[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]
[[Page 23527]]
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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
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
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
[[Page 23529]]
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
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web (the Superintendent of Documents' home page address
is http://www.gpoaccess.gov/), by using local WAIS client software, or
by telnet to swais.access.gpo.gov, then login as guest (no password
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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. CardioWestTM Temporary Total Artificial Heart
System (CardioWestTM 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
[[Page 23532]]
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