKS stated that infected
total joint replacement procedures also have substantial economic
implications for patients, payers, hospitals, physicians, and society
in terms of direct medical costs, resource utilization, and the
indirect costs associated with lost wages and productivity. The AAHKS
stated that the considerable resources required to care for these
patients has resulted in a strong financial disincentive for physicians
and hospitals to provide care for patients with infected total joint
replacements, an increased economic burden on the high volume tertiary
care referral centers where patients with infected hip replacement
procedures are frequently referred for definitive management. The AAHKS
further stated that, in some cases, there are compromised patient
outcomes due to treatment delays as patients with infected joint
replacements seek providers who are willing to care for them.
Once a deep infection of a total joint prosthesis is identified,
the first stage of treatment involves a hospital admission for removal
of the infected prosthesis and debridement of the involved bone and
surrounding tissue. During the same procedure, an antibiotic-
impregnated cement spacer is typically inserted to maintain alignment
of the limb during the course of antibiotic therapy. The patient is
then discharged to a rehabilitation facility/nursing home (or to home
if intravenous therapy can be safely arranged for the patient) for a 6-
week course of IV antibiotic treatment until the infection has cleared.
After the completion of antibiotic therapy, the hip or knee may be
reaspirated to look for evidence of persistent infection or eradication
of infection. A second stage procedure is then undertaken, where the
patient is readmitted, the hip or knee is reexplored, and the cement
spacer removed. If there are no signs of persistent infection, a hip or
knee prosthesis is reimplanted, often using bone graft and costly
revision implants in order to address extensive bone loss

[[Page 23570]]

and distorted anatomy. Thus, the entire course of treatment for
patients with infected joint replacements is 4 to 6 months, with an
additional 6 to 12 months of rehabilitation. Furthermore, clinical
outcomes following revision for infection are poor relative to outcomes
following revision for other, aseptic causes. The AAHKS noted that
patients with bone malignancy have a similar treatment focus--surgery
to remove diseased tissue, chemotherapy to treat the malignancy, and
implantation of the new prosthesis. They also have similar resource
use. For simplicity, the AAHKS' discussion focused on infected joint
prostheses, but it suggested that the issues it raises would apply to
patients with a malignancy as well.
The AAHKS stated that these patients are currently grouped in
multiple MS-DRGs, and the cases are often ``outliers'' in each one.
AAHKS proposed to consolidate these patients with similar clinical
characteristics and treatment into MS-DRGs reflective of their resource
utilization.
The AAHKS states that these more severe patients are currently
classified into the following MS-DRGs:
MS-DRGs 463, 463, and 465 (Wound Debridement and Skin
Graft Excluding Hand, for Musculoskeletal-Connective Tissue Disease
with MCC, with CC, without CC/MCC, respectively).
MS-DRGs 480, 481, and 482 (Hip and Femur Procedures Except
Major Joint with MCC, with CC, without CC/MCC, respectively).
MS-DRGs 485, 486, and 487 (Knee Procedures with Principal
Diagnosis of Infection and with MCC, with CC, and without CC/MCC,
respectively).
MS-DRGs 488 and 489 (Knee Procedures without Principal
Diagnosis of Infection and with CC/MCC and without CC/MCC,
respectively).
MS-DRGs 495, 496, and 497 (Local Excision and Removal of
Internal Fixation Devices Except Hip and Femur with MCC, with CC, and
without CC/MCC, respectively).
Other MS-DRGs (The AAHKS did not specify what these other
MS-DRGs were.).
The AAHKS indicated that cases with the severe diagnoses of
infections, neoplasms, and structural defects have similarities. These
similarities are due to an overlap of a severe diagnosis (including a
principal diagnosis of code 996.66 (Infected joint prosthesis) and the
resulting need for more extensive surgical procedures. The AAHKS stated
that currently these patients are grouped into MS-DRGs by major
procedure alone. AAHKS recommended that these cases be grouped into
what it refers to as Stages 1 and 2 as follows:
Stage 1 would include the removal of an infected
prosthesis and includes cases in MS-DRGs 463, 464, and 465, 480, 481,
and 482, 485 through 489, and 495, 496, and 497. Stage 1 joint
procedure codes would include codes 80.05 (Arthrotomy for removal of
prosthesis, hip), 80.06 (Arthrotomy for removal of prosthesis, knee),
00.73 (Revision of hip replacement, acetabular liner and/or femoral
head only), and 00.84 (Revision of knee replacement, tibial insert
(liner)).
Stage 2 would include the implant of a new prosthesis and
includes cases in MS-DRGs 461 and 462, 463, 464, and 465, 466, 467, and
468, and 469 and 470. Stage 2 joint procedure codes would include codes
00.70 (Revision of hip replacement, both acetabular and femoral
components), 00.71 (Revision of hip replacement, acetabular component),
00.72 (Revision of hip replacement, femoral component), 00.80 (Revision
of knee replacement, total (all components)), 00.81 (Revision of knee
replacement, tibial component), 00.82 (Revision of knee replacement,
femoral component), 00.85 (Resurfacing hip, total, acetabulum and
femoral head), 00.86 (Resurfacing hip, partial, femoral head), 00.87
(Resurfacing hip, partial, acetabulum), 81.51 (Total hip replacement),
81.52 (Partial hip replacement), 81.53 (Revise hip replacement), 81.54
(Total knee replacement), 81.55 (Revise knee replacement), and 81.56
(Total ankle replacement).
As stated earlier, the AAHKS recommended patients with certain more
severe diagnoses be grouped into a higher severity level. While most of
AAHKS' comments focused on joint replacement patients with infections,
the AAHKS also believed that patients with certain neoplasms require
greater resources. To this group of infections and neoplasms, the AAHKS
recommended the addition of four codes that capture acquired
deformities. The AAHKS believed that these codes would capture
admissions for the second stage of the treatment for an infected joint.
The AAHKS stated that the significance of these diagnoses when they are
reported as the principal code position was significant in predicting
resource utilization. However, the impact was not as significant when
the diagnosis was reported as a secondary diagnosis. The AAHKS
recommended that patients with one of the following infection/neoplasm/
defect principal diagnosis codes be segregated into a higher severity
level.
Stage 1 Infection/Neoplasm/Defect Principal Diagnosis Codes
170.7 (Malignant neoplasm of long bones of lower limb).
171.3 (Malignant neoplasm of soft tissue, lower limb,
including hip).
711.05 (Pyogenic arthritis, pelvic region and thigh).
711.06 (Pyogenic arthritis, lower leg).
730.05 (Acute osteomyelitis, pelvic region and thigh).
730.06 (Acute osteomyelitis, lower leg).
730.15 (Chronic osteomyelitis, pelvic region and thigh).
730.16 (Chronic osteomyelitis, lower leg).
730.25 (Unspecified osteomyelitis, pelvic region and
thigh).
730.26 (Unspecified osteomyelitis, lower leg).
996.66 (Infection and inflammatory reaction due to
internal joint prosthesis).
996.67 (Infection and inflammatory reaction due to other
internal orthopedic device, implant, and graft).
Stage 2 Infection/Neoplasm/Defect Principal Diagnosis Codes (an
Asterisk * Shows the Diagnoses Included in Stage 2 That Were Not Listed
in Stage 1)
170.7 (Malignant neoplasm of long bones of lower limb).
171.3 (Malignant neoplasm of soft tissue, lower limb,
including hip).
198.5 (Secondary malignant neoplasm of bone and bone
marrow) .*
711.05 (Pyogenic arthritis, pelvic region and thigh).
711.06 (Pyogenic arthritis, lower leg).
730.05 (Acute osteomyelitis, pelvic region and thigh).
730.06 (Acute osteomyelitis, lower leg).
730.15 (Chronic osteomyelitis, pelvic region and thigh).
730.16 (Chronic osteomyelitis, lower leg).
730.25 (Unspecified osteomyelitis, pelvic region and
thigh).
730.26 (Unspecified osteomyelitis, lower leg).
736.30 (Acquired deformities of hip, unspecified
deformity).
736.39 (Other acquired deformities of hip) .*
736.6 (Other acquired deformities of knee) .*
736.89 (Other acquired deformities of other parts of
limbs). *
996.66 (Infection and inflammatory reaction due to
internal joint prosthesis). *
996.67 (Infection and inflammatory reaction due to other
internal orthopedic device, implant, and graft). *

[[Page 23571]]

For the Stage 2 procedures, AAHKS also suggested the use of the
following secondary diagnosis codes to assign the cases to a higher
severity level. These conditions would not be the reason the patient
was admitted to the hospital. They would instead represent secondary
conditions that were also present on admission or conditions that were
diagnosed after admission.
Stage 2 Infection/Neoplasm/Defect Secondary Diagnosis Codes
170.7 (Malignant neoplasm of long bones of lower limb).
171.3 (Malignant neoplasm of soft tissue, lower limb,
including hip).
711.05 (Pyogenic arthritis, pelvic region and thigh).
711.06 (Pyogenic arthritis, lower leg).
730.05 (Acute osteomyelitis, pelvic region and thigh).
730.06 (Acute osteomyelitis, lower leg).
730.15 (Chronic osteomyelitis, pelvic region and thigh).
730.16 (Chronic osteomyelitis, lower leg).
730.25 (Unspecified osteomyelitis, pelvic region and
thigh).
730.26 (Unspecified osteomyelitis, lower leg).
996.66 (Infection and inflammatory reaction due to
internal joint prosthesis).
996.67 (Infection and inflammatory reaction due to other
internal orthopedic device, implant, and graft).
(2) AAHKS Recommendation 2: Reclassify certain specific joint
procedures.
The AAHKS suggested that cases with the infection/neoplasm/defect
diagnoses listed above be segregated according to the Stage 1 and 2
groups listed above. The AAHKS made one final recommendation concerning
joint procedure cases with infections. It identified a subset of
patients who had a principal diagnosis of 996.66 (Infection and
inflammatory reaction due to internal joint prosthesis) and who also
had a secondary diagnosis of sepsis or septicemia. The AAHKS believed
that these patients are for the most part admitted with both the joint
infection and sepsis/septicemia present at the time of admission. The
codes for sepsis/septicemia are classified as MCCs under MS-DRGs. The
AAHKS believed it is inappropriate to count the secondary diagnosis of
sepsis/septicemia as a MCC when it is reported with code 996.66. The
AAHKS believed that counting sepsis and septicemia as a MCC results in
double counting the infections. It believed that the joint infection
and septicemia are the same infection. The AAHKS recommended that the
following sepsis and septicemia codes not count as a MCC when reported
with code 996.66:
038.0 (Streptococcal septicemia).
038.10 (Staphylococcal septicemia, unspecified).
038.11 (Staphylococcal aureus septicemia).
038.19 (Other staphylococcal septicemia).
038.2 (Pneumococcal septicemia [streptococcus pneumonia
septicemia]).
038.3 (Septicemia due anaerobes).
038.40 (Septicemia due to gram-negative organisms).
038.41 (Hemophilus influenzae [H. Influenzae]).
038.42 (Escherichia coli [E. Coli]).
038.43 (Pseudomonas).
038.44 (Serratia).
038.49 (Other septicemia due to gram-negative organisms).
038.8 (Other specified septicemias).
038.9 (Unspecified septicemia).
995.91 (Sepsis).
995.92 (Severe sepsis).
e. CMS' Response to AAHKS' Recommendations
The MS-DRG modifications proposed by the AAHKS are quite complex
and have many separate parts. We made changes to the MS-DRGs in FY 2008
as a result of a request by the AAHKS as discussed above, to recognize
two types of partial knee replacements as less complex procedures. We
have no data on how effective the new MS-DRGs for joint procedures are
in differentiating patients with varying degrees of severity.
Therefore, we analyzed data reported prior to the adoption of MS-DRGs
to analyze each of the recommendations made. We begin our analysis by
focusing first on the more simple aspects of the recommendations made
by the AAHKS.
(1) Changing the MS-DRG Assignment for Codes 00.73, 00.83, and 00.84
As discussed previously, in FY 2008, the AAHKS recommended that CMS
classify certain joint procedures as either routine or complex. We
examined the data for these cases and found that the following two
codes had significantly lower charges than the other joint revisions:
00.83 (Revision of knee replacement, patellar component) and 00.84
(Revision of knee replacement, tibial insert (liner)). Therefore, we
moved these two codes to MS-DRGs 485, 486, and 487, and MS-DRGs 488 and
489.
As a result of AAHKS' most recent recommendations, we once again
examined claims data for these two knee procedures (codes 00.83 and
00.84) as well as its request that we move code 00.73 (Revision of hip
replacement, acetabular liner and/or femoral head only). Code 00.73 is
assigned to MS-DRGs 466, 467, and 468. The following tables show our
findings.

----------------------------------------------------------------------------------------------------------------
Number of Average length Average
MS-DRG cases of stay charges
----------------------------------------------------------------------------------------------------------------
485--All Cases.................................................. 1,122 12.20 $64,672.47
485--Cases with Code 00.83 or 00.84............................. 179 11.83 64,446.68
485--Cases without Code 00.83 or 00.84.......................... 943 12.27 64,715.33
486--All Cases.................................................. 2,061 8.03 40,758.55
486--Cases with Code 00.83 or 00.84............................. 464 7.34 39,864.39
486--Cases without Code 00.83 or 00.84.......................... 1,597 8.23 41,018.34
487--All Cases.................................................. 1,236 5.67 29,180.88
487--Cases with Code 00.83 or 00.84............................. 284 5.61 31,231.79
487--Cases without Code 00.83 or 00.84.......................... 952 5.68 28,569.06
488--All Cases.................................................. 2,374 5.17 30,180.80
488--Cases with code 00.83 or 00.84............................. 754 4.09 28,432.06
488--Cases without code 00.83 or 00.84.......................... 1,620 5.67 30,994.73
489--All Cases.................................................. 5,493 3.04 21,385.67
489--Cases with code 00.83 or 00,.84............................ 2,154 3.07 23,122.18
489--Cases without code 00.83 or 00.84.......................... 3,339 3.03 20,265.44
469--All cases.................................................. 29,030 8.17 56,681.64
470--All Cases.................................................. 385,123 3.93 36,126.23
466--All Cases.................................................. 3,888 9.18 76,015.66
466--Cases with Code 00.73...................................... 273 10.02 71,293.33

[[Page 23572]]

466--Cases without Code 00.73................................... 3,616 9.12 76,372.06
467--All Cases.................................................. 13,551 5.50 53,431.63
467--Cases with Code 00.73...................................... 1,078 5.94 43,635.63
467--Cases without Code 00.73................................... 12,484 5.47 54,284.13
468--All Cases.................................................. 19,917 3.94 44,055.62
468--Cases with Code 00.73...................................... 1,688 3.93 33,449.22
468--Cases without Code 00.73................................... 18,232 3.94 45,037.09
469--All Cases.................................................. 29,030 8.17 56,681.64
470--All Cases.................................................. 385,123 3.93 36,126.23
----------------------------------------------------------------------------------------------------------------

The tables show that codes 00.73, 00.83, and 00.84 are
appropriately assigned to their current MS-DRGs. The data do not
support moving these three codes to MS-DRGs 469 and 470. Therefore, we
are not proposing a change of MS-DRG assignment for codes 00.73, 00.83,
and 00.84.
(2) Excluding Sepsis and Septicemia From Being a MCC With Code 996.66
There are cases where a patient may be admitted with an infection
of a joint prosthesis (code 996.66) and also have sepsis. In these
cases, it may be possible to perform joint procedures as suggested by
AAHKS. However, in other cases, a patient may be admitted with an
infection of a joint prosthesis and then develop sepsis during the
stay. Because our current data do not indicate whether a condition is
present on admission, we could not determine whether or not the sepsis
occurred after admission. Our data have consistently shown that cases
of sepsis and septicemia require significant resources. Therefore, we
classified the sepsis and septicemia codes as MCCs. Our clinical
advisors do not believe it is appropriate to exclude all cases of
sepsis and septicemia that are reported as a secondary diagnosis with
code 996.66 from being classified as a MCC. We discuss septicemia as
part of hospital acquired conditions provision under section II.F. of
the preamble of this proposed rule. For the purposes of classifying
sepsis and septicemia as non-CCs when reported with code 996.66, we do
not support this recommendation. Therefore, we are not proposing that
the sepsis and septicemia codes be added to the CC exclusion list for
code 996.66.
(3) Differences Between Stage 1 and 2 Cases With Severe Diagnoses
We next examined data on AAHKS' suggestion that there are
significantly differences in resource utilization for cases they refer
to as Stage 1 and 2. AAHKS stated that this is particularly true for
those with infections, neoplasms, or structural defects. We used the
list of procedure codes listed above that AAHKS describes as Stage 1
and 2 procedures. We also used AAHKS' designated lists of Stage 1 and 2
principal diagnosis codes to examine this proposal. This proposal
entails moving cases with a Stage 1 or 2 principal diagnosis and
procedure out of their current MS-DRG assignment in the following 19
MS-DRGs and into a newly consolidated set of MS-DRGs: MS-DRGs 463, 464,
and 465, 480, 481, and 482, 485 through 489, and 495, 496, and 497.
As can be seen from the information below, there was not a
significant difference in average charges between these Stage 1 and
Stage 2 cases that have an MCC.

Stage 1.--Cases With Infection, Neoplasm, or Structural Defect
----------------------------------------------------------------------------------------------------------------
Average length Average
Stage 1 Total cases of stay charges
----------------------------------------------------------------------------------------------------------------
With MCC........................................................ 1,306 14.1 $79,232
Without MCC..................................................... 4,115 7.6 44,716
----------------------------------------------------------------------------------------------------------------

Stage 2.--Cases With Infection, Neoplasm, or Structural Defect
----------------------------------------------------------------------------------------------------------------
Average length Average
Stage 2 Total cases of stay charges
----------------------------------------------------------------------------------------------------------------
With MCC........................................................ 1,072 10.9 $80,781
Without MCC..................................................... 5,413 6.0 57,355
----------------------------------------------------------------------------------------------------------------

Average charges for Stage 1 cases with an MCC was $79,232 compared
to $80,781 for Stage 2. Stage 1 cases without an MCC had average
charges of $44,716 compared to $57,355. These data do not support
reconfiguring the current MS-DRGs based on this new subdivision.
(4) Moving Joint Procedure Cases to New MS-DRGs Based on Secondary
Diagnoses of Infection
We examined AAHKS' recommendation that Stage 2 joint cases with
specific secondary diagnoses of infection or neoplasm be moved out of
their current MS-DRG assignments and into a newly constructed MS-DRG.
We are reluctant to make this type of significant DRG change to the
joint MS-DRGs based on the presence of a secondary diagnosis. This
results in the movement of cases out of MS-DRGs which were configured
based on the reason for the admission (for example, principal
diagnosis) and surgery. The cases would instead be assigned based on
conditions that are reported as secondary diagnoses. In some cases, the
infection may have developed or be diagnosed during the admission. This
would be a significant logic change to the MS-DRGs for joint
procedures. We have not had an opportunity to examine

[[Page 23573]]

claims data based on hospital discharges under the MS-DRGs which began
October 1, 2008. Our clinical advisors believe it would be more
appropriate to wait for data under the new MS-DRG system to determine
how well the new severity levels are addressing accurate payment for
these cases before considering this approach to assigning cases to a
MS-DRG.
(5) Moving Cases With Infection, Neoplasms, or Structural Defects Out
of 19 MS-DRGs and Into Two Newly Developed MS-DRGs
The last recommended by AAHKS that we considered was moving cases
with a principal diagnosis of infection, neoplasm, or structural defect
from their list of Stage 1 and 2 diagnoses and consolidated them into
newly constructed and modified MS-DRGs. AAHKS could not identify an
existing set of MS-DRGs with similar resource utilizations into which
the Stage 1 cases could be assigned. Therefore, the AAHKS recommended
that CMS create three new MS-DRGs for Stage 1 cases with infections,
neoplasms and structural defects which would be titled ``Arthrotomy/
Removal/Component exchange of Infected Hip or Knee Prosthesis with MCC,
with CC, and without CC/MCC'', respectively.
The AAHKS recommended moving Stage 2 cases out of MS-DRGs 466, 467,
and 468, and 469 and 470 and into MS-DRGs 461 and 462. AAHKS
recommended that MS-DRGs 461 and 462 be renamed ``Major Joint
Procedures of Lower Extremity--Bilateral/Multiple/Infection/
Malignancy''.
In reviewing these proposed changes, we had a number of concerns.
The first concern was that these proposed changes would result in the
removal of cases with varying average charges from 19 current MS-DRGs
and consolidating them into two separate sets of MS-DRGs. As the data
below indicate, the average charges vary from as low as $29,181 in MS-
DRG 487 to $81,089 in MS-DRG 463. Furthermore, the average charges for
these infection/neoplasm/structural defect cases are very similar to
other cases in their respective MS-DRG assignments for many of these
MS-DRGs. There are cases where the average charges are higher. In MS-
DRG 469 and 470, the infection/neoplasm/structural defect cases are
significantly higher. However, there are only 136 cases in MS-DRG 469
out of a total of 29,030 cases with these diagnoses. There are only 673
cases in MS-DRG 470 out of a total of 385,123 cases with one of these
diagnoses. The table below clearly demonstrates the wide variety of
charges for cases with these diagnoses.

----------------------------------------------------------------------------------------------------------------
Number of Average length Average
MS-DRGs cases of stay charges
----------------------------------------------------------------------------------------------------------------
463--All Cases.................................................. 4,747 16.25 $73,405.46
463--Cases with PDX of Infection/Malignancy/React............... 1,009 17.79 81,089.07
464--All Cases.................................................. 5,499 10.21 44,387.73
464--Cases with PDX of Infection/Malignancy/React............... 1,420 10.59 46,800.60
465--All Cases.................................................. 2,271 5.95 26,631.57
465--Cases with PDX of Infection/Malignancy/React............... 557 10.59 29,816.40
466--All Cases.................................................. 3,888 9.18 76,015.66
466--Cases with PDX of Infection/Malignancy/React............... 890 10.67 79,334.69
467--All Cases.................................................. 13,551 5.50 53,431.63
467--Cases with PDX of Infection/Malignancy/React............... 2,401 6.71 58,506.86
468--All Cases.................................................. 19,917 3.94 44,055.62
468--Cases with PDX of Infection/Malignancy/React............... 1,994 4.76 54,322.03
469--All Cases.................................................. 29,030 8.17 56,681.64
469--Cases with PDX of Infection/Malignancy/React............... 136 11.74 85,256.07
470--All Cases.................................................. 385,123 3.93 36,126.23
470--Cases with PDX of Infection/Malignancy/React............... 673 6.44 59,676.31
480--All Cases.................................................. 25,391 9.32 52,281.65
480--Cases with PDX of Infection/Malignancy/React............... 880 14.53 76,355.15
481--All Cases.................................................. 68,655 5.94 32,963.64
481--Cases with PDX of Infection/Malignancy/React............... 878 8.78 48,655.30
482--All Cases.................................................. 45,832 4.86 27,266.20
482--Cases with PDX of Infection/Malignancy/React............... 577 6.19 37,572.38
485--All Cases.................................................. 1,122 12.20 64,672.47
485--Cases with PDX of Infection/Malignancy/React............... 1,122 12.20 64,672.47
486--All Cases.................................................. 2,061 8.03 40,758.55
486--Cases with PDX of Infection/Malignancy/React............... 2,061 8.03 40,758.55
487--All Cases.................................................. 1,236 5.67 29,180.88
487--Cases with PDX of Infection/Malignancy/React............... 1,236 5.67 29,180.88
488--All Cases.................................................. 2,374 5.17 30,180.80
488--Cases with PDX of Infection/Malignancy/React............... 31 7.13 50,155.42
489--All Cases.................................................. 5,493 3.04 21,385.67
489--Cases with PDX of Infection/Malignancy/React............... 36 3.72 35,313.84
495--All Cases.................................................. 1,860 10.94 55,103.91
495--Cases with PDX of Infection/Malignancy/React............... 1,025 11.74 59,453.69
496--All Cases.................................................. 5,203 5.95 32,177.29
496--Cases with PDX of Infection/Malignancy/React............... 2,759 6.98 36,940.99
497--All Cases.................................................. 6,259 3.01 21,445.60
497--Cases with PDX of Infection/Malignancy/React............... 1,500 5.18 29,966.98
----------------------------------------------------------------------------------------------------------------

Given the wide variety of charges and the small number of cases
where there are differences in charges, we do not believe the data
support the AAHKS' recommendations. The data do not support removing
these cases from the 19 MS-DRGs above and consolidating them into a new
set of MS-DRGs, either newly created, or by adding them to

[[Page 23574]]

MS-DRG 461 or 462, which have average charges of $80,718 and $57,355,
respectively.
A second major concern involves redefining MS-DRGs 461 and 462 is
that these MS-DRG currently captures bilateral and multiple joint
procedures. These MS-DRGs were specifically created to capture a unique
set of patients who undergo procedures on more than one lower joint.
Redefining these MS-DRGs to include both single and multiple joints
undermines the clinical coherence of this MS-DRG. It would create a
widely diverse group of patients based on either a list of specific
diagnoses or the fact that the patient had multiple lower joint
procedures.
f. Conclusion
The AAHKS recommended a number of complicated, interrelated MS-DRG
changes to the joint procedure MS-DRGs. We have not yet had the
opportunity to review data for these cases under the new MS-DRGs. We
did analyze the impact of these recommendations using cases prior to
the implementation of MS-DRGs. The recommendations were difficult to
analyze because there were so many separate logic changes that impacted
a number of MS-DRGs. We did examine each major suggestion separately,
and found that our data and clinical analysis did not support making
these changes. Therefore, we are not proposing any revisions to the
joint procedure MS-DRGs for FY 2009. We look forward to examining these
issues once we receive data under the MS-DRG system. We also welcome
additional recommendations from the AAHKS and others on a more
incremental approach to resolving its concerns about the ability of the
current MS-DRGs to adequately capture differences in severity levels
for joint procedure patients.
5. MDC 18 (Infections and Parasitic Diseases (Systemic or Unspecified
Sites)): Severe Sepsis
We received a request from a manufacturer to modify the titles for
three MS-DRGs with the most significant concentration of severe sepsis
patients. The manufacturer stated that modification of the titles will
assist in quality improvement efforts and provide a better reflection
on the types of patients included in these MS-DRGs. Specifically, the
manufacturer urged CMS to incorporate the term ``severe sepsis'' into
the titles of the following MS-DRGs that became effective October 1,
2007 (FY 2008)
MS-DRG 870 (Septicemia with Mechanical Ventilation 96+
Hours).
MS-DRG 871 (Septicemia without Mechanical Ventilation 96+
Hours with MCC).
MS-DRG 872 (Septicemia without Mechanical Ventilation 96+
Hours without MCC).
These MS-DRGs were created to better recognize severity of illness
among patients diagnosed with conditions including septicemia, severe
sepsis, septic shock, and systemic inflammatory response syndrome
(SIRS) who are also treated with mechanical ventilation for a specified
duration of time.
According to the manufacturer, ``severe sepsis is a common, deadly
and costly disease, yet the number of patients impacted and the
outcomes associated with their care remain largely hidden within the
administrative data set.'' The manufacturer further noted that,
although improvements have been made in the ICD-9-CM coding of severe
sepsis (diagnosis code 995.92) and septic shock (diagnosis code
785.52), results of an analysis demonstrated an unacceptably high
mortality rate for patients reported to have those conditions. The
manufacturer believed that revising the titles to incorporate ``severe
sepsis'' will provide various clinicians and researchers the
opportunity to improve outcomes for these patients. Therefore, the
manufacturer recommended revising the current MS-DRG titles as follows:
Proposed Revised MS-DRG 870 (Septicemia or Severe Sepsis
with Mechanical Ventilation 96+ Hours).
Proposed Revised MS-DRG 871 (Septicemia or Severe Sepsis
without Mechanical Ventilation 96+ Hours with MCC).
Proposed Revised MS-DRG 872 (Septicemia or Severe Sepsis
without Mechanical Ventilation 96+ Hours without MCC).
We agree with the manufacturer that revising the current MS-DRG
titles to include the term ``severe sepsis'' would better assist in the
recognition and identification of this disease, which could lead to
better clinical outcomes and quality improvement efforts. In addition,
both severe sepsis (diagnosis code 995.92) and septic shock (diagnosis
code 785.52) are currently already assigned to these three MS-DRGs.
Therefore, we are proposing to revise the titles of MS-DRGs 870, 871,
and 872 to reflect severe sepsis in the titles as suggested by the
manufacturer and listed above for FY 2009.
6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): Traumatic
Compartment Syndrome
Traumatic compartment syndrome is a condition in which increased
pressure within a confined anatomical space that contains blood
vessels, muscles, nerves, and bones causes a decrease in blood flow and
may lead to tissue necrosis.
There are five ICD-9-CM diagnosis codes that were created effective
October 1, 2006, to identify traumatic compartment syndrome of various
sites.
958.90 (Compartment syndrome, unspecified).
958.91 (Traumatic compartment syndrome of upper
extremity).
958.92 (Traumatic compartment syndrome of lower
extremity).
958.93 (Traumatic compartment syndrome of abdomen).
958.99 (Traumatic compartment syndrome of other sites) .
Cases with one of the diagnosis codes listed above reported as the
principal diagnosis and no operating room procedure are assigned to
either MS-DRG 922 (Other Injury, Poisoning and Toxic Effect Diagnosis
with MCC) or MS-DRG 923 (Other Injury, Poisoning and Toxic Effect
Diagnosis without MCC) in MDC 21.
In the FY 2008 IPPS final rule with comment period when we adopted
the MS-DRGs, we inadvertently omitted the addition of these traumatic
compartment syndrome codes 958.90 through 958.99 to the multiple trauma
MS-DRGs 963 (Other Multiple Significant Trauma with MCC), MS-DRG 964
(Other Multiple Significant Trauma with CC), and MS-DRG 965 (Other
Multiple Significant Trauma without CC/MCC) in MDC 24 (Multiple
Significant Trauma). Cases are assigned to MDC 24 based on the
principal diagnosis of trauma and at least two significant trauma
diagnosis codes (either as principal or secondary diagnoses) from
different body site categories. There are eight different body site
categories as follows:
Significant head trauma.
Significant chest trauma.
Significant abdominal trauma.
Significant kidney trauma.
Significant trauma of the urinary system.
Significant trauma of the pelvis or spine.
Significant trauma of the upper limb.
Significant trauma of the lower limb.
Therefore, we are proposing to add traumatic compartment syndrome
codes 958.90 through 958.99 to MS-DRGs 963 and MS-DRG 965 in MDC 24.
Under

[[Page 23575]]

this proposal, codes 958.90 through 958.99 would be added to the list
of principal diagnosis of significant trauma. In addition, code 958.91
would be added to the list of significant trauma of upper limb, code
958.92 would be added to the list of significant trauma of lower limb,
and code 958.93 would be added to the list of significant abdominal
trauma.
7. Medicare Code Editor (MCE) Changes
As explained under section II.B.1. of the preamble of this proposed
rule, the Medicare Code Editor (MCE) is a software program that detects
and reports errors in the coding of Medicare claims data. Patient
diagnoses, procedure(s), and demographic information are entered into
the Medicare claims processing systems and are subjected to a series of
automated screens. The MCE screens are designed to identify cases that
require further review before classification into a DRG. For FY 2009,
we are proposing to make the following changes to the MCE edits:
a. List of Unacceptable Principal Diagnoses in MCE
Diagnosis code V62.84 (Suicidal ideation) was created for use
beginning October 1, 2005. At the time the diagnosis code was created,
it was not clear that the creation of this code was requested in order
to describe the principal reason for admission to a facility or the
principal reason for treatment. The NCHS Official ICD-9-CM Coding
Guidelines therefore categorized the group of codes in V62.X for use
only as additional or secondary diagnoses. It has been brought to the
government's attention that the use of this code is hampered by its
designation as an additional-only diagnosis. NCHS has therefore
modified the Official Coding Guidelines for FY 2009 by making this code
acceptable as a principal diagnosis as well as an additional diagnosis.
In order to conform to this change by NCHS, we are proposing to remove
code V62.84 from the MCE list of ``Unacceptable Principal Diagnoses''
for FY 2009.
b. Diagnoses Allowed for Males Only Edit
There are four diagnosis codes that were inadvertently left off of
the MCE edit titled ``Diagnoses Allowed for Males Only.'' These codes
are located in the chapter of the ICD-9-CM diagnosis codes entitled
``Diseases of Male Genital Organs.'' We are proposing to add the
following four codes to this MCE edit: 603.0 (Encysted hydrocele),
603.1 (Infected hydrocele), 603.8 (Other specified types of hydrocele),
and 603.9 (Hydrocele, unspecified). We have had no reported problems or
confusion with the omission of these codes from this section of the
MCE, but in order to have an accurate product, we are proposing that
these codes be added for FY 2009.
c. Limited Coverage Edit
As explained in section II.G.1. of the preamble of this proposed
rule, we are proposing to remove procedure code 37.52 (Implantation of
internal biventricular heart replacement system) from the MCE ``Non-
Covered Procedure'' edit and to assign it to the ``Limited Coverage''
edit. We are proposing to include in this proposed edit the requirement
that ICD-9-CM diagnosis code V70.7 (Examination of participant in
clinical trial) also be present on the claim. We are proposing that
claims submitted without both procedure code 37.52 and diagnosis code
V70.7 would be denied because they would not be in compliance with the
proposed coverage policy explained in section II.G.1. of this preamble.
8. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different MS-DRG within the MDC to which the principal diagnosis
is assigned. Therefore, it is necessary to have a decision rule within
the GROUPER by which these cases are assigned to a single MS-DRG. The
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function.
Application of this hierarchy ensures that cases involving multiple
surgical procedures are assigned to the MS-DRG associated with the most
resource-intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of MS-DRG reclassification and recalibrations, we
reviewed the surgical hierarchy of each MDC, as we have for previous
reclassifications and recalibrations, to determine if the ordering of
classes coincides with the intensity of resource utilization.
A surgical class can be composed of one or more MS-DRGs. For
example, in MDC 11, the surgical class ``kidney transplant'' consists
of a single MS-DRG (MS-DRG 652) and the class ``kidney, ureter and
major bladder procedures'' consists of three MS-DRGs (MS-DRGs 653, 654,
and 655). Consequently, in many cases, the surgical hierarchy has an
impact on more than one MS-DRG. The methodology for determining the
most resource-intensive surgical class involves weighting the average
resources for each MS-DRG by frequency to determine the weighted
average resources for each surgical class. For example, assume surgical
class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs
3, 4, and 5. Assume also that the average charge of MS-DRG 1 is higher
than that of MS-DRG 3, but the average charges of MS-DRGs 4 and 5 are
higher than the average charge of MS-DRG 2. To determine whether
surgical class A should be higher or lower than surgical class B in the
surgical hierarchy, we would weight the average charge of each MS-DRG
in the class by frequency (that is, by the number of cases in the MS-
DRG) to determine average resource consumption for the surgical class.
The surgical classes would then be ordered from the class with the
highest average resource utilization to that with the lowest, with the
exception of ``other O.R. procedures'' as discussed below.
This methodology may occasionally result in assignment of a case
involving multiple procedures to the lower-weighted MS-DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER search for the procedure in the
most resource-intensive surgical class, in cases involving multiple
procedures, this result is sometimes unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average charge is
ordered above a surgical class with a higher average charge. For
example, the ``other O.R. procedures'' surgical class is uniformly
ordered last in the surgical hierarchy of each MDC in which it occurs,
regardless of the fact that the average charge for the MS-DRG or MS-
DRGs in that surgical class may be higher than that for other surgical
classes in the MDC. The ``other O.R. procedures'' class is a group of
procedures that are only infrequently related to the diagnoses in the
MDC, but are still occasionally performed on patients in the MDC with
these diagnoses. Therefore, assignment to these surgical classes should
only occur if no other surgical class more closely related to the
diagnoses in the MDC is appropriate.
A second example occurs when the difference between the average
charges for two surgical classes is very small. We have found that
small differences generally do not warrant reordering of the hierarchy
because, as a result of reassigning cases on the basis of the hierarchy
change, the average charges are likely to shift such that the higher-
ordered surgical class has a lower

[[Page 23576]]

average charge than the class ordered below it.
For FY 2009, we are proposing a revision of the surgical hierarchy
for MDC 5 (Diseases and Disorders of the Circulatory System) by placing
MS-DRG 245 (AICD Generator Procedures) above proposed new MS-DRG 265
(AICD Lead Procedures).
9. CC Exclusions List
a. Background
As indicated earlier in the preamble of this proposed rule, under
the IPPS DRG classification system, we have developed a standard list
of diagnoses that are considered CCs. Historically, we developed this
list using physician panels that classified each diagnosis code based
on whether the diagnosis, when present as a secondary condition, would
be considered a substantial complication or comorbidity. A substantial
complication or comorbidity was defined as a condition that, because of
its presence with a specific principal diagnosis, would cause an
increase in the length of stay by at least 1 day in at least 75 percent
of the patients. We refer readers to section II.D.2. and 3. of the
preamble of the FY 2008 IPPS final rule with comment period for a
discussion of the refinement of CCs in relation to the MS-DRGs we
adopted for FY-2008 (72 FR 47152 through 47121).
b. CC Exclusions List for FY 2009
In the September 1, 1987 final notice (52-FR-33143) concerning
changes to the DRG classification system, we modified the GROUPER logic
so that certain diagnoses included on the standard list of CCs would
not be considered valid CCs in combination with a particular principal
diagnosis. We created the CC Exclusions List for the following reasons:
(1) To preclude coding of CCs for closely related conditions; (2) to
preclude duplicative or inconsistent coding from being treated as CCs;
and (3) to ensure that cases are appropriately classified between the
complicated and uncomplicated DRGs in a pair. As we indicated above, we
developed a list of diagnoses, using physician panels, to include those
diagnoses that, when present as a secondary condition, would be
considered a substantial complication or comorbidity. In previous
years, we have made changes to the list of CCs, either by adding new
CCs or deleting CCs already on the list.
In the May 19, 1987 proposed notice (52 FR 18877) and the September
1, 1987 final notice (52 FR 33154), we explained that the excluded
secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another.
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for the same condition should not be considered
CCs for one another.
Codes for the same condition that cannot coexist, such as
partial/total, unilateral/bilateral, obstructed/unobstructed, and
benign/malignant, should not be considered CCs for one another.
Codes for the same condition in anatomically proximal
sites should not be considered CCs for one another.
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. We have continued to review the remaining
CCs to identify additional exclusions and to remove diagnoses from the
master list that have been shown not to meet the definition of a
CC.\12\
---------------------------------------------------------------------------

\12\ See the FY 1989 final rule (53 FR 38485, September 30,
1988), for the revision made for the discharges occurring in FY
1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for
the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September
4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR
43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final
rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the
FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994
revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994),
for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782,
September 1, 1995), for the FY 1996 revisions; the FY 1997 final
rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the
FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998
revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for
the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August
1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR
39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final
rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the
FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004
revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004),
for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640,
August 12, 2005), for the FY 2006 revisions; the FY 2007 final rule
(71 FR 47870) for the FY 2007 revisions; and the FY 2008 final rule
(72 FR 47130) for the FY 2008 revisions. In the FY 2000 final rule
(64 FR 41490, July 30, 1999, we did not modify the CC Exclusions
List because we did not make any changes to the ICD-9-CM codes for
FY 2000.
---------------------------------------------------------------------------

For FY 2009, we are proposing to make limited revisions to the CC
Exclusions List to take into account the changes that will be made in
the ICD-9-CM diagnosis coding system effective October 1, 2008. (See
section II.G.11. of the preamble of this proposed rule with comment
period for a discussion of ICD-9-CM changes.) We are proposing to make
these changes in accordance with the principles established when we
created the CC Exclusions List in 1987. In addition, as discussed in
section II.D.3. of the preamble of this proposed rule, we are
indicating on the CC exclusion list some updates to reflect the
exclusion of a few codes from being an MCC under the MS-DRG system that
we adopted for FY 2008.
Tables 6G and 6H, Additions to and Deletions from the CC Exclusion
List, respectively, which will be effective for discharges occurring on
or after October 1, 2008, are not being published in this proposed rule
because of the length of the two tables. Instead, we are making them
available through the Internet on the CMS Web site at: http://
www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnoses
for which there is a CC exclusion is shown in Tables 6G and 6H with an
asterisk, and the conditions that will not count as a CC, are provided
in an indented column immediately following the affected principal
diagnosis.
A complete updated MCC, CC, and Non-CC Exclusions List is also
available through the Internet on the CMS Web site at: http:/
www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or
after October 1, 2008, the indented diagnoses will not be recognized by
the GROUPER as valid CCs for the asterisked principal diagnosis.
To assist readers in the review of changes to the MCC and CC lists
that occurred as a result of updates to the ICD-9-CM codes, as
described in Tables 6A, 6C, and 6E, we are providing the following
summaries of those MCC and CC changes.

Summary of Additions to the MS-DRG MCC List.--Table 6I.1
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
249.10................................ Secondary diabetes mellitus with
ketoacidosis, not stated as
uncontrolled, or unspecified.
249.11................................ Secondary diabetes mellitus with
ketoacidosis, uncontrolled.
249.20................................ Secondary diabetes mellitus with
hyperosmolarity, not stated as
uncontrolled, or unspecified.

[[Continued on page 23577]]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]
]

[[pp. 23577-23626]] Medicare Program; Proposed Changes to the Hospital Inpatient
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249.21................................ Secondary diabetes mellitus with
hyperosmolarity, uncontrolled.
249.30................................ Secondary diabetes mellitus with
other coma, not stated as
uncontrolled, or unspecified.
249.31................................ Secondary diabetes mellitus with
other coma, uncontrolled.
707.23................................ Pressure ulcer, stage III.
707.24................................ Pressure ulcer, stage IV.
777.50................................ Necrotizing enterocolitis in
newborn, unspecified.
777.51................................ Stage I necrotizing
enterocolitis in newborn.
777.52................................ Stage II necrotizing
enterocolitis in newborn.
777.53................................ Stage III necrotizing
enterocolitis in newborn.
780.72................................ Functional quadriplegia.
------------------------------------------------------------------------

Summary of Deletions From the MS-DRG MCC List.--Table 6I.2
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
136.2................................. Specific infections by free-
living amebae.
511.8................................. Other specified forms of pleural
effusion, except tuberculous.
707.02................................ Pressure ulcer, upper back.
707.03................................ Pressure ulcer, lower back.
707.04................................ Pressure ulcer, hip.
707.05................................ Pressure ulcer, buttock.
707.06................................ Pressure ulcer, ankle.
707.07................................ Pressure ulcer, heel.
777.5................................. Necrotizing enterocolitis in
fetus or newborn.
------------------------------------------------------------------------

Summary of Additions to the MS-DRG CC List.--Table 6J.1
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
046.11................................ Variant Creutzfeldt-Jakob
disease.
046.19................................ Other and unspecified
Creutzfeldt-Jakob disease.
046.71................................ Gerstmann-Str[auml]ussler-
Scheinker syndrome.
046.72................................ Fatal familial insomnia.
046.79................................ Other and unspecified prion
disease of central nervous
system.
059.01................................ Monkeypox.
059.21................................ Tanapox.
136.29................................ Other specific infections by
free-living amebae.
199.2................................. Malignant neoplasm associated
with transplant organ.
203.02................................ Multiple myeloma, in relapse.
203.12................................ Plasma cell leukemia, in
relapse.
203.82................................ Other immunoproliferative
neoplasms, in relapse.
204.02................................ Acute lymphoid leukemia, in
relapse.
204.12................................ Chronic lymphoid leukemia, in
relapse.
204.22................................ Subacute lymphoid leukemia, in
relapse.
204.82................................ Other lymphoid leukemia, in
relapse.
204.92................................ Unspecified lymphoid leukemia,
in relapse.
205.02................................ Acute myeloid leukemia, in
relapse.
205.12................................ Chronic myeloid leukemia, in
relapse.
205.22................................ Subacute myeloid leukemia, in
relapse.
205.32................................ Myeloid sarcoma, in relapse.
205.82................................ Other myeloid leukemia, in
relapse.
205.92................................ Unspecified myeloid leukemia, in
relapse.
206.02................................ Acute monocytic leukemia, in
relapse.
206.12................................ Chronic monocytic leukemia, in
relapse.
206.22................................ Subacute monocytic leukemia, in
relapse.
206.82................................ Other monocytic leukemia, in
relapse.
206.92................................ Unspecified monocytic leukemia,
in relapse.
207.02................................ Acute erythremia and
erythroleukemia, in relapse.
207.12................................ Chronic erythremia, in relapse.
207.22................................ Megakaryocytic leukemia, in
relapse.
207.82................................ Other specified leukemia, in
relapse.
208.02................................ Acute leukemia of unspecified
cell type, in relapse.
208.12................................ Chronic leukemia of unspecified
cell type, in relapse.
208.22................................ Subacute leukemia of unspecified
cell type, in relapse.
208.82................................ Other leukemia of unspecified
cell type, in relapse.
208.92................................ Unspecified leukemia, in
relapse.
209.00................................ Malignant carcinoid tumor of the
small intestine, unspecified
portion.
209.01................................ Malignant carcinoid tumor of the
duodenum.
209.02................................ Malignant carcinoid tumor of the
jejunum.
209.03................................ Malignant carcinoid tumor of the
ileum.

[[Page 23578]]

209.10................................ Malignant carcinoid tumor of the
large intestine, unspecified
portion.
209.11................................ Malignant carcinoid tumor of the
appendix.
209.12................................ Malignant carcinoid tumor of the
cecum.
209.13................................ Malignant carcinoid tumor of the
ascending colon.
209.14................................ Malignant carcinoid tumor of the
transverse colon.
209.15................................ Malignant carcinoid tumor of the
descending colon.
209.16................................ Malignant carcinoid tumor of the
sigmoid colon.
209.17................................ Malignant carcinoid tumor of the
rectum.
209.20................................ Malignant carcinoid tumor of
unknown primary site.
209.21................................ Malignant carcinoid tumor of the
bronchus and lung.
209.22................................ Malignant carcinoid tumor of the
thymus.
209.23................................ Malignant carcinoid tumor of the
stomach.
209.24................................ Malignant carcinoid tumor of the
kidney.
209.25................................ Malignant carcinoid tumor of
foregut, not otherwise
specified.
209.26................................ Malignant carcinoid tumor of
midgut, not otherwise
specified.
209.27................................ Malignant carcinoid tumor of
hindgut, not otherwise
specified.
209.29................................ Malignant carcinoid tumor of
other sites.
209.30................................ Malignant poorly differentiated
neuroendocrine carcinoma, any
site.
238.77................................ Post-transplant
lymphoproliferative disorder
(PTLD).
279.50................................ Graft-versus-host disease,
unspecified.
279.51................................ Acute graft-versus-host disease.
279.52................................ Chronic graft-versus-host
disease.
279.53................................ Acute on chronic graft-versus-
host disease.
346.60................................ Persistent migraine aura with
cerebral infarction, without
mention of intractable migraine
without mention of status
migrainosus.
346.61................................ Persistent migraine aura with
cerebral infarction, with
intractable migraine, so
stated, without mention of
status migrainosus.
346.62................................ Persistent migraine aura with
cerebral infarction, without
mention of intractable migraine
with status migrainosus.
346.63................................ Persistent migraine aura with
cerebral infarction, with
intractable migraine, so
stated, with status
migrainosus.
511.81................................ Malignant pleural effusion.
511.89................................ Other specified forms of
effusion, except tuberculous.
649.70................................ Cervical shortening, unspecified
as to episode of care or not
applicable.
649.71................................ Cervical shortening, delivered,
with or without mention of
antepartum condition.
649.73................................ Cervical shortening, antepartum
condition or complication.
695.12................................ Erythema multiforme major.
695.13................................ Stevens-Johnson syndrome.
695.14................................ Stevens-Johnson syndrome-toxic
epidermal necrolysis overlap
syndrome.
695.15................................ Toxic epidermal necrolysis.
695.53................................ Exfoliation due to erythematous
condition involving 30-39
percent of body surface.
695.54................................ Exfoliation due to erythematous
condition involving 40-49
percent of body surface.
695.55................................ Exfoliation due to erythematous
condition involving 50-59
percent of body surface.
695.56................................ Exfoliation due to erythematous
condition involving 60-69
percent of body surface.
695.57................................ Exfoliation due to erythematous
condition involving 70-79
percent of body surface.
695.58................................ Exfoliation due to erythematous
condition involving 80-89
percent of body surface.
695.59................................ Exfoliation due to erythematous
condition involving 90 percent
or more of body surface.
997.31................................ Ventilator associated pneumonia.
997.39................................ Other respiratory complications.
998.30................................ Disruption of wound,
unspecified.
998.33................................ Disruption of traumatic wound
repair.
999.81................................ Extravasation of vesicant
chemotherapy.
999.82................................ Extravasation of other vesicant
agent.
------------------------------------------------------------------------

Summary of Deletions to the MS-DRG CC List.--Table 6J.2
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
046.1............................. Jakob-Creutzfeldt disease.
337.0............................. Idiopathic peripheral autonomic
neuropathy.
695.1............................. Erythema multiforme.
707.00............................ Pressure ulcer, unspecified site.
707.01............................ Pressure ulcer, elbow.
707.09............................ Pressure ulcer, other site.
997.3............................. Respiratory complications.
999.8............................. Other transfusion reaction.
------------------------------------------------------------------------

Alternatively, the complete documentation of the GROUPER logic,
including the current CC Exclusions List, is available from 3M/Health
Information Systems (HIS), which, under contract with CMS, is
responsible for updating and maintaining the GROUPER program. The
current DRG Definitions Manual, Version 25.0, is available for $225.00,
which includes $15.00 for shipping and handling. Version 26.0 of this
manual, which will include the final FY 2009 DRG changes, will be
available in hard copy for $250.00. Version 26.0 of the manual is also
available on a CD for $200.00; a combination hard copy and CD is
available for $400.00. These manuals may be obtained by writing 3M/HIS
at the following address: 100 Barnes Road, Wallingford, CT 06492; or by
calling (203) 949-0303. Please specify the revision or revisions
requested.
10. Review of Procedure Codes in MS DRGs 981, 982, and 983; 984, 985,
and 986; and 987, 988, and 989
Each year, we review cases assigned to former CMS DRG 468
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal
Diagnosis) to determine whether it would be appropriate to change the
procedures assigned among

[[Page 23579]]

these CMS DRGs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG
468 was split three ways and became MS-DRGs 981, 982, and 983
(Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC,
with CC, and without CC/MCC). CMS DRG 476 became MS-DRGs 984, 985, and
986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with
MCC, with CC, and without CC/MCC). CMS DRG 477 became MS-DRGs 987, 988,
and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis
with MCC, with CC, and without CC/MCC).
MS-DRGs 981 through 983, 984 through 986, and 987 through 989
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for
those cases in which none of the O.R. procedures performed are related
to the principal diagnosis. These DRGs are intended to capture atypical
cases, that is, those cases not occurring with sufficient frequency to
represent a distinct, recognizable clinical group. MS-DRGs 984 through
986 (previously CMS DRG 476) are assigned to those discharges in which
one or more of the following prostatic procedures are performed and are
unrelated to the principal diagnosis:
60.0, Incision of prostate.
60.12, Open biopsy of prostate.
60.15, Biopsy of periprostatic tissue.
60.18, Other diagnostic procedures on prostate and
periprostatic tissue.
60.21, Transurethral prostatectomy.
60.29, Other transurethral prostatectomy.
60.61, Local excision of lesion of prostate.
60.69, Prostatectomy, not elsewhere classified.
60.81, Incision of periprostatic tissue.
60.82, Excision of periprostatic tissue.
60.93, Repair of prostate.
60.94, Control of (postoperative) hemorrhage of prostate.
60.95, Transurethral balloon dilation of the prostatic
urethra.
60.96, Transurethral destruction of prostate tissue by
microwave thermotherapy.
60.97, Other transurethral destruction of prostate tissue
by other thermotherapy.
60.99, Other operations on prostate.
All remaining O.R. procedures are assigned to MS-DRGs 981 through
983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those
discharges in which the only procedures performed are nonextensive
procedures that are unrelated to the principal diagnosis.\13\
---------------------------------------------------------------------------

\13\ The original list of the ICD-9-CM procedure codes for the
procedures we consider nonextensive procedures, if performed with an
unrelated principal diagnosis, was published in Table 6C in section
IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part
of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56
FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final
rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY
1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173),
and the FY 1998 final rule (62 FR 45981), we moved several other
procedures from DRG 468 to DRG 477, and some procedures from DRG 477
to DRG 468. No procedures were moved in FY 1999, as noted in the
final rule (63 FR 40962); in FY 2000 (64 FR 41496); in FY 2001 (65
FR 47064); or in FY 2002 (66 FR 39852). In the FY 2003 final rule
(67 FR 49999) we did not move any procedures from DRG 477. However,
we did move procedure codes from DRG 468 and placed them in more
clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365),
we moved several procedures from DRG 468 to DRGs 476 and 477 because
the procedures are nonextensive. In the FY 2005 final rule (69 FR
48950), we moved one procedure from DRG 468 to 477. In addition, we
added several existing procedures to DRGs 476 and 477. In the FY
2006 (70 FR 47317), we moved one procedure from DRG 468 and assigned
it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and
assigned it to DRGs 479, 553, and 554. In FY 2008, no procedures
were moved, as noted in the final rule with comment period (72 FR
46241).
---------------------------------------------------------------------------

For FY 2009, we are not proposing to change the procedures assigned
among these DRGs.
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987
Through 989 to MDCs
We annually conduct a review of procedures producing assignment to
MS-DRGs 981 through 983 (formerly CMS DRG 468) or MS-DRGs 987 through
989 (formerly CMS DRG 477) on the basis of volume, by procedure, to see
if it would be appropriate to move procedure codes out of these DRGs
into one of the surgical DRGs for the MDC into which the principal
diagnosis falls. The data are arrayed in two ways for comparison
purposes. We look at a frequency count of each major operative
procedure code. We also compare procedures across MDCs by volume of
procedure codes within each MDC.
We identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical DRGs for the MDC in which the diagnosis falls. For
FY 2009, we are not proposing to remove any procedures from MS-DRGs 981
through 983 or MS-DRGs 987 through 989.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984
Through 986, and 987 Through 989)
We also annually review the list of ICD-9-CM procedures that, when
in combination with their principal diagnosis code, result in
assignment to MS-DRGs 981 through 983, 984 through 986, and 987 through
989 (formerly, CMS DRGs 468, 476, and 477, respectively), to ascertain
whether any of those procedures should be reassigned from one of these
three DRGs to another of the three DRGs based on average charges and
the length of stay. We look at the data for trends such as shifts in
treatment practice or reporting practice that would make the resulting
DRG assignment illogical. If we find these shifts, we would propose to
move cases to keep the DRGs clinically similar or to provide payment
for the cases in a similar manner. Generally, we move only those
procedures for which we have an adequate number of discharges to
analyze the data.
For FY 2009, we are not proposing to move any procedure codes among
these DRGs.
c. Adding Diagnosis or Procedure Codes to MDCs
Based on our review this year, we are not proposing to add any
diagnosis codes to MDCs for FY 2009.
11. Changes to the ICD-9-CM Coding System
As described in section II.B.1. of the preamble of this proposed
rule, the ICD-9-CM is a coding system used for the reporting of
diagnoses and procedures performed on a patient. In September 1985, the
ICD-9-CM Coordination and Maintenance Committee was formed. This is a
Federal interdepartmental committee, co-chaired by the National Center
for Health Statistics (NCHS), the Centers for Disease Control and
Prevention, and CMS, charged with maintaining and updating the ICD-9-CM
system. The Committee is jointly responsible for approving coding
changes, and developing errata, addenda, and other modifications to the
ICD-9-CM to reflect newly developed procedures and technologies and
newly identified diseases. The Committee is also responsible for
promoting the use of Federal and non-Federal educational programs and
other communication techniques with a view toward standardizing coding
applications and upgrading the quality of the classification system.
The Official Version of the ICD-9-CM contains the list of valid
diagnosis and procedure codes. (The Official Version of the ICD-9-CM is
available from the Government Printing Office on CD-ROM for $27.00 by
calling (202) 512-1800.) Complete information on ordering the CD-ROM is
also available at: http://www.cdc.gov/nchs/products/prods/subject/
icd96ed.htm. The Official

[[Page 23580]]

Version of the ICD-9-CM is no longer available in printed manual form
from the Federal Government; it is only available on CD-ROM. Users who
need a paper version are referred to one of the many products available
from publishing houses.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
CMS has lead responsibility for the ICD-9-CM procedure codes included
in the Tabular List and Alphabetic Index for Procedures.
The Committee encourages participation in the above process by
health-related organizations. In this regard, the Committee holds
public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding field, such
as the American Health Information Management Association (AHIMA), the
American Hospital Association (AHA), and various physician specialty
groups, as well as individual physicians, health information management
professionals, and other members of the public, to contribute ideas on
coding matters. After considering the opinions expressed at the public
meetings and in writing, the Committee formulates recommendations,
which then must be approved by the agencies.
The Committee presented proposals for coding changes for
implementation in FY 2009 at a public meeting held on September 27-28,
2007 and finalized the coding changes after consideration of comments
received at the meetings and in writing by December 3, 2007. Those
coding changes are announced in Tables 6A through 6F in the Addendum to
this proposed rule. The Committee held its 2008 meeting on March 19-20,
2008. Proposed new codes for which there was a consensus of public
support and for which complete tabular and indexing changes can be made
by May 2008 will be included in the October 1, 2008 update to ICD-9-CM.
Code revisions that were discussed at the March 19-20, 2008 Committee
meeting but that could not be finalized in time to include them in the
Addendum to this proposed rule are not included in Tables 6A through
6F. These additional codes will be included in Tables 6A through 6F of
the final rule with comment period and are marked with an asterisk (*).
Copies of the minutes of the procedure codes discussions at the
Committee's September 27-28, 2007 meeting can be obtained from the CMS
Web site at: http://cms.hhs.gov/ICD9ProviderDiagnosticCodes/03--
meetings.asp. The minutes of the diagnosis codes discussions at the
September 27-28, 2007 meeting are found at: http://www.cdc.gov/nchs/
icd9.htm. Paper copies of these minutes are no longer available and the
mailing list has been discontinued. These Web sites also provide
detailed information about the Committee, including information on
requesting a new code, attending a Committee meeting, and timeline
requirements and meeting dates.
We encourage commenters to address suggestions on coding issues
involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM
Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo
Road, Hyattsville, MD 20782. Comments may be sent by E-mail to:
dfp4@cdc.gov.
Questions and comments concerning the procedure codes should be
addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination
and Maintenance Committee, CMS, Center for Medicare Management,
Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06,
7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent
by E-mail to: patricia.brooks2@cms.hhs.gov.
The ICD-9-CM code changes that have been approved will become
effective October 1, 2008. The new ICD-9-CM codes are listed, along
with their DRG classifications, in Tables 6A and 6B (New Diagnosis
Codes and New Procedure Codes, respectively) in the Addendum to this
proposed rule. As we stated above, the code numbers and their titles
were presented for public comment at the ICD-9-CM Coordination and
Maintenance Committee meetings. Both oral and written comments were
considered before the codes were approved. In this proposed rule, we
are only soliciting comments on the proposed classification of these
new codes.
For codes that have been replaced by new or expanded codes, and the
corresponding new or expanded diagnosis codes are included in Table 6A.
New procedure codes are shown in Table 6B. Diagnosis codes that have
been replaced by expanded codes or other codes or have been deleted are
in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes
will not be recognized by the GROUPER beginning with discharges
occurring on or after October 1, 2008. Table 6D contains invalid
procedure codes. These invalid procedure codes will not be recognized
by the GROUPER beginning with discharges occurring on or after October
1, 2008. Revisions to diagnosis code titles are in Table 6E (Revised
Diagnosis Code Titles), which also includes the MS-DRG assignments for
these revised codes. Table 6F includes revised procedure code titles
for FY 2009.
In the September 7, 2001 final rule implementing the IPPS new
technology add-on payments (66 FR 46906), we indicated we would attempt
to include proposals for procedure codes that would describe new
technology discussed and approved at the Spring meeting as part of the
code revisions effective the following October. As stated previously,
ICD-9-CM codes discussed at the March 19-20, 2008 Committee meeting
that received consensus and that are finalized by May 2008, will be
included in Tables 6A through 6F of the Addendum to the final rule.
Section 503(a) of Pub. L. 108-173 included a requirement for
updating ICD-9-CM codes twice a year instead of a single update on
October 1 of each year. This requirement was included as part of the
amendments to the Act relating to recognition of new technology under
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by
adding a clause (vii) which states that the ``Secretary shall provide
for the addition of new diagnosis and procedure codes on April 1 of
each year, but the addition of such codes shall not require the
Secretary to adjust the payment (or diagnosis-related group
classification) * * * until the fiscal year that begins after such
date.'' This requirement improves the recognition of new technologies
under the IPPS system by providing information on these new
technologies at an earlier date. Data will be available 6 months
earlier than would be possible with updates occurring only once a year
on October 1.
While section 1886(d)(5)(K)(vii) of the Act states that the
addition of new diagnosis and procedure codes on April 1 of each year
shall not require the Secretary to adjust the payment, or DRG
classification, under section 1886(d) of the Act until the fiscal year
that begins after such date, we have to update the DRG software and
other systems in order to recognize and accept the new codes. We also
publicize the code changes and the need for a mid-year systems update
by providers to identify the new codes. Hospitals also have to obtain
the new code books and encoder updates, and make other system changes
in order to identify and report the new codes.
The ICD-9-CM Coordination and Maintenance Committee holds its

[[Page 23581]]

meetings in the spring and fall in order to update the codes and the
applicable payment and reporting systems by October 1 of each year.
Items are placed on the agenda for the ICD-9-CM Coordination and
Maintenance Committee meeting if the request is received at least 2
months prior to the meeting. This requirement allows time for staff to
review and research the coding issues and prepare material for
discussion at the meeting. It also allows time for the topic to be
publicized in meeting announcements in the Federal Register as well as
on the CMS Web site. The public decides whether or not to attend the
meeting based on the topics listed on the agenda. Final decisions on
code title revisions are currently made by March 1 so that these titles
can be included in the IPPS proposed rule. A complete addendum
describing details of all changes to ICD-9-CM, both tabular and index,
is published on the CMS and NCHS Web sites in May of each year.
Publishers of coding books and software use this information to modify
their products that are used by health care providers. This 5-month
time period has proved to be necessary for hospitals and other
providers to update their systems.
A discussion of this timeline and the need for changes are included
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance
Committee minutes. The public agreed that there was a need to hold the
fall meetings earlier, in September or October, in order to meet the
new implementation dates. The public provided comment that additional
time would be needed to update hospital systems and obtain new code
books and coding software. There was considerable concern expressed
about the impact this new April update would have on providers.
In the FY 2005 IPPS final rule, we implemented section
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Pub. L.
108-173, by developing a mechanism for approving, in time for the April
update, diagnosis and procedure code revisions needed to describe new
technologies and medical services for purposes of the new technology
add-on payment process. We also established the following process for
making these determinations. Topics considered during the Fall ICD-9-CM
Coordination and Maintenance Committee meeting are considered for an
April 1 update if a strong and convincing case is made by the requester
at the Committee's public meeting. The request must identify the reason
why a new code is needed in April for purposes of the new technology
process. The participants at the meeting and those reviewing the
Committee meeting summary report are provided the opportunity to
comment on this expedited request. All other topics are considered for
the October 1 update. Participants at the Committee meeting are
encouraged to comment on all such requests. There were no requests
approved for an expedited April l, 2008 implementation of an ICD-9-CM
code at the September 27-28, 2007 Committee meeting. Therefore, there
were no new ICD-9-CM codes implemented on April 1, 2008.
We believe that this process captures the intent of section
1886(d)(5)(K)(vii) of the Act. This requirement was included in the
provision revising the standards and process for recognizing new
technology under the IPPS. In addition, the need for approval of new
codes outside the existing cycle (October 1) arises most frequently and
most acutely where the new codes will identify new technologies that
are (or will be) under consideration for new technology add-on
payments. Thus, we believe this provision was intended to expedite data
collection through the assignment of new ICD-9-CM codes for new
technologies seeking higher payments.
Current addendum and code title information is published on the CMS
Web site at: www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_
overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along
with the Official ICD-9-CM Coding Guidelines, can be found on the Web
site at: www.cdc.gov/nchs/icd9.htm. Information on new, revised, and
deleted ICD-9-CM codes is also provided to the AHA for publication in
the Coding Clinic for ICD-9-CM. AHA also distributes information to
publishers and software vendors.
CMS also sends copies of all ICD-9-CM coding changes to its
contractors for use in updating their systems and providing education
to providers.
These same means of disseminating information on new, revised, and
deleted ICD-9-CM codes will be used to notify providers, publishers,
software vendors, contractors, and others of any changes to the ICD-9-
CM codes that are implemented in April. The code titles are adopted as
part of the ICD-9-CM Coordination and Maintenance Committee process.
Thus, although we publish the code titles in the IPPS proposed and
final rules, they are not subject to comment in the proposed or final
rules. We will continue to publish the October code updates in this
manner within the IPPS proposed and final rules. For codes that are
implemented in April, we will assign the new procedure code to the same
DRG in which its predecessor code was assigned so there will be no DRG
impact as far as DRG assignment. Any midyear coding updates will be
available through the Web sites indicated above and through the Coding
Clinic for ICD-9-CM. Publishers and software vendors currently obtain
code changes through these sources in order to update their code books
and software systems. We will strive to have the April 1 updates
available through these Web sites 5 months prior to implementation
(that is, early November of the previous year), as is the case for the
October 1 updates.

H. Recalibration of MS-DRG Weights

In section II.E. of the preamble of this proposed rule, we state
that we are proposing to fully implement the cost-based DRG relative
weights for FY 2009, which is the third year in the 3-year transition
period to calculate the relative weights at 100 percent based on costs.
In the FY 2008 IPPS final rule with comment period (72 FR 47267), as
recommended by RTI, for FY 2008, we added two new CCRs for a total of
15 CCRs: one for ``Emergency Room'' and one for ``Blood and Blood
Products,'' both of which can be derived directly from the Medicare
cost report.
In developing the FY 2009 proposed system of weights, we used two
data sources: claims data and cost report data. As in previous years,
the claims data source is the MedPAR file. This file is based on fully
coded diagnostic and procedure data for all Medicare inpatient hospital
bills. The FY 2007 MedPAR data used in this proposed rule include
discharges occurring on October 1, 2006, through September 30, 2007,
based on bills received by CMS through December 2007, from all
hospitals subject to the IPPS and short-term, acute care hospitals in
Maryland (which are under a waiver from the IPPS under section
1814(b)(3) of the Act). The FY 2007 MedPAR file used in calculating the
relative weights includes data for approximately 11,433,806 Medicare
discharges from IPPS providers. Discharges for Medicare beneficiaries
enrolled in a Medicare Advantage managed care plan are excluded from
this analysis. The data exclude CAHs, including hospitals that
subsequently became CAHs after the period from which the data were
taken. The second data source used in the cost-based relative weighting
methodology is the FY 2006 Medicare cost report data files from HCRIS
(that is, cost reports beginning on or after October 1, 2005, and
before October 1, 2006), which represents the most recent full set of
cost report data available. We used the

[[Page 23582]]

December 31, 2007 update of the HCRIS cost report files for FY 2006 in
setting the relative cost-based weights.
The methodology we used to calculate the DRG cost-based relative
weights from the FY 2007 MedPAR claims data and FY 2006 Medicare cost
report data is as follows:
To the extent possible, all the claims were regrouped
using the proposed FY 2009 MS-DRG classifications discussed in sections
II.B. and G. of the preamble of this proposed rule.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively)
were limited to those Medicare-approved transplant centers that have
cases in the FY 2007 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those
facilities that have received approval from CMS as transplant centers.)
Organ acquisition costs for kidney, heart, heart-lung,
liver, lung, pancreas, and intestinal (or multivisceral organs)
transplants continue to be paid on a reasonable cost basis. Because
these acquisition costs are paid separately from the prospective
payment rate, it is necessary to subtract the acquisition charges from
the total charges on each transplant bill that showed acquisition
charges before computing the average cost for each DRG and before
eliminating statistical outliers.
Claims with total charges or total length of stay less
than or equal to zero were deleted. Claims that had an amount in the
total charge field that differed by more than $10.00 from the sum of
the routine day charges, intensive care charges, pharmacy charges,
special equipment charges, therapy services charges, operating room
charges, cardiology charges, laboratory charges, radiology charges,
other service charges, labor and delivery charges, inhalation therapy
charges, emergency room charges, blood charges, and anesthesia charges
were also deleted.
At least 96.1 percent of the providers in the MedPAR file
had charges for 10 of the 15 cost centers. Claims for providers that
did not have charges greater than zero for at least 10 of the 15 cost
centers were deleted.
Statistical outliers were eliminated by removing all cases
that were beyond 3.0 standard deviations from the mean of the log
distribution of both the total charges per case and the total charges
per day for each DRG.
Once the MedPAR data were trimmed and the statistical outliers were
removed, the charges for each of the 15 cost groups for each claim were
standardized to remove the effects of differences in area wage levels,
IME and DSH payments, and for hospitals in Alaska and Hawaii, the
applicable cost-of-living adjustment. Because hospital charges include
charges for both operating and capital costs, we standardized total
charges to remove the effects of differences in geographic adjustment
factors, cost-of-living adjustments, DSH payments, and IME adjustments
under the capital IPPS as well. Charges were then summed by DRG for
each of the 15 cost groups so that each DRG had 15 standardized charge
totals. These charges were then adjusted to cost by applying the
national average CCRs developed from the FY 2006 cost report data.
The 15 cost centers that we used in the relative weight calculation
are shown in the following table. The table shows the lines on the cost
report and the corresponding revenue codes that we used to create the
15 national cost center CCRs.
BILLING CODE 4120-01-P

[[Page 23583]]

[GRAPHIC][TIFF OMITTED]TP30AP08.012

[[Page 23584]]

[GRAPHIC][TIFF OMITTED]TP30AP08.013

[[Page 23585]]

[GRAPHIC][TIFF OMITTED]TP30AP08.014

[[Page 23586]]

[GRAPHIC][TIFF OMITTED]TP30AP08.015

[[Page 23587]]

[GRAPHIC][TIFF OMITTED]TP30AP08.016

[[Page 23588]]

[GRAPHIC][TIFF OMITTED]TP30AP08.017

BILLING CODE 4120-01-C
We developed the national average CCRs as follows:
Taking the FY 2006 cost report data, we removed CAHs, Indian Health
Service hospitals, all-inclusive rate hospitals, and cost reports that
represented time periods of less than 1 year (365 days). We included
hospitals located in Maryland as we are including their charges in our
claims database. We then created CCRs for each provider for each cost
center (see prior table for line items used in the calculations) and
removed any CCRs that were greater than 10 or less than 0.01. We
normalized the departmental CCRs by dividing the CCR for each
department by the total CCR for the hospital for the purpose of
trimming the data. We then took the logs of the normalized cost center
CCRs and removed any cost

[[Page 23589]]

center CCRs where the log of the cost center CCR was greater or less
than the mean log plus/minus 3 times the standard deviation for the log
of that cost center CCR. Once the cost report data were trimmed, we
calculated a Medicare-specific CCR. The Medicare-specific CCR was
determined by taking the Medicare charges for each line item from
Worksheet D-4 and deriving the Medicare-specific costs by applying the
hospital-specific departmental CCRs to the Medicare-specific charges
for each line item from Worksheet D-4. Once each hospital's Medicare-
specific costs were established, we summed the total Medicare-specific
costs and divided by the sum of the total Medicare-specific charges to
produce national average, charge-weighted CCRs.
After we multiplied the total charges for each DRG in each of the
15 cost centers by the corresponding national average CCR, we summed
the 15 ``costs'' across each DRG to produce a total standardized cost
for the DRG. The average standardized cost for each DRG was then
computed as the total standardized cost for the DRG divided by the
transfer-adjusted case count for the DRG. The average cost for each DRG
was then divided by the national average standardized cost per case to
determine the relative weight.
The new cost-based relative weights were then normalized by an
adjustment factor of 1.50612 so that the average case weight after
recalibration was equal to the average case weight before
recalibration. The normalization adjustment is intended to ensure that
recalibration by itself neither increases nor decreases total payments
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
The 15 proposed national average CCRs for FY 2009 are as follows:

------------------------------------------------------------------------
Group CCR
------------------------------------------------------------------------
Routine Days.................................................. 0.527
Intensive Days................................................ 0.476
Drugs......................................................... 0.205
Supplies & Equipment.......................................... 0.341
Therapy Services.............................................. 0.419
Laboratory.................................................... 0.166
Operating Room................................................ 0.293
Cardiology.................................................... 0.186
Radiology..................................................... 0.171
Emergency Room................................................ 0.291
Blood and Blood Products...................................... 0.449
Other Services................................................ 0.419
Labor & Delivery.............................................. 0.482
Inhalation Therapy............................................ 0.198
Anesthesia.................................................... 0.150
------------------------------------------------------------------------

As we explained in section II.E. of the preamble of this proposed
rule, we are proposing to complete our 2-year transition to the MS-
DRGs. For FY 2008, the first year of the transition, 50 percent of the
relative weight for an MS-DRG was based on the two-thirds cost-based
weight/one-third charge-based weight calculated using FY 2006 MedPAR
data grouped to the Version 24.0 (FY 2007) DRGs. The remaining 50
percent of the FY 2008 relative weight for an MS-DRG was based on the
two-thirds cost-based weight/one-third charge-based weight calculated
using FY 2006 MedPAR grouped to the Version 25.0 (FY 2008) MS-DRGs. In
FY 2009, we are proposing that the relative weights will be based on
100 percent cost weights computed using the Version 26.0 (FY 2009) MS-
DRGs.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. We are proposing to use that same case
threshold in recalibrating the MS-DRG weights for FY 2009. Using the FY
2007 MedPAR data set, there are 8 MS-DRGs that contain fewer than 10
cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the
CMS DRGs because we no longer have separate DRGs for patients age 0 to
17 years. With the exception of newborns, we previously separated some
DRGs based on whether the patient was age 0 to 17 years or age 17 years
and older. Other than the age split, cases grouping to these DRGs are
identical. The DRGs for patients age 0 to 17 years generally have very
low volumes because children are typically ineligible for Medicare. In
the past, we have found that the low volume of cases for the pediatric
DRGs could lead to significant year-to-year instability in their
relative weights. Although we have always encouraged non-Medicare
payers to develop weights applicable to their own patient populations,
we have heard frequent complaints from providers about the use of the
Medicare relative weights in the pediatric population. We believe that
eliminating this age split in the MS-DRGs will provide more stable
payment for pediatric cases by determining their payment using adult
cases that are much higher in total volume. All of the low-volume MS-
DRGs listed below are for newborns. Newborns are unique and require
separate DRGs that are not mirrored in the adult population. Therefore,
it remains necessary to retain separate DRGs for newborns. In FY 2009,
because we do not have sufficient MedPAR data to set accurate and
stable cost weights for these low-volume MS-DRGs, we are proposing to
compute weights for the low-volume MS-DRGs by adjusting their FY 2008
weights by the percentage change in the average weight of the cases in
other MS-DRGs. The crosswalk table is shown below:

------------------------------------------------------------------------
Low-volume MS-DRG MS-DRG title Crosswalk to MS-DRG
------------------------------------------------------------------------
768................. Vaginal Delivery with FY 2008 FR weight
O.R. Procedure Except (adjusted by percent
Sterilization and/or change in average
D&C. weight of the cases in
other MS-DRGs).
789................. Neonates, Died or FY 2008 FR weight
Transferred to Another (adjusted by percent
Acute Care Facility. change in average
weight of the cases in
other MS-DRGs).
790................. Extreme Immaturity or FY 2008 FR weight
Respiratory Distress (adjusted by percent
Syndrome, Neonate. change in average
weight of the cases in
other MS-DRGs).
791................. Prematurity with Major FY 2008 FR weight
Problems. (adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
792................. Prematurity without FY 2008 FR weight
Major Problems. (adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
793................. Full-Term Neonate with FY 2008 FR weight
Major Problems. (adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
794................. Neonate with Other FY 2008 FR weight
Significant Problems. (adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
795................. Normal Newborn.......... FY 2008 FR weight
(adjusted by percent
change in average
weight of the cases in
other MS-DRGs).
------------------------------------------------------------------------

[[Page 23590]]

I. Proposed Medicare Severity Long-Term Care (MS-LTC-DRG)
Reclassifications and Relative Weights for LTCHs for FY 2009

1. Background
Section 123 of the BBRA requires that the Secretary implement a PPS
for LTCHs (that is, a per discharge system with a diagnosis-related
group (DRG)-based patient classification system reflecting the
differences in patient resources and costs). Section 307(b)(1) of the
BIPA modified the requirements of section 123 of the BBRA by requiring
that the Secretary examine ``the feasibility and the impact of basing
payment under such a system [the long-term care hospital (LTCH) PPS] on
the use of existing (or refined) hospital DRGs that have been modified
to account for different resource use of LTCH patients, as well as the
use of the most recently available hospital discharge data.''
When the LTCH PPS was implemented for cost reporting periods
beginning on or after October 1, 2002, we adopted the same DRG patient
classification system (that is, the CMS DRGs) that was utilized at that
time under the IPPS. As a component of the LTCH PPS, we refer to the
patient classification system as the ``long-term care diagnosis-related
groups (LTC-DRGs).'' As discussed in greater detail below, although the
patient classification system used under both the LTCH PPS and the IPPS
are the same, the relative weights are different. The established
relative weight methodology and data used under the LTCH PPS result in
LTC-DRG relative weights that reflect ``the differences in patient
resource use * * *'' of LTCH patients (section 123(a)(1) of the BBRA
(Pub. L. 106-113). As part of our efforts to better recognize severity
of illness among patients, in the FY 2008 IPPS final rule with comment
period (72 FR 47130), the MS-DRGs and the Medicare severity long-term
care diagnosis related groups (MS-LTC-DRGs) were adopted for the IPPS
and the LTCH PPS, respectively, effective October 1, 2007 (FY 2008).
For a full description of the development and implementation of the MS-
DRGs and MS-LTC-DRGs, we refer readers to the FY 2008 IPPS final rule
with comment period (72 FR 47141 through 47175 and 47277 through
47299). (We note that, in that same final rule, we revised the
regulations at Sec. 412.503 to specify that for LTCH discharges
occurring on or after October 1, 2007, when applying the provisions of
42 CFR Part 412, Subpart O applicable to LTCHs for policy descriptions
and payment calculations, all references to LTC-DRGs would be
considered a reference to MS-LTC-DRGs. For the remainder of this
section, we present the discussion in terms of the current MS-LTC-DRG
patient classification unless specifically referring to the previous
LTC-DRG patient classification system (that was in effect before
October 1, 2007).) We believe the MS-DRGs (and by extension, the MS-
LTC-DRGs) represent a substantial improvement over the previous CMS
DRGs in their ability to differentiate cases based on severity of
illness and resource consumption.
The MS-DRGs represent an increase in the number of DRGs by 207
(that is, from 538 to 745) (72 FR 47171). In addition to improving the
DRG system's recognition of severity of illness, we believe the MS-DRGs
are responsive to the public comments that were made on the FY 2007
IPPS proposed rule with respect to how we should undertake further DRG
reform. The MS-DRGs use the CMS DRGs as the starting point for revising
the DRG system to better recognize resource complexity and severity of
illness. We have generally retained all of the refinements and
improvements that have been made to the base DRGs over the years that
recognize the significant advancements in medical technology and
changes to medical practice.
Consistent with section 123 of the BBRA as amended by section
307(b)(1) of the BIPA and Sec. 412.515, we use information derived
from LTCH PPS patient records to classify LTCH discharges into distinct
MS-LTC-DRGs based on clinical characteristics and estimated resource
needs. We then assign an appropriate weight to the MS-LTC-DRGs to
account for the difference in resource use by patients exhibiting the
case complexity and multiple medical problems characteristic of LTCHs.
Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge; and that payment varies
by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into MS-LTC-DRGs for payment based on the following six data
elements:
Principal diagnosis.
Up to eight additional diagnoses.
Up to six procedures performed.
Age.
Sex.
Discharge status of the patient.
Upon the discharge of the patient from a LTCH, the LTCH must assign
appropriate diagnosis and procedure codes from the most current version
of the International Classification of Diseases, Ninth Revision,
Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets
Standards regulations at 45 CFR Parts 160 and 162 require that no later
than October 16, 2003, all covered entities must comply with the
applicable requirements of Subparts A and I through R of Part 162.
Among other requirements, those provisions direct covered entities to
use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2,
Version 4010, and the applicable standard medical data code sets for
the institutional health care claim or equivalent encounter information
transaction (see 45 CFR 162.1002 and 45 CFR 162.1102). For additional
information on the ICD-9-CM Coding System, we refer readers to the FY
2008 IPPS final rule with comment period (72 FR 47241 through 47243 and
47277 through 47281). We also refer readers to the detailed discussion
on correct coding practices in the August 30, 2002 LTCH PPS final rule
(67 FR 55981 through 55983). Additional coding instructions and
examples are published in the Coding Clinic for ICD-9-CM, a product of
the American Hospital Association.
Medicare contractors (that is, fiscal intermediaries or MACs) enter
the clinical and demographic information into their claims processing
systems and subject this information to a series of automated screening
processes called the Medicare Code Editor (MCE). These screens are
designed to identify cases that require further review before
assignment into a MS-LTC-DRG can be made. During this process, the
following types of cases are selected for further development:
Cases that are improperly coded. (For example, diagnoses
are shown that are inappropriate, given the sex of the patient. Code
68.69 (Other and unspecified radical abdominal hysterectomy) would be
an inappropriate code for a male.)
Cases including surgical procedures not covered under
Medicare. (For example, organ transplant in a nonapproved transplant
center.)
Cases requiring more information. (For example, ICD-9-CM
codes are required to be entered at their highest level of specificity.
There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262
(Other severe protein-calorie malnutrition) contains all appropriate
digits, but if it is reported with either fewer or more than 3 digits,
the claim will be rejected by the MCE as invalid.)
After screening through the MCE, each claim is classified into the
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software.

[[Page 23591]]

The Medicare GROUPER software, which is used under the LTCH PPS, is
specialized computer software, and is the same GROUPER software program
used under the IPPS. The GROUPER software was developed as a means of
classifying each case into a MS-LTC-DRG on the basis of diagnosis and
procedure codes and other demographic information (age, sex, and
discharge status). Following the MS-LTC-DRG assignment, the Medicare
contractor determines the prospective payment amount by using the
Medicare PRICER program, which accounts for hospital-specific
adjustments. Under the LTCH PPS, we provide an opportunity for the LTCH
to review the MS-LTC-DRG assignments made by the Medicare contractor
and to submit additional information within a specified timeframe as
specified in Sec. 412.513(c).
The GROUPER software is used both to classify past cases to measure
relative hospital resource consumption to establish the DRG weights and
to classify current cases for purposes of determining payment. The
records for all Medicare hospital inpatient discharges are maintained
in the MedPAR file. The data in this file are used to evaluate possible
MS-DRG classification changes and to recalibrate the MS-DRG and MS-LTC-
DRG relative weights during our annual update under both the IPPS
(Sec. 412.60(e)) and the LTCH PPS (Sec. 412.517), respectively.
In the June 6, 2003 LTCH PPS final rule (68 FR 34122), we changed
the LTCH PPS annual payment rate update cycle to be effective July 1
through June 30 instead of October 1 through September 30. In addition,
because the patient classification system utilized under the LTCH PPS
uses the same DRGs as those used under the IPPS for acute care
hospitals, in that same final rule, we explained that the annual update
of the LTC-DRG classifications and relative weights will continue to
remain linked to the annual reclassification and recalibration of the
DRGs used under the IPPS. Therefore, we specified that we will continue
to update the LTC-DRG classifications and relative weights to be
effective for discharges occurring on or after October 1 through
September 30 each year. We further stated that we will publish the
annual proposed and final update of the LTC-DRGs in same notice as the
proposed and final update for the IPPS (69 FR 34125).
In the RY 2009 LTCH PPS proposed rule (73 FR 5351-5352), due to
administrative considerations as well as in response to numerous
comments urging CMS to establish one rulemaking cycle that would
encompass the update of the LTCH PPS payment rates (currently updated
on a rate year basis, effective July 1) as well as the development of
the LTC-DRG weights (currently updated on a fiscal year basis,
effective October 1), we proposed to amend the regulations at Sec.
412.535 in order to consolidate the rate year and fiscal year
rulemaking cycles. Specifically, we proposed that the annual update of
the LTCH PPS payment rates (and description of the methodology and data
used to calculate these payment rates) and the annual update of the MS-
LTC-DRG classifications and associated weighting factors for LTCHs
would be effective on October 1 each Federal fiscal year. In order to
revise the payment rate update (currently on a rate year cycle of July
1 through June 30) to an October 1 through September 30 cycle, we
proposed to extend the 2009 rate period to September 30, 2009, so that
RY 2009 would be 15 months. This proposed 15-month rate period would
extend from July 1, 2008, through September 30, 2009. We believe that
extending RY 2009 by 3 months (July, August, and September) would
provide for a smooth transition to a consolidated annual update for
both the LTCH PPS payment rates and the LTCH PPS MS-LTC-DRG
classifications and weighting factors. (We believe that proposing to
shorten the 2009 rate year period to an October 1 through September 30
period so that RY 2009 would only be 3 months (that is, July 1, 2008
through September 30, 2008) would exacerbate the current time-
consuming, biannual update process by resulting in two payment rate
changes within a very short period of time.) Consequently, under the
proposal to extend RY 2009 to a 15-month rate period, after September
30, 2009, when the RY 2009 cycle ends, the LTCH PPS payment rates and
other policy changes would subsequently be updated on an October 1
through September 30 cycle in conjunction with the annual update to the
MS-LTC-DRG classifications and relative weights. Accordingly, the next
update to the LTCH PPS payment rates, after the proposed 15-month RY
2009, would begin October 1, 2009, coinciding with the 2010 Federal
fiscal year.
In the past, the annual update to the DRGs used under the IPPS has
been based on the annual revisions to the ICD-9-CM codes and was
effective each October 1. As discussed in the RY 2009 LTCH PPS proposed
rule (73 FR 5348-5349), with the implementation of section 503(a) of
Pub. L. 108-173, there is the possibility that one feature of the
GROUPER software program may be updated twice during a Federal fiscal
year (October 1 and April 1) as required by the statute for the IPPS.
Section 503(a) of Pub. L. 108-173 amended section 1886(d)(5)(K) of the
Act by adding a new clause (vii) which states that ``the Secretary
shall provide for the addition of new diagnosis and procedure codes in
[sic] April 1 of each year, but the addition of such codes shall not
require the Secretary to adjust the payment (or diagnosis-related group
classification) * * * until the fiscal year that begins after such
date.'' This requirement improves the recognition of new technologies
under the IPPS by accounting for those ICD-9-CM codes in the MedPAR
claims data earlier than the agency had accounted for new technology in
the past. In implementing the statutory change, the agency has provided
that ICD-9-CM diagnosis and procedure codes for new medical technology
may be created and assigned to existing DRGs in the middle of the
Federal fiscal year, on April 1. However, this policy change will not
impact the DRG relative weights in effect for that year, which will
continue to be updated only once a year (October 1). The use of the
ICD-9-CM code set is also compliant with the current requirements of
the Transactions and Code Sets Standards regulations at 45 CFR Parts
160 and 162, promulgated in accordance with HIPAA.
As noted above, the patient classification system used under the
LTCH PPS is the same patient classification system that is used under
the IPPS. Therefore, the ICD-9-CM codes currently used under both the
IPPS and the LTCH PPS have the potential of being updated twice a year.
This requirement is included as part of the amendments to the Act
relating to recognition of new medical technology under the IPPS.
Because we do not publish a midyear IPPS rule, any April 1 ICD-9-CM
coding update will not be published in the Federal Register. Rather, we
will assign any new diagnosis or procedure codes to the same DRG in
which its predecessor code was assigned, so that there will be no
impact on the DRG assignments (as also discussed in section II.G.11. of
the preamble of this proposed rule). Any coding updates will be
available through the Web sites provided in section II.G.11. of the
preamble of this proposed rule and through the Coding Clinic for ICD-9-
CM. Publishers and software vendors currently obtain code changes
through these sources in order to update their code books and software
system. If new codes are implemented on April 1, revised code books and
software systems, including the GROUPER

[[Page 23592]]

software program, will be necessary because the most current ICD-9-CM
codes must be reported. Therefore, for purposes of the LTCH PPS,
because each ICD-9-CM code must be included in the GROUPER algorithm to
classify each case under the correct LTCH PPS, the GROUPER software
program used under the LTCH PPS would need to be revised to accommodate
any new codes.
In implementing section 503(a) of Pub. L. 108-173, there will only
be an April 1 update if new technology diagnosis and procedure code
revisions are requested and approved. We note that any new codes
created for April 1 implementation will be limited to those primarily
needed to describe new technologies and medical services. However, we
reiterate that the process of discussing updates to the ICD-9-CM is an
open process through the ICD-9-CM Coordination and Maintenance
Committee. Requestors will be given the opportunity to present the
merits for a new code and to make a clear and convincing case for the
need to update ICD-9-CM codes for purposes of the IPPS new technology
add-on payment process through an April 1 update (as also discussed in
section II.G.11. of the preamble of this proposed rule).
At the September 27, 2007 ICD-9-CM Coordination and Maintenance
Committee meeting, there were no requests for an April 1, 2008
implementation of ICD-9-CM codes. Therefore, the next update to the
ICD-9-CM coding system will occur on October 1, 2008 (FY 2009). Because
there were no coding changes suggested for an April 1, 2008 update, the
ICD-9-CM coding set implemented on October 1, 2008, will continue
through September 30, 2009 (FY 2009). The update to the ICD-9-CM coding
system for FY 2009 is discussed in section II.G.11. of the preamble of
this proposed rule. Accordingly, in this proposed rule, as discussed in
greater detail below, we are proposing to modify and revise the MS-LTC-
DRG classifications and relative weights to be effective October 1,
2008 through September 30, 2009 (FY 2009). As discussed in greater
detail below, the MS-LTC-DRGs for FY 2009 in this proposed rule are the
same as the MS-DRGs proposed for the IPPS for FY 2009 (GROUPER Version
26.0) discussed in section II.B. of the preamble to this proposed rule.
2. Proposed Changes in the MS-LTC-DRG Classifications
a. Background
As discussed earlier, section 123 of Pub. L. 106-113 specifically
requires that the agency implement a PPS for LTCHs that is a per
discharge system with a DRG-based patient classification system
reflecting the differences in patient resources and costs in LTCHs.
Section 307(b)(1) of Pub. L. 106-554 modified the requirements of
section 123 of Pub. L. 106-113 by specifically requiring that the
Secretary examine ``the feasibility and the impact of basing payment
under such a system [the LTCH PPS] on the use of existing (or refined)
hospital diagnosis-related groups (DRGs) that have been modified to
account for different resource use of long-term care hospital patients
as well as the use of the most recently available hospital discharge
data.''
Consistent with section 123 of Pub. L. 106-113 as amended by
section 307(b)(1) of Pub. L. 106-554 and Sec. 412.515 of our existing
regulations, the LTCH PPS uses information from LTCH patient records to
classify patient cases into distinct LTC-DRGs based on clinical
characteristics and expected resource needs. As described in section
II.D. of the preamble of this proposed rule, for FY 2008, we adopted
MS-DRGs under the IPPS because we believe that this system results in a
significant improvement in the DRG system's recognition of severity of
illness and resource usage. We stated that we believe these
improvements in the DRG system are equally applicable to the LTCH PPS.
The changes we are proposing to make for the FY 2009 IPPS are reflected
in the proposed FY 2009 GROUPER, Version 26.0, that would be effective
for discharges occurring on or after October 1, 2008 through September
30, 2009.
Consistent with our historical practice of having LTC-DRGs
correspond to the DRGs applicable under the IPPS, under the broad
authority of section 123(a) of Pub. L. 106-113, as modified by section
307(b) of Pub. L. 106-554, under the LTCH PPS for FY 2008, we adopted
the use of MS-LTC-DRGs, which correspond to the MS-DRGs we adopted
under the IPPS. In addition, as stated above, we are proposing to use
the FY 2009 GROUPER Version 26.0 to classify cases effective for LTCH
discharges occurring on or after October 1, 2008, through September 30,
2009. The changes to the MS-DRG classification system that we are
proposing to use under the IPPS for FY 2009 (GROUPER Version 26.0) are
discussed in section II.B. of the preamble to this proposed rule.
Under the LTCH PPS, as described in greater detail below, we
determine relative weights for each of the MS-LTC-DRGs to account for
the difference in resource use by patients exhibiting the case
complexity and multiple medical problems characteristic of LTCH
patients. (Unless otherwise noted in this proposed rule, our MS-LTC-DRG
analysis is based on LTCH data from the December 2007 update of the FY
2007 MedPAR file, which contains hospital bills received through
December 31, 2007, for discharges occurring in FY 2007.)
LTCHs do not typically treat the full range of diagnoses as do
acute care hospitals. Therefore, as we discussed in the August 30, 2002
LTCH PPS final rule (67 FR 55985), which implemented the LTCH PPS, and
the FY 2008 IPPS final rule with comment period (72 FR 47283), we use
low-volume quintiles in determining the DRG relative weights for DRGs
with less than 25 LTCH cases (low-volume MS-LTC-DRGs). Specifically, we
group those low-volume DRGs into 5 quintiles based on average charges
per discharge. (A listing of the composition of low-volume quintiles
for the FY 2008 MS-LTC-DRGs (based on FY 2006 MedPAR data) appears in
section II.I.3. of the FY 2008 IPPS final rule with comment period (72
FR 47281 through 47288).) We also adjust for cases in which the stay at
the LTCH is less than or equal to five-sixths of the geometric average
length of stay; that is, short-stay outlier cases, as discussed below
in section II.I.4. of the preamble of this proposed rule.
b. Patient Classifications Into MS-LTC-DRGs
Generally, under the LTCH PPS, Medicare payment is made at a
predetermined specific rate for each discharge; that is, payment varies
by the DRG to which a beneficiary's stay is assigned. Just as cases
have been classified into the MS-DRGs for acute care hospitals under
the IPPS (section II.B. of the preamble of this proposed rule), cases
have been classified into MS-LTC-DRGs for payment under the LTCH PPS
based on the principal diagnosis, up to eight additional diagnoses, and
up to six procedures performed during the stay, as well as demographic
information about the patient. The diagnosis and procedure information
is reported by the hospital using the ICD-9-CM coding system. Under the
MS-DRGs for the IPPS and the MS-LTC-DRGs for the LTCH PPS, these
factors will not change.
Section II.B. of the preamble of this proposed rule discusses the
organization of the existing MS-DRGs, which we are maintaining under
the MS-LTC-DRG system. As noted above, the patient classification
system for the LTCH PPS is derived from the IPPS DRGs and is similarly
organized into 25 major diagnostic categories (MDCs).

[[Page 23593]]

Most of these MDCs are based on a particular organ system of the body
and the remainder involves multiple organ systems (such as MDC 22,
Burns). Accordingly, the principal diagnosis determines MDC assignment.
Within most MDCs, cases are then divided into surgical DRGs and medical
DRGs. Under the MS-DRGs, some surgical and medical DRGs are further
defined for severity purposes based on the presence or absence of MCCs
or CCs. The existing MS-LTC-DRGs are similarly categorized. (We refer
readers to section II.B. of the preamble of this proposed rule for
further discussion of surgical DRGs and medical DRGs.)
Therefore, consistent with the MS-DRGs, a base MS-LTC-DRG may be
subdivided according to three alternatives. The first alternative
includes division of the DRG into one, two, or three severity levels.
The most severe level has cases with at least one code that is a major
CC, referred to as ``with MCC''. The next lower severity level contains
cases with at least one CC, referred to as ``with CC''. Those DRGs
without an MCC or a CC are referred to as ``without CC/MCC''. When data
do not support the creation of three severity levels, the base DRG is
divided into either two levels or the base is not subdivided.
The two-level subdivisions consist of one of the following
subdivisions: ``with CC/MCC'' or ``without CC/MCC.'' In this type of
subdivision, cases with at least one code that is on the CC or MCC list
are assigned to the `` CC/MCC'' DRG. Cases without a CC or an MCC are
assigned to the ``without CC/MCC'' DRG.
The other type of two-level subdivision is as follows: ``with MCC''
and ``without MCC.'' In this type of subdivision, cases with at least
one code that is on the MCC list are assigned to the ``with MCC'' DRG.
Cases that do not have an MCC are assigned to the ``without MCC'' DRG.
This type of subdivision could include cases with a CC code, but no
MCC.
3. Development of the Proposed FY 2009 MS-LTC-DRG Relative Weights
a. General Overview of Development of the MS-LTC-DRG Relative Weights
As we stated in the August 30, 2002 LTCH PPS final rule (67 FR
55981), one of the primary goals for the implementation of the LTCH PPS
is to pay each LTCH an appropriate amount for the efficient delivery of
medical care to Medicare patients. The system must be able to account
adequately for each LTCH's case-mix in order to ensure both fair
distribution of Medicare payments and access to adequate care for those
Medicare patients whose care is more costly. To accomplish these goals,
we have annually adjusted the LTCH PPS standard Federal prospective
payment system rate by the applicable relative weight in determining
payment to LTCHs for each case. (As we have noted above, in last year's
final rule, we adopted the MS-LTC-DRGs for the LTCH PPS beginning in FY
2008. However, this change in the patient classification system does
not affect the basic principles of the development of relative weights
under a DRG-based prospective payment system.
Although the adoption of the MS-LTC-DRGs resulted in some
modifications of existing procedures for assigning weights in cases of
zero volume and/or nonmonotonicity, as discussed in the FY 2008 IPPS
final rule with comment period (72 FR 47289 through 47295) and
discussed in detail in the following sections, the basic methodology
for developing the proposed FY 2009 MS-LTC-DRG relative weights in this
proposed rule continue to be determined in accordance with the general
methodology established in the August 30, 2002 LTCH PPS final rule (67
FR 55989 through 55991). Under the LTCH PPS, relative weights for each
MS-LTC-DRG are a primary element used to account for the variations in
cost per discharge and resource utilization among the payment groups
(Sec. 412.515). To ensure that Medicare patients classified to each
MS-LTC-DRG have access to an appropriate level of services and to
encourage efficiency, we calculate a relative weight for each MS-LTC-
DRG that represents the resources needed by an average inpatient LTCH
case in that MS-LTC-DRG. For example, cases in an MS-LTC-DRG with a
relative weight of 2 will, on average, cost twice as much to treat as
cases in an MS-LTC-DRG with a weight of 1.
b. Data
To calculate the proposed MS-LTC-DRG relative weights for FY 2009,
we obtained total Medicare allowable charges from FY 2007 Medicare LTCH
bill data from the December 2007 update of the MedPAR file, which are
the best available data at this time, and we used the proposed Version
26.0 of the CMS GROUPER that is also proposed for use under the IPPS to
classify cases for FY 2009. We also are proposing that if more recent
data are available, we will use those data and the finalized Version
26.0 of the CMS GROUPER in establishing the FY 2009 MS-LTC-DRG relative
weights in the final rule.
Consistent with our historical methodology, we have excluded the
data from LTCHs that are all-inclusive rate providers and LTCHs that
are reimbursed in accordance with demonstration projects authorized
under section 402(a) of Pub. L. 90-248 or section 222(a) of Pub. L. 92-
603 (We refer readers to the FY 2008 IPPS final rule with comment
period (72 FR 47282)). Therefore, in the development of the proposed FY
2009 MS-LTC-DRG relative weights in this proposed rule, we have
excluded the data of the 17 all-inclusive rate providers and the 2
LTCHs that are paid in accordance with demonstration projects that had
claims in the FY 2007 MedPAR file.
c. Hospital-Specific Relative Value (HSRV) Methodology
By nature, LTCHs often specialize in certain areas, such as
ventilator-dependent patients and rehabilitation and wound care. Some
case types (DRGs) may be treated, to a large extent, in hospitals that
have, from a perspective of charges, relatively high (or low) charges.
This nonarbitrary distribution of cases with relatively high (or low)
charges in specific MS-LTC-DRGs has the potential to inappropriately
distort the measure of average charges. To account for the fact that
cases may not be randomly distributed across LTCHs, we are proposing to
use a hospital-specific relative value (HSRV) methodology to calculate
the MS-LTC-DRG relative weights instead of the methodology used to
determine the MS-DRG relative weights under the IPPS described in
section II.H. of the preamble of this proposed rule. We believe this
method will remove this hospital-specific source of bias in measuring
LTCH average charges. Specifically, we are proposing to reduce the
impact of the variation in charges across providers on any particular
MS-LTC-DRG relative weight by converting each LTCH's charge for a case
to a relative value based on that LTCH's average charge.
Under the HSRV methodology, we standardize charges for each LTCH by
converting its charges for each case to hospital-specific relative
charge values and then adjusting those values for the LTCH's case-mix.
The adjustment for case-mix is needed to rescale the hospital-specific
relative charge values (which, by definition, average 1.0 for each
LTCH). The average relative weight for a LTCH is its case-mix, so it is
reasonable to scale each LTCH's average relative charge value by its
case-mix. In this way, each LTCH's relative charge

[[Page 23594]]

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 LTCHs (the average case-mix of all LTCHs).
In accordance with the methodology established in the August 30,
2002 LTCH PPS final rule (67 FR 55989 through 55991), we continue to
standardize charges for each case by first dividing the adjusted charge
for the case (adjusted for short-stay outliers under Sec. 412.529 as
described in section II.I.4. (step 3) of the preamble of this proposed
rule) by the average adjusted charge for all cases at the LTCH in which
the case was treated. Short-stay outliers are cases with a length of
stay that is less than or equal to five-sixths the average length of
stay of the MS-LTC-DRG (Sec. 412.529 and Sec. 412.503). The average
adjusted charge reflects the average intensity of the health care
services delivered by a particular LTCH and the average cost level of
that LTCH. The resulting ratio is multiplied by that LTCH's case-mix
index to determine the standardized charge for the case.
Multiplying by the LTCH's case-mix index accounts for the fact that
the same relative charges are given greater weight at a LTCH with
higher average costs than they would at a LTCH with low average costs,
which is needed to adjust each LTCH's relative charge value to reflect
its case-mix relative to the average case-mix for all LTCHs. Because we
standardize charges in this manner, we count charges for a Medicare
patient at a LTCH with high average charges as less resource intensive
than they would be at a LTCH with low average charges. For example, a
$10,000 charge for a case at a LTCH with an average adjusted charge of
$17,500 reflects a higher level of relative resource use than a $10,000
charge for a case at a LTCH with the same case-mix, but an average
adjusted charge of $35,000. We believe that the adjusted charge of an
individual case more accurately reflects actual resource use for an
individual LTCH because the variation in charges due to systematic
differences in the markup of charges among LTCHs is taken into account.
d. Treatment of Severity Levels in Developing Proposed Relative Weights
Under the proposed MS-LTC-DRGs, for purposes of the proposed
setting of the relative weights, there would be three different
categories of DRGs based on volume of cases within specific MS-LTC-
DRGs. MS-LTC-DRGs with at least 25 cases are each assigned a unique
relative weight; low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs that
contain between one and 24 cases annually) are grouped into quintiles
(described below) and assigned the weight of the quintile. No-volume
MS-LTC-DRGs (that is, no cases in the database were assigned to those
MS-LTC-DRGs) are crosswalked to other MS-LTC-DRGs based on the clinical
similarities and assigned the relative weight of the crosswalked MS-
LTC-DRG. (We provide in-depth discussions of our proposed policy
regarding weight setting for low-volume MS-LTC-DRGs in section
II.I.3.e. of the preamble of this proposed rule and for no-volume MS-
LTC-DRGs, under Step 5 in section II.I.4. of the preamble of this
proposed rule.)
As described above, in response to the need to account for severity
and pay appropriately for cases, we developed a severity-adjusted
patient classification system which we adopted for both the IPPS and
the LTCH PPS in FY 2008. As described in greater detail above, the MS-
LTC-DRG system can accommodate three severity levels: ``with MCC''
(most severe); ``with CC,'' and ``without CC/MCC'' (the least severe)
with each level assigned an individual MS-LTC-DRG number. In cases with
two subdivisions, the levels are either ``with CC/MCC'' and ``without
CC/MCC'' or ``with MCC'' and ``without MCC''. For example, under the
MS-LTC-DRG system, multiple sclerosis and cerebellar ataxia with MCC is
MS-LTC-DRG 58; multiple sclerosis and cerebellar ataxia with CC is MS-
LTC-DRG 59; and multiple sclerosis and cerebellar ataxia without CC/MCC
is MS-LTC-DRG 60. For purposes of discussion in this section, the term
``base DRG'' is used to refer to the DRG category that encompasses all
levels of severity for that DRG. For example, when referring to the
entire DRG category for multiple sclerosis and cerebellar ataxia, which
includes the above three severity levels, we would use the term ``base-
DRG.''
As noted above, while the LTCH PPS and the IPPS use the same
patient classification system, the methodology that is used to set the
DRG weights for use in each payment system differs because the overall
volume of cases in the LTCH PPS is much less than in the IPPS. As a
general rule, consistent with the methodology we used when we adopted
the MS-LTC-DRGs in the FY 2008 IPPS final rule with comment period (72
FR 47278 through 47281), we are proposing to determine the FY 2009
relative weights for the MS-LTC-DRGs using the following steps: (1) if
an MS-LTC-DRG has at least 25 cases, it is assigned its own relative
weight; (2) if an MS-LTC-DRG has between 1 and 24 cases, it is assigned
to a quintile for which we will compute a relative weight; and (3) if
an MS-LTC-DRG has no cases, it is crosswalked to another MS-LTC-DRG
based upon clinical similarities to assign an appropriate relative
weight (as described below in detail in Step 5 of the Steps for
Determining the proposed FY 2009 MS-LTC-DRG Relative Weights).
Furthermore, in determining the proposed FY 2009 MS-LTC-DRG relative
weights, when necessary, we are proposing to make adjustments to
account for nonmonotonicity, as explained below.
Theoretically, cases under the MS-LTC-DRG system that are more
severe require greater expenditure of medical care resources and will
result in higher average charges. Therefore, in the three severity
levels, weights should increase with severity, from lowest to highest.
If the weights do not increase (that is, if based on the relative
weight methodology outlined above, the MS-LTC-DRG with MCC would have a
lower relative weight than one with CC, or the MS-LTC-DRG without CC/
MCC would have a higher relative weight than either of the others),
there is a problem with monotonicity. Since the start of the LTCH PPS
for FY 2003 (67 FR 55990), we have adjusted the setting of the LTC-DRG
relative weights in order to maintain monotonicity by grouping both
sets of cases together and establishing a new relative weight for both
LTC-DRGs. We continue to believe that utilizing nonmonotonic relative
weights to adjust Medicare payments would result in inappropriate
payments because, in a nonmonotonic system, cases that are more severe
and require greater expenditure of medical care resources would be paid
based on a lower relative weight than cases that are less severe and
require lower resource use. The procedure for dealing with
nonmonotonicity under the MS-LTC-DRG classification system is discussed
in greater detail below in section II.I.4. (Step 6) of the preamble of
this proposed rule.
e. Proposed Low-Volume MS-LTC-DRGs
In order to account for MS-LTC-DRGs with low volume (that is, with
fewer than 25 LTCH cases), consistent with the methodology we
established when we implemented the LTCH PPS (August 30, 2002; 67 FR
55984 through 55995), we group those ``low-volume MS-LTC-DRGs'' (that
is, MS-LTC-DRGs that contained between 1 and 24 cases annually) into
one of five categories (quintiles) based on average charges, for the
purposes of determining relative weights (72 FR 47283 through 47288).
In determining the proposed FY

[[Page 23595]]

2009 MS-LTC-DRG relative weights in this proposed rule, we are
proposing to continue to employ this quintile methodology for proposed
low-volume MS-LTC-DRGs. In addition, in cases where the initial
assignment of a low-volume MS-LTC-DRG to quintiles results in
nonmonotonicity within a base DRG, in order to ensure appropriate
Medicare payments, consistent with our historical methodology, we are
proposing to make adjustments to the treatment of low-volume MS-LTC-
DRGs to preserve monotonicity, as discussed in detail below in section
II.I.4 (Step 6 of the methodology for determining the proposed FY 2009
MS-LTC-DRG relative weights). In this proposed rule, using LTCH cases
from the December 2007 update of the FY 2007 MedPAR file, we identified
290 MS-LTC-DRGs that contained between 1 and 24 cases. This list of
proposed MS-LTC-DRGs was then divided into one of the proposed 5 low-
volume quintiles, each containing 58 MS-LTC-DRGs (290/5 = 58). We are
proposing to make the assignment of a low-volume MS-LTC-DRG to a
specific low-volume quintile by sorting the proposed low-volume MS-LTC-
DRGs in ascending order by average charge in accordance with our
established methodology. Specifically, for this proposed rule, the 290
proposed low-volume MS-LTC-DRGs are sorted by ascending order by
average charge and assigned to a specific proposed low-volume quintile
(as described below). After sorting the 290 proposed low-volume MS-LTC-
DRGs by average charge in ascending order, we are proposing to group
the first fifth (1st through 58th) of proposed low-volume MS-LTC-DRGs
(with the lowest average charge) into Quintile 1. This process is
repeated through the remaining proposed low-volume MS-LTC-DRGs so that
each of the 5 proposed low-volume quintiles contains 58 proposed MS-
LTC-DRGs. The highest average charge cases would be grouped into
Quintile 5. (We note that, consistent with our historical methodology,
if the number of proposed low-volume MS-LTC-DRGs had not been evenly
divisible by 5, we would have used the average charge of the proposed
low-volume MS-LTC-DRG to determine which proposed low-volume quintile
would have received the additional proposed low-volume MS-LTC-DRG.)
Accordingly, in order to determine the proposed relative weights
for the proposed MS-LTC-DRGs with low-volume for FY 2009, we are
proposing to use the five low-volume quintiles described above. The
composition of each of the proposed five low-volume quintiles shown in
the chart below was used in determining the proposed MS-LTC-DRG
relative weights for FY 2009 (Table 11 of the Addendum of this proposed
rule). We would determine a proposed relative weight and (geometric)
average length of stay for each of the proposed five low-volume
quintiles using the methodology that we are proposing to apply to the
regular MS-LTC-DRGs (25 or more cases), as described in section II.I.4.
of the preamble of this proposed rule. We are proposing to assign the
same relative weight and average length of stay to each of the proposed
low-volume MS-LTC-DRGs that make up an individual low-volume quintile.
We note that, as this system is dynamic, it is possible that the number
and specific type of MS-LTC-DRGs with a low volume of LTCH cases will
vary in the future. We use the best available claims data in the MedPAR
file to identify low-volume MS-LTC-DRGs and to calculate the relative
weights based on our methodology.

Proposed Composition of Low-Volume Quintiles for FY 2009
------------------------------------------------------------------------
Proposed MS-LTC-DRG (version Proposed MS-LTC-DRG description (version
26.0) 26.0)
------------------------------------------------------------------------
PROPOSED QUINTILE 1
------------------------------------------------------------------------
66........................... Intracranial hemorrhage or cerebral
infarction w/o CC/MCC.
67........................... Nonspecific cva & precerebral occlusion w/
o infarct w MCC.
68........................... Nonspecific cva & precerebral occlusion w/
o infarct w/o MCC.
69........................... Transient ischemia.
72........................... Nonspecific cerebrovascular disorders w/o
CC/MCC.
79........................... Hypertensive encephalopathy w/o CC/MCC.
87........................... Traumatic stupor & coma, coma <1 hr w/o
CC/MCC.
89........................... Concussion w CC.
125.......................... Other disorders of the eye w/o MCC.
135.......................... Sinus & mastoid procedures w CC/MCC.
136.......................... Sinus & mastoid procedures w/o CC/MCC.**
148.......................... Ear, nose, mouth & throat malignancy w/o
CC/MCC.
149.......................... Dysequilibrium.
159.......................... Dental & Oral Diseases w/o CC/MCC.
183.......................... Major chest trauma w MCC.
184.......................... Major chest trauma w CC.
185.......................... Major chest trauma w/o CC/MCC.
201.......................... Pneumothorax w/o CC/MCC.
257.......................... Upper limb & toe amputation for circ
system disorders w/o CC/MCC.
261.......................... Cardiac pacemaker revision except device
replacement w CC.***
263.......................... Vein ligation & stripping.
304.......................... Hypertension w MCC.
305.......................... Hypertension w/o MCC.
311.......................... Angina pectoris.
313.......................... Chest pain.
382.......................... Complicated peptic ulcer w/o CC/MCC.
387.......................... Inflammatory bowel disease w/o CC/MCC.
437.......................... Malignancy of hepatobiliary system or
pancreas w/o CC/MCC.
443.......................... Disorders of liver except malig, cirr,
alc hepa w/o CC/MCC.
468.......................... Revision of hip or knee replacement w/o
CC/MCC.
510.......................... Shoulder, elbow or forearm proc, exc
major joint proc w MCC.***
537.......................... Sprains, strains, & dislocations of hip,
pelvis & thigh w CC/MCC.

[[Page 23596]]

544.......................... Pathological fractures & musculoskelet &
conn tiss malig w/o CC/MCC.
547.......................... Connective tissue disorders w/o CC/MCC.
556.......................... Signs & symptoms of musculoskeletal
system & conn tissue w/o MCC.
563.......................... Fx, sprn, strn & disl except femur, hip,
pelvis & thigh w/o MCC.
601.......................... Non-malignant breast disorders w/o CC/
MCC.
618.......................... Amputat of lower limb for endocrine,
nutrit, & metabol dis w/o CC/MCC.
642.......................... Inborn errors of metabolism
645.......................... Endocrine disorders w/o CC/MCC.
694.......................... Urinary stones w/o esw lithotripsy w/o
MCC.
723.......................... Malignancy, male reproductive system w
CC.
726.......................... Benign prostatic hypertrophy w/o MCC.
730.......................... Other male reproductive system diagnoses
w/o CC/MCC.
756.......................... Malignancy, female reproductive system w/
o CC/MCC.
781.......................... Other antepartum diagnoses w medical
complications.
810.......................... Major hematol/immun diag exc sickle cell
crisis & coagul w/o CC/MCC.
816.......................... Reticuloendothelial & immunity disorders
w/o CC/MCC.
864.......................... Fever of unknown origin.
869.......................... Other infectious & parasitic diseases
diagnoses w/o CC/MCC.
880.......................... Acute adjustment reaction & psychosocial
dysfunction.
882.......................... Neuroses except depressive.
886.......................... Behavioral & developmental disorders.
895.......................... Alcohol/drug abuse or dependence w
rehabilitation therapy.
897.......................... Alcohol/drug abuse or dependence w/o
rehabilitation therapy w/o MCC.
917.......................... Poisoning & toxic effects of drugs w MCC.
918.......................... Poisoning & toxic effects of drugs w/o
MCC.
958.......................... Other O.R. procedures for multiple
significant trauma w CC.
965.......................... Other multiple significant trauma w/o CC/
MCC.
------------------------------------------------------------------------
PROPOSED QUINTILE 2
------------------------------------------------------------------------
59........................... Multiple sclerosis & cerebellar ataxia w
CC.
60........................... Multiple sclerosis & cerebellar ataxia w/
o CC/MCC.
75........................... Viral meningitis w CC/MCC.
78........................... Hypertensive encephalopathy w CC.
83........................... Traumatic stupor & coma, coma >1 hr w CC.
84........................... Traumatic stupor & coma, coma >1 hr w/o
CC/MCC.
99........................... Non-bacterial infect of nervous sys exc
viral meningitis w/o CC/MCC.
102.......................... Headaches w MCC.
103.......................... Headaches w/o MCC.
121.......................... Acute major eye infections w CC/MCC.
122.......................... Acute major eye infections w/o CC/MCC.
124.......................... Other disorders of the eye w MCC.
153.......................... Otitis media & URI w/o MCC.
156.......................... Nasal trauma & deformity w/o CC/MCC.
157.......................... Dental & Oral Diseases w MCC.
158.......................... Dental & Oral Diseases w CC.
182.......................... Respiratory neoplasms w/o CC/MCC.*
188.......................... Pleural effusion w/o CC/MCC.*
203.......................... Bronchitis & asthma w/o CC/MCC.
254.......................... Other vascular procedures w/o CC/MCC.
294.......................... Deep vein thrombophlebitis w CC/MCC.
354.......................... Hernia procedures except inguinal &
femoral w CC.
376.......................... Digestive malignancy w/o CC/MCC.
379.......................... G.I. hemorrhage w/o CC/MCC.
381.......................... Complicated peptic ulcer w CC.
390.......................... G.I. obstruction w/o CC/MCC.
409.......................... Biliary tract proc except only cholecyst
w or w/o c.d.e. w CC.
433.......................... Cirrhosis & alcoholic hepatitis w CC.
440.......................... Disorders of pancreas except malignancy w/
o CC/MCC.
446.......................... Disorders of the biliary tract w/o CC/
MCC.*
489.......................... Knee procedures w/o pdx of infection w/o
CC/MCC.
533.......................... Fractures of femur w MCC.
534.......................... Fractures of femur w/o MCC.
553.......................... Bone diseases & arthropathies w MCC.
578.......................... Skin graft &/or debrid exc for skin ulcer
or cellulitis w/o CC/MCC.
584.......................... Breast biopsy, local excision & other
breast procedures w CC/MCC.
624.......................... Skin grafts & wound debrid for endoc,
nutrit & metab dis w/o CC/MCC.
661.......................... Kidney & ureter procedures for non-
neoplasm w/o CC/MCC.
663.......................... Minor bladder procedures w CC.
665.......................... Prostatectomy w MCC.***

[[Page 23597]]

669.......................... Transurethral procedures w CC.
671.......................... Urethral procedures w CC/MCC.
688.......................... Kidney & urinary tract neoplasms w/o CC/
MCC.
696.......................... Kidney & urinary tract signs & symptoms w/
o MCC.
722.......................... Malignancy, male reproductive system w
MCC.
759.......................... Infections, female reproductive system w/
o CC/MCC.*
815.......................... Reticuloendothelial & immunity disorders
w CC.
835.......................... Acute leukemia w/o major O.R. procedure w
CC.***
842.......................... Lymphoma & non-acute leukemia w/o CC/MCC.
844.......................... Other myeloprolif dis or poorly diff
neopl diag w CC.
845.......................... Other myeloprolif dis or poorly diff
neopl diag w/o CC/MCC.
866.......................... Viral illness w/o MCC.
876.......................... O.R. procedure w principal diagnoses of
mental illness.
881.......................... Depressive neuroses
923.......................... Other injury, poisoning & toxic effect
diag w/o MCC.
929.......................... Full thickness burn w skin graft or inhal
inj w/o CC/MCC.
964.......................... Other multiple significant trauma w CC.
976.......................... HIV w major related condition w/o CC/MCC.
------------------------------------------------------------------------
PROPOSED QUINTILE 3
------------------------------------------------------------------------
23........................... Craniotomy w major device implant or
acute complex CNS PDX w MCC.***
27........................... Craniotomy & endovascular intracranial
procedures w/o CC/MCC.
53........................... Spinal disorders & injuries w/o CC/MCC.
58........................... Multiple sclerosis & cerebellar ataxia w
MCC.
82........................... Traumatic stupor & coma, coma >1 hr w
MCC.
98........................... Non-bacterial infect of nervous sys exc
viral meningitis w CC.
113.......................... Orbital procedures w CC/MCC.
116.......................... Intraocular procedures w CC/MCC.
136.......................... Sinus & mastoid procedures w/o CC/MCC.***
152.......................... Otitis media & URI w MCC.
165.......................... Major chest procedures w/o CC/MCC.
168.......................... Other resp system O.R. procedures w/o CC/
MCC.
238.......................... Major cardiovascular procedures w/o MCC.
241.......................... Amputation for circ sys disorders exc
upper limb & toe w/o CC/MCC.
261.......................... Cardiac pacemaker revision except device
replacement w CC.**
262.......................... Cardiac pacemaker revision except device
replacement w/o CC/MCC.**
284.......................... Circulatory disorders w AMI, expired w
CC.*
287.......................... Circulatory disorders except AMI, w card
cath w/o MCC.
369.......................... Major esophageal disorders w CC.
370.......................... Major esophageal disorders w/o CC/MCC.
380.......................... Complicated peptic ulcer w MCC.
384.......................... Uncomplicated peptic ulcer w/o MCC.
424.......................... Other hepatobiliary or pancreas O.R.
procedures w CC.
471.......................... Cervical spinal fusion w MCC.
472.......................... Cervical spinal fusion w CC.
476.......................... Amputation for musculoskeletal sys & conn
tissue dis w/o CC/MCC.
482.......................... Hip & femur procedures except major joint
w/o CC/MCC.
494.......................... Lower extrem & humer proc except hip,
foot, femur w/o CC/MCC.
497.......................... Local excision & removal int fix devices
exc hip & femur w/o CC/MCC.*
502.......................... Soft tissue procedures w/o CC/MCC.
504.......................... Foot procedures w CC.
505.......................... Foot procedures w/o CC/MCC.
510.......................... Shoulder, elbow or forearm proc, exc
major joint proc w MCC.**
511.......................... Shoulder, elbow or forearm proc, exc
major joint proc w CC.**
535.......................... Fractures of hip & pelvis w MCC.
542.......................... Pathological fractures & musculoskelet &
conn tiss malig w MCC.
555.......................... Signs & symptoms of musculoskeletal
system & conn tissue w MCC.
562.......................... Fx, sprn, strn & disl except femur, hip,
pelvis & thigh w MCC.
598.......................... Malignant breast disorders w CC.
599.......................... Malignant breast disorders w/o CC/MCC.**
600.......................... Non-malignant breast disorders w CC/MCC.
626.......................... Thyroid, parathyroid & thyroglossal
procedures w CC.
630.......................... Other endocrine, nutrit & metab O.R. proc
w/o CC/MCC.
665.......................... Prostatectomy w MCC.**
666.......................... Prostatectomy w CC.**
668.......................... Transurethral procedures w MCC.
686.......................... Kidney & urinary tract neoplasms w MCC.
687.......................... Kidney & urinary tract neoplasms w CC.
693.......................... Urinary stones w/o esw lithotripsy w MCC.

[[Page 23598]]

725.......................... Benign prostatic hypertrophy w MCC.
744.......................... D&C, conization, laparoscopy & tubal
interruption w CC/MCC.
755.......................... Malignancy, female reproductive system w
CC.
800.......................... Splenectomy w CC.
809.......................... Major hematol/immun diag exc sickle cell
crisis & coagul w CC.
814.......................... Reticuloendothelial & immunity disorders
w MCC.
824.......................... Lymphoma & non-acute leukemia w other
O.R. proc w CC.
834.......................... Acute leukemia w/o major O.R. procedure w
MCC.
835.......................... Acute leukemia w/o major O.R. procedure w
CC.**
836.......................... Acute leukemia w/o major O.R. procedure w/
o CC/MCC.**
843.......................... Other myeloprolif dis or poorly diff
neopl diag w MCC.
883.......................... Disorders of personality & impulse
control.
903.......................... Wound debridements for injuries w/o CC/
MCC.
905.......................... Skin grafts for injuries w/o CC/MCC.
922.......................... Other injury, poisoning & toxic effect
diag w MCC.
941.......................... O.R. proc w diagnoses of other contact w
health services w/o CC/MCC.
963.......................... Other multiple significant trauma w MCC.
989.......................... Non-extensive O.R. proc unrelated to
principal diagnosis w/o CC/MCC.
------------------------------------------------------------------------
PROPOSED QUINTILE 4
------------------------------------------------------------------------
23........................... Craniotomy w major device implant or
acute complex CNS PDX w MCC.**
24........................... Craniotomy w major device implant or
acute complex CNS PDX w/o MCC.**
28........................... Spinal procedures w MCC.
29........................... Spinal procedures w CC.
30........................... Spinal procedures w/o CC/MCC.
37........................... Extracranial procedures w MCC.
38........................... Extracranial procedures w CC.**
42........................... Periph & cranial nerve & other nerv syst
proc w/o CC/MCC.*
77........................... Hypertensive encephalopathy w MCC.
133.......................... Other ear, nose, mouth & throat O.R.
procedures w CC/MCC.
164.......................... Major chest procedures w CC.
237.......................... Major cardiovascular procedures w MCC.
242.......................... Permanent cardiac pacemaker implant w
MCC.***
246.......................... Percutaneous cardiovascular proc w drug-
eluting stent w MCC.
247.......................... Percutaneous cardiovascular proc w drug-
eluting stent w/o MCC.
248.......................... Percutaneous cardiovasc proc w non-drug-
eluting stent w MCC.
249.......................... Percutaneous cardiovasc proc w non-drug-
eluting stent w/o MCC.**
259.......................... Cardiac pacemaker device replacement w/o
MCC.
260.......................... Cardiac pacemaker revision except device
replacement w MCC.
262.......................... Cardiac pacemaker revision except device
replacement w/o CC/MCC.***
286.......................... Circulatory disorders except AMI, w card
cath w MCC.
327.......................... Stomach, esophageal & duodenal proc w CC.
328.......................... Stomach, esophageal & duodenal proc w/o
CC/MCC.**
348.......................... Anal & stomal procedures w CC.
358.......................... Other digestive system O.R. procedures w/
o CC/MCC.*
405.......................... Pancreas, liver & shunt procedures w MCC.
406.......................... Pancreas, liver & shunt procedures w
CC.**
417.......................... Laparoscopic cholecystectomy w/o c.d.e. w
MCC.***
466.......................... Revision of hip or knee replacement w
MCC.
467.......................... Revision of hip or knee replacement w CC.
469.......................... Major joint replacement or reattachment
of lower extremity w MCC.***
478.......................... Biopsies of musculoskeletal system &
connective tissue w CC.
481.......................... Hip & femur procedures except major joint
w CC.
485.......................... Knee procedures w pdx of infection w MCC.
486.......................... Knee procedures w pdx of infection w CC.
487.......................... Knee procedures w pdx of infection w/o CC/
MCC.**
490.......................... Back & neck procedures except spinal
fusion w CC/MCC or disc devices.
492.......................... Lower extrem & humer proc except hip,
foot, femur w MCC.
493.......................... Lower extrem & humer proc except hip,
foot, femur w CC.
503.......................... Foot procedures w MCC.
511.......................... Shoulder, elbow or forearm proc, exc
major joint proc w CC.***
513.......................... Hand or wrist proc, except major thumb or
joint proc w CC/MCC.
514.......................... Hand or wrist proc, except major thumb or
joint proc w/o CC/MCC.**
597.......................... Malignant breast disorders w MCC.
599.......................... Malignant breast disorders w/o CC/MCC.***
625.......................... Thyroid, parathyroid & thyroglossal
procedures w MCC.
659.......................... Kidney & ureter procedures for non-
neoplasm w MCC.
660.......................... Kidney & ureter procedures for non-
neoplasm w CC.
666.......................... Prostatectomy w CC.***

[[Page 23599]]

695.......................... Kidney & urinary tract signs & symptoms w
MCC.
711.......................... Testes procedures w CC/MCC.
717.......................... Other male reproductive system O.R. proc
exc malignancy w CC/MCC.
739.......................... Uterine, adnexa proc for non-ovarian/
adnexal malig w MCC.
749.......................... Other female reproductive system O.R.
procedures w CC/MCC.
754.......................... Malignancy, female reproductive system w
MCC.
802.......................... Other O.R. proc of the blood & blood
forming organs w MCC.
808.......................... Major hematol/immun diag exc sickle cell
crisis & coagul w MCC.
823.......................... Lymphoma & non-acute leukemia w other
O.R. proc w MCC.
896.......................... Alcohol/drug abuse or dependence w/o
rehabilitation therapy w MCC.
909.......................... Other O.R. procedures for injuries w/o CC/
MCC.*
928.......................... Full thickness burn w skin graft or inhal
inj w CC/MCC.
933.......................... Extensive burns or full thickness burns w
MV 96+ hrs w/o skin graft.
957.......................... Other O.R. procedures for multiple
significant trauma w MCC.
969.......................... HIV w extensive O.R. procedure w MCC.
970.......................... HIV w extensive O.R. procedure w/o MCC.**
984.......................... Prostatic O.R. procedure unrelated to
principal diagnosis w MCC.
985.......................... Prostatic O.R. procedure unrelated to
principal diagnosis w CC.
------------------------------------------------------------------------
PROPOSED QUINTILE 5
------------------------------------------------------------------------
11........................... Tracheostomy for face, mouth & neck
diagnoses w MCC.
12........................... Tracheostomy for face, mouth & neck
diagnoses w CC.
24........................... Craniotomy w major device implant or
acute complex CNS PDX w/o MCC.***
25........................... Craniotomy & endovascular intracranial
procedures w MCC.
26........................... Craniotomy & endovascular intracranial
procedures w CC.
31........................... Ventricular shunt procedures w MCC.
32........................... Ventricular shunt procedures w CC.
38........................... Extracranial procedures w CC.***
132.......................... Cranial/facial procedures w/o CC/MCC.
137.......................... Mouth procedures w CC/MCC.
226.......................... Cardiac defibrillator implant w/o cardiac
cath w MCC.
227.......................... Cardiac defibrillator implant w/o cardiac
cath w/o MCC.
242.......................... Permanent cardiac pacemaker implant w
MCC.**
243.......................... Permanent cardiac pacemaker implant w CC.
244.......................... Permanent cardiac pacemaker implant w/o
CC/MCC.
249.......................... Percutaneous cardiovasc proc w non-drug-
eluting stent w/o MCC.***
250.......................... Perc cardiovasc proc w/o coronary artery
stent or AMI w MCC.
326.......................... Stomach, esophageal & duodenal proc w
MCC.
328.......................... Stomach, esophageal & duodenal proc w/o
CC/MCC.***
330.......................... Major small & large bowel procedures w
CC.
331.......................... Major small & large bowel procedures w/o
CC/MCC.
335.......................... Peritoneal adhesiolysis w MCC.
344.......................... Minor small & large bowel procedures w
MCC.
347.......................... Anal & stomal procedures w MCC.
353.......................... Hernia procedures except inguinal &
femoral w MCC.
406.......................... Pancreas, liver & shunt procedures w
CC.***
411.......................... Cholecystectomy w c.d.e. w MCC.
414.......................... Cholecystectomy except by laparoscope w/o
c.d.e. w MCC.
415.......................... Cholecystectomy except by laparoscope w/o
c.d.e. w CC.
417.......................... Laparoscopic cholecystectomy w/o c.d.e. w
MCC.**
418.......................... Laparoscopic cholecystectomy w/o c.d.e. w
CC.
423.......................... Other hepatobiliary or pancreas O.R.
procedures w MCC.
456.......................... Spinal fusion exc cerv w spinal curv,
malig or 9+ fusions w MCC.
457.......................... Spinal fusion exc cerv w spinal curv,
malig or 9+ fusions w CC.
459.......................... Spinal fusion except cervical w MCC.
469.......................... Major joint replacement or reattachment
of lower extremity w MCC.**
470.......................... Major joint replacement or reattachment
of lower extremity w/o MCC.
477.......................... Biopsies of musculoskeletal system &
connective tissue w MCC.
480.......................... Hip & femur procedures except major joint
w MCC.
487.......................... Knee procedures w pdx of infection w/o CC/
MCC.***
488.......................... Knee procedures w/o pdx of infection w CC/
MCC.
496.......................... Local excision & removal int fix devices
exc hip & femur w CC.*
498.......................... Local excision & removal int fix devices
of hip & femur w CC/MCC.
507.......................... Major shoulder or elbow joint procedures
w CC/MCC.
514.......................... Hand or wrist proc, except major thumb or
joint proc w/o CC/MCC.***
582.......................... Mastectomy for malignancy w CC/MCC.
619.......................... O.R. procedures for obesity w MCC.
653.......................... Major bladder procedures w MCC.
656.......................... Kidney & ureter procedures for neoplasm w
MCC.

[[Page 23600]]

662.......................... Minor bladder procedures w MCC.
709.......................... Penis procedures w CC/MCC.
713.......................... Transurethral prostatectomy w CC/MCC.
746.......................... Vagina, cervix & vulva procedures w CC/
MCC.
826.......................... Myeloprolif disord or poorly diff neopl w
maj O.R. proc w MCC.
827.......................... Myeloprolif disord or poorly diff neopl w
maj O.R. proc w CC.
829.......................... Myeloprolif disord or poorly diff neopl w
other O.R. proc w CC/MCC.
836.......................... Acute leukemia w/o major O.R. procedure w/
o CC/MCC.***
855.......................... Infectious & parasitic diseases w O.R.
procedure w/o CC/MCC.*
906.......................... Hand procedures for injuries.
927.......................... Extensive burns or full thickness burns w
MV 96+ hrs w skin graft.
970.......................... HIV w extensive O.R. procedure w/o
MCC.***
------------------------------------------------------------------------
*One of the original 290 proposed low-volume MS-LTC-DRGs initially
assigned to this proposed low-volume quintile; removed from this
proposed low-volume quintile in addressing nonmonotonicity (refer to
step 6 in section II.I.4..of the preamble of this proposed rule).
**One of the original 290 proposed low-volume MS-LTC-DRGs initially
assigned to a different proposed low-volume quintile but moved to this
proposed low-volume quintile in addressing nonmonotonicity (refer to
step 6 in section II.I.4. of the preamble of this proposed rule).
***One of the original 290 proposed low-volume MS-LTC-DRGs initially
assigned to this proposed low-volume quintile but moved to a different
proposed low-volume quintile in addressing nonmonotonicity (refer to
step 6 in section II.I.4. of the preamble of this proposed rule).

We note that we will continue to monitor the volume (that is, the
number of LTCH cases) in the low-volume quintiles to ensure that our
proposed quintile assignment results in appropriate payment for such
cases and does not result in an unintended financial incentive for
LTCHs to inappropriately admit these types of cases.
4. Steps for Determining the Proposed FY 2009 MS-LTC-DRG Relative
Weights
In general, the proposed FY 2009 MS-LTC-DRG relative weights in
this proposed rule were determined based on the methodology established
in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991).
In summary, for FY 2009, we are proposing to group LTCH cases to the
appropriate proposed MS-LTC-DRG, while taking into account the proposed
low-volume MS-LTC-DRGs (as described above), before the proposed FY
2009 MS-LTC-DRG relative weights are determined. After grouping the
cases to the appropriate proposed MS-LTC-DRG (or proposed low-volume
quintile), we would calculate the proposed relative weights for FY 2009
by first removing statistical outliers and cases with a length of stay
of 7 days or less (as discussed in greater detail below). Next, we
would adjust the number of cases in each proposed MS-LTC-DRG (or
proposed low-volume quintile) for the effect of short-stay outlier
cases (as also discussed in greater detail below). The short-stay
adjusted discharges and corresponding charges are used to calculate
``relative adjusted weights'' in each proposed MS-LTC-DRG (or proposed
low-volume quintile) using the HSRV method (described above). In
general, to determine the proposed FY 2009 MS-LTC-DRG relative weights
in this proposed rule, we are proposing to use the same methodology we
used in determining the FY 2008 MS-LTC-DRG relative weights in the FY
2008 IPPS final rule with comment period (72 FR 47281 through 47299).
However, we are proposing to make a modification to our methodology for
determining proposed relative weights for MS-LTC-DRGs with no LTCH
cases (as discussed in greater detail in Step 5 below). Also, we note
that, although we are generally proposing to use the same methodology
in this proposed rule (with the exception noted above) as the
methodology used in the FY 2008 IPPS final rule with comment, the
discussion presented below of the steps for determining the proposed FY
2009 MS-LTC-DRG relative weights varies slightly from the discussion of
the steps for determining the FY 2008 MS-LTC-DRG relative weights
(presented in the FY 2008 IPPS final rule with comment) because we are
taking this opportunity to refine our description to more precisely
explain our methodology for determining the MS-LTC-DRG relative
weights.
As discussed in the FY 2008 IPPS final rule with comment when we
adopted the MS-LTC-DRGs, the adoption of the MS-LTC-DRGs with either
two or three severity levels resulted in some slight modifications of
procedures for assigning relative weights in cases of zero volume and/
or nonmonotonicity (described in detail below) from the methodology we
established when we implemented the LTCH PPS in the August 30, 2002
LTCH PPS final rule. As also discussed in the FY 2008 IPPS final rule
with comment when we adopted the MS-LTC-DRGs, we implemented the MS-
LTC-DRGs with a 2-year transition beginning in FY 2008. For FY 2008,
the first year of the transition, 50 percent of the relative weight for
a MS-LTC-DRG was based on the average LTC-DRG relative weight under
Version 24.0 of the LTC-DRG GROUPER. The remaining 50 percent of the
relative weight was based on the MS-LTC-DRG relative weight under
Version 25.0 of the MS-LTC-DRG GROUPER. In FY 2009, the MS-LTC-DRG
relative weights are based on 100 percent of the MS-LTC-DRG relative
weights. Accordingly, in determining the proposed FY 2009 MS-LTC-DRG
relative weights in this proposed rule, there is no longer a need to
include a step to calculate MS-LTC-DRG transition blended relative
weights (see Step 7 in the FY 2008 IPPS final rule with comment period
(72 FR 47295)). Therefore, in this proposed rule, we determined the
proposed FY 2009 MS-LTC-DRG relative weights based solely on the
proposed MS-LTC-DRG relative weight under proposed Version 26.0 of the
MS-LTC-DRG GROUPER, which is discussed in section II.B. of the preamble
of this proposed rule. Furthermore, we are proposing that we would
determine the final FY 2009 MS-LTC-DRG relative weights in the final
rule based on the final Version 26.0 of the MS-LTC-DRG GROUPER that
will be presented in that same final rule.
Below we discuss in detail the steps for calculating the proposed
FY 2009 MS-LTC-DRG relative weights. We note that, as we stated above
in section II.I.3.b. of the preamble of this proposed rule, we have
excluded the data of all-inclusive rate LTCHs and LTCHs that

[[Page 23601]]

are paid in accordance with demonstration projects that had claims in
the FY 2007 MedPAR file.
Step 1--Remove statistical outliers.
The first step in the calculation of the proposed FY 2009 MS-LTC-
DRG relative weights is to remove statistical outlier cases. Consistent
with our historical relative weight methodology, we are proposing to
continue to define statistical outliers as cases that are outside of
3.0 standard deviations from the mean of the log distribution of both
charges per case and the charges per day for each proposed MS-LTC-DRG.
These statistical outliers are removed prior to calculating the
proposed relative weights because we believe that they may represent
aberrations in the data that distort the measure of average resource
use. Including those LTCH cases in the calculation of the proposed
relative weights could result in an inaccurate proposed relative weight
that does not truly reflect relative resource use among the proposed
MS-LTC-DRGs.
Step 2--Remove cases with a length of stay of 7 days or less.
The MS-LTC-DRG relative weights reflect the average of resources
used on representative cases of a specific type. Generally, cases with
a length of stay of 7 days or less do not belong in a LTCH because
these stays do not fully receive or benefit from treatment that is
typical in a LTCH stay, and full resources are often not used in the
earlier stages of admission to a LTCH. If we were to include stays of 7
days or less in the computation of the proposed FY 2009 MS-LTC-DRG
relative weights, the value of many relative weights would decrease
and, therefore, payments would decrease to a level that may no longer
be appropriate. We do not believe that it would be appropriate to
compromise the integrity of the payment determination for those LTCH
cases that actually benefit from and receive a full course of treatment
at a LTCH, by including data from these very short-stays. Therefore,
consistent with our historical relative weight methodology, in
determining the proposed FY 2009 MS-LTC-DRG relative weights, we are
proposing to remove LTCH cases with a length of stay of 7 days or less.
Step 3--Adjust charges for the effects of short-stay outliers.
After removing cases with a length of stay of 7 days or less, we
are left with cases that have a length of stay of greater than or equal
to 8 days. As the next step in the calculation of the proposed FY 2009
MS-LTC-DRG relative weights, consistent with our historical relative
weight methodology, we are proposing to adjust each LTCH's charges per
discharge for those remaining cases for the effects of short-stay
outliers (as defined in Sec. 412.529(a) in conjunction with Sec.
412.503 for LTCH discharges occurring on or after October 1, 2008). (We
note that even if a case was removed in Step 2 (that is, cases with a
length of stay of 7 days or less), it was paid as a short-stay outlier
if its length of stay was less than or equal to five-sixths of the
average length of stay of the MS-LTC-DRG.)
We would make this adjustment by counting a short-stay outlier as a
fraction of a discharge based on the ratio of the length of stay of the
case to the average length of stay for the proposed MS-LTC-DRG for
nonshort-stay outlier cases. This has the effect of proportionately
reducing the impact of the lower charges for the short-stay outlier
cases in calculating the average charge for the proposed MS-LTC-DRG.
This process produces the same result as if the actual charges per
discharge of a short-stay outlier case were adjusted to what they would
have been had the patient's length of stay been equal to the average
length of stay of the proposed MS-LTC-DRG.
Counting short-stay outlier cases as full discharges with no
adjustment in determining the proposed FY 2009 MS-LTC-DRG relative
weights would lower the proposed FY 2009 MS-LTC-DRG relative weight for
affected proposed MS-LTC-DRGs because the relatively lower charges of
the short-stay outlier cases would bring down the average charge for
all cases within a proposed MS-LTC-DRG. This would result in an
``underpayment'' for nonshort-stay outlier cases and an ``overpayment''
for short-stay outlier cases. Therefore, we are proposing to adjust for
short-stay outlier cases under Sec. 412.529 in this manner because it
results in more appropriate payments for all LTCH cases.
Step 4--Calculate the proposed FY 2009 MS-LTC-DRG relative weights
on an iterative basis.
Consistent with our historical relative weight methodology, we are
proposing to calculate the proposed MS-LTC-DRG relative weights using
the HSRV methodology, which is an iterative process. First, for each
LTCH case, we calculate a hospital-specific relative charge value by
dividing the short-stay outlier adjusted charge per discharge (see step
3) of the LTCH case (after removing the statistical outliers (see step
1)) and LTCH cases with a length of stay of 7 days or less (see step 2)
by the average charge per discharge for the LTCH in which the case
occurred. The resulting ratio is then multiplied by the LTCH's case-mix
index to produce an adjusted hospital-specific relative charge value
for the case. An initial case-mix index value of 1.0 is used for each
LTCH.
For each proposed MS-LTC-DRG, the proposed FY 2009 relative weight
is calculated by dividing the average of the adjusted hospital-specific
relative charge values (from above) for the MS-LTC-DRG by the overall
average hospital-specific relative charge value across all cases for
all LTCHs. Using these recalculated MS-LTC-DRG relative weights, each
LTCH's average relative weight for all of its cases (that is, its case-
mix) is calculated by dividing the sum of all the LTCH's MS-LTC-DRG
relative weights by its total number of cases. The LTCH's hospital-
specific relative charge values above are multiplied by these hospital-
specific case-mix indexes. These hospital-specific case-mix adjusted
relative charge values are then used to calculate a new set of MS-LTC-
DRG relative weights across all LTCHs. This iterative process is
continued until there is convergence between the weights produced at
adjacent steps, for example, when the maximum difference is less than
0.0001.
Step 5--Determine a proposed FY 2009 relative weight for proposed
MS-LTC-DRGs with no LTCH cases.
As we stated above, we determine the proposed FY 2009 relative
weight for each proposed MS-LTC-DRG using total Medicare allowable
charges reported in the best available LTCH claims data (that is, the
December 2007 update of the FY 2007 MedPAR file for this proposed
rule). Of the proposed FY 2009 MS-LTC-DRGs, we identified a number of
proposed MS-LTC-DRGs for which there were no LTCH cases in the
database. That is, based on data from the FY 2007 MedPAR file used for
this proposed rule, no patients who would have been classified to those
proposed MS-LTC-DRGs were treated in LTCHs during FY 2007 and,
therefore, no charge data are available for those proposed MS-LTC-DRGs.
Thus, in the process of determining the proposed MS-LTC-DRG relative
weights, we are unable to calculate proposed relative weights for these
proposed MS-LTC-DRGs with no LTCH cases using the methodology described
in Steps 1 through 4 above. However, because patients with a number of
the diagnoses under these proposed MS-LTC-DRGs may be treated at LTCHs,
consistent with our historical methodology, we are proposing to assign
relative weights to each of the proposed no-volume MS-LTC-DRGs based on
clinical similarity and relative costliness (with the

[[Page 23602]]

exception of proposed ``transplant'' MS-LTC-DRGs and proposed ``error''
MS-LTC-DRGs as discussed below). In general, we are proposing to
determine proposed FY 2009 relative weights for the proposed MS-LTC-
DRGs with no LTCH cases in the FY 2007 MedPAR file used in this
proposed rule (that is, proposed ``no-volume MS-LTC-DRGs) by cross-
walking each proposed no-volume MS-LTC-DRG to another proposed MS-LTC-
DRG with a proposed relative weight (determined in accordance with the
proposed methodology described above). Then, under our proposed
methodology presented in this proposed rule, the proposed ``no-volume''
MS-LTC-DRG would be assigned the same proposed relative weight of the
proposed MS-LTC-DRG to which it would be cross-walked (as described in
greater detail below). As noted above, we are proposing to make a
modification to our methodology for determining proposed relative
weights for MS-LTC-DRGs with no LTCH cases in this proposed rule, which
is discussed in greater detail below. As also noted above, even where
we are not proposing changes to our existing methodology, we are taking
this opportunity to refine our description to more precisely explain
our proposed methodology for determining the MS-LTC-DRG relative
weights in this proposed rule.
Specifically, in this proposed rule, we are proposing to determine
the relative weight for each proposed MS-LTC-DRG using total Medicare
allowable charges reported in the December 2007 update of the FY 2007
MedPAR file. Of the 746 proposed MS-LTC-DRGs for FY 2009, we identified
203 proposed MS-LTC-DRGs for which there were no LTCH cases in the
database (including the 8 proposed ``transplant'' MS-LTC-DRGs and 2
proposed ``error'' MS-LTC-DRGs). For this proposed rule, as noted
above, we are proposing to assign proposed relative weights for each of
the 203 proposed no-volume MS-LTC-DRGs (with the exception of the 8
proposed ``transplant'' proposed MS-LTC-DRGs and the 2 proposed
``error'' MS-LTC-DRGs, which are discussed below) based on clinical
similarity and relative costliness to one of the remaining 543 (746 -
203 = 543) proposed MS-LTC-DRGs for which we are able to determine
relative weights, based on FY 2007 LTCH claims data. (For the remainder
of this discussion, we refer to one of the 543 proposed MS-LTC-DRGs for
which we are able to determine relative weight as the proposed ``cross-
walked'' MS-LTC-DRG.) Then we are proposing to assign the proposed no-
volume MS-LTC-DRG the proposed relative weight of the proposed cross-
walked MS-LTC-DRG. This proposed approach differs from the one we used
to determine the FY 2008 MS-LTC-DRG relative weights when there were no
LTCH cases (see 72 FR 47290). Specifically, in determining the FY 2008
MS-LTC-DRG relative weights in the FY 2008 IPPS final rule with comment
period, if the no volume MS-LTC-DRG was cross-walked to a MS-LTC-DRG
that had 25 or more cases and, therefore, was not in a low-volume
quintile, we assigned the relative weight of a quintile to a no-volume
MS-LTC-DRG (rather than assigning the relative weight of the cross-
walked MS-LTC-DRG). While we believe this approach would result in
appropriate LTCH PPS payments (because it is consistent with our
methodology for determining relative weights for MS-LTC-DRGs that have
a low volume of LTCH cases (which is discussed above in section
II.I.3.e. of this preamble)), upon further review during the
development of the proposed FY 2009 MS-LTC-DRG relative weights in this
proposed rule, we now believe that proposing to assign the proposed
relative weight of the proposed cross-walked MS-LTC-DRG to the proposed
no-volume MS-LTC-DRG would result in more appropriate LTCH PPS payments
because those cases generally require equivalent relative resource (and
therefore should generally have the same LTCH PPS payment). The
relative weight of each MS-LTC-DRG should reflect relative resource of
the LTCH cases grouped to that MS-LTC-DRG. Because the proposed no-
volume MS-LTC-DRGs would be cross-walked to other proposed MS-LTC-DRGs
based on clinical similarity and relative costliness, which usually
require equivalent relative resource use, we believe that assigning the
proposed no-volume MS-LTC-DRG the proposed relative weight of the
proposed cross-walked MS-LTC-DRG would result in appropriate LTCH PPS
payments. (As explained below in Step 6, when necessary, we are
proposing to make adjustments to account for nonmonotonicity.)
Our proposed methodology for determining the proposed relative
weights for the proposed no-volume MS-LTC-DRGs is as follows: We cross-
walk the proposed no-volume MS-LTC-DRG to a proposed MS-LTC-DRG for
which there are LTCH cases in the FY 2007 MedPAR file and to which it
is similar clinically in intensity of use of resources and relative
costliness as determined by criteria such as care provided during the
period of time surrounding surgery, surgical approach (if applicable),
length of time of surgical procedure, postoperative care, and length of
stay. We then assign the proposed relative weight of the proposed
cross-walked MS-LTC-DRG as the proposed relative weight for the
proposed no-volume MS-LTC-DRG such that both of these proposed MS-LTC-
DRGs (that is, the proposed no-volume MS-LTC-DRG and the proposed
cross-walked MS-LTC-DRG) would have the same proposed relative weight.
We note that if the proposed cross-walked MS-LTC-DRG had 25 cases or
more, its proposed relative weight, which was calculated using the
proposed methodology described in steps 1 through 4 above, would be
assigned to the proposed no-volume MS-LTC-DRG as well. Similarly, if
the proposed MS-LTC-DRG to which the proposed no-volume MS-LTC-DRG is
cross-walked has 24 or less cases, and therefore was designated to one
of the proposed low-volume quintiles for purposes of determining the
proposed relative weights, we would assign the proposed relative weight
of the applicable proposed low-volume quintile to the proposed no-
volume MS-LTC-DRG such that both of these proposed MS-LTC-DRGs (that
is, the proposed no-volume MS-LTC-DRG and the proposed cross-walked MS-
LTC-DRG) would have the same proposed relative weight. (As we noted
above, in the infrequent case where nonmonotonicity involving a
proposed no-volume MS-LTC-DRG results, additional measures as described
in Step 6 would be required in order to maintain monotonically
increasing relative weights.)
For this proposed rule, a list of the proposed no-volume FY 2009
MS-LTC-DRGs and the proposed FY 2009 MS-LTC-DRG to which it is cross-
walked (that is, the proposed cross-walked MS-LTC-DRG) is shown in the
chart below.

[[Page 23603]]

Proposed No-Volume MS-LTC-DRG Crosswalk for FY 2009
----------------------------------------------------------------------------------------------------------------
Proposed cross-
Proposed MS-LTC-DRG (Version 26.0) Proposed MS-LTC-DRG description (version 26.0) walked MS-LTC-
DRG
----------------------------------------------------------------------------------------------------------------
9........................................ Bone marrow transplant.............................. 823
13....................................... Tracheostomy for face, mouth & neck diagnoses w/o CC/ 12
MCC.
20....................................... Intracranial vascular procedures w PDX hemorrhage w 31
MCC.
21....................................... Intracranial vascular procedures w PDX hemorrhage w 32
CC.
22....................................... Intracranial vascular procedures w PDX hemorrhage w/ 32
o CC/MCC.
33....................................... Ventricular shunt procedures w/o CC/MCC............. 32
34....................................... Carotid artery stent procedure w MCC................ 37
35....................................... Carotid artery stent procedure w CC................. 38
36....................................... Carotid artery stent procedure w/o CC/MCC........... 38
39....................................... Extracranial procedures w/o CC/MCC.................. 38
61....................................... Acute ischemic stroke w use of thrombolytic agent w 70
MCC.
62....................................... Acute ischemic stroke w use of thrombolytic agent w 71
CC.
63....................................... Acute ischemic stroke w use of thrombolytic agent w/ 72
o CC/MCC.
76....................................... Viral meningitis w/o CC/MCC......................... 75
88....................................... Concussion w MCC.................................... 89
90....................................... Concussion w/o CC/MCC............................... 89
114...................................... Orbital procedures w/o CC/MCC....................... 113
115...................................... Extraocular procedures except orbit................. 125
117...................................... Intraocular procedures w/o CC/MCC................... 125
123...................................... Neurological eye disorders.......................... 125
129...................................... Major head & neck procedures w CC/MCC or major 146
device.
130...................................... Major head & neck procedures w/o CC/MCC............. 148
131...................................... Cranial/facial procedures w CC/MCC.................. 132
134...................................... Other ear, nose, mouth & throat O.R. procedures w/o 133
CC/MCC.
138...................................... Mouth procedures w/o CC/MCC......................... 137
139...................................... Salivary gland procedures........................... 137
150...................................... Epistaxis w MCC..................................... 152
151...................................... Epistaxis w/o MCC................................... 153
215...................................... Other heart assist system implant................... 238
216...................................... Cardiac valve & oth maj cardiothoracic proc w card 237
cath w MCC.
217...................................... Cardiac valve & oth maj cardiothoracic proc w card 238
cath w CC.
218...................................... Cardiac valve & oth maj cardiothoracic proc w card 238
cath w/o CC/MCC.
219...................................... Cardiac valve & oth maj cardiothoracic proc w/o card 237
cath w MCC.
220...................................... Cardiac valve & oth maj cardiothoracic proc w/o card 238
cath w CC.
221...................................... Cardiac valve & oth maj cardiothoracic proc w/o card 238
cath w/o CC/MCC.
222...................................... Cardiac defib implant w cardiac cath w AMI/HF/shock 242
w MCC.
223...................................... Cardiac defib implant w cardiac cath w AMI/HF/shock 243
w/o MCC.
224...................................... Cardiac defib implant w cardiac cath w/o AMI/HF/ 242
shock w MCC.
225...................................... Cardiac defib implant w cardiac cath w/o AMI/HF/ 243
shock w/o MCC.
228...................................... Other cardiothoracic procedures w MCC............... 252
229...................................... Other cardiothoracic procedures w CC................ 253
230...................................... Other cardiothoracic procedures w/o CC/MCC.......... 254
231...................................... Coronary bypass w PTCA w MCC........................ 237
232...................................... Coronary bypass w PTCA w/o MCC...................... 238
233...................................... Coronary bypass w cardiac cath w MCC................ 237
234...................................... Coronary bypass w cardiac cath w/o MCC.............. 238
235...................................... Coronary bypass w/o cardiac cath w MCC.............. 237
236...................................... Coronary bypass w/o cardiac cath w/o MCC............ 238
245...................................... AICD generator procedures........................... 244
251...................................... Perc cardiovasc proc w/o coronary artery stent or 250
AMI w/o MCC.
258...................................... Cardiac pacemaker device replacement w MCC.......... 259
265...................................... AICD lead procedures................................ 259
285...................................... Circulatory disorders w AMI, expired w/o CC/MCC..... 284
295...................................... Deep vein thrombophlebitis w/o CC/MCC............... 294
296...................................... Cardiac arrest, unexplained w MCC................... 283
297...................................... Cardiac arrest, unexplained w CC.................... 284
298...................................... Cardiac arrest, unexplained w/o CC/MCC.............. 284
332...................................... Rectal resection w MCC.............................. 356
333...................................... Rectal resection w CC............................... 357
334...................................... Rectal resection w/o CC/MCC......................... 358
336...................................... Peritoneal adhesiolysis w CC........................ 335
337...................................... Peritoneal adhesiolysis w/o CC/MCC.................. 335
338...................................... Appendectomy w complicated principal diag w MCC..... 371
339...................................... Appendectomy w complicated principal diag w CC...... 372
340...................................... Appendectomy w complicated principal diag w/o CC/MCC 373
341...................................... Appendectomy w/o complicated principal diag w MCC... 371
342...................................... Appendectomy w/o complicated principal diag w CC.... 372
343...................................... Appendectomy w/o complicated principal diag w/o CC/ 373
MCC.
345...................................... Minor small & large bowel procedures w CC........... 344
346...................................... Minor small & large bowel procedures w/o CC/MCC..... 344

[[Page 23604]]

349...................................... Anal & stomal procedures w/o CC/MCC................. 348
350...................................... Inguinal & femoral hernia procedures w MCC.......... 348
351...................................... Inguinal & femoral hernia procedures w CC........... 348
352...................................... Inguinal & femoral hernia procedures w/o CC/MCC..... 348
355...................................... Hernia procedures except inguinal & femoral w/o CC/ 354
MCC.
383...................................... Uncomplicated peptic ulcer w MCC.................... 384
407...................................... Pancreas, liver & shunt procedures w/o CC/MCC....... 406
408...................................... Biliary tract proc except only cholecyst w or w/o 409
c.d.e. w MCC.
410...................................... Biliary tract proc except only cholecyst w or w/o 409
c.d.e. w/o CC/MCC.
412...................................... Cholecystectomy w c.d.e. w CC....................... 411
413...................................... Cholecystectomy w c.d.e. w/o CC/MCC................. 411
416...................................... Cholecystectomy except by laparoscope w/o c.d.e. w/o 415
CC/MCC.
419...................................... Laparoscopic cholecystectomy w/o c.d.e. w/o CC/MCC.. 418
420...................................... Hepatobiliary diagnostic procedures w MCC........... 424
421...................................... Hepatobiliary diagnostic procedures w CC............ 424
422...................................... Hepatobiliary diagnostic procedures w/o CC/MCC...... 424
425...................................... Other hepatobiliary or pancreas O.R. procedures w/o 424
CC/MCC.
434...................................... Cirrhosis & alcoholic hepatitis w/o CC/MCC.......... 433
453...................................... Combined anterior/posterior spinal fusion w MCC..... 457
454...................................... Combined anterior/posterior spinal fusion w CC...... 457
455...................................... Combined anterior/posterior spinal fusion w/o CC/MCC 457
458...................................... Spinal fusion exc cerv w spinal curv, malig or 9+ 457
fusions w/o CC/MCC.
460...................................... Spinal fusion except cervical w/o MCC............... 459
461...................................... Bilateral or multiple major joint procs of lower 480
extremity w MCC.
462...................................... Bilateral or multiple major joint procs of lower 482
extremity w/o MCC.
473...................................... Cervical spinal fusion w/o CC/MCC................... 472
479...................................... Biopsies of musculoskeletal system & connective 478
tissue w/o CC/MCC.
483...................................... Major joint & limb reattachment proc of upper 480
extremity w CC/MCC.
484...................................... Major joint & limb reattachment proc of upper 482
extremity w/o CC/MCC.
491...................................... Back & neck procedures except spinal fusion w/o CC/ 490
MCC.
499...................................... Local excision & removal int fix devices of hip & 498
femur w/o CC/MCC.
506...................................... Major thumb or joint procedures..................... 514
508...................................... Major shoulder or elbow joint procedures w/o CC/MCC. 507
509...................................... Arthroscopy......................................... 505
512...................................... Shoulder, elbow or forearm proc, exc major joint 511
proc w/o CC/MCC.
517...................................... Other musculoskelet sys & conn tiss O.R. proc w/o CC/ 516
MCC.
538...................................... Sprains, strains, & dislocations of hip, pelvis & 537
thigh w/o CC/MCC.
583...................................... Mastectomy for malignancy w/o CC/MCC................ 582
585...................................... Breast biopsy, local excision & other breast 584
procedures w/o CC/MCC.
614...................................... Adrenal & pituitary procedures w CC/MCC............. 629
615...................................... Adrenal & pituitary procedures w/o CC/MCC........... 630
620...................................... O.R. procedures for obesity w CC.................... 619
621...................................... O.R. procedures for obesity w/o CC/MCC.............. 619
627...................................... Thyroid, parathyroid & thyroglossal procedures w/o 626
CC/MCC.
654...................................... Major bladder procedures w CC....................... 653
655...................................... Major bladder procedures w/o CC/MCC................. 653
657...................................... Kidney & ureter procedures forneoplasm w CC......... 656
658...................................... Kidney & ureter procedures for neoplasm w/o CC/MCC.. 656
664...................................... Minor bladder procedures w/o CC/MCC................. 663
667...................................... Prostatectomy w/o CC/MCC............................ 666
670...................................... Transurethral procedures w/o CC/MCC................. 669
672...................................... Urethral procedures w/o CC/MCC...................... 671
675...................................... Other kidney & urinary tract procedures w/o CC/MCC.. 674
691...................................... Urinary stones w esw lithotripsy w CC/MCC........... 694
692...................................... Urinary stones w esw lithotripsy w/o CC/MCC......... 694
697...................................... Urethral stricture.................................. 688
707...................................... Major male pelvic procedures w CC/MCC............... 660
708...................................... Major male pelvic procedures w/o CC/MCC............. 661
710...................................... Penis procedures w/o CC/MCC......................... 709
712...................................... Testes procedures w/o CC/MCC........................ 711
714...................................... Transurethral prostatectomy w/o CC/MCC.............. 713
715...................................... Other male reproductive system O.R. proc for 717
malignancy w CC/MCC.
716...................................... Other male reproductive system O.R. proc for 717
malignancy w/o CC/MCC.
718...................................... Other male reproductive system O.R. proc exc 717
malignancy w/o CC/MCC.
724...................................... Malignancy, male reproductive system w/o CC/MCC..... 723
734...................................... Pelvic evisceration, rad hysterectomy & rad 717
vulvectomy w CC/MCC.
735...................................... Pelvic evisceration, rad hysterectomy & rad 717
vulvectomy w/o CC/MCC.
736...................................... Uterine & adnexa proc for ovarian or adnexal 754
malignancy w MCC.
737...................................... Uterine & adnexa proc for ovarian or adnexal 755
malignancy w CC.
738...................................... Uterine & adnexa proc for ovarian or adnexal 756
malignancy w/o CC/MCC.

[[Page 23605]]

740...................................... Uterine, adnexa proc for non-ovarian/adnexal malig w 739
CC.
741...................................... Uterine, adnexa proc for non-ovarian/adnexal malig w/ 739
o CC/MCC.
742...................................... Uterine & adnexa proc for non-malignancy w CC/MCC... 755
743...................................... Uterine & adnexa proc for non-malignancy w/o CC/MCC. 756
745...................................... D&C, conization, laparascopy & tubal interruption w/ 744
o CC/MCC.
747...................................... Vagina, cervix & vulva procedures w/o CC/MCC........ 746
748...................................... Female reproductive system reconstructive procedures 749
750...................................... Other female reproductive system O.R. procedures w/o 749
CC/MCC.
760...................................... Menstrual & other female reproductive system 744
disorders w CC/MCC.
761...................................... Menstrual & other female reproductive system 744
disorders w/o CC/MCC.
765...................................... Cesarean section w CC/MCC........................... 744
766...................................... Cesarean section w/o CC/MCC......................... 744
767...................................... Vaginal delivery w sterilization &/or D&C........... 744
768...................................... Vaginal delivery w O.R. proc except steril &/or D&C. 744
769...................................... Postpartum & post abortion diagnoses w O.R. 744
procedure.
770...................................... Abortion w D&C, aspiration curettage or hysterotomy. 744
774...................................... Vaginal delivery w complicating diagnoses........... 744
775...................................... Vaginal delivery w/o complicating diagnoses......... 744
776...................................... Postpartum & post abortion diagnoses w/o O.R. 744
procedure.
777...................................... Ectopic pregnancy................................... 744
778...................................... Threatened abortion................................. 759
779...................................... Abortion w/o D&C.................................... 759
780...................................... False labor......................................... 759
782...................................... Other antepartum diagnoses w/o medical complications 781
789...................................... Neonates, died or transferred to another acute care 781
facility.
790...................................... Extreme immaturity or respiratory distress syndrome, 781
neonate.
791...................................... Prematurity w major problems........................ 781
792...................................... Prematurity w/o major problems...................... 781
793...................................... Full term neonate w major problems.................. 781
794...................................... Neonate w other significant problems................ 781
795...................................... Normal newborn...................................... 781
799...................................... Splenectomy w MCC................................... 800
801...................................... Splenectomy w/o CC/MCC.............................. 800
803...................................... Other O.R. proc of the blood & blood forming organs 802
w CC.
804...................................... Other O.R. proc of the blood & blood forming organs 802
w/o CC/MCC.
820...................................... Lymphoma & leukemia w major O.R. procedure w MCC.... 823
821...................................... Lymphoma & leukemia w major O.R. procedure w CC..... 824
822...................................... Lymphoma & leukemia w major O.R. procedure w/o CC/ 824
MCC.
825...................................... Lymphoma & non-acute leukemia w other O.R. proc w/o 824
CC/MCC.
828...................................... Myeloprolif disord or poorly diff neopl w maj O.R. 827
proc w/o CC/MCC.
830...................................... Myeloprolif disord or poorly diff neopl w other O.R. 829
proc w/o CC/MCC.
837...................................... Chemo w acute leukemia as sdx or w high dose chemo 829
agent w MCC.
838...................................... Chemo w acute leukemia as sdx or w high dose chemo 829
agent w CC.
839...................................... Chemo w acute leukemia as sdx or w high dose chemo 829
agent w/o CC/MCC.
848...................................... Chemotherapy w/o acute leukemia as secondary 847
diagnosis w/o CC/MCC.
887...................................... Other mental disorder diagnoses..................... 881
894...................................... Alcohol/drug abuse or dependence, left ama.......... 881
915...................................... Allergic reactions w MCC............................ 918
916...................................... Allergic reactions w/o MCC.......................... 918
955...................................... Craniotomy for multiple significant trauma.......... 26
956...................................... Limb reattachment, hip & femur proc for multiple 482
significant trauma.
959...................................... Other O.R. procedures for multiple significant 958
trauma w/o CC/MCC.
986...................................... Prostatic O.R. procedure unrelated to principal 985
diagnosis w/o CC/MCC.
----------------------------------------------------------------------------------------------------------------

To illustrate this methodology for determining the proposed
relative weights for the proposed MS-LTC-DRGs with no LTCH cases, we
are providing the following example, which refers to the proposed no-
volume MS-LTC-DRGs crosswalk information for FY 2009 provided in the
chart above.
Example: There were no cases in the FY 2007 MedPAR file used for
this proposed rule for proposed MS-LTC-DRG 61 (Acute ischemic stroke w
use of thrombolytic agent w MCC). We determined that MS-LTC-DRG 70
(Nonspecific cebrovascular disorders w MCC) is similar clinically and
based on resource use to proposed MS-LTC-DRG 61. Therefore, we are
proposing to assign the same proposed relative weight of proposed MS-
LTC-DRG 70 of 0.8718 for FY 2009 to proposed MS-LTC-DRG 61 (Table 11 of
the Addendum of this proposed rule).
Furthermore, for FY 2009, consistent with our historical relative
weight methodology, we are proposing to establish MS-LTC-DRG relative
weights of 0.0000 for the following proposed transplant MS-LTC-DRGs:
Heart Transplant or Implant of Heart Assist System with MCC (MS-LTC-DRG
1); Heart Transplant or Implant of Heart Assist System without MCC (MS-
LTC-DRG 2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-
DRG 5);

[[Page 23606]]

Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant (MS-LTC-
DRG 7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8);
Pancreas Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG
652). This is because Medicare will only cover these procedures if they
are performed at a hospital that has been certified for the specific
procedures by Medicare and presently no LTCH has been so certified.
Based on our research, we found that most LTCHs only perform minor
surgeries, such as minor small and large bowel procedures, to the
extent any surgeries are performed at all. Given the extensive criteria
that must be met to become certified as a transplant center for
Medicare, we believe it is unlikely that any LTCHs will become
certified as a transplant center. In fact, in the more than 20 years
since the implementation of the IPPS, there has never been a LTCH that
even expressed an interest in becoming a transplant center.
If in the future a LTCH applies for certification as a Medicare-
approved transplant center, we believe that the application and
approval procedure would allow sufficient time for us to determine
appropriate weights for the MS-LTC-DRGs affected. At the present time,
we would only include these eight proposed transplant MS-LTC-DRGs in
the GROUPER program for administrative purposes only. Because we use
the same GROUPER program for LTCHs as is used under the IPPS, removing
these proposed MS-LTC-DRGs would be administratively burdensome.
Again, we note that, as this system is dynamic, it is entirely
possible that the number of proposed MS-LTC-DRGs with no volume of LTCH
cases based on the system will vary in the future. We used the most
recent available claims data in the MedPAR file to identify no-volume
proposed MS-LTC-DRGs and to determine the proposed relative weights in
this proposed rule.
Step 6--Adjust the proposed FY 2009 MS-LTC-DRG relative weights to
account for nonmonotonically increasing relative weights.
As discussed in section II.B. of the preamble of this proposed
rule, the MS-DRGs (used under the IPPS) on which the MS-LTC-DRGs are
based provide a significant improvement in the DRG system's recognition
of severity of illness and resource usage. The proposed MS-DRGs contain
base DRGs that have been subdivided into one, two, or three severity
levels. Where there are three severity levels, the most severe level
has at least one code that is referred to as an MCC. The next lower
severity level contains cases with at least one code that is a CC.
Those cases without a MCC or a CC are referred to as without CC/MCC.
When data did not support the creation of three severity levels, the
base was divided into either two levels or the base was not subdivided.
The two-level subdivisions could consist of the CC/MCC and the without
CC/MCC. Alternatively, the other type of two level subdivision could
consist of the MCC and without MCC.
In those base MS-LTC-DRGs that are split into either two or three
severity levels, cases classified into the ``without CC/MCC'' MS-LTC-
DRG are expected to have a lower resource use (and lower costs) than
the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or
the ``with CC'' and ``with MCC'' MS-LTC-DRGs (in the case of a three-
level split). That is, theoretically, cases that are more severe
typically require greater expenditure of medical care resources and
will result in higher average charges. Therefore, in the three severity
levels, relative weights should increase by severity, from lowest to
highest. If the relative weights do not increase (that is, if within a
base MS-LTC-DRG, a MS-LTC-DRG with MCC has a lower relative weight than
one with CC, or the MS-LTC-DRG without CC/MCC has a higher relative
weight than either of the others, they are nonmonotonic). We continue
to believe that utilizing nonmonotonic relative weights to adjust
Medicare payments would result in inappropriate payments. Consequently,
in general, we are proposing to combine proposed MS-LTC-DRG severity
levels within a base MS-LTC-DRG for the purpose of computing a relative
weight when necessary to ensure that monotonicity is maintained. In
determining the proposed FY 2009 MS-LTC-DRG relative weights in this
proposed rule, in general, we are proposing to use the same methodology
to adjust for nonmonotonicity that we used to determine the FY 2008 MS-
LTC-DRG relative weights in the FY 2008 IPPS final rule with comment
(72 FR 47293 through 47295). However, as noted above, we are taking
this opportunity to refine our description to more precisely explain
our methodology for determining the MS-LTC-DRG relative weights in this
proposed rule. Specifically, in determining the proposed FY 2009 MS-
LTC-DRG relative weights in this proposed rule, under each of the
example scenarios provided below, we would combine severity levels
within a base MS-LTC-DRG as follows:
The first example of nonmonotonically increasing relative weights
for a MS-LTC-DRG pertains to a base MS-LTC-DRG with a three-level split
and each of the three levels has 25 or more LTCH cases and, therefore,
none of those MS-LTC-DRGs is assigned to one of the five low-volume
quintiles. In this proposed rule, if nonmonotonicity is detected in the
proposed relative weights of the proposed MS-LTC-DRGs in adjacent
severity levels (for example, the proposed relative weight of the
``with MCC'' (the highest severity level) is less than the ``with CC''
(the middle level), or the ``with CC'' is less than the ``without CC/
MCC''), we would combine the nonmonotonic adjacent proposed MS-LTC-DRGs
and re-determine a proposed relative weight based on the case-weighted
average of the combined LTCH cases of the nonmonotonic proposed MS-LTC-
DRGs. The case-weighted average charge is calculated by dividing the
total charges for all LTCH cases in both severity levels by the total
number of LTCH cases for both proposed MS-LTC-DRGs. The same proposed
relative weight would be assigned to both affected levels of the base
MS-LTC-DRG. If nonmonotonicity remains an issue because the above
process results in a proposed relative weight that is still
nonmonotonic to the remaining proposed MS-LTC-DRG relative weight
within the base MS-LTC-DRG, we would combine all three of the severity
levels to redetermine the proposed relative weights based on the case-
weighted average charge of the combined severity levels. This same
proposed relative weight is then assigned to each of the proposed MS-
LTC-DRGs in that base MS-LTC-DRG.
A second example of nonmonotonically increasing relative weights
for a base MS-LTC-DRG pertains to the situation where there are three
severity levels and one or more of the severity levels within a base
MS-LTC-DRG has less than 25 LTCH cases (that is, low-volume). In this
proposed rule, if nonmonotonicity occurs in the case where either the
highest or lowest severity level (``with MCC'' or ``without CC/MCC'')
has 25 LTCH cases or more and the other two severity levels are low-
volume (and therefore the other two severity levels would otherwise be
assigned the proposed relative weight of the applicable proposed low-
volume quintile(s)), we would combine the data for the cases in the two
adjacent proposed low-volume MS-LTC-DRGs for the purpose of determining
a proposed relative weight. If the combination results in at least 25
cases,

[[Page 23607]]

we re-determine one proposed relative weight based on the case-weighted
average charge of the combined severity levels and assign this same
proposed relative weight to each of the severity levels. If the
combination results in less than 25 cases, based on the case-weighted
average charge of the combined proposed low-volume MS-LTC-DRGs, both
proposed MS-LTC-DRGs would be assigned to the appropriate proposed low-
volume quintile (discussed above in section II.I.3.e. of this preamble)
based on the case-weighted average charge of the combined proposed low-
volume MS-LTC-DRGs. Then the proposed relative weight of the affected
proposed low-volume quintile would be redetermined and that proposed
relative weight would be assigned to each of the affected severity
levels (and all of the proposed MS-LTC-DRGs in the affected proposed
low-volume quintile). If nonmonotonicity persists, we would combine all
three severity levels and redetermine one proposed relative weight
based on the case-weighted average charge of the combined severity
levels and this same proposed relative weight would be assigned to each
of the three levels.
Similarly, in nonmonotonic cases where the middle level has 25
cases or more but either or both of the lowest or highest severity
level has less than 25 cases (that is, low volume), we would combine
the nonmonotonic proposed low-volume MS-LTC-DRG with the middle level
proposed MS-LTC-DRG of the base MS-LTC-DRG. We would redetermine one
proposed relative weight based on the case-weighted average charge of
the combined severity levels and assign this same proposed relative
weight to each of the affected proposed MS-LTC-DRGs. If nonmonotonicity
persists, we would combine all three levels for the purpose of
redetermining a proposed relative weight based on the case-weighted
average charge of the combined severity levels, and assign that
proposed relative weight to each of the three severity levels.
In the case where all three severity levels in the base MS-LTC-DRGs
are proposed low-volume MS-LTC-DRGs and two of the severity levels are
nonmonotonic in relation to each other, we would combine the two
adjacent nonmonotonic severity levels. If that combination results in
less than 25 cases, both proposed low-volume MS-LTC-DRGs would be
assigned to the appropriate proposed low-volume quintile (discussed
above in section II.I.3.e. of this preamble) based on the case-weighted
average charge of the combined proposed low-volume MS-LTC-DRGs. Then
the proposed relative weight of the affected proposed low-volume
quintile would be redetermined and that proposed relative weight would
be assigned to each of the affected severity levels (and all of the
proposed MS-LTC-DRGs in the affected proposed low-volume quintile). If
the nonmonotonicity persists, we would combine all three levels of that
base MS-LTC-DRG for the purpose of redetermining a proposed relative
weight based on the case-weighted average charge of the combined
severity levels, and assign that proposed relative weight to each of
the three severity levels. If that combination of all three severity
levels results in less than 25 cases, we would assign that ``combined''
base MS-LTC-DRG to the appropriate proposed low-volume quintile based
on the case-weighted average charge of the combined proposed low-volume
MS-LTC-DRGs. Then the proposed relative weight of the affected proposed
low-volume quintile would be redetermined and that proposed relative
weight would be assigned to each of the affected severity levels (and
all of the proposed MS-LTC-DRGs in the affected proposed low-volume
quintile).
Another example of nonmonotonicity involves a base MS-LTC-DRG with
three severity levels where at least one of the severity levels has no
cases. As discussed above in greater detail in Step 5, based on
resource use intensity and clinical similarity, we propose to cross-
walk a proposed no-volume MS-LTC-DRG to a proposed MS-LTC-DRG that has
at least one case. Under our proposed methodology for the treatment of
proposed no-volume MS-LTC-DRGs, the proposed no-volume MS-LTC-DRG would
be assigned the same proposed relative weight as the proposed MS-LTC-
DRG to which the proposed no-volume MS-LTC-DRG is cross-walked. For
many proposed no-volume MS-LTC-DRGs, as shown in the chart above in
Step 5, the application of our proposed methodology results in a
proposed cross-walk MS-LTC-DRG that is the adjacent severity level in
the same base MS-LTC-DRG. Consequently, in most instances, the proposed
no-volume MS-LTC-DRG and the adjacent proposed MS-LTC-DRG to which it
is cross-walked would not result in nonmonotonicity because both of
these severity levels would have the same proposed relative weight. (In
this proposed rule, under our proposed methodology for the treatment of
proposed no-volume MS-LTC-DRGs, in the case where the proposed no-
volume MS-LTC-DRG is either the highest or lowest severity level, the
proposed cross-walk MS-LTC-DRG would be the middle level (``with CC'')
within the same base MS-LTC-DRG, and therefore the proposed no-volume
MS-LTC-DRG (either the ``with MCC'' or the ``without CC/MCC'') and the
proposed cross-walk MS-LTC-DRG (the ``with CC'') would have the same
proposed relative weight. Consequently, no adjustment for monotonicity
would be necessary.) However, if our proposed methodology for
determining proposed relative weights for proposed no-volume MS-LTC-
DRGs results in nonmonotonicity with the third severity level in the
base-MS-LTC-DRG, all three severity levels would be combined for the
purpose of redetermining one proposed relative weight based on the
case-weighted average charge of the combined severity levels. This same
proposed relative weight would be assigned to each of the three
severity levels in the base MS-LTC-DRG.
Thus far in the discussion, we have presented examples of
nonmonotonicity in a base MS-LTC-DRG that has three severity levels. We
would apply the same process where the base MS-LTC-DRG contains only
two severity levels. For example, if nonmonotonicity occurs in a base
MS-LTC-DRG with two severity levels (that is, the proposed relative
weight of the higher severity level is less than the lower severity
level), where both of the proposed MS-LTC-DRGs have at least 25 cases
or where one or both of the proposed MS-LTC-DRGs is low volume (that
is, less than 25 cases), we would combine the two proposed MS-LTC-DRGs
of that base MS-LTC-DRG for the purpose of redetermining a proposed
relative weight based on the combined case-weighted average charge for
both severity levels. This same proposed relative weight would be
assigned to each of the two severity levels in the base MS-LTC-DRG.
Specifically, if the combination of the two severity levels would
result in at least 25 cases, we would redetermine one proposed relative
weight based on the case-weighted average charge and assign that
proposed relative weight to each of the two proposed MS-LTC-DRGs. If
the combination results in less than 25 cases, we would assign both
proposed MS-LTC-DRGs to the appropriate proposed low-volume quintile
(discussed above in section II.I.3.e. of this preamble) based on their
combined case-weighted average charge. Then the proposed relative
weight of the affected proposed low-volume quintile would be
redetermined and that proposed relative

[[Page 23608]]

weight would be assigned to each of the affected severity levels.
Step 7--Calculate the proposed FY 2009 budget neutrality factor.
As we established in the RY 2008 LTCH PPS final rule (72 FR 26882),
under the broad authority conferred upon the Secretary under section
123 of Pub. L. 106-113 as amended by section 307(b) of Pub. L. 106-554
to develop the LTCH PPS, beginning with the MS-LTC-DRG update for FY
2008, the annual update to the MS-LTC-DRG classifications and relative
weights will be done in a budget neutral manner such that estimated
aggregate LTCH PPS payments would be unaffected, that is, would be
neither greater than nor less than the estimated aggregate LTCH PPS
payments that would have been made without the MS-LTC-DRG
classification and relative weight changes. Specifically, in that same
final rule, we established under Sec. 412.517(b) that the annual
update to the MS-LTC-DRG classifications and relative weights be done
in a budget neutral manner. For a detailed discussion on the
establishment of the requirement to update the MS-LTC-DRG
classifications and relative weights in a budget neutral manner, we
refer readers to the RY 2008 LTCH PPS final rule (72 FR 26880 through
26884). Updating the MS-LTC-DRGs in a budget neutral manner results in
an annual update to the individual MS-LTC-DRG classifications and
relative weights based on the most recent available data to reflect
changes in relative LTCH resource use. To accomplish this, the MS-LTC-
DRG relative weights are uniformly adjusted to ensure that estimated
aggregate payments under the LTCH PPS would not be affected (that is,
decreased or increased). Consistent with that provision, we are
proposing to update the MS-LTC-DRG classifications and relative weights
for FY 2009 based on the most recent available data and include a
proposed budget neutrality adjustment that would be applied in
determining the pr