Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2001 Rates

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 410, 412, 413, and 485

[HCFA-1118-F]

RIN 0938-AK09

Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2001 Rates

AGENCY:

Health Care Financing Administration (HCFA), HHS.

ACTION:

Final rule.

SUMMARY:

We are revising the Medicare hospital inpatient prospective payment system for operating costs to: implement applicable statutory requirements, including a number of provisions of the Medicare, Medicaid, and State Children's Health Insurance Program Balanced Budget Refinement Act of 1999 (Pub. L. 106-113); and implement changes arising from our continuing experience with the system. In addition, in the Addendum to this final rule, we describe changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for

operating costs and capital-related costs. These changes apply to discharges occurring on or after October 1, 2000. We also set forth rate-of-increase limits and make changes to our policy for hospitals and hospital units excluded from the prospective payment systems.

We are making changes to the policies governing payments to hospitals for the direct costs of graduate medical education, sole community hospitals and critical access hospitals.

We are adding a new condition of participation on organ, tissue, and eye procurement for critical access hospitals that parallels the condition of participation that we previously published for all other Medicare-participating hospitals.

Lastly, we are finalizing a January 20, 2000 interim final rule with comment period (65 FR 3136) that sets forth the criteria to be used in calculating the Medicare disproportionate share adjustment in reference to Medicaid expansion waiver patient days under section 1115 of the Social Security Act.

DATES:

The provisions of this final rule are effective October 1, 2000. This rule is a major rule as defined in 5 U.S.C. 804(2). Pursuant to 5 U.S.C. 801(a)(1)(A), we are submitting a report to Congress on this rule on August 1, 2000.

FOR FURTHER INFORMATION CONTACT:

Steve Phillips, (410) 786-4531,

Operating Prospective

Payment, Diagnostic

Related Groups, Wage

Index, Reclassifications, and Sole Community Hospital Issues

Tzvi Hefter, (410) 786-4487,

Capital Prospective

Payment, Excluded

Hospitals, Graduate

Medical Education and

Critical Access Hospital

Issues

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I. Background

A. Summary

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. Under these prospective payment systems, 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).

Certain specialty hospitals are excluded from the prospective payment systems. Under section 1886(d)(1)(B) of the Act, the following hospitals and hospital units are excluded from the prospective payment systems: psychiatric hospitals and units, rehabilitation hospitals and units, children's hospitals, long-term care hospitals, and cancer hospitals. For these hospitals and units, Medicare payment for operating costs is based on reasonable costs subject to a hospital-specific annual limit.

Under sections 1820 and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural nonprofit hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services on a reasonable cost basis. Reasonable cost is determined under the provisions of section 1861(v)(i)(A) of the Act and existing regulations under 42 CFR Parts 413 and 415.

Under section 1886(a)(4) of the Act, costs of approved educational activities programs 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 regulations governing the hospital inpatient prospective payment system are located in 42 CFR Part 412. The regulations governing excluded hospitals and hospital units are located in 42 CFR Parts 412 and 413, and the GME regulations are located in 42 CFR Part 413.

On November 29, 1999, the Medicare, Medicaid, and State Children's Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999, Public Law 106-113, was enacted. Public Law 106-113 made a number of changes to the Act affecting prospective payments to hospitals for inpatient services and payments to excluded hospitals. This final rule implements amendments enacted by Public Law 106-113 relating to FY 2001 payments for GME costs, disproportionate share hospitals (DSHs), sole community hospitals (SCHs), and CAHs. These changes are addressed in sections IV and VI of this preamble.

Other related provisions of Public Law 106-113 that pertain to Medicare hospital inpatient payments with an effective date prior to October 1, 2000, are addressed in an interim final rule with comment period that is published elsewhere in this issue of the

Federal Register

.

Public Law 106-113 also amended section 1886(j) of the Act, which was added by section 4421 of the Balanced Budget Act of 1997 (Public Law 105-33). Section 1886(j) of the Act provides for a fully implemented prospective payment system for inpatient rehabilitation hospitals and rehabilitation units, effective for cost reporting periods beginning on or after October 1, 2002, with payment provisions during a transitional period of October 1, 2000 to October 1, 2002 based on target amounts specified in section 1886(b) of the Act. We are issuing a separate notice of proposed rulemaking to implement the prospective payment system for inpatient rehabilitation hospitals and units.

B. Summary of the Provisions of the May 5, 2000 Proposed Rule

On May 5, 2000, we published a proposed rule in the

Federal Register

(65 FR 26282) that set forth proposed changes to the Medicare hospital inpatient prospective payment system for operating costs for FY 2001. In the proposed rule, we made no policy changes relating to payments for capital-related costs under the hospital inpatient prospective payment system in FY 2001. However, we did propose changes to the amounts and factors used in determining the rates for capital-related costs for FY 2001. The proposed rule also included changes relating to payments for GME costs and payments to excluded hospitals and units, SCHs, and CAHs.

The following is a summary of the major changes we proposed and the issues we addressed in the May 5, 2000 proposed rule:

• We proposed changes to the FY 2001 DRG classifications and relative weights, as required by section 1886(d)(4)(C) of the Act.

• We proposed an update to the FY 2001 hospital wage index, using FY 1997 wage data. We also proposed to implement the second year phaseout of Part A physician teaching-related costs, Part A certified registered nurse anesthetist (CRNA) costs and resident costs from the FY 2001 wage index calculation.

• We discussed the impact of our policy on post acute care transfers and set forth certain proposed changes concerning sole community hospitals (SCHs), rural referral centers (RRCs), the indirect medical education adjustment, the DSH adjustment and collection of data on uncompensated costs for services furnished in hospitals, the Medicare Geographic Classification Review Board (MGCRB) classifications, and payment for the direct costs of GME.

• We discussed FY 2001 as the last year of a 10-year transition established to phase-in the prospective payment system for capital-related costs for inpatient hospital services.

• We discussed a number of proposals concerning excluded hospital and hospital units and CAHs. The proposed changes addressed limits on and adjustments to the proposed target amounts for FY 2001; development of a prospective payment system for inpatient rehabilitation hospitals and units; continuous improvement bonus payments; clarification that the 5-percent threshold used in calculating an excluded hospital's cost per discharge is based only on Medicare inpatients discharged from the hospital-within-a-hospital; an all-inclusive payment rate option for CAHs; and adding a new condition of participation for CAHs relating to organ, tissue, and eye procurement.

• In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2001 prospective payment rates for operating costs and capital-related costs. We also addressed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2001 for hospitals and hospital units excluded from the prospective payment system.

• In Appendix A of the proposed rule, we set forth an analysis of the impact of the proposed changes on affected entities.

• In Appendix B of the proposed rule, we set forth the technical appendix on the proposed FY 2001 capital cost model.

• In Appendix C of the proposed rule, as required by section 1886(e)(3) (B) of the Act, we set forth our report to Congress on our initial estimate of a recommended update factor for FY 2001 for payments to hospitals included in the prospective payment systems, and hospitals excluded from the prospective payment systems.

• In Appendix D of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we included our recommendation of the appropriate percentage change for FY 2001 for:

—Large urban area and other area average standardized amounts (and hospital-specific rates applicable to sole community and Medicare-dependent, small rural hospitals) for hospital inpatient services paid for under the prospective payment system for operating costs; and

—Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by hospitals and hospital units excluded from the prospective payment system.

• In the proposed rule, we discussed recommendations by the Medicare Payment Advisory Commission (MedPAC) concerning hospital inpatient payment policies and presented our responses to those recommendations. Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress that reviews and makes recommendations on Medicare payment policies no later than March 1 of each year. This year, MedPAC released a subsequent report in June containing additional recommendations. We respond to those recommendations in section IV.E. of this preamble.

C. Public Comments Received in Response to the Proposed Rule

We received a total of 290 timely items of correspondence containing multiple comments on the proposed rule. Major issues addressed by commenters included the creation of a new DRG for pancreas and kidney transplants, the adequacy of the DRG for heart assist devices, various aspects of the wage index calculation, rebasing of the SCH payment rates, and reclassification of hospitals.

Summaries of the public comments received and our responses to those comments are set forth below under the appropriate section heading.

D. Final Rule for the January 20, 2000 Interim Final Rule

On January 20, 2000, we published in the

Federal Register

an interim final rule with comment period (65 F 3136) to implement a change in the Medicare DSH adjustment calculation policy in reference to section 1115 expansion waiver days. The interim final rule set forth the criteria to use in calculating the Medicare DSH adjustment for hospitals for purposes of payment under the prospective payment system. This final rule finalizes the policy in this interim final rule with comment period. We discuss this policy in detail in Section IV.E.2. of this preamble.

II. Changes to DRG Classifications and Relative Weights

A. Background

Under the prospective payment system, 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 takes an individual hospital's payment rate per case and multiplies it 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. Changes to the DRG classification system and the recalibration of the DRG

weights for discharges occurring on or after October 1, 2000, are discussed below.

B. DRG Reclassification

1. General

Cases are classified into DRGs for payment under the prospective payment system based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay, as well as 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). Medicare fiscal intermediaries enter the information into their claims processing systems and subject it to a series of automated screens called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before classification into a DRG.

After screening through the MCE and any further development of the claims, cases are classified into the appropriate DRG by the Medicare GROUPER software program. The GROUPER program was developed as a means of classifying each case into a DRG on the basis of the diagnosis and procedure codes and demographic information (that is, sex, age, and discharge status). It is used both to classify past cases in order to measure relative hospital resource consumption to establish the DRG weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible DRG classification changes and to recalibrate the DRG weights.

In the July 30, 1999 final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for the use of particular data to be feasible, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the data submitted. Generally, however, a significant sample of the data should be submitted by August 1, approximately 8 months prior to the publication of the proposed rule, so that we can test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete database should be submitted no later than December 1 for consideration in conjunction with the next year's proposed rule, and as appropriate, in the recalibration in the final rule following the proposed rule.

Currently, cases are assigned to one of 501 DRGs (including one DRG for a diagnosis that is invalid as a discharge diagnosis and one DRG for ungroupable diagnoses) in 25 major diagnostic categories (MDCs). Most MDCs are based on a particular organ system of the body (for example, MDC 6 (Diseases and Disorders of the Digestive System)); however, some MDCs are not constructed on this basis since they involve multiple organ systems (for example, MDC 22 (Burns)).

In general, cases are assigned to an MDC based on the principal diagnosis, before assignment to a DRG. However, there are presently five DRGs to which cases are directly assigned on the basis of procedure codes. These are the DRGs for liver, bone marrow, and lung transplants (DRGs 480, 481, and 495, respectively) and the two DRGs for tracheostomies (DRGs 482 and 483). Cases are assigned to these DRGs before classification to an MDC.

Within most MDCs, cases are then divided into surgical DRGs (based on a surgical hierarchy that orders individual procedures or groups of procedures by resource intensity) and medical DRGs. Medical DRGs generally are differentiated on the basis of diagnosis and age. Some surgical and medical DRGs are further differentiated based on the presence or absence of complications or comorbidities (CC).

Generally, the GROUPER does not consider other procedures; that is, nonsurgical procedures or minor surgical procedures generally not performed in an operating room are not listed as operating room (OR) procedures in the GROUPER decision tables. However, there are a few non-OR procedures that do affect DRG assignment for certain principal diagnoses, such as extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones.

We proposed several changes to the DRG classification system for FY 2001 and discussed other issues concerning DRGs. The proposed changes, the public comments we received concerning them, and the final DRG changes are set forth below. Unless otherwise noted, the changes we are implementing will be effective in the revised GROUPER software (Version 18.0) to be implemented for discharges on or after October 1, 2000. (Also unless otherwise specified, our DRG analysis is based on the full (100 percent) FY 1999 MedPAR file (bills received through December 31, 1999 for discharges in FY 1999).

2. MDC 5 (Diseases and Disorders of the Circulatory System)

In the August 29, 1997 final rule with comment period (62 FR 45974), we noted that, because of the many recent changes in heart surgery, we were considering conducting a comprehensive review of the MDC 5 surgical DRGs. In the July 31, 1998 final rule with comment period (63 FR 40956), we did adopt some changes to the MDC 5 surgical DRGs. Since that time, we have received inquiries on a continuing basis regarding these DRGs. We have continued to review Medicare claims data and, based on our analysis, we proposed several DRG changes in MDC 5 in the May 5, 2000 proposed rule.

a. Heart Transplant (DRG 103).

As previously stated, cases are generally assigned to an MDC based on principal diagnosis and subsequently assigned to surgical or medical DRGs included in that MDC. However, cases involving liver, bone marrow, and lung transplants (DRGs 480, 481, and 495, respectively) and the two DRGs for tracheostomies (DRGs 482 and 483) are directly assigned on the basis of procedure codes. Cases assigned to these DRGs before classification to an MDC are referred to as pre-MDC. However, cases involving heart transplants are currently assigned first to MDC 5 and then to DRG 103.

Currently, when a bone marrow transplant and a heart transplant are performed during the same admission, the case is assigned to DRG 481 (Bone Marrow Transplant). Because bone marrow transplant cases are first classified to pre-MDC, while heart transplants are first assigned to MDC 5, the bone marrow transplant assumes precedence in the assignment of the case to a DRG. However, payment for DRG 481 is substantially less than DRG 103. For FY 2000, the relative weight for DRG 103 is 19.5100, while the relative weight for DRG 481 is 8.7285.

To ensure appropriate DRG assignment of these cases, we proposed that the heart transplant DRG, which encompasses combined heart-lung transplantation (ICD-9-CM procedure code 33.6) and heart transplantation (ICD-9-CM procedure code 37.5) be assigned to pre-MDC. In this way, cases involving a bone marrow transplant and a heart transplant would be assigned to DRG 103 (DRG 103 would be reordered higher in the pre-MDC surgical hierarchy, as discussed in section II.B.5. of this preamble).

We received two comments in support of this proposed change and are adopting it as final.

b. Heart Assist Devices.

We continue to review data in MDC 5 (Diseases and Disorders of the Circulatory System) to determine if cases are being assigned to the most appropriate DRG based on clinical coherence and similar resource consumption. At the December 1, 1994 ICD-9-CM Coordination and Maintenance Committee meeting, we recommended that new codes be created to capture single and bi-ventricular heart assist systems.

These codes, 37.65 (Implant of an external, pulsatile heart assist system) and 37.66 (Implant of an implantable, pulsatile heart assist system), were adopted for use for discharges occurring on or after October 1, 1995. However, code 37.66 was deemed investigational and was not considered a covered procedure. Effective May 5, 1997, we revised Medicare coverage of heart assist devices to allow coverage of a ventricular assist device (code 37.66) used for support of blood circulation postcardiotomy if certain conditions were met.

Due to some residual misunderstanding regarding this coverage policy, we emphasize that this device was and will continue to be listed as a noncovered procedure in the Medicare Code Editor (MCE), the front-end software product in the GROUPER program that detects and reports errors in the coding of claims data. The reason that this device is listed in the MCE, in spite of the fact that its implantation is covered, is because of the stringent conditions that must be met by hospitals in order to receive payment.

In the August 29, 1997 final rule (62 FR 45973), we moved procedure code 37.66 from DRGs 110 and 111

1

(Major Cardiovascular Procedures with and without CCs, respectively) to DRG 108 (Other Cardiothoracic Procedures). As stated in the July 31, 1998 final rule (63 FR 40956), we moved procedure code 37.66 to DRGs 104 and 105 (Cardiac Valve and Other Major Cardiothoracic Procedures with and without CCs, respectively) for FY 1999.

1

A single title combined with two DRG numbers is used to signify pairs. Generally, the first DRG is for cases with CC and the second DRG is for cases without CC. If a third number is included, it represents cases with patients who are age 0-17. Occasionally, a pair of DRGs is split between age ≥17 and age 0-17.

In the July 30, 1999 final rule (64 FR 41498), we responded to a comment suggesting that heart assist devices be assigned to DRG 103. For the proposed rule we reviewed the 100 percent FY 1999 MedPAR file containing bills through December 31, 1999, and found that there were a total of 47 implantable heart assist system procedures performed on Medicare beneficiaries. Of these cases, 13 (approximately 28 percent) were assigned to DRG 103 (Heart Transplant) and four (approximately 9 percent) were assigned to DRG 483 (Tracheostomy Except for Face, Mouth and Neck Diagnoses), and, therefore, were paid at significantly higher rates than the remaining 30 cases. All of the procedure code 37.66 cases have extremely high charges, which is consistent with past analysis, and all of these cases are subject to payment as cost outliers.

Our data analysis indicated that the most cases in any one hospital was 5, while 17 hospitals performed only one heart assist system implant each. We reiterate that only heart transplant cases can be properly assigned to the transplant DRG (August 29, 1997 final rule (62 FR 45974)). Since heart assist devices are used across DRGs, many not involving a transplant, we did not propose to assign procedure code 37.66 to DRG 103.

In addition to the review of 37.66, we also looked at procedure codes 37.62 (Implant of other heart assist system), 37.63 (Replacement and repair of heart assist system), and 37.65 (Implant of an external, pulsatile heart assist system). These cases are currently assigned to DRGs 110 and 111 (Major Cardiovascular Procedures). We believe that these procedures are similar both clinically and in terms of resource utilization to procedure code 37.66, which is already assigned to DRGs 104 and 105. Therefore, we proposed to move codes 37.62, 37.63, and 37.65 from DRGs 110 and 111 to DRGs 104 and 105.

Comment:

We received four comments on this proposal.

Two comments in favor of our proposal were received from national associations concerned with health care delivery.

Two commenters requested reevaluation of the DRG assignment of mechanical heart assist devices, particularly procedure code 37.66, and suggested that a new DRG be created to classify this technology, or that these cases be assigned to DRG 103 (Heart Transplant). The commenters pointed out that the heart assist implantation procedure is typically performed in the same medical centers by the same surgical teams as the heart transplant procedure.

With respect to our past decision not to assign cases with procedure code 37.66 to DRG 103, one commenter acknowledged our analysis of 1996 MedPAR data showing the costs of these cases to be more similar to DRGs 104 and 105 than DRG 103, but suggested that we look at more recent data. The commenter also questioned our rationale for not assigning these cases to DRG 103 on the basis that heart assist devices are used across DRGs.

One commenter argued that, as all the cases with procedure code 37.66 were qualified as cost outliers, the misplacement of this procedure is evident. This commenter also noted that use of this procedure is likely to increase in the future and suggested that HCFA position itself ahead of the curve by increasing payment now in anticipation of this event. The commenter urged HCFA to examine the option of combining code 37.66 with other clinically similar low-volume procedures, and creating a new DRG that would more appropriately pay these cases. This recommended new DRG could conceivably include codes 37.62, 37.63, and 37.65, as they are similar both clinically and in terms of resource consumption.

Finally, one commenter expressed concern that the uncovered status of procedure code 37.66 in the MCE may be resulting in inappropriate payment denials. The commenter recommended that HCFA review the procedures employed by fiscal intermediaries to override the MCE edits.

Response:

We are adopting our proposed change to assign procedure codes 37.62, 37.63, and 37.65 to DRGs 104 and 105.

With respect to the comments regarding procedure code 37.66, we have continually considered the issue of DRG assignment of heart assist devices since this technology was assigned an ICD-9-CM code in 1995, and became a Medicare covered procedure (if specific conditions were met) effective in 1997. As we noted in the proposed rule, these are costly cases that are currently spread across several DRGs. Although the outlier policy is intended to help hospitals offset unusually costly cases, we are concerned when a particular procedure always qualifies as an outlier case.

However, we do not believe it would be appropriate to redefine DRG 103 to include these cases at this time. The presently limited incidence of these cases, with very few cases occurring at any particular hospital over the course of a year, does not warrant disrupting the clinical coherence of DRG 103. The fact that these cases are spread across a number of DRGs indicates they do not represent a clinically cohesive group of patients in terms of their associated diagnoses or other procedures.

We will continue to monitor and evaluate these cases to determine whether a better approach might be

identified, including the possibility of a new DRG for procedure codes 37.62, 37.63, 37.65, and 37.66. We note that the classification of patients into DRGs is a constantly evolving process. As there are changes in the coding system, data collection, medical technology, or medical practice, all DRG definitions will be reviewed and potentially revised.

Concerning the concept of HCFA positioning itself “ahead of the curve” by anticipating increased use of heart assist devices and raising payment accordingly, we are reluctant to attempt to predict future trends in medical practice, especially when such predictions would affect payments across all DRGs as a result of DRG recalibration. We appreciate the industry's continued interest in this system, and look forward to working together to arrive at equitable payments for this and other new technologies.

With respect to the comment concerning fiscal intermediary overrides of MCE edits listing procedure code 37.66 as noncovered, we will instruct our fiscal intermediaries to be aware of this issue. We are concerned that Medicare payment for this procedure be limited to those cases for which coverage is appropriate and that payment is not inappropriately denied.

c. Platelet Inhibitors.

Effective October 1, 1998, procedure code 99.20 (Injection or infusion of platelet inhibitor) was created. The use of platelet inhibitors have been shown to significantly decrease the rate of acute vessel closure, as well as the rate of cardiac complications and death.

2

Platelet inhibitors are frequently administered to patients undergoing percutaneous transluminal coronary angioplasty (PTCA). In addition, patients admitted with unstable angina may also benefit from platelet inhibitors.

2

This procedure code is designated as a non-OR procedure that does not affect DRG assignment (platelet inhibitors are administered either through intravenous injection or infusion).

2

Topol EJ and Serruys PW. “Frontiers in Interventional Cardiology.” Circulation.1998; 98: 1802. and Frishman W

et al.

“Medical therapies for the Prevention of Restenosis after Percutaneous Coronary Interventions.” Curr Probl Cardology. 1998; 23: 555.

For the past 2 years, a manufacturer of platelet inhibitors has submitted data to support its position that cases involving platelet inhibitor therapy receiving angioplasty should be reclassified from DRG 112 (Percutaneous Cardiovascular Procedures) to DRG 116 (Other Permanent Cardiac Pacemaker Implant or PTCA with Coronary Artery Stent Implant). Using the 100 percent FY 1999 MedPAR file that contains discharges through September 30, 1999, we performed analysis for the proposed rule of the cases for which procedure code 99.20 was reported. There were a total of 37,222 cases spread across 123 DRGs.

The majority of the platelet inhibitor cases, 28,022 (75 percent of all platelet inhibitor cases), are already assigned to DRG 116. The average standardized charges for these cases are approximately $26,683, compared to approximately $25,251 for DRG 116 overall. In DRG 112, there were 4,310 platelet inhibitor cases (12 percent of all platelet inhibitor cases) assigned. The average standardized charge for these cases is approximately $22,786, compared to approximately $20,224 for DRG 112 overall. Although the platelet inhibitor therapy cases that are classified to DRG 112 do have somewhat higher charges than the average case assigned to this DRG (11 percent, or $2,563), we found several procedures in DRG 112 with average standardized charges higher than the platelet inhibitor cases. For example, there were 1,560 cases in which a single vessel PTCA or coronary atherectomy with thrombolytic agent (procedure code 36.02) was performed with an average standardized charge of approximately $25,181, and there were 4,951 cases in which a multiple vessel PTCA or coronary atherectomy was performed, with or without a thrombolytic agent (procedure code 36.05) with an average standardized charge of approximately $23,608.

We also noted that there are several procedures assigned to DRG 112 that have average standardized charges lower than the average charges for all cases in the DRG. For example, average charges for cases with procedure code 37.34 (Catheter ablation of lesion or tissues of heart) were $18,429.

There is always some variation in charges within a DRG. The difference in variations of charges in DRG 112 is within the normal range of charge variations.

Clinical homogeneity within DRGs has always been a fundamental principle considered when assigning codes to appropriate DRGs. Currently, DRG 116 includes cases involving the insertion of a pacemaker as well as the insertion of coronary artery stents with PTCA. On the other hand, cases assigned to DRG 112 involve less invasive operating room and, in some cases, nonoperating room procedures.

The basis for DRG assignment has generally been the diagnosis of the patient or the procedures performed. To the extent the use of a particular technology becomes prevalent in the treatment of a particular type of case, the DRG system is designed to account for any increases or decreases in costs through recalibration. Hospitals frequently benefit from this process while efficiency-enhancing technology is being introduced. We believe that the update factors established in section 1886(b)(3)(B)(i) of the Act, combined with the potential for continuing improvements in hospital productivity, and annual recalibration of the DRG weights, are adequate to finance appropriate care of Medicare patients.

We also discussed in the proposed rule our analysis of cases where platelet inhibitor therapy is targeted on acute coronary syndrome patients without coronary intervention. These cases are assigned to DRG 124 (Circulatory Disorders Except Acute Myocardial Infarction with Cardiac Catheterization and Complex Diagnosis) or DRG 140 (Angina Pectoris). The concern is that both types of cases, those performed in conjunction with coronary intervention and those without, be given an equal focus in this evaluation.

Based on our analysis, we found 410 platelet inhibitor cases (1 percent) assigned to DRG 124. This is a small percentage of cases in comparison to the overall total of 134,759 cases assigned to this DRG. The platelet inhibitor cases had an average standardized charge of approximately $17,378 compared to approximately $14,730 for DRG 124 overall. As we have indicated, there is always some variation in charges within a DRG and this difference is within normal variation.

There were 66 platelet inhibitor cases (0.2 percent) assigned to DRG 140. The average standardized charge for these cases is higher than the overall DRG charge, approximately $8,992 and $5,657, respectively. However, it represents a small percentage of the total (76,913) cases assigned to DRG 140.

In summary, currently 75 percent of cases where code 99.20 is present are assigned to DRG 116. The next most common DRG where these cases are assigned is DRG 112 (12 percent). Cases assigned to DRG 116 generally involve implantation of a pacemaker or artery stent, while cases assigned to DRG 112 involve percutaneous cardiovascular procedures. Our analysis found a $3,897 difference between cases involving platelet inhibitor therapy that were assigned to DRG 116 and cases assigned to DRG 112, indicating a clinical distinction between the cases grouping to the two DRGs. Finally, among platelet

inhibitor therapy cases that are assigned to DRG 112, our analysis found that the average charges are well within the normal variation around the overall average charges within the DRG. Based on these findings, we believe it would be inappropriate to assign all cases where procedure code 99.20 is present to DRG 116. Therefore, we did not propose to change our current policy that specifies that assignment of cases to this code does not affect the DRG assignment.

Comment:

We received two comments on this issue. One commenter from a national hospital association supported not assigning code 99.20 to DRG 116. The other commenter argued that the analysis on which our position was based is flawed. This commenter believed that perhaps as many as five times the 37,222 cases we identified with ICD-9-CM procedure code 99.20 actually exist in the data but the procedure was not coded. To remedy this, the commenter suggested two options HCFA could pursue. The first option would be to reexamine the data file with the goal of excluding cases that appear to be miscoded. The commenter suggested that HCFA might check total pharmacy charges in MedPAR and exclude from the analysis cases without ICD-9-CM procedure code 99.20 that have pharmacy charges over a certain threshold (for example, a threshold of $500). The second option would be to use outside data to capture pharmacy information which would provide more reliable information than coding with procedure code 99.20.

The commenter recommended that HCFA make a concerted effort, perhaps through the Medicare fiscal intermediaries, to instruct hospitals to use ICD-9-CM procedure code 99.20 on the claim of any case that receives any of the three platelet inhibitors.

Response:

We appreciate the support of the hospital association for our position on this issue.

In response to the comment that the MedPAR data underreport procedure code 99.20 because the data do not affect DRG assignment and payment, we believe it is in hospitals' best interest to submit accurate billing data that are utilized in the DRG reclassification and recalibration of the DRG relative weights process.

We disagree with the recommendation that we exclude from our analysis any bill with over $500 in pharmacy charges that does not report procedure code 99.20. We question the analytical validity of this approach, particularly given that many Medicare beneficiaries have multiple chronic conditions requiring multiple medications. It is simply not possible to determine coding accuracy by reviewing charge data submitted on bills. The only way to identify coding errors would be to review the actual medical records. To exclude cases with pharmacy charges exceeding a certain predetermined threshold would likely skew the results of any such analysis.

We remain open to considering and using non-MedPAR data to make DRG changes if the data are reliable and validated. In the July 31, 1999 final rule (64 FR 41499), we described the timetable and process for interested parties to submit non-MedPAR data.

With respect to the recommendation that we make a concerted effort to ensure that hospitals use procedure code 99.20 appropriately, from the inception of this procedure code, effective October 1, 1998, HCFA has collaborated with the American Hospital Association (AHA) to educate coders on platelet inhibitor therapy. An extensive article in AHA's publication,

Coding Clinic for ICD-9-CM

, Fourth Quarter 1998, identifies the platelet inhibitor drugs and includes instructions on the appropriate code assignment. Coding instructions for platelet inhibitors are also available via the 1998 regulatory updates teleconference sponsored by AHA.

d. Extracorporeal Membrane Oxygenation.

Extracorporeal Membrane Oxygenation (ECMO) is a cardiopulmonary bypass technique that offers long-term cardiopulmonary support to patients who have reversible cardiopulmonary insufficiency that has not responded to conventional management. It involves passing a patient's blood through an extracorporeal membrane oxygenator that adds oxygen and removes carbon dioxide. The oxygenated blood then is passed through a heat exchanger to warm it to body temperature prior to returning it to the patient. The process and equipment are similar to those used in open heart surgery, but are continued over prolonged periods of time. ECMO attempts to provide the patient with artificial cardiopulmonary function while his or her own cardiopulmonary functions are incapable of sustaining life.

Since ECMO involves the use of a device that sustains cardiopulmonary function while the underlying condition is being treated, it is important to identify and treat underlying conditions leading to cardiopulmonary failure if the patient is to return to normal cardiopulmonary function.

ECMO is assigned to procedure code 39.65 (Extracorporeal membrane oxygenation (ECMO)). This code is not recognized as an OR procedure within the DRG system and, therefore, does not affect payment. To evaluate the appropriateness of payment under the current DRG assignment, we have reviewed a 10-percent sample of Medicare claims in the FY 1999 MedPAR file and found only 4 cases in which ECMO was used. The charges for these cases ranged from $16,006 to $198,014. Since medical literature indicates that ECMO is predominately used on newborns and pediatric cases, this low number of claims is not surprising. Only in recent years have some hospitals started to use ECMO on adults. It is reserved for cases facing almost certain mortality.

Because ECMO is a procedure clinically similar to a heart assist device, we proposed that procedure code 39.65 be classified as an OR procedure and be classified in DRGs 104 and 105 along with the heart assist system procedures (as discussed in section II.B.2.b. of this preamble). Those cases in which ECMO was provided, but for which the principal diagnosis is not classified to MDC 5, would then be assigned to DRG 468 (Extensive OR Procedure Unrelated to Principal Diagnosis). This would be appropriate since it is possible that secondary conditions or complications may arise during hospitalization that would require the use of ECMO. The relatively high weight of DRG 468 would be appropriate for these cases.

Comment:

We received two comments in support of the proposal to classify procedure code 39.65 as an OR procedure and then assign it to DRGs 104 and 105. One of the commenters stated that most of the adult patients receiving ECMO will fall within MDC 5 since ECMO is used for patients with severe, but reversible, heart or lung disorders that have not responded to the usual treatments of mechanical ventilation, medicines, and extra oxygen. The commenter further stated that these severely ill patients may continue on ECMO for a period of days or weeks until the heart or lungs recover, or until the treatment is no longer effective.

Response:

We acknowledge the support of the commenters to classify 39.65 as an OR procedure and then assign it to DRGs 104 and 105 and are adopting our proposal as final.

3. MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period)

a. V05.8 (Vaccination for disease, NEC).

DRG 390 (Neonate with Other Significant Problems) contains newborn or neonate cases with other significant

problems, not assigned to DRGs 385 through 389, DRG 391, or DRG 469. In order to be classified into DRG 391 (Normal Newborn), the neonate must have a principal diagnosis as listed under DRG 391 and either no secondary diagnosis or a secondary diagnosis as listed under DRG 391. Neonates with a secondary diagnosis of V05.8 (Vaccination for disease, NEC) are currently classified to DRG 390. Although it would seem that healthy newborns who receive vaccinations and have no other problems would be assigned to DRG 391, code V05.8 is not included as one of the secondary diagnoses under DRG 391, and therefore the case would not be classified as a normal newborn (DRG 391). Code V05.8 is assigned to DRG 390 as a default, since it is not included under another complicated neonate DRG or the normal newborn DRG.

In the proposed rule, we discussed our review of the appropriateness of including diagnosis code V05.8 on the list of acceptable secondary diagnoses under DRG 390 based on inquires that we had received. We pointed out that by including V05.8 on the acceptable secondary diagnosis list for DRG 390, newborns who receive vaccinations are classified as having significant health problems. The inquirers believed this incorrectly labels an otherwise healthy newborn as having a significant medical condition. Providing a vaccination to a newborn is performed to prevent the infant from contracting a disease.

We agreed with the inquirers that, absent any evidence of disease, a newborn should not be considered as having a significant problem simply because a preventative vaccination was provided. Therefore, we proposed that V05.8 be removed from the list of acceptable secondary diagnoses under DRG 390 and assigned as a secondary diagnosis under DRG 391. In doing so, these cases would no longer be classified to DRG 390.

Comment:

We received two comments in support of our proposal to remove code V05.8 from the list of acceptable secondary diagnoses under DRG 390. These commenters agreed that a prophylactic vaccination should not be classified as a significant problem. Newborns who receive these prophylactic vaccinations should still be considered normal newborns. We received no comments in opposition to the proposal.

Response:

We are adopting the proposal to include V05.8 on the list of acceptable secondary diagnoses under DRG 391 Normal Newborn. Codes V05.3 (Viral hepatitis vaccination) and V05.4 (Varicella vaccination) are already listed as acceptable secondary diagnoses under DRG 391.

b. Diagnosis code 666.02 (Third-stage postpartum hemorrhage, delivered with postpartum complication).

Diagnosis code 666.02 is assigned to DRG 373 (Vaginal Delivery without Complicating Diagnoses). This DRG was created for uncomplicated vaginal deliveries. However, code 666.22 (Delayed and secondary postpartum hemorrhage, delivered with postpartum complication) is assigned to DRG 372 (Vaginal Delivery with Complicating Diagnoses). This means that mothers who have a delayed and secondary postpartum hemorrhage would be assigned to DRG 372, while mothers who have a third-stage postpartum hemorrhage would not be considered as a complicated delivery.

We believe a third-stage postpartum hemorrhage should be considered a complicating diagnosis and, in order to categorize these cases more appropriately, we proposed to move diagnosis code 666.02 from DRG 373 and assign it as a complicating diagnosis under DRG 372.

Comment:

We received two comments supporting the proposal to classify 666.02 as a complicating diagnosis under DRG 372. The commenters agreed that a third-stage postpartum hemorrhage should be classified as a complicated delivery. There were no comments submitted in opposition to this change.

Response:

We are adopting as final our proposal to classify 666.02 as a complication diagnosis under DRG 372.

c. Diagnosis Code 759.89 (Specified congenital anomalies, NEC) (Alport's Syndrome).

Alport's Syndrome (also referred to as hereditary nephritis) is an inherited disorder involving damage to the kidney, blood in the urine, and, in some cases, loss of hearing. It may also include loss of vision. Patients who are not treated early enough or who do not respond to treatment may progress to renal failure. A kidney transplant is one treatment option for these cases. As with many of the congenital anomalies, there is no unique ICD-9-CM code for this condition. Alport's Syndrome, along with many other rare and diverse congenital anomalies, is assigned to the rather nonspecific diagnosis code 759.89 (Specific congenital anomalies, NEC). Examples include William Syndrome, Brachio-Oto-Renal Syndrome, and Costello's Syndrome. Each of these is a unique hereditary disorder affecting a variety of body systems.

Patients can be diagnosed and treated for congenital anomalies throughout their lives; treatment is not restricted to the neonatal period. In our GROUPER, however, each diagnosis code is assigned to just one MDC. In this case, diagnosis code 759.89 is assigned to MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period) although the patient may be an adult.

In the proposed rule, we referred to a request from a physician concerning renal transplants for patients with Alport's Syndrome. The physician pointed out that when a patient with Alport's Syndrome is admitted for a kidney transplant, the case is assigned to DRG 390 (Neonate with Other Significant Problems). In these instances, when the principal diagnosis is code 759.89, the case is classified to MDC 15 although the patient may no longer be a newborn. The physician believed that these cases should be assigned to DRG 302 (Kidney Transplant).

The inquirer suggested moving diagnosis code 759.89 to MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract) so that when a kidney transplant is performed, it will be assigned to DRG 302. Although this seems quite appropriate for patients with Alport's Syndrome found in diagnosis code 759.89, it does not work well for the wide variety of patients also described by this code. Many others would be inappropriately classified to MDC 11.

Alport's Syndrome cases with code 759.89 as a principal diagnosis who receive a kidney transplant are assigned to DRG 468 (Extensive OR Procedure Unrelated to Principal Diagnosis). This DRG has a FY 2000 relative weight of 3.6400. Also for FY 2000, DRG 302 (Kidney Transplant) has a relative weight of 3.5669. Therefore, the payment amounts are in fact comparable.

We discussed several options for resolving this issue:

(1) If the case is assigned a principal diagnosis code of renal failure with Alport's Syndrome as a secondary diagnosis, the case could be assigned to DRG 302. As this option would represent a change in the sequencing of congenital anomaly codes and related complications, it would have to be evaluated and subsequently approved by the Editorial Advisory Board for

Coding Clinic for ICD-9-CM.

The Editorial Advisory Board is comprised of representatives from the physician, coding, and hospital industry. Final decisions on coding policy issues are made by the representatives from the AHA, the American Health Information Management Association, the National Center for Health Statistics, and HCFA.

(2) A unique ICD-9-CM diagnosis code could be created for Alport's Syndrome that could then be evaluated for possible assignment within MDC 11. This issue has been referred to the National Center for Health Statistics for consideration as a future coding modification.

One difficulty with this option is the large number of congenital anomalies and the limited number of unused codes in this section of ICD-9-CM. Each new code must be carefully evaluated for appropriateness.

(3) A third option, which was already addressed, involves moving diagnosis code 759.89 to MDC 11. The problem with this approach is that many cases would then be misassigned to MDC 11 because the congenital anomaly would not involve diseases of the kidney and urinary tract.

(4) A fourth option would be to leave the coding and DRG assignment as they currently exist. Since few cases exist, the overall impact may be minimal.

To evaluate the impact of leaving the DRG assignment as it currently exists, in the proposed rule we examined data from a 10-percent sample of Medicare cases in the FY 1999 MedPAR file. There were 95 cases assigned to a wide range of DRGs with code 759.89 as a secondary diagnosis. There was only one case assigned to MDC 15 with a principal diagnosis of code 759.89.

In the proposed rule, we recommended that diagnosis code 759.89 remain in MDC 15, since it encompasses such a wide variety of conditions.

Comment:

We received two comments in support of modifying the coding advice for this particular congenital anomaly so that renal failure is reported as the principal diagnosis and Alport's Syndrome is reported as a secondary diagnosis. One commenter pointed out that a distinction exists between those manifestations that are integral to the congenital anomaly (and thus, according to the official coding guidelines, would not be coded at all) and those that are not considered integral. This commenter also supported the recommendation for a change in guidelines that would allow sequencing a manifestation that is not integral to the congenital anomaly as the principal diagnosis. The other commenter indicated that while renal disease is usually present in Alport's Syndrome, it does not always lead to renal failure. The commenter also supported the reporting of renal failure as the principal diagnosis, with Alport's Syndrome as a secondary diagnosis.

Response:

The coding and sequencing of Alport's Syndrome patients with renal failure who are admitted for renal transplant were addressed at the June 2000 meeting of the Editorial Advisory Board of Coding Clinic for ICD-9-CM.

Coding Clinic for ICD-9-CM

is a publication of the AHA. The issue specifically addressed was whether the code used for Alport's Syndrome or the code for renal failure should be sequenced first when the patient is admitted for a renal transplant for the renal failure. In cases where manifestations are a key aspect of the congenital anomaly, the congenital anomaly code is usually sequenced first.

After careful evaluation, the Board determined that, in this specific case, the code for renal failure would be sequenced first, followed by the code for Alport's Syndrome. The Board also determined that renal failure is not always present for patients with Alport's Syndrome. These patients may, in fact, develop renal failure as a result of other factors. Therefore, hospitals do not have to sequence the congenital anomaly code first. By reporting renal failure as the principal diagnosis, the case is appropriately assigned to DRG 302. The Board's advice will be published in the third quarter 2000 issue of

Coding Clinic for ICD-9-CM

and will be effective for discharges occurring on or after September 1, 2000.

4. MDC 17 (Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasm)

Diagnosis code 273.8 (Disorders of plasma protein metabolism, NEC) is assigned to DRG 403 (Lymphoma and Nonacute Leukemia with CC) and DRG 404 (Lymphoma and Nonacute Leukemia without CC). A disorder of plasma protein metabolism does not mean one has a lymphoma with nonacute leukemia. An individual can have a disorder of plasma protein metabolism without having a lymphoma or leukemia.

In the proposed rule, we considered the appropriateness of including diagnosis code 273.8 in DRGs 403 and 404. Disorders of plasma protein metabolism are not lymphomas or leukemia, thus diagnosis code 273.8 is more closely related to DRG 413 (Other Myeloproliferative Disorders or Poorly Differentiated Neoplasm Diagnoses with CC) and DRG 414 (Other Myeloproliferative Disorders or Poorly Differentiated Neoplasm Diagnoses without CC).

We also examined charge data drawn from cases assigned to diagnosis code 273.8 in a 10-percent sample of Medicare cases in the FY 1999 MedPAR file and found that the average charges for these cases were also more closely related to DRGs 413 and 414 than to DRGs 403 and 404. We proposed to move diagnosis code 273.8 from DRGs 403 and 404 to DRGs 413 and 414.

We also noted that diagnosis code 273.8 is included in the following surgical DRGs that are performed on patients with lymphoma or leukemia:

• DRG 400 (Lymphoma and Leukemia with Major OR Procedure)

• DRG 401 (Lymphoma and Nonacute Leukemia with Other OR Procedure with CC)

• DRG 402 (Lymphoma and Nonacute Leukemia with Other OR Procedure without CC)

The same clinical issue would apply to these surgical DRGS performed on patients with lymphoma and leukemia. Code 273.8 should be assigned to the surgical DRGs for myeloproliferative disorders since the cases are clinically similar and, as stated before, code 273.8 is not clinically similar to lymphomas and leukemias. Therefore, we proposed to remove code 273.8 from the surgical DRGs related to lymphoma and leukemia (DRGS 400, 401, and 402) and assigned to the following myeloproliferative surgical DRGS, based on the procedure performed:

• DRG 406 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Major OR Procedures with CC)

• DRG 407 (Myeloproliferative Disorders Or Poorly Differentiated Neoplasms with Major OR Procedures without CC)

• DRG 408 (Myeloproliferative Disorders or Poorly Differentiated Neoplasms with Other OR Procedures)

Comment:

We received two comments supporting our proposal to remove code 273.8 from the DRGs for lymphomas and leukemia (medical DRGs 403 and 404 as well as surgical DRGs 400 through 402). They supported moving 273.8 to the DRGs for other myeloproliferative disorders (medical DRGs 413 and 414 as well as surgical DRGs 406 through 408). One commenter also pointed out that code 273.9 (Unspecified disorder of plasma protein metabolism) is clinically similar to 273.8 and is also included with the DRGs for lymphomas and leukemia. The commenter asked if HCFA also planned to move 273.9 in a similar fashion to that proposed for code 273.8 since they appear to be companion codes. The commenter asserted that it was inappropriate to keep 273.9 in the DRGS for lymphoma and leukemia.

Response:

We agree that code 273.8 should be moved out of the DRGs for lymphoma and leukemia and into the DRGs for other myeloproliferative disorders. Also, we agree with the commenter who stated that code 273.9

is clinically similar to 273.8 and should be treated in the same manner. Each code would be more appropriately assigned to the DRGS for other myeloproliferative disorders. Therefore, we are removing 273.9 from medical DRGS 403 and 404 and assigning it to DRGS 413 and 414. We are adopting as final our proposal to remove 273.8 from medical DRGs 403 and 404 and assign it to medical DRGs 413 and 414. We are also removing 273.8 and 273.9 from surgical DRGs 400, 401, and 402 and assigning them to surgical DRGs 406, 407, and 408.

5. 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 DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule by which these cases are assigned to a single DRG. The surgical hierarchy, an ordering of surgical classes from most to least resource intensive, performs that function. Its application ensures that cases involving multiple surgical procedures are assigned to the DRG associated with the most resource-intensive surgical class.

Because the relative resource intensity of surgical classes can shift as a function of DRG reclassification and recalibration, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications, to determine if the ordering of classes coincided with the intensity of resource utilization, as measured by the same billing data used to compute the DRG relative weights.

A surgical class can be composed of one or more DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single DRG (DRG 302) and the class “kidney, ureter and major bladder procedures” consists of three DRGs (DRGs 303, 304, and 305). Consequently, in many cases, the surgical hierarchy has an impact on more than one DRG. The methodology for determining the most resource-intensive surgical class involves weighting each DRG for frequency to determine the average resources for each surgical class. For example, assume surgical class A includes DRGs 1 and 2 and surgical class B includes DRGs 3, 4, and 5. Assume also that the average charge of DRG 1 is higher than that of DRG 3, but the average charges of DRGs 4 and 5 are higher than the average charge of DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weight the average charge of each DRG by frequency (that is, by the number of cases in the 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 OR procedures” as discussed below.

This methodology may occasionally result in a case involving multiple procedures being assigned to the lower-weighted 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 searches for the procedure in the most resource-intensive surgical class, this result is unavoidable.

We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average relative weight is ordered above a surgical class with a higher average relative weight. For example, the “other OR procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the relative weight for the DRG or DRGs in that surgical class may be higher than that for other surgical classes in the MDC. The “other OR procedures” class is a group of procedures that are least likely to be related to the diagnoses in the MDC but are occasionally performed on patients with these diagnoses. Therefore, these procedures should only be considered if no other procedure more closely related to the diagnoses in the MDC has been performed.

A second example occurs when the difference between the average weights for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy since, by virtue of the hierarchy change, the relative weights are likely to shift such that the higher-ordered surgical class has a lower average weight than the class ordered below it.

Based on the preliminary recalibration of the DRGs, we proposed to modify the surgical hierarchy as set forth below. As we stated in the September 1, 1989 final rule (54 FR 36457), we were unable to test the effects of proposed revisions to the surgical hierarchy and to reflect these changes in the proposed relative weights because the revised GROUPER software was unavailable at the time the proposed rule was completed. Rather, we simulated most major classification changes to approximate the placement of cases under the proposed reclassification, then determined the average charge for each DRG. These average charges then served as our best estimate of relative resource use for each surgical class.

We proposed to revise the surgical hierarchy for the pre-MDC DRGs, MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue), and MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders) as follows:

• In the pre-MDC DRGs, we proposed to move DRG 103 (Heart Transplant) from MDC 5 to pre-MDC. We proposed to reorder DRG 103 (Heart Transplant) above DRG 483 (Tracheostomy Except for Face, Mouth, and Neck Diagnoses).

• In the pre-MDC DRGs, we proposed to reorder DRG 481 (Bone Marrow Transplant) above DRG 495 (Lung Transplant).

• In MDC 8, we proposed to reorder DRG 230 (Local Excision and Removal of Internal Fixation Devices of Hip and Femur) above DRGs 226 and 227 (Soft Tissue Procedures).

• In MDC 10, we proposed to reorder DRG 288 (OR Procedures for Obesity) above DRG 285 (Amputation of Lower Limb for Endocrine, Nutritional, and Metabolic Disorders).

Comment:

One commenter supported the surgical hierarchy proposals. Another commenter opposed the reordering of DRG 230 above DRGs 226 and 227 in MDC 8. The commenter stated that, if both procedures are performed during the same operative episode, reordering DRGs 226 and 227 above DRG 230 would more appropriately capture facility resources.

Response:

Although local excision and removal of internal fixation devices of hip and femur procedures may be less resource intensive than many of the surgical procedures in DRGs 226 and 227, we proposed the surgical hierarchy change because our data indicated cases of local excision and removal of internal fixation devices of hip and femur are more resource intensive than cases in DRGs 226 and 227. At the time of our proposed surgical hierarchy change, the average standardized charges for cases in DRG 230 were approximately $1,000 more than the average standardized charges for cases in DRGs 226 and 227. We are adopting the proposed surgical hierarchy change as final so that cases with multiple procedures will be assigned to the higher-weighted DRG. We will continue to monitor the MDC 8 surgical hierarchy as part of our ongoing review.

Based on a test of the proposed revisions using the most recent MedPAR file and the final GROUPER software, we have found that all the proposed

revisions are still supported by the data and no additional changes are indicated. Therefore, we are adopting these changes in this final rule.

6. Refinement of Complications and Comorbidities (CC) List

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 a valid CC in combination with a particular principal diagnosis. Thus, we created the CC Exclusions List. We made these changes for the following reasons: (1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative coding 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. We developed this standard 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 standard list of CCs, either by adding new CCs or deleting CCs already on the list. In the May 5, 2000 proposed rule, we proposed no deletions of the diagnosis codes on the CC list.

In the May 19, 1987 proposed notice (52 FR 18877) concerning changes to the DRG classification system, 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 (as subsequently corrected in the September 1, 1987 final notice (52 FR 33154)).

• Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for a condition should not be considered CCs for one another.

• Conditions that may not coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another.

• 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. The FY 1988 revisions were intended only as a first step toward refinement of the CC list in that the criteria used for eliminating certain diagnoses from consideration as CCs were intended to identify only the most obvious diagnoses that should not be considered complications or comorbidities of another diagnosis. For that reason, and in light of comments and questions on the CC list, 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. See the September 30, 1988 final rule (53 FR 38485) for the revision made for the discharges occurring in FY 1989; the September 1, 1989 final rule (54 FR 36552) for the FY 1990 revision; the September 4, 1990 final rule (55 FR 36126) for the FY 1991 revision; the August 30, 1991 final rule (56 FR 43209) for the FY 1992 revision; the September 1, 1992 final rule (57 FR 39753) for the FY 1993 revision; the September 1, 1993 final rule (58 FR 46278) for the FY 1994 revisions; the September 1, 1994 final rule (59 FR 45334) for the FY 1995 revisions; the September 1, 1995 final rule (60 FR 45782) for the FY 1996 revisions; the August 30, 1996 final rule (61 FR 46171) for the FY 1997 revisions; the August 29, 1997 final rule (62 FR 45966) for the FY 1998 revisions; and the July 31, 1998 final rule (63 FR 40954) for the FY 1999 revisions. In the July 30, 1999 final rule (64 FR 41490), no modifications were made to the CC Exclusions List for FY 2000 because we made no changes to the ICD-9-CM codes for FY 2000.

In this final rule, we are making limited revisions of 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, 2000. (See section II.B.8. below, for a discussion of ICD-9-CM changes.) These changes are being made in accordance with the principles established when we created the CC Exclusions List in 1987.

Tables 6F and 6G in section V. of the Addendum to this final rule contain the revised CC Exclusions List that is effective for discharges occurring on or after October 1, 2000. Each table shows the principal diagnoses along with changes to the excluded CCs. Each of these principal diagnoses is shown with an asterisk and the additions or deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis.

CCs that were added to the list appear in Table 6F—Additions to the CC Exclusions List. Beginning with discharges on or after October 1, 2000, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

CCs that were deleted from the list are in Table 6G—Deletions from the CC Exclusions List. Beginning with discharges on or after October 1, 2000, the indented diagnoses will be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

Copies of the original CC Exclusions List applicable to FY 1988 can be obtained from the National Technical Information Service (NTIS) of the Department of Commerce. It is available in hard copy for $92.00 plus $6.00 shipping and handling and on microfiche for $20.50, plus $4.00 for shipping and handling. A request for the FY 1988 CC Exclusions List (which should include the identification accession number (PB) 88-133970) should be made to the following address: National Technical Information Service, United States Department of Commerce, 5285 Port Royal Road, Springfield, Virginia 22161; or by calling (703) 487-4650.

Users should be aware of the fact that all revisions to the CC Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, and those in Tables 6F and 6G of this document) must be incorporated into the list purchased from NTIS in order to obtain the CC Exclusions List applicable for discharges occurring on or after October 1, 2000. (Note: There was no CC Exclusions List in FY 2000 because we did not make changes to the ICD-9-CM codes for FY 2000.)

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 HCFA, is responsible for updating and maintaining the GROUPER program. The current DRG Definitions Manual, Version 17.0, is available for $225.00, which includes $15.00 for shipping and handling. Version 18.0 of this manual, which includes the final FY 2001 DRG changes, will be available in October 2000 for $225.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, Connecticut 06492; or by calling (203) 949-0303. Please specify the revision or revisions requested.

We received no comments on the CC Exclusions List in the proposed rule.

7. Review of Procedure Codes in DRGs 468, 476, and 477

Each year, we review cases assigned to DRG 468 (Extensive OR Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR Procedure Unrelated to Principal Diagnosis), and DRG 477

(Nonextensive OR Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these DRGs.

DRGs 468, 476, and 477 are reserved for those cases in which none of the OR procedures performed is 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. DRG 476 is 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 NEC

60.81 Incision of periprostatic tissue

60.82 Excision of periprostatic tissue

60.93 Repair of prostate

60.94 Control of (postoperative) hemorrhage of prostate

60.94 Transurethral balloon dilation of the prostatic urethra

60.99 Other operations on prostate

All remaining OR procedures are assigned to DRGs 468 and 477, with DRG 477 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis. 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 September 30, 1988 final rule (53 FR 38591). As part of the final rules published on September 4, 1990 (55 FR 36135), August 30, 1991 (56 FR 43212), September 1, 1992 (57 FR 23625), September 1, 1993 (58 FR 46279), September 1, 1994 (59 FR 45336), September 1, 1995 (60 FR 45783), August 30, 1996 (61 FR 46173), and August 29, 1997 (62 FR 45981), we moved several other procedures from DRG 468 to 477, and some procedures from DRG 477 to 468. No procedures were moved in FY 1999, as noted in the July 31, 1998 final rule (63 FR 40962), or in FY 2000, as noted in the July 30, 1999 final rule (64 FR 41496).

a. Moving Procedure Codes from DRGs 468 or 477 to MDCs.

We annually conduct a review of procedures producing assignment to DRG 468 or DRG 477 on the basis of volume, by procedure, to determine the appropriateness of moving procedure codes out of these DRGs into one of the surgical DRGs for the MDC into which the principal diagnosis falls. The data are arrayed 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. That is, using procedure code 57.49 (Other transurethral excision or destruction of lesion or tissue of bladder) as an example, we determined that this particular code accounted for the highest number of major operative procedures (162 cases, or 9.8 percent of all cases) reported in the sample of DRG 477. In addition, we determined that procedure code 57.49 appeared in MDC 4 (Diseases and Disorders of the Respiratory System) 28 times as well as in 9 other MDCs.

Using a 10-percent sample of the FY 1999 MedPAR file, we determined that the quantity of cases in DRG 477 totaled 1,650. There were 106 instances where the major operative procedure appeared only once (6.4 percent of the time), resulting in assignment to DRG 477.

Using the same 10-percent sample of the FY 1999 MedPAR file, we reviewed DRG 468. There were a total of 3,858 cases, with one major operative code causing the DRG assignment 311 times (or 8 percent) and 230 instances where the major operative procedure appeared only once (or 6 percent of the time).

Our medical consultants then identified 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. Based on this year's review, we did not identify any necessary changes in procedures under either DRG 468 or 477 and, therefore, did not propose to move any procedures from either DRG 468 or DRG 477 to one of the surgical DRGs. We received no comments on our review results and, therefore, we will not move any procedures from these DRGs for FY 2001.

b. Reassignment of Procedures Among DRGs 468, 476, and 477.

We also conduct an annual review of a list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to DRGs 468, 476, and 477, to ascertain if any of those procedures should be moved from one of these DRGs to another of these DRGs based on average charges and length of stay. We analyze the data for trends such as shifts in treatment practice or reporting practice that would make the resulting DRG assignment inappropriate. If our medical consultants were to find these shifts, we would propose moving cases to keep the DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data. Based on this year's review, we proposed not to move any procedures from DRG 468 to DRGs 476 or 477, from DRG 476 to DRGs 468 or 477, or from DRG 477 to DRGs 468 or 476. We received no comments on this proposal, and therefore are not moving any procedures from the DRGs indicated.

c. Adding Diagnosis Codes to MDCs.

It has been brought to our attention that an ICD-9-CM diagnosis code should be added to DRG 482 (Tracheostomy for Face, Mouth and Neck Diagnoses) to preserve clinical coherence and homogeneity of the system. In the case of a patient who has a facial infection (diagnosis code 682.0 (Other cellulitis and abscess, Face)), the face may become extremely swollen and the patient's ability to breathe might be impaired. It might be deemed medically necessary to perform a temporary tracheostomy (procedure code 31.1) on the patient until the swelling subsides enough for the patient to once again breathe on his or her own.

The combination of diagnosis code 682.0 and procedure code 31.1 resulted in assignment to DRG 483 (Tracheostomy Except for Face, Mouth and Neck Diagnoses). The absence of diagnosis code 682.0 in DRG 483 forces the GROUPER algorithm to assign the case based solely on the procedure code, without taking this diagnosis into account. Clearly this was not the intent, as diagnosis code 682.0 should be included with other face, mouth and neck diagnosis. We believe that cases such as these would appropriately be assigned to DRG 482. Therefore, we proposed to add diagnosis code 682.0 to the list of other face, mouth and neck diagnoses already in the principal diagnosis list in DRG 482.

We received one comment in support of the proposed change, and are adopting as final the proposal to add diagnosis code 682.0 to DRG 482.

8. Changes to the ICD-9-CM Coding System

As described in section II.B.1 of this preamble, the ICD-9-CM is a coding system that is 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) and HCFA, 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 NCHS has lead responsibility for the ICD-9-CM diagnosis codes included in the

Tabular List

and

Alphabetic Index for Diseases,

while HCFA 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) (formerly American Medical Record Association (AMRA)), the AHA), and various physician specialty groups as well as physicians, medical record administrators, 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 FY 2000 at public meetings held on June 4, 1998 and November 2, 1998. Even though the Committee conducted public meetings and considered approval of coding changes for FY 2000 implementation, we did not implement any changes to ICD-9-CM codes for FY 2000 because of our major efforts to ensure that all of the Medicare computer systems were compliant with the year 2000. Therefore, the code proposals presented at the public meetings held on June 4, 1998 and November 2, 1998, that (if approved) ordinarily would have been included as new codes for October 1, 1999, were held for consideration for inclusion in the annual update for FY 2001.

The Committee also presented proposals for coding changes for implementation in FY 2001 at public meetings held on May 13, 1999 and November 12, 1999, and finalized the coding changes after consideration of comments received at the meetings and in writing by January 7, 2000.

Copies of the Coordination and Maintenance Committee minutes of the 1999 meetings can be obtained from the HCFA Home Page by typing http://www.hcfa.gov/medicare/icd9cm.htm. Paper copies of these minutes are no longer available and the mailing list has been discontinued.

The ICD-9-CM code changes that have been approved will become effective October 1, 2000. 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 section VI. of the Addendum to this final 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 the May 5, 2000 proposed rule, we solicited comments only on the proposed DRG classification of these new codes.

Further, the Committee has approved the expansion of certain ICD-9-CM codes to require an additional digit for valid code assignment. Diagnosis codes that have been replaced by expanded codes or other codes, or have been deleted are in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2000. For codes that have been replaced by new or expanded codes, the corresponding new or expanded diagnosis codes are included in Table 6A (New Diagnosis Codes). No procedure codes were replaced by expanded codes or other codes, and no procedure codes were deleted. Revisions to diagnosis code titles appear in Table 6D (Revised Diagnosis Code Titles), which also includes the DRG assignments for these revised codes. Revisions to procedure code titles appear in Table 6E (Revised Procedure Codes Titles).

Comment:

One commenter questioned the DRG assignments in Table 6A for new ICD-9-CM codes V45.74, V45.76, V45.77, V45.78 and V45.79. The commenter pointed out that it has been HCFA's longstanding practice to assign a new code to the same DRG or DRGs as its predecessor code. The commenter had seen a draft conversion table prepared by the NCHS for codes being revised October 1, 2000, and indicated that the conversion table did not support the DRG assignments for these specific codes.

Response:

The commenter is correct. HCFA bases DRG assignments on the DRG assignment of the predecessor code. Tables 6A through 6E in the proposed rule were prepared prior to NCHS' completion of the conversion table. The DRG assignments were based on a mapping of codes V45.74, V45.76, V45.77, and V45.78 from code V45.89. However, the correct mapping on the conversion table now shows the following predecessor codes:

New Code

Previous Code

Previous DRG

V45.74

593.89

331, 332, 333

596.8

331, 332, 333

V45.76

518.89

101, 102

V45.77

602.8

352

607.89

352

608.89

352

620.8

358, 359, 369

621.8

358, 359, 369

622.8

358, 359, 369

V45.78

360.89

46, 47, 48

V45.79

255.8

300, 301

289.59

398, 399

388.8

73, 74

569.49

188, 189, 190

577.8

204

V45.89

467

We have modified the DRG assignments for V45.74, V45.76, V45.77, and V45.78 in Table 6A of this final rule according to the mapping indicated in the third column in the preceding table. However, V45.79 has a number of predecessor codes appearing in multiple MDCs and, thus, would not relate to any specific MDC. After discussions with NCHS, we determined that this code should continue to use V45.89 as its predecessor code for purposes of DRG assignment, since it is not restricted to a specific body system. Therefore, the DRG assignment for V45.79 was not changed in Table 6A.

9. Other Issues

a.

Immunotherapy.

Effective October 1, 1994, procedure code 99.28 (Injection or infusion of biologic response modifier (BRM) as an antineoplastic agent) was created and designated as a non-OR procedure that does not affect DRG assignment. This cancer treatment involving biological response modifiers is also known as BRM therapy or immunotherapy.

In response to a comment on the May 7, 1999 proposed rule, for the FY 2000 final rule we analyzed cases for which procedure code 99.28 was reported using the 100 percent FY 1998 MedPAR file. The commenter requested that we create a new DRG for BRM therapy or assign cases in which BRM therapy is performed to an existing DRG with a high relative weight. The commenter suggested that DRG 403 (Lymphoma and Nonacute Leukemia with CC) would be an appropriate DRG.

For the proposed rule, we analyzed all cases for which procedure code 99.28 was reported. We identified 1,179 cases in 136 DRGs in 22 MDCs. No more than 141 cases were assigned to any one particular DRG.

Of the 1,179 cases, 141 cases (approximately 12 percent) were assigned to DRG 403 in MDC 17. We found approximately one-half of these cases had other procedures performed in addition to receiving immunotherapy, such as chemotherapy, bone marrow biopsy, insertion of totally implantable vascular access device, thoracentesis, or percutaneous abdominal drainage, which may account for the increased charges. There were 123 immunotherapy cases assigned to DRG 82 (Respiratory Neoplasms) in MDC 4 (Diseases and Disorders of the Respiratory System). We noted that, in some cases, in addition to immunotherapy, other procedures were performed, such as insertion of an intercostal catheter for drainage, thoracentesis, or chemotherapy.

There were 84 cases assigned to DRG 416 (Septicemia, Age >17) in MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified Sites)). The principal diagnosis for this DRG is septicemia and, in addition to receiving treatment for septicemia, immunotherapy was also given. There were 79 cases assigned to DRG 410 (Chemotherapy without Acute Leukemia as Secondary Diagnosis) in MDC 17.

The cost of immunotherapy is averaged into the weight for these DRGS and, based on our analysis, we did not believe a reclassification of these cases was warranted. Due to the limited number of cases that were distributed throughout 136 DRGs in 22 MDCs and the variation of charges, we concluded that it would be inappropriate to classify these cases into a single DRG.

Although there were 141 cases assigned to DRG 403, it would be inappropriate to place all immunotherapy cases, regardless of diagnosis, into a DRG that is designated for lymphoma and nonacute leukemia. We establish DRGs based on clinical coherence and resource utilization. Each DRG encompasses a variety of cases, reflecting a range of services and a range of resources. Generally, then, each DRG reflects some higher cost cases and some lower cost cases. To the extent a new technology is extremely costly relative to the cases reflected in the DRG relative weight, the hospital might qualify for outlier payments, that is, additional payments over and above the standard prospective payment rate.

We did not receive any comments regarding payment for immunotherapy cases.

b. Pancreas Transplant.

Effective July 1, 1999, Medicare covers whole organ pancreas transplantation if the transplantation is performed simultaneously with or after a kidney transplant (procedure codes 55.69, Other kidney transplantation, and V42.0, Organ or tissue replaced by transplant, Kidney) (Transmittal No. 115, April 1999). We noted that when we published the notification of this coverage in the July 30, 1999 final rule (64 FR 41497), we inadvertently made an error in announcing the covered codes. We cited the incorrect codes for pancreas transplantation as procedure code 52.80 (Pancreatic transplant, not otherwise specified) and 52.83 (Heterotransplant of pancreas). The correct procedure codes for pancreas transplantation are 52.80 (Pancreatic transplant, not otherwise specified) and 52.82 (Homotransplant of pancreas). The Coverage Issues Manual was revised to reflect this change via Transmittal 124, April 2000, effective October 1, 2000.

Pancreas transplantation is generally limited to those patients with severe secondary complications of diabetes, including kidney failure. However, pancreas transplantation is sometimes performed on patients with labile diabetes and hypoglycemic unawareness. Pancreas transplantation for diabetic patients who have not experienced end-stage renal failure secondary to diabetes is excluded from coverage. Medicare also excludes coverage of transplantation of partial pancreatic tissue or islet cells.

In the July 30, 1999 final rule (64 FR 41497), we indicated that we planned to review discharge data to determine whether a new DRG should be created, or existing DRGs modified, to further classify pancreas transplantation in combination with kidney transplantation.

Under the current DRG classification, if a kidney transplant and a pancreas transplant are performed simultaneously on a patient with chronic renal failure secondary to diabetes with renal manifestations (diagnosis codes 250.40 through 250.43), the case is assigned to DRG 302 (Kidney Transplant) in MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract). If a pancreas transplant is performed following a kidney transplant (that is, during a different hospital admission) on a patient with chronic renal failure secondary to diabetes with renal manifestations, the case is assigned to DRG 468 (Extensive OR Procedure Unrelated to Principal Diagnosis). This is because pancreas transplant is not assigned to MDC 11, the MDC to which a principal diagnosis of chronic renal failure secondary to diabetes is assigned.

For the proposed rule, using 100 percent of the data in the FY 1999 MedPAR file (which contains hospital bills received for FY 1999 through

December 31, 1999), we analyzed the cases for which procedure codes 52.80 and 52.83 were reported. We identified a total of 79 cases in 8 DRGs, in 3 MDCs, and in 1 pre-MDC. Of the 79 cases identified, 49 cases were assigned to DRG 302, 14 cases were assigned to DRG 468, and 8 cases were assigned to DRG 191 (Pancreas, Liver and Shunt Procedures with CC). The additional 8 cases were distributed over 5 other assorted DRGs, and due to their disparity, were not considered in our evaluation.

We examined our data to determine whether it was appropriate to propose a new kidney and pancreas transplant DRG. We identified 49 such dual transplant cases in the FY 1999 MedPAR file. We do not believe this to be a sufficient sample size to warrant the creation of a new DRG. Furthermore, we noted that nearly half of these cases occurred at a hospital in Maryland, which is not paid under the prospective payment system. The rest of the cases are spread across multiple hospitals, with no single hospital having more than 5 cases in the FY 1999 MedPAR.

We received 261 comments on this issue, 244 of which were form letters.

We will continue to monitor these dual transplant cases to determine whether it may be appropriate in the future to establish a new DRG. However, we are not establishing a new DRG for these cases for FY 2001 and the current procedure code classification will remain in effect.

Comment:

All commenters called for the establishment of a unique DRG recognizing the combined transplant of kidney and pancreas in the same operative episode. Some commenters cited increased utilization of hospital resources, especially operating-room time, recovery time, and immunosuppressive drugs as justification for a separate DRG for a combined pancreas-kidney transplant. One commenter forwarded to us facility-specific charge data for four dual-transplant patients seen at that center through December 1997.

Response:

We stated in the proposed rule that there does appear to be a difference between the charges for dual kidney-pancreas transplant patients assigned to DRG 302 (Kidney Transplant) and those patients who received only a kidney transplant. However, the numbers of dual transplant cases in our database were insufficient to warrant establishing a new DRG for dual transplants.

We point out that, given the low volume of these cases and their infrequent occurrence in any particular hospital, we believe our outlier policy will provide adequate protection for any extraordinarily costly cases. Furthermore, there is always variation in terms of the costs for cases within a DRG relative to the payments under the prospective payment system for that DRG. Although examining these cases in isolation from other DRG 302 cases appears to suggest that dual transplants are more expensive, the nature of the prospective payment system is such that hospitals are expected to be able to offset cases where costs are greater than payments with those cases where payments exceed costs.

We further point out that additional Medicare coverage of a transplanted organ does not necessarily and immediately result in creation of a unique DRG. A specific example of not creating a unique DRG is the combined heart-lung transplant procedure. Effective for discharges occurring on or after October 1, 1990, Medicare was able to identify combined heart-lung transplant using ICD-9-CM code 33.6 (Combined heart-lung transplantation). Instead of assigning this new code to its own specific DRG, however, it was combined with heart transplant in DRG 103 (Heart Transplant). When DRG 495 (Lung Transplant) was created for cases discharged on or after October 1, 1994, review of our data revealed that assignment of code 33.6 was more clinically coherent with DRG 103 than DRG 495. Therefore, code 33.6 was not moved into the new lung transplant DRG. Although this does not indicate we will not create a distinct DRG for combined kidney and pancreas transplants, it does show a precedent for allowing a sufficient sample of cases to accumulate before deciding whether a new DRG is necessary.

Finally, one of the risks of establishing a new DRG based on few documentable cases is that a few extremely low-cost cases could dramatically reduce the average charges in a year, thereby lowering the relative weight and potentially underpaying cases in this DRG by a significant amount.

Comment:

Several commenters argued that combined pancreas and kidney transplants are underpaid every time they are performed and expressed concern that this lack of funding provides limited access to this procedure for Medicare beneficiaries.

Response:

We do not believe that beneficiaries' access will be limited by our decision. In addition, it is a violation of a hospital's Medicare provider agreement to place restrictions on the number of Medicare beneficiaries it accepts for treatment unless it places the same restrictions on all other patients.

Comment:

One commenter argued that the incremental cost of the pancreas transplant was insufficient to cause the claim to move into outlier status.

Response:

Our data show covered charges submitted by hospitals ranging from a low of approximately $42,000 to a high in excess of $182,000 for cases in DRG 302. Outlier payments are meant to alleviate the financial effects of treating extraordinarily high-cost cases. Therefore, the commenter may be correct in saying that some of the cases with lower charges might not be further compensated by outlier payments. However, other cases are further compensated to mitigate losses experienced by hospitals.

Comment:

One commenter stated we underrepresented the volume of future dual transplants under Medicare, citing mid-year approval of Medicare coverage for pancreas transplants, and noting that this is not enough time to accurately reflect the numbers of procedures since patients normally must accrue longer wait times before they receive organ offers for transplant.

Response:

It is true that we did not attempt to project the future volume of combined kidney and pancreas transplant procedures. We reported the number of actual hospital claims in our MedPAR data base, submitted through December 1999, when we published the proposed rule in the May 5, 2000

Federal Register

(65 FR 26294). DRG categories and payment are always based on actual historical hospital charge data, not projected data. What must also be considered, however, is that dual transplants would only appear in statistics concerning DRG 302, while HCFA also covers pancreas transplants performed in separate operative episodes, subsequent to kidney transplantation. Those pancreatic transplants occurring after kidney transplant would appear in DRG 468, or potentially other DRGs as well, depending on the principal diagnosis.

Comment:

Several commenters noted that the 1998 Annual Report of United Network for Organ Sharing (UNOS) indicated there were 966 simultaneous kidney-pancreas transplants, and questioned HCFA's reported 49 cases appearing in DRG 302 as being too low. One commenter, citing the inability of HCFA to be able to identify cases of dual kidney-pancreas transplants, pointed out the need for a specific DRG for this category of patients. Another commenter noted that data were lost because of the incorrect publication of ICD-9-CM code 52.83 (Heterotransplant

of pancreas) as being a covered procedure.

Response:

Most patients who are experiencing end-stage renal disease should be eligible for Medicare benefits. We note, however, that none of the commenters submitted specific evidence contrary to our finding that, outside of a single hospital in Maryland, no individual hospital had more than five Medicare dual transplant cases during FY 1999.

Obviously one issue is the timing of the creation of the coverage benefit, which was conferred for cases discharged on or after July 1, 1999. Cases transplanted prior to that date should not have appeared in our data as covered procedures.

We recognize that 52.83 is an incorrect code, and have corrected this typographical error in the Medicare Coverage Issues Manual, as noted above. Interestingly, the original data reported in the proposed notice contained 79 cases of pancreas transplant, but there were only 7 instances in which code 52.83 was reported. We believe that hospital coders recognized the error in the original coverage instruction, and chose to submit the less specific code 52.80 instead.

Comment:

Several commenters asserted that it was contradictory for us to argue that 49 cases is too few to establish a DRG but we indicated in the May 5, 2000 proposed rule that there were 40 DRGs with fewer than 10 cases per year.

Response:

These low-volume DRGs are not new, but in most cases were created very early during or even prior to the implementation of the prospective payment system. Many of these DRGs are related to patient categories that are rare in the Medicare population, such as age less than 17 or labor and delivery during childbirth. The DRG relative-weights for these DRGs are adjusted based on the overall change in the DRG weights rather than through normal recalibration.

We do not believe our policy not to establish a new dual transplant DRG for combined kidney and pancreas transplants is contradicted by the existence of these low-volume DRGs. As the commenters indicated, the number of combined kidney and pancreas transplants is likely to increase in the next few years, and therefore it is important to ensure an accurate and stable DRG payment is established.

Comment:

Several commenters offered to work closely with HCFA to identify cases and costs associated with this category of patients.

Response:

We appreciate these offers and the cooperative spirit in which they were presented. Our ability to evaluate and implement potential DRG changes depends on the availability of validated, representative data. We remain open to using non-MedPAR data if the data are reliable and validated and enable us to appropriately measure relative resource use. We will continue to monitor this category of patients, and will address this issue in the FY 2002 proposed rule.

C. Recalibration of DRG Weights

We proposed to use the same basic methodology for the FY 2001 recalibration as we did for FY 2000 (July 30, 1999 final rule (64 FR 41498)). That is, we recalibrated the weights based on charge data for Medicare discharges. However, we used the most current charge information available, the FY 1999 MedPAR file. (For the FY 2000 recalibration, we used the FY 1998 MedPAR file.) The MedPAR file is based on fully coded diagnostic and procedure data for all Medicare inpatient hospital bills.

The final recalibrated DRG relative weights are constructed from FY 1999 MedPAR data (discharges occurring between October 1, 1998 and September 30, 1999), based on bills received by HCFA through March 2000, from all hospitals subject to the prospective payment system and short-term acute care hospitals in waiver States. The FY 1999 MedPAR file includes data for approximately 11.0 million Medicare discharges.

The methodology used to calculate the DRG relative weights from the FY 1999 MedPAR file is as follows:

• To the extent possible, all the claims were regrouped using the proposed DRG classification revisions discussed in section II.B. of this preamble.

• Charges were standardized to remove the effects of differences in area wage levels, indirect medical education and disproportionate share payments, and, for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment.

• The average standardized charge per DRG was calculated by summing the standardized charges for all cases in the DRG and dividing that amount by the number of cases classified in the DRG.

• We then eliminated statistical outliers, using the same criteria used in computing the current weights. That is, all cases that are outside of 3.0 standard deviations from the mean of the log distribution of both the charges per case and the charges per day for each DRG are eliminated.

• The average charge for each DRG was then recomputed (excluding the statistical outliers) and divided by the national average standardized charge per case to determine the relative weight. A transfer case is counted as a fraction of a case based on the ratio of its transfer payment under the per diem payment methodology to the full DRG payment for nontransfer cases. That is, transfer cases paid under the transfer methodology equal to half of what the case would receive as a nontransfer would be counted as 0.5 of a total case.

• We established the relative weight for heart and heart-lung, liver, and lung transplants (DRGs 103, 480, and 495) in a manner consistent with the methodology for all other DRGs except that the transplant cases that were used to establish the weights were limited to those Medicare-approved heart, heart-lung, liver, and lung transplant centers that have cases in the FY 1999 MedPAR file. (Medicare coverage for heart, heart-lung, liver, and lung transplants is limited to those facilities that have received approval from HCFA as transplant centers.)

• Acquisition costs for kidney, heart, heart-lung, liver, lung, and pancreas transplants continue to be paid on a reasonable cost basis. Unlike other excluded costs, the acquisition costs are concentrated in specific DRGs (DRG 302 (Kidney Transplant); DRG 103 (Heart Transplant); DRG 480 (Liver Transplant); DRG 495 (Lung Transplant); and DRG 468 (Pancreas)). Because these costs are paid separately from the prospective payment rate, it is necessary to make an adjustment to prevent the relative weights for these DRGs from including the acquisition costs. Therefore, we subtracted the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average charge for the DRG and before eliminating statistical outliers.

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 proposed to use the same case threshold in recalibrating the DRG weights for FY 2001. Using the FY 1999 MedPAR data set, there were 40 DRGs containing fewer than 10 cases. We computed the weights for these 40 low-volume DRGs by adjusting the FY 2000 weights of these DRGs by the percentage change in the average weight of the cases in the other DRGs.

The weights developed according to the methodology described above, using the DRG classification changes, resulted in an average case weight that differs from the average case weight before recalibration. Therefore, the new weights are normalized by an adjustment factor (1.45507) so that the

average case weight after recalibration is equal to the average case weight before recalibration. This adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the prospective payment system.

We received no comments on DRG recalibration.

Section 1886(d)(4)(C)(iii) of the Act requires that, beginning with FY 1991, reclassification and recalibration changes be made in a manner that assures that the aggregate payments are neither greater than nor less than the aggregate payments that would have been made without the changes. Although normalization is intended to achieve this effect, equating the average case weight after recalibration to the average case weight before recalibration does not necessarily achieve budget neutrality with respect to aggregate payments to hospitals because payment to hospitals is affected by factors other than average case weight. Therefore, as we have done in past years and as discussed in section II.A.4.a. of the Addendum to this final rule, we make a budget neutrality adjustment to assure that the requirement of section 1886(d)(4)(C)(iii) of the Act is met.

III. Changes to the Hospital Wage Index

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 Metropolitan Statistical Areas (MSAs), Primary MSAs (PMSAs), and New England County Metropolitan Areas (NECMAs) issued by the Office of Management and Budget (OMB). The OMB also designates Consolidated MSAs (CMSAs). A CMSA is a metropolitan area with a population of one million or more, comprising two or more PMSAs (identified by their separate economic and social character). For purposes of the hospital wage index, we use the PMSAs rather than CMSAs since they allow a more precise breakdown of labor costs. If a metropolitan area is not designated as part of a PMSA, we use the applicable MSA. Rural areas are areas outside a designated MSA, PMSA, or NECMA. For purposes of the wage index, we combine all of the rural counties in a State to calculate a rural wage index for that State.

We note that, effective April 1, 1990, the term Metropolitan Area (MA) replaced the term MSA (which had been used since June 30, 1983) to describe the set of metropolitan areas consisting of MSAs, PMSAs, and CMSAs. The terminology was changed by OMB in the March 30, 1990

Federal Register

to distinguish between the individual metropolitan areas known as MSAs and the set of all metropolitan areas (MSAs, PMSAs, and CMSAs) (55 FR 12154). For purposes of the prospective payment system, we will continue to refer to these areas as MSAs.

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 should measure, to the extent feasible, the earnings and paid hours of employment by occupational category, and must exclude the wages and wage-related costs incurred in furnishing skilled nursing services. As discussed below in section III.F 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 the wage index.

B. FY 2001 Wage Index Update

The FY 2001 wage index values in section VI of the Addendum to this final rule (effective for hospital discharges occurring on or after October 1, 2000 and before October 1, 2001) are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 1997 (the FY 2000 wage index was based on FY 1996 wage data).

The FY 2001 wage index includes the following categories of data associated with costs paid under the hospital inpatient prospective payment system (as well as outpatient costs), which were also included in the FY 2000 wage index:

• Salaries and hours from short-term, acute care hospitals.

• Home office costs and hours.

• Certain contract labor costs and hours.

• Wage-related costs.

Consistent with the wage index methodology for FY 2000, the wage index for FY 2001 also continues to exclude the direct and overhead salaries and hours for services not paid through the inpatient prospective payment system such as skilled nursing facility services, home health services, or other subprovider components that are not subject to the prospective payment system.

We calculate a separate Puerto Rico-specific wage index and apply it to the Puerto Rico standardized amount. (See 62 FR 45984 and 46041.) This wage index is based solely on Puerto Rico's data. Finally, 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 not located in a rural area may not be less than the area wage index applicable to hospitals located in rural areas in that State.

Comment:

One commenter believed that the FY 2001 wage calculation does not allow for inflationary effects or existing contractual increases, and recommended that we consider using a more recent Medicare cost reporting year and allow for inflationary wage adjustments.

Response:

Due to the time period allowed for: (1) hospitals to complete and submit their cost reports to their intermediaries, (2) intermediaries to review and submit the cost reports to HCFA, (3) intermediaries to perform a separate, detailed review of all wage data and submit the results to HCFA, and (4) HCFA to compile a complete set of all hospitals' wage data from a given Federal fiscal year, we do not have available more recent reliable data to calculate the wage index. As described in the proposed rule (65 FR 26299) and section III.E. of this final rule, we adjust the wage data to a common period that reflects the latest cost reporting period for the filing year. Because the wage index is a relative measure, comparing area average hourly wages to a national average hourly wage, we believe the wage index is minimally impacted by inflationary effects beyond those accounted for by adjusting the data to a common period.

C. FY 2001 Wage Index

Because the hospital wage index is used to adjust payments to hospitals under the prospective payment system, it should, to the extent possible, reflect the wage costs associated with the areas of the hospital included under the hospital inpatient prospective payment system. In response to concerns within the hospital community related to the removal from the wage index calculation costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), which are paid by Medicare separately from the prospective

payment system, in 1998 the AHA convened a workgroup to develop a consensus recommendation on this issue. The workgroup recommended that costs related to GME and CRNAs be phased out of the wage index calculation over a 5-year period. Based upon our analysis of hospitals' FY 1996 wage data, and consistent with the AHA workgroup's recommendation, we specified in the July 30, 1999 final rule (64 FR 41505) that we would phase-out these costs from the calculation of the wage index over a 5-year period, beginning in FY 2000. In keeping with the decision to phase-out costs related to GME and CRNAs, the final FY 2001 wage index is based on a blend of 60 percent of an average hourly wage including these costs, and 40 percent of an average hourly wage excluding these costs.

Comment:

We received one comment in support of our continued transition of removing GME and CRNA costs from the wage index calculation. We also received a comment from a national association representing nurse anesthetists expressing concern that, as a result of disparities in cost reporting systems and vague fiscal intermediary instructions, CRNA costs that should be paid under Part B might still be reported in hospitals' FY 1997 cost reports. The commenter also stated that removing CRNA costs from the wage index eliminates a payment mechanism for the indirect patient care activities performed by CRNAs, resulting in a disincentive for hospitals to employ CRNAs. To avoid any disruption in the “continuous operations of hospitals,” the commenter recommended that, prior to implementing any changes to the wage index calculation, HCFA should refine the Part A cost data collection and cost reporting process and instruct the fiscal intermediaries to provide all hospitals with “explicit instructions as to the appropriate reporting of CRNA costs.” The commenter believed this refinement to the cost data will identify and exclude only the CRNA salary costs related to the rural hospital cost pass-through provisions and allow Part A reimbursement for indirect patient care which are not reimbursed under Medicare Part B. In keeping with the general policy to exclude costs that are not paid through the Medicare prospective payment system, the commenter also recommended that HCFA exclude salaries reported under Medicare Part A for anesthesia assistants.

Response:

We note that the FY 2001 wage index is the second year of the transition to eliminating Part A CRNA costs from the wage index. As evidenced in the impact analysis in the May 5, 2000 proposed rule (65 FR 26415), eliminating these CRNA and GME costs has an insignificant impact, with no category of hospitals impacted by more than 0.1 percent. Therefore, we do not believe it is necessary to delay further removal of CRNA costs.

Payment for CRNA services is made under a fee schedule under Medicare Part B (Supplementary medical insurance), with the sole exception of payments to hospitals under the rural pass-through provision. Although a hospital contracting for CRNA services would include the costs on its cost report, the fiscal intermediary forwards the information to the carrier for payment under the fee schedule. As the commenter noted, this payment structure has been in place since January 1, 1989. We believe that intermediaries and carriers are generally well informed and experienced in the handling of these costs. However, we will consider whether further clarification of our instructions is necessary.

The commenter also stated that Medicare does not specifically exclude anesthesia assistants, who are also reimbursed under Part B, from the wage index. The cost report instructions for Worksheet A, Line 20, refer to nonphysician anesthetists, which include both CRNAs and anesthesia assistants. We will consider whether our Worksheet S-3 instructions need to be revised to explicitly instruct hospitals to remove the Part B costs associated with anesthesia assistants as well.

1. Teaching Physician Costs and Hours Survey

As discussed in the July 30, 1999 final rule, because the FY 1996 cost reporting data did not separate teaching physician costs from other physician Part A costs, we instructed our fiscal intermediaries to survey teaching hospitals to collect data on teaching physician costs and hours payable under the per resident amounts (§ 413.86) and reported on Worksheet A, Line 23 of the hospitals' cost report.

The FY 1997 cost reports also do not separately report teaching physician costs. Therefore, we once again conducted a special survey to collect data on these costs. (For the FY 1998 cost reports, we have revised the Worksheet S-3, Part II so that hospitals can separately report teaching physician Part A costs. Therefore, after this year, it will no longer be necessary for us to conduct this special survey.)

The survey data collected as of mid-January 2000 were included in the preliminary public use data file made available on the Internet in February 2000 at HCFA's home page (http://www.hcfa.gov). At that time, we had received teaching physician data for 459 out of 770 teaching hospitals reporting physician Part A costs on their Worksheet S-3, Part II. Also, in some cases, fiscal intermediaries reported that teaching hospitals did not incur teaching physician costs. In early January 2000, we instructed fiscal intermediaries to review the survey data for consistency with the Supplemental Worksheet A-8-2 of the hospitals' cost reports. Supplemental Worksheet A-8-2 is used to apply the reasonable compensation equivalency limits to the costs of provider-based physicians, itemizing these costs by the corresponding line number on Worksheet A.

When we notified the hospitals, through our fiscal intermediaries, that they could review the survey data on the Internet, we also notified hospitals that requests for changes to the teaching survey data had to be submitted by March 6, 2000. We instructed fiscal intermediaries to review the requests for changes received from hospitals and submit necessary data revisions to HCFA by April 3, 2000. We removed from the wage data the physician Part A teaching costs and hours reported on the survey form for every hospital that completed the survey. These data had been verified by the fiscal intermediary before submission to HCFA.

For the FY 2000 wage index, the AHA workgroup recommended that, if reliable teaching physician data were not available for removing teaching costs from hospitals' total physician Part A costs, HCFA should remove 80 percent of the costs and hours reported by hospitals attributable to physicians' Part A services. In calculating the FY 2000 wage index, if we did not receive survey data for a teaching hospital, we removed 80 percent of the hospital's reported total physician Part A costs and hours from the calculation. In the May 5, 2000 proposed rule, for the FY 2001 wage index, we proposed a different approach. In some instances, fiscal intermediaries had verified that teaching hospitals do not have teaching physician costs; for these hospitals, it is not necessary to adjust the hospitals' physician Part A costs. We conferred with the fiscal intermediaries to distinguish teaching hospitals that did not have teaching physician costs from teaching hospitals that had not identified the portion of their physician Part A costs associated with teaching physicians (that is, hospitals that did not complete the teaching survey).

In calculating the final FY 2001 wage index, we removed 100 percent of the physician Part A costs and hours (reported on Worksheet S-3, Lines 4, 10, 12, and 18) in the FY 2001 wage index calculation for those hospitals where the fiscal intermediary verifies that the hospital has otherwise unidentified teaching physician costs included in physician Part A costs and hours. For those teaching hospitals whose fiscal intermediaries identified as having costs attributable to teaching physicians but reported no physician Part A costs on the Worksheet S-3, we removed 100 percent of Worksheet A, Line 23, Column 1. To determine the hours to be removed, the costs reported on Line 23 of the Worksheet A, Column 1 are divided by the national average hourly wage for teaching physicians of $59.17 based upon the survey.

We note that Line 23 of Worksheet A, Column 1, flows directly into hospitals' total salaries on Worksheet S-3, Part II. Line 23 contains GME costs not directly attributable to residents' salaries or fringe benefits. Therefore, these costs tend to be costs associated with teaching physicians. To the extent a hospital fails to separately identify the proportion of its Line 23, Worksheet A costs associated with teaching physicians, we believe it is reasonable to remove all of these costs under the presumption that they are all associated with teaching physicians.

Thus, as we proposed in the May 5 proposed rule, for the FY 2001 wage index, we are either using the data submitted on the teaching physician survey (837 hospitals), or, in the absence of such data, removing 100 percent of physician Part A costs reported on Worksheet S-3 (287 hospitals), or removing the amount reported on Line 23 of Worksheet A, Column 1 (18 hospitals).

We received one comment in support of removing 100 percent of physician Part A costs and hours from teaching hospitals where the fiscal intermediary verifies that the hospital has otherwise unidentifiable teaching costs included in physician Part A costs and hours.

2. Nurse Practitioner and Clinical Nurse Specialist Costs

The current wage index includes salaries and wage-related costs for nurse practitioners (NPs) and clinical nurse specialists (CNSs) who, similar to physician assistants and CRNAs (unless at hospitals under the rural pass-through exception for CRNAs), are paid under the physician fee schedule. Over the past year, we have received several inquiries from hospitals and fiscal intermediaries regarding NP costs and how they should be handled for purposes of the hospital wage index. Because Medicare generally pays for NP and CNS costs under Part B outside the hospital prospective payment system, removing NP and CNS Part B costs from the wage index calculation would be consistent with our general policy to exclude, to the extent possible, costs that are not paid through the hospital prospective payment system. Because NP and CNS costs are not separately reported on the Worksheet S-3 for FYs 1997, 1998, and 1999, the FY 2000 Worksheet S-3 and cost reporting instructions will be revised to allow for separate reporting of NP and CNS Part A and Part B costs. We plan to exclude the Part B costs beginning with the FY 2004 wage index. These services are pervasive in both rural and urban settings. As such, because the wage index is a relative measure, we believe there will be no significant overall impact resulting from the removal of Part B costs for NPs and CNSs.

We did not receive any public comments on our plan to exclude NP and CNS Part B costs from the wage index calculation, beginning with the FY 2004 wage index.

3. Severance and Bonus Pay Costs

On October 6, 1999, we issued a memorandum to hospitals and fiscal intermediaries regarding our policy on treatment of severance and bonus pay costs in developing the wage index, effective beginning with the FY 2001 wage index. (The hospital cost report instructions also will be amended to reflect our policy on these costs.) We stated that severance pay costs may be included on Worksheet S-3 as salaries on Part II, Line 1, only if the associated hours are included. If the hospital has no accounting of the hours, or if the costs are not based on hours, the severance pay costs may not be included in the wage index. On the other hand, bonus pay costs may be included in the cost report on Line 1 of Worksheet S-3 with no corresponding hours. Due to the inquiries we continue to receive from hospitals regarding the inclusion of severance pay costs on cost reports, in the May 5 proposed rule, we clarified our policy in this area.

Hospitals vary in their accounting of severance pay costs. Some hospitals base the amounts to be paid on hours, for example, 80 hours worth of pay. Others do not; for example, a 15-year employee may be offered a $25,000 buyout package. Some hospitals record associated hours; others do not. The Wage Index Workgroup has suggested that we not include any severance pay costs in the wage index calculation, that these costs are for terminated employees, and, therefore, they should be considered an administrative rather than a salary expense.

Severance pay costs can be substantial amounts, particularly in periods of downsizing. In the proposed rule, we state our view that, if severance pay costs are included with no associated hours, the wage index, which is a relative measure of wage costs across labor market areas, would be distorted.

We included severance pay costs in the proposed FY 2001 wage index as a salary cost to the extent that associated hours also were reported. However, we solicited public comments on this issue. We received two comments on this issue.

Comment:

Two national hospital associations disagree with our policy clarification that severance pay costs may be included on Worksheet S-3, Part II, Line 1 as salaries only if associated hours are included. These commenters argued that HCFA's wage index policy is that wages and benefits are to be determined in accordance with generally accepted accounting principles (GAAP) rather than Medicare cost reimbursement principles and that under GAAP severance pay is classified as salaries and wages. They also argued that, unless a terminated employee continues to work or is still considered to be employed by the provider after the last regular pay period that additional hours should not be reported for severance pay. Further, for employees receiving severance pay, “there are no hours to report” because “their job has been eliminated and they are no longer employed by the provider.”

Response:

As indicated in the proposed rule, we exclude severance pay costs from the wage index calculation if there are no associated hours because we believe that inclusion of such costs might lead to a distortion of the wage index. The wage index is a relative measure of average hourly wages across geographic areas, and we believe that severance pay costs (which might be significant) without associated hours might inappropriately inflate the average hourly wage for a given hospital or area for a given time period (which in turn would distort the relative measure of wages across areas). For example, if we included severance pay costs with no associated hours, then a hospital might be more likely to qualify for geographic reclassification for purposes of the wage index simply because it incurred significant severance pay costs in a given year. In light of the comments, we will continue to examine this issue to determine whether inclusion of severance pay costs with no

associated hours would lead to a better measure of relative wages as opposed to a distortion in the measure and to determine whether it is feasible and appropriate to revise our policy on severance pay costs in the future.

4. Health Insurance and Health-Related Costs

In the September 1, 1994 final rule (59 FR 45356), we stated that health insurance, purchased or self-insurance, is a core wage-related cost. Over the past year, we have received several inquiries from hospitals and hospital associations requesting that we define “purchased health insurance costs.” In response, in the May 5 proposed rule, we clarified that, for wage index purposes, we define “purchased health insurance costs” as the premiums and administrative costs a hospital pays on behalf of its employees for health insurance coverage. “Self-insurance” includes the hospital's costs (not charges) for covered services delivered to its employees, less any amounts paid by the employees, and less the personnel costs for hospital staff who delivered the services (these costs are already included in the wage index). For purchased health insurance and self-health insurance, the included costs must be for services covered in a health insurance plan.

Also, in the September 1, 1994 final rule (59 FR 45357), we addressed a comment about the inclusion of health-related costs in the calculation of the wage index. Such health-related costs include employee physical examinations, flu shots, and clinic visits, and other services that are not covered by employees' health insurance plans but are provided at no cost or at discounted rates to employees of the hospital. In the May 5 proposed rule, we proposed to clarify that the costs for these services may be included as an “other” wage-related cost if (among other criteria), when all such health-related costs are combined, the total of such costs is greater than one percent of the hospital's total salaries (less excluded area salaries). As discussed in the September 1, 1994 final rule, a cost may be allowable as an “other wage-related cost” if it meets certain criteria. Under one criterion, the wage-related cost must be greater than one percent of total salaries (less excluded area salaries). For purposes of applying this 1-percent test with respect to the health-related costs at issue here, we look at the combined total of the health-related costs (not charges) for services delivered to its employees, less any amounts employees paid, and less the personnel costs for hospital staff who delivered the services (as these costs are already included in the wage index).

Comment:

We received several comments regarding our policy and definitions for health insurance and health-related costs. Some commenters interpreted the policy clarification in the proposed rule as stating that self-insurance will no longer be included as core wage-related costs. They believe that not including these costs is inconsistent with the fundamental concept of core wage-related costs. One commenter pointed to the 1994 HCFA/Industry workgroup which established the list of core wage-related costs still in use, and contended that “(t)hese proposed changes are inconsistent with the agreements reached in those original workgroup meetings.”

Response:

As noted in the May 5 proposed rule, we previously stated our policy regarding health insurance and health-related costs in the FY 1995 final rule. We emphasize again in this final rule that, health insurance costs, whether purchased or self-insured, is, and will continue to be, a core wage-related cost. We did not propose a change in this policy, nor are we implementing a change in this policy in this final rule.

Comment:

Some commenters objected to our statement in the proposed rule that only health self-insurance costs (not charges, and exclusive of any amounts paid by covered employees and less the personnel costs for hospital staff who delivered the services) are allowable core wage-related costs, and also argued that health self-insurance costs should be determined in accordance with GAAP which would include charges and personnel costs. They suggested that excluding costs that are determined in accordance with GAAP would create major inconsistencies among hospitals and inevitably result in major swings in the wage index for individual MSAs.

Two commenters recommended that HCFA review this policy to avoid creating disincentives to hospitals that develop cost-effective health-insurance benefits; they asserted that there should be no differentiation between purchased health insurance and self-funded health insurance.

Response:

We disagree with the commenters that we are unfairly and inconsistently treating hospitals that self-insure by not allowing as a wage-related cost the salary costs for employees who deliver the health services. The personnel costs of delivering health care to all of a hospital's patients are already included in the wage index through line 1 of Worksheet S-3, Part II. Accounting for these hospital personnel costs on lines 13 or 14 for wage-related costs would falsely overstate a hospital's average hourly wage. Unless a hospital actually incurs the personnel costs twice, it is inappropriate to include the costs twice. Our policy does not require the exclusion of staff personnel costs from the premium costs for hospitals that purchase health insurance. As defined above and in the proposed rule, purchased health insurance costs include the premiums and administrative costs a hospital pays on behalf of its employees for health insurance coverage. The commenters suggested that the premium costs may include a hospital's staff personnel costs. We believe it is appropriate to allow the entire premium cost to a hospital as a wage-related cost if the intermediary verifies that the amount is an actual cost to the hospital.

Nevertheless, we agree with the commenters that, overall, for “wage-related costs”, the application of GAAP creates a more static wage index and a better measure of relative wages across areas. For the FY 2002 wage index, we will advise hospitals to apply GAAP for wage-related costs, including health insurance and health-related costs. However, for self-health insurance and health-related costs, personnel costs associated with hospital staff that deliver the services to the employees must continue to be excluded from wage-related costs, if the costs are already included in the wage data as salaries on Worksheet S-3, Part II, Line I.

Comment:

One commenter recommended that the insurance plan requirements be eliminated from our definition of health insurance costs, stating that hospitals should be required to maintain adequate records in support of the services they provide to their employees at either no cost or below cost. In expressing the concern that employee health benefits are ever-changing, the commenter recommended that not only must HCFA's definition of insurance plans be specific but it should also be implemented prospectively with sufficient clarification to reduce inconsistency in interpretation by the fiscal intermediaries.

Response:

We are concerned that adopting this recommendation would make it difficult for intermediaries to accurately track benefits provided to a hospital's employees, leading to greater disparity in the treatment of these costs across hospitals. We will give further consideration to the implications of this recommendation, however.

Comment:

One commenter recommended that health-related costs, for such items as “employee physicals,

flu shots, and clinic visits” should be included as a core wage-related cost; therefore, the 1-percent threshold criteria for health related costs should be eliminated.

Response:

In the September 1, 1994 final rule, when we published the list of core wage-related costs agreed upon by the workgroup, we responded to comments specifically suggesting that health-related services (as opposed to self-insured health services, which was clearly on the original core list) be added to the core list. In our response, we pointed out that the core list was developed in conjunction with the hospital industry, to establish a list of commonly recognized costs that contribute significantly to the wage costs of a hospital and are readily identifiable in the hospital's records. Health-related benefits was not included on the core list at that time. We continue to believe these health-related benefits do not fit the criteria established by the workgroup for identifying core wage-related costs.

5. Elimination of Wage Costs Associated With Rural Health Clinics and Federally Qualified Health Centers

The current hospital wage index includes the salaries and wage-related costs of hospital-based rural health clinics (RHCs) and federally qualified health centers (FQHCs). However, Medicare pays for these costs outside the hospital inpatient prospective payment system. Effective January 1, 1998, under section 1833(f) of the Act, as amended by section 4205 of Public Law 105-33, Medicare pays both hospital-based and freestanding RHCs and FQHCs on a cost-per-visit basis. Medicare cost reporting forms for RHCs and FQHCs were revised to reflect this legislative change, beginning with cost reporting periods ending on or after September 30, 1998 (the FY 1998 cost report). Other cost-reimbursed outpatient departments, such as ambulatory surgical centers, community mental health centers, and comprehensive outpatient rehabilitation facilities, are presently excluded from the wage index. Therefore, consistent with our wage index refinements that exclude, to the extent possible, costs associated with services not paid under the hospital inpatient prospective payment system, we believe it would be appropriate to exclude all salary costs associated with RHCs and FQHCs from the wage index calculation if we had feasible, reliable data for such exclusion.

Because RHC and FQHC costs are not separately reported on the Worksheet S-3 for FYs 1997, 1998, and 1999, we cannot exclude these costs from the FY 2001, FY 2002, or FY 2003 wage indexes. Therefore, we will revise the FY 2000 Worksheet S-3 to begin providing for the separate reporting of RHC and FQHC salaries, wage-related costs, and hours. We will evaluate the wage data for RHCs and FQHCs in developing the FY 2004 wage index.

We received no public comments on this issue.

D. Verification of Wage Data From the Medicare Cost Report

The data for the FY 2001 wage index were obtained from Worksheet S-3, Parts II and III of the FY 1997 Medicare cost reports. The data file used to construct the wage index includes FY 1997 data submitted to HCFA as of mid-July 2000. 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 to revise or verify data elements that resulted in specific edit failures. The unresolved data elements that were included in the calculation of the proposed FY 2001 wage index have been resolved and are reflected in calculation of the final FY 2001 wage index. We note that, as part of this process to identify aberrant data and correct any errors prior to the calculation of the final FY 2001 wage index, we notified by letter those hospitals that were leading to large variations in the wage indexes of their labor market areas compared to the FY 2000 wage index. These hospitals were instructed to review their data to identify the reason for the large increases or decreases and notify their fiscal intermediary of any necessary corrections. This resulted in several revisions to the data.

Also, as part of our editing process, in the final wage index, we removed data for 15 hospitals that failed edits. For eight of these hospitals, we were unable to obtain sufficient documentation to verify or revise the data because the hospitals are no longer participating in the Medicare program or are in bankruptcy status. Two hospitals had erroneous average hourly wages (negative and zero) after allocating overhead to their excluded areas and, therefore, were removed from the calculation. The data from the remaining five hospitals also failed the edits and were removed. As a result, the final FY 2001 wage index is calculated based on FY 1997 wage data for 4,950 hospitals.

E. Computation of the FY 2001 Wage Index

The method used to compute the FY 2001 wage index follows. We note one technical change to the formula used to calculate the proposed wage index. For the first time, in the proposed rule we subtracted line 13 of Worksheet S-3, Part III from total hours when determining the excluded hours ratio used to estimate the amount of overhead attributed to excluded areas. Although we continue to believe this is the correct formula for determining this ratio, it resulted in very large and inappropriate increases in the average hourly wages for some hospitals. Therefore, in calculating the final FY 2001 wage index, we are not subtracting line 13 of Worksheet S-3, Part III in the calculation.

Step 1—As noted above, we based the FY 2001 wage index on wage data reported on the FY 1997 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, 1996 and before October 1, 1997. In addition, we included data from a few hospitals that had cost reporting periods beginning in September 1996 and reported a cost reporting period exceeding 52 weeks. These data were included because they did not have a cost report begin during the period described above. However, we generally describe these wage data as FY 1997 data. We note that, if a hospital had more than one cost reporting period beginning during FY 1997 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 1996 and before October 1, 1997), we included wage data from only one of the cost reporting periods, the longest, 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 latest period in the wage index calculation.

Step 2—Salaries—The method used to compute a hospital's average hourly wage is a blend of 60 percent of the hospital's average hourly wage including all GME and CRNA costs, and 40 percent of the hospital's average hourly wage after eliminating all GME and CRNA costs.

In calculating a hospital's average salaries plus wage-related costs, including all GME and CRNA costs, we subtracted from Line 1 (total salaries) the Part B salaries reported on Lines 3 and 5, home office salaries reported on

Line 7, and excluded salaries reported on Lines 8 and 8.01 (that is, direct salaries attributable to skilled nursing facility services, home health services, and other subprovider components not subject to the prospective payment system). We also subtracted from Line 1 the salaries for which no hours were reported on Lines 2, 4, and 6. To determine total salaries plus wage-related costs, we added to the net hospital salaries the costs of contract labor for direct patient care, certain top management, and 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, 16, 18, and 20).

We note that contract labor and home office salaries for which no corresponding hours are reported were not included. In addition, wage-related costs for specific categories of employees (Lines 16, 18, and 20) are excluded if no corresponding salaries are reported for those employees (Lines 2, 4, and 6, respectively).

We then calculated a hospital's salaries plus wage-related costs by subtracting from total salaries the salaries plus wage-related costs for teaching physicians, Part A CRNAs (Lines 2 and 16), and residents (Lines 6 and 20).

Step 3—Hours—With the exception of wage-related costs, for which there are no associated hours, we computed 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 allocated overhead costs. First, we determined 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 3, 5, and 7). We then computed 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. Finally, we subtracted the computed overhead salaries and hours associated with excluded areas from the total salaries and hours derived in Steps 2 and 3.

Step 5—For each hospital, we adjusted 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 estimated the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 1996 through April 15, 1998 for private industry hospital workers from the Bureau of Labor Statistics'

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. 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

After

Before

Adjustment factor

10/14/96

11/15/96

1.02848

11/14/96

12/15/96

1.02748

12/14/96

01/15/97

1.02641

01/14/97

02/15/97

1.02521

02/14/97

03/15/97

1.02387

03/14/97

04/15/97

1.02236

04/14/97

05/15/97

1.02068

05/14/97

06/15/97

1.01883

06/14/97

07/15/97

1.01695

07/14/97

08/15/97

1.01520

08/14/97

09/15/97

1.01357

09/14/97

10/15/97

1.01182

10/14/97

11/15/97

1.00966

11/14/97

12/15/97

1.00712

12/14/97

01/15/98

1.00451

01/14/98

02/15/98

1.00213

02/14/98

03/15/98

1.00000

03/14/98

04/15/98

0.99798

For example, the midpoint of a cost reporting period beginning January 1, 1997 and ending December 31, 1997 is June 30, 1997. An adjustment factor of 1.01695 would be applied to the wages of a hospital with such a cost reporting period. In addition, for the data for any cost reporting period that began in FY 1997 and covers a period of less than 360 days or more than 370 days, we annualized the data to reflect a 1-year cost report. Annualization is accomplished by dividing the data by the number of days in the cost report and then multiplying the results by 365.

Step 6—Each hospital was assigned to its appropriate urban or rural labor market area before any reclassifications under section 1886(d)(8)(B) or section 1886(d)(10) of the Act. Within each urban or rural labor market area, we added the total adjusted salaries plus wage-related costs obtained in Step 5 (with and without GME and CRNA costs) for all hospitals in that area to determine the total adjusted salaries plus wage-related costs for the labor market area.

Step 7—We divided 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.

Because the FY 2001 wage index is based on a blend of average hourly wages, we then added 60 percent of the average hourly wage calculated without removing GME and CRNA costs, and 40 percent of the average hourly wage calculated with these costs excluded.

Step 8—We added the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in the nation and then divided the sum by the national sum of total hours from Step 4 to arrive at a national average hourly wage (using the same blending methodology described in Step 7). Using the data as described above, the national average hourly wage is $21.7702.

Step 9—For each urban or rural labor market area, we calculated the hospital wage index value 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 developed 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 added the total adjusted salaries plus wage-related costs (as calculated in Step 5) for all hospitals in Puerto Rico and divided the sum by the total hours for Puerto Rico (as calculated in Step 4) to arrive at an overall average hourly wage of $10.1902 for Puerto Rico.

For each labor market area in Puerto Rico, we calculated 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 may not be less than the area wage index applicable to hospitals located in rural areas in that State. Furthermore, this wage index floor is to be implemented in such a manner as to assure that aggregate prospective payment system payments are not greater or less than those that would have been made in the year if this section did not apply. For FY 2001, this change affects 193 hospitals in 34 MSAs. The MSAs affected by this

provision are identified in Table 4A by a footnote.

F. Revisions to the Wage Index Based on Hospital Redesignation

Under section 1886(d)(8)(B) of the Act, hospitals in certain rural counties adjacent to one or more MSAs are considered to be located in one of the adjacent MSAs if certain standards are met. Under section 1886(d)(10) of the Act, the Medicare Geographic Classification Review Board (MGCRB) considers applications by hospitals for geographic reclassification for purposes of payment under the prospective payment system. Applications for MGCRB reclassification are now on the internet at http://www.hcfa.gov/regs/appeals.

1. Provisions of Public Law 106-113

Under section 152(b) of Public Law 106-113, hospitals in certain counties are deemed to be located in specified areas for purposes of payment under the hospital inpatient prospective payment system, for discharges occurring on or after October 1, 2000. For payment purposes, these hospitals are to be treated as though they were reclassified for purposes of both the standardized amount and the wage index. In the May 5 proposed rule we calculated FY 2001 wage indexes for hospitals in the affected counties as if they were reclassified to the specified area.

For purposes of making payments under section 1886(d) of the Act for FY 2001, section 152(b) provides the following:

• Iredell County, North Carolina is deemed to be located in the Charlotte-Gastonia-Rock Hill, North Carolina-South Carolina MSA;

• Orange County, New York is deemed to be located in the New York, New York MSA;

• Lake County, Indiana and Lee County, Illinois are deemed to be located in the Chicago, Illinois MSA;

• Hamilton-Middletown, Ohio is deemed to be located in the Cincinnati, Ohio-Kentucky-Indiana MSA;

• Brazoria County, Texas is deemed to be located in the Houston, Texas MSA;

• Chittenden County, Vermont is deemed to be located in the Boston-Worcester-Lawrence-Lowell-Brockton, Massachusetts-New Hampshire MSA.

Section 152(b) also requires that these reclassifications be treated for FY 2001 as though they are reclassification decisions by the MGCRB. Therefore, in the May 5 proposed rule, we proposed that the wage indexes for the areas to which these hospitals are reclassifying, as well as the wage indexes for the areas in which they are located, would be subject to all of the normal rules for calculating wage indexes for hospitals affected by reclassification decisions by the MGCRB, as described below.

In addition, we proposed that the reclassifications enacted by section 152(b) pertain only to the hospitals located in the specified counties, not to hospitals in other counties within the MSA or hospitals reclassified into the MSA by the MGCRB.

Under section 154(b) of Public Law 106-113, the Allentown-Bethlehem-Easton, Pennsylvania MSA wage index was calculated including the wage data for Lehigh Valley Hospital. Section 154(b) states that, for FY 2001, “[n]otwithstanding any other provision of section 1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)), in calculating and applying the wage indices under that section for discharges occurring during fiscal year 2001, Lehigh Valley Hospital shall be treated as being classified in the Allentown-Bethlehem-Easton Metropolitan Statistical Area.” We stated in the proposed rule that this statutory language directs us to include Lehigh Valley Hospital's wage data in the wage index calculation for the Allentown-Bethlehem-Easton MSA for FY 2000 and FY 2001.

Section 1886(d)(8)(B) of the Act established that a hospital located in a rural county adjacent to one or more urban areas is treated as being located in the MSA to which the greatest number of workers in the county commute, if the rural county would otherwise be considered part of an MSA (or NECMAs), 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. Through FY 2000, hospitals are required to use standards published in the Federal Register on January 3, 1980, by the Office of Management and Budget. For FY 2000, there were 27 hospitals affected by this provision.

Section 402 of Public Law 106-113 amended section 1886(d)(8)(B) of the Act to allow hospitals to elect to use the standards published in the

Federal Register

on January 3, 1980 (1980 decennial census data) or March 30, 1990 (1990 decennial census data) during FY 2001 and FY 2002. As of FY 2003, hospitals will be required to use the standards published in the

Federal Register

by the Director of the Office of Management and Budget based on the most recent available decennial population data.

We are in the process of working with the Office of Management and Budget to identify the hospitals that would be affected by this amendment. We will revise payments to hospitals in the affected counties as soon as data is available. Hospitals will have this option during FY 2001 and FY 2002. After FY 2002, hospitals will be required to use data based on the 2000 decennial census. We refer the reader to the September 30, 1988 final rule (53 FR 38499) for a complete discussion of our approach to identify the outlying counties using the standards published in the January 3, 1980

Federal Register

.

Comment:

We received three comments on our proposed policy to treat hospitals reclassifying into an area containing one of the counties reclassified by section 152(b) in a manner similar to any other situation where a hospital reclassifies into an area where hospitals in that area have been reclassified into another area. The commenters, all hospitals that have been granted a reclassification into an area containing a county reclassified by section 152(b), requested that they should be permitted to reclassify along with the county identified by section 152(b). They added that, in the event it was determined that their preferred solution was not permissible, the wage index of the area to which they were reclassified should be calculated by including the wage data for the hospitals reclassified by section 152(b).

The commenters noted that they would be at a competitive disadvantage by the section 152(b) reclassifications if they were treated similar to other decisions by the MGCRB. In addition, they believed that the Secretary has some discretion with respect to calculating the wage indexes for areas with hospitals that have been reclassified, noting that the legislation does not specifically direct the Secretary to exclude reclassified hospitals from the calculation for the area in which a hosp

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