Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2004 Rates

Federal RegisterAug 1, 2003

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412 and 413

[CMS-1470-F]

RIN 0938-AL89

Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2004 Rates

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital costs to implement changes arising from our continuing experience with these systems. In addition, in the Addendum to this final rule, we are describing 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 are applicable to discharges occurring on or after October 1, 2003. We also are setting forth rate-of-increase limits as well as policy changes for hospitals and hospital units excluded from the IPPS that are paid on a cost basis subject to these limits.

Among other changes that we are making are: changes to the classification of cases to the diagnosis-related groups (DRGS); changes to the long-term care (LTC)-DRGs and relative weights; the introduction of updated wage data used to compute the wage index; the approval of new technologies for add-on payments; changes to the policies governing postacute care transfers; payments to hospitals for the direct and indirect costs of graduate medical education; pass-through payments for nursing and allied health education programs; determination of hospital beds and patient days for payment adjustment purposes; and payments to critical access hospitals (CAHs).

EFFECTIVE DATES:

The provisions of this final rule, except the provisions of § 412.230(e)(2)(ii)(A) (because it grants an exemption) and § 412.278(f)(2)(i), are effective on October 1, 2003. The provisions of § 412.230(e)(2)(ii)(A) and § 412.278(f)(2)(i) are effective on August 1, 2003. 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, 2003.

FOR FURTHER INFORMATION CONTACT:

Stephen Phillips, (410) 786-4548, Operating Prospective Payment, Diagnosis-Related Groups (DRGs), Wage Index, New Medical Services and Technology, Patient Transfers, Counting Beds and Patient Days, and Hospital Geographic Reclassifications Issues.

Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Nursing and Allied Health Education, Graduate Medical Education, and Critical Access Hospital Issues, and Long-Term Care (LTC)-DRGs.

Sandra Hetrick, (410) 786-4542, RCE Limits.

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Acronyms

AHIMA American Health Information Management Association

AHA American Hospital Association

CAH Critical access hospital

CBSAs Core Based Statistical Areas

CC Complication or comorbidity

CMS Centers for Medicare & Medicaid Services

CMSA Consolidated Metropolitan Statistical Areas

COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-272

CPI Consumer Price Index

CRNA Certified registered nurse anesthetist

DRG Diagnosis-related group

DSH Disproportionate share hospital

FDA Food and Drug Administration

FQHC Federally qualified health center

FTE Full-time equivalent

FY Federal fiscal year

GME Graduate medical education

HIPC Health Information Policy Council

HIPAA Health Insurance Portability and Accountability Act, Pub. L. 104-191

HHA Home health agency

ICD-9-CM International Classification of Diseases, Ninth Revision, and Clinical Modification

ICD-10-PCS International Classification of Diseases Tenth Edition, and Procedure Coding System

IME Indirect medical education

IPPS Acute care hospital inpatient prospective payment system

IRF Inpatient Rehabilitation Facility

LDP Labor, delivery, and postpartum

LTC-DRG Long-term care diagnosis-related group

LTCH Long-term care hospital

MCE Medicare Code Editor

MDC Major diagnostic category

MDH Medicare-dependent small rural hospital

MedPAC Medicare Payment Advisory Commission

MedPAR Medicare Provider Analysis and Review File

MEI Medicare Economic Index

MGCRB Medicare Geographic Classification Review Board

MPFS Medicare Physician Fee Schedule

MSA Metropolitan Statistical Area

NECMA New England County Metropolitan Areas

NCHS National Center for Health Statistics

NCVHS National Committee on Vital and Health Statistics

O.R. Operating room

PPS Prospective payment system

PRA Per resident amount

ProPAC Prospective Payment Assessment Commission

PRRB Provider Reimbursement Review Board

RCE Reasonable compensation equivalent

RHC Rural health center

RRC Rural referral center

SCH Sole community hospital

SNF Skilled nursing facility

TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248

UHDDS Uniform Hospital Discharge Data Set

Table of Contents

I. Background

A. Summary

B. Summary of the Provisions of the May 19, 2003 Proposed Rule

C. Public Comments Received to the May 19, 2003 IPPS Proposed Rule

II. Changes to DRG Classifications and Relative Weights

A. Background

B. DRG Reclassification

1. General

2. Review of DRGs for Complications or Comorbidity (CC) Split

3. MDC 1 (Diseases and Disorders of the Nervous System)

a. Revisions of DRGs 1 and 2

b. DRG 23 (Nontraumatic Stupor and Coma)

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

a. DRG 478 (Other Vascular Procedures With CC) and DRG 479 (Other Vascular Procedures Without CC)

b. DRGs 514 (Cardiac Defibrillator Implant With Cardiac Catheterization) and 515 (Cardiac Defibrillator Implant Without Cardiac Catheterization)

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)

6. MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period)

a. Nonneonate Diagnoses

b. Heart Failure Codes for Newborns and Neonates

7. MDC 17 (Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms)

8. MDC 23 (Factors Influencing Health Status and Other Contracts with Health Services)

a. Implantable Devices

b. Malignancy Codes

9. Medicare Code Editor (MCE) Change

10. Surgical Hierarchies

11. Refinement of CCs

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

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

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

c. Adding Diagnosis Codes to MDCs

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

14. Other Issues

a. Cochlear Implants

b. Burn Patients on Mechanical Ventilation

c. Multiple Level Spinal Fusion

d. Heart Assist System Implant

e. Drug-Eluting Stents

f. Artificial Anal Sphincter

C. Recalibration of DRG Weights

D. LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2004

1. Background

2. Changes in the LTC-DRG Classifications

a. Background

b. Patient Classifications into DRGs

3. Development of the Final FY 2004 LTC-DRG Relative Weights

a. General Overview of Development of the LTC-DRG Relative Weights

b. Data

c. Hospital-Specific Relative Value Methodology

d. Low Volume LTC-DRGs

4. Steps for Determining the Final FY 2004 LTC-DRG Relative Weights

E. Add-On Payments for New Services and Technologies

1. Background

2. FY 2004 Status of Technology Approved for FY 2003 Add-On Payments:

Drotrecogin Alfa (Activated)—Xigris®

3. FY 2004 Applicants for New Technology Add-On Payments

a. Bone Morphogenetic Proteins (BMPs) for Spinal Fusions

b. GLIADEL® Wafer

4. Review of the High-Cost Threshold

5. Technical Changes

III. Changes to the Hospital Wage Index

A. Background

B. FY 2004 Wage Index Update

C. FY 2004 Wage Index Changes

1. Elimination of Wage Costs Associated with Rural Health Clinics and Federally Qualified Health Centers

2. Paid Hours

D. Verification of Wage Data from the Medicare Cost Reports

E. Computation of the FY 2004 Wage Index

F. Revisions to the Wage Index Based on Hospital Redesignation

1. General

2. Effects of Reclassification

G. Requests for Wage Data Corrections

H. Modification of the Process and Timetable for Updating the Wage Index

IV. Other Decisions and Changes to the IPPS for Operating Costs and GME Costs

A. Transfer Payment Policy

1. Transfers to Another Acute Care Hospital

2. Technical Correction

3. Expanding the Postacute Care Transfer Policy to Additional DRGs

B. Rural Referral Centers

1. Case-Mix Index

2. Discharges

C. Indirect Medical Education (IME) Adjustment and Disproportionate Share Hospital (DSH) Adjustment

1. Available Beds and Patient Days: Background

2. Unoccupied Beds

3. Nonacute Care Beds and Days

4. Observation Beds and Swing-Beds

5. Labor, Delivery, and Postpartum Beds and Days

6. Days Associated with Demonstration Projects under Section 1115 of the Act

7. Dual-Eligible Patient Days

8. Medicare+Choice (M+C) Days

D. Medicare Geographic Classification Review Board (MGCRB) Reclassification Process

E. Costs of Approved Nursing and Allied Health Education Activities

1. Background

2. Continuing Education Issue for Nursing and Allied Health Education Activities

3. Programs Operated by Wholly Owned Subsidiary Educational Institutions of Hospitals

F. Payment for Direct Costs of Graduate Medical Education

1. Background

2. Prohibition Against Counting Residents Where Other Entities First Incur the Training Costs

3. Rural Track FTE Limitation for Purposes of Direct GME and IME for Urban Hospitals that Establish Separately Accredited Approved Medical Programs in a Rural Area

a. Change in the Amount of Rural Training Time Required for an Urban Hospital to Qualify for an Increase in the Rural Track FTE Limitation

b. Inclusion of Rural Track FTE Residents in the Rolling Average Calculation

4. Technical Changes Related to Affiliated Groups and Affiliated Agreements

G. Notification of Updates to the Reasonable Compensation Equivalent (RCE) Limits

1. Background

2. Publication of the Updated RCE Limits

3. Application of RCE Limits

4. Exceptions to RCE Limits

5. Geographic Area Classifications for RCE Limits

V. PPS for Capital-Related Costs

VI. Changes for Hospitals and Hospital Units Excluded from the IPPS

A. Payments to Excluded Hospitals and Hospital Units

1. Payments to Existing Excluded Hospitals and Hospital Units

2. Updated Caps for New Excluded Hospitals and Units

6. Implementation of a PPS for IRFs

4. Development of a PPS for Inpatient Psychiatric Facilities

5. Implementation of a PPS for LTCHs

6. Report of Adjustment (Exception) Payments

B. Payment for Services Furnished at Hospitals-Within-Hospitals and Satellite Facilities

C. Clarification of Classification Requirements for LTCHs

D. Criteria for Payment on a Reasonable Cost Basis for Clinical Diagnostic Laboratory Services Performed by CAHs

E. Technical Changes

VII. MedPAC Recommendations

VIII. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements

Regulation Text

Addendum—Schedule of Standardized Amounts Effective with Discharges Occurring On or After October 1, 2003 and Update Factors and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning On or After October 1, 2003

Tables

Table 1A—National Adjusted Operating Standardized Amounts, Labor/Nonlabor

Table 1C—Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor

Table 1D—Capital Standard Federal Payment Rate

Table 2—Hospital Average Hourly Wage for Federal Fiscal Years 2002 (1998 Wage Data), 2003 (1999 Wage Data), and 2004 (2000 Wage Data) Wage Indexes and 3-Year Average of Hospital Average Hourly Wages

Table 3A—3-Year Average Hourly Wage for Urban Areas

Table 3B—3-Year Average Hourly Wage for Rural Areas

Table 4A—Wage Index and Capital Geographic Adjustment Factor for Urban Areas

Table 4B—Wage Index and Capital Geographic Adjustment Factor for Rural Areas

Table 4C—Wage Index and Capital Geographic Adjustment Factor for Hospitals That Are Reclassified

Table 4F—Puerto Rico Wage Index and Capital Geographic Adjustment Factor

Table 4G—Pre-Reclassified Wage Index for Urban Areas

Table 4H—Pre-Reclassified Wage Index for Rural Areas

Table 5—List of Diagnosis-Related Groups (DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay (LOS)

Table 6A—New Diagnosis Codes

Table 6B—New Procedure Codes

Table 6C—Invalid Diagnosis Codes

Table 6D—Invalid Procedure Codes

Table 6E—Revised Diagnosis Code Titles

Table 6F—Revised Procedure Code Titles

Table 6G—Additions to the CC Exclusions List

Table 6H—Deletions from the CC Exclusions List

Table 7A—Medicare Prospective Payment System Selected Percentile Lengths of Stay FY 2002: MedPAR Update March 2003 GROUPER V20.0

Table 7B—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2002 MedPAR Update March 2003 GROUPER V21.0

Table 8A—Statewide Average Operating Cost-to-Charge Ratios for Urban and Rural Hospitals (Case-Weighted)

Table 8B—Statewide Average Capital Cost-to-Charge Ratios (Case-Weighted)

Table 9—Hospital Reclassifications and Redesignations by Hospital—FY 2004

Table 10—Thresholds to Qualify for New Technology Add-On Payments: FY 2004

Table 11—LTC-DRGs Relative Weights and Geometric and Five-Sixths of the Average Length of Stay—FY 2004

Appendix A—Regulatory Impact Analysis

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

I. Background

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).

The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located; and if the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.

If the hospital treats a high percentage of low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment may vary based on the outcome of the statutory calculations.

If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid under the IPPS (known as the indirect medical education (IME) adjustment). This percentage varies, depending on the ratio of residents to beds.

Additional payments may be made for cases that involve new technologies that have been approved for special add-on payments. To qualify, a new technology must demonstrate that it is a substantial clinical improvement over technologies otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment.

The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any outlier payment due is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology add-on adjustments.

Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid the higher of a hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate based on the standardized amount. For example, sole community hospitals (SCHs) are the sole source of care in their areas, and Medicare-dependent, small rural hospitals (MDHs) are a major source of care for Medicare beneficiaries in their areas. Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries (although MDHs receive only 50 percent of the difference between the IPPS rate and their hospital-specific rates if the hospital-specific rate is higher than the IPPS rate).

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital PPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Similar adjustments are also made for IME and DSH as under the operating IPPS. In addition, hospitals may receive an outlier payment for those cases that have unusually high costs.

The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR part 412, Subparts A through M.

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: psychiatric hospitals and units, rehabilitation hospitals and units; long-term care hospitals (LTCHs); children's hospitals; and cancer hospitals. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation

facilities (IRFs)), psychiatric hospitals and units, and LTCHs, as discussed below. Children's hospitals and cancer hospitals continue to be paid under reasonable cost-based reimbursement.

The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413.

a. Inpatient Rehabilitation Facilities

Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and prospective payments for cost reporting periods beginning January 1, 2002 through September 30, 2002, to payment on a full prospective payment system basis effective for cost reporting periods beginning on or after October 1, 2002 (66 FR 41316, August 7, 2001 and 67 FR 49982, August 1, 2002). The existing regulations governing payments under the IRF PPS are located in 42 CFR part 412, subpart P.

b. LTCHs

Under the authority of sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554, LTCHs are being transitioned from being paid for inpatient hospital services based on a blend of reasonable cost-based reimbursement under section 1886(b) of the Act to fully Federal prospective rates during a 5-year period, beginning with cost reporting periods that start on or after October 1, 2002. For cost reporting periods beginning on or after October 1, 2006, LTCHs will be paid under the fully Federal prospective payment rate (the June 6, 2003 LTCH PPS final rule (68 FR 34122)). LTCHs may elect to be paid based on full PPS payments instead of a blended payment in any year during the 5-year transition period. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O.

c. Psychiatric Hospitals and Units

Sections 124(a) and (c) of Public Law 106-113 provide for the development of a per diem PPS for payment for inpatient hospital services furnished in psychiatric hospitals and units under the Medicare program, effective for cost reporting periods beginning on or after October 1, 2002. This system must include an adequate patient classification system that reflects the differences in patient resource use and costs among these hospitals and maintain budget neutrality. We are in the process of developing a proposed rule, to be followed by a final rule, to implement the PPS for psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs).

3. Critical Access Hospitals

Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services on a reasonable cost basis. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 413 and 415.

4. Payments for Graduate Medical Education

Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act; the amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413.

B. Summary of the Provisions of the May 19, 2003 Proposed Rule

On May 19, 2003, we published a proposed rule in the

Federal Register

(68 FR 27154) that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs in FY 2004. We also set forth proposed changes relating

payments for GME costs, payments to CAHs, and payments to providers classified as psychiatric hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis. These changes were proposed to be effective for discharges occurring on or after October 1, 2003.

The following is a summary of the major changes that we proposed and the issues we addressed in the May 19, 2003 proposed rule:

1. Changes to the DRG Reclassifications and Recalibrations of Relative Weights

As required by section 1886(d)(4)(C) of the Act, we proposed annual adjustments to the DRG classifications and relative weights. Based on analyses of Medicare claims data, we proposed to establish a number of new DRGs and make changes to the designation of diagnosis and procedure codes under other existing DRGs.

Among the proposed changes discussed were:

• Expansion of the number of DRGs that are split on the basis of the presence or absence of complications or comorbidities (CCs). The DRGs we proposed to split were: DRG 4 (Spinal Procedures) into proposed new DRGs 531 and 532 (Spinal Procedures With and Without CC, respectively); DRG 5 (Extracranial Vascular Procedures) into proposed new DRGs 533 and 534 (Extracranial Vascular Procedures With and Without CC, respectively); DRG 231 (Local Excision and Removal of Internal Fixation Devices Except Hip and Femur) into proposed new DRGs 537 and 538 (Local Excision and Removal of Internal Fixation Devices Except Hip and Femur With and Without CC, respectively); and DRG 400 (Lymphoma and Leukemia With Major O.R. Procedure) into proposed new DRGs 539 and 540 (Lymphoma and Leukemia With Major O.R. Procedure With and Without CC, respectively).

• Creation of a new DRG for patients with an intracranial vascular procedure and an intracranial hemorrhage. The DRG we proposed to create was DRG 528 (Intracranial Vascular Procedure With a Principal Diagnosis of Hemorrhage).

• Creation of two new DRGs, differentiated on the basis of the presence or absence of a CC, for craniotomy patients with only a vascular shunt procedure. The DRGs we proposed to create were DRGs 529 and 530 (Ventricular Shunt Procedure With CC and Without CC, respectively).

• Creation of two new DRGs to differentiate current DRG 514 (Cardiac Defibrillator Implant With Cardiac Catheterization) on the basis of whether the patient does or does not experience any of the following symptoms: acute myocardial infarction, heart failure, or shock. The new DRGs we proposed were DRG 535 (Cardiac Defibrillator Implant With Cardiac Catheterization and With Acute Myocardial Infarction, Heart Failure, or Shock) and DRG 536 (Cardiac Defibrillator Implant With Cardiac Catheterization and Without Acute Myocardial Infarction, Heart Failure, or Shock)

• Changes in the DRG assignment of certain congenital anomalies that currently result in patients being assigned to newborn DRGs even when the patient is actually an adult. We also proposed adding to the list of major problems in newborns that affect DRG assignment.

• Modification of DRG 492 (Chemotherapy With Acute Leukemia as

Secondary Diagnosis) to include in this DRG cases receiving high-dose Interleukin-2 (IL-2) chemotherapy for patients with advanced renal cell cancer and advanced melanoma.

We also presented our analysis of applicants for add-on payments for high-cost new medical technologies and proposed a revision to the high-cost threshold for a new technology or medical service to qualify for add-on payments.

• We proposed to continue to make add-on payments for Xigris.

• We discussed new applications for add-on payments for FY 2004.

• We proposed to reduce the high-cost threshold for a new technology or medical service to qualify for add-on payments from 1 standard deviation above the geometric mean standardized charge for cases in the DRGs to which the new technology is assigned to 75 percent of 1 standard deviation.

2. Changes to the Hospital Wage Index

We proposed revisions to the wage index and the annual update of the wage data. Specific issues addressed in this section included the following:

• The FY 2004 wage index update, using wage data from cost reporting periods that began during FY 2000.

• Exclusion of the wage data for rural health centers (RHCs) and Federally qualified health centers (FQHCs) from the calculation of the FY 2004 wage index.

• Exclusion of paid hours associated with military and jury duty leave from the wage index calculation, and request for comments on possible exclusion of paid lunch or meal break hours.

• Revisions to the wage index based on hospital redesignations and reclassifications.

• Amendments to the timetable for reviewing and verifying the wage data that will be in effect for the FY 2005 wage index.

3. Other Decisions and Changes to the PPS for Inpatient Operating and GME Costs

In the proposed rule, we discussed several provisions of the regulations in 42 CFR Parts 412 and 413 and set forth certain proposed changes concerning the following:

• Expansion of the current postacute transfer policy to 19 additional DRGs.

• Clarification of our policies that would be applied to counting hospital beds and patient days, in particular with regard to the treatment of swing-beds and observation beds, for purposes of the IME and DSH adjustments.

• Changes in our policy relating to nursing and allied health education payments to wholly owned subsidiary educational institutions of hospitals.

• Clarification of our policy relating to application of redistribution of costs and community support funds in determining a hospital's resident training costs.

• A change in the amount of rural training time required for an urban hospital to qualify for an increase in the rural track FTE limitation.

• Inclusion of FTE residents training in rural tracks in a hospital's rolling average calculation.

4. PPS for Capital-Related Costs

We discussed the payment requirements for capital-related costs. We did not propose any changes to the policies on payments to hospitals for capital-related costs.

5. Changes for Hospitals and Hospital Units Excluded From the IPPS

We discussed the following proposed revisions and clarifications concerning excluded hospitals and hospital units and CAHs:

• Revisions to the operation of excluded grandfathered hospitals-within-hospitals in effect on September 30, 1999.

• Clarification of the classification criteria for LTCHs.

• Clarification of the policy on payments for laboratory services provided by a CAH to patients outside a CAH.

6. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits

In the Addendum to the May 19, 2003 proposed rule, we proposed changes to the amounts and factors for determining the FY 2004 prospective payment rates for operating costs and capital-related costs. We also established the proposed threshold amounts for outlier cases. In addition, we addressed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2004 for hospitals and hospital units excluded from the PPS.

7. Impact Analysis

In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected hospitals.

8. Recommendation of Update Factor for Hospital Inpatient Operating Costs

In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2004 for the following:

• Large urban area and other area average standardized amounts (and hospital-specific rates applicable to SCHs and MDHs) for hospital inpatient services paid under the IPPS for operating costs.

• Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by hospitals and hospital units excluded from the IPPS.

9. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, the Medicare Payment Advisory Commission (MedPAC) is required to submit a report to Congress, no later than March 1 of each year, that reviews and makes recommendations on Medicare payment policies. In the proposed rule, we discussed the MedPAC recommendations concerning hospital inpatient payment policies and presented our response to those recommendations. For further information relating specifically to the MedPAC March 1 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at:

http://www.medpac.gov.

C. Public Comments Received in Response to the May 19, 2003 IPPS Proposed Rule

We received approximately 4,200 timely items of correspondence containing multiple comments on the May 19, 2003 proposed rule. Summaries of the public comments and our responses to those comments are set forth below under the appropriate heading.

II. Changes to DRG Classifications and Relative Weights

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, we pay for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average

resources used to treat cases in all DRGS.

Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources. Changes to the DRG classification system and the recalibration of the DRG weights for discharges occurring on or after October 1, 2003 are discussed below.

B. DRG Reclassification

1. General

Cases are classified into DRGs for payment under the IPPS based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. In a small number of DRGs, classification is also based on the age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM).

For FY 2003, cases are assigned to one of 510 DRGs in 25 major diagnostic categories (MDCs). Most MDCs are based on a particular organ system of the body. For example, MDC 6 is Diseases and Disorders of the Digestive System. This approach is used because clinical care is generally organized in accordance with the organ system affected. However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). The table below lists the 25 MDCs.

Major diagnostic categories

Diseases and Disorders of the Nervous System.

Diseases and Disorders of the Eye.

Diseases and Disorders of the Ear, Nose, Mouth, and Throat.

Diseases and Disorders of the Respiratory System.

Diseases and Disorders of the Circulatory System

Diseases and Disorders of the Digestive System.

Diseases and Disorders of the Hepatobiliary System and Pancreas.

Diseases and Disorders of the Musculoskeletal System and Connective Tissue.

Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.

Endocrine, Nutritional and Metabolic Diseases and Disorders.

Diseases and Disorders of the Kidney and Urinary Tract.

Diseases and Disorders of the Male Reproductive System.

Diseases and Disorders of the Female Reproductive System.

Pregnancy, Childbirth, and the Puerperium.

Newborns and Other Neonates with Conditions Originating in the Perinatal Period.

Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.

Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.

Infectious and Parasitic Diseases (Systemic or Unspecified Sites).

Mental Diseases and Disorders.

Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.

Injuries, Poisonings, and Toxic Effects of Drugs.

Burns.

Factors Influencing Health Status and Other Contacts with Health Services.

Multiple Significant Trauma.

Human Immunodeficiency Virus Infections.

In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to a DRG. However, for FY 2003, there are eight DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These DRGs are for heart, liver, bone marrow, lung, simultaneous pancreas/kidney, and pancreas transplants (DRGs 103, 480, 481, 495, 512, and 513, respectively) and for tracheostomies (DRGs 482 and 483). Cases are assigned to these DRGs before they are classified to an MDC.

Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (less than or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or a comorbidity (CC).

Generally, nonsurgical procedures and minor surgical procedures that are not usually performed in an operating room are not treated as O.R. procedures. However, there are a few non-O.R. procedures that do affect DRG assignment for certain principal diagnoses, for example, extracorporeal shock wave lithotripsy for patients with a principal diagnosis of having urinary stones.

Patient's diagnosis, procedure, discharge status, and demographic information is fed into the Medicare claims processing systems and subjected to a series of automated screens called the Medicare Code Editor (MCE). The MCE screens are designed to identify cases that require further review before classification into a DRG.

After patient information is screened through the MCE and any further development of the claim is conducted, cases are classified into the appropriate DRG by the Medicare GROUPER software program. The GROUPER program was developed as a means of classifying each case into a DRG on the basis of the diagnosis and procedure codes and, for a limited number of DRGs, demographic information (that is, sex, age, and discharge status).

After cases are screened through the MCE and assigned to a DRG by the GROUPER, a base DRG payment is calculated by the PRICER software. The PRICER calculates the payments for each case covered by the IPPS based on the DRG relative weight and additional factors associated with each hospital, such as IME and DSH adjustments. These additional factors increase the payment amount to hospitals above the base DRG payment.

The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible DRG classification changes and to recalibrate the DRG weights. However, in the July 30, 1999 IPPS final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for us to consider the feasibility of using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete database should be submitted by early December for consideration in conjunction with the next year's proposed rule.

Many of the changes to the DRG classifications are the result of specific issues brought to our attention by interested parties. We encourage individuals with concerns about DRG classifications to bring those concerns to our attention in a timely manner so they can be carefully considered for possible inclusion in the next proposed rule and so any proposed changes may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the DRG recalibration process, concerns about DRG classification issues should be brought to our attention no later than early December in order to be considered and possibly included in the next annual proposed rule updating the IPPS.

In the May 19, 2003 proposed rule, we proposed numerous changes to the DRG classification system for FY 2004. The changes we proposed to the DRG classification system for FY 2004, the public comments we received concerning the proposed changes, the final DRG changes, and the methodology used to recalibrate the DRG weights are set forth below. The changes we are implementing in this final rule will be reflected in the revised FY 2004 GROUPER version 21.0 and effective for discharges occurring on or after October 1, 2003. Unless otherwise noted in this final rule, our DRG analysis is based on data from the March 2002 update of the FY 2002 MedPAR file, which contains hospital bills received through March 31, 2002, for discharges in FY 2002.

2. Review of DRGs for a Split Based on Presence or Absence of a CC

In an effort to improve the clinical and cost cohesiveness of the DRG classification system, we have evaluated whether additional DRGs should be split based on the presence or absence of a CC. There are currently 116-paired DRGs that reflect a split based on the presence or absence of a CC. We last performed a systematic evaluation and considered changes to the DRGs to recognize the within-DRG cost differences based on the presence or absence of CCs in 1994 (May 27, 1994 IPPS proposed rule, 59 FR 27715). In the May 27, 1994 IPPS proposed rule, we described a refined DRG system based on a list of secondary diagnoses that have a major effect on the resources that hospitals use to treat patients across DRGs. We analyzed how the presence of the secondary diagnosis affected resource use compared to other secondary diagnoses, and classified these secondary diagnoses as non-CC, CC, or major CC. After finalizing the classification of secondary diagnoses, we evaluated which collapsed DRGs should be split based on the presence of a major CC, other CC, or both.

However, we did not implement this refined system because we did not believe it would be prudent policy to make changes for which we could not predict the effect on the case-mix (the average DRG relative weight for all cases) and, thus, payments (60 FR 29209). We were concerned that we would be unable to fulfill the requirement of section 1886(d)(4)(C)(iii) of the Act that aggregate payments may not be affected by DRG reclassification and recalibration of weighting factors. That is, our experience has been that hospitals respond to major changes to the DRGs by changing their coding practices in ways that increase total payments (for example, by beginning to include ICD-9-CM codes that previously did not affect payment for a case). Because changes in coding behavior do not represent a real increase in the severity of the overall mix of cases, total payments should not increase. We believe that the only way to ensure this behavioral response does not lead to higher total payments is to make an offsetting adjustment to the system in advance of the fiscal year for which the changes are effective.

The complete description of the analysis was published in the

Health Care Financing Review

(Edwards, N., Honemann, D., Burley, D., Navarro, M., “Refinement of the Medicare Diagnosis-Related Groups to Incorporate a Measure of Severity,”

Health Care Financing Review,

Winter 1994, Vol. 16, No. 2, p. 45).

Section 301(e) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) authorized the Secretary to make such a prospective adjustment to the average standardized amounts for discharges occurring on or after October 1, 2001, to ensure the total payment impacts of changes to the DRGs do not result in any more or less total spending than would otherwise occur without the changes (budget neutrality).

We are not proceeding with implementing a refined DRG system at this time, pending a decision whether to replace the ICD-9-CM coding system with another classification system. The refined DRG system discussed in the May 1994 IPPS proposed rule involved a complete and thorough assessment of all of the ICD-9-CM diagnosis codes in order to establish an illness severity level associated with each code. Rather than undertaking the time-consuming process of establishing illness severity levels for all ICD-9-CM codes at this time, we believe the more prudent course would be to delay this evaluation pending the potential replacement of ICD-9-CM. For example, the National Committee on Health and Vital Statistics (NCHVS) is considering making a recommendation to the Secretary on whether to recommend the adoption of the ICD-10-CM and the ICD-10—Procedure Coding System (PCS) as the national uniform standard coding system for inpatient reporting.

In the meantime, we have undertaken an effort to identify additional DRGs where a CC split appears most justified. Our analysis identified existing DRGs that meet the following criteria: a reduction in variance in charges within the DRG of at least 4 percent; fewer than 75 percent of all patients in the current DRG would be assigned to the with-CC DRG; and the overall payment impact (higher payments for cases in the with-CC DRG offset by lower payments for cases in the without-CC DRG) is at least $40 million.

The following four DRGs meet these criteria: DRG 4 (Spinal Procedures) and

DRG 5 (Extracranial Vascular Procedures) in MDC 1 (Diseases and Disorders of the Nervous System); DRG 231 (Local Excision and Removal of Internal Fixation Devices Except Hip and Femur) in MDC 8 (Diseases and Disorders of the Musculoskeletal and Connective Tissue); and DRG 400 (Lymphoma and Leukemia with Major O.R. Procedure) in MDC 17 (Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms).

The following data indicate that the presence or absence of a CC was found to have a significant impact on patient charges and on average lengths of stay in these four DRGs.

DRG

Number of cases

Average charges

Average length of stay

DRG 4 (Current)

4,488

$35,074

7.3

With CC

2,514

46,071

10.0

Without CC

1,974

21,070

3.9

DRG 5 (Current)

64,942

18,613

2.9

With CC

29,296

23,213

4.1

Without CC

35,646

14,833

2.0

DRG 231 (Current)

8,971

20,147

4.9

With CC

4,565

25,948

6.9

Without CC

4,406

14,136

2.9

DRG 400 (Current)

4,275

39,953

9.0

With CC

2,990

49,044

11.2

Without CC

1,285

18,799

4.0

Therefore, we proposed to establish the following new DRGs: proposed DRG 531 (Spinal Procedures With CC) and proposed DRG 532 (Spinal Procedures Without CC) in MDC 1; proposed DRG 533 (Extracranial Procedures With CC) (the proposed rule incorrectly included “Vascular” in the title) and proposed DRG 534 (Extracranial Procedures Without CC) (the proposed rule incorrectly included “Vascular” in the title) in MDC 1; proposed DRG 537 (Local Excision and Removal of Internal Fixation Devices Except Hip and Femur With CC) and proposed DRG 538 (Local Excision and Removal of Internal Fixation Devices Except Hip and Femur Without CC) in MDC 8; and proposed DRG 539 (Lymphoma and Leukemia With Major O.R. Procedure With CC) and DRG 540 (Lymphoma and Leukemia With Major O.R. Procedure Without CC) in MDC 17. We proposed that DRGs 4, 5, 231, and 400 would become invalid.

Comment:

Seven commenters supported the proposed expansion of the number of DRGs related to spinal procedures and extracranial vascular procedures and the removal of internal fixation devices. One commenter commended CMS for the proposed change to payments for implanting spinal code stimulation devices. Referring to proposed new DRGs 531 and 532, the commenter stated that most inpatients receiving a spinal cord stimulator implant have a comorbid condition, which adds significantly to the cost of care and can serve as a barrier to patient access. Another commenter specifically supported the new DRGs 533 and 534 for extracranial vascular procedures.

One commenter expressed support for CMS' recognition of cost differences within a given DRG based on the presence or absence of a CC and encouraged CMS to continue to consider secondary diagnoses that can have a substantial effect on hospital resources when restructuring DRGs based on cost considerations.

Response:

We appreciate the support for these proposals and are adopting them as final without further modification.

We are establishing new DRGs 531, 532, 533, 534, 537, 538, 539, and 540, effective for discharges occurring on or after October 1, 2003. As a result of establishing these new DRGS, DRGs 4, 5, 231, and 400 are invalid, effective October 1, 2003. We will continue to monitor whether additional DRGs should be split based on the presence or absence of a CC.

3. MDC 1 (Diseases and Disorders of the Nervous System)

a. Revisions of DRGs 1 and 2

In the FY 2003 IPPS final rule, we split DRGs 1 and 2 (Craniotomy Age > 17 With and Without CC, respectively) based on the presence or absence of a CC (67 FR 49986). We have received several proposals related to devices or procedures that are used in a small subset of cases from these DRGS. These proposals argue that the current payment for these devices or procedures under DRGs 1 and 2 is inadequate.

Therefore, we conducted an analysis of the charges for various procedures and diagnoses within DRGs 1 and 2 to assess whether further changes to these DRGs may be warranted. Currently, the average charges for cases assigned to DRGs 1 and 2 are approximately $55,000 and $30,000, respectively. In the May 19, 2003 proposed rule, we proposed to create two separate new DRGs for: (1) cases with an intracranial vascular procedure and a principal diagnosis of an intracranial hemorrhage; and (2) craniotomy cases with a ventricular shunt procedure (absent another procedure). The former set of cases are much more expensive than those presently in DRGs 1 and 2; the latter set of cases are much less expensive.

(1) Intracranial Vascular Procedures

Our analysis indicated that patients with an intracranial vascular procedure and a principal diagnosis of an intracranial hemorrhage were significantly more costly than other cases in DRGS 1 and 2. These patients have an acute condition with a high severity of illness and risk of mortality. There were 917 cases in DRGs 1 and 2 with an intracranial vascular procedure and a principal diagnosis of hemorrhage with average charges of approximately $113,884, which are much higher than the average charges of DRGS 1 and 2 noted above.

We also found 890 cases that had an intracranial vascular procedure without a principal diagnosis of hemorrhage (for example, nonruptured aneurysms). These cases are generally less acutely ill than those involving ruptured aneurysms, and have a lower risk of mortality. Among these 890 cases, the average charges were approximately $52,756, which are much more similar to the average charges for all cases in DRGs 1 and 2.

Based on this analysis, we proposed to create new DRG 528 (Intracranial Vascular Procedure With a Principal Diagnosis of Hemorrhage) for patients with an intracranial vascular procedure and an intracranial hemorrhage. We proposed that cases involving intracranial vascular procedures without a principal diagnosis of hemorrhage would remain in DRGs 1 and 2.

We indicated that proposed new DRG 528 would have the following principal diagnoses:

• 094.87, Syphilitic ruptured cerebral aneurysm

• 430, Subarachnoid hemorrhage

• 431, Intracerebral hemorrhage

• 432.0, Nontraumatic extradural hemorrhage

• 432.1, Subdural hemorrhage

• 432.9, Unspecified intracranial hemorrhage

And operating room procedures:

• 02.13, Ligation of meningeal vessel

• 38.01, Incision of vessel, intracranial vessels

• 38.11, Endarterectomy, intracranial vessels

• 38.31, Resection of vessel with anastomosis, intracranial vessels

• 38.41, Resection of vessel with replacement, intracranial vessels

• 38.51, Ligation and stripping of varicose veins, intracranial vessels

• 38.61, Other excision of vessels, intracranial vessels

• 38.81, Other surgical occlusion of vessels, intracranial vessels

• 39.28, Extracranial-intracranial (EC-IC) vascular bypass

• 39.51, Clipping of aneurysm

• 39.52, Other repair of aneurysm

• 39.53, Repair of arteriovenous fistula

• 39.72, Endovascular repair or occlusion of head and neck vessels

• 39.79, Other endovascular repair of aneurysm of other vessels

(2) Ventricular Shunt Procedures

We also found that craniotomy patients who had a ventricular shunt procedure (absent another procedure) were significantly less costly than other craniotomy patients in DRGs 1 and 2. Ventricular shunts are normally performed for draining intracranial fluid. A ventricular shunt is a less extensive procedure than the other intracranial procedures in DRGs 1 and 2. As a result, if a ventricular shunt is the only intracranial procedure performed, these cases will typically be less costly.

There were 4,373 cases in which only ventricular shunt procedures were performed. These cases had average charges of approximately $27,188. However, the presence or absence of a CC had a significant impact on patient charges and lengths of stay. There were 2,533 cases with CC, with average charges of approximately $33,907 and an average length of stay of 8.2 days. In contrast, there were 1,840 cases without CC, with average charges of approximately $17,939 and an average length of stay of 3.7 days.

Therefore, we proposed to create two new DRGs, splitting with CC and without CC, for patients with only a vascular shunt procedure: proposed new DRG 529 (Ventricular Shunt Procedures With CC) and proposed new DRG 530 (Ventricular Shunt Procedures Without CC).

We indicated that proposed new DRG 529 would consist of any principal diagnosis in MDC 1 (erroneously cited as MDC 5 in the proposed rule), with the presence of a CC and one of the following operating room procedures:

• 02.31, Ventricular shunt to structure in head and neck

• 02.32, Ventricular shunt to circulatory system

• 02.33, Ventricular shunt to thoracic cavity

• 02.34, Ventricular shunt to abdominal cavity and organs

• 02.35, Ventricular shunt to urinary system

• 02.39, Other operations to establish drainage of ventricle

• 02.42, Replacement of ventricular shunt

• 02.43, Removal of ventricular shunt

We proposed that the proposed new DRG 530 would consist of any principal diagnosis in MDC 1 (erroneously cited as MDC 5 in the proposed rule) with one of the operating room procedures listed above for the proposed new DRG 529, but without the presence of a CC.

Comment:

Four commenters supported the proposed creation of two DRGs to capture ventricular shunt procedures. Ten commenters supported the proposed creation of new DRG 528 for an intracranial vascular procedure with a principal diagnosis of hemorrhage.

Two commenters requested that CMS verify its GROUPER analysis and clarify in the final rule the estimated number of cases that will be assigned to DRG 528. One commenter also believed that CMS is underestimating the volume of hemorrhagic cases that would be assigned to this new DRG. The commenter indicated that its analysis of MedPAR 2001 data demonstrated 1,550 cases.

Response:

We conducted an analysis based on later available MedPAR data and found 1,596 cases that would be assigned to DRG 528 (based on a full year of MedPAR data). This volume is consistent with the commenter's analysis, although different MedPAR files were used in the analysis. In the proposed rule (68 FR 27161), we reported 917 cases based on preliminary data (6 months' worth of cases) that we analyzed when we considered the proposed change in the DRG classification. There were actually 1,354 cases grouped to the proposed new DRG 528 for the proposed rule.

Comment:

One commenter suggested the creation of a new companion DRG to DRG 528 for intracranial vascular procedures for unruptured cerebral aneurysms. The commenter was concerned that the charges for endovascular repair of unruptured aneurysms is higher than other procedures currently assigned to DRG 2.

Response:

The average charges for unruptured aneurysm cases varied according to the DRG to which the cases were assigned. The average charges for these cases in DRG 1 were slightly higher than the overall charges for that DRG, of approximately $69,682 and $54,900, respectively. However, we found that these charges are consistent with the variation of charges within this DRG and, therefore, did not propose a change in the DRG reclassification. Similarly, for cases assigned to DRG 2, we found the average charges of approximately $36,077 are consistent with the overall average charges of that DRG of approximately $32,000. We will continue to monitor these cases.

Comment:

Three commenters requested a change to the DRG assignment of cases involving implantation of GLIADEL® chemotherapy wafers to treat brain tumors.

One of the commenters offered two options: create a new DRG or reassign these cases to DRG 484 (Craniotomy for Multiple Significant Trauma). The commenter cited an example in which CMS has in the past grouped together in the same DRG cases that are clinically dissimilar but similar in resource intensity when there were no other options available. For FY 1998 (62 FR 45974), coronary stent cases were moved from DRG 112 (Percutaneous Cardiovascular Procedures) to DRG 116 (Other Permanent Cardiac Pacemaker Implant or PTCA with Coronary Artery Stent Implant). In that instance, CMS concluded that, although coronary artery stent cases are not clinically similar to the pacemaker cases in DRG 116, the resource consumption of these

cases is very similar. The commenter contended that, absent another appropriate craniotomy DRG, the same argument could be applied to assigning cases with GLIADEL® wafer to DRG 484.

We also discuss this issue later in this preamble under section II.E.3.b. relative to the application for new technology add-on payments for the GLIADEL® wafer.

In a comment on the proposed rule, the manufacturer of this implant provided estimated FY 2003 average costs and charges for these cases. Its report indicated that the costs of the cases of $24,280 would be the same for cases assigned to DRG 1 and DRG 2, and the charges of the cases of $50,394 would be the same for both DRGs. The manufacturer requested that we analyze the available data in the FY 2003 MedPAR file to identify GLIADEL® cases. The manufacturer believed these data support the need for a DRG change.

One commenter agreed with our determination that this technology is currently reflected within the DRG weights and does not meet the definition of a new technology.

Response:

In our analysis of the data from the March 2003 update of the FY 2003 MedPAR file, we found a total of 61 cases in which the ICD-9-CM procedure code 00.10 (Implantation of a chemotherapeutic agent) was reported for cases assigned to DRGs 1 and 2. There were 38 cases assigned to DRG 1 and 23 cases assigned to DRG 2. Consistent with the GROUPER logic for these DRGs that splits cases based on the presence or absence of CCs, we found that the average standardized charges in DRGs 1 and 2 were approximately $64,864 and $42,624, respectively. We believe that while the charges for GLIADEL® wafer cases may be higher than the average standardized charges for DRG 2, they are within the normal variation of the overall charges within each DRG.

We note that the DRGs are a system of averages, and there is expected to be variation in the average charges for different procedures and services across all DRGs. Hospitals are expected to be able to finance some higher cost procedures with lower cost procedures within the same DRG as well as across DRGs. Although the average charges of the cases we identified in our analysis are somewhat higher than the average charges of all cases in these DRGs, they are within the range of other procedures included in these DRGs. By way of comparison, we are creating a new DRG for cases with an intracranial vascular procedure and a principal diagnosis of an intracranial hemorrhage on the basis of our analysis that showed the average charges for these cases were $113,884. This is approximately $59,000 more than the average charges in DRG 1 (more than the total charges for the GLIADEL® cases reported by the commenter) and approximately $84,000 more than the average charges in DRG 2.

We also are concerned that there may be insufficient volume of cases to warrant the establishment of a new DRG for this technology. Thus, before considering the creation of a new DRG for these cases, we would like to review a full year of data, as well as consider alternative options if they appear warranted. It would also be necessary to provide opportunity for public comment on any potential changes to the DRG assignment of these cases before proceeding with a final change.

Currently, DRG 484 includes complex, multiple significant trauma cases; that is, patients with a principal diagnosis of trauma and at least two significant trauma diagnosis codes (either as principal or secondary diagnosis) from different body site categories. While this DRG includes craniotomy, it is assigned to MDC 24 (Multiple Significant Trauma). While the treatment for glioblastoma multiforme is significant, we do not believe these cases are clinically similar to other cases currently assigned to DRG 484.

We also are concerned that there may be insufficient volume to warrant the establishment of a new DRG for this technology, and we would like to review a full year of data, as well as consider alternative options if they appear warranted. It also would be necessary to provide opportunity for public comment on any potential changes before proceeding with a final change.

Comment:

Two commenters pointed out a typographical error in our proposal. The commenters indicated that we proposed new DRGs 529 and 530 for placement in MDC 5; the correct MDC should have been MDC 1.

Response:

We agree with the commenters and have corrected this placement, as indicated in the discussion above.

After consideration of the comments received, we are adopting as final the three new proposed DRGs 528, 529, and 530. These DRGS will be effective for discharges occurring on or after October 1, 2003.

b. DRG 23 (Nontraumatic Stupor and Coma)

In DRG 23 (Nontraumatic Stupor and Coma), there are currently six principal diagnoses identified by the following ICD-9-CM diagnosis codes: 348.4, Compression of the brain; 348.5, Cerebral edema; 780.01, Coma; 780.02, Transient alteration of awareness; 780.03, Persistent vegetative state; and 780.09, Other alteration of consciousness. Code 780.02 is often used to describe the diagnosis of psychiatric patients rather than the diagnosis of patients with severe neurological disorders. The treatment plan for a patient with “transient alteration of awareness” is clinically very different from the treatment plan for a coma patient. Furthermore, many patients with this diagnosis are treated in psychiatric facilities rather than in acute care hospitals.

Although there are neurological patients who present with the complaint of “transient alteration of awareness,” the cause of this alteration of consciousness is commonly identified, and the principal diagnosis for the hospital admission is the etiology of the alteration of consciousness rather than the symptom itself. For the few remaining neurological patients for whom the cause is not identified and for whom code 780.02 is assigned as the principal diagnosis, we believe that the care of these patients is different than the care of patients with coma or cerebral edema.

Because we believe the patients with a principal diagnosis of “transient alteration of consciousness” are more clinically related to the patients in DRG 429 (Organic Disturbances and Mental Retardation) in MDC 19 (Mental Diseases and Disorders), we proposed that patients who are assigned a principal diagnosis of code 780.02 would be assigned to DRG 429 instead of DRG 23. DRG 429 also contains similar diagnoses, such as code 293.81, Organic delusional syndrome and code 293.82, Organic hallucinosis syndrome. (We note that the charges for the patient cases in DRGs 23 and 429 are very similar ($11,559 and $11,713, respectively), so the proposed movement of code 780.02 from DRG 23 to DRG 429 would have minimal payment impact.) Moving this diagnosis code as proposed would also consolidate diagnoses treated frequently in psychiatric hospitals in those DRGs that are likely to be a part of the upcoming proposed Medicare psychiatric facility PPS.

Comment:

An organization representing hospitals supported our proposed change, while other commenters opposed the change. The commenters who opposed the change stated that code 780.02 is included in the ICD-9-CM chapter for signs and symptoms of ill-defined conditions. The commenters believed that since this code is included in a chapter with ill-defined conditions, it would be inappropriate to move the code to DRG 429. The commenters stated that this

code does not describe a mental disorder; and disagreed with our statement in the proposed rule that code 780.02 was similar to codes 293.81 and 293.82. The commenters further stated that they disagreed with our assertion that many patients with a diagnosis of transient alteration of awareness are treated in psychiatric facilities.

Response:

Our review of claims data indicates that code 780.02 is a frequent diagnosis for patients admitted to psychiatric hospitals. Many patients are likely to present with transient alteration of awareness at the time of admission to a psychiatric hospital. The cause of this transient alteration is likely to be diagnosed during the stay, leading to the assignment of another, more specific principal diagnosis.

However, in many patients, this is not the case, and no underlying cause for the transient alteration of awareness is determined. When a more definitive diagnosis cannot be made, the patient is left with the diagnosis of alteration of awareness. We recognize the difficulty in assigning symptoms such as these to the most appropriate DRG. However, we will note that the average charges for DRG 23 (where the code is currently assigned) and DRG 429 are similar.

Therefore, we are proceeding with the assignment of code 780.02 to DRG 429 based on a review of psychiatric hospital data as well as a clinical comparison of cases already assigned to DRG 429.

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

a. DRG 478 (Other Vascular Procedures With CC) and DRG 479 (Other Vascular Procedures Without CC)

Code 37.64 (Removal of heart assist system) in DRGs 478 and 479 describes the operative, as opposed to bedside, removal of a heart assist system. Based on comments we received suggesting that code 37.64 was inappropriately assigned to DRGs 478 and 479, we reviewed the MedPAR data for both DRGs 478 and 479 and DRG 110 (Major Cardiovascular Procedures With CC) and DRG 111 (Major Cardiovascular Procedures Without CC) to assess the appropriate assignment of code 37.64.

We found that there were only 17 cases of code 37.64 in DRGs 478 and 479, with an average length of stay of 14.1 days and average charges of $105,153. There were a total of 90,591 cases in DRGs 478 and 479 that did not contain code 37.64. These cases had an average length of stay of 6.6 days and average charges of $31,879. In DRGs 110 and 111, we found an average length of stay of 8.1 days, with average charges of $54,653.

We proposed to remove code 37.64 from DRGs 478 and 479 and reassign it to DRGs 110 and 111. The surgical removal of a heart assist system is a major cardiovascular procedure and, therefore, more appropriately assigned to DRGs 110 and 111. Accordingly, we believe this DRG assignment for this procedure is more clinically and financially appropriate.

We received two comments in support of this change. Therefore, we are adopting as final our proposal to remove code 37.64 from DRGs 478 and 479 and assign it to DRGs 110 and 111.

b. DRGs 514 (Cardiac Defibrillator Implant With Cardiac Catheterization) and 515 (Cardiac Defibrillator Implant Without Cardiac Catheterization)

(1) Cardiac Defibrillator Implant With Cardiac Catheterization With Acute Myocardial Infarction

Prior to the publication of the proposed rule, we received a recommendation to modify DRG 514 (Cardiac Defibrillator Implant With Cardiac Catheterization) and DRG 515 (Cardiac Defibrillator Implant Without Cardiac Catheterization) so that these DRGs are split based on the presence or absence of acute myocardial infarction, heart failure, or shock as a principal diagnosis. We note that the increased cost of treating cardiac patients with acute myocardial infarction, heart failure, or shock is recognized in the payment logic for pacemaker implants (DRG 115 (Permanent Cardiac Pacemaker Implant With Acute Myocardial Infarction, Heart Failure or Shock, or AICD Lead or Generator) and DRG 116 (Other Permanent Cardiac Pacemaker Implant)).

We examined FY 2002 MedPAR data regarding the number of cases and the average charges for DRGs 514 and 515. The results of our examination are summarized in the following table.

DRG

Number of cases

Average charges

With AMI, heart failure, or shock count

Average charges

514

16,743

$97,133

3,623

$120,852

515

4,674

76,537

935

84,140

A cardiac catheterization is generally performed to establish the nature of the patient's cardiac problem and determine if implantation of a cardiac defibrillator is appropriate. Generally, the cardiac catheterization can be done on an outpatient basis. Patients who are admitted with acute myocardial infarction, heart failure, or shock and have a cardiac catheterization are generally acute patients who require emergency implantation of the defibrillator. Thus, there are very high costs associated with these patients.

We found that the average charges for patients with cardiac catheterizations who also were admitted with acute myocardial infarction, heart failure, or shock were $120,852, compared to the average charges for all DRG 514 cases of $97,133. Therefore, we proposed to split DRG 514 and create a new DRG for patients receiving a cardiac defibrillator implant with cardiac catheterization and with a principal diagnosis of acute myocardial infarction, heart failure, or shock.

Patients without cardiac catheterization generally have had the need for the defibrillator established on an outpatient basis prior to admission. We found 935 cases with acute myocardial infarction, heart failure, or shock, with average charges of $84,140. The average charges for all cases in DRG 515 were $76,537. Because of the relatively small number of patients and the less-than-10-percent charge difference for patients in DRG 515 who have acute myocardial infarction, heart failure, or shock, we did not propose to create a separate DRG for patients with a cardiac defibrillator implant without cardiac catheterization with acute myocardial infarction, heart failure, or shock.

Specifically, we proposed to create two new DRGs that would replace the current DRG 514. We indicated that the two proposed new DRGs would have the same procedures currently listed for DRG 514, but would be split based on the presence or absence of acute myocardial infarction, heart failure, or

shock as a principal diagnosis. We proposed to establish new DRG 535 (Cardiac Defibrillator Implant With Cardiac Catheterization and With Acute Myocardial Infarction, Heart Failure, or Shock) and new DRG 536 (Cardiac Defibrillator Implant With Cardiac Catheterization and Without Acute Myocardial Infarction, Heart Failure, or Shock). Proposed new DRG 536 would exclude the following principal diagnosis codes from MDC 5 associated with acute myocardial infarction, heart failure, or shock.

• 398.91, Rheumatic heart failure

• 402.01, Malignant hypertensive heart disease with heart failure

• 402.11, Benign hypertensive heart disease with heart failure

• 402.91, Hypertensive heart disease not otherwise specified with heart failure

• 404.01, Malignant hypertensive heart and renal disease with heart failure

• 404.03, Malignant hypertensive heart and renal disease with heart failure and renal failure

• 404.11, Benign hypertensive heart and renal disease with heart failure

• 404.13, Benign hypertensive heart and renal disease with heart failure and renal failure

• 404.91, Hypertensive heart and renal disease not otherwise specified with heart failure

• 404.93, Hypertensive heart and renal disease not otherwise specified with heart failure and renal failure

• 410.01, AMI anterolateral, initial

• 410.11, AMI anterior wall, initial

• 410.21, AMI inferolateral, initial

• 410.31, AMI inferopost, initial

• 410.41, AMI inferior wall, initial

• 410.51, AMI lateral not elsewhere classified, initial

• 410.61, True posterior infarction, initial

• 410.71, Subendocardial infarction, initial

• 410.81, AMI not elsewhere classified, initial

• 410.91, AMI not otherwise specified, initial

• 428.0, Congestive heart failure, not otherwise specified

• 428.1, Left heart failure

• 428.20, Systolic heart failure, not otherwise specified

• 428.21, Acute systolic heart failure

• 428.22, Chronic systolic heart failure

• 428.23, Acute on chronic systolic heart failure

• 428.30, Diastolic heart failure, not otherwise specified

• 428.31, Acute diastolic heart failure

• 428.32, Chronic diastolic heart failure

• 428.33, Acute on chronic diastolic heart failure

• 428.40, Combined systolic and diastolic heart failure not otherwise specified

• 428.41, Acquired combined systolic and diastolic heart failure

• 428.42, Chronic combined systolic and diastolic heart failure

• 428.43, Acute on chronic combined systolic and diastolic heart failure

• 428.9, Heart failure, not otherwise specified

• 785.50, Shock, not otherwise specified

• 785.51, Cardiogenic shock

(2) Cardiac Resynchronization Therapy (CRT)

Prior to the publication of the proposed rule, we received a comment from a provider who pointed out that we did not include the following combination of codes under the list of procedure combinations that would lead to an assignment of DRG 514 or DRG 515:

• 37.95, Implantation of automatic cardioverter/defibrillator lead(s) only

• 00.54, Implantation or replacement of cardiac resynchronization defibrillator, pulse generator device only [CRT-D]

The commenter pointed out that cases are assigned to DRGs 514 and 515 when a total cardiodefibrillator or CRT-D system is implanted. In addition, cases are assigned to DRGs 514 and 515 when implantation of a variety of combinations of defibrillator leads and device combinations is reported. The commenter indicated that a total defibrillator and CRT-D system may be replaced with a completely new system or all new devices and leads, and added that it is also possible to replace a generator, a lead, or a combination of generators and up to three leads.

When the CRT-D generator (code 00.54) and one of the cardioverter/defibrillator leads are replaced, the case currently is assigned to DRG 115 (Permanent Cardiac Pacemaker Implant with AMI, Heart Failure, or Shock or AICD Lead or Generator Procedure). The commenter recommended that we include the combination of codes 37.95 and 00.54 as a combination that would result in assignment to DRG 514 or DRG 515, as do other combinations of generators and leads. Our medical advisors agree with this recommendation. As discussed previously, we proposed to delete DRG 514 and replace it with proposed new DRGs 535 and 536. Therefore, we proposed to add codes 37.95 and 00.54 to the list of procedure combinations that would result in assignment to DRG 515 or new proposed DRGs 535 and 536.

Comment:

Several commenters supported our proposed revision to DRG 514 so that it would be split based on the presence or absence of a principal diagnosis of acute myocardial infarction, heart failure, or shock.

One commenter pointed out a typographical error in the proposed rule in the code number cited for the procedure, Implantation of automatic cardioverter/defibrillator lead(s) only. The code number should have been 37.95 instead of 39.75.

Response:

We appreciate the support for our proposed revision of DRG 514. We have corrected the code number for Implantation of automatic cadioverter/defibrillator lead(s) only to 37.95 in the description of this issue above.

Comment:

Several commenters supported the addition of codes 37.95 and 00.54 to the list of procedure combinations that would lead to an assignment of DRG 515 and new DRGs 535 and 536. However, one commenter suggested that, in addition to this combination, codes 37.97 (Replacement of automatic cardioverter/defibrillator lead(s) only and 00.54 also should be added to the procedure combination list under DRG 515 and new DRGs 535 and 536. The commenter pointed out that both procedures would involve the insertion of a pulse generator and a lead so that resources required are equivalent to those for a total system implant.

Response:

We agree with the commenter that the combination of codes 37.97 and 00.54 also would involve the implantation of a pulse generator and a lead. Therefore, in this final rule, we are adding the combination of procedure codes 37.97 and 00.54 to the list of procedure combinations that will lead to assignment to DRG 515 and new DRGs 535 and 536.

Comment:

One commenter recommended that CMS also consider modifying DRGs 115 and 116 to recognize more combination groups of devices and leads. Specifically, the commenter recommended adding the following combination of codes to the list of procedure combinations under DRGs 115 and 116:

• 00.53, Implantation or replacement of CRT-P pulse generator only

• 37.74, Implantation or replacement of epicardial pacemaker lead.

Response:

DRGs 115 and 116 have one of the most complex assignment structures of all the DRGs. The DRG logic for DRGs 115 and 116 involves three separate combinations of code groups that can possibly lead to these DRG assignments. Before making a

modification to one of the combination groups (particularly the procedure combinations), we believe we should analyze the impact of a modification to the currently existing types of device, lead, and diagnosis combinations. In the future, we will undertake a close review of DRGs 115 and 116 to determine if additional modifications, such as the one suggested, are needed.

Comment:

Two commenters supported the proposal to restructure DRG 514 through the creation of new DRGs 535 and 536. One of the commenters supported the division of these new DRGs based on the presence or absence of acute myocardial infarction, heart failure, or shock. However, the commenter believed that this new structure would lead to significant confusion among hospital coders with respect to the coding of CRT-Ds. The commenter stated that hospital coders may be confused when a patient is admitted with one diagnosis, but then develops an acute myocardial infarction, heart failure, or shock after the admission but prior to discharge. In these cases, the acute myocardial infarction, heart failure, or shock would be a secondary diagnosis. The split of DRGs 535 and 536 is based on these conditions when they are the principal diagnosis (reason for the hospital admission). To eliminate the potential for misunderstanding, the commenter requested that the definition of DRG 535 be modified so that patients who receive CRT-D devices are assigned to DRG 535 when an ICD-9-CM diagnosis code for heart failure is present as either a principal or secondary diagnosis.

Response:

We appreciate the support from the commenters for our proposal to modify DRG 514 through the creation of new DRGs 535 and 536. We note that the issue of coding the implantation of CRT-Ds has been covered through extensive articles in the American Hospital Association's

Coding Clinic for ICD-9-CM.

In the past, the coding of cases with acute myocardial infarction, heart failure, or shock has not been problematic for hospital coding specialists. However, should the DRG modifications lead to coding questions on CRT-D cases, we will ask the American Hospital Association to provide additional guidance in its

Coding Clinic for ICD-9-CM.

Furthermore, the DRG splits for an acute myocardial infarction, heart failure, or shock, which currently are included in DRGs 115 and 116, are based on these conditions being the principal diagnosis. As a result, this is a longstanding DRG logic precedent. We do not believe that replicating the logic used for splitting DRGs 115 and 116 and using it for DRGs 535 and 536 would create confusion for hospital coders. Rather, we believe hospital coders would easily recognize this type of longstanding DRG logic.

Comment:

Another commenter supported the proposal to split DRG 514 into DRGs 535 and 536 based on the presence or absence of acute myocardial infarction, heart failure, or shock. The commenter stated that this split would ensure greater consistency within the DRG system and ensure adequate payment to hospitals for the higher costs patients receiving implantable cardioverter-defibrillator implants. However, the commenter recommended that DRG 515 undergo a similar split based on the presence or absence of acute myocardial infarction, heart failure, or shock. The commenter stated that the creation of these additional new DRGs would fully align payment logic across all pacemaker and implantable cardioverter-defibrillator implant devices. The manufacturer also believed that differences between average charges and average length of stay for these cases within DRG 515 would warrant this additional splitting of the DRG.

Response:

We appreciate the support for the revisions involving DRGs 514, 535, and 536. However, when we examined the data for DRGs 514 and 515, we found that there were almost three times as many cases with an acute myocardial infarction, heart failure, or shock cases in DRG 515 as in DRG 514. Those cases in DRG 514 with a principal diagnosis of an acute myocardial infarction, heart failure, or shock, had average charges approximately 20 percent greater than the average charges for all cases in DRG 514. However, cases with a principal diagnosis of an acute myocardial infarction, heart failure, or shock in DRG 515 had average charges that were only about 10 percent greater than all cases in this DRG. Therefore, there is a significantly greater need for the DRG split for DRG 514. We will continue to examine cases within this area, and specifically DRG 515, to determine if additional DRG refinements are needed in the future.

Comment:

One commenter, who supported the revisions to DRG 514 through the new DRGs 535 and 536, expressed concern about our coverage decisions on automatic implantable cardioverter-defibrillators. The commenter believed the coverage was extremely restricted.

Response:

We appreciate the support of the commenter for new DRGs 535 and 536. We will share the concerns relating to coverage decisions on automatic implantable cardioverter-defibrillators with our coverage staff.

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)

Prior to the issuance of the proposed rule, we received a comment that two codes for cervical fusion of the spine are not included within DRG 519 (Cervical Spinal Fusion With CC) and DRG 520 (Cervical Spinal Fusion Without CC). The two cervical fusion codes are:

• 81.01, Atlas-axis spinal fusion

• 81.31, Refusion of atlas-axis

The atlas-axis includes the first two vertebrae of the cervical spine (C1 and C2). These two cervical fusion codes are currently assigned to DRG 497 (Spinal Fusion Except Cervical With CC) and DRG 498 (Spinal Fusion Except Cervical Without CC). Because codes 81.01 and 81.31 involve the cervical spine, we proposed to remove these codes from DRGs 497 and 498 and reassign them to DRGs 519 and 520.

We did not receive any comments on this proposal. Therefore, we are adopting as final our proposal to remove codes 81.01 and 81.31 from DRGs 497 and 498 and reassign them to DRGs 519 and 520, effective for FY 2004.

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

a. Nonneonate Diagnoses

As indicated earlier, ICD-9-CM diagnosis codes are assigned to MDCs based on 25 groupings corresponding to a single organ system or etiology and, in general, are associated with a particular medical specialty. MDC 15 is comprised of diagnoses that relate to newborns and other neonates with conditions originating in the perinatal period. Some of the codes included in MDC 15 consist of conditions that originate in the neonatal period but can persist throughout life. These conditions are referred to as congenital anomalies. When an older (not neonate) population is treated for a congenital anomaly, DRG assignment problems can arise. For instance, if a patient is over 65 years old and is admitted with a congenital anomaly, it is not appropriate to assign the patient to a newborn DRG. This situation occurs when a congenital anomaly code is classified within MDC 15.

Prior to the publication of the proposed rule, we received a recommendation to move the following congenital anomaly codes from MDC 15 and reassign them to other appropriate MDCs based on the body system being treated:

• 758.9, Chromosome anomaly, not otherwise specified

• 759.4, Conjoined twins

• 759.7, Multiple congenital anomalies, not elsewhere classified

• 759.81, Prader-Willi syndrome

• 759.83, Fragile X syndrome

• 759.89, Specified congenital anomalies, not elsewhere classified

• 759.9, Congenital anomaly, not otherwise specified

• 779.7, Periventricular leukomalacia

• 795.2, Abnormal chromosomal analysis

Each of the congenital anomaly diagnosis codes recommended for reassignment represents a condition that is frequently addressed beyond the neonatal period. In addition, the assignment of these congenital anomaly codes as principal diagnosis currently results in assignment to MDC 15.

We evaluated the recommendation and agreed that each of the identified codes represents a condition that is frequently addressed beyond the neonate period and should therefore be removed from the list of principal diagnoses that result in assignment to MDC 15. Therefore, we proposed to change the MDC and DRG assignments of the congenital anomaly codes as specified in the following table. The table shows the principal diagnosis code for the congenital anomaly and the proposed MDC and DRG to which the code would be assigned.

Principal diagnosis code in MDC 15

Code title

Proposed MDC assignment

Proposed DRG assignment

758.9

Chromosome anomaly, not otherwise specified

467 (Other Factors Influencing Health Status).

759.4

Conjoined twins

188, 189, and 190 (Other Digestive System Diagnoses, Age >17 with CC, Age >17 without CC, and Age 0-17, respectively).

759.7

Multiple congenital anomalies, not elsewhere classified

256 (Other Musculoskeletal System and Connective Tissue Diagnoses).

759.81

Prader-Willi syndrome

256 (Other Musculoskeletal System and Connective Tissue Diagnoses).

759.83

Fragile X syndrome

429 (Organic Disturbances and Mental Retardation).

759.89

Specified congenital anomalies, not elsewhere classified

256 (Other Musculoskeletal System and Connective Tissue Diagnoses).

759.9

Congenital anomaly, not otherwise specified

467 (Other Factors Influencing Health Status).

779.7

Periventricular leukomalacia

34 and 35 (Other Disorders of Nervous System with CC, and without CC, respectively).

795.2

Abnormal chromosomal analysis

467 (Other Factors Influencing Health Status).

Comment:

Several commenters supported all of the proposed changes relating to congenital anomalies. One commenter supported the changes in general, but mentioned several concerns. While this commenter agreed that it was feasible to move these congenital conditions out of MDC 15, the commenter suggested that those patients who are still in the neonatal period (first 28 days of life) when admitted should continue to be classified to MDC 15.

In addition, this commenter questioned whether the proposed DRG assignments were correct for codes 759.4 (Conjoined twins), code 759.7 (Multiple congenital anomalies, not elsewhere classified), and 759.89 (Specified congenital anomalies, not elsewhere classified). The commenter stated that although the proposed DRG assignments for these three DRGs may be appropriate based on the body system being treated for most cases, these DRGs do not necessarily reflect the body system affected or being treated. The commenter did not suggest alternative DRG assignments.

Response:

We acknowledge the commenter's point that, for a minority of cases, the admission will, in fact, be in the neonatal period. However, the majority of cases will continue to be patients well beyond the neonatal period. The proposed DRG modifications will correct the majority of inappropriate DRG assignments that occur when adults are assigned to MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period). In the future, we will examine other means to further refine this area, such as making new DRG assignments for congenital anomalies based on the age of the patient. However, at this point, we are attempting to resolve the problems created for the majority of patients.

Regarding the commenter's concern that codes 759.4, 759.7, and 759.89 may not always be appropriately assigned according to our proposal, the commenter did not suggest an alternative. The commenter agreed that many cases with these three codes will be assigned to the appropriate body system by using our proposed DRG assignments. We recognize that reassignment of these codes will not resolve all problems, and some cases may be assigned to the wrong body system based on the patient's actual condition. However, we note that these three codes are vague and do not specify a precise congenital anomaly by body system. Therefore, we had to rely on our medical advisors to determine the most appropriate DRG for the majority of cases. Our main concern was to correct the DRG assignment that resulted in adults being assigned to a neonatal DRG when they had a congenital anomaly. We will continue to examine the data for these cases to determine if additional modifications are needed in the future.

Therefore, we are adopting the proposed revisions as final without modification.

b. Heart Failure Codes for Newborns and Neonates

Under MDC 15, cases of newborns and neonates with major problems may be assigned to DRG 387 (Prematurity With Major Problems) or DRG 389 (Full-Term Neonate With Major Problems). Existing DRG 387 has three components: (1) Principal or secondary diagnosis of prematurity; (2) principal or secondary diagnosis of major problem (these are the diagnoses that define MDC 15); or (3) secondary diagnosis of major problem (these are diagnoses that do not define MDC 15, so they will only be secondary diagnosis codes for patients assigned to MDC 15). To be assigned to DRG 389, the neonate must have one of the principal or secondary diagnoses listed under the DRG.

Prior to the publication of the proposed rule, we received correspondence suggesting that the following diagnosis codes for heart failure, which are currently in MDC 5, be added to the list of secondary diagnosis of major problems for neonates under MDC 15.

Diagnosis code

Title

428.20

Systolic heart failure, not otherwise specified.

428.21

Acute systolic heart failure.

428.22

Chronic systolic heart failure.

428.23

Acute on chronic systolic heart failure.

428.30

Diastolic heart failure, not otherwise specified.

428.31

Acute diastolic heart failure.

428.32

Chronic diastolic heart failure.

428.33

Acute on chronic diastolic heart failure.

428.40

Systolic/diastolic heart failure, not otherwise specified.

428.41

Acute systolic/diastolic heart failure.

428.42

Chronic systolic/diastolic heart failure.

428.43

Acute on chronic systolic/diastolic heart failure.

These heart failure-related diagnosis codes were new codes as of October 1, 2002. They were an expansion of the previous 4-digit codes for heart failure and provided additional detail about the specific type of heart failure. The codes for heart failure that existed prior to October 1, 2002, are classified as secondary diagnoses of major problems within MDC 15 and are currently assigned to DRGs 387 and DRG 389. We stated in the proposed rule that these other heart failure diagnosis codes should be included as principal diagnosis of major problem codes within MDC 15. However, these heart failure codes are currently listed in the secondary, not principal, diagnoses of major problems within MDC 15.

We agree that diagnosis codes 428.20 through 428.43 listed in the chart above should be included as secondary diagnosis of major problem codes within MDC 15, as are the other heart failure codes. Therefore, we proposed to add them to DRG 387 and 389.

Comment:

Several commenters supported the proposal to add codes 428.20 through 428.43 (codes for heart failure that became effective October 1, 2002, listed in the chart above) to DRGs 387 and 389. The commenters agreed that the heart failure codes created on October 1, 2002, should be assigned to DRGs 387 and 389 in the same fashion as were those heart failure codes created prior to October 1, 2002.

One commenter indicated that we incorrectly described the addition of diagnosis codes 428.20 through 428.43 listed in the chart to the list of “principal” diagnosis of major problem codes. The commenter stated that we should have indicated that these codes would be added to the list of “secondary” diagnoses of major problem codes because this category is where the other heart failure codes are currently assigned.

Response:

We agree that the codes should have been described as an addition to the list of secondary diagnoses of major problem codes within DRGs 387 and 389. We have clarified this point in the description above.

Comment:

One commenter who supported the addition of the heart failure-related diagnosis codes (428.20 through 428.43) to DRGs 387 and 389, asked for clarification of how diagnoses for combined codes that include congestive heart failure will be handled. The commenter mentioned code 402.91 (Hypertensive heart disease with heart failure, unspecified benign or malignant) as an example.

Response:

We will conduct an additional review of DRGs 387 and 389 to determine if additional codes should be added to the list of secondary diagnoses of major problems for FY 2005. We encourage commenters to send their recommendations to us to assist in this review.

We are adopting our proposal as final, with the clarification that the major problem codes are secondary, not principal, codes. Accordingly, we are adding codes 428.20 through 428.43 listed above to the list of secondary diagnoses of major problem codes within DRGs 387 and 389.

7. MDC 17 (Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms)

High-dose Interleukin-2 (IL-2) Chemotherapy is a hospital inpatient-based regimen requiring administration by experienced oncology professionals. It is used for the treatment of patients with advanced renal cell cancer and advanced melanoma. Unlike traditional cytotoxic chemotherapies that attack cancer cells themselves, Interleukin-2 is designed to enhance the body's defenses by mimicking the way natural IL-2 activates the immune system and stimulates the growth and activity of cancer-killing cells. The Food and Drug Administration (FDA) approved the IL-2 product on the market for use in 1992.

High-dose IL-2 therapy is performed only in very specialized treatment settings, such as an intensive care unit or a bone marrow transplant unit. This therapy requires oversight by oncology health care professionals experienced in the administration and management of patients undergoing this intensive treatment because of the severity of the side effects. Unlike most cancer therapies, high-dose IL-2 therapy is associated with predictable toxicities that require extensive monitoring. Often patients require one-on-one nursing or physician care for extended portions of their stay.

High-dose IL-2 therapy is significantly different from conventional chemotherapy in terms of the resources required to administer it. Conventional chemotherapy may be given to patients either on an outpatient basis or through a series of short (that is, 1 to 3 day) inpatient stays.

High-dose IL-2 therapy is given during two separate hospital admissions. For the first cycle, the IL-2 is administered every 8 hours over 5 days. Patients are then discharged to rest at home for several days and are admitted for the second cycle of therapy during which the same regimen and dosing is repeated. The two cycles complete the first course of high-dose IL-2 therapy. This regimen may be repeated at 8 to 12 weeks if the patient is responding. The maximum number of courses for any one patient is predicted to be five courses.

Not all patients with end-stage renal cell carcinoma or end-stage melanoma are appropriate candidates for high-dose IL-2 chemotherapy. It is estimated that there are between 15,000 and 20,000 patients in the United States who have one of these two types of cancer. However, only 20 percent of those patients will be appropriate candidates for the rigors of the treatment regimen. It is further estimated that, annually, approximately 1,300 of these patients will be Medicare beneficiaries. However, we have been informed by industry sources that, allegedly due to the level of payment for the DRGs to which these cases are currently assigned, only 100 to 200 Medicare patients receive the treatment each year. According to these industry sources, several treatment centers have had to discontinue their high-dose IL-2 therapy programs for end-stage renal cell carcinoma or end-stage melanoma because of the low Medicare payment.

According to industry sources, the wholesale cost of IL-2 is approximately $700 per vial. Dosages range between 15 and 20 vials per treatment, or between $10,500 and $14,000 per patient, per cycle, for the cost of the IL-2 drug alone. There is no ICD-9-CM procedure code that currently identifies patients receiving this therapy. Therefore, it is not possible to identify directly these cases in the MedPAR data. Currently, this therapy is coded using the more general ICD-9-CM code 99.28 (Injection or infusion of biologic response modifier). When we addressed this issue previously in the August 1, 2000 IPPS final rule (65 FR 47067) by examining cases for which procedure code 99.28

was present, our analysis was inconclusive due to the wide range of cases identified (1,179 cases across in 136 DRGs). However, recent data collected by the industry on 30 Medicare beneficiaries who received high-dose IL-2 therapy during FY 2002 show average charges for these cases of approximately $54,000.

Depending on the principal diagnosis reported, patients receiving high-dose IL-2 therapy may be assigned to one of the following five DRGs: DRG 272 (Major Skin Disorder With CC) and DRG 273 (Major Skin Disorder Without CC) in MDC 9; DRG 318 (Kidney and Urinary Tract Neoplasms With CC) and DRG 319 (Kidney and Urinary Tract Neoplasms Without CC) in MDC 11; and DRG 410 (Chemotherapy Without Leukemia as Secondary Diagnosis) in MDC 17. The following table illustrates the average charges for patients in these DRGs.

DRG

Average charges

272

$14,997

273

9,128

318

16,892

319

9,583

410

16,103

Because of the need to identify the subset of patients receiving this type of treatment, the ICD-9-CM Coordination and Maintenance Committee determined, based on its consideration at the December 6, 2002 public meeting, that a new code for high-dose IL-2 therapy was warranted. Therefore, a new code has been created in the 00 Chapter of ICD-9-CM (Procedures and Interventions, Not Elsewhere Classified), in category 00.1 (Pharmaceuticals) at 00.15 (High-dose infusion Interleukin-2 (IL-2)). The code is effective for cases discharged on or after October 1, 2003.

We believe patients receiving high-dose IL-2 therapy are clinically similar to other cases currently assigned to DRG 492 (Chemotherapy With Acute Leukemia as Secondary Diagnosis) in MDC 17. The average charge for patients currently assigned to DRG 492 is $55,581. Currently, DRG 492 requires one of the following two principal diagnoses:

• V58.1, Encounter for chemotherapy

• V67.2, Followup examination following chemotherapy

And one of the following secondary diagnoses:

• 204.00, Acute lymphoid leukemia without mention of remission

• 204.01, Acute lymphoid leukemia with remission

• 205.00, Acute myeloid leukemia without mention of remission

• 205.01, Acute myeloid leukemia with remission

• 206.00, Acute monocytic leukemia without mention of remission

• 206.01, Acute monocytic leukemia with remission

• 207.00, Acute erythremia and erythroleukemia without mention of remission

• 207.01, Acute erythremia and erythroleukemia with remission

• 208.00, Acute leukemia of unspecified cell type without mention of remission

• 208.01, Acute leukemia of unspecified cell type without mention of remission

We proposed to modify DRG 492 by adding new procedure code 00.15 to the logic. We indicated that assignment to this DRG would require the same two V-code principal diagnosis codes listed above (V58.1 and V67.2), but would require either one of the leukemia codes listed as a secondary diagnosis, or would require the procedure code 00.15. In addition, we proposed to change the title of DRG 492 to “Chemotherapy With Acute Leukemia or With Use of High Dose Chemotherapy Agent”.

In the proposed rule, we indicated that we would monitor cases with procedure code 00.15 as these data became available, and consider potential further refinements to DRG 492 as necessary.

Comment:

Five commenters supported our proposed change. One commenter who opposed the proposed change believed that classifying high-dose IL-2 therapy as chemotherapy would be a violation of coding advice published in the American Hospital Association's coding publication,

Coding Clinic for ICD-9-CM

, because IL-2 therapy is a biologic response modifier and is considered immunotherapy, not chemotherapy. Therefore, the commenter asserted that the use of either V58.1 or V67.2 as principal diagnosis codes for these cases would result in erroneous coding advice. The commenter added that

Coding Clinic, Fourth Quarter,

page 51, indicates that when a patient is admitted for immunotherapy, the code for the neoplasm should be assigned as the principal diagnosis.

Response:

We acknowledge the commenter's points concerning correct selection of principal diagnosis, as well as the advice published previously in

Coding Clinic

. However, the discussion of this topic has raised some concerns among the Cooperating Parties of AHA's Editorial Advisory Board. The advice given in the Fourth Quarter 1994

Coding Clinic

predates the new treatment technology now available, which calls into question the correctness of the published advice. Therefore, this topic will be included on the agenda of an upcoming AHA Editorial Advisory Board meeting for further discussion and clarification. It is likely that new instructions will be issued in the next several months to clarify these coding instructions.

Therefore, in anticipation of this clarification, we are adopting as final the proposed changes to DRG 492. We will continue to monitor this DRG for shifts in resource consumption and validity of DRG assignment, and will specifically monitor code 00.15 for appropriate placement in DRG 492.

8. MDC 23 (Factors Influencing Health Status and Other Contacts With Health Services)

a. Implantable Devices

Prior to the publication of the proposed rule, we received a comment regarding three ICD-9-CM diagnosis codes that are currently assigned to MDC 23: V53.01 (Fitting and adjustment of cerebral ventricular (communicating) shunt); V53.02 (Neuropacemaker (brain) (peripheral nerve) (spinal cord)); and V53.09 (Fitting and adjustment of other devices related to nervous system and special senses). The commenter suggested that we move these three codes from MDC 23 to MDC 1 (Diseases and Disorders of the Nervous System) because these codes are used as the principal diagnosis for admissions involving removal, replacement, and reprogramming of devices such as cerebral ventricular shunts, neurostimulators, intrathecal infusion pumps and thalamic stimulators.

Currently, if these diagnosis codes are reported alone without an O.R. procedure, the case would be assigned to DRG 467 (Other Factors Influencing Health Status). However, if an O.R. procedure is reported with the principal diagnosis of V53.01, V53.02, or V53.09, the case would be assigned to DRG 461 (O.R. Procedure with Diagnoses of Other Contact with Health Services).

In our analysis of the MedPAR data, we found 30 cases assigned to DRG 467 and 179 cases assigned to DRG 461 with one of these codes as principal diagnosis. We found that the procedures reported with one of these diagnosis codes were procedures in MDC 1. The most frequent procedure was 86.06 (Insertion of totally implantable infusion pump).

Because the procedures that are routinely used with these codes are in MDC 1, we believe it would be

appropriate to assign these diagnosis codes to MDC 1. As the commenter also stated, this assignment would be consistent with how fitting and adjustments of devices are handled within other MDCs, such as in MDC 5 (Diseases and Disorders of the Circulatory System) and MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract). Diagnosis codes V53.31 (Cardiac pacemaker), V53.32 (Automatic implantable cardiac defibrillator), and V53.39 (Other cardiac device) are used for fitting and adjustment of cardiac devices and are assigned to MDC 5. Diagnosis code V53.6 (Urinary devices) is used for fitting and adjustment of urinary devices and is assigned to MDC 11.

Therefore, we proposed to move V53.01, V53.02, and V53.09 from MDC 23 to MDC 1 when an O.R. procedure is performed. If no O.R. procedure is performed, these diagnosis codes would be assigned to DRG 34 (Other Disorders of Nervous System With CC) or DRG 35 (Other Disorders of Nervous System Without CC). If an O.R. procedure is performed on a patient assigned with one of these codes as the principal diagnosis, the case would be assigned to the DRG in MDC 1 to which the O.R. procedure is assigned.

We received three comments that supported our proposal to move diagnosis codes V53.01, V53.02, and V53.09 from MDC 23 to MDC 1. Accordingly, we are adopting as final the proposed reassignment, effective for discharges occurring on or after October 1, 2003.

b. Malignancy Codes

Prior to the issuance of the proposed rule, we received correspondence that indicated that when we recognized code V10.48 (History of malignancy, epididymis) as a new code for FY 2002, we did not include the code as a history of malignancy code in DRG 465 (Aftercare with History of Malignancy as Secondary Diagnosis). All other history of malignancy codes were included in DRG 465.

We agree that code V10.48 should have been included in the list of history of malignancy codes within DRG 465. Therefore, we proposed to add it to the list of secondary diagnoses in DRG 465.

We received several comments that supported this DRG modification. Accordingly, we are adopting the proposal as final without modification.

9. Medicare Code Editor (MCE) Change

As explained under section II.B.1. of this preamble, the MCE is a software program that detects and reports errors in the coding of Medicare claims data.

We received a request to examine the MCE edit “Adult Diagnosis—Age Greater than 14” because currently the edit rejects claims for patients under age 15 who are being treated for gall bladder disease. We reviewed this issue with our pediatric consultants and determined that, although incidence is rare, gallbladder disease does occur in patients under age 15. Therefore, in the May 19, 2003 proposed rule, we proposed to modify the MCE by removing the following codes from the edit “Adult Diagnosis—Age Greater Than 14”:

• 574.00, Calculus of gallbladder with acute cholecystitis without mention of obstruction

• 574.01, Calculus of gallbladder with acute cholecystitis with obstruction

• 574.10, Calculus of gallbladder with other cholecystitis without mention of obstruction

• 574.11, Calculus of gallbladder with other cholecystitis with obstruction

• 574.20, Calculus of gallbladder without mention of cholecystitis without mention of obstruction

• 574.21, Calculus of gallbladder without mention of cholecystitis with obstruction

• 574.30, Calculus of bile duct with acute cholecystitis without mention of obstruction

• 574.31, Calculus of bile duct with acute cholecystitis with obstruction

• 574.40, Calculus of bile duct with other cholecystitis without mention of obstruction

• 574.41, Calculus of bile duct with other cholecystitis with obstruction

• 574.50, Calculus of bile duct without mention of cholecystitis without mention of obstruction

• 574.51, Calculus of bile duct without mention of cholecystitis with obstruction

• 574.60, Calculus of gallbladder and bile duct with acute cholecystitis without mention of obstruction

• 574.61, Calculus of gallbladder and bile duct with acute cholecystitis with obstruction)

• 574.70, Calculus of gallbladder and bile duct with other cholecystitis without mention of obstruction

• 574.71, Calculus of gallbladder and bile duct with other cholecystitis with obstruction

• 574.80, Calculus of gallbladder and bile duct with acute and chronic cholecystitis without mention of obstruction

• 574.81, Calculus of gallbladder and bile duct with acute and chronic cholecystitis with obstruction

• 574.90, Calculus of gallbladder and bile duct without cholecystitis without mention of obstruction

• 574.91, Calculus of gallbladder and bile duct without cholecystitis with obstruction

• 575.0, Acute cholecystitis

• 575.10, Cholecystitis, not otherwise specified

• 575.11, Chronic cholecystitis

• 575.12, Acute and chronic cholecystitis

• 575.2, Obstruction of gallbladder

• 575.3, Hydrops of gallbladder

• 576.0, Postcholecystectomy syndrome

• 577.1, Chronic pancreatitis

Comment:

Four commenters agreed in general with our decision to remove the above listed codes from the MCE in the edit “Adult Diagnosis—Age Greater than 14.” However, one commenter recommended that all ICD-9-CM codes in the 575 through 577 range be removed from the edit and listed several codes that appeared to be missing from our list. These codes were 575.4 (Perforation of gallbladder), 577.0 (Acute pancreatitis), and 577.1 (Chronic pancreatitis). In addition, three commenters pointed out that code 574.90 had been erroneously listed twice with different narrative descriptions.

Response:

We appreciate the commenters' interest in the correctness of the MCE. We also have received many telephone calls and e-mails concerning the typographical error with code 574.90. We have corrected the list above to reflect the correct code number, 574.91. As noted, the second narrative listing in the proposed rule correctly described code 574.91, not 574.90 (68 FR 27166).

With regard to the comment concerning the absence of codes 575.4 and 577.0 from the above list, we note that these codes are not included in the MCE edit. That is, these codes were never part of the MCE edit. With regard to code 577.1, this code is the last one on the list and was printed correctly in the proposed rule (68 FR 27166, third column).

Accordingly, we are adopting as final the proposal to remove the listed codes from the MCE edit “Adult Diagnosis—Age Greater than 14,” with the correction of the fifth digit of code 574.91 (Calculus of gallbladder and bile duct without cholecystitis with obstruction).

10. 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 within the GROUPER by which these cases are assigned to a single DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource-intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the 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 recalibrations, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications and recalibrations, to determine if the ordering of classes coincides with the intensity of resource utilization.

A surgical class can be composed of one or more 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 the average resources for each DRG by frequency to determine the weighted 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 in the class 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 O.R. procedures” as discussed below.

This methodology may occasionally result in assignment of a case involving multiple procedures 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 search 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 charge is ordered above a surgical class with a higher average charge. For example, the “other O.R. procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average charge for the DRG or DRGs in that surgical class may be higher than that for other surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infrequently related to the diagnoses in the MDC but are still occasionally performed on patients in the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate.

A second example occurs when the difference between the average charges for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average charges are likely to shift such that the higher-ordered surgical class has a lower average charge than the class ordered below it.

Based on the preliminary recalibration of the DRGs, in the May 19, 2003 proposed rule, we proposed modifications of the surgical hierarchy as set forth below.

We proposed to revise the surgical hierarchy for the pre-MDC DRGs, MDC 1 (Diseases and Disorders of the Nervous System), MDC 5 (Diseases and Disorders of the Circulatory System), MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue), and MDC 17 (Myeloproliferative Disease and Disorders, Poorly Differentiated Neoplasms for Lymphoma and Leukemia) as follows:

• In the pre-MDC DRGs, we proposed to reorder DRG 513 (Pancreas Transplant) above DRG 512 (Simultaneous Pancreas/Kidney Transplant).

• In MDC 1, we proposed to reorder DRG 3 (Craniotomy Age 0-17) above DRG 528 (Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage); DRG 528 above DRGs 1 and 2 (Craniotomy Age >17 With and Without CC, respectively); DRGs 1 and 2 above DRGs 529 and 530 (Ventricular Shunt Procedures With and Without CC, respectively); DRGs 529 and 530 above DRGs 531 and 532 (Spinal Procedures With and Without CC, respectively); DRGs 531 and 532 above DRGs 533 and 534 (Extracranial Procedures With and Without CC, respectively); and DRGs 533 and 534 above DRG 6 (Carpal Tunnel Release).

• In MDC 5, we proposed to reorder DRG 535 (Cardiac Defibrillator Implant With Cardiac Catheterization With AMI, Heart Failure, or Shock) above DRG 536 (Cardiac Defibrillator Implant With Cardiac Catheterization Without AMI, Heart Failure, or Shock), and DRG 536 above DRG 515 (Cardiac Defibrillator Implant Without Cardiac Catheterization).

• In MDC 8, we proposed to reorder DRGs 537 and 538 (Local Excision and Removal of Internal Fixation Devices Except Hip and Femur With and Without CC, respectively) above DRG 230 (Local Excision and Removal of Internal Fixation Devices of Hip and Femur).

• In MDC 17, we proposed to reorder DRGs 539 and 540 (Lymphoma and Leukemia With Major O.R. Procedure With and Without CC, respectively) above DRGs 401 and 402 (Lymphoma and Non-Acute Leukemia With Other O.R. Procedures With and Without CC, respectively).

In the proposed rule, we were unable to test the effects of the proposed revisions to the surgical hierarchy and reflect these changes in the proposed relative weights because the revised GROUPER software was unavailable at the time the proposed rule was published. Rather, we simulated most major classification changes to approximate the placement of cases under the proposed reclassification, and then determined the average charge for each DRG. These average charges served as our best estimate of relative resources used for each surgical class. We have now tested the proposed surgical hierarchy changes using the revised GROUPER software, and are reflecting the final changes in the DRG relative weights in this final rule. Further, as discussed in section II.C. of the preamble of this final rule, the final recalibrated weights are different from the proposed weights because they were based on more complete data.

Based on a test of the proposed revisions using the March 2003 update of the FY 2002 MedPAR file and the revised GROUPER software, we have found that the proposed change in the pre-MDC DRGs to reorder DRG 513 (Pancreas Transplant) above DRG 12 (Simultaneous Pancreas/Kidney Transplant) was not supported by the data. If this proposal were finalized, no cases would be assigned to DRG 512. The other proposed revisions are still supported by the data.

Comment:

Two commenters expressed support for the proposed

change in the surgical hierarchy. Another commenter requested a change in the surgical hierarchy for a case in which a spinal fusion with subsequent debridement is performed during the same admission. This case is assigned to DRG 217 (Wound Debridement and Skin Graft Except Hand, for Musculoskeletal and Connective Tissue Disease). The commenter requested that this case be reassigned to DRG 497 (Spinal Fusion Except Cervical With CC) because it has a higher DRG weight than DRG 217.

Response:

The surgical hierarchy places a patient with multiple procedures in the most resource intensive class, but this does not necessarily mean that the patient is assigned to the most resource intensive DRG. In this scenario, one surgical class is actually one DRG, and another surgical class is back and neck procedures. These classes encompass 7 DRGs (DRGs 496-500 and DRGs 519 and 520). The average charges for DRG 217 are approximately $15,000 more than the back and neck procedures class. DRG 217 is hierarchically ordered higher in the surgical group than DRG 497, which is the reason the case is assigned to DRG 217.

Therefore, we are adopting the proposed changes in MDCs 1, 5, 8, and 17 as final. We are not making any changes in the pre-MDC DRGs.

11. 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 valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. We developed this list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the list of CCs, either by adding new CCs or deleting CCs already on the list. As we proposed in the May 19, 2003 proposed rule, we are not deleting any of the diagnosis codes on the CC list.

As explained in the May 19, 1989 proposed rule (52 FR 18877) and the September 1, 1987 final notice (52 FR 33154), the excluded secondary diagnoses were established using the following five principles:

• Chronic and acute manifestations of the same condition should not be considered CCs for one another.

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

• Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another.

• Codes for the same condition in anatomically proximal sites should not be considered CCs for one another.

• Closely related conditions should not be considered CCs for one another.

The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC.

We proposed a limited revision of the CC Exclusions List to take into account the proposed changes that will be made in the ICD-9-CM diagnosis coding system effective October 1, 2003. (See section II.B.13. of this preamble for a discussion of ICD-9-CM changes.) We proposed these changes in accordance with the principles established when we created the CC Exclusions List in 1987.

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; the July 31, 1998 final rule (63 FR 40954) for the FY 1999 revisions, the August 1, 2000 final rule (65 FR 47064) for the FY 2001 revisions; the August 1, 2001 final rule (66 FR 39851) for the FY 2002 revisions; and the August 1, 2002 final rule (67 FR 49998) for the FY 2003 revisions.) In the July 30, 1999 final rule (64 FR 41490), we did not modify the CC Exclusions List for FY 2000 because we did not make any changes to the ICD-9-CM codes for FY 2000.

Tables 6G and 6H in the Addendum to this final rule contain the revisions to the 13 CC Exclusions List that will be effective for discharges occurring on or after October 1, 2003. Each table shows the principal diagnoses 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 are added to the list are in Table 6G—Additions to the CC Exclusions List. Beginning with discharges on or after October 1, 2003, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

CCs that are deleted from the list are in Table 6H—Deletions from the CC Exclusions List. Beginning with discharges on or after October 1, 2003, the indented diagnoses will be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

Comment:

One commenter indicated that it was unable to provide meaningful comments on Tables 6G and 6H because of formatting errors in the printed tables. In addition, the commenter suggested that the changes in the tables should not be effective until a revised version was made available for public comment.

Response:

We apologize for the errors in the format of the tables, which were printer's errors. However, we note that the tables did contain the correct codes, even though the format of the columns was distorted. Therefore, we do not believe a delay in the effective date of the changes is warranted.

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 $133.00 plus 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, VA 22161; or by calling (800) 553-6847.

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, 2000, 2002, and 2003) and those in Tables 6G and 6H of this final rule for FY 2004 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, 2003. (

Note:

There was no CC Exclusions List in FY 2001 because we did not make changes to the ICD-9-CM codes for FY 2001.)

Alternatively, the complete documentation of the GROUPER logic,

including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current DRG Definitions Manual, Version 20.0, is available for $225.00, which includes $15.00 for shipping and handling. Version 21.0 of this manual, which includes the final FY 2004 DRG changes, is available for $225.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303. Please specify the revision or revisions requested.

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

Each year, we review cases assigned to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive O.R. 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 O.R. procedures performed are related to the principal diagnosis. These DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. 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, not elsewhere classified

• 60.81 Incision of periprostatic tissue

• 60.82 Excision of periprostatic tissue

• 60.93 Repair of prostate

• 60.94 Control of (postoperative) hemorrhage of prostate

• 60.95 Transurethral balloon dilation of the prostatic urethra

• 60.99 Other operations on prostate

All remaining O.R. 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 DRG 477, and some procedures from DRG 477 to DRG 468. No procedures were moved in FY 1999, as noted in the July 31, 1998 final rule (63 FR 40962); in FY 2000, as noted in the July 30, 1999 final rule (64 FR 41496); in FY 2001, as noted in the August 1, 2000 final rule (65 FR 47064); or in FY 2002, as noted in the August 1, 2001 final rule (66 FR 39852). In the August 1, 2002 final rule (67 FR 49999), we did not move any procedures from DRG 477. However, we did move procedures codes from DRG 468 and placed them in more clinically coherent DRGs.

a. Moving Procedure Codes From DRG 468 or DRG 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 see if it would be appropriate to move procedure codes out of these DRGs into one of the surgical DRGs for the MDC into which the principal diagnosis falls. The data are arrayed two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical DRGs for the MDC in which the diagnosis falls. Based on this year's review, we did not identify any necessary changes in procedures under DRG 477. Therefore, we did not propose moving any procedures from DRG 477 to one of the surgical DRGs in this final rule.

However, in the proposed rule, we identified a necessary proposed change under DRG 468 relating to code 50.29 (Other destruction of lesion of liver). We were contacted by a hospital about the fact that code 50.29 is not currently included in MDC 6 (Diseases and Disorders of the Digestive System). The hospital pointed out that it is not uncommon for patients to have procedures performed on the liver when they are admitted for a condition that is classified in MDC 6. For example, DRGs 170 and 171 (Other Digestive System O.R. Procedures With and Without CC, respectively) in MDC 6 currently include liver procedures such as biopsy of the liver. The hospital disagreed with the assignment of code 50.29 to DRG 468 when performed on a patient with a principal diagnosis in MDC 6. We believe that the commenter is correct. Therefore, we proposed to assign code 50.29 to DRGs 170 and 171 in MDC 6.

We received several comments of support for our proposal to assign code 50.29 to DRGs 170 and 171 in MDC 6. Therefore, we are adopting the proposal as final without modification. As a result, code 50.29 will not result in assignment to DRG 468 when this procedure is performed on patient with a principal diagnosis in MDC 6.

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

We also annually review the 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 reassigned from one of these three DRGs to another of the three DRGs based on average charges and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data. Based on our review this year, we did not propose moving any procedures from DRG 476 to DRGs 468 or 477, or from DRG 477 to DRGs 468 or 476.

However, in the proposed rule, we identified several procedures that we proposed to move from DRG 468 and add to DRGs 476 and 477 because the procedures are nonextensive:

• 38.21, Biopsy of blood vessel

• 77.42, Biopsy of scapula, clavicle and thorax [ribs and sternum]

• 77.43, Biopsy of radius and ulna

• 77.44, Biopsy of carpals and metacarpals

• 77.45, Biopsy of femur

• 77.46, Biopsy of patella

• 77.47, Biopsy of tibia and fibula

• 77.48, Biopsy of tarsals and metatarsals

• 77.49, Biopsy of other bones

• 92.27, Implantation or insertion of radioactive elements

We note that the above codes being moved from DRG 468 to DRGs 476 and 477 were erroneously listed in the May 19, 2003 proposed rule under section II.B.12.c., which related to adding diagnosis or procedure codes to MDCs, instead of section II.B.12.b., which discussed the reassignment of procedures among DRGs 468, 476, and 477. We regret any inconvenience this inadvertent listing may have caused.

Comment:

One commenter asked us to consider moving procedure code 51.23, Laparoscopic cholecystectomy, from DRG 468 and adding it to DRG 477. The commenter indicated that this procedure is often performed in the outpatient setting.

Response:

We believe that the commenter's request has merit. We will perform the necessary data analysis and will consider proposing this change in next fiscal year's rule if we find that the data support this change.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on our review this year, we did not propose adding any diagnosis codes to MDCs in this final rule. We did not receive any comments on the proposal.

13. 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 CMS, charged with maintaining and updating the ICD-9-CM system. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.

The ICD-9-CM Manual contains the list of valid diagnosis and procedure codes. (The ICD-9-CM Manual is available from the Government Printing Office on CD-ROM for $23.00 by calling (202) 512-1800.) The NCHS has lead responsibility for the ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures.

The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, 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 implementation in FY 2004 at a public meeting held on December 6, 2002, and finalized the coding changes after consideration of comments received at the meetings and in writing by January 10, 2003. Those coding changes are announced in Tables 6A and 6B of this final rule. Copies of the minutes of the procedure codes discussions at the Committee's 2002 meetings can be obtained from the CMS Web site:

http://www.cms.gov/paymentsystems/icd9/.

The minutes of the diagnoses codes discussions at the 2002 meetings are found at:

http://www.cdc.gov/nchs/icd9.htm.

Paper copies of these minutes are no longer available and the mailing list has been discontinued.

The first of the 2003 public meetings was held on April 3, 2003. In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include all proposals discussed and approved at the April meeting as part of the code revisions effective the following October. Because the proposed rule was published after the April meeting, we were able to include all new procedure codes that were approved subsequent to that meeting in Table 6B of the Addendum to the proposed rule, including the DRG assignments. However, the National Center for Health Statistics (NCHS) created and finalized three new severe acute respiratory syndrome (SARS) related codes after the proposed rule was published. These new codes, which were not listed in Table 6A of the Addendum to the proposed rule, have been included in Table 6A of the Addendum to this final rule. The new codes are as follows:

• 079.82, SARS-associated coronavirus

• 480.3, Pneumonia due to SARS-associated coronavirus

• V01.82, Exposure to SARA-associated coronavirus

These new codes have been identified with a footnote (1) in Table 6A of the Addendum to this final rule.

For a report of procedure topics discussed at the April 2003 meeting, see the Summary Report at:

http://www.cms.hhs.gov/paymentsystems/icd9/.

For a report of the diagnosis topics discussed at the April 2003 meeting, see the Summary Report at:

http://www.cdc.gov/nchs/icd9.htm.

We encourage commenters to address suggestions on coding issues involving diagnosis codes to: Donna Pickett, Co-Chairperson; ICD-9-CM Coordination and Maintenance Committee; NCHS; Room 2404, 3311 Toledo Road, Hyattsville, MD 20782. Comments may be sent by E-mail to:

dfp4@cdc.gov.

Questions and comments concerning the procedure codes should be addressed to: Patricia E. Brooks, Co-Chairperson; ICD-9-CM Coordination and Maintenance Committee; CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, Division of Acute Care; C4-08-06; 7500 Security Boulevard; Baltimore, MD 21244-1850. Comments may be sent by E-mail to:

pbrooks1@cms.hhs.gov.

The ICD-9-CM code changes that have been approved will become effective October 1, 2003. The new ICD-9-CM codes are listed, along with their DRG classifications, in Tables 6A and 6B (New Diagnosis Codes and New Procedure Codes, respectively) in the Addendum to this 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. Accordingly, in the May 19, 2003 proposed rule, we only solicited comments on the proposed DRG classification of these new codes.

Comment:

One commenter expressed concern about the MDC and DRG designations for new diagnosis code 752.89 (Other specified anomalies of genital organs) that was included in

Table 6A of the Addendum to the proposed rule. We had proposed assigning this new code to MDC 12 (Diseases and Disorders of the Male Reproductive System), and DRG 352 (Other Male Reproductive System Diagnoses). The commenter pointed out that this new code could apply to both males and females. Its predecessor code was assigned to MDC 12, DRG 352, as well as to MDC 13 (Diseases and Disorders of the Female Reproductive System) and DRGs 358 (Uterine and Adnexa Procedure for Non-Malignancy with CC), 359 (Uterine and Adnexa Procedure for Non-Malignancy without CC), and 369 (Menstrual and Other Female Reproductive System Disorders).

Response:

The commenter is correct. Diagnosis code 752.89 would apply to both males and females and should have been included in both MDC 12 and MDC 13. In this final rule, we are assigning diagnosis code 752.89 to MDC 13 under DRGs 358, 359, and 369 and have modified Table 6A of the Addendum to this final rule accordingly.

Comment:

One commenter pointed out a typographical error for the code title for V15.87. The commenter indicated that the word “membrance” should be changed to “membrane”; that is, the title should read “History of Extracorporeal Membrane Oxygenation (ECMO).”

Response:

We agree with the commenter and have corrected the title in Table 6A of the Addendum to this final rule.

For codes that have been replaced by new or expanded codes, the corresponding new or expanded diagnosis codes are included in Table 6A. New procedure codes are shown in Table 6B. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2003. Table 6D contains invalid procedure codes. Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles), which also includes the DRG assignments for these revised codes. Table 6F includes revised procedure code titles for FY 2004.

The Department of Health and Human Services has been actively working on the development of new coding systems to replace the ICD-9-CM. In December 1990, the National Committee on Vital and Health Statistics (NCVHS) issued a report noting that, while the ICD-9-CM classification system had been responsive to changing technologies and identifying new diseases, there was concern that the ICD classification might be stressed to a point where the quality of the system would soon be compromised. The ICD-10-CM (for diagnoses) and the ICD-10-PCS (for procedures) were developed in response to these concerns. These efforts have become increasingly important because of the growing number of problems with the ICD-9-CM, which was implemented 24 years ago.

Implementing ICD-10-PCS as a national standard was discussed at the December 6, 2002, ICD-9-CM Coordination and Maintenance Committee meeting. A complete report of the meeting, including examples of letters supporting and opposing ICD-10-PCS, can be found at the CMS Web site:

http://www.cms.hhs.gov/paymentsystems/icd9/.

Also, the Secretary has asked the NCVHS to recommend whether or not the country should replace ICD-9-CM as a national coding standard with ICD-10-CM and ICD-10-PCS. A complete report on the activities of this committee can be found at:

http://www.ncvhs.hhs.gov.

Comment:

Several commenters supported the move to ICD-10-CM and ICD-10-PCS as national coding standards. One commenter representing hospitals supported moving to these systems expeditiously. The commenter stated that ICD-10-CM and ICD-10-PCS are a vast improvement over ICD-9-CM and would provide greater specificity and detail in coding. Another commenter believed that the new systems would offer immediate and long-term benefits for specifying illness severity and accommodating a diverse array of new technologies that warrant expedited assignment under the DRG system.

Response:

We appreciate the support from many in the health care industry for ICD-10-CM and ICD-10-PCS. We agree with the importance of having and maintaining medical coding systems that accurately capture the patient's conditions and medical procedures. We also agree that ICD-9-CM is seriously constrained because of its structure and space limitations. We recognize that over 30 countries have implemented ICD-10 to better capture medical conditions. Countries such as Canada and Australia have successfully implemented ICD-10 without serious ramifications to their data or reimbursement systems. We agree that it is important to capture information on new technologies. It is becoming increasingly difficult to do so using ICD-9-CM. We will continue working with NCVHS and the health care industry to determine if these new systems should be named as national coding standards.

14. Other Issues

In addition to the specific topics discussed in section II.B.1. through 13. of this preamble, we considered a number of other DRG-related issues in the May 19, 2003 proposed rule. Below is a summary of the issues that were addressed.

a. Cochlear Implants

Cochlear implants were first covered by Medicare in 1986 and were assigned to DRG 49 (Major Head and Neck Procedures) in MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat). This is the highest weighted surgical DRG in MDC 3. However, prior to the publication of the proposed rule, commenters contended that this DRG assignment is clinically and economically inappropriate for cochlear implants and requested a more specific DRG. The commenters contend that, like heart assist systems (for which we created a new DRG last year, DRG 525 (Heart Assist System Implant) in MDC 5), cochlear implants are low incidence procedures with disproportionately high costs compared to other procedures within DRG 49.

As we stated in the FY 2003 final rule in our discussion regarding the creation of DRG 525 (67 FR 49989), we found 185 heart assist system cases in DRG 104 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization) and 90 cases in DRG 105 (Cardiac Valve and Other Major Cardiothoracic Procedures without Cardiac Catheterization). The average charges for these cases were approximately $36,000 and $85,000 higher than the average charges for cases in DRGS 104 and 105, respectively. However, these cases represented only a small fraction of all cases in these DRGs (1.3 percent and 0.5 percent, respectively). Therefore, despite the drastically higher average charges for heart assist systems, the relative volume was insufficient to affect the DRG weight to any great degree.

In our analysis of the FY 2002 MedPAR file, we found 134 cochlear implant cases out of 1,637 cases assigned to DRG 49, which represent more than 8 percent of the total cases in DRG 49. Compared to the situation with the heart assist system implant cases in DRGs 104 and 105, cochlear implants do have a greater effect on the relative weight for DRG 49. Also, while average charges for cochlear implant cases are significantly more than other cases in DRG 49 (average charges for cochlear implant cases were $51,549 compared to

$25,052 for noncochlear implant cases), this difference is much less than the $36,000 and $85,000 differences for heart assist systems cited above.

Although we are concerned about the disparity between the average costs and payments for cochlear implant patients, we also have concerns about establishing a separate DRG for these cases. Doing so could create an incentive for some of these procedures to be shifted from outpatient settings, where most are currently performed. Even among current cochlear implant cases, our analysis found the average length of stay for Medicare patients receiving this procedure in the inpatient setting was just over 1 day, indicating minimal inpatient care is necessary for these cases. It is unclear whether a shift toward more inpatient stays would be appropriate.

We also are concerned whether the volume of cochlear implant cases across all hospitals performing this procedure warrants establishing a new DRG. The DRG relative weights reflect an average cost per case, with the costs of some procedures above the DRG mean costs and some below the mean. It is expected that hospitals will offset losses for certain procedures with payment gains for other procedures, while responding to incentives to maintain efficient operations. An excessive proliferation of new DRGs for specific technologies would fundamentally alter this averaging concept.

Accordingly, for the reasons cited above, we did not propose to change the DRG assignment of cochlear implants in the May 19, 2003 proposed rule. However, we did encourage public comments as to whether a new DRG for cochlear implants (or some other solution) is warranted.

Comment:

Several commenters urged CMS to reassign cochlear implantation procedures to a DRG that has a weight appropriate to reflect the costs of cochlear implantation. The commenters stated that while a hospital's acquisition cost of the device itself averages approximately $23,800, the proposed payment for FY 2004 is approximately $8,233. While most cochlear implants have been and will continue to be performed on an outpatient basis, a small, but significant portion, particularly for Medicare beneficiaries, need to be conducted as an inpatient procedure. The commenters stated that the low volume of inpatient cases is a direct result of the inadequate payment rate.

The commenters stated that cochlear implantation is clinically incongruent and economically inconsistent with the other procedures in DRG 49. The commenters believed that cochlear implants do not meaningfully affect the weighting of DRG 49 and proposed two options: Create a new DRG specifically for cochlear implants, or reassign cochlear implants cases to DRG 482 (Tracheostomy for Face, Mouth, and Neck Diagnoses).

Response:

We requested public input on possible solutions for these cases because we recognize the data indicate the charges for these cases are much higher than for other cases in DRG 49. However, we are concerned that the options suggested by commenters are not workable solutions. As we alluded to in the proposed rule, we have concerns about creating a new DRG for this procedure. We appreciate the point made by commenters that only those patients requiring inpatient care would receive the procedure in an inpatient setting, even if the DRG payment were increased. However, as we have stated previously, we are reluctant to create new DRGs for specific, low-volume procedures. Doing so would create a proliferation of DRGs and a loss of some of the efficiency incentives inherent in the current system. Hospitals are generally able to offset any losses on such procedures through corresponding payment advantages from other, less expensive procedures.

The second option suggested, to reassign these cases to DRG 482, is inconsistent with the structure of that DRG, which requires that a tracheostomy be performed in order to be assigned to this DRG. Assigning cochlear implants to this DRG would fundamentally alter its structure, which could not be done without first proposing such a change for public review and comment.

However, as we indicated above, we recognize the disparity in average charges for these cases compared to other cases in DRG 49, and will continue to evaluate possible reclassification options for FY 2005.

b. Burn Patients on Mechanical Ventilation

Prior to the publication of the proposed rule, concerns were raised by hospitals treating burn patients that the current DRG payment for burn patients on mechanical ventilation is not adequate. The DRG assignment for these cases depends on whether the hospital performed the tracheostomy, or the tracheostomy was performed prior to transfer to the hospital. If the hospital does not actually perform the tracheostomy, the case is assigned to one of the burn DRGs in MDC 22 (Burns). If the hospital performs a tracheostomy, the case is assigned to DRG 482 (Tracheostomy for Face, Mouth, and Neck Diagnoses) or DRG 483 (Tracheostomy with Mechanical Ventilation 96 + Hours, Except Face, Mouth and Neck Diagnoses).

In the August 1, 2002 final rule, we modified DRGs 482 and 483 to recognize code 96.72 (Continuous mechanical ventilation for 96 consecutive hours or more) for the first time in the DRG assignment (67 FR 49996). We noted that many patients assigned to DRG 483 did not have code 96.72 recorded. We believed this was due, in part, to the limited number of procedure codes (six) that can be submitted on the current billing form, and the fact that code 96.72 did not affect the DRG assignment (prior to FY 2003). We stated that we would give future consideration to further modifying DRGs 482 and 483 based on the presence of code 96.72. We anticipate that cases of patients receiving 96 or more hours of continuous mechanical ventilation are more expensive than other tracheostomy patients. Once code 96.72 is reported more frequently, we will be better able to assess the need for future revisions to DRGs 482 and 483.

To assess the payment for burn patients on mechanical ventilation when the hospital did not perform the tracheostomy, we analyzed data on cases reporting both code 96.72 and diagnosis code V44.0 (Tracheostomy status). We had hoped that these cases would show patients on long-term ventilation who were admitted to the hospital with a tracheostomy in place. Our data did not include any cases reported in any of the burn DRGs with codes 96.72 and V44.0. We then analyzed data on the frequency of cases reporting code 96.72 along with diagnosis code V46.1 (Respirator dependence). We found only 5 of these cases in the burn DRGs. With so few cases reporting code 96.72, it is difficult for us to determine the effect of long-term ventilation on reimbursement for burn cases.

All hospitals, including those that treat burn patients, are encouraged to increase the reporting of code 96.72 for patients who are on continuous mechanical ventilation for 96 or more hours. With better data, we would be able to determine how best to make any future DRG modification for all patients on long-term mechanical ventilation.

We received one comment from an organization representing coders that agreed with the importance of reporting code 96.72 and the need for further education on this issue. We will continue to monitor our data to assess

the payment for burn patients on mechanical ventilation in the future.

c. Multiple Level Spinal Fusion

Prior to the publication of the proposed rule, we received a comment recommending the establishment of new DRGs that would differentiate between the number of levels of vertebrae involved in a spinal fusion procedure. The commenter noted that the ICD-9-CM Coordination and Maintenance Committee discussed adding a new series of codes to identify multiple levels of spinal fusions at its December 6, 2002 meeting.

The following codes were approved by the Committee, effective for October 1, 2003, and are listed in Table 6B in the Addendum to this final rule:

• 81.62, Fusion or refusion of 2-3 vertebrae

• 81.63, Fusion or refusion of 4-8 vertebrae

• 81.64, Fusion or refusion of 9 or more vertebrae

The commenter conducted an analysis to support redefining the spinal fusion DRGs using these new ICD-9-CM codes. Using the CMS FY 2001 Standard Analytical File data for physicians and hospitals as the basis for its analysis, the commenter linked a 5-percent sample of hospital spinal fusion cases with the corresponding physician claims. Because there were no ICD-9-CM codes to identify multiple level fusions in 2001, multiple level fusions were identified using Current Procedural Terminology (CPT) codes on the physician claims.

The analysis found that increasing the levels fused from 1 to 2 levels to 3 or more levels increased the mean standa

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