FR Doc E9-10458

[Federal Register: May 22, 2009 (Volume 74, Number 98)]
[Proposed Rules]
[Page 24079-24686]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my09-15]

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Part II

Book 2 of 2 Books

Pages 24079-24694

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 412, 413, 415 et al.

Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems for Acute Care Hospitals and Fiscal Year
2010 Rates and to the Long-Term Care Hospital Prospective Payment
System and Rate Year 2010 Rates; Proposed Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 415, and 489

[CMS-1406-P]
RIN 0938-AP39

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

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the Medicare hospital inpatient
prospective payment systems (IPPS) for operating and capital-related
costs of acute care hospitals to implement changes arising from our
continuing experience with these systems, and to implement certain
provisions made by the Medicare Improvements for Patients and Providers
Act of 2008 (MIPPA, Pub. L. 110-275) and the American Recovery and
Reinvestment Act of 2009 (ARRA, Pub. L. 111-5). 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 acute care
hospital inpatient services for operating costs and capital-related
costs. These proposed changes would be applicable to discharges
occurring on or after October 1, 2009. We also are setting forth the
proposed update to the rate-of-increase limits for certain hospitals
excluded from the IPPS that are paid on a reasonable cost basis subject
to these limits. The proposed updated rate-of-increase limits would be
effective for cost reporting periods beginning on or after October 1,
2009.
In addition, we are proposing to update the annual payment rates
for the Medicare prospective payment system (PPS) for inpatient
hospital services provided by long-term care hospitals (LTCHs). In the
Addendum to this proposed rule, we also set forth the proposed changes
to the payment rates, factors, and other payment rate policies under
the LTCH PPS for rate year 2010. These proposed changes would be
applicable to discharges occurring on or after October 1, 2009. In this
proposed rule, we also note those provisions of the ARRA that amended
provisions of the Medicare, Medicaid, and SCHIP Extension Act of 2007
(MMSEA, Pub. L. 110-173) relating to payments to LTCHs and new LTCHs
and LTCH satellite facilities, and increases in beds in existing LTCHs
and LTCH satellite facilities under the LTCH PPS that will be
implemented in the final rule issued for this proposed rule.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. E.S.T. on June 30,
2009.

ADDRESSES: When commenting on issues presented in this proposed rule,
please refer to file code CMS-1406-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 at http://www.regulations.gov. Follow the instructions for
``Comment or Submission'' and enter the file code CMS-1406-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-1406-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-1406-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: Tzvi Hefter, (410) 786-4487,
Operating Prospective Payment, MS-DRGs, Wage Index, New Medical Service
and Technology Add-On Payments, Hospital Geographic Reclassifications,
Capital Prospective Payment, Excluded Hospitals, Direct and Indirect
Graduate Medical Education Payments, EMTALA, Hospital Emergency
Services, and Hospital-Within-Hospital Issues.
Michele Hudson, (410) 786-4487, Long-Term Care Hospital Prospective
Payment System and MS-LTC-DRGs 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-Acquired Conditions.

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 at
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

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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
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Acronyms

3M 3M Health Information System
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASC Ambulatory surgical center
ASCA Administrative Simplification Compliance Act of 2002, Public
Law 107-105
ASITN American Society of Interventional and Therapeutic
Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999, Public
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000,
Public Law 106-554
BLS Bureau of Labor Statistics
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, Public Law
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law
99-272
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
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
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996,
Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HwH Hospital-Within-a-Hospital
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
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
LOS Length of stay
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, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008,
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public
Law 110-173
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
NALTH National Association of Long Term Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NQF National Quality Forum
NTIS National Technical Information Service
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1996, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management

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O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PIP Periodic interim payment
PLI Professional liability insurance
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
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
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
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law
97-248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and
QI [Qualifying Individuals] Programs Extension Act of 2007, Public
Law 110-90
TJA Total joint arthroplasty
UHDDS Uniform hospital discharge data set
VAP Ventilator-associated pneumonia

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
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
4. Critical Access Hospitals (CAHs)
5. Payments for Graduate Medical Education (GME)
B. Provisions of the Medicare Improvements for Patients and
Providers Act of 2008 (MIPPA)
C. Provisions of the American Recovery and Reinvestment Act of
2009 (ARRA)
D. 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 for Acute Care
Hospitals
3. Proposed Rebasing and Revision of the Hospital Market Basket
for Acute Care Hospitals
4. Other Decisions and Proposed Changes to the IPPS for
Operating Costs and GME Costs
5. FY 2010 Policy Governing the IPPS for Capital-Related Costs
6. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
7. Proposed Changes to the LTCH PPS
8. Determining Proposed Prospective Payment Operating and
Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
9. Determining Proposed Prospective Payments Rates for LTCHs
10. Impact Analysis
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
12. Discussion of Medicare Payment Advisory Commission
Recommendations
E. Public Comments Received on Two LTCH PPS Interim Final Rules
with Comment Period Issued in 2008
II. Proposed Changes to Medicare Severity Diagnosis-Related Group
(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. Proposed FY 2010 MS-DRG Documentation and Coding Adjustment,
Including the Applicability to the Hospital-Specific Rates and the
Puerto Rico-Specific Standardized Amount
1. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
2. Prospective Adjustment to the Average Standardized Amounts
Required by Section 7(b)(1)(A) of Public Law 110-90
3. Recoupment or Repayment Adjustments in FYs 2010 through 2012
Required by Public Law 110-90
4. Retrospective Evaluation of FY 2008 Claims Data
5. Proposed Adjustments for FY 2010 and Subsequent Years
Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section
1886(d)(3)(vi) of the Act
6. Additional Adjustment for FY 2010 Authorized by Section
7(b)(1)(B) of Public Law 110-90
7. Background on the Application of the Documentation and Coding
Adjustment to the Hospital-Specific Rates
8. Proposed Documentation and Coding Adjustment to the Hospital-
Specific Rates for FY 2010 and Subsequent Years
9. Background on the Application of the Documentation and Coding
Adjustment to the Puerto Rico-Specific Standardized Amount
10. Proposed Documentation and Coding Adjustment to the Puerto
Rico-Specific Standardized Amount
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
a. Summary of the RTI Study of Charge Compression and CCR
Refinement
b. Summary of the Rand Corporation Study of Alternative Relative
Weight Methodologies
2. Summary of FY 2009 Changes and Discussion for FY 2010
3. Timeline for Revising the Medicare Cost Report
F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections
1. Statutory Authority
2. HAC Selection Process
3. Collaborative Process
4. Selected HAC Categories
5. Public Input Regarding Selected and Potential Candidate HACs
6. POA Indicator Reporting
G. Proposed Changes to Specific MS-DRG Classifications
1. MDC 5 (Diseases and Disorders of the Circulatory System):
Intraoperative Fluorescence Vascular Angiography (IFVA)
2. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue): Infected Hip and Knee Replacements
3. Proposed Medicare Code Editor (MCE) Changes
a. Diagnoses Allowed for Males Only Edit
b. Manifestation Codes as Principal Diagnosis Edit
c. Invalid Diagnosis or Procedure Code
d. Unacceptable Principal Diagnosis
e. Proposed Creation of New Edit Titled ``Wrong Surgeries''
f. Procedures Allowed for Females Only Edit
4. Surgical Hierarchies
5. Complication or Comorbidity (CC) Exclusions List
a. Background
b. CC Exclusions List for FY 2010
6. Review of Procedure Codes in MS-DRGs 981 through 983, 984
through 986, and 987 through 989
a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-
DRGs 987 through 989 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
7. Changes to the ICD-9-CM Coding System
H. Recalibration of MS-DRG Weights
I. Proposed Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed
Rulemaking on Add-On Payments
3. FY 2010 Status of Technologies Approved for FY 2009 Add-On
Payments
4. FY 2010 Applications for New Technology Add-On Payments
a. The AutoLITT^TM System
b. CLOLAR[supreg] (clofarabine) Injection
c. LipiScan^TM Coronary Imaging System
d. Spiration[supreg] IBV[supreg] Valve System
e. TherOx Downstream[supreg] System
5. Technical Correction
III. Proposed Changes to the Hospital Wage Index for Acute Care
Hospitals

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A. Background
B. Requirements of Section 106 of the MIEA-TRHCA
1. Wage Index Study Required Under the MIEA-TRHCA
a. Legislative Requirement
b. Interim and Final Reports on Results of Acumen's Study
2. FY 2009 Policy Changes in Response to Requirements Under
Section 106(b) of the MIEA-TRHCA
a. Reclassification Average Hourly Wage Comparison Criteria
b. Within-State Budget Neutrality Adjustment for the Rural and
Imputed Floors
C. Core-Based Statistical Areas for the Hospital Wage Index
D. Proposed Occupational Mix Adjustment to the Proposed FY 2010
Wage Index
1. Development of Data for the Proposed FY 2010 Occupational Mix
Adjustment Based on the 2007-2008 Occupational Mix Survey
2. Calculation of the Proposed Occupational Mix Adjustment for
FY 2010
E. Worksheet S-3 Wage Data for the Proposed FY 2010 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
G. Method for Computing the Proposed FY 2010 Unadjusted Wage
Index
H. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2010 Occupational Mix Adjusted Wage
Index
I. Revisions to the Wage Index Based on Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2010 MGCRB Reclassifications
4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of
the Act
5. Reclassifications Under Section 1886(d)(8)(B) of the Act
6. Reclassifications Under Section 508 of Public Law 108-173
J. Proposed FY 2010 Wage Index Adjustment Based on Commuting
Patterns of Hospital Employees
K. Process for Requests for Wage Index Data Corrections
IV. Proposed Rebasing and Revision of the Hospital Market Baskets
for Acute Care Hospitals
A. Background
B. Rebasing and Revising the IPPS Market Basket
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
b. Other Data Sources
2. Final Cost Category Computation
3. Selection of Price Proxies
a. Wages and Salaries
b. Employment Benefits
c. Fuel, Oil, and Gasoline
d. Electricity
e. Water and Sewage
f. Professional Liability Insurance
g. Pharmaceuticals
h. Food: Direct Purchase
i. Food: Contract Services
j. Chemicals
k. Blood and Blood Products
l. Medical Instruments
m. Photographic Supplies
n. Rubber and Plastics
o. Paper and Printing Products
p. Apparel
q. Machinery and Equipment
r. Miscellaneous Products
s. Professional Fees: Labor-Related
t. Administrative and Business Support Services
u. All Other: Labor-Related Services
v. Professional Fees: Nonlabor-Related
w. Financial Services
x. Telephone Services
y. Postage
z. All Other: Nonlabor-Related Services
4. Labor-Related Share
C. Separate Market Basket for Certain Hospitals Presently
Excluded From the IPPS
D. Rebasing and Revising the Capital Input Price Index (CIPI)
V. Other Decisions and Proposed Changes to the IPPS for Operating
Costs and GME Costs
A. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
a. Overview
b. Hospital Quality Data Reporting Under Section 501(b) of
Public Law 108-173
c. Hospital Quality Data Reporting Under Section 5001(a) of
Public Law 109-171
2. Retirement of RHQDAPU Program Measures
3. Quality Measures for the FY 2011 Payment Determination and
Subsequent Years
a. Considerations in Expanding and Updating Quality Measures
Under the RHQDAPU Program
b. Proposed RHQDAPU Program Quality Measures for the FY 2011
Payment Determination
3. Possible New Quality Measures for the FY 2012 Payment
Determination and Subsequent Years
4. Possible New Quality Measures for the FY 2012 Payment
Determination and Subsequent Years
5. Form, Manner, and Timing of Quality Data Submission
a. Proposed RHQDAPU Program Procedures for the FY 2011 Payment
Determination
b. RHQDAPU Program Disaster Extensions and Waivers
c. HACHPS Requirements for the FY 2011 Payment Determination
6. Proposed Chart Validation Requirements
a. Proposed Chart Validation Requirements and Methods for the FY
2011 Payment Determination
b. Proposed Chart Validation Requirements and Methods for the FY
2012 Payment Determination and Subsequent Years
c. Possible Supplements to the Chart Validation Process for the
FY 2013 Payment Determination and Subsequent Years
7. Data Accuracy and Completeness Acknowledgement Requirements
for the FY 2011 Payment Determination and Subsequent Years
8. Public Display Requirements for the FY 2011 Payment
Determination and Subsequent Years
9. Proposed Reconsideration and Appeal Procedures for the FY
2010 Payment Determination
10. RHQDAPU Program Withdrawal Deadlines
11. Electronic Health Records
a. Background
b. EHR Testing of Quality Measures Submission
c. HITECH Act EHR Provisions
B. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small
Rural Hospitals (MDHs): Budget Neutrality Adjustment Factors for FY
2002-Based Hospital-Specific Rate for MDHs
1. Background
2. FY 2002-Based Hospital-Specific Rate
C. Rural Referral Centers (RRCs)
1. Case-Mix Index
2. Discharges
D. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2010
3. IME-Related Proposed Changes in Other Sections of this
Proposed Rule
E. Payment Adjustment for Medicare Disproportionate Share
Hospitals (DSHs)
1. Background
2. Proposed Policy Change Relating to the Inclusion of Labor and
Delivery Patient Days in the Medicare DSH Calculation
a. Background
b. Proposed Policy Change
3. Proposed Policy Change Relating to Calculation of Inpatient
Days in the Medicaid Fraction in the Medicare DSH Calculation
a. Background
b. Proposed Policy Change
4. Proposed Policy Change Relating to the Exclusion of
Observation Beds and Patient Days From the Medicare DSH Calculation
a. Background
b. Proposed Policy Change
F. Technical Correction to Regulations on Payments for
Anesthesia Services Furnished by Hospital or CAH Employed
Nonphysician Anesthetists or Obtained Under Arrangements
G. Payments for Direct Graduate Medical Education (GME) Costs
1. Background
2. Clarification of Definition of New Medical Residency Training
Program
3. Participation of New Teaching Hospitals in Medicare GME
Affiliated Groups
4. Technical Corrections to Regulations
H. Hospital Emergency Services Under EMTALA
1. Background
2. Proposed Changes Relating to Applicability of Sanctions Under
EMTALA
I. Rural Community Hospital Demonstration Program
J. Technical Correction to Regulations Relating to Calculation
of the Federal Rate Under the IPPS
VI. Proposed Changes to the IPPS for Capital-Related Costs

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A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Proposed Changes
1. Proposed FY 2010 MS-DRG Documentation and Coding Adjustment
a. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009
b. Proposed Prospective MS-DRG Documentation and Coding
Adjustment to the National Capital Federal Rate for FY 2010 and
Subsequent Years
c. Proposed Documentation and Coding Adjustment to the Puerto
Rico-Specific Capital Rate
2. Revision to the FY 2009 IME Adjustment Factor
3. Other Proposed Changes for FY 2010
VII. Proposed Changes for Hospitals Excluded From the IPPS
A. Excluded Hospitals
B. Criteria for Satellite Facilities of Hospitals
C. Critical Access Hospitals (CAHs)
1. Background
2. Payment for Clinical Diagnostic Laboratory Tests Furnished by
CAHs
3. CAH Optional Method of Payment for Outpatient Services
D. Provider-Based Status of Facilities and Organizations:
Proposed Policy Changes
1. Background
2. Proposed Changes to the Scope of the Provider-Based Status
Regulations for CAHs
a. CAH-Based Clinical Diagnostic Laboratory Facilities
b. CAH-Based Ambulance Services
3. Technical Correction to Regulations
VIII. Proposed Changes to the Long-Term Care Hospital Prospective
Payment System (LTCH PPS) for RY 2010
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded from the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification Compliance Act (ASCA) and
Health Insurance Portability and Accountability Act (HIPAA)
Compliance
B. Proposed Medicare Severity Long-Term Care Diagnosis-Related
Group (MS-LTC-DRG) Classifications and Relative Weights
1. Background
2. Patient Classifications Into MS-LTC-DRGs
a. Background
b. Proposed Changes to the MS-LTC-DRGs for RY 2010
3. Development of the Proposed RY 2010 MS-LTC-DRG Relative
Weights
a. General Overview of the Development of the MS-LTC-DRG
Relative Weights
b. Data
c. Hospital-Specific Relative Value (HSRV) Methodology
d. Treatment of Severity Levels in Developing the Proposed MS-
LTC-DRG Relative Weights
e. Low-Volume MS-LTC-DRGs
f. Steps for Determining the Proposed RY 2010 MS-LTC-DRG
Relative Weights
C. Proposed Changes to the LTCH Payment Rates and Other Changes
to the RY 2010 LTCH PPS
1. Overview of Development of the LTCH Payment Rates
2. Market Basket for LTCHs Reimbursed under the LTCH PPS
a. Overview
b. Proposed Market Basket under the LTCH PPS for RY 2010
c. Proposed Market Basket Update for LTCHs for RY 2010
d. Proposed Labor-Related Share under the LTCH PPS for RY 2010
3. Proposed Adjustment for Changes in LTCHs' Case-Mix Due to
Changes in Documentation and Coding Practices That Occurred in a
Prior Period
a. Background
b. Evaluation of FY 2007 Claims Data
c. Evaluation of FY 2008 Claims Data
d. Proposed RY 2010 Documentation and Coding Adjustment
D. Monitoring
E. Research Conducted by the Research Triangle Institute,
International (RTI)
F. Proposed Technical Corrections of LTCH PPS Regulations
IX. MedPAC Recommendations
X. Other Required Information
A. Requests for Data from the Public
B. Collection of Information Requirements
C. Additional Information Collection Requirements
1. Present on Admission (POA) Indicator Reporting
2. Proposed Add-On Payments for New Services and Technologies
3. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
4. Occupational Mix Adjustment to the FY 2010 Index (Hospital
Wage Index Occupational Mix Survey)
5. Hospital Applications for Geographic Reclassifications by the
MGCRB
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, 2009
I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital
Inpatient Operating Costs for Acute Care Hospitals for FY 2010
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 to Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2010
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 2010
C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
V. Proposed Changes to the Payment Rates for the LTCH PPS for RY
2010
A. Proposed LTCH PPS Standard Federal Rate for RY 2010
B. Proposed Adjustment for Area Wage Levels under the LTCH PPS
for RY 2010
C. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO)
Cases
D. Computing the Proposed Adjusted LTCH PPS Federal Prospective
Payments for RY 2010
VI. Tables
Table 1A.--National Adjusted Operating Standardized Amounts,
Labor/Nonlabor (67.1 Percent Labor Share/32.9 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 1E.--LTCH Standard Federal Prospective Payment Rate
Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges
Occurring in Federal Fiscal Year 2008; Hospital Wage Indexes for
Federal Fiscal Year 2010; Hospital Average Hourly Wages for Federal
Fiscal Years 2008 (2004 Wage Data), 2009 (2005 Wage Data), and 2010
(2006 Wage Data); and 3-Year Average of Hospital Average Hourly
Wages
Table 3A.--FY 2010 and 3-Year Average Hourly Wage for Acute Care
Hospitals in Urban Areas by CBSA
Table 3B.--FY 2010 and 3-Year Average Hourly Wage for Acute Care
Hospitals in Rural Areas by CBSA
Table 4A.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State--
FY 2010
Table 4B.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--
FY 2010
Table 4C.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by
State--FY 2010
Table 4D-1.--Rural Floor Budget Neutrality Factors for Acute
Care Hospitals--FY 2010
Table 4D-2.--Urban Areas with Acute Care Hospitals Receiving the
Statewide Rural Floor or Imputed Floor Wage Index--FY 2010
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care
Hospitals--FY 2010
Table 4F.--Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2010
Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY
2010

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Table 5.--List of Medicare Severity Diagnosis-Related Groups
(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic
Mean Length of Stay--FY 2010
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 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 2008 MedPAR Update--December 2008
GROUPER V26.0 MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2008 MedPAR Update--December 2008
GROUPER V27.0 MS-DRGs
Table 8A.--Proposed Statewide Average Operating Cost-to-Charge
Ratios (CCRs) for Acute Care Hospitals--March 2009
Table 8B.--Proposed Statewide Average Capital Cost-to-Charge
Ratios (CCRs) for Acute Care Hospitals--March 2009
Table 8C.--Proposed Statewide Average Total Cost-to-Charge
Ratios (CCRs) for LTCHs--March 2009
Table 9A.--Hospital Reclassifications and Redesignations--FY
2010
Table 9C.--Hospitals Redesignated as Rural under Section
1886(d)(8)(E) of the Act--FY 2010
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 2009
Table 11.--Proposed MS-LTC-DRGs, Relative Weights, Geometric
Average Length of Stay, and Short-Stay Outlier Threshold for
Discharges Occurring from October 1, 2009 through September 30, 2010
under the LTCH PPS
Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges
Occurring from October 1, 2009 through September 30, 2010
Table 12B.--LTCH PPS Wage Index for Rural Ares for Discharges
Occurring from October 1, 2009 through September 30, 2010

Appendix A--Regulatory Impact Analysis

I. Overall Impact
II. Objectives of the IPPS
III. Limitations of Our Analysis
IV. Hospitals Included in and Excluded From the IPPS
V. Effects on Hospitals Excluded from the IPPS
VI. Quantitative Effects of the Policy Changes under the IPPS for
Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Proposed Changes to the MS-DRG
Reclassifications and Relative Cost-Based Weights (Column 1)
D. Effects of the Application of Recalibration Budget Neutrality
(Column 2)
E. Effects of Proposed Wage Index Changes (Column 3)
F. Application of the Wage Budget Neutrality Factor (Column 4)
G. Combined Effects of Proposed MS-DRG and Wage Index Changes
(Column 5)
H. Effects of MGCRB Reclassifications (Column 6)
I. Effects of the Proposed Rural Floor and Imputed Floor,
Including the Transition To Apply Budget Neutrality at the State
Level (Column 7)
J. Effects of the Proposed Wage Index Adjustment for Out-
Migration (Column 8)
K. Effects of All Proposed Changes Prior to Documentation and
Coding (or CMI) Adjustment (Column 9)
L. Effects of All Proposed Changes With Documentation and Coding
(or CMI) Adjustment (Column 10)
M. Effects of Policy on Payment Adjustments for Low-Volume
Hospitals
N. 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 Policy Change Relating to New Medical
Service and Technology Add-On Payments
C. Effects of Proposed Requirements for Hospital Reporting of
Quality Data for Annual Hospital Payment Update
D. Effects of Correcting the FY 2002-Based Hospital-Specific
Rates for MDHs
E. Effects of Proposed Policy Changes Relating to DSH Payment
Adjustment
F. Effects of Proposed Policy Changes Related to Direct GME
G. Effects of Proposed Policy Changes Relating to Hospital
Emergency Services under EMTALA
H. Effects of Proposed Policy Changes Relating to Payments to
CAHs
I. Effects of Proposed Policy Changes Relating to Provider-Based
Status of Facilities and Organizations
J. Effects of Proposed Policy Changes Relating to Criteria for
Satellite Facilities of Hospitals
K. Effects of Implementation of Rural Community Hospital
Demonstration Program
VIII. Effects of Proposed Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Effects of Proposed Payment Rate Changes and Policy Changes
Under the LTCH PPS
A. Introduction and General Considerations
B. Impact on Rural Hospitals
C. Anticipated Effects of Proposed LTCH PPS Payment Rate Change
and Policy Changes
D. Effect on the Medicare Program
E. Effect on Medicare Beneficiaries
X. Alternatives Considered
XI. Overall Conclusion
A. Acute Care Hospitals
B. LTCHs
XII. Accounting Statements
A. Acute Care Hospitals
B. LTCHs
XIII. 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 2010
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare

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.

[[Page 24086]]

This add-on payment, known as the disproportionate share hospital (DSH)
adjustment, provides for a percentage increase in Medicare payments to
hospitals that qualify under either of two statutory formulas designed
to identify hospitals that serve a disproportionate share of low-income
patients. For qualifying hospitals, the amount of this adjustment may
vary based on the outcome of the statutory calculations.
If the hospital is an approved teaching hospital, it receives a
percentage add-on payment for each case paid under the IPPS, known as
the indirect medical education (IME) adjustment. This percentage
varies, depending on the ratio of residents to beds.
Additional payments may be made for cases that involve new
technologies or medical services that have been approved for special
add-on payments. To qualify, a new technology or medical service must
demonstrate that it is a substantial clinical improvement over
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG
payment.
The costs incurred by the hospital for a case are evaluated to
determine whether the hospital is eligible for an additional payment as
an outlier case. This additional payment is designed to protect the
hospital from large financial losses due to unusually expensive cases.
Any eligible outlier payment is added to the DRG-adjusted base payment
rate, plus any DSH, IME, and new technology or medical service add-on
adjustments.
Although payments to most hospitals under the IPPS are made on the
basis of the standardized amounts, some categories of hospitals are
paid in whole or in part based on their hospital-specific rate 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 highest of FY 1982, FY 1987, FY 1996, or FY
2006) or the IPPS Federal rate based on the standardized amount.
Through and including FY 2006, a Medicare-dependent, small rural
hospital (MDH) received the higher of the Federal rate or the Federal
rate plus 50 percent of the amount by which the Federal rate is
exceeded by the higher of its FY 1982 or FY 1987 hospital-specific
rate. As discussed below, for discharges occurring on or after October
1, 2007, but before October 1, 2011, an MDH will receive the higher of
the Federal rate or the Federal rate plus 75 percent of the amount by
which the Federal rate is exceeded by the highest of its FY 1982, FY
1987, or FY 2002 hospital-specific rate. SCHs are the sole source of
care in their areas, and MDHs are a major source of care for Medicare
beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii)
of the Act defines an SCH as a hospital that is located more than 35
road miles from another hospital or that, by reason of factors such as
isolated location, weather conditions, travel conditions, or absence of
other like hospitals (as determined by the Secretary), is the sole
source of hospital inpatient services reasonably available to Medicare
beneficiaries. In addition, certain rural hospitals previously
designated by the Secretary as essential access community hospitals are
considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as
a hospital that is located in a rural area, has no more than 100 beds,
is not an SCH, and has a high percentage of Medicare discharges (not
less than 60 percent of its inpatient days or discharges in its cost
reporting year beginning in FY 1987 or in two of its three most
recently settled Medicare cost reporting years). Both of these
categories of hospitals are afforded this special payment protection in
order to maintain access to services for beneficiaries.
Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient hospital services ``in accordance
with a prospective payment system established by the Secretary.'' The
basic methodology for determining capital prospective payments is set
forth in our regulations at 42 CFR 412.308 and 412.312. Under the
capital IPPS, payments are adjusted by the same DRG for the case as
they are under the operating IPPS. Capital IPPS payments are also
adjusted for IME and DSH, similar to the adjustments made under the
operating IPPS. We began phasing out the capital IPPS IME adjustment in
FY 2008, as discussed in section VI.B.2. of this preamble. However,
section 4301(b)(1) of the American Recovery and Reinvestment Act of
2009 (Pub. L. 111-5), enacted on February 17, 2009, requires that the
50-percent reduction in the capital IPPS teaching adjustment for FY
2009 specified in the regulations at Sec. 412.322(c) shall not be
applied. Section 4301(b)(2) of Public Law 111-5 specifies that, for
subsequent years, the change made by section 4301(b)(1) has no effect
on the capital teaching adjustment. Therefore, beginning in FY 2010,
there will no longer be a capital teaching adjustment under the capital
IPPS. The provisions of section 4301(b) of Public Law 111-5 are
discussed in sections VI.A. and E. of this preamble. In addition,
hospitals may receive outlier payments for those cases that have
unusually high costs.
The existing regulations governing payments to hospitals under the
IPPS are located in 42 CFR Part 412, Subparts A through M.
2. Hospitals and Hospital Units Excluded from the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain
hospitals and hospital units are excluded from the IPPS. These
hospitals and units are: Rehabilitation hospitals and units; long-term
care hospitals (LTCHs); psychiatric hospitals and units; children's
hospitals; and cancer hospitals. Religious nonmedical health care
institutions (RNHCIs) are also excluded from the IPPS. Various sections
of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare,
Medicaid and SCHIP [State Children's Health Insurance Program] Balanced
Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs
for rehabilitation hospitals and units (referred to as inpatient
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and
units (referred to as inpatient psychiatric facilities (IPFs)). (We
note that the proposed annual updates to the LTCH PPS are now included
as part of the IPPS annual update document (for RY 2010, in this
proposed rule). Updates to the IRF PPS and IPF PPS are issued as
separate documents.) Children's hospitals, cancer hospitals, and RNHCIs
continue to be paid solely under a reasonable cost-based system subject
to a rate-of-increase ceiling on inpatient operating costs per
discharge.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR Parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
The Medicare prospective payment system (PPS) for LTCHs applies to
hospitals described in section 1886(d)(1)(B)(iv) effective for cost
reporting periods beginning on or after October 1, 2002. The LTCH PPS
was established under the authority of sections 123(a) and (c) of
Public Law 106-113 and section 307(b)(1) of Public Law 106-554. During
the 5-year (optional) transition period, a LTCH's payment under the PPS
was based on an increasing proportion of the LTCH Federal rate with a
corresponding decreasing proportion based on reasonable cost
principles. Effective for

[[Page 24087]]

cost reporting periods beginning on or after October 1, 2006, all LTCHs
are paid 100 percent of the Federal rate. The existing regulations
governing payment under the LTCH PPS are located in 42 CFR Part 412,
Subpart O. Beginning with RY 2010, we are issuing the annual updates to
the LTCH PPS in the same documents that update the IPPS (73 FR 26797
through 26798).
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and 1834(g) of the Act, payments are
made to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services are generally based on 101 percent of reasonable
cost. Reasonable cost is determined under the provisions of section
1861(v)(1)(A) of the Act and existing regulations under 42 CFR Parts
413 and 415.
5. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational
activities are excluded from the operating costs of inpatient hospital
services. Hospitals with approved graduate medical education (GME)
programs are paid for the direct costs of GME in accordance with
section 1886(h) of the Act. The amount of payment for direct GME costs
for a cost reporting period is based on the hospital's number of
residents in that period and the hospital's costs per resident in a
base year. The existing regulations governing payments to the various
types of hospitals are located in 42 CFR Part 413.

B. Provisions of the Medicare Improvements for Patients and Providers
Act of 2008 (MIPPA)

Section 148 of the MIPPA (Pub. L. 110-275) changes the payment
rules regarding outpatient clinical diagnostic laboratory tests
furnished by a CAH. The statutory change applies to services furnished
on or after July 1, 2009. In section VI.C.2. of the preamble of this
proposed rule, we discuss our proposal to codify policies in the
Medicare regulations to implement this provision.

C. Provisions of the American Recovery and Reinvestment Act of 2009
(ARRA)

Section 4301(b) of the American Recovery and Reinvestment Act of
2009 (AARA), Public Law 111-5, enacted on February 17, 2009, requires
that the phase-out of the capital IPPS teaching adjustment at Sec.
412.322(c) (that is, the 50-percent reduction for FY 2009) shall be
applied, as if such paragraph had not been in effect. Section 4301(b)
of Public Law 111-5 also specifies that there will be no effect on the
phase-out of the capital teaching adjustment for subsequent years, such
that, for discharges occurring during FY 2010 and thereafter, there
will no longer be a teaching adjustment under the capital IPPS as is
currently specified at Sec. 412.322(d). We discuss the proposed
implementation of these provisions in section VI.A. and E. of the
preamble of this proposed rule.
Section 4302 of Public Law 111-5 included several amendments to
provisions of section 114 of the MMSEA relating to (1) the 3-year delay
in the application of certain provisions of the payment adjustments for
short-stay outliers and revision to the RY 2008 standard Federal rate
for LTCHs; and (2) the 3-year moratorium on the establishment of new
LTCHs and LTCH satellite facilities and on increases in beds in
existing LTCHs and LTCH satellite facilities. We discuss the proposed
implementation of these provisions in sections I.E. and VIII. of the
preamble of this proposed rule.

D. 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 of
acute care hospitals in FY 2010. 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 setting forth proposed
changes to the payment rates, factors, and other payment rate policies
under the LTCH PPS for RY 2010.
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 of this proposed rule, we are
including--
Proposed changes to MS-DRG classifications based on our
yearly review.
Proposed application of the documentation and coding
adjustment to hospital-specific rates for FY 2010 resulting from
implementation of the MS-DRG system.
A discussion of the Research Triangle International, Inc.
(RTI) and RAND Corporation reports and recommendations relating to
charge compression, including a solicitation of public comments on the
``over'' standardization of hospital charges.
Proposed recalibrations of the MS-DRG relative weights.
We are also presenting a listing and discussion of hospital-
acquired conditions (HACs), including infections, that are subject to
the statutorily required quality adjustment in MS-DRG payments for FY
2010.
We are presenting our evaluation and analysis of the FY 2010
applicants for add-on payments for high-cost new medical services and
technologies (including public input, as directed by Pub. L. 108-173,
obtained in a town hall meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
In section III. of the preamble to this proposed rule, we are
proposing revisions to the wage index for acute care hospitals and the
annual update of the wage data. Specific issues addressed include the
following:
Second year of the 3-year transition from national to
within-State budget neutrality for the rural floor and imputed floor.
Final year of the 2-year transition for changes in the
average hourly wage criterion for geographic reclassifications.
Changes to the CBSA designations.
The proposed FY 2010 wage index update using wage data
from cost reporting periods that began during FY 2007.
Analysis and implementation of the proposed FY 2010
occupational mix adjustment to the wage index for acute care hospitals,
including the use of data from the 2007-2008 occupational mix survey.
Proposed revisions to the wage index for acute care
hospitals based on hospital redesignations and reclassifications.
The proposed adjustment to the wage index for acute care
hospitals for FY 2010 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 2010 wage index for acute care
hospitals.
3. Proposed Rebasing and Revision of the Hospital Market Basket for
Acute Care Hospitals
In section IV. of the preamble of this proposed rule, we are
proposing to rebase and revise the acute care hospital operating and
capital market baskets to be used in developing the FY 2010 update
factor for the operating and capital prospective payment rates and the
FY 2010 update factor for the

[[Page 24088]]

excluded hospital rate-of-increase limits. We also are setting forth
the data sources used to determine the proposed revised market basket
relative weights.
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
In section V. of the preamble of this proposed rule, we discuss a
number of the provisions of the regulations in 42 CFR Parts 412, 413,
and 489, including the following:
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Discussion of applying the correct budget neutrality
adjustment for the FY 2002-based hospital-specific rates for 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
2010.
Proposed changes to the policies governing payments to
Medicare disproportionate share hospitals, including proposed policies
relating to the inclusion of labor and delivery patient days in the
calculation of the DSH payment adjustment, calculation of inpatient
days in the Medicaid fraction for the Medicare DSH calculation, and
exclusion of observation beds and patient days from the Medicare DSH
calculation and from the bed count for the IME adjustment.
Proposed changes to the policies governing payment for
direct GME.
Proposed changes to policies on hospital emergency
services under EMTALA relating to the applicability of sanctions under
EMTALA.
Discussion of the implementation of the Rural Community
Hospital Demonstration Program in FY 2010.
Proposed technical correction to the regulations governing
the calculation of the Federal rate under the IPPS.
5. FY 2010 Policy Governing the IPPS for Capital-Related Costs
In section VI. of the preamble to this proposed rule, we discuss
the payment policy requirements for capital-related costs and capital
payments to hospitals for FY 2010. We also are proposing to remove a
section of the regulations relating to the phase-out of the capital IME
adjustment for FY 2009 to implement the provisions of section 4301(b)
of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5).
6. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
In section VII. of the preamble of this proposed rule, we discuss--
Proposed changes to payments to excluded hospitals.
Proposed changes to the regulations governing satellite
facilities of hospitals.
Proposed changes relating to payments to CAHs, including
payment for clinical laboratory tests furnished by CAHs and payment for
outpatient facility services when a CAH elects the optional payment
method.
Proposed changes to the rules governing provider-based
status of facilities and a proposed technical correction to the
regulations governing provider-based entities.
7. Proposed Changes to the LTCH PPS
In section VIII.A. through C. and F. of the preamble of this
proposed rule, we set forth proposed changes to the payment rates,
factors, and other payment rate policies under the LTCH PPS for RY
2010, including the annual update of the MS-LTC-DRG classifications and
relative weights for use under the LTCH PPS for RY 2010, the proposed
use of the FY 2002-based RPL market basket for LTCHs, and proposed
technical corrections to the LTCH PPS regulations.
In section VIII.D. of the preamble of this proposed rule, we
discuss our ongoing monitoring protocols under the LTCH PPS. In section
VIII.E., we discuss the Research Triangle Institute, International
(RTI) Phase III Report on its evaluation of the feasibility of
establishing facility and patient criteria for LTCHs, as recommended by
MedPAC in its June 2004 Report to Congress.
8. Determining Proposed Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits for Acute Care Hospitals
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the proposed FY 2010
prospective payment rates for operating costs and capital-related costs
for acute care hospitals. 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 2010 for hospitals excluded from the IPPS.
9. Determining Proposed Prospective Payment Rates for LTCHs
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the proposed RY 2010
prospective standard Federal rate. We also establish the proposed
adjustments for wage levels, the labor-related share, the cost-of-
living adjustment, and high-cost outliers, including the fixed-loss
amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.
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 acute care
hospitals and LTCHs.
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
In Appendix B of this proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the
appropriate percentage changes for FY 2010 for the following:
A single average standardized amount for all areas for
hospital inpatient services paid under the IPPS for operating costs of
acute care hospitals (and hospital-specific rates applicable to SCHs
and MDHs).
Target rate-of-increase limits to the allowable operating
costs of hospital inpatient services furnished by certain hospitals
excluded from the IPPS.
The standard Federal rate for hospital inpatient services
furnished by LTCHs.
12. 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 hospital inpatient
operating costs and capital-related costs under the IPPS, for hospitals
and distinct part hospital units excluded from the IPPS, and for LTCHs.
We address these recommendations in Appendix B of this proposed rule.
For further information relating specifically to the MedPAC March 2008
report or to obtain a copy of the report, contact MedPAC at (202) 220-
3700 or visit MedPAC's Web site at: http://www.medpac.gov.

[[Page 24089]]

E. Public Comments Received on Two LTCH PPS Interim Final Rules With
Comment Period Issued in 2008

On May 6, 2008 and May 22, 2008, we issued in the Federal Register
two interim final rules with comment periods relating to the LTCH PPS
(73 FR 24871 and 73 FR 29699, respectively), which implement section
114 of Public Law 110-173 (MMSEA). The May 6, 2008 interim final rule
with comment period implemented provisions of section 114 of Public Law
110-173 relating to a 3-year delay in the application of certain
provisions of the payment adjustment for short-stay outliers and
revisions to the RY 2008 standard Federal rate for LTCHs. The May 22,
2008 interim final rule with comment period implemented certain
provisions of section 114 of Public Law 110-173 relating to a 3-year
moratorium on the establishment of new LTCHs and LTCH satellite
facilities and on increases in beds in existing LTCHs and LTCH
satellite facilities. The May 22, 2008 interim final rule with comment
period also implemented a 3-year delay in the application of certain
payment policies that apply to payment adjustments for discharges from
LTCHs and LTCH satellite facilities that were admitted from certain
referring hospitals in excess of various percentage thresholds.
Section 4302 of the American Recovery and Reinvestment Act of 2009
(ARRA, Pub. L. 111-5) included several amendments to section 114 of
Public Law 110-173. We have issued instructions to the fiscal
intermediaries and Medicare administrative contractors (MACs) to
interpret these amendments (Change Request 6444). We intend to
implement the provisions of section 4302 of Public Law 111-5 by issuing
an interim final rule with comment period along with the FY 2010 IPPS
and RY 2010 LTCH PPS final rule that is scheduled for publication in
August 2009. In the FY 2010 IPPS and RY 2010 LTCH PPS final rule, we
also intend to respond to the public comments that we received on the
two interim final rules with comment period noted above and finalize
those provisions, as appropriate.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as 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 severity of
illness into account 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 other DRGs across 13 different clinical
areas involving nearly 1.7 million cases. As described in more detail
below, these refinements were intermediate steps towards comprehensive
reform of both the relative weights and the DRG system 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, based on severity levels of
illness, was established (72 FR 47141).
---------------------------------------------------------------------------

\1\ Medicare Payment Advisory Commission: Report to the
Congress, Physician-Owned Specialty Hospitals, March 2005, page
viii.
---------------------------------------------------------------------------

Currently, cases are classified into MS-DRGs for payment under the
IPPS based on the following information reported by the hospital: 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 developing 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 formulated 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. 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 2009, cases are assigned to one of 746 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.

[[Page 24090]]

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
13 MS-DRGs to 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 tracheostomies. Cases are
assigned to these MS-DRGs before they are classified to an MDC. The
table below lists the 13 current pre-MDCs.

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

------------------------------------------------------------------------
MS-DRG 001........................ Heart Transplant or Implant of Heart
Assist System with MCC.
MS-DRG 002........................ Heart Transplant or Implant of Heart
Assist System without MCC.
MS-DRG 003........................ ECMO or Tracheostomy with Mechanical
Ventilation 96+ Hours or Principal
Diagnosis Except for Face, Mouth,
and Neck Diagnosis with Major O.R.
MS-DRG 004........................ Tracheostomy with Mechanical
Ventilation 96+ Hours or Principal
Diagnosis Except for Face, Mouth,
and Neck Diagnosis with Major O.R.
MS-DRG 005........................ Liver Transplant with MCC or
Intestinal Transplant.
MS-DRG 006........................ Liver Transplant without MCC.
MS-DRG 007........................ Lung Transplant.
MS-DRG 008........................ Simultaneous Pancreas/Kidney
Transplant.
MS-DRG 009........................ Bone Marrow Transplant.
MS-DRG 010........................ Pancreas Transplant.
MS-DRG 011........................ Tracheostomy for Face, Mouth, and
Neck Diagnoses with MCC.
MS-DRG 012........................ Tracheostomy for Face, Mouth, and
Neck Diagnoses with CC.
MS-DRG 013........................ Tracheostomy for Face, Mouth, and
Neck Diagnoses without CC/MCC.
------------------------------------------------------------------------

Once the MDCs were defined, each MDC was evaluated to identify
those additional patient characteristics that would have a consistent
effect on hospital resource consumption. 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 hospital resource consumption.
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

[[Page 24091]]

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
improvements in the DRG system to recognize severity of illness and
resource usage by adopting MS-DRGs that were reflected in the FY 2008
GROUPER, Version 25.0, and were effective for discharges occurring on
or after October 1, 2007. Our MS-DRG analysis for the FY 2009 final
rule was based on data from the March 2008 update of the FY 2007 MedPAR
file, which contained hospital bills received through March 31, 2008,
for discharges occurring through September 30, 2007. For this proposed
rule, for FY 2010, our MS-DRG analysis is based on data from the
September 2008 update of the FY 2008 MedPAR file, which contains
hospital bills received through September 30, 2008, for discharges
occurring through September 30, 2008.
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 comments about MS-DRG
classifications to submit these comments no later than early December
of each year 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 timetable for
interested parties to submit non-MedPAR data for consideration in the
MS-DRG recalibration process, comments about MS-DRG classification
issues should be submitted 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). Based on public comments received on the FY 2007
IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007
IPPS final rule (71 FR 47906 through 47912), we discussed several
concerns raised by commenters regarding the proposal to adopt CS DRGs.
We acknowledged the many comments suggesting the logic of Medicare's
DRG system should continue to remain in the public domain as it has
since the inception of the PPS. We also acknowledged concerns about the
impact on hospitals and software vendors of moving to a proprietary
system. Several commenters suggested that CMS refine the existing DRG
classification system to preserve the many policy decisions that were
made over the last 20 years and were already incorporated into the DRG
system, such as complexity of services and new device technologies.
Consistent with the concerns expressed in the public comments, this
option had the advantage of using the existing DRGs as a starting point
(which was already familiar to the public) and retained the benefit of
many DRG decisions that were made in recent years. We stated our belief
that the suggested approach of incorporating severity measures into the
existing DRG system was a viable option that would be evaluated.
Therefore, 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 represented a
number of body systems. In creating these 20 new DRGs, we deleted 8
existing DRGs 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 (71 FR 47898), 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 FY 2009, and our proposals for FY 2010 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

[[Page 24092]]

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 2010 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 were
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 discussion of the issue of
charge compression and the HSRV cost-weighting methodology for FY 2010.
We believe that revisions to the DRG system to better recognize
severity of 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 to make in this proposed rule for FY 2010 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. Proposed FY 2010 MS-DRG Documentation and Coding Adjustment,
Including the Applicability to the Hospital-Specific Rates and the
Puerto Rico-Specific Standardized Amount

1. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
As we discussed earlier in this preamble, we adopted the MS-DRG
patient classification system for the IPPS, effective October 1, 2007,
to better recognize severity of illness in Medicare payment rates for
acute care hospitals. The adoption of the MS-DRG system resulted in the
expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008
(currently, 746 DRGs, which include 1 additional MS-DRG created in FY
2009). By increasing the number of DRGs and more fully taking into
account patients' severity of illness in Medicare payment rates for
acute care hospitals, the use of MS-DRGs encourages hospitals to
improve their documentation and coding of patient diagnoses. In the FY
2008 IPPS final rule with comment period (72 FR 47175 through 47186),
we indicated that 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 additional documentation and coding. In that final rule
with comment period, we exercised our authority under section
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget
neutrality by adjusting the national standardized amount to eliminate
the estimated effect of changes in coding or classification that do not
reflect real changes in case-mix. Our actuaries estimated that
maintaining budget neutrality required an adjustment of -4.8 percent to
the national standardized amount. We phased in this -4.8 percent
adjustment over 3 years. Specifically, we established prospective
documentation and coding adjustments of -1.2 percent for FY 2008, -1.8
percent for FY 2009, and -1.8 percent for FY 2010.
On September 29, 2007, Congress enacted the TMA [Transitional
Medical Assistance], Abstinence Education, and QI [Qualifying
Individuals] Programs Extension Act of 2007, Public Law 110-90. Section
7(a) of Public Law 110-90 reduced the documentation and coding
adjustment made as a result of the MS-DRG system that we adopted in the
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008
and -0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not
adjust the FY 2010 -1.8 percent documentation and coding adjustment
promulgated in the FY 2008 IPPS final rule with comment period. To
comply with section 7(a) of Public Law 110-90, we promulgated a final
rule on November 27, 2007 (72 FR 66886) that modified the IPPS
documentation and coding adjustment for FY 2008 to -0.6 percent, and
revised the FY 2008 payment rates, factors, and thresholds accordingly.
These revisions were effective on October 1, 2007.
For FY 2009, section 7(a) of Public Law 110-90 required a
documentation and coding adjustment of -0.9 percent instead of the -1.8
percent adjustment established in the FY 2008 IPPS final rule with
comment period. As discussed in the FY 2009 IPPS final rule (73 FR
48447) and required by statute, we applied a documentation and coding
adjustment of -0.9 percent to the FY 2009 IPPS national standardized
amount. The documentation and coding adjustments established in the FY
2008 IPPS final rule with comment period, as amended by Public Law 110-
90, are cumulative. As a result, the -0.9 percent documentation and
coding

[[Page 24093]]

adjustment for FY 2009 was in addition to the -0.6 percent adjustment
for FY 2008, yielding a combined effect of -1.5 percent.
2. Prospective Adjustment to the Average Standardized Amounts Required
by Section 7(b)(1)(A) of Public Law 110-90
Section 7(b)(1)(A) of Public Law 110-90 requires that if the
Secretary determines that implementation of the MS-DRG system resulted
in changes in documentation and coding that did not reflect real
changes in case-mix for discharges occurring during FY 2008 or FY 2009
that are different than the prospective documentation and coding
adjustments applied under section 7(a) of Public Law 110-90, the
Secretary shall make an appropriate adjustment under section
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act
authorizes adjustments to the average standardized amounts for
subsequent fiscal years in order to eliminate the effect of such coding
or classification changes. These adjustments are intended to ensure
that future annual aggregate IPPS payments are the same as the payments
that otherwise would have been made had the prospective adjustments for
documentation and coding applied in FY 2008 and FY 2009 reflected the
change that occurred in those years.
3. Recoupment or Repayment Adjustments in FYs 2010 through 2012
Required by Public Law 110-90
If, based on a retroactive evaluation of claims data, the Secretary
determines that implementation of the MS-DRG system resulted in changes
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are
different from the prospective documentation and coding adjustments
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of
Public Law 110-90 requires the Secretary to make an additional
adjustment to the standardized amounts under section 1886(d) of the
Act. This adjustment must offset the estimated increase or decrease in
aggregate payments for FYs 2008 and 2009 (including interest) resulting
from the difference between the estimated actual documentation and
coding effect and the documentation and coding adjustment applied under
section 7(a) of Public Law 110-90. This adjustment is in addition to
making an appropriate adjustment to the standardized amounts under
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A)
of Public Law 110-90. That is, these adjustments are intended to recoup
(or repay) spending in excess of (or less than) spending that would
have occurred had the prospective adjustments for changes in
documentation and coding applied in FY 2008 and FY 2009 precisely
matched the changes that occurred in those years. Public Law 110-90
requires that the Secretary make these recoupment or repayment
adjustments for discharges occurring during FYs 2010, 2011, and 2012.
4. Retrospective Evaluation of FY 2008 Claims Data
In order to implement the requirements of section 7 of Public Law
110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that
we planned a thorough retrospective evaluation of our claims data. We
stated that the results of this evaluation would be used by our
actuaries to determine any necessary payment adjustments to the
standardized amounts under section 1886(d) of the Act beginning in FY
2010 to ensure the budget neutrality of the MS-DRGs implementation for
FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed
rule (73 FR 23541 through 23542), we described our preliminary plan for
a retrospective analysis of inpatient hospital claims data and invited
public input on our proposed methodology.
In that proposed rule, we indicated that we intended to measure and
corroborate the extent of the overall national average changes in case-
mix for FY 2008 and FY 2009. We expected that the two largest parts of
this overall national average change would be attributable to
underlying changes in actual patient severity and to documentation and
coding improvements under the MS-DRG system. In order to separate the
two effects, we planned 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 MS-DRGs divide the base DRGs into three severity levels (with
MCC, with CC and without CC); the previously used CMS DRGs had only two
severity levels (with CC and without CC). Under the CMS DRG system, the
majority of hospital discharges had a secondary diagnosis which was on
the CC list, which led to the higher severity level. The MS-DRGs
significantly changed the code lists of what was classified as an MCC
or a CC. Many codes that were previously classified as a CC are no
longer included on the MS-DRG CC list because the data and clinical
review showed these conditions did not lead to a significant increase
in resource use. The addition of a new level of high severity
conditions, the MCC list, also provided a new incentive to code more
precisely in order to increase the severity level. We anticipated that
hospitals would examine the MS-DRG MCC and CC code lists and then work
with physicians and coders on documentation and coding practices so
that coders could appropriately assign codes from the highest possible
severity level. We note that there have been numerous seminars and
training sessions on this particular coding issue. The topic of
improving documentation practices in order to code conditions on the
MCC list was also discussed extensively by participants at the March
11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting.
Participants discussed their hospitals' efforts to encourage physicians
to provide more precise documentation so that coders could
appropriately assign codes that would lead to a higher severity level.
Because we expected most of the documentation and coding changes under
the MS-DRG system would occur in the secondary diagnoses, we believed
that the shifts among base DRGs were less likely to be the result of
the MS-DRG system and the shifts within base DRGs were more likely to
be the result of the MS-DRG system. We also anticipated evaluating data
to identify the specific MS-DRGs and diagnoses that contributed
significantly to the documentation and coding payment effect and to
quantify their impact. This step entailed analysis of the secondary
diagnoses driving the shifts in severity within specific base DRGs.
In that same proposed rule, we also stated that, 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 changes, we might decide, if feasible, to use
historical data from our Hospital Payment Monitoring Program (HPMP) to
corroborate the within-base DRG shift analysis. The HPMP is supported
by the Medicare Clinical Data Abstraction Center (CDAC).
In the FY 2009 IPPS proposed rule, we solicited public comments on
the analysis plans described above, as well as suggestions on other
possible approaches for performing 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.
A few commenters, including MedPAC, expressed support for the

[[Page 24094]]

analytic approach described in the FY 2009 IPPS proposed rule. A number
of other commenters expressed concerns about certain aspects of the
approach and/or suggested alternate analyses or study designs. In
addition, one commenter recommended that any determination or
retrospective evaluation by the actuaries of the impact of the MS-DRGs
on case-mix be open to public scrutiny prior to the implementation of
the payment adjustments beginning in FY 2010.
We took these comments into consideration as we developed our
proposed analysis plan (described in greater detail below) and in this
proposed rule are seeking comment on our methodology. We performed a
retrospective evaluation of the FY 2008 data for claims paid through
December 2008. Based on this evaluation, our actuaries have determined
that implementation of the MS-DRG system resulted in a 2.5 percent
change due to documentation and coding that did not reflect real
changes in case-mix for discharges occurring during FY 2008.
In performing this analysis, we first divided the case-mix index
(CMI) obtained by grouping the FY 2008 claims data through the FY 2008
GROUPER (Version 25.0) by the CMI obtained by grouping these same FY
2008 claims through the FY 2007 GROUPER (Version 24.0). This resulted
in a value of 1.028. Because these cases are the same FY 2008 cases
grouped using the Versions 24.0 and 25.0 of the GROUPER, we attribute
this increase primarily to two factors: (1) The effect of changes in
documentation and coding under the MS-DRG system; and (2) the
measurement effect from the calibration of the GROUPER. We estimated
the measurement effect from the calibration of the GROUPER by dividing
the CMI obtained by grouping cases in the FY 2007 claims data through
the FY 2008 GROUPER by the CMI obtained by grouping cases in these same
claims through the FY 2007 GROUPER. This resulted in a value of 1.003.
In order to isolate the documentation and coding effect, we then
divided the combined effect of the changes in documentation and coding
and measurement (1.028) by the measurement effect (1.003) to yield
1.025. Therefore, our estimate of the documentation and coding increase
is 2.5 percent.
We then sought to corroborate this 2.5 percent estimate by
examining the increases in the within-base DRGs as compared to the
increases in the across base DRGs as described earlier in our analysis
plan. In other words, we looked for improvements in code selection that
would lead to a secondary diagnosis increasing the severity level to
either a CC or an MCC level.
We found that the within-base DRG increases were almost entirely
responsible for the case-mix change, supporting our conclusion that the
2.5 percent estimate was an accurate reflection of the FY 2008 effect
of changes in documentation and coding under the MS-DRG system. In
fact, almost every base DRG that was split into different severity
levels under the MS-DRG system experienced increases in the within-base
DRGs. In Figure 1 below, we show that, between FY 2007 and FY 2008,
there was a 5 percentage point increase in the discharges with an MCC
from 21 percent to 26 percent and a corresponding decrease of 5
percentage points from 56 percent to 51 percent in discharges without a
CC or an MCC.
[GRAPHIC] [TIFF OMITTED] TP22MY09.000

We then further analyzed the changes in the within-base DRGs to
determine which MS-DRGs had the highest contributions to this increase.
Consistent with the expectations of our medical coding experts
concerning areas with potential for documentation and coding
improvements, the top contributors were heart failure, chronic
obstructive pulmonary disease, and simple pneumonia and pleurisy. In
fact, the coding of heart failure was discussed extensively at the
March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee
meeting. Heart failure is a very common secondary diagnosis among
Medicare hospital admissions. The heart failure codes are assigned to
all three severity levels. Some are classified as non-CCs, while others
are on the CC and MCC lists. By changing physician documentation to
more precisely identify the type of heart failure, coders are able to
appropriately change the severity level of cases from the lowest level
(non-CC) to a higher severity level (CC or MCC). This point was
stressed repeatedly at the March 11-12, 2009 ICD-9-CM Coordination and
Maintenance Committee meeting as coders discussed their work with
physicians on this coding issue. Many of the participants indicated
that

[[Page 24095]]

additional work was still needed with their physicians in order to
document conditions in the medical record more precisely.
The results of this analysis provides additional support for our
conclusion that the 2.5 percent estimate accurately reflects the FY
2008 increases in documentation and coding under the MS-DRG system.
While we attempted to use the CDAC data to distinguish real
increase in case-mix growth from documentation and coding in the
overall case-mix number, we found aberrant data and significant
variation across the FY 1999-FY 2007 analysis period. It was not
possible to distinguish changes in documentation and coding from
changes in real case-mix in the CDAC data. Therefore, we concluded that
the CDAC data would not support analysis of real case-mix growth that
could be used in our retrospective evaluation of the FY 2008 claims
data.
Although we could not use the CDAC data, we did examine the overall
growth in case-mix using the FY 2007 claims data in which we grouped
cases using the FY 2007 GROUPER and the FY 2008 data in which we
grouped cases using the FY 2008 GROUPER. We found the overall growth in
case-mix was 1.9 percent. The implication of overall FY 2008 case-mix
growth of 1.9 percent relative to our estimate of the FY 2008
documentation and coding effect and the GROUPER measurement effect is
that real case-mix declined between FY 2007 and FY 2008. After
additional data analysis, our actuaries determined that the 1.9 percent
growth in overall case-mix was consistent with our 2.5 percent estimate
of the FY 2008 documentation and coding effect for reasons that
included: (1) Our mathematical model for determining the 2.5 percent
documentation and coding effect was corroborated by the amount of case-
mix growth attributed to within-DRG improvements in secondary coding of
MCCs and CCs; (2) our data analysis confirmed the substitution of
specified diagnosis for unspecified diagnoses for such common
conditions as heart failure and chronic obstructive pulmonary disease;
and (3) there was a relative decline in above average cost short-stay
surgical cases that can be performed on an outpatient basis, such as
certain high volume pacemaker procedures.
We also examined the differences in case-mix between the FY 2008
claims data in which cases were grouped through the FY 2008 GROUPER
(Version 25.0) and the FY 2009 GROUPER (Version 26.0). This was to help
inform analysis of the potential for increase in the documentation and
coding effect in FY 2009. In FY 2008, we were transitioning to the
fully implemented MS-DRG relative weights and the fully implemented
cost-based weights. We found that the use of the transition weights
mitigated the FY 2008 documentation and coding effect on expenditures.
Using the FY 2009 relative weights, the documentation and coding effect
would have been an estimated 3.2 percent in FY 2008 instead of our
estimated 2.5 percent. Even assuming no continued improvement in
documentation and coding in FY 2009, we estimate that the use of the FY
2009 relative weights will result in an additional 0.7 percent
documentation and coding effect in FY 2009. After taking into account
the results of our FY 2008 analysis and the expertise of our coding
staff, our actuaries continue to estimate that the cumulative overall
effect of documentation and coding improvements under the MS-DRG system
will be 4.8 percent. However, our actuaries estimate that these
improvements will be substantially complete by the end of FY 2009.
Therefore, our current estimate of the FY 2009 MS-DRG documentation and
coding effect is 2.3 percent.
As in prior years, the FY 2008 MedPAR files are available to the
public to allow independent analysis of the FY 2008 documentation and
coding effect. Interested individuals may order these files by going to
the Web site at http://www.cms.hhs.gov/LimitedDataSets/ and clicking on
MedPAR Limited Data Set (LDS)-Hospital (National). This Web page will
describe the file and provide directions and further detailed
instructions for how to order.
Persons placing an order must send the following: a Letter of
Request, the LDS Data Use Agreement and Research Protocol (refer to the
Web site for further instructions), the LDS Form, and a check for
$3,655 to: Mailing address if using the U.S. Postal Service: Centers
for Medicare & Medicaid Services, RDDC Account, Accounting Division,
P.O. Box 7520, Baltimore, MD 21207-0520. Mailing address if using
express mail: Centers for Medicare & Medicaid Services, OFM/Division of
Accounting--RDDC, 7500 Security Boulevard, C3-07-11, Baltimore, MD
21244-1850.
We are seeking public comment on our methodology and analysis. We
intend to update our analysis with FY 2008 data on claims paid through
March 2008 in the FY 2010 IPPS final rule.
5. Proposed Adjustments for FY 2010 and Subsequent Years Authorized by
Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of
the Act
The estimated 2.5 percent change in FY 2008 case-mix due to changes
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 exceeded the -0.6 percent
prospective documentation and coding adjustment applied under section
7(a) of Public Law 110-90 by 1.9 percentage points. Under section
7(B)(1)(a) of Public Law 119-90, the Secretary is required to make an
appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act to
the average standardized amounts for subsequent fiscal years in order
to eliminate the full effect of the documentation and coding changes.
In addition, we note that the Secretary has the authority to make this
prospective adjustment in FY 2010 under section 1886(d)(3)(A)(vi) of
the Act. As we have consistently stated since the initial
implementation of the MS-DRG system, we do not believe it is
appropriate for expenditures to increase due to MS-DRG-related changes
in documentation and coding that do not reflect real changes in case-
mix.
Therefore, we are proposing to change the average standardized
amounts under section 1886(d) of the Act in FY 2010 by -1.9 percent,
the difference between the changes in documentation and coding that do
not reflect real changes in case-mix for discharges occurring during FY
2008 and the prospective adjustment applied under section 7 of Public
Law 110-90. We are proposing to leave this adjustment in place for
subsequent fiscal years in order to ensure that changes in
documentation and coding resulting from the adoption of the MS-DRGs do
not lead to an increase in aggregate payments not reflective of an
increase in real case-mix.
We also estimate that the change in case-mix due to changes in
documentation and coding that do not reflect real changes in case-mix
for discharges occurring during FY 2009 will be 2.3 percent, which
would exceed by 1.4 percentage points the -0.9 percent prospective
documentation and coding adjustment for FY 2009 applied under section
7(a) of Public Law 100-90. We have the statutory authority to adjust
the FY 2010 rates for this estimated 1.4 percentage point increase.
However, given that Public Law 100-90 requires a retrospective claims
evaluation for the additional adjustments described in section II.D.6.
of this preamble, we believe our

[[Page 24096]]

evaluation of the extent of the overall national average changes in
case-mix for FY 2009 should also be based on a retrospective evaluation
of all FY 2009 claims data. Because we will not receive all FY 2009
claims data prior to publication of the final rule, we will address any
difference between the increase in FY 2009 case-mix due to changes in
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2009 and the -0.9 percent
prospective documentation and coding adjustment applied under section
7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.
We are seeking public comment on the proposed -1.9 percent
prospective adjustment to the standardized amounts under section
1886(d) of the Act to address the effects of documentation and coding
changes unrelated to changes in real case-mix in FY 2008. In addition,
we are seeking public comments on addressing in the FY 2011 rulemaking
cycle any differences between the increase in FY 2009 case-mix due to
changes in documentation and coding changes that do not reflect real
changes in case-mix for discharges occurring during FY 2009 and the -
0.9 percent prospective documentation and coding adjustment applied
under section 7(a) of Public Law 110-90.
6. Additional Adjustment for FY 2010 Authorized by Section 7(b)(1)(B)
of Public Law 110-90
As indicated above, the 2.5 percent change due to documentation and
coding that did not reflect real changes in case-mix for discharges
occurring during FY 2008 exceeded the -0.6 percent prospective
documentation and coding adjustment applied under section 7(a) of
Public Law 110-90 by 1.9 percentage points. Our actuaries currently
estimate that this 1.9 percentage point increase resulted in an
increase in aggregate payments of approximately $2.2 billion. As
described earlier, section 7(b)(1)(B) of Public Law 110-90 requires an
additional adjustment for discharges occurring in FYs 2010, 2011, and/
or 2012 to offset the estimated amount of this increase in aggregate
payments (including interest).
Although section 7(b)(1)(B) of Public Law 110-90 requires us to
make this adjustment in FYs 2010, 2011, and/or 2012, we have discretion
as to when during this 3 year period we will apply the adjustment. For
example, we could make adjustments to the standardized amounts under
section 1886(d) of the Act in FY 2010, 2011, and 2012. Alternatively,
we could delay offsetting the increase in FY 2008 aggregate payments by
applying the adjustment required under section 7(b)(1)(B) of Public Law
110-90 only to FYs 2011 and 2012.
We are not proposing to make an adjustment to FY 2010 to offset, in
whole or in part, the estimated increase in aggregate payments for
discharges occurring in FY 2008, but intend to address this issue in
future rulemaking for FYs 2011 and 2012. That is, we will address
recouping the additional expenditures that occurred in FY 2008 as a
result of the 1.9 percentage point difference between the actual
changes in documentation and coding that do not reflect real changes in
case-mix, or 2.5 percent, and the -0.6 percent adjustment applied under
Public Law 110-90 in FY 2011 and/or FY 2012, as required by law. While
we have the statutory authority to make this -1.9 percent recoupment
adjustment entirely in FY 2010, we are proposing to delay the
adjustment until FY 2011 and FY 2012 because we do not have any data
yet on the magnitude of the documentation and coding effect in FY 2009.
If the documentation and coding effect were less in FY 2009 than our
current estimates, it could lessen the anticipated recoupment
adjustment that we currently estimate we would have to make for FY 2008
and FY 2009 combined. As we have the authority to recoup the aggregate
effect of this 1.9 percentage point difference in FY 2008 IPPS payments
in FY 2011 or FY 2012 (with interest), delaying this adjustment would
have no effect on Federal budget outlays. For this reason, we are
proposing to wait until we have a complete year of data on the FY 2009
documentation and coding effect before applying a recoupment adjustment
for IPPS spending that occurred in FY 2008 or we estimate will occur in
FY 2009.
As discussed above, section 7(b)(1)(B) of Public Law 110-90
requires the Secretary to make an additional adjustment to the
standardized amounts under section 1886(d) of the Act to offset the
estimated increase or decrease in aggregate payments for FY 2009
(including interest) resulting from the difference between the
estimated actual documentation and coding effect and the documentation
and coding adjustments applied under section 7(a) of Public Law 110-90.
This determination must be based on a retrospective evaluation of
claims data. Because we will not receive all FY 2009 claims data prior
to publication of the final rule, we intend to address any increase or
decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012
after we perform a retrospective evaluation of the FY 2009 claims data.
Our actuaries currently estimate that this adjustment will be
approximately -3.3 percent. This reflects the difference between the
estimated 4.8 percent cumulative actual documentation and coding
changes for FY 2009 (2.5 percent for FY 2008 and an additional 2.3
percent for FY 2009) and the cumulative -1.5 percent documentation and
coding adjustments applied under section 7(a) of Public Law 110-90 (-
0.6 percent in FY 2008 and -0.9 percent in FY 2009). We note that the
actual adjustments are multiplicative and not additive. This estimated
4.8 percent cumulative actual documentation and coding changes for FY
2009 includes the impact of the changes in documentation and coping
first occurring in FY 2008 because we believe hospitals will continue
these changes in documentation and coding in subsequent fiscal years.
Consequently, these documentation and coding changes will continue to
impact payments under the IPPS absent a prospective adjustment to
account for the effect of these changes.
We note that unlike the proposed -1.9 adjustment to the
standardized amounts under section 7(b)(1)(A) of Public Law 110-90
described earlier, any adjustment to the standardized amounts under
section 7(b)(1)(B) of Public Law 110-90 would not be cumulative, but
would be removed for subsequent fiscal years once we have offset the
increase in aggregate payments for discharges occurring in FY 2008
expenditures and FY 2009 expenditures, if any.
We are seeking public comment on our proposal not to offset the 1.9
percent increase in aggregate payments (including interest) for
discharges occurring in FY 2008 resulting from the adoption of the MS-
DRGs, but to instead address this issue in future rulemaking for FYs
2011 and 2012.
To assist the public in commenting on this issue, the following
table shows our estimate of the adjustments required under section
7(b)(1) of Public Law 110-90. Column (A) and Column (C) show the
prospective adjustments discussed above in section II.D.5. of this
preamble. Column (B) and Column (D) show the retrospective adjustments
discussed above in section II.D.6. of this preamble. Column (E) shows
the -1.9 percent adjustment from Column (A) that we are proposing for
FY 2010. The estimated -6.6 percent adjustment in Column (F) reflects
the cumulative effect of the remaining -1.9 adjustment from Column (B),
the remaining -1.4 percent adjustment from Column (C), and the
remaining -3.3 adjustment from

[[Page 24097]]

Column (D) that are required by statute, but that we are not proposing
for FY 2010. Column (G) shows the combined effect of the -1.9 percent
adjustment in Column (E) that we are proposing for FY 2010 and the -6.6
percent adjustment in Column (F) that we currently estimate we will
need to propose in future years. As noted above, we are unable to
provide our final estimate of the documentation and coding changes in
FY 2009 that do not reflect real changes in case-mix, as we do not have
all FY 2009 claims data. The table instead reflects our current
estimate of the difference between changes in documentation and coding
in FY 2009 that do not reflect real changes in case-mix and the
prospective adjustment applied in FY 2009 under section 7(a) of Public
Law 110-90. If documentation and coding increases were to exceed
current projections for FY 2009, future adjustments would be greater
than those shown here. If documentation and coding adjustments were to
be less than current projections for FY 2009, future adjustments would
be less than those shown here.

FY 2010 MS-DRG Documentation and Coding Adjustment Range
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Total
Prospective Recoupment Prospective Recoupment Adjustment remaining adjustment
adjustment for FY adjustment for FY adjustment for FY adjustment for FY proposed adjustment FY 2010- FY
2008 2008 2009 * 2009 * for FY 2010 * 2012 *
(A)................ (B)............... (C)............... (D)............... (E) (F) (G)
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2010 Proposal................ Proposed for FY Not Proposed for Not Proposed for Not Proposed for
2010. FY 2010. FY 2010. FY 2010.
Amount of Adjustment............ -1.9............... -1.9.............. -1.4.............. -3.3.............. -1.9 -6.6 -8.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Estimated. The actual percentage adjustment to the national standardized amounts for the purpose of offsetting the estimated $2.2 billion in increased
payments under IPPS in FY 2008 will depend on when we apply the adjustment. However, we believe this adjustment will be approximately -1.9 percent, or
the difference between the actual changes in documentation and coding that do not reflect real changes in case-mix in FY 2008 and the documentation
and coding adjustment applied under section 7(a) of Public Law 110-90. Similarly, we based our estimate of the percentage adjustment to the national
standardized amounts for the purpose of offsetting the expected increase in payments in FY 2009 on the estimated difference between the cumulative
actual changes in documentation and coding that do not reflect real changes in case-mix in FY 2009 and the documentation and coding adjustments
applied under section 7(a) of Public Law 110-90, or 3.3 percent. As discussed earlier, we are not permitted to apply a retroactive FY 2009 adjustment
until we have performed an analysis of the FY 2009 data.

7. Background on the 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 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; the updated hospital-specific rate based on
FY 1996 costs per discharge; or the updated hospital-specific rate
based on FY 2006 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 greatest of the FY 1982, FY 1987, or FY 2002 costs
per discharge. In the FY 2008 IPPS final rule with comment period (72
FR 47152 through 47188), we established a policy of applying the
documentation and coding adjustment to the hospital-specific rates. In
that final rule with comment period, 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 relied on section 1886(d)(3)(A)(vi) of the
Act, which provides us with 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 the 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 the 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''
under section 1886(d) of the Act and does not mention adjusting the
hospital-specific rates.
In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that
we continued 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 documentation and coding changes 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 rates should not have the potential
to realize increased payments due to documentation and coding changes
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 provision authorizes us
to provide ``for such other exceptions and adjustments to [IPPS]
payment amounts * * * as the Secretary deems appropriate.'' In the FY
2009 IPPS final rule (73 FR 48448 through 48449), we indicated that,
for the FY 2010 rulemaking, we planned to examine our FY 2008 claims
data for hospitals paid based on the hospital-specific rate. We further
indicated that if we found evidence of significant increases in case-
mix for patients treated in these hospitals that do not reflect real
changes in case-mix, we would consider

[[Page 24098]]

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.
In response to public comments received on the FY 2009 IPPS
proposed rule, we stated in the FY 2009 IPPS final rule that we would
consider whether such a proposal is warranted for FY 2010. To gather
information to evaluate these considerations, we indicated that we
planned to perform analyses on FY 2008 claims data to examine whether
there has been a significant increase in case-mix for hospitals paid
based on the hospital-specific rate. If we found that application of
the documentation and coding adjustment to the hospital-specific rates
for FY 2010 is warranted, we indicated that we would include a proposal
to do so in the FY 2010 IPPS proposed rule.
8. Proposed Documentation and Coding Adjustment to the Hospital-
Specific Rates for FY 2010 and Subsequent Fiscal Years
We performed a retrospective evaluation of the FY 2008 claims data
for SCHs and MDHs using the same methodology described earlier for
other IPPS hospitals. We found that, independently for both SCHs and
MDHs, the change due to documentation and coding that did not reflect
real changes in case-mix for discharges occurring during FY 2008
slightly exceeded the 2.5 percent result discussed earlier, but did not
significantly differ from that result.
Again, we found that the within-base DRG increases were almost
entirely responsible for the case-mix change. In Figure 2 below, we
show that, for SCHs, there was a 5 percentage point increase in the
discharges with an MCC from 17 percent to 22 percent and a
corresponding decrease of 5 percentage points from 59 percent to 54
percent in discharges without a CC or an MCC. In Figure 3 below, we
show that, for MDHs, there was a 5 percentage point increase in the
discharges with an MCC from 15 percent to 20 percent and a decrease of
6 percentage points from 60 percent to 54 percent in discharges without
a CC or an MCC.
BILLING CODE 4120-01-P

[[Page 24099]]

[GRAPHIC] [TIFF OMITTED] TP22MY09.001

[GRAPHIC] [TIFF OMITTED] TP22MY09.002

BILLING CODE 4120-01-C

[[Page 24100]]

The largest within-base DRG contributors for both types of
hospitals are heart failure and shock, chronic obstructive pulmonary
disease, and simple pneumonia and pleurisy. For each of these
conditions, a significant decrease in the percentage of discharges
without a CC or an MCC was observed.
Therefore, consistent with our statements in prior IPPS rules, we
are proposing to use our authority under section 1886(d)(5)(I)(i) of
the Act to prospectively adjust the hospital-specific rates by -2.5
percent in FY 2010 to account for our estimated documentation and
coding effect in FY 2008 that does not reflect real changes in case-
mix. We are proposing to leave this adjustment in place for subsequent
fiscal years in order to ensure that changes in documentation and
coding resulting from the adoption of the MS-DRGs do not lead to an
increase in aggregate payments for SCHs and MDHs not reflective of an
increase in real case-mix. This proposed -2.5 percent adjustment to the
hospital-specific rates exceeds the proposed -1.9 percent adjustment to
the national standardized amount under section 7(b)(1)(A) of Public Law
110-90 because, unlike the national standardized rates, the FY 2008
hospital-specific rates were not previously reduced in order to account
for anticipated changes in documentation and coding that do not reflect
real changes in case-mix resulting from the adoption of the MS-DRGs.
Consistent with our proposed approach for IPPS hospitals discussed
earlier, we will address in the FY 2011 rulemaking cycle any changes in
documentation and coding that do not reflect real changes in case-mix
for discharges occurring during FY 2009. We note that, unlike the
national standardized rates, the FY 2009 hospital-specific rates were
not previously reduced in order to account for anticipated changes in
documentation and coding that do not reflect real changes in case-mix
resulting from the adoption of the MS-DRGs.
We are seeking public comment on the proposed -2.5 percent
prospective adjustment to the hospital-specific rates under section
1886(d)(5)(I)(i) of the Act and addressing in the FY 2011 rulemaking
cycle any changes in FY 2009 case-mix due to changes in documentation
and coding that do not reflect real changes in case-mix for discharges
occurring during FY 2009. We intend to update our analysis with FY 2008
data on claims paid through March 2008 for the FY 2010 IPPS final rule.
9. Background on the 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 Secretary 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
changes 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. However, section
1886(d)(3)(A)(vi) of the Act authorizes application of a documentation
and coding adjustment to the national standardized amount and does not
apply to the Puerto Rico specific standardized amount. In the FY 2009
IPPS final rule (73 FR 48449), we corrected this inadvertent error by
removing the -0.6 percent documentation and coding adjustment from the
FY 2008 Puerto Rico-specific rates.
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, 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 changes
that do not reflect real increases in patients' severity of illness.
Consistent with the approach described for SCHs and MDHs, in the FY
2009 IPPS final rule (73 FR 48449), we indicated that we planned to
examine our FY 2008 claims data for hospitals in Puerto Rico. We
indicated in the FY 2009 IPPS proposed rule (73 FR 23541), that if we
found 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.
10. Proposed Documentation and Coding Adjustment to the Puerto Rico-
Specific Standardized Amount
We performed a retrospective evaluation of the FY 2008 claims data
for Puerto Rico hospitals using the same methodology described earlier
for IPPS hospitals paid under the national standardized amounts under
section 1886(d) of the Act. We found that, for Puerto Rico hospitals,
the increase in payments for discharges occurring during FY 2008 due to
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2008 was approximately 1.1 percent.
When we calculate the within-base DRG changes and the across-base DRG
changes for Puerto Rico hospitals, we find that responsibility for the
case-mix change between FY 2007 and FY 2008 is much more evenly shared.
Across-base DRG shifts account for 44 percent of the changes, and
within-base DRG shifts account for 56 percent. Thus, the change in the
percentage of discharges with an MCC is not as large as that for other
IPPS hospitals. In Figure 4 below, we show that, for Puerto Rico
hospitals, there was a 3 percentage point increase in the discharges
with an MCC from 22 percent to 25 percent and a corresponding decrease
of 3 percentage points from 58 percent to 55 percent in discharges
without a CC or an MCC.

[[Page 24101]]

[GRAPHIC] [TIFF OMITTED] TP22MY09.003

The top contributing base DRGs to the case-mix change due to the
within-base DRG changes differ partially from those of other hospitals.
The top three are acute myocardial infarction, major small and large
bowel procedures, and chronic obstructive pulmonary disease.
Given these documentation and coding increases, consistent with our
statements in prior IPPS rules, we are proposing to use our authority
under section 1886(d)(5)(I)(i) of the Act to adjust the Puerto Rico-
specific standardized amount by -1.1 percent in FY 2010 to account for
the FY 2008 documentation and coding increase not due to changes in
real case-mix and to leave that adjustment in place for subsequent
fiscal years. The proposed -1.1 percent adjustment will be applied to
the Puerto Rico-specific rate that accounts for 25 percent of payments
to Puerto Rico hospitals, with the remaining 75 percent based on the
national standardized amount, which we are proposing to adjust as
described above. Consequently, the overall reduction to the payment
rates for Puerto Rico hospitals to account for documentation and coding
changes will be slightly less than the reduction for IPPS hospitals
paid based on 100 percent of the national standardized amount. We note
that, as with the hospital-specific rates, the Puerto Rico-specific
standardized amount had not previously been reduced based on estimated
changes in documentation and coding associated with the adoption of the
MS-DRGs.
Consistent with our proposed approach for IPPS hospitals discussed
above, we will address in the FY 2011 rulemaking cycle any change in FY
2009 case-mix due to documentation and coding that did not reflect real
changes in case-mix for discharges occurring during FY 2009. We note
that, unlike the national standardized rates, the FY 2009 hospital-
specific rates were not previously reduced in order to account for
anticipated changes in documentation and coding that do not reflect
real changes in case-mix resulting from the adoption of the MS-DRGs.
We are seeking public comment on the proposed -1.1 percent
prospective adjustment to the hospital-specific rates under section
1886(d)(5)(I)(i) of the Act and addressing in the FY 2011 rulemaking
cycle any changes in FY 2009 case-mix due to changes in documentation
and coding that did not reflect real changes in case-mix for discharges
occurring during FY 2009. We intend to update our analysis with FY 2008
data on claims paid through March 2008 for the FY 2010 IPPS final rule.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
In the FY 2009 IPPS final rule (73 FR 48450), we continued to
implement significant revisions to Medicare's inpatient hospital rates
by completing 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 expressed in the public comments we received on the proposal,
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. (We refer readers to
the FY 2007 IPPS final rule for details on the HSRVcc methodology and
the 3-year transition blend from charge-based relative weights to cost-
based relative weights (71 FR 47882 through 47898).)
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.
In FY 2009, the third and final year of the transition from charge-
based weights to cost-based weights, we calculated the MS-DRG relative
weights based on 100 percent of hospital costs. We refer readers to the
FY 2007 IPPS final rule (71 FR 47882) for a more

[[Page 24102]]

detailed discussion of our final policy for calculating the cost-based
DRG relative weights and to the FY 2008 IPPS final rule with comment
period (72 FR 47199) for information on how we blended relative weights
based on the CMS DRGs and MS-DRGs.
a. Summary of the RTI Study of Charge Compression and CCR Refinement
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 January 2007 with its
findings on charge compression (which was posted on the CMS Web site
at: http://www.cms.hhs.gov/reports/downloads/Dalton.pdf). In that
report, RTI found that a number of factors contribute to charge
compression and affect the accuracy of the relative weights. RTI's
findings demonstrated that charge compression exists in several CCRs,
most notably in the Medical Supplies and Equipment CCR.
In its interim draft report, RTI offered a number of
recommendations to mitigate the effects of charge compression,
including estimating regression-based CCRs to disaggregate the Medical
Supplies Charged to Patients, Drugs Charged to Patients, and Radiology
cost centers, and 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''. (For more details on
RTI's findings and recommendations, we refer readers to the FY 2009
IPPS final rule (73 FR 48452).) Despite receiving public 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 did not adopt RTI's recommendation to
create additional regression-based CCRs for several reasons. 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 the OPPS rely on cost-based weights, we preferred to introduce any
methodological adjustments to both payment systems at the same time.
RTI's analysis of charge compression has since been expanded to
incorporate outpatient services. RTI evaluated the cost estimation
process for the OPPS cost-based relative weights, including a
reassessment of the regression-based CCR models using both outpatient
and inpatient charge data. This interim report was made available in
April 2008 during the public comment period on the FY 2009 IPPS
proposed rule and can be found on RTI's Web site at: http://
www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_
Charge_Ratios_200804.pdf . The IPPS-specific chapters, which were
separately displayed in the April 2008 interim report, as well as the
more recent OPPS chapters, were included in the July 3, 2008 RTI final
report entitled, ``Refining Cost-to-Charge Ratios for Calculating APC
[Ambulatory Payment Classification] and DRG Relative Payment Weights,''
that became available at the time of the development of the FY 2009
IPPS final rule. The RTI final report can be found on RTI's Web site
at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_
Cost_to_Charge_Ratios_200807_Final.pdf.
RTI's final report distinguished between two types of research
findings and recommendations: those pertaining to the accounting or
cost report data and those related to statistical regression analysis.
Importantly, RTI found that, under the IPPS and the OPPS, accounting
improvements to the cost reporting data reduce some of the sources of
aggregation bias without having to use regression-based adjustments. In
general, with respect to the regression-based adjustments, RTI
confirmed the findings of its March 2007 report that regression models
are a valid approach for diagnosing potential aggregation bias within
selected services for the IPPS and found that regression models are
equally valid for setting payments under the OPPS. RTI also suggested
that regression-based CCRs could provide a short-term correction until
accounting data could be sufficiently refined to support more accurate
CCR estimates under both the IPPS and the OPPS.
RTI also noted that cost-based weights are only one component of a
final prospective payment rate. There are other rate adjustments (wage
index, IME, and DSH) to payments derived from the revised cost-based
weights and the cumulative effect of these components may not improve
the ability of final payment to reflect resource cost. With regard to
APCs and MS-DRGs that contain substantial device costs, RTI cautioned
that the other rate adjustments largely offset the effects of charge
compression among hospitals that receive these adjustments. RTI
endorsed short-term regression-based adjustments, but also concluded
that more refined and accurate accounting data are the preferred long-
term solution to mitigate charge compression and related bias in
hospital cost-based weights.
As a result of this research, RTI made 11 recommendations. For a
more detailed summary of RTI's findings, recommendations, and public
comments we received on the report, we refer readers to the FY 2009
IPPS final rule (73 FR 48452 through 48453).
b. Summary of the RAND Corporation Study of Alternative Relative Weight
Methodologies
One of the reasons 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. In the FY 2008 final rule with comment
period (72 FR 47197), we stated that we engaged the RAND Corporation as
the contractor to evaluate the HSRV methodology in conjunction with
regression-based CCRs, and that we would consider its analysis as we
prepared for the FY 2009 IPPS rulemaking process. In the FY 2009 IPPS
final rule (73 FR 48453 through 48457), we provided a summary of the
RAND report and the public comments we received in response to the FY
2009 IPPS proposed rule. The report may be found on RAND's Web site at:
http://www.rand.org/pubs/working_papers/WR560/.
RAND evaluated six different methods that could be used to
establish relative weights, CMS' current relative weight methodology of
15 national CCRs and 5 alternatives, including a method in which the 15
national CCRs are disaggregated using the regression-based methodology,
and a method using hospital-specific CCRs for the 15 cost center
groupings. In addition, RAND analyzed our standardization methodologies
that account for systematic cost differences across hospitals. The
purpose of standardization is to eliminate

[[Page 24103]]

systematic facility-specific differences in cost so that these cost
differences do not influence the relative weights. The three
standardization methodologies analyzed by RAND include: The ``hospital
payment factor'' methodology currently used by CMS, under which a
hospital's wage index factor, and IME and/or DSH factor, are divided
out of its estimated DRG cost; the HSRV methodology, which standardizes
the cost for a given discharge by the hospital's own costliness rather
than by the effect of the systematic cost differences across groups of
hospitals; and the HSRVcc methodology, which removes hospital-level
cost variation by calculating hospital-specific charge-based relative
values for each DRG at the cost center level and standardizing them for
differences in case-mix. Under the HSRVcc methodology, a national
average charge-based relative weight is calculated for each cost
center.
Overall, RAND found that none of the alternative methods of
calculating the relative weights represented a marked improvement in
payment accuracy over the current method, and there was little
difference across methods in their ability to predict cost at either
the discharge-level or the hospital-level. In their regression
analysis, RAND found that after controlling for hospital payment
factors, the relative weights are compressed (that is, understated).
However, RAND also found that the hospital payment factors are
overstated and increase more rapidly than cost. Therefore, while the
relative weights are compressed, these payment factors offset the
compression such that total payments to hospitals increase more rapidly
than hospitals' costs.
RAND found that relative weights using the 19 national
disaggregated regression-based CCRs result in significant
redistributions in payments among hospital groupings. However, RAND did
not believe the regression-based charge compression adjustments
significantly improve payment accuracy. With regard to standardization
methodologies, while RAND found that there is no clear advantage to the
HSRV method or the HSRVcc method of standardizing cost compared to the
current hospital payment factor standardization method, its analysis
did reveal significant limitations of CMS' current hospital payment
factor standardization method. The current standardization method has a
larger impact on the relative weights and payment accuracy than any of
the other alternatives that RAND analyzed because the method ``over-
standardizes'' by removing more variability for hospitals receiving a
payment factor than can be empirically supported as being cost-related
(particularly for IME and DSH). RAND found that instead of increasing
proportionately with cost, the payment factors CMS currently uses (some
of which are statutory) increase more rapidly than cost, thereby
reducing payment accuracy. RAND concluded that further analysis is
needed to isolate the cost-related component of the IPPS payment
adjustments (some of which has already been done by MedPAC), use them
to standardize cost, and revise the analysis of payment accuracy to
reflect only the cost-related component.
2. Summary of FY 2009 Changes and Discussion for FY 2010
In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in
response to the RTI's recommendations concerning cost report
refinements, and because of RAND's finding that regression-based
adjustments to the CCRs do not significantly improve payment accuracy,
we discussed our decision to pursue changes to the cost report to split
the cost center for Medical Supplies Charged to Patients into one line
for ``Medical Supplies Charged to Patients'' and another line for
``Implantable Devices Charged to Patients.'' We acknowledged, as RTI
had found, that charge compression occurs in several cost centers that
exist on the Medicare cost report. However, as we stated in the final
rule, we focused on the CCR for Medical Supplies and Equipment because
RTI found that the largest impact on the MS-DRG relative weights could
result from correcting charge compression for devices and implants. In
determining what should be reported in these respective cost centers,
we adopted the commenters' recommendation that hospitals should use
revenue codes established by AHA's National Uniform Billing Committee
to determine what should be reported in the ``Medical Supplies Charged
to Patients'' and the ``Implantable Devices Charged to Patients'' cost
centers.
When we developed the FY 2009 IPPS final rule, we considered all of
the public comments we received both for and against adopting
regression-based CCRs. Also noteworthy is RAND's belief that
regression-based CCRs may not significantly improve payment accuracy,
and that it is equally, if not more, important to consider revisions to
the current IPPS hospital payment factor standardization method in
order to improve payment accuracy. We continue to believe that,
ultimately, improved and more precise cost reporting is the best way to
minimize charge compression and improve the accuracy of the cost
weights. Accordingly, we are not proposing to adopt regression-based
CCRs for the calculation of the FY 2010 IPPS relative weights.
However, we are concerned about RAND's finding that there are
significant limitations of CMS' current hospital payment factor
standardization method. As summarized above, RAND found that the
current standardization method ``over-standardizes'' by removing more
variability for hospitals receiving a payment factor than can be
empirically supported as being cost-related (particularly for IME and
DSH). RAND found that instead of increasing proportionately with cost,
the payment factors CMS currently uses (some of which are statutory)
increase more rapidly than cost, thereby reducing payment accuracy.
Further analysis is needed to isolate the cost-related component of the
IPPS payment adjustments, use them to standardize cost, and revise the
analysis of payment accuracy to reflect only the cost-related
component. However, RAND cautions that ``re-estimating'' these payment
factors ``raises important policy issues that warrant additional
analyses'' (page 49 of RAND's report, which is available on the Web
site at: http://www.rand.org/pubs/working_papers/WR560/), particularly
to ``determine the analytically justified-levels using the MS-DRGs''
(page 86 of the RAND report). In addition, we note that RTI, in its
July 2008 final report, also observed that the adjustment factors under
the IPPS (the wage index, IME, and DSH adjustments) complicate the
determination of cost and these factors ``within the rate calculation
may offset the effects of understated weights due to charge
compression'' (page 109 of RTI's final report, which is available at
the Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/
PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf). While it
may be more accurate to standardize using the empirically justified
levels of the IME and DSH adjustments, consideration needs to be given
to the extent to which these payment factors offset the compression of
the relative weights.
We understand that MedPAC has performed an analysis to identify
empirically justifiable formulas for determining appropriate IME and
DSH adjustments. For example, in its March 2007 report (and reiterated
in its March 2009 report), MedPAC asserts that the current level of the
IME adjustment factor, 5.5 percent for every 10 percent increase in
resident-to-bed ratio, overstates IME payments by more than

[[Page 24104]]

twice the empirically justified level, resulting in approximately $3
billion in overpayments. The empirical level of the IME adjustment is
estimated to be 2.2 percent for every 10 percent increase in the
resident-to-bed ratio. We cannot propose to change the IME and DSH
factors used for actual payment under the IPPS because these factors
are mandated by law. However, under section 1886(d)(4) of the Act, we
have the authority to determine the appropriate weighting factor for
each MS-DRG (including which factors or method we will employ in making
annual adjustments to the MS-DRGs so as to reflect changes in the
relative use of hospital resources). In addition, section 1886(d)(7)(B)
of the Act precludes judicial review of our methodology for determining
the appropriate weighting factors. Therefore, we do have some
flexibility in what factors may be used for standardization purposes.
For purposes of standardization only, one option may be for CMS to use
the empirically justified IME adjustment of 2.2 percent, such that only
the cost-related component of teaching hospitals is removed from the
claim charges prior to calculating the relative weights. Similarly, for
the DSH adjustment, in its March 2007 report, MedPAC found that costs
per case increase about 0.4 percent for each 10 percent increase in the
low income patient percentage. This is significantly less than the
percentage increase expressed by the current factors used in the DSH
payment formulas. (According to MedPAC, in FY 2004, about $5.5 billion
in DSH payments were made above the empirically justified level.) In
looking only at urban hospitals with greater than 100 beds, which
manifest the strongest positive correlation between cost and low income
patient share, MedPAC found that costs increase about 1.4 percent for
every 10 percent increment of the low-income patient percentage. MedPAC
did not find a positive cost relationship between low-income patient
percentage and costs per case for urban hospitals with less than 100
beds and/or for rural hospitals. Therefore, for purposes of
standardizing for the DSH adjustment, an option we may consider is to
incorporate an adjustment factor of 1.4 percent for urban hospitals
with greater than 100 beds, and to remove the DSH payment adjustment
altogether for other hospitals that otherwise currently qualify for DSH
payment. While we cannot predict the effect of using the empirical
factors for IME and DSH in the standardized methodology on the relative
weights without further analysis, dividing out (that is, excluding)
reduced IME and DSH payment factors from a hospital's total payment
would result in a greater share of teaching and DSH hospitals' costs
used in calculating the relative weights. With respect to the wage
index, because there are multiple wage index factors, one for each
geographic area, determining the true cost associated with geographic
location and standardizing for those costs is much more challenging.
While we are not proposing changes for FY 2010, in light of the
previous discussion of the current IME and DSH adjustments in the
standardization process, we are interested in receiving public comments
as to how the standardization process can be improved to more precisely
remove cost differences across hospitals, thereby improving the
accuracy of the relative weights in subsequent fiscal years.
3. Timeline for Revising the Medicare Cost Report
As mentioned in the FY 2009 IPPS final rule (73 FR 48467), we are
currently in the process of comprehensively reviewing the Medicare
hospital cost report, and the finalized policy from the FY 2009 IPPS
final rule to split the current cost center for Medical Supplies
Charged to Patients into one line for ``Medical Supplies Charged to
Patients'' and another line for ``Implantable Devices Charged to
Patients,'' as part of our initiative to update and revise the hospital
cost report. Under an effort initiated by CMS to update the Medicare
hospital cost report to eliminate outdated requirements in conjunction
with provisions of the Paperwork Reduction Act (PRA), we have been
planning to propose the actual changes to the cost reporting form, the
attending cost reporting software, and the cost reporting instructions
in Chapter 40 of the Medicare Provider Reimbursement Manual (PRM), Part
II. Under the effort to update the cost report and eliminate outdated
requirements in conjunction with the provisions of the PRA, changes to
the cost reporting form and cost reporting instructions would be made
available to the public for comment. Thus, the public would have an
opportunity to suggest comprehensive reforms (which they had advocated
in the FY 2009 IPPS final rule in response to our proposals), and would
similarly be able to make suggestions for ensuring that these reforms
are made in a manner that is not disruptive to hospitals' billing and
accounting systems, and are within the guidelines of GAAP, Medicare
principles of reimbursement, and sound accounting practices.
In the FY 2009 IPPS final rule (73 FR 48468), we stated that we
expect the revised cost reporting forms that reflect one cost center
for ``Medical Supplies Charged to Patients'' and one cost center for
``Implantable Devices Charged to Patients'' would not be available
until cost reporting periods beginning after the Spring of 2009. At
this time, we anticipate that the transmittal to create this new cost
center will be issued in June 2009. Because there is approximately a 3-
year lag between the availability of cost report data for IPPS and OPPS
ratesetting purposes in a given fiscal year or calendar year, we may be
able to derive two distinct CCRs, one for medical supplies and one for
devices, for use in calculating the FY 2013 IPPS relative weights and
the CY 2013 OPPS relative weights. Until the revised cost reporting
forms are published, hospitals must include costs and charges of
separately chargeable medical supplies and implantable medical devices
in the cost center for ``Medical Supplies Charged to Patients''
(section 2202.8 of the PRM-I), and effective for cost reporting periods
specified in the revised cost reporting forms, hospitals must include
costs and charges of separately chargeable medical supplies in the cost
center for ``Medical Supplies Charged to Patients'' and of separately
chargeable implantable medical devices in the new ``Implantable Devices
Charged to Patients'' cost center.

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

1. Statutory Authority
Section 1886(d)(4)(D) of the Act addresses certain hospital-
acquired conditions (HACs), including infections. By October 1, 2007,
the Secretary was required to select, in consultation with CDC, at
least two conditions that: (a) Are high cost, high volume, or both; (b)
are assigned to a higher paying MS-DRG when present as a secondary
diagnosis (that is, conditions under the MS-DRG system that are CCs or
MCCs); and (c) could reasonably have been prevented through the
application of evidence-based guidelines. The list of conditions can be
revised from time to time, again in consultation with CDC, as long as
the list contains at least two conditions.
Medicare continues to assign a discharge to a higher paying MS-DRG
if a selected condition is present on admission (POA). However, since
October 1, 2008, Medicare no longer assigns an inpatient hospital
discharge to a higher paying MS-DRG if a selected

[[Page 24105]]

condition is not POA. That is, if there is a HAC, the case is paid as
though the secondary diagnosis was not present. However, if any
nonselected CC/MCC appears on the claim, the claim will be paid at the
higher MS-DRG rate; to cause a lower MS-DRG payment, all CCs/MCCs on
the claim must be selected conditions for the HAC payment provision.
Since October 1, 2007, hospitals have been required to submit
information on Medicare claims specifying whether diagnoses were POA.
The POA indicator reporting requirement and the HAC payment provision
apply to IPPS hospitals only. Non-IPPS hospitals, including CAHs,
LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, hospitals in
Maryland operating under waivers, rural health clinics, federally
qualified health centers, RNHCIs, and Department of Veterans Affairs/
Department of Defense hospitals, are exempt from POA reporting and the
HAC payment provision. Throughout this section, the term ``hospital''
refers to IPPS hospitals.
2. HAC Selection Process
In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public
input regarding conditions with evidence-based prevention guidelines
that should be selected in implementing section 1886(d)(4)(D) of the
Act. The public comments we received were summarized in the FY 2007
IPPS final rule (71 FR 48051 through 48053).
In the FY 2008 IPPS proposed rule (72 FR 24716 through 24726), we
sought public comment on conditions that we proposed to select. In the
FY 2008 IPPS final rule with comment period (72 FR 47200 through
47218), we selected 8 categories to which the HAC payment provisions
would apply.
In the FY 2009 IPPS proposed rule (73 FR 23547), we proposed
several additional candidate HACs and proposed refinements to the
previously selected HACs. In the FY 2009 IPPS final rule (73 FR 48471),
we expanded and refined several of the previously-selected HACs and we
selected 2 additional categories of HACs. A complete list of the 10
current categories of HACs is included in section II.F.4. of this
preamble.
3. Collaborative Process
CMS experts have worked closely with public health and infectious
disease professionals from the CDC to identify the candidate
preventable HACs, review comments, and select HACs. CMS and CDC staff
have also collaborated on the process for hospitals to submit a POA
indicator for each diagnosis listed on IPPS hospital Medicare claims
and on the payment implications of the various POA reporting options.
On December 17, 2007, CMS and CDC hosted a jointly sponsored HAC
and POA Listening Session to receive input from interested
organizations and individuals. On December 18, 2008, CMS and CDC again
hosted a jointly sponsored HAC and POA Listening Session to receive
input from interested organizations and individuals. Experts from AHRQ
also participated in the event. The agenda, presentations, audio file,
and written transcript of the December 18, 2008, Listening Session are
available on the CMS Web site at: http://www.cms.hhs.gov/
HospitalAcqCond/07_EducationalResources.asp#TopOfPage.
4. Selected HAC Categories
The following table lists the current HACs.

------------------------------------------------------------------------
HAC CC/MCC (ICD-9-CM code)
------------------------------------------------------------------------
Foreign Object Retained After Surgery.. 998.4 (CC), 998.7 (CC).
Air Embolism........................... 999.1 (MCC).
Blood Incompatibility.................. 999.6 (CC).
Pressure Ulcer Stages III & IV......... 707.23 (MCC), 707.24 (MCC).
Falls and Trauma: Codes within these ranges on
--Fracture the CC/MCC list: 800-829, 830-
--Dislocation 839, 850-854, 925-929, 940-
--Intracranial Injury 949, 991-994.
--Crushing Injury
--Burn
--Electric Shock
Catheter-Associated Urinary Tract 996.64 (CC).
Infection (UTI).
Also excludes the following
from acting as a CC/MCC: 112.2
(CC), 590.10 (CC), 590.11
(MCC), 590.2 (MCC), 590.3
(CC), 590.80 (CC), 590.81
(CC), 595.0 (CC), 597.0 (CC),
599.0 (CC).
Vascular Catheter-Associated Infection. 999.31 (CC).
Manifestations of Poor Glycemic Control 250.10-250.13 (MCC), 250.20-
250.23 (MCC), 251.0 (CC),
249.10-249.11 (MCC), 249.20-
249.21 (MCC).
Surgical Site Infections:
Surgical Site Infection, Mediastinitis, 519.2 (MCC).
Following Coronary Artery Bypass Graft And one of the following
(CABG). procedure codes: 36.10-36.19.
Surgical Site Infection Following 996.67 (CC), 998.59 (CC).
Certain Orthopedic Procedures.
And one of the following
procedure codes: 81.01-81.08,
81.23-81.24, 81.31-81.38,
81.83, 81.85.
Surgical Site Infection Following Principal Diagnosis--278.01,
Bariatric Surgery for Obesity. 998.59 (CC).
And one of the following
procedure codes: 44.38, 44.39,
or 44.95.
Deep Vein Thrombosis and Pulmonary 415.11 (MCC), 415.19 (MCC),
Embolism Following Certain Orthopedic 453.40-453.42 (MCC).
Procedures. And one of the following
procedure codes: 00.85-00.87,
81.51-81.52, or 81.54.
------------------------------------------------------------------------

We refer readers to section II.F.6. of the FY 2008 IPPS final rule
with comment period (72 FR 47202 through 47218) and to section II.F.7.
of the FY 2009 IPPS final rule with comment period (73 FR 48474 through
48486) for detailed analyses supporting the selection of each of these
HACs.
The list of selected HAC categories is dependent upon CMS' list of
diagnoses designated as CC/MCCs. As changes and/or new diagnosis codes
are proposed and finalized to the list of CC/MCCs, these changes need
to be reflected in the list of selected HAC

[[Page 24106]]

categories. We refer readers to Table 6A in the Addendum to this
proposed rule for proposed changes. In Table 6A, we are proposing the
following changes that reflect the new diagnosis codes that are within
the fracture code range for the falls/trauma HAC category:

------------------------------------------------------------------------
Proposed CC/
ICD-9-CM code Code descriptor MCC
designations
------------------------------------------------------------------------
813.46.................... Torus fracture of ulna...... CC
813.47.................... Torus fracture of radius and CC
ulna.
------------------------------------------------------------------------

If these proposed CC designations for ICD-9-CM codes 813.46 and
813.47 are finalized, these codes will be adopted within the fracture
code range for the falls/trauma HAC category.
5. Public Input Regarding Selected and Potential Candidate HACs
We are not proposing to add or remove categories of HACs at this
time. However, we continue to encourage public dialogue about
refinements to the HAC list. During and after the December 18, 2008
Listening Session, we received many oral and written stakeholder
comments about both previously selected and potential candidate HACs.
Some stakeholders commented on previously selected HACs. For
example, one commenter requested a coding change to the Stages III and
IV Pressure Ulcer HAC. The commenter recommended that CMS include the
following ICD-9-CM codes to further define pressure ulcers as a HAC:
(1) 707.20 (Pressure ulcer, unspecified stage); and (2) 707.25
(Pressure ulcer, unstageable). However, these codes are not classified
as CCs or MCCs and, therefore, do not meet the statutory requirement of
causing a higher paying MS-DRG.
Commenters strongly supported using information gathered from early
experience with the HAC payment provision to inform maintenance of the
HAC list and consideration of future potential candidate HACs. Now that
we have early program data, we are focused on evaluating the impact of
the HAC payment provision through a joint program evaluation with CDC
and AHRQ. That evaluation process will provide valuable information for
future policymaking aimed at preventing HACs. Commenters emphasized
during the IPPS FY 2009 rulemaking and during and after the December
18, 2008 Listening Session the need for a robust program evaluation
prior to changing the HAC list.
As an early aspect of the program evaluation, we plan to analyze
the available POA data. This early analysis may be useful for future
HAC policymaking and for other purposes like identifying priorities for
the development of HAC prevention guidelines.
6. POA Indicator Reporting
Collection of POA indicator data is necessary to identify which
conditions were acquired during hospitalization for the HAC payment
provision as well as for broader public health uses of Medicare data.
Through Change Request No. 5679 (released on June 20, 2007), CMS issued
instructions requiring IPPS hospitals to submit POA indicator data for
all diagnosis codes on Medicare claims. CMS also issued Change Request
No. 6086 (released on June 13, 2008) regarding instructions for
processing non-IPPS claims. Specific instructions on how to select the
correct POA indicator for each diagnosis code are included in the ICD-
9-CM Official Guidelines for Coding and Reporting, available on the CDC
Web site at: http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/
icdguide07.pdf (the POA reporting guidelines begin on page 92).
Additional information regarding POA indicator reporting and
application of the POA reporting options is available on the CMS Web
site at: http://www.cms.hhs.gov/HospitalAcqCond. CMS has historically
not provided coding advice. Rather, CMS collaborates with the American
Hospital Association (AHA) through the Coding Clinic for ICD-9-CM. CMS
has been collaborating with the AHA to promote the Coding Clinic for
ICD-9-CM as the source for coding advice about the POA indicator.
There are five POA indicator reporting options, as defined by the
ICD-9-CM Official Guidelines for Coding and Reporting:

------------------------------------------------------------------------
Indicator Descriptor
------------------------------------------------------------------------
Y................................. Indicates that the condition was
present on admission.
W................................. Affirms that the provider has
determined based on data and
clinical judgment that it is not
possible to document when the onset
of the condition occurred.
N................................. Indicates that the condition was not
present on admission.
U................................. Indicates that the documentation is
insufficient to determine if the
condition was present at the time
of admission.
1................................. Signifies exemption from POA
reporting. CMS established this
code as a workaround to blank
reporting on the electronic 4010A1.
A list of exempt ICD-9-CM diagnosis
codes is available in the ICD-9-CM
Official Guidelines for Coding and
Reporting.
------------------------------------------------------------------------

In the FY 2009 IPPS final rule (73 FR 48487), we adopted our
proposal to: (1) Pay the CC/MCC MS-DRGs for those HACs coded with ``Y''
and ``W'' indicators; and (2) not pay the CC/MCC MS-DRGs for those HACs
coded with ``N'' and ``U'' indicators. We are not proposing changes to
the payment implications of the POA indicator reporting options at this
time.
As we have noted in previous IPPS rulemaking documents, most
recently in the FY 2009 IPPS final rule (73 FR 48487), the American
Health Information Management Association (AHIMA) has promulgated
Standards of Ethical Coding that require accurate coding regardless of
the payment implications of the diagnoses. Further, Medicare program
integrity initiatives closely monitor for inaccurate coding and coding
inconsistent with medical record documentation.

G. Proposed Changes to Specific MS-DRG Classifications

1. MDC 5 (Diseases and Disorders of the Circulatory System):
Intraoperative Fluorescence Vascular Angiography (IFVA)
We received a request to reassign cases reporting the use of
intraoperative fluorescence vascular angiography (IFVA) with coronary
artery bypass graft (CABG) procedures from MS-DRGs 235 and 236
(Coronary Bypass without Cardiac Catheterization with and without MCC,
respectively) into MS-DRG 233 (Coronary Bypass with Cardiac
Catheterization with MCC) and MS-DRG 234 (Coronary Bypass with Cardiac
Catheterization without MCC). Effective October 1, 2007, procedure code
88.59 (Intraoperative fluorescence vascular angiography (IFVA))
describes this technology.
IFVA technology consists of a mobile device imaging system with
software. The technology is used to test cardiac graft patency and
technical adequacy at the time of coronary artery bypass grafting
(CABG). While this system does not involve fluoroscopy or cardiac
catheterization, it has been suggested by the manufacturer and clinical
studies that it yields results that are similar to those achieved with
selective coronary

[[Page 24107]]

arteriography and cardiac catheterization. Intraoperative coronary
angiography provides information about the quality of the anastomosis,
blood flow through the graft, distal perfusion and durability. For
additional detailed information regarding IFVA technology, we refer
readers to the September 28-29, 2006 ICD-9-CM Coordination and
Maintenance Committee meeting handout at the following Web site: http:/
/www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_
meetings.asp#TopOfPage.
We examined data on cases identified by procedure code 88.59 in MS-
DRGs 233, 234, 235, and 236 in the FY 2008 MedPAR file. As shown in the
table below, for both MS-DRGs 235 and 236, the cases utilizing IFVA
technology identified by procedure code 88.59 have a shorter length of
stay and lower average costs compared to all cases in MS-DRGs 235 and
236. There were a total of 10,312 cases in MS-DRG 235 with an average
length of stay of 11.12 days with average costs of $33,846. There were
88 cases in MS-DRG 235 identified by procedure code 88.59 with an
average length of stay of 9.82 days with average costs of $29,258. In
MS-DRG 236, there were a total of 24,799 cases with an average length
of stay of 6.52 days and average costs of $22,329. There were 159 cases
in MS-DRG 236 identified by procedure code 88.59 with an average length
of stay of 6.30 days and average costs of $20,404. The data clearly
demonstrate that the IFVA cases identified by procedure code 88.59 are
assigned appropriately to MS-DRGs 235 and 236. We also examined data on
cases identified by procedure code 88.59 in MS-DRGs 233 and 234.
Similarly, in MS-DRGs 233 and 234, cases identified by procedure code
88.59 reflect shorter lengths of stay and lower average costs compared
to all of the other cases in those MS-DRGs. There were a total of
17,453 cases in MS-DRG 233 with an average length of stay of 13.65 days
with average costs of $41,199. There were 60 cases in MS-DRG 233
identified by procedure code 88.59 with an average length of stay of
12.82 days and average costs of $38,842. In MS-DRG 234, there were a
total of 27,003 cases with an average length of stay of 8.70 days and
average costs of $28,327. There were 69 cases in MS-DRG 234 identified
by procedure code 88.59 with an average length of stay of 8.75 days and
average costs of $25,308. As a result of our analysis, the data
demonstrate that the IFVA cases identified by procedure code 88.59 are
appropriately assigned to MS-DRGs 233 and 234.

Average
MS-DRG Number of length of Average
cases stay cost*
------------------------------------------------------------------------
233--All cases................... 17,453 13.65 $41,199
233--Cases with code 88.59....... 60 12.82 38,842
233--Cases without code 88.59.... 17,393 13.65 41,207
234--All cases................... 27,003 8.70 28,327
234--Cases with code 88.59....... 69 8.75 25,308
234--Cases without code 88.59.... 26,934 8.70 28,334
------------------------------------------------------------------------
* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based
weighting methodology. The cost-based weights were adopted over a 3-
year transition period in 1/3 increments between FY 2007 and FY 2009.
The average cost represents the average standardized charges on the
claims reduced to cost using the cost center-specific CCRs for a
specific DRG. The standardization process includes adjustments for
IME, DSH, and wage index as applied to individual hospitals. This
estimation of cost is the same method used in the computation of the
relative weights. We are using cost-based data instead of our
historical charge-based data to evaluate proposed MS-DRG
classification changes.

We believe that if the cases identified by procedure code 88.59
were proposed to be reassigned from MS-DRGs 235 and 236 to MS-DRGs 233
and 234, they would be significantly overpaid. In addition, because the
cases in MS-DRGs 235 and 236 did not actually have a cardiac
catheterization performed, a proposal to reassign cases identified by
procedure code 88.59 would result in lowering the relative weights of
MS-DRGs 233 and 234 where a cardiac catheterization is truly performed.
In summary, the data do not support moving IFVA cases identified by
procedure code 88.59 from MS-DRGs 235 and 236 into MS-DRGs 233 and 234.
We invite the public to submit comments on our proposal not to make any
MS-DRG modifications for cases reporting procedure code 88.59 for FY
2010.
2. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue): Infected Hip and Knee Replacements
We received a request that we examine the issue of patients who
have undergone hip or knee replacement procedures that have
subsequently become infected and who are then admitted for inpatient
services for removal of the prosthesis. The requestor stated that these
patients are presented with devastating complications and require
extensive resources to treat. The infection often results in the need
for multiple re-operations, prolonged use of intravenous and oral
antibiotics, extended rehabilitation, and frequent followups.
Furthermore, the requestor stated that, even with extensive treatment,
the outcomes can still be poor for some of these patients. The
requestor stated that patients who are admitted for inpatient services
with an infected hip or knee prosthesis must first undergo a procedure
to remove the prosthesis and to insert an antibiotic spacer to treat
the infection and maintain a space for the new prosthesis. The new
prosthesis cannot be inserted until after the infection has been
treated. Patients who are admitted for inpatient services with a hip or
knee infection and then undergo a removal of the prosthesis are
captured by the following procedure codes:

[[Page 24108]]

80.05 (Arthrotomy for removal of prosthesis, hip)
80.06 (Arthrotomy for removal of prosthesis, knee)
In addition, code 84.56 (Insertion or replacement of (cement)
spacer) would be used for any insertion of a spacer that would be
reported if an antibiotic spacer were inserted.
The issue of hip and knee infections and revisions was discussed in
the FY 2009 IPPS final rule (73 FR 48498 through 48507) in response to
a more complicated request that we received involving the creation and
modification of several joint DRGs. Because data did not support the
requestor's suggested changes, we did not make any modifications to the
joint DRGs at that time.
The current requestor asked that we move cases involving the
removal of hip and knee prostheses (procedure codes 80.05 and 80.06)
from their current assignment in MS-DRGs 480, 481, and 482 (Hip and
Femur Procedures Except Major Joint with MCC, with CC, without CC/MCC,
respectively) and in MS-DRGs 495, 496, and 497 (Local Excision of
Internal Fixation Device Except Hip and Femur with MCC, with CC, and
with CC/MCC, respectively) and assign them to MS-DRGs 463, 464, and 465
(Wound Debridement and Skin Graft Except Hand, for Musculo-Connective
Tissue Disease with MCC, with CC, without CC/MCC, respectively). MS-
DRGs 463, 464, and 465 include cases that are treated with a
debridement for infection. The requestor stated that these cases are
clinically similar to those captured by procedure codes 80.05 and 80.06
where the prosthesis is removed and a new prosthesis is not inserted
because of an infection.
The requestor specifically asked that we remove the hip arthrotomy
code 80.05 from MS-DRGs 480, 481, and 482, and assign it to MS-DRGs
463, 464, and 465. The requestor also recommended that we remove the
knee arthrotomy code 80.06 from MS-DRGs 495, 496, and 497 and assign it
to MS-DRGs 463, 464, and 465.
If we were to accept the requestor's suggestion, joint replacement
cases in which the patients were admitted for inpatient services to
remove the prosthesis because of an infection would be assigned to the
higher paying debridement MS-DRGs (MS-DRGs 463, 464, and 465). As
mentioned earlier, these MS-DRGs contain other cases involving
treatment for infections.
We examined hip replacement cases identified by procedure code
80.05 in MS-DRGs 480, 481, and 482, and knee replacement cases
identified by procedure code 80.06 in MS-DRGs 495, 496, and 497 using
the FY 2008 MedPAR file. Our data support the requestor's suggestion
that these cases have similar costs to those in MS-DRGs 463, 464, and
465, and that they are significantly more expensive to treat than those
in their current MS-DRG assignments. The following table summarizes
those findings:

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay cost*
------------------------------------------------------------------------
463--All Cases................... 4,834 16.59 $26,696
464--All Cases................... 4,934 9.52 15,065
465--All Cases................... 1,696 5.45 9,041
480--All Cases................... 31,181 8.89 17,168
480--Cases with code 80.05....... 643 13.35 26,053
480--Cases without code 80.05.... 30,538 8.80 16,981
481--All Cases................... 72,406 5.68 11,259
481--Cases with code 80.05....... 871 8.34 17,202
481--Cases without code 80.05.... 71,535 5.65 11,187
482--All Cases................... 37,443 4.65 9,320
482--Cases with code 80.05....... 282 6.82 13,718
482--Cases without code 80.05.... 37,161 4.63 9,287
495--All Cases................... 2,140 10.40 18,729
495--Cases with code 80.06....... 513 11.53 23,508
495--Cases without code 80.06.... 1,627 10.04 17,432
496--All Cases................... 5,518 5.73 10,827
496--Cases with code 80.06....... 1,346 6.67 14,454
496--Cases without code 80.06.... 4,172 5.42 9,657
497--All Cases................... 5,856 2.84 7,148
497--Cases with code 80.06....... 688 5.08 12,234
497--Cases without code 80.06.... 5,168 2.54 6,470
------------------------------------------------------------------------
* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based
weighting methodology. The cost-based weights were adopted over a 3-
year transition period in 1/3 increments between FY 2007 and FY 2009.
The average cost represents the average standardized charges on the
claims reduced to cost using the cost center-specific CCRs for a
specific DRG. The standardization process includes adjustments for
IME, DSH, and wage index as applied to individual hospitals. This
estimation of cost is the same method used in the computation of the
relative weights. We are using cost-based data instead of our
historical charge-based data to evaluate proposed MS-DRG
classification changes.

The data show that hip replacement cases with procedure code 80.05
in MS-DRGs 480, 481, and 482 have average costs of $26,053, $17,202,
and $13,718, respectively, compared to overall average costs of $17,168
in MS-DRG 480; $11,259 in MS-DRG 481; and $9,320 in MS-DRG 482. The
data also show that knee replacement cases with procedure code 80.06 in
MS-DRGs 495, 496, and 497 have average costs of $23,508, $14,454, and
$12,234, respectively, compared to average costs of all cases of
$18,729 in MS-DRG 495, $10,827 in MS-DRG 496, and $7,148 in MS-DRG 497.
All cases in MS-DRGs 463, 464, and 465 had average costs of $26,696,
$15,065, and $9,041, respectively.
The results of this analysis of data support the reassignment of
procedure codes 80.05 and 80.06 to MS-DRGs 463, 464, and 465.
Therefore, we are proposing to move procedure codes 80.05 and 80.06
from their current assignments in MS-DRGs 480, 481, and 482 and 495,
496, and 497 and assign them to MS-DRGs 463, 464, and 465. We also are
proposing to revise the code title of procedure code 80.05 to read
``Arthrotomy for removal of prosthesis without replacement, hip'' and
the title of procedure code 80.06 to read ``Arthrotomy for removal of
prosthesis without replacement, knee'', effective October 1, 2009, as
is shown in Table

[[Page 24109]]

6F of the Addendum to this proposed rule.
3. Proposed Medicare Code Editor (MCE) Changes
As explained under section II.B.1. of the preamble of this final
rule, the Medicare Code Editor (MCE) is a software program that detects
and reports errors in the coding of Medicare claims data. Patient
diagnoses, procedure(s), and demographic information are entered into
the Medicare claims processing systems and are subjected to a series of
automated screens. The MCE screens are designed to identify cases that
require further review before classification into a DRG. For FY 2010,
we are proposing to make the following changes to the MCE edits:
a. Diagnoses Allowed for Males Only Edit
There are four diagnosis codes that were inadvertently left off of
the MCE edit titled ``Diagnoses Allowed for Males Only.'' These codes
are located in the chapter of the ICD-9-CM diagnosis codes entitled
``Diseases of Male Genital Organs.'' In the FY 2009 IPPS final rule, we
indicated that we were adding the following four codes to this MCE
edit:
603.0 (Encysted hydrocele)
603.1 (Infected hydrocele)
603.8 (Other specified types of hydrocele)
603.9 (Hydrocele, unspecified).
We had no reported problems or confusion with the omission of these
codes from this section of the MCE, but in order to have an accurate
product, we indicated that we were adding these codes for FY 2009.
However, through an oversight, we failed to implement the indicated FY
2009 changes to the MCE by adding codes 603.0, 603.1, 603.8, and 603.9
to the MCE edit of diagnosis allowed for males only. In this FY 2010
IPPS proposed rule, we are acknowledging this omission and are again
proposing to make the changes.
b. Manifestation Codes as Principal Diagnosis Edit
Manifestation codes describe the manifestation of an underlying
disease, not the disease itself. Therefore, manifestation codes should
not be used as a principal diagnosis. The National Center for Health
Statistics (NCHS) has removed the advice ``code first associated
disorder'' from three codes, thereby making them acceptable principal
diagnosis codes. These codes are:
365.41 (Glaucoma associated with chamber angle anomalies)
365.42 (Glaucoma associated with anomalies of iris)
365.43 (Glaucoma associated with other anterior segment
anomalies)
In order to make conforming changes to the MCE, we are proposing to
remove codes 365.41, 365.42, and 365.43 from the Manifestation Code as
Principal Diagnosis Edit.
c. Invalid Diagnosis or Procedure Code
The MCE checks each diagnosis, including the admitting diagnosis,
and each procedure against a table of valid ICD-9-CM codes. If an
entered code does not agree with any code on the list, it is assumed to
be invalid or that the 4th or 5th digit of the code is invalid or
missing.
An error was discovered in this edit. ICD-9-CM code 00.01
(Therapeutic ultrasound of vessels of head and neck) was inadvertently
left out of the MCE tables. The inclusion of this code in the MCE
tables would have generated an error message at the Medicare contractor
level, but we had instructed the Medicare contractors to override this
edit for discharges on or after October 1, 2008. To make a conforming
change to the MCE, we are proposing to add code 00.01 to the table of
valid codes.
d. Unacceptable Principal Diagnosis
There are selected codes that describe a circumstance that
influences an individual's health status but not a current illness or
injury and codes that are not specific manifestations but may describe
illnesses due to an underlying cause. These codes are considered
unacceptable as a principal diagnosis.
For FY 2008, a series of diagnostic codes were created at
subcategory 209, Neuroendocrine Tumors. An instructional note under
this subcategory stated that coders were to ``Code first any associated
multiple endocrine neoplasia syndrome (258.01-258.03)''. Medicare
contractors had interpreted this note to mean that none of the codes in
subcategory 209 were acceptable principal diagnoses and had entered
these codes on the MCE edit for unacceptable principal diagnoses. We
later deemed this interpretation to be incorrect. We had not intended
that the series of codes at subcategory 209 were only acceptable as
secondary diagnoses.
To avoid future misinterpretation, in this proposed rule, we are
proposing to remove the following codes from the MCE edit for
unacceptable principal diagnoses.
209.00 (Malignant carcinoid tumor of the small intestine,
unspecified portion)
209.01 (Malignant carcinoid tumor of the duodenum)
209.02 (Malignant carcinoid tumor of the jejunum)
209.03 (Malignant carcinoid tumor of the ileum)
209.10 (Malignant carcinoid tumor of the large intestine,
unspecified portion)
209.11 (Malignant carcinoid tumor of the appendix)
209.12 (Malignant carcinoid tumor of the cecum)
209.13 (Malignant carcinoid tumor of the ascending colon)
209.14 (Malignant carcinoid tumor of the transverse colon)
209.15 (Malignant carcinoid tumor of the descending colon)
209.16 (Malignant carcinoid tumor of the sigmoid colon)
209.17 (Malignant carcinoid tumor of the rectum)
209.20 (Malignant carcinoid tumor of unknown primary site)
209.21 (Malignant carcinoid tumor of the bronchus and
lung)
209.22 (Malignant carcinoid tumor of the thymus)
209.23 (Malignant carcinoid tumor of the stomach)
209.24 (Malignant carcinoid tumor of the kidney)
209.25 (Malignant carcinoid tumor of foregut, not
otherwise specified)
209.26 (Malignant carcinoid tumor of midgut, not otherwise
specified)
209.27 (Malignant carcinoid tumor of hindgut, not
otherwise specified)
209.29 (Malignant carcinoid tumor of other sites)
209.30 (Malignant poorly differentiated neuroendocrine
carcinoma, any site)
209.40 (Benign carcinoid tumor of the small intestine,
unspecified portion)
209.41 (Benign carcinoid tumor of the duodenum)
209.42 (Benign carcinoid tumor of the jejunum)
209.43 (Benign carcinoid tumor of the ileum)
209.50 (Benign carcinoid tumor of the large intestine,
unspecified portion)
209.51 (Benign carcinoid tumor of the appendix)
209.52 (Benign carcinoid tumor of the cecum)
209.53 (Benign carcinoid tumor of the ascending colon)
209.54 (Benign carcinoid tumor of the transverse colon)
209.55 (Benign carcinoid tumor of the descending colon)
209.56 (Benign carcinoid tumor of the sigmoid colon)
209.57 (Benign carcinoid tumor of the rectum)
209.60 (Benign carcinoid tumor of unknown primary site)
209.61 (Benign carcinoid tumor of the bronchus and lung)
209.62 (Benign carcinoid tumor of the thymus)

[[Page 24110]]

209.63 (Benign carcinoid tumor of the stomach)
209.64 (Benign carcinoid tumor of the kidney)
209.65 (Benign carcinoid tumor of foregut, not otherwise
specified)
209.66 (Benign carcinoid tumor of midgut, not otherwise
specified)
209.67 (Benign carcinoid tumor of hindgut, not otherwise
specified)
209.69 (Benign carcinoid tumor of other sites)
In the meantime, CMS has issued instructions in the form of an
interim working document called a joint signature memorandum to the
Medicare contractors to override this edit and process claims
containing codes from the subcategory 209 series as acceptable
principal diagnoses.
e. Proposed Creation of New Edit Titled ``Wrong Surgeries''
On January 15, 2009, CMS issued three National Coverage Decision
memoranda on the coverage of erroneous surgeries on Medicare patients:
Wrong Surgical or Other Invasive Procedure Performed on a Patient (CAG-
00401N); Surgical or Other Invasive Procedure Performed on the Wrong
Body Part (CAG-00402N); and Surgical or Other Invasive Procedure
Performed on the Wrong Patient (CAG-00403N). We refer readers to the
following CMS Web sites to view the memoranda in their entirety: For
the decision memorandum on surgery on the wrong body part: https://
www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=222. For the decision
memorandum on surgery on the wrong patient: https://www.cms.hhs.gov/
mcd/viewdecisionmemo.asp?id=221. For the decision memorandum on the
wrong surgery performed on a patient: https://www.cms.hhs.gov/mcd/
viewdecisionmemo.asp?id=223.
To conform to these new coverage decisions, in this proposed rule,
we are proposing to create a new edit to identify cases in which wrong
surgeries occurred. The NCHS has revised the title of one E-code and
created two new E-codes to identify cases in which incorrect surgeries
have occurred. The revised E-code title is:
E876.5 (Performance of wrong operation (procedure) on
correct patient).
The two new E-codes are as follows:
E876.6 (Performance of operation (procedure) on patient
not scheduled for surgery)
E876.7 (Performance of correct operation (procedure) on
wrong side/body part)
A complete list of all of the E-codes that will be implemented on
October 1, 2009, can be found on the CMS Web site home page at: http://
www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/07_
summarytables.asp#TopOfPage in the download titled ``New, Deleted, and
Invalid Diagnosis and Procedure Codes.''
Currently, an E-code used as a principal diagnosis will receive the
MCE Edit ``E-code as principal diagnosis''. This edit will remain in
effect. However, we are proposing a change to the MCE so that E-codes
E876.5 through E876.7, whether they are in the principal or secondary
diagnosis position, will trigger the ``Wrong Surgery'' edit. Any claim
with this edit will be denied and returned to the provider.
f. Procedures Allowed for Females Only Edit
It has come to our attention that code 75.37 (Amnioinfusion) and
code 75.38 (Fetal pulse oximetry) were inadvertently omitted from the
MCE edit ``Procedures Allowed for Females Only.'' In order to correct
this omission, we are proposing to add codes 75.37 and 75.38 and to the
edit for procedures allowed for females only.
4. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different MS-DRG within the MDC to which the principal diagnosis
is assigned. Therefore, it is necessary to have a decision rule within
the GROUPER by which these cases are assigned to a single MS-DRG. The
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function.
Application of this hierarchy ensures that cases involving multiple
surgical procedures are assigned to the MS-DRG associated with the most
resource-intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of MS-DRG reclassification and recalibrations, we
reviewed the surgical hierarchy of each MDC, as we have for previous
reclassifications and recalibrations, to determine if the ordering of
classes coincides with the intensity of resource utilization.
A surgical class can be composed of one or more MS-DRGs. For
example, in MDC 11, the surgical class ``kidney transplant'' consists
of a single MS-DRG (MS-DRG 652) and the class ``major bladder
procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655).
Consequently, in many cases, the surgical hierarchy has an impact on
more than one MS-DRG. The methodology for determining the most
resource-intensive surgical class involves weighting the average
resources for each MS-DRG by frequency to determine the weighted
average resources for each surgical class. For example, assume surgical
class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs
3, 4, and 5. Assume also that the average costs of MS-DRG 1 is higher
than that of MS-DRG 3, but the average costs of MS-DRGs 4 and 5 are
higher than the average costs of MS-DRG 2. To determine whether
surgical class A should be higher or lower than surgical class B in the
surgical hierarchy, we would weight the average costs of each MS-DRG in
the class by frequency (that is, by the number of cases in the MS-DRG)
to determine average resource consumption for the surgical class. The
surgical classes would then be ordered from the class with the highest
average resource utilization to that with the lowest, with the
exception of ``other O.R. procedures'' as discussed below.
This methodology may occasionally result in assignment of a case
involving multiple procedures to the lower-weighted MS-DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER search for the procedure in the
most resource-intensive surgical class, in cases involving multiple
procedures, this result is sometimes unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average cost is
ordered above a surgical class with a higher average cost. For example,
the ``other O.R. procedures'' surgical class is uniformly ordered last
in the surgical hierarchy of each MDC in which it occurs, regardless of
the fact that the average costs for the MS-DRG or MS-DRGs in that
surgical class may be higher than those for other surgical classes in
the MDC. The ``other O.R. procedures'' class is a group of procedures
that are only infrequently related to the diagnoses in the MDC, but are
still occasionally performed on patients in the MDC with these
diagnoses. Therefore, assignment to these surgical classes should only
occur if no other surgical class more closely related to the diagnoses
in the MDC is appropriate.
A second example occurs when the difference between the average
costs for two surgical classes is very small. We have found that small
differences

[[Page 24111]]

generally do not warrant reordering of the hierarchy because, as a
result of reassigning cases on the basis of the hierarchy change, the
average costs are likely to shift such that the higher-ordered surgical
class has a lower average costs than the class ordered below it.
For FY 2010, we are not proposing any revisions to the surgical
hierarchy.
5. Complications or Comorbidity (CC) Exclusions List
a. Background
As indicated earlier in the preamble of this proposed rule, under
the IPPS DRG classification system, we have developed a standard list
of diagnoses that are considered CCs. Historically, we developed this
list using physician panels that classified each diagnosis code based
on whether the diagnosis, when present as a secondary condition, would
be considered a substantial complication or comorbidity. A substantial
complication or comorbidity was defined as a condition that, because of
its presence with a specific principal diagnosis, would cause an
increase in the length of stay by at least 1 day in at least 75 percent
of the patients. We refer readers to section II.D.2. and 3. of the
preamble of the FY 2008 IPPS final rule with comment period for a
discussion of the refinement of CCs in relation to the MS-DRGs we
adopted for FY 2008 (72 FR 47121 through 47152).
b. CC Exclusions List for FY 2010
In the September 1, 1987 final notice (52 FR 33143) concerning
changes to the DRG classification system, we modified the GROUPER logic
so that certain diagnoses included on the standard list of CCs would
not be considered valid CCs in combination with a particular principal
diagnosis. We created the CC Exclusions List for the following reasons:
(1) To preclude coding of CCs for closely related conditions; (2) to
preclude duplicative or inconsistent coding from being treated as CCs;
and (3) to ensure that cases are appropriately classified between the
complicated and uncomplicated DRGs in a pair. As we indicated above, we
developed a list of diagnoses, using physician panels, to include those
diagnoses that, when present as a secondary condition, would be
considered a substantial complication or comorbidity. In previous
years, we have made changes to the list of CCs, either by adding new
CCs or deleting CCs already on the list.
In the May 19, 1987 proposed notice (52 FR 18877) and the September
1, 1987 final notice (52 FR 33154), we explained that the excluded
secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another.
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for the same condition should not be considered
CCs for one another.
Codes for the same condition that cannot coexist, such as
partial/total, unilateral/bilateral, obstructed/unobstructed, and
benign/malignant, should not be considered CCs for one another.
Codes for the same condition in anatomically proximal
sites should not be considered CCs for one another.
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. We have continued to review the remaining
CCs to identify additional exclusions and to remove diagnoses from the
master list that have been shown not to meet the definition of a CC.\2\
---------------------------------------------------------------------------

\2\ See the FY 1989 final rule (53 FR 38485, September 30,
1988), for the revision made for the discharges occurring in FY
1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for
the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September
4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR
43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final
rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the
FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994
revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994),
for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782,
September 1, 1995), for the FY 1996 revisions; the FY 1997 final
rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the
FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998
revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for
the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August
1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR
39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final
rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the
FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004
revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004),
for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640,
August 12, 2005), for the FY 2006 revisions; the FY 2007 final rule
(71 FR 47870) for the FY 2007 revisions; the FY 2008 final rule (72
FR 47130) for the FY 2008 revisions, and the FY 2009 final rule (73
FR 48510). In the FY 2000 final rule (64 FR 41490, July 30, 1999, we
did not modify the CC Exclusions List because we did not make any
changes to the ICD-9-CM codes for FY 2000.
---------------------------------------------------------------------------

For FY 2010, we are proposing to make limited revisions to the CC
Exclusions List to take into account the changes that will be made in
the ICD-9-CM diagnosis coding system effective October 1, 2009. (See
section II.G.7. of the preamble of this proposed rule for a discussion
of ICD-9-CM changes.) We are proposing to make these changes in
accordance with the principles established when we created the CC
Exclusions List in 1987.
Tables 6G and 6H, Additions to and Deletions from the CC Exclusion
List, respectively, which would be effective for discharges occurring
on or after October 1, 2009, are not being published in this proposed
rule because of the length of the two tables. Instead, we are making
them available through the Internet on the CMS Web site at: http://
www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnoses
for which there is a CC exclusion is shown in Tables 6G and 6H with an
asterisk, and the conditions that will not count as a CC, are provided
in an indented column immediately following the affected principal
diagnosis.
A complete updated MCC, CC, and Non-CC Exclusions List is also
available through the Internet on the CMS Web site at: http://
www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or
after October 1, 2009, the indented diagnoses will not be recognized by
the GROUPER as valid CCs for the asterisked principal diagnosis.
To assist readers in the review of changes to the MCC and CC lists
that occurred as a result of updates to the ICD-9-CM codes, as
described in Tables 6A, 6C, and 6E of the Addendum to this proposed
rule, we are providing the following summaries of those MCC and CC
changes.

Summary of Additions to the MS-DRG MCC List--Table 6I.1
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
277.88............................ Tumor lysis syndrome.
670.22............................ Puerperal sepsis, delivered, with
mention of postpartum complication.
670.24............................ Puerperal sepsis, postpartum
condition or complication.
670.32............................ Puerperal septic thrombophlebitis,
delivered, with mention of
postpartum complication.
670.34............................ Puerperal septic thrombophlebitis,
postpartum condition or
complication.
670.80............................ Other major puerperal infection,
unspecified as to episode of care
or not applicable.
670.82............................ Other major puerperal infection,
delivered, with mention of
postpartum complication.
670.84............................ Other major puerperal infection,
postpartum condition or
complication.
756.72............................ Omphalocele.
756.73............................ Gastroschisis.
768.73............................ Severe hypoxic-ischemic
encephalopathy.
779.32............................ Bilious vomiting in newborn.
------------------------------------------------------------------------

[[Page 24112]]

Summary of Deletions From the MS-DRG MCC List--Table 6I.2
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
768.7............................. Hypoxic-ischemic encephalopathy
(HIE).
------------------------------------------------------------------------

Summary of Additions to the MS-DRG CC List--Table 6J.1
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
209.71............................ Secondary neuroendocrine tumor of
distant lymph nodes.
209.72............................ Secondary neuroendocrine tumor of
liver.
209.73............................ Secondary neuroendocrine tumor of
bone.
209.74............................ Secondary neuroendocrine tumor of
peritoneum.
209.79............................ Secondary neuroendocrine tumor of
other sites.
416.2............................. Chronic pulmonary embolism.
453.50............................ Chronic venous embolism and
thrombosis of unspecified deep
vessels of lower extremity.
453.51............................ Chronic venous embolism and
thrombosis of deep vessels of
proximal lower extremity.
453.52............................ Chronic venous embolism and
thrombosis of deep vessels of
distal lower extremity.
453.6............................. Venous embolism and thrombosis of
superficial vessels of lower
extremity.
453.71............................ Chronic venous embolism and
thrombosis of superficial veins of
upper extremity.
453.72............................ Chronic venous embolism and
thrombosis of deep veins of upper
extremity.
453.73............................ Chronic venous embolism and
thrombosis of upper extremity,
unspecified.
453.74............................ Chronic venous embolism and
thrombosis axillary veins.
453.75............................ Chronic venous embolism and
thrombosis of subclavian veins.
453.76............................ Chronic venous embolism and
thrombosis of internal jugular
veins.
453.77............................ Chronic venous embolism and
thrombosis of other thoracic veins.
453.79............................ Chronic venous embolism and
thrombosis of other specified
veins.
453.81............................ Acute venous embolism and thrombosis
of superficial veins of upper
extremity.
453.82............................ Acute venous embolism and thrombosis
of deep veins of upper extremity.
453.83............................ Acute venous embolism and thrombosis
of upper extremity, unspecified.
453.84............................ Acute venous embolism and thrombosis
of axillary veins.
453.85............................ Acute venous embolism and thrombosis
of subclavian veins.
453.86............................ Acute venous embolism and thrombosis
of internal jugular veins.
453.87............................ Acute venous embolism and thrombosis
of other thoracic veins.
453.89............................ Acute venous embolism and thrombosis
of other specified veins.
569.71............................ Pouchitis.
569.79............................ Other complications of intestinal
pouch.
670.10............................ Puerperal endometritis, unspecified
as to episode of care or not
applicable.
670.12............................ Puerperal endometritis, delivered,
with mention of postpartum
complication.
670.14............................ Puerperal endometritis, postpartum
condition or complication.
670.20............................ Puerperal sepsis, unspecified as to
episode of care or not applicable.
670.30............................ Puerperal septic thrombophlebitis,
unspecified as to episode of care
or not applicable.
768.70............................ Hypoxic-ischemic encephalopathy,
unspecified.
768.71............................ Mild hypoxic-ischemic
encephalopathy.
768.72............................ Moderate hypoxic-ischemic
encephalopathy.
813.46............................ Torus fracture of ulna (alone).
813.47............................ Torus fracture of radius and ulna.
------------------------------------------------------------------------

Summary of Deletions From the MS-DRG CC List--Table 6J.2
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
453.8............................. Other venous embolism and thrombosis
of other specified veins.
------------------------------------------------------------------------

Alternatively, the complete documentation of the GROUPER logic,
including the current CC Exclusions List, is available from 3M/Health
Information Systems (HIS), which, under contract with CMS, is
responsible for updating and maintaining the GROUPER program. The
current MS-DRG Definitions Manual, Version 26.0, is available for
$250.00, which includes shipping and handling. Version 26.0 of the
manual is also available on a CD for $200.00; a combination hard copy
and CD is available for $400.00. Version 27.0 of this manual, which
will include the final FY 2010 MS-DRG changes, will be available in CD
only for $225.00. These manuals may be obtained by writing 3M/HIS at
the following address: 100 Barnes Road, Wallingford, CT 06492; or by
calling (203) 949-0303, or by obtaining an order form at the Web site:
http://www.3MHIS.com. Please specify the revision or revisions
requested.
6. Review of Procedure Codes in MS DRGs 981 through 983; 984 through
986; and 987 through 989
Each year, we review cases assigned to former CMS DRG 468
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal
Diagnosis) to determine whether it would be appropriate to change the
procedures assigned among these CMS DRGs. Under the MS-DRGs that we
adopted for FY 2008, CMS DRG 468 was split three ways and became MS-
DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 476 became
MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to
Principal Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 477
became MS-DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated
to Principal Diagnosis with MCC, with CC, and without CC/MCC).
MS-DRGs 981 through 983, 984 through 986, and 987 through 989
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for
those cases in which none of the O.R. procedures performed are related
to the principal diagnosis. These DRGs are intended to capture atypical
cases, that is, those cases not occurring with sufficient frequency to
represent a distinct, recognizable clinical group. MS-DRGs 984 through
986 (previously CMS DRG 476) are assigned to those discharges in which
one or more of the following prostatic procedures are performed and are
unrelated to the principal diagnosis:
60.0, Incision of prostate
60.12, Open biopsy of prostate
60.15, Biopsy of periprostatic tissue
60.18, Other diagnostic procedures on prostate and
periprostatic tissue
60.21, Transurethral prostatectomy
60.29, Other transurethral prostatectomy
60.61, Local excision of lesion of prostate
60.69, Prostatectomy, not elsewhere classified
60.81, Incision of periprostatic tissue
60.82, Excision of periprostatic tissue
60.93, Repair of prostate
60.94, Control of (postoperative) hemorrhage of prostate

[[Page 24113]]

60.95, Transurethral balloon dilation of the prostatic
urethra
60.96, Transurethral destruction of prostate tissue by
microwave thermotherapy
60.97, Other transurethral destruction of prostate tissue
by other thermotherapy
60.99, Other operations on prostate
All remaining O.R. procedures are assigned to MS-DRGs 981 through
983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those
discharges in which the only procedures performed are nonextensive
procedures that are unrelated to the principal diagnosis.\3\
---------------------------------------------------------------------------

\3\ The original list of the ICD-9-CM procedure codes for the
procedures we consider nonextensive procedures, if performed with an
unrelated principal diagnosis, was published in Table 6C in section
IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part
of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56
FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final
rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY
1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173),
and the FY 1998 final rule (62 FR 45981), we moved several other
procedures from DRG 468 to DRG 477, and some procedures from DRG 477
to DRG 468. No procedures were moved in FY 1999, as noted in the
final rule (63 FR 40962); in FY 2000 (64 FR 41496); in FY 2001 (65
FR 47064); or in FY 2002 (66 FR 39852). In the FY 2003 final rule
(67 FR 49999) we did not move any procedures from DRG 477. However,
we did move procedure codes from DRG 468 and placed them in more
clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365),
we moved several procedures from DRG 468 to DRGs 476 and 477 because
the procedures are nonextensive. In the FY 2005 final rule (69 FR
48950), we moved one procedure from DRG 468 to 477. In addition, we
added several existing procedures to DRGs 476 and 477. In the FY
2006 (70 FR 47317), we moved one procedure from DRG 468 and assigned
it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and
assigned it to DRGs 479, 553, and 554. In FYs 2008 and 2009, no
procedures were moved, as noted in the FY 2008 final rule with
comment period (72 FR 46241), and in the FY 2009 final rule (73 FR
48513).
---------------------------------------------------------------------------

For FY 2010, we are not proposing to change the procedures assigned
among these MS-DRGs.
a. Moving Procedure Codes from MS-DRGs 981 Through 983 or MS-DRGs 987
Through 989 to MDCs
We annually conduct a review of procedures producing assignment to
MS-DRGs 981 through 983 (formerly CMS DRG 468) or MS-DRGs 987 through
989 (formerly CMS DRG 477) on the basis of volume, by procedure, to see
if it would be appropriate to move procedure codes out of these MS-DRGs
into one of the surgical MS-DRGs for the MDC into which the principal
diagnosis falls. The data are arrayed in two ways for comparison
purposes. We look at a frequency count of each major operative
procedure code. We also compare procedures across MDCs by volume of
procedure codes within each MDC.
We identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical DRGs for the MDC in which the diagnosis falls. For
FY 2010, we are not proposing to remove any procedures from MS-DRGs 981
through 983 or MS-DRGs 987 through 989.
b. Reassignment of Procedures among MS-DRGs 981 through 983, 984
through 986, and 987 through 989)
We also annually review the list of ICD-9-CM procedures that, when
in combination with their principal diagnosis code, result in
assignment to MS-DRGs 981 through 983, 984 through 986, and 987 through
989 (formerly, CMS DRGs 468, 476, and 477, respectively), to ascertain
whether any of those procedures should be reassigned from one of these
three MS-DRGs to another of the three MS-DRGs based on average charges
and the length of stay. We look at the data for trends such as shifts
in treatment practice or reporting practice that would make the
resulting MS-DRG assignment illogical. If we find these shifts, we
would propose to move cases to keep the MS-DRGs clinically similar or
to provide payment for the cases in a similar manner. Generally, we
move only those procedures for which we have an adequate number of
discharges to analyze the data.
For FY 2010, we are not proposing to move any procedure codes among
these MS-DRGs.
c. Adding Diagnosis or Procedure Codes to MDCs
Based on our review this year, we are not proposing to add any
diagnosis codes to MDCs for FY 2010.
7. Changes to the ICD-9-CM Coding System
As described in section II.B.1. of the preamble of this proposed
rule, the ICD-9-CM is a coding system used for the reporting of
diagnoses and procedures performed on a patient. In September 1985, the
ICD-9-CM Coordination and Maintenance Committee was formed. This is a
Federal interdepartmental committee, co-chaired by the National Center
for Health Statistics (NCHS), the Centers for Disease Control and
Prevention, and CMS, charged with maintaining and updating the ICD-9-CM
system. The Committee is jointly responsible for approving coding
changes, and developing errata, addenda, and other modifications to the
ICD-9-CM to reflect newly developed procedures and technologies and
newly identified diseases. The Committee is also responsible for
promoting the use of Federal and non-Federal educational programs and
other communication techniques with a view toward standardizing coding
applications and upgrading the quality of the classification system.
The Official Version of the ICD-9-CM contains the list of valid
diagnosis and procedure codes. (The Official Version of the ICD-9-CM is
available from the Government Printing Office on CD-ROM for $19.00 by
calling (202) 512-1800.) Complete information on ordering the CD-ROM is
also available at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/
05_CDROM.asp#TopOfPage. The Official Version of the ICD-9-CM is no
longer available in printed manual form from the Federal Government; it
is only available on CD-ROM. Users who need a paper version are
referred to one of the many products available from publishing houses.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
CMS has lead responsibility for the ICD-9-CM procedure codes included
in the Tabular List and Alphabetic Index for Procedures.
The Committee encourages participation in the above process by
health-related organizations. In this regard, the Committee holds
public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding field, such
as the American Health Information Management Association (AHIMA), the
American Hospital Association (AHA), and various physician specialty
groups, as well as individual physicians, health information management
professionals, and other members of the public, to contribute ideas on
coding matters. After considering the opinions expressed at the public
meetings and in writing, the Committee formulates recommendations,
which then must be approved by the agencies.
The Committee presented proposals for coding changes for
implementation in FY 2010 at a public meeting held on September 24-25,
2008 and finalized the coding changes after consideration of comments
received at the meetings and in writing by December 5, 2008. Those
coding changes are announced in Tables 6A through 6F in the Addendum to
this proposed rule. The Committee held its 2009 meeting on March 11-12,
2009. New codes for which there was a

[[Page 24114]]

consensus of public support and for which complete tabular and indexing
changes are made by May 2009 will be included in the October 1, 2009
update to ICD-9-CM. Code revisions that were discussed at the March 11-
12, 2009 Committee meeting but that could not be finalized in time to
include them in the Addendum to this proposed rule are not included in
Tables 6A through 6F. These additional codes will be included in Tables
6A through 6F of the final rule and will be marked with an asterisk
(*).
Copies of the minutes of the procedure codes discussions at the
Committee's September 24-25, 2008 meeting and March 11-12, 2009 meeting
can be obtained from the CMS Web site at: http://cms.hhs.gov/
ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the
diagnosis codes discussions at the September 24-25, 2008 meeting and
March 11-12, 2009 meeting are found at: http://www.cdc.gov/nchs/
icd9.htm. Paper copies of these minutes are no longer available and the
mailing list has been discontinued. These Web sites also provide
detailed information about the Committee, including information on
requesting a new code, attending a Committee meeting, and timeline
requirements and meeting dates.
We encourage commenters to address suggestions on coding issues
involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM
Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo
Road, Hyattsville, MD 20782. Comments may be sent by e-mail to:
dfp4@cdc.gov.
Questions and comments concerning the procedure codes should be
addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination
and Maintenance Committee, CMS, Center for Medicare Management,
Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06,
7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent
by e-mail to: patricia.brooks2@cms.hhs.gov.
The ICD-9-CM code changes that have been approved will become
effective October 1, 2009. The new ICD-9-CM codes are listed, along
with their DRG classifications, in Tables 6A and 6B (New Diagnosis
Codes and New Procedure Codes, respectively) in the Addendum to this
proposed rule. As we stated above, the code numbers and their titles
were presented for public comment at the ICD-9-CM Coordination and
Maintenance Committee meetings. Both oral and written comments were
considered before the codes were approved. In this FY 2010 IPPS
proposed rule, we are only soliciting comments on the proposed
classification of these new codes.
For codes that have been replaced by new or expanded codes, the
corresponding new or expanded diagnosis codes are included in Table 6A
in the Addendum to this proposed rule. New procedure codes are shown in
Table 6B in the Addendum to this proposed rule. Diagnosis codes that
have been replaced by expanded codes or other codes or have been
deleted are in Table 6C (Invalid Diagnosis Codes) in the Addendum to
this proposed rule. These invalid diagnosis codes will not be
recognized by the GROUPER beginning with discharges occurring on or
after October 1, 2009. Table 6D in the Addendum to this proposed rule
contains invalid procedure codes. These invalid procedure codes will
not be recognized by the GROUPER beginning with discharges occurring on
or after October 1, 2009. Revisions to diagnosis code titles are in
Table 6E (Revised Diagnosis Code Titles) in the Addendum to this
proposed rule, which also includes the MS-DRG assignments for these
revised codes. Table 6F in the Addendum to this proposed rule includes
revised procedure code titles for FY 2010.
In the September 7, 2001 final rule implementing the IPPS new
technology add-on payments (66 FR 46906), we indicated we would attempt
to include proposals for procedure codes that would describe new
technology discussed and approved at the Spring meeting as part of the
code revisions effective the following October. As stated previously,
ICD-9-CM codes discussed at the March 11-12, 2009 Committee meeting
that receive consensus and that were finalized by May 2009 will be
included in Tables 6A through 6F in the Addendum to the final rule.
Section 503(a) of Public Law 108-173 included a requirement for
updating ICD-9-CM codes twice a year instead of a single update on
October 1 of each year. This requirement was included as part of the
amendments to the Act relating to recognition of new technology under
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by
adding a clause (vii) which states that the ``Secretary shall provide
for the addition of new diagnosis and procedure codes on April 1 of
each year, but the addition of such codes shall not require the
Secretary to adjust the payment (or diagnosis-related group
classification) * * * until the fiscal year that begins after such
date.'' This requirement improves the recognition of new technologies
under the IPPS system by providing information on these new
technologies at an earlier date. Data will be available 6 months
earlier than would be possible with updates occurring only once a year
on October 1.
While section 1886(d)(5)(K)(vii) of the Act states that the
addition of new diagnosis and procedure codes on April 1 of each year
shall not require the Secretary to adjust the payment, or DRG
classification, under section 1886(d) of the Act until the fiscal year
that begins after such date, we have to update the DRG software and
other systems in order to recognize and accept the new codes. We also
publicize the code changes and the need for a mid-year systems update
by providers to identify the new codes. Hospitals also have to obtain
the new code books and encoder updates, and make other system changes
in order to identify and report the new codes.
The ICD-9-CM Coordination and Maintenance Committee holds its
meetings in the spring and fall in order to update the codes and the
applicable payment and reporting systems by October 1 of each year.
Items are placed on the agenda for the ICD-9-CM Coordination and
Maintenance Committee meeting if the request is received at least 2
months prior to the meeting. This requirement allows time for staff to
review and research the coding issues and prepare material for
discussion at the meeting. It also allows time for the topic to be
publicized in meeting announcements in the Federal Register as well as
on the CMS Web site. The public decides whether or not to attend the
meeting based on the topics listed on the agenda. Final decisions on
code title revisions are currently made by March 1 so that these titles
can be included in the IPPS proposed rule. A complete addendum
describing details of all changes to ICD-9-CM, both tabular and index,
is published on the CMS and NCHS Web sites in May of each year.
Publishers of coding books and software use this information to modify
their products that are used by health care providers. This 5-month
time period has proved to be necessary for hospitals and other
providers to update their systems.
A discussion of this timeline and the need for changes are included
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance
Committee minutes. The public agreed that there was a need to hold the
fall meetings earlier, in September or October, in order to meet the
new implementation dates. The public provided comment that additional
time would be needed to update hospital

[[Page 24115]]

systems and obtain new code books and coding software. There was
considerable concern expressed about the impact this new April update
would have on providers.
In the FY 2005 IPPS final rule, we implemented section
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law
108-173, by developing a mechanism for approving, in time for the April
update, diagnosis and procedure code revisions needed to describe new
technologies and medical services for purposes of the new technology
add-on payment process. We also established the following process for
making these determinations. Topics considered during the Fall ICD-9-CM
Coordination and Maintenance Committee meeting are considered for an
April 1 update if a strong and convincing case is made by the requester
at the Committee's public meeting. The request must identify the reason
why a new code is needed in April for purposes of the new technology
process. The participants at the meeting and those reviewing the
Committee meeting summary report are provided the opportunity to
comment on this expedited request. All other topics are considered for
the October 1 update. Participants at the Committee meeting are
encouraged to comment on all such requests. There were no requests
approved for an expedited April 1, 2009 implementation of an ICD-9-CM
code at the September 24-25, 2008 Committee meeting. Therefore, there
were no new ICD-9-CM codes implemented on April 1, 2009.
Current addendum and code title information is published on the CMS
Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_
overview.aspTopofPage. Information on ICD-9-CM diagnosis
codes, along with the Official ICD-9-CM Coding Guidelines, can be found
on the Web site at: http://www.cdc.gov/nchs/icd9.htm. Information on
new, revised, and deleted ICD-9-CM codes is also provided to the AHA
for publication in the Coding Clinic for ICD-9-CM. AHA also distributes
information to publishers and software vendors.
CMS also sends copies of all ICD-9-CM coding changes to its
Medicare contractors for use in updating their systems and providing
education to providers.
These same means of disseminating information on new, revised, and
deleted ICD-9-CM codes will be used to notify providers, publishers,
software vendors, contractors, and others of any changes to the ICD-9-
CM codes that are implemented in April. The code titles are adopted as
part of the ICD-9-CM Coordination and Maintenance Committee process.
Thus, although we publish the code titles in the IPPS proposed and
final rules, they are not subject to comment in the proposed or final
rules. We will continue to publish the October code updates in this
manner within the IPPS proposed and final rules. For codes that are
implemented in April, we will assign the new procedure code to the same
DRG in which its predecessor code was assigned so there will be no DRG
impact as far as DRG assignment. Any midyear coding updates will be
available through the Web sites indicated above and through the Coding
Clinic for ICD-9-CM. Publishers and software vendors currently obtain
code changes through these sources in order to update their code books
and software systems. We will strive to have the April 1 updates
available through these Web sites 5 months prior to implementation
(that is, early November of the previous year), as is the case for the
October 1 updates.

H. Recalibration of MS-DRG Weights

In section II.E. of the preamble of this proposed rule, we state
that we fully implemented the cost-based DRG relative weights for FY
2009, which was the third year in the 3-year transition period to
calculate the relative weights at 100 percent based on costs. In the FY
2008 IPPS final rule with comment period (72 FR 47267), as recommended
by RTI, for FY 2008, we added two new CCRs for a total of 15 CCRs: One
for ``Emergency Room'' and one for ``Blood and Blood Products,'' both
of which can be derived directly from the Medicare cost report.
In developing the FY 2010 proposed system of weights, we used two
data sources: Claims data and cost report data. As in previous years,
the claims data source is the MedPAR file. This file is based on fully
coded diagnostic and procedure data for all Medicare inpatient hospital
bills. The FY 2008 MedPAR data used in this proposed rule include
discharges occurring on October 1, 2007, through September 30, 2008,
based on bills received by CMS through December 31, 2008, from all
hospitals subject to the IPPS and short-term, acute care hospitals in
Maryland (which are under a waiver from the IPPS under section
1814(b)(3) of the Act). The FY 2008 MedPAR file used in calculating the
relative weights includes data for approximately 11,648,471 Medicare
discharges from IPPS providers. Discharges for Medicare beneficiaries
enrolled in a Medicare Advantage managed care plan are excluded from
this analysis. The data exclude CAHs, including hospitals that
subsequently became CAHs after the period from which the data were
taken. The second data source used in the cost-based relative weighting
methodology is the FY 2007 Medicare cost report data files from HCRIS
(that is, cost reports beginning on or after October 1, 2006, and
before October 1, 2007), which represents the most recent full set of
cost report data available. We used the December 31, 2008 update of the
HCRIS cost report files for FY 2007 in setting the relative cost-based
weights.
The methodology we used to calculate the DRG cost-based relative
weights from the FY 2008 MedPAR claims data and FY 2007 Medicare cost
report data is as follows:
To the extent possible, all the claims were regrouped
using the proposed FY 2010 MS-DRG classifications discussed in sections
II.B. and G. of the preamble of this proposed rule.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively)
were limited to those Medicare-approved transplant centers that have
cases in the FY 2008 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those
facilities that have received approval from CMS as transplant centers.)
Organ acquisition costs for kidney, heart, heart-lung,
liver, lung, pancreas, and intestinal (or multivisceral organs)
transplants continue to be paid on a reasonable cost basis. Because
these acquisition costs are paid separately from the prospective
payment rate, it is necessary to subtract the acquisition charges from
the total charges on each transplant bill that showed acquisition
charges before computing the average cost for each MS-DRG and before
eliminating statistical outliers.
Claims with total charges or total length of stay less
than or equal to zero were deleted. Claims that had an amount in the
total charge field that differed by more than $10.00 from the sum of
the routine day charges, intensive care charges, pharmacy charges,
special equipment charges, therapy services charges, operating room
charges, cardiology charges, laboratory charges, radiology charges,
other service charges, labor and delivery charges, inhalation therapy
charges, emergency room charges, blood charges, and anesthesia charges
were also deleted.
At least 95.9 percent of the providers in the MedPAR file
had

[[Page 24116]]

charges for 10 of the 15 cost centers. Claims for providers that did
not have charges greater than zero for at least 10 of the 15 cost
centers were deleted.
Statistical outliers were eliminated by removing all cases
that were beyond 3.0 standard deviations from the mean of the log
distribution of both the total charges per case and the total charges
per day for each MS-DRG.
Effective October 1, 2008, because hospital inpatient
claims include a POA indicator field for each diagnosis present on the
claim, the POA indicator field was reset to ``Y'' for ``Yes'' just for
relative weight-setting purposes for all claims that otherwise have an
``N'' (No) or a ``U'' (documentation insufficient to determine if the
condition was present at the time of inpatient admission) in the POA
field.
Under current payment policy, the presence of specific HAC codes,
as indicated by the POA field values, can generate a lower payment for
the claim. Specifically, if the particular condition is present on
admission (that is, a ``Y'' indicator is associated with the diagnosis
on the claim), then it is not a ``HAC,'' and the hospital is paid with
the higher severity (and, therefore, higher weighted MS-DRG). If the
particular condition is not present on admission (that is, an ``N''
indicator is associated with the diagnosis on the claim) and there are
no other complicating conditions, the DRG GROUPER assigns the claim to
a lower severity (and, therefore, lower weighted) MS-DRG as a penalty
for allowing a Medicare inpatient to contract a ``HAC.'' While this
meets policy goals of encouraging quality care and generates program
savings, it presents an issue for the relative weight-setting process.
Because cases identified as HACs are likely to be more complex than
similar cases that are not identified as HACs, the charges associated
with HACs are likely to be higher as well. Thus, if the higher charges
of these HAC claims are grouped into lower severity MS-DRGs prior to
the relative weight-setting process, the relative weights of these
particular MS-DRGs would become artificially inflated, potentially
skewing the relative weights. In addition, we want to protect the
integrity of the budget neutrality process by ensuring that, in
estimating payments, no increase to the standardized amount occurs as a
result of lower overall payments in a previous year that stem from
using weights and case-mix that are based on lower severity MS-DRG
assignments. If this would occur, the anticipated cost savings from the
HAC policy would be lost. To avoid these problems, we are proposing to
reset the POA indicator field to ``Y'' just for relative weight-setting
purposes for all claims that otherwise have an ``N'' or a ``U'' in the
POA field. This ``forces'' the more costly HAC claims into the higher
severity MS-DRGs as appropriate, and the relative weights calculated
for each MS-DRG more closely reflect the true costs of those cases.
Once the MedPAR data were trimmed and the statistical outliers were
removed, the charges for each of the 15 cost groups for each claim were
standardized to remove the effects of differences in area wage levels,
IME and DSH payments, and for hospitals in Alaska and Hawaii, the
applicable cost-of-living adjustment. Because hospital charges include
charges for both operating and capital costs, we standardized total
charges to remove the effects of differences in geographic adjustment
factors, cost-of-living adjustments, and DSH payments under the capital
IPPS as well. Charges were then summed by MS-DRG for each of the 15
cost groups so that each MS-DRG had 15 standardized charge totals.
These charges were then adjusted to cost by applying the national
average CCRs developed from the FY 2007 cost report data.
The 15 cost centers that we used in the relative weight calculation
are shown in the following table. The table shows the lines on the cost
report and the corresponding revenue codes that we used to create the
15 national cost center CCRs.
BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TP22MY09.004

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[GRAPHIC] [TIFF OMITTED] TP22MY09.005

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[GRAPHIC] [TIFF OMITTED] TP22MY09.009

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[GRAPHIC] [TIFF OMITTED] TP22MY09.010

BILLING CODE 4120-01-C
We developed the national average CCRs as follows:
Taking the FY 2007 cost report data, we removed CAHs, Indian Health
Service hospitals, all-inclusive rate hospitals, and cost reports that
represented time periods of less than 1 year (365 days). We included
hospitals located in Maryland as we are including their charges in our
claims database. We then created CCRs for each provider for each cost
center (see prior table for line items used in the calculations) and
removed any CCRs that were greater than 10 or less than 0.01. We
normalized the departmental CCRs by dividing the CCR for each
department by the total CCR for the hospital for the purpose of
trimming the data. We then took the logs of the normalized cost center
CCRs and removed any cost center CCRs where the log of the cost center
CCR was greater or less than the mean log plus/minus 3 times the
standard deviation for the log of that cost center CCR. Once the cost
report data were trimmed, we calculated a Medicare-specific CCR. The
Medicare-specific CCR was determined by taking the Medicare charges for
each line item from Worksheet D-4 and deriving the Medicare-specific
costs by applying the hospital-specific departmental CCRs to the
Medicare-specific charges for each line item from Worksheet D-4. Once
each hospital's Medicare-specific costs were established, we summed the
total Medicare-specific costs and divided by the sum of the total
Medicare-specific charges to produce national average, charge-weighted
CCRs.
After we multiplied the total charges for each MS-DRG in each of
the 15 cost centers by the corresponding national average CCR, we
summed the 15 ``costs'' across each MS-DRG to produce a total
standardized cost for the MS-DRG. The average standardized cost for
each MS-DRG was then computed as the total standardized cost for the
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The
average cost for each MS-DRG was then divided by the national average
standardized cost per case to determine the relative weight.
The new cost-based relative weights were then normalized by an
adjustment factor of 1.54005 so that the average case weight after
recalibration was equal to the average case weight before
recalibration. The normalization adjustment is intended to ensure that
recalibration by itself neither increases nor decreases total payments
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
The 15 proposed national average CCRs for FY 2010 are as follows:

------------------------------------------------------------------------
Group CCR
------------------------------------------------------------------------
Routine Days............................................... 0.534
Intensive Days............................................. 0.469
Drugs...................................................... 0.199
Supplies & Equipment....................................... 0.344
Therapy Services........................................... 0.408
Laboratory................................................. 0.160
Operating Room............................................. 0.281
Cardiology................................................. 0.178
Radiology.................................................. 0.161
Emergency Room............................................. 0.276
Blood and Blood Products................................... 0.426
Other Services............................................. 0.418
Labor & Delivery........................................... 0.460
Inhalation Therapy......................................... 0.199
Anesthesia................................................. 0.134
------------------------------------------------------------------------

As we explained in section II.E. of the preamble of this proposed
rule, we have completed our 2-year transition to the MS-DRGs. For FY
2008, the first year of the transition, 50 percent of the relative
weight for an MS-DRG was based on the two-thirds cost-based weight/one-
third charge-based weight calculated using FY 2006 MedPAR data grouped
to the Version 24.0 (FY 2007) DRGs. The remaining 50 percent of the FY
2008 relative weight for an MS-DRG was based on the two-thirds cost-
based weight/one-third charge-based weight calculated using FY 2006
MedPAR grouped to the Version 25.0 (FY 2008) MS-DRGs. In FY 2009, the
relative weights were based on 100 percent cost weights computed using
the Version 26.0 (FY 2009) MS-DRGs.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. We are proposing to use that same case
threshold in recalibrating the MS-DRG weights for FY 2010. Using the FY
2008 MedPAR data set, there are 8 MS-DRGs that contain fewer than 10
cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the
CMS DRGs because we no longer have separate DRGs for patients age 0 to
17 years. With the exception of newborns, we previously separated some
DRGs based on whether the patient was age 0 to 17 years or age 17 years
and older. Other than the age split, cases grouping to these DRGs are
identical. The DRGs for patients age 0 to 17 years generally have very
low volumes because children are typically ineligible for Medicare. In
the past, we have found that the low volume of cases for the pediatric
DRGs could lead to significant year-to-year instability in their
relative weights. Although we have always encouraged non-Medicare
payers to develop weights applicable to their own patient populations,
we have heard frequent complaints from providers about the use of the
Medicare relative weights in the pediatric population. We believe that
eliminating this age split in the MS-DRGs will provide more stable
payment for pediatric cases by determining their payment using adult
cases that are much higher in total volume. Newborns are unique and
require separate MS-DRGs that are not mirrored in the adult population.
Therefore, it remains necessary to retain separate MS-DRGs for
newborns. All of the low-volume MS-DRGs listed below are for newborns.
In FY 2010, because we do not have sufficient MedPAR data to set
accurate and stable cost weights for these low-volume MS-DRGs, we are
proposing to compute weights for the low-volume MS-DRGs by adjusting
their FY 2009 weights by the percentage change in the average weight of
the

[[Page 24124]]

cases in other MS-DRGs. The crosswalk table is shown below:

------------------------------------------------------------------------
Low-volume MS-DRG MS-DRG title Crosswalk to MS-DRG
------------------------------------------------------------------------
768..................... Vaginal Delivery with FY 2009 FR weight
O.R. Procedure Except (adjusted by percent
Sterilization and/or change in average
D&C. weight of the cases
in other MS-DRGs).
789..................... Neonates, Died or FY 2009 FR weight
Transferred to (adjusted by percent
Another Acute Care change in average
Facility. weight of the cases
in other MS-DRGs).
790..................... Extreme Immaturity or FY 2009 FR weight
Respiratory Distress (adjusted by percent
Syndrome, Neonate. change in average
weight of the cases
in other MS-DRGs).
791..................... Prematurity with Major FY 2009 FR weight
Problems. (adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
792..................... Prematurity without FY 2009 FR weight
Major Problems. (adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
793..................... Full-Term Neonate with FY 2009 FR weight
Major Problems. (adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
794..................... Neonate with Other FY 2009 FR weight
Significant Problems. (adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
795..................... Normal Newborn........ FY 2009 FR weight
(adjusted by percent
change in average
weight of the cases
in other MS-DRGs).
------------------------------------------------------------------------

I. Proposed Add-On Payments for New Services and Technologies

1. Background
Sections 1886(d)(5)(K) and (L) of the Act establish a process of
identifying and ensuring adequate payment for new medical services and
technologies (sometimes collectively referred to in this section as
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the
Act specifies that a medical service or technology will be considered
new if it meets criteria established by the Secretary after notice and
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act
specifies that the process must apply to a new medical service or
technology if, ``based on the estimated costs incurred with respect to
discharges involving such service or technology, the DRG prospective
payment rate otherwise applicable to such discharges under this
subsection is inadequate.'' We note that beginning with FY 2008, CMS
transitioned from CMS-DRGs to MS-DRGs.
The regulations implementing these provisions specify three
criteria for a new medical service or technology to receive an
additional payment: (1) The medical service or technology must be new;
(2) the medical service or technology must be costly such that the DRG
rate otherwise applicable to discharges involving the medical service
or technology is determined to be inadequate; and (3) the service or
technology must demonstrate a substantial clinical improvement over
existing services or technologies. These three criteria are explained
below in the ensuing paragraphs in further detail.
Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a
specific medical service or technology will be considered ``new'' for
purposes of new medical service or technology add-on payments until
such time as Medicare data are available to fully reflect the cost of
the technology in the MS-DRG weights through recalibration. Typically,
there is a lag of 2 to 3 years from the point a new medical service or
technology is first introduced on the market (generally on the date
that the technology receives FDA approval/clearance) and when data
reflecting the use of the medical service or technology are used to
calculate the MS-DRG weights. For example, data from discharges
occurring during FY 2008 are used to calculate the FY 2010 MS-DRG
weights in this proposed rule. Section 412.87(b)(2) of the regulations
therefore provides that ``a medical service or technology may be
considered new within 2 or 3 years after the point at which data begin
to become available reflecting the ICD-9-CM code assigned to the new
medical service or technology (depending on when a new code is assigned
and data on the new medical service or technology become available for
DRG recalibration). After CMS has recalibrated the DRGs, based on
available data to reflect the costs of an otherwise new medical service
or technology, the medical service or technology will no longer be
considered `new' under the criterion for this section.''
The 2-year to 3-year period during which a medical service or
technology can be considered new would ordinarily begin on the date on
which the medical service or technology received FDA approval or
clearance. (We note that, for purposes of this section of the proposed
rule, we generally refer to both FDA approval and FDA clearance as FDA
``approval.'') However, in some cases, initially there may be no
Medicare data available for the new service or technology following FDA
approval. For example, the newness period could extend beyond the 2-
year to 3-year period after FDA approval is received in cases where the
product initially was generally unavailable to Medicare patients
following FDA approval, such as in cases of a national noncoverage
determination or a documented delay in bringing the product onto the
market after that approval (for instance, component production or drug
production has been postponed following FDA approval due to shelf life
concerns or manufacturing issues). After the MS-DRGs have been
recalibrated to reflect the costs of an otherwise new medical service
or technology, the medical service or technology is no longer eligible
for special add-on payment for new medical services or technologies (as
specified under Sec. 412.87(b)(2)). For example, an approved new
technology that received FDA approval in October 2008 and entered the
market at that time may be eligible to receive add-on payments as a new
technology for discharges occurring before October 1, 2011 (the start
of FY 2012). Because the FY 2012 MS-DRG weights would be calculated
using FY 2010 MedPAR data, the costs of such a new technology would be
fully reflected in the FY 2012 MS-DRG weights. Therefore, the new
technology would no longer be eligible to receive add-on payments as a
new technology for discharges occurring in FY 2012 and thereafter.
Under the second criterion, Sec. 412.87(b)(3) further provides
that, to be eligible for the add-on payment for new medical services or
technologies,

[[Page 24125]]

the MS-DRG prospective payment rate otherwise applicable to the
discharge involving the new medical services or technologies must be
assessed for adequacy. Under the cost criterion, to assess the adequacy
of payment for a new technology paid under the applicable MS-DRG
prospective payment rate, we evaluate whether the charges for cases
involving the new technology exceed certain threshold amounts. In the
FY 2004 IPPS final rule (68 FR 45385), we established the threshold at
the geometric mean standardized charge for all cases in the MS-DRG plus
75 percent of 1 standard deviation above the geometric mean
standardized charge (based on the logarithmic values of the charges and
converted back to charges) for all cases in the MS-DRG to which the new
medical service or technology is assigned (or the case-weighted average
of all relevant MS-DRGs, if the new medical service or technology
occurs in more than one MS-DRG).
However, section 503(b)(1) of Public Law 108-173 amended section
1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005,
CMS will apply ``a threshold * * * that is the lesser of 75 percent of
the standardized amount (increased to reflect the difference between
cost and charges) or 75 percent of one standard deviation for the
diagnosis-related group involved.'' (We refer readers to section IV.D.
of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a
discussion of the revision of the regulations to incorporate the change
made by section 503(b)(1) of Public Law 108-173.) Table 10 that was
included in the notice published in the Federal Register on October 3,
2008, contains the final thresholds that are being used to evaluate
applications for new technology add-on payments for FY 2010 (73 FR
57888).
We note that section 124 of Public Law 110-275 extended, through FY
2009, wage index reclassifications under section 508 of Public Law 108-
173 (the MMA) and special exceptions contained in the final rule
promulgated in the Federal Register on August 11, 2004 (69 FR 49105 and
49107) and extended under section 117 of Public Law 110-173 (the
MMSEA). The wage data affects the standardized amounts (as well as the
outlier offset and budget neutrality factors that are applied to the
standardized amounts), which we use to compute the cost criterion
thresholds. Therefore, the thresholds reflected in Table 10 in the
Addendum to the FY 2009 IPPS final rule were tentative. As noted
earlier, on October 3, 2008, we published a Federal Register notice (73
FR 57888) that contained a new Table 10 with revised thresholds that
reflect the wage index rates for FY 2009 as a result of implementation
of section 124 of Public Law 110-275. The revised thresholds also were
published on the CMS Web site. The revised thresholds published in
Table 10 in the October 3, 2008 Federal Register notice are being used
to determine if an applicant for new technology add-on payments
discussed in this FY 2010 proposed rule meets the cost criterion
threshold for new technology add-on payments for FY 2010.
In the September 7, 2001 final rule that established the new
technology add-on payment regulations (66 FR 46917), we discussed the
issue of whether the HIPAA Privacy Rule at 45 CFR Parts 160 and 164
applies to claims information that providers submit with applications
for new technology add-on payments. Specifically, we explained that
health plans, including Medicare, and providers that conduct certain
transactions electronically, including the hospitals that would be
receiving payment under the FY 2001 IPPS final rule, are required to
comply with the HIPAA Privacy Rule. We further explained how such
entities could meet the applicable HIPAA requirements by discussing how
the HIPAA Privacy Rule permitted providers to share with health plans
information needed to ensure correct payment, if they had obtained
consent from the patient to use that patient's data for treatment,
payment, or health care operations. We also explained that, because the
information to be provided within applications for new technology add-
on payment would be needed to ensure correct payment, no additional
consent would be required. The HHS Office of Civil Rights has since
amended the HIPAA Privacy Rule, but the results remain. The HIPAA
Privacy Rule no longer requires covered entities to obtain consent from
patients to use or disclose protected health information for treatment,
payment, or health care operations, and expressly permits such entities
to use or to disclose protected health information for any of these
purposes. (We refer readers to 45 CFR 164.502(a)(1)(ii), and
164.506(c)(1) and (c)(3), and the Standards for Privacy of Individually
Identifiable Health Information published in the Federal Register on
August 14, 2002, for a full discussion of changes in consent
requirements.)
Under the third criterion, Sec. 412.87(b)(1) of our existing
regulations provides that a new technology is an appropriate candidate
for an additional payment when it represents ``an advance that
substantially improves, relative to technologies previously available,
the diagnosis or treatment of Medicare beneficiaries.'' For example, a
new technology represents a substantial clinical improvement when it
reduces mortality, decreases the number of hospitalizations or
physician visits, or reduces recovery time compared to the technologies
previously available. (We refer readers to the September 7, 2001 final
rule for a complete discussion of this criterion (66 FR 46902).)
The new medical service or technology add-on payment policy under
the IPPS provides additional payments for cases with relatively high
costs involving eligible new medical services or technologies while
preserving some of the incentives inherent under an average-based
prospective payment system. The payment mechanism is based on the cost
to hospitals for the new medical service or technology. Under Sec.
412.88, if the costs of the discharge (determined by applying cost to
charge ratios (``CCRs'') as described in Sec. 412.84(h)) exceed the
full DRG payment (including payments for IME and DSH, but excluding
outlier payments), Medicare will make an add-on payment equal to the
lesser of: (1) 50 percent of the estimated costs of the new technology
(if the estimated costs for the case including the new technology
exceed Medicare's payment); or (2) 50 percent of the difference between
the full DRG payment and the hospital's estimated cost for the case.
Unless the discharge qualifies for an outlier payment, Medicare payment
is limited to the full MS-DRG payment plus 50 percent of the estimated
costs of the new technology.
Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments
to annual MS-DRG classifications and relative weights must be made in a
manner that ensures that aggregate payments to hospitals are not
affected. Therefore, in the past, we accounted for projected payments
under the new medical service and technology provision during the
upcoming fiscal year, while at the same time estimating the payment
effect of changes to the MS-DRG classifications and recalibration. The
impact of additional payments under this provision was then included in
the budget neutrality factor, which was applied to the standardized
amounts and the hospital-specific amounts. However, section 503(d)(2)
of Public Law 108-173 provides that there shall be no reduction or
adjustment in aggregate payments under the IPPS due to add-on payments
for new medical services and technologies. Therefore, following section
503(d)(2) of Public

[[Page 24126]]

Law 108-173, add-on payments for new medical services or technologies
for FY 2005 and later years have not been subjected to budget
neutrality.
In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we
modified our regulations at Sec. 412.87 to codify our current practice
of how CMS evaluates the eligibility criteria for new medical service
or technology add-on payment applications. We also amended Sec.
412.87(c) to specify that all applicants for new technology add-on
payments must have FDA approval for their new medical service or
technology by July 1 of each year prior to the beginning of the fiscal
year that the application is being considered.
Applicants for add-on payments for new medical services or
technologies for FY 2011 must submit a formal request, including a full
description of the clinical applications of the medical service or
technology and the results of any clinical evaluations demonstrating
that the new medical service or technology represents a substantial
clinical improvement, along with a significant sample of data to
demonstrate the medical service or technology meets the high-cost
threshold. Complete application information, along with final deadlines
for submitting a full application, will be posted as it becomes
available on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/
08_newtech.asp. To allow interested parties to identify the new
medical services or technologies under review before the publication of
the proposed rule for FY 2011, the Web site also will list the tracking
forms completed by each applicant.
The Council on Technology and Innovation (CTI) at CMS oversees the
agency's cross-cutting priority on coordinating coverage, coding and
payment processes for Medicare with respect to new technologies and
procedures, including new drug therapies, as well as promoting the
exchange of information on new technologies between CMS and other
entities. The CTI, composed of senior CMS staff and clinicians, was
established under section 942(a) of Public Law 108-173. The Council is
co-chaired by the Director of the Office of Clinical Standards and
Quality (OCSQ) and the Director of the Center for Medicare Management
(CMM), who is also designated as the CTI's Executive Coordinator.
The specific processes for coverage, coding, and payment are
implemented by CMM, OCSQ, and the local claims-payment contractors (in
the case of local coverage and payment decisions). The CTI supplements,
rather than replaces, these processes by working to assure that all of
these activities reflect the agency-wide priority to promote high-
quality, innovative care. At the same time, the CTI also works to
streamline, accelerate, and improve coordination of these processes to
ensure that they remain up to date as new issues arise. To achieve its
goals, the CTI works to streamline and create a more transparent coding
and payment process, improve the quality of medical decisions, and
speed patient access to effective new treatments. It is also dedicated
to supporting better decisions by patients and doctors in using
Medicare-covered services through the promotion of better evidence
development, which is critical for improving the quality of care for
Medicare beneficiaries.
CMS plans to continue its Open Door forums with stakeholders who
are interested in CTI's initiatives. In addition, to improve the
understanding of CMS' processes for coverage, coding, and payment and
how to access them, the CTI has developed an ``innovator's guide'' to
these processes. The intent is to consolidate this information, much of
which is already available in a variety of CMS documents and in various
places on the CMS Web site, in a user-friendly format. This guide was
published in August 2008 and is available on the CMS Web site at:
http://www.cms.hhs.gov/CouncilonTechInnov/Downloads/InnovatorsGuide8_
25_08.pdf.
As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we
invite any product developers or manufacturers of new medical
technologies to contact the agency early in the process of product
development if they have questions or concerns about the evidence that
would be needed later in the development process for the agency's
coverage decisions for Medicare.
The CTI aims to provide useful information on its activities and
initiatives to stakeholders, including Medicare beneficiaries,
advocates, medical product manufacturers, providers, and health policy
experts. Stakeholders with further questions about Medicare's coverage,
coding, and payment processes, or who want further guidance about how
they can navigate these processes, can contact the CTI at
CTI@cms.hhs.gov or from the ``Contact Us'' section of the CTI home page
(http://www.cms.hhs.gov/CouncilonTechInnov/).
2. Public Input Before Publication of a Notice of Proposed Rulemaking
on Add-On Payments
Section 1886(d)(5)(K)(viii) of the Act, as amended by section
503(b)(2) of Public Law 108-173, provides for a mechanism for public
input before publication of a notice of proposed rulemaking regarding
whether a medical service or technology represents a substantial
clinical improvement or advancement. The process for evaluating new
medical service and technology applications requires the Secretary to--
Provide, before publication of a proposed rule, for public
input regarding whether a new service or technology represents an
advance in medical technology that substantially improves the diagnosis
or treatment of Medicare beneficiaries;
Make public and periodically update a list of the services
and technologies for which applications for add-on payments are
pending;
Accept comments, recommendations, and data from the public
regarding whether a service or technology represents a substantial
clinical improvement; and
Provide, before publication of a proposed rule, for a
meeting at which organizations representing hospitals, physicians,
manufacturers, and any other interested party may present comments,
recommendations, and data regarding whether a new medical service or
technology represents a substantial clinical improvement to the
clinical staff of CMS.
In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2010 prior
to publication of this proposed rule, we published a notice in the
Federal Register on November 28, 2008 (73 FR 72490), and held a town
hall meeting at the CMS Headquarters Office in Baltimore, MD, on
February 17, 2009. In the announcement notice for the meeting, we
stated that the opinions and alternatives provided during the meeting
would assist us in our evaluations of applications by allowing public
discussion of the substantial clinical improvement criterion for each
of the FY 2010 new medical service and technology add-on payment
applications before the publication of the FY 2010 IPPS proposed rule.
Approximately 90 individuals registered to attend the town hall
meeting in person, while additional individuals listened over an open
telephone line. Each of the five FY 2010 applicants presented
information on its

[[Page 24127]]

technology, including a discussion of data reflecting the substantial
clinical improvement aspect of the technology. We considered each
applicant's presentation made at the town hall meeting, as well as
written comments submitted on each applicant's application, in our
evaluation of the new technology add-on applications for FY 2010 in
this proposed rule.
In response to the published notice and the new technology town
hall meeting, we received two written comments regarding applications
for FY 2010 new technology add-on payments. We have summarized these
comments or, if applicable, indicated that there were no comments
received, at the end of each discussion of the individual applications.
We did not receive any general comments about the application of the
substantial clinical improvement criterion.
A further discussion of our evaluation of the applications and the
documentation for new technology add-on payments submitted for FY 2010
approval is provided under the specified areas under this section.
3. FY 2010 Status of Technologies Approved for FY 2009 Add-On Payments
We approved one application for new technology add-on payments for
FY 2009: CardioWest^TM Temporary Total Artificial Heart
System (CardioWest^TM TAH-t).
SynCardia Systems, Inc. submitted an application for approval of
the CardioWest ^TM temporary Total Artificial Heart system
(TAH-t). The TAH-t is a technology that is used as a bridge to heart
transplant device for heart transplant-eligible patients with end-stage
biventricular failure. The TAH-t pumps up to 9.5 liters of blood per
minute. This high level of perfusion helps improve hemodynamic function
in patients, thus making them better heart transplant candidates.
The TAH-t was approved by the FDA on October 15, 2004, for use as a
bridge to transplant device in cardiac transplant-eligible candidates
at risk of imminent death from biventricular failure. The TAH-t is
intended to be used in hospital inpatients. One of the FDA's post-
approval requirements is that the manufacturer agrees to provide a
post-approval study demonstrating success of the device at one center
can be reproduced at other centers. The study was to include at least
50 patients who would be followed up to 1 year, including (but not
limited to) the following endpoints: Survival to transplant; adverse
events; and device malfunction.
In the past, Medicare did not cover artificial heart devices,
including the TAH-t. However, on May 1, 2008, CMS issued a final
national coverage determination (NCD) expanding Medicare coverage of
artificial hearts when they are implanted as part of a study that is
approved by the FDA and is determined by CMS to meet CMS's Coverage
with Evidence Development (CED) clinical research criteria. (The final
NCD is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/
viewdecisionmemo.asp?id=211.)
We indicated in the FY 2009 IPPS final rule (73 FR 48555) that,
because Medicare's previous coverage policy with respect to this device
had precluded payment from Medicare, we did not expect the costs
associated with this technology to be currently reflected in the data
used to determine the relative weights of MS-DRGs. As we have indicated
in the past, and as we discussed in the FY 2009 IPPS final rule,
although we generally believe that the newness period would begin on
the date that FDA approval was granted, in cases where the applicant
can demonstrate a documented delay in market availability subsequent to
FDA approval, we would consider delaying the start of the newness
period. This technology's situation represented such a case. We also
noted that section 1886(d)(5)(K)(ii)(II) of the Act requires that we
provide for the collection of cost data for a new medical service or
technology for a period of at least 2 years and no more than 3 years
``beginning on the date on which an inpatient hospital code is issued
with respect to the service or technology.'' Furthermore, the statute
specifies that the term ``inpatient hospital code'' means any code that
is used with respect to inpatient hospital services for which payment
may be made under the IPPS and includes ICD-9-CM codes and any
subsequent revisions. Although the TAH-t has been described by the ICD-
9-CM code(s) since the time of its FDA approval, because the TAH-t had
not been covered under the Medicare program (and, therefore, no
Medicare payment had been made for this technology), this code could
not be ``used with respect to inpatient hospital services for which
payment'' is made under the IPPS, and thus we assumed that none of the
costs associated with this technology would be reflected in the
Medicare claims data used to recalibrate the MS-DRG relative weights
for FY 2009. For this reason, as discussed in the FY 2009 IPPS final
rule, despite the FDA approval date of the technology, we determined
that TAH-t would still be eligible to be considered ``new'' for
purposes of the new technology add-on payment because the TAH-t met the
newness criterion on the date that Medicare coverage began, consistent
with issuance of the final NCD, effective on May 1, 2008.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology add-on payments for the TAH-t
and consideration of the public comments we received on the FY 2009
IPPS proposed rule, we approved the TAH-t for new technology add-on
payments for FY 2009 (73 FR 48557). We indicated that we believed the
TAH-t offered a new treatment option that previously did not exist for
patients with end-stage biventricular failure. However, we indicated
that we recognized that Medicare coverage of the TAH-t is limited to
approved clinical trial settings. The new technology add-on payment
status does not negate the restrictions under the NCD nor does it
obviate the need for continued monitoring of clinical evidence for the
TAH-t. We remain interested in seeing whether the clinical evidence
demonstrates that the TAH-t continues to be effective. If evidence is
found that the TAH-t may no longer offer a substantial clinical
improvement, we reserve the right to discontinue new technology add-on
payments, even within the 2 to 3 year period that the device may still
be considered to be new.
The new technology add-on payment for the TAH-t for FY 2009 is
triggered by the presence of ICD-9-CM procedure code 37.52
(Implantation of total heart replacement system), condition code 30,
and the diagnosis code reflecting clinical trial--V70.7 (Examination of
participant in clinical trial). For FY 2009 we finalized a maximum add-
on payment of $53,000 (that is 50 percent of the estimated operating
costs of the device of $106,000) for cases that involve this
technology. As noted above, the TAH-t is still eligible to be
considered ``new'' for purposes of the new technology add-on payment
because the TAH-t met the newness criterion on the date that Medicare
coverage began, consistent with issuance of the final NCD, effective on
May 1, 2008. Therefore, for FY 2010, we are proposing to continue new
technology add-on payments for cases involving the TAH-t in FY 2010
with a maximum add-on payment of $53,000.

[[Page 24128]]

4. FY 2010 Applications for New Technology Add-On Payments
We received six applications to be considered for new technology
add-on payment for FY 2010. However, one applicant withdrew its
application. Emphasys Medical submitted an application for new
technology add-on payments for FY 2010 for the Emphasys Medical
Zephyr[supreg] Endobronchial Valve (Zephyr[supreg] EBV). However,
Emphasys Medical withdrew its application from further review in
December 2008. Since the Zephyr[supreg] EBV application was withdrawn
prior to the town hall meeting and publication of the FY 2010 IPPS
proposed rule, we are not discussing the application in this proposed
rule.
A discussion of the remaining five applications is presented below.
At the time this proposed rule was developed, some of the technologies
had not yet received FDA approval. Consequently, our discussion below
of these cases may be limited.
a. The AutoLITT ^TM System
Monteris Medical submitted an application for new technology add-on
payments for FY 2010 for the AutoLITT ^TM. AutoLITT
^TM is a minimally invasive, MRI-guided catheter tipped laser
designed to destroy malignant brain tumors with interstitial thermal
energy and is designed to cause immediate coagulation and necrosis of
diseased tissue. The applicant asserts that the AutoLITT ^TM
delivers laser energy to the lesion with a proprietary 3mm diameter
probe that directs the energy radially (that is, at right angle to the
axis of the probe) toward the targeted tumor tissue in a narrow beam
profile and at the same time, a proprietary probe cooling system
removes heat from tissue not directly in the path of the laser beam,
ostensibly protecting it from thermal damage and enabling the physician
to selectively coagulate only targeted tissue. The applicant expects
that AutoLITT ^TM will receive a 510K FDA clearance in early
2009, and the FDA approval will be for use in patients with
glioblastoma multiforme brain tumors. Because the technology is not yet
approved by the FDA, we will limit our discussion of this technology to
data and information that the applicant submitted, rather than make
specific proposals with respect to whether the device would meet the
new technology add-on payment criteria.
With regard to the newness criterion, we are concerned that the
AutoLITT ^TM may be substantially similar to the device that
it listed as its predicate device in its application to the FDA for
approval. The applicant identified Visual-ase as its predicate device,
which is also used to treat tumors of the brain. Visual-ase was
approved by the FDA in 2006. The applicant maintains that AutoLITT
^TM can be distinguished from the Visual-ase by its mechanism
of action (that is, side-firing laser versus elliptical firing).
A new ICD-9-CM procedure code, 17.61 (Laser interstitial thermal
therapy [LITT] of lesion or tissue of brain under guidance), was
recommended for approval at the September 2008 ICD-9-CM Coordination
and Maintenance Committee meeting. If approved, the new code would
become effective on October 1, 2009. We welcome comments from the
public regarding whether or not the AutoLITT ^TM is
substantially similar to the Visual-ase.
In an effort to demonstrate that AutoLITT ^TM meets the
cost criterion, the applicant used 2006 Medicare data from the
Healthcare Cost and Utilization Project (HCUP). We first note that the
applicant believes that cases eligible for the AutoLITT ^TM
will map to MS-DRGs 25 (Craniotomy and Endovascular Intracranial
Procedures with MCC), 26 (Craniotomy and Endovascular Intracranial
Procedures with CC), and 27 (Craniotomy and Endovascular Intracranial
Procedures without CC or MCC). The applicant searched HCUP hospital
data for cases potentially eligible for the AutoLITT ^TM that
was assigned one of the following ICD-9-CM diagnosis codes: a diagnosis
code that begins with a prefix of 191 (Malignant neoplasm of brain);
diagnosis code 225.0 (Benign neoplasm of brain and other parts of
nervous system); or diagnosis code 239.6 (Neoplasm of the brain of
unspecified nature). The applicant found 39,295 cases and weighted the
standardized charge per case based on the amount of cases found within
each of the diagnosis codes listed above rather than the percentage of
cases that would group to different MS-DRGs. Based on this analysis,
the average standardized charge per case was $46,754. While the
applicant's analysis established a case-weighted average charge per
case, it did not determine a case-weighted average standardized charge
per case by MS-DRG (as required by the application). Therefore, in
order to determine a case-weighted average standardized charge per case
by MS-DRG, the applicant used data from a Rand health report \4\ to
first determine the percentage of cases that would map to MS-DRGs 25,
26, and 27 and combined this analysis with the analysis above to
determine a case-weighted average standardized charge per case by MS-
DRG. According to its report, Rand used 2006 MedPAR claims data and
found 63,876 cases in CMS-DRG 1 (Craniotomy Age Greater Than 17 with
CC) and 39,878 cases in CMS-DRG 2 (Craniotomy Age Greater Than 17
without CC) for a total of 103,754 cases. Based on ICD-9-CM procedure
and diagnosis codes, Rand converted these cases from CMS-DRGs 1 and 2
to MS-DRGs 25, 26, and 27. Rand determined that, of the 63,876 cases in
CMS-DRG 1, 24,116 of these cases would map to MS-DRG 25 (or 23.2
percent of all cases) and 39,760 cases would map to MS-DRG 26 (or 38.4
percent of all cases). All 39,878 cases from CMS-DRG 2 would map to MS-
DRG 27 (or 38.4 percent of all cases in CMS-DRGs 1 and 2). Using the
percentages from Rand's analysis, the case-weighted average
standardized charge per case by MS-DRG was $46,754. We note that,
combining the Rand analysis with the HCUP analysis did not change the
case-weighted average standardized charge per case from the results
from the HCUP analysis (both analyses produced a case-weighted average
standardized charge per case of $46,754). The applicant did identify
the average standardized charge per case in the aggregate but has yet
to identify cases within the MS-DRGs themselves and, therefore, the
applicant has not determined the case-weighted average standardized
charge per case by MS-DRG.
---------------------------------------------------------------------------

\4\ Rand Corporation: Rand Health--Understanding Medicare
Severity-DRGs. A presentation given by Barbara Wynn at the Florida
Hospital Association Meeting on November 1, 2007.
---------------------------------------------------------------------------

The applicant also noted that the case-weighted average
standardized charge per case of $46,754 did not include charges related
to the AutoLITT ^TM. Therefore, it is necessary to add the
charges related to the device to the case-weighted average standardized
charge per case in evaluating the cost threshold criterion. Although
the applicant submitted data related to the estimated cost of the
AutoLITT ^TM per case, the applicant stated that the cost of
the device was proprietary information. Based on a study of charge
compression data by RTI \5\ and charge master data from Stanford
University and University of California, San Francisco, the applicant
estimates $24,389 in charges related to the AutoLITT ^TM (we
note that some of the data used a markup of 294 percent of the costs).
Adding the estimated charges related to the device to the case-weighted
average standardized charge

[[Continued on page 24129]]

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

[[pp. 24129-24178]] Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems for Acute Care Hospitals and Fiscal Year
2010 Rates and to the Long-Term Care Hospital Prospective Payment
System and Rate Year 2010 Rates

[[Continued from page 24128]]

[[Page 24129]]

per case resulted in a case-weighted average standardized charge per
case of $71,143 ($46,754 plus $24,389). Using the FY 2010 thresholds
published in Table 10 (73 FR 58008), the case-weighted threshold for
MS-DRGs 25, 26, and 27 was $58,069 (all calculations above were
performed using unrounded numbers). Because the case-weighted average
standardized charge per case for the applicable MS-DRGs exceeds the
case-weighted threshold amount, the applicant maintains that the
AutoLITT ^TM would meet the cost criterion.
---------------------------------------------------------------------------

\5\ RTI International, A Study of Charge Compression in
Calculating DRG Relative Weights, RTI Project No. 0207964.012.008;
January 2007.
---------------------------------------------------------------------------

We invite public comment on whether or not the AutoLITT
^TM meets the cost criterion for a new technology add-on
payment, particularly in light of the fact that the applicant did not
determine a case-weighted average standardized charge per case by MS-
DRG (as discussed above).
With respect to the substantial clinical improvement criterion, the
applicant maintains that it meets this criterion in its application.
Specifically, the applicant stated that several non-AutoLITT \TM\
clinical trials have demonstrated that nonfocused LITT (and more
recently, the use of LITT plus MRI) improved survival, quality of life,
and recovery in patients with advanced glioblastoma multiforme tumors
and advanced metastatic brain tumors that cannot be effectively treated
with surgery, radiosurgery, radiation, chemotherapy, or any currently
available clinical procedure. In a number of these patients, nonfocused
LITT was the treatment of last resort, due to either the
unresponsiveness or inability of these therapies to treat the brain
tumor (due to tumor location, type, or size, among others). The
applicant also maintains that improved clinical outcomes using
nonfocused LITT have included reduced recovery time and a reduced rate
of complications (that is, infection, brain edema). The applicant
stated that these factors, as discussed in the FY 2001 final rule (66
FR 46914 through 46915) demonstrate that the AutoLITT \TM\ meets the
new technology criterion for substantial clinical improvement.
The applicant further asserts that AutoLITT \TM\ would represent a
substantial clinical improvement over existing standards of care for a
number of reasons and should build upon less sophisticated, nonfocused
LITT therapies. These clinical improvements cited by the applicant
include: a less invasive method of tumor ablation, potentially leading
to lower complication rates post procedure (infection, edema); an
ability to employ multiple interventions over shorter periods of time
and an ability to be used as a treatment of last resort (radiosurgery
is limited due to radiation dosing and craniotomy is limited to 1 to 2
procedures); an ability to be used in hard-to-reach brain tumors (the
AutoLITT \TM\ may be used as a treatment of last resort); and a shorter
recovery time (the possibility for same day surgery, which has been
demonstrated above with non-focused LITT).
We appreciate the applicant's summary of why this technology
represents a substantial clinical improvement. While we recognize the
future potential of this interesting therapy, we have concerns that,
besides lacking FDA approval at this time, to date the AutoLITT \TM\
has been used for the treatment of only a few patients as part of a
safety evaluation with no comparative efficacy data and, therefore,
there may not be sufficient objective clinical evidence to determine if
the AutoLITT \TM\ meets the substantial clinical improvement criteria.
We invite public comment on whether or not the AutoLITT \TM\ meets the
substantial clinical improvement criterion.
We did not receive any written public comments regarding this
application for new technology add-on payments concerning the new
technology town hall meeting.
b. CLOLAR [supreg] (clofarabine) Injection
Genzyme Oncology submitted an application for new technology add-on
payments for FY 2010 for CLOLAR [supreg] (clofarabine) injection.
CLOLAR [supreg] is a chemotherapeutic agent that is administered
intravenously and is currently being evaluated for the treatment of
patients with acute myeloid leukemia (AML). CLOLAR [supreg] was first
granted FDA approval in December 2004 for the treatment of pediatric
patients (ages 1-21 years), a population not typically eligible for
Medicare, with acute lymphoblastic leukemia (ALL) who did not respond
to at least two prior treatment attempts. Genzyme Oncology submitted a
supplement to its pediatric application (sNDA) to the FDA in November
2008, in which it requested approval for CLOLAR[supreg] use in
previously untreated adult patients with AML with at least one
unfavorable baseline prognostic factor. Unfavorable prognostic factors
include: Age greater than or equal to 70 years; antecedent hematologic
disorder (AHD); Easter Cooperative Oncology Group (ECOG) performance
status (PS) of 2; or intermediate/unfavorable risk karyotype. CLOLAR
[supreg] is expecting to receive sNDA approval from the FDA by May
2009. Because the technology is not yet approved by the FDA, we are
limiting our discussion of this technology to data that the applicant
submitted, rather than making specific proposals with respect to
whether the device would meet the new technology add-on payment
criteria.
With regard to the newness criterion, we note that, although the
applicant has submitted an application to the FDA for an sNDA for the
treatment of patients with AML, the FDA approval for the new indication
alone does not necessarily demonstrate that CLOLAR [supreg] would meet
the newness criterion for purposes of new technology add-on payments.
The newness criterion is intended to apply to technologies that have
been available to Medicare beneficiaries for no more than 2 to 3 years.
Therefore, a technology that applies for a supplemental FDA approval
must demonstrate that the new approval is not substantially similar to
the prior approval.
As discussed above, the new technology add-on payment is available
to new medical services or technologies that satisfy the three criteria
set forth in our regulations at Sec. 412.87(b) (that is, newness,
high-costs, and substantial clinical improvement). Typically, we begin
our analysis with an evaluation of whether an applicant's technology
meets what we refer to as the ``newness criterion'' under Sec.
412.87(b)(2) (that is, whether Medicare data are available to fully
reflect the cost of the technology in the MS-DRG weights through
recalibration). Generally, we believe that the costs of a technology
begin to be reflected in the hospital charge data used to recalibrate
the MS-DRG relative weights when the technology becomes available on
the market, usually on or soon after the date on which it receives FDA
approval. Unlike the typical applicant for the new technology add-on
payment, however, CLOLAR [supreg] is not new to the market but has been
available since it was first granted FDA approval in December 2004 for
the treatment of pediatric patients with acute lymphoblastic leukemia
(ALL). Therefore, we first must determine whether CLOLAR [supreg]
nevertheless should be considered a new technology if approved by the
FDA for a new indication, specifically for use in adult patients age 70
and above with AML.
Congress provided for the new technology add-on payment in order to
ensure that Medicare beneficiaries have access to new technologies. As
discussed previously, there often is a lag time of 2 to 3 years before
the costs of new technologies are reflected in the recalibration of the
relevant MS-DRGs. Because a new technology often has higher costs than
existing technologies,

[[Page 24130]]

during this lag time the current MS-DRG payment may not adequately
reflect the costs of the new technology. The new technology add-on
payment addresses this concern by ensuring that hospitals receive an
add-on payment under the IPPS for costly new technologies that
represent a substantial clinical improvement over existing technologies
until such time when the cost of the technology is reflected within the
MS-DRG relative weights. When an existing technology receives FDA
approval for a new indication, similar concerns may arise. If, prior to
the FDA approval for the new indication, the technology has not been
used to treat Medicare patients for purposes consistent with the new
indication, the relevant MS-DRGs may not reflect the cost of the
technology. Consequently, Medicare beneficiaries may not have adequate
access to the technology when used for purposes consistent with the new
indication. Allowing the new technology add-on payment for the
technology when used for the new indication would address this concern.
For these reasons, we believe that treating an existing technology as
``new'' when approved by the FDA for a new indication may be warranted
under certain circumstances.
In the September 7, 2001 final Rule (66 FR 46915), we stated that a
new use of an existing technology may be eligible for the new
technology add-on payment under certain conditions. We believe it is
appropriate to consider an existing technology for the new technology
add-on payments when its new use is not substantially similar to
existing uses of the technology. In the FY 2006 IPPS final rule (70 FR
47351), we explained our policy regarding substantial similarity in
detail and its relevance for assessing if the hospital charge data used
in the development of the relative weights for the relevant DRGs
reflect the costs of the technology. In that final rule, we stated
that, for determining substantial similiarity, we consider (1) Whether
a product uses the same or a similar mechanism of action to achieve a
therapeutic outcome, and (2) whether a product is assigned to the same
or a different DRG are relevant for determining substantial similarity.
We indicated that both of the above criteria should be met in order for
a technology to be considered ``substantially similar'' to an existing
technology. However, in that same final rule, we also noted that, due
to the complexity of issues regarding the substantial similarity
component of the newness criterion, it may be necessary to exercise
flexibility when considering whether technologies are substantially
similar to one another. Specifically, we stated that we may consider
additional criteria or factors in some contexts, but not others.
We believe that in determining whether a new use of an existing
technology is substantially similar to existing uses of the technology,
it may be relevant to consider not only the two criteria discussed in
the FY 2006 IPPS final rule, but also certain additional factors.
Specifically, we believe it may also be appropriate to analyze whether,
as compared to existing uses of the technology, the new use involves
the treatment of the same or similar type of disease and the same or
similar patient population. Accordingly, we would determine that the
new use of an existing technology is substantially similar to one or
more existing uses of the technology if (1) the new and existing uses
of the technology use the same or a similar mechanism of action to
achieve a therapeutic outcome, (2) the new use of the product is
assigned to the same MS-DRG(s) as the existing uses, and (3) the new
use of the technology involves the treatment of the same or similar
type of disease and the same or similar patient population. If all
three criteria are met and the new use is deemed substantially similar
to one or more of the existing uses of the technology (that is beyond
the newness period), we would conclude that the technology is not new
and, therefore is not eligible for the new technology add-on payment.
We note that we considered, but rejected, the inclusion of the third
factor in the FY 2006 IPPS final rule on the grounds that we believed
that it was more relevant to analyze whether the costs of the
technology were already reflected in the relative weights of the MS-
DRGs. However, upon further consideration, we believe that both the
type of disease and patient population for which a technology is used
are also relevant in determining whether one indication of a technology
is ``substantially similar'' to another.
We note that the discussion of substantial similarity in the FY
2006 IPPS final rule related to comparing two separate technologies
made by different manufacturers. Nevertheless, we believe the criteria
discussed in the FY 2006 IPPS final rule also are relevant when
comparing the similarity between a new use and existing uses of the
same technology (or a very similar technology manufactured by the same
manufacturer). In other words, it is necessary to establish that the
new indication for which the technology has received FDA approval is
not substantially similar to that of the prior indication. Such a
distinction is necessary to determine the appropriate start date of the
newness period in evaluating whether the technology would qualify for
add-on payments (that is, the date of the ``new'' FDA approval or that
of the prior approval), or whether the technology could qualify for
separate new technology add-on payments under each indication. We
welcome comments on our proposed modification to analyzing whether a
technology is substantially similar to another.
With respect to CLOLAR[supreg], it is relevant to consider whether
there is a clear distinction between the types of disease that
CLOLAR[supreg] is intended to treat and the patient populations
described in the indications in assessing whether the indication for
which a supplemental FDA approval is pending is substantially similar
to the indication related to the existing FDA approval for CLOLAR.
Accordingly, we have analyzed both the current and pending FDA
approvals and indications in order to determine whether or not
CLOLAR[supreg] for the treatment of ALL in patients ages 1-21 should be
deemed substantially similar to CLOLAR[supreg] when used for the
treatment of AML in patients ages 70 and above. In this case, we
compared the two indications against the substantial similarity factors
that we outlined in the FY 2006 IPPS final rule (referenced above). We
determined that CLOLAR[supreg] meets both factors of the substantial
similarity criteria that we outlined in the FY 2006 IPPS final rule
(that is, the use of CLOLAR[supreg] for either indication utilizes the
same or a similar mechanism of effect to achieve a therapeutic outcome,
and both indications map to the same MS-DRGs). We also analyzed both
the current and pending FDA approvals and indications against the two
additional factors we described above (that is, whether the new
indication as compared to the old indication would involve the use of
CLOLAR to treat the same or similar disease and the same or similar
patient population). In the course of our analysis, we determined that,
although ALL and AML are both types of leukemia, they are separate and
distinct hematologic malignancies that typically affect different
patient populations. Furthermore, patients ages 1-21 with ALL differ
significantly from older patients ages 70 and above with AMI in terms
of clinical factors, such as the presence of comorbid conditions, and
expected prognosis. Accordingly, because the two indications do not
meet the additional factors we included under substantial similarity,
we do not

[[Page 24131]]

believe that CLOLAR[supreg] for the indication of treatment of ALL in
patients ages 1-21 should be considered substantially similar to
CLOLAR[supreg] for the indication of treatment of AML in older
patients.
With respect to application of the newness criterion under Sec.
412.87(b)(2), our evaluation also considers whether the data for the
relevant MS-DRGs reflect use of the new technology for one or more
purposes outside the previously approved indication(s). To the extent
that the data suggest that the technology has been used outside the
previously approved indication for more than 2 or 3 years (for example,
the technology has been used for a purpose that is the basis of the
newly approved indication), we believe that the costs of the technology
for the new use are reflected in the weights assigned to the relevant
MS-DRGs. In this case, we will conclude that the technology does not
meet the newness criterion under Sec. 412.87(b)(2) because its costs
are already reflected within the relevant MS-DRGs. Therefore, even if
we determine that the new use of CLOLAR[supreg] is not substantially
similar to the existing use of CLOLAR[supreg], we believe it is
relevant to assess whether the likelihood that the costs of this drug
are included in the data that goes into determining the MS-DRG relative
weights because CLOLAR[supreg] has not been FDA approved to treat the
types of patients that are commonly found in the Medicare population.
Regarding this point, the applicant maintains that because of the age
group for which CLOLAR[supreg] is currently used to treat patients with
ALL (that is, pediatric patients who are ages 1-21 years), ``it is
statistically improbable that claims paid under the relevant MS-DRGs
include CLOLAR[supreg] costs.'' Currently, ICD-9-CM procedure code
99.25 (Injection or infusion of cancer chemotherapeutic substance)
would be used to identify the administration of CLOLAR[supreg] for the
treatment of both ALL and AML. We note that the applicant submitted an
application for a unique ICD-9-CM procedure code that was discussed at
the March 11, 2009 ICD-9-CM Coordination and Maintenance Committee
meeting. In addition, cases involving the use of CLOLAR[supreg] for
either indication would be expected to routinely map to MS-DRGs 837,
838, and 839 (Chemotherapy with Acute Leukemia as Secondary Diagnosis
or High Dose Chemotherapy Agent with MCC, Chemotherapy with Acute
Leukemia as Secondary Diagnosis with CC or High Dose Chemotherapy
Agent, and Chemotherapy with Acute Leukemia as Secondary Diagnosis
without CC/MCC, respectively). Although we generally agree with the
applicant's statement that it is statistically improbable that any
Medicare patients received CLOLAR[supreg] under the currently approved
indication for younger patients with ALL, the applicant has not, to
date, demonstrated that none of the inpatients who received
CLOLAR[supreg] for the treatment of patients with ALL were Medicare
patients. The applicant maintains that no data are available to
identify the exact number of Medicare beneficiaries who are age 21
years or less (that is, those patients whose age identically matches
that of the group for whom CLOLAR[supreg] is an approved treatment).
However, the applicant conducted an analysis of the FY 2007 MedPAR
claims data for the MS-DRGs associated with chemotherapy treatment for
ALL (CMS-DRG 492 and MS-DRGs 837, 838, and 839) and found that less
than 1 percent of all claims that map to those DRGs were for patients
who are age 25 years or less. Therefore, the applicant asserts that,
given the small number of patients eligible to receive CLOLAR[supreg]
for its FDA approved indication, it is statistically improbable that
claims paid under the relevant DRGs include or adequately reflect the
costs of CLOLAR[supreg].
We welcome comments from the public on whether the costs of
CLOLAR[supreg] are already included in the data used to determine the
relative weights for the MS-DRGs to which cases involving
CLOLAR[supreg] map and on whether the current FDA-approved indication
of CLOLAR[supreg] is substantially similar to that of the pending one.
In an effort to demonstrate that CLOLAR[supreg] meets the cost
criterion, the applicant searched the FY 2007 MedPAR file for cases
potentially eligible for CLOLAR[supreg] that were assigned a
combination of the following codes: any principal diagnosis code with a
prefix of V58.1 (Encounter for antineoplastic chemotherapy and
immunotherapy), or a principal diagnosis code of V67.2 (Chemotherapy
follow up examination), or any diagnosis code that begins with a prefix
of 205 (Acute promyelocytic leukemia). The applicant found 874 cases
(or 30.3 percent of all cases) in MS-DRG 837 (Chemotherapy with Acute
Leukemia as Secondary Diagnosis or with High Dose Chemotherapy Agent
with MCC), 863 cases (or 29.9 percent of all cases) in MS-DRG 838
(Chemotherapy with Acute Leukemia as Secondary Diagnosis with CC or
with High Dose Chemotherapy Agent), and 1,148 cases (or 39.8 percent of
all cases) in MS-DRG 839 (Chemotherapy with Acute Leukemia as Secondary
Diagnosis without CC/MCC). The average standardized charge per case was
$133,428 for MS-DRG 837, $66,997 for MS-DRG 838, and $28,453 for MS-DRG
839, which result in a case-weighted average standardized charge per
case of $71,785.
The average standardized charge per case does not include charges
related to CLOLAR[supreg]; therefore, it is necessary to add the
charges related to CLOLAR[supreg] to the average standardized charge
per case in evaluating the cost threshold criterion. Although the
applicant submitted data related to the estimated cost of
CLOLAR[supreg] per case, the applicant noted that the cost of the drug
was proprietary information. The applicant estimates $63,364 in charges
related to CLOLAR[supreg] (based on a 100-percent charge markup of the
cost of the drug). Adding the charges related to the drug to the
average standardized charge per case (based on the case distribution
from the applicant's FY 2007 MedPAR claims data analysis) resulted in a
case-weighted average standardized charge per case of $135,149 ($71,785
plus $63,364). Using the FY 2010 thresholds published in Table 10 (73
FR 58008), the case-weighted threshold for MS-DRGs 837, 838, and 839
was $55,802 (all calculations above were performed using unrounded
numbers). Because the case-weighted average standardized charge per
case for the applicable MS-DRGs exceeds the case-weighted threshold
amount, the applicant maintains that CLOLAR[supreg] would meet the cost
criterion. We invite public comment on whether or not CLOLAR[supreg]
meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserts that despite significant advances that have been made
in the management of AML in younger adults (that is, persons under the
age of 60 years), including the benefit of intensive remission
induction therapy [often comprised of an anthracycline combined with
intermediate or highdose cytarabine (``7 + 3'')] to either achieve or
maintain a complete remission (CR) or CR with incomplete platelet
recovery (CRp) that has been progressively demonstrated over the past
several years, such success has not been achieved in persons over the
age of 60 years. The applicant stated that for the older patient
population, conventional induction therapy with ``7 + 3'' is poorly
tolerated and often does not benefit older patients with unfavorable
baseline prognostic factors. In addition, the applicant stated that
older adult patients are also at high risk for early induction
mortality. According to the applicant, depending on comorbidity
factors, the rate of

[[Page 24132]]

induction mortality can be as high as 65 percent within 8 weeks
following conventional intensive chemotherapy.
The applicant also presented an analysis of some recent data that
has emerged in connection with CLOLAR[supreg] use in older patients
with AML. A Phase II study comparing single agent CLOLAR[supreg] to
CLOLAR[supreg] combined with low-dose cytarabine (LDAC) in patients age
60 years and older, found that 42 percent of the patients treated with
CLOLAR[supreg] alone achieved a CR or CR with incomplete peripheral
blood count recovery, and found that 59 percent of the patients treated
with the combination therapy achieved a CR or CR with incomplete
peripheral blood count recovery. Both treatment regimens were tolerated
in this patient population without a distinction in terms of toxicity.
The safety and efficacy of CLOLAR[supreg] was recently reported in
another Phase II study of 66 older adult patients (over age 65 years)
with untreated AML. All patients were considered unfit for conventional
induction therapy due to the presence of one or more unfavorable
prognostic factors. In the group of patients with adverse cytogenetic
profiles, the overall response rate was 53 percent with a CR rate of 42
percent. In addition, this group had a significantly prolonged median
survival (more than 6 months) when compared to a similar group that had
received LDAC.
The applicant conducted a pivotal, multicenter clinical trial which
serves as the basis for an sNDA to the FDA for approval of
CLOLAR[supreg] as a treatment for adult AML. According to the
applicant, the primary objective of this study was to assess the
efficacy of CLOLAR[supreg] in previously untreated adults who were at
least 60 years old with AML for whom standard induction chemotherapy
was unlikely to be of benefit due to at least one unfavorable baseline
prognostic factor. The results of this pivotal trial indicate that
single agent CLOLAR[supreg] is active and well-tolerated when
administered to previously untreated adults with AML and at least one
adverse prognostic factor. The overall remission rate (CR + CRp = 45
percent) with CLOLAR[supreg] compared favorably to historical studies
with ``7 + 3'' regimens. Responses in patients receiving CLOLAR[supreg]
were consistent regardless of the number or the type of unfavorable
prognostic factor including a CR of 43 percent in patients with
unfavorable cytogenetics, 50 percent in patients with AHD, 40 percent
in patients more than the age of 70, and 38 percent in patients with an
Eastern Cooperative Oncology Group (ECOG) PS of 2. In addition, it did
not appear that response rates were affected by the presence of
multiple adverse prognostic factors (50 percent, 48 percent, and 42
percent in patients with one, two and three risk factors,
respectively). The overall response rate was even higher in patients
who were less than age 70 years (56 percent), and in patients with an
ECOG PS of 0 (64 percent). Thirty-day mortality (for all causes) was
9.6 percent. Drug-related adverse events were consistent with prior
reports with single agent CLOLAR[supreg], and were manageable in the
patient population studied. Five patients (4 percent) had to
discontinue treatment due to toxicity, but many patients were able to
receive subsequent consolidation CLOLAR[supreg] treatments. The
applicant maintains that there is no standard treatment in older adult
patients with comorbid conditions or adverse disease characteristics
for whom conventional induction therapy is not considered an
appropriate option. The applicant further asserts that the absence of
treatment options, especially in a disease with onset at a median age
of 67, clearly represents a significant unmet medical need.
We are concerned that this drug may offer little to no increased
survival benefit in a patient population whose overall prognosis is
exceedingly poor. Therefore, it is not clear that the drug represents a
substantial clinical improvement over existing therapies, such as
increased benefit survival or reduced need for hospitalization or
physician visits. (We refer readers to 66 FR 46941 for a more detailed
discussion relating to the substantial clinical improvement criterion.)
We welcome public comment about whether or not CLOLAR[supreg]
represents a substantial clinical improvement.
We did not receive any written public comments regarding this
application for new technology add-on payments concerning the new
technology town hall meeting.
c. LipiScan^TM Coronary Imaging System
InfraReDx, Inc. submitted an application for new technology add-on
payments for FY 2010 for the LipiScan^TM Coronary Imaging
System (LipiScan^TM). The LipiScan^TM device is a
diagnostic tool that uses Intravascular Near Infrared Spectroscopy
(INIRS) during an invasive coronary catheterization to scan the artery
wall in order to determine coronary plaque composition. The purpose of
the device is to identify lipid-rich areas in the artery because such
areas have been shown to be more prone to rupture. The procedure does
not require flushing or occlusion of the artery. INIRS identifies the
chemical content of plaque by focusing near infrared light at the
vessel wall and measuring reflected light at different wavelengths
(that is, spectroscopy). The LipiScan^TM system collects
approximately 1,000 measurements per 12.5 mm of pullback, with each
measurement interrogating an area of 1 to 2 mm\2\ of lumen surface
perpendicular to the longitudinal axis of the catheter. When the
catheter is in position, the physician activates the pullback and
rotation device and the scan is initiated providing 360 degree images
of the length of the artery. The rapid acquisition speed for the image
freezes the motion of the heart and permits scanning of the artery in
less than 2 minutes. When the catheter pullback is completed, the
console displays the scan results, which is referred to as a
``chemogram'' image. The chemogram image requires reading by a trained
user, but, according to the applicant was designed to be simple to
interpret.
With regard to the newness criterion, the LipiScan^TM
received a 510K FDA clearance for a new indication on April 25, 2008,
and was available on the market immediately thereafter. On June 23,
2006, InfraReDx, Inc. was granted a 510K FDA clearance for the
``InfraReDx Near Infrared (NIR) Imaging System.'' Both devices are
under the common name of ``Near Infrared Imaging System'' according to
the 510K summary document from the FDA. However, the InfraReDx NIR
Imaging System device that was approved by the FDA in 2006 was approved
``for the near infrared imaging of the coronary arteries,'' whereas the
Lipiscan^TM device cleared by the FDA in 2008 is for a
modified indication. The modified indication specified that
Lipiscan^TM is ``intended for the near-infrared examination
of coronary arteries * * *, the detection of lipid-core-containing
plaques of interest * * * [and] for the assessment of coronary artery
lipid core burden.''
We have concerns regarding whether Lipiscan^TM is
substantially similar to its predicate device that was approved by FDA
in 2006. Specifically, it appears that the two devices, which are
manufactured by the same company, do not differ in either design or
functionality, according to the approval order documents from the FDA.
In the 2008 approval order, the FDA stated, ``The LipiScan Coronary
Imaging System utilizes the same basic catheter design as the
predicate, the InfraReDx NIR Imaging System (June 23, 2006). These
devices have a similar intended use, use the same operating principal,
incorporate the same basic catheter design, have the same shelf life,
and are

[[Page 24133]]

packaged using the same materials and processes. The modifications from
the lnfraReDx NIR Imaging System to the LipiScan Coronary Imaging
System are the improved catheter design, improved user interface
(including PBR and console), and the additional testing required to
support an expanded indication for use.'' Therefore, it appears that
the only difference between the two approvals may be a modification of
the intended use.
As mentioned earlier in our discussion of the CLOLAR[supreg]
application in section II.I.4.b. of this proposed rule, our policy
regarding substantial similarity discussed in the FY 2006 final rule
(70 FR 47351 through 47532) outlined two criteria as it relates to two
separate technologies that are made by different manufacturers that
were used to guide our determination of whether two technologies were
substantially similar to one another. Although the Lipican^TM
is a diagnostic device and not a therapeutic device we believe that the
substantial similarity component of the newness criterion still
applies.
Both the prior and the new FDA indications for
LipiScan^TM use the same or a similar mechanism of action to
achieve a desired therapeutic outcome, and both treat patients that
would generally be assigned to the same MS-DRG. Similarly, both
indications of LipiScan^TM are intended to treat the same
disease in the same patient population. Consequently, we have concerns
as to whether or not the two intended uses are substantially similar,
especially considering that the technologies appear essentially
identical. We welcome public comment on whether or not the latest 510K
FDA clearance should be considered ``substantially similar'' to its
predicate technology approved by the FDA in 2006.
We note that the Lipiscan^TM technology is identified by
ICD-9-CM procedure code 38.23 (Intravascular spectroscopy), which
became effective October 1, 2008, and cases involving the use of this
device generally map to MS-DRG 246 (Percutaneous Cardiovascular
Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents);
MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting
Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular
Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/
Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-
Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous
Cardiovascular Procedures without Coronary Artery Stent with MCC); and
MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary
Artery Stent without MCC).
In an effort to demonstrate that the technology meets the cost
criterion, the applicant used the FY 2009 After Outliers Removed (AOR)
file (posted on the CMS Web site) for cases potentially eligible for
Lipiscan^TM. The applicant believes that every case within
DRGs 246, 247, 248, 249, 250, and 251 are eligible for
Lipiscan^TM. In addition, the applicant believes that
Lipiscan^TM will be evenly distributed across patients in
each of the six MS-DRGs (16.6 percent within each MS-DRG). Using data
from the AOR file, the applicant found the average standardized charge
per case for MS-DRGs 246, 247, 248, 249, 250, and 251 was $65,364,
$42,162, $58,754, $37,048, $61,016, and $35,878 respectively, equating
to an average standardized charge per case of $50,037. The applicant
indicated that the average standardized charge per case does not
include charges related to Lipiscan^TM; therefore, it is
necessary to add the charges related to the device to the average
standardized charge per case in evaluating the cost threshold
criterion. Although the applicant submitted data related to the
estimated cost of Lipiscan^TM per case, the applicant noted
that the cost of the device was proprietary information. Based on a
sampling of two hospitals that have used the device, the applicant used
a markup of 120 percent of the costs and estimates $5,280 in charges
related to Lipiscan^TM. Because the applicant lacked a
significant sample of cases to determine the charges associated with
the device, we have concerns as to whether or not the estimate of
$5,280 in charges related to the device is a valid estimate. Adding the
estimated charges related to the drug to the average standardized
charge per case (based on the case distribution from the applicant's
2009 AOR analysis) results in a case-weighted average standardized
charge per case of $55,317 ($50,037 plus $5,280). Using the FY 2010
thresholds published in Table 10 (73 FR 58008), the case-weighted
threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 was $53,847 (all
calculations above were performed using unrounded numbers). Because the
case-weighted average standardized charge per case for the applicable
MS-DRGs exceeds the case-weighted threshold amount, the applicant
maintains that Lipiscan^TM would meet the cost criterion. We
invite public comment on whether or not Lipiscan^TM meets the
cost criterion.
With regard to substantial clinical improvement, the applicant
maintains that the device meets this criterion for the following
reasons. The applicant noted that the September 1, 2001 final rule
states that one facet of the criterion for substantial clinical
improvement is ``the device offers the ability to diagnose a medical
condition in a patient population where the medical condition is
currently undetectable or offers the ability to diagnose a medical
condition earlier in a patient population than allowed by currently
available methods. There must also be evidence that use of the device
to make a diagnosis affects the management of the patient'' (66 FR
46914). The applicant believes that Lipiscan^TM meets all
facets of this criterion. The applicant asserted that the device is
able to detect a condition that is not currently detectable. The
applicant explained that LipiScan^TM is the first device of
its kind to be able to detect lipid-core-containing plaques of interest
and to assess of coronary artery lipid core burden. The applicant
further noted that FDA, in its approval documentation, has indicated
that ``This is the first device that can help assess the chemical
makeup of coronary artery plaques and help doctors identify those of
particular concern.''
In addition, the applicant stated that the LipiScan^TM
chemogram permits a clinician to detect lipid-core-containing plaques
in the coronary arteries compared to other currently available devices
that do not have this ability. The applicant explained that the
angiogram, the conventional test for coronary atherosclerosis, shows
only minimal coronary narrowing. However, the applicant indicated that
the LipiScan^TM chemogram has the ability to reveal when an
artery contains extensive lipid-core-containing plaque at an earlier
stage.
The applicant also noted that the device has the ability to make a
diagnosis that better affects the management of the patient.
Specifically, the applicant explained that the chemogram results are
available to the interventional cardiologist during the PCI procedure,
and have been found to be useful in decision-making. Physicians have
reported changes in therapy based on LipiScan^TM findings in
20 to 50 percent of patients. The most common use of
LipiScan^TM results has been for selection of the length of
artery to be stented. In some cases a longer stent has been used when
there is a lipid-core-containing plaque adjacent to the area that is
being stented because a flow-limiting stenosis is present. Therefore,
the applicant contends that the use of LipiScan^TM by
clinicians to select the length of artery to be stented and as an aid
in selection of intensity of lipid-altering therapy, demonstrates that

[[Page 24134]]

LipiScan^TM affects the management of patients.
While we recognize that the identification of lipid-rich plaques in
the coronary vasculature holds promise in the management of coronary
artery disease, we are concerned that statements in the FDA approval
documents, as well as statements made by investigators in the
literature, suggest that the clinical implications of identifying these
lipid-rich plaques are not yet certain and that further studies need to
be done to understand the clinical implications of obtaining this
information. We are also concerned that there are no outcome data
regarding the use of the LipiScan^TM technology.
The applicant also submitted commentary from Interventional
Cardiologists (a group of clinicians who currently utilize the
LipiScan^TM device) explaining the clinical benefits of the
device. The applicant further noted that the device may have other
potential uses that would be of clinical benefit, and studies are
currently being conducted to investigate these other potential uses.
The applicant explained that LipiScan^TM offers promise as a
means to enhance progress against the two leading problems in coronary
disease management: (1) The unacceptably high rate of second events
that occur even after catheterization, revascularization, and the
institution of optimal medical therapy; and (2) the failure to diagnose
coronary disease early, which results in sudden death or myocardial
infarction being the first sign of the disease in most patients. The
applicant further stated that the identification of coronary lipid-
core-containing plaques, which can most readily be done in those
already undergoing catheterization, is likely to be of benefit in the
prevention of second events. In the longer term, the applicant stated
that the identification of lipid-core-containing plaques by
LipiScan^TM may contribute to the important goal of primary
prevention of coronary events, which, in the absence of adequate
diagnostic methods, continue to cause extensive morbidity, mortality
and health care expenditures in Medicare beneficiaries and the general
population.
We welcome public comment regarding whether or not the
LipiScan^TM technology represents a substantial clinical
improvement in the Medicare population.
Below we summarize the written comments we received in response to
the town hall meeting.
Comment: The manufacturer of LipiScan^TM stated that,
prior to the availability of LipiScan^TM, current methods of
diagnosis could not detect that a patient has a lipid-core plaque prior
to the occurrence of a myocardial infarction. In April 2008, the FDA
approved the LipiScan^TM Coronary Imaging System for
identification of these lipid-core plaques in patients undergoing
coronary angiography, thereby allowing the detection of this condition
in patients prior to the occurrence of a myocardial infarction.
The manufacturer stated that, since its FDA approval,
LipiScan^TM has been used in over 110 patients and has
identified lipid-core plaques that were previously undetectable,
thereby revealing earlier stages of the disease. The manufacturer noted
that physicians have used this diagnostic information to provide
clinical benefits to their patients, including improved identification
of the length of the artery to be stented and selection of the
appropriate intensity of pharmacologic therapy designed to alter plasma
lipids.
In addition to these early diagnostic uses, the manufacturer
believes that LipiScan^TM opens the possibility of eventual
detection and treatment of lipid-core plaques before they cause a
stenosis and/or a clinical event. The manufacturer added that the use
of this technology could lead to prevention of myocardial infarction,
which in turn would reduce the occurrence of heart failure and
arrhythmias--two conditions responsible for severe morbidity and
massive health care expenditures.
In addition, the manufacturer reiterated its assertion that
LipiScan^TM meets the newness criterion. The manufacturer
explained that FDA, in its approval documentation, has indicated that
``This is the first device that can help assess the chemical makeup of
coronary artery plaques and help doctors identify those of particular
concern.'' The manufacturer further noted that, while
LipiScan^TM is equivalent to the predicate intravascular
ultrasound (IVUS) device, the features of the LipiScan^TM
system produce different information because it permits the physician
to detect lipid-core plaques of interest and the lipid burden index.
The manufacturer also noted that the case-weighted average
standardized charge per case exceeds the case-weighted threshold (as
discussed above) and, therefore, the manufacturer believes that the
technology meets the cost criterion. In addition, the manufacturer
reasserted that it meets the substantial clinical improvement criterion
by the arguments it put forth in its application regarding substantial
clinical improvement (which are presented above in this section of the
preamble).
Finally, in its comment, the manufacturer concluded that
LipiScan^TM is a novel diagnostic method that meets the three
criteria for a new technology add-on payment and that more frequent
utilization of LipiScan^TM would occur with additional
reimbursement resulting in possible improved outcomes for patients
undergoing stenting. The manufacturer stated that LipiScan^TM
has the added potential of contributing to the prevention of acute
coronary syndromes.
Response: We thank the manufacturer for its comments that were
submitted concerning the town hall meeting. We have considered these
comments in our evaluation of the technology in this proposed rule. As
stated above, we invite additional public comment relating to objective
data regarding the assertions presented by the manufacturer.
d. Spiration[supreg] IBV[supreg] Valve System
Spiration, Inc. submitted an application for new technology add-on
payments for FY 2010 for the Spiration[supreg] IBV[supreg] Valve System
(Spiration[supreg] IBV[supreg]). The Spiration[supreg] IBV[supreg] is a
device that is used to place, via bronchoscopy, small, one-way valves
into selected small airways in the lung in order to limit airflow into
selected portions of lung tissue that have prolonged air leaks
following surgery while still allowing mucus, fluids, and air to exit,
thereby reducing the amount of air that enters the pleural space. The
device is intended to control prolonged air leaks following three
specific surgical procedures: lobectomy; segmentectomy; or lung volume
reduction surgery. According to the applicant, an air leak that is
present on postoperative day 7 is considered ``prolonged'' unless
present only during forced exhalation or cough. In order to help
prevent valve migration, there are five anchors with tips that secure
the valve to the airway. The implanted valves are intended to be
removed no later than 6 weeks after implantation.
With regard to the newness criterion, the Spiration[supreg]
IBV[supreg] received a Humanitarian Device Exemption (HDE) approval
from the FDA on October 24, 2008. We are unaware of any previously FDA-
approved predicate devices, or otherwise similar devices, that could be
considered substantially similar to the Spiration[supreg] IBV[supreg].
However, the applicant asserted that the FDA has precluded the device
from being used in the treatment of any patients until Institutional
Review Board (IRB)

[[Page 24135]]

approvals regarding its study sites. Therefore, it would appear that
the Spiration[supreg] IBV[supreg] would meet the newness criterion once
it has obtained at least one IRB approval because the device would then
be available on the market to treat Medicare beneficiaries. We welcome
public comments about the date on which the newness period should begin
for this technology should it meet the other criteria to be approved
for new technology add-on payments. We note that the Spiration[supreg]
IBV[supreg] is currently described by ICD-9-CM procedure code 33.71
(Endoscopic insertion or replacement of bronchial valve(s)). At the
September 2008 ICD-9-CM Coordination and Maintenance Committee meeting,
we discussed a proposal to revise the existing code and create a new
code for endoscopic bronchial valve insertion in single and multiple
lobes.
In an effort to demonstrate that the technology meets the cost
criterion, the applicant searched the FY 2007 MedPAR file for cases
potentially eligible for use of the Spiration[supreg] IBV[supreg].
Specifically, the applicant searched for cases with one of the
following procedure codes: 32.4 (Lobectomy of lung); 32.3 (Segmental
resection of lung); or 32.22 (Long volume reduction surgery). The
applicant found 4,225 cases (or 21.6 percent of all cases) in MS-DRG
163 (Major Chest Procedure with MCC), 8,960 cases (or 45.8 percent of
all cases) in MS-DRG 164 (Major Chest Procedure with CC), and 6,358
cases (or 32.5 percent of all cases) in MS-DRG 165 (Major Chest
Procedure without CC/MCC). The average standardized charge per case was
$88,326 for MS-DRG 163, $48,494 for MS-DRG 164, and $38,463 for MS-DRG
165, equating to a case-weighted average standardized charge per case
of $53,842.
The average standardized charge per case does not include charges
related to the Spiration[supreg] IBV[supreg]; therefore, it is
necessary to add the charges related to the device to the average
standardized charge per case in evaluating the cost threshold
criterion. Although the applicant submitted data related to the
estimated cost of the Spiration[supreg] IBV[supreg] per case, the
applicant noted that the cost of the device was proprietary
information. The applicant estimates $21,450 in charges related to the
Spiration[supreg] IBV[supreg] (based on a 100-percent charge markup of
the cost of the device). The applicant based this amount on seven
actual cases that received the device. Because the applicant lacked a
significant sample of cases to determine the charges associated with
the device, we have concerns as to whether or not the $21,450 in
charges related to the device is a valid estimate. In addition, based
on the seven cases, the applicant made an estimate of the number of
valves used per case (the applicant noted that the number of valves
used per case is proprietary). We also have concerns that the applicant
lacked a significant sample of cases to determine a valid estimate of
the number of valves per case. Adding the estimated charges related to
the device to the average standardized charge per case (based on the
case distribution from the applicant's FY 2007 MedPAR claims data
analysis) resulted in a case-weighted average standardized charge per
case of $75,292 ($53,842 plus $21,450). Using the FY 2010 thresholds
published in Table 10 (73 FR 58008), the case-weighted threshold for
MS-DRGs 163, 164, and 165 was $54,715 (all calculations above were
performed using unrounded numbers). Because the case-weighted average
standardized charge per case for the applicable MS-DRGs exceeds the
case-weighted threshold amount, the applicant maintains that the
Spiration[supreg] IBV[supreg] would meet the cost criterion. We invite
public comment on whether or not the Spiration[supreg] IBV[supreg]
meets the cost criterion.
With respect to how the device would meet the substantial clinical
improvement criterion, the applicant submitted information that was
based on the Summary of Safety and Probable Benefit (SSPB) from the
FDA's HDE approval order for the device. The clinical results indicate
the Spiration[supreg] IBV[supreg] can be deployed in the intended
airway reasonably safely with a minimally invasive bronchoscopy
procedure. There have been a limited number of device complications and
no occurrences of device erosion or migration. The Spiration[supreg]
IBV[supreg] can be removed using a bronchoscope. Laboratory results
indicate that the Spiration[supreg] IBV[supreg] significantly reduces
airflow to the lung tissue beyond the treated airway. A significant
reduction in distal airflow is anticipated to augment the resolution of
air leaks of the lung. Therefore, the applicant asserts, it is
reasonable to conclude that the probable benefit to health associated
with using the device for the target population outweighs the risk of
illness or injuries, taking into account the probable risks and
benefits of currently available devices or alternative forms of
treatment when used as indicated in accordance with the directions for
use.
We recognize that prolonged air leaks after these types of lung
surgery can be a significant problem, and that Spiration[supreg]
IBV[supreg] therapy may represent a new alternative in treating
properly selected patients. However, we have concerns that the outcome
data presented is from a sample set of only seven patients, and the FDA
HDE did not require demonstration of either safety or effectiveness.
Therefore, we welcome public comment as to whether or not the
Spiration[supreg] IBV[supreg] represents a substantial clinical
improvement for Medicare beneficiaries.
We did not receive any written public comments regarding this
application for new technology add-on payments concerning the new
technology town hall meeting.
e. TherOx Downstream[supreg] System
TherOx, Inc. submitted an application for new technology add-on
payments for FY 2010 for the TherOx Downstream[supreg] System. The
TherOx Downstream[supreg] System uses SuperSaturatedOxygen Therapy
(SSO2) that is designed to limit myocardial necrosis by minimizing
microvascular damage in acute myocardial infarction (AMI) patients
following intervention with percutaneous transluminal coronary
angioplasty (PTCA), and coronary stent placement by perfusing the
affected myocardium with blood that has been supersaturated with
oxygen. SSO2 therapy refers to the delivery of superoxygenated arterial
blood directly to areas of myocardial tissue that have been reperfused
using PTCA and stent placement, but which may still be at risk. The
desired effect of SSO2 therapy is to reduce infarct size and, thus,
preserve heart muscle and function. The TherOx DownStream[supreg]
System is the console portion of a disposable cartridge-based system
that withdraws a small amount of the patient's arterial blood, mixes it
with a small amount of saline, and supersaturates it with oxygen to
create highly oxygen-enriched blood. The superoxygenated blood is
delivered directly to the infarct-related artery via the TherOx
infusion catheter. SSO2 therapy is a catheter laboratory-based
procedure. Additional time in the catheter laboratory area averages 100
minutes. The applicant claimed that the SSO2 therapy duration lasts 90
minutes and requires an additional 10 minutes post-procedure
preparation for transfer time. We note that the TherOx
DownStream[supreg] System is currently identified by ICD-9-CM procedure
code 00.49 (Supersaturated oxygen therapy). TherOx, Inc. submitted an
application for new technology add-on payments for FY 2009 for this
technology. However, although FDA approval was expected in the second
quarter of 2008, it had not received FDA approval at the time the
proposed rule for FY 2009 was published. Because the technology was

[[Page 24136]]

not approved by the FDA during the development of the proposed rule, we
limited our discussion of this technology to data that the applicant
submitted, rather than make specific proposals with respect to whether
the device would meet the new technology add-on payment criteria.
For its FY 2010 new technology add on payment application, the
applicant has indicated to CMS that it expects to receive FDA approval
in the second quarter of 2009. However, because the technology has not
yet received approval by the FDA, we are limiting our discussion of
this technology to data that the applicant submitted rather than making
specific proposals with respect to whether the device would meet the
new technology add-on payment criteria in this proposed rule.
In an effort to demonstrate that TherOx Downstream[supreg] System
would meet the cost criterion, the applicant submitted two analyses.
The applicant stated that it believed that the cases that would be
eligible for the TherOx Downstream[supreg] System would most frequently
group to MS-DRGs 246 (Percutaneous Cardiovascular Procedure with Drug-
Eluting Stent with MCC or 4+ Vessels/Stents), 247 (Percutaneous
Cardiovascular Procedure with Drug-Eluting Stent without MCC), 248
(Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with
MCC or 4+ Vessels/Stents), and 249 (Percutaneous Cardiovascular
Procedure with Non-Drug-Eluting Stent without MCC). The first analysis
used data based on 83 clinical trial patients from 10 clinical sites.
Of the 83 cases, 78 were assigned to MS-DRGs 246, 247, 248, or 249.
(The remaining five cases grouped to MS-DRGs that the technology would
not frequently group to and, therefore, are not included in this
analysis.) The data showed that 32 of these patients were 65 years old
or older. There were 12 cases (or 15.4 percent of the 78 cases) in MS-
DRG 246, 56 cases (or 71.8 percent of the 78 cases) in MS-DRG 247, 2
cases (or 2.6 percent of the 78 cases) in MS-DRG 248, and 8 cases (or
10.3 percent of the 78 cases) in MS-DRG 249. The average standardized
charge per case for MS-DRGs 246, 247, 248, and 249 was $71,955,
$60,790, $55,238, and $42,723, respectively, equating to a case-
weighted average standardized charge per case of $60,512. The average
standardized charge per case does not include charges related to the
TherOx Downstream[supreg] System. Therefore, it is necessary to add the
charges related to the device to the average standardized charge per
case in evaluating the cost threshold criterion. Although the applicant
submitted data related to the estimated cost of the TherOx
Downstream[supreg] System per case, the applicant noted that the cost
of the device was proprietary information. The applicant estimates
$22,739.40 in charges related to the TherOx Downstream[supreg] System
(based on a 100-percent charge markup of the cost of the drug). Adding
the charges related to the device to the average standardized charge
per case resulted in a case-weighted average standardized charge per
case of $83,251 ($60,512 plus $22,739). Based on the FY 2010 threshold
from Table 10 (73 FR 58008), the case-weighted threshold for the four
MS-DRGs listed above was $51,564 (all calculations above were performed
using unrounded numbers).
The applicant also searched the FY 2007 MedPAR file to identify
cases that would be eligible for the TherOx Downstream[supreg] System.
The applicant specifically searched for cases with primary ICD-9-CM
diagnosis code 410.00 (Acute myocardial infarction of anterolateral
wall with episode of care unspecified), 410.01 (Acute myocardial
infarction of anterolateral wall with initial episode of care), 410.10
(Acute myocardial infarction of other anterior wall with episode of
care unspecified), or 410.11 (Acute myocardial infarction of other
anterior wall with initial episode of care) in combination with ICD-9-
CM procedure code 36.06 (Insertion of non-drug-eluting coronary artery
stent(s)) or 36.07 (Insertion of drug-eluting coronary artery
stent(s)). The applicant's search found 12,345 cases within MS-DRGs
246, 247, 248, and 249 distributed as follows: 1,591 cases (or 12.9
percent of cases) in MS-DRG 246; 6,203 cases (or 50.2 percent of cases)
in MS-DRG 247; 1,132 cases (or 9.2 percent of cases) in MS-DRG 248; and
3,419 cases (or 27.7 percent of cases) in MS-DRG 249. Not including the
charges associated with the technology, the average standardized charge
per case for MS-DRGs 246, 247, 248, and 249 was $65,967, $46,828,
$56,807 and $40,107, respectively, equating to a case-weighted average
standardized charge per case of $48,348. The applicant estimated that
it was necessary to add an additional $22,739 in charges to the total
case-weighted average standardized charge per case (as described
above). In the additional charge amount, the applicant included charges
for supplies and tests related to the technology, charges for 100
minutes of additional procedure time in the catheter laboratory, and
charges for the technology itself. The inclusion of these charges would
result in a total case-weighted average standardized charge per case of
$71,087. The case-weighted threshold for MS-DRGs 246, 247, 248, and 249
(from Table 10 (73 FR 58008)) was $51,073 (all calculations above were
performed using unrounded numbers). Because the total case-weighted
average standardized charge per case from the first analysis of
clinical trial patients and the case-weighted standardized charge per
case from the second analysis of the FY 2006 MedPAR claims data exceeds
the applicable case-weighted thresholds, the applicant maintained the
TherOx Downstream[supreg] System would meet the cost criterion.
We invite public comment on whether or not the TherOx
Downstream[supreg] System meets the cost criterion.
With respect to the substantial clinical improvement criterion, the
applicant asserts that their technology represents a substantial
clinical improvement in the treatment of acute anterior myocardial
infarction in conjunction with percutaneous coronary intervention (PCI)
with stent placement within 6 hours of onset of symptoms compared to
PCI and stent placement alone. Specifically, the applicant asserts that
there is a 6.5 percent absolute reduction in infarct size using the
TherOx Downstream[supreg] System as assessed using Tc-99m Sestamibi
SPECT nuclear imaging in the Acute Myocardial Infarction Hyperbaric
Oxygen Treatment (AMIHOT) II clinical trial, and such a reduction has
been correlated with both short-term (less than 30 day) and long-term
(greater than 30 day) mortality reductions.
Although the TherOx Downstream[supreg] System remains
investigational and has not yet received approval from the FDA at this
time, we do recognize that a clear reduction of infarct size in acute
anterior myocardial infarction may represent a substantial clinical
improvement. However, we have concerns that the data presented by the
applicant in the application are derived from a Bayesian methodology,
which includes data from a subgroup of an earlier trial (AMIHOT I),
that showed no overall benefit of using the technology, and that the
AMIHOT II trial has yet to be published in any peer reviewed
literature. We also are concerned that there were a higher number of
adverse bleeding events in patients who had been treated in the group
of AMIHOT II clinical trial, and the study did not demonstrate any
specific improved clinical outcomes.
We invite public comment on whether or not the TherOx
Downstream[supreg] System meets the

[[Page 24137]]

substantial clinical improvement criterion.
Below we summarize the written comments we received concerning the
town hall meeting.
Comment: The physician who presented information at the town hall
meeting on behalf of the applicant also submitted additional written
comments in response to questions raised during the town hall meeting.
Specifically, the physician addressed questions relating to the study
of additional functional endpoints, such as ejection fraction a year
after a patient received therapy using the TherOx Downstream[supreg]
System or New York Heart Association (NYHA) functional class, and why
the AMIHOT I study design included patients who presented up to 24
hours after infarction (instead of up to 6 hours). With regard to
studying ejection fraction out to one year, the physician acknowledged
that such an endpoint was considered during the design of the AMIHOT II
trial, but that it was ultimately rejected because it was not required
by the FDA.
The physician further acknowledged that the AMIHOT I trial failed
to meet its overall primary efficacy endpoint, but asserted that when
analyzing the subset of 105 patients from the trial who had an anterior
myocardial infarction and were reperfused within 6 hours, ``substantial
clinical benefit'' was observed. The physician noted that, although
some people may have considered the subset of the anterior myocardial
infarction patients a ``post hoc'' analysis, the subset was actually a
``pre-specified data set.'' In addition, the physician maintained that
the analysis of the subset of data was the basis for the second
randomized trial (AMIHOT II), and that the FDA ``was unambiguous in its
contention that infarct size by single photon emission computed
tomography (SPECT) imaging had been thoroughly validated as a surrogate
endpoint* * *.''
Finally, the physician emphasized information regarding the
technology's efficacy that was presented in its application. First, the
physician stated that patients with an ejection fraction of less than
40 percent who received supersaturated oxygen therapy had an absolute
difference in infarct size of 12.5 percent when compared to the control
arm. The physician further asserted that such outcomes support that
``among the sickest acute MI patients* * * supersaturated oxygen is of
the greatest benefit.'' Secondly, the physician noted that the pooled,
adjusted data for AMIHOT II and the anterior MI patients from AMIHOT I
show that there were nearly twice as many supersaturated oxygen
patients with an imperceptible infarct compared to controls (18.2
percent versus 10.3 percent, respectively). The physician described an
``imperceptible'' infarct as that which is nearly undetectable upon
SPECT imaging after an acute myocardial infarction patient undergoes
primary coronary intervention at the hospital.
Response: In response to the physician's statements regarding the
FDA rejecting the use of ejection fraction as a primary endpoint for
the AMIHOT II trial, we note that the standards used in the
determination of whether a new technology is ``safe and effective''
(FDA standards for approval) are not necessarily equivalent to the
standards that are used to determine whether a new technology
represents a substantial clinical improvement to the Medicare
beneficiary patient population over existing technologies. While we
welcome insight and data obtained during the FDA approval process, we
are charged with going beyond the ``safe and effective'' standards of
FDA for purposes of deeming that a new technology represents a
substantial clinical improvement to the Medicare beneficiary patient
population.
We have considered the comments concerning the town hall meeting
and in response to questions raised at the town hall meeting in our
evaluation of this technology in this proposed rule. As stated above,
we invite additional public comment on objective data regarding the
assertions presented by the physician.
5. Technical Correction to the Regulations
In the FY 2009 IPPS final rule, when we revised the regulations at
Sec. 412.87 to incorporate changes relating to the announcement of
determinations and deadline for consideration of new medical service or
technology applications, we made a change to paragraph (b)(1) (73 FR
48755). In paragraph (b)(1), we inadvertently used the incorrect word
``relating'' in the provision that read ``A new medical service or
technology represents an advance that substantially improves, relating
to technologies previously available, the diagnosis or treatment of
Medicare beneficiaries'' (emphasis added). The correct word should have
been ``relative''. We are proposing to make this technical change to
Sec. 412.87(b)(1).

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

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary must adjust the standardized amounts ``for area differences
in hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level.'' In
accordance with the broad discretion conferred under the Act, we
currently define hospital labor market areas based on the definitions
of statistical areas established by the Office of Management and Budget
(OMB). A discussion of the proposed FY 2010 hospital wage index based
on the statistical areas, including OMB's revised definitions of
Metropolitan Areas, appears under section III.C. of this preamble.
Beginning October 1, 1993, section 1886(d)(3)(E) of the Act
requires that we update the wage index annually. Furthermore, this
section provides that the Secretary base the update on a survey of
wages and wage-related costs of short-term, acute care hospitals. The
survey must exclude the wages and wage-related costs incurred in
furnishing skilled nursing services. This provision also requires us to
make any updates or adjustments to the wage index in a manner that
ensures that aggregate payments to hospitals are not affected by the
change in the wage index. The proposed adjustment for FY 2010 is
discussed in section II.B. of the Addendum to this proposed rule.
As discussed below in section III.I. of this preamble, we also take
into account the geographic reclassification of hospitals in accordance
with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating
IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the
Secretary is required to adjust the standardized amounts so as to
ensure that aggregate payments under the IPPS after implementation of
the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the
Act are equal to the aggregate prospective payments that would have
been made absent these provisions. The proposed budget neutrality
adjustment for FY 2010 is discussed in section II.A.4.b. of the
Addendum to this proposed rule.
Section 1886(d)(3)(E) of the Act also provides for the collection
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in
order to construct an occupational mix adjustment to the wage index. A
discussion of the occupational mix adjustment that we are proposing to
apply beginning October 1, 2009 (the FY 2010 wage

[[Page 24138]]

index) appears under section III.D. of this preamble.

B. Requirements of Section 106 of the MIEA-TRHCA

1. Wage Index Study Required under the MIEA-TRHCA
a. Legislative Requirement
Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required
MedPAC to submit to Congress, not later than June 30, 2007, a report on
the Medicare wage index classification system applied under the
Medicare IPPS. Section 106(b) of MIEA-TRHCA required the report to
include any alternatives that MedPAC recommends to the method to
compute the wage index under section 1886(d)(3)(E) of the Act.
In addition, section 106(b)(2) of the MIEA-TRHCA instructed the
Secretary of Health and Human Services, taking into account MedPAC's
recommendations on the Medicare wage index classification system, 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 to consider
each of the following:
Problems associated with the definition of labor markets
for the wage index adjustment.
The modification or elimination of geographic
reclassifications and other adjustments.
The use of Bureau of Labor of Statistics (BLS) data or
other data or methodologies to calculate relative wages for each
geographic area.
Minimizing variations in wage index adjustments between
and within MSAs and statewide rural areas.
The feasibility of applying all components of CMS'
proposal to other settings.
Methods to minimize the volatility of wage index
adjustments while maintaining the principle of budget neutrality.
The effect that the implementation of the proposal would
have on health care providers on each region of the country.
Methods for implementing the proposal(s), including
methods to phase in such implementations.
Issues relating to occupational mix such as staffing
practices and any evidence on quality of care and patient safety
including any recommendation for alternative calculations to the
occupational mix.
In the FY 2009 IPPS final rule (73 FR 48563 through 48567), we
discussed the MedPAC's study and recommendations, the CMS contract with
Acumen, L.L.C. for assistance with impact analysis and study of wage
index reform, and public comments we received on the MedPAC
recommendations and the CMS/Acumen study and analysis.
b. Interim and Final Reports on Results of Acumen's Study
(1) Interim Report on Impact Analysis of Using MedPAC's Recommended
Wage Index
In the FY 2009 IPPS final rule (73 FR 48566 through 48567), we
discussed the analysis conducted by Acumen comparing use of the MedPAC
recommended wage indices to the current CMS wage index. We refer
readers to section III.B.1.e. of that final rule for a full discussion
of the impact analysis as well as to Acumen's interim report available
on the Web site: http://www.acumenllc.com/reports/cms.
(2) Acumen's Final Report on Analysis of the Wage Index Data and
Methodology
Acumen's final report addressing the issues in section 106(b)(2) of
the MIEA-TRHCA is divided into two parts. The first part analyzes the
strengths and weaknesses of the data sources used to construct the
MedPAC and CMS indexes. This part of Acumen's study is complete and
will be published immediately after the publication of this proposed
rule. The second part, which is expected to be released after the
publication of the FY 2010 IPPS final rule, will focus on the
methodology of wage index construction and covers issues related to the
definition of wage areas and methods of adjusting for differences among
neighboring wage areas, as well as reasons for differential impacts of
shifting to a new index. Both reports, when available, will be
accessible at the Web site: http://www.acumenllc.com/reports/cms.
The following is a description of the analyses for both parts of
Acumen's final report.
Part I: Wage Data Analysis
Differences between the BLS data and the CMS wage data--
Acumen assessed the strengths and weaknesses of the data used to
construct the CMS wage index and the MedPAC compensation index by
examining the differences between the BLS and the CMS wage data. Acumen
also evaluated the importance of accounting for self-employed workers,
part-time workers, and industry wage differences.
Employee benefit (wage-related) cost--Acumen considered
whether benefit costs need to be included in the hospital wage index
and discussed the differences between Worksheet A benefits data
(proposed by MedPAC to use with BLS wage data) and Worksheet S-3
benefit data. Acumen also analyzed the possibility of using BLS'
Employer Costs for Employee Compensation (ECEC) series as an
alternative to Worksheet A or Worksheet S-3 benefits data that would
pose less of a data collection burden for providers.
Impact of the fixed national occupational weights--Acumen
assessed MedPAC's and CMS' methods for adjusting for occupational mix
differences. While the proposed MedPAC compensation index uses fixed
weights for occupations representative of the hospital industry
nationally, the CMS wage index incorporates an occupational mix
adjustment (OMA) from a separate data collection.
Year-to-year volatility in the CMS and BLS wage data--
Acumen calculated the extent of volatility in the CMS and BLS wage
indexes using several measures of volatility. Acumen also explored
potential causes of volatility, such as the number of hospitals and the
annual change in the number of hospitals in a wage area. Finally,
Acumen evaluated the impact on annual volatility of using a 2-year
rolling average of CMS wage index values.
Part II: Wage Index Construction
Alternative wage area definitions--Acumen will explore the
conceptual basis for defining wage areas and investigate alternative
wage area definitions that have been considered in prior literature to
reduce differences between areas.
Differences between and within contiguous wage areas--
Acumen will estimate different methods for smoothing wage index values
between geographically proximate areas and examine the justification
for and sensitivity to assumptions used by MedPAC in its smoothing
method.
Reasons for differential impacts of shifting to a new
index--Acumen will analyze the impact on hospitals if CMS were to adopt
MedPAC's proposed compensation index, with a focus on hospitals that
would no longer qualify for exceptions such as geographic
reclassification and the rural floor. Acumen will also determine if
there are identifiable reasons for the different impacts.
As of the publication date of this proposed rule, Acumen has not
completed its analysis for the second part of its final report.
We indicated in the FY 2009 IPPS final rule that, in developing any
proposal(s) for additional wage index reform that may be included in
the FY

[[Page 24139]]

2010 IPPS proposed rule, we would consider all of the public comments
on the MedPAC recommendations that we had received in that proposed
rulemaking cycle, along with the interim and final reports to be
submitted to us by Acumen. As Acumen's study is not yet complete, we
are not proposing any additional changes to the hospital wage index for
acute care hospitals in this proposed rule.
2. FY 2009 Policy Changes in Response to Requirements Under Section
106(b) of the MIEA-TRHCA
To implement the requirements of section 106(b) of the MIEA-TRHCA
and respond to MedPAC's recommendations in its June 2007 report to
Congress, in the FY 2009 IPPS final rule (73 FR 48567 through 48574),
we made the following policy changes relating to the hospital wage
index. (We refer readers to the FY 2009 IPPS final rule for a full
discussion of the basis for the proposals, the public comments
received, and the FY 2009 final policy.)
a. Reclassification Average Hourly Wage Comparison Criteria
In the FY 2009 IPPS final rule, we adopted the policy to adjust the
reclassification average hourly wage standard, comparing a
reclassifying hospital's (or county hospital group's) average hourly
wage relative to the average hourly wage of the area to which it seeks
reclassification. We provided for a phase-in of the adjustment over 2
years. For applications for reclassification for the first transitional
year, FY 2010, the average hourly wage standards were set at 86 percent
for urban hospitals and group reclassifications and 84 percent for
rural hospitals. For applications for reclassification for FY 2011 (for
which the application deadline is September 1, 2009) and for subsequent
fiscal years, the average hourly wage standards will be 88 percent for
urban and group reclassifications and 86 percent for rural hospitals
(Sec. Sec. 412.230, 412.232, and 412.234 of the regulations). As
stated above, these policies were adopted in the FY 2009 IPPS final
rule.
b. Within-State Budget Neutrality Adjustment for the Rural and Imputed
Floors
In the FY 2009 IPPS final rule, we adopted State level budget
neutrality (rather than the national budget neutrality adjustment) for
the rural and imputed floors, to be effective beginning with the FY
2009 wage index. The transition from the national budget neutrality
adjustment to the State level budget neutrality adjustment is being
phased in over a 3-year period. In FY 2009, hospitals received a
blended wage index that was 20 percent of a wage index with the State
level rural and imputed floor budget neutrality adjustment and 80
percent of a wage index with the national budget neutrality adjustment.
In FY 2010, the blended wage index will reflect 50 percent of the State
level adjustment and 50 percent of the national adjustment. In FY 2011,
the adjustment will be completely transitioned to the State level
methodology.
In the FY 2009 IPPS final rule, we incorporated this policy in our
regulation at Sec. 412.64(e)(4). Specifically, we provided that CMS
makes an adjustment to the wage index to ensure that aggregate payments
after implementation of the rural floor under section 4410 of the
Balanced Budget Act of 1997 (Pub. L. 105-33) and the imputed rural
floor under Sec. 412.64(h)(4) are made in a manner that ensures that
aggregate payments to hospitals are not affected and that, beginning
October 1, 2008, CMS would transition from a nationwide adjustment to a
statewide adjustment, with a statewide adjustment fully in place by
October 1, 2010. We note that the imputed floor expires on September
30, 2011 (as discussed in section III.H. of this preamble).

C. Core-Based Statistical Areas for the Hospital Wage Index

The wage index is calculated and assigned to hospitals on the basis
of the labor market area in which the hospital is located. In
accordance with the broad discretion under section 1886(d)(3)(E) of the
Act, beginning with FY 2005, we define hospital labor market areas
based on the Core-Based Statistical Areas (CBSAs) established by OMB
and announced in December 2003 (69 FR 49027). For a discussion of OMB's
revised definitions of CBSAs and our implementation of the CBSA
definitions, we refer readers to the preamble of the FY 2005 IPPS final
rule (69 FR 49026 through 49032).
As with the FY 2009 final rule, for FY 2010, we are proposing to
provide that hospitals receive 100 percent of their wage index based
upon the CBSA configurations. Specifically, for each hospital, we are
proposing to determine a wage index for FY 2010 employing wage index
data from hospital cost reports for cost reporting periods beginning
during FY 2006 and using the CBSA labor market definitions. We consider
CBSAs that are MSAs to be urban, and CBSAs that are Micropolitan
Statistical Areas as well as areas outside of CBSAs to be rural. In
addition, it has been our longstanding policy that where an MSA has
been divided into Metropolitan Divisions, we consider the Metropolitan
Division to comprise the labor market areas for purposes of calculating
the wage index (69 FR 49029) (regulations at Sec.
412.64(b)(1)(ii)(A)).
On November 20, 2008, OMB announced three Micropolitan Statistical
Areas that now qualify as MSAs (OMB Bulletin No. 09-01). The new urban
CBSAs are as follows:
Cape Girardeau-Jackson, Missouri-Illinois (CBSA 16020).
This CBSA is comprised of the principal cities of Cape Girardeau and
Jackson, Missouri in Alexander County, Illinois; Bollinger County,
Missouri, and Cape Girardeau County, Missouri.
Manhattan, Kansas (CBSA 31740). This CBSA is comprised of
the principal city of Manhattan, Kansas in Geary County, Pottawatomie
County, and Riley County.
Mankato-North Mankato, Minnesota (CBSA 31860). This CBSA
is comprised of the principal cities of Mankato and North Mankato,
Minnesota in Blue Earth County and Nicollet County.
OMB also changed the principal cities and titles of a number of
CBSAs and a Metropolitan Division, as follows:
Broomfield, Colorado qualifies as a new principal city of
the Denver-Aurora, Colorado CBSA. The new title is Denver-Aurora-
Broomfield, Colorado CBSA.
Chapel Hill, North Carolina qualifies as a new principal
city of the Durham, North Carolina CBSA. The new title is Durham-Chapel
Hill, North Carolina CBSA.
Chowchilla, California qualifies as a new principal city
of the Madera, California CBSA. The new title is Madera-Chowchilla,
California CBSA.
Panama City Beach, Florida qualifies as a new principal
city of the Panama City-Lynn Haven, Florida CBSA. The new title is
Panama City-Lynn Haven-Panama City Beach, Florida CBSA.
East Wenatchee, Washington qualifies as a new principal
city of the Wenatchee, Washington CBSA. The new title is Wenatchee-East
Wenatchee, Washington CBSA.
Rockville, Maryland replaces Gaithersburg, Maryland as the
third most populous city of the Bethesda-Frederick-Gaithersburg,
Maryland Metropolitan Division. The new title is Bethesda-Frederick-
Rockville, Maryland Metropolitan Division.
The OMB bulletin is available on the OMB Web site at http://
www.whitehouse.gov/OMB_go to ``Bulletins'' or ``Statistical Programs
and

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Standards.'' CMS will apply these changes to the IPPS beginning October
1, 2009.

D. Proposed Occupational Mix Adjustment to the Proposed FY 2010 Wage
Index

As stated earlier, section 1886(d)(3)(E) of the Act provides for
the collection of data every 3 years on the occupational mix of
employees for each short-term, acute care hospital participating in the
Medicare program, in order to construct an occupational mix adjustment
to the wage index, for application beginning October 1, 2004 (the FY
2005 wage index). The purpose of the occupational mix adjustment is to
control for the effect of hospitals' employment choices on the wage
index. For example, hospitals may choose to employ different
combinations of registered nurses, licensed practical nurses, nursing
aides, and medical assistants for the purpose of providing nursing care
to their patients. The varying labor costs associated with these
choices reflect hospital management decisions rather than geographic
differences in the costs of labor.
1. Development of Data for the Proposed FY 2010 Occupational Mix
Adjustment Based on the 2007-2008 Occupational Mix Survey
As provided for under section 1886(d)(3)(E) of the Act, we collect
data every 3 years on the occupational mix of employees for each short-
term, acute care hospital participating in the Medicare program. For
the FY 2009 hospital wage index, we used data from the 2006 Medicare
Wage Index Occupational Mix Survey (the 2006 survey) to calculate the
occupational mix adjustment. In the 2006 survey, we included several
modifications to the original occupational mix survey, the 2003 survey,
including (1) allowing hospitals to report their own average hourly
wage rather than using BLS data; (2) extending the prospective survey
period; and (3) reducing the number of occupational categories but
refining the subcategories for registered nurses.
The 2006 survey provided for the collection of hospital-specific
wages and hours data, a 6-month prospective reporting period (that is,
January 1, 2006, through June 30, 2006), the transfer of each general
service category that comprised less than 4 percent of total hospital
employees in the 2003 survey to the ``all other occupations'' category
(the revised survey focused only on the mix of nursing occupations),
additional clarification of the definitions for the occupational
categories, an expansion of the registered nurse category to include
functional subcategories, and the exclusion of average hourly rate data
associated with advance practice nurses. The 2006 survey included only
two general occupational categories: Nursing and ``all other
occupations.'' The nursing category had four subcategories: Registered
nurses, licensed practical nurses, aides, orderlies, attendants, and
medical assistants. The registered nurse subcategory included two
functional subcategories: Management personnel and staff nurses or
clinicians. As indicated above, the 2006 survey provided for a 6-month
data collection period, from January 1, 2006 through June 30, 2006. To
allow flexibility for the reporting period beginning and ending dates
to accommodate some hospitals' biweekly payroll and reporting systems,
we modified the 6-month data collection period for the 2006 survey from
January 1, 2006 through June 30, 2006, to a 6-month reporting period
that began on or after December 25, 2005, and end before July 9, 2006.
OMB approved the revised 2006 occupational mix survey (Form CMS-10079
(2006)) on April 25, 2006. The original timelines for the collection,
review, and correction of the 2006 occupational mix data were discussed
in detail in the FY 2007 IPPS final rule (71 FR 48008).
For the proposed FY 2010 hospital wage index, we are using
occupational mix data collected on a revised 2007-2008 Medicare Wage
Index Occupational Mix Survey (the 2007-2008 survey) to compute the
proposed occupational mix adjustment for FY 2010. In the FY 2008 IPPS
final rule with comment period (72 FR 47315), we discussed how we
modified the 2006 occupational mix survey. The revised 2007-2008
occupational mix survey provided for the collection of hospital-
specific wages and hours data for the 1-year period of July 1, 2007,
through June 30, 2008, additional clarifications to the survey
instructions, the elimination of the registered nurse subcategories,
some refinements to the definitions of the occupational categories, and
the inclusion of additional cost centers that typically provide nursing
services.
On February 2, 2007, we published in the Federal Register a notice
soliciting comments on the proposed revisions to the 2006 occupational
mix survey (72 FR 5055). The comment period for the notice ended on
April 3, 2007. After considering the comments we received, we made a
few minor editorial changes and published the final 2007-2008
occupational mix survey on September 14, 2007 (72 FR 52568). OMB
approved the survey without change on February 1, 2008 (OMB Control
Number 0938 0907). The 2007-2008 Medicare occupational mix survey (Form
CMS-10079 (2008)) is available on the CMS Web site at: http://
www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage, and through
the fiscal intermediaries/MACs. Hospitals were required to submit their
completed surveys to their fiscal intermediaries/MACs by September 2,
2008. The preliminary, unaudited 2007-2008 occupational mix survey data
was released in early October 2008, along with the FY 2006 Worksheet S-
3 wage data, for the FY 2010 wage index review and correction process.
2. Calculation of the Proposed Occupational Mix Adjustment for FY 2010
For FY 2010 (as we did for FY 2009), we are proposing to calculate
the occupational mix adjustment factor using the following steps:
Step 1--For each hospital, determine the percentage of the total
nursing category attributable to a nursing subcategory by dividing the
nursing subcategory hours by the total nursing category's hours. Repeat
this computation for each of the four nursing subcategories: Registered
nurses; licensed practical nurses; nursing aides, orderlies, and
attendants; and medical assistants.
Step 2--Determine a national average hourly rate for each nursing
subcategory by dividing a subcategory's total salaries for all
hospitals in the occupational mix survey database by the subcategory's
total hours for all hospitals in the occupational mix survey database.
Step 3--For each hospital, determine an adjusted average hourly
rate for each nursing subcategory by multiplying the percentage of the
total nursing category (from Step 1) by the national average hourly
rate for that nursing subcategory (from Step 2). Repeat this
calculation for each of the four nursing subcategories.
Step 4--For each hospital, determine the adjusted average hourly
rate for the total nursing category by summing the adjusted average
hourly rate (from Step 3) for each of the nursing subcategories.
Step 5--Determine the national average hourly rate for the total
nursing category by dividing total nursing category salaries for all
hospitals in the occupational mix survey database by total nursing
category hours for all hospitals in the occupational mix survey
database.
Step 6--For each hospital, compute the occupational mix adjustment
factor for the total nursing category by dividing the national average
hourly rate for the total nursing category (from

[[Page 24141]]

Step 5) by the hospital's adjusted average hourly rate for the total
nursing category (from Step 4).
If the hospital's adjusted average hourly rate is less than the
national average hourly rate (indicating the hospital employs a less
costly mix of nursing employees), the occupational mix adjustment
factor is greater than 1.0000. If the hospital's adjusted average
hourly rate is greater than the national average hourly rate, the
occupational mix adjustment factor is less than 1.0000.
Step 7--For each hospital, calculate the occupational mix adjusted
salaries and wage-related costs for the total nursing category by
multiplying the hospital's total salaries and wage-related costs (from
Step 5 of the unadjusted wage index calculation in section III.G. of
this preamble) by the percentage of the hospital's total workers
attributable to the total nursing category (using the occupational mix
survey data, this percentage is determined by dividing the hospital's
total nursing category salaries by the hospital's total salaries for
``nursing and all other'') and by the total nursing category's
occupational mix adjustment factor (from Step 6 above).
The remaining portion of the hospital's total salaries and wage-
related costs that is attributable to all other employees of the
hospital is not adjusted by the occupational mix. A hospital's all
other portion is determined by subtracting the hospital's nursing
category percentage from 100 percent.
Step 8--For each hospital, calculate the total occupational mix
adjusted salaries and wage-related costs for a hospital by summing the
occupational mix adjusted salaries and wage-related costs for the total
nursing category (from Step 7) and the portion of the hospital's
salaries and wage-related costs for all other employees (from Step 7).
To compute a hospital's occupational mix adjusted average hourly
wage, divide the hospital's total occupational mix adjusted salaries
and wage-related costs by the hospital's total hours (from Step 4 of
the unadjusted wage index calculation in section III.G. of this
preamble).
Step 9--To compute the occupational mix adjusted average hourly
wage for an urban or rural area, sum the total occupational mix
adjusted salaries and wage-related costs for all hospitals in the area,
then sum the total hours for all hospitals in the area. Next, divide
the area's occupational mix adjusted salaries and wage-related costs by
the area's hours.
Step 10--To compute the national occupational mix adjusted average
hourly wage, sum the total occupational mix adjusted salaries and wage-
related costs for all hospitals in the Nation, then sum the total hours
for all hospitals in the Nation. Next, divide the national occupational
mix adjusted salaries and wage-related costs by the national hours. The
proposed FY 2010 occupational mix adjusted national average hourly wage
is $33.4935.
Step 11--To compute the occupational mix adjusted wage index,
divide each area's occupational mix adjusted average hourly wage (Step
9) by the national occupational mix adjusted average hourly wage (Step
10).
Step 12--To compute the Puerto Rico specific occupational mix
adjusted wage index, follow Steps 1 through 11 above. The proposed FY
2010 occupational mix adjusted Puerto Rico specific average hourly wage
is $14.2555.
The table below is an illustrative example of the proposed
occupational mix adjustment.
BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TP22MY09.011

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[GRAPHIC] [TIFF OMITTED] TP22MY09.012

BILLING CODE 4120-01-C

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Because the occupational mix adjustment is required by statute, all
hospitals that are subject to payments under the IPPS, or any hospital
that would be subject to the IPPS if not granted a waiver, must
complete the occupational mix survey, unless the hospital has no
associated cost report wage data that are included in the proposed FY
2010 wage index. For the FY 2007-2008 survey, the response rate was 89
percent.
In computing the proposed FY 2010 wage index, if a hospital did not
respond to the occupational mix survey, or if we determined that a
hospital's submitted data were too erroneous to include in the wage
index, we assigned the hospital the average occupational mix adjustment
for the labor market area. We believed this method had the least impact
on the wage index for other hospitals in the area. For areas where no
hospital submitted data for purposes of calculating the proposed
occupational mix adjustment, we applied the national occupational mix
factor of 1.0000 in calculating the area's proposed FY 2010
occupational mix adjusted wage index. (We indicated in the FY 2008 and
FY 2009 IPPS final rules that we reserve the right to apply a different
approach in future years, including potentially penalizing
nonresponsive hospitals (72 FR 47314).) In addition, if a hospital
submitted a survey, but that survey data cannot be used because we
determine it to be aberrant, we also are proposing to assign the
hospital the average occupational mix adjustment for its labor market
area. For example, if a hospital's individual nurse category average
hourly wages were out of range (that is, unusually high or low), and
the hospital did not provide sufficient documentation to explain the
aberrancy, or the hospital did not submit any registered nurse salaries
or hours data, we are proposing to assign the hospital the average
occupational mix adjustment for the labor market area in which it is
located.
In calculating the average occupational mix adjustment factor for a
labor market area, we replicated Steps 1 through 6 of the calculation
for the occupational mix adjustment. However, instead of performing
these steps at the hospital level, we aggregated the data at the labor
market area level. In following these steps, for example, for CBSAs
that contain providers that did not submit occupational mix survey
data, the occupational mix adjustment factor ranged from a low of
0.8452 (CBSA 17780, College Station-Bryan, TX), to a high of 1.0939
(CBSA 29700, Laredo, TX). Also, in computing a hospital's occupational
mix adjusted salaries and wage-related costs for nursing employees
(Step 7 of the calculation), in the absence of occupational mix survey
data, we multiplied the hospital's total salaries and wage-related
costs by the percentage of the area's total workers attributable to the
area's total nursing category. For FY 2010, there are 8 CBSAs (that
include 16 hospitals) for which we did not have occupational mix data
for any of its hospitals. The CBSAs are:
CBSA 16220--Casper, WY (one hospital)
CBSA 21940--Fajardo, PR (one hospital)
CBSA 22140--Farmington, NM (one hospital)
CBSA 25020--Guayama, PR (three hospitals)
CBSA 36140--Ocean City, NJ (one hospital)
CBSA 38660--Ponce, PR (six hospitals)
CBSA 41900--San German-Cabo Rojo, PR (two hospitals)
CBSA 49500--Yauco, PR (one hospital)
Since the FY 2007 IPPS final rule, we have periodically discussed
applying a hospital-specific penalty to hospitals that fail to submit
occupational mix survey data (71 FR 48013 through 48014; 72 FR 47314
through 47315; and 73 FR 48580). During the FY 2008 rulemaking cycle,
some commenters suggested a penalty equal to a 1- to 2-percent
reduction in the hospital's wage index value or a set percentage of the
standardized amount. During the FY 2009 rulemaking cycle, several
commenters reiterated their view that full participation in the
occupational mix survey is critical, and that CMS should develop a
methodology that encourages hospitals to report occupational mix survey
data but does not unfairly penalize neighboring hospitals. However, to
date, we have not adopted a penalty for hospitals that fail to submit
occupational mix data.
After review of the data for the proposed FY 2010 wage index, we
became concerned about the increasing number of hospitals that fail to
submit occupational mix data and the impact it may have on area wage
indices. The survey response rate has dropped significantly from 93.8
percent for the 2003 survey to 90.7 percent for the 2006 survey and 89
percent for the 2007-2008 survey. In 43 areas, the response rate was
only 66.7 percent or less. In addition, for 46 areas, including New
York-White Plains-Wayne, New York-New Jersey (35644), Oklahoma City,
Oklahoma (36420), Rural Georgia (11), and Rural Oklahoma (37), the area
response rate decreased 20 percent or more between the 2006 survey and
the 2007-2008 survey. In all of Puerto Rico, only 21.6 percent of
hospitals submitted 2007-2008 survey data. If we had proposed to apply
a penalty for nonresponsive hospitals for the FY 2010 wage index,
Puerto Rico hospitals would have been significantly adversely affected
in both the proposed national and Puerto Rico-specific wage indices.
While we are not proposing a penalty at this time, we will consider the
public comments we previously received, as well as any public comments
on this proposed rule, as we develop the proposed FY 2011 wage index.
One approach that we will explore is to assign any nonresponsive
hospital the occupational mix factor deriving from the survey that
would result in the greatest negative adjustment to the hospital's wage
index. We also will consider applying the same penalty to hospitals
that submit unusable occupational mix data. Although we would apply
this penalty factor in establishing the hospital's payment rate, we
would not use this factor in computing the area's wage index. Rather,
in computing the area wage index, we would apply the same methodology
as described above (that is, assign the nonresponsive hospital the
average occupational mix adjustment factor for the labor market area)
so that other hospitals in the area are minimally impacted by the
hospital's failure to submit occupational mix data. Again, we note that
we reserve the right to penalize nonresponsive hospitals in the future.
We welcome public comments on this matter and look forward to
addressing this issue in next year's IPPS proposed rule.

E. Worksheet S-3 Wage Data for the Proposed FY 2010 Wage Index

The proposed FY 2010 wage index values are based on the data
collected from the Medicare cost reports submitted by hospitals for
cost reporting periods beginning in FY 2006 (the FY 2009 wage index was
based on FY 2005 wage data).
1. Included Categories of Costs
The proposed FY 2010 wage index includes the following categories
of data associated with costs paid under the IPPS (as well as
outpatient costs):
Salaries and hours from short-term, acute care hospitals
(including paid lunch hours and hours associated with military leave
and jury duty)
Home office costs and hours
Certain contract labor costs and hours (which includes
direct patient care, certain top management, pharmacy, laboratory, and
nonteaching

[[Page 24145]]

physician Part A services, and certain contract indirect patient care
services (as discussed in the FY 2008 final rule with comment period
(72 FR 47315))
Wage-related costs, including pensions and other deferred
compensation costs. We note that, on March 28, 2008, CMS published a
technical clarification to the cost reporting instructions for pension
and deferred compensation costs (sections 2140 through 2142.7 of the
Provider Reimbursement Manual, Part I). These instructions are used for
developing pension and deferred compensation costs for purposes of the
wage index, as discussed in the instructions for Worksheet S-3, Part
II, Lines 13 through 20 and in the FY 2006 IPPS final rule (70 FR
47369).
2. Excluded Categories of Costs
Consistent with the wage index methodology for FY 2009, the
proposed wage index for FY 2010 also excludes the direct and overhead
salaries and hours for services not subject to IPPS payment, such as
SNF services, home health services, costs related to GME (teaching
physicians and residents) and certified registered nurse anesthetists
(CRNAs), and other subprovider components that are not paid under the
IPPS. The proposed FY 2010 wage index also excludes the salaries,
hours, and wage-related costs of hospital-based rural health clinics
(RHCs), and Federally qualified health centers (FQHCs) because Medicare
pays for these costs outside of the IPPS (68 FR 45395). In addition,
salaries, hours, and wage-related costs of CAHs are excluded from the
wage index, for the reasons explained in the FY 2004 IPPS final rule
(68 FR 45397).
3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals
under the IPPS
Data collected for the IPPS wage index are also currently used to
calculate wage indices applicable to other providers, such as SNFs,
home health agencies, and hospices. In addition, they are used for
prospective payments to IRFs, IPFs, and LTCHs, and for hospital
outpatient services. We note that, in the IPPS rules, we do not address
comments pertaining to the wage indices for non-IPPS providers, other
than for LTCHs. (Beginning with the FY 2010 IPPS rule, for the RY 2010,
we are including in the same document updates to the LTCH PPS.) Such
comments should be made in response to separate proposed rules for
those providers.

F. Verification of Worksheet S-3 Wage Data

The wage data for the proposed FY 2010 wage index were obtained
from Worksheet S-3, Parts II and III of the FY 2006 Medicare cost
reports. Instructions for completing Worksheet S-3, Parts II and III
are in the Provider Reimbursement Manual (PRM), Part II, sections
3605.2 and 3605.3. The data file used to construct the wage index
includes FY 2006 data submitted to us as of March 2, 2009. As in past
years, we performed an intensive review of the wage data, mostly
through the use of edits designed to identify aberrant data.
We asked our fiscal intermediaries/MACs to revise or verify data
elements that resulted in specific edit failures. For the proposed FY
2010 wage index, we identified and excluded 34 providers with data that
was too aberrant to include in the proposed wage index, although if
data elements for some of these providers are corrected, we intend to
include some of these providers in the FY 2010 final wage index. We
instructed fiscal intermediaries/MACs to complete their data
verification of questionable data elements and to transmit any changes
to the wage data no later than April 15, 2009. We believe all
unresolved data elements will be resolved by the date the final rule is
issued. The revised data will be reflected in the FY 2010 IPPS final
rule.
In constructing the proposed FY 2010 wage index, we included the
wage data for facilities that were IPPS hospitals in FY 2006, inclusive
of those facilities that have since terminated their participation in
the program as hospitals, as long as those data did not fail any of our
edits for reasonableness. We believe that including the wage data for
these hospitals is, in general, appropriate to reflect the economic
conditions in the various labor market areas during the relevant past
period and to ensure that the current wage index represents the labor
market area's current wages as compared to the national average of
wages. However, we excluded the wage data for CAHs as discussed in the
FY 2004 IPPS final rule (68 FR 45397). For this proposed rule, we
removed 11 hospitals that converted to CAH status between February 18,
2008, the cut-off date for CAH exclusion from the FY 2009 wage index,
and February 16, 2009, the cut-off date for CAH exclusion from the FY
2010 wage index. After removing hospitals with aberrant data and
hospitals that converted to CAH status, the proposed FY 2010 wage index
is calculated based on 3,521 hospitals.
In the FY 2008 final rule with comment period (72 FR 47317) and the
FY 2009 IPPS final rule (73 FR 48582), we discussed our policy for
allocating a multicampus hospital's wages and hours data, by full-time
equivalent (FTE) staff, among the different labor market areas where
its campuses are located. During the FY 2010 wage index desk review
process, we requested fiscal intermediaries/MACs to contact multicampus
hospitals that had campuses in different labor market areas to collect
the data for the allocation. The proposed FY 2010 wage index in this
proposed rule includes separate wage data for campuses of three
multicampus hospitals.
For FY 2010, we are again allowing hospitals to use FTE or
discharge data for the allocation of a multicampus hospital's wage data
among the different labor market areas where its campuses are located.
The Medicare cost report was updated in May 2008 to provide for the
reporting of FTE data by campus for multicampus hospitals. Because the
data from cost reporting periods that begin in FY 2008 will not be used
in calculating the wage index until FY 2012, a multicampus hospital
will still have the option, through the FY 2011 wage index, to use
either FTE or discharge data for allocating wage data among its
campuses by providing the information from the applicable cost
reporting period to CMS through its fiscal intermediary/MAC. Two of the
three multicampus hospitals chose to have their wage data allocated by
their Medicare discharge data for the FY 2010 wage index. One of the
hospitals provided FTE staff data for the allocation. The average
hourly wage associated with each geographical location of a multicampus
hospital is reflected in Table 2 of the Addendum to this proposed rule.

G. Method for Computing the Proposed FY 2010 Unadjusted Wage Index

The method used to compute the proposed FY 2009 wage index without
an occupational mix adjustment follows:
Step 1--As noted above, we are basing the proposed FY 2010 wage
index on wage data reported on the FY 2006 Medicare cost reports. We
gathered data from each of the non-Federal, short-term, acute care
hospitals for which data were reported on the Worksheet S-3, Parts II
and III of the Medicare cost report for the hospital's cost reporting
period beginning on or after October 1, 2005, and before October 1,
2006. In addition, we included data from some hospitals that had cost
reporting periods beginning

[[Page 24146]]

before October 2005 and reported a cost reporting period covering all
of FY 2005. These data are included because no other data from these
hospitals would be available for the cost reporting period described
above, and because particular labor market areas might be affected due
to the omission of these hospitals. However, we generally describe
these wage data as FY 2005 data. We note that, if a hospital had more
than one cost reporting period beginning during FY 2006 (for example, a
hospital had two short cost reporting periods beginning on or after
October 1, 2005, and before October 1, 2006), we included wage data
from only one of the cost reporting periods, the longer, in the wage
index calculation. If there was more than one cost reporting period and
the periods were equal in length, we included the wage data from the
later period in the wage index calculation.
Step 2--Salaries--The method used to compute a hospital's average
hourly wage excludes certain costs that are not paid under the IPPS.
(We note that, beginning with FY 2008 (72 FR 47315), we include Lines
22.01, 26.01, and 27.01 of Worksheet S-3, Part II for overhead services
in the wage index. However, we note that the wages and hours on these
lines are not incorporated into Line 101, Column 1 of Worksheet A,
which, through the electronic cost reporting software, flows directly
to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the
wage index calculation for FY 2010 is to compute a ``revised'' Line 1,
by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours
respectively) the amounts on Lines 22.01, 26.01, and 27.01.) In
calculating a hospital's average salaries plus wage-related costs, we
subtract from Line 1 (total salaries) the GME and CRNA costs reported
on Lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3,
5 and 5.01, home office salaries reported on Line 7, and exclude
salaries reported on Lines 8 and 8.01 (that is, direct salaries
attributable to SNF services, home health services, and other
subprovider components not subject to the IPPS). We also subtract from
Line 1 the salaries for which no hours were reported. To determine
total salaries plus wage-related costs, we add to the net hospital
salaries the costs of contract labor for direct patient care, certain
top management, pharmacy, laboratory, and nonteaching physician Part A
services (Lines 9 and 10), home office salaries and wage-related costs
reported by the hospital on Lines 11 and 12, and nonexcluded area wage-
related costs (Lines 13, 14, and 18).
We note that contract labor and home office salaries for which no
corresponding hours are reported are not included. In addition, wage-
related costs for nonteaching physician Part A employees (Line 18) are
excluded if no corresponding salaries are reported for those employees
on Line 4.
Step 3--Hours--With the exception of wage-related costs, for which
there are no associated hours, we compute total hours using the same
methods as described for salaries in Step 2.
Step 4--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocate overhead
costs to areas of the hospital excluded from the wage index
calculation. First, we determine the ratio of excluded area hours (sum
of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours
(Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01,
7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts
of overhead salaries and hours to be allocated to excluded areas by
multiplying the above ratio by the total overhead salaries and hours
reported on Line 13 of Worksheet S-3, Part III. Next, we compute the
amounts of overhead wage-related costs to be allocated to excluded
areas using three steps: (1) We determine the ratio of overhead hours
(Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to
revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line
1 minus the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01,
22.01, 26.01, and 27.01). (We note that for the FY 2008 and subsequent
wage index calculations, we are excluding the sum of lines 22.01,
26.01, and 27.01 from the determination of the ratio of overhead hours
to revised hours because hospitals typically do not provide fringe
benefits (wage-related costs) to contract personnel. Therefore, it is
not necessary for the wage index calculation to exclude overhead wage-
related costs for contract personnel. Further, if a hospital does
contribute to wage-related costs for contracted personnel, the
instructions for Lines 22.01, 26.01, and 27.01 require that associated
wage-related costs be combined with wages on the respective contract
labor lines.); (2) we compute overhead wage-related costs by
multiplying the overhead hours ratio by wage-related costs reported on
Part II, Lines 13, 14, and 18; and (3) we multiply the computed
overhead wage-related costs by the above excluded area hours ratio.
Finally, we subtract the computed overhead salaries, wage-related
costs, and hours associated with excluded areas from the total salaries
(plus wage-related costs) and hours derived in Steps 2 and 3.
Step 5--For each hospital, we adjust the total salaries plus wage-
related costs to a common period to determine total adjusted salaries
plus wage-related costs. To make the wage adjustment, we estimate the
percentage change in the employment cost index (ECI) for compensation
for each 30-day increment from October 14, 2003, through April 15,
2005, for private industry hospital workers from the BLS' Compensation
and Working Conditions. We use the ECI because it reflects the price
increase associated with total compensation (salaries plus fringes)
rather than just the increase in salaries. In addition, the ECI
includes managers as well as other hospital workers. This methodology
to compute the monthly update factors uses actual quarterly ECI data
and assures that the update factors match the actual quarterly and
annual percent changes. We also note that, since April 2006 with the
publication of March 2006 data, the BLS' ECI uses a different
classification system, the North American Industrial Classification
System (NAICS), instead of the Standard Industrial Codes (SICs), which
no longer exist. We have consistently used the ECI as the data source
for our wages and salaries and other price proxies in the IPPS market
basket and do not propose to make any changes to the usage for FY 2010.
The factors used to adjust the hospital's data were based on the
midpoint of the cost reporting period, as indicated below.

Midpoint of Cost Reporting Period
------------------------------------------------------------------------
Adjustment
After Before factor
------------------------------------------------------------------------
10/14/2005.............................. 11/15/2005 1.04966
11/14/2005.............................. 12/15/2005 1.04632
12/14/2005.............................. 01/15/2006 1.04296
01/14/2006.............................. 02/15/2006 1.03955
02/14/2006.............................. 03/15/2006 1.03610
03/14/2006.............................. 04/15/2006 1.03269
04/14/2006.............................. 05/15/2006 1.02936
05/14/2006.............................. 06/15/2006 1.02613
06/14/2006.............................. 07/15/2006 1.02298
07/14/2006.............................. 08/15/2006 1.01990
08/14/2006.............................. 09/15/2006 1.01688
09/14/2006.............................. 10/15/2006 1.01391
10/14/2006.............................. 11/15/2006 1.01098
11/14/2006.............................. 12/15/2006 1.00808
12/14/2006.............................. 01/15/2007 1.00526
01/14/2007.............................. 02/15/2007 1.00257
02/14/2007.............................. 03/15/2007 1.00000
03/14/2007.............................. 04/15/2007 0.99745
------------------------------------------------------------------------

For example, the midpoint of a cost reporting period beginning
January 1, 2006, and ending December 31, 2006, is June 30, 2006. An
adjustment factor of 1.02298 would be applied to the wages

[[Page 24147]]

of a hospital with such a cost reporting period. In addition, for the
data for any cost reporting period that began in FY 2006 and covered a
period of less than 360 days or more than 370 days, we annualize the
data to reflect a 1-year cost report. Dividing the data by the number
of days in the cost report and then multiplying the results by 365
accomplishes annualization.
Step 6--Each hospital is assigned to its appropriate urban or rural
labor market area before any reclassifications under section
1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the
Act. Within each urban or rural labor market area, we add the total
adjusted salaries plus wage-related costs obtained in Step 5 for all
hospitals in that area to determine the total adjusted salaries plus
wage-related costs for the labor market area.
Step 7--We divide the total adjusted salaries plus wage-related
costs obtained under both methods in Step 6 by the sum of the
corresponding total hours (from Step 4) for all hospitals in each labor
market area to determine an average hourly wage for the area.
Step 8--We add the total adjusted salaries plus wage-related costs
obtained in Step 5 for all hospitals in the Nation and then divide the
sum by the national sum of total hours from Step 4 to arrive at a
national average hourly wage. Using the data as described above, the
proposed national average hourly wage (unadjusted for occupational mix)
is $33.5184.
Step 9--For each urban or rural labor market area, we calculate the
hospital wage index value, unadjusted for occupational mix, by dividing
the area average hourly wage obtained in Step 7 by the national average
hourly wage computed in Step 8.
Step 10--Following the process set forth above, we develop a
separate Puerto Rico-specific wage index for purposes of adjusting the
Puerto Rico standardized amounts. (The national Puerto Rico
standardized amount is adjusted by a wage index calculated for all
Puerto Rico labor market areas based on the national average hourly
wage as described above.) We add the total adjusted salaries plus wage-
related costs (as calculated in Step 5) for all hospitals in Puerto
Rico and divide the sum by the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an overall proposed average hourly
wage (unadjusted for occupational mix) of $14.2462 for Puerto Rico. For
each labor market area in Puerto Rico, we calculate the Puerto Rico-
specific wage index value by dividing the area average hourly wage (as
calculated in Step 7) by the overall Puerto Rico average hourly wage.
Step 11--Section 4410 of Public Law 105-33 provides that, for
discharges on or after October 1, 1997, the area wage index applicable
to any hospital that is located in an urban area of a State may not be
less than the area wage index applicable to hospitals located in rural
areas in that State. The areas affected by this provision are
identified in Table 4D-2 of the Addendum to this proposed rule.
In the FY 2005 IPPS final rule (69 FR 49109), we adopted the
``imputed'' floor as a temporary 3-year measure to address a concern by
some individuals that hospitals in all-urban States were disadvantaged
by the absence of rural hospitals to set a wage index floor in those
States. The imputed floor was originally set to expire in FY 2007, but
we extended it an additional year in the FY 2008 IPPS final rule with
comment period (72 FR 47321). In the FY 2009 IPPS final rule (73 FR
48570 through 48574 and 48584), we extended the imputed floor for an
additional 3 years, through FY 2011.

H. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2010 Occupational Mix Adjusted Wage
Index

As discussed in section III.D. of this preamble, for FY 2010, we
are proposing to apply the occupational mix adjustment to 100 percent
of the FY 2010 wage index. We calculated the proposed occupational mix
adjustment using data from the 2007-2008 occupational mix survey data,
using the methodology described in section III.D.3. of this preamble.
Using the occupational mix survey data and applying the
occupational mix adjustment to 100 percent of the proposed FY 2010 wage
index results in a proposed national average hourly wage of $33.4935
and a Puerto-Rico specific average hourly wage of $14.2555. After
excluding data of hospitals that either submitted aberrant data that
failed critical edits, or that do not have FY 2006 Worksheet S-3 cost
report data for use in calculating the proposed FY 2010 wage index, we
calculated the proposed FY 2010 wage index using the occupational mix
survey data from 3,135 hospitals. Using the Worksheet S-3 cost report
data of 3,521 hospitals and occupational mix survey data from 3,135
hospitals represents an 89-percent survey response rate. The proposed
FY 2010 national average hourly wages for each occupational mix nursing
subcategory as calculated in Step 2 of the occupational mix calculation
are as follows:

------------------------------------------------------------------------
Average hourly
Occupational mix nursing subcategory wage
------------------------------------------------------------------------
National RN.......................................... $36.067749019
National LPN and Surgical Technician................. 20.908955714
National Nurse Aide, Orderly, and Attendant.......... 14.610222480
National Medical Assistant........................... 16.358327509
National Nurse Category.............................. 30.484719916
------------------------------------------------------------------------

The proposed national average hourly wage for the entire nurse
category as computed in Step 5 of the occupational mix calculation is
$30.484719916. Hospitals with a nurse category average hourly wage (as
calculated in Step 4) of greater than the national nurse category
average hourly wage receive an occupational mix adjustment factor (as
calculated in Step 6) of less than 1.0. Hospitals with a nurse category
average hourly wage (as calculated in Step 4) of less than the national
nurse category average hourly wage receive an occupational mix
adjustment factor (as calculated in Step 6) of greater than 1.0.
Based on the July 2007 through June 2008 occupational mix survey
data, we determined (in Step 7 of the occupational mix calculation)
that the national percentage of hospital employees in the nurse
category is 44.32 percent, and the national percentage of hospital
employees in the all other occupations category is 55.68 percent. At
the CBSA level, the percentage of hospital employees in the nurse
category ranged from a low of 29.08 percent in one CBSA, to a high of
70.76 percent in another CBSA.
We compared the proposed FY 2010 occupational mix adjusted wage
indices for each CBSA to the proposed unadjusted wage indices for each
CBSA. As a result of applying the occupational mix adjustment to the
wage data, the proposed wage index values for 205 (46.8 percent) urban
areas and 33 (70.2 percent) rural areas would increase. One hundred and
nine (24.9 percent) urban areas would increase by 1 percent or more,
and 5 (1.1 percent) urban areas would increase by 5 percent or more.
Nineteen (40.4 percent) rural areas would increase by 1 percent or
more, and no rural areas would increase by 5 percent or more. However,
the proposed wage index values for 185 (42.2 percent) urban areas and
14 (29.8 percent) rural areas would decrease. Eighty-nine (20.3
percent) urban areas would decrease by 1 percent or more, and 1 (0.23
percent) urban area would decrease by 5 percent or more. Six (12.8
percent) rural areas would decrease by 1 percent or more,

[[Page 24148]]

and no rural areas would decrease by 5 percent or more. The largest
positive impacts are 7.86 percent for an urban area and 2.98 percent
for a rural area. The largest negative impacts are 5.68 percent for an
urban area and 2.07 percent for a rural area. One urban area would be
unaffected. These results indicate that a larger percentage of rural
areas (70.2 percent) benefit from the occupational mix adjustment than
do urban areas (46.8 percent). While these results are more positive
overall for rural areas than under the previous occupational mix
adjustment that used survey data from 2006, approximately one-third
(29.8 percent) of rural CBSAs would still experience a decrease in
their wage indices as a result of the occupational mix adjustment.
We also compared the proposed FY 2010 wage data adjusted for
occupational mix from the 2007-2008 survey to the proposed FY 2010 wage
data adjusted for occupational mix from the 2006 survey. This analysis
illustrates the effect on area wage indices of using the 2007-2008
survey data compared to the 2006 survey data; that is, it shows whether
hospitals' wage indices are increasing or decreasing under the current
survey data as compared to the prior survey data. Our analysis shows
that the FY 2010 proposed wage index values for 186 (47.6 percent)
urban areas and 18 (38.3 percent) rural areas would increase. Sixty-
three (16.1 percent) urban areas would increase by 1 percent or more,
and no urban areas would increase by 5 percent or more. One (2.1
percent) rural area would increase by 1 percent or more, and no rural
areas would increase by 5 percent or more. However, the proposed wage
index values for 201 (51.4 percent) urban areas and 28 (59.6 percent)
rural areas would decrease using the 2007-2008 data. Fifty-six (14.3
percent) urban areas would decrease by 1 percent or more, and one (0.26
percent) urban area would decrease by 5 percent or more. Four (8.5
percent) rural areas would decrease by 1 percent or more, and no rural
areas would decrease by 5 percent or more. The largest positive impacts
using the 2007-2008 data compared to the 2006 data are 4.36 percent for
an urban area and 2.39 percent for a rural area. The largest negative
impacts are 6.46 percent for an urban area and 4.39 percent for a rural
area. Four urban areas and one rural area would be unaffected. These
results indicate that a larger percentage of urban areas (47.6 percent)
would benefit from the 2007-2008 occupational mix survey as compared to
the 2006 survey than would rural areas (38.3 percent). Further, the
wage indices of more CBSAs overall (52.3 percent) would be decreasing
due to application of the 2007-2008 occupational mix survey data as
compared to the 2006 survey data to the wage index. However, as noted
in the analysis above, a greater percentage of rural areas (70.2
percent) would benefit from the application of the occupational mix
adjustment than would urban areas.
The proposed wage index values for FY 2010 (except those for
hospitals receiving wage index adjustments under section 1886(d)(13) of
the Act) included in Tables 4A, 4B, 4C, and 4F of the Addendum to this
proposed rule include the proposed occupational mix adjustment.
Tables 3A and 3B in the Addendum to this proposed rule list the 3-
year average hourly wage for each labor market area before the
redesignation of hospitals based on FYs 2008, 2009, and 2010 cost
reporting periods. Table 3A lists these data for urban areas and Table
3B lists these data for rural areas. In addition, Table 2 in the
Addendum to this proposed rule includes the adjusted average hourly
wage for each hospital from the FY 2004 and FY 2005 cost reporting
periods, as well as the FY 2006 period used to calculate the proposed
FY 2010 wage index. The 3-year averages are calculated by dividing the
sum of the dollars (adjusted to a common reporting period using the
method described previously) across all 3 years, by the sum of the
hours. If a hospital is missing data for any of the previous years, its
average hourly wage for the 3-year period is calculated based on the
data available during that period. The average hourly wages in Tables
2, 3A, and 3B in the Addendum to this proposed rule include the
occupational mix adjustment. The proposed wage index values in Tables
4A, 4B, 4C, and 4D-1 also include the proposed State-specific rural
floor and imputed floor budget neutrality adjustments.

I. Revisions to the Wage Index Based on Hospital Redesignations

1. General
Under section 1886(d)(10) of the Act, the MGCRB considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. Hospitals must apply to the MGCRB to
reclassify 13 months prior to the start of the fiscal year for which
reclassification is sought (generally by September 1). Generally,
hospitals must be proximate to the labor market area to which they are
seeking reclassification and must demonstrate characteristics similar
to hospitals located in that area. The MGCRB issues its decisions by
the end of February for reclassifications that become effective for the
following fiscal year (beginning October 1). The regulations applicable
to reclassifications by the MGCRB are located in 42 CFR 412.230 through
412.280.
Section 1886(d)(10)(D)(v) of the Act provides that, beginning with
FY 2001, a MGCRB decision on a hospital reclassification for purposes
of the wage index is effective for 3 fiscal years, unless the hospital
elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of
the Act provides that the MGCRB must use average hourly wage data from
the 3 most recently published hospital wage surveys in evaluating a
hospital's reclassification application for FY 2003 and any succeeding
fiscal year.
Section 304(b) of Public Law 106-554 provides that the Secretary
must establish a mechanism under which a statewide entity may apply to
have all of the geographic areas in the State treated as a single
geographic area for purposes of computing and applying a single wage
index, for reclassifications beginning in FY 2003. The implementing
regulations for this provision are located at 42 CFR 412.235.
Section 1886(d)(8)(B) of the Act requires the Secretary to treat a
hospital located in a rural county adjacent to one or more urban areas
as being located in the labor market area to which the greatest number
of workers in the county commute, if the rural county would otherwise
be considered part of an urban area under the standards for designating
MSAs and if the commuting rates used in determining outlying counties
were determined on the basis of the aggregate number of resident
workers who commute to (and, if applicable under the standards, from)
the central county or counties of all contiguous MSAs. In light of the
CBSA definitions and the Census 2000 data that we implemented for FY
2005 (69 FR 49027), we undertook to identify those counties meeting
these criteria. Eligible counties are discussed and identified under
section III.I.5. of this preamble.
2. Effects of Reclassification/Redesignation
Section 1886(d)(8)(C) of the Act provides that the application of
the wage index to redesignated hospitals is dependent on the
hypothetical impact that the wage data from these hospitals would have
on the wage index value for the area to which they have been
redesignated. These requirements for determining the wage index values
for

[[Page 24149]]

redesignated hospitals are applicable both to the hospitals deemed
urban under section 1886(d)(8)(B) of the Act and hospitals that were
reclassified as a result of the MGCRB decisions under section
1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C)
of the Act, the wage index values were determined by considering the
following:
If including the wage data for the redesignated hospitals
would reduce the wage index value for the area to which the hospitals
are redesignated by 1 percentage point or less, the area wage index
value determined exclusive of the wage data for the redesignated
hospitals applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
reduces the wage index value for the area to which the hospitals are
redesignated by more than 1 percentage point, the area wage index
determined inclusive of the wage data for the redesignated hospitals
(the combined wage index value) applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
increases the wage index value for the urban area to which the
hospitals are redesignated, both the area and the redesignated
hospitals receive the combined wage index value. Otherwise, the
hospitals located in the urban area receive a wage index excluding the
wage data of hospitals redesignated into the area.
Rural areas whose wage index values would be reduced by excluding
the wage data for hospitals that have been redesignated to another area
continue to have their wage index values calculated as if no
redesignation had occurred (otherwise, redesignated rural hospitals are
excluded from the calculation of the rural wage index). The wage index
value for a redesignated rural hospital cannot be reduced below the
wage index value for the rural areas of the State in which the hospital
is located.
CMS also has adopted the following policies:
The wage data for a reclassified urban hospital is
included in both the wage index calculation of the urban area to which
the hospital is reclassified (subject to the rules described above) and
the wage index calculation of the urban area where the hospital is
physically located.
In cases where hospitals have reclassified to rural areas,
such as urban hospitals reclassifying to rural areas under 42 CFR
412.103, the hospital's wage data are: (a) Included in the rural wage
index calculation, unless doing so would reduce the rural wage index;
and (b) included in the urban area where the hospital is physically
located. The effect of this policy, in combination with the statutory
requirement at section 1886(d)(8)(C)(ii) of the Act, is that rural
areas may receive a wage index based upon the highest of: (1) Wage data
from hospitals geographically located in the rural area; (2) wage data
from hospitals geographically located in the rural area, but excluding
all data associated with hospitals reclassifying out of the rural area
under section 1886(d)(8)(B) or section 1886(d)(10) of the Act; or (3)
wage data associated with hospitals geographically located in the area
plus all hospitals reclassified into the rural area.
In addition, in accordance with the statutory language referring to
``hospitals'' in the plural under sections 1886(d)(8)(C)(i) and
1886(d)(8)(C)(ii) of the Act, our longstanding policy is to consider
reclassified hospitals as a group when deciding whether to include or
exclude them from both urban and rural wage index calculations.
3. FY 2010 MGCRB Reclassifications
Under section 1886(d)(10) of the Act, the MGCRB considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. The specific procedures and rules that apply
to the geographic reclassification process are outlined in 42 CFR
412.230 through 412.280.
At the time this proposed rule was constructed, the MGCRB had
completed its review of FY 2010 reclassification requests. Based on
such reviews, there were 292 hospitals approved for wage index
reclassifications by the MGCRB for FY 2010. Because MGCRB wage index
reclassifications are effective for 3 years, for FY 2010, hospitals
reclassified during FY 2008 or FY 2009 are eligible to continue to be
reclassified to a particular labor market area based on such prior
reclassifications. There were 313 hospitals approved for wage index
reclassifications in FY 2008 and 271 hospitals approved for wage index
reclassifications in FY 2009. Of all of the hospitals approved for
reclassification for FY 2008, FY 2009, and FY 2010, based upon the
review at the time of the proposed rule, 876 hospitals are in a
reclassification status for FY 2010.
Under 42 CFR 412.273, hospitals that have been reclassified by the
MGCRB are permitted to withdraw their applications within 45 days of
the publication of a proposed rule. Generally stated, the request for
withdrawal of an application for reclassification or termination of an
existing 3-year reclassification that would be effective in FY 2010
must be received by the MGCRB within 45 days of the publication of the
proposed rule. Hospitals may also cancel prior reclassification
withdrawals or terminations in certain circumstances. For further
information about withdrawing, terminating, or canceling a previous
withdrawal or termination of a 3-year reclassification for wage index
purposes, we refer the reader to 42 CFR 412.273, as well as the FY 2002
IPPS final rule (66 FR 39887) and the FY 2003 IPPS final rule (67 FR
50065).
Changes to the wage index that result from withdrawals of requests
for reclassification, wage index corrections, appeals, and the
Administrator's review process will be incorporated into the wage index
values published in the FY 2010 IPPS final rule. These changes affect
not only the wage index value for specific geographic areas, but also
the wage index value redesignated hospitals receive; that is, whether
they receive the wage index that includes the data for both the
hospitals already in the area and the redesignated hospitals. Further,
the wage index value for the area from which the hospitals are
redesignated may be affected.
Applications for FY 2011 reclassifications are due to the MGCRB by
September 1, 2009 (the first working day of September 2009). We note
that this is also the deadline for canceling a previous wage index
reclassification withdrawal or termination under 42 CFR 412.273(d).
Applications and other information about MGCRB reclassifications may be
obtained, beginning in mid-July 2009, via the CMS Internet Web site at:
http://cms.hhs.gov/providers/prrb/mgcinfo.asp, or by calling the MGCRB
at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord
Baltimore Drive, Suite L, Baltimore, MD 21244-2670.
4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act
Section 1886(d)(8)(B) of the Act requires us to treat a hospital
located in a rural county adjacent to one or more urban areas as being
located in the MSA if certain criteria are met. Effective beginning FY
2005, we use OMB's 2000 CBSA standards and the Census 2000 data to
identify counties in which hospitals qualify under section
1886(d)(8)(B) of the Act to receive the wage index of the urban area.
Hospitals located in these counties have been known as ``Lugar''
hospitals and the counties themselves are often referred to as
``Lugar'' counties. We provide the FY 2010 chart below with the listing
of the rural counties containing the hospitals designated as urban
under section

[[Page 24150]]

1886(d)(8)(B) of the Act. For discharges occurring on or after October
1, 2009, hospitals located in the rural county in the first column of
this chart will be redesignated for purposes of using the wage index of
the urban area listed in the second column.

Rural Counties Containing Hospitals Redesignated as Urban under Section
1886(d)(8)(B) of the Act
[Based on CBSAs and Census 2000 Data]
------------------------------------------------------------------------
Rural County CBSA
------------------------------------------------------------------------
Cherokee, AL.............................. Rome, GA.
Macon, AL................................. Auburn-Opelika, AL.
Talladega, AL............................. Anniston-Oxford, AL.
Hot Springs, AR........................... Hot Springs, AR.
Windham, CT............................... Hartford-West Hartford-East
Hartford, CT.
Bradford, FL.............................. Gainesville, FL.
Hendry, FL................................ West Palm Beach-Boca Raton-
Boynton, FL.
Levy, FL.................................. Gainesville, FL.
Walton, FL................................ Fort Walton Beach-Crestview-
Destin, FL.
Banks, GA................................. Gainesville, GA.
Chattooga, GA............................. Chattanooga, TN-GA.
Jackson, GA............................... Atlanta-Sandy Springs-
Marietta, GA.
Lumpkin, GA............................... Atlanta-Sandy Springs-
Marietta, GA.
Morgan, GA................................ Atlanta-Sandy Springs-
Marietta, GA.
Peach, GA................................. Macon, GA.
Polk, GA.................................. Atlanta-Sandy Springs-
Marietta, GA.
Talbot, GA................................ Columbus, GA-AL.
Bingham, ID............................... Idaho Falls, ID.
Christian, IL............................. Springfield, IL.
DeWitt, IL................................ Bloomington-Normal, IL.
Iroquois, IL.............................. Kankakee-Bradley, IL.
Logan, IL................................. Springfield, IL.
Mason, IL................................. Peoria, IL.
Ogle, IL.................................. Rockford, IL.
Clinton, IN............................... Lafayette, IN.
Henry, IN................................. Indianapolis-Carmel, IN.
Spencer, IN............................... Evansville, IN-KY.
Starke, IN................................ Gary, IN.
Warren, IN................................ Lafayette, IN.
Boone, IA................................. Ames, IA.
Buchanan, IA.............................. Waterloo-Cedar Falls, IA.
Cedar, IA................................. Iowa City, IA.
Allen, KY................................. Bowling Green, KY.
Assumption Parish, LA..................... Baton Rouge, LA.
St. James Parish, LA...................... Baton Rouge, LA.
Allegan, MI............................... Holland-Grand Haven, MI.
Montcalm, MI.............................. Grand Rapids-Wyoming, MI.
Oceana, MI................................ Muskegon-Norton Shores, MI.
Shiawassee, MI............................ Lansing-East Lansing, MI.
Tuscola, MI............................... Saginaw-Saginaw Township
North, MI.
Fillmore, MN.............................. Rochester, MN.
Dade, MO.................................. Springfield, MO.
Pearl River, MS........................... Gulfport-Biloxi, MS.
Caswell, NC............................... Burlington, NC.
Davidson, NC.............................. Greensboro-High Point, NC.
Granville, NC............................. Durham, NC.
Harnett, NC............................... Raleigh-Cary, NC.
Lincoln, NC............................... Charlotte-Gastonia-Concord,
NC-SC.
Polk, NC.................................. Spartanburg, SC.
Los Alamos, NM............................ Santa Fe, NM.
Lyon, NV.................................. Carson City, NV.
Cayuga, NY................................ Syracuse, NY.
Columbia, NY.............................. Albany-Schenectady-Troy, NY.
Genesee, NY............................... Rochester, NY.
Greene, NY................................ Albany-Schenectady-Troy, NY.
Schuyler, NY.............................. Ithaca, NY.
Sullivan, NY.............................. Poughkeepsie-Newburgh-
Middletown, NY.
Wyoming, NY............................... Buffalo-Niagara Falls, NY.
Ashtabula, OH............................. Cleveland-Elyria-Mentor, OH.
Champaign, OH............................. Springfield, OH.
Columbiana, OH............................ Youngstown-Warren-Boardman,
OH-PA.
Cotton, OK................................ Lawton, OK.
Linn, OR.................................. Corvallis, OR.
Adams, PA................................. York-Hanover, PA.
Clinton, PA............................... Williamsport, PA.
Greene, PA................................ Pittsburgh, PA.
Monroe, PA................................ Allentown-Bethlehem-Easton,
PA-NJ.
Schuylkill, PA............................ Reading, PA.
Susquehanna, PA........................... Binghamton, NY.
Clarendon, SC............................. Sumter, SC.
Lee, SC................................... Sumter, SC.
Oconee, SC................................ Greenville, SC.
Union, SC................................. Spartanburg, SC.
Meigs, TN................................. Cleveland, TN.
Bosque, TX................................ Waco, TX.
Falls, TX................................. Waco, TX.
Fannin, TX................................ Dallas-Plano-Irving, TX.
Grimes, TX................................ College Station-Bryan, TX.
Harrison, TX.............................. Longview, TX.
Henderson, TX............................. Dallas-Plano-Irving, TX.
Milam, TX................................. Austin-Round Rock, TX.
Van Zandt, TX............................. Dallas-Plano-Irving, TX.
Willacy, TX............................... Brownsville-Harlingen, TX.
Buckingham, VA............................ Charlottesville, VA.
Floyd, VA................................. Blacksburg-Christiansburg-
Radford, VA.
Middlesex, VA............................. Virginia Beach-Norfolk-
Newport News, VA.
Page, VA.................................. Harrisonburg, VA.
Shenandoah, VA............................ Winchester, VA-WV.
Island, WA................................ Seattle-Bellevue-Everett,
WA.
Mason, WA................................. Olympia, WA.
Wahkiakum, WA............................. Longview, WA.
Jackson, WV............................... Charleston, WV.
Roane, WV................................. Charleston, WV.
Green, WI................................. Madison, WI.
Green Lake, WI............................ Fond du Lac, WI.
Jefferson, WI............................. Milwaukee-Waukesha-West
Allis, WI.
Walworth, WI.............................. Milwaukee-Waukesha-West
Allis, WI.
------------------------------------------------------------------------

As in the past, hospitals redesignated under section 1886(d)(8)(B)
of the Act are also eligible to be reclassified to a different area by
the MGCRB. Affected hospitals are permitted to compare the reclassified
wage index for the labor market area in Table 4C in the Addendum to
this proposed rule into which they have been reclassified by the MGCRB
to the wage index for the area to which they are redesignated under
section 1886(d)(8)(B) of the Act. Hospitals may withdraw from an MGCRB
reclassification within 45 days of the publication of this proposed
rule.
5. Reclassifications Under Section 1886(d)(8)(B) of the Act
As discussed in the FY 2009 IPPS final rule (73 FR 48588), Lugar
hospitals are treated like reclassified hospitals for purposes of
determining their applicable wage index and receive the reclassified
wage index for the urban area to which they have been redesignated.
Because Lugar hospitals are treated like reclassified hospitals, when
they are seeking reclassification by the MGCRB, they are subject to the
rural reclassification rules set forth at 42 CFR 412.230. The
procedural rules set forth at Sec. 412.230 list the criteria that a
hospital must meet in order to reclassify as a rural hospital. Lugar
hospitals are subject to the proximity criteria and payment thresholds
that apply to rural hospitals. Specifically, the hospital must be no
more than 35 miles from the area to which it seeks reclassification

[[Page 24151]]

(Sec. 412.230(b)(1)); and the hospital must show that its average
hourly wage is at least 106 percent of the average hourly wage of all
other hospitals in the area in which the hospital is located (Sec.
412.230(d)(1)(iii)(C)). In accordance with policy adopted in the FY
2009 IPPS final rule (73 FR 48568 and 48569), beginning with
reclassifications for the FY 2010 wage index, a Lugar hospital must
also demonstrate that its average hourly wage is equal to at least 84
percent (for FY 2010 reclassifications) and 86 percent (for
reclassifications for FY 2011 and subsequent fiscal years) of the
average hourly wage of hospitals in the area to which it seeks
redesignation (Sec. 412.230(d)(1)(iv)(C)).
Hospitals not located in a Lugar county seeking reclassification to
the urban area where the Lugar hospitals have been redesignated are not
permitted to measure to the Lugar county to demonstrate proximity (no
more than 15 miles for an urban hospital, and no more than 35 miles for
a rural hospital or the closest urban or rural area for RRCs or SCHs)
in order to be reclassified to such urban area. These hospitals must
measure to the urban area exclusive of the Lugar County to meet the
proximity or nearest urban or rural area requirement. We treat New
England deemed counties in a manner consistent with how we treat Lugar
counties. (We refer readers to FY 2008 IPPS final rule with comment
period (72 FR 47337) for a discussion of this policy.)
6. Reclassifications Under Section 508 of Public Law 108-173
Section 508 of Public Law 108-173 allowed certain qualifying
hospitals to receive wage index reclassifications and assignments that
they otherwise would not have been eligible to receive under the law.
Although section 508 originally was scheduled to expire after a 3-year
period, Congress extended the provision several times, as well as
certain special exceptions that would have otherwise expired. For a
discussion of the original section 508 provision and its various
extensions, we refer readers to the FY 2009 IPPS final rule (73 FR
48443). The most recent extension of the provision was included in
section 124 of Public Law 110-275 (MIPPA). Section 124 extended,
through FY 2009, section 508 reclassifications as well as certain
special exceptions. Because the latest extension of these provisions
expires on September 30, 2009, and will not be applicable in FY 2010,
in this proposed rule, we are not proposing to make any changes related
to these provisions.

J. Proposed FY 2010 Wage Index Adjustment Based on Commuting Patterns
of Hospital Employees

In accordance with the broad discretion under section 1886(d)(13)
of the Act, as added by section 505 of Public Law 108-173, beginning
with FY 2005, we established a process to make adjustments to the
hospital wage index based on commuting patterns of hospital employees
(the ``out-migration'' adjustment). The process, outlined in the FY
2005 IPPS final rule (69 FR 49061), provides for an increase in the
wage index for hospitals located in certain counties that have a
relatively high percentage of hospital employees who reside in the
county but work in a different county (or counties) with a higher wage
index. Such adjustments to the wage index are effective for 3 years,
unless a hospital requests to waive the application of the adjustment.
A county will not lose its status as a qualifying county due to wage
index changes during the 3-year period, and counties will receive the
same wage index increase for those 3 years. However, a county that
qualifies in any given year may no longer qualify after the 3-year
period, or it may qualify but receive a different adjustment to the
wage index level. Hospitals that receive this adjustment to their wage
index are not eligible for reclassification under section 1886(d)(8) or
section 1886(d)(10) of the Act. Adjustments under this provision are
not subject to the budget neutrality requirements under section
1886(d)(3)(E) of the Act.
Hospitals located in counties that qualify for the wage index
adjustment are to receive an increase in the wage index that is equal
to the average of the differences between the wage indices of the labor
market area(s) with higher wage indices and the wage index of the
resident county, weighted by the overall percentage of hospital workers
residing in the qualifying county who are employed in any labor market
area with a higher wage index. Beginning with the FY 2008 wage index,
we use post-reclassified wage indices when determining the out-
migration adjustment (72 FR 47339).
For the FY 2010 wage index, we are proposing to calculate the out-
migration adjustment using the same formula described in the FY 2005
IPPS final rule (69 FR 49064), with the addition of using the post-
reclassified wage indices, to calculate the out-migration adjustment.
This adjustment is calculated as follows:
Step 1--Subtract the wage index for the qualifying county from the
wage index of each of the higher wage area(s) to which hospital workers
commute.
Step 2--Divide the number of hospital employees residing in the
qualifying county who are employed in such higher wage index area by
the total number of hospital employees residing in the qualifying
county who are employed in any higher wage index area. For each of the
higher wage index areas, multiply this result by the result obtained in
Step 1.
Step 3--Sum the products resulting from Step 2 (if the qualifying
county has workers commuting to more than one higher wage index area).
Step 4--Multiply the result from Step 3 by the percentage of
hospital employees who are residing in the qualifying county and who
are employed in any higher wage index area.
These adjustments will be effective for each county for a period of
3 fiscal years. For example, hospitals that received the adjustment for
the first time in FY 2009 will be eligible to retain the adjustment for
FY 2010. For hospitals in newly qualified counties, adjustments to the
wage index are effective for 3 years, beginning with discharges
occurring on or after October 1, 2009.
Hospitals receiving the wage index adjustment under section
1886(d)(13)(F) of the Act are not eligible for reclassification under
sections 1886(d)(8) or (d)(10) of the Act unless they waive the out-
migration adjustment. Consistent with our FY 2005, 2006, 2007, 2008,
and 2009 IPPS final rules, we are specifying that hospitals
redesignated under section 1886(d)(8) of the Act or reclassified under
section 1886(d)(10) of the Act will be deemed to have chosen to retain
their redesignation or reclassification. Section 1886(d)(10) hospitals
that wish to receive the out-migration adjustment, rather than their
reclassification adjustment, should follow the termination/withdrawal
procedures specified in 42 CFR 412.273 and section III.I.3. of the
preamble of this proposed rule. Otherwise, they will be deemed to have
waived the out-migration adjustment. Hospitals redesignated under
section 1886(d)(8) of the Act will be deemed to have waived the out-
migration adjustment unless they explicitly notify CMS within 45 days
from the publication of this proposed rule that they elect to receive
the out-migration adjustment instead. These notifications should be
sent to the following address: Centers for Medicare and Medicaid
Services, Center for Medicare Management, Attention: Wage Index
Adjustment Waivers, Division of

[[Page 24152]]

Acute Care, room C4-08-06, 7500 Security Boulevard, Baltimore, MD
21244-1850.
Table 4J in the Addendum to this proposed rule lists the proposed
out-migration wage index adjustments for FY 2010. Hospitals that are
not otherwise reclassified or redesignated under section 1886(d)(8) or
section 1886(d)(10) of the Act will automatically receive the listed
adjustment. In accordance with the procedures discussed above,
redesignated/reclassified hospitals will be deemed to have waived the
out-migration adjustment unless CMS is otherwise notified within the
necessary timeframe. In addition, hospitals eligible to receive the
out-migration wage index adjustment and that withdraw their application
for reclassification would automatically receive the wage index
adjustment listed in the final Table 4J in the Addendum to this
proposed rule.

K. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational
mix survey data files for the FY 2010 wage index were made available on
October 6, 2008, through the Internet on the CMS Web site at: http://
www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
In the interest of meeting the data needs of the public, beginning
with the proposed FY 2009 wage index, we post an additional public use
file on our Web site that reflects the actual data that are used in
computing the proposed wage index. The release of this new file does
not alter the current wage index process or schedule. We notified the
hospital community of the availability of these data as we do with the
current public use wage data files through our Hospital Open Door
forum. We encourage hospitals to sign up for automatic notifications of
information about hospital issues and the scheduling of the Hospital
Open Door forums at: http://www.cms.hhs.gov/OpenDoorForums/.
In a memorandum dated October 6, 2008, we instructed all fiscal
intermediaries/MACs to inform the IPPS hospitals they service of the
availability of the wage index data files and the process and timeframe
for requesting revisions (including the specific deadlines listed
below). We also instructed the fiscal intermediaries/MACs to advise
hospitals that these data were also made available directly through
their representative hospital organizations.
If a hospital wished to request a change to its data as shown in
the October 6, 2008 wage and occupational mix data files, the hospital
was to submit corrections along with complete, detailed supporting
documentation to its fiscal intermediary/MAC by December 8, 2008.
Hospitals were notified of this deadline and of all other possible
deadlines and requirements, including the requirement to review and
verify their data as posted on the preliminary wage index data files on
the Internet, through the October 6, 2008 memorandum referenced above.
In the October 6, 2008 memorandum, we also specified that a
hospital requesting revisions to its first and/or second quarter
occupational mix survey data was to copy its record(s) from the CY
2007-2008 occupational mix preliminary files posted to our Web site in
October, highlight the revised cells on its spreadsheet, and submit its
spreadsheet(s) and complete documentation to its fiscal intermediary/
MAC no later than December 8, 2008.
The fiscal intermediaries/MACs notified the hospitals by mid-
February 2009 of any changes to the wage index data as a result of the
desk reviews and the resolution of the hospitals' early-December
revision requests. The fiscal intermediaries/MACs also submitted the
revised data to CMS by mid-February 2009. CMS published the proposed
wage index public use files that included hospitals' revised wage index
data on February 23, 2009. In a memorandum also dated February 23,
2009, we instructed fiscal intermediaries/MACs to notify all hospitals
regarding the availability of the proposed wage index public use files
and the criteria and process for requesting corrections and revisions
to the wage index data. Hospitals had until March 10, 2009, to submit
requests to the fiscal intermediaries/MACs for reconsideration of
adjustments made by the fiscal intermediaries/MACs as a result of the
desk review, and to correct errors due to CMS's or the fiscal
intermediary's (or, if applicable, the MAC's) mishandling of the wage
index data. Hospitals also were required to submit sufficient
documentation to support their requests.
After reviewing requested changes submitted by hospitals, fiscal
intermediaries/MACs are to transmit any additional revisions resulting
from the hospitals' reconsideration requests by April 15, 2009. The
deadline for a hospital to request CMS intervention in cases where the
hospital disagrees with the fiscal intermediary's (or, if applicable,
the MAC's) policy interpretations is April 15, 2009.
Hospitals should also examine Table 2 in the Addendum to this
proposed rule. Table 2 in the Addendum to this proposed rule contains
each hospital's adjusted average hourly wage used to construct the wage
index values for the past 3 years, including the FY 2006 data used to
construct the proposed FY 2010 wage index. We noted that the hospital
average hourly wages shown in Table 2 only reflect changes made to a
hospital's data and transmitted to CMS by March 2, 2009.
We will release the final wage index data public use files in early
May 2009 on the Internet at http://www.cms.hhs.gov/AcuteInpatientPPS/
WIFN/list.asp#TopOfPage. The May 2009 public use files will be made
available solely for the limited purpose of identifying any potential
errors made by CMS or the fiscal intermediary/MAC in the entry of the
final wage index data that resulted from the correction process
described above (revisions submitted to CMS by the fiscal
intermediaries/MACs by April 15, 2009). If, after reviewing the May
2009 final files, a hospital believes that its wage or occupational mix
data are incorrect due to a fiscal intermediary/MAC or CMS error in the
entry or tabulation of the final data, the hospital should send a
letter to both its fiscal intermediary/MAC and CMS that outlines why
the hospital believes an error existed and to provide all supporting
information, including relevant dates (for example, when it first
became aware of the error). CMS and the fiscal intermediaries (or, if
applicable, the MACs) must receive these requests no later than June 8,
2009.
Each request also must be sent to the fiscal intermediary/MAC. The
fiscal intermediary/MAC will review requests upon receipt and contact
CMS immediately to discuss any findings.
At this point in the process, that is, after the release of the May
2009 wage index data files, changes to the wage and occupational mix
data will only be made in those very limited situations involving an
error by the fiscal intermediary/MAC or CMS that the hospital could not
have known about before its review of the final wage index data files.
Specifically, neither the fiscal intermediary/MAC nor CMS will approve
the following types of requests:
Requests for wage index data corrections that were
submitted too late to be included in the data transmitted to CMS by
fiscal intermediaries or the MACs on or before April 15, 2009.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review

[[Page 24153]]

of the February 23, 2009 wage index public use files.
Requests to revisit factual determinations or policy
interpretations made by the fiscal intermediary or the MAC or CMS
during the wage index data correction process.
Verified corrections to the wage index data received timely by CMS
and the fiscal intermediaries or the MACs (that is, by June 8, 2009)
will be incorporated into the final wage index in the FY 2010 IPPS
final rule, which will be effective October 1, 2009.
We created the processes described above to resolve all substantive
wage index data correction disputes before we finalize the wage and
occupational mix data for the FY 2010 payment rates. Accordingly,
hospitals that did not meet the procedural deadlines set forth above
will not be afforded a later opportunity to submit wage index data
corrections or to dispute the fiscal intermediary's (or, if applicable
the MAC's) decision with respect to requested changes. Specifically,
our policy is that hospitals that do not meet the procedural deadlines
set forth above will not be permitted to challenge later, before the
Provider Reimbursement Review Board, the failure of CMS to make a
requested data revision. (See W. A. Foote Memorial Hospital v. Shalala,
No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v.
Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY
2000 final rule (64 FR 41513) for a discussion of the parameters for
appealing to the PRRB for wage index data corrections.
Again, we believe the wage index data correction process described
above provides hospitals with sufficient opportunity to bring errors in
their wage and occupational mix data to the fiscal intermediary's (or,
if applicable, the MAC's) attention. Moreover, because hospitals will
have access to the final wage index data by early May 2009, they have
the opportunity to detect any data entry or tabulation errors made by
the fiscal intermediary or the MAC or CMS before the development and
publication of the final FY 2010 wage index by August 1, 2009, and the
implementation of the FY 2010 wage index on October 1, 2009. If
hospitals availed themselves of the opportunities afforded to provide
and make corrections to the wage and occupational mix data, the wage
index implemented on October 1 should be accurate. Nevertheless, in the
event that errors are identified by hospitals and brought to our
attention after June 8, 2009, we retain the right to make midyear
changes to the wage index under very limited circumstances.
Specifically, in accordance with 42 CFR 412.64(k)(1) of our
existing regulations, we make midyear corrections to the wage index for
an area only if a hospital can show that: (1) The fiscal intermediary
or the MAC or CMS made an error in tabulating its data; and (2) the
requesting hospital could not have known about the error or did not
have an opportunity to correct the error, before the beginning of the
fiscal year. For purposes of this provision, ``before the beginning of
the fiscal year'' means by the June 8 deadline for making corrections
to the wage data for the following fiscal year's wage index. This
provision is not available to a hospital seeking to revise another
hospital's data that may be affecting the requesting hospital's wage
index for the labor market area. As indicated earlier, because CMS
makes the wage index data available to hospitals on the CMS Web site
prior to publishing both the proposed and final IPPS rules, and the
fiscal intermediaries or the MAC notify hospitals directly of any wage
index data changes after completing their desk reviews, we do not
expect that midyear corrections will be necessary. However, under our
current policy, if the correction of a data error changes the wage
index value for an area, the revised wage index value will be effective
prospectively from the date the correction is made.
In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR
412.64(k)(2) to specify that, effective on October 1, 2005, that is,
beginning with the FY 2006 wage index, a change to the wage index can
be made retroactive to the beginning of the Federal fiscal year only
when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS
made an error in tabulating data used for the wage index calculation;
(2) the hospital knew about the error and requested that the fiscal
intermediary (or if applicable the MAC) and CMS correct the error using
the established process and within the established schedule for
requesting corrections to the wage index data, before the beginning of
the fiscal year for the applicable IPPS update (that is, by the June 8,
2009 deadline for the FY 2010 wage index); and (3) CMS agreed that the
fiscal intermediary (or if applicable, the MAC) or CMS made an error in
tabulating the hospital's wage index data and the wage index should be
corrected.
In those circumstances where a hospital requested a correction to
its wage index data before CMS calculates the final wage index (that
is, by the June 8, 2009 deadline), and CMS acknowledges that the error
in the hospital's wage index data was caused by CMS' or the fiscal
intermediary's (or, if applicable, the MAC's) mishandling of the data,
we believe that the hospital should not be penalized by our delay in
publishing or implementing the correction. As with our current policy,
we indicated that the provision is not available to a hospital seeking
to revise another hospital's data. In addition, the provision cannot be
used to correct prior years' wage index data; and it can only be used
for the current Federal fiscal year. In other situations where our
policies would allow midyear corrections, we continue to believe that
it is appropriate to make prospective-only corrections to the wage
index.
We note that, as with prospective changes to the wage index, the
final retroactive correction will be made irrespective of whether the
change increases or decreases a hospital's payment rate. In addition,
we note that the policy of retroactive adjustment will still apply in
those instances where a judicial decision reverses a CMS denial of a
hospital's wage index data revision request.

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

A. Background

Effective for cost reporting periods beginning on or after July 1,
1979, we developed and adopted a hospital input price index (that is,
the hospital market basket for operating costs). Although ``market
basket'' technically describes the mix of goods and services used in
providing hospital care, this term is also commonly used to denote the
input price index (that is, cost category weights and price proxies
combined) derived from that market basket. Accordingly, the term
``market basket'' as used in this document refers to the hospital input
price index.
The percentage change in the market basket reflects the average
change in the price of goods and services hospitals purchase in order
to provide inpatient care. We first used the market basket to adjust
hospital cost limits by an amount that reflected the average increase
in the prices of the goods and services used to provide hospital
inpatient care. This approach linked the increase in the cost limits to
the efficient utilization of resources.
Since the inception of the IPPS, the projected change in the
hospital market basket has been the integral component of the update
factor by which the prospective payment rates are updated every year.
An explanation of the hospital market basket used to develop the
prospective payment rates was

[[Page 24154]]

published in the Federal Register on September 1, 1983 (48 FR 39764).
We also refer readers to the FY 2006 IPPS final rule (70 FR 47387) in
which we discussed the most recent previous rebasing of the hospital
input price index.
The hospital market basket is a fixed-weight, Laspeyres-type price
index that is constructed in three steps. A Laspeyres price index
measures the change in price, over time, of the same mix of goods and
services purchased in the base period. Any changes in the quantity or
mix of goods and services (that is, intensity) purchased over time are
not measured.
The index itself is constructed in three steps. First, a base
period is selected (in this proposed rule, the base period is FY 2006)
and total base period expenditures are estimated for a set of mutually
exclusive and exhaustive spending categories based upon type of
expenditure. Then the proportion of total operating costs that each
category represents is determined. These proportions are called cost or
expenditure weights. Second, each expenditure category is matched to an
appropriate price or wage variable, referred to as a price proxy. In
nearly every instance, these price proxies are price levels derived
from publicly available statistical series that are published on a
consistent schedule (preferably at least on a quarterly basis).
Finally, the expenditure weight for each cost category is multiplied by
the level of its respective price proxy. The sum of these products
(that is, the expenditure weights multiplied by their price levels) for
all cost categories yields the composite index level of the market
basket in a given period. Repeating this step for other periods
produces a series of market basket levels over time. Dividing an index
level for a given period by an index level for an earlier period
produces a rate of growth in the input price index over that timeframe.
The market basket is described as a fixed-weight index because it
represents the change in price over time of the same mix (quantity and
intensity) of goods and services purchased to provide hospital services
in a base period. The effects on total expenditures resulting from
changes in the mix of goods and services purchased subsequent to the
base period are not measured. For example, shifting a traditionally
inpatient type of care to an outpatient setting might affect the volume
of inpatient goods and services purchased by the hospital, but would
not be factored into the price change measured by a fixed-weight
hospital market basket. In this manner, the market basket measures pure
price change only. Only when the index is rebased would changes in the
quantity and intensity be captured in the cost weights. Therefore, we
rebase the market basket periodically so the cost weights reflect
recent changes in the mix of goods and services that hospitals purchase
(hospital inputs) to furnish inpatient care between base periods. We
last rebased the hospital market basket cost weights effective for FY
2006 (70 FR 47387), with FY 2002 data used as the base period for the
construction of the market basket cost weights.
We are inviting public comments on our proposed methodological
changes to both the IPPS operating market basket and the capital input
price index (CIPI). We note that this section addresses only the
rebasing and revision of the IPPS market basket and CIPI for acute care
hospitals and for children's and cancer hospitals and RNHCIs, which are
excluded from the IPPS. We address the proposed market basket that
would be applicable to LTCHs in section VIII.C.2. of the preamble of
this proposed rule. Separate documents will address the market basket
for other hospitals that are excluded from the IPPS.

B. Rebasing and Revising the IPPS Market Basket

The terms ``rebasing'' and ``revising,'' while often used
interchangeably, actually denote different activities. ``Rebasing''
means moving the base year for the structure of costs of an input price
index (for example, in this proposed rule, we are shifting the base
year cost structure for the IPPS hospital index from FY 2002 to FY
2006). ``Revising'' means changing data sources, or price proxies, used
in the input price index. As published in the FY 2006 IPPS final rule
(70 FR 47387), in accordance with section 404 of Public Law 108-173,
CMS determined a new frequency for rebasing the hospital market basket.
We established a rebasing frequency of every 4 years and, therefore,
for the FY 2010 IPPS update, we are proposing to rebase and revise the
IPPS market basket and the CIPI.
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
The major source of expenditure data for developing the rebased and
revised hospital market basket cost weights is the FY 2006 Medicare
cost reports. As was done in previous rebasings, these cost reports are
from IPPS hospitals only (hospitals excluded from the IPPS and CAHs are
not included) and are based on IPPS Medicare-allowable operating costs.
IPPS Medicare-allowable operating costs are costs that are eligible to
be paid for under the IPPS. For example, the IPPS market basket
excludes home health agency (HHA) costs as these costs would be paid
under the HHA PPS and, therefore, these costs are not IPPS Medicare-
allowable costs.
The IPPS cost reports yield seven major expenditure or cost
categories--the same as in the FY 2002-based hospital market basket:
Wages and salaries, employee benefits, contract labor, pharmaceuticals,
professional liability insurance (malpractice), blood and blood
products, and a residual ``all other.'' The cost weights that were
obtained directly from the Medicare cost reports are reported in Chart
1. These Medicare cost report cost weights are then supplemented with
information obtained from other data sources to derive the proposed
IPPS market basket cost weights.

Chart 1.--Major Cost Categories and Their Respective Cost Weights Found
in the Medicare Cost Reports
------------------------------------------------------------------------
Proposed 2006-
Major cost categories FY 2002-based based market
market basket basket
------------------------------------------------------------------------
Wages and salaries.................. 45.590 45.156
Employee benefits................... 11.189 11.873
Contract labor...................... 3.214 2.598
Professional liability insurance 1.589 1.661
(malpractice)......................
Pharmaceuticals..................... 5.855 5.380
Blood and blood products............ 1.082 1.078
All other........................... 31.481 32.254
------------------------------------------------------------------------

[[Page 24155]]

b. Other Data Sources
In addition to the Medicare cost reports, the other data source we
used to develop the IPPS market basket cost weights was the Benchmark
Input-Output (I-O) Tables created by the Bureau of Economic Analysis
(BEA), U.S. Department of Commerce. The BEA Benchmark I-O data are
scheduled for publication every 5 years. The most recent data available
are for 2002. BEA also produces Annual I-O estimates; however, the 2002
Benchmark I-O data represent a much more comprehensive and complete set
of data that are derived from the 2002 Economic Census. The Annual I-O
is simply an update of the Benchmark I-O tables. For the FY 2006 market
basket rebasing, we used the 1997 Benchmark I-O data. We are proposing
to use the 2002 Benchmark I-O data in the FY 2006-based IPPS market
basket, to be effective for FY 2010. Instead of using the less
detailed, less accurate Annual I-O data, we aged the 2002 Benchmark I-O
data forward to FY 2006. The methodology we used to age the data
forward involves applying the annual price changes from the respective
price proxies to the appropriate cost categories. We repeat this
practice for each year.
The ``all other'' cost category obtained directly from the Medicare
cost reports is divided into other hospital expenditure category shares
using the 2002 Benchmark I-O data. Therefore, the ``all other'' cost
category expenditure shares are proportional to their relationship to
``all other'' totals in the 2002 Benchmark I-O data. For instance, if
the cost for telephone services was to represent 10 percent of the sum
of the ``all other'' Benchmark I-O (see below) hospital expenditures,
then telephone services would represent 10 percent of the IPPS market
basket's ``all other'' cost category. Following publication of this FY
2010 IPPS proposed rule, and in an effort to provide greater
transparency, we will be posting on the CMS market basket Web page at
http://www.cms.hhs.gov/MedicareProgramRatesStats/05_
MarketBasketResearch.asp#TopOfPage an illustrative spreadsheet that
shows how the detailed cost weights (that is, those not calculated
using Medicare cost reports) are determined using the 2002 Benchmark I-
O data.
2. Final Cost Category Computation
As stated previously, for this rebasing we used the Medicare cost
reports to derive seven major cost categories. The proposed FY 2006-
based IPPS market basket includes three additional cost categories that
were not broken out separately in the FY 2002-based IPPS market basket.
The first is lifted directly from the Medicare cost reports: Blood and
blood products. The remaining two are derived using the Benchmark I-O
data: Administrative and business support services and financial
services. We are proposing to break out the latter two categories so we
can better match their respective expenses with price proxies. A
thorough discussion of our rationale for each of these cost categories
is provided in the section IV.B.3. of this proposed rule. Also, the
proposed FY 2006-based IPPS market basket excludes one cost category:
Photo supplies. The 2002 Benchmark I-O weight for this category is
considerably smaller than the 1997 Benchmark I-O weight, presently
accounting for less than one-tenth of one percentage point of the IPPS
market basket. Therefore, we are proposing to include the photo
supplies costs in the chemical cost category weight with other similar
chemical products.
We are not proposing to change our definition of the labor-related
share. However, we are proposing to rename our aggregate cost
categories from ``labor-intensive'' and ``non-labor-intensive''
services to ``labor-related'' and ``nonlabor-related'' services. As
discussed in more detail below and similar to the previous rebasing, we
classify a cost category as labor-related and include it in the labor-
related share if the cost category is defined as being labor-intensive
and its cost varies with the local labor market. In previous
regulations, we grouped cost categories that met both of these criteria
into labor-intensive services. We believe the proposed new labels more
accurately reflect the concepts that they are intended to convey. We
are not proposing to change to our definition of the labor-related
share because we continue to classify a cost category as labor-related
if the costs are labor-intensive and vary with the local labor market.
3. Selection of Price Proxies
After computing the FY 2006 cost weights for the proposed rebased
hospital market basket, it was necessary to select appropriate wage and
price proxies to reflect the rate of price change for each expenditure
category. With the exception of the proxy for professional liability,
all the proxies are based on Bureau of Labor Statistics (BLS) data and
are grouped into one of the following BLS categories:
Producer Price Indexes--Producer Price Indexes (PPIs)
measure price changes for goods sold in markets other than the retail
market. PPIs are preferable price proxies for goods and services that
hospitals purchase as inputs because these PPIs better reflect the
actual price changes faced by hospitals. For example, we use a special
PPI for prescription drugs, rather than the Consumer Price Index (CPI)
for prescription drugs, because hospitals generally purchase drugs
directly from a wholesaler. The PPIs that we use measure price changes
at the final stage of production.
Consumer Price Indexes--Consumer Price Indexes (CPIs)
measure change in the prices of final goods and services bought by the
typical consumer. Because they may not represent the price faced by a
producer, we used CPIs only if an appropriate PPI was not available, or
if the expenditures were more similar to those faced by retail
consumers in general rather than by purchasers of goods at the
wholesale level. For example, the CPI for food purchased away from home
is used as a proxy for contracted food services.
Employment Cost Indexes--Employment Cost Indexes (ECIs)
measure the rate of change in employee wage rates and employer costs
for employee benefits per hour worked. These indexes are fixed-weight
indexes and strictly measure the change in wage rates and employee
benefits per hour. Appropriately, they are not affected by shifts in
employment mix.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance. Reliability indicates that the
index is based on valid statistical methods and has low sampling
variability. Timeliness implies that the proxy is published regularly,
preferably at least once a quarter. Availability means that the proxy
is publicly available. Finally, relevance means that the proxy is
applicable and representative of the cost category weight to which it
is applied. The CPIs, PPIs, and ECIs selected meet these criteria.
Chart 2 sets forth the proposed FY 2006-based IPPS market basket
including cost categories, weights, and price proxies. For comparison
purposes, the corresponding FY 2002-based IPPS market basket is listed
as well. A summary outlining the choice of the various proxies follows
the chart.

[[Page 24156]]

Chart 2.--Proposed FY 2006-Based IPPS Hospital Market Basket Cost Categories, Weights, and Price Proxies with FY
2002-Based IPPS Market Basket Included for Comparison
----------------------------------------------------------------------------------------------------------------
Proposed
FY 2002-based rebased FY
hospital 2006-based Proposed rebased FY 2006-based
Cost categories market basket hospital hospital market basket price
cost weights market basket proxies
cost weights
----------------------------------------------------------------------------------------------------------------
1. Compensation............................ 59.993 59.627
A. Wages and Salaries (1).............. 48.171 47.213 ECI for Wages and Salaries,
Civilian Hospital Workers.
B. Employee Benefits (1)............... 11.822 12.414 ECI for Benefits, Civilian Hospital
Workers.
2. Utilities............................... 1.251 2.180
A. Fuel, Oil, and Gasoline............. 0.206 0.418 PPI for Petroleum Refineries.
B. Electricity......................... 0.669 1.645 PPI for Commercial Electric Power.
C. Water and Sewage.................... 0.376 0.117 CPI-U for Water & Sewerage
Maintenance.
3. Professional Liability Insurance........ 1.589 1.661 CMS Professional Liability
Insurance Premium Index.
4. All Other............................... 37.167 36.533
A. All Other Products.................. 20.336 19.473
(1) Pharmaceuticals.................... 5.855 5.380 PPI for Pharmaceutical Preparations
(Prescriptions).
(2) Food: Direct Purchases............. 1.664 3.982 PPI for Processed Foods & Feeds.
(3) Food: Contract Services............ 1.180 0.575 CPI-U for Food Away From Home.
(4) Chemicals (2)...................... 2.096 1.538 Blend of Chemical PPIs.
(5) Blood and Blood Products (3)....... .............. 1.078 PPI for Blood and Organ Banks.
(6) Medical Instruments................ 1.932 2.762 PPI for Medical, Surgical, and
Personal Aid Devices.
(7) Photographic Supplies.............. 0.183 ..............
(8) Rubber and Plastics................ 2.004 1.659 PPI for Rubber & Plastic Products.
(9) Paper and Printing Products........ 1.905 1.492 PPI for Converted Paper &
Paperboard Products.
(10) Apparel........................... 0.394 0.325 PPI for Apparel.
(11) Machinery and Equipment........... 0.565 0.163 PPI for Machinery & Equipment.
(12) Miscellaneous Products (3)........ 2.558 0.519 PPI for Finished Goods less Food
and Energy.
B. Labor-related Services.............. 9.738 7.435
(1) Professional Fees: Labor-related 5.510 3.616 ECI for Compensation for
(4). Professional and Related
Occupations.
(2) Administrative and Business Support n/a 0.626 ECI for Compensation for Office and
Services (5). Administrative Services.
(3) All Other: Labor-Related Services 4.228 3.193 ECI for Compensation for Private
(5). Service Occupations.
C. Nonlabor-Related Services........... 7.093 9.625
(1) Professional Fees: Nonlabor-Related n/a 5.814 ECI for Compensation for
(4). Professional and Related
Occupations.
(2) Financial Services (6)............. n/a 1.281 ECI for Compensation for Financial
Activities.
(3) Telephone Services................. 0.458 0.627 CPI-U for Telephone Services.
(4) Postage............................ 1.300 0.963 CPI-U for Postage.
(5) All Other: Nonlabor-Related 5.335 0.940 CPI-U for All Items less Food and
Services (6). Energy.
--------------------------------
Total.............................. 100.000 100.000
----------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
(1) Contract labor is distributed to wages and salaries and employee benefits based on the share of total
compensation that each category represents.
(2) To proxy the ``chemicals'' cost category, we are proposing to use a blended PPI composed of the PPI for
industrial gases, the PPI for other basic inorganic chemical manufacturing, the PPI for other basic organic
chemical manufacturing, and the PPI for soap and cleaning compound manufacturing. For more detail about this
proxy, see section IV.B.3.j. of the preamble of this proposed rule.
(3) The ``blood and blood products'' cost category was contained within ``miscellaneous products'' cost category
in the FY 2002-based IPPS market basket.
(4) The ``professional fees: labor-related'' and ``professional fees: nonlabor-related'' cost categories were
included in one cost category called ``professional fees'' in the FY 2002-based IPPS market basket. For more
detail about how these new categories were derived, we refer readers to sections IV.B.3.s. and v. of the
preamble of this proposed rule, on the labor-related share.
(5) The ``administrative and business support services'' cost category was contained within ``all other: labor-
intensive services'' cost category in the FY 2002-based IPPS market basket. The ``all other: labor-intensive
services'' cost category is renamed the ``all other: labor-related services'' cost category for the proposed
FY 2006-based IPPS market basket.
(6) The ``financial services'' cost category was contained within the ``all other: non-labor intensive
services'' cost category in the FY 2002-based IPPS market basket. The ``all other: nonlabor intensive
services'' cost category is renamed the ``all other: nonlabor-related services'' cost category for the
proposed FY 2006-based IPPS market basket.

a. Wages and Salaries
We are proposing to use the ECI for wages and salaries for hospital
workers (all civilian) (series code CIU1026220000000I) to
measure the price growth of this cost category. This same proxy was
used in the FY 2002-based IPPS market basket.
b. Employee Benefits
We are proposing to use the ECI for employee benefits for hospital
workers (all civilian) to measure the price growth of this cost
category. This same proxy was used in the FY 2002-based IPPS market
basket.
c. Fuel, Oil, and Gasoline
For the FY 2002-based market basket, this category only included
expenses classified under North American Industry Classification System
(NAICS)

[[Page 24157]]

21 (Mining). We proxied this category using the PPI for commercial
natural gas (series code WPU0552). For the proposed FY 2006-
based market basket, we are proposing to add costs to this category
that had previously been grouped in other categories. The added costs
include petroleum-related expenses under NAICS 324110 (previously
captured in the miscellaneous category), as well as petrochemical
manufacturing classified under NAICS 325110 (previously captured in the
chemicals category). These added costs represent 80 percent of the
hospital industry's fuel, oil, and gasoline expenses (or 80 percent of
this category). Because the majority of the industry's fuel, oil, and
gasoline expenses originate from petroleum refineries (NAICS 324110),
we are proposing to use the PPI for petroleum refineries (series code
PCU324110) as the proxy for this cost category.
d. Electricity
We are proposing to use the PPI for commercial electric power
(series code WPU0542). This same proxy was used in the FY
2002-based IPPS market basket.
e. Water and Sewage
We are proposing to use the CPI for water and sewerage maintenance
(all urban consumers) (series code CUUR0000SEHG01) to measure
the price growth of this cost category. This same proxy was used in the
FY 2002-based IPPS market basket.
f. Professional Liability Insurance
We are proposing to proxy price changes in hospital professional
liability insurance premiums (PLI) using percentage changes as
estimated by the CMS Hospital Professional Liability Index. To generate
these estimates, we collect commercial insurance premiums for a fixed
level of coverage while holding nonprice factors constant (such as a
change in the level of coverage). This method is also used to proxy PLI
price changes in the Medicare Economic Index (68 FR 63244). This same
proxy was used in the FY 2002-based IPPS market basket.
g. Pharmaceuticals
We are proposing to use the PPI for pharmaceutical preparations
(prescription) (series code PCU32541DRX) to measure the price
growth of this cost category. This is a special index produced by BLS
and is the same proxy used in the FY 2002-based IPPS market basket.
h. Food: Direct Purchases
We are proposing to use the PPI for processed foods and feeds
(series code WPU02) to measure the price growth of this cost
category. This same proxy was used in the FY 2002-based IPPS market
basket.
i. Food: Contract Services
We are proposing to use the CPI for food away from home (all urban
consumers) (series code CUUR0000SEFV) to measure the price
growth of this cost category. This same proxy was used in the FY 2002-
based IPPS market basket.
j. Chemicals
We are proposing to use a blended PPI composed of the PPI for
industrial gases (NAICS 325120), the PPI for other basic inorganic
chemical manufacturing (NAICS 325180), the PPI for other basic organic
chemical manufacturing (NAICS 325190), and the PPI for soap and
cleaning compound manufacturing (NAICS 325610). Using the 2002
Benchmark I-O data, we found that these NAICS industries accounted for
approximately 90 percent of the hospital industry's chemical expenses.
Therefore, we are proposing to use this blended index because we
believe its composition better reflects the composition of the
purchasing patterns of hospitals than does the PPI for industrial
chemicals (series code WPU061), the proxy used in the FY 2002-
based IPPS market basket. Chart 3 below shows the weights for each of
the four PPIs used to create the blended PPI, which we determined using
the 2002 Benchmark I-O data.

Chart 3--Blended Chemical PPI Weights
------------------------------------------------------------------------
Weights
Name (in NAICS
percent)
------------------------------------------------------------------------
PPI for Industrial Gases...................... 35 325120
PPI for Other Basic Inorganic Chemical 25 325180
Manufacturing................................
PPI for Other Basic Organic Chemical 30 325190
Manufacturing................................
PPI for Soap and Cleaning Compound 10 325610
Manufacturing................................
------------------------------------------------------------------------

k. Blood and Blood Products
In the FY 2002-based IPPS market basket, we classified blood and
blood products into the miscellaneous products category and used the
PPI for finished goods less food and energy to proxy the price changes
associated with these expenses. At the time of the rebasing of the FY
2002-based IPPS market basket, we noticed an apparent divergence
between the PPI for blood and blood derivatives, the price proxy used
in the FY 1997-based IPPS market basket, and blood costs faced by
hospitals over the recent time period. A thorough discussion of this
analysis is found in the FY 2006 IPPS final rule (70 FR 47390).
Since the last rebasing of the market basket, BLS began collecting
data and publishing an industry PPI for blood and organ banks (NAICS
621991). For the proposed FY 2006-based IPPS market basket, we are
proposing to incorporate this series (series code PCU621991)
into the market basket and use it to proxy the blood and blood products
cost category.
l. Medical Instruments
We are proposing to use the PPI for medical, surgical, and personal
aid devices (series code WPU156) to measure the price growth
of this cost category. In the 1997 Benchmark I-O data, approximately
half of the expenses classified in this category were for surgical and
medical instruments. Thus, we used the PPI for surgical and medical
instruments and equipment (series code WPU1562) to proxy this
category in the FY 2002-based IPPS market basket. The 2002 Benchmark I-
O data show that this category now represents only 33 percent of these
expenses and the largest expense category is surgical appliance and
supplies manufacturing (corresponding to series code WPU1563).
Due to this reallocation of costs over time, we are proposing to change
the price proxy for this cost category to the more aggregated PPI for
medical, surgical, and personal aid devices.
m. Photographic Supplies
We are proposing to eliminate the cost category specific to
photographic supplies for the proposed FY 2006-based IPPS market
basket. These costs will now be included in the chemicals cost category
because the costs are presently reported as all other chemical
prod